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 October 2, 1999
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
BERRY PLASTICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 35-1813706
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
BPC HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 35-1814673
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
BERRY IOWA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 42-1382173
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
BERRY TRI-PLAS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 56-1949250
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
BERRY STERLING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 54-1749681
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
AEROCON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 35-1948748
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
PACKERWARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 48-0759852
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
1
<PAGE>
BERRY PLASTICS DESIGN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 62-1689708
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
VENTURE PACKAGING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 51-0368479
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
VENTURE PACKAGING MIDWEST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 34-1809003
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
VENTURE PACKAGING SOUTHEAST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 57-1029638
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
NIM HOLDINGS LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
England and Wales N/A
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
NORWICH INJECTION MOULDERS LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
England and Wales N/A
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
KNIGHT PLASTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 35-2056610
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
CPI HOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 34-1820303
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
CARDINAL PACKAGING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ohio 34-1396561
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
NORWICH ACQUISITION LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
England and Wales N/A
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
2
<PAGE>
BERRY PLASTICS ACQUISITION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware N/A
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
101 Oakley Street
Evansville, Indiana 47710
(Address of principal executive
offices) (Zip code)
Registrants' telephone number, including area code: (812) 424-2904
NONE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of issuers' classes of common
stock, as of the latest practicable date:
As of November 10, 1999, the following shares of common stock of BPC Holding
Corporation were outstanding: 91,000 shares of Class A Voting Common Stock;
259,000 shares of Class A Nonvoting Common Stock; 144,546 shares of Class B
Voting Common Stock; 57,169 shares of Class B Nonvoting Common Stock; and 16,833
shares of Class C Nonvoting Common Stock. As of November 10, 1999, there were
outstanding 100 shares of the Common Stock, $.01 par value, of Berry Plastics
Corporation, 100 shares of the Common Stock, $.01 par value, of Berry Iowa
Corporation, 100 shares of the Common Stock, $.01 par value, of Berry Tri-Plas
Corporation, 100 shares of the Common Stock, $.01 par value, of Berry Sterling
Corporation, 100 shares of the Common Stock, $.01 par value, of Aerocon, Inc.,
100 shares of the Common Stock, $.01 par value, of PackerWare Corporation, 100
shares of the Common Stock, $.01 par value, of Berry Plastics Design
Corporation, 100 shares of the Common Stock, $.01 par value, of Venture
Packaging, Inc., 100 shares of the Common Stock, $.01 par value, of Venture
Packaging Midwest, Inc., 100 shares of the Common Stock, $.01 par value, of
Venture Packaging Southeast, Inc., 4,000,000 Ordinary Shares of (pound)1 par
value, of NIM Holdings Limited, 5,850 Ordinary Shares of (pound)1 par value, of
Norwich Injection Moulders Limited, 100 shares of the Common Stock, $.01 par
value, of Knight Plastics, Inc., 100 shares of the Common Stock, $.01 par value,
of CPI Holding Corporation, 100 shares of the Common Stock, $.01 par value, of
Cardinal Packaging, Inc., 100 Ordinary Shares of (pound)1 par value, of Norwich
Acquistion Limited, and 100 shares of the Common Stock, $.01 par value, of Berry
Plastics Acquisition Corporation.
3
<PAGE>
BPC HOLDING CORPORATION AND SUBSIDIARIES
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED OCTOBER 2, 1999
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets........................... 5
Consolidated Statements of Operations................. 7
Consolidated Statements of Cash Flows................. 8
Notes to Consolidated Financial Statements............ 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds............. 20
Item 6. Exhibits and Reports on Form 8-K...................... 20
SIGNATURE............................................................. 21
4
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
BPC Holding Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands of Dollars)
<TABLE>
<CAPTION>
OCTOBER 2, JANUARY 2,
1999 1999
------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 2,089 $ 2,318
Accounts receivable (less allowance for doubtful accounts
of $1,648 at October 2, 1999 and $1,651 at January 2, 1999) ........ 44,097 29,951
Inventories:
Finished goods ..................................................... 27,185 23,146
Raw materials and supplies ......................................... 11,070 8,556
-------- --------
38,255 31,702
Prepaid expenses and other receivables ................................. 3,087 1,665
Income taxes recoverable ............................................... 45 577
-------- --------
Total current assets ....................................................... 87,573 66,213
Assets held in trust ....................................................... 267 6,679
Property and equipment:
Land ................................................................... 8,180 7,769
