BPC Holding Corporation 10-Q 1Q 2006
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
[X] Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the
quarterly period ended April 1, 2006
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
|
35-1814673
|
(State
or other jurisdiction
of
incorporation or organization)
|
(IRS
employer
identification
number)
|
|
|
BERRY
PLASTICS CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
|
35-1813706
|
(State
or other jurisdiction
of
incorporation or organization)
|
(IRS
employer
identification
number)
|
|
|
101
Oakley Street
Evansville,
Indiana
|
47710
|
(Address
of principal executive offices)
|
(Zip
code)
|
Registrants'
telephone number, including area code: (812) 424-2904
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 for 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. [X]Yes [ ]No
Indicate
by check mark whether the registrants are large accelerated filers, accelerated
filers or non-accelerated filers. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (check one): Large
accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer
[X]
Indicate
by check mark whether the registrants are shell companies (as defined by Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
As
of May
2, 2006, there were outstanding 3,377,671
shares of the Common Stock, $.01 par value, of BPC Holding Corporation. As
of
May 2, 2006, there were outstanding 100 shares of the Common Stock, $.01 par
value, of Berry Plastics Corporation.
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
Form
10-Q 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. The
forward-looking statements include, in particular, statements about our plans,
strategies and prospects under the heading "Management’s Discussion and Analysis
of Financial Condition and Results of Operations". 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-Q. Factors that could
cause
actual results to differ materially from those expressed or implied by the
forward-looking statements include:
|
·
|
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;
|
|
·
|
catastrophic
loss of one of our key manufacturing
facilities;
|
|
·
|
risks
related to our acquisition strategy and integration of acquired
businesses;
|
|
·
|
risks
associated with our substantial indebtedness and debt
service;
|
|
·
|
performance
of our business and future operating
results;
|
|
·
|
risks
of competition, including foreign competition, in our existing and
future
markets;
|
|
·
|
general
business and economic conditions, particularly an economic
downturn;
|
|
·
|
increases
in the cost of compliance with laws and regulations, including
environmental laws and regulations;
and
|
|
·
|
the
factors discussed in our Form 10-K for the fiscal year ended December
31,
2005 in the section titled “Risk
Factors.”
|
Readers
should carefully review the factors discussed in our Form 10-K
for the
fiscal year ended December 31, 2005 in the section titled “Risk Factors” 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 Securities and Exchange
Commission. 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.
BPC
Holding Corporation
Berry
Plastics Corporation
Form
10-Q Index
For
Quarterly Period Ended April
1, 2006
|
|
Page
No.
|
Part
I.
|
Financial
Information
|
|
|
|
|
|
Item
1. Financial Statements:
|
|
|
Consolidated
Balance Sheets
|
4
|
|
Consolidated
Statements of Income
|
6
|
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
7
|
|
Consolidated
Statements of Cash Flows
|
8
|
|
Notes
to Consolidated Financial Statements
|
9
|
|
|
|
|
Item
2. Management’s Discussion and Analysis of
|
|
|
Financial
Condition and Results of Operations
|
19
|
|
|
|
|
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
26
|
|
Item
4. Controls and Procedures
|
27
|
|
|
|
Part
II.
|
Other
Information
|
|
|
|
|
|
Item
1A.Risk Factors
|
28
|
|
Item
6. Exhibits
|
28
|
|
|
|
Signature
|
|
29
|
Part
1. Financial Information
Item
1.
Financial Statements
BPC
Holding Corporation
Consolidated
Balance Sheets
(In
Thousands of Dollars, except share information)
|
April
1,
2006
|
|
December
31,
2005
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
38,598
|
|
$
|
24,756
|
Accounts
receivable (less allowance for doubtful accounts of $6,082 at April
1,
2006 and $5,766 at December 31, 2005)
|
|
165,747
|
|
|
140,443
|
Inventories:
|
|
|
|
|
|
Finished
goods
|
|
115,252
|
|
|
101,632
|
Raw
materials and supplies
|
|
45,894
|
|
|
50,716
|
|
|
161,146
|
|
|
152,348
|
Deferred
income taxes
|
|
16,193
|
|
|
22,905
|
Prepaid
expenses and other current assets
|
|
28,127
|
|
|
39,037
|
Total
current assets
|
|
409,811
|
|
|
379,489
|
|
|
|
|
|
|
Property
and equipment:
|
|
|
|
|
|
Land
|
|
12,296
|
|
|
12,292
|
Buildings
and improvements
|
|
92,859
|
|
|
92,810
|
Equipment
and construction in progress
|
|
532,772
|
|
|
497,364
|
|
|
637,927
|
|
|
602,466
|
Less
accumulated depreciation
|
|
200,348
|
|
|
179,022
|
|
|
437,579
|
|
|
423,444
|
Intangible
assets:
|
|
|
|
|
|
Deferred
financing fees, net
|
|
17,562
|
|
|
18,333
|
Customer
relationships, net
|
|
252,308
|
|
|
255,981
|
Goodwill
|
|
495,580
|
|
|
495,258
|
Trademarks,
net
|
|
46,098
|
|
|
47,065
|
Other
intangibles, net
|
|
27,582
|
|
|
28,260
|
|
|
839,130
|
|
|
844,897
|
|
|
|
|
|
|
Total
assets
|
$
|
1,686,520
|
|
$
|
1,647,830
|
BPC
Holding Corporation
Consolidated
Balance Sheets (continued)
(In
Thousands of Dollars, except share information)
|
April
1,
2006
|
|
December
31,
2005
|
|
|
(Unaudited)
|
|
|
|
Liabilities
and stockholders' equity
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
$
|
113,929
|
|
$
|
64,970
|
|
Accrued
interest
|
|
11,151
|
|
|
20,165
|
|
Employee
compensation, payroll and other taxes
|
|
38,676
|
|
|
43,915
|
|
Accrued
expenses and other current liabilities
|
|
30,291
|
|
|
34,730
|
|
Current
portion of long-term debt
|
|
14,812
|
|
|
13,928
|
|
Total
current liabilities
|
|
208,859
|
|
|
177,708
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
1,145,548
|
|
|
1,146,692
|
|
Deferred
income taxes
|
|
94,447
|
|
|
94,934
|
|
Other
long-term liabilities
|
|
25,706
|
|
|
25,108
|
|
Total
liabilities
|
|
1,474,560
|
|
|
1,444,442
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
Preferred
Stock; $.01 par value: 500,000 shares authorized; 0 shares issued
and
outstanding at April 1, 2006 and December 31, 2005
|
|
—
|
|
|
—
|
|
Common
Stock; $.01 par value: 5,000,000 shares authorized; 3,398,807 shares
issued and 3,374,351 shares outstanding at April 1, 2006; and 3,398,807
shares issued and 3,374,348 shares outstanding at December 31,
2005
|
|
34
|
|
|
34
|
|
Additional
paid-in capital
|
|
347,931
|
|
|
346,943
|
|
Adjustment
of the carryover basis of continuing stockholders
|
|
(196,603
|
)
|
|
(196,603
|
)
|
Notes
receivable - common stock
|
|
(14,464
|
)
|
|
(14,273
|
)
|
Treasury
stock: 24,456 and 24,459 shares of common stock at April 1, 2006
and
December 31, 2005, respectively
|
|
(3,546
|
)
|
|
(3,547
|
)
|
Retained
earnings
|
|
67,149
|
|
|
58,969
|
|
Accumulated
other comprehensive income
|
|
11,459
|
|
|
11,865
|
|
Total
stockholders’ equity
|
|
211,960
|
|
|
203,388
|
|
Total
liabilities and stockholders’ equity
|
$
|
1,686,520
|
|
$
|
1,647,830
|
|
See
notes to consolidated financial statements.
