UNITED STATES
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 26, 1998
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, 33-75706-01; 33-75706-02, 33-75706-03
BERRY PLASTICS CORPORATION
BPC HOLDING CORPORATION
BERRY IOWA CORPORATION
BERRY TRI-PLAS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 35-1814673
(State or other jurisdiction of incorporation or organization) (IRS employer
identification no.)
101 OAKLEY STREET, EVANSVILLE, INDIANA 47710
(Address of principal executive offices) (Zip Code)
Registrant's 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 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.
[ ] Yes [ X ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares Outstanding
COMMON STOCK AS OF SEPTEMBER 27, 1998
Class A - Voting - $.01 Par Value 91,000
Class A - Nonvoting - $.01 Par Value 259,000
Class B - Voting - $.01 Par Value 144,936
Class B - Nonvoting - $.01 Par Value 58,168
Class C - Nonvoting - $.01 Par Value 16,960
1
<PAGE>
BPC HOLDING CORPORATION AND SUBSIDIARIES
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED SEPTEMBER 26, 1998
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE 18
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BPC Holding Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands of Dollars)
<TABLE>
<CAPTION>
SEPTEMBER 26, DECEMBER 27,
1998 1997
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 7,122 $ 2,688
Accounts receivable (less allowance for doubtful
accounts of $844 at September 26, 1998 and $1,038
at December 27, 1997) 35,208 28,385
Inventories:
Finished goods 19,538 22,029
Raw materials and supplies 6,885 7,429
------- -------
26,423 29,458
Prepaid expenses and other receivables 2,427 1,834
Income taxes recoverable 355 1,167
------- -------
Total current assets 71,535 63,532
Assets held in trust 13,121 19,738
Property and equipment:
Land 6,663 5,811
Buildings and improvements 31,298 33,891
Machinery, equipment and tooling 135,190 122,991
Automobiles and trucks 1,341 1,241
Construction in progress 9,052 10,357
------- -------
183,544 174,291
Less accumulated depreciation 78,980 66,073
------- -------
104,564 108,218
Intangible assets:
Deferred financing and origination fees, net 11,249 10,849
Covenants not to compete, net 3,597 3,940
Excess of cost over net assets acquired, net 41,228 30,303
Deferred acquisition costs 163 13
------- -------
56,237 45,105
Deferred income taxes 2,049 2,049
Other 1,015 802
------- -------
Total assets $248,521 $239,444
======= =======
</TABLE>
3
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BPC Holding Corporation and Subsidiaries
Consolidated Balance Sheets (continued)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
SEPTEMBER 26, DECEMBER 27,
1998 1997
<S> <C> <C>
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 17,383 $ 16,732
Accrued expenses and other liabilities 10,005 7,162
Accrued interest 10,020 3,612
Employee compensation and payroll taxes 10,680 7,489
Income taxes 147 55
Current portion of long-term debt 18,280 7,619
------- -------
Total current liabilities 66,515 42,669
Long-term debt, less current portion 290,111 298,716
Accrued dividends on preferred stock 6,294 3,674
Other liabilities 679 3,360
------- -------
363,599 348,419
Stockholders' equity (deficit):
Class A Preferred Stock; 800,000 shares
authorized; 600,000 shares issued and
outstanding (net of discount of $2,843 at
September 26, 1998 and $3,062 at December 27, 11,728 11,509
1997)
Class B Preferred Stock; 200,000 shares
authorized, issued and outstanding 5,000 5,000
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; 144,936
shares issued and outstanding 1 1
Nonvoting; 500,000 shares authorized; 58,168
shares issued and outstanding 1 1
Class C Common Stock; $.01 par value:
Nonvoting; 500,000 shares authorized; 16,960
shares issued and outstanding - -
Treasury stock: 726 shares (81) (22)
Additional paid-in capital 46,616 49,374
Warrants 3,511 3,511
Retained earnings (deficit) (181,970) (178,353)
Cumulative foreign currency translation adjustment 112 -
------- -------
Total stockholders' equity (deficit) (115,078) (108,975)
------- -------
Total liabilities and stockholders' equity
(deficit) $ 248,521 $ 239,444
