SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended
December 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 35-1813706
(State or other jurisdiction (IRS employer
of incorporation or organization)identification number)
BERRY PLASTICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 35-1814673
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
101 Oakley Street 47710
Evansville, Indiana
(Address of principal executive offices) (Zip code)
Registrants' telephone number, including area code: (812) 424-2904
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrants: (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: Not applicable.
Indicate by check mark whether the registrants are accelerated filers (as
defined by Rule 12b-2 of Securities Exchange Act of 1934).
Yes [ ] No [X]
None of the voting stock of either registrant is held by a non-affiliate of
such registrant. There is no public trading market for any class of voting
stock of BPC Holding Corporation or Berry Plastics Corporation.
As of March 18, 2004, there were outstanding 3,396,887 shares of the
Common Stock, $.01 par value, of BPC Holding Corporation. As of March 18,
2004, there were outstanding 100 shares of the Common Stock, $.01 par value, of
Berry Plastics Corporation.
DOCUMENTS INCORPORATED BY REFERENCE
None
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K includes "forward-looking statements," within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), with respect to our financial
condition, results of operations and business and our expectations or beliefs
concerning future events. Such statements include, in particular, statements
about our plans, strategies and prospects under the headings "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." You can identify certain forward-looking statements by our use of
forward-looking terminology such as, but not limited to, "believes," "expects,"
"anticipates," "estimates," "intends," "plans," "targets," "likely," "will,"
"would," "could" and similar expressions that identify forward-looking
statements. All forward-looking statements involve risks and uncertainties.
Many risks and uncertainties are inherent in our industry and markets. Others
are more specific to our operations. The occurrence of the events described
and the achievement of the expected results depend on many events, some or all
of which are not predictable or within our control. Actual results may differ
materially from the forward-looking statements contained in this Form 10-K.
Factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include:
changes in prices and availability of resin and other raw materials
and our ability to pass on changes in raw material prices;
catastrophic loss of our key manufacturing facility;
risks related to our acquisition strategy and integration of
acquired businesses;
risks associated with our substantial indebtedness and debt service;
performance of our business and future operating results;
risks of competition in our existing and future markets;
general business and economic conditions, particularly an economic
downturn;
increases in the cost of compliance with laws and regulations,
including environmental laws and regulations; and
the factors discussed in the section of this Form 10-K titled "Risk
Factors."
Readers should carefully review the factors discussed in the section
titled "Risk Factors" in this Form 10-K and other risk factors identified from
time to time in our periodic filings with the Securities and Exchange
Commission and should not place undue reliance on our forward-looking
statements. We undertake no obligation to update any forward-looking
statements to reflect changes in underlying assumptions or factors, new
information, future events or other changes.
AVAILABLE INFORMATION
We make available, free of charge, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments, if
any, to those reports through our Internet website as soon as practicable after
they have been electronically filed with or furnished to the SEC. Our internet
address is www.berryplastics.com. The information contained on our website is
not being incorporated herein. We are currently in the process of finalizing
our Code of Ethics.
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TABLE OF CONTENTS
BPC HOLDING CORPORATION
BERRY PLASTICS CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 27, 2003
PAGE
PART I
Item 1. Business...................................................... 4
Item 2. Properties.................................................... 12
Item 3. Legal Proceedings............................................ 12
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
PART II
Item 5. Market for Registrants'Common Equity and Related Stockholder
Matters...................................................... 13
Item 6. Selected Financial Data...................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk... 21
Item 7B. Risk Factors ................................................ 21
Item 8. Financial Statements and Supplementary Data.................. 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 27
Item 9A. Controls and Procedures...................................... 27
PART III
Item 10. Directors and Executive Officers of the Registrants.......... 28
Item 11. Executive Compensation....................................... 31
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholders Matters............................. 33
Item 13. Certain Relationships and Related Transactions............... 35
Item 14. Principal Accountant Fees and Services....................... 37
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 39
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PART I
ITEM 1. BUSINESS
Unless the context requires otherwise, references in this Form 10-K to
"BPC Holding" or "Holding" refer to BPC Holding Corporation, references to
"we," "our" or "us" refer to BPC Holding Corporation together with its
consolidated subsidiaries, and references to "Berry Plastics" or the "Company"
refer to Berry Plastics Corporation, a wholly owned subsidiary of BPC Holding
Corporation.
GENERAL
We are one of the world's leading manufacturers and suppliers of a
diverse mix of rigid plastics packaging products focusing on the open-top
container, closure, aerosol overcap, drink cup and housewares markets. We sell
a broad product line to over 12,000 customers. We concentrate on manufacturing
higher quality, value-added products sold to image-conscious marketers of
institutional and consumer products. We believe that our large operating
scale, low-cost manufacturing capabilities, purchasing leverage, proprietary
thermoforming technology and extensive collection of over 1,000 active
proprietary molds provide us with a competitive advantage in the marketplace.
We have been able to leverage our broad product offering, value-added
manufacturing capabilities and long-standing customer relationships into
leading positions across a number of products. Our top 10 customers
represented approximately 18% of our fiscal 2003 net sales with no customer
accounting for more than 4% of our fiscal 2003 net sales. On a pro forma basis
giving effect to the acquisition of Landis Plastics, Inc. as if it occurred at
the beginning of fiscal 2003, our top 10 customers would have represented
approximately 32% of our pro forma fiscal 2003 net sales with no customer
accounting for more than 8% of our pro forma fiscal 2003 net sales. The
average length of our relationship with these customers was over 19 years. Our
products are primarily sold to customers in industries that exhibit relatively
stable demand characteristics and are considered less sensitive to overall
economic conditions, such as pharmaceuticals, food, dairy and health and
beauty. Additionally, we operate 16 high-volume manufacturing facilities and
have extensive distribution capabilities.
We organize our product categories into three operating divisions:
containers, closures, and consumer products. The following table displays our
net sales by division for each of the past five fiscal years.
($ in millions) 1999 2000 2001 2002 2003
---- ---- ---- ---- ----
Containers $188.7 $231.2 $234.5 $250.4 $288.5
Closures 81.0 112.2 132.4 133.9 147.3
Consumer products 59.1 64.7 94.8 110.0 116.1
----- ----- ----- ----- -----
Total net sales $328.8 $408.1 $461.7 $494.3 $551.9
===== ===== ===== ===== =====
Additional financial information about our business segments is provided
in Note 14 of the "Notes to Consolidated Financial Statements," which are
included elsewhere in this Form 10-K.
HISTORY
Imperial Plastics was established in 1967 in Evansville, Indiana. Berry
Plastics, Inc. ("Old Berry") was formed in 1983 to purchase substantially all
of the assets of Imperial Plastics. In 1988, Old Berry acquired Gilbert
Plastics of New Brunswick, New Jersey, a leading manufacturer of aerosol
overcaps, and subsequently relocated Gilbert Plastics' production to Old
Berry's Evansville, Indiana facility. In 1990, the Company and Holding, the
holder of 100% of the outstanding capital stock of the Company, were formed to
purchase the assets of Old Berry.
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From 1992 until 2003, we continued to grow by acquiring companies that we
believed would improve our financial performance in the long-term, expand our
product lines, or in some cases, provide us with a new or complementary product
line. In 1992, we acquired the assets of the Mammoth Containers division of
Genpak Corporation. In 1995, we acquired substantially all of the assets of
Sterling Products, Inc., a producer of injection-molded plastic drink cups and
lids, and Tri-Plas, Inc., a manufacturer of injection-molded containers. In
1997, we acquired (1) certain assets of Container Industries, Inc., a
manufacturer and marketer of injection-molded industrial and pry-off
containers, (2) PackerWare Corporation ("PackerWare"), a manufacturer and
marketer of plastic containers, drink cups, housewares, and lawn and garden
products, (3) substantially all of the assets of Virginia Design Packaging
Corp., a manufacturer and marketer of injection-molded containers used
primarily for food packaging, and (4) Venture Packaging, Inc., a manufacturer
and marketer of injection-molded containers used in the food, dairy and various
other markets. In 1998, we acquired all of the capital stock of Norwich
Injection Moulders Limited (now known as Berry Plastics UK Limited) and
substantially all of the assets of the Knight Engineering and Plastics Division
of Courtaulds Packaging Inc., a manufacturer of aerosol overcaps. In 1999, we
acquired all of the outstanding capital stock of CPI Holding Corporation, the
parent company of Cardinal Packaging, Inc., a manufacturer and marketer of
open-top containers. In 2000, we acquired all of the outstanding capital stock
of (1) Poly-Seal Corporation ("Poly-Seal"), a manufacturer and marketer of
closures and (2) Capsol S.p.a. ("Capsol") and the whole quota capital of a
related company, Ociesse S.r.l. Capsol is a manufacturer and marketer of
aerosol overcaps and closures. In 2001, we acquired all of the outstanding
capital stock of Pescor Plastics, Inc. ("Pescor"), a manufacturer and marketer
of drink cups, and in 2002, we acquired the Alcoa Flexible Packaging injection
molding assets from Mount Vernon Plastics Corporation ("Mount Vernon"). In
2003, we acquired (1) the 400 series continuous threaded injection molded
closure assets from CCL Plastic Packaging, (2) the injection molded overcap lid
assets from APM Inc., and (3) all of the outstanding capital stock of Landis
Plastics, Inc., a manufacturer and marketer of open-top containers.
RECENT DEVELOPMENTS
The Merger
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly
formed entity controlled by various private equity funds affiliated with
Goldman, Sachs & Co., merged (the "Merger") with and into BPC Holding,
pursuant to an agreement and plan of merger, dated as of May 25, 2002. At the
effective time of the Merger, (1) each share of common stock of BPC Holding
issued and outstanding immediately prior to the effective time of the Merger
was converted into the right to receive cash pursuant to the terms of the
merger agreement, and (2) each share of common stock of the Buyer issued and
outstanding immediately prior to the effective time of the Merger was converted
into one share of common stock of BPC Holding. Additionally, in connection
with the Merger, we retired all of BPC Holding's senior secured notes and Berry
Plastics' senior subordinated notes, repaid all amounts owed under our credit
facilities, redeemed all of the outstanding preferred stock of BPC Holding,
entered into a new credit facility and completed an offering of new senior
subordinated notes of Berry Plastics. Immediately following the Merger, private
equity funds affiliated with Goldman Sachs owned approximately 63% of the
outstanding common stock of BPC Holding, private equity funds affiliated with
J.P. Morgan Chase & Co. owned approximately 29% and members of our management
owned the remaining 8%.
The total amount of funds required to consummate the Merger and to pay
the related fees and expenses was approximately $870.7 million, including
retirement all of BPC Holding's senior secured notes and Berry Plastics' senior
subordinated notes, repayment of all amounts owed under our credit facilities,
redemption of all of the outstanding preferred and common stock of BPC Holding,
and other fees and expenses related to the Merger. In connection with the
Merger, Berry Plastics received a $330 million senior secured term loan from a
syndicate of lenders led by Goldman Sachs Credit Partners L.P., as
administrative agent, approximately $250 million from the issuance by Berry
Plastics of 10 3/4% senior subordinated notes to various institutional buyers
due 2012, and approximately $268.8 million in equity contributions from
affiliates of Goldman Sachs and certain existing stockholders and continuing
investments from members of our management. The $330 million senior secured
term loan was part of a larger senior secured credit facility that we entered
into with a syndicate of lenders led by Goldman Sachs Credit Partners L.P., as
administrative agent. The credit facility also included a $50.0 million
delayed draw term loan facility and a $100.0 million revolving credit facility.
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The Landis Acquisition
On November 20, 2003, Berry Plastics acquired Landis Plastics, Inc. for
aggregate consideration of approximately $229.7 million, pursuant to which
Berry's wholly-owned subsidiary, Berry Plastics Acquisition Corporation IV,
merged with and into Landis, and Landis became our wholly-owned subsidiary (the
"Landis Acquisition"). The Landis Acquisition was funded through (1) the
issuance by Berry Plastics of $85.0 million aggregate principal amount of 10
3/4% senior subordinated notes due 2012 to various institutional buyers, which
resulted in gross proceeds of $95.2 million, (2) aggregate net borrowings of
$54.1 million under our amended and restated senior secured credit facility
from our new term loans, after giving effect to the refinancing of our prior
term loan, (3) an aggregate common equity contribution of $62.0 million,
consisting of contributions of $35.4 million by GS Capital Partners 2000, L.P.
and its affiliates, $16.1 million by J.P. Morgan Partners Global Investors,
L.P. and its affiliates, and an aggregate of $10.5 million from existing Landis
shareholders and (4) cash on hand. Berry also agreed to acquire, for $32.0
million, four facilities that Landis leased from certain of its affiliates.
Prior to the closing of the Landis Acquisition, we assigned our rights and
obligations to purchase the four facilities owned by affiliates of Landis to an
affiliate of W.P. Carey & Co., L.L.C. and then leased those four facilities
from them.
PRODUCT OVERVIEW
We organize our product lines into three categories: containers, closures and
consumer products.
Containers
- ----------
We classify our containers into six product lines: thinwall, pry-off, dairy,
polypropylene, industrial and specialty. The following table describes our
container product lines.
PRODUCT LINE DESCRIPTION SIZES MAJOR END MARKETS
- ------------ ----------- ----- -----------------
Thinwall Thinwalled, multi-purpose containers 8 oz. Food, promotional products, toys and a wide variety
with or without handles and lids to 2 of other uses
gallons
Pry-off Containers having a tight lid-fit and 4 oz. Building products, adhesives, chemicals, and other
requiring an opening device to 2 industrial uses
gallons
Dairy Thinwall containers in traditional dairy 4 oz. Cultured dairy products including yogurt, cottage
market sizes and styles to 5 cheese, sour cream and dips, and frozen desserts
lbs.,
Multi-
pack
Polypropylene Usually clear containers in round, 6 oz. Food, deli, sauces and salads
oblong or rectangular shapes to 5
lbs.
Industrial Thick-walled, larger pails designed to 2.5 to Building products, chemicals, paints and other
accommodate heavy loads 5 industrial uses
gallons
Specialty Customer specific Various Premium consumer items, such as tobacco and
drink mixes
The largest end-uses for our containers are food products, building products,
chemicals and dairy products. We have a diverse customer base for our
container lines, and no single container customer exceeded 3% of our total net
sales in fiscal 2003. On a pro forma basis giving effect to the acquisition of
Landis Plastics, Inc. as if it occurred at the beginning of fiscal 2003, no
single container customer exceeded 8% of our pro forma fiscal 2003 net sales
We believe that we offer the broadest product line among U.S.-based
injection-molded plastic container manufacturers. Our container capacities
range from 4 ounces to 5 gallons and are offered in various styles with
accompanying lids, bails and handles, some of which we produce, as well as a
wide array of decorating options. In addition to a complete product line, we
have sophisticated printing capabilities, in-house graphic arts and tooling
departments, low-cost manufacturing capability with 14 plants strategically
located throughout the United States and a dedication to high-quality products
and customer service. Our product engineers work with customers to design and
commercialize new containers. In addition, as part of our dedication to
customer service, on occasion, we provide filling machine equipment to some of
our customers, primarily in the dairy market, and we also provide the services
necessary to operate such equipment. We believe providing such equipment and
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services increases customer retention by increasing the customer's production
efficiency. The cost of, and revenue from, such equipment is not material.
We seek to develop niche container products and new applications by
taking advantage of our state-of-the-art decorating and graphic arts
capabilities and dedication to service and quality. We believe that these
capabilities have given us a significant competitive advantage in certain high-
margin niche container applications for specialized products. Examples include
popcorn containers for new movie promotions and professional and college
sporting and entertainment events, where the ability to produce sophisticated
and colorful graphics is crucial to the product's success. In order to
identify new applications for existing products, we rely extensively on our
national sales force. Once these opportunities are identified, our sales force
interfaces with our product design engineers to satisfy customers' needs.
In non-industrial containers, our strongest competitors include Airlite,
Sweetheart, and Polytainers. We also produce commodity industrial pails for a
market that is dominated by large volume competitors such as Letica, Plastican,
NAMPAC and Ropak. We do not participate heavily in this large market.
Closures
Our closures division focuses on aerosol overcaps and closures.
Aerosol Overcaps
- ----------------
We believe we are the worldwide leading producer of injection-molded
aerosol overcaps. Our aerosol overcaps are used in a wide variety of consumer
goods including spray paints, household and personal care products,
insecticides and numerous other commercial and consumer products. Most U.S.
manufacturers of aerosol products, and companies that fill aerosol products on
a contractual basis, are our customers for some portion of their needs.
Approximately 20% of the U.S. injection-molded market consists of manufacturers
who produce overcaps in-house for their own needs.
We believe that, over the years, we have developed several significant
competitive advantages, including (1) a reputation for outstanding quality, (2)
short lead-time requirements to fill customer orders, (3) long-standing
relationships with major customers, (4) the ability to accurately reproduce
colors, (5) proprietary packing technology that minimizes freight cost and
warehouse space, (6) high-speed, low-cost molding and decorating capability and
(7) a broad product line of proprietary molds. We continue to develop new
products in the overcap market, including a "spray-thru" line of aerosol
overcaps that has a built-in release button.
In fiscal 2003, no single aerosol overcap customer accounted for over 2%
of our total net sales. Competitors include Dubuque Plastics, Cobra and
Plasticum. In addition, a number of companies, including several of our
customers, currently produce aerosol overcaps for their own use.
Closures
- --------
We believe our combined product line offerings to the closures market
establish us as a leading provider of closures. Our product line offerings
include continuous thread, dispensing, tamper evident and child resistant
closures. In addition, we are a leading provider of (1) fitments and plugs for
medical applications, (2) cups and spouts for liquid laundry detergent, (3)
dropper bulb assemblies for medical and personal care applications, and (4)
jiggers for mouthwash products.
Our closures are used in a wide variety of consumer goods markets, including
health and beauty aids, pharmaceutical, household chemicals, commercial
chemicals, and food and dairy. We are a major provider of closures to many of
the leading companies in these markets.
We believe the capabilities and expertise we have established as a closure
provider create significant competitive advantages, including the latest in
single and bi-injection technology, molding of thermoplastic and thermoset
resins, compression molding of thermoplastic resins, and lining and assembly
applications applying the latest in computerized vision inspection technology.
In addition, we have an in-house package development and design group focused
on developing new closures to meet our customers' proprietary needs. We have a
strong reputation for quality and have received numerous "Supplier Quality
Achievement Awards" from customers in different markets.
In fiscal 2003, no single closure customer accounted for over 2% of our total
net sales. Competitors include Owens-Illinois, Kerr/Suncoast, Phoenix
Closures, Portola, Rexam Closures, and Seaquist Closures.
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Consumer Products
Our consumer products division focuses on drink cups and housewares.
Drink Cups
- ----------
We believe that we are the largest provider of injection-molded plastic
drink cups in the United States. As beverage producers, convenience stores and
fast food restaurants increase their marketing efforts for larger sized drinks,
we believe that the plastic drink cup market should expand because of plastic's
desirability over paper for larger drink cups. We produce injection-molded
plastic cups that range in size from 12 to 64 ounces. Primary markets are fast
food and family dining restaurants, convenience stores, stadiums and retail
stores. Many of our cups are decorated, often as promotional items, and we are
known in the industry for our innovative, state-of-the-art graphics capability.
We launched our thermoformed drink cup line in fiscal 2001. Our
thermoformed product line offers sizes ranging from 22 to 44 ounces. Our
thermoform process is unique in the industry in that it uses polypropylene
instead of more expensive polystyrene in producing deep draw drink cups. This
offers a material competitive advantage versus competitive thermoformed drink
cups.
In fiscal 2003, no single drink cup customer accounted for more than 2%
of our total net sales. Drink cup competitors include Huhtamaki (formerly
Packaging Resources Incorporated), Sweetheart, International Paper, Dopaco,
Letica, and WNA (formerly Cups Illustrated).
Housewares
- ----------
Our participation in the housewares market is primarily focused on
producing seasonal (spring and summer) semi-disposable plastic housewares and
plastic garden products. Examples of our products include plates, bowls,
pitchers, tumblers and outdoor flowerpots. We sell virtually all of our
products in this market through major national retail marketers and national
chain stores, such as Wal-Mart. PackerWare is our recognized brand name in
these markets and PackerWare branded products are often co-branded by our
customers. Our position in this market has been to provide high value to
consumers at a relatively modest price, consistent with the key price points of
the retail marketers. We believe outstanding service and ability to deliver
products with timely combination of color and design further enhance our
position in this market. This focus allowed PackerWare to be named Wal-Mart's
category manager for its seasonal housewares department.
In fiscal 2003, no single housewares customer accounted for more than 4%
of our total net sales. Housewares competitors include imported products from
China, Arrow Plastics and United Plastics.
MARKETING AND SALES
We reach our large and diversified base of over 12,000 customers
primarily through our direct field sales force of over 60 dedicated
professionals. Our field sales, production and support staff meet with
customers to understand their needs and improve our product offerings and
services. While these field sales representatives are focused on individual
product lines, they are also encouraged to sell all of our products to serve
the needs of our customers. We believe that a direct field sales force is able
to better focus on target markets and customers, with the added benefit of
permitting us to control pricing decisions centrally. We also utilize the
services of manufacturing representatives to assist our direct sales force. We
believe that we produce a high level of customer satisfaction. Highly skilled
customer service representatives are strategically located throughout our
facilities to support the national field sales force. In addition,
telemarketing representatives, marketing managers and sales/marketing
executives oversee the marketing and sales efforts. Manufacturing and
engineering personnel work closely with field sales personnel to satisfy
customers' needs through the production of high-quality, value-added products
and on-time deliveries.
Our sales force is supported by technical specialists and our in-house
graphics and design personnel. Our Graphic Arts department includes computer-
assisted graphic design capabilities and in-house production of photopolymer
printing plates. We also have a centralized Color Matching and Materials
Blending department that utilizes a computerized spectrophotometer to insure
that colors match those requested by customers.
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MANUFACTURING
We primarily manufacture our products using either injection or
thermoform molding presses. In both cases, the process begins with raw plastic
pellets which are then converted into finished products. In the injection
process, the raw pellets are melted to a liquid state and injected into a
multi-cavity steel mold where the resin is allowed to solidify to take the
final shape of the part. In the thermoform process, the raw resin is softened
to the point where sheets of material are drawn into multi-cavity molds and
formed over the molds to form the desired shape. The final parts are then
either cut and trimmed in the mold or trimmed as a secondary process. In both
processes, the cured parts are transferred from the molding process via
automated handling equipment to corrugated containers for shipment to customers
or for post-molding secondary operations (offset printing, labeling,
silkscreening, handle applications, etc.). We believe that our molding,
handling, and post-molding capabilities are among the best in the industry.
Our overall manufacturing philosophy is to be a low-cost producer by
using (1) high-speed molding machines, (2) modern multi-cavity hot runner, cold
runner and insulated runner molds, (3) extensive material handling automation
and (4) sophisticated printing technology. We utilize state-of-the-art robotic
packaging processes for large volume products, which enable us to reduce
breakage while lowering warehousing and shipping costs. Each plant has
maintenance capability to support molding and post-molding operations. We have
historically made, and intend to continue to make, significant capital
investments in plant and equipment because of our objectives to improve
productivity, maintain competitive advantages and foster continued growth.
Over the past five fiscal years our capital expenditures in plant and
equipment, exclusive of acquisitions, were $153.7 million.
PRODUCT DEVELOPMENT AND DESIGN
We believe our technology base and research and development support are
among the best in the rigid plastics packaging industry. Our full-time product
engineers use three-dimensional computer-aided-design (CAD) technology to
design and modify new products and prepare mold drawings. We can simulate the
molding environment by running unit-cavity prototype molds in small injection-
molding machines for research and development of new products. Production
molds are then designed and outsourced for production by various companies with
which we have extensive experience and established relationships. The Landis
Acquisition provides the additional capability of in-house mold production,
which will be considered for certain projects. Our engineers oversee the mold-
building process from start to finish. Many of our customers work in
partnership with our technical representatives to develop new, more competitive
products. We have enhanced our relationships with these customers by providing
the technical service needed to develop products combined with our internal
graphic arts support.
We spent $3.5 million, $2.9 million and $1.9 million on research and
development in 2003, 2002, and 2001, respectively.
We also utilize our in-house graphic design department to develop color
and styles for new products. Our design professionals work directly with our
customers to develop new styles and use computer-generated graphics to enable
our customers to visualize the finished product.
QUALITY ASSURANCE
Each plant extensively utilizes Total Quality Management philosophies,
including the use of statistical process control and extensive involvement of
employees to increase productivity. This teamwork approach to problem-solving
increases employee participation and provides necessary training at all levels.
Teams use the Six Sigma methodology to improve internal processes and service
the customer. All of our facilities except for two facilities (Richmond and
Phoenix) that were acquired in connection with the Landis Acquisition have been
ISO certified, which demonstrates compliance by a company with a set of
shipping, trading and technology standards promulgated by the International
Standardization Organization ("ISO"). We are actively pursuing ISO
certification in the remaining two facilities. Extensive testing of parts for
size, color, strength and material quality using statistical process control
(SPC) techniques and sophisticated technology is also an ongoing part of our
quality assurance activities.