Buildings and improvements ............................................. 42,941 38,960
Machinery, equipment and tooling ....................................... 162,310 141,054
Automobiles and trucks ................................................. 1,448 1,386
Construction in progress ............................................... 28,979 11,780
-------- --------
243,858 200,949
Less accumulated depreciation .......................................... 96,357 80,944
-------- --------
147,501 120,005
Intangible assets:
Deferred financing and origination fees, net ........................... 12,192 10,327
Covenants not to compete, net .......................................... 3,446 4,404
Excess of cost over net assets acquired, net ........................... 84,932 44,536
Deferred acquisition costs ............................................. 84 20
-------- --------
100,654 59,287
Deferred income taxes ...................................................... 2,758 2,758
Other ...................................................................... 1,363 375
-------- --------
Total assets ............................................................... $340,116 $255,317
======== ========
</TABLE>
5
<PAGE>
BPC Holding Corporation and Subsidiaries
Consolidated Balance Sheets (continued)
(In Thousands of Dollars)
<TABLE>
<CAPTION>
OCTOBER 2 JANUARY 2,
1999 1999
------------- --------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ...................................................... $ 19,028 $ 18,059
Accrued expenses and other liabilities ................................ 14,391 9,944
Accrued interest ...................................................... 13,238 4,166
Employee compensation and payroll taxes ............................... 15,885 8,953
Income taxes .......................................................... 892 941
Current portion of long-term debt ..................................... 17,546 19,388
--------- ---------
Total current liabilities ................................................. 80,980 61,451
Long-term debt, less current portion ...................................... 372,402 303,910
Accrued dividends on preferred stock ...................................... 10,222 7,225
Deferred income taxes ..................................................... 494 497
Other liabilities ......................................................... 1,872 2,591
--------- ---------
465,970 375,674
Stockholders' equity (deficit):
Series A Preferred Stock; 800,000 shares authorized;
600,000 shares issued and outstanding (net of
discount of $2,551 at October 2, 1999 and $2,770
at January 2, 1999) ............................................... 12,021 11,801
Series 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; 145,058 shares
issued and 144,546 shares outstanding ........................... 1 1
Nonvoting; 500,000 shares authorized; 58,612 shares
issued and 57,169 shares outstanding ............................ 1 1
Class C Common Stock; $.01 par value:
Nonvoting; 500,000 shares authorized; 17,000 shares
issued and 16,833 shares outstanding ............................ -- --
Treasury stock: 512 shares Class B Voting Common Stock;
1,443 shares Class B Nonvoting Common Stock; and
167 shares Class C Nonvoting Common Stock ......................... (296) (280)
Additional paid-in capital ............................................ 42,395 45,611
Warrants .............................................................. 3,511 3,511
Retained earnings (deficit) ........................................... (188,339) (185,923)
Accumulated other comprehensive loss .................................. (152) (83)
--------- ---------
Total stockholders' equity (deficit) ...................................... (125,854) (120,357)
--------- ---------
Total liabilities and stockholders' equity (deficit) ...................... $ 340,116 $ 255,317
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
BPC Holding Corporation and Subsidiaries
Consolidated Statements of Operations
(In Thousands of Dollars)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
-------------------------------------------------------------------
OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26,
1999 1998 1999 1998
----------------------------------------------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ........................................ $ 90,105 $ 68,800 $ 249,956 $ 205,116
Cost of goods sold ............................... 68,458 51,066 181,240 151,083
------------------------------------------------------------------
Gross margin ..................................... 21,647 17,734 68,716 54,033
Operating expenses:
Selling .................................... 4,630 3,769 13,183 10,881
General and administrative ................. 5,336 4,502 17,220 13,301
Research and development ................... 537 488 1,712 1,231
Amortization of intangibles ................ 2,432 776 4,981 2,483
Other ...................................... 1,224 877 2,890 3,240
------------------------------------------------------------------
Operating income ................................. 7,488 7,322 28,730 22,897
Other income and expense:
Loss on disposal of property and
equipment ............................. 372 62 1,150 492
------------------------------------------------------------------
Income before interest and income taxes .......... 7,116 7,260 27,580 22,405
Interest:
Expense .................................... (11,516) (9,083) (29,539) (26,524)
Income ..................................... 41 259 204 833
------------------------------------------------------------------
Loss before income taxes ......................... (4,359) (1,564) (1,755) (3,286)
Income tax expense ............................... 175 306 659 331
------------------------------------------------------------------
Net loss ......................................... (4,534) (1,870) (2,414) (3,617)
Preferred stock dividends ........................ (1,034) (837) (2,996) (2,620)
Amortization of preferred stock discount ......... (73) (73) (219) (219)
------------------------------------------------------------------
Net loss attributable to
common stockholders ........................ $ (5,641) $ (2,780) $ (5,629) $ (6,456)
==================================================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
