Item
7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Formation
of Berry Holding
On
April
3, 2007, Berry Plastics Group, Inc. (“Old Berry Group”) completed a
stock-for-stock merger (the “Merger”) with Covalence Specialty Materials Holding
Corp. (“Old Covalence Holding”). The resulting company retained the name Berry
Plastics Group, Inc. (“Berry Group”). Immediately following the
Merger, Berry Plastics Holding Corporation (“Old Berry Holding”) and Covalence
Specialty Materials Corp. (“Old Covalence”) were combined as a direct subsidiary
of Berry Group. The resulting company retained the name Berry
Plastics Holding Corporation (“Berry Holding”). Unless the context
requires otherwise, references in this Management's Discussion and Analysis
of
Financial Condition and Results of Operations to “we”, “us”, the “Company”,
“Berry”, and “Berry Plastics” refer to Berry Group and its consolidated
subsidiaries, including Berry Holding, after giving effect to the transactions
described in this paragraph. The combination was accounted for as a
merger of entities under common control. We believe the combination
of these entities will provide us with significant opportunities for growth
through increasing operational efficiencies, reducing fixed costs, optimizing
manufacturing assets and improving the efficiency of capital
spending.
Apollo
V Acquisition of Old Covalence Holding
On
February 16, 2006, Old Covalence Holding was formed through the acquisition
of
substantially all of the assets and liabilities of Tyco Plastics & Adhesives
(“TP&A”) under a Stock and Asset Purchase Agreement dated December 20, 2005
among an affiliate of Apollo Management V, L.P (“Apollo V”), Tyco International
Group S.A. and Tyco Group S.a.r.l.
Apollo
VI Acquisition of Old Berry Group
On
September 20, 2006, BPC Acquisition
Corp. merged with and into BPC Holding Corporation pursuant to an agreement
and
plan of merger (the “Apollo Berry Merger”), dated June 28, 2006, with BPC
Holding Corporation continuing as the surviving
corporation. Following the consummation of the Apollo Berry Merger,
BPC Holding Corporation changed its name to Berry Plastics Holding
Corporation. Pursuant to the Apollo Berry Merger, Old Berry Holding
was a wholly-owned subsidiary of Old Berry Group, the principal stockholders
of
which were Apollo Investment Fund VI, L.P., AP Berry Holdings, LLC, an affiliate
of Graham Berry Holdings, L.P., and management. Apollo Investment
Fund VI, L.P. (“Apollo VI”) and AP Berry Holdings, LLC are affiliates of Apollo
Management, L.P. (“Apollo Management”), which is a private investment
firm. Graham Berry Holdings, L.P. is an affiliate of Graham Partners,
Inc. (“Graham”), a private equity firm.
Overview
You
should read the following
discussion in conjunction with the consolidated financial statements of Berry
Holding and its subsidiaries and the accompanying notes thereto, which
information is included elsewhere herein. This discussion contains
forward-looking statements and involves numerous risks and uncertainties,
including, but not limited to, those described in the “Risk Factors”
section. Our actual results may differ materially from those
contained in any forward-looking statements.
We
believe we are one of the world’s leading manufacturer and marketers of plastic
packaging products. We are a major producer of a wide range of
products, including rigid open top and rigid closed top packaging,
polyethylene-based plastic films, industrial tapes, medical specialties,
packaging, heat-shrinkable coatings and specialty laminates. We
manufacture a broad range of innovative, high quality packaging solutions
using
our collection of over 1,700 proprietary molds and an extensive set of
internally developed processes and technologies. Our principal products include
containers, drink cups, bottles, closures and overcaps, tubes, prescription
vials, trash bags, stretch films, plastic sheeting and tapes which we sell
into
a diverse selection of attractive and stable end markets, including food
and
beverage, healthcare, personal care, quick service and family dining
restaurants, custom and retail, agricultural, horticultural, institutional,
industrial, construction, aerospace and automotive. We sell our
packaging solutions to over 13,000 customers, ranging from large multinational
corporations to small local businesses comprised of a favorable balance of
leading national blue-chip customers as well as a collection of smaller local
specialty businesses. We believe that we are one of the largest
global purchasers of polyethylene resin, our principal raw material, buying
approximately 1.2 billion pounds annually. We believe that our
proprietary tools and technologies, low-cost manufacturing capabilities and
significant operating and purchasing scale provide us with a competitive
advantage in the marketplace. Our unique combination of leading market
positions, proven management team, product and customer diversity and
manufacturing and design innovation provides access to a variety of growth
opportunities. Our top 10 customers represented approximately 24% of our
fiscal
2007 net sales with no customer accounting for more than 6% of our fiscal
2007
net sales. The average length of our relationship with these
customers was 21 years. Additionally, we operate 55 strategically located
manufacturing facilities and have extensive distribution
capabilities. At the end of fiscal 2007, we had approximately 12,700
employees.
Recent
Developments
On
December 19, 2007, Holding and certain of it subsidiaries entered into a
sale
lease back transaction pursuant to which Holding sold its manufacturing
facilities located in Baltimore, Maryland; Evansville, Indiana; and Lawrence,
Kansas for approximately $83 million resulting in net proceeds of $73.3 million
after repayment of $7.9 million on capital lease obligations and transaction
expenses. Holding's lease of these facilities is for a term of 20
years, and initial annual rent expense is approximately $6.6 million
annually.
On
December 20, 2007, Holding acquired all of the outstanding shares of MAC
Closures, Inc., a Canadian corporation, through its newly formed subsidiary
BerryMac Acquisition Limited for approximately CN$72 million. MAC
Closures has manufacturing locations in Waterloo, Quebec and Oakville, Ontario.
MAC Closures has approximately CN$41 million in annual revenue and 180
employees. The acquisition was funded with proceeds from the sale
lease back transaction mentioned above.
On
December 21, 2007, Holding announced that it entered into a definitive agreement
to acquire Captive Holdings, Inc., the parent company of Captive Plastics,
Inc.,
a leading manufacturer of blow molded plastic bottles for approximately $500
million. Captive Plastics, Inc. and Berry's rigid business have
significant customer overlap, similar processes and similar
products. Subject to customary closing conditions, the parties expect
to close the acquisition in the first quarter of 2008.
Acquisitions,
Disposition and Facility Rationalizations
We
maintain a selective and disciplined acquisition strategy, which is focused
on
improving our financial performance in the long-term, enhancing our market
positions and expanding our product lines or, in some cases, providing us
with a
new or complementary product line. We have historically achieved
significant reductions in manufacturing and overhead costs of acquired companies
by introducing advanced manufacturing processes, exiting low-margin businesses
or product lines, reducing headcount, rationalizing facilities and machinery,
applying best practices and capitalizing on economies of scale. In
connection with our acquisitions, we have in the past and may in the future
incur charges related to these reductions and rationalizations.
Rollpak
Acquisition
On
April
11, 2007, Berry Plastics 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. The purchase price was
funded utilizing cash on hand.
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 were less than
$9.0 million.
Plant
Rationalizations
On
February 6, 2007, Old 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
fiscal 2007, the Company recorded charges of $6.2 million which was comprised
of
$3.4 million of asset impairments, $0.8 million of severance and $2.0 million
of
relocation and other restructuring charges.
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 fiscal 2007. In addition, the Company recorded
other restructuring charges related to equipment and inventory relocation
and
other operating costs of the facility of $1.5 million in fiscal
2007.
In
connection with the Merger on April 3, 2007, the Company announced that it
would
close the Old 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
and coatings. In connection with these changes, the Company recorded
severance charges in fiscal 2007 of $3.5 million and lease termination charges
of $1.9 million. The Company has substantially completed this
reorganization as of September 29, 2007.
On
July
10, 2007, we announced a restructuring of the operations within our flexible
films division. The restructuring will include the closing of four
manufacturing locations: Yonkers, New York; Columbus, Georgia; City of Industry,
California and Santa Fe Springs, California. We intend to complete
each of the closings prior to December 31, 2007. The business at each
facility being closed will be transferred to other Company
facilities. The affected business accounted for less than $100
million of annual net sales. On September 27, 2007, we announced our
plans to rationalize our Sparks, Nevada manufacturing location. We
intend to complete the closing prior to August 1, 2008. The business
will be transferred to other Company facilities. The affected
business accounted for approximately $10 million of annual net sales. The
Company recorded an expense of $22.1 million in fiscal 2007 related to these
restructuring activities.
Critical
Accounting Policies and Estimates
We
disclose those accounting policies that we consider to be significant in
determining the amounts to be utilized for communicating our consolidated
financial position, results of operations and cash flows in the second note
to
our consolidated financial statements included elsewhere herein. Our
discussion and analysis of our financial condition and results of operations
are
based on our consolidated financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United
States. The preparation of financial statements in conformity with
these principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying
notes. Actual results are likely to differ from these estimates, but
management does not believe such differences will materially affect our
financial position or results of operations. We believe that the
following accounting policies are the most critical because they have the
greatest impact on the presentation of our financial condition and results
of
operations.
Allowance
for Doubtful
Accounts. We evaluate our allowance for doubtful accounts on a
quarterly basis and review any significant customers with delinquent balances
to
determine future collectibility. We base our determinations on legal
issues (such as bankruptcy status), past history, current financial and credit
agency reports, and the experience of our credit representatives. We
reserve accounts that we deem to be uncollectible in the quarter in which
we
make the determination. We maintain additional reserves based on our historical
bad debt experience. Additionally, our allowance for doubtful
accounts includes a reserve for cash discounts that are offered to some of
our
customers for prompt payment. We believe, based on past history and
our credit policies, that our net accounts receivable are of good
quality. A ten percent increase or decrease in our bad debt
experience would not have a material impact on the results of operations
of the
Company. Our allowance for doubtful accounts was $11.3 million and
$9.6 million as of September 29, 2007 and September 30, 2006,
respectively.
Inventory
Obsolescence. We evaluate our reserve for inventory
obsolescence on a quarterly basis and review inventory on-hand to determine
future salability. We base our determinations on the age of the
inventory and the experience of our personnel. We reserve inventory
that we deem to be not salable in the quarter in which we make the
determination. We believe, based on past history and our policies and
procedures, that our net inventory is salable. A ten percent increase
or decrease in our inventory obsolescence experience would not have a material
impact on the results of operations of the Company. Our reserve for
inventory obsolescence was $14.9 million and $16.6 million as of September
29,
2007 and September 30, 2006, respectively.
Medical
Insurance. We offer our employees medical insurance that is
primarily self-insured by us. As a result, we accrue a liability for
known claims as well as the estimated amount of expected claims incurred
but not
reported. We evaluate our medical claims liability on a quarterly
basis, obtain an independent actuarial analysis on an annual basis and perform
payment lag analysis. Based on our analysis, we believe that our
recorded medical claims liability should be sufficient. A ten percent
increase or decrease in our medical claims experience would not have a material
impact on the results of operations of the Company. Our accrued
liability for medical claims was $6.7 million and $9.1 million, including
reserves for expected medical claims incurred but not reported, as of September
29, 2007 and September 30, 2006, respectively.
Workers’
Compensation
Insurance. The majority of our facilities are covered under a
large deductible program for workers’ compensation insurance. On a
quarterly basis, we evaluate our liability based on third-party adjusters’
independent analyses by claim. Based on our analysis, we believe that
our recorded workers’ compensation liability should be sufficient. A
ten percent increase or decrease in our workers’ compensations claims experience
would not have a material impact on the results of operations of the
Company. Our accrued liability for workers’ compensation claims was
$6.7 million and $5.9 million as of September 29, 2007 and September 30,
2006,
respectively.
Revenue
Recognition. Revenue from sales of products is recognized at
the time product is shipped to the customer and title and risk of ownership
transfer to the purchaser.
Impairments
of Long-Lived
Assets. In accordance with the methodology described in
Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, we review long-lived assets
for
impairment whenever events or changes in circumstances indicate the carrying
amount of such assets may not be recoverable. Impairment losses are
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by
those
assets are less than the assets’ carrying amounts. The impairment
loss is measured by comparing the fair value of the asset to its carrying
amount. Based on our review, we recorded on impairment of $18.1
million in fiscal 2007.
Goodwill
and Other Indefinite Lived
Intangible Assets. In accordance with the methodology
described in SFAS No. 142, Goodwill and Other Intangible Assets, we review
our
goodwill and other indefinite lived intangible assets for impairment whenever
events or changes in circumstances indicate the carrying amount of such assets
may not be recoverable. Impairment losses are recorded when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets’ carrying
amounts. The impairment loss is measured by comparing the fair value
of the asset to its carrying amount. In addition, we annually review
our goodwill and other indefinite lived intangible assets for
impairment. No impairments were recorded in the financial statements
included in this Form 10-K.
Deferred
Taxes and Effective Tax
Rates. We estimate the effective tax rates and associated
liabilities or assets for each legal entity of ours in accordance with SFAS
No.
109. We use tax-planning to minimize or defer tax liabilities
to
future
periods. In recording effective tax rates and related liabilities and assets,
we
rely upon estimates, which are based upon our interpretation of United States
and local tax laws as they apply to our legal entities and our overall tax
structure. Audits by local tax jurisdictions, including the United
States Government, could yield different interpretations from our own and
cause
the Company to owe more taxes than originally recorded. For interim
periods, we accrue our tax provision at the effective tax rate that we expect
for the full year. As the actual results from our various businesses
vary from our estimates earlier in the year, we adjust the succeeding interim
periods’ effective tax rates to reflect our best estimate for the year-to-date
results and for the full year. As part of the effective tax rate, if
we determine that a deferred tax asset arising from temporary differences
is not
likely to be utilized, we will establish a valuation allowance against that
asset to record it at its expected realizable value. Our valuation
allowance against deferred tax assets was $3.1 million and $11.5 million
as of
September 29, 2007 and September 30, 2006, respectively.
Accrued
Rebates.
We offer various rebates to our customers in exchange for their purchases.
These
rebate programs are individually negotiated with our customers and contain
a
variety of different terms and conditions. Certain rebates are calculated
as
flat percentages of purchases, while others included tiered volume incentives.
These rebates may be payable monthly, quarterly, or annually. The calculation
of
the accrued rebate balance involves significant management estimates, especially
where the terms of the rebate involve tiered volume levels that require
estimates of expected annual sales. These provisions are based on estimates
derived from current program requirements and historical experience. We use
all
available information when calculating these reserves. Our accrual for customer
rebates was $35.9 million and $36.9 million as of September 29, 2007 and
September 30, 2006, respectively.
Pension. Pension
benefit costs include assumptions for the discount rate, retirement age,
and
expected return on plan assets. Retiree medical plan costs include
assumptions for the discount rate, retirement age, and health-care-cost trend
rates. These assumptions have a significant effect on the amounts
reported. In addition to the analysis below, see the notes to the
consolidated financial statements for additional information regarding our
retirement benefits. Periodically, we evaluate the discount rate and
the expected return on plan assets in our defined benefit pension and retiree
health benefit plans. In evaluating these assumptions, we consider
many factors, including an evaluation of the discount rates, expected return
on
plan assets and the health-care-cost trend rates of other companies; our
historical assumptions compared with actual results; an analysis of current
market conditions and asset allocations; and the views of
advisers. In evaluating our expected retirement age assumption, we
consider the retirement ages of our past employees eligible for pension and
medical benefits together with our expectations of future retirement
ages. We believe our pension and retiree medical plan assumptions are
appropriate based upon the above factors. A one percent increase or
decrease in our health-care-cost trend rates would not have a material impact
on
the results of operations of the Company. Also, a one quarter
percentage point change in our discount rate or expected return on plan assets
would not have a material impact on the results of operations of the
Company.
Based
on
a critical assessment of our accounting policies and the underlying judgments
and uncertainties affecting the application of those policies, we believe
that
our consolidated financial statements provide a meaningful and fair perspective
of Holding and its consolidated subsidiaries. This is not to suggest
that other risk factors such as changes in economic conditions, changes in
material costs, our ability to pass through changes in material costs, and
others could not materially adversely impact our consolidated financial
position, results of operations and cash flows in future periods.
Recently
Issued Accounting Standards
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51. This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to
be
reported at amounts that include the amounts attributable to both parent
and the
noncontrolling interest. This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Based on current conditions, we do not expect the
adoption of SFAS 160 to have a significant impact on the Company’s results of
operations or financial position.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.” This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called
the purchase method) be used for all business combinations and for an acquirer
to be identified for each business combination. This statement defines the
acquirer as the entity that obtains control of one or more businesses in
the
business combination and establishes the acquisition date as the date
that
the
acquirer achieves control. This statement requires an acquirer to recognize
the
assets acquired, the liabilities assumed, and any noncontrolling interest
in the
acquiree at the acquisition date, measured at their fair values as of that
date,
with limited exceptions specified in the statement. This statement
applies prospectively to business combinations for which the acquisition
date is
on or after the beginning of the first annual reporting period beginning
on or
after December 15, 2008. The Company is currently assessing the impact of
the
statement.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”, which includes an amendment of FASB
Statement No. 51. This statement permits entities to choose to
measure many financial instruments and certain other items at fair
value. This statement allows entities to report unrealized gains and
losses at fair value for those selected items. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. The Company is currently assessing the impact of
the statement.
In
June 2006, the FASB issued
Interpretation No. 48, Accounting for “Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of
a tax position taken or expected to be taken in a tax return. FIN 48
also provides guidance on description, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 will
be effective in fiscal 2008, and the Company is currently assessing the impact
of the statement.
The
Company adopted SFAS No. 154,
Accounting Changes and Error Corrections—a replacement of APB Opinion
No. 20 and FASB Statement No. 3, on January 1,
2006. SFAS No. 154 requires retrospective application to prior
periods’ financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change or unless specific transition provisions are proscribed
in
the accounting pronouncements. SFAS No. 154 does not change the accounting
guidance for reporting a correction of an error in previously issued financial
statements or a change in accounting estimate. The adoption of SFAS
No. 154 did not have an impact on our consolidated financial
statements.
In
September 2006, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 108 (“SAB 108”) which provides guidance on how the
effects of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. SAB 108
requires entities to quantify the effects of unadjusted errors using both
a
balance sheet and an income statement approach. Entities are required
to evaluate whether either approach results in a quantifying misstatement
that
is material. The Company adopted SAB 108 effective in fiscal
2006. The adoption of SAB 108 did not have an impact on our
consolidated financial statements.
In
September 2006, the FASB issued
FASB No. 157, “Fair Value Measurements” (“FAS
157”). FAS 157 is definitional and disclosure oriented and
addresses how companies should approach measuring fair value when required
by
GAAP; it does not create or modify any current GAAP requirements to apply
fair
value accounting. The standard provides a single definition for fair value
that
is to be applied consistently for all accounting applications, and also
generally describes and prioritizes according to reliability the methods
and
inputs used in valuations. FAS 157 prescribes various disclosures about
financial statement categories and amounts which are measured at fair value,
if
such disclosures are not already specified elsewhere in GAAP. The new
measurement and disclosure requirements of FAS 157 are currently planned
to be
effective for the Company in the first quarter of 2008, though a recently
proposed FASB staff position may delay certain portions of the
Statement. We do not expect the adoption of FAS 157 to have a
significant impact on the Company’s results of operations or financial
position.
In
September 2006, the Financial Accounting Standards Board issued FAS 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans–an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. FAS 158
requires employers to recognize the over- or under-funded status of defined
benefit plans and other postretirement plans in the statement of financial
position and to recognize changes in the funded status in the year in which
the
changes occur through comprehensive income. In addition, FAS 158 requires
employers to measure the funded status of plans as of the date of the year-end
statement of financial position. The recognition and disclosure provisions
of
FAS 158 are effective for fiscal years ending after December 15, 2006, while
the
requirement to measure plan assets and benefit obligations as of a company’s
year-end date is effective for fiscal years ending after December 15,
2008. The adoption of the recognition and disclosure provisions of
FAS 158 resulted in the recognition of a decrease to other long-term liabilities
of $4.4 million. The Company does not expect the adoption of the
remaining provisions to have a material affect on the Company’s results of
operations or financial position.
Discussion
of Results of Operations for the Fiscal Year Ended September 29,
2007
Net
Revenue.
Net revenue for the
fiscal
year ended September 29, 2007 was $3,055.0 million. Net sales in the
rigid open top business were $881.3 million primarily driven by solid volume
from containers and continued strong volume in the thermoformed polypropylene
drink cup product line. Net sales in the rigid closed top business
ended at $598.0 million primarily as a result of solid volume from closures,
bottles, and prescription vials. The flexible film business generated
net revenue of $1,042.8 million. Net sales in the tapes and coatings
business of $536.7 million were negatively impacted by softness in the new
home
construction market.
Cost
of
Sales. Cost of goods sold for the fiscal year ended September
29, 2007 was $2,583.4 million. Cost of goods sold was adversely impacted
by the
non-cash write-up of finished goods inventory $11.2 million partially offset
by
cost reduction programs.
Gross
Profit.
Gross profit for the
fiscal year ended September 29, 2007 was $471.6 million (15.4% of net revenue).
Significant productivity improvements were made in the fiscal year
ended
September 29, 2007, including the installation of state-of-the-art equipment
at
several of our facilities. These productivity improvements were
partially offset by increased costs from inflation such as higher energy
prices
and wage inflation.
Selling,
General and Administrative
expenses. Selling, general and administrative expenses for the fiscal
year ended September 29, 2007 was $321.5 million (10.5 % of net
revenues). Items favorably impacting selling, general and
administrative expenses included synergies generated from the Merger, partially
offset by stock compensation expense of $19.6 million. Intangible
asset amortization represented $77.6 million of the total.
Restructuring
and impairment charges
(credit), net. Restructuring and impairment charges (credit), net for the
fiscal year ended September 29, 2007 were $39.1 million consisting of $7.5
million for severance and termination benefits, $11.3 million of facility
exit
costs, $18.1 million of non-cash asset impairment charges, and $2.2 million
of
other costs as a result of the plant rationalizations and corporate headquarter
consolidations discussed above.
Other
Operating
Expenses. Other operating expenses for the fiscal year ended
September 29, 2007 were $43.6 million which primarily consisted of expenses
incurred in connection with the closing of the Merger and subsequent integration
costs, management fees to our sponsors of $5.9 million, and other non-recurring
expenses.
Operating
Income. Operating
income for the fiscal year ended September 29, 2007 was $67.4 million driven
by
the items noted above.
Discussion
of Results of Operations for the period from February 17, 2006 to September
29,
2006
Net
Revenue. Net
revenue for the period February 17, 2006 to September 29, 2006 was $1,138.8
million. Net revenue for the period was impacted by pricing actions, which
had
been implemented to offset inflation in raw materials, particularly in
polyethylene resin, in our Plastics operating segment partially offset by
lower
volumes driven by a mild hurricane season and continued efforts by customers
to
structurally reduce inventories. Included as a reduction of net revenue is
$79.4
million attributable to customer rebates, sales incentives, trade promotions
and
coupons and $20.6 million attributable to discounts to customers and product
returns.
Cost
of
Sales. Cost of goods sold for the period February 17, 2006 to
September 29, 2006 was $1,022.9 million. Cost of goods sold was adversely
impacted by inflation in raw materials of $65.9 million experienced in our
Plastics segment partially offset by lower volumes. In addition, cost
of sales was impacted by step up in value of inventory of $6.8 million and
increased depreciation costs of $8.4 million as a result of purchase price
allocations in connection with Apollo V’s acquisition and increased freight
resulting from higher fuel prices. The effect of these items was
partially offset by the favorable impact of our cost reduction and manufacturing
efficiency programs. Included as a reduction of cost of goods sold
was $8.7 million attributable to rebates from vendors.
Gross
Profit. Gross profit
for the period February 17, 2006 to September 29, 2006 was $115.9 million.
Gross
profit was negatively impacted by raw material inflation, experienced by
our
Plastics segment, and the impact of purchase method of accounting attributable
to the Acquisition. Partially offsetting these costs were the continuing
benefits of the Company’s cost reduction programs and the pricing actions
previously mentioned.
Selling,
General and Administration
Expenses. Selling, general and administrative expenses for the period
February 17, 2006 to September 29, 2006 were $107.6 million. Items negatively
impacting selling, general and administrative expense included the increased
impact of depreciation and amortization of $16.5 million from the purchase
method of accounting attributable to the Acquisition executive severance
expense
of $3.6 million, additional corporate support costs.
Operating
Income. Operating income for the period February 17, 2006 to
September 29, 2006 was $7.7 million. Operating income was negatively impacted
by
raw material inflation experienced by our Plastics segment, increase in
inventory cost, higher depreciation and amortization costs resulting from
purchase price allocation in connection with Apollo V’s acquisition, executive
severance and additional corporate support costs, partially offset by the
favorable impact of our cost reduction and manufacturing efficiency
programs.
Discussion
of Results of Operations for the period from October 1, 2005 to February
16,
2006
Net
Revenue. Net revenue for
the period from October 1, 2005 to February 16, 2006 was $666.9 million.
Net
revenue for the period reflects pricing actions, implemented to offset
polyethylene resin inflation experienced primarily in TP&A’s Plastics
division. Included as a reduction of Net revenue is $54.8 million attributable
to customer rebates, sales incentives, trade promotions and coupons and $15.4
million attributable to discounts to customers and product returns.
Cost
of
Sales. Cost of goods sold for the period from October 1, 2005
to February 16, 2006 was $579.0 million. Cost of goods sold was adversely
impacted by inflation in polyethylene resin of $41.2 million and increased
freight rates of $1.8 million resulting from higher fuel prices. The effects
of
these items were partially offset by the favorable impact of cost reduction
and
manufacturing efficiency programs. Included as a reduction of cost of goods
sold
was $5.2 million attributable to rebates from vendors.
Gross
Profit. Gross profit
for the period from October 1, 2005 through February 16, 2006 was $87.9 million.
Gross profit was negatively impacted by resin raw material inflation experienced
by the Plastics division and increased freight rates resulting from higher
fuel
prices partially offset by the pricing actions previously mentioned and the
continuing benefits of cost reduction programs.
Selling,
General and Administrative
expenses. Selling, general and administrative expenses for the period
from October 1, 2005 to February 16, 2006 were $50.0 million. Items favorably
impacting selling, general and administrative expenses included lower Tyco
administrative fees of $12.2 million as a result of the elimination of the
receivables factoring and resin purchasing programs, partially offset by
stock
option expense of $1.7 million following Tyco’s adoption of Statement of
Financial Accounting Standards No. 123R.
Operating
Income. Operating
income for the period from October 1, 2005 to February 16, 2006 was $26.9
million. Operating income was negatively impacted by resin raw material
inflation experienced by the Plastics division and increased freight rates
resulting from higher fuel prices, partially offset by pricing actions
previously mentioned, the continuing benefits of cost reduction programs
and
lower Tyco administrative fees in selling, general and administrative
expenses.
Discussion
of Results of Operations for the Year Ended September 30, 2005
Net
Revenue. Net revenue
during the twelve month period ending September 30, 2005 was $1,725.2 million.
Net revenue for the period was impacted by increases in pricing to offset
inflation in polyethylene resin in the Plastics division and higher volume
in
the Adhesives segment driven by successful introduction of new products,
partially offset by lower volumes in the Plastics and Coated Products division.
These lower volumes resulted from a reduction in non-profitable products
as well
as completion of a plant rationalization program in the Plastics division.
The
plant rationalization program was started during the first quarter of fiscal
2004 and substantially completed in the fiscal first quarter of 2005. This
program was undertaken as part of the 2004 restructuring activities and was
focused on consolidating and reducing the number of production facilities.
This
program required the closure of less productive facilities, moving of equipment,
production capability and the hiring and training of direct labor employees.
Additional learning curve issues continued into the second and third fiscal
quarters of 2005. Included as a reduction of net revenue is $141.9 million
attributable to customer rebates, sales incentives, trade promotions and
coupons
and $34.8 million attributable to discounts to customers and product
returns.
Cost
of Sales. Cost of Sales
during the twelve month period ending September 30, 2005 was $1,477.4 million.
Cost of Sales was impacted by inflation in raw materials in the Plastics
division due to increase prices from polyethylene resin, higher sales volume
from the Adhesives division as wells as increased freight rates and unfavorable
manufacturing results as a result of completion of the plant rationalization
plan, partially offset by the positive impact of cost reduction and
manufacturing efficiency plans and lower sales volume in Plastics and Coated
Products divisions. Included as a reduction of cost of goods sold was $14.6
million attributable to rebates from vendors.
Gross
Profit. Gross Profit
decreased 15.1 percent during the twelve month period ending September 30,
2005
to $247.8 million from the previous year. Decrease in Gross Profit was primarily
driven by raw material inflation experienced by the Plastics division, higher
freight rates, unfavorable manufacturing results, partially offset by favorable
impact from TP&A’s cost reduction and manufacturing efficiency
plans.
Selling,
General and Administrative
expenses. Selling, general and administrative expenses during the twelve
month period ended September 30, 2005 were $124.6 million. Selling, general
and
administrative expenses were impacted by general inflation and an increase
in
sales and technical marketing headcount in the Adhesives division.
Restructuring
expenses.
Restructuring expenses were $3.3 million during the twelve month period ending
September 30, 2005. This was a result of the completion of the restructuring
program that was started in fiscal year 2004 and completed early fiscal year
2005.
Operating
Income. Operating
income during the twelve month period ending September 30, 2005 was $63.5
million. and was driven by items previously addressed.
