<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 28, 1998
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) 645-4800
(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 9,418,313 shares of Common Stock ($.01 par value) outstanding as of
August 12, 1998.
<PAGE>
BWAY CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED
JUNE 28, 1998
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 28, 1998
and September 28, 1997 (Unaudited) 3
Consolidated Statements of Income for the
three and nine month periods ended June 28, 1998
and June 29, 1997 (Unaudited) 4
Consolidated Statements of Cash Flows for the nine
month periods ended June 28, 1998 and June 29,
1997 (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
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
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 28, SEPTEMBER 28,
ASSETS 1998 1997
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 350 $ 1,374
Accounts receivable, net of allowance of $624 at
June 28, 1998 and $580 at September 28, 1997 46,792 41,806
Inventories 51,685 46,615
Other current assets 9,271 7,261
Assets held for sale 4,612 --
-------- --------
Total Current Assets 112,710 97,056
-------- --------
PROPERTY, PLANT AND EQUIPMENT - Net 129,323 123,617
-------- --------
OTHER ASSETS:
Intangible assets, net 83,521 87,232
Deferred financing costs, net 4,421 4,844
Other assets 3,631 3,628
-------- --------
Total Other Assets 91,573 95,704
-------- --------
$333,606 $316,377
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 50,691 $ 57,443
Accrued salaries & wages 9,283 8,949
Accrued income taxes -- 1,338
Other current liabilities 22,683 21,285
Current maturities of long-term debt 662 1,151
-------- --------
Total Current Liabilities 83,319 90,166
-------- --------
LONG-TERM DEBT 147,324 114,381
LONG-TERM LIABILITIES 24,731 26,364
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized 5,000 shares -- --
Common stock, $.01 par value; authorized 24,000,000 shares,
Issued 9,851,002 99 99
Additional paid-in capital 37,176 37,629
Retained earnings 49,628 48,673
-------- --------
86,903 86,401
Less treasury stock, at cost, 389,689 and 51,790
(June 28, 1998 and September 28, 1997) (8,671) (935)
-------- --------
Total Stockholders' Equity 78,232 85,466
-------- --------
$333,606 $316,377
======== ========
</TABLE>
See notes to consolidated financial statements
3
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<TABLE>
<CAPTION>
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, Except Per Share Data)
_______________________________________________________________________________________________________________________________
Three Months Ended Nine Months Ended
------------------------ ------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET SALES $107,010 $108,590 $300,289 $301,020
COSTS, EXPENSES AND OTHER:
Cost of products sold (excluding
depreciation and amortization) 87,696 92,842 248,147 255,647
Depreciation and amortization 3,983 3,465 10,868 10,124
Selling and administrative expense 6,774 5,897 16,690 16,219
Restructuring charge 11,532 -- 11,532 --
Interest expense, net 3,323 3,245 10,312 7,800
Gain on curtailment of postretirement medical benefits -- (5,828) (1,547) (5,828)
Other, net (31) 1,514 55 1,713
-------- -------- -------- --------
Total costs, expenses and other 113,277 101,135 296,057 285,675
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING (6,267) 7,455 4,232 15,345
PROVISION (BENEFIT) FOR INCOME TAXES (2,241) 3,056 2,116 6,291
-------- -------- -------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING (4,026) 4,399 2,116 9,054
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR SYSTEMS DEVELOPMENT
COSTS - NET OF RELATED TAX BENEFIT OF $823 -- -- (1,161) --
-------- -------- -------- --------
NET INCOME (LOSS) $ (4,026) $ 4,399 $ 955 $ 9,054
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE BEFORE CUMULATIVE ACCOUNTING CHANGE:
- --------------------------------------------------------------
Basic Earnings (Loss) Per Common Share $ (0.42) $ 0.45 $ 0.22 $ 0.92
======== ======== ======== ========
Weighted Average Basic Common Shares Outstanding 9,474 9,833 9,567 9,817
======== ======== ======== ========
Diluted Earnings (Loss) Per Common Share $ (0.40) $ 0.44 $ 0.21 $ 0.91
======== ======== ======== ========