BPC
Holding Corporation
Consolidated
Statements of Income
(In
Thousands of Dollars)
|
|
Thirteen
Weeks Ended
|
|
|
|
April
1,
2006
|
|
April
2,
2005
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
355,964
|
|
$
|
225,310
|
|
Cost
of goods sold
|
|
|
284,621
|
|
|
184,016
|
|
Gross
profit
|
|
|
71,343
|
|
|
41,294
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Selling
|
|
|
10,420
|
|
|
7,302
|
|
General
and administrative
|
|
|
14,803
|
|
|
8,879
|
|
Research
and development
|
|
|
1,976
|
|
|
1,028
|
|
Amortization
of intangibles
|
|
|
5,364
|
|
|
1,773
|
|
Other
expenses
|
|
|
1,057
|
|
|
304
|
|
Operating
income
|
|
|
37,723
|
|
|
22,008
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
Unrealized
loss on investment in Southern Packaging
|
|
|
216
|
|
|
632
|
|
Income
before interest and taxes
|
|
|
37,507
|
|
|
21,376
|
|
|
|
|
|
|
|
|
|
Interest:
|
|
|
|
|
|
|
|
Expense
|
|
|
22,402
|
|
|
14,022
|
|
Income
|
|
|
(394
|
)
|
|
(204
|
)
|
Income
before income taxes
|
|
|
15,499
|
|
|
7,558
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
7,319
|
|
|
3,759
|
|
Net
income
|
|
$
|
8,180
|
|
$
|
3,799
|
|
See
notes to consolidated financial statements.
BPC
Holding Corporation
Consolidated
Statements of Changes in Stockholders' Equity
(Unaudited)
(In
Thousands of Dollars)
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Adjustment
of the carryover basis of continuing stockholders
|
|
Notes
receivable-
common stock
|
|
Treasury
Stock
|
|
Retained
Earnings
|
|
Accumulated
Other Comprehensive
Income
(Losses)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
$
|
34
|
|
$
|
346,943
|
|
$
|
(196,603
|
)
|
$
|
(14,273
|
)
|
$
|
(3,547
|
)
|
$
|
58,969
|
|
$
|
11,865
|
|
$
|
203,388
|
|
Sale
of treasury stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Interest
on notes receivable
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(191
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(191
|
)
|
Stock-based
compensation
|
|
—
|
|
|
988
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
988
|
|
Translation
gains
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
336
|
|
|
336
|
|
Other
comprehensive losses
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(742
|
)
|
|
(742
|
)
|
Net
income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,180
|
|
|
—
|
|
|
8,180
|
|
Balance
at April 1, 2006
|
$
|
34
|
|
$
|
347,931
|
|
$
|
(196,603
|
)
|
$
|
(14,464
|
)
|
$
|
(3,546
|
)
|
$
|
67,149
|
|
$
|
11,459
|
|
$
|
211,960
|
|
See
notes to consolidated financial statements.
BPC
Holding Corporation
Consolidated
Statements of Cash Flows
(In
Thousands of Dollars)
|
|
Thirteen
Weeks Ended
|
|
|
|
April
1,
2006
|
|
April
2,
2005
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Operating
activities
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
8,180
|
|
$
|
3,799
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
21,085
|
|
|
13,996
|
|
Non-cash
interest expense
|
|
|
477
|
|
|
511
|
|
Amortization
of intangibles
|
|
|
5,364
|
|
|
1,773
|
|
Non-cash
compensation
|
|
|
988
|
|
|
—
|
|
Unrealized
loss on investment in Southern Packaging
|
|
|
216
|
|
|
632
|
|
Deferred
income taxes
|
|
|
6,712
|
|
|
3,677
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(25,230
|
)
|
|
(22,926
|
)
|
Inventories
|
|
|
(8,745
|
)
|
|
(2,513
|
)
|
Prepaid
expenses and other assets
|
|
|
9,280
|
|
|
8,822
|
|
Accrued
interest
|
|
|
(9,014
|
)
|
|
(8,799
|
)
|
Payables
and accrued expenses
|
|
|
39,697
|
|
|
13,822
|
|
Net
cash provided by operating activities
|
|
|
49,010
|
|
|
12,794
|
|
|
|
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
|
|
|
Additions
to property and equipment
|
|
|
(31,899
|
)
|
|
(12,816
|
)
|
Proceeds
from disposal of property and equipment
|
|
|
73
|
|
|
1,681
|
|
Net
cash used for investing activities
|
|
|
(31,826
|
)
|
|
(11,135
|
)
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
Proceeds
from long-term borrowings
|
|
|
529
|
|
|
2,408
|
|
Payments
on long-term borrowings
|
|
|
(3,840
|
)
|
|
(3,645
|
)
|
Sale
of treasury stock
|
|
|
1
|
|
|
—
|
|
Net
cash used for financing activities
|
|
|
(3,310
|
)
|
|
(1,237
|
)
|
Effect
of exchange rate changes on cash
|
|
|
(32
|
)
|
|
(49
|
)
|
Net
increase in cash and cash equivalents
|
|
|
13,842
|
|
|
373
|
|
Cash
and cash equivalents at beginning of period
|
|
|
24,756
|
|
|
264
|
|
Cash
and cash equivalents at end of period
|
|
$
|
38,598
|
|
$
|
637
|
|
See
notes to consolidated financial statements.
BPC
Holding Corporation
Notes
to
Consolidated Financial Statements
(In
thousands of dollars, except as otherwise noted)
(Unaudited)
1. Basis
of Presentation
The
accompanying unaudited consolidated financial statements of BPC Holding
Corporation (the “Company”) have been prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) for interim
financial information and with the instructions for Form 10-Q and Article 10
of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion
of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the periods presented are not necessarily indicative of the results
that may be expected for the full fiscal year. The accompanying financial
statements include the results of BPC Holding Corporation (“Holding”) and its
wholly-owned subsidiary, Berry Plastics Corporation (“Berry”), and Berry’s
wholly-owned subsidiaries. For further information, refer to the consolidated
financial statements and footnotes thereto included in Holding’s and Berry’s
Form 10-K filed with the Securities and Exchange Commission for the year ended
December 31, 2005. Certain amounts in the prior year financial statements have
been reclassified to conform to the current year presentation.
On
April
11, 2005, a subsidiary of Berry, Berry
Plastics de México, S. de R.L. de C.V., acquired all of the injection molding
closure assets from Euromex Plastics, S.A. de C.V. (“Euromex”), an injection
molding manufacturer located in Toluca, Mexico (“the Mexico Acquisition”), for
aggregate consideration of approximately $8.2 million. The purchase price was
allocated to fixed assets ($4.1 million), inventory ($1.6 million), goodwill
($0.7 million), and other intangibles ($1.8 million). The purchase was financed
through borrowings under the Company’s revolving line of credit and cash on
hand. The operations from the Mexico Acquisition are included in Berry’s
operations since the acquisition date.