BPC Holding Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands of Dollars)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
----------------------------------
OCTOBER 2, SEPTEMBER 26,
1999 1998
-------------- --------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ........................................................ $ (2,414) $ (3,617)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation ............................................ 18,085 15,466
Non-cash interest expense ............................... 1,404 1,335
Amortization ............................................ 4,981 2,483
Interest funded by assets held in trust ................. 6,413 6,617
Loss on sale of property and equipment .................. 1,150 492
Changes in operating assets and liabilities:
Accounts receivable, net ............................ (7,079) (3,590)
Inventories ......................................... 706 3,492
Prepaid expenses and other receivables .............. (1,391) 316
Other assets ........................................ (4,757) 5,935
Payables and accrued expenses ....................... 15,299 (349)
-------- --------
Net cash provided by operating activities ....................... 32,397 28,580
INVESTING ACTIVITIES
Additions to property and equipment ............................. (25,580) (13,540)
Proceeds from disposal of property and equipment ................ 455 4,452
Acquisitions of businesses ...................................... (71,293) (15,948)
-------- --------
Net cash used for investing activities .......................... (96,418) (25,036)
FINANCING ACTIVITIES
Proceeds from long-term borrowings .............................. 81,333 42,254
Payments on long-term borrowings ................................ (14,520) (40,244)
Debt issuance costs ............................................. (3,000) (1,141)
Proceeds from issuance of common stock .......................... 56 80
Purchase of stock from management ............................... (16) (59)
-------- --------
Net cash provided by (used for) financing activities ............ 63,853 890
-------- --------
Effect of exchange rate changes on cash ......................... (61) --
-------- --------
Net increase (decrease) in cash and cash equivalents ............ (229) 4,434
Cash and cash equivalents at beginning of period ................ 2,318 2,688
-------- --------
Cash and cash equivalents at end of period ...................... $ 2,089 $ 7,122
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
<PAGE>
BPC Holding Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands of dollars, except as otherwise noted)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of BPC Holding
Corporation and its subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the periods presented are not necessarily
indicative of the results that may be expected for the full fiscal year. The
accompanying financial statements include the results of BPC Holding Corporation
("Holding") and its wholly-owned subsidiary, Berry Plastics Corporation
("Berry"), and its wholly-owned subsidiaries: Berry Iowa Corporation, Berry
Tri-Plas Corporation, Berry Sterling Corporation, AeroCon, Inc., PackerWare
Corporation, Berry Plastics Design Corporation, Venture Packaging, Inc., Venture
Packaging Midwest, Inc., Venture Packaging Southeast, Inc., NIM Holdings Limited
("NIM Holdings"), Norwich Injection Moulders Limited ("Norwich Moulders"),
Knight Plastics, Inc., CPI Holding Corporation, Cardinal Packaging, Inc.,
Norwich Acquistion Limited, and Berry Plastics Acquisition Corporation. 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 January 2, 1999.
Certain amounts in the 1998 financial statements have been reclassified to
conform with the 1999 presentation.
2. ACQUISITIONS
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 Berry's credit facility. The operations of Norwich
Moulders are included in Berry's operations since the acquisition date using the
purchase method of accounting.
On October 16, 1998, Knight Plastics, Inc. ("Knight"), 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 Berry's revolving line of credit. The operations of Knight are
included in Berry's operations since the acquisition date using the purchase
method of accounting.
9
<PAGE>
On July 6, 1999, Berry acquired all of the outstanding capital stock of CPI
Holding Corporation ("Cardinal"), the parent company of Cardinal Packaging,
Inc., for aggregate consideration of approximately $72.0 million. This purchase
price and allocation of such to the purchased assets and liabilities is
preliminary and subject to completion of Cardinal's working capital accounts.
The purchase was financed through the issuance by Berry of $75.0 million of 11%
Senior Subordinated Notes. The operations of Cardinal 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 Norwich Moulders, Knight, and Cardinal acquisitions
occurred on December 28, 1997.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 26, SEPTEMBER 26, OCTOBER 2,
1998 1998 1999
-----------------------------------------------------
<S> <C> <C> <C>
Net sales ...................... $ 88,940 $ 270,370 $ 278,422
Loss before income taxes ....... (3,436) (9,878) (5,262)
Net loss ....................... (3,742) (10,326) (5,921)
</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 effects.
3. LONG-TERM DEBT
Long-term debt consists of the following:
OCTOBER 2, JANUARY 2,
1999 1999
----------- ------------
Holding 12.50% Senior Secured Notes ........ $105,000 $105,000
Berry 12.25% Senior Subordinated Notes ..... 125,000 125,000
Berry 11% Senior Subordinated Notes ........ 75,000 --
Term loans ................................. 56,819 71,243
Revolving line of credit ................... 22,768 16,162
Nevada Industrial Revenue Bonds ............ 4,000 4,500
Capital leases ............................. 640 561
Debt premium, net .......................... 721 832
-------- --------
389,948 323,298
Less current portion of long-term debt ..... 17,546 19,388
-------- --------
$372,402 $303,910
======== ========
The current portion of long-term debt consists of $16.9 million of quarterly
installments on the term loans, a $0.5 million repayment of the industrial bonds
and the monthly principal payments related to capital lease obligations.