Income
Tax Matters
As
of September 29, 2007, The Company
has unused operating loss carryforwards of $399.6 million for federal and
$524.9
million for state income tax purposes which begin to expire in 2021 and $9.0
million for foreign operating loss carryforwards. Alternative minimum
tax credit carryforwards of approximately $7.4 million are available to Berry
Group indefinitely to reduce future years’ federal income taxes. The
Company is in the process of determining whether the Covalence operating
loss
carry forward of $30.4 million may be subject to an annual limitation due
to the
merger. As a result of the Apollo acquisition of Old Berry Group, the unused
non-Covalence operating loss carryforward is subject to an annual limitation
of
$208.0 million under Sec. 382 of the Internal Revenue Code. Due to
prior year Sec. 382 limit carryforwards, substantially all Federal operating
loss carryforwards are available for immediate use. As part of the
effective tax rate calculation, if we determine that a deferred tax asset
arising from temporary differences is not likely to be utilized, we will
establish a valuation allowance against that asset to record it at its expected
realizable value. Our valuation allowance against deferred tax assets
was $3.1 million and $11.5 million as of September 29, 2007 and September
29,
2006, respectively, related to the foreign operating loss
carryforwards.
Liquidity
and Capital Resources
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 applicable margin for LIBOR rate borrowings under the
revolving credit facility ranges from 1.00% to 1.75% and for the term loan
is
2.00%. The applicable margin for base rate borrowings under the
revolving credit facility is 0% and the term loan is 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 Berry 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 September 29, 2007.
At
September 29, 2007, $50.0 million
was outstanding on the revolving line of credit. The revolving credit
facility allows up to $100.0 million of letters of credit to be issued instead
of borrowings under the revolving credit facility. At September 29, 2007,
the
Company had $29.3 million under the revolving line of credit in letters of
credit outstanding. At September 29, 2007, the Company had
unused borrowing capacity of $320.7 million under the revolving line of
credit. A key financial metric utilized in the calculation of the
first lien leverage ratio is bank compliance EBITDA. The following
table reconciles our bank compliance EBITDA of $491.7 million for fiscal
2007 to
net loss.
|
|
Year
Ended
September
29,
2007
|
|
Bank
compliance
EBITDA
|
|
$ |
491.7 |
|
Net
interest
expense
|
|
|
(237.6 |
) |
Depreciation
and
amortization
|
|
|
(220.2 |
) |
Income
tax
benefit
|
|
|
88.6 |
|
Loss
on extinguished
debt
|
|
|
(37.3 |
) |
Non-cash
inventory
write-up
|
|
|
(13.9 |
) |
Stock
compensation
expense
|
|
|
(19.6 |
) |
Business
optimization
expenses
|
|
|
(37.7 |
) |
Restructuring
and impairment
charges
|
|
|
(39.1 |
) |
Management
fees
|
|
|
(5.9 |
) |
Minority
interest
|
|
|
2.7 |
|
Pro
forma synergies (Oxnard and
Norwich)
|
|
|
(3.7 |
) |
Pro
forma synergies (Old
Covalence and Rollpak)
|
|
|
(84.2 |
) |
Net
loss
|
|
$ |
(116.2 |
) |
While
the
determination of appropriate adjustments in the calculation of bank compliance
EBITDA is subject to interpretation under the terms of the Credit Facility,
management believes the adjustments described above are in accordance with
the
covenants in the Credit Facility. Bank compliance EBITDA should not
be considered in isolation or construed as an alternative to our net income
(loss) or other measures as determined in accordance with GAAP. In
addition, other companies in our industry or across different industries
may
calculate bank covenants and related definitions differently than we do,
limiting the usefulness of our calculation of bank compliance EBITDA as a
comparative measure.
Second
Priority Senior Secured Notes
On
September 20, 2006, Old Berry
Holding 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 senior secured credit facilities 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 senior secured credit facilities
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 senior secured credit
facilities. 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 September 29, 2007.
11%
Senior Subordinated Notes
On
September 20, 2006, Old Berry
Holding 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 senior secured credit facilities
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 Company issued an additional $3.2 million
aggregate principal amount of outstanding notes in the year ended September
29,
2007 in satisfaction of its interest obligations.
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 September 29, 2007.
10
¼% Senior Subordinated Notes
In
connection with Apollo V’s
acquisition of Old Covalence Holding, Old 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 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 September 29, 2007.
Contractual
Obligations and Off Balance Sheet Transactions
Our
contractual cash obligations as of September 29, 2007 are summarized in the
following table.
|
|
Payments
Due by Period at September 29, 2007
|
|
|
|
Total
|
|
|
<
1
year
|
|
|
1-3
years
|
|
|
4-5
years
|
|
|
>
5
years
|
|
Long-term
debt, excluding capital leases
|
|
$ |
1,661.8 |
|
|
$ |
97.1 |
|
|
$ |
194.1 |
|
|
$ |
194.1 |
|
|
$ |
1,176.5 |
|
Capital
leases
|
|
|
27.2 |
|
|
|
8.1 |
|
|
|
9.8 |
|
|
|
9.3 |
|
|
|
— |
|
Fixed
interest rate payments
|
|
|
1,604.9 |
|
|
|
226.8 |
|
|
|
453.5 |
|
|
|
453.5 |
|
|
|
471.1 |
|
Operating
leases
|
|
|
233.2 |
|
|
|
33.7 |
|
|
|
63.7 |
|
|
|
50.8 |
|
|
|
85.0 |
|
Total
contractual cash obligations
|
|
$ |
3,527.1 |
|
|
|
365.7 |
|
|
|
721.1 |
|
|
|
707.7 |
|
|
|
1,732.6 |
|
Cash
Flows from Operating Activities
Net
cash provided by operating
activities was $137.3 million for the fiscal year ended September 29,
2007. Cash flow provided by operating activities was negatively
impacted by costs incurred as a result of Apollo’s acquisition of Old Berry
Holding, the Merger, and the restructuring activities noted above.
During
the period from February 17,
2006 to September 29, 2006, we generated $96.7 million of net cash from
operating activities principally due to improved inventory turnover and accounts
payable terms.
TP&A
net cash usage during the
period from October 1, 2005 to February 16, 2006 was $119.2 million, principally
due to changes in raw material purchases and payment terms as a result of
the
discontinuance of the resin purchasing agreement with Tyco prior to the Apollo’s
purchase of Old Covalence. During the period from October 1, 2005 to
February 16, 2006, accounts payable and inventory experienced a one-time
change
due to the discontinuance of the raw materials resin purchasing program the
Predecessor had with an affiliate of Tyco. Under that program, amounts payable
for raw materials purchases was classified as “Due to Tyco International”. Upon
termination of the program, Tyco loaned the Predecessor an amount equal to
the
amount classified in “Due to Tyco International” to pay the affiliate for the
remaining balance due for the raw materials purchases. Following the
discontinuance of this program, raw material purchases are now included as
a
component of “Accounts payable”.
Net
cash
provided by TP&A operating activities increased to $117.3 million for the
year ended September 30, 2005, including a reduction in cash payments made
for
the fiscal 2005 restructuring plan of $7.6 million, as well as decreases
in
working capital (exclusive of cash). Working capital was reduced in fiscal
2005
through efforts to improve receivable and payable days outstanding, offset
by an
increase in the average cost of polyethylene resin. In addition, due to supply
chain disruptions as a result of the hurricanes in the fall of 2005, TP&A’s
inventory volume was lower than normal.
Cash
Flows from Investing Activities
Net
cash
used for investing activities was $164.3 million for the fiscal year ended
September 29, 2007. Our investments in capital expenditures totaled
$99.3 million partially offset by $10.8 million of cash received from
disposition of assets which was primarily the sale of Berry Plastics UK Ltd.
in
April 2007. In addition, we used $75.8 million primarily for (1) the
acquisition of Rollpak Corporation and (2) a $30.0 million payment to Tyco
as
finalization of the working capital settlement.
During
the period from February 17, 2006 to September 29, 2006, we used $3,252.0
million of net cash in investing activities, primarily due to Apollo’s
acquisition of Old Berry Holding and Old Covalence Holding and investments
in
capital expenditures of $34.8 million during the period. During the
period from October 1, 2005 to February 16, 2006, TP&A used $12.2 million of
net cash in investing activities for capital expenditures.
Net
cash
used for TP&A’s investing activities was $29.2 million for the year ended
September 30, 2005 primarily due to investments in new products in TP&A’s
Plastics and Adhesives segments, safety upgrades in manufacturing facilities
and
replacement and upgrades to certain aged equipment.
Cash
Flows from Financing Activities
Net
cash
used for financing activities was $40.4 million for the fiscal year ended
September 29, 2007. In the period, we generated cash of
$1,233.2 million from long-term borrowing in connection with the Merger and
paid
$9.7 million of debt financing costs associated with closing these
borrowings. We paid $1,161.2 million of long-term borrowings
primarily as a result of the Merger and had net equity distributions of $102.7
million primarily a result of the dividend to Berry Group in June 2007 described
above.
During
the period from February 17, 2006 to September 29, 2006, we generated net
cash
of $3,212.5 million in our financing activities due principally to the issuance
of long-term debt of $2,653.4 million and net equity contributions of $680.8
million in connection with Apollo’s acquisitions of Old Berry Holding and Old
Covalence Holding partially offset by payments on long-term debt totaling
$50.7
million and debt financing costs of $71.0 million.
During
the period from October 1, 2005 to February 16, 2006, cash generated from
TP&A’s financing activities was $130.6 million due to the change in the
resin purchasing arrangement with an affiliate of Tyco prior to Apollo’s
acquisition of Old Covalence Holding, partially offset by the retirement
of
outstanding capital lease obligations. In fiscal 2005, TP&A used
$89.2 million in financing activities. These activities primarily resulted
from
a reduction in capital lease obligations of $61.1 million.
Increased
working capital needs occur
whenever we experience strong incremental demand or a significant rise in
the
cost of raw material, particularly plastic resin. However, based on
our current level of operations, we believe that cash flow from operations
and
available cash, together with available borrowings under our senior secured
credit facilities, will be adequate to meet our short-term liquidity
needs. We base such belief on historical experience and the funds
available under the Credit Facility. However, we cannot predict our
future results of operations and our ability to meet our obligations involves
numerous risks and uncertainties, including, but not limited to, those described
in the “Risk Factors” section of our Form S-4 filed with the Securities and
Exchange Commission on May 4, 2007. In particular, increases in the
cost of resin which we are unable to pass through to our customers on a timely
basis or significant acquisitions could severely impact our
liquidity. At September 29, 2007, our cash balance was $14.6 million,
and we had unused borrowing capacity under the Credit Facility’s borrowing base
of $320.7 million.
Item
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest
Rate Sensitivity
We
are exposed to market risk from
changes in interest rates primarily through our senior secured credit facilities
and second priority senior secured notes. Our senior secured credit
facilities are comprised of (i) a $1,200.0 million term loan and
(ii) a $400.0 million revolving credit facility. At September
29, 2007, $50.0 million was outstanding on the revolving credit
facility. The net outstanding balance of the term loan at September
29, 2007 was $1,194.0 million. Borrowings under our senior secured
credit facilities bear interest, at our option, at either an alternate base
rate or an adjusted LIBOR rate for a one-, two-, three- or six month interest
period, or a nine- or twelve-month period, if available to all relevant lenders,
in each case, plus an applicable margin. The alternate base rate is
the mean the greater of (i) Credit Suisse’s prime rate and
(ii) one-half of 1.0% over the weighted average of rates on overnight
Federal Funds as published by the Federal Reserve Bank of New York.
In
August
2007, Berry entered into two separate interest rate swap transactions to
protect
$600.0 million of the outstanding variable rate term loan debt from future
interest rate volatility. The swap agreements are effective in
November 2007. The first agreement had a notional amount of $300.0
million and became effective November 5, 2007 and swaps three month variable
LIBOR contracts for a fixed two year rate of 4.875% and expires on November
5,
2009. The second agreement had a notional amount of $300.0 million
and became effective November 5, 2007 and swaps three month variable LIBOR
contracts for a fixed three year rate of 4.920% and expires on November 5,
2010. The adjusted LIBOR rate is determined by reference to
settlement rates established for deposits in dollars in the London interbank
market for a period equal to the interest period of the applicable loan and
the
maximum reserve percentages established by the Board of Governors of the
U.S.
Federal Reserve to which our lenders are subject. Our second priority
senior secured notes are comprised of (i) $525.0 million fixed rate notes
and
(ii) $225.0 million floating rate notes. The floating rate notes bear
interest at a rate of LIBOR plus 3.875% per annum, which resets
quarterly. At September 29, 2007, the LIBOR rate
applicable
to the term loan and floating rate notes was 5.36%. At September 29,
2007, the LIBOR rate applicable to the revolving line of credit was
5.80%. If the LIBOR rate increases 0.25% and 0.5%, we estimate an
annual increase in our interest expense of $2.2 million and $4.4 million,
respectively.
Resin
Cost Sensitivity
We
are
exposed to market risk from changes in plastic resin prices that could impact
our results of operations and financial condition. We purchased
approximately $977.5 million of resin in fiscal 2007 with approximately 68%
of
our resin pounds being PE, 29% PP, and 3% other. Our plastic resin
purchasing strategy is to deal with only high-quality, dependable suppliers,
such as Basell, Chevron, Dow, ExxonMobil, Flint Hills Resources, LP, Lyondell,
Nova, Sunoco and Total. We believe that we have maintained strong
relationships with these key suppliers and expect that such relationships
will
continue into the foreseeable future. The resin market is a global
market and, based on our experience, we believe that adequate quantities
of
plastic resins will be available at market prices, but we can give you no
assurances as to such availability or the prices thereof.
Item
8.FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
Index
to Financial Statements
|
|
|
Reports
of Independent Registered Public Accounting Firms
|
F-
1
|
Consolidated
or Combined Balance Sheets at September 29, 2007 and September
30,
2006
|
F-
3
|
Consolidated
or Combined Statements of Operations for the year ended September
29,
2007, period from February 17 to September 30, 2006, period from
October
1, 2005 to February 16, 2006 and the year ended September 30,
2005
|
F-
5
|
Consolidated
or Combined Statements of Changes in Stockholders' Equity and
Comprehensive Income (Loss) for the year ended September 29, 2007,
period
from February 17 to September 30, 2006, period from October 1,
2005 to
February 16, 2006 and the year ended September 30,
2005
|
F-
6
|
Consolidated
or Combined Statements of Cash Flows for year ended September 29,
2007,
period from February 17 to September 30, 2006, period from October
1, 2005
to February 16, 2006 and the year ended September 30,
2005
|
F-
7
|
Notes
to Consolidated or Combined Financial Statements
|
F-
8
|
|
|
Index
to Financial Statement Schedules
|
All
schedules have been omitted
because they are not applicable or not required or because the
required
information is included in the consolidated financial statements
or notes
thereto.
|
|
Item
9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Item
9A. CONTROLS AND
PROCEDURES
(a)
|
Evaluation
of disclosure controls and procedures.
|
Our
management team is responsible for the preparation and integrity of the
consolidated financial statements appearing in this Form 10-K. We
have established disclosure controls and procedures to ensure that
material
information
relating to the Company, including consolidated subsidiaries, is made known
to
members of senior management and the Board of Directors. As required
by Rule 13a-15 under the Securities Exchange Act of 1934, within the 90 days
prior to the date of this report, we carried out an evaluation under the
supervision and with the participation of our management team, including
our
Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the
design and operation of our disclosure controls and procedures. In
connection with the preparation of this Annual Report, the Company's management,
with the participation of the Chief Executive Officer and the Chief Financial
Officer, carried out an evaluation of the effectiveness of the design and
operation of the disclosure controls and procedures as of September 29,
2007. Based on this evaluation, the Chief Executive Officer and the
Chief Financial Officer concluded that due to the timing of completing the
income tax provision and the processes within one of the Old Covalence operating
units, the disclosure controls and procedures were not effective as of September
29, 2007.
A
material weakness is defined as a significant deficiency, or combination
of
significant deficiencies, in our internal controls over financial reporting,
that results in more than a remote likelihood that a material misstatement
of
our annual or interim financial statements will not be presented or detected
by
our employees. A significant deficiency is in turn defined as a control
deficiency, or a combination of control deficiencies, that adversely affects
our
ability to initiate, authorize, record, process, or report external financial
data reliably in accordance with generally accepted accounting principles
such
that there is more than a remote likelihood that a misstatement of our annual
or
interim financial statements that is more than inconsequential will not be
prevented or detected. A control deficiency exists when the design or operation
of a control does not allow management or employees, in the normal course
of
performing their assigned functions, to prevent or detect misstatements on
a
timely basis. A design deficiency exists when a control necessary to meet
the
control objective is missing or an existing control is not properly designed
so
that, even if the control operates as designed, the control objective is
not
always met.
In
connection with the merger and integration of Old Berry Group and Old Covalence
Holding, the Company did not fully complete the transition from Old Covalence’s
financial system to Berry’s new financial system. This resulted in a
not fully implemented installation of disclosure controls and procedures
in one
specific area of one of the Old Covalence operating units as well as one
area of
income tax accounting as it relates to the combination of the two businesses;
therefore, management’s oversight and review related to certain accounts and
analyses at one of its operating segments and the income tax provision process
was not timely or effective. In light of the material weaknesses
described above, the Company performed additional analyses and other procedures
to ensure that the consolidated financial statements included in this Annual
Report were prepared in accordance with accounting principles generally accepted
in the United States ("GAAP"). These procedures included additional
testing of certain balances and accounts as of September 29, 2007 to ensure
the
accuracy of the annual financial statements. Additionally, the Company performed
a review of its tax provision model. As a result of these and other
expanded procedures, the Company concluded that the consolidated financial
statements included in this Annual Report present fairly, in all material
respects, the Company's financial position, results of operations and cash
flows
for the periods presented in conformity with U.S. GAAP.
The
Company is currently transitioning and converting the legacy Old Covalence
Holding systems to the Old Berry Group systems and shared service
center. Management believes that this conversion and the transition
to the Old Berry Group accounting systems and controls will remediate the
material weakness in the operating segment financial statement close
process. The Company expects to have this complete during fiscal
2008. In addition, the Company has implemented additional levels of
review to ensure that their financial statements are accurate and prepared
in a
timely fashion.
(b) Changes
in internal controls.
As
a
result of the formation of Berry Holding and recent acquisitions, management
continues to evaluate resources, change and expand roles and responsibilities
of
key personnel and make changes to certain processes related to financial
close,
shared services and financial reporting. In connection with the above
activities, the Company continues the process of consolidating some of its
transaction processing and general accounting activities into a common shared
services transaction-processing environment. We have launched a project to
migrate multiple legacy management information and accounting systems to
a
single, company wide, management information and accounting system. The
migration began in the third quarter of 2007 and is scheduled to be completed
in
the first quarter of 2009. Once fully implemented, this change to a shared
services business model (for certain processes) along with a single, company
wide, management information and accounting system is intended to further
enhance our internal control over financial reporting and our operating
efficiencies. No other changes occurred in the Company’s internal control over
financial reporting during the Company’s most recent fiscal quarter that
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting, except as discussed in Item
9A. (a).
|
Item
9B. OTHER INFORMATION
|
PART
III
Item
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The
following table provides information regarding the executive officers, officers
and members of the board of directors of Berry Group, of which we are a wholly
owned subsidiary.
Name
|
Age
|
Title
|
Ira
G. Boots (1) (3)
|
53
|
Chairman,
Chief Executive Officer and Director
|
R.
Brent Beeler
|
54
|
President
and Chief Operating Officer
|
James
M. Kratochvil
|
51
|
Executive
Vice President, Chief Financial Officer, Treasurer and
Secretary
|
Anthony
M. Civale (1) (2)
|
33
|
Director
|
Patrick
J. Dalton
|
39
|
Director
|
Donald
C. Graham (1)
|
74
|
Director
|
Steven
C. Graham (2)
|
48
|
Director
|
Joshua
J. Harris
|
42
|
Director
|
Robert
V. Seminara (1) (2) (3)
|
35
|
Director
|
|
(1) Member
of the Compensation Committee.
|
|
(2) Member
of the Audit Committee.
|
|
(3) Member
of the Executive Committee.
|
The
following table provides
information regarding the executive officers, officers and members of the
board
of directors of Berry Plastics Holding Corporation.
Name
|
Age
|
Title
|
Ira
G. Boots (1) (3)
|
53
|
Chairman,
Chief Executive Officer and Director
|
R.
Brent Beeler
|
54
|
President
and Chief Operating Officer
|
James
M. Kratochvil
|
51
|
Executive
Vice President, Chief Financial Officer, Treasurer and
Secretary
|
Anthony
M. Civale (1) (2)
|
33
|
Director
|
Robert
V. Seminara (1) (2) (3)
|
35
|
Director
|
|
(1) Member
of the Compensation Committee.
|
|
(2) Member
of the Audit Committee.
|
|
(3) Member
of the Executive Committee.
|
Ira
G. Boots has
been Chairman of the Board and Chief Executive Officer since June 2001 of
Holding and Berry Plastics Corporation, and a Director of Holding and Berry
Plastics Corporation since April 1992. Prior to that, Mr. Boots
served as Chief Operating Officer of Berry Plastics Corporation since August
2000 and Vice President of Operations, Engineering and Product Development
of
Berry Plastics Corporation since April 1992. Mr. Boots was employed
by our predecessor company from 1984 to December 1990 as Vice President,
Operations.
R.
Brent Beeler was named
President and Chief Operating Officer of Holding and Berry Plastics Corporation
in May 2005. He formerly served as President—Containers and Consumer
Products of Berry Plastics Corporation since October 2003 and has been an
Executive Vice President of Holding since July 2002. He had been
Executive Vice President and General Manager—Containers and Consumer Products of
Berry Plastics Corporation since October 2002 and was Executive Vice President
and General Manager—Containers since August 2000. Prior to that, Mr.
Beeler was Executive Vice President, Sales and Marketing of Berry Plastics
Corporation since February 1996 and Vice President, Sales and Marketing of
Berry
Plastics Corporation since December 1990. Mr. Beeler was employed by
our predecessor company from October 1988 to December 1990 as Vice President,
Sales and Marketing and from 1985 to 1988 as National Sales
Manager.
James
M. Kratochvil has been
Executive Vice President, Chief Financial Officer, Treasurer and Secretary
of
Holding and Berry Plastics Corporation since December 1997. He
formerly served as Vice President, Chief Financial Officer and Secretary
of
Berry Plastics Corporation since 1991, and as Treasurer of Berry Plastics
Corporation since May 1996. He
formerly
served as Vice President, Chief Financial Officer and Secretary of Holding
since
1991. Mr. Kratochvil was employed by our predecessor company from
1985 to 1991 as Controller.
Anthony M.
Civale has
been a member of our Board of Directors since the consummation of the
Merger. Mr. Civale is a Partner at Apollo Management, where he has
worked since 1999. Prior to that time, Mr. Civale was employed by
Deutsche Bank Securities in the Corporate Finance Department. Mr.
Civale also serves on the board of directors of Goodman Global Holdings,
Inc.
Patrick
J. Dalton has been a
member of our Board of Directors since the consummation of the
Merger. Mr. Dalton joined Apollo Management
in June 2004 as a partner and as a member of Apollo Investment Management's
("AIM") Investment Committee. Mr. Dalton is also the Chief Investment Officer
of
AIM and a member of the Investment Committees of Apollo Investment Europe,
Apollo Credit Liquidity Fund and Artus/Apollo Loan Fund. Before joining Apollo,
Mr. Dalton was a vice president with Goldman, Sachs & Co.'s Principal
Investment Area with a focus on mezzanine investing since 2000. From
1990 to 2000, Mr. Dalton was a Vice President with the Chase Manhattan Bank
where he worked most recently in the Acquisition Finance
Department. Mr. Dalton graduated from Boston College with a BS in
Finance and received his MBA from Columbia Business
School.
Donald
C. Graham founded the
Graham Group, an industrial and investment concern, and has been a member
of our
Board of Directors since the consummation of the Merger. The Graham
Group is engaged in a broad array of businesses, including industrial process
technology development, capital equipment production, and consumer and
industrial products manufacturing. Mr. Graham founded Graham
Packaging Company, in which he sold a controlling interest in
1998. The Graham Group’s three legacy industrial businesses operate
in more than 80 locations worldwide, with combined sales of more than $2.75
billion. Mr. Graham currently serves on the board of directors of
Western Industries, Inc., Supreme Corq LLC, National Diversified Sales, Inc.,
Infiltrator Systems, Inc., Touchstone Wireless Repair and Logistics LP, Nurture,
Inc., Graham Engineering Corporation and Graham Architectural Products
Corporation.
Steven
C. Graham founded
Graham Partners and has been a member of our Board of Directors since the
consummation of the Merger. Prior to founding Graham Partners in
1998, Mr. Graham oversaw the Graham Group’s corporate finance division starting
in 1988. Prior to 1988, Mr. Graham was a member of the investment
banking division of Goldman, Sachs & Co., and was an Acquisition
Officer for the RAF Group, a private equity investment group. Mr.
Graham currently serves on the board of directors of Graham Architectural
Products Corporation, Western Industries, Inc., National Diversified Sales,
Inc., HB&G Building Products, Inc., Nailite International, Inc., Dynojet,
Inc., Supreme Corq LLC, Line-X, LLC, Abrisa Industrial Glass, Inc., Infiltrator
Systems, Inc., The Masonry Group LLC, Aerostructures Acquisition, LLC, Transaxle
LLC, and ICG Commerce Holdings, Inc.
Joshua J.
Harris has been
a member of our Board of Directors since the consummation of the
Merger. Mr. Harris is a founding Senior Partner at Apollo Management
and has served as an officer of certain affiliates of Apollo since
1990. Prior to that time, Mr. Harris was a member of the Mergers and
Acquisitions Department of Drexel Burnham Lambert Incorporated. Mr.
Harris is also a director of Hexion Specialty Chemicals, Inc., Allied Waste
Industries, Inc., Metals USA, Inc., Nalco Corporation, Quality Distribution
Inc., United Agri Products and Verso Paper Inc.
Robert V.
Seminara has
been a member of our Board of Directors since the consummation of the
Merger. Mr. Seminara is a Partner at Apollo Management, where he has
worked since 2003. Prior to that time, Mr. Seminara was a managing
director of Evercore Partners LLC. Mr. Seminara also serves on the
boards of directors of Hexion Specialty Chemicals, Inc. and World Kitchen
Inc.
Board
Committees
Our
Board
of Directors has a Compensation Committee, an Audit Committee and Executive
Committee. The Compensation Committee makes recommendations
concerning salaries and incentive compensation for our employees and
consultants. The Audit Committee, which consists of at least one
financial expert, recommends the annual appointment of auditors with whom
the
Audit Committee reviews the scope of audit and non-audit assignments and
related
fees, accounting principles we use in financial reporting, internal auditing
procedures and the adequacy of our internal control procedures.
Item
11. EXECUTIVE COMPENSATION
Compensation
Discussion and Analysis
The
Company has a Compensation Committee comprised of Messrs. Boots, Seminara,
Civale, and Donald Graham. The annual salary and bonus paid to
Messrs. Boots, Kratochvil, Beeler, Hobson, Unfried, and all other vice president
and above, (collectively, the “Senior Management Group”) for fiscal 2007 were
determined by the Compensation Committee in accordance with their respective
employment agreements. The Committee makes all final compensation
decisions for our executive officers. Below are the principles
outlining our executive compensation principles and practices.
Compensation
Philosophy and
Analysis
Our
goal
as an employer is to ensure that our pay practices are equitable with regard
to
market wages, facilitate appropriate retention, and to reward exceptional
performance. The Human Resources Team obtains regional and national
compensation survey data. In the past we have conducted studies with
Mercer, Clark Consulting, The Conference Board and Salary.com to study other
manufacturing companies similar in size. The objective is to
understand how our executives compare to similarly situated people in other
companies. Our study includes base salary, bonus, and a time based
option value for one year. It ignores value of 401(k) match and medical
insurance as compared to market. Those benefits are generally below market.
As
an executive team, in regards to base wage we are near the 50th percentile
and
near the 65th percentile for total cash compensation.
The
Company believes that executive compensation should be designed to align
closely
the interest of the Company, the executive officers, and its stockholders
and
attract, motivate reward and retain superior management talent. Berry
utilizes the following guidelines pertaining to executive
compensation:
|
·
|
Pay
compensation that is competitive with the practices of other manufacturing
businesses similar in size. We used Covalence as a guideline in
wage
comparisons this year to better align our executive team to the
higher
base wages paid by Covalence. In some instances, the Covalence
Vice
Presidents had their base lowered to support a higher Berry bonus
structure.
|
|
·
|
Wage
enhancements aligned with the performance of the company
|
|
·
|
Pay
for performance by:
|
|
·
|
Setting
performance goals determined by the Chairman of the Board and CEO
along
with the Board for our officers and providing a short-term incentive
through a bonus plan that is based upon achievement of these goals.
