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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 2003
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 35-1814673
(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 35-1813706
(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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X]Yes [ ]No
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]
Indicate the number of shares outstanding of each of issuers' classes of
common stock, as of the latest practicable date:
As of May 8, 2003, there were outstanding 2,767,279 shares of the Common
Stock, $.01 par value, of BPC Holding Corporation. As of May 8, 2003, there
were outstanding 100 shares of the Common Stock, $.01 par value, of Berry
Plastics Corporation.
1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements," within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with respect to our
financial condition, results of operations and business and our expectations
or beliefs concerning future events. Such statements include, in
particular, statements about our plans, strategies and prospects under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations". You can identify certain forward-looking statements
by our use of forward-looking terminology such as, but not limited to,
"believes," "expects," "anticipates," "estimates," "intends," "plans,"
"targets," "likely," "will," "would," "could" and similar expressions that
identify forward-looking statements. All forward-looking statements involve
risks and uncertainties. Many risks and uncertainties are inherent in our
industry and markets. Others are more specific to our operations. The
occurrence of the events described and the achievement of the expected
results depend on many events, some or all of which are not predictable or
within our control. Actual results may differ materially from the forward-
looking statements contained in this Form 10-Q. Factors that could cause
actual results to differ materially from those expressed or implied by the
forward-looking statements include:
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 our Form 10-K in the section 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 OUR FORM 10-K
IN THE SECTION TITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CERTAIN FACTORS AFFECTING FUTURE
RESULTS" 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
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED MARCH 29, 2003
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets 4
Consolidated Statements of Operations 6
Consolidated Statements of Changes in Stockholders'Equity 7
Consolidated Statements of Cash Flows 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk 25
Item 4. Controls and Procedures 25
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURE 27
CERTIFICATIONS 28
3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
BPC Holding Corporation
Consolidated Balance Sheets
(In Thousands of Dollars)
MARCH 29, DECEMBER 28,
2003 2002
-------------- --------------
(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents $ 4,025 $ 15,613
Accounts receivable (less allowance for doubtful
accounts of $2,235 at March 29, 2003 and $1,990 at
December 28, 2002) 69,493 56,765
Inventories:
Finished goods 48,884 50,002
Raw materials and supplies 15,686 14,730
-------------- --------------
64,570 64,732
Prepaid expenses and other current assets 6,717 7,018
-------------- --------------
Total current assets 144,805 144,128
Property and equipment:
Land 7,033 7,040
Buildings and improvements 49,887 49,966
Machinery, equipment and tooling 142,523 139,486
Construction in progress 22,240 12,232
-------------- --------------
221,683 208,724
Less accumulated depreciation 25,179 15,592
-------------- --------------
196,504 193,132
Intangible assets:
Deferred financing fees, net 19,514 20,116
Customer relationships, net 34,084 33,890
Goodwill 334,744 336,260
Trademarks 27,048 27,048
Other intangibles, net 5,998 5,883
-------------- --------------
421,388 423,197
Other 183 119
-------------- --------------
Total assets $762,880 $760,576
============== ==============
4
BPC Holding Corporation
Consolidated Balance Sheets (continued)
(In Thousands of Dollars, except share information)
MARCH 29, DECEMBER 28,
2003 2002
-------------- --------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,902 $ 31,204
Accrued expenses and other liabilities 9,994 9,926
