SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q





(Mark
One)





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





For the
quarterly period ended December 27, 2008


or


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





For the
transition period from___________________to__________________




Commission
File Number 333-138380


BERRY
PLASTICS CORPORATION


(f/k/a
Berry Plastics Holding Corporation)


(Exact name of registrant as
specified in its charter)


Delaware
            35-1814673(State
      or other jurisdiction
              of
      incorporation or organization)
            (IRS
      employer
              identification
      number)





SEE
TABLE OF ADDITIONAL REGISTRANT GUARANTORS





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





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





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





Indicate
by check mark whether the registrants:  (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) have been subject to such filing
requirements for the past 90 days.  Yes [X]  No
[   ]





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


Large
accelerated filer
[     ]         Accelerated
filer  [     ]            Non-accelerated
filer [  X  ]





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





As of
February 8, 2009, all of the outstanding 100 shares of the Common Stock, $.01
par value, of Berry Plastics Corporation were held by Berry Plastics Group,
Inc.





Table of
Additional Registrant Guarantors


Exact
      Name
            Jurisdiction
      of Organization
            Primary
      Standard Industrial Classification Code Number
            I.R.S.  Employer
      Identification No.
            Name,
      Address and Telephone Number of Principal Executive
  OfficesAerocon,
      LLC
            Delaware
            3089
            35-1948748
            (a)Berry
      Iowa, LLC
            Delaware
            3089
            42-1382173
            (a)Berry
      Plastics Design, LLC
            Delaware
            3089
            62-1689708
            (a)Berry
      Plastics Technical Services, Inc.
            Delaware
            3089
            57-1029638
            (a)Berry
      Sterling Corporation
            Delaware
            3089
            54-1749681
            (a)CPI
      Holding Corporation
            Delaware
            3089
            34-1820303
            (a)Knight
      Plastics, Inc.
            Delaware
            3089
            35-2056610
            (a)Packerware
      Corporation
            Delaware
            3089
            48-0759852
            (a)Pescor,
      Inc.
            Delaware
            3089
            74-3002028
            (a)Poly-Seal,
      LLC
            Delaware
            3089
            52-0892112
            (a)Venture
      Packaging, Inc.
            Delaware
            3089
            51-0368479
            (a)Venture
      Packaging Midwest, Inc.
            Delaware
            3089
            34-1809003
            (a)Berry
      Plastics Acquisition Corporation III
            Delaware
            3089
            37-1445502
            (a)Berry
      Plastics Opco, Inc.
            Delaware
            3089
            30-0120989
            (a)Berry
      Plastics Acquisition Corporation V
            Delaware
            3089
            36-4509933
            (a)Berry
      Plastics Acquisition Corporation VIII
            Delaware
            3089
            32-0036809
            (a)Berry
      Plastics Acquisition Corporation IX
            Delaware
            3089
            35-2184302
            (a)Berry
      Plastics Acquisition Corporation X
            Delaware
            3089
            35-2184301
            (a)Berry
      Plastics Acquisition Corporation XI
            Delaware
            3089
            35-2184300
            (a)Berry
      Plastics Acquisition Corporation XII
            Delaware
            3089
            35-2184299
            (a)Berry
      Plastics Acquisition Corporation XIII
            Delaware
            3089
            35-2184298
            (a)Berry
      Plastics Acquisition Corporation XV, LLC
            Delaware
            3089
            35-2184293
            (a)Kerr
      Group, LLC
            Delaware
            3089
            95-0898810
            (a)Saffron
      Acquisition, LLC
            Delaware
            3089
            94-3293114
            (a)Setco,
      LLC
            Delaware
            3089
            56-2374074
            (a)Sun
      Coast Industries, LLC
            Delaware
            3089
            59-1952968
            (a)Tubed
      Products, LLC
            Delaware
            3089
            56-2374082
            (a)Cardinal
      Packaging, Inc.
            Ohio
            3089
            34-1396561
            (a)Landis
      Plastics, LLC
            Delaware
            3089
            36-2471333
            (a)Covalence
      Specialty Adhesives LLC
            Delaware
            2672
            20-4104683
            (a)Covalence
      Specialty Coatings LLC
            Delaware
            2672
            20-4104683
            (a)Caplas
      LLC
            Delaware
            3089
            20-3888603
            (a)Caplas
      Neptune, LLC
            Delaware
            3089
            20-5557864
            (a)Captive
      Holdings, Inc.
            Delaware
            3089
            20-1290475
            (a)Captive
      Plastics, Inc.
            New
      Jersey
            3089
            22-1890735
            (a)Grafco
      Industries Limited Partnership
            Maryland
            3089
            52-1729327
            (a)Rollpak
      Acquisition Corporation
            Indiana
            3089
            03-0512845
            (a)Rollpak
      Corporation
            Indiana
            3089
            35-1582626
            (a)


(a)  101
Oakley Street, Evansville, IN 47710





CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS


2





This Form
10-Q includes "forward-looking statements," within the meaning of Section 27A of
the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), with respect to our financial condition, results
of operations and business and our expectations or beliefs concerning future
events.  The forward-looking statements include, in particular,
statements about our plans, strategies and prospects under the heading
"Management’s Discussion and Analysis of Financial Condition and Results of
Operations".  You can identify certain forward-looking statements by
our use of forward-looking terminology such as, but not limited to, "believes,"
"expects," "anticipates," "estimates," "intends," "plans," "targets," "likely,"
"will," "would," "could" and similar expressions that identify forward-looking
statements.  All forward-looking statements involve risks and
uncertainties.  Many risks and uncertainties are inherent in our
industry and markets. Others are more specific to our operations.  The
occurrence of the events described and the achievement of the expected results
depend on many events, some or all of which are not predictable or within our
control.  Actual results may differ materially from the
forward-looking statements contained in this Form 10-Q.  Factors that
could cause actual results to differ materially from those expressed or implied
by the forward-looking statements include:





·
            changes
      in prices and availability of resin and other raw materials and our
      ability to pass on changes in raw material prices on a timely
      basis;


·
            catastrophic
      loss of one of our key manufacturing
facilities;


·
            risks
      related to our acquisition strategy and integration of acquired
      businesses;


·
            risks
      associated with our substantial indebtedness and debt
    service;


·
            risks
      related to disruptions in the overall economy and the financial markets
      may adversely impact our business;


·
            performance
      of our business and future operating
results;


·
            risks
      of competition, including foreign competition, in our existing and future
      markets;


·
            reliance
      on unpatented know-how and trade
secrets


·
            general
      business and economic conditions, particularly an economic
      downturn;


·
            increases
      in the cost of compliance with laws and regulations, including
      environmental laws and regulations;
and


·
            the
      other factors discussed in our Form 10-K for the fiscal year ended
      September 27, 2008 in the section titled “Risk
  Factors.”





Readers
should carefully review the factors discussed in our Form 10-K for the fiscal
year ended September 27, 2008 in the section titled “Risk Factors” and other
risk factors identified from time to time in our periodic filings with the
Securities and Exchange Commission and should not place undue reliance on our
forward-looking statements.  We undertake no obligation to update any
forward-looking statements to reflect changes in underlying assumptions or
factors, new information, future events or other changes.


3


AVAILABLE
INFORMATION





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


4





Berry
Plastics Corporation





Form 10-Q Index





For
Quarterly Period Ended December 27, 2008







Part
      I.  Financial InformationItem
      1.
                Financial Statements:Consolidated Balance Sheets
                6Consolidated Statements of Operations
                8Consolidated
      Statements of Changes inStockholders’
      Equity
                9Consolidated Statements of Cash Flows
                10Notes to Consolidated
      Financial Statements
                11Item 2.
                Management’s
      Discussion and Analysis ofFinancial
      Condition and Results of Operations
                23Item 3.
                Quantitative
      and Qualitative Disclosures about Market Risk
                32Item 4.
                Controls
      and Procedures
                33Part II.  Other InformationItem
      1.
                Legal
      Proceedings
                35Item
      1A.
                Risk
      FactorsItem
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                35Item
      3.
                Defaults
      Upon Senior Securities
                35Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                35Item
      5.
                Other
      Information
                36Item
      6.
                Exhibits
                36Signature
                37


Back to Index
 5


Part
1.   Financial Information


Item 1.   Financial Statements





Berry
Plastics Corporation


Consolidated Balance Sheets


(In
Millions of Dollars)





December7,
              2008
            
            
            September
      27,
              2008(Unaudited)AssetsCurrent
      assets:Cash and cash
      equivalents
            
            $
            170.6
            
            
            $
            189.7Accounts receivable (less
      allowance for doubtful accounts of $10.4 at December 27, 2008 and $12.1 at
      September 27, 2008)
            
            
            350.5
            
            
            
            422.5Inventories, net:Finished goods
            
            
            284.6
            
            
            
            306.1Raw materials and work in
      process
            
            
            146.2
            
            
            
            194.2430.8
            
            
            
            500.3Deferred income
    taxes
            
            
            35.3
            
            
            
            35.3Prepaid expenses and other
      current assets
            
            
            46.4
            
            
            
            49.3Total
      current assets
            
            
            1,033.6
            
            
            
            1,197.1Property
      and equipment:Land
            
            
            40.0
            
            
            
            39.1Buildings and
      improvements
            
            
            164.1
            
            
            
            165.3Equipment and construction in
      progress
            
            
            1,015.5
            
            
            
            978.51,219.6
            
            
            
            1,182.9Less accumulated
      depreciation
            
            
            356.1
            
            
            
            320.1863.5
            
            
            
            862.8Goodwill, intangible assets and deferred costs
            
            
            2,625.9
            
            
            
            2,662.2Other assets
            
            
            1.9
            
            
            
            2.02,627.8
            
            
            
            2,664.2Total
      assets
            
            $
            4,524.9
            
            
            $
            4,724.1


Back to Index
 6





Berry
Plastics Corporation


Consolidated
Balance Sheets (continued)


(In
Millions of Dollars)





December
      27,
              2008
            
            
            September
      27,
              2008(Unaudited)Liabilities
      and stockholders' equityCurrent
      liabilities:Accounts payable
            
            $
            192.4
            
            
            $
            253.8Accrued expenses and other
      current liabilities
            
            
            201.9
            
            
            
            206.6Current portion of long-term
      debt
            
            
            23.1
            
            
            
            21.4Total
      current liabilities
            
            
            417.4
            
            
            
            481.8Long-term
      debt, less current portion
            
            
            3,498.5
            
            
            
            3,578.2Deferred
      income taxes
            
            
            190.8
            
            
            
            212.3Other
      long-term liabilities
            
            
            116.3
            
            
            
            99.9Total
      liabilities
            
            
            4,223.0
            
            
            
            4,372.2Commitments
      and contingenciesStockholders'
      equity:Parent Company
      Investment, net
            
            
            628.3
            
            
            
            617.2Accumulated
      deficit
            
            
            (282.4
            )
            
            
            (253.0
            )Accumulated other
      comprehensive loss
            
            
            (44.0
            )
            
            
            (12.3
            )Total stockholders’ equity
            
            
            301.9
            
            
            
            351.9Total liabilities and stockholders’ equity
            
            $
            4,524.9
            
            
            $
            4,724.1








See
notes to consolidated financial statements.


