bpg10k2015.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 26, 2015  
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 Logo
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 $4.2 billion as of March 27, 2015, the last business day of the registrant’s most recently completed second fiscal quarter.  This amount excludes shares of the registrant’s common stock held by current executive officers, directors, and affiliates whose ownership did not exceed 5% as of such date.  The aggregate market value was computed using the $35.43 closing price per share for such stock on the New York Stock Exchange on such date.
 
Class
 
Outstanding at November 23, 2015
Common Stock, $.01 par value per share
 
120.0 million shares
 
DOCUMENTS INCORPORATED BY REFERENCE  
Portions of Berry Plastics Group, Inc.’s Proxy Statement for its 2016 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, intentions, or our financial condition, our recent acquisition of AVINTIV Inc. (“Avintiv”) and integration thereof.  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, including the diversion of management time on acquisition-related issues and our ability to promptly and effectively integrate our businesses with those of acquisitions and achieve the synergies and value creation contemplated;
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; 
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. 
 
1

 
TABLE OF CONTENTS  
FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 26, 2015  
 
     
   
Page
 
PART I
 
Item 1
3
Item 1A.
6
Item 1B.
8
Item 2.
8
Item 3.
9
Item 4.
9
 
PART II
 
 
Item 5.
  9
Item 6
10
Item 7.
  10
Item 7A.
20
Item 8.
21
Item 9.
  21
Item 9A.
21
Item 9B.
22
 
PART III
 
 
Item 10.
22
Item 11.
22
Item 12.
  22
Item 13.
  22
Item 14.
22
 
PART IV
 
 
Item 15.
23
     
  
 
2

 
Item 1.  BUSINESS
(In millions of dollars, except as otherwise noted)
 
General
 
Berry Plastics Group, Inc. (“Berry,” "We," 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 specialty closures, prescription vials, specialty films, adhesives, corrosion protection materials, as well as drink cups, thin-wall containers, and bottles. We sell our products predominantly into stable, consumer-oriented end-markets, such as healthcare, personal care, and food and beverage.
 
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 2015, no single customer represented more than approximately 2% of net sales and our top ten customers represented 16% 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.
 
Through November 2015 our business was organized 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.
 
 In November 2015, the Company reorganized into three operating segments: Health, Hygiene and Specialties, Consumer Packaging, and Engineered Materials.  The Health, Hygiene and Specialties segment will include the recently acquired Avintiv business and personal care films and international business that historically reported in our Flexible Packaging segment.  The Consumer Packaging segment will consist of our historical Rigid Open Top segment, Rigid Closed Top segment, the food and consumer films business that historically reported in our Flexible Packaging segment, and the custom shrink films business that was historically reported in our Engineered Materials segment.  The Engineered Material segment will include the old Engineered Material segment, excluding the custom shrink films business, and the converter films business that was historically reported in our Flexible Packaging segment.  Beginning with our results for the first quarter of fiscal 2016, we will report results based on our new operating segment structure.
 
Recent Acquisitions
 
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 $133 million, net of cash acquired. The C&C business produces bottles, closures, and specialty products for pharmaceutical and over-the-counter healthcare applications. The C&C acquisition has been accounted for under the purchase method of accounting, and accordingly, the purchase price has been allocated to the identifiable assets and liabilities based on their fair values at the acquisition date. The acquired assets and assumed liabilities consisted of working capital of $32 million, property and equipment of $85 million, non-current deferred tax asset of $3 million, intangible assets of $9 million, goodwill of $7 million, and other long-term liabilities of $3 million.
 
AVINTIV Inc.
 
In October 2015, the Company acquired 100% of the capital stock of Avintiv for a purchase price of approximately $2.3 billion which is preliminary and subject to adjustment.  Avintiv is one of the world’s leading developers, producers, and marketers of nonwoven specialty materials used in hygiene, infection prevention, personal care, and high-performance solutions.  With 23 locations in 14 countries, an employee base of over 4,500 people, and the broadest range of process technologies in the industry, Avintiv’s strategically located manufacturing facilities position it as a global supplier to many of the same leading consumer and industrial product manufacturers that Berry supplies and utilize similar key raw materials as Berry’s existing business.  To finance the purchase, the Company issued $400 million aggregate principal amount of 6.0% second priority senior secured notes due 2022 and entered into an incremental assumption agreement to increase the commitments under the Company’s existing term loan credit agreement by $2.1 billion due 2022.
 
Recent Developments  
 
  Revolving Line of Credit
 
In May 2015, the Company amended the credit agreement relating to its existing $650 million secured revolving credit facility to extend the maturity date of the revolving credit facility from June 2016 to May 2020 and to reduce interest margins and certain commitment fees.
 
  51/8% Second Priority Senior Secured Notes
 
In June 2015, the Company issued $700 million of 51/8% second priority senior secured notes due July 2023.  Interest on the 51/8% second priority senior secured notes is due semi-annually on January 15 and July 15.  Proceeds from the issuance and existing liquidity were used to satisfy and discharge all of the outstanding 9¾% second priority senior secured notes. The Company recognized a $94 million loss on extinguishment of debt, including $83 million of early tender and redemption costs and an $11 million write-off of deferred financing fees.
 
3

 
Interest Rate Swap
 
In September 2015, the Company entered into an interest rate swap transaction to protect $1 billion of outstanding variable rate term loan debt from future interest rate volatility. The agreement swapped the greater of a three-month variable LIBOR contract or 1.00% for a fixed annual rate of 1.7185%, with an effective date in December 2015 and expiration in June 2019.
 
Product Overview 
 
Rigid Packaging 
 
Our Rigid Packaging business primarily includes the following product groups:
 
Containers.  We manufacture a collection of nationally branded container products which 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.
 
Foodservice.  We believe we are one of the largest providers of large size thermoformed polypropylene (“PP”) and injection-molded plastic drink cups in the United States. We manufacture plastic cups that range in size from 12 to 64 ounces primarily for quick service and family dining restaurants, convenience stores, stadiums and retail stores.
 
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 sell our closures into numerous end markets, including household chemical, healthcare, food and beverage, and personal care.
 
Bottles and Prescription Containers.  Our bottle and prescription container businesses target markets similar to our closure business. We believe we are a leader in various food and beverage, vitamin and nutritional markets, as well as the prescription container market.
 
Tubes.  We offer a complete line of extruded and laminate tubes in a wide variety of sizes. We believe we are one of the largest suppliers of extruded plastic squeeze tubes in the United States. The majority of our tubes are sold in the personal care market.  We also sell our tubes into the pharmaceutical and household chemical markets.
 
Engineered Materials 
 
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. 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. Tape products are sold primarily through distributors and directly to end users for industrial, HVAC, automotive, construction, and retail market applications.
 
Retail Bags.  We sell a diversified portfolio of polyethylene based film products to end users in the retail markets. Our products include drop cloths and retail trash bags. These products are sold primarily through wholesale outlets, hardware stores and home centers, paint stores, and mass merchandisers.
 
4

 
PVC Films.  We believe we are a world leader in polyvinyl chloride ("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.
 
Institutional Can Liners.  We sell trash-can liners and food bags for offices, restaurants, schools, hospitals, hotels, municipalities, and manufacturing facilities.
 
