SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended
January 1, 2005
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
to
Commission File Number 33-75706
BPC HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 35-1813706
(State or other jurisdiction (IRS employer
of incorporation or organization)identification number)
BERRY PLASTICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 35-1814673
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
101 Oakley Street 47710
Evansville, Indiana
(Address of principal executive offices) (Zip code)
Registrants' telephone number, including area code: (812) 424-2904
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrants: (1) have 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 such shorter period that the
registrant was required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: Not applicable.
Indicate by check mark whether the registrants are accelerated filers (as
defined by Rule 12b-2 of Securities Exchange Act of 1934).
Yes [ ] No [X]
None of the voting stock of either registrant is held by a non-affiliate of
such registrant. There is no public trading market for any class of voting
stock of BPC Holding Corporation or Berry Plastics Corporation.
As of March 18, 2005, there were outstanding 3,378,305 shares of the
Common Stock, $.01 par value, of BPC Holding Corporation. As of March 18,
2005, there were outstanding 100 shares of the Common Stock, $.01 par value, of
Berry Plastics Corporation.
DOCUMENTS INCORPORATED BY REFERENCE
None
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K includes "forward-looking statements," within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), with respect to our financial
condition, results of operations and business and our expectations or beliefs
concerning future events. Such statements include, in particular, statements
about our plans, strategies and prospects under the headings "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." You can identify certain forward-looking statements by our use of
forward-looking terminology such as, but not limited to, "believes," "expects,"
"anticipates," "estimates," "intends," "plans," "targets," "likely," "will,"
"would," "could" and similar expressions that identify forward-looking
statements. All forward-looking statements involve risks and uncertainties.
Many risks and uncertainties are inherent in our industry and markets. Others
are more specific to our operations. The occurrence of the events described
and the achievement of the expected results depend on many events, some or all
of which are not predictable or within our control. Actual results may differ
materially from the forward-looking statements contained in this Form 10-K.
Factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include:
a) changes in prices and availability of resin and other raw materials
and our ability to pass on changes in raw material prices on a timely
basis;
b) catastrophic loss of our key manufacturing facility;
c) risks related to our acquisition strategy and integration of
acquired businesses;
d) risks associated with our substantial indebtedness and debt service;
e) performance of our business and future operating results;
f) risks of competition, including foreign competition, in our
existing and future markets;
g) general business and economic conditions, particularly an economic
downturn;
h) increases in the cost of compliance with laws and regulations,
including environmental laws and regulations; and
i) the factors discussed in the section of this Form 10-K titled "Risk
Factors."
Readers should carefully review the factors discussed in the section
titled "Risk Factors" in this Form 10-K and other risk factors identified from
time to time in our periodic filings with the Securities and Exchange
Commission and should not place undue reliance on our forward-looking
statements. We undertake no obligation to update any forward-looking
statements to reflect changes in underlying assumptions or factors, new
information, future events or other changes.
AVAILABLE INFORMATION
We make available, free of charge, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments, if
any, to those reports through our Internet website as soon as practicable after
they have been electronically filed with or furnished to the SEC. Our internet
address is www.berryplastics.com. The information contained on our website is
not being incorporated herein. We are currently in the process of finalizing
our Code of Ethics.
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TABLE OF CONTENTS
BPC HOLDING CORPORATION
BERRY PLASTICS CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 1, 2005
PAGE
PART I
Item 1. Business...................................................... 4
Item 2. Properties.................................................... 11
Item 3. Legal Proceedings............................................ 11
Item 4. Submission of Matters to a Vote of Security Holders.......... 11
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder
Matters...................................................... 12
Item 6. Selected Financial Data...................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk... 21
Item 7B. Risk Factors ................................................ 22
Item 8. Financial Statements and Supplementary Data.................. 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 27
Item 9A. Controls and Procedures...................................... 27
PART III
Item 10. Directors and Executive Officers of the Registrants.......... 28
Item 11. Executive Compensation....................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholders Matters............................. 33
Item 13. Certain Relationships and Related Transactions............... 35
Item 14. Principal Accountant Fees and Services....................... 37
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 39
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PART I
ITEM 1. BUSINESS
Unless the context requires otherwise, references in this Form 10-K to
"BPC Holding" or "Holding" refer to BPC Holding Corporation, references to
"we," "our" or "us" refer to BPC Holding Corporation together with its
consolidated subsidiaries, and references to "Berry Plastics" or the "Company"
refer to Berry Plastics Corporation, a wholly owned subsidiary of BPC Holding
Corporation.
GENERAL
We are one of the world's leading manufacturers and suppliers of a
diverse mix of rigid plastics packaging products focusing on the open-top
container, closure, aerosol overcap, drink cup and housewares markets. We sell
a broad product line to over 12,000 customers. We concentrate on manufacturing
higher quality, value-added products sold to image-conscious marketers of
institutional and consumer products. We believe that our large operating
scale, low-cost manufacturing capabilities, purchasing leverage, proprietary
thermoforming technology and extensive collection of over 1,000 active
proprietary molds provide us with a competitive advantage in the marketplace.
We have been able to leverage our broad product offering, value-added
manufacturing capabilities and long-standing customer relationships into
leading positions across a number of products. Our top 10 customers
represented approximately 35% of our fiscal 2004 net sales with no customer
accounting for more than 8% of our fiscal 2004 net sales. The average length
of our relationship with these customers was over 20 years. Our products are
primarily sold to customers in industries that exhibit relatively stable demand
characteristics and are considered less sensitive to overall economic
conditions, such as pharmaceuticals, food, dairy and health and beauty.
Additionally, we operate 16 high-volume manufacturing facilities and have
extensive distribution capabilities.
We organize our business into four operating divisions: containers,
closures, consumer products, and international. The following table displays
our net sales by division for each of the past five fiscal years.
($ in millions) 2000 2001 2002 2003 2004
Containers $231.2 $234.5 $250.4 $288.5 $518.3
Closures 97.1 110.1 113.3 125.3 127.5
Consumer products 64.7 94.8 110.0 116.1 130.4
International 15.1 22.3 20.6 22.0 38.0
------ ------ ------ ------ ------
Total net sales $408.1 $461.7 $494.3 $551.9 $814.2
====== ====== ====== ====== ======
In 2004, we created the international segment as a separate operating and
reporting segment to increase sales and improve service to international
customers utilizing existing resources. The international segment includes our
foreign facilities and business from domestic facilities that is shipped or
billed to foreign locations. The 2003 and prior results for the foreign
facilities have been reclassified to the international segment; however,
business from domestic facilities that were shipped or billed to foreign
locations cannot be separately identified for 2003 and prior. Accordingly, the
amounts disclosed under the new reporting structure are not comparable between
2004 and previous years. Additional financial information about our business
segments is provided in Note 14 of the "Notes to Consolidated Financial
Statements," which are included elsewhere in this Form 10-K.
HISTORY
Imperial Plastics was established in 1967 in Evansville, Indiana. Berry
Plastics, Inc. ("Old Berry") was formed in 1983 to purchase substantially all
of the assets of Imperial Plastics. In 1988, Old Berry acquired Gilbert
Plastics of New Brunswick, New Jersey, a leading manufacturer of aerosol
overcaps, and subsequently relocated Gilbert Plastics' production to Old
Berry's Evansville, Indiana facility. In 1990, the Company and Holding, the
holder of 100% of the outstanding capital stock of the Company, were formed to
purchase the assets of Old Berry.
We have continued to grow both organically and through acquisition by
acquiring companies that we believed would improve our financial performance in
the long-term, expand our product lines, or in some cases, provide us with a
new or complementary product line. In 1992, we acquired the assets of the
Mammoth Containers division of Genpak Corporation. In 1995, we acquired
substantially all of the assets of Sterling Products, Inc., a producer of
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injection-molded plastic drink cups and lids, and Tri-Plas, Inc., a
manufacturer of injection-molded containers. In 1997, we acquired (1) certain
assets of Container Industries, Inc., a manufacturer and marketer of injection-
molded industrial and pry-off containers, (2) PackerWare Corporation
("PackerWare"), a manufacturer and marketer of plastic containers, drink cups,
housewares, and lawn and garden products, (3) substantially all of the assets
of Virginia Design Packaging Corp., a manufacturer and marketer of injection-
molded containers used primarily for food packaging, and (4) Venture Packaging,
Inc., a manufacturer and marketer of injection-molded containers used in the
food, dairy and various other markets. In 1998, we acquired all of the capital
stock of Norwich Injection Moulders Limited (now known as Berry Plastics UK
Limited) and substantially all of the assets of the Knight Engineering and
Plastics Division of Courtaulds Packaging Inc., a manufacturer of aerosol
overcaps. In 1999, we acquired all of the outstanding capital stock of CPI
Holding Corporation, the parent company of Cardinal Packaging, Inc., a
manufacturer and marketer of open-top containers. In 2000, we acquired all of
the outstanding capital stock of (1) Poly-Seal Corporation ("Poly-Seal"), a
manufacturer and marketer of closures and (2) Capsol S.p.a. ("Capsol") and the
whole quota capital of a related company, Ociesse S.r.l. Capsol is a
manufacturer and marketer of aerosol overcaps and closures. In 2001, we
acquired all of the outstanding capital stock of Pescor Plastics, Inc.
("Pescor"), a manufacturer and marketer of drink cups, and in 2002, we acquired
the Alcoa Flexible Packaging injection molding assets from Mount Vernon
Plastics Corporation ("Mount Vernon"). In 2003, we acquired (1) the 400 series
continuous threaded injection molded closure assets from CCL Plastic Packaging,
(2) the injection molded overcap lid assets from APM Inc., and (3) all of the
outstanding capital stock of Landis Plastics, Inc. (the "Landis Acquisition"),
a manufacturer and marketer of open-top containers.
MERGER
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly
formed entity controlled by various private equity funds affiliated with
Goldman, Sachs & Co., merged (the "Merger") with and into Holding, pursuant to
an agreement and plan of merger, dated as of May 25, 2002. At the effective
time of the Merger, (1) each share of common stock of Holding issued and
outstanding immediately prior to the effective time of the Merger was converted
into the right to receive cash pursuant to the terms of the merger agreement,
and (2) each share of common stock of the Buyer issued and outstanding
immediately prior to the effective time of the Merger was converted into one
share of common stock of Holding. Additionally, in connection with the Merger,
we retired all of Holding's senior secured notes and Berry Plastics' senior
subordinated notes, repaid all amounts owed under our credit facilities,
redeemed all of the outstanding preferred stock of Holding, entered into a new
credit facility and completed an offering of new senior subordinated notes of
Berry Plastics. Immediately following the Merger, private equity funds
affiliated with Goldman Sachs owned approximately 63% of the outstanding common
stock of Holding, private equity funds affiliated with J.P. Morgan Chase & Co.
owned approximately 29% and members of our management owned the remaining 8%.
RECENT DEVELOPMENTS
Southern Packaging
In November 2004, we entered into a series of agreements with Southern
Packaging Group Ltd. ("Southern Packaging"), and its principal shareholder, Mr.
Pan Shun Ming, to jointly expand participation in the plastic packaging
business in China and the surrounding region. In connection therewith, Berry
acquired a 10% stake in Southern Packaging for $3.2 million as a result of
Southern Packaging's successful listing on the Singapore Stock Exchange.
PRODUCT OVERVIEW
We organize our product lines into three categories: containers, closures and
consumer products.
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Containers
We classify our containers into six product lines: thinwall, pry-off, dairy,
polypropylene, industrial and specialty. The following table describes our
container product lines.
PRODUCT LINE DESCRIPTION SIZES MAJOR END MARKETS
------------ ----------- ------ -----------------
Thinwall Thinwalled, multi-purpose containers 8 oz. Food, promotional products, toys and a wide variety of other uses
with or without handles and lids to 2 gallons
Pry-off Containers having a tight lid-fit and 4 oz. Building products, adhesives, chemicals, and other industrial uses
requiring an opening device to 2 gallons
Dairy Thinwall containers in traditional dairy4 oz. Cultured dairy products including yogurt, cottage cheese, sour cream
market sizes and styles to 5 and dips, and frozen desserts
lbs.,
Multi-
pack
Polypropylene Usually clear containers in round, 6 oz. Food, deli, sauces and salads
oblong or rectangular shapes to 5 lbs.
Industrial Thick-walled, larger pails designed to 2.5 to Building products, chemicals, paints and other industrial uses
accommodate heavy loads 5 gallons
Specialty Customer specific Various Premium consumer items, such as tobacco and drink mixes
The largest end-uses for our containers are food products, building products,
chemicals and dairy products. We have a diverse customer base for our
container lines, and no single container customer exceeded 8% of our total net
sales in fiscal 2004.
We believe that we offer the broadest product line among U.S.-based
injection-molded plastic container manufacturers as well as numerous
thermoformed container offerings. Our container capacities range from 4 ounces
to 5 gallons and are offered in various styles with accompanying lids, bails
and handles, some of which we produce, as well as a wide array of decorating
options. In addition to a complete product line, we have sophisticated
printing capabilities, in-house graphic arts and tooling departments, low-cost
manufacturing capability with 14 plants strategically located throughout the
United States and a dedication to high-quality products and customer service.
Our product engineers work with customers to design and commercialize new
containers. In addition, as part of our dedication to customer service, on
occasion, we provide filling machine equipment to some of our customers,
primarily in the dairy market, and we also provide the services necessary to
operate such equipment. We believe providing such equipment and services
increases customer retention by increasing the customer's production
efficiency. The cost of, and revenue from, such equipment and services is not
material.
We service several large food and dairy customers and their branded
products. Additionally, we seek to develop niche container products and new
applications by taking advantage of our state-of-the-art decorating and graphic
arts capabilities and dedication to service and quality. We believe that these
capabilities have given us a significant competitive advantage in certain high-
margin niche container applications for specialized products. Examples include
popcorn containers for new movie promotions and professional and college
sporting and entertainment events, where the ability to produce sophisticated
and colorful graphics is crucial to the product's success. In order to
identify new applications for existing products, we rely extensively on our
national sales force. Once these opportunities are identified, our sales force
works with our product design engineers to satisfy customers' needs.
In non-industrial containers, our strongest competitors include Airlite,
Solo (formerly Sweetheart), and Polytainers. We also produce commodity
industrial pails for a market that is dominated by large volume competitors
such as Letica, Plastican, NAMPAC and Ropak. We do not have a significant
share in this large market.
Closures
Our closures division focuses on aerosol overcaps and closures.
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Aerosol Overcaps
We believe we are the worldwide leading producer of injection-molded
aerosol overcaps. Our aerosol overcaps are used in a wide variety of consumer
goods including spray paints, household and personal care products,
insecticides and numerous other commercial and consumer products. Most U.S.
manufacturers of aerosol products, and companies that fill aerosol products on
a contractual basis, are our customers for some portion of their needs.
Approximately 20% of the U.S. injection-molded market consists of manufacturers
who produce overcaps in-house for their own needs.
We believe that, over the years, we have developed several significant
competitive advantages, including (1) a reputation for outstanding quality, (2)
short lead-time requirements to fill customer orders, (3) long-standing
relationships with major customers, (4) the ability to accurately reproduce
colors, (5) proprietary packing technology that minimizes freight cost and
warehouse space, (6) high-speed, low-cost molding and decorating capability and
(7) a broad product line of proprietary molds. We continue to develop new
products in the overcap market with special decoration and functional features.
In fiscal 2004, no single aerosol overcap customer accounted for over 1%
of our total net sales. Competitors include Dubuque Plastics, Cobra and
Plasticum. In addition, a number of companies, including several of our
customers, currently produce aerosol overcaps for their own use.
Closures
We believe our combined product line offerings to the closures market
establish us as a leading provider of closures. Our product line offerings
include continuous thread, dispensing, tamper evident and child resistant
closures. In addition, we are a leading provider of (1) fitments and plugs for
medical applications, (2) cups and spouts for liquid laundry detergent, (3)
dropper bulb assemblies for medical and personal care applications, and (4)
jiggers for mouthwash products.
Our closures are used in a wide variety of consumer goods markets, including
health and beauty aids, pharmaceutical, household chemicals, commercial
chemicals, and food and dairy. We are a major provider of closures to many of
the leading companies in these markets.
We believe the capabilities and expertise we have established as a closure
provider create significant competitive advantages, including the latest in
single and bi-injection technology, molding of thermoplastic and thermoset
resins, compression molding of thermoplastic resins, and lining and assembly
applications applying the latest in computerized vision inspection technology.
In addition, we have an in-house package development and design group focused
on developing new closures to meet our customers' proprietary needs. We have a
strong reputation for quality and have received numerous "Supplier Quality
Achievement Awards" from customers in different markets.
In fiscal 2004, no single closure customer accounted for over 1% of our total
net sales. Competitors include Owens-Illinois, Kerr/Suncoast, Phoenix
Closures, Portola, Rexam Closures, and Seaquist Closures.
Consumer Products
Our consumer products division focuses on drink cups and housewares.
Drink Cups
We believe that we are the largest provider of injection-molded plastic
drink cups in the United States. As beverage producers, convenience stores and
fast food restaurants increase their marketing efforts for larger sized drinks,
we believe that the plastic drink cup market should expand because of plastic's
desirability over paper for larger drink cups. We produce injection-molded
plastic cups that range in size from 12 to 64 ounces. Primary markets are fast
food and family dining restaurants, convenience stores, stadiums and retail
stores. Many of our cups are decorated, often as promotional items, and we
believe we have a reputation in the industry for innovative, state-of-the-art
graphics capability.
We launched our thermoformed drink cup line in fiscal 2001. Since then,
we have become the largest supplier of 32 ounce or larger thermoformed
polypropylene drink cups. Our thermoformed product line offers sizes ranging
from 12 to 44 ounces. Our thermoform process uses polypropylene instead of more
expensive polystyrene in producing deep draw drink cups. This offers a material
competitive advantage versus thermoformed polystyrene drink cups.
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In fiscal 2004, no single drink cup customer accounted for more than 2%
of our total net sales. Drink cup competitors include Huhtamaki (formerly
Packaging Resources Incorporated), Solo (formerly Sweetheart), Carthage Cup,
International Paper, Radnor Holdings, Letica, and WNA (formerly Cups
Illustrated).
Housewares
Our participation in the housewares market is primarily focused on
producing seasonal (spring and summer) semi-disposable plastic housewares and
plastic garden products. Examples of our products include plates, bowls,
pitchers, tumblers and outdoor flowerpots. We sell virtually all of our
products in this market through major national retail marketers and national
chain stores, such as Wal-Mart. PackerWare is our recognized brand name in
these markets and PackerWare branded products are often co-branded by our
customers. Our strategy in this market has been to provide high value to
consumers at a relatively modest price, consistent with the key price points of
the retail marketers. We believe outstanding service and the ability to
deliver products with timely combination of color and design further enhance
our position in this market. This focus allowed PackerWare to be named Wal-
Mart's category manager for its seasonal housewares department.
In fiscal 2004, no single housewares customer accounted for more than 4%
of our total net sales. Housewares competitors include Arrow Plastics, United
Plastics, and imported products from China,.
MARKETING AND SALES
We reach our large and diversified base of over 12,000 customers
primarily through our direct field sales force of over 70 dedicated
professionals. Our field sales, production and support staff meet with
customers to understand their needs and improve our product offerings and
services. While these field sales representatives are focused on individual
product lines, they are also encouraged to sell all of our products to serve
the needs of our customers. We believe that a direct field sales force is able
to better focus on target markets and customers, with the added benefit of
permitting us to control pricing decisions centrally. We also utilize the
services of manufacturing representatives to assist our direct sales force. We
believe that we produce a high level of customer satisfaction. Highly skilled
customer service representatives are strategically located throughout our
facilities to support the national field sales force. In addition,
telemarketing representatives, marketing managers and sales/marketing
executives oversee the marketing and sales efforts. Manufacturing and
engineering personnel work closely with field sales personnel to satisfy
customers' needs through the production of high-quality, value-added products
and on-time deliveries.
Our sales force is supported by technical specialists and our in-house
graphics and design personnel. Our Graphic Arts department includes computer-
assisted graphic design capabilities and in-house production of photopolymer
printing plates. We also have a centralized Color Matching and Materials
Blending department that utilizes a computerized spectrophotometer to insure
that colors match those requested by customers.
MANUFACTURING
We primarily manufacture our products using either injection or
thermoform molding presses. In both cases, the process begins with raw plastic
pellets which are then converted into finished products. In the injection
process, the raw pellets are melted to a liquid state and injected into a
multi-cavity steel mold where the resin is allowed to solidify to take the
final shape of the part. In the thermoform process, the raw resin is softened
to the point where sheets of material are drawn into multi-cavity molds and
formed over the molds to form the desired shape. The final parts are then
either cut and trimmed in the mold or trimmed as a secondary process. In both
processes, the cured parts are transferred from the molding process via
automated handling equipment to corrugated containers for shipment to customers
or for post-molding secondary operations (offset printing, labeling,
silkscreening, handle applications, etc.). We believe that our molding,
handling, and post-molding capabilities are among the best in the industry.
Our overall manufacturing philosophy is to be a low-cost producer by
using (1) high-speed molding machines, (2) modern multi-cavity hot runner, cold
runner and insulated runner molds, (3) extensive material handling automation
and (4) sophisticated printing technology. We utilize state-of-the-art robotic
packaging processes for large volume products, which enable us to reduce
breakage while lowering warehousing and shipping costs. Each plant has
maintenance capability to support molding and post-molding operations. We have
historically made, and intend to continue to make, significant capital
investments in plant and equipment because of our objectives to improve
productivity, maintain competitive advantages and foster continued growth.
Over the past five fiscal years our capital expenditures in plant and
equipment, exclusive of acquisitions, were $175.6 million.
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PRODUCT DEVELOPMENT AND DESIGN
We believe our technology base and research and development support are
among the best in the rigid plastics packaging industry. Using three-
dimensional computer aided design technology, our full time product designers
develop innovative product designs and models for the packaging market. We can
simulate the molding environment by running unit-cavity prototype molds in
small injection-molding machines for research and development of new products.
Production molds are then designed and outsourced for production by various
companies with which we have extensive experience and established relationships
or built by one of our two in-house tooling divisions located in Evansville and
Chicago. Our engineers oversee the mold-building process from start to finish.
Many of our customers work in partnership with our technical representatives to
develop new, more competitive products. We have enhanced our relationships
with these customers by providing the technical service needed to develop
products combined with our internal graphic arts support.
We spent $3.8 million, $3.5 million and $2.9 million on research and
development in 2004, 2003, and 2002, respectively.
We also utilize our in-house graphic design department to develop color
and styles for new products. Our design professionals work directly with our
customers to develop new styles and use computer-generated graphics to enable
our customers to visualize the finished product.
QUALITY ASSURANCE
Each plant extensively utilizes Total Quality Management philosophies,
including the use of statistical process control and extensive involvement of
employees to increase productivity. This teamwork approach to problem-solving
increases employee participation and provides necessary training at all levels.
Teams use the Six Sigma methodology to improve internal processes and service
the customer. All of our facilities except for two facilities (Richmond and
Phoenix) that were acquired in connection with the Landis Acquisition in 2003
have been ISO certified, which requires demonstrated compliance by a company
with a set of shipping, trading and technology standards promulgated by the
International Organization for Standardization ("ISO"). We are actively
pursuing ISO certification in the remaining two facilities. Extensive testing
of parts for size, color, strength and material quality using statistical
process control techniques and sophisticated technology is also an ongoing part
of our quality assurance activities.
SYSTEMS
We utilize a fully integrated computer software system at each of our
plants, excluding our Milan facility, that produces complete financial and
operational reports. This accounting and control system is expandable
to add new features and/or locations as we grow. In addition, we have in place
a sophisticated quality assurance system, a bar code based material management
system and an integrated manufacturing system.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The most important raw material purchased by us is plastic resin. We
purchased approximately $283.0 million of resin in fiscal 2004 with
approximately 26% of our resin pounds being high density polyethylene ("HDPE"),
15% linear low density polyethylene and 59% polypropylene ("PP"). We have
contractual price escalators and de-escalators tied to the price of resin with
customers representing approximately 60% of net sales that result in price
increases/decreases to many of our customers in a relatively short period of
time, typically quarterly. In addition, we have historically had success in
passing through price increases and decreases in the price of resin to
customers without indexed price agreements. For example, in fiscal 2004, our
net sales increased by $262.3 million over fiscal 2003, of which approximately
$23.5 million was attributable to increased selling prices. This occurred in
an environment of rapidly escalating resin prices. Less than 10% of our net
sales are generated from fixed-price arrangements, and we have at times and may
continue to enter into negotiated purchase agreements with resin suppliers
related to these fixed price arrangements. Due to the recent volatility in the
resin markets, in the fourth quarter of 2004 we entered into resin forward
hedging transactions with respect to approximately 15% of our estimated 2005
resin needs and 10% of our 2006 estimated resin needs. We can further mitigate
the effect of resin price movements through our ability to accommodate raw
material switching for certain products between HDPE and PP as prices fluctuate
and reducing the quantity of resin in certain of our products. Based on
information from Plastics News, an industry publication, prices of HDPE and PP
on January 1, 2005 were $0.655 per pound and $0.64 per pound, respectively,
reflecting increases of $0.20 per pound, or 44%, and $0.23 per pound, or 56%,
over the respective prices from December 27, 2003.
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Our plastic resin purchasing strategy is to deal with only high-quality,
dependable suppliers, such as Dow, Basell, Nova, Total (formerly Atofina),
Equistar, Sunoco, BP Amoco, and ExxonMobil. Although we do not have any supply
requirements contracts with our key suppliers, we believe that we have
maintained strong relationships with these key suppliers and expect that such
relationships will continue into the foreseeable future. Based on our
experience, we believe that adequate quantities of plastic resins will be
available at market prices, but we can give you no assurances as to such
availability or the prices thereof.
EMPLOYEES
At the end of fiscal 2004, we had approximately 4,550 employees. Poly-
Seal Corporation, a wholly owned subsidiary, and the United Steelworkers of
America are parties to a collective bargaining agreement which expires on April
24, 2005. At the end of fiscal 2004, approximately 330 employees of Poly-Seal
Corporation, all of which are located in our Baltimore facility, were covered
by this agreement. None of our other domestic employees are covered by
collective bargaining agreements. We believe our relations with our employees
are good.
PATENTS AND TRADEMARKS
We rely on a combination of patents, trade secrets, unpatented know-how,
trademarks, copyrights and other intellectual property rights, nondisclosure
agreements and other protective measures to protect our proprietary rights. We
do not believe that any individual item of our intellectual property portfolio
is material to our current business. We employ various methods, including
confidentiality and non-disclosure agreements with third parties, employees and
consultants, to protect our trade secrets and know-how. We have licensed, and
may license in the future, patents, trademarks, trade secrets, and similar
proprietary rights to and from third parties.
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
Our past and present operations and our past and present ownership and
operations of real property are subject to extensive and changing federal,
state, local and foreign environmental laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposition of
wastes or otherwise relating to the protection of the environment. We believe
that we are in substantial compliance with applicable environmental laws and
regulations. However, we cannot predict with any certainty that we will not in
the future incur liability under environmental statutes and regulations with
respect to non-compliance with environmental laws, contamination of sites
formerly or currently owned or operated by us (including contamination caused
by prior owners and operators of such sites) or the off-site disposal of
hazardous substances.
Like any manufacturer, we are subject to the possibility that we may receive
notices of potential liability in connection with materials that were sent to
third-party recycling, treatment, and/or disposal facilities under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), and comparable state statutes, which impose liability for
investigation and remediation of contamination without regard to fault or the
legality of the conduct that contributed to the contamination. Liability under
CERCLA is retroactive, and liability for the entire cost of a cleanup can be
imposed on any responsible party. No such notices are currently pending.
