<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended September 27, 1998
or
[_] Transition Report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
for the transition period from _________ to _________.
Commission File Number 0-26178
BWAY Corporation
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
36-3624491
(I.R.S. Employer Identification No.)
8607 Roberts Drive, Suite 250
Atlanta, Georgia 30350
(Address of principal executive offices, including zip code)
770-645-4800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Common Stock, par
value $0.01 per share, registered on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the Act: None
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 9, 1998, the aggregate market value of the voting stock held by
non-affiliates of BWAY Corporation was approximately $103,568,583.
As of December 9, 1998, there were 9,310,818 shares of BWAY Corporation's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of BWAY Corporation's Proxy Statement to be mailed to
stockholders on or about January 15, 1999 for the Annual Meeting of Stockholders
to be held on February 19, 1999 are incorporated in Part III hereof by
reference.
<PAGE>
BWAY CORPORATION
TABLE OF CONTENTS
PART I Page
----
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings and Regulatory Matters 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 7.A Quantitative and Qualitative Disclosures about Market Risk 13
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 20
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners and Management 20
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 21
ii
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BWAY CORPORATION AND SUBSIDIARIES
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 1998
PART I
Item 1. Business
--------
General
BWAY Corporation ("BWAY") is a holding company whose significant
subsidiaries, Brockway Standard, Inc. ("BSI"), Brockway Standard (New Jersey),
Inc., Milton Can Company, Inc. and BMAT, Inc., (collectively the "Company") are
leading developers, manufacturers, and marketers of steel containers for the
general line category of the North American container industry. The Company also
provides related material center services (coating, lithography, and metal
shearing) for its internal purposes and also external customers. Subsequent to
fiscal 1998 year end, on November 9, 1998 the Company acquired substantially all
of the assets of United States Can Company's ("U.S. Can") metal services
operations, making the Company a leading provider of material center services.
The references in this report to market positions or market share are based on
information derived from annual reports, trade publications and management
estimates which the Company believes to be reliable.
In January 1989, BWAY and BSI were formed to purchase the metal container
business of Owens-Illinois Corporation ("Owens-Illinois"). In June of 1995,
BWAY (formerly known as Brockway Standard Holdings Corporation) completed an
initial public offering ("Initial Public Offering") of its common stock, par
value $.01 per share (the "Common Stock"). The Company operates on a 52/53-week
fiscal year ending on the Sunday closest to September 30 of the applicable year.
For simplicity of presentation, the Company has presented year-ends as September
30 and all other periods as the nearest month end.
Metal containers are currently utilized for three product categories:
beverage, food and general line (which includes containers for such products as
aerosol, paint and varnish, and automotive products). Management estimates,
based on industry data published by the Can Manufacturers Institute and the
United States Bureau of Statistics, that 1997 industry shipments totaled
approximately 101 billion units to the beverage category, 32 billion units to
the food category and 4 billion units to the general line category. Although the
general line category constitutes approximately 3% of the unit volume of metal
containers, management estimates that it represents approximately 10% of the
metal can industry revenues. Few companies compete in all three product
categories, and most of the companies which produce beverage and food cans do
not compete in the general line product categories.
The Company's principal products include a wide variety of steel cans and
pails used for packaging paint and related products, lubricants, cleaners, roof
and driveway sealants, food (principally coffee, vegetable oil and vegetable
shortening) and household and personal care aerosol products. The Company also
manufactures steel ammunition boxes and provides material center services. The
Company's products are typically coated on the inside to customer specifications
based on intended use and are either decorated on the outside to customer
specifications or sold undecorated. The Company markets its products primarily
in North America. The Company's sales to customers located outside of the
United States were less than 5 percent for both fiscal 1997 and fiscal 1998.
Sales are made either by the Company's direct sales force, or third party
distributors or sales agents. Sales growth has been accomplished primarily
through acquisitions in the general line segment and to a lesser extent,
expanded market penetration in the sales of existing products and new product
development.
1
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Acquisitions
The Company completed two strategic acquisitions during fiscal 1996, one
strategic acquisition during fiscal 1997 and one strategic acquisition
subsequent to the fiscal 1998 year end.
On November 9, 1998, certain subsidiaries of BWAY acquired substantially
all of the assets of the United States Can Company's metal services operations
for approximately $31 million plus the assumption of certain liabilities,
including trade payables, certain employee liabilities, and leases (the "U.S.
Can Acquisition"). The purchase price is subject to an adjustment based upon the
change in working capital from July 31, 1998 to November 9, 1998. The business
provides metal coating, lithography, and other material center services. It has
three operating plants and one nonoperating plant. The transaction was accounted
for using the purchase method of accounting. Subsequent to the acquisition, the
Company announced plans to close one of the operating plants and signed a letter
of intent to sell the acquired tinplate services business. The tinplate services
business primarily purchases, processes and sells nonprime steel to third party
customers. Tinplate services are not a strategic focus of the Company.
On October 28, 1996, a subsidiary of BWAY ("MCC") acquired substantially
all of 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. This acquisition
allowed the Company to produce a wide range of aerosol cans and operate a
materials service center providing coating and lithography services, and other
material center services. The Company paid approximately $42.4 million in cash
for the business. The transaction was accounted for using the purchase method of
accounting.
On June 17, 1996, a subsidiary of BWAY ("BSO") acquired substantially all
of the assets of the Davies Can division of the Van Dorn Company, a wholly-owned
subsidiary of Crown Cork & Seal Company, Inc. (the "BSO Acquisition"). This
acquisition provided geographic expansion for the Company into the northeast and
midwest United States, enabling the Company to provide expanded coverage for
many of its products and to many of its customers. The acquired business had
revenues of approximately $55 million for the year ended December 31, 1995, and
operated three facilities. The Company paid approximately $42 million in cash
for the assets. The transaction was accounted for using the purchase method of
accounting. Subsequent to the acquisition, as part of the Company's 3R strategic
initiatives, the Company closed two of the facilities acquired in the BSO
Acquisition.
On May 28, 1996, a subsidiary of BWAY ("BSNJ") acquired all of the
outstanding stock of Milton Can Company, Inc. ("Milton Can") (the "BSNJ
Acquisition"). This acquisition provided geographic expansion for the Company
into the northeast United States, enabling the Company to provide expanded
coverage for many of its products and to many of its customers. The acquired
business had revenues of approximately $55 million for the year ended December
31, 1995, and operated three facilities. The Company paid the shareholders of
Milton Can approximately $29 million in approximately equal portions of cash and
BWAY stock, and the Company assumed approximately $12.3 million of debt of the
acquired company, which was retired by the Company at the time of acquisition.
The transaction was accounted for using the purchase method of accounting.
Subsequent to the acquisition, as part of the Company's 3R strategic initiative,
the Company closed one facility and announced plans to close a second facility
in fiscal 1999, acquired in the BSNJ acquisition.
The operating results for MCC, BSO and BSNJ Acquisitions have been included
in the Company's consolidated financial statements since the date of
acquisition. The excess of the aggregate purchase price over the aggregate fair
market value of net identifiable assets acquired in these acquisitions was
approximately $77.8 million.
2
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Products and Markets
The Company participates in the container market and related material
center services business and currently holds leading positions in the sale of
most of its general line products, other than aerosol cans, and holds a strong
position in the sale of coffee and vegetable oil cans. The Company does not sell
beverage containers. The Company also manufactures steel ammunition boxes.
Subsequent to fiscal 1998 year end, on November 9, 1998 the Company acquired
substantially all of the assets of United States Can Company's ("U.S. Can")
metal services operations, making the Company a leading provider of material
center services.
The following table sets forth the percentage of net sales of the Company
contributed by the product lines indicated for fiscal 1998, 1997 and 1996. The
Company's sales distribution by product line has been affected to some extent by
the recent acquisitions. Materials center services have historically accounted
for less than three percent of net sales and have been included in the general
line container product line. Based on the U.S. Can Acquisition of material
services operations, the Company anticipates the material center services
product line to represent a higher percentage of the Company's future sales.
Percentage of the Company's Net Sales
- -------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
Product 1998 1997 1996
------- ---- ---- ----
<S> <C> <C> <C>
General Line Containers 82% 84% 78%
Food Cans 13% 13% 17%
Ammunition Boxes 5% 3% 5%
---- ---- ----
Total 100% 100% 100%
</TABLE>
General Line Products
The primary uses for the Company's containers are for paint and related
products, lubricants, cleaners, roof and driveway sealants, charcoal lighter
fluid, household and personal care products. Specific products include round
cans with rings and plugs (typical paint cans), oblong or "F" style cans
(typical paint thinner cans), specialty cans (typical PVC or rubber cement cans,
brake fluid and other automotive after-market products cans and an assortment of
other specialty containers), and pails. The Company produces a full line of
these products to serve the specific requirements of a wide range of customers.
The Company's products are typically coated on the inside to customer
specifications based on intended use, and are either decorated on the outside to
customer specifications or sold undecorated. Prior to May 1996, the only
significant general line product which the Company did not sell was aerosol
containers. The BSNJ Acquisition gave the Company a niche position in the
container market for the sale of aerosol products. The Company increased its
position for the sale of aerosol can products with the acquisition of the
aerosol can business of BMFCC. Most of the Company's products are manufactured
in facilities that are strategically located to allow the Company to deliver
product to customer filling locations for such products within a one day transit
time.
Paint Cans. The Company produces round paint cans in sizes ranging from
one-quarter pint to one gallon, with one gallon paint cans representing the
majority of all paint can sales.
Oblong or "F" Style Cans. Oblong or "F" style cans are typically used for
packaging paint thinners, lacquer thinners, turpentine, deglossers and similar
paint related products, charcoal lighter fluid, waterproofing products, and
vegetable oil. The Company produces oblong cans in sizes ranging from three
ounces to one imperial gallon.
Specialty Cans. Utility cans include small screw top cans which typically
have an applicator or brush attached to a screw cap and are used for PVC pipe
cleaner, PVC cement and rubber cement. Cone top cans are typically used for
packaging specialty oils and automotive after-market products including brake
fluid, gasoline additives and radiator flushes. The Company also produces
various specialty containers.
3
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Aerosol Cans. Aerosol cans are typically used for packaging various
household and industrial products, including paint and related products,
personal care products, lubricants and insecticides. The Company produces a
variety of sizes, which are generally decorated to customer specifications.
Pails. Pails are typically used for packaging paint and related products,
roof and driveway sealants, marine coatings, vegetable oil, and water repellent.
Pails may be either "closed head" for easy pouring products, or "open head"
for more viscous products, with a lid which is crimped on after filling. The
Company manufactures steel pails in sizes ranging from 2.5 to 7 gallons.
Food Products/Coffee Cans
The Company produces cans for coffee and vegetable oil, with coffee
accounting for the majority of sales. The Company produces coffee cans in sizes
commonly referred to as 1 pound, 2 pound and 3 pound, and various smaller
specialty coffee can sizes and shapes. Coffee cans are generally sold to
nationally known coffee processing and marketing companies and are typically
printed to customer specifications. The Company does not sell sanitary food cans
in which soups, stews, vegetables, pie fillings and other foods are actually
cooked in the can.
Ammunition Boxes
The Company manufactures a variety of ammunition boxes. These containers
provide a hermetic seal, are coated with a corrosion-resistant finish and are
used to package small arms ammunitions and other ordnance products. The Company
sells ammunition boxes to the U.S. Department of Defense as well as to major
domestic and foreign producers of ordnance.
Materials Center Services
The Company also provides materials center services for its can assembly
facilities and third party customers. To enhance its offering of materials
center services, the Company has initiated a major capital investment program in
state-of-the-art lithography and coating equipment.
Customers
The Company sells its products to a large number of customers in numerous
industry sectors. Sales to the Company's ten largest customers accounted for
approximately 36.4% of sales in fiscal 1998. During fiscal 1998, sales to any
specific customer did not equal or exceed 10% of sales during the period.
Raw Materials
The Company's principal raw materials consist of tinplate, blackplate and
cold rolled steel, various coatings, inks and compounds. Steel products
represent the largest component of raw material costs. Essentially all of the
Company's products are manufactured from tinplate steel, except for pails and
ammunition boxes, which are manufactured from blackplate and cold rolled steel.
Various domestic and foreign steel producers supply the Company with
tinplate steel. Procurement from suppliers depends on the suppliers' product
offering, product quality, service and price. Because a significant number of
reliable suppliers produce the steel used in the Company's process, management
believes that it would be able to obtain adequate replacement supplies in the
market should one of the current suppliers discontinue supplying the Company.
The Company is working with other companies to lower the overall cost of its
steel requirements. Tinplate consumers typically negotiate late in the year for
the next calendar year on terms of volumes and price. Terms agreed to have
historically held through the following year, but there is no assurance that
this practice will remain unchanged in the future.
4
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Steel prices have historically been adjusted as of January 1 of a calendar
year. There has been no announced price increase for January 1, 1999.
In addition to steel products, the Company purchases various coatings,
inks, and compounds used in the manufacturing process. Based on ready
availability of these materials in the past and the number of current
manufacturers, management does not anticipate any shortages or supply problems
in the future.
Seasonality
Sales of certain of the Company's products are to some extent seasonal,
with sales levels generally higher in the second half of the Company's fiscal
year. Overall net sales were affected during fiscal 1998 by a generally weaker
paint and related products season.
Environmental, Health and Safety Matters
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
were no material capital expenditures relating to environmental compliance in
fiscal 1998, and none are expected for fiscal 1999.
Pursuant to the terms of the Company's 1989 acquisition of certain
facilities from Owens-Illinois, its fiscal 1996 acquisition of facilities from
Van Dorn Company ("Van Dorn"), the BSNJ Acquisition, the MCC Acquisition, and
the November 9, 1998 U.S. Can 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 indemnification's, 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 management believes predated the
Company's 1989 acquisition of the facility from Owens-Illinois. Such pre-1989
contamination is subject to indemnification by Owens-Illinois. The Company and
Owens-Illinois have entered into supplemental agreements establishing procedures
for 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. The
Company and Owens-Illinois are in the process of negotiating a consent order
with DNR, which would establish a schedule for completing such investigation
(all but a small portion of such investigation to be completed and funded by
Owens-Illinois). 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. In addition, an environmental review taken after
the acquisition identified certain environmental compliance issues relating to
the facility. The foregoing matters could result in a requirement for the
Company to investigate and remediate the facility or take other corrective
action. 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 relating to the environmental agency list matter
discussed above 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. The Company
5
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has initiated certain environmental indemnification claims against BMFCC and is
in discussions with BMFCC regarding resolution of such claims.
The current owner and former operator of the Company's recently acquired
Trenton, New Jersey facility, U.S. Eagle Litho ("U.S. Eagle"), is required to
investigate and remediate contamination at that location under the New Jersey
Industrial Site Recovery Act ("ISRA"). U.S. Eagle, which owns the Trenton
facility and leases it to the Company, became obligated to fully investigate and
remediate areas of concern at the Trenton facility when it sold certain assets
of its Trenton can manufacturing business in 1988. U.S. Eagle is currently
conducting soil and groundwater remediation at several identified areas of
concern at the site. Under ISRA, U.S. Eagle is fully responsible for
investigation and remediation of the identified areas of concern. The Company is
not responsible for any costs to investigate or clean-up past releases being
addressed by U.S. Eagle. In addition, this matter is indemnified by U.S. Can
subject to certain limitations.
At the Peabody, Massachusetts facility, which was previously leased by
BSNJ, groundwater remediation is underway. The owner of the facility has agreed
to retain all liability for the remediation. 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 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.
Competition
The markets for the Company's products are competitive and the Company
faces competition from a number of sources in most of its product lines.
Competition is based primarily on price, quality, service, and, to a lesser
extent, product innovation. The Company believes that its low cost of production
and high quality products, the geographic location of the Company facilities
which provide national coverage for most products to most customers, and its
commitment to strong customer relationships enable it to compete effectively.
