FILED PURSUANT TO RULE 424(B)(3)
File Number 333-115086
AMENDMENT NO. 1
TO
BERRY PLASTICS CORPORATION
SUPPLEMENT NO. 1 TO MARKET-MAKING PROSPECTUS DATED
MAY 7, 2004
THE DATE OF THIS SUPPLEMENT IS MAY 10, 2004
ON MAY 10, 2004, BPC HOLDING CORPORATION FILED THE ATTACHED
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 27, 2004
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________________to__________________
Commission File Number 33-75706
BPC HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 35-1814673
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
BERRY PLASTICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 35-1813706
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
101 Oakley Street 47710
Evansville, Indiana
(Address of principal executive offices) (Zip code)
Registrants' telephone number, including area code: (812) 424-2904
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X]Yes [ ]No
Indicate by check mark whether the registrants are accelerated filers (as
defined by Rule 12b-2 of Securities Exchange Act of 1934). Yes [ ] No
[X]
Indicate the number of shares outstanding of each of issuers' classes of
common stock, as of the latest practicable date:
As of April 30, 2004, there were outstanding 3,377,172 shares of the Common
Stock, $.01 par value, of BPC Holding Corporation. As of April 30, 2004,
there were outstanding 100 shares of the Common Stock, $.01 par value, of
Berry Plastics Corporation.
1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements," within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with respect to our
financial condition, results of operations and business and our expectations
or beliefs concerning future events. Such statements include, in
particular, statements about our plans, strategies and prospects under the
heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations". You can identify certain forward-looking statements
by our use of forward-looking terminology such as, but not limited to,
"believes," "expects," "anticipates," "estimates," "intends," "plans,"
"targets," "likely," "will," "would," "could" and similar expressions that
identify forward-looking statements. All forward-looking statements involve
risks and uncertainties. Many risks and uncertainties are inherent in our
industry and markets. Others are more specific to our operations. The
occurrence of the events described and the achievement of the expected
results depend on many events, some or all of which are not predictable or
within our control. Actual results may differ materially from the forward-
looking statements contained in this Form 10-Q. Factors that could cause
actual results to differ materially from those expressed or implied by the
forward-looking statements include:
1. changes in prices and availability of resin and other raw materials
and our ability to pass on changes in raw material prices;
2. catastrophic loss of our key manufacturing facility;
3. risks related to our acquisition strategy and integration of acquired
businesses;
4. risks associated with our substantial indebtedness and debt service;
5. performance of our business and future operating results;
6. risks of competition in our existing and future markets;
7. general business and economic conditions, particularly an economic
downturn;
8. increases in the cost of compliance with laws and regulations,
including environmental laws and regulations; and
9. the factors discussed in our Form 10-K for the fiscal year ended
December 27, 2003 IN THE SECTION TITLED "RISK FACTORS."
READERS SHOULD CAREFULLY REVIEW THE FACTORS DISCUSSED IN OUR FORM 10-
K FOR THE FISCAL YEAR ENDED DECEMBER 27, 2003 IN THE SECTION TITLED "RISK
FACTORS" AND OTHER RISK FACTORS IDENTIFIED FROM TIME TO TIME IN OUR PERIODIC
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION AND SHOULD NOT PLACE
UNDUE RELIANCE ON OUR FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO
OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT CHANGES IN
UNDERLYING ASSUMPTIONS OR FACTORS, NEW INFORMATION, FUTURE EVENTS OR OTHER
CHANGES.
AVAILABLE INFORMATION
WE MAKE AVAILABLE, FREE OF CHARGE, OUR ANNUAL REPORTS ON FORM 10-K,
QUARTERLY REPORTS ON FORM 10-Q, CURRENT REPORTS ON FORM 8-K AND AMENDMENTS,
IF ANY, TO THOSE REPORTS THROUGH OUR INTERNET WEBSITE AS SOON AS PRACTICABLE
AFTER THEY HAVE BEEN ELECTRONICALLY FILED WITH OR FURNISHED TO THE SEC. OUR
INTERNET ADDRESS IS WWW.BERRYPLASTICS.COM. THE INFORMATION CONTAINED ON OUR
WEBSITE IS NOT BEING INCORPORATED HEREIN.
2
BPC HOLDING CORPORATION
BERRY PLASTICS CORPORATION
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED MARCH 27, 2004
PAGE NO.