10
<PAGE>
On July 6, 1999, Berry completed an offering of $75.0 million aggregate
principal amount of 11% Series B Senior Subordinated Notes due 2007 (the "1999
Notes"). The net proceeds to Berry from the sale of the 1999 Notes, after
expenses, were $72.0 million. The proceeds from the 1999 Notes were used to
finance the Cardinal acquisition. The 1999 Notes mature on July 15, 2007 and
interest is payable semi-annually on January 15 and July 15 of each year.
Holding and all of Berry's subsidiaries fully, jointly, severally, and
unconditionally guarantee on a senior subordinated basis the 1999 Notes. There
are no nonguarantor subsidiaries.
The debt under Berry's credit facility is guaranteed by BPC Holding and
substantially all of its subsidiaries. As of October 2, 1999, the credit
facility provided an aggregate commitment of about $134.4 million including (i)
$70.0 million revolving line of credit, subject to a borrowing base formula;
(ii) (pound)1.5 million revolving line of credit, subject to a borrowing base
("UK Revolver"); (iii) $51.1 million term loan facility; (iv) (pound)3.4 million
term loan facility ("UK Term Loan"); and (v) $5.2 million standby letter of
credit facility to support Berry and its subsidiaries' obligations under its
Nevada Industrial Revenue Bonds. At October 2, 1999, Berry had unused borrowing
capacity under the credit facility's revolving line of credit of about $23.9
million.
The credit facility matures on January 21, 2002 unless previously terminated by
the Company or by the lenders upon an Event of Default as defined in the
Security Agreement. The term loan facilities require periodic principal
payments, varying in amount through the maturity of the facility. Such periodic
payments will aggregate about $19.0 million for fiscal 1999 and about $19.9
million for fiscal 2000. Interest on borrowings under the credit facility is
based on either the lender's base rate (which is the higher of the lender's
prime rate and the federal funds rate plus 0.50%) plus an applicable margin of
0.50%; or LIBOR (adjusted for reserves) plus an applicable margin of 2.0%, at
our option. Following receipt of the quarterly financial statements, the agent
under the credit facility has the option to change the applicable interest rate
margin on loans (other than under the UK Revolver and UK Term Loan) once per
quarter to a specified margin determined by the ratio of funded debt to EBITDA
of Berry Plastics and its subsidiaries. Notwithstanding the foregoing, interest
on borrowings under the UK Revolver and the UK Term Loan is based on LIBOR
(adjusted for reserves) plus 2.50%.
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
debt, and (iii) limitations on capital expenditures.
11
<PAGE>
4. BERRY PLASTICS CORPORATION SUMMARY FINANCIAL INFORMATION
The following summarizes financial information of Holding's wholly-owned
subsidiary, Berry Plastics Corporation, and its subsidiaries.
OCTOBER 2, JANUARY 2,
1999 1999
------------ -------------
CONSOLIDATED BALANCE SHEETS
Current assets ........................ $ 87,142 $ 65,590
Property and equipment - net of
accumulated depreciation ............ 147,501 120,005
Other noncurrent assets ............... 93,346 58,716
Current liabilities ................... 76,223 60,210
Noncurrent liabilities ................ 269,765 210,093
Equity (deficit) ...................... (17,999) (25,992)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
---------------------------------------------------------------------
OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26,
1999 1998 1999 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
Net sales .................................... $ 90,105 $ 68,800 $249,956 $205,116
Cost of goods sold ........................... 68,458 51,066 181,240 151,083
Income (loss) before income taxes ............ (749) 1,652 8,716 6,223
Net income (loss) ............................ (924) 1,346 8,064 5,892
</TABLE>
The following summarizes parent company only financial information of Berry:
OCTOBER 2, JANUARY 2,
1999 1999
-------------------------------
BALANCE SHEETS
Current assets ........................... $ 36,350 $ 28,579
Property and equipment - net of
accumulated depreciation ............... 51,458 48,220
Investment in/due from subsidiaries ...... 185,151 120,230
Other noncurrent assets .................. 17,939 15,629
Current liabilities ...................... 46,381 41,325
Noncurrent liabilities ................... 262,516 197,325
Equity (deficit) ......................... (17,999) (25,992)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
----------------------------------------------------------------------
OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26,
1999 1998 1999 1998
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales .................................. $ 40,415 $ 35,294 $116,623 $107,702
Cost of goods sold ......................... 28,033 23,001 76,675 70,555
Income before income taxes ................. 1,896 3,968 10,406 8,539
Net income ................................. 1,781 3,878 9,987 8,424
</TABLE>
12
<PAGE>
5. SEGMENT REPORTING
The Company has two reportable segments: plastic packaging products and plastic
housewares products. The Company's plastic packaging business consists of three
primary market groups: aerosol overcaps, containers, and drink cups. The
Company's plastic housewares business consists of semi-disposable plastic
housewares and plastic lawn and garden products, sold primarily through major
national retail marketers and national chain stores.