Manufacturers of steel containers have historically faced competition from
other materials, primarily plastic, glass, and aluminum. Steel containers offer
a number of significant advantages over alternative materials, including fire
safety (critical in many products packaged in paint, oblong and specialty cans),
the capacity for vacuum packaging (important to coffee producers) and ability to
contain aggressive products (primarily certain solvent-based products).
6
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Employees
As of September 27, 1998, the Company employed approximately 1,446 hourly
employees and 452 salaried employees. Of the 1,446 hourly employees, 930 are
non-union and the remaining 516 are covered by eight separate collective
bargaining agreements. During fiscal 1998 the Company's Brockway Standard
(Ohio), Inc. subsidiary reached an agreement with the International Association
of Machinists, Local 233 to close the Solon Ohio facility as part of it 3R
strategic initiative. This closure resulted in the elimination of approximately
145 hourly positions and 16 salaried positions. In addition, during fiscal 1998,
the Company's BMAT Newtown, Inc. subsidiary reached a new collective bargaining
agreement with Local 162 of the International Association of Machinists, which
represents approximately 16 employees at its Cincinnati facility. The agreement
was reached after a work stoppage, which ran from June 20, 1998 to September 11,
1998, with workers returning on September 14, 1998. The Company reached
agreement with the International Brotherhood of Teamsters, Local 1034 at its
Elizabeth, New Jersey facilities on two contracts, during fiscal 1998. The first
contract, signed on January 20, 1998, retroactive to December 21, 1997, and runs
through December 21, 2000 at the can manufacturing facility, affecting
approximately 125 hourly employees. The second contract was signed on July 31,
1998, retroactive to October 1997, with an expiration date of December 21, 2000
affecting approximately 6 employees. In addition, as a part of the Company's 3R
strategic initiative, the Company exited its internal trucking business for
these New Jersey facilities. This resulted in the elimination of approximately
14 hourly positions represented by Local 807 of the International Brotherhood of
Teamsters. The Company's BMAT MDD, Inc. subsidiary also negotiated a one year
extension of its agreement with Local 458-3M of the Graphic Communication
Workers International Union during fiscal 1998. The extension is set to expire
on July 31, 1999 and affects approximately 15 employees.
Subsequent to September 27, 1998, certain subsidiaries of the Company added
80 salaried employees and 303 hourly employees in connection with the US Can
Acquisition. Of the 303 hourly employees approximately 270 are covered by
collective bargaining agreements with either the Graphic Communications Workers
International Union or the United Steelworkers of America.
Management believes that safety performance, which is often considered as
an indicator of worker involvement, training and attitude, has been excellent at
the Company's facilities. In addition to worker attentiveness to safety,
employees are also actively involved in various quality and productivity
initiatives.
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Item 2. Properties
----------
The following table sets forth certain information with respect to the
Company's headquarters, significant manufacturing plants, and warehouses as of
November 30, 1998.
<TABLE>
<CAPTION>
General Approximate Type of
Location Character Square Footage Interest
- -------- -------------- -------------- --------
<S> <C> <C> <C>
Alsip, Illinois (1) Manufacturing 75,000 Owned
Atlanta, Georgia (Headquarters) Office 24,000 Leased
Brookfield, OH (1) Manufacturing 80,000 Leased
Chicago, Illinois Manufacturing 141,000 Owned
Chicago, Illinois Warehouse 30,000 Leased
Chicago, Illinois (1) Manufacturing 266,000 Owned
Cincinnati, Ohio Manufacturing 469,000 Owned
Dallas, Texas (Thompson) Manufacturing 110,000 Owned
Dallas, Texas (Southwestern) Manufacturing 73,000 Owned
Elizabeth, New Jersey Manufacturing 213,000 Leased
Elizabeth, New Jersey (Northeast Tinplate) Manufacturing 42,000 Leased
Fontana, California Manufacturing 72,000 Leased
Franklin Park, Illinois Manufacturing 115,000 Leased
Garland, Texas Manufacturing 78,000 Leased
Homerville, Georgia Manufacturing 427,000 Owned
Memphis, Tennessee Manufacturing 75,000 Leased
Picayune, Mississippi Manufacturing 60,000 Leased
Solon, Ohio Manufacturing 220,000 Owned
Trenton, New Jersey (1) Manufacturing 97,000 Leased
York, Pennsylvania Manufacturing 97,000 Owned
</TABLE>
Footnote:
(1) On November 9, 1998 the Company acquired substantially all of the assets of
U.S. Can Corporation's metal services operations. These properties were
added as a result of that acquisition.
During the fourth quarter of fiscal 1996, management announced plans to
close six facilities and open one new plant as part of the Company's
rationalization initiative associated with the recent acquisitions. As part of
this rationalization strategy, an acquired plant in Covington, Georgia was
closed in September 1996 and an acquired plant in Peabody, Massachusetts was
closed in fiscal year 1997. The majority of the equipment and business has been
assigned to other Company locations. The Company also moved its Memphis,
Tennessee operation to a larger facility during the first quarter of fiscal 1997
to accommodate production changes and the strategic expansion of the Company's
business.
Subsequent to the U.S. Can Acquisition, the Company announced its plan to
close the Brookfield, Ohio facility as part of its 3R strategic initiative. In
June 1998, management approved a restructuring plan to close the remaining three
facilities announced in fiscal 1996. The facility in Solon, Ohio was closed
during the fourth quarter of fiscal 1998. The Elizabeth, New Jersey (Northeast
Tinplate) and Dallas, Texas (Thompson) facilities are scheduled for closure in
fiscal 1999. The plant closures are designed to reduce costs and improve
operating efficiencies at the remaining facilities. Management continues to
review opportunities to consolidate operations and to maximize production
efficiencies by rationalizing overlapping facilities, and believes that
following these closings, the Company's remaining facilities will be adequate
for its needs.
The Company believes its properties are generally in good condition, well
maintained and suitable for their intended use.
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Item 3. Legal Proceedings and Regulatory Matters
----------------------------------------
Litigation
The Company is involved in certain proceedings relating to environmental
matters as described under Item 1. "Business - Environmental, Health and Safety
Matters."
The Company is also involved in legal proceedings from time to time in the
ordinary course of its business. There are no such currently pending
proceedings which are expected to have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted during the fourth quarter of fiscal 1998 to a
vote of security holders of the Company through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
----------------------------------------------------------------------
As of December 9, 1998, there were 105 holders of record of the Common
Stock. Because BWAY is a holding company, its ability to pay dividends is
substantially dependent upon the receipt of dividends or other payments from its
subsidiaries. The Company's Credit Agreement dated June 17, 1996, as amended
(the "Credit Agreement"), among BWAY and certain subsidiaries, Bankers Trust
Company and Bank America (formerly NationsBank, N.A.) and various other lenders,
restricts the ability of BWAY and its subsidiaries to pay dividends or make
other restricted payments in an amount greater than $8.4 million, and places
certain restrictions on the Company with regard to incurring additional
indebtedness, other than certain specified indebtedness. In addition, the
Company's Indenture dated April 11, 1997 (the "Indenture") also restricts the
ability of BWAY and its subsidiaries to pay dividends or make other payments,
and places certain restrictions on the Company with regard to incurring
additional indebtedness, other than certain specified indebtedness. Any future
determination to pay dividends will be made by the Board of Directors in light
of the Company's earnings, financial position, capital requirements, credit
agreements, indentures, business strategies and such other factors as the Board
of Directors deems relevant at such time. The Company has not otherwise paid any
cash distributions or other dividends on the Common Stock and presently intends
to retain its earnings to finance the development of its business for the
foreseeable future.
The Company repurchased $11.1 million of its common stock during fiscal
1998 under the Company's common stock repurchase program.
9
<PAGE>
The Company's Common Stock was traded on the Nasdaq National Market under
the symbol "BWAY" through November 19, 1996. Since November 20, 1996, the
Company's common stock has been traded on the New York Stock Exchange under the
symbol "BY". The table below sets forth the high and low bid or sales price
information (whichever of the bid or sales price is higher or lower, as
appropriate) for the Common Stock for the first quarter of fiscal 1997, and the
high and low sales price information for the Common Stock for the second, third,
and fourth quarters of fiscal 1997 and each quarter of fiscal 1998. Prior to the
Initial Public Offering, there was no established public trading market in the
Common Stock.
On August 19, 1997 the Company's Board of Directors declared a three-for-
two stock split of the Company's Common Stock effected in the form of a stock
dividend which was paid on September 22, 1997 to stockholders of record on
September 2, 1997. All price information set forth below has been adjusted to
reflect the stock dividend. The bid information for the first quarter of fiscal
1997 set forth below reflects inter-dealer prices, without retail mark-up, mark-
down or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Quarter High Low
-------------- ------ ------
<S> <C> <C>
First quarter, 1997 $12.92 $11.67
Second quarter, 1997 $13.17 $11.83
Third quarter, 1997 $15.63 $12.83
Fourth quarter, 1997 $20.50 $15.33
First quarter, 1998 $25.63 $18.75
Second quarter, 1998 $26.25 $20.13
Third quarter, 1998 $26.94 $19.00
Fourth quarter, 1998 $19.88 $12.38
</TABLE>
Item 6. Selected Financial Data
-----------------------
The selected historical consolidated financial data as of and for each of
the years in the five years ended September 30, 1998 have been derived from the
audited consolidated financial statements of the Company. The results of
operations include the results of acquisitions described under "Business--
Acquisitions" contained in Item 1 of this report and have been included in the
Company's consolidated financial statements from the date of the respective
acquisitions. The selected consolidated financial data is qualified by, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in Item 7 of this
report and with the Company's consolidated financial statements and the related
notes thereto included in Item 8 of this report.
10
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, (1)
--------------------------------------------------------------
1998 1997 (2) 1996 (3) 1995 1994
---------- ---------- ---------- ---------- ----------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
NET SALES $401,089 $402,150 $283,105 $247,480 $224,701
-------- -------- -------- -------- --------
COSTS, EXPENSES AND OTHER
Cost of products sold (excluding depreciation and amortization) 336,588 341,406 236,741 208,091 193,497
Depreciation and amortization 13,465 13,024 7,425 5,940 5,057
Selling and administrative expense 22,748 19,651 14,589 10,335 9,998
Restructuring and Impairment Charge (4) (5) 11,532 12,860
Interest expense, net 13,021 10,649 4,872 5,211 5,730
Gain on curtailment of postretirement benefits (1,861) (5,828)
AB Leasing fees, expenses and termination (6) 3,384 1,318
Other, net 127 998 (340) (275) 100
-------- -------- -------- -------- --------
Total costs, expenses, and other 395,620 379,900 276,147 232,686 215,700
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING 5,469 22,250 6,958 14,794 9,001
Provision for income taxes 2,789 9,146 3,239 6,021 3,756
-------- -------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING 2,680 13,104 3,719 8,773 5,245
-------- -------- -------- -------- --------
Extraordinary loss resulting from the extinguishment of
debt, net of tax benefit (7) (2,535)
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 2,680 13,104 1,184 8,773 5,245
-------- -------- -------- -------- --------
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS -
Net of related tax benefit of $137 (8) (213)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
SYSTEMS DEVELOPMENT COSTS -
Net of related tax benefit of $823 (9) (1,161)
-------- -------- -------- -------- --------
NET INCOME $ 1,519 $ 13,104 $ 1,184 $ 8,773 $ 5,032
======== ======== ======== ======== ========
BASIC EARNINGS PER COMMON SHARE DATA:
Income before extraordinary item and accounting change $ 0.28 $ 1.33 $ 0.40 $ 1.24 $ 1.27
Extraordinary item (0.27)
Cumulative effect of change in accounting (0.12) (0.05)
-------- -------- -------- -------- --------
Net income $ 0.16 $ 1.33 $ 0.13 $ 1.24 $ 1.22
======== ======== ======== ======== ========
DILUTED EARNINGS PER COMMON SHARE DATA:
Income before extraordinary item and accounting change $ 0.27 $ 1.31 $ 0.40 $ 1.23 $ 0.84
Extraordinary item (0.27)
Cumulative effect of change in accounting (0.12) (0.03)
-------- -------- -------- -------- --------
Net income $ 0.15 $ 1.31 $ 0.13 $ 1.23 $ 0.81
======== ======== ======== ======== ========
WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING 9,527 9,817 9,373 7,097 4,137
======== ======== ======== ======== ========
WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING 9,959 9,983 9,407 7,104 6,206
======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended September 30, (1)
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 737 $ 6,890 $ 22,280 $ 38,811 $ 14,371
Property, plant and equipment, net 133,960 123,617 94,800 67,668 58,996
Total assets 313,711 316,377 245,133 167,958 137,220
Long-term debt (including current
maturities) 122,272 115,532 95,198 50,218 55,476
Redeemable common stock 2,682
Stockholders' equity 77,188 85,466 72,629 65,837 27,015
</TABLE>
(1) The Company operates on a 52/53-week fiscal year ending on the Sunday
closest to September 30 of the applicable year. For simplicity of
presentation, the Company has presented year-ends as September 30.
(2) The results of operations for the year ending September 30, 1997 include
the results from the October 28, 1996 acquisition of substantially all of
the assets of the aerosol can business of Ball Metal Food Container
Corporation.
(3) The results of operations for the year ending September 30, 1996 include
the results from the following acquisitions. On May 28, 1996, BWAY acquired
all of the stock of Milton Can Company. On June 17, 1996, BSI acquired
substantially all of the assets of the Davies Can division of the Van Dorn
Company.
(4) During the fourth quarter of fiscal 1996, the Company recorded a
restructuring and impairment charge related to the write-off of fixed
assets due to the consolidation of manufacturing processes related to the
fiscal 1996 acquisitions. See Note 13 of the Notes to Consolidated
Financial Statements set forth in Item 8.
(5) During the third quarter of fiscal 1998, the Company recorded a
restructuring and impairment charge related to the closure of three plants,
the elimination of an internal transportation department and the write-off
of equipment at several operating locations which were impaired due
primarily to changes in manufacturing processes. See Note 13 of the Notes
to Consolidated Financial Statements set forth in Item 8.
(6) The Company was party to a management agreement (the "Management
Agreement") with AB Leasing and Management, Inc. ("AB Leasing") whereby the
Company paid to AB Leasing an annual fee (the "AB Leasing Fee") based upon
a formula, plus reimbursement for expenses. The Company and AB Leasing
terminated the Management Agreement upon the consummation of the Initial
Public Offering. Pursuant to the termination agreement the Company issued
199,500 shares of Common Stock to AB Leasing prior to the effectiveness of
the Initial Public Offering. The Company recorded a non-recurring, non-
cash, pre-tax charge to operations of $1,995,000 in connection therewith in
the period in which such shares were issued.
(7) The Company recorded an extraordinary loss related to the prepayment of the
$50 million principal amount of 8.35% Senior Secured Notes during the third
quarter of fiscal 1996.
(8) Effective October 1, 1993, the Company changed its method of accounting for
post employment benefits as a result of adopting Statement of Financial
Accounting Standards No. 112 which resulted in a one-time non-cash charge
of $213,000 and had no material subsequent impact on income from
operations.
12
<PAGE>
(9) 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 $0.12 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.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto included elsewhere
in Item 8 of this report.
General
Industry
The Company currently derives substantially all of its revenues from the
sale of steel containers manufactured at the Company's plants and related
material center services. The packaging market in which the Company competes is
generally mature and stable. On average, domestic industry growth rates have
historically followed US GDP growth rates. Management believes that companies
that have managed sustained growth in these markets above the GDP level have
typically accomplished this growth primarily through acquisitions. Industry
consolidation has occurred during recent years.
Sales Growth
The Company's net sales have grown from approximately $224.7 million in
fiscal 1994 to approximately $401.1 million in fiscal 1998, primarily as a
result of acquisitions during this period and, to a lesser extent, market
penetration in key existing product segments and new product development. The
acquisitions have strengthened and expanded the Company's position in key
product and geographic markets and, through consolidation, have enabled the
Company to achieve operating synergies.
