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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended September 28, 1997
or
[ ] Transition Report pursuant to section 13 or 15 (d) of
The Securities Exchange Act of 1934
for the transition period from __________to _________.
Commission File Number 0-26178
BWAY Corporation
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
36-3624491
(I.R.S. Employer Identification No.)
8607 Roberts Drive, Suite 250
Atlanta, Georgia 30350
(Address of principal executive offices, including zip code)
770-645-4800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: Common Stock, par
value $0.01 per share, registered on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
As of November 20, 1997, the aggregate market value of the voting stock held by
non-affiliates of BWAY Corporation was approximately $130,052,922.
As of November 20, 1997, there were 9,791,712 shares of BWAY Corporation's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of BWAY Corporation's Proxy Statement to be mailed to
stockholders on or about January 20, 1998 for the Annual Meeting of Stockholders
to be held on February 27, 1998 are incorporated in Part III hereof by
reference.
BWAY CORPORATION
TABLE OF CONTENTS
PART I Page
----
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings and Regulatory Matters 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 12
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners and Management 17
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 18
ii
BWAY CORPORATION AND SUBSIDIARIES
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED SEPTEMBER 28, 1997
PART I
Item 1. Business
--------
General
BWAY Corporation ("BWAY") (formerly known as Brockway Standard Holdings
Corporation) is a holding company whose principal subsidiaries, Brockway
Standard, Inc. ("BSI"), Brockway Standard (New Jersey), Inc., Milton Can
Company, Inc. and Brockway Standard (Ohio), Inc. (collectively the "Company")
are leading developers, manufacturers, and marketers of steel containers for the
general line category of the North American container industry.
Metal containers are currently utilized for three product categories:
beverage, food and general line (which includes containers for such products as
aerosol, paint and varnish, and automotive products). Management estimates,
based on industry data published by the Can Manufacturers Institute and the
United States Bureau of Statistics, that 1996 industry shipments totaled
approximately 99 billion units to the beverage category, 32 billion units to the
food category and 4 billion units to the general line category. Although the
general line category constitutes approximately 3% of the unit volume of metal
containers, management estimates that it represents approximately 10% of the
metal can industry revenues. Few companies compete in all three product
categories, and most of the companies which produce beverage and food cans do
not compete in the general line product categories.
The Company's principal products include a wide variety of steel cans and
pails used for packaging paint and related products, lubricants, cleaners, roof
and driveway sealants, food (principally coffee, vegetable oil and vegetable
shortening) and household and personal care aerosol products. The Company also
manufactures steel ammunition boxes and provides metal decorating 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 1996 and fiscal 1997. Sales are
made either by the Company's direct sales force, or third party distributors or
sales agents.
Over the past five years, the Company's net sales have grown at a compound
annual growth rate of 24.5% from approximately $134.3 million in fiscal 1992 to
approximately $402.2 million in fiscal 1997. Sales growth has been accomplished
primarily through acquisitions in the general line segment and to a lesser
extent, expanded market penetration in the sales of existing products and new
product development.
In January 1989, BWAY and BSI were formed to purchase the metal and plastic
container business of Owens-Illinois Corporation ("Owens-Illinois"). In June of
1995, BWAY 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.
1
Acquisitions
The Company completed two strategic acquisitions during fiscal 1996 and one
strategic acquisition during fiscal 1997.
On May 28, 1996, a newly created subsidiary of BWAY named Milton
Acquisition Corp. acquired all of the outstanding stock of Milton Can Company,
Inc. ("Milton Can") (the "BSNJ Acquisition"). Immediately thereafter, Milton
Acquisition Corp. changed its name to Milton Can Company, Inc. and on October
22, 1996 changed its name again to Brockway Standard (New Jersey), Inc.
("BSNJ"). BSNJ sells metal containers in the general line category of the North
American container industry, producing products similar to those of the Company.
This acquisition provided geographic expansion for the Company into the
northeast United States, enabling the Company to provide expanded coverage for
many of its products and to many of its customers. The acquired business had
revenues of approximately $55 million for the year ended December 31, 1995, and
operated three facilities, one in Peabody, Massachusetts, and two in Elizabeth,
New Jersey. The Company paid the shareholders of Milton Can approximately $29
million in approximately equal portions of cash and BWAY stock, and the Company
assumed approximately $12.3 million of debt of the acquired company, which was
retired by the Company at the time of acquisition. The transaction was accounted
for using the purchase method of accounting.
On June 17, 1996, a newly created subsidiary of BSI named Davies
Acquisition Corp. acquired substantially all of the assets of the Davies Can
division of the Van Dorn Company, a wholly-owned subsidiary of Crown Cork & Seal
Company, Inc. (the "BSO Acquisition") On June 19, 1996, Davies Acquisition Corp.
changed its name to Davies Can Company, Inc. and on March 21, 1997 changed its
name again to Brockway Standard (Ohio), Inc. ("BSO"). BSO sells metal containers
in the general line category of the North American container industry, producing
products similar to those of the Company. The acquired business had revenues of
approximately $55 million for the year ended December 31, 1995, and operated
three facilities in Covington, Georgia, Solon, Ohio and York, Pennsylvania. The
Company paid approximately $42 million in cash for the assets. The transaction
was accounted for using the purchase method of accounting.
On October 28, 1996, a newly created subsidiary of BWAY named Milton Can
Company, Inc. ("MCC"), which was incorporated on October 22, 1996, acquired the
assets of the aerosol can business of Ball Metal Food Container Corporation
("BMFCC"), a wholly owned and indirect subsidiary of Ball Corporation in an
asset purchase transaction (the "MCC Acquisition"). The acquired business had
revenues of approximately $45 million for the year ended December 31, 1995 and
operates a single manufacturing facility in Cincinnati, Ohio. MCC produces a
wide range of aerosol cans and operates a materials center providing steel
shearing, coating and lithography services ("Materials Center Services"). The
Company paid approximately $42.4 million in cash for the business. The
transaction was accounted for using the purchase method of accounting.
The operating results for BSNJ, BSO and MCC have been included in the
Company's consolidated financial statements since the date of acquisition. The
excess of the aggregate purchase price over the aggregate fair market value of
net identifiable assets acquired in the Recent Acquisitions was approximately
$79 million.
Management has committed to a plan to exit certain facilities of the
acquired companies, and integrate acquired assets and businesses with the
Company's facilities. In connection with recording the BSNJ Acquisition, BSO
Acquisition and the MCC Acquisition (collectively the "Recent Acquisitions"),
the Company established a reorganization liability of approximately $5.7 million
which was classified in other current liabilities. The liability represents the
direct costs expected to be incurred which have no future economic benefit to
the Company. These costs include charges relating to the closing of
manufacturing facilities and severance costs. As of September 28, 1997, the
Company had charged approximately $4.3 million against the reorganization
liability.
2
Products and Markets
The Company participates in the container market 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 and provides metal decorating and container
component manufacturing services.
The following table sets forth the percentage of net sales of the Company
contributed by the product lines indicated for fiscal 1997, 1996 and 1995. The
Company's sales distribution by product line has been affected to some extent by
the Recent Acquisitions. Materials Center Services have historically accounted
for less than two percent of net sales.
Percentage of the Company's Net Sales
- -------------------------------------
Year Ended September 30,
-----------------------
Product 1997 1996 1995
------- ---- ---- ----
General Line Containers 84% 78% 73%
Food Cans 13% 17% 23%
Ammunition Boxes 3% 5% 4%
---- ---- ----
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. Prior to May 1996, the only
significant general line product which the Company did not sell was aerosol
containers. The BSNJ Acquisition gave the Company a niche position in the
container market for the sale of aerosol products. The Company increased its
position for the sale of aerosol can products with the acquisition of the
aerosol can business of BMFCC. Most of the Company's products are manufactured
in facilities that are strategically located to allow the Company to deliver
product to customer filling locations for such products within a one day transit
time.
Paint Cans. The Company produces round paint cans in sizes ranging from
one-quarter pint to one gallon, with one gallon paint cans representing the
majority of all paint can sales.
Oblong or "F" Style Cans. Oblong or "F" style cans are typically used
for packaging paint thinners, lacquer thinners, turpentine, deglossers and
similar paint related products, charcoal lighter fluid, waterproofing products,
and vegetable oil. The Company produces oblong cans in sizes ranging from three
ounces to one imperial gallon.
Specialty Cans. Utility cans include small screw top cans which typically
have an applicator or brush attached to a screw cap and are used for PVC pipe
cleaner, PVC cement and rubber cement. Cone top cans are typically used for
packaging specialty oils and automotive after-market products including brake
fluid, gasoline additives and radiator flushes. The Company also produces
various specialty containers.
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
3
head" for more viscous products, with a lid which is crimped on after filling.
The Company manufactures steel pails in sizes ranging from 2.5 to 7 gallons.
Food Products/Coffee Cans
The Company produces cans for coffee and vegetable oil with coffee
accounting for the majority of sales. The Company produces coffee cans in sizes
commonly referred to as 1 pound, 2 pound and 3 pound, and various smaller
specialty coffee can sizes and shapes. Coffee cans are generally sold to
nationally known coffee processing and marketing companies and are typically
printed to customer specifications. The Company does not sell sanitary food cans
in which soups, stews, vegetables, pie fillings and other foods are actually
cooked in the can.