Accrued interest 8,010 14,239
Employee compensation and payroll taxes 15,843 15,917
Current portion of long-term debt 8,687 8,641
-------------- --------------
Total current liabilities 76,436 79,927
Long-term debt, less current portion 604,443 601,302
Deferred income taxes 648 640
Other liabilities 3,584 3,544
-------------- --------------
685,111 685,413
Stockholders' equity:
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 2,767,279
shares outstanding 28 28
Additional paid-in capital 281,672 281,816
Adjustment of the carryover basis of continuing
stockholders (196,603) (196,603)
Notes receivable - common stock (14,553) (14,399)
Treasury stock: 600 shares Common Stock (60) -
Retained earnings 6,258 3,179
Accumulated other comprehensive income 1,027 1,142
-------------- --------------
Total stockholders' equity 77,769 75,163
-------------- --------------
Total liabilities and stockholders' equity $762,880 $ 760,576
============== ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
BPC Holding Corporation
Consolidated Statements of Operations
(In Thousands of Dollars)
THIRTEEN WEEKS ENDED
----------------------------------------
COMPANY PREDECESSOR
------------------ -------------------
MARCH 29, MARCH 30,
2003 2002
------------------ -------------------
(UNAUDITED)
Net sales $125,398 $122,934
Cost of goods sold 94,321 90,299
------------------ -------------------
Gross profit 31,077 32,635
Operating expenses:
Selling 6,202 5,780
General and administrative 6,031 7,108
Research and development 764 547
Amortization of intangibles 615 477
Other expenses 324 1,116
------------------ -------------------
Operating income 17,141 17,607
Other expenses:
Loss on disposal of property and equipment - 144
------------------ -------------------
Income before interest and taxes 17,141 17,463
Interest:
Expense (11,730) (12,809)
Income 212 3
------------------ -------------------
Income before income taxes 5,623 4,657
Income taxes (benefit) 2,544 (109)
------------------ -------------------
Net income 3,079 4,766
Preferred stock dividends - (2,755)
Amortization of preferred stock discount - (256)
------------------ -------------------
Net income attributable to common shareholders $ 3,079 $ 1,755
================== ===================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
BPC Holding Corporation
Consolidated Statements of Changes in Stockholders' Equity
(In Thousands of Dollars)
ADJUSTMENT
OF THE NOTES
ADDITIONAL CARRYOVER RECEIVABLE
COMMON PAID-IN BASIS OF - COMMON TREASURY
STOCK CAPITAL CONTINUING STOCK STOCK
STOCKHOLDERS
------------ ------------ ------------ ------------ ------------
Balance at December 28, 2002 $ 28 $281,816 $(196,603) $ (14,399) $ -
------------ ------------ ------------ ------------ ------------
Interest on notes receivable - - - (195) -
Purchase of treasury stock
and option rights
from former management - (144) - 41 (60)
Translation loss - - - - -
Other comprehensive losses - - - - -
Net income - - - - -
------------ ------------ ------------ ------------ ------------
Balance at March 29, 2003 $ 28 $281,672 $(196,603) $ (14,553) $ (60)
============ ============ ============ ============ ============
ACCUMULATED
RETAINED OTHER
EARNINGS COMPREHENSIVE TOTAL COMPREHENSIVE
INCOME INCOME (LOSS)
------------ ------------ ------------ ------------
Balance at December 28, 2002 $ 3,179 $ 1,142 $75,163 $ -
------------ ------------ ------------ ------------
Interest on notes receivable - - (195) -
Purchase of treasury stock
and option rights
from former management - - (163) -
Translation loss - (27) (27) (27)
Other comprehensive losses - (88) (88) (88)
Net income 3,079 - 3,079 3,079
------------ ------------ ------------ ------------
Balance at March 29, 2003 $ 6,258 $ 1,027 $77,769 $ 2,964
============ ============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
BPC Holding Corporation
Consolidated Statements of Cash Flows
(In Thousands of Dollars)
THIRTEEN WEEKS ENDED
-------------------------------------
COMPANY PREDECESSOR
------------------ ----------------
MARCH 29, MARCH 30,
2003 2002
------------------ ----------------
(UNAUDITED)
OPERATING ACTIVITIES
Net income $ 3,079 $ 4,766
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,535 10,358
Non-cash interest expense 407 631
Amortization of intangibles 615 477
Loss on sale of property and equipment - 144
Deferred income taxes 2,480 -
Changes in operating assets and liabilities:
