Berry Plastics Holding Corp 10-Q Q3 2007


 

 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2007
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from___________________to__________________

Commission File Number 333-138380
BERRY PLASTICS HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
35-1814673
(State or other jurisdiction
of incorporation or organization)
(IRS employer
identification number)

SEE TABLE OF ADDITIONAL REGISTRANT GUARANTORS

Registrant’s telephone number, including area code: (812) 424-2904

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrants: (1) have 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 registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ X ]

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [   ] No [X]

As of August 13, 2007 all of the outstanding 100 shares of the Common Stock, $.01 par value, of Berry Plastics Holding Corporation were held by Berry Plastics Group, Inc.

 
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Table of Additional Registrant Guarantors

Exact Name
Jurisdiction of Organization
Primary Standard Industrial Classification Code Number
I.R.S. Employer Identification No.
Name, Address and Telephone Number of Principal Executive Offices
Berry Plastics Corporation
Delaware
3089
35-1813706
(a)
Aerocon, Inc.
Delaware
3089
35-1948748
(a)
Berry Iowa Corporation
Delaware
3089
42-1382173
(a)
Berry Plastics Design Corporation
Delaware
3089
62-1689708
(a)
Berry Plastics Technical Services, Inc.
Delaware
3089
57-1029638
(a)
Berry Sterling Corporation
Delaware
3089
54-1749681
(a)
CPI Holding Corporation
Delaware
3089
34-1820303
(a)
Knight Plastics, Inc.
Delaware
3089
35-2056610
(a)
Packerware Corporation
Delaware
3089
48-0759852
(a)
Pescor, Inc.
Delaware
3089
74-3002028
(a)
Poly-Seal Corporation
Delaware
3089
52-0892112
(a)
Venture Packaging, Inc.
Delaware
3089
51-0368479
(a)
Venture Packaging Midwest, Inc.
Delaware
3089
34-1809003
(a)
Berry Plastics Acquisition Corporation III
Delaware
3089
37-1445502
(a)
Berry Plastics Acquisition Corporation V
Delaware
3089
36-4509933
(a)
Berry Plastics Acquisition Corporation VII
Delaware
3089
30-0120989
(a)
Berry Plastics Acquisition Corporation VIII
Delaware
3089
32-0036809
(a)
Berry Plastics Acquisition Corporation IX
Delaware
3089
35-2184302
(a)
Berry Plastics Acquisition Corporation X
Delaware
3089
35-2184301
(a)
Berry Plastics Acquisition Corporation XI
Delaware
3089
35-2184300
(a)
Berry Plastics Acquisition Corporation XII
Delaware
3089
35-2184299
(a)
Berry Plastics Acquisition Corporation XIII
Delaware
3089
35-2184298
(a)
Berry Plastics Acquisition Corporation XV, LLC
Delaware
3089
35-2184293
(a)
Kerr Group, Inc.
Delaware
3089
95-0898810
(a)
Saffron Acquisition Corporation
Delaware
3089
94-3293114
(a)
Setco, LLC
Delaware
3089
56-2374074
(a)
Sun Coast Industries, Inc.
Delaware
3089
59-1952968
(a)
Tubed Products, LLC
Delaware
3089
56-2374082
(a)
Cardinal Packaging, Inc.
Ohio
3089
34-1396561
(a)
Landis Plastics, Inc.
Illinois
3089
36-2471333
(a)
Covalence Specialty Adhesives LLC
Delaware
2672
20-4104683
(a)
Covalence Specialty Coatings LLC
Delaware
2672
20-4104683
(a)
Rollpak Acquisition Corporation
Indiana
3089
03-0512845
(a)
Rollpak Corporation
Indiana
3089
35-1582626
(a)
 
(a) 101 Oakley Street, Evansville, IN 47710

 
2


INTRODUCTION

On April 3, 2007, Berry Plastics Group, Inc. (“Old Group”), parent of Berry Plastics Holding Corporation, was merged (the “Merger”) with another Apollo Management, L.P. (“Apollo”) controlled company, Covalence Specialty Materials Holding Corporation (“CSM Holding”). The resulting company retained the name Berry Plastics Group, Inc (“Group”). Immediately following the Merger, Berry Plastics Holding Corporation (“Old Berry”) and Covalence Specialty Materials Corp. (“Covalence”) were combined as a direct subsidiary of Group. The resulting company retained the name Berry Plastics Holding Corporation (“Berry” or the “Company”).

For accounting purposes, Old Group and CSM Holding are considered entities under the common control of Apollo as defined in Emerging Issues Task Force 02-5 “Definition of Common Control in Relation to FASB Statement of Financial Accounting Standards No. 141, Business Combinations”. The financial statements of these entities are presented retroactively on a consolidated basis in a manner similar to a pooling of interests, and include the results of operations of each business from the date of acquisition by the Apollo affiliates. Apollo acquired CSM Holding on February 16, 2006, and Old Group on September 20, 2006. As Apollo acquired Covalence first, Covalence is deemed the predecessor for accounting purposes. In connection with the closing of the Merger, the Company adopted the fiscal year-end (September) of the accounting acquirer (Covalence).

The financial data for the Company for the thirteen weeks ended June 30, 2006 and for the period from February 16, 2006 to June 30, 2006 include the results of operations of Covalence only. The results for the period from October 1, 2005 to February 16, 2006 represent the combined results of the predecessor of Covalence, Tyco Plastics & Adhesives. The financial data for the Company for the thirteen and thirty-nine weeks ended June 30, 2007 include the consolidated results of operations of Covalence and the Company. The balance sheets as of September 30, 2006 and June 30, 2007 also represent the consolidated balance sheets of Covalence and the Company as of each date, respectively. Accordingly, the results of operations and financial position of Berry Plastics Holding Corporation presented in this quarterly report on Form 10-Q are not comparable to previous quarterly and annual reports on Form 10-Q and Form 10-K, respectively, for the Company or Covalence. All adjustments that management considers necessary for a fair presentation of Berry Plastics Holding Corporation’s financial position and results of operations as of the date and for the period indicated have been included.
 
On May 4, 2007, the Company filed a registration statement on Form S-4, which became effective as of May 11, 2007, with the U.S. Securities and Exchange Commission (the “SEC”) to exchange Covalence’s $265 million 10 ¼% senior subordinated notes due March 1, 2016. This registration statement includes the audited supplemental combined financial statements of Berry Plastics Holding Corporation as of September 30, 2006 and for the period from February 17, 2006 to September 30, 2006 (the period the entities were under common control) and the unaudited supplemental combined financial statements as of and for the thirteen weeks ended December 30, 2006.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), 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

 
3


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 certain forward-looking statements by our use of forward-looking terminology such as, but not limited to, "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions that identify forward-looking statements. All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward-looking statements contained in this Form 10-Q. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

 
·
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;
 
·
catastrophic loss of one of our key manufacturing facilities;
 
·
risks related to our acquisition strategy and integration of acquired businesses;
 
·
risks associated with our substantial indebtedness and debt service;
 
·
performance of our business and future operating results;
 
·
risks of competition, including foreign competition, in our existing and future markets;
 
·
general business and economic conditions, particularly an economic downturn;
 
·
increases in the cost of compliance with laws and regulations, including environmental laws and regulations; and
 
·
the factors discussed in our Form S-4 Registration Statement filed with the Securities and Exchange Commission (“SEC”) on May 4, 2007 in the section titled “Risk Factors.”