Weighted Average Diluted Common Shares Outstanding 9,969 10,000 10,040 9,919
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE AFTER CUMULATIVE ACCOUNTING CHANGE:
- -------------------------------------------------------------
Basic Earnings (Loss) Per Common Share $ (0.42) $ 0.45 $ 0.10 $ 0.92
======== ======== ======== ========
Weighted Average Basic Common Shares Outstanding 9,474 9,833 9,567 9,817
======== ======== ======== ========
Diluted Earnings (Loss) Per Common Share $ (0.40) $ 0.44 $ 0.10 $ 0.91
======== ======== ======= ========
Weighted Average Diluted Common Shares Outstanding 9,969 10,000 10,040 9,919
======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
---------------------------------
JUNE 28, JUNE 29,
1998 1997
------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 955 $ 9,054
Adjustments to reconcile net income to net cash provided by (used in)
Operating activities:
Depreciation 8,166 6,940
Amortization of intangibles 2,702 3,184
Amortization of deferred financing costs 551 330
Curtailment gain (1,547) (5,828)
Cumulative effect of change in accounting principle (net) 1,161
Provisions for doubtful accounts 4 349
Loss on disposition of property, plant and equipment 90 1,560
Restructuring Charge 11,532 --
Changes in assets and liabilities, net of effects of business
acquisitions:
Accounts receivable (4,990) (3,376)
Inventories (5,070) (1,603)
Other assets (205) 1,769
Accounts payable (6,290) 13,187
Accrued liabilities (6,109) (7)
Income taxes, net (2,299) 4,434
------- ------
Net cash provided by (used in) operating activities (1,349) 29,993
------- ------
INVESTING ACTIVITIES:
Capital expenditures (27,255) (14,639)
Acquisitions, net of cash acquired -- (41,619)
Other 1,138 18
------- -------
Net cash used in investing activities (26,117) (56,240)
------- -------
FINANCING ACTIVITIES:
Net borrowings (repayments) under bank credit agreement 33,400 (69,971)
Issuance of long-term debt -- 100,000
Repayments on long-term debt (1,296) (153)
Increase (decrease) in unpresented bank drafts 2,329 (1,102)
Net (purchases) issuances of treasury stock (9,175) 434
Payment of deferred financing costs -- (3,322)
Financing costs incurred (100) --
Other 1,284 --
------- -------
Net cash provided by financing activities 26,442 25,886
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,024) (361)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,374 1,852
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 350 $ 1,491
======= ========
(Continued)
</TABLE>
5
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BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
--------------------------
JUNE 28, JUNE 29,
1998 1997
-------- ---------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $13,187 $ 5,199
======= ========
Income taxes $ 4,415 $ 3,372
======= ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Amounts owed for capital expenditures $ 1,048
=======
Details of businesses acquired were as follows:
- -----------------------------------------------
Fair value of assets acquired $ 61,259
Liabilities assumed (18,890)
Long-term note issued (750)
---------
Net cash paid for acquisitions $ 41,619
=========
</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 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 28,
1998 and for the nine months ended June 28, 1998 and June 29, 1997 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 28, 1998 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 are 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.
Certain amounts in the previously reported financial statements have been
reclassified to conform to the current presentation.
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:
JUNE 28, SEPTEMBER 28,
1998 1997
Inventories at FIFO Cost:
Raw materials $ 9,590 $ 12,661
Work-in-process 29,829 23,603
Finished goods 12,766 11,091
------- -------
52,185 47,355
Reserve for LIFO (500) (740)
------- -------
$ 51,685 $ 46,615
======= =======
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 Current Plan (as defined below).
Weighted average basic common shares outstanding for the third quarter of
fiscal 1998 and 1997 were 9.5 million and 9.8 million, respectively. Weighted
average diluted common shares outstanding for the third quarter of fiscal 1998
and 1997 were 10.0 million and 10.0 million, respectively.
