<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 29, 1997
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 (I.R.S. EMPLOYER OF IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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 6,555,115 shares of Common Stock ($.01 par value) outstanding as of
August 1, 1997.
1
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BWAY CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED
JUNE 29, 1997
INDEX
<TABLE>
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PAGE NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 29, 1997
and September 29, 1996 (Unaudited) 3
Consolidated Statements of Income for the three month
and nine month periods ended June 29, 1997 and
June 30, 1996 (Unaudited) 4
Consolidated Statements of Cash Flows for the nine
month periods ended June 29, 1997 and June
30, 1996 (Unaudited) 5 - 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
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 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS JUNE 29, 1997 SEPTEMBER 29, 1996
-------------- ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,491 $ 1,852
Accounts receivable, net of allowance of $685 at
June 29, 1997 and $390 at September 29, 1996 47,976 39,011
Inventories 47,130 37,044
Other current assets 2,327 1,293
Deferred tax asset 2,405 2,405
-------- --------
Total Current Assets 101,329 81,605
-------- --------
PROPERTY, PLANT AND EQUIPMENT - Net 112,883 94,800
-------- --------
OTHER ASSETS:
Intangible assets, net 95,920 64,807
Deferred financing costs, net 5,013 1,336
Other assets 2,241 2,585
-------- --------
Total Other Assets 103,174 68,728
-------- --------
$317,386 $245,133
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 47,740 $ 36,206
Accrued salaries & wages 7,549 4,252
Accrued income taxes 5,193 759
Other current liabilities 18,713 14,581
Accrued rebates 4,937 3,382
Current maturities of long-term debt 1,150 145
-------- --------
Total Current Liabilities 85,282 59,325
-------- --------
LONG-TERM DEBT 124,716 95,053
LONG-TERM LIABILITIES:
Deferred income taxes 14,135 14,135
Other long-term liabilities 11,136 3,991
-------- --------
25,271 18,126
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized 5,000,000 shares - -
Common stock, $.01 par value; authorized 24,000,000 shares,
issued 6,564,546 (June 29, 1997 and September 29, 1996) 66 66
Additional paid-in capital 37,612 37,612
Retained earnings 44,623 35,569
-------- --------
82,301 73,247
Less treasury stock, at cost, 9,431 and 32,791 (June 29, 1997
and September 29, 1996) (184) (618)
-------- --------
Total Stockholders' Equity 82,117 72,629
-------- --------
$317,386 $245,133
======== ========
</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
------------------ -----------------
ENDED
- ----- June 29, 1997 June 30, 1996 June 29, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $ 109,676 $ 73,715 $ 301,020 $ 193,637
COSTS, EXPENSES AND OTHER:
Cost of products sold (excluding depreciation
and amortization) 93,412 59,713 254,101 158,064
Depreciation and amortization 3,465 1,866 10,124 5,321
Selling and administrative expense 6,413 4,393 17,765 12,442
Interest expense, net 3,245 1,005 7,800 3,108
Gain on curtailment of postretirement medical
benefits (5,828) - (5,828) -
Other, net 1,514 225 1,713 (262)
---------- -------- ---------- ---------
Total costs, expenses and other 102,221 67,202 285,675 178,673
---------- -------- ---------- ---------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS 7,455 6,513 15,345 14,964
PROVISION FOR INCOME TAXES 3,056 2,646 6,291 6,090
---------- -------- ---------- ---------
INCOME BEFORE EXTRAORDINARY ITEM 4,399 3,867 9,054 8,874
EXTRAORDINARY LOSS RESULTING FROM
THE EARLY EXTINGUISHMENT OF DEBT-
Net of related tax benefit of $1,683 - (2,535) - (2,535)
---------- -------- ---------- ---------
NET INCOME $ 4,399 $ 1,332 $ 9,054 $ 6,339
========== ======== ========== =========
EARNINGS PER COMMON SHARE:
Income before extraordinary item $ 0.66 $0.63 $ 1.37 $ 1.44
========== ======== ========== =========
Net Income $ 0.66 $0.22 $ 1.37 $ 1.03
========== ======== ========== =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,666 6,119 6,613 6,173
========== ======== ========== =========
</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 29, 1997 JUNE 30, 1996
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 9,054 $ 6,339
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation 6,940 4,357
Amortization of intangibles 3,184 964