Accounts receivable, net (12,700) (14,424)
Inventories 161 (1,553)
Prepaid expenses and other current assets 747 373
Other assets (4) 11
Accrued interest (6,229) 5,898
Payables and accrued expenses 2,679 808
------------------ ----------------
Net cash provided by operating activities 770 7,489
INVESTING ACTIVITIES
Additions to property and equipment (10,080) (9,801)
Proceeds from disposal of property and equipment - 1
Acquisitions of businesses (4,858) (3,199)
------------------ ----------------
Net cash used for investing activities (14,938) (12,999)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 4,911 12,098
Payments on long-term borrowings (2,182) (6,489)
Purchase of treasury stock and option rights (163) -
------------------ ----------------
Net cash provided by financing activities 2,566 5,609
Effect of exchange rate changes on cash 14 (557)
------------------ ----------------
Net decrease in cash and cash equivalents (11,588) (458)
Cash and cash equivalents at beginning of period 15,613 1,232
------------------ ----------------
Cash and cash equivalents at end of period $ 4,025 $ 774
================== ================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
BPC Holding Corporation
Notes to Consolidated Financial Statements
(In thousands of dollars, except as otherwise noted)
(Unaudited)
1. Basis of Presentation
THE ACCOMPANYING UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF BPC HOLDING
CORPORATION (THE "COMPANY") HAVE BEEN PREPARED IN
ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") FOR
INTERIM FINANCIAL INFORMATION AND WITH THE INSTRUCTIONS FOR FORM 10-Q AND
ARTICLE 10 OF REGULATION S-X. ACCORDINGLY, THEY DO NOT INCLUDE ALL OF THE
INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS. IN THE OPINION OF MANAGEMENT,
ALL ADJUSTMENTS (CONSISTING OF NORMAL RECURRING ADJUSTMENTS) CONSIDERED
NECESSARY FOR A FAIR PRESENTATION HAVE BEEN INCLUDED. OPERATING RESULTS FOR
THE PERIODS PRESENTED ARE NOT NECESSARILY INDICATIVE OF THE RESULTS THAT MAY
BE EXPECTED FOR THE FULL FISCAL YEAR. THE ACCOMPANYING FINANCIAL STATEMENTS
INCLUDE THE RESULTS OF BPC HOLDING CORPORATION ("HOLDING") AND ITS WHOLLY-
OWNED SUBSIDIARY, BERRY PLASTICS CORPORATION ("BERRY"), AND ITS WHOLLY-OWNED
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, AND OCEISSE S.R.L. AND ITS SUBSIDIARY CAPSOL S.P.A. AS A
RESULT OF THE MERGER DESCRIBED IN NOTE 2 BELOW, CERTAIN FINANCIAL
INFORMATION HAS BEEN PRESENTED SEPARATELY FOR HOLDING'S PRIOR OWNERSHIP
THROUGH THE MERGER DATE ("PREDECESSOR") AND SUBSEQUENT TO THE MERGER
("COMPANY"). FOR FURTHER INFORMATION, REFER TO THE CONSOLIDATED FINANCIAL
STATEMENTS AND FOOTNOTES THERETO INCLUDED IN HOLDING'S AND BERRY'S FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED
DECEMBER 28, 2002.
2. 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 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 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 (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 Holding.
9
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 $870.4 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). As a result of the Merger, private equity
funds affiliated with Goldman Sachs 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%.
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 Holding prior to the Merger to the Company were recorded
at their Company basis. The application of these provisions reduced
stockholder's equity and intangibles by $196.6 million.
3. RECENT ACQUISITIONS
ON JANUARY 24, 2002, BERRY ACQUIRED THE ALCOA FLEXIBLE PACKAGING INJECTION
MOLDING ASSETS OF MOUNT VERNON PLASTICS CORPORATION ("MOUNT VERNON") FOR
CONSIDERATION, EXCLUDING TRANSITION EXPENSES, 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 MOUNT
VERNON FIXED ASSETS.
ON FEBRUARY 25, 2003, BERRY ACQUIRED THE 400 SERIES CONTINUOUS THREADED
INJECTION MOLDED CLOSURE ASSETS FROM CCL PLASTIC PACKAGING LOCATED IN LOS
ANGELES, CALIFORNIA ("CCL ACQUISITION") FOR AGGREGATE CONSIDERATION,
INCLUDING EXPENSES, OF APPROXIMATELY $4.5 MILLION. THE PURCHASE PRICE WAS
ALLOCATED TO FIXED ASSETS ($2.4 MILLION), INVENTORY ($1.1 MILLION), CUSTOMER
RELATIONSHIPS ($0.5 MILLION), GOODWILL ($0.4 MILLION), AND OTHER INTANGIBLES
($0.1 MILLION). THE FAIR VALUE OF THE NET ASSETS ACQUIRED WAS BASED ON
PRELIMINARY ESTIMATES AND MAY BE REVISED AT A LATER DATE UPON COMPLETION OF
THE INTEGRATION AND FINALIZATION OF EXPENSES RELATED TO THE ACQUISITION.
