Item 1. Business --------
General
BWAY Corporation and its significant subsidiaries are leading developers, manufacturers, and marketers of steel containers for the general line category of the North American container industry. The Company also provides to external customers related material center services (coating, lithography, and metal shearing) which exceed internal needs. The references in this report to market positions or market share are based on information derived from annual reports, trade publications and management estimates, which the Company believes to be reliable.
BWAY Corporation ("BWAY") is a holding company whose significant subsidiaries are BWAY Manufacturing, Inc. ("BWAY Manufacturing") and Milton Can Company, Inc. ("MCC") (collectively the "Company"). Previously, BWAY's significant subsidiaries also included Brockway Standard, Inc. ("BSI") and BMAT, Inc. ("BMAT"). In the fourth fiscal quarter of 2000, the Company simplified its legal organizational structure and merged BSI and BMAT into Brockway Standard (New Jersey), Inc., which was then renamed BWAY Manufacturing, Inc.
In January 1989, the Company was formed to purchase the metal container business of Owens-Illinois Corporation ("Owens-Illinois"). In June 1995, the Company completed an initial public offering ("Initial Public Offering") of its common stock, par value $.01 per share (the "Common Stock").
The Company operates on a 52/53-week fiscal year ending on the Sunday closest to September 30 of the applicable year. For simplicity of presentation, the Company has presented year-ends as September 30 and all other periods as the nearest month end, with the exception of pages through.
The metal container industry is currently divided into three product categories: beverage, food and general line. General line includes containers used for packaging paint and related products, lubricants, cleaners, roof and driveway sealants, and household and personal care aerosol products. Management estimates, based on 1999 industry data published by the Can Manufacturers Institute, that 1999 industry shipments totaled approximately 102 billion units to the beverage category, 32 billion units to the food category and 4 billion units to the general line category. Few companies compete in all three product categories, and most of the companies that produce beverage and food cans do not compete in the general line product categories.
The Company's principal products include a wide variety of steel cans and pails used for packaging paint and related products, lubricants, cleaners, roof and driveway sealants, food (principally coffee and vegetable oil) and household and personal care aerosol products. The Company also manufactures steel ammunition boxes and provides material center services. The Company's products are typically coated on the inside to customer specifications based on intended use and are either decorated on the outside to customer specifications or sold undecorated. The Company markets its products primarily in North America. The Company's sales to customers located outside of the United States were less than 5 percent for both fiscal 1999 and fiscal 2000. Sales are made either by the Company's direct sales force, third party distributors or sales agents. Sales growth has been accomplished primarily through acquisitions in the general line and material center services categories.
Recent Acquisition
On November 9, 1998, the Company acquired substantially all of the assets and assumed certain of the liabilities of the United States Can Company's metal services operations (the "U.S. Can Acquisition"). The purchase price was approximately $27.7 million in cash after adjustments for working capital. The acquisition included three operating plants and one non-operating plant. The acquired facilities operated two different businesses, material center services, which are part of the Company's core business, and tinplate metal services, which are not a business of the Company.
The purchase method of accounting was used to establish and record a new cost basis for the assets acquired and liabilities assumed and an allocation of the purchase price was finalized during fiscal 2000. Operating results for this acquisition have been included in the Company's consolidated financial statements since the date of acquisition.
In November 1998, management committed to a plan to exit certain activities of the acquired facilities and integrate acquired assets and businesses with other Company facilities. In connection with the recording of the purchase, the Company established a reorganization liability of approximately $11 million. For further information, see the "Acquisitions" note beginning on page in the Notes to the Consolidated Financial Statements.
In November 1998, the Company signed a binding letter of intent to sell the acquired tinplate metal services business. The tinplate metal services business primarily purchases, processes, and sells nonprime steel to third party customers. Anticipating the sale of the tinplate metal services business, the Company closed the Brookfield, Ohio location in March 1999 and closed the Chicago Metal operations in September 1999. The Company finalized the sale of the tinplate services business to Arbon Steel and Service Company in the fourth quarter of fiscal 1999. The Company excluded from results of operations tinplate metal services business losses of $4.4 million, including interest expense of $0.7 million, for fiscal 1999.
In the fourth quarter of fiscal 2000, the Company also closed the Chicago, Illinois material center services operation and transferred the work to other Company material center services facilities.
Products and Markets
The Company participates in the general line container market and related material center services business and currently holds leading positions in the sale of most of its general line products, other than aerosol cans, and holds a strong position in the sale of coffee and vegetable oil cans. The Company does not sell beverage containers. The Company also manufactures steel ammunition boxes. In November 1998, the Company acquired substantially all of the assets of U.S. Can's metal services operations, making the Company a leading provider of material center services.
The following table sets forth the Company's percentage of net sales by product lines for fiscal 2000, 1999, and 1998. The Company's sales distribution by product line has been affected to some extent by the U.S. Can Acquisition.
Percentage of the Company's Net Sales - -------------------------------------
Year Ended September 30, ---------------------------- Product 2000 1999 1998 ------- ---- ---- ----
General Line Containers 73% 70% 80% Food Cans 8% 11% 13% Material Center Services 16% 16% 2% Ammunition Boxes 3% 3% 5% --- --- --- Total 100% 100% 100%
General Line Products
The primary uses for the Company's containers are for paint and related products, lubricants, cleaners, roof and driveway sealants, charcoal lighter fluid, household and personal care products. Specific products include round
cans with rings and plugs (typical paint cans), oblong or "F" style cans (typical paint thinner cans), specialty cans (typical PVC or rubber cement cans, brake fluid and other automotive after-market products cans and an assortment of other specialty containers), and pails. The Company produces a full line of these products to serve the specific requirements of a wide range of customers. The Company's products are typically coated on the inside to customer specifications based on intended use, and are either decorated on the outside to customer specifications or sold undecorated. Most of the Company's products are manufactured in facilities that are strategically located to allow the Company to deliver product to customer filling locations for such products within a one day transit time.
Paint Cans. The Company produces round paint cans in sizes ranging from one- quarter pint to one gallon, with one-gallon paint cans representing the majority of all paint can sales.
Oblong or "F" Style Cans. Oblong or "F" style cans are typically used for packaging paint thinners, lacquer thinners, turpentine, deglossers and similar paint related products, charcoal lighter fluid, waterproofing products, and vegetable oil. The Company produces oblong cans in sizes ranging from three ounces to one imperial gallon.
Specialty Cans. Utility cans include small screw top cans, which typically have an applicator or brush attached to a screw cap, and are typically used for PVC pipe cleaner, PVC cement and rubber cement. Cone top cans are typically used for packaging specialty oils and automotive after-market products, including brake fluid, gasoline additives and radiator flushes. The Company also produces various specialty containers.
Aerosol Cans. Aerosol cans are typically used for packaging various household and industrial products, including paint and related products, personal care products, lubricants and insecticides. The Company produces a variety of sizes, which are generally decorated to customer specifications.
Pails. Pails are typically used for packaging paint and related products, roof and driveway sealants, marine coatings, vegetable oil, and water repellent. Pails may be either "closed head" for easy pouring products, or "open head" for more viscous products, with a lid which is crimped on after filling. The Company manufactures steel pails in sizes ranging from 2.5 to 7 gallons.
Food Products/Coffee Cans
The Company produces cans for coffee and vegetable oil, with coffee accounting for the majority of sales. The Company produces coffee cans in sizes commonly referred to as 1 pound, 2 pound and 3 pound, and various smaller specialty coffee can sizes and shapes. Coffee cans are generally sold to nationally known coffee processing and marketing companies. The Company does not sell sanitary food cans in which soups, stews, vegetables, pie fillings and other foods are actually cooked in the can.
Materials Center Services
The Company provides material center services (coating, lithography, and metal shearing) for its can assembly facilities and for third party customers.
Ammunition Boxes
The Company manufactures a variety of ammunition boxes. These containers provide a hermetic seal, are coated with a corrosion-resistant finish and are used to package small arms ammunitions and other ordnance products. The Company sells ammunition boxes to the U.S. Department of Defense as well as to major domestic and foreign producers of ordnance.
Customers
The Company sells its products to a large number of customers in numerous industry sectors. Sales to the Company's ten largest customers accounted for approximately 33% of sales in fiscal 2000. During fiscal 2000, sales to any specific customer did not equal or exceed 10% of sales during the period.
Raw Materials
The Company's principal raw materials consist of tinplate, blackplate and cold rolled steel, various coatings, inks and compounds. Steel products represent the largest component of raw material costs. Essentially all of the Company's products are manufactured from tinplate steel, except for pails and ammunition boxes, which are manufactured from blackplate and cold rolled steel.
Various domestic and foreign steel producers supply the Company with tinplate steel. Procurement from suppliers depends on the suppliers' product offering, product quality, service and price. Because a significant number of reliable suppliers produce the steel used in the Company's process, management believes that it would be able to obtain adequate replacement supplies in the market should one of the current suppliers discontinue supplying the Company. The Company increased its purchases of tinplate and cold rolled products from foreign sources from fiscal 1998 to fiscal 1999 and from fiscal 1999 to fiscal 2000. Tinplate consumers, such as the Company, typically negotiate late in the calendar year for the next calendar year on terms of volumes and price. Terms agreed to have historically held through the following year, but there is no assurance that this practice will remain unchanged in the future.
Steel prices have historically been adjusted annually on January 1. Most tinplate, blackplate and cold rolled steel producers have announced price increases effective January 1, 2001. Historically, the Company has generally been able to recover increased costs of raw materials through price increases for the Company's products, although there can be no assurances that this practice will continue.
In addition to steel products, the Company purchases various coatings, inks, and compounds used in the manufacturing process. Management does not anticipate any future shortages or supply problems based on historical availability and the current number of suppliers.
Seasonality
Sales of certain of the Company's products are to some extent seasonal, with sales levels generally higher in the second half of the Company's fiscal year.
Environmental, Health and Safety Matters
The Company continues to monitor and evaluate on an ongoing and regular basis its compliance with applicable environmental laws and regulations. Liabilities for non-capital expenditures are recorded when environmental remediation is probable and the costs can be reasonably estimated. The Company believes that it is in substantial compliance with all material federal, state and local environmental requirements.
Environmental investigations voluntarily conducted by the Company at its Homerville, Georgia facility in 1993 and 1994 detected certain conditions of soil and groundwater contamination 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. In August 1999, DNR signed a consent order that had been submitted by the Company and Owens-Illinois. In January 2000, the Company and Owens-Illinois submitted to DNR a report containing the results of their investigation of the facility. The Company is awaiting a DNR review of the report.
In addition, at Homerville, the Company entered into a consent order with DNR in April 1999, related to certain industrial wastewater and cooling water discharges that exceeded allowable limits. The project related to the consent order is substantially complete with expenditures to date of approximately $0.2 million.
The Company (and in some cases, predecessors to the Company) has from time to time received requests for information or notices of potential responsibility pursuant to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") with respect to certain waste disposal sites utilized by former or current facilities of the Company or its various predecessors. To the Company's knowledge, all such matters which have not been resolved are, subject to certain limitations, indemnified by the sellers of the relevant Company affiliates, and all such unresolved matters have been accepted for indemnification by such sellers. Because liability
under CERCLA is retroactive, it is possible that in the future the Company may incur liability with respect to other sites.
