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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-26178
BWAY Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 36-3624491
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
8607 Roberts Drive, Suite 250
Atlanta, Georgia 30350-2322
(Address of principal executive offices)
(Zip Code)
(770) 645-4800
(Registrant's telephone number, including area code)
__________________
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
There were 9,323,318 shares of Common Stock ($.01 par value) outstanding as of
May 12, 1999.
<PAGE>
BWAY Corporation
QUARTERLY REPORT ON FORM 10-Q
For the quarter ended
April 4, 1999
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at April 4, 1999
and September 27, 1998 (Unaudited) 3
Consolidated Statements of Income for the three month
and six month periods ended April 4, 1999 and
March 29, 1998 (Unaudited) 4
Consolidated Statements of Cash Flows for the six
month periods ended April 4, 1999 and March 29, 1998
(Unaudited) 5-6
Notes to Consolidated Financial Statements (Unaudited) 7-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
2
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Part I. Financial Information
Item 1. Financial Statements
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands, Except Share and per Share Data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
April 4, September 27,
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,959 $ 2,303
Accounts receivable, net of allowance of $526 at
April 4, 1999 and $533 at September 27, 1998 45,397 35,574
Inventories 52,409 39,723
Deferred tax asset 8,865 4,251
Assets held for sale 17,231 5,377
Other current assets 1,590 4,099
--------- ---------
Total Current Assets 128,451 91,327
--------- ---------
PROPERTY, PLANT AND EQUIPMENT--Net 144,258 133,960
--------- ---------
OTHER ASSETS:
Intangible assets, net 89,577 82,279
Deferred financing costs, net 4,104 4,298
Other assets 1,615 1,847
--------- ---------
Total Other Assets 95,296 88,424
--------- ---------
$ 368,005 $ 313,711
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 62,123 $ 57,095
Accrued salaries & wages 6,830 9,740
Other current liabilities 22,371 17,124
Accrued rebates 5,453 5,959
Current maturities of long-term debt 432 672
--------- ---------
Total Current Liabilities 97,209 90,590
--------- ---------
LONG-TERM DEBT 163,900 121,600
LONG-TERM LIABILITIES:
Deferred income taxes 16,408 15,118
Other long-term liabilities 9,211 9,215
--------- ---------
Total Long Term Liabilities 25,619 24,333
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized 5,000 shares -- --
Common stock, $.01 par value; authorized 24,000,000 shares,
Issued 9,851,002 99 99
Additional paid-in capital 37,240 37,395
Retained earnings 54,883 50,192
--------- ---------
92,222 87,686
Less treasury stock, at cost, 527,684 and 490,384
(April 4, 1999 and September 27, 1998) (10,945) (10,498)
--------- ---------
Total Stockholders' Equity 81,277 77,188
--------- ---------
$ 368,005 $ 313,711
========= =========
</TABLE>
See notes to consolidated financial statements
3
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BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In Thousands, Except per Share Data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
----------------------- --------------------
April 4, March 29, April 4, March 29,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET SALES $ 121,536 $ 101,165 $ 226,522 $ 193,279
COSTS, EXPENSES AND OTHER:
Cost of products sold (excluding
depreciation and amortization) 102,504 83,819 191,805 160,451
Depreciation and amortization 4,623 3,358 9,224 6,885
Selling and administrative expense 5,459 5,117 10,328 9,916
Interest expense, net 3,505 3,493 7,189 6,989
Gain on curtailment of postretirement medical benefits -- (1,547) -- (1,547)
Other, net (264) 148 (182) 86
--------- --------- --------- ---------
Total costs, expenses and other 115,827 94,388 218,364 182,780
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING 5,709 6,777 8,158 10,499
PROVISION FOR INCOME TAXES 2,425 2,831 3,467 4,357
--------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING 3,284 3,946 4,691 6,142
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING FOR SYSTEMS DEVELOPMENT
COSTS--NET OF RELATED TAX BENEFIT OF $823 -- -- -- (1,161)
--------- --------- --------- ---------
NET INCOME $ 3,284 $ 3,946 $ 4,691 $ 4,981
========= ========= ========= =========
EARNINGS PER SHARE BEFORE CUMULATIVE ACCOUNTING CHANGE:
Basic Earnings Per Common Share $ 0.35 $ 0.42 $ 0.50 $ 0.64
========= ========= ========= =========