Ammunition Boxes
The Company manufactures a variety of ammunition boxes. These containers
provide a hermetic seal, are coated with a corrosion-resistant finish and are
used to package small arms ammunitions and other ordnance products. The Company
sells ammunition boxes to the U.S. Department of Defense as well as to major
domestic and foreign producers of ordnance.
Materials Center Services
The Company also provides Materials Center Services for its can assembly
facilities and third party customers. To enhance its offering of Materials
Center Services, the Company has initiated a major capital investment program in
state-of-the-art lithography and coating equipment. The Company believes this
investment will significantly enhance its ability to expand third party sales of
Materials Center Services. In November 1997 the Company announced the formation
of a new strategic business unit, BMAT, to manage its Materials Center Services.
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 38% of sales in fiscal 1997. During fiscal 1997, sales to The
Sherwin-Williams Company accounted for approximately 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 steel producers supply the Company with tinplate steel.
Procurement from suppliers depends on the suppliers' product offering, product
quality, service and price. Because a significant number of reliable suppliers
produce the steel used in the Company's process, management believes that it
would be able to obtain adequate replacement supplies in the market should one
of the current suppliers discontinue supplying the Company. The Company is
working with other companies to lower the overall cost of its steel
requirements. Tinplate consumers typically negotiate late in the year for the
next calendar year on terms of volumes and price. Terms agreed to have
historically held through the following year, but there is no assurance that
this practice will remain unchanged in the future.
Steel prices have historically been adjusted as of January 1 of a calendar
year. Most domestic tinplate and blackplate steel producers have announced a
3.0% price increase to become effective January 1, 1998. The Company has
historically arranged for raw material price increases which are lower than
those publicly announced by its suppliers, although there can be no assurances
that this practice will continue.
4
In addition to steel products, the Company purchases various coatings,
inks, and compounds used in the manufacturing process. Based on ready
availability of these materials in the past and the number of current
manufacturers, management does not anticipate any shortages or supply problems
in the future.
Seasonality
Sales of certain of the Company's products are to some extent seasonal,
with sales levels generally higher in the second half of the Company's fiscal
year. On an aggregate basis, however, the Company's sales have not been
significantly affected by seasonality.
Environmental, Health and Safety Matters
The Company is subject to a broad range of federal, state and local
environmental and workplace health and safety requirements, including those
governing discharges to air and water, the handling and disposal of solid and
hazardous wastes, and the remediation of contamination associated with the
releases of hazardous substances. The Company believes that it is in substantial
compliance with all material environmental, health and safety requirements. In
the course of its operations, the Company handles hazardous substances. As is
the case with any industrial operation, if a release of hazardous substances
occurs on or from the Company's facilities or at offsite waste disposal sites,
the Company may be required to remedy such release. There were no material
capital expenditures relating to environmental compliance in fiscal 1997, and
none are expected for fiscal 1998.
Pursuant to the terms of the Company's 1989 acquisition of certain
facilities from Owens-Illinois, its fiscal 1996 acquisition of facilities from
Van Dorn Company ("Van Dorn"), the BSNJ Acquisition, and the MCC Acquisition,
the sellers in each transaction are obligated, subject to certain limitations,
to indemnify the Company for certain environmental matters related to the
facilities or businesses they conveyed. Notwithstanding such indemnifications,
the Company could bear liability in the first instance for indemnified
environmental matters, subject to obtaining reimbursement. There can be no
assurance that the Company will receive reimbursement with respect to the
indemnified environmental matters.
Environmental investigations voluntarily conducted by the Company at its
Homerville, Georgia facility in 1993 and 1994 detected certain conditions of
soil and groundwater contamination, that predated the Company's 1989 acquisition
of the facility from Owens-Illinois. Such contamination is subject to
indemnification by Owens-Illinois. The Company and Owens-Illinois have entered
into a supplemental agreement affirming Owens-Illinois's responsibility for this
matter and establishing procedures for Owens-Illinois' investigation and
remediation of the contamination. In 1994, the Georgia Department of Natural
Resources ("DNR") determined that further investigation must be completed before
DNR decides whether corrective action is needed. Owens-Illinois' investigation
of the contamination is continuing. Management does not believe that the final
resolution of this matter will have a material adverse effect on the results of
operations or financial condition of the Company.
The Cincinnati facility, which was acquired in the MCC Acquisition, is
listed on environmental agency lists as a site that may require investigation
for potential contamination. The listings could result in a requirement for the
Company to investigate and remediate the facility. To date, no agency has
required such action and the cost of any investigation or remediation can not be
reasonably estimated. BMFCC has agreed to indemnify the Company for liabilities
associated with any such required investigation or remediation as follows: (i)
BMFCC will bear the first $0.1 million of such liabilities and (ii) any
liabilities in excess of such amount will be subject to the general
environmental liability indemnification provisions of the agreement with BMFCC,
which provide that BMFCC will bear 100% of the first $0.3 million of
environmental liabilities, 80% of the next $3.0 million of environmental
liabilities, and 65% of all environmental liabilities exceeding $3.3 million.
At the Peabody, Massachusetts facility, which was previously leased by BSNJ,
groundwater remediation is underway. The owner of the facility has agreed to
retain all liability for the remediation. In addition, the former shareholders
of Milton Can, subject to certain limitations, indemnified the Company for
liabilities associated with the contamination. Management believes that none of
these matters will have a material adverse effect on the results of operations
or financial condition of the Company in light of both the potential
indemnification obligations of others to the Company and the Company's
understanding of the underlying potential liability.
The Company (and, in some cases, predecessors to the Company) have, from
time to time, received requests for information or notices of potential
responsibility pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") with respect to certain waste disposal
sites utilized by former or current facilities of the Company or its various
predecessors. To the Company's knowledge, all such matters which have not been
5
resolved are, subject to certain limitations, indemnified by the sellers of the
relevant Company affiliates, and all such unresolved matters have been accepted
for indemnification by such sellers. Management believes that none of these
matters will have a material adverse effect on the results of operations or
financial condition of the Company. Because liability under CERCLA is
retroactive, it is possible that in the future the Company may incur liability
with respect to other sites.
Sales of aerosol cans currently comprise approximately 12% of the Company's
annual general line sales. Federal and certain state environmental agencies have
issued, and may in the future issue, environmental regulations which have the
effect of requiring reformulation by consumer product manufacturers (the
Company's customers) of aerosol propellants or aerosol-delivered consumer
products to mitigate air quality impacts (principally related to lower
atmosphere ozone formulation). Industry sources believe that aerosol product
manufacturers can successfully achieve any required reformulation. There can be
no assurance, however, that reformulation can be accomplished in all cases with
satisfactory results. Failure by the Company's customers to successfully achieve
such reformulation could affect the viability of aerosol cans as product
delivery containers and thereby have a material adverse effect on the Company's
sales of aerosol cans.
Competition
The markets for the Company's products are competitive and the Company faces
competition from a number of sources in most of its product lines. Competition
is based primarily on price, quality, service, and, to a lesser extent, product
innovation. The Company believes that its low cost of production and high
quality products, the geographic location of the Company facilities which
provide national coverage for most products to most customers, and its
commitment to strong customer relationships enable it to compete effectively.
Manufacturers of steel containers have historically faced competition from
other materials, primarily plastic, glass, and aluminum. Steel containers offer
a number of significant advantages over alternative materials, including fire
safety (critical in many products packaged in paint, oblong and specialty cans),
the capacity for vacuum packaging (important to coffee producers) and ability to
contain aggressive products (primarily certain solvent-based products).
Employees
As of September 28, 1997, the Company employed approximately 1,654 hourly
workers and 443 salaried employees. Certain of the Company's employees are
represented by various unions. As of September 28, 1997, BSI and its subsidiary
BSO together had approximately 240 union employees at two facilities covered by
three separate collective bargaining agreements. As of September 28, 1997, BSNJ
and its subsidiary Northeast Tinplate Company, Inc. ("NTC") had approximately
180 union employees at two facilities covered by three separate collective
bargaining agreements. As of September 28, 1997 MCC had approximately 310 union
employees at one facility covered by three separate collective bargaining
agreements.
During fiscal 1997, BSO and the International Association of Machinist and
Aerospace Workers, Local No. 233 ("IAM") representing substantially all the
hourly workers at BSO's Solon, Ohio plant agreed to renegotiate their collective
bargaining agreement which was scheduled to expire on March 7, 1998. On March
3, 1997, BSO and the members of the IAM reached agreement on a new collective
bargaining agreement that has made BSO more competitive within the industry and
provides BSO greater operating flexibility. The expiration date of the new
agreement was extended to March 7, 2001. On May 1, 1997 the labor agreement
between MCC and members of the International Union of Electronic, Electrical,
Salaried Machine and Furniture Workers, AFL-CIO Local No. 729 ("IUE") covering
approximately 50% of the hourly workers at MCC's Cincinnati, Ohio facility
expired and the union membership went on strike. On June 2, 1997, MCC and the
members of the IUE reached agreement on a new collective bargaining agreement,
expiring August 31, 2000, that has made MCC more competitive within the industry
and provides MCC greater operating flexibility. On October 15, 1997, the
collective bargaining agreements between BSNJ and the International Brotherhood
of Teamsters, Chauffeurs, Warehousemen, and Helpers of America, Local No. 1034
("Teamsters"), and NTC and the Teamsters expired. Negotiations have continued
with regard to both collective bargaining agreements.
