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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 September 27, 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 October 15, 2003, there were outstanding 2,757,922 shares of the
Common Stock, $.01 par value, of BPC Holding Corporation. As of October 15,
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 for the fiscal year ended
December 28, 2002 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
FOR THE FISCAL YEAR ENDED DECEMBER 28, 2002 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 SEPTEMBER 27, 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 21
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 29
Item 4. Controls and Procedures 29
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 30
SIGNATURE 31
3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
BPC Holding Corporation
Consolidated Balance Sheets
(In Thousands of Dollars)
SEPTEMBER 27, DECEMBER 28,
2003 2002
-------------- -------------
(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents $ 26,452 $ 15,613
Accounts receivable (less allowance for doubtful
accounts of $2,270 at September 27, 2003 and
$1,990 at December 28, 2002) 67,854 56,765
Inventories:
Finished goods 41,409 50,002
Raw materials and supplies 16,410 14,730
-------------- -------------
57,819 64,732
Prepaid expenses and other current assets 8,502 7,018
-------------- -------------
Total current assets 160,627 144,128
Property and equipment:
Land 7,052 7,040
Buildings and improvements 50,519 49,966
Machinery, equipment and tooling 153,909 139,486
Construction in progress 23,949 12,232
-------------- -------------
235,429 208,724
Less accumulated depreciation 44,594 15,592
-------------- -------------
190,835 193,132
Intangible assets:
Deferred financing fees, net 18,085 20,116
Customer relationships, net 33,200 33,890
Goodwill 328,561 336,260
Trademarks 27,048 27,048
Other intangibles, net 6,147 5,883
-------------- -------------
413,041 423,197
Other 102 119
-------------- -------------
Total assets $ 764,605 $ 760,576
============== =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
BPC Holding Corporation
Consolidated Balance Sheets (continued)
(In Thousands of Dollars, except share information)
SEPTEMBER 27, DECEMBER 28,
2003 2002
-------------- -------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,266 $ 31,204
Accrued expenses and other current liabilities 10,852 9,926
Accrued interest 6,623 14,239
Employee compensation and payroll taxes 17,631 15,917
Current portion of long-term debt 9,000 8,641
-------------- -------------
Total current liabilities 77,372 79,927
Long-term debt, less current portion 595,435 601,302
Deferred income taxes 676 640
Other long-term liabilities 4,020 3,544
-------------- -------------
Total liabilities 677,503 685,413
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; 2,777,639 shares issued and 2,757,922
shares outstanding 28 28
Additional paid-in capital 282,370 281,816
Adjustment of the carryover basis of continuing
stockholders (196,603) (196,603)
Notes receivable - common stock (13,966) (14,399)
Treasury stock: 19,717 shares of common stock (1,972) -
Retained earnings 15,018 3,179
Accumulated other comprehensive income 2,227 1,142
Total stockholders' equity 87,102 75,163
-------------- -------------
Total liabilities and stockholders' equity $ 764,605 $ 760,576
============== =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
BPC Holding Corporation and Subsidiaries
Consolidated Statements of Operations
(In Thousands of Dollars)
COMPANY PREDECESSOR COMPANY PREDECESSOR
----------------------- ------------- ------------------------ -------------
THIRTEEN PERIOD PERIOD THIRTY-NINE PERIOD PERIOD
WEEKS FROM FROM WEEKS FROM FROM
ENDED 7/22/02- 6/30/02- ENDED 7/22/02- 12/30/01-
9/27/03 9/28/02 7/21/02 9/27/03 9/28/02 7/21/02
----------------------- ------------- ----------------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales $ 139,306 $ 97,822 $ 29,753 $ 411,555 $ 97,822 $ 280,677
Cost of goods sold 106,845 75,309 22,183 313,221 75,309 207,458
----------------------- ------------- ----------------------- -------------
Gross profit 32,461 22,513 7,570 98,334 22,513 73,219
Operating Expenses:
Selling 5,510 4,612 1,146 17,714 4,612 12,080
General and administrative 5,653 4,050 1,540 18,142 4,050 15,750
Research and development 842 553 133 2,459 553 1,438
Amortization of intangibles 750 102 374 2,188 102 1,249
Merger expenses (Predecessor) - - 20,987 - - 20,987
Other expenses 683 596 679 2,673 596 2,804
----------------------- ------------- ----------------------- -------------
Operating income (loss) 19,023 12,600 (17,289) 55,158 12,600 18,911
Other expenses:
Loss on disposal of
of property and equipment - 56 - - 56 291
----------------------- ------------- ----------------------- -------------
