Fiscal 2013 Annual Report
Year Ended September 28, 2013
Letter to Shareholders
As we progressed through fiscal year 2013, our first full year with public shareholders, we
As we progressed through fiscal year 2013, our first full year with public shareholders, we
As we progressed through fiscal year 2013, our first full year with public shareholders, we
f initiatives in support of our key strategies to drive shareholder value, including
continued our pursuit of initiatives in support of our key strategies to drive shareholder value, including
f initiatives in support of our key strategies to drive shareholder value, including
strengthening our balance sheet, growing our business organically, expanding into international markets,
strengthening our balance sheet, growing our business organically, expanding into international markets,
strengthening our balance sheet, growing our business organically, expanding into international markets,
and pursuing synergistic acquisitions. I am pleased to report tha
t once again, we demonstrated our ability
and pursuing synergistic acquisitions. I am pleased to report that once again, we demonstrated our ability
to generate significant cash flow through our broad portfolio of products, continual operating efficiency
to generate significant cash flow through our broad portfolio of products, continual operating efficiency
to generate significant cash flow through our broad portfolio of products, continual operating efficiency
improvements, and actions to reduce costs.
improvements, and actions to reduce costs.
000 regional and multi-national
Throughout the year, we worked closely with our more than 13,000 regional and multi
Throughout the year, we worked closely with our more than 13,
customers to provide them with innovative product solutions. Our strong customer relations and our
customers to provide them with innovative product solutions. Our strong customer relations and our
customers to provide them with innovative product solutions. Our strong customer relations and our
unique ability to utilize both rigid and flexible technologies has allowed us to maintain a proven track
unique ability to utilize both rigid and flexible technologies has allowed us to maintain a proven track
unique ability to utilize both rigid and flexible technologies has allowed us to maintain a proven track
record of delivering high-quality innovative solutions to meet not only our customers’ needs but also fill a
quality innovative solutions to meet not only our customers’ needs but also fill a
quality innovative solutions to meet not only our customers’ needs but also fill a
desire of the end consumer. Furthermore, our continual actions to optimize our manufacturing processes
desire of the end consumer. Furthermore, our continual actions to optimize our manufacturing processes
desire of the end consumer. Furthermore, our continual actions to optimize our manufacturing processes
materials, allowed us to maintain our
and leverage our scale to reduce expenses on items such as raw materials, allowed us to maintain our
and leverage our scale to reduce expenses on items such as raw
position as a low-cost manufacturer relative to our competitors. We believe that these factors working in
cost manufacturer relative to our competitors. We believe that these factors working in
cost manufacturer relative to our competitors. We believe that these factors working in
tandem throughout the year, allowed our segments to maintain leading positions in their respective
tandem throughout the year, allowed our segments to maintain leading positions in their respective
tandem throughout the year, allowed our segments to maintain leading positions in their respective
markets.
able to take advantage of attractive financial markets
I am also pleased that during 2013 we were able to take advantage of attractive financial markets
I am also pleased that during 2013 we
to improve our debt structure and lower overall interest. We also continued to expand the breadth of our
We also continued to expand the breadth of our
to improve our debt structure and lower overall interest
product line with the introduction of a host of new
and innovative products, one of our most exciting being
product line with the introduction of a host of new and innovative products, one of our most exciting being
Versalite™. Many of our new products should begin to have a positive impact for us over the next
Versalite™. Many of our new products should begin to have a positive impact for us over the next
Versalite™. Many of our new products should begin to have a positive impact for us over the next
several years. At the same time we were pursuing initiatives abroad, as we continued to build our
several years. At the same time we were pursuing initiatives abroad, as we continued to build our
several years. At the same time we were pursuing initiatives abroad, as we continued to build our
international presence through the pursuit of select investment opportunities in dynamic developing
ternational presence through the pursuit of select investment opportunities in dynamic developing
ternational presence through the pursuit of select investment opportunities in dynamic developing
markets. Moreover, continuing our track record of capturing synergistic acquisitions, we added two de-
markets. Moreover, continuing our track record of capturing synergistic acquisitions, we added two de
markets. Moreover, continuing our track record of capturing synergistic acquisitions, we added two de
e Label & Screen Inc. and certain bottling assets
leveraging acquisitions during the year, including Prime Label & Screen Inc. and certain bottling assets
leveraging acquisitions during the year, including Prim
from Vi-Jon, Inc.
As we look ahead to fiscal year 2014, we will continue competing and winning in our markets
As we look ahead to fiscal year 2014, we will continue competing and winning in our markets
As we look ahead to fiscal year 2014, we will continue competing and winning in our markets
through a relentless focus on building and strengthening our competitive advantages, by assembling the
through a relentless focus on building and strengthening our competitive advantages, by assem
through a relentless focus on building and strengthening our competitive advantages, by assem
best teams and focusing them on identifying and satisfying the unique needs of our customers. We are
best teams and focusing them on identifying and satisfying the unique needs of our customers. We are
best teams and focusing them on identifying and satisfying the unique needs of our customers. We are
proud of our team’s historical ability to differentiate ourselves from competitors. And, through our
proud of our team’s historical ability to differentiate ourselves from competitors. And, through our
proud of our team’s historical ability to differentiate ourselves from competitors. And, through our
we will continue to
consumer insights and dedication to custom
consumer insights and dedication to customer service, innovation, and quality - we will continue to
differentiate ourselves in the future.
differentiate ourselves in the future.
Most importantly, we remain optimistic about our ability to grow our business organically, while
Most importantly, we remain optimistic about our ability to grow our business organically, while
Most importantly, we remain optimistic about our ability to grow our business organically, while
generating strong shareholder returns, despite the predict
ion for the continued general economic
generating strong shareholder returns, despite the prediction for the continued general economic
challenges. In the year ahead, we see an abundance of opportunities in each of our segments. In our
challenges. In the year ahead, we see an abundance of opportunities in each of our segments. In our
challenges. In the year ahead, we see an abundance of opportunities in each of our segments. In our
pursuit of these opportunities, we will remain committed to our strategic initiatives and historical strengths
pursuit of these opportunities, we will remain committed to our strategic initiatives and historical strengths
pursuit of these opportunities, we will remain committed to our strategic initiatives and historical strengths
that have led to our previous successes and that will propel us in the future. At Berry Plastics, we
have led to our previous successes and that will propel us in the future. At Berry Plastics, we
have led to our previous successes and that will propel us in the future. At Berry Plastics, we
sincerely believe that the past is a preamble for our future. With our more than 15,000 employees, we
sincerely believe that the past is a preamble for our future. With our more than 15,000 employees, we
sincerely believe that the past is a preamble for our future. With our more than 15,000 employees, we
ive our results, achieve our goals, and deliver
are confident that our team members will continue to drive our results, achieve our goals, and deliver
are confident that our team members will continue to dr
positive returns for our shareholders, as they always have.
positive returns for our shareholders, as they always have.
Sincerely,
Jonathan D. Rich
Chairman and CEO
Total Stockholders Return Performance
The line graph below compares the performance of $100 investment in our Common Stock for
October 2012 (our initial public offering) through September 2013 with the performance of similar
investments in the Dow Jones U.S. Containers & Packaging Index and the Standard and Poor’s 500
Composite Stock Price Index, for the same period, assuming reinvestment of dividends.
$160
$150
$140
$130
$120
$110
$100
$90
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
S&P 500 Index
Dow Jones U.S. Containers & Packaging Index
Berry Plastics Group, Inc.
Corporate and Shareholder Information
CORPORATE HEADQUARTERS
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Berry Plastics Group, Inc.
101 Oakley Street
Evansville, Indiana 47710
812.424.2904
www.berryplastics.com
For Investor Relation Information, contact
Dustin Stilwell at 812.306.2964
Email: ir@berryplastics.com
ANNUAL MEETING OF
SHAREHOLDERS
The 2014 annual meeting of shareholders
will be held on March 11, 2014, at 10:00
a.m. Central Time, at
the Tropicana
Executive Conference Center, 450 NW
Riverside Dr., Evansville, Indiana 47708
REGISTRAR AND TRANSFER
AGENT
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
(800) 962-4284
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst and Young LLP
B. Evan Bayh
Former U.S. Senator and
Indiana Governor
Anthony M. Civale
Lead Partner and Chief
Operating Officer of Apollo
Capital Management, LLC
Donald C. Graham
Founder of The Graham Group
Joshua J. Harris
Senior Managing Director and
Chief Investment Officer of
Apollo Global Management,
LLC and Managing Partner of
Apollo Management, L.P.
David B. Heller
Former Global Co-Head of the
Securities Division at Goldman,
Sachs & Co.
Jonathan D. Rich
Chairman of the Board
and Chief Executive
Officer
Mark W. Miles
Chief Financial Officer
Curtis L. Begle
President, Rigid Closed
Top Division
Lawrence A. Goldstein
President, Flexible
Packaging Division
William J. Norman
President, Rigid Open
Top Division
Thomas E. Salmon
President, Engineered
Materials Division
Carl J. Rickertsten
Managing Partner of Pine
Creek Partners
Jason K. Greene
Executive Vice President
and General Counsel
Ronald S. Rolfe
Former Partner at Cravath,
Swaine & Moore LLP
Jeffrey D. Thompson
Executive Vice President,
International Business
Development
James M. Till
Executive Vice President
and Controller
Robert V. Seminara
Senior Partner of Apollo Global
Management, LLC
filed with
ADDITIONAL INFORMATION
financial and other
You can access
information about Berry Plastics Group,
Inc. at www.irberryplastics.com, including
press releases, Forms 10-K, 10-Q, and
8-K as
the Securities and
Exchange Commission; and information
on Corporate Governance such as
charters of Board Committees, our Code
of Business Ethics and Corporate
Governance Guidelines. You can also
request that any of these materials be
mailed to you at no charge by writing us
as the address above.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended
September 28, 2013
or
[ ]
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from
to
Commission File Number 001-35672
BERRY PLASTICS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
101 Oakley Street
Evansville, Indiana
(Address of principal executive offices)
Registrant’s telephone number, including area code: (812) 424-2904
Securities registered pursuant to Section 12(b) of the Act:
20-5234618
(IRS employer
identification number)
47710
(Zip code)
Title of Each Class
Common Stock, $0.01 par value per share
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.
Yes [ ] No [ X]
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days. Yes [X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes [ X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [ ]
Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, or non-accelerated filer. See definition of “accelerated filer
and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ X ]
Small reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes[ ]No[X]
The aggregate market value of the voting stock held by non-affiliates of the registrant on March 28, 2013 (the last trading day of the registrant’s most
recently completed second fiscal quarter), based upon the closing price of $19.05 of the registrant’s common stock as reported on the New York Stock
Exchange, was approximately $763 million. The calculation excludes shares of the registrant’s common stock held by current executive officers,
directors, and affiliates whose ownership exceeded 5% as of such date.
As of December 11, 2013, there were approximately 115,900,000 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Berry Plastics Group, Inc.’s Proxy Statement for its 2014 Annual Meeting of Stockholders are incorporated by reference into Part III of
this Annual Report on Form 10-K.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-K for the fiscal period ending September 28, 2013, (“fiscal 2013”) and comparable periods September 29,
2012, (“fiscal 2012”) and October 1, 2011, (“fiscal 2011”) contains “forward-looking statements” which involve risks and
uncertainties and are presented pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,”
“should,” “would,” “could,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “anticipates.” “outlook,” or “looking
forward” or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our
estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our
expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior
management, from time to time make forward-looking public statements concerning our expected future operations and
performance and other developments. These forward-looking statements are subject to risks and uncertainties that may
change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of
our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions.
While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known
factors, and it is impossible for us to anticipate all factors that could affect our actual results.
Important factors that could cause actual results to differ materially from our expectations, which we refer to as cautionary
statements, are disclosed under “Risk Factors” and elsewhere in this Form 10-K, including, without limitation, in conjunction
with the forward-looking statements included in this Form 10-K. All forward-looking information and subsequent written
and oral forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their
entirety by the cautionary statements. Some of the factors that we believe could affect our results include:
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risks associated with our substantial indebtedness and debt service;
changes in prices and availability of resin and other raw materials and our ability to pass on changes in raw material
prices on a timely basis;
performance of our business and future operating results;
risks related to our acquisition strategy and integration of acquired businesses;
reliance on unpatented know-how and trade secrets;
increases in the cost of compliance with laws and regulations, including environmental, safety, and production and
product laws and regulations;
risks related to disruptions in the overall economy and the financial markets may adversely impact our business;
catastrophic loss of one of our key manufacturing facilities, natural disasters, and other unplanned business
interruptions;
risks of competition, including foreign competition, in our existing and future markets;
general business and economic conditions, particularly an economic downturn;
risks that our restructuring programs may entail greater implementation costs or result in lower costs savings than
anticipated;
the ability of our insurance to cover fully our potential exposures; and
the other factors discussed in the section of this Form 10-K titled “Risk Factors.”
We caution you that the foregoing list of important factors may not contain all of the material factors that are important to
you. Accordingly, investors should not place undue reliance on those statements. All forward-looking statements are based
upon information available to us on the date of this report. We undertake no obligation to publicly update or revise any
forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
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TABLE OF CONTENTS
FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 28, 2013
Page
Item 1
BUSINESS
Item 1A. RISK FACTORS
Item 1B.
UNRESOLVED STAFF COMMENTS
Item 2.
Item 3.
Item 4.
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
PART I
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
Item 6
Item 7.
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8.
Item 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Item 9A. CONTROLS AND PROCEDURES
Item 9B. OTHER INFORMATION
PART III
Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11.
EXECUTIVE COMPENSATION
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
Item 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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14
15
15
16
17
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30
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Item 1. BUSINESS
(In millions of dollars, except as otherwise noted)
General
Berry Plastics Group, Inc. (“Berry” or the “Company”) is a leading provider of value-added plastic consumer packaging and
engineered materials with a track record of delivering high-quality customized solutions to our customers. Our products
utilize our proprietary research and development platform, which includes a continually evolving library of Berry-owned
molds, patents, manufacturing techniques and technologies. We sell our solutions predominantly into consumer-oriented end-
markets, such as food and beverage, healthcare, and personal care. We believe our customers look to us for solutions that
have high consumer impact in terms of form, function, and branding. Representative examples of our products include drink
cups, thin-wall containers, bottles, specialty closures, prescription vials, specialty films, tape products, and corrosion
protection materials.
We believe that we have created one of the largest product libraries in our industry, allowing us to be a comprehensive
solution provider to our customers. We have more than 13,000 customers, which consist of a diverse mix of leading national,
mid-sized regional and local specialty businesses. The size and scope of our customer network allows us to introduce new
products we develop or acquire to a vast audience that is familiar with, and we believe partial to, our brand. In fiscal 2013, no
single customer represented more than 3% of net sales and our top ten customers represented 18% of net sales. We believe
our manufacturing processes and our ability to leverage our scale to reduce expenses on items, such as raw materials, position
us as a low-cost manufacturer relative to our competitors. For example, we believe based on management estimates that we
are one of the largest global purchasers of plastic resins, at more than 2 billion pounds per year, which gives us scaled
purchasing savings.
We organize our business into four operating divisions: Rigid Open Top, Rigid Closed Top, (which together make up our
Rigid Packaging business), Engineered Materials, and Flexible Packaging. Additional financial information about our
business segments is provided in “Management's Discussion and Analysis of Financial Condition and Results of Operations”
and the “Notes to Consolidated Financial Statements,” which are included elsewhere in this Form 10-K.
Recent Acquisitions
Prime Label
In October 2012, the Company acquired 100% of the shares of Prime Label and Screen Incorporated (“Prime Label”) for a
purchase price of $20 million. Prime Label is a leader in specialty re-sealable labels, including a patented rigid lens closure
system. The newly added business is operated in the Company’s Flexible Packaging reporting segment. To finance the
purchase, the Company used cash on hand and existing credit facilities. The Prime Label acquisition has been accounted for
under the purchase method of accounting, and accordingly, the preliminary purchase price has been allocated to the
identifiable assets and liabilities based on estimated fair values at the acquisition date. The Company has recognized goodwill
on this transaction as a result of expected synergies. A portion of the goodwill will not be deductible for tax purposes.
Graphic Packaging
On September 30, 2013, the Company acquired Graphic Packaging’s flexible plastics and films business (“Graphic”) for a
purchase price of $62 million. Graphic is a producer of wraps, films, pouches, and bags for the food, medical, industrial,
personal care, and pet food markets. The newly acquired business will be operated in the Company’s Flexible Packaging
Division. To finance the purchase, the Company used cash on hand and existing credit facilities. The Graphic acquisition
will be accounted for under the purchase method of accounting, and accordingly, the purchase price will be allocated to the
identifiable assets and liabilities based on estimated fair values at the acquisition date.
Recent Developments
Initial Public Offering
In October 2012, the Company completed an initial public offering and sold 29,411,764 shares of common stock at a public
offering price of $16.00 per share. In conjunction with the initial public offering the Company executed a 12.25 for one stock
split of the Company’s common stock. The effect of the stock split on outstanding shares and earnings per share has been
retroactively applied to all periods presented. Transaction fees totaling $33 million were included in Paid-in capital on the
Consolidated Balance Sheets. Proceeds, net of transaction fees, of $438 million and cash from operations were used to
3
repurchase $455 million of 11% Senior Subordinated Notes due September 2016. As part of the repurchase the Company
paid premiums of $13 million and wrote-off $3 million of deferred financing fees.
Tax Receivable Agreement
In connection with the initial public offering, the Company entered into an income tax receivable agreement ("TRA") that
provides for the payment to pre-initial public offering stockholders, option holders and holders of our stock appreciation
rights, 85% of the amount of cash savings, if any, in U.S. federal, foreign, state and local income tax that are actually realized
(or are deemed to be realized in the case of a change of control) as a result of the utilization of our and our subsidiaries’ net
operating losses attributable to periods prior to the initial public offering. The Company expects to pay between $313 million
and $360 million in cash related to this agreement. This range is based on the Company's assumptions using various items,
including valuation analysis and current tax law. The Company recorded an obligation of $313 million which was recognized
as a reduction of Paid-in capital on the Consolidated Balance Sheets. Changes in the estimated TRA obligation will be
recorded as Other expense (income) in the Consolidated Statement of Operations. Payments under the TRA are not
conditioned upon the parties' continued ownership of the Company’s common stock. The balance at the end of fiscal 2013
was $308 million. During fiscal 2013, the Company made $5 million of payments related to the TRA with an additional $32
million being paid in the first fiscal quarter of 2014.
Incremental Term Loan
In February 2013, the Company entered into an incremental assumption agreement to increase the commitments under Berry
Plastics Corporation’s existing term loan credit agreement by $1.4 billion. Berry Plastics Corporation borrowed loans in an
aggregate principal amount equal to the full amount of the commitments on such date. The incremental term loans bear
interest at LIBOR plus 2.50% per annum with a LIBOR floor of 1.00%, matures in February 2020 and are subject to
customary amortization. The proceeds from the incremental term loan, in addition to borrowings under the revolving credit
facility, were used to (a) satisfy and discharge all of Berry Plastics Corporation’s outstanding (i) Second Priority Senior
Secured Floating Rate Notes due 2014, (ii) First Priority Senior Secured Floating Rate Notes due 2015, (iii) 101⁄4% Senior
Subordinated Notes due 2016 and (iv) 81⁄4% First Priority Senior Secured Notes due 2015, which, in each case, were called
for redemption in February 2013 and the related indentures and (b) pay related fees and expenses. The Company recognized a
$48 million loss on extinguishment of debt related to this debt refinancing.
Interest Rate Swap
In February 2013, the Company entered into an interest rate swap transaction to protect $1 billion of outstanding variable rate
term loan debt from future interest rate volatility. The agreement swapped the greater of a three-month variable LIBOR
contract or 1.00% for a fixed three-year rate of 2.355%, with an effective date in May 2016 and expiration in May 2019. In
June 2013, the Company elected to settle this derivative instrument and received $16 million as a result of this settlement.
The offset is included in Accumulated other comprehensive loss and Deferred income taxes and will be amortized to Interest
expense from May 2016 through May 2019, the original term of the swap agreement.
Secondary Public Offerings
In April 2013, we completed a secondary public offering in which certain funds affiliated with Apollo Global
Management, LLC (“Apollo”) and Graham Partners (“Graham”) sold 18,975,000 shares of common stock at $17.00 per
share, which included 2,475,000 shares purchased by the underwriters upon the exercise in full of their option to purchase
additional shares. The selling stockholders received proceeds from the offering, which, net of underwriting fees, totaled
$311 million. The Company received no proceeds and incurred fees of $1 million related to this offering.
In July 2013, we completed a secondary public offering in which certain funds affiliated with Apollo and Graham sold
17,250,000 shares of common stock at $21.63 per share, which included 2,250,000 shares purchased by the underwriters
upon the exercise in full of their option to purchase additional shares. The selling stockholders received proceeds from the
offering, which, net of underwriting fees, totaled $360 million. The Company received no proceeds and incurred fees of
$1 million related to this offering.
Option Modification
In August 2013, the Company recorded an $8 million stock compensation charge related to certain modifications to the Berry
Plastics Group Inc. 2006 Equity Incentive Plan and the Berry Plastics Group, Inc. 2012 Long-Term Incentive Plan
(collectively, the "Plans"). The modifications include (i) accelerated vesting of all unvested options upon an employee's death
or termination by the Company by reason of an employee’s permanent disability, (ii) in the event of an employee's qualified
retirement, continuation of the normal vesting period applicable to the retiree's unvested options, as well as an extension of
the exercise period to the end of the original ten-year term of the retiree's vested options and (iii) all unvested options and
4
stock appreciation rights that were subject to performance-based vesting criteria as of January 1, 2013 (excluding certain IRR
performance-based options) were modified to time-based vesting.
2014 Cost Reduction Plan
In November, the Company initiated a cost reduction plan designed to deliver meaningful cost savings and optimal equipment
utilization. This plan will result in several plant rationalizations. The costs associated with this plan will primarily consist of
one-time costs associated with facility consolidation, including severance and termination benefits for employees of
approximately $6 million, other costs associated with exiting facilities of approximately $30 million and non-cash asset
impairment charges of approximately $11 million. In addition, as part of this cost reduction plan the Company estimates it
will incur capital expenditures of approximately $13 million. Overall these facility restructuring programs are projected to
generate approximately $27 million of annual operating savings when fully implemented. These amounts are preliminary
estimates based on the information currently available to management. The plan is expected to be fully implemented by the
end of fiscal 2014.
Product Overview
Rigid Packaging
Our Rigid Packaging business primarily consists of containers, foodservice items, closures, overcaps, bottles, prescription
containers, and tubes. The largest end uses for our packages are consumer-oriented end markets such as food and beverage,
retail mass marketers, healthcare, personal care and household chemical. Many of our products are manufactured from
proprietary molds that we develop and own, which we believe would result in significant costs to our customers to switch to a
different supplier. In addition to a complete product line, we have sophisticated decorating capabilities and in-house graphic
arts and tooling departments, which allow us to integrate ourselves into, and, we believe, add significant value to, our
customers’ packaging design processes. Our primary competitors include Airlite, Letica, Polytainers, Silgan, Aptar Group,
and Reynolds. These competitors individually only compete on certain of our products, whereas we offer the entire selection
of rigid products described below.
Containers. We manufacture a collection of nationally branded container products and also seek to develop customized
container products for niche applications by leveraging of our state-of-the-art design, decoration and graphic arts capabilities.
We believe this mix allows us to both achieve significant economies of scale, while also maintaining an attractive portfolio of
specialty products. Our container capacities range from four ounces to five gallons and are offered in various styles with
accompanying lids, bails and handles, some of which we produce, as well as a wide array of decorating options. We have
long-standing supply relationships with many of the nation’s leading food and consumer products companies.
Foodservice. We believe that we are one of the largest providers of large size thermoformed polypropylene (“PP”) and
injection-molded plastic drink cups in the United States. Our thermoform process uses PP instead of more expensive
materials in producing deep draw drink cups to generate a cup with a competitive cost advantage. Additionally, we produce
injection-molded plastic cups that range in size from 12 to 64 ounces. Primary markets for our plastic drink cups are quick
service and family dining restaurants, convenience stores, stadiums and retail stores. Many of our cups are decorated, often as
promotional items, and we believe we have a reputation in the industry for innovative, state-of-the-art graphics.
Closures and Overcaps. We believe we are a leading producer of closures and overcaps across several of our product lines,
including continuous-thread and child-resistant closures, as well as aerosol overcaps. We currently sell our closures into
numerous end markets, including vitamin/nutritional, chemical, healthcare, food/beverage, specialty and personal care. In
addition to traditional closures, we are a provider of a wide selection of custom closure solutions including fitments and plugs
for medical applications, cups and spouts for liquid laundry detergent, and dropper bulb assemblies for medical and personal
care applications. Further, we believe that we are the leading domestic producer of injection-molded aerosol overcaps. Our
aerosol overcaps are used in a wide variety of consumer goods including spray paints, household and personal care products,
insecticides and numerous other commercial and consumer products. We believe our technical expertise and manufacturing
capabilities provide us a low-cost position that has allowed us to become a leading provider of high-quality closures and
overcaps to a diverse set of leading companies. We believe our manufacturing advantage is driven by our position on the
forefront of various technologies, including the latest in single- and bi-injection processes, precise reproduction of colors,
automation and vision technology, and proprietary packing technology that minimizes freight cost and warehouse space. A
majority of our overcaps and closures are manufactured from proprietary molds, which we design, develop, and own. In
addition to these molds, we utilize state-of-the art lining, assembly, and decorating equipment to enhance the value and
performance of our products in the market.
Bottles and Prescription Containers. Our bottle and prescription container businesses target markets similar to our closure
business. We believe, based on management estimates, that we are the leading supplier of spice containers in the United
States and have a leadership position in various food and beverage, vitamin and nutritional markets, as well as selling bottles
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into prescription and pharmaceutical applications. Additionally, we believe we are a leading supplier in the prescription
container market, supplying a complete line of amber containers with both one-piece and two-piece child-resistant closures.
We offer an extensive line of stock polyethylene (“PE”) and polyethylene terephthalate (“PET”) bottles for the vitamin and
nutritional markets. Our design capabilities, along with internal engineering strength give us the ability to compete on
customized designs to provide desired differentiation from traditional packages. We also offer our customers decorated
bottles with hot stamping, silk screening and labeling. We sell these products to personal care, pharmaceutical, food and
consumer product customers.
Tubes. We offer a complete line of extruded and laminate tubes in a wide variety of sizes. We believe that we are one of the
largest suppliers of extruded plastic squeeze tubes in the United States. Our focus and investments are made to ensure that we
are able to meet the increasing trend towards large diameter tubes with high-end decoration. We have several proprietary
designs in this market that combine tube and closure that we believe are viewed as very innovative both in appearance and
functionality, as well as from a sustainability standpoint. The majority of our tubes are sold in the personal care market,
focusing on products like facial/cold creams, shampoos, conditioners, bath/shower gels, lotions, sun care, hair gels, and anti-
aging creams. We also sell our tubes into the pharmaceutical and household chemical markets. We believe that our ability to
provide creative package designs, combined with a complementary line of closures, makes us a preferred supplier for many
customers in our target markets.
