10-Q 1 plasq0302.txt DOCUMENT 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 30, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from___________________to__________________ Commission File Number 33-75706 BPC HOLDING CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 35-1814673 (State or other jurisdiction (IRS employer of incorporation or organization) identification number)
BERRY PLASTICS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 35-1813706 (State or other jurisdiction (IRS employer of incorporation or organization) identification number) 101 Oakley Street 47710 Evansville, Indiana (Address of principal executive offices) (Zip code)
Registrants' telephone number, including area code: (812) 424-2904 NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.[X]Yes [ ]No Indicate the number of shares outstanding of each of issuers' classes of common stock, as of the latest practicable date: As of May 7, 2002, 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; 144,546 shares of Class B Voting Common Stock; 59,222 shares of Class B Nonvoting Common Stock; and 16,833 shares of Class C Nonvoting Common Stock. As of April 30, 2002 there were outstanding 100 shares of the Common Stock, $.01 par value, of Berry Plastics Corporation. 1 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS THIS FORM 10-Q CONTAINS STATEMENTS THAT CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). THOSE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS FORM 10-Q AND INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY. WITHOUT LIMITING THE FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD- LOOKING STATEMENTS. ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND MAY INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. VARIOUS ECONOMIC AND COMPETITIVE FACTORS COULD CAUSE ACTUAL RESULTS OR EVENTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. THE ACCOMPANYING INFORMATION CONTAINED IN THIS FORM 10-Q, INCLUDING, WITHOUT LIMITATION, THE INFORMATION SET FORTH UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," IDENTIFIES IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES, INCLUDING 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. 2 BPC HOLDING CORPORATION BERRY PLASTICS CORPORATION FORM 10-Q INDEX FOR QUARTERLY PERIOD ENDED MARCH 30, 2002 PAGE NO. PART I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets 4 Consolidated Statements of Operations 6 Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 20 SIGNATURE 21 3 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements BPC Holding Corporation and Subsidiaries Consolidated Balance Sheets (In Thousands of Dollars)
MARCH 30, DECEMBER 29, 2002 2001 -------------- -------------- (UNAUDITED) Assets Current assets: Cash and cash equivalents $ 774 $ 1,232 Accounts receivable (less allowance for doubtful accounts of $2,343 at March 30, 2002 and $2,070 at December 29, 2001) 62,943 48,623 Inventories: Finished goods 44,273 43,048 Raw materials and supplies 13,318 13,009 --------- --------- 57,591 56,057 Prepaid expenses and other receivables 4,900 5,280 --------- --------- Total current assets 126,208 111,192 Property and equipment: Land 9,437 9,443 Buildings and improvements 72,487 72,722 Machinery, equipment and tooling 205,690 201,357 Construction in progress 32,108 22,647 --------- --------- 319,722 306,169 Less accumulated depreciation 112,778 102,952 --------- --------- 206,944 203,217 Intangible assets: Deferred financing fees, net 7,800 8,475 Covenants not to compete, net 1,498 1,955 Excess of cost over net assets acquired, net 119,693 119,923 --------- --------- 128,991 130,353 Other 2,103 2,114 --------- --------- Total assets $464,246 $446,876 ========= =========
4 BPC Holding Corporation and Subsidiaries Consolidated Balance Sheets (continued) (In Thousands of Dollars)
