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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended
DECEMBER 28, 2002
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 33-75706
BPC HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 35-1813706
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
BERRY PLASTICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 35-1814673
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
101 Oakley Street 47710
Evansville, Indiana
(Address of principal executive offices) (Zip code)
Registrants' 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K: Not applicable.
Indicate by check mark whether the registrants are accelerated filers (as
defined by Rule 12b-2 of Securities Exchange Act of 1934).
Yes [ ] No [X]
None of the voting stock of either registrant is held by a non-affiliate
of such registrant. There is no public trading market for any class of
voting stock of BPC Holding Corporation or Berry Plastics Corporation.
As of March 14, 2003, there were outstanding 2,767,879 shares of the
Common Stock, $.01 par value, of BPC Holding Corporation. As of March 14,
2003, there were outstanding 100 shares of the Common Stock, $.01 par
value, of Berry Plastics Corporation.
DOCUMENTS INCORPORATED BY REFERENCE
None
-1-
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K 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. Such statements include,
in particular, statements about our plans, strategies and prospects under
the headings "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." 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-K.
Factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include:
1 changes in prices and availability of resin and other raw
materials and our ability to pass on changes in raw material prices;
2 catastrophic loss of our key manufacturing facility;
3 risks related to our acquisition strategy and integration of
acquired businesses;
4 risks associated with our substantial indebtedness and debt
service;
5 performance of our business and future operating results;
6 risks of competition in our existing and future markets;
7 general business and economic conditions, particularly an
economic downturn;
8 increases in the cost of compliance with laws and
regulations, including environmental laws and regulations; and
9 the factors discussed in the section of this Form 10-K titled
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Certain Factors Affecting Future Results."
Readers should carefully review the factors discussed in the section
titled "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Certain Factors Affecting Future Results" in this
Form 10-K 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.
AVAILABLE INFORMATION
We make available, free of charge, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments,
if any, to those reports through our Internet website as soon as
practicable after they have been electronically filed with or furnished to
the SEC. Our internet address is www.berryplastics.com. The information
contained on our website is not being incorporated herein.
-2-
BPC HOLDING CORPORATION
BERRY PLASTICS CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 28, 2002
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business................................................... 4
Item 2. Properties................................................. 12
Item 3. Legal Proceedings.......................................... 12
Item 4. Submission of Matters to a Vote of Security Holders........ 12
PART II
Item 5. Market for Registrants'Common Equity and Related Stockholder
Matters.................................................... 13
Item 6. Selected Financial Data.................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 25
Item 8. Financial Statements and Supplementary Data................ 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 26
PART III
Item 10. Directors and Executive Officers of the Registrants........ 27
Item 11. Executive Compensation..................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 32
Item 13. Certain Relationships and Related Transactions............. 34
Item 14. Controls and Procedures.................................... 37
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................... 38
-3-
PART I
ITEM 1. BUSINESS
Unless the context requires otherwise, references in this Form 10-K to
"BPC Holding" or "Holding" refer to BPC Holding Corporation, references to
"we," "our" or "us" refer to BPC Holding Corporation together with its
consolidated subsidiaries, and references to "Berry Plastics" or the
"Company" refer to Berry Plastics Corporation, a wholly owned subsidiary of
BPC Holding Corporation.
GENERAL
We are one of the world's leading manufacturers and suppliers of a
diverse mix of injection-molded plastics packaging products focusing on the
open-top container, closure, aerosol overcap, drink cup and housewares
markets. We sell a broad product line to over 12,000 customers. We
concentrate on manufacturing higher quality, value-added products sold to
image-conscious marketers of institutional and consumer products. We
believe that our large operating scale, low-cost manufacturing
capabilities, purchasing leverage, proprietary thermoforming technology and
extensive collection of over 1,000 active proprietary molds provide us with
a competitive advantage in the marketplace. We have been able to leverage
our broad product offering, value-added manufacturing capabilities and
long-standing customer relationships into leading positions across a number
of products. The average length of our relationship with our top 10
customers in fiscal 2002 was over 15 years, and these customers represented
approximately 19% of our fiscal 2002 net sales with no customer accounting
for more than 4% of our fiscal 2002 net sales. We believe that over 58% of
our 2002 revenues were generated from the sale of products that held a
number one position relative to competing injection-molded products. Our
products are primarily sold to customers in industries that exhibit
relatively stable demand characteristics and are considered less sensitive
to overall economic conditions, such as pharmaceuticals, food, dairy and
health and beauty. Additionally, we operate 12 high-volume manufacturing
facilities and have extensive distribution capabilities.
We organize our product categories into three business divisions:
containers, closures, and consumer products. The following table displays
our net sales by division for each of the past five fiscal years.
($ in millions) 1998 1999 2000 2001 2002
------ ------ ------ ------ ------
Containers $154.0 $188.7 $231.2 $234.5 $250.4
Closures 56.4 81.0 112.2 132.4 133.9
Consumer products 61.4 59.1 64.7 94.8 110.0
------ ------ ------ ------ ------
Total net sales $271.8 $328.8 $408.1 $461.7 $494.3
====== ====== ====== ====== ======
Additional financial information about our business segments is provided
in Note 14 of the "Notes to Consolidated Financial Statements," which are
included elsewhere in this Form 10-K.
HISTORY
Imperial Plastics was established in 1967 in Evansville, Indiana. Berry
Plastics, Inc. ("Old Berry") was formed in 1983 to purchase substantially
all of the assets of Imperial Plastics. In 1988, Old Berry acquired
Gilbert Plastics of New Brunswick, New Jersey, a leading manufacturer of
aerosol overcaps, and subsequently relocated Gilbert Plastics' production
to Old Berry's Evansville, Indiana facility. In 1990, the Company and
Holding, the holder of 100% of the outstanding capital stock of the
Company, were formed to purchase the assets of Old Berry.
-3-
From 1992 until 2002, we continued to grow by acquiring companies that we
believed would improve our financial performance in the long-term, expand
our product lines, or in some cases, provide us with a new or complementary
product line. In 1992, we acquired the assets of the Mammoth Containers
division of Genpak Corporation and in 1995, we acquired substantially all
of the assets of Sterling Products, Inc., a producer of injection-molded
plastic drink cups and lids, and Tri-Plas, Inc., a manufacturer of
injection-molded containers and lids. In 1997, we acquired (1) certain
assets of Container Industries, Inc., a manufacturer and marketer of
injection-molded industrial and pry-off containers for building products
and other industrial markets, (2) PackerWare Corporation ("PackerWare"), a
manufacturer and marketer of plastic containers, drink cups, housewares,
and lawn and garden products, (3) substantially all of the assets of
Virginia Design Packaging Corp., a manufacturer and marketer of injection-
molded containers used primarily for food packaging, and (4) Venture
Packaging, Inc. ("Venture Packaging"), a manufacturer and marketer of
injection-molded containers used in the food, dairy and various other
markets. In 1998, we acquired all of the capital stock of Norwich
Injection Moulders Limited (now known as Berry Plastics UK Limited) and
substantially all of the assets of the Knight Engineering and Plastics
Division of Courtaulds Packaging Inc., a manufacturer of aerosol overcaps.
In 1999, we acquired all of the outstanding capital stock of CPI Holding
Corporation ("CPI Holding"), the parent company of Cardinal Packaging, Inc.
("Cardinal"), a manufacturer and marketer of open-top containers. In 2000,
we acquired all of the outstanding capital stock of (1) Poly-Seal
Corporation ("Poly-Seal"), a manufacturer and marketer of closures and (2)
Capsol S.p.a. ("Capsol") and the whole quota capital of a related company,
Ociesse S.r.l. Capsol is a manufacturer and marketer of aerosol overcaps
and closures. In 2001, we acquired all of the outstanding capital stock of
Pescor Plastics, Inc. ("Pescor"), a manufacturer and marketer of drink
cups, and in 2002, we acquired the Alcoa Flexible Packaging injection
molding assets from Mt. Vernon Plastics Corporation ("Mount Vernon").
RECENT DEVELOPMENTS
THE MERGER
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly
formed entity controlled by various private equity funds affiliated with
Goldman, Sachs & Co., merged (the "Merger") with and into BPC Holding,
pursuant to an agreement and plan of merger, dated as of May 25, 2002. At
the effective time of the Merger, (1) each share of common stock of BPC
Holding issued and outstanding immediately prior to the effective time of
the Merger was converted into the right to receive cash pursuant to the
terms of the merger agreement, and (2) each share of common stock of the
Buyer issued and outstanding immediately prior to the effective time of the
Merger was converted into one share of common stock of BPC Holding.
Additionally, in connection with the Merger, we retired all of BPC
Holding's senior secured notes and Berry Plastics' senior subordinated
notes, repaid all amounts owed under our credit facilities, redeemed all of
the outstanding preferred stock of BPC Holding, entered into a new credit
facility and completed an offering of new senior subordinated notes of
Berry Plastics. As a result of the Merger, private equity funds affiliated
with Goldman Sachs own approximately 63% of the outstanding common stock of
BPC Holding, private equity funds affiliated with J.P. Morgan Chase & Co.
own approximately 29% and members of our management own the remaining 8%.
The total amount of funds required to consummate the Merger and to pay
the related fees and expenses was approximately $870.4 million, including
retirement all of BPC Holding's senior secured notes and Berry Plastics'
senior subordinated notes, repayment of all amounts owed under our credit
facilities, redemption of all of the outstanding preferred and common stock
of BPC Holding, and other fees and expenses related to the Merger. In
connection with the Merger, Berry Plastics received a $330 million senior
secured term loan from a syndicate of lenders led by Goldman Sachs Credit
Partners L.P., as administrative agent, approximately $250 million from the
issuance by Berry Plastics of 10 3/4% senior subordinated notes to various
institutional buyers, and approximately $268.8 million in equity
contributions from affiliates of Goldman Sachs and certain existing
stockholders and continuing investments from members of our management.
The $330 million senior secured term loan was part of a larger senior
secured credit facility that we entered into with a syndicate of lenders
led by Goldman Sachs Credit Partners L.P., as administrative agent. The
credit facility also included a $50.0 million delayed draw term loan
facility and a $100.0 million revolving credit facility.
-5-
PRODUCT OVERVIEW
We organize our product lines into three categories: containers, closures
and consumer products.
CONTAINERS
We classify our containers into six product lines: thinwall, pry-off,
dairy, polypropylene, industrial and specialty. We believe that we have
leading positions in key injection-molded plastic container segments
including thinwall (household products and food) and pry-off (building
materials), as well as strong positions in frozen dessert (ice cream and
yogurt) and clear polypropylene (high value food and consumer
applications). The following table describes our container product lines.
PRODUCT LINE DESCRIPTION SIZES MAJOR END MARKETS
- ------------ ---------------------- ---------- --------------------------------------
Thinwall Thinwalled, 8 oz. to 2 Food, promotional products, toys and
multi-purpose gallons a wide variety of other uses
containers
with or
without
handles and
lids
Pry-off Containers 4 oz. to 2 Building products, adhesives,
having a gallons chemicals, and other industrial uses
tight lid-fit
and requiring
an opening
device
Dairy Thinwall 4 oz. to 5 Cultured dairy products including
containers in lbs., yogurt, cottage cheese, sour cream
traditional Multi-pack and dips, and frozen desserts
dairy market
sizes and
styles
Polypropylene Usually clear 6 oz. to 5 Food, deli, sauces and salads
containers in lbs.
round, oblong
or
rectangular
shapes
Industrial Thick-walled, 2.5 to 5 Building products, chemicals, paints
larger pails gallons and other industrial uses
designed to
accommodate
heavy loads
Specialty Customer Various Premium consumer items, such as
specific tobacco and drink mixes
The largest end-uses for our containers are food products, building
products, chemicals and dairy products. We have a diverse customer base for
our container lines, and no single container customer exceeded 3% of our
total net sales in fiscal 2002.
We believe that we offer the broadest product line among U.S.-based
injection-molded plastic container manufacturers. Our container capacities
range from 4 ounces to 5 gallons and are offered in various styles with
accompanying lids, bails and handles, some of which we produce, as well as
a wide array of decorating options. In addition to a complete product
line, we have sophisticated printing capabilities, an in-house graphic arts
department, low-cost manufacturing capability with 10 plants strategically
located throughout the United States and a dedication to high-quality
products and customer service. Our product engineers work with customers
to design and commercialize new containers. In addition, as part of our
dedication to customer service, on occasion, we provide filling machine
equipment to some of our customers, primarily in the dairy market, and we
also provide the services necessary to operate such equipment. We believe
providing such equipment and services increases customer retention by
increasing the customer's production efficiency. The cost of, and revenue
from, such equipment is not material. We seek to develop niche container
products and new applications by taking advantage of our state-of-the-art
decorating and graphic arts capabilities and dedication to service and
quality. We believe that these capabilities have given us a significant
competitive advantage in certain high-margin niche container applications
for specialized products. Examples include popcorn containers for new
movie promotions and professional and college sporting and entertainment
events, where the ability to produce sophisticated and colorful graphics is
crucial to the product's success. In order to identify new applications
for existing products, we rely extensively on our national sales force.
Once these opportunities are identified, our sales force interfaces with
our product design engineers to satisfy customers' needs.
In non-industrial containers, our strongest competitors include Airlite,
Sweetheart, Landis, and Polytainers. We also produce commodity industrial
pails for a market that is dominated by large volume competitors such as
Letica, Plastican, NAMPAC and Ropak. We do not participate heavily in this
large market.
-6-
CLOSURES
Our closures division focuses on aerosol overcaps and closures.
AEROSOL OVERCAPS
We believe we are the worldwide leading producer of injection-molded
aerosol overcaps. Our aerosol overcaps are used in a wide variety of
consumer goods including spray paints, household and personal care
products, insecticides and numerous other commercial and consumer products.
Most U.S. manufacturers of aerosol products, and companies that fill
aerosol products on a contractual basis, are our customers for some portion
of their needs.
Approximately 19% of the U.S. injection-molded market consists of
manufacturers who produce overcaps in-house for their own needs. We
believe that a portion of these in-house producers will increase the
outsourcing of their production to high-technology, low-cost manufacturers,
such as us, as a means of reducing manufacturing assets and focusing on
their core marketing objectives.
We believe that, over the years, we have developed several significant
competitive advantages, including (1) a reputation for outstanding quality,
(2) short lead-time requirements to fill customer orders, (3) long-standing
relationships with major customers, (4) the ability to accurately reproduce
over 3,500 colors, (5) proprietary packing technology that minimizes
freight cost and warehouse space, (6) high-speed, low-cost molding and
decorating capability and (7) a broad product line of proprietary molds.
We continue to develop new products in the overcap market, including a
"spray-thru" line of aerosol overcaps that has a built-in release button.
In fiscal 2002, no single aerosol overcap customer accounted for over 2%
of our total net sales. Competitors include Dubuque Plastics, Cobra and
Plasticum. In addition, a number of companies, including several of our
customers, currently produce aerosol overcaps for their own use.
CLOSURES
We believe our combined product line offerings to the closures market
establish us as a leading provider of closures. Our product line offerings
include continuous thread, dispensing, tamper evident and child resistant
closures. In addition, we are a leading provider of (1) fitments and plugs
for medical applications, (2) cups and spouts for liquid laundry detergent,
(3) dropper bulb assemblies for medical and personal care applications, and
(4) jiggers for mouthwash products.
Our closures are used in a wide variety of consumer goods markets,
including health and beauty aids, pharmaceutical, household chemicals,
commercial chemicals, and food and dairy. We are a major provider of
closures to many of the leading companies in these markets.
We believe the capabilities and expertise we have established as a
closure provider create significant competitive advantages, including the
latest in single and bi-injection technology, molding of thermoplastic and
thermoset resins, compression molding of thermoplastic resins, and lining
and assembly applications applying the latest in computerized vision
inspection technology. In addition, we have an in-house package
development and design group focused on developing new closures to meet our
customers' proprietary needs. We have a strong reputation for quality and
have received numerous "Supplier Quality Achievement Awards" from customers
in different markets.
In fiscal 2002, no single closure customer accounted for over 2% of our
total net sales. Competitors include Owens-Illinois, Kerr/Suncoast,
Phoenix Closures, Portola, Rexam Closures, and Seaquist Closures.
CONSUMER PRODUCTS
Our consumer products division focuses on drink cups and housewares.
-7-
DRINK CUPS
We believe that we are the largest provider of injection-molded plastic
drink cups in the U.S. As beverage producers, convenience stores and fast
food restaurants increase their marketing efforts for larger sized drinks,
we believe that the plastic drink cup market should expand because of
plastic's desirability over paper for larger drink cups. We produce
injection-molded plastic cups that range in size from 12 to 64 ounces.
Primary markets are fast food and family dining restaurants, convenience
stores, stadiums and retail stores. Many of our cups are decorated, often
as promotional items, and we are known in the industry for our innovative,
state-of-the-art graphics capability.
We launched our thermoformed drink cup line in fiscal 2001. Our
thermoformed product line offers sizes ranging from 22 to 44 ounces. Our
thermoform process is unique in the industry in that it uses polypropylene
instead of more expensive polystyrene in producing deep draw drink cups.
This offers a material competitive advantage versus competitive
thermoformed drink cups.
In fiscal 2002, no single drink cup customer accounted for more than 3%
of our total net sales. Drink cup competitors include Huhtamaki (formerly
Packaging Resources Incorporated), Sweetheart, Letica, and WNA (formerly
Cups Illustrated).
HOUSEWARES
Our participation in the housewares market is focused on producing
seasonal (spring and summer) semi-disposable plastic housewares and plastic
garden products. Examples of our products include plates, bowls, pitchers,
tumblers and outdoor flowerpots. We sell virtually all of our products in
this market through major national retail marketers and national chain
stores, such as Wal-Mart. PackerWare is our recognized brand name in these
markets and PackerWare branded products are often co-branded by our
customers. Our position in this market has been to provide high value to
consumers at a relatively modest price, consistent with the key price
points of the retail marketers. We believe outstanding service and ability
to deliver products with timely combination of color and design further
enhance our position in this market. This focus allowed PackerWare to be
named Wal-Mart's category manager for its seasonal housewares department.
In fiscal 2002, no single housewares customer accounted for more than 4%
of our total net sales. Housewares competitors include imported products
from China, Arrow Plastics and United Plastics.
MARKETING AND SALES
We reach our large and diversified base of over 12,000 customers
primarily through our direct field sales force of over 50 dedicated
professionals. Our field sales, production and support staff meet with
customers to understand their needs and improve our product offerings and
services. While these field sales representatives are focused on
individual product lines, they are also encouraged to sell all of our
products to serve the needs of our customers. We believe that a direct
field sales force is able to better focus on target markets and customers,
with the added benefit of permitting us to control pricing decisions
centrally. We also utilize the services of manufacturing representatives
to assist our direct sales force.
We believe that we produce a high level of customer satisfaction. Highly
skilled customer service representatives are strategically located
throughout our facilities to support the national field sales force. In
addition, telemarketing representatives, marketing managers and
sales/marketing executives oversee the marketing and sales efforts.
Manufacturing and engineering personnel work closely with field sales
personnel to satisfy customers' needs through the production of high-
quality, value-added products and on-time deliveries.
Our sales force is supported by technical specialists and our in-house
graphics and design personnel. Our Graphic Arts department includes
computer-assisted graphic design capabilities and in-house production of
photopolymer printing plates. We also have a centralized Color Matching and
Materials Blending department that utilizes a computerized
spectrophotometer to insure that colors match those requested by customers.
-8-
MANUFACTURING
We primarily manufacture our products using the plastic injection-molding
process. The process begins when plastic resin, in the form of small
pellets, is fed into an injection-molding machine. The injection-molding
machine then melts the plastic resin and injects it into a multi-cavity
steel mold, forcing the plastic resin to take the final shape of the
product. At the end of each molding cycle (generally 5 to 25 seconds), the
plastic parts are ejected from the mold into automated handling systems
from which they are packed in corrugated containers for further processing
or shipment. After molding, the product may be either decorated (e.g.
printing, silkscreening, labeling) or assembled (e.g., bail handles fitted
to containers). We believe that our molding and post-molding capabilities
are among the best in the industry.
In 2001, after several years of development, we introduced our
proprietary thermoforming molding process that enables us to mass-produce
large drink cups (22-ounce to 44-ounce) less expensively than our
competitors. The thermoforming machine used in our process was built by a
third-party manufacturer to standard specifications. We modified the
machine on-site in order to produce high-cavitation, deep draw cups using
our process. These modifications were made without the help of outside
consultants.
Our overall manufacturing philosophy is to be a low-cost producer by
using (1) high-speed molding machines, (2) modern multi-cavity hot runner,
cold runner and insulated runner molds, (3) extensive material handling
automation and (4) sophisticated printing technology. We utilize state-of-
the-art robotic packaging processes for large volume products, which enable
us to reduce breakage while lowering warehousing and shipping costs. Each
plant has complete maintenance capability to support molding and decorating
operations. We have historically made, and intend to continue to make,
significant capital investments in plant and equipment because of our
objectives to improve productivity, maintain competitive advantages and
foster continued growth. Over the past five fiscal years our capital
expenditures in plant and equipment, exclusive of acquisitions, were $146
million.
PRODUCT DEVELOPMENT AND DESIGN
We believe our technology base and research and development support are
among the best in the rigid plastics packaging industry. Our full-time
product engineers use three-dimensional computer-aided-design (CAD)
technology to design and modify new products and prepare mold drawings. We
can simulate the molding environment by running unit-cavity prototype molds
in small injection-molding machines for research and development of new
products. Production molds are then designed and outsourced for production
by various companies with which we have extensive experience and
established relationships. Our engineers oversee the mold-building process
from start to finish. Many of our customers work in partnership with our
technical representatives to develop new, more competitive products. We
have enhanced our relationships with these customers by providing the
technical service needed to develop products combined with our internal
graphic arts support.
We spent $2.9 million, $1.9 million and $2.6 million on research and
development in 2002, 2001, and 2000, respectively.
We also utilize our in-house graphic design department to develop color
and styles for new products. Our design professionals work directly with
our customers to develop new styles and use computer-generated graphics to
enable our customers to visualize the finished product.
QUALITY ASSURANCE
Each plant extensively utilizes Total Quality Management philosophies,
including the use of statistical process control and extensive involvement
of employees to increase productivity. This teamwork approach to problem-
solving increases employee participation and provides necessary training at
all levels. All of our facilities have been ISO certified, which
demonstrates compliance by a company with a set of shipping, trading and
technology standards promulgated by the International Standardization
Organization ("ISO"). Extensive testing of parts for size, color, strength
and material quality using statistical process control (SPC) techniques and
sophisticated technology is also an ongoing part of our quality assurance
activities.
-9-
SYSTEMS
We utilize a fully integrated computer software system at each of our
plants that produces complete financial and operational reports. This
accounting and control system is easily expandable to add new features
and/or locations as we grow. In addition, we have in place a sophisticated
quality assurance system, a bar code based material management system and
an integrated manufacturing system.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The most important raw material purchased by us is plastic resin. We
purchased approximately $113.0 million of resin in fiscal 2002.
Approximately 50% of the resin pounds purchased were high density
polyethylene ("HDPE"), 13% linear low density polyethylene and 37%
polypropylene ("PP"). We have contractual price escalators and de-
escalators tied to the price of resin representing approximately 40% of net
sales that result in price increases/decreases to many of our customers in
a relatively short period of time, typically quarterly. In addition, to
date, we have experienced high success rates in passing through price
increases and decreases in the price of resin to customers, without indexed
price agreements, although the magnitude of the fluctuations in the price
of resin in recent periods may have an impact on our future success in this
area. Pricing flexibility is enhanced by the fact that our products
typically represent a very small component of the overall cost of
production for the end customer. Fewer than 10% of our net sales are
generated from fixed-price arrangements, and we have at times and may
continue to enter into negotiated purchase agreements with resin suppliers
related to these fixed price arrangements. We can further mitigate the
effect of resin price movements through our ability to accommodate raw
material switching for certain products between HDPE and PP as prices
fluctuate. In a typical resin market, we estimate that we have
historically been able to pass on approximately 75% of an increase in the
price of resin within the first three months and the remainder within one
year of the price increase. For example, in 2000, the price of resin
increased significantly and we estimate that we were able to pass on
approximately 85% of the increase to our customers during that calendar
year. The resin market is currently experiencing rapidly increasing prices
primarily due to the increased cost of oil and natural gas. Based on
information from Plastics News, an industry publication, average spot
prices of HDPE and PP on March 17, 2003 were $0.565 per pound and $0.44 per
pound, respectively, reflecting increases of $0.17 per pound, or 43%, and
$0.05 per pound, or 13%, over the respective average spot prices from
December 28, 2002. Due to the extent and rapid nature of these increases,
we cannot reasonably estimate our ability to successfully recover these
cost increases in the short-term.
Our purchasing strategy is to deal with only high-quality, dependable
suppliers, such as Dow, Chevron, Nova, Equistar, Atofina, Basell, and
ExxonMobil. Although we do not have any supply requirements contracts with
our key suppliers, we believe that we have maintained strong relationships
with these key suppliers and expect that such relationships will continue
into the foreseeable future. Based on our experience, we believe that
adequate quantities of plastic resins will be available at market prices,
but we can give you no assurances as to such availability or the prices
thereof.
EMPLOYEES
At the end of fiscal 2002, we had approximately 3,250 employees. Poly-
Seal Corporation, a wholly owned subsidiary, and the United Steelworkers of
America are parties to a collective bargaining agreement which expires on
April 24, 2005. At the end of fiscal 2002, approximately 325 employees of
Poly-Seal Corporation, all of which are located in our Baltimore facility,
were covered by this agreement. None of our other employees are covered by
collective bargaining agreements. We believe our relations with our
employees are good.
