SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) JULY 6, 1999
Berry Plastics Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
Delaware 33-75706 35-1813706
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) 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
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K, Date
of Report July 6, 1999, and filed July 21, 1999, as set forth in the pages
attached hereto:
ITEM 7 (A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Audited Consolidated Financial Statements of CPI Holding, Inc. as of
November 30, 1998 and 1997 and for the years ended November 30, 1998
and 1997 and for the period January 26, 1996 to November 30, 1996:
Independent Auditors' Report of Deloitte & Touche LLP
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Manditorily Redeemable Preferred
Stock and Shareholders' Equity
Consolidated Statements Cash Flows
Notes to Consolidated Financial Statements
Unaudited Consolidated Financial Statements of CPI Holding, Inc. as
of July 6, 1999 and for the period from November 1, 1998 to July
6, 1999:
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Cash Flows
Note to Consolidated Financial Statements
ITEM 7 (B) PRO FORMA FINANCIAL INFORMATION
Pro Forma Unaudited Condensed Consolidated Financial Statements of
BPC Holding Corporation:
Pro Forma Unaudited Condensed Consolidated Balance Sheet as
of July 3, 1999
Notes to Pro Forma Unaudited Condensed Consolidated Balance
Sheet as of July 3, 1999
ProForma Unaudited Condensed Consolidated Statement of Operations
for the fiscal year ended January 2, 1999
Notes to Pro Forma Unaudited Condensed Consolidated Statement of
Operations for the fiscal year ended January 2, 1999
ProForma Unaudited Condensed Consolidated Statement of Operations
for the six months ended July 3, 1999
Notes to Pro Forma Unaudited Condensed Consolidated Statement of
Operations for the six months ended July 3, 1999
Unaudited Pro Forma Financial Information of Berry Plastics
Corporation
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
CPI Holding, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of CPI
Holding, Inc. and Subsidiary as of November 30, 1998 and 1997, and the related
consolidated statements of income, mandatorily redeemable preferred stock and
shareholders' equity, and cash flows for the years ended November 30, 1998 and
1997 and for the period January 26, 1996 (Date of Acquisition) to November 30,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of CPI Holding, Inc. and
Subsidiary as of November 30, 1998 and 1997, and the results of their operations
and their cash flows for the years ended November 30, 1998 and 1997 and for the
period January 26, 1996 (Date of Acquisition) to November 30, 1996 in conformity
with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
June 11, 1999
<PAGE>
CPI HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS (NOTE 4) 1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 101,748 $ 18,624
Accounts receivable, less allowances of $163,000 and $72,000 5,397,359 5,260,109
Inventories ................................................ 7,553,127 7,878,158
Prepaid expenses ........................................... 579,064 455,492
Prepaid income taxes ....................................... 428,019 50,600
Deferred income taxes (Note 7) ............................. 305,000 215,000
----------- -----------
Total current assets .................................... 14,364,317 13,877,983
----------- -----------
PROPERTY AND EQUIPMENT:
Land ....................................................... 295,000 295,000
Building and improvements .................................. 3,597,818 3,526,034
Machinery and equipment .................................... 24,587,601 22,222,100
Molds ...................................................... 12,486,433 10,720,280
----------- -----------
Total ................................................... 40,963,852 36,763,414
Less accumulated depreciation and amortization ............. 9,271,295 5,670,397
----------- -----------
Property and equipment, net ................................ 31,692,557 31,093,017
----------- -----------
GOODWILL, less accumulated amortization of $1,078,511 in 1998 and
$734,756 in 1997 ........................................... 14,147,546 14,491,301
----------- -----------
OTHER ASSETS (Note 3) ........................................... 1,004,109 1,267,964
----------- -----------
TOTAL ........................................................... $61,208,529 $60,730,265
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
<PAGE>
CPI HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
NOVEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4) ........................ $ 4,060,780 $ 3,519,064
Current portion of long service executive nonqualified
pension (Note 5) ................................................ 420,310 380,000
Accounts payable .................................................. 2,595,014 2,922,093
Accrued liabilities ............................................... 547,524 881,507
------------ ------------
Total current liabilities ...................................... 7,623,628 7,702,664
LONG-TERM DEBT, less current portion (Note 4) .......................... 28,388,825 28,132,857
LONG SERVICE EXECUTIVE NONQUALIFIED PENSION, less current
portion (Note 5) ..................................................... 544,424 968,000
DEFERRED INCOME TAXES (Note 7) ......................................... 5,182,000 4,611,000
------------ ------------
Total liabilities .............................................. 41,738,877 41,414,521
------------ ------------
MANDATORILY REDEEMABLE PREFERRED STOCK (Note 9) ........................ 18,761,668 17,171,325
------------ ------------
SHAREHOLDERS' EQUITY (Notes 4 and 10):
Class A (voting), $.01 par value, authorized 500,000 shares,
89,281.5 in 1998 and 90,114.8 in 1997 issued and outstanding . 893 901
Class B (non-voting), $.01 par value, authorized 300,000 shares,
124,760 issued and ........................................... 1,247 1,247
Class C (non-voting), $.01 par value, authorized 200,000 shares,
90,791.6 issued and outstanding .............................. 908 908
Additional paid-in capital ..................................... 883,848 2,392,768
ESOP receivable (Note 8) ....................................... (113,912) (186,405)
Stock subscription receivable .................................. (65,000) (65,000)
------------ ------------
Total shareholders' equity ................................... 707,984 2,144,419
------------ ------------
TOTAL .................................................................. $ 61,208,529 $ 60,730,265
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
<PAGE>
CPI HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED NOVEMBER 30,1998 AND 1997 AND FOR THE PERIOD
JANUARY 26, 1996 (DATE OF ACQUISITION) TO NOVEMBER 30, 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
(10 MONTHS)
<S> <C> <C> <C>
NET SALES ....................................... $ 53,970,517 $ 54,387,787 $ 45,416,838
COST OF SALES ................................... 43,066,403 42,421,263 34,275,302
------------ ------------ ------------
GROSS PROFIT .................................... 10,904,114 11,966,524 11,141,536
------------ ------------ ------------
OPERATING EXPENSES:
Selling ..................................... 3,087,033 3,113,293 2,790,338
General and administrative (Note 11) ........ 3,176,276 2,949,312 2,164,232
ESOP contribution (Note 8) .................. 26,720 30,999 209,780
------------ ------------ ------------
Total operating expenses ............. 6,290,029 6,093,604 5,164,350
------------ ------------ ------------
INCOME FROM OPERATIONS .......................... 4,614,085 5,872,920 5,977,186
OTHER INCOME (EXPENSE):
Interest expense ............................ (3,383,736) (3,531,327) (3,188,345)
Miscellaneous, net .......................... 5,602 (8,225) 1,500
------------ ------------ ------------
INCOME BEFORE INCOME TAXES ...................... 1,235,951 2,333,368 2,790,341
INCOME TAXES (Note 7) ........................... 438,700 797,000 1,056,000
------------ ------------ ------------
NET INCOME ...................................... $ 797,251 $ 1,536,368 $ 1,734,341
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
<PAGE>
CPI HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
MANDATORILY REDEEMABLE ------------------------------
PREFERRED STOCK COMMON STOCK
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE - DECEMBER 1, 1997 ................... 141,134 $ 17,171,325 305,666 $ 3,056
REDEMPTION OF STOCK:
Common stock ........................... (833) (8)
Preferred stock ........................ (167) (20,347)
NET INCOME ...................................