Back to Index
 7





Berry
Plastics Corporation


Consolidated Statements of Operations


(Unaudited)


(In
Millions of Dollars)





Thirteen
      Weeks EndedDecember
      27,
              2008
            
            
            December
      29,
              2007Net
      sales
            
            $
            865.0
            
            
            $
            762.7Cost
      of goods sold
            
            
            738.1
            
            
            
            653.9Gross
      profit
            
            
            126.9
            
            
            
            108.8Operating
      expenses:Selling, general and
      administrative
            
            
            89.5
            
            
            
            81.8Restructuring and impairment
      charges, net
            
            
            0.6
            
            
            
            3.5Other operating
      expenses
            
            
            5.2
            
            
            
            13.0Operating
      income
            
            
            31.6
            
            
            
            10.5Other
      expense
            
            
            6.6
            
            
            
            —Interest
      expense, net
            
            
            70.2
            
            
            
            61.5Loss
      before income taxes
            
            
            (45.2
            )
            
            
            (51.0
            )Income
      tax benefit
            
            
            (15.8
            )
            
            
            (19.7
            )Net
      loss
            
            $
            (29.4
            )
            
            $
            (31.3
            )








See notes to
consolidated financial statements.


Back to Index
 8


Berry
Plastics Corporation


Consolidated Statement of Changes in Stockholders'
Equity


For
Thirteen Weeks Ended December 27, 2008 and December 29, 2007


(Unaudited)


(In
Millions of Dollars)





Parent
      Company
              Investment
            
            
            Accumulated
              Other
              Comprehensive
              Income
      (Loss)
            
            
            Accumulated
              Deficit
            
            
            Total
            
            
            Comprehensive
              Income
      (Loss)Balance
      at September 29, 2007
            
            $
            598.1
            
            
            $
            3.8
            
            
            $
            (151.9
            )
            
            $
            450.0Stock
      compensation expense
            
            
            4.7
            
            
            
            —
            
            
            
            —
            
            
            
            4.7Net
      transfers from parent
            
            
            0.2
            
            
            
            —
            
            
            
            —
            
            
            
            0.2Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            (31.3
            )
            
            
            (31.3
            )
            
            $
            (31.3
            )Currency
      translation
            
            
            —
            
            
            
            2.3
            
            
            
            —
            
            
            
            2.3
            
            
            
            2.3Derivative
      valuation
            
            
            —
            
            
            
            (5.6
            )
            
            
            —
            
            
            
            (5.6
            )
            
            
            (5.6
            )Balance
      at December 29, 2007
            
            $
            603.0
            
            
            $
            0.5
            
            
            $
            (183.2
            )
            
            $
            420.3
            
            
            $
            (34.6
            )





Parent
      Company
              Investment
            
            
            Accumulated
              Other
              Comprehensive
              Loss
            
            
            Accumulated
              Deficit
            
            
            Total
            
            
            Comprehensive
              LossBalance
      at September 27, 2008
            
            $
            617.2
            
            
            $
            (12.3
            )
            
            $
            (253.0
            )
            
            $
            351.9Stock
      compensation expense
            
            
            11.6
            
            
            
            —
            
            
            
            —
            
            
            
            11.6Net
      transfers to parent
            
            
            (0.5
            )
            
            
            —
            
            
            
            —
            
            
            
            (0.5
            )Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            (29.4
            )
            
            
            (29.4
            )
            
            $
            (29.4
            )Currency
      translation
            
            
            —
            
            
            
            (27.0
            )
            
            
            —
            
            
            
            (27.0
            )
            
            
            (27.0
            )Derivative
      valuation
            
            
            —
            
            
            
            (4.7
            )
            
            
            —
            
            
            
            (4.7
            )
            
            
            (4.7
            )Balance
      at December 27, 2008
            
            $
            628.3
            
            
            $
            (44.0
            )
            
            $
            (282.4
            )
            
            $
            301.9
            
            
            $
            (61.1
            )





See notes to consolidated financial
statements.





Back to Index
 9





Berry
Plastics Corporation


Consolidated Statements of Cash Flows


(Unaudited)


(In
Millions of Dollars)





Thirteen
      Weeks EndedDecember
      27, 2008
            
            
            December
      29, 2007Operating
      activitiesNet
      loss
            
            $
            (29.4
            )
            
            $
            (31.3
            )Adjustments to reconcile net loss to net cash provided by operating
      activities:Depreciation and amortization
            
            
            61.7
            
            
            
            59.6Non-cash interest expense
            
            
            5.2
            
            
            
            1.3Non-cash compensation
            
            
            11.6
            
            
            
            4.7Other non-cash expense
            
            
            6.6
            
            
            
            —Deferred income tax benefit
            
            
            (15.8
            )
            
            
            (20.7
            )Changes in operating assets and liabilities:Accounts receivable,
      net
            
            
            67.9
            
            
            
            31.0Inventories
            
            
            67.0
            
            
            
            (29.0
            )Prepaid expenses and other
      assets
            
            
            0.5
            
            
            
            (9.0
            )Accounts payable and other
      liabilities
            
            
            (63.7
            )
            
            
            14.0Net
      cash provided by operating activities
            
            
            111.6
            
            
            
            20.7Investing
      activitiesAdditions
      to property and equipment
            
            
            (43.2
            )
            
            
            (38.6
            )Proceeds
      from disposal of assets
            
            
            0.1
            
            
            
            82.2Acquisition
      of businesses, net of cash acquired
            
            
            (4.3
            )
            
            
            (73.7
            )Net
      cash used for investing activities
            
            
            (47.4
            )
            
            
            (30.1
            )Financing
      activitiesProceeds
      from long-term borrowings
            
            
            —
            
            
            
            23.9Repayments
      on long-term borrowings
            
            
            (81.6
            )
            
            
            (9.5
            )Debt
      financing costs
            
            
            (0.3
            )
            
            
            —Equity
      distributions, net
            
            
            (0.5
            )
            
            
            0.2Net
      cash provided by (used for) financing activities
            
            
            (82.4
            )
            
            
            14.6Effect
      of exchange rate changes on cash
            
            
            (0.9
            )
            
            
            2.0Net
      increase in cash and cash equivalents
            
            
            19.1
            
            
            
            7.2Cash
      and cash equivalents at beginning of period
            
            
            189.7
            
            
            
            14.6Cash
      and cash equivalents at end of period
            
            $
            170.6
            
            
            $
            21.8





See
notes to consolidated financial statements.


Back to Index
 10


Berry
Plastics Corporation


Notes to Consolidated Financial Statements


(Unaudited)


(In
millions of dollars, except as otherwise noted)








1.
            Background
      and Nature of Operations





Berry
Plastics Corporation (“Berry” or the “Company”) manufactures and markets plastic
packaging products, plastic film products, specialty adhesives and coated
products.  At December 27, 2008 the Company had 68 production and
manufacturing facilities, with 60 located in the United States.  Berry
is a wholly-owned subsidiary of Berry Plastics Group, Inc. (“Berry
Group”).  Berry Group is primarily owned by affiliates of Apollo
Management, L.P. and Graham Partners.





2.
            Basis
      of Presentation





The
accompanying unaudited consolidated financial statements of Berry have been
prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”) for interim financial information and the instructions
for Form 10-Q and Article 10 of Regulation S-X of the Securities Act of
1934.  Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements.  In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included.  Operating results for the periods presented are not
necessarily indicative of the results that may be expected for the full fiscal
year.  The accompanying financial statements include the results of
the Company and its wholly owned subsidiaries.  For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company’s Form 10-K filed with the Securities and
Exchange Commission for the fiscal year ended September 27, 2008.  All
intercompany transactions have been eliminated.





The
Company’s operating results for the thirteen week periods ended December 27,
2008 and December 29, 2007 represent the consolidated results of operations of
the Company.  The balance sheets as of December 27, 2008 and September
27, 2008 represent the consolidated balance sheets of the Company as of the
respective dates.  Berry has recorded expense in their financial
statements of $11.6 million and $4.7 million for the thirteen weeks ended
December 27, 2008 and December 29, 2007, respectively, related to stock
compensation of Berry Group, management fees of $1.4 million and $1.3 million
for the thirteen weeks ended December 27, 2008 and December 29, 2007,
respectively, charged by Apollo and other investors to Berry Group and recorded
income taxes to push down the respective amounts that relate to the consolidated
operations of the Company.  Parent Company Investment includes the
equity from Berry Group that was invested in Berry by Apollo and other
shareholders.  Berry, through its wholly owned subsidiaries operates
in four primary segments:  rigid open top, rigid closed top, flexible
films, and tapes/coatings.  The Company’s customers are located
principally throughout the United States, without significant concentration in
any one region or with any one customer.








Back to Index
 11


3.  Acquisitions





MAC
Closures, Inc.


On
December 19, 2007, the Company acquired 100% of the outstanding common stock of
MAC, a plastic cap and closure manufacturer located in Waterloo, Quebec for
CN$72.0 million.  MAC is a fully integrated manufacturer of injection
molded plastic caps and closures primarily serving the pharmaceutical,
nutraceutical, personal care, amenity, and household and industrial chemical
industries and is included in our closed top segment.  The purchase
price was funded utilizing cash on hand from the sale-leaseback transaction
discussed elsewhere in this Form 10-Q.  The MAC acquisition has been
accounted for using the purchase method of accounting, and accordingly, the
purchase price has been allocated to working capital, tangible and intangible
assets with any excess allocated to goodwill.