Engineered Materials
Our Engineered Materials business primarily consists of pipeline corrosion protection solutions, tapes and adhesives, PE-
based film products and can liners. Our primary competitors include AEP, Canusa, Sigma and 3M. The Engineered
Materials business primarily includes the following product groups:
Corrosion Protection Products. We believe we are a leading global producer of anti-corrosion products to infrastructure,
rehabilitation and new pipeline projects throughout the world. We believe our products deliver superior performance across
all climates and terrains for the purpose of sealing, coupling, and rehabilitation and corrosion protection of pipelines.
Products include heat-shrinkable coatings, single- and multi-layer sleeves, pipeline coating tapes, anode systems for cathodic
protection, visco-elastic, and epoxy coatings. These products are used in oil, gas, and water supply and construction
applications. Our customers primarily include contractors managing discrete construction projects around the world as well
as distributors and applicators.
Tape Products. We believe we are a leading North American manufacturer of cloth and foil tape products. Other tape
products include high-quality, high-performance liners of splicing and laminating tapes, flame-retardant tapes, vinyl-coated
and carton sealing tapes, electrical, double-faced cloth, masking, mounting, OEM, and medical and specialty tapes. These
products are sold under the NationalTM, Nashua®, and Polyken® brands in the United States. Tape products are sold
primarily through distributors and directly to end users and are used predominantly in industrial, HVAC, automotive,
construction, and retail market applications. In addition to serving our core tape end markets, we believe we are also a
leading producer of tapes in the niche aerospace, construction and medical end markets. We believe that our success in
serving these additional markets is principally due to a combination of technical and manufacturing expertise leveraged in
favor of customized applications.
Retail Bags. We manufacture and sell a diversified portfolio of PE-based film products to end users in the retail markets.
These products are sold under leading brands such as Ruffies® and Film-Gard®. Our products include drop cloths and retail
trash bags. These products are sold primarily through wholesale outlets, hardware stores and home centers, paint stores, and
mass merchandisers.
PVC Films. We believe, based on management estimates, that we are a world leader in PVC films offering a broad array of
PVC meat film. Our products are used primarily to wrap fresh meats, poultry, and produce for supermarket applications. In
addition, we offer a line of boxed products for food service and retail sales. We service many of the leading supermarket
chains, club stores, and wholesalers. We believe we are a leading innovator and specialize in lighter gauge sustainable
solutions like our recent Revolution™ product line offering.
Institutional Can Liners. We sell trash-can liners and food bags for offices, restaurants, schools, hospitals, hotels,
municipalities, and manufacturing facilities. We also sell products under the Big City®, Hospi-Tuff®, Plas-Tuff®, Rhino-
X®, and Steel-Flex® brands.
Stretch Films. We produce both hand and machine-wrap stretch films, which are used by end users to wrap products and
packages for storage and shipping. We sell stretch film products to distributors, retail, and industrial end users under the
MaxTech® and PalleTech® brands.
Flexible Packaging
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Our Flexible Packaging division consists of high barrier, multilayer film products as well as finished flexible packages such
as printed bags and pouches. The largest end uses for our flexible products are consumer-oriented end markets such as food
and beverage, medical, and personal care. Our primary competitors include Printpak, Tredegar, and Bemis. The Flexible
Packaging division includes the following product groups:
Barrier/Sealant Films. We manufacture and sell a wide range of highly specialized, made-to-order film products ranging
from mono layer to coextruded films having up to nine layers, lamination films sold primarily to flexible packaging
converters and used for peelable lid stock, stand-up pouches, pillow pouches, and other flexible packaging formats. We also
manufacture barrier films used for cereal, cookie, cracker, and dry mix packages that are sold directly to food manufacturers.
We also manufacture films for specialized industrial applications ranging from lamination film for carpet padding to films
used in solar panel construction.
Personal Care Films. We believe we are a major supplier of component and packaging films used for personal care hygiene
applications predominantly sold in North America and Latin America. The end use applications include disposable baby
diapers, feminine care, adult incontinence, hospital, and tissue and towel products. Our “Lifetime of Solutions™” approach
promotes an innovation pipeline that seeks to integrate both product and equipment design into leading edge customer and
consumer solutions.
Printed Products. We are a converter of printed bags, pouches, and rollstock. Our manufacturing base includes integrated
extrusion that combines with printing, laminating, bagmaking, Innolok®, and laser-score converting processes. We believe
we are a leading supplier of printed film products for the fresh bakery, tortilla, and frozen vegetable markets with brands such
as SteamQuick® Film, Freshview™ bags, and Billboard™.
Coated and Laminated Packaging. We manufacture specialty coated and laminated products for a wide variety of packaging
applications. The key end markets and applications for our products include food, consumer, healthcare, industrial and
military pouches, roll wrap, multi-wall bags, and fiber drum packaging. Our products are sold under the MarvelGuard™ and
MarvelSeal™ brands and are predominately sold to converters who transform them into finished goods.
Marketing and Sales
We reach our large and diversified base of over 13,000 customers through our direct field sales force of dedicated
professionals and the strategic use of distributors. Our field sales, production and support staff meet with customers to
understand their needs and improve our product offerings and services. Our scale enables us to dedicate certain sales and
marketing efforts to particular products, customers or geographic regions, when applicable, which enables us to develop
expertise that we believe is valued by our customers. In addition, because we serve common customers across segments, we
have the ability to efficiently utilize our sales and marketing resources to minimize costs. Highly skilled customer service
representatives are strategically located throughout our facilities to support the national field sales force. In addition, inside
sales representatives, marketing managers, and sales/marketing executives oversee the marketing and sales efforts.
Manufacturing and engineering personnel work closely with field sales personnel and customer service representatives to
satisfy customers’ needs through the production of high-quality, value-added products and on-time deliveries.
We believe that we have differentiated ourselves from competitors by building a reputation for high-quality products,
customer service and innovation. Our sales team monitors customer service in an effort to ensure that we remain the primary
supplier for our key accounts. This strategy requires us to develop and maintain strong relationships with our customers,
including end users as well as distributors and converters. We have a technical sales team with significant knowledge of our
products and processes, particularly in specialized products. This knowledge enables our sales and marketing team to work
closely with our research and development organization and our customers to co-develop products and formulations to meet
specific performance requirements. This partnership approach enables us to further expand our relationships with our existing
customer base, develop relationships with new customers and increase sales of new products.
Research, Product Development and Design
We believe our technology base and research and development support are among the best in the plastics packaging industry.
Using three-dimensional computer-aided design technologies, our full-time product designers develop innovative product
designs and models for the packaging market. We can simulate the molding environment by running pilot systems for
injection-molding, thermoform, compression blow molding machines and blown and cast film machines for research and
development of new products. Production molds are then designed and outsourced for production by various companies with
which we have extensive experience and established relationships or built by our in-house tooling division located in
Evansville, Indiana. Our engineers oversee the mold-building process from start to finish. Many of our customers work in
partnership with our technical representatives to develop new, more competitive products. We have enhanced our
relationships with these customers by providing the technical service needed to develop products combined with our internal
graphic arts support. We also utilize our in-house graphic design department to develop color and styles for new rigid
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products. Our design professionals work directly with our customers to develop new styles and use computer-generated
graphics to enable our customers to visualize the finished product.
Additionally, at our major technical centers, including the Berry Research and Design Center in Evansville, Indiana, as well
as facilities in Lancaster, Pennsylvania; Franklin, Kentucky; and Chippewa Falls, Wisconsin; we prototype new ideas,
conduct research and development of new products and processes, and qualify production systems that go directly to our
facilities and into production. With this combination of manufacturing simulation and quality systems support we are able to
improve time to market and reduce cost. We spent $28 million, $25 million, and $20 million on research and development in
fiscal 2013, 2012 and 2011, respectively.
Sources and Availability of Raw Materials
The most important raw material purchased by us is plastic resin. Our plastic resin purchasing strategy is to conduct business
with only high-quality, dependable suppliers. We believe that we have maintained strong relationships with our key suppliers
and expect that such relationships will continue into the foreseeable future. The resin market is a global market and, based on
our experience, we believe that adequate quantities of plastic resins will be available at market prices, but we can provide no
assurances as to such availability or the prices thereof.
We also purchase various other materials, including natural and butyl rubber, tackifying resins, chemicals and adhesives,
paper and packaging materials, polyester staple, raw cotton, linerboard and kraft, woven and non-woven cloth, and foil. These
materials are generally available from a number of suppliers.
Employees
At the end of fiscal 2013, we employed over 15,000 employees. Approximately 12% of our employees are covered by
collective bargaining agreements. One of our ten agreements, covering approximately 30 employees, which was scheduled
for renegotiation in fiscal 2013 is still being renegotiated. The remaining agreements expire after fiscal 2013. Our relations
with employees remain satisfactory and there have been no significant work stoppages or other labor disputes during the past
three years.
Patents, Trademarks and Other Intellectual Property
We rely on a combination of patents, trade secrets, unpatented know-how, trademarks, copyrights and other intellectual
property rights, nondisclosure agreements and other protective measures to protect our proprietary rights. While we consider
our intellectual property to be important to our business in the aggregate, we do not believe that any individual item of our
intellectual property portfolio is material to our current business. The remaining duration of our patents ranges from one to
approximately 20 years.
We employ various methods, including confidentiality and non-disclosure agreements with third parties, employees and
consultants, to protect our trade secrets and know-how. We have licensed, and may license in the future, patents, trademarks,
trade secrets, and similar proprietary rights to and from third parties.
Environmental Matters and Government Regulation
Our past and present operations and our past and present ownership and operations of real property are subject to extensive
and changing federal, state, local, and foreign environmental laws and regulations pertaining to the discharge of materials into
the environment, handling and disposition of wastes, and cleanup of contaminated soil and ground water, or otherwise
relating to the protection of the environment. We believe that we are in substantial compliance with applicable environmental
laws and regulations. However, we cannot predict with any certainty that we will not in the future incur liability, which could
be significant under environmental statutes and regulations with respect to noncompliance with environmental laws,
contamination of sites formerly or currently owned or operated by us (including contamination caused by prior owners and
operators of such sites) or the off-site disposal of regulated materials, which could be material.
We may from time to time be required to conduct remediation of releases of regulated materials at our owned or operated
facilities. None of our pending remediation projects are expected to result in material costs. Like any manufacturer, we are
also subject to the possibility that we may receive notices of potential liability in connection with materials that were sent to
third-party recycling, treatment, and/or disposal facilities under the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (“CERCLA”), and comparable state statutes, which impose liability for
investigation and remediation of contamination without regard to fault or the legality of the conduct that contributed to the
contamination, and for damages to natural resources. Liability under CERCLA is retroactive, and, under certain
circumstances, liability for the entire cost of a cleanup can be imposed on any responsible party. No such notices are
currently pending which are expected to result in material costs.
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The Food and Drug Administration (“FDA”) regulates the material content of direct-contact food and drug packages,
including certain packages we manufacture pursuant to the Federal Food, Drug and Cosmetics Act. Certain of our products
are also regulated by the Consumer Product Safety Commission (“CPSC”) pursuant to various federal laws, including the
Consumer Product Safety Act and the Poison Prevention Packaging Act. Both the FDA and the CPSC can require the
manufacturer of defective products to repurchase or recall such products and may also impose fines or penalties on the
manufacturer. Similar laws exist in some states, cities and other countries in which we sell our products. In addition, laws
exist in certain states restricting the sale of packaging with certain levels of heavy metals, imposing fines and penalties for
noncompliance. Although we believe that we use FDA approved resins and pigments in our products that directly contact
food and drug products and believe they are in material compliance with all such applicable FDA regulations, and we believe
our products are in material compliance with all applicable requirements, we remain subject to the risk that our products could
be found not to be in compliance with such requirements.
The plastics industry, including us, is subject to existing and potential federal, state, local and foreign legislation designed to
reduce solid wastes by requiring, among other things, plastics to be degradable in landfills, minimum levels of recycled
content, various recycling requirements, disposal fees, and limits on the use of plastic products. In particular, certain states
have enacted legislation requiring products packaged in plastic containers to comply with standards intended to encourage
recycling and increased use of recycled materials. In addition, various consumer and special interest groups have lobbied
from time to time for the implementation of these and other similar measures. We believe that the legislation promulgated to
date and such initiatives to date have not had a material adverse effect on us. There can be no assurance that any such future
legislative or regulatory efforts or future initiatives would not have a material adverse effect on us.
Available Information
We make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments, if any, to those reports through our internet website as soon as practicable after they have been
electronically filed with or furnished to the SEC. Our internet address is www.berryplastics.com. The information contained
on our website is not being incorporated herein.
Item 1A. RISK FACTORS
Our substantial indebtedness could affect our ability to meet our obligations and may otherwise restrict our activities.
We have a significant amount of indebtedness. As of the end of 2013 fiscal year, we had total indebtedness (including current
portion) of $3,946 million with cash and cash equivalents totaling $142 million. We would have been able to borrow a
further $531 million under the revolving portion of our senior secured credit facilities, subject to the solvency of our lenders
to fund their obligations and our borrowing base calculations. We are permitted by the terms of our debt instruments to incur
substantial additional indebtedness, subject to the restrictions therein. Our inability to generate sufficient cash flow to satisfy
our debt obligations, or to refinance our obligations on commercially reasonable terms, would have a material adverse effect
on our business, financial condition and results of operations.
Our substantial indebtedness could have important consequences. For example, it could:
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limit our ability to borrow money for our working capital, capital expenditures, debt service requirements or other
corporate purposes;
require us to dedicate a substantial portion of our cash flow to payments on our indebtedness, which would reduce the
amount of cash flow available to fund working capital, capital expenditures, product development and other corporate
requirements;
increase our vulnerability to general adverse economic and industry conditions; and
limit our ability to respond to business opportunities, including growing our business through acquisitions.
In addition, the credit agreements and indentures governing our current indebtedness contain, and any future debt instruments
would likely contain, financial and other restrictive covenants, which will impose significant operating and financial
restrictions on us, including restrictions on our ability to, among other things:
incur or guarantee additional debt;
pay dividends and make other restricted payments;
create or incur certain liens;
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• make certain investments;
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engage in sales of assets and subsidiary stock;
enter into transactions with affiliates;
transfer all or substantially all of our assets or enter into merger or consolidation transactions; and
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• make capital expenditures.
As a result of these covenants, we will be limited in the manner in which we conduct our business, and we may be unable to
engage in favorable business activities or finance future operations or capital needs. Furthermore, a failure to comply with
these covenants could result in an event of default, which, if not cured or waived, could have a material adverse effect on our
business, financial condition, and results of operations.
Increases in resin prices or a shortage of available resin could harm our financial condition and results of operations.
To produce our products, we use large quantities of plastic resins. Plastic resins are subject to price fluctuations, including
those arising from supply shortages and changes in the prices of natural gas, crude oil and other petrochemical intermediates
from which resins are produced. Over the past several years, we have at times experienced rapidly increasing resin prices. If
rapid increases in resin prices continue, our revenue and profitability may be materially and adversely affected, both in the
short term as we attempt to pass through changes in the price of resin to customers under current agreements and in the long
term as we negotiate new agreements or if our customers seek product substitution.
We source plastic resin primarily from major industry suppliers. We have long-standing relationships with certain of these
suppliers but have not entered into a firm supply contract with any of them. We may not be able to arrange for other sources
of resin in the event of an industry-wide general shortage of resins used by us, or a shortage or discontinuation of certain types
of grades of resin purchased from one or more of our suppliers. In addition, the largest supplier of the Company’s total resin
material requirements represented approximately 20% of purchases during fiscal 2013. Any such shortage may materially
negatively impact our competitive position versus companies that are able to better or more cheaply source resin.
We may not be able to compete successfully and our customers may not continue to purchase our products.
We face intense competition in the sale of our products and compete with multiple companies in each of our product lines.
We compete on the basis of a number of considerations, including price, service, quality, product characteristics and the
ability to supply products to customers in a timely manner. Our products also compete with metal, glass, paper and other
packaging materials as well as plastic packaging materials made through different manufacturing processes. Some of these
competitive products are not subject to the impact of changes in resin prices which may have a significant and negative
impact on our competitive position versus substitute products. Our competitors may have financial and other resources that
are substantially greater than ours and may be better able than us to withstand higher costs. In addition, our success may
depend on our ability to adapt to technological changes, and if we fail to enhance existing products and develop and introduce
new products and new production technologies in a timely fashion in response to changing market conditions and customer
demands, our competitive position could be materially and adversely affected. Furthermore, some of our customers do and
could in the future choose to manufacture the products they require for themselves. Each of our product lines faces a different
competitive landscape. Competition could result in our products losing market share or our having to reduce our prices, either
of which would have a material adverse effect on our business and results of operations and financial condition. In addition,
since we do not have long-term arrangements with many of our customers, these competitive factors could cause our
customers to shift suppliers and/or packaging material quickly.
We may pursue and execute acquisitions, which could adversely affect our business.
As part of our growth strategy, we plan to consider the acquisition of other companies, assets and product lines that either
complement or expand our existing business and create economic value. We cannot assure you that we will be able to
consummate any such transactions or that any future acquisitions will be consummated at acceptable prices and terms.
We continually evaluate potential acquisition opportunities in the ordinary course of business, including those that could be
material in size and scope. Acquisitions involve a number of special risks, including:
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the diversion of management’s attention and resources to the assimilation of the acquired companies and their employees
and to the management of expanding operations;
the incorporation of acquired products into our product line;
problems associated with maintaining relationships with employees and customers of acquired businesses;
the increasing demands on our operational systems;
ability to integrate and implement effective disclosure controls and procedures and internal controls for financial
reporting within the allowable time frame as permitted by Sarbanes-Oxley Act;
possible adverse effects on our reported operating results, particularly during the first several reporting periods after such
acquisitions are completed; and
the loss of key employees and the difficulty of presenting a unified corporate image.
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We may become responsible for unexpected liabilities that we failed or were unable to discover in the course of performing
due diligence in connection with historical acquisitions and any future acquisitions. We have typically required selling
stockholders to indemnify us against certain undisclosed liabilities. However, we cannot assure you that indemnification
rights we have obtained, or will in the future obtain, will be enforceable, collectible or sufficient in amount, scope or duration
to fully offset the possible liabilities associated with the business or property acquired. Any of these liabilities, individually or
in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.
In addition, we may not be able to successfully integrate future acquisitions without substantial costs, delays or other
problems. The costs of such integration could have a material adverse effect on our operating results and financial condition.
Although we conduct what we believe to be a prudent level of investigation regarding the businesses we purchase, in light of
the circumstances of each transaction, an unavoidable level of risk remains regarding the actual condition of these businesses.
Until we actually assume operating control of such businesses and their assets and operations, we may not be able to ascertain
the actual value or understand the potential liabilities of the acquired entities and their operations. Furthermore, we may not
realize all of the cost savings and synergies we expect to achieve from our current strategic initiatives due to a variety of risks,
including, but not limited to, difficulties in integrating shared services with our business, higher than expected employee
severance or retention costs, higher than expected overhead expenses, delays in the anticipated timing of activities related to
our cost-saving plans and other unexpected costs associated with operating our business. If we are unable to achieve the cost
savings or synergies that we expect to achieve from our strategic initiatives, it could adversely affect our business, financial
condition and results of operations.
We may not be successful in protecting our intellectual property rights, including our unpatented proprietary know-how
and trade secrets, or in avoiding claims that we infringed on the intellectual property rights of others.
In addition to relying on patent and trademark rights, we rely on unpatented proprietary know-how and trade secrets, and
employ various methods, including confidentiality agreements with employees and consultants, customers and suppliers to
protect our know-how and trade secrets. However, these methods and our patents and trademarks may not afford complete
protection and there can be no assurance that others will not independently develop the know-how and trade secrets or
develop better production methods than us. Further, we may not be able to deter current and former employees, contractors
and other parties from breaching confidentiality agreements and misappropriating proprietary information and it is possible
that third parties may copy or otherwise obtain and use our information and proprietary technology without authorization or
otherwise infringe on our intellectual property rights. Additionally, we have licensed, and may license in the future, patents,
trademarks, trade secrets, and similar proprietary rights to third parties. While we attempt to ensure that our intellectual
property and similar proprietary rights are protected when entering into business relationships, third parties may take actions
that could materially and adversely affect our rights or the value of our intellectual property, similar proprietary rights or
reputation. In the future, we may also rely on litigation to enforce our intellectual property rights and contractual rights, and,
if not successful, we may not be able to protect the value of our intellectual property. Any litigation could be protracted and
costly and could have a material adverse effect on our business and results of operations regardless of its outcome.
Our success depends in part on our ability to obtain, or license from third parties, patents, trademarks, trade secrets and
similar proprietary rights without infringing on the proprietary rights of third parties. Although we believe our intellectual
property rights are sufficient to allow us to conduct our business without incurring liability to third parties, our products may
infringe on the intellectual property rights of such persons. Furthermore, no assurance can be given that we will not be
subject to claims asserting the infringement of the intellectual property rights of third parties seeking damages, the payment of
royalties or licensing fees and/or injunctions against the sale of our products. Any such litigation could be protracted and
costly and could have a material adverse effect on our business, financial condition and results of operations.
Current and future environmental and other governmental requirements could adversely affect our financial condition
and our ability to conduct our business.
Our operations are subject to federal, state, local, and foreign environmental laws and regulations that impose limitations on
the discharge of pollutants into the air and water, establish standards for the treatment, storage and disposal of solid and
hazardous wastes and require cleanup of contaminated sites. While we have not been required historically to make significant
capital expenditures in order to comply with applicable environmental laws and regulations, we cannot predict with any
certainty our future capital expenditure requirements because of continually changing compliance standards and
environmental technology. Furthermore, violations or contaminated sites that we do not know about (including
contamination caused by prior owners and operators of such sites or newly discovered information) could result in additional
compliance or remediation costs or other liabilities, which could be material. We have limited insurance coverage for
potential environmental liabilities associated with historic and current operations and we do not anticipate increasing such
coverage in the future. We may also assume significant environmental liabilities in acquisitions. In addition, federal, state,
local, and foreign governments could enact laws or regulations concerning environmental matters that increase the cost of
producing, or otherwise adversely affect the demand for, plastic products. Legislation that would prohibit, tax or restrict the
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sale or use of certain types of plastic and other containers, and would require diversion of solid wastes such as packaging
materials from disposal in landfills, has been or may be introduced in the U.S. Congress, state legislatures, and other
legislative bodies. While container legislation has been adopted in a few jurisdictions, similar legislation has been defeated in
public referenda in several states, local elections and many state and local legislative sessions. Although we believe that the
laws promulgated to date have not had a material adverse effect on us, there can be no assurance that future legislation or
regulation would not have a material adverse effect on us. Furthermore, a decline in consumer preference for plastic products
due to environmental considerations could have a negative effect on our business.
The Food and Drug Administration, which we refer to as the FDA, regulates the material content of direct-contact food and
drug packages we manufacture pursuant to the Federal Food, Drug and Cosmetic Act. Furthermore, some of our products are
regulated by the Consumer Product Safety Commission, which we refer to as the CPSC, pursuant to various federal laws,
including the Consumer Product Safety Act and the Poison Prevention Packaging Act. Both the FDA and the CPSC can
require the manufacturer of defective products to repurchase or recall these products and may also impose fines or penalties
on the manufacturer. Similar laws exist in some states, cities and other countries in which we sell products. In addition, laws
exist in certain states restricting the sale of packaging with certain levels of heavy metals and imposing fines and penalties for
noncompliance. Although we use FDA-approved resins and pigments in our products that directly contact food and drug
products and we believe our products are in material compliance with all applicable requirements, we remain subject to the
risk that our products could be found not to be in compliance with these and other requirements. A recall of any of our
products or any fines and penalties imposed in connection with noncompliance could have a materially adverse effect on us.
See “Business—Environmental Matters and Government Regulation.”
In the event of a catastrophic loss of one of our key manufacturing facilities, our business would be adversely affected.
While we manufacture our products in a large number of diversified facilities and maintain insurance covering our facilities,
including business interruption insurance, a catastrophic loss of the use of all or a portion of one of our key manufacturing
facilities due to accident, labor issues, weather conditions, natural disaster or otherwise, whether short or long-term, could
have a material adverse effect on us.
Goodwill and other intangibles represent a significant amount of our net worth, and a future write-off could result in
lower reported net income and a reduction of our net worth.
As of the end of our 2013 fiscal year, the net value of our goodwill and other intangibles was $2,520 million. We are no
longer required or permitted to amortize goodwill reflected on our balance sheet. We are, however, required to evaluate
goodwill reflected on our balance sheet when circumstances indicate a potential impairment, or at least annually, under the
impairment testing guidelines outlined in the standard. Future changes in the cost of capital, expected cash flows, or other
factors may cause our goodwill to be impaired, resulting in a non-cash charge against results of operations to write off
goodwill for the amount of impairment. If a future write-off is required, the charge could have a material adverse effect on
our reported results of operations and net worth in the period of any such write-off.
Disruptions in the overall economy and the financial markets may adversely impact our business.
Our industry is affected by current economic factors, including the deterioration of national, regional, and local economic
conditions, declines in employment levels, and shifts in consumer spending patterns. Disruptions in the overall economy and
volatility in the financial markets could reduce consumer confidence in the economy, negatively affecting consumer spending,
which could be harmful to our financial position and results of operations. As a result, decreased cash flow generated from
our business may adversely affect our financial position and our ability to fund our operations. In addition, macroeconomic
disruptions, as well as the restructuring of various commercial and investment banking organizations, could adversely affect
our ability to access the credit markets. The disruption in the credit markets may also adversely affect the availability of
financing for our operations. There can be no assurance that government responses to the disruptions in the financial markets
will restore consumer confidence, stabilize the markets, or increase liquidity and the availability of credit.
We had net losses in recent years and we may not be profitable in the future.
We generated net income in three of our last five fiscal years, and during the remaining two fiscal years, we incurred net
losses of over $100 million per year. We may not generate net income from operations in the future, and continuing net losses
may limit our ability to execute our strategy. Factors contributing to our financial performance include non-cash impairment
charges, depreciation/amortization on our long lived tangible and intangible assets, interest expense on our debt obligations as
well as other factors more fully disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
We are a holding company and rely on dividends and other payments, advances and transfers of funds from our
subsidiaries to meet our obligations and pay dividends.
12
Berry Plastics Group, Inc. has no direct operations and no significant assets other than ownership of 100% of the stock of
Berry Plastics Corporation. Because Berry Plastics Group, Inc. conducts its operations through its subsidiaries, it depends on
those entities for dividends and other payments to generate the funds necessary to meet its financial obligations, and to pay
any dividends with respect to our common stock. Legal and contractual restrictions in the agreements governing current and
future indebtedness of Berry Plastics Group, Inc.’s subsidiaries, as well as the financial condition and operating requirements
of Berry Plastics Group, Inc.’s subsidiaries, may limit Berry Plastics Group, Inc.’s ability to obtain cash from its subsidiaries.
The earnings from, or other available assets of, Berry Plastics Group, Inc.’s subsidiaries may not be sufficient to pay
dividends or make distributions or loans to enable Berry Plastics Group, Inc. to pay dividends going forward.
Apollo controls us, and its interests may conflict with or differ from your interests.