Readers should carefully review the factors discussed in our Form S-4 filed with the SEC on May 4, 2007 in the section titled “Risk Factors” and other risk factors identified from time to time in our periodic filings with the Securities and Exchange Commission and should not place undue reliance on our forward-looking statements. We undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

AVAILABLE INFORMATION

We make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments, if any, to those reports through our Internet website as soon as practicable after they have been electronically filed with or furnished to the Securities and Exchange Commission. Our internet address is www.berryplastics.com. The information contained on our website is not being incorporated herein.

 
4


Berry Plastics Holding Corporation

Form 10-Q Index

For Quarterly Period Ended June 30, 2007



Part I.
Financial Information
  Page No.
       
 
Item 1.
Financial Statements:
 
   
Condensed Consolidated Balance Sheets
6
   
Condensed Consolidated Statements of Operations
8
   
Condensed Consolidated Statements of Cash Flows
9
   
Notes to Consolidated Financial Statements
10
       
 
Item 2.
Management’s Discussion and Analysis of
 
   
Financial Condition and Results of Operations
29
       
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
40
 
Item 4.
Controls and Procedures
40
       
Part II.
Other Information
   
       
 
Item 1.
Legal Proceedings
41
 
Item 1A.
Risk Factors
41
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
41
 
Item 3.
Defaults Upon Senior Securities
41
 
Item 4.
Submission of Matters to a Vote of Security Holders
41
 
Item 5.
Other Information
41
 
Item 6.
Exhibits
41
     
 
Signature
   
42

 
 
 
5


Part 1. Financial Information
Item 1. Financial Statements

Berry Plastics Holding Corporation
Condensed Consolidated Balance Sheets
(In Millions of Dollars)


   
June 30,
 2007
 
September 30, 2006
 
   
(Unaudited)
     
Assets
         
Current assets:
         
Cash and cash equivalents
 
$
11.9
 
$
83.1
 
Accounts receivable (less allowance for doubtful accounts of $9.3 at June 30, 2007 and $9.6 at September 30, 2006)
   
360.8
   
357.1
 
Inventories:
             
Finished goods
   
201.8
   
238.3
 
Raw materials and work in process
   
157.5
   
166.8
 
     
359.3
   
405.1
 
Deferred income taxes
   
49.5
   
17.0
 
Prepaid expenses and other current assets
   
34.1
   
41.6
 
Total current assets
   
815.6
   
903.9
 
               
Property and equipment:
             
Land
   
36.2
   
32.6
 
Buildings and improvements
   
182.9
   
177.1
 
Equipment and construction in progress
   
701.6
   
638.6
 
     
920.7
   
848.3
 
Less accumulated depreciation
   
133.8
   
31.7
 
     
786.9
   
816.6
 
               
Deferred financing fees, net
   
38.0
   
64.8
 
Goodwill
   
1,129.6
   
989.2
 
Other intangible assets, net
   
1,106.8
   
1,046.2
 
Other assets
   
0.7
   
0.7
 
     
2,275.1
   
2,100.9
 
Total assets
 
$
3,877.6
 
$
3,821.4
 

 

 
6



Berry Plastics Holding Corporation
Condensed Consolidated Balance Sheets (continued)
(In Millions of Dollars)

   
June 30,
2007
 
September 30,
2006
 
   
(Unaudited)
     
Liabilities and stockholders' equity
         
Current liabilities:
         
Accounts payable
 
$
230.2
 
$
272.1
 
Accrued expenses and other current liabilities
   
189.4
   
173.5
 
Current portion of long-term debt
   
17.2
   
16.0
 
Total current liabilities
   
436.8
   
461.6
 
               
Long-term debt, less current portion
   
2,664.8
   
2,612.3
 
Deferred income taxes
   
269.8
   
249.6
 
Other long-term liabilities
   
20.8
   
23.1
 
Total liabilities
   
3,392.2
   
3,346.6
 
               
Minority interest
   
   
65.2
 
               
Stockholders' equity:
             
Contributed equity from parent, net
   
608.8
   
440.6
 
Accumulated deficit
   
(126.1
)
 
(31.2
)
Accumulated other comprehensive income
   
2.7
   
0.2
 
Total stockholders’ equity
   
485.4
   
409.6
 
Total liabilities, minority interest, and stockholders’ equity
 
$
3,877.6
 
$
3,821.4
 

 See notes to consolidated financial statements.

 
7



Berry Plastics Holding Corporation
Condensed Consolidated Statements of Operations
(In Millions of Dollars)

   
Thirteen Weeks Ended
     
   
June 30,
 2007
 
 
June 30,
 2006
 
Thirty-Nine Weeks Ended June 30, 2007
 
February 17, 2006 to
June 30,
2006
 
October 1, 2005 to February 16, 2006
 
   
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
Net sales
 
$
807.3
 
$
442.5
 
$
2,252.5
 
$
648.3
 
$
666.9
 
Cost of goods sold
   
667.9
   
403.9
   
1,905.0
   
587.3
   
579.0
 
Gross profit
   
139.4
   
38.6
   
347.5
   
61.0
   
87.9
 
                                 
Operating expenses:
                               
Selling, general and administrative
   
88.6
   
47.8
   
240.0
   
58.8
   
50.0
 
  Charges and allocations from Tyco International, Ltd. and affiliates
   
   
   
   
   
10.4
 
Other operating expenses
   
27.6
   
0.1
   
39.2
   
0.3
   
0.6
 
Operating income (loss)
   
23.2
   
(9.3
)
 
68.3
   
1.9
   
26.9
 
                                 
Other expenses (income)
   
   
(1.0
)
 
   
(0.6
)
 
 
Interest expense, net
   
59.8
   
21.0
   
178.8
   
33.2
   
2.1
 
Interest expense, net - Tyco International, Ltd. and affiliates
   
   
   
   
   
5.5
 
Loss on extinguished debt
   
37.3
   
   
37.3
   
   
 
Income (loss) before income taxes and minority interest
   
(73.9
)
 
(29.3
)
 
(147.8
)
 
(30.7
)
 
19.3
 
Income tax expense (benefit)
   
(27.9
)
 
(10.0
)
 
(54.7
)
 
(10.3
)
 
1.6
 
Minority interest
   
   
(0.7
)
 
(2.7
)
 
(0.7
)
 
 
Net income (loss)
 
$
(46.0
)
$
(18.6
)
$
(90.4
)
$
(19.7
)
$
17.7
 


See notes to consolidated financial statements.