4. ACQUISITIONS
Ball Aerosol
On October 28,1996, a newly created subsidiary of BWAY named Milton Can
Company, Inc. ("MCC"), which was incorporated on October 22, 1996, acquired the
assets of the aerosol can business of Ball Metal Food Container Corporation
("BMFCC"), a wholly owned and indirect subsidiary of Ball Corporation in an
asset purchase transaction (the "MCC Acquisition"). The acquired business had
revenues of approximately $45 million for the year ended December 31, 1995 and
operates a single manufacturing facility in Cincinnati, Ohio. MCC produces a
wide range of aerosol cans. Certain assets of MCC are now managed by BMAT,
Inc., which provides steel shearing, component manufacturing, coating and
lithography services to internal and external customers. The Company paid
approximately $41.6 million in cash for the business.
7
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The purchase method of accounting was used to establish and record a new cost
basis for the assets acquired and liabilities assumed for the MCC Acquisition.
The operating results for MCC have been included in the Company's consolidated
financial statements since the date of acquisition.
The following pro forma results assume that the MCC Acquisition occurred at the
beginning of the fiscal year ended September 28, 1997 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.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
JUNE 28, 1998 JUNE 29, 1997 JUNE 28, 1998 JUNE 29, 1997
(In thousands, except per share amounts)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $107,010 $108,590 $300,289 $305,346
Net income (loss) $ (4,026) $ 4,399 $ 955 $ 10,570
Earnings (loss) per common share:
Net income - Basic $ (.42) $ 0.45 $ 0.10 $ 0.93
Net income - Diluted $ (.40) $ 0.44 $ 0.10 $ 0.92
- -----------------------------------------------------------------------------------------------------------------------------
</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 is it necessarily indicative of future
operating results.
5. LONG-TERM DEBT
During the third quarter of fiscal 1996, the Company repaid its existing debt
and established its new five-year Credit Agreement, which the Company amended
on August 15, 1996 and October 15, 1997. The Credit Agreement provides that
the Company and its subsidiaries can borrow up to $100 million, and gives the
Company an option to increase its borrowing limit by an additional $50 million,
provided certain conditions are met. The expiration of the Credit Agreement
was extended to June 17, 2002 in the October 1997 amendment. Interest rates
under the Credit Agreement are based on rate margins ("Rate Margins") for
either the prime rate announced by NationsBank, N.A. from time to time or
LIBOR, at the option of the Company. These Rate Margins were lowered in
connection with the October 1997 amendment. 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 repaid 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 certain leverage ratios.
In addition, the Company is restricted in its ability to pay dividends and make
other restricted payments. The October 1997 amendment to the Credit Agreement
improved certain of these covenants to provide the Company with greater
flexibility with regard to investments in joint ventures and other
subsidiaries. Funds provided under the Credit Agreement were used to repay the
Company's $50 million of 8.35% senior notes due 2001, repay the Company's
existing revolving credit facility, finance acquisitions and meet operating
needs.
During the third quarter of fiscal 1997, the Company issued $100 million of
10 1/4% Senior Subordinated Notes due 2007, Series A. Net proceeds of
approximately $96 million from the issuance of the notes were used to reduce
borrowings on the Company's Credit Agreement. The Company completed the
registration of its 10 1/4% Senior Subordinated Notes due 2007, Series B under
the Securities Act in February 1998 and consummated its offer to exchange these
Series B notes for all outstanding Series A notes in March 1998. Interest on
these notes is paid semi-annually on April 15 and October 5. Pursuant to the
terms of a registration agreement the Company executed in connection with the
original offering of the notes, the Company paid additional interest of
$184,027 due to delays in the registration process.
At June 28, 1998, the Company was restricted in its ability to pay dividends
and make other restricted payments in an amount greater than approximately
$10.0 million. The Company's subsidiaries are restricted in their ability to
transfer funds to the Company, except for funds to be used to effect approved
acquisitions, pay dividends in specified amounts, reimburse the Company for
operating and other expenditures made on behalf of the subsidiaries and repay
permitted intercompany indebtedness.
