10-Q 1 plas10q2q02.txt 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 June 29, 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 July 19, 2002 and immediately prior to the merger (the "Merger") of GS Berry Acquisition Corp. with and into BPC Holding Corporation, 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; 59,800 shares of Class B Nonvoting Common Stock; and 16,833 shares of Class C Nonvoting Common Stock. As a result of the Merger, as of August 7, 2002, there were outstanding 2,726,251 shares of Common Stock, $100 par value, of BPC Holding Corporation. As of August 7, 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 JUNE 29, 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 18 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 23 Item 5. Other Information 23 Item 6. Exhibits and Reports on Form 8-K 24 SIGNATURE 25 3 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements BPC Holding Corporation and Subsidiaries Consolidated Balance Sheets (In Thousands of Dollars)
JUNE 29, DECEMBER 29, 2002 2001 ---------- ---------- (UNAUDITED) Assets Current assets: Cash and cash equivalents $ 1,107 $ 1,232 Accounts receivable (less allowance for doubtful accounts of $2,084 at June 29, 2002 and $2,070 at December 29, 2001) 66,632 48,623 Inventories: Finished goods 43,487 43,048 Raw materials and supplies 15,824 13,009 ---------- ---------- 59,311 56,057 Prepaid expenses and other receivables 4,130 5,280 ---------- ---------- Total current assets 131,180 111,192 Property and equipment: Land 9,479 9,443 Buildings and improvements 73,067 72,722 Machinery, equipment and tooling 217,240 201,357 Construction in progress 34,621 22,647 ---------- ---------- 334,407 306,169 Less accumulated depreciation 123,704 102,952 ---------- ---------- 210,703 203,217 Intangible assets: Deferred financing fees, net 7,042 8,475 Covenants not to compete, net 1,215 1,955 Excess of cost over net assets acquired, net 121,617 119,923 ---------- ---------- 129,874 130,353 Other 4,433 2,114 ---------- ---------- Total assets $ 476,190 $ 446,876 ========== ==========
4 BPC Holding Corporation and Subsidiaries Consolidated Balance Sheets (continued) (In Thousands of Dollars)
JUNE 29, DECEMBER 29, 2002 2001 ---------- ---------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 38,617 $ 34,862 Accrued expenses and other liabilities 11,500 8,955 Accrued interest 7,878 7,964 Employee compensation and payroll taxes 16,241 17,792 Current portion of long-term debt 19,328 22,292 ---------- ---------- Total current liabilities 93,564 91,865 Long-term debt, less current portion 480,686 463,589 Accrued dividends on preferred stock 33,066 27,446 Deferred income taxes 547 489 Other liabilities 2,694 3,088 ---------- ---------- 610,557 586,477 Stockholders' equity (deficit): Series A Preferred Stock; 600,000 shares authorized, issued and outstanding (net of discount of $1,747 at June 29, 2002 and $1,893 at December 29, 2001) 12,824 12,678 Series A-1 Preferred Stock; 1,400,000 shares authorized; 1,000,000 shares issued and outstanding (net of discount of $4,300 at June 29, 2002 and $4,668 at December 29, 2001) 20,700 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 59,800 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 19,274 25,315 Warrants 9,386 9,386 Retained earnings (deficit) (210,281) (220,263) Accumulated other comprehensive loss (650) (1,429) ---------- ---------- Total stockholders' equity (deficit) (134,367) (139,601) ---------- ---------- Total liabilities and stockholders' equity (deficit) $ 476,190 $ 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 TWENTY-SIX WEEKS ENDED ----------------------------------------------- JUNE 29, JUNE 30, JUNE 29, JUNE 30, 2002 2001 2002 2001 ----------------------------------------------- (UNAUDITED) (UNAUDITED) Net sales $127,989 $124,997 $250,923 $241,014 Cost of goods sold 94,974 89,092 185,273 173,020 --------- --------- --------- --------- Gross margin 33,015 35,905 65,650 67,994 Operating expenses: Selling 5,155 5,684 10,934 11,426 General and administrative 7,099 9,005 14,210 16,248 Research and development 758 530 1,305 931 Amortization of intangibles 398 3,345 875 6,096 Other expenses 1,011 911 2,125 2,294 --------- --------- --------- --------- Operating income 18,594 16,430 36,201 30,999 Other expenses (income): Loss (gain) on disposal of property and equipment 147 (16) 291 (44) --------- --------- --------- --------- Income before interest and taxes 18,447 16,446 35,910 31,043 Interest: Expense (12,778) (14,457) (25,587) (28,007) Income 1 (32) 4 24 --------- --------- --------- --------- Income before income taxes 5,670 1,957 10,327 3,060 Income taxes 454 50 345 131 --------- --------- --------- --------- Net income 5,216 1,907 9,982 2,929 PREFERRED STOCK DIVIDENDS (2,865) (2,368) (5,620) (4,484) Amortization of preferred stock discount (256) (256) (512) (512) --------- --------- --------- --------- Net income (loss) attributable to common stockholders $ 2,095 $ (717) $ 3,850 $ (2,067) ========= ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 6 BPC Holding Corporation and Subsidiaries Consolidated Statements of Cash Flows (In Thousands of Dollars)