MARCH 30, DECEMBER 29, 2002 2001 -------------- -------------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 35,146 $ 34,862 Accrued expenses and other liabilities 10,705 8,955 Accrued interest 13,862 7,964 Employee compensation and payroll taxes 16,539 17,792 Current portion of long-term debt 21,124 22,292 --------- --------- Total current liabilities 97,376 91,865 Long-term debt, less current portion 471,457 463,589 Accrued dividends on preferred stock 30,201 27,446 Deferred income taxes 485 489 Other liabilities 2,603 3,088 --------- --------- 602,122 586,477 Stockholders' equity (deficit): Series A Preferred Stock; 600,000 shares authorized, issued and outstanding (net of discount of $1,820 at March 30, 2002 and $1,893 at December 29, 2001) 12,751 12,678 Series A-1 Preferred Stock; 1,400,000 shares authorized; 1,000,000 shares issued and outstanding (net of discount of $4,485 at March 30, 2002 and $4,668 at December 29, 2001) 20,515 20,332 Series B Preferred Stock; 200,000 shares authorized, issued and outstanding 5,000 5,000 Series C Preferred Stock; 13,168 shares authorized, issued and outstanding 9,779 9,779 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; 145,058 shares issued and 144,546 shares outstanding 1 1 Nonvoting; 500,000 shares authorized; 61,325 shares issued and 59,222 shares outstanding 1 1 Class C Common Stock; $.01 par value: Nonvoting; 500,000 shares authorized; 17,000 shares issued and 16,833 shares outstanding - - Treasury stock: 512 shares Class B Voting Common Stock; 2,103 shares Class B Nonvoting Common Stock; and 167 shares Class C Nonvoting Common Stock (405) (405) Additional paid-in capital 22,305 25,315 Warrants 9,386 9,386 Retained earnings (deficit) (215,497) (220,263) Accumulated other comprehensive loss (1,716) (1,429) --------- --------- Total stockholders' equity (deficit) (137,876) (139,601) --------- --------- Total liabilities and stockholders'equity (deficit) $ 464,246 $ 446,876 ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 5 BPC Holding Corporation and Subsidiaries Consolidated Statements of Operations (In Thousands of Dollars)
THIRTEEN WEEKS ENDED -------------------------------- MARCH 30, MARCH 31, 2002 2001 -------------- ------------- (UNAUDITED) Net sales $122,934 $116,016 Cost of goods sold 90,299 83,927 --------- --------- Gross margin 32,635 32,089 Operating expenses: Selling 5,780 5,742 General and administrative 7,108 7,242 Research and development 547 401 Amortization of intangibles 477 2,751 Other expenses 1,116 1,383 --------- --------- Operating income 17,607 14,570 Other expenses (income): Loss (gain) on disposal of property and equipment 144 (28) --------- --------- Income before interest and taxes 17,463 14,598 Interest: Expense (12,809) (13,550) Income 3 56 --------- --------- Income before income taxes 4,657 1,104 Income taxes (benefit) (109) 82 --------- --------- Net income 4,766 1,022 Preferred stock dividends (2,755) (2,116) Amortization of preferred stock discount (256) (256) --------- --------- Net income (loss) attributable to common shareholders $ 1,755 $ (1,350) ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 6 BPC Holding Corporation and Subsidiaries Consolidated Statements of Cash Flows (In Thousands of Dollars)
THIRTEEN WEEKS ENDED -------------------------------------- MARCH 30, MARCH 31, 2002 2001 ----------------- ---------------- (UNAUDITED) OPERATING ACTIVITIES Net income $ 4,766 $ 1,022 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 10,358 8,665 Non-cash interest expense 631 4,953 Amortization 477 2,751 Non-cash compensation expense - 150 Loss (gain) on sale of property and equipment 144 (28) Changes in operating assets and liabilities: Accounts receivable, net (14,424) (14,361) Inventories (1,553) 1,109 Prepaid expenses and other receivables 373 (2,407) Other assets 11 (163) Payables and accrued expenses 6,706 963 --------- --------- Net cash provided by operating activities 7,489 2,654 INVESTING ACTIVITIES Additions to property and equipment (9,801) (5,893) Proceeds from disposal of property and equipment 1 28 Acquisition of business (3,199) - --------- --------- Net cash used for investing activities (12,999) (5,865) FINANCING