PATENTS AND TRADEMARKS
We rely on a combination of patents, trade secrets, unpatented know-how,
trademarks, copyrights and other intellectual property rights,
nondisclosure agreements and other protective measures to protect our
proprietary rights. We do not believe that any individual item of our
intellectual property portfolio is material to our current business. We
employ various methods, including confidentiality and non-disclosure
agreements with third parties, employees and consultants, to protect our
trade secrets and know-how. We have licensed, and may license in the
future, patents, trademarks, trade secrets, and similar proprietary rights
to and from third parties.
-10-
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
Our past and present operations and our past and present ownership and
operations of real property are subject to extensive and changing federal,
state, local and foreign environmental laws and regulations pertaining to
the discharge of materials into the environment, the handling and
disposition of wastes or otherwise relating to the protection of the
environment. We believe that we are in substantial compliance with
applicable environmental laws and regulations. However, we cannot predict
with any certainty that we will not in the future incur liability under
environmental statutes and regulations with respect to non-compliance with
environmental laws, contamination of sites formerly or currently owned or
operated by us (including contamination caused by prior owners and
operators of such sites) or the off-site disposal of hazardous substances.
Like any manufacturer, we are subject to the possibility that we may
receive notices of potential liability in connection with materials that
were sent to third-party recycling, treatment, and/or disposal facilities
under the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA), and comparable state statutes, which impose liability for
investigation and remediation of contamination without regard to fault or
the legality of the conduct that contributed to the contamination.
Liability under CERCLA is retroactive and joint and several. No such
notices are currently pending.
The FDA regulates the material content of direct-contact food containers
and packages, including certain thinwall containers we manufacture pursuant
to the Federal Food, Drug and Cosmetics Act. Certain of our products are
also regulated by the Consumer Product Safety Commission ("CPSC") pursuant
to various federal laws, including the Consumer Product Safety Act. Both
the FDA and the CPSC can require the manufacturer of defective products to
repurchase or recall such products and may also impose fines or penalties
on the manufacturer. Similar laws exist in some states, cities and other
countries in which we sell our products. In addition, laws exist in
certain states restricting the sale of packaging with certain levels of
heavy metals, imposing fines and penalties for non-compliance. Although we
use FDA approved resins and pigments in containers that directly contact
food products and believe they are in material compliance with all such
applicable FDA regulations, and we believe our products are in material
compliance with all applicable requirements, we remain subject to the risk
that our products could be found not to be in compliance with such
requirements.
The plastics industry, including us, is subject to existing and potential
federal, state, local and foreign legislation designed to reduce solid
wastes by requiring, among other things, plastics to be degradable in
landfills, minimum levels of recycled content, various recycling
requirements, disposal fees and limits on the use of plastic products. In
addition, various consumer and special interest groups have lobbied from
time to time for the implementation of these and other similar measures.
The principal resins used in our products, HDPE and PP, are recyclable,
and, accordingly, we believe that the legislation promulgated to date and
such initiatives to date have not had a material adverse effect on us.
There can be no assurance that any such future legislative or regulatory
efforts or future initiatives would not have a material adverse effect on
us. On January 1, 1995, legislation in Oregon, California and Wisconsin
went into effect requiring products packaged in rigid plastic containers to
comply with standards intended to encourage recycling and increased use of
recycled materials. Although the regulations vary by state, they
principally require the use of post consumer regrind ("PCR") as an
ingredient in containers or the reduction of their weight. These
regulations do not apply to food, cosmetic or drug containers. Oregon and
California provide for an exemption from these regulations if statewide
recycling rates for rigid plastic containers reach or exceed 25%. We
assist our customers in complying with these regulations.
Oregon's aggregate recycling rate for rigid plastic containers has
exceeded the 25% goal since the effective date of the law, and the Oregon
Department of Environmental Quality has estimated that Oregon will continue
to exceed the 25% goal for the foreseeable future. Therefore, rigid
plastic containers are exempt from the requirements of the Oregon statute.
In addition, California has also reached its 25% recycling rate goal for
rigid plastic containers in 2001, which is the most recent compliance
period examined. Therefore, rigid plastic containers were exempt from the
requirements of the California statute in 2001, which is the most recent
testing date that has been completed. In order to facilitate continued
individual customer compliance with these regulations, we are providing
customers the option of purchasing containers with limited amounts of PCR
or reduced weight.
-11-
ITEM 2. PROPERTIES
The following table sets forth our principal manufacturing facilities:
LOCATION ACRES SQUARE USE OWNED/LEASED
FOOTAGE
- ----------------- ------- --------- --------------- -------------
Evansville, IN 15.8 580,000 Headquarters Owned
and manufacturing
Henderson, NV 12.3 175,000 Manufacturing Owned
Iowa Falls, IA 14.1 100,000 Manufacturing Owned
Charlotte, NC 37.3 150,000 Manufacturing Owned
Lawrence, KS 19.3 424,000 Manufacturing Owned
Suffolk, VA 14.0 110,000 Manufacturing Owned
Monroeville, OH 34.7 152,000 Manufacturing Owned
Norwich, England 5.0 96,000 Manufacturing Owned
Woodstock, IL 13.7 170,000 Manufacturing Owned
Streetsboro, OH 11.9 140,000 Manufacturing Owned
Baltimore, MD 9.9 244,000 Manufacturing Owned
Milan, Italy 11.6 125,000 Manufacturing Leased
We believe that our property and equipment is well-maintained, in good
operating condition and adequate for our present needs.
ITEM 3. LEGAL PROCEEDINGS
We are party to various legal proceedings involving routine claims which
are incidental to our business. Although our legal and financial liability
with respect to such proceedings cannot be estimated with certainty, we
believe that any ultimate liability would not be material to our financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-12-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for any class of common
stock of Holding or the Company. With respect to the capital stock of
Holding, as of March 14, 2003, there were 99 holders of the common stock.
All of the issued and outstanding common stock of the Company is held by
Holding.
DIVIDEND POLICY
Holding has not paid cash dividends on its capital stock since the
Merger. Because Holding intends to retain any earnings to provide funds
for the operation and expansion of the Company's business and to repay
outstanding indebtedness, Holding does not intend to pay cash dividends on
its common stock in the foreseeable future. Furthermore, as a holding
company with no independent operations, the ability of Holding to pay cash
dividends will be dependent on the receipt of dividends or other payments
from the Company. Under the terms of the Indenture dated as of July 22,
2002 (the "2002 Indenture"), among the Company, Holding, all of its direct
and indirect domestic subsidiaries, and U.S. Bank Trust National
Association, as Trustee ("U.S. Bank"), Holding and the Company have various
restrictions regarding the payment of dividends on their common stock. In
addition, the Company's senior credit facility contains covenants that,
among other things, restricts the payment of dividends by the Company. In
addition, Delaware law limits Holding's ability to pay dividends from
current or historical earnings or profits or capital surplus. Any
determination to pay cash dividends on common stock of the Company or
Holding in the future will be at the discretion of the Board of Directors
of the Company and Holding, respectively.
EQUITY COMPENSATION PLAN INFORMATION
See Item 12 of this Form 10-K entitled "Security Ownership of Certain
Beneficial Owners and Management".
-13-
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from our consolidated
financial statements. The data should be read in connection with the
consolidated financial statements, related notes and other financial
information included herein. Our fiscal year is a 52/53 week period ending
generally on the Saturday closest to December 31. All references herein to
"2002," "2001," "2000," "1999," and "1998" relate to the fiscal years ended
December 28, 2002, December 29, 2001, December 30, 2000, January 1, 2000,
and January 2, 1999, respectively. For analysis purposes, the results
under Holding's prior ownership ("Predecessor") have been combined with
results subsequent to the Merger on July 22, 2002. Our historical
consolidated financial information may not be comparable to or indicative
of our future performance. For a discussion of certain factors that
materially affect the comparability of the consolidated financial data or
cause the data reflected herein not to be indicative of our future
financial condition or results of operations, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Certain
Factors Affecting Future Results."
BPC HOLDING CORPORATION
---------------------------------------------------------------------------
FISCAL
---------------------------------------------------------------------------
COMBINED COMPANY
& PREDECESSOR PREDECESSOR PREDECESSOR PREDECESSOR PREDECESSOR
---------------- ------------- ------------- ------------- -------------
2002 2001 2000 1999 1998
(IN THOUSANDS OF DOLLARS)
Statement of
Operations Data:
Net sales $494,303 $461,659 $408,088 $328,834 $271,830
Cost of goods sold 371,273 338,000 312,119 241,067 199,227
---------- ---------- ---------- ---------- ----------
Gross profit 123,030 123,659 95,969 87,767 72,603
Operating expenses (a) 77,467 70,192 65,862 54,118 44,001
---------- ---------- ---------- ---------- ----------
Operating income 45,563 53,467 30,107 33,649 28,602
Other expenses (b) 299 473 877 1,416 1,865
Interest expense, net (c) 49,254 54,355 51,457 40,817 34,556
---------- ---------- ---------- ---------- ----------
Loss before income taxes
and extraordinary item (3,990) (1,361) (22,227) (8,584) (7,819)
Income taxes (benefit) 3,298 734 (142) 554 (249)
---------- ---------- ---------- ---------- ----------
Loss before extraordinary item (7,288) (2,095) (22,085) (9,138) (7,570)
Extraordinary item,
net of tax (d) 25,328 - 1,022 - -
---------- ---------- ---------- ---------- ----------
Net loss (32,616) (2,095) (23,107) (9,138) (7,570)
Preferred stock dividends 6,468 9,790 6,655 3,776 3,551
Amortization of preferred
stock discount 574 1,024 768 292 292
---------- ---------- ---------- ---------- ----------
Net loss attributable to
common stockholders $(39,658) $(12,909) $(30,530) $(13,206) $(11,413)
========== ========== ========== ========== ==========
Balance Sheet Data (at end of year):
Working capital $ 64,201 $ 19,327 $ 20,470 $ 10,527 $ 4,762
Fixed assets 193,132 203,217 179,804 146,792 120,005
Total assets 760,576 446,876 413,122 340,807 255,317
Total debt 609,943 485,881 468,806 403,989 323,298
Stockholders' equity (deficit) 75,163 (139,601) (137,997) (133,471) (120,357)
Other Data:
Depreciation and amortization (e) $ 41,965 $ 50,907 $ 42,148 $ 31,795 $ 24,830
Capital expenditures 28,683 32,834 31,530 30,738 22,595
(a) Operating expenses include business startup and machine integration
expenses of $1,353 related to recent acquisitions, plant consolidation
expenses of $3,992 related to the shutdown and reorganization of
facilities, $216 related to an uncompleted acquisition; and $20,987
related to the Merger during fiscal 2002; business startup and machine
integration expenses of $2,690 related to recent acquisitions, and plant
consolidation expenses of $2,221 related to the shutdown and
reorganization of facilities during fiscal 2001; business start-up and
machine integration expenses of $2,237 related to recent acquisitions,
litigation expenses of $700 related to a drink cup patent, and plant
consolidation expenses of $3,702 related to the shutdown and
reorganization of facilities during fiscal 2000; business start-up and
machine integration expenses of $3,647 related to recent acquisitions and
plant consolidation expenses of $1,501 related to the shutdown and
reorganization of facilities during fiscal 1999; and business start-up
and machine integration expenses of $1,272 related to the businesses
acquired in 1997, plant consolidation expenses of $2,370 and $191 related
to the shutdown of the Anderson, South Carolina and Reno, Nevada
facilities, and start-up expenses of $251 related to acquired businesses
during fiscal 1998.
(b) Other expenses consist of net losses on disposal of property and
equipment for the respective years.
(c) Includes non-cash interest expense of $2,476, $11,268, $18,047, $15,567
and $14,824, in fiscal 2002, 2001, 2000, 1999 and 1998, respectively.
(d) As a result of the retirement all of BPC Holding's senior secured notes
and Berry Plastics' senior subordinated notes and the repayment of all
amounts owed under our credit facilities in connection with the Merger,
$6.6 million of existing deferred financing fees and $18.7 million of
prepayment fees and related charges were charged to expense in 2002 as an
extraordinary item. Extraordinary item in 2000 relates to deferred
financing fees written off as a result of amending the senior credit
facility.
(e) Depreciation and amortization excludes non-cash amortization of
deferred financing fees and debt premium/discount amortization which are
included in interest expense.
-14-
ITEM 7. 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
"BPC Holding" or "Holding" refer to BPC Holding Corporation, references to
"we," "our" or "us" refer to BPC Holding Corporation together with its
consolidated subsidiaries, and references to "Berry Plastics" or the
"Company" refer to Berry Plastics Corporation, a wholly owned subsidiary of
BPC Holding Corporation. For analysis purposes, the results under
Holding's prior ownership ("Predecessor") have been combined with results
subsequent to the merger on July 22, 2002 described below. You should read
the following discussion in conjunction with the consolidated financial
statements of Holding and its subsidiaries and the accompanying notes
thereto, which information is included elsewhere herein. This discussion
contains forward-looking statements and involves numerous risks and
uncertainties, including, but not limited to, those described in the
"Certain Factors Affecting Future Results" section at the end of this
discussion. Our actual results may differ materially from those contained
in any forward-looking statements.
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly
formed entity controlled by various private equity funds affiliated with
Goldman, Sachs & Co., merged (the "Merger") with and into BPC Holding,
pursuant to an agreement and plan of merger, dated as of May 25, 2002. At
the effective time of the Merger, (1) each share of common stock of BPC
Holding issued and outstanding immediately prior to the effective time of
the Merger was converted into the right to receive cash pursuant to the
terms of the merger agreement, and (2) each share of common stock of the
Buyer issued and outstanding immediately prior to the effective time of the
Merger was converted into one share of common stock of BPC Holding.
Additionally, in connection with the Merger, we retired all of BPC
Holding's senior secured notes and Berry Plastics' senior subordinated
notes, repaid all amounts owed under our credit facilities, redeemed all of
the outstanding preferred stock of BPC Holding, entered into a new credit
facility and completed an offering of new senior subordinated notes of
Berry Plastics. As a result of the Merger, private equity funds affiliated
with Goldman Sachs own approximately 63% of the outstanding common stock of
BPC Holding, private equity funds affiliated with J.P. Morgan Chase & Co.
own approximately 29% and members of our management own the remaining 8%.
CRITICAL ACCOUNTING POLICIES
We disclose those accounting policies that we consider to be significant
in determining the amounts to be utilized for communicating our
consolidated financial position, results of operations and cash flows in
the second note to our consolidated financial statements included elsewhere
herein. Our discussion and analysis of our financial condition and results
of operations are based on our consolidated financial statements, which
have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of financial statements in
conformity with these principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results are likely to differ from these
estimates, but management does not believe such differences will materially
affect our financial position or results of operations. We believe that
the following accounting policies are the most critical because they have
the greatest impact on the presentation of our financial condition and
results of operations.
ACCOUNTS RECEIVABLE. We evaluate our allowance for doubtful accounts on a
quarterly basis and review any significant customers with delinquent
balances to determine future collectibility. We base our determinations on
legal issues (such as bankruptcy status), past history, current financial
and credit agency reports, and the experience of our credit
representatives. We reserve accounts that we deem to be uncollectible in
the quarter in which we make the determination. We maintain additional
reserves based on our historical bad debt experience. We believe, based on
past history and our credit policies, that the net accounts receivable are
of good quality.
MEDICAL INSURANCE. We offer our employees medical insurance that is
primarily self-insured by us. As a result, we accrue a liability for known
claims as well as the estimated amount of expected claims incurred but not
reported. We evaluate our medical claims liability on a quarterly basis
and obtain an independent actuarial analysis on an annual basis. We accrue
as a liability expected claims incurred but not reported and any known
claims. Based on our analysis, we believe that our recorded medical claims
liability is sufficient. Our accrued liability for medical claims was $1.7
million, including reserves for expected medical claims incurred but not
reported as of December 28, 2002.
-15-
WORKERS' COMPENSATION INSURANCE. Starting in fiscal 2000, we converted the
majority of our facilities to 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
is sufficient. Our accrued liability for workers' compensation claims was
$1.5 million as of December 28, 2002.
REVENUE RECOGNITION. Revenue from sales of products is recognized at the
time product is shipped to the customer at which time title and risk of
ownership transfer to the purchaser.
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 BPC Holding and its consolidated
subsidiaries. This is not to suggest that other risk factors such as
changes in economic conditions, changes in material costs and others could
not adversely impact our consolidated financial position, results of
operations and cash flows in future periods.
ACQUISITIONS
We maintain a selective and disciplined acquisition strategy, which is
focused on improving our financial performance in the long-term, enhancing
our market positions and expanding our product lines or, in some cases,
providing us with a new or complementary product line. We have
historically acquired businesses with EBITDA margins that are lower than
that of our existing business, which results 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 non-
recurring charges related to these reductions and rationalizations.
YEAR ENDED DECEMBER 28, 2002
COMPARED TO YEAR ENDED DECEMBER 29, 2001
NET SALES. Net sales increased 7% to $494.3 million in 2002, up $32.6
million from $461.7 million in 2001, despite an approximate 2% decrease in
net selling price due to the cyclical impact of lower resin costs in the
first half of 2002. Container net sales increased $16.0 million to $250.4
million of which approximately $11.5 million was attributable to the Mount
Vernon acquisition. The remaining increase of $4.5 million can be
primarily attributed to new retail dairy and polypropylene business.
Closure net sales increased $1.5 million to $133.9 million primarily due to
new business partially offset by the shedding of low margin business in the
Norwich facility. Consumer products net sales increased $15.1 million to
$110.0 million primarily as a result of the Pescor acquisition and
increased sales from thermoformed drink cups.
GROSS PROFIT. Gross profit decreased $0.7 million from $123.7 million,
or 27% of net sales, in 2001 to $123.0 million, or 25% of net sales, in
2002. This decrease of 1% includes the combined impact of the added Pescor
and Mount Vernon sales volume, the effect of net selling prices and raw
material costs, acquisition integration and productivity improvement
initiatives. The margin percentage of the acquired business from Mt.
Vernon Plastics was, for 2002 and historically, significantly less than our
overall gross margin thereby reducing the consolidated margin; however, we
expect the margin percentage of this acquired business to increase as it
becomes more fully integrated. We have continued to consolidate products
and business of recent acquisitions to the most efficient tooling,
providing customers with improved products and customer service. As part
of the integration, we removed molding operations from our Fort Worth,
Texas facility, which was acquired in the Pescor acquisition.
Subsequently, in the fourth quarter of 2002, the Fort Worth facility was
closed in our continued effort to reduce costs and provide improved
customer service. The business from this location was distributed
throughout our facilities. Also, significant productivity improvements
were made during the year, including the addition of state-of-the-art
injection molding equipment, molds and printing equipment at several of our
facilities.
-16-
OPERATING EXPENSES. Selling expenses increased $0.2 million in 2002 as a
result of increased sales partially offset by continued cost reduction
efforts. General and administrative expenses decreased $5.1 million in
2002 primarily as a result of decreased accrued bonus expenses and cost
reduction efforts. Research and development costs increased $1.0 million
to $2.9 million in 2002 primarily as a result of an increase in projects
under development and legal costs associated with patents and licenses.
Intangible asset amortization decreased to $2.4 million in 2002 from $12.8
million for 2001, primarily as a result of the implementation in 2002 of
SFAS No. 142, which eliminates the amortization of goodwill. In connection
with the Merger, the Predecessor incurred Merger related expenses of
approximately $21.0 million, consisting primarily of investment banking
fees, bonuses to management, non-cash modification of stock option awards,
legal costs and financial and management consulting fees paid to an
affiliate of the largest voting stockholder of the Predecessor. Other
expenses were $5.6 million for 2002 compared to $4.9 million for 2001.
Other expenses in 2002 included one-time transition expenses of $1.3
million related to recently acquired businesses, $4.1 million related to
the shutdown and reorganization of facilities, and $0.2 million related to
an acquisition that was not completed. Other expenses in 2001 included
one-time transition expenses of $2.7 million related to recently acquired
businesses and $2.2 million related to the shutdown and reorganization of
facilities.
INTEREST EXPENSE, NET. Net interest expense, including amortization of
deferred financing costs, for 2002 was $49.3 million, or 10% of net sales,
compared to $54.4 million, or 12% of net sales, in 2001, a decrease of $5.1
million. This decrease is primarily attributed to decreased rates of
interest on borrowings. Cash interest paid in 2002 was $40.8 million as
compared to $44.2 million for 2001.
INCOME TAXES. During fiscal 2002, we recorded an expense of $3.3 million
for income taxes compared to $0.7 million for fiscal 2001. We continue to
operate in a net operating loss carryforward position for federal income
tax purposes.
EXTRAORDINARY ITEM. As a result of extinguishing our debt in connection
with the Merger, $6.6 million of existing deferred financing fees and $18.7
million of prepayment fees and related charges were charged to expense in
2002 as an extraordinary item.
NET LOSS. We recorded a net loss of $32.6 million in 2002 compared to a
$2.1 million net loss in 2001 for the reasons discussed above.
YEAR ENDED DECEMBER 29, 2001
COMPARED TO YEAR ENDED DECEMBER 30, 2000
NET SALES. Net sales increased 13% to $461.7 million in 2001, up $53.6
million from $408.1 million in 2000, including an approximate 1% increase
in net selling price. Container net sales increased $3.2 million,
primarily due to a large promotion in 2001. Closure net sales increased
$20.2 million with the Poly-Seal acquisition and Capsol acquisition
representing $25.4 million of the increase, partially offset by a general
slowdown in the market. Consumer products net sales increased $30.2
million in 2001 primarily as a result of the Pescor acquisition which
contributed 2001 net sales of approximately $19.9 million, continued strong
demand in the retail housewares market, and the introduction of a
thermoformed drink cup line.
GROSS PROFIT. Gross profit increased $27.7 million from $96.0 million,
or 24% of net sales, in 2000 to $123.7 million, or 27% of net sales, in
2001. This increase of 29% includes the combined impact of the added Poly-
Seal, Capsol, and Pescor sales volume, the effect of net selling prices and
raw material costs, acquisition integration, and productivity improvement
initiatives. The 1% increase in net selling price was primarily the result
of partially recovering raw material costs increases incurred in 2000. In
addition, we have continued to consolidate the products and business of
recent acquisitions to the most efficient tooling, providing customers with
improved products and customer service. As part of the integration, we
closed our York, Pennsylvania facility and removed remaining production
from our Minneapolis, Minnesota facility, which was acquired in the
Cardinal acquisition, in the fourth quarter of 2000. Also, in the fourth
quarter of 2001, we removed molding operations from our Fort Worth, Texas
facility which was acquired in the Pescor acquisition. The business from
these locations was distributed throughout our facilities. Also,
significant productivity improvements were made during the year, including
the addition of state-of-the-art injection molding equipment, molds and
decorating equipment at several of our facilities. Additional cost
reductions have been achieved through our realignment in the third quarter
of 2000 from a functional based organization to a divisional structure.
This realignment has enabled us to reduce personnel costs and improve
employee productivity.
-17-
OPERATING EXPENSES. Selling expenses increased $0.4 million as a result
of acquired businesses partially offset by savings from the organizational
realignment in the third quarter of 2000. General and administrative
expenses increased $4.1 million in 2001 primarily as a result of acquired
businesses and increased accrued bonus expenses partially offset by savings
from the organizational realignment in the third quarter of 2000. Research
and development costs decreased $0.7 million to $1.9 million in 2001
primarily as a result of savings from the organizational realignment in the
third quarter of 2000. Intangible asset amortization increased from $10.6
million in 2000 to $12.8 million for 2001, primarily as a result of the
amortization of goodwill ascribed to acquired companies in 2000 and 2001.
Other expenses were $4.9 million for 2001 compared to $6.6 million for
2000. Other expenses in 2001 include one-time transition expenses of $2.7
million related to recently acquired businesses and $2.2 million related to
the shutdown and reorganization of facilities. Other expenses in 2000
include one-time transition expenses of $2.2 million related to recent
acquisitions, $3.7 million related to the shutdown and reorganization of
facilities and $0.7 million of litigation expenses related to a drink cup
patent.
INTEREST EXPENSE, NET. Net interest expense, including amortization of
deferred financing costs for 2001, was $54.4 million, or 12% of net sales,
compared to $51.5 million, or 13% of net sales, in 2000, an increase of
$2.9 million. This increase is attributed to interest on borrowings
related to the acquired businesses in 2000 and 2001 but was offset
partially by principal reductions. Cash interest paid in 2001 was $44.2
million as compared to $32.8 million for 2000.
INCOME TAXES. During fiscal 2001, we recorded an expense of $0.7 million
for income taxes compared to a benefit of $0.1 million for fiscal 2000. We
continue to operate in a net operating loss carryforward position for
federal income tax purposes.
EXTRAORDINARY ITEM. As a result of amending our senior credit facility,
$1.0 million of deferred financing fees related to the facility was charged
to expense in 2000 as an extraordinary item.
NET LOSS. We recorded a net loss of $2.1 million in 2001 compared to a
$23.1 million net loss in 2000 for the reasons stated above.
INCOME TAX MATTERS
As of December 28, 2002, Holding has unused operating loss carryforwards
of $72.3 million for federal income tax purposes which begin to expire in
2010. Alternative minimum tax credit carryforwards of approximately $3.1
million are available to Holding indefinitely to reduce future years'
federal income taxes. As a result of the Merger, the amount of the
carryforward which can be used in any given year will be limited to
approximately $12 million.