On
June
3, 2005, Berry acquired Kerr Group, Inc. (“Kerr”) for aggregate consideration of
approximately $455.8 million (the “Kerr Acquisition”), including direct costs
associated with the acquisition. The operations from the Kerr Acquisition are
included in Berry’s operations since the acquisition date. The purchase price
was financed through additional term loan borrowings under an amendment to
Berry’s senior secured credit facility and cash on hand. The following table
summarizes the allocation of purchase price and the estimated fair values of
the
assets acquired and liabilities assumed at the date of the acquisition. The
allocation is preliminary and subject to change based on actual expenses and
adjustments of estimates.
|
|
June
3,
2005
|
|
Current
assets
|
|
$
|
85,088
|
|
Property
and equipment
|
|
|
145,653
|
|
Goodwill
|
|
|
134,409
|
|
Customer
relationships
|
|
|
182,094
|
|
Trademarks
|
|
|
16,140
|
|
Other
intangibles
|
|
|
22,291
|
|
Total
assets
|
|
|
585,675
|
|
|
|
|
|
|
Current
liabilities
|
|
|
55,894
|
|
Long-term
liabilities
|
|
|
73,942
|
|
Total
liabilities
|
|
|
129,836
|
|
|
|
|
|
|
Net
assets acquired
|
|
$
|
455,839
|
|
In
accordance with the criteria stated in Emerging Issues Task Force (“EITF”) Issue
No. 95-3, “Recognition of Liabilities in Connection with a Purchase Business
Combination” (“EITF 95-3”), the Company established opening balance sheet
reserves related to plant shutdown and severance costs. The opening balances
and
current year activity is presented in the following table.
|
|
|
|
Thirteen
Weeks ended April 1, 2006
|
|
|
|
Established
at
Opening
Balance
Sheet
|
|
January
1,
2006
|
|
Reduction
In
Estimate
|
|
Payments
|
|
April
1,
2006
|
|
EITF
95-3 reserves
|
|
$
|
2,700
|
|
$
|
2,221
|
|
|
—
|
|
$
|
(252
|
)
|
$
|
1,969
|
|
The
pro
forma financial results presented below are unaudited and assume that the Kerr
Acquisition occurred at the beginning of the respective period. Pro forma
results have not been adjusted to reflect the Mexico Acquisition as they do
not
differ materially from the pro forma results presented below. Pro forma net
sales and net income for the thirteen weeks ended April 2, 2005 were $323,533
and $1,725, respectively. The financial results for the thirteen weeks ended
April 1, 2006 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 Kerr Acquisition been consummated at the beginning
of the respective period, nor are they necessarily indicative of future
operating results. Further, the information reflects only pro forma adjustments
for additional interest expense, elimination of Berry’s write off of deferred
financing fees, and elimination of Kerr’s closing expenses, net of the
applicable income tax effects.
3. Long-Term
Debt
Long-term
debt consists of the following:
|
|
April
1,
2006
|
|
December
31,
2005
|
|
Berry
10 ¾% Senior Subordinated Notes
|
|
$
|
335,000
|
|
$
|
335,000
|
|
Debt
premium on 10 ¾% Notes, net
|
|
|
7,405
|
|
|
7,699
|
|
Term
loans
|
|
|
789,038
|
|
|
791,025
|
|
Revolving
lines of credit
|
|
|
529
|
|
|
—
|
|
Capital
leases
|
|
|
28,388
|
|
|
26,896
|
|
|
|
|
1,160,360
|
|
|
1,160,620
|
|
Less
current portion of long-term debt
|
|
|
14,812
|
|
|
13,928
|
|
|
|
$
|
1,145,548
|
|
$
|
1,146,692
|
|
The
current portion of long-term debt consists of $7.9 million of quarterly
installments on the term loans and $6.9 million of principal payments related
to
capital lease obligations.
On
July
22, 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 acquisition of Landis Plastics, Inc.,
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”). On
January 1, 2005, a First Amendment to the Second Amended and Restated Credit
Facility was entered into to permit Fifth Third Bank to assume the role of
administrative agent and for Goldman Sachs Credit Partners, L.P. to resign
as
administrative agent. On June 3, 2005, the Company entered into a Second
Amendment to the Second Amended and Restated Credit Agreement with Deutsche
Bank
Trust Company Americas assuming the role of administrative agent. As a result
of
the second amendment to the New Credit Facility, we expensed $7.0 million of
unamortized deferred financing costs. On October 26, 2005, the Company entered
into a Third Amendment to the Second Amended and Restated Credit Agreement
(the
“New Credit Facility”) that reduced the applicable margin on the term loan.
The
New
Credit Facility provides (1) a $795.0 million term loan and (2) a $150.0 million
revolving credit facility. The New 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 December 2, 2011,
and the maturity date of the revolving credit facility is March 31, 2010. The
indebtedness under the New Credit Facility is guaranteed by Holding and all
of
its domestic subsidiaries. The obligations of Berry under the New Credit
Facility and the guarantees thereof are secured by substantially all of the
assets of such entities. At April 1, 2006, there were no borrowings outstanding
on this revolving credit facility. The revolving credit facility allows up
to
$35.0 million of letters of credit to be issued instead of borrowings under
the
revolving credit facility. At April 1, 2006 and December 31, 2005, the Company
had $14.7 million in letters of credit outstanding under the revolving credit
facility.
The
New
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 New 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 April 1, 2006.
The
term loan amortizes quarterly as follows: $1,987,500 each quarter which began
on
September 30, 2005 and ends September 30, 2010 and $188,315,625 each
quarter beginning December 31, 2010 and ending
September 30, 2011.
Borrowings
under the New 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, 1.00% per annum and (ii) with
respect to Eurodollar Rate Loans, 2.00% per annum. 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 April 1, 2006. 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 April 1, 2006). 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 and expires
on July 15, 2006. In June 2005, Berry entered into three separate interest
rate
swap transactions to protect $300.0 million of the outstanding variable rate
term loan debt from future interest rate volatility. The agreements were
effective June 3, 2005 and expire on June 3, 2008. The agreements swap three
month variable LIBOR contracts for a fixed rate three year rate of 3.897%.
All
of the Company’s interest rate hedge transactions are accounted for under the
FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 133,
“Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133”).
At April 1, 2006, the Company had unused borrowing capacity under the New Credit
Facility’s revolving line of credit of $135.3 million. Although the $135.3
million was available at April 1, 2006, the covenants under our New Credit
Facility may limit our ability to make such borrowings in the
future.
4. Stock-Based
Compensation
The
Company previously applied the intrinsic value method prescribed in Accounting
Principles Board Opinion 25, “Accounting for Stock Issued to Employees.” In
December 2004, the FASB issued SFAS
No.