TAX BENEFIT OF DIVIDENDS
PAID TO ESOP FOR
UNALLOCATED SHARES .....................
REPAYMENT OF ESOP
RECEIVABLE .............................
DIVIDENDS:
Paid ($8.75 per Class A Preferred Shares
outstanding) ......................... (700,000)
Increase in accumulated but not declared
dividends on mandatorily redeemable
preferred stock ...................... 2,310,690
------------ ------------ ------------ ------------
BALANCE, NOVEMBER 30, 1998 ................... 140,967 $ 18,761,668 304,833 $ 3,048
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------
ADDITIONAL STOCK TOTAL
PAID-IN RETAINED ESOP SUBSCRIPTION SHAREHOLDERS'
CAPITAL EARNINGS RECEIVABLE RECEIVABLE EQUITY
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE - DECEMBER 1, 1997 ................... $ 2,392,768 $ (186,405) $ (65,000) $ 2,144,419
REDEMPTION OF STOCK:
Common stock ........................... (22,145) (22,153)
Preferred stock ........................
NET INCOME ................................... $ 797,251 797,251
TAX BENEFIT OF DIVIDENDS
PAID TO ESOP FOR
UNALLOCATED SHARES ..................... 26,664 26,664
REPAYMENT OF ESOP
RECEIVABLE ............................. 72,493 72,493
DIVIDENDS:
Paid ($8.75 per Class A Preferred Shares
outstanding)
Increase in accumulated but not declared
dividends on mandatorily redeemable
preferred stock ...................... (1,486,775) (823,915) (2,310,690)
------------ ------------ ------------ ------------ ------------
BALANCE, NOVEMBER 30, 1998 ................... $ 883,848 -- $ (113,912) $ (65,000) $ 707,984
============ ============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
<PAGE>
CPI HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
MANDATORILY REDEEMABLE ------------------------------
PREFERRED STOCK COMMON STOCK
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE - DECEMBER 1, 1996 ..................... 140,867 $ 15,872,343 304,333 $ 3,043
ISSUANCE OF STOCK:
Common stock ............................. 1,333 13
Preferred stock .......................... 267 26,668
NET INCOME .....................................
TAX BENEFIT OF DIVIDENDS
PAID TO ESOP FOR
UNALLOCATED SHARES .......................
REPAYMENT OF ESOP
RECEIVABLE ...............................
DIVIDENDS:
Paid ($11.97 per Class A Preferred Shares
outstanding) ........................... (943,559)
Increase in accumulated but not ..........
dividends on mandatorily redeemable
preferred stock ........................ 2,215,873
------------ ------------ ------------ ------------
BALANCE, NOVEMBER 30, 1997 ..................... 141,134 $ 17,171,325 305,666 $ 3,056
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------
ADDITIONAL STOCK TOTAL
PAID-IN RETAINED ESOP SUBSCRIPTION SHAREHOLDERS'
CAPITAL EARNINGS RECEIVABLE RECEIVABLE EQUITY
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE - DECEMBER 1, 1996 ..................... $ 2,988,955 $ (360,000) $ (65,000) $ 2,566,998
ISSUANCE OF STOCK:
Common stock ............................. 13,318 13,331
Preferred stock ..........................
NET INCOME ..................................... $ 1,536,368 $ 1,536,368
TAX BENEFIT OF DIVIDENDS
PAID TO ESOP FOR
UNALLOCATED SHARES ....................... 70,000 70,000
REPAYMENT OF ESOP
RECEIVABLE ............................... $ 173,595 173,595
DIVIDENDS:
Paid ($11.97 per Class A Preferred Shares
oustanding) ............................
Increase in accumulated but not
dividends on mandatorily redeemable
preferred stock ........................ (609,505) (1,606,368) (2,215,873)
------------ ------------ ------------ ------------ ------------
BALANCE, NOVEMBER 30, 1997 ..................... $ 2,392,768 -- $ (186,405) $ (65,000) $ 2,144,419
============ ============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
<PAGE>
CPI HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF MANDATORILY REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1996
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
MANDATORILY REDEEMABLE ----------------------------------------------
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------------- ----------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ISSUANCE OF STOCK:
Class A Preferred ............... 80,000 $ 8,000,000
Class B Preferred ............... 60,000 6,000,000
Class A Common .................. 88,782 $ 888 $ 886,928
Class B Common .................. 124,760 1,248 1,246,352
Class C Common .................. 86,458 864 863,720
ESOP RECEIVABLE ACQUIRED IN
ACQUISITION FOR GUARANTEE OF FUTURE
DEBT PAYMENTS .....................
ISSUANCE OF STOCK UNDER
EXECUTIVE STOCK AGREEMENTS:
Class C Common .................. 4,333 43 43,289
Class B Preferred ............... 867 86,668
NET INCOME ............................
REDUCTION OF ESOP RECEIVABLE ..........
DIVIDENDS:
Increase in accumulated but not
declared dividends on redeemable
preferred stock ................ 1,785,675 (51,334)
------------ ------------ ------------ ------------ ------------
BALANCE, NOVEMBER 30, 1996 ............ 140,867 $ 15,872,343 304,833 $ 3,043 $ 2,988,955
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
--------------------------------------------------------------
CAPITAL STOCK TOTAL
RETAINED ESOP SUBSCRIPTION SHAREHOLDERS'
EARNINGS RECEIVABLE RECEIVABLE EQUITY
------------ ------------ ------------ --------------
<S> <C> <C> <C>
ISSUANCE OF STOCK:
Class A Preferred ...............
Class B Preferred ...............