Funds affiliated with our equity sponsor, Apollo Global Management, LLC (“Apollo”) indirectly beneficially own
approximately 29% of our common stock. Under the amended and restated stockholders agreement that we entered into in
connection with our initial public offering, so long as Apollo and its affiliates continue to indirectly own a significant amount
of our equity, even at its current ownership level, they will continue to be able to strongly influence or control our business
decisions, including through the designation of up to four director nominees and the requirement that certain matters,
including mergers and acquisitions, issuance of equity and incurrence of debt, be approved by a majority of the directors
nominated by Apollo voting on the matter so long as Apollo beneficially owns at least 25% of our outstanding common stock.
Therefore, Apollo effectively has the ability to prevent any transaction that requires the approval of our Board of Directors or
our stockholders, including the approval of significant corporate transactions such as mergers and the sale of substantially all
of our assets. Thus, Apollo will continue to be able to significantly influence or effectively control our decisions which could
conflict with the interests of other users of this Form 10-K.
The requirements of having a class of publicly traded equity securities may strain our resources and distract management.
As a company with publicly traded equity securities, we are subject to additional reporting requirements of the Securities
Exchange Act of 1934, or the Exchange Act and the Sarbanes-Oxley Act of 2002, which we refer to as the “Sarbanes-Oxley
Act.” The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control for
financial reporting. In future years, our independent public accountants auditing our financial statements will be required to
attest to the effectiveness of our internal control over financial reporting. In order to continue to maintain the effectiveness of
our disclosure controls and procedures and internal control over financial reporting significant resources and management
oversight is required. Furthermore, if we are unable to conclude that our disclosure controls and procedures and internal
control over financial reporting are effective, or if our independent public accounting firm is unable to provide us with an
unqualified report as to management’s assessment of the effectiveness of our internal control over financial reporting in future
years, investors may lose confidence in our financial reports and our stock price may decline.
In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which we refer to as “Dodd-Frank” and which
amended the Sarbanes-Oxley Act and other federal laws, has created uncertainty for public companies, and we cannot predict
with any certainty the requirements of the regulations that will ultimately be adopted under Dodd-Frank or how such
regulations will affect the cost of compliance for a company with publicly traded common stock. There is likely to be
continuing uncertainty regarding compliance matters because the application of these laws and regulations, which are subject
to varying interpretations, may evolve over time as new guidance is provided by regulatory and governing bodies. We intend
to invest resources to comply with these evolving laws and regulations, which will result in increased general and
administrative expenses and divert management’s time and attention from other business concerns. Furthermore, if our
compliance efforts differ from the activities that regulatory and governing bodies expect or intend due to ambiguities related
to interpretation or practice, we may face legal proceedings initiated by such regulatory or governing bodies and our business
may be harmed. In addition, new rules and regulations may make it more difficult for us to attract and retain qualified
directors and officers and will make it more expensive for us to obtain director and officer liability insurance.
We are required to pay our existing owners for certain tax benefits, which amounts are expected to be material.
We have entered into an income tax receivable agreement with our pre-initial public offering stockholders, option holders and
holders of our stock appreciation rights that provides for the payment by us to such stockholders of 85% of the amount of
cash savings, if any, in U.S. federal, foreign, state and local income tax that we and our subsidiaries actually realize as a result
of the utilization of our net operating losses attributable to periods prior to our initial public offering.
These payment obligations are our obligations and not obligations of any of our subsidiaries. The actual utilization of net
operating losses as well as the timing of any payments under the income tax receivable agreement will vary depending upon a
number of factors, including the amount, character and timing of our and our subsidiaries’ taxable income in the future.
We expect that the payments we make under this income tax receivable agreement will be material. Assuming no material
changes in the relevant tax law, and that we and our subsidiaries earn sufficient income to realize the full tax benefits subject
13
to the income tax receivable agreement, we expect that future payments under the income tax receivable agreement will
aggregate to between $313 million and $360 million through 2017.
During fiscal 2013, we made $5 million of payments related to the TRA with an additional $32 million paid in the first fiscal
quarter of 2014.
Any future changes in the realizability of our net operating loss carry forwards that were generated prior to our initial public
offering will impact the amount of the liability that will be paid to our pre-initial public offering shareholders, option holders
or holders of our stock appreciation rights. Changes in the realizability of these tax assets are recorded in income tax expense
(benefit) and any changes in the obligation under the income tax receivable agreement is recorded in other income (expense).
Based on our current taxable income estimates, we expect to repay the majority of this obligation by the end of our 2016
fiscal year.
In addition, the income tax receivable agreement provides that upon certain mergers, stock and asset sales, other forms of
business combinations or other changes of control, the income tax receivable agreement will terminate and we will be
required to make a payment equal to the present value of future payments under the income tax receivable agreement, which
payment would be based on certain assumptions, including those relating to our and our subsidiaries’ future taxable income.
In these situations, our obligations under the income tax receivable agreement could have a substantial negative impact on our
liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business
combinations or other changes of control.
For tax reasons, special timing rules will apply to payments associated with stock options and stock appreciation rights. Such
payments will generally be deemed invested in a notional account rather than made on the scheduled payment dates, and the
account will be distributed on the fifth anniversary of the initial public offering.
Our counterparties under this agreement will not reimburse us for any payments previously made under the income tax
receivable agreement if such benefits are subsequently disallowed (although future payments would be adjusted to the extent
possible to reflect the result of such disallowance). As a result, in certain circumstances, payments could be made under the
income tax receivable agreement in excess of our cash tax savings.
Our international sales and operations are subject to applicable laws relating to trade, export controls, and foreign corrupt
practices, the violation of which could adversely affect our operations.
We must comply with all applicable international trade, export and import laws and regulations of the United States and other
countries. We are subject to export controls and economic sanctions laws and embargoes imposed by the U.S. Government.
Changes in trade sanctions laws may restrict our business practices, including cessation of business activities in sanctioned
countries or with sanctioned entities, and may result in modifications to compliance programs. We are also subject to the
Foreign Corrupt Practices Act and other anti-bribery laws that generally bar bribes or unreasonable gifts to foreign
governments or officials. We have implemented safeguards and policies to discourage these practices by our employees and
agents. However, our existing safeguards and policies to assure compliance and any future improvements may prove to be
less than effective and our employees or agents may engage in conduct for which we might be held responsible. If employees
violate our policies, we may be subject to regulatory sanctions. Violations of these laws or regulations could result in
sanctions including fines, debarment from export privileges and penalties and could adversely affect our business, financial
condition and results of operations.
We may not be able to achieve cost savings as a result of our restructuring efforts and productivity and cost reduction
initiatives.
From time to time we enter into cost reduction plans designed to deliver cost savings and improve equipment utilization. Our
ability to achieve the anticipated cost savings and other benefits from these initiatives within the expected time frame is
subject to many estimates and assumptions. Additionally, there are many factors which affect our ability to achieve savings as
a result of productivity and cost reduction initiatives, such as difficult economic conditions, increased costs in other areas, the
effects of and costs related to newly acquired entities, mistaken assumptions, and the other risk factors set forth herein. In
addition, any actual savings may be balanced by incremental costs that were not foreseen at the time of the restructuring or
cost reduction initiatives. As a result, anticipated savings may not be achieved on the timetable desired or at all. Additionally,
while we execute these restructuring activities to achieve these savings, it is possible that our attention may be diverted from
our ongoing operations which may have a negative impact on our ongoing operations.
14
Item 1B. UNRESOLVED STAFF COMMENTS
None
Item 2. PROPERTIES
We lease or own our principal offices and manufacturing facilities. We believe that our property and equipment is well-
maintained, in good operating condition and adequate for our present needs. As of the end of fiscal 2013, the locations of our
principal manufacturing facilities, by country, are as follows: United States—68 locations (39 Rigid Packaging, 17
Engineered Materials, 12 Flexible Packaging); Canada—4 locations (1 Rigid Packaging, 2 Engineered Materials, 1 Flexible
Packaging); Mexico—3 locations (2 Engineered Materials, 1 Flexible Packaging); India, The Netherlands and Belgium
(Engineered Materials); Germany and Australia (Engineered Materials); and Brazil and Malaysia (Rigid Packaging). The
Evansville, Indiana facility serves as our world headquarters.
We lease our facilities in the following locations: Evansville, Indiana; Louisville, Kentucky; Lawrence, Kansas; Peosta,
Iowa; Phoenix, Arizona; Quad Cities, Iowa; Phillipsburg, New Jersey; Bloomington, Indiana; Chicago, Illinois; Bowling
Green, Kentucky; Syracuse, New York; Jackson, Tennessee; Anaheim, California; Aurora, Illinois; Cranbury, New Jersey;
Charlotte, North Carolina; Easthampton, Massachusetts; Lathrop, California; Hanover, Maryland; Tacoma, Washington;
Baltimore, Maryland; Chippewa Falls, Wisconsin; Atlanta, Georgia; Mexico City, Mexico; and Dunkirk, New York.
Item 3. LEGAL PROCEEDINGS
We are party to various legal proceedings involving routine claims which are incidental to our business. Although our legal
and financial liability with respect to such proceedings cannot be estimated with certainty, we believe that any ultimate
liability would not be material to the business, financial condition, results of operations or cash flows.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
Our common stock commenced trading on the New York Stock Exchange under the symbol “BERY” on October 4, 2012.
The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock reported
on the New York Stock Exchange.
Fiscal 2013
1st quarter (since October 4, 2012) ........................
2nd quarter ......................................................
3rd quarter ......................................................
4th quarter .......................................................
High
$16.01
19.77
24.15
24.99
Low
$13.48
16.15
17.02
19.71
In conjunction with the initial public offering the Company executed a 12.25 for one stock split of the Company’s common
stock.
As of the date of this filing there were approximately 159 record holders of the common stock but, we estimate the number of
beneficial stockholders to be much higher as a number of our shares are held by brokers or dealers for their customers in street
name.
During fiscal 2013 we did not declare or pay any cash dividends on our common stock. Any future determination as to the
declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then
existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business
prospects, and other factors our board of directors may deem relevant.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
There were no shares of our common stock repurchased during the fourth fiscal quarter.
Item 6. SELECTED FINANCIAL DATA
15
Statement of Operations Data:
Net sales
Cost of goods sold
Selling, general and administrative
Amortization of intangibles
Restructuring and impairment charges (a)
Operating income
Debt extinguishment
Other income
Net interest expense
Net income (loss) from continuing operations
before income taxes
Income tax expense (benefit)
Discontinued operations, net of tax
Net income (loss)
Comprehensive income (loss)
Net income (loss) available to Common
Stockholders:
Basic
Diluted
Balance Sheet Data (at period end):
Cash and cash equivalents
Property, plant and equipment
Total assets
Long-term debt obligations, less current portion
Total liabilities
Redeemable shares
Stockholders’ equity (deficit)
Cash Flow and other Financial Data:
Net cash from operating activities
Net cash from investing activities
Net cash from financing activities
Fiscal 2013
Fiscal 2012
Fiscal 2011
Fiscal 2010
Fiscal 2009
$
4,647
3,835
307
105
14
386
64
(7)
244
85
28
$
4,766
3,984
317
109
31
325
—
(7)
328
4
2
—
$
$
57
86
—
$
$
2
3
$
4,561
3,908
284
106
221
42
68
(7)
327
$
4,257
3,705
280
107
41
124
—
(27)
313
$
3,187
2,659
235
96
11
186
—
(373)
304
(346)
(47)
—
(299)
$
(324)
$
(162)
(49)
—
(113)
$
(112)
$
255
99
4
152
128
$
$
$ 0.50
0.48
$ 0.02
0.02
$ (3.55)
(3.55)
$ (1.34)
(1.34)
$ 1.80
1.79
$
$
142
1,266
5,135
3,875
5,331
—
(196)
464
(245)
(164)
$
$
87
1,216
5,106
4,431
5,558
23
(475)
479
(255)
(179)
$
$
42
1,250
5,217
4,581
5,668
16
(467)
327
(523)
90
$
$
148
1,146
5,344
4,397
5,474
11
(141)
112
(852)
878
$
$
10
875
4,216
3,422
4,236
—
(20)
413
(195)
(398)
(a)
Includes a goodwill impairment charge of $165 million in fiscal 2011
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion in conjunction with the consolidated financial statements of Berry Plastics Group,
Inc. and its subsidiaries and the accompanying notes thereto, which information is included elsewhere herein. This
discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to,
those described in the “Risk Factors” section. Our actual results may differ materially from those contained in any forward-
looking statements.
Overview
Berry Plastics Group, Inc. (“Berry” or the “Company”) is a leading provider of value-added plastic consumer packaging and
engineered materials with a track record of delivering high-quality customized solutions to our customers. Our products
utilize our proprietary research and development platform, which includes a continually evolving library of Berry-owned
molds, patents, manufacturing techniques and technologies. We sell our solutions predominantly into consumer-oriented end-
markets, such as food and beverage, healthcare and personal care. We believe our customers look to us for solutions that
have high consumer impact in terms of form, function and branding. Representative examples of our products include drink
cups, thin-wall containers, bottles, specialty closures, prescription vials, specialty films, tape products and corrosion
protection solutions.
We believe that we have created one of the largest product libraries in our industry, allowing us to be a comprehensive
solution provider to our customers. We have more than 13,000 customers, which consist of a diverse mix of leading national,
mid-sized regional and local specialty businesses. The size and scope of our customer network allow us to introduce new
products we develop or acquire to a vast audience that is familiar with, and we believe partial to, our brand. In fiscal 2013, no
single customer represented more than 3% of net sales and our top ten customers represented 18% of net sales. We believe
our manufacturing processes and our ability to leverage our scale to reduce expenses on items, such as raw materials, position
us as a low-cost manufacturer relative to our competitors. For example, we believe based on management estimates that we
16
are one of the largest global purchasers of plastic resins, at more than 2 billion pounds per year, which gives us scaled
purchasing savings.
Executive Summary
Business. We operate in the following four segments: Rigid Open Top, Rigid Closed Top (together our Rigid Packaging
business), Engineered Materials, and Flexible Packaging. The Rigid Packaging business sells primarily containers,
foodservice items, closures, overcaps, bottles, prescription containers, and tubes. Our Engineered Materials segment
primarily sells pipeline corrosion protection solutions, tapes and adhesives, PE-based film products and can liners. The
Flexible Packaging segment sells high barrier, multilayer film products as well as finished flexible packages such as printed
bags and pouches.
Raw Material Trends. Our primary raw material is plastic resin. Polypropylene and polyethylene account for the majority of
our plastic resin purchases. Plastic resins are subject to price fluctuations, including those arising from supply shortages and
changes in the prices of natural gas, crude oil and other petrochemical intermediates from which resins are produced. The
average industry prices, as published in Chem Data, per pound were as follows by fiscal year:
Polyethylene Butene Film
2011
2012
2013
$.68
$.68
1st quarter .......................................................$.69
.72
.76
2nd quarter .......................................................74
.79
.72
3rd quarter .......................................................77
.73
.68
4th quarter ........................................................79
Polypropylene
2012
$.79
.88
.85
.71
2011
$ .78
.95
1.08
.98
2013
$.76
.96
.84
.89
Due to differences in the timing of passing through resin cost changes to our customers on escalator/de-escalator programs,
segments are negatively impacted in the short term when plastic resin costs increase and are positively impacted when plastic
resin costs decrease. Recently, the Company has made progress towards shortening these timing lags, but we still have a
number of customers whose prices adjust quarterly or less frequent based on various index prices. This timing lag in passing
through raw material cost changes could affect our results as plastic resin costs fluctuate.
Outlook. The Company is impacted by general economic and industrial growth, plastic resin availability and affordability,
and general industrial production. Our business has both geographic and end market diversity, which reduces the effect of
any one of these factors on our overall performance. Our results are affected by our ability to pass through raw material cost
changes to our customers, improve manufacturing productivity and adapt to volume changes of our customers. We seek to
improve our overall profitability by implementing cost reduction programs associated with our manufacturing, selling and
general and administrative expenses.
In November 2013, the Company initiated a cost reduction plan designed to deliver meaningful cost savings and optimal
equipment utilization. This plan will result in several plant rationalizations. The costs associated with this plan will primarily
consist of one-time costs associated with facility consolidation, including severance and termination benefits for employees of
approximately $6 million, other costs associated with exiting facilities of approximately $30 million and non-cash asset
impairment charges of approximately $11 million. In addition, as part of this cost reduction plan the Company estimates it
will incur capital expenditures of approximately $13 million. Overall these facility restructuring programs are projected to
generate approximately $27 million of annual operating savings when fully implemented. These amounts are preliminary
estimates based on the information currently available to management. The plan is expected to be fully implemented by the
end of fiscal 2014.
Recent Developments
Initial Public Offering
In October 2012, the Company completed an initial public offering and sold 29,411,764 shares of common stock at a public
offering price of $16.00 per share. In conjunction with the initial public offering the Company executed a 12.25 for one stock
split of the Company’s common stock. The effect of the stock split on outstanding shares and earnings per share has been
retroactively applied to all periods presented. Transaction fees totaling $33 million were included in Paid-in capital on the
Consolidated Balance Sheets. Proceeds, net of transaction fees, of $438 million and cash from operations were used to
repurchase $455 million of 11% Senior Subordinated Notes due September 2016. As part of the repurchase the Company
paid premiums of $13 million and wrote-off $3 million of deferred financing fees.
Tax Receivable Agreement
17
In connection with the initial public offering, the Company entered into an income tax receivable agreement ("TRA") that
provides for the payment to pre-initial public offering stockholders, option holders and holders of our stock appreciation
rights, 85% of the amount of cash savings, if any, in U.S. federal, foreign, state and local income tax that are actually realized
(or are deemed to be realized in the case of a change of control) as a result of the utilization of our and our subsidiaries’ net
operating losses attributable to periods prior to the initial public offering. The Company expects to pay between $313 million
and $360 million in cash related to this agreement. This range is based on the Company's assumptions using various items,
including valuation analysis and current tax law. The Company recorded an obligation of $313 million which was recognized
as a reduction of Paid-in capital on the Consolidated Balance Sheets. Changes in the estimated TRA obligation will be
recorded as Other expense (income) in the Consolidated Statement of Operations. Payments under the TRA are not
conditioned upon the parties' continued ownership of the Company. The balance at the end of fiscal 2013 was $308 million.
During fiscal 2013, the Company made $5 million of payments related to the TRA with an additional $32 million being paid
in the first fiscal quarter of 2014.
Incremental Term Loan
In February 2013, the Company entered into an incremental assumption agreement to increase the commitments under Berry
Plastics Corporation’s existing term loan credit agreement by $1.4 billion. Berry Plastics Corporation borrowed loans in an
aggregate principal amount equal to the full amount of the commitments on such date. The incremental term loans bear
interest at LIBOR plus 2.50% per annum with a LIBOR floor of 1.00%, matures in February 2020 and are subject to
customary amortization. The proceeds from the incremental term loan, in addition to borrowings under the revolving credit
facility, were used to (a) satisfy and discharge all of Berry Plastics Corporation’s outstanding (i) Second Priority Senior
Secured Floating Rate Notes due 2014, (ii) First Priority Senior Secured Floating Rate Notes due 2015, (iii) 101⁄4% Senior
Subordinated Notes due 2016 and (iv) 81⁄4% First Priority Senior Secured Notes due 2015, which, in each case, were called
for redemption in February 2013 and the related indentures and (b) pay related fees and expenses. The Company recognized a
$48 million loss on extinguishment of debt related to this debt refinancing.
Interest Rate Swap
In February 2013, the Company entered into an interest rate swap transaction to protect $1 billion of outstanding variable rate
term loan debt from future interest rate volatility. The agreement swapped the greater of a three-month variable LIBOR
contract or 1.00% for a fixed three-year rate of 2.355%, with an effective date in May 2016 and expiration in May 2019. In
June 2013, the Company elected to settle this derivative instrument and received $16 million as a result of this settlement.
The offset is included in Accumulated other comprehensive loss and Deferred income taxes and will be amortized to Interest
expense from May 2016 through May 2019, the original term of the swap agreement.
Secondary Public Offerings
In April 2013, we completed a secondary public offering in which certain funds affiliated with Apollo and Graham sold
18,975,000 shares of common stock at $17.00 per share, which included 2,475,000 shares purchased by the underwriters
upon the exercise in full of their option to purchase additional shares. The selling stockholders received proceeds from the
offering, which, net of underwriting fees, totaled $311 million. The Company received no proceeds and incurred fees of
$1 million related to this offering.
In July 2013, we completed a secondary public offering in which certain funds affiliated with Apollo and Graham sold
17,250,000 shares of common stock at $21.63 per share, which included 2,250,000 shares purchased by the underwriters
upon the exercise in full of their option to purchase additional shares. The selling stockholders received proceeds from the
offering, which, net of underwriting fees, totaled $360 million. The Company received no proceeds and incurred fees of
$1 million related to this offering.
Option Modification
In August 2013, the Company recorded an $8 million stock compensation charge related to certain modifications to the Berry
Plastics Group Inc. 2006 Equity Incentive Plan and the Berry Plastics Group, Inc. 2012 Long-Term Incentive Plan
(collectively, the "Plans"). The modifications include (i) accelerated vesting of all unvested options upon an employee's death
or termination by the Company by reason of an employee’s permanent disability, (ii) in the event of an employee's qualified
retirement, continuation of the normal vesting period applicable to the retiree's unvested options, as well as an extension of
the exercise period to the end of the original ten-year term of the retiree's vested options and (iii) all unvested options and
stock appreciation rights that were subject to performance-based vesting criteria as of January 1, 2013 (excluding certain IRR
performance-based options) were modified to time-based vesting.
Recent Acquisitions
18
We have a long history of acquiring and integrating companies. We maintain an opportunistic acquisition strategy, which is
focused on improving our long-term financial performance, enhancing our market positions and expanding our product lines
or, in some cases, providing us with a new or complementary product line. In our acquisitions, we seek to obtain businesses
for attractive post-synergy multiples, creating value for our stockholders from synergy realization, leveraging the acquired
products across our customer base, creating new platforms for future growth, and assuming best practices from the businesses
we acquire.
The Company has included the expected benefits of acquisition integrations within our unrealized synergies, which are in turn
recognized in earnings after an acquisition has been fully integrated. While the expected benefits on earnings is estimated at
the commencement of each transaction, once the execution of the plan and integration occur, we are generally unable to
accurately estimate or track what the ultimate effects have been due to system integrations and movements of activities to
multiple facilities. As historical business combinations have not allowed us to accurately separate realized synergies
compared to what was initially identified, we measure the synergy realization based on the overall segment profitability post
integration. In connection with our acquisitions, we have in the past and may in the future incur charges related to reductions
and rationalizations.
We also include the expected impact of our restructuring plans within our unrealized synergies which are in turn recognized
in earnings after the restructuring plans are completed. While the expected benefits on earnings is estimated at the
commencement of each plan, due to the nature of the matters we are generally unable to accurately estimate or track what the
ultimate effects have been due to movements of activities to multiple facilities.
Prime Label
In October 2012, the Company acquired 100% of the shares of Prime Label and Screen Incorporated (“Prime Label”) for a
purchase price of $20 million. Prime Label is a leader in specialty re-sealable labels, including a patented rigid lens closure
system. The newly added business is operated in the Company’s Flexible Packaging reporting segment. To finance the
purchase, the Company used cash on hand and existing credit facilities. The Prime Label acquisition has been accounted for
under the purchase method of accounting, and accordingly, the preliminary purchase price has been allocated to the
identifiable assets and liabilities based on estimated fair values at the acquisition date. The Company has recognized goodwill
on this transaction as a result of expected synergies. A portion of the goodwill will not be deductible for tax purposes.
Graphic Packaging
On September 30, 2013, the Company acquired Graphic Packaging’s flexible plastics and films business (“Graphic”) for a
purchase price of $62 million. Graphic is a producer of wraps, films, pouches, and bags for the food, medical, industrial,
personal care, and pet food markets. The newly acquired business will be operated in the Company’s Flexible Packaging
Division. To finance the purchase, the Company used cash on hand and existing credit facilities. The Graphic acquisition
will be accounted for under the purchase method of accounting, and accordingly, the purchase price will be allocated to the
identifiable assets and liabilities based on estimated fair values at the acquisition date.
Discussion of Results of Operations for Fiscal 2013 Compared to Fiscal 2012
Net Sales. Net sales decreased from $4,766 million in fiscal 2012 to $4,647 million in fiscal 2013. This decrease is primarily
attributed to lower selling prices of 1% and a volume decline of 2% related to soft customer demand, year-over-year adverse
change in weather and reductions in raw material content partially offset by acquisition volume related to Stopaq and Prime
Label and volume gains in certain of our product lines. The following discussion in this section provides a comparison of net
sales by business segment.
Fiscal Year
2013
2012
$ Change
% Change
Net sales:
Rigid Open Top .......................................................$ 1,127
Rigid Closed Top .....................................................
1,387
Rigid Packaging ...............................................$ 2,514
1,397
736
Total net sales ..................................................$ 4,647
Engineered Materials ...............................................
Flexible Packaging...................................................
$ 1,229
1,438
$ 2,667
1,362
737
$ 4,766
$ (102)
(51)
$ (153)
35
(1)
$ (119)
(8%)
(4%)
(6%)
3%
—
(2%)
ck
19
Net sales in the Rigid Open Top business decreased from $1,229 million in fiscal 2012 to $1,127 million in fiscal 2013 as a
result of net selling price decreases of 3%, a volume decline of 2% and product realignment of 3%. The volume decline is
primarily related to soft customer demand and year-over-year adverse change in weather. Net sales in the Rigid Closed Top
business decreased from $1,438 million in fiscal 2012 to $1,387 million in fiscal 2013 as a result of net selling price decreases
of 2% and a volume decline of 2%. The volume decline is primarily attributed to general market softness and a reduction in
raw material content. The Engineered Materials business net sales increased from $1,362 million in fiscal 2012 to $1,397
million in fiscal 2013. Product realignment of 3%, net selling price increases of 1% and acquisition volume related to Stopaq
were partially offset by 2% volume declines attributed to soft customer demand. Net sales in the Flexible Packaging business
decreased from $737 million in fiscal 2012 to $736 million in fiscal 2013 as a result of a 2% volume decline attributed to
factors discussed above partially offset by acquisition volume related to our Prime Label acquisition.
Operating Income. Operating income increased from $325 million (7% of net sales) in fiscal 2012 to $386 million (8% of net
sales) in fiscal 2013. This increase is primarily attributed to $5 million from the relationship of net selling price to raw
material costs, $12 million decrease in depreciation expense excluding the impact from acquisitions, $8 million decrease in
amortization expense excluding the impact from acquisitions, $8 million decrease in selling, general and administrative
expenses, $30 million decrease in business integration, $3 million from acquisitions and a $11 million decrease in non-cash
impairment charges related to exited businesses partially offset by $1 million decline in operating performance in
manufacturing and $15 million from sales volume declines described above. The following discussion in this section
provides a comparison of operating income by business segment.
Fiscal Year
2013
2012
$ Change
% Change
Operating income:
Rigid Open Top .......................................................$
Rigid Closed Top .....................................................
Rigid Packaging ...............................................$
Engineered Materials ...............................................
Flexible Packaging ..................................................