The FDA regulates the material content of direct-contact food containers and
packages, including certain thinwall containers we manufacture pursuant to the
Federal Food, Drug and Cosmetics Act. Certain of our products are also
regulated by the Consumer Product Safety Commission ("CPSC") pursuant to
various federal laws, including the Consumer Product Safety Act. Both the FDA
and the CPSC can require the manufacturer of defective products to repurchase
or recall such products and may also impose fines or penalties on the
manufacturer. Similar laws exist in some states, cities and other countries in
which we sell our products. In addition, laws exist in certain states
restricting the sale of packaging with certain levels of heavy metals, imposing
fines and penalties for non-compliance. Although we use FDA approved resins
and pigments in containers that directly contact food products and believe they
are in material compliance with all such applicable FDA regulations, and we
believe our products are in material compliance with all applicable
requirements, we remain subject to the risk that our products could be found
not to be in compliance with such requirements.
-10-
The plastics industry, including us, is subject to existing and potential
federal, state, local and foreign legislation designed to reduce solid wastes
by requiring, among other things, plastics to be degradable in landfills,
minimum levels of recycled content, various recycling requirements, disposal
fees and limits on the use of plastic products. In particular, certain states
have enacted legislation requiring products packaged in rigid
plastic containers to comply with standards intended to encourage recycling and
increased use of recycled materials. In addition, various consumer
and special interest groups have lobbied from time to time for the
implementation of these and other similar measures. We believe that
the legislation promulgated to date and such initiatives to date have not had a
material adverse effect on us. There can be no assurance that any such future
legislative or regulatory efforts or future initiatives would not have a
material adverse effect on us.
ITEM 2. PROPERTIES
The following table sets forth our principal manufacturing facilities:
LOCATION SQUARE FOOTAGE USE OWNED/LEASED
-------- -------------- --- ------------
Evansville, IN 580,000 Headquarters and manufacturing Owned
Henderson, NV 175,000 Manufacturing Owned
Iowa Falls, IA 100,000 Manufacturing Owned
Charlotte, NC 150,000 Manufacturing Owned
Lawrence, KS 424,000 Manufacturing Owned
Suffolk, VA 110,000 Manufacturing Owned
Monroeville, OH 350,000 Manufacturing Owned
Norwich, England 88,000 Manufacturing Owned
Woodstock, IL 170,000 Manufacturing Owned
Streetsboro, OH 140,000 Manufacturing Owned
Baltimore, MD 244,000 Manufacturing Owned
Milan, Italy 125,000 Manufacturing Leased
Chicago, IL 472,000 Manufacturing Leased
Richmond, IN 160,000 Manufacturing Owned
Syracuse, NY 215,000 Manufacturing Leased
Phoenix, AZ 266,000 Manufacturing Leased
We believe that our property and equipment is well-maintained, in good
operating condition and adequate for our present needs.
-11-
ITEM 3. LEGAL PROCEEDINGS
We are party to various legal proceedings involving routine claims which
are incidental to our business. Although our legal and financial liability with
respect to such proceedings cannot be estimated with certainty, we believe that
any ultimate liability would not be material to our financial condition.
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 March 3, 2004, stockholders that hold a majority of
the stock entitled to vote approved an amendment to the BPC Holding Corporation
2002 Stock Option Plan to increase the number of Fixed Priced Options available
under such plan from 250,038 to 300,038.
By Written Consent in Lieu of a Meeting of the Stockholders of BPC
Holding Corporation dated December 16, 2004, stockholders that hold a majority
of the stock entitled to vote approved an amendment to the BPC Holding
Corporation 2002 Stock Option Plan to increase the number of Fixed Priced
Options available under such plan from 300,038 to 307,545.
-12-
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for any class of common
stock of Holding or the Company. With respect to the capital stock of Holding,
as of March 18, 2005, there were 133 holders of the common stock. All of the
issued and outstanding common stock of the Company is held by Holding.
DIVIDEND POLICY
Holding has not paid cash dividends on its capital stock since the
Merger. As a holding company with no independent operations, the ability of
Holding to pay cash dividends will be dependent on the receipt of dividends or
other payments from the Company. Under the terms of the Indenture dated as of
July 22, 2002, as supplemented (the "Indenture"), among the Company, Holding,
all of its direct and indirect domestic subsidiaries, and U.S. Bank Trust
National Association, as Trustee ("U.S. Bank"), the Company has restrictions
regarding the payment of dividends on its common stock. In addition, the
Company's second amended and restated senior secured credit facility, as
amended, contains covenants that, among other things, restrict the payment of
dividends by the Company. In addition, Delaware law limits Holding's ability
to pay dividends from current or historical earnings or profits or capital
surplus. Any determination to pay cash dividends on common stock of the
Company or Holding in the future will be at the discretion of the Board of
Directors of the Company and Holding, respectively.
EQUITY COMPENSATION PLAN INFORMATION
See Item 12 of this Form 10-K entitled "Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters".
-13-
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from our consolidated
financial statements. The data should be read in connection with the
consolidated financial statements, related notes and other financial
information included herein. Our fiscal year is a 52/53 week period ending
generally on the Saturday closest to December 31. All references herein to
"2004," "2003," "2002," "2001," and "2000" relate to the fiscal years ended
January 1, 2005, December 27, 2003, December 28, 2002, December 29, 2001, and
December 30, 2000, respectively. For analysis purposes, the results under
Holding's prior ownership ("Predecessor") have been combined with results
subsequent to the Merger on July 22, 2002. Our historical consolidated
financial information may not be comparable to or indicative of our future
performance. For a discussion of certain factors that materially affect the
comparability of the consolidated financial data or cause the data reflected
herein not to be indicative of our future financial condition or results of
operations, see "Risk Factors."
BPC HOLDING CORPORATION
-------------------------
FISCAL
-------------------------
COMBINED
COMPANY &
COMPANY COMPANY PREDECESSOR PREDECESSOR PREDECESSOR
--------- --------- ------------- ------------- -------------
2004 2003 2002 2001 2000
--------- --------- ------------- ------------- -------------
(IN THOUSANDS OF DOLLARS)
Statement of Operations Data:
Net sales $814,213 $551,876 $494,303 $461,659 $408,088
Cost of goods sold 639,329 420,750 371,273 338,000 312,119
---------- ---------- ---------- ---------- ----------
Gross profit 174,884 131,126 123,030 123,659 95,969
Operating expenses (a) 81,008 59,936 77,467 70,192 65,862
---------- ---------- ---------- ---------- ----------
Operating income 93,876 71,190 45,563 53,467 30,107
Other expenses (income) (b) - (7) 299 473 877
Loss on extinguished debt (c) - 250 25,328 - 1,022
Interest expense, net (d) 53,185 45,413 49,254 54,355 51,457
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 40,691 25,534 (29,318) (1,361) (23,249)
Income taxes (benefit) 17,740 12,486 3,298 734 (142)
---------- ---------- ---------- ---------- ----------
Net income (loss) 22,951 13,048 (32,616) (2,095) (23,107)
Preferred stock dividends - - 6,468 9,790 6,655
Amortization of preferred stock discount - - 574 1,024 768
---------- ---------- ---------- ---------- ----------
Net income (loss) attributable to common $ 22,951 $ 13,048 $ (39,658) $ (12,909) $ (30,530)
stockholders ========== ========== ========== ========== ==========
Balance Sheet Data (at end of year):
Working capital $ 90,094 $ 87,571 $ 64,201 $ 19,327 $ 20,470
Fixed assets 281,972 282,977 193,132 203,217 179,804
Total assets 1,005,144 1,015,806 760,576 446,876 413,122
Total debt 697,558 751,605 609,943 485,881 468,806
Stockholders' equity (deficit) 183,891 152,591 75,163 (139,601) (137,997)
Other Data:
Depreciation and amortization (e) 60,816 44,078 41,965 50,907 42,148
Capital expenditures 52,624 29,949 28,683 32,834 31,530
(a) Operating expenses include $20,987 related to the Merger during fiscal
2002.
(b) Other expenses (income) consist of net losses (gains) on disposal of
property and equipment for the respective years.
(c) The loss on extinguished debt in 2003 represents the legal costs associated
with amending the senior credit facility in connection with the Landis
Acquisition. As a result of the retirement all of Holding's senior secured
notes and Berry Plastics' senior subordinated notes and the repayment of all
amounts owed under our credit facilities in connection with the Merger, $6.6
million of existing deferred financing fees and $18.7 million of prepayment
fees and related charges were charged to expense in 2002 as a loss on
extinguished debt. In 2000, the loss on extinguished debt relates to
deferred financing fees written off as a result of amending the retired
senior credit facility.
(d) Includes non-cash interest expense of $1,862, $2,318, $2,476, $11,268, and
$18,047, in fiscal 2004, 2003, 2002, 2001, and 2000, respectively.
(e) Depreciation and amortization excludes non-cash amortization of deferred
financing fees and debt premium/discount amortization which are included in
interest expense.
-14-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Unless the context requires otherwise, references in this Management's
Discussion and Analysis of Financial Condition and Results of Operations to
"BPC Holding" or "Holding" refer to BPC Holding Corporation, references to
"we," "our" or "us" refer to BPC Holding Corporation together with its
consolidated subsidiaries, and references to "Berry Plastics" or the "Company"
refer to Berry Plastics Corporation, a wholly owned subsidiary of BPC Holding
Corporation. For analysis purposes, the results under Holding's prior
ownership ("Predecessor") have been combined with results subsequent to the
merger on July 22, 2002 described below. You should read the following
discussion in conjunction with the consolidated financial statements of Holding
and its subsidiaries and the accompanying notes thereto, which information is
included elsewhere herein. This discussion contains forward-looking statements
and involves numerous risks and uncertainties, including, but not limited to,
those described in the "Risk Factors" section at the end of this discussion.
Our actual results may differ materially from those contained in any forward-
looking statements.
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly
formed entity controlled by various private equity funds affiliated with
Goldman, Sachs & Co., merged (the "Merger") with and into Holding, pursuant to
an agreement and plan of merger, dated as of May 25, 2002. At the effective
time of the Merger, (1) each share of common stock of Holding issued and
outstanding immediately prior to the effective time of the Merger was converted
into the right to receive cash pursuant to the terms of the merger agreement,
and (2) each share of common stock of the Buyer issued and outstanding
immediately prior to the effective time of the Merger was converted into one
share of common stock of Holding. Additionally, in connection with the Merger,
we retired all of Holding's senior secured notes and Berry Plastics' senior
subordinated notes, repaid all amounts owed under our credit facilities,
redeemed all of the outstanding preferred stock of Holding, entered into a new
credit facility and completed an offering of new senior subordinated notes of
Berry Plastics. Immediately following the Merger, private equity funds
affiliated with Goldman Sachs owned approximately 63% of the outstanding common
stock of Holding, private equity funds affiliated with J.P. Morgan Chase & Co.
owned approximately 29% and members of our management owned the remaining 8%.
OVERVIEW
We are one of the world's leading manufacturers and suppliers of a
diverse mix of rigid plastics packaging products focusing on the open-top
container, closure, aerosol overcap, drink cup and housewares markets. We sell
a broad product line to over 12,000 customers. We concentrate on manufacturing
higher quality, value-added products sold to image-conscious marketers of
institutional and consumer products. We believe that our large operating
scale, low-cost manufacturing capabilities, purchasing leverage, proprietary
thermoforming technology and extensive collection of over 1,000 active
proprietary molds provide us with a competitive advantage in the marketplace.
We have been able to leverage our broad product offering, value-added
manufacturing capabilities and long-standing customer relationships into
leading positions across a number of products. Our top 10 customers
represented approximately 35% of our fiscal 2004 net sales with no customer
accounting for more than 8% of our fiscal 2004 net sales. The average length
of our relationship with these customers was over 20 years. Our products are
primarily sold to customers in industries that exhibit relatively stable demand
characteristics and are considered less sensitive to overall economic
conditions, such as pharmaceuticals, food, dairy and health and beauty.
Additionally, we operate 16 high-volume manufacturing facilities and have
extensive distribution capabilities. We organize our business into four
operating divisions: containers, closures, consumer products, and
international. At the end of fiscal 2004, we had approximately 4,550
employees.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We disclose those accounting policies that we consider to be significant in
determining the amounts to be utilized for communicating our consolidated
financial position, results of operations and cash flows in the second note to
our consolidated financial statements included elsewhere herein. Our
discussion and analysis of our financial condition and results of operations
are based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements in conformity with these principles
requires management to make estimates and assumptions that affect amounts
reported in the financial statements and accompanying notes. Actual results
are likely to differ from these estimates, but management does not believe such
differences will materially affect our financial position or results of
operations. We believe that the following accounting policies are the most
critical because they have the greatest impact on the presentation of our
financial condition and results of operations.
-15-
Accounts receivable. We evaluate our allowance for doubtful accounts on a
quarterly basis and review any significant customers with delinquent balances
to determine future collectibility. We base our determinations on legal issues
(such as bankruptcy status), past history, current financial and credit agency
reports, and the experience of our credit representatives. We reserve accounts
that we deem to be uncollectible in the quarter in which we make the
determination. We maintain additional reserves based on our historical bad
debt experience. We believe, based on past history and our credit policies,
that our net accounts receivable are of good quality. A ten percent increase
or decrease in our bad debt experience would not have a material impact on the
results of operations of the Company. Our allowance for doubtful accounts was
$3.2 million and $2.7 million as of January 1, 2005 and December 27, 2003,
respectively.
Inventory obsolescence. We evaluate our reserve for inventory obsolescence on
a quarterly basis and review inventory on-hand to determine future salability.
We base our determinations on the age of the inventory and the experience of
our personnel. We reserve inventory that we deem to be not salable in the
quarter in which we make the determination. We believe, based on past history
and our policies and procedures, that our net inventory is salable. A ten
percent increase or decrease in our inventory obsolescence experience would not
have a material impact on the results of operations of the Company. Our
reserve for inventory obsolescence was $3.8 million and $4.1 million as of
January 1, 2005 and December 27, 2003, respectively.
Medical insurance. We offer our employees medical insurance that is primarily
self-insured by us. As a result, we accrue a liability for known claims as
well as the estimated amount of expected claims incurred but not reported. We
evaluate our medical claims liability on a quarterly basis and obtain an
independent actuarial analysis on an annual basis. Based on our analysis, we
believe that our recorded medical claims liability should be sufficient. A ten
percent increase or decrease in our medical claims experience would not have a
material impact on the results of operations of the Company. Our accrued
liability for medical claims was $2.0 million and $3.0 million, including
reserves for expected medical claims incurred but not reported, as of January
1, 2005 and December 27, 2003, respectively.
Workers' compensation insurance. Starting in fiscal 2000, we converted the
majority of our facilities to a large deductible program for workers'
compensation insurance. On a quarterly basis, we evaluate our liability based
on third-party adjusters' independent analyses by claim. Based on our
analysis, we believe that our recorded workers' compensation liability should
be sufficient. A ten percent increase or decrease in our workers'
compensations claims experience would not have a material impact on the results
of operations of the Company. Our accrued liability for workers' compensation
claims was $3.5 million and $3.1 million as of January 1, 2005 and December 27,
2003, respectively.
Revenue recognition. Revenue from sales of products is recognized at the time
product is shipped to the customer at which time title and risk of ownership
transfer to the purchaser.
Impairments of Long-Lived Assets. In accordance with the methodology described
in FASB Statement No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets," we review long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of such assets may not be
recoverable. Impairment losses are recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. The impairment loss is measured by comparing the fair value
of the asset to its carrying amount. No impairments were recorded in the
financial statements included in this Form 10-K.
Deferred Taxes and Effective Tax Rates. We estimate the effective tax rates
and associated liabilities or assets for each legal entity of ours in
accordance with FAS 109. We use tax-planning to minimize or defer tax
liabilities to future periods. In recording effective tax rates and related
liabilities and assets, we rely upon estimates, which are based upon our
interpretation of United States and local tax laws as they apply to our legal
entities and our overall tax structure. Audits by local tax jurisdictions,
including the United States Government, could yield different interpretations
from our own and cause the Company to owe more taxes than originally recorded.
For interim periods, we accrue our tax provision at the effective tax rate that
we expect for the full year. As the actual results from our various businesses
vary from our estimates earlier in the year, we adjust the succeeding interim
periods effective tax rates to reflect our best estimate for the year-to-date
results and for the full year. As part of the effective tax rate, if we
determine that a deferred tax asset arising from temporary differences is not
likely to be utilized, we will establish a valuation allowance against that
asset to record it at its expected realizable value. Our valuation allowance
against deferred tax assets was $1.3 million and $16.9 million as of January 1,
2005 and December 27, 2003, respectively. The decrease of $15.6 million in
2004 can be primarily attributed to the use of fully reserved net operating
losses and increases in the temporary differences related to property and
equipment.
-16-
Based on a critical assessment of our accounting policies and the underlying
judgments and uncertainties affecting the application of those policies, we
believe that our consolidated financial statements provide a meaningful and
fair perspective of Holding and its consolidated subsidiaries. This is not to
suggest that other risk factors such as changes in economic conditions, changes
in material costs and others could not adversely impact our consolidated
financial position, results of operations and cash flows in future periods.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123R (Revised 2004,) Share-Based Payment ("SFAS No. 123R"), which
requires that the compensation cost relating to share-based payment
transactions be recognized in financial statements based on alternative fair
value models. The share-based compensation cost will be measured based on the
fair value of the equity or liability instruments issued. We currently
disclose pro forma compensation expense quarterly and annually by calculating
the stock option grants' fair value using the Black-Scholes model and disclose
the impact on net income (loss) in a Note to the Consolidated Financial
Statements. Upon adoption, pro forma disclosure will no longer be an
alternative. For nonpublic companies, as defined, the effective date of SFAS
No. 123R is the beginning of the first annual reporting period that begins
after December 15, 2005, although early adoption is allowed. We expect to
adopt SFAS No. 123R in the first quarter of 2006, but have not yet evaluated
what effect the adoption of this new standard will have on our financial
position or results of operations.
In November 2004, the FASB issued Statement of Financial Accounting
Standards No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4
("SFAS 151"). SFAS 151 requires the exclusion of certain costs from
inventories and the allocation of fixed production overheads to inventories to
be based on normal capacity of the production facilities. The provisions of
SFAS 151 are effective for costs incurred during fiscal years beginning after
June 15, 2005. Earlier adoption is permitted for inventory costs incurred
during fiscal years beginning after the issuance date of SFAS 151. We has not
yet evaluated what effect the adoption of this new standard will have on our
financial position or results of operations.
ACQUISITIONS
We maintain a selective and disciplined acquisition strategy, which is
focused on improving our financial performance in the long-term, enhancing our
market positions and expanding our product lines or, in some cases, providing
us with a new or complementary product line. Most businesses we have acquired
had profit margins that are lower than that of our existing business, which
results in a temporary decrease in our margins. We have historically achieved
significant reductions in manufacturing and overhead costs of acquired
companies by introducing advanced manufacturing processes, exiting low-margin
businesses or product lines, reducing headcount, rationalizing facilities and
machinery, applying best practices and capitalizing on economies of scale. In
connection with our acquisitions, we have in the past and may in the future
incur charges related to these reductions and rationalizations.
YEAR ENDED JANUARY 1, 2005
COMPARED TO YEAR ENDED DECEMBER 27, 2003
Net Sales. Net sales increased $262.3 million, or 48%, to $814.2 million
in 2004 from $551.9 million in 2003 with an approximate 4% increase in net
selling price due to the pass through of higher resin costs passed through to
our customers. Our base business volume, excluding selling price changes and
acquired business, increased by approximately $29.5 million or 6% in 2004.
Container net sales increased $229.8 million with the Landis Acquisition
providing domestic container net sales of approximately $221.3 million in 2004
versus $20.1 million in 2003. Due to the movement of business between the
acquired Landis facilities and our pre-existing facilities, the amount of sales
related to the Landis Acquisition is estimated. The increase in container net
sales is primarily a result of the Landis Acquisition, increased selling prices
and base business growth in several of the division's product lines. Closure
net sales increased $2.2 million primarily due to the higher selling prices and
increased volume in the United States closure product line partially offset by
$3.3 million of 2004 net sales reclassified to the international division as
described below. Consumer products net sales increased $14.3 million in 2004
primarily due to increased sales from thermoformed drink cups and housewares
partially offset by reduced volume from injection drink cups. In 2004, we
created our international division as a separate operating and reporting
division to increase sales and improve service to international customers
utilizing existing resources. The international segment includes the Company's
foreign facilities and business from domestic facilities that is shipped or
billed to foreign locations. The 2003 results for the foreign facilities have
been reclassified to the international segment; however, business from domestic
facilities that were shipped or billed to foreign locations cannot be
separately identified for 2003. The international division provided net sales
of $38.1 million in 2004 compared to $22.0 million in 2003 primarily as a
result of the effects of this reclassification and the Landis Acquisition.
-17-
Gross Profit. Gross profit increased $43.8 million from $131.1 million
(24% of net sales) in 2003 to $174.9 million (21% of net sales) in 2004. This
increase of 33% includes the combined impact of the additional sales volume,
productivity improvement initiatives, and the timing effect of the 4% increase
in net selling prices due to higher resin costs passed through to our customers
partially offset by increased raw material costs. The historical margin
percentage of the business acquired in the Landis Acquisition was significantly
less than the Company's historical gross margin percentage, which reduced our
consolidated margin percentage. We have continued to consolidate products and
business of recent acquisitions to the most efficient tooling, providing
customers with improved products and customer service. As part of the Landis
integration, in the fourth quarter of 2003, we closed our Monticello, Indiana
facility, which was acquired in the Landis Acquisition. The business from this
location was distributed throughout our facilities. In addition, we completed
the integration of the Landis facilities in 2004 to our integrated computer
software system. Also, significant productivity improvements were made on the
base business in 2004, including the addition of state-of-the-art injection
molding, thermoforming and post molding equipment at several of our facilities.
Operating Expenses. Selling expenses increased by $2.5 million to $26.4
million for 2004 from $23.9 million principally as a result of increased
selling expenses associated with higher sales partially offset by cost
reduction efforts. General and administrative expenses increased from $25.7
million to $38.5 million in 2004. This increase of $12.8 million can be
primarily attributed to the Landis Acquisition and increased accrued bonus
expenses. Research and development costs increased $0.3 million to $3.8
million in 2004 primarily as a result of the Landis Acquisition. Intangible
asset amortization increased from $3.3 million in 2003 to $6.5 million for
2004, primarily as a result of additional intangible assets resulting from the
Landis Acquisition. Other expenses were $5.8 million for 2004 compared to $3.6
million for 2003. Other expenses in 2004 include transition expenses of $4.0
million related to the Landis Acquisition and $1.8 million related to the
shutdown and reorganization of facilities. Other expenses in 2003 include
transition expenses of $1.5 million related to recently acquired businesses,
$1.1 million related to the shutdown and reorganization of facilities, and $1.0
million related to an acquisition that was not completed.
Interest Expense, Net. Net interest expense, including amortization of
deferred financing costs and debt premium, for 2004 was $53.2 million (7% of
net sales) compared to $45.7 million (8% of net sales) in 2003, an increase of
$7.5 million. This increase is primarily attributed to additional indebtedness
utilized to finance the Landis Acquisition partially offset by decreased rates
of interest on borrowings and debt principal reductions.
Income Taxes. In 2004, we recorded income tax expense of $17.7 million
for income taxes, or an effective tax rate of 44%, compared to $12.5 million,
or an effective tax rate of 49%, for fiscal 2003. The effective tax rate is
greater than the statutory rate due to the impact of state taxes and foreign
location losses for which no benefit was currently provided. The increase of
$5.2 million over 2003 can be primarily attributed to improved operating
performance.
Net Income. We recorded net income of $23.0 million in 2004 compared to
$13.0 million in 2003 for the reasons stated above.
YEAR ENDED DECEMBER 27, 2003
COMPARED TO YEAR ENDED DECEMBER 28, 2002
Net Sales. Net sales increased $57.6 million, or 12%, to $551.9 million
in 2003 from $494.3 million in 2002 with an approximate 5% increase in net
selling price due to higher resin costs passed through to our customers. Our
base business volume, excluding selling price changes and acquired business,
increased by approximately $4.0 million or 1% in 2003. Container net sales
increased $38.1 million with the Landis Acquisition providing net sales of
approximately $20.1 million in 2003. The remaining increase in containers of
$18.0 million can be primarily attributed to higher selling prices primarily
due to passing through the costs of increased resin prices. Closure net sales
increased $12.0 million in 2003 primarily due to the CCL acquisition, higher
selling prices, and increased volume in the United States closure product line.
Consumer products net sales increased $6.1 million in 2003 primarily due to
increased sales from the thermoformed drink cup line and retail housewares
partially offset by a reduction in sales of a specialty drink cup line. In
2004, we created our international division as a separate operating and
reporting division to increase sales and improve service to international
customers utilizing existing resources. The international segment includes the
Company's foreign facilities and business from domestic facilities that is
shipped or billed to foreign locations. The 2003 and 2002 results for the
foreign facilities have been reclassified to the international segment;
however, business from domestic facilities that were shipped or billed to
foreign locations cannot be separately identified for 2003 or 2002. The
international division provided net sales of $22.0 million in 2003 compared to
$20.6 million in 2002. This increase of $1.4 million can be primarily
attributed to foreign currency translation.
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Gross Profit. Gross profit increased $8.1 million from $123.0 million
(25% of net sales) in 2002 to $131.1 million (24% of net sales) in 2003. This
increase of 7% includes the combined impact of the added sales volume,
productivity improvement initiatives and the timing effect of the 5% increase
in net selling prices partially offset by higher raw material costs. We have
continued to consolidate products and business of recent acquisitions to the
most efficient tooling, providing customers with improved products and customer
service. As part of the integration, in the fourth quarter of 2002 we closed
our Fort Worth, Texas facility, which was acquired in the Pescor acquisition,
and in the fourth quarter of 2003, we initiated the closing of our Monticello,
Indiana facility. The Monticello facility was acquired in the Landis
Acquisition. The business from these locations was distributed throughout our
facilities. Also, significant productivity improvements were made in 2003,
including the addition of state-of-the-art injection molding, thermoforming and
post molding equipment at several of our facilities.
Operating Expenses. Selling expenses increased by $1.7 million to $23.9
million for 2003 from $22.2 million principally as a result of increased
selling expenses resulting from increased sales. General and administrative
expenses increased from $23.4 million to $25.7 million in 2003. This increase
of $2.3 million can be primarily attributed to the Landis Acquisition and
increased accrued bonus expenses. Research and development costs increased
$0.6 million to $3.5 million in 2003 primarily as a result of an increase in
projects under development and the Landis Acquisition. Intangible asset
amortization increased from $2.4 million in 2002 to $3.3 million for 2003,
primarily as a result of intangibles resulting from the Merger and the Landis
Acquisition. In connection with the Merger, the Predecessor incurred Merger
related expenses of approximately $21.0 million, consisting primarily of
investment banking fees, bonuses to management, non-cash modification of stock
option awards, legal costs, and fees to the largest voting stockholder of the
Predecessor. Other expenses were $3.6 million for 2003 compared to $5.6
million for 2002. Other expenses in 2003 include transition expenses of $1.5
million related to recently acquired businesses, $1.1 million related to the
shutdown and reorganization of facilities, and $1.0 million related to an
acquisition that was not completed. Other expenses in 2002 include transition
expenses of $1.3 million related to recently acquired businesses, $4.1 million
related to the shutdown and reorganization of facilities, and $0.2 million
related to an acquisition that was not completed.