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SYSTEMS
We utilize a fully integrated computer software system at each of our
plants (excluding the Landis facilities, which we anticipate completing the
conversion process by the end of the second quarter of 2004) that produces
complete financial and operational reports. This accounting and control system
is easily expandable to add new features and/or locations as we grow. In
addition, we have in place a sophisticated quality assurance system, a bar code
based material management system and an integrated manufacturing system.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The most important raw material purchased by us is plastic resin. We
purchased approximately $140.3 million and over 350 million pounds of resin in
fiscal 2003. On a pro forma basis after giving effect to the Landis
Acquisition, our annual resin pound utilization exceeds 500 million pounds with
approximately 28% of our resin pounds being high density polyethylene ("HDPE"),
17% linear low density polyethylene and 55% polypropylene ("PP"). We have
contractual price escalators and de-escalators tied to the price of resin
representing approximately 55% of net sales that result in price
increases/decreases to many of our customers in a relatively short period of
time, typically quarterly. In addition, we have historically had success in
passing through price increases and decreases in the price of resin to
customers without indexed price agreements. For example, in fiscal 2003, our
net sales increased by $57.6 million over fiscal 2002, of which approximately
$25.6 million was attributable to increased selling prices. This occurred in
an environment of rapidly escalating resin prices. Fewer than 10% of our net
sales are generated from fixed-price arrangements, and we have at times and may
continue to enter into negotiated purchase agreements with resin suppliers
related to these fixed price arrangements. We can further mitigate the effect
of resin price movements through our ability to accommodate raw material
switching for certain products between HDPE and PP as prices fluctuate. Based
on information from Plastics News, an industry publication, average spot prices
of HDPE and PP on December 27, 2003 were $0.515 per pound and $0.470 per pound,
respectively, reflecting increases of $0.12 per pound, or 30%, and $0.08 per
pound, or 21%, over the respective average spot prices from December 28, 2002.
Our purchasing strategy is to deal with only high-quality, dependable
suppliers, such as Dow, Chevron, Nova, Equistar, Atofina, Basell, Sunoco, and
ExxonMobil. Although we do not have any supply requirements contracts with our
key suppliers, we believe that we have maintained strong relationships with
these key suppliers and expect that such relationships will continue into the
foreseeable future. Based on our experience, we believe that adequate
quantities of plastic resins will be available at market prices, but we can
give you no assurances as to such availability or the prices thereof.
EMPLOYEES
At the end of fiscal 2003, we had approximately 4,700 employees. Poly-
Seal Corporation, a wholly owned subsidiary, and the United Steelworkers of
America are parties to a collective bargaining agreement which expires on April
24, 2005. At the end of fiscal 2003, approximately 330 employees of Poly-Seal
Corporation, all of which are located in our Baltimore facility, were covered
by this agreement. None of our other employees are covered by collective
bargaining agreements. We believe our relations with our employees are good.
PATENTS AND TRADEMARKS
We rely on a combination of patents, trade secrets, unpatented know-how,
trademarks, copyrights and other intellectual property rights, nondisclosure
agreements and other protective measures to protect our proprietary rights. We
do not believe that any individual item of our intellectual property portfolio
is material to our current business. We employ various methods, including
confidentiality and non-disclosure agreements with third parties, employees and
consultants, to protect our trade secrets and know-how. We have licensed, and
may license in the future, patents, trademarks, trade secrets, and similar
proprietary rights to and from third parties.
-10-
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
Our past and present operations and our past and present ownership and
operations of real property are subject to extensive and changing federal,
state, local and foreign environmental laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposition of
wastes or otherwise relating to the protection of the environment. We believe
that we are in substantial compliance with applicable environmental laws and
regulations. However, we cannot predict with any certainty that we will not in
the future incur liability under environmental statutes and regulations with
respect to non-compliance with environmental laws, contamination of sites
formerly or currently owned or operated by us (including contamination caused
by prior owners and operators of such sites) or the off-site disposal of
hazardous substances.
Like any manufacturer, we are subject to the possibility that we may receive
notices of potential liability in connection with materials that were sent to
third-party recycling, treatment, and/or disposal facilities under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), and comparable state statutes, which impose liability for
investigation and remediation of contamination without regard to fault or the
legality of the conduct that contributed to the contamination. Liability under
CERCLA is retroactive, and liability for the entire cost of a cleanup can be
imposed on any responsible party. No such notices are currently pending.
The FDA regulates the material content of direct-contact food containers and
packages, including certain thinwall containers we manufacture pursuant to the
Federal Food, Drug and Cosmetics Act. Certain of our products are also
regulated by the Consumer Product Safety Commission ("CPSC") pursuant to
various federal laws, including the Consumer Product Safety Act. Both the FDA
and the CPSC can require the manufacturer of defective products to repurchase
or recall such products and may also impose fines or penalties on the
manufacturer. Similar laws exist in some states, cities and other countries in
which we sell our products. In addition, laws exist in certain states
restricting the sale of packaging with certain levels of heavy metals, imposing
fines and penalties for non-compliance. Although we use FDA approved resins
and pigments in containers that directly contact food products and believe they
are in material compliance with all such applicable FDA regulations, and we
believe our products are in material compliance with all applicable
requirements, we remain subject to the risk that our products could be found
not to be in compliance with such requirements.
The plastics industry, including us, is subject to existing and potential
federal, state, local and foreign legislation designed to reduce solid wastes
by requiring, among other things, plastics to be degradable in landfills,
minimum levels of recycled content, various recycling requirements, disposal
fees and limits on the use of plastic products. In addition, various consumer
and special interest groups have lobbied from time to time for the
implementation of these and other similar measures. The principal resins used
in our products, HDPE and PP, are recyclable, and, accordingly, we believe that
the legislation promulgated to date and such initiatives to date have not had a
material adverse effect on us. There can be no assurance that any such future
legislative or regulatory efforts or future initiatives would not have a
material adverse effect on us. On January 1, 1995, legislation in Oregon,
California and Wisconsin went into effect requiring products packaged in rigid
plastic containers to comply with standards intended to encourage recycling and
increased use of recycled materials. Although the regulations vary by state,
they principally require the use of post consumer regrind ("PCR") as an
ingredient in containers or the reduction of their weight. These regulations
do not apply to food, cosmetic or drug containers. Oregon and California
provide for an exemption from these regulations if statewide recycling rates
for rigid plastic containers reach or exceed 25%. We assist our customers in
complying with these regulations.
Oregon's aggregate recycling rate for rigid plastic containers has exceeded
the 25% goal since the effective date of the law through 2001, the most recent
compliance period examined. Therefore, rigid plastic containers are exempt
from the requirements of the Oregon statute. In addition, California has also
reached its 25% recycling rate goal for rigid plastic containers in 2001, the
most recent compliance period examined. Therefore, rigid plastic containers
are exempt from the requirements of the California statute for 2002. In order
to facilitate continued individual customer compliance with these regulations,
we are providing customers the option of purchasing containers with limited
amounts of PCR or reduced weight.
-11-
ITEM 2. PROPERTIES
The following table sets forth our principal manufacturing facilities:
LOCATION SQUARE FOOTAGE USE OWNED/LEASED
-------- -------------- --- ------------
Evansville, IN 580,000 Headquarters and manufacturing Owned
Henderson, NV 175,000 Manufacturing Owned
Iowa Falls, IA 100,000 Manufacturing Owned
Charlotte, NC 150,000 Manufacturing Owned
Lawrence, KS 424,000 Manufacturing Owned
Suffolk, VA 110,000 Manufacturing Owned
Monroeville, OH 152,000 Manufacturing Owned
Norwich, England 88,000 Manufacturing Owned
Woodstock, IL 170,000 Manufacturing Owned
Streetsboro, OH 140,000 Manufacturing Owned
Baltimore, MD 244,000 Manufacturing Owned
Milan, Italy 125,000 Manufacturing Leased
Chicago, IL 472,000 Manufacturing Leased
Richmond, IN 160,000 Manufacturing Owned
Syracuse, NY 135,000 Manufacturing Leased
Phoenix, AZ 140,000 Manufacturing Leased
We believe that our property and equipment is well-maintained, in good
operating condition and adequate for our present needs. In addition, we own a
property in Monticello, Indiana that was acquired in connection with the Landis
Acquisition that was subsequently closed as part of our integration efforts.
This property is currently on the market for sale.
ITEM 3. LEGAL PROCEEDINGS
We are party to various legal proceedings involving routine claims which
are incidental to our business. Although our legal and financial liability with
respect to such proceedings cannot be estimated with certainty, we believe that
any ultimate liability would not be material to our financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By Written Consent in Lieu of a Meeting of the Stockholders of BPC
Holding Corporation dated December 10, 2003, stockholders that hold a majority
of the stock entitled to vote approved an amendment to the BPC Holding
Corporation 2002 Stock Option Plan to revise vesting provisions of such plan to
provide for 20% vesting the first year and each subsequent year for four (4)
years for time and upon reaching or exceeding performance targets.
-12-
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for any class of common
stock of Holding or the Company. With respect to the capital stock of Holding,
as of March 18, 2004, there were 103 holders of the common stock. All of the
issued and outstanding common stock of the Company is held by Holding.
DIVIDEND POLICY
Holding has not paid cash dividends on its capital stock since the
Merger. Because Holding intends to retain any earnings to provide funds for
the operation and expansion of the Company's business and to repay outstanding
indebtedness, Holding does not intend to pay cash dividends on its common stock
in the foreseeable future. Furthermore, as a holding company with no
independent operations, the ability of Holding to pay cash dividends will be
dependent on the receipt of dividends or other payments from the Company.
Under the terms of the Indenture dated as of July 22, 2002, as supplemented
(the "Indenture"), among the Company, Holding, all of its direct and indirect
domestic subsidiaries, and U.S. Bank Trust National Association, as Trustee
("U.S. Bank"), and the Company has restrictions regarding the payment of
dividends on its common stock. In addition, the Company's amended and restated
senior secured credit facility contains covenants that, among other things,
restrict the payment of dividends by the Company. In addition, Delaware law
limits Holding's ability to pay dividends from current or historical earnings
or profits or capital surplus. Any determination to pay cash dividends on
common stock of the Company or Holding in the future will be at the discretion
of the Board of Directors of the Company and Holding, respectively.
EQUITY COMPENSATION PLAN INFORMATION
See Item 12 of this Form 10-K entitled "Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters".
-13-
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from our consolidated
financial statements. The data should be read in connection with the
consolidated financial statements, related notes and other financial
information included herein. Our fiscal year is a 52/53 week period ending
generally on the Saturday closest to December 31. All references herein to
"2003," "2002," "2001," "2000," and "1999" relate to the fiscal years ended
December 27, 2003, December 28, 2002, December 29, 2001, December 30, 2000, and
January 1, 2000, respectively. For analysis purposes, the results under
Holding's prior ownership ("Predecessor") have been combined with results
subsequent to the Merger on July 22, 2002. Our historical consolidated
financial information may not be comparable to or indicative of our future
performance. For a discussion of certain factors that materially affect the
comparability of the consolidated financial data or cause the data reflected
herein not to be indicative of our future financial condition or results of
operations, see "Risk Factors."
BPC HOLDING CORPORATION
-----------------------------------------------------------------------
FISCAL
-----------------------------------------------------------------------
COMBINED
COMPANY &
COMPANY PREDECESSOR PREDECESSOR PREDECESSOR PREDECESSOR
-----------------------------------------------------------------------
2003 2002 2001 2000 1999
-----------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS)
Statement of Operations Data:
Net sales $551,876 $494,303 $461,659 $408,088 $328,834
Cost of goods sold 420,750 371,273 338,000 312,119 241,067
------- ------- ------- ------- -------
Gross profit 131,126 123,030 123,659 95,969 87,767
Operating expenses (a) 59,936 77,467 70,192 65,862 54,118
------- ------- ------- ------- -------
Operating income 71,190 45,563 53,467 30,107 33,649
Other expenses (income) (b) (7) 299 473 877 1,416
Loss on extinguished debt (c) 250 25,328 - 1,022 -
Interest expense, net (d) 45,413 49,254 54,355 51,457 40,817
------- ------- ------- ------- -------
Income (loss) before income taxes 25,534 (29,318) (1,361) (23,249) (8,584)
Income taxes (benefit) 12,486 3,298 734 (142) 554
------- ------- ------- ------- -------
Net income (loss) 13,048 (32,616) (2,095) (23,107) (9,138)
Preferred stock dividends - 6,468 9,790 6,655 3,776
Amortization of preferred stock discount - 574 1,024 768 292
------- ------- ------- ------- -------
Net income (loss) attributable to common
stockholders $ 13,048 $ (39,658) $ (12,909) $ (30,530) $ (13,206)
======= ======= ======= ======= =======
Balance Sheet Data (at end of year):
Working capital $ 87,571 $ 64,201 $ 19,327 $ 20,470 $ 10,527
Fixed assets 282,977 193,132 203,217 179,804 146,792
Total assets 1,015,806 760,576 446,876 413,122 340,807
Total debt 751,605 609,943 485,881 468,806 403,989
Stockholders' equity (deficit) 152,591 75,163 (139,601) (137,997) (133,471)
Other Data:
Depreciation and amortization (e) $ 44,078 $ 41,965 $ 50,907 $ 42,148 $ 31,795
Capital expenditures 29,949 28,683 32,834 31,530 30,738
(a) Operating expenses include $20,987 related to the Merger during fiscal
2002.
(b) Other expenses (income) consist of net losses (gains) on disposal of
property and equipment for the respective years.
(c) The loss on extinguished debt in 2003 represents the legal costs associated
with amending the senior credit facility in connection with the Landis
Acquisition. As a result of the retirement all of BPC Holding's senior
secured notes and Berry Plastics' senior subordinated notes and the
repayment of all amounts owed under our credit facilities in connection with
the Merger, $6.6 million of existing deferred financing fees and $18.7
million of prepayment fees and related charges were charged to expense in
2002 as a loss on extinguished debt. In 2000, the loss on extinguished debt
relates to deferred financing fees written off as a result of amending the
retired senior credit facility.
(d) Includes non-cash interest expense of $2,318, $2,476, $11,268, $18,047, and
$15,567, in fiscal 2003, 2002, 2001, 2000, and 1999, respectively.
(e) Depreciation and amortization excludes non-cash amortization of deferred
financing fees and debt premium/discount amortization which are included in
interest expense.
-14-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Unless the context requires otherwise, references in this Management's
Discussion and Analysis of Financial Condition and Results of Operations to
"BPC Holding" or "Holding" refer to BPC Holding Corporation, references to
"we," "our" or "us" refer to BPC Holding Corporation together with its
consolidated subsidiaries, and references to "Berry Plastics" or the "Company"
refer to Berry Plastics Corporation, a wholly owned subsidiary of BPC Holding
Corporation. For analysis purposes, the results under Holding's prior
ownership ("Predecessor") have been combined with results subsequent to the
merger on July 22, 2002 described below. You should read the following
discussion in conjunction with the consolidated financial statements of Holding
and its subsidiaries and the accompanying notes thereto, which information is
included elsewhere herein. This discussion contains forward-looking statements
and involves numerous risks and uncertainties, including, but not limited to,
those described in the "Risk Factors" section at the end of this discussion.
Our actual results may differ materially from those contained in any forward-
looking statements.
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly
formed entity controlled by various private equity funds affiliated with
Goldman, Sachs & Co., merged (the "Merger") with and into BPC Holding,
pursuant to an agreement and plan of merger, dated as of May 25, 2002. At the
effective time of the Merger, (1) each share of common stock of BPC Holding
issued and outstanding immediately prior to the effective time of the Merger
was converted into the right to receive cash pursuant to the terms of the
merger agreement, and (2) each share of common stock of the Buyer issued and
outstanding immediately prior to the effective time of the Merger was converted
into one share of common stock of BPC Holding. Additionally, in connection
with the Merger, we retired all of BPC Holding's senior secured notes and Berry
Plastics' senior subordinated notes, repaid all amounts owed under our credit
facilities, redeemed all of the outstanding preferred stock of BPC Holding,
entered into a new credit facility and completed an offering of new senior
subordinated notes of Berry Plastics. Immediately following the Merger, private
equity funds affiliated with Goldman Sachs owned approximately 63% of the
outstanding common stock of BPC Holding, private equity funds affiliated with
J.P. Morgan Chase & Co. owned approximately 29% and members of our management
owned the remaining 8%.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We disclose those accounting policies that we consider to be significant in
determining the amounts to be utilized for communicating our consolidated
financial position, results of operations and cash flows in the second note to
our consolidated financial statements included elsewhere herein. Our
discussion and analysis of our financial condition and results of operations
are based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements in conformity with these principles
requires management to make estimates and assumptions that affect amounts
reported in the financial statements and accompanying notes. Actual results
are likely to differ from these estimates, but management does not believe such
differences will materially affect our financial position or results of
operations. We believe that the following accounting policies are the most
critical because they have the greatest impact on the presentation of our
financial condition and results of operations.
Accounts receivable. We evaluate our allowance for doubtful accounts on a
quarterly basis and review any significant customers with delinquent balances
to determine future collectibility. We base our determinations on legal issues
(such as bankruptcy status), past history, current financial and credit agency
reports, and the experience of our credit representatives. We reserve accounts
that we deem to be uncollectible in the quarter in which we make the
determination. We maintain additional reserves based on our historical bad
debt experience. We believe, based on past history and our credit policies,
that the net accounts receivable are of good quality. A ten percent increase
or decrease in our bad debt experience would not have a material impact on the
results of operations of the Company. Our allowance for doubtful accounts was
$2.7 million as of December 27, 2003.
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.
A ten percent increase or decrease in our medical claims experience would not
have a material impact on the results of operations of the Company. Our
accrued liability for medical claims was $3.0 million, including reserves for
expected medical claims incurred but not reported as of December 27, 2003.
-15-
Workers' compensation insurance. Starting in fiscal 2000, we converted the
majority of our facilities to a large deductible program for workers'
compensation insurance. On a quarterly basis, we evaluate our liability based
on third-party adjusters' independent analyses by claim. Based on our
analysis, we believe that our recorded workers' compensation liability is
sufficient. A ten percent increase or decrease in our workers' compensations
claims experience would not have a material impact on the results of operations
of the Company. Our accrued liability for workers' compensation claims was
$3.1 million as of December 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.
Impairments of Long-Lived Assets. In accordance with the methodology described
in FASB Statement No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets," we review long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of such assets may not be
recoverable. Impairment losses are recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. The impairment loss is measured by comparing the fair value
of the asset to its carrying amount. No impairments were recorded in the
financial statements included in this Form 10-K.
Deferred Taxes and Effective Tax Rates. We estimate the effective tax rates
and associated liabilities or assets for each legal entity in accordance with
FAS 109. We use tax-planning to minimize or defer tax liabilities to future
periods. In recording effective tax rates and related liabilities and assets,
we rely upon estimates, which are based upon our interpretation of United
States and local tax laws as they apply to our legal entities and our overall
tax structure. Audits by local tax jurisdictions, including the United States
Government, could yield different interpretations from our own and cause the
Company to owe more taxes than originally recorded. For interim periods, we
accrue our tax provision at the effective tax rate that we expect for the full
year. As the actual results from our various businesses vary from our estimates
earlier in the year, we adjust the succeeding interim periods effective tax
rates to reflect our best estimate for the year-to-date results and for the
full year. As part of the effective tax rate, if we determine that a deferred
tax asset arising from temporary differences is not likely to be utilized, we
will establish a valuation allowance against that asset to record it at its
expected realizable value.
Based on a critical assessment of our accounting policies and the underlying
judgments and uncertainties affecting the application of those policies, we
believe that our consolidated financial statements provide a meaningful and
fair perspective of BPC Holding and its consolidated subsidiaries. This is not
to suggest that other risk factors such as changes in economic conditions,
changes in material costs and others could not adversely impact our
consolidated financial position, results of operations and cash flows in future
periods.
ACQUISITIONS
We maintain a selective and disciplined acquisition strategy, which is
focused on improving our financial performance in the long-term, enhancing our
market positions and expanding our product lines or, in some cases, providing
us with a new or complementary product line. We have historically acquired
businesses with 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.
YEAR ENDED DECEMBER 27, 2003
COMPARED TO YEAR ENDED DECEMBER 28, 2002
Net Sales. Net sales increased $57.6 million, or 12%, to $551.9 million
in 2003 from $494.3 million in 2002 with an approximate 5% increase in net
selling price due to higher resin costs passed through to our customers.
Container net sales increased $38.1 million with the Landis acquisition
providing net sales of approximately $20.1 million in 2003. The remaining
increase in containers of $18.0 million can be primarily attributed to higher
selling prices primarily due to passing through the costs of increased resin
prices. Closure net sales increased $13.4 million primarily due to the CCL
acquisition, higher selling prices, and increased volume in the United
States closure product line. Consumer products net sales increased $6.1
million in 2003 primarily due to increased sales from the thermoformed
drink cup line and retail housewares partially offset by a reduction in sales
of a specialty drink cup line.
-16-
Gross profit. Gross profit increased $8.1 million from $123.0 million
(25% of net sales) in 2002 to $131.1 million (24% of net sales) in 2003. This
increase of 7% includes the combined impact of the added sales volume,
productivity improvement initiatives and the timing effect of the 5% increase
in net selling prices partially offset by higher raw material costs. 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, in the fourth quarter of 2002 we closed
our Fort Worth, Texas facility, which was acquired in the Pescor acquisition,
and in the fourth quarter of 2003, we initiated the closing of our Monticello,
Indiana facility. The Monticello facility was acquired in the Landis
acquisition. The business from these locations was distributed throughout our
facilities. Also, significant productivity improvements were made in 2003,
including the addition of state-of-the-art injection molding, thermoforming and
post molding equipment at several of our facilities.
Operating Expenses. Selling expenses increased by $1.7 million to $23.9
million for 2003 from $22.2 million principally as a result of increased
selling expenses resulting from increased sales. General and administrative
expenses increased from $23.4 million to $25.7 million in 2003. This increase
of $2.3 million can be primarily attributed to the Landis Acquisition and
increased accrued bonus expenses. Research and development costs increased
$0.6 million to $3.5 million in 2003 primarily as a result of an increase in
projects under development and the Landis acquisition. Intangible asset
amortization increased from $2.4 million in 2002 to $3.3 million for 2003,
primarily as a result of intangibles resulting from the Merger and the Landis
acquisition. In connection with the Merger, the Predecessor incurred Merger
related expenses of approximately $21.0 million, consisting primarily of
investment banking fees, bonuses to management, non-cash modification of stock
option awards, legal costs, and fees to the largest voting stockholder of the
Predecessor. Other expenses were $3.6 million for 2003 compared to $5.6
million for 2002. Other expenses in 2003 include transition expenses of $1.5
million related to recently acquired businesses, $1.1 million related to the
shutdown and reorganization of facilities, and $1.0 million related to an
acquisition that was not completed. Other expenses in 2002 include transition
expenses of $1.3 million related to recently acquired businesses, $4.1 million
related to the shutdown and reorganization of facilities, and $0.2 million
related to an acquisition that was not completed.
Interest Expense, Net. Net interest expense, including amortization of
deferred financing costs and debt premium, for 2003 was $45.7 million (8% of
net sales) compared to $74.6 million (15% of net sales) in 2002, a decrease of
$28.9 million. This decrease is primarily attributed to $18.7 million of
prepayment fees and related charges and $6.6 million of deferred financing fees
written off in 2002 due to the extinguishment of debt in connection with the
Merger and decreased rates of interest on borrowings in 2003. The prepayment
fees and related charges and deferred financing fees written off in the Prior
year 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 financial statements.
Income Taxes. In 2003, we recorded income tax expense of $12.5 million
for income taxes, or an effective tax rate of 49%, compared to $3.3 million for
fiscal 2002. 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 $9.2 million over 2002 can be attributed
to the Merger as the use of fully reserved net operating loss carryforwards
that existed at the time of the Merger have been recorded as a reduction to
goodwill. We continue to operate in a net operating loss carryforward position
for federal income tax purposes.
Net Income (Loss). We recorded net income of $13.0 million in 2003
compared to a net loss of $32.6 million in 2002 for the reasons stated above.
YEAR ENDED DECEMBER 28, 2002
COMPARED TO YEAR ENDED DECEMBER 29, 2001
Net Sales. Net sales increased 7% to $494.3 million in 2002, up $32.6
million from $461.7 million in 2001, despite an approximate 2% decrease in net
selling price due to the cyclical impact of lower resin costs in the first half
of 2002. Container net sales increased $16.0 million to $250.4 million of
which approximately $11.5 million was attributable to the Mount Vernon
acquisition. The remaining increase of $4.5 million can be primarily
attributed to new retail dairy and polypropylene business. Closure net sales
increased $1.5 million to $133.9 million primarily due to new business
partially offset by the shedding of low margin business in the Norwich
facility. Consumer products net sales increased $15.1 million to $110.0
million primarily as a result of the Pescor acquisition and increased sales
from thermoformed drink cups.
-17-
Gross Profit. Gross profit decreased $0.7 million from $123.7 million,
or 27% of net sales, in 2001 to $123.0 million, or 25% of net sales, in 2002.
This decrease of 1% includes the combined impact of the added Pescor and Mount
Vernon sales volume, the effect of net selling prices and raw material costs,
acquisition integration and productivity improvement initiatives. The margin
percentage of the acquired business from Mount Vernon Plastics was, for 2002
and historically, significantly less than our overall gross margin thereby
reducing the consolidated margin; however, we expect the margin percentage of
this acquired business to increase as it becomes more fully integrated. We
have continued to consolidate products and business of recent acquisitions to
the most efficient tooling, providing customers with improved products and
customer service. As part of the integration, we removed molding operations
from our Fort Worth, Texas facility, which was acquired in the Pescor
acquisition. Subsequently, in the fourth quarter of 2002, the Fort Worth
facility was closed in our continued effort to reduce costs and provide
improved customer service. The business from this location was distributed
throughout our facilities. Also, significant productivity improvements were
made during the year, including the addition of state-of-the-art injection
molding equipment, molds and printing equipment at several of our facilities.
Operating Expenses. Selling expenses increased $0.2 million in 2002 as a
result of increased sales partially offset by continued cost reduction efforts.
General and administrative expenses decreased $5.1 million in 2002 primarily as
a result of decreased accrued bonus expenses and cost reduction efforts.