LIQUIDITY AND CAPITAL RESOURCES
On July 22, 2002, we entered into a credit and guaranty agreement and a
related pledge security agreement with a syndicate of lenders led by
Goldman Sachs Credit Partners L.P., as administrative agent (the "Credit
Facility"). The Credit Facility is comprised of (1) a $330.0 million term
loan, (2) a $50.0 million delayed draw term loan facility, and (3) a $100.0
million revolving credit facility. The maturity date of the term loan is
July 22, 2010, and the maturity date of the revolving credit facility and
delayed draw term loan facility is July 22, 2008. The term loan was funded
on the closing date and the proceeds were used in connection with the
Merger to pay the cash consideration payable to stockholders, the costs of
prepaying Company indebtedness and the transaction costs incurred in
connection therewith. Amounts available under the delayed draw term loan
facility may be borrowed (but not reborrowed) during the 18-month period
beginning on July 22, 2002, provided that certain financial covenants are
satisfied and no default or event of default exists at the time of
borrowing. Delayed draw term loans may only be made in connection with
permitted acquisitions. The indebtedness under the Credit Facility is
guaranteed by BPC Holding and all of its domestic subsidiaries. The
obligations of Berry Plastics under the Credit Facility and the guarantees
thereof are secured by substantially all of the assets of such entities. At
December 28, 2002, there were no borrowings outstanding on the revolving
credit facility or the delayed draw term loan facility.
-18-
Borrowings under the Credit Facility bear interest, at our option, at
either (1) the base rate, which is a rate per annum equal to the greater of
the prime rate and the federal funds effective rate in effect on the date
of determination plus 0.50% plus the applicable margin (the ``Base Rate
Loans'') or (2) an adjusted Eurodollar Rate which is equal to the rate for
Eurodollar deposits plus the applicable margin (the "Eurodollar Rate
Loans"). For the term loan, the applicable margin is (1) with respect to
Base Rate Loans, 2.00% per annum and (2) with respect to Eurodollar Rate
Loans, 3.00% per annum. For Eurodollar Rate Loans under the delayed draw
term loan facility and the revolving credit facility, the applicable margin
is initially 2.75% per annum. After the end of the quarter ending March
30, 2003, the applicable margin for Eurodollar Rate Loans will range from
2.75% per annum to 2.00% per annum, depending on our leverage ratio. The
applicable margin with respect to Base Rate Loans will always be 1.00% per
annum less than the applicable margin for Eurodollar Rate Loans. Interest
is payable quarterly for Base Rate Loans and at the end of the applicable
interest period for all Eurodollar Rate Loans. The interest rate
applicable to overdue payments and to outstanding amounts following an
event of default under the Credit Facility is equal to the interest rate at
the time of an event of default plus 2.00%. We also must pay commitment
fees ranging from 0.375% per annum to 0.75% per annum on the average daily
unused portion of the delayed draw term loan facility and revolving credit
facility. In October 2002, pursuant to a requirement in the Credit
Facility, we entered into an interest rate swap agreement with Goldman
Sachs Capital Markets, L.P., which applies to $50.0 million of the term
loans and protects both parties against fluctuations in interest rates.
Under the interest rate swap agreement, the Eurodollar rate with respect to
$50.0 million of the outstanding principal amount of the term loan will not
exceed 6.75% or drop below 1.97%.
The Credit Facility contains significant financial and operating
covenants, including prohibitions on our ability to incur certain
additional indebtedness or to pay dividends, and restrictions on our
ability to make capital expenditures and investments and dispose of assets
or consummate acquisitions. The occurrence of a default, an event of
default or a material adverse effect on Berry Plastics would result in our
inability to obtain further borrowings under our revolving credit facility
and could also result in the acceleration of our obligations under any or
all of our debt agreements, each of which could materially and adversely
affect our business. We were in compliance with all of the financial and
operating covenants at December 28, 2002.
The term loan amortizes quarterly as follows: $825,000 each quarter
beginning September 30, 2002 and ending June 30, 2009 and $76,725,000 each
quarter beginning September 30, 2009 and ending June 30, 2010. The delayed
draw term loan facility will amortize quarterly commencing March 31, 2004
based on the amounts outstanding as of that date as follows: (1) 2% per
quarter in 2004, (2) 4% per quarter in 2005, (3) 6% per quarter in 2006,
(4) 8% per quarter in 2007 and (v) 10% per quarter in each of the first two
quarters in 2008. Borrowings under the Credit Facility are subject to
mandatory prepayment under specified circumstances, including if we meet
certain cash flow thresholds, collect insurance proceeds in excess of
certain thresholds, issue equity securities or debt or sell assets not in
the ordinary course of business, or upon a sale or change of control of the
Company. There is no required amortization of the revolving credit
facility. Outstanding borrowings under the revolving credit facility may
be repaid at any time, and may be reborrowed at any time prior to the
maturity date which is on July 22, 2008. The revolving credit facility
allows up to $15 million of letters of credit to be issued instead of
borrowings under the revolving credit facility and up to $10 million of
swingline loans.
On July 22, 2002, we completed an offering of $250.0 million aggregate
principal amount of 10 3/4 % Senior Subordinated Notes due 2012 (the "2002
Notes"). The net proceeds to us from the sale of the 2002 Notes, after
expenses, were $239.4 million. The proceeds from the 2002 Notes were used
in the financing of the Merger. The 2002 Notes mature on July 15, 2012,
and interest is payable semi-annually on January 15 and July 15 of each
year beginning January 15, 2003. Holding and all of our domestic
subsidiaries fully, jointly, severally, and unconditionally guarantee the
2002 Notes.
We are not required to make mandatory redemption or sinking fund payments
with respect to the 2002 Notes. On or subsequent to July 15, 2007, the
2002 Notes may be redeemed at our option, in whole or in part, at
redemption prices ranging from 105.375% in 2007 to 100% in 2010 and
thereafter. Prior to July 15, 2005, up to 35% of the 2002 Notes may be
redeemed at 110.75% of the principal amount at our option in connection
with an equity offering. Upon a change in control, as defined in the
indenture entered into in connection with the 2002 Notes (the "2002
Indenture"), each holder of notes will have the right to require us to
repurchase all or any part of such holder's notes at a repurchase price in
cash equal to 101% of the aggregate principal amount thereof plus accrued
interest. The 2002 Indenture restricts our ability to incur additional
debt and contains other provisions which could limit our liquidity.
-19-
Our contractual cash obligations as of December 28, 2002 are summarized
in the following table.
PAYMENTS DUE BY PERIOD AT DECEMBER 28, 2002
-------------------------------------------------------
TOTAL < 1 1-3 4-5 > 5
YEAR YEARS YEARS YEARS
-------------------------------------------------------
Long-term debt, excluding capital leases $582,367 $3,800 $7,600 $7,600 $563,367
Capital leases 33,101 6,416 12,437 5,559 8,689
Operating leases 19,221 6,925 9,186 3,110 -
Other long-term obligations 1,285 1,281 4 - -
-------------------------------------------------------
Total contractual cash obliations $635,974 $18,422 $29,227 $16,269 $572,056
=======================================================
Net cash provided by operating activities was $26.6 million in 2002 as
compared to $54.3 million in 2001. This decrease of $27.7 million can be
primarily attributed to expenses incurred in connection with the Merger.
Net cash provided by operating activities was $36.1 million in 2000. The
increase in 2001 was primarily the result of improved operating performance
as our net loss plus non-cash expenses improved $21.8 million.
Net cash used for investing activities decreased from $56.3 million in
2001 to $44.9 million in 2002 primarily as a result of the Pescor
acquisition in 2001 partially offset by $12.4 million of capitalized Merger
costs. Capital expenditures in 2002 were $28.6 million, a decrease of $4.2
million from $32.8 million in 2001. Capital expenditures in 2002 included
investments of $1.6 million for facility renovations, production systems
and offices necessary to support production operating levels throughout the
company, $12.6 million for molds, $7.9 million for molding and printing
machines, and $6.5 million for accessory equipment and systems. The
capital expenditure budget for 2003 is expected to be $36.3 million. Net
cash used for investing activities was $108.7 million in 2000 compared to
the $56.3 million in 2001. This decrease can be primarily attributed to
the Poly-Seal acquisition in 2000.
Net cash provided by financing activities was $32.4 million in 2002 as
compared to $0.6 million in 2001. The increase of $31.8 million can be
primarily attributed to the Merger. Net cash provided by financing
activities was $0.6 million in 2001 as compared to $72.0 million in 2000.
The decrease of $71.4 million can be primarily attributed to reduced
acquisition related activities as noted above.
Increased working capital needs occur whenever we experience strong
incremental demand or a significant rise in the cost of raw material,
particularly plastic resin. However, we anticipate that our cash interest,
working capital and capital expenditure requirements for 2003 will be
satisfied through a combination of funds generated from operating
activities and cash on hand, together with funds available under the Credit
Facility. We base such belief on historical experience and the substantial
funds available under the Credit Facility. However, we cannot predict our
future results of operations. At December 28, 2002, our cash balance was
$15.6 million, and we had unused borrowing capacity under the Credit
Facility's borrowing base of $92.6 million. However, the covenants under
our Credit Facility may limit our ability to make such borrowings and as of
December 28, 2002, we could have borrowed $30.9 million.
CERTAIN FACTORS AFFECTING FUTURE RESULTS
WE HAVE SUBSTANTIAL DEBT AND WE MAY INCUR SUBSTANTIALLY MORE DEBT, WHICH
COULD AFFECT OUR ABILITY TO MEET OUR DEBT OBLIGATIONS AND MAY OTHERWISE
RESTRICT OUR ACTIVITIES.
We have substantial debt, and we may incur substantial additional debt in
the future. As of December 28, 2002, we had total indebtedness of
approximately $609.9 million, excluding $7.4 million in letters of credit
under our revolving credit facility and, subject to certain conditions to
borrowing, $142.6 million available for future borrowings under our
revolving credit facility and delayed draw term loan facility.
Our substantial debt could have important consequences to you. For
example, it could:
* require us to dedicate a substantial portion of our cash flow to
payments on our indebtedness, which would reduce the amount of cash
flow available to fund working capital, capital expenditures, product
development and other corporate requirements;
* increase our vulnerability to general adverse economic and industry
conditions, including changes in raw material costs;
* limit our ability to respond to business opportunities;
* limit our ability to borrow additional funds, which may be necessary;
and
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* subject us to financial and other restrictive covenants, which, if we
fail to comply with these covenants and our failure is not waived or
cured, could result in an event of default under our debt.
TO SERVICE OUR DEBT, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our debt, and to fund planned capital
expenditures and research and development efforts will depend on our
ability to generate cash in the future. This, to an extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors, including those described in this section, that are beyond our
control. We cannot assure you that our business will generate sufficient
cash flow from operations or that future borrowings will be available to us
under our new senior secured credit facilities in an amount sufficient to
enable us to pay our debt, or to fund our other liquidity needs. We may
need to refinance all or a portion of our indebtedness, on or before
maturity. We cannot assure you that we will be able to refinance any of
our debt, including our new senior secured credit facilities, on
commercially reasonable terms or at all.
THE AGREEMENTS GOVERNING OUR DEBT IMPOSE RESTRICTIONS ON OUR BUSINESS.
The 2002 Indenture and the Credit Facility contain a number of covenants
imposing significant restrictions on our business. These restrictions may
affect our ability to operate our business and may limit our ability to
take advantage of potential business opportunities as they arise. The
restrictions these covenants place on us and our restricted subsidiaries
include limitations on our ability and the ability of our restricted
subsidiaries to:
* incur indebtedness or issue preferred shares;
* pay dividends or make distributions in respect of our capital stock
or to make certain other restricted payments;
* create liens;
* agree to payment restrictions affecting our restricted subsidiaries;
* make acquisitions;
* consolidate, merge, sell or lease all or substantially all of our
assets;
* enter into transactions with our affiliates; and
* designate our subsidiaries as unrestricted subsidiaries.
Our Credit Facility also requires us to meet a number of financial
ratios. Our ability to comply with these agreements may be affected by
events beyond our control, including prevailing economic, financial and
industry conditions and are subject to the risks in this "Certain Factors
Affecting Future Results" section. The breach of any of these covenants or
restrictions could result in a default under the 2002 Indenture or our
Credit Facility. An event of default under our debt agreements would
permit some of our lenders to declare all amounts borrowed from them to be
immediately due and payable. If we were unable to repay debt to our
lenders, these lenders could proceed against the collateral securing that
debt.
WE HAVE EXPERIENCED CONSOLIDATED NET LOSSES.
Our net losses were $7.6 million for fiscal 1998, $9.1 million for fiscal
1999, $23.1 million for fiscal 2000, $2.1 million for fiscal 2001 and $32.6
million for fiscal 2002. Consolidated earnings have been insufficient to
cover fixed charges by $7.0 million for fiscal 1998, by $7.1 million for
fiscal 1999, by $20.5 million for fiscal 2000, by $0.8 million for fiscal
2001 and by $3.1 million for fiscal 2002.
-21-
WE DO NOT HAVE FIRM CONTRACTS WITH PLASTIC RESIN SUPPLIERS.
We source plastic resin primarily from major industry suppliers such as
Dow, Chevron, Nova, Equistar, Atofina, Basell and ExxonMobil. We have
long-standing relationships with certain of these suppliers but have not
entered into a firm supply contract with any of our resin vendors. We may
not be able to arrange for other sources of resin in the event of an
industry-wide general shortage of resins used by us, or a shortage or
discontinuation of certain types of grades of resin purchased from one or
more of our suppliers. Any such shortage may negatively impact our
competitive position versus companies that are able to better or more
cheaply source resin. Additionally, we may be subject to significant
increases in prices that may materially impact our financial condition. We
are currently experiencing rapidly increasing resin prices primarily due to
the increased cost of oil and natural gas. Due to the extent and rapid
nature of these increases, we cannot reasonably estimate the extent to
which we will be able to successfully recover these cost increases in the
short-term. If high and/or rapidly increasing resin prices continue, our
revenue and/or profitability may be materially and adversely affected, both
in the short-term as we attempt to pass through changes in the costs of
resin to customers under current agreements and in the longer term as we
negotiate new agreements.
IF MARKET CONDITIONS DO NOT PERMIT US TO PASS ON THE COST OF PLASTIC RESINS
TO OUR CUSTOMERS ON A TIMELY BASIS, OR AT ALL, OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS COULD SUFFER MATERIALLY.
To produce our products we use large quantities of plastic resins, which
in fiscal 2002 cost us approximately $113.0 million, or 30% of our total
cost of goods sold. Plastic resins are subject to cyclical price
fluctuations, including those arising from supply shortages and changes in
the prices of natural gas, crude oil and other petrochemical intermediates
from which resins are produced. The instability in the world markets for
oil and natural gas could materially adversely affect the prices and
general availability of raw materials quickly. The resin market is
currently experiencing rapidly increasing prices primarily due to the
increased cost of oil and natural gas. Based on information from Plastics
News, average spot prices of HDPE and PP on March 17, 2003 were $0.565 per
pound and $0.44 per pound, respectively, reflecting increases of $0.17 per
pound, or 43%, and $0.05 per pound, or 13%, over the respective average
spot prices from December 28, 2002. Historically, we have generally been
able to pass on a significant portion of the increases in resin prices to
our customers over a period of time, but even in such cases there have been
negative short-term impacts to our financial performance. Certain of our
customers (currently fewer than 10% of our net revenues) purchase our
products pursuant to fixed-price arrangements in respect of which we have
at times and may continue to enter into hedging or similar arrangements. In
the future, we may not be able to pass on substantially all of the
increases in resin prices to our customers on a timely basis, if at all,
which may have a material adverse effect on our competitive position and
financial performance.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AND OUR CUSTOMERS MAY NOT
CONTINUE TO PURCHASE OUR PRODUCTS.
We face intense competition in the sale of our products. We compete with
multiple companies in each of our product lines, including divisions or
subsidiaries of larger companies. We compete on the basis of a number of
considerations, including price, service, quality, product characteristics
and the ability to supply products to customers in a timely manner. Our
products also compete with metal and glass, paper and other packaging
materials as well as plastic packaging materials made through different
manufacturing processes. Many of our product lines also compete with
plastic products in other lines and segments. Many of our competitors have
financial and other resources that are substantially greater than ours and
may be better able than us to withstand price competition. In addition,
some of our customers do and could in the future choose to manufacture the
products they require for themselves. Each of our product lines faces a
different competitive landscape. We may not be able to compete
successfully with respect to any of the foregoing factors. Competition
could result in our products losing market share or our having to reduce
our prices, either of which would have a material adverse effect on our
business and results of operations and financial condition. In addition,
since we do not have long-term arrangements with many of our customers,
these competitive factors could cause our customers to shift suppliers
and/or packaging material quickly.
IN THE EVENT OF A CATASTROPHIC LOSS OF OUR KEY MANUFACTURING FACILITY, OUR
BUSINESS WOULD BE ADVERSELY AFFECTED.
Our primary manufacturing facility is in Evansville, Indiana, where we
produce approximately one-third of our products. While we maintain
insurance covering the facility, including business interruption insurance,
a catastrophic loss of the use of all or a portion of the facility due to
accident, labor issues, weather conditions, other natural disaster or
otherwise, whether short or long-term, could have a material adverse effect
on us.
-22-
OUR ACQUISITION STRATEGY MAY BE UNSUCCESSFUL.
As part of our growth strategy, we plan to pursue the acquisition of
other companies, assets and product lines that either complement or expand
our existing business. We cannot assure you that we will be able to
consummate any such transactions at all or that any future acquisitions
will be able to be consummated at acceptable prices and terms. We
continually evaluate potential acquisition opportunities in the ordinary
course of business, including those that could be material in size and
scope. Acquisitions involve a number of special risks and factors,
including:
1 the focus of management's attention to the assimilation of the acquired
companies and their employees and on the management of expanding
operations;
2 the incorporation of acquired products into our product line;
3 the increasing demands on our operational systems;
4 adverse effects on our reported operating results; and
5 the loss of key employees and the difficulty of presenting a unified
corporate image.
We may be unable to make appropriate acquisitions because of competition
for the specific acquisition. In pursuing acquisitions, we compete against
other plastic product manufacturers, some of which are larger than we are
and have greater financial and other resources than we have. We compete
for potential acquisitions based on a number of factors, including price,
terms and conditions, size and ability to offer cash, stock or other forms
of consideration. Increased competition for acquisition candidates could
result in fewer acquisition opportunities for us and higher acquisition
prices. As a company without public equity, we may not be able to offer
attractive equity to potential sellers. Additionally, our acquisition
strategy may result in significant increases in our outstanding
indebtedness and debt service requirements. In addition, the negotiation of
potential acquisitions may require members of management to divert their
time and resources away from our operations.
THE INTEGRATION OF ACQUIRED BUSINESSES MAY RESULT IN SUBSTANTIAL COSTS,
DELAYS OR OTHER PROBLEMS.
We may not be able to successfully integrate our acquisitions without
substantial costs, delays or other problems. We will have to continue to
expend substantial managerial, operating, financial and other resources to
integrate our businesses. The costs of such integration could have a
material adverse effect on our operating results and financial condition.
Such costs include non-recurring acquisition costs including accounting and
legal fees, investment banking fees, recognition of transaction-related
obligations, plant closing and similar costs and various other acquisition-
related costs. In addition, although we conduct what we believe to be a
prudent level of investigation regarding the businesses we purchase, in
light of the circumstances of each transaction, an unavoidable level of
risk remains regarding the actual condition of these businesses. Until we
actually assume operating control of such business assets and their
operations, we may not be able to ascertain the actual value or understand
the potential liabilities of the acquired entities and their operations.
Once we acquire a business, we are faced with risks, including:
1 the possibility that it will be difficult to integrate the operations
into our other operations;
2 the possibility that we have acquired substantial undisclosed
liabilities;
3 the risks of entering markets or offering services for which we have no
prior experience; and
4 the potential loss of customers as a result of changes in management;
and the possibility we may be unable to recruit additional managers with
the necessary skills to supplement the incumbent management of the
acquired business.
We may not be successful in overcoming these risks.
-23-
WE RELY ON UNPATENTED PROPRIETARY KNOW-HOW AND TRADE SECRETS.
In addition to relying on patent and trademark rights, we rely on
unpatented proprietary know-how and trade secrets, and employ various
methods, including confidentiality agreements with employees and
consultants, to protect our know-how and trade secrets. However, these
methods and our patents and trademarks may not afford complete protection
and there can be no assurance that others will not independently develop
the know-how and trade secrets or develop better production methods than
us. Further, we may not be able to deter current and former employees,
contractors and other parties from breaching confidentiality agreements and
misappropriating proprietary information and it is possible that third
parties may copy or otherwise obtain and use our information and
proprietary technology without authorization or otherwise infringe on our
intellectual property rights. Additionally, we have licensed, and may
license in the future, patents, trademarks, trade secrets, and similar
proprietary rights to and from third parties. While we attempt to ensure
that our intellectual property and similar proprietary rights are protected
and that the third party rights we need are licensed to us when entering
into business relationships, third parties may take actions that could
materially and adversely affect our rights or the value of our intellectual
property, similar proprietary rights or reputation. Furthermore, no
assurance can be given that claims or litigation asserting infringement of
intellectual property rights will not be initiated by third parties seeking
damages, the payment of royalties or licensing fees and/or an injunction
against the sale of our products or that we would prevail in any litigation
or be successful in preventing such judgment. In the future, we may also
rely on litigation to enforce our intellectual property rights and
contractual rights, and, if not successful, we may not be able to protect
the value of our intellectual property. Any litigation could be protracted
and costly and could have a material adverse effect on our business and
results of operations regardless of its outcome. Although we believe that
our intellectual property rights are sufficient to allow us to conduct our
business without incurring liability to third parties, our products may
infringe on the intellectual property rights of third parties and our
intellectual property rights may not have the value we believe them to
have.
CURRENT AND FUTURE ENVIRONMENTAL AND OTHER GOVERNMENTAL REQUIREMENTS COULD
ADVERSELY AFFECT OUR FINANCIAL CONDITION AND OUR ABILITY TO CONDUCT OUR
BUSINESS.
Certain of our operations are subject to federal, state, local and
foreign environmental laws and regulations that impose limitations on the
discharge of pollutants into the air and water and establish standards for
the treatment, storage and disposal of solid and hazardous wastes. While
we have not been required historically to make significant capital
expenditures in order to comply with applicable environmental laws and
regulations, we cannot predict with any certainty our future capital
expenditure requirements because of continually changing compliance
standards and environmental technology. Furthermore, violations or
contaminated sites that we do not know about (including contamination
caused by prior owners and operators of such sites) could result in
additional compliance or remediation costs or other liabilities. We have
limited insurance coverage for environmental liabilities and we do not
anticipate increasing such coverage in the future. We may also assume
significant environmental liabilities in acquisitions. In addition,
federal, state and local governments could enact laws or regulations
concerning environmental matters that increase the cost of producing, or
otherwise adversely affect the demand for, plastic products. Legislation
that would prohibit, tax or restrict the sale or use of certain types of
plastic and other containers, and would require diversion of solid wastes
such as packaging materials from disposal in landfills, has been or may be
introduced in the U.S. Congress, in state legislatures and other
legislative bodies. While container legislation has been adopted in a few
jurisdictions, similar legislation has been defeated in public referenda in
several states, local elections and many state and local legislative
sessions. Although we believe that the laws promulgated to date have not
had a material adverse effect on us, there can be no assurance that future
legislation or regulation would not have a material adverse effect on us.
Furthermore, a decline in consumer preference for plastic products due to
environmental considerations could have a negative effect on our business.
The Food and Drug Administration ("FDA") regulates the material content
of direct-contact food containers and packages we manufacture pursuant to
the Federal Food, Drug and Cosmetic Act. Furthermore, some of our products
are regulated by the Consumer Product Safety Commission ("CPSC") pursuant
to various federal laws, including the Consumer Product Safety Act. Both
the FDA and the CPSC can require the manufacturer of defective products to
repurchase or recall these products and may also impose fines or penalties
on the manufacturer. Similar laws exist in some states, cities and other
countries in which we sell products. In addition, laws exist in certain
states restricting the sale of packaging with certain levels of heavy
metals and imposing fines and penalties for noncompliance. Although we use
FDA-approved resins and pigments in containers that directly contact food
products and we believe our products are in material compliance with all
applicable requirements, we remain subject to the risk that our products
could be found to be not in compliance with these and other requirements.
A recall of any of our products or any fines and penalties imposed in
connection with non-compliance could have a materially adverse effect on
us. See "Business -- Environmental matters and government regulation."
-24-
OUR OPERATIONS OUTSIDE OF THE UNITED STATES ARE SUBJECT TO ADDITIONAL
CURRENCY EXCHANGE, POLITICAL, INVESTMENT AND OTHER RISKS.
We currently operate two facilities outside the United States which
combined for approximately 4% of our 2002 net sales. This amount may
change in the future. As such we are subject to the risks associated with
selling and operating in foreign countries, including devaluations and
fluctuations in foreign currencies, unstable political conditions,
imposition of limitations on conversion of foreign currencies into U.S.
dollars and remittance of dividends and payments by foreign subsidiaries.
The imposition of taxes and imposition or increase of investment and other
restrictions, tariffs or quotas may also have a negative effect on our
business and profitability.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We are exposed to market risk from changes in interest rates primarily
through our Credit Facility. The Credit Facility is comprised of (1) a
$330.0 million term loan, (2) a $50.0 million delayed draw term loan
facility, and (3) a $100.0 million revolving credit facility. At December
28, 2002, there were no borrowings outstanding on the revolving credit
facility or the delayed draw term loan facility. The net outstanding
balance of the term loan at December 28, 2002 was $329.2 million. The term
loan bears interest at the Eurodollar rate plus the applicable margin.
