bpg10q072013.htm
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

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

For the quarterly period ended June 29, 2013
or
 [   ]     Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
  
  
Commission File Number 001-35672
BERRY PLASTICS GROUP, INC.
(Exact name of registrant as specified in its charter)

   
Delaware
20-5234618
(State or other jurisdiction  
of incorporation or organization)
(IRS employer  
identification number)
101 Oakley Street  
Evansville, Indiana
  
47710
(Address of principal executive offices)
(Zip code)
  
Registrant’s telephone number, including area code:  (812) 424-2904  
  
Securities registered pursuant to Section 12(b) of the Act:

   
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:  None   
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [   ]  No [X]  
  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.  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 [     ]           Accelerated filer  [     ]              Non-accelerated filer [   X  ] 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 ]  

As of August 6, 2013, there were approximately 115,300,000 shares of the registrant’s common stock outstanding. 
 




 
 

 

 
CAUTIONARY STATEMENT CONCERNING 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 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,” or “anticipates” or similar expressions that relate to our strategy, plans or intentions.  All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements.  In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments.  These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those that we expected.  We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions.  While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results.  All forward-looking statements are based upon information available to us on the date of this Form 10-Q. 
 
All forward-looking information and subsequent written and oral forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements.  Some of the factors that we believe could affect our results include: 
 
·  
risks associated with our substantial indebtedness and debt service; 
·  
changes in prices and availability of resin and other raw materials and our ability to pass on changes in raw material prices on a timely basis; 
·  
performance of our business and future operating results; 
·  
risks related to our acquisition strategy and integration of acquired businesses; 
·  
reliance on unpatented know-how and trade secrets; 
·  
increases in the cost of compliance with laws and regulations, including environmental, safety, and production and product laws and regulations; 
·  
risks related to disruptions in the overall economy and the financial markets that may adversely impact our business; 
·  
catastrophic loss of one of our key manufacturing facilities, natural disasters, and other unplanned business interruptions; 
·  
risks of competition, including foreign competition, in our existing and future markets; 
·  
general business and economic conditions, particularly an economic downturn; 
·  
the ability of our insurance to cover fully our potential exposures; and
·  
the other factors discussed in our Form 10-K for the fiscal year ended September 29, 2012 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-Q 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. 
 
Readers should carefully review the factors discussed in our Form 10-K for the fiscal year ended September 29, 2012 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 (“SEC”).  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.
 
 
 
 
-2-

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

 
-3-

 

                                                                                                                Berry Plastics Group, Inc.
Form 10-Q Index
For Quarterly Period Ended June 29, 2013  
 
 

     
Page No.
Part I.
Financial Information
   
       
 
Item 1.
Financial Statements:
 
   
Consolidated Balance Sheets
5
   
Consolidated Statements of Operations and Comprehensive Income (Loss)
6
   
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
7
   
Consolidated Statements of Cash Flows
8
   
Notes to Consolidated Financial Statements
9
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
29
 
Item 4.
Controls and Procedures
30
       
Part II.
Other Information
   
       
 
Item 1.
Legal Proceedings
30
 
Item 1A.
Risk Factors
31
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
31
 
Item 3.
Defaults Upon Senior Securities
31
 
Item 4.
Mine Safety Disclosures
31
 
Item 5.
Other Information
31
 
Item 6.
Exhibits
31
 
Signature
 
32
 

 

 
-4-

 


 
Berry Plastics Group, Inc.
Consolidated Balance Sheets
 (in millions of dollars, except per share data)
   
June 29, 
2013
   
September 29, 2012
 
Assets
 
(Unaudited)
       
Current assets:
           
Cash and cash equivalents
  $ 25     $ 87  
Accounts receivable (less allowance of $3 at June 29, 2013 and September 29, 2012)
    468       455  
Inventories:
               
Finished goods
    338       306  
Raw materials and supplies
    239       229  
      577       535  
Deferred income taxes
    117       114  
Prepaid expenses and other current assets
    32       42  
Total current assets
    1,219       1,233  
Property, plant, and equipment, net
    1,263       1,216  
Goodwill, intangible assets and deferred costs
    2,551       2,636  
Other assets
    12       21  
Total assets....
  $ 5,045     $ 5,106  
 
Liabilities and stockholders’ equity (deficit)
               
 
Current liabilities:
               
Accounts payable
  $ 315     $ 306  
Accrued expenses and other current liabilities
    298       300  
Current portion of long-term debt
    56       40  
Total current liabilities
    669       646  
Long-term debt, less current portion
    3,886       4,431  
Deferred income taxes
    347       315  
Other long-term liabilities
    394       166  
Total liabilities
    5,296       5,558  
Commitments and contingencies
               
Redeemable shares
          23  
Stockholders’ equity (deficit):
               
Common stock; ($0.01 par value;  400,000,000 shares authorized; 115,149,691 shares issued and 115,079,207 shares outstanding as of June 29, 2013; 84,696,218 issued and 83,209,232 outstanding as of September 29, 2012)
    1       1  
Paid-in capital
    319       131  
Notes receivable—common stock
          (2 )
Non-controlling interest
    3       3  
Accumulated deficit
    (530 )     (561 )
Accumulated other comprehensive loss
    (44 )     (47 )
Total stockholders’ equity (deficit)
    (251 )     (475 )
Total liabilities and stockholders’ equity (deficit)
  $ 5,045     $ 5,106  

See notes to consolidated financial statements.