THE PURCHASE WAS FINANCED THROUGH BORROWINGS UNDER THE COMPANY'S REVOLVING
LINE OF CREDIT. THE OPERATIONS FROM THE CCL ACQUISITION ARE INCLUDED IN
BERRY'S OPERATIONS SINCE THE ACQUISITION DATE USING THE PURCHASE METHOD OF
ACCOUNTING.
PRO FORMA RESULTS FOR THE THIRTEEN WEEKS ENDED MARCH 29, 2003 AND MARCH 30,
2002 HAVE NOT BEEN PRESENTED, AS THEY DO NOT DIFFER MATERIALLY FROM REPORTED
HISTORICAL RESULTS.
10
4. LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 29, DECEMBER 28,
2003 2002
------------ ------------
Berry 10 3/4% Senior Subordinated Notes $250,000 $250,000
Term loans 328,350 329,175
Revolving lines of credit 5,626 692
Nevada Industrial Revenue Bonds 2,500 2,500
Capital leases 26,654 27,576
------------ ------------
613,130 609,943
Less current portion of long-term debt 8,687 8,641
------------ ------------
$604,443 $601,302
============ ============
The current portion of long-term debt consists of $3.3 million of quarterly
installments on the term loans, $0.5 million in repayments of the industrial
bonds, and $4.9 million of monthly principal payments related to capital
lease obligations.
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 March 29, 2003. 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.
11
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. 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. The ``applicable margin''
with respect to Eurodollar Rate Loans is subject to a pricing grid which
ranges from 2.75% per annum to 2.00% per annum (2.75% based on results
through March 29, 2003), 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. At March 29, 2003, shareholders'
equity has been reduced by $0.6 million to adjust the agreement to fair
market value. At March 29, 2003, the Company had unused borrowing capacity
under the Credit Facility's revolving line of credit of $85.5 million.
However, covenants under the Credit Facility may limit the Company's ability
to make such borrowings and as of March 29, 2003, the Company could have
borrowed $24.8 million.
5. STOCK-BASED COMPENSATION
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123". The Statement requires prominent disclosures in both annual and
interim financial statements regarding the method of accounting for stock-
based employee compensation and the effect of the method used on reported
results. 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:
THIRTEEN WEEKS ENDED
-----------------------------------
COMPANY PREDECESSOR
---------------- ------------------
MARCH 29, MARCH 30,
2003 2002
---------------- ------------------
Risk-free interest rate 4.0% 4.0%
Dividend yield 0.0% 0.0%
Volatility factor .25 .25
Expected option life 5.0 years 5.0 years
12
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 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 to net
income as if the Company used the fair value method of accounting for stock-
based compensation.
THIRTEEN WEEKS ENDED
-----------------------------------
COMPANY PREDECESSOR
---------------- ------------------
MARCH 29, MARCH 30,
2003 2002
---------------- ------------------
Reported net income $3,079 $4,766
Stock-based employee compensation expense included
in reported income, net of tax - -
Total stock-based employee compensation expense
determined under fair value based method,for
all awards, net of tax (518) (144)
---------------- ------------------
Pro forma net income $2,561 $4,622
================ ==================
13
6. 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 expense, (ii) Holding's legal and
professional expense, (iii) drink cup patent litigation expense, (iv)
uncompleted acquisition expense, (v) acquisition integration expense, (vi)
plant shutdown expense, (vii) non-cash compensation, and (viii) management
fees and reimbursed expenses paid to First Atlantic ("Adjusted EBITDA").
Adjusted EBITDA is not a measure of performance under GAAP and has been
presented because we believe that investors use Adjusted EBITDA to analyze
operating performance, which includes the company's ability to incur
additional indebtedness and to service existing indebtedness. Adjusted
EBITDA should not be considered in isolation or as a substitute for net
income, net cash from operating activities or other income or cash flow
statement data prepared in accordance with GAAP. In addition, comparability
to other companies using similarly titled measures is not recommended due to
differences in the definitions and methods of calculation used by various
companies. The accounting policies of the reportable segments are the same
as those described in the summary of significant accounting policies in the
Company's Form 10-K filed with the Securities and Exchange Commission for
the year ended December 28, 2002.