Income (loss) before
interest and taxes 19,023 12,544 (17,289) 55,158 12,544 18,620
Interest:
Expense (11,467) (8,876) (3,160) (34,403) (8,876) (28,747)
Loss on extinguished
debt (Predecessor) - - (25,328) - - (25,328)
Income 202 123 2 609 123 5
----------------------- ------------- ----------------------- -------------
Income (loss) before
income taxes 7,758 3,791 (45,775) 21,364 3,791 (35,450)
Income taxes 3,540 87 - 9,525 87 345
----------------------- ------------- ----------------------- -------------
Net income (loss) 4,218 3,704 (45,775) 11,839 3,704 (35,795)
Preferred stock dividends - - (848) - - (6,468)
Amortization of preferred
stock discount - - (62) - - (574)
----------------------- ------------- ----------------------- -------------
Net income (loss) attributable
to common stockholders $4,218 $ 3,704 $ (46,685) $11,839 $ 3,704 $ (42,837)
======================= ============= ======================= =============
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 - - - (566) -
Exercise of stock options,
redemption of notes receivable,
and purchase of treasury stock - 554 - 999 (1,994)
Sale of treasury stock - - - - 22
Translation gain - - - - -
Other comprehensive losses - - - - -
Net income - - - - -
------------ ------------ ------------ ------------ ------------
Balance at September 27, 2003 $ 28 $ 282,370 $ (196,603) $ (13,966) $ (1,972)
============ ============ ============ ============ ============
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 - - (566) $ -
Exercise of stock options,
redemption of notes receivable,
and purchase of treasury stock - - (441) -
Sale of treasury stock - - 22 -
Translation gain - 1,279 1,279 1,279
Other comprehensive losses - (194) (194) (194)
Net income 11,839 - 11,839 11,839
------------ ------------ ------------ ------------
Balance at September 27, 2003 $15,018 $ 2,227 $ 87,102 $ 12,924
============ ============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
BPC Holding Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands of Dollars)
COMPANY PREDECESSOR
----------------------------- -------------------
PERIOD FROM PERIOD FROM PERIOD FROM
12/29/02- 7/22/02- 12/30/01-
9/27/03 9/28/02 7/21/02
----------------------------- -------------------
(Unaudited) (Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net income (loss) $11,839 $ 3,704 $(35,795)
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depreciation 28,866 8,176 23,526
Non-cash interest expense 1,800 446 1,399
Amortization 2,188 102 1,249
Non-cash compensation expense - - 1,920
Loss on extinguished debt
(Predecessor) - - 25,328
Loss on sale of property
and equipment - 57 291
Deferred income taxes 9,336 - -
Changes in operating assets and liabilities:
Accounts receivable, net (11,195) 2,138 (15,986)
Inventories 7,154 (5,582) (4,255)
Prepaid expenses and
other receivables (1,366) (50) (603)
Other assets - - 2,042
Accrued interest (7,616) 7,049 (6,508)
Payables and accrued expenses 4,907 (11,561) 17,984
----------------------------- -------------------
Net cash provided by operating activities 45,913 4,479 10,592
INVESTING ACTIVITIES
Additions to property and equipment (21,110) (5,371) (17,396)
Proceeds from disposal of
property and equipment - 6 9
Transaction costs - (12,715) -
Acquisitions of businesses (5,755) - (3,834)
----------------------------- -------------------
Net cash used for investing activities (26,865) (18,080) (21,221)
FINANCING ACTIVITIES
Proceeds from long-term borrowings - 580,000 24,492
Payments on long-term borrowings (7,385) (503,082) (13,924)
Issuance of common stock - 257,047 -
Purchase of treasury stock (441) - -
Issuance of treasury stock 22 - -
Redemption of predecessor stock - (287,999) -
Debt financing costs - (19,810) -
----------------------------- -------------------
Net cash provided by (used
for) financing activities (7,804) 26,156 10,568
Effect of exchange rate
changes on cash (405) 320 (815)
----------------------------- -------------------
Net increase (decrease) in
cash and cash equivalents 10,839 12,875 (876)
Cash and cash equivalents at
beginning of period 15,613 356 1,232
----------------------------- -------------------
Cash and cash equivalents at
end of period $26,452 $13,231 $ 356
============================= ===================
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 ACCOUNTING
PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES ("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 GAAP FOR COMPLETE FINANCIAL STATEMENTS. IN THE
OPINION OF MANAGEMENT, ALL ADJUSTMENTS (CONSISTING OF NORMAL RECURRING
ADJUSTMENTS) CONSIDERED NECESSARY FOR A FAIR PRESENTATION HAVE BEEN
INCLUDED. OPERATING RESULTS FOR THE PERIODS PRESENTED ARE NOT NECESSARILY
INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR THE FULL FISCAL YEAR.