======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
BPC Holding Corporation and Subsidiaries
Consolidated Statements of Operations
(In Thousands of Dollars)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1998 1997 1998 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $68,800 $58,780 $205,116 $164,715
Cost of goods sold 51,066 46,887 151,083 129,054
------- ------- ------- -------
Gross margin 17,734 11,893 54,033 35,661
Operating expenses:
Selling 3,769 2,955 10,881 8,048
General and administrative 4,502 2,889 13,301 8,613
Research and development 488 333 1,231 935
Amortization of intangibles 776 505 2,483 1,129
Other 877 1,042 3,240 2,783
------- ------- ------- -------
Operating income 7,322 4,169 22,897 14,153
Other income and expense:
Loss (gain) on disposal
of property and equipment 62 (1) 492 89
------- ------- ------- -------
Income before interest and
income taxes 7,260 4,170 22,405 14,064
Interest:
Expense (9,083) (8,117) (26,524) (23,667)
Income 259 443 833 1,598
------- ------- ------- -------
Loss before income taxes (1,564) (3,504) (3,286) (8,005)
Income tax expense 306 58 331 151
------- ------- ------- -------
Net loss (1,870) (3,562) (3,617) (8,156)
Preferred stock dividends (837) (710) (2,620) (1,757)
------- ------- ------- -------
Net loss attributable to
common stockholders $ (2,707) $ (4,272) $ (6,237) $ (9,913)
======= ======= ======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
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6
BPC Holding Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands of Dollars)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
(UNAUDITED)
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (3,617) $ (8,156)
Adjustments to reconcile net loss to net cash
provided by
operating activities:
Depreciation 15,466 11,493
Non-cash interest expense 1,335 1,139
Amortization 2,483 1,129
Write off of financing fees - 390
Interest paid from assets held in trust 6,617 5,052
Loss on sale of property and equipment 492 89
Changes in operating assets and liabilities:
Accounts receivable, net (3,590) (8,724)
Inventories 3,492 2,883
Prepaid expenses and other receivables 316 (83)
Accounts payable and accrued expenses 5,935 4,193
Other assets (349) 209
------- -------
Net cash provided by operating activities 28,580 9,614
INVESTING ACTIVITIES
Additions to property and equipment (13,540) (8,795)
Proceeds from disposal of property and equipment 4,452 1,092
Acquisitions of businesses (15,948) (83,529)
------- -------
Net cash used for investing activities (25,036) (91,232)
FINANCING ACTIVITIES
Proceeds from borrowings 42,254 79,296
Payments on borrowings (40,244) (2,991)
Debt issuance costs (1,141) (2,761)
Proceeds from issuance of common stock 80 324
Purchase of stock from management (59) -
------- -------
Net cash provided by financing activities 890 73,868
------- -------
Net increase (decrease) in cash and cash 4,434 (7,750)
equivalents
Cash and cash equivalents at beginning of period 2,688 10,192
------- -------
Cash and cash equivalents at end of period $ 7,122 $ 2,442
======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
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7
BPC Holding Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of BPC Holding
Corporation and its subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Preparation of the financial statements
require management to make estimates that affect the required amounts of
assets, liabilities, revenues, and expenses. 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:
Venture Packaging, Inc. ("Venture Packaging"), Venture Packaging Midwest, Inc.,
Venture Packaging Southeast, Inc., PackerWare Corporation ("Packerware"),
Berry Iowa Corporation, Berry Tri-Plas Corporation, Berry Sterling Corpor-
ation, Berry Plastics Design Corporation ("Berry Design"), NIM Holdings
Limited ("NIM Holdings"), Norwich Injection Moulders Limited ("Norwich
Moulders"), and AeroCon, Inc. For further information, refer to the
consolidated financial statements and footnotes thereto included in Holding's
and Berry's Form 10-K's filed with the Securities and Exchange Commission for
the year ended December 27, 1997.