Class A Common .................. $ 887,816
Class B Common .................. 1,247,600
Class C Common .................. 864,584
ESOP RECEIVABLE ACQUIRED IN
ACQUISITION FOR GUARANTEE OF FUTURE
DEBT PAYMENTS ..................... $ (540,000) (540,000)
ISSUANCE OF STOCK UNDER
EXECUTIVE STOCK AGREEMENTS:
Class C Common .................. $ (21,666) 21,666
Class B Preferred ............... (43,334) (43,334)
NET INCOME ............................ $ 1,734,341 1,734,341
REDUCTION OF ESOP RECEIVABLE .......... 180,000 180,000
DIVIDENDS:
Increase in accumulated but not
declared dividends on redeemable
preferred stock ................ (1,734,341) (1,785,675)
------------ ------------ ------------ ------------
BALANCE, NOVEMBER 30, 1996 ............ -- $ (360,000) $ (65,000) $ 2,566,998
============ ============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
<PAGE>
CPI HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1998 AND 1997 AND FOR THE PERIOD
JANUARY 26, 1996 (DATE OF ACQUISITION) TO NOVEMBER 30, 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
(10 MONTHS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 797,251 $ 1,536,368 $ 1,734,341
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................................... 4,167,042 3,849,775 2,954,524
(Gain) loss on disposals of property and equipment ............... (5,602) 8,225 (1,500)
Deferred income taxes ............................................ 481,000 20,000 303,000
Tax benefit of dividends paid to ESOP ............................ 26,664 70,000
Change in operating assets and liabilities:
Accounts receivable .......................................... (137,250) 113,169 346,751
Inventories .................................................. 325,031 344,427 (1,908,856)
Prepaid expenses, prepaid income taxes, and deposits ......... (444,735) 145,576 (388,988)
Accounts payable ............................................. (327,079) (1,187,703) (501,026)
Accrued liabilities .......................................... (333,983) (241,057) 497,245
Income taxes payable ......................................... -- (203,900) 283,300
------------ ------------ ------------
Net cash provided by operating activities ........................... 4,548,339 4,454,880 3,318,791
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of stock of Cardinal Packaging, Inc. along with land
and buildings from a related partnership, including acquisition
costs and net of cash received of $28,946 ......................... (39,363,708)
Purchase of property and equipment .................................. (4,207,586) (3,160,719) (2,882,380)
Proceeds from disposal of property and equipment .................... 7,500 2,500 1,500
Investment in patents ............................................... (9,540)
------------ ------------ ------------
Net cash used in investing activities ............................... (4,209,626) (3,158,219) (42,244,588)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred dividends paid ............................................ (700,000) (943,559)
Repayment of ESOP receivable ........................................ 72,493 173,595
Proceeds from issuance of (payments for redemption of):
Common Stock ..................................................... (22,153) 13,331 3,021,666
Mandatorily redeemable preferred stock .............................. (20,347) 26,668 6,043,334
Proceeds from long-term debt ........................................ 4,190,822 2,508,745 30,993,349
Payments on long-term debt, and long service executive
nonqualified pension .............................................. (3,776,404) (3,112,774) (1,076,595)
------------ ------------ ------------
Net cash (used in) provided by financing activities ................. (255,589) (1,333,994) 38,981,754
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................... 83,124 (37,333) 55,957
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .............................. 18,624 55,957 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR .................................... $ 101,748 $ 18,624 $ 55,957
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes ........................................................ $ 335,119 $ 925,942 $ 415,525
============ ============ ============
Interest ............................................................ $ 3,776,313 $ 3,384,339 $ 2,240,510
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
The Company received stock subscriptions of $65,000 in 1996.
In conjunction with the acquisition in 1996, the Company recorded
liabilities to the former shareholders totaling $1,960,000 and issued
preferred stock valued at $8,000,000 in exchange for previously issued
common shares of Cardinal.
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
<PAGE>
CPI HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED NOVEMBER 30, 1998 AND 1997 AND FOR THE PERIOD
JANUARY 26, 1996 (DATE OF ACQUISITION) TO NOVEMBER 30, 1996
- - --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND ORGANIZATION
CPI Holding, Inc. ("CPI" or the "Company") was organized under the laws of
the State of Delaware for the purpose of acquiring an injection molding
manufacturer. On January 26, 1996, CPI acquired 100 percent of the common
stock of Cardinal Packaging, Inc. ("Cardinal"). The Company, through its
wholly-owned subsidiary, Cardinal, is a manufacturer of rigid thin-walled
polyethylene and polypropylene containers and sells its products to customers
located throughout the United States and Canada. The majority of the
Company's products are used in the frozen dessert and refrigerated product
industries in the form of premium round containers. In addition, the Company
provides containers for selected industrial customers and seasonal retailers.
The Company maintains ongoing credit evaluations of its customers and
generally does not require collateral. The Company provides reserves for
potential credit losses and such losses historically have not exceeded
management's estimates. The Company is headquartered in Streetsboro, Ohio.
Additional manufacturing facilities are located in Minneapolis, Minnesota and
Ontario, California.
CPI acquired, along with land and buildings previously owned by a related
partnership, 70 percent of the common stock of Cardinal for $39,392,654,
including acquisition costs. The remaining 30 percent of the common stock of
Cardinal was acquired from the Cardinal Packaging, Inc. Employee Stock
Ownership Plan ("ESOP") in exchange for 80,000 shares of CPI Class A
redeemable preferred stock valued at $8,000,000. In addition, and in
conjunction with the acquisition, the Company entered into an agreement to
pay the sellers $2,460,000 (which includes imputed interest of $500,000) in
monthly payments through January 2001 (see Note 5).
The total purchase price, including acquisition costs, has been allocated to
the assets acquired and liabilities assumed based on their estimated fair
values, except for the portion related to the ESOP's ownership which is
accounted for at historical costs, using the purchase method of accounting.
In addition, goodwill was reduced by $745,000 because of the deferred tax
asset recorded for the future tax benefits of the long service executive
nonqualified pension payments (See Note 7). Accordingly, the amounts recorded
for this acquisition were as follows:
Current Assets, including $28,946 of cash ............... $12,435,461
Property ................................................ 30,557,656
Other assets ............................................ 1,743,858
-----------
Total assets acquired ............................. 44,736,975
Liabilities assumed ..................................... 11,355,378
-----------
Net assets acquired ..................................... 33,381,597
Goodwill ................................................ 15,226,057
-----------
Total purchase price, including acquisition costs ....... $48,607,654
===========
As a result of the acquisition in 1996, the inventory on January 26, 1996 was
increased by $296,712 based on the fair market value of the acquired
inventory at the date of acquisition. Cost of sales for the period January
26, 1996 (date of acquisition) to November 30, 1996 includes $296,712 related
to this adjustment.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL STATEMENT PRESENTATION--The consolidated financial statements
include the accounts of CPI and its wholly-owned subsidiary. All significant
intercompany balances and transactions are eliminated in consolidation.
USE OF ESTIMATES--The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the
financial statement date and the reported amounts of revenues and expenses
for the reporting period. Actual amounts could differ from those estimates.
REVENUE RECOGNITION--Sales and cost of sales are recognized upon shipment of
product.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with original maturities of three months or less, when purchased,
to be cash equivalents.