Total operating income ................................ $
123
130
253
116
17
386
$
$
$
159
95
254
70
1
325
$
$
$
(36)
35
(1)
46
16
61
(23%)
37%
1%
66%
—
19%
Ck
Operating income for the Rigid Open Top business decreased from $159 million (13% of net sales) in fiscal 2012 to $123
million (11% of net sales) in fiscal 2013. This decrease is primarily attributed to a $8 million decline in the relationship of net
selling price to raw material costs, $7 million from sales volume declines described above, $11 million decline in operating
performance in manufacturing, $4 million increase of selling, general and administrative expenses primarily attributed to
costs associated with new product innovation, $5 million increase in business integration expenses and $1 million increase in
depreciation and amortization expense. Operating income for the Rigid Closed Top business increased from $95 million (7%
of net sales) in fiscal 2012 to $130 million (9% of net sales) in fiscal 2013. This increase is primarily attributed to a $24
million decline in business integration expenses, $1 million improvement in the relationship of net selling price to raw
material costs, $6 million reduction of depreciation and amortization expense, $2 million of improved operating performance
in manufacturing and $6 million decrease in selling, general and administrative expenses partially offset $4 million from sales
volume declines described above. Operating income for the Engineered Materials business increased from $70 million (5%
of net sales) in fiscal 2012 to $116 million (8% of net sales) in fiscal 2013. This increase is primarily attributed to a $11
million decrease in non-cash impairment charges related to exited businesses, $3 million from acquisitions, $9 million
improvement in the relationship of net selling price to raw material costs, $9 million of improved operating performance in
manufacturing, $7 million decrease in selling, general and administrative expenses, $5 million decrease in depreciation and
amortization expense excluding the impact from acquisitions and a $5 million decrease in business integration expenses
partially offset by $3 million from sales volume declines described above. Operating income for the Flexible Packaging
business improved from $1 million in fiscal 2012 to $17 million (2% of net sales) in fiscal 2013. This improvement is
primarily attributed to a $6 million reduction of business integration expense, $10 million reduction of depreciation and
amortization expense and a $3 million improvement in the relationship of net selling price to raw material costs partially
offset by $1 million increase of selling, general and administrative expenses, $1 million decline in operating performance in
manufacturing and $1 million from sales volume declines described above.
Debt Extinguishment. Debt extinguishment was $64 million during fiscal 2013 as a result of loss on extinguishment of debt
attributed to $37 million of call premium and penalties, $19 million of deferred financing fees and $8 million of debt discount
related to the debt extinguishment that resulted from our incremental term loan capital restructuring and the use of the
proceeds from our initial public offering.
Other Income, Net. Other income was $7 million in fiscal 2013 and fiscal 2012, respectively. These gains are attributed to the
fair value adjustment for our interest rate swaps.
20
Interest Expense, Net. Interest expense decreased from $328 million in fiscal 2012 to $244 million in fiscal 2013 primarily as
the result of the interest savings that resulted from our incremental term loan capital restructure and initial public offering,
which proceeds were used to payoff indebtedness.
Income Tax Expense. Fiscal 2013, we recorded an income tax expense of $28 million or an effective tax rate of 33%
compared to an income tax expense of $2 million or an effective tax rate of 50% in fiscal 2012. The effective tax rate is
impacted by the relative impact of discrete items and certain international entities for which a full valuation allowance is
recognized.
Discussion of Results of Operations for Fiscal 2012 Compared to Fiscal 2011
Net Sales. Net sales increased from $4,561 million in fiscal 2011 to $4,766 million in fiscal 2012. This increase is primarily
attributed to net sales from acquired businesses of 10% partially offset by a volume decline of 6%. The following discussion
in this section provides a comparison of net sales by business segment.
Fiscal Year
2012
2011
$ Change
% Change
Net sales:
Rigid Open Top .......................................................$ 1,229
Rigid Closed Top .....................................................
1,438
Rigid Packaging ...............................................$ 2,667
1,362
737
Total net sales ..................................................$ 4,766
Engineered Materials ...............................................
Flexible Packaging...................................................
$ 1,261
1,053
$ 2,314
1,451
796
$ 4,561
$
(32)
385
$ 353
(89)
(59)
$ 205
(3%)
37%
15%
(6%)
(7%)
4%
ck
Net sales in the Rigid Open Top business decreased from $1,261 million in fiscal 2011 to $1,229 million in fiscal 2012 as a
result of a volume decline of 4% partially offset by a net selling price increases of 1%. The volume decline is primarily
attributed to the Company pursuing a strategy to improve profitability in products with historically lower margins. Net sales
in the Rigid Closed Top business increased from $1,053 million in fiscal 2011 to $1,438 million in fiscal 2012 primarily as a
result of net sales attributed to the Rexam SBC acquisition of 41% partially offset by a volume decline of 4%. The volume
decline is primarily attributed to general market softness. The Engineered Materials business net sales decreased from $1,451
million in fiscal 2011 to $1,362 million in fiscal 2012 as a result of a volume decline of 8% partially offset by net selling price
increases of 1% and net sales from acquired businesses of 1%. The volume decline is primarily attributed to a decrease in
sales volumes due to the strategy we implemented in fiscal 2011 to improve profitability in products with historically lower
margins. Net sales in the Flexible Packaging business decreased from $796 million in fiscal 2011 to $737 million in fiscal
2012 as a result of a volume decline of 10% partially offset by 3% net selling price increases. The volume decline is
primarily due to a decrease in sales volumes due to the strategy implemented in fiscal 2011 discussed above.
Operating Income. Operating income increased from $42 million (1% of net sales) in fiscal 2011 to $325 million (7% of net
sales) in fiscal 2012. This increase, excluding the impact from acquisitions, is primarily attributed to $59 million from the
relationship of net selling price to raw material costs, $29 million decrease of depreciation expense, $11 million decrease in
amortization expense, $188 million decrease in business integration and impairment charges, and $35 million of improved
manufacturing efficiencies partially offset by $27 million from volume declines described above, $4 million of increased
selling, general and administrative expenses and $8 million of operating loss from acquisitions. The operating income from
acquisitions for periods without comparable prior year activity was negative $8 million which includes $29 million of selling,
general and administrative expenses, $28 million of business integration expenses, $37 million of depreciation expense and
$14 million of amortization expense. The following discussion in this section provides a comparison of operating income by
business segment.
Fiscal Year
2012
2011
$ Change
% Change
Operating income (loss):
Rigid Open Top .......................................................$
Rigid Closed Top .....................................................
Rigid Packaging ...............................................$
Engineered Materials ...............................................
Flexible Packaging ..................................................
Total operating income ................................ $
159
95
254
70
1
325
$
$
$
155
77
232
(71)
(119)
42
ck
21
$
$
4
18
22
141
120
$ 283
3%
23%
9%
199%
101%
674%
Operating income for the Rigid Open Top business increased from $155 million (12% of net sales) in fiscal 2011 to $159
million (13% of net sales) in fiscal 2012. This increase is primarily attributed to a $26 million improvement in the
relationship of net selling price to raw material costs and $12 million reduction of depreciation and amortization expense
partially offset by a decline in manufacturing efficiencies of $6 million, $17 million increase in business integration expenses,
volume declines described above of $7 million and $4 million increase of selling, general and administrative expenses.
Operating income for the Rigid Closed Top business increased from $77 million (7% of net sales) in fiscal 2011 to $95
million (7% of net sales) in fiscal 2012. This increase is primarily attributed to a $28 million increase of manufacturing
efficiencies, $5 million reduction of selling, general and administrative expense, $4 million from acquisition volume and $9
million reduction of depreciation and amortization expense partially offset by $2 million decrease in the relationship of net
selling price to raw material costs, $9 million from the volume decline described above and $17 million of increased business
integration expense. Operating income for the Engineered Materials business improved from a loss of $71 million (-5% of net
sales) in fiscal 2011 to $70 million (5% of net sales) in fiscal 2012. This increase is primarily attributed to a $18 million
improvement in the relationship of net selling price to raw material costs, $14 million of improved operating performance in
manufacturing, $4 million reduction of depreciation and amortization expense and $127 million decrease in business
integration and impairment charges partially offset by $8 million of volume decline described above, $12 million loss from
acquisition volume and $2 million increase in selling, general and administrative expenses. Operating loss for the Flexible
Packaging business improved from a loss of $119 million (-15% of net sales) in fiscal 2011 to $1 million (0% of net sales) in
fiscal 2012. This improvement is primarily attributed to a $17 million improvement in the relationship of net selling price to
raw material costs, $96 million reduction of business integration and impairment charges and $16 million reduction of
depreciation and amortization expense partially offset by $4 million from the volume decline described above, $4 million
increase of selling, general and administrative expense, and a $1 million decline in manufacturing efficiencies.
Debt Extinguishment. Debt extinguishment decreased by $68 million during fiscal 2012 as a result of loss on extinguishment
of debt of $68 million in fiscal 2011 attributed to the write-off of deferred fees, debt discount and the premiums paid related to
the debt extinguishment of the Company’s 8⅞% Second Priority Senior Secured Notes.
Other Income, Net. Other income was $7 million in fiscal 2012 and fiscal 2011, respectively. These gains are attributed to the
fair value adjustment for our interest rate swaps.
Interest Expense, Net. Interest expense increased slightly from $327 million in fiscal 2011 to $328 million in fiscal 2012.
Income Tax Expense (Benefit). Fiscal 2012, we recorded an income tax expense of $2 million or an effective tax rate of 50%
compared to an income tax benefit of $47 million or an effective tax rate of 14% in fiscal 2011 due to the relative impact of
permanent items on the pre-tax income and establishment of valuation allowance for certain foreign losses where benefits are
not expected to be realized.
Income Tax Matters
The Company had unused United States federal operating loss carryforwards to offset future taxable income of $824 million
which begin to expire in 2025 through 2031. As of fiscal year end 2013, the Company had foreign net operating loss
carryforwards of $117 million, which will be available to offset future taxable income. Alternative minimum tax credit
carryforwards of $9 million are available to the Company indefinitely to reduce future years’ U.S. federal income taxes. The
net operating losses are subject to an annual limitation under guidance from the Internal Revenue Code, however, all of the
Company’s Federal net operating loss carryforwards should be available for use within the next five years. As part of the
effective tax rate calculation, if we determine that a deferred tax asset arising from temporary differences is not likely to be
utilized, we will establish a valuation allowance against that asset to record it at its expected realizable value. The Company
has not provided a valuation allowance on its net federal net operating loss carryforwards in the United States because it has
determined that future reversals of its temporary taxable differences will occur in the same periods and are of the same nature
as the temporary differences giving rise to the deferred tax assets. Our valuation allowance against deferred tax assets was
$59 million and $51 million at the end of fiscal 2013 and 2012, respectively, related to certain foreign and state deferred tax
assets.
In connection with the initial public offering, the Company entered into an income tax receivable agreement that provides for
the payment to pre-initial public offering stockholders, option holders and holders of our stock appreciation rights, 85% of the
amount of cash savings, if any, in U.S. federal, foreign, state and local income tax that are actually realized (or are deemed to
be realized in the case of a change of control) as a result of the utilization of our and our subsidiaries’ net operating losses
attributable to periods prior to the initial public offering. The Company expects to pay between $313 million and $360
million in cash related to this agreement. This range is based on the Company's assumptions using various items, including
valuation analysis and current tax law. The Company recorded an obligation of $313 million which was recognized as a
reduction of Paid-in capital on the Consolidated Balance Sheets. The balance at the end of fiscal 2013 was $308 million.
22
Liquidity and Capital Resources
Senior Secured Credit Facility
Through our wholly owned subsidiary Berry Plastics Corporation, we have senior secured credit facilities consisting of $2.5
billion of term loans and a $650 million asset-based revolving line of credit (“Credit Facility”). $1.1 billion of the term loan
matures in April 2015, $1.4 billion of the term loan matures in February 2020 and the revolving line of credit matures in June
2016, subject to certain conditions. The availability under the revolving line of credit is the lesser of $650 million or a defined
borrowing base which is calculated based on available accounts receivable and inventory. The revolving line of credit allows
up to $130 million of letters of credit to be issued instead of borrowings under the revolving line of credit. At the end of fiscal
2013, the Company had no outstanding balance on the revolving credit facility, $44 million outstanding letters of credit and a
$75 million borrowing base reserve providing unused borrowing capacity of $531 million under the revolving line of credit.
The Company was in compliance with all covenants at the end of fiscal 2013.
Our fixed charge coverage ratio, as defined in the revolving credit facility, is calculated based on a numerator consisting of
Adjusted EBITDA less pro forma adjustments, income taxes paid in cash and capital expenditures, and a denominator
consisting of scheduled principal payments in respect of indebtedness for borrowed money, interest expense and certain
distributions. We are obligated to sustain a minimum fixed charge coverage ratio of 1.0 to 1.0 under the revolving credit
facility at any time when the aggregate unused capacity under the revolving credit facility is less than 10% of the lesser of the
revolving credit facility commitments and the borrowing base (and for 10 business days following the date upon which
availability exceeds such threshold) or during the continuation of an event of default. At the end of fiscal 2013, the Company
had unused borrowing capacity of $531 million under the revolving credit facility and thus was not subject to the minimum
fixed charge coverage ratio covenant. Our fixed charge coverage ratio was 2.2 to 1.0 at the end of fiscal 2013.
Despite not having financial maintenance covenants, our debt agreements contain certain negative covenants. The failure to
comply with these negative covenants could restrict our ability to incur additional indebtedness, effect acquisitions, enter into
certain significant business combinations, make distributions or redeem indebtedness. The term loan facility contains a
negative covenant first lien secured leverage ratio covenant of 4.0 to 1.0 on a pro forma basis for a proposed transaction, such
as an acquisition or incurrence of additional first lien debt. Our first lien secured leverage ratio was 3.2 to 1.0 at the end of
fiscal 2013.
A key financial metric utilized in the calculation of the first lien leverage ratio is Adjusted EBITDA as defined in the
Company’s senior secured credit facilities. The following table reconciles (i) our Adjusted EBITDA to net income under
GAAP and (ii) our Adjusted Free Cash Flow to cash flow from operating activities under GAAP.
Adjusted EBITDA ..................................................................... $
Net interest expense ...................................................................
Depreciation and amortization ..................................................
Income tax expense ...................................................................
Business optimization and other expense .................................
Restructuring and impairment ...................................................
Extinguishment of debt..............................................................
Pro forma acquisitions ...............................................................
Unrealized cost savings .............................................................
Net income ................................................................................. $
Cash flow from operating activities .......................................... $
Net additions to property, plant and equipment ........................
Adjusted free cash flow ............................................................. $
Cash flow from investing activities ...........................................
Cash flow from financing activities ..........................................
Fiscal 2013
790
(244)
(341)
(28)
(27)
(14)
(64)
(2)
(13)
57
464
(221)
243
(245)
(164)
Quarterly Period Ended
September 28, 2013
195
$
(56)
(83)
(9)
(13)
(7)
—
—
(1)
26
167
(47)
120
(47)
(4)
$
$
$
Adjusted EBITDA and Adjusted Free Cash Flow, as presented in this document, are supplemental financial measures that are
not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”).
Adjusted EBITDA and Adjusted Free Cash Flow are not GAAP financial measures and should not be considered as an
alternative to operating or net income or cash flows from operating activities, in each case determined in accordance with
GAAP. We define “Adjusted EBITDA” as net income (loss) before depreciation and amortization, income tax expense
(benefit), interest expense (net) and certain restructuring and business optimization charges and as adjusted for unrealized cost
reductions and acquired businesses, including unrealized synergies, which are more particularly defined in our credit
documents and the indentures governing our notes. Adjusted EBITDA is used by our lenders for debt covenant compliance
23
purposes and by our management as one of several measures to evaluate management performance. While the determination
of appropriate adjustments in the calculation of Adjusted EBITDA is subject to interpretation under the terms of the Credit
Facility, management believes the adjustments described above are in accordance with the covenants in the Credit Facility.
Adjusted EBITDA eliminates certain charges that we believe do not reflect operations and underlying operational
performance. Although we use Adjusted EBITDA as a financial measure to assess the performance of our business, the use of
Adjusted EBITDA has important limitations, including that (1) Adjusted EBITDA does not represent funds available for
dividends, reinvestment or other discretionary uses, or account for one-time expenses and charges; (2) Adjusted EBITDA
does not reflect cash outlays for capital expenditures or contractual commitments; (3) Adjusted EBITDA does not reflect
changes in, or cash requirements for, working capital; (4) Adjusted EBITDA does not reflect the interest expense or the cash
requirements necessary to service interest or principal payments on indebtedness; (5) Adjusted EBITDA does not reflect
income tax expense or the cash necessary to pay income taxes; (6) Adjusted EBITDA excludes depreciation and amortization
and, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have
to be replaced in the future, and Adjusted EBITDA does not reflect cash requirements for such replacements; and (7)
Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative
of our ongoing operations.
We define “Adjusted Free Cash Flow” as cash flow from operating activities less additions to property, plant and equipment.
We use Adjusted Free Cash Flow as a measure of liquidity because it assists us in assessing our company’s ability to fund its
growth through its generation of cash. We believe Adjusted Free Cash Flow is useful to an investor in evaluating our liquidity
because Adjusted Free Cash Flow and similar measures are widely used by investors, securities analysts and other interested
parties in our industry to measure a company’s liquidity without regard to revenue and expense recognition, which can vary
depending upon accounting methods. Although we use Adjusted Free Cash Flow as a liquidity measure to assess our ability to
generate cash, the use of Adjusted Free Cash Flow has important limitations, including that: (1) Adjusted Free Cash Flow
does not reflect the cash requirements necessary to service principal payments on our indebtedness; and (2) Adjusted Free
Cash Flow removes the impact of accrual basis accounting on asset accounts and non-debt liability accounts.
Adjusted EBITDA and Adjusted Free Cash Flow may be calculated differently by other companies, including other
companies in our industry, limiting their usefulness as comparative measures. Because of these limitations, you should
consider Adjusted EBITDA and Adjusted Free Cash Flow alongside other performance measures and liquidity measures,
including operating income, various cash flow metrics, net income and our other GAAP results.
Contractual Obligations and Off Balance Sheet Transactions
Our contractual cash obligations at the end of fiscal 2013 are summarized in the following table which does not give any
effect to the tax receivable agreement and income taxes payable as we cannot reasonably estimate the timing of future cash
outflows associated with those commitments.
Long-term debt, excluding capital
leases
Capital leases (a)
Fixed interest rate payments (b)
Variable interest rate payments (c)
Operating leases
Funding of pension and other
postretirement obligations (d)
Total contractual cash obligations
Payments due by period as of the end of fiscal 2013
Total
< 1 year
1-3 years
4-5 years
> 5 years
$3,842
127
793
340
301
7
$5,410
$ 46
30
129
73
44
7
$329
$ 1,141
53
251
109
80
—
$1,634
$528
23
237
94
63
—
$945
$2,127
21
176
64
114
—
$2,502
(a)
(b)
(c)
(d)
Includes anticipated interest of $15 million over the life of the capital leases.
Includes variable rate debt subject to interest rate swap agreements.
Based on applicable interest rates in effect end of fiscal 2013.
Pension and other postretirement contributions have been included in the above table for the next fiscal year. The amount is the estimated
contributions to our defined benefit plans. The assumptions used by the actuary in calculating the projection includes weighted average
return on pension assets of approximately 8% for fiscal 2013. The estimation may vary based on the actual return on our plan assets. See
Note 9 to the Consolidated or Combined Financial Statements of this Form 10-K for more information on these obligations.
24
Cash Flows from Operating Activities
Net cash from operating activities was $464 million for fiscal 2013 compared to $479 million of cash flows from operating
activities for fiscal 2012. The change is primarily attributed to additional working capital used in fiscal 2013 due to higher
raw material costs partially offset by improved operating performance and the settlement of an interest rate hedge for $16
million.
Net cash from operating activities was $479 million for fiscal 2012 compared to $327 million of cash flows provided by
operating activities for fiscal 2011. The change is primarily the result of improved profitability, excluding non-cash
charges.
Cash Flows from Investing Activities
Net cash used for investing activities was $245 million for fiscal 2013 compared to net cash used of $255 million for fiscal
2012. The change is primarily as a result of a decline in acquisition activity partially offset by increased capital expenditures.
Net cash used for investing activities was $255 million for fiscal 2012 compared to net cash used of $523 million for fiscal
2011. The change is primarily a result of higher expenditures to finance acquisitions in fiscal 2011 partially offset by higher
capital expenditures in fiscal 2012.
Cash Flows from Financing Activities
Net cash used for financing activities was $164 million for fiscal 2013 compared to $179 million of cash used for financing
activities for fiscal 2012. This change is primarily attributed to proceeds from issuance of common stock and incremental
term loan capital restructure, which we utilized to repurchase the 11% Senior Subordinated Notes, Second Priority Senior
Secured Floating Rate Notes, First Priority Senior Secured Floating Rate Notes, 101⁄4% Senior Subordinated and 81⁄4% First
Priority Senior Secured Notes.
Net cash used for financing activities was $179 million for fiscal 2012 compared to $90 million of cash provided by financing
activities for fiscal 2011. This change is primarily attributed to the net cash used for repayment of the revolving line of credit
in fiscal 2012.
We expect to pay between $313 million and $360 million related to the TRA through 2017. The payment range is based on
the Company's assumptions using various items, including valuation analysis and current tax law. Payments under the TRA
are not conditioned upon the parties' continued ownership of the Company. During fiscal 2013, we made $5 million of
payments related to the TRA with an additional $32 million being paid in the first fiscal quarter of 2014.
Based on our current level of operations, we believe that cash flow from operations and available cash, together with available
borrowings under our senior secured credit facilities, will be adequate to meet our short-term liquidity needs over the next
twelve months. We base such belief on historical experience and the funds available under the senior secured credit facility.
In addition we believe that we have the business strategy and resources to generate free cash flow from operations in the long
term. We do not expect this free cash flow to be sufficient to cover all long-term debt obligations and intend to refinance
these obligations prior to maturity. However, we cannot predict our future results of operations and our ability to meet our
obligations involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors”
section in this Form 10-K. In particular, increases in the cost of resin which we are unable to pass through to our customers
on a timely basis or significant acquisitions could severely impact our liquidity. At the end of fiscal 2013, our cash balance
was $142 million, and we had unused borrowing capacity of $531 million under our revolving line of credit.
Critical Accounting Policies and Estimates
We disclose those accounting policies that we consider to be significant in determining the amounts to be utilized for
communicating our consolidated financial position, results of operations and cash flows in the first note to our consolidated
financial statements included elsewhere herein. Our discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of financial statements in conformity with these principles
requires management to make estimates and assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results are likely to differ from these estimates, but management does not believe such
differences will materially affect our financial position or results of operations. We believe that the following accounting
policies are the most critical because they have the greatest impact on the presentation of our financial condition and results of
operations.
25
Revenue Recognition. Revenue from the sales of products is recognized at the time title and risks and rewards of ownership
pass to the customer (either when the products reach the free-on-board shipping point or destination depending on the
contractual terms), there is persuasive evidence of an arrangement, the sales price is fixed and determinable and collection is
reasonably assured.
Accrued Rebates. We offer various rebates to our customers in exchange for their purchases. These rebate programs are
individually negotiated with our customers and contain a variety of different terms and conditions. Certain rebates are
calculated as flat percentages of purchases, while others include tiered volume incentives. These rebates may be payable
monthly, quarterly, or annually. The calculation of the accrued rebate balance involves significant management estimates,
especially where the terms of the rebate involve tiered volume levels that require estimates of expected annual sales. These
provisions are based on estimates derived from current program requirements and historical experience. We use all available
information when calculating these reserves. Our accrual for customer rebates was $55 million and $68 million as of the end
of fiscal 2013 and 2012, respectively.
Impairments of Long-Lived Assets. In accordance with the guidance from the FASB for the impairment or disposal of long-
lived assets we review long-lived assets for impairment whenever events or changes in circumstances indicate the carrying
amount of such assets may not be recoverable. Impairment losses are recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than
the assets’ carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying
amount. We recognized non-cash asset impairment of long-lived assets of $5 million, $20 million and $35 million in fiscal
2013, 2012 and 2011, respectively.
Goodwill and Other Indefinite Lived Intangible Assets. We evaluate goodwill using a qualitative assessment to determine
whether it is more likely than not that the fair value of any reporting unit is less that the carrying amount. If we determine that
the fair value of the reporting unit may be less than its carrying amount, we evaluate goodwill using a two-step impairment
test. Otherwise, we conclude that no impairment is indicated and we do not perform the two-step impairment test.
We conduct our business through four operating segments, Rigid Open Top, Rigid Closed Top (collectively Rigid
Packaging), Engineered Materials and Flexible Packaging. For purposes of conducting our annual goodwill impairment test,
we have determined that we have five reporting units, Rigid Open Top, Rigid Closed Top, Engineered Materials, Flexible
Packaging and Tapes. Engineered Materials and Tapes operations comprise Engineered Materials operating segment. We
determined that each of the components within our respective reporting units have similar economic characteristics and
therefore should be aggregated and tested at the respective level as one reporting unit. We reached this conclusion because
within each of our reporting units, we have similar products and production processes which allow us to share assets and
resources across the product lines. We regularly re-align our production equipment and manufacturing facilities in order to
take advantage of cost savings opportunities, obtain synergies and create manufacturing efficiencies. In addition, we utilize
our research and development centers, design center, tool shops, and graphics center which all provide benefits to each of the
reporting units and work on new products that can not only benefit one product line, but can benefit multiple product lines.
We also believe that the goodwill is recoverable from the overall operations of the unit given the similarity in production
processes, synergies from leveraging the combined resources, common raw materials, common research and development,
similar margins and similar distribution methodologies. There were no indicators of impairment in the fourth quarter that
required us to perform a test for the recoverability of goodwill.
In conducting a qualitative assessment, the Company analyzes a variety of events or factors that may influence the fair value
of the reporting unit, including, but not limited to: the results of prior quantitative tests performed; changes in the carrying
amount of the reporting unit; actual and projected operating results, primarily focused on revenue growth trends and earnings;
relevant market data for both the company and its peer companies; industry outlooks; macroeconomic conditions; liquidity;
changes in key personnel; and the Company’s competitive position. Significant judgment is used to evaluate the totality of
these events and factors to make the determination of whether it is more likely than not that the fair value of the reporting unit
is less than its carrying value.
If the qualitative assessment concludes that the two-step impairment test is necessary, we first compare the book value of a
reporting unit, including goodwill, with its fair value. The fair value is estimated based on a market approach and a
discounted cash flow analysis, also known as the income approach, and is reconciled back to the current market capitalization
for Berry Plastics to ensure that the implied control premium is reasonable. If the book value of a reporting unit exceeds its
fair value, we perform the second step to estimate an implied fair value of the reporting unit’s goodwill by allocating the fair
value of the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible
assets). The difference between the total fair value of the reporting unit and the fair value of all the assets and liabilities other
than goodwill is the implied fair value of that goodwill. The amount of impairment loss is equal to the excess of the book
value of the goodwill over the implied fair value of that goodwill.
26
Based on the favorable results of the qualitative assessment conducted on the first day of our fiscal fourth quarter, there was
no goodwill impairment charge recorded in 2013. Goodwill as of September 28, 2013, by reporting unit is as follows:
$
Goodwill as of
September 28, 2013
Rigid Open Top ................................
681
Rigid Closed Top................................831
Engineered Films ................................54
Tapes ................................