Management believes that none of these matters will have a material adverse effect on the results of operations or financial condition of the Company in light of both the potential indemnification obligations of others to the Company and the Company's understanding of the underlying potential liability.
Competition
The markets for the Company's products are competitive and the Company faces competition from a number of sources in most of its product lines. Competition is based primarily on price, quality, service, and, to a lesser extent, product innovation. The Company believes that its high quality products, the geographic location of its facilities, which provide national coverage for most products to most customers, and its commitment to strong customer relationships enable it to compete effectively.
Manufacturers of steel containers have historically faced competition from other materials, primarily plastic, glass, aluminum and composite materials. Steel containers offer a number of significant advantages over alternative materials, including fire safety (critical in many products packaged in paint, oblong and specialty cans), the capacity for vacuum packaging (important to coffee producers) and ability to contain aggressive products (primarily certain solvent-based products).
Employees
As of October 1, 2000, the Company employed approximately 1,565 hourly employees and 389 salaried employees. Of the 1,565 hourly employees, 1,005 are non-union and the remaining 560 are covered by seven separate collective bargaining agreements. During fiscal 2000, total Company headcount decreased by 128 hourly and 94 salaried employees. During the second quarter of fiscal 2000, the Company terminated 89 employees and closed two administrative facilities. The terminated employees primarily consisted of salaried employees and terminations were generally completed by April 2000. During the third quarter of fiscal 2000, the Company ceased operations at the Chicago, Illinois lithography facility. This closing resulted in the elimination of approximately 69 hourly positions and 17 salaried positions at this facility.
On August 31, 2000, the Company reached an agreement with the International Union of Electronic, Electrical, Salaried Machine and Furniture Workers Local 729 at its Cincinnati, Ohio facility affecting approximately 140 employees. The contract is effective September 1, 2000 through August 31, 2003. On October 15, 2000, the Company also reached an agreement with Local 458-3M of the Graphic Communication Workers International Union at its Franklin Park, Illinois facility affecting approximately 15 employees. The new contract is effective October 1, 2000 through October 31, 2003.
The Company has a collective bargaining agreement with Local 14-M of the Graphic Communication Workers International Union at its Trenton, New Jersey facility that expires on March 31, 2001. The agreement affects approximately 75 employees.
Item 2.
Item 2. Properties ----------
The following table sets forth certain information with respect to the Company's headquarters and significant manufacturing facilities as of November 30, 2000.
A non-operating facility located in Alsip, Illinois, which was acquired from United States Can Company in fiscal 1999, was sold during the fourth quarter of fiscal 2000.
The Chicago, Illinois material center services facility and the Dallas, Texas (Thompson) facility were closed during fiscal 2000. The Company is actively marketing these facilities for sale.
The Company believes its properties are generally in good condition, well maintained and suitable for their intended use.
Item 3.
Item 3. Legal Proceedings -----------------
The Company is involved in certain proceedings relating to environmental matters as described under Item 1. "Business - Environmental, Health and Safety Matters."
The Company is also involved in legal proceedings from time to time in the ordinary course of its business. No such currently pending proceedings are expected to have a material adverse effect on the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders ---------------------------------------------------
No matters were submitted during the fourth quarter of fiscal 2000 to a vote of security holders of the Company through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for the Company's Common Equity and Related Stockholder Matters ----------------------------------------------------------------------
As of December 1, 2000, there were 86 holders of record of the Common Stock. Because BWAY is a holding company, its ability to pay dividends is substantially dependent upon the receipt of dividends or other payments from its subsidiaries. The Company's Credit Agreement dated June 17, 1996, as amended (the "Credit Agreement"), among BWAY and certain subsidiaries, Deutsche Bank, Bank of America, N.A. and various other lenders, restricts the ability of BWAY and its subsidiaries to pay dividends or make other restricted payments in an amount greater than $3.9 million, and places certain restrictions on the Company with regard to incurring additional indebtedness, other than certain specified indebtedness. Additionally, the Company's Indenture dated April 11, 1997 (the "Indenture") also restricts the ability of BWAY and its subsidiaries to pay dividends or make other payments, and places certain restrictions on the Company with regard to incurring additional indebtedness, other than certain specified indebtedness. Any future determination to pay dividends will be made by the Board of Directors in light of the Company's earnings, financial position, capital requirements, credit agreements, indentures, business strategies and such other factors as the Board of Directors deems relevant at such time. The Company has not paid any cash distributions or other dividends on the Common Stock and presently intends to retain its earnings to finance the development of its business for the foreseeable future.
The Company repurchased $0.5 million of its common stock during fiscal 2000 under the Company's common stock repurchase program.
The Company's common stock is traded on the New York Stock Exchange under the symbol "BY". The table below sets forth the high and low sales price information for the Common Stock for each quarter of fiscal 1999 and fiscal 2000.
Fiscal Quarter High Low -------------- ------ ------ First quarter, 1999 $18.31 $11.50 Second quarter, 1999 $16.00 $10.88 Third quarter, 1999 $15.88 $11.38 Fourth quarter, 1999 $13.69 $ 8.50 First quarter, 2000 $ 9.69 $ 5.50 Second quarter, 2000 $ 8.50 $ 3.81 Third quarter, 2000 $ 8.44 $ 5.94 Fourth quarter, 2000 $ 7.44 $ 4.38
Item 6.
Item 6. Selected Financial Data -----------------------
The selected historical consolidated financial data as of and for each of the years in the five years ended September 30, 2000 have been derived from the audited consolidated financial statements of the Company. The results of operations include the results of the U.S. Can Acquisition described under "Business--Recent Acquisition" contained in Item 1 of this report and have been included in the Company's consolidated financial statements from the date of the acquisition. The selected consolidated financial data is qualified by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations - -------------
The following discussion should be read in conjunction with the Company's consolidated financial statements and related notes thereto included in Item 8 of this report.
General
Industry
The Company currently derives substantially all of its revenues from the sale of steel containers manufactured at the Company's plants and from material center services. The packaging market in which the Company competes is generally mature. During recent years, the industry has experienced slight volume declines in certain product categories.
Sales Growth
The Company's net sales have grown from $401.1 million in fiscal 1998 to $460.6 million in fiscal 2000. Sales growth is primarily due to the U.S. Can Acquisition. Consistent with the industry, the Company has experienced slight declines in certain of its product categories.
Raw Materials
Steel is the largest component of cost of sales for the Company's products and is currently supplied by large domestic and foreign manufacturers. Steel prices have historically been negotiated annually with changes effective January 1 and have remained stable for the subsequent year. During fiscal 1999 and fiscal 2000, the Company increased its purchases of tinplate and cold rolled products from foreign sources.
Gross Profit Margins
Continuous advances in manufacturing productivity and cost reduction are critical to the industry and the Company's ability to improve gross profit margins. The Company's objectives are to improve margins through the addition of new business in the aerosol and general line categories, while improving operating efficiencies and reducing manufacturing costs. The Company has historically closed inefficient and redundant facilities and consolidated business within remaining plants.
Results of Operations
Year ended October 1, 2000 (fiscal 2000) compared to year ended October 3, 1999 (fiscal 1999).
Net Sales. Net sales for fiscal 2000 were $460.6 million, a decrease of $6.5 million or 1.4% from $467.1 million in fiscal 1999. The decrease is primarily due to the conversion of orders by a large customer from lithographic style cans to plain style cans, which resulted in a $5.0 million decrease in sales, and to slight volume declines in certain product categories, primarily in the paint category.
Cost of Products Sold. Cost of products sold (excluding depreciation and amortization) in fiscal 2000 was $403.6 million, a decrease of $0.9 million or 0.2% from $404.5 million in fiscal 1999. Cost of products sold as a percent of sales increased to 87.6% in fiscal 2000 from 86.6% in fiscal 1999. The increase as a percent of sales is primarily attributable to lower sales and weak operating performance at certain of the Company's facilities.
Depreciation and Amortization. Depreciation and amortization increased to $22.4 million in fiscal 2000 from $17.2 million in fiscal 1999. This increase includes $2.5 million of depreciation related to shortened useful lives of certain computer systems. The remaining $2.7 million increase in depreciation is primarily due to capital expenditures.
Selling and Administrative Expense. Selling and administrative expense decreased to $17.1 million in fiscal 2000 from $19.7 million for fiscal 1999, primarily due to the elimination of costs from the Company's restructuring during the second quarter of fiscal 2000, which is described below.
Restructuring and Impairment Charge. During the second quarter of fiscal 2000, the Company recorded a restructuring and impairment charge related to the closing of two administrative offices, the termination of 89 employees, and the write-down of equipment held for disposal. The restructuring and impairment charge totaled $5.9 million and consisted of the following: $1.1 million related to administrative office closings, $1.1 million related to severance, $0.7 million related to contracts and other miscellaneous costs and $3.0 million related to impairments of equipment held for disposal. Both administrative offices were closed and all 89 employees were terminated in the second quarter.
Interest Expense, Net. Interest expense, net, increased to $16.7 million in fiscal 2000 from $14.7 million in fiscal 1999, primarily due to higher LIBOR based interest rates and higher interest rate margins under the Company's Credit Agreement. The interest rate margin is determined on a quarterly basis based on the Company's leverage ratio. The Company paid a higher average margin rate in fiscal 2000 compared to fiscal 1999 because of the Company's financial performance.
Gain on Curtailment of Postretirement Benefits. The Company recognized a $1.2 million gain on curtailment of postretirement benefits in fiscal 2000. The gain resulted from a reduction in liability for future medical benefits of certain employees of the Company's Cincinnati, Ohio facility.
Income (Loss) Before Income Taxes and Cumulative Effect of Change in Accounting. Income (loss) before income taxes and cumulative effect of change in accounting for fiscal 2000 was $(3.3) million, a decrease of $14.2 million from $10.9 million in fiscal 1999. The change results from the factors described above.
Provision (Benefit) For Income Taxes. The provision (benefit) for income taxes decreased to a benefit of $(0.3) million in fiscal 2000 from a provision of $5.3 million in fiscal 1999. The decrease is due to the decrease in income (loss) before income taxes and cumulative effect of change in accounting as described above. For the reconciliation of the income tax rate with the federal statutory rate, see the "Income Taxes" note in the Notes to the Consolidated Financial Statements on page as set forth in Item 8.
Net Income (Loss). Net income (loss) for fiscal 2000 was $(2.9) million, a decrease of $8.5 million from $5.6 million in fiscal 1999. The change results from the factors described above.
Year ended October 3, 1999 (fiscal 1999) compared to year ended September 27, 1998 (fiscal 1998).
Net Sales. Net sales for fiscal 1999 were $467.1 million, an increase of $66.0 million or 16.5% from $401.1 million in fiscal 1998. The increase in net sales was primarily attributable to the fiscal 1999 U.S. Can Acquisition. The Company's net sales for fiscal 1999, excluding the effect of the U.S. Can Acquisition, declined approximately 2.5% from fiscal 1998.