THE ACCOMPANYING FINANCIAL STATEMENTS INCLUDE THE RESULTS OF 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 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 $4.6 MILLION. THE PURCHASE PRICE WAS
ALLOCATED TO FIXED ASSETS ($2.7 MILLION), INVENTORY ($1.1 MILLION), CUSTOMER
RELATIONSHIPS ($0.5 MILLION), GOODWILL ($0.2 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.
10
On May 30, 2003, Berry acquired the injection molded overcap lid assets from
APM Inc. located in Benicia, California ("APM Acquisition") for aggregate
consideration, including expenses, of approximately $0.7 million. The
purchase price was allocated to fixed assets ($0.4 million), inventory ($0.1
million), customer relationships ($0.1 million), and goodwill ($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 cash provided by operations. The
operations from the APM Acquisition are included in Berry's operations since
the acquisition date using the purchase method of accounting.
Pro forma results for the thirteen and thirty-nine weeks ended September 27,
2003 and September 28, 2002 have not been presented, as they do not differ
materially from reported historical results.
4. LONG-TERM DEBT
Long-term debt consists of the following:
SEPTEMBER 27, DECEMBER 28,
2003 2002
-------------- --------------
Berry 10 3/4% Senior Subordinated Notes $250,000 $250,000
Term loans 326,700 329,175
Revolving lines of credit 429 692
Nevada Industrial Revenue Bonds 2,000 2,500
Capital leases 25,306 27,576
-------------- --------------
604,435 609,943
Less current portion of long-term debt 9,000 8,641
-------------- --------------
$595,435 $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 $5.2 million of 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"). As of September 27, 2003, the Credit
Facility provides (i) a $326.7 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.
11
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 September 27, 2003. The term loan amortizes quarterly as follows: $0.8
million each quarter through June 30, 2009 and $76.7 million 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. With respect to the delayed draw term loan facility and the
revolving credit facility, the ``applicable margin'' is, with respect to
Eurodollar Rate Loans, subject to a pricing grid which ranges from 2.75% per
annum to 2.00% per annum (2.75% based on results through September 27,
2003), depending on the leverage ratio. The ``applicable margin'' with
respect to Base Rate Loans is 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 September 27, 2003, shareholders' equity has been
reduced by $0.7 million to adjust the agreement to fair market value. At
September 27, 2003, the Company had unused borrowing capacity under the
Credit Facility's revolving line of credit of $94.3 million. However,
covenants under the Credit Facility limit the Company's ability to make such
borrowings and as of September 27, 2003, the Company could have borrowed
$27.4 million.
12
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." Under the intrinsic method, no
compensation expense has been recognized for stock options granted to
employees. 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 COMPANY PREDECESSOR
----------------------- ------------- ----------------------- -------------
THIRTEEN PERIOD PERIOD THIRTY-NINE PERIOD PERIOD
WEEKS FROM FROM WEEKS FROM FROM
ENDED 7/22/02- 6/30/02- ENDED 7/22/02- 12/30/01-
9/27/03 9/28/02 7/21/02 9/27/03 9/28/02 7/21/02
----------------------- ------------- ----------------------- -------------
Risk-free interest rate 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Dividend yield 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Volatility factor .25 .25 .25 .25 .25 .25
Expected option life 5.0 years 5.0 years 5.0 years 5.0 years 5.0 years 5.0 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 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 COMPANY PREDECESSOR
----------------------- ------------- ----------------------- -------------
THIRTEEN PERIOD PERIOD THIRTY-NINE PERIOD PERIOD
WEEKS FROM FROM WEEKS FROM FROM
ENDED 7/22/02- 6/30/02- ENDED 7/22/02- 12/30/01-
9/27/03 9/28/02 7/21/02 9/27/03 9/28/02 7/21/02
----------------------- ------------- ----------------------- -------------
Reported net income (loss) $ 4,218 $ 3,704 $ (45,775) $11,839 $ 3,704 $ (35,795)
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 (500) (366) (60) (1,518) (366) (287)
----------------------- ------------- ----------------------- -------------
Pro forma net income (loss) $ 3,718 $ 3,338 $ (45,835) $ 10,321 $ 3,338 $ (36,082)
======================= ============= ======================= =============
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) uncompleted
acquisition expense, (iii) acquisition integration expense, (iv) plant
shutdown expense, and (v) management fees and reimbursed expenses paid to
First Atlantic Capital, Ltd. ("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 Thirty-nine Weeks Ended
----------------------------- -------------------------------
COMPANY/ COMPANY/
COMPANY PREDECESSOR COMPANY PREDECESSOR
----------------------------- -------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
2003 2002 2003 2002
----------------------------- -------------------------------
Net sales:
Containers $ 70,275 $ 65,767 $ 205,196 $ 188,382
Closures 38,100 32,833 111,116 100,661
Consumer Products 30,931 28,975 95,243 89,456
Adjusted EBITDA:
Containers 18,220 17,885 51,982 51,065
Closures 8,101 7,232 23,574 23,161
Consumer Products 3,764 3,489 13,329 15,057
Total assets:
Containers 350,259 379,164 350,259 379,164
Closures 238,044 260,062 238,044 260,062
Consumer Products 176,302 163,504 176,302 163,504
Reconciliation of Adjusted
EBITDA to income (loss) before
income taxes:
Adjusted EBITDA for reportable
segments $ 30,085 $ 28,606 $ 88,885 $ 89,283
Net interest expense (11,265) (11,912) (33,794) (37,495)
Depreciation (9,629) (10,604) (28,866) (31,702)
Amortization (750) (476) (2,188) (1,351)
Loss on disposal of property
and equipment - (56) - (348)
Uncompleted acquisition expense (28) (300) (1,028) (300)
Merger expense - (20,987) - (20,987)
Acquisition integration expense (366) (165) (886) (867)
Plant shutdown expense (289) (762) (759) (2,233)
Management fees - - - (331)
----------------------------- -------------------------------
Income (loss) before income taxes $ 7,758 $ (16,656) $ 21,364 $ (6,331)
============================= ===============================
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 September 27, 2003 and December 28, 2002 and for the
thirteen and thirty-nine week periods ended September 27, 2003 and September
28, 2002. The equity method has been used with respect to investments in
subsidiaries.