Raw Materials
The largest component of cost of sales is tinplate steel, which is
currently supplied by large, national manufacturers and, to a lesser extent,
foreign manufacturers. Tinplate prices have historically been negotiated once
per year, with changes effective January 1, and have typically remained stable
for the subsequent one year period. The Company is working with other companies
to lower the overall cost of its steel purchases. Tinplate consumers typically
negotiate late in the year for the next calendar year on terms of volumes and
price. Terms agreed to have historically held through the following year, but
there is no assurance that this practice will remain unchanged in the future.
Steel prices have historically been adjusted as of January 1 of a calendar
year. However, this year domestic tinplate and blackplate steel producers have
not yet announced price increases. The Company has historically arranged for raw
material price increases which are lower than those publicly announced by its
suppliers, although there can be no assurances that this practice will continue.
13
<PAGE>
Gross Profit Margins
Continuous advances in manufacturing productivity and cost reduction have
been critical to the industry and the Company's ability to improve gross profit
margins. The BSNJ Acquisition and the BSO Acquisition late in the third quarter
of fiscal 1996, and the MCC Acquisition early in the first quarter of fiscal
1997 increased the Company's sales by approximately 60%. These sales levels
effectively remained constant during fiscal 1998. Historically, the sales of
acquired businesses provided lower gross margins than those reported by the
Company. The Company's objective is to improve margins by maximizing synergies
through employment of the Company's 3R strategic initiative to Rationalize,
Reengineer and Recapitalize these acquired businesses. As a result of the lower
margins of the acquired businesses and the effect of rationalization
initiatives, overall margins for the Company began to improve during fiscal 1997
as cost containment initiatives were implemented, and further improved during
fiscal 1998 through continued cost control.
Results of Operations
Year ended September 30, 1998 (fiscal 1998) compared to year ended September 30,
1997 (fiscal 1997).
Net Sales. Net sales for fiscal 1998 were $401.1 million, a decrease of
$1.1 million or 0.3% from $402.2 million in fiscal 1997. The Company's sales
were adversely affected during fiscal 1998 by a generally weaker paint and
related products season.
Cost of Products Sold. Cost of products sold (excluding depreciation and
amortization) in fiscal 1998 was $336.6 million, a decrease of $4.8 million, or
1.4%, from $341.4 million in fiscal 1997. The decrease is primarily attributable
to lower unit volume combined with lower operating costs. Cost of products sold
as a percent of net sales decreased to 83.9% in fiscal 1998 from 84.9% in fiscal
1997. The decrease is primarily attributable to the implementation of the
Company's 3R strategic initiative to Rationalize, Reengineer and Recapitalize
its operations to lower operating costs and improve margins, and from a more
favorable pricing environment. Although certain employee termination costs in
connection with plant rationalizations, administrative workforce reductions, and
other plant exit costs associated with acquisitions were accrued for through
purchase accounting adjustments, the Company incurred during fiscal 1997 and
fiscal 1998 other non-recurring costs which, in accordance with current
accounting pronouncements, were charged against operating income.
Restructuring and Impairment Charge. In June 1998, the Company recorded a
restructuring and impairment charge related to the closure of three plants, the
elimination of an internal transportation department and the write-off of
equipment at several operating locations which were impaired due primarily to
changes in manufacturing processes. The 1998 restructuring and impairment charge
totaled $11.5 million and consisted of the following: $7.8 million related to
the closure of the plants and transportation department and $3.7 million related
to other asset impairments. The $7.8 million related to the plant and
transportation department closures includes $2.1 million for severance costs,
$2.2 million for other facility closure costs and $3.5 million for asset
impairments related to the plant shut-downs. In connection with the closure of
the plants in 1998, the Company is holding $5.4 million of real property for
sale. This property includes $0.8 million of land and $4.6 million of buildings.
Income before Income Taxes and Extraordinary Item. Income before income
taxes and extraordinary items for fiscal 1998 was $5.5 million, a decrease of
$16.8 million, or 75%, from $22.3 million in fiscal 1997, due primarily to the
Company recording a restructuring charge of $11.5 million (before taxes).
Depreciation and amortization increased from $13.0 million in fiscal 1997 to
$13.5 million in fiscal 1998 as a result of increased capital spending related
to the Company's cost reduction, productivity improvement, and growth
initiatives. Selling and administrative expense of $19.7 million for fiscal 1997
increased $3.1 million in fiscal 1998, primarily due to building corporate
infrastructure to support acquisitions and continued execution of growth plans.
Interest expense, net, increased to $13.0 million in fiscal 1998 from $10.6
million in fiscal 1997 due to interest on borrowings for ongoing working capital
and a higher effective interest rate associated with the Company's issuance in
the third quarter of fiscal 1997 of $100 million of unsecured senior
subordinated notes (see Liquidity and Capital Resources).
Net Income. Net Income for fiscal 1998 was $1.5 million, a decrease of
$11.6 million from fiscal 1997. The decline resulted from the factors mentioned
above.
14
<PAGE>
Year ended September 30, 1997 (fiscal 1997) compared to year ended September 30,
1996 (fiscal 1996).
Net Sales. Net sales for fiscal 1997 were $402.2 million, an increase of
$119.1 million or 42.0% from $283.1 million in fiscal 1996. The increase
resulted from the BSNJ Acquisition and the BSO Acquisition late in the third
quarter of fiscal 1996, and the MCC Acquisition early in the first quarter of
fiscal 1997.
Cost of Products Sold. Cost of products sold (excluding depreciation and
amortization) in fiscal 1997 was $341.4 million, an increase of $104.7 million,
or 44.2%, from $236.7 million in fiscal 1996. The increase is primarily
attributable to increased sales from, and the higher cost of products sold
(excluding depreciation and amortization), of the Recent Acquisitions. Cost of
products sold as a percent of sales increased to 84.9% in fiscal 1997 from 83.6%
in fiscal 1996. The increase is primarily attributable to the Recent
Acquisitions where cost of products sold as a percent of sales was historically
higher than that of the Company's previously owned facilities, and to costs
associated with the Company's 3R strategic initiative to Rationalize, Reengineer
and Recapitalize the Recent Acquisitions. Although certain employee termination
costs in connection with plant rationalizations, administrative workforce
reductions, and other plant exit costs associated with the Recent Acquisitions
have been accrued for through purchase accounting adjustments, the Company
incurred during the fourth quarter of fiscal 1996, and during fiscal 1997, other
non-recurring costs which, in accordance with current accounting pronouncements,
were charged against operating income. Cost of products sold (excluding
depreciation and amortization) for fiscal 1997 was also adversely affected by an
approximately thirty day strike at MCC's Cincinnati, Ohio facility.
Income before Income Taxes and Extraordinary Item. Income before income
taxes and extraordinary items for fiscal 1997 was $22.3 million, an increase of
$15.3 million, or 219.8%, from $7.0 million in fiscal 1996, when the Company
recorded a non-cash restructuring charge of $12.9 million (before taxes). Fiscal
1997 income before income taxes and extraordinary items increased by $2.4
million over fiscal 1996, excluding the effect of the restructuring charge. This
increase resulted primarily from contributions from the Recent Acquisitions,
cost savings realized to date from rationalization initiatives, and productivity
and cost reductions resulting from capital spending initiatives, and the gain
recorded by the Company from curtailment of the post retirement benefits which
resulted from the elimination of post retirement health care costs for certain
employees at the Cincinnati facility. Partially offsetting these improvements
were period costs associated with rationalization initiatives, higher selling
and administration expenses, and higher interest expense. Depreciation and
amortization increased from $7.4 million in fiscal 1996 to $13.0 million in
fiscal 1997 due to the Recent Acquisitions and as a result of capital spending
related to the Company's cost reduction, productivity improvement, and growth
initiatives. Selling and administrative expense of $19.7 million for fiscal 1997
increased from $14.6 million in fiscal 1996, primarily due to the Recent
Acquisitions and building corporate infrastructure to support the Recent
Acquisitions and continue its growth plans. Interest expense, net, increased to
$10.6 million in fiscal 1997 from $4.9 million in fiscal 1996 due to interest on
borrowings to finance the Recent Acquisitions, and due to a higher interest rate
associated with the Company's issuance in the third quarter of fiscal 1997 of
$100 million of unsecured senior subordinated notes (see Liquidity and Capital
Resources).
Net Income. Net Income for fiscal 1997 was $13.1 million, an increase of
$11.9 million from fiscal 1996. The improvement results from the factors
mentioned above.
15
<PAGE>
Seasonality
Sales of certain of the Company's products are to some extent seasonal,
with sales levels generally higher in the second half of the Company's fiscal
year. Overall net sales were affected during fiscal 1998 by a generally weaker
paint and related products season.
Liquidity and Capital Resources
During the third quarter of fiscal 1996, the Company repaid its existing
debt and established its new five year Credit Agreement. The Company amended the
credit agreement in October 1997, which provided the Company with lower interest
rate margins and greater flexibility with regard to investments in acquisitions,
joint ventures and other subsidiaries and extended the expiration of the Credit
Agreement one year to June 17, 2002. As of September 27, 1998, the Company was
not in compliance with one of the financial covenants (interest coverage ratio)
of its Credit Agreement. On November 2, 1998 the Company and its lenders
executed another amendment to the Credit Agreement which modified certain
restrictive financial covenants and provided greater flexibility with respect to
certain investments in joint ventures. Additionally, the Company exercised its
option to increase the available borrowing limit to $125 million. As part of the
November 2, 1998 amendment, the lenders waived the Company's financial covenant
violation (interest coverage ratio) for the quarter ended September 27, 1998.
The Credit Agreement currently provides that the Company and its subsidiaries
can borrow up to $125 million, and gives the Company an option to increase its
borrowing limit by an additional $25 million, provided certain conditions are
met. Interest rates under the Credit Agreement are based on rate margins ("Rate
Margin") for either the prime rate as announced by NationsBank, N.A. from time
to time or LIBOR, at the option of the Company. 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 financial 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. 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. The Company incurred a $2.5 million, after tax, one-time
extraordinary charge associated with this debt restructuring in fiscal 1996.
During the third quarter of fiscal 1997, the Company issued $100 million of
10 1/4% Senior Subordinated Notes due 2007. The notes have an interest rate of
10 1/4%, payable semi-annually on April 15 and October 15. 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. Pursuant to the
terms of a registration rights agreement the Company executed in connection with
the original offering of the notes, the Company paid additional interest of $0.2
million due to delays in the registration process.
During fiscal 1998, net cash provided by operating activities was $25.6
million which was comprised primarily of income from operations ($1.5 million),
depreciation and amortization ($13.5 million), and a restructuring and
impairment charge ($11.5 million). Changes in assets and liabilities reduced net
cash provided by operating activities by $1.9 million.
During fiscal 1997, net cash provided by operating activities was $45.1
million which was comprised primarily of income from operations ($13.1 million),
depreciation and amortization ($13.0 million), deferred income taxes ($3.0
million), and working capital excluding working capital acquired from the MCC
Acquisition ($19.8 million). The decrease in working capital was primarily
attributable to the increase in accounts payable ($13.5 million), income taxes
($2.9 million) and the reduction in accounts receivable ($3.0 million). Net cash
provided from operating activities was reduced by a non-cash gain on curtailment
of retirement benefits of $5.8 million.
During fiscal 1998, the Company used $32.9 million for investing
activities. The Company made $33.8 million of capital expenditures primarily for
equipment to improve manufacturing processes, new coating and lithography
equipment to support growth, and hardware and software to address the Year 2000
issue and improve administrative and manufacturing systems.
16
<PAGE>
During fiscal 1997, the Company used $64.3 million for investing activities
for the MCC Acquisition ($41.6 million) and capital expenditures ($23.0
million). Capital expenditures were primarily for equipment to improve
manufacturing processes and hardware and software to address the Year 2000 issue
and improve administrative and manufacturing systems.
During fiscal 1998, net cash provided by financing activities was $8.2
million. Net borrowings under the Company's Credit Agreement were $8.1 million.
The Company purchased $11.1 million of treasury stock during fiscal 1998, and
issued $1.0 million of treasury stock for options exercised. Additionally,
unpresented bank drafts increased $11.6 million.
During fiscal 1997, net cash provided by financing activities was $18.7
million. As described above, the Company refinanced its outstanding debt by
issuing $100 million of unsecured senior subordinated notes. Financing costs
incurred to obtain the notes was $4.0 million. Net repayments under the bank
revolving credit agreement, including the proceeds from the notes, were $80.3
million. Additionally, unpresented bank drafts increased $4.2 million.
Cash and cash equivalents were $1.4 million at the beginning of fiscal
1998, and were $2.3 million at the end of fiscal 1998.
Cash and cash equivalents were $1.9 million at the beginning of fiscal
1997, and were $1.4 million at the end of fiscal 1997.
At September 27, 1998, the Company was restricted in its ability to pay
dividends and make other restricted payments in an amount greater than
approximately $8.4 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.
Management believes that cash provided from operations, borrowings
available under the Credit Agreement, and borrowings under the Indenture 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 acquisition opportunities in the North American
container industry and in connection therewith may incur additional
indebtedness, to finance such acquisitions.
Impact of the Year 2000 Issue
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock
or date-recording mechanism that utilize date sensitive software using only two
digits to represent the year may recognize a date using 00 as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing significant disruption of operations, including among
other things a temporary inability to process transactions, send invoices, or
engage in similar activities. The Year 2000 issue can arise at any point in the
Company's supply, manufacturing, processing, distribution and financial chains.
Any disruptions in the above stated chains of the Company could have a material
adverse affect on the Company's financial condition and results of operations.
The Company determined that it would be required to replace or modify
significant portions of its business application software so that its computer
systems would properly utilize dates beyond December 31, 1999. The Company
presently believes that with conversions to new systems and modifications to
existing software the Year 2000 Issue can be mitigated with regard to the
Company's material internal business application software. However, if such
modifications and conversions are not made, or are not timely, the Year 2000
Issue could have a material adverse impact on the operations of the Company.
During 1998, the Company initiated the implementation of Enterprise
Resource Planning (ERP) software to replace the Company's core business
applications which support sales and customer service, manufacturing,
distribution, and finance and accounting. The ERP software was selected to add
functionality and efficiency in the business processes of the Company in the
normal course of upgrading its systems to address its business needs. In
addition, the Company established a Year 2000 Steering Committee in May 1998 to
analyze and assess the remainder of its business not addressed by the ERP
software. The Steering Committee has executive officers of the Company as its
members. The Steering Committee is responsible for the formulation of the
Company's Year 2000 project.
17
<PAGE>
The scope of the Steering Committee's responsibilities covers all material
computer systems, computer and network hardware, production process controllers,
office equipment, access control, maintenance machinery, telephone systems,
products it sells, critical vendors and customers.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties failure to remediate their own Year 2000
Issues. The Company can give no guarantee that the systems of other companies on
which the Company's systems rely will be converted on time or that a failure to
convert by another company or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
The Company is currently utilizing, and will continue to utilize internal
and external resources to implement, reprogram, or replace and test software and
related assets affected by the Year 2000 Issue. The Company expects to complete
the majority of its efforts in this area by mid-year 1999 leaving adequate time
to assess and correct any significant issues that may materialize. As of fiscal
1998 year end, the Company has incurred $15.1 million for ERP System upgrades
and replacements related to the year 2000 project. The total remaining cost of
the ERP system and the Year 2000 project is estimated at $5 -8 million and is
being funded through operating cash flows. Of the total project cost,
approximately $20 - 25 million is attributable to the purchase and
implementation of the new hardware and software which will be capitalized. The
remainder will be expensed as incurred over the next two years and is not
expected to have a material effect on the results of operations during any
quarterly or annual reporting period.