Cost of Products Sold. Cost of products sold (excluding depreciation and amortization) in fiscal 1999 was $404.5 million, an increase of $67.9 million, or 20.2%, from $336.6 million in fiscal 1998. The increase is primarily attributable to increased sales from the U.S. Can Acquisition, start-up costs of new equipment and plant rationalization costs. Cost of products sold as a percent of sales increased to 86.6% in fiscal 1999 from 83.9% in fiscal 1998. The increase is primarily attributable to the incremental sales from the U.S. Can Acquisition where cost of products sold as a percent of sales has historically been higher than the Company's existing operations, to start-up costs for new equipment (particularly within the Company's material center business) and to costs associated with the Company's rationalization initiatives at can assembly operations, primarily in the Northeast and Southwest. The rationalization process for the Company's Northeast and Southwest facilities progressed at a slower rate than initially planned. Ongoing delays in construction, equipment relocations and the hiring and training of new employees contributed to the increase in costs. These additional costs more than offset realized savings resulting from the Company's purchasing initiatives.
Depreciation and Amortization. Depreciation and amortization increased from $13.5 million in fiscal 1998 to $17.2 million in fiscal 1999 due the U.S. Can Acquisition and as a result of capital spending.
Selling and Administrative Expense. Selling and administrative expense of $19.7 million for fiscal 1999 decreased from $22.7 million in fiscal 1998.
Interest Expense, Net. Interest expense, net, increased to $14.7 million in fiscal 1999 from $13.0 million in fiscal 1998 primarily due to increased borrowings under the Company's credit agreement to finance the U.S. Can Acquisition and fund the Company's capital expenditure program.
Gain on Curtailment of Postretirement Benefits. The Company recognized a $1.9 million gain on curtailment of postretirement benefits in fiscal 1998. The gain resulted from a reduction in liability for future medical benefits of certain employees of the Company's Cincinnati, Ohio facility.
Income before Income Taxes and Cumulative Effect of Change in Accounting. Income before income taxes and cumulative effect of change in accounting for fiscal 1999 was $10.9 million, an increase of $5.4 million from $5.5 million in fiscal 1998. In fiscal 1998, the Company recorded a restructuring charge of $11.5 million (before taxes). Excluding the effect of the fiscal 1998 restructuring charge, fiscal 1999 income before income taxes and cumulative effect of change in accounting decreased by $6.1 million from fiscal 1998. This decrease resulted primarily from higher costs of products sold (lower gross margins) as described above, higher interest expense, and higher depreciation and amortization, partially offset by lower selling and administrative expenses.
Provision For Income Taxes. The provision for income taxes increased from $2.8 million in fiscal 1998 to $5.3 million in fiscal 1999. The increase is due to the increase in income before income taxes and cumulative effect of change in accounting as described above.
Net Income. Net Income for fiscal 1999 was $5.6 million, an increase of $4.1 million from fiscal 1998. The change results from the factors described above.
Seasonality
Sales of certain of the Company's products are to some extent seasonal, with sales levels generally higher in the second half of the Company's fiscal year.
Liquidity and Capital Resources
The Company's cash requirements for operations and capital expenditures during fiscal 2000 and fiscal 1999 were primarily financed through internally generated cash flows and borrowings under the Company's Credit Agreement. During fiscal 2000, cash and cash equivalents increased $0.3 million and net borrowings under the Credit Agreement decreased by $20.3 million.
As of October 1, 2000, the Company had borrowed $26.2 million of the $125 million borrowing limit. However, the Credit Agreement covenants limit borrowings to a maximum leverage ratio based on the Company's earnings before interest, taxes, depreciation and amortization (EBITDA) and total debt. As of October 1, 2000, this covenant effectively limited the Company's available Credit Agreement borrowings to a total of $81.4 million.
The Company was not in compliance with one Credit Agreement covenant (interest coverage ratio) at fiscal 2000 year-end. Subsequent to fiscal 2000 year-end, the Company and its lenders executed an amendment to the Credit Agreement that modified the interest coverage ratio. As part of the Credit Agreement amendment, the lenders provided the Company with a waiver for the fourth quarter violation. In consideration for the amendment, the Company paid an amendment fee of $250,000 and agreed to a 50 basis point increase in interest rate margins.
Credit Agreement interest rates are based on interest rate margins for either the prime rate (as periodically announced by Bank of America, N.A.) or LIBOR, at the Company's option. Interest rate margins are reset quarterly based on financial performance during the preceding four quarters.
During fiscal 2000, net cash provided by operating activities was $25.3 million, which was comprised primarily of net loss ($2.9 million), depreciation and amortization ($22.4 million), the restructuring and impairment charge ($5.9 million), and reductions of accounts receivable, inventories and other assets ($15.0 million). Net cash was primarily used to reduce accounts payable and accrued liabilities ($14.9 million).
During fiscal 1999, net cash provided by operating activities was $24.5 million, which was comprised primarily of net income ($5.6 million), depreciation and amortization ($17.3 million) and deferred income taxes ($7.1 million). Changes in assets and liabilities reduced net cash provided by operating activities by $6.1 million.
During fiscal 2000, net cash used in investing activities was $8.5 million. The Company used $10.9 million for capital expenditures in fiscal 2000. The Company received $2.4 million in proceeds from the disposition of property, plant and equipment in fiscal 2000, primarily from the sale of the Alsip, Illinois facility acquired in the U.S. Can Acquisition.
During fiscal 1999, the Company used $46.5 million for investing activities. The Company used $33.2 million for capital expenditures and $27.9 million for the U.S. Can Acquisition, offset by $14.6 million provided from the disposition of property, plant and equipment.
During fiscal 2000, net cash used by financing activities was $16.6 million. During fiscal 2000, net repayments under the Credit Agreement were $20.3 million. Net cash provided by financing activities related primarily to an increase in unpresented bank drafts of $4.5 million. The Company also used cash for the repurchase of its common stock on the open market of approximately $0.5 million in fiscal 2000.
During fiscal 1999, net cash provided by financing activities was $20.4 million. Net borrowings under the Company's Credit Agreement were $24.9 million. Net purchases of treasury stock were $0.8 million. Additionally, unpresented bank drafts increased $2.9 million.
At October 1, 2000, the Company was restricted in its ability to pay dividends and make other restricted payments in an amount greater than approximately $3.9 million. The Company's subsidiaries are restricted in their ability to transfer funds to the Company, except for funds to be used to effect approved acquisitions, pay dividends in specified amounts, reimburse the Company for operating and other expenditures made on behalf of the subsidiaries and repay permitted intercompany indebtedness.
Management believes that cash provided from operations and borrowings available under the Credit Agreement will provide it with sufficient liquidity to meet its operating and capital expenditure needs in the next 12 months.
Environmental Matters
For information regarding environmental matters, see Item 1. "Business - Environmental, Health and Safety Matters."
Effect of Inflation
Historically, the Company has generally been able to recover increased costs of raw materials through price increases for the Company's products, although there can be no assurances that this practice will continue. Management currently believes that inflation will not have a material adverse impact on the Company.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and Hedging Activities", which was amended in June 2000 by SFAS 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS 133, as amended, requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedged must be adjusted to fair value through income. If the derivative is a hedge, changes in the fair value of the derivative are either offset against changes in fair value of assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the derivative's fair value is immediately recognized in earnings. The Company adopted SFAS 133, as amended, on October 2, 2000. The adoption of these standards is not expected to have a material impact on the Company's results of operations, financial position or cash flow.
In 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." The SAB provides guidance on the recognition, presentation and disclosure of revenue in the financial statements filed with the SEC. Although SAB No. 101 does not change any existing standards on revenue
recognition, it draws upon existing standards and explains how the SEC staff applies these rules, by analogy, to other transactions that existing rules do not specifically address. SAB No. 101, as amended by SAB No. 101B, must be adopted no later than the fourth quarter of our fiscal year 2001. The Company is in the process of assessing the impact of SAB No. 101 on its financial statements; however, the adoption of SAB No. 101 is not expected to have a material impact on the Company's results of operations or financial position.
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; labor unrest; changes in market price or market demand; changes in raw material costs or availability; loss of business from customers; unanticipated expenses; changes in financial markets; potential equipment malfunctions; and the other factors discussed in the Company's filings with the Securities and Exchange Commission.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ----------------------------------------------------------
The Company's Credit Agreement permits the Company to borrow up to $150 million provided certain conditions and restrictive financial covenants are met. Borrowings under the Credit Agreement bear interest at either the prime rate or the London InterBank Offered Rate ("LIBOR") plus an applicable spread percentage at the option of the Company. The interest rate spread over LIBOR is determined each quarter based on the ratio of earnings before interest, taxes, depreciation and amortization ("EBITDA") to total debt. At October 1, 2000 the applicable spread was 1.5%, and the Company had borrowings under the Credit Agreement of $26.2 million that were subject to interest rate risk. Subsequent to year-end, the Company amended the Credit Agreement as described in "Liquidity and Capital Resources" in Item 7. Immediately after the amendment to the Credit Agreement on November 8, 2000, the applicable spread increased to 2.0%. Each 1.0 percentage point increase in interest rates would impact pretax earnings by $0.3 million at the $26.2 million debt level of October 1, 2000.
Item 8.
Item 8. Financial Statements and Supplementary Data -------------------------------------------
See the attached Consolidated Financial Statements pages through.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure - --------------------
Inapplicable.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant --------------------------------------------------
Incorporated by reference to the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders to be filed with the Commission.
Item 11.
Item 11. Executive Compensation ----------------------
Incorporated by reference to the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders to be filed with the Commission.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management --------------------------------------------------------------
Incorporated by reference to the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders to be filed with the Commission.
Item 13.
Item 13. Certain Relationships and Related Transactions ----------------------------------------------
Incorporated by reference to the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders to be filed with the Commission.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ----------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) The Consolidated Financial Statements included in Item 8 hereof and set forth on pages through. (2) The Financial Statement Schedules listed in the Index to the Financial Statement Schedules. (3) The exhibits listed in the Index to Exhibits.
(b) Reports on Form 8-K.
The Company did not file any Reports on Form 8 - K during the fourth quarter of fiscal 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BWAY CORPORATION
By /s/ Jean-Pierre M. Ergas ------------------------ Jean-Pierre M. Ergas Chairman of the Board and Chief Executive Officer
Date December 22, 2000 ------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on December 21, 2000.