Stretch and Shrink Films.  We manufacture both hand and machine-wrap stretch films and custom shrink films, which are used to prepare products and packages for storage and shipping. We sell stretch and shrink film products to a diverse mix of end users.
 
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 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.
 
Food and Consumer Films. We are a converter of printed bags, pouches, and rollstock. We believe we are a leading supplier of printed film products for the fresh bakery, tortilla, and frozen vegetable markets. 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. The key end markets and applications for our products include healthcare, industrial and military pouches, roll wrap, multi-wall bags, and fiber drum packaging.
 
International. We manufacture a wide range of products predominately serving the global food, healthcare, and personal care markets.
 
Marketing, Sales, and Competition
 
We reach our large and diversified customer base through our regional direct field sales force of dedicated professionals and the strategic use of distributors.  Our regional 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 or customers, 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.
 
The major markets in which the Company sells its products are highly competitive.  Areas of competition include service, innovation, quality, and price.  This competition is significant as to both the size and the number of competing firms.  Competitors include but are not limited to Silgan, Aptar, Reynolds, AEP, Intertape, 3M, Clopay, Tredegar, and Bemis.
 
Research, Product Development and Design  
 
We believe our technology base and research and development support are among the best in the industries we serve.  Many of our customers work in partnership with our technical representatives to develop new, more competitive 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.  Expenditures for research and development activities were $33 million, $32 million, and $28 million in fiscal 2015, 2014 and 2013, respectively. 
 
Raw Materials
 
Our primary raw material is plastic resin.  In addition, we use butyl rubber, tackifying resins, chemicals and adhesives, paper and packaging materials, linerboard, rayon, and foil in various manufacturing processes. These raw materials are available from multiple sources and in general we purchase from a variety of global suppliers.   In certain regions we may source specific raw materials from a limited number of suppliers or on a sole-source basis.  While temporary shortages of raw materials can occur, we expect to continue to successfully manage raw material supplies without significant supply interruptions.
 
5

 
Employees 
 
As of the end of the 2015 fiscal year, we employed approximately 16,000 employees with approximately 12% of those employees being covered by collective bargaining agreements.  There are four agreements, representing approximately 7% of employees, due for renegotiation in fiscal year 2016.  The remaining agreements expire after fiscal 2016.  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.
 
Avintiv acquisition - Avintiv has approximately 4,500 employees worldwide.  Approximately 52% of these employees are represented by labor unions or works councils that have entered into separate collective bargaining agreements with Avintiv.  All of these collective bargaining agreements will expire within one year. We believe these employee relations are satisfactory.
 
Patents, Trademarks and Other Intellectual Property 
 
We customarily seek patent and trademark protection for our products and brands while seeking to protect our proprietary know-how.  While important to our business in the aggregate, sales of any one individually patented product are not considered material to any specific segment or the consolidated results.
 
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.
 
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 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, which requires significant interest payments.  Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms, would have a material adverse effect on our business, financial condition and results of operations. 
 
Our substantial indebtedness could have important consequences.  For example, it could: 
 
·  
limit our ability to borrow money for our working capital, capital expenditures, debt service requirements or other corporate purposes; 
·  
increase our vulnerability to general adverse economic and industry conditions; and 
·  
limit our ability to respond to business opportunities, including growing our business through acquisitions. 
 
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, incur or guarantee additional debt; pay dividends and make other restricted payments; create or incur certain liens; make certain investments; engage in sales of assets and subsidiary stock; enter into transactions with affiliates; transfer all or substantially all of our assets or enter into merger or consolidation transactions; and make capital expenditures.
 
As a result of these covenants, we could 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.  Historically, we have been able to successfully manage the impact of higher raw material costs by increasing our selling prices.  However, raw material inflation could materially and adversely affect our revenue and profitability in the short term as we attempt to pass through price increases to our customers and in the long term as our customers could seek alternative solutions. 
 
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.  Any such shortage may materially negatively impact our competitive position versus companies that are able to better or more cheaply source resin. 
 
6

 
We may not be able to compete successfully and our customers may not continue to purchase our products. 
 
We compete with multiple companies in each of our product lines on the basis of a number of considerations, including price, service, quality, product characteristics and the ability to supply products to customers in a timely manner.  Our products also compete with 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.  Competition could result in our products losing market share or our having to reduce our prices, either of which could have a material adverse effect on our business, financial condition and results of operations.  In addition, since we do not have long-term arrangements with many of our customers, these competitive factors could cause our customers to shift suppliers and/or packaging material quickly.  Our success depends, in part, on our ability to respond timely to customer and market changes.
 
We may pursue and execute acquisitions, which could adversely affect our business. 
 
As part of our growth strategy, we consider acquisitions 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.  Acquired businesses may not achieve the levels of revenue, profit, productivity or otherwise perform as we expect.  Acquisitions involve special risks, including the potential assumption of unanticipated liabilities and contingencies as well as difficulties in integrating acquired businesses creating substantial costs, delays or other problems that could adversely affect our business, financial condition and results of operations.  Furthermore, we may not realize all of the synergies we expect to achieve from our current strategic initiatives due to a variety of risks.  If we are unable to achieve the synergies that we expect to achieve from our strategic initiatives, it could adversely affect our business, financial condition and results of operations. 
 
Because a significant number of Avintiv employees are represented by labor unions or trade councils and work under collective bargaining agreements, any employee slowdown or strikes or the failure to renew collective bargaining agreements could disrupt our business following the Avintiv acquisition.
 
As of September 26, 2015, approximately 52% of Avintiv’s employees are represented by labor unions or trade councils and worked under collective bargaining agreements.  We may not be able to maintain constructive relationships with these labor unions or trade councils. We may not be able to successfully negotiate new collective bargaining agreements on satisfactory terms in the future.  The loss of a substantial number of these employees or a prolonged labor dispute could disrupt our business following the Avintiv acquisition.  Any such disruption could reduce our revenues, increase our costs and result in significant losses following the Avintiv acquisition.
 
Current and future environmental and other governmental requirements could adversely affect our financial condition and our ability to conduct our business.
 
While we have not been required historically to make significant capital expenditures in order to comply with applicable environmental laws and regulations, we cannot predict 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 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.  Although we believe that any such laws promulgated to date have not had a material adverse effect on us, there can be no assurance that future legislation or regulation would not have a material adverse effect on us.  Furthermore, a decline in consumer preference for plastic products due to environmental considerations could have a negative effect on our business.
 
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 believe 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.”
 
We may not be able to successfully manage the Avintiv integration and it may disrupt our current plans and operations.
 
Our business may be negatively affected if we are unable to effectively manage our expanded operations and there can be no assurance that we will be able to successfully integrate the businesses of Avintiv. Implementation of our integration plans will require significant time and focus from management and may divert attention from the day-to-day operations of the combined business. The integration of Avintiv may be made more difficult by our and Avintiv’s respective efforts to continue to integrate other recent acquisitions, including Avintiv’s recent acquisitions.  The difficulties and risks associated with the integration of Avintiv could create substantial costs, delays or other problems that could adversely affect our business, financial condition and results of operations. As a result of these and other difficulties and risks, we may not accomplish the integration of Avintiv smoothly, successfully or within our budgetary expectations or anticipated timeframes. Accordingly, we may fail to realize some or all of the anticipated benefits of the Avintiv transaction.
 