6
Management believes that safety performance, which is often considered as
an indicator of worker involvement, training and attitude, has been excellent at
the Company's facilities. In addition to worker attentiveness to safety,
employees are also actively involved in various quality and productivity
initiatives.
Item 2. Properties
----------
The following table sets forth certain information with respect to the
Company's headquarters and manufacturing plants, as of November 20, 1997.
Approximate
Square Footage Type of Interest
Location --------------- ----------------
- ------------------------------------
Atlanta, Georgia (Headquarters) 24,000 Leased
Chicago, Illinois 141,000 Owned
Cincinnati, Ohio 469,000 Owned
Dallas, Texas (Thompson) 110,000 Owned
Dallas, Texas (Southwestern) 73,000 Owned
Elizabeth, New Jersey 209,000 Leased
Elizabeth, New Jersey 41,000 Leased
Fontana, California 72,000 Leased
Franklin Park, Illinois 92,000 Leased
Garland, Texas 78,000 Leased
Homerville, Georgia 427,000 Owned
Memphis, Tennessee 75,000 Leased
Picayune, Mississippi 60,000 Leased
Solon, Ohio 220,000 Owned
York, Pennsylvania 97,000 Owned
During the fourth quarter of fiscal 1996, management announced plans to
close six facilities and open one new plant as part of the Company's
rationalization initiative associated with the Recent Acquisitions. As part of
this rationalization strategy, an acquired plant in Covington, Georgia was
closed in September 1996 and an acquired plant in Peabody, Massachusetts was
closed in fiscal year 1997. The majority of the equipment and business has been
assigned to other Company locations. The Company also moved its Memphis,
Tennessee operation to a larger facility during the first quarter of fiscal 1997
to accommodate production changes and the strategic expansion of the Company's
business. Following completion of the facility closings described above, the
Company continues to have excess manufacturing capacity and cost reduction
opportunities resulting from the Recent Acquisitions. Management currently plans
to close three more facilities during fiscal 1998, and believes that following
these closings, the Company's remaining facilities will be adequate for its
needs. Management continues to review opportunities to consolidate operations
and to maximize production efficiencies by rationalizing overlapping facilities.
The Company believes that its facilities are adequate for its present needs
and that its properties are generally in good condition, well maintained and
suitable for their intended use.
7
Item 3. Legal Proceedings and Regulatory Matters
----------------------------------------
Litigation
The Company is involved in certain proceedings relating to environmental
matters as described under Item 1. "Business - Environmental, Health and Safety
Matters."
The Company is also involved in legal proceedings from time to time in the
ordinary course of its business. There are no such currently pending
proceedings, which are expected to have a material adverse effect on the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted during the fourth quarter of fiscal 1997 to a vote
of security holders of the Company through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters
----------------------------------------------------------------------
As of November 20, 1997, there were 107 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, BSI, BSNJ, MCC, BSO, BT Alex.Brown
Incorporated (formerly known as Bankers Trust Company), NationsBank, N.A.
(South) 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 $16.4 million, and places certain restrictions on the Company with
regard to incurring additional indebtedness, other than certain specified
indebtedness. In addition, the Company's Indenture dated April 11, 1997 (the
"Indenture"), among BWAY, Harris Trust and Savings Bank, BSNJ, MCC, BSI,
Materials Management, Inc., Brockway Standard (Canada), Inc., BSO, and
Platemasters, Inc., also restricts the ability of BWAY and its subsidiaries to
pay dividends or make other payments, and places certain restrictions on the
Company with regard to incurring additional indebtedness, other than certain
specified indebtedness. Any future determination to pay dividends will be made
by the Board of Directors in light of the Company's earnings, financial
position, capital requirements, credit agreements, indentures, business
strategies and such other factors as the Board of Directors deems relevant at
such time. The Company has not otherwise paid any cash distributions or other
dividends on the Common Stock and presently intends to retain its earnings to
finance the development of its business for the foreseeable future.
On May 28, 1996, in connection with the BSNJ Acquisition, BWAY issued an
aggregate 1,216,455 shares of Common Stock (in addition to cash and notes) to 19
persons who were the stockholders of Milton Can prior to the BSNJ Acquisition.
This issuance was not registered under the Securities Act of 1933, as amended
(the "Securities Act"), in reliance on exemptions provided by Section 4(2) of
the Securities Act for transactions by an issuer not involving any public
offering. See Item 1. "Business - Acquisitions."
8
The Company's Common Stock was traded on the Nasdaq National Market under the
symbol "BWAY" through November 19, 1996. Since November 20, 1996, the Company's
Common stock has been traded on the New York Stock Exchange under the symbol
"BY". The table below sets forth the high and low bid information for the
Common Stock for each quarterly period during fiscal 1996, the high and low bid
or sales price information (whichever of the bid or sales price is higher or
lower, as appropriate) for the Common Stock for the first quarter of fiscal
1997, and the high and low sales price information for the Common Stock for the
second, third, and fourth quarters of fiscal 1997. Prior to the Initial Public
Offering, there was no established public trading market in the Common Stock.
On August 19, 1997 the Company's Board of Directors declared a three-for-two
stock split of the Company's Common Stock effected in the form of a stock
dividend which was paid on September 22, 1997 to stockholders of record on
September 2, 1997. All price information set forth below has been adjusted to
reflect the stock dividend. The bid information for each quarterly period in
fiscal 1996 and the first quarter of fiscal 1997 set forth below reflects inter-
dealer prices, without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
Fiscal Quarter High Low
-------------- ---- ---
First quarter, 1996 $11.67 $10.21
Second quarter, 1996 $10.58 $ 8.08
Third quarter, 1996 $12.83 $ 7.75
Fourth quarter, 1996 $12.50 $11.17
First quarter, 1997 $12.92 $11.67
Second quarter, 1997 $13.17 $11.83
Third quarter, 1997 $15.63 $12.83
Fourth quarter, 1997 $20.50 $15.33
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, 1997 have been derived from the
audited consolidated financial statements of the Company. The results of
operations include the results of acquisitions described under "Business--
Acquisitions" contained in Item 1 of this report and have been included in the
Company's consolidated financial statements from the date of the respective
acquisitions. The selected consolidated financial data is qualified by, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in Item 7 of this
report and with the Company's consolidated financial statements and the related
notes thereto included in Item 8 of this report.
9
Fiscal Year Ended September 30, (1)
-------------------------------------------------------
1997 (2) 1996 (3) 1995 1994 1993(4)
-------- -------- -------- -------- --------
(in thousands except per share data)
Income Statement Data:
NET SALES $402,150 $283,105 $247,480 $224,701 $180,963
-------- -------- -------- -------- --------
COSTS, EXPENSES AND OTHER
Cost of products sold (excluding depreciation and amortization) 341,406 236,741 208,091 193,497 157,415
Depreciation and amortization 13,024 7,425 5,940 5,057 3,150
Selling and administrative expense 19,651 14,589 10,335 9,998 7,424
Provision for restructuring (5) 12,860
Interest expense, net 10,649 4,872 5,211 5,730 2,795
Gain on curtailment of postretirement benefits (5,828)
AB Leasing fees and expenses (6) 1,389 1,318 1,284
AB Leasing termination expense (6) 1,995
Other, net 998 (340) (275) 100 8
-------- -------- -------- -------- ---------
Total costs, expenses, and other 379,900 276,147 232,686 215,700 172,076
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 22,250 6,958 14,794 9,001 8,887
Provision for income taxes 9,146 3,239 6,021 3,756 3,731
-------- -------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING 13,104 3,719 8,773 5,245 5,156
-------- -------- -------- -------- --------
Extraordinary loss resulting from the extinguishment of debt, net
of tax benefit (7) (2,535)
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING 13,104 $ 1,184 8,773 5,245 5,156
-------- -------- -------- -------- --------
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS -
Net of related tax benefit of $137 (8) (213)
-------- -------- -------- -------- --------
NET INCOME $ 13,104 $ 1,184 $ 8,773 $ 5,032 $ 5,156
======== ======== ======== ======== ========
PER SHARE DATA:
Income before extraordinary item and cumulative effect of change in
Accounting $ 1.31 $ 0.40 $ 1.24 $ 0.84 $ 0.84
Extraordinary item (0.27)
Change in accounting (0.03)
-------- -------- -------- -------- --------
Net income $ 1.31 $ 0.13 $ 1.24 $ 0.81 $ 0.84
======== ======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
9,983 9,410 7,097 $ 6,206 6,107
======== ======== ======== ======== ========
10
September 30,
(1)
---------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Balance Sheet Data:
Working capital $ 6,890 $ 22,280 $ 38,811 $ 14,371 $ 8,938
Property, plant and equipment, net 123,617 94,800 67,668 58,996 54,816
Total assets 316,377 245,133 167,958 137,220 136,507
Long-term debt (including current
maturities) 115,532 95,198 50,218 55,476 55,797
Redeemable common stock 2,682
Stockholders' equity 85,466 72,629 65,837 27,015 23,917
(1) The Company operates on a 52/53-week fiscal year ending on the Sunday
closest to September 30 of the applicable year. For simplicity of
presentation, the Company has presented year ends as September 30.