INDEPENDENT AUDITORS' REPORT
Board of Directors of BWAY Corporation:
We have audited the accompanying consolidated balance sheets of BWAY Corporation and subsidiaries (the "Company") as of October 1, 2000 and October 3, 1999 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended October 1, 2000. Our audits also included the financial statement schedules listed in the Index to the financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 1, 2000 and October 3, 1999, and the results of its operations and its cash flows for each of the three years in the period ended October 1, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia November 10, 2000
BWAY Corporation and Subsidiaries
Consolidated Balance Sheets (In thousands, except share data) - --------------------------------------------------------------------------
October 1 and October 3 2000 1999 -------- --------
Assets Current assets: Cash and equivalents $ 961 $ 696 Accounts receivable, net of allowance for doubtful accounts of $508 and $506 44,083 52,868 Inventories, net 45,522 49,031 Current income taxes receivable 3,048 3,598 Deferred tax asset 8,988 4,612 Assets held for sale 5,284 4,818 Other 1,823 2,803 - ------------------------------------------------------------------------- Total current assets 109,709 118,426 Property and equipment, net 133,870 144,716 Other assets: Goodwill, net of accumulated amortization of $12,166 and $9,852 73,420 79,366 Intangibles, net 9,216 10,774 Deferred financing fees, net of accumulated amortization of $2,846 and $1,995 3,189 3,727 Other 3,319 5,014 - ------------------------------------------------------------------------- Total other assets 89,144 98,881 - ------------------------------------------------------------------------- Total assets $332,723 $362,023 - -------------------------------------------------------------------------
Liabilities and stockholders' equity Current liabilities: Accounts payable $ 67,155 $ 65,377 Accrued salaries and wages 8,032 9,104 Accrued interest 5,049 5,171 Accrued rebates 5,029 8,753 Other 9,861 15,875 - ------------------------------------------------------------------------- Total current liabilities 95,126 104,280 - ------------------------------------------------------------------------- Long-term debt 126,200 146,500 Long-term liabilities: Deferred income taxes 22,044 17,667 Other 10,392 11,523 - ------------------------------------------------------------------------- Total other liabilities 32,436 29,190 - ------------------------------------------------------------------------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value, shares authorized 5,000,000 - - Common stock, $.01 par value, shares authorized 24,000,000; shares issued 9,851,002 99 99 Additional paid-in capital 36,760 37,202 Retained earnings 52,901 55,819 - ------------------------------------------------------------------------- 89,760 93,120 Less: Treasury stock, at cost, shares held 584,184 and 541,978 (10,799) (11,067) - ------------------------------------------------------------------------- Total stockholders' equity 78,961 82,053 - ------------------------------------------------------------------------- Total liabilities and stockholders' equity $332,723 $362,023 - -------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
BWAY Corporation and Subsidiaries
Consolidated Statements of Operations (In thousands, except per share data) - ------------------------------------------------------------------------- Year Ended October 1, October 3 and September 27 2000 1999 1998 -------- -------- --------
Net sales $460,568 $467,099 $401,089 Costs, expenses and other: Cost of products sold (excluding depreciation and amortization) 403,627 404,492 336,588 Depreciation and amortization 22,412 17,246 13,465 Selling and administrative expense 17,057 19,678 22,748 Restructuring and impairment charge 5,900 - 11,532 Interest expense, net 16,657 14,733 13,021 Gain on curtailment of postretirement benefits (1,171) - (1,861) Other, net (662) 33 127 - ------------------------------------------------------------------------- Total costs, expenses and other 463,820 456,182 395,620 - ------------------------------------------------------------------------- Income (loss) before income taxes and cumulative effect of change in accounting (3,252) 10,917 5,469 Provision (benefit) for income taxes (334) 5,290 2,789 - ------------------------------------------------------------------------- Income (loss) before cumulative effect of change in accounting (2,918) 5,627 2,680 Cumulative effect of change in accounting for systems development costs, net of related tax benefit of $823 - - (1,161) - ------------------------------------------------------------------------- Net income (loss) $ (2,918) $ 5,627 $ 1,519 - -------------------------------------------------------------------------
Income (loss) per common share
Basic: Income (loss) before cumulative effect of change in accounting $ (0.31) $ 0.60 $ 0.28 Cumulative effect of change in accounting - - (0.12) - ------------------------------------------------------------------------- Net income (loss) $ (0.31) $ 0.60 $ 0.16 - -------------------------------------------------------------------------
Diluted: Income (loss) before cumulative effect of change in accounting $ (0.31) $ 0.60 $ 0.27 Cumulative effect of change in accounting - - (0.12) - ------------------------------------------------------------------------- Net income (loss) $ (0.31) $ 0.60 $ 0.15 - -------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
BWAY Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (In thousands) ===============================================================================
See accompanying notes to consolidated financial statements.
BWAY Corporation and Subsidiaries
Consolidated Statements of Cash flows (In thousands) ===============================================================================
Continued...
BWAY Corporation and Subsidiaries
Consolidated Statements of Cash Flows (In thousands) ================================================================================
See accompanying notes to consolidated financial statements.
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements - --------------------------------------------------------------------------------
BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations - BWAY Corporation ("BWAY") is a holding company whose significant subsidiaries, BWAY Manufacturing, Inc. ("BWAY Manufacturing") and Milton Can Company, Inc. ("MCC") (collectively the "Company") manufacture and distribute metal containers and provide material center services in the United States and Canada. Previously, BWAY's significant subsidiaries also included Brockway Standard, Inc. ("BSI") and BMAT, Inc. ("BMAT"). In the fourth fiscal quarter of 2000, the Company simplified its legal organizational structure and merged BSI and BMAT into Brockway Standard (New Jersey), Inc., which was renamed BWAY Manufacturing, Inc.
Basis of Presentation - The consolidated financial statements of the Company include the accounts of BWAY and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Fiscal Year - The Company's fiscal year is a 52- or 53- week fiscal period ending on the Sunday nearest to September 30.
Cash and Cash Equivalents - The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
Inventories - Inventories are carried at the lower of cost or market, with cost determined under the last-in, first-out (LIFO) method of inventory valuation.
Property, Plant, and Equipment - The Company's property, plant, and equipment is recorded at cost and depreciated over the assets' estimated useful lives on a straight-line basis. The Company periodically assesses the appropriateness of the remaining estimated useful lives of property, plant, and equipment. The Company capitalizes expenditures for major renewals and replacements and charges against income expenditures for maintenance and repairs. When the Company retires or otherwise disposes of property, plant, and equipment, the asset balances are removed from the related asset and accumulated depreciation accounts and any resulting gain or loss is credited or charged to income.
Useful lives are as follows: ------------------------------------------------------------------------------ Useful Life ----------- Buildings and improvements 10-30 years Machinery and equipment 5-15 years Furniture and fixtures 5-7 years Computer systems 1-7 years ------------------------------------------------------------------------------
Interest is capitalized in connection with the installation of major machinery and equipment acquisitions. The capitalized interest is recorded as part of the cost of the related asset and is amortized over the asset's estimated useful life. In fiscal 2000, 1999, and 1998, $0.4 million, $0.6 million, and $1.5 million of interest cost was capitalized, respectively.
Computer Information Systems - Costs directly associated with the initial purchase, development, and implementation of computer information systems are capitalized and included in property, plant, and equipment. Such costs are amortized on a straight-line basis over the expected useful life of the systems, principally five to seven years. Ongoing maintenance costs of computer information systems are expensed as incurred.
Intangible Assets - Intangible assets consist of identifiable intangibles (trademarks, customer lists, and covenants not-to-compete) and goodwill. Identifiable intangibles are amortized over the term of the agreement (5 to 7 years) or estimated useful life (2 to 17 years). Goodwill is amortized on a straight-line basis over the estimated useful life (20 to 40 years).
Deferred Financing Costs - Deferred financing costs are being amortized over the term of the related loan agreement using the straight-line method, which approximates the effective yield method.
Revenue Recognition - The Company recognizes revenue when product is shipped to its customers. Provisions for returns and allowances and customer rebates are provided for in the same period as the related revenues are recorded.
Comprehensive Income - The Company follows the disclosure requirements of Statement of Financial Accounting Standard ("SFAS") 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 requires the disclosure of total non-shareholder changes in equity and its components, which would include all changes in equity during a period except those resulting from investments by and distributions to shareholders. The only component of other comprehensive income applicable to the
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
Company would be translation gains and losses on foreign currency. There were no material translation gains and losses on foreign currency during the fiscal years 1998, 1999 and 2000.
Accrued Rebates - The Company enters into contractual agreements with its customers for rebates on certain products. As sales occur, a provision for rebates is accrued on the balance sheet and is a charge against net sales.
Income Taxes - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") 109, Accounting for Income Taxes ("SFAS 109"). One of the requirements of SFAS 109 is the use of the liability method of computing deferred income taxes. Under the liability method, the effect of changes in corporate tax rates on deferred income taxes is recognized currently as an adjustment to income tax expense. The liability method also requires that deferred tax assets or liabilities be recorded based on the difference between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of - The Company reviews for impairment, on a quarterly basis, long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of any asset may not be reasonable based on estimates of future undiscounted cash flows. In the event of impairment, the asset is written down to its fair market value. Impairment of goodwill and write-down, if any, is measured based on estimates of future undiscounted cash flows including interest charges. Assets to be disposed of are recorded at the lower of net book value or fair market value less cost to sell at the date management commits to a plan of disposal and are classified as assets held for sale on the consolidated balance sheet.
Disclosures about Fair Value of Financial Instruments - A summary of the fair value of the Company's financial instruments and the methods and significant assumptions used to estimate those values is as follows:
Short-Term Financial Instruments - The fair value of short-term financial instruments, including cash and cash equivalents, trade accounts receivable and payable, certain accrued liabilities, and current maturities of long- term debt approximates their carrying amounts in the financial statements due to the short maturity of such instruments.
Long-Term Debt - The fair value of the variable rate Credit Agreement borrowings approximates the carrying amount since the currently effective rates reflect market rates. The fair value of publicly traded fixed rate subordinated notes payable is based on the quoted market price.
Accounting Change - On November 20, 1997, the Financial Accounting Standards Board's ("FASB") Emerging Issues Task Force ("EITF") issued a consensus on the accounting treatment of certain information systems and process reengineering costs. The Company was involved in a business information systems and process reengineering project that was subject to this pronouncement. Based on the EITF consensus, $2.0 million of the previously capitalized costs associated with this project were expensed in the first fiscal quarter of 1998 as a change in accounting.
Stock Compensation - The Company accounts for stock-based compensation under the intrinsic value method prescribed in Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees. Compensation cost for employees' and directors' stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the exercise price amount an employee or director must pay to acquire the stock.
Earnings Per Common Share - Earnings per common share are based on the weighted average number of common shares and common stock equivalents outstanding during each year presented, including vested and unvested shares issued under the Company's management stock purchase plan. Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options.
Recent Accounting Pronouncements - In June 1998, FASB issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities, as amended in June 2000 by SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. SFAS 133, as amended, requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, changes in the fair value of the derivative are either offset against changes in the fair value of assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of the derivative's fair value is immediately recognized in earnings. The Company will adopt SFAS 133, as amended, on October 2, 2000. The adoption of these standards will not have a material impact on the Company's consolidated results of operation, financial position or cash flow.
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
In 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements. The SAB provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. Although SAB No. 101 does not change any existing standards on revenue recognition, it draws upon existing standards and explains how the SEC staff applies these rules, by analogy, to other transactions that existing rules do not specifically address. SAB No. 101, as amended by SAB No. 101B, must be adopted no later than the fourth quarter of our fiscal year 2001. The Company is in the process of assessing the impact of SAB No. 101 on its financial statements; however, the adoption of SAB No. 101 is not expected to have a material impact on the results of operations or financial position.