 
-5-

 


 
Berry Plastics Group, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(in millions of dollars, except per share data)

   
Quarterly Period Ended
   
Three Quarterly Periods Ended
 
   
June 29, 
2013
   
June 30,
2012
   
June 29, 
2013
   
June 30,
2012
 
Net sales
  $ 1,221     $ 1,242     $ 3,443     $ 3,562  
Costs and expenses:
                               
Cost of goods sold
    998       1,035       2,829       2,999  
Selling, general and administrative
    78       78       230       234  
Amortization of intangibles
    27       27       81       81  
Restructuring and impairment charges
    1       4       7       30  
Operating income
    117       98       296       218  
Debt extinguishment
                64        
Other expense (income), net
    (2 )           (6 )     (1 )
Interest expense, net
    57       82       188       247  
Income (loss) before income taxes
    62       16       50       (28 )
Income tax expense (benefit)
    22       7       19       (8 )
Net income (loss)
  $ 40     $ 9     $ 31     $ (20 )
 
Net income (loss) per share:
                               
Basic
  $ 0.35     $ 0.11     $ 0.27     $ (0.24 )
Diluted
    0.33       0.11       0.26       (0.24 )
Weighted-average number of shares outstanding:
(in thousands)
                               
Basic
    114,132       83,190       112,839       83,508  
Diluted
    120,551       85,471       118,708       83,508  
                                 
                                 
Comprehensive income (loss)
  $ 45     $ 4     $ 34     $ (16 )

See notes to consolidated financial statements.

 
-6-

 


 
Berry Plastics Group, Inc.
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
For the Three Quarterly Periods Ended June 29, 2013 and June 30, 2012
(Unaudited)
(in millions of dollars)

   
Common Stock
   
Paid-in Capital
   
Notes Receivable-Common Stock
   
Non-controlling Interest
   
Accumulated Other Comprehensive Loss
   
Accumulated Deficit
   
Total
 
Balance at October 1, 2011
  $ 1     $ 142     $ (2 )   $ 3     $ (48 )   $ (563 )   $ (467 )
Redeemable shares
          (6 )                             (6 )
Stock compensation expense
          2                               2  
Derivative amortization
                            2             2  
Currency translation
                            2             2  
Net loss
                                  (20 )     (20 )
Balance at June 30, 2012
    1       138       (2 )     3       (44 )     (583 )     (487 )
                                                         
Balance at September 29, 2012
  $ 1     $ 131     $ (2 )   $ 3     $ (47 )   $ (561 )   $ (475 )
Proceeds from issuance of common stock
          21                               21  
Stock compensation expense
          6                               6  
Repayment of note receivable
                2                         2  
Termination of redeemable shares redemption requirement
          23        —                         23  
Proceeds from initial public offering
          438                               438  
Initial obligation under tax receivable agreement
          (300 )      —                         (300 )
Derivative amortization
                            2             3  
Interest rate hedge, net of tax
                            10             9  
Net income
                                  31       31  
Currency translation
                            (9 )           (9 )
Balance at June 29, 2013
  $ 1     $ 319     $     $ 3     $ (44 )   $ (530 )   $ (251 )

See notes to consolidated financial statements.

 
-7-

 

Berry Plastics Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(in millions of dollars)

   
Three Quarterly Periods Ended
 
   
June 29, 2013
   
June 30, 2012
 
Cash Flows from Operating Activities:
           
Net income (loss) ...
  $ 31     $ (20 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation
    177       182  
Amortization of intangibles
    81       81  
Non-cash interest expense
    11       18  
Deferred income tax expense (benefit)
    18       (10 )
Loss on disposal and impairment of assets
          20  
Debt extinguishment
    64        
Settlement of interest rate hedge
    16        
Other non-cash expense (income)
          2  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    (13 )     37  
Inventories
    (41 )     4  
Prepaid expenses and other assets
    13       (5 )
Accounts payable and other liabilities
    (60 )     (31 )
Net cash from operating activities
    297       278  
 
Cash Flows from Investing Activities:
               
Additions to property, plant and equipment
    (179 )     (167 )
Proceeds from sale of assets
    5       9  
Acquisition of businesses, net of cash acquired
    (24 )     (55 )
Net cash from investing activities
    (198 )     (213 )
 
Cash Flows from Financing Activities:
               
Proceeds from long-term borrowings
    1,391        
Repayments on long-term borrowings
    (1,968 )     (62 )
Proceeds from issuance of common stock
    21        
Repayment of notes receivable
    2        
Purchases of common stock
          (6 )
Payment of tax receivable agreement
    (5 )      
Debt financing costs
    (39 )      
Proceeds from initial public offering
    438        
Net cash from financing activities
    (160 )     (68 )
Effect of exchange rate changes on cash
    (1 )     (1 )
Net change in cash
    (62 )     (4 )
Cash and cash equivalents at beginning of period
    87       42  
Cash and cash equivalents at end of period
  $ 25     $ 38  

See notes to consolidated financial statements.