The Company evaluates performance and allocates resources based on operating
income before depreciation and amortization of intangibles adjusted to exclude
(i) market value adjustment related to stock options, (ii) other non-recurring
or "one-time" expenses, (iii) management fees and reimbursed expenses paid to
First Atlantic Capital, Ltd. and (iv) certain legal expenses associated with
unusual litigation ("Adjusted EBITDA"). The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. The Company's reportable segments are business
units that offer different products to different markets.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
--------------------------------------------------------------
OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26,
1999 1998 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
Plastic packaging products ..................................... $ 87,329 $ 65,273 $ 227,771 $ 186,168
Plastic housewares products .................................... 2,776 3,527 22,185 18,948
Adjusted EBITDA:
Plastic packaging products ..................................... 17,496 14,611 51,411 41,782
Plastic housewares products .................................... 414 125 4,155 3,020
Reconciliation of Adjusted EBITDA to loss before income taxes:
Adjusted EBITDA for reportable segments ....................... $ 17,910 $ 14,736 $ 55,566 $ 44,802
Net interest expense .......................................... (11,475) (8,824) (29,335) (25,691)
Depreciation .................................................. (6,525) (5,391) (18,085) (15,466)
Amortization .................................................. (2,432) (775) (4,981) (2,483)
Loss on disposal of property and
equipment ................................................... (372) (62) (1,150) (492)
One-time expenses ............................................. (1,224) (877) (2,890) (3,240)
Stock option market value adjustment .......................... (23) (152) (225) (62)
Management fees ............................................... (218) (219) (655) (654)
--------------------------------------------------------------
Loss before income taxes ...................................... $ (4,359) $ (1,564) $ (1,755) $ (3,286)
</TABLE>
5. COMPREHENSIVE LOSS
Comprehensive loss was $4.6 million and $1.9 million for the thirteen weeks
ended October 2, 1999 and September 26, 1998, respectively, and $2.5 million and
$3.7 million for the thirty-nine weeks ended October 2, 1999 and September 26,
1998, respectively.
13
<PAGE>
Item 2.
BPC Holding Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Unless the context discloses otherwise, the "Company" as used in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations shall include Holding and its subsidiaries on a consolidated basis.
The following discussion should be read in conjunction with the consolidated
financial statements of Holding and its subsidiaries and the accompanying notes
thereto, which information is included elsewhere herein. The 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.
The Company is highly leveraged. The high degree of leverage could have
important consequences, including, but not limited to, the following: (i) a
substantial portion of Berry's cash flow from operations must be dedicated to
the payment of principal and interest on its indebtedness, thereby reducing the
funds available to Berry for other purposes; (ii) Berry's ability to obtain
additional debt financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired; (iii) certain of Berry's borrowings will be at variable rates of
interest, which will expose Berry to the risk of higher interest rates; (iv)
Berry is substantially more leveraged than certain of its competitors, which may
place Berry at a competitive disadvantage, particularly in light of its
acquisition strategy; and (v) Berry's degree of leverage may hinder its ability
to adjust rapidly to changing market conditions and could make it more
vulnerable in the event of a downturn in general economic conditions or its
business.
14
<PAGE>
RESULTS OF OPERATIONS
13 WEEKS ENDED OCTOBER 2, 1999 (THE "QUARTER")
COMPARED TO 13 WEEKS ENDED SEPTEMBER 26, 1998 (THE "PRIOR QUARTER")
NET SALES. Net sales increased $21.3 million, or 31%, to $90.1 million for the
Quarter from $68.8 million for the Prior Quarter with an approximate 4% increase
in net selling price due to increased raw material costs. Plastic packaging
product net sales increased $22.1 million from the Prior Quarter. Within this
segment, the addition of Cardinal and Knight provided Quarter net sales of $14.0
million and $4.1 million, respectively. In addition, custom sales increased $4.3
million from the Prior Quarter with a large promotion in the Quarter. Container
sales also increased $0.8 million from the Prior Quarter. Overcap sales,
excluding Knight, were relatively flat, increasing $0.2 million. Drink cup sales
for the Quarter were $1.0 million off the Prior Quarter. Plastic housewares
product sales for the Quarter were down $0.8 million from the Prior Quarter due
to timing as sales were stronger in the first quarter of 1999.