Research and development costs increased $1.0 million to $2.9 million in 2002
primarily as a result of an increase in projects under development and legal
costs associated with patents and licenses. Intangible asset amortization
decreased to $2.4 million in 2002 from $12.8 million for 2001, primarily as a
result of the implementation in 2002 of SFAS No. 142, which eliminates the
amortization of goodwill. In connection with the Merger, the Predecessor
incurred Merger related expenses of approximately $21.0 million, consisting
primarily of investment banking fees, bonuses to management, non-cash
modification of stock option awards, legal costs and financial and management
consulting fees paid to an affiliate of the largest voting stockholder of the
Predecessor. Other expenses were $5.6 million for 2002 compared to $4.9
million for 2001. Other expenses in 2002 included one-time transition expenses
of $1.3 million related to recently acquired businesses, $4.1 million related
to the shutdown and reorganization of facilities, and $0.2 million related to
an acquisition that was not completed. Other expenses in 2001 included one-
time transition expenses of $2.7 million related to recently acquired
businesses and $2.2 million related to the shutdown and reorganization of
facilities.
Interest Expense, Net. Net interest expense, including amortization of
deferred financing costs, for 2002 was $74.6 million (15% of net sales)
compared to $54.4 million (12% of net sales) in 2001, an increase of $20.2
million. This increase is primarily attributed to $18.7 million of prepayment
fees and related charges and $6.6 million of deferred financing fees written
off in 2002 due to the extinguishment of debt in connection with the Merger
partially offset by decreased rates of interest on borrowings. The prepayment
fees and related charges and deferred financing fees written off in 2002 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 financial statements.
Income Taxes. During fiscal 2002, we recorded an expense of $3.3 million
for income taxes compared to $0.7 million for fiscal 2001. The increase of
$2.6 million over 2001 can be attributed to the Merger as the use of fully
reserved net operating loss carryforwards that existed at the time of the
Merger have been recorded as a reduction to goodwill. We continue to operate
in a net operating loss carryforward position for federal income tax purposes.
Net Loss. We recorded a net loss of $32.6 million in 2002 compared to a
net loss of $2.1 million in 2001 for the reasons discussed above.
INCOME TAX MATTERS
As of December 27, 2003, Holding has unused operating loss carryforwards
of $76.0 million for federal income tax purposes which begin to expire in 2012.
Alternative minimum tax credit carryforwards of approximately $3.5 million are
available to Holding indefinitely to reduce future years' federal income taxes.
As a result of the Merger, the amount of the carryforward which can be used in
any given year will be limited to approximately $12.9 million.
LIQUIDITY AND CAPITAL RESOURCES
On July 22, 2002, we entered into a credit and guaranty agreement and a
related pledge security agreement with a syndicate of lenders led by Goldman
Sachs Credit Partners L.P., as administrative agent (the "Credit Facility").
On November 10, 2003, in connection with the Landis Acquisition, we amended and
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restated the Credit Facility (the "Amended and Restated Credit Facility"). The
Amended and Restated 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. On November 10, 2003, we used $325.9
million to refinance in full the balance outstanding under our prior term loan
in the Credit Facility. The remaining $4.1 million was used to fund a portion
of the purchase price for the Landis Acquisition. The $50.0 million delayed
draw facility was drawn on November 20, 2003 to fund a portion of the purchase
price for the Landis Acquisition. The maturity date of the term loan and
delayed draw term loan is July 22, 2010, and the maturity date of the revolving
credit facility is July 22, 2008. The indebtedness under the Amended and
Restated Credit Facility is guaranteed by BPC Holding and all of its domestic
subsidiaries. The obligations of Berry Plastics under the Amended and Restated
Credit Facility and the guarantees thereof are secured by substantially all of
the assets of such entities. At December 27, 2003, there were no borrowings
outstanding on the revolving credit facility.
Borrowings under the Amended and Restated 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 and delayed draw term loan, the applicable margin
is (1) with respect to Base Rate Loans, 1.50% per annum and (2) with respect to
Eurodollar Rate Loans, 2.50% per annum. For Eurodollar Rate Loans under 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 December 27, 2003). 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 Amended and Restated 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 0.50% per annum
on the average daily unused portion of the revolving credit facility. Pursuant
to a requirement in the Amended and Restated 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%.
The Amended and Restated 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 Amended and Restated Credit Facility contains (1) a minimum
interest coverage ratio as of the last day of any quarter of 2.00:1.00 per
quarter for the quarters ending December 2003 and March 2004, 2.10:1.00 per
quarter for the quarters ending June 2004 and September 2004, 2.15:1.00 per
quarter for the quarters ending December 2004 and March 2005, 2.25:1.00 per
quarter for the quarters ending June 2005 through the quarter ending March
2006, 2.35:1.00 per quarter for the quarters ending June 2006 through the
quarter ending December 2006 and 2.50:1.00 per quarter thereafter, (2) a
maximum amount of capital expenditures (subject to the rollover of certain
unexpended amounts from the prior year and increases due to acquisitions) of
$50 million for the years ending 2003 and 2004, $60 million for the years
ending 2005, 2006 and 2007, and $65 million for each year thereafter, and (3) a
maximum total leverage ratio as of the last day of any quarter of 5.90:1.00 per
quarter for the quarters ending December 2003 and March 2004, 5.75:1.00 per
quarter for the quarters ending June 2004 and September 2004, 5.50:1.00 per
quarter for the quarters ending December 2004 and through the quarter ending
June 2005, 5.25:1.00 per quarter for the quarters ending September 2005 and
December 2005, 5.00:1.00 per quarter for the quarters ending March 2006 and
June 2006, 4.75:1.00 per quarter for the quarters ending September 2006 through
the quarter ending March 2007, 4.50:1.00 per quarter for the quarters ending
June 2007 through the quarter ending December 2007, 4.25:1.00 per quarter for
the quarters ending March 2008 through the quarter ending December 2008, and
4.00:1.00 per quarter thereafter. The occurrence of a default, an event of
default or a material adverse effect on Berry Plastics would result in our
inability to obtain further borrowings under our revolving credit facility and
could also result in the acceleration of our obligations under any or all of
our debt agreements, each of which could materially and adversely affect our
business. We were in compliance with all of the financial and operating
covenants at December 27, 2003.
The term loan amortizes quarterly as follows: $825,000 each quarter
through June 30, 2009 and $77,756,250 each quarter beginning September 30, 2009
and ending June 30, 2010. The delayed draw term loan facility amortizes
quarterly as follows: $125,000 each quarter beginning September 30, 2004
through June 30, 2009 and $11,875,000 each quarter beginning September 30, 2009
and ending June 30, 2010. Borrowings under the Amended and Restated 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
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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
$25.0 million of letters of credit to be issued instead of borrowings under the
revolving credit facility and up to $10.0 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.
On November 20, 2003, we completed an offering of $85.0 million aggregate
principal amount of additional 2002 Notes (the "Add-on Notes"). The net
proceeds to us from the sale of the Add-on Notes, after expenses, were $91.8
million. The proceeds from the Add-on Notes were used in the financing of the
Landis Acquisition. Other than with respect to transfer restrictions,
registration rights and liquidated damages, the Add-on Notes were issued on the
same terms as, and constitute a single class with, the 2002 Notes. Holding and
all of our domestic subsidiaries fully, jointly, severally, and unconditionally
guarantee the Add-on Notes.
We are not required to make mandatory redemption or sinking fund payments
with respect to the 2002 Notes or Add-on Notes. On or subsequent to July 15,
2007, the 2002 Notes and Add-on 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 and Add-on
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 under which the 2002 Notes and the Add-on Notes were issued (the
"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 Indenture under which the 2002 Notes and the Add-on Notes were issued
restricts our ability to incur additional debt and contains other provisions
which could limit our liquidity.
Our contractual cash obligations as of December 27, 2003 are summarized
in the following table.
PAYMENTS DUE BY PERIOD AT DECEMBER 27, 2003
----------------------------------------------
TOTAL <1 YEAR 1-3 YEARS 4-5 YEARS >5 YEARS
----------------------------------------------
Long-term debt, excluding capital leases $717,342 $4,050 $8,600 $8,100 $696,592
Capital leases 26,864 6,184 9,334 6,441 4,905
Operating leases 97,604 12,223 20,071 13,156 52,154
Other long-term obligations 245 245 - - -
------- ------ ------ ------ -------
Total contractual cash obligations $842,055 $22,702 $38,005 $27,697 $753,651
======= ====== ====== ====== =======
Net cash provided by operating activities was $79.8 million in 2003 as
compared to 26.6 million in 2002. This increase of $53.2 million can be
primarily attributed to Merger related expenses of $21.0 million in 2002,
improved operating performance as our net income (loss) plus non-cash expenses
excluding the Merger related expenses improved $8.1 million, and improved
working capital management. Net cash provided by operating activities was
$54.3 million in 2001. The decrease of $27.7 million in 2002 can be primarily
attributed to expenses incurred in connection with the Merger.
Net cash used for investing activities increased from $44.9 million in
2002 to $265.7 million in 2003 primarily as a result of the Landis acquisition
in 2003 partially offset by $12.4 million of capitalized Merger costs in 2002.
Capital expenditures in 2003 were $29.9 million, an increase of $1.3 million
from $28.6 million in 2002. Capital expenditures in 2003 included investments
of $2.5 million for facility renovations, production systems and offices
necessary to support production operating levels throughout the company, $17.2
million for molds, $5.3 million for molding and printing machines, and $4.9
million for accessory equipment and systems. The capital expenditure budget
for 2004 is expected to be approximately $47.0 million. Net cash used for
investing activities was $56.3 million in 2001 compared to the $44.9 million in
2002. This decrease can be primarily attributed to the Pescor acquisition in
2001 partially offset by $12.4 million of capitalized Merger costs in 2002.
Net cash provided by financing activities was $196.8 million in 2003 as
compared to $32.4 million in 2002. The increase of $164.4 million can be
primarily attributed to the Landis acquisition in 2003 partially offset by the
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Merger. Net cash provided by financing activities was $32.4 million in 2002 as
compared to $0.6 million in 2001. The increase of $31.8 million can be
primarily attributed to the Merger.
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 2004 will be satisfied
through a combination of funds generated from operating activities and cash on
hand, together with funds available under the Amended and Restated Credit
Facility. We base such belief on historical experience and the substantial
funds available under the Amended and Restated Credit Facility. However, we
cannot predict our future results of operations and our ability to meet our
obligations involves numerous risks and uncertainties, including, but not
limited to, those described in the "Risk Factors" section. At December 27,
2003, our cash balance was $26.2 million, and we had unused borrowing capacity
under the Amended and Restated Credit Facility's borrowing base of $92.6
million. Although the $92.6 million was available at December 27, 2003, the
covenants under our Amended and Restated Credit Facility may limit our ability
to make such borrowings in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to market risk from changes in interest rates primarily
through our Amended and Restated Credit Facility. The Amended and Restated
Credit Facility is comprised of (1) a $330.0 million term loan, (2) a $50.0
million delayed draw term loan facility, and (3) a $100.0 million revolving
credit facility. At December 27, 2003, there were no borrowings outstanding on
the revolving credit facility. The net outstanding balance of the term loan
and the delayed draw term loan facility at December 27, 2003 was $330.0 million
and $50.0 million, respectively. The term loan and delayed draw term loan bear
interest at the Eurodollar rate plus the applicable margin. Future borrowings
under the Amended and Restated 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 Amended and Restated 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 December 27,
2003, the Eurodollar rate applicable to the term loan and delayed draw loan was
1.17% and 1.12%, respectively. If the Eurodollar rate increases 0.25% and
0.5%, we estimate an annual increase in our interest expense of approximately
$0.8 million and $1.7 million, respectively.
ITEM 7B.RISK FACTORS
We have substantial debt and we may incur substantially more debt, which could
affect our ability to meet our debt obligations and may otherwise restrict our
activities.
We have substantial debt, and we may incur substantial additional debt in the
future. As of December 27, 2003, we had total indebtedness of approximately
$751.6 million, excluding $7.4 million in letters of credit under our revolving
credit facility and, subject to certain conditions to borrowing, $92.6 million
available for future borrowings under our revolving credit facility.
Our substantial debt could have important consequences to you. For example,
it could:
require us to dedicate a substantial portion of our cash flow to
payments on our indebtedness, which would reduce the amount of cash flow
available to fund working capital, capital expenditures, product
development and other corporate requirements;
increase our vulnerability to general adverse economic and industry
conditions, including changes in raw material costs;
limit our ability to respond to business opportunities;
limit our ability to borrow additional funds, which may be
necessary; and
subject us to financial and other restrictive covenants, which, if
we fail to comply with these covenants and our failure is not waived or
cured, could result in an event of default under our debt.
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To service our debt, we will require a significant amount of cash. Our ability
to generate cash depends on many factors beyond our control.
Our ability to make payments on our debt, and to fund planned capital
expenditures and research and development efforts will depend on our ability to
generate cash in the future. This, to an extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors,
including those described in this section, that are beyond our control. We
cannot assure you that our business will generate sufficient cash flow from
operations or that future borrowings will be available to us under our new
senior secured credit facilities in an amount sufficient to enable us to pay
our debt, or to fund our other liquidity needs. We may need to refinance all
or a portion of our indebtedness, on or before maturity. We cannot assure you
that we will be able to refinance any of our debt, including our new senior
secured credit facilities, on commercially reasonable terms or at all.
The agreements governing our debt impose restrictions on our business.
The Indenture and the Amended and Restated Credit Facility contain a number
of covenants imposing significant restrictions on our business. These
restrictions may affect our ability to operate our business and may limit our
ability to take advantage of potential business opportunities as they arise.
The restrictions these covenants place on us and our restricted subsidiaries
include limitations on our ability and the ability of our restricted
subsidiaries to:
incur indebtedness or issue preferred shares;
pay dividends or make distributions in respect of our capital
stock or to make certain other restricted payments;
create liens;
agree to payment restrictions affecting our restricted
subsidiaries;
make acquisitions;
consolidate, merge, sell or lease all or substantially all of our
assets;
enter into transactions with our affiliates; and
designate our subsidiaries as unrestricted subsidiaries.
Our Amended and Restated Credit Facility also requires us to meet a number of
financial ratios. Our ability to comply with these agreements may be affected
by events beyond our control, including prevailing economic, financial and
industry conditions and are subject to the risks in this "Risk Factors"
section. The breach of any of these covenants or restrictions could result in
a default under the Indenture or our Amended and Restated Credit Facility. An
event of default under our debt agreements would permit some of our lenders to
declare all amounts borrowed from them to be immediately due and payable. If
we were unable to repay debt to our lenders, these lenders could proceed
against the collateral securing that debt.
We have experienced consolidated net losses.
Our net losses were $9.1 million for fiscal 1999, $23.1 million for fiscal
2000, $2.1 million for fiscal 2001 and $32.6 million for fiscal 2002.
Consolidated earnings have been insufficient to cover fixed charges by $7.1
million for fiscal 1999, by $20.5 million for fiscal 2000, by $0.8 million for
fiscal 2001 and by $3.1 million for fiscal 2002.
We do not have guaranteed supply or fixed-price contracts with plastic resin
suppliers.
We source plastic resin primarily from major industry suppliers such as Dow,
Chevron, Nova, Equistar, Atofina, Basell, Sunoco and ExxonMobil. We have long-
standing relationships with certain of these suppliers but have not entered
into a firm supply contract with any of our resin vendors. We may not be able
to arrange for other sources of resin in the event of an industry-wide general
shortage of resins used by us, or a shortage or discontinuation of certain
types of grades of resin purchased from one or more of our suppliers. Any such
shortage may negatively impact our competitive position versus companies that
are able to better or more cheaply source resin. Additionally, we may be
subject to significant increases in prices that may materially impact our
financial condition. Over the past several years, we have at times experienced
rapidly increasing resin prices primarily due to the increased cost of oil and
natural gas. Due to the extent and rapid nature of these increases, we cannot
reasonably estimate the extent to which we will be able to successfully recover
these cost increases in the short-term. If rapidly increasing resin prices
occur, our revenue and/or profitability may be materially and adversely
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affected, both in the short-term as we attempt to pass through changes in the
costs of resin to customers under current agreements and in the longer term as
we negotiate new agreements.
If market conditions do not permit us to pass on the cost of plastic resins to
our customers on a timely basis, or at all, our financial condition and results
of operations could suffer materially.
To produce our products we use large quantities of plastic resins, which in
fiscal 2003 cost us approximately $140.3 million, or 33% of our total cost of
goods sold. Plastic resins are subject to cyclical price fluctuations,
including those arising from supply shortages and changes in the prices of
natural gas, crude oil and other petrochemical intermediates from which resins
are produced. The instability in the world markets for oil and natural gas
could materially adversely affect the prices and general availability of raw
materials quickly. Based on information from Plastics News, average spot
prices of HDPE and PP on December 27, 2003 were $0.515 per pound and $0.470 per
pound, respectively, reflecting increases of $0.12 per pound, or 30%, and $0.08
per pound, or 21%, over the respective average spot prices from December 28,
2002. Historically, we have generally been able to pass on a significant
portion of the increases in resin prices to our customers over a period of
time, but even in such cases there have been negative short-term impacts to our
financial performance. Certain of our customers (currently fewer than 10% of
our net sales) purchase our products pursuant to fixed-price arrangements in
respect of which we have at times and may continue to enter into hedging or
similar arrangements. In the future, we may not be able to pass on
substantially all of the increases in resin prices to our customers on a timely
basis, if at all, which may have a material adverse effect on our competitive
position and financial performance.
We may not be able to compete successfully and our customers may not continue
to purchase our products.
We face intense competition in the sale of our products. We compete with
multiple companies in each of our product lines, including divisions or
subsidiaries of larger companies and foreign competitors with lower cost
structures. We compete on the basis of a number of considerations, including
price, service, quality, product characteristics and the ability to supply
products to customers in a timely manner. Our products also compete with metal
and glass, paper and other packaging materials as well as plastic packaging
materials made through different manufacturing processes. Many of our product
lines also compete with plastic products in other lines and segments. Many of
our competitors have financial and other resources that are substantially
greater than ours and may be better able than us to withstand price
competition. In addition, some of our customers do and could in the future
choose to manufacture the products they require for themselves. Each of our
product lines faces a different competitive landscape. We may not be able to
compete successfully with respect to any of the foregoing factors. Competition
could result in our products losing market share or our having to reduce our
prices, either of which would have a material adverse effect on our business
and results of operations and financial condition. In addition, since we do
not have long-term arrangements with many of our customers, these competitive
factors could cause our customers to shift suppliers and/or packaging material
quickly.
In the event of a catastrophic loss of our key manufacturing facility, our
business would be adversely affected.
Our primary manufacturing facility is in Evansville, Indiana, where we
produce approximately one-fourth of our products. Also, our primary computer
software system resides on a computer that is located in the Evansville
facility. While we maintain insurance covering the facility, including
business interruption insurance, a catastrophic loss of the use of all or a
portion of the facility due to accident, labor issues, weather conditions,
other natural disaster or otherwise, whether short or long-term, could have a
material adverse effect on us.
Our acquisition strategy may be unsuccessful.
As part of our growth strategy, we plan to pursue the acquisition of other
companies, assets and product lines that either complement or expand our
existing business. We cannot assure you that we will be able to consummate any
such transactions at all or that any future acquisitions will be able to be
consummated at acceptable prices and terms. We continually evaluate potential
acquisition opportunities in the ordinary course of business, including those
that could be material in size and scope. Acquisitions involve a number of
special risks and factors, including:
the focus of management's attention to the assimilation of the
acquired companies and their employees and on the management of expanding
operations;
the incorporation of acquired products into our product line;
the increasing demands on our operational systems;
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adverse effects on our reported operating results; and
the loss of key employees and the difficulty of presenting a unified
corporate image.
We may be unable to make appropriate acquisitions because of competition for
the specific acquisition. In pursuing acquisitions, we compete against other
plastic product manufacturers, some of which are larger than we are and have
greater financial and other resources than we have. We compete for potential
acquisitions based on a number of factors, including price, terms and
conditions, size and ability to offer cash, stock or other forms of
consideration. Increased competition for acquisition candidates could result
in fewer acquisition opportunities for us and higher acquisition prices. As a
company without public equity, we may not be able to offer attractive equity to
potential sellers. Additionally, our acquisition strategy may result in
significant increases in our outstanding indebtedness and debt service
requirements. In addition, the negotiation of potential acquisitions may
require members of management to divert their time and resources away from our
operations.
We may become responsible for unexpected liabilities that we failed or were
unable to discover in the course of performing due diligence in connection with
the Landis Acquisition and any future acquisitions. We have required the
selling stockholders of Landis to indemnify us against certain undisclosed
liabilities. However, we cannot assure you that the indemnification, even if
obtained, will be enforceable, collectible or sufficient in amount, scope or
duration to fully offset the possible liabilities associated with the business
or property acquired. Any of these liabilities, individually or in the
aggregate, could have a material adverse effect on our business, financial
condition and results of operations.
The integration of acquired businesses, including Landis, may result in
substantial costs, delays or other problems.
We may not be able to successfully integrate Landis or any future
acquisitions without substantial costs, delays or other problems. We will have
to continue to expend substantial managerial, operating, financial and other
resources to integrate our businesses. The costs of such integration could have
a material adverse effect on our operating results and financial condition.
Such costs include non-recurring acquisition costs including accounting and
legal fees, investment banking fees, recognition of transaction-related
obligations, plant closing and similar costs and various other acquisition-
related costs. In addition, although we conduct what we believe to be a
prudent level of investigation regarding the businesses we purchase, in light
of the circumstances of each transaction, an unavoidable level of risk remains
regarding the actual condition of these businesses. Until we actually assume
operating control of such business assets and their operations, we may not be
able to ascertain the actual value or understand the potential liabilities of
the acquired entities and their operations. Once we acquire a business, we are
faced with risks, including:
the possibility that it will be difficult to integrate the
operations into our other operations;
the possibility that we have acquired substantial undisclosed
liabilities;
the risks of entering markets or offering services for which we have
no prior experience; and
the potential loss of customers as a result of changes in
management; and the possibility we may be unable to recruit additional
managers with the necessary skills to supplement the incumbent management
of the acquired business.
We may not be successful in overcoming these risks.
The acquisition of Landis is significantly larger than any of our previous
acquisitions. The significant expansion of our business and operations
resulting from the acquisition of Landis may strain our administrative,
operational and financial resources. The integration of Landis into our company
has and will require substantial time, effort, attention, and dedication of
management resources and may distract our management in unpredictable ways from
our existing business. The integration process could create a number of adverse
consequences for us, including the possible unexpected loss of key employees,
customers or suppliers, a possible loss of sales or an increase in operating or
other costs. The foregoing could have a material adverse effect on our
business, financial condition and results of operations. We may not be able to
manage the combined operations and assets effectively or realize all or any of
the anticipated benefits of the Landis Acquisition.
We rely on unpatented proprietary know-how and trade secrets.
In addition to relying on patent and trademark rights, we rely on unpatented
proprietary know-how and trade secrets, and employ various methods, including
confidentiality agreements with employees and consultants, to protect our know-
how and trade secrets. However, these methods and our patents and trademarks
-24-
may not afford complete protection and there can be no assurance that others
will not independently develop the know-how and trade secrets or develop better
production methods than us. Further, we may not be able to deter current and
former employees, contractors and other parties from breaching confidentiality
agreements and misappropriating proprietary information and it is possible that
third parties may copy or otherwise obtain and use our information and
proprietary technology without authorization or otherwise infringe on our
intellectual property rights. Additionally, we have licensed, and may license
in the future, patents, trademarks, trade secrets, and similar proprietary
rights to and from third parties. While we attempt to ensure that our
intellectual property and similar proprietary rights are protected and that the
third party rights we need are licensed to us when entering into business
relationships, third parties may take actions that could materially and
adversely affect our rights or the value of our intellectual property, similar
proprietary rights or reputation. Furthermore, no assurance can be given that
claims or litigation asserting infringement of intellectual property rights
will not be initiated by third parties seeking damages, the payment of
royalties or licensing fees and/or an injunction against the sale of our
products or that we would prevail in any litigation or be successful in
preventing such judgment. In the future, we may also rely on litigation to
enforce our intellectual property rights and contractual rights, and, if not
successful, we may not be able to protect the value of our intellectual
property. Any litigation could be protracted and costly and could have a
material adverse effect on our business and results of operations regardless of
its outcome. Although we believe that our intellectual property rights are
sufficient to allow us to conduct our business without incurring liability to
third parties, our products may infringe on the intellectual property rights of
third parties and our intellectual property rights may not have the value we
believe them to have.
A significant amount of our net worth represents goodwill and other
intangibles, and a write-off could result in lower reported net income and a
reduction of our net worth.
As of December 27, 2003, the net value of our goodwill and other intangibles
was approximately $529.7 million. In July 2001, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets." Under the new standard, we are no
longer required or permitted to amortize goodwill reflected on our balance
sheet. We are, however, required to evaluate goodwill reflected on our balance
sheet when circumstances indicate a potential impairment, or at least annually,
under the new impairment testing guidelines outlined in the standard. Future
changes in the cost of capital, expected cash flows, or other factors may cause
our goodwill to be impaired, resulting in a noncash charge against results of
operations to write-off goodwill for the amount of impairment. If a
significant write-off is required, the charge would have a material adverse
effect on our reported results of operations and net worth in the period of any
such write-off.
Current and future environmental and other governmental requirements could
adversely affect our financial condition and our ability to conduct our
business.
Our operations are subject to federal, state, local and foreign environmental
laws and regulations that impose limitations on the discharge of pollutants
into the air and water and establish standards for the treatment, storage and
disposal of solid and hazardous wastes. While we have not been required
historically to make significant capital expenditures in order to comply with
applicable environmental laws and regulations, we cannot predict with any
certainty our future capital expenditure requirements because of continually
changing compliance standards and environmental technology. Furthermore,
violations or contaminated sites that we do not know about (including
contamination caused by prior owners and operators of such sites) could result
in additional compliance or remediation costs or other liabilities. We have
limited insurance coverage for environmental liabilities and we do not
anticipate increasing such coverage in the future. We may also assume
significant environmental liabilities in acquisitions. In addition, federal,
state and local governments could enact laws or regulations concerning
environmental matters that increase the cost of producing, or otherwise
adversely affect the demand for, plastic products. Legislation that would
prohibit, tax or restrict the sale or use of certain types of plastic and other
containers, and would require diversion of solid wastes such as packaging
materials from disposal in landfills, has been or may be introduced in the U.S.