123R (Revised 2004,) Share-Based Payment (“SFAS 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 adopted SFAS 123R on January 1, 2006
using the modified prospective method and recorded $1.0 million of non-cash
charges for stock compensation related to amortization of the fair value of
unvested stock options. Under this method, the Company will recognize
compensation cost, on a prospective basis, for the portion of outstanding awards
for which the requisite service has not yet been rendered as of January 1,
2006
and any new grants, based upon the grant date fair value of those awards
calculated under SFAS 123 for pro forma disclosure purposes. Accordingly, we
have not restated prior period amounts. The following table illustrates the
pro
forma effect on net income for periods prior to adoption of SFAS 123R as if
we
had applied the fair value recognition provisions of SFAS 123 during such
periods.
|
|
Thirteen
Weeks Ended
|
|
|
|
April
2, 2005
|
|
Reported
net income
|
|
$
|
3,799
|
|
Stock-based
employee compensation expense included in reported net income, net
of
related tax effects
|
|
|
—
|
|
Total
stock-based employee compensation expense determined under fair value
based method, for all awards, net of tax
|
|
|
(572
|
)
|
Pro
forma net income
|
|
$
|
3,227
|
|
5. Comprehensive
Income
Comprehensive
income is comprised of net income, other comprehensive income (losses), and
gains or losses resulting from currency translations of foreign investments.
Other comprehensive income (losses) includes unrealized gains or losses on
derivative financial instruments and minimum pension liability adjustments.
The
details of comprehensive income (losses) are as follows:
|
|
Thirteen
Weeks Ended
|
|
|
|
April
1,
2006
|
|
April
2,
2005
|
|
Net
income
|
|
$
|
8,180
|
|
$
|
3,799
|
|
Other
comprehensive losses
|
|
|
(742
|
)
|
|
(20
|
)
|
Currency
translation income (losses)
|
|
|
336
|
|
|
(1,085
|
)
|
Comprehensive
income
|
|
$
|
7,774
|
|
$
|
2,694
|
|
6. Income
Taxes
A
reconciliation
of income tax expense, computed at the federal statutory rate, to income tax
expense, as provided for in the financial statements, is as
follows:
|
|
Thirteen
Weeks Ended
|
|
|
|
April
1,
2006
|
|
April
2,
2005
|
|
Income
tax expense computed at statutory rate
|
|
$
|
5,425
|
|
$
|
2,645
|
|
State
income tax expense, net of federal taxes
|
|
|
736
|
|
|
469
|
|
Expenses
not deductible for income tax purposes
|
|
|
170
|
|
|
121
|
|
Change
in valuation allowance
|
|
|
808
|
|
|
539
|
|
Other
|
|
|
180
|
|
|
(15
|
)
|
Income
tax expense
|
|
$
|
7,319
|
|
$
|
3,759
|
|
7. Employee
Retirement Plans
In
connection with the Kerr Acquisition, the Company acquired two defined benefit
pension plans which cover substantially all former employees and former union
employees at Kerr’s former Lancaster facility. The Company also acquired a
retiree health plan from Kerr, which covers certain healthcare and life
insurance benefits for certain retired employees and their spouses. The Company
also maintains a defined benefit
pension plan covering the Poly-Seal employees under a collective bargaining
agreement. The Company’s retirement plans have a minimum pension liability of
$19.9 million at April 1, 2006 and December 31, 2005, which are recorded as
other liabilities in the consolidated balance sheets. Net pension and retiree
health benefit expense included the following components:
|
|
Thirteen
Weeks Ended
|
|
|
|
April
1,
2006
|
|
April
2,
2005
|
|
Components
of net period benefit cost:
|
|
|
|
|
|
|
|
Defined
Benefit Pension Plans
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
64
|
|
$
|
64
|
|
Interest
cost
|
|
|
562
|
|
|
95
|
|
Expected
return on plan assets
|
|
|
(634
|
)
|
|
(103
|
)
|
Amortization
of prior service cost
|
|
|
23
|
|
|
23
|
|
Recognized
actuarial gain
|
|
|
4
|
|
|
4
|
|
Net
periodic benefit cost
|
|
$
|
19
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
Retiree
Health Benefit Plan
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
4
|
|
$
|
—
|
|
Interest
cost
|
|
|
97
|
|
|
—
|
|
Recognized
actuarial loss
|
|
|
(23
|
)
|
|
—
|
|
Net
periodic benefit cost
|
|
$
|
78
|
|
$
|
—
|
|
The
Company expects to contribute approximately
$2.2 million during fiscal 2006, of which $0.1 million was made in the thirteen
weeks ended April 1, 2006, to the defined benefit pension plans and the retiree
health benefit plan.
8. Contingencies
The
Company is party to various legal proceedings involving routine claims which
are
incidental to the business. Although the 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 the Company’s
financial condition.
9. Operating
Segments
In
connection with the Kerr Acquisition, Berry reorganized its operations into
two
reportable segments: rigid open top and rigid closed top. The realignment
occurred in an effort to integrate the operations of Kerr, better service the
Company’s customers, and provide a more efficient organization. Prior periods
have been restated to be aligned with the new reporting structure in order
to
provide comparable results. 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, and
(4) non-cash compensation
(collectively, “Adjusted EBITDA”). The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.
|
|
Thirteen
Weeks Ended
|
|
|
|
April
1,
2006
|
|
April
2,
2005
|
|
Net
sales:
|
|
|
|
|
|
|
|
Rigid
Closed Top
|
|
$
|
149,733
|
|
$
|
41,402
|
|
Rigid
Open Top
|
|
|
206,231
|
|
|
183,908
|
|
Total
net sales
|
|
|
355,964
|
|
|
225,310
|
|
Adjusted
EBITDA:
|
|
|
|
|
|
|
|
Rigid
Closed Top
|
|
|
27,171
|
|
|
7,250
|
|
Rigid
Open Top
|
|
|
39,048
|
|
|
30,831
|
|
Total
Adjusted EBITDA
|
|
|
66,219
|
|
|
38,081
|
|
Total
assets:
|
|
|
|
|
|
|
|
Rigid
Closed Top
|
|
|
793,363
|
|
|
215,672
|
|
Rigid
Open Top
|
|
|
893,157
|
|
|
805,654
|
|
Total
assets
|
|
|
1,686,520
|
|
|
1,021,326
|
|
Reconciliation
of Adjusted EBITDA to net
income:
|
|
|
|
|
|
|
|
Adjusted
EBITDA for reportable segments
|
|
$
|
66,219
|
|
$
|
38,081
|
|
Net
interest expense
|
|
|
(22,008
|
)
|
|
(13,818
|
)
|
Depreciation
|
|
|
(21,085
|
)
|
|
(13,996
|
)
|
Amortization
|
|
|
(5,364
|
)
|
|
(1,773
|
)
|
Income
taxes
|
|
|
(7,319
|
)
|
|
(3,759
|
)
|
Unrealized
loss on investment in Southern Packaging
|
|
|
(216
|
)
|
|
(632
|
)
|
Acquisition
integration expense
|
|
|
(1,059
|
)
|
|
(249
|
)
|
Plant
shutdown expense
|
|
|
—
|
|
|
(55
|
)
|
Non-cash
compensation
|
|
|
(988
|
)
|
|
—
|
|
Net
income
|
|
$
|
8,180
|
|
$
|
3,799
|
|
10. Condensed
Consolidating Financial Information
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
$335.0
million aggregate principal amount of 10 ¾% Berry Plastics Corporation
Senior Subordinated Notes due 2012.