 
8



Berry Plastics Holding Corporation
Consolidated Statements of Cash Flows
(In Millions of Dollars)

 
 
Thirty-Nine Weeks Ended June 30, 2007
 
February 17, 2006 to
June 30, 2006
 
October 1, 2005 to February 16, 2006
 
   
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
Operating activities
             
Net income (loss)
 
$
(90.4
)
$
(19.7
)
$
17.7
 
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
                   
Depreciation and amortization
   
150.6
   
27.6
   
15.4
 
Non-cash interest expense
   
5.9
   
1.5
   
 
Provisions for losses on accounts receivable and inventory
   
   
2.1
   
3.5
 
Non-cash restructuring
   
   
   
0.3
 
Loss (gain) on disposal of fixed assets
   
1.7
   
   
(3.0
)
Non-cash compensation
   
15.6
   
   
 
Minority interest
   
(2.7
)
 
(0.7
)
 
 
Write-off of deferred financing fees
   
35.5
   
   
 
Deferred income taxes
   
(57.1
)
 
(10.3
)
 
1.2
 
Changes in operating assets and liabilities:
                   
Accounts receivable, net
   
14.7
   
(24.4
)
 
17.0
 
Inventories
   
43.5
   
41.2
   
(94.3
)
Prepaid expenses and other assets
   
7.1
   
7.0
   
(11.0
)
Due to Tyco International, Ltd. and affiliates
   
   
   
(106.7
)
Accounts payable and other current liabilities
   
(10.3
)
 
79.0
   
38.5
 
Other, net
   
   
(4.1
)
 
2.2
 
Net cash provided by (used for) operating activities
   
114.1
   
99.2
   
(119.2
)
Investing activities
                   
Additions to property and equipment
   
(67.7
)
 
(11.6
)
 
(12.2
)
Proceeds from disposal of assets
   
11.7
   
0.2
   
3.1
 
Acquisition of business, net of cash acquired
   
(75.8
)
 
(927.7
)
 
 
Net cash used for investing activities
   
(131.8
)
 
(939.1
)
 
(9.1
)
Financing activities
                   
Proceeds from long-term borrowings
   
1,221.1
   
783.4
   
 
Payments on long-term borrowings
   
(1,178.4
)
 
(50.0
)
 
(79.4
)
Equity contributions (distributions), net
   
(87.8
)
 
197.5
   
 
Change in Predecessor parent company investment
   
   
   
224.2
 
Change in book overdraft
   
   
   
(14.2
)
Debt financing costs
   
(8.5
)
 
(27.7
)
 
 
Net cash provided by (used for) financing activities
   
(53.6
)
 
903.2
   
130.6
 
Effect of exchange rate changes on cash
   
0.1
   
0.2
   
(0.2
)
Net increase (decrease) in cash and cash equivalents
   
(71.2
)
 
63.5
   
2.1
 
Cash and cash equivalents at beginning of period
   
83.1
   
27.0
   
2.7
 
Cash and cash equivalents at end of period
 
$
11.9
 
$
90.5
 
$
4.8
 

 See notes to consolidated financial statements.

 
9


Berry Plastics Holding Corporation
Notes to Consolidated Financial Statements
(In millions of dollars, except as otherwise noted)
(Unaudited)


1. Background and Nature of Operations

Berry Plastics Holding Corporation manufactures and markets plastic packaging products, plastic film products, specialty adhesives and coated products. At June 30, 2007 the Company had 62 production and manufacturing facilities, with 54 located in the United States.

On April 3, 2007, Berry Plastics Group, Inc. (“Old Group”), parent of Berry Plastics Holding Corporation, was merged (the “Merger”) with another Apollo Management, L.P. (“Apollo”) controlled company, Covalence Specialty Materials Holding Corporation (“CSM Holding”). The resulting company retained the name Berry Plastics Group, Inc. (“Group”). Immediately following the Merger, Berry Plastics Holding Corporation (“Old Berry”) and Covalence Specialty Materials Corp. (“Covalence”) were combined as a direct subsidiary of Group. The resulting company retained the name Berry Plastics Holding Corporation (“Berry” or the “Company”). In connection with the closing of the Merger, the Company adopted the fiscal year-end (September) of the accounting acquirer (Covalence).

2.  Basis of Presentation

The accompanying unaudited consolidated financial statements of Berry have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full fiscal year. The accompanying financial statements include the results of the Company and its wholly-owned subsidiaries. The Company is a wholly-owned subsidiary of Group. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Form S-4 filed with the Securities and Exchange Commission on May 4, 2007. Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.

Prior to the Merger, Old Berry and Covalence were considered entities under the common control of Apollo affiliates as defined in Emerging Issues Task Force (“EITF”) Issue No. 02-5, Definition of Common Control in Relation to FASB Statement of Financial Accounting Standards No. 141, Business Combinations. As a result of the Merger, the financial statements of these entities are being presented retroactively on a combined basis in a manner similar to a pooling of interests, and include the results of operations of each business from the date of acquisition by the Apollo affiliates. The accompanying financial statements include the following entities:

 
 
the predecessor to Covalence Specialty Materials Corp., Tyco Plastics & Adhesives, for the period from October 1, 2005 to February 16, 2006
 
 
10

 
 
 
the former Covalence Specialty Materials Corp. for the periods from February 17, 2006 (the date of acquisition) to June 30, 2006 and October 1, 2006 to June 30, 2007
  
 
the former Berry Plastics Holding Corporation, as of September 30, 2006 and for the period from October 1, 2006 to June 30, 2007

The acquisitions by affiliates of Apollo of Covalence and Old Berry have both been accounted for by the purchase method of accounting. All intercompany transactions have been eliminated. In connection with the closing of the Merger on April 3, 2007, Old Berry and Covalence extinguished their credit facilities and Covalence’s Second Priority Floating Rate Notes and Berry replaced these borrowings with a new credit facility comprised of a $400 million asset based revolving line of credit and a $1.2 billion term loan (See Long-Term Debt footnote).

The financial information presented in Berry’s financial statements as of June 30, 2007 and September 30, 2006 and for the periods from October 1, 2006 to June 30, 2007 and February 17, 2006 to September 30, 2006 reflects all expenses incurred by Berry and Covalence. Berry has recorded expense in their financial statements related to stock compensation of Group, management fees charged by Apollo and other investors to Group and income taxes for Group’s operations. Contributed equity from parent includes the equity from Group that was invested in Berry by Apollo and other shareholders. Berry, through its wholly-owned subsidiaries operates in four primary segments: open top, closed top, flexible film, and tapes/coatings. The Company’s customers are located principally throughout the United States, without significant concentration in any one region or with any one customer. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral.
 
3.
Merger and Apollo Acquisitions

Covalence Merger

In connection with the Covalence Merger, Old Berry and Covalence extinguished their respective senior credit facilities and Covalence’s Second Priority Floating Rate Notes. The Company recognized a loss of $37.3 million related to the extinguishment of debt in the current quarter. In addition, the Company incurred transaction costs of $3.9 million, which were recorded in other expenses in the current quarter. These costs represented legal, accounting and other fees paid in connection with the Covalence Merger.

