J. Brendan Barba, AEP's Chairman and CEO, commented, "We are excited to announce this compelling transaction with Berry, which delivers substantial value to our shareholders, while providing the opportunity to participate in the upside of the combination. We believe Berry is the right partner to expand our product portfolio to deliver high quality packaging films to even more customers around the world. Berry shares our commitment to teamwork and success, and we are confident our valued employees will benefit from the opportunities that come from being part of a larger company. We look forward to working with Berry to plan for a seamless integration for our customers and employees and to begin the next chapter in the company's history."Select Benefits of the Transaction Highly complementary fit. Together we will be able to optimize complementary production capacities, reduce material and conversion costs, and better serve customers from an expanded North American footprint with a portfolio of products that is one of the most comprehensive in the industry. Significant, clearly identifiable cost synergies. Berry expects to realize cost synergies of $50 million or more annually, in line with previous Berry acquisitions of a similar nature. Berry also expects to realize these cost savings through procurement initiatives, operational improvements, sharing of best practices, improved asset utilization, and logistics optimization across the combined plant network. Attractive transaction economics. The transaction is expected to be accretive to Berry's adjusted net income and adjusted free cash flow by more than 10 percent, after expected synergies. On a pro forma basis, Berry's four quarters ended June 2016 adjusted free cash flow would increase by approximately $85 million to $560 million. The transaction will be deleveraging to Berry's balance sheet after synergies. Approvals, Closing, and Funding Considerations The transaction is expected to be completed in the December 2016 quarter, subject to the approval of AEP shareholders and customary closing conditions, including applicable regulatory approvals. Certain of AEP's executive officers and directors, who in aggregate, beneficially own 21.5 percent of AEP's common stock outstanding, have agreed to vote in favor of the proposed transaction. Berry intends to fund the cash component of the acquisition with existing cash and a new term loan, and has committed financing in place.
Conference Call and WebcastBerry will host a conference call and webcast today, August 25, 2016, at 10 a.m. ET to provide more information on this announcement. The telephone number to access the conference call is (866) 244-4530 (domestic), or (703) 639-1173 (international), conference ID 1675892. We expect the call to last approximately one hour. Interested parties are invited to listen to a live webcast and view the accompanying slides by visiting the Company's Investor page at www.berryplastics.com. A replay of the conference call can also be accessed on the Investor page of the website beginning August 25, 2016, at 1 p.m. Eastern Time, to September 1, 2016, by calling (888) 266-2081 (domestic), or (703) 925-2533 (international), access code 1675892. Advisors Citigroup is acting as exclusive financial advisor to Berry, and Bryan Cave is serving as its legal counsel. BofA Merrill Lynch is acting as exclusive financial advisor to AEP, and Skadden, Arps, Slate, Meagher & Flom and Honigman Miller Schwartz and Cohn are serving as its legal counsel.
