United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2000
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 33-75706-01
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)
101 Oakley Street
Evansville, Indiana 47710
(Address of principal executive offices) (Zip code)
Registrants' telephone number, including area code: (812) 424-2904
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
1
<PAGE>
As of July 2, 2000, the following shares of capital stock of BPC Holding
Corporation were outstanding: 91,000 shares of Class A Voting Common Stock;
259,000 shares of Class A Nonvoting Common Stock; 144,546 shares of Class B
Voting Common Stock; 56,509 shares of Class B Nonvoting Common Stock; and 16,833
shares of Class C Nonvoting Common Stock. As of July 2, 2000, 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
Berry Plastics Technical Services, 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 Berry Plastics U.K. Limited, and 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., 2 Ordinary Shares of (pound)1 par value, of Norwich
Acquisition Limited, and 100 shares of the Common Stock, $.01 par value, of
Berry Plastics Acquisition Corporation II, 100 shares of the Common Stock, $.01
par value, of Poly-Seal Corporation, and 100 shares of the Common Stock, $.01
par value, of Berry Plastics Acquisition Corporation III.
2
<PAGE>
BPC HOLDING CORPORATION AND SUBSIDIARIES
FORM 10-Q INDEX
FOR QUARTERLY PERIOD ENDED JULY 1, 2000
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets............................ 4
Consolidated Statements of Operations.................. 6
Consolidated Statements of Cash Flows.................. 7
Notes to Consolidated Financial Statements............. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 19
SIGNATURE............................................................... 21
3
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
BPC Holding Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands of Dollars)
JULY 1, JANUARY 1,
2000 2000
-------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 3,732 $ 2,546
Accounts receivable (less allowance for
doubtful accounts of $1,915 at July 1, 2000
and $1,386 at January 1, 2000) .................. 51,696 37,507
Inventories:
Finished goods ................................. 38,109 31,676
Raw materials and supplies ..................... 15,785 15,016
-------- --------
53,894 46,692
Prepaid expenses and other receivables ............ 7,314 2,082
Income taxes recoverable .......................... 1,151 45
-------- --------
Total current assets ................................. 117,787 88,872
Property and equipment:
Land .............................................. 9,061 8,556
Buildings and improvements ........................ 55,119 48,080
Machinery, equipment and tooling .................. 191,051 172,082
Construction in progress .......................... 37,380 18,170
-------- --------
292,611 246,888
Less accumulated depreciation ..................... 109,709 100,096
-------- --------
182,902 146,792
Intangible assets:
Deferred financing and origination fees, net ...... 10,830 11,571
Covenants not to compete, net ..................... 4,176 3,723
Excess of cost over net assets acquired, net ...... 101,846 87,614
-------- --------
116,852 102,908
Other ................................................ 250 2,235
-------- --------
Total assets ......................................... $417,791 $340,807
======== ========
4
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Consolidated Balance Sheets (continued)
(In Thousands of Dollars)
JULY 1, JANUARY 1,
2000 2000
--------- ---------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ................................... $ 30,766 $ 25,798
Accrued expenses and other liabilities ............. 16,378 9,590
Accrued interest ................................... 7,800 8,108
Employee compensation and payroll taxes ............ 11,961 13,461
Income taxes ....................................... 170 279
Current portion of long-term debt .................. 21,435 21,109
--------- ---------
Total current liabilities ............................ 88,510 78,345
Long-term debt, less current portion ................. 437,050 382,880
Accrued dividends on preferred stock ................. 13,617 11,001
Deferred income taxes ................................ 461 503
Other liabilities .................................... 1,232 1,549
--------- ---------
540,870 474,278
Stockholders' equity (deficit):
Series A Preferred Stock; 600,000 shares
authorized; issued and outstanding
(net of discount of $2,331 at July 1, 2000
and $2,478 at January 1, 2000) ................... 12,240 12,093
Series A-1 Preferred Stock, 1,400,000 shares
authorized; 1,000,000 issued and outstanding
(net of discount of $72 at July 1, 2000) ......... 19,715 --
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 56,509 shares outstanding .... 1 1
Class C Common Stock; $.01 par value:
Nonvoting; 500,000 shares authorized; 17,000
shares issued and 16,833 shares outstanding .... -- --
Treasury stock: 512 shares Class B Voting Common
Stock; 2,103 shares Class B Nonvoting Common
Stock; and 167 shares Class C Nonvoting
Common Stock ..................................... (369) (256)