19
Flexible Packaging ................................49
1,634
$
Based on our estimated evaluation of the events and factors outlined above for each of our reporting units, we believe that the
value of each of our reporting units is either equal to or higher than last year as supported by the growth in our overall market
capitalization and total enterprise value. Further, in connection with our initial public offering, we are required to make
payments to our former shareholders of cash savings we generate from use of our tax assets that existed prior to our initial
public offering. The allocation of this obligation to each of the reporting units reduced the carrying value of each unit in the
current year. Further, each of our reporting units experienced growth in the market multiples used to value the respective
reporting unit based on the overall growth of our market capitalization and that of our competitors and peers. Our Closed
Top, Engineered Films and Tapes reporting units have all seen sales growth consistent with or in excess of our forecasts.
Further, earnings have increased as seen in our overall operating results for the Company as more fully described in our
management discussion and analysis. Our Rigid Open Top reporting unit has seen a decline in the current year related to
some volume losses, selling price to raw material declines and manufacturing performance issues. These declines in
operating performance have been offset by the development and launch of the Company’s Versalite product which will
generate future revenues which were not contemplated in historical forecasts for the reporting unit. Further, the Company has
undertaken certain restructuring activities which will consolidate facilities and reduce costs which will benefit long-term cash
flows from this reporting unit. Finally, the market multiples for the Rigid Open Top peers continue to be strong which
continues to support that the historical valuations for this reporting unit are still substantially in excess of the carrying value.
Finally, the Flexible Packaging reporting unit saw the strongest growth in market multiples across their peer group leading to
implied higher valuations. The Company has experienced lower sales and earnings estimates than originally forecast but
given the capital expenditure investments believes that earnings potential exists in this reporting unit. Given the overall
growth in our market capitalization since our initial public offering, we believe that this supports that it is more likely than not
that the fair value of our reporting units is more than their carrying value.
We also performed our annual impairment test for fiscal 2013 of our indefinite lived intangible assets, which relates to our
Rigid Packaging business. The cash flow assumptions, growth rates and risks to these cash flows are similar to those used in
our analysis to determine the fair value of our combined Rigid Packaging businesses. The annual impairment test did not
result in any impairment as the fair value exceeded the carrying value.
Deferred Taxes and Effective Tax Rates. We estimate the effective tax rates (“ETR”) and associated liabilities or assets for
each of our legal entities of ours in accordance with authoritative guidance. We use tax planning to minimize or defer tax
liabilities to future periods. In recording ETRs and related liabilities and assets, we rely upon estimates, which are based upon
our interpretation of United States and local tax laws as they apply to our legal entities and our overall tax structure. Audits
by local tax jurisdictions, including the United States Government, could yield different interpretations from our own and
cause the Company to owe more taxes than originally recorded. For interim periods, we accrue our tax provision at the ETR
that we expect for the full year. As the actual results from our various businesses vary from our estimates earlier in the year,
we adjust the succeeding interim periods’ ETRs to reflect our best estimate for the year-to-date results and for the full year.
As part of the ETR, if we determine that a deferred tax asset arising from temporary differences is not likely to be utilized, we
will establish a valuation allowance against that asset to record it at its expected realizable value. In multiple foreign
jurisdictions, the Company believes that it will not generate sufficient future taxable income to realize the related tax benefits.
The Company has provided a full valuation allowance against its foreign net operating losses included within the deferred tax
assets in multiple foreign jurisdictions. The Company has not provided a valuation allowance on its federal net operating
losses in the United States because it has determined that future reversals of its temporary taxable differences will occur in the
same periods and are of the same nature as the temporary differences giving rise to the deferred tax assets. Changes in our
valuation allowance could also impact our TRA obligation. Our valuation allowance against deferred tax assets was $59
million and $51 million as of the end of fiscal 2013 and 2012, respectively.
Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the
application of those policies, we believe that our consolidated financial statements provide a meaningful and fair perspective
of the Company and its consolidated subsidiaries. This is not to suggest that other risk factors such as changes in economic
27
conditions, changes in material costs, our ability to pass through changes in material costs, and others could not materially
adversely impact our consolidated financial position, results of operations and cash flows in future periods.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities. Our
senior secured credit facilities are comprised of (i) $2.6 billion of term loans and (ii) a $650 million revolving credit
facility. At September 28, 2013, the Company had no outstanding balance on the revolving credit facility. The net
outstanding balance of the term loans was $2.5 billion at September 28, 2013. 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. A 0.25% change in LIBOR would not have a material impact on our interest expense.
In November 2010, the Company entered into two separate interest rate swap transactions to protect $1 billion of the
outstanding variable rate term loan debt from future interest rate volatility. The first agreement had a notional amount of
$500 million and became effective in November 2010. The agreement swaps three month variable LIBOR contracts for a
fixed three year rate of 0.8925% and expires in November 2013. The second agreement had a notional amount of $500
million and became effective in December 2010. The agreement swaps three month variable LIBOR contracts for a fixed
three year rate of 1.0235% and expires in November 2013. The counterparties to these agreements are with global financial
institutions. In August 2011, the Company began utilizing 1-month LIBOR contracts for the underlying senior secured credit
facility. The Company’s change in interest rate selection caused the Company to lose hedge accounting on both of the
interest rate swaps. The Company recorded subsequent changes in fair value in the Consolidated Statement of Operations and
will amortize the unrealized losses to Interest expense through the end of the respective swap agreements. A .25% change in
LIBOR would not have a material impact on the fair value of the interest rate swaps.
In February 2013, the Company entered into an interest rate swap transaction to manage cash flow variability associated with
$1 billion of outstanding variable rate term loan debt. The agreement swapped the greater of a three-month variable LIBOR
contract or 1.00% for a fixed three-year rate of 2.355%, with an effective date in May 2016 and expiration in May 2019. In
June 2013, the Company elected to settle this derivative instrument and received $16 million as a result of this settlement.
The offset is included in Accumulated other comprehensive loss and Deferred income taxes and will be amortized to Interest
expense from May 2016 through May 2019, the original term of the swap agreement.
Resin Cost Sensitivity
We are exposed to market risk from changes in plastic resin prices that could impact our results of operations and financial
condition. Our plastic resin purchasing strategy is to deal with only high-quality, dependable suppliers. We believe that we
have maintained strong relationships with these key suppliers and expect that such relationships will continue into the
foreseeable future. The resin market is a global market and, based on our experience, we believe that adequate quantities of
plastic resins will be available at market prices, but we can give you no assurances as to such availability or the prices thereof.
If the price of resin increased or decreased by 5% this would result in a material change to our cost of goods sold.
28
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of fiscal 2013 and 2012
Consolidated Statements of Operations and Comprehensive Income (Loss) for fiscal 2013, 2012 and 2011
Consolidated Statements of Changes in Stockholders' Equity as of fiscal 2013, 2012 and 2011
Consolidated Statements of Cash Flows for fiscal 2013, 2012 and 2011
Notes to Consolidated Financial Statements
Index to Financial Statement Schedules
33
34
35
36
37
38
All schedules have been omitted because they are not applicable or not required or because the required information is
included in the consolidated financial statements or notes thereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are
designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such
information is accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our
disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and
procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required
to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. Based on their
evaluation at the end of the period covered by this Form 10-K, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of any
evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 28, 2013.
The scope of management’s assessment of the effectiveness of internal control over financial reporting includes all of the
Company’s businesses. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based upon its
assessment, management believes that as of September 28, 2013, the Company’s internal controls over financial reporting
were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting occurred during the fourth quarter of fiscal 2013
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. OTHER INFORMATION
Option Modification
29
In August 2013, the Company implemented certain modifications to the Berry Plastics Group Inc. 2006 Equity Incentive Plan
and the Berry Plastics Group, Inc. 2012 Long Term Incentive Plan. See “Item 1. Business—Recent Developments—Option
Modification,” which is incorporated by reference into this Item.
Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act
Apollo has provided notice to us that, as of October 24, 2013, certain investment funds managed by affiliates of Apollo
Global Management, LLC (“Apollo”) beneficially owned approximately 22% of the limited liability company interests of
CEVA Holdings, LLC (“CEVA”). Under the limited liability company agreement governing CEVA, certain investment
funds managed by affiliates of Apollo hold a majority of the voting power of CEVA and have the right to elect a majority of
the board of CEVA. CEVA may be deemed to be under common control with us, but this statement is not meant to be an
admission that common control exists. As a result, it appears that we are required to provide disclosures as set forth below
pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”) and Section 13(r) of the
Securities Exchange Act of 1934, as amended.
Apollo has informed us that CEVA has provided it with the information below relevant to Section 13(r) of the Exchange Act.
The disclosure below does not relate to any activities conducted by us and does not involve us or our management. The
disclosure relates solely to activities conducted by CEVA and its consolidated subsidiaries. We have not independently
verified or participated in the preparation of the disclosure below.
“Through an internal review of its global operations, CEVA has identified the following transactions in an Initial Notice of
Voluntary Self-Disclosure that CEVA filed with the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”)
on October 28, 2013. CEVA’s review is ongoing. CEVA will file a further report with OFAC after completing its review.
The internal review indicates that, in December 2012, CEVA Freight Italy Srl (“CEVA Italy”) provided customs brokerage
and freight forwarding services for the export to Iran of two measurement instruments to the Iranian Offshore Engineering
Construction Company, a joint venture between two entities that are identified on OFAC’s list of Specially Designated
Nationals (“SDN”). The revenues and net profits for these services were approximately $1,260.64 USD and $151.30 USD,
respectively. In February 2013, CEVA Freight Holdings (Malaysia) SDN BHD (“CEVA Malaysia”) provided customs
brokerage for export and local haulage services for a shipment of polyethylene resin to Iran shipped on a vessel owned and/or
operated by HDS Lines, also an SDN. The revenues and net profits for these services were approximately $779.54 USD and
$311.13 USD, respectively. In September 2013, CEVA Malaysia provided customs brokerage services for the import into
Malaysia of fruit juice from Alifard Co. in Iran via HDS Lines. The revenues and net profits for these services were
approximately $227.41 USD and $89.29 USD, respectively.
These transactions violate the terms of internal CEVA compliance policies, which prohibit transactions involving Iran. Upon
discovering these transactions, CEVA promptly launched an internal investigation, and is taking action to block and prevent
such transactions in the future. CEVA intends to cooperate with OFAC in its review of this matter.”
30
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item, with the exception of the Code of Ethics disclosure below, is incorporated herein by
reference to our definitive Proxy Statement to be filed in connection with the 2014 Annual Meeting of Stockholders.
Code of Ethics
We have a Code of Business Ethics that applies to all employees, including our Chief Executive Officer and senior financial
officers. These standards are designed to deter wrongdoing and to promote the highest ethical, moral, and legal conduct of all
employees. Our Code of Business Ethics can be obtained, free of charge, by contacting our corporate headquarters or can be
obtained from the Corporate Governance section of the Company’s internet site.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to our definitive Proxy Statement to be filed in
connection with the 2014 Annual Meeting of Stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item, is incorporated herein by reference to our definitive Proxy Statement to be filed in
connection with the 2014 Annual Meeting of Stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference to our definitive Proxy Statement to be filed in
connection with the 2014 Annual Meeting of Stockholders.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein by reference to our definitive Proxy Statement to be filed in
connection with the 2014 Annual Meeting of Stockholders.
31
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1.
Financial Statements
The financial statements listed under Item 8 are filed as part of this report.
2.
Financial Statement Schedules
has been disclosed in the financial statements or notes thereto.
Schedules have been omitted because they are either not applicable or the required information
3.
Exhibits
The exhibits listed on the Exhibit Index immediately following the signature page of
this annual report are filed as part of this report.
32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Berry Plastics Group, Inc.
We have audited the accompanying consolidated balance sheets of Berry Plastics Group, Inc. as of September 28, 2013 and
September 29, 2012, and the related consolidated statements of operations and comprehensive income (loss), changes in
stockholders' equity (deficit), and cash flows for each of the three years in the period ended September 28, 2013. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an audit of the Company’s 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 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Berry Plastics Group, Inc. at September 28, 2013 and September 29, 2012, and the consolidated results of its
operations and its cash flows for the three years in the period ended September 28, 2013, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst and Young LLP
Indianapolis, Indiana
December 11, 2013
33
Berry Plastics Group, Inc.
Consolidated Balance Sheets
(in millions of dollars, except share data)
September 28, 2013 September 29, 2012
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill, intangible assets and deferred costs, net
Other assets
Total assets
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Current portion of long-term debt
Total current liabilities
Long-term debt, less current portion
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies
Redeemable shares
Stockholders' equity (deficit):
Common stock: ($0.01 par value; 400,000,000 shares authorized; 115,895,927 shares issued and
115,825,443 shares outstanding as of September 28, 2013; 84,696,218 issued and 83,209,232
outstanding as of September 29, 2012)
Additional paid-in capital
Notes receivable-common stock
Non controlling interest
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders' equity (deficit)
$
$
$
142 $
449
575
139
32
1,337
1,266
2,520
12
5,135 $
337 $
276
71
684
3,875
385
387
5,331
-
1
322
-
3
(504)
(18)
(196)
Total liabilities and stockholders' equity (deficit)
$
5,135 $
See notes to consolidated financial statements.
34
87
455
535
114
42
1,233
1,216
2,636
21
5,106
306
300
40
646
4,431
315
166
5,558
23
1
131
(2)
3
(561)
(47)
(475)
5,106
Berry Plastics Group, Inc.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in millions of dollars, except share data)
Fiscal years ended
September 28, 2013 September 29, 2012 October 1, 2011
$
4,647
$
4,766 $
4,561
3,835
3,984
3,908
Net sales
Costs and expenses:
Cost of goods sold
Selling, general and administrative
Amortization of intangibles
Restructuring and impairment charges
Operating income
Debt extinguishment
Other income, net
Interest expense, net
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Comprehensive income (loss):
Currency translation
Interest rate hedges
$
Defined benefit pension and retiree health benefit plans
Provision for income taxes related to other
comprehensive income items
Comprehensive income (loss)
Net income (loss) per share:
Basic
Diluted
$
$
$
307
105
14
386
64
(7)
244
85
28
57
(5)
20
34
(20)
86
$
317
109
31
325
-
(7)
328
4
2
$
2 $
6
4
(14)
5
3 $
284
106
221
42
68
(7)
327
(346)
(47)
(299)
(10)
(8)
(14)
7
(324)
0.50
0.48
$
$
0.02 $
0.02 $
(3.55)
(3.55)
Outstanding weighted-average shares: (in thousands)
Basic
Diluted
113,486
119,454
83,435
86,644
84,121
84,121
See notes to consolidated financial statements.
35
Berry Plastics Group, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
(in millions of dollars)
Common
Stock
Additional
Paid-in
Capital
Notes
Receivable-
Common
Stock
Non
Controlling
Interest
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Balance at October 2, 2010
$
1 $
147 $
(2) $ -
$
(23) $
(264)
$ (141)
-
-
-
-
(10)
(6)
(9)
-
-
-
2
3
(7)
(299)
(299)
-
-
-
(10)
(6)
(9)
-$ (467)
2
3
(13)
-
2
6
(8)
(48) $
(563)
-
3
-
-
-
6
(8)
-
-
-
-
2
-
-
(47) $
(561)
$ (475)
-
-
-
-
-
-
3
10
-
(5)
21
-
-
-
-
-
-
-
-
57
-
-
16
2
27
23
438
(313)
3
10
57
(5)
21
(18) $
(504)
$ (196)
Stock compensation expense
Non controlling interest
Fair value adjustment of redeemable stock
Net loss
Currency translation
Interest rate hedges, net of tax
Defined benefit pension and retiree health
benefit plans, net of tax
-
-
-
-
-
-
-
2
-
(7)
-
-
-
-
-
-
-
-
-
-
-
Balance at October 1, 2011
$
1 $
142 $
(2) $
Stock compensation expense
Interest rate hedge, net of tax
Fair value adjustment of redeemable stock
Treasury stock, net
Net income
Currency translation
Defined benefit pension and retiree health
benefit plans, net of tax
-
-
-
-
-
-
-
2
-
(13)
-
-
-
-
-
-
-
-
-
-
-
Balance at September 29, 2012
$
1 $
131 $
(2) $
Stock compensation expense
Repayment of note receivable
Proceeds from issuance of common stock
Termination of redeemable shares
Proceeds from initial public offering
Obligation under TRA
Derivative amortization, net of tax
Interest rate hedge, net of tax
Net income
Currency translation
Defined benefit pension and retiree health
benefit plans, net of tax
-
-
-
-
-
-
-
-
-
-
-
16
-
27
23
438
(313)
-
-
-
-
-
Balance at September 28, 2013
$
1 $
322 $
-
2
-
-
-
-
-
-
-
-
-
- $
-
3
-
-
-
-
-
3
$
-
-
-
-
-
-
-
3 $
-
-
-
-
-
-
-
-
-
-
-
3 $
See notes to consolidated financial statements.
36
Berry Plastics Group, Inc.
Consolidated Statements of Cash Flows
(in millions of dollars)
September 28, 2013
Fiscal years ended
September 29, 2012
October 1, 2011
$
57
$
2
$
(299)
Cash Flows from Operating Activities:
Net income (loss)
Adjustments to reconcile net cash from operating activities:
Depreciation
Amortization of intangibles
Non-cash interest expense
Debt extinguishment
Settlement of interest rate hedge
Stock compensation expense
Deferred income taxes
Impairment of long-lived assets and goodwill
Other non-cash items
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories
Prepaid expenses and other assets
Accounts payable and other liabilities
Net cash from operating activities
Cash Flows from Investing Activities:
Additions to property, plant and equipment
Proceeds from disposal of assets
Acquisitions of business, net of cash acquired
Net cash from investing activities
Cash Flows from Financing Activities:
Proceeds from long-term borrowings
Repayment of long-term borrowings
Proceeds from issuance of common stock
Purchases of common stock
Payment of tax receivable agreement
Proceeds from initial public offering
Repayment of notes receivable
Debt financing fees
Net cash from financing activities
Effect of currency translation on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
See notes to consolidated financial statements.
236
105
14
64
16
16
22
6
(6)
246
109
24
-
-
2
1
20
3
238
106
21
68
-
2
(51)
200
(9)
(11)
59
25
(22)
327
(160)
5
(368)
(523)
995
(880)
95
37
(7)
(53)
479
(230)
30
(55)
(255)
2
(175)
-
-
(6)
(2)
-
-
-
-
-
-
-
(179)
-
45
42
87
$
(23)
90
-
(106)
148
42
$
3
(43)
15
(41)
464
(239)
18
(24)
(245)
1,391
(1,978)
27
-
(5)
438
2
(39)
(164)
-
55
87
142
$
37
Berry Plastics Group, Inc.
Notes to Consolidated Financial Statements
(in millions of dollars, except as otherwise noted)
1. Basis of Presentation and Summary of Significant Accounting Policies
Background
Berry Plastics Group, Inc. (“Berry” or the “Company”) is a leading provider of value-added plastic consumer packaging and
engineered materials with a track record of delivering high-quality customized solutions to our customers. Representative
examples of our products include drink cups, thin-wall containers, bottles, specialty closures, prescription vials, specialty
films, adhesives and corrosion protection materials. We sell our solutions predominantly into consumer-oriented end-
markets, such as food and beverage, healthcare and personal care.
Initial Public Offering, Stock Split and TRA
In October 2012, the Company completed an initial public offering and sold 29,411,764 shares of common stock at a public
offering price of $16.00 per share. In conjunction with the initial public offering the Company executed a 12.25 for one stock
split of the Company’s common stock. The effect of the stock split on outstanding shares and earnings per share has been
retroactively applied to all periods presented. Transaction fees totaling $33 million were included in Paid-in capital on the
Consolidated Balance Sheets. Proceeds, net of transaction fees, of $438 million and cash from operations were used to
repurchase $455 million of 11% Senior Subordinated Notes due September 2016. As part of the repurchase the Company
paid premiums of $13 million and wrote-off $3 million of deferred financing fees.
In connection with the initial public offering, the Company entered into an income tax receivable agreement ("TRA") that
provides for the payment to pre-initial public offering stockholders, option holders and holders of our stock appreciation
rights, 85% of the amount of cash savings, if any, in U.S. federal, foreign, state and local income tax that are actually realized
(or are deemed to be realized in the case of a change of control) as a result of the utilization of our and our subsidiaries’ net
operating losses attributable to periods prior to the initial public offering. The Company expects to pay between $313 million
and $360 million in cash related to this agreement. This range is based on the Company's assumptions using various items,
including valuation analysis and current tax law. The Company recorded an obligation of $313 million which was recognized
as a reduction of Paid-in capital on the Consolidated Balance Sheets. Changes in the estimated TRA obligation will be
recorded as Other expense (income) in the Consolidated Statement of Operations. Payments under the TRA are not
conditioned upon the parties' continued ownership of the Company.
Secondary Public Offerings
In April 2013, we completed a secondary public offering in which certain funds affiliated with Apollo Global
Management, LLC (“Apollo”) and Graham Partners (“Graham”) sold 18,975,000 shares of common stock at $17.00 per
share, which included 2,475,000 shares purchased by the underwriters upon the exercise in full of their option to purchase
additional shares. The selling stockholders received proceeds from the offering, which, net of underwriting fees, totaled
$311 million. The Company received no proceeds and incurred fees of $1 million related to this offering.
In July 2013, we completed a secondary public offering in which certain funds affiliated with Apollo and Graham sold
17,250,000 shares of common stock at $21.63 per share, which included 2,250,000 shares purchased by the underwriters
upon the exercise in full of their option to purchase additional shares. The selling stockholders received proceeds from the
offering, which, net of underwriting fees, totaled $360 million. The Company received no proceeds and incurred fees of
$1 million related to this offering.
Basis of Presentation
Periods presented in these financial statements include fiscal periods ending September 28, 2013 (“fiscal 2013”), September
29, 2012 (“fiscal 2012”), and October 1, 2011 (“fiscal 2011”). Berry, through its wholly-owned subsidiaries operates in four
primary segments: Rigid Open Top, Rigid Closed Top, Engineered Materials, and Flexible Packaging. The Company’s
customers are located principally throughout the United States, without significant concentration in any one region or with
any one customer. The Company performs periodic credit evaluations of its customers’ financial condition and generally
does not require collateral. The Company’s fiscal year is based on fifty-two or fifty-three week periods. The Company has
evaluated subsequent events through the date the financial statements were issued.
Reclassification Adjustments
38
Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation.
The Company historically presented Other operating expenses in its Consolidated Statements of Operations, which
consisted predominately of business optimization costs and management fees to affiliates of Apollo and Graham. The
Company has eliminated separate presentation of Other operating expenses from its Consolidated Statements of
Operations to better align with the way the Company is reviewing its operating results. The Company incurred business
optimization costs of $16 million, $32 million and $31 million in fiscal 2013, fiscal 2012 and fiscal 2011, respectively and
are included in Cost of goods sold. The Company recorded management fees of $9 million in fiscal 2012 and fiscal 2011,
respectively and are included in Selling, general and administrative expense. The Company’s management fee agreement
with Apollo and other investors terminated upon completion of the initial public offering.
Consolidation
The consolidated financial statements include the accounts of Berry and its subsidiaries, all of which includes our wholly
owned and majority owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
Where our ownership of consolidated subsidiaries is less than 100% the non-controlling interests are reflected in
stockholders’ equity.
Revenue Recognition
Revenue from the sales of products is recognized at the time title and risks and rewards of ownership pass to the customer
(either when the products reach the free-on-board shipping point or destination depending on the contractual terms), there is
persuasive evidence of an arrangement, the sales price is fixed and determinable and collection is reasonably assured.
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 accordance with the Revenue Recognition standards of the
Accounting Standards Codification (“Codification” or “ASC”), 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
goods sold in the Consolidated Statements of Operations. The Company classifies amounts charged to its customers for
shipping and handling in Net sales in the Consolidated Statements of Operations.
Vendor Rebates, Purchases of Raw Materials and Concentration of Risk
The Company receives consideration in the form of rebates from certain vendors. 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.
The largest supplier of the Company’s total resin material requirements represented approximately 20% of purchases in fiscal
2013. The Company uses a variety of suppliers to meet its resin requirements.
Research and Development
Research and development costs are expensed when incurred. The Company incurred research and development
expenditures of $28 million, $25 million, and $20 million in fiscal 2013, 2012, and 2011, respectively.
Stock-Based Compensation
The compensation guidance of the FASB 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. The Company’s share-based compensation plan is more
fully described in Note 12. The Company recorded total stock compensation expense of $16 million, $2 million, and $2
million for fiscal 2013, 2012 and 2011, respectively.
In August 2013, the Company recorded an $8 million stock compensation charge related to certain modifications to the Berry
Plastics Group Inc. 2006 Equity Incentive Plan and the Berry Plastics Group, Inc. 2012 Long-Term Incentive Plan
(collectively, the "Plans"), and amended outstanding non-qualified stock option agreements to reflect such modifications. The
modifications, include (i) accelerated vesting of all unvested options upon an employee's death or permanent disability (ii) in
the event of an employee's qualified retirement, continuation of the normal vesting period applicable to the retiree's unvested
options, as well as an extension of the exercise period to the end of the original ten-year term of the retiree's vested options
and (iii) all unvested options and stock appreciation rights that were subject to performance-based vesting criteria as of
January 1, 2013 (excluding certain IRR performance-based options) were modified to time-based vesting.
39
The Company utilizes the Black-Scholes option valuation model for estimating the fair value of the stock options. The model
allows for the use of a range of assumptions. Expected volatilities utilized in the Black-Scholes model 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 Company’s options have a ten year contractual life. For purposes of the valuation model in fiscal 2013,
the Company used the simplified method for determining the granted options expected lives. The fair value for options
granted has been estimated at the date of grant using a Black-Scholes model, with the following weighted average
assumptions:
Risk-free interest rate
Dividend yield
Volatility factor
Expected option life
Foreign Currency
2013
0.6
0.0
.38
7 years
%
%
Fiscal year
2012
0.6 - 0.9
0.0
.38
5 years
%
%
2011
1.3
0.0
.32 - .34
5 years
%
%
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 (loss) 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 the Consolidated Statements of Operations.
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 Company’s accounts receivable and related allowance for doubtful accounts are 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.
The following table summarizes the activity for fiscal 2013, 2012 and 2011 for the allowance for doubtful accounts:
Allowance for doubtful accounts, beginning
Bad debt expense
Write-offs against allowance
Allowance for doubtful accounts, ending
Inventories
2013
3
1
(1)
3
$
$
$
$
2012
4
1
(2)
3
2011
4
1
(1)
4
$
$
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. 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. Inventory as of fiscal 2013 and 2012 was:
Inventories:
Finished goods
2013
2012
$
335
$
306
40
Raw materials
Property, Plant and Equipment
240
575
$
$
229
535
Property, plant 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, two to 10 years for
machinery, equipment, and tooling and over the term of the agreement for capital leases. 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. The Company capitalized interest of $5 million, $5 million, and $3 million in fiscal 2013,
2012, and 2011, respectively. Property, plant and equipment as of fiscal 2013 and 2012 was:
Property, plant and equipment:
Land, buildings and improvements
Equipment and construction in progress
Less accumulated depreciation
Long-lived Assets
2013
302
2,241
2,543
(1,277)
1,266
$
$
2012
281
2,019
2,300
(1,084)
1,216
$
$
Long-lived assets, including property, plant and equipment and definite lived intangible assets are reviewed for impairment at
the product line level in accordance with the Property, Plant and Equipment standard of the ASC 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. We recorded impairment charges totaling $5
million, $20 million, and $35 million to write-down long-lived assets to their net realizable valuables during fiscal years 2013,
2012, and 2011 respectively.