THIRTEEN WEEKS ENDED
----------------------------------
COMPANY PREDECESSOR
---------------- -----------------
MARCH 29, MARCH 30,
2003 2002
---------------- -----------------
Net sales:
Containers $ 61,561 $ 58,178
Closures 35,103 33,463
Consumer Products 28,734 31,293
Adjusted EBITDA:
Containers 15,694 15,859
Closures 7,603 7,450
Consumer Products 4,318 6,406
Total assets:
Containers 349,790 203,799
Closures 234,128 158,846
Consumer Products 178,962 101,601
Reconciliation of Adjusted EBITDA to income
before income taxes:
Adjusted EBITDA for reportable segments $ 27,615 $ 29,715
Net interest expense (11,518) (12,806)
Depreciation (9,535) (10,358)
Amortization (615) (477)
Loss on disposal of property and equipment - (144)
Acquisition integration expense (2) (178)
Plant shutdown expense (322) (938)
Holding's legal and professional expense - (26)
Management fees - (131)
---------------- ------------------
Income before income taxes $ 5,623 $ 4,657
================ ==================
14
7. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
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 $250.0
million aggregate principal amount of 10 3/4 % Berry Plastics Corporation
Senior Subordinated Notes due 2012. 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 March 29, 2003 and December 28, 2002 and for the thirteen
week period ended March 29, 2003 and March 30, 2002. The equity method has
been used with respect to investments in subsidiaries.
MARCH 29, 2003 (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 $ 50,802 $ 82,486 $ 11,516 $ - $ 144,805
Net property and equipment - 73,464 106,913 16,127 - 196,504
Other noncurrent assets 77,768 635,104 256,428 10,691 (558,420) 421,571
--------------- -------------- --------------- --------------- ------------- -----------
Total assets $77,769 $759,370 $ 445,827 $ 38,334 $(558,420) $ 762,880
=============== ============== =============== =============== ============== ==========
Current liabilities $ - $ 46,998 $ 23,028 $ 6,410 $ - $ 76,436
Noncurrent liabilities - 634,603 451,348 23,658 (500,934) 608,675
Equity (deficit) 77,769 77,769 (28,549) 8,266 (57,486) 77,769
--------------- -------------- --------------- --------------- -------------- ----------
Total liabilities and
equity (deficit) $77,769 $ 759,370 $ 445,827 $ 38,334 $ (558,420) $ 762,880
=============== ============== =============== =============== ============== ==========
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
============ =============== ============= ============== ============= ============
15
THIRTEEN WEEKS ENDED MARCH 29, 2003 (COMPANY)
------------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
--------------- --------------- -------------- -------------- ------------ --------------
CONSOLIDATING STATEMENT OF OPERATIONS
Net sales $ - $ 46,405 $ 73,479 $ 5,514 $ - $ 125,398
Cost of goods sold - 31,611 57,586 5,124 - 94,321
--------------- --------------- -------------- -------------- ------------ --------------
Gross profit - 14,794 15,893 390 - 31,077
Operating expenses - 5,770 7,601 565 - 13,936
--------------- --------------- -------------- -------------- ------------ --------------
Operating income (loss) - 9,024 8,292 (175) - 17,141
Other expenses - - - - - -
Interest expense, net (201) 183 11,189 347 - 11,518
Income taxes (benefit) 7 2,491 (1) 47 - 2,544
Equity in net(income)
loss from subsidiary (2,885) 3,465 569 - (1,149) -
--------------- --------------- -------------- -------------- ------------ --------------
Net income (loss) $ 3,079 $ 2,885 $ (3,465) $ (569) $ 1,149 $ 3,079
=============== =============== ============== ============== ============ ==============
CONSOLIDATING STATEMENT OF CASH FLOWS
Net income (loss) $ 3,079 $ 2,885 $ (3,465) $ (569) $ 1,149 $ 3,079
Non-cash expenses (194) 6,063 6,394 774 - 13,037
Equity in net (income) loss
from subsidiary (2,885) 3,465 569 - (1,149) -
Changes in working capital - (7,872) (6,877) (597) - (15,346)
--------------- --------------- -------------- -------------- ------------ --------------
Net cash provided by (used
for) operating activities - 4,541 (3,379) (392) - 770
Net cash used for investing
activities - (9,825) (4,514) (599) - (14,938)
Net cash provided by (used
for) financing activities - (6,429) 7,750 1,245 - 2,566
Effect on exchange rate
changes on cash - - - 14 - 14
--------------- --------------- -------------- -------------- ------------ --------------
Net increase (decrease) in
cash and cash equivalents - (11,713) (143) 268 - (11,588)
Cash and cash equivalents
at beginning of period 1 15,156 264 192 - 15,613