TWENTY-SIX WEEKS ENDED ------------------------- JUNE 29, JUNE 30, 2002 2001 ------------ ----------- (UNAUDITED) OPERATING ACTIVITIES Net income $ 9,982 $ 2,929 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 21,098 18,042 Non-cash interest expense 1,262 9,975 Amortization 875 6,096 Non-cash compensation expense - 300 Loss (gain) on sale of property and equipment 291 (44) Changes in operating assets and liabilities: Accounts receivable, net (17,544) (10,754) Inventories (2,914) 2,402 Prepaid expenses and other receivables 1,615 (3,024) Other assets (2,319) 40 Payables and accrued expenses 4,694 4,929 ------------ ----------- Net cash provided by operating activities 17,040 30,891 INVESTING ACTIVITIES Additions to property and equipment (17,675) (14,124) Proceeds from disposal of property and equipment 2 69 Acquisitions of businesses (4,562) (23,063) ------------ ----------- Net cash used for investing activities (22,235) (37,118) FINANCING ACTIVITIES Proceeds from long-term borrowings 19,636 9,427 Payments on long-term borrowings (13,924) (10,546) Issuance of common stock 93 97 Issuance of preferred stock and warrants - 10,000 Debt origination costs - (1,008) ------------ ----------- Net cash provided by financing activities 5,805 7,970 Effect of exchange rate changes on cash (735) 587 ------------ ----------- Net increase (decrease) in cash and cash equivalents (125) 2,330 Cash and cash equivalents at beginning of period 1,232 2,054 ------------ ----------- Cash and cash equivalents at end of period $ 1,107 $ 4,384 ============ ===========
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 ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES 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 ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES 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 BERRY PLASTICS S.P.A. AND OCIESSE S.R.L, AND PESCOR, INC.. THESE FINANCIAL STATEMENTS AND RELATED NOTES SHOULD BE READ IN CONNECTION WITH THE COMPANY'S 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. 1. 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. 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 Twenty-six Weeks Ended -------------------------------------------- JUNE 29, JUNE 30, JUNE 29, JUNE 30, 2002 2001 2002 2001 -------------------------------------------- Pro forma net sales $127,989 $134,223 $252,034 $261,280 Pro forma net income 5,670 1,348 10,484 1,689
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:
JUNE 29, 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 43,148 54,596 Revolving lines of credit 67,216 49,053 Second Lien Senior Credit Facility 25,000 25,000 Nevada Industrial Revenue Bonds 2,500 3,000 Capital leases 26,123 18,131 Debt premium, net 313 387 ------------ ------------ 500,014 485,881 Less current portion of long-term debt 19,328 22,292 ------------ ------------ $480,686 $463,589 ============ ============
The current portion of long-term debt consists of $14.5 million on the term loans payable in monthly installments and $4.8 million in repayments of the industrial bonds and the monthly principal payments related to capital lease obligations. In fiscal 2002, Berry has entered into various capital lease obligations with no immediate cash flow effect resulting in capitalized property and equipment and corresponding capital lease obligations of $6,531. 9 Prior to the Merger, the Company had 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 June 29, 2002, the Credit Facility provided the Company with (i) a $80.0 million revolving line of credit ("US Revolver"), subject to a borrowing base formula, (ii) a $2.3 million (using the June 29, 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 $41.8 million term loan facility, (iv) a $1.3 million (using the June 29, 2002 exchange rate) term loan facility denominated in British Sterling in the U.K. ("UK Term Loan"), and (v) a $2.6 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 $13.3 million (using the June 29, 2002 exchange rate) denominated in Euros. Bank of America also extended working capital financing (the "Italy Working Capital Line") of up to $1.7 million (using the June 29, 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. 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. 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. 10
