-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TinG9kd0bcpkS6XfZCJRLRJ8+cdmAGWy/BQY04XA4K4hJx0pNaiJnmvrZIFRTmxH dx84ivp0YJsIxg+6mrwd7g== 0000931763-99-002458.txt : 19990819 0000931763-99-002458.hdr.sgml : 19990819 ACCESSION NUMBER: 0000931763-99-002458 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990704 FILED AS OF DATE: 19990818 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BWAY CORP CENTRAL INDEX KEY: 0000943897 STANDARD INDUSTRIAL CLASSIFICATION: METAL CANS [3411] IRS NUMBER: 363624491 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12415 FILM NUMBER: 99695528 BUSINESS ADDRESS: STREET 1: 8607 ROBERTS DR STREET 2: STE 250 CITY: ATLANTA STATE: GA ZIP: 30350 BUSINESS PHONE: 4045870888 MAIL ADDRESS: STREET 1: 8607 ROBERTS DRIVE SUITE 250 CITY: ATLANTA STATE: GA ZIP: 30350 FORMER COMPANY: FORMER CONFORMED NAME: BROCKWAY STANDARD HOLDINGS CORP DATE OF NAME CHANGE: 19950413 10-Q 1 FORM 10-Q 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 July 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 of (I.R.S. Employer Identification No.) 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 9,315,318 shares of Common Stock ($.01 par value) outstanding as of August 11, 1999. BWAY Corporation QUARTERLY REPORT ON FORM 10-Q For the quarter ended July 4, 1999 INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at July 4, 1999 and September 27, 1998 (Unaudited) 3 Consolidated Statements of Income for the three month and nine month periods ended July 4, 1999 and June 28, 1998 (Unaudited) 4 Consolidated Statements of Cash Flows for the nine month periods ended July 4, 1999 and June 28, 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 12-16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 2 Part I. Financial Information Item 1. Financial Statements BWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and per Share Data)
- ------------------------------------------------------------------------------------------------------------------- July 4, September 27, ASSETS 1999 1998 (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ 4,185 $ 2,303 Accounts receivable, net of allowance of $586 at July 4, 1999 and $533 at September 27, 1998 55,764 35,574 Inventories 49,628 39,723 Deferred tax asset 8,865 4,251 Assets held for sale 10,462 5,377 Other current assets 2,716 4,099 -------- -------- Total Current Assets 131,620 91,327 -------- -------- PROPERTY, PLANT AND EQUIPMENT -- Net 144,117 133,960 -------- -------- OTHER ASSETS: Intangible assets, net 88,827 82,279 Deferred financing costs, net 3,917 4,298 Other assets 400 1,847 -------- -------- Total Other Assets 93,144 88,424 -------- -------- $368,881 $313,711 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 58,133 $ 57,095 Accrued salaries & wages 7,994 9,740 Other current liabilities 18,951 17,124 Accrued rebates 6,543 5,959 Current maturities of long-term debt 34 672 -------- -------- Total Current Liabilities 91,655 90,590 -------- -------- LONG-TERM DEBT 168,300 121,600 LONG-TERM LIABILITIES: Deferred income taxes 16,408 15,118 Other long-term liabilities 9,474 9,215 -------- -------- Total Long Term Liabilities 25,882 24,333 -------- -------- 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 (July 4, 1999 and September 27, 1998) 99 99 Additional paid-in capital 37,240 37,395 Retained earnings 56,759 50,192 -------- -------- 94,098 87,686 Less treasury stock, at cost, 535,684 and 490,384 (July 4, 1999 and September 27, 1998) (11,054) (10,498) -------- -------- Total Stockholders' Equity 83,044 77,188 -------- -------- $368,881 $313,711 ======== ========
See notes to consolidated financial statements. 3 BWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In Thousands, Except per Share Data)
- -------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended ---------------------- ------------------ July 4, June 28, July 4, June 28, 1999 1998 1999 1998 NET SALES $123,109 $107,010 $349,631 $300,289 COSTS, EXPENSES AND OTHER: Cost of products sold (excluding depreciation and amortization) 106,857 87,696 298,662 248,147 Depreciation and amortization 4,456 3,983 13,680 10,868 Selling and administrative expense 5,053 6,774 15,381 16,690 Interest expense, net 3,549 3,323 10,738 10,312 Gain on curtailment of postretirement medical benefits -- -- -- (1,547) Provision for restructuring -- 11,532 -- 11,532 Other, net (69) (31) (251) 55 -------- -------- -------- -------- Total costs, expenses and other 119,846 113,277 338,210 296,057 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 3,263 (6,267) 11,421 4,232 PROVISION (BENEFIT) FOR INCOME TAXES 1,387 (2,241) 4,854 2,116 -------- -------- -------- -------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 1,876 (4,026) 6,567 2,116 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR SYSTEMS DEVELOPMENT COSTS-NET OF RELATED TAX BENEFIT OF $823 -- -- -- (1,161) -------- -------- -------- -------- NET INCOME (LOSS) $ 1,876 $ (4,026) $ 6,567 $ 955 ======== ======== ======== ========
EARNINGS PER SHARE BEFORE CUMULATIVE ACCOUNTING CHANGE: - -------------------------------------------------------
