<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-26178
BWAY Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 36-3624491
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8607 Roberts Drive, Suite 250
Atlanta, Georgia 30350
(Address of principal executive offices)
(Zip Code)
(770) 587-0888
(Registrant's telephone number, including area code)
-------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
There were 6,531,750 shares of Common Stock ($.01 par value) outstanding as of
August 9, 1996.
<PAGE>
BWAY Corporation
QUARTERLY REPORT ON FORM 10-Q
For the quarter ended
June 30, 1996
<TABLE>
<CAPTION>
INDEX
Page Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996 (Unaudited)
and October 1, 1995 3
Consolidated Statements of Income for the three and
nine month periods ended June 30, 1996 and
July 2, 1995 (Unaudited) 4
Consolidated Statements of Cash Flows for the nine
month periods ended June 30, 1996 and July 2, 1995
(Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-13
PART II. OTHER INFORMATION 14
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
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Part I. Financial Information
Item 1. Financial Statements
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In Thousands, Except Share and per Share Data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, October 1,
ASSETS 1996 1995
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,113 $ 23,538
Accounts receivable, net of allowance
of $475 at June 30, 1996 and $386 at
October 1, 1995 44,683 29,782
Inventories 40,198 19,388
Other current assets 1,481 1,103
Deferred tax asset 731 389
-------- --------
Total Current Assets 89,206 74,200
-------- --------
PROPERTY, PLANT AND EQUIPMENT - Net 98,893 67,668
-------- --------
OTHER ASSETS:
Intangible assets, net 78,998 22,011
Deferred financing costs, net of
accumulated amortization $10 at June
30, 1996 and $1,400 at October 1, 1995 1,237 2,908
Other assets 2,275 1,171
-------- --------
Total Other Assets 82,510 26,090
-------- --------
$270,609 $167,958
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 35,117 $ 22,194
Accrued salaries & wages 3,733 3,134
Accrued income taxes 651 910
Other current liabilities 18,169 8,996
Current maturities of long-term debt 812 155
-------- --------
Total Current Liabilities 58,482 35,389
-------- --------
LONG TERM DEBT 105,625 50,063
LONG TERM LIABILITIES:
Deferred income taxes 15,276 14,632
Other long-term liabilities 14,031 2,037
-------- --------
29,307 16,669
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
24,000,000 shares, issued 6,595,541
(June 30, 1996) and 6,409,750 (October 1, 1995) 66 64
Additional paid-in capital 37,606 31,734
Retained earnings 40,724 34,385
-------- --------
78,396 66,183
Less treasury stock, at cost, 63,791
(June 30, 1996) and 69,563 (October 1, 1995) (1,201) (346)
-------- --------
Total Stockholders' Equity 77,195 65,837
-------- --------
$270,609 $167,958
======== ========
</TABLE>
See notes to consolidated financial statements
3
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BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, Except per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ------------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES $ 73,715 $ 64,522 $ 193,637 $ 184,802
COST OF SALES 61,158 54,645 162,421 157,572
------- ------- -------- --------
GROSS PROFIT 12,557 9,877 31,216 27,230
------- ------- -------- --------
EXPENSES:
Selling, general and administrative 4,393 2,808 12,442 8,724
Management fees and expenses --- 2,442 --- 3,393
Amortization of intangibles 421 280 964 820
------- ------- -------- --------
Total Expenses 4,814 5,530 13,406 12,937
------- ------- -------- --------
INCOME FROM OPERATIONS 7,743 4,347 17,810 14,293
------- ------- -------- --------
OTHER (INCOME) EXPENSE - Net:
Interest 1,005 1,400 3,108 4,164
Other 225 (56) (262) 9
------- ------- -------- --------
Total Other Expense 1,230 1,344 2,846 4,173
------- ------- -------- --------
INCOME BEFORE TAXES AND
EXTRAORDINARY ITEMS 6,513 3,003 14,964 10,120
PROVISION FOR INCOME TAXES 2,646 1,229 6,090 4,149
------- ------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 3,867 1,774 8,874 5,971
------- ------- -------- --------
EXTRAORDINARY LOSS RESULTING FROM
THE EARLY EXTINGUISHMENT OF DEBT (2,535) --- (2,535) ---