BWAY is a holding company with no independent operations although it incurs
expenses on behalf of its operating subsidiaries. BWAY has no significant
assets other than the common stock of its subsidiaries. The notes are 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. Separate financial statements of
8
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the subsidiary guarantors are not presented because management has determined
that they would not be material to investors.
6. 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. In the course of its operations, the Company handles hazardous
substances. As is the case with any industrial operation, if a release of
hazardous substances occurs on or from the Company's facilities or at offsite
waste disposal sites, the Company may be required to remedy such release.
There have been no material capital expenditures relating to environmental
compliance in fiscal 1998.
Pursuant to the terms of the Company's 1989 acquisition of certain facilities
from Owens-Illinois, its acquisition of facilities from Van Dorn Company,
Milton Can Company, Inc. ("Milton Can"), and the MCC Acquisition, the sellers
in each transaction are obligated, subject to certain limitations, to indemnify
the Company for certain environmental matters related to the facilities or
businesses they conveyed. Notwithstanding such indemnifications, the Company
could bear liability in the first instance for indemnified environmental
matters, subject to obtaining reimbursement. There can be no assurance that
the Company will receive reimbursement with respect to the indemnified
environmental matters.
Environmental investigations voluntarily conducted by the Company at its
Homerville, Georgia facility in 1993 and 1994 detected certain conditions of
soil and groundwater contamination, that predated the Company's 1989
acquisition of the facility from Owens-Illinois. Such contamination is subject
to indemnification by Owens-Illinois. The Company and Owens-Illinois have
entered into a supplemental agreement affirming Owens-Illinois's responsibility
for this matter and establishing procedures for Owens-Illinois' investigation
and remediation of the contamination. In 1994, the Georgia Department of
Natural Resources ("DNR") determined that further investigation must be
completed before DNR decides whether corrective action is needed. Owens-
Illinois has recently taken the position that the Company is obligated to bear
some portion of the next phase of investigatory costs relating to the site.
The Company believes that there is no legal basis for the position and intends
to dispute it vigorously. 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.
The Cincinnati facility, which was acquired in the MCC Acquisition, is listed
on environmental agency lists as a site that may require investigation for
potential contamination. The listings could result in a requirement for the
Company to investigate and remediate the facility. To date, no agency has
required such action and the cost of any investigation or remediation can not
be reasonably estimated. BMFCC has agreed to indemnify the Company for
liabilities associated with any such required investigation or remediation as
follows: (i) BMFCC will bear the first $0.1 million of such liabilities and
(ii) any liabilities in excess of such amount will be subject to the general
environmental liability indemnification provisions of the agreement with BMFCC,
which provide that BMFCC will bear 100% of the first $0.3 million of
environmental liabilities, 80% of the next $3.0 million of environmental
liabilities, and 65% of all environmental liabilities exceeding $3.3 million.
At the Peabody, Massachusetts facility, which was previously leased by Brockway
Standard (New Jersey), Inc. ("BSNJ"), groundwater remediation is underway. The
owner of the facility has asserted that BSNJ bears liability for costs
associated with completing the remediation. The Company believes that this
claim is without merit and that the facility owner is liable for remedial costs
pursuant to the former lease. In addition, the former shareholders of Milton
Can, subject to certain limitations, indemnified the Company for liabilities
associated with the contamination. Management believes that none of these
matters will have a material adverse effect on the results of operations or
financial condition of the Company in light of both the potential
indemnification obligations of others to the Company and the Company's
understanding of the underlying potential liability.
The Company (and in some cases, predecessors to the Company) have from time to
time received requests for information or notices of potential responsibility
pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") with respect to certain waste disposal sites utilized
by former or current facilities of the Company or its various predecessors. To
the Company's knowledge, all such matters which have not been resolved are,
subject to certain limitations, indemnified by the sellers of the relevant
Company affiliates, and all such unresolved matters have been accepted for
indemnification by such sellers. Management believes that none of these
matters will have a material adverse
9
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effect on the results of operations or financial condition of the Company.