Weighted Average Basic Common Shares Outstanding 9,320 9,473 9,326 9,614
========= ========= ========= =========
Diluted Earnings Per Common Share $ 0.35 $ 0.40 $ 0.49 $ 0.61
========= ========= ========= =========
Weighted Average Diluted Common Shares Outstanding 9,435 9,968 9,503 10,076
========= ========= ========= =========
EARNINGS PER SHARE AFTER CUMULATIVE ACCOUNTING CHANGE:
Basic Earnings Per Common Share $ 0.35 $ 0.42 $ 0.50 $ 0.52
========= ========= ========= =========
Weighted Average Basic Common Shares Outstanding 9,320 9,473 9,326 9,614
========= ========= ========= =========
Diluted Earnings Per Common Share $ 0.35 $ 0.40 $ 0.49 $ 0.49
========= ========= ========= =========
Weighted Average Diluted Common Shares Outstanding 9,435 9,968 9,503 10,076
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
4
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<TABLE>
<CAPTION>
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
______________________________________________________________________________________________________
Six Months Ended
---------------------
April 4, March 29,
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 4,691 $ 4,981
Adjustments to reconcile net income to net cash provided by (used in)
Operating activities:
Depreciation 7,267 5,089
Amortization of intangibles 1,957 1,796
Amortization of deferred financing costs 367 367
Curtailment gain -- (1,547)
Cumulative effect of change in accounting principle (net) -- 1,161
Provisions for doubtful accounts (7) 78
(Gain) / Loss on disposition of property, plant and equipment (186) 49
Changes in assets and liabilities, net of effects of business acquisitions:
Accounts receivable 921 (2,484)
Inventories (8,216) (6,347)
Other assets 3,753 (1,146)
Accounts payable 9,832 (5,908)
Accrued liabilities (5,150) (3,898)
Income taxes, net 4,018 658
-------- --------
Net cash provided by (used in) operating activities 19,247 (7,151)
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (15,374) (17,485)
Proceeds from disposition of property, plant and equipment 4,420 365
Acquisitions, net of cash acquired (30,187) --
Assets held for sale (10,916) --
Other (128) --
-------- --------
Net cash used in investing activities (52,185) (17,120)
-------- --------
FINANCING ACTIVITIES:
Net borrowings under bank credit agreement 42,300 38,100
Repayments on long-term debt (240) (258)
Increase (decrease) in unpresented bank drafts (7,691) (4,368)
Net purchases of treasury stock (602) (8,676)
Financing costs incurred (173) (100)
Other -- 668
-------- --------
Net cash provided by financing activities 33,594 25,366
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 656 1,095
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,303 1,374
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,959 $ 2,469
======== ========
(Continued)
</TABLE>
5
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<TABLE>
<CAPTION>
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
______________________________________________________________________________________________________
Six Months Ended
---------------------
April 4, March 29,
1999 1998
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6,979 $ 6,792
======== ========
Income taxes $ 403 $ 3,840
======== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Amounts owed for capital expenditures $ 1 ,431 $ 650
======== ========
Details of businesses acquired were as follows:
Fair value of assets acquired $ 51,400
Liabilities assumed (21,213)
--------
Net cash paid for acquisitions $ 30,187
========
</TABLE>
See notes to consolidated financial statements
6
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BWAY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. GENERAL
The accompanying consolidated financial statements have been prepared by the
Company without audit. Certain information and footnote disclosures,
including significant accounting policies, normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The consolidated financial
statements as of April 4, 1999 and September 27, 1998 and for the three and
six month periods ended April 4, 1999 and March 29, 1998 include all normal
recurring adjustments necessary for a fair presentation of the financial
position and results of operations for these periods. Operating results for
the six months ended April 4, 1999 are not necessarily indicative of the
results that may be expected for the entire year. It is suggested that these
unaudited consolidated financial statements and the accompanying notes are
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K.