Certain amounts on the 1997 financial statements have been reclassified to
conform with the 1998 presentation.
2. ACQUISITIONS
On January 17, 1997, Berry acquired certain assets and assumed certain
liabilities of Container Industries, Inc. ("Container Industries") of Pacoima,
California for $2.9 million. The purchase was funded out of operating funds.
The operations of Container Industries are included in the Berry's operations
since the acquisition date using the purchase method of accounting.
On January 21, 1997, Berry acquired the outstanding stock of PackerWare,
a Kansas corporation, for aggregate consideration of approximately
$28.1 million by way of a merger of PackerWare with a newly-formed, wholly-
owned subsidiary of Berry (with PackerWare being the surviving corporation).
The purchase was primarily financed through the Credit Facility (see Note 3).
The operations of PackerWare are included in Berry's operations since the
acquisition date using the purchase method of accounting.
On May 13, 1997, Berry Design, a newly-formed wholly-owned subsidiary of Berry,
acquired substantially all of the assets and assumed certain liabilities of
Virginia Design Packaging Corp. ("Virginia Design") for approximately $11.1
million. The purchase was financed through the Credit Facility (see Note 3).
The operations of Berry Design are included in Berry's operations since the
acquisition date using the purchase method of accounting.
7
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8
2. ACQUISITIONS (CONTINUED)
On August 29, 1997, Berry acquired the outstanding common stock of Venture
Packaging for aggregate consideration of $43.7 million by way of a merger of
Venture Packaging with a newly formed subsidiary of Berry (with Venture
Packaging being the surviving corporation). The purchase was primarily
financed through the Credit Facility (see Note 3). Additionally, preferred
stock and warrants were issued to certain selling shareholders of Venture
Packaging. The operations of Venture Packaging are included in Berry's
operations since the acquisition date using the purchase method of accounting.
On July 2, 1998, NIM Holdings, a newly-formed, wholly-owned subsidiary of
Berry, acquired all of the capital stock of Norwich Moulders of Norwich,
England for aggregate consideration of approximately $14.0 million.
The purchase was primarily financed through the Credit Facility (see Note 3).
The operations of Norwich Moulders are included in Berry's operations since
the acquisition date using the purchase method of accounting.
The pro forma results listed below are unaudited and reflect purchase
accounting adjustments assuming the Container Industries, PackerWare, Virginia
Design, Venture Packaging, and Norwich Moulders acquisitions occurred on
December 29, 1996.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, 1997 SEPTEMBER 27, 1997 SEPTEMBER 26, 1998
--------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net sales $ 72,995 $ 205,008 $ 211,977
Loss before income taxes (3,502) (8,621) (4,873)
Net loss attributable to common
stockholders (4,279) (10,714) (6,144)
</TABLE>
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the acquisitions been consummated at the above date, nor are they
necessarily indicative of future operating results. Further, the information
gathered on the acquired companies is based upon unaudited internal financial
information and reflects only pro forma adjustments for additional interest
expense and amortization of the excess of the cost over the underlying net
assets acquired, net of the applicable income tax effect.
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 26, DECEMBER 27,
1998 1997
---------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Holding 12.50% Senior Secured Notes $105,000 $105,000
Berry 12.25% Senior Subordinated Notes 125,000 100,000
Term loans 72,340 58,300
Revolving line of credit - 25,654
Nevada Industrial Revenue Bonds 4,500 5,000
Iowa Industrial Revenue Bonds - 5,400
South Carolina Industrial Development Bonds - 6,985
Capital lease obligations 682 547
Debt premium (discount), net 869 (551)
------- -------
308,391 306,335
Less current portion of long-term debt 18,280 7,619
------- -------
$290,111 $298,716
======= =======
</TABLE>
The current portion of long-term debt at September 26, 1998 consists of $17.5
million of quarterly installments on the term loans, $0.5 million of repayments
on the Nevada Industrial Revenue Bonds and the monthly principal payments
related to a capital lease obligation.