ACTIVITIES Proceeds from long-term borrowings 12,098 9,797 Payments on long-term borrowings (6,489) (5,774) --------- --------- Net cash provided by financing activities 5,609 4,023 Effect of exchange rate changes on cash (557) 491 --------- --------- Net increase (decrease) in cash and cash equivalents (458) 1,303 Cash and cash equivalents at beginning of period 1,232 2,054 --------- --------- Cash and cash equivalents at end of period $ 774 $ 3,357 ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 7 BPC Holding Corporation and Subsidiaries Notes to Consolidated Financial Statements (In thousands of dollars, except as otherwise noted) (Unaudited) 1. Basis of Presentation THE ACCOMPANYING UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF BPC HOLDING CORPORATION AND ITS SUBSIDIARIES (THE "COMPANY") HAVE BEEN PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR INTERIM FINANCIAL INFORMATION AND WITH THE INSTRUCTIONS FOR FORM 10-Q AND ARTICLE 10 OF REGULATION S-X. ACCORDINGLY, THEY DO NOT INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS. IN THE OPINION OF MANAGEMENT, ALL ADJUSTMENTS (CONSISTING OF NORMAL RECURRING ACCRUALS) CONSIDERED NECESSARY FOR A FAIR PRESENTATION HAVE BEEN INCLUDED. OPERATING RESULTS FOR THE PERIODS PRESENTED ARE NOT NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR THE FULL FISCAL YEAR. THE ACCOMPANYING FINANCIAL STATEMENTS INCLUDE THE RESULTS OF BPC HOLDING CORPORATION ("HOLDING") AND ITS WHOLLY- OWNED SUBSIDIARY, BERRY PLASTICS CORPORATION ("BERRY"), AND ITS WHOLLY-OWNED SUBSIDIARIES: BERRY IOWA CORPORATION, BERRY TRI-PLAS CORPORATION, BERRY STERLING CORPORATION, AEROCON, INC., PACKERWARE CORPORATION, BERRY PLASTICS DESIGN CORPORATION, VENTURE PACKAGING, INC. AND ITS SUBSIDIARIES VENTURE PACKAGING MIDWEST, INC. AND BERRY PLASTICS TECHNICAL SERVICES, INC., NIM HOLDINGS LIMITED AND ITS SUBSIDIARY BERRY PLASTICS U.K. LIMITED AND ITS SUBSIDIARY NORWICH ACQUISITION LIMITED, KNIGHT PLASTICS, INC., CPI HOLDING CORPORATION AND ITS SUBSIDIARY CARDINAL PACKAGING, INC., BERRY PLASTICS ACQUISITION CORPORATION II, POLY-SEAL CORPORATION, BERRY PLASTICS ACQUISITION CORPORATION III, CBP HOLDINGS S.R.L. AND ITS SUBSIDIARIES CAPSOL S.P.A. AND OCEISSE S.R.L., AND PESCOR, INC. FOR FURTHER INFORMATION, REFER TO THE CONSOLIDATED FINANCIAL STATEMENTS AND FOOTNOTES THERETO INCLUDED IN HOLDING'S AND BERRY'S FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 29, 2001. 2. Recent Acquisitions ON MAY 14, 2001, BERRY ACQUIRED ALL OF THE OUTSTANDING CAPITAL STOCK OF PESCOR PLASTICS, INC. ("PESCOR") FOR AGGREGATE CONSIDERATION OF APPROXIMATELY $24.8 MILLION. THE PURCHASE WAS FINANCED THROUGH THE ISSUANCE BY HOLDING OF $9.8 MILLION OF 14% PREFERRED STOCK AND ADDITIONAL BORROWINGS UNDER THE SENIOR CREDIT FACILITY. THE OPERATIONS OF PESCOR ARE INCLUDED IN BERRY'S OPERATIONS SINCE THE ACQUISITION DATE USING THE PURCHASE METHOD OF ACCOUNTING. ON JANUARY 24, 2002, Berry acquired the Alcoa Flexible Packaging injection molding assets of Mt. Vernon Plastics Corporation ("Mount Vernon") for aggregate consideration of approximately $2.6 million. The purchase price was allocated to fixed assets ($2.0 million) and inventory ($0.6 million). The purchase was financed through borrowings under the Company's revolving line of credit. The operations of Mount Vernon are included in Berry's operations since the acquisition date using the purchase method of accounting. The fair value of the net assets acquired was based on preliminary estimates and may be revised at a later date. On January 31, 2002, Berry entered into a sale/leaseback arrangement with respect to the fixed assets. The difference between the sale proceeds and the sum of the purchase price of the fixed assets, moving, installation, and other related transition costs is not expected to be significant. 8 The pro forma results listed below are unaudited and reflect purchase accounting adjustments assuming the Pescor and Mount Vernon acquisitions occurred on December 31, 2000.