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
ACQUISITIONS
U.S. Can Metal Services Operations - On November 9, 1998, the Company acquired substantially all of the assets and assumed certain of the liabilities of the United States Can Company's metal services operations ("U.S. Can Metal Services"). The purchase price was approximately $27.7 million in cash after adjustments for working capital. The acquisition included three operating plants and one non-operating plant. The acquired facilities operated two different businesses, coating and lithography which is part of the Company's core business, and tinplate metal services which is not a business of the Company. On November 17, 1998, the Company signed a binding letter of intent to sell the tinplate services business. Anticipating the sale of the tinplate metal services business, the Company closed the Brookfield, Ohio location in March 1999 and closed the Chicago Metal location in September 1999.
The purchase method of accounting was used to establish and record a new cost basis for the assets acquired and liabilities assumed, and an allocation of the purchase price was finalized during fiscal 2000. The operating results for U.S. Can Metal Services have been included in the Company's consolidated financial statements since the date of acquisition except for the tinplate services business, which was sold as described below. As of October 1, 2000, the excess aggregate purchase price over the aggregate fair market value of net identifiable assets acquired was $8.6 million and is being amortized over 40 years.
The Company completed the sale of the tinplate services business in the fourth quarter of fiscal 1999. In connection with the sale, the Company received a note receivable recorded at $2.4 million. No gain was recognized. The tinplate services business primarily purchased, processed and sold nonprime steel to third party customers. The Company excluded tinplate metal services business losses of $4.4 million, including interest expense of $0.7 million, from results of operations for the year ended October 3, 1999.
Management is committed to a plan to exit certain activities of the acquired facilities and integrate acquired assets and businesses with BWAY facilities. In connection with the recording of the purchase, the Company established a reorganization liability of approximately $11.0 million. The reorganization liability included $1.8 million in severance, $5.5 million in facility closing costs, and $3.7 million in equipment demolition costs. The reorganization liability represents the direct incremental costs expected to be incurred, which have no future economic benefit to the Company.
Details of the U.S. Can Metal Services purchase accounting liability are as follows:
- -------------------------------------------------------------------------------- (In millions)
Equipment Demolition Facility Costs Severance Closure Total ----- --------- ------- ----- Balance September 27, 1998 $ -- $ -- $ -- $ -- Liability recorded 3.7 1.8 5.5 11.0 Expenditures (1.4) (0.5) (2.9) (4.8) - ----------------------------------------------------------------------- Balance October 3, 1999 2.3 1.3 2.6 6.2 Expenditures (1.2) (1.1) (1.4) (3.7) - ----------------------------------------------------------------------- Balance October 1, 2000 $ 1.1 $ 0.2 $ 1.2 $ 2.5 - -----------------------------------------------------------------------
- --------------------------------------------------------------------------------
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
In connection with the plant closures, the plan called for the termination of 308 employees. The Company terminated 191 employees in fiscal 1999 and the remaining 117 employees in fiscal 2000. Additionally, the remaining operating facility was closed in the fourth quarter of fiscal 2000 according to the reorganization exit plan.
The operating results for the U. S. Can Metal Services acquisition have been included in the Company's consolidated financial statements since the date of acquisition.
The following unaudited pro forma results assumes the acquisition of U.S. Can Metal Services, excluding tinplate services, occurred at the beginning of the fiscal year ended October 3, 1999, after giving affect to certain pro forma adjustments. The adjustments were made to reflect the goodwill amortization cost in excess of the net assets acquired, increased interest expense, and the estimated related income tax effects.
----------------------------------------------------------------------------- (In thousands, except per share amounts) Year Ended October 3 and September 27
1999 1998 ---- ---- Net sales $476,149 $401,089 Net income 5,374 1,519 Earnings per common share: Basic 0.58 0.16 Diluted 0.57 0.15 - --------------------------------------------------------------------------------
The unaudited pro forma financial information is not necessarily indicative of the operating results that would have occurred had the acquisitions been consummated as of the beginning of the period presented, nor is it necessarily indicative of future operating results.
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
INVENTORIES
Inventories consist of the following:
- -------------------------------------------------------------------------------- (In thousands)
October 1 and October 3
2000 1999 ---- ----
Inventories at FIFO cost: Raw materials $ 6,033 $ 7,950 Work-in-progress 30,415 30,543 Finished goods 9,074 10,538 -------- -------- 45,522 49,031 LIFO reserve 161 546 Market reserve (161) (546) -------- -------- Inventories, net $ 45,522 $ 49,031 ======== ========
- --------------------------------------------------------------------------------
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following:
- -------------------------------------------------------------------------------- (In thousands)
October 1 and October 3
2000 1999 ---- ----
Land $ 1,695 $ 1,649 Building and improvements 13,358 12,631 Machinery and equipment 144,183 131,283 Furniture, fixtures and information technology 27,684 26,114 Construction-in-progress 8,435 17,041 -------- -------- 195,355 188,718 Less accumulated depreciation (61,485) (44,002) -------- -------- Property, plant, and equipment, net $133,870 $144,716 ======== ========
- --------------------------------------------------------------------------------
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
INTANGIBLE ASSETS
Intangible assets consist of the following:
- -------------------------------------------------------------------------------- (In thousands)
October 1 and October 3 2000 1999 ---- ----
Customer lists $ 7,753 $ 7,753 Tradename 4,704 4,704 Noncompete agreements 4,509 4,509 ------- ------- 16,966 16,966 Less accumulated amortization (7,750) (6,192) ------- -------
Intangible assets, net $ 9,216 $10,774 ======= =======
- --------------------------------------------------------------------------------
ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Included in accounts payable and accrued salaries and wages at October 1, 2000 and October 3, 1999 are bank drafts issued and outstanding for which no rights of offset exist to cash and cash equivalents, as follows:
- -------------------------------------------------------------------------------- (In thousands)
October 1 and October 3 2000 1999 ---- ----
Bank drafts issued and outstanding included in: Accounts payable $ 24,793 $ 20,464 Accrued salaries and wages 1,334 1,136 -------- -------- Bank drafts $ 26,127 $ 21,600 ======== ========
- --------------------------------------------------------------------------------
LONG-TERM DEBT
Long-term debt consists of the following:
- -------------------------------------------------------------------------------- (In thousands)
October 1 and October 3 2000 1999 ---- ----
Senior subordinated notes $100,000 $100,000 Credit agreement 26,200 46,500 -------- -------- Long-term debt $126,200 $146,500 ======== ========
- --------------------------------------------------------------------------------
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
Senior Subordinated Notes
The Company has $100 million 10 1/4% Senior Subordinated Notes due 2007 (the "Notes"). Interest on the Notes is payable semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 1997. The Notes are general unsecured senior subordinated obligations of the Company and are effectively subordinated to all secured indebtedness, as defined, of the Company to the extent of the value of the assets securing any such indebtedness.
The Notes are redeemable, in whole or in part, at the option of the Company, on or after April 15, 2002 at the prices specified in the Notes (105.125% on April 15, 2002 declining annually to 100% on April 15, 2005). Upon the occurrence of a Change in Control, as defined in the Notes, the Company will be required to make an offer to repurchase the Notes at 101% of the principal amount plus accrued and unpaid interest to the date of repurchase. The Notes contain certain restrictive covenants, including limitations on asset sales, additional indebtedness, and mergers. Under the Notes' covenants, the Company is restricted in its ability to pay shareholder dividends and other restricted payments in an amount greater than $3.9 million at October 1, 2000.
BWAY is a holding company with no independent operations, although it incurs expenses on behalf of its operating subsidiaries. BWAY has no significant assets other than the common stock of its subsidiaries. The Exchange Notes are fully and unconditionally guaranteed on a joint and several basis by certain of the Company's direct and indirect subsidiaries. The subsidiary guarantors are wholly owned by BWAY and constitute all of the direct and indirect subsidiaries of BWAY except for one subsidiary that is inconsequential. Separate financial statements of the subsidiary guarantors are not presented because management has determined them to be immaterial to investors.
Credit Agreement
On November 2, 1998, the Company and its lenders amended the Credit Agreement modifying certain restrictive covenants and providing greater flexibility with respect to investments in joint ventures. Additionally, the Company exercised its option to increase the available borrowing limit to $125 million from $100 million. The Credit Agreement currently allows the Company to borrow up to $125 million or $150 million if certain conditions are met. The interest rates under the Credit Agreement are based on rate margins for either prime rate as periodically announced by Bank of America ("Prime") or LIBOR plus an applicable rate spread, at the option of the Company. The applicable rate margin is determined on a quarterly basis by a review of the Company's leverage ratio. The Company's borrowing rate was 8.1% at October 1, 2000 and 7.2% at October 3, 1999. Loans under the Credit Agreement are unsecured and can be prepaid at the option of the Company without premium or penalty. The credit agreement expires June 17, 2002.
The Credit Agreement is subject to certain restrictive covenants, including covenants which require the Company to maintain a certain minimum level of net worth and a maximum ratio for leverage indebtedness. On November 8, 2000, the Company and its lenders amended the Credit Agreement modifying certain restrictive covenants. The amendment provides for the payment of up- front fees of $250,000 and a 50 basis point increase in the interest rate margin. As part of the November 8, 2000 amendment, the lenders provided a waiver to the Company for a covenant violation related to the interest coverage ratio for the quarter ended October 1, 2000.
BWAY is restricted in its ability to pay shareholder dividends and other restricted payments in an amount greater than approximately $3.9 million at October 1, 2000 and to incur additional indebtedness. The Company's subsidiaries are restricted in their ability to transfer funds to the Company, except for funds to be used to effect approved acquisitions, pay dividends, reimburse the Company for operating and other expenditures made on behalf of the subsidiaries and repay permitted intercompany indebtedness.
Scheduled maturities of long-term debt as of October 1, 2000 are as follows:
----------------------------------------------------------------------------- (In thousands)
2002 $ 26,200 Thereafter 100,000 --------- $ 126,200 =========
-----------------------------------------------------------------------------
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
The fair value of long-term debt at October 1, 2000 and October 3, 1999 was estimated at $121.4 million and $148.1 million, respectively.
STOCKHOLDERS' EQUITY
Earnings Per Share - The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for income before the cumulative effect of change in accounting:
- -------------------------------------------------------------------------------- (In thousands, except per share amounts) Year Ended October 1, October 3 and September 27
2000 1999 1998 ---- ---- ---- Calculation of Basic Earnings (Loss) Per Share: ---------------------------------------------------------------- Net income (loss) before cumulative effect of change in accounting $(2,918) $5,627 $2,680 Weighted average number of common shares outstanding 9,278 9,323 9,527 ---------------------------------------------------------------- Basic Earnings (Loss) Per Share $ (0.31) $ 0.60 $ 0.28 ----------------------------------------------------------------
Calculation of Diluted Earnings (Loss) Per Share: ---------------------------------------------------------------- Net income (loss) before cumulative effect of change in accounting $(2,918) $5,627 $2,680 Weighted average number of common shares outstanding 9,278 9,323 9,527 Effect of dilutive stock options -- 130 432 ---------------------------------------------------------------- Weighted average number of common shares outstanding assuming dilution 9,278 9,453 9,959 ---------------------------------------------------------------- Diluted Earnings (Loss) Per Share $ (0.31) $ 0.60 $ 0.27 ----------------------------------------------------------------
- --------------------------------------------------------------------------------
Approximately 20,000 common stock equivalents are excluded from the fiscal 2000 diluted loss per common share calculation because such are anti- dilutive.