The Company operates on a 52/53-week fiscal year ending on the Sunday closest
to September 30 of the applicable year. The first three quarterly fiscal
periods end on the Sunday closest to December 31, March 31 or June 30 of the
applicable quarter.
2. INVENTORIES
Inventories are carried at the lower of cost or market, with cost determined
under the last-in, first-out (LIFO) method of inventory valuation and are
summarized as follows:
April 4, September 27,
1999 1998
Inventories at FIFO Cost:
Raw materials $ 10,793 $ 6,555
Work-in-process 28,382 22,695
Finished goods 13,457 10,696
-------- --------
$ 52,632 $ 39,946
Reserve for LIFO (223) (223)
-------- --------
$ 52,409 $ 39,723
======== ========
3. EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of common
shares outstanding during each period presented, including vested and
unvested shares issued under the Company's previous management stock purchase
plan and the dilutive effect of the shares from the Current Plan. Weighted
average basic common shares outstanding for the second quarter of fiscal 1999
and 1998 were 9.3 million and 9.5 million, respectively. Weighted average
diluted common shares outstanding for the second quarter of fiscal 1999 and
1998 were 9.4 million and 10.0 million, respectively.
4. ACQUISITIONS
U.S. Can Metal Services Operations
On November 9, 1998, 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 was subject to an adjustment based upon
the change in working capital from July 31, 1998 to November 9, 1998. A
portion of the working capital adjustment was settled during the second
quarter of fiscal 1999. This adjustment totaled $1.5 million and was
comprised substantially of uncollectable accounts receivable for which
BWAY was reimbursed. The acquisition includes three operating plants and one
non-operating plant. The acquired facilities operate two different
businesses, coating and lithography which is part of the Company's growth
strategy, and tinplate metal services which is not a core business of the
Company. Subsequent to the acquisition, the Company signed a binding letter
of intent to sell the tinplate services business. As the result of the
pending sale and the Company's 3R initiative to rationalize, reengineer and
recapitalize operations, the Company has announced plans to close
7
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two of the acquired facilities.
The purchase method of accounting was used to establish and record a new
cost basis for the assets acquired and liabilities assumed. The allocation
of the purchase price and acquisition costs to the assets acquired and
liabilities assumed is preliminary at April 4, 1999, and is subject to
change pending finalization of appraisals and other studies of fair value
and finalization of management's plans which may result in the recording of
additional liabilities as part of the allocation of purchase price. The
operating results for the U.S. Can Acquisition have been included in the
Company's consolidated financial statements since the date of acquisition
except for the tinplate services business which is being sold as described
below. The excess purchase price over fair market value of net identifiable
assets acquired was in aggregate $9.2 million.
On November 17, 1998, the Company signed a binding 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. The Company expects to finalize the sale of the tinplate services
business by the end of fiscal 1999. The Company has excluded from operations
losses of $1.0 million, including interest expense of $0.2 million, from the
results of operations for the quarter ended April 4, 1999. The net assets to
be disposed of $10.2 million are included in assets held for sale on the
balance sheet. The net assets to be sold include $1.3 million in total
estimated losses prior to closure before the end of fiscal 1999.
Management has committed to a plan to exit certain activities of the
acquired companies and integrate acquired assets and businesses with BWAY
facilities. In connection with recording the purchases, the Company
established a reorganization liability of approximately $2.9 million, which
is classified in other current liabilities. The liability represents the
direct costs expected to be incurred, which have no future economic benefit
to the Company. These costs include charges relating to the closing of
manufacturing facilities and severance costs. Finalization of the Company's
integration plan may result in further adjustments to this reserve. As of
April 4, 1999, the Company had not charged any costs against the
reorganization liability.