--------
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Balance Sheets 4
Consolidated Statements of Operations 6
Consolidated Statements of Changes in
Stockholders' Equity 7
Consolidated Statements of Cash Flows 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 26
Item 4. Controls and Procedures 26
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURE 28
3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
BPC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, except per share information)
MARCH 27, DECEMBER 27,
2004 2003
----------- -----------
(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents $ 15,460 $ 26,192
Accounts receivable (less allowance for doubtful
accounts of $3,002 at March 27, 2004 and $2,717
at December 27, 2003) 97,231 76,152
Inventories:
Finished goods 60,948 61,556
Raw materials and supplies 19,797 19,988
-------- --------
80,745 81,544
Prepaid expenses and other current assets 13,480 19,192
-------- --------
Total current assets 206,916 203,080
Property and equipment:
Land 7,943 7,935
Buildings and improvements 58,237 58,135
Machinery, equipment and tooling 252,154 249,291
Construction in progress 34,703 24,433
-------- --------
353,037 339,794
Less accumulated depreciation 69,633 56,817
-------- --------
283,404 282,977
Intangible assets:
Deferred financing fees, net 21,565 22,283
Customer relationships, net 89,116 90,540
Goodwill 371,454 376,769
Trademarks 33,448 33,448
Other intangibles, net 6,520 6,656
-------- --------
522,103 529,696
Other 51 53
-------- --------
Total assets $1,012,474 $1,015,806
======== ========
4
BPC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In Thousands of Dollars, except per share information)
MARCH 27, DECEMBER 27,
2004 2003
----------- -----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 48,067 $ 43,175
Accrued expenses and other current liabilities 17,149 21,335
Accrued interest 9,298 18,132
Employee compensation and payroll taxes 24,891 23,528
Current portion of long-term debt 10,418 9,339
-------- --------
Total current liabilities 109,823 115,509
Long-term debt, less current portion 739,950 742,266
Deferred income taxes 712 720
Other long-term liabilities 4,288 4,720
-------- --------
Total liabilities 854,773 863,215
Stockholders' equity:
Preferred Stock; $.01 par value: 500,000
shares authorized; 0 shares issued and
outstanding at March 27, 2004 and December 27,
2003 - -
Common Stock; $.01 par value: 5,000,000
shares authorized; 3,398,807 shares issued and
3,377,172 shares outstanding at March 27, 2004
and 3,397,637 shares issued and 3,377,923 shares
outstanding at December 27, 2003 34 34
Additional paid-in capital 344,404 344,363
Adjustment of the carryover basis of
continuing stockholders (196,603) (196,603)
Notes receivable - common stock (14,291) (14,157)
Treasury stock: 21,635 shares and 19,714
shares of common stock at March 27, 2004 and
December 27, 2003, respectively (2,164) (1,972)
Retained earnings 21,049 16,227
Accumulated other comprehensive income 5,272 4,699
-------- --------
Total stockholders' equity 157,701 152,591
-------- --------
Total liabilities and stockholders' equity $ 1,012,474 $ 1,015,806
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars)
THIRTEEN WEEKS ENDED
----------------------------
MARCH 27, MARCH 29,
2004 2003
----------------------------
(Unaudited) (Unaudited)
Net sales $ 191,726 $ 125,398
Cost of goods sold 148,615 94,321
--------- ---------
Gross profit 43,111 31,077
Operating Expenses:
Selling 6,611 6,202
General and administrative 9,230 6,031
Research and development 887 764
Amortization of intangibles 1,735 615
Other expenses 2,505 324
--------- ---------
Operating income 22,143 17,141
Other income:
Gain on disposal of property and equipment (4) -
--------- ---------
Income before interest and taxes 22,147 17,141
Interest:
Expense (13,500) (11,730)
Income 206 212
--------- ---------
Income before income taxes 8,853 5,623
Income taxes 4,031 2,544
--------- ---------
Net income $ 4,822 $ 3,079
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(In Thousands of Dollars)
ADJUSTMENT OF
THE CARRYOVER NOTES ACCUMULATED
ADDITIONAL BASIS OF RECEIVABLE- OTHER
COMMON PAID-IN CONTINUING COMMON TREASURY RETAINED COMPREHENSIVE COMPREHENSIVE
STOCK CAPITAL STOCKHOLDERS STOCK STOCK EARNINGS INCOME TOTAL INCOME
------------------------------------------------------------------------------------------
Balance at December 27, 2003 $34 $344,363 $(196,603) $(14,157) $(1,972) $16,227 $ 4,699 $152,591
----- -------- ---------- --------- -------- -------- -------- --------
Issuance of common stock - 41 - - - - - 41 $ -
Purchase of treasury stock - - - 51 (192) - - (141) -
Interest on notes receivable - - - (185) - - - (185) -
Translation gain - - - - - - 458 458 458
Other comprehensive gains - - - - - - 115 115 115
Net income - - - - - 4,822 - 4,822 4,822
----- -------- ---------- --------- -------- -------- -------- -------- ----------
Balance at March 27, 2004 $34 $344,404 $(196,603) $(14,291) $(2,164) $ 21,049 $ 5,272 $157,701 $5,395
===== ======== ========== ========= ======== ======== ======== ======== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
THIRTEEN WEEKS ENDED
----------------------
MARCH 27, MARCH 29,
2004 2003
----------------------
(Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net income $ 4,822 $ 3,079
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation 13,130 9,535
Non-cash interest expense 450 407
Amortization 1,735 615
Deferred income taxes 3,916 2,480
Changes in operating assets and liabilities:
Accounts receivable, net (21,238) (12,700)
Inventories 752 161
Prepaid expenses and other receivables (1,101) 747
Other assets 2 (4)
Accrued interest (8,834) (6,229)
Payables and accrued expenses 2,138 2,679
----------------------
Net cash provided by (used for) operating activities (4,228) 770
INVESTING ACTIVITIES
Additions to property and equipment (15,720) (10,080)
Proceeds from disposal of property and equipment 3,414 -
Proceeds from working capital settlement on
acquired business 6,687 -
Acquisitions of businesses (69) (4,858)
----------------------
Net cash used for investing activities (5,688) (14,938)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 1,148 4,911
Payments on long-term borrowings (2,142) (2,182)
Purchase of treasury stock (100) (163)
Debt financing costs (25) -
----------------------
Net cash provided by (used for) financing activities (1,119) 2,566
Effect of exchange rate changes on cash 303 14
----------------------
Net decrease in cash and cash equivalents (10,732) (11,588)
Cash and cash equivalents at beginning of period 26,192 15,613
----------------------
Cash and cash equivalents at end of period $15,460 $ 4,025
======================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
BPC Holding Corporation
Notes to Consolidated Financial Statements
(In thousands of dollars, except as otherwise noted)
(Unaudited)
1. Basis of Presentation
THE ACCOMPANYING UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF BPC HOLDING
CORPORATION (THE "COMPANY") HAVE BEEN PREPARED IN ACCORDANCE WITH ACCOUNTING
PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES ("GAAP") FOR INTERIM
FINANCIAL INFORMATION AND WITH THE INSTRUCTIONS FOR FORM 10-Q AND ARTICLE 10
OF REGULATION S-X. ACCORDINGLY, THEY DO NOT INCLUDE ALL OF THE INFORMATION
AND FOOTNOTES REQUIRED BY GAAP FOR COMPLETE FINANCIAL STATEMENTS. IN THE
OPINION OF MANAGEMENT, ALL ADJUSTMENTS (CONSISTING OF NORMAL RECURRING
ADJUSTMENTS) CONSIDERED NECESSARY FOR A FAIR PRESENTATION HAVE BEEN
INCLUDED. OPERATING RESULTS FOR THE PERIODS PRESENTED ARE NOT NECESSARILY
INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR THE FULL FISCAL YEAR.