The Company's Year 2000 Steering Committee is developing contingency plans
intended to mitigate the possible disruptions that may result from the Year 2000
issue. The Company's contingency plan may include the use of alternative
suppliers, stock piling of raw materials, increased inventory levels and other
appropriate measures. The contingency plans and the related cost estimates will
be revised as additional information becomes available. The Company intends to
complete the majority of its contingency planning by mid-year 1999.
The Company believes that the most reasonable and likely worst-case
scenario for the Company with respect to the Year 2000 issue is the failure of a
critical vendor, including but not limited to a utility or steel supplier, to
provide required goods and/or services after December 31, 1999. Such a failure
could result in temporary production outages and lost sales and profits. The
Company believes that because of the geographic dispersion of its operations, it
is unlikely an isolated third-party failure would have a material adverse effect
on the Company's results of operations, financial condition, or cash flow. The
Company also believes that the formulation of its contingency plans should
provide reasonable measures to reduce the severity and length of any possible
disruptions and losses. However, because the Company's Year 2000 issue
compliance is dependent upon key third party readiness, there can be no
assurance that the Company's Year 2000 compliance efforts will preclude a Year
2000 issue or a series of issues outside its direct control from adversely
affecting its results from operations, financial condition, or cash flow. In
addition, although not anticipated, any failure by the Company to correct
critical internal computer systems before Year 2000 could also have such an
adverse effect.
The discussion of the Company's efforts, and management's expectations and
estimates, concerning the Year 2000 issue contain forward-looking statements.
The costs of the project and the timetable in which the Company plans to
complete the Year 2000 compliance requirements are based on management's
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
these plans. In addition, there can be no assurances that there will be no
adverse impact on the Company's relationships with its customers, vendors, or
other persons internal to the Company's operations. Specific factors that might
cause such material differences include, but are not limited to, unanticipated
problems identified in the ongoing Year 2000 issue compliance review, costs for
contingency plans, the availability and cost of internal and external resources
to implement, reprogram, and replace and test the Company's software and other
Year 2000 issue sensitive assets, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
18
<PAGE>
ENVIRONMENTAL MATTERS
For information regarding environmental matters, see Item 1. "Business -
Environmental, Health and Safety Matters."
EFFECT OF INFLATION
Historically, the Company has generally been able to recover increased
costs of raw materials through price increases for the Company's products,
although there can be no assurances that this practice will continue. This
ability, together with cost reductions achieved through line rationalization and
productivity improvements, has mitigated the impact of inflation on the
Company's results of operations. Management currently believes that inflation
will not have a material adverse impact on the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards, ("SFAS")
No. 123, "Accounting for Stock-Based Compensation," as of September 28, 1997. As
permitted under the statement, the Company has continued to account for stock-
based compensation under the intrinsic value method prescribed in Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees."
Compensation cost for employees' and directors' stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
grant over the exercise price amount an employee or director must pay to acquire
the stock.
The Company adopted SFAS No. 128, "Earnings Per Share" during the year
ended September 27, 1998. This statement requires companies to present basic
earnings per share ("EPS") and diluted earnings per share instead of primary and
fully diluted EPS as was previously required. EPS for all prior periods
presented have been restated as required by the new accounting standard.
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets To Be Disposed Of," as of September 29,
1996. In accordance with SFAS 121, the Company reviews for impairment, on a
quarterly basis, long-lived assets and certain identifiable intangibles whenever
events or changes in circumstances indicate that the carrying amount of any
asset may not be reasonable based on estimates of future undiscounted cash
flows. In the event of an impairment, the asset is written down to its fair
market value. Impairment of goodwill and write-down, if any, is measured based
on estimates of future undiscounted cash flows. Assets to be disposed of are
recorded at the lower of net book value or fair market value less cost to sell
at the date management commits to a plan of disposal and are classified as
Assets Held for Sale on the Consolidated Balance Sheet.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". This statement, effective for financial
statements for periods beginning after December 15, 1997, requires public
companies to report financial and descriptive information about their reportable
operating segments. Generally, financial information is required on the basis
that it is used internally for evaluating segment performance and deciding how
to allocate resources to segments. The Company is evaluating its internal
reporting and organization structure to determine future business segment
reporting.
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; THE COMPANY'S ABILITY TO IDENTIFY AND
REMEDY YEAR 2000 ISSUES; THE TIMING AND COSTS OF PLANT START-UP AND CLOSURES AND
THE OTHER FACTORS DISCUSSED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION.
19
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
The Company's Credit Agreement permits the Company to borrow up to $150
million provided certain conditions and restrictive financial covenants are met.
Borrowings under the Credit Agreement bear interest at either the prime rate or
LIBOR plus 1.125% at the option of the Company. At September 27, 1998, the
Company has borrowings under the Credit Agreement of $21.6 million that were
subject to interest rate risk. Each 1.0% increase in interest rates would impact
pretax earnings by $0.2 million.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
See the attached Consolidated Financial Statements (pages F-1 through
F-27).
Item 9. Changes in and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
Inapplicable.
PART III
Item 10. Directors and Executive Officers
--------------------------------
Incorporated by reference to the Company's 1998 Proxy Statement to be filed
with the Commission.
Item 11. Executive Compensation
----------------------
Incorporated by reference to the Company's 1998 Proxy Statement to be filed
with the Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
Incorporated by reference to the Company's 1998 Proxy Statement to be filed
with the Commission.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Incorporated by reference to the Company's 1998 Proxy Statement to be filed
with the Commission.
20
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
The following documents are filed as a part of this report:
(a) (1) The Consolidated Financial Statements included in Item 8
hereof and set forth on pages F-1 through F-27.
(2) The Financial Statement Schedules listed in the Index to the
Financial Statement Schedules.
(3) The exhibits listed in the Index to Exhibits.
(b) Reports on Form 8-K.
The Company did not file any Reports on Form 8-K during the fourth quarter
of fiscal 1998.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Warren J. Hayford
------------------------------------
Warren J. Hayford
Chairman of the Board and
Chief Executive Officer
Date: December 22, 1998
----------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities indicated on December 22, 1998.
Signatures Title
- ---------- -----
/s/ Warren J. Hayford Chairman of the Board, Chief Executive
- ------------------------------------ Officer and Director
Warren J. Hayford
/s/ John T. Stirrup President, Chief Operating Officer and
- ------------------------------------ Director (Principal Executive Officer)
John T. Stirrup
/s/ James W. Milton Executive Vice President and Director
- ------------------------------------
James W. Milton
/s/ John M. Casey Executive Vice President and Chief
- ------------------------------------ Financial Officer (Principal Financial
John M. Casey Officer)
/s/ Kevin C. Kern Vice President and Corporate Controller
- ------------------------------------ (Principal Accounting Officer)
Kevin C. Kern
/s/ Thomas A. Donahoe Director
- ------------------------------------
Thomas A. Donahoe
/s/ Alexander P. Dyer Director
- ------------------------------------
Alexander P. Dyer
/s/ Jean-Pierre Ergas Director
- ------------------------------------
Jean-Pierre Ergas
/s/ John E. Jones Director
- ------------------------------------
John E. Jones
/s/ John W. Puth Director
- ------------------------------------
John W. Puth
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of BWAY Corporation:
We have audited the accompanying consolidated balance sheets of BWAY Corporation
and subsidiaries (the "Company") as of September 27, 1998 and September 28,
1997 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended September
27, 1998. Our audits also included the financial statement schedules listed in
the Index to the financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of September 27,
1998 and September 28, 1997 and the results of its operations and its cash flows
for each of the three years in the period ended September 27, 1998 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects, the information set forth therein.
Deloitte & Touche LLP
Atlanta, Georgia
November 12, 1998
F-1
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 27, September 28,
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,303 $ 1,374
Accounts receivable, net of allowance for
doubtful accounts of $533 and $580 35,574 41,806
Inventories 39,723 46,615
Current income taxes receivable 2,387
Deferred tax asset 4,251 5,111
Assets held for sale 5,377
Other current assets 1,712 2,150
-------- --------
Total current assets 91,327 97,056
PROPERTY, PLANT, AND EQUIPMENT - Net 133,960 123,617
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $7,514 and $5,464 70,234 73,652
Intangible assets, net 12,045 13,580
Deferred financing costs, net of accumulated
amortization of $1,247 and $541 4,298 4,844
Other assets 1,847 3,628
-------- --------
Total other assets 88,424 95,704
-------- --------
$313,711 $316,377
======== ========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 27, September 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 57,095 $ 57,443
Accrued salaries and wages 9,740 8,949
Accrued income taxes 1,338
Other current liabilities 17,124 16,265
Accrued rebates 5,959 5,020
Current maturities of long-term debt 672 1,151
-------- --------
Total current liabilities 90,590 90,166
LONG-TERM DEBT 121,600 114,381
LONG-TERM LIABILITIES:
Deferred income taxes 15,118 14,969
Other 9,215 11,395
-------- --------
Total long-term liabilities 24,333 26,364
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 9,851,002 99 99
Additional paid-in capital 37,395 37,629
Retained earnings 50,192 48,673
-------- --------
87,686 86,401
Less treasury stock, at cost, 490,384 and
51,790 shares 10,498 935
-------- --------
Total stockholders' equity 77,188 85,466
-------- --------
$313,711 $316,377
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
<S> <C> <C> <C>
NET SALES $ 401,089 $ 402,150 $ 283,105
COSTS, EXPENSES, AND OTHER:
Cost of products sold (excluding depreciation and amortization) 336,588 341,406 236,741
Depreciation and amortization 13,465 13,024 7,425
Selling and administrative expense 22,748 19,651 14,589
Restructuring and impairment charge 11,532 12,860
Interest expense, net 13,021 10,649 4,872
Gain on curtailment of postretirement benefits (1,861) (5,828)
Other, net 127 998 (340)
---------- ---------- ----------
Total costs, expenses, and other 395,620 379,900 276,147
---------- ---------- ----------
INCOME BEFORE INCOME TAXES
EXTRAORDINARY ITEM AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING 5,469 22,250 6,958
PROVISION FOR INCOME TAXES 2,789 9,146 3,239
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 2,680 13,104 3,719
EXTRAORDINARY LOSS RESULTING FROM THE
EXTINGUISHMENT OF DEBT - Net of related tax benefit
of $1,683 (2,535)
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 2,680 13,104 1,184
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR SYSTEMS DEVELOPMENT COSTS - Net of related tax
benefit of $823 (1,161)
---------- ---------- ----------
NET INCOME $ 1,519 $ 13,104 $ 1,184
========== ========== ==========
BASIC EARNINGS PER COMMON SHARE:
Income before extraordinary item and accounting change $ 0.28 $ 1.33 $ 0.40
Extraordinary item (0.27)
Cumulative effect of change in accounting (0.12)
---------- ---------- ----------
Net income $ 0.16 $ 1.33 $ 0.13
========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE:
Income before extraordinary item and accounting change $ 0.27 $ 1.31 $ 0.40
Extraordinary item (0.27)
Cumulative effect of change in accounting (0.12)
---------- ---------- ----------
Net income $ 0.15 $ 1.31 $ 0.13
========== ========== ==========
WEIGHTED AVERAGE BASIC COMMON SHARES OUTSTANDING 9,527,120 9,817,323 9,372,616
========== ========== ==========
WEIGHTED AVERAGE DILUTED COMMON SHARES OUTSTANDING 9,958,537 9,982,574 9,407,151
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Shares
------------------ Additional
Common Treasury Common Paid-In Retained Treasury
Stock Stock Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - October 1, 1995 6,410 (70) $64 $31,734 $34,385 $ (346) $ 65,837
Net income 1,184 1,184
Issuance of common stock for acquisitions 155 656 2 5,984 8,614 14,600
Issuance of treasury stock under employee
savings plan 31 6 583 589
Purchase of treasury stock (650) (9,469) (9,469)
Other (112) (112)
----- ---- --- ------- ------- -------- --------
BALANCE - September 29, 1996 6,565 (33) 66 37,612 35,569 (618) 72,629
Net income 13,104 13,104
Issuance of common stock for 3-for-2 stock split 3,283 (17) 33 (33) -
Issuance of treasury stock under employee
savings plan 43 830 830
Purchase of treasury stock (45) (1,147) (1,147)
Stock options exercised 3 50 50
----- ---- --- ------- ------- -------- --------
BALANCE - September 28, 1997 9,851 (52) 99 37,629 48,673 (935) 85,466
Net income 1,519 1,519
Purchase of treasury stock (507) (11,117) (11,117)
Issuance of treasury stock for stock options exercised 69 (505) 1,554 1,049
Tax benefit of stock options exercised 271 271
----- ---- --- ------- ------- -------- --------
BALANCE - September 27, 1998 9,851 (490) $99 $37,395 $50,192 $(10,498) $ 77,188
===== ==== === ======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,519 $ 13,104 $ 1,184
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 9,880 8,860 5,656
Amortization of goodwill and other intangibles 3,585 4,164 1,769
Amortization of deferred financing costs 706 458 525
Write-off of deferred loan fees related to debt extinguishment 2,466
Gain on curtailment of postretirement benefits (1,861) (5,828)
Cumulative effect of change in accounting principle (net) 1,161
Provision for doubtful accounts (47) 190 188
Restructuring and impairment charge 11,532 12,860
Loss (gain) on disposition of property, plant, and equipment (23) 1,397 (21)
Deferred income taxes 1,009 2,996 (4,837)
Changes in assets and liabilities, net of effects of business
acquisitions:
Accounts receivable 6,279 2,953 3,271
Inventories 6,892 (1,088) (2,962)
Other assets 2,569 1,268 (54)
Accounts payable (9,051) 13,539 3,847
Accrued liabilities (5,958) 249 1,628
Income taxes, net (2,631) 2,851 131
-------- -------- --------
Net cash provided by operating activities 25,561 45,113 25,651
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired 463 (41,619) (69,697)
Capital expenditures (33,826) (22,961) (12,671)
Proceeds from disposition of property, plant, and equipment 484 21
Other 302
-------- -------- --------
Net cash used in investing activities (32,879) (64,278) (82,347)
</TABLE>
(Continued)
F-6
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Net borrowings (repayments) under bank revolving credit agreement $ 8,100 $(80,293) $ 93,770
Proceeds from issuance of Notes 100,000
Extinguishment of long-term debt (50,000)
Repayments on long-term debt (1,181) (165) (2,095)
Increase in unpresented bank drafts 11,556 4,208 4,335
Purchases of treasury stock (11,117) (1,147) (9,469)
Financing costs incurred (160) (3,966) (1,419)
Issuance of treasury stock for options exercised 1,049 50
Other (112)
-------- -------- --------
Net cash provided by financing activities 8,247 18,687 35,010
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 929 (478) (21,686)
CASH AND CASH EQUIVALENTS:
Beginning of year 1,374 1,852 23,538
-------- -------- --------
End of year $ 2,303 $ 1,374 $ 1,852
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 13,981 $ 5,666 $ 6,010
======== ======== ========
Income taxes $ 4,412 $ 4,774 $ 6,544
======== ======== ========
Details of businesses acquired were as follows:
Fair value of assets acquired $ 61,259 $107,553
Liabilities assumed (18,890) (22,256)
Value of common stock issued (14,600)
Long-term note issued (750) (1,000)
Working capital adjustments $ 463
-------- -------- --------
Net cash paid for acquisitions $ 463 $ 41,619 $ 69,697
======== ======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Amounts owed for capital expenditures $ 2,393 $ 4,140
======== ========
Common stock issued for acquisitions $ 14,600
========
Common stock issued under employee savings plan $ 830 $ 589
======== ========
</TABLE>
See notes to consolidated financial statements.
(Concluded)
F-7
<PAGE>
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
SEPTEMBER 27, 1998
- --------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations - BWAY Corporation ("BWAY") is a holding company whose
subsidiaries, Brockway Standard, Inc., Milton Can Company, Inc., Brockway
Standard (New Jersey), Inc., BMAT, Inc., and Brockway Standard (Canada), Inc.
