424B3 1 pursuant424b3.txt FILED PURSUANT TO RULE 424(B)(3) File Number 333-115086 BERRY PLASTICS CORPORATION SUPPLEMENT NO. 2 TO MARKET-MAKING PROSPECTUS DATED MAY 7, 2004 THE DATE OF THIS SUPPLEMENT IS NOVEMBER 8, 2004 ON NOVEMBER 8, 2004, BPC HOLDING CORPORATION FILED THE ATTACHED FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 25, 2004 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 25, 2004 or [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from___________________to__________________ Commission File Number 33-75706 BPC HOLDING CORPORATION (Exact name of registrant as specified in its charter)
Delaware 35-1814673 (State or other jurisdiction (IRS employer of incorporation or organization)identification number)
BERRY PLASTICS CORPORATION (Exact name of registrant as specified in its charter)
Delaware 35-1813706 (State or other jurisdiction (IRS employer of incorporation or organization) identification number) 101 Oakley Street 47710 Evansville, Indiana (Address of principal executive offices) (Zip code)
Registrants' telephone number, including area code: (812) 424-2904 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X]Yes [ ]No Indicate by check mark whether the registrants are accelerated filers (as defined by Rule 12b-2 of Securities Exchange Act of 1934). Yes [ ] No [X] Indicate the number of shares outstanding of each of issuers' classes of common stock, as of the latest practicable date: As of October 31, 2004, there were outstanding 3,378,245 shares of the Common Stock, $.01 par value, of BPC Holding Corporation. As of October 31, 2004, there were outstanding 100 shares of the Common Stock, $.01 par value, of Berry Plastics Corporation. 1 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Form 10-Q includes "forward-looking statements," within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. Such statements include, in particular, statements about our plans, strategies and prospects under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations". You can identify certain forward-looking statements by our use of forward-looking terminology such as, but not limited to, "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "likely," "will," "would," "could" and similar expressions that identify forward-looking statements. All forward- looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our operations. The occurrence of the events described and the achievement of the expected results depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from the forward-looking statements contained in this Form 10-Q. Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: changes in prices and availability of resin and other raw materials and our ability to pass on changes in raw material prices; catastrophic loss of our key manufacturing facility; risks related to our acquisition strategy and integration of acquired businesses; risks associated with our substantial indebtedness and debt service; performance of our business and future operating results; risks of competition, including foreign competition, in our existing and future markets; general business and economic conditions, particularly an economic downturn; increases in the cost of compliance with laws and regulations, including environmental laws and regulations; and the factors discussed in our Form 10-K for the fiscal year ended December 27, 2003 in the section titled "Risk Factors." Readers should carefully review the factors discussed in our Form 10-K for the fiscal year ended December 27, 2003 in the section titled "Risk Factors" and other risk factors identified from time to time in our periodic filings with the Securities and Exchange Commission and should not place undue reliance on our forward-looking statements. We undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes. AVAILABLE INFORMATION We make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments, if any, to those reports through our Internet website as soon as practicable after they have been electronically filed with or furnished to the SEC. Our internet address is www.berryplastics.com. The information contained on our website is not being incorporated herein. 2 BPC HOLDING CORPORATION BERRY PLASTICS CORPORATION FORM 10-Q INDEX FOR QUARTERLY PERIOD ENDED SEPTEMBER 25, 2004 Page No. PART I.FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets........................ 4 Consolidated Statements of Operations.............. 6 Consolidated Statements of Changes in Stockholders' Equity 7 Consolidated Statements of Cash Flows.............. 8 Notes to Consolidated Financial Statements......... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 20 Item 3. Quantitative and Qualitative Disclosures about Market Risk 28 Item 4. Controls & Procedures.............................. 29 PART II.OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................... 30 SIGNATURE......................................................... 31 3 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements BPC HOLDING CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars, except per share information)
SEPTEMBER 25, DECEMBER 27, 2004 2003 ---------------- --------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 6,583 $ 26,192 Accounts receivable (less allowance for doubtful accounts of $3,188 at September 25, 2004 and $2,717 at December 27, 2003) 93,369 76,152 Inventories: Finished goods 67,222 61,556 Raw materials and supplies 24,738 19,988 ---------- ---------- 91,960 81,544 Prepaid expenses and other current assets 13,578 19,192 ---------- ---------- Total current assets 205,490 203,080 Property and equipment: Land 9,397 7,935 Buildings and improvements 58,381 58,135 Machinery, equipment and tooling 271,799 249,291 Construction in progress 33,504 24,433 ---------- ---------- 373,081 339,794 Less accumulated depreciation 95,764 56,817 ---------- ---------- 277,317 282,977 Intangible assets: Deferred financing fees, net 20,625 22,283 Customer relationships, net 86,294 90,540 Goodwill 360,862 376,769 Trademarks 33,448 33,448 Other intangibles, net 6,348 6,709 ---------- ---------- 507,577 529,749 ---------- ---------- Total assets $ 990,384 $1,015,806 ========== ==========
4 BPC HOLDING CORPORATION CONSOLIDATED BALANCE SHEETS (CONTINUED) (In Thousands of Dollars, except per share information)
SEPTEMBER 25, DECEMBER 27, 2004 2003 ---------------- --------------- (Unaudited) (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 54,632 $ 43,175 Accrued expenses and other current liabilities 17,702 21,335 Accrued interest 9,219 18,132 Employee compensation and payroll taxes 32,305 23,528 Current portion of long-term debt 10,857 9,339 ---------- ---------- Total current liabilities 124,715 115,509 Long-term debt, less current portion 690,611 742,266 Deferred income taxes 395 720 Other long-term liabilities 2,755 4,720 ---------- ---------- Total liabilities 818,476 863,215 Stockholders' equity: Preferred stock; $.01 par value: 500,000 shares authorized; 0 shares issued and outstanding at September 25, 2004 and December 27, 2003 - - Common stock; $.01 par value: 5,000,000 shares authorized; 3,398,807 shares issued at September 25, 2004 and 3,397,637 shares issued at December 27, 2003 34 34 Additional paid-in capital 344,416 344,363 Adjustment of the carryover basis of continuing stockholders (196,603) (196,603) Notes receivable - common stock (14,648) (14,157) Treasury stock: 20,562 shares and 19,714 shares of common stock at September 25, 2004 and December 27, 2003, respectively (2,056) (1,972) Retained earnings 35,081 16,227 Accumulated other comprehensive income 5,684 4,699 ---------- ---------- Total stockholders' equity 171,908 152,591 ---------- ---------- Total liabilities and stockholders' equity $ 990,384 $1,015,806 ========== ==========
See notes to consolidated financial statements. 5 BPC HOLDING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands of Dollars)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED --------------------------- --------------------------- SEPTEMBER 25, SEPTEMBER 27, SEPTEMBER 25, SEPTEMBER 27, 2004 2003 2004 2003 --------------------------- --------------------------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net sales $ 204,803 $ 139,306 $ 607,570 $ 411,555 Cost of goods sold 160,824 106,845 474,004 313,221 --------- --------- --------- --------- Gross profit 43,979 32,461 133,566 98,334 Operating Expenses: Selling 6,306 5,510 19,857 17,714 General and administrative 9,354 5,653 28,244 18,142 Research and development 888 842 2,668 2,459 Amortization of intangibles 1,517 750 4,991 2,188 Other expenses 764 683 4,808 2,673 --------- --------- --------- --------- Operating income 25,150 19,023 72,998 55,158 Interest: Expense (13,245) (11,467) (39,782) (34,403) Income 184 202 588 609 --------- --------- --------- --------- Income before income taxes 12,089 7,758 33,804 21,364 Income taxes 5,448 3,540 14,950 9,525 --------- --------- --------- --------- Net income $ 6,641 4,218 $ 18,854 11,839 ========= ========= ========= =========