THIRTEEN WEEKS ENDED ------------------------------ MARCH 30, MARCH 31, 2002 2001 ------------- ------------ Pro forma net sales $ 124,045 $ 128,557 Pro forma net income 4,814 341
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 dates, 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 (amortization through December 29, 2001), net of the applicable income tax effects. 3. LONG-TERM DEBT Long-term debt consists of the following:
MARCH 30, DECEMBER 29, 2002 2001 ------------ ------------- Holding 12.50% Senior Secured Notes $135,714 $135,714 Berry 12.25% Senior Subordinated Notes 125,000 125,000 Berry 11% Senior Subordinated Notes 75,000 75,000 Term loans 48,802 54,596 Revolving lines of credit 57,818 49,053 Second Lien Senior Credit Facility 25,000 25,000 Nevada Industrial Revenue Bonds 3,000 3,000 Capital leases 21,897 18,131 Debt premium, net 350 387 --------- --------- 492,581 485,881 Less current portion of long-term debt 21,124 22,292 --------- --------- $471,457 $463,589 ========= =========
The current portion of long-term debt consists of $16.6 million of monthly installments on the term loans, and $4.5 million in repayments of the industrial bonds and the monthly principal payments related to capital lease obligations. 9 The Company has a financing and security agreement (the "Financing Agreement") with a syndicate of lenders led by Bank of America for a senior secured credit facility (the "Credit Facility"). As of March 30, 2002, the Credit Facility provides the Company with (i) a $80.0 million revolving line of credit ("US Revolver"), subject to a borrowing base formula, (ii) a $2.1 million (using the March 30, 2002 exchange rate) revolving line of credit denominated in British Sterling in the U.K. ("UK Revolver"), subject to a separate borrowing base formula, (iii) a $47.2 million term loan facility, (iv) a $1.6 million (using the March 30, 2002 exchange rate) term loan facility denominated in British Sterling in the U.K. ("UK Term Loan") and (v) a $3.2 million standby letter of credit facility to support the Company's and its subsidiaries' obligations under the Nevada Bonds. CBP Holdings S.r.l. has a revolving credit facility (the "Italy Revolver") from Bank of America for $11.8 million (using the March 30, 2002 exchange rate) denominated in Euros. Bank of America also extends working capital financing (the "Italy Working Capital Line") of up to $1.5 million (using the March 30, 2002 exchange rate) denominated in Euros. The full amount available under the Italy Revolver and the Italy Working Capital Line are applied to reduce amounts available under the US Revolver, as does the outstanding balance under the UK Revolver. At March 30, 2002, the Company had unused borrowing capacity under the US Revolver of approximately $19.7 million. The indebtedness under the Credit Facility is guaranteed by Holding and all of its subsidiaries (other than its subsidiaries in the United Kingdom and Italy). The obligations of the Company and the subsidiaries under the Credit Facility and the guarantees thereof are secured by substantially all of the assets of such entities. 10 4. OPERATING SEGMENTS The Company has three reportable segments: containers, closures, and consumer products. The Company evaluates performance and allocates resources based on operating income before depreciation and amortization of intangibles adjusted to exclude (i) non-cash compensation, (ii) other non- recurring or "one-time" expenses and (iii) management fees and reimbursed expenses paid to the largest voting stockholder ("Adjusted EBITDA"). One- time expenses primarily represent non-recurring expenses that relate to recently acquired businesses and plant consolidations. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in the Company's Form 10-K filed with the Securities and Exchange Commission for the year ended December 29, 2001.
Thirteen Weeks Ended -------------------------------- MARCH 30, MARCH 31, 2002 2001 ------------- ------------- Net sales: Containers $ 58,178 $ 56,402 Closures 33,463 35,082 Consumer Products 31,293 24,532 Adjusted EBITDA: Containers 15,859 15,295 Closures 7,450 7,689 Consumer Products 6,406 4,779 Total assets: Containers 203,799 208,879 Closures 158,846 158,891 Consumer Products 101,601 54,379 Reconciliation of Adjusted EBITDA to income before income taxes: Adjusted EBITDA for reportable segments $ 29,715 $ 27,763 Net interest expense (12,806) (13,494) Depreciation (10,358) (8,665) Amortization (477) (2,751) Gain (loss) on disposal of property and equipment (144) 28 One-time expenses (1,142) (1,415) Non-cash compensation - (150) Management fees (131) (212) --------- --------- Income before income taxes $ 4,657 $ 1,104 ========= =========
5. COMPREHENSIVE INCOME Comprehensive income was $4,479 and $68 for the thirteen weeks ended March 30, 2002 and March 31, 2001, respectively. 11 6. CONDENSED CONSOLIDATING FINANCIAL INFORMATION Holding conducts its business through its wholly owned subsidiary, Berry. Holding and all of Berry's subsidiaries fully, jointly, severally, and unconditionally guarantee on a senior subordinated basis the $100.0 million aggregate principal amount of 12.25% Berry Plastics Corporation Senior Subordinated Notes due 2004 issued on April 21, 1994 (the "1994 Notes"), the $25.0 million aggregate principal amount of 12.25% Berry Plastics Corporation Series B Senior Subordinated Notes due 2004 issued on August 24, 1998 (the "1998 Notes"), and the $75.0 million aggregate principal amount of 11% Berry Plastics Corporation Senior Subordinated Notes due 2007 issued on July 6, 1999 (the "1999 Notes"). There are no nonguarantor subsidiaries with respect to the notes issued by Berry. Holding's 12.50% Series B Senior Secured Notes due 2006 (the "1996 Notes") are not guaranteed by Berry or any of Berry's wholly owned subsidiaries. The Indenture dated as of April 21, 1994 (the "1994 Indenture"), the Indenture dated August 24, 1998 (the "1998 Indenture") and the Indenture dated July 6, 1999 (the "1999 Indenture") restrict, 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 Holding's 1996 Notes. Berry and all of Berry's subsidiaries are 100% owned by Holding. Separate narrative information or financial statements of guarantor subsidiaries have not been included as management believes they would not be material to investors. Presented below is condensed consolidating financial information for Holding, Berry, and its subsidiaries at March 30, 2002 and December 29, 2001 and for the thirteen weeks ended March 30, 2002 and March 31, 2001. The equity method has been used with respect to investments in subsidiaries.