(collectively the "Company") manufacture and distribute metal containers and
provide materials center services in the United States and Canada.
Common Stock - On September 22, 1997, the Company increased the number of
shares of common stock outstanding through a 3-for-2 stock split, effected in
the form of a common stock dividend on the Company's issued and outstanding
shares. Accordingly, earnings per share and share data have been adjusted to
give retroactive effect to the stock splits for all periods presented.
Principles of Consolidation - The consolidated financial statements of the
Company include the accounts of BWAY and its wholly owned subsidiaries. All
material intercompany balances and transactions have been eliminated in
consolidation.
Fiscal Year - The Company operates on a 52/53-week fiscal year ending on the
Sunday closest to September 30 of the applicable year.
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.
Property, Plant, and Equipment - Property, plant, and equipment is recorded
at cost. Depreciation is provided over the estimated useful lives of the
assets on a straight-line basis for financial reporting purposes.
Expenditures for major renewals and replacements are capitalized.
Expenditures for maintenance and repairs are charged to income as incurred.
When property items are retired or otherwise disposed of, amounts applicable
to such units are removed from the related asset and accumulated depreciation
accounts and any resulting gain or loss is credited or charged to income.
Useful lives are generally as follows:
Buildings and improvements 10-30 years
Machinery and equipment 5-15 years
Furniture and fixtures 5-7 years
Computer systems 1-7 years
Interest is capitalized in connection with the installation of major
machinery and equipment acquisitions. The capitalized interest is recorded
as part of the cost of the asset to which it relates and is amortized over
the asset's estimated useful life. In fiscal 1998 and 1997, respectively,
$1.5 million and $0.3 million of interest cost was capitalized. No interest
was capitalized in fiscal 1996.
Computer Information Systems - Costs directly associated with the initial
purchase, development, and implementation of computer information systems are
deferred and included in property, plant, and
F-8
<PAGE>
equipment. Such costs are amortized on a straight-line basis over the
expected useful life of the systems, principally five to seven years. Ongoing
maintenance costs of computer information systems are expensed as incurred.
Intangible Assets - Intangible assets consist of identifiable intangibles
(trademarks, customer lists, and covenants not-to-compete) and goodwill.
Identifiable intangibles are amortized over the term of the agreement (5 to 7
years) or estimated useful life (2 to 17 years). Prior to September 29,
1997, the Company amortized goodwill over 30 years on a straight-line basis.
Effective September 29, 1997, the Company prospectively changed its goodwill
amortization period to 20-40 years. Management believes that this
amortization period reflects predominant industry practice and supports their
conclusion that the benefit period is longer than originally estimated. The
impact of this change in amortization period was a reduction in amortization
expense for the year ended September 27, 1998 which management believes is
immaterial.
Deferred Financing Costs - Deferred financing costs are being amortized over
the term of the related loan agreement using the straight-line method, which
approximates the effective yield method.
Revenue Recognition - The Company recognizes revenue at the time the product
is shipped to the customer.
Accrued Rebates - The Company enters into contractual agreements for rebates
on certain products with its customers. As sales occur, a provision for
rebates is recorded as a reduction to arrive at net sales and is accrued on
the balance sheet.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for
Income Taxes." SFAS 109 requires, among other things, the use of the
liability method of computing deferred income taxes. Under the liability
method, the effect of changes in corporate tax rates on deferred income taxes
is recognized currently as an adjustment to income tax expense. The
liability method also requires that deferred tax assets or liabilities be
recorded based on the difference between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of - The
Company adopted SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed Of," as of September 29, 1996. In
accordance with SFAS 121, the Company reviews for impairment, on a quarterly
basis, long-lived assets and certain identifiable intangibles whenever events
or changes in circumstances indicate that the carrying amount of any asset
may not be reasonable based on estimates of future undiscounted cash flows.
In the event of an impairment, the asset is written down to its fair market
value. Impairment of goodwill and write-down, if any, is measured based on
estimates of future undiscounted cash flows. Assets to be disposed of are
recorded at the lower of net book value or fair market value less cost to
sell at the date management commits to a plan of disposal and are classified
as Assets Held for sale on the Consolidated Balance Sheet.
Cash and Cash Equivalents - For purposes of the presentation of the
consolidated statements of cash flows, the Company considers all highly
liquid investments purchased with original maturities of three months or less
to be cash equivalents.
Disclosures About Fair Value of Financial Instruments - A summary of the fair
value of the Company's financial instruments and the methods and significant
assumptions used to estimate those values is as follows:
F-9
<PAGE>
Short-term Financial Instruments - The fair value of short-term financial
instruments, including cash and cash equivalents, trade accounts receivable
and payable, certain accrued liabilities, and current maturities of long-
term debt approximates their carrying amounts in the financial statements
due to the short maturity of such instruments.
Long-Term Debt - The fair value of the variable rate Credit Agreement
borrowings approximates the carrying amount since the currently effective
rates reflect market rates. The fair value of publicly traded fixed rate
subordinated notes payable is based on the quoted market price at the
fiscal year end.
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.
Accounting for Stock Options - The Company adopted SFAS 123, "Accounting for
Stock-Based Compensation," as of September 28, 1997. As permitted under the
statement, the Company has continued to account for stock-based compensation
under the intrinsic value method prescribed in Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees." Compensation cost
for employees' and directors' stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of grant
over the exercise price amount an employee or director must pay to acquire
the stock.
Earnings Per Common Share - The Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" during the year ended
September 27, 1998. This statement requires companies to present basic
earnings per share ("EPS") and diluted earnings per share instead of primary
and full diluted EPS as was previously required. EPS for all prior periods
presented have been restated as required by the new accounting standard.
Earnings per common share are based on the weighted average number of common
shares and common stock equivalents outstanding during each year 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 plan. Common stock equivalents represent the dilutive effect of the
assumed exercise of the outstanding stock options.
New Accounting Pronouncement - In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information. This statement, effective for financial
statements for periods beginning after December 15, 1997, requires public
companies to report financial and descriptive information about their
reportable operating segments. Generally, financial information is required
on the basis that it is used internally for evaluating segment performance
and deciding how to allocate resources to segments. The Company is
evaluating its internal reporting and organization structure to determine
future business segment reporting.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the
F-10
<PAGE>
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Reclassifications - Certain amounts in the previously reported financial
statements have been reclassified to conform to the current presentation.
2. ACQUISITIONS
Milton Can Company - On May 28, 1996, the Company acquired all of the
outstanding stock of Milton Can Company, Inc. This subsidiary was renamed
Brockway Standard (New Jersey), Inc. ("BSNJ"). BSNJ is a manufacturer of
paint, oblong, and specialty cans within the general line segment of the
North American metal container industry. The Company paid $13.4 million in
cash, $1 million in notes, and $14.6 million in BWAY stock. The Company
issued a total of 1,216,455 shares in connection with the merger, comprised
of 984,261 shares of its treasury stock and 232,194 newly issued shares. In
addition, the Company repaid BSNJ's approximately $12.3 million in term and
revolving bank debt concurrent with consummation of the purchase transaction.
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.). This subsidiary was
renamed Brockway Standard (Ohio), Inc. ("BSO"). BSO manufactures paint,
oblong, and utility cans within the general line segment of the North
American metal container industry. The Company paid approximately $40.7
million in cash.
Ball Aerosol - On October 28, 1996, the Company acquired substantially all of
the assets related to the metal aerosol can business from Ball Metal Food
Container Corporation (the "BMFCC"), a wholly owned subsidiary of Ball
Corporation. This subsidiary was named Milton Can Company, Inc. ("MCC").
MCC 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 Company paid approximately $42.4 million for the acquired
business. Separately, the parties entered into supply agreements whereby
certain coating, decorating, and metal processing services will be provided
by the Company to the BMFCC.
The purchase method of accounting was used to establish and record a new cost
basis for the assets acquired and liabilities assumed. The operating results
for BSNJ, BSO, and MCC have been included in the Company's consolidated
financial statements since the dates of acquisition. The excess of the
aggregate purchase price over the aggregate fair market value of net
identifiable assets acquired was approximately $79 million.
The following unaudited pro forma results assume the acquisitions of BSNJ,
BSO, and MCC occurred at the beginning of the fiscal year ended September 29,
1996 after giving affect to certain pro forma adjustments, consisting of 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. In its purchase price
F-11
<PAGE>
allocations for the MCC Acquisition, MCC reduced the carrying value of the
acquired property, plant, and equipment assets since MCC determined, based on
independent appraisals, that the fair value of the acquired assets was lower
than the historical cost of such assets.
<TABLE>
<CAPTION>
Twelve Months Ended September 28, 1997
(In thousands, except per share amounts)
<S> <C>
Net sales $406,476
Net income 13,202
Basic earnings per common share 1.34
Diluted earnings per common share 1.32
</TABLE>
The unaudited pro forma financial information is not necessarily indicative
of the operating results that would have occurred had the acquisitions been
consummated as of the beginning of the period presented, nor is it
necessarily indicative of future operating results.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 27, September 28,
1998 1997
<S> <C> <C>
Inventories at FIFO cost:
Raw materials $ 6,555 $12,661
Work-in-progress 22,695 23,603
Finished goods 10,696 11,091
------- -------
39,946 47,355
LIFO reserve (223) (740)
------- -------
$39,723 $46,615
======= =======
</TABLE>
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
September 27, September 28,
1998 1997
<S> <C> <C>
Land $ 2,979 $ 3,788
Building and improvements 16,202 19,823
Machinery and equipment 107,041 97,656
Furniture, fixtures, and information technology 11,022 3,320
Construction-in-progress 30,259 24,126
-------- --------
167,503 148,713
Less accumulated depreciation (33,543) (25,096)
-------- --------
Property, plant, and equipment - net $133,960 $123,617
======== ========
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
F-12
<PAGE>
<TABLE>
<CAPTION>
September 27, September 28,
1998 1997
<S> <C> <C>
Customer lists $ 7,486 $ 7,486
Tradename 4,704 4,704
Noncompete agreements 4,494 4,494
------- -------
16,684 16,684
Less accumulated amortization (4,639) (3,104)
------- -------
$12,045 $13,580
======= =======
</TABLE>
6. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Included in accounts payable and accrued salaries and wages at September 27,
1998 and September 28, 1997 are bank drafts issued and outstanding for which
no rights of offset exist to cash and cash equivalents, as follows (in
thousands):
<TABLE>
<CAPTION>
September 27, September 28,
1998 1997
<S> <C> <C>
Bank drafts issued and outstanding included in:
Accounts payable $22,027 $11,256
Accrued salaries and wages 2,426 1,641
------- -------
$24,453 $12,897
======= =======
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
September 27, September 28,
1998 1997
<S> <C> <C>
Senior Subordinated Notes $100,000 $100,000
Credit Agreement 21,600 13,500
Other borrowings 672 2,032
-------- --------
122,272 115,532
Less current maturities of long-term debt 672 1,151
-------- --------
Total long-term debt $121,600 $114,381
======== ========
</TABLE>
F-13
<PAGE>
Senior Subordinated Notes
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").
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 (105.125% on April 15, 2002 declining annually to 100% on April 15,
2005). 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, and mergers. Under the Notes'
convenants, the Company is restricted in its ability to pay shareholder
dividends and other restricted payments in an amount greater than $29.3
million at September 27, 1998.
During fiscal 1998, the Company filed a registration statement and exchanged
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 expenses on behalf of its operating
subsidiaries. BWAY has no significant assets other than the common stock of
its subsidiaries. The Exchange 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 the subsidiary guarantors
are not presented because management has determined that they would not be
material to investors.
Credit Agreement
On June 17, 1996, the Company terminated its existing bank agreement and
entered into a new credit agreement with Bankers Trust Company and Bank
America (formerly NationsBank, N.A.) (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. 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.
In October 1997, the Company amended its Credit Agreement. The amendment
provides the Company with lower interest rate margins and greater flexibility
with regard to investments in acquisitions, joint ventures and other
subsidiaries. The amendment also provides the Company with a second option
to increase the borrowing limit by another $25 million for a maximum
borrowing limit of $150 million, provided certain conditions are met and
provided that only one $25 million increase occur in any twelve-month period.
The amendment also extends the expiration of the Credit Agreement one year to
June 17, 2002.
F-14
<PAGE>
On November 2, 1998, the Company and its lenders executed an amendment to the
Credit Agreement which modified certain restrictive covenants and provided
greater flexibility with respect to investments in joint ventures.
Additionally, the Company exercised its option to increase the available
borrowing limit to $125 million from $100 million. As part of the November
2, 1998 amendment, the banks provided a waiver to the Company for its
covenant violation (interest coverage ratio) for the quarter ended September
27, 1998.
The Credit Agreement allows the Company to borrow up to $100 million or $150
million if 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
Company. The applicable rate margin is determined on a quarterly basis by a
review of the Company's leverage ratio. The Company's borrowing rate is at
its option either LIBOR plus 1.125%, or Prime. The Company's borrowing rate
is 6.976% at September 27, 1998. 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 indebtedness. Under this
agreement, BWAY is restricted in its ability to pay shareholder dividends and
other restricted payments in an amount greater than approximately $8.4
million at September 27, 1998 and to incur additional indebtedness. 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, reimburse the Company for operating and other expenditures made on
behalf of the subsidiaries and repay permitted intercompany indebtedness.
Scheduled maturities of long-term debt as of September 27, 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
1999 $ 672
2002 21,600
Thereafter 100,000
--------
$122,272
========
</TABLE>
Based on quoted market prices (September 27, 1998) and the borrowing rates
currently available to the Company for bank loans with similar terms and
maturities (September 28, 1997), the fair value of long-term debt at
September 27, 1998 and September 28, 1997 was estimated at $126.6 million and
$123.5 million, respectively.
F-15
<PAGE>
8. STOCKHOLDERS' EQUITY
Earnings Per Share - The following is a reconciliation of the numerators and
denominations of the basic and diluted per share computations for income
before the extraordinary item and cumulative effect of change in accounting:
<TABLE>
<CAPTION>
For the Year Ended September 27, 1998 For the Year Ended September 28, 1997
------------------------------------- -------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Income before Extraordinary Item and
Cumulative Effect of Change in Accounting $2,680,000 $13,104,000
---------- -----------
Basic EPS
Income available to common stockholders 2,680,000 9,527,120 $ 0.28 13,104,000 9,817,323 $ 1.33
========= =========
Effect of Dilutive Stock Options 431,417 165,251
---------- --------- ----------- ---------
Diluted EPS
Income available to common stockholders
plus assumed conversions $2,680,000 9,958,537 $ 0.27 $13,104,000 9,982,574 $ 1.31
========== ========= ========= =========== ========= =========
<CAPTION>
For the Year Ended September 29, 1996
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
Income before Extraordinary Item and
Cumulative Effect of Change in Accounting $3,719,000
----------
Basic EPS
Income available to common stockholders $3,719,000 9,372,616 $ 0.40
=========
Effect of Dilutive Stock Options 34,535
---------- ---------
Diluted EPS
Income available to common stockholders
plus assumed conversions $3,719,000 9,407,151 $ 0.40
========== ========= =========
</TABLE>
F-16
<PAGE>
Stock Option Plans
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 the Amended and Restated 1995 Long-
Term Incentive Plan which increased the aggregate number of shares of common
stock authorized for issuance thereunder from 735,000 to 1,125,000, and ii)
froze the Formula Plan with only 45,000 of the available 150,000 shares of
common stock being granted thereunder. On November 17, 1997 the Board of
Directors adopted the Second Amended and Restated 1995 Long-Term Incentive Plan
which further increased the aggregate number of shares of common stock
authorized for issuance thereunder from 1,125,000 to 1,425,000. The options
generally become exercisable in installments of 33% per year on each of the
first through third anniversaries of the grant.