Stock Option Plans
In February 1998, the Company adopted the Second Amended and Restated 1995 Long-Term Incentive Plan, which increased the aggregate number of shares of common stock authorized for issuance thereunder from 1,125,000 to 1,425,000. In February 1999, the Company adopted the Third Amended and Restated 1995 Long-Term Incentive Plan, which increased the aggregate number of shares of common stock authorized for issuance thereunder from 1,425,000 to 1,825,000. In February 2000, the Company adopted the Fourth Amendment and Restatement of the 1995 Long-Term Incentive Plan (the "Current Plan"), which increased the aggregate number of shares of common stock authorized for issuance thereunder from 1,825,000 to 2,425,000. The options generally become exercisable in installments of 33% per year on each of the first through third anniversaries of the grant. The Current Plan will terminate on May 31, 2005 unless sooner terminated by the Board. Termination of the Current Plan will not affect grants made prior to termination. The Current Plan authorizes grants of stock options to participants from time to time as determined by the Board's Management Resources, Nominating and Compensation Committee. Options granted under the Current Plan may be incentive stock options as described in Section 422 of the Internal Revenue Code, non-qualified stock options, or a combination thereof.
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted- average assumptions:
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Year Ended October 1, October 3 and September 27
2000 1999 1998 ---- ---- ----
Expected dividends 0.0% 0.0% 0.0% Expected volatility 51.8% 52.3% 37.7% Risk-free interest 6.0% 6.6% 6.6% Expected lives (years) 6.9 6.0 6.0
- --------------------------------------------------------------------------------
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
A summary of the status of the Company's stock option plans as of October 1, 2000 and changes during fiscal 1998, 1999 and 2000 is presented below:
- --------------------------------------------------------------------------------
Weighted Average Exercise Fixed Options Shares Price - ------------- ------ -----
Outstanding at September 28, 1997 942,300 $11.72 Granted 332,900 20.48 Forfeited (14,800) 19.26 Exercised (69,400) 12.16 --------
Outstanding at September 27, 1998 1,191,000 14.05 Granted 448,274 14.77 Forfeited (36,752) 20.68 Exercised (4,500) 12.67 ----------
Outstanding at October 3, 1999 1,598,022 14.07 Granted 334,041 6.16 Forfeited (161,288) 15.86 ----------
Outstanding at October 1, 2000 1,770,775 12.42 ==========
Exercisable at: September 27, 1998 592,500 11.37 ==========
October 3, 1999 883,155 12.70 ==========
October 1, 2000 1,068,490 13.34 ==========
Weighted-average grant date fair value of options granted during the year ended:
September 27, 1998 $ 13.08 ==========
October 3, 1999 $ 8.51 ==========
October 1, 2000 $ 4.04 ==========
- --------------------------------------------------------------------------------
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding:
- -------------------------------------------------------------------------------- October 1, 2000
Weighted Average Weighted Number Remaining Average Number Range of of Options Contractual Exercise of Options Exercise Prices Outstanding Life Price Exercisable - --------------- ----------- ---- ----- ----------- $ 5.01 - 6.00 232,273 9.2 $ 5.99 -- 6.01 - 7.00 75,000 9.5 6.73 -- 9.01 - 10.00 260,011 4.2 9.67 259,567 10.01 - 12.00 74,700 5.2 11.03 52,200 12.01 - 13.00 645,234 6.0 12.59 450,234 13.01 - 15.00 58,588 6.5 14.23 55,516 16.01 - 17.00 196,413 7.7 16.50 71,983 17.01 - 19.00 40,500 6.4 18.17 40,500 19.01 - 20.00 157,947 5.8 19.38 115,016 20.01 - 26.50 30,109 5.0 25.47 23,474 --------- --- ------ --------- 1,770,755 6.5 $12.42 1,068,490 ========= === ====== ========= - --------------------------------------------------------------------------------
The fair value of options granted during the years ended October 1, 2000, October 3, 1999, and September 27, 1998, was $1.3 million, $3.8 million, and $4.4 million, respectively. The Company applies Accounting Principles Board Opinion 25 and related Interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the Company's net income (loss) and earnings (loss) per share for each of the three years in the period ended October 1, 2000 would have been reduced (increased) to the pro forma amounts indicated below:
- -------------------------------------------------------------------------------- (In thousands, except per share amounts) Year Ended October 1, October 3 and September 27
2000 1999 1998 ---- ---- ----
Net income (loss): As reported $(2,918) $5,627 $1,519 Pro forma (5,811) 3,006 (289)
Basic earnings (loss) per share: As reported $ (0.31) $ 0.60 $ 0.16 Pro forma (0.63) 0.32 (0.03)
Diluted earnings (loss) per share: As reported $ (0.31) $ 0.60 $ 0.15 Pro forma (0.63) 0.32 (0.03) - --------------------------------------------------------------------------------
Shareholder Rights Plan
The Company has a Shareholder Rights Plan, amended through November 26, 1997 (the "Rights Plan"), under which a preferred share purchase right is presently attached to and trades with each outstanding share of the Company's common stock. The rights become exercisable and transferable apart from the common stock after a person or group other than an Exempt Person (as defined in the Rights Plan), without the Company's consent, acquires beneficial ownership of, or the right to obtain beneficial ownership of, 15% or more of the Company's common stock or ten business days after a person or group announces or commences a tender offer or exchange offer that could result in 15% ownership. Once exercisable, each right entitles the holder to purchase one fifteen-hundredth share of Junior Participating Series A Preferred Stock at an exercise price of $60 per share subject to adjustment to prevent dilution. The rights have no voting power and no current dilutive effect on earnings per common share. The rights expire on June 15, 2005 and are redeemable at the discretion of the Board of Directors at $.01 per share.
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - ------------------------------------------------------------------------------
If a person acquires 15% ownership, except in an offer approved by the Company under the Rights Plan, then each right not owned by the acquirer or related parties will entitle its holder to purchase, at the right's exercise price, additional shares of common stock or common stock equivalents. In addition, after an acquirer obtains 15% ownership, if the Company is involved in certain mergers, business combinations, or asset sales, each right not owned by the acquirer or related persons will entitle its holder to purchase, at the right's exercise price, additional shares of common stock of the other party to the transaction.
INCOME TAXES
The Company files a consolidated federal income tax return. Deferred income taxes are provided to recognize the differences between the carrying amount of assets and liabilities for financial statement purposes and the amounts used for income tax purposes.
Components of net deferred tax liability are as follows:
- ------------------------------------------------------------------------------- (In thousands)
October 1 and October 3
2000 1999 ---- ---- Deferred tax liabilities: Property, plant, and equipment $25,875 $24,561 Inventory 1,405 1,249 Intangible assets 1,843 1,372 Other 634 626 - --------------------------------------------------------------- 29,757 27,808 - ---------------------------------------------------------------
Deferred tax assets: Restructuring reserves 2,158 4,369 Employee benefits 5,917 6,005 Customer claims/rebates 1,647 1,854 Net operating loss carryforward 5,033 -- Accounts receivable 256 221 Other 1,690 2,304 - --------------------------------------------------------------- 16,701 14,753 - --------------------------------------------------------------- Net deferred tax liability $13,056 $13,055 - ---------------------------------------------------------------
Net current deferred tax asset $(8,988) $(4,612) Net noncurrent deferred tax liability 22,044 17,667 - --------------------------------------------------------------- $13,056 $13,055 - ---------------------------------------------------------------
- ------------------------------------------------------------------------------- The provision for income taxes is reconciled with the federal statutory rate as follows:
- -------------------------------------------------------------------------------- (In thousands)
October 1, October 3 and September 27
2000 1999 1998 - ------------------------------------------------------------------------------- Amount % Amount % Amount % - ------------------------------------------------------------------------------- Income tax at federal statutory rate $(1,190) (35.0)% $ 3,821 35.0% $ 1,914 35.0% State income taxes, net of federal tax benefit (119) ( 3.5)% 382 3.5% 275 5.0% Nondeductible intangible amortization 671 19.7% 734 6.7% 600 11.0% Other 304 6.4% 353 3.2% -- -- - ------------------------------------------------------------------------------- $ (334) (12.4)% $ 5,290 48.4% $ 2,789 51.0% - -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
The components of the provision for income taxes are as follows:
- -------------------------------------------------------------------------------- (In thousands)
October 1, October 3 and September 27
2000 1999 1998 ---- ---- ---- Current: Federal $(303) $(1,640) $1,473 State (32) (164) 307 Deferred 1 7,094 1,009 - --------------------------------------- $(334) $ 5,290 $2,789 - --------------------------------------- - --------------------------------------------------------------------------------
As of October 1, 2000, the Company has recognized deferred tax benefits of $5.0 million related to net operating loss carryforwards which expire in 2015 and $1.2 million related to alternative minimum tax carryforwards that have no expiration date.
LEASE COMMITMENTS
The Company leases warehouses, office space, equipment, and vehicles under operating leases. Rent expense during each of the last three fiscal years was approximately $6.2 million (2000), $4.5 million (1999), and $3.4 million (1998).
On August 20, 1999, the Company sold and leased back its Cincinnati manufacturing facility. The sales price was $10.4 million. After deducting closing costs of $0.6 million, the Company recorded a deferred gain on the sale of $2.3 million that is amortized over the life of the lease. The amortization of the deferred gain recorded in earnings was $0.1 million and $13 thousand for fiscal 2000 and 1999, respectively. The lease term is 20 years with annual lease payments of approximately $1.1 million. The lease has two five-year renewal terms that run consecutively after the basic term. The lease is accounted for as an operating lease for financial reporting purposes.
At October 1, 2000, future minimum rental payments under non-cancelable operating leases are as follows:
----------------------------------------------------------------------------- (In thousands)
Operating Fiscal Year Lease Payment ----------- -------------
2001 $ 5,995 2002 5,319 2003 4,132 2004 3,720 2005 2,517 Thereafter 18,279 -------
Total minimum lease payments $39,962 ======= -----------------------------------------------------------------------------
PROFIT SHARING AND PENSION PLANS
The Company has qualified profit sharing and savings plans for specified employees. These plans are defined contribution plans that provide for employee contributions with a Company matching provision, and for certain employees a deferred profit sharing component funded by the Company. The Company's net contributions to the profit sharing and savings plans for each of the last three fiscal years were approximately $1.5 million (2000), $1.3 million (1999) and $0.9 million (1998).
The Company has a noncontributory defined benefit pension plan covering a majority of its salaried employees at its Elizabeth, New Jersey facility. The Company froze this plan effective December 31, 1996. On January 1, 1998, the Company amended the plan to cover substantially all nonunion employees. The plan provides for a contribution of 4% of each participant's wages. Participant account balances earn interest at 6% per annum.
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
Effective July 31, 1998, the Company amended the plan to terminate the plan on that date. All participants became fully vested in their accounts on July 31, 1998. On July 29, 1999 the Company received approval to distribute the assets in the plan to the participants. All plan assets were distributed in fiscal 2000.