MARCH 30, 2002 ------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Corporation Corporation Guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ --------------- ------------ ------------- ------------- CONSOLIDATING BALANCE SHEET Current assets $ 1 $ 39,624 $ 86,583 $ - $ 126,208 Net property and equipment - 75,890 131,054 - 206,944 Other noncurrent assets 34,691 351,736 110,174 (365,507) 131,094 --------- --------- --------- --------- --------- Total assets $34,692 $ 467,250 $ 327,811 $ (365,507) $ 464,246 ========= ========= ========= ========= ========= Current liabilities $ 4,936 $ 61,222 $ 31,218 $ - $ 97,376 Noncurrent liabilities 167,632 375,335 352,461 (390,682) 504,746 Equity (deficit) (137,876) 30,693 (55,868) 25,175 (137,876) --------- --------- --------- --------- --------- Total liabilities and equity (deficit) $ 34,692 $ 467,250 $ 327,811 $ (365,507) $ 464,246 ========= ========= ========= ========= =========
DECEMBER 29, 2001 ------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Corporation Corporation Guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ --------------- ------------ ------------- ------------- CONSOLIDATING BALANCE SHEET Current assets $ 440 $ 32,459 $ 78,293 $ - $ 111,192 Net property and equipment - 71,437 131,780 - 203,217 Other noncurrent assets 23,980 289,764 109,632 (290,909) 132,467 --------- --------- --------- --------- --------- Total assets $ 24,420 $ 393,660 $ 319,705 $(290,909) $ 446,876 ========= ========= ========= ========= ========= Current liabilities $ 861 $ 60,212 $ 30,792 $ - $ 91,865 Noncurrent liabilities 163,160 311,574 345,799 (325,921) 494,612 Equity (deficit) (139,601) 21,874 (56,886) 35,012 (139,601) --------- --------- --------- --------- --------- Total liabilities and equity (deficit) $ 24,420 $ 393,660 $ 319,705 $ (290,909) $ 446,876 ========= ========= ========= ========= =========
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THIRTEEN WEEKS ENDED MARCH 30, 2002 ------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Corporation Corporation Guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ --------------- ------------ ------------- ------------- CONSOLIDATING STATEMENT OF OPERATIONS Net sales $ - $ 42,003 $ 80,931 $ - $ 122,934 Cost of goods sold - 26,786 63,513 - 90,299 --------- --------- --------- --------- --------- Gross margin - 15,217 17,418 - 32,635 Operating expenses 29 6,250 8,749 - 15,028 --------- --------- --------- --------- --------- Operating income (loss) (29) 8,967 8,669 - 17,607 Other expenses - 81 63 - 144 Interest expense, net 4,354 433 8,019 - 12,806 Income taxes (benefit) (155) 8 38 - (109) Equity in net (income) loss from subsidiary (8,994) (549) - 9,543 - --------- --------- --------- --------- --------- Net income (loss) $ 4,766 $ 8,994 $ 549 $ (9,543) $ 4,766 ========= ========= ========= ========= =========
CONSOLIDATING STATEMENT OF CASH FLOWS Net income (loss) $ 4,766 $ 8,994 $ 549 $ (9,543) $ 4,766 Non-cash expenses 125 3,862 7,623 - 11,610 Equity in net (income) loss from subsidiary (8,994) (549) - 9,543 - Changes in working capital 4,075 (5,036) (7,926) - (8,887) --------- --------- --------- --------- --------- Net cash provided by (used for) operating activities (28) 7,271 246 - 7,489 Net cash used for investing activities - (6,152) (6,847) - (12,999) Net cash provided by (used for) financing activities (411) (1,050) 7,070 - 5,609 Effect on exchange rate changes on cash - - (557) - (557) --------- --------- --------- --------- --------- Net increase (decrease)in cash and cash equivalents (439) 69 (88) - (458) Cash and cash equivalents at beginning of period 440 121 671 - 1,232 --------- --------- --------- --------- --------- Cash and cash equivalents at end of period $ 1 $ 190 $ 583 $ - $ 774 ========= ========= ========= ========= =========
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THIRTEEN WEEKS ENDED MARCH 31, 2001 ------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Corporation Corporation Guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ --------------- ------------ ------------- ------------- CONSOLIDATING STATEMENT OF OPERATIONS Net sales $ - $ 39,808 $ 76,208 $ - $ 116,016 Cost of goods sold - 26,198 57,729 - 83,927 --------- --------- --------- --------- --------- Gross margin - 13,610 18,479 - 32,089 Operating expenses 179 6,173 11,167 - 17,519 --------- --------- --------- --------- --------- Operating income (loss) (179) 7,437 7,312 - 14,570 Other expenses (income) - (28) - - (28) Interest expense, net 4,338 2,452 6,704 - 13,494 Income taxes 7 5 70 - 82 Equity in net (income)loss from subsidiary (5,546) (538) - 6,084 - --------- --------- --------- --------- --------- Net income (loss) $ 1,022 $ 5,546 $ 538 $ (6,084) $ 1,022 ========= ========= ========= ========= =========