Interest Expense, Net. Net interest expense, including amortization of
deferred financing costs and debt premium, for 2003 was $45.7 million (8% of
net sales) compared to $74.6 million (15% of net sales) in 2002, a decrease of
$28.9 million. This decrease is primarily attributed to $18.7 million of
prepayment fees and related charges and $6.6 million of deferred financing fees
written off in 2002 due to the extinguishment of debt in connection with the
Merger and decreased rates of interest on borrowings in 2003.
Income Taxes. In 2003, we recorded income tax expense of $12.5 million
for income taxes, or an effective tax rate of 49%, compared to $3.3 million for
fiscal 2002. The effective tax rate is greater than the statutory rate due to
the impact of state taxes and foreign location losses for which no benefit was
currently provided. The increase of $9.2 million over 2002 can be attributed
to the Merger as the use of fully reserved net operating loss carryforwards
that existed at the time of the Merger have been recorded as a reduction to
goodwill.
Net Income (Loss). We recorded net income of $13.0 million in 2003
compared to a net loss of $32.6 million in 2002 for the reasons stated above.
INCOME TAX MATTERS
As of January 1, 2005, Holding has unused operating loss carryforwards of
$61.1 million for federal income tax purposes which begin to expire in 2012.
Alternative minimum tax credit carryforwards of approximately $3.8 million are
available to Holding indefinitely to reduce future years' federal income taxes.
As a result of the Merger, $45.0 million of the unused operating loss
carryforward is limited to approximately $12.9 million per year, and $16.0
million of the unused operating loss carryforward occurred subsequent to the
Merger and is not subject to an annual limitation.
LIQUIDITY AND CAPITAL RESOURCES
On July 22, 2002, we entered into a credit and guaranty agreement and a
related pledge security agreement with a syndicate of lenders led by Goldman
Sachs Credit Partners L.P., as administrative agent (the "Credit Facility").
On November 10, 2003, in connection with the Landis Acquisition, we amended and
restated the Credit Facility (the "Amended and Restated Credit Facility"). On
August 9, 2004, the Amended and Restated Credit Facility was amended and
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restated (the "Second Amended and Restated Credit Facility"). The Second
Amended and Restated Credit Facility provides (1) a $365.5 million term loan
and (2) a $100.0 million revolving credit facility. The proceeds from the new
term loan were used to repay the outstanding balance of the term loans from the
Amended and Restated Credit Facility. The Second Amended and Restated Credit
Facility permits the Company to borrow up to an additional $150.0 million of
incremental senior term indebtedness from lenders willing to provide such loans
subject to certain restrictions. The terms of the additional indebtedness will
be determined by the market conditions at the time of borrowing. The maturity
date of the term loan is July 22, 2010, and the maturity date of the revolving
credit facility is July 22, 2008. The indebtedness under the Second Amended
and Restated Credit Facility is guaranteed by Holding and all of its domestic
subsidiaries. The obligations of the Company and the subsidiaries under the
Second Amended and Restated Credit Facility and the guarantees thereof are
secured by substantially all of the assets of such entities. At January 1,
2005 and December 27, 2003, there were no borrowings outstanding on the
revolving credit facility.
Borrowings under the Second Amended and Restated Credit Facility bear
interest, at the Company's option, at either (i) a base rate (equal to the
greater of the prime rate or the federal funds rate plus 0.5%) plus the
applicable margin (the "Base Rate Loans") or (ii) an adjusted eurodollar
LIBOR (adjusted for reserves) plus the applicable margin (the "Eurodollar Rate
Loans"). With respect to the term loan, the "applicable margin" is (i) with
respect to Base Rate Loans, 1.25% per annum and (ii) with respect to Eurodollar
Rate Loans, 2.25% per annum (4.22% at January 1, 2005). In addition, the
applicable margins with respect to the term loan can be further reduced by an
additional .25% per annum subject to the Company meeting a leverage ratio
target, which was met based on the results through January 1, 2005. With
respect to the revolving credit facility, the "applicable margin" is subject
to a pricing grid which ranges from 2.75% per annum to 2.00% per annum,
depending on the leverage ratio (2.50% based on results through January 1,
2005). The "applicable margin" with respect to Base Rate Loans will always
be 1.00% per annum less than the "applicable margin" for Eurodollar Rate
Loans. The interest rate applicable to overdue payments and to outstanding
amounts following an event of default under the Second Amended and Restated
Credit Facility is equal to the interest rate at the time of an event of
default plus 2.00%. We also must pay commitment fees ranging from 0.375% per
annum to 0.50% per annum on the average daily unused portion of the revolving
credit facility. Pursuant to a requirement in the Credit Facility and as a
result of an economic slowdown and corresponding interest rate reductions, we
entered into an interest rate collar arrangement in October 2002 to protect
$50.0 million of the outstanding variable rate term loan debt from future
interest rate volatility. Under the interest rate collar agreement, the
Eurodollar rate with respect to the $50.0 million of outstanding variable rate
term loan debt will not exceed 6.75% or drop below 1.97%. The agreement was
effective January 15, 2003 and terminates on July 15, 2006.
The Second Amended and Restated Credit Facility contains significant
financial and operating covenants, including prohibitions on our ability to
incur specified additional indebtedness or to pay dividends, and restrictions
on our ability to make capital expenditures and investments and dispose of
assets or consummate acquisitions. The Second Amended and Restated Credit
Facility contains (1) a minimum interest coverage ratio as of the last day of
any quarter of 2.15:1.00 per quarter for the quarters ending December 2004 and
March 2005, 2.25:1.00 per quarter for the quarters ending June 2005 through
March 2006, 2.35:1.00 per quarter for the quarters ending June 2006 through
December 2006 and 2.50:1.00 per quarter thereafter, (2) a maximum amount of
capital expenditures (subject to the rollover of certain unexpended amounts
from the prior year and increases due to acquisitions) of $50 million for the
year ending 2004, $60 million for the years ending 2005, 2006 and 2007, and $65
million for each year thereafter, and (3) a maximum total leverage ratio as of
the last day of any quarter of 5.50:1.00 per quarter for the quarters ending
December 2004 through June 2005, 5.25:1.00 per quarter for the quarters ending
September 2005 and December 2005, 5.00:1.00 per quarter for the quarters ending
March 2006 and June 2006, 4.75:1.00 per quarter for the quarters ending
September 2006 through March 2007, 4.50:1.00 per quarter for the quarters
ending June 2007 through December 2007, 4.25:1.00 per quarter for the quarters
ending March 2008 through December 2008, and 4.00:1.00 per quarter thereafter.
The occurrence of a default, an event of default or a material adverse effect
on Berry Plastics would result in our inability to obtain further borrowings
under our revolving credit facility and could also result in the acceleration
of our obligations under any or all of our debt agreements, each of which could
materially and adversely affect our business. We were in compliance with all
of the financial and operating covenants at January 1, 2005.
In 2004, we made two voluntary principal prepayments totaling $45.0
million on our senior term debt resulting in a revision of the loan
amortization schedule. Accordingly, the term loan amortizes quarterly as
follows: $831,312 each quarter beginning March 31, 2005 and ending June 30,
2009; and $78,974,687 each quarter beginning September 30, 2009 and ending June
30, 2010. Borrowings under the Second Amended and Restated Credit Facility are
subject to mandatory prepayment under specified circumstances, including if we
meet specified cash flow thresholds, collect insurance proceeds in excess of
certain thresholds, issue equity securities or debt or sell assets not in the
ordinary course of business, or upon a sale or change of control of the
Company. There is no required amortization of the revolving credit facility.
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Outstanding borrowings under the revolving credit facility may be repaid at any
time, and may be reborrowed at any time prior to the maturity date which is on
July 22, 2008. The revolving credit facility allows up to $25.0 million of
letters of credit to be issued instead of borrowings and up to $10.0 million of
swingline loans. At January 1, 2005 and December 27, 2003, we had $8.5 million
and $7.4 million, respectively, in letters of credit outstanding under our
revolving credit facility.
On July 22, 2002, we completed an offering of $250.0 million aggregate
principal amount of 10 3/4% Senior Subordinated Notes due 2012 (the "2002
Notes"). The net proceeds to us from the sale of the 2002 Notes, after
expenses, were $239.4 million. The proceeds from the 2002 Notes were used in
the financing of the Merger. The 2002 Notes mature on July 15, 2012, and
interest is payable semi-annually on January 15 and July 15 of each year
beginning January 15, 2003. Holding and all of our domestic subsidiaries
fully, jointly, severally, and unconditionally guarantee the 2002 Notes.
On November 20, 2003, we completed an offering of $85.0 million aggregate
principal amount of additional 2002 Notes (the "Add-on Notes" and together with
the 2002 Notes, the "Notes"). The net proceeds to us from the sale of the Add-
on Notes, after expenses, were $91.8 million as the Add-on Notes were sold at a
premium of 12% over the face amount. The proceeds from the Add-on Notes were
used in the financing of the Landis Acquisition. The Add-on Notes constitute a
single class with the 2002 Notes. Holding and all of our domestic subsidiaries
fully, jointly, severally, and unconditionally guarantee the Add-on Notes.
We are not required to make mandatory redemption or sinking fund payments
with respect to the Notes. On or subsequent to July 15, 2007, the Notes may be
redeemed at our option, in whole or in part, at redemption prices ranging from
105.375% in 2007 to 100% in 2010 and thereafter. Prior to July 15, 2005, up to
35% of the Notes may be redeemed at 110.75% of the principal amount at our
option from the proceeds of an equity offering. Upon a change in control, as
defined in the indenture under which the Notes were issued (the "Indenture"),
each holder of Notes will have the right to require us to repurchase all or any
part of such holder's Notes at a repurchase price in cash equal to 101% of the
aggregate principal amount thereof plus accrued interest. The Indenture
restricts our ability to incur additional debt and contains other provisions
which could limit our liquidity.
Our contractual cash obligations as of January 1, 2005 are summarized in
the following table.
PAYMENTS DUE BY PERIOD AT JANUARY 1, 2005
------------------------------------------------------
TOTAL <1 YEAR 1-3 YEARS 4-5 YEARS >5 YEARS
----- ------- --------- --------- --------
Long-term debt, excluding capital leases $667,760 $ 3,825 $ 7,650 $162,937 $493,348
Capital leases 26,104 8,397 8,654 9,053 -
Operating leases 109,047 13,645 23,359 17,927 54,116
Purchase obligations (1) 56,521 56,521 - - -
-------- -------- -------- -------- --------
Total contractual cash obligations $859,894 $82,850 $39,663 $189,917 $547,464
(1)Represents open purchase commitments for purchases of resin and capital
expenditures in the normal course of operations.
Net cash provided by operating activities was $75.2 million in 2004 as
compared to $79.8 million in 2003. This decrease of $4.6 million can be
primarily attributed to increased working capital needs due to revenue growth,
increased resin costs, and increased quantities of resin as a result of
mechanical hedging partially offset by improved operating performance. Net
cash provided by operating activities was $79.8 million in 2003 as compared to
$26.6 million in 2002. This increase of $53.2 million can be primarily
attributed to Merger related expenses of $21.0 million in 2002, improved
operating performance as our net income (loss) plus non-cash expenses excluding
the Merger related expenses improved $8.1 million, and improved working capital
management.
Net cash used for investing activities decreased from $265.7 million in
2003 to $45.5 million in 2004 primarily as a result of the Landis Acquisition
in 2003 and the receipt of $7.4 million in 2004 related to the working capital
adjustment from the Landis Acquisition. In addition, Berry Plastics U.K.
Limited, a foreign subsidiary of Berry, reached an agreement in March 2004 to
sell the manufacturing equipment, inventory, and accounts receivable for its
U.K. milk cap business to Portola Packaging U.K. Limited. The transaction
valued at approximately $4.0 million closed in April 2004. The U.K. milk cap
business represented less than $3.0 million of our annual consolidated net
sales. Capital expenditures in 2004 were $52.6 million, an increase of $22.7
million from $29.9 million in 2003. Capital expenditures in 2004 included
investments of $11.1 million for facility additions and renovations, production
systems and offices necessary to support production operating levels throughout
the company, $14.8 million for molds, $17.1 million for molding and printing
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equipment, and $9.6 million for accessory equipment and systems. The capital
expenditure budget for 2005 is expected to be approximately $53.0 million. Net
cash used for investing activities increased from $44.9 million in 2002 to
$265.7 million in 2003 primarily as a result of the Landis Acquisition in 2003
partially offset by $12.4 million of capitalized Merger costs in 2002.
Net cash used for financing activities was $55.7 million in 2004 as
compared to cash provided by financing activities of $196.8 million in 2003.
The change can be primarily attributed to the Landis Acquisition financing in
2003 and the voluntary prepayment of $45.0 million of the senior term loans in
2004. Net cash provided by financing activities was $196.8 million in 2003 as
compared to $32.4 million in 2002. The increase of $164.4 million can be
primarily attributed to the Landis Acquisition in 2003 partially offset by the
Merger.
Increased working capital needs occur whenever we experience strong
incremental demand or a significant rise in the cost of raw material,
particularly plastic resin. However, we anticipate that our cash interest,
working capital and capital expenditure requirements for 2005 will be satisfied
through a combination of funds generated from operating activities and cash on
hand, together with funds available under the Second Amended and Restated
Credit Facility. We base such belief on historical experience and the
substantial funds available under the Second Amended and Restated Credit
Facility. However, we cannot predict our future results of operations and our
ability to meet our obligations involves numerous risks and uncertainties,
including, but not limited to, those described in the "Risk Factors" section.
In particular, increases in the cost of resin which we are unable to pass
through to our customers or significant acquisitions could severely impact our
liquidity. At January 1, 2005, our cash balance was $0.3 million, and we had
unused borrowing capacity under the Second Amended and Restated Credit
Facility's borrowing base of $91.5 million. Although the $91.5 million was
available at January 1, 2005, the covenants under our Second Amended and
Restated Credit Facility may limit our ability to make such borrowings in the
future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to market risk from changes in interest rates primarily
through our Second Amended and Restated Credit Facility. The Second Amended
and Restated Credit Facility is comprised of (1) a $365.5 million term loan and
(2) a $100.0 million revolving credit facility. At January 1, 2005, there were
no borrowings outstanding on the revolving credit facility. The net
outstanding balance of the term loan at January 1, 2005 was $330.8 million.
The term loan bears interest at the Eurodollar rate plus the applicable margin.
Future borrowings under the Second Amended and Restated Credit Facility bear
interest, at our option, at either (1) the base rate, which is a rate per annum
equal to the greater of the prime rate and the federal funds effective rate in
effect on the date of determination plus 0.5% plus the applicable margin or (2)
an adjusted Eurodollar Rate which is equal to the rate for Eurodollar deposits
plus the applicable margin. We utilize interest rate instruments to reduce the
impact of either increases or decreases in interest rates on its floating rate
debt. Pursuant to a requirement in the Credit Facility and as a result of an
economic slowdown and corresponding interest rate reductions, we entered into
an interest rate collar arrangement in October 2002 to protect $50.0 million of
the outstanding variable rate term loan debt from future interest rate
volatility. Under the interest rate collar agreement, the Eurodollar rate with
respect to the $50.0 million of outstanding variable rate term loan debt will
not exceed 6.75% or drop below 1.97%. At January 1, 2005, the Eurodollar rate
applicable to the term loan was 2.22%. If the Eurodollar rate increases 0.25%
and 0.5%, we estimate an annual increase in our interest expense of
approximately $0.8 million and $1.7 million, respectively.
Plastic Resin Cost Risk
We are exposed to market risk from changes in plastic resin prices that
could impact our results of operations and financial condition. We manage our
exposure to these market risks through our normal operations through purchasing
negotiation, mechanical hedging, switching between HDPE and PP for certain
products and, when deemed appropriate, by using derivative financial
instruments in accordance with established policies and procedures. The
derivative financial instruments generally used are forward contracts. The
derivative financial instruments utilized by the Company in its hedging
activities are considered risk management tools and are not used for trading
purposes.
As part of our risk management strategy, in the fourth quarter of 2004,
we entered into resin forward hedging transactions constituting approximately
15% of our estimated 2005 resin needs and 10% of our 2006 estimated resin
needs. These contracts obligate the Company to make or receive a monthly
payment equal to the difference in the unit cost of resin per the contract and
an industry index times the contracted pounds of plastic resin. Such contracts
are designated as hedges of a portion of the Company's forecasted purchases
through 2006 and are effective in hedging the Company's exposure to changes in
resin prices during this period.
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The contracts qualify as cash flow hedges under SFAS No. 133 and
accordingly are marked to market with unrealized gains and losses deferred
through other comprehensive income and will be recognized in earnings when
realized as an adjustment to cost of goods sold. The fair values of these
contracts at January 1, 2005 was an unrealized gain of $5.2 million. Based on
the Company's resin price exposure at January 1, 2005, a hypothetical 10%
change in resin prices without any pass through to our customers for a one-year
period would change income before income taxes by approximately $28.3 million.
ITEM 7B.RISK FACTORS
We have substantial debt and we may incur substantially more debt, which could
affect our ability to meet our debt obligations and may otherwise restrict our
activities.
We have substantial debt, and we may incur substantial additional debt in the
future. As of January 1, 2005, we had total indebtedness of approximately
$697.6 million, excluding $8.5 million in letters of credit under our revolving
credit facility and, subject to certain conditions to borrowing, $91.5 million
available for future borrowings under our revolving credit facility.
Our substantial debt could have important consequences to you. For example,
it could:
a) require us to dedicate a substantial portion of our cash flow to
payments on our indebtedness, which would reduce the amount of cash flow
available to fund working capital, capital expenditures, product
development and other corporate requirements;
b) increase our vulnerability to general adverse economic and industry
conditions, including changes in raw material costs;
c) limit our ability to respond to business opportunities;
d) limit our ability to borrow additional funds, which may be
necessary; and
e) subject us to financial and other restrictive covenants, which, if
we fail to comply with these covenants and our failure is not waived or
cured, could result in an event of default under our debt.
To service our debt, we will require a significant amount of cash. Our ability
to generate cash depends on many factors beyond our control.
Our ability to make payments on our debt, and to fund planned capital
expenditures and research and development efforts will depend on our ability to
generate cash in the future. This, to an extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors,
including those described in this section, that are beyond our control. We
cannot assure you that our business will generate sufficient cash flow from
operations or that future borrowings will be available to us under our new
senior secured credit facilities in an amount sufficient to enable us to pay
our debt, or to fund our other liquidity needs. We may need to refinance all
or a portion of our indebtedness, on or before maturity. We cannot assure you
that we will be able to refinance any of our debt, including our new senior
secured credit facilities, on commercially reasonable terms or at all.
The agreements governing our debt impose restrictions on our business.
The Indenture and the Second Amended and Restated Credit Facility contain a
number of covenants imposing significant restrictions on our business. These
restrictions may affect our ability to operate our business and may limit our
ability to take advantage of potential business opportunities as they arise.
The restrictions these covenants place on us and our restricted subsidiaries
include limitations on our ability and the ability of our restricted
subsidiaries to:
a)incur indebtedness or issue preferred shares;
b)pay dividends or make distributions in respect of our capital
stock or to make certain other restricted payments;
c)create liens;
d)agree to payment restrictions affecting our restricted
subsidiaries;
e)make acquisitions;
f)consolidate, merge, sell or lease all or substantially all of our
assets;
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g)enter into transactions with our affiliates; and
f)designate our subsidiaries as unrestricted subsidiaries.
Our Second Amended and Restated Credit Facility also requires us to meet a
number of financial ratios. Our ability to comply with these agreements may be
affected by events beyond our control, including prevailing economic, financial
and industry conditions and are subject to the risks in this "Risk Factors"
section. The breach of any of these covenants or restrictions could result in
a default under the Indenture or our Second Amended and Restated Credit
Facility. An event of default under our debt agreements would permit some of
our lenders to declare all amounts borrowed from them to be immediately due and
payable. If we were unable to repay debt to our lenders, these lenders could
proceed against the collateral securing that debt.
We have experienced consolidated net losses.
Our net losses were $23.1 million for fiscal 2000, $2.1 million for fiscal
2001 and $32.6 million for fiscal 2002. Consolidated earnings have been
insufficient to cover fixed charges by $20.5 million for fiscal 2000, by $0.8
million for fiscal 2001 and by $3.1 million for fiscal 2002.
We do not have guaranteed supply or fixed-price contracts with plastic resin
suppliers.
We source plastic resin primarily from major industry suppliers such as Dow,
Basell, Nova, Total (formerly Atofina), Equistar, Sunoco, BP Amoco, and
ExxonMobil. We have long-standing relationships with certain of these
suppliers but have not entered into a firm supply contract with any of our
resin vendors. We may not be able to arrange for other sources of resin in the
event of an industry-wide general shortage of resins used by us, or a shortage
or discontinuation of certain types of grades of resin purchased from one or
more of our suppliers. Any such shortage may negatively impact our competitive
position versus companies that are able to better or more cheaply source resin.
Additionally, we may be subject to significant increases in prices that may
materially impact our financial condition. Over the past several years, we
have at times experienced rapidly increasing resin prices primarily due to the
increased cost of oil and natural gas. Due to the extent and rapid nature of
these increases, we cannot reasonably estimate the extent to which we will be
able to successfully recover these cost increases in the short-term. If
rapidly increasing resin prices occur, our revenue and/or profitability may be
materially and adversely affected, both in the short-term as we attempt to pass
through changes in the costs of resin to customers under current agreements and
in the longer term as we negotiate new agreements or if our customers seek
product substitution.
If market conditions do not permit us to pass on the cost of plastic resins to
our customers on a timely basis, or at all, our financial condition and results
of operations could suffer materially.
To produce our products we use large quantities of plastic resins, which in
fiscal 2004 cost us approximately $283.0 million, or 44% of our total cost of
goods sold. Plastic resins are subject to cyclical price fluctuations,
including those arising from supply shortages and changes in the prices of
natural gas, crude oil and other petrochemical intermediates from which resins
are produced. The instability in the world markets for oil and natural gas
could materially adversely affect the prices and general availability of raw
materials quickly. Based on information from Plastics News, an industry
publication, prices of HDPE and PP on January 1, 2005 were $0.655 per pound and
$0.64 per pound, respectively, reflecting increases of $0.20 per pound, or 44%,
and $0.23 per pound, or 56%, over the respective prices from December 27, 2003.
Historically, we have generally been able to pass on a significant portion of
the increases in resin prices to our customers over a period of time, but even
in such cases there have been negative short-term impacts to our financial
performance. Certain of our customers (currently fewer than 10% of our net
sales) purchase our products pursuant to fixed-price arrangements in respect of
which we have at times and may continue to enter into hedging or similar
arrangements. In the future, we may not be able to pass on substantially all of
the increases in resin prices to our customers on a timely basis, if at all,
which may have a material adverse effect on our competitive position and
financial performance.
We may not be able to compete successfully and our customers may not continue
to purchase our products.
We face intense competition in the sale of our products. We compete with
multiple companies in each of our product lines, including divisions or
subsidiaries of larger companies and foreign competitors with lower cost
structures. We compete on the basis of a number of considerations, including
price, service, quality, product characteristics and the ability to supply
products to customers in a timely manner. Our products also compete with metal
and glass, paper and other packaging materials as well as plastic packaging
materials made through different manufacturing processes. Many of our product
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lines also compete with plastic products in other lines and segments. Our
competitors may have financial and other resources that are substantially
greater than ours and may be better able than us to withstand price
competition. In addition, some of our customers do and could in the future
choose to manufacture the products they require for themselves. Each of our
product lines faces a different competitive landscape. We may not be able to
compete successfully with respect to any of the foregoing factors. Competition
could result in our products losing market share or our having to reduce our
prices, either of which would have a material adverse effect on our business
and results of operations and financial condition. In addition, since we do
not have long-term arrangements with many of our customers, these competitive
factors could cause our customers to shift suppliers and/or packaging material
quickly.
In the event of a catastrophic loss of our key manufacturing facility, our
business would be adversely affected.
Our primary manufacturing facility is in Evansville, Indiana, where we
produce approximately one-fourth of our products. Also, our primary computer
software system resides on a computer that is located in the Evansville
facility. While we maintain insurance covering the facility, including
business interruption insurance, a catastrophic loss of the use of all or a
portion of the facility due to accident, labor issues, weather conditions,
other natural disaster or otherwise, whether short or long-term, could have a
material adverse effect on us.
Our acquisition strategy may be unsuccessful.
As part of our growth strategy, we plan to pursue the acquisition of other
companies, assets and product lines that either complement or expand our
existing business. We cannot assure you that we will be able to consummate any
such transactions at all or that any future acquisitions will be able to be
consummated at acceptable prices and terms. We continually evaluate potential
acquisition opportunities in the ordinary course of business, including those
that could be material in size and scope. Acquisitions involve a number of
special risks and factors, including:
a) the focus of management's attention to the assimilation of the
acquired companies and their employees and on the management of expanding
operations;
b) the incorporation of acquired products into our product line;
c) the increasing demands on our operational systems;
d) adverse effects on our reported operating results; and
e) the loss of key employees and the difficulty of presenting a unified
corporate image.
We may be unable to make appropriate acquisitions because of competition for
the specific acquisition. In pursuing acquisitions, we compete against other
plastic product manufacturers, some of which are larger than we are and have
greater financial and other resources than we have. We compete for potential
acquisitions based on a number of factors, including price, terms and
conditions, size and ability to offer cash, stock or other forms of
consideration. Increased competition for acquisition candidates could result
in fewer acquisition opportunities for us and higher acquisition prices. As a
company without public equity, we may not be able to offer attractive equity to
potential sellers. Additionally, our acquisition strategy may result in
significant increases in our outstanding indebtedness and debt service
requirements. In addition, the negotiation of potential acquisitions may
require members of management to divert their time and resources away from our
operations.
We may become responsible for unexpected liabilities that we failed or were
unable to discover in the course of performing due diligence in connection with
the Landis Acquisition and any future acquisitions. We have required the
selling stockholders of Landis to indemnify us against certain undisclosed
liabilities. However, we cannot assure you that the indemnification, even if
obtained, will be enforceable, collectible or sufficient in amount, scope or
duration to fully offset the possible liabilities associated with the business
or property acquired. Any of these liabilities, individually or in the
aggregate, could have a material adverse effect on our business, financial
condition and results of operations.
The integration of acquired businesses may result in substantial costs, delays
or other problems.
We may not be able to successfully integrate future acquisitions without
substantial costs, delays or other problems. We will have to continue to
expend substantial managerial, operating, financial and other resources to
integrate our businesses. The costs of such integration could have a material
adverse effect on our operating results and financial condition. Such costs
include non-recurring acquisition costs including accounting and legal fees,
investment banking fees, recognition of transaction-related obligations, plant
closing and similar costs and various other acquisition-related costs. In
addition, although we conduct what we believe to be a prudent level of
investigation regarding the businesses we purchase, in light of the
circumstances of each transaction, an unavoidable level of risk remains
-25-
regarding the actual condition of these businesses. Until we actually assume
operating control of such business assets and their operations, we may not be
able to ascertain the actual value or understand the potential liabilities of
the acquired entities and their operations. Once we acquire a business, we are
faced with risks, including:
a)the possibility that it will be difficult to integrate the
operations into our other operations;
b)the possibility that we have acquired substantial undisclosed
liabilities;
c)the risks of entering markets or offering services for which we have
no prior experience; and
d)the potential loss of customers as a result of changes in
management; and the possibility we may be unable to recruit additional
managers with the necessary skills to supplement the incumbent management
of the acquired business.
We may not be successful in overcoming these risks.
An acquisition may be significantly larger than any of our previous
acquisitions. The significant expansion of our business and operations
resulting from the acquisition may strain our administrative, operational and
financial resources. The integration may require substantial time, effort,
attention, and dedication of management resources and may distract our
management in unpredictable ways from our existing business. The integration
process could create a number of adverse consequences for us, including the
possible unexpected loss of key employees, customers or suppliers, a possible
loss of sales or an increase in operating or other costs. The foregoing could
have a material adverse effect on our business, financial condition and results
of operations. We may not be able to manage the combined operations and assets
effectively or realize all or any of the anticipated benefits of the
acquisition.