See notes to consolidated financial statements. 6 BPC HOLDING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (In Thousands of Dollars)
ADJUSTMENT OF THE CARRYOVER NOTES ACCUMULATED ADDITIONAL BASIS OF RECEIVABLE- OTHER COMMON PAID-IN CONTINUING COMMON TREASURY RETAINED COMPREHENSIVE COMPREHENSIVE STOCK CAPITAL STOCKHOLDERS STOCK STOCK EARNINGS INCOME TOTAL INCOME ------------------------------------------------------------------------------------------ Balance at December 27, 2003 $34 $344,363 $(196,603) $(14,157) $(1,972) $16,227 $4,699 $152,591 Issuance of common stock - 53 - - - - - 53 $ - Collection on notes receivable - - - 73 - - - 73 - Purchase of treasury stock - - - - (192) - - (192) - Sale of treasury stock - - - - 108 - - 108 - Interest on notes receivable - - - (564) - - - (564) - Translation gain - - - - - - 320 320 320 Other comprehensive gains - - - - - - 665 665 665 Net income - - - - - 18,854 - 18,854 18,854 ----- --------- --------- --------- ------- -------- ------- -------- -------- Balance at September 25, 2004 $34 $344,416 $(196,603) $(14,648) $(2,056) $35,081 $ 5,684 $171,908 $ 19,839 ===== ========= ========= ========= ======= ======== ======= ======== ========
See notes to consolidated financial statements. 7 BPC HOLDING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars)
THIRTY-NINE WEEKS ENDED -------------------------------------- SEPTEMBER 25, SEPTEMBER 27, 2004 2003 -------------------------------------- (Unaudited) (Unaudited) OPERATING ACTIVITIES Net income $ 18,854 $ 11,839 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 39,616 28,866 Non-cash interest expense 1,410 1,800 Amortization 4,991 2,188 Deferred income taxes 14,721 9,336 Changes in operating assets and liabilities: Accounts receivable, net (17,668) (11,195) Inventories (10,405) 7,154 Prepaid expenses and other assets (2,019) (1,366) Accrued interest (8,913) (7,616) Payables and accrued expenses 15,337 4,907 ----------- ----------- Net cash provided by operating activities 55,924 45,913 INVESTING ACTIVITIES Additions to property and equipment (34,134) (21,110) Proceeds from disposal of property and equipment 3,382 - Proceeds from working capital settlement on acquired business 7,397 - Acquisitions of businesses (450) (5,755) ----------- ----------- Net cash used for investing activities (23,805) (26,865) FINANCING ACTIVITIES Proceeds from long-term borrowings 655 - Payments on long-term borrowings (51,911) (7,385) Proceeds from notes receivable 73 - Proceeds from issuance of common stock 53 - Proceeds from sale of treasury stock 108 22 Purchase of treasury stock (192) (441) Debt financing costs (641) - ----------- ----------- Net cash used for financing activities (51,855) (7,804) Effect of exchange rate changes on cash 127 (405) ----------- ----------- Net increase (decrease) in cash and cash equivalents (19,609) 10,839 Cash and cash equivalents at beginning of period 26,192 15,613 ----------- ----------- Cash and cash equivalents at end of period $ 6,583 $ 26,452 =========== ===========
See notes to consolidated financial statements. 8 BPC Holding Corporation Notes to Consolidated Financial Statements (In thousands of dollars, except as otherwise noted) (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of BPC Holding Corporation (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full fiscal year. The accompanying financial statements include the results of BPC Holding Corporation ("Holding") and its wholly-owned subsidiary, Berry Plastics Corporation ("Berry"), and Berry's wholly-owned subsidiaries: Berry Iowa Corporation, Berry Tri-Plas Corporation, AeroCon, Inc., PackerWare Corporation, Berry Plastics Design Corporation, Venture Packaging, Inc. and its subsidiaries Venture Packaging Midwest, Inc. and Berry Plastics Technical Services, Inc., NIM Holdings Limited and its subsidiary Berry Plastics U.K. Limited, Knight Plastics, Inc., CPI Holding Corporation and its subsidiary Cardinal Packaging, Inc., Poly-Seal Corporation, Ociesse S.r.l. and its subsidiary Capsol Berry Plastics S.p.a, and Landis Plastics, Inc. For further information, refer to the consolidated financial statements and footnotes thereto included in Holding's and Berry's Form 10-K filed with the Securities and Exchange Commission for the year ended December 27, 2003. On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly formed entity controlled by various private equity funds affiliated with Goldman, Sachs & Co., merged (the "Merger") with and into Holding, pursuant to an agreement and plan of merger dated as of May 25, 2002. At the effective time of the Merger, (i) each share of common stock of Holding issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive cash pursuant to the terms of the merger agreement, and (ii) each share of common stock of the Buyer issued and outstanding immediately prior to the effective time of the Merger was converted into one share of common stock of Holding. 2. RECENT ACQUISITIONS AND DISPOSAL On February 25, 2003, Berry acquired the 400 series continuous threaded injection molded closure assets from CCL Plastic Packaging located in Los Angeles, California ("CCL Acquisition") for aggregate consideration of approximately $4.6 million. The purchase price was allocated to fixed assets ($2.7 million), inventory ($1.1 million), customer relationships ($0.5 million), goodwill ($0.2 million), and other intangibles ($0.1 million). The purchase was financed through borrowings under the Company's revolving line of credit. The operations from the CCL Acquisition are included in Berry's operations from the acquisition date. 9 On May 30, 2003, Berry acquired the injection molded overcap lid assets from APM Inc. located in Benicia, California ("APM Acquisition") for aggregate consideration of approximately $0.6 million. The purchase price was allocated to fixed assets ($0.3 million), inventory ($0.1 million), customer relationships ($0.1 million), and goodwill ($0.1 million). The purchase was financed through cash provided by operations. The operations from the APM Acquisition are included in Berry's operations from the acquisition date. On November 20, 2003, Berry acquired Landis Plastics, Inc. (the "Landis Acquisition") for aggregate consideration of approximately $229.7 million, including deferred financing costs and partially offset by $7.4 million of cash received as a result of the working capital settlement. The Landis Acquisition was funded through (1) the issuance by Berry Plastics of $85.0 million aggregate principal amount of 10 3/4% senior subordinated notes due 2012 to various institutional buyers, which resulted in gross proceeds of $95.2 million, (2) aggregate net borrowings of $54.1 million under Berry's amended and restated senior secured credit facility from new term loans after giving effect to the refinancing of the prior term loan, (3) an aggregate common equity contribution of $62.0 million, and (4) cash on hand of $18.4 million. Berry also agreed to acquire, for $32.0 million, four facilities that Landis leased from certain of its affiliates. Prior to the closing of the Landis Acquisition, the rights and obligations to purchase the four facilities owned by affiliates of Landis were assigned to an affiliate of W.P. Carey & Co., L.L.C., which affiliate subsequently entered into a lease with Berry for the four facilities. The allocation of purchase price is preliminary and subject to change based on actual expenses and adjustments of estimated receivables and reserves, which will be finalized in the fourth quarter of 2004. In accordance with EITF 95-3, the Company established opening balance sheet reserves related to plant shutdown, severance and unfavorable lease arrangement costs. The opening balances and current year activity is presented in the following table.
THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2004 ESTABLISHED ----------------------------------------------- AT OPENING BALANCE BALANCE DECEMBER 27, REDUCTION AT END SHEET 2003 PAYMENTS IN ESTIMATE OF PERIOD ---------- ----------------------------------------------- EITF 95-3 reserves $3,206 $2,892 $(1,042) $(103) $1,747
The pro forma financial results presented below are unaudited and assume that the Landis Acquisition occurred at the beginning of the respective period. Pro forma results have not been adjusted to reflect the acquisitions of CCL or APM as they do not differ significantly from the pro forma results presented below. The financial results for the thirteen and thirty-nine weeks ended September 25, 2004 have not been adjusted as the acquired businesses were owned by Berry for the entire period. The information presented is for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the Landis Acquisition been consummated at the above date, nor are they necessarily indicative of future operating results. Further, the information reflects only pro forma adjustments for additional interest expense and amortization, net of the applicable income tax effects.
