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, 1997
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 33-75706-01
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)
101 Oakley Street 47710
Evansville, Indiana
(Address of principal executive offices) (Zip code)
Registrant's 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 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 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. 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.
There is no public trading market for any class of voting stock of BPC
Holding Corporation ("Holding"), however, Holding estimates the market value of
its voting stock that is held by non-affiliates to be $951,600.
As of March 20, 1998, the following shares of capital stock of BPC Holding
Corporation were outstanding: 91,000 shares of Class A Voting Common Stock;
259,000 shares of Class A Nonvoting Common Stock; 145,001 shares of Class B
Voting Common Stock; 57,788 shares of Class B Nonvoting Common Stock; and
16,981 shares of Class C Nonvoting Common Stock. As of March 20, 1998, there
were outstanding 100 shares of the Common Stock, $.01 par value, of Berry
Plastics Corporation, 100 shares of the Common Stock, $.01 par value, of Berry
Iowa Corporation, and 100 shares of the Common Stock, $.01 par value, of Berry
Tri-Plas Corporation.
DOCUMENTS INCORPORATED BY REFERENCE
None
BPC HOLDING CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business..................................................... 3
Item 2. Properties................................................... 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 14
Item 6. Selected Financial Data..................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 17
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 21
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................... 22
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 23
Item 11. Executive Compensation...................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................ 30
Item 13. Certain Relationships and Related Transactions.............. 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................... 34
PART I
ITEM 1. BUSINESS
GENERAL
BPC Holding Corporation ("Holding"), is the parent of Berry Plastics
Corporation ("Berry" or the "Company"), which is a leading domestic
manufacturer and marketer of plastic packaging products focused on four key
markets: aerosol overcaps, rigid open-top containers, drink cups and
housewares. The Company had net sales of $227.0 million in fiscal 1997, $151.1
million in fiscal 1996 and $140.7 million in fiscal 1995. Within each of these
markets, the Company concentrates on manufacturing value-added products sold to
marketers of image-conscious industrial and consumer products that utilize the
Company's proprietary molds, superior color matching capabilities and
sophisticated multi-color printing capabilities. The Company believes that it
is the largest supplier of aerosol overcaps in the United States, with sales of
over 1.4 billion overcaps in 1997. Berry also believes that it is the largest
domestic supplier of thinwall, child-resistant and pry-off open top containers.
Berry has utilized its national sales force and existing molding and printing
capacity at multiple-plant locations to become a leader in the plastic drink
cup market, which includes the Company's 32 ounce and 44 ounce DT cups, which
fit in standard vehicle cup holders. The Company entered the housewares market
(which includes the lawn and garden market) for semi-disposable plastic
products, sold primarily to national retail marketers, as a result of the
acquisition of PackerWare Corporation ("PackerWare") in January 1997. For the
1997, 1996 and 1995 fiscal years, aerosol overcaps accounted for approximately
21%, 33% and 31%, respectively, of total net sales; open-top containers
accounted for approximately 49%, 53% and 51%, respectively, of total net sales;
drink cups accounted for approximately 17%, 9% and 12%, respectively; and
housewares accounted for approximately 8% of total net sales for fiscal 1997.
The Company supplies aerosol overcaps for a wide variety of commercial and
consumer products. Similarly, the Company's containers are used for packaging
a broad spectrum of commercial and consumer products. The Company's plastic
drink cups are sold primarily to fast food restaurants, convenience stores,
stadiums, table top restaurants and retail. The Company sells houseware
products, primarily seasonal, semi-disposable housewares and lawn and garden
items, to major retail marketers as a result of its acquisition of PackerWare
in January 1997. Berry's customer base is comprised of over 4,000 customers
with operations in a widely diversified range of markets. The Company's top
ten customers accounted for approximately 19% of the Company's fiscal 1997 net
sales, and no customer accounted for more than 4% of net sales.
The Company believes that it derives a strong competitive position from its
state-of-the-art production capabilities, extensive array of proprietary molds
in a wide variety of sizes and styles and dedication to service and quality.
In the aerosol overcap market, the Company distinguishes itself with superior
color matching capabilities, which is of extreme importance to its base of
image-conscious consumer products customers, and proprietary packing equipment,
which enables the Company to deliver a higher quality product while lowering
warehousing and shipping costs. Likewise, in the container market, an in-house
graphic arts department and sophisticated printing and decorating capabilities
permit the Company to offer extensive value-added decorating options. The
Company's drink cup product line is strengthened by both the larger market
share and diversification provided through its acquisition of PackerWare.
Berry entered the housewares business with its acquisition of PackerWare, which
has a reputation for outstanding quality and service among major retail
marketers and for products which offer high value at a reasonable price to
consumers. The Company is also characterized as an industry innovator,
particularly in the area of decoration. These market-related strengths,
combined with the Company's modern proprietary mold technology, high speed
molding capabilities and multiple-plant locations, all contribute to the
Company's strong market position.
In addition to these marketing and manufacturing strengths, the Company
believes that its close working relationships with customers are crucial to
maintaining market positions and developing future growth opportunities. The
Company employs a direct sales force which is focused on working with customers
and the Company's production and product design personnel to develop customized
packaging that enhances customer product differentiation and improves product
performance. The Company works to develop innovative new products and identify
and pursue non-traditional markets that can use existing Company products.
HISTORY
Imperial Plastics, the Company's predecessor, 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. The Company acquired
substantially all of the assets (the "Mammoth Acquisition") of the Mammoth
Containers division of Genpak Corporation in February 1992, adding plants in
Forest City, North Carolina (which was subsequently sold by the Company) and
Iowa Falls, Iowa.
In March 1995, Berry Sterling Corporation, a Delaware corporation and a
newly-formed wholly-owned subsidiary of the Company ("Berry Sterling"),
acquired substantially all of the assets of Sterling Products, Inc. (the
"Sterling Products Acquisition"), a producer of injection molded plastic drink
cups and lids. Management believes that the Sterling Products Acquisition gave
the Company immediate penetration into a rapidly expanding plastic drink cup
market.
In December 1995, Berry Tri-Plas Corporation (formerly Berry-CPI Corp.), a
Delaware corporation and wholly-owned subsidiary of the Company ("Berry Tri-
Plas"), acquired substantially all of the assets of Tri-Plas, Inc. (the
"Tri-Plas Acquisition"), a manufacturer of injection molded containers and
lids, and added manufacturing plants in Charlotte, North Carolina and York,
Pennsylvania. Management believes that the Tri-Plas Acquisition gave the
Company an immediate presence in the polypropylene container product line,
which is mainly used for food and "hot fill" applications.
In January 1996, the Company acquired the assets relating to the plastic
drink cup product line and decorating equipment of Alpha Products, Inc., a
subsidiary of Aladdin Industries, Inc. The addition of these assets
complimented the drink cup product line acquired in the Sterling Products
Acquisition.
In January 1997, the Company acquired PackerWare Corporation of Lawrence,
Kansas and certain assets of Container Industries, Inc. of Pacoima, California.
In May 1997, Berry Plastics Design Corporation ("Berry Design"), a newly-formed
wholly-owned subsidiary of the Company, acquired substantially all of the
assets of Virginia Design Packaging Corp. of Suffolk, Virginia. In August
1997, the Company acquired Venture Packaging, Inc. of Monroeville, Ohio. See
"The PackerWare Acquisition", "The Container Industries Acquisition", "The
Virginia Design Acquisition" and "The Venture Packaging Acquisition" below.
THE 1996 TRANSACTION
On June 18, 1996, Holding consummated the transaction described below (the
"1996 Transaction"). BPC Mergerco, Inc. ("Mergerco") was organized by Atlantic
Equity Partners International II, L.P. ("International"), Chase Venture Capital
Associates, L.P. ("CVCA") and certain other institutional investors to effect
the acquisition of a majority of the outstanding capital stock of Holding.
Pursuant to the terms of a Stock Purchase and Recapitalization Agreement dated
as of June 12, 1996, each of International, CVCA and certain other equity
investors (collectively, the "Common Stock Purchasers") subscribed for shares
of common stock of Mergerco. In addition, pursuant to the terms of a Preferred
Stock and Warrant Purchase Agreement dated as of June 12, 1996, CVCA and an
additional institutional investor (the "Preferred Stock Purchasers") purchased
shares of preferred stock of Mergerco (the "Preferred Stock") and warrants (the
"1996 Warrants") to purchase shares of common stock of Mergerco. Immediately
after the purchase of the common stock, the preferred stock and the 1996
Warrants of Mergerco, Mergerco merged (the "Merger") with and into Holding,
with Holding being the surviving corporation. Upon the consummation of the
Merger, each share of Class A Common Stock, $.00005 par value, and Class B
Common Stock, $.00005 par value, of Holding and certain privately-held warrants
exercisable for such Class A and Class B Common Stock were converted into the
right to receive cash equal to the purchase price per share for the common
stock into which such warrants were exercisable less the amount of the nominal
exercise price therefor, and all other classes of common stock of Holding, a
majority of which was held by certain members of management, were converted
into shares of common stock of the surviving corporation. In addition, upon
the consummation of the Merger, the holders of the warrants (the "1994
Warrants") to purchase capital stock of Holding that were issued in connection
with the offering in April 1994 by Berry of $100 million aggregate principal
amount of 12.25% Senior Subordinated Notes due 2004 (the "1994 Notes," and such
transaction being the "1994 Transaction"), became entitled to receive cash
equal to the purchase price per share for the common stock into which such
warrants were exercisable less the amount of the exercise price therefor.
The aggregate consideration paid to the sellers of the equity interests in
Holding, including the holders of the 1994 Warrants, was approximately $119.6
million in cash. In order to finance the 1996 Transaction, including the
payment of related fees and expenses: (i) Holding issued 12.50% Senior Secured
Notes due 2006 (with such Notes being exchanged in October 1996 for the 12.50%
Series B Senior Secured Notes due 2006 (the "1996 Notes") for net proceeds of
approximately $100.2 million (or $64.6 million after deducting the amount of
such net proceeds used to purchase marketable securities available for payment
of interest on the 1996 Notes); (ii) the Common Stock Purchasers, the Preferred
Stock Purchasers and certain members of management made equity and rollover
investments in the aggregate amount of $70.0 million (which amount included
rollover investments of approximately $7.1 million by certain members of
management and $3.0 million by an existing institutional shareholder); and
(iii) Holding received an aggregate of approximately $0.9 million in connection
with the exercise of certain management stock options to purchase common stock
of Holding.
In connection with the 1996 Transaction, International, CVCA, certain other
institutional investors and certain members of management entered into a
Stockholders Agreement pursuant to which certain stockholders, among other
things, (i) were granted certain registration rights and (ii) under certain
circumstances, have the right to force a sale of Holding. See "Certain
Relationships and Related Transactions - Stockholders Agreements."
THE CONTAINER INDUSTRIES ACQUISITION
On January 17, 1997, the Company acquired certain assets of Container
Industries, Inc. ("Container Industries") of Pacoima, California (the
"Container Industries Acquisition") . Container Industries, a manufacturer and
marketer of injection molded industrial and pry-off containers for building
products and other industrial markets, had fiscal 1996 net sales of
approximately $4 million. Berry did not acquire Container Industries'
manufacturing facility located in Pacoima; therefore, Berry transferred
production to the Company's Henderson, Nevada plant. Management believes the
acquisition of Container Industries has provided additional market presence on
the west coast, primarily in the pry-off container product line.
THE PACKERWARE ACQUISITION
On January 21, 1997, the Company acquired PackerWare, a Kansas corporation,
for aggregate consideration of approximately $28.1 million (including the
payment of outstanding debt of PackerWare) by way of a merger of PackerWare
with and into a newly-formed, wholly-owned subsidiary of the Company (the
"PackerWare Acquisition"). PackerWare, a manufacturer and marketer of plastic
containers, drink cups, housewares, and lawn and garden products, had fiscal
1996 net sales of approximately $43 million.
Management believes that the PackerWare Acquisition significantly diversified
and expanded the Company's position in the drink cup business and has given the
Company immediate penetration into the housewares market. PackerWare's
reputation among its major customers for outstanding quality and service is
consistent with the customer-oriented goals of Berry. PackerWare's houseware
product line is primarily in the seasonal semi-disposable plastic segment of
the market, with some sales being in the complimentary lawn and garden segment.
Customers for this product line are primarily large retail marketers with
national chains. The acquisition also provided the Company with a plant
located in Lawrence, Kansas, that is well-situated to service its markets. In
addition, the PackerWare Acquisition provided additional product line breadth
and market presence to Berry's existing open-top container product line.
THE VIRGINIA DESIGN ACQUISITION
On May 13, 1997, Berry Plastics Design Corporation, a newly-formed wholly-
owned subsidiary of the Company, acquired substantially all the assets of
Virginia Design Packaging Corp. of Suffolk, Virginia ("Virginia Design").
Virginia Design, a manufacturer and marketer of injection-molded containers
used primarily for food packaging, had fiscal 1996 net sales of approximately
$15 million. Management believes that the acquisition of these assets has
enhanced the Company's position in the food packaging and food service markets.
THE VENTURE PACKAGING ACQUISITION
On August 29, 1997, the Company acquired Venture Packaging, Inc. of
Monroeville, Ohio ("Venture Packaging"), for aggregate consideration of
approximately $43.7 million which included cash, the payment or assumption of
indebtedness, and $5.0 million of preferred stock of Holding and warrants to
purchase stock of Holding (the "Venture Packaging Acquisition"). Venture
Packaging, a manufacturer and marketer of injection-molded containers used in
the food, dairy and various other markets, had fiscal 1996 net sales of
approximately $42 million.
Management believes that the Venture Packaging Acquisition will strategically
assist in marketing the vast product line of open-top containers and lids.
Venture Packaging is a leading supplier to the food service industry. The
Monroeville, Ohio facility is ideally located to service the large northeastern
U.S. market, and Venture Packaging has an excellent reputation for outstanding
service. Management believes that their loyal customers will enhance the
container division's market position.
As a result of the acquisition, the Company also acquired the Anderson, South
Carolina operations of Venture Packaging. The Company has been in the process
of phasing down the operations of this facility and anticipates completion of
this process by the end of 1998. The Company does not anticipate that this
phase down will have a material effect on the financial operations of the
Company. The majority of this business is being relocated to the Charlotte,
North Carolina facility. Also, management anticipates that the Evansville,
Indiana and Monroeville, Ohio facilities will likely receive a portion of this
business.
THE CREDIT FACILITY
In August 1997, the Company entered into an Amended and Restated Financing
and Security Agreement (the "Credit Agreement") with NationsBank, N.A. (the
"Agent") for a senior secured line of credit in an aggregate principal amount
of approximately $127.2 million (the "Credit Facility"). The indebtedness
under the Credit Facility is guaranteed by Holding and the Company's
subsidiaries. The Credit Facility amended and restated the facility previously
provided by the Agent and certain other lenders.
COMMITMENT. The Credit Facility provides the Company with a $50.0 million
revolving line of credit (including a $5.0 million letter of credit
subfacility), subject to a borrowing base formula discussed below, a $28.3
million "A" term loan facility, a $30.0 million "B" term loan facility and an
$18.9 million standby letter of credit facility to support the Company's and
its subsidiaries' obligations under certain industrial revenue bonds (the
"Standby L/C Facility").
MATURITY. The Credit Facility matures on January 21, 2002, unless previously
terminated either (i) voluntarily by the Company or (ii) by the lenders upon an
Event of Default (as defined in the Credit Agreement). The loans under the
term loan facility are subject to scheduled repayments and mandatory
prepayments upon the occurrence of certain events including the sale of certain
assets and the issuance of equity securities.
BORROWING BASE. The total amount of revolving loans and stated amount of
letters of credit (other than under the Standby L/C Facility) that may be
outstanding under the Credit Facility is limited to not more than the lesser of
(i) $50 million and (ii) the sum of (A) up to 85% of eligible accounts
receivable of the Company and its subsidiaries and (B) the lesser of (x) up to
65% of the amounts of inventory of the Company and its subsidiaries and (y) $25
million, subject, in each case, to certain reserves and limitations set forth
in the Credit Agreement.
INTEREST AND FEES. The lenders under the Credit Facility will be paid
commitment fees at a rate of 0.30% per annum on unused commitments and letter
of credit fees equal to 2.00% per annum on the aggregate face amount of
outstanding letters of credit (including under the Standby L/C Facility). The
Company is also obligated to pay a fee, quarterly in arrears, equal to the
product of the average outstanding balance of the "B" term loans and .375%;
such fee may be reduced based upon the satisfaction of a financial ratio. In
addition, the Agent and the lenders will receive such other fees as have been
separately agreed upon. Borrowings under the Credit Facility will bear
interest at a rate per annum equal to, at the option of the Company, either (i)
the Base Rate (which is defined as the higher of the Agent's prime rate and the
Federal Funds Rate plus 0.5%) plus .50% or (ii) the LIBOR Rate (as defined in
the Credit Agreement) plus 2%. Interest and fees are subject to reductions
based upon the satisfaction of certain financial ratios.
SECURITY. The obligations of the Company and the subsidiaries under the
Credit Facility and the guarantees thereof are secured primarily by all of the
assets of such persons.
RESTRICTIVE AND FINANCIAL COVENANTS. The Credit Agreement contains, among
other things, covenants restricting the ability of the Company and its
subsidiaries to dispose of assets or merge, incur debt, pay dividends,
repurchase or redeem capital stock and indebtedness, create liens, make capital
expenditures, make certain investments or acquisitions, enter into transactions
with affiliates and otherwise restricting corporate activities, including
requiring the Company and its subsidiaries to satisfy certain financial ratios.
AEROSOL OVERCAP MARKET
The Company believes it is the leader in the U.S. market for aerosol
overcaps. Approximately one-third of this market consists of national
marketers who produce overcaps in-house for their own needs. Management
believes that a portion of these in-house producers will increase the
outsourcing of their production to high technology, low cost manufacturers,
such as the Company, as a means of reducing manufacturing assets and focusing
on their core marketing objectives.
The Company's aerosol overcaps are used in a wide variety of end-use markets
including spray paints, household and personal care products, insecticides and
a myriad of other commercial and consumer products. Most U.S. manufacturers
and contract fillers of aerosol products are customers of the Company for some
portion of their needs. In fiscal 1997, no single overcap customer accounted
for more than 3% of the Company's total net sales.
Management believes that, over the years, the Company has developed several
significant competitive advantages, including a reputation for outstanding
quality, short lead-time requirements, long-standing relationships with major
customers, the ability to accurately reproduce over 3,500 colors, proprietary
packing technology that minimizes freight cost and warehouse space, high-speed,
low-cost molding and decorating capability and a broad product line of
proprietary molds. The Company continues to develop new products in the
overcap market, including the "spray-thru" line of aerosol overcaps.
The Company's major competitor in this product line is Knight Engineering.