We rely on unpatented proprietary know-how and trade secrets.
In addition to relying on patent and trademark rights, we rely on unpatented
proprietary know-how and trade secrets, and employ various methods, including
confidentiality agreements with employees and consultants, to protect our know-
how and trade secrets. However, these methods and our patents and trademarks
may not afford complete protection and there can be no assurance that others
will not independently develop the know-how and trade secrets or develop better
production methods than us. Further, we may not be able to deter current and
former employees, contractors and other parties from breaching confidentiality
agreements and misappropriating proprietary information and it is possible that
third parties may copy or otherwise obtain and use our information and
proprietary technology without authorization or otherwise infringe on our
intellectual property rights. Additionally, we have licensed, and may license
in the future, patents, trademarks, trade secrets, and similar proprietary
rights to and from third parties. While we attempt to ensure that our
intellectual property and similar proprietary rights are protected and that the
third party rights we need are licensed to us when entering into business
relationships, third parties may take actions that could materially and
adversely affect our rights or the value of our intellectual property, similar
proprietary rights or reputation. Furthermore, no assurance can be given that
claims or litigation asserting infringement of intellectual property rights
will not be initiated by third parties seeking damages, the payment of
royalties or licensing fees and/or an injunction against the sale of our
products or that we would prevail in any litigation or be successful in
preventing such judgment. In the future, we may also rely on litigation to
enforce our intellectual property rights and contractual rights, and, if not
successful, we may not be able to protect the value of our intellectual
property. Any litigation could be protracted and costly and could have a
material adverse effect on our business and results of operations regardless of
its outcome. Although we believe that our intellectual property rights are
sufficient to allow us to conduct our business without incurring liability to
third parties, our products may infringe on the intellectual property rights of
third parties and our intellectual property rights may not have the value we
believe them to have.
A significant amount of our net worth represents goodwill and other
intangibles, and a write-off could result in lower reported net income and a
reduction of our net worth.
As of January 1, 2005, the net value of our goodwill and other intangibles
was approximately $503.3 million. In July 2001, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets." Under the new standard, we are no
longer required or permitted to amortize goodwill reflected on our balance
sheet. We are, however, required to evaluate goodwill reflected on our balance
sheet when circumstances indicate a potential impairment, or at least annually,
under the new impairment testing guidelines outlined in the standard. Future
changes in the cost of capital, expected cash flows, or other factors may cause
our goodwill to be impaired, resulting in a noncash charge against results of
operations to write-off goodwill for the amount of impairment. If a
significant write-off is required, the charge would have a material adverse
effect on our reported results of operations and net worth in the period of any
such write-off.
-26-
Current and future environmental and other governmental requirements could
adversely affect our financial condition and our ability to conduct our
business.
Our operations are subject to federal, state, local and foreign environmental
laws and regulations that impose limitations on the discharge of pollutants
into the air and water and establish standards for the treatment, storage and
disposal of solid and hazardous wastes. While we have not been required
historically to make significant capital expenditures in order to comply with
applicable environmental laws and regulations, we cannot predict with any
certainty our future capital expenditure requirements because of continually
changing compliance standards and environmental technology. Furthermore,
violations or contaminated sites that we do not know about (including
contamination caused by prior owners and operators of such sites) could result
in additional compliance or remediation costs or other liabilities. We have
limited insurance coverage for environmental liabilities and we do not
anticipate increasing such coverage in the future. We may also assume
significant environmental liabilities in acquisitions. In addition, federal,
state and local governments could enact laws or regulations concerning
environmental matters that increase the cost of producing, or otherwise
adversely affect the demand for, plastic products. Legislation that would
prohibit, tax or restrict the sale or use of certain types of plastic and other
containers, and would require diversion of solid wastes such as packaging
materials from disposal in landfills, has been or may be introduced in the U.S.
Congress, in state legislatures and other legislative bodies. While container
legislation has been adopted in a few jurisdictions, similar legislation has
been defeated in public referenda in several states, local elections and many
state and local legislative sessions. Although we believe that the laws
promulgated to date have not had a material adverse effect on us, there can be
no assurance that future legislation or regulation would not have a material
adverse effect on us. Furthermore, a decline in consumer preference for
plastic products due to environmental considerations could have a negative
effect on our business.
The Food and Drug Administration ("FDA") regulates the material content
of direct-contact food containers and packages we manufacture pursuant to the
Federal Food, Drug and Cosmetic Act. Furthermore, some of our products are
regulated by the Consumer Product Safety Commission ("CPSC") pursuant to
various federal laws, including the Consumer Product Safety Act. Both the FDA
and the CPSC can require the manufacturer of defective products to repurchase
or recall these products and may also impose fines or penalties on the
manufacturer. Similar laws exist in some states, cities and other countries in
which we sell products. In addition, laws exist in certain states restricting
the sale of packaging with certain levels of heavy metals and imposing fines
and penalties for noncompliance. Although we use FDA-approved resins and
pigments in containers that directly contact food products and we believe our
products are in material compliance with all applicable requirements, we remain
subject to the risk that our products could be found to be not in compliance
with these and other requirements. A recall of any of our products or any
fines and penalties imposed in connection with non-compliance could have a
materially adverse effect on us. See "Business -- Environmental matters and
government regulation."
Our operations outside of the United States are subject to additional currency
exchange, political, investment and other risks.
We currently operate two facilities outside the United States which
combined for approximately 3% of our 2004 net sales. This amount may change in
the future. As such we are subject to the risks associated with selling and
operating in foreign countries, including devaluations and fluctuations in
foreign currencies, unstable political conditions, imposition of limitations on
conversion of foreign currencies into U.S. dollars and remittance of dividends
and payments by foreign subsidiaries. The imposition of taxes and imposition
or increase of investment and other restrictions, tariffs or quotas may also
have a negative effect on our business and profitability. Our sales outside
the United States from our domestic plants, which represented approximately 2%
of our 2004 net sales, are subject to similar risks.
We are controlled by affiliates of Goldman, Sachs & Co. and J.P. Morgan
Securities Inc., and their interests as equity holders may conflict with your
interests.
As a result of the Merger, certain private equity funds affiliated with
Goldman, Sachs & Co. and J.P. Morgan Securities Inc. own a substantial majority
of our common stock. The interests of Goldman, Sachs & Co. and J.P. Morgan
Securities Inc. and their respective affiliates may not in all cases be aligned
with your interests. Goldman, Sachs & Co. and J.P. Morgan Securities Inc. and
their respective affiliates, control the power to elect our directors, to
appoint members of management and to approve all actions requiring the approval
of the holders of our common stock, including adopting amendments to our
certificate of incorporation and approving mergers, certain acquisitions or
-27-
sales of all or substantially all of our assets. For example, Goldman, Sachs &
Co. and J.P. Morgan Securities Inc. and their respective affiliates could
pursue acquisitions, divestitures or other transactions that, in their
judgment, could enhance their equity investment, even though such transactions
might involve significant risks.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets at January 1, 2005 and December 27, 2003 F-2
Consolidated Statements of Operations for the periods ended January 1,
2005 and December 27, 2003, the periods from July 22,
2002 to December 28, 2002 and December 30, 2001 to July 21, 2002 F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the periods ended January 1, 2005 and December 27,
2003, the periods from July 22, 2002 to December 28, 2002 and
December 30, 2001 to July 21, 2002 F-5
Consolidated Statements of Cash Flows for the periods ended January 1,
2005 and December 27, 2003, the periods from July 22,
2002 to December 28, 2002 and December 30, 2001 to July 21, 2002 F-7
Notes to Consolidated Financial Statements F-8
INDEX TO FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable
or not required or because the required information is included in the
consolidated financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As required by Rule 13a-15 under the Securities Exchange Act of 1934,
within the 90 days prior to the date of this report, we carried out an
evaluation under the supervision and with the participation of our
management team, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports we file or
submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. In connection with the new rules,
we currently are in the process of further reviewing and documenting our
disclosure controls and procedures, including our internal controls and
procedures for financial reporting, and may from time to time make
changes aimed at enhancing their effectiveness and to ensure that our
systems evolve with our business.
(b) Changes in internal controls.
None
-28-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers, directors and certain key personnel of Holding:
NAME AGE TITLE
---- --- -----
Joseph H. Gleberman(1).. 47 Chairman and Director
Ira G. Boots(1)......... 51 President, Chief Executive Officer and Director
James M. Kratochvil..... 48 Executive Vice President, Chief Financial Officer, Treasurer and Secretary
R. Brent Beeler......... 52 Executive Vice President
Gregory J. Landis....... 54 Director
William J. Herdrich..... 54 Executive Vice President
Christopher C. Behrens(1)44 Director
Terry R. Peets.......... 60 Director
Stephen S. Trevor(1)(2). 41 Director
Mathew J. Lori(2)....... 41 Director
(1) Member of the Equity Compensation Committee.
(2) Member of the Audit Committee.
The following table sets forth certain information with respect to the
executive officers, directors and certain key personnel of Berry Plastics:
NAME AGE TITLE
---- --- -----
Joseph H. Gleberman(1)(3)(4)47 Chairman and Director
Ira G. Boots(1)(4)...... 51 President, Chief Executive Officer and Director
James M. Kratochvil..... 48 Executive Vice President, Chief Financial Officer, Treasurer and Secretary
R. Brent Beeler......... 52 President - Containers and Consumer Products
Gregory J. Landis....... 54 President - Container Division and Director
William J. Herdrich..... 54 Executive Vice President and General Manager - Closures
Douglas E. Bell......... 53 Vice President - International Business Development
Christopher C. Behrens(1)(3)44 Director
Terry R. Peets.......... 60 Director
Stephen S. Trevor(1)(2)(4) 41 Director
Mathew J. Lori(2)(4).... 41 Director
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Finance Committee.
(4) Member of the Corporate Development Committee.
JOSEPH H. GLEBERMAN has been chairman of the board of directors of
Holding and Berry Plastics since the closing of the Merger and has been a
Managing Director at Goldman, Sachs & Co. since 1996. He serves on the Board
of Directors of aaiPharma, IPC Acquisition Corp., and MCG Capital Corporation,
as well as a number of private companies. Mr. Gleberman received his M.B.A in
1982 from Stanford University Graduate School of Business and a M.A./B.A. from
Yale University in 1980.
IRA G. BOOTS has been President and Chief Executive Officer of Holding
and Berry Plastics since June 2001, and a Director of Holding and Berry
Plastics since April 1992. Prior to that, Mr. Boots served as Chief Operating
Officer of Berry Plastics since August 2000 and Vice President of Operations,
Engineering and Product Development of the Company since April 1992. Mr. Boots
was employed by Old Berry from 1984 to December 1990 as Vice President,
Operations.
-29-
JAMES M. KRATOCHVIL has been Executive Vice President, Chief Financial
Officer, Secretary and Treasurer of Holding and Berry since December 1997. He
formerly served as Vice President, Chief Financial Officer and Secretary of the
Company since 1991, and as Treasurer of the Company since May 1996. He
formerly served as Vice President, Chief Financial Officer and Secretary of
Holding since 1991. Mr. Kratochvil was employed by Old Berry from 1985 to 1991
as Controller.
R. BRENT BEELER was named President - Containers and Consumer Products of
Berry Plastics in October 2003 and has been an Executive Vice President of
Holding since July 2002. He had been Executive Vice President and General
Manager - Containers and Consumer Products of the Company since October 2002
and was Executive Vice President and General Manager - Containers since August
2000. Prior to that, Mr. Beeler was Executive Vice President, Sales and
Marketing of the Company since February 1996 and Vice President, Sales and
Marketing of the Company since December 1990. Mr. Beeler was employed by Old
Berry from October 1988 to December 1990 as Vice President, Sales and
Marketing.
GREGORY J. LANDIS became a Director of Holding and Berry Plastics and
President - Container Division of Berry Plastics upon closing of the Landis
Acquisition. Mr. Landis had been President of Landis Plastics, Inc. since
1991.
WILLIAM J. HERDRICH has been an Executive Vice President of Holding since
July 2002. He has been Executive Vice President and General Manager - Closures
of the Company since August 2000. From May 2000 to August 2000, Mr. Herdrich
was a consultant to the Company. During the period from April 1994 to May
2000, Mr. Herdrich was President, Executive Vice President and General Manager
of Poly-Seal Corporation, a Delaware Corporation that we acquired in 2000. Mr.
Herdrich was employed by Seaquist Closures from 1990 to April 1994 as Executive
Vice President.
DOUG BELL became our Vice President - International Business Development
in January 2005. He was previously a Sales Manager - Specialty Products upon
re-joining the Company in November 2004. Mr. Bell served in many capacities at
Berry from his starting date in June 1980 to his initial retirement in June
1998, and served as a consultant to Berry and other companies from June 1998
until his return in November 2004.
CHRISTOPHER C. BEHRENS has been a Director of Holding and Berry Plastics
since the closing of the Merger and has been a Partner of J.P. Morgan Partners,
LLC and its predecessor, Chase Capital Partners, since 1999. Prior to joining
Chase Capital Partners, Mr. Behrens served as Vice President in Chase's
Merchant Banking Group. Mr. Behrens serves on the Board of Directors of Brand
Services Inc. and Interline Holdings, as well as a number of private companies.
Mr. Behrens received a B.A. from the University of California at Berkeley and
an M.A. from Columbia University.
TERRY R. PEETS has been a Director of Holding and Berry Plastics since
July 2004. Mr. Peets is an independent board member and also serves as
Chairman of the Board and Director of World Kitchens, Inc., and as a Director
of Doane Pet Care Company, Pinnacle Foods, Inc., and several other private
companies. In addition to serving on many boards in recent years, Mr. Peets
was Chairman and Director of Bruno's Supermarkets, Inc., from 2000 to 2003.
Mr. Peets received an M.B.A., with honors, from the Graduate School of Business
at Pepperdine University.
STEPHEN S,TREVOR has been a Director of Holding and Berry Plastics since
August 2004 and has been a Managing Director at Goldman, Sachs & Co. since
1999. Mr. Trevor is a member of the Supervisory and Advisory Boards of Kabel
Deutchland Holding GmbH & Co. KG. Mr. Trevor is also a Member of the Advisory
Board of Cognis Deutschland GmbH & Co. KG.
MATHEW J. LORI has been a Director of Holding since the closing of the
Merger. Mr. Lori has been a Partner with J.P. Morgan Partners, LLC since
January 2005. Mr. Lori was previously a Principal with J.P. Morgan Partners,
LLC and its predecessor, Chase Capital Partners, since January 1998, and prior
to that, Mr. Lori had been an Associate. Mr. Lori has been on the board of
Berry Plastics since 1996, and is also a director of Doane Pet Care Company,
Arbinet-thexchange, Inc., and a number of private companies. Mr. Lori received
an M.B.A. from Kellogg Graduate School of Management at Northwestern University
in 1993.
We are currently in the process of finalizing our Code of Ethics.
-30-
In connection with the Merger, Holding entered into a stockholders
agreement with GSCP 2000 and other private equity funds affiliated with
Goldman, Sachs & Co. that, in the aggregate, own a majority of our common stock
and J.P. Morgan Partners Global Investors, L.P. and other private equity funds
affiliated with J.P. Morgan Chase & Co. that, in the aggregate, own
approximately 28% of our common stock. In connection with the Landis
Acquisition, the agreement was amended such that under the current terms of
this agreement, the parties have agreed to elect up to seven individuals
designated by the Goldman Sachs funds, one of which must be a member of our
management, and two individuals designated by the J.P. Morgan funds to
Holding's and Berry Plastics' boards of directors. This agreement regarding
the election of directors will continue in force until the occurrence of a
qualified initial public offering of Holding's common stock. Of the current
members of the boards of directors of Holding and Berry Plastics, Messrs.
Gleberman, Boots, Trevor, Landis and Peets have been designated by the Goldman
Sachs funds and Messrs. Behrens and Lori have been designated by the J.P.
Morgan funds. The Goldman Sachs funds have the right to designate two
additional individuals to be elected to Holding's and Berry's board of
directors.
BOARD COMMITTEES
The Board of Directors of Holding has an Audit Committee and an Equity
Compensation Committee. The Audit Committee, consists of Messrs. Trevor and
Lori. The Audit Committee recommends the annual appointment of auditors with
whom the audit committee reviews the scope of audit and non-audit assignments
and related fees, accounting principles we use in financial reporting, internal
auditing procedures and the adequacy of our internal control procedures. The
Equity Compensation Committee, consisting of Messrs. Gleberman, Boots, Behrens
and Trevor, establishes and approves equity compensation grants for our
employees and consultants and administers the 2002 Stock Option Plan and the
Key Employee Equity Investment Plan.
The Board of Directors of the Company has a Compensation Committee, an
Audit Committee, a Finance Committee and a Corporate Development Committee.
The Compensation Committee, consisting of Messrs. Gleberman, Boots, Behrens and
Trevor makes recommendations concerning salaries and incentive compensation for
our employees and consultants. The Audit Committee recommends the annual
appointment of auditors with whom the audit committee reviews the scope of
audit and non-audit assignments and related fees, accounting principles we use
in financial reporting, internal auditing procedures and the adequacy of our
internal control procedures. The Finance Committee, consisting of Messrs.
Gleberman and Behrens oversees our capital structure and reviews and approves
significant financing decisions. The Corporate Development Committee,
consisting of Messrs. Gleberman, Boots, Trevor and Lori, oversees our business
strategy and, in particular, reviews and recommends potential acquisition
candidates.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by us
to our Chief Executive Officer and our four other most highly compensated
executive officers (collectively, the "Named Executive Officers") for services
rendered in all capacities to us during fiscal 2004, 2003 and 2002.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
------------
ANNUAL
COMPENSATION
------------
SECURITIES
FISCAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS (#) COMPENSATION(2)
--------------------------- ------ ------ -------- ---------- ---------------
Ira G. Boots 2004 $442,226 $214,200 - $ 14,476
President and Chief Executive Officer 2003 432,836 150,231 2,383 12,343
2002 424,536 1,452,018 61,814 12,505
James M. Kratochvil 2004 $284,909 $137,700 - $ 11,576
Executive Vice President, Chief Financial Officer, 2003 278,867 96,577 1,356 10,151
Treasurer and Secretary 2002 273,400 945,026 35,040 9,889
R. Brent Beeler 2004 $345,995 $156,503 - $ 4,028
President - Containers and Consumer Products 2003 313,761 111,476 1,356 3,105
2002 298,172 1,080,496 35,229 2,590
Gregory J. Landis (3) 2004 $349,866 $ - 11,410 $ 3,494
President - Container Division 2003 49,500 - - 2,688
2002 - - - -
William J. Herdrich 2004 $280,093 $136,553 - $ 5,521
Executive Vice President and General Manager - 2003 274,180 117,772 1,356 5,109
Closures 2002 269,222 983,506 25,581 4,899
-31-
(1)Amounts shown include transaction bonuses in 2002 of $1,238,298, $788,298,
$871,298, and $803,831 paid to Messrs. Boots, Kratochvil, Beeler, and
Herdrich, respectively, in connection with the Merger.
(2)Amounts shown reflect contributions by the Company under the Company's
401(k) plan and the personal use of a company vehicle.
(3)Amounts shown reflect only the activity since the closing of the Landis
Acquisition.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value
At Assumed Rates Of Stock
Price Appreciation
For Option Term
---------------------------
Individual Grants
-------------------------------------------
Number Of Securities % Of Total Options
Underlying Options Granted To Employees Exercise Expiration
Name Granted (#) In Fiscal Year Price ($) Date 5%($) 10%($)
---- -------------------- -------------------- ---------- ---------- ----- ------
Gregory J. Landis 7,607 (1) 11.6 120 1/1/14 574,100 1,454,839
Gregory J. Landis 3,803 (2) 5.8 120 1/1/14 287,012 727,324
(1)Represents options granted on January 1, 2004, which (i) have an exercise
price fixed at $120 per share, which was the fair market value of a share of
Holding Common Stock on the date of grant, and (ii) vest and become
exerciseable over a five year period, beginning the last day of 2004 based
on continued service with the Company.
(2)Represents options granted on January 1, 2004, which (i) have an exercise
price fixed at $120 per share, which was the fair market value of a share of
Holding Common Stock on the date of grant, and (ii) vest and become
exercisable based on the achievement by Holding of certain financial
targets, or if such targets are not achieved, based on continued service
with the Company.
FISCAL YEAR-END OPTION HOLDINGS
The following table provides information on the number of exercisable and
unexercisable management stock options held by the Named Executive Officers at
January 1, 2005.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES ACQUIRED FISCAL YEAR-END AT FISCAL YEAR-END
NAME ON EXERCISE VALUE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
(#)(2) (1)(2)
---- --------------- -------------- ------------------------- -------------------------
Ira G. Boots - - 44,882/35,593 $2,325,194/$800,816
James M. Kratochvil - - 26,384/20,186 1,425,788/455,309
R. Brent Beeler - - 26,479/20,280 1,426,057/455,575
Gregory J. Landis - - 1,901/9,509 47,525/237,725
William J. Herdrich - - 17,726/15,455 716,422/441,914
(1)None of Holding's capital stock is currently publicly traded. The values
reflect management's estimate of the fair market value of the Common Stock
at January 1, 2005.
(2)All options granted to management are exercisable for shares of Common
Stock, par value $.01 per share, of Holding.
DIRECTOR COMPENSATION
The Company has agreed to compensate Mr. Peets annual compensation of
$30,000, paid quarterly, for his services plus reimbursement of out-of-pocket
expenses. In addition, Holding issued stock appreciation rights in 2004 to Mr.
Peets for 834 shares at the then fair market value that vest over four years as
long as Mr. Peets continues to serve as a board member. No other Directors
receive cash consideration for serving on the Board of Directors of Holding or
the Company, but directors are reimbursed for out-of-pocket expenses incurred
in connection with their duties as directors.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Boots,
Kratochvil, Beeler, Landis and Herdrich (each, an "Employment Agreement" and,
collectively, the "Employment Agreements"). The agreements for Boots,
Kratochvil and Beeler expire on January 1, 2007. Mr. Herdrich's agreement
expires on December 31, 2008, and Mr. Landis' agreement expires on January 1,
2009. The Employment Agreements provided for fiscal 2004 base compensation of
$442,226, $284,909, $345,995, $349,866, and $280,093, respectively. Salaries
are subject in each case to annual adjustment at the discretion of the
-32-
Compensation Committee of the Board of Directors of the Company. The
Employment Agreements entitle each executive to participate in all other
incentive compensation plans established for executive officers of the Company.
The Company may terminate each Employment Agreement for "cause" or a
"disability" (as such terms are defined in the Employment Agreements).
Specifically, if any of Messrs. Boots, Kratochvil, Beeler, Landis and Herdrich
is terminated by Berry Plastics without ``cause'' or resigns for ``good
reason'' (as such terms are defined in the Employment Agreements), that
individual is entitled to: (1) the greater of (a) base salary until the later
of one year after termination or (b) 1/12 of 1 year's base salary for each year
of employment up to 30 years by Berry Plastics or a predecessor in interest
(excluding Mr. Landis) and (2) the pro rata portion of his annual bonus. Each
Employment Agreement also includes customary noncompetition, nondisclosure and
nonsolicitation provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has a Compensation Committee comprised of Messrs. Gleberman,
Boots, Behrens, and Trevor. The annual salary and bonus paid to Messrs. Boots,
Kratochvil, Beeler, Landis, and Herdrich for fiscal 2004 were determined by the
Compensation Committee in accordance with their respective employment
agreements. All other compensation decisions with respect to officers of the
Company are made by Mr. Boots pursuant to policies established in consultation
with the Compensation Committee.
Messrs. Gleberman and Trevor are Managing Directors of Goldman, Sachs & Co.
Goldman, Sachs & Co. provided advisory and other services to us in connection
with the Merger and the Landis Acquisition and acted as an initial purchaser in
the offering of the 2002 Notes and Add-on Notes. Goldman, Sachs Credit
Partners, L.P. participated in and acted as joint lead arranger, joint
bookrunner and administrative agent for our Credit Facility, our Amended and
Restated Credit Facility, and our Second Amended and Restated Credit Facility.
In addition, the Company entered into four resin forward contracts in the
fourth quarter of 2004 with J. Aron & Company, a division of Goldman, Sachs &
Co., and enters into foreign currency transactions through its normal course of
business with Goldman, Sachs & Co. Messrs. Behrens and Lori are Partners of
J.P. Morgan Partners, LLC, which is the private equity investment arm of J.P.
Morgan Chase & Co. Various affiliates of J.P. Morgan provided advisory and
other services to us in connection with the Merger and the Landis Acquisition
and acted as a dealer-manager in connection with the related debt tender
offers, acted as an initial purchaser in the offering of the 2002 Notes and
Add-on Notes and participated in and acted as joint lead arranger, joint
bookrunner and a syndication agent for our Credit Facility, our Amended and
Restated Credit Facility, and our Second Amended and Restated Credit Facility.
See the section of this Form 10-K titled "Certain Relationships and Related
Transactions" for a description of these transactions between us and various
affiliates of Goldman Sachs and J.P. Morgan.
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ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
STOCK OWNERSHIP
All of the outstanding capital stock of the Company is owned by Holding.
The following table sets forth certain information regarding the beneficial
ownership of the capital stock of Holding as of March 18, 2005 with respect to
(1) each person known by Holding to own beneficially more than 5% of the
outstanding shares of any class of its voting capital stock, (2) each of
Holding's directors, (3) the Named Executive Officers and (4) all directors and
executive officers of Holding as a group. Except as otherwise indicated, each
of the stockholders has sole voting and investment power with respect to the
shares beneficially owned. Unless otherwise indicated, the address for each
stockholder is c/o Berry Plastics Corporation, 101 Oakley Street, Evansville,
Indiana 47710.
PERCENTAGE OF
NAME AND ADDRESS OF COMMON STOCK
BENEFICIAL OWNER COMMON STOCK OUTSTANDING*
------------------- ------------ ----------------
GS Capital Partners 2000, L.P. (2) 1,155,042 33.0%
GS Capital Partners 2000 Offshore, L.P. (2) 419,697 12.0
GS Capital Partners 2000 GmbH & Co. Beteiligungs KG (2) 48,278 1.4
GS Capital Partners 2000 Employee Fund, L.P. (2) 366,766 10.5
Stone Street 2000, L.P. (2) 36,069 1.0
Bridge Street Special Opportunities Fund 2000, L.P. (2) 18,034 -
Goldman Sachs Direct Investment Fund 2000, L.P. (2) 60,114 1.7
J.P. Morgan Partners Global Investors, L.P. (3) 120,820 3.4
J.P. Morgan Partners Global Investors (Cayman), L.P. (3) 61,203 1.7
J.P. Morgan Partners Global Investors (Cayman) II, L.P. (3) 6,825 -
J.P. Morgan Partners Global Investors A, L.P. (3) 16,848 -
J.P. Morgan Partners (BHCA), L.P. (3) 704,262 20.1
J.P. Morgan Partners Global Investors (Selldown), L.P. (3) 44,594 1.3
Joseph H. Gleberman (4) 2,104,000 60.1
Christopher C. Behrens (5) 954,552 27.2
Stephen S. Trevor (6) 2,104,000 60.1
Terry R. Peets 209 (7) -
Mathew J. Lori(8) 954,552 27.2
Ira G. Boots 85,600 (9) 2.4
James M. Kratochvil 49,912 (10) 1.4
R. Brent Beeler 50,428 (11) 1.4
Gregory J. Landis 102,281 (12) 2.9
William J. Herdrich 34,228 (13) -
All executive officers and directors as a group (10 persons) 3,503,080 (14) 96.5
* The number of shares outstanding used in calculating the percentage for each
person, group or entity listed includes the number of shares underlying
options held by such person or group that were exercisable or convertible
within 60 days from March 18, 2005, but excludes shares of stock underlying
options held by any other person.