(2) The results of operations for the year ending September 30, 1997 include the
results from the October 28, 1996 acquisition of substantially all assets of
the aerosol can business of Ball Metal Food Container Corporation.
(3) The results of operations for the year ending September 30, 1996 include the
results from the following acquisitions. On May 28, 1996, BWAY acquired all
of the stock of Milton Can Company. On June 17, 1996, BSI acquired
substantially all of the assets of the Davies Can division of the Van Dorn
Company.
(4) The results of operations for the year ending September 30, 1993 include the
results from the following acquisitions. On March 4, 1993, BSI acquired
certain equipment, intellectual property and other assets related to
Ellisco, Inc.'s Monotop business. On April 27, 1993, BSI acquired all of
the stock of Armstrong Containers, Inc. (formerly Armstrong Industries,
Inc.). On May 27, 1993 BSI acquired substantially all of the assets of DK
Container, Inc.
(5) During the fourth quarter of fiscal 1996, the Company recorded a non-
recurring, non-cash restructuring charge comprised of a write-down of
certain assets. The restructuring charge was due to increased volumes
resulting from the BSNJ Acquisition and the BSO Acquisition providing the
opportunity for the Company to consolidate certain of its manufacturing
processes to meet customer demand and improve efficiencies, which will
result in the disposal of surplus equipment and currently productive
manufacturing equipment for an estimated nominal value beginning in early
fiscal 1997 and ending in fiscal 1998. See Note 13 of the Notes to
Consolidated Financial Statements set forth in Item 8.
(6) The Company was party to a management agreement (the "Management
Agreement") with AB Leasing and Management, Inc. ("AB Leasing") whereby
the Company paid to AB Leasing an annual fee (the "AB Leasing Fee") based
upon a formula, plus reimbursement for expenses. See Note 12 of the Notes to
Consolidated Financial Statements set forth in Item 8. The Company and AB
Leasing terminated the Management Agreement upon the consummation of the
Initial Public Offering. Pursuant to the termination agreement the Company
issued 199,500 shares of Common Stock to AB Leasing prior to the
effectiveness of the Initial Public Offering. The Company recorded a non-
recurring, non-cash, pre-tax charge to operations of $1,995,000 ($1,200,000
net of tax effect) in connection therewith in the period in which such
shares were issued.
(7) The Company recorded an extraordinary loss related to the prepayment of the
$50 million principal amount of 8.35% Senior Secured Notes during the third
quarter of fiscal 1996.
(8) Effective October 1, 1993, the Company changed its method of accounting for
post employment benefits as a result of adopting Statement of Financial
Accounting Standards No. 112 which resulted in a one-time non-cash charge of
$213,000 and had no material subsequent impact on income from operations.
11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto included elsewhere
in Item 8 of this report.
General
Industry
The Company currently derives substantially all of its revenues from the sale
of steel containers manufactured at the Company's plants. The packaging market
in which the Company competes is generally mature and stable. On average,
domestic industry growth rates have historically followed US GDP growth rates.
Management believes that companies that have managed sustained growth in these
markets above the GDP level have typically accomplished this growth primarily
through acquisitions. Industry consolidation has occurred during recent years.
Sales Growth
The Company's net sales have grown at a compounded annual rate of 24.5% over
the past five years, from approximately $134.3 million in fiscal 1992 to
approximately $402.2 million in fiscal 1997, primarily as a result of
acquisitions during this period and, to a lesser extent, market penetration in
key existing product segments and new product development. The acquisitions have
strengthened and expanded the Company's position in key product and geographic
markets and, through consolidation, have enabled the Company to achieve
operating synergies.
Raw Materials
The largest component of cost of sales is tinplate steel, which is currently
supplied by large, national manufacturers. Tinplate prices have historically
been negotiated once per year, with changes effective January 1, and have
typically remained stable for the subsequent one year period. The Company is
working with other companies to lower the overall cost of its steel purchases.
Tinplate consumers typically negotiate late in the year for the next calendar
year on terms of volumes and price. Terms agreed to have historically held
through the following year, but there is no assurance that this practice will
remain unchanged in the future.
Steel prices have historically been adjusted as of January 1 of a calendar
year. Most domestic tinplate and blackplate steel producers have announced a
3.0% price increase to become effective January 1, 1998. The Company has
historically arranged for raw material price increases which are lower than
those publicly announced by its suppliers, although there can be no assurances
that this practice will continue.
12
Gross Profit Margins
Continuous advances in manufacturing productivity and cost reduction have been
critical to the industry and the Company's ability to improve gross profit
margins. The BSNJ Acquisition and the BSO Acquisition late in the third quarter
of fiscal 1996, and the MCC Acquisition early in the first quarter of fiscal
1997 increased the Company's sales by approximately 60%. The sales of the
acquired businesses historically provided lower gross margins than those
reported by the Company. The Company's objective is to improve margins by
maximizing synergies through employment of the Company's historically successful
3R strategic initiative to Rationalize, Reengineer and Recapitalize these
acquired businesses. Although certain employee termination costs in connection
with plant rationalizations, administrative workforce reductions, and other
plant exit costs associated with the Recent Acquisitions have been accrued for
through purchase accounting adjustments, the Company incurred during the fourth
quarter of fiscal 1996 and throughout fiscal 1997, and will continue to incur,
other non-recurring costs which, in accordance with current accounting
pronouncements, have been charged against operating gross margins. As a result
of the lower margins of the acquired businesses and the effect of
rationalization initiatives, overall margins for the Company decreased during
the fourth quarter of fiscal 1996, and then began to improve during fiscal 1997.
Results of Operations
Year ended September 30, 1997 (fiscal 1997) compared to year ended September 30,
1996 (fiscal 1996).
Net Sales. Net sales for fiscal 1997 were $402.2 million, an increase of
$119.1 million or 42.0% from $283.1 million in fiscal 1996. The increase
resulted from the BSNJ Acquisition and the BSO Acquisition late in the third
quarter of fiscal 1996, and the MCC Acquisition early in the first quarter of
fiscal 1997.
Cost of Products Sold. Cost of products sold (excluding depreciation and
amortization) in fiscal 1997 was $341.4 million, an increase of $104.7 million,
or 44.2%, from $236.7 million in fiscal 1996. The increase is primarily
attributable to increased sales from, and the higher cost of products sold
(excluding depreciation and amortization), of the Recent Acquisitions. Cost of
products sold as a percent of sales increased to 84.9% in fiscal 1997 from 83.6%
in fiscal 1996. The increase is primarily attributable to the Recent
Acquisitions where cost of products sold as a percent of sales was historically
higher than that of the Company's previously owned facilities, and to costs
associated with the Company's 3R strategic initiative to Rationalize, Reengineer
and Recapitalize the Recent Acquisitions. Although certain employee termination
costs in connection with plant rationalizations, administrative workforce
reductions, and other plant exit costs associated with the Recent Acquisitions
have been accrued for through purchase accounting adjustments, the Company
incurred during the fourth quarter of fiscal 1996, and during fiscal 1997, other
non-recurring costs which, in accordance with current accounting pronouncements,
were charged against operating income. Cost of products sold (excluding
depreciation and amortization) for fiscal 1997 was also adversely affected by an
approximately thirty day strike at MCC's Cincinnati, Ohio facility.
Income before Income Taxes and Extraordinary Item. Income before income taxes
and extraordinary items for fiscal 1997 was $22.3 million, an increase of $15.3
million, or 219.8%, from $7.0 million in fiscal 1996, when the Company recorded
a non-cash restructuring charge of $12.9 million (before taxes). Fiscal 1997
income before income taxes and extraordinary items increased by $2.4 million
over fiscal 1996, excluding the effect of the restructuring charge. This
increase resulted primarily from contributions from the Recent Acquisitions,
cost savings realized to date from rationalization initiatives, and productivity
and cost reductions resulting from capital spending initiatives, and the gain
recorded by the Company from curtailment of the post retirement benefits which
resulted from the elimination of post retirement health care costs for certain
employees at the Cincinnati facility. Partially offsetting these improvements
were period costs associated with rationalization initiatives, higher selling
and administration expenses, and higher interest expense. Depreciation and
amortization increased from $7.4 million in fiscal 1996 to $13.0 million in
fiscal 1997 due to the Recent Acquisitions and as a result of capital spending
related to the Company's cost reduction, productivity improvement, and growth
initiatives. Selling and administrative expense of $19.7 million for fiscal
1997 increased from $14.6 million in fiscal 1996, primarily due to the Recent
Acquisitions and building corporate infrastructure to support the Recent
Acquisitions and continue its growth plans. Interest expense, net, increased to
$10.6 million in fiscal 1997 from $4.9 million in fiscal 1996 due to interest on
borrowings to finance the Recent Acquisitions, and due to a higher interest rate
associated with the Company's
13
issuance in the third quarter of fiscal 1997 of $100 million of unsecured senior
subordinated notes (see Liquidity and Capital Resources).