THE ACCOMPANYING FINANCIAL STATEMENTS INCLUDE THE RESULTS OF BPC HOLDING
CORPORATION ("HOLDING") AND ITS WHOLLY-OWNED SUBSIDIARY, BERRY PLASTICS
CORPORATION ("BERRY"), AND BERRY'S WHOLLY-OWNED SUBSIDIARIES: BERRY IOWA
CORPORATION, BERRY TRI-PLAS CORPORATION, AEROCON, INC., PACKERWARE
CORPORATION, BERRY PLASTICS DESIGN CORPORATION, VENTURE PACKAGING, INC. AND
ITS SUBSIDIARIES VENTURE PACKAGING MIDWEST, INC. AND BERRY PLASTICS
TECHNICAL SERVICES, INC., NIM HOLDINGS LIMITED AND ITS SUBSIDIARY BERRY
PLASTICS U.K. LIMITED, KNIGHT PLASTICS, INC., CPI HOLDING CORPORATION AND
ITS SUBSIDIARY CARDINAL PACKAGING, INC., POLY-SEAL CORPORATION, OCIESSE
S.R.L. AND ITS SUBSIDIARY CAPSOL BERRY PLASTICS S.P.A, AND LANDIS PLASTICS,
INC. FOR FURTHER INFORMATION, REFER TO THE CONSOLIDATED FINANCIAL
STATEMENTS AND FOOTNOTES THERETO INCLUDED IN HOLDING'S AND BERRY'S FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED
DECEMBER 27, 2003.
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly formed
entity controlled by various private equity funds affiliated with Goldman,
Sachs & Co., merged (the "Merger") with and into Holding, pursuant to an
agreement and plan of merger dated as of May 25, 2002. At the effective
time of the Merger, (i) each share of common stock of Holding issued and
outstanding immediately prior to the effective time of the Merger was
converted into the right to receive cash pursuant to the terms of the merger
agreement, and (ii) each share of common stock of the Buyer issued and
outstanding immediately prior to the effective time of the Merger was
converted into one share of common stock of Holding.
2. RECENT ACQUISITIONS AND DISPOSAL
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.
9
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), customer
relationships ($0.1 million), and goodwill ($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 costs. 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 Berry's amended and restated
senior secured credit facility from new term loans after giving effect to
the refinancing of the prior term loan, (3) an aggregate common equity
contribution of $62.0 million, 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, 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
affiliate subsequently entered into a lease with Berry for the four
facilities. In accordance with EITF 95-3, the Company established opening
balance sheet reserves related to plant shutdown, severance and unfavorable
lease arrangement costs, which totaled $2.9 million at December 27, 2003.
In the thirteen weeks ended March 27, 2004, these reserves were reduced by
$0.8 million due to payments in the period and by $0.1 million as a
reduction to goodwill as the costs were lower than the original estimates.
The allocation of purchase price is preliminary and subject to change based
on actual expenses and adjustments of estimated receivables and reserves.
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 CCL or APM as they do not differ materially from the pro
forma results presented below. The financials results for the thirteen
weeks ended March 27, 2004 have not been adjusted as the acquired businesses
were owned by Berry for the entire period. 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 date, nor are they necessarily indicative of future
operating results. Further, the information reflects only pro forma
adjustments for additional interest expense and amortization, net of the
applicable income tax effects.
THIRTEEN WEEKS ENDED
----------------------
MARCH 27, MARCH 29,
2004 2003
---------- ----------
Pro forma net sales $191,726 $177,840
Pro forma net income 4,822 2,631
Berry Plastics U.K. Limited, a foreign subsidiary of Berry,
reached an agreement in March 2004 to sell the manufacturing equipment,
inventory, and accounts receivable for its U.K. milk cap business to Portola
Packaging U.K. Limited. The transaction closed in April 2004. The
initial payment for the manufacturing equipment of $3.3 million was received
in March 2004 with the remaining payment of $0.7 million for the inventory
and accounts receivable paid at closing. The U.K. milk cap business
represents less than $3.0 million of annual consolidated net sales.
10
4. LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 27, DECEMBER 27,
2004 2003
-------------------------
Berry 10 3/4% Senior Subordinated Notes $335,000 $335,000
Debt premium on 10 3/4 % Notes, net 9,759 10,053
Term loans 379,175 380,000
Revolving lines of credit 1,565 342
Nevada Industrial Revenue Bonds 2,000 2,000
Capital leases 22,869 24,210
------------ -----------
750,368 751,605
Less current portion of long-term debt 10,418 9,339
------------ -----------
$739,950 $742,266
============ ===========
The current portion of long-term debt consists of $3.7 million of quarterly
installments on the term loans, $0.5 million in repayments of the industrial
bonds, and $6.2 million of principal payments related to capital lease
obligations.