Basic Earnings (Loss) Per Common Share $ 0.20 $ (0.42) $ 0.70 $ 0.22 ======== ======== ======== ======== Weighted Average Basic Common Shares Outstanding 9,325 9,474 9,325 9,567 ======== ======== ======== ======== Diluted Earnings (Loss) Per Common Share $ 0.20 $ (0.40) $ 0.69 $ 0.21 ======== ======== ======== ======== Weighted Average Diluted Common Shares Outstanding 9,476 9,969 9,494 10,040 ======== ======== ======== ========
EARNINGS PER SHARE AFTER CUMULATIVE ACCOUNTING CHANGE: - ------------------------------------------------------
Basic Earnings (Loss) Per Common Share $ 0.20 $ ( 0.42) $ 0.70 $ 0.10 ======== ======== ======== ======== Weighted Average Basic Common Shares Outstanding 9,325 9,474 9,325 9,567 ======== ======== ======== ======== Diluted Earnings (Loss) Per Common Share $ 0.20 $ (0.40) $ 0.69 $ 0.10 ======== ======== ======== ======== Weighted Average Diluted Common Shares Outstanding 9,476 9,969 9,494 10,040 ======== ======== ======== ========
See notes to consolidated financial statements. 4 BWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands)
- -------------------------------------------------------------------------------------------------------------------------- Nine Months Ended ---------------------------------- July 4, June 28, 1999 1998 OPERATING ACTIVITIES: Net income $ 6,567 $ 955 Adjustments to reconcile net income to net cash provided by (used in) Operating activities: Depreciation 10,777 8,166 Amortization of intangibles 2,903 2,702 Amortization of deferred financing costs 558 551 Curtailment gain -- (1,547) Cumulative effect of change in accounting principle (net) -- 1,161 Restructuring charge -- 11,532 Provision for doubtful accounts 40 4 (Gain) / Loss on disposition of property, plant and equipment (186) 90 Changes in assets and liabilities, net of effects of business acquisitions: Accounts receivable (9,493) (4,990) Inventories (5,524) (5,070) Other assets 3,774 (205) Accounts payable 9,377 (6,290) Accrued liabilities (6,273) (6,109) Income taxes, net 5,293 (2,299) -------- -------- Net cash provided by (used in) operating activities 17,813 (1,349) -------- -------- INVESTING ACTIVITIES: Capital expenditures (21,744) (27,255) Proceeds from disposition of property, plant and equipment 4,420 382 Acquisitions, net of cash acquired (30,187) -- Assets held for sale (4,020) -- Other - 756 -------- -------- Net cash used in investing activities (51,531) (26,117) -------- -------- FINANCING ACTIVITIES: Net borrowings under bank credit agreement 46,700 33,400 Repayments on long-term debt (638) (1,296) Increase (decrease) in unpresented bank drafts (9,574) 2,329 Net purchases of treasury stock (711) (9,175) Financing costs incurred (177) (100) Other -- 1,284 -------- -------- Net cash provided by financing activities 35,600 26,442 -------- -------- 1,882 (1,024) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,303 1,374 -------- -------- $ 4,185 $ 350 CASH AND CASH EQUIVALENTS, END OF PERIOD ======== ======== (Continued)
5 BWAY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands)
Nine Months Ended ----------------------------------- July 4, June 28, 1999 1998 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 13,778 $13,187 -------- ------- Income taxes $ (437) $ 4,415 ======== ======= NONCASH INVESTING AND FINANCING ACTIVITIES: Amounts owed for capital expenditures $ 0 $ 1,048 ======== ======= Details of businesses acquired were as follows: ---------------------------------------------- Fair value of assets acquired $ 51,596 Liabilities assumed (21,409) -------- Net cash paid for acquisitions $ 30,187 --------
See notes to consolidated financial statements. 6 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 July 4, 1999 and September 27, 1998 and for the three and nine month periods ended July 4, 1999 and June 28, 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 nine months ended July 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:
July 4, September 27, 1999 1998 Inventories at FIFO Cost: Raw materials $ 7,908 $ 6,555 Work-in-process 31,605 22,695 Finished goods 10,338 10,696 ------- ------- $49,851 $39,946 Reserve for LIFO (223) (223) ------- ------- $49,628 $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 third quarter of fiscal 1999 and 1998 were 9.3 million and 9.5 million, respectively. Weighted average diluted common shares outstanding for the third quarter of fiscal 1999 and 1998 were 9.5 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 of uncollectable accounts receivable for which BWAY was reimbursed. The acquisition included 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. In anticipation of the sale, the Company closed a tinplate metal services facility in Brookfield, Ohio. As part of the Company's 3R initiative to rationalize, reengineer and recapitalize operations, the Company has announced plans to close an additional acquired facility. 7 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 July 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. At July 4, 1999, the excess purchase price over fair market value of net identifiable assets acquired was in aggregate $9.4 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 $1.1 million, including interest expense of $0.2 million, from the results of operations for the quarter ended July 4, 1999. The net assets to be disposed of $1.9 million are included in assets held for sale on the balance sheet. 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 purchase, 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. The following pro forma results assume that the U.S. Can Acquisition, excluding tinplate services, 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.