On August 24, 1998, Berry completed an offering of $25.0 million aggregate
principal amount of 12.25% Senior Subordinated Notes due 2004 (the "1998
Notes"). The 1998 Notes mature on April 15, 2004 and interest is payable
semi-annually on October 15 and April 15 of each year and commenced on October
15, 1998. The 1998 Notes are unconditionally guaranteed on a senior
subordinated basis by Holding and all of Berry's subsidiaries. The net
proceeds to Berry from the sale of the 1998 notes, after expenses, were $25.2
million. Berry applied the net proceeds to repay borrowings under Berry's
revolving line of credit.
The 1998 Notes rank PARI PASSU with or senior in right of payment to all
existing and future subordinated indebtedness of Berry. The notes rank junior
in right of payment to all existing and future senior indebtedness of Berry,
including borrowings under the Credit Facility and the Nevada Industrial
Revenue Bonds.
8
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9
3. LONG-TERM DEBT (CONTINUED)
Concurrent with the PackerWare acquisition, Berry entered into a financing and
security agreement with NationsBank, N.A. (the "Credit Agreement") for a senior
secured line of credit in an aggregate principal amount of $60.0 million (the
"Credit Facility"). As a result of the acquisition of assets of Virginia
Design and the acquisition of Venture Packaging, the Credit Facility was
amended and increased to $127.2 million. Concurrently with the Norwich
Moulders acquisition, the Credit Facility was again amended and increased to
$132.6 million plus an additional revolving line of credit facility of (1.5
million (the "UK Revolver") and a term loan facility of (4.5 million (the "UK
Term Debt"). The indebtedness under the Credit Facility is guaranteed by
Holding and Berry's subsidiaries.
The amended Credit Facility provides the Company with a $50.0 million revolving
line of credit, subject to a borrowing base formula; a $64.4 million term loan
facility; the UK Revolver, subject to a borrowing base formula; the UK Term
Debt, and a $4.6 million standby letter of credit facility to support Berry's
obligation under the Nevada Industrial Revenue Bond. The Credit Facility also
provides the Company with a term loan facility which was used to finance the
repayment of the South Carolina Industrial Development Bonds as discussed
below. Based on the borrowing formula as of September 26, 1998, Berry had
approximately $40.4 million of additional available credit under the revolving
line of credit.
The Credit Facility matures on January 21, 2002 unless previously terminated by
Berry or by the lenders upon an Event of Default as defined in the Credit
Agreement. The term loan facility requires periodic quarterly payments,
varying in amount, through the maturity of the facility.
Interest on borrowings on the Credit Facility will be based on the lender's
base rate plus .5% or LIBOR plus 2.0%, at Berry's option. The Credit Facility
contains various covenants which include, among other things: (i) maintenance
of certain financial ratios and compliance with certain financial tests and
limitations, (ii) limitations on the issuance of additional indebtedness, and
(iii) limitations on capital expenditures.
On July 30, 1998, the Iowa Industrial Revenue Bonds were repaid by the Company
through borrowings under its term debt as provided in the Credit Facility.
The South Carolina Industrial Development Bonds were repaid by the Company on
August 27, 1998, in conjunction with the closing and sale of the Anderson,
South Carolina facility. The difference between the net proceeds from the sale
of the facility and the repayment of the development bonds and other related
liabilities of approximately $3.0 million has been financed in October 1998
with borrowings under a term loan within the Credit Facility.
9
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10
BERRY PLASTICS CORPORATION SUMMARY FINANCIAL INFORMATION
The following summarizes financial information of Holding's wholly-owned
subsidiary, Berry Plastics Corporation, and its subsidiaries.