Berry
is 100% owned by Holding. Each of Berry’s subsidiaries is 100% owned, directly
or indirectly, by Berry. 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 April 1,
2006
and December 31, 2005 and for the thirteen week periods ended April 1, 2006
and
April 2, 2005. The equity method has been used with respect to investments
in
subsidiaries.
|
|
April
1, 2006
|
|
|
|
BPC
Holding
Corporation
(Parent)
|
|
Berry
Plastics Corporation
(Issuer)
|
|
Combined
Guarantor
Subsidiaries
|
|
Combined
Non-guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
Consolidating
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
—
|
|
$
|
141,428
|
|
$
|
242,145
|
|
$
|
26,238
|
|
$
|
—
|
|
$
|
409,811
|
|
Net
property and equipment
|
|
|
—
|
|
|
97,426
|
|
|
320,755
|
|
|
19,398
|
|
|
—
|
|
|
437,579
|
|
Other
noncurrent assets
|
|
|
211,960
|
|
|
1,299,504
|
|
|
698,712
|
|
|
13,283
|
|
|
(1,384,329
|
)
|
|
839,130
|
|
Total
assets
|
|
$
|
211,960
|
|
$
|
1,538,358
|
|
$
|
1,261,612
|
|
$
|
58,919
|
|
$
|
(1,384,329
|
)
|
$
|
1,686,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
—
|
|
$
|
92,679
|
|
$
|
108,050
|
|
$
|
8,130
|
|
$
|
—
|
|
$
|
208,859
|
|
Noncurrent
liabilities
|
|
|
—
|
|
|
1,233,719
|
|
|
1,337,002
|
|
|
47,002
|
|
|
(1,352,022
|
)
|
|
1,265,701
|
|
Equity
(deficit)
|
|
|
211,960
|
|
|
211,960
|
|
|
(183,440
|
)
|
|
3,787
|
|
|
(32,307
|
)
|
|
211,960
|
|
Total
liabilities and equity (deficit)
|
|
$
|
211,960
|
|
$
|
1,538,358
|
|
$
|
1,261,612
|
|
$
|
58,919
|
|
$
|
(1,384,329
|
)
|
$
|
1,686,520
|
|
|
|
December
31, 2005
|
|
|
|
BPC
Holding Corporation
(Parent)
|
|
Berry
Plastics Corporation
(Issuer)
|
|
Combined
Guarantor
Subsidiaries
|
|
Combined
Non-guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
Consolidating
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$
|
—
|
|
$
|
132,192
|
|
$
|
224,471
|
|
$
|
22,826
|
|
$
|
—
|
|
$
|
379,489
|
|
Net
property and equipment
|
|
|
—
|
|
|
91,831
|
|
|
311,649
|
|
|
19,964
|
|
|
—
|
|
|
423,444
|
|
Other
noncurrent assets
|
|
|
203,388
|
|
|
1,292,315
|
|
|
703,500
|
|
|
13,214
|
|
|
(1,367,520
|
)
|
|
844,897
|
|
Total
assets
|
|
$
|
203,388
|
|
$
|
1,516,338
|
|
$
|
1,239,620
|
|
$
|
56,004
|
|
$
|
(1,367,520
|
)
|
$
|
1,647,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
—
|
|
$
|
81,349
|
|
$
|
87,269
|
|
$
|
9,090
|
|
$
|
—
|
|
$
|
177,708
|
|
Noncurrent
liabilities
|
|
|
—
|
|
|
1,231,601
|
|
|
1,333,925
|
|
|
40,783
|
|
|
(1,339,575
|
)
|
|
1,266,734
|
|
Equity
(deficit)
|
|
|
203,388
|
|
|
203,388
|
|
|
(181,574
|
)
|
|
6,131
|
|
|
(27,945
|
)
|
|
203,388
|
|
Total
liabilities and equity (deficit)
|
|
$
|
203,388
|
|
$
|
1,516,338
|
|
$
|
1,239,620
|
|
$
|
56,004
|
|
$
|
(1,367,520
|
)
|
$
|
1,647,830
|
|
|
|
Thirteen
Weeks Ended April 1, 2006
|
|
|
|
BPC
Holding Corporation
(Parent)
|
|
Berry
Plastics Corporation
(Issuer)
|
|
Combined
Guarantor
Subsidiaries
|
|
Combined
Non-guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
Consolidating
Statement of Operations
|
|
Net
sales
|
|
$
|
—
|
|
$
|
70,560
|
|
$
|
277,330
|
|
$
|
8,074
|
|
$
|
—
|
|
$
|
355,964
|
|
Cost
of goods sold
|
|
|
—
|
|
|
51,138
|
|
|
224,962
|
|
|
8,521
|
|
|
—
|
|
|
284,621
|
|
Gross
profit
|
|
|
—
|
|
|
19,422
|
|
|
52,368
|
|
|
(447
|
)
|
|
—
|
|
|
71,343
|
|
Operating
expenses
|
|
|
988
|
|
|
8,871
|
|
|
22,416
|
|
|
1,345
|
|
|
—
|
|
|
33,620
|
|
Operating
income (loss)
|
|
|
(988
|
)
|
|
10,551
|
|
|
29,952
|
|
|
(1,792
|
)
|
|
—
|
|
|
37,723
|
|
Other
expenses
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
216
|
|
|
—
|
|
|
216
|
|
Interest
expense (income) , net
|
|
|
(190
|
)
|
|
(10,054
|
)
|
|
31,593
|
|
|
659
|
|
|
—
|
|
|
22,008
|
|
Income
taxes
|
|
|
7
|
|
|
7,070
|
|
|
227
|
|
|
15
|
|
|
—
|
|
|
7,319
|
|
Equity
in net (income) loss from subsidiary
|
|
|
(8,985
|
)
|
|
4,550
|
|
|
2,682
|
|
|
—
|
|
|
1,753
|
|
|
—
|
|
Net
income (loss)
|
|
$
|
8,180
|
|
$
|
8,985
|
|
$
|
(4,550
|
)
|
$
|
(2,682
|
)
|
$
|
(1,753
|
)
|
$
|
8,180
|
|
|
|
|
Consolidating
Statement of Cash Flows
|
|
Net
income (loss)
|
|
$
|
8,180
|
|
$
|
8,985
|
|
$
|
(4,550
|
)
|
$
|
(2,682
|
)
|
$
|
(1,753
|
)
|
$
|
8,180
|
|
Non-cash
expenses
|
|
|
988
|
|
|
10,962
|
|
|
21,436
|
|
|
1,456
|
|
|
—
|
|
|
34,842
|
|
Equity
in net (income) loss from subsidiary
|
|
|
(8,985
|
)
|
|
4,550
|
|
|
2,682
|
|
|
—
|
|
|
1,753
|
|
|
—
|
|
Changes
in working capital
|
|
|
(190
|
)
|
|
7,210
|
|
|
3,021
|
|
|
(4,053
|
)
|
|
—
|
|
|
5,988
|
|
Net
cash provided by (used for) operating activities
|
|
|
(7
|
)
|
|
31,707
|
|
|
22,589
|
|
|
(5,279
|
)
|
|
—
|
|
|
49,010
|
|
Net
cash used for investing activities
|
|
|
—
|
|
|
(5,756
|
)
|
|
(25,642
|
)
|
|
(428
|
)
|
|
—
|
|
|
(31,826
|
)
|
Net
cash provided by (used for) financing activities
|
|
|
7
|
|
|
(12,015
|
)
|
|
2,901
|
|
|
5,797
|
|
|
—
|
|
|
(3,310
|
)
|
Effect
of exchange rate changes on cash
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(32
|
)
|
|
—
|
|
|
(32
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
—
|
|
|
13,936
|
|
|
(152
|
)
|
|
58
|
|
|
—
|
|
|
13,842
|
|
Cash
and cash equivalents at beginning of period
|
|
|
—
|
|
|
22,814
|
|
|
314
|
|
|
1,628
|
|
|
—
|
|
|
24,756
|
|
Cash
and cash equivalents at end of period
|
|
$
|
—
|
|
$
|
36,750
|
|
$
|
162
|
|
$
|