The following pro forma results assume that the U.S. Can Acquisition
occurred at the beginning of the fiscal year ended September 27, 1998 after
giving effect to certain pro forma adjustments, including an adjustment to
reflect the amortization of cost in excess of the net assets acquired,
increased interest expense and the estimated related income tax effects.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 4, 1999 March 29, 1998 April 4, 1999 March 29, 1998
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 121,536 $ 101,165 $ 235,572 $ 221,736
Net income $ 3,284 $ 3,946 $ 4,329 $ 5,007
Earnings per common share:
Net income - Basic $ 0.35 $ 0.42 $ 0.46 $ 0.52
Net income - Diluted $ 0.35 $ 0.40 $ 0.46 $ 0.50
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the acquisition been
consummated as of the beginning of fiscal 1998, nor is it necessarily
indicative of future operating results.
5. LONG-TERM DEBT
On November 2, 1998, the Company and its lenders executed an 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. 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 Bank of America (formerly
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
8
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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.
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.
At April 4, 1999, the Company was restricted in its ability to pay dividends
and make other restricted payments in an amount greater than approximately
$11.3 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.
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 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.
6. ACCOUNTING CHANGE
On November 20, 1997 the FASB's Emerging Issues Task Force (EITF) issued a
consensus ruling, which affects the accounting treatment of certain
information systems and process reengineering costs. The Company is involved
in a business information systems and process reengineering project that is
subject to this pronouncement. Based on the EITF consensus, $2.0 million
before tax of the previously capitalized costs associated with this project
were expensed in the first fiscal quarter of 1998, as a change in accounting
method. A one-time charge of $1.2 million after tax or $0.11 per diluted
share for the cumulative effect of this new accounting interpretation for
business information systems and process reengineering activities reduced
first quarter of 1998 net earnings to $1.0 million or $0.10 per fully
diluted share.
7. RESTRUCTURING AND IMPAIRMENT OF ASSETS
On June 3, 1998, the Board of Directors of the Company approved a
restructuring plan designed to improve operating efficiencies. The plan
involves the rationalization of three existing facilities, the shift of
related production to other facilities and the elimination of an internal
trucking fleet. The facilities scheduled for closure in fiscal 1999 include
Solon (Ohio), Farmer's Branch (Texas) and Northeast Tin Plate (New Jersey).
The 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 announced in 1998, $1.2 million of real property is held for sale.
(See Note 8.)
During fiscal 1998, the Company 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
January 3, 1999, all employees were terminated.
During the second quarter of fiscal 1999, the Company charged approximately
$0.4 million against the 1998 restructuring reserve for facility closure
costs.
9
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8. ASSETS HELD FOR SALE
In connection with the closure of the plants announced in 1998, $1.2 million
of real property is held for sale. This property includes land of $0.2
million and $1.0 million of buildings, which are held for sale at April 4,
1999. On March 25, 1999, the Company sold the Solon, Ohio facility for $4.5
million resulting in a net gain of $0.2 million.
Additionally, the Company has entered into negotiations and is considering
options regarding a sale-leaseback transaction for its Cincinnati, Ohio
facility. The Company plans to complete this transaction by the third
quarter of fiscal 1999; therefore, the Company has reclassified the net book
value of $6.0 million for the land and building to assets held for sale.
These transactions are the result of the Company's 3R initiative to
rationalize, reengineer and recapitalize operations.
9. CONTINGENCIES
Environmental
The Company is subject to a broad range of federal, state and local
environmental and workplace health and safety requirements, including those
governing discharges to air and water, the handling and disposal of solid
and hazardous wastes, and the remediation of contamination associated with
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 are no material capital expenditures relating to
environmental compliance expected for fiscal 1999 or fiscal 2000.