<TABLE>
<CAPTION>
SEPTEMBER 26, DECEMBER 27,
1998 1997
---------------- -----------------
CONSOLIDATED BALANCE SHEETS (In Thousands)
<S> <C> <C> <C>
Current assets $ 70,555 $ 62,824
Property and equipment - net of accumulated
depreciation 104,564 108,218
Other noncurrent assets 55,472 44,480
Current liabilities 62,801 42,158
Noncurrent liabilities 185,790 205,172
Equity (deficit) (18,000) (31,808)
</TABLE>
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 27,
1998 1997 1998 1997
---------------------------------------------------------------------
STATEMENT OF OPERATIONS (In Thousands)
<S> <C> <C> <C> <C>
Net sales $ 68,800 $ 58,780 $ 205,116 $ 164,715
Cost of goods sold 51,066 46,887 151,083 129,054
Income (loss) before
income taxes 1,652 (399) 6,223 1,014
Net income (loss) 1,346 (404) 5,892 912
</TABLE>
5. RECENT ACCOUNTING PRONOUNCEMENTS
On December 28, 1997, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (FAS 130) which establishes
new rules for the reporting and display of comprehensive income and its
components (net income and "other comprehensive income"). Adoption of the
Statement had no material impact on the Company's financial position.
Comprehensive losses were $1.8 million and $3.5 million for the thirteen
weeks and thirty-nine weeks ended September 26, 1998, respectively.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosure About Segments of an Enterprise and Related Information" (FAS
131). FAS 131 establishes requirements for reporting information about
operating segments in annual and interim reports and is effective for the
Company in 1998, but need not be applied to interim financial statements in the
initial year of application. FAS 131 may require a change in the Company's
financial reporting; however, the extent of the change, if any, has not been
determined.
6. SUBSEQUENT TRANSACTION
On October 16, 1998, Knight Plastics, Inc., a newly formed wholly-owned
subsidiary of Berry, acquired substantially all of the assets of the
Knight Engineering and Plastics Division of Courtaulds Packaging Inc.
for aggregate consideration of approximately $18.0 million. The
purchase was financed through the Credit Facility's revolving line of credit.
10
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11
Item 2.
BPC Holding Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion includes certain forward-looking statements.
Actual results could differ materially from those reflected by the forward-
looking statements in the discussion, and a number of factors could adversely
affect future results, liquidity and capital resources. These factors include,
among other things, the Company's ability to pass through raw material price
increases to its customers, its ability to service debt, the availability of
plastic resin, the impact of changing environmental laws and changes in the
level of the Company's capital investment. Although management believes it has
the business strategy and resources needed for improved operations, future
revenue and margin trends cannot be reliably predicted.
RESULTS OF OPERATIONS
13 WEEKS ENDED SEPTEMBER 26, 1998 (THE "QUARTER")
COMPARED TO 13 WEEKS ENDED SEPTEMBER 27, 1997 (THE "PRIOR QUARTER")
NET SALES. Net sales increased $10.0 million, or 17%, to $68.8 million
for the Quarter from $58.8 million for the Prior Quarter with an approximate 2%
decrease in net selling prices due mainly to competitive market conditions.
The increase in net sales was primarily attributed to the addition of Venture
Packaging and Norwich Moulders with Quarter net sales of approximately $9.6
million and $3.6 million, respectively. Non-Venture Packaging container sales
decreased approximately $4.1 million due to the Company's decision to exit low
margin business and competitive pricing as noted above.
GROSS MARGIN. Gross margin increased by $5.8 million to $17.7 million
for the Quarter from $11.9 million for the Prior Quarter. This increase of 49%
includes the combined impact of added sales volume, productivity improvement
initiatives, and the cyclical impact of lower raw material costs compared to
the Prior Quarter.