------- ------- -------- --------
NET INCOME $ 1,322 $ 1,774 $ 6,339 $ 5,971
======= ======= ======== ========
EARNINGS PER COMMON SHARE:
Income before extraordinary item $ 0.63 $ 0.41 $ 1.44 $ 1.42
======= ======= ======== ========
Net Income $ 0.22 $ 0.41 $ 1.03 $ 1.42
======= ======= ======== ========
WEIGHTED AVERAGE COMMON SHARES 6,119 4,327 6,173 4,219
OUTSTANDING ======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements
4
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BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
---------------------
June 30, July 2,
OPERATING ACTIVITIES: 1996 1995
<S> <C> <C>
Net Income $ 6,339 $ 5,971
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 4,357 3,348
Amortization 1,416 1,291
Provisions for doubtful accounts 525 107
Write-off of deferred financing costs
related to debt extinguishment 2,466 ---
Payment of interest related to debt extinguishment 1,670 ---
(Gain)/Loss on disposition of property,
plant and equipment (19) 68
Termination of AB Leasing contract through
issuance of common shares --- 1,995
Provision for deferred income taxes 1,845 ---
Changes in assets and liabilities, net of
effects of business acquisitions:
Accounts receivable (1,505) (6,260)
Inventories (3,461) (5,362)
Other assets (98) 561
Accounts payable 3,493 1,731
Accrued liabilities 573 972
Income taxes, net (2,065) 726
-------- -------
Net cash provided by operating activities 15,536 5,148
-------- -------
INVESTING ACTIVITIES:
Capital expenditures (11,301) (7,380)
Proceeds from property, plant and equipment
disposals 19 ---
Acquisitions, net of cash acquired (67,539) ---
------- -------
Net cash used in investing activities (78,821) (7,380)
------- -------
FINANCING ACTIVITIES:
Net borrowings (repayments) under bank
revolving credit agreement 103,600 (5,000)
Extinguishment of long-term debt (50,000) ---
Net proceeds from initial public offering --- 20,295
Proceeds from issuance of common stock --- 505
Repayments on long-term debt (265) (207)
Increase (Decrease) in unpresented bank
drafts 1,023 (1,617)
Purchases of treasury stock (9,469) (44)
Payment of deferred financing costs (1,247) ---
Payment of interest related to debt extinguishment (1,670) ---
Other (112) ---
------- -------
Net cash provided by financing activities 41,860 13,932
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
(21,425) 11,700
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
$ 23,538 $ 4,618
CASH AND CASH EQUIVALENTS, END OF PERIOD ======== ========
$ 2,113 $ 16,318
======== ========
</TABLE>
6
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<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
<S> <C> <C>
Cash paid during the period for:
Interest $5,127 $3,128
------ ------
Income taxes $4,529 $3,423
====== ======
Details of businesses acquired were as follows:
Fair value of assets acquired $ 114,370
Liabilities assumed (31,231)
Value of common stock issued (2,787)
Value of treasury stock reissued (11,813)
Long-term note issued (1,000)
---------
Net cash paid for acquisitions $ 67,539
=========
</TABLE>
See notes to consolidated financial statements
7
<PAGE>
BWAY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
________________________________________________________________________________
1. GENERAL
The accompanying consolidated financial statements have been prepared by
the Company without audit. Certain information and footnote disclosures,
including significant accounting policies, normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The consolidated financial
statements as of June 30, 1996 and for the nine months ended June 30, 1996
and July 2, 1995 include all normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for
these periods. Operating results for the nine months ended June 30, 1996
are not necessarily indicative of the results that may be expected for the
entire year. It is suggested that these unaudited consolidated financial
statements and the accompanying notes be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K (File No. 0-26178).
The Company operates on a 52/53-week fiscal year ending on the Sunday
closest to September 30 of the applicable year. The first three quarterly
fiscal periods end on the Sunday closest to December 31, March 31 or
June 30 of the applicable quarter.