Goodwill
The Company follows the principles provided by the Goodwill and Other Intangibles standard of the ASC. Goodwill is not
amortized but rather tested annually for impairment. The Company performs their annual impairment test on the first day of
the fourth quarter in each respective fiscal year. For purposes of conducting our annual goodwill impairment test, the
Company determined that we have five reporting units, Open Top, Rigid Closed Top, Engineered Films, Flexible Packaging
and Tapes. Tapes and Engineered Films comprise the Engineered Materials operating segment. We determined that each of
the components within our respective reporting units have similar economic characteristics and therefore should be
aggregated. We reached this conclusion because within each of our reporting units, we have similar products and production
processes which allow us to share assets and resources across the product lines. We regularly re-align our production
equipment and manufacturing facilities in order to take advantage of cost savings opportunities, obtain synergies and create
manufacturing efficiencies. In addition, we utilize our research and development centers, design center, tool shops, and
graphics center which all provide benefits to each of the reporting units and work on new products that can not only benefit
one product line, but can benefit multiple product lines. We also believe that the goodwill is recoverable from the overall
operations of the unit given the similarity in production processes, synergies from leveraging the combined resources,
common raw materials, common research and development, similar margins and similar distribution methodologies. In fiscal
2013, the Company applied the quantitative assessment to determine whether it is more likely than not that the fair value of
the reporting unit may be less than the carrying amount. Based on our review of prior quantitative tests, changes in the
carrying values, operating results, relevant market data and other factors we determined that no impairment is indicated and
we did not perform a two-step impairment test. In fiscal 2012, we completed step 1 of the impairment test which indicated no
impairment in any of our reporting units. In fiscal 2011 the Company completed the annual impairment and determined the
carrying value of the Specialty Films division, which is now included in the Engineered Materials and Flexible Packaging
exceeded its fair value. The Company performed the second step of its evaluation to calculate the impairment and as a result
recorded a goodwill impairment charge of $165 million in Restructuring and impairment charges on the Consolidated
Statement of Operations. This impairment was primarily the result of a base volume decline of 11% in our Engineered
Materials and Flexible Packaging segments. This base volume decline of 11% occurred because of a pricing strategy that we
41
implemented in the second fiscal quarter of 2011. The $165 million impairment charge incurred in fiscal 2011 is the
Company’s only goodwill impairment charge.
The changes in the carrying amount of goodwill by reportable segment are as follows:
Rigid Open
Top
Rigid Closed
Top
Engineered
Materials
Flexible
Packaging
Total
Balance as of fiscal 2011
$
681
$
819
$
Foreign currency translation adjustment
Acquisitions(divestitures) goodwill, net
-
-
2
11
Balance as of fiscal 2012
$
681
$
832
$
Foreign currency translation adjustment
Acquisitions(divestitures) goodwill, net
-
-
(1)
-
Balance as of fiscal 2013
$
681
$
831
$
Deferred Financing Fees
55
-
18
73
1
(1)
73
$
40
$
1,595
-
-
2
29
$
40
$
1,626
-
9
-
8
$
49
$
1,634
Deferred financing fees are being amortized to interest expense using the effective interest method over the lives of the
respective debt agreements.
Intangible Assets
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. Trademarks that are expected to remain in use, which are indefinite lived intangible assets, are required to be
reviewed for impairment annually. 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 10 to 20 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. We completed the annual
impairment test of our indefinite lived tradenames and noted no impairment. As discussed in Note 10, the Company recorded
a $5 million and $17 million impairment charge related to the exit of certain operations in fiscal 2013 and fiscal 2012,
respectively.
Customer
Relationships Trademarks
Other
Intangibles
Accumulated
Amortization
Total
Balance as of fiscal 2011
$
1,178
$
286
$
Adjustment for income taxes
Write-off of fully amortized intangibles
Amortization expense
Impairment of intangibles
Acquisition intangibles
Balance as of fiscal 2012
-
-
-
(37)
12
-
-
-
-
3
$
1,153
$
289
$
Adjustment for income taxes
Foreign currency translation adjustment
Write-off of fully amortized intangibles
Amortization expense
Impairment of intangibles
(7)
-
-
-
(21)
(1)
-
(5)
-
(1)
42
82
(4)
(7)
-
-
28
99
5
2
(1)
-
-
$
(502)
$
1,044
-
7
(109)
20
-
$
(584)
$
(2)
-
6
(105)
17
(4)
-
(109)
(17)
43
957
(5)
2
-
(105)
(5)
Acquisition intangibles
Balance as of fiscal 2013
9
1
2
-
$
1,134
$
283
$
107
$
(668)
$
12
856
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. The Company recognizes
uncertain tax positions when it is more likely than not that the tax position will be sustained upon examination by relevant
taxing authorities, based on the technical merits of the position. The amount recognized is measured as the largest amount of
benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company’s effective tax rate 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 United States.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). Other
comprehensive losses include net unrealized gains or losses resulting from currency translations of foreign subsidiaries,
changes in the value of our derivative instruments and adjustments to the pension liability.
The accumulated balances related to each component of other comprehensive income (loss) were as follows (amounts below
are net of taxes):
Balance as of fiscal 2010
Other comprehensive loss
Tax expense (benefit)
Balance as of fiscal 2011
Other comprehensive income (loss)
Tax expense (benefit)
Balance as of fiscal 2012
Other comprehensive income (loss)
Tax expense (benefit)
Balance as of fiscal 2013
Currency
Translation
(11)
(10)
-
(21)
6
-
(15)
(5)
-
(20)
$
$
$
$
$
$
$
$
Defined Benefit
Pension and Retiree
Health Benefit Plans
(12)
(14)
5
(21)
(14)
6
(29)
34
(13)
(8)
$
$
$
$
Interest Rate
Hedges
-
(8)
2
(6)
4
(1)
(3)
20
(7)
10
$
$
$
$
Accumulated Other
Comprehensive Loss
(23)
(32)
7
(48)
(4)
5
(47)
49
(20)
(18)
Accrued Rebates
The Company offers various rebates to customers based on 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
43
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 accrual for customer rebates was $55 million and
$68 million at the end of fiscal 2013 and 2012, respectively and is included in Accrued expenses and other current
liabilities.
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.
Net Income (Loss) Per Share
The Company calculates basic net income (loss) per share based on the weighted-average number of outstanding common
shares. The Company calculates diluted net income (loss) per share based on the weighted-average number of outstanding
common shares plus the effect of dilutive securities.
Use of Estimates
The preparation of the financial statements in conformity with U.S. generally accepted accounting principles 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. 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 February 2013, the FASB issued Accounting Standards Update No. 2013-02: Comprehensive Income (Topic 220),
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). This guidance
requires companies to report, in one place, information about reclassifications out of accumulated other comprehensive
income (AOCI). Companies also are required to present reclassifications by component when reporting changes in AOCI
balances. For significant items reclassified out of AOCI to net income in their entirety in the period, companies must report
the effect of the reclassifications on the respective line items in the statement where net income is presented. In certain
circumstances, this can be done on the face of that statement. Otherwise, it must be presented in the notes. For items not
reclassified to net income in their entirety in the period (e.g., pension amounts that are capitalized in inventory), companies
must cross-reference in a note to other required disclosures. The adoption of ASU 2013-02 in fiscal 2013 did have an impact
on the Company’s consolidated financial statements.
In July 2013, the FASB issued Accounting Standards Update No. 2013-11: Income Taxes (Topic 740), Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward
Exists (a consensus of the FASB Emerging Issues Task Force) (“ASU 2013-11”). An entity is required to present
unrecognized tax benefits as a decrease in a net operating loss, similar tax loss or tax credit carryforward if certain criteria are
met. The determination of whether a deferred tax asset is available is based on the unrecognized tax benefit and the deferred
tax asset that exists at the reporting date and presumes disallowance of the tax position at the reporting date. The guidance
will eliminate the diversity in practice in the presentation of unrecognized tax benefits but will not alter the way in which
entities assess deferred tax assets for realizability. ASU 2013-11 will be effective for the company in fiscal 2014. The
Company is currently assessing the impact to the consolidated financial statements.
2. Acquisition
Prime Label
In October 2012, the Company acquired 100% of the shares of Prime Label and Screen Incorporated (“Prime Label”) for a
purchase price of $20 million. Prime Label is a leader in specialty re-sealable labels, including a patented rigid lens closure
system. The newly added business is operated in the Company’s Flexible Packaging reporting segment. To finance the
purchase, the Company used cash on hand and existing credit facilities. The Prime Label acquisition has been accounted for
under the purchase method of accounting, and accordingly, the preliminary purchase price has been allocated to the
identifiable assets and liabilities based on estimated fair values at the acquisition date. The Company has recognized goodwill
on this transaction as a result of expected synergies. A portion of the goodwill will not be deductible for tax purposes.
44
Stopaq®
In June 2012, the Company acquired 100% of the shares of Frans Nooren Beheer B.V. and its operating companies
(“Stopaq”) for a purchase price of $65 million ($62 million, net of cash acquired). Stopaq is the inventor and manufacturer of
patented visco-elastic technologies for use in corrosion prevention, sealing and insulation applications ranging from pipelines
to subsea piles to rail and cable joints. The newly added business is operated in the Company’s Engineered Materials
reporting segment. To finance the purchase, the Company used cash on hand and existing credit facilities. The Stopaq
acquisition has been accounted for under the purchase method of accounting, and accordingly, the purchase price has been
allocated to the identifiable assets and liabilities based on estimated fair values at the acquisition date. The Company has
recognized goodwill on this transaction as a result of expected synergies. A portion of the goodwill will not be deductible for
tax purposes.
Rexam Specialty and Beverage Closures
In September 2011, the Company acquired 100% of the capital stock of Rexam Closures Kentucky Inc., Rexam Delta Inc.,
Rexam Closures LLC, Rexam Closure Systems LLC, Rexam de Mexico S. de R.L. de C.V., Rexam Singapore PTE Ltd.,
Rexam Participacoes Ltda. and Rexam Plasticos do Brasil Ltda. (collectively, “Rexam SBC”) pursuant to an Equity Purchase
Agreement by and among Rexam Inc., Rexam Closures and Containers Inc., Rexam Closure Systems Inc., Rexam Plastic
Packaging Inc., Rexam Brazil Closure Inc., Rexam Beverage Can South America S.A. and the Company. The aggregate
purchase price was $351 million ($340 million, net of cash acquired). Rexam SBC’s primary products include plastic
closures, fitments and dispensing closure systems, and jars. The newly added business is operated in the Company’s Rigid
Closed Top reporting segment. To finance the purchase, the Company used cash on hand and existing credit facilities. The
Rexam SBC 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 acquisition was accounted for as a business combination using the purchase method of accounting. The Company has
recognized goodwill on this transaction as a result of expected synergies. A portion of the goodwill will not be deductible for
tax purposes. The following table summarizes the allocation of purchase price:
Working capital
Property and equipment
Intangible assets
Goodwill
Other long-term liabilities
Net assets acquired
$
$
80
199
43
60
(31)
351
Pro forma net sales was $4,996 million and unaudited pro forma net loss was $307 million for fiscal 2011. The pro forma net
sales and net loss assume that the Rexam SBC acquisition had occurred as of the beginning of the respective periods.
The pro forma information presented above is for informational purposes only and is not necessarily indicative of the
operating results that would have occurred had the Rexam SBC acquisition been consummated at the beginning of the
respective period, nor is it necessarily indicative of future operating results. Further, the information reflects only pro forma
adjustments for additional interest expense, amortization and closing expenses, net of the applicable income tax effects.
3. Long-Term Debt
Long-term debt consists of the following as of fiscal year-end 2013 and 2012:
Term loan
Term loan
Revolving line of credit
9¾% Second Priority Notes
91/2% Second Priority Notes
Maturity Date
April 2015
$
February 2020
June 2016
January 2021
May 2018
2013
1,125
1,397
-
800
500
2012
$
1,134
-
73
800
500
45
Senior Unsecured Term Loan
First Priority Senior Secured Floating Rate Notes
8¼% First Priority Notes
Second Priority Senior Secured Floating Rate Notes
10¼% Senior Subordinated Notes
11% Senior Subordinated Notes
Debt discount, net
Capital leases and other
Less current portion of long-term debt
June 2014
February 2015
November 2015
September 2014
March 2016
September 2016
Various
18
-
-
-
-
-
(8)
114
3,946
(71)
39
681
370
210
127
455
(9)
91
4,471
(40)
Berry Plastics Corporation Senior Secured Credit Facility
$
3,875
$
4,431
Our wholly owned subsidiary Berry Plastics Corporation’s senior secured credit facilities consist of $2.5 billion of term loans
and a $650 million asset-based revolving line of credit (“Credit Facility”). In February 2013, the Company entered into an
incremental assumption agreement to increase the commitments under Berry Plastics Corporation’s existing term loan credit
agreement by $1.4 billion. Berry Plastics Corporation borrowed loans in an aggregate principal amount equal to the full
amount of the commitments on such date. The proceeds from the incremental term loan, in addition to borrowings under the
revolving credit facility, were used to (a) satisfy and discharge all of Berry Plastics Corporation’s outstanding (i) Second
Priority Senior Secured Floating Rate Notes due 2014, (ii) First Priority Senior Secured Floating Rate Notes due 2015, (iii)
101⁄4% Senior Subordinated Notes due 2016 and (iv) 81⁄4% First Priority Senior Secured Notes due 2015, which, in each
case, were called for redemption in February 2013 and the related indentures and (b) pay related fees and expenses. The
Company recognized a $48 million loss on extinguishment of debt related to this debt refinancing. $1.1 billion of the term
loan matures in April 2015, $1.4 billion of the term loan matures in February 2020 and the revolving line of credit matures in
June 2016, subject to certain conditions. The availability under the revolving line of credit is the lesser of $650 million or a
defined borrowing base which is calculated based on available accounts receivable and inventory.
The borrowings under the senior secured credit facilities bear interest at a rate equal to an applicable margin plus, as
determined at the Company’s option, either (a) a 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)
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 range from 1.75% to 2.25%, term loan is 2.00% and the incremental term
loan is 2.50% per annum with a LIBOR floor of 1.00%. 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 $7 million, with the remaining amount payable upon
maturity. 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 0.375% to 0.50% 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 the Company and,
subject to certain exceptions, each of the Company’s existing and future direct and indirect domestic subsidiaries. The
46
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’s fixed charge coverage ratio, as defined in the revolving credit facility, is calculated based on a numerator
consisting of adjusted EBITDA less pro forma adjustments, income taxes paid in cash and capital expenditures, and a
denominator consisting of scheduled principal payments in respect of indebtedness for borrowed money, interest expense and
certain distributions. We are obligated to sustain a minimum fixed charge coverage ratio of 1.0 to 1.0 under the revolving
credit facility at any time when the aggregate unused capacity under the revolving credit facility is less than 10% of the lesser
of the revolving credit facility commitments and the borrowing base (and for 10 business days following the date upon which
availability exceeds such threshold) or during the continuation of an event of default. At the end of fiscal 2013, the Company
had unused borrowing capacity of $531 million under the revolving credit facility subject to a borrowing base and thus was
not subject to the minimum fixed charge coverage ratio covenant. The fixed charge ratio was 2.2 to 1.0, at the end of fiscal
2013.
Despite not having financial maintenance covenants, our debt agreements contain certain negative covenants. The failure to
comply with these negative covenants could restrict our ability to incur additional indebtedness, effect acquisitions, enter into
certain significant business combinations, make distributions or redeem indebtedness. The term loan facility contains a
negative covenant first lien secured leverage ratio covenant of 4.0 to 1.0 on a pro forma basis for a proposed transaction, such
as an acquisition or incurrence of additional first lien debt. Our first lien secured leverage ratio was 3.2 to 1.0 at the end of
fiscal 2013.
As of fiscal 2013, there was no outstanding balance on the revolving line of credit and $44 million in letters of credit
outstanding. As of fiscal 2013, the Company had unused borrowing capacity of $531 million under the revolving line of
credit subject to the Company’s borrowing base calculations.
Future maturities of long-term debt as of fiscal year-end 2013 are as follows:
Fiscal Year Maturities
2014
2015
2016
2017
2018
$ 71
1,156
32
24
524
Thereafter
2,147
$3,954
Interest paid was $245 million, $288 million, and $300 million in fiscal 2013, 2012, and 2011, respectively.
BP Parallel LLC (“BP Parallel”), a non-guarantor subsidiary of the Company, invested $21 million and $4 million to purchase
assignments from non-affiliated third parties at then-prevailing market prices of $21 million and $5 million of principal of the
Senior Unsecured Term Loan in fiscal 2013 and fiscal 2012, respectively. We recognized a net gain of $1 million on the
repurchase of the Senior Unsecured Term Loan in fiscal 2012, which is recorded in Other expense (income) in our
Consolidated Statements of Operations. BP Parallel did not purchase assignments of the Senior Unsecured Term Loan in
2011.
47
4. Financial Instruments and Fair Value Measurements
As part of the overall risk management, the Company uses derivative instruments to reduce exposure to changes in interest
rates attributed to the Company’s floating-rate borrowings. For those derivative instruments that are designated and qualify as
hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair
value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. To the extent hedging relationships are
found to be effective, as determined by FASB guidance, changes in fair value of the derivatives are offset by changes in the
fair value of the related hedged item are recorded to Accumulated other comprehensive loss. Management believes hedge
effectiveness is evaluated properly in preparation of the financial statements.
Cash Flow Hedging Strategy
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the
derivative instrument is reported as a component of Accumulated other comprehensive loss and reclassified into earnings in
the same line item associated with the forecasted transaction and in the same period or periods during which the hedged
transaction affects earnings.
In November 2010, the Company entered into two separate interest rate swap transactions to manage cash flow variability
associated with $1 billion of the outstanding variable rate term loan debt (the “2010 Swaps”). The first agreement had a
notional amount of $500 million and became effective in November 2010. The agreement swaps three month variable
LIBOR contracts for a fixed three year rate of 0.8925% and expires in November 2013. The second agreement had a notional
amount of $500 million and became effective in December 2010. The agreement swaps three month variable LIBOR
contracts for a fixed three year rate of 1.0235% and expires in November 2013. In August 2011, the Company began utilizing
1-month LIBOR contracts for the underlying senior secured credit facility. The Company’s change in interest rate selection
caused the Company to lose hedge accounting on both of the interest rate swaps. The Company recorded changes in fair
value in the Consolidated Statement of Operations and will amortize the previously recorded unrealized losses of $1 million,
net of tax as of fiscal year-end 2013 to Interest expense through the end of the respective swap agreements.
In February 2013, the Company entered into an interest rate swap transaction to protect $1 billion of outstanding variable rate
term loan debt from future interest rate volatility. The agreement swapped the greater of a three-month variable LIBOR
contract or 1.00% for a fixed three-year rate of 2.355%, with an effective date in May 2016 and expiration in May 2019. In
June 2013, the Company elected to settle this derivative instrument and received $16 million as a result of this settlement.
The offset is included in Accumulated other comprehensive loss and Deferred income taxes and will be amortized to Interest
expense from May 2016 through May 2019, the original term of the swap agreement.
Derivatives not designated as hedging
instruments under FASB guidance
Balance Sheet Location
2013
2012
Interest rate swaps – 2010 Swaps
Other long-term liabilities
$
1
$
7
Liability Derivatives
The effect of the derivative instruments on the Consolidated Statement of Operations are as follows:
Derivatives not designated as hedging
instruments under FASB guidance
Interest rate swaps – 2010 Swaps
Statement of Operations Location
Other expense (income)
Interest expense
2013
2012
$
$
(6)
4
$
$
-
4
The Fair Value Measurements and Disclosures section of the ASC defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and
establishes a framework for measuring fair value. This section also establishes a three-level hierarchy (Level 1, 2, or 3) for
fair value measurements based upon the observability of inputs to the valuation of an asset or liability as of the measurement
date. This section also requires the consideration of the counterparty’s or the Company’s nonperformance risk when
assessing fair value.
The Company’s interest rate swap fair values were determined using Level 2 inputs as other significant observable inputs
were not available.
48
The Company’s financial instruments consist primarily of cash and cash equivalents, long-term debt, interest rate swap
agreements and capital lease obligations. The fair value of our long-term indebtedness exceeded book value by $164 million
and $195 million as of fiscal 2013 and fiscal 2012, respectively. The Company’s long-term debt fair values were determined
using Level 2 inputs as other significant observable inputs were not available.
Redeemable Common Stock
The Company had entered into agreements with former employees that required the Company to redeem certain common
stock held by such former employees at pre-determined dates. Redemption of this common stock was based on the fair value
of the stock on the fixed redemption date and this redemption was out of the control of the Company. At fiscal year-end 2011
and 2012, this redeemable common stock was recorded at its fair value in temporary equity and changes in the fair value were
recorded in additional paid in capital each period. Under the 2006 Equity Incentive Plan, the exercise price for option awards
is the fair market value of common stock on the date of grant. Historically, the fair market value of a share of common stock
was determined by the Board of Directors by applying industry-appropriate multiples to EBITDA. This valuation took into
account a level of net debt that excluded cash required for working capital purposes. The categorization of the framework
used to price these liabilities is considered a Level 3, due to the subjective nature of the unobservable inputs used to determine
the fair value. Upon completion of the initial public offering, the redemption requirement terminated resulting in the
Company reclassifying the shares into equity on the Consolidated Balance Sheets. The fair value as of the end of fiscal 2012
was $23 million.
Non-recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis under the circumstances and events
described in Note 1 and Note 10. The assets are adjusted to fair value only when the carrying values exceed the fair
values. The categorization of the framework used to price the assets is considered a Level 3, due to the subjective nature of
the unobservable inputs used to determine the fair value (see Note 1 and 10 for additional discussion).
Included in the following table are the major categories of assets measured at fair value on a non-recurring basis along with
the impairment loss recognized on the fair value measurement for the year then ended.
49
As of the end of fiscal 2013
Level 1
Level 2
Level 3
Quoted Prices in Active
Markets for Identical
Assets or Liabilities
Significant Other
Observable
Inputs
Significant
Unobservable Inputs
Total
Impairment Loss
Indefinite-lived trademarks
$
Goodwill
Definite lived intangibles
Property, plant, and equipment
Total
$
-
-
-
-
-
$
$
-
-
-
-
-
$
$
207
1,634
649
1,266
3,756
$
$
207
1,634
649
1,266
3,756
$
$
-
-
5
-
5
Level 1
Level 2
Level 3
As of the end of fiscal 2012
Quoted Prices in Active
Markets for Identical
Assets or Liabilities
Significant Other
Observable
Inputs
Significant
Unobservable Inputs
Total
Impairment Loss
Indefinite-lived trademarks
Goodwill
Definite lived intangibles
Property, plant, and equipment
Total
$
$
-
-
-
-
$
$
-
-
-
-
$
$
220
1,626
737
1,216
3,799
$
220
$
1,626
737
1,216
$ 3,799
$
-
-
17
3
20
Level 1
Level 2
Level 3
As of the end of fiscal 2011
Quoted Prices in Active
Markets for Identical
Assets or Liabilities
Significant Other
Observable
Inputs
Significant
Unobservable Inputs
Total
Impairment Loss
Indefinite-lived trademarks
Goodwill
Property, plant, and equipment
Total
$
$
-
-
-
-
$
$
-
-
-
-
$
$
220
1,595
1,250
3,065
$
220
$
1,595
1,250
$ 3,065
$
-
165
35
200
Valuation of Goodwill and Indefinite Lived Intangible Assets
ASC Topic 350 requires the Company to test goodwill for impairment at least annually. The Company conducts the
impairment test on the first day of the fourth fiscal quarter, unless indications of impairment exist during an interim period.
When assessing its goodwill for impairment, the Company utilizes a discounted cash flow analysis in combination with a
comparable company market approach to determine the fair value of their reporting units and corroborate the fair values. The
Company utilizes a relief from royalty method to value their indefinite lived trademarks and uses the forecasts that are
consistent with those used in the reporting unit analysis. The Company has five reporting units more fully discussed in Note
1. In fiscal 2013 and fiscal 2012 the Company performed their annual impairment test and determined no impairment existed.
In fiscal 2011, the Company recorded a goodwill impairment charge of $165 million in Restructuring and impairment charges
on the Consolidated Statement of Operations. The Company did not recognize any impairment charges on the indefinitive
lived intangible assets in any of the years presented.
Valuation of Property, Plant and Equipment and Definite Lived Intangible Assets
The Company periodically realigns their manufacturing operations which results in facilities being closed and shut down and
equipment transferred to other facilities or equipment being scrapped or sold. The Company utilizes appraised values to
50
corroborate the fair value of the facilities and has utilized a scrap value based on prior facility shut downs to estimate the fair
value of the equipment, which has approximated the actual value that was received. When impairment indicators exist, the
Company will also perform an undiscounted cash flow analysis to determine the recoverability of the Company’s long-lived
assets. The Company did not incur an impairment charge related to property, plant and equipment in fiscal 2013. The
Company wrote-down their property, plant, and equipment with a carrying value of $1,219 million to its fair value of $1,216
million, which resulted in an impairment charge of $3 million during fiscal 2012. The Company wrote-down their property,
plant, and equipment with a carrying value of $1,285 million to its fair value of $1,250 million, which resulted in an
impairment charge of $35 million during fiscal 2011. The Company recognized an impairment charge of $5 million and $17
million on definite long-lived assets related to the decision to exit certain businesses during fiscal 2013 and fiscal 2012,
respectively.
5. 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 as of the fiscal year-end 2013 and 2012:
Deferred financing fees
Accumulated amortization
Deferred financing fees, net
Goodwill
Customer relationships
Trademarks (indefinite lived)
Trademarks (definite lived)
Other intangibles
Accumulated amortization
Intangible assets, net
$
2013
48
(18)
30
$
1,634
1,134
207
76
107
(668)
856
Amortization Period
Respective debt
Indefinite lived
11 – 20 years
Indefinite lived
8-15 years
10-20 years
2012
104
(51)
53
1,626
1,153
220
69
99
(584)
957
Total goodwill, intangible assets and deferred costs
$
2,520
$
2,636
The Company recorded a goodwill impairment charge in the Engineered Materials and Flexible Packaging segments in fiscal
2011. See Note 1 for further discussion. Future amortization expense for definite lived intangibles as of fiscal 2013 for the
next five fiscal years is $96 million, $88 million, $81 million, $69 million and $49 million each year for fiscal years ending
2014, 2015, 2016, 2017, and 2018, respectively.
6. Lease and Other Commitments and Contingencies
The Company leases certain property, plant and equipment under long-term lease agreements. Property, plant, and equipment
under capital leases are reflected on the Company’s balance sheet as owned. The Company entered into new capital lease
obligations totaling $49 million, $7 million, and $29 million during fiscal 2013, 2012, and 2011, respectively, with various
lease expiration dates through 2020. The Company records amortization of capital leases in Cost of goods sold in the
Consolidated Statement of Operations. Assets under operating leases are not recorded on the Company’s balance sheet.