Additional paid-in capital ......................... 38,724 41,559
Warrants ........................................... 9,386 3,511
Retained earnings (deficit) ........................ (207,004) (195,061)
Accumulated other comprehensive loss .............. (777) (323)
--------- ---------
Total stockholders' equity (deficit) ................. (123,079) (133,471)
--------- ---------
Total liabilities and stockholders' equity (deficit) . $ 417,791 $ 340,807
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
BPC Holding Corporation and Subsidiaries
Consolidated Statements of Operations
(In Thousands of Dollars)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
---------------------- ----------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ......................... $ 107,186 $ 82,392 $ 204,368 $ 159,852
Cost of goods sold ................ 81,719 58,259 156,902 112,782
--------- --------- --------- ---------
Gross margin ...................... 25,467 24,133 47,466 47,070
Operating expenses:
Selling ......................... 5,580 4,323 10,749 8,553
General and administrative ...... 6,361 5,845 12,688 11,883
Research and development ........ 835 633 1,562 1,175
Amortization of intangibles ..... 2,506 1,275 4,728 2,550
Other expenses .................. 2,496 711 4,276 1,667
--------- --------- --------- ---------
Operating income .................. 7,689 11,346 13,463 21,242
Other expenses:
Loss on disposal of
property and equipment ........ 88 169 616 778
--------- --------- --------- ---------
Income before interest,
taxes, and extraordinary item ... 7,601 11,177 12,847 20,464
Interest:
Expense ......................... (12,242) (8,736) (23,794) (18,022)
Income .......................... 40 62 52 162
--------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary item .......... (4,601) 2,503 (10,895) 2,604
Income taxes ...................... 8 289 24 482
--------- --------- --------- ---------
Net income (loss) before
extraordinary item .............. (4,609) 2,214 (10,919) 2,122
Extraordinary item (less applicable
income taxes of $0) ............. 1,022 -- 1,022 --
--------- --------- --------- ---------
Net income (loss) ................. (5,631) 2,214 (11,941) 2,122
Preferred stock dividends ......... (1,582) (998) (2,616) (1,962)
Amortization of preferred
stock discount .................. (145) (73) (218) (146)
--------- --------- --------- ---------
Net income (loss) attributable
to common stockholders .......... $ (7,358) $ 1,143 $ (14,775) $ 14
========= ========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
BPC Holding Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands of Dollars)
TWENTY-SIX WEEKS ENDED
--------------------
JULY 1, JULY 3,
2000 1999
-------- --------
(UNAUDITED)
OPERATING ACTIVITIES
Net income (loss) ...................................... $(11,941) $ 2,122
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation ....................................... 14,370 11,560
Non-cash interest expense .......................... 8,244 872
Amortization ....................................... 4,728 2,550
Interest funded by assets held in trust ............ -- 6,427
Write-off deferred financing and origination fees .. 527 --
Loss on sale of property and equipment ............. 616 778
Changes in operating assets and liabilities:
Accounts receivable, net ......................... (8,487) (11,058)
Inventories ...................................... 2,475 (636)
Prepaid expenses and other receivables ........... (5,283) (910)
Other assets ..................................... -- (126)
Payables and accrued expenses .................... 2,549 4,557
-------- --------
Net cash provided by operating activities .............. 7,798 16,136
INVESTING ACTIVITIES
Additions to property and equipment .................... (19,595) (13,461)
Proceeds from disposal of property and equipment ....... 82 408
Acquisitions of businesses, net of cash required ....... (59,877) --
-------- --------
Net cash used for investing activities ................. (79,390) (13,053)
FINANCING ACTIVITIES
Proceeds from long-term borrowings ..................... 58,352 7,672
Payments on long-term borrowings ....................... (10,784) (10,058)
Issuance of preferred stock and warrants ............... 25,000 --
Purchase of treasury stock ............................. (112) (16)
-------- --------
Net cash provided by (used by) financing activities .... 72,456 (2,402)
Effect of exchange rate changes on cash ................ 322 (6)
-------- --------
Net increase in cash and cash equivalents .............. 1,186 675
Cash and cash equivalents at beginning of period ....... 2,546 2,318
-------- --------
Cash and cash equivalents at end of period ............. $ 3,732 $ 2,993
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
<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 (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., Berry Plastics Technical Services, Inc., NIM Holdings
Limited, Berry Plastics U.K. Limited, Knight Plastics, Inc., CPI Holding
Corporation, Cardinal Packaging, Inc., Norwich Acquisition Limited, Berry
Plastics Acquisition Corporation II, Berry Plastics Acquisition Corporation III,
and Poly-Seal 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 1, 2000.