1,686
|
|
$
|
¾
|
|
$
|
38,598
|
|
|
|
Thirteen
Weeks Ended April 2, 2005
|
|
|
|
BPC
Holding Corporation
(Parent)
|
|
Berry
Plastics Corporation
(Issuer)
|
|
Combined
Guarantor
Subsidiaries
|
|
Combined
Non-guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
Consolidating
Statement of Operations
|
|
Net
sales
|
|
$
|
—
|
|
$
|
61,022
|
|
$
|
158,003
|
|
$
|
6,285
|
|
$
|
—
|
|
$
|
225,310
|
|
Cost
of goods sold
|
|
|
—
|
|
|
44,717
|
|
|
132,834
|
|
|
6,465
|
|
|
—
|
|
|
184,016
|
|
Gross
profit
|
|
|
—
|
|
|
16,305
|
|
|
25,169
|
|
|
(180
|
)
|
|
—
|
|
|
41,294
|
|
Operating
expenses
|
|
|
—
|
|
|
7,340
|
|
|
11,162
|
|
|
784
|
|
|
—
|
|
|
19,286
|
|
Operating
income (loss)
|
|
|
—
|
|
|
8,965
|
|
|
14,007
|
|
|
(964
|
)
|
|
—
|
|
|
22,008
|
|
Other
income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
632
|
|
|
—
|
|
|
632
|
|
Interest
expense (income), net
|
|
|
(200
|
)
|
|
(4,674
|
)
|
|
18,506
|
|
|
186
|
|
|
—
|
|
|
13,818
|
|
Income
taxes
|
|
|
7
|
|
|
3,723
|
|
|
6
|
|
|
23
|
|
|
—
|
|
|
3,759
|
|
Equity
in net (income) loss from subsidiary
|
|
|
(3,606
|
)
|
|
6,310
|
|
|
1,805
|
|
|
—
|
|
|
(4,509
|
)
|
|
—
|
|
Net
income (loss)
|
|
$
|
3,799
|
|
$
|
3,606
|
|
$
|
(6,310
|
)
|
$
|
(1,805
|
)
|
$
|
4,509
|
|
$
|
3,799
|
|
|
|
|
Consolidating
Statement of Cash Flows
|
|
Net
income (loss)
|
|
$
|
3,799
|
|
$
|
3,606
|
|
$
|
(6,310
|
)
|
$
|
(1,805
|
)
|
$
|
4,509
|
|
$
|
3,799
|
|
Non-cash
expenses
|
|
|
—
|
|
|
7,959
|
|
|
11,080
|
|
|
1,550
|
|
|
—
|
|
|
20,589
|
|
Equity
in net (income) loss from subsidiary
|
|
|
(3,606
|
)
|
|
6,310
|
|
|
1,805
|
|
|
—
|
|
|
(4,509
|
)
|
|
—
|
|
Changes
in working capital
|
|
|
(200
|
)
|
|
(15,654
|
)
|
|
4,660
|
|
|
(400
|
)
|
|
—
|
|
|
(11,594
|
)
|
Net
cash provided by (used for) operating activities
|
|
|
(7
|
)
|
|
2,221
|
|
|
11,235
|
|
|
(655
|
)
|
|
—
|
|
|
12,794
|
|
Net
cash used for investing activities
|
|
|
—
|
|
|
(1,520
|
)
|
|
(8,842
|
)
|
|
(773
|
)
|
|
—
|
|
|
(11,135
|
)
|
Net
cash provided by (used for) financing activities
|
|
|
7
|
|
|
(750
|
)
|
|
(2,273
|
)
|
|
1,779
|
|
|
—
|
|
|
(1,237
|
)
|
Effect
of exchange rate changes on cash
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(49
|
)
|
|
—
|
|
|
(49
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
—
|
|
|
(49
|
)
|
|
120
|
|
|
302
|
|
|
—
|
|
|
373
|
|
Cash
and cash equivalents at beginning of period
|
|
|
—
|
|
|
85
|
|
|
42
|
|
|
137
|
|
|
—
|
|
|
264
|
|
Cash
and cash equivalents at end of period
|
|
$
|
—
|
|
$
|
36
|
|
$
|
162
|
|
$
|
439
|
|
$
|
¾
|
|
$
|
637
|
|
Item
2.
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. 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 our Form 10-K for the fiscal
year ended December 31, 2005 (the “2005 10-K”) in the section titled “Risk
Factors” and other risk factors identified from time to time in our periodic
filings with the Securities and Exchange Commission. Our actual results may
differ materially from those contained in any forward-looking statements. You
should read the explanation of the qualifications and limitations on these
forward-looking statements on page 2 of this report.
Critical
Accounting Policies
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 in our 2005 10-K. 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, although
no
assurance can be given as to such affect. 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.
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
that, based on past history and our credit policies, the 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 our results of operations. Our
allowance for doubtful accounts was $6.1 million and $5.8 million as of April
1,
2006 and December 31, 2005, 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 our results of operations. Our reserve for inventory
obsolescence was $8.1 million and $8.5 million as of April 1, 2006 and December
31, 2005, 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 our results of
operations. Our accrued liability for medical claims was $5.0 million and $5.1
million, including reserves for expected medical claims incurred but not
reported, as of April 1, 2006 and December 31, 2005.
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 our
results of operations. Our accrued liability for workers’ compensation claims
was $4.8 million and $4.7 million as of April 1, 2006 and December 31, 2005,
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-Q.
Goodwill
and Other Indefinite Lived Intangible Assets.
In
accordance with the methodology described in SFAS No. 142, “Goodwill and Other
Intangible Assets,” we review our goodwill and other indefinite lived intangible
assets for impairment whenever events or changes in circumstances indicate
the
carrying amount of such assets may not be recoverable. Impairment losses are
recorded 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. In addition, we annually review our goodwill
and other indefinite lived intangible assets for impairment. No impairments
were
recorded in the financial statements included in this Form 10-Q.
Deferred
Taxes and Effective Tax Rates. We
estimate the effective tax rates and associated liabilities or assets for each
legal entity 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.
Pension.