Amortization of deferred financing costs 330 452
Gain on curtailment of postretirement medical benefits (5,828) -
Provisions for doubtful accounts 295 525
Write-off of deferred financing costs related to debt extinguishment - 2,466
Loss (Gain) on impairment of assets 1,560 (19)
Provision for deferred income taxes - 1,845
Changes in assets and liabilities, net of effects of business acquisitions:
Accounts receivable (3,322) (1,505)
Inventories (1,603) (3,461)
Other assets 1,769 (98)
Accounts payable 13,160 3,493
Accrued liabilities 1,618 573
Income taxes, net 4,434 (2,065)
-------- --------
Net cash provided by operating activities 31,591 13,866
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (14,639) (11,301)
Acquisitions, net of cash acquired (41,619) (67,539)
Other 18 19
-------- --------
Net cash used in investing activities (56,240) (78,821)
-------- --------
FINANCING ACTIVITIES:
Net borrowings under bank credit agreement (69,971) 103,600
Issuance (Extinguishment) of long-term debt 100,000 (50,000)
Repayments on long-term debt (153) (265)
Increase in unpresented bank drafts (1,870) 1,023
Purchases of treasury stock (396) (9,469)
Payment of deferred financing costs (3,322) (1,247)
Other - (112)
-------- --------
Net cash provided by financing activities 24,288 43,530
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (361) (21,425)
-------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,852 23,538
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,491 $ 2,113
======== ========
</TABLE>
(Continued)
5
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------
JUNE 29, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 5,199 $ 5,127
======== =========
Income taxes $ 3,372 $ 4,529
======== =========
Details of businesses acquired were as follows:
Fair value of assets acquired $ 61,259 $ 114,370
Liabilities assumed (18,890) (31,231)
Value of common stock issued --- (2,787)
Value of treasury stock reissued --- (11,813)
Other liabilities incurred (750) (1,000)
-------- ---------
Net cash paid for acquisitions $ 41,619 $ 67,539
======== =========
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
BWAY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
1. GENERAL
The accompanying consolidated financial statements of BWAY Corporation and
subsidiaries ("the Company") have been prepared without audit. BWAY
Corporation ("BWAY") is a holding company whose subsidiaries manufacture
and distribute metal containers in the United States and Canada. 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 29, 1997 and for
the three months and nine months ended June 29, 1997 and June 30, 1996
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 three months and nine months ended June 29, 1997
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.
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 29, 1997 SEPTEMBER 29, 1996
<S> <C> <C>
Inventories at FIFO Cost:
Raw material $13,425 $ 9,300
Work-in-process 23,581 18,601
Finished goods 10,361 9,189
------- -------
47,367 37,090
Reduction to LIFO valuation (237) (46)
------- -------
$47,130 $37,044
======= =======
</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 previous Management Stock
Purchase Plan and the dilutive effect of the shares from the Amended and
Restated 1995 Long-Term Incentive Plan.
4. STOCKHOLDERS' EQUITY
Stock Option Plan
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 "Formula Plan")
for its directors, officers, and key employees. On August 20, 1996, the
Board of Directors (i) adopted, subject to shareholder approval, the
Amended and Restated 1995 Long-Term Incentive Plan (the "Amended Incentive
Plan"), which Amended Incentive Plan, among other items, increased the
aggregate number of shares of common stock authorized for issuance from
490,000 to 750,000, and (ii) froze the Formula Plan with only 30,000 of the
available 100,000 shares of common stock being granted thereunder. The
shareholders approved the Amended Incentive Plan on February 28, 1997.
7
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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 tangible net worth 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. This subsidiary was renamed Brockway Standard
(New Jersey), 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 Company paid approximately $41.7 million in cash,
subject to an adjustment based on the change in working capital from
December 31, 1995 through June 17, 1996. This subsidiary was renamed
Brockway Standard (Ohio), Inc.