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 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. 
 
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 market multiples, 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 consolidated net income in the period of any such write off. 
 
7

 
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 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. 
 
Our international operations pose risks to our business that may not be present with our domestic operations.
 
We have expanded, and may continue to expand operations in foreign countries where we have an existing presence or enter new foreign markets and expect to increase sales of products as disposable income increases in developing markets. Foreign operations are subject to certain risks that are unique to doing business in foreign countries. These risks include fluctuations in foreign currency exchange rates, inflation, economic or political instability, shipping delays in both our products and receiving delays of raw materials, changes in applicable laws, including assessments of income and non-income related taxes, reduced protection of intellectual property and regulatory policies and various trade restrictions including potential changes to export taxes or countervailing and anti-dumping duties for exported products from these countries.  We expect that the Avintiv transaction will rebalance our business mix to a greater percentage of international operations, which will increase our exposure to these risks. Any of these risks could have a negative impact on our ability to deliver products to customers on a competitive and timely basis. This could reduce or impair our net sales, profits, cash flows and financial position.  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.
 
We hold cash and cash equivalents at various foreign subsidiaries that may not be readily available to meet U.S. cash requirements. 
 
Our various foreign subsidiaries hold cash and cash equivalents and these balances held outside the United States may not be readily available to meet our domestic cash requirements. As a result of the Avintiv transaction, we expect a greater percentage of our cash flows to be generated by our international operations. If we are unable to meet our U.S. cash requirements using cash flows from U.S. operations, cash and cash equivalents held in the U.S., or by settling loans receivable with our foreign subsidiaries, it may be necessary for us to consider repatriation of earnings held outside the U.S. This may require us to record additional income tax expense and remit additional taxes, which could have a material effect on 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 agreements and misappropriating proprietary information and it is possible that third parties may copy or otherwise obtain and use our information and proprietary technology without authorization or otherwise infringe on our intellectual property rights.    Furthermore, no assurance can be given that we will not be subject to claims asserting the infringement of the intellectual property rights of third parties seeking damages, the payment of royalties or licensing fees and/or injunctions against the sale of our products.  Any such litigation could be protracted and costly and could have a material adverse effect on our business, financial condition and results of operations.
  
New and stricter legislation and regulations may affect our business and consolidated financial condition and results of operations.
 
Increased legislative and regulatory activity and burdens, and a more stringent manner in which they are applied (particularly in the U.S.), could significantly impact our business and the economy as a whole.  This includes, among other things, the possible taxation under U.S. law of certain income from foreign operations, compliance costs and enforcement under the Dodd-Frank Wall Street Reform and Consumer Protection Act, compliance costs and enforcement under the Sarbanes-Oxley Act, and costs associated with complying with the Patient Protection and Affordable Care Act and the regulations promulgated thereunder. Specifically, 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.
 
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.
 
If we fail to maintain effective internal control over financial reporting at a reasonable assurance level following the Avintiv Transaction, we may not be able to accurately report our financial results, and may be required to restate previously published financial information which could have a material adverse effect on our operations, investor confidence in our business and the trading prices of our securities.
 
We are required to assess the effectiveness of our internal control over financial reporting annually, as required by Section 404 of the Sarbanes-Oxley Act. Even though, as of September 26, 2015, we concluded that our internal control over financial reporting was effective, we need to maintain our processes and systems and adapt them as our business grows and changes. This continuous process of maintaining and adapting our internal controls and complying with Section 404 is expensive, time-consuming and requires significant management attention. As we grow our business or acquire other businesses, including Avintiv, our internal controls may become more complex and we may require significantly more resources to ensure they remain effective. Avintiv is not currently subject to the requirement to obtain an attestation report from its independent registered public accounting firm on its management evaluation of the effectiveness of its internal control over financial reporting.
 
Avintiv identified an error in the accounting for non-controlling interest in the financial statements of its subsidiary, AVINTIV Specialty Materials, for the unaudited interim periods ended June 28, 2014 and September 27, 2014 relating to its acquisition of Providência, which resulted in the restatement of certain Avintiv Specialty Materials’ consolidated financial statements for such periods. In addition, in the past Avintiv has identified and remediated material weaknesses and other deficiencies in its internal control over financial reporting. As a result of the restatement, Avintiv concluded that it had a material weakness in internal controls over financial reporting. Our remediation of a material weakness could require us to incur significant expense.

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.
 
Principal manufacturing facilities - United States - 70 locations (42 Rigid Packaging, 14 Engineered Materials, 14 Flexible Packaging); Canada - 4 locations (1 Rigid Packaging, 2 Engineered Materials, 1 Flexible Packaging); Mexico - 4 locations (2 Engineered Materials, 2 Flexible Packaging); India - 2 locations (1 Engineered Materials, 1 Flexible Packaging), The Netherlands, Belgium, Germany and Australia (Engineered Materials); Brazil, Malaysia, China, and France (Flexible Packaging).  The Evansville, Indiana facility serves as our world headquarters. 
 
8

 
Leased facilities - Evansville, Indiana; Lawrence, Kansas; Phillipsburg, New Jersey; Bowling Green, Kentucky; Jackson, Tennessee; Anaheim, California; Cranbury, New Jersey; Easthampton, Massachusetts; Hanover, Maryland; Baltimore, Maryland; Westerlo, Belgium; Baroda, India; Atlanta, Georgia; Louisville, Kentucky; Peosta, Iowa; Quad Cities, Iowa; Syracuse, New York; Phoenix, Arizona; Aurora, Illinois; Lathrop, California; Tacoma, Washington; Bloomington, Indiana; Chippewa Falls, Wisconsin; Orillia, Canada; Mexico City, Mexico; Preston, Australia; Johor, Malaysia; Pewaukee, Wisconsin; Smyrna, Tennessee; Des Moines, Iowa; Milwaukee, Wisconsin; Schaumburg, Illinois; Washington, New Jersey; and Tlalnepantla, Mexico
 
Avintiv manufacturing facilities - United States - 5 locations, Brazil – 2 locations, France – 3 locations, China – 2 locations, United Kingdom – 2 locations (leased), Germany (leased), Canada, Mexico, Argentina, Colombia, Italy, Netherlands, Spain and India.  The Avintiv manufacturing facilities currently owned and located in the United States are in the process of being pledged as collateral for our senior notes and credit facility borrowings.
 
Item 3.  LEGAL PROCEEDINGS
 
In July 2012, Berry Plastics Corporation (“BPC”) was sued by a customer for breach of contract, breach of express warranty, and breach of implied warranties. The customer alleged that in December 2007 and January 2008 BPC supplied the customer with defective woven polypropylene fabric used to manufacture containers that it then sold to its customers. In November 2015, a jury rendered a judgment in favor of the customer, which is immaterial to the Company. The Company intends to appeal the judgment and file certain post-trial motions. While we are unable to predict the ultimate outcome of this matter, management expects any final judgment against BPC to be covered by insurance maintained by the Company.
 
The Company is party to various other legal proceedings, in addition to the matter discussed above, 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.
 