Apollo Acquisition of CSM Holding

On February 16, 2006, substantially all of the assets and liabilities of Tyco Plastics & Adhesives were acquired by Covalence, under a Stock and Asset Purchase Agreement dated December 20, 2005 and entered into among CSM Holding, an affiliate of Apollo Management V, L.P. and the direct parent of Covalence, Tyco International S.A. and Tyco Group S.a.r.l. Under the agreement, Covalence acquired Tyco’s businesses through the acquisition of certain equity interests of, and certain assets and liabilities held by direct and indirect operating subsidiaries of, Tyco International Ltd. (“Tyco”). The initial purchase price was $975.2 million, subject to working capital adjustments and was funded with a new $350.0 million term loan, $175.0 million of Second Priority Floating Rate Notes, $265.0 million of 10 ¼% Senior Subordinated Notes and an equity contribution of approximately $197.5 million. Covalence has performed an evaluation of the fair values of the real and personal property, inventory and certain identifiable intangible assets in connection with the
 

 
11


purchase price allocation related to the acquisition. A valuation study was undertaken, which supports the purchase price allocation. The valuation study resulted in a fair value step-up to real and personal property, inventory and certain identifiable intangible assets. Covalence recognized $6.8 million as a charge to cost of sales relating to the sale of inventory that was stepped-up to fair value for this acquisition. Based on the valuation study and other available information, Covalence has recorded a purchase price of $916.1 million, which includes $975.2 million of original purchase price partially offset by favorable working capital adjustments from Tyco of approximately $63.6 million and $25.5 million and an unfavorable post-closing working capital adjustment of $30.0 million that was paid to Tyco. Covalence incurred a $3.7 million charge related to a loss on extinguished debt for bridge financing fees arranged to fund the acquisition that were not utilized. The following table summarizes the allocation of fair values of the Company’s assets acquired and liabilities assumed at the date of acquisition.

   
 
 
February 16, 2006
       
Current assets
   
$
429.0
 
Property, plant and equipment
     
345.4
 
Goodwill.
     
4.0
 
Intangible assets.
     
364.4
 
Deferred financing fees and other non-current assets
     
24.1
 
Assets acquired
     
1,166.9
 
           
Current liabilities.
     
183.7
 
Non current liabilities
     
67.1
 
Liabilities assumed.
     
250.8
 
     
$
916.1
 
 
Apollo Acquisition of Berry

On September 20, 2006, BPC Acquisition Corp. merged with and into BPC Holding Corporation pursuant to an agreement and plan of merger (the “Berry Merger”), dated June 28, 2006, with BPC Holding Corporation continuing as the surviving corporation. Following the consummation of the Merger, BPC Holding Corporation changed its name to Berry Plastics Holding Corporation (“Old Berry”). Pursuant to the Berry Merger, Old Berry is a wholly-owned subsidiary of Old Group, the principal stockholders of which were Apollo Investment Fund VI, L.P., AP Berry Holdings, LLC, Graham Berry Holdings, L.P., and management. Apollo Investment Fund VI, L.P. and AP Berry Holdings, LLC are affiliates of Apollo Management, L.P. (the “Buyer”), which is a private equity

 
12


firm. Graham Berry Holdings, L.P. is an affiliate of Graham Partners, Inc. (“Graham”), a private equity firm.

The total amount of funds required to consummate the Berry Merger and to pay fees was $2.4 billion. The Berry Merger was primarily funded with (1) the issuance of $750.0 million aggregate principal amount of second priority senior secured notes, (2) new borrowings of $675.0 million in Term B loans, (3) the issuance of $425.0 million aggregate principal amount of senior subordinated notes, and (4) contributed equity. The Berry Merger 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 estimated fair values at the acquisition date. A valuation study was undertaken, which supports the purchase price allocation. The allocation is preliminary and is subject to change. The Company is amortizing its definite lived intangible assets over a weighted-average life of 20 years. The following table summarizes the allocation of purchase price and the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition.

   
September 20,
2006
 
Current assets
 
$
389.3
 
Property and equipment
   
473.2
 
Goodwill
   
993.7
 
Customer relationships
   
511.9
 
Trademarks
   
182.2
 
Other intangibles
   
59.0
 
Total assets
   
2,609.3
 
         
Current liabilities
   
202.1
 
Long-term liabilities
   
2,103.3
 
Total liabilities
   
2,305.4
 
         
Net assets acquired
 
$
303.9
 

Acquisition of Minority Interest of Old Berry and Covalence

On April 3, 2007, shares of Old Group and CSM Holding were exchanged for shares in Group. The minority shareholders and management held ownership interests of 28% and 4% for Old Group and CSM Holding, respectively. The acquisition of these ownership interests was accounted for under the purchase method of accounting and pushed-down to the Company. The following table summarizes the step-up to fair value of the assets acquired and liabilities assumed at the date of acquisition based upon the percentage ownership acquired from the minority shareholders.
 
13

 
 
   
April 3,
 
   
2007
 
Current assets
 
$
2.6
 
Fixed assets
   
7.9
 
Intangible assets
   
101.0
 
Goodwill
   
106.2
 
Total assets
   
217.7
 
         
Deferred income taxes
   
(44.8
)
Other liabilities
   
0.5
 
Total liabilities
   
(44.3
)
         
Net assets stepped-up
 
$
173.4
 

As a result of the exchange of minority interest shares, stockholders’ equity was adjusted by $236.1 million, consisting of the $173.4 million step-up to fair value of net assets and a $62.7 million reclassification from minority interest to stockholders’ equity. Additionally, $0.2 million and $4.5 million of accumulated other comprehensive income and accumulated deficit, respectively, were reclassified to recognize an accumulated negative basis by minority interest holders whose shares were exchanged.

Of the $101.0 million of acquired intangible assets, approximately $67.4 million was assigned to customer relationships, $34.8 million to tradenames and a $1.2 million reduction was assigned to patents. The acquired definite-lived intangible assets will be amortized over a weighted average useful life of 20 years. The Company allocated the goodwill between its open top and closed top segments. None of this goodwill is expected to be deductible for tax purposes.

4. Recent Acquisition and Disposal

Acquisition of Rollpak

On April 11, 2007, the Company completed its acquisition of 100% of the outstanding common stock of Rollpak Acquisition Corporation, which is the sole stockholder of Rollpak Corporation. Rollpak Corporation is a flexible film manufacturer located in Goshen, Indiana with annual net sales of approximately $50.0 million in calendar 2006. The purchase price was funded utilizing cash on hand. The Rollpak 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 estimated fair values at the acquisition date. The allocation is preliminary and is subject to change.

Sale of UK Operations

On April 10, 2007, the Company sold its wholly owned subsidiary, Berry Plastics UK Ltd., to Plasticum Group N.V. for approximately $10.0 million. At the time of the sale, the annual net sales of this business was less than $9.0 million.

 
14


5. Restructuring and Other Expenses
 
Coatings Reorganization

On February 6, 2007, Covalence announced a restructuring program in its Coatings division. The planned actions relate to the exiting of two product lines, the closure of a manufacturing facility, the termination of certain employees and the relocation of certain operations. The business that is in the process of being exited accounts for less than $25.0 million of annual net sales. During the quarter ended March 30, 2007, the Company recorded charges of $3.9 million which was comprised of $3.4 million of asset impairments, $0.2 million of severance and $0.3 million of relocation and other restructuring charges. In the quarter ended June 30, 2007, the Company recorded additional charges of $0.4 million for severance and $1.0 million for equipment and employee relocation and other restructuring charges. These charges are included in other operating expenses on the income statement.