Operating leases expire at various dates in the future with certain leases containing renewal options. The Company had
minimum lease payments or contingent rentals of $16 million and $15 million and asset retirement obligations of $6 million
and $5 million as of fiscal 2013 and 2012, respectively. Total rental expense from operating leases was $53 million, $56
million, and $59 million in fiscal 2013, 2012, and 2011, respectively.
51
Future minimum lease payments for capital leases and noncancellable operating leases with initial terms in excess of one year
as of fiscal year-end 2013, are as follows:
Capital Leases
Operating Leases
2014
2015
2016
2017
2018
Thereafter
Less: amount representing interest
Present value of net minimum lease payments
$
$
44
41
39
34
29
114
301
$
$
30
33
20
12
11
21
127
(15)
112
In September 2012, the Company entered into a sale-leaseback transaction pursuant to which it sold its warehouse facility
located in Lawrence , Kansas. The Company received net proceeds of $20 million and resulted in the Company realizing a
deferred gain of $1 million which will be offset against the future lease payments over the life of the lease.
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, results of operations or cash flows. The
Company has various purchase commitments for raw materials, supplies and property and equipment incidental to the
ordinary conduct of business.
At the end of fiscal 2013, the Company employed over 15,000 employees. Approximately 12% of the Company’s employees
are covered by collective bargaining agreements. One of the ten agreements, covering approximately 30 employees, which
was scheduled for renegotiation in fiscal 2013 is still being renegotiated. The remaining agreements expire after fiscal 2013.
The Company’s relations with employees remain satisfactory and there have been no significant work stoppages or other
labor disputes during the past three years.
7. Accrued Expenses, Other Current Liabilities and Other Long-Term Liabilities
The following table sets forth the totals included in Accrued expenses and other current liabilities as of fiscal year-end 2013
and 2012.
Employee compensation, payroll and other taxes
Interest
Rebates
TRA obligation
Other
2013
2012
$
86
45
55
32
58
$
95
60
68
-
77
$
276
$
300
The following table sets forth the totals included in Other long-term liabilities as of fiscal year-end 2013 and 2012.
Lease retirement obligation
Sale-lease back deferred gain
2013
$
22
32
2012
$
20
34
52
Pension liability
TRA obligation
Other
8. Income Taxes
43
277
13
387
84
-
$
28
166
$
The Company is being taxed at the U.S. corporate level as a C-Corporation and has provided U.S. Federal, State and foreign
income taxes.
Significant components of income tax expense (benefit) for the fiscal years ended 2013, 2012 and 2011 are as follows:
2013
2012
2011
Current
United States
Federal
State
Non-U.S.
Current income tax provision
Deferred:
United States
Federal
State
Non-U.S.
Deferred income tax expense (benefit)
Expense (benefit) for income taxes
$
$
-
2
4
6
26
(3)
(1)
22
28
$
(3)
-
4
1
3
(1)
(1)
1
2
$
$
-
1
3
4
(57)
7
(1)
(51)
(47)
U.S. income (loss) from continuing operations before income taxes was $77 million, $2 million, and $(342) million for fiscal
2013, 2012, and 2011, respectively. Non-U.S. income (loss) from continuing operations before income taxes was $8 million,
$2 million, and $(4) million for fiscal 2013, 2012, and 2011, respectively.
The reconciliation between U.S. Federal income taxes at the statutory rate and the Company’s benefit for income taxes on
continuing operations for fiscal 2013, 2012, and 2011 are as follows:
U.S. Federal income tax expense (benefit) at the statutory rate
Adjustments to reconcile to the income tax provision:
U.S. State income tax expense, net of valuation allowance
Impairment of goodwill
Permanent differences
Transaction costs
Changes in foreign valuation allowance
Rate differences between U.S. and foreign
Other
Expense (benefit) for income taxes
$
53
2013
2012
2011
$
29
$
1
$
(121)
(1)
-
-
-
1
(2)
1
28
$
(1)
-
1
-
1
1
(1)
2
8
58
1
1
3
1
2
$
(47)
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 as of fiscal 2013 and 2012 are as
follows:
Deferred tax assets:
Allowance for doubtful accounts
Deferred gain on sale-leaseback
Accrued liabilities and reserves
Inventories
Net operating loss carryforward
Alternative minimum tax (AMT) credit carryforward
Federal and state tax credits
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Property, plant and equipment
Intangible assets
Debt extinguishment
Other
Total deferred tax liabilities
Net deferred tax liability
2013
2012
$
$
3
14
34
9
343
9
14
7
433
(59)
374
187
300
132
1
620
(246)
$
$
4
15
60
8
393
9
-
6
495
(51)
444
190
322
132
1
645
(201)
In the United Sates the Company had $824 million of Federal net operating loss carryforwards, which will be available to
offset future taxable income. As of fiscal year-end 2013, the Company had foreign net operating loss carryforwards of $117
million, which will be available to offset future taxable income. If not used, the Federal net operating loss carryforwards will
expire in future years beginning 2025 through 2031. AMT credit carryforwards totaling $9 million are available to the
Company indefinitely to reduce future years’ Federal income taxes. The Company has $1 million of Federal Research and
Development tax credits that will expire in 2033.
In connection with the initial public offering, the Company entered into an income tax receivable agreement that provides for
the payment to pre-initial public offering stockholders, option holders and holders of our stock appreciation rights, 85% of the
amount of cash savings, if any, in U.S. federal, foreign, state and local income tax that are actually realized (or are deemed to
be realized in the case of a change of control) as a result of the utilization of our and our subsidiaries’ net operating losses
attributable to periods prior to the initial public offering. The Company expects to pay between $313 million and $360
million in cash related to this agreement. This range is based on the Company's assumptions using various items, including
valuation analysis and current tax law. The Company recorded an obligation of $313 million which was recognized as a
reduction of Paid-in capital on the Consolidated Balance Sheets. The balance at the end of fiscal 2013 was $308 million.
The Company believes that it will not generate sufficient future taxable income to realize the tax benefits in certain foreign
jurisdictions related to the deferred tax assets. The Company also has certain state net operating losses that may expire before
they are fully utilized. Therefore, the Company has provided a full valuation allowance against certain of its foreign deferred
tax assets and a valuation allowance against certain of its state deferred tax assets included within the deferred tax assets.
54
Prior changes in ownership have created limitations under Sec. 382 of the internal revenue code on annual usage of net
operating loss carryforwards. However, all of the Company’s Federal net operating loss carryforwards should be available for
use within the next five years. As part of the effective tax rate calculation, if we determine that a deferred tax asset arising
from temporary differences is not likely to be utilized, we will establish a valuation allowance against that asset to record it at
its expected realizable value. The Company has not provided a valuation allowance on its Federal net operating loss
carryforwards in the United States because it has determined that future reversals of its temporary taxable differences will
occur in the same periods and are of the same nature as the temporary differences giving rise to the deferred tax assets. Our
valuation allowance against deferred tax assets was $59 million and $51 million as of fiscal year-end 2013 and 2012,
respectively, related to the foreign and U.S. State operations. The Company paid cash taxes of $3 million, $2 million and $2
million in fiscal 2013, 2012, and 2011, respectively.
Uncertain Tax Positions
We adopted the provisions of the Income Taxes standard of the Codification. This interpretation clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements in accordance with guidance provide by FASB
and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination. Our policy to include
interest and penalties related to gross unrecognized tax benefits within our provision for income taxes did not change.
The following table summarizes the activity related to our gross unrecognized tax benefits from year-end fiscal 2012 to year-
end fiscal 2013:
Beginning unrecognized tax benefits
Gross increases – tax positions in prior periods
Gross decreases – tax positions in prior periods
Gross increases – current period tax positions
Settlements
Lapse of statute of limitations
Ending unrecognized tax benefits
2013
2012
$
8
6
-
1
(1)
-
14
$
33
2
(25)
-
-
(2)
8
$
$
The amount of unrecognized tax benefits that, if recognized, would affect our effective tax rate was $7 million and $5 million
for fiscal year-end 2013 and 2012.
As of fiscal year-end 2013, we had $1 million accrued for payment of interest and penalties related to our uncertain tax
positions. Our penalties and interest related to uncertain tax positions are included in income tax expense.
We and our subsidiaries are routinely examined by various taxing authorities. Although we file U.S. Federal, U.S. State, and
foreign tax returns, our major tax jurisdiction is the U.S. The IRS has completed an examination of our 2003 tax year. The
Company is currently under examination by the IRS for U.S. Federal tax years 2010 and 2011. Our 2004 - 2009 tax years
remain subject to examination by the IRS. There are various other on-going audits in various other jurisdictions that are not
material to our financial statements.
As of the end of fiscal 2013, we had unremitted earnings from foreign subsidiaries including earnings that have been or are
intended to be permanently reinvested for continued use in foreign operations, accordingly, no provision for US Federal or
State income taxes has been provided thereon. If distributed, those earnings would result in additional income tax expense at
approximately the U.S. statutory rate. Determination of the amount of unrecognized deferred US income tax liability is not
practicable due to the complexities associated with its hypothetical calculation. We have identified non U.S. funds from India
that are not permanently reinvested and have recognized deferred tax liabilities for additional tax expense that we expect to
incur upon repatriation of earnings that are not sourced from previously taxed income.
55
9. Retirement Plan
The Company maintains three defined benefit pension plans which cover certain manufacturing facilities. The Company also
maintains a retiree health plan, which covers certain healthcare and life insurance benefits for certain retired employees and
their spouses. Each of the three defined benefit plans and the retiree health plan are frozen plans. The Company uses fiscal
year-end as a measurement date for the retirement plans.
The Company sponsors two defined contribution 401(k) retirement plans covering substantially all employees. 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 $7 million, $7 million, and $6 million for fiscal 2013, 2012, and 2011,
respectively.
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 equal to the accumulated benefit obligations of
such plans. The tables below exclude the obligations related to the foreign plans. The net liability for foreign plans is $3
million. The net amount of liability recognized is included in Other long-term liabilities on the Consolidated Balance
Sheets.
Defined Benefit Pension Plans
Retiree Health Plan
2013
2012
2013
2012
Change in Projected Benefit Obligations (PBO)
PBO at beginning of period
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
PBO at end of period
Change in Fair Value of Plan Assets
Plan assets at beginning of period
Actual return on plan assets
Company contributions
Benefits paid
Plan assets at end of period
Net amount recognized
$
$
$
$
207
-
7
(27)
(9)
178
129
14
7
(9)
141
(37)
$
$
$
$
179
-
8
29
(9)
207
109
20
9
(9)
129
(78)
$
$
$
$
3
-
-
-
(1)
2
-
-
-
-
-
(2)
$
$
$
$
4
-
-
-
(1)
3
-
-
1
(1)
-
(3)
At the end of fiscal 2013 the Company had $20 million of net unrealized losses recorded in Accumulated other
comprehensive loss on the Consolidated Balance Sheets. The Company expects $0 to be realized in fiscal 2014.
The following table presents significant weighted-average assumptions used to determine benefit obligation and benefit cost
for the fiscal years ended:
Defined Benefit Pension Plans
Retiree Health Plan
(Percents)
2013
2012
2013
2012
Weighted-average assumptions:
Discount rate for benefit obligation
Discount rate for net benefit cost
Expected return on plan assets for net benefit costs
4.5
3.6
8.0
3.6
4.4
8.0
3.1
2.4
8.0
2.4
4.5
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 advisors. The return on plan assets is derived from
56
target allocations and historical yield by asset type. Health-care-cost trend rates were assumed to increase at an annual rate of
7.0% in 2013 and thereafter. A one-percentage-point change in these assumed health care cost trend rates would not have a
material impact on our postretirement benefit obligation.
In accordance with the guidance from the FASB for employers’ disclosure about postretirement benefit plan assets the table
below discloses fair values of each pension plan asset category and level within the fair value hierarchy in which it falls.
There were no material changes or transfers between level 3 assets and the other levels.
Fiscal 2013 Asset Category
Level 1
Level 2
Level 3
Total
Cash and cash equivalents
U.S. large cap comingled equity funds
U.S. mid cap equity mutual funds
U.S. small cap equity mutual funds
International equity mutual funds
Real estate equity investment funds
Corporate bond mutual funds
Corporate bonds
Guaranteed investment account
Other
Total
Fiscal 2012 Asset Category
Cash and cash equivalents
U.S. large cap comingled equity funds
U.S. mid cap equity mutual funds
U.S. small cap equity mutual funds
International equity mutual funds
Real estate equity investment funds
Corporate bond mutual funds
Corporate bonds
Guaranteed investment account
Other
Total
$
$
$
$
5
-
15
8
12
4
33
-
-
-
77
Level 1
4
-
13
7
13
4
22
-
-
-
63
$
$
$
$
-
46
-
-
-
-
-
8
-
-
54
Level 2
-
40
-
-
-
-
-
15
-
-
55
$
$
$
$
-
-
-
-
-
-
-
-
10
-
10
Level 3
-
-
-
-
-
-
-
-
11
-
11
$
$
$
$
5
46
15
8
12
4
33
8
10
-
141
Total
4
40
13
7
13
4
22
15
11
-
129
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid for the fiscal
years ending as follows:
Defined Benefit
Pension Plans
Retiree Health Plan
$
2014
2015
2016
2017
2018
2019-2023
9 $
10
10
10
10
54
-
-
-
-
-
1
Net pension and retiree health benefit expense included the following components as of fiscal 2013 and 2012:
Defined Benefit Pension Plans
Service cost
Interest cost
Amortization
2013
2012
2011
$
-
7
3
57
$
-
8
2
$
-
9
1
Expected return on plan
assets
Net periodic benefit cost
(10)
-
$
(8)
2
$
(9)
1
$
Our defined benefit pension plan asset allocations as of fiscal year-end 2013 and 2012 are as follows:
Asset Category
Equity securities and equity-like
instruments
Debt securities and debt-like
Other
Total
2013
2012
60 %
29
11
100 %
59 %
29
12
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 40-50% allocated to growth investments and 40-50% allocated to
fixed income investments and 5-10% in other, including cash. The retirement plans held $1 million of the Company’s stock at
the end of fiscal 2013. The Company re-addresses the allocation of its investments on a regular basis.
10. Restructuring and Impairment Charges
The Company announced various restructuring plans in the last three fiscal years which included shutting down facilities in
all four of the Company’s operating segments.
During fiscal 2011, the Company announced the intention to shut down two facilities within its Engineered Materials
division. The affected business accounted for approximately $106 million of annual net sales with the majority of the
operations transferred to other facilities. The Company also announced its intention to shut down a manufacturing location
within its Flexible Packaging division. The affected business accounted for approximately $24 million of annual net sales
with the majority of the operations transferred to other facilities. The Company also announced its intention to shut down a
manufacturing location within its Rigid Closed Top division. The affected business accounted for approximately $14 million
of annual net sales with the majority of the operations transferred to other facilities. The Company recorded $35 million of
non-cash asset impairment costs in fiscal 2011 related to these restructuring plans and has been reported as Restructuring and
impairment charges in the Consolidated Statements of Operations. These impairments were for buildings and equipment that
exceeded net realizable value as of the valuation dates.
During fiscal 2012, the Company announced the intention to shut down three facilities one each in Rigid Closed Top,
Engineered Materials and Flexible Packaging divisions. The affected Rigid Closed Top, Engineered Materials, and Flexible
Packaging businesses accounted for approximately $14 million, $71 million, and $24 million of annual net sales, with the
majority of the operations transferred to other facilities. During the first fiscal quarter the Company made the decision to exit
certain operations in the Engineered Materials division. This decision resulted in non-cash impairment charges of $17 million
related to certain customer lists deemed to have no further value and is recorded in Restructuring and impairment charges on
the Consolidated Statement of Operations. The exited operations were immaterial to the Company and Engineered Materials
segment.
During fiscal 2013, the Company made the decision to exit certain operations in the Engineered Materials division. This
decision resulted in a non-cash impairment charges of $6 million related to certain intangible assets deemed to have no further
value recorded in Restructuring and impairment charges on the Consolidated Statement of Operations. The exited businesses
were immaterial to the Company and the Engineered Materials segment.
The table below sets forth the Company’s estimate of the total cost of the restructuring programs since 2007, the portion
recognized through fiscal year-end 2013 and the portion expected to be recognized in a future period:
Severance and termination benefits
Facility exit costs
Asset impairment
Other
Expected Total Costs
$
39
56
106
4
58
Cumulative charges
through Fiscal 2013
To be Recognized in
Future
$
$
39
53
106
4
-
3
-
-
Total
$
205
$
202
$
3
The tables below sets forth the significant components of the restructuring charges recognized for the fiscal years ended 2013
2012 and 2011, by segment:
2013
Fiscal Year
2012
2011
Rigid Open Top
Severance & termination benefits
Total
Rigid Closed Top
Severance & termination benefits
Facility exit costs
Non-cash asset impairment
Total
Engineered Materials
Severance & termination benefits
Facility exit costs
Non-cash asset impairment
Total
Flexible Packaging
Severance & termination benefits
Facility exit costs
Non-cash asset impairment
Total
Consolidated
Severance & termination benefits
Facility exit costs
Non-cash asset impairment
Total
$
$
$
$
$
$
$
$
$
$
1
1
2
1
-
3
2
1
6
9
-
1
-
1
5
3
6
14
$
$
$
$
$
$
$
$
$
$
-
-
3
2
4
9
4
2
16
22
-
-
-
-
7
4
20
31
$
$
$
$
$
$
$
$
$
$
2
2
3
1
4
8
2
7
22
31
4
2
9
15
11
10
35
56
The table below sets forth the activity with respect to the restructuring accrual as of fiscal 2013 and 2012:
Balance as of fiscal 2011
Charges
Non-cash asset impairment
Cash payments
Balance as of fiscal 2012
Charges
Non-cash asset impairment
Cash payments
Balance as of fiscal 2013
Employee
Severance
and Benefits
Facility
Exit
Costs
Non-cash
charges
Total
$
$
4
7
-
(7)
4
5
-
(7)
2
$
$
59
3
4
-
(4)
3
3
-
(4)
2
$
$
-
20
(20)
-
-
6
(6)
-
-
$
$
7
31
(20)
(11)
7
14
(6)
(11)
4
The restructuring costs accrued as of fiscal year-end 2013 will result in future cash outflows, which are not expected to be
material.
11. Related Party Transactions
Management Fee
Prior to the initial public offering, the Company was charged a management fee by affiliates of Apollo and Graham for the
provision of management consulting and advisory services provided throughout the year. The management fee was the
greater of $3 million or 1.25% of adjusted EBITDA. The management fees are classified in Selling, general, and
administrative in the Statement of Operations. The management services agreement with Apollo and Graham terminated
upon completion of the initial public offering.
Total management fees charged by Apollo and Graham were $9 million in fiscal 2012 and 2011. The Company paid $8
million and $6 million to entities affiliated with Apollo and $1 million to entities affiliated with Graham for fiscal 2012 and
2011, respectively. In connection with the Rexam SBC acquisition, Berry management and the sponsors received a
transaction fee of $5 million in fiscal 2012.
Other Related Party Transactions
Certain of our management, stockholders and related parties and its affiliates have independently acquired and held financial
debt instruments of the Company. During fiscal 2012, interest expense related to this debt was $2 million.
BP Parallel LLC, a non-guarantor subsidiary of the Company, invested $21 million to purchase assignments of $21 million
of unsecured term loan during the quarter ended December 29, 2012. Of the $21 million assignments purchased, $14
million were purchased from third parties affiliated with Apollo.
In connection with our initial public offering in October 2012, the Company paid a $1 million underwriting fee to Apollo
Global Securities, LLC, an affiliate of Apollo that served as a manager of the offering.
In connection with the incremental term loan Berry Plastics Corporation entered into in February 2013, the Company paid
a $1 million underwriting fee to Apollo Global Securities, LLC, an affiliate of Apollo that served as a manager of the
offering.
In connection with our secondary offerings in fiscal 2013, the selling stockholders, the Apollo Fund and the Graham Fund,
paid $1 million in underwriting fees to Apollo Global Securities, LLC, an affiliate of Apollo that served as a manager of
the offerings, reflecting its pro rata portion of the aggregate underwriting fee.
12. Stockholders’ Equity
Equity Incentive Plans
In connection with Apollo’s acquisition of the Company, we adopted an equity incentive plan pursuant to which options to
acquire up to 7,071,337 shares of the Company’s common stock may be granted. Prior to fiscal 2011, the plan was amended
to allow for an additional 5,267,500 options to be granted.
In connection with the initial public offering, the Company adopted the Berry Plastics Group, Inc. 2012 Long-Term Incentive
Plan, which authorized the issuance of up to 9,297,750 shares of common stock pursuant to the grant or exercise of
nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other
equity-based awards.
In August 2013, the Company recorded an $8 million stock compensation charge related to certain modifications to the Berry
Plastics Group Inc. 2006 Equity Incentive Plan and the Berry Plastics Group, Inc. 2012 Long-Term Incentive Plan
(collectively, the "Plans"). The modifications include (i) accelerated vesting of all unvested options upon an employee's death
or termination by the Company by reason of an employee’s permanent disability, (ii) in the event of an employee's qualified
retirement, continuation of the normal vesting period applicable to the retiree's unvested options, as well as an extension of
the exercise period to the end of the original ten-year term of the retiree's vested options and (iii) all unvested options and
stock appreciation rights that were subject to performance-based vesting criteria as of January 1, 2013 (excluding certain IRR
performance-based options) were modified to time-based vesting.
The Company recognized total stock-based compensation of $16 million, $2 million, and $2 million for fiscal 2013, 2012 and
2011. The intrinsic value of options exercised or cash settled in fiscal 2013 was $40 million.
60
Information related to the equity incentive plans as of the fiscal year-end 2013 and 2012 is as follows:
Options outstanding, beginning of period
Options granted
Options exercised or cash settled
Options forfeited or cancelled
Options outstanding, end of period
2013
2012
Number
Of
Shares
Weighted
Average
Exercise
Price
10,741,090
2,818,700
(3,333,153)
(191,408)
10,035,229
$
$
7.76
16.01
7.97
10.14
9.96
Number
Of
Shares
Weighted
Average
Exercise
Price
10,826,232
695,898
(175,412)
(605,628)
10,741,090
$
$
7.70
10.57
7.33
7.43
7.76
Option price range at end of period
$
3.04-17.59
$
3.04-15.04
Options exercisable at end of period
Options available for grant at period end
Weighted average fair value of options granted
during period
5,182,027
8,076,290
$
6.15
7,327,612
1,597,240
$
2.71
The fair value for options granted has been estimated at the date of grant using a Black-Scholes model, generally with the
following weighted average assumptions:
Risk-free interest rate
Dividend yield
Volatility factor
Expected option life
2013
.6%
0.00%
.38
7 years
2012
.6 - .9%
0.00%
0.38
5 years
2011
1.30%
0.00%
.32 - .34
5 years
The following table summarizes information about the options outstanding as of fiscal 2013:
Range of Exercise
Prices
$3.04 - $17.59
Number
Outstanding
10,035,229
Intrinsic Value
of Outstanding
$106
Weighted Remaining
Contractual Life
6 years
Weighted
Exercise Price
$9.96
Number
Exercisable
5,182,027
Intrinsic Value
of Exercisable
$64
Unrecognized
Compensation
$15
Weighted
Recognition Period
2 years
13. Segment and Geographic Data
Berry’s operations are organized into four reportable segments: Rigid Open Top, Rigid Closed Top, Engineered Materials,
and Flexible Packaging. The Company has manufacturing and distribution centers in the United States, Canada, Mexico,
Belgium, Australia, Germany, Brazil, Malaysia, Netherlands and India. The North American operation represents 96% of the
Company’s net sales, 98% of total long-lived assets, and 97% of the total assets. Selected information by reportable segment
is presented in the following table.
2013
2012
2011
Net sales
Rigid Open Top
Rigid Closed Top
Engineered Materials
Flexible Packaging
Total
Operating income (loss)
Rigid Open Top
Rigid Closed Top
Engineered Materials
Flexible Packaging
Total
$
$
$
$
1,229
1,438
1,362
737
4,766
159
95
70
1
325
$
$
$
$
1,261
1,053
1,451
796
4,561
155
77
(71)
(119)
42
$
$
$
$
1,127
1,387
1,397
736
4,647
123
130
116
17
386
61
Depreciation and amortization
Rigid Open Top
Rigid Closed Top
Engineered Materials
Flexible Packaging
Total
Total assets
Rigid Open Top
Rigid Closed Top
Engineered Materials
Flexible Packaging
Goodwill
Rigid Open Top
Rigid Closed Top
Engineered Materials
Flexible Packaging
$
$
102
95
72
75
344
$
$
$
$
$
$
90
129
71
51
341
2013
1,805
1,964
817
549
5,135
2013
681
831
73
49
1,634
$
$
$
$
$
$
90
135
71
59
355
2012
1,773
1,959
873
501
5,106
2012
681
832
73
40
1,626
14. Net Income (Loss) Per Share
Basic net income or loss per share is calculated by dividing the net income or loss attributable to common stockholders by the
weighted-average number of common shares outstanding during the period, without consideration for common stock
equivalents. Diluted net income or loss per share is computed by dividing the net income or loss attributable to common
stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the
treasury-stock method and the if-converted method. For purposes of this calculation, stock options are considered to be
common stock equivalents and are only included in the calculation of diluted net income or loss per share when their effect is
dilutive. The Company’s redeemable common stock is included in the weighted-average number of common shares
outstanding for calculating basic and diluted net income or loss per share.
The following tables and discussion provide a reconciliation of the numerator and denominator of the basic and diluted net
loss per share computations. The calculation below provides net income or loss on both basic and diluted basis for fiscal
2013, 2012, and 2011 (in thousands).
2013
2012
2011
Net income (loss)
$
57
$
2
$
(299)
Weighted average shares of common stock outstanding--basic
113,486
83,435
84,121
Weighted average shares of common stock outstanding
Other common stock equivalents
Weighted average shares of common stock outstanding--diluted
113,486
5,968
119,454
83,435
3,209
86,644
84,121
-
84,121
Basic net income (loss) per share
Basic net income (loss) per share from continuing operations
Basic net income (loss) per share available to common shareholders
Diluted net income (loss) per share
Diluted net income (loss) per share from continuing operations
Diluted net income (loss) per share available to common shareholders
$
$
$
$
0.50
0.50
$
- $
0.02
0.02
$
(3.55)
- $
(3.55)
0.48
0.48
$
$
0.02
0.02
$
$
(3.55)
(3.55)
62
The conversion of stock options is not included in the calculation of diluted net loss per common share as of the end of fiscal
2011 as the effect of these conversions would be antidilutive to the net loss available to common shareholders. Thus, the
weighted-average common equivalent shares used for purposed of computing diluted EPS are the same as those used to
compute basic EPS for these periods. Shares excluded from the calculation as the effect of their conversion into shares of our
common stock would be antidilutive were 10,826,232 as of the end of fiscal 2011.