Three Months Ended Nine Months Ended July 4, 1999 June 28, 1998 July 4, 1999 June 28, 1998 (In thousands, except per share amounts) - --------------------------------------------------------------------------------------------------------------- Net sales $132,159 $116,680 $358,681 $328,746 Net income (Loss) $ 1,490 $ (3,764) $ 6,222 $ 1,372 Earnings per common share: Net income (Loss) - Basic $ 0.16 $ ( 0.40) $ 0.67 $ 0.14 Net income (Loss)- Diluted $ 0.16 $ ( 0.38) $ 0.66 $ 0.14 - ---------------------------------------------------------------------------------------------------------------
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 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. At July 4, 1999, the Company was restricted in its ability to pay dividends and make other restricted payments in an amount greater than approximately $12.2 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 8 Company for operating and other expenditures made on behalf of the subsidiaries and repay permitted intercompany indebtedness. BWAY is a holding company with no independent operations although it incurs expenses on behalf of its operating subsidiaries. BWAY has no significant assets other than the common stock of its subsidiaries. The notes are fully and unconditionally guaranteed on a joint and several basis by certain of the Company's direct and indirect subsidiaries. The subsidiary guarantors are wholly owned by BWAY and constitute all of the direct and indirect subsidiaries of BWAY except for four subsidiaries that are individually, and in the aggregate, inconsequential. Separate financial statements of 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 was 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 quarterly 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. Through the third quarter of fiscal 1999, the Company has charged approximately $0.4 million for facility closure costs and $1.9 million for asset impairments against the 1998 restructuring reserve. 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 July 4, 1999. During the second quarter of fiscal 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 its options regarding a sale-leaseback transaction for its Cincinnati, Ohio facility. The Company plans to complete this transaction in the fourth quarter of fiscal 1999; therefore, the Company has reclassified the net book value of approximately $6.0 million for the land and building to assets held for sale. 9. CONTINGENCIES Environmental The Company is subject to a broad range of federal, state and local environmental and workplace health and safety 9 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 are no material capital expenditures relating to environmental 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 its fiscal 1996 acquisition of the stock of Milton Can Company, Inc. (n/k/a Brockway Standard (New Jersey), Inc.) (the "BSNJ Acquisition"), its fiscal 1997 acquisition (the "MCC Acquisition") of the aerosol can business of Ball Metal Food Container Corporation ("BMFCC"), and the fiscal 1999 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 indemnifications, the Company could bear liability in the first instance for indemnified environmental matters, subject to obtaining reimbursement. There can be no assurance that the Company will receive reimbursement with respect to the indemnified environmental matters. Environmental investigations voluntarily conducted by the Company at its Homerville, Georgia facility in 1993 and 1994 detected certain conditions of soil and groundwater contamination, that 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 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. 10 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 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net sales increased 15.0% in the third quarter of fiscal 1999 to $123.1 million from $107.0 million in the third quarter of fiscal 1998. Net sales for the nine months ended July 4, 1999 increased 16.4% to $349.6 million compared to $300.3 million for the nine months ended June 28, 1998. This increase was largely due to incremental sales volume provided from the U.S. Can Acquisition, which more than offset lower general line sales. Cost of products sold (excluding depreciation and amortization) increased 21.8% in the third quarter of fiscal 1999 to $106.9 million from $87.7 million in the same period of fiscal 1998. Cost of products sold for the nine months ended July 4, 