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. 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 the Company and the subsidiaries under the Amended and
Restated Credit Facility and the guarantees thereof are secured by
substantially all of the assets of such entities.
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 March 27, 2004. The term loans amortize
quarterly in the aggregate as follows: $825,000 each quarter through June
30, 2004; 950,000 each quarter beginning September 30, 2004 and ending June
30, 2009; and $89,631,250 each quarter beginning September 30, 2009 and
ending June 30, 2010.
11
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 the 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 (3.63% at March 27,
2004). 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 March 27, 2004). 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
March 27, 2004, stockholders' equity has been reduced by $0.6 million to
record the interest rate collar at fair market value. At March 27, 2004,
the Company had unused borrowing capacity under the Amended and Restated
Credit Facility's revolving line of credit of $92.0 million. Covenants
under the Amended and Restated Credit Facility may limit the Company's
ability to make such borrowings; however, as of March 27, 2004, the Company
could have borrowed the maximum available of $92.0 million.
5. 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 No. 123, no compensation expense has been recognized for the
Company's stock option plans. 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."
For purposes of the pro forma disclosures, the estimated fair value of the
stock options is amortized to employee compensation expense over the related
vesting period. Because compensation expense is recognized over the vesting
period, the initial impact on pro forma net income may not be representative
of compensation expense in future years, when the effect of amortization of
multiple awards would be reflected in the Consolidated Statement of
Operations. The following is a reconciliation of reported net income to net
income as if the Company used the fair value method of accounting for stock-
based compensation.
12
THIRTEEN WEEKS ENDED
----------------------
MARCH 27, MARCH 29,
2004 2003
----------------------
Reported net income $ 4,822 $3,079
Stock-based employee compensation
expense included in reported income,
net of tax - -
Total stock-based employee
compensation expense determined
under fair value based method,
for all awards, net of tax (506) (518)
----------------------
Pro forma net income $ 4,316 $ 2,561
======================
6. COMPREHENSIVE INCOME
Comprehensive income is comprised of net income, other comprehensive income
(losses), and gains or losses resulting from currency translations of
foreign investments. Other comprehensive income (losses) includes
unrealized gains or losses on derivative financial instruments and minimum
pension liability adjustments. The details of comprehensive income are as
follows:
THIRTEEN WEEKS ENDED
----------------------
MARCH 27, MARCH 29,
2004 2003
----------------------
Net income $ 4,822 $3,079
Other comprehensive income (losses) 115 (88)
Currency translation income (losses) 458 (27)
----------------------
Comprehensive income $ 5,395 $ 2,964
======================
7. OPERATING SEGMENTS
The Company has four reportable segments: containers, closures, consumer
products, and international. In 2004, the Company created the international
segment as a separate operating and reporting segment to
increase sales and improve service to international customers utilizing
existing resources. The international segment includes the Company's
foreign facilities and business from domestic facilities that is shipped or
billed to foreign locations. 2003 results for the foreign facilities have
been reclassified to the international segment; however, business from
domestic facilities that were shipped or billed to foreign locations cannot
be separately identified for 2003. Accordingly, the amounts disclosed under
the new reporting structure are not comparable between 2004 and 2003. As a
result, the tables below include the results under the new and previous
structure. The Company evaluates performance and allocates resources to
segments based on operating income before depreciation and amortization of
intangibles adjusted to exclude (1) uncompleted acquisition expense, (2)
acquisition integration expense, and (3) plant shutdown expense
(collectively, "Adjusted EBITDA"). The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies in the Company's Form 10-K filed with the
Securities and Exchange Commission for the year ended December 27, 2003.
13
NEW REPORTING STRUCTURE Thirteen Weeks Ended
---------------------
MARCH 27, MARCH 29,
2004 2003
---------------------
Net sales:
Containers $ 119,255 $ 61,561
Closures 30,489 29,591
Consumer Products 31,901 28,734
International 10,081 5,512
---------------------
Total net sales 191,726 125,398
Adjusted EBITDA:
Containers 25,750 15,694
Closures 6,816 6,956
Consumer Products 6,339 4,318
International 608 647
---------------------
Total Adjusted EBITDA 39,513 27,615
Total assets:
Containers 588,919 349,790
Closures 181,703 195,794
Consumer Products 179,664 178,962
International 62,188 38,334
---------------------
Total assets 1,012,474 762,880
Reconciliation of Adjusted EBITDA to income
before income taxes:
Adjusted EBITDA for reportable segments $ 39,513 $ 27,615
Net interest expense (13,294) (11,518)
Depreciation (13,130) (9,535)
Amortization (1,735) (615)
Gain on disposal of property and equipment 4 -
Uncompleted acquisition expense - -
Acquisition integration expense (166) (2)
Plant shutdown expense (2,339) (322)
---------------------
Income before income taxes $ 8,853 $ 5,623
=====================
14
PREVIOUS REPORTING STRUCTURE Thirteen Weeks Ended
-----------------------
MARCH 27, MARCH 29,
2004 2003
-----------------------
Net sales:
Containers $ 121,767 $ 61,561
Closures 37,656 35,103
Consumer Products 32,303 28,734
-----------------------
Total net sales 191,726 125,398
Adjusted EBITDA:
Containers 26,074 15,694
Closures 7,113 7,603
Consumer Products 6,326 4,318
-----------------------
Total Adjusted EBITDA 39,513 27,615
Total assets:
Containers 601,175 349,790
Closures 230,311 234,128
Consumer Products 180,988 178,962
-----------------------
Total assets 1,012,474 762,880
Reconciliation of Adjusted EBITDA to income
before income taxes:
Adjusted EBITDA for reportable segments $ 39,513 $ 27,615
Net interest expense (13,294) (11,518)
Depreciation (13,130) (9,535)
Amortization (1,735) (615)
Gain on disposal of property and equipment 4 -
Uncompleted acquisition expense - -
Acquisition integration expense (166) (2)
Plant shutdown expense (2,339) (322)
-----------------------
Income before income taxes $ 8,853 $ 5,623
=======================
15
8. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Holding conducts its business through its wholly owned subsidiary, Berry.