Certain amounts on the 1999 financial statements have been reclassified to
conform with the 2000 presentation.
2. ACQUISITIONS
On May 9, 2000, Berry acquired all of the outstanding capital stock of Poly-Seal
Corporation ("Poly-Seal") for aggregate consideration of approximately $58.0
million. The purchase was financed through the issuance by Holding of $25.0
million of 14% preferred stock (see Note 7) and additional borrowings under the
Credit Facility (See Note 3). The operations of Poly-Seal are included in
Berry's operations since the acquisition date using the purchase method of
accounting.
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. 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.
8
<PAGE>
The pro forma results listed below are unaudited and reflect purchase accounting
adjustments assuming the Cardinal and Poly-Seal acquisitions occurred on January
3, 1999.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------- -----------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
---------- -------- --------- ----------
<S> <C> <C> <C> <C>
Net sales ....................... $ 111,855 109,302 $ 221,430 $ 214,004
Income (loss) before income taxes
and extraordinary item ....... (7,862) 424 (14,157) (2,041)
Net loss attributable to
common stockholders ............. (10,116) (1,974) (18,572) (6,706)
</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:
JULY 1, JANUARY 1,
2000 2000
-------- --------
Holding 12.50% Senior Secured Notes ........ $119,373 $111,956
Berry 12.25% Senior Subordinated Notes ..... 125,000 125,000
Berry 11% Senior Subordinated Notes ........ 75,000 75,000
Term loans ................................. 84,720 55,221
Revolving lines of credit .................. 49,917 31,649
Nevada Industrial Revenue Bonds ............ 3,500 4,000
Capital leases ............................. 365 479
Debt premium, net .......................... 610 684
-------- --------
458,485 403,989
Less current portion of long-term debt ..... 21,435 21,109
-------- --------
$437,050 $382,880
======== ========
The current portion of long-term debt consists of $20.9 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.
9
<PAGE>
In connection with the acquisition of Poly-Seal, Berry amended its financing and
security agreement with Bank of America (the "Credit Facility") to increase the
amount of funds available within the facility. At July 1, 2000, the Credit
Facility provided for an aggregate principal amount of approximately $161.3
million consisting of (i) a $70.0 million revolving line of credit, subject to a
borrowing base formula, (ii) a $2.4 million revolving line of credit in the U.K.
("UK Revolver"), subject to a borrowing base formula, (iii) a $80.5 million term
loan facility, (iv) a $4.2 million term loan facility in the U.K. ("UK Term
Loan") and (v) a $4.2 million standby letter of credit facility to support the
Company's and its subsidiaries' obligations under the Nevada Bonds. As a result
of amending the credit facility, a portion of the deferred financing and
origination fees related to the Credit Facility have been charged to expense as
an extraordinary item. At July 1, 2000, the Company had unused borrowing
capacity under the Credit Facility's revolving line of credit of approximately
$20.9 million. The indebtedness under the Credit Facility is guaranteed by
Holding, Berry, and all of Berry's subsidiaries. The obligations of the Company
and the subsidiaries under the Credit Facility and the guarantees thereof are
secured primarily by all of the assets of such entities.