Because liability under CERCLA is retroactive, it is possible that in the
future the Company may incur liability with respect to other sites.
Sales of aerosol cans currently comprise approximately 11% of the Company's
annual general line sales. Federal and certain state environmental agencies
have issued, and may in the future issue, environmental regulations which have
the effect of requiring reformulation by consumer product manufacturers (the
Company's customers) of aerosol propellants or aerosol-delivered consumer
products to mitigate air quality impacts (principally related to lower
atmosphere ozone formulation). Industry sources believe that aerosol product
manufacturers can successfully achieve any required reformulation. There can be
no assurance, however, that reformulation can be accomplished in all cases with
satisfactory results. Failure by the Company's customers to successfully
achieve such reformulation could affect the viability of aerosol cans as
product delivery containers and thereby have a material adverse effect on the
Company's sales of aerosol cans.
7. ACCOUNTING CHANGE
On November 20, 1997 the FASB's Emerging Issues Task Force (EITF) issued a
consensus on the accounting treatment of certain information systems and
process reengineering costs. The Company is involved in a business information
systems and process reengineering project that is subject to this
pronouncement. Based on the EITF consensus, $2.0 million of the previously
capitalized costs associated with this project were expensed in the first
fiscal quarter of 1998, as a change in accounting. A one-time charge of $1.2
million after tax or $0.11 per diluted share for the cumulative effect of this
new accounting interpretation for business information systems and process
reengineering activities reduced year-to-date net earnings.
8. CURTAILMENT OF POSTRETIREMENT MEDICAL BENEFITS
In January 1998, MCC and the United Steelworkers of America, AFL-CIO Local No.
4372, representing approximately 30% of the hourly workers at the Cincinnati,
Ohio facility, reached a new collective bargaining agreement. One of the
provisions of the new agreement substantially eliminates unvested
postretirement medical benefits provided by MCC, which resulted in the
recording of a curtailment gain of approximately $1.5 million before any income
taxes.
9. RESTRUCTURING AND IMPAIRMENT OF ASSETS
On June 3, 1998, the Board of Directors of the Company approved a restructuring
plan designed to improve operating efficiencies. The plan involves the
rationalization of three existing facilities, the shift of related production
to other facilities and the elimination of an internal trucking fleet. The
facilities scheduled for closure in fiscal 1999 include Solon (Ohio), Farmer's
Branch (Texas) and Northeast Tin Plate (New Jersey). The restructuring and
impairment charge of $11.5 million primarily relates to severance and benefit
costs for approximately 210 employees ($2.1 million), the write-down of assets
to be disposed of to their fair market value ($7.2 million) and other costs
($2.2 million).
10
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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 1998 decreased 1.5% to $107.0
million compared to $108.6 million in the third quarter of fiscal 1997. Net
sales for the nine months ended June 28, 1998 decreased 0.2% to $300.3 million
compared to net sales of $301.0 million for the nine months ended June 29,
1997. On a pro forma basis, after giving effect to the October 1996 sales of
the business acquired in the MCC Acquisition in late October 1996, net sales
for the nine months ended June 28, 1998 decreased 1.7% to $300.3 million from
net sales of $305.3 million for the nine months ended June 29, 1997.
Management believes the pro forma decrease of net sales resulted from unusual
weather conditions.
Cost of products sold (excluding depreciation and amortization) decreased 5.5%
to $87.7 million in the third quarter of fiscal 1998 from $92.8 million in the
same period of fiscal 1997. For the first nine months of fiscal 1998, cost of
products sold decreased 2.9% to $248.1 million from $255.6 million in the first
nine months of fiscal 1997. Cost of products sold as a percentage of net sales
decreased to 82% in the third quarter of fiscal 1998 from 85.5% in the third
quarter of fiscal 1997 due primarily to a more favorable pricing environment,
lower labor costs and a worker's compensation refund.