1999 increased 20.3% to $298.7 million compared to $248.1 million for the nine months ended June 28, 1998. Cost of products sold as a percentage of net sales increased from 82.0% in the third quarter of fiscal 1998 to 86.8% in the third quarter of fiscal 1999. This increase resulted primarily from incremental sales of the U.S. Can Acquisition which historically had significantly higher associated cost of sales, start-up costs of new equipment and plant rationalization costs at the Company's can assembly plants in the Northeast and Southwest. The rationalization process for the Company's Northeast and Southwest facilities is progressing at a slower rate than initially planned. Ongoing delays in construction, equipment relocations and the hiring and training of new employees has contributed to the increase in costs and is expected to continue through the first half of fiscal 2000. The Company is focused on rationalizing these facilities in the most cost effective manner possible; however, the aforementioned delays coupled with production startup and efficiencies have hampered this process. Depreciation and amortization expense increased $0.5 million in the third quarter of fiscal 1999 to $4.5 million from $4.0 million in the third quarter of fiscal 1998. Depreciation and amortization expense for the nine months ended July 4, 1999 increased to $13.7 million compared to $10.9 million for the six months ended June 28, 1998. The increase is primarily due to the U.S. Can Acquisition and the Company's capital expenditure program. Selling and administrative costs decreased $1.7 million to $5.1 million in the third quarter of fiscal 1999 from $6.8 million in the third quarter of fiscal 1998. The Company has committed to a plan of cost control initiatives for the fourth quarter of fiscal 1999 and for fiscal year 2000. Selling and administrative costs for the nine months ended July 4, 1999 decreased 7.8% to $15.4 million compared to $16.7 million for the nine months ended June 28, 1998. On a comparative basis, the primary decrease in the third quarter of fiscal 1999 and nine month period was primarily attributable to expenses in the third quarter of fiscal 1998 and nine month period for building infrastructure to support strategic growth. Selling and administrative costs as a percentage of net sales decreased 2.2% to 4.1% in the third quarter of fiscal 1999 from 6.3% in the third 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 increased $0.2 million to $3.5 million in the third quarter of fiscal 1999 from $3.3 for the third quarter of fiscal 1998. Interest expense for the nine months ended July 4, 1999 increased $0.4 million to $10.7 million compared to $10.3 million for the nine months ended June 28, 1998. The increase in the third quarter and the nine month period is primarily attributable to increased borrowings to fund working capital, capital expenditure initiatives and the U.S. Can Acquisition. Net income before income taxes and cumulative effect of change in accounting increased $9.6 million to $3.3 million in the third quarter of fiscal 1999, from a net loss of $6.3 million in the third quarter of fiscal 1998. This increase, in addition to the factors addressed above is due primarily to a restructuring charge of $11.5 million (pretax) in the third quarter of fiscal 1998 and to the other items noted above. The restructuring charge was related to the planned closure of three manufacturing facilities, the shift of the related production to other facilities and the elimination of an internal trucking fleet. Diluted earnings per share were $0.20 per share for the third quarter of fiscal 1999 compared to a net loss of $0.40 per share for the same period of 1998. The weighted average diluted shares outstanding were 9.5 million and 10.0 million for the respective quarters. 12 Liquidity and Capital Resources The Company's cash requirements for operations, capital expenditures and acquisitions during the nine months ended July 4, 1999 were financed through borrowings under the Company's Credit Agreement and internally generated cash flows. At July 4, 1999, the Company had availability under the existing Credit Agreement to borrow an additional $56.7 million, plus an additional $25 million if certain conditions are met. During the first nine months of fiscal 1999, net cash provided by operating activities was $17.8 million compared to $1.3 million used during the first nine months of fiscal 1998. The increase is primarily attributable to higher net income and depreciation, reduction in other current assets, increases in accounts payable and accrued income taxes, partially offset by increases in accounts receivable. During the first nine months of fiscal 1999, net cash used in investing activities was $51.5 million compared to $26.1 million used in the first nine months of fiscal 1998. Capital expenditures during the first half of fiscal 1999 totaled $21.7 million of which $6.3 was spent during the third quarter of fiscal 1999. The Company intends to invest approximately $32 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 $30.2 