4. BPC HOLDING CORPORATION SUMMARY FINANCIAL INFORMATION
The following summarizes parent company only unaudited financial information of
Holding:
JULY 1, JANUARY 1,
2000 2000
--------- ---------
BALANCE SHEET
Current assets ......................... $ 318 $ 703
Other noncurrent assets ................ 11,030 (10,184)
Current liabilities .................... 946 1,033
Noncurrent liabilities ................. 132,990 122,957
Equity (deficit) ....................... (122,588) (133,471)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
-------------------- ---------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
Net sales .......................... $ -- $ -- $ -- $ --
Cost of goods sold ................. -- -- -- --
Loss before income taxes and equity
in net income (loss) of subsidiary (4,068) (3,441) (7,815) (6,861)
Net income (loss) .................. (5,631) 2,214 (11,941) 2,122
Net income (loss) attributable to
common shareholders .............. (7,358) 1,143 (14,775) 14
</TABLE>
10
<PAGE>
5. SEGMENT REPORTING
The Company has two reportable segments: packaging products and housewares
products. The Company's packaging business consists of three primary market
groups: overcaps and closures, containers, and drink cups. The Company's
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.
11
<PAGE>
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, and (iii) management fees and reimbursed expenses paid
to First Atlantic ("Adjusted EBITDA"). The Company's reportable segments are
business units that offer different products to different markets.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------- -----------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales:
Packaging products ........................ $ 100,895 $ 75,279 $ 185,577 $ 140,443
Housewares products ....................... 6,292 7,113 18,790 19,409
Adjusted EBITDA:
Packaging products ........................ 19,743 18,349 34,544 33,912
Housewares products ....................... 762 982 2,916 3,741
Reconciliation of Adjusted EBITDA
to income (loss) before income taxes:
Adjusted EBITDA for reportable segments .. $ 20,505 $ 19,331 $ 37,460 $ 37,653
Net interest expense ..................... (12,202) (8,674) (23,742) (17,860)
Depreciation ............................. (7,564) (5,687) (14,370) (11,560)
Amortization ............................. (2,506) (1,275) (4,728) (2,549)
Extraordinary item ....................... (1,022) -- (1,022) --
Loss on disposal of property and equipment (88) (169) (616) (778)
One-time expenses ........................ (2,528) (711) (4,359) (1,667)
Stock option market value adjustment ..... -- (94) (104) (198)
Management fees .......................... (218) (218) (436) (437)
--------- --------- --------- ---------
Income (loss) before income taxes ........ $ (5,623) $ 2,503 $ (11,917) $ 2,604
========= ========= ========= =========
</TABLE>
One time-expenses represent non-recurring expenses that relate to recently
acquired businesses, plant consolidations, and litigation associated with a
drink cup patent.
6. COMPREHENSIVE INCOME
Comprehensive income (losses) were $(6.0) million and $1.7 million for the
thirteen weeks ended July 1, 2000 and July 3, 1999, respectively and $(12.4)
million and $1.6 million for the twenty-six weeks ended July 1, 2000 and July 3,
1999, respectively.
12
<PAGE>
7. CHANGES IN OWNERS EQUITY
In connection with the Poly-Seal acquisition on May 9, 2000, Holding issued
1,000,000 shares of Series A-1 Preferred Stock to Chase Venture Capital
Associates, LLC and The Northwestern Mutual Life Insurance Company
(collectively, the "Purchasers"). The Series A-1 Preferred Stock has a stated
value of $25 per share, and dividends accrue at a rate of 14% per annum and will
accumulate until declared and paid. The Series A-1 Preferred Stock ranks
pari-passu to the Series A Preferred Stock and prior to all other capital stock
of Holding. In addition, Warrants to purchase an aggregate of 25,997 shares of
Class B Non-Voting Common Stock at $0.01 per share were issued to the
Purchasers.
8. SUBSEQUENT EVENTS
On July 17, 2000, Berry obtained a second lien senior credit facility for an
aggregate principal amount of $25.0 million, resulting in net proceeds of $24.3
million after fees and expenses. The proceeds were utilized to reduce the
Company's revolving line of credit. The $25.0 million principal amount is due
upon the facility's maturity in July 2002.