SEPTEMBER 27, 2003 (COMPANY)
-----------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
----------- -------------- ------------ ------------- -------------- ------------
CONSOLIDATING BALANCE SHEET
Current assets $ - $ 73,471 $ 72,354 $ 14,802 $ - $ 160,627
Net property and equipment - 72,325 101,524 16,986 - 190,835
Other noncurrent assets 87,102 578,970 256,163 11,162 (520,254) 413,143
----------- -------------- ------------ ------------- -------------- ------------
Total assets $ 87,102 $ 724,766 $ 430,041 $ 42,950 $ (520,254) $ 764,605
=========== ============== ============ ============= ============== ============
Current liabilities $ - $ 42,047 $ 26,850 $ 8,475 $ - $ 77,372
Noncurrent liabilities - 595,346 443,111 26,786 (465,112) 600,131
Equity (deficit) 87,102 87,373 (39,920) 7,689 (55,142) 87,102
----------- -------------- ------------ ------------- -------------- ------------
Total liabilities and
equity (deficit) $ 87,102 $ 724,766 $ 430,041 $ 42,950 $ (520,254) $ 764,605
=========== ============== ============ ============= ============== ============
DECEMBER 28, 2002 (COMPANY)
------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------------ --------------- ------------- -------------- ------------- ------------
CONSOLIDATING BALANCE SHEET
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 SEPTEMBER 27, 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 $ - $ 53,815 $ 80,287 $ 5,204 $ - $139,306
Cost of goods sold - 38,546 63,394 4,905 - 106,845
------------ -------------- ------------- -------------- ------------- ------------
Gross profit - 15,269 16,893 299 - 32,461
Operating expenses - 6,088 6,376 974 - 13,438
------------ -------------- ------------- -------------- ------------- ------------
Operating income (loss) - 9,181 10,517 (675) - 19,023
Interest expense, net (181) 153 10,933 360 - 11,265
Income taxes 24 3,476 19 21 - 3,540
Equity in net (income) loss
from subsidiary (4,061) 1,491 1,056 - 1,514 -
------------ -------------- ------------- -------------- ------------- ------------
Net income (loss) $ 4,218 $ 4,061 $ (1,491) $ (1,056) $ (1,514) $ 4,218
============ ============== ============= ============== ============= ============
THIRTEEN WEEKS ENDED SEPTEMBER 28, 2002(COMBINED COMPANY AND 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 $ - $ 44,125 $ 78,358 $ 5,092 $ - $127,575
Cost of goods sold - 30,452 62,295 4,745 - 97,492
------------ -------------- ------------- -------------- ------------- ------------
Gross profit - 13,673 16,063 347 - 30,083
Operating expenses 20,655 6,149 7,339 629 - 34,772
------------ -------------- ------------- -------------- ------------- ------------
Operating income (loss) (20,655) 7,524 8,724 (282) - (4,689)
Other expenses - - 56 - - 56
Interest expense, net 10,202 19,517 6,571 949 - 37,239
Income taxes (benefit) 5 109 15 (42) - 87
Equity in net (income)
loss from subsidiary 11,209 (893) - - (10,316) -
------------ -------------- ------------- -------------- ------------- ------------
Net income (loss) $(42,071) $(11,209) $ 2,082 $ (1,189) $ 10,316 $(42,071)
============ ============== ============= ============== ============= ============
16
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 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 $ - $155,230 $240,064 $ 16,261 $ - $411,555
Cost of goods sold - 108,766 189,344 15,111 - 313,221
------------ -------------- ------------- -------------- ------------- ------------
Gross profit - 46,464 50,720 1,150 - 98,334
Operating expenses - 19,436 21,233 2,507 - 43,176
------------ -------------- ------------- -------------- ------------- ------------
Operating income (loss) - 27,028 29,487 (1,357) - 55,158
Interest expense, net (572) 8 33,275 1,083 - 33,794
Income taxes (benefit) 22 9,407 89 7 - 9,525
Equity in net (income)
loss from subsidiary (11,289) 6,324 2,447 - 2,518 -
------------ -------------- ------------- -------------- ------------- ------------
Net income (loss) $ 11,839 $ 11,289 $ (6,324) $ (2,447) $ (2,518) $ 11,839
============ ============== ============= ============== ============= ============
CONSOLIDATING STATEMENT OF CASH FLOWS
Net income (loss) $ 11,839 $ 11,289 $ (6,324) $ (2,447) $ (2,518) $ 11,839
Non-cash expenses (566) 20,507 19,795 2,454 - 42,190