Ball Aerosol
On October 28, 1996, the Company acquired substantially all of the assets
related to the metal aerosol can business ("Ball Aerosol") from Ball Metal
Food Container Corporation (the "Seller"), a wholly owned subsidiary of
Ball Corporation. Ball Aerosol consists of a facility in Cincinnati which
includes a material center and substantially all the assets used in
connection with the marketing, distribution, selling, manufacturing,
designing, and engineering of metal aerosol cans. The purchase price for
acquiring the business was approximately $42.4 million. Separately, the
parties entered into supply agreements whereby certain coating, decorating,
and metal processing services will be provided by the Company to the
Seller. This subsidiary was renamed Milton Can Company, Inc.
The purchase method of accounting was used to establish and record a new
cost basis for the assets acquired and liabilities assumed in each of the
foregoing transactions. The allocation of the purchase price and
acquisition costs to the assets acquired and liabilities assumed is
preliminary at June 29, 1997 for the Ball Aerosol acquisition, 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 purchase
price. The operating results for MCC, Davies and Ball Aerosol 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
identifiable assets acquired was in aggregate approximately $79 million.
Management has committed to a plan to close certain facilities of the
acquired companies and integrate acquired assets and businesses with BWAY
facilities. In connection with recording the MCC, Davies and Ball Aerosol
purchases, the Company established a reorganization liability of
approximately $5.6 million which is classified in other current
liabilities, representing the direct costs expected to be incurred which
have no future economic benefit to the Company. These costs include charges
relating to the closing of manufacturing facilities and severance costs.
Finalization of the Company's integration plan for the Ball Aerosol
acquisition may result in further adjustments to this reserve. As of June
29, 1997, the Company had charged approximately $2.7 million against the
reorganization liability.
The following pro forma results assume the acquisitions of MCC, Davies and
Ball Aerosol occurred at the beginning of the fiscal year ended September
29, 1996 after giving effect 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.
8
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 29, JUNE 30, JUNE 29, JUNE 30, 1996
(In thousands, except per share amounts)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $109,676 $107,975 $305,346 $312,112
Income before extraordinary item 4,399 2,044 9,151 5,069
Net Income 4,399 (491) 9,151 2,534
Earnings per common share:
Income before extraordinary item $0.66 $0.31 $1.38 $0.74
Net income $0.66 ($0.07) $1.38 $0.37
- -----------------------------------------------------------------------------------
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisitions been
consummated as of the acquisition date, nor is it 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.,
and certain financial institutions (the "Credit Agreement"). Initial
borrowings under the Credit Agreement were used to repay all obligations
under the Company's previous 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, as well as
consummate the recent acquisitions.
The Credit Agreement allows the Company and its subsidiaries to borrow up
to $100 million (expandable by $25 million provided certain conditions are
met). 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. 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 29, 1997, the outstanding balance on the Credit Agreement was
$23.8 million. The interest rate being paid by the Company as of June 29,
1997 was LIBOR plus 1.25%.
On April 11, 1997, the Company received the net proceeds of approximately
$96 million from a private placement of $100 million 10 1/4% Senior
Subordinated Notes due 2007 (the "Notes"). The Company immediately loaned
the net proceeds to certain of its subsidiaries. The net proceeds were used
by the subsidiaries to repay a portion of the Company's indebtedness under
the Credit Agreement.
Interest on the Notes is payable semi-annually in arrears on April 15 and
October 15 of each year, commencing on October 15, 1997. The Notes are
general unsecured senior subordinated obligations of the Company and are
effectively subordinated to all secured indebtedness, as defined, of the
Company to the extent of the value of the assets securing any such
indebtedness. The Notes are redeemable, in whole or in part, at the option
of the Company, on or after April 15, 2002 at the prices specified in the
Notes. In addition, until April 15, 2000, the Company may, at its option,
redeem up to 33 1/3% of the aggregate principal amount of the Notes
originally issued at a redemption price equal to 110 1/4 % of the principal
amount thereof, plus accrued and unpaid interest to the date of redemption,
with the net cash proceeds of one or more public or private sales of common
stock of the Company, subject to certain provisions of the indenture. Upon
the occurrence of a Change in Control, as defined in the Notes, the Company
will be required to make an offer to repurchase the Notes at 101% of the
principal amount plus accrued and unpaid interest to the date of
repurchase. The Notes contain certain restrictive covenants, including
limitations on asset sales, additional indebtedness, mergers and certain
restricted payments.