In addition, a number of companies, including several of the Company's
customers (e.g., S.C. Johnson, Cheseborough-Ponds and Reckitt & Colman),
currently produce aerosol overcaps for their own use.
CONTAINER MARKET
The Company classifies its containers into six product lines: "thinwall,"
"child-resistant," "pry-off," "dairy," "polypropylene" and "industrial."
Management believes that the Company is the leading U.S. manufacturer in the
thinwall, child-resistant and pry-off product lines. Management considers
industrial containers to be a commodity market, characterized by little product
differentiation and an absence of higher margin niches. The following table
describes each of the Company's six product lines.
PRODUCT LINE DESCRIPTION SIZES MAJOR END MARKETS
Thinwall Thinwalled, multi-purpose 6 oz. to 2 gallons Food, promotional products, toys
containers with or without and a wide variety of other uses
handles and lids
Child-resistant Containers that meet Consumer 2 lb. to 2 gallons Pool and other chemicals
Product Safety Commission
standards for child safety
Pry-off Containers having a tight lid-fit 4 oz. to 2 gallons Building products, adhesives,
and requiring an opening device other industrial uses
Dairy Thinwall containers in 6 oz. to 5 lbs., Multi- Cultured dairy products including
traditional dairy market sizes pack yogurt, cottage cheese, sour
and styles cream and dips
Polypropylene Usually clear containers in 6 oz. to 5 lbs. Food, deli, sauces, salads
round, oblong or rectangular
shapes
Industrial Thick-walled, larger pails 2.5 to 5 gallons Building products, chemicals,
designed to accommodate heavy paints, other industrial uses
loads
The largest end-uses for the Company's containers are food products, building
products, chemicals and dairy products. The Company has a diverse customer
base for its container lines, and no single container customer exceeded 3% of
the Company's total net sales in fiscal 1997.
Management believes that no other container manufacturer in the U.S. has the
breadth of product line offered by the Company. The Company's container
capacities range from 4 ounces to 5 gallons and are offered in various styles
with accompanying lids, bails and handles, as well as a wide array of
decorating options. In addition to a complete product line, the Company has
sophisticated printing capabilities, an in-house graphic arts department, low
cost manufacturing capability with nine plants strategically located throughout
the United States and a dedication to high quality products and customer
service. Product engineers, located in most of the Company's facilities, work
with customers to design and commercialize new containers.
The Company seeks to develop niche container products and new applications by
taking advantage of the Company's state-of-the-art decorating and graphic arts
capabilities and dedication to service and quality. Management believes that
these capabilities have given the Company 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, the Company relies
extensively on its national sales force. Once these opportunities are
identified, the Company's sales force interfaces with product design engineers
to meet customers' needs. Finally, the quality and performance of the
Company's dairy product line have enabled the Company to establish a solid and
growing reputation in this market.
In non-industrial containers, the Company's strongest competitors include
Airlite, Sweetheart, Landis, Cardinal and Polytainers. The Company also
produces commodity industrial pails for a market which is dominated by large
volume competitors such as Letica, Plastican, NAMPAC and Ropak. The Company
does not participate heavily in this market due to generally lower margins.
The Company intends to selectively participate in the industrial container
market when higher margin opportunities, equipment utilization or customer
requirements make participation an attractive option.
DRINK CUP MARKET
The Company believes that it is a leading provider of plastic drink cups in
the U.S. As beverage producers, convenience stores and fast food restaurants
increase their marketing efforts for larger sized drinks, the Company believes
that the plastic drink cup market will expand because of plastic's desirability
over paper for larger drink cups. Injection-molded plastic cups range in size
from 12 to 64 ounces, and often come with lids. Primary markets are fast food
restaurants, convenience stores, stadiums, table top restaurants and retail.
Virtually all cups are decorated, often as promotional items, and Berry is
known in the industry for innovative, state-of-the-art graphics capability.
Berry historically supplies a full line of traditional straight-sided and DT
style drink cups from 12 to 64 ounces with disposable and reusable lids
primarily to fast food and convenience store chains. With the acquisition of
PackerWare, the Company expanded its presence while diversifying into the
stadium and table top restaurant markets. The 64 ounce cup, which has been
highly successful with convenience stores, is one of the Company's fastest
growing drink cups. In addition to a full product line, Berry has the
advantage of being the only supplier that can provide sophisticated printing
and/or labeling capacity on a nation-wide basis; in 1997, five different plants
molded and decorated drink cups. Major drink cup competitors include Packaging
Resources Incorporated, Pescor Plastics and WNA (formerly Cups Illustrated).
CUSTOM MOLDED PRODUCTS MARKET
The Company also produces custom molded products by utilizing molds provided
by its customers. Typically, the low cost of entry in the custom molded
products market creates a commodity-like marketplace. However, the Company has
focused its custom molding efforts on those customers that are cognizant of the
Company's mold and product design expertise, superior color matching abilities
and sophisticated multi-color printing capabilities. The majority of the
Company's custom business in 1997 required specialized equipment and expertise,
supporting the Company's desire to pursue higher volume-added niche
opportunities in every market in which it participates.
HOUSEWARES MARKET
The Company entered the housewares market as a result of the PackerWare
Acquisition in January 1997. The housewares market is a multi-billion dollar
market. The Company's participation is limited to seasonal (spring and summer)
semi-disposable plastic housewares and plastic lawn and garden products, which
consists primarily of outdoor flower pots. Berry sells virtually all of its
products in this market through major national markets and national chain
stores.
PackerWare's historical position with this market was to provide a high value
to consumers at a relatively modest price, consistent with the key price points
of the retail marketers. Berry believes outstanding service and fashion
capabilities further enhance its position in this market.
MARKETING AND SALES
The Company reaches its large and diversified base of over 4,000 customers
primarily through its direct field sales force which has been expanded from 14
sales representatives in fiscal 1990 to 45 at the end of fiscal 1997. These
field sales representatives are focused on individual product lines, but are
encouraged to sell all Company products to serve the needs of the Company's
customers. The Company believes that a direct field sales force is able to
better focus on target markets and customers, with the added benefit of
permitting the Company to control pricing decisions centrally. The Company
also utilizes the services of manufacturing representatives to augment its
direct sales force.
The Company believes that it has a reputation for a high level of customer
satisfaction. Highly skilled customer service representatives are located in
each of the Company's 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.
Additional marketing and sales techniques include a Graphic Arts department
with computer-assisted graphic design capabilities and in-house production of
photopolymer printing plates. Berry also has a centralized Color Matching and
Materials Blending department that utilizes a computerized spectrophotometer to
insure that colors match those requested by customers.
MANUFACTURING
GENERAL
The Company manufactures its products using the plastic injection molding
process. The process begins when plastic resin, in the form of small pellets,
is fed into an injection molding machine. The injection molding machine then
melts the plastic resin and injects it into a multi-cavity steel mold, forcing
the plastic resin to take the final shape of the product. At the end of each
molding cycle (generally five to 25 seconds), the plastic parts are ejected
from the mold into automated handling systems from which they are packed in
corrugated containers for further processing or shipment. After molding, the
product may be either decorated (printing, silk-screening, labeling) or
assembled (e.g., bail handles fitted to containers). The Company believes that
its molding and decorating capabilities are among the best in the industry.
Each of the Company's plants is managed by a local plant manager and is
treated as a profit center. The Company's overall manufacturing philosophy is
to be a low-cost producer by using high speed molding machines, modern
multi-cavity hot runner, cold runner and insulated runner molds, extensive
material handling automation and sophisticated printing technology. The
Company utilizes state-of-the-art robotic packaging processes for large volume
products, which enables the Company to deliver a higher quality product (due to
reduced breakage) while lowering warehousing and shipping costs (due to more
efficient use of space). Each plant has complete tooling maintenance
capability to support molding and decorating operations. The Company has
historically made, and intends to continue to make, significant capital
investments in plant and equipment because of the Company's objectives to grow,
to improve productivity, to maintain competitive advantages, and meet the
asset-intensive nature of the injection molding business.
The Company operates 175 molding machines ranging from 150 to 825 ton clamp
capacity. The Company's largest overcap machines are capable of producing 10
thousand to 15 thousand aerosol overcaps per hour. Due to the wide variety of
container and drink cup styles and sizes produced by the Company, production
rates vary significantly. The Company owns over 750 active molds.
PRODUCT DEVELOPMENT
The Company utilizes full-time product engineers who use three-dimensional
computer-aided-design (CAD) technology to design and modify new products and
prepare mold drawings. Engineers use an in-house model shop, which includes a
thermoforming machine, to produce prototypes and sample parts. The Company can
simulate the molding environment by running unit-cavity prototype molds in a
small injection molding machine dedicated to research and development of new
products. Production molds are then designed and outsourced for production by
various companies in the United States and Canada with whom the Company has
extensive experience and established relationships. The Company's engineers
oversee the mold-building process from start to finish.
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.
The Evansville, Henderson and Iowa Falls plants were approved for ISO 9000
certification in 1994, 1995 and 1996, respectively, which certifies compliance
by a company with a set of shipping, trading and technology standards
promulgated by the International Standardization Organization. The Company is
actively pursuing ISO certification in all of the remaining 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 the Company's traditional quality assurance activities.
SYSTEMS
Berry utilizes a fully integrated computer software system at its plants
capable of producing complete financial and operational reports by plant as
well as by product line. This accounting and control system is easily
expandable to add new features and/or locations as the Company grows. In
addition, the Company has in place a sophisticated quality assurance system
based on ISO 9000 certification, 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 the Company is plastic resin.
The Company purchased approximately $68 million of resin in fiscal 1997
(excluding specialty resins), of which 74% was high density polyethylene
("HDPE"), 11% linear low density polyethylene and 15% polypropylene. The
Company's purchasing strategy is to deal with only high quality, dependable
suppliers, such as Dow, Union Carbide, Chevron, and Phillips.
The Company does not anticipate having any material difficulties obtaining
raw materials in the foreseeable future. All resin suppliers commit to the
Company to provide uninterrupted supply at competitive prices. Management
believes that the Company has maintained outstanding relationships with these
key suppliers over the past several years and expects that such relationships
will continue into the foreseeable future.
EMPLOYEES
As of December 31, 1997, the Company had approximately 2,100 employees. No
employees of the Company are covered by collective bargaining agreements. On
February 5, 1998, the employees in Monroeville, Ohio voted to decertify the
union in the facility. This facility was acquired as a result of the Venture
Packaging acquisition and was the Company's only plant with a collective
bargaining agreement during 1997.
PATENTS AND TRADEMARKS
The Company has numerous patents and trademarks with respect to its products.
None of the patents or trademarks are considered by management to be material
to the business of the Company. See "Legal Proceedings" below.
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
The past and present operations of the Company and the past and present
ownership and operations of real property by the Company are subject to
extensive and changing Federal, state and local 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. The Company believes that it is in substantial compliance
with applicable environmental laws and regulations. However, the Company
cannot predict with any certainty that it will not in the future incur
liability under environmental statutes and regulations with respect to
contamination of sites formerly or currently owned or operated by the Company
(including contamination caused by prior owners and operators of such sites)
and the off-site disposal of hazardous substances.
The Food and Drug Administration (the "FDA") regulates the material content
of direct-contact food containers and packages, including certain thinwall
containers manufactured by the Company. The Company uses approved resins and
pigments in its direct contact food products and believes it is in material
compliance with all such applicable FDA regulations.
The plastics industry in general, and the Company in particular, also are
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 resin used in the Company's products, HDPE, is
recyclable, and, accordingly, the Company believes that the legislation
promulgated to date and such initiatives to date have not had a material
adverse effect on the Company. There can be no assurance that any such future
legislative or regulatory efforts or future initiatives would not have a
material adverse effect on the Company. 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, the principal requirement is the use of post consumer regrind
("PCR") as an ingredient in containers sold for non-food uses. Additionally,
Oregon and California allow lightweighting of the container or concentrating
the product sold in the container as options for compliance. Oregon and
California provide for an exemption from all such regulations if statewide
recycling reaches or exceeds 25% of rigid plastic containers. In September
1996, California passed a new bill permanently exempting food and cosmetics
containers from the requirement to use recycled plastics to comply with the
earlier recycling law. However, non-food containers are still required to
comply.
In December 1996, the Department of Environmental Quality estimated that Oregon
had met its recycling goal of 25% for 1997 (based on 1996 data), and
accordingly, is in compliance for the 1997 calendar year. However, in January
1998, California finally approved a 23.2% recycling rate for the state during
1996, and since this falls below the required 25% rate for exemption of non-
food containers, the state can now go ahead and begin enforcing its recycled
content mandate on any non-food plastic containers from 8 oz. to 5 gallons. The
Company, in order to facilitate individual customer compliance with these
regulations, is providing customers the option of purchasing containers which
contain PCR or using containers with reduced weight.
ITEM 2. PROPERTIES
The following table sets forth the Company's principal facilities:
LOCATION ACRES SQUARE FOOTAGE USE
Evansville, IN 12.4 397,000 Headquarters and manufacturing
Henderson, NV 12.0 168,000 Manufacturing
Iowa Falls, IA 14.0 101,000 Manufacturing
Charlotte, NC 32.0 48,000 Manufacturing
Lawrence, KS 19.3 423,000 Manufacturing
York, PA 10.0 40,000 Manufacturing
Suffolk, VA 14.0 102,000 Manufacturing
Monroeville, OH 19.0 112,000 Manufacturing
Anderson, SC 37.0 169,000 Manufacturing
The Company believes that its property and equipment are well-maintained, in
good operating condition and adequate for its present needs.
ITEM 3. LEGAL PROCEEDINGS
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 its financial condition.
The Company and/or Berry Sterling are currently litigating two lawsuits that
involve United States Patent No. Des. 362,368 (the "'368 Patent"). The '368
Patent claims an ornamental design for a cup that fits an automobile cup
holder. On September 21, 1995, Berry Sterling filed suit in United States
District Court, Eastern District of Virginia, against Pescor Plastics, Inc.
("Pescor Plastics") for infringement of the '368 Patent. Pescor Plastics filed
counterclaims seeking a declaratory judgment of invalidity and
non-infringement, and damages under the Lanham Act. On December 28, 1995,
Berry Sterling filed suit against Packaging Resources Incorporated ("Packaging
Resources") in United States District Court, Southern District of New York, for
infringement of the '368 Patent. Packaging Resources has filed counterclaims
against Berry Sterling alleging violation of the Lanham Act, tortious
interference with Packaging Resources' prospective business advantage, consumer
fraud and requesting a declaratory judgment that its "Drive-N-Go" cup does not
infringe the '368 Patent. On February 25, 1998, after trial, a jury rendered a
verdict in Berry Sterling's action against Pescor Plastics. The jury found the
`368 Patent to be invalid on the grounds of functionality and obviousness and
awarded Pescor $150,000 on its counterclaim. The jury also found that Pescor
willfully infringed the `368 Patent and awarded Berry Sterling damages of $1.2
million, but this award was not included in the judgment because of the finding
of the invalidity of the Patent. On March 11, 1998, Berry Sterling filed a
motion with the Court to set aside the verdict of invalidity and the award on
the counterclaim. On March 6, 1998, the Court in the Packaging Resources case
put the case on its suspense calendar pending the appeal in the Pescor Plastics
case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no public trading market for any class of common stock of the
Company, Holding, Berry Iowa or Berry Tri-Plas. With respect to the capital
stock of Holding, as of March 20, 1998, there were three holders of the Class A
Voting Common Stock, three holders of the Class A Nonvoting Common Stock, 40
holders of the Class B Voting Common Stock, 58 holders of the Class B Nonvoting
Common Stock and 40 holders of the Class C Nonvoting Common Stock. All of the
issued and outstanding common stock of the Company is held by Holding, and all
of the issued and outstanding common stock of Berry Iowa and Berry Tri-Plas is
held by the Company.
On April 21, 1994, in connection with the 1994 Transaction, the Company paid
a $50.0 million dividend to Holding, the holder of all of its common stock.
Holding utilized the $50.0 million dividend to make a distribution to the
holders of its common stock and holders of certain other equity interests.
Other than the payment of the $50.0 million distribution described above,
Holding has not paid cash dividends on its capital stock. 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 April 21, 1994 (the "1994 Indenture"), among the Company, Holding, Berry
Iowa, Berry Tri-Plas and United States Trust Company of New York, as Trustee,
which relates to the 1994 Transaction, and also the Indenture dated June 18,
1996 (the "1996 Indenture"), between Holding and First Trust of New York,
National Association, as Trustee, which relates to the 1996 Transaction,
Holding and the Company are not permitted to pay any dividends on their common
stock for the foreseeable future. In addition, the Credit Facility contains
covenants which, among other things, restricts the payment of dividends by the
Company. In addition, Delaware law limits Holding's ability to pay dividends
from current or historical earnings or profits or capital surplus. Any
determination to pay cash dividends on common stock of the Company or Holding
in the future will be at the discretion of the Board of Directors of the
Company and Holding, respectively.
On June 18, 1996, in connection with the 1996 Transaction, Holding issued (i)
91,000 shares of Class A Voting Common Stock to CVCA and certain other
institutional investors, (ii) 259,000 shares of Class A Nonvoting Common Stock
to CVCA and certain other institutional investors, (iii) 145,058 shares of
Class B Voting Common Stock to International and certain members of management
of the Company, (iv) 54,942 shares of Class B Nonvoting Common Stock to certain
members of management of the Company, (v) 17,000 shares of Class C Nonvoting
Common Stock to International and certain members of management of the Company,
and (vi) units consisting of an aggregate of 600,000 shares of Series A Senior
Cumulative Exchangeable Preferred Stock and detachable warrants to purchase
shares of Class B Common Stock (both voting and nonvoting) to CVCA and another
institutional investor. The exercise price of the warrants is $.01 per share
and the warrants are currently exercisable.
Holding sold the Common Stock and Preferred Stock referred to above for
aggregate consideration of approximately $70.0 million, which included rollover
investments of approximately $7.1 million by certain members of management and
$3.0 million by an existing institutional shareholder. All of the Common Stock
and Preferred Stock described above were privately placed in transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to Rule 506 of Regulation D
promulgated thereunder.
In addition, in connection with the 1996 Transaction, Holding issued $105.0
million aggregate principal amount of the 1996 Notes on June 18, 1996, whereby
Donaldson, Lufkin & Jenrette Securities Corporation acted as the initial
purchaser in an offering exempt from the registration requirements under the
Securities Act pursuant to Rule 144A promulgated thereunder. Underwriting
discounts and commissions for the offering were $3,150,000.