OPERATING EXPENSES. Selling expenses increased by $0.8 million to $3.8
million for the Quarter from $3.0 million for the Prior Quarter principally as
a result of expanded sales coverage and increased product development and
marketing expenses. General and administrative expenses increased from $2.9
million for the Prior Quarter to $4.5 million for the Quarter. The increase of
$1.6 million is primarily attributable to increased accrued employee profit
sharing expense. During the Quarter, one-time transition expenses primarily
related to the shutdown of the Anderson facility were $0.9 million. In the
Prior Quarter, one-time transition expenses for the 1997 acquisitions were $1.0
million.
INTEREST EXPENSE. Interest expense increased $1.0 million to $9.1
million for the Quarter compared to $8.1 million for the Prior Quarter
primarily due to additional borrowings under the Credit Facility (see Note 3)
to support the 1997 and Norwich Moulders acquisitions (see Note 2).
INCOME TAX. For the Quarter, the Company's income tax expense was $0.3
million compared to an income tax expense of $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 LOSS. Net loss for the Quarter of $1.9 million represented a
favorable change of $1.7 million from the net loss of $3.6 million for the
Prior Quarter for the reasons discussed above.
39 Weeks Ended September 26, 1998 ("YTD")
Compared to 39 Weeks Ended September 27, 1997 ("prior YTD")
NET SALES. Net sales increased $40.4 million, or 25%, to $205.1 million
for the YTD from $164.7 million for the prior YTD with an approximate 2%
decrease in net selling prices due mainly to competitive market conditions.
The increase in net sales can be primarily attributed to the addition of
Venture Packaging with YTD net sales of approximately $30.6 million, the
addition of Norwich Moulders with YTD net sales of $3.6 million, and higher
non-Venture Packaging container sales of $3.5 million.
GROSS MARGIN. Gross margin increased by $18.4 million to $54.0 million
for the YTD from $35.7 million for the prior YTD. This increase in gross
margin can be attributed to the combined impact of additional sales volume,
productivity improvement initiatives, and the cyclical impact of lower raw
material costs.
OPERATING EXPENSES. Selling expenses increased by $2.9 million to $10.9
million for the YTD from $8.0 million for the prior YTD principally as a result
of expanded sales coverage related to the acquisition of Venture Packaging,
increased product development and marketing expenses. General and
administrative expenses increased by $4.7 million to $13.3 million YTD from
$8.6 million for the prior YTD. The increase of $4.7 million is primarily
attributable to increased patent litigation expenses and increased accrued
employee profit sharing expense. YTD one-time transition expenses include $2.2
million related to the shutdown of the Reno and Anderson facilities and $1.0
million related to the 1997 acquisitions. One-time transition expenses for
prior YTD were $2.0 million related to the 1997 acquisitions and $0.8 million
related to the Winchester and Reno plant consolidations.
INTEREST EXPENSE. Interest expense increased $2.8 million to $26.5
million for the YTD compared to $23.7 million for the prior YTD primarily due
to additional borrowings under the Credit Facility (see Note 3) to support the
1997 and Norwich Moulders acquisitions (see Note 2).
INCOME TAX. The Company's income tax expense was $0.3 million for the
YTD compared to $0.2 million in the prior YTD. The Company continues to
operate in a net operating loss carryforward position for federal income tax
purposes.
11
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12
NET LOSS. Net loss for the YTD of $3.6 million improved $4.5 million
from a net loss of $8.1 million for the prior YTD for the reasons discussed
above.
LIQUIDITY AND SOURCES OF CAPITAL
Net cash provided by operating activities was $28.6 million for the YTD, an
increase of $19.0 million from the prior YTD. The increase is primarily the
result of improved operating performance with income before depreciation and
amortization increasing $9.7 million from prior YTD. Adjusted EBITDA, defined
as income before taxes, interest, depreciation, amortization, loss (gain) on
disposal of property and equipment, write-off of deferred acquisition costs,
write-off of financing fees, and one-time transition expenses, was $14.5
million for the Quarter compared to $10.0 million for the Prior Quarter and
$44.2 million YTD compared to $29.5 million for the prior YTD. Net cash
provided by operating activities for the YTD was $28.6 million compared to $9.6
million for the prior YTD. $25.0 million and $91.2 million of cash was used
for investing activities for the YTD and the prior YTD, respectively.