 
Fiscal 2015
Fiscal 2014
 
High
Low
High
Low
1st quarter
$31.88
$22.62
$23.57
$18.12
2nd quarter
  36.52
  30.88
  24.75
  21.88
3rd quarter
  37.08
  31.94
  25.84
  22.13
4th quarter
  35.75
  28.43
  26.21
  23.80
 
As of the date of this filing there were approximately 115 active record holders of the common stock, but we estimate the number of beneficial stockholders to be much higher as a number of our shares are held by brokers or dealers for their customers in street name. 
 
During fiscal 2014 and 2015 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 2015.
 
9

 
 Item 6.  SELECTED FINANCIAL DATA
   
Fiscal 2015
   
Fiscal 2014
   
Fiscal 2013
   
Fiscal 2012
   
Fiscal 2011
 
Statement of Operations Data:
                             
Net sales
  $ 4,881     $ 4,958     $ 4,647     $ 4,766     $ 4,561  
Cost of goods sold
    4,012       4,190       3,835       3,984       3,908  
Selling, general and administrative
    357       320       307       317       284  
Amortization of intangibles
    91       102       105       109       106  
Restructuring and impairment charges (a)
    13       30       14       31       221  
Operating income
    408       316       386       325       42  
                                         
Debt extinguishment
    94       35       64             68  
Other expense (income), net
    1       (7 )     (7 )     (7 )     (7 )
                                         
                                         
Interest expense, net
    191       221       244       328       327  
Income (loss) before income taxes
    122       67       85       4       (346 )
Income tax expense (benefit)
    36       4       28       2       (47 )
Consolidated net income (loss)
    86       63       57       2       (299 )
Net income attributable to non-controlling interest
          1                    
Net income (loss) attributable to the Company
  $ 86     $ 62     $ 57     $ 2     $ (299 )
Comprehensive income (loss)
  $ 10     $ 37     $ 86     $ 3     $ (324 )
Net income (loss) available to Common Stockholders:
                                       
Basic
  $ 0.72     $ 0.53     $ 0.50     $ 0.02     $ (3.55 )
Diluted
    0.70       0.51       0.48       0.02       (3.55 )
Balance Sheet Data (at period end):
                                       
Cash and cash equivalents
  $ 228     $ 129     $ 142     $ 87     $ 42  
Property, plant and equipment, net
    1,294       1,364       1,266       1,216       1,250  
Total assets
    5,028       5,252       5,111       5,060       5,161  
Long-term debt obligations, less current portion
    3,648       3,844       3,851       4,385       4,525  
Total liabilities
    5,081       5,353       5,307       5,512       5,612  
Stockholders’ equity (deficit)
    (65 )     (114 )     (196 )     (475 )     (467 )
Cash Flow and other Financial Data:
                                       
Net cash from operating activities
  $ 637     $ 530     $ 464     $ 479     $ 327  
Net cash from investing activities
    (165 )     (422 )     (245 )     (255 )     (523 )
Net cash from financing activities
    (365 )     (119 )     (164 )     (179 )     90  
 
  (a) Includes a goodwill impairment charge of $165 million in fiscal 2011    
                             
 
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.  Segment level discussion of the results is disclosed in a manner consistent with the organization structure at the end of the presented period.
 
Overview 
 
Berry Plastics Group, Inc. (“Berry,” “we,” 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 specialty closures, prescription vials, specialty films, adhesives, corrosion protection materials, as well as drink cups, thin-wall containers, and bottles. We sell our products predominantly into stable, consumer-oriented end-markets, such as healthcare, personal care, and food and beverage.
 
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 2015, no single customer represented more than approximately 2% of net sales and our top ten customers represented 16% 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.
 
10

 
Executive Summary
 
Business. During fiscal 2015, we operated 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, polyethylene 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 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
 
   
2015
   
2014
   
2013
   
2015
   
2014
   
2013
 
1st quarter
  $ .86     $ .82     $ .69     $ .92     $ .89     $ .76  
2nd quarter
    .75       .85       .74       .73       .95       .96  
3rd quarter
    .76       .86       .77       .68       .91       .84  
4th quarter
    .73       .87       .79       .66       .92       .89  
 
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 in the short term 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.  Consumer demand for packaged food products has been under pressure for over two years. This has put pressure on industry margins and asset utilization rates, which the Company has been able to partially offset by pricing actions, asset consolidations, introduction of new products and synergies from acquisitions.  During the first half of fiscal 2015 we received a favorable impact on cash from operating activities from the declining resin prices.  As resin prices stabilize, we do not expect to receive this benefit from falling resin prices in fiscal 2016.  Additionally, our fiscal 2016 Adjusted Free Cash Flow guidance of $475 million assumes flat overall volumes, with our new Health, Hygiene and Specialties division expected to grow above the overall Company average. Components of adjusted free cash flow include $817 million of cash flow from operations, less $285 million of additions to property, plant, and equipment and $57 million of payments under our tax receivable agreement. For further information related to Adjusted Free Cash Flow as a non-GAAP financial measure, see “Liquidity and Capital Resources.”
 
Recent Developments  
 
Revolving Line of Credit
 
In May 2015, the Company amended the credit agreement relating to its existing $650 million secured revolving credit facility to extend the maturity date of the revolving credit facility from June 2016 to May 2020 and to reduce interest margins and certain commitment fees.
 
51/8% Second Priority Senior Secured Notes
 
In June 2015, the Company issued $700 million of 51/8% second priority senior secured notes due July 2023.  Interest on the 51/8% second priority senior secured notes is due semi-annually on January 15 and July 15.  Proceeds from the issuance and existing liquidity were used to satisfy and discharge all of the outstanding 9¾% second priority senior secured notes. The Company recognized a $94 million loss on extinguishment of debt, including $83 million of early tender and redemption costs and an $11 million write-off of deferred financing fees.
 
Interest Rate Swap
 
In September 2015, the Company entered into an interest rate swap transaction to protect $1 billion of outstanding variable rate term loan debt from future interest rate volatility. The agreement swapped the greater of a three-month variable LIBOR contract or 1.00% for a fixed annual rate of 1.7185%, with an effective date in December 2015 and expiration in June 2019.
 
Recent Acquisitions
 
Our acquisition strategy is focused on improving our long-term financial performance, enhancing our market positions, and expanding our existing and complementary product lines. We seek to obtain businesses for attractive post-synergy multiples, creating value for our stockholders from synergy realization, leveraging the acquired products across our customer base, creating new platforms for future growth, and assuming best practices from the businesses we acquire. The Company has included the expected benefits of acquisition integrations and restructuring plans within our unrealized synergies, which are in turn recognized in earnings after an acquisition has been fully integrated or the restructuring plan is completed. 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 and restructuring plans 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.
 
Fiscal 2014 Acquisitions
 
In fiscal 2014, the Company completed 3 acquisitions which included the Rexam Healthcare Containers and Closures business (“C&C”) for a purchase price of $133 million, net of cash acquired, Graphic Flexible Packaging LLC’s flexible plastics and films business for a purchase price of $61 million, net of cash acquired, and a controlling interest (75%) in Qingdao P&B Co., Ltd. for a purchase price of $35 million, net of cash acquired.  See note 2 to the consolidated financial statements for further discussion on the respective acquisitions.
 
11

 
AVINTIV Inc.
 