Future borrowings under the Credit Facility bear interest, at our option,
at either (1) the base rate, which is a rate per annum equal to the greater
of the prime rate and the federal funds effective rate in effect on the
date of determination plus 0.5% plus the applicable margin or (2) an
adjusted Eurodollar Rate which is equal to the rate for Eurodollar deposits
plus the applicable margin. We utilize interest rate instruments to reduce
the impact of either increases or decreases in interest rates on its
floating rate debt. Pursuant to a requirement in the Credit Facility and
as a result of the current economic slowdown and corresponding interest
rate reductions, we entered into an interest rate collar arrangement in
October 2002 to protect $50.0 million of the outstanding variable rate term
loan debt from future interest rate volatility. Under the interest rate
collar agreement, the Eurodollar rate with respect to the $50.0 million of
outstanding variable rate term loan debt will not exceed 6.75% or drop
below 1.97%. At December 28, 2002, the Eurodollar rate applicable to the
term loan was 1.63%. If the Eurodollar rate increases 0.25% and 0.5%, we
estimate an annual increase in our interest expense of approximately $0.7
million and $1.4 million, respectively.
-25-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors F-1
Consolidated Balance Sheets at December 28, 2002 and December
29, 2001 F-2
Consolidated Statements of Operations for the periods from
July 22, 2002 to December 28, 2002 and from December 30,
2001 to July 21, 2002 and for the periods ended December 29,
2001 and December 30, 2000 F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the periods ended December 28, 2002, December
29, 2001, and December 30, 2000 F-5
Consolidated Statements of Cash Flows for the periods from
July 22, 2002 to December 28, 2002 and from December 30,
2001 to July 21, 2002 and for the periods ended December 29,
2001 and December 30, 2000 F-6
Notes to Consolidated Financial Statements F-7
INDEX TO FINANCIAL STATEMENT SCHEDULES
II. Valuation and Qualifying Accounts S-1
All other schedules have been omitted because they are not applicable or
not required or because the required information is included in the
consolidated financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-26-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers, directors and certain key personnel of Holding:
NAME AGE TITLE
- ---------------------- ----- ------------------------------------------
Joseph H. Gleberman(1) 45 Chairman and Director
Ira G. Boots(1) 49 President, Chief Executive Officer
and Director
James M. Kratochvil 46 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
R. Brent Beeler 50 Executive Vice President
William J. Herdrich 52 Executive Vice President
Bruce J. Sims 53 Executive Vice President
Christopher C. Behrens (1) 42 Director
Patrick J. Dalton(2) 34 Director
Douglas F. Londal(1)(2) 37 Director
Mathew J. Lori(2) 38 Director
(1) Member of the Equity Compensation Committee.
(2) Member of the Audit Committee.
The following table sets forth certain information with respect to the
executive officers, directors and certain key personnel of Berry Plastics:
NAME AGE TITLE
- ---------------------- ----- -----------------------------------------
Joseph H. Gleberman(1)(3)(4) 45 Chairman and Director
Ira G. Boots(1)(4) 49 President, Chief Executive Officer
and Director
James M. Kratochvil 46 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
R. Brent Beeler 50 Executive Vice President and General
Manager - Containers and Consumer Products
William J. Herdrich 52 Executive Vice President and General
Manager - Closures
Bruce J. Sims 53 Executive Vice President of Sales -
Drink Cups
Christopher C. Behrens(1)(3) 42 Director
Patrick J. Dalton(2)(3) 34 Director
Douglas F. Londal(1)(2)(4) 37 Director
Mathew J. Lori(2)(4) 38 Director
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Finance Committee.
(4) Member of the Corporate Development Committee.
JOSEPH H. GLEBERMAN has been chairman of the board of directors of
Holding and Berry Plastics since the closing of the Merger and has been a
Managing Director at Goldman, Sachs & Co. since 1996. He serves on the
Board of Directors of aaiPharma, BackWeb Technologies, IPC Acquisition
Corp., and MCG Capital Corporation, as well as a number of private
companies. Mr. Gleberman received his M.B.A in 1982 from Stanford
University Graduate School of Business and a M.A./B.A. from Yale University
in 1980.
IRA G. BOOTS has been President and Chief Executive Officer of Holding
and Berry Plastics since June 2001, and a Director of Holding and Berry
Plastics since April 1992. Prior to that, Mr. Boots served as Chief
Operating Officer of Berry Plastics since August 2000 and Vice President of
Operations, Engineering and Product Development of the Company since April
1992. Mr. Boots was employed by Old Berry from 1984 to December 1990 as
Vice President, Operations.
-27-
JAMES M. KRATOCHVIL has been Executive Vice President, Chief Financial
Officer, Secretary and Treasurer of Holding and Berry since December 1997.
He formerly served as Vice President, Chief Financial Officer and Secretary
of the Company since 1991, and as Treasurer of the Company since May 1996.
He formerly served as Vice President, Chief Financial Officer and Secretary
of Holding since 1991. Mr. Kratochvil was employed by Old Berry from 1985
to 1991 as Controller.
R. BRENT BEELER has been an Executive Vice President of Holding since
July 2002. He has been Executive Vice President and General Manager -
Containers and Consumer Products of the Company since October 2002 and was
Executive Vice President and General Manager - Containers since August
2000. Prior to that, Mr. Beeler was Executive Vice President, Sales and
Marketing of the Company since February 1996 and Vice President, Sales and
Marketing of the Company since December 1990. Mr. Beeler was employed by
Old Berry from October 1988 to December 1990 as Vice President, Sales and
Marketing.
WILLIAM J. HERDRICH has been an Executive Vice President of Holding since
July 2002. He has been Executive Vice President and General Manager -
Closures of the Company since August 2000. From May 2000 to August 2000,
Mr. Herdrich was a consultant to the Company. During the period from April
1994 to May 2000, Mr. Herdrich was President, Executive Vice President and
General Manager of Poly-Seal Corporation, a Delaware Corporation that we
acquired in 2000. Mr. Herdrich was employed by Seaquist Closures from 1990
to April 1994 as Executive Vice President.
BRUCE J. SIMS has been an Executive Vice President of Holding since July
2002. He has been Executive Vice President of Sales - Drink Cups of the
Company since October 2002 and was Executive Vice President and General
Manager - Consumer Products of the Company since August 2000. He formerly
served as Executive Vice President, Sales and Marketing, Housewares of the
Company since January 1997. Prior to the acquisition of PackerWare, Mr.
Sims served as President of PackerWare from March 1996 to January 1997 and
as Vice President from October 1994 to March 1996. From January 1990 to
October 1994 he was Vice President of the Miner Container Corporation, a
national injection molder.
CHRISTOPHER C. BEHRENS has been a Director of Holding and Berry Plastics
since the closing of the Merger and has been a Partner of J.P. Morgan
Partners, LLC and its predecessor, Chase Capital Partners, since 1999.
Prior to joining Chase Capital Partners, Mr. Behrens served as Vice
President in Chase's Merchant Banking Group. Mr. Behrens serves on the
Board of Directors of Carrizo Oil & Gas and Portola Packaging Inc. as well
as a number of private companies. Mr. Behrens received a B.A. from the
University of California at Berkeley and an M.A. from Columbia University.
PATRICK J. DALTON has been a Director of Holding and Berry Plastics since
the closing of the Merger and has been a Vice President at Goldman, Sachs &
Co. since 2001. Prior to joining the Principal Investment Area of Goldman,
Sachs & Co. in 2000, Mr. Dalton was at Chase Securities Inc. from 1997 to
2000. He serves on the Board of Directors of First Asset Management
Inc. and Waddington North America, Inc., as well as a number of private
companies. Mr. Dalton received his M.B.A. in 1997 from Columbia University
Graduate School of Business and a B.S. from Boston College in 1990.
DOUGLAS F. LONDAL has been a Director of Holding and Berry Plastics since
the closing of the Merger and has been a Managing Director at Goldman,
Sachs & Co. since 1999. Prior to joining the Principal Investment Area of
Goldman, Sachs & Co. in 1995, he worked in the Mergers & Acquisitions
Department of Goldman, Sachs & Co. from 1991 to 1995. He serves on the
Board of Directors of 21st Century Newspapers and Village Voice Media, LLC,
as well as a number of private companies. Mr. Londal received his M.B.A in
1991 from the University of Chicago and a B.A. from the University of
Michigan in 1987.
MATHEW J. LORI has been a Director of Holding since the closing of the
Merger. Mr. Lori has been a Principal with J.P. Morgan Partners, LLC and
its predecessor, Chase Capital Partners, since January 1998, and prior to
that, Mr. Lori had been an Associate. Mr. Lori has been on the board of
Berry Plastics since 1996, and is also a director of Doane Pet Care Company
and a number of private companies. Mr. Lori received an M.B.A. from
Kellogg Graduate School of Management at Northwestern University in 1993.
-28-
In connection with the Merger, BPC Holding entered into a stockholders
agreement with GSCP 2000 and other private equity funds affiliated with
Goldman, Sachs & Co. that, in the aggregate, own a majority of our common
stock and J.P. Morgan Partners Global Investors, L.P. and other private
equity funds affiliated with J.P. Morgan Chase & Co. that, in the
aggregate, own approximately 29% of our common stock. Under the terms of
this agreement, the parties have agreed to elect five individuals
designated by the Goldman Sachs funds, one of which must be a member of our
management, and two individuals designated by the J.P. Morgan funds to BPC
Holding's and Berry Plastics' boards of directors. This agreement
regarding the election of directors will continue in force until the
occurrence of a qualified initial public offering of BPC Holding's common
stock. Of the current members of the boards of directors of BPC Holding
and Berry Plastics, Messrs. Gleberman, Boots, Dalton and Londal have been
designated by the Goldman Sachs funds and Messrs. Behrens and Lori have
been designated by the J.P. Morgan funds. The Goldman Sachs funds have the
right to designate one additional individual to be elected to BPC Holding's
and Berry's board of directors.
BOARD COMMITTEES
The Board of Directors of Holding has an Audit Committee and an Equity
Compensation Committee. The Audit Committee, consists of Messrs. Londal,
Dalton and Lori. The Audit Committee recommends the annual appointment of
auditors with whom the audit committee reviews the scope of audit and non-
audit assignments and related fees, accounting principles we use in
financial reporting, internal auditing procedures and the adequacy of our
internal control procedures. The Equity Compensation Committee, consisting
of Messrs. Gleberman, Boots, Behrens and Londal, establishes and approves
equity compensation grants for our employees and consultants and
administers the 2002 Stock Option Plan and the Key Employee Equity
Investment Plan.
The Board of Directors of the Company has a Compensation Committee, an
Audit Committee, a Finance Committee and a Corporate Development Committee.
The Compensation Committee, consisting of Messrs. Gleberman, Boots, Behrens
and Londal makes recommendations concerning salaries and incentive
compensation for our employees and consultants. The Audit Committee
recommends the annual appointment of auditors with whom the audit committee
reviews the scope of audit and non-audit assignments and related fees,
accounting principles we use in financial reporting, internal auditing
procedures and the adequacy of our internal control procedures. The
Finance Committee, consisting of Messrs. Gleberman, Behrens and Dalton
oversees our capital structure and reviews and approves significant
financing decisions. The Corporate Development Committee, consisting of
Messrs. Gleberman, Boots, Londal and Lori, oversees our business strategy
and, in particular, reviews and recommends potential acquisition
candidates.
-29-
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by us
to our Chief Executive Officer and our four other most highly compensated
executive officers (collectively, the "Named Executive Officers") for
services rendered in all capacities to us during fiscal 2002, 2001 and
2000.
SUMMARY COMPENSATION TABLE
Long Term
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
Securities
Fiscal Underlying Other
NAME AND PRINCIPAL POSITION Year SALARY BONUS (1) OPTIONS(#) COMPENSATION(2)
----------------------------- -------- -------- ----------- -------------- ----------------
Ira G. Boots 2002 $424,536 $1,452,018 61,814 $ 12,505
President and Chief 2001 316,461 87,500 - 12,428
Executive Officer 2000 289,328 150,000 - 11,779
James M. Kratochvil 2002 $273,400 $ 945,026 35,040 $ 9,889
Executive Vice 2001 231,919 64,166 - 9,198
President, Chief 2000 212,049 120,000 - 8,800
Financial Officer,
Treasurer and Secretary
R. Brent Beeler 2002 $298,172 $1,080,496 35,229 $ 2,590
Executive Vice 2001 284,251 78,750 - 3,196
President and General 2000 257,236 135,000 - 2,879
Manager - Containers
and Consumer Products
William J. Herdrich 2002 $269,222 $ 983,506 25,581 $ 4,899
Executive Vice 2001 258,690 62,800 2,000 3,834
President and General 2000 99,003 18,986 - 4,691
Manager - Closures
Bruce J. Sims 2002 $263,533 $ 908,435 26,412 $ 4,024
Executive Vice 2001 211,851 55,693 - 3,912
President of Sales - 2000 193,055 114,000 - 3,879
Drink Cups
(1) Amounts shown include transaction bonuses of $1,238,298, $788,298,
$871,298, $803,831 and $766,298 paid to Messrs. Boots, Kratochvil,
Beeler, Herdrich and Sims, respectively, in connection with the Merger.
(2) Amounts shown reflect contributions by the Company under the Company's
401(k) plan and the personal use of a company vehicle.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
----------------------------
Number Of % Of Total Potential Realizable
Securities Options Value At Assumed
Underlying Granted To Rates Of Stock
Options Employees In Exercise Expiration Price Appreciation for
NAME GRANTED(#) FISCAL YEAR PRICE($) DATE OptionTerm
- -------------------- ------------ ---------------- ---------- ------------ ------------------------
5% ($) 10% ($)
-------- --------
Ira Boots 15,886 (1) 4.0 100 9/19/12 999,071 2,531,752
Ira Boots 7,943 (2) 2.0 100 9/19/12 499,535 1,265,876
Ira Boots 37,985 (3) 9.6 100 9/19/12 0 0
James M. Kratochvil 9,035 (1) 2.2 100 9/19/12 568,211 1,439,908
James M. Kratochvil 4,518 (2) 1.1 100 9/19/12 284,137 720,034
James M. Kratochvil 21,487 (3) 5.4 100 9/19/12 0 0
R. Brent Beeler 9,035 (1) 2.3 100 9/19/12 568,211 1,439,908
R. Brent Beeler 4,518 (2) 1.1 100 9/19/12 284,137 720,034
R. Brent Beeler 21,676 (3) 5.5 100 9/19/12 0 0
William J. Herdrich 9,035 (1) 2.3 100 9/19/12 568,211 1,439,908
William J. Herdrich 4,518 (2) 1.1 100 9/19/12 284,137 720,034
William J. Herdrich 12,028 (3) 3.0 100 9/19/12 0 0
Bruce J. Sims 9,035 (1) 2.3 100 9/19/12 568,211 1,439,908
Bruce J. Sims 4,518 (2) 1.1 100 9/19/12 284,137 720,034
Bruce J. Sims 12,859 (3) 3.3 100 9/19/12 0 0
(1)Represents options granted on September 19, 2002, which (i) have an
exercise price fixed at $100 per share, which was the fair market value
of a share of Holding Common Stock on the date of grant, and (ii) vest
and become exerciseable over a five year period, beginning the last day
of 2002 based on continued service with the Company.
-30-
(2)Represents options granted on September 19, 2002, which (i) have an
exercise price fixed at $100 per share, which was the fair market value
of a share of Holding Common Stock on the date of grant, and (ii) vest
and become exercisable based on the achievement by BPC Holding of
certain financial targets, or if such targets are not achieved, based on
continued service with the Company.
(3)Represents options granted on September 19, 2002, which (i) have an
exercise price which commenced at $100 per share, which was the fair
market value of a share of Holding Common Stock on the date of grant and
will increase at the rate of 15% per year during the term of the option,
and (ii) vest and become exerciseable over a five year period, beginning
the last day of 2002 based on continued service with the Company.
FISCAL YEAR-END OPTION HOLDINGS
The following table provides information on the number of exercisable and
unexercisable management stock options held by the Named Executive Officers
at December 28, 2002.
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
Shares Fiscal Year-End at Fiscal Year-End
Acquired on Value EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME EXERCISE REALIZED (#)(2) (1)(2)
- ------------- ------------- ---------- -------------------------- -------------------------
Ira G. Boots - - 16,278/61,814 $1,106,416/$0
James M. Kratochvil - - 10,174/35,040 691,527/0
R. Brent Beeler - - 10,174/35,229 691,527/0
William J. Herdrich - - 6,244/25,581 172,397/0
Bruce J. Sims - - 4,058/26,412 265,434/0
(1) None of Holding's capital stock is currently publicly traded. The
values reflect management's estimate of the fair market value of the
Common Stock at December 28, 2002.
(2) All options granted to management are exercisable for shares of Common
Stock, par value $.01 per share, of Holding.
DIRECTOR COMPENSATION
Directors receive no cash consideration for serving on the Board of
Directors of Holding or the Company, but directors are reimbursed for out-
of-pocket expenses incurred in connection with their duties as directors.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Boots,
Kratochvil, Beeler, Herdrich and Sims (each, an "Employment Agreement" and,
collectively, the "Employment Agreements"). The agreements for Boots,
Kratochvil and Beeler expire on January 1, 2007, Herdrich's expires on
December 31, 2003, and Sims' expires on January 2, 2007. The Employment
Agreements provided for fiscal 2002 base compensation of $424,536,
$273,400, $298,172, $269,222 and $263,533, respectively. Salaries are
subject in each case to annual adjustment at the discretion of the
Compensation Committee of the Board of Directors of the Company. The
Employment Agreements entitle each executive to participate in all other
incentive compensation plans established for executive officers of the
Company. The Company may terminate each Employment Agreement for "cause"
or a "disability" (as such terms are defined in the Employment Agreements).
Specifically, if any of Messrs. Boots, Kratochvil, Beeler and Sims is
terminated by Berry Plastics without ``cause'' or resigns for ``good
reason'' (as such terms are defined in the Employment Agreements), that
individual is entitled to: (1) the greater of (a) base salary until the
later of (i) July 22, 2004 or (ii) one year after termination or (b) 1/12
of 1 year's base salary for each year of employment up to 30 years (up to
24 years for Sims) by Berry Plastics or a predecessor in interest and (2)
the pro rata portion of his annual bonus. If Mr. Herdrich is terminated
without ``cause'' or by Berry Plastics at the end of the employment term
(which is December 31, 2003), he is entitled to: (1) one-year's base salary
and (2) a pro rata portion of his annual bonus. Each Employment Agreement
also includes customary noncompetition, nondisclosure and nonsolicitation
provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company established the Compensation Committee comprised of Messrs.
Gleberman, Boots, Behrens, and Londal. The annual salary and bonus paid to
Messrs. Boots, Kratochvil, Beeler, Herdrich and Sims for fiscal 2002 were
determined by the Compensation Committee in accordance with their
respective employment agreements. All other compensation decisions with
respect to officers of the Company are made by Mr. Boots pursuant to
policies established in consultation with the Compensation Committee.
-31-
Messrs. Gleberman and Londal are both Managing Directors of Goldman,
Sachs & Co. Goldman, Sachs & Co. provided advisory and other services to
us in connection with the Merger and acted as an initial purchaser in the
offering of the 2002 Notes. Goldman, Sachs Credit Partners, L.P.
participated in and acted as joint lead arranger, joint bookrunner and
administrative agent for our Credit Facility. Mr. Behrens is a partner of
J.P. Morgan Partners, LLC, which is the private equity investment arm of
J.P. Morgan Chase & Co. Various affiliates of J.P. Morgan provided
advisory and other services to us in connection with the Merger and acted
as a dealer-manager in connection with the related debt tender offers,
acted as an initial purchaser in the offering of the 2002 Notes and
participated in and acted as joint lead arranger, joint bookrunner and a
syndication agent for our Credit Facility. See the section of this Form
10-K titled "Certain Relationships and Related Transactions" for a
description of these transactions between us and various affiliates of
Goldman Sachs and J.P. Morgan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
STOCK OWNERSHIP
All of the outstanding capital stock of the Company is owned by Holding.
The following table sets forth certain information regarding the beneficial
ownership of the capital stock of Holding as of March 14, 2003 with respect
to (i) each person known by Holding to own beneficially more than 5% of the
outstanding shares of any class of its voting capital stock, (ii) each of
Holding's directors, (iii) the Named Executive Officers and (iv) all
directors and executive officers of Holding as a group. Except as otherwise
indicated, each of the stockholders has sole voting and investment power
with respect to the shares beneficially owned. Unless otherwise indicated,
the address for each stockholder is c/o Berry Plastics Corporation, 101
Oakley Street, Evansville, Indiana 47710.
PERCENTAGE
OF
NAME AND ADDRESS OF COMMON STOCK
BENEFICIAL OWNER COMMON STOCK OUTSTANDING*
- --------------------------------------------------------------------------------------------------
GS Capital Partners 2000, L.P. (2) 960,705 33.9%
GS Capital Partners 2000 Offshore, L.P. (2) 349,083 12.3
GS Capital Partners 2000 GmbH & Co. Beteiligungs KG (2) 40,155 1.4
GS Capital Partners 2000 Employee Fund, L.P. (2) 305,057 10.8
Stone Street 2000, L.P. (2) 30,000 1.1
Bridge Street Special Opportunities Fund 2000, L.P. (2) 15,000 -
Goldman Sachs Direct Investment Fund 2000, L.P. (2) 50,000 1.8
J.P. Morgan Partners Global Investors, L.P. (3) 99,057 3.5
J.P. Morgan Partners Global Investors (Cayman), L.P. (3) 50,277 1.8
J.P. Morgan Partners Global Investors (Cayman) II, 5,603 -
L.P. (3)
J.P. Morgan Partners Global Investors A, L.P. (3) 13,503 -
J.P. Morgan Partners (BHCA), L.P. (3) 625,112 22.1
Joseph H. Gleberman (4) 1,750,000 61.8
Christopher C. Behrens (5) 793,552 28.0
Patrick J. Dalton (6) 1,750,000 61.8
Douglas F. Londal (7) 1,750,000 61.8
Mathew J. Lori (8) - -
Ira G. Boots 59,451(9) 2.1
James M. Kratochvil 35,184(10) 1.2
R. Brent Beeler 35,454(11) 1.3
William J. Herdrich 23,755(12) -
Bruce J. Sims 20,264(13) -
All executive officers and directors as a group (10 persons) 2,717,660(14) 96.0
* The number of shares outstanding used in calculating the percentage for
each person, group or entity listed includes the number of shares
underlying options held by such person or group that were exercisable or
convertible within 60 days from March 14, 2003, but excludes shares of
stock underlying options held by any other person.
- - Less than one percent.
(1) The authorized capital stock of Holding consists of 5,500,000 shares of
capital stock, including 5,000,000 shares of Common Stock, $.01 par value
(the "Holding Common Stock"), and 500,000 shares of Preferred Stock, $.01
par value (the "Preferred Stock").
(2)Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New
York, 10004.
(3)Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas,
New York, New York 10020.
(4)Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New
York, 10004. Represents shares owned by equity funds affiliated with
Goldman, Sachs & Co. Mr. Gleberman is a Managing Director of Goldman,
Sachs & Co. Mr. Gleberman disclaims any beneficial ownership of the
shares of Holding Common Stock held by equity funds affiliated with
Goldman, Sachs & Co.
(5)Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas,
New York, New York 10020. Represents shares owned by equity funds
affiliated with J.P. Morgan Chase & Co. Mr. Behrens is a Partner with
of J.P. Morgan Partners, which is the private equity investment arm of
J.P. Morgan Chase & Co. Mr. Behrens disclaims any beneficial ownership
of the shares of Holding Common Stock held by equity funds affiliated
with J.P. Morgan Chase & Co.
-32-
(6) Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New
York, 10004. Represents shares owned by equity funds affiliated with
Goldman, Sachs & Co. Mr. Dalton is a Vice President of Goldman, Sachs
& Co. Mr. Dalton disclaims any beneficial ownership of the shares of
Holding Common Stock held by equity funds affiliated with Goldman,
Sachs & Co.
(7) Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New
York, 10004. Represents shares owned by equity funds affiliated with
Goldman, Sachs & Co. Mr. Londal is a Managing Director of Goldman,
Sachs & Co. Mr. Londal disclaims any beneficial ownership of the
shares of Holding Common Stock held by equity funds affiliated with
Goldman, Sachs & Co.
(8) Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas,
New York, New York 10020.
(9) Includes options to purchase 21,666 shares of Holding Common Stock
granted to Mr. Boots, exercisable within 60 days of March 14, 2003.
(10)Includes options to purchase 13,227 shares of Holding Common Stock
granted to Mr. Kratochvil, exercisable within 60 days of March 14, 2003.
(11)Includes options to purchase 13,246 shares of Holding Common Stock
granted to Mr. Beeler, exercisable within 60 days of March 14, 2003.
(12)Includes options to purchase 8,351 shares of Holding Common Stock
granted to Mr. Herdrich, exercisable within 60 days of March 14, 2003.
(13)Includes options to purchase 6,248 shares of Holding Common Stock
granted to Mr. Sims, exercisable within 60 days of March 14, 2003.
(14)Includes options to purchase 62,738 shares of Holding Common Stock
granted to Executive Officers, exercisable within 60 days of March 14,
2003.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 28, 2002
regarding shares of common stock of Holding that may be issued under our
existing equity compensation plans, including the BPC Holding Corporation
2002 Stock Option Plan (the "2002 Stock Option Plan") and the BPC Holding
Corporation Key Employee Equity Investment Plan (the "Employee Stock
Purchase Plan").
Plan category Number of securities Weighted Average Number of securities remaining
to be issued upon exercise price of available for future issuance under
exercise of outstanding outstanding options, equity compensation plan (excluding
Plan category options, warrants and rights warrants and rights securities referenced in column (a))
- --------------------------- ---------------------------- --------------------- -------------------------------------
(a) (b) (c)
Equity compensation plans
approved by security holders (1) - - -
Equity compensation plans
not approved by security holders (2) 395,137 (3) 100 42,429
----------- -------
Total 395,137 100 42,429
(1) Does not include outstanding options to acquire 150,536 shares, at a
weighted-average exercise price of $50.29 per share, that were assumed
in connection with the Merger under the Amended and Restated BPC Holding
Corporation 1996 Stock Option Plan (the "1996 Plan"). No future options
may be granted under the 1996 Plan.