As of September 27, 1998 and September 28, 1997, the fair value of each option
grant is estimated on the date of the grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions: expected
dividends of 0.0%, expected volatility 37.67% in 1998 and 30% in 1997, risk-free
interest of 6.58%, and expected lives of 6.0 years.
A summary of the status of the Company's two stock option plans as of September
27, 1998 and changes during fiscal 1996, 1997, and 1998 is presented below:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Fixed Options Shares Price
<S> <C> <C>
Outstanding at October 1, 1995 319,500 $ 9.81
Granted 579,600 12.49
Forfeited (6,300) 12.67
----------
Outstanding at September 29, 1996 892,800 11.52
Granted 66,300 14.06
Forfeited (12,600) 12.67
Exercised (4,200) 11.87
----------
Outstanding at September 28, 1997 942,300 11.72
Granted 332,900 20.48
Forfeited (14,800) 19.26
Exercised (69,400) 12.16
----------
Outstanding at September 27, 1998 1,191,000 14.05
==========
Exercisable at September 29, 1996 113,100 9.78
==========
Exercisable at September 28, 1997 368,100 10.99
==========
Exercisable at September 27, 1998 592,500 11.37
==========
Weighted average fair value of options granted
during the year ended September 27, 1998 $ 13.08
==========
Weighted average fair value of options granted
during the year ended September 28, 1997 $ 6.15
==========
</TABLE>
F-17
<PAGE>
The following table summarizes information about stock options outstanding at
September 27, 1998:
<TABLE>
<CAPTION>
Weighted
Number Average Weighted Number
Outstanding at Remaining Average Exercisable at
Range of September 27, Contractual Exercise September 27,
Exercise Prices 1998 Life Price 1998
<S> <C> <C> <C> <C>
$9.67 - 10.00 259,344 6.7 $ 9.67 259,344
10.01 - 11.00 48,000 6.9 10.68 29,800
11.01 - 12.00 26,700 8.0 11.67
12.01 - 13.00 478,356 7.6 12.53 274,856
14.01 - 15.00 51,500 8.6 14.33 14,500
18.01 - 19.00 42,000 8.9 18.17 14,000
19.01 - 20.00 219,700 9.1 19.38
21.01 - 22.00 15,900 9.4 21.38
26.01 - 26.50 49,500 9.6 26.50
--------- --- ------ -------
1,191,000 7.9 $14.05 592,500
========= === ====== =======
</TABLE>
The fair value of options granted during the years ended September 27, 1998 and
September 28, 1997 was $4.4 million and $.4 million, respectively. The Company
applies Accounting Principles Board Opinion 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for its fixed stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings per share for each of the
three years in the period ended September 27, 1998 would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income (loss) to common shareholders (in thousands):
As reported $1,519 $13,104 $1,184
====== ======= ======
Pro forma $ (289) $12,316 $ 712
====== ======= ======
Net income per common and common equivalent share:
Basic earnings per common share:
As reported $ 0.16 $ 1.33 $ 0.13
====== ======= ======
Pro forma $(0.03) $ 1.25 $ 0.08
====== ======= ======
Diluted earnings per common share:
As reported $ 0.15 $ 1.31 $ 0.13
====== ======= ======
Pro forma $(0.03) $ 1.23 $ 0.08
====== ======= ======
</TABLE>
Shareholder Rights Plan
The Company has a Shareholder Rights Plan, amended through November 26, 1997
(the "Rights Plan"), under which a preferred share purchase right is presently
attached to and trades with each outstanding share of the Company's common
stock. The rights become exercisable and transferable apart from the
F-18
<PAGE>
common stock after a person or group other than an Exempt Person (as defined in
the Rights Plan), without the Company's consent, acquires beneficial ownership
of, or the right to obtain beneficial ownership of, 15% or more of the Company's
common stock or ten business days after a person or group announces or commences
a tender offer or exchange offer that could result in 15% ownership. Once
exercisable, each right entitles the holder to purchase one fifteen-hundredth
share of Junior Participating Series A Preferred Stock at an exercise price of
$60 per share subject to adjustment to prevent dilution. The rights have no
voting power and no current dilutive effect on earnings per common share. The
rights expire on June 15, 2005 and are redeemable at the discretion of the Board
of Directors at $.01 per share.
If a person acquires 15% ownership, except in an offer approved by the Company
under the Rights Plan, then each right not owned by the acquirer or related
parties will entitle its holder to purchase, at the right's exercise price,
additional shares of common stock or common stock equivalents. In addition,
after an acquirer obtains 15% ownership, if the Company is involved in certain
mergers, business combinations, or asset sales, each right not owned by the
acquirer or related persons will entitle its holder to purchase, at the right's
exercise price, additional shares of common stock of the other party to the
transaction.
9. INCOME TAXES
The Company files a consolidated federal income tax return. Deferred income
taxes are provided to recognize the differences between the carrying amount of
assets and liabilities for financial statement purposes and the amounts used for
income tax purposes.
Components of net deferred tax liability are as follows (in thousands):
<TABLE>
<CAPTION>
September 27, September 28,
1998 1997
<S> <C> <C>
Deferred tax liabilities:
Property, plant, and equipment $20,243 $17,791
Intangible assets 802 382
Other 657 491
------- -------
21,702 18,664
Deferred tax assets:
Restructuring reserves 3,327 1,114
Employee benefits 4,732 4,545
Customer claims/rebates 891 922
Inventory 475 409
Accounts receivable 186 254
Other 1,224 1,562
------- -------
10,835 8,806
------- -------
Net deferred tax liability $10,867 $ 9,858
======= =======
Net current deferred tax asset $(4,251) $(5,111)
Net noncurrent deferred tax liability 15,118 14,969
------- -------
$10,867 $ 9,858
======= =======
</TABLE>
F-19
<PAGE>
The provision for income taxes is reconciled with the federal statutory rate
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-----------------------------------------------------------
Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Income tax at federal statutory rate $1,914 35.0% $7,788 35.0% $2,435 35.0%
State income taxes, net of federal
income tax benefit 275 5.0% 549 2.5% 314 4.5%
Nondeductible amortization of
intangibles 600 11.0% 754 3.4% 476 6.8%
Other 55 0.2% 14 0.2%
------ ---- ------ ---- ------ ----
$2,789 51.0% $9,146 41.1% $3,239 46.5%
====== ==== ====== ==== ====== ====
</TABLE>
The components of the provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
September 27, September 28, September 29,
1998 1997 1996
Current:
<S> <C> <C> <C>
Federal $1,473 $ 9,569 $ 7,265
State 307 1,449 811
Deferred 1,009 (1,872) (4,837)
------ ------- -------
$2,789 $ 9,146 $ 3,239
====== ======= =======
</TABLE>
10. LEASE COMMITMENTS
The Company leases warehouses, office space, equipment, and vehicles under
operating leases. Rent expense during each of the last three fiscal years was
approximately $3.4 million (1998), $4.2 million (1997), and $3.3 million (1996).
F-20
<PAGE>
At September 27, 1998, future minimum rental payments under capitalized leases
and under noncancelable operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Fiscal Year Leases Leases
<S> <C> <C>
1999 137 $ 3,102
2000 2,293
2001 1,881
2002 1,278
2003 647
Thereafter 1,563
---- -------
Total minium lease payments 137 $10,764
=======
Imputed interest at 8.6% (5)
----
Present value of minimum capitalized lease payments $132
====
</TABLE>
11. PROFIT SHARING AND PENSION PLANS
The Company has qualified profit sharing and savings plans for specified
employees. These plans are contributory defined contribution plans which provide
for employee contributions with a Company matching provision, and for certain
employees a deferred profit sharing component funded by the Company. The
Company's net contributions to the profit sharing and savings plans for each of
the last three fiscal years were approximately $.9 million (1998), $0.7 million
(1997), and $1.5 million (1996).
BSNJ has a noncontributory defined benefit pension plan covering a majority of
its salaried employees. The plan provides benefit payments using a formula based
on an employee's compensation and length of service. BSNJ funds the plan in
amounts equal to the minimum funding requirements of the Employee Retirement
Income Security Act of 1974, plus additional amounts as BSNJ actuarial
consultants advise to be appropriate and as management approves from time to
time. The Company froze this plan effective December 31, 1996. On January 1,
1998, the Company amended the plan to cover substantially all nonunion
employees. The plan provides for a contribution of 4% of each participant's
wages. Participant account balances earn interest at 6% per annum.
Effective July 31, 1998, the Company amended the plan to terminate the plan on
that date. All participants became fully vested in their accounts on July 31,
1998.
F-21
<PAGE>
The periodic net expense (income) is comprised of the following:
<TABLE>
<CAPTION>
Period from
May 28, 1996
Year Ended (Acquisition)
------------------------------------- through
September 27, September 28, September 29,
1998 1997 1996
<S> <C> <C> <C>
Service cost - benefits earned
during the period $2,294,900 $ 31,100 $ 42,000
Interest cost on projected benefit obligation 284,100 191,300 81,000
Actual return on assets (261,400) (399,800) (183,000)
Net amoritization and deferral (135,000)
---------- --------- ---------
Net pension expense (income) $2,182,600 $(177,400) $ (60,000)
========== ========= =========
</TABLE>
The following table shows the plan's funded status and amounts recognized in
the balance sheet:
<TABLE>
<CAPTION>
Year Ended
-----------------------------------
September 27, September 28,
1998 1997
<S> <C> <C>
Actuarial present value of benefit obligations - Vested $ 4,439,100 $ 2,242,800
=========== ===========
Accumulated benefit obligation $ 4,439,100 $ 2,242,800
=========== ===========
Fair value of plan assets $ 5,077,100 $ 4,911,800
Projected benefit obligation (4,439,100) (2,242,800)
----------- -----------
Funded status 638,000 2,669,000
Unrecognized net gain (656,900) (832,500)
Unrecognized prior service cost 327,200
----------- -----------
Prepaid (accrued) pension expense $ (18,900) $ 2,163,700
=========== ===========
The actuarial assumptions used were:
Discount rate 7.00% 7.25%
=========== ===========
Rate of increase in compensation levels - 6.00%
=========== ===========
Expected return on assets 9.00% 9.00%
=========== ===========
</TABLE>
Most of BSNJ's union employees are covered under multi-employer defined
benefit plans administered by the union. Total contributions charged to
expense for such plans are $0.4 million as of September 27, 1998.
F-22
<PAGE>
In connection with the acquisition of MCC, the Company assumed three defined
benefit postretirement medical plans. These plans are noncontributory and
provide certain medical benefits after retirement to covered union employees.
In June 1997, the Company and employees belonging to one union representing
approximately 50% of the employees at MCC 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.
In fiscal 1998, the Company reached new collective bargaining agreements with
unions representing approximately 34% of the hourly employees at the
Cincinnati, Ohio facility. The provisions of the new agreements
substantially eliminates unvested postretirement medical benefits provided by
the Company which resulted in the recording of curtailment gains of
approximately $1.9 million.
As of September 27, 1998, in accordance with the terms of two applicable
collective bargaining agreements, the Company continues to offer
postretirement medical coverage to certain union employees who retire from
employment at MCC. Net periodic postretirement medical benefit plan expense
includes the following components:
<TABLE>
<CAPTION>
Period from
October 28, 1996
(Acquisition)
Year Ended through
September 27, September 28,
1998 1997
<S> <C> <C>
Service cost on benefits earned $ 29,319 $ 178,114
Interest cost on accumulated postretirement
benefit obligation 412,028 471,914
----------- -----------
Net periodic postretirement benefit cost charged
to results from continuing operations 441,347 650,028
Curtailment gain (1,860,771) (5,827,951)
----------- -----------
Net effect charged to results from continuing
operations $(1,419,424) $(5,177,923)
=========== ===========
</TABLE>
F-23
<PAGE>
The following table sets forth the combined status of the defined benefit
postretirement medical benefit plans:
<TABLE>
<CAPTION>
September 28, September 27,
1998 1997
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $3,965,536 $3,587,570
Fully eligible active plan participants 1,174,092 1,105,936
Other active plan participants 759,701 2,868,667
---------- ----------
Total accumulated postretirement benefit obligation 5,899,329 7,562,173
Unrecognized gain 95,074
---------- ----------
Accrued postretirement benefit plan cost $5,804,255 $7,562,173
========== ==========
The actuarial assumptions used were:
Discount rate 6.75% 7.50%
========== ==========
Medical expense trend rate 8.0% to 5.5% 10.0% to 5.5%
Average retirement age 65 62
</TABLE>
12. RELATED PARTY TRANSACTIONS
BSNJ leases its primary operating facility under an operating lease from a
partnership in which certain members of the Company's management are
partners. The lease, which is for a five-year period ending on September
30, 1999 with renewal options, carries a monthly lease payment of $52,457.
In 1998, 1997, and 1996, the Company purchased computer software and
incurred related implementation costs totaling approximately $1.4 million,
$1.2 million and $2.5 million, respectively, from a software company which
has certain directors who are also directors of the Company.
13. RESTRUCTURING AND IMPAIRMENT CHARGE
In June 1998, the Company recorded a restructuring and impairment charge
related to the closure of 3 plants, the elimination of an internal
transportation department and the write-off of equipment at several
operating locations which were impaired due primarily to changes in
manufacturing processes. The 1998 restructuring and impairment charge
totaled $11.5 million and consisted of the following: $7.8 million related
to the closure of the plants and transportation department and $3.7 million
related to other asset impairments. The $7.8 million related to the plant
and transportation department closure includes $2.1 million for severance
costs, $2.2 million for other facility closure costs and $3.5 million for
asset impairments related to the plant shut-downs.
In connection with the closure of the plants in 1998, $5.4 million of real
property is held for sale. This property includes land of $0.8 million and
$4.6 million of buildings, which are held for sale at September 27, 1998.
F-24
<PAGE>
During fiscal 1998, the Company has charged approximately $1.7 million
against the restructuring reserve for severance benefits. In connection
with the plant closures, the plan was for the termination of 210 employees.
As of September 27, 1998, 184 employees have been terminated.
The restructuring liability, which is included in other current
liabilities, at September 27, 1998 includes the following (in thousands):
<TABLE>
<S> <C>
Facility closure costs $2,163
Severance and benefits costs 547
------
$2,710
======
</TABLE>
During the fourth quarter of fiscal 1996, the Company recorded a
restructuring charge comprised of a write-down of assets to be disposed
against operations of $12.9 million. Increased volume resulting from
acquisitions provided the opportunity for the Company to consolidate
certain of its manufacturing processes to meet increased customer demand
and improve efficiencies, which will result in the disposal of surplus
equipment and currently productive manufacturing equipment for scrap values
beginning in early fiscal 1997 and ending in fiscal 2000.
14. CONTINGENCIES
Environmental
The Company continues to monitor and evaluate on an ongoing and regular
basis its compliance with applicable environmental laws and regulations.
Expenditures are expensed or capitalized depending on their future economic
benefit. Expenditures that relate to an existing condition caused by past
operations and that have no future economic benefit are expensed.
Liabilities for noncapital expenditures are recorded when environmental
remediation is probable and the costs can be reasonably estimated. The
Company believes that it is in compliance in all material respects with
applicable federal, state, and local environmental regulations.
The Company (and, in some cases, predecessors to the Company) has, 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.
Because liability under CERCLA is retroactive, it is possible that in the
future the Company may incur liability with respect to other sites.
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 management believes predated
the Company's 1989 acquisition of the facility from Owens-Illinois. Such
pre-1989 contamination is subject to indemnification by Owens-Illinois. The
Company and Owens-Illinois have entered into supplemental agreements
establishing procedures for 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' investigation of the
contamination is continuing. Owens-Illinois is managing the majority of
remediation activities and paying for such work directly. Preliminary
consultant estimates indicated that the cost of cleanup could range from $1
million to $6 million, depending on the extent of
F-25
<PAGE>
contamination. Since Owens-Illinois is conducting the majority of 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 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, subject to certain limitations.