Net Income. Net Income for fiscal 1997 was $13.1 million, an increase of
$11.9 million from fiscal 1996. The improvement results from the factors
mentioned above.
Year ended September 30, 1996 (fiscal 1996) compared to year ended September 30,
1995 (fiscal 1995).
Net Sales. Net sales for fiscal 1996 were $283.1 million, an increase of $35.6
million or 14.4% from $247.5 million in fiscal 1995. The increase resulted
primarily from the BSNJ Acquisition and the BSO Acquisition late in the third
quarter of fiscal 1996. Fiscal 1996 sales excluding the acquisitions were up
slightly over fiscal 1995.
Cost of Products Sold. Cost of products sold (excluding depreciation and
amortization) in fiscal 1996 was $236.7 million, an increase of $28.6 million or
13.8% from $208.1 million in fiscal 1995. The increase is primarily
attributable to increased sales from the BSNJ Acquisition and the BSO
Acquisition late in the third quarter of fiscal 1996. Cost of products sold as
a percent of sales decreased to 83.6% in fiscal 1996 from 84.1% in fiscal 1995.
The Company's facilities existing prior to the BSNJ Acquisition and the BSO
Acquisition realized reductions in cost of products sold as a percent of sales
as a result of ongoing initiatives to reduce cost and increase productivity
through rationalization and capital initiatives, and as a result of more
effective steel purchasing. Gains were more than offset by higher costs at the
recently acquired facilities where the Company has initiated an aggressive
rationalization program. Although certain employee termination costs in
connection with plant rationalizations, administrative workforce reductions, and
other plant exit costs associated with the recent acquisitions have been accrued
for through purchase accounting adjustments the Company incurred in fiscal 1996
other non-recurring costs which, under current accounting pronouncements, were
charged against operating income.
Income before Income Taxes and Extraordinary Item. Income before income taxes
and extraordinary items for fiscal 1996 was $7.0 million, a decrease of $7.8
million or 53.0% from $14.8 million in fiscal 1995. The achieved gains
described above were more than offset by a non-cash restructuring charge of
$12.9 million (before taxes) recorded during fiscal 1996. The restructuring
charge was due to increased volumes resulting from the acquisitions providing
the opportunity for the Company to consolidate certain of its manufacturing
processes to improve efficiencies, which will result in the disposal of surplus
equipment and currently productive manufacturing equipment beginning in early
fiscal 1997 and ending in fiscal 1999. When fully implemented, the
rationalization is expected on an overall basis to result in reduced overhead
expense and enhanced operational efficiencies. Depreciation and amortization
increased from $5.9 million in fiscal 1995 to $7.4 million in fiscal 1996 due to
the BSNJ Acquisition and the BSO Acquisition and as a result of capital spending
related to the Company's cost reduction and productivity improvement
initiatives. Selling and administrative expense of $14.6 million for fiscal
1996 increased from $10.3 million in fiscal 1995, primarily due to the recent
acquisitions and building corporate infrastructure to support the recent
acquisitions, continued growth plans and the increased costs associated with
being a public company. Interest expense, net decreased to $4.9 million in
fiscal 1996 from $5.2 million in fiscal 1995, as the benefits accrued from the
cash received from the Initial Public Offering were partially offset by interest
on borrowings to finance the acquisitions late in the year.
Net Income. Net Income for fiscal 1996 was $1.2 million, a decrease of $7.6
million from fiscal 1995. In addition to the factors mentioned above, the
Company recorded an extraordinary charge of $2.5 million (after tax) associated
with the early repayment of the Company's debt.
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.
On an aggregate basis, however, the Company's sales have not been significantly
affected by seasonality.
Liquidity and Capital Resources
During the third quarter of fiscal 1996, the Company repaid its existing debt
and established its new five year Credit Agreement, which the Company amended
subsequent to fiscal 1997 year end. The Credit Agreement
14
provides that the Company and its subsidiaries can borrow up to $100 million,
and gives the Company an option to increase its borrowing limit by an additional
$50 million, provided certain conditions are met. The expiration of the Credit
Agreement was extended to June 17, 2002 in the recent amendment. Interest rates
under the Credit Agreement are based on rate margins ("Rate Margin") for either
the prime rate as announced by NationsBank, N.A. from time to time or LIBOR, at
the option of the Company. These Rate Margins were lowered in connection with
the recent amendment. The applicable rate margin is determined on a quarterly
basis by a review of the Company's leverage ratio. Loans under the Credit
Agreement are unsecured and can be repaid at the option of the Company without
premium or penalty. The Credit Agreement is subject to certain restrictive
covenants, including covenants which require the Company to maintain a certain
minimum level of net worth and certain leverage ratios. In addition, the Company
is restricted in its ability to pay dividends and make other restricted
payments. The recent amendment to the Credit Agreement improved certain of these
covenants to provide the Company with greater flexibility with regard to growth
investments in joint ventures and other subsidiaries. Funds provided under the
Credit Agreement were used to repay the Company's $50 million of 8.35% senior
notes due 2001, repay the Company's existing revolving credit facility, finance
acquisitions and meet operating needs. The Company incurred a $2.5 million,
after tax, one-time charge associated with this debt restructuring in fiscal
1996.
During the third quarter of fiscal 1997, the Company issued $100 million of
unsecured senior subordinated notes due April 15, 2007. The notes have an
interest rate of 10-1/4%, payable semi-annually on April 15 and October 15. Net
proceeds of approximately $96 million from the issuance of the notes were used
to reduce borrowings on the Company's Credit Agreement. The Company has filed a
registration statement with the Securities and Exchange Commission (the
"Commission") to register these notes under the Securities Act. Pursuant to the
terms of a registration rights agreement the Company executed in connection with
the offering of the notes, the Company has been paying additional interest on
the notes since August 9, 1997 because the registration statement has not been
declared effective by the Commission. Such additional interest accrued at a
rate of 0.25% per annum for the 90-day period beginning August 9, 1997 and has
continued to, and will continue to, accrue at a rate increasing by an
additional 0.25% per annum at the beginning of each subsequent 90-day period
until the registration statement is declared effective by the Commission, which
the Company expects will occur in the first half of fiscal 1998.
During fiscal 1997, net cash provided by operating activities was $45.1
million which was comprised primarily of income from operations ($13.1 million),
depreciation and amortization ($13.5 million), deferred income taxes ($3.0
million), and working capital excluding working capital acquired from the MCC
Acquisition ($19.8 million). The decrease in working capital was primarily
attributable to the increase in accounts payable ($13.5 million), income taxes
($2.9 million) and the reduction in accounts receivable ($3.0 million). Net cash
provided from operating activities was reduced by a non-cash gain on curtailment
of retirement benefits of $5.8 million.
During fiscal 1996, net cash provided by operating activities was $25.7
million which was comprised primarily of depreciation and amortization ($8.0
million), the non cash restructuring charge ($12.9 million) and working capital
excluding working capital acquired from the BSNJ Acquisition and the BSO
Acquisitions ($5.9 million). The decrease in working capital was primarily
attributable to the increase in accounts payable ($3.8 million) and the
reduction in accounts receivable ($3.3 million). Working capital was reduced by
an increase in inventory ($3.0 million).
During fiscal 1997, the Company used $64.3 million for investing activities
for the MCC Acquisition ($41.6 million) and capital expenditures ($23.0
million). Capital expenditures were primarily for equipment to improve
manufacturing processes and hardware and software to address the Year 2000 issue
and improve administrative and manufacturing systems. Management expects to
maintain this level of capital expenditures over the next five years.
During fiscal 1996, the Company used $82.3 million for investing activities
for the BSNJ Acquisition and the BSO Acquisition ($69.7 million) and capital
expenditures ($12.7 million). Capital expenditures were primarily for equipment
to improve manufacturing processes and hardware and software to address the Year
2000 issue and improve administrative and manufacturing systems.
During fiscal 1997, net cash provided by financing activities was $18.7
million. As described above, the Company refinanced its outstanding debt by
issuing $100 million of unsecured senior subordinated notes. Financing costs
incurred to obtain the notes was $4.0 million. Net repayments under the bank
revolving credit
15
agreement, including the proceeds from the notes, were $80.3 million.
Additionally, unpresented bank drafts increased $4.2 million.
During fiscal 1996, the Company generated $35.0 million from financing
activities. The Company had net borrowings under the Credit Agreement of $93.8
million that were used to repay the $50 million private placement debt and
finance the investing activities of the business. The Company used $9.5 million
to purchase treasury stock prior to the BSNJ Acquisition. The treasury stock was
reissued along with additional new shares as part of the consideration for the
BSNJ Acquisition. Additionally, the Company repaid long term debt of $2.1
million and increased unpresented bank drafts of $4.3 million.
Cash and cash equivalents were $23.5 million at the beginning of fiscal 1996,
and were $1.9 million at the end of fiscal 1996.