2. INVENTORIES
Inventories are carried at the lower of cost or market, with cost
determined under the last-in, first-out (LIFO) method of inventory
valuation and are summarized as follows:
<TABLE>
<CAPTION>
June 30, October 1,
1996 1995
<S> <C> <C>
Inventories at FIFO Cost:
Raw materials $ 8,731 $ 4,183
Work-in-process 19,333 11,189
Finished goods 13,138 5,020
------- --------
$41,202 $ 20,392
Reduction to LIFO valuation (1,004) ( 1,004)
------- --------
$40,198 $ 19,388
======= ========
</TABLE>
3. EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of
common shares outstanding during each period presented, including vested
and unvested shares issued under the Company's Management Stock Purchase
Plan. Common stock sold during the twelve-month period prior to the initial
filing in March 1995 of the registration statement in connection with the
Company's initial public offering ("Initial Public Offering") have been
included in the earnings per share calculation for all periods presented in
accordance with Staff Accounting Bulletin No. 83. Weighted average shares
outstanding for the third quarter of fiscal 1996 and 1995 were 6.1 million
and 4.3 million, respectively.
4. STOCKHOLDERS' EQUITY
Initial Public Offering
On June 26, 1995, the Company completed its Initial Public Offering with
the sale of 1,657,866 shares of common stock and realized net proceeds of
approximately $20.3 million. On July 25, 1995, an additional 359,086 shares
of the Company's stock were sold to cover over-allotments providing
additional net proceeds of approximately $4.8 million.
Upon the completion of the Initial Public Offering, the Company's
Management Agreement with AB Leasing and Management, Inc. ("AB Leasing"),
an affiliate, was terminated. In connection with the termination, the
Company paid $1,995,000, through the issuance of 133,000 shares of Common
Stock to AB Leasing prior to the effectiveness
8
<PAGE>
of the Offering. The Company recorded a non-recurring, non-cash, pre-tax
charge to operations of $1,995,000 in connection therewith in the third
quarter of fiscal 1995. Additionally, the Company also paid AB Leasing
$1,398,000 in cash representing the accrued management fee and expenses for
the period from October 1, 1994 to and including the date of termination.
Immediately prior to the Initial Public Offering in June 1995, the Company
adopted the Brockway Standard Holdings Corporation 1995 Long-Term Incentive
Plan and the Formula Plan for Non-Employee Directors (the "Plans") for its
directors, officers, and key employees. An aggregate of 590,000 shares of
common stock are authorized for issuance under these Plans.
Stock Options
On May 14, 1996, the Board of Directors granted a total of 267,800 options
to purchase shares of of the Company's common stock to certain officers and
key employees of the Company exercisable at $19.00 per share. The schedule
for vesting extends over a 3 year period in accordance with the individual
option grants. The options were issued pursuant to the 1995 Brockway
Standard Holdings Corporation Long-Term Incentive Plan.
401(k) Plan
The Company filed a Form S-8 on April 29, 1996 registering 500,000 shares
with regard to the Company's 401(k) plan.
5. ACQUISITIONS
Milton Can Company
On May 28, 1996, the Company acquired all of the outstanding stock of
Milton Can Company, Inc. ("MCC"). The Company paid $13.4 million in cash,
$1 million in notes and $14.6 million in BWAY stock for 100% equity in MCC.
MCC is a manufacturer of paint, oblong and specialty cans within the
general line segment of the North American metal container industry. The
Company issued a total of 810,970 shares in connection with the merger,
comprised of 656,174 shares of its treasury stock and 154,796 newly issued
shares. The consideration given to Milton's shareholders is subject to an
adjustment based on the change in working capital from December 31, 1995
through May 28, 1996. In addition, the Company repaid MCC's approximately
$12.3 million in term and revolving bank debt concurrent with consummation
of the purchase transaction. The acquisition was funded with existing cash
and approximately $5 million in borrowings from the Company's then existing
Revolving Credit Facility. Effective May 28, 1996, James W. Milton, the
controlling shareholder of MCC, became an officer and director of the
Company, and president of BWAY's wholly-owned subsidiary Milton Can
Company, Inc.