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
currently finalizing 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 undertaken 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 cannot 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 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
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Litho ("U.S. Eagle"), is required to investigate and remediate contamination
at that location under the New Jersey Industrial Site Recovery Act ("IRSA").
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.
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 have historically comprised 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.
11
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales increased 20.1% in the second quarter of fiscal 1999 to $121.5 million
from $101.2 million in the second quarter of fiscal 1998. Net sales for the six
months ended April 4, 1999 increased 17.2% to $226.5 million compared to $193.3
million for the six months ended March 29, 1998. This increase was largely due
to a combination of incremental sales volume provided from the U.S. Can
Acquisition and by moderate improvement in general line sales.
Cost of products sold (excluding depreciation and amortization) increased 22.3%
in the second quarter of fiscal 1999 to $102.5 million from $83.8 million in the
same period of fiscal 1998. The increase is attributable primarily to the
incremental sales volume provided from the U.S. Can Acquisition and by moderate
improvement in general line sales; and to a lessor extent, start-up costs of new
equipment and plant rationalization costs. Cost of products sold for the six
months ended April 4, 1999 increased 19.5% to $191.8 million compared to $160.5
million for the six months ended March 29, 1998. Cost of products sold as a
percentage of net sales increased from 82.9% in the second quarter of fiscal
1998 to 84.3% in the second quarter of fiscal 1999. This increase results
primarily from incremental sales of the U.S. Can Acquisition which historically
had significantly higher associated cost of sales.
Depreciation and amortization expense increased $1.2 million in the second
quarter of fiscal 1999 to $4.6 million from $3.4 million in the second quarter
of fiscal 1998. Depreciation and amortization expense for the six months ended
April 4, 1999 increased 33.9% to $9.2 million compared to $6.9 million for the
six months ended March 29, 1998. The increase is primarily due the U.S. Can
Acquisition and the Company's capital expenditure program.
Selling and administrative costs increased $0.3 million to $5.4 million in the
second quarter of fiscal 1999 from $5.1 million in the second quarter of fiscal
1998. Selling and administrative costs for the six months ended April 4, 1999
increased 4.2% to $10.3 million compared to $9.9 million for the six months
ended March 29, 1998. Selling and administrative costs as a percentage of net
sales decreased 0.6% to 4.5% in the second quarter of fiscal 1999 from 5.1% in
the second quarter of fiscal 1998. The decrease as a percent of net sales is due
primarily to the impact of the incremental sales volume from the U.S. Can
Acquisition.
Interest expense for the second quarter of fiscal 1999 and fiscal 1998 were
essentially the same at $3.5 million. Interest expense for the six months ended
April 4, 1999 increased 2.9% to $7.1 million compared to $6.9 million for the
six months ended March 29, 1998. Interest expense as a percentage of net sales
decreased 0.6% to 2.9% in the second quarter of fiscal 1999 from 3.5% in the
second quarter of fiscal 1998.
Income before income taxes and cumulative effect of change in accounting
decreased $1.1 million to $5.7 million in the second quarter of fiscal 1999,
from $6.8 million in the second quarter of fiscal 1998. This decrease is due
primarily to the gain on curtailment of post retirement medical benefits
recorded in the second quarter of fiscal 1998.
Diluted earnings per share, excluding the effect of an accounting change, were
$0.35 per share for the second quarter of fiscal 1999 compared to $0.40 per
share for the same period of 1998. The weighted average diluted shares
outstanding were 9.4 million and 10.0 million for the respective quarters.
On November 20, 1997 the FASB's Emerging Issues Task Force (EITF) issued a
consensus, which affects the accounting treatment of certain information systems
and process reengineering costs. The Company is involved in a business
information systems and process reengineering project that is subject to this
pronouncement. Based on the EITF ruling, a portion of the previously capitalized
costs associated with this project were expensed in the first fiscal quarter of
1998, as a change in accounting method. 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 was recorded in the first quarter of fiscal 1998. There was no
corresponding charge for the first or second quarter of fiscal 1999.