In October 2015, the Company acquired 100% of the capital stock of “Avintiv” for a purchase price of approximately $2.3 billion which is preliminary and subject to adjustment.  Avintiv is one of the world’s leading developers, producers, and marketers of nonwoven specialty materials used in hygiene, infection prevention, personal care, and high-performance solutions.  With 23 locations in 14 countries, an employee base of over 4,500 people, and the broadest range of process technologies in the industry, Avintiv’s strategically located manufacturing facilities position it as a global supplier to many of the same leading consumer and industrial product manufacturers that Berry supplies and utilize similar key raw materials as Berry’s existing business.  To finance the purchase, the Company issued $400 million aggregate principal amount of 6.0% second priority senior secured notes due 2022 and entered into an incremental assumption agreement to increase the commitments under the Company’s existing term loan credit agreement by $2.1 billion due 2022.  See note 17 to the consolidated financial statements for further discussion on the Avintiv acquisition.
 
Discussion of Results of Operations for Fiscal 2015 Compared to Fiscal 2014
 
 
Consolidated Overview
 
Fiscal Year
             
   
2015
   
2014
   
$ Change
   
% Change
 
Net sales
  $ 4,881     $ 4,958     $ (77 )     (2 %)
Operating income
  $ 408     $ 316     $ 92       29 %
Operating income percentage of net sales
    8 %     6 %                
 
 
The net sales decrease of $77 million from fiscal 2014 is primarily attributed to a 3% base volume decline primarily related to soft customer demand, selling price decreases of 2% due to the pass through of lower raw material costs, and a 1% negative impact from foreign currency changes partially offset by net sales from businesses acquired in the last twelve months.
 
The operating income increase of $92 million from fiscal 2014 is primarily attributed to a $42 million improvement in the relationship of net selling price to raw material and freight costs, $6 million of operating income from businesses acquired in the last twelve months, a $17 million decrease in depreciation and amortization expense, a $19 million improvement in operating performance in manufacturing, and a $56 million decrease in business integration expenses. The $56 million decrease in business integration expenses primarily consisted of a decrease in restructuring and impairment costs of $17 million and a $39 million decrease in costs attributed primarily to manufacturing inefficiencies associated with the 2014 cost reduction plan and acquisition integration costs. These improvements were partially offset by $26 million from base volume declines, a $15 million increase in selling, general and administrative expenses, and a $7 million negative impact from foreign currency changes.  Business integration expenses consist of restructuring and impairment charges, manufacturing inefficiencies associated with cost reduction plans, major innovation start-up and other business optimization costs.  Acquisition operating income (loss) is generally analyzed in total until the acquisition has been included in our results for a full year.
 
Rigid Open Top
 
Fiscal Year
             
   
2015
   
2014
   
$ Change
   
% Change
 
Net sales
  $ 1,055     $ 1,110     $ (55 )     (5 %)
Operating income
  $ 71     $ 34     $ 37       109 %
Operating income percentage of net sales
    7 %     3 %                
 
 
12

 
Net sales in the Rigid Open Top segment decreased by $55 million from fiscal 2014 primarily due to a 3% base volume decline and selling price decreases of 2% due to the pass through of lower raw material costs.  The base volume decline is primarily related to a decline in dairy container product sales due to soft customer demand.
 
The operating income increase of $37 million from fiscal 2014 primarily is attributed to $14 million of improvement in the relationship of net selling price to raw material and freight costs and a $37 million decrease in business integration expenses.  The $37 million decrease primarily consisted of a decrease in restructuring and impairment costs of $8 million and a $29 million decrease in costs attributed to manufacturing inefficiencies associated with the 2014 cost reduction plan.  These improvements were partially offset by $7 million in base volume declines, a $5 million increase in selling, general and administrative expenses, and a decline in operating performance in manufacturing.
 
Rigid Closed Top
 
Fiscal Year
             
   
2015
   
2014
   
$ Change
   
% Change
 
Net sales
  $ 1,474     $ 1,469     $ 5       0 %
Operating income
  $ 139     $ 132     $ 7       5 %
Operating income percentage of net sales
    9 %     9 %                
 
Net sales in the Rigid Closed Top segment increased by $5 million from fiscal 2014 primarily as a result of acquisition volume of 7% attributed to the United States portion of the Healthcare Containers and Closures business purchased from Rexam (“C&C”), partially offset by a volume decline of 3% and selling price decreases due to the pass through of lower raw material costs.  The volume decline is primarily attributed to general market softness in our closure product offerings.
 
The operating income increase of $7 million from fiscal 2014 is primarily attributed to a $8 million improvement in operating performance in manufacturing, $3 million of improvement in the relationship of net selling price to raw material and freight costs, a $7 million decrease in depreciation and amortization expense, and a $3 million decline in selling, general, and administrative expenses, partially offset by $14 million in base volume declines.
 
Engineered Materials
 
Fiscal Year
             
   
2015
   
2014
   
$ Change
   
% Change
 
Net sales
  $ 1,397     $ 1,455     $ (58 )     (4 %)
Operating income
  $ 143     $ 125     $ 18       14 %
Operating income percentage of net sales
    10 %     9 %                
 
 
 
Net sales in the Engineered Materials segment decreased by $58 million from fiscal 2014 primarily as a result of a 1% base volume decline, selling price decreases of 1% due to the pass through of lower raw material costs, and a 2% negative impact from foreign currency.  The base volume decline is primarily attributed to general market softness and lost import revenues in our home and party product offerings.
 
 
The operating income increase of $18 million from fiscal 2014 is primarily attributed to a decrease in restructuring and impairment costs of $6 million, a $3 million improvement in operating performance in manufacturing, a $13 million improvement in the relationship of net selling price to raw material and freight costs, and a $7 million decrease in depreciation and amortization expense, partially offset by a $4 million increase in selling, general, and administrative expenses, a $3 million negative impact from foreign currency changes, and $2 million in base volume declines.
 
Flexible Packaging
 
Fiscal Year
             
   
2015
   
2014
   
$ Change
   
% Change
 
Net sales
  $ 955     $ 924     $ 31       3 %
Operating income
  $ 55     $ 25     $ 30       120 %
Operating income percentage of net sales
    6 %     3 %                
 
Net sales in Flexible Packaging increased $31 million from fiscal 2014 primarily as a result of acquisition volume of 9% partially offset by a 3% base volume decline and a 3% negative impact from foreign currency changes.
 
 
The operating income increase of $30 million in the Flexible Packaging segment from fiscal 2014 is primarily attributed to a $9 million improvement in operating performance in manufacturing, a $12 million improvement in the relationship of net selling price to raw material and freight costs, an $8 million benefit from businesses acquired in the last 12 months, a $3 million decrease in depreciation and amortization expense, a decrease in restructuring and impairment costs of $4 million, and a $10 million decrease of costs primarily from manufacturing inefficiencies associated with the 2014 cost reduction plan partially offset by $3 million from base volume declines, $9 million of increased selling general and administrative expenses, and a $4 million negative impact from foreign currency changes.
 