 
-8-

 

Berry Plastics Group, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(tables in millions of dollars, except per share data)


1.  Background
 
Berry Plastics Group, Inc. (“Berry” or the “Company”) is a leading provider of value-added plastic consumer packaging and engineered materials with a track record of delivering high-quality customized solutions to our customers.  Representative examples of our products include thermoform drink cups, thin-wall containers, blow-molded bottles, specialty closures, prescription vials, specialty plastic films, adhesives and corrosion protection materials.  We sell our solutions predominantly into consumer-oriented end-markets, such as food and beverage, healthcare and personal care.   
 
2.  Basis of Presentation
 
Berry, through its wholly-owned subsidiaries operates in four primary segments:  Rigid Open Top, Rigid Closed Top, Engineered Materials, and Flexible Packaging.  The Company’s customers are located principally throughout the United States, without significant concentration in any one region or with any one customer.  The accompanying unaudited Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting.  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.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission for the fiscal year end September 29, 2012.  All intercompany transactions have been eliminated.  The Company issued financial statements by filing with the Securities and Exchange Commission and has evaluated subsequent events up to the time of the filing.
 
Reclassification Adjustments
 
Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.  The Company historically presented Other operating expenses in its Consolidated Statements of Operations, which consisted predominately of business optimization costs and management fees to affiliates of Apollo and Graham.  The Company has eliminated separate presentation of Other operating expenses from its Consolidated Statements of Operations to better align with the way the Company is reviewing its operating results.  For the quarterly periods and three quarterly periods ended June 29, 2013 and June 30, 2012 business optimization costs were $2 million and $7 million and $13 million and $27 million, respectively and are included in Cost of goods sold.  The Company recorded management fees of $2 million and $7 million for the quarterly period and three quarterly periods ended June 30, 2012, respectively and are included in Selling, general and administrative expense.  The Company’s management fee agreement with Apollo and other investors terminated upon completion of the initial public offering.
 
Initial Public Offering
 
In October 2012, the Company filed an initial public offering and sold 29,411,764 shares of common stock at $16.00 per share.  In conjunction with the initial public offering the Company executed a 12.25 for one stock split of the Company’s common stock.  The effect of the stock split on outstanding shares and earnings per share has been retroactively applied to all periods presented.  Transaction fees totaling $33 million were included in Paid-in capital on the Consolidated Balance Sheets.  Proceeds, net of transaction fees, of $438 million and cash from operations were used to repurchase $455 million of 11% Senior Subordinated Notes due September 2016.  As part of the repurchase the Company paid premiums of $13 million and wrote-off $3 million of deferred financing fees.
 
Secondary Public Offering
 
In April 2013, we completed a secondary public offering in which certain funds affiliated with Apollo and Graham sold 18,975,000 shares of common stock at $17.00 per share, which included 2,475,000 shares purchased by the underwriters upon the exercise in full of their option to purchase additional shares.  The selling stockholders received proceeds from the offering, which, net of underwriting fees, totaled $311 million.  The Company received no proceeds and incurred fees of $1 million related to this offering.
 
 
 
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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 Company expects to pay between $300 million and $350 million in cash related to this agreement.  This range is based on the Company's assumptions using various items, including valuation analysis and current tax law.  Upon the effective date of the TRA, the Company recorded an initial obligation of $300 million which is recognized as a reduction of Paid-in capital on the Consolidated Balance Sheet as of June 29, 2013.  Changes in the recorded net deferred income tax assets will result in changes in the TRA obligation, and such changes will be recorded as Other expense (income) in the Consolidated Statement of Operations.  Payments under the TRA are not conditioned upon the parties' continued ownership of the Company.
 
Redeemable Common Stock 
 
As of September 29, 2012, the Company had entered into agreements with former employees that required the Company to redeem this common stock at pre-determined dates.  Historical redemption of this stock was based on the fair value of the stock on the fixed redemption date.  This redeemable common stock was recorded at its fair value in temporary equity and changes in the fair value were recorded in additional paid in capital each period.  Upon completion of the initial public offering, the redemption requirement terminated resulting in the Company reclassifying the shares into equity on the Consolidated Balance Sheets. 
 
Other Related Party Transactions
 
The Company recorded management fees of $2 million and $7 million for the quarterly period and three quarterly periods ended June 30, 2012, respectively, charged by Apollo and other investors to the Company.  The Company’s management fee agreement with Apollo and other investors terminated upon completion of the initial public offering.
 
BP Parallel LLC, a non-guarantor subsidiary of the Company, invested $21 million to purchase assignments of $21 million of unsecured term loan during the quarter ended December 29, 2012.  Of the $21 million assignments purchased, $14 million were purchased from third parties affiliated with Apollo.
 
In connection with our initial public offering in October 2012, the Company paid a $1 million underwriting fee to Apollo Global Securities, LLC, an affiliate of Apollo that served as a manager of the offering.
 
In connection with the incremental term loan Berry Plastics Corporation entered into in February 2013, the Company paid a $1 million underwriting fee to Apollo Global Securities, LLC, an affiliate of Apollo that served as a manager of the offering.
 