In August 1997, Holding authorized the creation of 200,000 shares of Series B
Cumulative Preferred Stock. In conjunction with the Venture Packaging
acquisition, on August 29, 1997, these shares were issued by Holding to certain
selling shareholders of Venture Packaging as partial consideration for stock of
Venture Packaging. The Preferred Stock has a stated value of $25 per share,
and dividends accrue at a rate of 14.75% per annum and will accumulate until
declared and paid. The Preferred Stock ranks junior to the Series A Preferred
Stock and prior to all other capital stock of Holding. In addition, Warrants
to purchase 9,924 shares of Class B Non-Voting Common Stock at $108 per share
were issued to the same selling shareholders of Venture Packaging. The
securities described above were privately placed in a transaction exempt from
the registration requirements of the Securities Act pursuant to Rule 505 of
Regulation D promulgated thereunder.
On August 1, 1997, Holding issued 3,009 shares of its Class B Nonvoting
Common Stock to 19 members of management. The shares were sold for aggregate
consideration of $324,972. The shares of stock were privately placed in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Rule 505 of Regulation D promulgated thereunder.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from the consolidated
financial statements of Holding which have been audited by Ernst & Young LLP,
independent auditors. The data should be read in conjunction with the
consolidated financial statements, related notes and other financial
information included herein. Holding's fiscal year is a 52/53 week period
ending generally on the Saturday closest to December 31. All references herein
to "1997," "1996," "1995," "1994" and "1993" relate to the fiscal years ended
December 27, 1997, December 28, 1996, December 30, 1995, December 31, 1994 and
January 1, 1994, respectively.
BPC HOLDING CORPORATION AND ITS SUBSIDIARIES
FISCAL
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------------------------------------------
(IN THOUSANDS OF DOLLARS)
Statement of Operations Data:
Net sales $226,953 $151,058 $140,681 $106,141 $87,830
Cost of goods sold 180,249 110,110 102,484 73,997 65,652
-------------------------------------------------------------------------------------
Gross margin 46,704 40,948 38,197 32,144 22,178
Operating expenses (a) 30,505 23,679 17,670 15,160 17,227
-------------------------------------------------------------------------------------
Operating income 16,199 17,269 20,527 16,984 4,951
Other expenses (b) 226 302 127 184 -
Interest expense, net (c) 30,246 20,075 13,389 10,972 6,582
-------------------------------------------------------------------------------------
Income (loss) before income taxes and (14,273) (3,108) 7,011 5,828 (1,631)
extraordinary charge
Income taxes 138 239 678 11 72
-------------------------------------------------------------------------------------
Income (loss) before extraordinary charge (14,411) (3,347) 6,333 5,817 (1,703)
Extraordinary charge (d) - - - 3,652 -
-------------------------------------------------------------------------------------
Net income (loss) $ (14,411) $ (3,347) $ 6,333 $ 2,165 $(1,703)
=====================================================================================
Preferred stock dividends $ (2,558) $ (1,116) $ - $ - $ -
Common stock dividends - - - 50,000 -
Balance Sheet Data (at end of year):
Working capital $ 20,863 $ 15,910 $ 13,012 $ 13,393 $ 384
Fixed assets 108,218 55,664 52,441 38,103 36,615
Total assets 239,444 145,798 103,465 91,790 60,143
Total debt 306,335 216,046 111,676 112,287 40,936
Stockholders' equity (deficit) (108,975) (97,550) (32,484) (38,838) 5,973
Other Data:
Depreciation and amortization (e) 19,026 11,331 9,536 8,176 11,198
Capital expenditures 16,774 13,581 11,247 9,118 5,586
(a) Operating expenses include business start-up and machine integration
expenses of $3,255 related to the 1997 Acquisitions (as hereinafter
defined), plant consolidation expenses of $480 and $368 related to the
shutdown of the Winchester, Virginia and Reno, Nevada facilities,
respectively, during fiscal 1997; compensation expense related to the 1996
Transaction of $2,762, Tri-Plas Acquisition start-up expenses of $671 and
$907 for costs related to the consolidation of the Winchester, Virginia
facility during fiscal 1996; pursued acquisition costs of $473 and business
start-up expenses of $394 in fiscal 1995; $116 in pursued acquisition costs
in fiscal 1994; and $3,675 of costs associated principally with the
shutdown and disposal of a facility acquired in the Mammoth Acquisition and
$330 of costs related to an unsuccessful acquisition in fiscal 1993.
(b) Other expenses consist of loss on disposal of property and equipment for
the respective periods.
(c) Includes non-cash interest expense of $2,005, $1,212, $950, $1,178, and
$1,617 in fiscal 1997, 1996, 1995, 1994 and 1993, respectively.
(d) During 1994, an extraordinary charge of $3.7 million (including a non-cash
portion of $3.2 million) was recognized as a result of the retirement of
debt concurrent with the issuance of the 1994 Notes.
(e) Depreciation and amortization excludes non-cash amortization of deferred
financing and origination fees and debt discount amortization which are
included in interest expense.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Unless the context discloses otherwise, the "Company" as used in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations shall include Holding and its subsidiaries on a consolidated basis.
The following discussion includes certain forward-looking statements. Actual
results could differ materially from those reflected by the forward-looking
statements in the discussion, and a number of factors could adversely affect
future results, liquidity and capital resources. These factors include, among
other things, the Company's ability to pass through raw material price
increases to its customers, its ability to service debt, the availability of
plastic resin, the impact of changing environmental laws and changes in the
level of the Company's capital investment. Although management believes it has
the business strategy and resources needed for improved operations, future
revenue and margin trends cannot be reliably predicted.
YEAR ENDED DECEMBER 27, 1997
COMPARED TO YEAR ENDED DECEMBER 28, 1996
NET SALES. Net sales increased 50.2% to $227.0 million in 1997, up $75.9
million from $151.1 million in 1996, which sales included an approximate 2%
increase in net selling price due mainly to the impact of cyclical adjustments
in the price of plastic resin. Container sales increased $34.4 million in
1997, primarily due to the continued market strength of base products and the
Venture Packaging, Virginia Design, and Container Industries Acquisitions (such
acquisitions, together with the PackerWare Acquisition, being collectively
referred to as the "1997 Acquisitions"). Net sales in the drink cup product
line increased $23.8 million in 1997 as a result of the PackerWare Acquisition
and a strong increase in existing drink cup business. Aerosol overcap net
sales were relatively flat, decreasing approximately $2.6 million. The
PackerWare Acquisition also brought the Company into the housewares product
market, which provided an additional $17.5 million of net sales in 1997. Other
product lines, including custom molded products and custom mold building,
increased $2.8 million due to large custom programs that occurred in 1997.
GROSS MARGIN. Gross margin increased $5.8 million or 14.1% from $40.9
million (27.1% of net sales) in 1996 to $46.7 million (20.6% of net sales) in
1997. The increase in gross margin is primarily attributed to increased sales
volume as described above. The gross margin as a percent of net sales derived
from the 1997 Acquisitions was approximately 10.6% compared to 23.8% for non-
acquisition related sales. 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 the Company's facilities.
These productivity improvements were offset by increased resin prices in 1997
and the transition of the 1997 Acquisitions.
OPERATING EXPENSES. Operating expenses during 1997 were $30.5 million (13.4%
of net sales), compared with $23.7 million (15.7% of net sales) for 1996.
Sales related expenses, including the cost of expanded sales coverage and
higher product development and marketing expenses, increased $4.4 million,
primarily a result of the 1997 Acquisitions ($3.3 million). General and
administrative expenses decreased $2.3 million in 1997 primarily as a result of
the $2.8 million one-time compensation expense incurred in 1996 which related
to the 1996 Transaction. Intangible amortization increased from $0.5 million in
1996 to $2.2 million for 1997, primarily a result of the amortization of
$1.6 million related to the 1997 Acquisitions.
Other expense increased $2.5 million from $1.6 million for 1996 to $4.1
million in 1997. The 1997 Acquisitions resulted in a charge of $3.2 million in
1997 for start-up related expenses. The PackerWare Acquisition included a
facility in Reno, Nevada, which was closed in 1997. Expense related to the
closing of the Reno facility was $0.5 million in 1997. Plant closing expenses
related to the Winchester, Virginia facility resulted in expenses of $0.4
million for 1997. Included in 1996 was a charge of $0.7 million of start-up
related expense associated with the Tri-Plas Acquisition and $0.9 million
related to the Winchester plant closing.
INTEREST EXPENSE AND INCOME. Net interest expense, including amortization of
deferred financing costs for 1997, was $30.2 million (13.3% of net sales)
compared to $20.1 million (13.3% of net sales) in 1996, an increase of $10.1
million. This increase is due to the full year impact of the 1996 Transaction,
which occurred in June 1996. The 1996 Transaction included an offering of
$105.0 million aggregate principal amount of Senior Secured Notes due 2006
which bear interest at 12.5% annually. $35.6 million of the proceeds from the
Notes were placed in escrow to pay the first three years' of interest on the
Notes. Interest is payable semi-annually on June 15 and December 15 of each
year. Cash interest paid in 1997 was $29.9 million as compared to $19.7 million
for 1996. Interest income for 1997 was $2.0 million, up from $1.3 million in
1996, also attributed to the full year impact of the 1996 Transaction.
INCOME TAXES. During fiscal 1997, the Company incurred $0.1 million in
federal and state income tax compared to $0.2 million for fiscal 1996. The
Company continues to operate in a net operating loss carryforward position for
Federal income tax purposes.
NET INCOME (LOSS) AND EBITDA. The Company recorded a net loss of $14.4
million in 1997 compared to a $3.3 million net loss in 1996 for the reasons
stated above. Adjusted EBITDA for 1997 increased 18.3% to $39.4 million from
$33.3 million in 1996. Adjusted EBITDA is calculated as follows:
1997 1996
--------- --------
($ million)
Earnings Before Interest, Taxes,
Depreciation and Amortization $35.1 $31.3
Loss on the Disposal of Assets 0.2 0.3
Other Adjustments 4.1 1.7
--------- --------
Total Adjusted EBITDA $39.4 $33.3
========= ========
Year Ended December 28, 1996
Compared to Year Ended December 30, 1995
NET SALES. Net sales increased 7.0% to $151.1 million in 1996, up $10.4
million from $140.7 million in 1995. Sales of aerosol overcaps increased $6.1
million. This growth of 14% was mainly due to a strengthening of base business
and the addition of new products. Container sales increased $9.7 million in
1996, due to the continued market strength of base products and the Tri-Plas
Acquisition. Sales in the drink cup product line declined $3.2 million
principally because a national promotion from a major marketer that was
received in 1995 was not repeated in 1996. Other product lines, including
custom molded products and custom mold building, decreased $2.2 million also
due to a custom program that occurred in 1995 but was not repeated in 1996.
Overall, prices declined approximately 2.0% from 1995 due to both market
response to changing raw material prices and competitive market conditions.
GROSS MARGIN. Gross margin increased $2.7 million or 7.1% from $38.2 million
(27.2% of net sales) for 1995 to $40.9 million (27.1% of net sales) in 1996.
The increase in gross margin is primarily attributed to increased sales volume.
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 the Company's facilities. The increase in operating
efficiency offset the previously mentioned price declines, preserving the
Company's gross margin as a percent of sales.
The Winchester, Virginia facility, which was added to the Company as part of
the Sterling Products Acquisition and used primarily for the production of
drink cups, was consolidated into other Berry locations late in 1996 to better
utilize the operating leverage at other manufacturing facilities throughout the
Company.
OPERATING EXPENSES. Operating expenses during 1996 were $23.7 million (15.7%
of net sales), compared with $17.7 million (12.6% of net sales) for 1995.
Sales related expenses, including the cost of expanded sales coverage, and
higher product development and marketing expenses, increased $1.3 million.
General and administrative expenses increased $4.3 million, including $2.7
million due to a one-time compensation expense directly related to the 1996
Transaction, patent litigation expenses of $0.8 million, and $0.6 million of
additional expense as a result of the Tri-Plas Acquisition.
Other expense increased $0.7 million from $0.9 million for 1995 to $1.6
million in 1996. Included in 1996 was a charge of $0.9 million for plant
closing expenses related to the Winchester, Virginia facility, and $0.6 million
of start-up related expense associated with the Tri-Plas Acquisition. Included
in 1995 expense was a charge of $0.5 million due to the discontinued pursuit of
a potential acquisition and $0.2 million of costs associated with the transfer
of the Tri-Plas business.
INTEREST EXPENSE AND INCOME. Net interest expense, including amortization of
deferred financing costs for 1996, was $20.1 million (13.3% of net sales)
compared to $13.4 million (9.5% of net sales) in 1995, an increase of $6.7
million. This increase is due to the 1996 Transaction, when the Company
completed an offering of $105.0 million aggregate principal amount of Senior
Secured Notes due 2006 which bear interest at 12.5% annually. Interest is
payable semi-annually on June 15 and December 15 of each year. Cash interest
paid in 1996 was $19.7 million as compared to $13.4 million for 1995. Interest
income for 1996 was $1.3 million and 1995 was $0.6 million.
INCOME TAXES. During fiscal 1996, the Company incurred $0.2 million in
federal and state income tax compared to $0.7 million of regular income tax for
fiscal 1995.
NET INCOME (LOSS) AND EBITDA. The Company recorded a net loss of $3.3
million in 1996 compared to net income in 1995 of $6.3 million for the reasons
stated above. Adjusted EBITDA for 1996 increased 8.5% to $33.3 million from
$30.7 million in 1995. Adjusted EBITDA is calculated as follows:
1996 1995
--------- --------
($ million)
Earnings Before Interest, Taxes,
Depreciation and Amortization $31.3 $29.7
Loss on the Disposal of Assets 0.3 0.1
Other Adjustments 1.7 0.9
--------- --------
Total Adjusted EBITDA $33.3 $30.7
========= ========
Income Tax Matters
Holding has unused operating loss carryforwards of $21.7 million
for federal income tax purposes which begin to expire in 2010. AMT credit
carryforwards of approximately $2.0 million are available to Holding
indefinitely to reduce future years' federal income taxes.
LIQUIDITY AND CAPITAL RESOURCES
On January 21, 1997, in conjunction with the PackerWare Acquisition, the
Company entered into the Credit Agreement with NationsBank, N.A. for a senior
secured line of credit in an aggregate principal amount of $60.0 million. As a
result of the Virginia Design and Venture Acquisitions, the Credit Facility was
amended and increased to $127.2 million. The Credit Facility provides Berry
with a $50.0 million revolving line of credit, subject to a borrowing base
formula, $58.3 million in term loan facilities, and $18.9 million in letters of
credit to support Berry's and its subsidiaries' obligations under the Nevada,
Iowa, and South Carolina Industrial Revenue Bonds. The indebtedness under the
Credit Facility is guaranteed by Holding and the Company's subsidiaries. See
"Business - The Credit Facility".
The 1994 Indenture and the 1996 Indenture restrict the Company's ability to
incur additional debt and contains other provisions which could limit the
liquidity of the Company.
Net cash provided by operating activities was $14.2 million in 1997 as
compared to $14.4 million in 1996. The decrease can be attributed to a
reduction in accounts payable of approximately $3.5 million resulting from a
discounting program with a key supplier offset partially by positive operating
cash flows generated primarily from increased sales volume.
Capital expenditures in 1997 were $16.8 million, an increase of $3.2 million
from $13.6 million in 1996. Included in capital expenditures during 1997 was
$3.3 million relating to the addition of a new warehouse, production systems
and offices necessary to support production operating levels throughout the
Company. Capital expenditures also included investment of $8.7 million for
molds, $1.2 million for molding machines, $1.4 million for printing equipment
and $2.2 million for miscellaneous accessory equipment and systems. The
capital expenditure budget for 1998 is expected to be $24.6 million, including
approximately $5.3 million for building and systems which includes a warehouse
addition, $10.6 million for molds, $5.8 million for molding and printing
machines, and $2.9 million for miscellaneous accessory equipment.
Increased working capital needs occur whenever the Company experiences strong
incremental demand or a significant rise in the cost of raw material,
particularly plastic resin. However, the Company anticipates that its cash
interest, working capital and capital expenditure requirements for 1998 will be
satisfied through a combination of funds generated from operating activities
and cash on hand, together with funds available under the Credit Facility.
Management bases such belief on historical experience and the substantial funds
available under the Credit Facility. However, the Company cannot predict its
future results of operations.
The 1994 Indenture restricts, and the Credit Facility prohibits, Berry's
ability to pay any dividend or make any distribution of funds to Holding to
satisfy interest and other obligations on the 1996 Notes. Based upon historical
operating results, without a substantial increase in the operating results of
Berry, management anticipates that it will be unable to generate sufficient
cash flow to permit a dividend to Holding in an amount sufficient to meet
Holding's interest payment obligations under the 1996 Notes which begin after
the depletion of the escrow account that was established to pay such interest
and the expiration of Holding's option to pay interest by issuing additional
1996 Notes. In that event, management anticipates that such obligations will
only be met by refinancing the 1996 Notes or raising capital through equity
offerings.
At December 27, 1997, the Company's cash balance was approximately $2.7
million, and the Company had unused borrowing capacity under the Credit
Facility's borrowing base of approximately $12.5 million.
GENERAL ECONOMIC CONDITIONS AND INFLATION
The Company faces various economic risks ranging from an economic downturn
adversely impacting the Company's primary markets to market fluctuations in
plastic resin prices. In the short-term, rapid increases in resin cost, such as
those experienced during 1996, may not be fully recovered through price
increases to customers. Also, shortages of raw materials may occur from time
to time. In the long-term, however, raw material availability and price
changes generally do not have a material adverse effect on gross margin. Cost
changes generally are passed through to customers. In addition, the Company
believes that its sensitivity to economic downturns in its primary markets is
less significant due to its diverse customer base and its ability to provide a
wide array of products to numerous end markets.
The Company believes that it is not affected by inflation except to the
extent that the economy in general is thereby affected. Should inflationary
pressures drive costs higher, the Company believes that general industry
competitive price increases would sustain operating results, although there can
be no assurance that this will be the case.
IMPACT OF YEAR 2000
The Company has been working on modifying or replacing portions of its
software since 1991 so that its computer systems will function properly with
respect to dates in the Year 2000 and thereafter. Because the Company
commenced this process early, the costs incurred to address this issue in any
single year have not been significant.
However, the Company is currently evaluating the necessity to replace
significant portions of its primary information systems, principally because of
the growth the Company has experienced in recent years due to acquisitions.