GROSS MARGIN. Gross margin increased by $3.9 million to $21.6 million (24% of
net sales) for the Quarter from $17.7 million (26% of net sales) for the Prior
Quarter. This increase of 22% includes the combined impact of the added Cardinal
and Knight sales volume, acquisition integration, and productivity improvement
initiatives. The decrease of 2% in gross margin percentage can be attributed to
the cyclical impact of higher raw material costs compared to the Prior Quarter.
A major focus continues to be the consolidation of products and business of
recent acquisitions to the most efficient tooling, providing customers with
improved products and customer service. As part of the integration, the Company
closed its Anderson, South Carolina facility in the second quarter of 1998, its
Arlington Heights, Illinois facility (acquired in the Knight acquisition) in the
first quarter of 1999, and its Ontario, California location (acquired in the
Cardinal acquisition) in the third quarter of 1999. In addition, the Company
announced two facility configuration changes in the third quarter of 1999 with
the Minneapolis, Minnesota (acquired in the Cardinal acquisition) and Iowa
Falls, Iowa locations closing their molding operations. The business from these
locations are distributed throughout several of Berry's facilities. Also,
significant productivity improvements have been made, including the addition of
state-of-the-art injection molding equipment, molds and printing equipment at
several of the Company's facilities.
OPERATING EXPENSES. Selling expenses increased by $0.8 million to $4.6 million
for the Quarter from $3.8 million for the Prior Quarter principally as a result
of expanded sales coverage and increased marketing expenses. General and
administrative expenses increased from $4.5 million for the Prior Quarter to
$5.3 million for the Quarter. The increase of $0.8 million is primarily
attributable to the Cardinal and Knight acquisitions and increased accrued
compensation expenses. During the Quarter, one-time transition expenses were
$0.8 million related to acquisitions and $0.4 million related to facility
reorganizations. In the Prior Quarter, one-time transition expenses related to
the shutdown of the Anderson facility were $0.9 million.
INTEREST EXPENSE. Interest expense increased $2.4 million to $11.5 million for
the Quarter compared to $9.1 million for the Prior Quarter due to the issuance
of the 1999 Notes to finance the Cardinal acquisition.
15
<PAGE>
INCOME TAX. For the Quarter, the Company recorded income tax expense of $0.2
million. The Company continues to operate in a net operating loss carryforward
position for Federal income tax purposes.
NET LOSS. The Company recorded a net loss of $4.5 million for the Quarter
compared to a net loss of $1.9 million for the Prior Quarter for the reasons
discussed above.
39 WEEKS ENDED OCTOBER 2, 1999 ("YTD")
COMPARED TO 39 WEEKS ENDED SEPTEMBER 26, 1998 ("PRIOR YTD")
NET SALES. Net sales increased $44.9 million, or 22%, to $250.0 million
for the YTD from $205.1 million for the prior YTD with net selling prices
relatively flat. Plastic packaging product net sales increased $41.7 million
from the prior YTD. Within this segment, the addition of Cardinal, Norwich, and
Knight provided net sales for the YTD of $14.0 million, $6.9 million and $13.7
million, respectively. In addition, overcaps sales, excluding Knight, increased
$2.3 million. Custom sales increased $7.7 million from the prior YTD with a
large promotion in the YTD. Container sales increased $0.9 million from the
prior YTD despite the Company's decision to exit certain low margin business.
Drink cup sales for the YTD were $4.0 million off the prior YTD due to a $3.5
million promotion in the prior YTD. Plastic housewares product sales for the YTD
increased $3.2 million from the prior YTD due to strong internal growth
including several new products.
GROSS MARGIN. Gross margin increased by $14.7 million to $68.7 million
(27% of net sales) for the YTD from $54.0 million (26% of net sales) for the
prior YTD. This increase of 27% includes the combined impact of the added
Cardinal, Norwich, and Knight sales volume, acquisition integration, and
productivity improvement initiatives. A major focus continues to be the
consolidation of products and business of recent acquisitions to the most
efficient tooling, providing customers with improved products and customer
service. As part of the integration, the Company closed its Anderson, South
Carolina facility in the second quarter of 1998, its Arlington Heights, Illinois
facility (acquired in the Knight acquisition) in the first quarter of 1999, and
its Ontario, California location (acquired in the Cardinal acquisition) in the
third quarter of 1999. In addition, the Company announced two facility
configuration changes in the third quarter of 1999 with the Minneapolis,
Minnesota (acquired in the Cardinal acquisition) and Iowa Falls, Iowa locations
closing their molding operations. The business from these locations are
distributed throughout Berry's facilities. Also, significant productivity
improvements have been made, including the addition of state-of-the-art
injection molding equipment, molds and printing equipment at several of the
Company's facilities.