In a
year of increased resin and raw material prices, the EBITDA targets
were a
challenge to the executive team.
|
|
·
|
Providing
long-term incentives in the form of stock options, in order to
retain
those individuals with the leadership abilities necessary for increasing
long-term shareholder value while aligning with the interests of
our
investors. The Compensation Committee recommends to the Board the
equity
grant values for the executives.
|
Role
of Compensation Committee
The
Compensation Committee’s specific
roles are:
|
·
|
to
approve and recommend to our Board of Directors all compensation
plans for
(1) the CEO of the Company, (2) all employees of the Company and
its
subsidiaries who report directly to the CEO, and (3) other members
of the
Senior Management Group, as well as all compensation for our Board
of
Directors;
|
|
·
|
to
approve the short-term compensation of the Senior Management Group
and to
recommend short-term compensation for members of our Board of Directors;
|
|
·
|
to
approve and authorize grants under the Company’s or its subsidiaries’
incentive plans, including all equity plans and long-term incentive
plans;
and
|
|
·
|
to
prepare any report on executive compensation required by Securities
and
Exchange Commission rules and regulations for inclusion in our
annual
proxy statement, if any.
|
Role
of Executives Officers
Ira
Boots, Chairman and Chief Executive Officer, Brent Beeler, Chief Operating
Officer, Jim Kratochvil, Chief Financial Officer and Marcia Jochem, Executive
Vice President of Human Resources annually review the performance of each
of our
executive officers. Together they review annual goals and the
performance of each individual executive officer. This information,
along with the performance of the company and market data determines the
wage
adjustment recommendation presented to the Compensation
Committee. All other compensation decisions with respect to
officers of the Company are made by Mr. Boots pursuant to policies established
in consultation with the Compensation Committee and recommendations from
the
Human Resource Department.
The
Compensation Committee evaluates the performance of the CEO and determines
the
CEO’s compensation in light of the goals and objectives of the compensation
program. On at least an annual basis, the Compensation Committee expects
to
review the performance of the CEO as compared with the achievement of the
Company’s goals and any individual goals. The CEO together with the Human
Resource Department will assess the performance and compensation of the other
named executives. The Human Resource Department, together with the CEO, annually
will review the performance of each member of the Senior Management Group
as
compared with the achievement of Company or operating division goals, as
the
case may be, together with each executive’s individual goals. The Compensation
Committee can exercise its discretion in modifying any recommended adjustments
or awards to the executives. Both performance and compensation are evaluated
to
ensure that the Company is able to attract and retain high quality executives
in
vital positions and that the compensation, taken as a whole, is competitive
and
appropriate compared to that of similarly situated executives in other
corporations within the industry.
Executive
Compensation Program
The
compensation for our executive officers is primarily in the following three
categories: (1) salary, (2) bonus, and (3) stock
options. Berry has selected these elements because each is considered
useful and/or necessary to meet one or more of the principal objectives of
the
business. Base salary and bonus targets are set with the goal of
motivating employees and adequately compensating and rewarding them on a
day-to-day basis for the time spent and the services they perform while our
equity programs are geared toward providing an incentive and reward for the
achievement of long-term business objectives and retaining key talent and
more
closely aligning the interests of management with our shareholders.
. In light of the merger with Covalence, the company determined that
it was appropriate to increase compensation of the executives to reflect
the
increase in duties and to better align the base salaries of the two
companies. Berry believes that these elements of compensation, when
combined, are effective, and will continue to be effective.
The
compensation program is reviewed on an annual basis. In setting
individual compensation levels for a particular executive, the total
compensation package is considered as well as each element individually,
and the
executive’s past and expected future contributions to our business.
Base
Salary
Our
executive officers’ base salaries depend on their position within the Company
and its subsidiaries, the scope of their responsibilities and the period
during
which they have been performing those responsibilities and their overall
performance. Base salaries are reviewed on a regular basis annually,
and will be adjusted from time to time to realign salaries with market levels
after taking into account individual responsibilities and performance and
experience, as well as the terms of any agreements we have in place with
such
executive officer.
Annual
Bonus
Berry
has
a long history of sharing profits with employees. This philosophy is imbedded
in
the corporate culture and is one of many practices that have enabled the
company
to continually focus on improvement and be
successful.
Below is the calculation, funding and annual payment practice for the Executive
program which is subject to approval every year by the Board of
Directors. It is our goal to exceed our commitments year after year.
Our executive officers participate in our Executive Profit Sharing Bonus
Program. Depending on our overall business performance specifically
related to EBITDA and Company growth and each executive’s individual
performance, he or she would be eligible to receive a bonus ranging from
zero to
108% his or her base salary. These target ranges are the same for all
of the Vice Presidents and above positions. Performance
objectives are generally set on an annualized basis.
1.
Calculation:
75%
-
based on achieving 100% of annual EBITDA target
25%
-
based on growing the equity value of the company
2. Funding:
By
meeting both targets, executives qualify to earn 68.5% of their annualized
salary in a bonus payment. This target slides up of down depending on
the performance of the company.
With
Board approval, bonus is paid on an annual basis, which normally happens
at the
end of February. In February 2007, executive bonus payout included
only those months of Apollo ownership in 2006 as the first nine months were
paid
at the time of the sale of the company.
The
Compensation Committee is currently working with Apollo to determine the
performance metrics to apply to our 2008 bonus plan year, and we expect that
our
executive officers will continue to be subject to the same financial performance
metrics as other salaried employees of the Company.
Stock
Options
In
connection with the completion of the Apollo Berry Merger, Berry adopted
the
Berry Plastics Group, Inc., 2006 Equity Incentive Plan which permits us to
grant
stock options, rights to purchase shares, restricted stock, restricted stock
units, and other-stock based rights to employees or directors of, or consultants
to, us, or any of our subsidiaries. The Berry Plastics Group, Inc. 2006 Equity
Incentive Plan is administered by our board of directors or, if determined
by
such board, by the Compensation Committee of the board. Approximately
618.6 million shares of our common stock have been reserved for issuance
under the Equity Incentive Plan.
As
discussed below, we have awarded stock options to members of our
management. However, the Compensation Committee has not established
any formal program, plan or practice for the issuance of equity awards to
employees. We do not have any program, plan or practice in place for
selecting grant dates for awards under the Equity Incentive Plan in coordination
with the release of material non-public information. Under the Equity Incentive
Plan, the exercise price for the option awards is the fair market value of
the
stock of Berry on the date of grant. The fair market value was determined
by the
Board of Directors by applying industry appropriate multiples to our current
EBITDA, and this valuation took into account a level of net debt that excluded
cash required for working capital purposes. The Compensation
Committee is not prohibited from granting awards at times when it is in
possession of material non-public information. However, no inside information
was taken into account in determining the number of options previously awarded
or the exercise price for those awards, and we did not “time” the release of any
material non-public information to affect the value of those
awards.
The
Compensation Committee believes that the granting of awards under the Berry
Plastics Group, Inc., 2006 Equity Incentive Plan promotes, on a short-term
and
long-term basis, an enhanced personal interest and alignment of interests
of
those executives receiving equity awards with the goals and strategies of
the
Company. The Compensation Committee also believes that the equity grants
provide
not only financial rewards to such executives for achieving Company goals
but
also provide additional incentives for executives to remain with the
Company.
Immediately
following the completion of the Apollo Berry Merger, we granted management
participants stock options that will be subject to the terms of the Berry
Plastics Group, Inc. 2006 Equity Incentive Plan. In connection with
the grants, we entered into stock option award agreements with the management
participants.
The
exercise price per share of our common stock subject to the options granted
to
the management participants was $100.00 per share on the date of grant, the
same
price as paid by Apollo in connection with the Apollo Berry Merger.
Generally,
the options will become vested and exercisable over a five year
period. The time based options vest 20% each year and the performance
based option grants vest over a five year period when certain EBITDA targets
are
met. In each case, the vesting of options is generally subject to the
grantee’s continued provision of services to the Company or one of its
subsidiaries as of the applicable vesting date.
Berry
also clarified the anti-dilution provisions of its stock option plans to
require
payment to holders of outstanding stock options of special dividends and
a
pro-rata share of transaction fees that may be paid to Apollo and Graham
in
connection with future transactions, re-financings, etc. In
connection with the $77 per share dividend paid, 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).
The
maximum term of these options will be ten years. However, subject to
certain exceptions set forth in the applicable stock option award agreement,
unvested options will automatically expire 90 days after the date of a grantee’s
termination of employment, or one year in the case of termination due to
death
or disability. In the case of a termination of employment due to death or
disability, an additional 20% of an individual’s options will
vest. 20% of outstanding options may become vested earlier
upon a “change in control” of Berry, and 40% of outstanding options
become vested earlier if such change in control results in the achievement
of
Apollo’s targeted internal rate of return. We believe that the grant of stock
options to the executive officers contributes significantly to the alignment
of
their interests and those of the Company.
Shares
of
Company common stock acquired under the Berry Plastics Group, Inc., 2006
Equity
Incentive Plan will be subject to restrictions on transfer, repurchase rights,
and other limitations set forth in a securityholders
agreement.
Post-Employment
Compensation.
We
provide post-employment compensation to our employees, including our named
executive officers, as a continuance of the post-retirement programs sponsored
by prior owners and applicable to our employees prior to the Apollo Berry
Merger. The Compensation Committee believes that offering such compensation
allows us to attract and retain qualified employees and executives in a highly
competitive marketplace and rewards our employees and executives for their
contribution to the Company during their employment. The principal components
of
our post-employment executive officer compensation program include a qualified
defined contribution 401(k) plan and a retirement health plan.
·
401(k)
Plan. Our
executive officers are eligible to
participate in our company-wide 401(k) qualified plan for
employees. The Company awards a $200 lump sum contribution annually
for participating in the plan and matches dollar for dollar the first $300
dollars, and a 10% match thereafter. Participants who contribute at
least $1,000 will also receive an addition $150 lump sum deposit at the end
of
the year. Company matching contributions are 100% vested
immediately.
Perquisites
and Other Personal
Benefits.
While
we
believe that perquisites should be a minor part of executive compensation,
we
recognize the need to provide our executive officers with perquisites and
other
personal benefits that are reasonable, competitive and consistent with the
overall compensation program in order to enable us to attract and retain
qualified employees for key positions. Accordingly, we provide our
executive officers with leased company vehicles including maintenance and
operational cost. The Compensation Committee periodically reviews the
perquisites provided to our executive officers.
Messrs. Seminara and Civale are partners in Apollo Management. Donald
Graham is the founder of the Graham Group. See the section of this
Form 10-K titled “Certain Relationships and Related Transactions” for a
description of these transactions between us and various affiliates of Apollo
and Graham.
The
following table sets forth a summary of the compensation paid by us to our
Chief
Executive Officer and our four other most highly compensated executive officers
(collectively, the “Named Executive Officers”) for services rendered in all
capacities to us during fiscal 2007, 2006 and 2005.
Summary
Compensation Table
Name
and Principal Position
|
Fiscal
Year
|
Salary
|
Option
Awards
($)
|
Bonus
(1)
|
All
Other
Compensation
|
Total
($)
|
Ira
G. Boots
Chairman
and Chief Executive
Officer
|
2007
2006
2005
|
$760,434
589,031
452,058
|
$—
704,178
—
|
$649,431
9,840,217
299,323
|
$
—
—
—
|
$1,409,865
11,133,426
751,381
|
James
M. Kratochvil
Executive
Vice President, Chief
Financial Officer, Treasurer and Secretary
|
2007
2006
2005
|
$406,602
333,817
291,229
|
$—
403,332
—
|
$349,694
4,300,854
192,422
|
$
—
—
—
|
$756,296
5,038,003
483,651
|
R.
Brent Beeler
President
and Chief Operating
Officer
|
2007
2006
2005
|
$605,119
501,432
368,640
|
$—
403,332
135,000
|
$549,519
3,977,444
236,325
|
$
—
—
—
|
$1,154,638
4,882,208
739,965
|
Randall
J. Hobson
President
–
Rigid
Closed Top
Division
|
2007
2006
2005
|
$259,940
237,006
162,707
|
$—
264,480
56,520
|
$249,781
850,424
95,900
|
$
—
—
—
|
$509,721
1,351,910
315,127
|
G.
Adam Unfried
President
–
Rigid
Open Top
Division
|
2007
2006
2005
|
$259,953
237,087
166,449
|
$—
264,480
56,520
|
$249,781
856,060
90,420
|
$
—
—
—
|
$509,734
1,357,627
313,389
|
|
(1) Amounts
shown
include amounts paid to Messrs. Boots, Kratochvil, Beeler, Hobson,
and
Unfried at the time of Merger of $9,450,000, $4,050,000, $3,650,000,
$700,000, and $700,000, respectively.
|
Employment
Agreements
In
connection with the Merger, Berry entered into employment agreements with
each
of Messrs. Boots, Beeler and Kratochvil that supersede their previous employment
agreements with Berry and that expire on December 31, 2011. In
addition, Messrs. Hobson and Unfried entered into amendments to their existing
employment agreements with Berry that extend the terms of such agreements
through December 31, 2011 (each of the agreements with Messrs. Boots, Beeler,
Kratochvil, Hobson and Unfried, as amended, an “Employment Agreement” and,
collectively, the “Employment Agreements”). The Employment Agreements provided
for fiscal 2007 base compensation as disclosed in the “Summary Compensation
Table” above. Salaries are subject in each case to annual adjustment
at the discretion of the Compensation Committee of the Board of Directors
of
Berry Plastics Corporation. The Employment Agreements entitle each
executive to participate in all other incentive compensation plans established
for executive officers of Berry. Berry may terminate each Employment
Agreement for “cause” or a “disability” (as such terms are defined in the
Employment Agreements). Specifically, if any of Messrs. Boots, Beeler,
Kratochvil, Hobson, and Unfried is terminated by Berry without ‘‘cause’’ or
resigns for ‘‘good reason’’ (as such terms are defined in the Employment
Agreements), that individual is entitled to: (1) the greater of (a) base
salary
until the later of one year after termination or (b) 1/12 of 1 year’s base
salary for each year of employment up to 30 years with Berry Plastics
Corporation or a predecessor in interest (excluding Messrs. Hobson and Unfried
which would be entitled to (a) only) and (2) the pro rata portion of his
annual
bonus. Each Employment Agreement also includes customary noncompetition,
nondisclosure and nonsolicitation provisions.
Grants
of Plan-Based Awards for Fiscal 2007
In
connection with Apollo V’s acquisition of Berry Group, we have adopted an equity
incentive plan for the benefit of certain of our employees, which we refer
to as
the 2006 Equity Incentive Plan. The purpose of the 2006 Equity
Incentive Plan is to further our growth and success, to enable our directors,
executive officers and employees to acquire shares of our common stock, thereby
increasing their personal interest in our growth and success, and to provide
a
means of rewarding outstanding performance by such persons. No
options were granted to our named executive officers in fiscal
2007.
Outstanding
Equity Awards at Fiscal Year-End Table
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise
Price
|
Option
Expiration
Date
|
Ira
G. Boots
|
10,563
|
25,860
|
$100
|
9/20/16
|
James
M. Kratochvil
|
6,051
|
14,811
|
$100
|
9/20/16
|
R.
Brent Beeler
|
6,051
|
14,811
|
$100
|
9/20/16
|
Randall
J. Hobson
|
3,966
|
9,714
|
$100
|
9/20/16
|
G.
Adam Unfried
|
3,966
|
9,714
|
$100
|
9/20/16
|
Option
Exercises and Stock Vested for 2007
No
options were exercised by our named executive officers in fiscal
2007.
Compensation
for Directors
Non-employee
directors receive $12,500 per quarter plus $2,000 for each meeting they attend
and are reimbursed for out-of-pocket expenses incurred in connection with
their
duties as directors. In addition, directors of Old Covalence received
$12,500 per quarter plus $2,000 for each meeting they attend and were reimbursed
for out-of-pocket expenses incurred in connection with their duties as
directors. For the fiscal year ended September 29, 2007, we paid
non-employee directors’ fees on a combined basis as shown in the following
table.
Director
Compensation Table for Fiscal 2007
Name
|
Fees
Earned
or
Paid in
Cash
($)
|
Option
Awards
($)
|
Total
($)
|
Anthony
M. Civale
|
$124,000
|
$—
|
$124,000
|
Patrick
J. Dalton
|
50,000
|
—
|
50,000
|
Donald
C. Graham
|
62,500
|
—
|
62,500
|
Steven
C. Graham
|
62,500
|
—
|
62,500
|
Joshua
J. Harris
|
108,000
|
—
|
108,000
|
Robert
V. Seminara
|
116,000
|
—
|
116,000
|
|
Item
12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED
STOCKHOLDER MATTERS
|
Stock
Ownership
We
are a
wholly-owned subsidiary of Berry Group. The following table sets
forth certain information regarding the beneficial ownership of the common
stock, of Berry Group with respect to each person that is a beneficial owner
of
more than 5% of its outstanding common stock and beneficial ownership of
its
common stock by each director and each executive officer named in the Summary
Compensation Table and all directors and executive officers as a group as
of
September 29, 2007.
Name
and Address of
Owner(1)
|
|
Number
of Shares
of
Common
Stock(1)
|
Percent
of Class
|
Apollo
Investment Fund VI, L.P. (2)
|
|
3,559,930
|
|
51.2
|
%
|
Apollo
Investment Fund V, L.P. (3)
|
|
1,902,558
|
|
27.4
|
%
|
AP
Berry Holdings, L. P (4)
|
|
1,641,269
|
|
23.6
|
%
|
Graham
Berry Holdings, LP (5)
|
|
500,000
|
|
7.2
|
%
|
Ira
G. Boots (6)
|
|
129,958
|
|
1.9
|
%
|
James
M. Kratochvil (6)
|
|
73,838
|
|
1.1
|
%
|
R.
Brent Beeler (6)
|
|
74,061
|
|
1.1
|
%
|
G.
Adam Unfried (6)
|
|
16,084
|
|
*
|
|
Randall
J. Hobson (6)
|
|
19,212
|
|
*
|
|
Anthony
M. Civale (7),(8)
|
|
3,531
|
|
*
|
|
Patrick
J. Dalton (7),(8)
|
|
2,000
|
|
*
|
|
Donald
C. Graham (7),(9)
|
|
2,000
|
|
*
|
|
Steven
C. Graham (7),(9)
|
|
2,000
|
|
*
|
|
Joshua
J. Harris (7),(8)
|
|
3,531
|
|
*
|
|
Robert
V. Seminara (7),(8)
|
|
3,531
|
|
*
|
|
All
directors and executive officers as a group (11 persons)
|
|
329,746
|
|
4.7
|
%
|
*
Less
than 1% of common stock outstanding.
(1) The
amounts and percentages of common stock beneficially owned are reported on
the
basis of regulations of the SEC governing the determination of beneficial
ownership of securities. Under the rules of the SEC, a person is
deemed to be a “beneficial owner” of a security if that person has or shares
voting power, which includes the power to vote or direct the voting of such
security, or investment power, which includes the power to dispose of or
to
direct the disposition of such security. A person is also deemed to
be a beneficial owner of any securities of which that person has a right
to
acquire beneficial ownership within 60 days. Securities that can be
so acquired are deemed to be outstanding for purposes of computing such person’s
ownership percentage, but not for purposes of computing any other person’s
percentage. Under these rules, more than one person may be deemed
beneficial owner of the same securities and a person may be deemed to be
a
beneficial owner of securities as to which such person has no economic
interest. Except as otherwise indicated in these footnotes, each of
the beneficial owners has, to our knowledge, sole voting and investment power
with respect to the indicated shares of common stock.
(2) Represents
all equity interests of Berry Group held of record by controlled affiliates
of
Apollo Investment Fund VI, L.P., including AP Berry Holdings, LLC and BPC
Co-Investment Holdings, LLC. Apollo Management VI, L.P. has the
voting and investment power over the shares held on behalf of
Apollo. Each of Messrs. Civale, Dalton, Harris, and Seminara, who
have relationships with Apollo, disclaim beneficial ownership of any shares
of
Berry Group that may be deemed beneficially owned by Apollo Management VI,
L.P.,
except to the extent of any pecuniary interest therein. Each of
Apollo Management VI, L.P., AP Berry Holdings, LLC and its affiliated investment
funds disclaims beneficial ownership of any such shares in which it does
not
have a pecuniary interest. The address of Apollo Management VI, L.P.,
Apollo Investment Fund VI, L.P., and AP Berry Holdings LLC is c/o Apollo
Management, L.P., 9 West 57th Street, New York, New York 10019.
(3) Represents
all equity interests of Berry Group held of record by controlled affiliates
of
Apollo Investment Fund V, L.P., including Apollo V Covalence Holdings, LLC
and
Covalence Co-Investment Holdings, L.P. Apollo Management V, L.P. has
the voting and investment power over the shares held on behalf of
Apollo. Each of Messrs. Civale, Dalton, Harris, and Seminara, who
have relationships with Apollo, disclaim beneficial ownership of any shares
of
Berry Group that may be deemed beneficially owned by Apollo Management V,
L.P.,
except to the extent of any pecuniary interest therein. Each of
Apollo Management V, L.P., Apollo V Covalence Holdings, LLC and its affiliated
investment funds disclaims beneficial ownership of any such shares in which
it
does not have a pecuniary interest. The address of Apollo Management
V, L.P., Apollo Investment Fund V, L.P., and Apollo V Covalence Holdings,
LLC is
c/o Apollo Management, L.P., 9 West 57th Street, New York, New York
10019.
(4) The
address of AP Berry Holdings LLC is c/o Apollo Management, L.P., 9 West 57th
Street, New York, New York 10019.
(5) Graham
Partners II, L.P., as the sole member of the general partner of Graham Berry
Holdings, L.P., has the voting and investment power over the shares held
by
Graham Berry Holdings, L.P. Each of Messrs. Steven Graham and Donald
Graham, who have relationships with Graham Partners II, L.P. and/or Graham
Berry
Holdings L.P., disclaim beneficial ownership of any shares of Berry Group
that
may be deemed beneficially owned by Graham Partners II, L.P. or Graham Berry
Holdings L.P. except to the extent of any pecuniary interest
therein. Each of Graham Partners II, L.P. and its affiliates
disclaims beneficial ownership of any such shares in which it does not have
a
pecuniary interest. The address of Graham Partners II, L.P. and
Graham Berry Holdings, L.P. is 3811 West Chester Pike, Building 2, Suite
200
Newton Square, Pennsylvania 19073.
(6) The
address of Messrs. Boots, Beeler, Kratochvil, Unfried, and Hobson is c/o
Berry
Plastics Holding Corporation, 101 Oakley Street, Evansville, Indiana
47710. Total includes underlying options that are vested or scheduled
to vest within 60 days of December 10, 2007
(7) Total
represents underlying options that are vested or scheduled to vest within
60
days of December 10, 2007 for each of Messrs. Civale, Dalton, Donald Graham,
Steven Graham, Harris and Seminara.
(8) The
address of Messrs. Civale, Harris, Seminara and Dalton is c/o Apollo Management,
L.P., 9 West 57th Street, New York, New York 10019.
(9) The
address of Messrs. Steven Graham and Donald Graham is c/o Graham Partners
II,
L.P. is 3811 West Chester Pike, Building 2, Suite 200 Newtown Square,
Pennsylvania 19073.
Equity
Compensation Plan Information
The
following table provides information as of September 29, 2007 regarding shares
of common stock of Berry Group that may be issued under our existing equity
compensation plan.
|
Number
of securities to be
issued
upon exercise of
outstanding
options,
warrants
and rights
|
Weighted
Average
exercise
price of
outstanding
options,
warrants
and rights
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation plan
(excluding
securities
referenced
in column (a))
|
|
(a)
|
(b)
|
(c)
|
Equity
compensation plans
approved
by security holders
|
—
|
—
|
—
|
|
|
|
|
Equity
compensation plans not
approved
by security holders (1)
|
618,620
(2)
|
100
|
3,632
|
|
|
|
|
Total
|
618,620
|
100
|
3,632
|
|
(1) Consists
of the
2006 Equity Incentive Plan which our Board adopted in September
2006.
|
|
(2) Does
not include
shares of Berry Group Common Stock already purchased as such shares
are
already reflected in the Company’s outstanding shares.
|
2006
Equity Incentive Plan
In
connection with the Apollo’s acquisition of Berry Group, we have adopted an
equity incentive plan for the benefit of certain of our employees, which
we
refer to as the 2006 Equity Incentive Plan. The purpose of the 2006
Equity Incentive Plan is to further our growth and success, to enable our
directors, executive officers and employees to acquire shares of our common
stock, thereby increasing their personal interest in our growth and success,
and
to provide a means of rewarding outstanding performance by such
persons. Options granted under the 2006 Equity Incentive Plan may not
be assigned or transferred, except to us or by will or the laws of descent
or
distribution. The 2006 Equity Incentive Plan terminates ten years
after adoption and no options may be granted under the plan
thereafter. The 2006 Equity Incentive Plan allows for the issuance of
non-qualified options, options intended to qualify as “incentive stock options”
within the meaning of the Internal Revenue Code of 1986, as amended, and
stock
appreciation rights.
The
employees participating in the 2006 Equity Incentive Plan receive options
and
stock appreciation rights under the 2006 Equity Incentive Plan pursuant to
individual option and stock appreciation rights agreements, the terms and
conditions of which are substantially identical. Each option
agreement provides for the issuance of options to purchase common stock of
Berry
Group.
As
of
September 29, 2007, there were outstanding options to purchase 612,928 shares
of
Berry Group’s common stock and stock appreciation rights with respect to 5,692
shares of Berry Group’s common stock.
Item
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE
Stockholders
Agreement with Management
We
make
cash payments to Berry Group to enable it to pay any (i) federal, state or
local income taxes to the extent that such income taxes are directly
attributable to our and our subsidiaries’ income, (ii) franchise taxes and
other fees required to maintain Berry Group’s legal existence and
(iii) corporate overhead expenses incurred in the ordinary course of
business and salaries or other compensation of employees who perform services
for both Berry Group and us.
In
connection with the Merger, Apollo and Graham and certain of our employees
who
invested in Berry Group entered into a stockholders agreement. The
stockholders agreement provides for, among other things, a restriction on
the
transferability of each such person’s equity ownership in us, tag-along rights,
drag-along rights, piggyback registration rights and repurchase rights by
us in
certain circumstances.
The
Company is charged a management fee by Apollo Management VI, L.P., an affiliate
of its principal stockholder and Graham Partners, for the provision of
management consulting and advisory services provided throughout the
year. The management fee is the greater of $3.0 million or 1.25% of
adjusted EBITDA. In addition, Apollo and Graham have the right to
terminate the agreement at any time, in which case Apollo and Graham will
receive additional consideration equal to the present value of $21 million
less
the aggregate amount of annual management fees previously paid to Apollo
and
Graham, and the employee stockholders will receive a pro rata payment based
on
such amount.
Old
Covalence was charged a management fee by Apollo Management V, L.P., an
affiliate of its principal stockholder, for the provision of management
consulting and advisory services provided throughout the year. The
annual management fee is the greater of $2.5 million or 1.5% of adjusted
EBITDA. This agreement was terminated effective with the
Merger.
The
Old
Covalence fee was payable at the beginning of each fiscal year and the Berry
Holding fee is paid quarterly. Old Covalence paid $2.5 million in
fiscal 2007. Old Berry Holding and the Company paid $2.5 million to
entities affiliated with Apollo Management, L.P. and $0.5 million to entities
affiliated with Graham Partners, Inc. collectively for fiscal 2007.
Item
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Prior
to
the formation of Berry Holding through the merger of Old Berry Group and
Old
Covalence Holding, Old Berry Group’s principal accounting firm was Ernst &
Young, LLP (“E&Y”) and Old Covalence Holding’s principal accounting firm was
Deloitte & Touche LLP (“Deloitte”). After the date of
the Berry Holding formation, the combined company filed on Form 8-K which
stated
that E&Y would become the principal accounting firm of the combined
company. The following table sets forth fees billed by E&Y and
Deloitte to Berry Holding, Old Berry Group and Old Covalence Holding for
fiscal
2007 and 2006.
|
|
|
|
|
E&Y
|
|
|
Deloitte
|
|
|
Total
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Audit
fees
|
|
|
(1 |
) |
|
$ |
2.3 |
|
|
$ |
1.4 |
|
|
$ |
0.3 |
|
|
$ |
2.5 |
|
|
$ |
2.6 |
|
|
$ |
3.9 |
|
Audit-related
fees
|
|
|
(2 |
) |
|
|
0.7 |
|
|
|
0.1 |
|
|
|
— |
|
|
|
0.5 |
|
|
|
0.7 |
|
|
|
0.6 |
|
Tax
fees
|
|
|
(3 |
) |
|
|
0.5 |
|
|
|
0.4 |
|
|
|
— |
|
|
|
— |
|
|
|
0.5 |
|
|
|
0.4 |
|
All
other fees
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
$ |
3.5 |
|
|
$ |
1.9 |
|
|
$ |
0.3 |
|
|
$ |
3.0 |
|
|
$ |
3.8 |
|
|
$ |
4.9 |
|
|
(1) Audit
Fees. This category includes fees and expenses billed by
E&Y and Deloitte for the audits of the Company’s financial statements
and for the reviews of the financial statements included in the
Company’s
Quarterly Reports on Form 10-Q. This category also includes services
associated with SEC registration statements, periodic reports,
and other
documents issued in connection with securities offerings.
|
|
(2) Audit
Related
Fees. This category includes fees and expenses billed by E&Y
and Deloitte for assurance and related services that are reasonably
related to the performance of the audit or review of the Company’s
financial statements. This category includes fees for due diligence,
other
audit-related accounting and SEC reporting services and certain
agreed
upon services.
|
|
(3) Tax
Fees. This category includes fees and expenses billed by
E&Y and Deloitte for domestic and international tax compliance and
planning services and tax advice.
|
|
(4) All
Other
Fees. There were no other fees billed by E&Y or
Deloitte.
|
The
Audit
Committee has established its pre-approval policies and procedures, pursuant
to
which the Audit Committee approved the foregoing audit and permissible non-audit
services provided by our principal accounting firms in fiscal 2007 and
2006. Consistent with the Audit Committee’s responsibility for
engaging our independent auditors, all audit and permitted non-audit services
require pre-approval by the Audit Committee. All requests or
applications for services to be provided by the independent auditor that
do not
require specific approval by the Audit Committee will be submitted to the
Chief
Financial Officer and must include a detailed description of the services
to be
rendered. The Chief Financial Officer will determine whether such
services are included within the services that have received pre-approval
of the
Audit Committee. The Audit Committee will be informed on a timely
basis of any such services rendered by the independent
auditor. Request or applications to provide services that require
specific approval by the Audit Committee will be submitted to the Audit
Committee by both the independent auditor and the Chief Financial
Officer. The Chief Financial Officer and management will immediately
report to the Audit Committee any breach of this policy that comes to
the
attention
of the Chief Financial Officer or any member of management. Pursuant
to these procedures the Audit Committee approved the audit and permissible
non-audit services provided by the principal accounting
firms in
fiscal 2007 and 2006.