Such replacement, when undertaken, will allow the Company to continue to
achieve its future growth plans and will be fully Year 2000 compliant. The
Company anticipates that the selection and implementation of such systems is
likely to occur before the Year 2000, but it is not necessary for the
replacement to occur in order for the Company to minimize its exposure to Year
2000 system failures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors F- 1
Consolidated Balance Sheets at December 27, 1997 and December 28, 1996 F- 2
Consolidated Statements of Operations for the years ended December 27, 1997,
December 28, 1996 and December 30, 1995 F- 4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the years
ended December 28, 1997, December 28, 1996 and December 30, 1995 F- 5
Consolidated Statements of Cash Flows for the years ended December 27, 1997,
December 28, 1996 and December 30, 1995 F- 6
Notes to Consolidated Financial Statements F- 7
INDEX TO FINANCIAL STATEMENT SCHEDULES
I. Condensed Financial Information of Registrant S- 1
II. Valuation and Qualifying Accounts S- 5
All other schedules have been omitted because they are not applicable or not
required or because the required information is included in the consolidated
financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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 and its
subsidiaries:
NAME AGE TITLE ENTITY
Roberto Buaron(1)(4) 51 Chairman and Director Company and Holding
Martin R. Imbler(1)(4) 50 President, Chief Executive Company
Officer and Director
President and Director Holding
Douglas E. Bell 46 Executive Vice President, Sales Company
and Marketing and Director
Ira G. Boots 44 Executive Vice President, Company
Operations and Director
James M. Kratochvil 41 Executive Vice President, Chief Company
Financial Officer, Treasurer and
Secretary
Executive Vice President, Chief Holding
Financial Officer and Secretary
R. Brent Beeler 45 Executive Vice President, Sales Company
and Marketing
Ruth Richmond 35 Vice President, Planning and Company
Administration
David Weaver 35 Vice President and Plant Manager Company
- Lawrence
Fredrick A. Heseman 45 Vice President and Plant Manager Company
- Evansville
Bruce J. Sims 48 Vice President - Sales and Company
Marketing, Housewares
George A. Willbrandt 53 Vice President - Sales and Company
Marketing
Lawrence G. Graev(2)(3) 53 Director Company and Holding
James A. Long(2)(3) 55 Vice President, Assistant Company
Secretary and Director
Vice President, Treasurer and Holding
Director
Donald J. Hofmann, Jr.
(1)(2)(3)(4) 40 Director Company and Holding
Mathew J. Lori 34 Director Company and Holding
David M. Clarke 47 Director Company and Holding
(1) Member of the Stock Option Committee of Holding.
(2) Member of the Audit Committee of Holding.
(3) Member of the Audit Committee of the Company.
(4) Member of the Compensation Committee of the Company.
ROBERTO BUARON has been Chairman and a Director of the Company since it was
organized in December 1990. He has also served as Chairman and a Director of
Holding since 1990. He is the Chairman and Chief Executive Officer of First
Atlantic Capital, Ltd. ("First Atlantic"), which he founded in 1989. From 1987
to 1989, he was an Executive Vice President with Overseas Partners, Inc., an
investment management firm. From 1983 to 1986 he was First Vice President of
Smith Barney, Inc., and a General Partner of First Century Partnership, its
venture capital affiliate. Prior to 1983, he was a Principal at McKinsey &
Company.
MARTIN R. IMBLER has been President, Chief Executive Officer and a Director
of the Company since January 1991. He has also served as a Director of Holding
since January 1991, and as President of Holding since May 1996. From June 1987
to December 1990, he was President and Chief Executive Officer of Risdon
Corporation, a cosmetic packaging company. Mr. Imbler was employed by American
Can Company from 1981 to 1987, as Vice President and General Manager of the
East/South Region Food and General Line Packaging business from 1985 to 1987
and as Vice President, Marketing, from 1981 to 1985. Mr. Imbler is also a
Director of Portola Packaging, Inc., a manufacturer of closures used in the
dairy industry.
DOUGLAS E. BELL has been Executive Vice President, Sales and Marketing, and a
Director of the Company since March 1991. From December 1990 to March 1991,
Mr. Bell was Chief Operating Officer of the Company. Mr. Bell was employed by
Old Berry, acting as interim Chief Operating Officer from July 1990 to December
1990, and prior to July 1990, as Vice President, Sales of Imperial Plastics.
IRA G. BOOTS has been Executive Vice President, Operations, and a Director of
the Company since April 1992. Prior to that, Mr. Boots was Vice President of
Operations, Engineering and Product Development of the Company from December
1990 to April 1992. Mr. Boots was employed by Old Berry from 1984 to December
1990 as Vice President, Operations.
JAMES M. KRATOCHVIL was promoted to Executive Vice President, Chief Financial
Officer, Secretary and Treasurer of the Company in 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 was also
promoted to Executive Vice President, Chief Financial Officer and Secretary of
Holding in December 1997. He has 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 promoted to Executive Vice President, Sales and Marketing
in February, 1996. He formerly served as 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.
RUTH RICHMOND has been Vice President, Planning and Administration of the
Company since January 1995. From January 1994 to December 1994, Ms. Richmond
was Vice President and Plant Manager-Henderson. Ms. Richmond was Plant
Manager-Henderson from February 1993 to January 1994 and Assistant General
Manager-Henderson from February 1991 to February 1993. Ms. Richmond joined the
accounting department of Old Berry in 1986.
DAVID WEAVER has been Vice President and Plant Manager-Lawrence of the
Company since January 1997. From January 1993 to January 1997, he was Vice
President and Plant Manager-Iowa Falls. From February 1992 to January 1993,
Mr. Weaver was Plant Manager-Iowa Falls and, prior to that, he was Maintenance
Engineering Supervisor from July 1990 to February 1992. Mr. Weaver was a
Project Engineer from January 1989 to July 1990 for Old Berry.
FREDRICK A. HESEMAN was promoted to Vice President and Plant
Manager-Evansville of the Company in December 1997. From October 1996 to
December 1997, Mr. Heseman was Plant Manager-Evansville, and prior to that, he
was Engineering Manager from December 1990 to October 1996. Mr. Heseman was
employed by Old Berry from June 1987 to December 1990 as Engineering Manager.
BRUCE J. SIMS has been Vice President, Sales and Marketing, Housewares of the
Company since January 1997. Prior to the PackerWare Acquisition, Mr. Sims
served as President of PackerWare from March 1996 to January 1997 and as Vice
President from October 1994 to March 1996. From January 1990 to October 1994
he was Vice President of the Miner Container Corporation, a national injection
molder. Mr. Sims was Executive Vice President of MKM Distribution Company from
1985 to 1990.
GEORGE A. WILLBRANDT was promoted to Vice President, Sales and Marketing of
the Company in April 1997. He formerly served as Vice President, Sales and
Marketing of Berry Sterling since 1995. Prior to that he was President and
co-owner of Sterling Products, which he founded in 1983.
LAWRENCE G. GRAEV has been a Director of the Company and Holding since August
1995. Mr. Graev is the Chairman of the law firm of O'Sullivan Graev &
Karabell, LLP of New York, where he has been a partner since 1974. Mr. Graev
is also a Director of First Atlantic.
JAMES A. LONG has been Vice President, Assistant Secretary and a Director of
the Company since 1991. He has also served as Vice President, Treasurer and a
Director of Holding since 1991. He has been an Executive Vice President of
First Atlantic since March 1991. From January 1990 to February 1991, Mr. Long
was an Executive Vice President at Kleinwort Benson N.A., Inc., an equity
leveraged buyout fund. Prior to 1989, he was an Executive Vice President and a
member of various executive and operating committees of Primerica Corporation.
DONALD J. HOFMANN, JR. has been a director of Holding and the Company since
June 1996. Mr. Hofmann has been a General Partner of Chase Capital Partners
since 1992. Prior to that, he was head of MH Capital Partners Inc., the equity
investment arm of Manufacturers Hanover. Mr. Hofmann is also a director of USN
Communications, Inc., a local exchange carrier that offers a bundled package of
telecommunications products.
MATHEW J. LORI has been a director of Holding and the Company since October
1996. Mr. Lori has been a Principal with Chase Capital Partners since January
1998, and prior to that, Mr. Lori had been an Associate since April 1996. From
September 1993 to March 1996, he was an Associate in the Merchant Banking Group
of The Chase Manhattan Bank, N.A.
DAVID M. CLARKE has been a director of Holding and the Company since June
1996. Mr. Clarke is a Managing Director with Aetna, Inc., a private equity
investment group and, prior to that, he had been a Vice President in the
Investment Group of Aetna Life Insurance Company from 1988 to 1996.
The New Stockholders Agreement contains provisions regarding the election of
directors. See "Certain Relationships and Related Transactions - Stockholders
Agreements."
BOARD COMMITTEES
The Board of Directors of Holding has an Audit Committee and a Stock
Option Committee, and the Board of Directors of the Company has an Audit
Committee and a Compensation Committee. The Audit Committees oversee the
activities of the independent auditors and internal controls. The Stock Option
Committee administers the BPC Holding Corporation 1996 Stock Option Plan. The
Compensation Committee makes recommendations to the Board of Directors of the
Company concerning salaries and incentive compensation for officers and
employees of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by the
Company to its Chief Executive Officer and the four other most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers") for services rendered in all capacities to the Company
during fiscal 1997, 1996 and 1995:
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------- --------------
SECURITIES
FISCAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
------------------------------- ---- ------- -------- -------- ------------
Martin R. Imbler 1997 $ 307,396 $ 87,623 - $ 1,520
President and Chief Executive 1996 292,078 128,993 8,472 595,848
Officer 1995 275,625 157,500 - 1,424
Douglas E. Bell 1997 154,485 72,868 - 1,520
Executive Vice President, Sales 1996 145,735 94,205 5,214 239,335
and Marketing 1995 137,525 124,428 - 1,424
Ira G. Boots 1997 151,691 72,868 - 1,520
Executive Vice President, 1996 145,735 94,205 5,214 239,335
Operations 1995 137,525 124,428 - 1,424
James M. Kratochvil 1997 119,459 56,307 - 1,520
Executive Vice President, Chief 1996 112,614 72,796 3,259 120,427
Financial Officer, Treasurer and 1995 106,270 96,150 - 1,424
Secretary
R. Brent Beeler 1997 125,973 60,554 - 1,520
Executive Vice President, 1996 121,108 72,796 3,259 120,427
Sales and Marketing 1995 106,270 96,150 - 1,424
(1) Amounts shown reflect contributions by the Company under the Company's
401(k) plan and payments made under a one-time deferred bonus award plan.
See "Certain Relationships and Related Transactions - Management."
FISCAL YEAR-END OPTION HOLDINGS
The following table provides information on the number of exercisable and
unexercisable management stock options at December 27, 1997.
FISCAL YEAR-END OPTION VALUES(1)
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
Fiscal Year-End at Fiscal Year-End
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------- ------------------------- --------------------------
(#)(2) (2)
Martin R. Imbler 2,541/5,931 $55,902/$130,482
Douglas E. Bell 1,564/3,650 34,408/80,300
Ira G. Boots 1,564/3,650 34,408/80,300
James M. Kratochvil 977/2,282 21,494/50,204
R. Brent Beeler 977/2,282 21,494/50,204
(1) None of Holding's capital stock is currently publicly traded. The values
reflect management's estimate of the fair market value of the Class B
Nonvoting Common Stock at December 27, 1997.
(2) All options granted to management of the Company are exercisable for shares
of Class B Nonvoting 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 an employment agreement with Mr. Imbler (the "Imbler
Employment Agreement") that expires on June 30, 2001. Base compensation under
the Imbler Employment Agreement for fiscal 1997 was $307,396. The Imbler
Employment Agreement also provides for an annual performance bonus of $50,000
to $175,000 based upon the Company's attainment of certain financial targets.
The Company may terminate Mr. Imbler's employment for "cause" or upon a
"disability" (as such terms are defined in the Imbler Employment Agreement).
If the Company terminates Mr. Imbler "without cause" (as defined in the Imbler
Employment Agreement), Mr. Imbler is entitled to receive, among other things,
the greater of (i) one year's salary or (ii) 1/12 of one year's salary for each
year (not to exceed 24 years in the aggregate) of employment with the Company.
The Imbler Employment Agreement also contains customary noncompetition,
nondisclosure and nonsolicitation provisions.
The Company also has employment agreements with each of Messrs. Bell, Boots,
Kratochvil and Beeler (each, an "Employment Agreement" and, collectively, the
"Employment Agreements"), each of which expires on June 30, 2001. The
Employment Agreements provided for fiscal 1997 base compensation of $154,485,
$151,691, $119,459 and $125,973, respectively. Salaries are subject in each
case to annual adjustment at the discretion of the Compensation Committee of
the Board of Directors of the Company. The Employment Agreements entitle each
executive to participate in all other incentive compensation plans established
for executive officers of the Company. The Company may terminate each
Employment Agreement for "cause" or a "disability" (as such terms are defined
in the Employment Agreements). If the Company terminates an executive's
employment without "cause" (as defined in the Employment Agreements), the
Employment Agreements require the Company to pay certain amounts to the
terminated executive, including (i) the greater of (A) one year's salary or (B)
1/12 of one year's salary for each year (not to exceed 24 years in the
aggregate) of employment with the Company, and (ii) certain benefits under
applicable incentive compensation plans. Each Employment Agreement also
includes customary noncompetition, nondisclosure and nonsolicitation
provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company established the Compensation Committee in October 1996. The
annual salary and bonus paid to Messrs. Imbler, Bell, Boots, Kratochvil and
Beeler are 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. Imbler pursuant to policies
established in consultation with the Compensation Committee.
The Company is party to an Amended and Restated Management Agreement (the
"FACL Management Agreement") with First Atlantic pursuant to which First
Atlantic provides the Company 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, the
Company paid First Atlantic fees and expenses of $771,200 for fiscal 1997,
$787,600 for fiscal 1996 and $816,900 for fiscal 1995. First Atlantic also
received a $100,000 advisory fee in both March and December 1995 for
originating, structuring and negotiating the Sterling Products Acquisition and
the Tri-Plas Acquisition, respectively. In connection with the 1996
Transaction, the FACL Management Agreement was amended to provide for a fee for
services rendered in connection with certain transactions equal to the lesser
of (i) 1% of the total transaction value and (ii) $1,250,000 for any such
transaction consummated plus out-of-pocket expenses in respect of such
transaction, whether or not consummated. Also in connection with the 1996
Transaction, Holding paid a fee of $1,250,000 plus reimbursement for
out-of-pocket expenses to First Atlantic for advisory services, including
originating, structuring and negotiating the 1996 Transaction. First Atlantic
received advisory fees of approximately $287,500 and $28,700 in January 1997
for originating, structuring and negotiating the PackerWare Acquisition and the
Container Industries Acquisition, respectively. First Atlantic received
advisory fees of approximately $117,900 and $531,600 in May 1997 and August
1997, respectively, for originating, structuring and negotiating the Virginia
Design Acquisition and the Venture Packaging Acquisition, respectively. See
"Certain Relationships and Related Transactions."
Mr. Buaron, the Chairman and a director of Holding and the Company, is the
Chairman and Chief Executive Officer of First Atlantic. Mr. Graev is a
director, and Mr. Long is an officer, of First Atlantic. As an officer and the
sole stockholder of First Atlantic, Mr. Buaron is entitled to receive any
bonuses paid and any dividends declared by First Atlantic on its capital stock,
including any bonuses paid as a result of, and any dividends paid out of, the
$1,250,000 fee paid by Holding to First Atlantic in connection with the 1996
Transaction or any of the fees paid with respect to the acquisitions described
above. First Atlantic is engaged by International to provide certain financial
and management consulting services for which it receives annual fees. First
Atlantic and International have completely distinct ownership and equity
structures. See "Certain Relationships and Related Transactions."
Atlantic Equity Partners, L.P. (the "Fund"), a stockholder of Holding prior
to the consummation of the 1996 Transaction, received approximately $67.6
million from the sale of its common stock in Holding and warrants to purchase
common stock. First Atlantic is engaged by the Fund to provide certain
financial and management consulting services for which it receives annual fees.
First Atlantic and the Fund have completely distinct ownership and equity
structures. Atlantic Equity Associates, L.P., a Delaware limited partnership
("AEA"), is the sole general partner of the Fund. Mr. Buaron is the sole
shareholder of Buaron Capital Corporation ("Buaron Capital"). Buaron Capital
is the managing and sole general partner of AEA. By virtue of their direct and
indirect ownership interests in the Fund, Buaron Capital and Mr. Long were
entitled to receive a portion of the proceeds from the sale of the equity
interests in Holding. See "Certain Relationships and Related Transactions."
In connection with the 1996 Transaction, Mr. Imbler, a director of the
Company and Holding, and Messrs. Bell and Boots, directors of the Company,
received approximately $5.9 million, $2.5 million and $2.4 million,
respectively, from their sale of certain equity interests in Holding. In
connection with the 1994 Transaction, the Company paid a $50.0 million dividend
on its common stock to Holding, and Holding distributed that amount to its
holders of equity interests. In connection therewith, Holding agreed to pay
cash bonuses, upon the occurrence of certain events, to the members of
management who held options under Holding's 1991 Stock Option Plan in amounts
equal to the amounts they would have been entitled to had the shares of common
stock underlying their unvested options been outstanding at the time of the
declaration of the $50.0 million dividend by Holding. As a result of the 1996
Transaction, such bonuses were paid to Messrs. Imbler, Bell and Boots in the
amounts of approximately $594,000, $238,000 and $238,000, respectively. See
"Certain Relationships and Related Transactions."
In connection with the 1996 Transaction, Chase Securities Inc. ("Chase
Securities"), an affiliate of CVCA and Messrs. Hofmann and Lori, received a fee
of $500,000 for arranging the sale of $15.0 million of Holding's Common Stock
to certain of the Common Stock Purchasers and the sale of $15.0 million of
Holding's Preferred Stock to CVCA. Chase Manhattan Investment Holdings, Inc.
("CMIHI"), an affiliate of Chase Securities and Messrs. Hofmann and Lori,
received approximately $13.6 million from the sale of equity interests of
Holding in the 1996 Transaction.
Mr. Graev, a member of the Board of Directors of Holding and the Company, is
the Chairman of the law firm of O'Sullivan Graev & Karabell, LLP, New York, New
York. O'Sullivan Graev & Karabell, LLP provides legal services to the Company
and Holding in connection with certain matters, principally relating to
transactional, securities law, general corporate and litigation matters. See
"Certain Relationships and Related Transactions."
STOCK OPTION PLAN
Employees, directors and certain independent consultants of the Company and
its subsidiaries are entitled to participate in the BPC Holding Corporation
1996 Stock Option Plan (the "Option Plan"), which provides for the grant of
both "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and stock options that
are non-qualified under the Code. The total number of shares of Class B
Nonvoting Common Stock of Holding for which options may be granted pursuant to
the Option Plan is 51,620. The Option Plan will terminate on October 3, 2003 or
such earlier date on which the Board of Directors of Holding, in its sole
discretion, determines. The Stock Option Committee of the Board of Directors
of Holding administers all aspects of the Option Plan, including selecting
which of the Company's directors, employees and independent consultants will
receive options, the time when options are granted, whether the options are
incentive stock options or non-qualified stock options, the manner and timing
for vesting of such options, the terms of such options, the exercise date of
any options and the number of shares subject to such options. Directors who
are also employees are eligible to receive options under the Option Plan.