Depreciation and amortization expense increased 15% to $4.0 million in the
quarter ended June 28, 1998 compared to $3.5 million in the quarter ended June
29, 1997. Depreciation and amortization expenses increased 7.3% to $10.9
million for the nine months ended June 28, 1998 compared to $10.1 million in
the same period of fiscal 1997. The increase is due to increased capital
expenditures in fiscal 1998. Capital expenditures have been primarily for new
coating and printing technology at the Company's new materials service center
division, BMAT, Inc., and new computer software and hardware.
Selling and administrative expenses for the third quarter of fiscal 1998
increased 14.9% to $6.8 million from $5.9 million in the third quarter of
fiscal 1997. For the nine months ended June 28, 1998, selling and
administrative expenses increased 2.9% to $16.7 million from $16.2 million in
the same period of fiscal 1997. The increase for the third quarter and the
nine-month period is primarily attributable to building infrastructure to
support strategic growth within the Company's new material services division,
BMAT, Inc. The Company expects to experience similar levels of selling and
administrative expenses for the remainder of fiscal year 1998.
The Company recorded a restructuring charge of $11.5 million in the third
quarter of fiscal 1998. This charge was related to the planned closure of
three manufacturing facilities, the shift of the related production to other
facilities and the elimination of an internal trucking fleet. The charge
consists of severance and benefit costs for approximately 210 employees ($2.1
million), the write down of assets to be disposed of to their fair market value
($7.2 million) and other costs related to the shutdown of these manufacturing
facilities ($2.2 million).
Interest expense increased 2.4% to $3.3 million in the third quarter of fiscal
1998 compared to $3.2 million in the same period of fiscal 1997. Interest
expense for the nine months ended March 29, 1998 increased 32.2% to $10.3
million compared to $7.8 million for the same period of fiscal 1997. The
increase in the third quarter and the nine-month period is predominantly due to
higher interest rates and increased borrowings to fund treasury stock
purchases, increased working capital and capital expenditure initiatives. In
April 1997, the Company issued $100 million of unsecured 10 1/4% senior
subordinated notes. The proceeds from the issuance were used to pay down the
outstanding balance under the Credit Agreement. The interest rate on the notes
is higher than the rate the Company was paying under the Credit Agreement.
Interest of $.8 million was capitalized for the first nine months of fiscal
1998 for capital expenditures that were being prepared for service.
Income (loss) before cumulative effect of change in accounting was ($4.0)
million for the third quarter of fiscal 1998 compared to $4.4 million for the
third quarter of fiscal 1997. Income before cumulative effect of change in
accounting for the nine-month period was $2.1 million, compared to $9.1 million
in fiscal 1997. This decrease is due to the factors discussed above.
On November 20, 1997 the FASB's Emerging Issues Task Force ("EITF") issued a
consensus that affects the accounting treatment of certain information systems
and process reengineering costs. The Company is involved in a business
information systems and process reengineering project that is subject to this
consensus. Based on the EITF ruling, the Company expensed a portion of the
previously capitalized costs associated with this project in the first fiscal
quarter of 1998 as a change in accounting method. A one-time after-tax charge
of $1.2 million, or $0.12 per diluted share was recorded in the second
quarter for the cumulative effect of this new accounting interpretation for
business information systems and process reengineering activities.
11
<PAGE>
Diluted earnings per share were a loss of ($0.40) per share for the third
quarter of fiscal 1998 compared to $0.44 per share for the same period of 1997.
For the nine months ended June 28, 1998 diluted earnings per share, excluding
the effect of an accounting change, were $0.21 compared to $0.91 for the same
period of fiscal 1997. After giving effect to the $0.11 charge related to the
cumulative accounting change, diluted earnings per share were $0.10 for the
first nine months of fiscal 1998. The weighted average diluted shares
outstanding were 10.0 million and 10.0 million for the respective nine-month
periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements for operations and capital expenditures during
the quarter ending June 28, 1998 were financed through borrowings under the
Company's Credit Agreement and internally generated cash flows. At June 28,
1998, the Company had availability under the Credit Agreement to borrow an
additional $53.1 million, plus an additional $50 million if certain conditions
are met.