OPERATING EXPENSES. Selling expenses increased by $2.3 million to $13.2
million for the YTD from $10.9 million for the prior YTD principally as a result
of expanded sales coverage and increased marketing expenses. General and
administrative expenses increased by $3.9 million to $17.2 million for the YTD
from $13.3 million for the prior YTD. The increase is primarily attributable to
the Cardinal, Norwich Moulders, and Knight acquisitions and increased accrued
compensation expenses. YTD one-time transition expenses include $1.0 million
related to facility reorganizations and $1.9 million related to acquisitions.
One-time transition expenses for prior YTD were $1.0 million related to
acquisitions and $2.2 million related to plant consolidations.
16
<PAGE>
INTEREST EXPENSE. Interest expense increased $3.0 million to $29.5
million for the YTD compared to $26.5 million for the prior YTD primarily due to
additional borrowings to support the Cardinal, Norwich Moulders and Knight
acquisitions.
INCOME TAX. The Company's income tax expense was $0.7 million for the
YTD. The Company continues to operate in a net operating loss carryforward
position for Federal income tax purposes.
NET LOSS. Net loss for the YTD of $2.4 million improved $1.2 million
from a net loss of $3.6 million for the prior YTD for the reasons discussed
above.
LIQUIDITY AND SOURCES OF CAPITAL
Net cash provided by operating activities was $32.4 million for the YTD, an
increase of $3.8 million from the prior YTD. The increase is primarily the
result of improved operating performance with income before depreciation and
amortization increasing $6.3 million from the prior YTD. Net working capital
changes (defined as accounts receivable, inventories, prepaid expenses, other
receivables, accounts payable and accrued expenses) decreased the YTD net cash
$3.1 million from the prior YTD due to the Company's growth.
YTD capital spending of $25.6 million included $9.1 million for molds, $5.0
million for molding and printing machines, $7.7 million for buildings and
systems, and $3.8 million for accessory equipment and systems. The Company
anticipates that its cash interest, working capital and capital expenditure
requirements for 1999 will be satisfied through a combination of funds generated
from operating activities and cash on hand, together with funds available under
the Credit Facility. Management bases such belief on historical experience and
the substantial funds available under the Credit Facility. However, the Company
cannot predict its future results of operations. At October 2, 1999, the
Company's cash balance was $2.1 million, and Berry had unused borrowing capacity
under the Credit Facility's borrowing base of approximately $23.9 million.
The indentures governing the 1994 Notes, the 1998 Notes, and the 1999 Notes
restrict, and the Credit Facility prohibits, our ability to pay any dividend or
make any distribution of funds to Holding to satisfy interest and other
obligations on the 1996 Notes. Based upon historical operating results, we
anticipate that we will be unable to generate sufficient net income to permit a
dividend to Holding in an amount sufficient to meet Holding's interest payment
obligations under the 1996 Notes. Interest on the 1996 Notes is payable
semi-annually on June 15 and December 15 of each year. However, from December
15, 1999 until June 15, 2001, Holding may, at its option, pay interest, at an
increased rate of 0.75% per annum, in additional 1996 Notes valued at 100% of
the principal amount thereof. After June 15, 2001 or in the event that Holding
does not pay interest in additional notes, management anticipates that such
interest obligations will only be met by refinancing the 1996 Notes or raising
capital through equity offerings. There can be no assurance that then-current
market conditions would permit Holding to consummate a refinancing or equity
offering. In addition, we have now and will continue to have a large amount of
debt which may limit the ability of Berry or Holding to consummate a refinancing
or equity offering.
17
<PAGE>
IMPACT OF YEAR 2000
We have been modifying or replacing portions of our software since 1991 so that
our computer systems will function properly with respect to dates in the Year
2000 and thereafter. Because we commenced this process early, the costs incurred
to address this issue in any single year have not been significant. Our current
business applications are Year 2000 compliant. Acquired businesses are converted
to our applications for Year 2000 compliance and consistency in applications and
reporting. Except for Cardinal, the most recent acquired business, Knight
Plastics, was converted to our applications on March 1, 1999. We plan to convert
Cardinal to our applications by December 6, 1999.
However, we are currently in the process of replacing our current business
software with another Year 2000 compliant package. This replacement is not due
to any Year 2000 issues, but is needed to accommodate the changes that we have
experienced in our business due to acquisitions in recent years. The anticipated
cost of this conversion is about $2.7 million of which $2.5 million has been
paid through October 2, 1999. The accounting phase of this conversion was
completed for all plants in January 1999. The remaining phases are scheduled to
be completed by the end of 1999.