million for the U.S. Can Acquisition. Net cash provided by financing activities during the first nine months of fiscal 1999 was $35.6 million compared to $26.4 million provided during the first nine months of fiscal 1998. Cash provided by financing activities for the first nine months of fiscal 1999 included $46.7 million of borrowings under the Company's Credit Agreement. Unpresented bank drafts decreased $9.6 million during the first nine months of 1999. The Company issued and repurchased $0.7 million of its common stock during the first nine months of fiscal 1999 under the Company's common stock repurchase program. At July 4, 1999, the Company was restricted in its ability to pay dividends and make other restricted payments in an amount greater than approximately $12.2 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, 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. During 1998, the Company initiated the implementation of Enterprise Resource Planning (ERP) software to replace the 13 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 Steering Committee identified those IT systems that were considered mission critical to the business. Of the identified mission critical systems, the Company is currently instituting remediation through a global ERP software implementation. All other systems are presently being replaced or upgraded to adequately address the Year 2000 issue. Approximately 74% of the mission critical systems have been remediated as of July 4, 1999. The Company anticipates that the remaining mission critical implementations, along with other non-compliant systems will be completed during the second half of calendar 1999. Testing of critical systems will be completed on an ongoing basis during the second half of calendar 1999. During 1999, the Company has performed a comprehensive review and evaluation of embedded systems within its manufacturing facilities. This evaluation is ongoing and is intended to inventory and evaluate embedded systems and their Year 2000 compliance and associated risk. Upgrades and replacements will be performed as needed and will be incurred as a part of normal maintenance programs. Associated costs are not expected to be significant. The Company cannot fully eliminate the potential impact on all embedded system non- compliance; however, at present the overall risk appears to be low. 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 the end of fiscal 1999, leaving adequate time to assess and correct any significant issues that may materialize. As of July 4, 1999, the Company has incurred approximately $20.3 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 has developed contingency plans intended to mitigate the possible disruptions that may result from the Year 2000 issue. The company's contingency plans include the use of alternative suppliers, stock piling of raw materials, increased inventory levels and other appropriate measures necessary to operate its factories. 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 conducted meetings with suppliers to review Year 2000 plans and contingency options. Internal contingency plans provide the necessary readiness to address most supply chain, manufacturing and delivery interruptions. The Company has instituted a formal communication network to handle all internal and external communications during January 2000. This network will provide on-call internal an external support to effect timely remediation of Year 2000 issues. The contingency plans and the related cost estimates will be revised as additional information becomes available. The Company has completed the initial phase of its contingency planning, and will further refine the plan during the remainder of 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 14 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. 15 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. 16 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 1.5% at the option of the Company. At July 4, 1999, the Company has borrowings under the Credit Agreement of $68.3 million that were subject to interest rate risk. Each 1.0% increase in interest rates would impact pretax earnings by $0.2 million per quarter. 17 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 Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K See Index of Exhibits. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BWAY Corporation (Registrant) Date: August 18, 1999 By: /s/ John M. Casey ------------------- John M. Casey Executive Vice President & Chief Financial Officer Form 10-Q: For the quarterly period ending July 4, 1999. 19 INDEX TO EXHIBITS ----------------- Exhibit No. Description of Document ------- ------------------------------------------------------------- 10.1 Employment Agreement between the Company and John T. Stirrup--Amendment No. 2* ___________ * Management contract or compensatory plan or arrangement. 