Equity in net (income)
loss from subsidiary (11,289) 6,324 2,447 - 2,518 -
Changes in working capital - (13,605) 6,517 (1,028) - (8,116)
------------ -------------- ------------- -------------- ------------- ------------
Net cash provided by (used for)
operating activities (16) 24,515 22,435 (1,021) - 45,913
Net cash used for
investing activities - (13,348) (11,397) (2,120) - (26,865)
Net cash provided by (used for)
financing activities 15 (767) (10,900) 3,848 - (7,804)
Effect on exchange rate
changes on cash - - - (405) - (405)
------------ -------------- ------------- -------------- ------------- ------------
Net increase (decrease)
in cash and cash equivalents (1) 10,400 138 302 - 10,839
Cash and cash equivalents at
beginning of period 1 15,156 264 192 - 15,613
------------ -------------- ------------- -------------- ------------- ------------
Cash and cash equivalents
at end of period $ - $ 25,556 $ 402 $ 494 $ - $ 26,452
============ ============== ============= ============== ============= ============
17
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 2002 (COMBINED COMPANY AND 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 $ - $ 131,165 $ 231,894 $ 15,440 $ - $ 378,499
Cost of goods sold - 87,270 181,465 14,032 - 282,767
---------- ---------- ---------- ---------- ---------- ----------
Gross profit - 43,895 50,429 1,408 - 95,732
Operating expenses 20,706 18,032 23,426 2,057 - 64,221
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) (20,706) 25,863 27,003 (649) - 31,511
Other expenses - 98 249 - - 347
Interest expense, net 18,933 20,892 20,658 2,340 - 62,823
Income taxes (benefit) (8,248) 8,228 118 334 - 432
Equity in net (income)
loss from subsidiary 700 (2,655) - - 1,955 -
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $ (32,091) $ (700) $ 5,978 $ (3,323) $ (1,955) $ (32,091)
========== ========== ========== ========== ========== ==========
CONSOLIDATING STATEMENT OF CASH FLOWS
Net income (loss) $ (32,091) $ (700) $ 5,978 $ (3,323) $ (1,955) $ (32,091)
Non-cash expenses 24,770 14,270 20,947 2,507 - 62,494
Equity in net (income) 700 (2,655) - - 1,955 -
loss from subsidiary
Changes in working capital (114) (8,638) (4,780) (1,800) - (15,332)
---------- ---------- ---------- ---------- ---------- ----------
Net cash provided by
(used for) operating
activities (6,735) 2,277 22,145 (2,616) - 15,071
Net cash used for
investing activities - (18,425) (20,516) (360) - (39,301)
Net cash provided by
(used for) financing
activities 6,296 28,587 (1,752) 3,593 - 36,724
Effect on exchange rate
changes on cash - - - (495) - (495)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in cash and cash
equivalents (439) 12,439 (123) 122 - 11,999
Cash and cash
equivalents at
beginning of period 440 (700) 1,231 261 - 1,232
---------- ---------- ---------- ---------- ---------- ----------
Cash and cash equivalents
at end of period $ 1 $ 11,739 $ 1,108 $ 383 $ - $ 13,231
========== ========== ========== ========== ========== ==========
18
8. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized losses on derivative financial instruments and gains or losses
resulting from currency translations of foreign investments. The details of
comprehensive income (loss) are as follows:
COMPANY PREDECESSOR COMPANY PREDECESSOR
----------------------- ------------- ----------------------- -------------
THIRTEEN PERIOD PERIOD THIRTY-NINE PERIOD PERIOD
WEEKS FROM FROM WEEKS FROM FROM
ENDED 7/22/02- 6/30/02- ENDED 7/22/02- 12/30/01-
9/27/03 9/28/02 7/21/02 9/27/03 9/28/02 7/21/02
----------------------- ------------- ----------------------- -------------
Net income (loss) $ 4,218 $ 3,704 $(45,775) $ 11,839 $ 3,704 $(35,795)
Unrealized gain (loss)
on derivatives 147 - - (194) - -
Currency translation (181) 896 (25) 1,279 896 795
----------------------- ------------- ----------------------- -------------
Comprehensive income (loss) $ 4,184 $ 4,600 $(45,800) $ 12,924 $ 4,600 $(35,000)
======================= ============= ======================= =============
9. 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. 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. AS A RESULT,
THE COMPANY HAS RECLASSIFIED THE EXTRAORDINARY ITEM IN THE STATEMENTS OF
OPERATIONS TO CONTINUING OPERATIONS IN THESE QUARTERLY FINANCIAL STATEMENTS.