We believe that we have an effective program in place to resolve all internal
Year 2000 issues. An inventory of computer based systems has been compiled and
verified through testing and supplier verification. Due to recent plant
acquisitions and ongoing Year 2000 testing we have moved our goal of being Year
2000 compliant to December 17, 1999. Year 2000 testing revealed that the voice
mail system in our Lawrence plant is not Year 2000 compliant. This system is to
be replaced by November 30, 1999. We purchased three Cardinal packaging plants
in July 1999 that are using non-compliant Year 2000 business applications. All
of these plants will be converted to our Year 2000 compliant software by
December 6, 1999. Our Woodstock plant is scheduled to replace the software on
its palletizer by November 30, 1999 to make it Year 2000 ready. The costs of
these conversions are estimated to be below $110,000, none of which has been
paid through October 2, 1999.
The major Year 2000 risk that we face is the Year 2000 readiness of external
suppliers of goods and services. We could have material disruption in our
ability to produce and deliver product should there be major disruptions in the
economy or failure of key suppliers. While it is impossible to account for the
effectiveness of every supplier's Year 2000 efforts, the following steps are in
the process of being completed:
o We are identifying key suppliers, which include suppliers of raw
material, banking, transportation, service, and utility providers
and surveying these suppliers as to their Year 2000 status;
o We are identifying which suppliers are not compliant or at risk; and
o We are engaging in risk assessment and contingency planning for
these key suppliers.
18
<PAGE>
We have identified 304 "key suppliers" that we have surveyed to determine their
Year 2000 status. The following is a summary of this survey as of October 22,
1999.
NUMBER OF
SUPPLIER RESPONSE SUPPLIERS
-------------------- -----------
o Fully Year 2000 compliant 203
o Compliant by third quarter 1999 30
o Compliant by fourth quarter 1999 34
o Second request for information 32
o No response 4
o Supplier will not respond 1
We are in the process of following up with all companies that were to be
compliant by the third and fourth quarter of 1999 to determine their current
status. By the end of November 1999, we will have completed our survey and put
into place any contingency plans.
The amount of potential liability and lost revenue due to Year 2000 issues
cannot be reasonably estimated at this time. We will continue to work throughout
the year to minimize any Year 2000 risks.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 5, 1999, Holding issued 327 shares of its Class B
Non-Voting Common Stock, $.01 par value, to three members of
management of Berry at $170.00 per share, for aggregate
proceeds of $55,590 (the "Employee Stock"). There was no
underwriter for the securities. The securities were privately
placed pursuant to the exemption from registration granted
under Rule 505 ("Rule 505") of Regulation D promulgated under
the Securities Act of 1933, as amended. The offering was made
to less than 35 non-accredited investors, the offering was less
than $5,000,000, no general solicitation was made and the
issuer complied with the provisions of Rule 502 of Regulation
D, including the disclosure requirements thereunder. The
Employee Stock was issued for cash, and was issued to provide
an incentive for management employees.
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 6, 1998, was filed by
Berry on July, 21, 1999. Under Item 2, Acquisition or
Disposition of Assets, Berry reported the consummation of the
CPI Holding Corporation acquisition. 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 20, 1999, which includes
the financial statements of the business acquired and pro forma
financial information.
20
<PAGE>
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
Berry Sterling Corporation
Aerocon, Inc.
Packerware Corporation
Berry Plastics Design Corporation
Venture Packaging, Inc.
Venture Packaging Midwest, Inc.
Venture Packaging Southeast, Inc.
Knight Plastics, Inc.
CPI Holding Corporation
Cardinal Packaging, Inc.
Berry Plastics Acquisition Corporation
November 16, 1999
By: /s/ JAMES M. KRATOCHVIL
James M. Kratochvil
Executive Vice President, Chief Financial
Officer, Treasurer and Secretary of
the entities listed above
(Principal Financial and Accounting
Officer)
NIM Holdings Limited
Norwich Injection Moulders Limited
Norwich Acquisition Limited
By: /s/ JAMES M. KRATOCHVIL
James M. Kratochvil
Director of the entities listed above
(Principal Financial and Accounting
Officer)
21
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-END> OCT-02-1999
<CASH> 2,089
<SECURITIES> 0
<RECEIVABLES> 45,745
<ALLOWANCES> 1,648
<INVENTORY> 38,255
<CURRENT-ASSETS> 87,573
<PP&E> 243,858
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<BONDS> 372,402
0
17,021
<COMMON> 6
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<TOTAL-LIABILITY-AND-EQUITY> 340,116
<SALES> 249,957
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<INCOME-CONTINUING> (2,414)
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</TABLE>