Congress, in state legislatures and other legislative bodies. While container
legislation has been adopted in a few jurisdictions, similar legislation has
been defeated in public referenda in several states, local elections and many
state and local legislative sessions. Although we believe that the laws
promulgated to date have not had a material adverse effect on us, there can be
no assurance that future legislation or regulation would not have a material
adverse effect on us. Furthermore, a decline in consumer preference for
plastic products due to environmental considerations could have a negative
effect on our business.
The Food and Drug Administration ("FDA") regulates the material content
of direct-contact food containers and packages we manufacture pursuant to the
Federal Food, Drug and Cosmetic Act. Furthermore, some of our products are
regulated by the Consumer Product Safety Commission ("CPSC") pursuant to
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various federal laws, including the Consumer Product Safety Act. Both the FDA
and the CPSC can require the manufacturer of defective products to repurchase
or recall these products and may also impose fines or penalties on the
manufacturer. Similar laws exist in some states, cities and other countries in
which we sell products. In addition, laws exist in certain states restricting
the sale of packaging with certain levels of heavy metals and imposing fines
and penalties for noncompliance. Although we use FDA-approved resins and
pigments in containers that directly contact food products and we believe our
products are in material compliance with all applicable requirements, we remain
subject to the risk that our products could be found to be not in compliance
with these and other requirements. A recall of any of our products or any
fines and penalties imposed in connection with non-compliance could have a
materially adverse effect on us. See "Business -- Environmental matters and
government regulation."
Our operations outside of the United States are subject to additional currency
exchange, political, investment and other risks.
We currently operate two facilities outside the United States which
combined for approximately 4% of our 2003 net sales. This amount may change in
the future. As such we are subject to the risks associated with selling and
operating in foreign countries, including devaluations and fluctuations in
foreign currencies, unstable political conditions, imposition of limitations on
conversion of foreign currencies into U.S. dollars and remittance of dividends
and payments by foreign subsidiaries. The imposition of taxes and imposition
or increase of investment and other restrictions, tariffs or quotas may also
have a negative effect on our business and profitability.
We are controlled by affiliates of Goldman, Sachs & Co. and J.P. Morgan
Securities Inc., and their interests as equity holders may conflict with your
interests.
As a result of the Merger, certain private equity funds affiliated with
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. own a substantial majority
of our common stock. The interests of Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. and their respective affiliates may not in all cases be aligned
with your interests. Goldman, Sachs & Co. and J.P. Morgan Securities Inc. and
their respective affiliates, control the power to elect our directors, to
appoint members of management and to approve all actions requiring the approval
of the holders of our common stock, including adopting amendments to our
certificate of incorporation and approving mergers, certain acquisitions or
sales of all or substantially all of our assets. For example, Goldman, Sachs &
Co. and J.P. Morgan Securities Inc. and their respective affiliates could
pursue acquisitions, divestitures or other transactions that, in their
judgment, could enhance their equity investment, even though such transactions
might involve significant risks.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors F-1
Consolidated Balance Sheets at December 27, 2003 and December 28, 2002 F-2
Consolidated Statements of Operations for the period ended December 27, 2003,
the periods from July 22, 2002 to December 28, 2002 and from December 30, 2001
to July 21, 2002, and for the period ended December 29, 2001 F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the
period ended December 27, 2003, the periods from July 22, 2002 to December 28,
2002 and from December 30, 2001 to July 21, 2002, and for the period ended
December 29, 2001 F-5
Consolidated Statements of Cash Flows for the period ended December 27, 2003,
the periods from July 22, 2002 to December 28, 2002 and from December 30, 2001
to July 21, 2002, and for the period ended December 29, 2001 F-7
Notes to Consolidated Financial Statements F-8
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INDEX TO FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable or not
required or because the required information is included in the consolidated
financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As required by Rule 13a-15 under the Securities Exchange Act of 1934,
within the 90 days prior to the date of this report, we carried out an
evaluation under the supervision and with the participation of our
management team, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. 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
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers, directors and certain key personnel of Holding:
NAME AGE TITLE
---- --- -----
Joseph H. Gleberman(1).. 46 Chairman and Director
Ira G. Boots(1)......... 50 President, Chief Executive Officer and Director
James M. Kratochvil..... 47 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
R. Brent Beeler......... 51 Executive Vice President
Gregory J. Landis....... 53 Director
William J. Herdrich..... 53 Executive Vice President
Christopher C. Behrens(1)43 Director
Patrick J. Dalton(2).... 35 Director
Douglas F. Londal(1)(2). 38 Director
Mathew J. Lori(2)....... 39 Director
(1) Member of the Equity Compensation Committee.
(2) Member of the Audit Committee.
The following table sets forth certain information with respect to the
executive officers, directors and certain key personnel of Berry Plastics:
NAME AGE TITLE
---- --- -----
Joseph H. Gleberman(1)(3)(4)46 Chairman and Director
Ira G. Boots(1)(4)...... 50 President, Chief Executive Officer and Director
James M. Kratochvil..... 47 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
R. Brent Beeler......... 51 President - Containers and Consumer Products
Gregory J. Landis....... 53 President - Container Division and Director
William J. Herdrich..... 53 Executive Vice President and General Manager - Closures
Antonio Gabriele........ 47 Vice President - International Division
Christopher C. Behrens(1)(3)43 Director
Patrick J. Dalton(2)(3). 35 Director
Douglas F. Londal(1)(2)(4) 38 Director
Mathew J. Lori(2)(4).... 39 Director
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Finance Committee.
(4) Member of the Corporate Development Committee.
JOSEPH H. GLEBERMAN has been chairman of the board of directors of
Holding and Berry Plastics since the closing of the Merger and has been a
Managing Director at Goldman, Sachs & Co. since 1996. He serves on the Board
of Directors of aaiPharma, IPC Acquisition Corp., and MCG Capital Corporation,
as well as a number of private companies. Mr. Gleberman received his M.B.A in
1982 from Stanford University Graduate School of Business and a M.A./B.A. from
Yale University in 1980.
IRA G. BOOTS has been President and Chief Executive Officer of Holding
and Berry Plastics since June 2001, and a Director of Holding and Berry
Plastics since April 1992. Prior to that, Mr. Boots served as Chief Operating
Officer of Berry Plastics since August 2000 and Vice President of Operations,
Engineering and Product Development of the Company since April 1992. Mr. Boots
was employed by Old Berry from 1984 to December 1990 as Vice President,
Operations.
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JAMES M. KRATOCHVIL has been Executive Vice President, Chief Financial
Officer, Secretary and Treasurer of Holding and Berry since December 1997. He
formerly served as Vice President, Chief Financial Officer and Secretary of the
Company since 1991, and as Treasurer of the Company since May 1996. He
formerly served as Vice President, Chief Financial Officer and Secretary of
Holding since 1991. Mr. Kratochvil was employed by Old Berry from 1985 to 1991
as Controller.
R. BRENT BEELER was named President - Containers and Consumer Products of
Berry Plastics in October 2003 and has been an Executive Vice President of
Holding since July 2002. He had been Executive Vice President and General
Manager - Containers and Consumer Products of the Company since October 2002
and was Executive Vice President and General Manager - Containers since August
2000. Prior to that, Mr. Beeler was Executive Vice President, Sales and
Marketing of the Company since February 1996 and Vice President, Sales and
Marketing of the Company since December 1990. Mr. Beeler was employed by Old
Berry from October 1988 to December 1990 as Vice President, Sales and
Marketing.
GREGORY J. LANDIS became a Director of Holding and Berry Plastics and
President - Container Division of Berry Plastics upon closing of the Landis
Acquisition. Mr. Landis had been President of Landis Plastics, Inc. since
1991.
WILLIAM J. HERDRICH has been an Executive Vice President of Holding since
July 2002. He has been Executive Vice President and General Manager - Closures
of the Company since August 2000. From May 2000 to August 2000, Mr. Herdrich
was a consultant to the Company. During the period from April 1994 to May
2000, Mr. Herdrich was President, Executive Vice President and General Manager
of Poly-Seal Corporation, a Delaware Corporation that we acquired in 2000. Mr.
Herdrich was employed by Seaquist Closures from 1990 to April 1994 as Executive
Vice President.
ANTONIO GABRIELE became our Vice President - International Division in
September 2003. He was previously employed by Solo Cup Company as
International Sales Manager and National Sales Manager since 1995.
CHRISTOPHER C. BEHRENS has been a Director of Holding and Berry Plastics
since the closing of the Merger and has been a Partner of J.P. Morgan Partners,
LLC and its predecessor, Chase Capital Partners, since 1999. Prior to joining
Chase Capital Partners, Mr. Behrens served as Vice President in Chase's
Merchant Banking Group. Mr. Behrens serves on the Board of Directors of
Carrizo Oil & Gas, Brand Services Inc. and Interline Holdings, as well as a
number of private companies. Mr. Behrens received a B.A. from the University
of California at Berkeley and an M.A. from Columbia University.
PATRICK J. DALTON has been a Director of Holding and Berry Plastics since
the closing of the Merger and has been a Vice President at Goldman, Sachs & Co.
since 2001. Prior to joining the Principal Investment Area of Goldman, Sachs &
Co. in 2000, Mr. Dalton was at Chase Securities Inc. from 1997 to 2000. He
serves on the Board of Directors of First Asset Management Inc. and Waddington
North America, Inc., as well as a number of private companies. Mr. Dalton
received his M.B.A. in 1997 from Columbia University Graduate School of
Business and a B.S. from Boston College in 1990.
DOUGLAS F. LONDAL has been a Director of Holding and Berry Plastics since
the closing of the Merger and has been a Managing Director at Goldman, Sachs &
Co. since 1999. Prior to joining the Principal Investment Area of Goldman,
Sachs & Co. in 1995, he worked in the Mergers & Acquisitions Department of
Goldman, Sachs & Co. from 1991 to 1995. He serves on the Board of Directors of
21st Century Newspapers, NextMedia Investors LLC and Village Voice Media, LLC,
as well as a number of private companies. Mr. Londal received his M.B.A in
1991 from the University of Chicago and a B.A. from the University of Michigan
in 1987.
MATHEW J. LORI has been a Director of Holding since the closing of the
Merger. Mr. Lori has been a Principal with J.P. Morgan Partners, LLC and its
predecessor, Chase Capital Partners, since January 1998, and prior to that, Mr.
Lori had been an Associate. Mr. Lori has been on the board of Berry Plastics
since 1996, and is also a director of Doane Pet Care Company and a number of
private companies. Mr. Lori received an M.B.A. from Kellogg Graduate School of
Management at Northwestern University in 1993.
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In connection with the Merger, BPC Holding entered into a stockholders
agreement with GSCP 2000 and other private equity funds affiliated with
Goldman, Sachs & Co. that, in the aggregate, own a majority of our common stock
and J.P. Morgan Partners Global Investors, L.P. and other private equity funds
affiliated with J.P. Morgan Chase & Co. that, in the aggregate, own
approximately 28% of our common stock. In connection with the Landis
Acquisition, the agreement was amended such that under the current terms of
this agreement, the parties have agreed to elect seven individuals designated
by the Goldman Sachs funds, one of which must be a member of our management,
and two individuals designated by the J.P. Morgan funds to BPC Holding's and
Berry Plastics' boards of directors. This agreement regarding the election of
directors will continue in force until the occurrence of a qualified initial
public offering of BPC Holding's common stock. Of the current members of the
boards of directors of BPC Holding and Berry Plastics, Messrs. Gleberman,
Boots, Dalton, Landis and Londal have been designated by the Goldman Sachs
funds and Messrs. Behrens and Lori have been designated by the J.P. Morgan
funds. The Goldman Sachs funds have the right to designate two additional
individuals to be elected to BPC Holding's and Berry's board of directors.
BOARD COMMITTEES
The Board of Directors of Holding has an Audit Committee and an Equity
Compensation Committee. The Audit Committee, consists of Messrs. Londal,
Dalton and Lori. The Audit Committee recommends the annual appointment of
auditors with whom the audit committee reviews the scope of audit and non-audit
assignments and related fees, accounting principles we use in financial
reporting, internal auditing procedures and the adequacy of our internal
control procedures. The Equity Compensation Committee, consisting of Messrs.
Gleberman, Boots, Behrens and Londal, establishes and approves equity
compensation grants for our employees and consultants and administers the 2002
Stock Option Plan and the Key Employee Equity Investment Plan.
The Board of Directors of the Company has a Compensation Committee, an
Audit Committee, a Finance Committee and a Corporate Development Committee.
The Compensation Committee, consisting of Messrs. Gleberman, Boots, Behrens and
Londal makes recommendations concerning salaries and incentive compensation for
our employees and consultants. The Audit Committee recommends the annual
appointment of auditors with whom the audit committee reviews the scope of
audit and non-audit assignments and related fees, accounting principles we use
in financial reporting, internal auditing procedures and the adequacy of our
internal control procedures. The Finance Committee, consisting of Messrs.
Gleberman, Behrens and Dalton oversees our capital structure and reviews and
approves significant financing decisions. The Corporate Development Committee,
consisting of Messrs. Gleberman, Boots, Londal and Lori, oversees our business
strategy and, in particular, reviews and recommends potential acquisition
candidates.
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ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by us
to our Chief Executive Officer and our four other most highly compensated
executive officers (collectively, the "Named Executive Officers") for services
rendered in all capacities to us during fiscal 2003, 2002 and 2001.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- -------------
SECURITIES
FISCAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS (#) COMPENSATION (2)
--------------------------- ------ ------ --------- ------------- ----------------
Ira G. Boots 2003 $ 432,836 $ 150,231 2,383 $ 12,343
President and Chief Executive Officer 2002 424,536 1,452,018 61,814 12,505
2001 316,461 87,500 - 12,428
James M. Kratochvil 2003 $ 278,867 $ 96,577 1,356 $ 10,151
Executive Vice President, Chief Financial Officer, 2002 273,400 945,026 35,040 9,889
Treasurer and Secretary 2001 231,919 64,166 - 9,198
R. Brent Beeler 2003 $ 313,761 $ 111,476 1,356 $ 3,105
President - Containers and Consumer Products 2002 298,172 1,080,496 35,229 2,590
2001 284,251 78,750 - 3,196
Gregory J. Landis (3) 2003 $ 49,500 $ - - $ 2,688
President - Container Division 2002 - - - -
2001 - - - -
William J. Herdrich 2003 $ 274,180 $ 117,772 1,356 $ 5,109
Executive Vice President and General Manager 2002 269,222 983,506 25,581 4,899
-Closures 2001 258,690 62,800 2,000 3,834
(1)Amounts shown include transaction bonuses in 2002 of $1,238,298, $788,298,
$871,298, and $803,831 paid to Messrs. Boots, Kratochvil, Beeler, and
Herdrich, respectively, in connection with the Merger.
(2)Amounts shown reflect contributions by the Company under the Company's
401(k) plan and the personal use of a company vehicle.
(3)Amounts shown reflect only the activity since the closing of the Landis
Acquisition.
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Individual Grants Realizable Value At
----------------- Assumed Rates Of Stock
Price Appreciation For
OptionTerm
------------------------
Number of % Of Total
Securities Options Granted
Underlying Options To Employees Exercise Expiration
Name Granted (#) In Fiscal Year Price ($) Date 5% ($) 10% ($)
- ---- -------------------- ------------------ --------- ---------- -------- -------
Ira Boots 1,589 (1) 4.1 100 12/10/13 99,932 253,239
Ira Boots 794 (2) 2.1 100 12/10/13 49,935 126,540
James M. 904 (1) 2.3 100 12/10/13 56,853 144,070
Kratochvil
James M. 452 (2) 1.2 100 12/10/13 28,426 72,035
Kratochvil
R. Brent 904 (1) 2.3 100 12/10/13 56,853 144,070
Beeler
R. Brent 452 (2) 1.2 100 12/10/13 28,426 72,035
Beeler
William J. 904 (1) 2.3 100 12/10/13 56,853 144,070
Herdrich
William J. 452 (2) 1.2 100 12/10/13 28,426 72,035
Herdrich
(1)Represents options granted on December 10, 2003, which (i) have an exercise
price fixed at $100 per share, which was the fair market value of a share of
Holding Common Stock on the date of grant, and (ii) vest and become
exerciseable over a five year period, beginning the last day of 2002 based
on continued service with the Company.
(2)Represents options granted on December 10, 2003, which (i) have an exercise
price fixed at $100 per share, which was the fair market value of a share of
Holding Common Stock on the date of grant, and (ii) vest and become
exercisable based on the achievement by BPC Holding of certain financial
targets, or if such targets are not achieved, based on continued service
with the Company.
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FISCAL YEAR-END OPTION HOLDINGS
The following table provides information on the number of exercisable and
unexercisable management stock options held by the Named Executive Officers at
December 27, 2003.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE FISCAL YEAR-END AT FISCAL YEAR-END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
(#)(2) (1)(2)
Ira G. Boots - - 32,917/47,558 $1,536,836/$419,380
James M. Kratochvil - - 19,602/26,968 954,647/238,540
R. Brent Beeler - - 19,659/27,100 954,647/238,540
Gregory J. Landis - - -/- -/-
William J. Herdrich - - 12,835/20,346 356,917/238,540
(1)None of Holding's capital stock is currently publicly traded. The values
reflect management's estimate of the fair market value of the Common Stock
at December 27, 2003.
(2)All options granted to management are exercisable for shares of Common
Stock, par value $.01 per share, of Holding.
DIRECTOR COMPENSATION
Directors receive no cash consideration for serving on the Board of
Directors of Holding or the Company, but directors are reimbursed for out-of-
pocket expenses incurred in connection with their duties as directors.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Boots,
Kratochvil, Beeler, and Herdrich (each, an "Employment Agreement" and,
collectively, the "Employment Agreements"). The agreements for Boots,
Kratochvil and Beeler expire on January 1, 2007 and Herdrich's expires on
December 31, 2008. The Employment Agreements provided for fiscal 2003 base
compensation of $432,836, $278,867, $313,761, and $274,180, respectively. We
are currently in the process of negotiating an employment agreement with Mr.
Landis. Salaries are subject in each case to annual adjustment at the
discretion of the Compensation Committee of the Board of Directors of the
Company. The Employment Agreements entitle each executive to participate in
all other incentive compensation plans established for executive officers of
the Company. The Company may terminate each Employment Agreement for "cause"
or a "disability" (as such terms are defined in the Employment Agreements).
Specifically, if any of Messrs. Boots, Kratochvil, Beeler, and Herdrich is
terminated by Berry Plastics without ``cause'' or resigns for ``good reason''
(as such terms are defined in the Employment Agreements), that individual is
entitled to: (1) the greater of (a) base salary until the later of (i) July 22,
2004 or (ii) one year after termination or (b) 1/12 of 1 year's base salary for
each year of employment up to 30 years by Berry Plastics or a predecessor in
interest and (2) the pro rata portion of his annual bonus. Each Employment
Agreement also includes customary noncompetition, nondisclosure and
nonsolicitation provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company established the Compensation Committee comprised of Messrs.
Gleberman, Boots, Behrens, and Londal. The annual salary and bonus paid to
Messrs. Boots, Kratochvil, Beeler, Landis, and Herdrich for fiscal 2003 were
determined by the Compensation Committee in accordance with their respective
employment agreements. All other compensation decisions with respect to
officers of the Company are made by Mr. Boots pursuant to policies established
in consultation with the Compensation Committee.
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Messrs. Gleberman and Londal are both Managing Directors of Goldman, Sachs &
Co. Goldman, Sachs & Co. provided advisory and other services to us in
connection with the Merger and the Landis Acquisition and acted as an initial
purchaser in the offering of the 2002 Notes and Add-on Notes. Goldman, Sachs
Credit Partners, L.P. participated in and acted as joint lead arranger, joint
bookrunner and administrative agent for our Credit Facility and our Amended and
Restated Credit Facility. Mr. Behrens is a partner of J.P. Morgan Partners,
LLC, which is the private equity investment arm of J.P. Morgan Chase & Co.
Various affiliates of J.P. Morgan provided advisory and other services to us in
connection with the Merger and the Landis Acquisition and acted as a dealer-
manager in connection with the related debt tender offers, acted as an initial
purchaser in the offering of the 2002 Notes and Add-on Notes and participated
in and acted as joint lead arranger, joint bookrunner and a syndication agent
for our Credit Facility and Amended and Restated Credit Facility. See the
section of this Form 10-K titled "Certain Relationships and Related
Transactions" for a description of these transactions between us and various
affiliates of Goldman Sachs and J.P. Morgan.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
STOCK OWNERSHIP
All of the outstanding capital stock of the Company is owned by Holding.
The following table sets forth certain information regarding the beneficial
ownership of the capital stock of Holding as of March 18, 2004 with respect to
(1) each person known by Holding to own beneficially more than 5% of the
outstanding shares of any class of its voting capital stock, (2) each of
Holding's directors, (3) the Named Executive Officers and (4) all directors and
executive officers of Holding as a group. Except as otherwise indicated, each
of the stockholders has sole voting and investment power with respect to the
shares beneficially owned. Unless otherwise indicated, the address for each
stockholder is c/o Berry Plastics Corporation, 101 Oakley Street, Evansville,
Indiana 47710.
PERCENTAGE OF
NAME AND ADDRESS OF COMMON STOCK
BENEFICIAL OWNER COMMON STOCK OUTSTANDING*
------------------- ------------ -------------
GS Capital Partners 2000, L.P. (2) 1,155,042 33.2%
GS Capital Partners 2000 Offshore, L.P. (2) 419,697 12.0
GS Capital Partners 2000 GmbH & Co. Beteiligungs KG (2) 48,278 1.4
GS Capital Partners 2000 Employee Fund, L.P. (2) 366,766 10.5
Stone Street 2000, L.P. (2) 36,069 1.0
Bridge Street Special Opportunities Fund 2000, L.P. (2) 18,034 -
Goldman Sachs Direct Investment Fund 2000, L.P. (2) 60,114 1.7
J.P. Morgan Partners Global Investors, L.P. (3) 193,108 5.5
J.P. Morgan Partners Global Investors (Cayman), L.P. (3) 97,495 2.8
J.P. Morgan Partners Global Investors (Cayman) II, L.P. (3) 10,883 -
J.P. Morgan Partners Global Investors A, L.P. (3) 27,954 -
J.P. Morgan Partners (BHCA), L.P. (3) 625,112 17.9
Joseph H. Gleberman (4) 2,104,000 60.4
Christopher C. Behrens (5) 954,552 27.4
Patrick J. Dalton (6) 2,104,000 60.4
Douglas F. Londal (7) 2,104,000 60.4
Mathew J. Lori(8) - -
Ira G. Boots 73,635 (9) 2.1
James M. Kratochvil 40,749 (10) 1.2
R. Brent Beeler 41,227 (11) 1.2
Gregory J. Landis 100,000 2.9
William J. Herdrich 29,338 (12) -
All executive officers and directors as a group (10 persons) 3,343,501 (13) 96.0
* The number of shares outstanding used in calculating the percentage for each
person, group or entity listed includes the number of shares underlying
options held by such person or group that were exercisable or convertible
within 60 days from March 18, 2004, but excludes shares of stock underlying
options held by any other person.
- - Less than one percent.
(1)The authorized capital stock of Holding consists of 5,500,000 shares of
capital stock, including 5,000,000 shares of Common Stock, $.01 par value
(the "Holding Common Stock"), and 500,000 shares of Preferred Stock, $.01 par
value (the "Preferred Stock").
(2)Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004.
(3)Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas, New
York, New York 10020.
(4)Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004. Represents shares owned by equity funds affiliated with Goldman,
Sachs & Co. Mr. Gleberman is a Managing Director of Goldman, Sachs & Co.
Mr. Gleberman disclaims any beneficial ownership of the shares of Holding
Common Stock held by equity funds affiliated with Goldman, Sachs & Co.
-33-
(5)Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas, New
York, New York 10020. Represents shares owned by equity funds affiliated
with J.P. Morgan Chase & Co. Mr. Behrens is a Partner with of J.P. Morgan
Partners, which is the private equity investment arm of J.P. Morgan Chase &
Co. Mr. Behrens disclaims any beneficial ownership of the shares of Holding
Common Stock held by equity funds affiliated with J.P. Morgan Chase & Co.
(6)Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004. Represents shares owned by equity funds affiliated with Goldman,
Sachs & Co. Mr. Dalton is a Vice President of Goldman, Sachs & Co. Mr.
Dalton disclaims any beneficial ownership of the shares of Holding Common
Stock held by equity funds affiliated with Goldman, Sachs & Co.
(7)Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004. Represents shares owned by equity funds affiliated with Goldman,
Sachs & Co. Mr. Londal is a Managing Director of Goldman, Sachs & Co. Mr.
Londal disclaims any beneficial ownership of the shares of Holding Common
Stock held by equity funds affiliated with Goldman, Sachs & Co.
(8)Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas, New
York, New York 10020.
(9)Includes options to purchase 35,690 shares of Holding Common Stock granted
to Mr. Boots, exercisable within 60 days of March 18, 2004.
(10)Includes options to purchase 18,792 shares of Holding Common Stock granted
to Mr. Kratochvil, exercisable within 60 days of March 18, 2004.
(11)Includes options to purchase 18,859 shares of Holding Common Stock granted
to Mr. Beeler, exercisable within 60 days of March 18, 2004.
(12)Includes options to purchase 13,934 shares of Holding Common Stock granted
to Mr. Herdrich, exercisable within 60 days of March 18, 2004.
(13)Includes options to purchase 87,275 shares of Holding Common Stock granted
to Executive Officers, exercisable within 60 days of March 18, 2004.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 27, 2003
regarding shares of common stock of Holding that may be issued under our
existing equity compensation plans, including the BPC Holding Corporation 2002
Stock Option Plan (the "2002 Stock Option Plan") and the BPC Holding
Corporation Key Employee Equity Investment Plan (the "Employee Stock Purchase
Plan").