Holding and all of Berry's domestic subsidiaries fully, jointly, severally,
and unconditionally guarantee on a senior subordinated basis the $335.0
million aggregate principal amount of 10 3/4 % Berry Plastics Corporation
Senior Subordinated Notes due 2012. Berry is 100% owned by Holding. Each
of Berry's subsidiaries is 100% owned, directly or indirectly, by Berry.
Separate narrative information or financial statements of guarantor
subsidiaries have not been included asmanagement believes they would
not be material to investors. Presented below is condensed consolidating
financial information for Holding, Berry, and its subsidiaries at March
27, 2004 and December 27, 2003 and for the thirteen week periods ended
March 27, 2004 and March 29, 2003. The equity method has been used with
respect to investments in subsidiaries.
MARCH 27, 2004
----------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-------- -------- ------------ ------------ ----------- ------------
CONSOLIDATING
BALANCE SHEET
Current assets $ - $ 65,255 $ 126,530 $ 15,131 $ - $ 206,916
Net property
and equipment - 77,221 188,966 17,217 - 283,404
Other noncurrent
assets 157,701 773,415 368,790 10,700 (788,452) 522,154
------- ------- ------- ------ --------- -------
Total assets $ 157,701 $ 915,891 $ 684,286 $ 43,048 $(788,452) $ 1,012,474
======= ======= ======= ====== ========= =========
Current
liabilities $ - $ 57,518 $ 45,252 $ 7,053 $ - $ 109,823
Noncurrent
liabilities - 788,122 696,487 28,128 (767,787) 744,950
Equity
(deficit) 157,701 70,251 (57,453) 7,867 (20,665) 157,701
------- ------ -------- ----- -------- -------
Total
liabilities
and equity
(deficit) $ 157,701 $ 915,891 $ 684,286 $ 43,408 $ (788,452) $ 1,012,474
========= ========= ========= ======== =========== ===========
DECEMBER 27, 2003
----------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-------- -------- ------------ ------------ ----------- ------------
CONSOLIDATING
BALANCE SHEET
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
========= ========== ========= ======== ========== ==========
16
THIRTEEN WEEKS ENDED MARCH 27, 2004
--------------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-------- -------- ------------ ------------ ----------- ------------
CONSOLIDATING STATEMENT OF OPERATIONS
Net sales $ - $ 51,135 $ 134,222 $ 6,369 $ - $ 191,726
Cost of goods sold - 35,345 106,997 6,273 - 148,615
-------- -------- --------- ------- ----------- -----------
Gross profit - 15,790 27,225 96 - 43,111
Operating expenses - 6,726 13,371 871 - 20,968
-------- -------- --------- ------- ----------- -----------
Operating income
(loss) - 9,064 13,854 (775) - 22,143
Other income - - - (4) - (4)
Interest expense
(income), net (185) (3,340) 16,650 169 - 13,294
Income taxes 14 3,940 12 65 - 4,031
Equity in net
(income)loss from
subsidiary (4,651) 3,813 1,005 - (167) -
--------- -------- --------- -------- ------------ -----------
Net income
(loss) $ 4,822 $ 4,651 $ (3,813) $ (1,005) $ 167 $ 4,822
========= ======== ========= ======== ============ ===========
CONSOLIDATING STATEMENT OF CASH FLOWS
Net income
(loss) $ 4,822 $ 4,651 $ (3,813) $ (1,005) $ 167 $ 4,822
Non-cash
expenses - 7,814 10,470 947 - 19,231
Equity in net
(income)loss from
subsidiary (4,651) 3,813 1,005 - (167) -
Changes in
working capital (186) (3,635) (21,311) (3,149) - (28,281)
---------- -------- -------- ------- ------- ---------
Net cash provided by
(used for)operating
activities (15) 12,643 (13,649) (3,207) - (4,228)
Net cash provided by
(used for)investing
activities - (9,506) 610 3,208 - (5,688)
Net cash provided by
(used for)financing
activities 15 (12,255) 11,504 (383) - (1,119)
Effect of
exchange rate
changes on cash - - - 303 - 303
------- ---------- --------- -------- ------ ---------
Net decrease
in cash and
cash equivalents - (9,118) (1,535) (79) - (10,732)
Cash and cash equivalents
at beginning
of period - 24,290 1,666 236 - 26,192
-------- ---------- --------- -------- ------- ---------
Cash and cash equivalents
at end
of period $ - $ 15,172 $ 131 $ 157 $ - $ 15,460
======== ========== ========== ======== ======= =========
17
THIRTEEN WEEKS ENDED MARCH 29, 2003
--------------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
-------- -------- ------------ ------------ ----------- ------------
Consolidating Statement of Operations
Net sales $ - $ 46,405 $ 73,479 $ 5,514 $ - $ 125,398
Cost of
goods sold - 31,611 57,586 5,124 - 94,321
------- ---------- ----------- -------- ------- ----------
Gross
profit - 14,794 15,893 390 - 31,077
Operating
expenses - 5,770 7,601 565 - 13,936
------- ---------- ----------- -------- ------- ----------
Operating
income (loss) - 9,024 8,292 (175) - 17,141
Interest expense
(income), net (201) 183 11,189 347 - 11,518
Income taxes
(benefit) 7 2,491 (1) 47 - 2,544
Equity in net
(income)loss from
subsidiary (2,885) 3,465 569 - (1,149) -
--------- ---------- ----------- -------- --------- ----------
Net income
(loss) $ 3,079 $ 2,885 $ (3,465) $ (569) $ 1,149 $ 3,079
========= ========== =========== ========= ========== ==========
CONSOLIDATING STATEMENT OF CASH FLOWS
Net income
(loss) $ 3,079 $ 2,885 $ (3,465) $ (569) $ 1,149 $ 3,079
Non-cash
expenses (194) 6,063 6,394 774 - 13,037