THE PROVISIONS OF SFAS NO. 145 RELATED TO THE RESCISSION OF FASB STATEMENT
NO. 44, THE AMENDMENT OF FASB STATEMENT NO. 13 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 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.
19
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN No. 46"). FIN No. 46 clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, in determining whether a reporting entity should consolidate
certain legal entities, including partnerships, limited liability companies,
or trusts, among others, collectively defined as variable interest entities
("VIEs"). This interpretation applies to VIEs created or obtained after
January 31, 2003, and as of July 1, 2003, to VIEs in which an enterprise
holds a variable interest that it acquired before February 1, 2003. The
initial adoption of this statement did not have a material impact on the
Company.
In April 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 initial adoption of this statement did not have a
material impact on the Company.
In May 2003, the FASB issued Statement of Financial Accounting Standards
No.150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity ("SFAS No. 150"). This statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. SFAS No.
150 is effective for financial instruments entered into or modified after
May 31, 2003. The adoption of this statement does not result in any
material change to the Company's existing reporting.
10. SUBSEQUENT EVENT
On October 15, 2003, Berry announced that it has entered into a definitive
agreement to acquire Landis Plastics, Inc. ("Landis") for $228.0 million,
including repayment of existing indebtedness. The purchase price will be
funded with a combination of debt, an equity investment from Berry's
existing investors and Landis management, and cash on Berry's balance sheet.
The transaction is scheduled to close in the fourth quarter of 2003 and is
subject to customary closing conditions. Berry has also agreed to
acquire four facilities currently leased by Landis from affiliates
of Landis. Berry currently intends to assign its right to purchase these
facilities to a third party and lease them from that third party.
20
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 for the fiscal year ended
December 28, 2002 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. You should read the explanation of the
qualifications and limitations on these forward-looking statements on page 2
of this report.
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%.
21
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 that, based on past history and
our credit policies, 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 $1.6 million,
including reserves for expected medical claims incurred but not reported, as
of September 27, 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 September 27, 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.
22
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 SEPTEMBER 27, 2003 (THE "QUARTER")
COMPARED TO 13 WEEKS ENDED SEPTEMBER 28, 2002 (THE "PRIOR QUARTER")
NET SALES. Net sales increased $11.7 million, or 9%, to $139.3 million for
the Quarter from $127.6 million for the Prior Quarter with an approximate 6%
inCREASE IN NET SELLING PRICE DUE TO HIGHER RESIN COSTS. CONTAINER NET
SALES INCREASED $4.5 MILLION FROM THE PRIOR QUARTER TO $70.3 MILLION FOR THE
QUARTER, WITH THE APM ACQUISITION PROVIDING NET SALES OF $0.4 MILLION FOR
THE QUARTER. THE INCREASE IS PRIMARILY A RESULT OF INCREASED SELLING PRICES
AND BASE BUSINESS GROWTH IN SEVERAL OF THE DIVISION'S PRODUCT LINES.
CLOSURE NET SALES INCREASED $5.3 MILLION FROM THE PRIOR QUARTER TO $38.1
MILLION WITH THE CCL ACQUISITION PROVIDING NET SALES OF $1.6 MILLION IN THE
QUARTER. THE REMAINING INCREASE OF $3.7 MILLION CAN BE PRIMARILY ATTRIBUTED
TO INCREASED SELLING PRICES AND NEW BUSINESS IN THE U.S. CLOSURE PRODUCT
LINE. CONSUMER PRODUCTS NET SALES FOR THE QUARTER WERE $30.9 MILLION
COMPARED TO $29.0 MILLION IN THE PRIOR QUARTER. THIS $1.9 MILLION INCREASE
CAN BE PRIMARILY ATTRIBUTED TO INCREASED SALES FROM HOUSEWARES AND
THERMOFORMED DRINK CUPS PARTIALLY OFFSET BY REDUCED VOLUME FROM A SPECIALTY
DRINK CUP LINE.