Number of securities
remaining available for
Number of securities to be Weighted Average future issuance under
issued upon exercise of exercise price of equity compensation plan
outstanding options, outstanding options, (excluding securities
Plan category warrants and rights warrants and rights referenced in column (a))
- ------------- --------------------------- -------------------- --------------------------
(a) (b) (c)
Equity compensation
plans approved by
security holders (1) - - -
Equity compensation
plans not approved by
security holders (2) 392,682(3) 110 22,588
--------- ---------- ----------
Total 392,682 110 22,588
(1)Does not include outstanding options to acquire 137,980 shares, at a
weighted-average exercise price of $49.44 per share, that were assumed in
connection with the Merger under the Amended and Restated BPC Holding
Corporation 1996 Stock Option Plan (the "1996 Plan"). No future options may
be granted under the 1996 Plan.
(2)Consists of the 2002 Stock Option Plan and the Employee Stock Purchase Plan.
Our Board adopted the 2002 Stock Option Plan and the Employee Stock Purchase
Plan in August of 2002.
(3)Does not include shares of Holding Common Stock already purchased under the
Employee Stock Purchase Plan as such shares are already reflected in the
Company's outstanding shares.
1996 STOCK OPTION PLAN
BPC Holding currently maintains the Amended and Restated BPC Holding
Corporation 1996 Stock Option Plan (``1996 Option Plan'') pursuant to which
nonqualified options to purchase 137,980 shares are outstanding. All
outstanding options under the 1996 Option Plan are scheduled to expire on or
before July 22, 2012 and no additional options will be granted under it. Option
agreements issued pursuant to the 1996 Option Plan generally provide that
options become vested and exercisable at a rate of 10% per year based on
continued service. Additional options also vest in years during which certain
financial targets are attained. Notwithstanding the vesting provisions in the
option agreements, all options that were scheduled to vest prior to December
31, 2002 accelerated and became vested immediately before the Merger.
-34-
2002 STOCK OPTION PLAN
BPC Holding has adopted a new employee stock option plan (``2002 Stock
Option Plan'') pursuant to which options to acquire up to 437,566 shares of BPC
Holding's common stock may be granted to its employees, directors and
consultants. Options granted under the 2002 Stock Option Plan will have an
exercise price per share that either (1) is fixed at the fair market value of a
share of common stock on the date of grant or (2) commences at the fair market
value of a share of common stock on the date of grant and increases at the rate
of 15% per year during the term. Generally, options will have a ten-year term,
subject to earlier expiration upon the termination of the optionholder's
employment and other events. Some options granted under the plan will become
vested and exercisable over a five-year period based on continued service with
BPC Holding. Other options will become vested and exercisable based on the
achievement by BPC Holding of certain financial targets, or if such targets are
not achieved, based on continued service with BPC Holding. Upon a change in
control of BPC Holding, the vesting schedule with respect to certain options
may accelerate for a portion of the shares subject to such options.
EMPLOYEE STOCK PURCHASE PLAN
BPC Holding has adopted an employee stock purchase program pursuant to
which a number of employees had the opportunity to invest in BPC Holding on a
leveraged basis (certain senior employees also purchased shares of BPC Holding
common stock in connection with the Merger - see Item 13. "Certain
Relationships and Related Transactions - Loans to Executive Officers"). Each
eligible employee was permitted to purchase shares of BPC Holding common stock
having an aggregate value of up to the greater of (1) 150% of the value
attributable to shares of BPC Holding held by such employee immediately prior
to the Merger or (2) $60,000. Employees participating in this program were
permitted to finance two-thirds of their purchases of shares of BPC Holding
common stock under the program with a promissory note. In the event that an
employee defaults on a promissory note used to purchase such shares, BPC
Holding's only recourse is to the shares of BPC Holding securing the note. In
this manner, the remaining management acquired 41,628 shares in the aggregate.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT WITH FIRST ATLANTIC
Prior to the Merger, Atlantic Equity Partners International II, L.P. was
our largest voting stockholder and we engaged First Atlantic Capital, Ltd.
("First Atlantic") to provide certain financial and management consulting
services to us. Under our management agreement with First Atlantic, First
Atlantic provided us with financial advisory and management consulting services
in exchange for an annual fee of $750,000 and reimbursement for out-of-pocket
costs and expenses. In consideration of such services, we paid First Atlantic
fees and expenses of approximately $385,000 for fiscal 2002 and $756,000 for
fiscal 2001. Under the management agreement, we paid a fee for services
rendered in connection with certain transactions equal to the lesser of (1) 1%
of the total transaction value and (2) $1,250,000 for any such transaction
consummated plus out-of-pocket expenses in respect of such transaction, whether
or not consummated. First Atlantic received advisory fees of approximately
$139,000 in March 2001 and $250,000 in June 2001 for originating, structuring
and negotiating the Capsol and Pescor acquisitions, respectively.
THE MERGER
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly
formed entity controlled by various private equity funds affiliated with
Goldman, Sachs & Co., merged (the "Merger") with and into BPC Holding,
pursuant to an agreement and plan of merger, dated as of May 25, 2002. At the
effective time of the Merger, (1) each share of common stock of BPC Holding
issued and outstanding immediately prior to the effective time of the Merger
was converted into the right to receive cash pursuant to the terms of the
merger agreement, and (2) each share of common stock of the Buyer issued and
outstanding immediately prior to the effective time of the Merger was converted
into one share of common stock of BPC Holding. Additionally, in connection
with the Merger, we retired all of BPC Holding's senior secured notes and Berry
Plastics' senior subordinated notes, repaid all amounts owed under our credit
facilities, redeemed all of the outstanding preferred stock of BPC Holding,
entered into a new credit facility and completed an offering of new senior
subordinated notes of Berry Plastics. Immediately following the Merger, private
equity funds affiliated with Goldman Sachs owned approximately 63% of the
outstanding common stock of BPC Holding, private equity funds affiliated with
J.P. Morgan Chase & Co. owned approximately 29% and members of our management
owned the remaining 8%.
Advisory Fees. In connection with the Merger, we paid Goldman Sachs and
its affiliates a total of $8.0 million for advisory and other services, J.P.
Morgan Securities Inc., an affiliate of J.P. Morgan Chase & Co., a total of
$5.2 million for advisory and other services and First Atlantic Capital, Ltd.,
a total of $1.8 million for advisory and other services.
-35-
Senior Subordinated Debt Purchases. In connection with the Merger, Berry
Plastics sold $250 million of 10 3/4% senior subordinated notes to various
private institutional buyers. Goldman Sachs and J.P. Morgan acted as joint
book-running managers in the transaction and received fees of approximately
$4.4 million and $3.2 million, respectively, for services performed.
Tender Offer Fees. Prior to the Merger, BPC Holding and Berry Plastics
engaged in tender offer and consent solicitations to acquire their outstanding
senior secured and senior subordinated notes, respectively. J.P. Morgan
Securities, Inc. acted as a dealer-manager in connection with these tender
offer and consent solicitations for consideration of $0.1 million.
Credit Facility. In connection with the Merger, we entered into a senior
secured credit facility with a syndicate of lenders led by Goldman Sachs Credit
Partners L.P., an affiliate of Goldman Sachs, as administrative agent.
Goldman Sachs Credit Partners, L.P., an affiliate of Goldman Sachs, acted as
the administrative agent, joint lead arranger and joint bookrunner for the
credit facility and received fees of $3.6 million in July 2002 for services
provided. JP Morgan Chase Bank, an affiliate of J.P. Morgan, acted as the
joint lead arranger and joint bookrunner for the credit facility for
consideration of approximately $3.6. million. In October 2002, we entered into
an interest rate swap agreement with Goldman Sachs Capital Markets, L.P., which
applies to $50.0 million of the term loans and protects both parties against
fluctuations in interest rates. Under the interest rate swap agreement, the
Eurodollar rate with respect to $50.0 million of the outstanding principal
amount of the term loan will not exceed 6.75% or drop below 1.97%.
STOCKHOLDERS AGREEMENT WITH MAJOR STOCKHOLDERS
In connection with the Merger, BPC Holding entered into a stockholders'
agreement with GSCP 2000 and other private equity funds affiliated with
Goldman, Sachs & Co. that, in the aggregate, own a majority of our common stock
and J.P. Morgan Partners (BHCA), L.P. and other private equity funds affiliated
with J.P. Morgan Chase & Co. that, in the aggregate, own approximately 28% of
our common stock. Under the terms of this agreement, among other things: (1)
the parties have agreed to elect individuals designated by the Goldman Sachs
and J.P. Morgan funds to BPC Holding's and Berry Plastics' boards of directors;
(2) the Goldman Sachs and J.P. Morgan funds have the right to subscribe for a
proportional share of future equity issuances by BPC Holding; (3) after July
29, 2009, the J.P. Morgan funds have the right to demand that BPC Holding cause
the initial public offering of its common stock, if such an offering or other
sale of BPC Holding has not occurred by such time; and (4) BPC Holding has
agreed not to take specified actions, including, making certain amendments to
either the certificate of incorporation or the by-laws of BPC Holding, changing
independent accountants, or entering into certain affiliate transactions,
without the approval of a majority of its board of directors, including at
least one director designated by the J.P. Morgan funds. The stockholders
agreement also contains provisions regarding transfer restrictions, rights of
first offer, tag-along rights and drag-along rights related to the shares of
BPC Holding common stock owned by the Goldman Sachs and J.P. Morgan funds.
STOCKHOLDERS AGREEMENT WITH MANAGEMENT
In connection with the Merger, BPC Holding also entered into a
stockholders agreement with certain members of BPC Holding's management. The
stockholders agreement grants certain rights to, and imposes certain
obligations on, the management stockholders who are party to the agreement,
including: (1) restrictions on transfer of BPC Holding's common stock; (2)
obligations to consent to a merger or consolidation of BPC Holding or a sale of
BPC Holding's assets or common stock; (3) obligations to sell their shares of
BPC Holding common stock back to BPC Holding in specified circumstances in
connection with the termination of their employment with BPC Holding; (4)
rights of first offer, (5) tag-along rights, (6) drag-along rights, (7)
preemptive rights and (8) registration rights.
LOANS TO EXECUTIVE OFFICERS
In connection with the Merger, Messrs. Boots, Kratochvil, Beeler, and
Herdrich together with certain other senior employees acquired shares of BPC
Holding common stock pursuant to an employee stock purchase program. These
employees paid for these shares with any combination of (1) shares of BPC
Holding common stock that they held prior to the Merger; (2) their cash
transaction bonus, if any; and (3) a promissory note. In this manner, the
senior employees acquired 182,699 shares in the aggregate. Messrs. Boots,
Kratochvil, Beeler, and Herdrich purchased 37,785, 21,957, 22,208, and 15,404
shares of BPC Holding common stock, respectively pursuant to this program. In
connection with these purchases, Messrs. Boots, Kratochvil, Beeler, and
Herdrich delivered ten-year promissory notes to BPC Holding in the principal
amounts of $2,518,500, $1,302,900, $1,313,400, and $1,027,000, respectively.
The promissory notes are secured by the shares purchased and such notes accrue
interest which compounds semi-annually at the rate of 5.50% per year, the
-36-
applicable federal rate for the notes in effect on July 16, 2002. Principal
and all accrued interest is due and payable on the earlier to occur of (i) the
end of the ten-year term, (ii) the ninetieth day following such executive's
termination of employment due to death, "disability", "redundancy" (as such
terms are defined in the 2002 Stock Option Plan) or retirement, or (iii) the
thirtieth day following such executive's termination of employment for any
other reason. As of March 18, 2004, a total of $2,756,649, $1,426,102,
$1,437,595, and $1,124,113, including principal and accrued interest, was
outstanding under the promissory notes for each of Messrs. Boots, Kratochvil,
Beeler, and Herdrich, respectively.
THE LANDIS ACQUISITION
Berry Plastics paid Goldman, Sachs & Co. and its affiliates a total of $1.7
million and JPMorgan Partners, an affiliate of J.P. Morgan Chase & Co., a total
of $0.8 million for advisory and other services related to the Landis
Acquisition. In connection with the Landis Acquisition, Goldman, Sachs & Co.
and its affiliates made an equity contribution of $35.4 million and J.P. Morgan
Chase & Co. and its affiliates made an equity contribution of $16.1 million to
us.
In addition, Goldman Sachs Credit Partners, L.P., and affiliates of Goldman,
Sachs & Co., acted as the joint lead arranger, joint bookrunner and
administrative agent under our amended and restated senior secured credit
facility and received fees of $0.5 million in November 2003 for services
provided. J.P. Morgan Securities Inc., an affiliate of J.P. Morgan Chase &
Co., acted as the joint lead arranger and joint bookrunner and JPMorgan Chase
Bank acted as syndication agent under our amended and restated senior secured
credit facility for consideration of approximately $0.5 million.
In connection with the Landis Acquisition, Berry Plastics sold $85.0
million of 10 3/4% senior subordinated notes due 2012 to various private
institutional buyers. Goldman Sachs and J.P. Morgan acted as joint book-
running managers in the transaction and received fees of approximately $1.0
million and $1.0 million, respectively, for services performed.
FUTURE RELATIONSHIPS WITH GOLDMAN SACHS AND J.P. MORGAN
In the future, Holding or Berry Plastics may engage in commercial banking,
investment banking or other financial advisory transactions with Goldman Sachs
and its affiliates or J.P. Morgan and its affiliates. In addition, Goldman
Sachs and its affiliates or J.P. Morgan and its affiliates may purchase goods
and services from us from time to time in the future.
TAX SHARING AGREEMENT
For federal income tax purposes, Berry Plastics and its domestic
subsidiaries are included in the affiliated group of which Holding is the
common parent and as a result, the federal taxable income and loss of Berry
Plastics and its subsidiaries is included in the group consolidated tax return
filed by Holding. In April 1994, Holding, Berry Plastics and certain of its
subsidiaries entered into a tax sharing agreement, which was amended and
restated in March 2001 (the "Tax Sharing Agreement"). Under the Tax Sharing
Agreement, for fiscal 1994 and all taxable years thereafter for which the Tax
Sharing Agreement remains in effect, Berry Plastics and its subsidiaries as a
consolidated group are required to pay at the request of Holding an amount
equal to the taxes (plus any accrued interest) that they would otherwise have
to pay if they were to file separate federal, state or local income tax returns
(including any amounts determined to be due as a result of a redetermination
arising from an audit or otherwise of a tax liability which is attributable to
them). If Berry Plastics and its subsidiaries would have been entitled to a
tax refund for taxes paid previously on the basis computed as if they were to
file separate returns, then under the Tax Sharing Agreement, Holding is
required to pay at the request of Berry Plastics and its subsidiaries an amount
equal to such tax refund. If, however, Berry Plastics and its subsidiaries
would have reported a tax loss if they were to file separate returns, then
Holding intends, but is not obligated under the Tax Sharing Agreement, to pay
to Berry Plastics and its subsidiaries an amount equal to the tax benefit that
is realized by Holding as a result of such separate loss. Under the Tax
Sharing Agreement any such payments to be made by Holding to Berry Plastics or
any of its subsidiaries on account of a tax loss are within the sole discretion
of Holding. Berry Plastics and its subsidiaries made payments of $8.5 million
each to Holding in December 2001 and June 2002 under this tax sharing
agreement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees. The aggregate fees for professional services rendered by
Ernst & Young LLP for the audit of the Company's annual financial statements
for 2003 and 2002, the review of the financial statements included in the
Company's Forms 10-Q for 2003 and 2002 and statutory audits of foreign
subsidiaries totaled $682,000 and $570,000, respectively.
-37-
Audit-Related Fees. The aggregate fees for assurance and related services by
Ernst & Young LLP that are related to the performance of the audit or review of
the Company's financial statements, for 2003 and 2002, and are not disclosed in
the paragraph caption "Audit Fees" above, were $546,000 and $152,000,
respectively. The services performed by Ernst & Young LLP in connection with
these fees consisted of employee benefit plan audits, internal controls
consultation, and due diligence on businesses being considered for purchase.
Tax Fees. The aggregate fees for professional services rendered by Ernst &
Young LLP for tax compliance, for the years ended 2003 and 2002 were $71,000
and $85,000, respectively. The aggregate fees billed by Ernst & Young LLP for
professional services rendered for tax advice and tax planning, for 2003 and
2002, were $98,000 and $136,000, respectively. The services performed by Ernst
& Young LLP in connection with these advisory and planning fees consisted of
consultation regarding various tax issues.
All Other Fees. There were no fees for products and services by Ernst &
Young LLP, other than the services described in the paragraphs captioned "Audit
Fees", "Audit-Related Fees", and "Tax Fees" above for 2003 and 2002.
The Audit Committee has established its pre-approval policies and
procedures, pursuant to which the Audit Committee approved the foregoing audit
and permissible non-audit services provided by Ernst & Young LLP in 2003.
Consistent with the Audit Committee's responsibility for engaging our
independent auditors, all audit and permitted non-audit services require pre-
approval by the Audit Committee. All requests or applications for services to
be provided by the independent auditor that do not require specific approval by
the Audit Committee will be submitted to the Chief Financial Officer and must
include a detailed description of the services to be rendered. The Chief
Financial Officer will determine whether such services are included within the
services that have received pre-approval of the Audit Committee. The Audit
Committee will be informed on a timely basis of any such services rendered by
the independent auditor. Request or applications to provide services that
require specific approval by the Audit Committee will be submitted to the Audit
Committee by both the independent auditor and the Chief Financial Officer, and
must include a joint statement as to whether, in their view, the request or
application is consistent with the SEC's rules on auditor independence. The
Chief Financial Officer and management will immediately report to the Audit
Committee any breach of this policy that comes to the attention of the Chief
Financial Officer or any member of management. Pursuant to these procedures
the Audit Committee approved the audit and permissible non-audit services
provided by Ernst & Young LLP in 2003.
-38-
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of the Report
1. Financial Statements
The financial statements listed under Item 8 are filed
as part of this report.
2. Financial Statement Schedules
Schedules have been omitted because they are either not
applicable or the required information has been disclosed in the
financial statements or notes thereto.
3. Exhibits
The exhibits listed on the accompanying Exhibit Index
are filed as part of this report.
(b) Reports on Form 8-K
Current Report on Form 8-K filed October 23, 2003 containing press
releases made by Berry Plastics related to the agreement to acquire
Landis Plastics, Inc. and Berry's intention to issue an additional
amount of its 10 3/4% Senior Subordinated Notes due 2012 resulting in
gross proceeds of up to $110 million in an add-on private placement
offering.
Current Report on Form 8-K filed October 31, 2003 containing audited
and unaudited financial statements of Landis Plastics, Inc.
Current Report on Form 8-K filed November 10, 2003 containing financial
and other information related to the acquisition and related financing
of Landis Plastics, Inc.
Current Report on Form 8-K filed December 5, 2003 containing audited
and unaudited financial statements of Landis Plastics, Inc. and
unaudited pro forma financial statements.
-39-
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
BPC Holding Corporation
We have audited the accompanying consolidated balance sheets of BPC Holding
Corporation (Holding) as of December 27, 2003, and December 28, 2002, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the year ended December 27, 2003, for the periods
from July 22, 2002 to December 28, 2002 (Company), December 30, 2001 to July
21, 2002 (Predecessor), and the year ended December 29, 2001 (Predecessor).
These financial statements are the responsibility of Holding's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BPC
Holding Corporation at December 27, 2003 and December 28, 2002, and the
consolidated results of its operations and its cash flows for the year ended
December 27, 2003, for the periods from July 22, 2002 to December 28, 2002
(Company), December 30, 2001 to July 21, 2002 (Predecessor), and the year ended
December 29, 2001 (Predecessor), in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" on December 30, 2001.
/S/ ERNST & YOUNG LLP
Indianapolis, Indiana
February 19, 2004
F-1
CONSOLIDATED BALANCE SHEETS
BPC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE INFORMATION)
DECEMBER 27, DECEMBER 28,
2003 2002
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 26,192 $ 15,613
Accounts receivable (less allowance for doubtful accounts
of $2,717 at December 27, 2003 and $1,990 at December 28, 2002) 76,152 56,765
Inventories:
Finished goods 61,556 50,002
Raw materials and supplies 19,988 14,730
-------- --------
81,544 64,732
Prepaid expenses and other current assets 19,192 7,018
-------- --------
Total current assets 203,080 144,128
Property and equipment:
Land 7,935 7,040
Buildings and improvements 58,135 49,966
Machinery, equipment and tooling 249,291 139,486
Construction in progress 24,433 12,232
-------- --------
339,794 208,724
Less accumulated depreciation 56,817 15,592
-------- --------
282,977 193,132
Intangible assets:
Deferred financing fees, net 22,283 20,116
Customer relationships, net 90,540 33,890
Goodwill 376,769 336,260
Trademarks 33,448 27,048
Other intangibles, net 6,656 5,883
-------- --------
529,696 423,197
Other 53 119
-------- --------
Total assets $1,015,806 $760,576
========== ========
F-2
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, DECEMBER 28,
2003 2002
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 43,175 $ 31,204
Accrued expenses and other liabilities 21,335 9,926
Accrued interest 18,132 14,239
Employee compensation and payroll taxes 23,528 15,917
Current portion of long-term debt 9,339 8,641
-------- --------
Total current liabilities 115,509 79,927
Long-term debt, less current portion 742,266 601,302
Deferred income taxes 720 640
Other long-term liabilities 4,720 3,544
-------- --------
Total liabilities 863,215 685,413
Stockholders' equity:
Preferred stock; $.01 par value: 500,000 shares authorized;
0 shares issued and outstanding at December 27, 2003 and
December 28, 2002 - -
Common stock; $.01 par value: 5,000,000 shares authorized;
3,397,637 shares issued; and 3,377,923 shares outstanding at
December 27, 2003 and 2,777,639 shares issued and 2,757,922
shares outstanding at December 28, 2002 34 28
Additional paid-in capital 344,363 281,816
Adjustment of the carryover basis of continuing stockholders (196,603) (196,603)
Notes receivable - common stock (14,157) (14,399)
Treasury stock: 19,714 shares and 0 shares of common stock
at December 27, 2003 and December 28, 2002, respectively (1,972) -
Retained earnings 16,227 3,179
Accumulated other comprehensive income 4,699 1,142
-------- --------
Total stockholders' equity 152,591 75,163
-------- --------
Total liabilities and stockholders' equity $1,015,806 $ 760,576
========== ========
See notes to consolidated financial statements.
F-3
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
COMPANY PREDECESSOR
--------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
--------------------------- --------------------------
Net sales $ 551,876 $ 213,626 $ 280,677 $461,659
Cost of goods sold 420,750 163,815 207,458 338,000
-------- -------- -------- --------
Gross profit 131,126 49,811 73,219 123,659
Operating expenses:
Selling 23,883 10,129 12,080 21,996
General and administrative 25,699 7,664 15,750 28,535
Research and development 3,459 1,450 1,438 1,948
Amortization of intangibles 3,326 1,159 1,249 12,802
Merger expenses (Predecessor) - - 20,987 -
Other expenses 3,569 2,757 2,804 4,911
-------- -------- -------- --------
Operating income 71,190 26,652 18,911 53,467
Other expenses (income):
Loss (gain) on disposal of property
and equipment (7) 8 291 473
-------- -------- -------- --------
Income before interest and taxes 71,197 26,644 18,620 52,994
Interest:
Expense (46,251) (20,887) (28,747) (54,397)
Loss on extinguished debt (250) - (25,328) -
Income 838 375 5 42
-------- -------- -------- --------
Income (loss) before income taxes 25,534 6,132 (35,450) (1,361)
Income taxes 12,486 2,953 345 734
-------- -------- -------- --------
Net income (loss) 13,048 3,179 (35,795) (2,095)
Preferred stock dividends - - (6,468) (9,790)
Amortization of preferred stock discount - - (574) (1,024)
-------- -------- -------- --------
Net income (loss) attributable to
common stockholders $ 13,048 $ 3,179 $ (42,837) $ (12,909)
======== ======== ======== ========
See notes to consolidated financial statements.