Captive
Holdings, LLC


On
February 5, 2008, the Company completed its purchase of the outstanding capital
stock of Captive Holdings, Inc., the parent company of
Captive.  Pursuant to a Stock Purchase Agreement dated December 21,
2007 and amended on January 25, 2008 (the “Purchase Agreement”), the aggregate
purchase price was $500.0 million, subject to certain post-closing upward or
downward adjustments.  Captive manufactures blow-molded bottles and
injection-molded closures for the food, healthcare, spirits and personal care
end markets and is included in the Company’s Rigid Closed Top
segment.  To finance the purchase, Berry used the proceeds from a
$520.0 million bridge loan facility which was subsequently retired with the
issuance of the Senior Secured First Priority Notes.  The purchase
price allocation is preliminary and subject to change.  A portion of
the goodwill is deductible for tax purposes.  The following table
summarizes the allocation of purchase price and the estimated fair values of the
assets acquired and liabilities assumed at the date of acquisition:





Working
      capital
            
            $
            39.5Property plant and equipment
            
            
            73.1Intangible assets
            
            
            159.0Goodwill
            
            
            281.4Long-term
      liabilities
            
            
            (48.5
            )Net
      assets acquired
            
            $
            504.5





The
impact of recording inventory at fair value resulted in the Company recording a
charge of $4.5 million in cost of goods sold in the year ended September 27,
2008.  In accordance with EITF 95-3, Recognition of Liabilities in
Connection with a Purchase Business Combination, the Company established
opening balance sheet reserves of $2.4 million related to plant shutdown and
severance costs.  Pro forma results have not been presented, as they
do not differ materially from reported historical results.


Back to Index
 12





Erie
County Plastics Corporation


In
November 2008, Berry was the successful bidder to acquire certain assets of Erie
County Plastics Corporation (“Erie Plastics”), a custom injection molder of
plastics packaging and components, for $4.3 million.  Erie Plastics
previously filed for bankruptcy protection on September 29, 2008.





4.  Restructuring





During
fiscal 2007 and 2008, the Company announced various restructuring plans which
included shutting down facilities in their Closed Top, Flexible Films and Tapes
and Coatings divisions.





In
December 2008, the Company announced that it would be eliminating approximately
70 positions at its Albertville, AL production facility in its Tapes and
Coatings segment.





The table
below sets forth the Company’s estimate of the total cost of the restructuring
programs, entered into during 2007 and 2008, the cumulative portion recognized
through December 27, 2008 and the portion expected to be recognized in a future
period:





Expected
      Total
              Costs
            
            
            Recognized
      through
              December
      27, 2008
            
            
            To
      be Recognized
              in
      FutureSeverance
      and termination benefits
            
            $
            8.7
            
            
            $
            7.8
            
            
            $
            0.9Facility
      exit costs
            
            
            20.7
            
            
            
            19.8
            
            
            
            0.9Asset
      impairment
            
            
            18.1
            
            
            
            18.1
            
            
            
            —Other
            
            
            7.0
            
            
            
            3.6
            
            
            
            3.4Total
            
            $
            54.5
            
            
            $
            49.3
            
            
            $
            5.2





The
Company incurred $0.6 million and $3.5 million of restructuring costs related to
severance and facility exit costs in the thirteen week periods ended December
27, 2008 and December 29, 2007, respectively.





The table
below sets forth the activity with respect to the restructuring accrual at
September 27, 2008 and December 27, 2008:





Employee
              Severance
              and
      Benefits
            
            
            Facilities
              Exit
              Costs
            
            Other
            
            
            TotalBalance
      at September 29, 2007
            
            $
            3.0
            
            
            $
            10.4
            
            
            $
            ―
            
            
            $
            13.4Charges
            
            
            0.3
            
            
            
            7.9
            
            
            
            1.4
            
            
            
            9.6Cash
      payments
            
            
            (3.3
            )
            
            
            (14.2
            )
            
            
            (1.4
            )
            
            
            (18.9
            )Balance
      at September 27, 2008
            
            
            ―
            
            
            
            4.1
            
            
            
            ―
            
            
            
            4.1Charges
            
            
            ―
            
            
            
            0.6
            
            
            
            ―
            
            
            
            0.6Cash
      payments
            
            
            ―
            
            
            
            (1.0
            )
            
            
            ―
            
            
            
            (1.0
            )Balance
      at December 27, 2008
            
            
            ―
            
            
            $
            3.7
            
            
            $
            ―
            
            
            $
            3.7





The
restructuring costs accrued as of December 27, 2008 will result in future cash
outflows. The charges recognized in the quarter ended December 27, 2008 have
been reported as restructuring expense in the Consolidated Statements of
Operations. The remaining liability as of December 27,


Back to Index
 13


2008 has
been included within Accrued Expenses on the Consolidated Balance
Sheet.





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:





December
      27,
                2008
            
            
            September
      27,
                2008
            
            Amortization
      PeriodDeferred financing fees
            
            $
            69.6
            
            
            $
            69.3
            
            Respective
      debtAccumulated amortization
            
            
            (17.7
            )
            
            
            (15.5
            )Deferred financing fees, net
            
            
            51.9
            
            
            
            53.8Goodwill
            
            
            1,442.2
            
            
            
            1,449.3
            
            Indefinite
      livedCustomer relationships
            
            
            1,029.1
            
            
            
            1,033.0
            
            11
      – 20 yearsTrademarks
            
            
            264.7
            
            
            
            265.2
            
            Indefinite
      livedOther intangibles
            
            
            53.4
            
            
            
            53.3
            
            10-20
      yearsAccumulated amortization
            
            
            (215.4
            )
            
            
            (192.4
            )Intangible assets, net
            
            
            1,131.8
            
            
            
            1,159.1Total
      Goodwill, Intangible Assets and Deferred Costs
            
            $
            2,625.9
            
            
            $
            2,662.2





6.  Accrued
Expenses and Other Current Liabilities





The
following table sets forth the totals included in accrued expenses and other
current liabilities.





December
      27,
              2008
            
            
            September
      27,
              2008Employee
      compensation, payroll and other taxes
            
            $
            50.4
            
            
            $
            62.3Interest
            
            
            44.0
            
            
            
            27.8Restructuring
            
            
            3.7
            
            
            
            4.1Rebates
            
            
            47.6
            
            
            
            51.5Other
            
            
            56.2
            
            
            
            60.9$
            201.9
            
            
            $
            206.6





Back to Index
 14


7.      Long-Term
Debt





Long-term
debt consists of the following:





Maturity
      Date
            
            December
      27,
              2008
            
            
            September
      27,
              2008Term
      loan
            April
      3, 2015
            
            $
            1,182.0
            
            
            $
            1,185.0Revolving
      line of credit
            April
      3, 2013
            
            
            180.5
            
            
            
            257.1First
      Priority Senior Secured Floating Rate Notes
            February
      15, 2015
            
            
            680.6
            
            
            
            680.6Debt
      discount on First Priority Notes, net
            
            
            
            (17.7
            )
            
            
            (18.0
            )Second
      Priority Senior Secured Fixed Rate Notes
            September
      15, 2014
            
            
            525.0
            
            
            
            525.0Second
      Priority Senior Secured Floating Rate Notes
            September
      15, 2014
            
            
            225.0
            
            
            
            225.011%
      Senior Subordinated Notes
            September
      15, 2016
            
            
            444.5
            
            
            
            441.210
      1⁄4% Senior Subordinated Notes
            March
      1, 2016
            
            
            265.0
            
            
            
            265.0Capital
      leases and other
            Various
            
            
            36.7
            
            
            
            38.73,521.6
            
            
            
            3,599.6Less
      current portion of long-term debt
            
            
            
            (23.1
            )
            
            
            (21.4
            )$
            3,498.5
            
            
            $
            3,578.2





The
current portion of long-term debt consists of $12.0 million of quarterly
installments on the term loan and $11.1 million of principal payments related to
capital lease obligations.  The Company was in compliance with its
covenants as of December 27, 2008.





At
December 27, 2008, there was $180.5 million outstanding on the revolving credit
facility and $34.5 million in letters of credit outstanding.  One of
the participants in the Company’s revolving credit facility was Lehman Brothers
and its affiliates, who had committed to fund $18.3 million out of our total
$400.0 million credit facility.  Due to the bankruptcy of Lehman
Brothers, we cannot access the full commitment of our credit
facility.  At December 27, 2008, the Company had unused borrowing
capacity of $166.7 million (reflects the reduction of Lehman’s total commitment
of $18.3 million) under the revolving line of credit subject to the solvency of
our lenders to fund their obligations and our borrowing base
calculations.





8.
Derivative Instruments





Interest
Rate Swaps


In August
2007, the Company entered into two separate interest rate swap transactions to
protect $600.0 million of the outstanding variable rate term loan debt from
future interest rate volatility.  The swap agreements became effective
in November 2007.  The first agreement had a notional amount of $300.0
million and became effective November 5, 2007 and swaps three month variable
LIBOR contracts for a fixed two year rate of 4.875% and expires on November 5,
2009.  The second agreement had a notional amount of $300.0 million
and became effective November 5, 2007 and swaps three month variable LIBOR
contracts for a fixed three year rate of 4.920% and expires on November 5,
2010.  The counterparty to this agreement is a global financial
institution.


Back to Index
 15


On
January 22, 2008, the Company entered into an interest rate swap transaction to
protect $300.0 million of the outstanding variable rate term loan debt from
future interest rate volatility.  The swap agreement became effective
February 5, 2008.  The swap agreement had a notional amount of $300.0
million and swap three month variable LIBOR contracts for a fixed three year
rate of 2.962%.  On April 23, 2008, the Company elected to settle this
derivative instrument in accordance with the agreement.  The Company
received $2.4 million on April 25, 2008 as a result of this
settlement.  The offset is included in accumulated other comprehensive
income (loss) and is being amortized to interest expense through February 5,
2011.





The
Company’s term loan gives them the option to elect different interest rate reset
options.  On November 5, 2008, the Company began and continues to
utilize 1-month LIBOR contracts for the underlying senior secured credit
facility.  The Company’s change in interest rate selection along with
their continued use of this alternative rate caused the Company to lose hedge
accounting.  The Company has recorded all subsequent changes in fair
value from November 5, 2008 to December 27, 2008 in the income statement and is
amortizing the interest rate swap balance in accumulated other comprehensive
income to interest expense through the end of the respective swap
agreement.  The Company estimates the fair value of the interest rate
swap transactions identified above to be a liability of $27.4 million and $15.0
million as of December 27, 2008 and September 27, 2008,
respectively.