Thirteen Weeks Ended Twenty-six Weeks Ended ------------------------------------------------ JUNE 29, JUNE 30, JUNE 29, JUNE 30, 2002 2001 2002 2001 ------------------------------------------------ Net sales: Containers $ 64,437 $ 66,543 $ 122,615 $ 122,946 Closures 34,364 33,308 67,828 68,390 Consumer Products 29,188 25,146 60,481 49,678 Adjusted EBITDA: Containers 17,321 18,482 33,180 33,776 Closures 8,479 6,658 15,929 14,347 Consumer Products 5,162 5,318 11,568 10,098 Total assets: Containers 210,275 215,646 210,275 215,646 Closures 163,815 159,089 163,815 159,089 Consumer Products 102,500 84,335 102,500 84,335 Reconciliation of Adjusted EBITDA to income before income taxes: Adjusted EBITDA for reportable segments $ 30,962 $ 30,458 $ 60,677 $ 58,221 Net interest expense (12,777) (14,489) (25,583) (27,983) Depreciation (10,740) (9,377) (21,098) (18,042) Amortization (398) (3,345) (875) (6,096) Gain (loss) on disposal of property and equipment (147) 16 (291) 44 One-time expenses (1,033) (943) (2,175) (2,359) Non-cash compensation - (150) - (300) Management fees (197) (213) (328) (425) --------- --------- --------- --------- Income before income taxes $ 5,670 $ 1,957 $ 10,327 $ 3,060 ========= ========= ========= =========
5. COMPREHENSIVE INCOME Comprehensive income was $6.3 million and $1.7 million for the thirteen weeks ended June 29, 2002 and June 30, 2001, respectively and $10.8 million and $1.8 million for the twenty-six weeks ended June 29, 2002 and June 20, 2001, respectively 11 6. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (IN THOUSANDS) 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 June 29, 2002 and December 29, 2001 and for the thirteen and twenty-six weeks ended June 29, 2002 and June 30, 2001. The equity method has been used with respect to investments in subsidiaries.
JUNE 29, 2002 -------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Corporation Corporation Guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------------------------------------------------------------------------- CONSOLIDATING BALANCE SHEET Current assets $ 1 $ 41,432 $ 89,747 $ - $ 131,180 Net property and equipment - 77,116 133,587 - 210,703 Other noncurrent assets 35,769 352,990 111,870 (366,322) 134,307 ------------- ------------ ------------ ------------ ------------ Total assets $ 35,770 $ 471,538 $ 335,204 $ (366,322) $ 476,190 ============= ============ ============ ============ ============ Current liabilities $ 707 $ 57,909 $ 34,948 $ - $ 93,564 Noncurrent liabilities 169,430 380,465 353,844 (386,746) 516,993 Equity (deficit) (134,367) 33,164 (53,588) 20,424 (134,367) ------------- ------------- ------------- ------------ ------------ Total liabilities and equity (deficit) $ 35,770 $ 471,538 $ 335,204 $(366,322) $ 476,190 ============= ============= ============= ============ ============
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 JUNE 29, 2002 -------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Corporation Corporation Guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------------------------------------------------------------------------- CONSOLIDATING STATEMENT OF OPERATIONS Net sales $ - $ 45,035 $ 82,954 $ - $ 127,989 Cost of goods sold - 30,028 64,946 - 94,974 ------------- ------------- ------------- ------------ ------------ Gross profit - 15,007 18,008 - 33,015 Operating expenses 22 5,636 8,763 - 14,421 ------------- ------------- ------------- ------------ ------------ Operating income (loss) (22) 9,371 9,245 - 18,594 Other expenses - 18 129 - 147 Interest expense, net 4,378 940 7,459 - 12,777 Income taxes (benefit) (8,100) 8,113 441 - 454 Equity in net income) loss from subsidiary (1,516) (1,216) - 2,732 - ------------- ------------- ------------- ------------ ------------ Net income (loss) $ 5,216 $ 1,516 $ 1,216 $ (2,732) $ 5,216 ============= ============= ============= ============ ============ THIRTEEN WEEKS ENDED JUNE 30, 2001 -------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Corporation Corporation Guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------------------------------------------------------------------------- CONSOLIDATING STATEMENT OF OPERATIONS Net sales $ - $ 44,091 $ 80,906 $ - $ 124,997 Cost of goods sold - 28,452 60,640 - 89,092 ------------- ------------ ------------ ------------ ------------ Gross profit - 15,639 20,266 - 35,905 Operating expenses 185 7 065 12,225 - 19,475 ------------- ------------ ------------ ------------ ------------ Operating income (loss) (185) 8,574 8,041 - 16,430 Other expenses (income) - 10 (26) - (16) Interest expense, net 4,393 2,130 7,966 - 14,489 Income taxes 9 13 28 - 50 Equity in net (income) loss from subsidiary (6,494) (73) - 6,567 - ------------- ------------ ------------ ------------ ------------ Net income (loss) $ 1,907 $ 6,494 $ 73 $ (6,567) $ 1,907 ============= ============ ============ ============ ============