(2) Consists of the 2002 Stock Option Plan and the Employee Stock Purchase
Plan. Our Board adopted the 2002 Stock Option Plan and the Employee
Stock Purchase Plan in August of 2002 and we are currently in the
process of seeking approval of these plans by our stockholders.
(3) Does not include shares of Holding Common Stock already purchased under
the Employee Stock Purchase Plan as such shares are already reflected in
the Company's outstanding shares.
1996 STOCK OPTION PLAN
BPC Holding currently maintains the Amended and Restated BPC Holding
Corporation 1996 Stock Option Plan (``1996 Option Plan'') pursuant to which
nonqualified options to purchase 150,536 shares are outstanding. All
outstanding options under the 1996 Option Plan are scheduled to expire on
or before July 22, 2012 and no additional options will be granted under it.
Option agreements issued pursuant to the 1996 Option Plan generally provide
that options become vested and exercisable at a rate of 10% per year based
on continued service. Additional options also vest in years during which
certain financial targets are attained. Notwithstanding the vesting
provisions in the option agreements, all options that were scheduled to
vest prior to December 31, 2002 accelerated and became vested immediately
before the Merger.
-33-
2002 STOCK OPTION PLAN
BPC Holding has adopted a new employee stock option plan (``2002 Stock
Option Plan'') pursuant to which options to acquire up to 437,566 shares of
BPC Holding's common stock may be granted to its employees, directors and
consultants. Options granted under the 2002 Stock Option Plan will have an
exercise price per share that either (1) is fixed at the fair market value
of a share of common stock on the date of grant or (2) commences at the
fair market value of a share of common stock on the date of grant and
increases at the rate of 15% per year during the term. Generally, options
will have a ten-year term, subject to earlier expiration upon the
termination of the optionholder's employment and other events. Some
options granted under the plan will become vested and exercisable over a
five-year period based on continued service with BPC Holding. Other
options will become vested and exercisable based on the achievement by BPC
Holding of certain financial targets, or if such targets are not achieved,
based on continued service with BPC Holding. Upon a change in control of
BPC Holding, the vesting schedule with respect to certain options may
accelerate for a portion of the shares subject to such options.
EMPLOYEE STOCK PURCHASE PLAN
BPC Holding has adopted an employee stock purchase program pursuant to
which a number of employees had the opportunity to invest in BPC Holding on
a leveraged basis (certain senior employees also purchased shares of BPC
Holding common stock in connection with the Merger - see Item 13. "Certain
Relationships and Related Transactions - Loans to Executive Officers").
Each eligible employee was permitted to purchase shares of BPC Holding
common stock having an aggregate value of up to the greater of (1) 150% of
the value attributable to shares of BPC Holding held by such employee
immediately prior to the Merger or (2) $60,000. Employees participating in
this program were permitted to finance two-thirds of their purchases of
shares of BPC Holding common stock under the program with a promissory
note. In the event that an employee defaults on a promissory note used to
purchase such shares, BPC Holding's only recourse is to the shares of BPC
Holding securing the note. In this manner, the remaining management
acquired 41,628 shares in the aggregate.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT WITH FIRST ATLANTIC
Prior to the Merger, Atlantic Equity Partners International II, L.P. was
our largest voting stockholder and we engaged First Atlantic Capital, Ltd.
to provide certain financial and management consulting services to us.
Under our management agreement with First Atlantic, First Atlantic provided
us with financial advisory and management consulting services in exchange
for an annual fee of $750,000 and reimbursement for out-of-pocket costs and
expenses. In consideration of such services, we paid First Atlantic fees
and expenses of approximately $385,000 for fiscal 2002, $756,000 for fiscal
2001, and $821,000 for fiscal 2000. Under the management agreement, we
paid a fee for services rendered in connection with certain transactions
equal to the lesser of (1) 1% of the total transaction value and (2)
$1,250,000 for any such transaction consummated plus out-of-pocket expenses
in respect of such transaction, whether or not consummated. First Atlantic
received advisory fees of approximately $580,000 in May 2000 for
originating, structuring and negotiating the Poly-Seal acquisition. First
Atlantic received advisory fees of approximately $139,000 in March 2001 and
$250,000 in June 2001 for originating, structuring and negotiating the
Capsol and Pescor acquisitions, respectively.
THE MERGER
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly
formed entity controlled by various private equity funds affiliated with
Goldman, Sachs & Co., merged (the "Merger") with and into BPC Holding,
pursuant to an agreement and plan of merger, dated as of May 25, 2002. At
the effective time of the Merger, (1) each share of common stock of BPC
Holding issued and outstanding immediately prior to the effective time of
the Merger was converted into the right to receive cash pursuant to the
terms of the merger agreement, and (2) each share of common stock of the
Buyer issued and outstanding immediately prior to the effective time of the
Merger was converted into one share of common stock of BPC Holding.
Additionally, in connection with the Merger, we retired all of BPC
Holding's senior secured notes and Berry Plastics' senior subordinated
notes, repaid all amounts owed under our credit facilities, redeemed all of
the outstanding preferred stock of BPC Holding, entered into a new credit
facility and completed an offering of new senior subordinated notes of
Berry Plastics. As a result of the Merger, private equity funds affiliated
with Goldman Sachs own approximately 63% of the outstanding common stock of
BPC Holding, private equity funds affiliated with J.P. Morgan Chase & Co.
own approximately 29% and members of our management own the remaining 8%.
-34-
ADVISORY FEES. In connection with the Merger, we paid Goldman Sachs and
its affiliates a total of $8.0 million for advisory and other services,
J.P. Morgan Securities Inc., an affiliate of J.P. Morgan Chase & Co., a
total of $5.2 million for advisory and other services and First Atlantic
Capital, Ltd., a total of $1.8 million for advisory and other services.
SENIOR SUBORDINATED DEBT PURCHASES. In connection with the Merger, Berry
Plastics sold $250 million of 10 3/4 % senior subordinated notes to
various private institutional buyers. Goldman Sachs and J.P. Morgan acted
as jOINT BOOK-RUNNING MANAGERS IN THE TRANSACTION AND RECEIVED FEES OF
APPROXIMATELY $4.4 MILLION AND $3.2 MILLION, RESPECTIVELY, FOR SERVICES
PERFORMED.
TENDER OFFER FEES. Prior to the Merger, BPC Holding and Berry Plastics
engaged in tender offer and consent solicitations to acquire their
outstanding senior secured and senior subordinated notes, respectively.
J.P. Morgan Securities, Inc. acted as a dealer-manager in connection with
these tender offer and consent solicitations for consideration of $0.1
million.
CREDIT FACILITY. In connection with the Merger, we entered into a senior
secured credit facility with a syndicate of lenders led by Goldman Sachs
Credit Partners L.P., an affiliate of Goldman Sachs, as administrative
agent. The credit facility is comprised of (1) a $330.0 million term loan,
(2) a $50.0 million delayed draw term loan facility, and (3) a $100.0
million revolving credit facility. Borrowings under the credit facility
bear interest, at our option, at either (1) the base rate, which is a rate
per annum equal to the greater of the prime rate and the federal funds
effective rate in effect on the date of determination plus 0.5% plus the
applicable margin or (2) an adjusted Eurodollar rate which is equal to the
rate for Eurodollar deposits plus the applicable margin. For the term
loan, the applicable margin is 3.0%. For Eurodollar rate loans under the
delayed draw term loan facility and the revolving credit facility, the
applicable margin is initially 2.75% per annum. After the end of the
quarter ending March 30, 2003, the applicable margin for Eurodollar rate
loans will range from 2.75% per annum to 2.00% per annum, depending on our
leverage ratio. The applicable margin with respect to base rate loans will
always be 1.00% per annum less than the applicable margin for Eurodollar
rate loans. Goldman Sachs Credit Partners, L.P., an affiliate of Goldman
Sachs, acted as the administrative agent, joint lead arranger and joint
bookrunner for the credit facility and received fees of $3.6 million in
July 2002 for services provided. JP Morgan Chase Bank, an affiliate of
J.P. Morgan, acted as the joint lead arranger and joint bookrunner for the
credit facility for consideration of approximately $3.6. million. In
October 2002, we entered into an interest rate swap agreement with Goldman
Sachs Capital Markets, L.P., which applies to $50.0 million of the term
loans and protects both parties against fluctuations in interest rates.
Under the interest rate swap agreement, the Eurodollar rate with respect to
$50.0 million of the outstanding principal amount of the term loan will not
exceed 6.75% or drop below 1.97%.
STOCKHOLDERS AGREEMENT WITH MAJOR STOCKHOLDERS
In connection with the Merger, BPC Holding entered into a stockholders'
agreement with GSCP 2000 and other private equity funds affiliated with
Goldman, Sachs & Co. that, in the aggregate, own a majority of our common
stock and J.P. Morgan Partners (BHCA), L.P. and other private equity funds
affiliated with J.P. Morgan Chase & Co. that, in the aggregate, own
approximately 29% of our common stock. Under the terms of this agreement,
among other things: (1) the parties have agreed to elect individuals
designated by the Goldman Sachs and J.P. Morgan funds to BPC Holding's and
Berry Plastics' boards of directors; (2) the Goldman Sachs and J.P. Morgan
funds have the right to subscribe for a proportional share of future equity
issuances by BPC Holding; (3) after July 29, 2009, the J.P. Morgan funds
have the right to demand that BPC Holding cause the initial public offering
of its common stock, if such an offering or other sale of BPC Holding has
not occurred by such time; and (4) BPC Holding has agreed not to take
specified actions, including, making certain amendments to either the
certificate of incorporation or the by-laws of BPC Holding, changing
independent accountants, or entering into certain affiliate transactions,
without the approval of a majority of its board of directors, including at
least one director designated by the J.P. Morgan funds. The stockholders
agreement also contains provisions regarding transfer restrictions, rights
of first offer, tag-along rights and drag-along rights related to the
shares of BPC Holding common stock owned by the Goldman Sachs and J.P.
Morgan funds.
-35-
STOCKHOLDERS AGREEMENT WITH MANAGEMENT
In connection with the Merger, BPC Holding also entered into a
stockholders agreement with certain members of BPC Holding's management.
The stockholders agreement grants certain rights to, and imposes certain
obligations on, the management stockholders who are party to the agreement,
including: (1) restrictions on transfer of BPC Holding's common stock; (2)
obligations to consent to a merger or consolidation of BPC Holding or a
sale of BPC Holding's assets or common stock; (3) obligations to sell their
shares of BPC Holding common stock back to BPC Holding in specified
circumstances in connection with the termination of their employment with
BPC Holding; (4) rights of first offer, (5) tag-along rights, (6) drag-
along rights, (7) preemptive rights and (8) registration rights.
LOANS TO EXECUTIVE OFFICERS
In connection with the Merger, Messrs. Boots, Kratochvil, Beeler,
Herdrich and Sims together with certain other senior employees acquired
shares of BPC Holding common stock pursuant to an employee stock purchase
program. These employees paid for these shares with any combination of (1)
shares of BPC Holding common stock that they held prior to the Merger; (2)
their cash transaction bonus, if any; and (3) a promissory note. In this
manner, the senior employees acquired 182,699 shares in the aggregate.
Messrs. Boots, Kratochvil, Beeler, Herdrich and Sims purchased 37,785,
21,957, 22,208, 15,404, and 14,016 shares of BPC Holding common stock,
respectively pursuant to this program. In connection with these purchases,
Messrs. Boots, Kratochvil, Beeler, Herdrich and Sims delivered ten-year
promissory notes to BPC Holding in the principal amounts of $2,518,500,
$1,302,900, $1,313,400, $1,027,000 and $915,900, respectively. The
promissory notes are secured by the shares purchased and such notes accrue
interest which compounds semi-annually at the rate of 5.50% per year, the
applicable federal rate for the notes in effect on July 16, 2002.
Principal and all accrued interest is due and payable on the earlier to
occur of (i) the end of the ten-year term, (ii) the ninetieth day following
such executive's termination of employment due to death, "disability",
"redundancy" (as such terms are defined in the 2002 Stock Option Plan) or
retirement, or (iii) the thirtieth day following such executive's
termination of employment for any other reason. As of March 14, 2003, a
total of $2,610,661, $1,349,982, $1,360,862, $1,064,112 and $948,997,
including principal and accrued interest, was outstanding under the
promissory notes for each of Messrs. Boots, Kratochvil, Beeler, Herdrich
and Sims, respectively.
FUTURE RELATIONSHIPS WITH GOLDMAN SACHS AND J.P. MORGAN
In the future, we may engage in commercial banking, investment banking or
other financial advisory transactions with Goldman Sachs and its affiliates
or J.P. Morgan and its affiliates. In addition, Goldman Sachs and its
affiliates or J.P. Morgan and its affiliates may purchase goods and
services from us from time to time in the future.
TAX SHARING AGREEMENT
For federal income tax purposes, Berry Plastics and its domestic
subsidiaries are included in the affiliated group of which Holding is the
common parent and as a result, the federal taxable income and loss of Berry
Plastics and its subsidiaries is included in the group consolidated tax
return filed by Holding. In April 1994, Holding, Berry Plastics and
certain of its subsidiaries entered into a tax sharing agreement, which was
amended and restated in March 2001 (the "Tax Sharing Agreement"). Under
the Tax Sharing Agreement, for fiscal 1994 and all taxable years thereafter
for which the Tax Sharing Agreement remains in effect, Berry Plastics and
its subsidiaries as a consolidated group are required to pay at the request
of Holding an amount equal to the taxes (plus any accrued interest) that
they would otherwise have to pay if they were to file separate federal,
state or local income tax returns (including any amounts determined to be
due as a result of a redetermination arising from an audit or otherwise of
a tax liability which is attributable to them). If Berry Plastics and its
subsidiaries would have been entitled to a tax refund for taxes paid
previously on the basis computed as if they were to file separate returns,
then under the Tax Sharing Agreement, Holding is required to pay at the
request of Berry Plastics and its subsidiaries an amount equal to such tax
refund. If, however, Berry Plastics and its subsidiaries would have
reported a tax loss if they were to file separate returns, then Holding
intends, but is not obligated under the Tax Sharing Agreement, to pay to
Berry Plastics and its subsidiaries an amount equal to the tax benefit that
is realized by Holding as a result of such separate loss. Under the Tax
Sharing Agreement any such payments to be made by Holding to Berry Plastics
or any of its subsidiaries on account of a tax loss are within the sole
discretion of Holding. Berry Plastics and its subsidiaries made payments
of $8.5 million each to Holding in December 2001 and June 2002 under this
tax sharing agreement.
-36-
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As required by new 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. Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports we file or
submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. In connection with the new
rules, we currently are in the process of further reviewing and
documenting our disclosure controls and procedures, including our
internal controls and procedures for financial reporting, and may from
time to time make changes aimed at enhancing their effectiveness and
to ensure that our systems evolve with our business.
(b) Changes in internal controls.
None
-37-
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of the Report
1. FINANCIAL STATEMENTS
The financial statements listed under Item 8 are filed as
part of this report.
2. FINANCIAL STATEMENT SCHEDULES
The financial statement schedule listed under Item 8 is filed
as part of this report.
Schedules other than the above have been omitted because they are
either not applicable or the required information has been disclosed
in the financial statements or notes thereto.
3. EXHIBITS
The exhibits listed on the accompanying Exhibit Index are
filed as part of this report.
(b) Reports on Form 8-K
None.
-38-
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
BPC Holding Corporation
We have audited the accompanying consolidated balance sheets of BPC Holding
Corporation (Holding) as of December 28, 2002 (Company), and December 29,
2001 (Predecessor), and the related consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for the periods
from July 22, 2002 to December 28, 2002 (Company), December 30, 2001 to
July 21, 2002 (Predecessor), and each of the two years in the period ended
December 29, 2001 (Predecessor). Our audits also included the financial
statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of Holding's management.
Our responsibility is to express an opinion on these financial statements
and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of BPC Holding Corporation at December 28, 2002 and December 29,
2001, and the consolidated results of its operations and its cash flows for
the periods from July 22, 2002 to December 28, 2002, December 30, 2001 to
July 21, 2002, and each of the two years in the period ended December 29,
2001, in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets" on December 30, 2001.
/S/ ERNST & YOUNG LLP
Indianapolis, Indiana
February 14, 2003
F-1
BPC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE INFORMATION)
COMPANY PREDECESSOR
--------------- ---------------
DECEMBER 28, DECEMBER 29,
2002 2001
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 15,613 $ 1,232
Accounts receivable (less allowance for
doubtful accounts of $1,990 at December 28, 2002 56,765 48,623
and $2,070 at December 29, 2001)
Inventories:
Finished goods 50,002 43,048
Raw materials and supplies 14,730 13,009
--------------- ---------------
64,732 56,057
Prepaid expenses and other current assets 7,018 5,280
--------------- ---------------
Total current assets 144,128 111,192
Property and equipment:
Land 7,040 9,443
Buildings and improvements 49,966 72,722
Machinery, equipment and tooling 139,486 201,357
Construction in progress 12,232 22,647
--------------- ---------------
208,724 306,169
Less accumulated depreciation 15,592 102,952
--------------- ---------------
193,132 203,217
Intangible assets:
Deferred financing fees, net 20,116 8,475
Customer relationships, net 33,890 -
Goodwill, net 336,260 119,923
Trademarks 27,048 -
Other intangibles, net 5,883 1,955
--------------- ---------------
423,197 130,353
Other 119 2,114
--------------- ---------------
Total assets $ 760,576 $ 446,876
=============== ===============
F-2
CONSOLIDATED BALANCE SHEETS (CONTINUED)
COMPANY PREDECESSOR
--------------- ---------------
DECEMBER 28, DECEMBER 29,
2002 2001
--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 31,204 $ 34,862
Accrued expenses and other liabilities 9,926 8,955
Accrued interest 14,239 7,964
Employee compensation and payroll taxes 15,917 17,792
Current portion of long-term debt 8,641 22,292
--------------- ---------------
Total current liabilities 79,927 91,865
Long-term debt, less current portion 601,302 463,589
Accrued dividends on preferred stock - 27,446
Deferred income taxes 640 489
Other liabilities 3,544 3,088
--------------- ---------------
Total liabilities 685,413 586,477
Stockholders' equity (deficit):
Preferred stock (Predecessor) - 47,789
Common stock (Predecessor) - 6
Treasury stock (Predecessor) - (405)
Warrants (Predecessor) - 9,386
Preferred stock; $.01 par value: 500,000 shares
authorized; 0 shares issued and outstanding - -
Common Stock; $.01 par value: 5,000,000 shares
authorized; 2,767,879 shares issued and
outstanding 28 -
Additional paid-in capital 281,816 25,315
Adjustment of the carryover basis of continuing
stockholders (196,603) -
Notes receivable - common stock (14,399) -
Retained earnings (deficit) 3,179 (220,263)
Accumulated other comprehensive income (loss) 1,142 (1,429)
--------------- ---------------
Total stockholders' equity (deficit) 75,163 (139,601)
--------------- ---------------
Total liabilities and stockholders' equity (deficit) $ 760,576 $ 446,876
=============== ===============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
COMPANY PREDECESSOR
---------------- ------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
---------------- ---------------- -------------- --------------
Net sales $213,626 $280,677 $461,659 $408,088
Cost of goods sold 163,815 207,458 338,000 312,119
---------------- ---------------- -------------- --------------
Gross profit 49,811 73,219 123,659 95,969
Operating expenses:
Selling 10,129 12,080 21,996 21,630
General and administrative 7,664 15,750 28,535 24,408
Research and development 1,450 1,438 1,948 2,606
Amortization of intangibles 1,159 1,249 12,802 10,579
Merger expenses (Predecessor) - 20,987 - -
Other expenses 2,757 2,804 4,911 6,639
---------------- ---------------- -------------- --------------
Operating income 26,652 18,911 53,467 30,107
Other expenses:
Loss on disposal of property
and equipment 8 291 473 877
---------------- ---------------- -------------- --------------
Income before interest and taxes 26,644 18,620 52,994 29,230
Interest:
Expense (20,887) (28,747) (54,397) (51,553)
Income 375 5 42 96
---------------- ---------------- -------------- --------------
Income (loss) before income taxes
and extraordinary item 6,132 (10,122) (1,361) (22,227)
Income taxes (benefit) 2,953 345 734 (142)
---------------- ---------------- -------------- --------------
Income (loss) before extraordinary item 3,179 (10,467) (2,095) (22,085)
Extraordinary item
(less applicable
income taxes of $0) - 25,328 - 1,022
---------------- ---------------- -------------- --------------
Net income (loss) 3,179 (35,795) (2,095) (23,107)
Preferred stock dividends - (6,468) (9,790) (6,655)
Amortization of preferred
stock discount - (574) (1,024) (768)
---------------- ---------------- -------------- --------------
Net income (loss)attributable to
common stockholders $ 3,179 $ (42,837) $(12,909) $(30,530)
================ ================ ============== ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS)
COMMON PREFERRED TREASURY ADDITIONAL
STOCK STOCK STOCK WARRANTS COMMON PAID-IN
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) STOCK CAPITAL
------------- ------------ -------------- ------------ --------- ----------
Balance at January 1, 2000 $6 $17,093 $(256) $ 3,511 $ - $41,559
------------- ------------ -------------- ------------ --------- ----------
Net loss - - - - - -
Purchase treasury stock
from management - - (149) - - -
Translation loss - - - - - -
Stock-based compensation - - - - - 905
Issuance of preferred stock - 25,000 - - - -
Issuance of private warrants - (5,875) - 5,875 - -
Accrued dividends on
preferred stock - - - - - (6,655)
Amortization of preferred
stock discount - 768 - - - (768)
------------- ------------ -------------- ------------ --------- ----------
Balance at December 30, 2000 6 36,986 (405) 9,386 - 35,041
------------- ------------ -------------- ------------ --------- ----------
Net loss - - - - - -
Translation loss - - - - - -
Stock-based compensation - - - - - 796
Issuance of preferred stock - 9,779 - - - -
Issuance of common stock - - - - - 292
Accrued dividends on
preferred stock - - - - - (9,790)
Amortization of preferred
stock discount - 1,024 - - - (1,024)
------------- ------------ -------------- ------------ --------- ----------
Balance at December 29, 2001 6 47,789 (405) 9,386 - 25,315
------------- ------------ -------------- ------------ --------- ----------
Net loss - - - - - -
Translation gain - - - - - -
Amortization of preferred
stock discount - 574 - - - (574)
Accrued dividends on
preferred stock - - - - - (6,468)
Stock-based compensation - - - - - 1,920
Redemption of predecessor
stock (6) (48,363) 405 (9,386) - (20,193)
------------- ------------ -------------- ------------ --------- ----------
Balance at July 21, 2002
(Predecessor) - - - - - -
------------- ------------ -------------- ------------ --------- ----------
Fair value of rolled
stock options - - - - - 5,056
Issuance of common stock - - - - 28 276,760
Notes receivable
-common stock - - - - - -
Interest on notes
receivable - - - - - -
Adjustment of the
carryover basis of
continuing stockholders - - - - - -
Translation gain - - - - - -
Other comprehensive
losses - - - - - -
Net income - - - - - -
------------- ------------ -------------- ------------ --------- ----------
Balance at December 28, 2002 $ - $ - $ - $ - $ 28 $281,816
============= ============ ============== ============ ========= ==========
ADJUSTMENT
OF THE NOTES ACCUMULATED
CARRYOVER RECEIVABLE- RETAINED OTHER
BASIS OF COMMON EARNINGS COMPREHENSIVE COMPREHENSIVE
CONTINUING STOCK (DEFICIT) LOSS TOTAL INCOME
STOCKHOLDERS (LOSS)
-------------- ----------- ------------ ------------ ---------- --------------
Balance at January 1, 2000 $ - $ - $ (195,061) $ (323) $ (133,471)
-------------- ----------- ------------ ------------ ---------- --------------
Net loss - - (23,107) - (23,107) $(23,107)
Purchase treasury stock
from management - - - - (149) -
Translation loss - - - (520) (520) (520)
Stock-based compensation - - - - 905 -
Issuance of preferred stock - - - - 25,000 -
Issuance of private warrants - - - - - -
Accrued dividends on
preferred stock - - - - (6,655) -
Amortization of preferred
stock discount - - - - - -
-------------- ----------- ------------ ------------ ---------- --------------
Balance at December 30, 2000 - - (218,168) (843) (137,997) (23,627)
-------------- ----------- ------------ ------------ ---------- ==============
Net loss - - (2,095) - (2,095) (2,095)
Translation loss - - - (586) (586) (586)
Stock-based compensation - - - - 796 -
Issuance of preferred stock - - - - 9,779 -
Issuance of common stock - - - - 292 -
Accrued dividends on
preferred stock - - - - (9,790) -
Amortization of preferred
stock discount - - - - - -
-------------- ----------- ------------ ------------ ---------- --------------
Balance at December 29, 2001 - - (220,263) (1,429) (139,601) (2,681)
-------------- ----------- ------------ ------------ ---------- ==============
Net loss - - (35,795) - (35,795) (35,795)
Translation gain - - - 1,429 1,429 1,429
Amortization of preferred
stock discount - - - - - -
Accrued dividends on
preferred stock - - - - (6,468) -
Stock-based compensation - - - - 1,920 -
Redemption of predecessor
stock - - 256,058 - 178,515 -
-------------- ----------- ------------ ------------ ---------- --------------
Balance at July 21, 2002
(Predecessor) - - - - - (34,366)
-------------- ----------- ------------ ------------ ---------- ==============
Fair value of rolled
stock options - - - - 5,056 -
Issuance of common stock - - - - 276,788 -
Notes receivable
-common stock - (14,079) - - (14,079) -
Interest on notes
receivable - (320) - - (320) -
Adjustment of the
carryover basis of
continuing stockholders (196,603) - - - (196,603) -
Translation gain - - - 2,091 2,091 2,091
Other comprehensive
losses - - - (949) (949) (949)
Net income - - 3,179 - 3,179 3,179
-------------- ----------- ------------ ------------ ---------- --------------
Balance at December 28, 2002 $(196,603) $(14,399) $3,179 $ 1,142 $75,163 $ 4,321
============== =========== ============ ============ ========== ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
COMPANY PREDECESSOR
----------------- --------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
----------------- --------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $3,179 $(35,795) $(2,095) $(23,107)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation 16,031 23,526 38,105 31,569
Non-cash interest expense 1,077 1,399 11,268 18,047
Amortization of intangibles 1,159 1,249 12,802 10,579
Non-cash compensation - 1,920 796 905
Extinguishment of debt - 25,328 - 1,022
Loss on sale of property
and equipment 8 291 473 877
Deferred income taxes 2,710 - - (349)
Changes in operating assets
and liabilities:
Accounts receivable, net 8,717 (15,986) 2,869 (1,475)
Inventories (4,091) (4,255) (4,017) 7,383
Prepaid expenses and
other receivables (1,280) (603) (50) (1,163)
Other assets (354) 2,042 (2,000) -
Accounts payable and
accrued expenses (11,108) 11,476 (3,803) (8,182)
---------- ---------- ---------- ----------
Net cash provided by operating activities 16,048 10,592 54,348 36,106
INVESTING ACTIVITIES
Additions to property and equipment (11,287) (17,396) (32,834) (31,530)
Proceeds from disposal of property
and equipment 8 9 93 1,666
Transaction costs (12,398) - - -
Acquisitions of businesses - (3,834) (23,549) (78,851)
---------- ---------- ---------- ----------
Net cash used for investing activities (23,677) (21,221) (56,290) (108,715)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 580,000 24,492 15,606 80,032
Payments on long-term borrowings (507,314) (13,924) (24,088) (31,543)
Purchase of treasury stock
from management - - - (149)
Proceeds from issuance of
preferred stock and warrants - - 9,779 25,000
Proceeds from issuance of
common stock 260,902 - 292 -
Redemption of predecessor stock (290,672) - - -
Debt financing costs (21,103) - (1,009) (1,303)
---------- ---------- ---------- ----------
Net cash provided by financing activities 21,813 10,568 580 72,037
Effect of exchange rate changes on cash 1,073 (815) 540 80
---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents 15,257 (876) (822) (492)
Cash and cash equivalents at
beginning of period 356 1,232 2,054 2,546
---------- ---------- ---------- ----------
Cash and cash equivalents at
end of period $ 15,613 $ 356 $ 1,232 $ 2,054
========== ========== ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
BPC HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED)
NOTE 1. ORGANIZATION
BPC Holding Corporation ("Holding"), through its subsidiary Berry Plastics
Corporation ("Berry" or the "Company") and its subsidiaries Berry Iowa
Corporation, Berry Tri-Plas Corporation, Aerocon, Inc., PackerWare
Corporation, Berry Plastics Design Corporation, Venture Packaging, Inc. and
its subsidiaries Venture Packaging Midwest, Inc. and Berry Plastics
Technical Services, Inc., NIM Holdings Limited and its subsidiary Berry
Plastics U.K. Limited, Knight Plastics, Inc., CPI Holding Corporation and
its subsidiary Cardinal Packaging, Inc., Poly-Seal Corporation, CBP
Holdings, S.r.l. and its subsidiaries Capsol S.p.a. and Ociesse S.r.l., and
Pescor, Inc. manufactures and markets plastic packaging products through
its facilities located in Evansville, Indiana; Henderson, Nevada; Iowa
Falls, Iowa; Charlotte, North Carolina; Suffolk, Virginia; Lawrence,
Kansas; Monroeville, Ohio; Norwich, England; Woodstock, Illinois;
Streetsboro, Ohio; Baltimore, Maryland; and Milan, Italy.