Equity in
net(income)
loss from
subsidiary (2,885) 3,465 569 - (1,149) -
Changes in
working capital - (7,872) (6,877) (597) - (15,346)
---------- --------- --------- ------- -------- ----------
Net cash provided by
(used for)operating
activities - 4,541 (3,379) (392) - 770
Net cash used for
investing
activities - (9,825) (4,514) (599) - (14,938)
Net cash provided by
(used for)financing
activities - (6,429) 7,750 1,245 - 2,566
Effect of
exchange rate
changes on cash - - - 14 - 14
---------- --------- --------- ------- -------- ----------
Net increase
(decrease) in
cash and
cash equivalents - (11,713) (143) 268 - (11,588)
Cash and cash
equivalents at
beginning
of period 1 15,156 264 192 - 15,613
---------- --------- --------- ------- -------- ----------
Cash and cash
equivalents at
end of period $ 1 $ 3,443 $ 121 $ 460 $ - $ 4,025
========== ========= ========= ======== ========= ==========
18
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Unless the context requires otherwise, references in this Management's
Discussion and Analysis of Financial Condition and Results of Operations to
"BPC Holding" or "Holding" refer to BPC Holding Corporation, references to
"we," "our" or "us" refer to BPC Holding Corporation together with its
consolidated subsidiaries, and references to "Berry Plastics" or the
"Company" refer to Berry Plastics Corporation, a wholly owned subsidiary of
BPC Holding Corporation. You should read the following discussion in
conjunction with the consolidated financial statements of Holding and its
subsidiaries and the accompanying notes thereto, which information is
included elsewhere herein. This discussion contains forward-looking
statements and involves numerous risks and uncertainties, including, but not
limited to, those described in our Form 10-K for the fiscal year ended
December 27, 2003 (the "2003 10-K") in the section titled "Risk Factors" and
other risk factors identified from time to time in our periodic filings with
the Securities and Exchange Commission. Our actual results may differ
materially from those contained in any forward-looking statements. You
should read the explanation of the qualifications and limitations on these
forward-looking statements on page 2 of this report.
On July 22, 2002, GS Berry Acquisition Corp. (the "Buyer") a newly formed
entity controlled by various private equity funds affiliated with Goldman,
Sachs & Co., merged (the "Merger") with and into BPC Holding, pursuant to
an agreement and plan of merger, dated as of May 25, 2002. At the effective
time of the Merger, (1) each share of common stock of BPC Holding issued and
outstanding immediately prior to the effective time of the Merger was
converted into the right to receive cash pursuant to the terms of the merger
agreement, and (2) each share of common stock of the Buyer issued and
outstanding immediately prior to the effective time of the Merger was
converted into one share of common stock of BPC Holding. Additionally, in
connection with the Merger, we retired all of BPC Holding's senior secured
notes and Berry Plastics' senior subordinated notes, repaid all amounts owed
under our credit facilities, redeemed all of the outstanding preferred stock
of BPC Holding, entered into a new credit facility and completed an offering
of new senior subordinated notes of Berry Plastics.
CRITICAL ACCOUNTING POLICIES
We disclose those accounting policies that we consider to be significant in
determining the amounts to be utilized for communicating our consolidated
financial position, results of operations and cash flows in the second note
to our consolidated financial statements in our 2003 10-K. Our discussion
and analysis of our financial condition and results of operations are based
on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United
States. The preparation of financial statements in conformity with these
principles requires management to make estimates and assumptions that affect
amounts reported in the financial statements and accompanying notes. Actual
results are likely to differ from these estimates, but management does not
believe such differences will materially affect our financial position or
results of operations. We believe that the following accounting policies
are the most critical because they have the greatest impact on the
presentation of our financial condition and results of operations.
19
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 $3.0 million as of March 27, 2004.
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 $2.8 million,
including reserves for expected medical claims incurred but not reported, as
of March 27, 2004.
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 $3.2 million as of March 27, 2004.
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-Q.
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.
20
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.
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"). On May 30, 2003, Berry acquired
the injection molded overcap lid assets from APM Inc. located in Benicia,
California ("APM Acquisition"). On November 20, 2003, Berry acquired Landis
Plastics, Inc. (the "Landis Acquisition"), a manufacturer and marketer of
open-top containers.