CONSOLIDATING STATEMENT OF CASH FLOWS Net income (loss) $ 1,022 $ 5,546 $ 538 $ (6,084) $ 1,022 Non-cash expenses 4,491 3,371 8,629 - 16,491 Equity in net (income) loss from subsidiary (5,546) (538) - 6,084 - Changes in working capital 12 (2,793) (12,078) - (14,859) --------- --------- --------- --------- --------- Net cash provided by (used for) operating activities (21) 5,586 (2,911) - 2,654 Net cash used for investing activities - (4,786) (1,079) - (5,865) Net cash provided by (used for) financing activities (13) 724 3,312 - 4,023 Effect of exchange rate changes on cash - - 491 - 491 --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents (34) 1,524 (187) - 1,303 Cash and cash equivalents at beginning of period 220 642 1,192 - 2,054 --------- --------- --------- --------- --------- Cash and cash equivalents at end of period $ 186 $ 2,166 $ 1,005 $ - $ 3,357 ========= ========= ========= ========= =========
14 7. Recently Issued Accounting Pronouncements In June 2001, the FASB issued SFAS No. 141, BUSINESS COMBINATIONS and SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. These pronouncements significantly change the accounting for business combinations, goodwill, and intangible assets. SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and further clarifies the criteria to recognize intangible assets separately from goodwill. The requirements of SFAS No. 141 are effective for any business combination that is completed after June 30, 2001. SFAS No. 142 states goodwill and indefinite lived intangible assets are no longer amortized but are reviewed for impairment annually (or more frequently if impairment indicators arise). Separable intangible assets that are deemed to have an indefinite life will continue to be amortized over their useful lives. The Company adopted the provisions of SFAS Nos. 141 and 142 as of the beginning of fiscal 2002. Application of the nonamortization provisions of SFAS No. 142 is expected to result in an increase in net income (or decrease in net loss) of approximately $10.5 million per year based on goodwill related to acquisitions prior to the new rules. The following table presents the quarterly results of the Company on a comparable basis:
THIRTEEN WEEKS ENDED ------------------------------------ MARCH 30, 2002 MARCH 31, 2001 ---------------- ---------------- Reported net income $4,766 $1,022 Goodwill amortization, net of tax - 2,071 ------------ ------------- Adjusted net income $4,766 $3,093 ============ =============
Prior to June 29, 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets and has not yet determined the impact of the results of these tests on the earnings and financial position of the Company. Any goodwill or other intangible asset impairment losses recognized from the initial impairment test are required to be reported as a cumulative effect of a change in accounting principle in the Company's financial statements. In October 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. This statement addresses the financial accounting and reporting for the impairment and disposal of long-lived assets. It supercedes and addresses significant issues relating to the implementation of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 144 retains many of the fundamental provisions of SFAS No. 121 and establishes a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired. The Company adopted this standard as of the beginning of fiscal 2002. The application of SFAS No. 144 did not have a material impact on the Company's results of operations and financial position. 15 Item 2. 