Davies Can Company
On June 17, 1996, the Company acquired substantially all of the assets and
assumed certain of the liabilities of Davies Can Company ("Davies"), an
unincorporated division of the Van Dorn Company (a wholly-owned subsidiary
of Crown Cork & Seal Company, Inc.). Davies manufactures paint, oblong and
utility cans within the general line segment of the North American metal
container industry. The purchase price was approximately $41.7 million,
subject to an adjustment based on the change in working capital from
December 31, 1995 through June 17, 1996. The transaction was financed
through the Company's new Credit Agreement (see Note 6).
The purchase method of accounting was used to establish and record a new
cost basis for the assets acquired and liabilities assumed. Accordingly, the
operating results for both MCC and Davies have been included in the
Company's consolidated financial statements since the date of acquisition.
The excess purchase price over the fair market value of net assets acquired
was in aggregate, of approximately $56 million. The excess was recognized as
goodwill, amortized over 30 years using the straight line method, and other
intangible assets, amortized over the expected lives which range from 5 - 17
years using the straight line method. The allocation of the purchase price
and acquisition costs to the assets acquired and liabilities assumed is
preliminary as of June 30, 1996, and is subject to change pending
finalization of appraisals and other studies of fair value and finalization
of management's plans which may result in the recording of additional
liabilities as part of the allocation of the purchase price.
9
<PAGE>
Plans for integration of all acquired facilities have been developed by
management. Certain components of the plan are currently being implemented.
The Company has established a reserve based on preliminary estimates of $16
million to account for closing facilities, moving equipment, severance and
relocation costs. Ultimate completion of the integration plan may result in
further adjustments to this reserve.
The following pro forma results assume the acquisitions of MCC and Davies
occurred at the beginning of the fiscal year ended October 1, 1995, after
giving affect to certain pro forma adjustments including, an adjustment to
reflect the amortization of cost in excess of the net assets acquired,
increased interest expense and the estimated related income tax effects.
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 1996 July 2, 1995 June 30, 1996 July 2, 1995
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 95,595 $ 96,757 $ 272,576 $ 279,137
Income before extraordinary item 1,342 480 3,539 1,908
Net income (1,193) 480 1,004 1,908
Earnings per common share:
Income before extraordinary item $ .20 $ .07 $ .51 $ .28
Net income ($ .18) $ .07 $ .15 $ .28
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been
consummated as of the acquisition date, nor are they necessarily indicative
of future operating results.
6. LONG-TERM DEBT
On June 17, 1996, the Company terminated its bank agreement and entered
into a new credit agreement with Bankers Trust Company, NationsBank,
N.A., Milton Can Company, Inc., Brockway Standard, Inc. ("BSI"), Davies
Acquisition Corp. and certain financial institutions (the "Credit
Agreement"). Initial borrowings under the Credit Agreement were used to
repay all obligations pursuant to the Third Amended and Restated Revolving
Credit Agreement among BWAY, BSI, certain financial institutions and
Bankers Trust Company as agent, dated June 29, 1994, as amended ("Revolving
Credit Facility"). Funds from the Credit Agreement were also used to prepay
the $50 million private placement of 8.35% Senior Secured Notes maturing
September 1, 2001, pursuant to the Secured Note Agreement among BWAY, BSI
and the note purchasers named therein dated as of August 15, 1993, as
amended, and for the Davies acquisition ("Senior Secured Notes").
In conjunction with the prepayment of the Senior Secured Notes, the
Company recorded an extraordinary loss related to the early extinguishment
of debt in the amount of $2.5 million, net of taxes.
The Credit Agreement allows the Company and its subsidiaries to borrow up
to $150 million. The interest rates under the Credit Agreement are based
on rate margins for either prime rate, as announced by NationsBank from
time to time, ("Prime") or LIBOR, at the option of the borrower.
The applicable rate margin is determined on a quarterly basis by a review
of the Company's leverage ratio. The Company's initial borrowing rate is at
its option either LIBOR plus 1.0%, or Prime. Loans under the Credit
Agreement are unsecured and can be prepaid at the option of the Company
without premium or penalty. The Credit Agreement is subject to certain
restrictive covenants, including covenants which require the Company to
maintain a certain minimum level of net worth and a maximum ratio for
leverage. In addition, the Company is restricted in its ability to pay
dividends and to make other certain restricted payments. As of June
30, 1996, the outstanding balance on the Credit Agreement was $103.6
million. The interest rate being paid by the Company as of June 30, 1996
was LIBOR plus 1.0%.