--------------- --------------- -------------- -------------- ------------ --------------
Cash and cash equivalents
at end of period $ 1 $ 3,443 $ 121 $ 460 $ - $ 4,025
=============== =============== ============== ============== ============ ==============
16
THIRTEEN WEEKS ENDED MARCH 30, 2002 (PREDECESSOR)
------------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
--------------- --------------- -------------- -------------- ------------ --------------
CONSOLIDATING STATEMENT OF OPERATIONS
Net sales $ - $ 42,003 $ 75,593 $ 5,338 $ - $ 122,934
Cost of goods sold - 26,786 58,757 4,756 - 90,299
--------------- --------------- -------------- -------------- ------------ --------------
Gross profit - 15,217 16,836 582 - 32,635
Operating expenses 29 6,250 8,080 669 - 15,028
--------------- --------------- -------------- -------------- ------------ --------------
Operating income (loss) (29) 8,967 8,756 (87) - 17,607
Other expenses - 81 63 - - 144
Interest expense, net 4,354 433 7,386 633 - 12,806
Income taxes (benefit) (155) 8 5 33 - (109)
Equity in net (income)
loss from subsidiary (8,994) (549) 753 - 8,790 -
--------------- --------------- -------------- -------------- ------------ --------------
Net income (loss) $ 4,766 $ 8,994 $ 549 $ (753) $(8,790) $ 4,766
=============== =============== ============== ============== ============ ==============
CONSOLIDATING STATEMENT OF CASH FLOWS
Net income (loss) $ 4,766 $ 8,994 $ 549 $ (753) $(8,790) $ 4,766
Non-cash expenses 125 3,862 6,890 733 - 11,610
Equity in net (income)
loss from subsidiary (8,994) (549) 753 - 8,790 -
Changes in working capital 4,075 (5,036) (6,693) (1,233) - (8,887)
--------------- --------------- -------------- -------------- ------------ --------------
Net cash provided by (used
for) operating activities (28) 7,271 1,499 (1,253) - 7,489
Net cash used for
investing activities - (6,152) (6,781) (66) - (12,999)
Net cash provided by (used
for) financing activities (411) (1,050) 5,078 1,992 - 5,609
Effect on exchange rate
changes on cash - - - (557) - (557)
--------------- --------------- -------------- -------------- ------------ --------------
Net increase (decrease) in
cash and cash equivalents (439) 69 (204) 116 - (458)
Cash and cash equivalents
at beginning of period 440 121 410 261 - 1,232
--------------- --------------- -------------- -------------- ------------ --------------
Cash and cash equivalents
at end of period $ 1 $ 190 $ 206 $ 377 $ - $ 774
=============== =============== ============== ============== ============ ==============
17
8. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
IN APRIL 2002, THE FINANCIAL ACCOUNTING STANDARDS BOARD ("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 THIRD QUARTER FINANCIAL
STATEMENTS. ANY GAIN OR LOSS ON EXTINGUISHMENT OF DEBT THAT WAS CLASSIFIED
AS AN EXTRAORDINARY ITEM IN PRIOR PERIODS PRESENTED THAT DOES NOT MEET THE
CRITERIA IN OPINION 30 FOR CLASSIFICATION AS AN EXTRAORDINARY ITEM MUST BE
RECLASSIFIED. 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 initial adoption of this statement did not have a
material impact on the Company.
On April 30, 2003, the FASB issued Statement of Financial Accounting
Standards No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities ("SFAS No. 149"). SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133 and is to be applied prospectively to contracts entered into
or modified after June 30, 2003. The Company is currently evaluating the
effects, if any, that this standard will have on its results of operations
and financial position.
18
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Unless the context requires otherwise, references in this Management's
Discussion and Analysis of Financial Condition and Results of Operations to
"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. 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 our Form 10-K in the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Certain Factors Affecting Future Results" and other risk
factors identified from time to time in our periodic filings with the
Securities and Exchange Commission. Our actual results may differ
materially from those contained in any forward-looking statements.
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%.
19
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 in our 2002 10-K. 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 $1.5 million,
including reserves for expected medical claims incurred but not reported as
of March 29, 2003.
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 March 29, 2003.