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED ------------------------------ ------------------------------ SEPTEMBER 25, SEPTEMBER 27, SEPTEMBER 25, SEPTEMBER 27, 2004 2003 2004 2003 ------------------------------ ------------------------------ Pro forma net sales $204,803 $197,424 $607,570 $576,080 Pro forma net income 6,641 3,070 18,854 7,789
10 Berry Plastics U.K. Limited, a foreign subsidiary of Berry, reached an agreement in March 2004 to sell the manufacturing equipment, inventory, and accounts receivable for its U.K. milk cap business to Portola Packaging U.K. Limited. The transaction valued at approximately $4.0 million closed in April 2004. The U.K. milk cap business represented less than $3.0 million of annual consolidated net sales. 3. LONG-TERM DEBT Long-term debt consists of the following:
SEPTEMBER 25, DECEMBER 27, 2004 2003 ------------- -------------- Berry 10 3/4% Senior Subordinated Notes $335,000 $335,000 Debt premium on 10 3/4% Notes, net 9,170 10,053 Term loans 332,525 380,000 Revolving lines of credit 1,086 342 Nevada Industrial Revenue Bonds 1,500 2,000 Capital leases 22,187 24,210 ------------- -------------- 701,468 751,605 Less current portion of long-term debt 10,857 9,339 ------------- -------------- $690,611 $742,266 ============= ==============
The current portion of long-term debt consists of $3.7 million of quarterly installments on the term loans, $0.5 million in repayments of the industrial bonds, and $6.7 million of principal payments related to capital lease obligations. In connection with the Merger in 2002, the Company entered into a credit and guaranty agreement and a related pledge security agreement with a syndicate of lenders led by Goldman Sachs Credit Partners L.P., as administrative agent (the "Credit Facility"). On November 10, 2003, in connection with the Landis Acquisition, the Credit Facility was amended and restated (the "Amended and Restated Credit Facility"). On August 9, 2004, the Amended and Restated Credit Facility was amended and restated (the "Second Amended and Restated Credit Facility"). The Second Amended and Restated Credit Facility provides (i) a $365.5 million term loan and (ii) a $100.0 million revolving credit facility. The proceeds from the new term loan were used to repay the outstanding balance of the term loans from the Amended and Restated Credit Facilty. The Second Amended and Restated Credit Facility permits the Company to borrow up to an additional $150.0 million of incremental senior term indebtedness from lenders willing to provide such loans subject to certain restrictions. The terms of the additional indebtedness will be determined by the market conditions at the time of borrowing. The maturity date of the term loan is July 22, 2010, and the maturity date of the revolving credit facility is July 22, 2008. The indebtedness under the Second Amended and Restated Credit Facility is guaranteed by BPC Holding and all of its domestic subsidiaries. The obligations of the Company and its subsidiaries under the Second Amended and Restated Credit Facility and the guarantees thereof are secured by substantially all of the assets of such entities. The Second Amended and Restated Credit Facility contains significant financial and operating covenants, including prohibitions on the ability to incur certain additional indebtedness or to pay dividends, and restrictions on the ability to make capital expenditures. The Second Amended and Restated Credit Facility 11 also contains borrowing conditions and customary events of default, including nonpayment of principal or interest, violation of covenants, inaccuracy of representations and warranties, cross-defaults to other indebtedness, bankruptcy and other insolvency events (other than in the case of certain foreign subsidiaries). The Company was in compliance with all the financial and operating covenants at September 25, 2004. In September 2004, the Company made a voluntary principal prepayment of $33.0 million on the term loan resulting in a revision of the loan amortization schedules. Accordingly, the term loan amortizes quarterly as follows: $831,312 each quarter beginning September 30, 2004 and ending June 30, 2009; and $78,974,687 each quarter beginning September 30, 2009 and ending June 30, 2010. Borrowings under the Second Amended and Restated Credit Facility bear interest, at the Company's option, at either (i) a base rate (equal to the greater of the prime rate or the federal funds rate plus 0.5%) plus the applicable margin (the "Base Rate Loans") or (ii) an adjusted eurodollar LIBOR (adjusted for reserves) plus the applicable margin (the "Eurodollar Rate Loans"). With respect to the term loan, the "applicable margin" is (i) with respect to Base Rate Loans, 1.25% per annum and (ii) with respect to Eurodollar Rate Loans, 2.25% per annum (4.20% at September 25, 2004). In addition, the applicable margins with respect to the term loan can be further reduced by an additional .25% per annum subject to the Company meeting a leverage ratio target, which was met based on the results through September 25, 2004. With respect to the revolving credit facility, the "applicable margin" is subject to a pricing grid which ranges from 2.75% per annum to 2.00% per annum, depending on the leverage ratio (2.50% based on results through September 25, 2004). The "applicable margin" with respect to Base Rate Loans will always be 1.00% per annum less than the ``applicable margin'' for Eurodollar Rate Loans. In October 2002, Berry entered into an interest rate collar arrangement to protect $50.0 million of the outstanding variable rate term loan debt from future interest rate volatility. The collar floor is set at 1.97% LIBOR (London Interbank Offering Rate) and capped at 6.75% LIBOR. The agreement was effective January 15, 2003 and terminates on July 15, 2006. At September 25, 2004, stockholders' equity has been reduced by $0.1 million to record the interest rate collar at fair market value. At September 25, 2004, the Company had unused borrowing capacity under the Second Amended and Restated Credit Facility's revolving line of credit of $94.1 million. Covenants under the Second Amended and Restated Credit Facility may limit the Company's ability to make such borrowings; however, as of September 25, 2004, the Company could have borrowed the maximum available of $94.1 million. 4. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock- Based Compensation - Transition and Disclosure," established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As provided for under SFAS No. 123, no compensation expense has been recognized for the Company's stock option plans. The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees." For purposes of the pro forma disclosures, the estimated fair value of the stock options is amortized to employee compensation expense over the related vesting period. Because compensation expense is recognized over the vesting period, the initial impact on pro forma net income may not be representative of compensation expense in future years, when the effect of amortization of multiple awards would be reflected in the Consolidated Statement of Operations. 12 The following is a reconciliation of reported net income to net income as if the Company used the fair value method of accounting for stock-based compensation.
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED ------------------------------ ------------------------------ SEPTEMBER 25, SEPTEMBER 27, SEPTEMBER 25, SEPTEMBER 27, 2004 2003 2004 2003 ------------------------------ ------------------------------ Reported net income $ 6,641 $ 4,218 $ 18,854 $ 11,839 Total stock-based employee compensation expense determined under fair value based method, for all awards, net of tax (502) (500) (1,512) (1,518) --------- --------- ---------- --------- Pro forma net income $ 6,139 $ 3,718 $ 17,342 $ 10,321 ========= ========= ========== =========
5. COMPREHENSIVE INCOME Comprehensive income is comprised of net income, other comprehensive income (losses), and gains or losses resulting from currency translations of foreign investments. Other comprehensive income (losses) includes unrealized gains or losses on derivative financial instruments and minimum pension liability adjustments. The details of comprehensive income are as follows:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED -------------------------- ----------------------------- SEPTEMBER 25, SEPTEMBER 27 SEPTEMBER 25, SEPTEMBER 27, 2004 2003 2004 2003 -------------------------- ----------------------------- Net income $6,641 $4,218 $ 18,854 $11,839 Other comprehensive income (losses) 77 (1,654) 665 (194) Currency translation income (losses) (38) 1,620 320 1,279 -------------------------- ----------------------------- Comprehensive income $6,680 $4,184 $ 19,839 $ 12,924 ========================== =============================
13 6. OPERATING SEGMENTS The Company has four reportable segments: containers, closures, consumer products, and international. In 2004, the Company created the international segment as a separate operating and reporting segment to increase sales and improve service to international customers utilizing existing resources. The international segment includes the Company's foreign facilities and business from domestic facilities that is shipped or billed to foreign locations. The 2003 results for the foreign facilities have been reclassified to the international segment; however, business from domestic facilities that were shipped or billed to foreign locations cannot be separately identified for 2003. Accordingly, the amounts disclosed under the new reporting structure are not comparable between 2004 and 2003. As a result, the tables below include the results under the new and previous structure. The Company evaluates performance and allocates resources to segments based on operating income before depreciation and amortization of intangibles adjusted to exclude (1) uncompleted acquisition expense, (2) acquisition integration expense, and (3) plant shutdown expense (collectively, "Adjusted EBITDA"). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in the Company's Form 10-K filed with the Securities and Exchange Commission for the year ended December 27, 2003.