In connection with our April 2013 secondary public offering in which certain funds affiliated with Apollo and Graham sold 18,975,000 shares of common stock at $17.00 per share, which included 2,475,000 shares purchased by the underwriters upon the exercise in full of their option to purchase additional shares, the selling stockholders paid a $0.5 million underwriting fee to Apollo Global Securities, LLC, an affiliate of Apollo that served as a manager of the offering, reflecting its pro rata portion of the aggregate underwriting fee.
 
3.  Acquisitions
 
Stopaq®  
 
In June 2012, the Company acquired 100% of the shares of Frans Nooren Beheer B.V. and its operating companies (“Stopaq”) for a purchase price of $65 million ($62 million, net of cash acquired).  Stopaq is the inventor and manufacturer of patented visco-elastic technologies for use in corrosion prevention, sealing and insulation applications ranging from pipelines to subsea piles to rail and cable joints. The newly added business is operated in the Company’s Engineered Materials reporting segment.  To finance the purchase, the Company used cash on hand and existing credit facilities.  The Stopaq 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 Company has recognized goodwill on this transaction as a result of expected synergies.  A portion of the goodwill will not be deductible for tax purposes.   
 
 
 
-10-

 
 
 
Prime Label
 
In October 2012, the Company acquired 100% of the shares of Prime Label and Screen Incorporated (“Prime Label”) for a purchase price of $20 million.  Prime Label is a leader in specialty re-sealable labels, including a patented rigid lens closure system. The newly added business is operated in the Company’s Flexible Packaging reporting segment.  To finance the purchase, the Company used cash on hand and existing credit facilities.  The Prime Label acquisition has been accounted for under the purchase method of accounting, and accordingly, the preliminary purchase price has been allocated to the identifiable assets and liabilities based on estimated fair values at the acquisition date.  The Company has not finalized the purchase price allocation.  The Company has recognized goodwill on this transaction as a result of expected synergies.  A portion of the goodwill will not be deductible for tax purposes.
 
4.  Restructuring and Impairment Charges
 
The Company incurred restructuring costs related to severance, asset impairment and facility exit costs of $1 million and $4 million for the quarterly period ended and $7 million and $30 million for the three quarterly periods ended June 29, 2013 and June 30, 2012, respectively.  The tables below set forth the significant components of the restructuring charges recognized, by segment:
 
   
Quarterly Period Ended
   
Three Quarterly Periods Ended
 
   
June 29, 2013
   
June 30,
2012
   
June 29, 2013
   
June 30,
2012
 
Rigid Open Top
                       
Severance and termination benefits
  $     $     $ 1     $  
Total
  $     $     $ 1     $  
Rigid Closed Top
                               
Severance and termination benefits
  $     $ 1     $ 2     $ 3  
Facility exit costs and other
          1       1       2  
Asset impairment
                      4  
Total
  $     $ 2     $ 3     $ 9  
Engineered Materials
                               
Severance and termination benefits
  $     $ 1     $ 1     $ 3  
Facility exit costs and other
    1       1       1       2  
Asset impairment
                      16  
Total
  $ 1     $ 2     $ 2     $ 21  
Flexible Packaging
                               
Facility exit costs and other
  $     $     $ 1     $  
Total
  $       $     $ 1     $  
Consolidated
                               
Severance and termination benefits
  $     $ 2     $ 4     $ 6  
Facility exit costs and other
    1       2       3       4  
Asset impairment
                      20  
Total
  $ 1     $ 4     $ 7     $ 30  

 
The table below sets forth the activity with respect to the restructuring accrual at September 29, 2012 and June 29, 2013:
 
   
Severance and termination benefits
   
Facilities exit costs and other
   
Non-cash
   
Total
 
Balance at October 1, 2011
  $ 4     $ 3     $     $ 7  
Charges
    7       4       20       31  
Non-cash asset impairment
                (20 )     (20 )
Cash payments
    (7 )     (4 )           (11 )
Balance at September 29, 2012
    4       3             7  
Charges
    4       3             7  
Cash payments
    (5 )     (4 )           (9 )
Balance at June 29, 2013
  $ 3     $ 2     $     $ 5  

 
 
 
-11-

 
 
 
5.  Accrued Expenses, Other Current Liabilities and Other Long-Term Liabilities
 
The following table sets forth the totals included in Accrued expenses and other current liabilities on the Consolidated Balance Sheets.
 
 
   
June 29, 2013
   
September 29, 2012
 
Employee compensation, payroll and other taxes
  $ 75     $ 95  
Interest
    50       60  
Rebates
    61       68  
TRA obligation
    52        
Other
    60       77  
    $ 298     $ 300  

 
The following table sets forth the totals included in Other long-term liabilities on the Consolidated Balance Sheets.
 