F-4
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS)
COMMON PREFERRED TREASURY ADDITIONAL
STOCK STOCK STOCK WARRANTS COMMON PAID-IN
(PREDECESSOR)(PREDECESSOR)(PREDECESSOR)(PREDECESSOR) STOCK CAPITAL
------------------------------------------------------------------------------
Predecessor:
Balance at December 30, 2000 (Predecessor) $ 6 $ 36,986 $ (405) $ 9,386 $ - $ 35,041
Net loss - - - - - -
Translation loss - - - - - -
Stock-based compensation - - - - - 796
Issuance of preferred stock - 9,779 - - - -
Issuance of common stock - - - - - 292
Accrued dividends on preferred stock - - - - - (9,790)
Amortization of preferred stock discount - 1,024 - - - (1,024)
-------- -------- -------- -------- -------- --------
Balance at December 29, 2001 (Predecessor) 6 47,789 (405) 9,386 - 25,315
-------- -------- -------- -------- -------- --------
Net loss - - - - - -
Translation gain - - - - - -
Amortization of preferred stock discount - 574 - - - (574)
Accrued dividends on preferred stock - - - - - (6,468)
Stock-based compensation - - - - - 1,920
Redemption of predecessor stock (6) (48,363) 405 (9,386) - (20,193)
-------- -------- -------- -------- -------- --------
Balance at July 21, 2002 (Predecessor) $ - $ - $ - $ - $ - $ -
======== ======== ======== ======== ======== ========
Company:
Fair value of rolled stock options $ - $ - $ - $ - $ - $ 5,056
Issuance of common stock - - - - 28 276,760
Notes receivable - common stock - - - - - -
Interest on notes receivable - - - - - -
Adjustment of the carryover basis
of continuing stockholders - - - - - -
Translation gain - - - - - -
Other comprehensive losses - - - - - -
Net income - - - - - -
-------- -------- -------- -------- -------- --------
Balance at December 28, 2002 (Company) - - - - 28 281,816
-------- -------- -------- -------- -------- --------
Issuance of common stock - - - - 6 62,547
Purchase of treasury stock - - - - - -
Interest on notes receivabl - - - - - -
Translation gain - - - - - -
Other comprehensive losses - - - - - -
Net income - - - - - -
-------- -------- -------- -------- -------- --------
Balance at December 27, 2003 (Company) $ - $ - $ - $ - $ 34 $344,363
======== ======== ======== ======== ======== ========
F-5
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
(IN THOUSANDS OF DOLLARS)
ADJUSTMENT
OF THE
CARRYOVER NOTES ACCUMULATED
BASIS OF RECEIVABLE RETAINED OTHER
CONTINUING - COMMON TREASURY EARNINGS COMPREHENSIVE COMPREHENSIVE
STOCKHOLDERS STOCK STOCK (DEFICIT) INCOME (LOSS) TOTAL INCOME (LOSS)
-------------------------------------------------------------------------------------
Predecessor:
Balance at December 30, 2000 $ - $ - $ - $ (218,168) $ (843) $(137,997)
(Predecessor) --------- --------- -------- ----------- ---------- -----------
Net loss - - - (2,095) - (2,095) $ (2,095)
Translation loss - - - - (586) (586) (586)
Stock-based compensation - - - - - 796 -
Issuance of preferred stock - - - - - 9,779 -
Issuance of common stock - - - - - 292 -
Accrued dividends on preferred stock - - - - - (9,790) -
Amortization of preferred
stock discount - - - - - - -
--------- --------- -------- ----------- ---------- ----------- ----------
Balance at December 29, 2001 - - - (220,263) (1,429) (139,601) (2,681)
(Predecessor) ========= ========= ======== =========== ========== =========== ==========
Net loss - - - (35,795) - (35,795) (35,795)
Translation gain - - - - 1,429 1,429 1,429
Amortization of preferred
stock discount - - - - - - -
Accrued dividends on preferred stock - - - - - (6,468) -
Stock-based compensation - - - - - 1,920 -
Redemption of predecessor stock - - - 256,058 - 178,515 -
--------- --------- -------- ----------- ---------- ----------- ----------
Balance at July 21, 2002 $ - $ - $ - $ - $ - $ - $ (34,366)
(Predecessor) ========= ========= ======== =========== ========== =========== ==========
Company:
Fair value of rolled stock
options $ - $ - $ - $ - $ - $ 5,056 $ -
Issuance of common stock - - - - - 276,788 -
Notes receivable - common stock - (14,079) - - - (14,079) -
Interest on notes receivable - (320) - - - (320) -
Adjustment of the carryover
basis of continuing
stockholders (196,603) - - - - (196,603) -
Translation gain - - - - 2,091 2,091 2,091
Other comprehensive losses - - - - (949) (949) (949)
Net income - - - 3,179 - 3,179 3,179
--------- --------- -------- ----------- ---------- ----------- ----------
Balance at December 28, 2002
(Company) (196,603) (14,399) - 3,179 1,142 75,163 4,321
========= ========= ======== =========== ========== =========== ==========
Issuance of common stock - - - - - 62,553 -
Purchase of treasury stock - 999 (1,972) - - (973) -
Interest on notes receivable - (757) - - - (757) -
Translation gain - - - - 3,645 3,645 3,645
Other comprehensive losses - - - - (88) (88) (88)
Net income - - - 13,048 - 13,048 13,048
--------- --------- -------- ----------- ---------- ----------- ----------
Balance at December 27, 2003
(Company) $ (196,603) $ (14,157) $ (1,972) $16,227 $ 4,699 $152,591 $ 16,605
========= ========= ======== =========== ========== =========== ==========
See notes to consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
COMPANY PREDECESSOR
--------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
--------------------------- --------------------------
OPERATING ACTIVITIES
Net income (loss) $13,048 $3,179 $(35,795) $(2,095)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation 40,752 16,031 23,526 38,105
Non-cash interest expense 2,318 1,077 1,399 11,268
Amortization of intangibles 3,326 1,159 1,249 12,802
Non-cash compensation - - 1,920 796
Loss on extinguished debt (Predecessor) - - 25,328 -
Loss (gain) on sale of property and
equipment (7) 8 291 473
Deferred income taxes 11,791 2,710 - -
Changes in operating assets and liabilities:
Accounts receivable, net (598) 8,717 (15,986) 2,869
Inventories 5,600 (4,091) (4,255) (4,017)
Prepaid expenses and other
receivables (2,582) (1,280) (603) (50)
Other assets 32 (354) 2,042 (2,000)
Accrued interest 3,894 (3,686) 6,741 (1,042)
Payables and accrued expenses 2,199 (7,422) 4,735 (2,761)
--------- --------- --------- ---------
Net cash provided by operating activities 79,773 16,048 10,592 54,348
INVESTING ACTIVITIES
Additions to property and equipment (29,949) (11,287) (17,396) (32,834)
Proceeds from disposal of property and
equipment 7 8 9 93
Transaction costs - (12,398) - -
Acquisitions of businesses (235,710) - (3,834) (23,549)
--------- --------- --------- ---------
Net cash used for investing activities (265,652) (23,677) (21,221) (56,290)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 149,944 580,000 24,492 15,606
Payments on long-term borrowings (10,111) (507,314) (13,924) (24,088)
Issuance of preferred stock and warrants - - - 9,779
Issuance of common stock 62,553 260,902 - 292
Purchase of treasury stock (973) - - -
Redemption of predecessor stock - (290,672) - -
Debt financing costs (4,592) (21,103) - (1,009)
--------- --------- --------- ---------
Net cash provided by financing activities 196,821 21,813 10,568 580
Effect of exchange rate changes on cash (363) 1,073 (815) 540
--------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 10,579 15,257 (876) (822)
Cash and cash equivalents at beginning
of period 15,613 356 1,232 2,054
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 26,192 $ 15,613 $ 356 $ 1,232
========= ========= ========= =========
See notes to consolidated financial statements.
F-7
BPC HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED)
NOTE 1. ORGANIZATION
BPC Holding Corporation ("Holding"), through its subsidiary Berry Plastics
Corporation ("Berry" or the "Company") and its subsidiaries Berry Iowa
Corporation, Berry Tri-Plas Corporation, Aerocon, Inc., PackerWare Corporation,
Berry Plastics Design Corporation, Venture Packaging, Inc. and its subsidiaries
Venture Packaging Midwest, Inc. and Berry Plastics Technical Services, Inc.,
NIM Holdings Limited and its subsidiary Berry Plastics U.K. Limited, Knight
Plastics, Inc., CPI Holding Corporation and its subsidiary Cardinal Packaging,
Inc., Poly-Seal Corporation, Ociesse S.r.l and its subsidiary Capsol Berry
Plastics S.p.a., and Landis Plastics, Inc. manufactures and markets plastic
packaging products through its facilities located in Evansville, Indiana;
Henderson, Nevada; Iowa Falls, Iowa; Charlotte, North Carolina; Suffolk,
Virginia; Lawrence, Kansas; Monroeville, Ohio; Norwich, England; Woodstock,
Illinois; Streetsboro, Ohio; Baltimore, Maryland; Milan, Italy; Chicago,
Illinois; Richmond, Indiana; Syracuse, New York; and Phoenix, Arizona.
In 2002, the Company closed its Fort Worth, Texas facility, which was acquired
in connection with the acquisition of Pescor Plastics, Inc. in May 2001. In
2003, the Company initiated the process of closing its Monticello, Indiana
facility, which was acquired in connection with the acquisition of Landis
Plastics, Inc. in November 2003. The business from these closed locations has
been distributed throughout Berry's facilities.
Holding's fiscal year is a 52/53 week period ending generally on the Saturday
closest to December 31. All references herein to "2003", "2002," and "2001,"
relate to the fiscal years ended December 27, 2003, December 28, 2002, and
December 29, 2001, respectively. Due to the Merger (see Note 3), fiscal 2002
consists of two separate periods of December 30, 2001 to July 21, 2002
(Predecessor) and July 22, 2002 to December 28, 2002 (Company).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Business
The consolidated financial statements include the accounts of Holding and its
subsidiaries, all of which are wholly owned. Intercompany accounts and
transactions have been eliminated in consolidation. Holding, through its
wholly owned subsidiaries, operates in three primary segments: containers,
closures, and consumer products. The Company's customers are located
principally throughout the United States, without significant concentration in
any one region or with any one customer. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral.
Purchases of various densities of plastic resin used in the manufacture of the
Company's products aggregated approximately $140.3 million and $113.0 million
in 2003 and 2002, respectively. Dow Chemical Corporation was the largest
supplier of the Company's total resin material requirements, representing
approximately 35% and 43% of such resin requirements in 2003 and 2002,
respectively. The Company also uses other suppliers such as Chevron, Nova,
Equistar, Atofina, Basell, Sunoco, and ExxonMobil to meet its resin
requirements.
Cash and Cash Equivalents
All highly liquid investments with maturity of three months or less at the date
of purchase are considered to be cash equivalents.
Accounts Receivable
The allowance for doubtful accounts is analyzed in detail on a quarterly basis
and all significant customers with delinquent balances are reviewed to
determine future collectibility. The determinations are based on legal issues
(such as bankruptcy status), past history, current financial and credit agency
reports, and the experience of the credit representatives. Reserves are
established in the quarter in which the Company makes the determination that
the account is deemed uncollectible. The Company maintains additional reserves
based on its historical bad debt experience. The following table summarizes
the activity by period for the allowance for doubtful accounts.
F-8
COMPANY PREDECESSOR
--------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
--------------------------- --------------------------
Balance at beginning of period $1,990 $2,063 $2,070 $1,724
Charged to costs and expenses 150 (291) 164 337
Charged to other accounts (1) 545 - - 295
Deductions (2) 32 218 (171) (286)
--------- --------- --------- ---------
Balance at end of period $2,717 $1,990 $2,063 $2,070
========= ========= ========= =========
(1) Primarily relates to purchase of accounts receivable and related
allowance through acquisitions.
(2) Uncollectible accounts written off, net of recoveries.
Inventories
Inventories are valued at the lower of cost (first in, first out method) or
market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed primarily
by the straight-line method over the estimated useful lives of the assets
ranging from 15 to 25 years for buildings and improvements and two to 10 years
for machinery, equipment, and tooling. Repairs and maintenance costs are
charged to expense as incurred.
Intangible Assets
Deferred financing fees are being amortized using the straight-line method over
the lives of the respective debt agreements.
Customer relationships are being amortized using the straight-line method over
the estimated life of the relationships ranging from three to 20 years.
The costs in excess of net assets acquired represent the excess purchase price
over the fair value of the net assets acquired in the Merger (see Note 3 below)
and businesses acquired since the Merger. These costs are reviewed annually
for impairment pursuant to SFAS No. 142, Goodwill and Other Intangible Assets.
Trademarks are reviewed for impairment annually pursuant to SFAS No. 142.
Other intangibles, which include covenants not to compete and technology-based
intangibles, are being amortized using the straight-line method over the
respective lives of the agreements or estimated life of the technology ranging
from one to twenty years.
Long-lived Assets
Long-lived assets are reviewed for impairment in accordance with SFAS No. 144
whenever facts and circumstances indicate that the carrying amount may not be
recoverable. Specifically, this process involves comparing an asset's carrying
value to the estimated undiscounted future cash flows the asset is expected to
generate over its remaining life. If this process were to result in the
conclusion that the carrying value of a long-lived asset would not be
recoverable, a write-down of the asset to fair value would be recorded through
a charge to operations. Fair value is determined based upon discounted cash
flows or appraisals as appropriate. Long-lived assets that are held for sale
are reported at the lower of the assets' carrying amount or fair value less
costs related to the assets' disposition. No impairments were recorded in
these financial statements.
Derivative Financial Instruments
The Company uses an interest rate collar to manage a portion of its interest
rate exposures. The instrument was entered into to manage market risk
exposures and is not used for trading purposes. Management routinely reviews
the effectiveness of the use of derivative instruments. The Company has
recognized the interest rate collar at its fair value in the consolidated
balance sheets.
F-9
Foreign Currency Translation
Assets and liabilities of most foreign subsidiaries are translated at exchange
rates in effect at the balance sheet date, and the statements of operations are
translated at the average monthly exchange rates for the period. Translation
gains and losses are recorded as a component of accumulated other comprehensive
income (loss) in stockholders' equity. Foreign currency transaction gains and
losses are included in net income (loss).
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") and SEC
Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB 104"). Revenue
is recognized when the title and risk of loss have passed to the customer,
there is persuasive evidence of an arrangement, delivery has occurred or
services have been rendered, the sales price is fixed or determinable, and
collectibility is reasonably assured.
Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-
Based Compensation - Transition and Disclosure," established accounting and
disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As provided for under SFAS 123, the
Company accounts for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees." Compensation cost for stock options, if any, is measured
as the excess of the fair value of the Company's stock at the date of grant
over the amount an employee must pay to acquire the stock. The fair value for
options granted by Holding have been estimated at the date of grant using a
Black Scholes option pricing model with the following weighted average
assumptions:
COMPANY PREDECESSOR
--------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
--------------------------- --------------------------
Risk-free interest rate 3.0% 4.0% 4.0% 5.5%
Dividend yield 0.0% 0.0% 0.0% 0.0%
Volatility factor .25 .25 .25 .28
Expected option life 5.0 years 5.0 years 5.0 years 6.5 years
For purposes of the pro forma disclosures, the estimated fair value of the
stock options are amortized to expense over the related vesting period.
Because compensation expense is recognized over the vesting period, the initial
impact on pro forma net income (loss) may not be representative of compensation
expense in future years, when the effect of amortization of multiple awards
would be reflected in the Consolidated Statement of Operations. The following
is a reconciliation of reported net income (loss) to net income (loss) as if
the Company used the fair value method of accounting for stock-based
compensation.
COMPANY PREDECESSOR
--------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
--------------------------- --------------------------
Reported net income (loss)
Stock-based employee
compensation expense
included in reported income
(loss), net of tax $13,048 $3,179 $(35,795) $(2,095)
Total stock-based employee
compensation expense determined
under fair value based method,
for all awards, net of tax (2,044) (856) (371) (1,401)
--------- --------- --------- ---------
Pro forma net income (loss) $11,004 $2,323 $(34,246) $(2,700)
========= ========= ========= =========
F-10
<[PAGE>
Income Taxes
The Company accounts for income taxes under the asset and liability approach,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequence of events that have been recognized in the
Company's financial statements or income tax returns. Income taxes are
recognized during the year in which the underlying transactions are reflected
in the Consolidated Statements of Operations. Deferred taxes are provided for
temporary differences between amounts of assets and liabilities as recorded for
financial reporting purposes and such amounts as measured by tax laws.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains or losses on derivative financial instruments, unrealized
gains or losses resulting from currency translations of foreign investments,
and adjustments to record the minimum pension liability.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of any contingent assets and liabilities at the
financial statement date and reported amounts of revenue and expenses during
the reporting period. On an on-going basis, the Company reviews its estimates
and assumptions. The Company's estimates were based on its historical
experience and various other assumptions that the Company believes to be
reasonable under the circumstances. Actual results are likely to differ from
those estimates under different assumptions or conditions, but management does
not believe such differences will materially affect the Company's financial
position or results of operations.
Reclassifications
Certain amounts in the prior year financial statements and related notes have
been reclassified to conform to the current year presentation.
Impact of Recently Issued Accounting Standards
In June 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No.
142, Goodwill and Other Intangible Assets. These pronouncements significantly
change the accounting for business combinations, goodwill, and intangible
assets. SFAS No. 141 eliminates the pooling-of-interests method of accounting
for business combinations and further clarifies the criteria to recognize
intangible assets separately from goodwill. The requirements of SFAS No. 141
became effective for any business combination completed after June 30, 2001.
SFAS No. 142 states goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed for impairment annually (or more frequently
if impairment indicators arise). Separable intangible assets that are deemed
to have a finite life will continue to be amortized over their estimated useful
lives. The Company adopted the provisions of SFAS Nos. 141 and 142 as of the
beginning of fiscal 2002. The Merger (see Note 3) and subsequent acquisitions
(see Note 4) have 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 following table presents the results of the Company on a comparable basis:
COMPANY PREDECESSOR
--------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
--------------------------- --------------------------
Reported net income (loss) $13,048 $3,179 $(35,795) $(2,095)
Goodwill amortization, net of tax - - - 9,964
--------- --------- --------- ---------
Adjusted net income (loss) $13,048 $3,179 $(35,795) $7,869
========= ========= ========= =========
F-11
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13 and Technical Corrections (SFAS No. 145). Upon the adoption
of SFAS No. 145, all gains and losses on the extinguishment of debt for periods
presented in the financial statements will be classified as extraordinary items
only if they meet the criteria in APB Opinion No. 30, Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB
No. 30). The provisions of SFAS No. 145 related to the rescission of FASB
Statement No. 4 and FASB Statement No. 64 shall be applied for fiscal years
beginning after May 15, 2002. As a result, the Company reclassified the
extraordinary item in the Statements of Operations to continuing operations in
its 2003 financial statements.
F-12
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." The interpretation expands on the
disclosure requirements to be made in interim and annual financial statements.
The interpretation also requires that a liability measured at fair value be
recognized for guarantees even if the probability of payment on the guarantee
is remote. The recognition provisions apply on a prospective basis for
guarantees issued or modified after December 31, 2002. The Company's adoption
of the interpretation at the beginning of fiscal 2003 did not have a material
effect on the Company's accounting or reporting of its guarantees.
In 2003, the FASB issued Interpretation No. 46 ("FIN 46"), Consolidation of
Variable Interest Entities. FIN 46 defines a variable interest entity ("VIE")
as a corporation, partnership, trust or any other legal structure that does not
have equity investors with a controlling financial interest or has equity
investors that do not provide sufficient financial resources for the entity to
support its activities. FIN 46 requires consolidation of a VIE by the primary
beneficiary of the assets, liabilities, and results of activities effective for
2003. FIN 46 also requires certain disclosures by all holders of a significant
variable interest in a VIE that are not the primary beneficiary. The Company
does not have any VIE's. The adoption of FIN 46 did not have a material impact
on the financial position or results of operations of the Company.
Also in 2003, Emerging Issues Task Force ("EITF") reached a consensus on issue
No. 02-16 ("EITF 02-16"), "Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor". EITF 02-16 addressed accounting
for cash consideration received by a reseller from a vendor. Cash
consideration received by a customer from a vendor is presumed to be a
reduction of the prices of the vendor's products or services and should be
characterized as a reduction of cost of sales when recognized in the customer's
income statement. However, if the consideration is a payment for assets or
services delivered to the vendor, the cash consideration is characterized as
revenue when recognized in the customer's income statement. The EITF also
addressed rebates or refunds and how they should be recognized as a reduction
of cost of sales. In order to recognize a rebate or refund, it must be
probable and reasonably estimable, otherwise, it is not recognized until each
specified criteria is met. The adoption of EITF 02-16 did not have a material
impact on the financial position or results of operations of the Company.
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149 ("SFAS No. 149"), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities". 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 adoption of SFAS No. 149 did not have a material impact on the
financial position or results of operations of 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"). SFAS No. 150 establishes standards
for how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify certain financial instruments as a liability (or as an asset in some
circumstances). SFAS No. 150 was effective for the Company at the beginning of
the first interim period beginning after June 15, 2003. The adoption of SFAS
No. 150 did not have a material impact on the financial position or results of
operations of the Company.
In December 2003, the United States Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 104 ("SAB 104"), "Revenue
Recognition". SAB 104 updates portions of the SEC staff's interpretive
guidance provided in SAB 101 and included in Topic 13 of the Codification of
Staff Accounting Bulletins. SAB 104 deletes interpretative material no longer
necessary, and conforms the interpretive material retained, because of
pronouncements issued by the FASB Emerging Issues Task Force on various revenue
recognition topics, including EITF 00-21. The Company adopted this standard on
a prospective basis. The adoption of SAB 104 did not have an impact on the
financial position or results of operations of the Company.
NOTE 3. THE MERGER
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly formed
entity controlled by various private equity funds affiliated with Goldman,
Sachs & Co., merged (the "Merger") with and into BPC Holding, pursuant to an
agreement and plan of merger, dated as of May 25, 2002. At the effective time
of the Merger, (i) each share of common stock of BPC Holding Corporation issued
and outstanding immediately prior to the effective time of the Merger was
converted into the right to receive cash pursuant to the terms of the merger
agreement, and (ii) each share of common stock of the Buyer issued and
outstanding immediately prior to the effective time of the Merger was converted
into one share of common stock of BPC Holding.
F-13
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 $870.7
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).
Immediately following the Merger, the Buyer and its affiliates owned
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 the Predecessor to the Company were recorded at their
Company basis. The application of these provisions reduced stockholder's
equity and intangibles by $196.6 million. In connection with the Merger, the
Predecessor incurred Merger related expenses of approximately $21.0 million,
consisting primarily of investment banking fees, bonuses to management, non-
cash modification of stock option awards, legal costs, and fees to the largest
voting stockholder of the Predecessor. The allocation is preliminary and is
subject to adjustments as any future reductions to the valuation allowance
against deferred tax assets will be credited to goodwill. In addition, as a
result of extinguishing debt in connection with the Merger, $6.6 million of
existing deferred financing fees and $18.7 million of prepayment fees and
related charges were charged to expense in 2002 as a loss on extinguished debt.
The following table summarizes the allocation of purchase price.
Purchase price $ 836,692
Buyer transaction costs 12,927
Net tangible assets acquired (260,022)
Intangible assets acquired (67,045)
Adjustment for carryover basis of continuing stockholders (196,603)
----------
Goodwill $325,949
==========
NOTE 4. ACQUISITIONS
On January 24, 2002, Berry acquired the Alcoa Flexible Packaging injection
molding assets of Mount Vernon Plastics Corporation ("Mount Vernon") for
aggregate consideration of approximately $2.6 million. The purchase price was
allocated to fixed assets ($2.0 million) and inventory ($0.6 million). The
purchase was financed through borrowings under the Company's revolving line of
credit under its retired senior credit facility. The operations of Mount
Vernon are included in Berry's operations since the acquisition date using the
purchase method of accounting. On January 31, 2002, Berry entered into a
sale/leaseback arrangement with respect to the 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 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
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.
On May 30, 2003, Berry acquired the injection molded overcap lid assets from
APM Inc. located in Benicia, California ("APM Acquisition") for aggregate
consideration of approximately $0.6 million. The purchase price was allocated
to fixed assets ($0.3 million), inventory ($0.1 million), goodwill ($0.1
million) and other intangibles ($0.1 million). 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.
On November 20, 2003, Berry acquired Landis Plastics, Inc. (the "Landis
Acquisition") for aggregate consideration of approximately $229.7 million,
including deferred financing fees. The operations from the Landis Acquisition
are included in Berry's operations since the acquisition date using the
purchase method of accounting. The purchase was financed through the issuance
by Berry of $85.0 million aggregate principal amount of 10 3/4% senior
subordinated notes to various institutional buyers,
F-14
which resulted in gross proceeds of $95.2 million, aggregate net borrowings of
$54.1 million under Berry's amended and restated senior secured credit facility
from new term loans after giving effect to the refinancing of the prior term
loan, an aggregate common equity contribution of $62.0 million, and cash on
hand. Berry also agreed to acquire, for $32.0 million, four facilities that
Landis leased from certain of its affiliates. Prior to the closing of the
Landis Acquisition, the rights and obligations to purchase the four facilities
owned by affiliates of Landis were assigned to an affiliate of W.P. Carey &
Co., L.L.C., which afflliate subsequently entered into a lease with Landis for
the four facilities. In accordance with EITF 95-3, the Company established
opening balance sheet reserves totaling $3.2 million related to plant shutdown,
severance and unfavorable lease arrangement costs, which were reduced to $2.9
million at December 27, 2003 as a result of payments made in fiscal 2003. The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition. The allocation is preliminary
and subject to change based on actual expenses and adjustments of estimated
receivables and reserves.
NOVEMBER 20,
2003
--------------
Current assets $ 49,901
Property and equipment 93,722
Goodwill 49,393
Customer relationships 58,200
Trademarks 6,400
Covenants not to compete 800
---------
Total assets $ 258,416
=========
Current liabilities $ 27,253
Intercompany debt 231,163
Stockholders' equity -
---------
Total liabilities and stockholders' equity $ 258,416
=========
The pro forma financial results presented below are unaudited and assume that
the Landis Acquisition occurred at the beginning of the respective period. Pro
forma results have not been adjusted to reflect the acquisitions of Mount
Vernon, CCL, or APM as they do not differ materially from the pro forma results
presented below. The information presented is for informational purposes only
and is not necessarily indicative of the operating results that would have
occurred had the Landis Acquisition been consummated at the above dates, nor
are they necessarily indicative of future operating results. Further, the
information reflects only pro forma adjustments for additional interest expense
and amortization and the elimination of the Merger expenses and loss on
extinguished debt in connection with the Merger, net of the applicable income
tax effects.
COMPANY PREDECESSOR
------------------------------- ----------------------
YEAR ENDED PERIOD FROM PERIOD FROM
DECEMBER 27, 2003 7/22/02-12/28/02 12/30/01-7/21/02
------------------------------- -----------------------
Pro forma net sales $ 749,591 $ 311,875 $ 394,041
Pro forma net income (loss) 5,526 3,520 (1,062)
NOTE 5. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 27, 2003 DECEMBER 28, 2002
----------------- -----------------
Deferred financing fees $ 26,043 $ 21,411
Customer relationships 93,561 34,664
Goodwill 376,769 336,260
Trademarks 33,448 27,048
Covenants not to compete and other 2,757 1,656
Technology-based 5,023 4,982
F-15
Accumulated amortization (7,905) (2,824)
---------- ----------
$ 529,696 $ 423,197
========== ==========
The changes in intangible assets are primarily the result of the Landis
Acquisition, amortization of definite lived intangibles, and the application
of SFAS No. 141.