PART
IV
Item
15. EXHIBITS AND FINANCIAL
STATEMENT
SCHEDULES
|
The
financial statements listed under Item 8 are filed as part of
this report.
|
2.
|
Financial
Statement
Schedules
|
|
Schedules
have been omitted because they are either not applicable or the
required
information has been
|
|
disclosed
in the financial statements or notes thereto.
|
|
The
exhibits listed on the accompanying Exhibit Index are filed as
part of
this report.
|
The
Board
of Directors and Stockholders
Berry
Plastics Holding Corporation
We
have
audited the accompanying consolidated balance sheet of Berry Plastics Holding
Corporation (a wholly owned subsidiary of Berry Plastics Group, Inc.) as
of
September 29, 2007, and the related consolidated statements of operations,
changes in stockholders' equity and comprehensive income (loss), and cash
flows
for the year then ended. We have also audited the accompanying
combined balance sheet of Berry Plastics Holding Corporation as of September
30,
2006, and the related combined statement of operations, stockholders’ equity,
and cash flows for the period from February 17, 2006 to September 30, 2006.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements
based
on our audits. We did not audit the 2006 financial statements of Covalence
Specialty Materials Corp., a combined entity, which statements as of September
29, 2006 and for the period from February 17, 2006 to September 29, 2006,
reflect total assets constituting 31%, and net loss constituting 80% of the
related combined totals. Those statements were audited by other auditors
whose
report has been furnished to us, and our opinion, insofar as it relates to
the
amounts included for Covalence Specialty Materials Corp., is based solely
on the
report of the other auditors.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were not engaged
to perform an audit of the Company’s internal control over financial reporting.
Our audit included consideration of internal control over financial reporting
as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In
our
opinion, based on our audits and, for 2006, the report of other auditors,
the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Berry Plastics Holding Corporation
at
September 29, 2007, the combined financial position of Berry Plastics Holding
Corporation at September 30, 2006, the consolidated results of its operations
and its cash flows for the year ended September 29, 2007 and the combined
results of its operations and its cash flows for the period from February
17,
2006 to September 30, 2006, in conformity with U.S. generally accepted
accounting principles.
As
discussed in Note 2 to the consolidated financial statements, effective
September 29, 2007 the Company adopted Statement of Financial Accounting
Standards No. 158, Employers’
Accounting for Defined
Benefit Pension and Other Post-Retirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R).
/s/
Ernst
and Young LLP
Indianapolis,
Indiana
December
21, 2007
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
Covalence
Specialty Materials Corp.
|
We
have
audited the accompanying combined statements of operations, parent company
equity and comprehensive income and cash flows of Tyco Plastics and Adhesives
(the “Predecessor Company”) for the period October 1, 2005 through February 16,
2006, and the year ended September 30, 2005. These financial
statements are the responsibility of Berry Plastics Holding Corporation’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Predecessor Company is not required to have, nor were we engaged to perform,
an
audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a
basis
for designing audit procedures that are appropriate in the circumstances,
but
not for the purpose of expressing an opinion on the effectiveness of the
Predecessor Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In
our
opinion, such combined financial statements present fairly, in all material
respects, the combined results of the operations of Tyco Plastics and Adhesives
and their cash flows for the period October 1, 2005 through February 16,
2006,
and the year ended September 30, 2005, in conformity with accounting principles
generally accepted in the United States of America.
Certain
expenses of the Predecessor Company represent allocations made from Tyco
International Ltd. The accompanying combined financial statements of the
Predecessor Company were prepared from the separate records maintained by
the
Predecessor Company and may not necessarily be indicative of the conditions
that
would have existed or the results of operations if the Predecessor Company
had
been operated as an unaffiliated company.
As
discussed in Note 12 to the financial statements, the accompanying guarantor
and
non-guarantor financial information has been restated.
/s/
DELOITTE & TOUCHE LLP
Parsippany,
New Jersey
December
22, 2006
(February
7, 2007 as to the effects of the restatement discussed in Note 12)
Berry
Plastics Holding
Corporation
Consolidated
or Combined Balance
Sheets
(In
Millions of Dollars, except per
share information)
|
|
|
|
|
|
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
|
$ |
14.6 |
|
|
$ |
83.1 |
|
Accounts
receivable (less allowance for doubtful accounts
of
$11.3 at September 29, 2007 and $9.6 at September 30,
2006)
|
|
|
372.5 |
|
|
|
357.1 |
|
Inventories:
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
|
227.3 |
|
|
|
238.3 |
|
Raw
materials and supplies
|
|
|
158.0 |
|
|
|
166.8 |
|
|
|
|
385.3 |
|
|
|
405.1 |
|
Deferred
income
taxes
|
|
|
31.7 |
|
|
|
17.0 |
|
Prepaid
expenses and other
current assets
|
|
|
35.7 |
|
|
|
41.6 |
|
Total
current assets
|
|
|
839.8 |
|
|
|
903.9 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
|
42.2 |
|
|
|
32.6 |
|
Buildings
and
improvements
|
|
|
178.7 |
|
|
|
177.1 |
|
Equipment
and construction in
progress
|
|
|
735.1 |
|
|
|
638.6 |
|
|
|
|
956.0 |
|
|
|
848.3 |
|
Less
accumulated
depreciation
|
|
|
171.0 |
|
|
|
31.7 |
|
|
|
|
785.0 |
|
|
|
816.6 |
|
Intangible
assets and other long-term assets:
|
|
|
|
|
|
|
|
|
Deferred
financing fees,
net
|
|
|
38.0 |
|
|
|
64.8 |
|
Goodwill
|
|
|
1,132.0 |
|
|
|
989.2 |
|
Other
intangibles,
net
|
|
|
1,072.1 |
|
|
|
1,046.2 |
|
Other
long-term
assets
|
|
|
2.5 |
|
|
|
0.7 |
|
|
|
|
2,244.6 |
|
|
|
2,100.9 |
|
Total
assets
|
|
$ |
3,869.4 |
|
|
$ |
3,821.4 |
|
|
|
|
|
|
|
|
|
|
Berry
Plastics Holding
Corporation
Consolidated
Balance Sheets
(continued)
|
|
|
|
|
|
|
|
|
September
29,
2007
|
|
|
September
30,
2006
|
|
Liabilities
and stockholders' equity
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
263.2 |
|
|
$ |
272.1 |
|
Accrued
expenses and other
current liabilities
|
|
|
189.4 |
|
|
|
173.5 |
|
Current
portion of long-term
debt
|
|
|
17.4 |
|
|
|
16.0 |
|
Total
current liabilities
|
|
|
470.0 |
|
|
|
461.6 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
2,693.3 |
|
|
|
2,612.3 |
|
Deferred
income taxes
|
|
|
217.7 |
|
|
|
249.6 |
|
Other
long-term liabilities
|
|
|
38.4 |
|
|
|
23.1 |
|
Total
liabilities
|
|
|
3,419.4 |
|
|
|
3,346.6 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
— |
|
|
|
65.2 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Contributed
equity from parent,
net
|
|
|
598.1 |
|
|
|
440.6 |
|
Accumulated
deficit
|
|
|
(151.9 |
) |
|
|
(31.2 |
) |
Accumulated
other comprehensive
income
|
|
|
3.8 |
|
|
|
0.2 |
|
Total
stockholders’ equity
|
|
|
450.0 |
|
|
|
409.6 |
|
Total
liabilities and stockholders' equity
|
|
$ |
3,869.4 |
|
|
$ |
3,821.4 |
|
See
notes to consolidated or combined financial statements.
Berry
Plastics Holding Corporation
Consolidated
or Combined Statements of Operations
(In
Millions of Dollars)
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Year
ended September 29, 2007
|
|
|
Period
from February 17 to September 30, 2006
|
|
|
Period
from
October
1, 2005 to February 16, 2006
|
|
|
Year
ended
September
30,
2005
|
|
Net
sales
|
|
$ |
3,055.0 |
|
|
$ |
1,138.8 |
|
|
$ |
666.9 |
|
|
$ |
1,725.2 |
|
Cost
of goods sold
|
|
|
2,583.4 |
|
|
|
1,022.9 |
|
|
|
579.0 |
|
|
|
1,477.4 |
|
Gross
profit
|
|
|
471.6 |
|
|
|
115.9 |
|
|
|
87.9 |
|
|
|
247.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and
administrative
|
|
|
321.5 |
|
|
|
107.6 |
|
|
|
50.0 |
|
|
|
124.6 |
|
Restructuring
and impairment
charges, net
|
|
|
39.1 |
|
|
|
— |
|
|
|
0.6 |
|
|
|
3.3 |
|
Other
operating expenses
|
|
|
43.6 |
|
|
|
0.6 |
|
|
|
— |
|
|
|
— |
|
Charges
and allocations from Tyco
International,
Ltd. and affiliates
|
|
|
— |
|
|
|
— |
|
|
|
10.4 |
|
|
|
56.4 |
|
Operating
income
|
|
|
67.4 |
|
|
|
7.7 |
|
|
|
26.9 |
|
|
|
63.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
— |
|
|
|
(1.3 |
) |
|
|
— |
|
|
|
— |
|
Loss
on extinguished debt
|
|
|
37.3 |
|
|
|
13.6 |
|
|
|
— |
|
|
|
— |
|
Interest
expense, net
|
|
|
237.6 |
|
|
|
46.5 |
|
|
|
2.1 |
|
|
|
4.5 |
|
Interest
expense, net – Tyco International, Ltd. and affiliates
|
|
|
— |
|
|
|
— |
|
|
|
5.5 |
|
|
|
11.2 |
|
Income
(loss) before income taxes and minority interest
|
|
|
(207.5 |
) |
|
|
(51.1 |
) |
|
|
19.3 |
|
|
|
47.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
(88.6 |
) |
|
|
(18.1 |
) |
|
|
1.6 |
|
|
|
3.8 |
|
Minority
interest
|
|
|
(2.7 |
) |
|
|
(1.8 |
) |
|
|
— |
|
|
|
— |
|
Net
income (loss)
|
|
$ |
(116.2 |
) |
|
$ |
(31.2 |
) |
|
$ |
17.7 |
|
|
$ |
44.0 |
|
See
notes to consolidated or combined financial statements.
Berry
Plastics Holding Corporation
Consolidated
or Combined Statements of Changes in Stockholders'
Equity
and Comprehensive Income (Loss)
(In
Millions of Dollars)
|
|
Parent
Company Investment
|
|
|
Accumulated
Other Comprehensive Income
|
|
|
Retained
Earnings (Deficit)
|
|
|
Total
|
|
|
Comprehensive
Income (Loss)
|
|
Predecessor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2004
|
|
$ |
863.9 |
|
|
$ |
(41.1 |
) |
|
$ |
— |
|
|
$ |
822.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
transfers to parent
|
|
|
(12.9 |
) |
|
|
— |
|
|
|
— |
|
|
|
(12.9 |
) |
|
|
|
Net
income
|
|
|
44.0 |
|
|
|
— |
|
|
|
— |
|
|
|
44.0 |
|
|
$ |
44.0 |
|
Currency
translation
|
|
|
— |
|
|
|
3.6 |
|
|
|
— |
|
|
|
3.6 |
|
|
|
3.6 |
|
Minimum
pension liability
|
|
|
— |
|
|
|
(2.4 |
) |
|
|
— |
|
|
|
(2.4 |
) |
|
|
(2.4 |
) |
Balance
at September 30, 2005
|
|
|
895.0 |
|
|
|
(39.9 |
) |
|
|
— |
|
|
|
855.1 |
|
|
$ |
45.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
transfers from parent
|
|
|
224.2 |
|
|
|
— |
|
|
|
— |
|
|
|
224.2 |
|
|
|
|
|
Net
income
|
|
|
17.7 |
|
|
|
— |
|
|
|
— |
|
|
|
17.7 |
|
|
$ |
17.7 |
|
Currency
translation
|
|
|
— |
|
|
|
1.7 |
|
|
|
— |
|
|
|
1.7 |
|
|
|
1.7 |
|
Minimum
pension liability
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance
at February 16, 2006
|
|
$ |
1,136.9 |
|
|
$ |
(38.2 |
) |
|
$ |
— |
|
|
$ |
1,098.7 |
|
|
$ |
19.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions
of equity- Old Covalence
|
|
$ |
190.5 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
190.5 |
|
|
|
|
|
Contributions
of equity-Old Berry
|
|
|
356.0 |
|
|
|
— |
|
|
|
— |
|
|
|
356.0 |
|
|
|
|
|
Stock
compensation expense
|
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
|
|
Adjustment
for negative minority interest
|
|
|
(106.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(106.2 |
) |
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
(31.2 |
) |
|
|
(31.2 |
) |
|
$ |
(31.2 |
) |
Currency
translation
|
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
0.2 |
|
|
|
0.2 |
|
Balance
at September 30, 2006
|
|
|
440.6 |
|
|
|
0.2 |
|
|
|
(31.2 |
) |
|
|
409.6 |
|
|
$ |
(31.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
compensation expense
|
|
|
19.6 |
|
|
|
— |
|
|
|
— |
|
|
|
19.6 |
|
|
|
|
|
Net
transfers to parent
|
|
|
(102.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
(102.5 |
) |
|
|
|
|
Minority
interest acquisition
|
|
|
240.4 |
|
|
|
0.2 |
|
|
|
(4.5 |
) |
|
|
236.1 |
|
|
|
|
|
Net
loss
|
|
|
— |
|
|
|
— |
|
|
|
(116.2 |
) |
|
|
(116.2 |
) |
|
$ |
(116.2 |
) |
Currency
translation
|
|
|
— |
|
|
|
3.7 |
|
|
|
— |
|
|
|
3.7 |
|
|
|
3.7 |
|
Interest
rate hedges
|
|
|
— |
|
|
|
(3.0 |
) |
|
|
— |
|
|
|
(3.0 |
) |
|
|
(3.0 |
) |
Adoption
of SFAS No. 158
|
|
|
— |
|
|
|
2.7 |
|
|
|
— |
|
|
|
2.7 |
|
|
|
— |
|
Balance
at September 29, 2007
|
|
$ |
598.1 |
|
|
$ |
3.8 |
|
|
$ |
(151.9 |
) |
|
$ |
450.0 |
|
|
$ |
(110.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated or combined financial statements.
Berry
Plastics Holding Corporation
Consolidated
or Combined Statements of Cash Flows
(In
Millions of Dollars)
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Year
ended September 29,
2007
|
|
|
Period
from February 17 to September 30, 2006
|
|
|
Period
from October 1, 2005 to February 16, 2006
|
|
|
Year
ended
September
30,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(116.2 |
) |
|
$ |
(31.2 |
) |
|
$ |
17.7 |
|
|
$ |
44.0 |
|
Adjustments
to reconcile net cash from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and
amortization
|
|
|
220.2 |
|
|
|
54.6 |
|
|
|
15.6 |
|
|
|
41.6 |
|
Non-cash
interest
expense
|
|
|
7.3 |
|
|
|
2.2 |
|
|
|
— |
|
|
|
— |
|
Write-off
of deferred financing
fees
|
|
|
35.5 |
|
|
|
13.6 |
|
|
|
— |
|
|
|
— |
|
Non-cash
restructuring
|
|
|
— |
|
|
|
— |
|
|
|
0.3 |
|
|
|
(1.2 |
) |
Stock
compensation
expense
|
|
|
19.6 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
Other
non-cash
items
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.9 |
|
Deferred
income taxes
(benefit)
|
|
|
(90.4 |
) |
|
|
(20.7 |
) |
|
|
1.2 |
|
|
|
— |
|
Loss
(gain) on disposal and
impairment of fixed assets
|
|
|
18.1 |
|
|
|
— |
|
|
|
(3.0 |
) |
|
|
0.5 |
|
Minority
interest
|
|
|
(2.7 |
) |
|
|
(1.8 |
) |
|
|
— |
|
|
|
— |
|
Changes
in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable,
net
|
|
|
2.9 |
|
|
|
(26.1 |
) |
|
|
20.5 |
|
|
|
(5.8 |
) |
Inventories
|
|
|
17.6 |
|
|
|
27.5 |
|
|
|
(94.3 |
) |
|
|
3.3 |
|
Prepaid
expenses and
other assets
|
|
|
3.8 |
|
|
|
8.0 |
|
|
|
(11.0 |
) |
|
|
— |
|
Due to Tyco International, Ltd and affiliates
|
|
|
— |
|
|
|
— |
|
|
|
(106.7 |
) |
|
|
28.1 |
|
Accounts
payable and other
current liabilities
|
|
|
21.6 |
|
|
|
70.3 |
|
|
|
40.5 |
|
|
|
5.9 |
|
Net
cash provided by (used for) operating activities
|
|
|
137.3 |
|
|
|
96.7 |
|
|
|
(119.2 |
) |
|
|
117..3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment
|
|
|
(99.3 |
) |
|
|
(34.8 |
) |
|
|
(12.2 |
) |
|
|
(32.1 |
) |
Proceeds
from disposal of assets
|
|
|
10.8 |
|
|
|
0.8 |
|
|
|
3.1 |
|
|
|
2.9 |
|
Acquisitions
of business, net of cash acquired
|
|
|
(75.8 |
) |
|
|
(3,218.0 |
) |
|
|
— |
|
|
|
— |
|
Net
cash used for investing activities
|
|
|
(164.3 |
) |
|
|
(3,252.0 |
) |
|
|
(9.1 |
) |
|
|
(29.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from long-term borrowings
|
|
|
1,233.0 |
|
|
|
2,653.4 |
|
|
|
— |
|
|
|
— |
|
Equity
contributions (distributions), net
|
|
|
(102.5 |
) |
|
|
680.8 |
|
|
|
— |
|
|
|
— |
|
Repayment
of long-term debt
|
|
|
(1,161.2 |
) |
|
|
(50.7 |
) |
|
|
(79.4 |
) |
|
|
(61.1 |
) |
Debt
financing costs
|
|
|
(9.7 |
) |
|
|
(71.0 |
) |
|
|
— |
|
|
|
— |
|
Change
in book overdraft
|
|
|
— |
|
|
|
— |
|
|
|
(14.2 |
) |
|
|
(12.1 |
) |
Change
in Predecessor parent company investment
|
|
|
— |
|
|
|
— |
|
|
|
224.2 |
|
|
|
(13.2 |
) |
Other,
net
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2.8 |
) |
Net
cash provided by (used for) financing activities
|
|
|
(40.4 |
) |
|
|
3,212.5 |
|
|
|
130.6 |
|
|
|
(89.2 |
) |
Effect
of currency translation on cash
|
|
|
(1.1 |
) |
|
|
(1.1 |
) |
|
|
(0.2 |
) |
|
|
0.1 |
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(68.6 |
) |
|
|
56.1 |
|
|
|
2.1 |
|
|
|
(1.0 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
83.1 |
|
|
|
27.0 |
|
|
|
2.7 |
|
|
|
3.7 |
|
Cash
and cash equivalents at end of period
|
|
$ |
14.6 |
|
|
$ |
83.1 |
|
|
$ |
4.8 |
|
|
$ |
2.7 |
|
See
notes to consolidated or combined financial statements.
Berry
Plastics Holding Corporation
Notes
to Consolidated or Combined Financial Statements
(In
millions of dollars, except as otherwise noted)
1. Basis
of Presentation and Summary of Significant Accounting Policies
Background
Berry
Plastics Holding Corporation (“Berry Holding” or the “Company”) is a leading
manufacturer and marketer of plastic packaging products in several sectors
including, rigid open top and closed top packaging, polyethylene-based plastic
films, industrial tapes, medical specialties, packaging, heat-shrinkable
coatings and specialty laminates. The Company’s key products include
containers, drink cups, bottles, closures and overcaps, tubes and prescription
vials, trash bags, stretch films, plastics sheeting and tapes. At
September 29, 2007, the Company had 55 production and manufacturing facilities,
with 47 located in the United States.
On
April
3, 2007, Berry Plastics Group, Inc. (“Old Berry Group”) completed a
stock-for-stock merger (the “Merger”) with Covalence Specialty Materials Holding
Corp. (“Old Covalence Holding”). The resulting company retained the name Berry
Plastics Group, Inc. (“Berry Group”). Immediately following the
Merger, Berry Plastics Holding Corporation (“Old Berry Holding”) and Covalence
Specialty Materials Corp. (“Old Covalence”) were combined as a direct subsidiary
of Berry Group. The resulting company retained the name Berry
Plastics Holding Corporation.
In
connection with the closing of the merger, Berry Holding Corporation adopted
the
fiscal year-end of the accounting acquirer (Covalence Specialty Materials
Corp). The Company has adopted a September year-end and commencing
with periodic reports after the consummation of the merger on April 3, 2007,
began filing its periodic reports on a combined basis.
Apollo
Acquisition of Old Covalence Holding
As
further described in Note 2, on February 16, 2006, Old Covalence Holding
was
formed through the acquisition of substantially all of the assets and
liabilities of Tyco Plastics & Adhesives (“TP&A” or the “Predecessor”)
under a Stock and Asset Purchase Agreement dated December 20, 2005 among
an
affiliate of Apollo Management V, L.P (“Apollo”), Tyco International Group S.A.
and Tyco Group S.a.r.l.
Apollo
Acquisition of Old Berry Group
As
further described in Note 2, on September 20, 2006, BPC Acquisition Corp.
merged
with and into BPC Holding Corporation pursuant to an agreement and plan of
merger (the “Apollo Berry Merger”), dated June 28, 2006, with BPC Holding
Corporation continuing as the surviving corporation. Following the
consummation of the Apollo Berry Merger, BPC Holding Corporation changed
its
name to Berry Plastics Holding Corporation. Pursuant to the Apollo
Berry Merger, Old Berry Holding was a wholly-owned subsidiary of Old Berry
Group, the principal stockholders of which were Apollo Investment Fund VI,
L.P.,
AP Berry Holdings, LLC, an affiliate of Graham Partners II, L.P., and
management. Apollo Investment Fund VI, L.P. and AP Berry Holdings,
LLC are affiliates of Apollo Management, L.P., which is a private investment
firm. Graham Partners II, L.P. is an affiliate of Graham Partners,
Inc. (“Graham”), a private equity firm.
Basis
of Presentation
Prior
to
the Merger, Old Berry Holding and Old 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 through
the
date of the Merger 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 for Tyco
Plastics & Adhesives (the “Predecessor”) are presented on a combined basis
and consist of the combined operations of the formerly wholly-owned operating
units of Tyco: Tyco Plastics, Tyco Adhesives and Ludlow Coated
Products. The Predecessor financial statements presented may not be
indicative of the results that would have been achieved had the Predecessor
operated as a separate, stand-alone entity.
The
acquisitions by affiliates of Apollo of Old Covalence Holding and Old Berry
Group 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, Berry replaced its existing credit facility with a new credit
facility comprised of a $400 million asset based revolving line of credit
and a
$1.2 billion term loan.
Contributed
equity from Parent in the combined company includes the capital stock (common
stock and perpetual preferred stock) that was invested in Old Berry Group
and
Old Covalence Holding by Apollo. All other capital stock contributed
by the minority shareholders is reflected in minority interest, to the extent
that it was a positive equity balance up until the date of the Merger at
which
time the shareholders exchanged shares of Old Berry Group and Old Covalence
Holding for shares in Berry Group. Berry Holding, through its
wholly-owned subsidiaries operates in four primary segments: rigid
open top, rigid closed top, flexible films, and tapes and
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.
The
Company has recorded a minority interest liability for the equity interests
in
the combined company that are not owned by funds affiliated and controlled
by
Apollo up until the date of the Merger on April 3, 2007. At September
30, 2006, the minority interest liability reflects the equity interests in
Berry
Group held by management and other third parties. In connection with
the acquisition of Old Berry Group by Apollo on September 20, 2006, management
elected to rollover shares that were owned prior to the acquisition by Apollo
into the new Company and accordingly, there was no step up applied under
purchase accounting for management’s ownership in accordance with EITF 88-16,
Basis in Leveraged Buyout Transactions. The application of EITF 88-16
produced a negative equity balance for management. Since that
negative balance is not recoverable from the management shareholders, this
amount has been reflected as a reduction of Apollo’s equity in Old Berry Holding
at September 30, 2006. All losses that are allocable to management
are being absorbed by Apollo due to the negative equity of Old Berry Holding’s
management. In connection with the closing of the Merger on April 3,
2007, the minority ownership interests were acquired.
On
April
3, 2007, in connection with the merger of Berry and Covalence, shares of
Berry
Plastics Group, Inc., the former parent of Berry Plastics Holding Corporation,
and Covalence Specialty Materials Holding Corporation held by minority
shareholders and management were exchanged for shares in the new merged
company. The minority shareholders and management held ownership
interests of 28% and 5% for Berry and Covalence, respectively. The
acquisition of these ownership interests occurred on April 3, 2007 in connection
with the closing of the transaction and was accounted for under the purchase
method of accounting and pushed-down to the Company.
Revenue
Recognition
Revenue
from the sales of products is recognized at the time title and risks and
rewards
of ownership pass (either when the products reach the free-on-board shipping
point or destination depending on the contractual terms), the sales price
is
fixed and determinable and collection is reasonably
assured. Provisions for certain rebates, sales incentives, trade
promotions, coupons, product returns and discounts to customers are accounted
for as reductions in gross sales to arrive at net sales in the same period
that
the related sales are recorded. In accordance with EITF 01-9,
“Accounting for Consideration Given By a Vendor to a Customer”, the Company
provides for these items as reductions of revenue at the later of the date
of
the sale or the date the incentive is offered. These provisions are
based on estimates derived from current program requirements and historical
experience. Shipping, handling, purchasing, receiving, inspecting,
warehousing, and other costs of distribution are presented in cost of sales
in
the statements of operations. The Company classifies amounts charged
to its customers for shipping and handling in net revenues in its statement
of
operations.
Vendor
Rebates and Purchases of Raw Materials
The
Company receives consideration in the form of rebates from certain vendors
and
in accordance with EITF 02-16, “Accounting by a Customer (Including a Reseller)
for Certain Consideration Received from a Vendor”, the Company accrues these as
a reduction of inventory cost as earned under existing programs, and reflects
as
a reduction of cost of goods sold at the time that the related underlying
inventory is sold to customers.
Purchases
of various densities of plastic resin used in the manufacture of the Company’s
products aggregated approximately $977.7 million, $400.7 million, $271.6
million
and $462.7 million for the fiscal year ended September 29, 2007, for the
period
from February 17, 2006 to September 30, 2006, the period from October 1,
2005 to
February 16, 2006, and fiscal 2005. The largest supplier of the
Company’s total resin material requirements represented approximately 31% of
purchases in fiscal 2007. The Company uses suppliers such as Dow
Chemical, Basell, Nova, Total, Lyondell, Chevron, ExxonMobil, Sunoco, and
Flint
Hills Resources, LP to meet its resin requirements.
Research
and Development
Research
and development costs are expensed when incurred. The Company
incurred research and development expenditures of $11.2 million for fiscal
2007,
$5.0 million for the period February 17 to September 30, 2006, $3.1 million
for
the period October 1, 2005 to February 16, 2006 and $8.0 million for fiscal
2005.
Advertising
Advertising
costs are expensed when incurred and are included in operating
expenses. The Company incurred advertising costs of $1.1 million in
fiscal 2007, $2.5 million for the period February 17 to September 30, 2006,
$1.1
million for the period October 1, 2005 to February 16, 2006 and $3.1 million
for
fiscal 2005.