   
June 29, 2013
   
September 29, 2012
 
Lease retirement obligation
  $ 22     $ 20  
Sale-lease back deferred gain
    32       34  
Pension liability
    80       84  
TRA obligation
    243        
Other
    17       28  
    $ 394     $ 166  

 
6.  Long-Term Debt
 
Long-term debt consists of the following:
 
 
Maturity Date
 
June 29, 
2013
   
September 29, 2012
 
Term loan
April 2015
  $ 1,125     $ 1,134  
Term loan
February 2020
    1,397        
Revolving line of credit
June 2016
          73  
9½% Second Priority Senior Secured Notes
May 2018
    500       500  
9¾% Second Priority Senior Secured Notes
January 2021
    800       800  
Senior Unsecured Term Loan
June 2014
    18       39  
Retired debt
            1,845  
Debt discount, net
      (8 )     (11 )
Capital leases and other
Various
    110       91  
        3,942       4,471  
Less current portion of long-term debt
      (56 )     (40 )
      $ 3,886     $ 4,431  

 
The Company’s senior secured credit facilities consist of $2.5 billion term loan and $650 million asset based revolving line of credit.  The availability under the revolving line of credit is the lesser of $650 million or based on a defined borrowing base which is calculated based on available accounts receivable and inventory.  The revolving line of credit allows up to $130 million of letters of credit to be issued instead of borrowings under the revolving line of credit.  At June 29, 2013, the Company had no outstanding balance on the revolving credit facility, $43 million outstanding letters of credit and a $68 million borrowing base reserve providing unused borrowing capacity of $539 million under the revolving line of credit.  The Company was in compliance with all covenants as of June 29, 2013.
 
 
 
-12-

 
 
In October 2012, the Company filed an initial public offering and sold 29,411,764 shares of common stock at $16.00 per share.  Proceeds, net of transaction fees, of $438 million and cash from operations were used to repurchase $455 million of 11% Senior Subordinated Notes.  The Company recognized a $16 million loss on extinguishment of debt related to this debt retirement.
 
In December 2012, BP Parallel LLC, invested $21 million to purchase assignments at then-prevailing market prices of $21 million of principal of the Senior Unsecured Term Loan.
 
In February 2013, the Company entered into an incremental assumption agreement to increase the commitments under Berry Plastics Corporation’s existing term loan credit agreement by $1.4 billion.  Berry Plastics Corporation borrowed loans in an aggregate principal amount equal to the full amount of the commitments on such date. The incremental term loans bear interest at LIBOR plus 2.50% per annum with a LIBOR floor of 1.00%, mature in February 2020 and are subject to customary amortization. The proceeds from the incremental term loan, in addition to borrowings under the revolving credit facility, were used to (a) satisfy and discharge all of Berry Plastics Corporation’s outstanding (i) Second Priority Senior Secured Floating Rate Notes due 2014, (ii) First Priority Senior Secured Floating Rate Notes due 2015, (iii) 101⁄4% Senior Subordinated Notes due 2016 and (iv) 81⁄4% First Priority Senior Secured Notes due 2015, which, in each case, were called for redemption in February 2013 and the related indentures and (b) pay related fees and expenses. The Company recognized a $48 million loss on extinguishment of debt related to this debt restructuring.

 
7.  Financial Instruments and Fair Value Measurements
 
As part of the overall risk management, the Company uses derivative instruments to reduce exposure to changes in interest rates attributed to the Company’s floating-rate borrowings.  For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation.  To the extent hedging relationships are found to be effective, as determined by FASB guidance, changes in fair value of the derivatives are offset by changes in the fair value of the related hedged item are recorded to Accumulated other comprehensive loss.  Management believes hedge effectiveness is evaluated properly in preparation of the financial statements.
 
Cash Flow Hedging Strategy
 
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of Accumulated other comprehensive loss and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.
 
In November 2010, the Company entered into two separate interest rate swap transactions to manage cash flow variability associated with $1 billion of the outstanding variable rate term loan debt (the “2010 Swaps”).  The first agreement had a notional amount of $500 million and became effective in November 2010.  The agreement swaps three month variable LIBOR contracts for a fixed three year rate of 0.8925% and expires in November 2013.  The second agreement had a notional amount of $500 million and became effective in December 2010.  The agreement swaps three month variable LIBOR contracts for a fixed three year rate of 1.0235% and expires in November 2013.  In August 2011, the Company began utilizing 1-month LIBOR contracts for the underlying senior secured credit facility.  The Company’s change in interest rate selection caused the Company to lose hedge accounting on both of the interest rate swaps.  The Company recorded subsequent changes in fair value in the Consolidated Statement of Operations and will amortize the unrealized losses to Interest expense through the end of the respective swap agreements.
 
In February 2013, the Company entered into an interest rate swap transaction to manage cash flow variability associated with $1 billion of outstanding variable rate term loan debt (the "2013 Swaps"). The agreement swaps the greater of a three-month variable LIBOR contract or 1.00% for a fixed three-year rate of 2.355%, with an effective date in May 2016 and expiration in May 2019.  In June 2013, the Company elected to settle this derivative instrument and received $16 million as a result of this settlement.  The offset is included in Accumulated other comprehensive loss and will be amortized to Interest expense from May 2016 through May 2019, the original term of the swap agreement.