On July 27, 2000, Berry and Berry Sterling Corporation entered into a settlement
agreement with Packaging Resources Incorporated ("PRI") to provide resolution to
claims filed between the parties involving United States Patent No. Des.
362,368. As part of the agreement, Berry paid $0.5 million to PRI as full
settlement of claims between the parties relating to this patent.
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 the Company's cash flow from operations must be dedicated
to the payment of principal and interest on its indebtedness, thereby reducing
the funds available to the Company for other purposes; (ii) the Company'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 the Company's borrowings will be at variable
rates of interest, which will expose the Company to the risk of higher interest
rates; (iv) the Company is substantially more leveraged than certain of its
competitors, which may place the Company at a competitive disadvantage,
particularly in light of its acquisition strategy; and (v) the Company'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 JULY 1, 2000 (THE "QUARTER")
COMPARED TO 13 WEEKS ENDED JULY 3, 1999 (THE "PRIOR QUARTER")
NET SALES. Net sales increased $24.8 million, or 30%, to $107.2 million for the
Quarter from $82.4 million for the Prior Quarter with an approximate 8% increase
in net selling price due primarily to increased raw material costs. Packaging
product net sales increased $25.6 million from the Prior Quarter. Within this
segment, the addition of Cardinal and Poly-Seal provided Quarter net sales of
approximately $18.4 million and $6.7 million, respectively. Excluding Poly-Seal,
overcaps and closures sales decreased $0.4 million from the Prior Quarter. Drink
cup sales for the Quarter were flat compared to the Prior Quarter. Excluding
Cardinal, container sales increased $3.9 million from the Prior Quarter due
primarily to increased selling price as noted above. Custom sales decreased $3.0
million from the Prior Quarter because of a large promotion in the Prior
Quarter. Excluding Cardinal, housewares product sales for the Quarter were down
$0.8 million from the Prior Quarter as sales were stronger in the first quarter
of 1999.
GROSS MARGIN. Gross margin increased by $1.4 million to $25.5 million (24% of
net sales) for the Quarter from $24.1 million (29% of net sales) for the Prior
Quarter. This increase of 6% includes the combined impact of the added Cardinal
and Poly-Seal sales volume, acquisition integration, productivity improvement
initiatives, and the cyclical impact of higher raw material costs compared to
the Prior Quarter. The cost of the Company's primary raw material, resin, was
more than 39% higher than 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 Ontario, California
facility (acquired in the Cardinal acquisition) in the third quarter of 1999. In
addition, the Company made two configuration changes that were completed in the
fourth 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 were made during the year, 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 $1.3 million to $5.6 million
for the Quarter from $4.3 million for the Prior Quarter principally as a result
the Cardinal and Poly-Seal acquisitions. General and administrative expenses
increased from $5.8 million for the Prior Quarter to $6.4 million for the
Quarter. The increase of $0.6 million is primarily attributable to the Cardinal
and Poly-Seal acquisitions partially offset by decreased accrued bonus expenses.
During the Quarter, one-time transition expenses were $1.8 million related to
the shutdown and reorganization of facilities and $0.7 million related to
acquisitions. In the Prior Quarter, one-time transition expenses were $0.5
million related to acquisitions and $0.2 million related to the shutdown of the
Arlington Heights facility.
INTEREST EXPENSE. Interest expense increased $3.8 million to $12.5 million for
the Quarter compared to $8.7 million for the Prior Quarter primarily due to the
issuance of $75.0 million of 11% Senior Subordinated Notes to fund the Cardinal
acquisition and an increase in borrowings under the Credit Facility to fund the
Poly-Seal acquisition.
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INCOME TAX. For the Quarter, the Company recorded income tax expense of $8,000
compared to $289,000 for the Prior Quarter. The Company continues to operate in
a net operating loss carryforward position for Federal income tax purposes.
NET INCOME (LOSS). The Company recorded a net loss of $5.6 million for the
Quarter compared to net income of $2.2 million for the Prior Quarter for the
reasons discussed above.