Financing activities provided $0.9 million and $73.9 million of cash for the
YTD and the prior YTD, respectively. Net working capital changes (defined as
accounts receivable, inventories, prepaid expenses, other receivables,
accounts payable and accrued expenses) also increased YTD cash $7.3 million
from the prior YTD.
YTD capital spending of $13.5 million included $7.4 million for molds and
machines, and $6.1 million for building and accessory equipment. Berry
currently intends to finance future capital spending through cash flow from
operations, existing cash balances, and cash available under the Credit
Facility's revolving line of credit.
At September 26, 1998, the Company's cash balance was $7.1 million, and Berry
had unused borrowing capacity under the Credit Facility's borrowing base of
approximately $40.4 million.
IMPACT OF YEAR 2000
The Company has been working on modifying or replacing portions of its software
since 1991 so that its computer systems will function properly with respect to
dates in the Year 2000 and thereafter. Because the Company commenced this
process early, the costs incurred to address this issue in any single year have
not been significant. The Company's current business applications are Year 2000
compliant. Acquired businesses are converted to the Company's applications not
only for Year 2000 issues but to keep consistency in applications and
reporting. The most recent acquisition is targeted to be converted to the
Company's common applications on January 4, 1999.
Also, the Company is currently replacing significant portions of its primary
information systems, principally because of the growth the Company has
experienced in recent years due to acquisitions. Such replacement will allow
the Company to continue to achieve its future growth plans and will be fully
Year 2000 compliant. The Company anticipates that the implementation of such
systems will occur before the Year 2000. Any future acquisitions may require
a conversion to existing applications if there are any delays installing the
new application.
The current estimated cost for replacing or fixing non-business application
systems is $110,000. These systems include personal computers, postage
machines, plant automation, and telephone systems.
Vendor survey responses are expected back by the end of 1998. After a review
of the responses, a plan will be put in place by the end of March 1999 to
minimize the risk of vendors that may not meet the Year 2000 deadline.
To date, the Company is not aware of any external agent with a Year 2000 issue
that would materially impact the Company's results of operations, liquidity, or
capital resources. However, the Company has no means of ensuring that external
agents will be Year 2000 ready. The inability of external agents to complete
their Year 2000 resolution process in a timely fashion could materially impact
the Company. The effect of non-compliance by external agents is not
determinable.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. However, the Company could
incur a material disruption, such as the inability to produce product, should
significant suppliers not be Year 2000 ready. In addition, disruptions in the
economy resulting from Year 2000 issues could also materially adversely affect
the Company. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time. The Company currently has no contingency
plans in place in the event it does not complete all phases of the Year 2000
program. The Company plans to evaluate the status of completion in March 1999
and determine whether such a plan is necessary.
12
<PAGE>
13
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
A Current Report on Form 8-K, dated July 2, 1998, was filed by
Berry. Under Item 2, Acquisition or Disposition of Assets,
Berry reported the consummation of the Norwich Moulders acquis-
ition. No financial statements were included in the Form 8-K.
The Form 8-K was amended by the filing of the Form 8-K/A on
September 15, 1998, which includes the financial statements
of the business acquired and pro forma financial information.
13
<PAGE>
14
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.
Berry Plastics Corporation
BPC Holding Corporation
Berry Iowa Corporation
Berry Tri-Plas Corporation
November 10, 1998
/S/ JAMES M. KRATOCHVIL
James M. Kratochvil
Executive Vice President, Chief Financial
Officer, Treasurer and Secretary of
Berry Plastics Corporation and its
Subsidiaries (Principal Financial
and Accounting Officer)
14
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