Resin
Call Options


In
November 2008, the Company entered into ten resin call options to hedge roughly
13.1 million pounds of resin from future resin price volatility.  The
options became effective in November 2008.  Each option contract was
for 1.3 million pounds of resin at a purchase price of $0.4671 per
pound.   The option contracts begin in April 2009 and extend
through January 2010.  The fair value of the resin hedges was a
liability of $2.0 million at December 27, 2008 and is included in other
long-term liabilities on the accompanying consolidated balance sheet with an
offset, net of tax, to accumulated other comprehensive income
(loss).  The counterparty to this agreement is a global commodities
trader.





9.  Fair
Value Measurements





In
September 2006, the FASB issued SFAS No. 157 and in February 2007,
issued SFAS No. 159. Both standards address aspects of the expanding
application of fair value accounting.  Effective September 28, 2008,
we adopted SFAS No. 157 and SFAS No. 159.  In
accordance with the provisions of FASB Staff Position No. FAS 157-2, we
have decided to defer adoption of SFAS No. 157 for one year for
nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring
basis.  There was no adjustment to accumulated deficit as a result of
our adoption of SFAS No. 157.  SFAS No. 159
permits an entity to measure certain financial assets and financial liabilities
at fair value that were not previously required to be measured at fair
value.  We have not elected to measure any financial assets or
financial liabilities at fair value that were not previously required to be
measured at fair value.




SFAS No. 157
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.  SFAS 157 also establishes a three-level
hierarchy


Back to Index
 16


(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.  SFAS 157 requires the consideration of the counterparty’s or
the Company’s nonperformance risk when assessing fair value.





The
Company has interest rate swap liabilities totaling $27.4 million and resin
hedge liabilities totaling $2.0 million which the fair value was determined
using Level 2 inputs as other significant observable inputs were
available.





10.         Stockholders’
Equity and Stock Option Plans





In
connection with the merger of Berry Group and Covalence Specialty Materials
Holding Corp., Berry Group modified its outstanding stock options to provide for
(i) the vesting of an additional twenty percent (20%) of the total number of
shares underlying such outstanding options; (ii) the conversion of options with
escalating exercise prices to a fixed priced option, with no increase in the
exercise price as of the date of grant of such escalating priced option; and
(iii) with respect to each outstanding option, the vesting of which was
contingent upon the achievement of performance goals, the deemed achievement of
all such performance goals.  On June 7, 2007, Berry Group’s Board of
Directors declared a special one-time dividend of $77 per common share and
option to shareholders of record as of June 6, 2007.  This dividend
reduced Berry Group’s shareholders equity for owned shares by $530.2
million.  In connection with this dividend payment, $34.5 million
related to unvested stock options was placed in escrow and was subject to time
based vesting through June 7, 2009.





In
December 2008, the Executive Committee of Berry Group modified the vesting
provisions related to the remaining $33.0 million being held in
escrow.  This resulted in the immediate vesting and accelerating the
recognition of the remaining unrecorded stock compensation expense of $11.4
million.





11.           Comprehensive
Income (Loss)





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





Thirteen
      Weeks EndedDecember
      27,
              2008
            
            
            December
      29,
              2007Net
      loss
            
            $
            (29.4
            )
            
            $
            (31.3
            )Other comprehensiveincome
      (loss)
            
            
            (4.7
            )
            
            
            5.6Currency
      translation income (loss)
            
            
            (27.0
            )
            
            
            2.3Comprehensive
      loss
            
            $
            (61.1
            )
            
            $
            (34.6
            )





Back to Index
 17


12.
Income Taxes





The
effective tax rate was 34.9% and 38.6% for the thirteen weeks ended December 27,
2008 and December 29, 2007, respectively.  A reconciliation of income
tax benefit, computed at the federal statutory rate, to income tax benefit, as
provided for in the financial statements, is as follows:





Thirteen
      Weeks EndedDecember
      27,
              2008
            
            
            December
      29,
              2007Income
      tax benefit computed at statutory rate
            
            $
            (15.9
            )
            
            $
            (17.9
            )State
      income tax benefit, net of federal taxes
            
            
            (1.0
            )
            
            
            (1.1
            )Expenses
      not deductible for income tax purposes
            
            
            0.2
            
            
            
            0.1Change
      in valuation allowance
            
            
            0.2
            
            
            
            0.4Other
            
            
            0.7
            
            
            
            (1.2
            )Income
      tax benefit
            
            $
            (15.8
            )
            
            $
            (19.7
            )








13.
Sale-leaseback Transaction





On
December 19, 2007, the Company entered into a sale-leaseback transaction
pursuant to which it sold its manufacturing facilities located in Baltimore,
Maryland; Evansville, Indiana; and Lawrence, Kansas.  The Company
received proceeds of $83.0 million and used these proceeds to repay non-recourse
debt on its Evansville, Indiana facility of $7.9 million and transaction costs
of $0.9 million.  This resulted in the Company receiving net proceeds
of $74.2 million which were utilized to fund the acquisition of
MAC.  The sale-leaseback transaction resulted in the Company realizing
a deferred gain of $41.8 million which is offset against the future lease
payments over the life of the respective leases.


Back to Index
 18


14.
Operating Segments





Berry’s
operations are organized into four reportable segments: rigid open top, rigid
closed top, flexible films, and tapes and coatings.  The Company has
manufacturing and distribution centers in the United States, Canada, Mexico,
Belgium, Italy and India.  The Company evaluates the performance of
and allocates resources to these segments based on revenue, EBITDA and other
segment profit measures.  93% of the Company’s net sales and 96% of
the total assets are located in North America.  Selected information
by reportable segment is presented in the following table:





Thirteen
      Weeks EndedDecember
      27,
              2008
            
            
            December
      29,
              2007Net
      sales:Rigid Open Top
            
            $
            277.0
            
            
            $
            235.7Rigid Closed
Top
            
            
            230.6
            
            
            
            148.4Flexible Films
            
            
            237.9
            
            
            
            257.9Tapes/Coatings
            
            
            119.5
            
            
            
            120.7Total net sales
            
            $
            865.0
            
            
            $
            762.7Operating
      income (loss):Rigid Open Top
            
            $
            20.0
            
            
            $
            10.1Rigid Closed
Top
            
            
            11.5
            
            
            
            7.0Flexible Films
            
            
            0.3
            
            
            
            (5.6
            )Tapes/Coatings
            
            
            (0.2
            )
            
            
            (1.0
            )Total operating
      income
            
            $
            31.6
            
            
            $
            10.5Depreciation
      and amortization:Rigid Open Top
            
            $
            19.9
            
            
            $
            23.3Rigid Closed
Top
            
            
            22.1
            
            
            
            16.1Flexible Films
            
            
            11.4
            
            
            
            11.0Tapes/Coatings
            
            
            8.3
            
            
            
            9.2Total depreciation and
      amortization
            
            $
            61.7
            
            
            $
            59.6





December
      27,
              2008
            
            
            September
      27,
              2008Total
      assets:Rigid Open Top
            
            $
            1,979.1
            
            
            $
            2,019.6Rigid Closed
Top
            
            
            1,592.8
            
            
            
            1,648.8Flexible Films
            
            
            557.1
            
            
            
            637.8Tapes/Coatings
            
            
            395.9
            
            
            
            417.9Total assets
            
            $
            4,524.9
            
            
            $
            4,724.1





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 19





15.         Condensed
Consolidating Financial Information





The
Company has Senior Secured First Priority Notes, Second Priority Fixed and
Floating Rate Notes and 10 1⁄4% Senior Subordinated Notes outstanding which are
fully, jointly, severally, and unconditionally guaranteed by Berry’s domestic
subsidiaries.  Separate narrative information or financial statements
of the guarantor subsidiaries have not been included because they are 100%
wholly owned by the parent company and the guarantor subsidiaries
unconditionally guarantee such debt on a joint and several
basis.  Presented below is condensed consolidating financial
information for the parent company, guarantor subsidiaries and non-guarantor
subsidiaries.  The equity method has been used with respect to
investments in subsidiaries.  The principal elimination entries
eliminate investments in subsidiaries and intercompany balances and
transactions.





December
      27, 2008Parent
              Company
            
            
            Guarantor
              Subsidiaries
            
            
            Non-guarantor
              Subsidiaries
            
            
            Eliminations
            
            
            ConsolidatedConsolidating
      Balance SheetCurrent
      assets
            
            $
            360.5
            
            
            $
            595.2
            
            
            $
            77.9
            
            
            $
            —
            
            
            $
            1,033.6Net
      property and equipment
            
            
            196.4
            
            
            
            625.9
            
            
            
            41.2
            
            
            
            —
            
            
            
            863.5Other
      noncurrent assets
            
            
            1,982.6
            
            
            
            2,358.4
            
            
            
            56.6
            
            
            
            (1,769.8
            )
            
            
            2,627.8Total
      assets
            
            $
            2,539.5
            
            
            $
            3,579.5
            
            
            $
            175.7
            
            
            $
            (1,769.8
            )
            
            $
            4,524.9Current
      liabilities
            
            $
            124.2
            
            
            $
            271.8
            
            
            $
            21.4
            
            
            $
            —
            
            
            $
            417.4Noncurrent
      liabilities
            
            
            3,518.5
            
            
            
            275.6
            
            
            
            11.5
            
            
            
            —
            
            
            
            3,805.6Equity
      (deficit)
            
            
            (1,103.2
            )
            
            
            3,032.1
            
            
            
            142.8
            
            
            
            (1,769.8
            )
            
            
            301.9Total
      liabilities and equity (deficit)
            
            $
            2,539.5
            
            
            $
            3,579.5
            
            
            $
            175.7
            
            
            $
            (1,769.8
            )
            
            $
            4,524.9





September
      27, 2008Parent
              Company
            
            
            Guarantor
              Subsidiaries
            
            
            Non-guarantor
              Subsidiaries
            
            
            Eliminations
            
            
            ConsolidatedConsolidating
      Balance SheetCurrent
      assets
            
            $
            433.2
            
            
            $
            672.2
            
            
            $
            91.7
            
            
            $
            —
            
            
            $
            1,197.1Net
      property and equipment
            
            
            201.2
            
            
            
            610.9
            
            
            
            50.7
            
            
            
            —
            
            
            
            862.8Other
      noncurrent assets
            
            
            2,090.8
            
            
            
            2,378.3
            
            
            
            67.7
            
            
            
            (1,872.6
            )
            
            
            2,664.2Total
      assets
            
            $
            2,725.2
            
            
            $
            3,661.4
            
            
            $
            210.1
            
            
            $
            (1,872.6
            )
            