12
<PAGE>
Liquidity and Capital Resources
The Company's cash requirements for operations, capital expenditures and
acquisitions during the six months ending April 4, 1999 were financed through
borrowings under the Company's Credit Agreement and internally generated cash
flows. At April 4, 1999, the Company had availability under the existing Credit
Agreement to borrow an additional $61.1 million, plus an additional $25 million
if certain conditions are met.
During the first six months of fiscal 1999, net cash provided by operating
activities was $19.2 million compared to $7.2 million used during the first six
months of fiscal 1998. Net cash was provided by net income, reductions of
accounts receivable, other assets and income taxes receivable, and increases in
accounts payable.
During the first six months of fiscal 1999, net cash used in investing
activities was $52.0 million compared to $17.1 million used in the first six
months of fiscal 1998. Capital expenditures during the first half of fiscal 1999
totaled $15.4 million of which $6.6 was spent during the second quarter of
fiscal 1999. The Company intends to invest approximately $30 million on capital
expenditures during fiscal 1999. During the second quarter of fiscal 1999, the
Company received $4.5 million from the sale of its Solon, Ohio plant which was
shut down late in fiscal 1998. During the first quarter of 1999, the Company
used $31.0 million for the U.S. Can Acquisition.
Net cash provided by financing activities during the first six months of fiscal
1999 was $33.6 million compared to $25.4 million provided during the first six
months of fiscal 1998. Cash provided by financing activities for the first six
months of fiscal 1999 included $42.3 million of borrowings under the Company's
Credit Agreement. Unpresented bank drafts decreased $7.7 million during the
first six months of 1999. The Company repurchased $0.6 million of its common
stock during the first six months of fiscal 1999 under the Company's common
stock repurchase program.
At April 4, 1999, the Company was restricted in its ability to pay dividends and
make other restricted payments in an amount greater than approximately $11.3
million. The Company's subsidiaries are restricted in their ability to transfer
funds to the Company, except for funds to be used to effect approved
acquisitions, pay dividends in specified amounts, reimburse the Company for
operating and other expenditures made on behalf of the subsidiaries and repay
permitted intercompany indebtedness.
The Company has historically financed its operations through cash provided by
operations and by borrowings under its credit agreements. BWAY's future
principal uses of cash will be for payment of operating expenses, funding
capital investments, payment for additional acquisitions, repurchase of common
stock, and servicing debt.
Management believes that cash provided from borrowings available under the
Credit Agreement and operations will provide it with sufficient liquidity to
meet its operating needs and continue the Company's capital expenditure
initiatives for the next twelve months. The Company continues to pursue growth
strategies and acquisition opportunities in the container industry and in
connection therewith may incur additional indebtedness.
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 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.
13
<PAGE>
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.
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 intends 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 April
4, 1999, the Company has incurred approximately $18.8 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 $18 - 23 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 plans may include the use of alternative
suppliers, stock piling of raw materials, increased inventory levels and other
appropriate measures. At present, the Company has made reasonable efforts to
ensure key suppliers and customers have instituted some measure of readiness and
has requested written response from each. In key operating areas, the Company
has requested meetings with suppliers to review Year 2000 plans and contingency
options. 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 issue compliance efforts will preclude a
Year 2000 issue or a series of issues outside its direct control from adversely
affecting its results of 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.
14
<PAGE>
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, timing and cost of plant start-up and closure, 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.
15
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's Credit Agreement permits the Company to borrow up to $125 million,
plus an additional $25 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
April 4, 1999, the Company has borrowings under the Credit Agreement of $63.9
million that were subject to interest rate risk. Each 1.0% increase in interest
rates would impact pretax earnings by $0.2 million.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual shareholders meeting on February 19, 1999. See
Exhibit 22.1 for a report of the voting on the matters considered at the
meeting.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
See Index of Exhibits
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BWAY Corporation
(Registrant)
Date: May 19, 1999 By: /s/ John M. Casey
-----------------
John M. Casey
Executive Vice President &
Chief Financial Officer
Form 10-Q: For the quarterly period ending April 4, 1999.