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 should be read in conjunction with the consolidated financial statements of Holding and its subsidiaries and the accompanying notes thereto, which information is included elsewhere herein. The Company is highly leveraged. The high degree of leverage could have important consequences, including, but not limited to, the following: (i) a substantial portion of Berry's cash flow from operations must be dedicated to the payment of principal and interest on its indebtedness, thereby reducing the funds available to Berry for other purposes; (ii) Berry's ability to obtain additional debt financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be impaired; (iii) certain of Berry's borrowings will be at variable rates of interest, which will expose Berry to the risk of higher interest rates; (iv) the indebtedness outstanding under the senior credit facility is secured by substantially all of the assets of Berry; (v) Berry is substantially more leveraged than certain of its competitors, which may place Berry at a competitive disadvantage, particularly in light of its acquisition strategy; and (vi) Berry's degree of leverage may hinder its ability to adjust rapidly to changing market conditions and could make it more vulnerable in the event of a downturn in general economic conditions or its business. As the Company previously announced, in January 2002, the Board of Directors of Berry retained certain investment banking firms to assist it in considering certain strategic transactions designed to realize shareholders' value, including the possibility of a combination with a company in the industry or a sale of the company in a negotiated transaction. As part of this effort, these investment banking firms have initiated the process of soliciting offers for the Company. There can be no assurance that a strategic transaction involving the Company will be completed and, if completed, there can be no assurance as to the timing or terms thereof. CRITICAL ACCOUNTING POLICIES The Company has disclosed those accounting policies that it considers to be significant in determining the amounts to be utilized for communicating its consolidated financial position, results of operations and cash flows in the second note to its consolidated financial statements included in its Form 10-K filed with the Securities and Exchange Commission for the year ended December 29, 2001. Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with these principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results are likely to differ from these estimates, but management does not believe such differences will materially affect the Company's financial position or results of operations. 16 Based on a critical assessment of its accounting policies and the underlying judgements and uncertainties affecting the application of those policies, management believes that the Company's consolidated financial statements provide a meaningful and fair perspective of the Company. This is not to suggest that other risk factors such as changes in economic conditions, changes in material costs, and others could not adversely impact the Company's consolidated financial position, results of operations and cash flows in future periods. RESULTS OF OPERATIONS 13 WEEKS ENDED MARCH 30, 2002 (THE "QUARTER") COMPARED TO 13 WEEKS ENDED MARCH 31, 2001 (THE "PRIOR QUARTER") NET SALES. Net sales increased $6.9 million, or 6%, to $122.9 million for the Quarter from $116.0 million for the Prior Quarter with an approximate 2% deCREASE IN NET SELLING PRICE. CONTAINER NET SALES INCREASED $1.8 MILLION FROM THE PRIOR QUARTER WITH THE MOUNT VERNON ACQUISITION PROVIDING APPROXIMATELY $3.3 MILLION OF NET SALES IN THE QUARTER. CLOSURE NET SALES DECREASED $1.6 MILLION FROM THE PRIOR QUARTER. CONSUMER PRODUCTS NET SALES FOR THE QUARTER WERE $6.8 MILLION MORE THAN THE PRIOR QUARTER WITH THE PESCOR ACQUISITION PROVIDING NET SALES OF APPROXIMATELY $6.9 MILLION IN THE QUARTER. GROSS PROFIT. Gross profit increased by $0.5 million to $32.6 million (27% of net sales) for the Quarter from $32.1 million (28% of net sales) for the Prior Quarter. This increase of 2% includes the combined impact of the added Pescor and Mount Vernon sales volume, effects of net selling prices and raw material costs, acquisition integration and productivity improvement initiatives. The Company has continued to consolidate products and business of recent acquisitions to the most efficient tooling, providing customers with improved products and customer service. As part of the integration, the Company removed molding operations from its Fort Worth, Texas facility (acquired in the Pescor acquisition). The business from this location was distributed throughout Berry's facilities. Also, significant productivity improvements were made during the year, including the addition of state-of- the-art injection molding equipment, molds and printing equipment at several of the Company's facilities. OPERATING EXPENSES. Selling expenses increased by $0.1 million to $5.8 million for the Quarter from $5.7 million for the Prior Quarter principally as a result