At September 28, 1997, the Company was restricted in its ability to pay
dividends and make other restricted payments in an amount greater than
approximately $16.4 million. The Company's subsidiaries are restricted in their
ability to transfer funds to the Company, except for funds to be used to effect
approved acquisitions, pay dividends in specified amounts, reimburse the Company
for operating and other expenditures made on behalf of the subsidiaries and
repay permitted intercompany indebtedness. Restricted net assets of the
Company's subsidiaries collectively amounted to approximately $71 million at
September 28, 1997.
Management believes that cash provided from operations, borrowings available
under the Credit Agreement, and borrowings under the Indenture will provide it
with sufficient liquidity to meet its operating needs and continue the Company's
capital expenditure initiatives for the next twelve months. The Company
continues to pursue acquisition opportunities in the North American container
industry and in connection therewith may incur additional indebtedness, to
finance such acquisitions.
Note: This document contains forward-looking statements as encouraged by the
Private Securities Litigation Reform Act of 1995. All statements contained in
this document, other than historical information, are forward-looking
statements. These statements represent management's current judgement on what
the future holds. A variety of factors could cause business conditions and the
Company's actual results to differ materially from those expected by the Company
or expressed in the Company's forward-looking statements. These factors include
without limitation, the Company's ability to successfully integrate acquired
businesses and implement its 3R strategic initiatives; labor unrest; changes in
market price or market demand; changes in raw material costs or availability;
loss of business from customers; unanticipated expenses; changes in financial
markets; potential equipment malfunctions; and the other factors discussed in
the Company's filings with the Securities and Exchange Commission.
Environmental Matters
For information regarding environmental matters, see Item 1. "Business -
Environmental, Health and Safety Matters."
Effect of Inflation
Historically, the Company has generally been able to recover increased costs
of raw materials through price increases for the Company's products, although
there can be no assurances that this practice will continue. This ability,
together with cost reductions achieved through line rationalization and
productivity improvements, has mitigated the impact of inflation on the
Company's results of operations. Management currently believes that inflation
will not have a material adverse impact on the Company.
16
Recent Accounting Pronouncements
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings per Share." The Company has considered the impact of this new
standard and does not believe earnings per share determined under this statement
are materially different than earnings per share determined in accordance with
current accounting standards. The statement is effective for financial
statements for periods ending after December 15, 1997.
Item 8. Financial Statements and Supplementary Data
See the attached Consolidated Financial Statements (pages F-1 through
F-24).
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Inapplicable
PART III
Item 10. Directors and Executive Officers
Incorporated by reference to the Company's 1997 Proxy Statement to be filed
with the Commission.
Item 11. Executive Compensation
Incorporated by reference to the Company's 1997 Proxy Statement to be filed
with the Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Company's 1997 Proxy Statement to be filed
with the Commission.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to the Company's 1997 Proxy Statement to be filed
with the Commission.
17
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following documents are filed as a part of this report:
(a) (1) The Consolidated Financial Statements included in Item 8 hereof
and set forth on pages F-1 through F-24.
(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 1997.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BWAY CORPORATION
By: /s/ Warren J. Hayford
---------------------------------------
Warren J. Hayford
Chairman of the Board and
Chief Executive Officer
Date: December 2, 1997
-------------------------------------
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 2, 1997.
Signatures Title
- ---------- -----
/s/ Warren J. Hayford Chairman of the Board, Chief Executive Officer and Director
- ------------------------------
Warren J. Hayford
/s/ John T. Stirrup President, Chief Operating Officer and Director
- ------------------------------
John T. Stirrup (Principal Executive Officer)
/s/ James W. Milton Executive Vice President and Director
- ------------------------------
James W. Milton
/s/ David P. Hayford Senior Vice President and Chief Financial Officer
- ------------------------------
David P. Hayford (Principal Financial Officer)
/s/ Kevin C. Kern Vice President and Corporate Controller
- ------------------------------
Kevin C. Kern (Principal Accounting Officer)
/s/ Thomas A. Donahoe Director
- ------------------------------
Thomas A. Donahoe
/s/ Alexander P. Dyer Director
- ------------------------------
Alexander P. Dyer
/s/ Jean-Pierre Ergas Director
- ------------------------------
Jean-Pierre Ergas
/s/ John E. Jones Director
- ------------------------------
John E. Jones
/s/ John W. Puth Director
- ------------------------------
John W. Puth
19
INDEPENDENT AUDITORS' REPORT
Board of Directors
BWAY Corporation
We have audited the accompanying consolidated balance sheets of BWAY Corporation
and subsidiaries (the "Company") as of September 28, 1997 and September 29, 1996
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended September 28, 1997.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of September 28,
1997 and September 29, 1996 and the results of its operations and its cash flows
for each of the three years in the period ended September 28, 1997 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
November 10, 1997
F-1
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
SEPTEMBER 28, SEPTEMBER 29,
ASSETS 1997 1996
CURRENT ASSETS:
Cash and cash equivalents $ 1,374 $ 1,852
Accounts receivable, net of allowance for doubtful accounts
of $580 and $390 41,806 39,011
Inventories 46,615 37,044
Other current assets 2,150 1,293
Deferred tax asset 5,111 2,405
-------- --------
Total current assets 97,056 81,605
PROPERTY, PLANT, AND EQUIPMENT - Net 123,617 94,800
OTHER ASSETS:
Goodwill, net of accumulated amortization of $5,464 and $2,825 73,652 50,117
Intangible assets, net 13,580 14,690
Deferred financing costs, net of accumulated amortization
of $541 and $83 4,844 1,336
Other assets 3,628 2,585
-------- --------
Total other assets 95,704 68,728
-------- --------
$316,377 $245,133
======== ========
(Continued)
F-2
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
- --------------------------------------------------------------------------------
SEPTEMBER 28, SEPTEMBER 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
CURRENT LIABILITIES:
Accounts payable $ 57,443 $ 36,206
Accrued salaries and wages 8,949 4,820
Accrued income taxes 1,338 759
Other current liabilities 16,265 14,013
Accrued rebates 5,020 3,382
Current maturities of long-term debt 1,151 145
--------- ---------
Total current liabilities 90,166 59,325
LONG-TERM DEBT 114,381 95,053
LONG-TERM LIABILITIES:
Deferred income taxes 14,969 14,135
Other 11,395 3,991
--------- ---------
Total long-term liabilities 26,364 18,126
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized 5,000,000 shares
Common stock, $.01 par value; authorized 24,000,000 shares, issued
9,851,002 and 6,564,546 99 66
Additional paid-in capital 37,629 37,612
Retained earnings 48,673 35,569
--------- ---------
86,401 73,247
Less treasury stock, at cost, 51,790 and 49,186 935 618
--------- ---------
Total stockholders' equity 85,466 72,629
--------- ---------
$ 316,377 $ 245,133
========= =========
(Concluded)
See notes to consolidated financial statements.
F-3
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
YEAR ENDED
-----------------------------------------------
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996 1995
NET SALES $402,150 $283,105 $247,480
COSTS, EXPENSES, AND OTHER:
Cost of products sold (excluding depreciation and amortization) 341,406 236,741 208,097
Depreciation and amortization 13,024 7,425 5,934
Selling and administrative expense 19,651 14,589 10,335
Provision for restructuring 12,860
Interest expense, net 10,649 4,872 5,211
Gain on curtailment of postretirement benefits (5,828)
AB leasing fees and expenses 1,389
AB leasing termination expense 1,995
Other, net 998 (340) (275)
-------- -------- --------
Total costs, expenses, and other 379,900 276,147 232,686
-------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 22,250 6,958 14,794
PROVISION FOR INCOME TAXES 9,146 3,239 6,021
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 13,104 3,719 8,773
EXTRAORDINARY LOSS RESULTING FROM THE
EXTINGUISHMENT OF DEBT - Net of related tax
benefit of $1,683 (2,535)
-------- -------- --------
NET INCOME $ 13,104 $ 1,184 $ 8,773
======== ======== ========
EARNINGS PER COMMON SHARE:
Income before extraordinary item $1.31 $ 0.40 $1.24
Extraordinary item (0.27)
-------- -------- --------
Net income $1.31 $ 0.13 $1.24
======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 9,983 9,410 7,097
======== ======== ========
See notes to consolidated financial statements.