18
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description of Document
- ------- -----------------------------------------------------
22.1 Certificate and Report of Inspector of Elections for
the Annual Meeting for the Stockholders of BWAY
Corporation dated February 19, 1999.
___________
19
<PAGE>
BWAY CORPORATION
1999 ANNUAL MEETING OF STOCKHOLDERS
CERTIFICATE AND REPORT OF INSPECTOR OF ELECTION
-----------------------------------------------
The undersigned, the duly appointed Inspector of Election at the Annual
Meeting of Stockholders (the "Annual Meeting") of BWAY Corporation, a Delaware
corporation (the "Company"), held on February 19, 1999, pursuant to Section 231
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY
that the following is an accurate report of the votes of the stockholders of the
Company at the Annual Meeting:
(1) The number of shares of Common Stock of the Company issued and
outstanding and entitled to vote on matters submitted at the Annual Meeting to
the holders of Common Stock was 9,310,818.
(2) There were present at the Annual Meeting, in person or by proxy,
holders of 8,644,976 shares of Common Stock, which is 92.85% of the total number
of shares of Common Stock outstanding and entitled to vote at the Annual Meeting
and which constituted a quorum for purposes of voting on each of the matters
submitted to the stockholders for their vote.
(3) I tabulated the votes with respect to the election of directors, and
James W. Milton received 8,116,298 votes, John E. Jones received 8,116,143 votes
and John W. Puth received 8,116,093 votes.
(4) Each of James W. Milton, John E. Jones and John W. Puth received a
plurality of the votes cast by the holders of the Common Stock and I hereby
declare and certify to the Secretary of the Company that each of James W.
Milton, John E. Jones and John W. Puth has been duly elected as a director of
the Company.
<PAGE>
(5) I tabulated the votes with respect to the resolution regarding
approval of the third amendment and restatement of the BWAY Corporation 1995
Long-Term Incentive Plan and such proposal received the number of votes set
forth below:
Number of Votes
---------------
For 6,175,199.9000
Against 2,445,250.9530
Abstain 24,325.1470
Since a majority of the outstanding shares of the Common Stock were voted for
adoption, I hereby declare and certify to the Secretary of the Company that such
resolution has been adopted by the stockholders of the Company.
(6) I tabulated the votes with respect to the resolution regarding
ratification of the appointment of Deloitte & Touche LLP as independent public
accountants for the fiscal year ending October 3, 1999 and such proposal
received the number of votes set forth below:
Number of Votes
---------------
For 8,610,466.3100
Against 8,670.0650
Abstain 25,839.6250
Since a majority of the votes cast by the holders of the Common Stock present
and voting at the meeting were votes for approval, I hereby declare and certify
to the Secretary of the Company that such resolution has been approved by the
stockholders of the Company.
* * * * *
<PAGE>
IN WITNESS WHEREOF, I have executed this Certificate the 19th day of
February, 1999.
By: /s/ Susan M. Shadel
--------------------------------
Print: Susan M. Shadel
-----------------------------
on behalf of Harris Trust and
Savings Bank
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BWAY
CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> OCT-03-1999 OCT-03-1999
<PERIOD-START> JAN-04-1999 SEP-28-1998
<PERIOD-END> APR-04-1999 APR-04-1999
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<SECURITIES> 0 0
<RECEIVABLES> 45,923 45,923
<ALLOWANCES> 526 526
<INVENTORY> 52,409 52,409
<CURRENT-ASSETS> 128,451 128,451
<PP&E> 184,313 184,313
<DEPRECIATION> 40,055 40,055
<TOTAL-ASSETS> 368,005 368,005
<CURRENT-LIABILITIES> 97,209 97,209
<BONDS> 163,900 163,900
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<SALES> 121,536 226,522
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