The Company's working capital at June 28, 1998 increased $22.5 million to $29.4
million from $6.9 million at September 28, 1997. The increase is primarily
attributable to an increase in inventories and accounts receivables, and a
decrease in accounts payable. Work-in process inventories increased $6.2
million to $29.8 million as a result of lower quarterly demand, which the
Company believes is due to unusual weather conditions.
During the first nine months of fiscal 1998, the Company used $1.4 million of
cash for operating activities. Operating activities for the same period of the
prior year provided $30.0 million of cash. The decrease in funds provided
during the nine months ended June 28, 1998 reflects an increase in inventory
and receivables and a decrease in accounts payable.
Cash used for investing activities during the first nine months of fiscal 1998
amounted to $26.1 million. Investing activities for the same period of the
prior year used $56.2 million of cash. The Company used approximately $41.6
million of cash to complete the Ball Aerosol acquisition during the first
fiscal quarter of 1997. The funds were provided by borrowings under the Credit
Agreement. Capital expenditures of $27.3 million in the first nine months of
fiscal 1998 represent an increase of $12.6 million from the first nine months
of fiscal 1997. The Company intends to spend approximately $35.0 million
during fiscal 1998, primarily for new coating and printing technology at the
Company's new materials service center division, BMAT, Inc., and new computer
software and hardware.
Cash provided by financing activities during the first nine months of fiscal
1998 was $26.4 million compared to $26.0 million provided during the comparable
period of the prior year. The Company repurchased $9.2 million of its common
stock during the first nine months of fiscal 1998 under the Company's common
stock repurchases program. Management believes that cash provided from
borrowings available under the Credit Agreement and operations will provide it
with sufficient liquidity to meet its operating needs and continue the
Company's capital expenditure initiatives for the next twelve months. The
Company continues to pursue growth strategies and acquisition opportunities in
the North American container industry and in connection therewith may incur
additional indebtedness.
At June 28, 1998, the Company was restricted in its ability to pay dividends
and make other restricted payments in an amount greater than approximately
$10.0 million. The Company's subsidiaries are restricted in their ability to
transfer funds to the Company, except for funds to be used to effect approved
acquisitions, pay dividends in specified amounts, reimburse the Company for
operating and other expenditures made on behalf of the subsidiaries and repay
permitted intercompany indebtedness.
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.
As is the case with most other companies using computers in their operations,
the Company is in the process of addressing the Year 2000 problem. The Company
is currently engaged in a comprehensive project to upgrade its information
technology, manufacturing and facilities computer software to programs that
will consistently and properly recognize the Year 2000. Many of the Company's
systems include new hardware and packaged software recently purchased from
large vendors who have represented that these systems are already Year 2000
compliant. The Company is in the process of obtaining assurances from vendors
that timely updates will be made available to make all remaining purchased
software Year 2000 compliant.
12
<PAGE>
The Company will utilize both internal and external resources to reprogram and
test all of its software for Year 2000 compliance, and the Company expects to
complete the project during fiscal 1999. The estimated cost for this project
could range as high as $18 million, including the cost of new systems which
will be capitalized. This cost is being funded through operating cash flows.
Failure by the Company and/or vendors and customers to complete Year 2000
compliance work in a timely manner could have a material adverse effect on
certain of the Company's operations.