RESULTS OF OPERATIONS
13 WEEKS ENDED MARCH 27, 2004 (THE "QUARTER")
COMPARED TO 13 WEEKS ENDED MARCH 29, 2003 (THE "PRIOR QUARTER")
NET SALES. Net sales increased $66.3 million, or 53%, to $191.7 million for
the Quarter from $125.4 million for the Prior Quarter with an approximate 5%
inCREASE IN NET SELLING PRICE DUE TO HIGHER RESIN COSTS PASSED THROUGH TO
OUR CUSTOMERS. CONTAINER NET SALES INCREASED $57.7 MILLION FROM THE PRIOR
QUARTER TO $119.3 MILLION FOR THE QUARTER, WITH THE LANDIS FACILITIES AND
APM ACQUISITION PROVIDING NET SALES OF $54.8 MILLION AND $0.3 MILLION FOR
THE QUARTER, RESPECTIVELY. DUE TO THE MOVEMENT OF BUSINESS BETWEEN THE
ACQUIRED LANDIS FACILITIES AND OUR PRE-EXISTING FACILITIES, THE AMOUNT OF
SALES RELATED TO THE LANDIS ACQUISITION CANNOT BE DETERMINED. THE INCREASE
IN CONTAINER NET SALES IS PRIMARILY A RESULT OF THE LANDIS ACQUISITION,
INCREASED SELLING PRICES AND BASE BUSINESS GROWTH IN SEVERAL OF THE
DIVISION'S PRODUCT LINES. CLOSURE NET SALES INCREASED $0.9 MILLION FROM THE
PRIOR QUARTER TO $30.5 MILLION WITH THE CCL ACQUISITION PROVIDING NET SALES
OF $1.2 MILLION IN THE QUARTER OVER THE PRIOR QUARTER PARTIALLY OFFSET BY
$0.8 MILLION OF NET SALES RECLASSIFIED TO THE INTERNATIONAL DIVISION AS
DESCRIBED BELOW. CONSUMER PRODUCTS NET SALES FOR THE QUARTER WERE $31.9
MILLION COMPARED TO $28.7 MILLION IN THE PRIOR QUARTER. THIS $3.2 MILLION
21
INCREASE CAN BE PRIMARILY ATTRIBUTED TO INCREASED SALES FROM THERMOFORMED
DRINK CUPS AND HOUSEWARES PARTIALLY OFFSET BY REDUCED VOLUME FROM INJECTION
DRINK CUPS. IN 2004, WE CREATED OUR INTERNATIONAL DIVISION AS A SEPARATE
OPERATING AND REPORTING DIVISION TO INCREASE SALES AND IMPROVE
SERVICE TO INTERNATIONAL CUSTOMERS UTILIZING EXISTING RESOURCES. THE
INTERNATIONAL SEGMENT INCLUDES THE COMPANY'S FOREIGN FACILITIES AND
BUSINESS FROM DOMESTIC FACILITIES THAT IS SHIPPED OR BILLED TO FOREIGN
LOCATIONS. 2003 RESULTS FOR THE FOREIGN FACILITIES HAVE BEEN
RECLASSIFIED TO THE INTERNATIONAL SEGMENT; HOWEVER, BUSINESS FROM
DOMESTIC FACILITIES THAT WERE SHIPPED OR BILLED TO FOREIGN LOCATIONS CANNOT
BE SEPARATELY IDENTIFIED FOR 2003. THE INTERNATIONAL DIVISION PROVIDED NET
SALES OF $10.1 MILLION IN THE QUARTER COMPARED TO $5.5 MILLION IN THE PRIOR
QUARTER AS A RESULT OF THIS RECLASSIFICATION.
GROSS PROFIT. Gross profit increased by $12.0 million to $43.1 million (22%
of net sales) for the Quarter from $31.1 million (25% of net sales) for the
Prior Quarter. This increase of 39% is primarily attributed to the combined
impact of additional sales volume, productivity improvement initiatives, and
the timing effect of the 5% increase in net selling prices due to higher
resin costs passed through to our customers partially offset by increased
raw material costs. The historical margin percentage of the Landis acquired
business is significantly less than the Company's historical gross margins
thereby reducing consolidated margins until the business is 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 Landis integration,
in the fourth quarter of 2003, we closed our Monticello, Indiana facility,
which was acquired in the Landis Acquisition. The business from this
location was distributed throughout our facilities. Also, significant
productivity improvements were made since the Prior Quarter, including the
addition of state-of-the-art injection molding, thermoforming and post
molding equipment at several of our facilities.
OPERATING EXPENSES. Selling expenses increased by $0.4 million to $6.6
million for the Quarter from $6.2 million for the Prior Quarter principally
as a result of increased selling expenses associated with higher sales
partially offset by cost reduction efforts. General and administrative
expenses increased $3.2 million from $6.0 million for the Prior Quarter to
$9.2 million for the Quarter primarily as a result of the Landis Acquisition
and increased accrued bonus expense. Research and development expenses
remained relatively constant with an increase of $0.1 million over the Prior
Quarter. Amortization of intangibles increased $1.1 million from $0.6
million in the Prior Quarter as a result of additional intangible assets
resulting from the Landis Acquisition. During the Quarter, transition
expenses were $0.2 million related to the Landis Acquisition and $2.3
million related to the shutdown of the Monticello, Indiana facility. In the
Prior Quarter, transition expenses were $0.3 million related to the shutdown
and reorganization of facilities.
INTEREST EXPENSE, NET. Net interest expense increased $1.8 million to $13.3
million for the Quarter compared to $11.5 million for the Prior Quarter
primarily due to additional indebtedness utilized to finance the Landis
Acquisition partially offset by decreased rates of interest on borrowings.
INCOME TAXES. For the Quarter, we recorded income tax expense of $4.0
million or an effective tax rate of 46%. The effective tax rate is greater
than the statutory rate due to the impact of state taxes and foreign
location losses for which no benefit was currently provided. The increase
of $1.5 million from $2.5 million in the Prior Quarter is attributed to the
increase in income before income taxes. As a result of the Merger, the
amount of the predecessor's net operating loss carryforward which can be
used in any given year will be limited to approximately $12.9 million.