New reporting structure THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED ------------------------------------------------------------- SEPTEMBER 25, SEPTEMBER 27, SEPTEMBER 25, SEPTEMBER 27, 2004 2003 2004 2003 ------------------------------------------------------------- Net sales: Containers $130,432 $70,275 $383,610 $ 205,196 Closures 31,981 32,895 95,536 94,858 Consumer Products 32,823 30,931 98,825 95,243 International 9,567 5,205 29,599 16,258 ------------------------------------------------------------- Total net sales $204,803 $139,306 $607,570 $411,555 Adjusted EBITDA: Containers $26,915 $18,220 $79,179 $51,982 Closures 7,334 7,870 21,841 22,283 Consumer Products 5,170 3,764 19,007 13,329 International 1,148 231 2,386 1,291 ------------------------------------------------------------- Total Adjusted EBITDA $40,567 $30,085 $122,413 $88,885 Total assets: Containers $585,235 $350,259 $585,235 $350,259 Closures 170,654 198,395 170,654 198,395 Consumer Products 175,994 176,302 175,994 176,302 International 58,501 39,649 58,501 39,649 ------------------------------------------------------------- Total assets $990,384 $764,605 $990,384 $764,605 Reconciliation of Adjusted EBITDA to income before income taxes: Adjusted EBITDA for reportable segments $40,567 $30,085 $122,413 $88,885 Net interest expense (13,061) (11,265) (39,194) (33,794) Depreciation (13,136) (9,629) (39,616) (28,866) Amortization (1,517) (750) (4,991) (2,188) Uncompleted acquisition expense - (28) - (1,028) Acquisition integration expense (823) (366) (1,902) (886) Plant shutdown expense 59 (289) (2,906) (759) ------------------------------------------------------------- Income before income taxes $ 12,089 $ 7,758 $ 33,804 $ 21,364 =============================================================
14
Previous reporting structure THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED ------------------------------------------------------------- SEPTEMBER 25, SEPTEMBER 27, SEPTEMBER 25, SEPTEMBER 27, 2004 2003 2004 2003 ------------------------------------------------------------- 2004 Net sales: Containers $133,492 $70,275 $391,615 $205,196 Closures 38,316 38,100 116,130 111,116 Consumer Products 32,995 30,931 99,825 95,243 ------------------------------------------------------------- 2004 Total net sales $204,803 $139,306 $607,570 $411,555 Adjusted EBITDA: Containers $27,546 $18,220 $80,642 $51,982 Closures 7,879 8,101 22,837 23,574 Consumer Products 5,142 3,764 18,934 13,329 ------------------------------------------------------------- 2004 Total Adjusted EBITDA $40,567 $30,085 $122,413 $88,885 Total assets: Containers $596,562 $350,259 $596,562 $350,259 Closures 216,068 238,044 216,068 238,044 Consumer Products 177,754 176,302 177,754 176,302 ------------------------------------------------------------- 2004 Total assets $990,384 $764,605 $990,384 $764,605 Reconciliation of Adjusted EBITDA to income before income taxes: Adjusted EBITDA for reportable segments $40,567 $30,085 $122,413 $88,885 Net interest expense (13,061) (11,265) (39,194) (33,794) Depreciation (13,136) (9,629) (39,616) (28,866) Amortization (1,517) (750) (4,991) (2,188) Uncompleted acquisition expense - (28) - (1,028) Acquisition integration expense (823) (366) (1,902) (886) Plant shutdown expense 59 (289) (2,906) (759) ------------------------------------------------------------- 2004 Income before income taxes $ 12,089 $ 7,758 $ 33,804 $ 21,364 =============================================================
15 7. CONDENSED CONSOLIDATING FINANCIAL INFORMATION Holding conducts its business through its wholly owned subsidiary, Berry. Holding and all of Berry's domestic subsidiaries fully, jointly, severally, and unconditionally guarantee on a senior subordinated basis the $335.0 million aggregate principal amount of 10 3/4% Berry Plastics Corporation Senior Subordinated Notes due 2012. Berry is 100% owned by Holding. Each of Berry's subsidiaries is 100% owned, directly or indirectly, by Berry. Separate narrative information or financial statements of guarantor subsidiaries have not been included as management believes they would not be material to investors. Presented below is condensed consolidating financial information for Holding, Berry, and its subsidiaries at September 25, 2004 and December 27, 2003 and for the thirteen and thirty-nine week periods ended September 25, 2004 and September 27, 2003. The equity method has been used with respect to investments in subsidiaries.
SEPTEMBER 25, 2004 ---------------------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Combined Corporation Corporation Guarantor Non-guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------- -------- ------------ ------------ ----------- ------------ CONSOLIDATING BALANCE SHEET Current assets $ - $ 61,723 $ 131,099 $ 12,668 $ - $ 205,490 Net property and equipment - 76,291 185,273 15,753 - 277,317 Other noncurrent assets 171,908 848,547 365,784 11,228 (889,890) 507,577 --------- ---------- ---------- ---------- ----------- ----------- Total assets $ 171,908 $ 986,561 $ 682,156 $ 39,649 $ (889,890) $ 990,384 ========= ========== ========== ========== =========== =========== Current liabilities $ - $ 69,675 $ 48,702 $ 6,338 $ - $ 124,715 Noncurrent liabilities - 744,978 684,696 27,501 (763,414) 693,761 Equity (deficit) 171,908 171,908 (51,242) 5,810 (126,476) 171,908 --------- ---------- ---------- ---------- ----------- ----------- Total liabilities and equity (deficit) $ 171,908 $ 986,561 $ 682,156 $ 39,649 $ (889,890) $ 990,384 ========= ========== ========== ========== =========== =========== DECEMBER 27, 2003 ---------------------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Combined Corporation Corporation Guarantor Non-guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------- -------- ------------ ------------ ----------- ------------ CONSOLIDATING BALANCE SHEET Current assets $ - $ 67,631 $ 121,605 $ 13,844 $ - $203,080 Net property and equipment - 70,873 191,960 20,144 - 282,977 Other noncurrent assets 152,591 855,627 370,199 12,075 (860,743) 529,749 --------- ---------- ---------- ---------- ----------- ----------- Total assets $152,591 $994,131 $683,764 $46,063 $(860,743) $1,015,806 ========= ========== ========== ========== =========== =========== Current liabilities $ - $ 53,245 $ 53,408 $ 8,856 $ - $ 115,509 Noncurrent liabilities - 788,295 674,851 28,790 (744,230) 747,706 Equity (deficit) 152,591 152,591 (44,495) 8,417 (116,513) 152,591 --------- ---------- ---------- ---------- ----------- ----------- Total liabilities and equity (deficit) $ 152,591 $ 994,131 $ 683,764 $ 46,063 $(860,743) $1,015,806 ========= ========== ========== ========== =========== ===========
16
THIRTEEN WEEKS ENDED SEPTEMBER 25, 2004 ---------------------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Combined Corporation Corporation Guarantor Non-guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED -------- -------- ------------ ------------ ----------- ------------ CONSOLIDATING STATEMENT OF OPERATIONS Net sales $ - $ 61,929 $ 137,501 $ 5,373 $ - $ 204,803 Cost of goods sold - 43,870 111,779 5,175 - 160,824 --------- ---------- ---------- ---------- ----------- ----------- Gross profit - 18,059 25,722 198 - 43,979 Operating expenses - 7,023 10,994 812 - 18,829 --------- ---------- ---------- ---------- ----------- ----------- Operating income (loss) - 11,036 14,728 (614) - 25,150 Interest expense (income), net (184) (3,518) 16,521 242 - 13,061 Income taxes (benefit) 7 5,320 60 61 - 5,448 Equity in net (income) loss from subsidiary (6,464) 2,770 917 - 2,777 - --------- ---------- ---------- ---------- ----------- ----------- Net income (loss) $ 6,641 $ 6,464 $ (2,770) $ (917) $ (2,777) $ 6,641 ========= ========== ========== ========== =========== =========== THIRTEEN WEEKS ENDED SEPTEMBER 27, 2003 ----------------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Combined Corporation Corporation Guarantor Non-guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ -------------- ------------- -------------- ------------- ------------ CONSOLIDATING STATEMENT OF OPERATIONS Net sales $ - $ 53,815 $ 80,287 $ 5,204 $ - $139,306 Cost of goods sold - 38,546 63,394 4,905 - 106,845 ------------ -------------- ------------- -------------- ------------- ------------ Gross profit - 15,269 16,893 299 - 32,461 Operating expenses - 6,088 6,376 974 - 13,438 ------------ -------------- ------------- -------------- ------------- ------------ Operating income (loss) - 9,181 10,517 (675) - 19,023 Interest expense, net (181) 153 10,933 360 - 11,265 Income taxes 24 3,476 19 21 - 3,540 Equity in net (income) loss from subsidiary (4,061) 1,491 1,056 - 1,514 - ------------ -------------- ------------- -------------- ------------- ------------ Net income (loss) $ 4,218 $ 4,061 $ (1,491) $ (1,056) $ (1,514) $ 4,218 ============ ============== ============= ============== ============= ============
17
THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2004 ----------------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Combined Corporation Corporation Guarantor Non-guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ -------------- ------------- -------------- ------------- ------------ CONSOLIDATING STATEMENT OF OPERATIONS Net sales $ - $ 177,074 $ 412,726 $ 17,770 $ - $ 607,570 Cost of goods sold - 123,248 333,144 17,612 - 474,004 ------------ -------------- ------------- -------------- ------------- ------------ Gross profit - 53,826 79,582 158 - 133,566 Operating expenses - 21,341 36,633 2,594 - 60,568 ------------ -------------- ------------- -------------- ------------- ------------ Operating income (loss) - 32,485 42,949 (2,436) - 72,998 Interest expense (income), net (565) (10,608) 49,804 563 - 39,194 Income taxes (benefit) 35 14,843 140 (68) - 14,950 Equity in net(income) loss from subsidiary (18,324) 9,926 2,931 - 5,467 - ------------ -------------- ------------- -------------- ------------- ------------ Net income (loss) $ 18,854 $ 18,324 $ (9,926) $ (2,931) $ (5,467) $ 18,854 ============ ============== ============= ============== ============= ============ CONSOLIDATING STATEMENT OF CASH FLOWS Net income (loss) $ 18,854 $ 18,324 $ (9,926) $ (2,931) $ (5,467) $ 18,854 Non-cash expenses - 26,940 31,070 2,728 - 60,738 Equity in net (income) loss from subsidiary (18,324) 9,926 2,931 - 5,467 - Changes in working capital (565) 1,416 (23,313) (1,206) - (23,668) ------------ -------------- ------------- -------------- ------------- ------------ Net cash provided by (used for) operating activities (35) 56,606 762 (1,409) - 55,924 Net cash provided by (used for) investing activities - (13,682) (12,577) 2,454 - (23,805) Net cash provided by (used for) financing activities 35 (62,172) 10,008 274 - (51,855) Effect of exchange rate changes on cash - - - 127 - 127 ------------ -------------- ------------- -------------- ------------- ------------ Net increase (decrease) in cash and cash equivalents - (19,248) (1,807) 1,446 - (19,609) Cash and cash equivalents at beginning of period - 24,290 1,666 236 - 26,192 ------------ -------------- ------------- -------------- ------------- ------------ Cash and cash equivalents at end of period $ - $ 5,042 $ (141) $ 1,682 $ - $ 6,583 ============ ============== ============= ============== ============= ============