The exercise price of incentive stock options granted by Holding under the
Option Plan may not be less than 100% of the fair market value of the Class B
Nonvoting Common Stock at the time of grant and the term of any option may not
exceed seven years. With respect to any employee who owns stock representing
more than 10% of the voting power of the outstanding capital stock of Holding,
the exercise price of any incentive stock option may not be less than 110% of
the fair market value of such shares at the time of grant and the term of such
option may not exceed five years. The exercise price of a non-qualified stock
option is determined by the Stock Option Committee on the date the option is
granted. However, the exercise price of a non-qualified stock option may not
be less than 100% of the fair market value of Class B Nonvoting Common Stock if
the option is granted at any time after the initial public offering of such
stock.
Options granted under the Option Plan are nontransferable except by will and
the laws of descent and distribution. Options granted under the Option Plan
typically expire after seven years and vest over a five-year period based on
timing as well as achieving financial performance targets.
Under the Option Plan, as of December 27, 1997, there were outstanding
options to purchase an aggregate of 47,708 shares of Class B Nonvoting Common
Stock to 52 employees of the Company, at an exercise price between $100 and
$108 per share. Of that amount, options to purchase an aggregate of 25,418
shares have been issued to the Named Executive Officers in October 1996, at an
exercise price of $100 per share, including 8,472 to Mr. Imbler, 5,214 to each
of Messrs. Bell and Boots, and 3,259 to each of Messrs. Beeler and Kratochvil.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
STOCK OWNERSHIP
All of the outstanding capital stock of the Company is owned by Holding. The
following table sets forth certain information regarding the ownership of the
capital stock of Holding with respect to (i) each person known by Holding to
own beneficially more than 5% of the outstanding shares of any class of its
voting capital stock, (ii) each of Holding's directors, (iii) the Named
Executive Officers and (iv) all directors and officers 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.
SHARES OF SHARES OF
VOTING NONVOTING
COMMON STOCK(1) COMMON STOCK(1) PERCENTAGE OF
PERCENTAGE OF ALL CLASSES OF
NAME AND ADDRESS OF VOTING COMMON STOCK
BENEFICIAL OWNER CLASS A CLASS B COMMON STOCK CLASS A CLASS B CLASS C (FULLY-DILUTED)
- ------------------------- ------- ------- ------------ ------- ------- ------- ---------------
Atlantic Equity Partners
International II, - 125,750 53.3% - - 10,688 21.0%
L.P.(2)
Chase Venture Capital
Associates, L.P.(3) 52,000 5,623 (4) 23.8 148,000 17,837 (4) - 34.4
BPC Equity, LLC(5) 31,200 - 13.2 88,800 - - 18.5
Roberto Buaron(6) - 125,750 53.3 - - 10,688 21.0
Martin R. Imbler - 5,494 2.3 - 18,177 (7) 1,795 3.8
James A. Long(8) - 195 * - 555 64 *
Lawrence G. Graev(9) - - - - - - -
Donald J. Hofmann, Jr.(10) 52,000 5,623 (4) 23.8 148,000 17,837 (4) - 34.4
Mathew J. Lori(11) 52,000 5,623 (4) 23.8 148,000 17,837 (4) - 34.4
David M. Clarke(12) 31,200 - 13.2 88,800 - - 18.5
Douglas E. Bell - 2,392 1.0 - 8,372(13) 782 1.7
Ira G. Boots - 2,280 1.0 - 8,054(14) 744 1.7
James M. Kratochvil - 1,196 * - 4,381(15) 391 *
R. Brent Beeler - 1,196 * - 4,381(16) 391 *
All officers and directors
as a group (17 persons) 83,200 140,448 94.8 236,800 42,526 15,491 88.8
* Less than one percent.
(1) The authorized capital stock of Holding consists of 3,500,000 shares of
capital stock, including 2,500,000 shares of Common Stock, $.01 par value
(the "Holding Common Stock"), and 1,000,000 shares of Preferred Stock, $.01
par value (the "Holding Preferred Stock"). Of the 2,500,000 shares of
Holding Common Stock, 500,000 shares are designated Class A Voting Common
Stock, 500,000 shares are designated Class A Nonvoting Common Stock, 500,000
shares are designated Class B Voting Common Stock, 500,000 shares are
designated Class B Nonvoting Common Stock, and 500,000 shares are designated
Class C Nonvoting Common Stock. Of the 1,000,000 shares of Holding
Preferred Stock, 600,000 shares are designated Series A Senior Cumulative
Exchangeable Preferred Stock, and 200,000 shares are designated Series B
Cumulative Preferred Stock.
(2) Address is P. O. Box 847, One Capital Place, Fourth Floor, Grand Cayman,
Cayman Islands, British West Indies. Atlantic Equity Associates
International II, L.P., a Delaware limited partnership ("AEA II"), is the
sole general partner of International and as such exercises voting and/or
investment power over shares of capital stock owned by International,
including the shares of Holding Common Stock held by International (the
"International Shares"). Mr. Buaron is the sole shareholder of Buaron
Holdings Ltd. ("BHL"). BHL is the sole general partner of AEA II. As the
general partner of AEA II, BHL may be deemed to beneficially own the
International Shares. BHL disclaims any beneficial ownership of any shares
of capital stock owned by International, including the International Shares.
Through his affiliation with BHL and AEA II, Mr. Buaron controls the sole
general partner of International and therefore has the authority to control
voting and/or investment power over, and may be deemed to beneficially own,
the International Shares. Mr. Buaron disclaims any beneficial ownership of
any of the International Shares.
(3) Address is 380 Madison Avenue, 12th Floor, New York, New York 10017.
(4) Represents warrants to purchase such shares of common stock held by CVCA
which are currently exercisable.
(5) Address is c/o Aetna Life Insurance Company, Private Equity Group, IG6U,
151 Farmington Avenue, Hartford, Connecticut 06156. Aetna Life Insurance
Company exercises voting and/or investment power over shares of capital
stock owned by BPC Equity, LLC ("BPC Equity"), including shares of Holding
Common Stock held by BPC Equity.
(6) Address is c/o First Atlantic Capital, Ltd., 135 East 57th Street, New
York, New York 10022. Represents shares of Holding Common Stock owned by
International. Mr. Buaron is the sole shareholder of BHL. BHL is the sole
general partner of AEA II. AEA II is the sole general partner of
International and as such, exercises voting and/or investment power over
shares of capital stock owned by International, including the International
Shares. Mr. Buaron, as the sole shareholder and Chief Executive Officer of
BHL, controls the sole general partner of International and therefore has
voting and/or investment power over, and may be deemed to beneficially own,
the International Shares. Mr. Buaron disclaims any beneficial ownership of
the International Shares.
(7) Includes 2,541 options granted to Mr. Imbler, which are presently
exercisable.
(8) Address is c/o First Atlantic Capital, Ltd., 135 East 57th Street, New
York, New York 10022.
(9) Address is c/o O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza, New
York, New York 10112.
(10) Address is c/o Chase Capital Partners, 380 Madison Avenue, 12th Floor, New
York, New York 10017. Represents shares owned by CVCA. Mr. Hofmann is a
General Partner of Chase Capital Partners, which is the private equity
investment arm of Chase Manhattan Corporation, which is an affiliate of
CVCA. Mr. Hofmann disclaims any beneficial ownership of the shares of
Holding Common Stock held by CVCA.
(11) Address is c/o Chase Capital Partners, 380 Madison Avenue, 12th Floor, New
York, New York 10017. Represents shares owned by CVCA. Mr. Lori is a
Principal with Chase Capital Partners, which is the private equity
investment arm of Chase Manhattan Corporation, which is an affiliate of
CVCA. Mr. Lori disclaims any beneficial ownership of the shares of Holding
Common Stock held by CVCA.
(12) Address is c/o Aetna Life Insurance Company, Private Equity Group, IG6U,
151 Farmington Avenue, Hartford, Connecticut 06156. Represents shares owned
by BPC Equity. Mr. Clarke is a Managing Director of Aetna, Inc., an
affiliate of Aetna Life Insurance Company, which is a member of BPC Equity.
Mr. Clarke disclaims any beneficial ownership of the shares of Holding
Common Stock held by BPC Equity.
(13) Includes 1,564 options granted to Mr. Bell, which are currently
exercisable.
(14) Includes 1,564 options granted to Mr. Boots, which are currently
exercisable.
(15) Includes 977 options granted to Mr. Kratochvil, which are currently
exercisable.
(16) Includes 977 options granted to Mr. Beeler, which are currently
exercisable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FIRST ATLANTIC
Pursuant to the FACL Management Agreement, First Atlantic provides the
Company 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, the Company paid First Atlantic
fees and expenses of approximately $771,200 for fiscal 1997, $787,600 for
fiscal 1996 and $816,900 for fiscal 1995. First Atlantic also received a
$100,000 advisory fee in both March and December 1995 for originating,
structuring and negotiating the Sterling Products Acquisition and the Tri-Plas
Acquisition, respectively. In connection with the 1996 Transaction, the FACL
Management Agreement was amended to provide for a fee for services rendered in
connection with certain transactions equal to the lesser of (i) 1% of the total
transaction value and (ii) $1,250,000 for any such transaction consummated plus
out-of-pocket expenses in respect of such transaction, whether or not
consummated. Also in connection with the 1996 Transaction, Holding paid a fee
of $1,250,000 plus reimbursement for out-of-pocket expenses to First Atlantic
for advisory services, including originating, structuring and negotiating the
1996 Transaction. First Atlantic received advisory fees of approximately
$287,500 and $28,700 in January 1997 for originating, structuring and
negotiating the PackerWare Acquisition and the Container Industries
Acquisition, respectively. First Atlantic received advisory fees of
approximately $117,900 and $531,600 in May 1997 and August 1997, respectively,
for originating, structuring and negotiating the Virginia Design Acquisition
and the Venture Packaging Acquisition, respectively.
Mr. Buaron, the Chairman and a director of Holding and the Company, is the
Chairman and Chief Executive Officer of First Atlantic. As an officer and the
sole stockholder of First Atlantic, Mr. Buaron is entitled to receive any
bonuses paid and any dividends declared by First Atlantic on its capital stock,
including any bonuses paid as a result of, and any dividends paid out of, the
$1,250,000 fee paid by Holding to First Atlantic in connection with the 1996
Transaction or any of the fees paid with respect to the acquisitions described
above. Mr. Long is also an officer of First Atlantic, and Mr. Graev is a
director. First Atlantic is engaged by International to provide certain
financial and management consulting services for which it receives annual fees.
First Atlantic and International have completely distinct ownership and equity
structures.
Atlantic Equity Partners, L.P. (the "Fund"), a stockholder of Holding prior
to the consummation of the 1996 Transaction, received approximately $67.6
million from the sale of its common stock in Holding and warrants to purchase
common stock. First Atlantic is engaged by the Fund to provide certain
financial and management consulting services for which it receives annual fees.
First Atlantic and the Fund have completely distinct ownership and equity
structures. AEA is the sole general partner of the Fund. Mr. Buaron is the
sole shareholder of Buaron Capital, and Buaron Capital is the managing and sole
general partner of AEA. By virtue of their direct and indirect ownership
interests in the Fund, Mr. Long and Buaron Capital are entitled to receive a
portion of the proceeds from the sale of the equity interests in Holding.
MANAGEMENT
In connection with the 1996 Transaction, Messrs. Imbler, Bell, Boots,
Kratochvil and Beeler received approximately $5.9 million, $2.5 million, $2.4
million, $1.3 million and $1.3 million, respectively, from their sale of
certain equity interests in Holding. In connection with the 1994 Transaction,
the Company paid a $50.0 million dividend on its common stock to Holding, and
Holding distributed that amount to its holders of equity interests. In
connection therewith, Holding agreed to pay cash bonuses, upon the occurrence
of certain events, to the members of management who held options under
Holding's 1991 Stock Option Plan in amounts equal to the amounts they would
have been entitled to had the shares of common stock underlying their unvested
options been outstanding at the time of the declaration of the $50.0 million
dividend by Holding. As a result of the 1996 Transaction, such bonuses were
paid to Messrs. Imbler, Bell, Boots, Kratochvil and Beeler in the amounts of
approximately $594,000, $238,000, $238,000, $119,000 and $119,000,
respectively.
STOCKHOLDERS AGREEMENTS
In connection with the 1996 Transaction, Holding entered into a Stockholders
Agreement dated as of June 18, 1996 (the "New Stockholders Agreement") with the
Common Stock Purchasers, certain Management Stockholders (as defined below)
and, for limited purposes thereunder, the Preferred Stock Purchasers. The New
Stockholders Agreement grants the Common Stock Purchasers certain rights and
obligations, including the following: (i) until the occurrence of certain
events specified in the New Stockholders Agreement, to designate the members of
a seven person Board of Directors as follows: (A) one director will be Roberto
Buaron or his designee; (B) International will have the right to designate
three directors (who are currently Messrs. Graev, Imbler and Long); (C) CVCA
will have the right to designate two directors (who are currently Messrs.
Hofmann and Lori); and (D) the institutional holders (excluding International
and CVCA) will have the right to designate one director (who is currently Mr.
Clarke); (ii) in the case of certain Common Stock Purchasers, to subscribe for
a proportional share of future equity issuances by Holding; (iii) under certain
circumstances and in the case of International or CVCA, to cause the initial
public offering of equity securities of Holding or a sale of Holding subsequent
to the fifth anniversary of the closing of the 1996 Transaction and (iv) under
certain circumstances and in the case of a majority in interest of the
institutional holders, to cause the initial public offering of equity
securities of Holding or a sale of Holding subsequent to the sixth anniversary
of the closing of the 1996 Transaction. Provisions under the New Stockholders
Agreement also (i) prohibit Holding from taking certain actions without the
consent of holders of a majority of voting stock held by CVCA and the
institutional holders other than International (or, following the occurrence of
certain events, International's consent), including certain transactions
between Holding and any subsidiary, on the one hand, and First Atlantic or any
of its affiliates, on the other hand; (ii) obligate Holding to provide certain
Common Stock Purchasers with financial and other information regarding Holding
and to provide access and inspection rights to all Common Stock Purchasers; and
(iii) restrict transfers of equity by the Common Stock Purchasers, subject to
certain exceptions (including for transfers of up to 10% of the equity
(including warrants to purchase equity) held by each Common Stock Purchaser on
the date of the New Stockholders Agreement). Pursuant to the New Stockholders
Agreement, under certain circumstances the Preferred Stock Purchasers (and
their transferees) have tag-along rights with respect to the 1996 Warrants and
the Holding Common Stock issuable upon exercise of the 1996 Warrants. Under
specified circumstances and subject to certain exceptions, the Preferred Stock
Purchasers (and their transferees) are entitled to include a pro rata share of
their Preferred Stock in a transaction (or series of related transactions)
involving the transfer by International, CVCA and the Institutional Holders (as
defined in the New Stockholders Agreement) of more than 50% of the aggregate
amount of securities held by them immediately following the closing of the 1996
Transaction.
The New Stockholders Agreement grants registration rights, under certain
circumstances and subject to specified conditions, to the Common Stock
Purchasers. International and CVCA each have the right, on three occasions, to
demand registration, at Holding's expense, of their shares of Holding Common
Stock. Under certain circumstances, a majority in interest of the
institutional holders (excluding International and CVCA) have the right, on one
occasion, to demand registration, at Holding's expense, of their shares of
Holding Common Stock. The New Stockholders Agreement provides that if Holding
proposes to register any of its securities, either for its own account or for
the account of other stockholders, Holding will be required to notify all
Common Stock Purchasers and to include in such registration the shares of
Holding Common Stock requested to be included by them. All shares of Holding
Common Stock owned by the Common Stock Purchasers requested to be included in a
registration will be subject to cutbacks under certain circumstances in
connection with an underwritten public offering.
The provisions of the New Stockholders Agreement regarding voting rights,
negative covenants, information/inspection rights, the right to force a sale of
Holding, preemptive rights and transfer restrictions generally will expire on
the earlier to occur of (i) the later of (A) the fifth anniversary of the
closing of the 1996 Transaction if an underwritten public offering of equity
securities of Holding resulting in gross proceeds of at least $20.0 million
occurs prior to such fifth anniversary and (B) the occurrence of such
underwritten public offering that occurs subsequent to such fifth anniversary
of the closing of the 1996 Transaction; (ii) the twentieth anniversary of the
closing of the 1996 Transaction; and (iii) a sale of Holding. In addition, the
New Stockholders Agreement provides that certain rights of a Common Stock
Purchaser (to the extent such rights apply to such Common Stock Purchaser) to
designate members of the Board of Directors of Holding and/or to approve
certain actions by Holding will terminate if certain circumstances occur.
Holding is also party to the Amended and Restated Stockholders Agreement
dated June 18, 1996 (the "Management Stockholders Agreement"), with
International and all management shareholders including, among others, Messrs.
Imbler, Bell, Boots, Kratochvil and Beeler (collectively, the "Management
Stockholders"). The Management Stockholders Agreement contains provisions (i)
limiting transfers of equity by the Management Stockholders; (ii) requiring the
Management Stockholders to sell their shares as designated by Holding or
International upon the consummation of certain transactions; (iii) granting the
Management Stockholders certain rights of co-sale in connection with sales by
International; (iv) granting Holding rights to repurchase capital stock from
the Management Stockholders upon the occurrence of certain events; and (v)
requiring the Management Stockholders to offer shares to Holding prior to any
permitted transfer.
CHASE SECURITIES, INC.
In connection with the 1996 Transaction, Chase Securities, an affiliate of
CVCA and Messrs. Hofmann and Lori, who are members of the Board of Directors of
Holding and the Company, received a fee of $500,000 for arranging the sale of
$15.0 million of Holding's Common Stock to certain of the Common Stock
Purchasers and the sale of $15.0 million of Holding Preferred Stock to CVCA.
CMIHI, an affiliate of Chase Securities and Messrs. Hofmann and Lori, received
approximately $13.6 million from the sale of equity interests of Holding in the
1996 Transaction.
LEGAL SERVICES
Mr. Graev is the Chairman of the law firm of O'Sullivan Graev & Karabell,
LLP, New York, New York. O'Sullivan Graev & Karabell, LLP provides legal
services to the Company and Holding in connection with certain matters,
principally relating to transactional, securities law, general corporate and
litigation matters.
TRANSACTIONS WITH AFFILIATES
The 1996 Indenture, the New Stockholders Agreement, the 1994 Indenture and
the Credit Facility restrict the Company's and its affiliates' ability to enter
into transactions with their affiliates, including their officers, directors
and principal stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of the Report
1. FINANCIAL STATEMENTS
The financial statements listed under Item 8 are filed as part of this
report.
2. FINANCIAL STATEMENT SCHEDULES
The financial statement schedules listed under Item 8 are filed as part
of this report.
Schedules other than the above have been omitted because they are either
not applicable or the required information has been disclosed in the
financial statements or notes thereto.
3. EXHIBITS
The exhibits listed on the accompanying Exhibit Index are filed as part
of this report.