            $
            4,724.1Current
      liabilities
            
            $
            145.3
            
            
            $
            308.6
            
            
            $
            27.9
            
            
            $
            —
            
            
            $
            481.8Noncurrent
      liabilities
            
            
            3,580.0
            
            
            
            296.7
            
            
            
            13.7
            
            
            
            —
            
            
            
            3,890.4Equity
      (deficit)
            
            
            (1,000.1
            )
            
            
            3,056.1
            
            
            
            168.5
            
            
            
            (1,872.6
            )
            
            
            351.9Total
      liabilities and equity (deficit)
            
            $
            2,725.2
            
            
            $
            3,661.4
            
            
            $
            210.1
            
            
            $
            (1,872.6
            )
            
            $
            4,724.1





Back to Index
 20





Thirteen
      Weeks Ended December 27, 2008Parent
              Company
            
            
            Guarantor
              Subsidiaries
            
            
            Non-guarantor
              Subsidiaries
            
            
            ConsolidatedConsolidating
      Statement of OperationsNet
      sales
            
            $
            214.4
            
            
            $
            595.6
            
            
            $
            55.0
            
            
            $
            865.0Cost
      of goods sold
            
            
            195.3
            
            
            
            495.1
            
            
            
            47.7
            
            
            
            738.1Gross
      profit
            
            
            19.1
            
            
            
            100.5
            
            
            
            7.3
            
            
            
            126.9Selling
      , general, and administrative expense
            
            
            28.3
            
            
            
            55.3
            
            
            
            5.9
            
            
            
            89.5Restructuring
      and impairment charges
            
            
            0.5
            
            
            
            0.1
            
            
            
            —
            
            
            
            0.6Other
      operating expenses
            
            
            0.7
            
            
            
            4.1
            
            
            
            0.4
            
            
            
            5.2Operating
      income (loss)
            
            
            (10.4
            )
            
            
            41.0
            
            
            
            1.0
            
            
            
            31.6Other
      Expenses
            
            
            6.6
            
            
            
            —
            
            
            
            —
            
            
            
            6.6Interest
      expense (income), net
            
            
            81.4
            
            
            
            (13.8
            )
            
            
            2.6
            
            
            
            70.2Income
      taxes (benefit)
            
            
            —
            
            
            
            (16.0
            )
            
            
            0.2
            
            
            
            (15.8
            )Net
      income (loss)
            
            $
            (98.4
            )
            
            $
            70.8
            
            
            $
            (1.8
            )
            
            $
            (29.4
            )





Consolidating
      Statement of Cash FlowsNet
      cash flow from operating activities
            
            $
            87.2
            
            
            $
            23.1
            
            
            $
            1.3
            
            
            $
            111.6Investing
      activities:Additions
      to property and equipment
            
            
            (10.6
            )
            
            
            (31.7
            )
            
            
            (0.9
            )
            
            
            (43.2
            )Proceeds
      from disposal of assets
            
            
            —
            
            
            
            0.1
            
            
            
            —
            
            
            
            0.1Acquisition
      of business net of cash acquired
            
            
            (4.3
            )
            
            
            —
            
            
            
            —
            
            
            
            (4.3
            )Net
      cash flow from investing activities
            
            
            (14.9
            )
            
            
            (31.6
            )
            
            
            (0.9
            )
            
            
            (47.4
            )Financing
      activities:Payments
      on long-term borrowings
            
            
            (81.3
            )
            
            
            —
            
            
            
            (0.3
            )
            
            
            (81.6
            )Equity
      contributions (distributions), net
            
            
            (0.5
            )
            
            
            —
            
            
            
            —
            
            
            
            (0.5
            )Debt
      financing costs
            
            
            (0.3
            )
            
            
            —
            
            
            
            —
            
            
            
            (0.3
            )Net
      cash flow from financing activities
            
            
            (82.1
            )
            
            
            —
            
            
            
            (0.3
            )
            
            
            (82.4
            )Effect
      of exchange rate changes on cash
            
            
            —
            
            
            
            —
            
            
            
            (0.9
            )
            
            
            (0.9
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            (9.8
            )
            
            
            (8.5
            )
            
            
            (0.8
            )
            
            
            (19.1
            )Cash
      and cash equivalents at beginning of period
            
            
            172.6
            
            
            
            8.7
            
            
            
            8.4
            
            
            
            189.7Cash
      and cash equivalents at end of period
            
            $
            162.8
            
            
            $
            0.2
            
            
            $
            7.6
            
            
            $
            170.6























Thirteen
      Weeks Ended December 29, 2007Parent
              Company
            
            
            Guarantor
              Subsidiaries
            
            
            Non-guarantor
              Subsidiaries
            
            
            ConsolidatedConsolidating
      Statement of OperationsNet
      sales
            
            $
            242.4
            
            
            $
            469.3
            
            
            $
            51.0
            
            
            $
            762.7Cost
      of goods sold
            
            
            219.0
            
            
            
            387.3
            
            
            
            47.6
            
            
            
            653.9Gross
      profit
            
            
            23.4
            
            
            
            82.0
            
            
            
            3.4
            
            
            
            108.8Selling,
      general, and administrative expense
            
            
            24.9
            
            
            
            52.7
            
            
            
            4.2
            
            
            
            81.8Restructuring
      and impairment charges
            
            
            3.5
            
            
            
            —
            
            
            
            —
            
            
            
            3.5Operating
      expenses
            
            
            9.1
            
            
            
            3.3
            
            
            
            0.6
            
            
            
            13.0Operating
      income (loss)
            
            
            (14.1
            )
            
            
            26.0
            
            
            
            (1.4
            )
            
            
            10.5Interest
      expense (income), net
            
            
            77.7
            
            
            
            (17.2
            )
            
            
            1.0
            
            
            
            61.5Income
      taxes (benefit)
            
            
            0.1
            
            
            
            (20.7
            )
            
            
            0.9
            
            
            
            (19.7
            )Net
      income (loss)
            
            $
            (91.9
            )
            
            $
            61.1
            
            
            $
            (3.3
            )
            
            $
            (31.3
            )





Consolidating
      Statement of Cash FlowsNet
      cash flow from operating activities
            
            $
            62.9
            
            
            $
            (48.4
            )
            
            $
            6.2
            
            
            $
            20.7Investing
      activities:Purchase
      of property, plant, and equipment
            
            
            (14.1
            )
            
            
            (23.7
            )
            
            
            (0.8
            )
            
            
            (38.6
            )Proceeds
      from disposal of assets
            
            
            —
            
            
            
            82.2
            
            
            
            —
            
            
            
            82.2Acquisition
      of business net of cash acquired
            
            
            (73.7
            )
            
            
            —
            
            
            
            —
            
            
            
            (73.7
            )Net
      cash flow from investing activities
            
            
            (87.8
            )
            
            
            58.5
            
            
            
            (0.8
            )
            
            
            (30.1
            )Financing
      activities:Proceeds
      from long-term borrowings
            
            
            23.9
            
            
            
            —
            
            
            
            —
            
            
            
            23.9Payments
      on long-term borrowings
            
            
            —
            
            
            
            (9.0
            )
            
            
            (0.5
            )
            
            
            (9.5
            )Equity
      contributions (distributions), net
            
            
            0.2
            
            
            
            —
            
            
            
            —
            
            
            
            0.2Net
      cash flow from financing activities
            
            
            24.1
            
            
            
            (9.0
            )
            
            
            (0.5
            )
            
            
            14.6Effect
      of exchange rate changes on cash
            
            
            —
            
            
            
            —
            
            
            
            2.0
            
            
            
            2.0Net
      increase (decrease) in cash and cash equivalents
            
            
            (0.8
            )
            
            
            1.1
            
            
            
            6.9
            
            
            
            7.2Cash
      and cash equivalents at beginning of period
            
            
            0.9
            
            
            
            7.7
            
            
            
            6.0
            
            
            
            14.6Cash
      and cash equivalents at end of period
            
            $
            0.1
            
            
            $
            8.8
            
            
            $
            12.9
            
            
            $
            21.8





Back to Index
 21


16.         Contingencies





The
Company is party to various legal proceedings involving routine claims which are
incidental to the business.  Although the 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 the
Company’s financial condition or results of operations.





17.         Recent
Financial Accounting Standards





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations.”  This statement replaces FASB Statement No. 141,
“Business Combinations.” This statement retains the fundamental requirements in
SFAS 141 that the acquisition method of accounting (which SFAS 141 called
the purchase method) be used for all business combinations and for an acquirer
to be identified for each business combination.  This statement
defines the acquirer as the entity that obtains control of one or more
businesses in the business combination and establishes the acquisition date as
the date that the acquirer achieves control. This statement requires an acquirer
to recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date, measured at
their fair values as of that date, with limited exceptions specified in the
statement.  This statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008. The
Company is currently assessing the impact of the statement.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51.  This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements.  This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and the
noncontrolling interest.  This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  Based on current conditions, we do not expect the
adoption of SFAS 160 to have a significant impact on the Company’s results of
operations or financial position.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities”, which is an amendment of FASB Statement No.
133.  This statement requires enhanced disclosures about an entity’s
derivative and hedging activities and thereby improves the transparency of
financial reporting.  This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
November 15, 2008.  Based on current conditions, we do not expect the
adoption of SFAS 161 to have a significant impact on the Company’s results of
operations or financial position.














Back to Index
 22


Item 2.


Management’s
Discussion and Analysis of Financial Condition and


Results
of Operations





Unless
the context requires otherwise, references in this Management's Discussion and
Analysis of Financial Condition and Results of Operations to “Company” refer to
Berry Plastics Corporation, references to “we,” “our” or “us” refer to Berry
Plastics Corporation together with its consolidated subsidiaries, after giving
effect to the transactions described in the next paragraph.  You
should read the following discussion in conjunction with the consolidated
financial statements of the Company and its subsidiaries and the accompanying
notes thereto, which information is included elsewhere herein.  The
Company is a wholly owned subsidiary of Berry Plastics Group,
Inc.  This discussion contains forward-looking statements and involves
numerous risks and uncertainties, including, but not limited to, those described
in our Form 10-K filed with the SEC for the fiscal year ended September 27, 2008
section titled “Risk Factors” and other risk factors identified from time to
time in our periodic filings with the Securities and Exchange
Commission.  Our actual results may differ materially from those
contained in any forward-looking statements.  You should read the
explanation of the qualifications and limitations on these forward-looking
statements starting on page 4 of this report.