18
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2003 (COMPANY) ----------------------------------------------------------------------------------- BPC Holding Berry Plastics Combined Combined Corporation Corporation Guarantor Non-guarantor Consolidating (PARENT) (ISSUER) SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED ------------ -------------- ------------- -------------- ------------- ------------ Consolidating Statement of Operations Net sales $ - $155,230 $240,064 $ 16,261 $ - $411,555 Cost of goods sold - 108,766 189,344 15,111 - 313,221 ------------ -------------- ------------- -------------- ------------- ------------ Gross profit - 46,464 50,720 1,150 - 98,334 Operating expenses - 19,436 21,233 2,507 - 43,176 ------------ -------------- ------------- -------------- ------------- ------------ Operating income (loss) - 27,028 29,487 (1,357) - 55,158 Interest expense, net (572) 8 33,275 1,083 - 33,794 Income taxes (benefit) 22 9,407 89 7 - 9,525 Equity in net (income) loss from subsidiary (11,289) 6,324 2,447 - 2,518 - ------------ -------------- ------------- -------------- ------------- ------------ Net income (loss) $ 11,839 $ 11,289 $ (6,324) $ (2,447) $ (2,518) $ 11,839 ============ ============== ============= ============== ============= ============
CONSOLIDATING STATEMENT OF CASH FLOWS Net income (loss) $ 11,839 $ 11,289 $ (6,324) $ (2,447) $ (2,518) $ 11,839 Non-cash expenses (566) 20,507 19,795 2,454 - 42,190 Equity in net (income) loss from subsidiary (11,289) 6,324 2,447 - 2,518 - Changes in working capital - (13,605) 6,517 (1,028) - (8,116) ------------ -------------- ------------- -------------- ------------- ------------ Net cash provided by (used for) operating activities (16) 24,515 22,435 (1,021) - 45,913 Net cash used for investing activities - (13,348) (11,397) (2,120) - (26,865) Net cash provided by (used for) financing activities 15 (767) (10,900) 3,848 - (7,804) Effect on exchange rate changes on cash - - - (405) - (405) ------------ -------------- ------------- -------------- ------------- ------------ Net increase (decrease) in cash and cash equivalents (1) 10,400 138 302 - 10,839 Cash and cash equivalents at beginning of period 1 15,156 264 192 - 15,613 ------------ -------------- ------------- -------------- ------------- ------------ Cash and cash equivalents at end of period $ - $ 25,556 $ 402 $ 494 $ - $ 26,452 ============ ============== ============= ============== ============= ============
19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Unless the context requires otherwise, references in this Management's Discussion and Analysis of Financial Condition and Results of Operations to "BPC Holding" or "Holding" refer to BPC Holding Corporation, references to "we," "our" or "us" refer to BPC Holding Corporation together with its consolidated subsidiaries, and references to "Berry Plastics" or the "Company" refer to Berry Plastics Corporation, a wholly owned subsidiary of BPC Holding Corporation. You should read the following discussion in conjunction with the consolidated financial statements of Holding and its subsidiaries and the accompanying notes thereto, which information is included elsewhere herein. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in our Form 10-K for the fiscal year ended December 27, 2003 (the "2003 10-K") in the section titled "Risk Factors" and other risk factors identified from time to time in our periodic filings with the Securities and Exchange Commission. Our actual results may differ materially from those contained in any forward- looking statements. You should read the explanation of the qualifications and limitations on these forward-looking statements on page 2 of this report. On July 22, 2002, GS Berry Acquisition Corp. (the "Buyer") a newly formed entity controlled by various private equity funds affiliated with Goldman, Sachs & Co., merged (the "Merger") with and into BPC Holding, pursuant to an agreement and plan of merger, dated as of May 25, 2002. At the effective time of the Merger, (1) each share of common stock of BPC Holding issued and outstanding immediately prior to the effective time of the Merger was converted into the right to receive cash pursuant to the terms of the merger agreement, and (2) each share of common stock of the Buyer issued and outstanding immediately prior to the effective time of the Merger was converted into one share of common stock of BPC Holding. Additionally, in connection with the Merger, we retired all of BPC Holding's senior secured notes and Berry Plastics' senior subordinated notes, repaid all amounts owed under our credit facilities, redeemed all of the outstanding preferred stock of BPC Holding, entered into a new credit facility and completed an offering of new senior subordinated notes of Berry Plastics. CRITICAL ACCOUNTING POLICIES We disclose those accounting policies that we consider to be significant in determining the amounts to be utilized for communicating our consolidated financial position, results of operations and cash flows in the second note to our consolidated financial statements in our 2003 10-K. Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with these principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results are likely to differ from these estimates, but management does not believe such differences will materially affect our financial position or results of operations. We believe that the following accounting policies are the most critical because they have the greatest impact on the presentation of our financial condition and results of operations. Accounts receivable. We evaluate our allowance for doubtful accounts on a quarterly basis and review any significant customers with delinquent balances 20 to determine future collectibility. We base our determinations on legal issues (such as bankruptcy status), past history, current financial and credit agency reports, and the experience of our credit representatives. We reserve accounts that we deem to be uncollectible in the quarter in which we make the determination. We maintain additional reserves based on our historical bad debt experience. We believe, based on past history and our credit policies, that our net accounts receivable are of good quality. A ten percent increase or decrease in our bad debt experience would not have a material impact on the results of operations of the Company. Our allowance for doubtful accounts was $3.2 million as of September 25, 2004. Medical insurance. We offer our employees medical insurance that is primarily self-insured by us. As a result, we accrue a liability for known claims as well as the estimated amount of expected claims incurred but not reported. We evaluate our medical claims liability on a quarterly basis and obtain an independent actuarial analysis on an annual basis. Based on our analysis, we believe that our recorded medical claims liability should be sufficient. A ten percent increase or decrease in our medical claims experience would not have a material impact on the results of operations of the Company. Our accrued liability for medical claims was $3.3 million, including reserves for expected medical claims incurred but not reported, as of September 25, 2004. Workers' compensation insurance. Starting in fiscal 2000, we converted the majority of our facilities to a large deductible program for workers' compensation insurance. On a quarterly basis, we evaluate our liability based on third-party adjusters' independent analyses by claim. Based on our analysis, we believe that our recorded workers' compensation liability should be sufficient. A ten percent increase or decrease in our workers' compensations claims experience would not have a material impact on the results of operations of the Company. Our accrued liability for workers' compensation claims was $3.2 million as of September 25, 2004. Revenue recognition. Revenue from sales of products is recognized at the time product is shipped to the customer at which time title and risk of ownership transfer to the purchaser. Impairments of Long-Lived Assets. In accordance with the methodology described in FASB Statement No. 144, "Accounting for the Impairment or Disposal of Long- Lived Assets," we review long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. No impairments were recorded in the financial statements included in this Form 10-Q. Deferred Taxes and Effective Tax Rates. We estimate the effective tax rates and associated liabilities or assets for each legal entity of ours in accordance with FAS 109. We use tax-planning to minimize or defer tax liabilities to future periods. In recording effective tax rates and related liabilities and assets, we rely upon estimates, which are based upon our interpretation of United States and local tax laws as they apply to our legal entities and our overall tax structure. Audits by local tax jurisdictions, including the United States Government, could yield different interpretations from our own and cause the Company to owe more taxes than originally recorded. For interim periods, we accrue our tax provision at the effective tax rate that we expect for the full year. As the actual results from our various businesses vary from our estimates earlier in the year, we adjust the succeeding interim periods effective tax rates to reflect our best estimate for the year-to-date results and for the full year. As part of the effective tax rate, if we 21 determine that a deferred tax asset arising from temporary differences is not likely to be utilized, we will establish a valuation allowance against that asset to record it at its expected realizable value. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our consolidated financial statements provide a meaningful and fair perspective of BPC Holding and its consolidated subsidiaries. This is not to suggest that other risk factors such as changes in economic conditions, changes in material costs and others could not materially adversely impact our consolidated financial position, results of operations and cash flows in future periods. ACQUISITIONS AND DISPOSAL We maintain a selective and disciplined acquisition strategy, which is focused on improving our financial performance in the long-term, enhancing our market positions and expanding our product lines or, in some cases, providing us with a new or complementary product line. We have historically acquired businesses with profit margins that are lower than that of our existing business, which has resulted in temporary decreases in our margins. We have historically achieved significant reductions in manufacturing and overhead costs of acquired companies by introducing advanced manufacturing processes, exiting low-margin businesses or product lines, reducing headcount, rationalizing facilities and machinery, applying best practices and capitalizing on economies of scale. In connection with our acquisitions, we have in the past and may in the future incur charges related to these reductions and rationalizations. On February 25, 2003, Berry acquired the 400 series continuous threaded injection molded closure assets from CCL Plastic Packaging located in Los Angeles, California ("CCL Acquisition"). On May 30, 2003, Berry acquired the injection molded overcap lid assets from APM Inc. located in Benicia, California ("APM Acquisition"). On November 20, 2003, Berry acquired Landis Plastics, Inc. (the "Landis Acquisition"), a manufacturer and marketer of open- top containers. In April 2004, Berry Plastics U.K. Limited, a foreign subsidiary of Berry, sold the manufacturing equipment, inventory, and accounts receivable for its U.K. milk cap business to Portola Packaging U.K. Limited. RESULTS OF OPERATIONS 13 WEEKS ENDED SEPTEMBER 25, 2004 (THE "QUARTER") COMPARED TO 13 WEEKS ENDED SEPTEMBER 27, 2003 (THE "PRIOR QUARTER") Net Sales. Net sales increased $65.5 million, or 47%, to $204.8 million for the Quarter from $139.3 million for the Prior Quarter with an approximate 3% increase in net selling price due to higher resin costs passed through to our customers. Container net sales increased $60.1 million from the Prior Quarter to $130.4 million, with the Landis Acquisition providing container division net sales of approximately $56.0 million for the Quarter versus none in the Prior Quarter which was before its acquisition. Due to the movement of business between the acquired Landis facilities and our pre-existing facilities, the amount of sales related to the Landis Acquisition is estimated. The increase in container net sales is primarily a result of the Landis Acquisition, increased selling prices and base business growth in several of the division's product lines. Closure net sales decreased $0.9 million from the Prior Quarter to $32.0 million primarily due to $1.0 million of net sales reclassified to the international division as described below. Consumer products net sales for the Quarter were $32.8 million compared to $30.9 million in the Prior Quarter. This $1.9 million increase can be primarily attributed to increased sales from 22 thermoformed drink cups partially offset by reduced volume from injection drink cups. In 2004, we created our international division as a separate operating and reporting division to increase sales and improve service to international customers utilizing existing resources. The international division includes the Company's foreign facilities and business from domestic facilities that is shipped or billed to foreign locations. The 2003 results for the foreign facilities have been reclassified to the international division; however, business from domestic facilities that were shipped or billed to foreign locations cannot be separately identified for 2003. The international division provided net sales of $9.6 million in the Quarter compared to $5.2 million in the Prior Quarter primarily as a result of the effects of this reclassification and the Landis Acquisition. Gross Profit. Gross profit increased by $11.5 million to $44.0 million (21% of net sales) for the Quarter from $32.5 million (23% of net sales) for the Prior Quarter. This increase of 35% was primarily attributed to the combined impact of additional sales volume, productivity improvement initiatives, and the timing effect of the 3% increase in net selling prices due to higher resin costs passed through to our customers partially offset by increased raw material costs. The historical margin percentage of the Landis acquired business is significantly less than the Company's historical gross margins thereby reducing consolidated margins. We have continued to consolidate products and business of recent acquisitions to the most efficient tooling, providing customers with improved products and customer service. As part of the Landis integration, in the fourth quarter of 2003, we closed our Monticello, Indiana facility, which was acquired in the Landis Acquisition. The business from this location was distributed throughout our facilities. Also, significant productivity improvements were made on the base business since the Prior Quarter, including the addition of state-of-the-art injection molding, thermoforming and post molding equipment at several of our facilities. Operating Expenses. Selling expenses increased by $0.8 million to $6.3 million for the Quarter from $5.5 million for the Prior Quarter principally as a result of increased selling expenses associated with higher sales partially offset by cost reduction efforts. General and administrative expenses increased $3.7 million from $5.7 million for the Prior Quarter to $9.4 million for the Quarter primarily as a result of the Landis Acquisition and increased accrued bonus expense. Research and development expenses remained relatively constant with an increase of less than $0.1 million over the Prior Quarter. Amortization of intangibles increased $0.7 million from $0.8 million in the Prior Quarter primarily as a result of additional intangible assets resulting from the Landis Acquisition. During the Quarter, transition expenses were $0.8 million related to the Landis Acquisition. In the Prior Quarter, transition expenses were $0.4 million related to the CCL and APM Acquisitions and $0.3 million related to the shutdown and reorganization of facilities. Interest Expense, Net. Net interest expense increased $1.8 million to $13.1 million for the Quarter compared to $11.3 million for the Prior Quarter primarily due to additional indebtedness utilized to finance the Landis Acquisition. Income Taxes. For the Quarter, we recorded income tax expense of $5.4 million or an effective tax rate of 45%. The effective tax rate was greater than the statutory federal rate due to the impact of state taxes and foreign location losses for which no benefit was currently provided. The increase of $1.9 million from $3.5 million in the Prior Quarter is attributed to the increase in income before income taxes. As a result of the Merger, the amount of the predecessor's net operating loss carryforward which can be used in any given year is limited to approximately $12.9 million. 23 Net Income. Net income was $6.6 million for the Quarter compared to $4.2 million for the Prior Quarter for the reasons discussed above. 39 WEEKS ENDED SEPTEMBER 25, 2004 ("YTD") COMPARED TO 39 WEEKS ENDED SEPTEMBER 27, 2003 ("PRIOR YTD") Net Sales. Net sales increased $196.0 million, or 48%, to $607.6 million for the YTD from $411.6 million for the Prior YTD with an approximate 3% increase in net selling price due to higher resin costs passed through to our customers. Container net sales increased $178.4 million from the Prior YTD to $383.6 million for the YTD, with the Landis Acquisition providing container division net sales of $164.5 million for the YTD versus none in the Prior YTD. Due to the movement of business between the acquired Landis facilities and our pre- existing facilities, the amount of sales related to the Landis Acquisition is estimated. The increase in container net sales is primarily a result of the Landis Acquisition, increased selling prices and base business growth in several of the division's product lines. Closure net sales increased $0.6 million from the Prior YTD to $95.5 million for the YTD. This increase is primarily due to higher selling prices and domestic base business growth partially offset by $2.8 million of YTD net sales reclassified to the international division as described below. Consumer products net sales for the YTD were $98.8 million compared to $95.2 million in the Prior YTD. This $3.6 million increase can be primarily attributed to increased sales from thermoformed drink cups and housewares partially offset by reduced volume from injection drink cups. In 2004, we created our international division as a separate operating and reporting division to increase sales and improve service to international customers utilizing existing resources. The international segment includes the Company's foreign facilities and business from domestic facilities that is shipped or billed to foreign locations. The 2003 results for the foreign facilities have been reclassified to the international segment; however, business from domestic facilities that were shipped or billed to foreign locations cannot be separately identified for 2003. The international division provided net sales of $29.6 million in the YTD compared to $16.3 million in the Prior YTD primarily as a result of the effects of this reclassification and the Landis Acquisition. Gross Profit. Gross profit increased by $35.3 million to $133.6 million (22% of net sales) for the YTD from $98.3 million (24% of net sales) for the Prior YTD. This 36% increase was primarily attributed to the combined impact of additional sales volume, productivity improvement initiatives, and the timing effect of the 3% increase in net selling prices due to higher resin costs passed through to our customers partially offset by increased raw material costs. The historical margin percentage of the Landis acquired business was significantly less than the Company's historical gross margins thereby reducing consolidated margins. We have continued to consolidate products and business of recent acquisitions to the most efficient tooling, providing customers with improved products and customer service. As part of the Landis integration, in the fourth quarter of 2003, we closed our Monticello, Indiana facility, which was acquired in the Landis Acquisition. The business from this location was distributed throughout our facilities. In addition, we completed the integration of the Landis facilities in the YTD to our integrated computer software system. Also, significant productivity improvements were made on the base business since the Prior YTD, including the addition of state-of- the-art injection molding, thermoforming and post molding equipment at several of our facilities. 