The periodic net expense (income) is comprised of the following:
- --------------------------------------------------------------------------------
October 1, October 3 and September 27
2000 1999 1998 ---- ---- ---- Service cost--benefits earned during the period $ -- $ -- $2,294,000 Interest cost on projected benefit obligation 72,500 307,500 284,100 Actual return on assets (97,800) (158,400) (261,400) Net amortization and deferral (600) (301,200) (135,000) - --------------------------------------------------------------------- Net pension expense(income) $(25,900) $(152,100) $2,181,700 - --------------------------------------------------------------------- - --------------------------------------------------------------------------------
The following table shows the plan's funded status and amounts recognized in the balance:
-----------------------------------------------------------------------------
Year Ended October 3
----
Accumulated benefit obligation $ 3,754,200 ------------------------------------------------
Fair value of plan assets $ 4,357,700 Projected benefit obligation (3,754,200) ------------------------------------------------ Funded status 603,500
Unrecognized net gain (470,300) Unrecognized prior service cost -- ------------------------------------------------ Prepaid pension expense $ 133,200 ------------------------------------------------
Actuarial assumptions: ------------------------------------------------ Discount rate 7.75% ------------------------------------------------ Rate of increase in compensation levels 0.00% ------------------------------------------------ Expected return on assets 9.00% ------------------------------------------------
- --------------------------------------------------------------------------------
Most of the Company's union employees at its Elizabeth, New Jersey facility are covered under multi-employer defined benefit plans administered by the union. Total contributions charged to expense for such plans were $0.3 million in fiscal 2000, $0.3 million in fiscal 1999 and $0.4 million in fiscal 1998.
In fiscal 1998, the Company reached new collective bargaining agreements with unions representing approximately 34% of the hourly employees at the Cincinnati, Ohio facility. The provisions of the new agreements substantially eliminate unvested postretirement medical benefits provided by the Company resulting in the recording of curtailment gains of approximately $1.2 million in fiscal 2000 and $1.9 million in fiscal 1998.
As of October 1, 2000, in accordance with the terms of the remaining two applicable collective bargaining agreements, the Company continues to offer postretirement medical coverage to certain union employees who retire from employment with MCC.
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
The following table reflects the change in benefit obligation and plan assets and the accrued benefit cost:
- --------------------------------------------------------------------------------
Year Ended October 1 and October 3
2000 1999 ---- ---- Change in benefit obligation - -------------------------------------------------------------- Benefit obligation at beginning of year $ 5,165,106 $ 5,899,329 Service cost 8,582 29,319 Interest cost 379,587 392,493 Actuarial gain (29,657) (948,165) Curtailment gain (1,171,458) -- Benefits paid (255,744) (207,870) - -------------------------------------------------------------- Benefit obligation at end of year $ 4,096,416 $ 5,165,106 - --------------------------------------------------------------
Change in plan assets - -------------------------------------------------------------- Employer contribution 255,744 207,870 Benefits paid (255,744) (207,870) - -------------------------------------------------------------- Fair value of plan assets at end of year $ -- $ -- - --------------------------------------------------------------
Funded status (4,096,416) (5,165,106) Unrecognized net actuarial gain (873,166) (853,091) - -------------------------------------------------------------- Accrued benefit cost $(4,969,582) $(6,018,197) - --------------------------------------------------------------
Weighted-average assumptions as of year-end 8.00% 7.50% - --------------------------------------------------------------
- --------------------------------------------------------------------------------
For measurement purposes, a 9.5% and 10.0% annual rate of increase in the post 65 per capita cost of covered health care benefits and a 8.0% and 8.5% annual rate of increase in the pre 65 per capita cost of covered health care benefits were assumed for 2000 and 1999, respectively. The rates were assumed to decrease by 0.5% per year to 4.5% and remain at that level thereafter.
- --------------------------------------------------------------------------------
October 1, October 3 and September 27
2000 1999 1998 ----- ---- ---- Components of net periodic benefit cost: - ------------------------------------------------------------------------ Service cost on benefits earned $ 8,582 $ 29,319 $ 29,319 Interest cost on accumulated postretirement benefit obligation 379,587 392,493 412,028 Amortization of actuarial gain (9,582) -- -- - ------------------------------------------------------------------------ Net periodic benefit cost 378,587 421,812 441,347 Curtailment gain (1,171,458) -- (1,860,771) - ------------------------------------------------------------------------ Net effect charged to results from continuing operations $ (792,871) $421,812 $(1,419,424) - ------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trends would have the following effects:
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) ==============================================================================
---------------------------------------------------------------------------
Year Ended October 1 ----
One-Percentage Point Increase: ------------------------------------------------------------------ Effect on total service and interest cost components $ 38,499 Effect on postretirement benefit obligation 481,232
One-Percentage Point Decrease: ------------------------------------------------------------------ Effect on total service and interest cost components $ (32,285) Effect on postretirement benefit obligation (403,569)
-----------------------------------------------------------------------------
RELATED PARTY TRANSACTIONS
The Company leases its Elizabeth, New Jersey operating facility and a warehouse under operating leases from a partnership in which a member of the Company's management is a partner. The leases run concurrently initially expiring on September 30, 2004 with an option to extend for a five-year term to September 30, 2009. The annual lease expense is $0.9 million for the initial term and $0.9 million adjusted for inflation at October 1, 2004 for the five-year extended term.
RESTRUCTURING AND IMPAIRMENT CHARGE
Fiscal 2000 Restructuring and Impairment
In February 2000, the Company recorded a restructuring and impairment charge related to the closing of two administrative offices, the termination of 89 employees and the write-down of equipment held for disposal. The restructuring and impairment charge totaled $5.9 million and consisted of the following: $1.1 million related to administrative office closings, $1.1 million related to severance, $0.7 million related to contracts and other miscellaneous costs and $3.0 million related to impairments of equipment held for disposal. Both administrative offices were closed and all 89 employees were terminated in the second quarter.
In addition to the $5.9 million restructuring and impairment charge in fiscal 2000, the Company recorded $2.5 million in additional depreciation related to the shortened useful lives of certain computer systems.
Fiscal 1998 Restructuring
On June 3, 1998, the Board of Directors approved a restructuring plan 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 transportation department. The facilities closed in fiscal 1999 were Solon (Ohio) and Northeast Tin Plate (New Jersey). The Farmer's Branch (Texas) facility was closed in fiscal 2000.
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 included $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 shutdowns. All 210 employees under the plan were terminated in fiscal 1999.
During fiscal 2000, the Company charged $0.1 million in severance and $0.3 million in facility closing costs to the 1998 restructuring liability, which eliminated the remaining balance in the 1998 restructuring.
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
Details of the restructuring liabilities included in other current liabilities are as follows:
- -------------------------------------------------------------------------------- (In millions)
Facility Severance Closure Costs Costs Other Total ----- ----- ----- ----- Balance September 28, 1997 $ -- $ -- $ -- $ -- New charges 2.1 2.2 3.5 7.8 Expenditures (1.5) (1.0) -- (2.5) - ------------------------------------------------------------------ Balance September 27, 1998 0.6 1.2 3.5 5.3 - ------------------------------------------------------------------ Expenditures (0.5) (0.9) (3.5) (4.9) - ------------------------------------------------------------------ Balance October 3, 1999 0.1 0.3 -- 0.4 - ------------------------------------------------------------------ New charges 1.1 1.1 0.7 2.9 Expenditures (1.1) (1.0) (0.3) (2.4) - ------------------------------------------------------------------ Balance October 1, 2000 $ 0.1 $ 0.4 $ 0.4 $ 0.9 - ------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS HELD FOR SALE
In connection with the facility closures in 1998, 1999 and 2000, $5.3 million and $4.8 million of real property was held for sale at October 1, 2000 and October 3, 1999, respectively. This property includes $1.1 million (2000) and $0.6 million (1999) of land, $3.9 million (2000) and $2.8 million (1999) of buildings, and $0.3 million (2000) and $1.4 million (1999) in equipment for sale at October 1, 2000 and October 3, 1999.
During fiscal 2000, the Company revised its valuation of the land and buildings related to the U.S. Can Metal Services acquisition through finalization of purchase accounting, which resulted in an adjustment to goodwill. The adjustment increased land held for sale by $1.3 million and buildings held for sale by $0.3 million.
During the fourth quarter of fiscal 2000, the Company sold the Alsip, Illinois facility for $2.3 million resulting in a net gain of $0.4 million. 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.
CONTINGENCIES
Environmental
The Company continues to monitor and evaluate on an ongoing and regular basis its compliance with applicable environmental laws and regulations. Liabilities for non-capital expenditures are recorded when environmental remediation is probable and the costs can be reasonably estimated. The Company believes that it is in substantial compliance with all material federal, state and local environmental requirements.
Environmental investigations voluntarily conducted by the Company at its Homerville, Georgia facility in 1993 and 1994 detected certain conditions of soil and groundwater contamination, 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. In August 1999, DNR signed a consent order that had been submitted by the Company and Owens-Illinois. In January 2000, the Company and Owens-Illinois submitted to DNR a report containing the results of the investigation of the facility. The Company is awaiting a DNR review of the report.
In addition, at Homerville, the Company entered into a consent order with DNR in April 1999 related to certain industrial wastewater and cooling water discharges that exceeded allowable limits. As
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - --------------------------------------------------------------------------------
of October 1, 2000, the project related to the consent order was substantially complete with expenditures to date of approximately $200,000.
The Company (and, in some cases, predecessors to the Company) has from time to time received requests for information or notices of potential responsibility pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") with respect to certain waste disposal sites utilized by former or current facilities of the Company or its various predecessors. To the Company's knowledge, all such matters which have not been resolved are, subject to certain limitations, indemnified by the sellers of the relevant Company affiliates, and all such unresolved matters have been accepted for indemnification by such sellers. Because liability under CERCLA is retroactive, it is possible that in the future the Company may incur liabilities with respect to other sites.
Management believes that none of these matters will have a material adverse effect on the results of operations or financial condition of the Company in light of both the potential indemnification obligations of others to the Company and the Company's understanding of the underlying potential liability.
Letters of Credit
At October 1, 2000, a bank had issued standby letters of credit on behalf of BWAY in the aggregate amount of $1.2 million in favor of BWAY's workers' compensation insurer.
CUSTOMERS
The Company sells its metal containers to a large number of customers in numerous industry sectors. To reduce credit risk, the Company sets credit limits and performs ongoing credit evaluations. Sales to the Company's ten largest customers amounted to approximately 33% (2000), 42% (1999), and 36% (1998) of the Company's sales including sales to its largest customer of 7.4% (2000), 8.5% (1999), and 9.5% (1998).
Although the Company's exposure to credit risk associated with nonpayment is affected by conditions with the customers' industries, the balances are substantially current and are within terms and limits established by the Company.