GROSS PROFIT. Gross profit increased by $2.4 million to $32.5 million (23%
of net sales) for the Quarter from $30.1 million (24% of net sales) for the
Prior Quarter. This increase of 8% can be primarily attributable to the
combined impact of the additional sales volume, productivity improvement
initiatives, and lower depreciation partially offset by the timing effect of
increased raw material costs in excess of selling price increases. 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 and thermoforming equipment, molds and printing and lining
equipment at several of our facilities.
OPERATING EXPENSES. Selling expenses decreased by $0.3 million to $5.5
million for the Quarter from $5.8 million for the Prior Quarter principally
as a result of cost reduction efforts partially offset by increased selling
expenses resulting from higher revenue. General and administrative remained
23
relatively flat increasing $0.1 million from $5.6 million for the Prior
Quarter to $5.7 million for the Quarter. Research and development expenses
also remained relatively flat with an increase of $0.2 million over the
Prior Quarter. Amortization of intangibles increased $0.3 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
$0.4 million related to acquisitions and $0.3 million related to the
shutdown and reorganization of facilities. In the Prior Quarter, transition
expenses were $0.3 million related to uncompleted acquisitions, $0.2 million
related to acquisitions, $0.8 million related to the shutdown and
reorganization of facilities, and $21.0 million related to the Merger.
INTEREST EXPENSE, NET. Net interest expense decreased $25.9 million to
$11.3 million for the Quarter compared to $37.2 million for the Prior
Quarter primarily due to $18.7 million of prepayment fees and related
charges and $6.6 million of deferred financing fees written off in the Prior
Quarter due to the extinguishment of debt in connection with the Merger.
The prepayment fees and related charges and deferred financing fees written
off in the Prior Quarter were previously classified as extraordinary.
Pursuant to SFAS 145, 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. As a result, we have reclassified the extraordinary
item in the Statements of Operations to continuing operations in these
quarterly financial statements.
INCOME TAXES. For the Quarter, we recorded income tax expense of $3.5
million or an effective tax rate of 46%. The effective tax rate is greater
than the statutory rate due to the impact of state taxes and foreign
location losses for which no benefit was currently provided. The increase
of $3.4 million over the Prior Quarter 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 predecessor's net operating
loss carryforward which can be used in any given year will be limited to
approximately $12.9 million.
NET INCOME. Net income is $4.2 million for the Quarter compared to a $42.1
million loss for the Prior Quarter for the reasons discussed above.
39 WEEKS ENDED SEPTEMBER 27, 2003 ("YTD")
COMPARED TO 39 WEEKS ENDED SEPTEMBER 28, 2002 ("PRIOR YTD")
NET SALES. Net sales increased $33.1 million, or 9%, to $411.6 million for
the YTD from $378.5 million for the Prior YTD with an approximate 5%
increase in net selling price due to higher resin costs. Container net
sales increased $16.8 million from the Prior YTD, including approximately
$0.5 million of YTD net sales from the APM acquisition, due primarily to
higher selling prices and increases in base business. Closure net sales
increased $10.5 million from the Prior YTD primarily due to $4.3 million of
YTD net sales from the CCL acquisition, higher selling prices, and new
business in the U.S. closure product line. Consumer product sales for the
YTD increased $5.8 million from the Prior YTD primarily due to increased
sales from the thermoformed drink cup line partially offset by a reduction
in sales of a specialty drink cup line.
GROSS PROFIT. Gross profit increased by $2.6 million to $98.3 million (24%
of net sales) for the YTD from $95.7 million (25% of net sales) for the
Prior YTD. This increase can be primarily attributable to the combined
impact of the additional sales volume, productivity improvement initiatives,
24
and lower depreciation partially offset by the timing effect of increased
raw material costs in excess of selling price increases. 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 YTD, 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 $1.0 million to $17.7
million for the YTD from $16.7 million for the Prior YTD, principally as a
result of increased selling expenses resulting from higher revenue. General
and administrative expenses decreased from $19.8 million for the Prior YTD
to $18.1 million for the YTD. This decrease of $1.7 million is primarily
attributable to decreased accrued bonus expenses and cost reduction efforts.
During the YTD, transition expenses were $1.0 million related to uncompleted
acquisitions, $0.9 million related to acquisitions, and $0.8 million related
to the shutdown and reorganization of facilities. In the Prior YTD,
transition expenses were $0.3 million related to uncompleted acquisitions,
$0.9 million related to acquisitions, $2.2 million related to the shutdown
and reorganization of facilities, and $21.0 million related to the Merger.