The Company has filed a registration statement relating to an offer to
exchange the Notes for the Company's 10 1/4% Senior Subordinated Notes due
2007, Series B (the "Exchange Notes"). BWAY is a holding company with no
independent operations although it incurs some limited expenses on behalf
of its operating subsidiaries. BWAY has no significant assets other than
the common stock of its subsidiaries. The Notes are, and the Exchange Notes
will be, fully and unconditionally guaranteed on a joint and several basis
by certain of the Company's direct and indirect subsidiaries. The
subsidiary guarantors are wholly-owned by BWAY and constitute all of the
direct and indirect subsidiaries of BWAY except for four subsidiaries that
are individually, and in the aggregate, inconsequential.
9
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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. The Company believes that it is in
substantial compliance with all material environmental, health and safety
requirements.
Environmental investigations voluntarily conducted by the Company at its
Homerville, Georgia facility in 1993 and 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. 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. Since Owens-Illinois is conducting the
remediation work, management has no way of determining the actual costs
related to the clean-up efforts. As a result, Owens-Illinois is managing
the remediation activities and paying for such work directly. Preliminary
consultant estimates, developed before Owens-Illinois began conducting the
remediation, indicated that the cost of clean-up could range from $1
million to $6 million, depending on the extent of contamination.
Certain facilities and subsidiaries of the Company were identified as
Potentially Responsible Parties ("PRP"), for disposals occurring prior to
their purchase by the Company, pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"). These matters are,
subject to certain limitations, indemnified by the sellers of the relevant
facilities. Because liability under CERCLA is retroactive, it is possible
that in the future the Company may be identified as a PRP with respect to
other sites. No natural resource damage claims have been asserted to date.
The Company has ceased production at its manufacturing facility that it
leases in Peabody, Massachusetts. The facility has been subject to an
ongoing groundwater remediation pursuant to the Massachusetts Chapter 21E
program relating to historical activities onsite. The second amendment to
the lease provides that the landlord at the site shall retain all liability
for the ongoing cleanup, but the landlord is disputing its obligation under
the lease. However, pursuant to the terms of the Agreement and Plan of
Merger and Reorganization by which the Company acquired MCC, the Company is
indemnified, subject to certain limitation, for any liabilities associated
with this matter.
Management does not believe that the final resolution of these matters 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
these matters because it believes that a loss contingency is not probable.
8. RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." The
Company has considered the impact of this new standard and does not believe
earnings per share determined under this statement are materially different
than earnings per share determined in accordance with current accounting
standards. The statement is effective for financial statements for periods
ending after December 15, 1997.
9. CURTAILMENT OF POSTRETIREMENT MEDICAL BENEFITS
In June 1997, the Company and employees belonging to a union covering
approximately 50% of the employees at the Cincinnati facility reached a new
collective bargaining agreement. One of the provisions of the new agreement
eliminates postretirement medical benefits provided by the Company which
resulted in the recording of a curtailment gain of approximately $5.8
million.
10
<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 1997 increased 48.8% to $109.7
million compared to $73.7 million in the third quarter of fiscal 1996. Net sales
for the nine months ended June 29, 1997 increased 55.5% to $301.0 million
compared to $193.6 million for the nine months ended June 30, 1996. The increase
in sales resulted primarily from the Company's acquisitions during the second
half of fiscal 1996 and the Ball Aerosol acquisition in the first quarter of
fiscal 1997.