 
Liability Derivatives
 
Derivatives instruments
Balance Sheet Location
 
June 29,
2013
   
September 29, 2012
 
Interest rate swaps — 2010 Swaps
Other long-term liabilities
  $ 3     $ 7  

 
 
-13-

 
 
 
The effect of the derivative instruments on the Consolidated Statement of Operations is as follows:
 
     
Quarterly Period Ended
   
Three Quarterly Period Ended
 
Derivatives not designated as hedging instruments under FASB guidance
Statement of Operations Location
 
June 29, 2013
   
June 30, 2012
   
June 29, 2013
   
June 30, 2012
 
    Interest rate swaps — 2010 Swaps
Other expense (income)
  $ (1 )   $     $ (4 )   $  
 
Interest expense
  $ 1     $ 1     $ 3     $ 2  

 
The Fair Value Measurements and Disclosures section of the Accounting Standards Codification (“Codification” or “ASC”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework for measuring fair value.  This section also establishes a three-level hierarchy (Level 1, 2 or 3) for fair value measurements based upon the observability of inputs to the valuation of an asset or liability as of the measurement date.  This section also requires the consideration of the counterparty’s or the Company’s nonperformance risk when assessing fair value.
 
The Company’s interest rate swap fair values were determined using Level 2 inputs as other significant observable inputs were not available.
 
The Company’s financial instruments consist primarily of cash and cash equivalents, long-term debt, interest rate swap agreements and capital lease obligations.  The fair value of the Company’s long-term debt was determined using Level 2 inputs, which include using quoted prices in inactive markets or significant other observable inputs for identical or comparable assets or liabilities.  The following table summarizes our long-term indebtedness for which the book value was in excess of the fair value:
 
   
June 29, 2013
   
September 29, 2012
 
Second Priority Senior Secured Floating Rate Notes
  $     $ 1  
Senior Unsecured Term Loan
          6  

 
Non-recurring Fair Value Measurements
 
The Company has certain assets that are measured at fair value on a non-recurring basis when impairment indicators are present.  The assets are adjusted to fair value only when the carrying values exceed the fair values.  The categorization of the framework used to price the assets is considered a Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.  These assets include primarily our definite lived and indefinite lived intangible assets, including Goodwill and our property plant and equipment.  The Company conducted our annual step one evaluation of goodwill and other intangibles as of the first date of the fourth quarter and preliminarily determined no impairment existed for any of our reporting units.  The Company has experienced volume declines in certain of our reporting units, however our cost reduction initiatives and profitability in these reporting units have been consistent with our estimated operating plan and previous cash flow estimates and we believe that our long term forecasts are still appropriate.  We have utilized a consistent methodology with prior years, which leverages a six year discounted cash flow analysis with a terminal year in combination with a comparable company market approach to determine the fair value of our reporting units.
 
Included in the following table are the major categories of assets measured at fair value on a non-recurring basis as of June 29, 2013 and June 30, 2012, along with the impairment loss recognized on the fair value measurement during the period:
 
   
As of June 29, 2013
 
   
Level 1
   
Level 2
   
Level 3
                   
   
Quoted Prices in Active Markets for Identical Assets or Liabilities
   
Significant Other Observable Inputs
   
Significant Unobservable Inputs
   
Total
   
Quarterly Period Ended
June 29, 2013 Impairment Loss
   
Three Quarterly Periods Ended
June 29, 2013 Impairment Loss
 
Indefinite-lived trademarks
  $     $     $ 207     $ 207     $     $  
Goodwill
                1,633       1,633              
Definite lived intangible assets
                680       680              
Property, plant, and equipment
                1,263       1,263              
Total
  $     $     $ 3,783     $ 3,783     $     $  

 

 
 
-14-

 

   
As of June 30, 2012
 
   
Level 1
   
Level 2
   
Level 3
                   
   
Quoted Prices in Active Markets for Identical Assets or Liabilities
   
Significant Other Observable Inputs
   
Significant Unobservable Inputs
   
Total
   
Quarterly Period Ended June 30, 2012 Impairment Loss
   
Three Quarterly Periods Ended June 30, 2012 Impairment Loss
 
Indefinite-lived trademarks
  $     $     $ 220     $ 220     $     $  
Goodwill
                1,635       1,635              
Definite lived intangible assets
                729       729             17  
Property, plant, and equipment
                1,235       1,235             3  
Total
  $     $     $ 3,819     $ 3,819     $     $ 20  

 
Valuation of Property, Plant and Equipment and Definite Lived Intangible Assets
 
The Company periodically realigns their manufacturing operations which results in facilities being closed and shut down and equipment transferred to other facilities or equipment being scrapped.  The Company utilizes appraised values to corroborate the fair value of the facilities and has utilized a scrap value based on prior facility shut downs to estimate the fair value of the equipment, which has approximated the actual value that was received.  When impairment indicators exist, the Company will also perform an undiscounted cash flow analysis to determine the recoverability of the Company’s property, plant and equipment and definite lived intangibles.
 