Stock-Based
Compensation
In
December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment
(“SFAS 123R”), which requires that the compensation cost relating to share-based
payment transactions be recognized in financial statements based on alternative
fair value models. The share-based compensation cost is measured
based on the fair value of the equity or liability instruments
issued. As of September 29, 2007, the Company has one share-based
compensation plan (“2006 Equity Incentive Plan”) which is more fully described
in Note 10. Under the plan, members of management were granted stock
options throughout the fiscal year ended September 29, 2007. Prior to
the granting of the special one-time dividend discussed in Note 10, the Company
amended the terms of the plan to allow both vested and nonvested option holders
to receive the dividend either immediately (in the case of vested holders)
or
after a two-year vesting period (in the case of nonvested
holders). In connection with this amendment and the special one-time
dividend granted to option holders, the Company recognized non cash compensation
expense of $18.2 million during the year ended September 29, 2007. In
addition, the Company recognized $0.8 million in non cash compensation expense
primarily related to stock option awards granted prior to the amendment and
special one-time dividend. An additional $0.6 million was recognized
as compensation expense related to escrowed funds held in a rabbi trust for
the
benefit of nonvested option holders who were granted the special one-time
dividend, resulting in total noncash compensation of $19.6 million for the
year
ended September 29, 2007. The Company recorded $0.3 million in
noncash compensation expense for the period February 17 to September 30,
2006.
The
Predecessor had granted options to purchase Tyco common shares to certain
of the
TP&A’s employees. Following the formation of Old Covalence, the expense and
liability related to these stock options have remained with Tyco. Effective
October 1, 2005, the TP&A adopted SFAS No. 123R using the modified
prospective application transition method. Under this method, compensation
cost
is recognized for the unvested portion of share-based payments granted prior
to
October 1, 2005 and all share-based payments granted subsequent to September
30,
2005 over the related vesting period. Prior to the first fiscal quarter of
2006,
the TP&A applied the intrinsic value based method prescribed in Accounting
Principles Board Opinion No. 25 in accounting for employee stock based
compensation. Prior period results have not been restated. Due to the adoption
of SFAS No. 123R, the results from October 1, 2005 to February 16, 2006 include
incremental share-based compensation expense totaling $1.7 million.
The
Company and Predecessor utilized a combination of the Black-Scholes and
lattice-based option valuation models for estimating the fair value of the
stock
options. The models allow for the use of a range of
assumptions. Expected volatilities utilized in the lattice model and
Black-Scholes models are based on implied volatilities from traded stocks
of
peer companies. Similarly, the dividend yield is based on historical
experience and the estimate of future dividend yields. The risk-free
interest rate is derived from the U.S. Treasury yield curve in effect at
the time of grant. The lattice model incorporates exercise and
post-vesting forfeiture assumptions based on an analysis of historical
data. The expected lives of the grants are derived from historical
experience and expected behavior. The fair value for options granted
have been estimated at the date of grant using a Black-Scholes or lattice
option
pricing model, generally with the following weighted average
assumptions:
|
Company
|
Predecessor
|
|
Year
ended
September
29,
2007
|
Period
from
February
17 to
September
30, 2006
|
|
Period
from
October
1, 2005 to February 16, 2006
|
Year
ended
September
30,
2005
|
Risk-free
interest rate
|
4.5
– 4.9%
|
4.5
– 4.9%
|
|
4.5
– 4.9%
|
4.5
– 4.9%
|
Dividend
yield
|
0.0%
|
0.0%
|
|
0.0%
|
0.0%
|
Volatility
factor
|
.20
- .45
|
.45
|
|
.45
|
.45
|
Expected
option life
|
3.73
– 6.86 years
|
3.73
– 6.86 years
|
|
3.73
– 6.86 years
|
3.73
– 6.86 years
|
Foreign
Currency
For
the
non-U.S. subsidiaries that account in a functional currency other than U.S.
Dollars, assets and liabilities are translated into U.S. Dollars using
period-end exchange rates. Sales and expenses are translated at the
average exchange rates in effect during the period. Foreign currency
translation gains and losses are included as a component of accumulated other
comprehensive income within stockholders’ equity. Gains and losses
resulting from foreign currency transactions, the amounts of which are not
material in any period presented are included in net income.
Cash
and Cash Equivalents
All
highly liquid investments purchased with a maturity of three months or less
from
the time of purchase are considered to be cash equivalents.
Allowance
for Doubtful Accounts
The
allowance for doubtful accounts is analyzed in detail on a quarterly basis
and
all significant customers with delinquent balances are reviewed to determine
future collectibility. The determinations are based on legal issues
(such as bankruptcy status), past history, current financial and credit agency
reports, and the experience of the credit representatives. Reserves
are established in the quarter in which the Company makes the determination
that
the account is deemed uncollectible. The Company maintains additional
reserves based on its historical bad debt experience. Additionally,
the allowance for doubtful accounts includes a reserve for cash discounts
that
are offered to some customers for prompt payment. The following table
summarizes the activity for the years ended September 29, 2007 and September
30,
2006 for the allowance for doubtful accounts, excluding the activity related
to
cash discounts due to its volume.
|
|
September
29, 2007
|
|
|
September
30, 2006
|
|
Fair
value of allowance for doubtful accounts from acquisition
dates
|
|
$ |
9.6 |
|
|
$ |
10.1 |
|
Charged
to costs and expenses
|
|
|
0.1 |
|
|
|
(0.2 |
) |
Deductions
and currency translation
|
|
|
1.6 |
|
|
|
(0.3 |
) |
Balance
at end of period
|
|
$ |
11.3 |
|
|
$ |
9.6 |
|
Inventories
Inventories
are stated at the lower of cost or market and are valued using the first-in,
first-out method. Management periodically reviews inventory balances,
using recent and future expected sales to identify slow-moving and/or obsolete
items. The cost of spare parts inventory is charged to manufacturing overhead
expense when incurred.
Property,
Plant and Equipment
Property
and equipment are stated at cost. Depreciation is computed primarily
by the straight-line method over the estimated useful lives of the assets
ranging from 15 to 25 years for buildings and improvements and two to 10
years
for machinery, equipment, and tooling. Leasehold improvements are
depreciated over the shorter of the useful life of the improvement or the
lease
term. Repairs and maintenance costs are charged to expense as
incurred. Depreciation expense totaled $142.6 million in fiscal 2007,
$31.9 million for the period February 17 to September 30, 2006, $14.6 million
for the period October 1, 2005 to February 16, 2006, and $39.0 million for
fiscal 2005.
Long-lived
Assets
Long-lived
assets, including property, plant and equipment and definite lived intangible
assets are reviewed for impairment in accordance with SFAS No. 144 whenever
facts and circumstances indicate that the carrying amount may not be
recoverable. Specifically, this process involves comparing an asset’s
carrying value to the estimated undiscounted future cash flows the asset
is
expected to generate over its remaining life. If this process were to
result in the conclusion that the carrying value of a long-lived asset would
not
be recoverable, a write-down of the asset to fair value would be recorded
through a charge to operations. Fair value is determined based upon
discounted cash flows or appraisals as appropriate. Long-lived assets
that are held for sale are reported at the lower of the assets’ carrying amount
or fair value less costs related to the assets’ disposition. In
connection with our facility rationalization program in our Flex Films and
Tapes/Coatings segments, we recorded impairment charges totaling $18.1 million
to write-down fixed assets to their net realizable valuables.
Goodwill,
Intangible Assets and Deferred Costs
Deferred
financing fees are being amortized to interest expense using the effective
interest method over the lives of the respective debt agreements.
Customer
relationships are being amortized using an accelerated amortization method
which
corresponds with the customer attrition rates used in the initial valuation
of
the intangibles over the estimated life of the relationships which range
from 11
to 20 years. Technology intangibles are being amortized using the
straight-line method over the estimated life of the technology which is 11
years. License intangibles are being amortized using the
straight-line method over the life of the license which is 10
years. Patent intangibles are being amortized using the straight-line
method over the shorter of the estimated life of the technology or the patent
expiration date ranging from ten to twenty years, with a weighted-average
life
of 15 years. The Company evaluates the remaining useful life of
intangible assets on a periodic basis to determine whether events and
circumstances warrant a revision to the remaining useful life.
The
goodwill acquired represents the excess purchase price over the fair value
of
the net assets acquired. These costs are reviewed annually for
impairment pursuant to Statement of Financial Accounting Standards (“SFAS”) No.
142, Goodwill and Other Intangible Assets. Assets were allocated to
the reporting units based on the assets in the respective segments. Trademarks
that are expected to remain in use, which are indefinite lived intangible
assets, are reviewed for impairment annually pursuant to SFAS No.
142.
Financial
Instruments and Derivative Financial Instruments
The
Company’s financial instruments consist primarily of cash and cash equivalents,
accounts receivable, accounts payable, long-term debt and capital lease
obligations. The fair value of such instruments approximated book
value at September 29, 2007 except our carrying amounts for our 8 7/8% Second
Priority Senior Notes for which the fair value exceeded the carrying value
by
$16.9 million and the Company’s 11% Senior Subordinated Notes and 10 1/4% Senior
Subordinated Notes for which the carrying value exceeded the fair value by
$4.3
million and $5.3 million, respectively.
Under
the
provisions of Statement of Financial Accounting Standards No. 133, as
amended and interpreted (“SFAS No. 133”), the Company recognizes at fair
value all derivatives, whether designated as hedging relationships or not,
in
the balance sheet as either an asset or liability. The accounting for changes
in
the fair value of a derivative, including certain derivative instruments
embedded in other contracts, depends on the intended use of the derivative
and
the resulting designation. If the derivative is designated as a fair value
hedge, the changes in the fair value of the derivative and the hedged item
are
recognized in the statement of operations. If the derivative is designated
as a
cash flow hedge, changes in the fair value of the derivative are recorded
in
other comprehensive income and are recognized in the statement of operations
when the hedged item affects net income. If a derivative does not qualify
as a
hedge, it is marked to fair value through the statement of operations. Any
fees
associated with these derivatives are amortized over their term. Under these
derivatives, the differentials to be received or paid are recognized as an
adjustment to interest expense over the life of the contract. Gains and losses
on termination of these instruments are recognized as interest expense when
terminated.
SFAS
No. 133 defines requirements for designation and documentation of hedging
relationships, as well as on-going effectiveness assessments, in order to
use
hedge accounting under this standard. The Company formally documents all
relationships between hedging instruments and hedged items, as well as its
risk-management objective and strategy for undertaking various hedge
transactions. This process includes relating all derivatives that are designated
as fair value or cash flow hedges to specific assets and liabilities on the
balance sheet or to specific firm commitments or forecasted transactions.
The
Company’s derivative activities, all of which are for purposes other than
trading, are initiated within the guidelines of corporate risk-management
policies. The Company formally assesses, both at inception and at least
quarterly thereafter, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in either the fair
value
or cash flows of the hedged item. If a derivative ceases to be a highly
effective hedge, the Company discontinues hedge accounting.
Insurable
Liabilities
The
Company records liabilities for the self-insured portion of workers’
compensation, health, product, general and auto liabilities. The
determination of these liabilities and related expenses is dependent on claims
experience. For most of these
liabilities,
claims incurred but not yet reported are estimated by utilizing actuarial
valuations based upon historical claims experience.
Income
Taxes
The
Company accounts for income taxes under the asset and liability approach,
which
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequence of events that have been recognized in the Company’s
financial statements or income tax returns. Income taxes are
recognized during the period in which the underlying transactions are
recorded. Deferred taxes, with the exception of non-deductible
goodwill, are provided for temporary differences between amounts of assets
and
liabilities as recorded for financial reporting purposes and such amounts
as
measured by tax laws. If the Company determines that a deferred tax
asset arising from temporary differences is not likely to be utilized, the
Company will establish a valuation allowance against that asset to record
it at
its expected realizable value. Deferred taxes have been provided
related to the tax effects of the repatriation of foreign
earnings. The Company’s effective tax rate (“ETR”) is dependent on
many factors including: the impact of enacted tax laws in
jurisdictions in which the Company operates; the amount of earnings by
jurisdiction, due to varying tax rates in each country; and the Company’s
ability to utilize foreign tax credits related to foreign taxes paid on foreign
earnings that will be remitted to the U.S.
Comprehensive
Income (Loss)
Comprehensive
income (loss) is comprised of net income (loss) and other comprehensive income
(losses). Other comprehensive income (losses) includes unrealized
gains or losses resulting from currency translations of foreign investments
and
adjustments to record the minimum pension liability prior to the adoption
of
SFAS No. 158.
Accrued
Rebates
The
Company offers various rebates to customers in exchange for
purchases. These rebate programs are individually negotiated with
customers and contain a variety of different terms and
conditions. Certain rebates are calculated as flat percentages of
purchases, while others included tiered volume incentives. These
rebates may be payable monthly, quarterly, or annually. The
calculation of the accrued rebate balance involves significant management
estimates, especially where the terms of the rebate involve tiered volume
levels
that require estimates of expected annual sales. These provisions are
based on estimates derived from current program requirements and historical
experience. The Company uses all available information when
calculating these reserves. The accrual for customer rebates was
$35.9 million and $36.9 million as of September 29, 2007 and September 30,
2006, respectively.
Pension
Pension
benefit costs include assumptions for the discount rate, retirement age,
and
expected return on plan assets. Retiree medical plan costs include
assumptions for the discount rate, retirement age, and health-care-cost
trend
rates. Periodically, the Company evaluates the discount rate and the
expected return on plan assets in its defined benefit pension and retiree
health
benefit plans. In evaluating these assumptions, the Company considers
many factors, including an evaluation of the discount rates, expected return
on
plan assets and the health-care-cost trend rates of other companies; historical
assumptions compared with actual results; an analysis of current market
conditions and asset allocations; and the views of advisers. As
further discussed in Note 7, the Company has adopted SFAS No. 158 effective
September 29, 2007.
Use
of Estimates
The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States requires management to make extensive
use of estimates and assumptions that affect the reported amount of assets
and
liabilities and disclosure of contingent assets and liabilities and the reported
amounts of sales and expenses. Significant estimates in these
financial statements include restructuring charges and credits, allowances
for
doubtful accounts receivable, estimates of future cash flows associated with
long-lived assets, useful lives for depreciation and amortization, loss
contingencies and net realizable value of inventories, revenue credits, vendor
rebates, income taxes and tax valuation reserves and the determination of
discount and other rate assumptions for pension and postretirement employee
benefit expenses. Actual results could differ materially from these
estimates. Changes in estimates are recorded in results of operations
in the period that the event or circumstances giving rise to such changes
occur.
Recently
Issued Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51. This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to
be
reported at amounts that include the amounts attributable to both parent
and the
noncontrolling interest. This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Based on current conditions, we do not expect the
adoption of SFAS 160 to have a significant impact on the Company’s results of
operations or financial position.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.” This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called
the purchase method) be used for all business combinations and for an acquirer
to be identified for each business combination. This statement defines the
acquirer as the entity that obtains control of one or more businesses in
the
business combination and establishes the acquisition date as the date that
the
acquirer achieves control. This statement requires an acquirer to recognize
the
assets acquired, the liabilities assumed, and any noncontrolling interest
in the
acquiree at the acquisition date, measured at their fair values as of that
date,
with limited exceptions specified in the statement. This statement
applies prospectively to business combinations for which the acquisition
date is
on or after the beginning of the first annual reporting period beginning
on or
after December 15, 2008. The Company is currently assessing the impact of
the
statement.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”, which includes an amendment of FASB
Statement No. 51. This statement permits entities to choose to
measure many financial instruments and certain other items at fair
value. This statement allows entities to report unrealized gains and
losses at fair value for those selected items. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. The Company is currently assessing the impact of
the statement.
In
June 2006, the FASB issued Interpretation No. 48, Accounting for
“Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109”
(“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in a company’s financial statements and prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. FIN 48 also provides guidance on description,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 will be effective in fiscal 2008,
and the Company does not expect the adoption of FIN 48 to have a significant
impact on its financial position or results of operations.
The
Company adopted SFAS No. 154, Accounting Changes and Error Corrections—a
replacement of APB Opinion No. 20 and FASB Statement No. 3, on
January 1, 2006. SFAS No. 154 requires retrospective
application to prior periods’ financial statements of changes in accounting
principle, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change or unless specific transition
provisions are proscribed in the accounting pronouncements. SFAS No. 154
does not change the accounting guidance for reporting a correction of an
error
in previously issued financial statements or a change in accounting
estimate. The adoption of SFAS No. 154 did not have an impact on our
consolidated financial statements.
In
September 2006, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 108 (“SAB 108”) which provides guidance on how the
effects of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. SAB 108
requires entities to quantify the effects of unadjusted errors using both
a
balance sheet and an income statement approach. Entities are required
to evaluate whether either approach results in a quantifying misstatement
that
is material. The Company adopted SAB 108 effective in fiscal
2006. The adoption of SAB 108 did not have an impact on our
consolidated financial statements.
In
September 2006, the FASB issued FASB No. 157, “Fair Value
Measurements” (“FAS 157”). FAS 157 is definitional and
disclosure oriented and addresses how companies should approach measuring
fair
value when required by GAAP; it does not create or modify any current GAAP
requirements to apply fair value accounting. The standard provides a single
definition for fair value that is to be applied consistently for all accounting
applications, and also generally describes and prioritizes according to
reliability the methods and inputs used in valuations. FAS 157 prescribes
various disclosures about financial statement categories and amounts which
are
measured at fair value, if such disclosures are not already specified elsewhere
in GAAP. The new measurement and disclosure requirements of FAS 157
are currently planned to be effective for the Company in the first quarter
of
2008, though a recently proposed FASB staff position may delay certain portions
of the Statement. The Company is currently assessing the impact FAS 157 will
have on its results of operations and financial position.
In
September 2006, the Financial Accounting Standards Board issued FAS 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans–an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. FAS 158
requires employers to recognize the over- or under-funded status of defined
benefit plans and other postretirement plans in the statement of financial
position and to recognize changes in the funded status in the year in which
the
changes occur through comprehensive income. In addition, FAS 158 requires
employers to measure the funded status of plans as of the date of the year-end
statement of financial position. The recognition and disclosure provisions
of
FAS 158 are effective for fiscal years ending after December 15, 2006, while
the
requirement to measure plan assets and benefit obligations as of a company’s
year-end date is effective for fiscal years ending after December 15,
2008. The adoption of the recognition and disclosure provisions of
FAS 158 resulted in the recognition of a decrease to other long-term liabilities
of $4.4 million. The Company does not expect the adoption of the
remaining provisions to have a material effect on the Company’s results of
operations or financial position.
2.
Acquisitions and Disposition
Old
Covalence Holding
(Successor to Tyco Plastics & Adhesives)
On
February 16, 2006, substantially all of the assets and liabilities of Tyco
Plastics & Adhesives were acquired by Old Covalence, under a Stock and Asset
Purchase Agreement dated December 20, 2005 and entered into among Old Covalence
Holding, an affiliate of Apollo Management V, L.P. and the direct parent
of Old
Covalence, Tyco International S.A. and Tyco Group S.a.r.l. Under the
agreement, Old 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 $197.5
million. The Company has performed an evaluation of the fair values
of the real and personal property, inventory and certain identifiable intangible
assets in connection with the 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. The Company 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. The Company 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 $63.6
million and $25.5 million and an unfavorable post-closing working capital
adjustment of $30.0 million that was paid to Tyco. The excess of the
fair value of the net assets acquired over the purchase price paid has been
allocated to non current assets on a prorated basis. Old Covalence
incurred a $3.7 million charge in the period from February 17, 2006 to September
30, 2006 related to a loss on extinguished debt for bridge financing fees
arranged to fund the acquisition that was 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.
|
|
|
Allocation
of
Purchase
Price at
February
16, 2006
|
|
|
|
|
|
|
Current
assets
|
|
|
|
$
|
429.0
|
|
Property,
plant and equipment
|
|
|
|
|
359.8
|
|
Goodwill
|
|
|
|
|
14.0
|
|
Intangible
assets
|
|
|
|
|
346.6
|
|
Deferred
financing fees and other non-current assets
|
|
|
|
|
24.1
|
|
Assets
acquired
|
|
|
|
|
1,173.5
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
183.7
|
|
Non
current liabilities
|
|
|
|
|
73.7
|
|
Liabilities
assumed
|
|
|
|
|
257.4
|
|
|
|
|
|
$
|
916.1
|
|
Acquisition
of Old Berry Holding
On
September 20, 2006, BPC Acquisition Corp. merged with and into BPC Holding
Corporation pursuant to an agreement and plan of 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. Pursuant to the Merger, Berry is a wholly-owned
subsidiary of Group, the principal stockholders of which were Apollo Investment
Fund VI, L.P., AP Berry Holdings, LLC, an affiliate of Graham Partners
II, L.P.,
and management. Apollo Investment Fund VI, L.P. and AP Berry
Holdings, LLC are affiliates of Apollo Management, L.P., which is a private
investment firm. Graham Partners II, L.P. is an affiliate of Graham
Partners, Inc. (“Graham”), a private equity firm.The
total
amount of funds required to acquire Old Berry Holding and to pay fees related
to
the acquisition was $2.4 billion. The acquisition 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. Apollo and
its affiliates acquired 72% of the common stock of Group. The
remaining common stock was primarily held by an affiliate of Graham Partners
II,
L.P., which owned 10% and members of Berry’s management which owned
16%.
The
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 impact of writing up inventory to net realizable value was
$10.1 million and resulted in a charge to cost of goods sold for the period
from
September 20 to September 30, 2006 of $2.9 million and $7.2 million in the
fiscal year ended September 29, 2007.
|
|
Allocation
of
Purchase
Price at September 20, 2006
|
|
Current
assets
|
|
$ |
389.3 |
|
Property
and equipment
|
|
|
470.1 |
|
Goodwill
|
|
|
996.1 |
|
Customer
relationships
|
|
|
511.9 |
|
Trademarks
|
|
|
182.2 |
|
Other
intangibles and deferred financing fees
|
|
|
59.0 |
|
Total
assets
|
|
|
2,608.6 |
|
|
|
|
|
|
Current
liabilities
|
|
|
202.3 |
|
Long-term
liabilities
|
|
|
2,102.4 |
|
Liabilities
assumed
|
|
|
2,304.7 |
|
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.
|
|
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, $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 rigid open top
and rigid closed top segments. None of this goodwill is expected to
be deductible for tax purposes.
Rollpak
Acquisition
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 sales. 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 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 were less than
$9.0 million.
3. Long-Term
Debt
Long-term
debt consists of the following:
|
|
September
29, 2007
|
|
|
September
30, 2006
|
|
Term
loan
|
|
$ |
1,194.0 |
|
|
$ |
675.0 |
|
Revolving
line of credit
|
|
|
50.0 |
|
|
|
20.0 |
|
Second
Priority Senior Secured Fixed Rate Notes
|
|
|
525.0 |
|
|
|
525.0 |
|
Second
Priority Senior Secured Floating Rate Notes
|
|
|
225.0 |
|
|
|
225.0 |
|
11%
Senior Subordinated Notes
|
|
|
428.2 |
|
|
|
425.0 |
|
10
¼% Senior Subordinated Notes
|
|
|
265.0 |
|
|
|
265.0 |
|
Capital
leases and other
|
|
|
23.5 |
|
|
|
19.0 |
|
Term
loan (retired)
|
|
|
— |
|
|
|
299.3 |
|
Second
Priority Floating Rate Notes (retired)
|
|
|
— |
|
|
|
175.0 |
|
|
|
|
2,710.7 |
|
|
|
2,628.3 |
|
Less
current portion of long-term debt
|
|
|
(17.4 |
) |
|
|
(16.0 |
) |
|
|
$ |
2,693.3 |
|
|
$ |
2,612.3 |
|
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”) (5.36% and 5.80% for the term loan and the revolving line of
credit, respectively, at September 29, 2007) 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 applicable margin for LIBOR rate borrowings
under the revolving credit facility ranges from 1.00% to 1.75% and for the
term
loan is 2.00%. The initial applicable margin for base rate borrowings
under the revolving credit facility is 0% and under the term loan is
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 Berry
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 September 29,
2007.
At
September 29, 2007, there were $50.0 million outstanding on the revolving
credit
facility. The revolving credit facility allows up to $100.0 million
of letters of credit to be issued instead of borrowings under the revolving
credit facility. At September 29, 2007, the Company had $29.3 million under
the
Credit Facility in letters of credit outstanding. At
September 29, 2007, the Company had unused borrowing capacity of $320.7
million under the revolving line of credit.
Second
Priority Senior Secured Notes
On
September 20, 2006, Old Berry Holding 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
(5.36% at September 29, 2007) 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
September 29, 2007.
11%
Senior Subordinated Notes
On
September 20, 2006, Old Berry Holding 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
Company issued an additional $3.2 million aggregate principal amount of
outstanding notes in the year ended September 29, 2007 in satisfaction of
its
interest obligations.
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 September 29, 2007.
10
¼% Senior Subordinated Notes
In
connection with Apollo’s acquisition of Old Covalence Holding, Old 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 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
September 29, 2007.
Senior
Secured Credit Facility (retired)
In
connection with Apollo’s acquisition, Old Covalence entered into a senior
secured credit facility, which included a term loan in the amount of $350.0
million with a maturity date of February 16, 2013. On May 18, 2006,
Old Covalence refinanced its senior secured credit facilities, which then
consisted of a new term loan in the principal amount of $300.0 million and
a new
revolving credit facility which provided borrowing availability equal to
the
lesser of (a) $200.0 million or (b) the borrowing base, which is a function,
among other things, of Old Covalence’s accounts receivable and
inventory. The borrowings under the senior secured credit facilities
accrued 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 Bank of America, N.A., as administrative
agent,
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 adjusted for certain additional costs. The initial
applicable margin for LIBOR rate borrowings under the revolving credit facility
was 1.50% 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
senior secured credit facilities required minimum quarterly principal payments
of $0.750 million on the term loan for the first six years and nine months,
which commenced in September 2006. The credit facility was repaid and
retired in connection with the Merger.
Second
Priority Floating Rate Notes (retired)
Also
in
connection with Apollo’s acquisition, Old Covalence entered into a $175.0
million second priority floating rate loan. The second priority
floating rate note matured on August 16, 2013, and accrued interest at a
rate
per annum, reset at the end of each interest period, equal to LIBOR plus
3.25%
or Base Rate plus 2.25%. The note was repaid and retired in
connection with the Merger, and the Company also incurred a prepayment penalty
of $1.8 million, which is included in loss on extinguished debt on the statement
of operations for fiscal 2007.
Derivative
Instruments
In
August
2007, the Company entered into two interest rate exchange agreements (“Swaps”)
that are effective on November 5, 2007. The first agreement requires
the Company to pay a fixed rate of 4.875% on $300 million of notional
principal for two years to the counterparty. The counterparty pays to
the Company a variable rate on the same amount of notional principal based
on
the three-month London Interbank Offered Rate (“LIBOR”). The second swap
agreement requires the Company to pay a fixed rate of 4.92% on $300 million
of notional principal for three years to the same counterparty in exchange
for
the same floating receipt of three-month LIBOR. The counterparty to
this agreement is a global financial institution. The Company is exposed
to
credit loss in the event of nonperformance by the counterparty to the agreement.
However, the Company considers this risk to be low.
The
Company concluded that it met the hedge accounting criteria for accounting
for
these swaps. The Company estimates the fair value of the Swaps
identified above to be a liability of $4.9 million as of September 29, 2007,
which is reflected as a part of other long-term liabilities on the accompanying
consolidated balance sheet with an offset, net of tax, to accumulated other
comprehensive income. The fair value of the Swaps is estimated by obtaining
quotations from the counterparty to the Company’s Swap agreement. The fair value
is an estimate of the net amount that the Company would be required to pay
on
September 29, 2007, if the agreements were transferred to other parties or
cancelled by the Company.
Future
maturities of long-term debt at September 29, 2007 are as follows:
2008
|
|
$ |
17.3 |
|
2009
|
|
|
16.2 |
|
2010
|
|
|
15.4 |
|
2011
|
|
|
20.6 |
|
2012
|
|
|
12.6 |
|
Thereafter
|
|
|
2,628.6 |
|
|
|
$ |
2,710.7 |
|
Interest
paid was $227.0 million in fiscal 2007, $43.9 million for the period February
17
to September 30, 2006, $0.6 million for the period October 1, 2005 to February
16, 2006, and $5.4 million for fiscal 2005.
4. Goodwill,
Intangible Assets and Deferred Costs
The
following table sets forth the gross carrying amount and accumulated
amortization of the Company’s goodwill, intangible assets and deferred
costs:
|
|
|
|
|
|
|
|
Deferred
financing fees
|
|
$ |
43.0 |
|
|
$ |
67.0 |
|
Respective
debt
|
Customer
relationships
|
|
|
862.2 |
|
|
|
624.6 |
|
11
– 20 years
|
Goodwill
|
|
|
1,132.0 |
|
|
|
989.2 |
|
Indefinite
lived
|
Trademarks
|
|
|
256.7 |
|
|
|
182.2 |
|
Indefinite
lived
|
Other
intangibles
|
|
|
53.3 |
|
|
|
262.0 |
|
10-20
years
|
Accumulated
amortization
|
|
|
(105.1 |
) |
|
|
(24.8 |
) |
|
|
|
$ |
2,242.1 |
|
|
$ |
2,100.2 |
|
|
Future
amortization expense for definite lived intangibles at September 29, 2007
for
the next five fiscal years is $76.2 million,$73.1
million, $70.4 million, $67.4 million and $64.8 million each year for fiscal
2008, 2009, 2010, 2011, and 2012, respectively. Recognized
amortization expense totaled $77.6 million in fiscal 2007, $22.7 million
for the
period February 17 to September 30, 2006, $1.0 million for the period October
1,
2005 to February 16, 2006, and $2.6 million for fiscal 2005.