On April
3, 2007, Berry Plastics Group, Inc. (“Old Berry Group”) completed a
stock-for-stock merger (the “Berry Covalence Merger”) with Covalence Specialty
Materials Holding Corp. (“Old Covalence Holding”). The resulting company
retained the name Berry Plastics Group, Inc. (“Berry
Group”).  Immediately following the Berry Covalence Merger, Berry
Plastics Holding Corporation (“Old Berry Holding”) and Covalence Specialty
Materials Corp. (“Old Covalence”) were combined as a direct subsidiary of Berry
Group.  The resulting company retained the name Berry Plastics Holding
Corporation which was subsequently changed to Berry Plastics Corporation on
December 29, 2007 (“Berry” or the “Company”).  The combination was
accounted for as a merger of entities under common control.  We
believe the combination of these entities will provide us with significant
opportunities for growth through increasing operational efficiencies, reducing
fixed costs, optimizing manufacturing assets and improving the efficiency of
capital spending.





Acquisitions





We
maintain a selective and disciplined 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.  Most businesses we have acquired had
profit margins that are lower than that of our existing business, which resulted
in a temporary decrease in our margins.  We have historically achieved
significant reductions in manufacturing and overhead costs of acquired companies
by introducing advanced manufacturing processes, exiting low-margin businesses
or product lines, reducing headcount, rationalizing facilities and machinery,
applying best practices and capitalizing on economies of scale.  In
connection with our acquisitions, we have in the past and may in the future
incur charges related to these reductions and rationalizations.


Back to Index
 23


Recent
Developments





Acquisition
of MAC Closures, Inc.


On
December 19, 2007, the Company acquired 100% of the outstanding common stock of
MAC, a plastic cap and closure manufacturer with operations located in Waterloo,
Quebec for CN$72.0 million.  MAC had 2007 sales of $37.1 million and
is included in our closed top segment.  The purchase price was funded
utilizing cash on hand from the sale-leaseback transaction discussed in the
Notes to the Consolidated Financial Statements section of this Form
10-Q.





Acquisition
of Captive Holdings, Inc.


On
February 5, 2008, the Company completed its acquisition of 100% of the
outstanding capital stock of Captive Holdings, Inc., which is the sole
stockholder of Captive.  Captive is a manufacturer of blow-molded
bottles and injection-molded closures for the food, healthcare, spirits and
personal care end markets with annual net sales of $290.3 million in calendar
2007.  The purchase price was funded utilizing the proceeds of a
senior secured bridge loan facility which in turn was repaid with the proceeds
from the Senior Secured First Priority Notes discussed in the Notes to the
Consolidated Financial Statements section of this Form 10-Q.





Acquisition
of Assets of Erie County Plastics Corporation


In
November 2008, Berry was the successful bidder to acquire certain assets of Erie
County Plastics Corporation (“Erie Plastics”), a custom injection molder of
plastics packaging and components for $4.3 million.  Erie Plastics
previously filed for bankruptcy protection on September 29, 2008.





Results
of Operations





Comparison
of the 13 Weeks Ended December 27, 2008 (the “Quarter”) and the 13 Weeks Ended
December 29, 2007 (the “Prior Quarter”)





Net Sales.  Net
sales increased 13% to $865.0 million for the Quarter from $762.7 million for
the Prior Quarter.  This $102.3 million increase includes acquisition
volume growth of 10%.  The following discussion in this section
provides a comparison of net sales by business segment.  Net sales in
the rigid open top business increased from $235.7 million in the Prior Quarter
to $277.0 million in the Quarter.  Base volume growth in the rigid
open top business, excluding net selling price increases, was 3% driven
primarily by growth in our thermoformed drink cups.  Net sales in the
rigid closed top business increased from $148.4 million in the Prior Quarter to
$230.6 million in the Quarter primarily as a result of acquisition volume growth
attributed to Captive, MAC and Erie Plastics totaling $76.1 million for the
Quarter.  The flexible films business net sales decreased from $257.9
million in the Prior Quarter to $237.9 million in the Quarter.  Base
volume declined, excluding net selling price increases, by 17% primarily due to
the Company’s decision to exit low margin business and softness in the housing
sector.  Net sales in the tapes/coatings business decreased slightly
from $120.7 million in the Prior Quarter to $119.5 million in the Quarter
primarily driven by softness in the new home construction and automotive
markets.





Gross Profit.  Gross
profit increased by $18.1 million to $126.9 million (15% of net sales) for the
Quarter from $108.8 million (14% of net sales) for the Prior
Quarter.  This increase is attributed to productivity improvements in
the flexible films and tapes/coatings segments as a result of
realizing


Back to Index
 24


synergies
from the Berry Covalence Merger, and increased selling prices.





Operating
Expenses.  Selling, general and administrative expenses
increased by $7.7 million to $89.5 million for the Quarter from $81.8 million
for the Prior Quarter as a result of a $6.9 million increase in stock
compensation expense attributed to the immediate vesting and acceleration of the
payment of the June 2007 dividend still held in escrow at Berry Group and
various inflationary operating costs offset by productivity improvements and
realization of synergies.  Restructuring and impairment charges were
$0.6 million in the Quarter due to the continued execution of the shut down of
facilities in the flexible films and tapes/coatings segments.  Other
expenses decreased from $13.0 million in the Prior Quarter to $5.2 million for
the Quarter primarily as a result of a decrease in transaction and integration
costs associated with mergers and acquisitions.





Other Expense.Other expense
recorded in the current quarter relates to the fair value adjustment for our
interest rate swaps as the Company lost hedge accounting in the current
quarter.





Interest Expense,
Net.  Net interest expense increased $8.7 million to $70.2
million for the Quarterfrom $61.5
million in the Prior Quarter primarily as a result of increased borrowings to
finance the Captive acquisition, partially offset by a decline in borrowing
costs of our variable rate debt instruments.





Income Tax
Benefit.For the Quarter, we recorded an income tax benefit of
$15.8 million or an effective tax rate of 34.9%, which is a change of $3.9
million from the income tax benefit of $19.7 million or an effective tax rate of
38.6% in the Prior Quarter.





Net Loss.  Net loss
was $29.4 million for the Quarter compared to a net loss of $31.3 million for
the Prior Quarter for the reasons discussed above.





Liquidity
and Capital Resources





Senior
Secured Credit Facility


The
Company’s senior secured credit facilities consist of $1,200.0 million term loan
and $400.0 million asset based revolving line of credit.  At December
27, 2008, the Company had $34.5 million under the revolving credit facility in
letters of credit outstanding.  The availability under the revolving
line of credit is the lesser of $400.0 million or based on a defined borrowing
base which is calculated based on available accounts receivable and
inventory.  Under the revolving line of credit, the Company is
required to maintain a consolidated fixed charge coverage ratio of at least 1.00
to 1.00 during any period when availability falls below 10% and for ten
consecutive days after availability exceeds 10%.  The term loan
matures on April 3, 2015 and the revolving line of credit matures on April 3,
2013.  The interest rate on the term loan and the line of credit were
0.42% and 1.68% at December 27, 2008, respectively, determined by reference to
the costs of funds for eurodollar deposits in dollars in the LIBOR for the
interest period relevant to such borrowing plus the applicable
margin.  The applicable margin for LIBOR rate borrowings under the
revolving credit facility ranges from 1.00% to 1.75% and for the term loan is
2.00%.  The line of credit is also subject to an unused commitment fee
for unused borrowings ranging from 0.25% to 0.35% per annum and a letter of
credit fee of 0.125% per annum for each letter of credit that is
issued.  At December 27,


Back to Index
 25


2008,
$180.5 million was outstanding on the revolving line of credit.  The
revolving line of credit allows up to $100.0 million of letters of credit to be
issued instead of borrowings under the revolving line of credit.  At
December 27, 2008, the Company had $34.5 million under the revolving line of
credit in letters of credit outstanding. At December 27, 2008, the Company had
unused borrowing capacity of $166.7 million (reflects the reduction of Lehman’s
total commitment of $18.3 million) under the revolving line of credit subject to
the solvency of our lenders to fund their obligations and our borrowing base
calculations.  The Company was in compliance with all covenants at
December 27, 2008.





A key
financial metric utilized in the calculation of the first lien leverage ratio is
Adjusted EBITDA.  The following table reconciles our Adjusted EBITDA
of $486.3 million for the twelve months ended December 27, 2008 to net
loss.





12
      months ended
              December
      27, 2008Adjusted EBITDA
            
            $
            486.3Net interest
      expense
            
            
            (270.4
            )Depreciation and
      amortization
            
            
            (258.9
            )Income tax
    benefit
            
            
            45.3Business optimization
      expense
            
            
            (18.9
            )Restructuring and
      impairment
            
            
            (6.7
            )Stock based
      compensation
            
            
            (26.5
            )Inventory
    write-up
            
            
            (4.7
            )Management fees
            
            
            (6.1
            )Other non-cash
      expense
            
            
            (6.6
            )Pro forma
      acquisitions
            
            
            (4.7
            )Pro forma synergies (a)
            
            
            (27.3
            )Net loss
            
            $
            (99.2
            )


(a)
Represents synergies related to the following: Covalence ($14.7 million),
Captive ($11.4 million), and MAC ($1.2 million).


Back to Index
 26


For
comparison purposes, the following table reconciles our Adjusted EBITDA for the
thirteen weeks ended December 27, 2008 and December 29, 2007.





Thirteen
      Weeks EndedDecember
      27, 2008
            
            
            December
      29, 2007Adjusted EBITDA
            
            $
            114.9
            
            
            $
            118.2Net interest
      expense
            
            
            (70.2
            )
            
            
            (61.5
            )Depreciation and
      amortization
            
            
            (61.7
            )
            
            
            (59.6
            )Income tax
    benefit
            
            
            15.8
            
            
            
            19.7Business optimization
      expense
            
            
            (3.8
            )
            
            
            (11.7
            )Restructuring and
      impairment
            
            
            (0.6
            )
            
            
            (3.5
            )Stock based
      compensation
            
            
            (11.6
            )
            
            
            (4.7
            )Management fees
            
            
            (1.4
            )
            
            
            (1.3
            )Other non-cash
      expense
            
            
            (6.6
            )
            
            
            —Pro forma
      acquisitions
            
            
            —
            
            
            
            (10.1
            )Pro forma
    synergies
            
            
            (4.2
            )
            
            
            (16.8
            )Net loss
            
            $
            (29.4
            )
            
            $
            (31.3
            )





While the
determination of appropriate adjustments in the calculation of Adjusted EBITDA
is subject to interpretation under the terms of the our senior secured credit
facilities, management believes the adjustments described above are in
accordance with the covenants in the senior secured credit
facilities.  Adjusted EBITDA should not be considered in isolation or
construed as an alternative to our net loss, operating cash flows or other
measures as determined in accordance with GAAP.  In addition, other
companies in our industry or across different industries may calculate bank
covenants and related definitions differently than we do, limiting the
usefulness of our calculation of Adjusted EBITDA as a comparative
measure.