Debt extinguishment
 
Fiscal Year
             
   
2015
   
2014
   
$ Change
   
% Change
 
Debt extinguishment
  $ 94     $ 35     $ 59       169 %
 
 
13

 
Debt extinguishment increase of $59 million from fiscal 2014 primarily due to tender and redemption costs associated with the discharge of the 9¾% second priority senior secured notes in fiscal 2015 compared to the various costs related to the discharge of the 9½% second priority senior secured notes in fiscal 2014.
 
Other expense (income), net
 
Fiscal Year
             
   
2015
   
2014
   
$ Change
   
% Change
 
Other expense (income), net
  $ 1     $ (7 )   $ 8       114 %
 
The other expense (income) increase of $8 million from fiscal 2014 is primarily the result of losses realized on the sale and disposal of assets in fiscal 2015 compared to gains on the sale of assets in fiscal 2014.
 
Interest expense
 
Fiscal Year
             
   
2015
   
2014
   
$ Change
   
% Change
 
Interest expense, net
  $ 191     $ 221     $ (30 )     (14 %)
 
Interest expense decreased $30 million from fiscal 2014 primarily as the result of the retirement of the 9¾% second priority senior secured notes and corresponding issuance of the 51/8% second priority senior secured notes in June 2015 as well as the retirement of the 9½% second priority senior secured notes and corresponding issuance of the 5½% second priority senior secured notes in May 2014.
 
Income tax expense
 
Fiscal Year
             
   
2015
   
2014
   
$ Change
   
% Change
 
Income tax expense
  $ 36     $ 4     $ 32       800 %
 
We recorded an income tax expense of $36 million in fiscal 2015.  The effective tax rate for fiscal 2015 compared to fiscal 2014 is impacted by discrete items, the inclusion of 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 2014 Compared to Fiscal 2013
 
Consolidated Overview
 
Fiscal Year
             
   
2014
   
2013
   
$ Change
   
% Change
 
Net sales
  $ 4,958     $ 4,647     $ 311       7 %
Operating income
  $ 316     $ 386     $ (70 )     (18 %)
Operating income percentage of net sales
    6 %     8 %                
 
 
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 partially offset by base volume declines.
 
Operating income decreased from $386 million in fiscal 2013 to $316 million in fiscal 2014.  This decrease is primarily attributed $27 million of raw material and freight cost inflation in excess of net selling price increases, $19 million from base volume declines described above, a $2 million increase in depreciation and amortization expense, and a $57 million increase in business integration expense.  The $57 million increase in business integration expense primarily consisted of an increase in restructuring and impairment costs of $16 million, an increase of $9 million related to major innovation start-up costs and the remaining $32 million primarily being costs attributed to manufacturing inefficiencies associated with the 2014 cost reduction plan and acquisition integration costs.  Manufacturing inefficiencies represent abnormal period costs including wasted materials, unplanned facility or equipment downtime, and excess labor incurred at both rationalized and receiving facilities.
 
Rigid Open Top
 
Fiscal Year
             
   
2014
   
2013
   
$ Change
   
% Change
 
Net sales
  $ 1,110     $ 1,127     $ (17 )     (2 %)
Operating income
  $ 34     $ 123     $ (89 )     (72 %)
Operating income percentage of net sales
    3 %     11 %                
 
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.
 
 
14

 
Operating income for the Rigid Open Top segment decreased from $123 million in fiscal 2013 to $34 million in fiscal 2014.  This decrease is primarily attributed to $18 million from base volume declines, $10 million decline in operating performance in manufacturing, $1 million increase in selling, general and administrative expenses, a $12 million decline in the relationship of net selling price to raw material and freight costs, and a $48 million increase in business integration expense primarily consisting of an increase in restructuring and impairment costs of $12 million, an increase of $9 million related to major innovation start-up costs and the remaining $27 million primarily being costs attributed to manufacturing inefficiencies associated with the 2014 cost reduction plan.  These manufacturing inefficiencies represent abnormal period costs including wasted materials, unplanned facility or equipment downtime, and excess labor incurred at both rationalized and receiving facilities.
 
Rigid Closed Top
 
Fiscal Year
             
   
2014
   
2013
   
$ Change
   
% Change
 
Net sales
  $ 1,469     $ 1,387     $ 82       6 %
Operating income
  $ 132     $ 130     $ 2       2 %
Operating income percentage of net sales
    9 %     9 %                
 
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%.
 
Operating income for the Rigid Closed Top segment increased from $130 million in fiscal 2013 to $132 million 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 attributed to acquisition integration, 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.
 
Engineered Materials
 
Fiscal Year
             
   
2014
   
2013
   
$ Change
   
% Change
 
Net sales
  $ 1,455     $ 1,397     $ 58       4 %
Operating income
  $ 125     $ 116     $ 9       8 %
Operating income percentage of net sales
    9 %     8 %                
 
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%.
 
Operating income for the Engineered Materials segment increased from $116 million in fiscal 2013 to $125 million in fiscal 2014.  This increase is primarily attributed to a $19 million improvement in manufacturing operating performance, $2 million decline in restructuring expense, a $5 million decline in acquisition integration expense, 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.
 
Flexible Packaging
 
Fiscal Year
             
   
2014
   
2013
   
$ Change
   
% Change
 
Net sales
  $ 924     $ 736     $ 188       26 %
Operating income
  $ 25     $ 17     $ 8       47 %
Operating income percentage of net sales
    3 %     2 %                
 
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 for the Flexible Packaging segment increased from $17 million in fiscal 2013 to $25 million 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 an increase in restructuring and impairment costs of $7 million, and a $6 million increase in business integration expenses attributed to acquisition integration.
 
Debt extinguishment
 
Fiscal Year
             
   
2014
   
2013
   
$ Change
   
% Change
 
Debt extinguishment
  $ 35     $ 64     $ (29 )     (45 %)
 
 
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.
 
15

 
 
Other income
 
Fiscal Year
             
   
2014
   
2013
   
$ Change
   
% Change
 
Other income, net
  $ (7 )   $ (7 )   $       %
 
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 in fiscal 2014.
 
Interest expense
 
Fiscal Year
             
   
2014
   
2013
   
$ Change
   
% Change
 
Interest expense, net
  $ 221     $ 244     $ (23 )     (9 %)
 
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
 
Fiscal Year
             
   
2014
   
2013
   
$ Change
   
% Change
 
Income tax expense
  $ 4     $ 28     $ (24 )     (86 %)
 
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.
 
Liquidity and Capital Resources  
 
Senior Secured Credit Facility
 
We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances.  We have senior secured credit facilities consisting of $2.4 billion of term loans and a $650 million asset based revolving line of credit.  The revolving credit facility matures in May 2020, $1.0 billion of the term loans mature in January 2021, and the remaining $1.4 billion of term loans mature in February 2020.  The availability under the revolving line of credit is the lesser of $650 million amount determined by 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 2015, the Company had no outstanding balance on the revolving credit facility, $37 million of outstanding letters of credit and a $142 million borrowing base reserve, resulting in unused borrowing capacity of $471 million under the revolving line of credit.  The Company was in compliance with all covenants at the end of fiscal 2015.
 
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. We are obligated to sustain a minimum fixed charge coverage ratio of 1.0 to 1.0 under the revolving credit facility 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 ratio was 2.9 to 1.0 at the end of fiscal 2015.
 