7. CONTINGENCIES
Environmental
The Company is subject to a broad range of federal, state and local
environmental and workplace health and safety requirements, including those
governing discharges to air and water, the handling and disposal of solid
and hazardous wastes and the remediation of contamination associated with
the releases of hazardous substances.
Environmental investigations voluntarily conducted by the Company at its
Homerville, Georgia facility in 1993 and
10
<PAGE>
1994 detected certain conditions of soil and groundwater contamination,
principally involving chlorinated solvents, at the facility property.
Environmental assessment work conducted by the Company indicated that the
subject contamination is the result of operations prior to the Company's
acquisition of the facility from Owens-Illinois and is, therefore, subject
to indemnification under the 1989 purchase agreement. As required under the
Hazardous Sites Response Program of The Georgia Department of Natural
Resources ("DNR"), the Company has reported the subject contamination to
the DNR. In 1994, the DNR listed the facility on CERCLIS and designated the
facility as a Class II site, which means that further evaluation must be
completed before the DNR decides whether corrective action is needed.
Pursuant to the 1989 purchase agreement, the Company and Owens-Illinois
have entered into a supplemental agreement affirming Owens-Illinois'
responsibility for this matter including establishment of procedures for
the related investigation and remediation work to be conducted by Owens-
Illinois. As a result, Owens-Illinois is managing the remediation
activities and paying for such work directly. Preliminary consultant
estimates indicated that the cost of clean-up could range from $1 million
to $6 million, depending on the extent of contamination. Since Owens-
Illinois is conducting the remediation work, management has no way of
determining the actual costs related to the clean-up efforts. Management
does not believe that the final resolution of this matter will have a
material adverse effect on the results of operations or financial condition
of the Company, and has not accrued a liability with respect to this matter
because it believes that a loss contingency is not probable.
The Company was identified as a potentially responsible party ("PRP") for
liability associated with off-site waste disposal at three sites pursuant
to the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"). The Company has entered into consent decrees to settle its
liabilities at these sites, has paid its share of site-related costs, and
has received a release from future liability subject to standard reopener
provisions found in consent decrees under CERCLA. The consent agreements
for two of the sites do not cover liability for natural resource damage
claims, if any, relating to these sites. No natural resource damage claims
have been asserted to date. Accordingly, the Company has not recorded a
loss contingency.
The Company's subsidiary, MCC leases a manufacturing facility in Peabody,
Massachusetts which is subject to an ongoing groundwater remediation
pursuant to the Massachusetts Chapter 21E program. MCC's landlord at the
site has agreed to retain all liability for the ongoing cleanup. Pursuant
to the terms of the Agreement and Plan of Merger and Reorganization dated
March 21, 1996, as amended on April 30, 1996 (the "Agreement") by which the
Company acquired MCC, the Company is indemnified, subject to certain
limitation, for any liabilities associated with this matter.
Additionally, MCC has been named as a PRP at four sites. Pursuant to the
Agreement by which the Company acquired MCC, the Company is indemnified
with respect to such sites, subject to certain limitations.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales during the third quarter of fiscal 1996 increased 14.2% to $73.7
million compared to $64.5 million in the third quarter of fiscal 1995. Net sales
for the nine months ended June 30, 1996 were $193.6 million; 4.8% higher than
the $184.8 million for the nine months ended July 2, 1995. The increase in
sales resulted in part from increased sales of the Company's products and
in part from incremental sales attributable to the recent acquisitions. In
addition, the quarter over quarter increase is attributable to a shift in sales
from the third fiscal quarter of 1995 to the second fiscal quarter of 1995 due
to warmer weather experienced earlier in the that year.
Gross profit increased 27.1% in the third quarter of fiscal 1996 to $12.6
million from $9.9 million in the same period of fiscal 1995. Gross profit
increased 14.6% from $27.2 million to $31.2 million for the nine months ending
July 2, 1995 and June 30, 1996, respectively. The increase in gross profit
resulted from higher operating margin percentages and increased net sales. The
increase is also attributable to cost reductions and productivity improvements
achieved through the continuing application of the Company's "3-R" strategy to
Rationalize, Reengineer, and Recapitalize. Gross profit as a percentage of net
sales increased approximately 2% in the third quarter of fiscal 1996 compared to
the same period of fiscal 1995.