Cost of products sold (excluding depreciation and amortization) increased 56.4%
in the third quarter of fiscal 1997 to $93.4 million from $59.7 million in the
same period of fiscal 1996. For the first nine months of fiscal 1997, cost of
products sold increased 60.8% to $254.1 million from $158.1 million in the first
nine months of fiscal 1996. The increase is due primarily to the increase in net
sales. Cost of products sold as a percentage of net sales increased from 81.0%
in the third quarter of fiscal 1996 to 85.2% in the third quarter of fiscal
1997. The Company's facilities existing prior to the acquisitions realized
reductions in cost of products sold as a percent of sales as a result of ongoing
initiatives to reduce cost and increase productivity through rationalization and
capital initiatives. Gains were more than offset by higher costs at the recently
acquired facilities where the Company has initiated an aggressive
rationalization program. Overall margins were negatively affected by the strike
at the Cincinnati, Ohio aerosol can plant which lasted for five weeks.
Depreciation and amortization expenses increased 85.7% to $3.5 million in the
quarter ended June 29, 1997 compared to $1.9 million in the quarter ended June
30, 1996. Depreciation and amortization expenses increased 90.3% to $10.1
million for the nine months ended June 29, 1997 compared to $5.3 million in the
same period of fiscal 1996. The increase is due to increased depreciation and
amortization resulting from the acquisitions and depreciation on capital
expenditures placed in service during fiscal 1996 and the first nine months of
fiscal 1997.
Selling and administrative costs for the third quarter of fiscal 1997 increased
46.0% to $6.4 million from $4.4 million in the third quarter of fiscal 1996. For
the first nine months of fiscal 1997, selling and administrative costs increased
42.8% to $17.8 million from $12.4 million in the first nine months of fiscal
1996. The increase is due primarily to the recent acquisitions and corporate
infrastructure supporting acquisitions and continued growth plans. Selling and
administrative cost as a percent of net sales decreased to 5.8% in the third
quarter of fiscal 1997 from 6.0% for the third quarter of fiscal 1996 primarily
from increased sales volume.
Interest expense increased $2.0 million to $3.2 million in the third quarter of
fiscal 1997 compared to $1.2 million in the same period of fiscal 1996. Interest
expense for the nine months ended June 29, 1997 increased $4.0 million to $7.8
million compared to $3.8 million for the nine months ended June 30, 1996. This
increase is primarily attributable to the increase in the outstanding loan
balance used to finance the acquisitions during calendar 1996 and the higher
interest rate on the senior subordinated notes. Net interest expense reported in
the third quarter and first nine months of fiscal 1996 was further offset by
$0.2 million and $0.7 million, respectively, of interest income from cash on
hand.
On May 1, 1997, the aerosol can plant in Cincinnati, Ohio was affected by a
strike of the members of the International Union of Electronic, Electrical,
Salaried Machine and Furniture Workers, AFL-CIO Local No. 729 involving
approximately 50% of the workforce at the facility. The strike was settled with
the workforce returning to work on June 2, 1997. Income from operations for the
quarter was depressed as a result of the labor interruption and subsequent
actions taken in order to continue fulfilling customer requirements. As a result
of the union negotiations, the Company recognized a gain of $5.8 million related
to the curtailment of postretirement medical costs. These costs will no longer
be incurred under the new union agreement.
Other expense increased $1.3 million in the third quarter of fiscal 1997 from
$.2 million in fiscal 1996. The increase resulted from an impairment loss of
$1.5 million related to the obsolescence of certain computer equipment, which is
being replaced by equipment with increased functionality and increased capacity
better suited for the Company's future needs.
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.
Income before extraordinary item increased 13.8% to $4.4 million for the third
quarter of fiscal 1997 compared to $3.9 million for the third quarter of fiscal
1996. Income before extraordinary item for the nine month period was $9.1
million, an increase of 2.0% compared to the $8.9 million reported for the
comparable period of 1996. This increase is primarily attributable to the
extraordinary loss resulting from the extinguishment of debt in fiscal 1996 and
the gain on curtailment of postretirement medical benefits recorded in the third
quarter of fiscal 1997.