At the Peabody, Massachusetts facility, which was previously leased by
BSNJ, groundwater remediation is underway. The owner of the facility has
agreed to retain all liability for the remediation. 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.
Letters of Credit
At September 27, 1998, a bank had issued standby letters of credit on
behalf of BWAY in the aggregate amount of $1.3 million in favor of BWAY's
workers' compensation insurer.
15. CONCENTRATIONS OF CREDIT RISK
The Company sells its metal containers to a large number of customers in
numerous industry sectors. To reduce credit risk, the Company sets credit
limits and performs ongoing credit evaluations. Sales to the Company's ten
largest customers amounted to approximately 36% (1998), 38% (1997), and 39%
(1996), of the Company's sales including sales to one customer of 9.5%
(1998), 10% (1997), and 13% (1996).
Although the Company's exposure to credit risk associated with nonpayment
is affected by conditions with the customers' industries, the balances are
substantially current and are within terms and limits established by the
Company.
16. SUBSEQUENT EVENTS
On November 9, 1998, the Company purchased substantially all the assets of
U.S. Can Corporation's metal services operations for approximately
$31,000,000 plus the assumption of certain liabilities, including trade
payables, certain employee liabilities, and leases. The purchase price is
subject to an adjustment based upon the change in working capital from July
31, 1998 to November 9, 1998. The business provides metal coating,
lithography, and other metal services. It has three operating plants
located in Trenton, New Jersey; Brookfield, Ohio; and Chicago, Illinois and
a nonoperating plant in Alsip, Illinois.
F-26
<PAGE>
17. QUARTERLY INFORMATION (UNAUDITED) (In thousands, except per share data)
<TABLE>
<CAPTION>
First Second Third Fourth
Fiscal Year 1998: Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Net sales $92,114 $101,165 $107,010 $100,800
======= ======== ======== ========
Gross profit (exclusive of depreciation
and amortization) $15,482 $ 17,346 $ 19,314 $ 12,359
======= ======== ======== ========
Net income $ 1,035 $ 3,946 $ (4,026) $ 564
======= ======== ======== ========
Basic earnings per common share $ 0.11 $ 0.42 $ (0.42) $ 0.05
======= ======== ======== ========
Diluted earnings per common share $ 0.10 $ 0.40 $ (0.40) $ 0.05
======= ======== ======== ========
Fiscal Year 1997:
Net sales $91,166 $100,178 $109,676 $101,130
======= ======== ======== ========
Gross profit (exclusive of depreciation
and amortization) $13,576 $ 17,079 $ 18,264 $ 11,825
======= ======== ======== ========
Net income $ 1,418 $ 3,237 $ 4,399 $ 4,050
======= ======== ======== ========
Basic earnings per common share $ 0.14 $ 0.33 $ 0.45 $ 0.41
======= ======== ======== ========
Diluted earnings per common share $ 0.14 $ 0.33 $ 0.44 $ 0.40
======= ======== ======== ========
</TABLE>
F-27
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule I - Condensed Financial Statements of BWAY Corporation........ S-2
Schedule II - Condensed Valuation and Qualifying Accounts BWAY
Corporation And Subsidiaries............................ S-6
S-1
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF
BWAY CORPORATION
CONDENSED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
ASSETS: September 27, September 28,
1998 1997
------------- -------------
<S> <C> <C>
Investments in subsidiaries $157,137 $136,562
Property, Plant and Equipment - net 3,571 1
Intercompany receivable 35,304 50,795
Other assets 1,217 180
-------- --------
$197,229 $187,538
======== ========
LIABILITIES:
Other liabilities $ 20,041 $ 2,072
Long Term Debt 100,000 100,000
-------- --------
120,041 102,072
-------- --------
STOCKHOLDERS' EQUITY:
Common stock 99 99
Additional paid-in capital 37,395 37,629
Retained earnings 50,192 48,673
-------- --------
87,686 86,401
Less treasury stock, at cost (10,498) (935)
-------- --------
Total stockholders' equity 77,188 85,466
-------- --------
$197,229 $187,538
======== ========
</TABLE>
S-2
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF
BWAY CORPORATION
CONDENSED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
September 27, September 28, September 29,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Management fees charged to subsidiaries $ 3,427 $ 1,545 $1,030
Interest income/(expense) (10,250) (5,125) 362
Other income/(expense), net (17,745) 151 (830)
-------- ------- ------
Income before income taxes and equity in
undistributed earnings of subsidiaries (24,568) (3,429) 562
Income tax expense (12,530) 695 229
-------- ------- ------
Income before equity in undistributed earnings
of subsidiaries (12,038) (4,124) 333
Equity in undistributed earnings of subsidiaries 14,718 17,228 851
Cumulative effect of change in accounting for
systems development costs - net of related tax
benefit of $823 (1,161)
-------- ------- ------
Net income $ 1,519 $13,104 $1,184
======== ======= ======
</TABLE>
S-3
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF
BWAY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
September 27, September 28, September 29,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,519 $ 13,104 $ 1,184
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiaries (14,718) 17,228 (851)
Changes in assets and liabilities:
Other assets (1,037) 78 (258)
Other liabilities 17,969 793 781
Income tax payable (910)
Intercompany payable 9,634 11,925 22,450
------- -------- --------
Net cash provided by (used in) operating
activities 13,367 43,128 22,396
------- -------- --------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (3,570) (42,154) (27,617)
------- -------- --------
Net cash (used in) investing activities (3,570) (42,154) (27,617)
------- -------- --------
FINANCING ACTIVITIES:
Purchase of treasury stock (9,563) (1,147) (9,469)
Other (234)
------- -------- --------
Net cash (used in) provided by financing
activities (9,797) (1,147) (9,469)
------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 0 (173) (14,690)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 0 173 14,863
------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 0 $ 0 $ 173
======= ======== ========
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes $ 4,765 $ 695 $ 229
======= ======== ========
Interest $10,250 $ 5,125
======= ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisitions $ 14,600
========
Common stock issued under employee savings plan $ 830 $ 589
======== ========
</TABLE>
S-5
<PAGE>
SCHEDULE II - CONDENSED VALUATION AND QUALIFYING ACCOUNTS
BWAY CORPORATION AND SUBSIDIARIES
(In Thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
- --------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended September 29, 1996 386 188 184 (1) 390
Year ended September 28, 1997 390 350 160 (1) 580
Year ended September 27, 1998 580 33 80 (1) 533
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
- --------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Restructuring Reserve:
Year ended September 29, 1996 0 12,860 12,860 (2) 0
Year ended September 28, 1997 0 0
Year ended September 27, 1998 0 11,532 8,822 (3) 2,710
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
- --------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Reorganization Reserve:
Year ended September 29, 1996 815 5,075 1,109 4,781
Year ended September 28, 1997 4,781 4,600 6,293 3,088
Year ended September 27, 1998 3,088 1,184 1,904
</TABLE>
____________
(1) Deductions from the allowance for doubtful accounts represent the net
write-off of uncollectable accounts receivable.
(2) P.P.&E and Accumulated Depreciation were the offset (no reserve was
established)
(3) $2,642,000 of this amount was offset to P.P.E. (no reserve was established)
S-6
<PAGE>
INDEX TO EXHIBITS
-------------------------------------------------
Exhibit Description of Document Location of Document
No. in Sequential
Numbering System +
3.1 Amended and Restated Certificate of Incorporation
of the Company. (3)
3.2 Amended and Restated By-laws of the Company (1)
3.3 Rights Agreement dated as of June 9, 1995 between
the Company and Harris Trust and Savings Bank, as
Rights Agent (1)
3.4 Amendments to Rights Agreement dated as of
February 12, 1996 between the Company and Harris
Trust and Savings Bank, as Rights Agent (3)
3.5 Amendment No. 2 to Rights Agreement dated as of
August 19, 1997 between the Company and Harris
Trust and Savings Bank, as Rights Agent (9)
3.6 Amendment No. 2 to Rights Agreement, dated as of
November 26, 1997, between the Company and Harris
Trust and Savings Bank. (9)
4.1 Form of certificate representing shares of Common
Stock of the Company (2)
4.2 Credit Agreement dated June 17, 1996 by and among
BWAY Corporation, Brockway Standard, Inc., Milton
Can Company, Inc., the additional borrowers, BT
Alex. Brown Incorporated (formerly known as Bankers
Trust Company) and NationsBank, N.A. (4)
4.3 Third Amendment To Credit Agreement dated November
2, 1998 among BWAY Corporation, its subsidiaries,
Bankers Trust Company and Nationsbank, N.A.
4.4 Master Assignment and Consent Agreement and First
Amendment to Credit Agreement dated as of August 15,
1996, and Second Amendment to Credit Agreement dated
as of October 15, 1997 between BWAY Corporation,
Brockway Standard, Inc., Milton Can Company, Inc.,
the additional borrowers, BT Alex. Brown Incorporated
(formerly known as Bankers Trust Company), and
NationsBank, N.A. (11)
4.5 Indenture dated as of April 11, 1997 among the
Company, the subsidiary guarantors named therein and
Harris Savings and Trust Company, as trustee (6)
4.6 Forms of Series A and Series B 10 1/4% Senior
Subordinated Notes (contained in Exhibit 4.3 as
Exhibit A and B thereto, respectively) (6)
<PAGE>
4.7 Form of Guarantee (contained in Exhibit 4.3 as
Exhibit F thereto) (6)
4.8 Registration Rights Agreement dated as of April 11,
1997 among the Company, the subsidiary guarantors
named therein, BT Alex. Brown Incorporated (formerly
known as Bankers Trust Company), Bear, Stearns & Co.
Inc., and NationsBanc Capital Markets, Inc. (6)
The Registrant will furnish to the Commission, upon
request, each instrument defining the rights of
holders of long-term debt of the Registrant and its
subsidiaries where the amount of such debt does not
exceed 10 percent of the total assets of the
Registrant and its subsidiaries on a consolidated
basis.
10.1 Asset Purchase Agreement dated December 19, 1988
between BS Holdings Corporation, BW Plastics, Inc.,
BW-Morrow Plastics, Inc. and Owens-Illinois Group,
Inc. (1)
10.2 Registration Agreement dated as of January 30, 1989
between BS Holdings Corporation and certain
stockholders (1)
10.3 Acquisition Agreement dated as of March 4, 1993
between Ellisco Inc. and BSI (1)
10.4 Stock Purchase Agreement dated April 27, 1993 among
Armstrong Industries, Inc., its stockholders,
Armstrong Containers, Inc. and BSI (1)
10.5 Asset Purchase Agreement dated May 26, 1993 among
DK Containers, Inc., Dennis Dyck, Robert Vrhel,
Mohan Patel and BSI (1)
10.6 Employment Agreement between the Company and Warren
J. Hayford, dated as of June 1, 1995 * (1)
10.7 Employment Agreement between the Company and John T.
Stirrup, dated as of June 1, 1995 * (1)
10.8 Memorandum of Agreement dated October 11, 1993
between The Folgers Company and BSI ** (1)
10.9 Contract and Lease dated September 3, 1968, between
the City of Picayune, Mississippi and Standard
Container Company (1)
10.10 Lease dated February 24, 1995 between Tab Warehouse
Fontana II and BSI (1)
10.11 Garland, Texas Industrial Net Lease dated January
14, 1985 between MRM Associates and Armstrong
Containers, Inc. (1)
<PAGE>
10.12 Gross Lease Agreement dated August 10, 1990 between
Colonel Estates Joint Venture and BSI (1)
10.13 Lease dated February 11, 1991 between Curto Reynolds
Oelerich Inc. and Armstrong Containers, Inc. (1)
10.14 Lease Agreement dated November 16, 1996 between (11)
Shelby Distribution Park and Brockway Standard, Inc.,
as amended December 26, 1996.
10.15 Lease dated August 9, 1991 between DK Containers,
Inc. and Smith Barney Birtcher Institutional Fund-I
Limited Partnership and the First Amendment thereto (1)
10.16 Lease dated September 2, 1994 between Division Street
Partners, L.P. and BSNJ (8)
10.17 Employee Stock Purchase Agreement dated March 4, 1994
among BS Holdings Corporation, Perry Schwartz, Mid-
America Group, Ltd., Warren J. Hayford and Daniel P.
Casey * (1)
10.18 Agreement, dated May 15, 1995, between BSI and Owens-
Illinois, Inc. Pursuant to (S) 9.9 (d) of the
December 19, 1988 Stock Purchase Agreement (1)
10.19 Settlement Agreement, dated June 30, 1997 between
BWAY Corporation and Owens-Illinois Group, Inc. (11)
10.20 Brockway Standard Holdings Corporation Formula Plan
for Non-Employee Directors * (1)
10.21 Cooperation Agreement between Ball Corporation and
BWAY Corporation, dated January 4, 1996. (3)
10.22 Merger Agreement with Milton Can Company, Inc.,
dated March 12, 1996. (3)
10.23 Amendment #1 to the Merger Agreement with Milton
Can Company, Inc., dated April 30, 1996 (3)
10.24 Asset Purchase Agreement dated April 29, 1996,
between Brockway Standard, Inc., BWAY Corporation,
Van Dorn Company and Crown Cork & Seal Company, Inc. (3)
10.25 Employment Agreement between the Company and David
P. Hayford, dated as of June 15, 1995 * (4)
10.26 Employment Agreement between the Company and James
W. Milton, dated as of May 28, 1996 * (4)
<PAGE>
10.27 Amended and Restated Registration Rights Agreement
dated as of May 28, 1996, between BWAY Corporation
and certain shareholders. (4)
10.28 Asset Purchase Agreement dated October 6, 1996,
between Brockway Standard (New Jersey), Inc.
(formerly known as Milton Can Company, Inc.), BWAY
Corporation, Ball Metal Food Container Corp., and
Ball Corporation (5)
10.29 Amendment No. 1 to the Asset Purchase Agreement
dated October 28, 1996 between Milton Can Company,
Inc., BWAY Corporation, Ball Metal Food Container
Corp., and Ball Corporation (5)
10.30 Purchase Agreement dated as of April 8, 1997 among
the Company, the subsidiary guarantors named therein,
BT Alex. Brown Incorporated (formerly known as
Bankers Trust Company), Bear, Stearns & Co. Inc. and
NationsBanc Capital Markets, Inc. (6)
10.31 Brockway Standard (Ohio), Inc. Bargaining Unit
Savings Plan * (7)
10.32 Employment Agreement between the Company and John M.
Casey * (9)
10.33 Employment Agreement between the Company and John T.
Stirrup B Amendment No. 1 * (10)
10.34 Employment Agreement between the Company and David
P. Hull * (10)
10.35 BWAY Corporation Second Amended and Restated 1995
Long-Term Incentive Plan (10)
10.36 Asset Purchase Agreement between BMAT, Inc. and the
United States Can Company dated November 9, 1998. (12)
21.2 Subsidiaries of the Company
27.1 Financial Data Schedule
<PAGE>
_________________
* Management contract or compensatory plan or arrangement.
+ This information appears only in the manually signed original copies of
this report.
** Confidential treatment requested.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-91114).
(2) Incorporated by reference to the Company's Form 10-K for the fiscal year
ending October 1, 1995 (File No. 0-26178).
(3) Incorporated by reference to the Company's Form 10-Q for the period ending
March 31, 1996 (File No. 0-26178).
(4) Incorporated by reference to the Company's Form 10-Q for the period ending
June 30, 1996 (File No. 0-26178).
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed
on November 12, 1996 (File No. 0-26178).
(6) Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-26013).
(7) Incorporated by reference to the Company's Registration Statement on Form
S-8 (File No. 333-39225).
(8) Incorporated by reference to the Company's Form 10-K for the fiscal year
ending September 29, 1996 (File No. 0-26178).
(9) Incorporated by reference to the Company's Form 10-Q for the period ending
December 28, 1997 (File No. 0-26178).