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.
20
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 profit 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 charges
related to these reductions and rationalizations.
RESULTS OF OPERATIONS
13 WEEKS ENDED MARCH 29, 2003 (THE "QUARTER")
COMPARED TO 13 WEEKS ENDED MARCH 30, 2002 (THE "PRIOR QUARTER")
NET SALES. Net sales increased $2.5 million, or 2%, to $125.4 million for
the Quarter from $122.9 million for the Prior Quarter with an approximate 3%
inCREASE IN NET SELLING PRICE. CONTAINER NET SALES INCREASED $3.4 MILLION
FROM THE PRIOR QUARTER TO $61.6 MILLION FOR THE QUARTER PRIMARILY AS A
RESULT OF INCREASED SELLING PRICES AND GROWTH IN THE SPECIALTY PRODUCT LINE.
CLOSURE NET SALES INCREASED $1.6 MILLION FROM THE PRIOR QUARTER TO $35.1
MILLION WITH THE CCL ACQUISITION PROVIDING NET SALES OF $0.7 MILLION IN THE
QUARTER. CONSUMER PRODUCTS NET SALES FOR THE QUARTER WERE $28.7 MILLION
COMPARED TO $31.3 MILLION IN THE PRIOR QUARTER. THIS $2.6 MILLION DECREASE
CAN BE ATTRIBUTED TO A $5.0 MILLION SALE OF SPECIALTY DRINK CUPS PRIOR TO
THE START OF THE DRINK CUP SEASON IN THE PRIOR QUARTER PARTIALLY OFFSET BY
INCREASED SALES FROM THERMOFORMED DRINK CUPS.
GROSS PROFIT. Gross profit decreased by $1.5 million to $31.1 million (25%
of net sales) for the Quarter from $32.6 million (27% of net sales) for the
Prior Quarter. This decrease of 5% can be primarily attributable to the
effects of net selling prices and raw material costs partially offset by the
combined impact of the additional sales volume, acquisition integration and
productivity improvement initiatives. 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 since the Prior
Quarter, including the addition of state-of-the-art injection molding
equipment, molds and printing equipment at several of our facilities.
OPERATING EXPENSES. Selling expenses increased by $0.4 million to $6.2
million for the Quarter from $5.8 million for the Prior Quarter principally
as a result of the increased revenue. General and administrative expenses
decreased from $7.1 million for the Prior Quarter to $6.0 million for the
Quarter. This decrease of $1.1 million is primarily attributable to
decreased accrued bonus expenses. Research and development expenses
increased by $0.3 million to $0.8 million in the Quarter primarily as a
result of legal costs associated with patents and licenses. Amortization of
21
intangibles increased $0.1 million from $0.5 million in the Prior Quarter as
a result of additional intangible assets resulting from the Merger. During
the Quarter, transition expenses were $0.3 million related to the shutdown
and reorganization of facilities. In the Prior Quarter, transition expenses
were $0.2 million related to acquisitions and $0.9 million related to the
shutdown and reorganization of facilities.
INTEREST EXPENSE, NET. Net interest expense decreased $1.3 million to $11.5
million for the Quarter compared to $12.8 million for the Prior Quarter
primarily due to decreased rates of interest on borrowings.
INCOME TAXES. For the Quarter, we recorded income tax expense of $2.5
million compared to an income tax benefit of $0.1 million for the Prior
Quarter. The increase of $2.6 million can be attributed to the Merger as
the use of net operating loss carryforwards is recorded as a reduction to
goodwill as compared to a credit to income tax expense in the Prior
Quarter. As a result of the Merger, the amount of the net operating loss
carryforward which can be used in any given year will be limited to
approximately $12 million.
NET INCOME. Net income is $3.1 million for the Quarter compared to $4.8
million for the Prior Quarter for the reasons discussed above.
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 March 29, 2003, there were no
borrowings outstanding on the delayed draw term loan facility.
22
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 29,
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 March 29, 2003.
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.
23
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.
NET CASH PROVIDED BY OPERATING ACTIVITIES WAS $0.8 MILLION FOR THE QUARTER
COMPARED TO $7.5 MILLION FOR THE PRIOR QUARTER. THE DECREASE OF $6.7
MILLION IS PRIMARILY THE RESULT OF TIMING OF INTEREST PAYMENTS ON OUR
SUBORDINATED DEBT.