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TWENTY-SIX WEEKS ENDED JUNE 29, 2002 -------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Corporation Corporation Guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------------------------------------------------------------------------- CONSOLIDATING STATEMENT OF OPERATIONS Net sales $ - $ 87,040 $ 163,883 $ - $ 250,923 Cost of goods sold - 56,814 128,459 - 185,273 ------------- ------------- ------------- ------------ ------------ Gross profit - 30,226 35,424 - 65,650 Operating expenses 51 11,883 17,515 - 29,449 ------------- ------------- ------------- ------------ ------------ Operating income (loss) (51) 18,343 17,909 - 36,201 Other expenses - 98 193 - 291 Interest expense, net 8,731 1,374 15,478 - 25,583 Income taxes (benefit) (8,253) 8,121 477 - 345 Equity in net income loss from subsidiary (10,511) (1,761) - 12,272 - ------------- ------------- ------------- ------------ ------------ Net income (loss) $ 9 982 $ 10,511 $ 1,761 $(12,272) 9,982 ============= ============= ============= ============ ============ CONSOLIDATING STATEMENT OF CASH FLOWS Net income (loss) $ 9,982 $ 10,511 $ 1,761 $(12,272) $ 9,982 Non-cash expenses 250 7,614 15,662 - 23,526 Equity in net (income) loss from subsidiary (10,511) (1,761) - 12,272 - Changes in working capital (154) (9,860) (6,454) - (16,468) ------------- ------------- ------------- ------------ ------------ Net cash provided by (used for) operating activities (433) 6,504 10,969 - 17,040 Net cash used for investing activities - (5,847) (16,388) - (22,235) Net cash provided by (used for) financing activities (6) (156) 5,967 - 5,805 Effect on exchange rate changes on cash - - (735) - (735) ------------- ------------- ------------- ------------ ------------ Net increase (decrease) in cash and cash equivalents (439) 501 (187) - (125) Cash and cash equivalents at beginning of period 440 121 671 - 1,232 ------------- ------------- ------------- ------------ ------------ Cash and cash equivalents at end of period $ 1 $ 622 $ 484 $ - $ 1,107 ============= ============= ============= ============ ============
14
TWENTY-SIX WEEKS ENDED JUNE 30, 2001 -------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Corporation Corporation Guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------------------------------------------------------------------------- CONSOLIDATING STATEMENT OF OPERATIONS Net sales $ - $ 83,897 $ 157,117 $ - $ 241,014 Cost of goods sold - 54,649 118,371 - 173,020 ------------- ------------- ------------- ------------ ------------ Gross profit - 29,248 38,746 - 67,994 Operating expenses 364 13,239 23,392 - 36,995 ------------- ------------- ------------- ------------ ------------ Operating income (loss) (364) 16,009 15,354 - 30,999 Other expenses - (28) (16) - (44) Interest expense, net 8,733 4,815 14,435 - 27,983 Income taxes 16 18 97 - 131 Equity in net (income) loss from subsidiary (12,042) (838) - 12,880 - ------------- ------------- ------------- ------------ ------------ Net income (loss) $ 2,929 $ 12,042 $ 838 $ (12,880) $ 2,929 ============= ============= ============= ============ ============ CONSOLIDATING STATEMENT OF CASH FLOWS Net income (loss) $ 2,929 $ 12,042 $ 838 $ (12,880) $ 2,929 Non-cash expenses 9,018 7,379 17,972 - 34,369 Equity in net (income) loss from subsidiary (12,042) (838) - 12,880 - Changes in working capital - (1,978) (4,429) - (6,407) ------------- ------------- ------------- ------------ ------------ Net cash provided by (used for) operating activities (95) 16,605 14,381 - 30,891 Net cash used for investing activities - (28,434) (8,684) - (37,118) Net cash provided by (used for) financing activities 115 13,057 (5,202) - 7,970 Effect on exchange rate changes on cash - - 587 - 587 ------------- ------------- ------------- ------------ ------------ Net increase in cash and cash equivalents 20 1,228 1,082 - 2,330 Cash and cash equivalents at beginning of period 220 642 1,192 - 2,054 ------------- ------------- ------------- ------------ ------------ Cash and cash equivalents at end of period $ 240 $ 1,870 $ 2,274 $ - $ 4,384 ============= ============= ============= ============ ============
15 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 a finite life will continue to be amortized over their estimated useful lives. The Company adopted the provisions of SFAS Nos. 141 and 142 as of the beginning of fiscal 2002. The Company has performed the first of the required impairment tests of goodwill and indefinite lived intangible assets and has determined that no write-down of the asset values is necessary. 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 adoption of the new rules. The following table presents the quarterly results of the Company on a comparable basis:
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED -------------------------------------------------- JUNE 29, JUNE 30, JUNE 29, JUNE 30, 2002 2001 2002 2001 -------------------------------------------------- Reported net income $ 5,216 $ 1,907 $ 9,982 $ 2,929 Goodwill amortization, net of tax - 2,712 - 4,784 -------- -------- -------- -------- Adjusted net income $ 5,216 $ 4,619 $ 9,982 $ 7,713 ======== ======== ======== ========
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. In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, RESCISSION OF FASB STATEMENTS NO. 4, 44 AND 64, AMENDMENT OF FASB STATEMENT NO. 13 AND TECHNICAL CORRECTIONS (SFAS No. 145). Upon the adoption of SFAS No. 145, all gains and losses on the extinguishment of debt for periods presented in the financial statements will be classified as extraordinary items only if they meet the criteria in APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS - REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS (APB No. 30). The provisions of SFAS No. 145 related to the rescission of FASB Statement No. 4 and FASB Statement No. 64 shall be applied for fiscal years beginning after May 15, 2002. The Company is currently evaluating the effects, if any, that this standard will have on its results of operations and financial position. The provisions of SFAS No. 145 related to the rescission of FASB Statement No. 44, the amendment of 16 FASB Statement No. 113 and Technical Corrections are effective as of May 15, 2002 and did not have a material impact on the Company. In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES (SFAS No.146). SFAS No. 146 nullifies Emerging Issues Task Force (EITF) Issue No, 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 generally requires companies to recognize costs associated with exit activities when they are incurred rather than at the date of a commitment to an exit or disposal plan and is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company is currently evaluating the effects, if any, that this standard will have on its results of operations and financial position. NOTE 8. SUBSEQUENT EVENT On July 22, 2002, GS Berry Acquisition Corp. (the "Buyer") merged (the "Merger") with and into BPC Holding Corporation, pursuant to the Agreement and Plan of Merger (as amended, the "Merger Agreement"), dated as of May 25, 2002, by and among Buyer, GS Capital Partners 2000 Offshore, L.P., GS Capital Partners 2000 GMBH & Co. Beteiligungs KG, Bridge Street Special Opportunities Fund 2000, L.P., GS Capital Partners 2000 Employee Fund, L.P., Stone Street Fund 2000, L.P., BPC Holding, Berry Plastics Corporation and certain stockholders and warrant holders of BPC Holding. At the effective time of the Merger, (i) each share of common stock of BPC Holding Corporation issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive cash pursuant to the terms of the Merger Agreement, and (ii) each share of common stock of the Buyer issued and outstanding immediately prior to the effective time of the Merger was converted into one share of common stock of BPC Holding. The total amount of funds required to consummate the Merger and to pay estimated fees and expenses related to the Merger, including amounts related to the repayment of indebtedness, the redemption of the outstanding preferred stock and the payment of transaction costs incurred by Holding, were approximately $875.1 million (which includes the amount of certain indebtedness which will remain outstanding and the value of certain shares of Holding common stock held by our employees that were contributed to the Buyer immediately prior to the Merger). Additionally, the purchase price is subject to post-closing adjustments related to the level of working capital at the time of closing. In connection with the Merger, Berry Plastics received approximately $330.0 million from a senior term loan from a syndicate of lenders led by Goldman Sachs Credit Partners L.P., as administrative agent, approximately $250.0 million from the issuance of 10 3/4 % Senior Subordinated Notes to various private institutional buyers, and, as a result of the Merger, approximately $268.8 million in equity contributions from affiliates of the Buyer and certain existing stockholders and members of Berry's management. The $330.0 million senior term loan is part of the Company's new senior secured credit facility that also includes a $100.0 million revolving line of credit, which had no outstanding balance at the closing of the Acquisition, and $50.0 million delayed draw facility both of which have not been drawn upon. 17 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. As the Company previously announced, the Board of Directors was considering a possible strategic transaction, including a possible sale of the Company in a negotiated transaction. On July 22, 2002, GS Berry Acquisition Corp. (the "Buyer") merged (the "Merger") with and into Holding. As a result of the Merger, the Buyer and its affiliates own approximately 65% of the common stock of Holding. The remaining common stock of Holding is held by J.P. Morgan Partners Global Investors, L.P. and other private equity funds affiliated with J.P. Morgan Partners, LLC, the private equity investment arm of J.P. Morgan Chase & Co., which own approximately 29% of Holding's common stock and by members of Berry's management (see Item 5). The Company remains highly leveraged following the Merger. 