Financial Instruments And Fair Value Measurements

9 Months Ended

Jun. 30, 2012

Financial Instruments And Fair Value Measurements [Abstract]

Financial Instruments And Fair Value Measurements

7. Financial Instruments and Fair Value Measurements

As part of the overall risk management, the Company uses derivative instruments to reduce exposure to changes in interest rates attributed to the Company's floating-rate borrowings. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. To the extent hedging relationships are found to be effective, as determined by FASB guidance, changes in fair value of the derivatives are offset by changes in the fair value of the related hedged item are recorded to Accumulated other comprehensive loss. Management believes hedge effectiveness is evaluated properly in preparation of the financial statements.

Cash Flow Hedging Strategy

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of Accumulated other comprehensive loss and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.

In November 2010, the Company entered into two separate interest rate swap transactions to manage cash flow variability associated with $1 billion of the outstanding variable rate term loan debt (the "2010 Swaps"). The first agreement had a notional amount of $500 and became effective in November 2010. The agreement swaps three month variable LIBOR contracts for a fixed three year rate of 0.8925% and expires in November 2013. The second agreement had a notional amount of $500 and became effective in December 2010. The agreement swaps three month variable LIBOR contracts for a fixed three year rate of 1.0235% and expires in November 2013. In August 2011, the Company began utilizing 1-month LIBOR contracts for the underlying senior secured credit facility. The Company's change in interest rate selection caused the Company to lose hedge accounting on both of the interest rate swaps. The Company recorded subsequent changes in fair value in the Consolidated Statement of Operations and will amortize the unrealized losses to Interest expense through the end of the respective swap agreements.


	Liability Derivatives
Derivatives not designated as hedging		June 30,		October 1,
instruments under FASB guidance	Balance Sheet Location	2012		2011
Interest rate swaps – 2010 Swaps	Other long-term liabilities	$	7	$	8

The effect of the derivative instruments on the Consolidated Statement of Operations for the quarterly period ended June 30, 2012 and July 2, 2011, are as follows:


		Quarterly Period				Three Quarterly
		Ended				Periods Ended
Derivatives not designated as hedging		June 30,		July 2,		June 30,		July 2,
instruments under FASB guidance	Statement of Operations Location	2012		2011		2012		2011
Interest rate swaps – 2010 Swaps	Other expense (income)	$	–	$	–	$	–	$	(1	)
	Interest expense	$	1	$	–	$	3	$	1

The Fair Value Measurements and Disclosures section of the Accounting Standards Codification ("Codification" or "ASC") defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework for measuring fair value. This section also establishes a three-level hierarchy (Level 1, 2 or 3) for fair value measurements based upon the observability of inputs to the valuation of an asset or liability as of the measurement date. This section also requires the consideration of the counterparty's or the Company's nonperformance risk when assessing fair value.

The Company's interest rate swap fair values were determined using Level 2 inputs as other significant observable inputs were not available.

The Company's financial instruments consist primarily of cash and cash equivalents, investments, long-term debt, interest rate swap agreements and capital lease obligations. The fair value of the Company's investments and long-term debt were determined using Level 2 inputs, which include using quoted prices in inactive markets or significant other observable inputs for identical or comparable assets or liabilities. The fair value of our investments exceeded book value at June 30, 2012 and October 1, 2011, by $93 and $159, respectively. The following table summarizes our long-term indebtedness for which the book value was in excess of the fair value:


	June 30, 2012		October 1, 2011
First Priority Senior Secured Floating Rate Notes	$	3	$	61
9 ½% Second Priority Notes		–		83
9 ¾% Second Priority Notes		–		140
Second Priority Senior Secured Floating Rate Notes		5		38
11% Senior Subordinated Notes		–		64
10 ¼% Senior Subordinated Notes		–		18

Non-recurring Fair Value Measurements

The Company has certain assets that are measured at fair value on a non-recurring basis when impairment indicators are present. The assets are adjusted to fair value only when the carrying values exceed the fair values. The categorization of the framework used to price the assets is considered a Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value. These assets include primarily our definite lived and indefinite lived intangible assets, including Goodwill and our property plant and equipment. The Company conducted our annual step one evaluation of goodwill and other intangibles as of the first date of the fourth quarter and preliminarily determined no impairment existed for any of our reporting units. The Company has experienced volume declines in certain of our reporting units, however our cost reduction initiatives and profitability in these reporting units have been consistent with our estimated operating plan and previous cash flow estimates and we believe that our long term forecasts are still appropriate. We have utilized a consistent methodology with prior years, which leverages a six year discounted cash flow analysis with a terminal year in combination with a comparable company market approach to determine the fair value of our reporting units.

Included in the following table are the major categories of assets measured at fair value on a non-recurring basis as of June 30, 2012, along with the impairment loss recognized on the fair value measurement during the period:

Valuation of Property, Plant and Equipment and Definite Lived Intangible Assets

The Company periodically realigns their manufacturing operations which results in facilities being closed and shut down and equipment transferred to other facilities or equipment being scrapped. The Company utilizes appraised values to corroborate the fair value of the facilities and has utilized a scrap value based on prior facility shut downs to estimate the fair value of the equipment, which has approximated the actual value that was received. When impairment indicators exist, the Company will also perform an undiscounted cash flow analysis to determine the recoverability of the Company's long lived assets. The Company wrote-down their property, plant, and equipment with a carrying value of $1,238 to its fair value of $1,235, which resulted in an impairment charge of $3 for the three quarterly periods ended June 30, 2012. The Company wrote-down their definite lived intangible assets with a carrying value of $803 to their fair value of $786, which resulted in an impairment charge of $17 for the three quarterly periods ended June 30, 2012. These charges were due to their decision to exit certain operations that were immaterial to the Company's consolidated operations. The Company also wrote-down their property, plant, and equipment with a carrying value of $1,104 to its fair value of $1,086, which resulted in an impairment charge of $18 for the three quarterly periods ended July 2, 2011.


	As of June 30, 2012
	Level 1		Level 2		Level 3
	Quoted Prices
	in Active										Three Quarterly
	Markets for		Significant						Quarter Ended		Periods Ended
	Identical		Other		Significant				June 30, 2012		June 30, 2012
	Assets or		Observable		Unobservable				Impairment		Impairment
	Liabilities		Inputs		Inputs		Total		Loss		Loss
Definite lived intangible assets	$	-	$	-	$	786	$	786	$	-	$	17
Property, plant, and equipment		-		-		1,235		1,235		-		3
Total	$	-	$	-	$	2,021	$	2,021	$	-	$	20


	As of July 2, 2011
	Level 1		Level 2		Level 3
	Quoted Prices
	in Active										Three Quarterly
	Markets for		Significant						Quarter Ended		Periods Ended
	Identical		Other		Significant				July 2, 2011		July 2, 2011
	Assets or		Observable		Unobservable				Impairment		Impairment
	Liabilities		Inputs		Inputs		Total		Loss		Loss
Property, plant, and equipment		-		-	$	1,086	$	1,086	$	2	$	18
Total	$	-	$	-	$	1,086	$	1,086	$	2	$	18

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

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-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

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+ Details

BERRY PLASTICS CORP 10-Q