26 WEEKS ENDED JULY 1, 2000 ("YTD")
COMPARED TO 26 WEEKS ENDED JULY 3, 1999 ("PRIOR YTD")
NET SALES. Net sales increased $44.5 million, or 28%, to $204.4 million for the
YTD from $159.9 million for the Prior YTD with an approximate 8% increase in net
selling price due primarily to increased raw material costs. Packaging product
net sales increased $45.1 million from the Prior YTD. Within this segment, the
addition of Cardinal and Poly-Seal provided net sales for the YTD of $32.0
million and $6.7 million, respectively. Excluding Poly-Seal, overcaps and
closures sales decreased $0.3 million. Drink cup sales for the YTD were $1.5
million higher than the Prior YTD with the addition of a significant new
product. Container sales increased $9.0 million from the Prior YTD despite the
Company's decision to exit certain low margin business. Custom sales decreased
$3.8 million from the Prior YTD with a large promotion in the Prior YTD.
Housewares sales for the YTD decreased $0.6 million from the Prior YTD due to
the Company's decision to exit a low margin account. Within this segment,
Cardinal provided sales for the YTD of $1.8 million.
GROSS MARGIN. Gross margin increased by $0.4 million to $47.5 million (23% of
net sales) for the YTD from $47.1 million (29% of net sales) for the Prior YTD.
This increase of 1% includes the combined impact of the added Cardinal and
Poly-Seal sales volume, acquisition integration, productivity improvement
initiatives, and the cyclical impact of higher raw material costs compared to
the Prior YTD. The cost of the Company's primary raw material, resin, has
increased over 45% from the Prior YTD. 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 Arlington Heights,
Illinois (acquired in the Knight acquisition) facility in the first quarter of
1999 and its Ontario, California facility (acquired in the Cardinal acquisition)
in the third quarter of 1999. In addition, the Company made two configuration
changes that were completed in the fourth 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 were made during the year, 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 $2.1 million to $10.7 million
for the YTD from $8.6 million for the Prior YTD principally as a result of the
Cardinal and Poly-Seal acquisitions. General and administrative expenses
increased by $0.8 million to $12.7 million for the YTD from $11.9 million for
the Prior YTD. The increase is primarily attributable to the Cardinal and
Poly-Seal acquisitions partially offset by decreased accrued bonus expenses. YTD
one-time transition expenses include $3.3 million related to the shutdown and
reorganization of facilities and $1.0 million related to acquisitions. One-time
transition expenses for Prior YTD
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were $0.6 million related to the shutdown of the Anderson and Arlington Heights
facilities and $1.1 million related to acquisitions.
INTEREST EXPENSE. Interest expense increased $6.0 million to $24.0 million for
the YTD compared to $18.0 million for the Prior YTD primarily due to the
issuance of $75.0 million of 11% Senior Subordinated Notes to support the
Cardinal acquisition and an increase in borrowings under the Credit Facility to
support the Poly-Seal acquisition.
INCOME TAX. The Company's income tax expense was $24,000 for the YTD compared to
$482,000 for the Prior YTD. The Company continues to operate in a net operating
loss carryforward position for Federal income tax purposes.
NET INCOME (LOSS). Net loss for the YTD of $11.9 million was a decrease of $14.0
million from net income of $2.1 million for the Prior YTD for the reasons
discussed above.
LIQUIDITY AND SOURCES OF CAPITAL
Net cash provided by operating activities was $7.8 million for the YTD, a
decrease of $8.3 million from the Prior YTD. The decrease is primarily the
result of higher raw material costs with net income before depreciation and
amortization decreasing $9.6 million from the Prior YTD.
Net cash used for investing activities increased from $13.1 million in the Prior
YTD to $79.7 million for the YTD as a result of the Poly-Seal acquistion and
strong capital spending. YTD capital spending of $19.6 million included $10.2
million for molds, $1.8 million for molding and printing machines, $6.4 million
for buildings and systems, and $1.2 million for accessory equipment and systems.
Net cash provided by financing activities was $72.5 million for the YTD compared
to net cash used for financing activities of $2.4 million for the Prior YTD. The
increase of $74.9 million can be primarily attributed to increased borrowings
under the Credit Facility and the issuance of the Series A-1 Preferred Stock to
finance the Poly-Seal acquisition.