- Less than one percent.
(1)The authorized capital stock of Holding consists of 5,500,000 shares of
capital stock, including 5,000,000 shares of Common Stock, $.01 par value
(the "Holding Common Stock"), and 500,000 shares of Preferred Stock, $.01 par
value (the "Preferred Stock").
(2)Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004.
(3)Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas, New
York, New York 10020.
(4)Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004. Represents shares owned by equity funds affiliated with Goldman,
Sachs & Co. Mr. Gleberman is a Managing Director of Goldman, Sachs & Co.
Mr. Gleberman disclaims any beneficial ownership of the shares of Holding
Common Stock held by equity funds affiliated with Goldman, Sachs & Co.
(5)Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas, New
York, New York 10020. Represents shares owned by equity funds affiliated
with J.P. Morgan Chase & Co. Mr. Behrens is a Partner of J.P. Morgan
Partners, which is the private equity investment arm of J.P. Morgan Chase &
Co. Mr. Behrens disclaims any beneficial ownership of the shares of Holding
Common Stock held by equity funds affiliated with J.P. Morgan Chase & Co.
(6)Address is c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York,
10004. Represents shares owned by equity funds affiliated with Goldman,
Sachs & Co. Mr. Trevor is a Managing Director of Goldman, Sachs & Co. Mr.
Trevor disclaims any beneficial ownership of the shares of Holding Common
Stock held by equity funds affiliated with Goldman, Sachs & Co.
(7)Includes stock appreciation rights to purchase 209 shares of Holding Common
Stock granted to Mr. Peets, exercisable within 60 days of March 18, 2005.
(8)Address is c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas, New
York, New York 10020. Represents shares owned by equity funds affiliated
with J.P. Morgan Chase & Co. Mr. Lori is a Partner of J.P. Morgan Partners,
which is the private equity investment arm of J.P. Morgan Chase & Co. Mr.
Lori disclaims any beneficial ownership of the shares of Holding Common Stock
held by equity funds affiliated with J.P. Morgan Chase & Co.
(9)Includes options to purchase 47,655 shares of Holding Common Stock granted
to Mr. Boots, exercisable within 60 days of March 18, 2005.
(10)Includes options to purchase 27,955 shares of Holding Common Stock granted
to Mr. Kratochvil, exercisable within 60 days of March 18, 2005.
(11)Includes options to purchase 28,060 shares of Holding Common Stock granted
to Mr. Beeler, exercisable within 60 days of March 18, 2005.
(12)Includes options to purchase 2,281 shares of Holding Common Stock granted
to Mr. Landis, exercisable within 60 days of March 18, 2005.
(13)Includes options to purchase 18,824 shares of Holding Common Stock granted
to Mr. Herdrich, exercisable within 60 days of March 18, 2005.
(14)Includes options to purchase 124,775 shares of Holding Common Stock granted
to Executive Officers, exercisable within 60 days of March 18, 2005.
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EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of January 1, 2005 regarding
shares of common stock of Holding that may be issued under our existing equity
compensation plans, including the BPC Holding Corporation 2002 Stock Option
Plan (the "2002 Stock Option Plan") and the BPC Holding Corporation Key
Employee Equity Investment Plan (the "Employee Stock Purchase Plan").
Number of securities
remaining available for
Number of securities to be Weighted Average future issuance under
issued upon exercise of exercise price of equity compensation plan
outstanding options, outstanding options, (excluding securities
Plan category warrants and rights warrants and rights referenced in column (a))
-------------- -------------------------- ------------------- -------------------------
(a) (b) (c)
Equity compensation plans
approved by security
holders (1) - - -
Equity compensation plans
not approved by security
holders (2) 454,283 (3) 118 43,489
--------- --------- ---------
Total 454,283 118 43,489
(1)Does not include outstanding options to acquire 135,873 shares, at a
weighted-average exercise price of $49.84 per share, that were assumed in
connection with the Merger under the BPC Holding Corporation 1996 Stock
Option Plan (the "1996 Plan"), as amended. No future options may be granted
under the 1996 Plan.
(2)Consists of the 2002 Stock Option Plan and the Employee Stock Purchase Plan.
Our Board adopted the 2002 Stock Option Plan and the Employee Stock Purchase
Plan in August of 2002.
(3)Does not include shares of Holding Common Stock already purchased under the
Employee Stock Purchase Plan as such shares are already reflected in the
Company's outstanding shares.
1996 STOCK OPTION PLAN
Holding currently maintains the BPC Holding Corporation 1996 Stock Option
Plan ("1996 Option Plan"), as amended, pursuant to which nonqualified options
to purchase 135,873 shares are outstanding. All outstanding options under the
1996 Option Plan are scheduled to expire on or before July 22, 2012 and no
additional options will be granted under it. Option agreements issued pursuant
to the 1996 Option Plan generally provide that options become vested and
exercisable at a rate of 10% per year based on continued service. Additional
options also vest in years during which certain financial targets are attained.
Notwithstanding the vesting provisions in the option agreements, all options
that were scheduled to vest prior to December 31, 2002 accelerated and became
vested immediately before the Merger.
2002 STOCK OPTION PLAN
Holding has adopted an employee stock option plan ("2002 Stock Option
Plan"), as amended, pursuant to which options to acquire up to 495,073 shares
of Holding's common stock may be granted to its employees, directors and
consultants. At January 1, 2005, 454,283 options were outstanding under this
plan. Options granted under the 2002 Stock Option Plan have an exercise price
per share that either (1) is fixed at the fair market value of a share of
common stock on the date of grant or (2) commences at the fair market value of
a share of common stock on the date of grant and increases at the rate of 15%
per year during the term. Generally, options have a ten-year term, subject to
earlier expiration upon the termination of the optionholder's employment and
other events. Some options granted under the plan become vested and
exercisable over a five-year period based on continued service with Holding.
Other options become vested and exercisable based on the achievement by Holding
of certain financial targets, or if such targets are not achieved, based on
continued service with Holding. Upon a change in control of Holding, the
vesting schedule with respect to certain options accelerate for a portion of
the shares subject to such options.
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EMPLOYEE STOCK PURCHASE PLAN
Holding has adopted an employee stock purchase program pursuant to which
a number of employees had the opportunity to invest in Holding on a leveraged
basis (certain senior employees also purchased shares of Holding common stock
in connection with the Merger - see Item 13. "Certain Relationships and Related
Transactions - Loans to Executive Officers"). Each eligible employee was
permitted to purchase shares of Holding common stock having an aggregate value
of up to the greater of (1) 150% of the value attributable to shares of Holding
held by such employee immediately prior to the Merger or (2) $60,000. Employees
participating in this program were permitted to finance two-thirds of their
purchases of shares of Holding common stock under the program with a promissory
note. In the event that an employee defaults on a promissory note used to
purchase such shares, Holding's only recourse is to the shares of Holding
securing the note. In this manner, the remaining management acquired 41,628
shares in the aggregate.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT WITH FIRST ATLANTIC
Prior to the Merger, Atlantic Equity Partners International II, L.P. was
our largest voting stockholder and we engaged First Atlantic Capital, Ltd.
("First Atlantic") to provide certain financial and management consulting
services to us. Under our management agreement with First Atlantic, First
Atlantic provided us with financial advisory and management consulting services
in exchange for an annual fee of $750,000 and reimbursement for out-of-pocket
costs and expenses. In consideration of such services, we paid First Atlantic
fees and expenses of approximately $385,000 for fiscal 2002. In consideration
of services performed in connection with the Merger, the Company paid First
Atlantic fees and expenses of $1,786,000 in July 2002.
THE MERGER
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly
formed entity controlled by various private equity funds affiliated with
Goldman, Sachs & Co., merged (the "Merger") with and into Holding, pursuant to
an agreement and plan of merger, dated as of May 25, 2002. At the effective
time of the Merger, (1) each share of common stock of Holding issued and
outstanding immediately prior to the effective time of the Merger was converted
into the right to receive cash pursuant to the terms of the merger agreement,
and (2) each share of common stock of the Buyer issued and outstanding
immediately prior to the effective time of the Merger was converted into one
share of common stock of Holding. Additionally, in connection with the Merger,
we retired all of Holding's senior secured notes and Berry Plastics' senior
subordinated notes, repaid all amounts owed under our credit facilities,
redeemed all of the outstanding preferred stock of Holding, entered into a new
credit facility and completed an offering of new senior subordinated notes of
Berry Plastics. Immediately following the Merger, private equity funds
affiliated with Goldman Sachs owned approximately 63% of the outstanding common
stock of Holding, private equity funds affiliated with J.P. Morgan Chase & Co.
owned approximately 29% and members of our management owned the remaining 8%.
Advisory Fees. In connection with the Merger, we paid Goldman Sachs and
its affiliates a total of $8.0 million for advisory and other services, J.P.
Morgan Securities Inc., an affiliate of J.P. Morgan Chase & Co., a total of
$5.2 million for advisory and other services and First Atlantic Capital, Ltd.,
a total of $1.8 million for advisory and other services.
Senior Subordinated Debt Purchases. In connection with the Merger, Berry
Plastics sold $250 million of 10 3/4% senior subordinated notes to various
private institutional buyers. Goldman Sachs and J.P. Morgan acted as joint
book-running managers in the transaction and received fees of approximately
$4.4 million and $3.2 million, respectively, for services performed.
Tender Offer Fees. Prior to the Merger, Holding and Berry Plastics
engaged in tender offer and consent solicitations to acquire their outstanding
senior secured and senior subordinated notes, respectively. J.P. Morgan
Securities, Inc. acted as a dealer-manager in connection with these tender
offer and consent solicitations for consideration of $0.1 million.
Credit Facility. In connection with the Merger, we entered into a senior
secured credit facility with a syndicate of lenders led by Goldman Sachs Credit
Partners L.P., an affiliate of Goldman Sachs, as administrative agent.
Goldman Sachs Credit Partners, L.P., an affiliate of Goldman Sachs, acted as
the administrative agent, joint lead arranger and joint bookrunner for the
credit facility and received fees of $3.6 million in July 2002 for services
provided. JP Morgan Chase Bank, an affiliate of J.P. Morgan, acted as the
joint lead arranger and joint bookrunner for the credit facility for
consideration of approximately $3.6. million. In October 2002, we entered into
an interest rate swap agreement with Goldman Sachs Capital Markets, L.P., which
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applies to $50.0 million of the term loans and protects both parties against
fluctuations in interest rates. Under the interest rate swap agreement, the
Eurodollar rate with respect to $50.0 million of the outstanding principal
amount of the term loan will not exceed 6.75% or drop below 1.97%.
STOCKHOLDERS AGREEMENT WITH MAJOR STOCKHOLDERS
In connection with the Merger, Holding entered into a stockholders'
agreement with GSCP 2000 and other private equity funds affiliated with
Goldman, Sachs & Co. that, in the aggregate, own a majority of our common stock
and J.P. Morgan Partners (BHCA), L.P. and other private equity funds affiliated
with J.P. Morgan Chase & Co. that, in the aggregate, own approximately 28% of
our common stock. Under the terms of this agreement, among other things: (1)
the parties have agreed to elect individuals designated by the Goldman Sachs
and J.P. Morgan funds to Holding's and Berry Plastics' boards of directors; (2)
the Goldman Sachs and J.P. Morgan funds have the right to subscribe for a
proportional share of future equity issuances by Holding; (3) after July 29,
2009, the J.P. Morgan funds have the right to demand that Holding cause the
initial public offering of its common stock, if such an offering or other sale
of Holding has not occurred by such time; and (4) Holding has agreed not to
take specified actions, including, making certain amendments to either the
certificate of incorporation or the by-laws of Holding, changing independent
accountants, or entering into certain affiliate transactions, without the
approval of a majority of its board of directors, including at least one
director designated by the J.P. Morgan funds. The stockholders agreement also
contains provisions regarding transfer restrictions, rights of first offer,
tag-along rights and drag-along rights related to the shares of Holding common
stock owned by the Goldman Sachs and J.P. Morgan funds.
STOCKHOLDERS AGREEMENT WITH MANAGEMENT
In connection with the Merger, Holding also entered into a stockholders
agreement with certain members of Holding's management that owned Holding
common stock. The stockholders agreement grants certain rights to, and imposes
certain obligations on, the management stockholders who are party to the
agreement, including: (1) restrictions on transfer of Holding's common stock;
(2) obligations to consent to a merger or consolidation of Holding or a sale of
Holding's assets or common stock; (3) obligations to sell their shares of
Holding common stock back to Holding in specified circumstances in connection
with the termination of their employment with Holding; (4) rights of first
offer, (5) tag-along rights, (6) drag-along rights, (7) preemptive rights and
(8) registration rights.
LOANS TO EXECUTIVE OFFICERS
In connection with the Merger, Messrs. Boots, Kratochvil, Beeler, and
Herdrich together with certain other senior employees acquired shares of
Holding common stock pursuant to an employee stock purchase program. These
employees paid for these shares with any combination of (1) shares of Holding
common stock that they held prior to the Merger; (2) their cash transaction
bonus, if any; and (3) a promissory note. In this manner, the senior employees
acquired 182,699 shares in the aggregate. Messrs. Boots, Kratochvil, Beeler,
and Herdrich purchased 37,785, 21,957, 22,208, and 15,404 shares of Holding
common stock, respectively pursuant to this program. In connection with these
purchases, Messrs. Boots, Kratochvil, Beeler, and Herdrich delivered ten-year
promissory notes to Holding in the principal amounts of $2,518,500, $1,302,900,
$1,313,400, and $1,027,000, respectively. The promissory notes are secured by
the shares purchased and such notes accrue interest which compounds semi-
annually at the rate of 5.50% per year, the applicable federal rate for the
notes in effect on July 16, 2002. Principal and all accrued interest is due
and payable on the earlier to occur of (i) the end of the ten-year term, (ii)
the ninetieth day following such executive's termination of employment due to
death, "disability", "redundancy" (as such terms are defined in the 2002 Stock
Option Plan) or retirement, or (iii) the thirtieth day following such
executive's termination of employment for any other reason. As of March 18,
2005, a total of $2,910,349, $1,505,616, $1,517,750, and $1,186,789, including
principal and accrued interest, was outstanding under the promissory notes for
each of Messrs. Boots, Kratochvil, Beeler, and Herdrich, respectively.
THE LANDIS ACQUISITION
Berry Plastics paid Goldman, Sachs & Co. and its affiliates a total of $1.7
million and JPMorgan Partners, an affiliate of J.P. Morgan Chase & Co., a total
of $0.8 million for advisory and other services related to the Landis
Acquisition. In connection with the Landis Acquisition, Goldman, Sachs & Co.
and its affiliates made an equity contribution of $35.4 million and J.P. Morgan
Chase & Co. and its affiliates made an equity contribution of $16.1 million to
us.
In addition, Goldman Sachs Credit Partners, L.P., and affiliates of Goldman,
Sachs & Co., acted as the joint lead arranger, joint bookrunner and
administrative agent under our Amended and Restated Credit Facility and
received fees of $0.5 million in November 2003 for services provided. J.P.
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Morgan Securities Inc., an affiliate of J.P. Morgan Chase & Co., acted as the
joint lead arranger and joint bookrunner and JPMorgan Chase Bank acted as
syndication agent under our Amended and Restated Credit Facility for
consideration of approximately $0.5 million.
In connection with the Landis Acquisition, Berry Plastics sold $85.0
million of 10 3/4% senior subordinated notes due 2012 to various private
institutional buyers. Goldman Sachs and J.P. Morgan acted as joint book-
running managers in the transaction and received fees of approximately $1.0
million and $1.0 million, respectively, for services performed.
OTHER TRANSACTIONS
Goldman Sachs Credit Partners, L.P., an affiliate of Goldman Sachs, acted as
the administrative agent, joint lead arranger and joint bookrunner for the
Second Amended and Restated Credit Facility without separate compensation. JP
Morgan Chase Bank, an affiliate of J.P. Morgan, acted as the joint lead
arranger and joint bookrunner for the Second Amended and Restated Credit
Facility for consideration of approximately $0.4 million. In addition, the
Company entered into four resin forward contracts in the fourth quarter of 2004
ranging from 6.0 million to 33.6 million annual pounds of resin with J. Aron &
Company, a division of Goldman, Sachs & Co., and enters into foreign currency
transactions through its normal course of business with Goldman, Sachs & Co.
FUTURE RELATIONSHIPS WITH GOLDMAN SACHS AND J.P. MORGAN
In the future, Holding or Berry Plastics may engage in commercial banking,
investment banking or other financial advisory transactions with Goldman Sachs
and its affiliates or J.P. Morgan and its affiliates. In addition, Goldman
Sachs and its affiliates or J.P. Morgan and its affiliates may purchase goods
and services from us from time to time in the future.
TAX SHARING AGREEMENT
For federal income tax purposes, Berry Plastics and its domestic
subsidiaries are included in the affiliated group of which Holding is the
common parent and as a result, the federal taxable income and loss of Berry
Plastics and its subsidiaries is included in the group consolidated tax return
filed by Holding. In April 1994, Holding, Berry Plastics and certain of its
subsidiaries entered into a tax sharing agreement, which was amended and
restated in March 2001 (the "Tax Sharing Agreement"). Under the Tax Sharing
Agreement, for fiscal 1994 and all taxable years thereafter for which the Tax
Sharing Agreement remains in effect, Berry Plastics and its subsidiaries as a
consolidated group are required to pay at the request of Holding an amount
equal to the taxes (plus any accrued interest) that they would otherwise have
to pay if they were to file separate federal, state or local income tax returns
(including any amounts determined to be due as a result of a redetermination
arising from an audit or otherwise of a tax liability which is attributable to
them). If Berry Plastics and its subsidiaries would have been entitled to a
tax refund for taxes paid previously on the basis computed as if they were to
file separate returns, then under the Tax Sharing Agreement, Holding is
required to pay at the request of Berry Plastics and its subsidiaries an amount
equal to such tax refund. If, however, Berry Plastics and its subsidiaries
would have reported a tax loss if they were to file separate returns, then
Holding intends, but is not obligated under the Tax Sharing Agreement, to pay
to Berry Plastics and its subsidiaries an amount equal to the tax benefit that
is realized by Holding as a result of such separate loss. Under the Tax
Sharing Agreement any such payments to be made by Holding to Berry Plastics or
any of its subsidiaries on account of a tax loss are within the sole discretion
of Holding. Berry Plastics and its subsidiaries made payments of $8.5 million
each to Holding in December 2001 and June 2002 under this tax sharing
agreement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees. The aggregate fees for professional services rendered by
Ernst & Young LLP for the audit of the Company's annual financial statements
for 2004, 2003 and 2002, the review of the financial statements included in the
Company's Forms 10-Q for 2004, 2003 and 2002 and statutory audits of foreign
subsidiaries totaled $422,000, $682,000 and $570,000, respectively.
Audit-Related Fees. The aggregate fees for assurance and related services by
Ernst & Young LLP that are related to the performance of the audit or review of
the Company's financial statements, for 2004, 2003 and 2002, and are not
disclosed in the paragraph caption "Audit Fees" above, were $207,000, $546,000
and $152,000, respectively. The services performed by Ernst & Young LLP in
connection with these fees consisted of employee benefit plan audits, internal
controls consultation, and due diligence on businesses being considered for
purchase.
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Tax Fees. The aggregate fees for professional services rendered by Ernst &
Young LLP for tax compliance, for the years ended 2004, 2003 and 2002 were
$65,000, $71,000 and $85,000, respectively. The aggregate fees billed by Ernst
& Young LLP for professional services rendered for tax advice and tax planning,
for 2004, 2003 and 2002, were $93,000, $98,000 and $136,000, respectively. The
services performed by Ernst & Young LLP in connection with these advisory and
planning fees consisted of consultation regarding various tax issues.
All Other Fees. There were no fees for products and services by Ernst &
Young LLP, other than the services described in the paragraphs captioned "Audit
Fees", "Audit-Related Fees", and "Tax Fees" above for 2004, 2003 and 2002.
The Audit Committee has established its pre-approval policies and
procedures, pursuant to which the Audit Committee approved the foregoing audit
and permissible non-audit services provided by Ernst & Young LLP in 2004 and
2003. Consistent with the Audit Committee's responsibility for engaging our
independent auditors, all audit and permitted non-audit services require pre-
approval by the Audit Committee. All requests or applications for services to
be provided by the independent auditor that do not require specific approval by
the Audit Committee will be submitted to the Chief Financial Officer and must
include a detailed description of the services to be rendered. The Chief
Financial Officer will determine whether such services are included within the
services that have received pre-approval of the Audit Committee. The Audit
Committee will be informed on a timely basis of any such services rendered by
the independent auditor. Request or applications to provide services that
require specific approval by the Audit Committee will be submitted to the Audit
Committee by both the independent auditor and the Chief Financial Officer, and
must include a joint statement as to whether, in their view, the request or
application is consistent with the SEC's rules on auditor independence. The
Chief Financial Officer and management will immediately report to the Audit
Committee any breach of this policy that comes to the attention of the Chief
Financial Officer or any member of management. Pursuant to these procedures
the Audit Committee approved the audit and permissible non-audit services
provided by Ernst & Young LLP in 2004 and 2003.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed as Part of the Report
1. Financial Statements
The financial statements listed under Item 8 are filed
as part of this report.
2. Financial Statement Schedules
Schedules have been omitted because they are either not
applicable or the required information has been disclosed in the
financial statements or notes thereto.
3. Exhibits
The exhibits listed on the accompanying Exhibit Index
are filed as part of this report.
(b) Reports on Form 8-K
Current Report on Form 8-K filed February 8, 2005, containing
notification of Doug Graham's resignation from the Board of Directors.
Mr. Graham resigned to pursue other interests.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Stockholders and Board of Directors
BPC Holding Corporation
We have audited the accompanying consolidated balance sheets of BPC Holding
Corporation (Holding) as of January 1, 2005 and December 27, 2003, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the years ended January 1, 2005, December 27, 2003
and for the periods from July 22, 2002 to December 28, 2002 (Company) and
December 30, 2001 to July 21, 2002 (Predecessor). These financial statements
are the responsibility of Holding's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.
Our audit included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BPC
Holding Corporation at January 1, 2005 and December 27, 2003, and the
consolidated results of its operations and its cash flows for the years ended
January 1, 2005, December 27, 2003 and for the periods from July 22, 2002 to
December 28, 2002 (Company) and December 30, 2001 to July 21, 2002
(Predecessor), in conformity with accounting principles generally accepted in
the United States.
/S/ ERNST & YOUNG LLP
Indianapolis, Indiana
February 11, 2005
F-1
BPC HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE INFORMATION)
JANUARY 1, DECEMBER 27,
2005 2003
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 264 $ 26,192
Accounts receivable (less allowance for doubtful
accounts of $3,207 at January 1, 2005 and $2,717
at December 27, 2003) 83,162 76,152
Inventories:
Finished goods 70,371 61,556
Raw materials and supplies 38,663 19,988
------------ -------------
109,034 81,544
Prepaid expenses and other current assets 27,339 19,192
------------ -------------
Total current assets 219,799 203,080
Property and equipment:
Land 10,016 7,935
Buildings and improvements 64,758 58,135
Machinery, equipment and tooling 297,972 249,291
Construction in progress 19,812 24,433
------------ -------------
392,558 339,794
Less accumulated depreciation 110,586 56,817
------------ -------------
281,972 282,977
Intangible assets:
Deferred financing fees, net 19,883 22,283
Customer relationships, net 84,959 90,540
Goodwill 358,883 376,769
Trademarks 33,448 33,448
Other intangibles, net 6,106 6,656
------------ -------------
503,279 529,696
Other 94 53
------------ -------------
Total assets $1,005,144 $1,015,806
============= =============
F-2
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JANUARY 1, DECEMBER 27,
2005 2003
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 55,671 $ 43,175
Accrued expenses and other liabilities 16,693 21,335
Accrued interest 18,816 18,132
Employee compensation, payroll and other taxes 28,190 23,528
Current portion of long-term debt 10,335 9,339
------------ -------------
Total current liabilities 129,705 115,509
Long-term debt, less current portion 687,223 742,266
Deferred income taxes 1,030 720
Other long-term liabilities 3,295 4,720
------------ -------------
Total liabilities 821,253 863,215
Stockholders' equity:
Preferred stock; $.01 par value:
500,000 shares authorized; 0 shares
issued and outstanding at January
1, 2005 and December 27, 2003 - -
Common stock; $.01 par value: 5,000,000
shares authorized; 3,398,807 shares issued
and 3,378,305 shares outstanding at January
1, 2005; and 3,397,637 shares issued and
3,377,923 shares outstanding at December 27, 2003 34 34
Additional paid-in capital 345,001 344,363
Adjustment of the carryover basis of continuing
stockholders (196,603) (196,603)
Notes receivable - common stock (14,856) (14,157)
Treasury stock: 20,502 shares and 19,714 shares
of common stock at January 1, 2005 and December 27,
2003, respectively (2,049) (1,972)
Retained earnings 39,178 16,227
Accumulated other comprehensive income 13,186 4,699
------------ -------------
Total stockholders' equity 183,891 152,591
------------ -------------
Total liabilities and stockholders' equity $1,005,144 $1,015,806
============ =============
See notes to consolidated financial statements.
F-3
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
COMPANY PREDECESSOR
-------------------------------------- -----------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
----------- ----------- ----------- -----------
Net sales $ 814,213 $ 551,876 $ 213,626 $ 280,677
Cost of goods sold 639,329 420,750 163,815 207,458
----------- ----------- ----------- -----------
Gross profit 174,884 131,126 49,811 73,219
Operating expenses:
Selling 26,361 23,883 10,129 12,080
General and administrative 38,518 25,699 7,664 15,750
Research and development 3,825 3,459 1,450 1,438
Amortization of intangibles 6,513 3,326 1,159 1,249
Merger expenses (Predecessor) - - - 20,987
Other expenses 5,791 3,569 2,757 2,804
----------- ----------- ----------- -----------
Operating income 93,876 71,190 26,652 18,911
Other expenses (income):
Loss (gain) on disposal of property and equipment - (7) 8 291
----------- ----------- ----------- -----------
Income before interest and taxes 93,876 71,197 26,644 18,620
Interest:
Expense (54,076) (46,251) (20,887) (28,747)
Loss on extinguished debt - (250) - (25,328)
Income 891 838 375 5
----------- ----------- ----------- -----------
Income (loss) before income taxes 40,691 25,534 6,132 (35,450)
Income taxes 17,740 12,486 2,953 345
----------- ----------- ----------- -----------
Net income (loss) 22,951 13,048 3,179 (35,795)
Preferred stock dividends - - - (6,468)
Amortization of preferred stock discount - - - (574)
----------- ----------- ----------- -----------
Net income (loss) attributable to common stockholders $ 22,951 $ 13,048 $ 3,179 $ (42,837)
=========== =========== =========== ===========
See notes to consolidated financial statements.