INTEREST EXPENSE, NET. Net interest expense decreased $29.0 million to
$33.8 million for the YTD compared to $62.8 million for the Prior YTD
primarily due to $18.7 million of prepayment fees and related charges and
$6.6 million of deferred financing fees written off in the Prior YTD due to
the extinguishment of debt in connection with the Merger. The prepayment
fees and related charges and deferred financing fees written off in the
Prior YTD were previously classified as extraordinary. Pursuant to SFAS
145, 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. As a result, we have reclassified the extraordinary item in
the Statements of Operations to continuing operations in these quarterly
financial statements.
INCOME TAX. For the YTD, we recorded income tax expense of $9.5 million or
an effective tax rate of 45%. The effective tax rate is greater than the
statutory rate due to the impact of state taxes and foreign location losses
for which no benefit was currently provided. The increase of $9.1 million
over the Prior YTD 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 YTD. As a result of
the Merger, the amount of the predecessor's net operating loss carryforward
which can be used in any given year will be limited to approximately $12.9
million.
NET INCOME. Net income is $11.8 million for the YTD compared to a net loss
of $32.1 million for the Prior YTD 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").
25
As of September 27, 2003, the Credit Facility provides (1) a $326.7 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
September 27, 2003, there were no borrowings outstanding on either the
delayed draw term loan facility or the 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 0.50% 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
ranges from 2.75% per annum to 2.00% per annum, depending on our leverage
ratio (2.75% based on results through September 27, 2003). The applicable
margin with respect to Base Rate Loans is 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 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 and as a result of the current economic
slowdown and corresponding interest rate reductions, we entered into an
interest rate collar 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 collar
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 September 27, 2003.
26
The term loan amortizes quarterly as follows: $825,000 each quarter through
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 (5) 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.
Net cash provided by operating activities was $45.9 million for the YTD
compared to $15.1 million for the Prior YTD. The increase of $30.8 million
is primarily the result of $21.0 million of Merger expenses in the Prior
YTD, improved inventory management, and reduced rates of interest on
borrowings in the YTD.
NET CASH USED FOR INVESTING ACTIVITIES DECREASED FROM $39.3 MILLION FOR THE
PRIOR YTD TO $26.9 MILLION FOR THE YTD PRIMARILY AS A RESULT OF $12.7
MILLION OF MERGER TRANSACTION COSTS IN THE PRIOR YTD. CAPITAL SPENDING OF
$21.1 MILLION IN THE YTD INCLUDED $2.0 MILLION FOR BUILDINGS AND SYSTEMS,
$12.5 MILLION FOR MOLDS, $2.3 MILLION FOR MOLDING AND PRINTING MACHINES, AND
$4.3 MILLION FOR ACCESSORY EQUIPMENT AND SYSTEMS.
NET CASH USED FOR FINANCING ACTIVITIES WAS $7.8 MILLION FOR THE YTD COMPARED
TO $36.7 MILLION PROVIDED BY FINANCING ACTIVITIES FOR THE PRIOR YTD. THE
DECREASE OF $44.5 MILLION CAN BE ATTRIBUTED TO MERGER FINANCING IN THE PRIOR
YTD AND REDUCED BORROWINGS DUE TO INCREASED CASH PROVIDED BY OPERATIONS IN
THE YTD.
27
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 SEPTEMBER 27, 2003, OUR CASH BALANCE WAS $26.5
MILLION, AND WE HAD UNUSED BORROWING CAPACITY UNDER THE CREDIT FACILITY'S
REVOLVING LINE OF CREDIT OF $94.3 MILLION. HOWEVER, THE COVENANTS UNDER OUR
CREDIT FACILITY LIMITS OUR ABILITY TO MAKE SUCH BORROWINGS AND AS OF
SEPTEMBER 27, 2003, WE COULD HAVE BORROWED $27.4 MILLION.
28
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 September
27, 2003, there were no borrowings outstanding on either the delayed draw
term loan facility or the revolving credit facility. The net outstanding
balance of the term loan at September 27, 2003 was $326.7 million. 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 an 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 September
27, 2003, the Eurodollar rate applicable to the term loan was 1.35%. 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) Disclosure controls and procedures.
As required by new Rule 13a-15 under the Securities Exchange Act of 1934,
the Company's management carried out an evaluation with the participation of
our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures, as of the end of
the last fiscal quarter. 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. We
intend to continue to review and document 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 control over financial reporting.
There were no changes in our internal control over financial reporting
identified in connection with our evaluation of our disclosure controls and
procedures that occurred during our last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
29
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 RULE 13A-14(A)/15D-14(A) CERTIFICATION OF THE CHIEF EXECUTIVE
OFFICER
31.2 RULE 13A-14(A)/15D-14(A) CERTIFICATION OF THE CHIEF FINANCIAL
OFFICER
32.1 SECTION 1350 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
32.2 SECTION 1350 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
(b) Reports on Form 8-K:
NONE
30
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
October 22, 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)
31