Pension
benefit costs include assumptions for the discount rate, retirement age, and
expected return on plan assets. Retiree medical plan costs include assumptions
for the discount rate, retirement age, and health-care-cost trend rates. These
assumptions have a significant effect on the amounts reported. In addition
to
the analysis below, see our 2005 10-K for additional information regarding
our
retirement benefits. Periodically, we evaluate the discount rate and the
expected return on plan assets in our defined benefit pension and retiree health
benefit plans. In evaluating these assumptions, we consider many factors,
including an evaluation of the discount rates, expected return on plan assets
and the health-care-cost trend rates of other companies; our historical
assumptions compared with actual results; an analysis of current market
conditions and asset allocations; and the views of advisers. In evaluating
our
expected retirement age assumption, we consider the retirement ages of our
past
employees eligible for pension and medical benefits together with our
expectations of future retirement ages. We believe our pension and retiree
medical plan assumptions are appropriate based upon the above factors. A one
percent increase or decrease in our health-care-cost trend rates would not
have
a material impact on the results of operations of the Company. Also, a one
quarter percentage point change in our discount rate or expected return on
plan
assets would not have a material impact on the results of operations of the
Company.
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 BPC 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.
Acquisitions
and Recent Development
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 historically acquired
had profit margins that are lower than that of our existing business, which
resulted 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.
On
April
11, 2005, a subsidiary of Berry, Berry Plastics de México, S. de R.L. de C.V.,
acquired all of the injection molding closure assets from Euromex Plastics,
S.A.
de C.V. (“Euromex”), an injection molding manufacturer located in Toluca, Mexico
(“the Mexico Acquisition”), for aggregate consideration of approximately $8.2
million. The purchase was financed through borrowings under the Company’s
revolving line of credit and cash on hand. The operations from the Mexico
Acquisition are included in Berry’s operations since the acquisition
date.
On
June
3, 2005, Berry acquired Kerr Group, Inc. (“Kerr”) for aggregate consideration of
approximately $455.8 million (the “Kerr Acquisition”), including direct costs
associated with the acquisition. The operations from the Kerr Acquisition are
included in Berry’s operations since the acquisition date. The purchase price
was financed through additional term loan borrowings under an amendment to
Berry’s senior secured credit facility and cash on hand.
On
March
29, 2006, Berry announced that its Board of Directors was exploring strategic
alternatives to maximize shareholder value, including a possible sale or public
offering of the Company. The Company retained Goldman, Sachs & Co. and
JPMorgan as its financial advisors to assist in this process.
Results
of Operations
Comparison
of the 13 Weeks Ended April 1, 2006 (the “Quarter”) and the 13 Weeks Ended April
2, 2005 (the “Prior Quarter”)
Net
Sales.
Net
sales increased 58% to $356.0 million for the Quarter from $225.3 million for
the Prior Quarter. This $130.7 million increase included approximately $21.0
million or 9% due to the pass through of higher resin costs to our customers,
increased base business volume of approximately $1.3 million or 1%, and
acquisition volume of $108.4 million or 48%. The following discussion in this
section provides a comparison of net sales by business segment. In 2005, we
reorganized our operations into two reportable segments: rigid open top and
rigid closed top. The realignment occurred in an effort to integrate the
operations of acquired businesses, better service the Company’s customers, and
provide a more efficient organization. Prior periods have been reclassified
to
be aligned with the new reporting structure in order to provide comparable
results. Rigid open top net sales increased $22.3 million from the Prior Quarter
to $206.2 million for the Quarter. The increase in rigid open top net sales
was
primarily a result of increased selling prices and base business growth in
several of the division’s product lines with significant growth in the
thermoformed polypropylene drink cup line of 21%. Rigid closed top net sales
increased $108.3 million from the Prior Quarter to $149.7 million for the
Quarter. The increase in rigid closed top net sales can be primarily attributed
to net sales in the Quarter from the Kerr Acquisition and Mexico Acquisition
of
$106.6 million and $1.8 million, respectively, and increased selling prices
on
base business partially offset by softness in the overcaps and base closure
businesses.
Gross
Profit.
Gross
profit increased by $30.0 million to $71.3 million (20% of net sales) for the
Quarter from $41.3 million (18% of net sales) for the Prior Quarter. This dollar
increase of 73% includes the combined impact of the additional sales volume
noted above, productivity improvement initiatives, our financial and mechanical
resin hedging programs, and the timing effect of the 9% increase in net selling
prices due to higher resin costs passed through to our customers. The increase
in gross profit percentage from 18% in the Prior Quarter to 20% in the Quarter
can be primarily attributed to the timing effect of the 9% increase in net
selling prices due to higher resin
costs
passed through to our customers through escalator agreements while certain
grades of resin experienced some cost decreases in the first quarter.
Significant productivity improvements were made since the Prior Quarter,
including the installation of state-of-the-art equipment at several of our
facilities. These productivity improvements were more than offset by increased
costs from inflation such as higher energy prices.
Operating
Expenses.
Selling
expenses increased by $3.1 million to $10.4 million for the Quarter from $7.3
million for the Prior Quarter principally as a result of increased selling
expenses associated with higher sales, including the Kerr Acquisition, partially
offset by cost reduction efforts. General and administrative expenses increased
by $5.9 million from $8.9 million for the Prior Quarter to $14.8 million for
the
Quarter primarily as a result of general and administrative expenses from the
Kerr Acquisition and $1.0 million of stock option expense recorded in the
Quarter. Research and development expenses increased by $1.0 million over the
Prior Quarter primarily due to the Kerr Acquisition and increased development
efforts. Amortization of intangibles increased $3.6 million from the Prior
Quarter to $5.4 million in the Quarter primarily due to the amortization of
intangible assets from the Kerr Acquisition. Transition expenses related to
integrating acquired businesses were $1.1 million and $0.3 million in the
Quarter and Prior Quarter, respectively. This increase of $0.8 million is
primarily due to costs associated with the Kerr Acquisition in the
Quarter.
Interest
Expense, Net.
Net
interest expense increased $8.2 million to $22.0 million for the Quarter
compared to $13.8 million for the Prior Quarter primarily due to interest cost
on additional borrowings to finance the Kerr Acquisition and increased rates
of
interest on borrowings.
Income
Taxes. For
the
Quarter, we recorded income tax expense of $7.3 million or an effective tax
rate
of 47%. 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 $3.5 million from $3.8 million in the Prior Quarter, or an effective
tax rate of 50%, was primarily attributed to the increase in income before
income taxes.
Net
Income.
Net
income was $8.2 million for the Quarter compared to $3.8 million for the Prior
Quarter for the reasons discussed above.
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 acquisition of Landis Plastics, Inc., 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”). On January 1,
2005, a First Amendment to the Second Amended and Restated Credit Facility
was
entered into to permit Fifth Third Bank to assume the role of administrative
agent and for Goldman Sachs Credit Partners, L.P. to resign as administrative
agent. On June 3, 2005, we entered into a Second Amendment to the Second Amended
and Restated Credit Agreement with Deutsche Bank Trust Company Americas assuming
the role of administrative agent. As a result of the second amendment to the
New
Credit Facility, we expensed $7.0 million of unamortized deferred financing
costs. On October 26, 2005, the
Company
entered into a Third Amendment to the Second Amended and Restated Credit
Agreement (the “New Credit Facility”) that reduced the applicable margin on the
term loan.