F-4
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS OF DOLLARS)
ADDITIONAL
COMMON STOCK PREFERRED STOCK TREASURY STOCK WARRANTS COMMON PAID-IN
(PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) STOCK CAPITAL
------------- --------------- -------------- ------------- --------- ---------
Predecessor:
Balance at December 29, 2001
(Predecessor) $ 6 $ 47,789 $ (405) $ 9,386 $ - $ 25,315
------------ --------------- -------------- ------------- --------- ---------
Net loss - - - - - -
Translation gain - - - - - -
Amortization of preferred stock discount - 574 - - - (574)
Accrued dividends on preferred stock - - - - - (6,468)
Stock-based compensation - - - - - 1,920
Redemption of predecessor stock (6) (48,363) 405 (9,386) - (20,193)
------------ --------------- -------------- ------------- -------- ---------
Balance at July 21, 2002 (Predecessor) $ - $ - $ - $ - $ - $ -
============ =============== ============== ============= ======== =========
Company:
Fair value of rolled stock options $ - $ - $ - $ - $ - $ 5,056
Issuance of common stock - - - - 28 276,760
Notes receivable - common stock - - - - - -
Interest on notes receivable - - - - - -
Adjustment of the carryover basis of
continuing stockholders - - - - - -
Translation gain - - - - - -
Other comprehensive losses - - - - - -
Net income - - - - - -
------------ --------------- -------------- ------------- -------- ---------
Balance at December 28, 2002 (Company) - - - - 28 281,816
------------ --------------- -------------- ------------- -------- ---------
Issuance of common stock - - - - 6 62,547
Purchase of treasury stock - - - - - -
Interest on notes receivable - - - - - -
Translation gain - - - - - -
Other comprehensive losses - - - - - -
Net income - - - - - -
------------ --------------- -------------- ------------- -------- ---------
Balance at December 27, 2003 (Company) - - - - 34 344,363
------------ --------------- -------------- ------------- -------- ---------
Issuance of common stock - - - - - 53
Collection on notes receivable - - - - - -
Purchase of treasury stock - - - - - -
Sale of treasury stock - - - - - -
Interest on notes receivable - - - - - -
Stock-based compensation - - - - - 585
Translation gain - - - - - -
Other comprehensive gains - - - - - -
Net income - - - - - -
------------ --------------- -------------- ------------- -------- ---------
Balance at January 1, 2005 (Company) $ - $ - $ - $ - $ 34 $ 345,001
============ =============== ============== ============= ======== =========
F-5
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
(IN THOUSANDS OF DOLLARS)
ADJUSTMENT OF
THE CARRYOVER NOTES ACCUMULATED
BASIS OF RECEIVABLE- RETAINED OTHER
CONTINUING COMMON TREASURY EARNINGS COMPREHENSIVE COMPREHENSIVE
STOCKHOLDERS STOCK STOCK (DEFICIT) INCOME (LOSS) TOTAL INCOME (LOSS)
------------ ----------- --------- ---------- -------------- --------- -------------
Predecessor:
Balance at December 29, 2001
(Predecessor) $ - $ - $ - $(220,263) $(1,429) $(139,601) $(2,681)
------------ ----------- --------- ---------- -------------- --------- -------------
Net loss - - - (35,795) - (35,795) (35,795)
Translation gain - - - - 1,429 1,429 1,429
Amortization of preferred - - - - - - -
stock discount
Accrued dividends on - - - - - (6,468) -
preferred stock
Stock-based compensation - - - - - 1,920 -
Redemption of predecessor stock - - - 256,058 - 178,515 -
------------ ----------- --------- ---------- -------------- --------- -------------
Balance at July 21, 2002
(Predecessor) $ - $ - $ - $ - $ - $ - $(34,366)
============ =========== ========= ========== ============== ========= =============
Company:
Fair value of rolled stock
options $ - $ - $ - $ - $ - $ 5,056 $ -
Issuance of common stock - - - - - 276,788 -
Notes receivable - common stock - (14,079) - - - (14,079) -
Interest on notes receivable - (320) - - - (320) -
Adjustment of the carryover
basis of continuing
stockholders (196,603) - - - - (196,603) -
Translation gain - - - - 2,091 2,091 2,091
Other comprehensive losses - - - - (949) (949) (949)
Net income - - - 3,179 - 3,179 3,179
------------ ----------- --------- ---------- -------------- --------- -------------
Balance at December 28, 2002
(Company) (196,603) (14,399) - 3,179 1,142 75,163 4,321
------------ ----------- --------- ---------- -------------- --------- =============
Issuance of common stock - - - - - 62,553 -
Purchase of treasury stock - 999 (1,972) - - (973) -
Interest on notes receivable - (757) - - - (757) -
Translation gain - - - - 3,645 3,645 3,645
Other comprehensive losses - - - - (88) (88) (88)
Net income - - - 13,048 - 13,048 13,048
------------ ----------- --------- ---------- -------------- --------- -------------
Balance at December 27, 2003
(Company) (196,603) (14,157) (1,972) 16,227 4,699 152,591 16,605
------------ ----------- --------- ---------- -------------- --------- =============
Issuance of common stock - - - - - 53 -
Collection on notes
receivable - 73 - - - 73 -
Purchase of treasury stock - - (192) - - (192) -
Sale of treasury stock - - 115 - - 115 -
Interest on notes receivable - (772) - - - (772) -
Stock-based compensation - - - - - 585 -
Translation gain - - - - 2,743 2,743 2,743
Other comprehensive gains - - - - 5,744 5,744 5,744
Net income - - - 22,951 - 22,951 22,951
------------ ----------- --------- ---------- -------------- --------- -------------
Balance at January 1, 2005
(Company) $(196,603) $(14,856) $(2,049) $ 39,178 $ 13,186 $ 183,891 $ 31,438
============ =========== ========= ========== ============== ========= =============
See notes to consolidated financial statements.
F-6
BPC HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
COMPANY PREDECESSOR
----------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
------------ ------------- ------------- -------------
OPERATING ACTIVITIES
Net income (loss) $ 22,951 $13,048 $ 3,179 $(35,795)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 54,303 40,752 16,031 23,526
Non-cash interest expense 1,862 2,318 1,077 1,399
Amortization of intangibles 6,513 3,326 1,159 1,249
Non-cash compensation 585 - - 1,920
Loss on extinguished debt (Predecessor) - - - 25,328
Loss (gain) on sale of property and equipment - (7) 8 291
Deferred income taxes 16,968 11,791 2,710 -
Changes in operating assets and liabilities:
Accounts receivable, net (7,216) (598) 8,717 (15,986)
Inventories (27,200) 5,600 (4,091) (4,255)
Prepaid expenses and other receivables (7,098) (2,582) (1,280) (603)
Other assets 76 32 (354) 2,042
Accrued interest 683 3,894 (3,686) 6,741
Payables and accrued expenses 12,806 2,199 (7,422) 4,735
------------ ------------- ------------- -------------
Net cash provided by operating activities 75,233 79,773 16,048 10,592
INVESTING ACTIVITIES
Additions to property and equipment (52,624) (29,949) (11,287) (17,396)
Proceeds from disposal of property and equipment 2,986 7 8 9
Proceeds from working capital settlement on
business acquisition 7,397 - - -
Transaction costs - - (12,398) -
Investment in Southern Packaging (3,236) - - -
Acquisitions of businesses - (235,710) - (3,834)
------------ ------------- ------------- -------------
Net cash used for investing activities (45,477) (265,652) (23,677) (21,221)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 880 149,944 580,000 24,492
Payments on long-term borrowings (55,996) (10,111) (507,314) (13,924)
Issuance of common stock 53 62,553 260,902 -
Purchase of treasury stock (192) (973) - -
Proceeds from notes receivable 73 - - -
Sale of treasury stock 115 - - -
Redemption of predecessor stock - - (290,672) -
Debt financing costs (641) (4,592) (21,103) -
------------ ------------- ------------- -------------
Net cash provided by (used for) financing activities (55,708) 196,821 21,813 10,568
Effect of exchange rate changes on cash 24 (363) 1,073 (815)
------------ ------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (25,928) 10,579 15,257 (876)
Cash and cash equivalents at beginning of period 26,192 15,613 356 1,232
------------ ------------- ------------- -------------
Cash and cash equivalents at end of period $ 264 $ 26,192 $ 15,613 $ 356
============ ============= ============= =============
See notes to consolidated financial statements.
F-7
BPC HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT AS OTHERWISE NOTED)
NOTE 1. ORGANIZATION
BPC Holding Corporation ("Holding"), through its subsidiary Berry Plastics
Corporation ("Berry" or the "Company") and its subsidiaries Berry Iowa
Corporation, Aerocon, Inc., PackerWare Corporation, Berry Plastics Design
Corporation, Venture Packaging, Inc. and its subsidiaries Venture Packaging
Midwest, Inc. and Berry Plastics Technical Services, Inc., NIM Holdings Limited
and its subsidiary Berry Plastics U.K. Limited, Knight Plastics, Inc., CPI
Holding Corporation and its subsidiary Cardinal Packaging, Inc., Poly-Seal
Corporation, Ociesse S.r.l and its subsidiary Capsol Berry Plastics S.p.a., and
Landis Plastics, Inc. manufactures and markets plastic packaging products
through its facilities located in Evansville, Indiana; Henderson, Nevada; Iowa
Falls, Iowa; Charlotte, North Carolina; Suffolk, Virginia; Lawrence, Kansas;
Monroeville, Ohio; Norwich, England; Woodstock, Illinois; Streetsboro, Ohio;
Baltimore, Maryland; Milan, Italy; Chicago, Illinois; Richmond, Indiana;
Syracuse, New York; and Phoenix, Arizona.
In 2002, the Company closed its Fort Worth, Texas facility, which was acquired
in connection with the acquisition of Pescor Plastics, Inc. in May 2001. In
2003, the Company closed its Monticello, Indiana facility, which was acquired
in connection with the acquisition of Landis Plastics, Inc. in November 2003.
The business from these closed locations has been distributed throughout
Berry's facilities.
Holding's fiscal year is a 52/53 week period ending generally on the Saturday
closest to December 31. All references herein to "2004", "2003," and "2002,"
relate to the fiscal years ended January 1, 2005, December 27, 2003, and
December 28, 2002, respectively. Due to the Merger (see Note 3), fiscal 2002
consists of two separate periods of December 30, 2001 to July 21, 2002
(Predecessor) and July 22, 2002 to December 28, 2002 (Company).
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Business
The consolidated financial statements include the accounts of Holding and its
subsidiaries, all of which are wholly owned. Intercompany accounts and
transactions have been eliminated in consolidation. Holding, through its
wholly owned subsidiaries, operates in four primary segments: containers,
closures, consumer products, and international. The Company's customers are
located principally throughout the United States, without significant
concentration in any one region or with any one customer. The Company performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral.
Purchases of various densities of plastic resin used in the manufacture of the
Company's products aggregated approximately $283.0 million and $140.3 million
in 2004 and 2003, respectively. Dow Chemical Corporation was the largest
supplier of the Company's total resin material requirements, representing
approximately 32% and 35% of such resin requirements in 2004 and 2003,
respectively. The Company also uses other suppliers such as Basell, Nova,
Total (formerly Atofina), Equistar, Sunoco, BP Amoco, and ExxonMobil to meet
its resin requirements.
Cash and Cash Equivalents
All highly liquid investments with maturity of three months or less at the date
of purchase are considered to be cash equivalents.
Accounts Receivable
The allowance for doubtful accounts is analyzed in detail on a quarterly basis
and all significant customers with delinquent balances are reviewed to
determine future collectibility. The determinations are based on legal issues
(such as bankruptcy status), past history, current financial and credit agency
reports, and the experience of the credit representatives. Reserves are
established in the quarter in which the Company makes the determination that
the account is deemed uncollectible. The Company maintains additional reserves
based on its historical bad debt experience. The following table summarizes
the activity by period for the allowance for doubtful accounts.
F-8
COMPANY PREDECESSOR
----------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
------------ ------------- ------------- -------------
Balance at beginning of period $2,717 $1,990 $2,063 $2,070
Charged to costs and expenses 323 150 (291) 164
Charged to other accounts (1) - 545 - -
Deductions (2) 167 32 218 (171)
------------ ------------- ------------- -------------
Balance at end of period $3,207 $2,717 $1,990 $2,063
============ ============= ============= =============
(1) Primarily relates to purchase of accounts receivable and related
allowance through acquisitions.
(2) Uncollectible accounts written off, net of recoveries.
Inventories
Inventories are valued at the lower of cost (first in, first out method) or
market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed primarily
by the straight-line method over the estimated useful lives of the assets
ranging from 15 to 25 years for buildings and improvements and two to 10 years
for machinery, equipment, and tooling. Repairs and maintenance costs are
charged to expense as incurred.
Intangible Assets
Deferred financing fees are being amortized using the straight-line method over
the lives of the respective debt agreements.
Customer relationships are being amortized using the straight-line method over
the estimated life of the relationships ranging from three to 20 years.
The goodwill acquired represents the excess purchase price over the fair value
of the net assets acquired in the Merger (see Note 3 below) and businesses
acquired since the Merger. These costs are reviewed annually for impairment
pursuant to SFAS No. 142, Goodwill and Other Intangible Assets.
Trademarks, which are indefinite lived intangible assets, are reviewed for
impairment annually pursuant to SFAS No. 142.
Other intangibles, which include covenants not to compete and technology-based
intangibles, are being amortized using the straight-line method over the
respective lives of the agreements or estimated life of the technology ranging
from one to twenty years.
Long-lived Assets
Long-lived assets are reviewed for impairment in accordance with SFAS No. 144
whenever facts and circumstances indicate that the carrying amount may not be
recoverable. Specifically, this process involves comparing an asset's carrying
value to the estimated undiscounted future cash flows the asset is expected to
generate over its remaining life. If this process were to result in the
conclusion that the carrying value of a long-lived asset would not be
recoverable, a write-down of the asset to fair value would be recorded through
a charge to operations. Fair value is determined based upon discounted cash
flows or appraisals as appropriate. Long-lived assets that are held for sale
are reported at the lower of the assets' carrying amount or fair value less
costs related to the assets' disposition. No impairments were recorded in
these financial statements.
Derivative Financial Instruments
The Company uses an interest rate collar to manage a portion of its interest
rate exposures. In 2004, the Company also entered into resin forward
contracts, which become effective in 2005, to manage certain resin price
exposures. These instruments are entered into to manage market risk exposures
and are not used for trading purposes.
F-9
Derivatives used for hedging purposes must be designated as, and effective as,
a hedge of the identified risk exposure at the designation of the contract.
Accordingly, changes in the market value of the derivative contract must be
highly correlated with changes in the market value of the underlying hedged
item at inception of the hedge and over the life of the hedge contract. Any
derivative instrument terminated, designated but no longer effective as a hedge
or initially not effective as a hedge would be recorded at market value and the
related gains and losses would be recognized in earnings. Derivatives not
designated as hedges are adjusted to fair value through the consolidated
statement of operations. Management routinely reviews the effectiveness of the
use of derivative instruments.
Gains and losses from hedges of anticipated transactions are classified in the
statement of operations consistent with the accounting treatment of the items
being hedged. The Company has recognized the interest rate collar and resin
forward contracts at fair value in the consolidated balance sheets.
Foreign Currency Translation
Assets and liabilities of most foreign subsidiaries are translated at exchange
rates in effect at the balance sheet date, and the statements of operations are
translated at the average monthly exchange rates for the period. Translation
gains and losses are recorded as a component of accumulated other comprehensive
income (loss) in stockholders' equity. Foreign currency transaction gains and
losses are included in net income (loss).
Revenue Recognition
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") and SEC
Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB 104"). Revenue
is recognized when the title and risk of loss have passed to the customer,
there is persuasive evidence of an arrangement, delivery has occurred or
services have been rendered, the sales price is fixed or determinable, and
collectibility is reasonably assured.
Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-
Based Compensation - Transition and Disclosure," established accounting and
disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As provided for under SFAS 123, the
Company accounts for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion 25, "Accounting for Stock
Issued to Employees." Compensation cost for stock options, if any, is measured
as the excess of the fair value of the Company's stock at the date of grant
over the amount an employee must pay to acquire the stock. The fair value for
options granted by Holding have been estimated at the date of grant using a
Black Scholes option pricing model with the following weighted average
assumptions:
COMPANY PREDECESSOR
----------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
------------ ------------- ------------- -------------
Risk-free interest rate 3.1% 3.0% 4.0% 4.0%
Dividend yield 0.0% 0.0% 0.0% 0.0%
Volatility factor .25 .25 .25 .25
Expected option life 5.0 years 5.0 years 5.0 years 5.0 years
For purposes of the pro forma disclosures, the estimated fair value of the
stock options are amortized to expense over the related vesting period.
Because compensation expense is recognized over the vesting period, the initial
impact on pro forma net income (loss) may not be representative of compensation
expense in future years, when the effect of amortization of multiple awards
would be reflected in the Consolidated Statement of Operations. The following
is a reconciliation of reported net income (loss) to net income (loss) as if
the Company used the fair value method of accounting for stock-based
compensation.
F-10
COMPANY PREDECESSOR
----------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
------------ ------------- ------------- -------------
Reported net income (loss) $22,951 $13,048 $3,179 $(35,795)
Stock-based employee compensation
expense included in reported income
(loss), net of tax 585 - - 1,920
Total stock-based employee compensation
expense determined under fair value based
method, for all awards, net of tax (2,294) (2,044) (856) (371)
------------ ------------- ------------- -------------
Pro forma net income (loss) $21,242 $11,004 $2,323 $(34,246)
============ ============= ============= =============
Income Taxes
The Company accounts for income taxes under the asset and liability approach,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequence of events that have been recognized in the
Company's financial statements or income tax returns. Income taxes are
recognized during the year in which the underlying transactions are reflected
in the Consolidated Statements of Operations. Deferred taxes are provided for
temporary differences between amounts of assets and liabilities as recorded for
financial reporting purposes and such amounts as measured by tax laws.
Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains or losses on derivative financial instruments, unrealized
gains or losses resulting from currency translations of foreign investments,
and adjustments to record the minimum pension liability.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of any contingent assets and liabilities at the
financial statement date and reported amounts of revenue and expenses during
the reporting period. On an on-going basis, the Company reviews its estimates
and assumptions. The Company's estimates were based on its historical
experience and various other assumptions that the Company believes to be
reasonable under the circumstances. Actual results are likely to differ from
those estimates under different assumptions or conditions, but management does
not believe such differences will materially affect the Company's financial
position or results of operations.
Reclassifications
Certain amounts in the prior year financial statements and related notes have
been reclassified to conform to the current year presentation.
Impact of Recently Issued Accounting Standards
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123R (Revised 2004,) Share-Based Payment ("SFAS No. 123R"), which requires
that the compensation cost relating to share-based payment transactions be
recognized in financial statements based on alternative fair value models.
The share-based compensation cost will be measured based on the fair value of
the equity or liability instruments issued. The Company currently discloses
pro forma compensation expense quarterly and annually by calculating the stock
option grants' fair value using the Black-Scholes model and disclosing the
impact on net income (loss) in a Note to the Consolidated Financial Statements.
Upon adoption, pro forma disclosure will no longer be an alternative. For
nonpublic companies, as defined, the effective date of SFAS No. 123R is the
beginning of the first annual reporting period that begins after December 15,
2005, although early adoption is allowed. The Company expects to adopt SFAS
No. 123R in the first quarter of 2006, but has not yet evaluated what effect
the adoption of this new standard will have on the Company's financial position
or results of operations.
F-11
In November 2004, the FASB issued Statement of Financial Accounting Standards
No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 ("SFAS 151").
SFAS 151 requires the exclusion of certain costs from inventories and the
allocation of fixed production overheads to inventories to be based on normal
capacity of the production facilities. The provisions of SFAS 151 are
effective for costs incurred during fiscal years beginning after June 15, 2005.
Earlier adoption is permitted for inventory costs incurred during fiscal years
beginning after the issuance date of SFAS 151. The Company has not yet
evaluated what effect the adoption of this new standard will have on the
Company's financial position or results of operations.
NOTE 3. THE MERGER
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly formed
entity controlled by various private equity funds affiliated with Goldman,
Sachs & Co., merged (the "Merger") with and into Holding, pursuant to an
agreement and plan of merger, dated as of May 25, 2002. At the effective time
of the Merger, (i) each share of common stock of Holding Corporation issued and
outstanding immediately prior to the effective time of the Merger was converted
into the right to receive cash pursuant to the terms of the merger agreement,
and (ii) each share of common stock of the Buyer issued and outstanding
immediately prior to the effective time of the Merger was converted into one
share of common stock of Holding.
The total amount of funds required to consummate the Merger and to pay
estimated fees and expenses related to the Merger, including amounts related to
the repayment of indebtedness, the redemption of the outstanding preferred
stock and accrued dividends, the redemption of outstanding warrants, and the
payment of transaction costs incurred by Holding, were approximately $870.7
million (which includes the amount of certain indebtedness which remained
outstanding and the value of certain shares of Holding common stock held by
employees that were contributed to the Buyer immediately prior to the Merger).
Immediately following the Merger, the Buyer and its affiliates owned
approximately 63% of the common stock of Holding. The remaining common stock
of Holding is held by J.P. Morgan Partners Global Investors, L.P. and other
private equity funds affiliated with J.P. Morgan Partners, LLC, the private
equity investment arm of J.P. Morgan Chase & Co., which own approximately 29%
of Holding's common stock and by members of Berry's management, which own the
remaining 8%.
The Merger has been accounted for under the purchase method of accounting, and
accordingly, the purchase price was allocated to the identifiable assets and
liabilities based on estimated fair values at the acquisition date. The
Company applied the provisions of Emerging Issues Task Force 88-16, Basis in
Leveraged Buyout Transactions, whereby, the carryover equity interests of
certain shareholders from the Predecessor to the Company were recorded at their
Company basis. The application of these provisions reduced stockholder's
equity and intangibles by $196.6 million. In connection with the Merger, the
Predecessor incurred Merger related expenses of approximately $21.0 million,
consisting primarily of investment banking fees, bonuses to management, non-
cash modification of stock option awards, legal costs, and fees to the largest
voting stockholder of the Predecessor. In addition, as a result of
extinguishing debt in connection with the Merger, $6.6 million of existing
deferred financing fees and $18.7 million of prepayment fees and related
charges were charged to expense in 2002 as a loss on extinguished debt.
NOTE 4. RECENT ACQUISITIONS, INVESTMENT, AND DISPOSAL
On February 25, 2003, Berry acquired the 400 series continuous threaded
injection molded closure assets from CCL Plastic Packaging located in Los
Angeles, California ("CCL Acquisition") for aggregate consideration of
approximately $4.6 million. The purchase price was allocated to fixed assets
($2.7 million), inventory ($1.1 million), customer relationships ($0.5
million), goodwill ($0.2 million), and other intangibles ($0.1 million). The
purchase was financed through borrowings under the Company's revolving line of
credit. The operations from the CCL Acquisition are included in Berry's
operations since the acquisition date using the purchase method of accounting.
On May 30, 2003, Berry acquired the injection molded overcap lid assets from
APM Inc. located in Benicia, California ("APM Acquisition") for aggregate
consideration of approximately $0.6 million. The purchase price was allocated
to fixed assets ($0.3 million), inventory ($0.1 million), goodwill ($0.1
million) and other intangibles ($0.1 million). The purchase was financed
through cash provided by operations. The operations from the APM Acquisition
are included in Berry's operations since the acquisition date using the
purchase method of accounting.
On November 20, 2003, Berry acquired Landis Plastics, Inc. (the "Landis
Acquisition") for aggregate consideration of approximately $229.7 million,
including deferred financing fees. The operations from the Landis Acquisition
are included in Berry's operations since the acquisition date using the
purchase method of accounting. The purchase was financed through the issuance
by Berry of $85.0 million aggregate principal amount of 10 3/4% senior
subordinated notes to various institutional buyers, which resulted in gross
proceeds of $95.2 million, aggregate net borrowings of $54.1 million under
F-12
Berry's amended and restated senior secured credit facility from new term loans
after giving effect to the refinancing of the prior term loan, an aggregate
common equity contribution of $62.0 million, and cash on hand. Berry also
agreed to acquire, for $32.0 million, four facilities that Landis leased from
certain of its affiliates. Prior to the closing of the Landis Acquisition, the
rights and obligations to purchase the four facilities owned by affiliates of
Landis were assigned to an affiliate of W.P. Carey & Co., L.L.C., which
afflliate subsequently entered into a lease with Landis for the four
facilities. In accordance with EITF 95-3, the Company established opening
balance sheet reserves related to plant shutdown, severance and unfavorable
lease arrangement costs. The opening balances and current year activity is
presented in the following table.
YEAR ENDED JANUARY 1, 2005
ESTABLISHED ---------------------------------------------------
AT OPENING
BALANCE DECEMBER 27, REDUCTION JANUARY 1,
SHEET 2003 PAYMENTS IN ESTIMATE 2005
---------- ----------- ----------- ------------- -----------
EITF 95-3 reserves $3,206 $2,892 $(1,152) $(472) $1,268
The following pro forma financial results are unaudited and assume that the
Landis Acquisition occurred at the beginning of the respective period. Pro
forma results have not been adjusted to reflect the acquisitions of CCL or APM
as they do not differ significantly from the pro forma results presented below.
Pro forma 2003 net sales were $749,591 and net income was $5,526. The
financial results for fiscal 2004 have not been adjusted as the acquired
businesses were owned by Berry for the entire period. The information
presented is for informational purposes only and is not necessarily indicative
of the operating results that would have occurred had the Landis Acquisition
been consummated at the above date, nor are they necessarily indicative of
future operating results. Further, the information reflects only pro forma
adjustments for additional interest expense and amortization, net of the
applicable income tax effects.
On November 1, 2004, the Company entered into a series of agreements with
Southern Packaging Group Ltd. ("Southern Packaging"), and its principal
shareholder, Mr. Pan Shun Ming, to jointly expand participation in the plastic
packaging business in China and the surrounding region. In connection
therewith, Berry acquired a 10% stake in Southern Packaging, which has been
recorded as an other current asset as a trading security at its fair market
value of $3.2 million as of January 1, 2005, which is consistent with the cost
basis.
Berry Plastics U.K. Limited, a foreign subsidiary of Berry, reached an
agreement in March 2004 to sell the manufacturing equipment, inventory, and
accounts receivable for its U.K. milk cap business to Portola Packaging U.K.
Limited. The transaction valued at approximately $4.0 million closed in April
2004. The U.K. milk cap business represented less than $3.0 million of annual
consolidated net sales.
NOTE 5. INTANGIBLE ASSETS
Intangible assets consist of the following:
JANUARY 1, DECEMBER 27,
2005 2003
------------ -------------
Deferred financing fees $ 26,681 $ 26,043
Customer relationships 93,641 93,561
Goodwill 358,883 376,769
Trademarks 33,448 33,448
Covenants not to compete and other 2,622 2,757
Technology-based 5,115 5,023
Accumulated amortization (17,111) (7,905)
------------ -------------
$503,279 $529,696
============ =============
Goodwill was reduced by $16.4 million in fiscal 2004 as a result of the
reduction of the valuation allowance on deferred tax assets as the use of fully
reserved net operating loss carryforwards that existed at the time of the
Merger have been recorded as a reduction to goodwill. The remaining decrease
in goodwill is the result of finalizing the opening balance sheet from the
Landis Acquisition and cash proceeds in excess of the net book value of the
assets sold in connection with the U.K. milk cap business partially offset by
foreign currency translation. The remaining changes in intangible assets are
primarily the result of the amortization of definite lived intangibles.
F-13
Future amortization expense for definite lived intangibles at January 1, 2005
for the next five fiscal years is approximately $8.9 million, $8.8 million,
$8.7 million, $8.6 million, and $8.4 million for fiscal 2005, 2006, 2007, 2008,
and 2009, respectively.