|Reconciliation Schedules (Unaudited)|
|Four Quarters Ended|
|June 2016||April 2016|
|Pro forma adjustments (1)||(98||)||-|
|Depreciation and amortization||(477||)||(30||)|
|Other non-cash charges||(43||)||6|
|Business optimization and other expenses (2)||(30||)||-|
|Restructuring and impairment||(31||)||-|
|Other income, net||22||-|
|Interest expense, net||(261||)||(18||)|
|Income tax expense||(87||)||(22||)|
|Cash flow from operating activities||812||62|
|Net additions to property, plant, and equipment||(280||)||(10||)|
|Payments of tax receivable agreement||(57||)||-|
|Synergies, net of tax (3)||-||33|
|Adjusted free cash flow||$||475||$||85|
|(1)||Pro forma adjustments include Operating EBITDA and unrealized cost savings from Berry's Avintiv, Inc. acquisition at the beginning of fiscal year 2016.|
|(2)||Includes business optimization and integration expenses.|
|(3)||Includes $50 million of expected cost synergies, net of tax.|
Use of Non-GAAP Financial MeasuresThis press release includes non-GAAP financial measures such as adjusted EBITDA, adjusted net income, and adjusted free cash flow. A reconciliation of these non-GAAP financial measures to comparable measures determined in accordance with accounting principles generally accepted in the United States of America (GAAP) is set forth within this press release. With respect to AEP, "adjusted EBITDA" means net income (loss) before discontinued operations, interest expense, income taxes, depreciation and amortization, changes in LIFO reserve, other non-operating income (expense), net, and share-based compensation expense (income). With respect to Berry, "Adjusted EBITDA" means net income (loss) before depreciation and amortization, income tax expense (benefit), interest expense (net) and certain non-recurring or non-cash charges and as adjusted for unrealized cost reductions and acquired businesses, including unrealized cost synergies, which are more particularly defined in Berry's credit documents and the indentures governing Berry's outstanding notes. "Adjusted Net Income" means net income (loss) excluding debt extinguishment costs, other expense (income), non-cash amortization costs from the 2006 private sale, restructuring and impairment charges, and business optimization costs, in each case net of income tax impact. "Adjusted Free Cash Flow" means cash flow from operating activities less additions to property, plant and equipment and payments under Berry's tax receivable agreement. Forward Looking Statements This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. All statements regarding Berry's, AEP's or their respective subsidiaries' expected future financial position, results of operations, cash flows, funds from operations, dividends and dividend plans, financing plans, business strategy, budgets, projected costs, operating metrics, capital expenditures, competitive positions, acquisitions, investment opportunities, merger integration, growth opportunities, dispositions, expected lease income, plans and objectives of management for future operations and statements that include words such as "anticipate," "if," "believe," "plan," "estimate," "expect," "intend," "may," "could," "should," "would," "will," "seeks," "approximately," "outlook," "looking forward" and other similar expressions or the negative form of the same are forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about the potential timing or consummation of the proposed transaction or the anticipated benefits thereof, including, without limitation, future financial and operating results. Berry and AEP caution readers that these and other forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forward-looking statements. Important risk factors that may cause such a difference include, but are not limited to risks and uncertainties related to (i) the ability to obtain shareholder and regulatory approvals, or the possibility that they may delay the transaction or that such regulatory approval may result in the imposition of conditions that could cause the parties to abandon the transaction, (ii) the risk that the conditions to closing of the merger may not be satisfied; (iii) the ability of Berry to integrate the acquired business successfully and to achieve anticipated cost savings and other synergies, (iv) the possibility that other anticipated benefits of the proposed transaction will not be realized, including without limitation, anticipated revenues, expenses, earnings and other financial results, and growth and expansion of the new combined company's operations, and the anticipated tax treatment, (v) potential litigation relating to the proposed transaction that could be instituted against Berry, AEP or their respective directors, (vi) possible disruptions from the proposed transaction that could harm Berry's or AEP's business, including current plans and operations, (vii) potential adverse reactions or changes to relationships with clients, employees, suppliers or other parties resulting from the announcement or completion of the merger, (viii) 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, (ix) continued availability of capital and financing and rating agency actions, (x) legislative, regulatory and economic developments and (xi) catastrophic loss of one of our key manufacturing facilities, natural disasters, and other unplanned business interruptions; as well as management's response to any of the aforementioned factors. These risks, as well as other risks associated with the proposed transaction, will be more fully discussed in the proxy statement/prospectus that will be included in the registration statement on Form S-4 that will be filed with the Securities and Exchange Commission ("SEC") in connection with the proposed transaction. The list of factors presented here is, and the list of factors to be presented in the registration statement on Form S-4 should not be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles or impediments to the realization of forward looking statements. Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and similar risks, any of which could have a material adverse effect on Berry's or AEP's consolidated financial condition, results of operations, credit rating or liquidity. Neither Berry nor AEP assumes any obligation to provide revisions or updates to any forward looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.