INVENTORIES--Inventories are valued at the lower of cost, using the first-in,
first-out basis, or market. Inventories consist of the following at November
30:
1998 1997
----------- -----------
Raw materials................... $ 2,433,849 $ 1,700,765
Finished Good................... 5,119,278 6,177,393
----------- -----------
Total........................... $ 7,553,127 $ 7,878,158
=========== ===========
PROPERTY AND EQUIPMENT--Property and equipment is stated at cost. Additions,
renewals and betterments are capitalized; maintenance and repairs, which do
not extend the useful life of the asset, are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from ten to 40 years for buildings,
related building improvements and leasehold improvements, 12 to 15 years for
manufacturing machinery and equipment, seven years for molds, five years for
office furniture and fixtures, and three years for vehicles. Equipment under
capitalized leases is amortized over the terms of the leases, which do not
exceed the estimated useful life of the leased equipment.
GOODWILL AND INTANGIBLE ASSETS--The Company's intangible assets consist of
goodwill, deferred financing costs, and patent costs. Amortization is
recorded over the estimated economic lives. Goodwill is amortized over 40
years. Deferred financing costs are amortized over the terms of the related
loans with the amortization included in interest expense. Patent costs are
amortized over 17 years, beginning when the patent approval is obtained.
The Company evaluates the unamortized cost of these intangible assets to
determine if the carrying amount exceeds the recoverable amount and to record
an impairment loss, if necessary. This determination is based on an
evaluation of such factors as the occurrence of a significant event, a
significant change in the environment in which the business operates or,
primarily for goodwill, the expected undiscounted future net cash flows.
<PAGE>
INCOME TAXES--Deferred income taxes are recognized for the expected future
tax consequences of events that have been recognized in the financial
statements or tax returns. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of
various assets and liabilities using enacted rates in effect for the year in
which the differences are expected to reverse.
NEW ACCOUNTING PRONOUNCEMENTS--In 1998, Cardinal adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," and SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". SFAS No. 130 established
standards for reporting and displaying comprehensive income and its
components in a full set of general-purpose financial statements. SFAS No.
131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments such as a
measure of segment profit or loss, certain specific revenue and expense
items, and segment assets. SFAS No. 132 standardized the disclosure
requirements for pensions and other postretirement benefits. The adoption of
these statements did not have a material impact on the Company's financial
statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133 is effective for fiscal
quarters of fiscal years beginning after June 15, 1999. The Company has not
completed its evaluation of this statement but does not anticipate a material
impact on the financial statements from the adoption of this accounting
standard.
RECLASSIFICATIONS--Certain reclassifications were made to the 1996 and 1997
financial statements to conform to the presentation used in the 1998
financial statements.
3. OTHER ASSETS
Other assets consist of the following at November 30:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred financing costs, less accumulated amortization of
$607,139 in 1998 and $392,855 in 1997 ............... $ 892,861 $1,107,145
Deposits ................................................. 65,106 115,062
Patents, less accumulated amortization of $18,566 in 1998
and $15,711 in 1997 ................................. 46,142 39,457
Miscellaneous ............................................ 6,300
---------- ----------
Total ......................................... $1,004,109 $1,267,964
========== ==========
</TABLE>
<PAGE>
4. LONG-TERM DEBT
Long-term debt consists of the following as of November 30:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Note payable to financial institution with quarterly principal payments at
scheduled amounts, plus interest at a variable rate (7.8125 percent as of
November 30,1998), due March 1, 2001 ..................................... $10,500,000 $13,500,000
Note payable to financial institution with quarterly principal payments at
scheduled amounts beginning in 2001, plus interest at a variable rate
(8.3125 percent as of November 30,1998), due March 1, 2001 ............... 10,000,000 10,000,000
Revolving credit facility payable to financial institution with interest
at a variable rate (7.8125 percent as of November 30,1998), due
March 1, 2003 ............................................................ 7,002,522 5,615,116
Capital expansion note payable to financial institution with quarterly
interest payments at a variable rate (8.3125 percent as of November 30,
1998), fifteen equal quarterly principal payments, plus interest,
beginning September 1, 1999, due March 2003 .............................. 4,681,646 1,886,980
ESOP loan to bank with semi-annual principal payments of $90,000, plus
monthly interest (6.5875 percent as of November 30, 1998) at 85 percent of
the bank's prime rate, through January 2000;collateralized by the common
stock of the Company ..................................................... 113,912 186,405
Note payable to financing company with monthly principal and interest
payments of $3,690, through October 1999; interest at 6.755 percent a
year, collateralized by specific equipment ............................... 39,252 79,399
Other notes payable to banks paid off in 1998 ........................... 3,481
Capital lease obligations for equipment, payable to various banks and
leasing companies in aggregate monthly principal and interest payments of
$20,583 through July 2000; interest at 6.75 percent to 10.85 percent a
year; collateralized by equipment with an aggregate net book value of
$810,344 and $1,454,135 as of November 30, 1998 and November 30, 1997,
respectively ............................................................. 112,273 380,540
----------- -----------
Total .................................................................... 32,449,605 31,651,921
Less current portion ..................................................... 4,060,780 3,519,064
----------- -----------
Amount due after one year ................................................ $28,388,825 $28,132,857
=========== ===========
</TABLE>
The notes payable, revolving credit facility, and capital expansion note are
collateralized by substantially all of the assets of the Company. The credit
agreement includes financial covenants with respect to capital expenditure
limits; rent payments under operating leases; earnings before depreciation,
amortization, interest and income taxes; and fixed charge and interest coverage
ratios. As of November 30, 1998, the Company has violated certain of these
covenants related to minimum EBITDA, as defined, fixed charges coverage ratio,
interest coverage ratio, and maximum capital expenditures, for which the lender
has waived the covenant violations.
<PAGE>
At November 30, 1998, required annual principal payments on long-term debt
are:
YEAR ENDING NOVEMBER 30,
1999........................................ $4,060,780
2000........................................ 5,765,206
2001........................................ 6,248,439
2002........................................ 6,248,439
2003........................................ 10,126,741
-----------
Total....................................... $32,449,605
===========
Future minimum lease payments under capital leases, included above, as of
November 30, 1998 are as follows:
YEAR ENDING NOVEMBER 30,
1999........................................ $109,337
2000........................................ 7,080
--------
Total minimum lease payments................ 116,417
Less amount representing interest........... 4,144
--------
Present value of capital lease obligations
included with long-term debt at November
30, 1998................................. $112,273
========
5. LONG SERVICE EXECUTIVE NONQUALIFIED PENSION AND CONSULTING AGREEMENTS
Under the terms of the purchase agreement for the common stock of Cardinal,
the Company agreed to make payments to the previous shareholders of $41,000 a
month through January 2001 for long service executive nonqualified pension
payments. These future payments have been recorded as a liability at their
net present value. In addition, the Company paid $20,000 a year to the
previous shareholders under a consulting agreement from February 1996 through
January 1998. Consulting expense was $3,333 for 1998, $20,000 for 1997, and
$16,660 for the period January 26, 1996 to November 30, 1996.