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 2.8 to 1.0 at the end of fiscal 2015. In addition to its regular principal payments, in October 2014, the Company elected to make a voluntary one-time $100 million principal payment on the outstanding term loan, using existing liquidity.
 
 
16

 
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 2015 and the quarterly period ended September 26, 2015:
 
         
Quarterly Period Ended
 
   
Fiscal 2015
   
September 26, 2015
 
Adjusted EBITDA
  $ 820     $ 205  
Depreciation and amortization
    (350 )     (87 )
Business optimization and other expense (a)
    (44 )     (9 )
Restructuring and impairment
    (13 )     (2 )
Unrealized cost savings
    (5 )      
Operating income
  $ 408     $ 107  
Cash flow from operating activities
  $ 637     $ 245  
                 
Net additions to property, plant and equipment
    (162 )     (56 )
Payments of tax receivable agreement
    (39 )      
Adjusted free cash flow
  $ 436     $ 189  
Cash flow from investing activities
    (165 )     (59 )
Cash flow from financing activities
    (365 )     (17 )
(a) Includes business optimization, 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, 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 our credit facilities, management believes the adjustments described above are in accordance with the covenants in such credit facilities.  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; (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.
 
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.
 
17

 
Contractual Obligations and Off Balance Sheet Transactions 
 
Our contractual cash obligations at the end of fiscal 2015 are summarized in the following table which does not give any effect to the tax receivable agreement, including the $57 million payment made in October 2015, 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 2015
 
   
Total
   
< 1 year
   
1-3 years
   
4-5 years
   
> 5 years
 
Long-term debt, excluding capital leases
  $ 3,588     $ 14     $ 28     $ 1,327     $ 2,219  
Capital leases (a)
    142       28       48       42       24  
Fixed interest rate payments
    462       63       127       127       145  
Variable interest rate payments (b)
    464       86       171       169       38  
Operating leases
    334       50       85       62       137  
Funding of pension and other postretirement obligations (c)
    3       3                    
Total contractual cash obligations
  $ 4,993     $ 244     $ 459     $ 1,727     $ 2,563  
 
(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 2015.   
(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 7.25% for fiscal 2015.  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:
Tables excludes $2.5 billion of financing related to the Avintiv acquisitions th occurred in fiscal 2016 and Redeemable non-controlling interest of $12 million as of fiscal 2015.
 
Cash Flows from Operating Activities 
 
Net cash provided by operating activities increased $107 million to $637 million in fiscal 2015.  The change is primarily attributed to improved operating performance and improved working capital.  The working capital improvement was primarily attributed to declining resin prices during fiscal 2015.
 
Net cash provided by operating activities increased $66 million to $530 million in fiscal 2014.  The change is primarily attributed to improved working capital.
 
Cash Flows from Investing Activities 
 
Net cash used in investing activities decreased $257 million to $165 million in fiscal 2015 primarily as a result of deceased acquisition activity and lower capital expenditures.
 
Net cash used in investing activities increased $175 million to $422 million in fiscal 2014 million primarily as a result of an increase in acquisition activity in the prior twelve months, offset by lower capital expenditures.
 
Cash Flows from Financing Activities 
 
Net cash used in financing activities increased $246 million to $365 million in fiscal 2015.  The change is primarily attributed to an increase in long-term debt repayments and increased debt financing costs related to the discharge of the 9¾% second priority senior secured notes.
 
Net cash used in financing activities decreased $45 million 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.
 
Liquidity Outlook
 
Tax receivable agreement In connection with the initial public offering, the Company entered into an income tax receivable agreement (“TRA”) 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.  The total TRA balance at the end of fiscal 2015 was $232 million, prior to the $57 million payment made in  October of 2015.
 
18

 
At the end of fiscal 2015, our cash balance was $228 million, of which $65 million was located outside the U.S.  The Company has deemed cash located outside the U.S. to be indefinitely reinvested and we intend to use this to finance our foreign operations and for future international expansion.  We believe our existing U.S. based cash and cash flow from U.S. operations, together with available borrowings under our senior secured credit facilities, will be adequate to meet our liquidity needs over the next twelve months.  We do not expect our free cash flow to be sufficient to cover all long-term debt obligations and intend to refinance these obligations prior to maturity.  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.
 
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.  Our estimates and judgments are based on historical experience and on various other factors that are believed to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions.
 
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 $53 million and $50 million as of the end of fiscal 2015 and 2014, 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 $2 million, $7 million and $5 million in fiscal 2015, 2014 and 2013, 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 is more likely than not below 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.
 
For purposes of conducting our annual goodwill assessment, we have six reporting units, Rigid Open Top, Rigid Closed Top, Engineered Materials, Flexible Packaging, Tapes and International.  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.  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; changes in the carrying amount of the reporting unit; 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.
 
We completed our qualitative screen as of the first date of the fourth fiscal quarter and determined that it was more likely than not that the fair value of each of our reporting units was greater than the carrying value, thus it was not necessary to perform Step 1 for any of our reporting units during fiscal 2015. We reached this conclusion based on the increased valuations within the packaging industry and projected future operating results of our reporting units.  The identified increased valuations within the plastics packaging industry is supported by the Company’s increase in stock price, market capitalization, and total enterprise value.  Future declines in packaging market multiple, significant declines in operating performance, or significant declines in sales could impact future impairment tests or may require a more frequent assessment.
 
Goodwill as of September 26, 2015, by reporting unit is as follows:
 
   
Goodwill as of
September 26, 2015
 
Rigid Open Top
  $ 681  
Rigid Closed Top
    823  
Engineered Films
    52  
Tapes
    17  
Flexible Packaging
    61  
International
    18  
    $ 1,652  
 
 
19

 
We also performed our annual impairment test for fiscal 2015 of our indefinite lived intangible assets, which relates to the “Berry Plastics” trade name and totaled $207 million at September 26, 2015 and determined that no impairment existed.  The fair value is estimated based on the income approach. Our forecasts included revenue growth consistent with our historical revenue growth assumptions and inflation.  Similar to our goodwill, significant declines in our sales or operating performance could impact future impairment tests or may require a more frequent assessment.
 
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 cumulative income, federal taxable income, and has also 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 $29 million and $56 million as of the end of fiscal 2015 and 2014, 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.  At September 26, 2015, our senior secured credit facilities are comprised of (i) $2.4 billion term loans and (ii) a $650 million revolving credit facility with no borrowings outstanding.  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 26, 2015, the LIBOR rate of 0.33% 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 protect $1 billion of outstanding variable rate term loan debt from future interest rate volatility. The agreement swapped the greater of a three-month variable LIBOR contract or 1.00% for a fixed annual 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 loss and Deferred income taxes and will be amortized to Interest expense from May 2016 through May 2019, the original term of the swap agreement.
 
In March 2014, the Company entered into an interest rate swap transaction to protect $1 billion of outstanding variable rate term loan debt from future interest rate volatility.  The agreement swaps the greater of a three-month variable LIBOR contract or 1.00% for a fixed annual rate of 2.59%, with an effective date in February 2016 and expiration in February 2019.  The Company records changes in fair value in Accumulated other comprehensive income.
 