22
NET INCOME. Net income is $4.8 million for the Quarter compared to $3.1
million for the Prior Quarter for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
On July 22, 2002, we entered into a credit and guaranty agreement and a
related pledge security agreement with a syndicate of lenders led by Goldman
Sachs Credit Partners L.P., as administrative agent (the "Credit Facility").
On November 10, 2003, in connection with the Landis Acquisition, we amended
and 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 March 27, 2004, 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 March 27, 2004). 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%.
23
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 quarter ending 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 year ending 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 quarter ending 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 March 27, 2004.
The term loans amortize quarterly in the aggregate as follows: $825,000
each quarter through June 30, 2004; 950,000 each quarter beginning September
30, 2004 and ending June 30, 2009; and $89,631,250 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 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 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" and together
with the 2002 Notes, the "Notes"). The net proceeds to us from the sale of
the Add-on Notes, after expenses, were $91.8 million as the Add-on Notes
were sold at a premium of 12% over the face amount. 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.
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We are not required to make mandatory redemption or sinking fund payments
with respect to the Notes. On or subsequent to July 15, 2007, the 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 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 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 Notes were issued restricts our
ability to incur additional debt and contains other provisions which could
limit our liquidity.
Net cash used for operating activities was $4.2 million for the Quarter
compared to $0.8 million net cash provided by operations for the Prior
Quarter. The decrease of $5.0 million is primarily the result of increased
seasonal working capital requirements due to increased net sales.
Net cash used for investing activities decreased from $14.9 million for the
Prior Quarter to $5.7 million for the Quarter primarily as a result of Berry
receiving $6.7 million in the Quarter related to the working capital
adjustment from the Landis Acquisition. In addition, Berry Plastics U.K.
Limited, a foreign subsidiary of Berry, reached an agreement
in March 2004 to sell the manufacturing equipment, inventory, and accounts
receivable for its U.K. milk cap business to Portola Packaging U.K. Limited.
The transaction closed in April 2004. The initial payment for the
manufacturing equipment of $3.3 million was received in the Quarter with the
remaining payment for the inventory and accounts receivable due at closing.
The U.K. milk cap business represents less than $3.0 million of our annual
consolidated net sales. Capital spending of $15.7 million in the Quarter
included $2.3 million for buildings and systems, $3.8 million for molds,
$6.6 million for molding and printing machines, and $3.0 million for
accessory equipment and systems.
NET CASH USED FOR FINANCING ACTIVITIES WAS $1.1 MILLION FOR THE QUARTER
COMPARED TO $2.6 MILLION PROVIDED BY FINANCING ACTIVITIES FOR THE PRIOR
QUARTER. THE DECREASE OF $3.7 MILLION CAN BE PRIMARILY ATTRIBUTED TO
REDUCED BORROWINGS IN THE QUARTER DUE TO THE REDUCTION IN CASH USED FOR
INVESTING ACTIVITIES AS NOTED ABOVE.
INCREASED WORKING CAPITAL NEEDS OCCUR WHENEVER WE EXPERIENCE STRONG
INCREMENTAL DEMAND OR A SIGNIFICANT RISE IN THE COST OF RAW MATERIAL,
PARTICULARLY PLASTIC RESIN. HOWEVER, WE ANTICIPATE THAT OUR CASH INTEREST,
DEBT PRINCIPAL PAYMENTS, 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 MARCH 27, 2004, OUR CASH
BALANCE WAS $15.5 MILLION, AND WE HAD UNUSED BORROWING CAPACITY UNDER THE
AMENDED AND RESTATED CREDIT FACILITY'S REVOLVING LINE OF CREDIT OF $92.0
MILLION. ALTHOUGH THE $92.0 MILLION WAS AVAILABLE AT MARCH 27, 2004, THE
COVENANTS UNDER OUR AMENDED AND RESTATED CREDIT FACILITY MAY LIMIT OUR
ABILITY TO MAKE SUCH BORROWINGS IN THE FUTURE.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 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 March 27, 2004, 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 March 27, 2004 was $329.2 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 March 27, 2004, the Eurodollar rate
applicable to the term loan and delayed draw loan was 1.13%. 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 $1.6 million,
respectively.
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure controls and procedures.
As required by new Rule 13a-15 under the Securities Exchange Act of 1934,
the Company's management carried out an evaluation with the participation of
our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures, as of the end of
the last fiscal quarter. Based upon that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls
and procedures are effective to ensure that information required to be
disclosed by us in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commission's rules and forms. In
connection with the new rules, we currently are in 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 control over financial reporting.
There were no changes in our internal control over financial reporting
identified in connection with our evaluation of our disclosure controls and
procedures that occurred during our last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibits:
31.1 RULE 13A-14(A)/15D-14(A) CERTIFICATION OF THE CHIEF EXECUTIVE
OFFICER
31.2 RULE 13A-14(A)/15D-14(A) CERTIFICATION OF THE CHIEF FINANCIAL
OFFICER
32.1 SECTION 1350 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
32.2 SECTION 1350 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
2. Reports on Form 8-K:
NONE
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BPC Holding Corporation
Berry Plastics Corporation
May 10, 2004
By: /S/ JAMES M. KRATOCHVIL
-----------------------
James M. Kratochvil
Executive Vice President, Chief Financial
Officer, Treasurer and Secretary of the
entities listed above (Principal Financial
and Accounting Officer)
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