5.
|
Lease
and Other Commitments and Contingencies
|
Certain
property and equipment are leased using capital and operating
leases. Total capitalized lease property consists of a building and
manufacturing equipment with a cost of $25.6 million and $21.9 million,
respectively, and related accumulated amortization of $3.3 million and $0.1
million at September 29, 2007 and September 30, 2006,
respectively. Capital lease amortization is included in depreciation
expense. Total rental expense from operating leases was $44.2 million
for fiscal 2007, $6.7 million for the period February 17 to September 30,
2006,
$2.6 million for the period October 1, 2005 to February 16, 2006, and $10.2
million for fiscal 2005.
Future
minimum lease payments for capital leases and
noncancellable operating leases with initial terms in excess of one year
are as
follows:
|
|
At
September 29, 2007
|
|
|
|
Capital
Leases
|
|
|
Operating
Leases
|
|
2008
|
|
$ |
8.1 |
|
|
$ |
33.7 |
|
2009
|
|
|
7.7 |
|
|
|
32.7 |
|
2010
|
|
|
2.1 |
|
|
|
31.0 |
|
2011
|
|
|
8.4 |
|
|
|
28.1 |
|
2012
|
|
|
0.9 |
|
|
|
22.7 |
|
Thereafter
|
|
|
— |
|
|
|
85.0 |
|
|
|
|
27.2 |
|
|
$ |
233.2 |
|
Less: amount
representing interest
|
|
|
(4.2 |
) |
|
|
|
|
Present
value of net minimum lease payments
|
|
$ |
23.0 |
|
|
|
|
|
At
the
time of Apollo’s acquisition of Old Covalence Holding, under the Covalence
predecessor (Tyco Plastics & Adhesives, “TP&A”), various claims,
lawsuits and administrative proceedings arising in the ordinary course of
business with respect to commercial, product liability and environmental
matters
were pending or threatened against TP&A. Additionally, TP&A
was involved in various stages of investigation and cleanup related to
environmental remediation matters at a number of sites. As part of
the acquisition, the selling Tyco entities which owned TP&A retained the
liabilities associated with these known environmental matters, which relate
to
the offsite disposal of hazardous materials. Old Covalence retained
liabilities relating to environmental matters on the acquired
properties. Old Covalence also retained the liabilities associated
with all known commercial and product liability matters. In the
opinion of management, the ultimate resolution of these matters is not known
and
an estimate cannot be made. The Company has not recorded a reserve
for these matters as they are not reasonably estimable and believes these
will
not have a material impact on the Company’s financial position, results of
operations, or cash flows.
The
Company is party to various legal proceedings involving routine claims which
are
incidental to its business. Although the Company’s legal and
financial liability with respect to such proceedings cannot be estimated
with
certainty, the Company believes that any ultimate liability would not be
material to its financial position or results of operations. The
Company has various purchase commitments for raw materials, supplies and
property and equipment incidental to the ordinary conduct of
business.
6. Income
Taxes
Successor
The
Company is being taxed at the U.S. corporate level as a C-Corporation and
has
provided U.S. federal and state income taxes. The Company has been
indemnified by Tyco for tax liabilities that may arise in the future that
relate
to the period prior to the Covalence Acquisition of the various entities
from
Tyco. Deferred taxes have been provided related to the tax effects of
the repatriation of foreign earnings. The Company’s effective tax
rate (“ETR”) is dependent on many factors including: the impact of
enacted tax laws in jurisdictions in which the Company operates; the amount
of
earnings by jurisdiction, due to varying tax rates
in each
country; and the Company’s ability to utilize foreign tax credits related to
foreign taxes paid on foreign earnings that will be remitted to the
U.S.
Significant
components of income tax expense (benefit) are as follows:
|
|
Year
ended
September
29, 2007
|
|
|
Period
from
February
17 to
September
30,
2006
|
|
Current
|
|
|
|
|
|
|
United
States
|
|
|
|
|
|
|
Federal
|
|
$ |
— |
|
|
$ |
— |
|
State
|
|
|
0.7 |
|
|
|
— |
|
Non-U.S.
|
|
|
1.0 |
|
|
|
2.6 |
|
Current
Income tax provision
|
|
|
1.7 |
|
|
|
2.6 |
|
Deferred:
|
|
|
|
|
|
|
|
|
United
States
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(70.9 |
) |
|
|
(17.5 |
) |
State
|
|
|
(19.8 |
) |
|
|
(1.0 |
) |
Non-U.S.
|
|
|
0.3 |
|
|
|
(2.2 |
) |
Deferred
income tax benefit
|
|
|
(90.4 |
) |
|
|
(20.7 |
) |
Benefit
for income taxes
|
|
$ |
(88.6 |
) |
|
$ |
(18.1 |
) |
U.S.
loss
from continuing operations before income taxes was $(204.6) million for
the year
ended September 29, 2007, $(54.5)
million for the
period February 17 to September 30, 2006. Non-U.S. income from
continuing operations before income taxes was $(2.9) million for the
year ended
September 29, 2007, and $3.4 million
for the
period February 17 to September 30, 2006.
The
reconciliation between U.S. federal income taxes at the statutory rate and
the
Company’s benefit for income taxes on continuing operations for the period ended
September 29, 2007 are as follows:
|
|
Year
ended September 29, 2007
|
|
|
Period
from February 17 to September 30, 2006
|
|
U.S.
Federal income tax benefit at the statutory rate
|
|
$ |
(72.6 |
) |
|
$ |
(17.9 |
) |
Adjustments
to reconcile to the income tax provision:
|
|
|
|
|
|
|
|
|
U.S.
state income tax benefit
|
|
|
(10.4 |
) |
|
|
(2.3 |
) |
Permanent
differences
|
|
|
0.5 |
|
|
|
0.3 |
|
Changes
in State ETR
|
|
|
(10.9 |
) |
|
|
— |
|
Changes
in Valuation Allowance – Foreign
|
|
|
2.3 |
|
|
|
1.8 |
|
Rate
differences between U.S. and Foreign
|
|
|
(0.4 |
) |
|
|
(0.2 |
) |
Other
|
|
|
2.9 |
|
|
|
0.2 |
|
Benefit
for income taxes
|
|
$ |
(88.6 |
) |
|
$ |
(18.1 |
) |
Deferred
income taxes result from temporary differences between the amount of assets
and
liabilities recognized for financial reporting and tax purposes. The
components of the net deferred income tax liability at September 29, 2007
and
September 30, 2006 are as follows:
|
|
September
29,
2007
|
|
September
30,
2006
|
|
Deferred
tax assets: |
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$ |
1.8 |
|
$ |
1.9 |
|
Accrued
liabilities and reserves
|
|
|
24.3 |
|
|
17.6 |
|
Inventories
|
|
|
4.0 |
|
|
0.3 |
|
Net
operating loss carryforward
|
|
|
156.9 |
|
|
116.9 |
|
Amortization
of tax deductible goodwill
|
|
|
— |
|
|
2.0 |
|
Alternative
minimum tax (AMT) credit carryforward
|
|
|
7.4 |
|
|
7.4 |
|
Others
|
|
|
11.4 |
|
|
1.9 |
|
Total
deferred tax assets
|
|
|
205.8 |
|
|
148.0 |
|
Valuation
allowance
|
|
|
(3.1 |
) |
|
(11.5 |
) |
Total
deferred taxes, net of valuation allowance
|
|
|
202.7 |
|
|
136.5 |
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Property
and equipment
|
|
|
68.2 |
|
|
38.4 |
|
Intangible
assets
|
|
|
316.0 |
|
|
327.3 |
|
Prepaid
expenses
|
|
|
1.2 |
|
|
1.3 |
|
Foreign
earnings
|
|
|
1.4 |
|
|
1.3 |
|
Others
|
|
|
1.9 |
|
|
0.8 |
|
Total
deferred tax liabilities
|
|
|
388.7 |
|
|
369.1 |
|
Net
deferred tax liability
|
|
$ |
(186.0 |
) |
$ |
(232.6 |
) |
As
of
September 29, 2007, the Company had foreign net operating loss carryforwards
of
$8.8 million. In the U.S. the company had approximately $399.6
million of federal net operating loss carryforwards at September 29,
2007. The federal net operating loss carryforwards will expire in
future years beginning 2021. AMT credit carryforwards of $7.4 million
are available to Berry Group indefinitely to reduce future years’ federal income
taxes.
With
the
exception of Covalence Canada, the Company believes that it will not generate
sufficient future taxable income to realize the tax benefits in foreign
jurisdictions related to the deferred tax assets. Therefore, the
company has provided a full valuation allowance against its foreign net
operating losses included within the deferred tax assets other than the net
operating losses related to Covalence Canada.
The
Company is in the process of determining whether the Old Covalence operating
loss carry forward of $30.4 million may be subject to an annual limitation
due
to the Merger. As a result of the Apollo acquisition of Old Berry
Group, the unused non-Covalence operating loss carryforward is subject to
an
annual limitation of $208.0 million under Sec. 382 of the Internal Revenue
Code. Due to prior year Sec. 382 limit carryforwards, substantially
all Federal operating loss carryforwards are available for immediate
use. As part of the effective tax rate calculation, if we determine
that a deferred tax asset arising from temporary differences is not likely
to be
utilized, we will establish a valuation allowance against that asset to record
it at its expected realizable value. Our valuation allowance against
deferred tax assets was $3.1 million and $11.5 million as of September 29,
2007
and September 29, 2006, respectively, related to the foreign operating loss
carryforwards.
Predecessor
Under
the
Predecessor, business activities in the U.S. were conducted through partnership
entities. The reconciliation between U.S. federal income taxes at the
statutory rate and the Company’s provision for income taxes are as
follows:
|
|
October
1, 2005 to February 16,
2006
|
|
|
Year
ended September
30,2005
|
|
Notional
U.S. federal income tax
expense at the statutory rate
|
|
$ |
6.8 |
|
|
$ |
16.7 |
|
Adjustments
to reconcile to the
Company’s income tax provision:
|
|
|
|
|
|
|
|
|
U.S.
partnership income taxed at
the partner level
|
|
|
(6.8 |
)
|
|
|
(15.4 |
)
|
Non-U.S.
earnings
|
|
|
1.6 |
|
|
|
0.6 |
|
Other
|
|
|
|
|
|
|
1.9 |
|
Provision
for income
taxes
|
|
|
1.6 |
|
|
|
3.8 |
|
Deferred
provision
(benefit)
|
|
|
— |
|
|
|
2.0 |
|
Current
provision
|
|
$ |
1.6 |
|
|
$ |
1.8 |
|
For
fiscal 2005, other is primarily related to routine reconciliations of the
non-U.S. income taxes provided in prior years to the income tax returns actually
filed.
The
provisions for income taxes for the period from October 1, 2005 to February
16,
2006, and fiscal 2005 include $1.6 million and $3.8 million, respectively,
for
non-U.S. income taxes. The non-U.S. component of income before income taxes
was
$3.9 million and $3.8 million for October 1, 2005 to February 16, 2006 and
fiscal 2005, respectively.
7. Retirement
Plans
The
Company maintains four defined benefit pension plans, three of which were
acquired through former business combinations of Old Berry. The
fourth covers approximately 70 active and inactive employees of Old
Covalence. The Company also maintains a retiree health plan, which
covers certain healthcare and life insurance benefits for certain retired
employees and their spouses. Two of the four defined benefit plans
and the retiree health plan are all inactive plans. The Company uses
September 30th
as a
measurement date for the retirement plans.
The
Company sponsors two defined contribution 401(k) retirement plans covering
substantially all employees of Old Berry. Contributions are based
upon a fixed dollar amount for employees who participate and percentages
of
employee contributions at specified thresholds. Contribution expense
for these plans was $6.8 million for the year ended September 29, 2007, $0.1 million
for the
period February 17 to September 30, 2006. The Company also
sponsors an additional defined contribution 401(k) retirement plan covering
full-time employees of Old Covalence. Contribution expense for this
Old Covalence plan was $3.4 million for the period February 17, 2006 to
September 29, 2006.
The
Company participates in one multiemployer plan. Contributions to the plan
are
based on specific percentages of employee compensation and are
immaterial.
The
projected benefit obligations of the Company’s plans presented herein are
materially consistent with the accumulated benefit obligations of such
plans.
|
|
Defined
Benefit Pension Plans |
|
|
Retiree
Health Plan |
|
|
|
Year
ended
September
29,
2007
|
|
|
Period
from
February
17
to
September
30,
2006
|
|
|
Year
ended
September
29,
2007
|
|
|
Period
from
February
17
to
September
30,
2006
|
|
Change
in Projected Benefit Obligation (PBO) |
|
|
|
|
|
|
|
|
|
|
|
|
PBO
at beginning of period
|
|
$ |
41.6 |
|
|
$ |
41.6 |
|
|
$ |
6.9 |
|
|
$ |
6.9 |
|
Service
cost
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
— |
|
|
|
0.1 |
|
Interest
cost
|
|
|
2.2 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
— |
|
Participant
contributions
|
|
|
0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
0.0 |
|
Actuarial
loss (gain)
|
|
|
(0.9 |
) |
|
|
0.0 |
|
|
|
0.4 |
|
|
|
0.0 |
|
Benefits
paid
|
|
|
(3.2 |
) |
|
|
(0.2 |
) |
|
|
(1.1 |
) |
|
|
(0.1 |
) |
PBO
at end of period
|
|
$ |
40.2 |
|
|
$ |
41.6 |
|
|
$ |
6.6 |
|
|
$ |
6.9 |
|
|
|
|
|
|
|
|
|
|
|
Change
in Fair Value of Plan Assets
|
|
|
|
|
|
|
|
|
|
Plan
assets at beginning of period
|
|
$ |
33.7 |
|
|
$ |
33.7 |
|
|
$ |
— |
|
|
$ |
— |
|
Actual
return on plan assets
|
|
|
4.2 |
|
|
|
0.1 |
|
|
|
— |
|
|
|
— |
|
Company
contributions
|
|
|
1.5 |
|
|
|
0.1 |
|
|
|
1.1 |
|
|
|
0.1 |
|
Benefits
paid
|
|
|
(3.2 |
) |
|
|
(0.2 |
) |
|
|
(1.1 |
) |
|
|
(0.1 |
) |
Plan
assets at end of period
|
|
|
36.2 |
|
|
|
33.7 |
|
|
|
0.0 |
|
|
|
— |
|
Funded
status
|
|
$ |
(4.0 |
) |
|
$ |
(7.9 |
) |
|
$ |
(6.6 |
) |
|
$ |
(6.9 |
) |
Unrecognized
net actuarial loss/gain
|
|
|
— |
|
|
|
(0.4 |
) |
|
|
— |
|
|
|
— |
|
Net
amount recognized
|
|
$ |
(4.0 |
) |
|
$ |
(8.3 |
) |
|
$ |
(6.6 |
) |
|
$ |
(6.9 |
) |
|
|
|
|
|
|
|
|
Amounts
recognized in the Consolidated Balance Sheet consist of: |
|
|
|
|
|
|
|
Prepaid
pension
|
|
$ |
— |
|
|
$ |
0.2 |
|
|
|
|
|
$ |
— |
|
Accrued
benefit liability
|
|
|
(4.0 |
) |
|
|
(8.5 |
) |
|
|
(6.6 |
) |
|
|
(6.9 |
) |
Net
amount recognized
|
|
$ |
(4.0 |
) |
|
$ |
(8.3 |
) |
|
$ |
(6.6 |
) |
|
$ |
(6.9 |
) |
As
disclosed in Note 1, SFAS No. 158, adopted by the Company effective September
29, 2007, requires the recognition of the overfunded or underfunded status
of a
defined benefit postretirement plan as an asset or liability in the balance
sheet, with changes in the funded status recorded through other comprehensive
income. Accordingly, the amounts presented in the table below utilize different
accounting methodologies for the respective periods. The effect of adopting
SFAS
No. 158 was to reduce the accrued benefit liability by $4.4 million at
September
29, 2007, with an offsetting adjustment to ended accumulated other comprehensive
income, net of tax. The Company was not required to recognize a
minimum pension liability adjustment during the year ended September 29,
2007.
The
following table presents significant weighted-average assumptions used
to
determine benefit obligation and benefit cost for the periods
indicated.
|
|
Defined
Benefit Pension Plans
|
|
|
Retiree
Health Plan
|
|
(Percents)
|
|
Year
ended September 29, 2007
|
|
|
Period
from February 17 to September 30, 2006
|
|
|
Year
ended September 29, 2007
|
|
|
Period
from February 17 to September 30, 2006
|
|
Weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate for benefit obligation
|
|
|
5.6 |
|
|
|
5.5 |
|
|
|
5.75 |
|
|
|
5.5 |
|
Discount
rate for net benefit cost
|
|
|
5.7 |
|
|
|
5.6 |
|
|
|
5.5 |
|
|
|
5.0 |
|
Expected
return on plan assets for net benefit costs
|
|
|
8.0 |
|
|
|
8.0 |
|
|
|
8.0 |
|
|
|
— |
|
In
evaluating the expected return on plan assets, Berry considered its historical
assumptions compared with actual results, an analysis of current market
conditions, asset allocations, and the views of
advisers. Health-care-cost trend rates were assumed to increase at an
annual rate of 7.5% in 2007 trending down to 4.5% in 2012 and
thereafter. The trend rate is a significant
factor
in
determining the amounts reported. A one-percentage-point change in
these assumed health care cost trend rates would have the following effects,
in
millions of dollars:
One-Percentage
Point
|
Increase
|
Decrease
|
Accumulated
Postretirement benefit
obligation
|
$
0.1
|
$
(0.1)
|
Sum
of service cost and interest
cost
|
$
0.0
|
$
(0.0)
|
The
following benefit payments, which
reflect expected future service, as appropriate, are expected to be paid
as
follows:
|
Defined
Benefit
Pension
Plans
|
|
Retiree
Health
Plan
|
|
Year
ended
September
29,
2007
|
|
Year
ended
September
29,
2007
|
2008
|
$ 3.4
|
|
$ 1.2
|
2009
|
3.3
|
|
1.0
|
2010
|
3.2
|
|
0.8
|
2011
|
3.2
|
|
0.8
|
2012
|
3.2
|
|
0.7
|
2013-2015
|
15.6
|
|
2.7
|
In
fiscal
2008,
Berry expects to contribute
approximately $2.8
million
to itsretirement plans to
satisfy minimum funding requirements for the year.
Net
pension and retiree health benefit expense included the following
components:
|
|
Year
ended September 29, 2007
|
|
|
Period
from February 17 to September 30, 2006
|
|
Components
of net period benefit cost:
|
|
|
|
|
|
|
Defined
Benefit Pension Plans
|
|
|
|
|
|
|
Service
cost
|
|
$ |
0.2 |
|
|
$ |
0.1 |
|
Interest
cost
|
|
|
2.2 |
|
|
|
0.1 |
|
Expected
return on plan
assets
|
|
|
(2.6 |
) |
|
|
(0.1 |
) |
Net
periodic benefit
cost
|
|
$ |
(0.2 |
) |
|
$ |
0.1 |
|
|
|
|
|
|
|
|
|
|
Retiree
Health Benefit Plan
|
|
|
|
|
|
|
|
|
Interest
cost
|
|
|
0.3 |
|
|
|
0.1 |
|
Net
periodic benefit
cost
|
|
$ |
0.3 |
|
|
$ |
0.1 |
|
Our
defined benefit pension plan asset
allocations are as follows:
|
|
September
29, 2007
|
|
|
September
30, 2006
|
|
Asset
Category
|
|
|
|
|
|
|
Equity
securities and equity-like instruments
|
|
|
51 |
% |
|
|
51 |
% |
Debt
securities
|
|
|
46 |
|
|
|
47 |
|
Other
|
|
|
3 |
|
|
|
2 |
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
The
Company’s retirement plan assets are invested with the objective of providing
the plans the ability to fund current and future benefit payment requirements
while minimizing annual Company contributions. The plans’ asset
allocation strategy reflects a long-term growth strategy with approximately
51%
allocated to growth investments and 47% allocated to fixed income investments.
The Company re-addresses the allocation of its investments on an annual
basis.
Tyco
Plastics and Adhesives
Retirement Plans (Predecessor)
The
Predecessor had a number of noncontributory and contributory defined benefit
retirement plans covering certain of its U.S. and non-U.S. employees, designed
in accordance with conditions and practices in the countries concerned. With
the
exception of one defined benefit plan and one multiemployer benefit plan
that
remain with the Company, these plans were not included as part of the net
assets
acquired in connection with the Apollo acquisition on February 16, 2006,
and as
such, remained with Tyco. For the period February 17, 2006 to September 29,
2006
the expense attributable to these plans, that remained with the Company,
was
less than $0.1 million.
Measurement
Date—In fiscal
2005, the Predecessor changed the measurement date for its pension and
postretirement benefit plans from September 30 to August 31 to allow management
adequate time to evaluate and report the actuarial information in its Financial
Statements. Accordingly, all amounts presented as of and for the year ended
September 30, 2005 reflect an August 31 measurement date. The Predecessor
had
accounted for the change in measurement date as a change in accounting
principle. The effects of this change in measurement date did not have a
material effect on net periodic benefit costs.
Defined
Benefit Pension
Plans—The Predecessor had a number of noncontributory and contributory
defined benefit retirement plans covering certain of its U.S. and non-U.S.
employees, designed in accordance with conditions and practices in the countries
concerned. Net periodic pension benefit cost is based on periodic actuarial
valuations which use the projected unit credit method of calculation and
was
charged to the Statements of Operations on a systematic basis over the expected
average remaining service lives of current participants. Contribution amounts
were determined based on the advice of professionally qualified actuaries
in the
countries concerned. The benefits under the defined benefit plans were based
on
various factors, such as years of service and compensation.
The
net
periodic benefit cost for all U.S. and non-U.S. defined benefit pension plans
for the year ended September 30, 2005 was as follows:
|
|
U.S.
Plans
|
|
Non-U.S.
Plans
|
|
|
|
2005
|
|
2005
|
|
Service
Cost
|
|
$
|
0.3
|
|
$
|
0.3
|
|
Interest
Cost
|
|
|
2.0
|
|
|
0.2
|
|
Expected
return on plan assets
|
|
|
(2.1)
|
|
|
(0.1)
|
|
Amortization
of net actuarial loss
|
|
|
0.8
|
|
|
—
|
|
Curtailment/settlement
loss
|
|
|
—
|
|
|
0.3
|
|
Net
periodic benefit costs
|
|
$
|
1.0
|
|
$
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
assumptions used to
determine
net pension costs during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.00%
|
|
|
5.68%
|
|
Expected
return on plan assets
|
|
|
8.00%
|
|
|
6.75%
|
|
Rate
of compensation increase
|
|
|
4.25%
|
|
|
3.62%
|
|
In
determining the expected return on plan assets, the Predecessor considered
the
relative weighting of plan assets by class and individual asset class
performance expectations as provided by its external
advisors. Although the Predecessor did not buy or sell any Tyco stock
as a direct investment for its pension funds, due to external investment
management of the funds, the plans may have indirectly held Tyco stock. The
aggregate amount of the shares would not be considered material relative
to the
total fund assets. The Predecessor’s funding policy was to make
contributions in accordance with the laws and customs of the various countries
in which it operates as well as to make discretionary voluntary contributions
from time-to-time.
Defined
Contribution Retirement
Plans—Certain employees of the Predecessor that were employed full-time
were eligible to participate in Tyco’s 401(k) retirement plan. Participants
elected to defer a percentage of their salary through payroll deductions
and
direct their contributions into different funds established by Tyco. The
Predecessor provided for matching contributions in the amount of 100% of
up to
5% of salary. The expense associated with the matching contribution was $6.1
million for 2005. Certain employees of the Company were also eligible to
participate in Tyco’s Supplemental Executive Retirement Plan (“SERP”). This plan
was nonqualified and restored the employer match that certain employees lost
due
to IRS limits on eligible compensation under the defined contribution plan.
Expense related to the SERP was $0.2 million for 2005.
Deferred
Compensation
Plans—Certain employees of the Company participated in Tyco’s
nonqualified deferred compensation plans, which permitted eligible employees
to
defer a portion of their compensation. A record keeping account was set up
for
each participant and the participant choose from a variety of measurement
funds
for the deemed investment of their accounts. The measurement funds corresponded
to a number of funds in Tyco’s 401(k) plans and the account balance fluctuated
with the investment returns on those funds. Deferred compensation expense
was
$0.3 million in fiscal 2005.
Postretirement
Benefit
Plans—Net periodic postretirement benefit cost for the years ended
September 30, 2005 was as follows:
|
|
2005
|
|
Interest
cost
|
|
$
|
0.1
|
|
Amortization
of net actuarial loss
|
|
|
—
|
|
Net
periodic postretirement benefit cost
|
|
$
|
0.1
|
|
Weighted-average
discount rate used to determine net postretirement benefit cost
during the
period
|
|
|
5.50%
|
|
For
measurement purposes, for the year ended September 30, 2005, composite annual
rates of increase in the per capita cost of covered health care benefits
were
assumed to be 11.6%. At September 30, 2005, the composite annual rate of
increase in health care benefit costs was assumed to decrease gradually to
5.0%
by the year 2013 and remain at that level thereafter.
A
one-percentage-point change in assumed healthcare cost trend rates would
have
the following effects:
|
|
|
|
|
|
|
|
|
|
1-Percentage-Point
Increase
|
|
1-Percentage-Point
Decrease
|
|
Effect
on total of service and interest cost
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
Effect
on postretirement benefit obligation
|
|
|
|
0.5
|
|
|
|
|
(0.2)
|
|
|
In
December 2003, the US enacted into law the “Medicare Prescription Drug,
Improvement and Modernization Act of 2003” (the Act). The Act introduces a
prescription drug benefit under Medicare (Medicare Part D), as well as a
U.S.
federal subsidy to sponsors of retiree health care benefit plans that provide
a
benefit that is at least actuarially equivalent to Medicare Part D. Certain
of
the Company’s retiree medical programs already provided prescription drug
coverage for retirees over age 65 that were at least as generous as the benefits
provided under Medicare. This Act reduced the Predecessor’s obligation in these
instances. The Predecessor included the effects of the Act in its Financial
Statements by reducing net periodic benefit cost by $0.3 million for the
year
ended September 30, 2005, and reflecting an actuarial gain which reduced
its
accumulated post retirement benefit obligation by approximately $2.7 million
at
September 30, 2005.
8. Restructuring
and Other Expenses
During
February 2007, the Company conducted a facilities utilization review and
made
the decision to close a manufacturing operation within its Coated Products
division in Meridian, Mississippi. This facility was closed during the fourth
quarter of 2007, with certain of its operations transferred to other
facilities.
During
April 2007, the Company announced its intention to shut down a manufacturing
facility within its Closed Top division located in Oxnard, California. The
business from this facility has been moved to other existing facilities.
Also
during April 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.
During
July 2007 the Company announced a restructuring of the operations within
its
Flexible Films division, including the closure of five manufacturing facilities
in Yonkers, California; Columbus, Georgia; City of Industry, California;
and
Santa Fe Springs, California. The Company subsequently announced in
September 2007 that they would close the Sparks, Nevada facility. The closure
of
these facilities is expected to be completed at the end of 2007.
The
table
below sets forth the Company’s estimate of the total cost of the restructuring
programs, the portion recognized through September 29, 2007 and the portion
expected to be recognized in a future period:
|
|
Expected
Total Costs
|
|
|
Recognized
During Fiscal 2007
|
|
|
To
be Recognized in Future
|
|
Severance
and termination benefits
|
|
$ |
7.8 |
|
|
$ |
7.5 |
|
|
$ |
0.3 |
|
Facility
exit costs
|
|
|
16.3 |
|
|
|
11.3 |
|
|
|
5.0 |
|
Asset
impairment
|
|
|
18.1 |
|
|
|
18.1 |
|
|
|
— |
|
Other
|
|
|
7.0 |
|
|
|
2.2 |
|
|
|
4.8 |
|
Total
|
|
$ |
49.2 |
|
|
$ |
39.1 |
|
|
$ |
10.1 |
|
The
table
below sets forth the significant components of the restructuring charges
recognized through September 29, 2007, by segment:
|
|
Tapes
and
Coatings
|
|
|
Flexible
Films
|
|
|
Corporate
|
|
|
Rigid
Closed
Top
|
|
|
Total
|
|
Severance
and termination benefits
|
|
$ |
0.8 |
|
|
$ |
3.0 |
|
|
$ |
3.5 |
|
|
$ |
0.2 |
|
|
$ |
7.5 |
|
Facility
exit costs
|
|
|
0.3 |
|
|
|
4.2 |
|
|
|
1.9 |
|
|
|
4.9 |
|
|
|
11.3 |
|
Asset
impairment
|
|
|
3.4 |
|
|
|
14.7 |
|
|
|
— |
|
|
|
— |
|
|
|
18.1 |
|
Other
|
|
|
1.6 |
|
|
|
0.2 |
|
|
|
— |
|
|
|
0.4 |
|
|
|
2.2 |
|
Total
|
|
$ |
6.1 |
|
|
$ |
22.1 |
|
|
$ |
5.4 |
|
|
$ |
5.5 |
|
|
$ |
39.1 |
|
The
table
below sets forth the activity with respect to the restructuring accrual at
September 30, 2006 and September 29, 2007:
|
|
Employee
Severance
and
Benefits
|
|
Facilities
Exit
Costs
|
|
Other
|
|
Non-cash
Charges
|
|
Total
|
|
Balance
at September 30, 2006
|
|
$
|
―
|
|
$
|
1.2
|
|
$
|
―
|
|
$
|
―
|
|
$
|
1.2
|
|
Charges
|
|
|
7.5
|
|
|
11.3
|
|
|
2.2
|
|
|
18.1
|
|
|
39.1
|
|
Non-cash
charges
|
|
|
―
|
|
|
―
|
|
|
―
|
|
$
|
(18.1)
|
|
$
|
(18.1)
|
|
Cash
payments
|
|
|
(4.5)
|
|
|
(2.1
|
)
|
|
(2.2)
|
|
|
―
|
|
|
(8.8
|
)
|
Balance
at September 29, 2007
|
|
$
|
3.0
|
|
$
|
10.4
|
|
$
|
―
|
|
$
|
―
|
|
$
|
13.4
|
|
The
employee severance and termination benefits relate to the elimination of
approximately 430 employees from the various manufacturing and administrative
facilities. The facilities exit costs include $10.8 million of lease termination
costs related to the City of Industry, Santa Fe Springs, Yonkers, Bedminster,
Shreveport and Oxnard facilities. The
estimated
costs are net of expected sublease income. The asset impairment charge relates
to land, building and equipment located at each of the facilities, determined
to
be impaired as a result of the decision to close those facilities.