In September 2015, the Company entered into an interest rate swap transaction to protect $1 billion of outstanding variable rate term loan debt from future interest rate volatility. The agreement swapped the greater of a three-month variable LIBOR contract or 1.00% for a fixed annual rate of 1.7185%, with an effective date in December 2015 and expiration in June 2019. The Company records 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.  However, 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 financial statements.
 
20

 
Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Index to Financial Statements
Reports of Independent Registered Public Accounting Firm
24
Consolidated Statements of Income and Comprehensive Income for fiscal 2015, 2014 and 2013
26
Consolidated Balance Sheets as of fiscal 2015 and 2014
27
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for fiscal 2015, 2014 and 2013
28
Consolidated Statements of Cash Flows for fiscal 2015, 2014 and 2013
29
Notes to Consolidated Financial Statements
30
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 26, 2015, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 26, 2015.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 26, 2015.
 
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 (2013 Framework).
 
Based upon its assessment, management concluded that as of September 26, 2015, the Company’s internal controls over financial reporting were effective.  In addition, Ernst & Young LLP as of September 26, 2015, 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
 
No changes in our internal control over financial reporting occurred during the fourth quarter of fiscal 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
21

 
In October 2015, we acquired 100% of the capital stock of Avintiv which added 23 facilities, 18 of which are located outside the U.S.  Management considers this transaction to be material to the Company’s consolidated financial statements and believes that the internal controls and procedures of Avintiv will have a material effect on the Company’s internal control over financial reporting.  As we work to integrate and combine Avintiv into the Company's existing internal control structure we are evaluating Avintiv's existing internal controls and procedures over financial reporting.
 
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 2016 Annual Meeting of Stockholders. 
 
Code of Ethics 
 
We have a Code of Business Ethics that applies to all directors and employees, including our Chief Executive Officer and senior financial officers.  These standards are designed to deter wrongdoing and to promote the highest ethical, moral, and legal conduct of all employees. 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 Investors page on 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 2016 Annual Meeting of Stockholders. 
 
Item 12SECURITY 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 2016 Annual Meeting of Stockholders.  
 
Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACATION 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 2016 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 2016 Annual Meeting of Stockholders.
 
22

 
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.  
 
  

 
23

 
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 26, 2015, and September 27, 2014, and the related consolidated statements of income, comprehensive income, stockholders' equity (deficit) and cash flows for each of the three years in the period ended September 26, 2015. 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 26, 2015, and September 27, 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 26, 2015, 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 26, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(2013 framework)” and our report dated November 23, 2015, expressed an unqualified opinion thereon.
 
     
       
 
 
/s/Ernst & Young LLP   
       
 Indianapolis, Indiana      
 November 23, 2015      
 
 
 
 
 
24

 
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 26, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission “(2013 framework)” (the COSO criteria). 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 26, 2015, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2015 consolidated financial statements of Berry Plastics Group, Inc. and our report dated November 23, 2015, expressed an unqualified opinion thereon.
 
     
       
 
 
/s/Ernst & Young LLP  
       
Indianapolis, Indiana      
November 23, 2015      
 
 
 
 
25

 
Berry Plastics Group, Inc.
Consolidated Statements of Income
(in millions of dollars) 
   
Fiscal years ended
 
   
September 26, 2015
   
September 27, 2014
   
September 28, 2013
 
Net sales
  $ 4,881     $ 4,958     $ 4,647  
Costs and expenses:
                       
 Cost of goods sold
    4,012       4,190       3,835  
 Selling, general and administrative
    357       320       307  
 Amortization of intangibles
    91       102       105  
 Restructuring and impairment charges
    13       30       14  
Operating income
    408       316       386  
                         
Debt extinguishment
    94       35       64  
Other expense (income), net
    1       (7 )     (7
Interest expense, net
    191       221       244  
Income before income taxes
    122       67       85  
Income tax expense
    36       4       28  
Consolidated net income
    86       63       57  
Net income attributable to non-controlling interests
    -       1       -  
Net income attributable to the Company
  $ 86     $ 62     $ 57  
Net income per share:
                       
   Basic (see footnote 14)
  $ 0.72     $ 0.53     $ 0.50  
   Diluted (see footnote 14)
  $ 0.70     $ 0.51     $ 0.48  
 
Berry Plastics Group, Inc.
Consolidated Statements of Comprehensive Income
(in millions of dollars) 
 
   
Fiscal years ended
 
   
September 26, 2015
   
September 27, 2014
   
September 28, 2013
 
Consolidated net income
  $ 86     $ 63     $ 57  
   Currency translation
    (45 )     (16 )     (5 )
   Interest rate hedges
    (33 )     (3 )     20  
Defined benefit pension and retiree health benefit plans
    (16 )     (11 )     34  
Provision for income taxes related to other comprehensive income items
    18       5       (20 )
Comprehensive income
    10       38       86  
Comprehensive income attributable to non-controlling interests
    -       1       -  
Comprehensive income attributable to the Company
  $ 10     $ 37     $ 86  
  
See notes to consolidated financial statements.
 
 
26

 
 
Berry Plastics Group, Inc.
Consolidated Balance Sheets
(in millions of dollars)
   
September 26, 2015
   
September 27, 2014
 
Assets
           
Current assets:
           
 Cash and cash equivalents
  $ 228     $ 129  
Accounts receivable, net
    434       491  
 Inventories
    522       604  
 Deferred income taxes
    162       166  
 Prepaid expenses and other current assets
    37       42  
Total current assets
    1,383       1,432  
Property, plant and equipment, net
    1,294       1,364  
Goodwill, intangible assets and deferred costs, net
    2,349       2,455  
Other assets
    2       1  
Total assets
  $ 5,028     $ 5,252  
                 
Liabilities and stockholders' equity (deficit)
               
Current liabilities:
               
 Accounts payable
  $ 330     $ 395  
 Accrued expenses and other current liabilities
    338       314  
 Current portion of long-term debt
    37       58  
Total current liabilities
    705       767  
Long-term debt, less current portion
    3,648       3,844  
Deferred income taxes
    387       386  
Other long-term liabilities
    341       356  
Total liabilities
    5,081       5,353  
Commitments and contingencies
               
Redeemable non-controlling interest
    12       13  
Stockholders' equity (deficit):
               
 Common stock: (119.9 and 118.0 shares issued, respectively)
    1       1  
 Additional paid-in capital
    406       367  
 Non-controlling interest
    3       3  
 Accumulated deficit
    (356 )     (442 )
 Accumulated other comprehensive loss
    (119 )     (43 )
Total stockholders' equity (deficit)
    (65 )     (114 )
Total liabilities and stockholders' equity (deficit)
  $ 5,028     $ 5,252  
 
See notes to consolidated financial statements.
 
 
27

 
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 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       -       -       -       -       17  
Obligation under tax receivable agreement
    -       13       -       -       -       -       13  
Interest rate hedge, net of tax
    -       -       -       -       (2 )     -       (2 )
Net income attributable to the Company
    -       -       -       -       -       62       62  
Currency translation
    -       -       -       -       (16 )     -       (16 )
Defined benefit pension and retiree health benefit plans, net of tax
    -       -       -       -       (7 )     -       (7 )
Balance at September 27, 2014
  $ 1     $ 367     $ -     $ 3     $ (43 )   $ (442 )   $ (114 )
Stock compensation expense
    -       21       -       -       -