At November 30, 1998, future payments under the long service executive
nonqualified pension agreement are as follows:
YEAR ENDING NOVEMBER 30,
1999........................................ $492,000
2000........................................ 492,000
2001........................................ 82,000
----------
Total Payments.............................. 1,066,000
Less amount representing interest (at 9.25
percent).................................. 101,266
----------
Present value of long service executive
nonqualified pension........................ 964,734
Current portion............................. 420,310
----------
Noncurrent portion.......................... $544,424
==========
<PAGE>
6. OPERATING LEASES
The Company leases specific equipment, vehicles, and its Minneapolis,
Minnesota and Ontario, California office and plant facilities under operating
leases from unrelated parties. These leases expire at various dates through
November 2003.
Total rent expense, including month-to-month rentals, was $1,588,000 for
1998, $1,538,000 for 1997.
Future minimum lease payments under noncancellable operating leases as of
November 30, 1998 are:
YEAR ENDING NOVEMBER 30,
1999........................................ $1,479,200
2000........................................ 1,218,900
2001........................................ 999,300
2002........................................ 945,300
2003........................................ 855,600
----------
Total....................................... $5,498,300
==========
7. INCOME TAXES
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(10 MONTHS)
<S> <C> <C> <C>
Federal:
Current .......................................................... $ (122,300) $ 649,000 $ 618,000
Deferred ......................................................... 267,000 31,000 245,000
State and local:
Current .......................................................... 80,000 128,000 135,000
Deferred ......................................................... 214,000 (11,000) 58,000
----------- ----------- -----------
Total ................................................................. $ 438,700 $ 797,000 $ 1,056,000
=========== =========== ===========
</TABLE>
The consolidated tax provision differs from the tax provision computed at
the statutory United States tax rate of approximately 34 percent for the
following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Tax provision at statutory federal rate ............................... $ 420,000 $ 785,000 $ 949,000
Amortization of goodwill .............................................. 117,000 136,000 114,000
Dividends paid to Employee Stock Ownership Plan
on allocated shares .............................................. (163,000) (189,000)
State and local income taxes .......................................... 294,000 117,000 193,000
Other ................................................................. (229,300) (52,000) (200,000)
----------- ----------- -----------
Total ...................................................... $ 438,700 $ 797,000 $ 1,056,000
=========== =========== ===========
</TABLE>
<PAGE>
The tax benefit of the deductible portion of the Class A preferred dividends
paid on the unallocated shares held by the ESOP that were utilized by the
ESOP to make debt payments was charged directly to retained earnings.
The approximate tax effect of each type of temporary difference that gave
rise to the Company's deferred tax assets and liabilities as of November 30,
is as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current deferred income tax assets (liabilities):
Inventories ............................................ $ 73,000 $ 53,000
(Prepaid) accrued state income taxes ................... 6,000 (13,000)
Accrued liabilities .................................... 4,000 3,000
Long service executive nonqualified pension - current .. 160,000 145,000
Allowance for doubtful accounts ........................ 62,000 27,000
----------- -----------
305,000 215,000
----------- -----------
Noncurrent deferred income tax assets (liabilities):
Basis of property ...................................... (5,878,000) (5,509,000)
Long service executive nonqualified pension - noncurrent 206,000 367,000
Net operating loss carryforward ........................ 102,000
Alternative minimum tax credit carryforwards ........... 388,000 531,000
----------- -----------
(5,182,000) (4,611,000)
----------- -----------
Net deferred income tax liability ........................... $(4,877,000) $(4,396,000)
=========== ===========
</TABLE>
8. EMPLOYEE STOCK OWNERSHIP PLAN
In 1988, Cardinal established an employee stock ownership plan. On December
14, 1989, the ESOP used $1,800,000 of proceeds from a bank loan to purchase
30 percent of Cardinal's common stock. In conjunction with the acquisition of
Cardinal by CPI in which the ESOP exchanged its 30 percent investment in
Cardinal for a 22 percent investment in CPI, the Company assumed the
remaining bank obligation of $720,000 at January 26, 1996. As of November 30,
1998, $113,912 remains outstanding on this loan. As a result of the Company
assuming the bank obligation, the Company also recorded a loan receivable
from the ESOP, which is reported as a reduction of shareholders' equity. The
Company is obligated to make contributions to the ESOP that are used by the
ESOP to pay the loan principal and interest to the bank. Shares of stock
acquired by the ESOP are allocated to each eligible employee in amounts based
on the employee's compensation. Company contributions charged to expense were
$26,720 in 1998, $30,999 in 1997 and $209,780 for the period January 26, 1996
to November 30, 1996. The Company paid Class A preferred dividends of
$700,000 in 1998 and $943,559 in 1997 to the ESOP. The ESOP used a portion of
the dividends to make the required principal payments.
<PAGE>
9. MANDATORILY REDEEMABLE PREFERRED STOCK
MANDATORILY REDEEMABLE PREFERRED STOCK--The Company is authorized to issue
100,000 nonvoting shares of Class A redeemable preferred stock and 100,000
non-voting shares of Class B redeemable preferred stock, each with a par
value of $.01 per share. There are 80,000 shares of Class A redeemable
preferred stock outstanding as of November 30, 1998 and 1997. There are
60,966.69 shares of Class B redeemable preferred stock outstanding as of
November 30, 1998 and 61,133.36 shares outstanding as of November 30, 1997,
including 866.68 shares issued under Executive Stock Agreements described in
Note 10. Accumulating dividends accrue daily at 8.75 percent of the
liquidation value ($100 per share) plus any accumulated dividends on the
Class A redeemable preferred stock. Accumulating dividends accrue at 10
percent of the liquidation value ($100 per share) plus any accumulated
dividends on the Class B redeemable preferred stock. Unpaid accumulating
dividends are deemed to be accumulated dividends for purposes of calculating
the accumulating and nonaccumulating dividends. Nonaccumulating dividends
accrue daily at 10 percent of the liquidation value plus any accumulated
dividends on the Class A redeemable preferred stock only. Unpaid
nonaccumulating dividends are not deemed to be accumulated dividends for
purposes of calculating the accumulating and nonaccumulating dividends.
Accumulating dividends were $1,483,077 for the year ended November 30, 1998
and $1,385,329 for the year ended November 30, 1997. The nonaccumulating
dividends were $827,613 for the year ended November 30, 1998 and $830,544 for
the year ended November 30, 1997. These amounts have been recorded as an
increase in the redeemable preferred stock and as a reduction of retained
earnings and of additional paid-in capital in the accompanying consolidated
statements of mandatorily redeemable preferred stock and shareholders'
equity. As of November 30, 1998, the unpaid accumulating dividends were
$2,331,161 and the unpaid nonaccumulating dividends were $2,331,864.