(b) Reports on Form 8-K
A report on Form 8-K/A was filed by each of Berry and Holding on
November 14, 1997. Under Item 7 on Form 8-K/A, Financial Statements,
Pro Forma Financial Information and Exhibits, Berry and Holding filed
financial statements and pro forma financial information related to the
Venture Packaging Acquisition.
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 and subsidiaries as of December 27, 1997 and December 28, 1996, and
the related consolidated statements of operations, changes in stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
December 27, 1997. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and schedules
are the responsibility of Holding's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and subsidiaries at December 27, 1997 and December 28,
1996, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 27, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/S/ ERNST & YOUNG LLP
Indianapolis, Indiana
February 13, 1998
BPC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,688 $ 10,192
Accounts receivable (less allowance for doubtful
accounts of $1,038 at December 27, 1997 and $618 at 28,385 17,642
December 28, 1996
Inventories:
Finished goods 22,029 9,100
Raw materials and supplies 7,429 4,507
------------ ------------
29,458 13,607
Prepaid expenses and other receivables 1,834 957
Income taxes recoverable 1,167 436
------------ ------------
Total current assets 63,532 42,834
Assets held in trust 19,738 30,188
Property and equipment:
Land 5,811 4,598
Buildings and improvements 33,891 18,290
Machinery, equipment and tooling 122,991 79,043
Automobiles and trucks 1,241 639
Construction in progress 10,357 3,476
------------ ------------
174,291 106,046
Less accumulated depreciation 66,073 50,382
------------ ------------
108,218 55,664
Intangible assets:
Deferred financing and origination fees, net 10,849 9,912
Covenants not to compete, net 3,940 40
Excess of cost over net assets acquired, net 30,303 4,273
Deferred acquisition costs 13 527
------------ ------------
45,105 14,752
Deferred income taxes 2,049 2,003
Other 802 357
------------ ------------
Total assets $239,444 $145,798
============ ============
BPC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 16,732 $ 12,877
Accrued expenses and other liabilities 7,162 4,676
Accrued interest 3,612 3,286
Employee compensation and payroll taxes 7,489 5,230
Income taxes 55 117
Current portion of long-term debt 7,619 738
------------ ------------
Total current liabilities 42,669 26,924
Long-term debt, less current portion 298,716 215,308
Accrued dividends on preferred stock 3,674 1,116
Other liabilities 3,360 -
------------ ------------
348,419 243,348
Stockholders' equity (deficit):
Class A Preferred Stock; 800,000 shares authorized;
600,000 shares issued and outstanding (net of
discount of $3,062 at December 27, 1997 and $3,355 11,509 11,216
at December 28, 1996)
Class B Preferred Stock; 200,000 shares authorized, 5,000 -
issued and outstanding Class A Common Stock;
$.01 par value:
------------ ------------
Voting; 500,000 shares authorized; 91,000
shares issued and outstanding 1 1
Nonvoting; 500,000 shares authorized; 259,000
shares issued and outstanding 3 3
Class B Common Stock; $.01 par value:
Voting; 500,000 shares authorized; 145,001 shares
issued and outstanding 1 1
Nonvoting; 500,000 shares authorized; 57,788
shares issued and outstanding 1 1
Class C Common Stock; $.01 par value:
Nonvoting; 500,000 shares authorized; 16,981
shares issued and outstanding - -
Treasury stock: 239 shares (22) (22)
Additional paid-in capital 49,374 51,681
Warrants 3,511 3,511
Retained earnings (deficit) (178,353) (163,942)
------------ ------------
Total stockholders' equity (deficit) (108,975) (97,550)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 239,444 $ 145,798
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED
----------------------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
Net sales $226,953 $151,058 $140,681
Cost of goods sold 180,249 110,110 102,484
Gross margin 46,704 40,948 38,197
Operating expenses:
Selling 11,320 6,950 5,617
General and administrative 11,505 13,769 9,500
Research and development 1,310 858 718
Amortization of intangibles 2,226 524 968
Other expense 4,144 1,578 867
------------ ------------ ------------
Operating income 16,199 17,269 20,527
Other expenses:
Loss on disposal of property and equipment 226 302 127
------------ ------------ ------------
Income before interest and taxes 15,973 16,967 20,400
Interest:
Expense (32,237) (21,364) (14,031)
Income 1,991 1,289 642
------------ ------------ ------------
Income (loss) before income taxes (14,273) (3,108) 7,011
Income taxes 138 239 678
------------ ------------ ------------
Net income (loss) (14,411) (3,347) 6,333
------------ ------------ ------------
Preferred stock dividends (2,558) (1,116) -
------------ ------------ ------------
Net income (loss) attributable to common shareholders $ (16,969) $ (4,463) $ 6,333
============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS)
COMMON STOCK PREFERRED
STOCK
----------------- -------------- ADDITIONAL DEFERRED RETAINED
CLASS CLASS CLASS CLASS CLASS TREASURY PAID-IN COST- EARNINGS
A B C A B STOCK CAPITAL WARRANTS RESTRICTED (DEFICIT) TOTAL
----- ----- ----- ------- ------ ------- ---------- -------- ----------- ---------- ----------
Balance at January 1, 1995(1) $ - $ - $ - $ - $ - $ (58) $ 871 $ 4,124 $ (22) $(43,753) $(38,838)
Net income - - - - - - - - - 6,333 6,333
Amortization of deferred
cost-restricted stock - - - - - - - - 22 - 22
Market value adjustment
- warrants - - - - - - 90 (90) - - -
Purchase vested options
from management - - - - - - - (1) - - (1)
----- ----- ----- ------- ----- -------- ---------- -------- ----------- ---------- ----------
Balance at December 30, 1995(1) - - - - - (58) 960 4,034 - (37,420) (32,484)
Net loss - - - - - - - - - (3,347) (3,347)
Market value adjustment
- warrants - - - - - - (1,145) 9,399 - (8,254) -
Exercise of stock options - - - - - - 1,130 - - - 1,130
Distribution on sale of
equity interests - - - - - 58 (1,424) (13,433) - (114,921) (129,720)
Proceeds from newly issued
equity 4 2 - 14,571 - - 52,797 - - - 67,374
Payment of deferred
compensation - - - - - - 479 - - - 479
Issuance of private warrants - - - (3,511) - - - 3,511 - - -
Accrued dividends on preferred
stock - - - - - - (1,116) - - - (1,116)
Amortization of preferred
stock discount - - - 156 - - - - - - 156
Purchase treasury stock
from management - - - - - (22) - - - - (22)
----- ----- ----- ------- ------ ------- ---------- -------- ----------- ---------- ----------
Balance at December 28, 1996 4 2 - 11,216 - (22) 51,681 3,511 - (163,942) (97,550)
Net loss - - - - - - - - - (14,411) (14,411)
Sale of stock to management - - - - - - 325 - - - 325
Issuance of preferred stock - - - - 5,000 - - - - - 5,000
Accrued dividends on preferred
stock - - - - - - (2,558) - - - (2,558)
Amortization of preferred
stock discount - - - 293 - - (74) - - - 219
----- ----- ----- ------- ------ ------- ---------- -------- ----------- ---------- ----------
Balance at December 27, 1997 $4 $2 $- $11,500 $5,000 $(22) $49,374 - - $(178,353) $(108,975)
===== ===== ===== ======= ====== ======= ========== ======== =========== ========== ==========
{
(1)} Old Class A and Class B Common Stock was redeemed in connection with the
1996 Transaction (see Note 9).
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
YEAR ENDED
--------------------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ (14,411) $ (3,347) $ 6,333
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 16,800 10,807 8,568
Non-cash interest expense 2,005 1,212 950
Amortization 2,226 524 968
Interest funded by assets held in trust 11,255 5,412 -
Non-cash compensation - 358 (215)
Write-off of deferred acquisition costs 515 - 390
Loss on sale of property and equipment 226 302 127
Deferred income taxes - 53 (964)
Changes in operating assets and
liabilities:
Accounts receivable, net (2,290) (1,716) (1,989)
Inventories 2,767 (1,710) 926
Prepaid expenses and other (137) 520 (964)
receivables
Other assets (225) (5) (14)
Accounts payable and accrued expenses (4,516) 1,899 (1,000)
Income taxes payable (61) 117 (147)
------------ ------------ ------------
Net cash provided by operating activities 14,154 14,426 12,969
INVESTING ACTIVITIES
Additions to property and equipment (16,774) (13,581) (11,247)
Proceeds from disposal of property and equipment 1,078 94 20
Acquisitions of businesses (86,406) (1,152) (14,158)
------------ ------------ ------------
Net cash used for investing activities (102,102) (14,639) (25,385)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 85,703 105,000 -
Payments on long-term borrowings (2,584) (500) (500)
Payments on capital lease (237) (217) (198)
Reclassification of cash held for acquisition - - 12,000
Exercise of management stock options - 1,130 -
Proceeds from issuance of common stock 325 52,797 -
Proceeds from issuance of preferred stock
and warrants - - 14,571
Rollover investments and share repurchases - (125,219) -
Assets held in trust - (35,600) -
Net payments to public warrant holders - (4,502) -
Debt issuance costs (2,763) (5,090) (178)
------------ ------------ ------------
Net cash provided by financing activities 80,444 2,370 11,124
------------ ------------ ------------
Net increase(decrease)in cash and cash equivalents (7,504) 2,157 (1,292)
Cash and cash equivalents at beginning of year 10,192 8,035 9,327
------------ ------------ ------------
Cash and cash equivalents at end of year $ 2,688 $ 10,192 $ 8,035
============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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 subsidiaries Berry Plastics
Corporation ("Berry" or the "Company"), Berry Iowa Corporation ("Berry Iowa"),
Berry Sterling Corporation ("Berry Sterling"), Berry Tri-Plas Corporation
("Berry Tri-Plas"), Berry Plastics Design Corporation ("Berry Design"),
PackerWare Corporation ("PackerWare"), and Venture Packaging, Inc. ("Venture
Packaging") and its subsidiaries Venture Packaging Midwest, Inc. and Venture
Packaging Southeast, Inc., manufactures and markets plastic packaging products
through its facilities located in Evansville, Indiana; Henderson, Nevada; Iowa
Falls, Iowa; Charlotte, North Carolina; York, Pennsylvania; Suffolk, Virginia;
Anderson, South Carolina; Monroeville, Ohio; and Lawrence, Kansas.
On September 16, 1996, Berry announced the consolidation of its Winchester,
Virginia facility with other Company locations, including Charlotte, North
Carolina; Evansville, Indiana; and Iowa Falls, Iowa. In conjunction with the
PackerWare acquisition in January 1997 (see Note 3), the Company also acquired
a manufacturing facility in Reno, Nevada. This facility was closed in 1997,
and its operations were consolidated into the Henderson, Nevada facility.
Holding's fiscal year is a 52/53 week period ending generally on the Saturday
closest to December 31. All references herein to "1997," "1996" and "1995"
relate to the fiscal years ended December 27, 1997, December 28, 1996, and
December 30, 1995, respectively.
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 one industry segment. The Company is a
domestic manufacturer and marketer of plastic packaging, with sales
concentrated in four product groups within this market: aerosol overcaps,
rigid open-top containers, plastic drink cups, and housewares/lawn and garden.
The Company's customers are located principally throughout the United States,
without significant concentration in any one region or 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 $68 million in 1997 (excluding
specialty resins). Dow Chemical Corporation is the principal supplier
(approximately 56%) of the Company's total resin material requirements. The
Company also uses other suppliers such as Union Carbide, Chevron, Phillips and
Equistar (formerly Lyondell and Millennium) to meet its resin requirements.
The Company does not anticipate any material difficulty in obtaining an
uninterrupted supply of raw materials at competitive prices in the near future.
However, should a significant shortage of the supply of resin occur, changes in
both the price and availability of the principal raw material used in the
manufacture of the Company's products could occur and result in financial
disruption to the Company.
The Company is subject to existing and potential federal, state, local and
foreign legislation designed to reduce solid waste in landfills. While the
principal resins used by the Company are recyclable and, therefore, reduce the
Company's exposure to legislation promulgated to date, there can be no
assurance that future legislation or regulatory initiatives would not have a
material adverse effect on the Company. Legislation, if promulgated, requiring
plastics to be degradable in landfills or to have minimum levels of recycled
content would have a significant impact on the Company's business as would
legislation providing for disposal fees or limiting the use of plastic
products.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less at the
date of purchase are considered to be cash equivalents.
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 three to 25 years.
INTANGIBLE ASSETS
Origination fees relating to the 1994 Notes and 1996 Notes and deferred
financing fees are being amortized using the straight-line method over the
lives of the respective debt agreements.
The costs in excess of net assets acquired represent the excess purchase price
over the fair value of the net assets acquired in the original acquisition of
Berry Plastics and subsequent acquisitions. These costs are being amortized
over a range of 15 to 20 years.
Covenants not to compete relating to agreements made with certain selling
shareholders of acquired companies are being amortized over the respective life
of the agreement.
Holding periodically evaluates the value of intangible assets to determine if
an impairment has occurred. This evaluation is based on various analyses
including reviewing anticipated cash flows.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts on the 1996 and 1995 financial statements have been
reclassified to conform with the 1997 presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, REPORTING COMPREHENSIVE INCOME, and No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. The Statements will affect the
disclosure requirement for financial statements beginning in 1998. The Company
expects that the new reporting requirements will have no material effect on its
financial position or results of operations.
NOTE 3. ACQUISITIONS
On March 10, 1995, the Company acquired through its newly-formed subsidiary,
Berry Sterling Corporation, substantially all of the assets and assumed certain
liabilities of Sterling Products, Inc. for a purchase price of $7.3 million
(the "Sterling Acquisition"). The operations of Berry Sterling Corporation are
included in the Company's operations since the acquisition date using the
purchase method of accounting.
On December 21, 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of Tri-Plas, Inc. through its subsidiary Berry Tri-
Plas Corporation (formerly Berry-CPI Corporation) for $6.6 million (the "Tri-
Plas Acquisition"). The operations of Berry Tri-Plas are included in the
Company's operations since the acquisition date using the purchase method of
accounting.
On January 17, 1997, the Company acquired certain assets and assumed certain
liabilities of Container Industries, Inc. ("Container Industries") of Pacoima,
California for $2.9 million. The purchase was funded out of operating funds.
The operations of Container Industries are included in the Company's operations
since the acquisition date using the purchase method of accounting.
On January 21, 1997, the Company acquired the outstanding stock of PackerWare
Corporation, a Kansas corporation, for aggregate consideration of approximately
$28.1 million and merged PackerWare with a newly-formed, wholly-owned
subsidiary of the Company (with PackerWare being the surviving corporation).
The purchase was primarily financed through the Credit Facility (see Note 5).
The operations of PackerWare are included in the Company's operations since the
acquisition date using the purchase method of accounting.
On May 13, 1997, Berry Design, a newly-formed wholly-owned subsidiary of the
Company, acquired substantially all of the assets and assumed certain
liabilities of Virginia Design Packaging Corp. ("Virginia Design") for
approximately $11.1 million. The purchase was financed through the Credit
Facility (see Note 5). The operations of Berry Design are included in the
Company's operations since the acquisition date using the purchase method of
accounting.
On August 29, 1997, the Company acquired the outstanding common stock of
Venture Packaging for aggregate consideration of $43.7 million and merged
Venture Packaging with a newly formed subsidiary of the Company (with Venture
Packaging being the surviving corporation). The purchase was primarily
financed through the Credit Facility (see Note 5). Additionally, preferred
stock and warrants were issued to certain selling shareholders of Venture
Packaging (see Note 9). The operations of Venture Packaging are included in
the Company's operations since the acquisition date using the purchase method
of accounting.
The pro forma results listed below are unaudited and reflect purchase
accounting adjustments assuming the Sterling Acquisition and the Tri-Plas
Acquisition occurred on January 1, 1995; and the Container Industries,
PackerWare, Virginia Design, and Venture acquisitions occurred on December 31,
1995.
YEAR ENDED
---------------------------------------------------------------------------
DECEMBER 27, 1997 DECEMBER 28, 1996 DECEMBER 30, 1995
-------------------- ------------------- -------------------
Net sales $ 261,531 $ 257,098 $ 157,263
Income (loss)before income taxes (17,699) (9,932) 4,274
Net income (loss) (17,837) (10,171) 3,859
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the acquisitions been consummated at the above date, nor are they
necessarily indicative of future operating results. Further, the information
gathered on the acquired companies is based upon unaudited internal financial
information and reflects only pro forma adjustments for additional interest
expense and amortization of the excess of the cost over the underlying net
assets acquired, net of the applicable income tax effect.
NOTE 4. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 27, DECEMBER 28,
1997 1996
-------------- --------------
Deferred financing and origination fees $ 14,578 $ 12,593
Covenants not to compete 4,598 100
Excess of cost over net assets acquired 32,464 5,029
Deferred acquisition costs 13 527
Accumulated amortization (6,548) (3,497)
-------------- --------------
$ 45,105 $ 14,752
============== ==============
Excess of cost over net assets acquired increased due to the acquisitions of
PackerWare, Container Industries, Virginia Design, and Venture Packaging to the
extent the purchase price exceeded the fair value of the net assets acquired.
The increase in covenants not to compete represents agreements entered into
with certain selling shareholders of the acquired companies in 1997.
NOTE 5. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 27, DECEMBER 28,
1997 1996
-------------- --------------
Holding 12.50% Senior Secured Notes $105,000 $105,000
Berry 12.25% Senior Subordinated Notes 100,000 100,000
Term loans 58,300 -
Revolving line of credit 25,654 -
Nevada Industrial Revenue Bonds 5,000 5,500
Iowa Industrial Revenue Bonds 5,400 5,400
South Carolina Industrial Development Bonds 6,985 -
Capital lease obligation payable through December 547 785
1999
Debt discount (551) (639)
-------------- --------------
306,335 216,046
Less current portion of long-term debt 7,619 738
-------------- --------------
$298,716 $215,308
============== ==============
HOLDING 12.50% SENIOR SECURED NOTES
On June 18, 1996, Holding, as part of a recapitalization (see Note 9), issued
12.50% Senior Secured Notes due 2006 (the "1996 Offering") for net proceeds,
after expenses, of approximately $100.2 million (or $64.6 million after
deducting the amount of such net proceeds used to purchase marketable
securities available for payment of interest on the notes). These notes were
exchanged in October 1996 for the 12.50% Series B Senior Secured Notes due 2006
(the "1996 Notes"). Interest is payable semi-annually on June 15 and December
15 of each year. In addition, from December 15, 1999 until June 15, 2001,
Holding may, at its option, pay interest, at an increased rate of 0.75% per
annum, in additional 1996 Notes valued at 100% of the principal amount thereof.
In connection with the 1996 Notes, $35.6 million was placed in escrow, which
has been invested in U.S. government securities, to pay three years' interest
on the notes. Pending disbursement, the trustee will have a first priority
lien on the escrow account for the benefit of the holders of the 1996 Notes.