The
restructuring costs accrued as of September 29, 2007 will result in future
cash
outflows. The charges recognized in the period ending September 29, 2007
have
been reported as restructuring expense in these Consolidated Statements of
Operations. The remaining liability as of September 29, 2007 has been included
within Accrued Expenses on the Consolidated Balance Sheet.
9. Related
Party Transactions
Apollo
Management Fee
The
Company is charged a management fee by Apollo Management, L.P., an affiliate
of
its principal stockholder and Graham Partners, for the provision of management
consulting and advisory services provided throughout the year. The
management fee is the greater of $3.0 million or 1.25% of adjusted
EBITDA. In addition, Apollo and Graham have the right to terminate
the agreement at any time, in which case Apollo and Graham will receive
additional consideration equal to the present value of $21 million less the
aggregate amount of annual management fees previously paid to Apollo and
Graham,
and the employee stockholders will receive a pro rata payment based on such
amount.
Old
Covalence was charged a management fee by Apollo Management V, L.P., an
affiliate of its principal stockholder, for the provision of management
consulting and advisory services provided throughout the year. The
annual management fee was the greater of $2.5 million or 1.5% of adjusted
EBITDA. This agreement was terminated effective with the
Merger.
The
Old
Covalence fee was payable at the beginning of each fiscal year and the Company’s
fee is paid quarterly. Old Covalence paid $2.5 million in the period
from February 17 to September 30, 2006 and an additional $2.5 million during
the
year ended September 29, 2007. Old Berry Holding paid $0.7 million to
entities affiliated with Apollo Management, L.P. and $0.1 million to entities
affiliated with Graham Partners, Inc. for the period from February 17 to
September 30, 2006. Old Berry Holding and the Company paid $2.5
million to entities affiliated with Apollo Management, L.P. and $0.5 million
to
entities affiliated with Graham Partners, Inc. for the fiscal year ended
September 29, 2007.
Apollo
Transaction Fees
In
connection with the acquisition of Old Covalence Holding, Old Covalence paid
a
$10 million fee to entities affiliated with Apollo Management, L.P. for various
services performed by it and its affiliates in connection with the
transaction. In connection with the acquisition of Old Berry Group,
the Company paid $18.1 million to entities affiliated with Apollo Management,
L.P. and $2.3 million to entities affiliated with Graham Partners, Inc. for
advisory and other services.
12. Stockholders’
Equity
In
connection with the acquisition of BPC Holding Corporation, Apollo and Graham
and certain employees who invested in Old Berry Group entered into a
stockholders agreement. The stockholders agreement provides for,
among other things, a restriction on the transferability of each such person’s
equity ownership in us, tag-along rights, drag-along rights, piggyback
registration rights and repurchase rights by Berry Group in certain
circumstances.
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
Berry Group. This dividend is reflected as a reduction of Contributed
equity from parent.
Notes
Receivable from Management
Berry
Group has adopted an employee stock purchase program pursuant to which a
number
of non-executive employees had the opportunity to invest in Berry Group on
a
leveraged basis. In the event that an employee defaults on a promissory note
used to purchase such shares, Berry Group’s only recourse is to the shares of
Berry Group securing the note. In this manner, non-executive management acquired
98,052 shares in the aggregate at the time of the Apollo Berry
Merger. Certain of these amounts were repaid by the employees in
connection with the special one-time dividend.
2006
Equity Incentive Plan
In
connection with Apollo’s acquisition of Old Berry Holding, Berry Group adopted
an equity incentive plan pursuant to which options to acquire up to 577,252
shares of Group’s common stock may be granted (the “2006 Equity Incentive
Plan”). In fiscal 2007, the plan was amended to allow for an
additional 45,000 options to be granted. Options granted under the
2006 Equity Incentive Plan may not be assigned or transferred, except to
Berry
Group or by will or the laws of descent or distribution. The 2006
Equity Incentive Plan terminates ten years after adoption and no options
may be
granted under the plan thereafter. The 2006 Equity Incentive Plan
allows for the issuance of non-qualified options, options intended to qualify
as
“incentive stock options” within the meaning of the Internal Revenue Code of
1986, as amended, and stock appreciation rights. The employees
participating in the 2006 Equity Incentive Plan receive options and stock
appreciation rights under the 2006 Equity Incentive Plan pursuant to individual
option and stock appreciation rights agreements, the terms and conditions
of
which are substantially identical. Each option agreement provides for
the issuance of options to purchase common stock of Berry
Group. Options granted under the 2006 Equity Incentive Plan prior to
the Merger had an exercise price per share that either (1) was fixed at the
fair
market value of a share of common stock on the date of grant or (2) commenced
at
the fair market value of a share of common stock on the date of grant and
increases at the rate of 15% per year during the term. Some options
granted under the plan become vested and exercisable over a five-year period
based on continued service. Other options become vested and
exercisable based on the achievement by the Company of certain financial
targets Upon a change in control, the vesting schedule with respect
to certain options accelerate for a portion of the shares subject to such
options. Since Berry Group’s common stock is not highly liquid,
except in certain limited circumstances, the stock options may not be
redeemable.
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
fiscal 2007, 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 in fiscal 2007, 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. Of this $34.5 million, $5.3 million has been recognized as of
September 29, 2007. Berry Group recognizes the offset to this expense
as a liability which is held pursuant to a rabbi trust
arrangement. Earnings on the rabbi trust are recognized by Berry
Group and pushed down to the Company. For the year-ended September
29, 2007, the Company has recognized $0.6 million of compensation expense
related to earnings on the rabbi trust holdings.
Information
related to the 2006 Equity Incentive Plan is as follows:
|
September
29, 2007
|
|
September
30, 2006
|
|
Number
Of
Shares
|
Weighted
Average
Exercise
Price
|
|
Number
Of
Shares
|
Weighted
Average
Exercise
Price
|
Options
outstanding, beginning of period
|
500,184
|
$
100
|
|
—
|
$
—
|
Options
granted
|
135,358
|
100
|
|
500,184
|
100
|
Options
exercised or cash settled
|
—
|
—
|
|
—
|
—
|
Options
forfeited or cancelled
|
(16,922)
|
100
|
|
—
|
—
|
Options
outstanding, end of period
|
618,620
|
$100
|
|
500,184
|
$100
|
|
|
|
|
|
|
Option
price range at end of period
|
$100
|
|
$100
|
Options
exercisable at end of period
|
177,605
|
|
12,000
|
Options
available for grant at period end
|
3,632
|
|
77,068
|
Weighted
average fair value of options granted during period
|
$19
|
|
$19
|
The
following table summarizes information about the options outstanding at
September 29, 2007:
Range
of
Exercise
Prices
|
Number
Outstanding
at
September 29, 2007
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
at
September
29, 2007
|
$100
|
618,620
|
9
years
|
$100
|
177,605
|
Shares
issued under the stock-based compensation plans are usually issued from shares
of common stock held in treasury. Stock compensation is included in the General
and administrative line on the Consolidated Statements of Operations. As
of
September 29, 2007, the total remaining unrecognized compensation cost related
to nonvested stock options approximated $32.2 million, which will be
amortized over the weighted-average remaining requisite service period of
2
years.
2006
Old Covalence Equity Incentive Plan
Old
Covalence had one share-based compensation plan, which is described
below. The compensation cost that has been charged against income for
that plan was $0.3 million for the period February 17, 2006 through September
30, 2006 and $0.1 million for the fiscal year ended September 29,
2007. No grants were made under this plan following the
Merger.
In
February 2006, Old Covalence Holding adopted the 2006 Long Term Incentive
Plan
(“LTIP”). Under the plan selected senior members of Old Covalence
management were offered the right to purchase common and perpetual preferred
stock of Old Covalence Holding. In addition to this investment, this
group received stock options in direct proportion to their
investment. Members of management that choose not to invest in the
Company were granted 1,000 options as part of the LTIP. In addition,
under the plan Holdings may grant restricted stock to employees as well as
allowing employees to purchase shares of Holdings common stock. There
are 900,000 authorized shares available for grant or purchase under this
plan.
In
connection with the Merger substantially all options outstanding under the
Old
Covalence LTIP were forfeited. Certain employees that continued as
management in Berry Holding were granted options in the 2006 Equity Incentive
Plan. No options have been exercised under the Old Covalence
LTIP.
11. Segment
and Geographic Data
In
connection with the closing of the Merger, Berry organized its operations
into
four reportable segments: rigid open top, rigid closed top, flexible films,
and
tapes and coatings. Selected information by reportable
segment is presented in the following table:
|
|
Company
|
|
|
Predecessor
|
|
|
|
Year
ended
September
29,
2007
|
|
|
Period
from
February
17
to
September
30,
2006
|
|
|
Period
from
October
1,
2005
to
February
16,
2006
|
|
|
Year
ended
September
30,
2005
|
|
Net
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Flexible
Films
|
|
$ |
1,042.8 |
|
|
|
705.5 |
|
|
|
449.5 |
|
|
|
1,129.2 |
|
Tapes
and Coatings
|
|
|
536.7 |
|
|
|
392.7 |
|
|
|
221.4 |
|
|
|
608.8 |
|
Rigid
Open Top
|
|
|
881.3 |
|
|
|
27.0 |
|
|
|
— |
|
|
|
— |
|
Rigid
Closed Top
|
|
|
598.0 |
|
|
|
19.4 |
|
|
|
— |
|
|
|
— |
|
Less
intercompany revenue
|
|
|
(3.8 |
) |
|
|
(5.8 |
) |
|
|
(4.0 |
) |
|
|
(12.8 |
) |
|
|
$ |
3,055.0 |
|
|
|
1,138.8 |
|
|
|
666.9 |
|
|
|
1,725.2 |
|
Operating
income
|
|
|
|
|
|
|
|
|
|
|
|
|
Flexible
Films
|
|
$ |
(23.6 |
) |
|
|
4.2 |
|
|
|
22.8 |
|
|
|
34.4 |
|
Tapes
and Coatings
|
|
|
(10.6 |
) |
|
|
21.2 |
|
|
|
9.7 |
|
|
|
37.8 |
|
Rigid
Open Top
|
|
|
69.9 |
|
|
|
(0.4 |
) |
|
|
— |
|
|
|
— |
|
Rigid
Closed Top
|
|
|
31.7 |
|
|
|
(0.4 |
) |
|
|
— |
|
|
|
— |
|
Corporate-Covalence
|
|
|
— |
|
|
|
(16.8 |
) |
|
|
(5.6 |
) |
|
|
(8.7 |
) |
|
|
$ |
67.4 |
|
|
|
7.7 |
|
|
|
26.9 |
|
|
|
63.5 |
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Flexible
Films
|
|
|
51.2 |
|
|
|
27.6 |
|
|
|
9.6 |
|
|
|
25.4 |
|
Tapes
and Coatings
|
|
|
38.4 |
|
|
|
22.6 |
|
|
|
5.9 |
|
|
|
16.0 |
|
Rigid
Open Top
|
|
|
77.3 |
|
|
|
2.1 |
|
|
|
— |
|
|
|
— |
|
Rigid
Closed Top
|
|
|
53.3 |
|
|
|
1.4 |
|
|
|
— |
|
|
|
— |
|
Corporate-Covalence
|
|
|
— |
|
|
|
0.9 |
|
|
|
0.1 |
|
|
|
0.2 |
|
|
|
|
220.2 |
|
|
|
54.6 |
|
|
|
15.6 |
|
|
|
41.6 |
|
|
|
September
29,
2007
|
|
|
September
30, 2006
|
|
Total
Assets
|
|
|
|
|
|
|
Flexible
Films
|
|
$ |
683.5 |
|
|
|
676.9 |
|
Tapes
and Coatings
|
|
|
414.8 |
|
|
|
449.9 |
|
Rigid
Open Top
|
|
|
1,746.6 |
|
|
|
1,950.8 |
|
Rigid
Closed Top
|
|
|
1,024.5 |
|
|
|
666.9 |
|
Corporate
– Covalence
|
|
|
— |
|
|
|
76.9 |
|
|
|
$ |
3,869.4 |
|
|
|
3,821.4 |
|
Goodwill
|
|
|
|
|
|
|
|
|
Flexible
Films
|
|
$ |
23.7 |
|
|
|
— |
|
Tapes
and Coatings
|
|
|
5.8 |
|
|
|
— |
|
Rigid
Open Top
|
|
|
646.3 |
|
|
|
558.4 |
|
Rigid
Closed Top
|
|
|
456.2 |
|
|
|
430.8 |
|
|
|
$ |
1,132.0 |
|
|
|
989.2 |
|
12. Guarantor
and Non-Guarantor Financial Information
Berry
Holding, a wholly owned subsidiary of Berry Plastics Group, Inc., has notes
outstanding which are fully and unconditionally guaranteed by Berry Plastics
Holding Corporation’s domestic subsidiaries. Separate financial
statements and other disclosures concerning the Parent Company and Guarantor
Subsidiaries are not presented because they are 100% wholly-owned by the
Parent
Company and Guarantor Subsidiaries have fully and unconditionally guaranteed
such debt on a joint and several basis. The following tables present
consolidating financial information for the Parent Company, Guarantor
Subsidiaries and Non-Guarantor Subsidiaries of Berry Holding. The
equity method of accounting is used to reflect investments of the Parent
Company
in its Guarantor and Non-Guarantor Subsidiaries. The principal
elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions. More than 95% of the Company’s revenue is in North
America. In addition, more than 95% of the Company’s property and
equipment is located in North America. The Company has restated its
previously reported financial information for the year ended September 30,
2005
and the period from October 1, 2005 through February 16, 2006, to correctly
present the financial
information of the Parent Company and Guarantor Subsidiaries separately in
accordance with Rule 3-10(f) of Regulation S-X.
Condensed
Supplemental Consolidated or Combined Statement of Operations
(Company)
|
|
Year
ended September 29, 2007
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
|
Net
revenue, including related party revenue
|
|
$
|
973.4
|
|
$
|
1,910.4
|
|
$
|
187.0
|
|
$
|
(15.8)
|
|
$
|
3,055.0
|
|
Cost
of sales
|
|
|
888.1
|
|
|
1,542.2
|
|
|
168.9
|
|
|
(15.8)
|
|
|
2.583.4
|
|
Gross
profit
|
|
|
85.3
|
|
|
368.2
|
|
|
18.1
|
|
|
—
|
|
|
471.6
|
|
Selling,
general and administrative expenses
|
|
|
(78.6)
|
|
|
388.0
|
|
|
12.6
|
|
|
(0.5)
|
|
|
321.5
|
|
Restructuring
and impairment charges, net
|
|
|
39.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39.1
|
|
Other
operating expenses
|
|
|
18.1
|
|
|
23.6
|
|
|
1.9
|
|
|
—
|
|
|
43.6
|
|
Operating
income
|
|
|
106.7
|
|
|
(43.4)
|
|
|
3.6
|
|
|
0.5
|
|
|
67.4
|
|
Other
(income) expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss
on extinguished debt
|
|
|
15.4
|
|
|
21.9
|
|
|
—
|
|
|
—
|
|
|
37.3
|
|
Interest
expense, net
|
|
|
266.5
|
|
|
(10.9)
|
|
|
2.2
|
|
|
(20.2)
|
|
|
237.6
|
|
Equity
in net income of subsidiaries
|
|
|
(9.4)
|
|
|
(2.0)
|
|
|
—
|
|
|
11.4
|
|
|
—
|
|
Income
(loss) before income taxes
|
|
|
(165.8)
|
|
|
(52.4)
|
|
|
1.4
|
|
|
9.3
|
|
|
(207.5)
|
|
Minority
interest
|
|
|
(2.7)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.7)
|
|
Income
tax expense (benefit)
|
|
|
(18.0)
|
|
|
(72.7)
|
|
|
2.1
|
|
|
—
|
|
|
(88.6)
|
|
Net
income (loss)
|
|
$
|
(145.1)
|
|
$
|
20.3
|
|
$
|
(0.7)
|
|
$
|
9.3
|
|
$
|
(116.2)
|
|
(Company)
|
|
Period
from February 17, 2006 to September 30, 2006
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
|
Net
revenue, including related party revenue
|
|
$
|
666.8
|
|
$
|
385.8
|
|
$
|
109.4
|
|
$
|
(23.2)
|
|
$
|
1,138.8
|
|
Cost
of sales
|
|
|
619.6
|
|
|
329.0
|
|
|
93.1
|
|
|
(18.8)
|
|
|
1,022.9
|
|
Gross
profit
|
|
|
47.2
|
|
|
56.8
|
|
|
16.3
|
|
|
(4.4)
|
|
|
115.9
|
|
Selling,
general and administrative expenses
|
|
|
59.9
|
|
|
41.0
|
|
|
6.8
|
|
|
—
|
|
|
107.7
|
|
Restructuring
and impairment charges, net
|
|
|
—
|
|
|
0.5
|
|
|
—
|
|
|
—
|
|
|
0.5
|
|
Operating
income
|
|
|
(12.7)
|
|
|
15.3
|
|
|
9.5
|
|
|
(4.4)
|
|
|
7.7
|
|
Other
(income) expense
|
|
|
(1.4)
|
|
|
(5.0)
|
|
|
5.1
|
|
|
—
|
|
|
(1.3)
|
|
Loss
on extinguished debt
|
|
|
54.6
|
|
|
—
|
|
|
1.0
|
|
|
—
|
|
|
55.6
|
|
Interest
expense, net.
|
|
|
1.0
|
|
|
3.4
|
|
|
0.1
|
|
|
—
|
|
|
4.5
|
|
Equity
in net income of subsidiaries
|
|
|
17.8
|
|
|
(0.3)
|
|
|
—
|
|
|
(17.5)
|
|
|
—
|
|
Income
(loss) before income taxes
|
|
|
(49.1)
|
|
|
16.6
|
|
|
3.3
|
|
|
(21.9)
|
|
|
(51.1)
|
|
Minority
interest.
|
|
|
(1.8)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.8)
|
|
Income
tax expense (benefit)
|
|
|
(16.1)
|
|
|
(3.7)
|
|
|
1.7
|
|
|
—
|
|
|
(18.1)
|
|
Net
income (loss)
|
|
$
|
(31.2)
|
|
$
|
20.3
|
|
$
|
1.6
|
$
|
$
|
(21.9)
|
|
$
|
(31.2)
|
|
(Predecessor) |
|
Period
from October 1, 2005 to February 16, 2006
|
|
|
|
Parent
Company
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations |
|
|
Total |
|
Net
revenue, including related party revenue
|
|
$ |
420.4 |
|
|
$ |
196.3 |
|
|
$ |
52.8 |
|
|
$ |
(2.6 |
)
|
|
$ |
666.9 |
|
Cost
of sales
|
|
|
369.6 |
|
|
|
168.5 |
|
|
|
43.1 |
|
|
|
(2.2 |
) |
|
|
579.0 |
|
Gross
profit
|
|
|
50.8 |
|
|
|
27.8 |
|
|
|
9.7 |
|
|
|
(0.4 |
) |
|
|
87.9 |
|
Charges
and allocations from Tyco International,
Ltd.
and affiliates
|
|
|
1.3 |
|
|
|
9.1 |
|
|
|
— |
|
|
|
— |
|
|
|
10.4 |
|
Selling,
general and administrative expenses
|
|
|
28.7 |
|
|
|
17.6 |
|
|
|
3.7 |
|
|
|
— |
|
|
|
50.0 |
|
Restructuring
and impairment charges, net
|
|
|
0.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.6 |
|
Operating
income
|
|
|
20.2 |
|
|
|
1.1 |
|
|
|
6.0 |
|
|
|
(0.4 |
) |
|
|
26.9 |
|
Other
(income) expense
|
|
|
7.9 |
|
|
|
(9.6 |
) |
|
|
1.7 |
|
|
|
— |
|
|
|
— |
|
Interest
expense, net
|
|
|
1.6 |
|
|
|
0.1 |
|
|
|
0.4 |
|
|
|
— |
|
|
|
2.1 |
|
Interest
expense (income), net – Tyco
International
Ltd. and affiliates
|
|
|
7.8 |
|
|
|
(2.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
5.5 |
|
Equity
in net income of subsidiaries
|
|
|
14.8 |
|
|
|
— |
|
|
|
— |
|
|
|
(14.8 |
) |
|
|
— |
|
Income
(loss) before income taxes
|
|
|
17.7 |
|
|
|
12.9 |
|
|
|
3.9 |
|
|
|
(15.2 |
) |
|
|
19.3 |
|
Income
tax expense (benefit)
|
|
|
— |
|
|
|
— |
|
|
|
1.6 |
|
|
|
— |
|
|
|
1.6 |
|
Net
income (loss)
|
|
$ |
17.7 |
|
|
$ |
12.9 |
|
|
$ |
2.3 |
|
|
$ |
(15.2 |
)
|
|
$ |
17.7 |
|
(Predecessor)
|
|
Year
ended September 30, 2005
|
|
|
|
Parent
Company
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Net
revenue, including related party revenue
|
|
$ |
1053.1 |
|
|
$ |
549.4 |
|
|
$ |
129.1 |
|
|
$ |
(6.4 |
)
|
|
$ |
1,725.2 |
|
Cost
of sales
|
|
|
914.6 |
|
|
|
460.2 |
|
|
|
107.9 |
|
|
|
(5.3 |
) |
|
|
1,477.4 |
|
Gross
profit
|
|
|
138.5 |
|
|
|
89.2 |
|
|
|
21.2 |
|
|
|
(1.1 |
) |
|
|
247.8 |
|
Charges
and allocations from Tyco International,
Ltd.
and affiliates
|
|
|
45.5 |
|
|
|
10.0 |
|
|
|
0.9 |
|
|
|
— |
|
|
|
56.4 |
|
Selling,
general and administrative expenses
|
|
|
63.5 |
|
|
|
51.5 |
|
|
|
9.6 |
|
|
|
— |
|
|
|
124.6 |
|
Restructuring
and impairment charges, net
|
|
|
2.9 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
3.3 |
|
Operating
income
|
|
|
26.6 |
|
|
|
27.6 |
|
|
|
10.4 |
|
|
|
(1.1 |
) |
|
|
63.5 |
|
Other
(income) expense
|
|
|
6.1 |
|
|
|
(12.9 |
) |
|
|
6.8 |
|
|
|
— |
|
|
|
— |
|
Interest
expense, net
|
|
|
(3.3 |
) |
|
|
8.1 |
|
|
|
(0.3 |
) |
|
|
— |
|
|
|
4.5 |
|
Interest
expense (income), net – Tyco
International
Ltd. and affiliates
|
|
|
12.1 |
|
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
— |
|
|
|
11.2 |
|
Equity
in net income of subsidiaries
|
|
|
35.2 |
|
|
|
— |
|
|
|
— |
|
|
|
(35.2 |
) |
|
|
— |
|
Income
(loss) before income taxes
|
|
|
46.9 |
|
|
|
33.4 |
|
|
|
3.8 |
|
|
|
(36.3 |
) |
|
|
47.8 |
|
Income
tax expense (benefit)
|
|
|
2.9 |
|
|
|
— |
|
|
|
0.9 |
|
|
|
— |
|
|
|
3.8 |
|
Net
income (loss)
|
|
$ |
44.0 |
|
|
$ |
33.4 |
|
|
$ |
2.9 |
|
|
$ |
(36.3 |
)
|
|
$ |
44.0 |
|
Condensed
Supplemental Consolidated Balance Sheet
As
of September 29, 2007
($
in millions)
|
|
Parent
Company
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
0.9 |
|
|
$ |
7.7 |
|
|
$ |
6.0 |
|
|
$ |
— |
|
|
$ |
14.6 |
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
135.9 |
|
|
|
207.9 |
|
|
|
28.7 |
|
|
|
— |
|
|
|
372.5 |
|
Inventories
|
|
|
138.4 |
|
|
|
221.6 |
|
|
|
25.3 |
|
|
|
— |
|
|
|
385.3 |
|
Prepaid
expenses and other current assets
|
|
|
3.0 |
|
|
|
52.4 |
|
|
|
12.0 |
|
|
|
— |
|
|
|
67.4 |
|
Total
current assets
|
|
|
278.2 |
|
|
|
489.6 |
|
|
|
72.0 |
|
|
|
— |
|
|
|
839.8 |
|
Property,
plant and equipment, net
|
|
|
211.7 |
|
|
|
538.9 |
|
|
|
34.4 |
|
|
|
— |
|
|
|
785.0 |
|
Intangible
assets, net
|
|
|
218.8 |
|
|
|
2,007.1 |
|
|
|
16.2 |
|
|
|
— |
|
|
|
2,242.1 |
|
Investment
in Subsidiaries
|
|
|
1.588.6 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,588.6 |
) |
|
|
— |
|
Other
assets
|
|
|
2.3 |
|
|
|
0.2 |
|
|
|
— |
|
|
|
— |
|
|
|
2.5 |
|
Total
Assets
|
|
$ |
2,299.6 |
|
|
$ |
3,035.8 |
|
|
$ |
122.6 |
|
|
$ |
(1,588.6 |
)
|
|
$ |
3,869.4 |
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
109.7 |
|
|
$ |
140.2 |
|
|
$ |
13.3 |
|
|
$ |
— |
|
|
$ |
263.2 |
|
Accrued
and other current liabilities
|
|
|
78.4 |
|
|
|
100.9 |
|
|
|
10.1 |
|
|
|
— |
|
|
|
189.4 |
|
Long-term
debt—current portion
|
|
|
12.0 |
|
|
|
5.1 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
17.4 |
|
Intercompany
accounts, net
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total
current liabilities
|
|
|
200.1 |
|
|
|
246.2 |
|
|
|
23.7 |
|
|
|
— |
|
|
|
470.0 |
|
Long-term
debt
|
|
|
2,675.2 |
|
|
|
16.9 |
|
|
|
1.2 |
|
|
|
— |
|
|
|
2,693.3 |
|
Deferred
tax liabilities
|
|
|
31.1 |
|
|
|
183.9 |
|
|
|
2.7 |
|
|
|
— |
|
|
|
217.7 |
|
Other
non current liabilities
|
|
|
20.2 |
|
|
|
15.2 |
|
|
|
2.9 |
|
|
|
— |
|
|
|
38.3 |
|
Total
long-term liabilities
|
|
|
2,726.5 |
|
|
|
216.0 |
|
|
|
6.8 |
|
|
|
— |
|
|
|
2,949.3 |
|
Total
Liabilities
|
|
|
2,926.6 |
|
|
|
462.2 |
|
|
|
30.5 |
|
|
|
— |
|
|
|
3,419.3 |
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Contributions
from Holdings
|
|
|
|
|
|
|
2,142.2 |
|
|
|
44.5 |
|
|
|
(1,588.6 |
) |
|
|
598.1 |
|
Stock
|
|
|
(409.2 |
) |
|
|
368.5 |
|
|
|
40.7 |
|
|
|
— |
|
|
|
— |
|
Retained
earnings (deficit)
|
|
|
(217.6 |
) |
|
|
62.9 |
|
|
|
2.8 |
|
|
|
— |
|
|
|
(151.9 |
) |
Cumulative
translation
|
|
|
(0.3 |
) |
|
|
— |
|
|
|
4.10.2 |
|
|
|
— |
|
|
|
3.8 |
|
Total
Equity
|
|
|
(627.1 |
) |
|
|
2,573.6 |
|
|
|
92.1 |
|
|
|
(1,588.6 |
) |
|
|
450.0 |
|
Total
Liabilities and Equity
|
|
$ |
2,299.6 |
|
|
$ |
3,035.8 |
|
|
$ |
122.6 |
|
|
$ |
(1,588.6 |
)
|
|
$ |
3,869.4 |
|
Condensed
Supplemental Combined Balance Sheet
As
of September 30, 2006
|
|
Parent
Company
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
62.3 |
|
|
$ |
15.0 |
|
|
$ |
5.8 |
|
|
$ |
— |
|
|
$ |
83.1 |
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
124.9 |
|
|
|
204.7 |
|
|
|
27.5 |
|
|
|
— |
|
|
|
357.1 |
|
Inventories
|
|
|
158.3 |
|
|
|
222.8 |
|
|
|
24.0 |
|
|
|
— |
|
|
|
405.1 |
|
Prepaid
expenses and other current assets
|
|
|
10.1 |
|
|
|
35.8 |
|
|
|
12.7 |
|
|
|
— |
|
|
|
58.6 |
|
Total
current assets
|
|
|
355.6 |
|
|
|
478.3 |
|
|
|
70.0 |
|
|
|
— |
|
|
|
903.9 |
|
Property,
plant and equipment, net
|
|
|
219.4 |
|
|
|
556.5 |
|
|
|
40.7 |
|
|
|
— |
|
|
|
816.6 |
|
Intangible
assets, net
|
|
|
1,835.6 |
|
|
|
192.1 |
|
|
|
7.7 |
|
|
|
— |
|
|
|
2,035.4 |
|
Investment
in Subsidiaries
|
|
|
353.2 |
|
|
|
24.1 |
|
|
|
— |
|
|
|
(377.3 |
) |
|
|
— |
|
Other
assets
|
|
|
64.9 |
|
|
|
0.6 |
|
|
|
— |
|
|
|
— |
|
|
|
65.5 |
|
Total
Assets
|
|
$ |
2,828.7 |
|
|
$ |
1,251.6 |
|
|
$ |
118.4 |
|
|
$ |
(377.3 |
)
|
|
$ |
3,821.4 |
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
108.2 |
|
|
$ |
147.8 |
|
|
$ |
16.1 |
|
|
$ |
— |
|
|
$ |
272.1 |
|
Accrued
and other current liabilities
|
|
|
63.2 |
|
|
|
102.0 |
|
|
|
8.3 |
|
|
|
— |
|
|
|
173.5 |
|
Long-term
debt—current portion
|
|
|
9.8 |
|
|
|
5.9 |
|
|
|
0.3 |
|
|
|
— |
|
|
|
16.0 |
|
Intercompany
accounts, net
|
|
|
(468.1 |
) |
|
|
417.8 |
|
|
|
45.9 |
|
|
|
4.4 |
|
|
|
— |
|
Total
current liabilities
|
|
|
(286.9 |
) |
|
|
673.5 |
|
|
|
70.6 |
|
|
|
4.4 |
|
|
|
461.6 |
|
Long-term
debt.