Future amortization expense for definite lived intangibles at December 27, 2003
for the next five fiscal years is approximately $8.2 million, $8.1 million,
$8.0 million, $7.9 million, and $7.8 million for fiscal 2004, 2005, 2006, 2007,
and 2008, respectively.
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 27, 2003 DECEMBER 28, 2002
----------------- -----------------
Berry 10 3/4% Senior Subordinated Notes $335,000 $250,000
Debt premium on 10 3/4% Notes, net 10,053 -
Term loans 380,000 329,175
Revolving lines of credit 342 692
Nevada Industrial Revenue Bonds 2,000 2,500
Capital leases 24,210 27,576
----------- ----------
751,605 609,943
Less current portion of long-term debt 9,339 8,641
----------- ----------
$742,266 $601,302
=========== ==========
Berry 10 3/4% Senior Subordinated Notes
On July 22, 2002, Berry completed an offering of $250.0 million aggregate
principal amount of 10 3/4% Senior Subordinated Notes due 2012 (the "2002
Notes"). The net proceeds to Berry from the sale of the 2002 Notes, after
expenses, were $239.4 million. The proceeds from the 2002 Notes were used in
the financing of the Merger. On November 20, 2003, Berry completed an offering
of $85.0 million aggregate principal amount of 10 3/4% Senior Subordinated
Notes due 2012 (the "Add-on Notes"). The net proceeds to Berry from the sale
of the Add-on Notes, after expenses, were $91.8 million. The proceeds from the
Add-on Notes were used in the financing of the Landis Acquisition. The 2002
Notes and Add-on Notes mature on July 15, 2012. Interest is payable semi-
annually on January 15 and July 15 of each year, which commenced on January 15,
2003 with respect to the 2002 Notes and commenced on January 15, 2004 with
respect to the Add-on Notes. Holding and all of Berry's domestic subsidiaries
fully, jointly, severally, and unconditionally guarantee on a senior
subordinated basis the 2002 Notes and Add-on Notes. The 2002 Notes and Add-on
Notes are not guaranteed by the foreign subsidiaries: Berry Plastics
Acquisition Corporation II, NIM Holdings Limited, Berry Plastics U.K. Limited,
Norwich Acquisition Limited, Capsol Berry Plastics S.p.a., or Ociesse S.r.l.
Berry is not required to make mandatory redemption or sinking fund payments
with respect to the 2002 Notes and Add-on Notes. On or subsequent to July 15,
2007, the 2002 Notes and Add-on Notes may be redeemed at the option of Berry,
in whole or in part, at redemption prices ranging from 105.375% in 2007 to 100%
in 2010 and thereafter. Prior to July 15, 2005, up to 35% of the 2002 Notes
and Add-on Notes may be redeemed at 110.75% of the principal amount at the
option of Berry in connection with an equity offering. Upon a change in
control, as defined in the indenture under which the 2002 Notes and Add-on
Notes were issued (the "Indenture"), each holder of notes will have the right
to require Berry to repurchase all or any part of such holder's notes at a
repurchase price in cash equal to 101% of the aggregate principal amount
thereof plus accrued interest. The 2002 Notes and Add-on Notes are treated as
a single class under the Indenture.
F-16
Amended and Restated Credit Facility
In connection with the Merger in 2002, 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"). On November 10, 2003, in connection with the Landis
Acquisition, the Credit Facility was amended and restated (the "Amended and
Restated Credit Facility"). The Amended and Restated 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. On November
10, 2003, we used $325.9 million to refinance in full the balance outstanding
under our prior term loan in the Credit Facility. The remaining $4.1 million
was used to fund a portion of the purchase price for the Landis Acquisition.
The $50.0 million delayed draw facility was drawn on November 20, 2003 to fund
a portion of the purchase price for the Landis Acquisition. The maturity date
of the term loan and delayed draw term loan is July 22, 2010, and the maturity
date of the revolving credit facility is July 22, 2008. The indebtedness under
the Amended and Restated Credit Facility is guaranteed by BPC Holding and all
of its domestic subsidiaries. The obligations of Berry Plastics under the
Amended and Restated Credit Facility and the guarantees thereof are secured by
substantially all of the assets of such entities. At December 27, 2003, there
were no borrowings outstanding on the revolving credit facility. The revolving
credit facility allows up to $25.0 million of letters of credit to be issued
instead of borrowings under the revolving credit facility and up to $10.0
million of swingline loans.
The Amended and Restated 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. The Amended and Restated Credit Facility also
contains borrowing conditions and customary events of default, including
nonpayment of principal or interest, violation of covenants, inaccuracy of
representations and warranties, cross-defaults to other indebtedness,
bankruptcy and other insolvency events (other than in the case of certain
foreign subsidiaries). The Company was in compliance with all the financial
and operating covenants at December 27, 2003. The term loan amortizes
quarterly as follows: $825,000 each quarter through June 30, 2009 and
$77,756,250 each quarter beginning September 30, 2009 and ending June 30, 2010.
The delayed draw term loan facility will amortize $125,000 each quarter
beginning September 30, 2004 through June 30, 2009 and $11,875,000 each quarter
beginning September 30, 2009 and ending June 30, 2010.
Borrowings under the Amended and Restated 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 and delayed draw term loan, the ``applicable margin''
is (i) with respect to Base Rate Loans, 1.50% per annum and (ii) with respect
to Eurodollar Rate Loans, 2.50% per annum (3.7% at December 27, 2003 and 4.6%
at December 28, 2002). With respect to the revolving credit facility, the
``applicable margin'' is subject to a pricing grid which ranges from 2.75% per
annum to 2.00% per annum, depending on the leverage ratio (2.75% based on
results through December 27, 2003). The ``applicable margin'' with respect to
Base Rate Loans will always be 1.00% per annum less than the ``applicable
margin'' for Eurodollar Rate Loans. In October 2002, Berry entered into an
interest rate collar arrangement to protect $50.0 million of the outstanding
variable rate term loan debt from future interest rate volatility. The collar
floor is set at 1.97% LIBOR (London Interbank Offering Rate) and capped at
6.75% LIBOR. The agreement was effective January 15, 2003. At December 27,
2003 and December 28, 2002, shareholders' equity has been reduced by $0.5
million and $0.6 million, respectively, to adjust the agreement to fair market
value. At December 27, 2003, the Company had unused borrowing capacity under
the Amended and Restated Credit Facility's revolving line of credit of $92.6
million.
Nevada Industrial Revenue Bonds
The Nevada Industrial Revenue Bonds bear interest at a variable rate (1.3% at
December 27, 2003 and 1.7% at December 28, 2002), require annual principal
payments of $0.5 million on April 1, are collateralized by irrevocable letters
of credit issued under the Amended and Restated Credit Facility and mature in
April 2007.
Holding 12.50% Senior Secured Notes (Predecessor)
On June 18, 1996, Holding issued 12.50% Senior Secured Notes due 2006 for net
proceeds, after expenses, of approximately $100.2 million. These notes were
exchanged in October 1996 for the 12.50% Series B Senior Secured Notes due 2006
(the "1996 Notes"). In addition, from December 15, 1999 until June 15, 2001,
Holding paid interest, at an increased rate of 0.75% per annum, in additional
1996 Notes valued at 100% of the principal amount thereof. Holding issued an
additional approximately $30.7 million ($8.4 million in 2001 and $15.3 million
in 2000) aggregate principal amount of 1996 Notes in satisfaction of its
interest obligation. The 1996 Notes were retired in connection with the Merger
and the associated premium for early retirement and net deferred financing fees
were expensed in 2002.
F-17
Berry 12.25% Senior Subordinated Notes (Predecessor)
On April 21, 1994, Berry completed an offering of 100,000 units consisting of
$100.0 million aggregate principal amount of 12.25% Berry Plastics Corporation
Senior Subordinated Notes, due 2004 (the "1994 Notes") and 100,000 warrants to
purchase 1.13237 shares of the Predecessor's common stock. The net proceeds to
Berry from the sale of the 1994 Notes, after expenses, were $93.0 million. On
August 24, 1998, Berry completed an additional offering of $25.0 million
aggregate principal amount of 12.25% Series B Senior Subordinated Notes due
2004 (the "1998 Notes"). The net proceeds to Berry from the sale of the 1998
Notes, after expenses, were $25.2 million. The 1994 Notes and 1998 Notes were
retired in connection with the Merger and the associated premium paid and net
deferred financing fees were expensed in 2002.
Berry 11% Senior Subordinated Notes (Predecessor)
On July 6, 1999, Berry completed an offering of $75.0 million aggregate
principal amount of 11% Berry Plastics Corporation Senior Subordinated Notes,
due 2007 (the "1999 Notes"). The net proceeds to Berry from the sale of the
1999 Notes, after expenses, were $72.0 million. The 1999 Notes were retired in
connection with the Merger and the associated premium for early retirement and
net deferred financing fees were expensed in 2002.
Retired Credit Facility (Predecessor)
The Company had a financing and security agreement (the "Retired Financing
Agreement") with a syndicate of lenders led by Bank of America for a senior
secured credit facility (the "Retired Credit Facility"). As of December 29,
2001, the Retired Credit Facility provided the Company with (i) an $80.0
million revolving line of credit, subject to a borrowing base formula, (ii) a
$2.2 million (using the December 29, 2001 exchange rate) revolving line of
credit denominated in British Sterling in the U.K., subject to a separate
borrowing base formula, (iii) a $52.6 million term loan facility, (iv) a $2.0
million (using the December 29, 2001 exchange rate) term loan facility
denominated in British Sterling in the U.K. and (v) a $3.2 million standby
letter of credit facility to support the Company's and its subsidiaries'
obligations under the Nevada Bonds. The Retired Credit Facility was
extinguished in connection with the Merger and the associated net deferred
financing fees were expensed in 2002.
Second Lien Senior Credit Facility (Predecessor)
On July 17, 2000, Berry obtained a second lien senior credit facility from
General Electric Capital Corporation for an aggregate principal amount of $25.0
million (the "Second Lien Senior Facility"), resulting in net proceeds of $24.3
million after fees and expenses. The Second Lien Credit Facility was
extinguished in connection with the Merger and the associated net deferred
financing fees were expensed in 2002.
Other
Future maturities of long-term debt at December 27, 2003 are as follows:
2004 $ 9,339
2005 9,552
2006 6,788
2007 6,946
2008 9,420
Thereafter 699,507
Interest paid was $40,040, $40,883, and $44,171, for 2003, 2002, and 2001,
respectively. Interest capitalized was $860, $844, and $589, for 2003, 2002,
and 2001, respectively.
NOTE 7. LEASE AND OTHER COMMITMENTS
Certain property and equipment are leased using capital and operating leases.
In 2003 and 2002, Berry entered into various capital lease obligations with no
immediate cash flow effect resulting in capitalized property and equipment of
$1,717 and $21,169, respectively. Total capitalized lease property consists
of manufacturing equipment and a building with a cost of $34,465 and $32,462
F-18
and related accumulated amortization of $9,791 and $4,247 at December 27, 2003
and December 28, 2002, respectively. Capital lease amortization is included in
depreciation expense. Total rental expense from operating leases was
approximately $11,216, $9,761, and $8,292 for 2003, 2002, and 2001,
respectively.
Future minimum lease payments for capital leases and noncancellable operating
leases with initial terms in excess of one year are as follows:
AT DECEMBER 27, 2003
---------------------------------
CAPITAL LEASES OPERATING LEASES
----------------------------------
2004 $ 6,184 $ 12,223
2005 6,629 10,906
2006 2,705 9,165
2007 2,657 6,972
2008 3,784 6,184
Thereafter 4,905 52,154
--------- ---------
26,864 $97,604
Less: amount representing interest (2,654) =========
---------
Present value of net minimum lease payments $ 24,210
=========
The Company is party to various legal proceedings involving routine claims
which are incidental to its business. Although the Company's legal and
financial liability with respect to such proceedings cannot be estimated with
certainty, the Company believes that any ultimate liability would not be
material to our financial condition.
NOTE 8. INCOME TAXES
For financial reporting purposes, income (loss) before income taxes, by tax
jurisdiction, is comprised of the following:
COMPANY PREDECESSOR
--------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
--------------------------- --------------------------
United States $ 29,556 $ 7,331 $(33,415) $ 5,046
Foreign (4,022) (1,199) (2,035) (6,407)
----------- ---------- ---------- ----------
$ 25,534 $ 6,132 $(35,450) $ (1,361)
=========== ========== ========== ==========
F-19
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of deferred tax assets and liabilities are as follows:
DECEMBER 27, 2003 DECEMBER 28, 2002
----------------- -----------------
Deferred tax assets:
Allowance for doubtful accounts $ 637 $ 583
Inventory 1,390 1,517
Compensation and benefit accruals 3,119 2,753
Insurance reserves 679 637
Net operating loss carryforwards 29,546 33,985
Alternative minimum tax (AMT) credit carryforwards 3,457 3,055
Other 1,601 875
--------- ---------
Total deferred tax assets 40,429 43,405
Valuation allowance (16,911) (28,687)
--------- ---------
Deferred tax assets, net of valuation allowance 23,518 14,718
Deferred tax liabilities:
Property and equipment 24,239 15,358
--------- ---------
Net deferred tax liability $ (721) $ (640)
========= =========
Income tax expense (benefit) consists of the following:
COMPANY PREDECESSOR
--------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
--------------------------- --------------------------
Current:
Federal $ 402 $ - $ - $ 154
Foreign 61 26 375 125
State 232 217 (30) 455
Deferred:
Federal 8,608 2,280 - -
Foreign - - - -
State 3,183 430 - -
-------- -------- -------- --------
Income tax expense $12,486 $2,953 $ 345 $ 734
======== ======== ======== ========
Holding has unused operating loss carryforwards of approximately $76.0 million
for federal and state income tax purposes which begin to expire in 2012. AMT
credit carryforwards are available to Holding indefinitely to reduce future
years' federal income taxes. As a result of the Merger, the amount of the
carryforward which can be used in any given year will be limited to
approximately $12.9 million.
Income taxes paid during 2003, 2002, and 2001 approximated $484, $531, and
$314, respectively.
F-20
A reconciliation of income tax expense (benefit), computed at the federal
statutory rate, to income tax expense (benefit), as provided for in the
financial statements, is as follows:
COMPANY PREDECESSOR
--------------------------- --------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 27, 7/22/02- 12/30/01- DECEMBER 29,
2003 12/28/02 7/21/02 2001
--------------------------- --------------------------
Income tax expense (benefit)
computed at statutory rate $ 8,721 $ 2,081 $ (12,170) $ (463)
State income tax expense
(benefit), net of federal
taxes 2,220 434 (1,035) 795
Amortization of goodwill - - - 2,399
Expenses not deductible for
income tax purposes 160 60 3,823 36
Change in valuation allowance 1,285 - 9,160 (2,978)
Other 100 378 567 945
--------- --------- --------- ---------
Income tax expense $ 12,486 $ 2,953 $ 345 $ 734
========= ========= ========= =========
NOTE 9. EMPLOYEE RETIREMENT PLANS
Berry sponsors a defined contribution 401(k) retirement plan covering
substantially all employees. Contributions are based upon a fixed dollar
amount for employees who participate and percentages of employee contributions
at specified thresholds. Contribution expense for this plan was approximately
$1,408, $1,462, and $1,349, for 2003, 2002, and 2001, respectively. The
Company also maintains a defined benefit pension plan covering the Poly-Seal
employees under a collective bargaining agreement. At December 27, 2003 and
December 28, 2002, stockholders' equity has been reduced by $550 and $394,
respectively, as a result of recording the minimum pension liability.
NOTE 10. STOCKHOLDERS' EQUITY
Common and Preferred Stock
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly formed
entity controlled by various private equity funds affiliated with Goldman,
Sachs & Co., merged (the "Merger") with and into BPC Holding, pursuant to an
agreement and plan of merger, dated as of May 25, 2002. At the effective time
of the Merger, (i) each share of common stock of BPC Holding Corporation issued
and outstanding immediately prior to the effective time of the Merger was
converted into the right to receive cash pursuant to the terms of the merger
agreement, and (ii) each share of common stock of the Buyer issued and
outstanding immediately prior to the effective time of the Merger was converted
into one share of common stock of BPC Holding.
Notes Receivable from Management
In connection with the Merger, certain senior employees of BPC Holding acquired
shares of BPC Holding Common Stock pursuant to an employee stock purchase
program. Such employees paid for these shares with any combination of (i)
shares of BPC Holding common stock that they held prior to the Merger; (ii)
their cash transaction bonus, if any; and (iii) a promissory note. In
addition, BPC Holding adopted an employee stock purchase program pursuant to
which a number of employees had the opportunity to invest in BPC Holding on a
leveraged basis. Employees participating in this program were permitted to
finance two-thirds of their purchases of shares of BPC Holding common stock
under the program with a promissory note. The promissory notes are secured by
the shares purchased and such notes accrue interest which compounds semi-
annually at rates ranging from 4.97% to 5.50% per year. Principal and all
accrued interest is due and payable on the earlier to occur of (i) the end of
the ten-year term, (ii) the ninetieth day following such employee's termination
of employment due to death, "disability", "redundancy" (as such terms are
defined in the 2002 Option Plan) or retirement, or (iii) the thirtieth day
following such employee's termination of employment for any other reason. As
of December 27, 2003 and December 28, 2002, the Company had $14,157 and
$14,399, respectively, in outstanding notes receivable (principal and
interest), which has been classified as a reduction to stockholders' equity in
the consolidated balance sheet, due from employees under this program.
F-21
Stock Option Plans
BPC Holding maintains the Amended and Restated BPC Holding Corporation 1996
Stock Option Plan (``1996 Option Plan'') pursuant to which nonqualified options
to purchase 137,980 shares are outstanding. All outstanding options under the
1996 Option Plan are scheduled to expire on July 22, 2012 and no additional
options will be granted under it. Option agreements issued pursuant to the 1996
Option Plan generally provide that options become vested and exercisable at a
rate of 10% per year based on continued service. Additional options also vest
in years during which certain financial targets are attained. Notwithstanding
the vesting provisions in the option agreements, all options that were
scheduled to vest prior to December 31, 2002 accelerated and became vested
immediately prior to the Merger.
BPC Holding has adopted a new employee stock option plan (``2002 Option Plan'')
pursuant to which options to acquire up to 437,566 shares of BPC Holding's
common stock may be granted to its employees, directors and consultants.
Options granted under the 2002 Option Plan will have an exercise price per
share that either (1) is fixed at the fair market value of a share of common
stock on the date of grant or (2) commences at the fair market value of a share
of common stock on the date of grant and increases at the rate of 15% per year
during the term. Generally, options will have a ten-year term, subject to
earlier expiration upon the termination of the optionholder's employment and
other events. Some options granted under the plan will become vested and
exercisable over a five-year period based on continued service with BPC
Holding. Other options will become vested and exercisable based on the
achievement by BPC Holding of certain financial targets, or if such targets are
not achieved, based on continued service with BPC Holding. Upon a change in
control of BPC Holding, the vesting schedule with respect to certain options
may accelerate for a portion of the shares subject to such options.
Financial Accounting Standards Board Statement 123, Accounting for Stock-Based
Compensation ("Statement 123"), prescribes accounting and reporting standards
for all stock-based compensation plans. Statement 123 provides that companies
may elect to continue using existing accounting requirements for stock-based
awards or may adopt a new fair value method to determine their intrinsic value.
Holding has elected to continue following Accounting Principles Board Opinion
No. 25, Accounting For Stock Issued to Employees ("APB 25") to account for its
employee stock options. Under APB 25, because the exercise price of Holding's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized at the grant date.
Information related to the 1996 Option Plan and 2002 Option Plan is as follows:
COMPANY COMPANY PREDECESSOR PREDECESSOR
------- ------- ----------- -----------
DECEMBER 27, 2003 DECEMBER 28, 2002 JULY 21, 2002 DECEMBER 29,2001
----------------- ----------------- --------------- ----------------
Weighted Weighted Weighted Weighted
Number Average Number Average Number Average Number Average
Of Exercise Of Exercise Of Exercise Of Exercise
Shares Price Shares Price Shares Price Shares Price
----------------- ----------------- ----------------- ----------------
Options outstanding, beginning of period 545,684 $ 86 48,218 $ 157 60,420 $ 132 60,774 $ 132
Options converted - - 102,329 (107) - - - -
Options granted 38,713 100 395,137 100 15,345 277 10,975 226
Options exercised (9,757) 57 - - (18,134) 177 (2,713) 107
Options canceled (43,978) 101 - - (9,413) 389 (8,616) 116
Options outstanding, end of period 530,662 94 545,684 86 48,218 157 60,420 155
======== ======== ======= =======
Option price range at end of period $32 - $124 $32 - $100 $100 - $226 $100 - $226
Options exercisable at end of period 203,326 120,448 38,573 39,487
Options available for grant at period end 22,588 42,429 0 13,487
Weighted average fair value of options
granted during period $28 $30 $30 $34
F-22
The following table summarizes information about the options outstanding at
December 27, 2003:
Weighted
Range of Weighted Average Average Number
Exercise Number Outstanding Remaining Contractual Exercise Exercisable at
Prices At December 27, 2003 Life Price December 27, 2003
----------------------------------------------------------------------------
$32 - $72 137,980 9 years $49 116,582
$100 227,450 9 years $100 37,174
$124 165,232 9 years $124 49,570
------- -------
530,662 203,326
Stockholders Agreements
In connection with the Merger, Holding entered into a stockholders' agreement
with GSCP 2000 and other private equity funds affiliated with Goldman, Sachs &
Co., which in the aggregate own a majority of the common stock, and J.P. Morgan
Partners Global Investors, L.P. and other private equity funds affiliated with
J.P. Morgan Securities Inc., which own approximately 28% of the common stock.
GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co.,
have the right to designate five members of the board of directors, one of
which shall be a member of management, and J.P. Morgan Partners Global
Investors, L.P. and other private equity funds affiliated with J.P. Morgan
Securities Inc. have the right to designate two members of the board of
directors, one of which will be designated by J.P. Morgan Partners Global
Investors, L.P. The stockholders' agreement contains customary terms including
terms regarding transfer restrictions, rights of first offer, tag along rights,
drag along rights, preemptive rights and veto rights.
NOTE 11. RELATED PARTY TRANSACTIONS
Prior to the Merger, Atlantic Equity Partners International II, L.P.
("International") was our largest voting stockholder and International engaged
First Atlantic Capital, Ltd. ("First Atlantic") to provide certain financial
and management consulting services to the Company. Pursuant to a management
agreement, First Atlantic received advisory fees of approximately $250, and
$139 in June 2001 and March 2001, respectively, for originating, structuring
and negotiating the acquisitions of Pescor and Capsol, respectively. In
consideration of financial advisory and management consulting services, the
Company paid First Atlantic fees and expenses of $385 and $756 for fiscal 2002
and 2001, respectively. In consideration of services performed in connection
with the Merger, the Company paid First Atlantic fees and expenses of $1,786 in
July 2002.
In connection with the Merger, the Company paid $8.0 million to entities
affiliated with Goldman, Sachs & Co. and $5.2 million to J.P. Morgan Securities
Inc., an affiliate of J.P. Morgan Chase & Co., for advisory and other services.
Goldman Sachs and J.P. Morgan acted as joint book-running managers in the
issuance of the 2002 Notes and received fees of approximately $4.4 million and
$3.2 million, respectively, for services performed. Goldman Sachs Credit
Partners, L.P., an affiliate of Goldman Sachs, acted as the administrative
agent, joint lead arranger and joint bookrunner for the Credit Facility and
received fees of $3.6 million in July 2002 for services provided. JP Morgan
Chase Bank, an affiliate of J.P. Morgan, acted as the joint lead arranger and
joint bookrunner for the Credit Facility for consideration of approximately
$3.6. million. In October 2002, the Company entered into an interest rate
collar agreement with Goldman Sachs Capital Markets to protect $50.0 million of
the outstanding variable rate term loan debt from future interest rate
volatility. The collar floor is set at 1.97% LIBOR and capped at 6.75% LIBOR.
In connection with the Landis Acquisition, the Company paid $1.7 million to
entities affiliated with Goldman, Sachs & Co. and $0.8 million to J.P. Morgan
Securities Inc., an affiliate of J.P. Morgan Chase & Co., for advisory and
other services. Goldman Sachs and J.P. Morgan acted as joint book-running
managers in the issuance of the Add-on Notes and received fees of approximately
$1.0 million and $1.0 million, respectively, for services performed. Goldman
Sachs Credit Partners, L.P., an affiliate of Goldman Sachs, acted as the
administrative agent, joint lead arranger and joint bookrunner for the Amended
and Restated Credit Facility and received fees of $0.5 million in July 2002 for
services provided. JP Morgan Chase Bank, an affiliate of J.P. Morgan, acted as
the joint lead arranger and joint bookrunner for the Amended and Restated
Credit Facility for consideration of approximately $0.5 million.
F-23
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS INFORMATION
Holding's and the Company's financial instruments generally consist of cash and
cash equivalents and long-term debt. The carrying amounts of Holding's and the
Company's financial instruments approximate fair value at December 27, 2003,
except for the 2002 Notes and Add-on Notes for which the fair value exceeded
the carrying value by $39.4 million.
NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated balances related to each component of the other comprehensive
income (loss) consist of the following:
DECEMBER 27, 2003 DECEMBER 28, 2002
----------------- -----------------
Currency translation $5,736 $2,091
Minimum pension liability adjustment (550) (394)
Unrealized loss on interest rate collar (487) (555)
----------------- -----------------
$4,699 $1,142
================= =================
F-24
NOTE 14. OPERATING SEGMENTS
The Company has three reportable segments: containers, closures, and consumer
products. The Company evaluates performance and allocates resources based on
operating income before depreciation and amortization of intangibles adjusted
to exclude (1) Merger expenses, (2) uncompleted acquisition expense, (3)
acquisition integration expense, (4) plant shutdown expense, (5) non-cash
compensation, and (6) management fees and reimbursed expenses paid to First
Atlantic ("Adjusted EBITDA"). The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
YEAR ENDED
---------------------------------------------------------
COMPANY/
COMPANY PREDECESSOR PREDECESSOR
DECEMBER 27, DECEMBER 28, DECEMBER 29,
2003 2002 2001
---------------------------------------------------------
Net sales:
Containers $ 288,481 $ 250,423 $ 234,441
Closures 147,297 133,892 132,384
Consumer Products 116,098 109,988 94,834
Adjusted EBITDA:
Containers 71,027 67,079 63,997
Closures 30,228 30,555 28,444
Consumer Products 17,582 16,773 18,411
Total assets:
Containers 605,879 359,635 204,001
Closures 237,848 229,962 158,009
Consumer Products 172,079 170,979 84,866
Goodwill, net:
Containers 212,394 170,892 61,048
Closures 85,756 87,066 39,682
Consumer Products 78,619 78,302 19,193
Reconciliation of Adjusted EBITDA to income
(loss) before income taxes:
Adjusted EBITDA for reportable segments $ 118,837 $ 114,407 $ 110,718
Net interest expense (45,413) (49,254) (54,355)
Depreciation (40,752) (39,557) (38,105)
Amortization (3,326) (2,408) (12,802)
Gain (loss) on disposal of property
and equipment 7 (299) (473)
Merger expenses - (20,987) -
Loss on extinguished debt (250) (25,328) (134)
Uncompleted acquisition expense (1,041) (216) -
Acquisition integration expense (1,424) (1,353) (2,690)
Plant shutdown expense (1,104) (3,992) (2,221)
Non-cash compensation - - (796)
Management fees - (331) (637)
------------ ------------ -----------
Income (loss) before income taxes $25,534 $(29,318) $(1,361)
============ ============ ===========
F-25
NOTE 15. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (IN THOUSANDS)
Holding conducts its business through its wholly owned subsidiary, Berry.
Holding and all of Berry's domestic subsidiaries fully, jointly, severally, and
unconditionally guarantee on a senior subordinated basis the 2002 Notes and
Add-on Notes issued by Berry. Berry and all of Berry's subsidiaries are 100%
owned by Holding. Separate narrative information or financial statements of
guarantor subsidiaries have not been included as management believes they would
not be material to investors. Presented below is condensed consolidating
financial information for Holding, Berry, and its subsidiaries at December 27,
2003 and December 28, 2002 and for the fiscal years ended December 27, 2003,
December 28, 2002, and December 29, 2001. The equity method has been used with
respect to investments in subsidiaries.
DECEMBER 27, 2003
----------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
--------------- -------------- ------------ -------------- ------------- ---------------
CONSOLIDATING BALANCE SHEETS
Current assets $ - $67,631 $ 121,605 $ 13,844 $ - $203,080
Net property and equipment - 70,873 191,960 20,144 - 282,977
Other noncurrent assets 152,591 855,627 370,199 12,075 (860,743) 529,749
-------- -------- --------- --------- --------- ---------
Total assets $152,591 $994,131 $683,764 $46,063 $(860,743) $1,015,806
======== ======== ========= ========= ========= =========
Current liabilities $ - $ 53,245 $ 53,408 $ 8,856 $ - $ 115,509
Noncurrent liabilities - 788,295 674,851 28,790 (744,230) 747,706
Equity (deficit) 152,591 152,591 (44,495) 8,417 (116,513) 152,591
-------- -------- --------- --------- --------- ---------
Total liabilities and
equity (deficit) $152,591 $994,131 $ 683,764 $ 46,063 $(860,743) $1,015,806
======== ======== ========= ========= ========= =========
DECEMBER 28, 2002
----------------------------------------------------------------------------------------
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
======== ======== ========= ========= ========= =========
F-26
YEAR ENDED DECEMBER 27, 2003 (COMPANY)
----------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
--------------- -------------- ------------ -------------- ------------- ---------------
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales $ - $200,886 $328,984 $22,006 $ - $551,876
Cost of goods sold - 140,139 259,720 20,891 - 420,750
-------- -------- --------- --------- --------- ---------
Gross profit - 60,747 69,264 1,115 - 131,126
Operating expenses (25,840) 34,536 47,545 3,695 - 59,936
-------- -------- --------- --------- --------- ---------
Operating income (loss) 25,840 26,211 21,719 (2,580) - 71,190
Other expenses (income) - - (7) - - (7)
Interest expense (income), net (763) (592) 45,326 1,442 - 45,413
Loss on extinguished debt - 250 - - - 250
Income taxes (benefit) 27 12,388 10 61 - 12,486
Equity in net (income) loss
from subsidiary 13,528 27,693 4,083 - (45,304) -
-------- -------- --------- --------- --------- ---------
Net income (loss) $13,048 $ (13,528) $(27,693) $(4,083) $45,304 $ 13,048
======== ======== ========= ========= ========= =========
CONSOLIDATING STATEMENTS OF CASH FLOWS
Net income (loss) $ 13,048 $(13,528) $ (27,693) $ (4,083) $ 45,304 $ 13,048
Non-cash expenses - 26,817 28,136 3,227 - 58,180
Equity in net (income) loss
from subsidiary 13,528 27,693 4,083 - (45,304) -
Changes in working capital (758) 1,159 7,463 681 - 8,545
-------- -------- --------- --------- --------- ---------
Net cash provided by (used for)
operating activities 25,818 42,141 11,989 (175) - 79,773
Net cash used for
investing activities - (244,511) (16,474) (4,667) - (265,652)
Net cash provided by
financing activities (25,819) 211,499 5,891 5,250 - 196,821
Effect of exchange rate
changes on cash - - - (363) - (363)
-------- -------- --------- --------- --------- ---------
Net increase (decrease) in
cash and cash equivalents (1) 9,129 1,406 45 - 10,579
Cash and cash equivalents
at beginning of year 1 15,157 264 191 - 15,613
-------- -------- --------- --------- --------- ---------
Cash and cash equivalents
at end of year $ - $ 24,286 $ 1,670 $ 236 $ - $ 26,192
======== ======== ========= ========= ========= =========
YEAR ENDED DECEMBER 28, 2002 (COMPANY/PREDECESSOR)
----------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
--------------- -------------- ------------ -------------- ------------- ---------------
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales $ - $173,570 $300,149 $20,584 $ - $494,303
Cost of goods sold - 116,354 236,169 18,750 - 371,273
-------- -------- --------- --------- --------- ---------
Gross profit - 57,216 63,980 1,834 - 123,030
Operating expenses 1,920 27,857 44,894 2,796 - 77,467
-------- -------- --------- --------- --------- ---------
Operating income (loss) (1,920) 29,359 19,086 (962) - 45,563
Other expenses - 145 249 (95) - 299
Interest expense, net 9,443 3,172 34,481 2,158 - 49,254
Loss on extinguished debt 9,282 6,339 9,498 209 - 25,328
Income taxes (benefit) (8,234) 11,016 115 401 - 3,298
Equity in net (income)
loss from subsidiary 20,205 28,892 3,635 - (52,732) -
-------- -------- --------- --------- --------- ---------
Net income (loss) $(32,616) $ (20,205) $(28,892) $(3,635) $52,732 $(32,616)
======== ======== ========= ========= ========= =========
CONSOLIDATING STATEMENTS OF CASH FLOWS
Net income (loss) $ (32,616) $(20,205) $ (28,892) $ (3,635) $ 52,732 $(32,616)
Non-cash expenses 11,451 23,799 36,178 3,270 - 74,698
Equity in net (income)
loss from subsidiary 20,205 28,892 3,635 - (52,732) -
Changes in working capital (320) (6,290) (7,557) (1,275) - (15,442)
-------- -------- --------- --------- --------- ---------
Net cash provided by (used for)
operating activities (1,280) 26,196 3,364 (1,640) - 26,640
Net cash used for
investing activities - (18,023) (25,704) (1,171) - (44,898)
Net cash provided by (used for)
financing activities 841 6,863 22,194 2,483 - 32,381
Effect of exchange rate
changes on cash - - - 258 - 258
-------- -------- --------- --------- --------- ---------
Net increase (decrease) in
cash and cash equivalents (439) 15,036 (146) (70) - 14,381
Cash and cash equivalents
at beginning of year 440 121 410 261 - 1,232
-------- -------- --------- --------- --------- ---------
Cash and cash equivalents
at end of year $ 1 $ 15,157 $ 264 $ 191 $ - $ 15,613
======== ======== ========= ========= ========= =========
F-27
YEAR ENDED DECEMBER 29, 2001 (PREDECESSOR)
----------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
--------------- -------------- ------------ -------------- ------------- ---------------
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales $ - $159,783 $279,533 $22,343 $ - $461,659
Cost of goods sold - 103,867 213,355 20,778 - 338,000
-------- -------- --------- --------- --------- ---------
Gross profit - 55,916 66,178 1,565 - 123,659
Operating expenses 924 23,113 40,889 5,266 - 70,192
-------- -------- --------- --------- --------- ---------
Operating income (loss) (924) 32,803 25,289 (3,701) - 53,467
Other expenses - 46 481 (54) - 473
Interest expense, net 17,469 7,277 26,848 2,761 - 54,355
Income taxes (benefit) (8,307) 8,682 234 125 - 734
Equity in net (income)
loss from subsidiary (7,991) 8,807 6,533 - (7,349) -
-------- -------- --------- --------- --------- ---------
Net income (loss) $(2,095) $ 7,991 $(8,807) $(6,533) $7,349 $(2,095)
======== ======== ========= ========= ========= =========
CONSOLIDATING STATEMENTS OF CASH FLOWS
Net income (loss) $ (2,095) $7,991 $ (8,807) $ (6,533) $7,349 $(2,095)
Non-cash expenses 9,775 16,146 33,072 4,451 - 63,444
Equity in net (income)
loss from subsidiary (7,991) 8,807 6,533 - (7,349) -
Changes in working capital 154 5,882 (11,258) (1,779) - (7,001)
-------- -------- --------- --------- --------- ---------
Net cash provided by (used for)
operating activities (157) 38,826 19,540 (3,861) - 54,348
Net cash used for
investing activities - (30,688) (22,395) (3,207) - (56,290)
Net cash provided by (used for)
financing activities 377 (9,199) 3,014 6,388 - 580
Effect of exchange rate
changes on cash - 540 (540) 540 - 540
-------- -------- --------- --------- --------- ---------
Net increase (decrease) in
cash and cash equivalents 220 (521) (381) (140) - (822)
Cash and cash equivalents
at beginning of year 220 642 791 401 - 2,054
-------- -------- --------- --------- --------- ---------
Cash and cash equivalents
at end of year $ 440 $ 121 $ 410 $ 261 $ - $ 1,232
======== ======== ========= ========= ========= =========
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table contains selected unaudited quarterly financial data for
fiscal years 2003 and 2002.
2003 2002
------------------------------- --------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD* FOURTH
Net sales $125,398 $146,851 $139,306 $140,321 $122,934 $127,989 $127,575 $115,805
Cost of sales 94,321 112,055 106,845 107,529 90,299 94,974 97,492 88,508
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit $31,077 $34,796 $32,461 $32,792 $32,635 $33,015 $30,083 $27,297
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) $3,079 $4,542 $4,218 $1,209 $4,766 $5,216 $(42,071) $(527)
======== ======== ======== ======== ======== ======== ======== ========
* For comparison purposes, the period from June 30, 2002 to July 21,
2002 (Predecessor) has been combined with the period from July 22,
2002 to September 28, 2002 (Company). Net loss in the third
quarter of 2002 includes merger expenses of $20,987 and loss on
extinguished debt of $25,328 incurred in connection with the
Merger.
F-28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 18th day of
March, 2004.
BPC HOLDING CORPORATION
By ___/s/Ira G. Boots__________
Ira G. Boots
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Joseph H. Gleberman Chairman of the Board of Directors March 18, 2004
________________________
Joseph H. Gleberman
/s/ Ira G. Boots President, Chief Executive Officer
________________________ and Director (Principal Executive Officer)
Ira G. Boots March 18, 2004
/s/ James M.Kratochvil Executive Vice President, Chief Financial Officer,
________________________ Treasurer and Secretary (Principal Financial
James M. Kratochvil and Accounting Officer)
March 18, 2004
/s/ Gregory J. Landis Director
________________________
Gregory J. Landis March 18, 2004
/s/ Christopher C. Behrens Director
________________________
Christopher C. Behrens March 18, 2004
/s/ Patrick J. Dalton Director
________________________
Patrick J. Dalton March 18, 2004
/s/ Douglas F. Londal Director
________________________
Douglas F. Londal March 18, 2004
/s/ Mathew J. Lori Director
________________________
Mathew J. Lori March 18, 2004
S-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 18th day of
March, 2004.
BERRY PLASTICS CORPORATION
By ___/s/ Ira G. Boots________
Ira G. Boots
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Joseph H. Gleberman Chairman of the Board of Directors March 18, 2004
________________________
Joseph H. Gleberman
/s/ Ira G. Boots President, Chief Executive Officer
________________________ and Director (Principal Executive Officer)
Ira G. Boots March 18, 2004
/s/ James M.Kratochvil Executive Vice President, Chief Financial Officer,
________________________ Treasurer and Secretary (Principal Financial
James M. Kratochvil and Accounting Officer)
March 18, 2004
/s/ Gregory J. Landis President-Container Division and
_______________________ Director
Gregory J. Landis March 18, 2004
/s/ Christopher C. Behrens Director
________________________
Christopher C. Behrens March 18, 2004
/s/ Patrick J. Dalton Director
________________________
Patrick J. Dalton March 18, 2004
/s/ Douglas F. Londal Director
________________________
Douglas F. Londal March 18, 2004
/s/ Mathew J. Lori Director
________________________
Mathew J. Lori March 18, 2004
S-2
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANT
WHICH HAS NOT REGISTERED SECURITIES PURSUANT TO SECTION 12
OF THE ACT
The Registrants have not sent any annual report or proxy material to
securityholders.
S-3
INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
2.1 Agreement and Plan of Merger, dated as of May 25, 2002, among GS Berry
Acquisition Corp., GS Capital Partners 2000, L.P., GS Capital Partners
2000 Offshore, L.P., GS Capital Partners 2000 GmbH & Co. Beteiligungs KG,
Bridge Street Special Opportunities Fund 2000, L.P., GS Capital Partners
2000 Employee Fund, L.P., Stone Street Fund 2000, Holding, the Company,
the Stockholders listed on Schedule 1 attached thereto, Atlantic Equity
Partners International II, L.P., J.P. Morgan Partners (SBIC), LLC, BPC
Equity, LLC and Ira G. Boots (filed as Exhibit 2.1 to the Current Report
on Form 8-K filed on July 31, 2002 (the "Form 8-K") and incorporated
herein by reference)
2.2 First Amendment dated as of July 17, 2002 among GS Berry Acquisition
Corp., GS Capital Partners 2000, L.P., GS Capital Partners 2000 Offshore,
L.P., GS Capital Partners 2000 GmbH & Co. Beteiligungs KG, Bridge Street
Special Opportunities Fund 2000, L.P., GS Capital Partners 2000 Employee
Fund, L.P., Stone Street Fund 2000, Holding, the Company, the Stockholders
listed on Schedule 1 attached thereto, Atlantic Equity Partners
International II, L.P., J.P. Morgan Partners (SBIC), LLC, BPC Equity, LLC
and Ira G. Boots to the Agreement and Plan of Merger, dated as of May 25,
2002 (filed as Exhibit 2.2 to the Form 8-K and incorporated herein by
reference)
2.3 Second Amendment dated as of July 22, 2002 among GS Berry Acquisition
Corp., GS Capital Partners 2000, L.P., GS Capital Partners 2000 Offshore,
L.P., GS Capital Partners 2000 GmbH & Co. Beteiligungs KG, Bridge Street
Special Opportunities Fund 2000, L.P., GS Capital Partners 2000 Employee
Fund, L.P., Stone Street Fund 2000, Holding, the Company, the Stockholders
listed on Schedule 1 attached thereto, Atlantic Equity Partners
International II, L.P., J.P. Morgan Partners (SBIC), LLC, BPC Equity, LLC
and Ira G. Boots to the Agreement and Plan of Merger, dated as of May 25,
2002 (filed as Exhibit 2.3 to the Form 8-K and incorporated herein by
reference)
2.4 The Agreement and Plan of Merger dated as of October 15, 2003, by and
among the Company, Berry Plastics Acquisition Corporation IV, Landis, all
the shareholders of Landis, the Real Estate Sellers (as defined therein)
and Gregory J. Landis, as the Shareholder Representative (as defined
therein) (filed as Exhibit 2.1 to the Current Report on Form 8-K filed on
December 5, 2003 (the "Landis Form 8-K") and incorporated herein by
reference)
3.1Certificate of Incorporation of the Company (filed as Exhibit 3.3 to the
Registration Statement on Form S-1 filed on February 24, 1994 (the "Form S-
1") and incorporated herein by reference)
3.2Bylaws of the Company (filed as Exhibit 3.4 to the Form S-1 and incorporated
herein by reference)
3.3Amended and Restated Certificate of Incorporation of BPC Holding Corporation
("Holding") (filed as Exhibit 4.1 to the Form S-8 filed on August 6, 2002
(the "Form S-8") and incorporated herein by reference)
3.4Amended and Restated Bylaws of Holding (filed as Exhibit 4.2 to the Form S-8
and incorporated herein by reference)
4.1The Indenture, dated as of July 22, 2002, among Holding, the Company, the
other guarantors listed on the signature page thereof, and U.S. Bank Trust
National Association, as trustee relating to the 10 3/4% Senior Subordinated
Notes due 2012 (filed as Exhibit 4.1 to the Form-S-4 filed on August 16,
2002 "2002 Form S-4" and incorporated herein by reference)
4.2The Registration Rights Agreement, dated November 20, 2003, among the
Company, BPC Holding, the other guarantors listed on the signature page
thereof, and J.P. Morgan Securities Inc., Goldman Sachs & Co., as Initial
Purchasers relating to the 10 3/4% Senior Subordinated Notes due 2012 (filed
as Exhibit 4.2 to the Form S-4 filed on January 9 2004 "2004 Form S-4" an
incorporated herein by reference)
4.3Supplemental Indenture, dated as of August 6, 2002, among the Company,
Holding, Berry Iowa Corporation, Packerware Corporation, Knight Plastics,
Inc., Berry Sterling Corporation, Berry Plastic Design Corporation, Poly-
Seal Corporation, Berry Plastics Acquisitions Corporation III, Venture
Packaging, Inc., Venture Packaging Midwest, Inc., Berry Plastics Technical
Services, Inc., CPI Holding Corporation, Aerocon, Inc., Pescor, Inc., Berry
Tri-Plas Corporation and Cardinal Packaging, Inc., the new guarantors listed
on the signature page thereof, and U.S. Bank Trust National Association, as
trustee (filed as Exhibit 4.3 to the 2002 Form-S-4 and incorporated herein
by reference)
4.4Second Supplemental Indenture, dated as of November 20, 2003, among Landis
Plastics, Inc., the Company, BPC Holding Corporation, Berry Iowa
Corporation, Packerware Corporation, Knight Plastics, Inc., Berry Sterling
Corporation, Berry Plastic Design Corporation, Poly-Seal Corporation, Berry
Plastics Acquisitions Corporation III, Venture Packaging, Inc., Venture
Packaging Midwest, Inc., Berry Plastics Technical Services, Inc., CPI
Holding Corporation, Aerocon, Inc., Pescor, Inc., Berry Tri-Plas
Corporation, Cardinal Packaging, Inc., Berry Plastics Acquisition
Corporation IV, Berry Plastics Acquisition Corporation V, Berry Plastics
Acquisition Corporation VI, Berry Plastics Acquisition Corporation VII,
Berry Plastics Acquisition Corporation VIII, Berry Plastics Acquisition
Corporation IX, Berry Plastics Acquisition Corporation X, Berry Plastics
Acquisition Corporation XI, Berry Plastics Acquisition Corporation XII,
Berry Plastics Acquisition Corporation XIII, Berry Plastics Acquisition
Corporation XIV, LLC, Berry Plastics Acquisition Corporation XV, LLC, and
U.S. Bank Trust National Association, as trustee (filed as Exhibit 4.4 to
the 2004 Form-S-4 and incorporated herein by reference)
10.1 Stockholders Agreement dated as of July 22, 2002, among Holding, GS
Capital Partners 2000, L.P., GS Capital Partners Offshore, L.P., GS
Capital Partners 2000 GmbH & Co. Beteiligungs KG, GS Capital Partners 2000
Employee Fund, L.P., Stone Street Fund 2000, L.P., Bridge Street Special
Opportunities Fund 2000, L.P., Goldman Sachs Direct Investment Fund 2000,
L.P., J.P. Morgan Partners (BHCA), L.P., J.P. Morgan Partners Global
Investors, L.P., J.P. Morgan Partners Global Investors (Cayman), L.P.,
J.P. Morgan Partners Global Investors (Cayman) II, L.P. and J.P. Morgan
Partners Global Investors A, L.P. (filed as Exhibit 10.1 to the 2002 Form-
S-4 and incorporated herein by reference)
10.2 Stockholders Agreement dated as of July 22, 2002, among Holding, and those
stockholders listed on Schedule A attached thereto (filed as Exhibit 4.6
to the Form S-8 and incorporated herein by reference)
10.3 Amended and Restated Credit and Guaranty Agreement, dated as of November
10, 2003, by and among the Company, Holding, certain subsidiaries of the
Company, the lenders named therein (the "Lenders"), Goldman Sachs Credit
Partners L.P., as Administrative Agent (the "Administrative Agent"),
JPMorgan Chase Bank, as Syndication Agent (the "Syndication Agent"), Fleet
National Bank, as Collateral Agent, Issuing Bank and Swing Line Lender
(the "Collateral Agent") and The Royal Bank of Scotland and General
Electric Capital Corporation, as Co-Documentation Agents (the
"Co-Documentation Agents") (filed as Exhibit 10.3 to the 2004 Form-S-4 and
incorporated herein by reference)
10.4 Counterpart Agreement dated as of November 20, 2003, by and among the
Company, Holding, certain subsidiaries of the Company (including Landis),
the Lenders, the Administrative Agent, the Syndication Agent, the
Collateral Agent and the Co-Documentation Agents (filed as Exhibit 10.4 to
the 2004 Form-S-4 and incorporated herein by reference)
10.5 Pledge Supplement, dated as of November 20, 2003, among the Company, the
other Grantors named therein, and Fleet National Bank, as the Collateral
Agent. (filed as Exhibit 10.5 to the 2004 Form-S-4 and incorporated herein
by reference)
10.6 Employment Agreement dated December 24, 1990, as amended, between the
Company and R. Brent Beeler ("Beeler") (filed as Exhibit 10.10 to the Form
S-1 and incorporated herein by reference)
10.7 Amendment to Beeler Employment Agreement dated November 30, 1995 (filed as
Exhibit 10.8 to the Annual report on Form 10-K filed on March 28, 1996
(the "1995 Form 10-K") and incorporated herein by reference)
10.8 Amendment to Beeler Employment Agreement dated June 30, 1996 (filed as
Exhibit 10.7 to the Registration Statement on Form S-4 filed on July 17,
1996 (the "1996 Form S-4") and incorporated herein by reference)
10.9 Amendment to Beeler Employment Agreement dated as of June 30, 2001 (filed
as Exhibit 10.19 to the 2002 Form S-4 and incorporated herein by
reference)
10.10Employment Agreement dated December 24, 1990 as amended, between the
Company and James M. Kratochvil ("Kratochvil") (filed as Exhibit 10.12 to
the Form S-1 and incorporated herein by reference)
10.11Amendment to Kratochvil Employment Agreement dated November 30, 1995
(filed as Exhibit 10.12 to the 1995 Form 10-K and incorporated herein by
reference)
10.12Amendment to Kratochvil Employment Agreement dated June 30, 1996 (filed as
Exhibit 10.13 to the 1996 Form S-4 and incorporated herein by reference)
10.13Amendment to Kratochvil Employment Agreement dated June 30, 2001 (filed as
Exhibit 10.21 to the 2002 Form S-4 and incorporated herein by reference)
10.14Employment Agreement dated as of January 1, 1993, between the Company and
Ira G. Boots ("Boots") (filed as Exhibit 10.13 to the Form S-1 and
incorporated herein by reference)
10.15Amendment to Boots Employment Agreement dated November 30, 1995 (filed as
Exhibit 10.14 to the 1995 Form 10-K and incorporated herein by reference)
10.16Amendment to Boots Employment Agreement dated June 30, 1996 (filed as
Exhibit 10.16 to the 1996 Form S-4 and incorporated herein by reference)
10.17Amendment to Boots Employment Agreement dated June 30, 2001 (filed as
Exhibit 10.20 to the 2002 Form S-4 and incorporated herein by reference)
10.18Financing Agreement dated as of April 1, 1991, between the City of
Henderson, Nevada Public Improvement Trust and the Company (including
exhibits) (filed as Exhibit 10.17 to the Form S-1 and incorporated herein
by reference)
10.19Employment Agreement dated as of August 14, 2000, between the Company and
William J. Herdrich (filed as Exhibit 10.15 to the 2002 Form-S-4 and
incorporated herein by reference)
10.20Holding 2002 Stock Option Plan dated August 5, 2002 (filed as Exhibit 4.7
to the Form S-8 and incorporated herein by reference)
10.21Holding Key Employee Equity Investment Program dated August 5, 2002 (filed
as Exhibit 4.6 to the Form S-8 and incorporated herein by reference)
12.1* Ratio of earnings to fixed charges
21.1* List of subsidiaries
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
* Filed herewith.