The
New
Credit Facility provides (1) a $795.0 million term loan and (2) a $150.0 million
revolving credit facility. The New 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 December 2, 2011,
and the maturity date of the revolving credit facility is March 31, 2010. The
indebtedness under the New Credit Facility is guaranteed by Holding and all
of
its domestic subsidiaries. The obligations of Berry Plastics under the New
Credit Facility and the guarantees thereof are secured by substantially all
of
the assets of such entities. At April 1, 2006, there were no borrowings
outstanding on this revolving credit facility. The revolving credit facility
allows up to $35.0 million of letters of credit to be issued instead of
borrowings under the revolving credit facility. At April 1, 2006 and December
31, 2005, the Company had $14.7 million in letters of credit outstanding under
the revolving credit facility.
The
New
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 New 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 April 1, 2006.
The
term loan amortizes quarterly as follows: $1,987,500 each quarter which began
September 30, 2005 and ends September 30, 2010 and $188,315,625 each
quarter beginning December 31, 2010 and ending September 30, 2011. A
key financial metric utilized in the calculation of the interest coverage and
leverage ratios is bank compliance EBITDA. The following table reconciles our
bank compliance EBITDA of $252.0 million for the twelve month period ended
April
1, 2006 to net income.
|
|
12
months ended
April
1, 2006
|
|
|
|
|
|
Bank
compliance EBITDA
|
|
|
251,951
|
|
Net
interest expense
|
|
|
(81,464
|
)
|
Depreciation
|
|
|
(80,235
|
)
|
Amortization
|
|
|
(19,165
|
)
|
Income
taxes
|
|
|
(17,885
|
)
|
Loss
on investment in Southern Packaging
|
|
|
(938
|
)
|
Loss
on extinguished debt
|
|
|
(7,045
|
)
|
Acquisition
integration expense
|
|
|
(6,680
|
)
|
Non-cash
compensation
|
|
|
(3,140
|
)
|
Kerr
pro forma for April 1, 2005 to June 3, 2005
|
|
|
(11,227
|
)
|
Net
income
|
|
$
|
24,172
|
|
While
the
determination of appropriate adjustments in the calculation of bank compliance
EBITDA is subject to interpretation under the terms of the New Credit Facility,
management believes the adjustments described above are in accordance with
the
covenants in New Credit Facility, as discussed
above.
Bank compliance EBITDA should not be considered in isolation or construed as
an
alternative to our net income or other measures as determined in accordance
with
GAAP. In addition, other companies in our industry or across different
industries may calculate bank covenants and related definitions differently
than
we do, limiting our calculation of bank compliance EBITDA usefulness as a
comparative measure.
Borrowings
under the New
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, 1.00% per annum and (ii) with
respect to Eurodollar Rate Loans, 2.00% per annum. 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 April 1, 2006. 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 our results through April 1, 2006). 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 and expires
on July 15, 2006. In June 2005, Berry entered into three separate interest
rate
swap transactions to protect $300.0 million of the outstanding variable rate
term loan debt from future interest rate volatility. The agreements were
effective June 3, 2005 and expire on June 3, 2008. The agreements swap three
month variable LIBOR contracts for a fixed rate three year rate of 3.897%.
At
April 1, 2006, the Company had unused borrowing capacity under the New Credit
Facility’s revolving line of credit of $135.3 million.
On
July
22, 2002, we completed an offering of $250.0 million aggregate principal amount
of 10 ¾% 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 our refinancing. The 2002 Notes mature
on July 15, 2012, and interest is payable semi-annually on January 15 and July
15 of each year. 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 acquisition of Landis Plastics, Inc. 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. 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.
Net
cash
provided by operating activities was $49.0 million for the Quarter compared
to
$12.8 million for the Prior Quarter. The increase of $36.2 million is primarily
the result of improved operations as operating income before depreciation and
amortization increased $26.4 million over the Prior Quarter.
Net
cash
used for investing activities increased from $11.1 million for the Prior Quarter
to $31.8 million for the Quarter primarily as a result of increased capital
spending in the Quarter. Capital spending of $31.9 million in the Quarter
included $2.4 million for buildings and systems, $6.5 million for molds, $17.1
million for molding and decorating machines, and $5.9 million for accessory
equipment and systems. Capital expenditures for 2006 are expected to be
approximately $90.0 million.
Net
cash
used for financing activities was $3.3 million for the Quarter compared to
$1.2
million used for financing activities in the Prior Quarter. This increase of
$2.1 million can be primarily attributed to improved debt reduction in the
Quarter as a result of improved cash flow from operations in the Quarter as
noted above.
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 2006 will be satisfied through a combination of
funds generated from operating activities and cash on hand, together with funds
available under the New Credit Facility. We base such belief on historical
experience and the funds available under the New 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 of our 2005 10-K. In
particular, increases in the cost of resin which we are unable to pass through
to our customers on a timely basis or significant acquisitions could severely
impact our liquidity. At April 1, 2006, our cash balance was $38.6 million,
and we had unused borrowing capacity under the New Credit Facility’s borrowing
base of $135.3 million. Although the $135.3 million was available at April
1,
2006, the covenants under our New Credit Facility may limit our ability to
make
such borrowings in the future.
Item
3. Quantitative
and Qualitative Disclosures about Market Risk
Interest
Rate Risk
We
are
exposed to market risk from changes in interest rates primarily through our
New
Credit Facility. The New Credit Facility is comprised of (1) a $795.0 million
term loan and (2) a $150.0 million revolving credit facility. At April 1, 2006,
there were no borrowings outstanding on the revolving credit facility. The
net
outstanding balance of the term loan at April 1, 2006 was $789.0 million. The
term loan bears interest at the Eurodollar rate plus the applicable margin.
Future borrowings under the New 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, 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%. In June 2005,
Berry entered into three separate interest rate swap transactions to protect
$300.0 million of the outstanding variable rate term loan debt from future
interest rate volatility. The agreements were effective June 3, 2005 and expire
on June 3, 2008. The agreements swap three month variable LIBOR contracts for
a
fixed rate three year rate of 3.897%. At April 1, 2006, the Eurodollar rate
applicable to the term loan was 4.83%. If the Eurodollar rate increases 0.25%
and 0.5%, we estimate an annual increase in our interest expense of
approximately $1.2 million and $2.4 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 with purchasing negotiation,
mechanical hedging, switching between certain resin 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 based
on
2004 volumes prior to the Kerr Acquisition. 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 recognized in earnings when the underlying inventory
is
sold as an adjustment to cost of goods sold. The fair value of these contracts
at April 1, 2006 was an unrealized gain, after income taxes, of $1.6
million.
Item
4. Controls
and Procedures
(a)
Disclosure controls and procedures.
As
required by new Rule 13a-15 under the Exchange Act, the Company’s management
carried out an evaluation with the participation of our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of our disclosure controls
and
procedures, as of the end of the last fiscal quarter. 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 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 control over financial reporting.
There
were no changes in our internal control over financial reporting identified
in
connection with our evaluation of our disclosure controls and procedures that
occurred during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Part
II. Other Information
Item
1A. Risk
Factors
There
were no material changes in the Company’s risk factors in the first quarter of
2006.
Item
6. Exhibits
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
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
BPC
Holding Corporation
Berry
Plastics Corporation
May
15,
2006
By:
/s/
James M. Kratochvil
James
M.
Kratochvil
Executive
Vice President, Chief Financial Officer, Treasurer and Secretary of the entities
listed above (Principal Financial and Accounting Officer)