of the Pescor acquisition partially offset by cost reductions. General and administrative expenses decreased from $7.2 million for the Prior Quarter to $7.1 million for the Quarter. This decrease of $0.1 million is primarily attributable to cost reduction initiatives partially offset by the Pescor acquisition. During the Quarter, one-time transition expenses were $0.2 million related to acquisitions and $0.9 million related to the shutdown and reorganization of facilities. In the Prior Quarter, one-time transition expenses were $0.7 million related to acquisitions and $0.7 million related to the shutdown and reorganization of facilities. INTEREST EXPENSE, NET. Net interest expense decreased $0.7 million to $12.8 million for the Quarter compared to $13.5 million for the Prior Quarter primarily due to lower interest rates on the Company's variable interest rate debt. 17 INCOME TAX. For the Quarter, the Company recorded an income tax benefit of $109,000 compared to income tax expense of $82,000 for the Prior Quarter. The Company continues to operate in a net operating loss carryforward position for federal income tax purposes. NET INCOME. The Company recorded net income of $4.8 million for the Quarter compared to $1.0 million for the Prior Quarter for the reasons discussed above. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $7.5 million for the Quarter compared to $2.7 million for the Prior Quarter. The increase is primarily the result of improved operating performance with net income before depreciation and amortization increasing $3.2 million from the Prior Quarter. Capital spending of $9.8 million for the Quarter represents an increase of $3.9 million from the Prior Quarter. The Quarter's capital spending included $0.7 million for buildings and systems, $5.0 million for molds, $2.6 million for molding and printing machines, and $1.5 million for accessory equipment and systems. Net cash provided by financing activities was $5.6 million for the Quarter compared to $4.0 million for the Prior Quarter. The increase of $1.6 million can be primarily attributed to the financing of the Mount Vernon acquisition. 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. The Company anticipates that its cash interest, working capital and capital expenditure requirements for 2002 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. At March 30, 2002, the Company's cash balance was $0.8 million, and Berry had unused borrowing capacity under the US Revolver of $19.7 million. 18 THE 1994 INDENTURE, 1998 INDENTURE, AND 1999 INDENTURE RESTRICT, 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. INTEREST ON THE 1996 NOTES IS PAYABLE SEMI-ANNUALLY ON JUNE 15 AND DECEMBER 15 OF EACH YEAR. HOWEVER, FROM DECEMBER 15, 1999 UNTIL JUNE 15, 2001, HOLDING PAID INTEREST, AT AN INCREASED RATE OF 0.75% PER ANNUM, IN ADDITIONAL 1996 NOTES VALUED AT 100% OF THE PRINCIPAL AMOUNT THEREOF. HOLDING ISSUED AN ADDITIONAL $30.7 MILLION AGGREGATE PRINCIPAL AMOUNT OF 1996 NOTES IN SATISFACTION OF ITS INTEREST OBLIGATION. HOLDING'S ABILITY TO PAY PRINCIPAL AND INTEREST IN CASH ON THE 1996 NOTES AND BERRY'S ABILITY TO PAY PRINCIPAL AND INTEREST ON THE 1994 NOTES, 1998 NOTES, AND 1999 NOTES WILL DEPEND ON BERRY'S FINANCIAL AND OPERATING PERFORMANCE, WHICH IN TURN ARE SUBJECT TO PREVAILING ECONOMIC CONDITIONS AND TO CERTAIN FINANCIAL, BUSINESS AND OTHER FACTORS BEYOND ITS CONTROL. BASED ON HISTORICAL OPERATING RESULTS, MANAGEMENT BELIEVES THAT SUFFICIENT MONIES ARE AVAILABLE FROM BERRY UNDER THE TAX SHARING AGREEMENT TO ENABLE HOLDING TO MAKE THE JUNE 2002 CASH INTEREST PAYMENT ON THE 1996 NOTES, SUBJECT TO BERRY'S ABILITY TO GENERATE SUFFICIENT OPERATING RESULTS TO COMPLY WITH THE FINANCIAL COVENANTS IN THE CREDIT FACILITY. HOWEVER, IF BERRY CANNOT GENERATE SUFFICIENT CASH FLOW FROM OPERATIONS TO MEET ITS OBLIGATIONS, THEN THE COMPANY MAY BE FORCED TO TAKE ACTIONS SUCH AS REDUCING OR DELAYING CAPITAL EXPENDITURES, SELLING ASSETS, RESTRUCTURING OR REFINANCING ITS INDEBTEDNESS, OR SEEKING ADDITIONAL EQUITY CAPITAL. THERE IS NO ASSURANCE THAT ANY OF THESE ACTIONS COULD BE EFFECTED ON SATISFACTORY TERMS, IF AT ALL. 19 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None (b) Reports on Form 8-K: None 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BPC Holding Corporation Berry Plastics Corporation May 9, 2002 By: /S/ JAMES M. KRATOCHVIL James M. Kratochvil Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the entities listed above (Principal Financial and Accounting Officer) 21