Covalence Reorganization

In connection with the Merger on April 3, 2007, the Company announced that it would close the Covalence corporate headquarters in Bedminster, NJ and the Company’s coatings division headquarters in Shreveport, LA. The reorganization was part of the integration plan to consolidate certain corporate functions at the Company’s headquarters in Evansville, Indiana and to consolidate the adhesives and coatings segment into one new segment called tapes/coatings. In connection with these changes, the Company recorded severance charges in the quarter ended June 30, 2007 of $3.0 million and lease termination charges of $1.9 million. These costs are included in other operating expenses in the income statement. The Company has substantially completed this reorganization as of June 30, 2007.
 
Shut-down of Oxnard, California Facility

On April 26, 2007, the Company announced its intention to shut down its manufacturing facility located in Oxnard, California. The Company has stopped all production in the facility and is in the process of moving the equipment and inventory to other Berry locations. The Company intends to complete this move by December 31, 2007. The Company had previously established a reserve of $1.2 million for the shutdown of the Oxnard facility in connection with the Kerr Group acquisition. This accrual included estimates for severance and lease termination costs. The Company recorded an additional charge of $4.0 million for severance and lease termination costs in the quarter ended June 30, 2007. In addition, the Company recorded other restructuring charges related to equipment and inventory relocation and other operating costs of the facility of approximately $1.5 million in the quarter ended June 30, 2007. These restructuring charges are included in other operating expenses in the income statement.
 

 
15


Activity for the restructuring reserves is as follows:
 
   
Employee
Severance
and Benefits
 
Facilities
Exit
Costs
 
Other
 
Non-cash
Charges
 
Total
 
Balance at September 30, 2005
 
$
2.2
 
$
1.6
 
$
 
$
 
$
3.8
 
Charges
   
   
0.6
   
   
   
0.6
 
Utilization
   
   
(0.6
)
 
   
   
(0.6
)
Balance at February 16, 2006
   
2.2
   
1.6
   
   
   
3.8
 
Charges 
   
   
0.7
   
   
   
0.7
 
Utilization
   
(0.9
)
 
(1.5
)
 
   
   
(2.4
)
Transferred to Tyco
   
(1.3
)
 
   
   
   
(1.3
)
Balance at June 30, 2006
 
$
 
$
0.8
 
$
 
$
 
$
0.8
 
                                 
Balance at September 30, 2006
 
$
 
$
0.7
 
$
 
$
 
$
0.7
 
Charges
   
3.7
   
7.3
   
0.3
   
3.4
   
14.7
 
Utilization
   
(0.4
)
 
(2.4
)
 
   
   
(2.8
)
Balance at June 30, 2007
 
$
3.3
 
$
5.6
 
$
0.3
 
$
3.4
 
$
12.6
 

Middlesex Flood

The Company experienced a flood at its Middlesex, NJ facility during the quarter ended June 30, 2007. The Company incurred costs of approximately $1.5 million related to the flood which included the write-off of damaged inventory of $0.3 million, equipment repairs of $0.7 million, and other costs of $0.5 million. These costs are included in other operating expenses for the quarter ended June 30, 2007.

6. Long-Term Debt

Long-term debt consists of the following:

   
June 30,
2007
 
September 30, 2006
 
Term loans
 
$
1,197.0
 
$
974.3
 
Revolving line of credit
   
20.0
   
20.0
 
Second Priority Senior Secured Fixed Rate Notes
   
525.0
   
525.0
 
Second Priority Senior Secured Floating Rate Notes
   
225.0
   
225.0
 
Second Priority Floating Rate Notes - Retired
   
   
175.0
 
10 ¼% Senior Subordinated Notes
   
265.0
   
265.0
 
11% Senior Subordinated Notes
   
425.0
   
425.0
 
Capital leases and other
   
25.0
   
19.0
 
     
2,682.0
   
2,628.3
 
Less current portion of long-term debt 
   
17.2
   
16.0
 
   
$
2,664.8
 
$
2,612.3
 

The current portion of long-term debt consists of $12.0 million of quarterly installments on the term loans and $5.2 million of principal payments related to capital lease obligations.

 
16



Senior Secured Credit Facility

In connection with the Merger, the Company entered into senior secured credit facilities that include a term loan in the principal amount of $1,200.0 million and a revolving credit facility which provides borrowing availability equal to the lesser of (a) $400.0 million or (b) the borrowing base, which is a function, among other things, of the Company’s accounts receivable and inventory. The term loan matures on April 3, 2015 and the revolving credit facility matures on April 3, 2013.

The borrowings under the senior secured credit facilities bear interest at a rate equal to an applicable margin plus, as determined at our option, either (a) a base rate (“Base Rate”) determined by reference to the higher of (1) the prime rate of Credit Suisse, Cayman Islands Branch, as administrative agent, in the case of the term loan facility or Bank of America, N.A., as administrative agent, in the case of the revolving credit facility and (2) the U.S. federal funds rate plus 1/2 of 1% or (b) a eurodollar rate (“LIBOR”) determined by reference to the costs of funds for eurodollar deposits in dollars in the London interbank market for the interest period relevant to such borrowing Bank Compliance for certain additional costs. The initial applicable margin for LIBOR rate borrowings under the revolving credit facility was 1.25% and under the term loan was 2.00%. The initial applicable margin for base rate borrowings under the revolving credit facility was 0% and under the term loan was 1.00%.

The term loan facility requires minimum quarterly principal payments of $3.0 million for the first eight years, which commenced in June 2007, with the remaining amount payable on April 3, 2015. In addition, the Company must prepay the outstanding term loan, subject to certain exceptions, with (1) beginning with the Company’s first fiscal year after the closing, 50% (which percentage is subject to a minimum of 0% upon the achievement of certain leverage ratios) of excess cash flow (as defined in the credit agreement); and (2) 100% of the net cash proceeds of all non-ordinary course asset sales and casualty and condemnation events, if the Company does not reinvest or commit to reinvest those proceeds in assets to be used in its business or to make certain other permitted investments within 15 months, subject to certain limitations.

In addition to paying interest on outstanding principal under the senior secured credit facilities, the Company is required to pay a commitment fee to the lenders under the revolving credit facilities in respect of the unutilized commitments thereunder at a rate equal to 0.25% to 0.35% per annum depending on the average daily available unused borrowing capacity. The Company also pays a customary letter of credit fee, including a fronting fee of 0.125% per annum of the stated amount of each outstanding letter of credit, and customary agency fees.

The Company may voluntarily repay outstanding loans under the senior secured credit facilities at any time without premium or penalty, other than customary “breakage” costs with respect to eurodollar loans. The senior secured credit facilities contain various restrictive covenants that, among other things and subject to specified exceptions, prohibit the Company from prepaying other indebtedness, and restrict its ability to incur indebtedness or liens, make investments or declare or pay any dividends. All obligations under the senior secured credit facilities are unconditionally guaranteed by Group and, subject to certain exceptions, each of the Company’s existing and future direct and indirect domestic subsidiaries. The guarantees of those obligations are secured by substantially all of the Company’s assets as well as those of each domestic subsidiary guarantor. The Company was in compliance with all the financial and operating covenants at June 30, 2007.