On June 30, 2003, the Company shall redeem all outstanding shares of the
Class A and Class B redeemable preferred stock for the aggregate liquidation
value plus all unpaid dividends. The aggregate liquidation value and unpaid
dividends of the Class A and Class B redeemable preferred stock is
$18,761,668 as of November 30, 1998 and $17,171,325 as of November 30, 1997.
The Class A redeemable preferred stock is convertible at the shareholders'
option into Class A common stock at any time based on the liquidation value
of the shares to be converted at the then current conversion price.
10. COMMON STOCK
The authorized shares of stock and the number of shares outstanding as of
November 30, 1998 and 1997 are as follows:
COMMON STOCK--The Company has three classes of common stock of which Class A
is voting and Class B and C are non-voting.
Holders of Class B common stock are entitled to convert such shares into the
same number of shares of Class A or Class C common stock at any time.
Holders of Class C common stock are entitled to convert such shares into the
same number of shares of Class A common stock upon the occurrence of a
Conversion Event as defined in the Company's Certificate of Amendment to
Certificate of Incorporation. Class C common stock includes 4,333.2 shares
issued under Executive Stock Agreements described below, as of November 30,
1998 and 1997.
<PAGE>
EXECUTIVE STOCK AGREEMENTS--The Company has entered into agreements with
certain members of its management under which shares of Class B redeemable
preferred stock and Class C common stock have been issued. The Company has
notes receivable aggregating $65,000 from manager shareholders for the
purchase of one-half of their shares at November 30, 1998 and 1997. These
notes bear interest at 8.25 percent a year and are reported as stock
subscriptions receivable as a reduction of shareholders' equity. One-half of
the shares of common stock and one-half of the shares of redeemable preferred
stock vest immediately and the remaining shares vest upon the payment in full
of the receivables plus any accrued interest. In the event a shareholder
manager ceases to be employed by the Company, the Company and certain
shareholders have the right to repurchase all or a portion of these shares
from the individual at the fair value of the vested shares and the lower of
the fair value of shares or the original cost of the unvested shares held as
of the date of termination.
11. RELATED PARTY TRANSACTIONS
The following amounts were paid to shareholders of the Company:
1998 1997 1996
---------- ---------- ----------
Management fees ....... $ 200,000 $ 200,000 $ 200,000
Transaction costs ..... 1,285,000
---------- ---------- ----------
Total ............ $ 200,000 $ 200,000 $1,485,000
========== ========== ==========
The management fees are included in general and administrative expense in the
accompanying statements of income. The transaction costs were capitalized as
of the acquisition date.
* * * * * *
<PAGE>
CPI Holding, Inc. and Subsidiary
Consolidated Balance Sheet
July 6, 1999
(In Thousands of Dollars)
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 16
Accounts receivable (less allowance for doubtful
accounts of $156) ..................................... 7,025
Inventories:
Finished goods ...................................... 5,406
Raw materials and supplies .......................... 2,247
-------
7,653
Prepaid expenses and other receivables .................. 404
Deferred income taxes ................................... 305
-------
Total current assets ........................................ 15,403
Property and equipment:
Land .................................................... 295
Buildings and improvements .............................. 3,499
Machinery, equipment and tooling ........................ 37,473
Automobiles and trucks .................................. 54
Construction in progress ................................ 2,021
-------
43,342
Less accumulated depreciation ........................... 11,604
-------
31,738
Intangible assets:
Deferred financing and origination fees, net ............ 768
Excess of cost over net assets acquired, net ............ 13,925
-------
14,693
Other (Deposits, Trademarks, Patents) ....................... 82
-------
Total assets ................................................ $61,916
=======
<PAGE>
CPI Holding, Inc. and Subsidiary
Consolidated Balance Sheet (continued)
July 6, 1999
(In Thousands of Dollars)
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ........................................................... $ 4,708
Accrued expenses and other liabilities ..................................... 667
Current portion of long-term debt .......................................... 4,987
--------
Total current liabilities ...................................................... 10,362
Long-term debt, less current portion ........................................... 28,022
Deferred income taxes .......................................................... 5,182
--------
43,566
Stockholders' equity:
Mandatorily Redeemable Preferred Stock ..................................... 19,348
Class A Common Stock (voting); $.01 par value:
500,000 shares authorized; 89,281.5 shares issued and outstanding ...... 1
Class B Common Stock (non-voting); $.01 par value:
300,000 shares authorized; 124,760 shares issued and outstanding ....... 1
Class C Common Stock (non-voting); $.01 par value: 200,000 shares
authorized; 90,791.6 shares issued and outstanding ..................... 1
Additional paid-in capital ................................................. 349
Retained earnings .......................................................... (1,171)
Less: ESOP receivable ..................................................... (114)
Stock subscription receivable ................................... (65)
--------
Total stockholders' equity ..................................................... 18,350
--------
Total liabilities and stockholders' equity ..................................... $ 61,916
========
</TABLE>
SEE NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CPI Holding, Inc. and Subsidiary
Consolidated Statement of Operations
For the period from December 1, 1998 to July 6, 1999
(In Thousands of Dollars)
(UNAUDITED)
Net sales ............................................. $ 34,672
Cost of goods sold .................................... 29,394
--------
Gross margin .......................................... 5,278
Operating expenses:
Selling ........................................... 1,852
General and administrative ........................ 2,200
Amortization of intangibles ....................... 351
Other ............................................. 84
--------
Operating income ...................................... 791
Interest expense .................................. 1,715
--------
Loss before income taxes .............................. (924)
Income tax expense .................................... 202
--------
Net loss .............................................. $ (1,126)
========
SEE NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CPI Holding, Inc. and Subsidiary
Consolidated Statement of Cash Flows
For the period from December 1, 1998 to July 6, 1999
(In Thousands of Dollars)
UNAUDITED
OPERATING ACTIVITIES
Net loss ...................................................... $(1,126)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation .......................................... 2,333
Amortization .......................................... 348
Changes in operating assets and liabilities:
Accounts receivable, net .......................... (1,628)
Inventories ....................................... (100)
Prepaid expenses and other receivables ............ 603
Other assets ...................................... 29
Payables and accrued expenses ..................... 2,231
-------
Net cash provided by operating activities ..................... 2,690
INVESTING ACTIVITIES
Additions to property and equipment ........................... (2,378)
-------
Net cash used for investing activities ........................ (2,378)
FINANCING ACTIVITIES
Proceeds from long-term borrowings ............................ 2,389
Payments on long-term borrowings .............................. (2,794)
Proceeds from Preferred equity ................................ 7
-------
Net cash used for financing activities ........................ (398)
-------
Net decrease in cash and cash equivalents ..................... (86)
Cash and cash equivalents at beginning of period .............. 102
-------
Cash and cash equivalents at end of period .................... $ 16
=======
SEE NOTE TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CPI Holding, Inc. and Subsidiary
Note to Consolidated Financial Statements
(In Thousands of Dollars)
As of July 6, 1999 and for the period from December 1, 1998 to July 6, 1999
The unaudited consolidated financial statements of CPI Holding, Inc. and
Subsidiary as of July 6, 1999 and for the period from December 1, 1998 to July
6, 1999 have been prepared in accordance with generally accepted accounting
principles for interim financial information. 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 considered necessary for a fair presentation have been included.