11
<PAGE>
Net income for the third quarter of fiscal 1997 increased 230.3% to $4.4 million
from $1.3 million for the same period of fiscal 1996. The increase is
attributable to the extraordinary loss resulting from the extinguishment of debt
in fiscal 1996 and the curtailment gain of $5.8 million offset by the write-off
of fixed assets of $1.5 million in fiscal 1997. Net income for the nine months
ended June 29, 1997 was $9.1 million, an increase of 42.8% compared to the $6.3
million reported for the same period of fiscal 1996. This increase, given the
$2.5 million one-time charge in fiscal 1996, 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 $0.66 per share for the third quarter of fiscal 1997 compared to $0.63
per share for the comparable period of fiscal 1996, and $1.37 per share for the
first nine months of fiscal 1997 compared to $1.44 per share for the nine month
period ended June 30, 1996.
Reported earnings per share were $0.66 per share for the third quarter of fiscal
1997 compared to $0.22 per share for the same period of 1996, and were $1.37 per
share for the first nine months of fiscal 1997 compared to $1.03 per share for
the same period of fiscal 1996. The weighted average shares outstanding were 6.7
million and 6.1 million for the respective quarters, and were 6.6 million and
6.2 million for the respective nine month periods.
During the fourth quarter of fiscal 1996, management announced plans to close
six facilities and open one new plant for strategic expansion of the Company's
business. As part of this rationalization strategy, the acquired Covington,
Georgia plant was closed during the fourth quarter of fiscal 1996 and the
acquired Peabody, Massachusetts plant was closed during the first quarter of
fiscal 1997. The majority of the equipment and business has been assigned to
other Company locations. The Company also relocated its Memphis, Tennessee
operation to a larger facility to accommodate production changes and the
strategic expansion of the Company's business. Following completion of the
facility closings described above, the Company believes that the Company's
remaining facilities will be adequate for its needs. Management continues to
review opportunities to consolidate operations and to maximize production
efficiencies by rationalizing overlapping facilities.
LIQUIDITY AND CAPITAL RESOURCES
In April 1997, the Company completed a private placement of $100 million of 10
1/4% senior subordinated notes due 2007 ("the Notes"). The proceeds were used to
repay approximately $96 million on the Credit Agreement. The repayment reduced
availability under the Credit Agreement from $150 million in potential
borrowings to $100 million (expandable by $25 million provided certain
conditions are met). This allows the Company to have a fixed component of debt
while maintaining flexibility for future borrowing needs.
The Company's cash requirements for operations, capital expenditures and
acquisitions during the nine months ending June 29, 1997 were financed through
three sources: the Notes, borrowings under the Credit Agreement and internally
generated cash flows. At June 29, 1997, the Company had availability under the
existing Credit Agreement to borrow an additional $76.2 million, plus an
additional $25 million if certain conditions are met.
The Company's working capital decreased $6.3 million to $16.0 million from $22.3
million for the nine months ending June 29, 1997. The decrease is primarily
attributable to 1) the increase in other current liabilities related to the
acquisition of Ball Aerosol, and 2) the increase in accrued income taxes.
The Company used approximately $41.3 million of cash to complete the Ball
Aerosol acquisition during the first fiscal quarter of 1997. The funds were
provided by borrowings from the Credit Agreement. As of June 29, 1997, the
outstanding balance on the Credit Agreement was approximately $23.8 million.
During the first nine months of fiscal 1997, the Company's operating activities
provided $31.6 million of cash. Operating activities for the same period during
the prior year reflected cash provided of $15.5 million. The increase in funds
provided during the nine months ended June 29, 1997 reflect higher non cash
items such as depreciation and amortization as well as the increase in current
liabilities noted above.
Capital expenditures of $14.6 million in the first nine months of fiscal 1997
represent an increase of $3.3 million from the first nine months of fiscal 1996.
This increase is due primarily to the additional capital requirements from the
acquired businesses which is consistent with the Company's plan of replacing
aging equipment with more technologically advanced equipment. It is the
Company's intention to continue the rate of spending on its targeted capital
investment program, designed to increase productivity and reduce operating
costs.