F-4
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
- --------------------------------------------------------------------------------
NUMBER OF
SHARES ADDITIONAL
--------------------
COMMON TREASURY COMMON PAID-IN RETAINED TREASURY
STOCK STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
BALANCE - October 2, 1994 4,195 (55) $38 $ 3,994 $ 23,230 $ (247) $27,015
Net income 8,773 8,773
Issuance of common stock before
Initial Public Offering 65 1 504 505
Accretion of redeemable common stock (372) (372)
Lapse of put on redeemable common stock 4 296 2,754 3,054
Initial Public Offering of common stock 2,017 20 24,946 24,966
Common stock issued to AB Leasing
for termination of management contract 133 1 1,994 1,995
Purchase of treasury stock (15) (99) (99)
------ ------ ---- ------- ------ ------ ------
BALANCE - October 1, 1995 6,410 (70) 64 31,734 34,385 (346) 65,837
Net income 1,184 1,184
Issuance of common stock for acquisitions 155 656 2 5,984 8,614 14,600
Issuance of treasury stock under employee
savings plan 31 6 583 589
Purchase of treasury stock (650) (9,469) (9,469)
Other (112) (112)
----- ------ ---- ------- ------ ------ -------
BALANCE - September 29, 1996 6,565 (33) 66 37,612 35,569 (618) 72,629
Net income 13,104 13,104
Issuance of common stock for 3 for 2 stock split 3,283 (17) 33 (33)
Issuance of treasury stock under employee
savings plan 43 830 830
Purchase of treasury stock (45) (1,147) (1,147)
Stock options exercised 3 50 50
------- ------ ----- --------- ------- -------- --------
BALANCE - September 28, 1997 9,851 (52) $99 $ 37,629 $48,673 $ (935) $85,466
======= ====== ===== ========= ======= ======== =======
See notes to consolidated financial statements.
F-5
BWAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
YEAR ENDED
---------------------------------------------------
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996 1995
OPERATING ACTIVITIES:
Net income $ 13,104 $ 1,184 $ 8,773
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 8,860 5,656 4,853
Amortization of goodwill and other intangibles 4,164 1,769 1,087
Amortization of deferred financing costs 458 525 609
Write-off of deferred loan fees related to debt extinguishment 2,466
Gain on curtailment of postretirement benefits (5,828)
Provision for doubtful accounts 190 188 (224)
Restructuring charge 12,860
Loss (gain) on disposition of property, plant, and equipment 1,397 (21) 68
Deferred income taxes 2,996 (4,837) 1,314
Termination of AB Leasing contract through issuance of common shares 1,995
Changes in assets and liabilities, net of effects of business acquisitions:
Accounts receivable 2,953 3,271 (4,836)
Inventories (1,088) (2,962) (730)
Other assets 1,268 (54) 623
Accounts payable 13,539 3,847 (1,597)
Accrued liabilities 249 1,628 (506)
Income taxes, net 2,851 131 642
-------- --------- ---------
Net cash provided by operating activities 45,113 25,651 12,071
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (41,619) (69,697)
Capital expenditures (22,961) (12,671) (13,593)
Proceeds from disposition of property, plant, and equipment 21
Other 302
-------- --------- ---------
Net cash used in investing activities (64,278) (82,347) (13,593)
(Continued)
F-6
BWAY CORPORATION AND SUBSIDIAIRES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- --------------------------------------------------------------------------------
YEAR ENDED
------------------------------------------
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996 1995
FINANCING ACTIVITIES:
Net borrowings (repayments) under bank revolving credit agreement $ (80,293) $ 93,770 $ (5,000)
Proceeds from issuance of Notes 100,000
Extinguishment of long-term debt (50,000)
Net proceeds from Initial Public Offering 24,966
Proceeds from issuance of common stock before Initial Public Offering 505
Repayments on long-term debt (165) (2,095) (258)
Increase (decrease) in unpresented bank drafts 4,208 4,335 403
Purchases of treasury stock (1,147) (9,469) (99)
Financing costs incurred (3,966) (1,419) (75)
Other 50 (112)
---------- --------- ---------
Net cash provided by financing activities 18,687 35,010 20,442
---------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (478) (21,686) 18,920
CASH AND CASH EQUIVALENTS:
Beginning of year 1,852 23,538 4,618
---------- --------- ---------
End of year $ 1,374 $ 1,852 $ 23,538
========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 5,666 $ 6,010 $ 4,636
========== ========= =========
Income taxes $ 4,774 $ 6,544 $ 4,054
========== ========= =========
Details of businesses acquired were as follows:
Fair value of assets acquired $ 61,259 $107,553
Liabilities assumed (18,890) (22,256)
Value of common stock issued (14,600)
Long-term note issued (750) (1,000)
---------- ---------
Net cash paid for acquisitions $ 41,619 $ 69,697
========== =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Amounts owed for capital expenditures $ 4,140
==========
Common stock issued for acquisitions $ 14,600
=========
Common stock issued under employee savings plan $ 830 $ 589
========== =========
See notes to consolidated financial statements.
(Concluded)
F-7
BWAY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
SEPTEMBER 28, 1997
- --------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations - BWAY Corporation ("BWAY") is a holding company whose
subsidiaries, Brockway Standard, Inc. ("BSI"), Milton Can Company, Inc.
("MCC"), Brockway Standard (New Jersey), Inc. ("BSNJ"), Brockway Standard
(Ohio), Inc. ("BSO"), PlateMasters, Inc. ("PMI"), and Brockway Standard
(Canada), Inc. ("BSCI") (collectively the "Company") manufacture and
distribute metal containers in the United States and Canada.
Common Stock - On June 20, 1995, in connection with the Initial Public
Offering ("IPO") of the Company's stock, the Company increased the number of
common stock outstanding through an approximately 374-for-1 stock split.
On September 22, 1997, the Company increased the number of shares of common
stock outstanding through a 3-for-2 stock split, effected in the form of a
common stock dividend on the Company's issued and outstanding shares.
Accordingly, earnings per share and share data have been adjusted to give
retroactive effect to the stock splits for all periods presented.
Principles of Consolidation - The consolidated financial statements of the
Company include the accounts of BWAY and its wholly owned subsidiaries, BSI,
MCC, BSNJ, BSO, PMI, and BSCI. All material intercompany balances and
transactions have been eliminated in consolidation.
Fiscal Year - The Company operates on a 52/53-week fiscal year ending on the
Sunday closest to September 30 of the applicable year.
Inventories - Inventories are carried at the lower of cost or market, with
cost determined under the last-in, first-out (LIFO) method of inventory
valuation.
Property, Plant, and Equipment - Property, plant, and equipment is recorded
at cost. Depreciation is provided over the estimated useful lives of the
assets on a straight-line basis for financial reporting purposes.
Expenditures for major renewals and replacements are capitalized.
Expenditures for maintenance and repairs are charged to income as incurred.
When property items are retired or otherwise disposed of, amounts applicable
to such units are removed from the related asset and accumulated depreciation
accounts and any resulting gain or loss is credited or charged to income.
Useful lives are generally as follows:
Buildings and improvements 17-30 years
Machinery and equipment 10-17 years
Furniture and fixtures 5-7 years
Computer systems 5-7 years
F-8
Computer Information Systems - Costs directly associated with the initial
purchase, development, and implementation of computer information systems are
deferred and included in property, plant, and 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.
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 over
30 years on a straight-line basis.
Deferred Financing Costs - Deferred financing costs are being amortized over
the term of the related loan agreement using the straight-line method, which
approximates the effective yield method.
Revenue Recognition - The Company recognizes revenue at the time the product
is shipped to the customer.
Accrued Rebates - The Company enters into contractual agreements for rebates
on certain products with its customers. As sales occur, a provision for
rebates is recorded as a reduction to arrive at net sales and is accrued on
the balance sheet.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for
Income Taxes." SFAS 109 requires, among other things, the use of the
liability method of computing deferred income taxes. Under the liability
method, the effect of changes in corporate tax rates on deferred income taxes
is recognized currently as an adjustment to income tax expense. The
liability method also requires that deferred tax assets or liabilities be
recorded based on the difference between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of - The
Company adopted SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed of," as of September 29, 1996. In
accordance with SFAS 121, the Company has elected to review for impairment,
on a quarterly basis, long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount
of any asset may not be reasonable based on estimates of future undiscounted
cash flows. In the event of an impairment, the asset is written down to its
fair market value. Impairment of goodwill and write-down, if any, is
measured based on estimates of future undiscounted cash flows. Assets to be
disposed of are recorded at the lower of net book value or fair market value
less cost to sell at the date management commits to a plan of disposal.
There was no cumulative effect adjustment recorded upon adoption.
Cash and Cash Equivalents - For purposes of the presentation of the
consolidated statements of cash flows, the Company considers all highly
liquid investments purchased with original maturities of three months or less
to be cash equivalents.
Accounting for Stock Options - The Company adopted SFAS 123, "Accounting for
Stock-Based Compensation," as of September 28, 1997. As permitted under the
statement, the Company has continued to account for stock-based compensation
under the intrinsic value method prescribed in Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees." Compensation cost
for employees' and directors' stock options is measured as the excess, if
any, of the quoted market
F-9
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. Common stock sold during the twelve-month
period prior to the June 1995 IPO has been included in the earnings per share
calculation for all periods presented in accordance with Staff Accounting
Bulletin 83. Common stock equivalents represent the dilutive effect of the
assumed exercise of the outstanding stock options. In February 1997, the
Financial Accounting Standards Board issued SFAS 128, "Earnings Per Share."
The Company has considered the impact of this new standard and does not
believe earnings per share determined under this statement are materially
different than earnings per share determined in accordance with current
accounting standards. The statement is effective for financial statements
for periods ending after December 15, 1997.
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.
Reclassifications - Certain amounts in the previously reported financial
statements have been reclassified to conform to the current presentation.