8.  Income Taxes
 
The effective tax rate was 38% and 26% for the three quarterly periods ended June 29, 2013 and June 30, 2012, respectively.  A reconciliation of income tax benefit, computed at the federal statutory rate, to income tax benefit, as provided for in the financial statements, is as follows:
 
   
Quarterly Period Ended
   
Three Quarterly Periods Ended
 
   
June 29,
2013
   
June 30,
2012
   
June 29, 
2013
   
June 30,
2012
 
Income tax benefit computed at statutory rate
  $ 22     $ 5     $ 18     $ (10 )
State income tax benefit, net of federal taxes
    1             1        
Change in valuation allowance
                1       1  
Other
    (1 )     2       (1 )     1  
Income tax expense (benefit)
  $ 22     $ 7     $ 19     $ (8 )
 
 
 
-15-

 
 
9.  Operating Segments
 
Berry’s operations are organized into four reportable segments: Rigid Open Top, Rigid Closed Top, Engineered Materials, and Flexible Packaging.  The Company has manufacturing and distribution centers in the United States, Canada, Mexico, Belgium, Australia, Germany, Brazil, Malaysia, and India.  The North American operation represents 96% of the Company’s net sales, 98% of total long-lived assets, and 97% of the total assets.  Selected information by reportable segment is presented in the following table: 
 
   
Quarterly Period Ended
   
Three Quarterly Periods Ended
 
   
June 29, 2013
   
June 30, 2012
   
June 29, 2013
   
June 30, 2012
 
Net sales:
                       
Rigid Open Top
  $ 312     $ 329     $ 828     $ 912  
Rigid Closed Top
    370       374       1,036       1,085  
              Rigid Packaging
  $ 682     $ 703     $ 1,864     $ 1,997  
Engineered Materials
    351       345       1,030       1,010  
Flexible Packaging
    188       194       549       555  
Total net sales
  $ 1,221     $ 1,242     $ 3,443     $ 3,562  
Operating income (loss):
                               
Rigid Open Top
  $ 35     $ 42     $ 95     $ 114  
Rigid Closed Top
    43       28       97       57  
              Rigid Packaging
  $ 78     $ 70     $ 192     $ 171  
Engineered Materials
    31       25       88       48  
Flexible Packaging
    8       3       16       (1 )
Total operating income
  $ 117     $ 98     $ 296     $ 218  
Depreciation and amortization:
                               
Rigid Open Top
  $ 23     $ 22     $ 68     $ 67  
Rigid Closed Top
    33       34       98       102  
              Rigid Packaging
  $ 56     $ 56     $ 166     $ 169  
Engineered Materials
    18       17       53       51  
Flexible Packaging
    12       14       39       43  
Total depreciation and amortization
  $ 86     $ 87     $ 258     $ 263  

   
June 29, 2013
   
September 29, 2012
 
Total assets:
           
Rigid Open Top
  $ 1,805     $ 1,773  
Rigid Closed Top
    1,927       1,959  
        Rigid Packaging   3,732      $ 3,732   
Engineered Materials
    787       873  
Flexible Packaging
    526       501  
Total assets
  $ 5,045     $ 5,106  
Goodwill:
               
Rigid Open Top
  $ 681     $ 681  
Rigid Closed Top
    830       832  
              Rigid Packaging
  $ 1,511     $ 1,513  
Engineered Materials
    73       73  
Flexible Packaging
    49       40  
Total goodwill
  $ 1,633     $ 1,626  

 
10.  Guarantor and Non-Guarantor Financial Information  
 
Berry Plastics Corporation (“Issuer”) has notes outstanding which are fully, jointly, severally, and unconditionally guaranteed by the parent company and substantially all of Berry’s domestic subsidiaries.  Separate narrative information or financial statements of the guarantor subsidiaries have not been included because they are 100% owned by the parent company and the guarantor subsidiaries unconditionally guarantee such debt on a joint and several basis.  A guarantee of a guarantor of the securities will terminate upon the following customary circumstances:  the sale of the capital stock of such guarantor if such sale complies with the indenture, the designation of such guarantor
 
 
 
-16-

 
 
as an unrestricted subsidiary, the defeasance or discharge of the indenture, as a result of the holders of certain other indebtedness foreclosing on a pledge of the shares of a guarantor subsidiary or if such guarantor no longer guarantees certain other indebtedness of the issuer.  The guarantees are also limited as necessary to prevent them from constituting a fraudulent conveyance under applicable law and guarantees guaranteeing subordinated debt are subordinated to certain other of the Company’s debts.  Presented below is condensed consolidating financial information for the parent, issuer, guarantor subsidiaries and non-guarantor subsidiaries.  Our issuer and guarantor financial information includes all of our domestic operating subsidiaries, our non-guarantor subsidiaries include our foreign subsidiaries and BP Parallel, LLC.  BP Parallel, LLC is the entity that we established to buyback debt securities of Berry Plastics Group, Inc. and Berry Plastics Corporation.  Berry Plastics Group, Inc. uses the equity method to account for its ownership in Berry Plastics Corporation in the Condensed Consolidating Supplemental Financial Statements.  Berry Plastics Corporation uses the equity method to account for its ownership in the guarantor and non-guarantor subsidiaries.  All consolidating entries are included in the eliminations column along with the elimination of intercompany balances.
 