Berry
Group Indebtedness


On June
5, 2007, Berry Group entered into a $500.0 million senior unsecured term loan
agreement (“Senior Unsecured Term Loan”) with a syndicate of
lenders.  The Senior Unsecured Term Loan matures on June 5, 2014 and
was sold at a 1% discount, which is being amortized over the life of the
loan.  Interest on the agreement is payable on a quarterly basis and
bears interest at the Company’s option based on (1) a fluctuating rate per annum
equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the
rate of interest in effect for such day as publicly announced from time to time
by Credit Suisse as its “prime rate” plus 525 basis points or (2) LIBOR (1.42%
at December 27, 2008) plus 625 basis points.  The Senior Unsecured
Term Loan contains a payment in kind (“PIK”) option which allows the Company to
forgo paying cash interest and to add the PIK interest to the outstanding
balance of the loan.  This option expires on the five year anniversary
of the loan.  Berry Group at its election may make the quarterly
interest payments in cash, may make the payments by paying 50% of the interest
in cash and 50% in PIK interest or 100% in PIK interest for the first five
years.  The notes are unsecured and there are no guarantees by Berry
Plastics Corporation or any of its subsidiaries and therefore this financial
obligation is not recorded in the consolidated financial statements of Berry
Plastics Corporation.  Berry Group elected to exercise the PIK
interest option during 2008 and the first quarter of 2009, which resulted in the
balance on the loan increasing to $563.8 million as of December 27,
2008.


Back to Index
 27





Berry
Group at its election may call the notes up to the first anniversary date for
100% of the principal balance plus accrued and unpaid interest and an applicable
premium.  Berry Group’s call option for the notes between the one year
and two year and two year and three year anniversary dates changes to 102% and
101% of the outstanding principal balance plus accrued and unpaid interest,
respectively.  The notes also contain a put option which allows the
lender to require Berry Group to repay any principal and applicable PIK interest
that has accrued if Berry Group has an applicable high yield discount obligation
(“AHYDO”) within the definition outlined in the Internal Revenue Code, section
163(i)(1) at each payment period subsequent to the five year anniversary
date.





Cash
Flows


Net cash
provided by operating activities was $111.6 million for the Quarter compared to
$20.7 million for the Prior Quarter.  This increase of $90.9 million
is primarily the result of a $64.7 million change in working capital primarily
due to declining resin costs and improved operating performance primarily driven
by realization of synergies.





Net cash
used for investing activities increased from $30.1 million for the Prior Quarter
to $47.4 million for the Quarter primarily as a result of increased capital
spending and the acquisition of Erie Plastics.  Our capital
expenditures are forecasted to be approximately $195 million for fiscal 2009 and
will be funded from cash flows from operating activities, and availability under
our revolving credit facilities.





Net cash
used for financing activities was $82.4 million for the Quarter compared to net
cash provided by financing activities of $14.6 million for the Prior
Quarter.  This change of $97.0 million can be primarily attributed to
the repayments on our revolving credit facility in the Quarter.





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.  However, we cannot predict our future results of operations
and our ability to meet our obligations involves numerous risks and
uncertainties, including, but not limited to, those described in the “Risk
Factors” section of our Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended September 27, 2008.  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 December 27, 2008, our cash balance was
$170.6 million, and we had unused borrowing capacity of $166.7 million (reflects
the reduction of Lehman’s total commitment of $18.3 million) under our revolving
line of credit.


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 28


Critical
Accounting Policies





We
disclosed 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 Form 10-K filed
with the SEC for the fiscal year ended September 27, 2008.  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, although no assurance can be given
as to such affect.  We believe that the following accounting policies
are the most critical because they have the greatest impact on the presentation
of our financial condition and results of operations.





Allowance for doubtful
accounts.  We evaluate our allowance for doubtful accounts on
an ongoing basis and review any significant customers with delinquent balances
to determine future collectibility.  We base our determinations on
legal issues (such as bankruptcy status), past history, current financial and
credit agency reports, and the experience of our credit
representatives.  We reserve accounts that we deem to be uncollectible
in the period in which we make the determination. We maintain additional
reserves based on our historical bad debt experience.  Additionally,
our allowance for doubtful accounts includes a reserve for cash discounts that
are offered to some of our customers for prompt payment.  We believe,
based on past history and our credit policies that our net accounts receivable
are of good quality.  A ten percent increase or decrease in our bad
debt experience would not have a material impact on the results of operations of
the Company.  Our allowance for doubtful accounts was $10.4 million as
of December 27, 2008 and $12.1 million as of September 27, 2008.





Inventory
obsolescence.We
evaluate our reserve for inventory obsolescence on an ongoing basis and review
inventory on-hand to determine future salability.  We base our
determinations on the age of the inventory and the experience of our
personnel.  We reserve inventory that we deem to be not salable in the
quarter in which we make the determination.  We believe, based on past
history and our policies and procedures, that our net inventory is
salable.  A ten percent increase or decrease in our inventory
obsolescence experience would not have a material impact on the results of
operations of the Company.  Our reserve for inventory obsolescence was
$16.1 million and $19.3 million as of December 27, 2008 and September 27, 2008,
respectively.





Medical
insurance.  We offer our employees medical insurance that is
primarily self-insured by us.  As a result, we accrue a liability for
known claims as well as the estimated amount of expected claims incurred but not
reported.  We evaluate our medical claims liability on an ongoing
basis, obtain an independent actuarial analysis on an annual basis and perform
payment lag analysis.  Based on our analysis, we believe that our
recorded medical claims liability should be sufficient.  A ten percent
increase or decrease in our medical claims experience would not have a material
impact on the results of operations of the Company.  Our accrued
liability for medical claims was $4.0 million and $3.8 million, including
reserves for expected medical claims incurred but not reported, as of December
27, 2008 and September 27, 2008, respectively.


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 29


Workers’ compensation
insurance.  The majority of our facilities are in a large
deductible program for workers’ compensation insurance.  On a
quarterly basis, we evaluate our liability based on third-party adjusters’
independent analyses by claim.  Based on our analysis, we believe that
our recorded workers’ compensation liability should be sufficient.  A
ten percent increase or decrease in our workers’ compensations claims experience
would not have a material impact on the results of operations of the
Company.  Our accrued liability for workers’ compensation claims was
$7.5 million and $7.6 million as of December 27, 2008 and September 27, 2008,
respectively.





Revenue recognition.The
Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No.
104, “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.





Impairments of Long-Lived
Assets.  In accordance with the methodology described in SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we
review long-lived assets for impairment whenever events or changes in
circumstances indicate the carrying amount of such assets may not be
recoverable.  Impairment losses are recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets’
carrying amounts.  The impairment loss is measured by comparing the
fair value of the asset to its carrying amount.





Goodwill and Other Indefinite Lived
Intangible Assets. In accordance with the methodology described in SFAS
No. 142, “Goodwill and Other Intangible Assets”, we evaluate our goodwill and
other indefinite lived intangible assets for impairment whenever events, changes
in circumstances, or our annual review indicate the carrying amount of such
assets may not be recoverable.  We evaluate impairment of goodwill by
comparing its estimated fair value to its carrying value. We estimate fair value
by computing the expected future discounted operating cash flows based on
historical result trends. The estimates of future cash flows involve
considerable management judgment and are based upon assumptions about future
operating performance. The actual cash flows could differ from management’s
estimates due to changes in business conditions, operating performance, economic
conditions and other factors. Changes in these estimates and assumptions could
materially affect the determination of fair value. Impairment of our goodwill
could significantly affect our operating results and financial position.
Goodwill totaled $1,442.2 million at December 27, 2008.  No
impairment was recorded during the thirteen week periods ended December 27, 2008
or December 29, 2007, respectively.





Deferred Taxes and Effective Tax
Rates. We estimate the effective tax rates and associated liabilities or
assets for each legal entity of ours in accordance with SFAS No.
109.  We use tax-planning to minimize or defer tax liabilities to
future periods. In recording effective tax rates and related liabilities and
assets, we rely upon estimates, which are based upon our interpretation of
United States, foreign, state, and local tax laws as they apply to our legal
entities and our overall tax structure.  Audits by local tax
jurisdictions, including the United States Government, could yield different
interpretations from our own and cause the Company to owe more taxes than
originally recorded.  For interim periods, we accrue our tax provision
at the effective tax rate that we expect for the full


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 30


year.  As
the actual results from our various businesses vary from our estimates earlier
in the year, we adjust the succeeding interim periods’ effective tax rates to
reflect our best estimate for the year-to-date results and for the full
year.  As part of the effective tax rate, if we determine that a
deferred tax asset arising from temporary differences is not likely to be
utilized, we will establish a valuation allowance against that asset to record
it at its expected realizable value.  Our valuation allowance against
deferred tax assets was $5.2 million and $5.0 million as of December 27, 2008
and September 27, 2008, respectively.





Accrued
Rebates.  We offer various rebates to our customers in exchange
for their purchases.  These rebates are individually negotiated with
our customers and contain a variety of different terms and
conditions.  Certain rebates are calculated as a flat percentage of
purchases, while others included tiered volume incentives.  These
rebates may be payable monthly, quarterly, or annually.  The
calculation of the accrued rebate balance involves significant management
estimates, especially where the terms of the rebate involve tiered volume levels
that require estimates of expected annual sales.  These provisions are
based on estimates derived from current program requirements and historical
experience.  We use all available information when calculating these
reserves.  Our accrual for customer rebates was $47.6 million and
$51.5 million as of December 27, 2008 and September 27, 2008,
respectively.