24 Operating Expenses. Selling expenses increased by $2.2 million to $19.9 million for the YTD from $17.7 million for the Prior YTD principally as a result of increased selling expenses associated with higher sales partially offset by cost reduction efforts. General and administrative expenses increased $10.1 million from $18.1 million for the Prior YTD to $28.2 million for the YTD primarily as a result of the Landis Acquisition and increased accrued bonus expense. Research and development expenses increased slightly with an increase of $0.2 million over the Prior YTD. Amortization of intangibles increased $2.8 million from $2.2 million in the Prior YTD primarily as a result of additional intangible assets resulting from the Landis Acquisition. During the YTD, transition expenses were $1.9 million related to the Landis Acquisition and $2.9 million related to the shutdown and reorganization of facilities. In the Prior YTD, transition expenses were $1.0 million related to an uncompleted acquisition, $0.9 million related to the CCL and APM Acquisitions, and $0.8 million related to the shutdown and reorganization of facilities. Interest Expense, Net. Net interest expense increased $5.4 million to $39.2 million for the YTD compared to $33.8 million for the Prior YTD primarily due to additional indebtedness utilized to finance the Landis Acquisition partially offset by decreased rates of interest on borrowings. Income Taxes. For the YTD, we recorded income tax expense of $15.0 million or an effective tax rate of 44%. The effective tax rate was greater than the statutory federal rate due to the impact of state taxes and foreign location losses for which no benefit was currently provided. The increase of $5.5 million from $9.5 million in the Prior YTD is attributed to the increase in income before income taxes. As a result of the Merger, the amount of the predecessor's net operating loss carryforward which can be used in any given year is limited to approximately $12.9 million. Net Income. Net income was $18.9 million for the YTD compared to $11.8 million for the Prior YTD for the reasons discussed above. LIQUIDITY AND CAPITAL RESOURCES On July 22, 2002, we entered into a credit and guaranty agreement and a related pledge security agreement with a syndicate of lenders led by Goldman Sachs Credit Partners L.P., as administrative agent (the "Credit Facility"). On November 10, 2003, in connection with the Landis Acquisition, we amended and restated the Credit Facility (the "Amended and Restated Credit Facility"). On August 9, 2004, the Amended and Restated Credit Facility was amended and restated (the "Second Amended and Restated Credit Facility"). The Second Amended and Restated Credit Facility provides (i) a $365.5 million term loan and (ii) a $100.0 million revolving credit facility. The proceeds from the new term loan were used to repay the outstanding balance of the term loans from the Amended and Restated Credit Facilty. The Second Amended and Restated Credit Facility permits the Company to borrow up to an additional $150.0 million of incremental senior term indebtedness from lenders willing to provide such loans subject to certain restrictions. The terms of the additional indebtedness will be determined by the market conditions at the time of borrowing. The maturity date of the term loan is July 22, 2010, and the maturity date of the revolving credit facility is July 22, 2008. The indebtedness under the Second Amended and Restated Credit Facility is guaranteed by BPC Holding and all of its domestic subsidiaries. The obligations of the Company and the subsidiaries under the Second Amended and Restated Credit Facility and the guarantees thereof are secured by substantially all of the assets of such entities. At September 25, 2004, there were no borrowings outstanding on the revolving credit facility. 25 Borrowings under the Second Amended and Restated Credit Facility bear interest, at the Company's option, at either (i) a base rate (equal to the greater of the prime rate or the federal funds rate plus 0.5%) plus the applicable margin (the ``Base Rate Loans'') or (ii) an adjusted eurodollar LIBOR (adjusted for reserves) plus the applicable margin (the ``Eurodollar Rate Loans''). With respect to the term loan, the ``applicable margin'' is (i) with respect to Base Rate Loans, 1.25% per annum and (ii) with respect to Eurodollar Rate Loans, 2.25% per annum (4.20% at September 25, 2004). In addition, the applicable margins with respect to the term loan can be further reduced by an additional .25% per annum subject to the Company meeting a leverage ratio target, which was met based on the results through September 25, 2004. With respect to the revolving credit facility, the ``applicable margin'' is subject to a pricing grid which ranges from 2.75% per annum to 2.00% per annum, depending on the leverage ratio (2.50% based on results through September 25, 2004). The ``applicable margin'' with respect to Base Rate Loans will always be 1.00% per annum less than the ``applicable margin'' for Eurodollar Rate Loans. The interest rate applicable to overdue payments and to outstanding amounts following an event of default under the Second Amended and Restated Credit Facility is equal to the interest rate at the time of an event of default plus 2.00%. We also must pay commitment fees ranging from 0.375% per annum to 0.50% per annum on the average daily unused portion of the revolving credit facility. Pursuant to a requirement in the Second Amended and Restated Credit Facility and as a result of an economic slowdown and corresponding interest rate reductions, we entered into an interest rate collar arrangement in October 2002 to protect $50.0 million of the outstanding variable rate term loan debt from future interest rate volatility. Under the interest rate collar agreement, the Eurodollar rate with respect to the $50.0 million of outstanding variable rate term loan debt will not exceed 6.75% or drop below 1.97%. The agreement was effective January 15, 2003 and terminates on July 15, 2006. The Second Amended and Restated Credit Facility contains significant financial and operating covenants, including prohibitions on our ability to incur specified additional indebtedness or to pay dividends, and restrictions on our ability to make capital expenditures and investments and dispose of assets or consummate acquisitions. The Second Amended and Restated Credit Facility contains (1) a minimum interest coverage ratio as of the last day of any quarter of 2.10:1.00 per quarter for the quarter ending September 2004, 2.15:1.00 per quarter for the quarters ending December 2004 and March 2005, 2.25:1.00 per quarter for the quarters ending June 2005 through March 2006, 2.35:1.00 per quarter for the quarters ending June 2006 through December 2006 and 2.50:1.00 per quarter thereafter, (2) a maximum amount of capital expenditures (subject to the rollover of certain unexpended amounts from the prior year and increases due to acquisitions) of $50 million for the year ending 2004, $60 million for the years ending 2005, 2006 and 2007, and $65 million for each year thereafter, and (3) a maximum total leverage ratio as of the last day of any quarter of 5.75:1.00 per quarter for the quarter ending September 2004, 5.50:1.00 per quarter for the quarters ending December 2004 through June 2005, 5.25:1.00 per quarter for the quarters ending September 2005 and December 2005, 5.00:1.00 per quarter for the quarters ending March 2006 and June 2006, 4.75:1.00 per quarter for the quarters ending September 2006 through March 2007, 4.50:1.00 per quarter for the quarters ending June 2007 through December 2007, 4.25:1.00 per quarter for the quarters ending March 2008 through December 2008, and 4.00:1.00 per quarter thereafter. The occurrence of a default, an event of default or a material adverse effect on Berry Plastics would result in our inability to obtain further borrowings under our revolving credit facility and could also result in the acceleration of our obligations under any or all of our debt agreements, each of which could materially and adversely affect our business. We were in compliance with all of the financial and operating covenants at September 25, 2004. 