Condensed Supplemental Consolidated Balance Sheet

   
June 29, 2013
 
   
Parent
   
Issuer
   
Guarantor
Subsidiaries
   
Non—
Guarantor
Subsidiaries
   
Eliminations
   
Total
 
Current assets
    117       89       883       140       (10 )     1,219  
Intercompany receivable
    283       3,596                   (3,879 )      
Property, plant and equipment, net
          111       1,080       72             1,263  
 Other noncurrent assets
    735       1,017       2,294       711       (2,194 )     2,563  
 Total assets
  $ 1,135     $ 4,813     $ 4,257     $ 923     $ (6,083 )   $ 5,045  
 
                                               
Current liabilities
    63       186       362       69       (11 )     669  
Intercompany payable
                3,916       (37 )     (3,879 )      
Noncurrent liabilities
    1,323       3,964       57       6       (723 )     4,627  
Equity (deficit)
    (251 )     663       (78 )     885       (1,470 )     (251 )
Total liabilities and equity (deficit)
  $ 1,135     $ 4,813     $ 4,257     $ 923     $ (6,083 )   $ 5,045  

  
   
September 29, 2012
 
   
Parent
   
Issuer
   
Guarantor
Subsidiaries
   
Non—
Guarantor
Subsidiaries
   
Eliminations
   
Total
 
Current assets
    120       226       759       139       (11 )     1,233  
Intercompany receivable
    243       3,800       74             (4,117 )      
Property, plant and equipment, net
          113       1,023       80             1,216  
 Other noncurrent assets
    262       809       2,353       749       (1,516 )     2,657  
 Total assets
  $ 625     $ 4,948     $ 4,209     $ 968     $ (5,644 )   $ 5,106  
 
                                               
Current liabilities
    18       278       315       48       (13 )     646  
Intercompany payable
                3,966       151       (4,117 )      
Noncurrent liabilities
    1,059       4,579       119       8       (853 )     4,912  
Equity (deficit)
    (452 )     91       (191 )     761       (661 )     (452 )
Total liabilities and equity (deficit)
  $ 625     $ 4,948     $ 4,209     $ 968     $ (5,644 )   $ 5,106  

 
 
-17-

 

 
Condensed Supplemental Consolidated Statements of Operations
 
   
Quarterly Period Ended June 29, 2013
 
   
Parent
   
Issuer
   
Guarantor
Subsidiaries
   
Non-
Guarantor
Subsidiaries
   
Eliminations
   
Total
 
Net sales
  $     $ 146     $ 978     $ 97     $     $ 1,221  
Cost of sales
          118       793       87             998  
Selling, general and administrative expenses
          12       58       8             78  
Amortization of intangibles
          3       22       2             27  
Restructuring and impairment charges, net
          1                         1  
Operating income (loss)
          12       105                   117  
Other income
          (4 )     2                   (2 )
Interest expense, net
    12       1       49       (29 )     24       57  
Equity in net income of subsidiaries
    (74 )     (82 )                 156        
Net income (loss) before income taxes
    62       97       54       29       (180 )     62  
Income tax expense (benefit)
    22       32             1       (33 )     22  
Net income (loss)
  $ 40     $ 65     $ 54     $ 28     $ (147 )   $ 40  
Comprehensive  income (loss)
  $ 40     $ 77     $ 54     $ 21     $ (147 )   $ 45  


   
Quarterly Period Ended June 30, 2012
 
   
Parent
   
Issuer
   
Guarantor
Subsidiaries
   
Non-
Guarantor
Subsidiaries
   
Eliminations
   
Total
 
Net sales
  $     $ 145     $ 1,004     $ 93     $     $ 1,242  
Cost of sales
          124       823       88             1,035  
Selling, general and administrative expenses
          11       59       8             78  
Amortization of intangibles
          3       24                   27  
Restructuring and impairment charges, net
          1       3                   4  
Operating income (loss)
          6       95       (3 )           98  
Interest expense, net
    14       9       66       (28 )     21       82  
Equity in net income of subsidiaries
    (30 )     (54 )                 84        
Net income (loss) before income taxes
    16       51       29       25       (105 )     16  
Income tax expense (benefit)
    7       20       (1 )     1       (20 )     7  
Net income (loss)
  $ 9     $ 31     $ 30     $ 24     $ (85 )   $ 9  
Comprehensive  income (loss)
  $ 9     $ 32     $ 30     $ 18     $ (85 )   $ 4  



 
-18-

 

 
   
Three Quarterly Periods Ended June 29, 2013
 
   
Parent
   
Issuer
   
Guarantor
Subsidiaries
   
Non-
Guarantor
Subsidiaries
   
Eliminations
   
Total
 
Net sales
  $     $ 416     $ 2,746     $ 281     $     $ 3,443  
Cost of sales
          373       2,230       226             2,829  
Selling, general and administrative expenses
          29       176       25             230  
Amortization of intangibles
          9       67       5             81  
Restructuring and impairment charges, net
          1       6                   7  
Operating income (loss)
          4       267       25             296  
Debt extinguishment
          64                         64  
Other income
          (8 )     2                   (6 )
Interest expense, net
    34       18       153       (89 )     72       188  
Equity in net income of subsidiaries
    (84 )     (225 )                 309        
Net income (loss) before income taxes
    50       155       112       114