The Company anticipates that its cash interest, working capital and capital
expenditure requirements for 2000 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 funds available under the Credit Facility. However, the
Company cannot predict its future results of operations. At July 1, 2000, the
Company's cash balance was $3.7 million, and Berry had unused borrowing capacity
under the Credit Facility's borrowing base of approximately $20.9 million.
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The 1994 Indenture, 1998 Indenture, and 1999 Indenture restrict, and the Credit
Facility prohibits, Berry's ability to pay any dividend or make any distribution
of funds to Holding to satisfy interest and other obligations on the 1996 Notes.
Based upon historical operating results, without a substantial increase in the
operating results of Berry, management anticipates that it will be unable to
generate sufficient cash flow 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. On June
15, 2000, Holding issued approximately $7.4 million aggregate principal amount
of additional 1996 Notes in satisfaction of its interest obligation. 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. We can
not assure you that then-current market conditions would permit Holding to
consummate a refinancing or equity offering.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to various legal proceedings involving routine
claims which are incidental to its business. Although the Company's
legal and financial liability with respect to such proceedings cannot
be estimated with certainty, the Company believes that any ultimate
liability would not be material to its financial condition.
Reference is made to the discussion of the lawsuit against Packaging
Resources Incorporated ("Packaging Resources") under the caption "Item
3. Legal Proceedings" of the Company's Report on Form 10-K for the
fiscal year ended January 1, 2000. On July 27, 2000, Berry and Berry
Sterling Corporation entered into a settlement agreement with Packaging
Resources to provide resolution to all claims filed by the parties
involving United States Patent No. DES 362,368 (the "368 Patent"). As
part of the settlement, Berry paid $500,000 to Packaging Resources as
full settlement of claims between the parties relating to the 368
Patent.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In order to finance a portion of the consideration delivered in
connection with the acquisition of Poly-Seal, Holding issued, pursuant
to a Preferred Stock and Warrant Purchase Agreement dated as of May 9,
2000 (the "Preferred Agreement") by and among Holding, Chase Venture
Captial Associates, LLC ("CVCA") and The Northwestern Mutual Life
Insurance Company ("Northwestern"), 1,000,000 shares of Series A-1
Preferred Stock in a private placement (the "Preferred Placement") for
an aggregate purchase price of $25 million. The Series A-1 Preferred
Stock has a stated value of $25 per share, and dividends accrue at a
rate of 14% per annum and will accumulate until declared and paid. The
Series A-1 Perferred Stock ranks pari-passu with the Series A Preferred
Stock and prior to all other capital stock of Holding. In connection
with the Preferred Placement, Holding issued warrants to purchase
25,997 shares of its Series B Non-Voting Common Stock at $0.01 per
share. Holding also extended the expiration period of currently
outstanding warrants to purchase Series B Non-Voting Common Stock and
Series B Voting Common Stock held by CVCA and Northwestern to May 9,
2006. The Series A-1 Preferred Stock and Warrants were issued in
transactions exempt from registration in reliance on the exemption
provided by Section 4 (2) of the Securities Act of 1933.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
By Written Consent in Lieu of a Meeting of the Stockholders of BPC
Holding Corporation dated May 2, 2000, a majority of the stockholders
approved the amendment and restatement of the Company's Restated
Certificate of Incorporation to increase the number of authorized
shares of Preferred Stock from 1,000,000 to 2,200,000, consisting of
600,000 shares of Series A Cumulative Preferred Stock, 200,000 shares
of Series B Cumulative Preferred Stock and 1,400,000 shares of Series
A-1 Preferred Stock.
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 May 9, 2000, was filed by Berry
on May, 24, 1999. Under Item 2, Acquisition or Disposition of
Assets, Berry reported the consummation of the Poly-Seal
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 July
24, 2000, which includes the financial statements of the business
acquired and pro forma financial information.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BPC Holding Corporation
August 15, 2000
By: /s/ JAMES M. KRATOCHVIL
James M. Kratochvil
Executive Vice President, Chief Financial
Officer and Secretary of BPC Holding
Corporation (Principal Financial and
Accounting Officer)
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