20 EX-10.1 2 EMPLOYMENT AGREEMENT AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT --------------------------------------- This is AMENDMENT No. 2, effective as of June 1, 1999, to the Employment Agreement, dated as of June 1, 1995, between BWAY Corporation, f/k/a Brockway Standard Holdings Corporation, a Delaware corporation (the "Company") and John ------- T. Stirrup ("Executive"), as amended by that certain Amendment No. 1 to --------- Employment Agreement, dated June 1, 1998 (the "Agreement"). Capitalized terms --------- not otherwise defined herein have the meaning given to such terms in the Agreement. Executive and the Company desire to extend the term of the Agreement for a year and provide for an additional one-half year period after the expiration of the Employment Period during which time the Executive will provide services to the Company as a consultant. In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows: 1. Prorated Bonus. Paragraph 4(a) of the Agreement is hereby amended by -------------- deleting the year "1999" and replacing it with the year "2000". 2. Term. Paragraph 5(a), (b) and (c) of the Agreement are hereby replaced ---- by the following: "(a) Unless renewed by the mutual agreement of the Company and Executive, the Employment Period shall end on June 1, 2000; provided that the Employment Period shall terminate prior to such date upon Executive's resignation, death, or permanent disability or incapacity (as determined by the Board in its good faith judgment) and may be terminated by the Company at any time for Cause or without Cause. (b) If the Employment Period is: (i) not terminated by the Executive's resignation, death, disability or incapacity or by the Company for Cause or without Cause, then, upon the expiration of the Employment Period, the Company shall engage Executive as a Consultant to perform Consulting Services from June 2, 2000 until December 1, 2001 (the 'Consulting Period'). (ii) terminated by the Company without Cause during the period of June 2, 1999 through June 1, 2000, the Executive shall be entitled to continue to receive his Base Salary, Target Bonus (if any) and health, disability and life insurance benefits until the first anniversary of the termination date and the Company shall engage Executive as a Consultant to perform Consulting Services during the one-year period following the first anniversary of his termination date (the 'Consulting Period'). (iii) terminated by the Executive's resignation during the period of June 2, 1999 through June 1, 2000, the Executive shall not be entitled to any Base Salary, Target Bonus or other compensation or benefits after the termination date (except as required under applicable law), but will be entitled to receive Consulting Payments during the one-year period following his termination date (the 'Consulting Period'). (c) Notwithstanding anything to the contrary, the Executive's Consulting Period may only be terminated (i) upon the Executive's resignation, death or permanent disability or incapacity (as determined by the Board in its good faith judgment), (ii) by the Company for Cause or (iii) by the Company if the Executive breaches in any material respect any term of this Agreement, including without limitation, the provisions of paragraphs 7, 8 or 9. Consulting Payments shall cease upon the termination of the Consulting Period unless such termination is due to Executive's permanent disability or incapacity (as determined by the Board in its good faith judgment), in which case Executive shall continue to receive the Consulting Payment during the Consulting Period as if it had not been terminated, reduced by the amount the Executive receives with respect to any disability policy." 3. Executive Representations. Executive hereby remakes the ------------------------- representations set forth in paragraph 11 of the Agreement, except that all references to "the Agreement" therein shall be deemed to be references to the Agreement as amended by the Amendment No. 2. 4. Effect; Entire Agreement. Except as amended by this Amendment No. 2, ------------------------ the Agreement remains in full force and effect. The Agreement and this Amendment No. 2 constitute the entire agreement between parties and supersede any prior understandings, agreements or representations by or between the Parties, written or oral, that may have related in any way to the subject matter hereof. IN WITNESS WHEREOF, the Parties have executed this Amendment No. 2 as of the date first written above. BWAY CORPORATION By --------------------------------------- Its -------------------------------------- EXECUTIVE ----------------------------------------- JOHN T. STIRRUP EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BWAY CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 9-MOS OCT-03-1999 OCT-03-1999 APR-05-1999 SEP-28-1998 JUL-05-1999 JUL-05-1999 4,185 4,185 0 0 55,764 55,764 586 586 49,628 49,628 131,620 131,620 187,109 187,109 42,992 42,992 368,881 368,881 91,655 91,655 168,300 168,300 0 0 0 0 99 99 82,945 82,945 368,881 368,881 123,109 349,631 123,109 349,631 106,857 298,662 119,846 338,210 (69) (251) 0 0 3,549 10,738 3,263 11,421 1,387 4,854 1,876 6,567 0 0 0 0 0 0 1,876 6,567 .20 .70 .20 .69
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