26 In September 2004, we made a voluntary principal prepayment of $33.0 million on the term loan resulting in a revision of the loan amortization schedule . Accordingly, the term loan amortizes quarterly as follows: $831,312 each quarter beginning September 30, 2004 and ending June 30, 2009; and $78,974,687 each quarter beginning September 30, 2009 and ending June 30, 2010. Borrowings under the Second Amended and Restated Credit Facility are subject to mandatory prepayment under specified circumstances, including if we meet specified cash flow thresholds, collect insurance proceeds in excess of certain thresholds, issue equity securities or debt or sell assets not in the ordinary course of business, or upon a sale or change of control of the Company. There is no required amortization of the revolving credit facility. Outstanding borrowings under the revolving credit facility may be repaid at any time, and may be reborrowed at any time prior to the maturity date which is on July 22, 2008. The revolving credit facility allows up to $25.0 million of letters of credit to be issued instead of borrowings and up to $10.0 million of swingline loans. On July 22, 2002, we completed an offering of $250.0 million aggregate principal amount of 10 3/4% Senior Subordinated Notes due 2012 (the "2002 Notes"). The net proceeds to us from the sale of the 2002 Notes, after expenses, were $239.4 million. The proceeds from the 2002 Notes were used in the financing of the Merger. The 2002 Notes mature on July 15, 2012, and interest is payable semi-annually on January 15 and July 15 of each year beginning January 15, 2003. Holding and all of our domestic subsidiaries fully, jointly, severally, and unconditionally guarantee the 2002 Notes. On November 20, 2003, we completed an offering of $85.0 million aggregate principal amount of additional 2002 Notes (the "Add-on Notes" and together with the 2002 Notes, the "Notes"). The net proceeds to us from the sale of the Add- on Notes, after expenses, were $91.8 million as the Add-on Notes were sold at a premium of 12% over the face amount. The proceeds from the Add-on Notes were used in the financing of the Landis Acquisition. The Add-on Notes constitute a single class with the 2002 Notes. Holding and all of our domestic subsidiaries fully, jointly, severally, and unconditionally guarantee the Add-on Notes. We are not required to make mandatory redemption or sinking fund payments with respect to the Notes. On or subsequent to July 15, 2007, the Notes may be redeemed at our option, in whole or in part, at redemption prices ranging from 105.375% in 2007 to 100% in 2010 and thereafter. Prior to July 15, 2005, up to 35% of the Notes may be redeemed at 110.75% of the principal amount at our option from the proceeds of an equity offering. Upon a change in control, as defined in the indenture under which the Notes were issued (the "Indenture"), each holder of Notes will have the right to require us to repurchase all or any part of such holder's Notes at a repurchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued interest. The Indenture under which the Notes were issued restricts our ability to incur additional debt and contains other provisions which could limit our liquidity. Net cash provided by operating activities was $55.9 million for the YTD compared to $45.9 million for the Prior YTD. The increase of $10.0 million is primarily due to improved operating performance as net income before depreciation and amortization increased $20.6 million partially offset by increased working capital needs due to higher resin costs and the Landis business. Net cash used for investing activities decreased from $26.9 million for the Prior YTD to $23.8 million for the YTD primarily as a result of Berry receiving $7.4 million in the YTD related to the working capital adjustment from the Landis Acquisition. In addition, Berry Plastics U.K. Limited, a foreign subsidiary of Berry, reached an agreement in March 2004 to sell the 27 manufacturing equipment, inventory, and accounts receivable for its U.K. milk cap business to Portola Packaging U.K. Limited. The transaction valued at approximately $4.0 million closed in April 2004. The U.K. milk cap business represented less than $3.0 million of our annual consolidated net sales. Capital spending of $34.1 million in the YTD included $4.1 million for buildings and systems including an expansion to our Monroeville, Ohio facility, $10.2 million for molds, $13.1 million for molding and printing machines, and $6.7 million for accessory equipment and systems. Fiscal 2004 capital spending is expected to be approximately $50.0 million. Net cash used for financing activities was $51.9 million for the YTD compared to $7.8 million for the Prior YTD. The decrease of $44.1 million can be primarily attributed to two voluntary principal prepayments totaling $45.0 million on the term loans under the Amended and Restated Credit Facility (and as amended) made in the YTD. Increased working capital needs occur whenever we experience strong incremental demand or a significant rise in the cost of raw material, particularly plastic resin. However, we anticipate that our cash interest, debt principal payments, working capital and capital expenditure requirements for 2004 and 2005 will be satisfied through a combination of funds generated from operating activities and cash on hand, together with funds available under the Second Amended and Restated Credit Facility. We base such belief on historical experience and the substantial funds available under the Second Amended and Restated Credit Facility. However, we cannot predict our future results of operations and our ability to meet our obligations involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section. In addition, if we make significant acquisitions, we will need to finance the acquisition and its working capital needs, which we may be able to do with funds available under Second Amended and Restated Credit Facility. At September 25, 2004, our cash balance was $6.6 million, and we had unused borrowing capacity under the Amended and Restated Credit Facility's revolving line of credit of $94.1 million. Although the $94.1 million was available at September 25, 2004, the covenants under our Second Amended and Restated Credit Facility may limit our ability to make such borrowings in the future. Item 3.Quantitative and Qualitative Disclosures about Market Risk We are exposed to market risk from changes in interest rates primarily through our Second Amended and Restated Credit Facility. The Second Amended and Restated Credit Facility is comprised of (1) a $365.5 million term loan and (2) a $100.0 million revolving credit facility. At September 25, 2004, there were no borrowings outstanding on the revolving credit facility. The net outstanding balance of the term loan facility at September 25, 2004 was $332.5 million. The term loan bears interest at the Eurodollar rate plus the applicable margin. Future borrowings under the Second Amended and Restated Credit Facility bear interest, at our option, at either (1) the base rate, which is a rate per annum equal to the greater of the prime rate and the federal funds effective rate in effect on the date of determination plus 0.5% plus the applicable margin or (2) an adjusted Eurodollar Rate which is equal to the rate for Eurodollar deposits plus the applicable margin. We utilize interest rate instruments to reduce the impact of either increases or decreases in interest rates on its floating rate debt. Pursuant to a requirement in the Second Amended and Restated Credit Facility and as a result of an economic slowdown and corresponding interest rate reductions, we entered into an interest rate collar arrangement in October 2002 to protect $50.0 million of the outstanding variable rate term loan debt from future interest rate volatility. Under the interest rate collar agreement, the Eurodollar rate with respect to the $50.0 million of outstanding variable rate term loan debt will not exceed 6.75% or drop below 1.97%. At September 25, 2004, the Eurodollar 28 rate applicable to the term loan was 1.7%. If the Eurodollar rate increases 0.25% and 0.5%, we estimate an annual increase in our interest expense of approximately $0.8 million and $1.7 million, respectively. We are exposed to market risk from changes in the cost of plastic resin, which is our primary raw material. Plastic resins are subject to cyclical price fluctuations, including those arising from supply shortages and changes in the prices of natural gas, crude oil and other petrochemical intermediates from which resins are produced. Historically, we have generally been able to pass on a significant portion of the increases in resin prices to our customers over a period of time, but even in such cases there have been negative short-term impacts to our financial performance. Certain of our customers (currently fewer than 10% of our net sales) purchase our products pursuant to fixed price arrangements. We have at times and may continue to enter into hedging or similar arrangements to help mitigate the fluctuations in the cost of plastic resin. Due to the recent volatility in the above mentioned markets, we have recently, in the fourth quarter of 2004, entered into resin forward hedging transactions constituting approximately 15% of our estimated 2005 resin needs and 10% of our 2006 estimated resin needs. Item 4.Controls and Procedures (a) Disclosure controls and procedures. As required by new Rule 13a-15 under the Securities Exchange Act of 1934, the Company's management carried out an evaluation with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as of the end of the last fiscal quarter. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. In connection with the new rules, we currently are in process of further reviewing and documenting our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business. (b) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting identified in connection with our evaluation of our disclosure controls and procedures that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 29 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)Exhibits: 31.1Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer 31.2Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer 32.1Section 1350 Certification of the Chief Executive Officer 32.2Section 1350 Certification of the Chief Financial Officer (b)Reports on Form 8-K: None 30 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 November 8, 2004 By: /s/ James M. Kratochvil James M. Kratochvil Executive Vice President, Chief Financial Officer, Treasurer and Secretary of the entities listed above (Principal Financial and Accounting Officer) 31