In connection with the acquisition of CPI Holding Corporation in July 1999,
the Company acquired manufacturing facilities in Ontario, California and
Minneapolis, Minnesota. The Ontario facility was closed in 1999, and all
production was removed from the Minneapolis facility in 2000. Also in
2000, the Company closed its manufacturing facility in York, Pennsylvania.
In 2002, the Company closed its Fort Worth, Texas facility, which was
acquired in connection with the acquisition of Pescor Plastics, Inc. in May
2001. The business from these closed locations has been distributed
throughout Berry's facilities.
Holding's fiscal year is a 52/53 week period ending generally on the
Saturday closest to December 31. All references herein to "2002," "2001,"
and "2000," relate to the fiscal years ended December 28, 2002, December
29, 2001, and December 30, 2000, respectively. Due to the Merger (see Note
3), fiscal 2002 consists of two separate periods of December 30, 2001 to
July 21, 2002 (Predecessor) and July 22, 2002 to December 28, 2002
(Company).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION AND BUSINESS
The consolidated financial statements include the accounts of Holding and
its subsidiaries, all of which are wholly owned. Intercompany accounts and
transactions have been eliminated in consolidation. Holding, through its
wholly owned subsidiaries, operates in three primary segments: containers,
closures, and consumer products. The Company's customers are located
principally throughout the United States, without significant concentration
in any one region or with any one customer. The Company performs periodic
credit evaluations of its customers' financial condition and generally does
not require collateral.
Purchases of various densities of plastic resin used in the manufacture of
the Company's products aggregated approximately $113.0 million in 2002.
Dow Chemical Corporation is the largest supplier (approximately 43%) of the
Company's total resin material requirements. The Company also uses other
suppliers such as Equistar, Atofina, Chevron, Basell, ExxonMobil, and Nova
to meet its resin requirements.
The Company is subject to existing and potential federal, state, local and
foreign legislation designed to reduce solid waste in landfills. While the
principal resins used by the Company are recyclable and, therefore, reduce
the Company's exposure to legislation promulgated to date, there can be no
assurance that future legislation or regulatory initiatives would not have
a material adverse effect on the Company. Legislation, if promulgated,
requiring plastics to be degradable in landfills or to have minimum levels
of recycled content would have a significant impact on the Company's
business as would legislation providing for disposal fees or limiting the
use of plastic products.
CASH AND CASH EQUIVALENTS
All highly liquid investments with maturity of three months or less at the
date of purchase are considered to be cash equivalents.
F-7
ACCOUNTS RECEIVABLE
The allowance for doubtful accounts is analyzed in detail on a quarterly
basis and all significant customers with delinquent balances are reviewed
to determine future collectibility. The determinations are based on legal
issues (such as bankruptcy status), past history, current financial and
credit agency reports, and the experience of the credit representatives.
Reserves are established in the quarter in which the Company makes the
determination that the account is deemed uncollectible. The Company
maintains additional reserves based on its historical bad debt experience.
INVENTORIES
Inventories are valued at the lower of cost (first in, first out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
primarily by the straight-line method over the estimated useful lives of
the assets ranging from 15 to 25 years for buildings and improvements and
two to 10 years for machinery, equipment, and tooling. Repairs and
maintenance costs are charged to expense as incurred.
INTANGIBLE ASSETS
Deferred financing fees are being amortized using the straight-line method
over the lives of the respective debt agreements.
Customer relationships are being amortized using the straight-line method
over the estimated life of the relationships of 20 years.
The costs in excess of net assets acquired represent the excess purchase
price over the fair value of the net assets acquired in the Merger (see
Note 3 below). These costs are reviewed annually for impairment pursuant
to SFAS No. 142, Goodwill and Other Intangible Assets.
Trademarks are reviewed for impairment annually pursuant to SFAS No. 142.
Other intangibles, which include covenants not to compete and technology-
based intangibles, are being amortized using the straight-line method over
the respective lives of the agreements or estimated life of the technology
ranging from one to twenty years.
LONG-LIVED ASSETS
Holding evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may
not be recoverable based on expected undiscounted cash flows attributed to
that asset. The amount of any impairment is measured as the difference
between the carrying value and the fair value of the impaired asset. No
impairments were recorded during 2002, 2001, or 2000.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses an interest rate collar to manage a portion of its
interest rate exposures. The instrument was entered into to manage market
risk exposures and is not used for trading purposes. Management routinely
reviews the effectiveness of the use of derivative instruments. The
Company has recognized the interest rate collar at its fair value in the
consolidated balance sheets.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of most foreign subsidiaries are translated at
exchange rates in effect at the balance sheet date, and the statements of
operations are translated at the average monthly exchange rates for the
period. Translation gains and losses are recorded as a component of
accumulated other comprehensive income (loss) in stockholders' equity.
Foreign currency transaction gains and losses are included in net income
(loss).
F-8
REVENUE RECOGNITION
Revenue from sales of products is recognized at the time product is shipped
to the customer, at which time title and risk of ownership transfer to the
purchaser.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," established
accounting and disclosure requirements using a fair-value-based method of
accounting for stock-based employee compensation plans. As provided for
under SFAS 123, the Company accounts for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion
25, "Accounting for Stock Issued to Employees." Compensation cost for
stock options, if any, is measured as the excess of the fair value of the
Company's stock at the date of grant over the amount an employee must pay
to acquire the stock. The fair value for options granted by Holding have
been estimated at the date of grant using a Black Scholes option pricing
model with the following weighted average assumptions:
COMPANY PREDECESSOR
---------------- -----------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
---------------- -----------------------------------------------------
C>
Risk-free interest rate 4.0% 4.0% 5.5% 6.5%
Dividend yield 0.0% 0.0% 0.0% 0.0%
Volatility factor .25 .25 .28 .20
Expected option life 5.0 years 5.0 years 6.5 years 6.5 years
FOR PURPOSES OF THE PRO FORMA DISCLOSURES, THE ESTIMATED FAIR VALUE OF THE
STOCK OPTIONS ARE AMORTIZED TO EXPENSE OVER THE RELATED VESTING PERIOD.
BECAUSE COMPENSATION EXPENSE IS RECOGNIZED OVER THE VESTING PERIOD, THE
INITIAL IMPACT ON PRO FORMA NET INCOME (LOSS) MAY NOT BE REPRESENTATIVE OF
COMPENSATION EXPENSE IN FUTURE YEARS, WHEN THE EFFECT OF AMORTIZATION OF
MULTIPLE AWARDS WOULD BE REFLECTED IN THE CONSOLIDATED STATEMENT OF
OPERATIONS. The following is a reconciliation of reported net income
(loss) to net income (loss) as if the Company used the fair value method of
accounting for stock-based compensation.
COMPANY PREDECESSOR
----------------- --------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
----------------- --------------------------------------------------
Reported net income (loss) $3,179 $(35,795) $(2,095) $(23,107)
Stock-based employee
compensation expense
included in reported
income (loss), net of tax - 1,920 796 459
Total stock-based employee
compensation expense
determined under fair
value based method, for
all awards, net of tax (856) (371) (1,401) (866)
------------- ------------- ------------ -----------
Pro forma net income (loss) $ 2,323 $(34,246) $(2,700) $(23,514)
============= ============= ============ ===========
INCOME TAXES
The Company accounts for income taxes under the asset and liability
approach, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequence of events that have
been recognized in the Company's financial statements or income tax
returns. Income taxes are recognized during the year in which the
underlying transactions are reflected in the Consolidated Statements of
Operations. Deferred taxes are provided for temporary differences between
amounts of assets and liabilities as recorded for financial reporting
purposes and such amounts as measured by tax laws.
F-9
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains or losses on derivative financial instruments, unrealized
gains or losses resulting from currency translations of foreign
investments, and the adjustment to record the minimum pension liability.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements and related notes
have been reclassified to conform to the current year presentation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets. These pronouncements
significantly change the accounting for business combinations, goodwill,
and intangible assets. SFAS No. 141 eliminates the pooling-of-interests
method of accounting for business combinations and further clarifies the
criteria to recognize intangible assets separately from goodwill. The
requirements of SFAS No. 141 became effective for any business combination
completed after June 30, 2001. SFAS No. 142 states goodwill and indefinite
lived intangible assets are no longer amortized but are reviewed for
impairment annually (or more frequently if impairment indicators arise).
Separable intangible assets that are deemed to have a finite life will
continue to be amortized over their estimated useful lives. The Company
adopted the provisions of SFAS Nos. 141 and 142 as of the beginning of
fiscal 2002. Application of the nonamortization provisions of SFAS No. 142
is expected to result in an increase in net income (or decrease in net
loss) of approximately $10.5 million per year based on goodwill related to
acquisitions prior to the adoption of the new rules. The Merger (see Note
3) has been accounted for under the purchase method of accounting, and
accordingly, the purchase price has been allocated to the identifiable
assets and liabilities based on estimated fair values at the acquisition
date. The allocation is preliminary and is subject to change pending the
finalization of expenses related to the Merger. The following table
presents the results of the Company on a comparable basis:
COMPANY PREDECESSOR
----------------- --------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
----------------- --------------------------------------------------
Reported net income (loss) $3,179 $(35,795) $(2,095) $(23,107)
Goodwill amortization, net
of tax - - 9,964 7,701
------------- ------------- ------------ -----------
Adjusted net income (loss) $3,179 $(35,795) $7,869 $(15,406)
============= ============= ============ ===========
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement addresses the
financial accounting and reporting for the impairment and disposal of long-
lived assets. It supercedes and addresses significant issues relating to
the implementation of SFAS No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144
retains many of the fundamental provisions of SFAS No. 121 and establishes
a single accounting model, based on the framework established in SFAS No.
121, for long-lived assets to be disposed of by sale, whether previously
held and used or newly acquired. The Company adopted this standard as of
the beginning of fiscal 2002. The application of SFAS No. 144 did not have
a material impact on the Company's results of operations and financial
position.
F-10
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections (SFAS No. 145). Upon the
adoption of SFAS No. 145, all gains and losses on the extinguishment of
debt for periods presented in the financial statements will be classified
as extraordinary items only if they meet the criteria in APB Opinion No.
30, Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions (APB No. 30). The provisions of SFAS No.
145 related to the rescission of FASB Statement No. 4 and FASB Statement
No. 64 shall be applied for fiscal years beginning after May 15, 2002. As
a result, the Company will reclassify the extraordinary item in the
Statements of Operations to continuing operations in its 2003 financial
statements. The provisions of SFAS No. 145 related to the rescission of
FASB Statement No. 44, the amendment of FASB Statement No. 113 and
Technical Corrections became effective as of May 15, 2002 and did not have
a material impact on the Company.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities
(SFAS No.146). SFAS No. 146 nullifies Emerging Issues Task Force (EITF)
Issue No, 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." SFAS No. 146 generally requires companies
to recognize costs associated with exit activities when they are incurred
rather than at the date of a commitment to an exit or disposal plan and is
to be applied prospectively to exit or disposal activities initiated after
December 31, 2002. The Company does not believe that this standard will
have a material impact on its results of operations and financial position.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure (SFAS No. 148). SFAS No. 148 amends FASB Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
No. 123), to provide alternative methods of transition to SFAS No. 123's
fair value method of accounting for stock-based employee compensation.
SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and
Accounting Principles Board (APB) Opinion No. 28, Interim Financial
Reporting, to require disclosure in the summary of significant accounting
policies of the effect of an entity's accounting policy with respect to
stock-based employee compensation on reported net income and earnings per
share in annual and interim financial statements. SFAS No. 148 is
applicable to all companies with stock-based employee compensation,
regardless of whether they account for that compensation using the fair
value method of SFAS No. 123 or the intrinsic value method of APB Opinion
No. 25, Accounting for Stock Issued to Employees. The Company uses the
intrinsic value method of accounting for stock issued to employees. See
Note 2 and Note 10 to the Consolidated Financial Statements for details
related to stock-based compensation.
NOTE 3. THE MERGER
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly formed
entity controlled by various private equity funds affiliated with Goldman,
Sachs & Co., merged (the "Merger") with and into BPC Holding, pursuant to
an agreement and plan of merger, dated as of May 25, 2002. At the
effective time of the Merger, (i) each share of common stock of BPC Holding
Corporation issued and outstanding immediately prior to the effective time
of the Merger was converted into the right to receive cash pursuant to the
terms of the merger agreement, and (ii) each share of common stock of the
Buyer issued and outstanding immediately prior to the effective time of the
Merger was converted into one share of common stock of BPC Holding.
The total amount of funds required to consummate the Merger and to pay
estimated fees and expenses related to the Merger, including amounts
related to the repayment of indebtedness, the redemption of the outstanding
preferred stock and accrued dividends, the redemption of outstanding
warrants, and the payment of transaction costs incurred by Holding, were
approximately $870.2 million (which includes the amount of certain
indebtedness which remained outstanding and the value of certain shares of
Holding common stock held by employees that were contributed to the Buyer
immediately prior to the Merger). The Buyer and its affiliates own
approximately 63% of the common stock of Holding. The remaining common
stock of Holding is held by J.P. Morgan Partners Global Investors, L.P. and
other private equity funds affiliated with J.P. Morgan Partners, LLC, the
private equity investment arm of J.P. Morgan Chase & Co., which own
approximately 29% of Holding's common stock and by members of Berry's
management, which own the remaining 8%.
F-11
The Merger has been accounted for under the purchase method of accounting,
and accordingly, the purchase price has been allocated to the identifiable
assets and liabilities based on estimated fair values at the acquisition
date. The allocation is preliminary and is subject to change pending the
finalization of expenses related to the Merger. The Company has applied
the provisions of Emerging Issues Task Force 88-16, Basis in Leveraged
Buyout Transactions, whereby, the carryover equity interests of certain
shareholders from the Predecessor to the Company were recorded at their
Company basis. The application of these provisions reduced stockholder's
equity and intangibles by $196.6 million. In connection with the Merger,
the Predecessor incurred Merger related expenses of approximately $21.0
million, consisting primarily of investment banking fees, bonuses to
management, non-cash modification of stock option awards, legal costs, and
fees to the largest voting stockholder of the Predecessor. In addition, as
a result of extinguishing debt in connection with the Merger, $6.6 million
of existing deferred financing fees and $18.7 million of prepayment fees
and related charges were charged to expense in 2002 as an extraordinary
item. The following table summarizes the preliminary allocation of
purchase price.
Purchase price $ 836,692
Buyer transaction costs 12,398
Net tangible assets acquired (249,182)
Intangible assets acquired (67,045)
Adjustment for carryover basis of continuing stockholders (196,603)
-----------
Goodwill $336,260
===========
NOTE 4. ACQUISITIONS
On May 14, 2001, Berry acquired all of the outstanding capital stock of
Pescor Plastics, Inc. ("Pescor") for aggregate consideration of
approximately $24.8 million. The purchase was financed through the
issuance by Holding of $9.8 million of 14% predecessor preferred stock and
additional borrowings under the retired senior credit facility. The
operations of Pescor are included in Berry's operations since the
acquisition date using the purchase method of accounting.
On January 24, 2002, Berry acquired the Alcoa Flexible Packaging injection
molding assets of Mt. Vernon Plastics Corporation ("Mount Vernon") for
aggregate consideration of approximately $2.6 million. The purchase price
was allocated to fixed assets ($2.0 million) and inventory ($0.6 million).
The purchase was financed through borrowings under the Company's revolving
line of credit under its retired senior credit facility. The operations of
Mount Vernon are included in Berry's operations since the acquisition date
using the purchase method of accounting. On January 31, 2002, Berry
entered into a sale/leaseback arrangement with respect to the Mt. Vernon
fixed assets.
Pro forma results for 2002 have not been presented as they do not
differ materially from reported historical results. For 2001, pro forma
net sales and pro forma net loss would have been $489,724 and $3,057,
respectively. This information was calculated as if the Pescor acquisition
and Mount Vernon acquisition occurred at the beginning of 2001.
The pro forma financial information above is presented for informational
purposes only and is not necessarily indicative of the operating results
that would have occurred had the acquisitions been consummated at the above
dates, nor are they necessarily indicative of future operating results.
Further, the information obtained on the acquired companies is based upon
unaudited internal financial information and reflects only pro forma
adjustments for additional interest expense and amortization of the excess
of the cost over the underlying net assets acquired (amortization through
December 29, 2001), net of the applicable income tax effects.
F-12
NOTE 5. INTANGIBLE ASSETS
Intangible assets consist of the following:
COMPANY PREDECESSOR
----------------- ------------------
DECEMBER 28, DECEMBER 29,
2002 2001
----------------- ------------------
Deferred financing fees $ 21,411 $ 20,894
Customer relationships 34,664 -
Goodwill 336,260 146,494
Trademarks 27,048 -
Covenants not to compete and 1,656 7,376
other
Technology-based 4,982 -
Accumulated amortization (2,824) (44,411)
----------------- ------------------
$423,197 $130,353
================= ==================
The changes in intangible assets are a result of the Merger and the
application of SFAS No. 141 and SFAS No. 142.
Future amortization expense for definite lived intangibles at December 28,
2002 for the next five fiscal years is approximately $4.3 million, $3.8
million, $3.8 million, $3.7 million, and $3.7 million for fiscal 2003,
2004, 2005, 2006, and 2007, respectively.
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
COMPANY PREDECESSOR
----------------- ------------------
DECEMBER 28, DECEMBER 29,
2002 2001
----------------- ------------------
Berry 10 3/4 % Senior Subordinated Notes $250,000 $ -
Term loans 329,175 54,596
Revolving lines of credit 692 49,053
Nevada Industrial Revenue Bonds 2,500 3,000
Capital leases 27,576 18,131
Holding 12.50% Senior Secured Notes - 135,714
Berry 12.25% Senior Subordinated Notes - 125,000
Berry 11% Senior Subordinated Notes - 75,000
Second Lien Senior Credit Facility - 25,000
Debt premium, net - 387
----------------- ------------------
609,943 485,881
Less current portion of long-term debt 8,641 22,292
----------------- ------------------
$601,302 $463,589
================= ==================
F-13
BERRY 10 3/4 % SENIOR SUBORDINATED NOTES
On July 22, 2002, Berry completed an offering of $250.0 million aggregate
principal amount of 10 3/4 % Senior Subordinated Notes due 2012 (the "2002
Notes"). The net proceeds to Berry from the sale of the 2002 Notes, after
expenses, were $239.4 million. The proceeds from the 2002 Notes were used
in the financing of the Merger. The 2002 Notes mature on July 15, 2012,
and interest is payable semi-annually on January 15 and July 15 of each
year beginning January 15, 2003. Holding and all of Berry's domestic
subsidiaries fully, jointly, severally, and unconditionally guarantee on a
senior subordinated basis the 2002 Notes. The 2002 Notes are not
guaranteed by the foreign subsidiaries: Berry Plastics Acquisition
Corporation II, NIM Holdings Limited, Berry Plastics U.K. Limited, Norwich
Acquisition Limited, CBP Holdings S.r.l., Capsol Berry Plastics S.p.a., or
Ociesse S.r.l.
Berry is not required to make mandatory redemption or sinking fund payments
with respect to the 2002 Notes. On or subsequent to July 15, 2007, the
2002 Notes may be redeemed at the option of Berry, in whole or in part, at
redemption prices ranging from 105.375% in 2007 to 100% in 2010 and
thereafter. Prior to July 15, 2005, up to 35% of the 2002 Notes may be
redeemed at 110.75% of the principal amount at the option of Berry in
connection with an equity offering. Upon a change in control, as defined
in the indenture entered into in connection with the 2002 Notes (the "2002
Indenture"), each holder of notes will have the right to require Berry to
repurchase all or any part of such holder's notes at a repurchase price in
cash equal to 101% of the aggregate principal amount thereof plus accrued
interest.
CREDIT FACILITY
In connection with the Merger, the Company entered into a credit and
guaranty agreement and a related pledge security agreement with a syndicate
of lenders led by Goldman Sachs Credit Partners L.P., as administrative
agent (the "Credit Facility"). The Credit Facility provides (i) a $330.0
million term loan, (ii) a $50.0 million delayed draw term loan facility,
and (iii) a $100.0 million revolving credit facility. The maturity date of
the term loan is July 22, 2010, and the maturity date of the revolving
credit facility is July 22, 2008. The indebtedness under the Credit
Facility is guaranteed by Holding and all of its domestic subsidiaries.
The obligations of the Company and the subsidiaries under the Credit
Facility and the guarantees thereof are secured by substantially all of the
assets of such entities.
The Credit Facility contains significant financial and operating covenants,
including prohibitions on the ability to incur certain additional
indebtedness or to pay dividends, and restrictions on the ability to make
capital expenditures. Amounts available under the delayed draw term loan
facility may be borrowed in connection with permitted acquisitions (but not
reborrowed) during the 18-month period that began on July 22, 2002, subject
to certain conditions. The Credit Facility also contains borrowing
conditions and customary events of default, including nonpayment of
principal or interest, violation of covenants, inaccuracy of
representations and warranties, cross-defaults to other indebtedness,
bankruptcy and other insolvency events (other than in the case of certain
foreign subsidiaries). The Company was in compliance with all the
financial and operating covenants at December 28, 2002. The term loan
amortizes quarterly as follows: $825,000 each quarter beginning September
30, 2002 and ending June 30, 2009 and $76,725,000 each quarter beginning
September 30, 2009 and ending June 30, 2010. The delayed draw term loan
facility will amortize quarterly commencing March 31, 2004 based on the
amounts outstanding as of that date as follows: (i) 2% per quarter in
2004, (ii) 4% per quarter in 2005, (iii) 6% per quarter in 2006, (iv) 8%
per quarter in 2007 and (v) 10% per quarter in each of the first two
quarters in 2008.