Selling, general and administrative ("SG&A") costs increased 35% for the third
quarter of fiscal 1996 compared to the same quarter of the previous year. SG&A
costs for the nine month period ending June 30, 1996 increased 23% over the
comparable period of the prior year. The increase is primarily due to costs
related to services previously provided by and included in the former management
agreement with AB Leasing, which are now reflected in the Company's SG&A
expenses. In addition, SG&A also includes the costs related to the
administrative and compliance requirements of a public company and the Company's
strategic growth initiatives and plans.
Net interest expense declined 29% from $1.4 million to $1.0 million in the third
quarter of fiscal 1996 as compared to the same period of 1995. For the nine
month period ended June 30, 1996, net interest expense declined 25.4% over the
same period during fiscal 1995. The decrease is primarily attributable to a
reduction of the outstanding loan balance under the Revolving Credit Facility,
through application of a portion of the proceeds received from the Company's
Initial Public Offering and interest income earned from the related cash on
hand. The Company expects increased interest expense in the fourth fiscal
quarter due to the increased debt from the acquisitions discussed above as well
as to provide the funds to meet the Company's operating needs as a larger
entity.
During the third quarter of fiscal 1996, BWAY Corporation terminated its
existing loan agreements and entered into a new 5 year, $150 million Credit
Agreement. As a result of this debt extinguishment, the Company incurred an
extraordinary loss of approximately $2.5 million, net of taxes, for the
extinguishment of the Company's $50 million Senior Secured Notes and Revolving
Credit Facility. This amount was comprised of $1.7 million (before taxes)
related to a make-whole provision and approximately $2.6 million (before taxes)
of related deferred financing costs.
Income before extraordinary item increased 116.8% to $3.9 million for the third
quarter of fiscal 1996 compared to $1.8 million for the third quarter of fiscal
1995. Income before extraordinary item for the nine month period was $8.9
million, an increase of 47.9% compared to the $6 million reported for the
comparable period of 1995. In addition to the changes described above this
increase quarter over quarter is also attributable to a non-recurring, non-cash,
pre-tax charge to operations of $1,995,000 in the third quarter of fiscal 1995
for the termination fee related to the Company's Management Agreement with AB
Leasing, an affiliate.
Net income for the third quarter of fiscal 1996 decreased 25.5% to $1.3 million
from $1.8 million for the same period of fiscal 1995. The decrease is
attributable to the extraordinary loss resulting from the extinguishment of
debt. Net income for the nine months ended June 30, 1996 was $6.3 million, an
increase of 6.2% compared to the $6 million reported for the same period of
fiscal 1995. This increase, given the $2.5 million one-time charge, reflects
the Company's continuing efforts to reduce costs and improve productivity.
Earnings per share before the extraordinary loss resulting from the repayment of
debt were $0.63 per share for the third quarter of fiscal 1996 compared to $0.41
per share for the comparable period of fiscal 1995, and $1.44 per share for the
first nine months of fiscal 1996 compared to $1.42 per share for the nine month
period ended June 30, 1995.
On a net income basis, earnings per share were $0.22 per share for the third
quarter of fiscal 1996 compared to $0.41 per share for the same period of 1995.
Earnings per share decreased from $1.42 per share to $1.03 per share for the
nine month periods ending July 2, 1995 and June 30, 1996, respectively. The
decrease is attributable to the extraordinary loss related to the extinguishment
of debt recorded in the third quarter of fiscal 1996 and to significant increase
in weighted average shares
12
<PAGE>
outstanding. The weighted average shares outstanding in the third quarter of
fiscal 1996 and 1995 were 6.1 million and only 4.3 million, respectively,
reflecting the effect of the Company's June 1995 Initial Public Offering. The
weighted average shares outstanding were 6.2 million and 4.2 million for the
respective nine month periods.