Funds may be disbursed from the escrow account only to pay interest on the 1996
Notes and, upon certain repurchases or redemptions of the notes, to pay
principal of and premium, if any, thereon. The balance in the escrow account
as of December 27, 1997 is $18.9 million.
The 1996 Notes rank senior in right of payment to all existing and future
subordinated indebtedness of Holding, including Holding's subordinated
guarantee of the 1994 Notes (as defined hereinafter) and PARI PASSU in right of
payment with all senior indebtedness of Holding. The 1996 Notes are
effectively subordinated to all existing and future senior indebtedness of
Berry, including borrowings under the Credit Facility, the Nevada and Iowa
Industrial Revenue Bonds, and the South Carolina Industrial Development Bonds.
BERRY 12.25% SENIOR SUBORDINATED NOTES
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 Class A Common Stock, $.00005 par value
(collectively the "1994 Transaction"), of Holding. The 1994 Notes mature on
April 15, 2004 and interest is payable semi-annually on October 15 and April 15
of each year and commenced on October 15, 1994. The 1994 Notes are
unconditionally guaranteed on a senior subordinated basis by Holding and all of
Berry's subsidiaries. The net proceeds to Berry from the sale of the notes,
after expenses, were $93.0 million.
Berry is not required to make mandatory redemption or sinking fund payments
with respect to the 1994 Notes. Subsequent to April 15, 1999, the 1994 Notes
may be redeemed at the option of Berry, in whole or in part, at redemption
prices ranging from 106.125% in 1999 to 100% in 2002 and thereafter. Upon a
change in control, as defined in the indenture entered into in connection with
the 1994 Transaction (the "1994 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 1994 Notes rank PARI PASSU with or senior in right of payment to all
existing and future subordinated indebtedness of Berry. The notes rank junior
in right of payment to all existing and future senior indebtedness of Berry,
including borrowings under the Credit Facility, the Nevada and Iowa Industrial
Revenue Bonds, and the South Carolina Industrial Development Bonds.
The 1994 Indenture contains certain covenants which, among other things, limit
Berry and its subsidiaries' ability to incur debt, merge or consolidate, sell,
lease or transfer assets, make dividend payments and engage in transactions
with affiliates.
CREDIT FACILITY
Concurrent with the PackerWare acquisition, the Company entered into a
financing and security agreement (the "Security Agreement") with NationsBank,
N.A. for a senior secured line of credit in an aggregate principal amount of
$60.0 million (the "Credit Facility"). As a result of the acquisition of
assets of Virginia Design and the acquisition of Venture Packaging, the Credit
Facility was amended and increased to $127.2 million. The indebtedness under
the Credit Facility is guaranteed by Holding and the Company's subsidiaries.
The Credit Facility replaced the facility previously provided by Fleet Capital
Corporation.
The Credit Facility provides the Company with a $50 million revolving line of
credit, subject to a borrowing base formula, a $58.3 million term loan facility
and a $18.9 million standby letter of credit facility to support the Company's
and its subsidiaries' obligations under the Nevada and Iowa Industrial Revenue
Bonds and the South Carolina Industrial Development Bonds. The Company
borrowed all amounts available under the term loan facility to finance the
PackerWare, Virginia Design and Venture Packaging acquisitions. At December
27, 1997, the Company had unused borrowing capacity under the Credit Facility's
borrowing base with respect to the revolving line of credit of approximately
$12.5 million.
The Credit Facility matures on January 21, 2002 unless previously terminated by
the Company or by the lenders upon an Event of Default as defined in the
Security Agreement. The term loan facility requires periodic quarterly
payments, varying in amount, beginning in 1998 through the maturity of the
facility. Interest on borrowings on the Credit Facility will be based on the
lender's base rate plus .5% or LIBOR plus 2.0%, at the Company's option.
The Credit Facility contains various covenants which include, among other
things: (i) maintenance of certain financial ratios and compliance with certain
financial tests and limitations, (ii) limitations on the issuance of additional
indebtedness, and (iii) limitations on capital expenditures.
NEVADA INDUSTRIAL REVENUE BONDS
The Nevada Industrial Revenue Bonds bear interest at a variable rate (4.6% at
December 27, 1997 and December 28, 1996), require annual principal payments of
$0.5 million on April 1, are collateralized by irrevocable letters of credit
issued by NationsBank under the Credit Facility and mature in April 2007.
IOWA INDUSTRIAL REVENUE BONDS
The Iowa Industrial Revenue Bonds bear interest at a variable rate (4.4% and
4.0% at December 27, 1997 and December 28, 1996, respectively), require no
periodic principal payments, are collateralized by irrevocable letters of
credit issued by NationsBank under the Credit Facility and mature in August
1998. The Company plans to refinance these bonds through a term loan under the
Credit Facility.
SOUTH CAROLINA INDUSTRIAL DEVELOPMENT BONDS
The South Carolina Industrial Bonds bear interest at a variable rate (4.3% at
December 27, 1997), require semi-annual principal payments of $0.3 million on
April 1 and October 1 with a final balloon payment of $0.9 on April 1, 2010,
and are collateralized by irrevocable letters of credit issued by NationsBank
under the Credit Facility.
OTHER
Future maturities of long-term debt are as follows: 1998, $7,619; 1999,
$17,643; 2000, $13,875; 2001, $13,510; 2002, $43,104 and $211,135 thereafter.
Interest paid was $29,927, $19,744 and $13,432 for 1997, 1996 and 1995,
respectively. Interest capitalized was $341, $225 and $350 for 1997, 1996 and
1995, respectively.
NOTE 6. LEASE AND OTHER COMMITMENTS
Certain property and equipment are leased using capital and operating leases.
Capitalized lease property consisted of manufacturing equipment with a cost of
$1,661 and related accumulated amortization of $831 and $664 at December 27,
1997 and December 28, 1996, respectively. Capital lease amortization is
included in depreciation expense. Total rental expense for operating leases
was approximately $3,332, $2,344, and $1,515 for 1997, 1996, and 1995,
respectively.
Future minimum lease payments for capital leases and noncancellable operating
leases with initial terms in excess of one year are as follows:
AT DECEMBER 28, 1997
--------------------------------------
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
1998 $ 301 $ 4,041
1999 301 3,064
2000 - 2,824
2001 - 2,696
2002 - 1,987
Thereafter - 1,921
-------------- ----------------
602 $ 16,533
================
Less: amount representing interest 55
--------------
Present value of net minimum lease payments $ 547
==============
NOTE 7. INCOME TAXES
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 liabilities and assets at December 27, 1997 and December 28,
1996 are as follows:
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
Deferred tax liabilities:
Tax over book depreciation $ 11,073 $ 2,316
Other - 104
------------ ------------
Total deferred tax liabilities 11,073 2,420
Deferred tax assets:
Allowance for doubtful accounts 590 331
Inventory 1,391 350
Compensation and benefit accruals 1,198 719
Insurance reserves 338 207
Net operating loss carryforwards 8,372 1,916
Alternative minimum tax (AMT) credit 2,049 2,003
carryforwards
------------ ------------
Total deferred tax assets 13,938 5,526
------------ ------------
2,865 3,106
Valuation allowance for net deferred tax assets (816) (1,103)
------------ ------------
Net deferred tax assets $ 2,049 $ 2,003
============ ============
Income tax expense consists of the following:
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
Current
Federal $ - $ - $ 1,404
State 138 186 237
Deferred
Federal - 69 (900)
State - (16) (63)
------------ ------------ ------------
Income tax expense $ 138 $ 239 $ 678
============ ============ ============
Holding has unused operating loss carryforwards of approximately $21.7 million
for federal income tax purposes which begin to expire in 2010. AMT credit
carryforwards are available to Holding indefinitely to reduce future years'
federal income taxes. A tax sharing agreement is in place that allows Holding
to make losses available to Berry.
Income taxes paid during 1997, 1996 and 1995 approximated $47, $528, and
$2,001, respectively.
A reconciliation of income tax expense, computed at the federal statutory rate,
to income tax expense, as provided for in the financial statements, is as
follows:
YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
Federal income tax expense (benefit)
at statutory rate $(4,853) $(1,057) $2,384
State income tax expense, net of 138 112 115
federal benefit
Amortization of goodwill 285 - -
Expenses not deductible for income tax 219 51 19
purposes
Change in valuation allowance for net
deferred tax assets 4,298 1,103 (1,869)
Other 51 30 29
------------ ------------ ------------
Income tax expense $ 138 $ 239 $ 678
============ ============ ============
NOTE 8. 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
$629, $531, and $384 for 1997, 1996 and 1995, respectively.
NOTE 9. STOCKHOLDERS' EQUITY
COMMON STOCK
On June 18, 1996, Holding consummated the transaction described below (the
"1996 Transaction"). BPC Mergerco, Inc. ("Mergerco"), a wholly-owned
subsidiary of Holding, was organized by Atlantic Equity Partners International
II, L.P. ("International"), Chase Venture Capital Associates, L.P. ("CVCA"),
and certain other institutional investors to effect the acquisition of a
majority of the outstanding capital stock of Holding. Pursuant to the terms of
a Common Stock Purchase Agreement dated as of June 12, 1996 each of
International, CVCA and certain other equity investors (collectively the
"Common Stock Purchasers") subscribed for shares of common stock of Mergerco.
In addition, pursuant to the terms of a Preferred Stock Purchase Agreement
dated as of June 12, 1996 (the "Preferred Stock Purchase Agreement"), CVCA and
an additional institutional investor (the "Preferred Stock Purchasers")
purchased shares of preferred stock of Mergerco (the "Preferred Stock") and
warrants (the "1996 Warrants") to purchase shares of common stock of Mergerco.
Immediately after the purchase of the common stock, the preferred stock and the
1996 Warrants of Mergerco, Mergerco merged (the "Merger") with and into
Holding, with Holding being the surviving corporation. Upon the consummation of
the Merger: each share of the Class A Common Stock, $.00005 par value, and
Class B Common Stock, $.00005 par value, of Holding and certain privately-held
warrants exercisable for such Class A and Class B Common Stock were converted
into the right to receive cash equal to the purchase price per share for the
common stock into which such warrants were exercisable less the amount of the
nominal exercise price therefor, and all other classes of common stock of
Holding, a majority of which was held by certain members of management, were
converted into shares of common stock of the surviving corporation. In
addition, upon the consummation of the Merger, the holders of the warrants (the
"1994 Warrants") to purchase capital stock of Holding that were issued in
connection with the 1994 Transaction became entitled to receive cash equal to
the purchase price per share for the common stock into which such warrants were
exercisable less the amount of the exercise price therefor. Additionally, a
$2,762 bonus was paid to management employees who held unvested stock options
at the time of the 1994 Transaction which is included in 1996 general and
administrative expenses.
The authorized capital stock of Holding consists of 3,500,000 shares of capital
stock, including 2,500,000 shares of Common Stock, $.01 par value (the "Holding
Common Stock"). Of the 2,500,000 shares of Holding Common Stock, 500,000
shares are designated Class A voting Common Stock (the "Class A Voting Stock"),
500,000 shares are designated Class A Nonvoting Common Stock (the "Class A
Nonvoting Stock"), 500,000 shares are designated Class B Nonvoting Common Stock
(the "Class B Nonvoting Stock"), and 500,000 shares are designated Class C
Nonvoting Common Stock (the "Class C Nonvoting Stock").
PREFERRED STOCK AND WARRANTS
In connection with the 1996 Transaction, for aggregate consideration of $15.0
million, Mergerco issued units (the "Units") comprised of Series A Senior
Cumulative Exchangeable Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and detachable warrants to purchase shares of Class B
Common Stock (voting and non-voting) constituting 6% of the issued and
outstanding Common Stock of all classes, determined on a fully-diluted basis
(the "Warrants").
Dividends accrue at a rate of 14% per annum, payable quarterly in arrears (each
date of payment, a "Dividend Payment Date") and will accumulate until declared
and paid. Dividends declared and accruing prior to the first Dividend Payment
Date occurring after the sixth anniversary of the issue date (the "Cash
Dividend Date") may, at the option of Holding, be paid in cash in full or in
part or accrue quarterly on a compound basis. Thereafter, all dividends are
payable in cash in arrears. The dividend rate is subject to increase to a rate
of (i) 16% per annum if (and for so long as) Holding fails to declare and pay
dividends in cash for any quarterly period following the Cash Dividend Date and
(ii) 15% per annum if (and for so long as) Holding fails to comply with its
obligations relating to the rights and preferences of the Preferred Stock. If
Holding fails to pay in full, in cash, (a) all accrued and unpaid dividends on
or prior to the twelfth anniversary of the issue date or (b) all accrued
dividends on any Dividend Payment Date following the twelfth anniversary of the
issue date, the holders of Preferred Stock will be permitted to elect a
majority of the Board of Directors of Holding.
The Preferred Stock ranks prior to all other classes of stock of Holding upon
liquidation and is entitled to receive, out of assets available for
distribution, cash in the aggregate amount of $15.0 million, plus all accrued
and unpaid dividends thereon. Subject to the terms of the 1996 Indenture, on
any Dividend Payment Date, Holding has the option of exchanging the Preferred
Stock, in whole but not in part, for Senior Subordinated Exchange Notes, at the
rate of $25 in principal amount of notes for each $25 of liquidation preference
of Preferred Stock held; provided, however, that no shares of Preferred Stock
may be exchanged for so long as any shares of Preferred Stock are held by CVCA
or its affiliates. Upon such exchange, Holding will be required to pay in cash
all accrued and unpaid dividends.
Pursuant to the Preferred Stock Purchase Agreement, the holders of Preferred
Stock and Warrants have unlimited incidental registration rights (subject to
cutbacks under certain circumstances). The exercise price of the Warrants is
$.01 per Warrant and the Warrants are exercisable immediately upon issuance.
All unexercised warrants will expire on the tenth anniversary of the issue
date. The number of shares issuable upon exercise of a Warrant are subject to
anti-dilution adjustments upon the occurrence of certain events.
In conjunction with the Venture Packaging acquisition, Holding authorized and
issued 200,000 shares of Series B Cumulative Preferred Stock to certain selling
shareholders of Venture Packaging. The Preferred Stock has a stated value of
$25 per share, and dividends accrue at a rate of 14.75% per annum and will
accumulate until declared and paid. The Preferred Stock ranks junior to the
Series A Preferred Stock and prior to all other capital stock of Holding. In
addition, Warrants to purchase 9,924 shares of Class B Non-Voting Common Stock
at $108 per share were issued to the same selling shareholders of Venture
Packaging.
STOCK OPTION PLAN
Pursuant to the provisions of the BPC Holding Corporation 1996 Stock Option
Plan (the "Option Plan") which reserved 45,620 shares for future issuance,
Holding has granted options to certain officers and key employees to acquire
shares of Class B Nonvoting Common Stock. During 1997, amendments were
approved to the Option Plan reserving an additional 6,000 shares for future
issuance. These options are subject to various option agreements, which among
other things, set forth the class of stock, option price and performance
thresholds to determine exercisability and vesting requirements. The Option
Plan expires October 3, 2003 or such earlier date on which the Board of
Directors of Holding, in its sole discretion, determines. Option prices range
from $100 to $108 per share.
FASB 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. Pro forma effects on Holding's 1997, 1996
and 1995 consolidated statements of operations using the fair value method
prescribed by Statement 123 have not been disclosed because there is no
material difference between results obtained using this method and using the
criteria set forth in APB 25.
Information related to the Option Plan is as follows:
DECEMBER 27, 1997 DECEMBER 28, 1996
----------------------------- ----------------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
----------------------------- -----------------------------
Options outstanding, beginning of year 43,393 $100 - $ -
Options granted 5,425 106 43,768 100
Options exercised - - - -
Options canceled (1,110) 100 (375) 100
Options outstanding, end of year 47,708 101 43,393 100
Option price range at end of year $100 - $108 $100
Options available for grant at year end 3,912 2,227
Weighted average fair value of options
granted during year $106 $100
The following table summarizes information about the options outstanding at
December 27, 1997:
Weighted
Range of Weighted Average Average Number
Exercise Number Outstanding Remaining Contractual Exercise Exercisable at
Prices at December 27, 1997 Life Price December 27, 1997
- -------------------------------------------------------------------------------------------------------------
$100 - $108 47,708 4 years $100.72 13,561
STOCKHOLDERS AGREEMENTS
Holding entered into a new stockholders agreement (the "New Stockholders
Agreement") dated as of June 18, 1996 with the Common Stock Purchasers, certain
management stockholders and, for limited purposes thereunder, the Preferred
Stock Purchasers. The New Stockholders Agreement grants certain rights
including, but not limited to, designation of members of Holding's Board of
Directors, the initiation of an initial public offering of equity securities of
the Company or a sale of Holding. The agreement also restricts certain
transfers of Holding's equity.
Holding entered into an amended and restated agreement with its management
stockholders and International on June 18, 1996. The agreement contains
provisions (i) limiting transfers of equity by the management stockholders;
(ii) requiring the management stockholders to sell their shares as designated
by Holding or International upon the consummation of certain transactions;
(iii) granting the management stockholders certain rights of co-sale in
connection with sales by International; (iv) granting rights to repurchase
capital stock from the management stockholders upon the occurrence of certain
events; and (v) requiring the management stockholders to offer shares to
Holding prior to any permitted transfer.
NOTE 10. RELATED PARTY TRANSACTIONS
The Company is party to a management agreement (the "Management Agreement")
with First Atlantic Capital, Ltd. ("First Atlantic"). In connection with the
1996 Transaction, Holding paid a fee of $1,250 plus reimbursement for out-of-
pocket expenses to First Atlantic for advisory services, including originating,
structuring and negotiating the 1996 Transaction. First Atlantic also received
advisory fees of $966 for originating, structuring and negotiating the 1997
acquisitions and a $100 advisory fee in both March and December 1995 for
originating, structuring and negotiating the Sterling Products acquisition and
the Tri-Plas acquisition, respectively.
In consideration of financial advisory and management consulting services, the
Company paid First Atlantic fees and expenses of $771, $788 and $817 for fiscal
1997, 1996, and 1995, respectively.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS INFORMATION
The Company's financial instruments generally consist of cash and cash
equivalents and the Company's long-term debt. The carrying amounts of the
Company's financial instruments approximate fair value at December 27, 1997,
except for the 1994 Notes and the 1996 Notes for which the fair value exceed
the carrying value by approximately $10.0 million and $10.5 million,
respectively.