Borrowings under the Credit Facility bear interest, at the Company's
option, at either (i) a base rate (equal to the greater of the prime rate
and the federal funds rate plus 0.5%) plus the applicable margin (the
``Base Rate Loans'') or (ii) an adjusted eurodollar LIBOR (adjusted for
reserves) plus the applicable margin (the ``Eurodollar Rate Loans''). With
respect to the term loan, the ``applicable margin'' is (i) with respect to
Base Rate Loans, 2.00% per annum and (ii) with respect to Eurodollar Rate
Loans, 3.00% per annum (4.6% at December 28, 2002). With respect to the
delayed draw term loan facility and the revolving credit facility, the
``applicable margin'' is, with respect to Eurodollar Rate Loans, initially
2.75% per annum. After the end of the quarter ending March 30, 2003, the
``applicable margin'' with respect to Eurodollar Rate Loans will be subject
to a pricing grid which ranges from 2.75% per annum to 2.00% per annum,
depending on the leverage ratio. The ``applicable margin'' with respect to
Base Rate Loans will always be 1.00% per annum less than the ``applicable
margin'' for Eurodollar Rate Loans. In October 2002, Berry entered into an
interest rate collar arrangement to protect $50.0 million of the
outstanding variable rate term loan debt from future interest rate
volatility. The collar floor is set at 1.97% LIBOR (London Interbank
Offering Rate) and capped at 6.75% LIBOR. The agreement is effective
January 15, 2003. At December 28, 2002, shareholders' equity has been
reduced by $0.6 million to adjust the agreement to fair market value. At
December 28, 2002, the Company had unused borrowing capacity under the
Credit Facility's revolving line of credit of $92.6 million.
F-14
NEVADA INDUSTRIAL REVENUE BONDS
The Nevada Industrial Revenue Bonds bear interest at a variable rate (1.7%
at December 28, 2002 and 1.7% at December 29, 2001), require annual
principal payments of $0.5 million on April 1, are collateralized by
irrevocable letters of credit issued under the Credit Facility and mature
in April 2007.
HOLDING 12.50% SENIOR SECURED NOTES (PREDECESSOR)
On June 18, 1996, Holding issued 12.50% Senior Secured Notes due 2006 for
net proceeds, after expenses, of approximately $100.2 million. These notes
were exchanged in October 1996 for the 12.50% Series B Senior Secured Notes
due 2006 (the "1996 Notes"). Interest was payable semi-annually on June 15
and December 15 of each year. In addition, from December 15, 1999 until
June 15, 2001, Holding paid interest, at an increased rate of 0.75% per
annum, in additional 1996 Notes valued at 100% of the principal amount
thereof. Holding issued an additional approximately $30.7 million ($8.4
million in 2001 and $15.3 million in 2000) aggregate principal amount of
1996 Notes in satisfaction of its interest obligation. The 1996 Notes were
retired in connection with the Merger and the associated premium for early
retirement and net deferred financing fees were expensed as an
extraordinary item.
BERRY 12.25% SENIOR SUBORDINATED NOTES (PREDECESSOR)
On April 21, 1994, Berry completed an offering of 100,000 units consisting
of $100.0 million aggregate principal amount of 12.25% Berry Plastics
Corporation Senior Subordinated Notes, due 2004 (the "1994 Notes") and
100,000 warrants to purchase 1.13237 shares of the Predecessor's common
stock. The net proceeds to Berry from the sale of the 1994 Notes, after
expenses, were $93.0 million. On August 24, 1998, Berry completed an
additional offering of $25.0 million aggregate principal amount of 12.25%
Series B Senior Subordinated Notes due 2004 (the "1998 Notes"). The net
proceeds to Berry from the sale of the 1998 Notes, after expenses, were
$25.2 million. Interest was payable semi-annually on October 15 and April
15 of each year and commenced on October 15, 1994 and October 15, 1998 for
the 1994 Notes and 1998 Notes, respectively. The 1994 Notes and 1998 Notes
were retired in connection with the Merger and the associated premium paid
and net deferred financing fees were expensed as an extraordinary item.
BERRY 11% SENIOR SUBORDINATED NOTES (PREDECESSOR)
On July 6, 1999, Berry completed an offering of $75.0 million aggregate
principal amount of 11% Berry Plastics Corporation Senior Subordinated
Notes, due 2007 (the "1999 Notes"). The net proceeds to Berry from the
sale of the 1999 Notes, after expenses, were $72.0 million. Interest was
payable semi-annually on January 15 and July 15 of each year and commenced
on January 15, 2000. The 1999 Notes were retired in connection with the
Merger and the associated premium for early retirement and net deferred
financing fees were expensed as an extraordinary item.
RETIRED CREDIT FACILITY (PREDECESSOR)
The Company had a financing and security agreement (the "Retired Financing
Agreement") with a syndicate of lenders led by Bank of America for a senior
secured credit facility (the "Retired Credit Facility"). The Retired
Financing Agreement amended the prior agreement as additional funds were
made available in connection with the acquisition of Poly-Seal. The
amendment resulted in an extraordinary charge in fiscal 2000 of $1.0
million of deferred financing costs associated with the Retired Financing
Agreement and the prior financing agreement. As of December 29, 2001, the
Retired Credit Facility provided the Company with (i) an $80.0 million
revolving line of credit, subject to a borrowing base formula, (ii) a $2.2
million (using the December 29, 2001 exchange rate) revolving line of
credit denominated in British Sterling in the U.K., subject to a separate
borrowing base formula, (iii) a $52.6 million term loan facility, (iv) a
$2.0 million (using the December 29, 2001 exchange rate) term loan facility
denominated in British Sterling in the U.K. and (v) a $3.2 million standby
letter of credit facility to support the Company's and its subsidiaries'
obligations under the Nevada Bonds. The Retired Credit Facility matured on
January 21, 2004 unless previously terminated by the Company or by the
lenders upon an Event of Default as defined in the Retired Financing
Agreement. The Retired Credit Facility was extinguished in connection with
the Merger and the associated net deferred financing fees were expensed as
an extraordinary item.
F-15
SECOND LIEN SENIOR CREDIT FACILITY (PREDECESSOR)
On July 17, 2000, Berry obtained a second lien senior credit facility from
General Electric Capital Corporation for an aggregate principal amount of
$25.0 million (the "Second Lien Senior Facility"), resulting in net
proceeds of $24.3 million after fees and expenses. The Second Lien Credit
Facility was extinguished in connection with the Merger and the associated
net deferred financing fees were expensed as an extraordinary item.
OTHER
Future maturities of long-term debt are as follows: 2003, $8,641; 2004,
$8,337; 2005, $8,986; 2006, $6,119; 2007, $6,493 and $571,367 thereafter.
Interest paid was $40,883, $44,171, and $32,836, for 2002, 2001, and 2000,
respectively. Interest capitalized was $844, $589, and $1,707, for 2002,
2001, and 2000, respectively.
NOTE 7. LEASE AND OTHER COMMITMENTS
Certain property and equipment are leased using capital and operating
leases. In 2002 and 2001, Berry entered into various capital lease
obligations with no immediate cash flow effect resulting in capitalized
property and equipment of $21,169 and $18,737, respectively. Total
capitalized lease property consists of manufacturing equipment and a
building with a cost of $32,462 and $22,342 and related accumulated
amortization of $4,247 and $3,442 at December 28, 2002 and December 29,
2001, respectively. Capital lease amortization is included in depreciation
expense. Total rental expense from operating leases was approximately
$9,761, $8,292, and $9,183 for 2002, 2001, and 2000, respectively.
Future minimum lease payments for capital leases and noncancellable
operating leases with initial terms in excess of one year are as follows:
AT DECEMBER 28, 2002
-------------------------------------
CAPITAL LEASES OPERATING LEASES
------------------ -----------------
2003 $ 6,416 $ 6,925
2004 6,333 5,280
2005 6,104 3,906
2006 2,839 2,386
2007 2,720 724
Thereafter 8,689 -
------------------ -----------------
33,101 $19,221
=================
Less: amount representing interest (5,525)
------------------
Present value of net minimum lease payments $ 27,576
==================
The Company is party to various legal proceedings involving routine claims
which are incidental to its business. Although the Company's legal and
financial liability with respect to such proceedings cannot be estimated
with certainty, the Company believes that any ultimate liability would not
be material to our financial condition.
F-16
NOTE 8. INCOME TAXES
For financial reporting purposes, income (loss) before income taxes and
extraordinary item, by tax jurisdiction, is comprised of the following:
COMPANY PREDECESSOR
----------------- --------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
----------------- --------------------------------------------------
United States $ 7,331 $ (8,087) $ 5,046 $ (18,506)
Foreign (1,199) (2,035) (6,407) (3,721)
------------- ------------- ------------ -----------
$ 6,132 $(10,122) $ (1,361) $ (22,227)
============= ============= ============ ===========
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of deferred tax assets and liabilities are as
follows:
DECEMBER 28, DECEMBER 29,
2002 2001
------------- ------------
Deferred tax assets:
Allowance for doubtful accounts $ 583 $ 654
Inventory 1,517 1,422
Compensation and benefit accruals 2,753 2,871
Insurance reserves 637 657
Net operating loss carryforwards 28,297 14,102
Alternative minimum tax (AMT) credit carryforwards 3,055 3,055
Other 875 -
------------- ------------
Total deferred tax assets 37,717 22,761
Valuation allowance (9,561) (3,629)
------------- ------------
Deferred tax assets, net of valuation allowance 28,156 19,132
Deferred tax liabilities:
Depreciation and amortization 28,796 19,621
------------- ------------
Net deferred tax liability $ (640) $ (489)
============= ============
Income tax expense (benefit) consists of the following:
COMPANY PREDECESSOR
----------------- --------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
----------------- ----------------- ---------------- ---------------
Current:
Federal $ - $ - $ 154 $ -
Foreign 26 375 125 -
State 217 (30) 455 207
Deferred:
Federal 2,280 - - -
Foreign - - - (349)
State 430 - - -
----------------- ----------------- ---------------- ---------------
Income tax expense (benefit) $2,953 $ 345 $ 734 $ (142)
================= ================= ================ ===============
Holding has unused operating loss carryforwards of approximately $72.3
million for federal and state income tax purposes which begin to expire in
2010. AMT credit carryforwards are available to Holding indefinitely to
reduce future years' federal income taxes. As a result of the Merger, the
amount of the carryforward which can be used in any given year will be
limited to approximately $12 million.
F-17
Income taxes paid during 2002, 2001, and 2000 approximated $531, $314, and
$329, respectively.
A reconciliation of income tax expense (benefit), computed at the federal
statutory rate, to income tax expense (benefit), as provided for in the
financial statements, is as follows:
COMPANY PREDECESSOR
----------------- --------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED YEAR ENDED
7/22/02- 12/30/01- DECEMBER 29, DECEMBER 30,
12/28/02 7/21/02 2001 2000
----------------- ----------------- ---------------- ---------------
Income tax expense
(benefit) computed
at statutory rate $ 2,081 $ (12,170) $ (463) $ (7,557)
State income tax
expense (benefit),
net of federal taxes 434 (1,035) 795 (403)
Amortization of goodwill - - 2,399 2,262
Expenses not deductible
for income tax purposes 60 3,823 36 119
Change in valuation
allowance - 9,160 (2,978) 5,340
Other 378 567 945 97
----------------- ----------------- ---------------- ---------------
Income tax expense (benefit) $ 2,953 $ 345 $ 734 $ (142)
================= ================= ================ ===============
NOTE 9. EMPLOYEE RETIREMENT PLANS
Berry sponsors a defined contribution 401(k) retirement plan covering
substantially all employees. Contributions are based upon a fixed dollar
amount for employees who participate and percentages of employee
contributions at specified thresholds. Contribution expense for this plan
was approximately $1,462, $1,349, and $1,301, for 2002, 2001, and 2000,
respectively. The Company also maintains a defined benefit pension plan
covering the Poly-Seal employees under a collective bargaining agreement.
At December 28, 2002, stockholders' equity has been reduced by $394 as a
result of recording the minimum pension liability.
NOTE 10. STOCKHOLDERS' EQUITY
COMMON AND PREFERRED STOCK
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly formed
entity controlled by various private equity funds affiliated with Goldman,
Sachs & Co., merged (the "Merger") with and into BPC Holding, pursuant to
an agreement and plan of merger, dated as of May 25, 2002. At the
effective time of the Merger, (i) each share of common stock of BPC Holding
Corporation issued and outstanding immediately prior to the effective time
of the Merger was converted into the right to receive cash pursuant to the
terms of the merger agreement, and (ii) each share of common stock of the
Buyer issued and outstanding immediately prior to the effective time of the
Merger was converted into one share of common stock of BPC Holding.
The authorized capital stock of Holding consists of 5,500,000 shares of
capital stock, including 5,000,000 shares of Common Stock, $.01 par value
(the "Holding Common Stock") and 500,000 shares of Preferred Stock, $.01
par value.
F-18
NOTES RECEIVABLE FROM MANAGEMENT
In connection with the Merger, certain senior employees of BPC Holding
acquired shares of BPC Holding Common Stock pursuant to an employee stock
purchase program. Such employees paid for these shares with any
combination of (i) shares of BPC Holding common stock that they held prior
to the Merger; (ii) their cash transaction bonus, if any; and (iii) a
promissory note. In addition, BPC Holding adopted an employee stock
purchase program pursuant to which a number of employees had the
opportunity to invest in BPC Holding on a leveraged basis. Employees
participating in this program were permitted to finance two-thirds of their
purchases of shares of BPC Holding common stock under the program with a
promissory note. The promissory notes are secured by the shares purchased
and such notes accrue interest which compounds semi-annually at rates
ranging from 4.97% to 5.50% per year. Principal and all accrued interest
is due and payable on the earlier to occur of (i) the end of the ten-year
term, (ii) the ninetieth day following such employee's termination of
employment due to death, "disability", "redundancy" (as such terms are
defined in the 2002 Option Plan) or retirement, or (iii) the thirtieth day
following such employee's termination of employment for any other reason.
As of December 28, 2002, the Company had $14,399 in outstanding notes
(principal and interest), which has been classified as a reduction to
stockholders' equity in the consolidated balance sheet, due from employees
under this program.
STOCK OPTION PLANS
BPC Holding maintains the Amended and Restated BPC Holding Corporation 1996
Stock Option Plan (``1996 Option Plan'') pursuant to which nonqualified
options to purchase 150,536 shares are outstanding. All outstanding
options under the 1996 Option Plan are scheduled to expire on July 22, 2012
and no additional options will be granted under it. Option agreements
issued pursuant to the 1996 Option Plan generally provide that options
become vested and exercisable at a rate of 10% per year based on continued
service. Additional options also vest in years during which certain
financial targets are attained. Notwithstanding the vesting provisions in
the option agreements, all options that were scheduled to vest prior to
December 31, 2002 accelerated and became vested immediately prior to the
Merger.
BPC Holding has adopted a new employee stock option plan (``2002 Option
Plan'') pursuant to which options to acquire up to 437,566 shares of BPC
Holding's common stock may be granted to its employees, directors and
consultants. Options granted under the 2002 Option Plan will have an
exercise price per share that either (1) is fixed at the fair market value
of a share of common stock on the date of grant or (2) commences at the
fair market value of a share of common stock on the date of grant and
increases at the rate of 15% per year during the term. Generally, options
will have a ten-year term, subject to earlier expiration upon the
termination of the optionholder's employment and other events. Some
options granted under the plan will become vested and exercisable over a
five-year period based on continued service with BPC Holding. Other
options will become vested and exercisable based on the achievement by BPC
Holding of certain financial targets, or if such targets are not achieved,
based on continued service with BPC Holding. Upon a change in control of
BPC Holding, the vesting schedule with respect to certain options may
accelerate for a portion of the shares subject to such options. 395,437
options were granted in 2002 at fair market value, none of which were
exercisable at December 28, 2002.
Financial Accounting Standards Board Statement 123, ACCOUNTING FOR STOCK-
BASED COMPENSATION ("Statement 123"), prescribes accounting and reporting
standards for all stock-based compensation plans. Statement 123 provides
that companies may elect to continue using existing accounting requirements
for stock-based awards or may adopt a new fair value method to determine
their intrinsic value. Holding has elected to continue following
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES ("APB 25") to account for its employee stock options. Under APB
25, because the exercise price of Holding's employee stock options equals
the market price of the underlying stock on the date of grant, no
compensation expense is recognized at the grant date.
F-19
Information related to the 1996 Option Plan and 2002 Option Plan is as
follows:
COMPANY PREDECESSOR PREDECESSOR PREDECESSOR
----------------- ---------------- ----------------- -----------------
DECEMBER 28, 2002 JULY 21, 2002 DECEMBER 29, 2001 DECEMBER 30, 2000
----------------- ---------------- ----------------- -----------------
Weighted Weighted Weighted Weighted
Number Average Number Average Number Average Number Average
Of Exercise Of Exercise Of Exercise Of Exercise
Shares Price Shares Price Shares Price Shares Price
----------------- ---------------- ----------------- -----------------
Options outstanding,
beginning of period 48,218 $157 60,420 $132 60,774 $132 51,479 $107
Options converted 102,329 (107) - - - - - -
Options granted 395,137 100 15,345 277 10,975 226 16,225 226
Options exercised - - (18,134) 177 (2,713) 107 - -
Options canceled - - (9,413) 389 (8,616) 116 (6,930) 158
--------- --------- --------- ---------
Options outstanding,
end of period 545,684 86 48,218 157 60,420 155 60,774 132
========= ========= ========= =========
Option price range
at end of period $32 - $100 $100 - $226 $100 - $226 $100 - $226
Options exercisable
at end of period 120,448 38,573 39,487 34,641
Options available for
grant at period end 42,429 0 13,487 15,846
Weighted average fair value
of options granted
during period $100 $389 $226 $226
The following table summarizes information about the options outstanding
at December 28, 2002:
Weighted Number
Range of Weighted Average Average Exercisable
Exercise Number Outstanding Remaining Contractual Exercise at
Prices At December 28, 2002 Life Price December 28, 2002
- ---------------------------------------------------------------------------------------------
$32 - 72 150,547 10 years $50 120,448
$100 395,137 10 years $100 0
------- -------
545,684 120,448
STOCKHOLDERS AGREEMENTS
In connection with the Merger, Holding entered into a stockholders'
agreement with GSCP 2000 and other private equity funds affiliated with
Goldman, Sachs & Co., which in the aggregate own a majority of the common
stock, and J.P. Morgan Partners Global Investors, L.P. and other private
equity funds affiliated with J.P. Morgan Securities Inc., which own
approximately 29% of the common stock. GSCP 2000 and other private equity
funds affiliated with Goldman, Sachs & Co., have the right to designate
five members of the board of directors, one of which shall be a member of
management, and J.P. Morgan Partners Global Investors, L.P. and other
private equity funds affiliated with J.P. Morgan Securities Inc. have the
right to designate two members of the board of directors, one of which will
be designated by J.P. Morgan Partners Global Investors, L.P. The
stockholders' agreement contains customary terms including terms regarding
transfer restrictions, rights of first offer, tag along rights, drag along
rights, preemptive rights and veto rights.
PREFERRED STOCK (PREDECESSOR)
In June 1996, for aggregate consideration of $15.0 million, Holding issued
units (the "Units") comprised of Series A Senior Cumulative Exchangeable
Preferred Stock, par value $.01 per share (the "Preferred Stock"), and
detachable warrants to purchase shares of Predecessor's Class B Common
Stock (voting and non-voting) constituting 6% of the issued and outstanding
Common Stock of all classes, determined on a fully-diluted basis (the
"Warrants"). Dividends accrued at a rate of 14% per annum, compounding and
payable quarterly in arrears (each date of payment, a "Dividend Payment
Date"). The exercise price of the Warrants was $.01 per Warrant and were
exercisable immediately.
F-20
In conjunction with the acquisition of Venture Packaging, Inc. in 1997,
Holding authorized and issued 200,000 shares of Series B Cumulative
Preferred Stock to certain selling shareholders of Venture Packaging, Inc.
The Preferred Stock had a stated value of $25 per share, and dividends
accrued at a rate of 14.75% per annum. The Preferred Stock ranked junior
to the Series A Preferred Stock and prior to all other capital stock of
Holding. In addition, Warrants to purchase 9,924 shares of Predecessor's
Class B Non-Voting Common Stock at $108 per share were issued to the same
selling shareholders of Venture Packaging, Inc. Additional warrants to
purchase 386 shares of Predecessor's Class B Non-Voting Common Stock at
$108 per share were issued in fiscal 2000 to the same selling shareholders
of Venture Packaging, Inc.
In connection with the Poly-Seal acquisition in 2000, Holding issued
1,000,000 shares of Series A-1 Preferred Stock to JPMP(SBIC) and The
Northwestern Mutual Life Insurance Company (collectively, the
"Purchasers"). The Series A-1 Preferred Stock had a stated value of $25
per share, and dividends accrued at a rate of 14% per annum. In addition,
Warrants to purchase an aggregate of 25,997 shares of Class B Non-Voting
Common Stock at $0.01 per share were issued to the Purchasers.
In connection with the Pescor acquisition on May 14, 2001, Holding issued
13,168 shares of Series C Preferred Stock, as defined below, to certain
selling shareholders of Pescor. The Series C Preferred Stock was comprised
of 3,063 shares of Series C-1 Preferred Stock, 1,910 shares of Series C-2
Preferred Stock, 2,135 shares of Series C-3 Preferred Stock, 3,033 shares
of Series C-4 Preferred Stock, and 3,027 shares of Series C-5 Preferred
Stock. The Series C Preferred Stock had stated values ranging from $639
per share to $1,024 per share, and dividends accrued at a rate of 14% per
annum. In addition, the holders of the Series C Preferred had options
beginning on December 31, 2001 to convert the Series C Preferred Stock to
Series D Preferred Stock and Class B Nonvoting Common Stock.
All of the Predecessor's Preferred Stock was retired in connection with the
Merger.
COMMON STOCK (PREDECESSOR)
At the effective time of the Merger, (i) each share of common stock of BPC
Holding Corporation issued and outstanding immediately prior to the
effective time of the Merger was converted into the right to receive cash
pursuant to the terms of the merger agreement, and (ii) each share of
common stock of the Buyer issued and outstanding immediately prior to the
effective time of the Merger was converted into one share of common stock
of BPC Holding.
NOTE 11. RELATED PARTY TRANSACTIONS
Prior to the Merger, Atlantic Equity Partners International II, L.P.
("International") was our largest voting stockholder and International
engaged First Atlantic Capital, Ltd. ("First Atlantic") to provide certain
financial and management consulting services to the Company. Pursuant to a
management agreement, First Atlantic received advisory fees of
approximately $250, $139, and $580 in June 2001, March 2001, and May 2000,
respectively, for originating, structuring and negotiating the acquisitions
of Poly-Seal, Capsol, and Pescor, respectively. In consideration of
financial advisory and management consulting services, the Company paid
First Atlantic fees and expenses of $385, $756, and $821 for fiscal 2002,
2001, and 2000, respectively. In consideration of services performed in
connection with the Merger, the Company paid First Atlantic fees and
expenses of $1,786 in July 2002.
In connection with the Merger, the Company paid $8.0 million to entities
affiliated with Goldman, Sachs & Co. and $5.2 million to J.P. Morgan
Securities Inc., an affiliate of J.P. Morgan Chase & Co., for advisory and
other services. Goldman Sachs and J.P. Morgan acted as jOINT BOOK-RUNNING
MANAGERS IN THE ISSUANCE OF THE 2002 NOTES AND RECEIVED FEES OF
APPROXIMATELY $4.4 MILLION AND $3.2 MILLION, RESPECTIVELY, FOR SERVICES
PERFORMED. Goldman Sachs Credit Partners, L.P., an affiliate of Goldman
Sachs, acted as the administrative agent, joint lead arranger and joint
bookrunner for the Credit Facility and received fees of $3.6 million in
July 2002 for services provided. JP Morgan Chase Bank, an affiliate of
J.P. Morgan, acted as the joint lead arranger and joint bookrunner for the
Credit Facility for consideration of approximately $3.6. million. In
October 2002, the Company entered into an interest rate collar agreement
with Goldman Sachs Capital Markets to protect $50.0 million of the
outstanding variable rate term loan debt from future interest rate
volatility. The collar floor is set at 1.97% LIBOR and capped at 6.75%
LIBOR.
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS INFORMATION
Holding's and the Company's financial instruments generally consist of cash
and cash equivalents and long-term debt. The carrying amounts of Holding's
and the Company's financial instruments approximate fair value at December
28, 2002, except for the 2002 Notes for which the fair value exceeded the
carrying value by $13.8 million.
F-21
NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated balances related to each component of the other
comprehensive income (loss) consist of the following:
COMPANY PREDECESSOR
---------------- -----------------
DECEMBER 28, DECEMBER 29,
2002 2001
---------------- -----------------
Currency translation $2,091 $ (1,429)
Minimum pension liability adjustment (394) -
Unrealized loss on interest rate collar (555) -
---------------- -----------------
$1,142 $(1,429)
================ =================
F-22
NOTE 14. OPERATING SEGMENTS
The Company has three reportable segments: containers, closures, and
consumer products. The Company evaluates performance and allocates
resources based on operating income before depreciation and amortization of
intangibles adjusted to exclude (i) Merger expenses, (ii) Holding's legal
and professional expenses, (iii) drink cup patent litigation expenses, (iv)
uncompleted acquisition expense, (v) acquisition integration expense, (vi)
plant shutdown expense, (vii) non-cash compensation, and (iii) management
fees and reimbursed expenses paid to First Atlantic ("Adjusted EBITDA").
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies.