With the recent acquisitions of Milton Can Company and Davies Can Company, BWAY
and its subsidiaries have expanded operations from 9 manufacturing facilities in
6 states to 15 facilities in 10 states. As part of the Company's rationalization
strategy, plans have been announced to close the Covington, Georgia facility
obtained in conjunction with the Davies Can acquisition, and to relocate the
facilities' equipment and business to other Company facilities. The closing is
expected to occur during the Company's fourth fiscal quarter of 1996. Charges
associated with severance costs and moving the equipment will be charged against
the reorganization reserve previously discussed. Management continues to review
opportunities to consolidate operations and to maximize production efficiencies
by rationalizing overlapping facilities. Rationalization may result in other
plant closings, relocation of assets, and significant related capital
expenditures and restructuring charges.
Liquidity and Capital Resources
The Company's cash requirements for operations and capital expenditures during
the nine month period ending June 30, 1996 were financed through three sources:
cash on hand, internally generated cash flows and the Credit Agreement
(discussed above). The new Credit Agreement facility provided the Company with
the funds to consummate the recent acquisitions and provides the resources
required to continue pursuing its acquisition and growth strategies. The Credit
Agreement allows the Company and its subsidiaries to borrow up to $150 million
limited by certain leverage tests.
The Company's working capital decreased $8.1 million to $30.7 million from $38.8
million for the nine months ending June 30, 1996. The decrease is primarily
attributable to the use of cash for the acquisitions, the Company's capital
expenditure program and the purchase of common stock under the Common Stock
Repurchase Program (discussed below).
The Company used approximately $68 million of cash to complete the acquisitions
during its third fiscal quarter. The funds were provided by cash obtained
through cash on hand and the Credit Agreement which allows borrowings up to $150
million subject to certain restrictions based on the Company's total
indebtedness. As of June 30, 1996, the outstanding balance on the Credit
Agreement was approximately $104 million.
During the first nine months of fiscal 1996, the Company's operating activities
provided $15.5 million of cash. Operating activities for the same period during
the prior year reflected cash provided of $5.1 million. The increase in funds
provided during the nine months ended June 30, 1996 reflect an improvement in
the company's working capital as well as higher earnings combined with the
additional sales from the companies acquired. The recent acquisitions
contributed an additional amount of depreciation and amortization during the
third fiscal quarter of 1996. The increase was primarily attributable to the
fixed assets acquired and the related intangibles derived from recording the
acquisitions through use of the purchase method of accounting. A typical
seasonal build-up of inventory and accounts receivable represented a significant
use of funds in the first nine months of fiscal 1996. The increase in inventory,
consistent with the increase in sales, was partially off-set by the resulting
increase in accounts payable. Improvements in the Company's cash provided by
operating activities are also due to cost reductions and improved asset
utilization.
Capital expenditures of $11.3 million in the first nine months of fiscal 1996
represent an increase of $3.9 million over the first nine months of fiscal 1995.
This increase is consistent with the Company's intention to accelerate the rate
of spending on its targeted capital investment program, designed to increase
productivity and reduce operating costs. The Company expects to maintain its
current levels of capital expenditures related to current operations and the
integration of the recently acquired facilities throughout the remainder of the
fiscal year.
Cash provided by financing activities during the nine month period ended June
30, 1996 was $41.9 million compared to $13.9 million provided during the
comparable nine month period of the prior year. Cash provided during the third
quarter of fiscal 1996 was obtained through operations and from the Credit
Agreement. Funds were used to consummate the acquisitions discussed above as
well as repaying its indebtedness under the previous credit agreements. The
Credit Agreement will provide the Company with additional financial flexibility
to continue pursuing acquisition opportunities and for capital expenditures as
well as being used to satisfy its ongoing liquidity needs for the next 18
months.
On November 21, 1995, the Company announced Board approval of a limited Common
Stock Repurchase Program to accommodate employee and open market transactions.
All shares repurchased under the program prior to May 28, 1996, were issued as
partial consideration for the acquisition of Milton Can Company. Subsequently,
the Company has repurchased an additional 63,791 shares for approximately $1.2
million through June 30, 1996. The Company expects to continue making periodic
repurchases of stock. The cash used for these activities will be provided by
cash generated through
13
<PAGE>
operations, cash on hand and borrowings against the Credit Agreement, as
necessary.