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. 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. The following accounting policies represent the most critical based on management's analysis due the impact on the Company's results of operations. ACCOUNTS RECEIVABLE. The Company evaluates the allowance for doubtful accounts on a quarterly basis and reviews any significant customers with delinquent balances to determine future collectibility. The determination includes a review of legal issues (such as bankruptcy status), past history, current financial and credit reports, and the experience of the respective credit representative. Reserves are established in the quarter in which the account is deemed uncollectible. The Company maintains additional reserves 18 based on historical bad debt experience. The Company believes, based on past history and credit policies, that the net accounts receivable are of good quality. MEDICAL. Berry offers medical insurance that is primarily self-insured to its employees. The Company evaluates the medical claims liability on a quarterly basis and obtains an independent actuarial analysis on an annual basis. A liability is accrued for the expected claims incurred but not reported plus any known claims. Based on its analysis, the Company believes that the medical claims liability is sufficient. WORKERS' COMPENSATION. Effective in fiscal 2000, the Company converted the majority of its facilities to a large deductible program for workers' compensation insurance. On a quarterly basis, the Company evaluates the liability based on third-party adjusters' independent analyses by claim. Based on its analysis, the Company believes that the workers' compensation liability is sufficient. 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 JUNE 29, 2002 ("QUARTER") COMPARED TO 13 WEEKS ENDED JUNE 30, 2001 ("PRIOR QUARTER") NET SALES. Net sales increased $3.0 million, or 2%, to $128.0 million for the Quarter from $125.0 million for the Prior Quarter with an approximate 4% decrease in net selling price due to the cyclical impact of lower resin costs. Container net sales decreased $2.1 million from the Prior Quarter with the Mount Vernon acquisition providing approximately $3.0 million of net sales in the Quarter. The decrease was primarily due to lower selling prices and a large promotion in the Prior Quarter. Closure net sales increased $1.1 million from the Prior Quarter. Consumer product sales for the Quarter increased $4.0 million from the Prior Quarter primarily due to the Pescor acquisition and increased sales from the thermoformed drink cup line. GROSS MARGIN. Gross margin decreased by $2.9 million to $33.0 million (26% of net sales) for the Quarter from $35.9 million (29% of net sales) for the Prior Quarter. This decrease of 8% includes the combined impact of the added Pescor and Mount Vernon sales volume, the effect of net selling prices and raw material costs, acquisition integration and productivity improvement initiatives. The historical margin percentage of the Mount Vernon acquired business is significantly less than the Company's historical gross margins thereby reducing consolidated margins until the business is fully integrated. Also, depreciation for the Quarter exceeded the Prior Quarter by $1.4 million. In addition, 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 the 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 19 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 decreased by $0.5 million to $5.2 million for the Quarter from $5.7 million for the Prior Quarter principally as a result of cost reduction efforts. General and administrative expenses decreased from $9.0 million for the Prior Quarter to $7.1 million for the Quarter. This decrease of $1.9 million is primarily attributable to decreased accrued bonus expenses and cost reduction efforts. During the Quarter, one-time transition expenses were $0.5 million related to acquisitions and $0.5 million related to the shutdown and reorganization of facilities. In the Prior Quarter, one-time transition expenses related to acquisitions were $0.4 million and $0.5 million related to the shutdown and reorganization of facilities. INTEREST EXPENSE, NET. Net interest expense decreased $1.7 million to $12.8 million for the Quarter compared to $14.5 million for the Prior Quarter primarily due to decreased rates of interest on borrowings and reduced borrowings under the senior credit facility. INCOME TAX. For the Quarter, the Company recorded income tax expense of $0.5 million compared to $0.1 million 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 $5.2 million for the Quarter compared to net income of $1.9 million for the Prior Quarter for the reasons discussed above. 