YEAR ENDED
-------------------------------------------------
COMPANY/
PREDECESSOR PREDECESSOR PREDECESSOR
---------------- -------------- ---------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
2002 2001 2000
---------------- -------------- ---------------
Net sales:
Containers $ 250,423 $ 234,441 $ 231,209
Closures 133,892 132,384 112,202
Consumer Products 109,988 94,834 64,677
Adjusted EBITDA:
Containers 67,079 63,997 47,578
Closures 30,555 28,444 23,646
Consumer Products 16,773 18,411 9,167
Total assets:
Containers 359,635 204,001 188,129
Closures 229,962 158,009 178,768
Consumer Products 170,979 84,866 45,225
Total cost over net assets acquired,
net:
Containers 170,892 61,048 65,443
Closures 87,066 39,682 44,507
Consumer Products 78,302 19,193 4,740
Reconciliation of Adjusted EBITDA to
loss before income taxes and extraordinary item:
Adjusted EBITDA for reportable segments $ 114,407 $ 110,852 $ 80,391
Net interest expense (49,254) (54,355) (51,457)
Depreciation (39,557) (38,105) (31,569)
Amortization (2,408) (12,802) (10,579)
Loss on disposal of property and equipment (299) (473) (877)
Merger expenses (20,987) - -
Holding's legal and professional expense - (134) (165)
Drink cup patent litigation expense - - (700)
Uncompleted acquisition expense (216) - -
Acquisition integration expense (1,353) (2,690) (2,237)
Plant shutdown expense (3,992) (2,221) (3,702)
Non-cash compensation - (796) (459)
Management fees (331) (637) (873)
--------- --------- ---------
Loss before income taxes and
extraordinary item $(3,990) $(1,361) $(22,227)
========= ========= =========
F-23
NOTE 15. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (IN THOUSANDS)
Holding conducts its business through its wholly owned subsidiary, Berry.
Holding and all of Berry's domestic subsidiaries fully, jointly, severally,
and unconditionally guarantee on a senior subordinated basis the 2002 Notes
issued by Berry. Berry and all of Berry's subsidiaries are 100% owned by
Holding. Separate narrative information or financial statements of
guarantor subsidiaries have not been included as management believes they
would not be material to investors. Presented below is condensed
consolidating financial information for Holding, Berry, and its
subsidiaries at December 28, 2002 and December 29, 2001 and for the fiscal
years ended December 28, 2002, December 29, 2001, and December 30, 2000.
The equity method has been used with respect to investments in
subsidiaries.
DECEMBER 28, 2002 (COMPANY)
------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ --------------- ------------- -------------- ------------- ------------
CONSOLIDATING BALANCE SHEETS
Current assets $ 1 $58,995 $ 73,940 $ 11,192 $ - $ 144,128
Net property and equipment - 68,431 108,567 16,134 - 193,132
Other noncurrent assets 74,021 650,613 314,099 11,129 (626,546) 423,316
------------ --------------- ------------- -------------- ------------- ------------
Total assets $74,022 $778,039 $496,606 $38,455 $(626,546) $760,576
============ =============== ============= ============== ============= ============
Current liabilities $ - $ 52,111 $ 21,142 $ 6,674 $ - $ 79,927
Noncurrent liabilities (1,141) 600,539 449,814 22,925 (466,651) 605,486
Equity (deficit) 75,163 125,389 25,650 8,856 (159,895) 75,163
------------ --------------- ------------- -------------- ------------- ------------
Total liabilities and
equity (deficit) $74,022 $778,039 $ 496,606 $38,455 $(626,546) $760,576
============ =============== ============= ============== ============= ============
DECEMBER 29, 2001 (PREDECESSOR)
------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ --------------- ------------- -------------- ------------- ------------
Consolidating Balance Sheets
Current assets $ 440 $ 32,459 $ 68,518 $ 9,775 $ - $111,192
Net property and equipment - 71,437 117,176 14,604 - 203,217
Other noncurrent assets 23,980 289,764 91,272 18,360 (290,909) 132,467
------------ --------------- ------------- -------------- ------------- ------------
Total assets $ 24,420 $393,660 $276,966 $42,739 $(290,909) $446,876
============ =============== ============= ============== ============= ============
Current liabilities $ 861 $ 60,212 $ 22,555 $ 8,237 $ - $ 91,865
Noncurrent liabilities 163,160 311,574 310,244 35,555 (325,921) 494,612
Equity (deficit) (139,601) 21,874 (55,833) (1,053) 35,012 (139,601)
------------ --------------- ------------- -------------- ------------- ------------
Total liabilities and
equity (deficit) $ 24,420 $393,660 $276,966 $42,739 $(290,909) $446,876
============ =============== ============= ============== ============= ============
F-24
YEAR ENDED DECEMBER 28, 2002 (COMPANY/PREDECESSOR)
------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ --------------- ------------- -------------- ------------- ------------
Consolidating Statements of Operations
Net sales $ - $173,570 $300,149 $20,584 $ - $494,303
Cost of goods sold - 116,354 236,169 18,750 - 371,273
------------ --------------- ------------- ------------- -------------- ------------
Gross profit - 57,216 63,980 1,834 - 123,030
Operating expenses 1,920 27,857 44,894 2,796 - 77,467
------------ --------------- ------------- ------------- -------------- ------------
Operating income (loss) (1,920) 29,359 19,086 (962) - 45,563
Other expenses - 145 249 (95) - 299
Interest expense, net 9,443 3,172 34,481 2,158 - 49,254
Income taxes (benefit) (8,234) 11,016 115 401 - 3,298
Extraordinary item 9,282 6,339 9,498 209 - 25,328
Equity in net (income)
loss from subsidiary 20,205 28,892 3,635 - (52,732) -
------------ --------------- ------------- ------------- -------------- ------------
Net income (loss) $(32,616) $ (20,205) $(28,892) $(3,635) $52,732 $(32,616)
============ =============== ============= ============= ============== ============
Consolidating Statements of Cash Flows
Net income (loss) $ (32,616) $(20,205) $ (28,892) $(3,635) $ 52,732 $(32,616)
Non-cash expenses 11,451 23,799 36,178 3,270 - 74,698
Equity in net (income)
loss from subsidiary 20,205 28,892 3,635 - (52,732) -
Changes in working capital (320) (6,290) (7,557) (1,275) - (15,442)
------------ --------------- ------------- ------------- -------------- ------------
Net cash provided by (used
for) operating activities (1,280) 26,196 3,364 (1,640) - 26,640
Net cash used for investing
activities - (18,023) (25,704) (1,171) - (44,898)
Net cash provided by financing
activities 841 6,863 22,194 2,483 - 32,381
Effect on exchange rate
changes on cash - - - 258 - 258
------------ --------------- ------------- ------------- -------------- ------------
Net increase (decrease) in cash
and cash equivalents (439) 15,036 (146) (70) - 14,381
Cash and cash equivalents at
beginning of year 440 121 410 261 - 1,232
------------ --------------- ------------- ------------- -------------- ------------
Cash and cash equivalents at
end of year $ 1 $ 15,157 $ 264 $ 191 $ - $ 15,613
============ =============== ============= ============= ============== ============
YEAR ENDED DECEMBER 29, 2001 (PREDECESSOR)
------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ --------------- ------------- -------------- ------------- ------------
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales $ - $159,783 $279,533 $22,343 $ - $461,659
Cost of goods sold - 103,867 213,355 20,778 - 338,000
------------ --------------- ------------- ------------- -------------- ------------
Gross profit - 55,916 66,178 1,565 - 123,659
Operating expenses 924 23,113 40,889 5,266 - 70,192
------------ --------------- ------------- ------------- -------------- ------------
Operating income (loss) (924) 32,803 25,289 (3,701) - 53,467
Other expenses - 46 481 (54) - 473
Interest expense, net 17,469 7,277 26,848 2,761 - 54,355
Income taxes (benefit) (8,307) 8,682 234 125 - 734
Equity in net (income)
loss from subsidiary (7,991) 8,807 6,533 - (7,349) -
------------ --------------- ------------- ------------- -------------- ------------
Net income (loss) $(2,095) $ 7,991 $(8,807) $(6,533) $7,349 $(2,095)
============ =============== ============= ============= ============== ============
CONSOLIDATING STATEMENTS OF CASH FLOWS
Net income (loss) $ (2,095) $7,991 $(8,807) $ (6,533) $7,349 $(2,095)
Non-cash expenses 9,775 16,146 33,072 4,451 - 63,444
Equity in net (income)
loss from subsidiary (7,991) 8,807 6,533 - (7,349) -
Changes in working capital 154 5,882 (11,258) (1,779) - (7,001)
------------ --------------- ------------- ------------- -------------- ------------
Net cash provided by (used
for) operating activities (157) 38,826 19,540 (3,861) - 54,348
Net cash used for investing
activities - (30,688) (22,395) (3,207) - (56,290)
Net cash provided by (used
for) financing activities 377 (9,199) 3,014 6,388 - 580
Effect on exchange rate
changes on cash - 540 (540) 540 - 540
------------ --------------- ------------- ------------- -------------- ------------
Net increase (decrease) in cash
and cash equivalents 220 (521) (381) (140) - (822)
Cash and cash equivalents at
beginning of year 220 642 791 401 - 2,054
------------ --------------- ------------- ------------- -------------- ------------
Cash and cash equivalents at
end of year $ 440 $ 121 $ 410 $ 261 $ - $1,232
============ =============== ============= ============= ============== ============
F-25
YEAR ENDED DECEMBER 30, 2000 (PREDECESSOR)
------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ --------------- ------------- -------------- ------------- ------------
Consolidating Statements of Operations
Net sales $ - $158,055 $234,944 $15,089 $ - $408,088
Cost of goods sold - 108,739 189,872 13,508 - 312,119
------------ --------------- ------------- -------------- ------------- ------------
Gross profit - 49,316 45,072 1,581 - 95,969
Operating expenses 616 23,303 37,852 4,091 - 65,862
------------ --------------- ------------- -------------- ------------- ------------
Operating income (loss) (616) 26,013 7,220 (2,510) - 30,107
Other expenses - 258 619 - - 877
Interest expense, net 16,025 11,221 23,000 1,211 - 51,457
Income taxes (benefit) 18 168 22 (350) - (142)
Extraordinary item - 1,022 - - - 1,022
Equity in net (income)
loss from subsidiary 6,448 19,792 3,371 - (29,611) -
------------ --------------- ------------- -------------- ------------- ------------
Net income (loss) $(23,107) $(6,448) $(19,792) $(3,371) $29,611 $(23,107)
============ =============== ============= ============= ============== ============
Consolidating Statements of Cash Flows
Net income (loss) $(23,107) $(6,448) $ (19,792) $ (3,371) $ 29,611 $(23,107)
Non-cash expenses 16,958 13,332 30,372 1,988 - 62,650
Equity in net (income)
loss from subsidiary 6,448 19,792 3,371 - (29,611) -
Changes in working capital (646) 2,931 (2,928) (2,794) - (3,437)
------------ --------------- ------------- -------------- ------------- ------------
Net cash provided by (used
for) operating activities (347) 29,607 11,023 (4,177) - 36,106
Net cash used for investing
activities - (78,328) (27,218) (3,169) - (108,715)
Net cash provided by (used
for) financing activities (136) 48,307 16,671 7,195 - 72,037
Effect on exchange
rate changes on cash - 80 (80) 80 - 80
------------ --------------- ------------- -------------- ------------- ------------
Net increase (decrease)in cash
and cash equivalents (483) (334) 396 (71) - (492)
Cash and cash equivalents at
beginning of year 703 976 395 472 - 2,546
------------ --------------- ------------- -------------- ------------- ------------
Cash and cash equivalents at
end of year $ 220 $ 642 $ 791 $ 401 $ - $2,054
============ =============== ============= ============= ============== ============
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table contains selected unaudited quarterly financial data
for fiscal years 2002 and 2001.
2002 2001
-------------------------------------- -------------------------------------
FIRST SECOND THIRD* FOURTH FIRST SECOND THIRD FOURTH
-------- -------- --------- --------- -------- -------- ------- --------
Net sales $122,934 $127,989 $127,575 $115,805 $116,016 $124,997 $121,910 $98,736
Cost of sales 90,299 94,974 97,492 88,508 83,927 89,092 91,311 73,670
-------- -------- -------- --------- -------- -------- -------- -------
Gross profit $32,635 $33,015 $30,083 $27,297 $32,089 $35,905 $30,599 $25,066
======== ======== ======== ========= ======== ======== ======== =======
Net income (loss) $4,766 $5,216 $(42,071) $(527) $1,022 $1,907 $176 $(5,200)
======== ======== ======== ========= ======== ======== ======== =======
* For comparison purposes, the period from June 30, 2002 to July
21, 2002 (Predecessor) has been combined with the period from
July 22, 2002 to September 28, 2002 (Company). Net loss in the
third quarter of 2002 includes merger expenses of $20,987 and an
extraordinary expense of $25,328 incurred in connection with the
Merger.
F-26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the
21st day of March, 2003.
BPC HOLDING CORPORATION
By /S/IRA G. BOOTS
_____________________________
Ira G. Boots
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Joseph H. Gleberman Chairman of the Board of Directors March 21, 2003
- -----------------------
Joseph H. Gleberman
/s/ Ira G. Boots President, Chief Executive Officer and Director March 21, 2003
- ----------------------- (Principal Executive Officer)
Ira G. Boots
/s/ James M. Kratochvil Executive Vice President, Chief Financial Officer, March 21, 2003
- ----------------------- Treasurer and Secretary (Principal Financial and
James M. Kratochvil Accounting Officer)
/s/ Christopher C. Behrens Director March 21, 2003
- -----------------------
Christopher C. Behrens
/s/ Patrick J. Dalton Director March 21, 2003
- ----------------------
Patrick J. Dalton
/s/ Douglas F. Londal Director March 21, 2003
- ----------------------
Douglas F. Londal
/s/ Mathew J. Lori Director March 21, 2003
- ----------------------
Mathew J. Lori
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the
21st day of March, 2003.
BERRY PLASTICS CORPORATION
By /S/ IRA G. BOOTS
________________________
Ira G. Boots
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Joseph H. Gleberman Chairman of the Board of Directors March 21, 2003
- -----------------------
Joseph H. Gleberman
/s/ Ira G. Boots President, Chief Executive Officer and Director March 21, 2003
- ----------------------- (Principal Executive Officer)
Ira G. Boots
/s/ James M. Kratochvil Executive Vice President, Chief Financial Officer, March 21, 2003
- ----------------------- Treasurer and Secretary (Principal Financial and
James M. Kratochvil Accounting Officer)
/s/ Christopher C. Behrens Director March 21, 2003
- -----------------------
Christopher C. Behrens
/s/ Patrick J. Dalton Director March 21, 2003
- ----------------------
Patrick J. Dalton
/s/ Douglas F. Londal Director March 21, 2003
- ----------------------
Douglas F. Londal
/s/ Mathew J. Lori Director March 21, 2003
- ----------------------
Mathew J. Lori
CERTIFICATIONS
I, Ira G. Boots, certify that:
1. I have reviewed this annual report on Form 10-K of BPC Holding
Corporation and Berry Plastics Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrants' other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrants' disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrants' other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants' auditors and the audit
committee of registrants' board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants' ability to record,
process, summarize and report financial data and have identified for the
registrants' auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants' internal
controls; and
6. The registrants' other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 21, 2003
/S/ IRA G. BOOTS
_____________________
Ira G. Boots
President and Chief Executive Officer
I, James M. Kratochvil, certify that:
1. I have reviewed this annual report on Form 10-K of BPC Holding
Corporation and Berry Plastics Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrants' other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrants' disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrants' other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants' auditors and the audit
committee of registrants' board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants' ability to record,
process, summarize and report financial data and have identified for the
registrants' auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants' internal
controls; and
6. The registrants' other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 21, 2003
/S/ JAMES M. KRATOCHVIL
_________________________
James M. Kratochvil
Executive Vice President, Chief Financial Officer, Treasurer and
Secretary
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANT
WHICH HAS NOT REGISTERED SECURITIES PURSUANT TO SECTION 12
OF THE ACT
The Registrants have not sent any annual report or proxy material to
securityholders.
BPC HOLDING CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
DESCRIPTION BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- END OF
OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ---------------------------------- ------------- ------------ ------------ ------------- -------------
Period from July 22, 2002 to December 28, 2002
Allowance for doubtful accounts $ 2,063 $(291) $ - $ (218)(1) $ 1,990
============= ============= ============ ============ =============
Period from December 30, 2001 to July 21, 2002
Allowance for doubtful accounts $ 2,070 $164 $ - $ 171 (1) $ 2,063
============= ============= ============ ============ =============
Year ended December 29, 2001
Allowance for doubtful accounts $ 1,724 $337 $ 295(2) $ 286 (1) $ 2,070
============= ============= ============ ============ =============
Year ended December 30, 2000
Allowance for doubtful accounts $ 1,386 $ 79 $ 510(2) $ 251 (1) $ 1,724
============= ============= ============ ============ =============
(1) Uncollectible accounts written off, net of recoveries.
(2) Primarily relates to purchase of accounts receivable and related
allowance through acquisitions.
S-1
INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
2.1 Agreement and Plan of Merger, dated as of May 25, 2002, among GS
Berry Acquisition Corp., GS Capital Partners 2000, L.P., GS
Capital Partners 2000 Offshore, L.P., GS Capital Partners 2000
GmbH & Co. Beteiligungs KG, Bridge Street Special Opportunities
Fund 2000, L.P., GS Capital Partners 2000 Employee Fund, L.P.,
Stone Street Fund 2000, Holding, the Company, the Stockholders
listed on Schedule 1 attached thereto, Atlantic Equity Partners
International II, L.P., J.P. Morgan Partners (SBIC), LLC, BPC
Equity, LLC and Ira G. Boots (filed as Exhibit 2.1 to the Current
Report on Form 8-K filed on July 31, 2002 (the "Form 8-K") and
incorporated herein by reference)
2.2 First Amendment dated as of July 17, 2002 among GS Berry
Acquisition Corp., GS Capital Partners 2000, L.P., GS Capital
Partners 2000 Offshore, L.P., GS Capital Partners 2000 GmbH & Co.
Beteiligungs KG, Bridge Street Special Opportunities Fund 2000,
L.P., GS Capital Partners 2000 Employee Fund, L.P., Stone Street
Fund 2000, Holding, the Company, the Stockholders listed on
Schedule 1 attached thereto, Atlantic Equity Partners
International II, L.P., J.P. Morgan Partners (SBIC), LLC, BPC
Equity, LLC and Ira G. Boots to the Agreement and Plan of Merger,
dated as of May 25, 2002 (filed as Exhibit 2.2 to the Form 8-K
and incorporated herein by reference)
2.3 Second Amendment dated as of July 22, 2002 among GS Berry
Acquisition Corp., GS Capital Partners 2000, L.P., GS Capital
Partners 2000 Offshore, L.P., GS Capital Partners 2000 GmbH & Co.
Beteiligungs KG, Bridge Street Special Opportunities Fund 2000,
L.P., GS Capital Partners 2000 Employee Fund, L.P., Stone Street
Fund 2000, Holding, the Company, the Stockholders listed on
Schedule 1 attached thereto, Atlantic Equity Partners
International II, L.P., J.P. Morgan Partners (SBIC), LLC, BPC
Equity, LLC and Ira G. Boots to the Agreement and Plan of Merger,
dated as of May 25, 2002 (filed as Exhibit 2.3 to the Form 8-K
and incorporated herein by reference)
3.1 Amended and Restated Certificate of Incorporation of Holding (filed
as Exhibit 4.1 to the Form S-8 filed on August 6, 2002(the
"Form S-8") and incorporated herein by reference)
3.2 Amended and Restated Bylaws of Holding (filed as Exhibit 4.2 to the
Form S-8 and incorporated herein by reference)
4.1 The Indenture, dated as of July 22, 2002, among Holding, the Company,
the other guarantors listed on the signature page thereof, and U.S.
Bank Trust National Association, as trustee relating to the 10 3/4%
Senior Subordinated Notes due 2012 (filed as Exhibit 4.1 to the Form-S-
4 filed on August 16, 2002 "2002 Form S-4" and incorporated herein by
reference)
4.2 The Registration Rights Agreement, dated July 22, 2002, among BPC
Holding, the Company, the other guarantors listed on the signature page
thereof, and J.P. Morgan Securities Inc., Goldman, Sachs & Co., the
Royal Bank of Scotland and Credit Suisse First Boston Corporation, as
Initial Purchasers relating to the 10 3/4% Senior Subordinated Notes
due 2012 (filed as Exhibit 4.2 to the 2002 Form-S-4 and incorporated
herein by reference)
4.3 Supplemental Indenture, dated as of August 6, 2002, among the
Company, Holding, Berry Iowa Corporation, Packerware Corporation,
Knight Plastics, Inc., Berry Sterling Corporation, Berry Plastic Design
Corporation, Poly-Seal Corporation, Berry Plastics Acquisitions
Corporation III, Venture Packaging, Inc., Venture Packaging Midwest,
Inc., Berry Plastics Technical Services, Inc., CPI Holding Corporation,
Aerocon, Inc., Pescor, Inc., Berry Tri-Plas Corporation and Cardinal
Packaging, Inc., the new guarantors listed on the signature page
thereof, and U.S. Bank Trust National Association, as trustee (filed as
Exhibit 4.3 to the 2002 Form-S-4 and incorporated herein by reference)
10.1 Stockholders Agreement dated as of July 22, 2002, among Holding, GS
Capital Partners 2000, L.P., GS Capital Partners Offshore, L.P., GS
Capital Partners 2000 GmbH & Co. Beteiligungs KG, GS Capital Partners
2000 Employee Fund, L.P., Stone Street Fund 2000, L.P., Bridge Street
Special Opportunities Fund 2000, L.P., Goldman Sachs Direct Investment
Fund 2000, L.P., J.P. Morgan Partners (BHCA), L.P., J.P. Morgan
Partners Global Investors, L.P., J.P. Morgan Partners Global Investors
(Cayman), L.P., J.P. Morgan Partners Global Investors (Cayman) II, L.P.
and J.P. Morgan Partners Global Investors A, L.P. (filed as Exhibit
10.1 to the 2002 Form-S-4 and incorporated herein by reference)
10.2 Stockholders Agreement dated as of July 22, 2002, among Holding, and
those stockholders listed on Schedule A attached thereto (filed as
Exhibit 4.6 to the Form S-8 and incorporated herein by reference)
10.3 Credit and Guaranty Agreement, dated as of July 22, 2002, among the
Company, Holding, certain Subsidiaries of the Company, as guarantors,
various lenders, Goldman Sachs Credit Partners, L.P., JP Morgan Chase
Bank, Fleet National Bank, The Royal Bank of Scotland and General
Electric Capital Corporation (filed as Exhibit 10.3 to the 2002 Form-S-
4 and incorporated herein by reference)
10.4 Employment Agreement dated December 24, 1990, as amended, between the
Company and R. Brent Beeler ("Beeler") (filed as Exhibit 10.10 to the
Form S-1 and incorporated herein by reference)
10.5* Amendment to Beeler Employment Agreement dated November 30, 1995
10.6 Amendment to Beeler Employment Agreement dated June 30, 1996 (filed as
Exhibit 10.7 to the Registration Statement on Form S-4 filed on July
17, 1996 (the "1996 Form S-4") and incorporated herein by reference)
10.7 Employment Agreement dated December 24, 1990 as amended, between the
Company and James M. Kratochvil ("Kratochvil") (filed as Exhibit 10.12
to the Form S-1 and incorporated herein by reference)
10.8* Amendment to Kratochvil Employment Agreement dated November 30, 1995
10.9 Amendment to Kratochvil Employment Agreement dated June 30, 1996
(filed as Exhibit 10.13 to the 1996 Form S-4 and incorporated herein by
reference)
10.10 Employment Agreement dated as of January 1, 1993, between the Company
and Ira G. Boots ("Boots") (filed as Exhibit 10.13 to the Form S-1 and
incorporated herein by reference)
10.11* Amendment to Boots Employment Agreement dated November 30, 1995
10.12 Amendment to Boots Employment Agreement dated June 30, 1996 (filed as
Exhibit 10.16 to the 1996 Form S-4 and incorporated herein by
reference)
10.13 Employment Agreement dated as of January 21, 1997, between the
Company and Bruce J. Sims ("Sims") (filed as Exhibit 10.14 to
the Form 10-K filed March 29, 2000 (the "1999 Form 10-K") and
incorporated herein by reference)
10.14 Financing Agreement dated as of April 1, 1991, between the
City of Henderson, Nevada Public Improvement Trust and the
Company (including exhibits) (filed as Exhibit 10.17 to the
Form S-1 and incorporated herein by reference)
10.15 Employment Agreement dated as of August 14, 2000, between the Company
and William J. Herdrich (filed as Exhibit 10.15 to the 2002 Form-S-4
and incorporated herein by reference)
10.16* BPC Holding Corporation 1996 Stock Option Plan
10.17 Holding 2002 Stock Option Plan dated August 5, 2002 (filed as Exhibit
4.7 to the Form S-8 and incorporated herein by reference)
10.18 Holding Key Employee Equity Investment Program dated August 5, 2002
(filed as Exhibit 4.6 to the Form S-8 and incorporated herein by
reference)
10.19 Pledge and Security Agreement dated as of July 22, 2002, between the
Company, and the other grantors party thereto and Fleet National Bank,
as the Collateral Agent (filed as Exhibit 10.18 to the 2002 Form-S-4
and incorporated herein by reference)
10.20 Amendment to Beeler Employment Agreement dated as of June 30, 2001
(filed as Exhibit 10.19 to the 2002 Form-S-4 and incorporated herein by
reference)
10.21 Amendment to Boots Employment Agreement dated as of June 30, 2001
(filed as Exhibit 10.20 to the 2002 Form-S-4 and incorporated herein by
reference)
10.22 Amendment to Kratochvil Employment Agreement dated as of June 30,
2001 (filed as Exhibit 10.21 to the 2002 Form-S-4 and incorporated
herein by reference)
10.23 Amendment to Sims Employment Agreement dated as of July 16, 2002
(filed as Exhibit 10.22 to the 2002 Form-S-4 and incorporated herein by
reference)
12.1* Ratio of earnings to fixed charges
21.1* List of subsidiaries
* Filed herewith.