(10) Incorporated by reference to the Company's Form 10-Q for the period ending
March 29, 1998 (File No. 0-26178).
(11) Incorporated by reference to the Company's Form 10-K for the fiscal year
ending September 28, 1997 (File No. 0-26178).
(12) Incorporated by reference to the Company's Current Report on Form 8-K filed
on November 9, 1998 (File No. 0-26178).
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of November 2, 1998
(this "Agreement"), is by and among BWAY CORPORATION, a Delaware corporation
---------
("BWAY"), BROCKWAY STANDARD, INC., a Delaware corporation ("Brockway"), BROCKWAY
- ------ --------
STANDARD (NEW JERSEY), INC., a Delaware corporation (formerly named Milton Can
Company, Inc.) ("Brockway New Jersey"), MILTON CAN COMPANY, INC., a Delaware
-------------------
corporation ("Milton"), BROCKWAY STANDARD (OHIO), INC., a Delaware corporation
------
(formerly named Davies Can Company, Inc.) ("Brockway Ohio"), the Lenders parties
-------------
to the Credit Agreement referred to below (the "Lenders"), BANKERS TRUST
-------
COMPANY, as Administrative Agent and Syndication Agent, and NATIONSBANK, N.A.,
successor to NATIONSBANK, N.A. (SOUTH), as Documentation Agent and Paying Agent.
RECITALS:
WHEREAS, BWAY, Brockway, Brockway New Jersey, Milton, Brockway Ohio, the
Agents and the Existing Lenders are parties to that certain Credit Agreement
dated as of June 17, 1996, as amended by the Master Assignment and Consent
Agreement and First Amendment to Credit Agreement dated as of August 15, 1996
and Second Amendment to Credit Agreement dated as of October 15, 1997 (as
amended, restated, supplemented or otherwise modified and in effect from time to
time, the "Credit Agreement"); and
----------------
WHEREAS, BWAY and the Borrowers have requested the Agents and the Lenders
to amend the Credit Agreement in certain respects as set forth herein and the
Agents and the Lenders are agreeable to the same, subject to the terms and
conditions set forth herein;
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein, all
-------------
capitalized terms used herein shall have the meanings given them in the Credit
Agreement.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is, as of
------------------------------
the Effective Date (as defined below), hereby amended as follows:
(a) Section 5.2.5 of the Credit Agreement is hereby amended by (i)
-------------
deleting the word "and" after the semi-colon at the end of subsection (h), (ii)
deleting the period at the end of subsection (i) and substituting "; and,"
therefor and (iii) adding thereto the following new subsection (j) at the end of
such section:
<PAGE>
"(j) in addition to the investments permitted by clauses (a) through
(i) above, so long as no Event of Default or Unmatured Event of Default
then exists or would result therefrom, BWAY and its Subsidiaries may make
Investments in a Person as part of a joint venture with an entity that has
been separately disclosed by BWAY to the Agents prior to November 2, 1998,
so long as (i) all such Investments under this clause (j) are made on or
prior to September 30, 1999 and (ii) the aggregate amount of all such
Investments under this clause (j) (at the time of making thereof) does not
exceed $10,000,000."
(b) Section 5.1.1(d) of the Credit Agreement is hereby amended by
----------------
deleting clause (i) thereof in its entirety and substituting therefor the
following:
"(i) financial statements of the Target and its Subsidiaries, if any,
on a consolidated basis, for the most recently completed fiscal year
of the Target to the extent available, and if not available, then for
the most recently completed four fiscal quarters to the extent
available, and if not available, then for the four fiscal quarters
immediately preceding the most recently completed fiscal quarter,"
(c) Section 5.2.7(c) of the Credit Agreement is hereby amended by
----------------
deleting the ratio "4.00 to 1.00" appearing therein and substituting "4.25 to
1.00" therefor.
(d) Section 5.2.10(b) of the Credit Agreement is hereby amended by
-----------------
deleting the final sentence thereof in its entirety and substituting therefor
the following:
"Notwithstanding the foregoing, BWAY or any Borrower may create
or suffer to exist any non-Wholly-Owned Subsidiary which elects
not to execute and deliver a Subsidiary Guaranty (a "Non-Recourse
------------
Subsidiary") under this clause (b) so long as (A) all Investments
----------
made in all such Non-Recourse Subsidiaries are made in accordance
with Sections 5.2.5(i) and (j) and (B) all Indebtedness of such
-------------------------
Non-Recourse Subsidiary shall be Non-Recourse Debt and all other
liabilities of such Non-Recourse Subsidiary shall be non-recourse
to BWAY and its Subsidiaries (other than Non-Recourse
Subsidiaries) and their respective assets and properties."
(e) Section 5.3.2 of the Credit Agreement is hereby amended by
-------------
deleting the table appearing at the end of the first paragraph of such Section
in its entirety and substituting therefor the following:
Interest
Fiscal Quarter Coverage Ratio
-------------- --------------
Fiscal Quarter ending on or prior to
June 30, 1998 2.75:1.00
Fiscal Quarters ending on
-2-
<PAGE>
September 27, 1998 through June 30, 1999 2.50:1.00
All Fiscal Quarters ending after
June 30, 1999 2.75:1.00"
(f) The definition of "Consolidated Net Income" and "Consolidated Net
Loss" appearing in the Definitional Appendix to the Credit Agreement is hereby
amended by (i) deleting the word "and" at the end of clause (iv) thereof and
(ii) inserting a new clause (vi) at the end thereof as follows:
", and (vi) solely with respect to the calculation of the Leverage
Ratio for all purposes under this Agreement, any cash restructuring
charges, in an aggregate amount not to exceed $4,100,000, which
reduced Consolidated Net Income in the third fiscal quarter in Fiscal
Year 1998."
(g) The definition of "Subsidiary" appearing in the Definitional
Appendix to the Credit Agreement is hereby amended by deleting the reference to
"Section5.2.5(i)" therein and substituting "Section 5.2.5(i) or (j)" therefor.
--------------- -----------------------
SECTION 3. WAIVER. The undersigned Lenders and the Agents hereby waive
------
any breach of the Credit Agreement by BWAY and the Borrowers resulting from
their failure to comply with Section 5.3.2 of the Credit Agreement as in effect
-------------
prior to giving effect to this Amendment for the Fiscal Quarter ending September
27, 1998, provided that BWAY and the Borrowers shall comply with Section 5.3.2
-------------
of the Credit Agreement as amended by this Amendment.
SECTION 4. AMENDMENT FEE. In consideration of the execution of this
-------------
Agreement by the Agents and the Lenders, the Borrowers hereby agree to pay each
Lender which executes this Agreement on or prior to October 30, 1998 a fee (the
"Amendment Fee") in an amount equal to such Lender's Revolving Loan Commitment
-------------
multiplied by 0.10%.
SECTION 5. CONDITIONS PRECEDENT TO EFFECTIVENESS OF AGREEMENT. This
--------------------------------------------------
Agreement shall become effective upon the date (the "Effective Date") each of
--------------
the following conditions have been satisfied:
(a) Execution and Delivery. BWAY, the Borrowers, the Agents and the
----------------------
Required Lenders shall have executed and delivered this Agreement.
(b) No Defaults. No Unmatured Event of Default or Event of Default
-----------
under the Credit Agreement (as amended hereby) shall have occurred and be
continuing.
(c) Representations and Warranties. The representations and
------------------------------
warranties of BWAY and the Borrowers contained in this Agreement, the Credit
Agreement (as amended hereby) and the other Loan Documents shall be true and
correct in all material respects as of the Effective Date, with the same effect
as though made on such date, except to the extent that any such
-3-
<PAGE>
representation or warranty expressly refers to an earlier date, in which case
such representation or warranty shall be true and correct in all material
respects as of such earlier date.
(d) Payment of Amendment Fee. The Borrowers shall have paid in full
------------------------
to the Administrative Agent, for ratable distribution to those Lenders that have
signed this Agreement on or prior to October 30, 1998, an amount equal to the
Amendment Fee, and any other separately agreed upon fees.
(e) Reaffirmation of Guaranty. Each Guarantor Subsidiary shall have
-------------------------
executed and delivered a Reaffiramation of Guaranty in the form attached hereto
as Exhibit A.
---------
SECTION 6. REPRESENTATIONS AND WARRANTIES.
------------------------------
(a) BWAY and each Borrower represents and warrants (i) that it has
full power and authority to enter into this Agreement and perform its
obligations hereunder in accordance with the provisions hereof, (ii) that this
Agreement has been duly authorized, executed and delivered by such party and
(iii) that this Agreement constitutes the legal, valid and binding obligation of
such party, enforceable against such party in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
and by general principles of equity.
(b) BWAY and each Borrower represents and warrants that the following
statements are true and correct:
(i) The representations and warranties contained in the Credit
Agreement and each of the other Loan Documents are and will be true
and correct in all material respects on and as of the Effective Date
to the same extent as though made on and as of that date, except to
the extent such representations and warranties expressly refer to an
earlier date, in which case they were true and correct in all material
respects on and as of such earlier date.
(ii) No event has occurred and is continuing or will result from
the consummation of the transactions contemplated by this Agreement
that would constitute an Event of Default or an Unmatured Event of
Default.
(iii) The execution, delivery and performance of this Agreement
by each of BWAY and each Borrower do not and will not violate its
respective certificate or articles of incorporation or by-laws, any
law, rule, regulation, order, writ, judgment, decree or award
applicable to it or any contractual provision to which it is a party
or to which it or any of its property is subject.
(iv) No authorization or approval or other action by, and no
notice to or filing or registration with, any governmental authority
or regulatory body is required in connection with its execution,
delivery and performance of this Agreement and all
-4-
<PAGE>
agreements, documents and instruments executed and delivered pursuant
to this Agreement.
SECTION 7. REFERENCES TO AND EFFECT ON THE CREDIT AGREEMENT.
------------------------------------------------
(a) On and after the Effective Date each reference in the Credit
Agreement to "this Agreement," "hereunder," "hereof," "herein," or words of like
import, and each reference to the Credit Agreement in the Loan Documents and all
other documents (the "Ancillary Documents") delivered in connection with the
-------------------
Credit Agreement shall mean and be a reference to the Credit Agreement as
amended hereby.
(b) Except as specifically amended above, the Credit Agreement, the
Loan Documents and all other Ancillary Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Lenders or the Agents under the Credit Agreement, the
Loan Documents or the Ancillary Documents.
SECTION 8. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
-------------------------
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of a signature page of
this Agreement by facsimile transmission shall be effective as delivery of a
manually executed counterpart of this Agreement.
SECTION 9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE
-------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE INTERNAL CONFLICTS OF LAWS PROVISIONS THEREOF.
SECTION 10. HEADINGS. Section headings in this Agreement are included
--------
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purposes.
SECTION 11. FEES AND EXPENSES. The Borrowers hereby acknowledge that all
-----------------
costs, fees and expenses as described in Section 11.4 of the Credit Agreement
------------
incurred by the Administrative Agent and its counsel with respect to this
Agreement and the documents and transactions contemplated hereby shall be for
the account of the Borrowers.
[signature pages to follow]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
date above first written.
BWAY CORPORATION BROCKWAY STANDARD, INC.
By: By:
------------------------------- --------------------------------
Name: Name:
----------------------------- ------------------------------
Title: Title:
---------------------------- -----------------------------
MILTON CAN COMPANY, INC. BROCKWAY STANDARD (OHIO), INC.
By: By:
------------------------------- --------------------------------
Name: Name:
----------------------------- ------------------------------
Title: Title:
---------------------------- -----------------------------
BROCKWAY STANDARD (NEW JERSEY), BANKERS TRUST COMPANY, individually
INC. and as Administrative Agent, Syndication
Agent and Facing Agent
By: By:
------------------------------- --------------------------------
Name: Name:
----------------------------- ------------------------------
Title: Title:
---------------------------- -----------------------------
NATIONSBANK, N.A. successor to
NATIONSBANK, N.A. (SOUTH)
individually and as Documentation Agent
and Paying Agent
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
HARRIS TRUST AND SAVINGS BANK, SUNTRUST BANK, ATLANTA,
individually and as Co-Agent individually and as Co-Agent
S-1
Third Amendment to Credit Agreement
<PAGE>
By: By:
------------------------------- --------------------------------
Name: Name:
----------------------------- ------------------------------
Title: Title:
---------------------------- -----------------------------
FIRST UNION, formerly THE BANK OF NEW YORK
CORESTATES BANK, N.A.
By: By:
------------------------------- --------------------------------
Name: Name:
----------------------------- ------------------------------
Title: Title:
---------------------------- -----------------------------
THE BANK OF NOVA SCOTIA BANK OF TOKYO-MITSUBISHI LIMITED,
ATLANTA AGENCY
By: By:
------------------------------- --------------------------------
Name: Name:
----------------------------- ------------------------------
Title: Title:
---------------------------- -----------------------------
PNC BANK, NATIONAL ASSOCIATION NATIONAL CITY BANK, KENTUCKY
By: By:
------------------------------- --------------------------------
Name: Name:
----------------------------- ------------------------------
Title: Title:
---------------------------- -----------------------------
WACHOVIA BANK, N.A.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
S-2
Third Amendment to Credit Agreement
<PAGE>
EXHIBIT 21.2
SUBSIDIARIES OF THE COMPANY
BWAY CORPORATION
- ----------------
Brockway Standard, Inc.
Armstrong Containers, Inc.
Brockway Standard (Ohio), Inc.
Plate Masters, Inc.
Milton Can Company, Inc.
Brockway Standard (New Jersey), Inc.
Northeast Tin Plate Company
Milton Metal Graphics, Inc.
BMAT, Inc.
BMAT (Newtown), Inc.
BMAT (MDD), Inc.
Chicago Metal Decorating, Inc. (1)
Chicago Service Division, Inc. (1)
Brookfield Service Division, Inc. (1)
Trenton Metal Decorative, Inc. (1)
Brockway Standard (Canada), Inc.
BWAY Foreign Sales Corporation
The Company and most of it's significant subsidiaries are Delaware corporations,
except for Northeast Tin Plate Company (a New Jersey Corporation), Milton Metal
Graphics, Inc (an Illinois Corporation), BWAY Foreign Sales Corporation
(incorporated in Barbados), and Brockway Standard (Canada), Inc. which is
organized within the Ontario Province.
Footnote:
(1) - On November 9, 1998 the Company acquired substantially all of the assets
of U.S. Can Corporation's metal services operations. These entities were added
as a result of that acquisition.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> SEP-27-1998 SEP-27-1998
<PERIOD-START> JUN-29-1998 SEP-29-1997
<PERIOD-END> SEP-27-1998 SEP-27-1998
<CASH> 2,303 2,303
<SECURITIES> 0 0
<RECEIVABLES> 36,107 36,107
<ALLOWANCES> 533 533
<INVENTORY> 39,723 39,723
<CURRENT-ASSETS> 13,727 13,727
<PP&E> 167,503 167,503
<DEPRECIATION> 33,543 33,543
<TOTAL-ASSETS> 313,711 313,711
<CURRENT-LIABILITIES> 90,590 90,590
<BONDS> 121,600 121,600
0 0
0 0
<COMMON> 99 99
<OTHER-SE> 77,089 77,089
<TOTAL-LIABILITY-AND-EQUITY> 313,711 313,711
<SALES> 100,800 401,089
<TOTAL-REVENUES> 100,800 401,089
<CGS> 88,441 336,588
<TOTAL-COSTS> 99,563 395,620
<OTHER-EXPENSES> 72 127
<LOSS-PROVISION> (349) 0
<INTEREST-EXPENSE> 2,709 13,021
<INCOME-PRETAX> 1,237 5,469
<INCOME-TAX> 673 2,789
<INCOME-CONTINUING> 564 2,680
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (1,161)
<NET-INCOME> 564 1,519
<EPS-PRIMARY> .06 .16
<EPS-DILUTED> .05 .15
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