The Company has historically financed its operations through cash provided by
operations and by borrowings under its credit agreements. BWAY's future
principal uses of cash will be for payment of operating expenses, funding
capital investments, payment for additional acquisitions, repurchase of common
stock, and servicing debt.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
The Credit Agreement dated June 17, 1996 places certain restrictions on the
payment of dividends.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Effective May 1996, David P. Hayford was appointed Senior Vice President and
Chief Financial Officer, succeeding the Company's previous Chief Financial
Officer, Perry H. Schwartz.
Item 6. Exhibits and Reports on Form 8-K
(a) See Index of Exhibits.
(b) Reports on Form 8-K were filed during the period covered by this filing
reporting the acquisition of Milton Can Company and the acquisition of
Davies Can Division from Crown Cork & Seal Company, Inc. on June 12, 1996
and July 1, 1996, respectively. An amendment to the initial Current Report
on Form 8-K reporting the Milton Can Company acquisition was filed on
August 12, 1996. Reports on Form 8-K are incorporated in this document by
reference to the respective filings.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Bway Corporation
(Registrant)
Date: August 13, 1996 By: /s/ David P. Hayford
----------------------
David P. Hayford
Senior Vice President &
Chief Financial Officer
16
<PAGE>
INDEX TO EXHIBITS
----------------------------------------
<TABLE>
<CAPTION>
Location of Document
Exhibit in Sequential
No. Description of Document Numbering System
------- ------------------------------ --------------------
<S> <C> <C>
10.1 Employment Agreement between the Company and
David P. Hayford*
10.2 Employment Agreement between the Company and
James W. Milton*
10.3 Amended and Restated Registration Rights Agreement
dated as of May 28, 1996, between BWAY Corporation
and certain shareholders.
10.4 Merger Agreement with Milton Can Company, Inc. (1)
dated March 21, 1996.
10.5 Amendment #1 to the Merger Agreement with Milton (1)
Can Company, Inc. dated April 30, 1996.
10.6 Asset Purchase Agreement dated April 29, 1996, (1)
between Brockway Standard, BWAY Corporation,
Van Dorn Company and Crown Cork & Seal, Inc.
10.7 Credit Agreement dated June 17, 1996 by and among (2)
BWAY Corporation, Brockway Standard, Inc., Milton
Can Company, Inc., the additional borrowers,
Bankers Trust Company, and NationsBank, N.A.
</TABLE>
___________
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the respective exhibit to the Company's Form
10-Q for the period ending March 31, 1996.
(2) Incorporated by reference to the respective exhibit to the Company's Form
8-K, originally filed on July 1, 1996.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS CUMMARY FINANCIAL INFORMATION EXTRACTED FROM BWAY
CORPORATION AND IS QUALIFIFED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> SEP-26-1996 SEP-26-1996
<PERIOD-START> APR-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 0 2,113
<SECURITIES> 0 0
<RECEIVABLES> 0 45,158
<ALLOWANCES> 0 475
<INVENTORY> 0 40,198
<CURRENT-ASSETS> 0 89,206
<PP&E> 0 118,096
<DEPRECIATION> 0 19,203
<TOTAL-ASSETS> 0 270,609
<CURRENT-LIABILITIES> 0 58,482
<BONDS> 0 0
0 0
0 0
<COMMON> 0 66
<OTHER-SE> 0 77,129
<TOTAL-LIABILITY-AND-EQUITY> 0 270,609
<SALES> 73,715 193,637
<TOTAL-REVENUES> 73,715 193,637
<CGS> 61,158 162,421
<TOTAL-COSTS> 4,814 13,406
<OTHER-EXPENSES> 225 (262)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,005 3,108
<INCOME-PRETAX> 6,513 14,964
<INCOME-TAX> 2,646 6,090
<INCOME-CONTINUING> 3,867 8,874
<DISCONTINUED> 0 0
<EXTRAORDINARY> (2,535) (2,535)
<CHANGES> 0 0
<NET-INCOME> 1,332 6,339
<EPS-PRIMARY> .22 1.03
<EPS-DILUTED> .22 1.03
</TABLE>