 
17



At June 30, 2007, there was $20.0 million outstanding on the revolving credit facility. The revolving credit facility allows up to $50.0 million of letters of credit to be issued instead of borrowings under the revolving credit facility. At June 30, 2007, the Company had $29.4 million under the Credit Facility in letters of credit outstanding. At June 30, 2007, the Company had unused borrowing capacity of $350.6 million under the revolving line of credit.

Second Priority Senior Secured Notes

On September 20, 2006, the Company issued $750.0 million of second priority senior secured notes (“Second Priority Notes”) comprised of (1) $525.0 million aggregate principal amount of 8 7/8% second priority fixed rate notes (“Fixed Rate Notes”) and (2) $225.0 million aggregate principal amount of second priority senior secured floating rate notes (“Floating Rate Notes”). The Second Priority Notes mature on September 15, 2014. Interest on the Fixed Rate Notes is due semi-annually on March 15 and September 15. The Floating Rate Notes bear interest at a rate of LIBOR plus 3.875% per annum, which resets quarterly. Interest on the Floating Rate Notes is payable quarterly on March 15, June 15, September 15 and December 15 of each year.

The Second Priority Notes are secured by a second priority security interest in the collateral granted to the collateral agent under the Credit Facility for the benefit of the holders and other future parity lien debt that may be issued pursuant to the terms of the indenture. These liens will be junior in priority to the liens on the same collateral securing the Credit Facility and to all other permitted prior liens. The Second Priority Notes are guaranteed, jointly and severally, on a second priority senior secured basis, by each domestic subsidiary that guarantees the Credit Facility. The Second Priority Notes contain customary covenants that, among other things, restrict, subject to certain exceptions, our ability, and the ability of subsidiaries, to incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations and make dividend and other restricted payments.

On or after September 15, 2010 and 2008, the Company may redeem some or all of the Fixed Rate Notes and Floating Rate Notes, respectively, at specified redemption prices. Additionally, on or prior to September 15, 2009 and 2008, we may redeem up to 35% of the aggregate principal amount of the Fixed Rate Notes and Floating Rate Notes, respectively, with the net proceeds of specified equity offerings at specified redemption prices. If a change of control occurs, the Company must give holders of the Second Priority Notes an opportunity to sell their notes at a purchase price of 101% of the principal amount plus accrued and unpaid interest. The Company was in compliance with all covenants at June 30, 2007.
 
10 ¼% Senior Subordinated Notes

In connection with Apollo’s acquisition of CSM Holding, Covalence issued $265.0 million of 10 ¼% senior subordinated notes due March 1, 2016. The notes are senior subordinated obligations of the Company and rank junior to all other senior indebtedness that does not contain similar subordination provisions. No principal payments are required with respect to the senior subordinated notes prior to maturity.
 
The indenture relating to the notes contain a number of covenants that, among other things and subject to certain exceptions, restrict the Company’s ability and the ability of its restricted subsidiaries to incur indebtedness or issue disqualified stock or preferred stock, pay dividends or
 

 
18


redeem or repurchase stock, make certain types of investments, sell assets, incur certain liens, restrict dividends or other payments from subsidiaries, enter into transactions with affiliates and consolidate, merge or sell all or substantially all of the Company’s assets. The Company was in compliance with all covenants at June 30, 2007.
 
11% Senior Subordinated Notes

On September 20, 2006, the Company issued $425.0 million in aggregate principal amount of senior subordinated notes (“Senior Subordinated Notes”) to Goldman, Sachs and Co. in a private placement that is exempt from registration under the Securities Act. The Senior Subordinated Notes are unsecured, senior subordinated obligations and are guaranteed on an unsecured, senior subordinated basis by each of our subsidiaries that guarantee the Credit Facility and the Second Priority Notes. The Senior Subordinated Notes mature in 2016 and bear interest at a rate of 11% per annum. Such interest is payable quarterly in cash; provided, however, that on any quarterly interest payment date on or prior to the third anniversary of the issuance, the Company can satisfy up to 3% of the interest payable on such date by capitalizing such interest and adding it to the outstanding principal amount of the Senior Subordinated Notes.
 
The Senior Subordinated Notes may be redeemed at the Company’s option under circumstances and at redemption prices set forth in the indenture. Upon the occurrence of a change of control, the Company is required to offer to repurchase all of the Senior Subordinated Notes. The indenture sets forth covenants and events of default that are substantially similar to those set forth in the indenture governing the Second Priority Notes. The Senior Subordinated Notes contain additional affirmative covenants and certain customary representations, warranties and conditions. The Company was in compliance with all covenants at June 30, 2007.
 
7. Stockholders’ Equity and Stock Option Plans

On June 7----, 2007, Group’s Board of Directors declared a special one-time dividend of $77 per common share to shareholders of record as of June 6, 2007. The dividend was paid June 8, 2007, which reduced Group’s shareholders’ equity for owned shares by approximately $530.2 million. In connection with this dividend, the Company paid a dividend of approximately $87.0 million to Group. This dividend is reflected as a reduction of Contributed equity from parent.

 
19


In connection with the Merger, Group modified its outstanding stock options to provide for (i) the vesting of an additional twenty percent (20%) of the total number of shares underlying such outstanding options; (ii) the conversion of options with escalating exercise prices to a fixed priced option, with no increase in the exercise price as of the date of grant of such escalating priced option; and (iii) with respect to each outstanding option, the vesting of which was contingent upon the achievement of performance goals, the deemed achievement of all such performance goals.

During the third quarter, the Group also clarified the anti-dilution provisions of its stock option plans to require payment of special dividends to holders of outstanding stock options. In connection with the $77 per share dividend paid during the quarter, holders of vested stock options received $13.7 million, while an additional $34.5 million will be paid to nonvested option holders on the second anniversary of the dividend grant date (assuming the nonvested option holders remain employed by the Company).

This resulted in the immediate expensing of $13.7 million related to the payment of dividends on vested awards, less $0.8 million that was expensed in prior periods, and will result in $34.5 million of additional expense that will be recognized over the two-year service period beginning June 8, 2007.

8. Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss), other comprehensive income (losses), and gains or losses resulting from currency translations of foreign investments. Other comprehensive income (losses) includes unrealized gains or losses on derivative financial instruments and available for sale securities and minimum pension liability adjustments. The details of comprehensive income (losses) are as follows:

   
Thirteen Weeks Ended
     
   
June 30,
2007
 
June 30,
2006
 
Thirty-Nine Weeks Ended June 30,
2007
 
February 17, 2006 to
June 30, 2006
 
October 1, 2005 to
February 16, 2006
 
Net income (loss)
 
$
(46.0
)
$
(18.6
)
 
(90.4
)
$
(19.7
)
$
17.7
 
Other comprehensive income (losses)
   
0.5
   
   
1.1
   
   
 
Currency translation income (losses)
   
0.3
   
   
1.2
   
   
1.7
 
Comprehensive income (losses)
 
$
(45.2
)
$
(18.6
)
$
(88.1
)
$
(19.7
)
$
19.4
 

9. Income Taxes

The effective tax rate was 38% and 34% for the thirteen months ended June 30, 2007 and June 30, 2006, respectively. A reconciliation of income tax expense, computed at the federal statutory rate, to income tax expense, as provided for in the financial statements, is as follows:
 
 
20


   
Thirteen Weeks Ended
     
   
June 30,
2007
 
June 30,
2006
 
Thirty-Nine Weeks Ended June 30,
2007
 
February 17, 2006 to
June 30, 2006
 
October 1, 2005 to
February 16, 2006
 
Income tax expense (benefit) computed at
statutory rate
 
$
(25.9
)
$
(10.2
)
$
(51.7
)
$
(10.7
)
$
6.8
 
State income tax expense (benefit), net of
federal taxes
   
(3.6
)
 
(1.2
)
 
(5.9
)
 
(1.2
)
 
 
Expenses not deductible for income tax
purposes
   
0.2
   
0.2
   
0.6
   
0.2
   
 
U.S. partnership income taxed at the
partner level
   
   
   
   
   
(6.8
)
Non-U.S. earnings
   
   
   
   
   
1.6
 
Change in valuation allowance
   
   
0.4
   
0.9
   
0.5
   
 
Other
   
1.4
   
0.8
   
1.4
   
0.9
   
 
Income tax expense (benefit)
 
$
(27.9
)
$
(10.0
)
$
(54.7
)
$
(10.3
)
$
1.6
 
 

10. Employee Retirement Plans

   
Thirteen Weeks Ended June 30, 2007
 
Thirty-Nine Weeks Ended June 30, 2007
 
Components of net period benefit cost:
         
Defined Benefit Pension Plans
             
Service cost
 
$
0.1
 
$
0.2
 
Interest cost
   
0.5
   
1.7
 
Expected return on plan assets
   
(0.6
)
 
(2.0
)
Net periodic benefit cost
 
$
 
$
(0.1
)
               
Retiree Health Benefit Plan
             
Service cost
 
$
 
$
 
Interest cost
   
0.1
   
0.3
 
Recognized actuarial loss
   
   
 
Net periodic benefit cost
 
$
0.1
 
$
0.3
 
 

The Company expects to contribute approximately $3.0 million during fiscal 2007, of which $0.3 million and $2.3 million was made in the thirteen weeks and thirty-nine weeks ended June 30, 2007, respectively, to the defined benefit pension plans and the retiree health benefit plan.

 
21


11. Operating Segments

In connection with the closing of the Covalence Merger, Berry organized its operations into four reportable segments: open top, closed top, flexible films, and tapes/coatings.

   
Thirteen Weeks Ended
     
   
June 30,
2007
 
June 30,
2006
 
Thirty-Nine Weeks Ended
June 30, 2007
 
February 17, 2006 to June 30,
2006
 
October 1, 2005 to February 16, 2006
 
Net sales: 
                     
Open Top
 
$
240.0
 
$
 
$
643.1
 
$
 
$
 
Closed Top
   
152.0
   
   
450.3
   
   
 
Flex Film
   
275.6
   
284.3
   
761.0
   
412.5
   
449.5
 
Tapes/Coatings
   
139.7
   
160.8
   
401.8
   
239.7
   
221.4
 
Intercompany
   
   
(2.6
)
 
(3.7
)
 
(3.9
)
 
(4.0
)
Total net sales
 
$
807.3
 
$
442.5
 
$
2,252.5
 
$
648.3
 
$
666.9
 
Operating income (loss):
                               
Open Top
 
$
20.8
 
$
 
$
67.2
 
$
 
$
 
Closed Top
   
11.4
   
   
34.3
   
   
 
Flex Film
   
10.9
   
(3.6
)
 
3.8
   
0.7
   
22.8
 
Tapes/Coatings
   
(0.6
)
 
6.0
   
(5.8
)
 
14.3
   
9.7
 
Corporate
   
(19.3
)
 
(11.7
)
 
(31.2
)
 
(13.1
)
 
(5.6
)
Total operating income (loss)
 
$
23.2
 
$
(9.3
)
$
68.3
 
$
1.9
 
$
26.9
 
Depreciation and amortization:
                               
Open Top
 
$
17.0
 
$
 
$
47.1
 
$
   
 
Closed Top
   
14.3
   
   
41.8
   
   
 
Flex Film
   
12.1
   
11.2
   
34.3
   
13.9
   
9.4
 
Tapes/Coatings
   
8.4
   
9.3
   
26.2
   
11.0
   
5.9
 
Corporate
   
0.2
   
2.7
   
1.2
   
2.7
   
0.1
 
Total depreciation and amortization
 
$
52.0
 
$
23.2
 
$
150.6
 
$
27.6
 
$
15.4
 


   
June 30,
2007
 
September 30, 2006
 
Total assets:
         
Open Top
 
$
1,699.4
 
$
1,950.8
 
Closed Top
   
1,175.0
   
666.9
 
Flex Film
   
567.2
   
676.9
 
Tapes/Coatings
   
436.0
   
449.9
 
Corporate
   
   
76.9
 
Total assets
 
$
3,877.6
 
$
3,821.4
 

 
22


12. Condensed Consolidating Financial Information

The Company, a wholly owned subsidiary of Group, has Second Priority Fixed and Floating Rate Notes and 10 ¼% Senior Subordinated Notes outstanding which are fully, jointly, severally, and unconditionally guaranteed by Berry’s domestic subsidiaries. Separate narrative information or financial statements of the guarantor subsidiaries have not been included because they are 100% wholly owned by the parent company and the guarantor subsidiaries unconditionally guarantee such debt on a joint and several basis. Presented below is condensed consolidating financial information for the parent company, guarantor subsidiaries and non-guarantor subsidiaries. The equity method has been used with respect to investments in subsidiaries. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.