NOTE 12. SUMMARY UNAUDITED FINANCIAL INFORMATION (IN THOUSANDS)
The following summarizes parent company only unaudited financial information of
Holding:
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
BALANCE SHEET
Current assets $ 708 $ 389
Assets held in trust 18,933 30,188
Other noncurrent assets 4,281 5,066
Current liabilities 510 704
Noncurrent liabilities 108,674 106,116
Equity (deficit) (108,975) (97,550)
YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
STATEMENTS OF OPERATIONS
Net sales $ - $ - $ -
Cost of goods sold - - -
Income (loss) before income taxes (11,780) (9,598) 150
Equity in net income (loss) of subsidiary (2,631) 5,989 6,183
Preferred stock dividends (2,558) (1,116) -
Net income (loss) attributable to common (16,969) (4,463) 6,333
shareholders
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 20th day of
March, 1998.
BPC HOLDING CORPORATION
By /S/ MARTIN R. IMBLER
-----------------------------
Martin R. Imbler
President
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/ Roberto Buaron Chairman of the Board of Directors March 20, 1998
----------------------
Roberto Buaron
President and Director (Principal
/s/ Martin R. Imbler Executive Officer) March 20, 1998
----------------------
Martin R. Imbler
Executive Vice President, Chief Financial
Officer and Secretary (Principal March 20, 1998
/s/ James M. Kratochvil Financial and Accounting Officer)
----------------------
James M. Kratochvil
/s/ David M. Clarke Director March 20, 1998
----------------------
David M. Clarke
/s/ Lawrence G. Graev Director March 20, 1998
----------------------
Lawrence G. Graev
/s/ Donald J. Hofmann Director March 20, 1998
----------------------
Donald J. Hofmann
/s/ James A. Long Director March 20, 1998
----------------------
James A. Long
/s/ Mathew J. Lori Director March 20, 1998
----------------------
Mathew J. Lori
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 Registrant has not sent any annual report or proxy material to
securityholders.
BPC HOLDING CORPORATION
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
(IN THOUSANDS)
ASSETS
Cash $ 708 $ 389
Other assets (principally investment in subsidiary) (31,808) (29,177)
Assets held in trust 18,933 30,188
Intangible assets 4,281 4,789
Due from Berry Plastics Corporation 8,095 2,804
Other - 277
------------ ------------
Total assets $ 209 $ 9,270
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities $ 510 $ 704
Accrued dividends 3,674 1,116
Long-term debt 105,000 105,000
------------ ------------
Total liabilities 109,184 106,820
Preferred stock 16,509 11,216
Class A common stock 4 4
Class B common stock 2 2
Class C common stock - -
Treasury stock (22) (22)
Additional paid-in capital 49,374 51,681
Warrants 3,511 3,511
Retained earnings (deficit) (178,353) (163,942)
------------ ------------
Total stockholders' equity (deficit) (108,975) (97,550)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 209 $ 9,270
============ ============
BPC HOLDING CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED
------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
(In thousands)
Net sales $ - $ - $ -
Cost of goods sold - - -
Gross profit - - -
Operating expenses 220 3,304 (150)
Other expense 11,560 6,294 -
------------ ------------ ------------
Income(loss)before income taxes and
equity in net income of subsidiary (11,780) (9,598) 150
Equity in net income (loss) of subsidiary (2,631) 5,989 6,183
------------ ------------ ------------
Income (loss) before income taxes (14,411) (3,609) 6,333
Income taxes - (262) -
------------ ------------ ------------
Net income (loss) (14,411) (3,347) 6,333
Preferred stock dividends (2,558) (1,116) -
------------ ------------ ------------
Net income (loss)attributable to
common shareholders $ (16,969) $ (4,463) $ 6,333
============ ============ ============
BPC HOLDING CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED
------------------------------------------
DECEMBER 27 DECEMBER 28 DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
(In thousands)
Net income (loss) $ (14,411) $ (3,347) $ 6,333
Adjustments to reconcile net loss
provided by operating activities:
Net loss (income) of subsidiary 2,631 (5,989) (6,183)
Amortization and non cash interest 726 441 -
Interest funded by assets held in trust 11,256 5,412 -
Non-cash compensation - 358 (215)
Changes in operating assets and liabilities (208) 427 66
------------ ------------ ------------
Net cash provided by (used for)operating
activities (6) (2,698) 1
Net cash provided by investing activities - - -
Net cash provided by financing activities:
Exercise of management stock options - 1,130 -
Proceeds from senior secured notes - 105,000 -
Proceeds from issuance of common and
preferred stock and warrants 325 67,369 -
Rollover investments and share - (125,219) -
repurchases
Assets held in trust - (35,600) -
Net payments to warrant holders - (4,502) -
Debt issuance costs - (5,069) -
Other - (22) (1)
------------ ------------ ------------
Net cash from financing activities 325 3,087 -
------------ ------------ ------------
Net increase in cash and cash 319 389 -
equivalents
Cash and cash equivalents at beginning 389 - -
of year
------------ ------------ ------------
Cash and equivalents at end of year $ 708 $ 389 $ -
============ ============ ============
Notes to Condensed Financial Statements
(1) BASIS OF PRESENTATION. In the parent company-only financial statements,
Holding's investment in subsidiaries is stated at cost plus equity in
undistributed earnings of subsidiaries since date of acquisition. The parent
company-only financial statements should be read in conjunction with Holding's
consolidated financial statements, which are included beginning on page F-1.
(2) GUARANTEE. Berry had approximately $201.3 million and $111.0 million of
long-term debt outstanding at December 27, 1997 and December 28, 1996,
respectively. Under the terms of the debt agreements, Holding has guaranteed
the payment of all principal and interest.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS - DEDUCTIONS - END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE YEAR
- ----------------------------- ---------- ---------- ------------- ------------ -----------
Year ended December 27, 1997:
Allowance for doubtful accounts $ 618 $ 325 $ 358 (2) $ 263 (1) $ 1,038
Year ended December 28, 1996:
Allowance for doubtful accounts $ 737 $ 322 $ - $ 441 (1) $ 618
Year ended December 30, 1995:
Allowance for doubtful accounts $ 503 $ 216 $ 299 (2) $ 281 (1) $ 737
(1) Uncollectible accounts written off, net of recoveries.
(2) Primarily relates to purchase of accounts receivable and related allowance
through acquisitions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
2.1 Asset Purchase Agreement dated February 12, 1992, among Berry
Plastics Corporation (the "Company"), Berry Iowa, Berry Carolina,
Inc., Genpak Corporation, a New York corporation, and Innopac
International Inc., a public Canadian corporation (filed as Exhibit
10.1 to the Registration Statement on Form S-1 filed on February 24,
1994 (the "Form S-1") and incorporated herein by reference)
2.2 Asset Purchase Agreement dated December 24, 1994, between the Company
and Berry Plastics, Inc. (filed as Exhibit 10.2 to the Form S-1 and
incorporated herein by reference)
2.3 Asset Purchase Agreement dated March 1, 1995, among Berry Sterling
Corporation, Sterling Products, Inc. and the stockholders of Sterling
Products, Inc. (filed as Exhibit 2.3 to the Annual Report on Form
10-K filed on March 31, 1995 (the "1994 Form 10-K") and incorporated
herein by reference)
2.4 Asset Purchase Agreement dated December 21, 1995, among Berry
Tri-Plas Corporation, Tri-Plas, Inc. and Frank C. DeVore (filed as
Exhibit 2.4 to the Annual Report on Form 10-K filed on March 28, 1996
(the "1995 Form 10-K") and incorporated herein by reference)
2.5 Asset Purchase Agreement dated January 23, 1996, between the Company
and Alpha Products, Inc. (filed as Exhibit 2.5 to the 1995 Form 10-K
and incorporated herein by reference)
2.6 Stock Purchase and Recapitalization Agreement dated as of June 12,
1996, by and among Holding, BPC Mergerco, Inc. ("Mergerco") and the
other parties thereto (filed as Exhibit 2.1 to the Current Report on
Form 8-K filed on July 3, 1996 (the "Form 8-K") and incorporated
herein by reference)
2.7 Preferred Stock and Warrant Purchase Agreement dated as of June 12,
1996, by and among Holding, Mergerco, Chase Venture Capital
Associates, L.P. ("CVCA") and The Northwestern Mutual Life Insurance
Company ("Northwestern") (filed as Exhibit 2.2 to the Form 8-K and
incorporated herein by reference)
2.8 Agreement and Plan of Merger dated as of June 18, 1996, by and
between Holding and Mergerco (filed as Exhibit 2.3 to the Form 8-K
and incorporated herein by reference)
2.9 Certificate of Merger of Mergerco with and into Holding, dated as of
June 18, 1996 (filed as Exhibit 2.9 to the Registration Statement on
Form S-4 filed on July 17, 1996 (the "Form S-4") and incorporated
herein by reference)
2.10 Agreement and Plan of Reorganization dated as of January 14, 1997
(the "PackerWare Reorganization Agreement"), among the Company,
PackerWare Acquisition Corporation, PackerWare Corporation and the
shareholders of PackerWare (filed as Exhibit 2.1 to the Current
Report on Form 8-K filed on February 4, 1997 (the "1997 8-K") and
incorporated herein by reference)
2.11 Amendment to the PackerWare Reorganization Agreement dated as of
January 20, 1997 (filed as Exhibit 2.2 to the 1997 8-K and
incorporated herein by reference)
2.12 Asset Purchase Agreement dated as of January 17, 1997, among the
Company, Container Industries, Inc. and the shareholders of Container
Industries, Inc. (filed as Exhibit 2.12 to the Annual Report on Form
10-K for the fiscal year ended December 28, 1996 (the "1996 Form 10-
K) and incorporated herein by reference)
2.13 Agreement and Plan of Reorganization dated as of January 14, 1997, as
amended on January 20, 1997, among the Company, PackerWare
Acquisition Corporation, PackerWare Corporation and the Shareholders
of PackerWare Corporation (filed as Exhibits 2.1 and 2.2 to the
Current Report on Form 8-K filed February 3, 1997 and incorporated
herein by reference)
*2.14 Asset Purchase Agreement dated May 13, 1997, among the Company, Berry
Plastics Design Corporation, Virginia Design Packaging Corp. and the
shareholders of Virginia Design Packaging Corp.
3.1 Amended and Restated Certificate of Incorporation of Holding (filed
as Exhibit 3.1 to the Form S-4 and incorporated herein by reference)
3.2 By-laws of Holding (filed as Exhibit 3.2 to the Form S-1 and
incorporated herein by reference)
3.3 Certificate of Incorporation of the Company (filed as Exhibit 3.3 to
the Form S-1 and incorporated herein by reference)
3.4 By-laws of the Company (filed as Exhibit 3.4 to the Form S-1 and
incorporated herein by reference)
3.5 Certificate of Incorporation of Berry Iowa Corporation ("Berry Iowa")
(filed as Exhibit 3.5 to the Form S-1 and incorporated herein by
reference)
3.6 By-laws of Berry Iowa (filed as Exhibit 3.6 to the Form S-1 and
incorporated herein by reference)
3.7 Certificate of Incorporation of Berry Tri-Plas Corporation ("Berry
Tri-Plas") (filed as Exhibit 3.7 to the Form S-1 and incorporated
herein by reference)
3.8 By-laws of Berry Tri-Plas (filed as Exhibit 3.8 to the Form S-1 and
incorporated herein by reference)
3.9 Certificate of Amendment to the Certificate of Incorporation of Berry
Tri-Plas Corporation (filed as Exhibit 3.9 to the 1996 Form 10-K and
incorporated herein by reference)
*3.10 Certificate of Designation, Preferences, and Rights of Series B
Cumulative Preferred Stock of BPC Holding Corporation.
4.1 Form of Indenture between the Company and United States Trust Company
of New York, as Trustee (including the form of Note and Guarantees as
Exhibits A and B thereto respectively) (filed as Exhibit 4.1 to the
Form S-1 and incorporated herein by reference)
4.2 Warrant Agreement between Holding and United States Trust Company of
New York, as Warrant Agent (filed as Exhibit 4.2 to the Form S-1 and
incorporated herein by reference)
4.3 Indenture dated as of June 18, 1996, between Holding and First Trust
of New York, National Association, as Trustee (the "Trustee"),
relating to Holding's Series A and Series B 12.5% Senior Secured
Notes Due 2006 (filed as Exhibit 4.3 to the Form S-4 and incorporated
herein by reference)
4.4 Pledge, Escrow and Disbursement Agreement dated as of June 18, 1996,
by and among Holding, the Trustee and First Trust of New York,
National Association, as Escrow Agent (filed as Exhibit 4.4 to the
Form S-4 and incorporated herein by reference)
4.5 Holding Pledge and Security Agreement dated as of June 18, 1996,
between Holding and First Trust of New York, National Association, as
Collateral Agent (filed as Exhibit 4.5 to the Form S-4 and
incorporated herein by reference)
4.6 Registration Rights Agreement dated as of June 18, 1996, by and among
Holding and Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") (filed as Exhibit 4.6 to the Form S-4 and incorporated herein
by reference)
4.7 BPC Holding Corporation 1996 Stock Option Plan (filed as Exhibit 4.7
to the 1996 Form 10-K and incorporated herein by reference)
4.8 Form of Nontransferable Performance-Based Incentive Stock Option
Agreement (filed as Exhibit 4.7 to the 1996 Form 10-K and
incorporated herein by reference)
*10.1 Amended and Restated Financing and Security Agreement dated as of
August 29, 1997, by and between NationsBank, N.A. and the Company
10.2 Employment Agreement dated December 24, 1990, as amended, between the
Company and Martin R. Imbler ("Imbler") (filed as Exhibit 10.9 to the
Form S-1 and incorporated herein by reference)
10.3 Amendment to Imbler Employment Agreement dated November 30, 1995
(filed as Exhibit 10.6 to the 1995 Form 10-K and incorporated herein
by reference)
10.4 Amendment to Imbler Employment Agreement dated June 30, 1996 (filed
as Exhibit 10.4 to the Form S-4 and incorporated herein by reference)
10.5 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)
10.6 Amendment to Beeler Employment Agreement dated November 30, 1995
(filed as Exhibit 10.8 to the 1995 Form 10-K and incorporated herein
by reference)
10.7 Amendment to Beeler Employment Agreement dated June 30, 1996 (filed
as Exhibit 10.7 to the Form S-4 and incorporated herein by reference)
10.8 Employment Agreement dated December 24, 1990, as amended, between the
Company and Douglas E. Bell ("Bell") (filed as Exhibit 10.11 to the
Form S-1 and incorporated herein by reference)
10.9 Amendment to Bell Employment Agreement dated November 30, 1995 (filed
as Exhibit 10.10 to the 1995 Form 10-K and incorporated herein by
reference)
10.10 Amendment to Bell Employment Agreement dated June 30, 1996 (filed as
Exhibit 10.10 to the Form S-4 and incorporated herein by reference)
10.11 Employment Agreement dated December 24, 1990, as amended, between the
Company and James M. Kratochvil ("Kratochvil") (filed as Exhibit
10.12 to the Form S-1 and incorporated herein by reference)
10.12 Amendment to Kratochvil Employment Agreement dated November 30, 1995
(filed as Exhibit 10.12 to the 1995 Form 10-K and incorporated herein
by reference)
10.13 Amendment to Kratochvil Employment Agreement dated June 30, 1996
(filed as Exhibit 10.13 to the Form S-4 and incorporated herein by
reference)
10.14 Employment Agreement dated as of January 1, 1993, between the Company
and Ira G. Boots ("Boots") (filed as Exhibit 10.13 to the Form S-1
and incorporated herein by reference)
10.15 Amendment to Boots Employment Agreement dated November 30, 1995
(filed as Exhibit 10.14 to the 1995 Form 10-K and incorporated herein
by reference)
10.16 Amendment to Boots Employment Agreement dated June 30, 1996 (filed as
Exhibit 10.16 to the Form S-4 and incorporated herein by reference)
10.17 Guaranty dated as of February 12, 1992, by the Company in favor of
the City of Iowa Falls, Iowa, The First National Bank of Boston and
certain other parties named therein (filed as Exhibit 10.14 to the
Form S-1 and incorporated herein by reference)
10.18 Financing Agreement dated as of April 1, 1991, between the City of
Henderson, Nevada Public Improvement Trust and the Company (including
exhibits) (filed as Exhibit 10.17 to the Form S-1 and incorporated
herein by reference)
10.19 Loan and Trust Agreement dated as of August 30, 1988, as amended,
among the City of Iowa Falls, Iowa, Berry Iowa, the First National
Bank of Boston, as Trustee, and Canadian Imperial Bank of Commerce
(New York) (filed as Exhibit 10.19 to the Form S-1 and incorporated
herein by reference)
10.20 Irrevocable Standby Letter of Credit of NationsBank, N.A. dated March
12, 1997 (filed as Exhibit 10.20 to the 1996 Form 10-K and
incorporated herein by reference)
10.21 Letter of Credit of Fleet National Bank of Connecticut (filed as
Exhibit 10.26 to the 1995 Form 10-K and incorporated herein by
reference)
10.22 Purchase Agreement dated as of June 12, 1996, between Holding and DLJ
relating to the 12.5% Senior Secured Notes due 2006 (filed as Exhibit
10.22 to the Form S-4 and incorporated herein by reference)
10.23 Stockholders Agreement dated as of June 18, 1996, among Holding,
Atlantic Equity Partners International II, L.P., CVCA and the other
parties thereto (filed as Exhibit 10.23 to the Form S-4 and
incorporated herein by reference)
10.24 Warrant to purchase Class B Common Stock of Holding dated June 18,
1996, issued to CVCA (Warrant No. 1) (filed as Exhibit 10.24 to the
Form S-4 and incorporated herein by reference)
10.25 Warrant to purchase Class B Common Stock of Holding dated June 18,
1996, issued to CVCA (Warrant No. 2) (filed as Exhibit 10.25 to the
Form S-4 and incorporated herein by reference)
10.26 Warrant to purchase Class B Common Stock of Holding dated June 18,
1996, issued to The Northwestern Mutual Life Insurance Company
(Warrant No. 3) (filed as Exhibit 10.26 to the Form S-4 and
incorporated herein by reference)
10.27 Warrant to purchase Class B Common Stock of Holding dated June 18,
1996, issued to The Northwestern Mutual Life Insurance Company
(Warrant No. 4) (filed as Exhibit 10.27 to the Form S-4 and
incorporated herein by reference)
10.28 Amended and Restated Stockholders Agreement dated June 18, 1996,
among Holding and certain stockholders of Holding (filed as Exhibit
10.28 to the Form S-4 and incorporated herein by reference)
10.3 Second Amended and Restated Management Agreement dated June 18, 1996,
between First Atlantic Capital, Ltd. and the Company (filed as
Exhibit 10.29 to the Form S-4 and incorporated herein by reference)
*10.30 Warrant to purchase Class B Non-Voting Common Stock of BPC Holding
Corporation, dated August 29, 1997, issued to Willard J. Rathbun.
*10.31 Warrant to purchase Class B Non-Voting Common Stock of BPC Holding
Corporation, dated August 29, 1997, issued to Craig Rathbun.
*21 List of Subsidiaries
*27 Financial Data Schedule
* Filed herewith.