NOTE: THIS DOCUMENT CONTAINS "FORWARD-LOOKING STATEMENTS", WITHIN THE MEANING
OF THE FEDERAL SECURITIES LAWS. ALL STATEMENTS CONTAINED IN THIS DOCUMENT,
OTHER THAN HISTORICAL INFORMATION, SHOULD BE VIEWED AS "FORWARD-LOOKING
STATEMENTS". IN ADDITION, THE COMPANY AND ITS REPRESENTATIVES MAY FROM TIME TO
TIME MAKE OTHER ORAL OR WRITTEN STATEMENTS, WHICH SHOULD ALSO BE CONSIDERED
"FORWARD-LOOKING STATEMENTS". THESE STATEMENTS REPRESENT MANAGEMENT'S CURRENT
EXPECTATIONS AND BELIEFS CONCERNING FUTURE EVENTS IMPACTING THE COMPANY AND
THEREFORE INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. MANAGEMENT ACKNOWLEDGES
THAT "FORWARD-LOOKING STATEMENTS" ARE NOT GUARANTEES AND THAT ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED. 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, INCLUDING WITHOUT LIMITATION, THE COMPANY'S ABILITY
TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES AND IMPLEMENT ITS 3R STRATEGIC
INITIATIVES; LABOR UNREST; CHANGES IN PRODUCT MARKET PRICE OR MARKET DEMAND;
CHANGES IN RAW MATERIAL COSTS OR AVAILABILITY; LOSS OF BUSINESS FROM CUSTOMERS;
CUSTOMERS LOSS OF MARKET SHARE; COMPETITION; WEATHER; CHANGES IN FINANCIAL
MARKETS; AND OTHER FACTORS DISCUSSED IN THE COMPANY'S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION.
WHILE THE COMPANY PERIODICALLY REASSESSES MATERIAL TRENDS AND UNCERTAINTIES
AFFECTING THE COMPANY'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION IN
CONNECTION WITH THE PREPARATION OF MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND CERTAIN OTHER SECTIONS
CONTAINED IN THE COMPANY'S QUARTERLY, ANNUAL OR OTHER REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, THE COMPANY DOES NOT INTEND TO REVIEW OR
REVISE ANY PARTICULAR FORWARD-LOOKING STATEMENT IN LIGHT OF FUTURE EVENTS.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
14
<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
See Index of Exhibits.
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 12, 1998 By: /s/ John M. Casey
-----------------------
John M. Casey
Executive Vice President &
Chief Financial Officer
16
<PAGE>
INDEX TO EXHIBITS
- ------------------------------------------------------------------------------
LOCATION OF DOCUMENT
EXHIBIT IN SEQUENTIAL
No. DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
------- ----------------------- --------------------
27.1 Financial Data Schedule
17
<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-27-1998 SEP-27-1998
<PERIOD-START> MAR-30-1998 SEP-28-1997
<PERIOD-END> JUN-28-1998 JUN-28-1998
<CASH> 350 350
<SECURITIES> 0 0
<RECEIVABLES> 47,416 47,416
<ALLOWANCES> 624 624
<INVENTORY> 51,685 51,685
<CURRENT-ASSETS> 112,710 112,710
<PP&E> 160,767 160,767
<DEPRECIATION> 31,444 31,444
<TOTAL-ASSETS> 333,606 333,606
<CURRENT-LIABILITIES> 83,319 83,319
<BONDS> 147,324 147,324
99 99
0 0
<COMMON> 0 0
<OTHER-SE> 78,133 78,133
<TOTAL-LIABILITY-AND-EQUITY> 333,606 333,606
<SALES> 107,010 300,289
<TOTAL-REVENUES> 107,010 300,289
<CGS> 87,696 248,147
<TOTAL-COSTS> 113,277 296,057
<OTHER-EXPENSES> (31) 55
<LOSS-PROVISION> 4 349
<INTEREST-EXPENSE> 3,323 10,312
<INCOME-PRETAX> (6,267) 4,232
<INCOME-TAX> (2,241) 2,116
<INCOME-CONTINUING> (4,026) 2,116
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (1,161)
<NET-INCOME> (4,026) 955
<EPS-PRIMARY> (0.42) 0.10
<EPS-DILUTED> (0.40) 0.10
</TABLE>