26 Weeks Ended June 29, 2002 ("YTD") Compared to 26 Weeks Ended June 30, 2001 ("Prior YTD") NET SALES. Net sales increased $9.9 million, or 4%, to $250.9 million for the YTD from $241.0 million for the Prior YTD with an approximate 3% decrease in net selling price due to the cyclical impact of lower resin costs. Container net sales decreased $0.3 million from the Prior YTD, including approximately $6.3 million of YTD sales from the Mount Vernon acquisition, due primarily to lower selling prices and a large promotion in the Prior YTD. Closure net sales decreased $0.6 million from the Prior YTD. Consumer product sales for the YTD increased $10.8 million from the Prior YTD primarily attributable to the Pescor acquisition and increased sales from the thermoformed drink cup line. GROSS MARGIN. Gross margin decreased by $2.3 million to $65.7 million (26% of net sales) for the YTD from $68.0 million (28% of net sales) for the Prior YTD. This decrease of 3% includes the combined impact of the added Pescor and Mount Vernon sales volume, the effect of net selling prices and raw material costs, acquisition integration and productivity improvement initiatives. The historical margin percentage of the Mount Vernon acquired business is significantly less than the Company's historical gross margins thereby reducing consolidated margins until the business is fully integrated. Also, depreciation for the YTD exceeded the Prior YTD by $3.1 million. In addition, 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 20 of state-of-the-art injection molding equipment, molds and printing equipment at several of the Company's facilities. OPERATING EXPENSES. Selling expenses decreased by $0.5 million to $10.9 million for the YTD from $11.4 million for the Prior YTD, principally a result of cost reduction efforts. General and administrative expenses decreased from $16.2 million for the Prior YTD to $14.2 million for the YTD. This decrease of $2.0 million is primarily attributable to decreased accrued bonus expenses and cost reduction efforts. During the YTD, one-time transition expenses were $0.7 million related to acquisitions and $1.4 million related to the shutdown and reorganization of facilities. In the Prior YTD, one-time transition expenses related to acquisitions were $1.1 million and $1.2 million related to the shutdown and reorganization of facilities. INTEREST EXPENSE, NET. Net interest expense decreased $2.4 million to $25.6 million for the YTD compared to $28.0 million for the Prior YTD primarily due to decreased rates of interest on borrowings and reduced borrowings under the senior credit facility. INCOME TAX. For the YTD, the Company recorded income tax expense of $0.3 million compared to $0.1 million for the Prior YTD. 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 $10.0 million for the YTD compared to net income of $2.9 million for the Prior YTD for the reasons discussed above. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $17.0 million for the YTD compared to $30.9 million for the Prior YTD. The decrease is primarily the result of the $8.5 million interest payment on the 1996 Notes and increased working capital. Net cash used for investing activities decreased from $37.1 million for the Prior YTD to $22.2 million for the YTD primarily as a result of the Pescor acquisition in the Prior YTD. YTD capital spending of $17.7 million included $0.9 million for buildings and systems, $6.1 million for molds, $8.4 million for molding and printing machines, and $2.3 million for accessory equipment and systems. Net cash provided by financing activities was $5.8 million for the YTD compared to $8.0 million for the Prior YTD. The decrease of $2.2 million can be attributed to decreased borrowings due to the Pescor acquisition in the Prior YTD. On July 22, 2002, GS Berry Acquisition Corp. (the "Buyer") merged (the "Merger") with and into BPC Holding Corporation, pursuant to the Agreement and Plan of Merger (as amended, the "Merger Agreement"), dated as of May 25, 2002, by and among Buyer, GS Capital Partners 2000 Offshore, L.P., GS Capital Partners 2000 GMBH & Co. Beteiligungs KG, Bridge Street Special Opportunities Fund 2000, L.P., GS Capital Partners 2000 Employee Fund, L.P., Stone Street Fund 2000, L.P., BPC Holding, Berry Plastics Corporation and certain stockholders and warrant holders of BPC Holding. At the effective time of the Merger, (i) each share of common stock of BPC Holding Corporation issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive cash pursuant to the terms of the