15. Guarantor and Non-Guarantor Financial Information
Berry Plastics Corporation (“Issuer”) has notes outstanding which are fully, jointly, severally, and unconditionally guaranteed
by substantially all of Berry’s domestic subsidiaries. Separate narrative information or financial statements of the guarantor
subsidiaries have not been included because they are 100% owned by the parent company and the guarantor subsidiaries
unconditionally guarantee such debt on a joint and several basis. A guarantee of a guarantor of the securities will terminate
upon the following customary circumstances: the sale of the capital stock of such guarantor if such sale complies with the
indenture, the designation of such guarantor as an unrestricted subsidiary, the defeasance or discharge of the indenture, as a
result of the holders of certain other indebtedness foreclosing on a pledge of the shares of a guarantor subsidiary or if such
guarantor no longer guarantees certain other indebtedness of the issuer. The guarantees are also limited as necessary to
prevent them from constituting a fraudulent conveyance under applicable law and guarantees guaranteeing subordinated debt
are subordinated to certain other of the Company’s debts. Presented below is condensed consolidating financial information
for the parent, issuer, guarantor subsidiaries and non-guarantor subsidiaries. Our issuer and guarantor financial information
includes all of our domestic operating subsidiaries, our non-guarantor subsidiaries include our foreign subsidiaries and BP
Parallel, LLC. BP Parallel, LLC is the entity that we established to buyback debt securities of Berry Plastics Group, Inc. and
Berry Plastics Corporation. Berry Plastics Group, Inc. uses the equity method to account for its ownership in Berry Plastics
Corporation in the Condensed Consolidating Supplemental Financial Statements. Berry Plastics Corporation uses the equity
method to account for its ownership in the guarantor and non-guarantor subsidiaries. All consolidating entries are included in
the eliminations column along with the elimination of intercompany balances.
Condensed Supplemental Consolidated Statements of Operations
Parent
Issuer
Net sales
Cost of sales
Selling, general and administrative expenses
Restructuring and impairment charges, net
Operating income
Other income
Interest expense, net
Equity in net income of subsidiaries
Net income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Currency translation
Interest rate hedges
Defined benefit pension and retiree benefit plans
Provision for income taxes related to other
comprehensive income items
$
$
$
$
-
-
-
-
-
-
47
(132)
85
28
57
-
-
-
-
Comprehensive income (loss)
$
57
$
571
506
58
1
6
56
24
(297)
223
80
143
-
20
34
(20)
177
Fiscal 2013
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Total
$
4,647
3,835
$
3,706
$
3,021
314
13
358
1
201
-
156
-
$
156
$
-
-
-
-
370
308
40
-
22
-
(120)
-
142
2
140
(5)
-
-
-
$
-
-
-
-
-
-
92
429
(521)
(82)
$
(439)
$
-
-
-
-
412
14
386
57
244
-
85
28
57
(5)
20
34
(20)
$
156
$
135
$
(439)
$
86
Fiscal 2012
63
Parent
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Total
$
3,829
$
3,151
$
4,766
3,984
$
$
$
$
-
-
-
-
-
-
54
(58)
4
2
2
-
-
-
-
2
$
$
$
579
520
62
1
(4)
(7)
39
(173)
137
46
91
-
4
-
(1)
94
Parent
Issuer
$
-
-
-
-
-
-
50
296
(346)
(47)
695
617
65
30
(17)
62
49
85
(213)
16
Net sales
Cost of sales
Selling, general and administrative expenses
Restructuring and impairment charges, net
Operating income (loss)
Other income
Interest expense, net
Equity in net income of subsidiaries
Net income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Currency translation
Interest rate hedges
Defined benefit pension and retiree benefit plans
Provision for income taxes related to other
comprehensive income items
Comprehensive income (loss)
Net sales
Cost of sales
Selling, general and administrative expenses
Restructuring and impairment charges, net
Operating income (loss)
Other income
Interest expense, net
Equity in net income of subsidiaries
Net income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Currency translation
Interest rate hedges
Defined benefit pension and retiree benefit plans
Provision for income taxes related to other
comprehensive income items
358
313
35
1
9
-
(110)
-
119
3
$
-
-
-
-
-
-
84
231
(315)
(50)
$
116
$
(265)
$
6
-
-
-
-
-
-
-
$
122
$
(265)
$
426
31
325
(7)
328
-
4
2
2
6
4
(14)
5
3
329
29
320
-
261
-
59
1
58
-
-
(14)
6
50
$
$
Fiscal 2011
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Total
$
3,503
$
2,948
295
190
70
(1)
249
-
(178)
(29)
363
343
30
1
(11)
-
(77)
-
66
2
64
(10)
-
-
-
$
-
-
-
-
-
-
56
(381)
325
11
$
4,561
3,908
390
221
42
61
327
-
(346)
(47)
$
314
$
(299)
-
-
-
-
(10)
(8)
(14)
7
$
(299)
$
(229)
$
(149)
$
-
-
-
-
-
(8)
-
2
-
-
(14)
5
Comprehensive income (loss)
$
(299)
$
(235)
$
(158)
$
54
$
314
$
(324)
Condensed Supplemental Consolidated Balance Sheet
As of fiscal year-end 2013
64
Assets
Current assets:
Cash and cash equivalents
$
Accounts receivable, net of allowance
Intercompany receivable
Inventories
Deferred income taxes
Prepaid expenses and other current
Total current assets
Property, plant and equipment, net
Intangible assets, net
Investment in subsidiaries
Other assets
Total assets
Liabilities and equity
Current liabilities:
Accounts payable
Accrued and other current liabilities
Intercompany payable
Long-term debt-current portion
Total current liabilities
Long-term debt
Deferred tax liabilities
Other long-term liabilities
Total long-term liabilities
Total liabilities
Redeemable shares
Other equity (deficit)
Total equity (deficit)
Parent
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Total
-
-
348
-
139
-
487
-
8
760
-
$
116
$
-
$
5
3,448
53
-
12
3,634
115
139
905
10
371
-
482
-
11
864
1,079
2,275
-
2
26
73
40
40
-
19
198
72
106
-
631
$
-
-
$
(3,836)
-
-
(10)
(3,846)
-
(8)
(1,665)
(631)
142
449
-
575
139
32
1,337
1,266
2,520
-
12
$
1,255
$
4,803
$
4,220
$
1,007
$
(6,150)
$
5,135
$
-
41
-
-
41
740
385
285
1,410
1,451
-
(196)
(196)
$
9
$
119
-
69
197
3,855
-
64
3,919
4,116
-
687
687
262
112
3,837
-
4,211
-
-
44
44
4,255
-
(35)
(35)
$
66
15
-
2
83
2
-
4
6
89
-
918
918
$
-
$
(11)
(3,837)
-
(3,848)
(722)
-
(10)
(732)
(4,580)
(1,570)
(1,570)
337
276
-
71
684
3,875
385
387
4,647
5,331
-
(196)
(196)
Total liabilities and equity (deficit)
$
1,255
$
4,803
$
4,220
$
1,007
$
(6,150)
$
5,135
Condensed Supplemental Consolidated Balance Sheet
As of fiscal year-end 2012
Parent
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries
Eliminations
Total
Assets
Current assets:
Cash and cash equivalents
$
Accounts receivable, net of allowance
Intercompany receivable
-
-
243
$
66
60
3,800
$
-
$
336
74
21
59
-
$
-
-
(4,117)
$
87
455
-
65
Inventories
Prepaid expenses and other current
Total current assets
Property, plant and equipment, net
Intangible assets, net
Investment in subsidiaries
Other assets
Total assets
Liabilities and equity
Current liabilities:
Accounts payable
Accrued and other current liabilities
Intercompany payable
Long-term debt-current portion
Total current liabilities
Long-term debt
Deferred tax liabilities
Other long-term liabilities
Total long-term liabilities
Total liabilities
Redeemable shares
Other equity (deficit)
Total equity (deficit)
-
120
363
-
8
254
-
83
17
4,026
113
184
615
10
414
9
833
1,023
2,343
-
10
$
625
$
4,948
$
4,209
$
$
$
-
18
-
-
18
736
315
8
1,059
1,077
23
(475)
(452)
$
84
159
-
35
278
4,542
-
37
4,579
4,857
-
91
91
$
195
120
3,966
-
4,281
-
-
119
119
4,400
-
(191)
(191)
Total liabilities and equity (deficit)
$
625
$
4,948
$
4,209
$
38
21
139
80
111
-
638
968
27
16
151
5
199
3
-
5
8
207
-
761
761
968
-
(11)
(4,128)
-
(10)
(869)
(637)
535
156
1,233
1,216
2,636
-
21
$
(5,644)
$
5,106
$
-
$
(13)
(4,117)
-
(4,130)
(850)
-
(3)
(853)
(4,983)
(661)
(661)
306
300
-
40
646
4,431
315
166
4,912
5,558
23
(475)
(452)
$
(5,644)
$
5,106
Condensed Supplemental Consolidated Statements of Cash Flows
Fiscal 2013
Cash Flow from Operating Activities
Cash Flow from Investing Activities
Additions to property, plant, and equipment
Proceeds from disposal of assets
Investment in Parent
(Contributions) distributions to/from subsidiaries
Intercompany advances (repayments)
Investment in Issuer debt securities
Acquisition of business net of cash acquired
Net cash from investing activities
Cash Flow from Financing Activities
Proceeds from long-term debt
IPO proceeds
Payment of TRA
Proceed from issuance of common stock
Repayment of note receivable
Parent
-
$
Issuer
(16)
$
Guarantor
Subsidiaries
417
$
Non-
Guarantor
Subsidiaries Eliminations
$
63
-
$
-
-
-
(462)
-
-
-
(462)
-
438
(5)
27
2
(7)
1
-
441
210
-
-
645
1,391
-
(5)
-
2
66
(218)
17
-
-
-
-
(24)
(225)
-
-
-
-
-
(14)
-
(21)
-
-
-
-
(35)
-
-
-
-
-
-
-
21
21
(210)
-
-
(168)
-
-
5
-
(2)
Total
464
$
(239)
18
--
-
-
-
(24)
(245)
1,391
438
(5)
27
2
Repayment of long-term debt
Changes in intercompany balances
Contribution from Parent
Deferred financing costs
Net cash from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
-
-
-
-
462
-
-
-
(1,955)
-
-
(39)
(606)
50
66
116
$
$
-
(192)
-
-
(192)
-
-
-
$
(2)
(15)
21
-
4
5
21
26
(21)
207
(21)
-
168
-
-
-
(1,978)
-
-
(39)
(164)
55
87
142
$
$
Fiscal 2012
Parent
-
$
Issuer
(22)
$
Guarantor
Subsidiaries
504
$
Non-
Guarantor
Subsidiaries Eliminations
$
(3)
-
$
Cash Flow from Operating Activities
Cash Flow from Investing Activities
Additions to property, plant, and equipment
Proceeds from disposal of assets
Investment in Parent
(Contributions) distributions to/from subsidiaries
Intercompany advances (repayments)
Investment in Issuer debt securities
Acquisition of business net of cash acquired
Net cash from investing activities
Cash Flow from Financing Activities
Proceeds from long-term debt
Equity contributions
Repayment of long-term debt
Changes in intercompany balances
Contribution from Parent
Deferred financing costs
Net cash from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
-
-
-
16
-
-
-
16
-
-
(16)
-
-
-
(16)
-
-
-
(9)
-
-
(20)
258
-
-
229
-
(6)
(155)
-
-
-
(161)
46
20
66
$
(209)
30
-
-
-
-
7
(172)
-
-
-
(337)
-
-
(337)
(5)
5
-
$
$
(12)
-
(4)
-
-
-
(62)
(78)
2
-
-
79
4
-
85
4
17
21
-
-
4
4
(258)
-
-
(250)
-
-
(4)
258
(4)
-
250
-
-
-
$
Fiscal 2011
Cash Flow from Operating Activities
Parent
2
$
Issuer
15
$
$
Guarantor
Subsidiaries
322
$
Non-
Guarantor
Subsidiaries Eliminations
$
(11)
(1)
Cash Flow from Investing Activities
Additions to property, plant, and equipment
Proceeds from disposal of assets
Investment in Parent
(Contributions) distributions to/from subsidiaries
Intercompany advances (repayments)
Investment in Issuer debt securities
Acquisition of business net of cash acquired
Net cash from investing activities
Cash Flow from Financing Activities
Proceeds from long-term debt
Equity contributions
Repayment of long-term debt
Changes in intercompany balances
-
-
-
-
-
-
-
-
-
(2)
-
-
(16)
-
-
(39)
166
-
(368)
(257)
995
(1)
(841)
-
67
(138)
5
-
-
-
-
-
(133)
-
-
-
(186)
(6)
-
-
-
-
(39)
-
(45)
-
-
-
20
-
-
-
39
(166)
39
-
(88)
-
1
(39)
166
Total
479
$
(230)
30
--
-
-
-
(55)
(255)
2
(6)
(175)
-
-
-
(179)
45
42
87
$
Total
327
$
(160)
5
--
-
-
-
(368)
(523)
995
(2)
(880)
-
Contribution from Parent
Deferred financing costs
Net cash from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
-
-
(2)
-
-
-
-
(23)
130
(112)
132
20
$
$
-
-
(186)
3
2
5
$
39
-
59
3
14
17
(39)
-
89
-
-
-
-
(23)
90
(106)
148
42
$
$
16. Quarterly Financial Data (Unaudited)
The following table contains selected unaudited quarterly financial data for fiscal years 2013 and 2012.
2013
2012
First
Second
Third
Fourth
First
Second
Third
Fourth
Net sales
$ 1,072
$ 1,150
$ 1,221
$ 1,204
$ 1,137
$ 1,183
$ 1,242
$ 1,204
Cost of sales
Gross profit
895
177
936
214
998
223
1,006
198
972
165
972
211
1,028
214
977
227
Net income (loss) $
(10)
$
1
$
40
$
26
$
(31)
$
2
$
9
$
22
Net income (loss)
per share:
Basic
Diluted
$
(0.09)
$
(0.09)
$
0.01
0.01
$
0.35
0.33
0.23
0.22
$
(0.37)
$
(0.37)
$
0.02
0.02
$
0.11
0.11
0.28
0.26
17. Subsequent Events
Graphic Packaging
On September 30, 2013, the Company acquired Graphic Packaging’s flexible plastics and films business (“Graphic”) for a
purchase price of $62 million. Graphic is a producer of wraps, films, pouches, and bags for the food, medical, industrial,
personal care, and pet food markets. The newly acquired business will be operated in the Company’s Flexible Packaging
Division. To finance the purchase, the Company used cash on hand and existing credit facilities. The Graphic acquisition
will be accounted for under the purchase method of accounting, and accordingly, the purchase price will be allocated to the
identifiable assets and liabilities based on estimated fair values at the acquisition date.
2014 Cost Reduction Plan
In November 2013, the Company initiated a cost reduction plan designed to deliver meaningful cost savings and optimal
equipment utilization. This plan will result in several plant rationalizations. The costs associated with this plan will primarily
consist of one-time costs associated with facility consolidation, including severance and termination benefits for employees of
approximately $6 million, other costs associated with exiting facilities of approximately $30 million and non-cash asset
impairment charges of approximately $11 million. In addition, as part of this cost reduction plan the Company estimates it
will incur capital expenditures of approximately $13 million. Overall these facility restructuring programs are projected to
generate approximately $27 million of annual operating savings when fully implemented. These amounts are preliminary
estimates based on the information currently available to management. The plan is expected to be fully implemented by the
end of fiscal 2014.
68
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 11th day of December, 2013.
BERRY PLASTICS GROUP, INC.
By /s/ Jonathan D. Rich
Jonathan D. Rich
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:
on
Signature
/s/ Jonathan D. Rich
Jonathan D. Rich
/s/ James M. Kratochvil
James M. Kratochvil
Title
Date
Chairman of the Board of Directors, Chief Executive Officer
and Director (Principal Executive Officer)
December 11, 2013
Chief Financial Officer (Principal Financial and Accounting
Officer)
December 11, 2013
/s/ Robert V. Seminara
Robert V. Seminara
Director
/s/ Anthony M. Civale
Anthony M. Civale
Director
/s/ Donald C. Graham
Donald C. Graham
Director
/s/ Ronald S. Rolfe
Ronald S. Rolfe
/s/ B. Evan Bayh
B. Evan Bayh
/s/ Joshua J. Harris
Joshua J. Harris
/s/ David B. Heller
David B. Heller
/s/ Carl J. Rickertsen
Carl J. Rickertsen
Director
Director
Director
Director
Director
69
December 11, 2013
December 11, 2013
December 11, 2013
December 11, 2013
December 11, 2013
December 11, 2013
December 11, 2013
December 11, 2013
Exhibit No.
Description of Exhibit
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
10.2
Amended and Restated Certificate of Berry Plastics Group, Inc. (incorporated herein by reference to
Exhibit 3.1 to the Company’s Form 10-K filed on December 27, 2012).
Bylaws, as amended, of Berry Plastics Group, Inc. (incorporated herein by reference to Exhibit 3.1 to the
Company’s Form 10-K filed on December 27, 2012).
Indenture, by and among Berry Plastics Corporation, each Subsidiary of Berry Plastics Corporation identified
therein and U.S. Bank National Association, as Trustee, relating to 9.75% second priority senior secured
notes due 2021, dated November 19, 2010 (incorporated herein by reference to Exhibit 4.03 to Berry Plastics
Corporation’s (File No. 033-75706-01) Current Report on Form 8-K filed on November 19, 2010).
Supplemental Indenture, dated as of December 3, 2012 among Berry Plastics Group, Inc., Berry Plastics
Corporation, and U.S. Bank National Association, as trustee, with respect to the indenture, dated as of
November 19, 2010, respecting Berry Plastics Corporation’s 9.75% Second Priority Senior Secured Notes
due 2021 (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on
December 6, 2012).
Additional Secured Creditor Consent, by and between Berry Plastics Corporation, each Subsidiary of Berry
Plastics Corporation signatory thereto and U.S. Bank National Association, as Authorized Representative and
Collateral Agent, relating to 9.75% second priority senior secured notes due 2021, dated November 19, 2010
(incorporated herein by reference to Exhibit 4.04 to Berry Plastics Corporation’s (File No. 033-75706-01)
Current Report on Form 8-K filed on November 19, 2010).
Registration Rights Agreement, by and between Berry Plastics Corporation, each Subsidiary of Berry Plastics
Corporation identified therein and Credit Suisse Securities (USA) LLC, as representatives of the Initial
Purchasers, relating to 9.75% second priority senior secured notes due 2021, dated November 19, 2010
(incorporated herein by reference to Exhibit 4.05 to Berry Plastics Corporation’s (File No. 033-75706-01)
Current Report on Form 8-K filed on November 19, 2010).
Indenture, by and among Berry Plastics Corporation, each Subsidiary of Berry Plastics Corporation identified
therein and U.S. Bank National Association, as Trustee, relating to 9.5% second priority senior secured notes
due 2018, dated April 30, 2010 (incorporated herein by reference to Exhibit 4.01 to Berry Plastics
Corporation’s (File No. 033-75706-01) Current Report on Form 8-K filed on May 4, 2010).
Supplemental Indenture, dated as of December 3, 2012, among Berry Plastics Group, Inc., Berry Plastics
Corporation, and U.S. Bank National Association, as trustee, with respect to the indenture, dated as of April
30, 2010, respecting Berry Plastics Corporation’s 9.5% Second Priority Senior Secured Notes due 2018
(incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on December
6, 2012).
Additional Secured Creditor Consent, by and between Berry Plastics Corporation, each Subsidiary of Berry
Plastics Corporation signatory thereto and U.S. Bank National Association, as Authorized Representative and
Collateral Agent, relating to 9.5% second priority senior secured notes due 2018, dated April 30, 2010
(incorporated herein by reference to Exhibit 4.02 to Berry Plastics Corporation’s (File No. 033-75706-01)
Current Report on Form 8-K filed on May 4, 2010).
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 Berry Plastics Corporation’s (File No. 033-75706-01) Current Report on Form 8-K filed on
April 10, 2007).
Amendment, dated as of June 28, 2011, to 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,
70
(incorporated herein by reference to Exhibit 10.23 to Berry Plastics Corporation’s (File No. 033-75706-01)
Annual Report on Form 10-K filed on December 19, 2011).
10.3
10.4
10.5
10.6
10.7
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 Berry Plastics
Corporation’s (File No. 033-75706-01) Current Report on Form 8-K filed on April 10, 2007).
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 Berry Plastics Corporation’s (File No. 033-75706-01) Current Report on
Form 8-K filed on April 10, 2007).
U.S. $1,400,000,000 Incremental Assumption Agreement, dated as of February 8, 2013, by and among Berry
Plastics Group, Inc., Berry Plastics Corporation and certain of its subsidiaries referenced therein and Credit
Suisse AG, Cayman Islands Branch (incorporated herein by reference to Exhibit 10.29 to the Registrant’s
Registration Statement on Form S-1 (Reg. No. 333-187740) filed on April 4, 2013).
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
Exhibit 10.7 to Berry Plastics Corporation’s Registration Statement Form S-4 (Reg. No. 333-138380) filed on
November 2, 2006).
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 Exhibit 10.7 to Berry Plastics Corporation’s Registration Statement Form S-4 (Reg. No. 333-142602) filed
on May 4, 2007).
10.8†
2006 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.8 to Berry Plastics Corporation’s
Registration Statement Form S-4 (Reg. No. 333-138380) filed on November 2, 2006).
10.9†*
Amendment No. 2 to the Berry Plastics Group, Inc., 2006 Equity Incentive Plan.
10.10†*
Omnibus amendment to awards granted under the Berry Plastics Group, Inc., 2006 Long-Term Incentive Plan.
10.11†
10.12†
10.13†
10.14†
10.15†
Form of Performance-Based Stock Option Agreement of Berry Plastics Group, Inc. (incorporated herein by
reference to Exhibit 10.9 to Berry Plastics Corporation’s Registration Statement Form S-4 (Reg. No. 333-
138380) filed on November 2, 2006).
Form of Accreting Stock Option Agreement of Berry Plastics Group, Inc. (incorporated herein by reference to
Exhibit 10.10 to Berry Plastics Corporation’s Registration Statement Form S-4 (Reg. No. 333-138380) filed on
November 2, 2006).
Form of Time-Based Stock Option Agreement of Berry Plastics Group, Inc. (incorporated herein by reference
to Exhibit 10.11 to Berry Plastics Corporation’s Registration Statement Form S-4 (Reg. No. 333-138380) filed
on November 2, 2006).
Form of Performance-Based Stock Appreciation Rights Agreement of Berry Plastics Group, Inc. (incorporated
herein by reference to Exhibit 10.12 to Berry Plastics Corporation’s Registration Statement Form S-4 (Reg.
No. 333-138380) filed on November 2, 2006).
Employment Agreement, dated September 20, 2006, between Berry Plastics Corporation and
Ira G. Boots (incorporated herein by reference to Exhibit 10.13 to Berry Plastics Corporation’s Registration
Statement Form S-4 (Reg. No. 333-138380) filed on November 2, 2006).
71
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
10.23
10.24†
10.25†
10.26†
10.27
10.28†
10.29†
10.30†
Employment Agreement, dated September 20, 2006, between Berry Plastics Corporation and James M.
Kratochvil (incorporated herein by reference to Exhibit 10.14 to Berry Plastics Corporation’s Registration
Statement Form S-4 (Reg. No. 333-138380) filed on November 2, 2006).
Employment Agreement, dated November 22, 1999, between Berry Plastics Corporation and G. Adam Unfried
(incorporated herein by reference to Exhibit 10.23 of Berry Plastics Corporation’s (File No. 033-75706-01)
Annual Report on Form 10-K filed with the SEC on March 22, 2006).
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 Berry
Plastics Corporation’s (File No. 033-75706-01) Annual Report on Form 10-K filed with the SEC on March 22,
2006).
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 Berry
Plastics Corporation’s (File No. 033-75706-01) Annual Report on Form 10-K filed with the SEC on March 22,
2006).
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 Exhibit 10.19 to Berry
Plastics Corporation’s Registration Statement Form S-4 (Reg. No. 333-138380) filed on November 2, 2006).
Employment Agreement, dated April 3, 2007, between Berry Plastics Corporation and Thomas E. Salmon
(incorporated herein by reference to Exhibit 10.20 of Berry Plastics Corporation’s (File No. 033-75706-01)
Annual Report on Form 10-K filed with the SEC on December 16, 2008).
Letter Agreement, dated as of March 9, 2007, by and between Berry Plastics Group, Inc. and Ira Boots
(incorporated by reference to Exhibit 10.19 of Amendment No. 1 to the Company’s Registration Statement on
Form 8-K (File No. 333-180294), filed on May 4, 2012).
Purchase and Sale Agreement, dated as of December 15, 2008, by and between BP Parallel Corporation, a
Delaware corporation, and Apollo Management VI, L.P., a Delaware limited partnership (incorporated herein
by reference to Exhibit 10.21 of Berry Plastics Corporation’s (File No. 033-75706-01) Annual Report on Form
10-K filed with the SEC on December 16, 2008).
Employment Agreement, dated as of August 1, 2010, between Berry Plastics Corporation and Randall J.
Becker (incorporated by reference to Exhibit 10.21 of Amendment No. 1 to the Company’s Registration
Statement on Form 8-K (File No. 333-180294) filed on May 4, 2012).
Letter Agreement, dated September 30, 2010, between Berry Plastics Corporation and Ira G. Boots
(incorporated herein by reference to Exhibit 10.1 of Berry Plastics Corporation’s (File No. 033-75706-01)
Current Report on Form 8-K filed on October 6, 2010).
Employment Agreement, dated October 1, 2010, between the Berry Plastics Corporation and Jonathan Rich
(incorporated herein by reference to Exhibit 10.2 of Berry Plastics Corporation’s (File No. 033-75706-01)
Current Report on Form 8-K filed on October 6, 2010).
Form of common stock certificate of Berry Plastics Group, Inc. (incorporated by reference to Exhibit 4.27 of
Amendment No. 5 to the Company’s Registration Statement on Form S-1 (File No. 333-180294) filed on
September 19, 2012).
Income Tax Receivable Agreement, dated as of November 29, 2012, by and among Berry Plastics Group, Inc.
and Apollo Management Fund VI, L.P. (incorporated herein by reference to Exhibit 10.25 to the Company’s
Form 10-K filed on December 27, 2012).
Berry Plastics Group, Inc. Executive Bonus Plan (incorporated herein by reference to Exhibit 10.26 to the
Company’s Form 10-K filed on December 27, 2012).
Berry Plastics Group, Inc. 2012 Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.27
to the Company’s Form 10-K filed on December 27, 2012).
72
10.31†*
Amendment No. 1 to the Berry Plastics Group, Inc. 2012 Long-Term Incentive Plan
10.32†*
Omnibus amendment to awards granted under the Berry Plastics Group, Inc., 2012 Long-Term Incentive Plan
10.33†
Amendment No. 1 to the Amended and Restated Stockholders Agreement, by and among Berry Plastics
Group, Inc., and the stockholders of the Corporation listed on schedule A thereto, dated as of October 2, 2012
(incorporated herein by reference to Exhibit 10.28 to the Company’s Form 10-K filed on December 27, 2012).
12.1*
Computation of Ratio of Earnings to Fixed Charges.
21.1*
Subsidiaries of the Registrant.
23.1*
Consent of Independent Registered Public Accounting Firm
31.1*
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
31.2*
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
32.1*
Section 1350 Certification of the Chief Executive Officer
32.2*
Section 1350 Certification of the Chief Financial Officer
Filed herewith.
*
† Management contract or compensatory plan or arrangement.
73