Operating results for the period presented are not necessarily indicative of the
results that may be expected for the full fiscal year. These statements should
be read in conjunction with the audited consolidated financial statements of CPI
Holding, Inc. as of November 30, 1998 and 1997 and for the years ended November
30, 1998 and 1997 and for the period January 26, 1996 to November 30, 1996
included in this Form 8-K/A.
Comparative consolidated financial statements as of July 6, 1998 and for the
period from December 1, 1997 to July 6, 1998 have not been presented as these
statements were not available.
<PAGE>
BPC HOLDING CORPORATION
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed consolidated balance sheet and pro
forma condensed consolidated statements of operations (collectively, the "Pro
Forma Statements") give effect to the purchase of the outstanding common stock
of CPI Holding Corporation ("CPI Holding") and Norwich Injection Moulders
Limited ("Norwich Moulders") and the purchase of substantially all of the assets
of the Knight Engineering Plastics Division of Courtaulds Packaging Inc.
("Knight Plastics") by Berry Plastics Corporation ("Berry"). Berry is a wholly
owned subsidiary of BPC Holding Corporation ("Holding").
The pro forma information is based on the historical consolidated financial
statements of Holding, the historical financial statements of CPI Holding,
Norwich Moulders, and Knight Plastics, giving effect to the acquisitions using
the purchase method of accounting and the assumptions and adjustments in the
accompanying notes to the pro forma condensed consolidated financial statements.
The pro forma condensed balance sheet gives effect to the acquisitions as if
they had occurred on July 3, 1999 and the condensed statements of operations
give effect to the acquisitions as if it had occurred on December 28, 1998.
There are no pro forma condensed balance sheet adjustments as of July 3, 1999
for the acquisitions of Norwich Moulders and Knight Plastics as these
adjustments are reflected in Holding's historical balances as of July 3, 1999.
There are no pro forma condensed consolidated statement of operations
adjustments for the six months ended July 3, 1999 for the acquisitions of
Norwich Moulders and Knight Plastics as the operations of these businesses are
included in Holding's historical balances from December 28, 1998 through July 3,
1999.
The Pro Forma Statements do not purport to represent what Holding's consolidated
financial position or results of operations would actually have been if such
transactions had in fact occurred on such dates or to project Holding's
consolidated financial position or results of operations for any future date or
period. The pro forma adjustments are based upon available information and upon
assumptions that Holding believes to be reasonable. The Pro Forma Statements and
accompanying notes should be read in conjunction with the historical
consolidated financial statements and related notes of Holding included within
its Annual Report on Form 10-K for the year ended January 2, 1999, with the
audited consolidated financial statements and related notes of CPI Holding, Inc.
as of November 30, 1998 and 1997 and for the years ended November 30, 1998 and
1997 and for the period January 26, 1996 to November 30, 1996 included in this
Form 8-K/A, and with Form 8-K/A filed on September 15, 1998 which provides
similar information related to the acquisition of Norwich Moulders.
<PAGE>
BPC HOLDING CORPORATION
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 3, 1999
-------------------------------------------------------------
HOLDING CPI HOLDING PRO FORMA CONSOLIDATED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents ............................ $ 2,993 $ 16 $ -- $ 3,009
Accounts receivable .................................. 40,842 7,025 -- 47,867
Inventories .......................................... 32,314 7,653 -- 39,967
Other current assets ................................. 2,658 709 -- 3,367
--------- --------- --------- ---------
Total current assets ............................ 78,807 15,403 -- 94,210
Assets held in trust ...................................... 252 -- -- 252
Property and equipment, net ............................... 120,271 31,738 (10,695)(a) 141,314
Intangible assets, net .................................... 55,950 14,693 34,336 (b) 104,979
Other assets .............................................. 3,129 82 -- 3,211
--------- --------- --------- ---------
Total assets .................................... $ 258,409 $ 61,916 $ 23,641 $ 343,966
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 20,664 $ 4,708 $ -- $ 25,372
Accrued liabilities .................................. 26,075 667 -- 26,742
Current portion of long-term debt .................... 20,297 4,987 (4,987)(c) 20,297
--------- --------- --------- ---------
Total current liabilities ....................... 67,036 10,362 (4,987) 72,411
Long-term debt, less current portion: ..................... 300,187 28,022 46,978 (d) 375,187
Other liabilities ......................................... 11,853 5,182 -- 17,035
--------- --------- --------- ---------
Total liabilities ............................... 379,076 43,566 41,991 464,633
Stockholders' equity (deficit):
Total stockholders' equity (deficit) ............ (120,667) 18,350 (18,350)(e) (120,667)
--------- --------- --------- ---------
Total liabilities and stockholders' equity ...... $ 258,409 $ 61,916 $ 23,641 $ 343,966
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
BPC HOLDING CORPORATION
NOTES TO PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
The historical balance sheet presented for Holding is as of July 3, 1999, and
the historical balance sheet presented for CPI Holding is as of July 6, 1999.
The following adjustments reflect the acquisition of the common stock of CPI
Holding and the repayment of the outstanding debt of CPI Holding on a pro forma
basis using proceeds from the issuance of $75 million of 11% senior subordinated
notes by Berry. The pro forma allocations to the assets acquired and liabilities
assumed have been made using estimates by management and may be adjusted
subsequently. The amount allocated to cost in excess of assets acquired may be
subsequently adjusted but any such adjustment is not expected to be material.