NOTE 6. LONG-TERM DEBT
Long-term debt consists of the following:
JANUARY 1, DECEMBER 27,
2005 2003
------------ ------------
Berry 10 3/4% Senior Subordinated Notes $335,000 $335,000
Debt premium on 10 3/4% Notes, net 8,876 10,053
Term loans 330,780 380,000
Revolving lines of credit 480 342
Nevada Industrial Revenue Bonds 1,500 2,000
Capital leases 20,922 24,210
------------ ------------
697,558 751,605
Less current portion of long-term debt 10,335 9,339
------------ ------------
$687,223 $742,266
============ ============
Berry 10 3/4% Senior Subordinated Notes
On July 22, 2002, Berry completed an offering of $250.0 million aggregate
principal amount of 10 3/4% Senior Subordinated Notes due 2012 (the "2002
Notes"). The net proceeds to Berry from the sale of the 2002 Notes, after
expenses, were $239.4 million. The proceeds from the 2002 Notes were used in
the financing of the Merger. On November 20, 2003, Berry completed an offering
of $85.0 million aggregate principal amount of 10 3/4% Senior Subordinated
Notes due 2012 (the "Add-on Notes"). The net proceeds to Berry from the sale
of the Add-on Notes, after expenses, were $91.8 million. The proceeds from the
Add-on Notes were used in the financing of the Landis Acquisition. The 2002
Notes and Add-on Notes mature on July 15, 2012. Interest is payable semi-
annually on January 15 and July 15 of each year, which commenced on January 15,
2003 with respect to the 2002 Notes and commenced on January 15, 2004 with
respect to the Add-on Notes. Holding and all of Berry's domestic subsidiaries
fully, jointly, severally, and unconditionally guarantee on a senior
subordinated basis the 2002 Notes and Add-on Notes. The 2002 Notes and Add-on
Notes are not guaranteed by the foreign subsidiaries: Berry Plastics
Acquisition Corporation II, NIM Holdings Limited, Berry Plastics U.K. Limited,
Norwich Acquisition Limited, Capsol Berry Plastics S.p.a., Ociesse S.r.l., or
Berry Plastics Asia Pte. Ltd.
Berry is not required to make mandatory redemption or sinking fund payments
with respect to the 2002 Notes and Add-on Notes. On or subsequent to July 15,
2007, the 2002 Notes and Add-on Notes may be redeemed at the option of Berry,
in whole or in part, at redemption prices ranging from 105.375% in 2007 to 100%
in 2010 and thereafter. Prior to July 15, 2005, up to 35% of the 2002 Notes
and Add-on Notes may be redeemed at 110.75% of the principal amount at the
option of Berry in connection with an equity offering. Upon a change in
control, as defined in the indenture under which the 2002 Notes and Add-on
Notes were issued (the "Indenture"), each holder of notes will have the right
to require Berry to repurchase all or any part of such holder's notes at a
repurchase price in cash equal to 101% of the aggregate principal amount
thereof plus accrued interest. The 2002 Notes and Add-on Notes are treated as
a single class under the Indenture.
Second Amended and Restated Credit Facility
In connection with the Merger in 2002, the Company entered into a credit and
guaranty agreement and a related pledge security agreement with a syndicate of
lenders led by Goldman Sachs Credit Partners L.P., as administrative agent (the
"Credit Facility"). On November 10, 2003, in connection with the Landis
Acquisition, the Credit Facility was amended and restated (the "Amended and
Restated Credit Facility"). On August 9, 2004, the Amended and Restated Credit
Facility was amended and restated (the "Second Amended and Restated Credit
Facility"). The Second Amended and Restated Credit Facility provides (1) a
$365.5 million term loan and (2) a $100.0 million revolving credit facility.
The proceeds from the new term loan were used to repay the outstanding balance
of the term loans from the Amended and Restated Credit Facility. The Second
Amended and Restated Credit Facility permits the Company to borrow up to an
additional $150.0 million of incremental senior term indebtedness from lenders
willing to provide such loans subject to certain restrictions. The terms of
the additional indebtedness will be determined by the market conditions at the
time of borrowing. The maturity date of the term loan is July 22, 2010, and
the maturity date of the revolving credit facility is July 22, 2008. The
indebtedness under the Second Amended and Restated Credit Facility is
F-14
guaranteed by Holding and all of its domestic subsidiaries. The obligations of
Berry Plastics under the Second Amended and Restated Credit Facility and the
guarantees thereof are secured by substantially all of the assets of such
entities. At January 1, 2005, there were no borrowings outstanding on the
revolving credit facility. The revolving credit facility allows up to $25.0
million of letters of credit to be issued instead of borrowings under the
revolving credit facility and up to $10.0 million of swingline loans. At
January 1, 2005 and December 27, 2003, the Company had $8.5 million and $7.4
million, respectively, in letters of credit outstanding under the revolving
credit facility.
The Second Amended and Restated Credit Facility contains significant financial
and operating covenants, including prohibitions on the ability to incur certain
additional indebtedness or to pay dividends, and restrictions on the ability to
make capital expenditures. The Second Amended and Restated Credit Facility
also contains borrowing conditions and customary events of default, including
nonpayment of principal or interest, violation of covenants, inaccuracy of
representations and warranties, cross-defaults to other indebtedness,
bankruptcy and other insolvency events (other than in the case of certain
foreign subsidiaries). The Company was in compliance with all the financial
and operating covenants at January 1, 2005. The term loan amortizes quarterly
as follows: $813,312 each quarter through June 30, 2009 and $78,974,687 each
quarter beginning September 30, 2009 and ending June 30, 2010.
Borrowings under the Second Amended and Restated Credit Facility bear interest,
at the Company's option, at either (i) a base rate (equal to the greater of the
prime rate and the federal funds rate plus 0.5%) plus the applicable margin
(the ``Base Rate Loans'') or (ii) an adjusted eurodollar LIBOR (adjusted for
reserves) plus the applicable margin (the ``Eurodollar Rate Loans''). With
respect to the term loan, the ``applicable margin'' is (i) with respect to Base
Rate Loans, 1.25% per annum and (ii) with respect to Eurodollar Rate Loans,
2.25% per annum (4.22% at January 1, 2005 and 3.7% at December 27, 2003). In
addition, the applicable margins with respect to the term loan can be further
reduced by an additional .25% per annum subject to the Company meeting a
leverage ratio target, which was met based on the results through January 1,
2005. With respect to the revolving credit facility, the ``applicable margin''
is subject to a pricing grid which ranges from 2.75% per annum to 2.00% per
annum, depending on the leverage ratio (2.50% based on results through January
1, 2005). The ``applicable margin'' with respect to Base Rate Loans will
always be 1.00% per annum less than the ``applicable margin'' for Eurodollar
Rate Loans. In October 2002, Berry entered into an interest rate collar
arrangement to protect $50.0 million of the outstanding variable rate term loan
debt from future interest rate volatility. The collar floor is set at 1.97%
LIBOR (London Interbank Offering Rate) and capped at 6.75% LIBOR. The
agreement was effective January 15, 2003. At January 1, 2005 and December 27,
2003, shareholders' equity has been reduced by $4 and $487, respectively, to
adjust the agreement to fair market value. At January 1, 2005, the Company had
unused borrowing capacity under the Second Amended and Restated Credit
Facility's revolving line of credit of $91.5 million.
Nevada Industrial Revenue Bonds
The Nevada Industrial Revenue Bonds bear interest at a variable rate (2.0% at
January 1, 2005 and 1.3% at December 27, 2003), require annual principal
payments of $0.5 million on April 1, are collateralized by irrevocable letters
of credit issued under the Second Amended and Restated Credit Facility and
mature in April 2007. The remaining balance of the Nevada Industrial Revenue
Bonds of $1.5 million was repaid in January 2005 using the revolving line of
credit.
Other
Future maturities of long-term debt at January 1, 2005 are as follows:
2005 $ 10,335
2006 7,104
2007 6,918
2008 9,054
2009 81,263
Thereafter 574,008
Interest paid was $53,393, $40,040, and $40,883, for 2004, 2003, and 2002,
respectively. Interest capitalized was $1,120, $860, and $844, for 2004, 2003,
and 2002, respectively.
F-15
NOTE 7. LEASE AND OTHER COMMITMENTS
Certain property and equipment are leased using capital and operating leases.
In 2004 and 2003, Berry Plastics entered into various capital lease obligations
with no immediate cash flow effect resulting in capitalized property and
equipment of $2,101 and $1,717, respectively. Total capitalized lease property
consists of manufacturing equipment with a cost of $35,148 and $34,465 and
related accumulated amortization of $14,353 and $9,791 at January 1, 2005 and
December 27, 2003, respectively. Capital lease amortization is included in
depreciation expense. Total rental expense from operating leases was
approximately $14,879, $11,216, and $9,761 for 2004, 2003, and 2002,
respectively.
Future minimum lease payments for capital leases and noncancellable operating
leases with initial terms in excess of one year are as follows:
AT JANUARY 1, 2005
------------------------------------
CAPITAL LEASES OPERATING LEASES
------------------------------------
2005 $ 8,397 $ 13,645
2006 4,968 12,853
2007 3,686 10,505
2008 4,148 9,236
2009 4,905 8,692
Thereafter - 54,116
-------- ---------
26,104 $ 109,047
Less: amount representing interest (5,182) =========
--------
Present value of net minimum lease payments $20,922
========
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 position.
The Company has various purchase commitments for raw materials, supplies and
property and equipment incidental to the ordinary conduct of business. All
such commitments are at prices at or below current market. At January 1, 2005,
the Company had committed approximately $46.5 million for resin on order that
had not yet been received and $10.0 million to complete capital projects.
NOTE 8. INCOME TAXES
For financial reporting purposes, income (loss) before income taxes, by tax
jurisdiction, is comprised of the following:
COMPANY PREDECESSOR
----------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
------------ ------------- ------------- -------------
Domestic $ 44,841 $ 29,556 $ 7,331 $(33,415)
Foreign (4,150) (4,022) (1,199) (2,035)
------------ ------------- ------------- -------------
$ 40,691 $ 25,534 $ 6,132 $(35,450)
============ ============= ============= =============
F-16
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of deferred tax assets and liabilities are as follows:
JANUARY 1, DECEMBER 27,
2005 2003
----------- -----------
Deferred tax assets:
Allowance for doubtful accounts $ 804 $ 637
Inventory 1,409 1,390
Compensation and benefit accruals 4,032 3,119
Insurance reserves 363 679
Net operating loss carryforwards 24,436 29,546
Alternative minimum tax (AMT) credit carryforwards 3,821 3,457
Other - 1,601
----------- -----------
Total deferred tax assets 34,865 40,429
Valuation allowance (1,302) (16,911)
----------- -----------
Deferred tax assets, net of valuation allowance 33,563 23,518
Deferred tax liabilities:
Other 382 -
Property and equipment 34,211 24,239
----------- -----------
Total deferred tax liabilities 34,593 24,239
----------- -----------
Net deferred tax liability $ (1,030) $ (721)
=========== ===========
Income tax expense (benefit) consists of the following:
COMPANY PREDECESSOR
----------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
------------ ------------- ------------- -------------
Current:
Federal $ 363 $ 402 $ - $ -
Foreign 133 61 26 375
State 472 232 217 (30)
------------ ------------- ------------- -------------
Total current 968 695 243 345
Deferred:
Federal 13,543 8,608 2,280 -
Foreign (173) - - -
State 3,402 3,183 430 -
------------ ------------- ------------- -------------
Total deferred 16,772 3,183 430 -
------------ ------------- ------------- -------------
Income tax expense $17,740 $12,486 $2,953 $ 345
============ ============= ============= =============
Holding has unused operating loss carryforwards of approximately $61.0 million
for federal and state income tax purposes which begin to expire in 2012. AMT
credit carryforwards are available to Holding indefinitely to reduce future
years' federal income taxes. As a result of the Merger, $45.0 million of the
unused operating loss carryforward is limited to approximately $12.9 million
per year, and $16.0 million of the unused operating loss carryforward occurred
subsequent to the Merger and is not subject to an annual limitation.
Income taxes paid during 2004, 2003, and 2002 approximated $764, $484, and
$531, respectively.
F-17
A reconciliation of income tax expense (benefit), computed at the federal
statutory rate, to income tax expense (benefit), as provided for in the
financial statements, is as follows:
COMPANY PREDECESSOR
----------------------------------------- -------------
YEAR ENDED YEAR ENDED PERIOD FROM PERIOD FROM
JANUARY 1, DECEMBER 27, 7/22/02- 12/30/01-
2005 2003 12/28/02 7/21/02
------------ ------------- ------------- -------------
Income tax expense
(benefit) computed at
statutory rate $ 14,244 $ 8,721 $ 2,081 $ (12,170)
State income tax expense
(benefit), net of federal
taxes 2,518 2,220 434 (1,035)
Expenses not deductible for
income tax purposes 394 160 60 3,823
Change in valuation allowance 1,288 1,285 - 9,160
Other (704) 100 378 567
------------ ------------- ------------- -------------
Income tax expense $ 17,740 $ 12,486 $ 2,953 $ 345
------------ ------------- ------------- -------------
On October 22, 2004, the American Jobs Creation Act of 2004 (the "Act") was
signed into law. The Act creates a temporary incentive for multinational
companies to repatriate accumulated income earned outside the United States at
an effective tax rate of 5.25%. Due to the Company's current domestic and
international tax position, no material benefit is expected as a result of the
Act.
NOTE 9. EMPLOYEE RETIREMENT PLANS
Berry Plastics sponsors a defined contribution 401(k) retirement plan covering
substantially all employees. Contributions are based upon a fixed dollar
amount for employees who participate and percentages of employee contributions
at specified thresholds. Contribution expense for this plan was approximately
$2,020, $1,408, and $1,462 for 2004, 2003, and 2002, respectively. The Company
also maintains a defined benefit pension plan covering the Poly-Seal employees
under a collective bargaining agreement. At January 1, 2005 and December 27,
2003, stockholders' equity has been reduced by $462 and $550, respectively, as
a result of recording the minimum pension liability.
NOTE 10. STOCKHOLDERS' EQUITY
Common and Preferred Stock
On July 22, 2002, GS Berry Acquisition Corp., (the "Buyer") a newly formed
entity controlled by various private equity funds affiliated with Goldman,
Sachs & Co., merged (the "Merger") with and into Holding, pursuant to an
agreement and plan of merger, dated as of May 25, 2002. At the effective time
of the Merger, (i) each share of common stock of BPC Holding Corporation issued
and outstanding immediately prior to the effective time of the Merger was
converted into the right to receive cash pursuant to the terms of the merger
agreement, and (ii) each share of common stock of the Buyer issued and
outstanding immediately prior to the effective time of the Merger was converted
into one share of common stock of Holding.
F-18
Notes Receivable from Management
In connection with the Merger, certain senior employees of Holding acquired
shares of Holding Common Stock pursuant to an employee stock purchase program.
Such employees paid for these shares with any combination of (i) shares of
Holding common stock that they held prior to the Merger; (ii) their cash
transaction bonus, if any; and (iii) a promissory note. In addition, Holding
adopted an employee stock purchase program pursuant to which a number of
employees had the opportunity to invest in Holding on a leveraged basis.
Employees participating in this program were permitted to finance two-thirds of
their purchases of shares of Holding common stock under the program with a
promissory note. The promissory notes are secured by the shares purchased and
such notes accrue interest which compounds semi-annually at rates ranging from
4.97% to 5.50% per year. Principal and all accrued interest is due and payable
on the earlier to occur of (i) the end of the ten-year term, (ii) the ninetieth
day following such employee's termination of employment due to death,
"disability", "redundancy" (as such terms are defined in the 2002 Option Plan)
or retirement, or (iii) the thirtieth day following such employee's termination
of employment for any other reason. As of January 1, 2005 and December 27,
2003, the Company had $14,856 and $14,157, respectively, in outstanding notes
receivable (principal and interest), which has been classified as a reduction
to stockholders' equity in the consolidated balance sheet, due from employees
under this program.
Stock Option Plans
Holding maintains the BPC Holding Corporation 1996 Stock Option Plan (``1996
Option Plan''), as amended, pursuant to which nonqualified options to purchase
135,873 shares are outstanding. All outstanding options under the 1996 Option
Plan are scheduled to expire on July 22, 2012 and no additional options will be
granted under it. Option agreements issued pursuant to the 1996 Option Plan
generally provide that options become vested and exercisable at a rate of 10%
per year based on continued service. Additional options also vest in years
during which certain financial targets are attained. Notwithstanding the
vesting provisions in the option agreements, all options that were scheduled to
vest prior to December 31, 2002 accelerated and became vested immediately prior
to the Merger.
Holding has adopted an employee stock option plan (``2002 Option Plan''), as
amended, pursuant to which options to acquire up to 495,073 shares of Holding's
common stock may be granted to its employees, directors and consultants.
Options granted under the 2002 Option Plan have an exercise price per share
that either (1) is fixed at the fair market value of a share of common stock on
the date of grant or (2) commences at the fair market value of a share of
common stock on the date of grant and increases at the rate of 15% per year
during the term. Generally, options have a ten-year term, subject to earlier
expiration upon the termination of the optionholder's employment and other
events. Some options granted under the plan become vested and exercisable over
a five-year period based on continued service with Holding. Other options
become vested and exercisable based on the achievement by Holding of certain
financial targets, or if such targets are not achieved, based on continued
service with Holding. Upon a change in control of Holding, the vesting
schedule with respect to certain options accelerate for a portion of the shares
subject to such options.
Financial Accounting Standards Board Statement 123, Accounting for Stock-Based
Compensation ("Statement 123"), prescribes accounting and reporting standards
for all stock-based compensation plans. Statement 123 provides that companies
may elect to continue using existing accounting requirements for stock-based
awards or may adopt a new fair value method to determine their intrinsic value.
Holding has elected to continue following Accounting Principles Board Opinion
No. 25, Accounting For Stock Issued to Employees ("APB 25") to account for its
employee stock options. Under APB 25, because the exercise price of Holding's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized at the grant date.
F-19
Information related to the 1996 Option Plan and 2002 Option Plan is as follows:
COMPANY COMPANY COMPANY PREDECESSOR
--------------- ----------------- ----------------- -----------------
JANUARY 1, 2005 DECEMBER 27, 2003 DECEMBER 28, 2002 JULY 21, 2002
--------------- ----------------- ----------------- -----------------
Weighted Weighted Weighted Weighted
Number Average Number Average Number Average Number Average
Of Exercise Of Exercise Of Exercise Of Exercise
Shares Price Shares Price Shares Price Shares Price
--------------- ----------------- ----------------- -----------------
Options outstanding, beginning of period 530,662 $ 94 545,684 $ 86 48,218 $ 157 60,420 $132
Options converted - - - - 102,329 (107) - -
Options granted 65,465 120 38,713 100 395,137 100 15,345 277
Options exercised (1,640) 53 (9,757) 57 - - (18,134) 177
Options canceled (4,331) 93 (43,978) 101 - - (9,413) 389
-------- -------- -------- -------
Options outstanding, end of period 590,156 102 530,662 94 545,684 86 48,218 157
======== ======== ======== =======
Option price range at end of period $32 - $142 $32 - $124 $32 - $100 $100 - $226
Options exercisable at end of period 291,879 203,326 120,448 38,573
Options available for grant at period end 43,489 22,588 42,429 0
Weighted average fair value of options
granted during period $34 $28 $30 $30
The following table summarizes information about the options outstanding at
January 1, 2005:
Weighted
Range of Weighted Average Average Number
Exercise Number Outstanding Remaining Contractual Exercise Exercisable at
Prices At January 1, 2005 Life Price January 1, 2005
-----------------------------------------------------------------------------------
$32 - $72 135,873 8 years $50 123,152
$100 227,040 8 years $100 76,005
$120 62,011 9 years $120 10,107
$142 165,232 8 years $142 82,615
------- -------
590,156 291,879
Stockholders Agreements
In connection with the Merger, Holding entered into a stockholders' agreement
with GSCP 2000 and other private equity funds affiliated with Goldman, Sachs &
Co., which in the aggregate own a majority of the common stock, and J.P. Morgan
Partners Global Investors, L.P. and other private equity funds affiliated with
J.P. Morgan Securities Inc., which own approximately 28% of the common stock.
GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co.,
have the right to designate seven members of the board of directors, one of
which shall be a member of management, and J.P. Morgan Partners Global
Investors, L.P. and other private equity funds affiliated with J.P. Morgan
Securities Inc. have the right to designate two members of the board of
directors. The stockholders' agreement contains customary terms including
terms regarding transfer restrictions, rights of first offer, tag along rights,
drag along rights, preemptive rights and veto rights.
NOTE 11. RELATED PARTY TRANSACTIONS
Prior to the Merger, Atlantic Equity Partners International II, L.P.
("International") was our largest voting stockholder and International engaged
First Atlantic Capital, Ltd. ("First Atlantic") to provide certain financial
and management consulting services to the Company. In consideration of
financial advisory and management consulting services, the Company paid First
Atlantic fees and expenses of $385 for fiscal 2002. In consideration of
services performed in connection with the Merger, the Company paid First
Atlantic fees and expenses of $1,786 in July 2002.
In connection with the Merger, the Company paid $8.0 million to entities
affiliated with Goldman, Sachs & Co. and $5.2 million to J.P. Morgan Securities
Inc., an affiliate of J.P. Morgan Chase & Co., for advisory and other services.
Goldman Sachs and J.P. Morgan acted as joint book-running managers in the
issuance of the 2002 Notes and received fees of approximately $4.4 million and
$3.2 million, respectively, for services performed. Goldman Sachs Credit
Partners, L.P., an affiliate of Goldman Sachs, acted as the administrative
agent, joint lead arranger and joint bookrunner for the Credit Facility and
received fees of $3.6 million in July 2002 for services provided. JP Morgan
Chase Bank, an affiliate of J.P. Morgan, acted as the joint lead arranger and
F-20
joint bookrunner for the Credit Facility for consideration of approximately
$3.6. million. In October 2002, the Company entered into an interest rate
collar agreement with Goldman Sachs Capital Markets to protect $50.0 million of
the outstanding variable rate term loan debt from future interest rate
volatility. The collar floor is set at 1.97% LIBOR and capped at 6.75% LIBOR.
In connection with the Landis Acquisition, the Company paid $1.7 million to
entities affiliated with Goldman, Sachs & Co. and $0.8 million to J.P. Morgan
Securities Inc., an affiliate of J.P. Morgan Chase & Co., for advisory and
other services. Goldman Sachs and J.P. Morgan acted as joint book-running
managers in the issuance of the Add-on Notes and received fees of approximately
$1.0 million and $1.0 million, respectively, for services performed. Goldman
Sachs Credit Partners, L.P., an affiliate of Goldman Sachs, acted as the
administrative agent, joint lead arranger and joint bookrunner for the Amended
and Restated Credit Facility and received fees of $0.5 million in July 2002 for
services provided. JP Morgan Chase Bank, an affiliate of J.P. Morgan, acted as
the joint lead arranger and joint bookrunner for the Amended and Restated
Credit Facility for consideration of approximately $0.5 million.
Goldman Sachs Credit Partners, L.P., an affiliate of Goldman Sachs, acted as
the administrative agent, joint lead arranger and joint bookrunner for the
Second Amended and Restated Credit Facility without separate compensation. JP
Morgan Chase Bank, an affiliate of J.P. Morgan, acted as the joint lead
arranger and joint bookrunner for the Second Amended and Restated Credit
Facility for consideration of approximately $0.4 million. In addition, the
Company entered into four resin forward contracts in the fourth quarter of 2004
ranging from 6.0 million to 33.6 million annual pounds of resin with J. Aron &
Company, a division of Goldman, Sachs & Co., and enters into foreign currency
transactions through its normal course of business with Goldman, Sachs & Co.
NOTE 12. FINANCIAL INSTRUMENTS
Holding's and the Company's financial instruments generally consist of cash and
cash equivalents, the investment in Southern Packaging, an interest rate hedge,
resin hedge contracts, and long-term debt. The carrying amounts of Holding's
and the Company's financial instruments approximate fair value at January 1,
2005 except for the 2002 Notes and Add-on Notes for which the fair value
exceeded the carrying value by $39.7 million.
In October 2002, Berry entered into an interest rate collar arrangement to
protect $50.0 million of the outstanding variable rate term loan debt from
future interest rate volatility. The collar is accounted for as a fair value
hedge and the gains and losses arising from the instrument are recorded
concurrently with gains and losses arising from the underlying transaction.
The Company consumes plastic resin during the normal course of production. The
fluctuations in the cost of plastic resin can vary the costs of production. As
part of its risk management strategy, the Company entered into resin forward
hedging transactions constituting approximately 15% of its estimated 2005 resin
needs and 10% of its 2006 estimated resin needs. These contracts obligate the
Company to make or receive a monthly payment equal to the difference in the
unit cost of resin per the contract and an industry index times the contracted
pounds of plastic resin. Such contracts are designated as hedges of a portion
of the Company's forecasted purchases through 2006 and are effective in hedging
the Company's exposure to changes in resin prices during this period. The
contracts qualify as cash flow hedges under SFAS No. 133 and accordingly are
marked to market with unrealized gains and losses deferred through other
comprehensive income and will be recognized in earnings when realized as an
adjustment to cost of goods sold. The fair values of these contracts at
January 1, 2005 was an unrealized gain of $5.2 million. As the agreements were
not effective until fiscal 2005, there was no impact to the statements of
operations included in these financial statements.
NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The accumulated balances related to each component of the other comprehensive
income (loss) consist of the following:
JANUARY 1, DECEMBER 27,
2005 2003
---------- ----------
Currency translation $8,479 $5,736
Minimum pension liability adjustment (462) (550)
Unrealized loss on interest rate collar (4) (487)
Unrealized gain on resin hedge contracts 5,173 -
---------- ----------
$13,186 $4,699
========== ==========
F-21
NOTE 14. OPERATING SEGMENTS
The Company has four reportable segments: containers, closures, consumer
products, and international. In 2004, the Company created the international
segment as a separate operating and reporting segment to increase sales and
improve service to international customers utilizing existing resources. The
international segment includes the Company's foreign facilities and business
from domestic facilities that is shipped or billed to foreign locations. The
2003 and 2002 results for the foreign facilities have been reclassified to the
international segment; however, business from domestic facilities that were
shipped or billed to foreign locations cannot be separately identified for 2003
and 2002. Accordingly, the amounts disclosed under the new reporting structure
are not comparable between 2004, 2003, and 2002. As a result, the tables below
include the results under the new and previous structure. The Company
evaluates performance and allocates resources to segments based on operating
income before depreciation and amortization of intangibles adjusted to exclude
(1) uncompleted acquisition expense, (2) acquisition integration expense, (3)
plant shutdown expense, (4) Merger expense, (5) non-cash compensation, and (6)
management fees and reimbursed expenses paid to First Atlantic (collectively,
"Adjusted EBITDA"). The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
F-22
New reporting structure YEAR ENDED
--------------------------------------------------
COMPANY/
COMPANY COMPANY PREDECESSOR
--------------------------------------------------
JANUARY 1, DECEMBER 27, DECEMBER 28,
2005 2003 2002
--------------------------------------------------
Net sales:
Containers $ 518,303 $ 288,481 $ 250,423
Closures 127,481 125,292 113,309
Consumer Products 130,361 116,098 109,988
International 38,068 22,005 20,583
-------- -------- --------
Total net sales 814,213 551,876 494,303
Adjusted EBITDA:
Containers 105,707 71,027 67,079
Closures 29,035 29,271 28,055
Consumer Products 24,045 17,582 16,773
International 2,281 957 2,500
-------- -------- --------
Total adjusted EBITDA 161,068 118,837 114,407
Total assets:
Containers 597,006 605,879 359,635
Closures 169,072 191,785 191,508
Consumer Products 180,531 172,079 170,979
International 58,535 46,063 38,454
-------- -------- --------
Total assets 1,005,144 1,015,806 760,576
Goodwill, net:
Containers 204,575 212,394 170,892
Closures 65,009 74,997 77,889
Consumer Products 72,646 78,619 78,302
International 16,653 10,759 9,177
-------- -------- --------
Total goodwill, net 358,883 376,769 336,260
Reconciliation of Adjusted EBITDA to income
(loss) before income taxes:
Adjusted EBITDA for reportable segments $ 161,068 $ 118,837 $ 114,407
Net interest expense (53,185) (45,413) (49,254)
Depreciation (54,303) (40,752) (39,557)
Amortization (6,513) (3,326) (2,408)
Gain (loss) on disposal of property and equipment - 7 (299)
Merger expenses - - (20,987)
Loss on extinguished debt - (250) (25,328)
Uncompleted acquisition expense - (1,041) (216)
Acquisition integration expense (3,969) (1,424) (1,353)
Plant shutdown expense (1,822) (1,104) (3,992)
Non-cash compensation (585) - -
Management fees - - (331)
-------- -------- --------
Income (loss) before income taxes $40,691 $25,534 $(29,318)
======== ======== ========
F-23
Previous reporting structure YEAR ENDED
--------------------------------------------------
COMPANY/
COMPANY COMPANY PREDECESSOR
--------------------------------------------------
JANUARY 1, DECEMBER 27, DECEMBER 28,
2005 2003 2002
--------------------------------------------------
Net sales:
Containers $ 527,703 $ 288,481 $ 250,423
Closures 154,956 147,297 133,892
Consumer Products 131,554 116,098 109,988
-------- -------- --------
Total net sales 814,213 551,876 494,303
Adjusted EBITDA:
Containers 107,184 71,027 67,079
Closures 29,880 30,228 30,555
Consumer Products 24,004 17,582 16,773
-------- -------- --------
Total adjusted EBITDA 161,068 118,837 114,407
Total assets:
Containers 607,480 605,879 359,635
Closures 215,552 237,848 229,962
Consumer Products 182,112 172,079 170,979
-------- -------- --------
Total assets 1,005,144 1,015,806 760,576
Goodwill, net:
Containers 207,293 212,394 170,892
Closures 78,375 85,756 87,066
Consumer Products 73,215 78,619 78,302
-------- -------- --------
Total goodwill, net 358,883 376,769 336,260
Reconciliation of Adjusted EBITDA to income
(loss) before income taxes:
Adjusted EBITDA for reportable segments $ 161,068 $ 118,837 $ 114,407
Net interest expense (53,185) (45,413) (49,254)
Depreciation (54,303) (40,752) (39,557)
Amortization (6,513) (3,326) (2,408)
Gain (loss) on disposal of property and equipment - 7 (299)
Merger expenses - - (20,987)
Loss on extinguished debt - (250) (25,328)
Uncompleted acquisition expense - (1,041) (216)
Acquisition integration expense (3,969) (1,424) (1,353)
Plant shutdown expense (1,822) (1,104) (3,992)
Non-cash compensation (585) - -
Management fees - - (331)
-------- -------- --------
Income (loss) before income taxes $40,691 $25,534 $(29,318)
======== ======== ========
F-24
NOTE 15. CONDENSED CONSOLIDATING FINANCIAL INFORMATION (IN THOUSANDS)
Holding conducts its business through its wholly owned subsidiary, Berry.
Holding and all of Berry's domestic subsidiaries fully, jointly, severally, and
unconditionally guarantee on a senior subordinated basis the 2002 Notes and
Add-on Notes issued by Berry. Berry and all of Berry's subsidiaries are 100%
owned by Holding. Separate narrative information or financial statements of
guarantor subsidiaries have not been included as management believes they would
not be material to investors. Presented below is condensed consolidating
financial information for Holding, Berry, and its subsidiaries at January 1,
2005 and December 27, 2003 and for the fiscal years ended January 1, 2005,
December 27, 2003, and December 28, 2002. The equity method has been used with
respect to investments in subsidiaries.
JANUARY 1, 2005
---------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATING BALANCE SHEETS
Current assets $ - $68,449 $ 139,338 $ 12,012 $ - $ 219,799
Net property and equipment - 76,555 188,841 16,576 - 281,972
Other noncurrent assets 183,891 770,971 363,091 12,328 (826,908) 503,373
---------- ---------- ---------- ---------- ---------- ----------
Total assets $183,891 $915,975 $691,270 $40,916 $(826,908) $1,005,144
========== ========== ========== ========== ========== ==========
Current liabilities $ - $ 81,053 $ 42,004 $ 6,648 $ - $ 129,705
Noncurrent liabilities - 651,031 747,720 27,258 (734,461) 691,548
Equity (deficit) 183,891 183,891 (98,454) 7,010 (92,447) 183,891
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
equity (deficit) $ 183,891 $915,975 $ 691,270 $40,916 $(826,908) $1,005,144
========== ========== ========== ========== ========== ==========
DECEMBER 27, 2003
---------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATING BALANCE SHEETS
Current assets $ - $67,631 $ 121,605 $ 13,844 $ - $203,080
Net property and equipment - 70,873 191,960 20,144 - 282,977
Other noncurrent assets 152,591 855,627 370,199 12,075 (860,743) 529,749
---------- ---------- ---------- ---------- ---------- ----------
Total assets $152,591 $994,131 $683,764 $46,063 $(860,743) $1,015,806
========== ========== ========== ========== ========== ==========
Current liabilities $ - $ 53,245 $ 53,408 $ 8,856 $ - $ 115,509
Noncurrent liabilities - 788,295 674,851 28,790 (744,230) 747,706
Equity (deficit) 152,591 152,591 (44,495) 8,417 (116,513) 152,591
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
equity (deficit) $ 152,591 $994,131 $ 683,764 $ 46,063 $(860,743) $1,015,806
========== ========== ========== ========== ========== ==========
F-25
YEAR ENDED JANUARY 1, 2005 (COMPANY)
---------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales $ - $236,448 $554,107 $23,658 $ - $814,213
Cost of goods sold - 166,248 449,760 23,321 - 639,329
---------- ---------- ---------- ---------- ---------- ----------
Gross profit - 70,200 104,347 337 - 174,884
Operating expenses (39,306) 37,072 79,493 3,749 - 81,008
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) 39,306 33,128 24,854 (3,412) - 93,876
Interest expense (income),net (772) (15,007) 68,226 738 - 53,185
Income taxes (benefit) 42 17,458 281 (41) - 17,740
Equity in net (income) loss
from subsidiary 17,085 47,762 4,109 - (68,956) -
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $22,951 $ (17,085) $(47,762) $(4,109) $68,956 $ 22,951
========== ========== ========== ========== ========== ==========
CONSOLIDATING STATEMENTS OF CASH FLOWS
Net income (loss) $ 22,951 $(17,085) $ (47,762) $ (4,109) $ 68,956 $22,951
Non-cash expenses 585 33,596 42,565 3,485 - 80,231
Equity in net (income)
loss from subsidiary 17,085 47,762 4,109 - (68,956) -
Changes in working capital (775) 10,520 (36,689) (1,005) - (27,949)
---------- ---------- ---------- ---------- ---------- ----------
Net cash provided by
(used for) operating activities 39,846 74,793 (37,777) (1,629) - 75,233
Net cash provided by
(used for) investing activities - (21,125) (26,426) 2,074 - (45,477)
Net cash provided by
(used for) financing activities (39,846) (77,869) 62,575 (568) - (55,708)
Effect on exchange rate
changes on cash - - - 24 - 24
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in cash and cash equivalents - (24,201) (1,628) (99) - (25,928)
Cash and cash equivalents
at beginning of year - 24,286 1,670 236 - 26,192
---------- ---------- ---------- ---------- ---------- ----------
Cash and cash equivalents
at end of year $ - $ 85 $ 42 $ 137 $ - $ 264
========== ========== ========== ========== ========== ==========
YEAR ENDED DECEMBER 27, 2003 (COMPANY)
---------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales $ - $200,886 $328,984 $22,006 $ - $551,876
Cost of goods sold - 140,139 259,720 20,891 - 420,750
---------- ---------- ---------- ---------- ---------- ----------
Gross profit - 60,747 69,264 1,115 - 131,126
Operating expenses (25,840) 34,536 47,545 3,695 - 59,936
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) 25,840 26,211 21,719 (2,580) - 71,190
Other expenses (income) - - (7) - - (7)
Interest expense (income),net (763) (592) 45,326 1,442 - 45,413
Loss on extinguished debt - 250 - - - 250
Income taxes (benefit) 27 12,388 10 61 - 12,486
Equity in net (income)
loss from subsidiary 13,528 27,693 4,083 - (45,304) -
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $13,048 $ (13,528) $(27,693) $(4,083) $45,304 $ 13,048
========== ========== ========== ========== ========== ==========
CONSOLIDATING STATEMENTS OF CASH FLOWS
Net income (loss) $ 13,048 $(13,528) $ (27,693) $ (4,083) $ 45,304 $13,048
Non-cash expenses - 26,817 28,136 3,227 - 58,180
Equity in net (income)
loss from subsidiary 13,528 27,693 4,083 - (45,304) -
Changes in working capital (758) 1,159 7,463 681 - 8,545
---------- ---------- ---------- ---------- ---------- ----------
Net cash provided by
(used for) operating activities 25,818 42,141 11,989 (175) - 79,773
Net cash used for
investing activities - (244,511) (16,474) (4,667) - (265,652)
Net cash provided by
(used for) financing activities (25,819) 211,499 5,891 5,250 - 196,821
activities
Effect on exchange rate
changes on cash - - - (363) - (363)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents (1) 9,129 1,406 45 - 10,579
Cash and cash equivalents
at beginning of year 1 15,157 264 191 - 15,613
---------- ---------- ---------- ---------- ---------- ----------
Cash and cash equivalents
at end of year $ - $ 24,286 $ 1,670 $ 236 $ - $ 26,192
========== ========== ========== ========== ========== ==========
F-26
YEAR ENDED DECEMBER 28, 2002 (COMPANY/PREDECESSOR)
---------------------------------------------------------------------------------------
BPC Holding Berry Plastics Combined Combined
Corporation Corporation Guarantor Non-guarantor Consolidating
(Parent) (Issuer) Subsidiaries Subsidiaries Adjustments Consolidated
---------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATING STATEMENTS OF OPERATIONS
Net sales $ - $173,570 $300,149 $20,584 $ - $494,303
Cost of goods sold - 116,354 236,169 18,750 - 371,273
---------- ---------- ---------- ---------- ---------- ----------
Gross profit - 57,216 63,980 1,834 - 123,030
Operating expenses 1,920 27,857 44,894 2,796 - 77,467
---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) (1,920) 29,359 19,086 (962) - 45,563
Other expenses - 145 249 (95) - 299
Interest expense, net 9,443 3,172 34,481 2,158 - 49,254
Loss on extinguished debt 9,282 6,339 9,498 209 - 25,328
Income taxes (benefit) (8,234) 11,016 115 401 - 3,298
Equity in net (income)
loss from subsidiary 20,205 28,892 3,635 - (52,732) -
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) $(32,616) $ (20,205) $(28,892) $(3,635) $52,732 $(32,616)
========== ========== ========== ========== ========== ==========
CONSOLIDATING STATEMENTS OF CASH FLOWS
Net income (loss) $ (32,616) $(20,205) $ (28,892) $ (3,635) $ 52,732 $(32,616)
Non-cash expenses 11,451 23,799 36,178 3,270 - 74,698
Equity in net (income)
loss from subsidiary 20,205 28,892 3,635 - (52,732) -
Changes in working capital (320) (6,290) (7,557) (1,275) - (15,442)
---------- ---------- ---------- ---------- ---------- ----------
Net cash provided by
(used for) operating activities (1,280) 26,196 3,364 (1,640) - 26,640
Net cash used for
investing activities - (18,023) (25,704) (1,171) - (44,898)
Net cash provided by
(used for) financing activities 841 6,863 22,194 2,483 - 32,381
Effect on exchange rate
changes on cash - - - 258 - 258
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease)
in cash and cash equivalents (439) 15,036 (146) (70) - 14,381
equivalents
Cash and cash equivalents
at beginning of year 440 121 410 261 - 1,232
---------- ---------- ---------- ---------- ---------- ----------
Cash and cash equivalents
at end of year $ 1 $ 15,157 $ 264 $ 191 $ - $ 15,613
========== ========== ========== ========== ========== ==========
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table contains selected unaudited quarterly financial data for
fiscal years 2004 and 2003.
2004 2003
------------------------------------ ---------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----- ----- ----- ----- ------ ----- ----- -----
Net sales $191,726 $211,041 $204,803 $206,643 $125,398 $146,851 $139,306 $140,321
Cost of sales 148,615 164,565 160,824 165,325 94,321 112,055 106,845 107,529
------- ------- ------- ------- ------- ------- ------- -------
Gross profit $43,111 $46,476 $43,979 $41,318 $31,077 $34,796 $32,461 $32,792
======= ======= ======= ======= ======= ======= ======= =======
Net income $4,822 $7,391 $6,641 $4,097 $3,079 $4,542 $4,218 $1,209
======= ======= ======= ======= ======= ======= ======= =======
F-27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 22nd day of
March, 2005.
BPC HOLDING CORPORATION
By /s/ Ira G. Boots
----------------------------------
Ira G. Boots
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Joseph H. Gleberman Chairman of the Board of Directors March 22, 2005
-------------------------
Joseph H. Gleberman
President, Chief Executive Officer
/s/ Ira G. Boots and Director (Principal Executive Officer) March 22, 2005
-------------------------
Ira G. Boots
Executive Vice President, Chief Financial Officer,
Treasurer and Secretary (Principal Financial and
/s/ James M. Kratochvil Accounting Officer) March 22, 2005
-------------------------
James M. Kratochvil
/s/ Gregory J. Landis Director March 22, 2005
--------------------------
Gregory J. Landis
/s/ Christopher C. Behrens Director March 22, 2005
--------------------------
Christopher C. Behrens
/s/ Terry R. Peets Director March 22, 2005
--------------------------
Terry R. Peets
/s/ Stephen S. Trevor Director March 22, 2005
--------------------------
Stephen S. Trevor
/s/ Mathew J. Lori Director March 22, 2005
--------------------------
Mathew J. Lori
S-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 22nd day of
March, 2005.
BERRY PLASTICS CORPORATION
By /s/ Ira G. Boots
------------------------------
Ira G. Boots
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Joseph H. Gleberman Chairman of the Board of Directors March 22, 2005
-------------------------
Joseph H. Gleberman
President, Chief Executive Officer
/s/ Ira G. Boots and Director (Principal Executive Officer) March 22, 2005
-------------------------
Ira G. Boots
Executive Vice President, Chief Financial Officer,
Treasurer and Secretary (Principal Financial and
/s/ James M. Kratochvil Accounting Officer) March 22, 2005
-------------------------
James M. Kratochvil
/s/ Gregory J. Landis Director March 22, 2005
--------------------------
Gregory J. Landis
/s/ Christopher C. Behrens Director March 22, 2005
--------------------------
Christopher C. Behrens
/s/ Terry R. Peets Director March 22, 2005
--------------------------
Terry R. Peets
/s/ Stephen S. Trevor Director March 22, 2005
--------------------------
Stephen S. Trevor
/s/ Mathew J. Lori Director March 22, 2005
--------------------------
Mathew J. Lori
S-2
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANT
WHICH HAS NOT REGISTERED SECURITIES PURSUANT TO SECTION 12
OF THE ACT
The Registrants have not sent any annual report or proxy material to
securityholders.
S-3
INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
2.1 Agreement and Plan of Merger, dated as of May 25, 2002, among GS Berry
Acquisition Corp., GS Capital Partners 2000, L.P., GS Capital Partners
2000 Offshore, L.P., GS Capital Partners 2000 GmbH & Co. Beteiligungs KG,
Bridge Street Special Opportunities Fund 2000, L.P., GS Capital Partners
2000 Employee Fund, L.P., Stone Street Fund 2000, Holding, the Company,
the Stockholders listed on Schedule 1 attached thereto, Atlantic Equity
Partners International II, L.P., J.P. Morgan Partners (SBIC), LLC, BPC
Equity, LLC and Ira G. Boots (filed as Exhibit 2.1 to the Current Report
on Form 8-K filed on July 31, 2002 (the "Form 8-K") and incorporated
herein by reference)
2.2 First Amendment dated as of July 17, 2002 among GS Berry Acquisition
Corp., GS Capital Partners 2000, L.P., GS Capital Partners 2000 Offshore,
L.P., GS Capital Partners 2000 GmbH & Co. Beteiligungs KG, Bridge Street
Special Opportunities Fund 2000, L.P., GS Capital Partners 2000 Employee
Fund, L.P., Stone Street Fund 2000, Holding, the Company, the Stockholders
listed on Schedule 1 attached thereto, Atlantic Equity Partners
International II, L.P., J.P. Morgan Partners (SBIC), LLC, BPC Equity, LLC
and Ira G. Boots to the Agreement and Plan of Merger, dated as of May 25,
2002 (filed as Exhibit 2.2 to the Form 8-K and incorporated herein by
reference)
2.3 Second Amendment dated as of July 22, 2002 among GS Berry Acquisition
Corp., GS Capital Partners 2000, L.P., GS Capital Partners 2000 Offshore,
L.P., GS Capital Partners 2000 GmbH & Co. Beteiligungs KG, Bridge Street
Special Opportunities Fund 2000, L.P., GS Capital Partners 2000 Employee
Fund, L.P., Stone Street Fund 2000, Holding, the Company, the Stockholders
listed on Schedule 1 attached thereto, Atlantic Equity Partners
International II, L.P., J.P. Morgan Partners (SBIC), LLC, BPC Equity, LLC
and Ira G. Boots to the Agreement and Plan of Merger, dated as of May 25,
2002 (filed as Exhibit 2.3 to the Form 8-K and incorporated herein by
reference)
2.4 The Agreement and Plan of Merger dated as of October 15, 2003, by and
among the Company, Berry Plastics Acquisition Corporation IV, Landis, all
the shareholders of Landis, the Real Estate Sellers (as defined therein)
and Gregory J. Landis, as the Shareholder Representative (as defined
therein) (filed as Exhibit 2.1 to the Current Report on Form 8-K filed on
December 5, 2003 (the "Landis Form 8-K") and incorporated herein by
reference)
3.1Certificate of Incorporation of the Company (filed as Exhibit 3.3 to the
Registration Statement on Form S-1 filed on February 24, 1994 (the "Form S-
1") and incorporated herein by reference)
3.2Bylaws of the Company (filed as Exhibit 3.4 to the Form S-1 and incorporated
herein by reference)
3.3Amended and Restated Certificate of Incorporation of BPC Holding Corporation
("Holding") (filed as Exhibit 4.1 to the Form S-8 filed on August 6, 2002
(the "Form S-8") and incorporated herein by reference)
3.4Amended and Restated Bylaws of Holding (filed as Exhibit 4.2 to the Form S-8
and incorporated herein by reference)
4.1The Indenture, dated as of July 22, 2002, among Holding, the Company, the
other guarantors listed on the signature page thereof, and U.S. Bank Trust
National Association, as trustee relating to the 10 3/4% Senior Subordinated
Notes due 2012 (filed as Exhibit 4.1 to the Form-S-4 filed on August 16,
2002 "2002 Form S-4" and incorporated herein by reference)
4.2The Registration Rights Agreement, dated November 20, 2003, among the
Company, Holding, the other guarantors listed on the signature page thereof,
and J.P. Morgan Securities Inc., Goldman Sachs & Co., as Initial Purchasers
relating to the 10 3/4% Senior Subordinated Notes due 2012 (filed as Exhibit
4.2 to the Form S-4 filed on January 9 2004 "2004 Form S-4" and incorporated
herein by reference)
4.3Supplemental Indenture, dated as of August 6, 2002, among the Company,
Holding, Berry Iowa Corporation, Packerware Corporation, Knight Plastics,
Inc., Berry Sterling Corporation, Berry Plastic Design Corporation, Poly-
Seal Corporation, Berry Plastics Acquisitions Corporation III, Venture
Packaging, Inc., Venture Packaging Midwest, Inc., Berry Plastics Technical
Services, Inc., CPI Holding Corporation, Aerocon, Inc., Pescor, Inc., Berry
Tri-Plas Corporation and Cardinal Packaging, Inc., the new guarantors listed
on the signature page thereof, and U.S. Bank Trust National Association, as
trustee (filed as Exhibit 4.3 to the 2002 Form-S-4 and incorporated herein
by reference)
4.4Second Supplemental Indenture, dated as of November 20, 2003, among Landis
Plastics, Inc., the Company, Holding Corporation, Berry Iowa Corporation,
Packerware Corporation, Knight Plastics, Inc., Berry Sterling Corporation,
Berry Plastic Design Corporation, Poly-Seal Corporation, Berry Plastics
Acquisitions Corporation III, Venture Packaging, Inc., Venture Packaging
Midwest, Inc., Berry Plastics Technical Services, Inc., CPI Holding
Corporation, Aerocon, Inc., Pescor, Inc., Berry Tri-Plas Corporation,
Cardinal Packaging, Inc., Berry Plastics Acquisition Corporation IV, Berry
Plastics Acquisition Corporation V, Berry Plastics Acquisition Corporation
VI, Berry Plastics Acquisition Corporation VII, Berry Plastics Acquisition
Corporation VIII, Berry Plastics Acquisition Corporation IX, Berry Plastics
Acquisition Corporation X, Berry Plastics Acquisition Corporation XI, Berry
Plastics Acquisition Corporation XII, Berry Plastics Acquisition Corporation
XIII, Berry Plastics Acquisition Corporation XIV, LLC, Berry Plastics
Acquisition Corporation XV, LLC, and U.S. Bank Trust National Association,
as trustee (filed as Exhibit 4.4 to the 2004 Form-S-4 and incorporated
herein by reference)
10.1 Stockholders Agreement dated as of July 22, 2002, among Holding, GS
Capital Partners 2000, L.P., GS Capital Partners Offshore, L.P., GS
Capital Partners 2000 GmbH & Co. Beteiligungs KG, GS Capital Partners 2000
Employee Fund, L.P., Stone Street Fund 2000, L.P., Bridge Street Special
Opportunities Fund 2000, L.P., Goldman Sachs Direct Investment Fund 2000,
L.P., J.P. Morgan Partners (BHCA), L.P., J.P. Morgan Partners Global
Investors, L.P., J.P. Morgan Partners Global Investors (Cayman), L.P.,
J.P. Morgan Partners Global Investors (Cayman) II, L.P. and J.P. Morgan
Partners Global Investors A, L.P. (filed as Exhibit 10.1 to the 2002 Form-
S-4 and incorporated herein by reference)
10.2 Stockholders Agreement dated as of July 22, 2002, among Holding, and those
stockholders listed on Schedule A attached thereto (filed as Exhibit 4.6
to the Form S-8 and incorporated herein by reference)
10.3*Second Amended and Restated Credit and Guaranty Agreement, dated as of
November 10, 2003, by and among the Company, Holding, certain subsidiaries
of the Company, the lenders named therein (the "Lenders"), Goldman Sachs
Credit Partners L.P., as Administrative Agent (the "Administrative
Agent"), JPMorgan Chase Bank, as Syndication Agent (the "Syndication
Agent"), Fleet National Bank, as Collateral Agent, Issuing Bank and Swing
Line Lender (the "Collateral Agent") and The Royal Bank of Scotland and
General Electric Capital Corporation, as Co-Documentation Agents (the
"Co-Documentation Agents")
10.4*First Amendment to the Second Amended and Restated Credit and Guaranty
Agreement dated as of January 1, 2005
10.5 Counterpart Agreement dated as of November 20, 2003, by and among the
Company, Holding, certain subsidiaries of the Company (including Landis),
the Lenders, the Administrative Agent, the Syndication Agent, the
Collateral Agent and the Co-Documentation Agents (filed as Exhibit 10.4 to
the 2004 Form-S-4 and incorporated herein by reference)
10.6 Pledge Supplement, dated as of November 20, 2003, among the Company, the
other Grantors named therein, and Fleet National Bank, as the Collateral
Agent. (filed as Exhibit 10.5 to the 2004 Form-S-4 and incorporated herein
by reference)
10.7 Employment Agreement dated December 24, 1990, as amended, between the
Company and R. Brent Beeler ("Beeler") (filed as Exhibit 10.10 to the Form
S-1 and incorporated herein by reference)
10.8 Amendment to Beeler Employment Agreement dated November 30, 1995 (filed as
Exhibit 10.8 to the Annual report on Form 10-K filed on March 28, 1996
(the "1995 Form 10-K") and incorporated herein by reference)
10.9 Amendment to Beeler Employment Agreement dated June 30, 1996 (filed as
Exhibit 10.7 to the Registration Statement on Form S-4 filed on July 17,
1996 (the "1996 Form S-4") and incorporated herein by reference)
10.10Amendment to Beeler Employment Agreement dated as of June 30, 2001 (filed
as Exhibit 10.19 to the 2002 Form S-4 and incorporated herein by
reference)
10.11Employment Agreement dated December 24, 1990 as amended, between the
Company and James M. Kratochvil ("Kratochvil") (filed as Exhibit 10.12 to
the Form S-1 and incorporated herein by reference)
10.12Amendment to Kratochvil Employment Agreement dated November 30, 1995
(filed as Exhibit 10.12 to the 1995 Form 10-K and incorporated herein by
reference)
10.13Amendment to Kratochvil Employment Agreement dated June 30, 1996 (filed as
Exhibit 10.13 to the 1996 Form S-4 and incorporated herein by reference)
10.14Amendment to Kratochvil Employment Agreement dated June 30, 2001 (filed as
Exhibit 10.21 to the 2002 Form S-4 and incorporated herein by reference)
10.15Employment Agreement dated as of January 1, 1993, between the Company and
Ira G. Boots ("Boots") (filed as Exhibit 10.13 to the Form S-1 and
incorporated herein by reference)
10.16Amendment to Boots Employment Agreement dated November 30, 1995 (filed as
Exhibit 10.14 to the 1995 Form 10-K and incorporated herein by reference)
10.17Amendment to Boots Employment Agreement dated June 30, 1996 (filed as
Exhibit 10.16 to the 1996 Form S-4 and incorporated herein by reference)
10.18Amendment to Boots Employment Agreement dated June 30, 2001 (filed as
Exhibit 10.20 to the 2002 Form S-4 and incorporated herein by reference)
10.19Financing Agreement dated as of April 1, 1991, between the City of
Henderson, Nevada Public Improvement Trust and the Company (including
exhibits) (filed as Exhibit 10.17 to the Form S-1 and incorporated herein
by reference)
10.20Employment Agreement dated as of August 14, 2000, between the Company and
William J. Herdrich (filed as Exhibit 10.15 to the 2002 Form-S-4 and
incorporated herein by reference)
10.21*Amendment to Herdrich Employment Agreement dated December 31, 2003
10.22Employment Agreement dated as of February 16, 2004, between the Company
and Gregory J. Landis (filed as Exhibit 10.20 to the Registration
Statement on Form S-1 filed on February 24, 1994 (the "2004 Form S-1") and
incorporated herein by reference)
10.23Amended and Restated Holding 2002 Stock Option Plan dated March 3, 2004
(filed as Exhibit 10.21 to the 2004 Form S-1 and incorporated herein by
reference)
10.24*Amendment to Amended and Restated Holding 2002 Stock Option Plan
10.25Holding Key Employee Equity Investment Program dated August 5, 2002 (filed
as Exhibit 4.6 to the Form S-8 and incorporated herein by reference)
12.1*Ratio of earnings to fixed charges
21.1* List of subsidiaries
31.1* Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
31.2* Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
32.1* Section 1350 Certification of the Chief Executive Officer
32.2* Section 1350 Certification of the Chief Financial Officer
* Filed herewith.