Merger Agreement, and (ii) each share of common stock of the 21 Buyer issued and outstanding immediately prior to the effective time of the Merger was converted into one share of common stock of BPC Holding. In connection with the Merger, Berry Plastics received approximately $330.0 million from a senior term loan from a syndicate of lenders led by Goldman Sachs Credit Partners L.P., as administrative agent, approximately $250.0 million from the issuance of 10 3/4 % Senior Subordinated Notes to various private institutional buyers, and, as a result of the Merger, approximately $268.8 million in equity contributions from affiliates of the Buyer and certain existing stockholders and members of Berry's management. The $330.0 million senior term loan is part of the Company's new senior secured credit facility that also includes a $100.0 million revolving line of credit, which had no outstanding balance at the closing of the Acquisition, and $50.0 million delayed draw facility both of which have not been drawn upon. 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 revolving line of credit. Management bases such belief on historical experience and the substantial funds available under the revolving line of credit. However, the Company cannot predict its future results of operations. At the closing of the Acquisition, the Company had no outstanding balance on the $100.0 million revolving line of credit. 22 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On June 11, 2002, Berry commenced a tender offer and consent solicitation for all of its outstanding 11% Senior Subordinated Notes due 2007 (the "11% Notes") and its 12.25% Senior Subordinated Notes due 2004 (the "12.25% Notes"), and Holding commenced a tender offer and consent solicitation for all of its outstanding 12.5% Senior Secured Notes due 2006 (the "12.5% Notes"). Holding and Berry sought to purchase all of the outstanding 11% Notes, 12.25% Notes, and 12.5% Notes obtain consents to amend the related indentures in order to permit consummation of the merger (the "Merger") of GS Berry Acquisition Corp. with and into Holding (see Item 5). On June 28, 2002, after receiving tenders and related consents from 100% of the 11% Notes, 91% of the holders of the 12.25% notes and 93% of the holders of the 12.5% Notes, Berry and Holding, as applicable, each executed supplemental indentures giving effect to the proposed amendments as of June 26, 2002, with respect to each of the indentures. Subsequent to the consummation of the Merger, notices of redemption were sent by Berry and Holding to the holders of the 12.25% Notes and 12.5% Notes not purchased in the debt tender offers. ITEM 5. OTHER INFORMATION On July 22, 2002, GS Berry Acquisition Corp. (the "Buyer") merged (the "Merger") with and into Holding pursuant to the Agreement and Plan of Merger (as amended, the "Merger Agreement"), dated as of May 25, 2002, by and among Buyer, GS Capital Partners 2000 Offshore, L.P., GS Capital Partners 2000 GMBH & Co. Beteiligungs KG, Bridge Street Special Opportunities Fund 2000, L.P., GS Capital Partners 2000 Employee Fund, L.P., Stone Street Fund 2000, L.P., Holding, Berry and certain stockholders and warrantholders of Holding. At the effective date of the Merger, (i) each share of the common stock of Holding issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive cash pursuant to the terms of the Merger Agreement, and (ii) each share of common stock of the Buyer issued and outstanding immediately prior to the effective time of the Merger was converted into one share of common stock of Holding. As a result of the Merger, the Buyer and its affiliates own approximately 65% of the common stock of Holding. The remaining common stock of Holding is held by J.P. Morgan Partners Global Investors, L.P. and other private equity funds affiliated with J.P. Morgan Partners, LLC, the private equity investment arm of J.P. Morgan Chase & Co., which own approximately 29% of Holding's common stock and by members of Berry's management (see Current Report of Form 8-K filed on July 31, 2002 and incorporated herein by reference). 23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: NONE (b) REPORTS ON FORM 8-K: CURRENT REPORT ON FORM 8-K FILED JUNE 26, 2002 CONTAINING VARIOUS PRESS RELEASES ISSUED BY HOLDING AND BERRY ANNOUNCING THAT (I) HOLDING HAD ENTERED INTO AN AGREEMENT AND PLAN OF MERGER PURSUANT TO WHICH GS BERRY ACQUISITION CORP. WOULD BE MERGED WITH AND INTO HOLDING; AND (II) DEBT TENDER OFFERS AND CONSENT SOLICITATIONS HAD BEEN COMMENCED BY HOLDING AND BERRY IN CONNECTION WITH THE MERGER. CURRENT REPORT ON FORM 8-K FILED JULY 31, 2002 ANNOUNCING CONSUMMATION OF THE MERGER OF GS BERRY ACQUISITION CORP. WITH AND INTO HOLDING. 24 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 August 13, 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) 25