The cost in excess of net assets acquired will be amortized by the straight-line
method over a period of 15 years. (a) Adjustment to property and equipment, net:
(a) Adjustment to property and equipment, net:
Write down to fair market value ..................... $(10,695)
========
(b) Adjustments to intangible assets, net:
Elimination of goodwill prior to the acquisition .... $(14,693)
Allocation of excess of purchase price over net
assets acquired to intangible assets .............. 49,029
--------
$ 34,336
========
(c) Adjustment to current portion of long-term debt:
Repayment of debt ................................... $ (4,987)
========
(d) Adjustments to long-term debt, excluding current portion:
Repayment of debt ................................... $(28,022)
Issuance of 11% senior subordinated notes ........... 75,000
--------
$ 46,978
========
(e) Adjustment to stockholders' equity:
Elimination of equity prior to acquisition .......... $(18,350)
========
<PAGE>
BPC HOLDING CORPORATION
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL 1998
--------------------------------------------------------------------------------------
NORWICH
MOULDERS AND
HOLDING CPI HOLDING KNIGHT PLASTICS PRO FORMA CONSOLIDATED
HISTORICAL HISTORICAL HISTORICALS ADJUSTMENTS PRO FORMA
------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales ............................... $ 271,830 $ 53,971 $ 26,869 $ -- $ 352,670
Cost of goods sold ...................... 199,227 43,066 22,786 -- 265,079
--------- --------- --------- --------- ---------
Gross margin ............................ 72,603 10,905 4,083 -- 87,591
Operating expenses ...................... 44,001 6,291 3,350 2,289 (a)
334 (d) 56,265
--------- --------- --------- --------- ---------
Operating income (loss) ................. 28,602 4,614 733 (2,623) 31,326
Interest expense, net ................... (34,556) (3,384) (48) (5,241)(b) (45,604)
(2,375)(e)
Other income (expense) .................. (1,865) 6 (2) -- (1,861)
--------- --------- --------- --------- ---------
Income (loss) before income
taxes ................................. (7,819) 1,236 683 (10,239) (16,139)
Income tax expense (benefit) ............ (249) 439 196 (439)(c)
143 (f) 90
========= ========= ========= ========= =========
Net income (loss) ....................... $ (7,570) $ 797 $ 487 $ (9,943) $ (16,229)
========= ========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
BPC HOLDING CORPORATION
NOTES TO PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
YEAR ENDED JANUARY 2, 1999
The historical consolidated statement of operations presented for Holding is for
its fiscal year ended January 2, 1999, and the historical statement of
operations presented for CPI Holding is for the twelve months ended November 30,
1998. The historical statement of operations presented for Norwich Moulders is
for its six month period ended June 30, 1998 and, the historical statement of
operations presented for Knight Plastics is for the period from January 1, 1998
to October 16, 1998.
CPI HOLDING ADJUSTMENTS
(a) Adjustment to operating expenses:
Increase in amortization due to increase in cost in excess
of net assets acquired .................................. $(2,289)
=======
(b) Adjustments to interest expense:
Elimination of interest expense on debt extinguished ...... $(3,384)
Additional interest incurred on borrowing for acquisition . 8,625
-------
Net change in interest expense ............................ $ 5,241
=======
(c) Adjustment to income tax expense:
Elimination of income tax expense due to Holding's net
operating loss carryforward ............................. $ (439)
=======
NORWICH MOULDERS AND KNIGHT PLASTICS ADJUSTMENTS
(d) Adjustments to operating expense:
Amortization of cost in excess of net assets acquired ... $ 334
=======
(e) Adjustments to interest expense:
Elimination of interest expense on debt extinguished .... $ (48)
Interest incurred on borrowings for the acquisitions .... 2,423
-------
$ 2,375
=======
(f) Adjustments to income tax expense:
Acquisition tax adjustments ............................. $ 143
=======
<PAGE>
BPC HOLDING CORPORATION
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 3, 1999
------------------------------------------------------------------------
HOLDING CPI HOLDING PRO FORMA CONSOLIDATED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales ................................... $ 159,852 $ 28,465 $ -- $ 188,317
Cost of goods sold .......................... 112,782 23,407 -- 136,819
--------- --------- --------- ---------
Gross margin ................................ 47,070 5,058 -- 52,128
Operating expenses .......................... 25,828 3,119 1,145 (a) 30,092
--------- --------- --------- ---------
Operating income (loss) ..................... 21,242 1,939 (1,145) 22,036
Interest expense, net ....................... 17,860 1,400 2,914 (b) 22,174
Other expense ............................... 778 -- -- 778
--------- --------- --------- ---------
Income (loss) before income taxes ........... 2,604 539 (4,059) (916)
Income tax expense (benefit) ................ 482 202 (202)(c) 482
--------- --------- --------- ---------
Net income (loss) ........................... $ 2,122 $ 337 $ (3,857) $ (1,399)
========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
BPC HOLDING CORPORATION
NOTES TO PRO FORMA UNAUDITED CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JULY 3, 1999
The historical consolidated statement of operations presented for Holding is
for its six months ended July 3, 1999 and the historical statement of
operations presented for CPI Holding is for the six months ended May 31,
1999.
(a) Adjustments to operating expenses:
Increase in amortization due to increase in cost in
excess of net assets acquired ........................ $ 1,145
=======
(b) Adjustments to interest expense:
Elimination of interest expense on debt extinguished ... $(1,400)
Additional interest incurred on borrowing for CPI
Holding acquisition .................................. 4,314
-------
$ 2,914
=======
(c) Adjustment to income tax expense:
Elimination of income tax expense due to Holding's net
operating loss carryforward ............................ $ (202)
=======
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION OF
BERRY PLASTICS CORPORATION
(DOLLARS IN THOUSANDS)
The following summarizes pro forma unaudited financial information of Holding's
wholly owned subsidiary, Berry. The pro forma information is based on the
historical consolidated financial statements of Berry, the historical financial
statements of CPI Holding, the historical financial statements of Norwich
Moulders, and the historical financial statements of Knight Plastics, giving
effect to the acquisitions using the purchase method of accounting and the
assumptions and adjustments in the accompanying notes to the pro forma condensed
consolidated financial statements. The pro forma condensed balance sheet gives
effect to the acquisitions as if they had occurred on July 3, 1999 and the pro
forma statements of operations give effect to the acquisitions as if they had
occurred on December 28, 1998.
CONSOLIDATED PRO FORMA BALANCE SHEET
Current assets ............................................ $ 93,839
Property and equipment, net of accumulated depreciation ... 141,314
Other noncurrent assets ................................... 104,735
Current liabilities ....................................... 71,214
Noncurrent liabilities .................................... 286,130
Equity (deficit) .......................................... (17,456)
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended January 2, 1999:
Net sales ............................................. $ 352,670
Cost of goods sold .................................... 265,079
Loss before income taxes .............................. (2,670)
Net loss .............................................. (2,760)
Six months ended July 3, 1999:
Net sales ............................................. $ 188,317
Cost of goods sold .................................... 136,819
Income before income taxes ............................ 2,426
Net income ............................................ 2,135
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
BERRY PLASTICS CORPORATION
By: /s/ JAMES M. KRATOCHVIL
James M. Kratochvil
Vice President, Chief Financial
Officer, Treasurer and Secretary
Dated: September 20, 1999