Pension.  Pension
benefit costs include assumptions for the discount rate, retirement age, and
expected return on plan assets.  Retiree medical plan costs include
assumptions for the discount rate, retirement age, and health-care-cost trend
rates.  These assumptions have a significant effect on the amounts
reported.  In addition to the analysis below, see the notes to the
consolidated financial statements for additional information regarding our
retirement benefits.  Periodically, we evaluate the discount rate and
the expected return on plan assets in our defined benefit pension and retiree
health benefit plans.  In evaluating these assumptions, we consider
many factors, including an evaluation of the discount rates, expected return on
plan assets, health-care-cost trend rates of other companies, our historical
assumptions compared with actual results, an analysis of asset allocations based
on current market conditions and the views of advisers.  In evaluating
our expected retirement age assumption, we consider the retirement ages of our
past employees eligible for pension and medical benefits together with our
expectations of future retirement ages.  We believe our pension and
retiree medical plan assumptions are appropriate based upon the above
factors.  A one percent increase or decrease in our health-care-cost
trend rates would not have a material impact on the results of operations of the
Company.  Also, a one quarter percentage point change in our discount
rate or expected return on plan assets would not have a material impact on the
results of operations of the Company.





Based on
a critical assessment of our accounting policies and the underlying judgments
and uncertainties affecting the application of those policies, we believe that
our consolidated financial statements provide a meaningful and fair perspective
of the Company and its consolidated subsidiaries.  This is not to
suggest that other risk factors such as changes in economic conditions, changes
in material costs, our ability to pass through changes in material costs, and
others could not materially adversely impact our consolidated financial
position, results of operations and cash flows in future
periods.


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 31


Item
3.                     Quantitative
and Qualitative Disclosures about Market Risk





Interest
Rate Risk


We are
exposed to market risk from changes in interest rates primarily through our
senior secured credit facilities, senior secured first priority notes and second
priority senior secured notes.  Our senior secured credit facilities
are comprised of (i) a $1,200.0 million term loan and (ii) a $400.0
million revolving credit facility.  At December 27, 2008, $180.5
million was outstanding on the revolving credit facility.  The net
outstanding balance of the term loan at December 27, 2008 was $1,182.0
million.  Borrowings under our senior secured credit facilities bear
interest, at our option, at either an alternate base rate or an adjusted
LIBOR rate for a one-, two-, three- or six month interest period, or a nine- or
twelve-month period, if available to all relevant lenders, in each case, plus an
applicable margin.  The alternate base rate is the mean
the greater of (i) Credit Suisse’s prime rate and (ii) one-half
of 1.0% over the weighted average of rates on overnight Federal Funds as
published by the Federal Reserve Bank of New York. Our $680.6 million of
senior secured first priority notes accrue interest at a rate per annum, reset
quarterly, equal to LIBOR plus 4.75%. Our second priority senior secured notes
are comprised of (i) $525.0 million fixed rate notes and (ii) $225.0 million
floating rate notes.  The floating rate notes bear interest at a rate
of LIBOR plus 3.875% per annum, which resets quarterly.





At
December 27, 2008, the LIBOR rate of 2.42% was applicable to the term loan and
4.75% was applicable to the senior secured first priority notes and second
priority floating rate notes.  If the LIBOR rate increases 0.25% and
0.5%, we estimate an annual increase in our interest expense of $4.2 million and
$8.3 million, respectively.





In August 2007,Berryentered into two separate
interest rate swap transactions to protect $600.0 million of the outstanding
variable rate term loan debt from future interest rate
volatility.  The swap agreements became effective in November
2007.  The first agreement had a notional amount of $300.0 million and
became effectiveNovember 5,
2007and
swaps three month variable LIBOR contracts for a fixed two year rate of 4.875%
and expires onNovember 5,
2009.  The second
agreement had a notional amount of $300.0 million and became effectiveNovember 5,
2007and
swaps three monthvariable LIBOR contracts for a fixed three year rate of
4.920% and expires on November 5, 2010.  The Company’s term loan gives
them the option to elect different interest rate reset options.  On
November 5, 2008, the Company began and continues to utilize 1-month LIBOR
contracts for the underlying senior term loan.  The Company’s change
in interest rate selection along with their continued use of this alternative
rate caused the Company to lose hedge accounting.  The Company has
recorded all subsequent changes in fair value from November 5, 2008 to December
27, 2008 in the income statement and is amortizing the interest rate swap
balance in accumulated other comprehensive income to interest expense through
the end of the respective swap agreement.  The Company estimates the
fair value of the interest rate swap transactions identified above to be a
liability of $27.4 million and $15.0 million as of December 27, 2008 and
September 27, 2008, respectively.  The fair value of these interest
rate swaps is subject to movements in LIBOR and may fluctuate in future
periods.  A .25% change in LIBOR would not have a material impact on
the fair value of the interest rate swaps.


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 32


Plastic
Resin Cost Risk


We are
exposed to market risk from changes in plastic resin prices that could impact
our results of operations and financial condition.





In
November 2008, the Company entered into ten resin call options to hedge roughly
13.1 million pounds of resin from future resin price volatility.  The
options became effective in November 2008.  Each option contract was
for 1.3 million pounds of resin at a purchase price of $0.4671 per
pound.   The option contracts begin in April 2009 and extend
through January 2010.  The fair value of the resin hedges was $2.0
million at December 27, 2008 and is included in other long-term liabilities on
the accompanying consolidated balance sheet with an offset, net of tax, to
accumulated other comprehensive income (loss).  The counterparty to
this agreement is a global commodities trader.





We manage
our exposure to these market risks through our normal operations with purchasing
negotiation, mechanical hedging, switching between certain resin products and,
when deemed appropriate, by using derivative financial instruments in accordance
with established policies and procedures. The derivative financial instruments
generally used are forward contracts.  The derivative financial
instruments utilized by the Company in its hedging activities are considered
risk management tools and are not used for trading purposes.





Item
4.                       Controls
and Procedures





(a)
            Evaluation
      of disclosure controls and
procedures.





Our
management team is responsible for the preparation and integrity of the
consolidated financial statements appearing in this Form 10-Q.  We
have established disclosure controls and procedures to ensure that material
information relating to the Company, including consolidated subsidiaries, is
made known to members of senior management and the Board of
Directors.  As required by Rule 13a-15 under the Securities Exchange
Act of 1934, within the 90 days prior to the date of this report, we carried out
an evaluation under the supervision and with the participation of our management
team, including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures.  The Company's management, with the participation of the
Chief Executive Officer and the Chief Financial Officer, carried out an
evaluation of the effectiveness of the design and operation of the disclosure
controls and procedures as of December 27, 2008.  Based on the
identification and the evaluation of the material weaknesses in internal control
over financial reporting described below, the Company’s Chief Executive Officer
and Chief Financial Officer concluded that, as of December 27, 2008, the
Company’s disclosure controls and procedures were not effective.





Management’s
Report on Internal Control over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act. Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements in


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 33


accordance
with accounting principles generally accepted in the United States of America.
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.





A
material weakness is a control deficiency, or combination of control
deficiencies, that results in the reasonable possibility that there is more than
a remote likelihood that a misstatement of our annual or interim financial
statements that is more than inconsequential will not be prevented or detected
in a timely manner. A control deficiency exists when the design or operation of
a control does not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect misstatements on a
timely basis. A design deficiency exists when a control necessary to meet the
control objective is missing or an existing control is not properly designed so
that, even if the control operates as designed, the control objective is not
always met.  In connection with Management’s assessment of the
Company’s internal control over financial reporting, Management identified the
following material weaknesses in the Company’s internal control over financial
reporting as of December 27, 2008.





·
            In
      connection with the Merger and the integration of operations, the Company
      did not fully complete the transition from Old Covalence’s financial
      system to Berry’s new financial system.  This resulted in
      partially implemented controls and procedures and installation of
      disclosure controls and procedures in the Old Covalence operating units
      that were not converted as of December 27,
2008.




·
            Ineffective
      review of account reconciliations to ensure that account balances were
      accurate and agreed to appropriate supporting detail, calculations or
      other documentation.






·
            Ineffective
      review of the Company’s tax provision to ensure that deferred tax balances
      were properly stated.







Plans
to Remediate Material Weaknesses in Internal Control over Financial
Reporting





In light
of the material weaknesses described above, the Company performed additional
analysis and other procedures to ensure that the consolidated financial
statements included in this report were prepared in accordance with accounting
principles generally accepted in the United States ("GAAP").  These
procedures included additional testing of certain balances and accounts as of
December 27, 2008 to ensure the accuracy of the annual financial
statements.





Management
has engaged in, and continues to engage in, substantial efforts to address the
material weaknesses in the Company’s internal control over financial
reporting.  The Company is currently transitioning and converting the
legacy Old Covalence Holding systems to the Old Berry Group systems which will
result in cohesive disclosure controls and procedures.  The Company is
also in the process of implementing new account reconciliation procedures to
ensure that the balances were accurate and agreed to appropriate
supporting


Back to Index
 34


detail,
calculations or other documentation.  In addition, the Company is also
designing new procedures to ensure their book to tax differences are properly
identified and all deferred tax balances are properly stated.





While the
Company believes that these remedial actions will result in correcting the
material weaknesses in its internal control over financial reporting, the exact
timing of when the conditions will be corrected is dependent upon future
events.







(b)
            Changes
      in internal controls.





The
changes that could materially affect or are reasonably likely to materially
affect the Company’s internal control over financial reporting are discussed
under “Plans to Remediation of Material Weaknesses in Internal Control over
Financial Reporting” in Item 9A(a) above.





Part II. Other Information





Item
1.           Legal
Proceedings




There has been no material
changes in legal proceedings from the items disclosed in our Form 10-K filed
with the Securities and Exchange Commission for the fiscal year ended September
27, 2008.





Item
1A.        Risk Factors





You
should carefully consider the risks described in our Form 10-K filed with the
Securities and Exchange Commission for the fiscal year ended September 27,
2008, including those under the heading “Risk Factors” and other information
contained in this Quarterly Report before investing in our securities.
Realization of any of these risks could have a material adverse effect on our
business, financial condition, cash flows and results of
operations.  There were no material changes in the Company’s risk
factors since described in our Form 10-K filed with the Securities and Exchange
Commission for the fiscal year ended September 27, 2008.





Item 2.           Unregistered
Sales of Equity Securities and Use of Proceeds





Not Applicable





Item 3.           Defaults
Upon Senior Securities





Not Applicable





Item 4.           Submission
of Matters to a Vote of Security Holders





Not
Applicable


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 35








Item
5.          Other
Information





Not Applicable





Item
6.          Exhibits





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  Back to Index
 36





SIGNATURE





Pursuant
to the requirements 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.





Berry Plastics
Corporation





February
9, 2008








By: /s/ James M.
Kratochvil


James M. Kratochvil




Executive
Vice President, Chief Financial Officer, Treasurer and Secretary (Principal
Financial and Accounting Officer)





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 37