NET CASH USED BY INVESTING ACTIVITIES INCREASED BY $1.9 MILLION TO $14.9
MILLION FOR THE QUARTER FROM $13.0 MILLION FOR THE PRIOR QUARTER PRIMARILY
DUE TO THE DIFFERENCE IN PRICE OF THE ACQUISITION OF ASSETS FROM CCL IN THE
QUARTER AND THE ACQUISITION OF ASSETS FROM MOUNT VERNON PLASTICS CORPORATION
IN THE PRIOR QUARTER. CAPITAL SPENDING OF $10.1 MILLION FOR THE QUARTER
REPRESENTS AN INCREASE OF $0.3 MILLION FROM THE PRIOR QUARTER. THE
QUARTER'S CAPITAL SPENDING INCLUDED $0.4 MILLION FOR BUILDINGS AND SYSTEMS,
$4.3 MILLION FOR MOLDS, $3.8 MILLION FOR MOLDING AND PRINTING MACHINES, AND
$1.6 MILLION FOR ACCESSORY EQUIPMENT AND SYSTEMS.
NET CASH PROVIDED BY FINANCING ACTIVITIES WAS $2.6 MILLION FOR THE QUARTER
COMPARED TO $5.6 MILLION FOR THE PRIOR QUARTER. THE DECREASE OF $3.0
MILLION CAN BE PRIMARILY ATTRIBUTED TO DECREASED BORROWINGS.
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 MARCH 29, 2003, OUR CASH BALANCE WAS $4.0
MILLION, AND WE HAD UNUSED BORROWING CAPACITY UNDER THE CREDIT FACILITY'S
REVOLVING LINE OF CREDIT OF $85.5 MILLION. HOWEVER, THE COVENANTS UNDER OUR
CREDIT FACILITY MAY LIMIT OUR ABILITY TO MAKE SUCH BORROWINGS AND AS OF
MARCH 29, 2003, WE COULD HAVE BORROWED $24.8 MILLION.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 March 29,
2003, there were no borrowings outstanding on the delayed draw term loan
facility. The net outstanding balance of the term loan and revolving line
of credit at March 29, 2003 was $328.4 million and $5.0 million,
respectively. 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 March 29, 2003, the Eurodollar rate applicable to the term loan
and revolving line of credit was 1.35% and 1.33%, respectively. 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.
ITEM 4. 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
25
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification of Ira G. Boots, President and Chief Executive Officer,
as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of James M. Kratochvil, Executive Vice President, Chief
Financial Officer, Treasurer and Secretary, as required pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
On April 21, 2003 we furnished a Current Report on Form 8-K (Items 7, 9, and
12) (event date April 21, 2003), attaching our first quarter earnings
release dated April 21, 2003. On April 25, 2003, we furnished an amendment
to this Current Report to correct certain formatting errors in the initial
current report.
26
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BPC Holding Corporation
Berry Plastics Corporation
May 12, 2003
By: /S/ JAMES M. KRATOCHVIL
------------------------------------------
James M. Kratochvil
Executive Vice President, Chief Financial
Officer, Treasurer and Secretary of the
entities listed above (Principal Financial
and Accounting Officer)
27
CERTIFICATIONS
I, Ira G. Boots, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BPC Holding
Corporation and Berry Plastics Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrants as of, and for, the periods presented in this
quarterly 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 registrants and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrants, including their
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly 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
quarterly report (the "Evaluation Date"); and
C) PRESENTED IN THIS QUARTERLY 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
COMMITTEES OF REGISTRANTS' BOARDS 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
QUARTERLY 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: MAY 12, 2003
/S/ IRA G. BOOTS
- ------------------------------------
Ira G. Boots
President and Chief Executive Officer
28
I, James M. Kratochvil, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BPC Holding
Corporation and Berry Plastics Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrants as of, and for, the periods presented in this
quarterly 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 registrants and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrants, including their
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly 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
quarterly report (the "Evaluation Date"); and
C) PRESENTED IN THIS QUARTERLY 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
COMMITTEES OF REGISTRANTS' BOARDS 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
QUARTERLY 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: MAY 12, 2003
/S/ JAMES M. KRATOCHVIL
- ----------------------------
James M. Kratochvil
Executive Vice President,
Chief Financial Officer, Treasurer and
Secretary
29