|
|
|
2,593.2 |
|
|
|
18.3 |
|
|
|
0.8 |
|
|
|
— |
|
|
|
2,612.3 |
|
Deferred
tax liabilities
|
|
|
47.4 |
|
|
|
199.1 |
|
|
|
3.1 |
|
|
|
— |
|
|
|
249.6 |
|
Other
non current liabilities
|
|
|
0.3 |
|
|
|
20.9 |
|
|
|
1.9 |
|
|
|
— |
|
|
|
23.1 |
|
Total
long-term liabilities
|
|
|
2,640.9 |
|
|
|
238.3 |
|
|
|
5.8 |
|
|
|
— |
|
|
|
2,885.0 |
|
Total
Liabilities
|
|
|
2,354.0 |
|
|
|
911.8 |
|
|
|
76.4 |
|
|
|
4.4 |
|
|
|
3,346.6 |
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
65.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
65.2 |
|
Contributions
from Holdings
|
|
|
190.8 |
|
|
|
368.5 |
|
|
|
35.1 |
|
|
|
(403.6 |
) |
|
|
190.8 |
|
Stock
|
|
|
— |
|
|
|
— |
|
|
|
24.1 |
|
|
|
(24.1 |
) |
|
|
— |
|
Additional
paid-in capital
|
|
|
249.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
249.8 |
|
Retained
deficit
|
|
|
(31.2 |
) |
|
|
(28.7 |
) |
|
|
(17.4 |
) |
|
|
46.1 |
|
|
|
(31.2 |
) |
Cumulative
translation
|
|
|
0.1 |
|
|
|
— |
|
|
|
0.20.2 |
|
|
|
(0.1 |
) |
|
|
0.2 |
|
Total
Equity
|
|
|
409.5 |
|
|
|
339.8 |
|
|
|
42.0 |
|
|
|
(381.7 |
) |
|
|
409.6 |
|
Total
Liabilities and Equity
|
|
$ |
2,828.7 |
|
|
$ |
1,251.6 |
|
|
$ |
118.4 |
|
|
$ |
(377.3 |
)
|
|
$ |
3,821.4 |
|
Condensed
Supplemental Consolidated or Combined Statement of Cash Flows
(Company)
|
|
Year
ended September 29, 2007
|
|
|
|
Parent
Company
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Cash
Flow from Operating Activities
|
|
$ |
23.6 |
|
|
$ |
115.6 |
|
|
$ |
(1.9 |
)
|
|
$ |
— |
|
|
$ |
137.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant, and equipment
|
|
|
(16.4 |
) |
|
|
(75.7 |
) |
|
|
(7.2 |
) |
|
|
— |
|
|
|
(99.3 |
) |
Proceeds
from disposal of assets
|
|
|
— |
|
|
|
0.8 |
|
|
|
10.0 |
|
|
|
— |
|
|
|
10.8 |
|
Acquisition
of business net of cash acquired
|
|
|
(30.0 |
) |
|
|
(45.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
(75.8 |
) |
Net
cash used in investing activities
|
|
|
(46.4 |
) |
|
|
(120.7 |
) |
|
|
2.8 |
|
|
|
— |
|
|
|
(164.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
of long-term debt
|
|
|
1.232.6 |
|
|
|
— |
|
|
|
0.4 |
|
|
|
— |
|
|
|
1,233.0 |
|
Equity
contributions
|
|
|
(102.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(102.5 |
) |
Repayment
of long-term debt
|
|
|
(1,159.0 |
) |
|
|
(2.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,161.2 |
) |
Debt
financing costs
|
|
|
(9.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9.7 |
) |
Net
cash provided by financing activities
|
|
|
(38.6 |
) |
|
|
(2.2 |
) |
|
|
0.4 |
|
|
|
— |
|
|
|
(40.4 |
) |
Effect
of currency translation on cash
|
|
|
— |
|
|
|
— |
|
|
|
(1.1 |
) |
|
|
— |
|
|
|
(1.1 |
) |
Net
increase in cash and cash equivalents
|
|
|
(61.4 |
) |
|
|
(7.3 |
) |
|
|
0.2 |
|
|
|
— |
|
|
|
(68.6 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
62.3 |
|
|
|
15.0 |
|
|
|
5.8 |
|
|
|
— |
|
|
|
83.1 |
|
Cash
and cash equivalents at end of period
|
|
$ |
0.9 |
|
|
$ |
7.7 |
|
|
$ |
6.0 |
|
|
$ |
— |
|
|
$ |
14.6 |
|
(Company)
|
|
Period
from February 17 to September 30, 2006
|
|
|
|
Parent
Company
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Cash
Flow from Operating Activities
|
|
$ |
50.8 |
|
|
$ |
45.1 |
|
|
$ |
0.8 |
|
|
$ |
— |
|
|
$ |
96.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant, and equipment
|
|
|
(18.7 |
) |
|
|
(15.4 |
) |
|
|
(0.7 |
) |
|
|
— |
|
|
|
(34.8 |
) |
Proceeds
from disposal of assets
|
|
|
0.6 |
|
|
|
— |
|
|
|
0.2 |
|
|
|
— |
|
|
|
0.8 |
|
Acquisition
of business net of cash acquired
|
|
|
(3,205.7 |
) |
|
|
(14.7 |
) |
|
|
2.4 |
|
|
|
— |
|
|
|
(3,218.0 |
) |
Net
cash used in investing activities
|
|
|
(3,223.80 |
) |
|
|
(30.1 |
) |
|
|
1.9 |
|
|
|
— |
|
|
|
(3,252.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of long-term debt
|
|
|
2,653.4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,653.4 |
|
Equity
contributions
|
|
|
680.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
680.8 |
|
Repayment
of long-term debt
|
|
|
(50.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(50.7 |
) |
Long-term
debt financing costs
|
|
|
(25.2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25.2 |
) |
Long-term
debt refinancing costs
|
|
|
(45.8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(45.8 |
) |
Net
cash provided by financing activities
|
|
|
3,212.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,212.5 |
|
Effect
of currency translation on cash
|
|
|
— |
|
|
|
— |
|
|
|
(1.1 |
) |
|
|
— |
|
|
|
(1.1 |
) |
Net
increase in cash and cash equivalents
|
|
|
39.5 |
|
|
|
15.0 |
|
|
|
1.6 |
|
|
|
— |
|
|
|
56.1 |
|
Cash
and cash equivalents at beginning of period
|
|
|
22.8 |
|
|
|
— |
|
|
|
4.2 |
|
|
|
— |
|
|
|
27.0 |
|
Cash
and cash equivalents at end of period
|
|
$ |
62.3 |
|
|
$ |
15.0 |
|
|
$ |
5.8 |
|
|
$ |
— |
|
|
$ |
83.1 |
|
(Predecessor)
|
|
Period
from October 1, 2005 to February 16, 2006
|
|
|
|
Parent
Company
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
Cash
Flow from Operating Activities
|
|
$ |
(126.2 |
)
|
|
$ |
3.8 |
|
|
$ |
3.2 |
|
|
$ |
— |
|
|
$ |
(119.2 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant, and equipment
|
|
|
(9.2 |
) |
|
|
(2.8 |
) |
|
|
(0.2 |
) |
|
|
— |
|
|
|
(12.2 |
) |
Proceeds
from disposal of assets
|
|
|
3.0 |
|
|
|
— |
|
|
|
0.1 |
|
|
|
— |
|
|
|
3.1 |
|
Acquisition
of business net of cash acquired
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net
cash used in investing activities
|
|
|
(6.2 |
) |
|
|
(2.8 |
) |
|
|
(0.1 |
) |
|
|
— |
|
|
|
(9.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in book overdraft
|
|
|
(9.8 |
) |
|
|
(4.4 |
) |
|
|
— |
|
|
|
— |
|
|
|
(14.2 |
) |
Payments
of capital lease obligations
|
|
|
(59.4 |
) |
|
|
(20.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
(79.4 |
) |
Distributions
to minority interests
|
|
|
(2.2 |
) |
|
|
(0.6 |
) |
|
|
2.8 |
|
|
|
— |
|
|
|
— |
|
Change
in Predecessor parent company investment
|
|
|
203.8 |
|
|
|
24.4 |
|
|
|
(4.0 |
) |
|
|
— |
|
|
|
224.2 |
|
Net
cash provided by financing activities
|
|
|
132.4 |
|
|
|
(0.6 |
) |
|
|
(1.2 |
) |
|
|
— |
|
|
|
130.6 |
|
Effect
of currency translation on cash
|
|
|
— |
|
|
|
— |
|
|
|
(0.2 |
) |
|
|
— |
|
|
|
(0.2 |
) |
Net
increase in cash and cash equivalents
|
|
|
— |
|
|
|
0.4 |
|
|
|
1.7 |
|
|
|
— |
|
|
|
2.1 |
|
Cash
and cash equivalents at beginning of period
|
|
|
— |
|
|
|
0.1 |
|
|
|
2.6 |
|
|
|
— |
|
|
|
2.7 |
|
Cash
and cash equivalents at end of period
|
|
$ |
— |
|
|
$ |
0.5 |
|
|
$ |
4.3 |
|
|
$ |
— |
|
|
$ |
4.8 |
|
(Predecessor)
|
Year
ended September 30, 2005
|
|
|
|
Parent
Company
|
|
Guarantor
Subsidiaries
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Total
|
|
Cash
Flow from Operating Activities
|
|
$
|
27.2
|
|
$
|
62.0
|
|
$
|
28.1
|
|
$
|
—
|
|
$
|
117.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property, plant, and equipment
|
|
|
(17.3)
|
|
|
(11.8)
|
|
|
(3.0)
|
|
|
—
|
|
|
(32.1)
|
|
Proceeds
from disposal of assets
|
|
|
2.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.9
|
|
Acquisition
of business net of cash acquired
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
cash used in investing activities
|
|
|
(14.4)
|
|
|
(11.8)
|
|
|
3.0
|
|
|
—
|
|
|
(29.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in book overdraft
|
|
|
(13.2)
|
|
|
1.1
|
|
|
—
|
|
|
—
|
|
|
(12.1)
|
|
Payments
of capital lease obligations
|
|
|
(31.0)
|
|
|
(30.0)
|
|
|
(0.1)
|
|
|
—
|
|
|
(61.1)
|
|
Change
in Predecessor parent company investment
|
|
|
32.3
|
|
|
(20.0)
|
|
|
(25.5)
|
|
|
|
|
|
(13.2)
|
|
Distributions
to minority interests
|
|
|
(1.4)
|
|
|
(1.5)
|
|
|
0.1
|
|
|
—
|
|
|
(2.8)
|
|
Net
cash provided by financing activities
|
|
|
(13.3)
|
|
|
(50.4)
|
|
|
(25.5)
|
|
|
—
|
|
|
(89.2)
|
|
Effect
of currency translation on cash
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Net
increase in cash and cash equivalents
|
|
|
(0.5)
|
|
|
(0.2)
|
|
|
(0.3)
|
|
|
—
|
|
|
(1.0)
|
|
Cash
and cash equivalents at beginning of period
|
|
|
0.5
|
|
|
0.3
|
|
|
2.9
|
|
|
—
|
|
|
3.7
|
|
Cash
and cash equivalents at end of period
|
|
$
|
—
|
|
$
|
0.1
|
|
$
|
2.6
|
|
$
|
—
|
|
$
|
2.7
|
|
13.
|
Quarterly
Financial
Data (Unaudited)
|
The
following table contains selected unaudited quarterly financial data for
fiscal
years 2007 and 2006.
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Successor
|
|
|
Successor
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
First
|
|
|
Second
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
703.6 |
|
|
$ |
741.6 |
|
|
$ |
807.3 |
|
|
$ |
802.5 |
|
|
$ |
450.2 |
|
|
$ |
216.7 |
|
|
$ |
205.8 |
|
|
$ |
442.5 |
|
|
$ |
490.5 |
|
Cost
of sales
|
|
|
617.2 |
|
|
|
619.9 |
|
|
|
667.9 |
|
|
|
678.4 |
|
|
|
385.5 |
|
|
|
193.5 |
|
|
|
183.4 |
|
|
|
403.9 |
|
|
|
435.6 |
|
Gross
profit
|
|
$ |
86.4 |
|
|
$ |
121.7 |
|
|
$ |
139.4 |
|
|
$ |
124.1 |
|
|
$ |
64.7 |
|
|
$ |
23.2 |
|
|
$ |
22.4 |
|
|
$ |
38.6 |
|
|
$ |
54.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
(30.3 |
)
|
|
$ |
(14.1 |
)
|
|
$ |
(46.0 |
)
|
|
$ |
(25.8 |
)
|
|
$ |
16.4 |
|
|
$ |
1.3 |
|
|
$ |
(1.1 |
)
|
|
$ |
(18.6 |
)
|
|
$ |
(11.5 |
)
|
14. Subsequent
Events
On
December 19, 2007, Holding and certain of it subsidiaries entered into a
sale
lease back transaction pursuant to which Holding sold its manufacturing
facilities located in Baltimore, Maryland; Evansville, Indiana; and Lawrence,
Kansas.
On
December 20, 2007, Holding acquired all of the outstanding shares of MAC
Closures, Inc., a Canadian corporation, through its newly formed Subsidiary
BerryMac Acquisition Limited for approximately CN$72 million. MAC
Closures has manufacturing locations in Waterloo, Quebec and Oakville,
Ontario.
On
December 21, 2007, Holding announced that it entered into a definitive agreement
to acquire Captive Holdings, Inc., the parent company of Captive Plastics,
Inc.,
a leading manufacturer of blow molded plastic bottles for approximately $500
million. Captive Plastics, Inc. and Berry's rigid business have
significant customer overlap, similar processes and similar
products. Subject to customary closing conditions, the parties expect
to close the acquisition in the first quarter of 2008.
SIGNATURES
Pursuant
to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized, on the 26th day of December, 2007.
BERRY
PLASTICS HOLDING
CORPORATION
By /s/
Ira G. Boots
Ira
G.
Boots
Chairman
and Chief Executive Officer
Pursuant
to the requirements of the
Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated:
Signature
|
Title
|
Date
|
/s/
Ira G. Boots
|
Chairman
of the Board of Directors, Chief
Executive
Officer and Director (Principal
Executive
Officer)
|
December
26, 2007
|
Ira
G. Boots
|
|
|
/s/
James M. Kratochvil
|
Executive
Vice President, Chief Financial
Officer,
Treasurer and Secretary (Principal
Financial
and Accounting Officer)
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December
26, 2007
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James
M. Kratochvil
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/s/
Robert V. Seminara
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Director
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December
26, 2007
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Robert
V. Seminara
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/s/
Anthony M. Civale
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Director
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December
26, 2007
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Anthony
M. Civale
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Supplemental
Information To Be
Furnished With Reports Filed Pursuant To Section
15(d)
Of The Act By Registrant Which
Has Not Registered Securities Pursuant To
Section
12 Of The
Act
The
Registrant has not sent any annual report or proxy material to security
holders.
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EXHIBIT
INDEX
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Index
No.
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Description
of Exhibit
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2.1
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Agreement
and Plan of Merger and Corporate Reorganization, dated as of March
9,
2007, between Covalence Specialty Materials Holding Corp. and Berry
Plastics Group, Inc. (incorporated herein by reference to our Registration
Statement Form S-4, filed on May 14,2007)
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4.1
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Indenture,
by and between BPC Acquisition Corp. (and following the merger
of BPC
Acquisition Corp. with and into BPC Holding Corporation, BPC Holding
Corporation, as Issuer, and certain Guarantors) and Wells Fargo
Bank,
National Association, as Trustee, relating to $525,000,000 87/8%
Second
Priority Senior Secured Fixed Rate Notes due 2014 and $225,000,000
Second
Priority Senior Secured Floating Rate Notes due 2014, dated as
of
September 20, 2006 (incorporated herein by reference to Exhibit
4.1 to our
Registration Statement Form S-4, filed on November 2,
2006)
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4.2
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First
Supplemental Indenture, by and among BPC Holding Corporation, certain
guarantors, BPC Acquisition Corp., and Wells Fargo Bank, National
Association, as Trustee, dated as of September 20, 2006 (incorporated
herein by reference to Exhibit 4.2 to our Registration Statement
Form S-4,
filed on November 2, 2006)
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4.3
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Registration
Rights Agreement, by and among BPC Acquisition Corp., BPC Holding
Corporation, the subsidiaries of BPC Holding Corporation, Deutsche
Bank
Securities Inc., Credit Suisse Securities (USA) LLC, Citigroup
Global
Markets Inc., J.P. Morgan Securities Inc., Banc of America Securities
LLC,
Lehman Brothers Inc., Bear, Stearns & Co., and GE Capital Markets,
Inc., dated as of September 20, 2006 (incorporated herein by reference
to
Exhibit 4.3 to our Registration Statement Form S-4, filed on
November 2, 2006)
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4.4
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Collateral
Agreement, by and among BPC Acquisition Corp., as Borrower, each
Subsidiary of the Borrower identified therein, and Wells Fargo
Bank, N.A.,
as Collateral Agent, dated as of September 20, 2006 (incorporated
herein
by reference to Exhibit 4.4 to our Registration Statement Form
S-4, filed
on November 2, 2006)
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10.1
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Note
Purchase Agreement, among BPC Acquisition Corp. and Goldman, Sachs
&
Co., as Initial Purchaser, and GSMP 2006 Onshore US, Ltd., GSMP
2006
Offshore US, Ltd., GSMP 2006 Institutional US, Ltd., GS Mezzanine
Partners
2006 Institutional, L.P., as Subsequent Purchasers, relating to
$425,000,000 Senior Subordinated Notes due 2016, dated as of September
20,
2006 (incorporated herein by reference to Exhibit 10.3 to our Registration
Statement Form S-4, filed on November 2,
2006)
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10.2
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Indenture,
by and between BPC Acquisition Corp. (and following the merger
of BPC
Acquisition Corp. with and into BPC Holding Corporation, BPC Holding
Corporation, as Issuer, and certain Guarantors) and Wells Fargo
Bank,
National Association, as Trustee, relating to 11% Senior Subordinated
Notes due 2016, dated as of September 20, 2006 (incorporated herein
by
reference to Exhibit 10.4 to our Registration Statement Form S-4,
filed on
November 2, 2006)
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10.3
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First
Supplemental Indenture, by and among BPC Holding Corporation, certain
guarantors, BPC Acquisition Corp., and Wells Fargo Bank, National
Association, as Trustee, dated as of September 20, 2006 (incorporated
herein by reference to Exhibit 10.5 to our Registration Statement
Form
S-4, filed on November 2, 2006)
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10.4
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Exchange
and Registration Rights Agreement, by and among BPC Acquisition
Corp. and
Goldman, Sachs & Co., GSMP 2006 Onshore US, Ltd., GSMP 2006 Offshore
US, Ltd., and GSMP 2006 Institutional US, Ltd., dated as of September
20,
2006 (incorporated herein by reference to Exhibit 10.6 to our Registration
Statement Form S-4, filed on November 2,
2006)
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10.5(a)
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U.S.
$400,000,000 Amended and Restated Credit Agreement, dated as of
April 3,
2007, by and among Covalence Specialty Materials Corp., Berry Plastics
Group, Inc., certain domestic subsidiaries party thereto from time
to
time, Bank of America, N.A., as collateral agent and administrative
agent,
the lenders party thereto from time to time, and the financial
institutions party thereto (incorporated herein by reference to
Exhibit
10.1(a) to our Current Report on Form 8-K, filed on April 10,
2007)
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10.5(b)
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U.S.
$1,200,000,000 Second Amended and Restated Credit Agreement, dated
as of
April 3, 2007, by and among Covalence Specialty Materials Corp.,
Berry
Plastics Group, Inc., Credit Suisse, Cayman Islands Branch, as
collateral
and administrative agent, the lenders party thereto from time to
time, and
the other financial institutions party thereto (incorporated herein
by
reference to Exhibit 10.1(b) to our Current Report on Form 8-K,
filed on
April 10, 2007).
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10.5(c)
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Amended
and Restated Intercreditor Agreement by and among Berry Plastics
Group,
Inc., Covalence Specialty Materials Corp., certain subsidiaries
identified
as parties thereto, Bank of America, N.A. and Credit Suisse, Cayman
Islands Branch as first lien agents, and Wells Fargo Bank,
N.A., as trustee (incorporated herein by reference to Exhibit 10.1(d)
to
our Current Report on Form 8-K, filed on April 10, 2007).
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10.5(d)
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Indenture
dated as of February 16, 2006, among Covalence Specialty
Materials Corp., the guarantors named therein and Wells Fargo Bank,
National Association, as trustee (incorporated herein by reference
to
Exhibit 10.1(e) to our Current Report on Form 8-K, filed on April
10,
2007).
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10.5(e)
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First
Supplemental Indenture dated as of April 3, 2007, among
Covalence Specialty Materials Corp. (or its successor), the guarantors
identified on the signature pages thereto and Wells Fargo Bank,
National
Association, as trustee (incorporated herein by reference to Exhibit
10.1(f) to our Current Report on Form 8-K, filed on April 10,
2007).
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10.5(f)
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Second
Supplemental Indenture dated as of April 3, 2007, among
Covalence Specialty Materials Corp. (or its successor), Berry Plastics
Holding Corporation, the guarantors identified on the signature
pages
thereto and Wells Fargo Bank, National Association, as trustee
(incorporated herein by reference to Exhibit 10.1(g) to our Current
Report
on Form 8-K, filed on April 10, 2007).
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10.5(g)
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Second
Supplemental Indenture dated as of April 3, 2007, among Berry Plastics
Holding Corporation (or its successor), the existing guarantors
identified
on the signature pages thereto, the new guarantors identified on
the
signature pages thereto and Wells Fargo Bank, National Association,
as
trustee (incorporated herein by reference to Exhibit 10.1(h) to
our
Current Report on Form 8-K, filed on April 10, 2007).
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10.5(h)
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Second
Supplemental Indenture dated as of April 3, 2007, among Berry Plastics
Holding Corporation (or its successor), the existing guarantors
identified
on the signature pages thereto, the new guarantors identified on
the
signature pages thereto and Wells Fargo Bank, National Association,
as
trustee (incorporated herein by reference to Exhibit 10.1(i) to
our
Current Report on Form 8-K, filed on April 10, 2007).
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10.5(i)
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Supplement
No. 1 dated as of April 3, 2007 to the Collateral Agreement dated
as of
September 20, 2006 among Berry Plastics Holding Corporation, each
subsidiary identified therein as a party and Wells Fargo Bank,
National
Association, as collateral agent (incorporated herein by reference
to
Exhibit 10.1(j) to our Current Report on Form 8-K, filed on April
10,
2007).
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10.5(j)
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Employment
Agreement dated May 26, 2006 between Covalence Specialty Materials
Corp.
and Layle K. Smith (incorporated herein by reference to Exhibit
10.1(k) to
our Current Report on Form 8-K, filed on April 10, 2007).
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10.6
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Management
Agreement, among Berry Plastics Corporation, Berry Plastics Group,
Inc.,
Apollo Management VI, L.P., and Graham Partners, Inc., dated as
of
September 20, 2006. (incorporated herein by reference to our Registration
Statement Form S-4, filed on May 14,2007)
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10.7
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Termination
Agreement, by and among Covalence Specialty Materials Holding Corp.,
Covalence Specialty Materials Corp., and Apollo Management V, L.P.,
dated
as of April 3, 2007. (incorporated herein by reference to our Registration
Statement Form S-4, filed on May 14,2007)
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10.8
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2006
Equity Incentive Plan (incorporated herein by reference to Exhibit
10.8 to
our Registration Statement Form S-4, filed on November 2,
2006)
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10.9
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Form
of Performance-Based Stock Option Agreement of Berry Plastics Group,
Inc.
(incorporated herein by reference to Exhibit 10.9 to our Registration
Statement Form S-4, filed on November 2, 2006)
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10.10
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Form
of Accreting Stock Option Agreement of Berry Plastics Group, Inc.
(incorporated herein by reference to Exhibit 10.10 to our Registration
Statement Form S-4, filed on November 2, 2006)
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10.11
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Form
of Time-Based Stock Option Agreement of Berry Plastics Group, Inc.
(incorporated herein by reference to Exhibit 10.11 to our Registration
Statement Form S-4, filed on November 2, 2006)
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10.12
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Form
of Performance-Based Stock Appreciation Rights Agreement of Berry
Plastics
Group, Inc. (incorporated herein by reference to Exhibit 10.12
to our
Registration Statement Form S-4, filed on November 2,
2006)
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10.13
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Employment
Agreement, dated September 20, 2006, between Berry Plastics Corporation
and Ira G. Boots (incorporated herein by reference to Exhibit 10.13
to our
Registration Statement Form S-4, filed on November 2,
2006)
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10.14
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Employment
Agreement, dated September 20, 2006, between Berry Plastics Corporation
and James M. Kratochvil (incorporated herein by reference to Exhibit
10.14
to our Registration Statement Form S-4, filed on November 2,
2006)
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10.15
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Employment
Agreement, dated September 20, 2006, between Berry Plastics Corporation
and R. Brent Beeler (incorporated herein by reference to Exhibit
10.15 to
our Registration Statement Form S-4, filed on November 2,
2006)
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10.16
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Employment
Agreement, dated November 22, 1999 between Berry Plastics Corporation
and
G. Adam Unfried (incorporated herein by reference to Exhibit 10.23
of the
Company’s Current Annual Report on Form 10-K filed with the SEC on March
22, 2006).
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10.17
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Amendment
No. 1 to Employment Agreement, dated November 22, 1999 between
Berry
Plastics Corporation and G. Adam Unfried dated November 23, 2004
(incorporated herein by reference to Exhibit 10.24 of the Company’s
Current Annual Report on Form 10-K filed with the SEC on March
22,
2006).
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10.18
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Amendment
No. 2 to Employment Agreement, dated November 22, 1999 between
Berry
Plastics Corporation and G. Adam Unfried dated March 10, 2006
(incorporated herein by reference to Exhibit 10.25 of the Company’s
Current Annual Report on Form 10-K filed with the SEC on March
22,
2006).
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10.19
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Amendment
No. 3 to Employment Agreement, dated November 22, 1999 between
Berry
Plastics Corporation and G. Adam Unfried dated September 20, 2006.
(incorporated herein by reference to our Registration Statement
Form S-4,
filed on May 14,2007)
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10.20
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Employment
Agreement, dated October 4, 1996 between Berry Plastics Corporation
and
Randall J. Hobson (incorporated herein by reference to Exhibit
10.21 of
the Company’s Current Annual Report on Form 10-K filed with the SEC on
March 22, 2006).
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10.21
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Amendment
No. 1 to Employment Agreement, dated October 4, 1996, between Berry
Plastics Corporation and Randall J. Hobson, dated June 30, 2001
(incorporated herein by reference to Exhibit 10.22 of the Company’s
Current Annual Report on Form 10-K filed with the SEC on March
22,
2006).
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12.1*
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Computation
of Ratio of Earnings to Fixed Charges
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21.1*
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Subsidiaries
of the Registrant
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31.1*
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Rule
13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
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31.2*
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Rule
13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
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32.1*
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Section
1350 Certification of the Chief Executive Officer
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32.2*
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Section
1350 Certification of the Chief Financial Officer
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