The Company sells its products and services primarily in North America. In fiscal 2000, 1999, and 1998, the Company's sales to customers located outside the United States were less than five percent of total net sales. The following is a summary of revenue for the Company's products and services:
- -------------------------------------------------------------------------------- (In thousands)
Year Ended October 1, October 3 and September 27
2000 1999 1998 ---- ---- ----
General line containers $334,994 $326,970 $320,871 Food cans 38,815 51,380 52,142 Material center services 74,156 74,736 8,022 Ammunition boxes 12,603 14,013 20,054 - ----------------------------------------------------------- $460,568 $467,099 $401,089 - -----------------------------------------------------------
- --------------------------------------------------------------------------------
BWAY Corporation and Subsidiaries
Notes to the Consolidated Financial Statements (continued) - ------------------------------------------------------------------------------
QUARTERLY INFORMATION (UNAUDITED)
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule I - Condensed Financial Statements of BWAY Corporation....... S-2
Schedule II - Condensed Valuation and Qualifying Accounts BWAY Corporation And Subsidiaries......................... S-6
S-1
SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF BWAY CORPORATION
CONDENSED BALANCE SHEETS (In Thousands)
S-2
SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF BWAY CORPORATION
CONDENSED STATEMENTS OF INCOME (In Thousands)
S-3
SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF BWAY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (In Thousands)
S-4
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
S-5
SCHEDULE II - CONDENSED VALUATION AND QUALIFYING ACCOUNTS BWAY CORPORATION AND SUBSIDIARIES (In Thousands)
S-6
INDEX TO EXHIBITS ------------------------------------------------
Exhibit Description of Document No. 3.1 Amended and Restated Certificate of Incorporation of the Company. (3)
3.2 Amended and Restated By-laws of the Company (1)
3.3 Rights Agreement dated as of June 9, 1995 between the Company and Harris Trust and Savings Bank, as Rights Agent (1)
3.4 Amendments to Rights Agreement dated as of February 12, 1996 between the Company and Harris Trust and Savings Bank, as Rights Agent (3)
3.5 Amendment No. 2 to Rights Agreement dated as (9) of August 19, 1997 between the Company and Harris Trust and Savings Bank, as Rights Agent
3.6 Amendment No. 3 to Rights Agreement, dated as of November 26, 1997, between the Company and Harris Trust and Savings Bank. (9)
4.1 Form of certificate representing shares of Common Stock of the Company (2)
4.2 Credit Agreement dated June 17, 1996 by and among BWAY Corporation, Brockway Standard, Inc., Milton Can Company, Inc., the additional borrowers, BT Alex.Brown Incorporated (formerly known as Bankers Trust Company) and NationsBank, N.A. (4)
4.3 Third Amendment To Credit Agreement dated November 2, 1998 among BWAY Corporation, its subsidiaries, Bankers Trust Company and NationsBank, N.A. (14)
4.4 Master Assignment and Consent Agreement and First Amendment to Credit Agreement dated as of August 15, 1996, and Second Amendment to Credit Agreement dated as of October 15, 1997 between BWAY Corporation, Brockway Standard, Inc., Milton Can Company, Inc., the additional borrowers, BT Alex.Brown Incorporated (formerly known as Bankers Trust Company), and NationsBank, N.A. (11)
4.5 Indenture dated as of April 11, 1997 among the Company, the subsidiary guarantors named therein and Harris Savings and Trust Company, as trustee (6)
4.6 Forms of Series A and Series B 101/4% Senior Subordinated Notes (contained in Exhibit 4.3 as Exhibit A and B thereto, respectively) (6)
4.7 Form of Guarantee (contained in Exhibit 4.3 as Exhibit F thereto) (6)
4.8 Fourth Amendment To Credit Agreement dated December 16, 1999 among BWAY Corporation, its subsidiaries, BT Alex.Brown Incorporated (formerly known as Bankers Trust Company) and Bank of America (formerly known as (14) NationsBank, N.A.)
4.9 Fifth Amendment To Credit Agreement dated November 8, 2000 among BWAY Corporation, its subsidiaries, Bankers Trust Company and Bank of America N.A. (formerly known as NationsBank, N.A.)
The Registrant will furnish to the Commission, upon request, each instrument defining the rights of holders of long-term debt of the Registrant and its subsidiaries where the amount of such debt does not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a consolidated basis.
10.1 Asset Purchase Agreement dated December 19, 1988 between BS Holdings Corporation, BW Plastics, Inc., BW-Morrow Plastics, Inc. and Owens-Illinois Group, Inc. (1)
10.2 Registration Agreement dated as of January 30, 1989 between BS Holdings Corporation and certain stockholders (1)
10.3 Acquisition Agreement dated as of March 4, 1993 between Ellisco Inc. and BSI (1)
10.4 Stock Purchase Agreement dated April 27, 1993 among Armstrong Industries, Inc., its stockholders, Armstrong Containers, Inc. and (1) BSI
10.5 Asset Purchase Agreement dated May 26, 1993 among DK Containers, Inc., Dennis Dyck, Robert Vrhel, Mohan Patel and BSI (1)
10.6 Employment Agreement between the Company and Warren J. Hayford, dated as of June 1, 1995 * (1)
10.7 Employment Agreement between the Company and John T. Stirrup, dated as of June 1, 1995 * (1)
10.8 Contract and Lease dated September 3, 1968, between the City of Picayune, Mississippi and Standard Container Company (1)
10.9 Lease dated February 24, 1995 between Tab Warehouse Fontana II and BSI (1)
10.10 Garland, Texas Industrial Net Lease dated January 14, 1985 between MRM Associates and Armstrong Containers, Inc. (1)
10.11 Gross Lease Agreement dated August 10, 1990 between Colonel Estates Joint Venture and BSI (1)
10.12 Lease dated February 11, 1991 between Curto Reynolds Oelerich Inc. and Armstrong Containers, Inc. (1)
10.13 Lease Agreement dated November 16, 1996 between Shelby Distribution Park and Brockway Standard, Inc., as amended December 26, 1996. (11)
10.14 Lease dated August 9, 1991 between DK Containers, Inc. and Smith Barney Birtcher Institutional Fund-I Limited Partnership and (1) the First Amendment thereto
10.15 Lease dated September 2, 1994 between Division Street Partners, L.P. and BSNJ (8)
10.16 Employee Stock Purchase Agreement dated March 4, 1994 among BS Holdings Corporation, Perry Schwartz, Mid-America Group, Ltd., Warren J. Hayford and Daniel P. Casey * (1)
10.17 Agreement, dated May 15, 1995, between BSI and Owens-Illinois, Inc. Pursuant to (S) 9.9 (d) of the December 19, 1988 Stock Purchase (1) Agreement
10.18 Settlement Agreement, dated June 30, 1997 between BWAY Corporation and Owens-Illinois (11) Group, Inc.
10.19 Brockway Standard Holdings Corporation Formula Plan for Non-Employee Directors * (1)
10.20 Cooperation Agreement between Ball Corporation and BWAY Corporation, dated (3) January 4, 1996.
10.21 Merger Agreement with Milton Can Company, Inc., dated March 12, 1996. (3)
10.22 Amendment #1 to the Merger Agreement with Milton Can Company, Inc., dated April 30, 1996 (3)
10.23 Asset Purchase Agreement dated April 29, 1996, between Brockway Standard, Inc., BWAY Corporation, Van Dorn Company and Crown Cork & Seal Company, Inc. (3)
10.24 Employment Agreement between the Company and James W. Milton, dated as of May 28, 1996 * (4)
10.25 Amended and Restated Registration Rights Agreement dated as of May 28, 1996, between BWAY Corporation and certain shareholders. (4)
10.26 Asset Purchase Agreement dated October 6, 1996, between Brockway Standard (New Jersey), Inc. (formerly known as Milton Can Company, Inc.), BWAY Corporation, Ball Metal Food Container Corp., and Ball Corporation (5)
10.27 Amendment No. 1 to the Asset Purchase Agreement dated October 28, 1996 between Milton Can Company, Inc., BWAY Corporation, Ball Metal Food Container Corp., and Ball (5) Corporation
10.28 Purchase Agreement dated as of April 8, 1997 among the Company, the subsidiary guarantors named therein, BT Alex. Brown Incorporated (formerly known as Bankers Trust Company), Bear, Stearns & Co. Inc. and NationsBanc (6) Capital Markets, Inc.
10.29 Brockway Standard (Ohio), Inc. Bargaining Unit Savings Plan * (7)
10.30 Employment Agreement between the Company and John T. Stirrup B Amendment No. 1 * (10)
10.31 Asset Purchase Agreement between BMAT, Inc. and the United States Can Company dated November 9, 1998. (12)
10.32 Employment Agreement between the Company and John T. Stirrup - Amendment No. 2* (13)
10.33 Employment Agreement and Options Agreement between the Company and Warren J. Hayford - Omnibus Amendment* (14)
10.34 Employment Agreement between the Company and Jean-Pierre M. Ergas, dated as of January 1, (14) 2000*
10.35 Lease Agreement dated August 20, 1999 between CRICBW Anderson Trust and Milton Can Company (14)
10.36 Lease Agreement dated September 15, 1999 between Division Street Partners, L.P. and (14) BSNJ
10.37 Employment agreement between the Company and (15) Paul Mangiafico, dated as of March 1, 2000
10.38 BWAY Corporation Fourth Amended and Restated (15) 1995 Long-Term Incentive Plan *
10.39 Employment agreement between the Company and (16) Thomas Eagleson, dated as of July 1, 2000
10.40 Amendment No. 1 dated as of July 1, 2000 to (16) the Employment agreement between the Company and Paul Mangiafico, dated as of March 1, 2000
21.1 Subsidiaries of the Company
23.1 Consents of Experts and Counsel
27.1 Financial Data Schedule ____________________________ * Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-91114).
(2) Incorporated by reference to the Company's Form 10-K for the fiscal year ending October 1, 1995 (File No. 0-26178).
(3) Incorporated by reference to the Company's Form 10-Q for the period ending March 31, 1996 (File No. 0-26178).
(4) Incorporated by reference to the Company's Form 10-Q for the period ending June 30, 1996 (File No. 0-26178).
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed on November 12, 1996 (File No. 0-26178).
(6) Incorporated by reference to the Company's Registration Statement on Form S-4 (File No. 333-26013).
(7) Incorporated by reference to the Company's Registration Statement on Form S-8 (File No. 333-39225).
(8) Incorporated by reference to the Company's Form 10-K for the fiscal year ending September 29, 1996 (File No. 0-26178).
(9) Incorporated by reference to the Company's Form 10-Q for the period ending December 28, 1997 (File No. 0-26178).
(10) Incorporated by reference to the Company's Form 10-Q for the period ending March 29, 1998 (File No. 0-26178).
(11) Incorporated by reference to the Company's Form 10-K for the fiscal year ending September 28, 1997 (File No. 0-26178).
(12) Incorporated by reference to the Company's Current Report on Form 8-K filed on November 9, 1998 (File No. 0-26178).
(13) Incorporated by reference to the Company's Form 10-Q for the period ending July 4, 1999 (File No. 0-26178).
(14) Incorporated by reference to the Company's Form 10-K for the fiscal year ending October 3, 1999 (File No. 0-26178).
(15) Incorporated by reference to the Company's Form 10-Q for the period ending April 2, 2000 (File No. 0-26178).
(16) Incorporated by reference to the Company's Form 10-Q for the period ending July 2, 2000 (File No. 0-26178).