   
June 30, 2007
 
   
 
 
Parent
Company
 
Combined Guarantor Subsidiaries
 
Combined
Non-guarantor Subsidiaries
 
 
Eliminations
 
 
 
Consolidated
 
Consolidating Balance Sheet
                     
Current assets
 
$
248.7
 
$
502.2
 
$
64.7
 
$
 
$
815.6
 
Net property and equipment
   
215.9
   
536.7
   
34.3
   
   
786.9
 
Other noncurrent assets
   
2,805.9
   
2,012.6
   
17.2
   
(2,560.6
)
 
2,275.1
 
Total assets
 
$
3,270.5
 
$
3,051.5
 
$
116.2
 
$
(2,560.6
)
$
3,877.6
 
                                 
Current liabilities
 
$
192.5
 
$
221.7
 
$
22.6
 
$
 
$
436.8
 
Noncurrent liabilities
   
2,592.6
   
315.1
   
47.7
   
   
2,955.4
 
Equity (deficit)
   
485.4
   
2,514.7
   
45.9
   
(2,560.6
)
 
485.4
 
Total liabilities and equity (deficit)
 
$
3,270.5
 
$
3,051.5
 
$
116.2
 
$
(2,560.6
)
$
3,877.6
 

   
September 30, 2006
 
   
 
Parent Company
 
Combined Guarantor Subsidiaries
 
Combined
Non-guarantor Subsidiaries
 
 
Consolidating Adjustments
 
 
 
Consolidated
 
Consolidating Balance Sheet
                     
Current assets
 
$
355.6
 
$
478.3
 
$
70.0
 
$
 
$
903.9
 
Net property and equipment
   
219.4
   
556.5
   
40.7
   
   
816.6
 
Other noncurrent assets
   
2,253.7
   
216.8
   
7.7
   
(377.3
)
 
2,100.9
 
Total assets
 
$
2,828.7
 
$
1,251.6
 
$
118.4
 
$
(377.3
)
$
3,821.4
 
                                 
Current liabilities
 
$
(286.9
)
$
673.5
 
$
70.6
 
$
4.4
 
$
461.6
 
Noncurrent liabilities
   
2,706.1
   
238.3
   
5.8
   
   
2,950.2
 
Equity (deficit)
   
409.5
   
339.8
   
42.0
   
(381.7
)
 
409.6
 
Total liabilities and equity (deficit)
 
$
2,828.7
 
$
1,251.6
 
$
118.4
 
$
(377.3
)
$
3,821.4
 
 

 
23



   
Thirteen Weeks Ended June 30, 2007
 
   
 
 
Parent Company
 
Combined Guarantor Subsidiaries
 
Combined
Non-guarantor Subsidiaries
 
 
Consolidating Adjustments
 
 
 
Consolidated
 
Consolidating Statement of Operations
 
Net sales
 
$
248.9
 
$
506.3
 
$
52.1
 
$
 
$
807.3
 
Cost of goods sold
   
215.6
   
405.7
   
46.6
   
   
667.9
 
Gross profit
   
33.3
   
100.6
   
5.5
   
   
139.4
 
Operating expenses
   
45.4
   
67.3
   
3.5
   
   
116.2
 
Operating income (loss)
   
(12.1
)
 
33.3
   
2.0
   
   
23.2
 
Interest expense (income), net
   
65.0
   
(5.9
)
 
0.7
   
   
59.8
 
Loss on extinguished debt
   
15.4
   
21.9
   
   
   
37.3
 
Income taxes (benefit)
   
   
(27.9
)
 
   
   
(27.9
)
Equity in net (income) loss from subsidiary
   
(46.5
)
 
(1.3
)
 
   
47.8
   
 
Net income (loss)
 
$
(46.0
)
$
46.5
 
$
1.3
 
$
(47.8
)
$
(46.0
)


   
Thirteen Weeks Ended June 30, 2006
 
   
 
 
Parent Company
 
Combined Guarantor Subsidiaries
 
Combined
Non-guarantor Subsidiaries
 
 
Consolidating Adjustments
 
 
 
Consolidated
 
Consolidating Statement of Operations
 
Net sales
 
$
272.9
 
$
138.0
 
$
35.7
 
$
(4.1
)
$
442.5
 
Cost of goods sold
   
262.4
   
110.8
   
33.3
   
(2.6
)
 
403.9
 
Gross profit
   
10.5
   
27.2
   
2.4
   
(1.5
)
 
38.6
 
Operating expenses
   
30.2
   
14.4
   
3.3
   
   
47.9
 
Operating income (loss)
   
(19.7
)
 
12.8
   
(0.9
)
 
(1.5
)
 
(9.3
)
Other expense (income)
   
(1.0
)
 
   
   
   
(1.0
)
Interest expense, net
   
21.0
   
   
   
   
21.0
 
Income taxes
   
(10.8
)
 
   
0.8
   
   
(10.0
)
Minority interest
   
(0.7
)
 
   
   
   
(0.7
)
Equity in net (income) loss from subsidiary
   
(9.6
)
 
   
   
9.6
   
 
Net income (loss)
 
$
(18.6
)
 
12.8
 
$
(1.7
)
$
8.1
 
$
(18.6
)
 
 
24



   
Thirty-nine Weeks Ended June 30, 2007
 
   
 
 
Parent Company
 
Combined Guarantor Subsidiaries
 
Combined
Non-guarantor Subsidiaries
 
 
Consolidating Adjustments
 
 
 
Consolidated
 
Consolidating Statement of Operations
 
Net sales
 
$
716.3
 
$
1,399.1
 
$
143.0
 
$
(5.9
)
$
2,252.5
 
Cost of goods sold
   
651.8
   
1,129.1
   
130.0
   
(5.9
)
 
1,905.0
 
Gross profit
   
64.5
   
270.0
   
13.0
   
   
347.5
 
Operating expenses
   
(88.0
)
 
356.6
   
11.1
   
(0.5
)
 
279.2
 
Operating income (loss)
   
152.5
   
(86.6
)
 
1.9
   
0.5
   
68.3
 
Loss on extinguished debt
   
15.4
   
21.9
   
   
   
37.3
 
Interest expense (income), net
   
204.2
   
(7.1
)
 
1.9
   
(20.2
)
 
178.8
 
Income tax expense (benefit)
   
(18.0
)
 
(38.2
)
 
1.5
   
   
(54.7
)
Minority interest
   
(2.7
)
 
   
   
   
(2.7
)
Equity in net (income) loss from subsidiary
   
49.1
   
(1.2
)
 
   
(47.9
)
 
 
Net income (loss)
 
$
(95.5
)
$
(62.0
)
$
(1.5
)
$
68.6
 
$
(90.4
)
     
Consolidating Statement of Cash Flows
     
Net cash provided by (used for) operating activities
   
137.7
   
(23.0
)
 
(0.6
)
 
   
114.1
 
Net cash used for investing activities
   
(943.7
)
 
819.4
   
(7.5
)
 
   
(131.8
)
Net cash provided by (used for) financing activities
   
744.7
   
(802.6
)
 
4.3
   
   
(53.6
)
Effect of exchange rate changes on cash
   
   
   
0.1
   
   
0.1
 
Net increase (decrease) in cash and cash equivalents
   
(61.3
)
 
(6.2
)
 
(3.7
)
 
   
(71.2
)
Cash and cash equivalents at beginning of period
   
62.3
   
15.0
   
5.8
   
   
83.1
 
Cash and cash equivalents at end of period
 
$
1.0
 
$
8.8
 
$
2.1
 
$
 
$
11.9
 
 

 
 
25



   
February 17, 2006 to June 30, 2006
 
   
 
 
Parent Company
 
Combined Guarantor Subsidiaries
 
Combined
Non-guarantor Subsidiaries
 
 
Consolidating Adjustments
 
 
 
Consolidated
 
Consolidating Statement of Operations
 
Net sales
 
$
412.3
 
$
187.1
 
$
50.5
 
$
(1.6
)
$
648.3
 
Cost of goods sold
   
390.1
   
152.1
   
46.4
   
(1.3
)