12
<PAGE>
Cash provided by financing activities during the nine months ended June 29, 1997
was $24.3 million compared to $41.9 million provided in the comparable nine
months of the prior year. Cash provided during the first nine months of fiscal
1997 was obtained through operations, the Notes and the Credit Agreement. Funds
were used to consummate the Ball Aerosol acquisition discussed above and for
capital expenditures. Management believes that cash provided from borrowings
available under the Credit Agreement, the Notes and operations will provide it
with sufficient liquidity to meet its operating needs and continue the Company's
capital expenditure initiatives for at least the next twelve months. The Company
continues to pursue growth strategies and acquisition opportunities in the North
American container industry.
On November 21, 1995, the Company announced Board approval of a limited Common
Stock Repurchase Program to accommodate employee and open market transactions.
The Company has utilized this program to facilitate acquisitions and to fund its
benefit programs. BWAY expects to continue making periodic repurchases of stock.
The cash used for these activities will be provided by cash generated through
operations and borrowing under the Credit Agreement.
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 and servicing debt.
Note: This document contains forward-looking statements as encouraged by the
Private Securities Litigation Reform Act of 1995. All statements contained in
this document, other than historical information, are forward-looking
statements. These statements represent management's current judgement on what
the future holds. A variety of factors could cause business conditions and the
Company's actual results to differ materially from those expected by the Company
or expressed in the Company's forward-looking statements. These factors include
without limitation, the Company's ability to successfully integrate acquired
businesses and implement its 3R strategic initiatives; labor unrest; changes in
market price or market demand; changes in raw material costs or availability;
loss of business from customers; unanticipated expenses; changes in financial
markets; potential equipment malfunctions; and the other factors discussed in
the Company's filings with the Securities and Exchange Commission.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
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
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Index of Exhibits.
(b) Report on Form 8-K was filed on April 1, 1997 reporting the press
release for the Rule 144A private debt offering on March 25, 1997.
Reports on Form 8-K are incorporated in this document by reference to
the respective filings.
14
<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 11, 1997 By: /s/ David P. Hayford
-----------------------
David P. Hayford
Senior Vice President &
Chief Financial Officer
Form 10-Q: For the quarterly period ending June 29, 1997
15
<PAGE>
INDEX TO EXHIBITS
-------------------------------------
LOCATION OF DOCUMENT
EXHIBIT IN SEQUENTIAL
NO. DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
------- ---------------------------------- --------------------
4.1 Indenture dated as of April 11,
1997 among the Company, the
Subsidiary Guarantors and Harris
Savings and Trust Company, as trustee. (1)
27 Financial Data Schedule
_____________
(1) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 333-26013.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BWAY
CORPORATION AND IS QUALIFIED 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-28-1997 SEP-28-1997
<PERIOD-START> MAR-31-1997 SEP-30-1996
<PERIOD-END> JUN-29-1997 JUN-29-1997
<CASH> 1,491 1,491
<SECURITIES> 0 0
<RECEIVABLES> 48,661 48,661
<ALLOWANCES> 685 685
<INVENTORY> 47,130 47,130
<CURRENT-ASSETS> 101,329 101,329
<PP&E> 136,459 136,459
<DEPRECIATION> 23,576 23,576
<TOTAL-ASSETS> 317,386 317,386
<CURRENT-LIABILITIES> 85,282 85,282
<BONDS> 124,716 124,716
0 0
0 0
<COMMON> 66 66
<OTHER-SE> 82,051 82,051
<TOTAL-LIABILITY-AND-EQUITY> 317,386 317,386
<SALES> 109,676 301,020
<TOTAL-REVENUES> 109,676 301,020
<CGS> 93,412 254,101
<TOTAL-COSTS> 102,221 285,675
<OTHER-EXPENSES> 1,514 1,713
<LOSS-PROVISION> 10 295
<INTEREST-EXPENSE> 3,245 7,800
<INCOME-PRETAX> 7,455 15,345
<INCOME-TAX> 3,056 6,291
<INCOME-CONTINUING> 4,399 9,054
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,399 9,054
<EPS-PRIMARY> 0.66 1.37
<EPS-DILUTED> 0.66 1.37
</TABLE>