2. ACQUISITIONS
Milton Can Company - On May 28, 1996, the Company acquired all of the
outstanding stock of Milton Can Company, Inc. This subsidiary was renamed
Brockway Standard (New Jersey), Inc. ("BSNJ"). BSNJ is a manufacturer of
paint, oblong, and specialty cans within the general line segment of the
North American metal container industry. The Company paid $13.4 million in
cash, $1 million in notes, and $14.6 million in BWAY stock. The Company
issued a total of 1,216,455 shares in connection with the merger, comprised
of 984,261 shares of its treasury stock and 232,194 newly issued shares. In
addition, the Company repaid BSNJ's approximately $12.3 million in term and
revolving bank debt concurrent with consummation of the purchase transaction.
Davies Can Company - On June 17, 1996, the Company acquired substantially all
of the assets and assumed certain of the liabilities of Davies Can Company
("Davies"), an unincorporated division of the Van Dorn Company (a wholly
owned subsidiary of Crown Cork & Seal Company, Inc.). This subsidiary was
renamed Brockway Standard (Ohio), Inc. ("BSO"). BSO manufactures paint,
oblong, and utility cans within the general line segment of the North
American metal container industry. The Company paid approximately $41.7
million in cash, subject to an adjustment based on the change in working
capital from December 31, 1995 through June 17, 1996.
Ball Aerosol - On October 28, 1996, the Company acquired substantially all of
the assets related to the metal aerosol can business from Ball Metal Food
Container Corporation (the "BMFCC"), a wholly owned subsidiary of Ball
Corporation. This subsidiary was named Milton Can Company, Inc. ("MCC").
MCC consists of a facility in Cincinnati which includes a material center and
substantially all the assets used in connection with the marketing,
distribution, selling, manufacturing, designing, and engineering of metal
aerosol cans. The Company paid approximately $42.4 million for the acquired
business.
F-10
Separately, the parties entered into supply agreements whereby certain
coating, decorating, and metal processing services will be provided by the
Company to the BMFCC.
The purchase method of accounting was used to establish and record a new cost
basis for the assets acquired and liabilities assumed. The operating results
for BSNJ, BSO, and MCC have been included in the Company's consolidated
financial statements since the dates of acquisition. The excess of the
aggregate purchase price over the aggregate fair market value of net
identifiable assets acquired was approximately $79 million.
The following pro forma results assume the acquisitions of BSNJ, BSO, and MCC
occurred at the beginning of the fiscal year ended September 29, 1996 after
giving affect to certain pro forma adjustments, consisting of an adjustment
to reflect the amortization of cost in excess of the net assets acquired,
increased interest expense, and the estimated related income tax effects:
TWELVE MONTHS ENDED
------------------------------------
SEPTEMBER 28, September 29,
1997 1996
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net sales $406,476 $413,750
Income before extraordinary item 13,202 1,005
Net income (loss) 13,202 (1,530)
Earnings (loss) per common share:
Income before extraordinary item 1.32 0.10
Net income (loss) 1.32 (0.16)
The 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 each period presented, nor is it
necessarily indicative of future operating results.
3. INVENTORIES
Inventories consist of the following (in thousands):
SEPTEMBER 28, September 29,
1997 1996
Inventories at FIFO cost:
Raw materials $12,661 $ 9,300
Work-in-progress 23,603 18,601
Finished goods 11,091 9,189
------- -------
47,355 37,090
LIFO reserve (740) (46)
------- -------
$46,615 $37,044
======= =======
F-11
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following (in thousands):
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
Land $ 3,788 $ 2,288
Building and improvements 19,823 14,145
Machinery and equipment 97,656 80,328
Furniture and fixtures 3,320 2,535
Construction in progress 24,126 12,423
------------ ------------
148,713 111,719
Less accumulated depreciation 25,096 16,919
------------ ------------
Property, plant, and equipment - net $123,617 $ 94,800
============ ============
5. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
Customer lists $ 7,486 $ 7,071
Tradename 4,704 4,704
Noncompete agreements 4,494 4,494
------------- -------------
16,684 16,269
Less accumulated amortization 3,104 1,579
------------- -------------
$13,580 $14,690
============= =============
6. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Included in accounts payable and accrued salaries and wages at September
28, 1997 and September 29, 1996 are bank drafts issued and outstanding for
which no rights of offset exist to cash and cash equivalents, as follows
(in thousands):
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
Bank drafts issued and outstanding included in:
Accounts payable $11,256 $7,942
Accrued salaries and wages 1,641 747
------------ -----------
$12,897 $8,689
============ ===========
F-12
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
10.25% Notes $ 100,000
Credit agreement 13,500 $ 92,000
Other borrowings 2,032 3,198
--------- --------
115,532 95,198
Less current maturities of long-term debt 1,151 145
--------- --------
Total long-term debt $ 114,381 $ 95,053
========= ========
On June 17, 1996, the Company terminated its existing bank agreement and
entered into a new credit agreement with BT Alex Brown (formerly Bankers
Trust Company) and NationsBank, N.A. (the "Credit Agreement"). Initial
borrowings under the Credit Agreement were used to repay all obligations
under the Company's previous revolving credit facility. Funds from the
Credit Agreement were also used to prepay the $50 million private placement
of 8.35% Senior Secured Notes maturing September 1, 2001. In conjunction
with the prepayment of the Senior Secured Notes, the Company recorded an
extraordinary loss related to the early extinguishment of debt in the
amount of $2.5 million, net of taxes.
In October 1997, the Company amended its Credit Agreement. The amendment
provides the Company with lower interest rate margins and greater
flexibility with regard to growth investments in joint ventures and other
subsidiaries. The amendment also provides the Company with a second option
to increase the borrowing limit by another $25 million for a maximum
borrowing limit of $150 million, provided certain conditions are met and
provided that only one $25 million increase occurs in any twelve-month
period. The amendment also extends the expiration of the Credit Agreement
one year to June 17, 2002.
The Credit Agreement allows the Company to borrow up to $100 million or
$150 million if certain conditions are met. The interest rates under the
Credit Agreement are based on rate margins for either prime rate as
announced by NationsBank from time to time ("Prime") or LIBOR, at the
option of the Company. The applicable rate margin is determined on a
quarterly basis by a review of the Company's leverage ratio. The Company's
borrowing rate is at its option either LIBOR plus 1.0%, or Prime. The
Company's borrowing rate is 6.9375% at September 28, 1997. Loans under the
Credit Agreement are unsecured and can be prepaid at the option of the
Company without premium or penalty. The Credit Agreement is subject to
certain restrictive covenants, including covenants which require the
Company to maintain a certain minimum level of net worth and a maximum
ratio for leverage. In addition, BWAY is restricted in its ability to pay
shareholder dividends and other restricted payments in an amount greater
than approximately $16.4 million at September 28, 1997 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. Restricted net assets of the
Company's subsidiaries collectively amounted to approximately $71 million
at September 28, 1997.
On April 11, 1997, the Company received the net proceeds of approximately
$96 million from a private placement of $100 million 10 1/4% Senior
Subordinated Notes due 2007 (the "Notes"). The net proceeds were used by
the subsidiaries to repay a portion of the Company's indebtedness under the
Credit Agreement.
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
F-13
the Company and are effectively subordinated to all secured indebtedness, as
defined, of the Company to the extent of the value of the assets securing any
such indebtedness. The Notes are redeemable, in whole or in part, at the
option of the Company, on or after April 15, 2002 at the prices specified in
the Notes (105.125% on April 15, 2002 declining annually to 100% on April 15,
2005). In addition, until April 15, 2000, the Company may, at its option,
redeem up to 33 1/3% of the aggregate principal amount of the Notes
originally issued at a redemption price equal to 110 1/4% of the principal
amount thereof, plus accrued and unpaid interest to the date of redemption,
with the net cash proceeds of one or more public or private sales of common
stock of the Company, subject to certain provisions of the indenture. Upon
the occurrence of a Change in Control, as defined in the Notes, the Company
will be required to make an offer to repurchase the Notes at 101% of the
principal amount plus accrued and unpaid interest to the date of repurchase.
The Notes contain certain restrictive covenants, including limitations on
asset sales, additional indebtedness, and mergers. In addition, the Company
is restricted in its ability to pay shareholder dividends and other
restricted payments in an amount greater than $29.3 million at September 28,
1997.
The Company has filed a registration statement relating to an offer to
exchange the Notes for the Company's 10 1/4% Senior Subordinated Notes due
2007, Series B (the "Exchange Notes"). BWAY is a holding company with no
independent operations although it incurs some limited expenses on behalf of
its operating subsidiaries. BWAY has no significant assets other than the
common stock of its subsidiaries. The Notes are, and the Exchange Notes will
be, fully and unconditionally guaranteed on a joint and several basis by
certain of the Company's direct and indirect subsidiaries. The subsidiary
guarantors are wholly owned by BWAY and constitute all of the direct and
indirect subsidiaries of BWAY except for four subsidiaries that are
individually, and in the aggregate, inconsequential. Separate financial
statements of the subsidiary guarantors are not presented because management
has determined that they would not be material to investors.
Scheduled maturities of long-term debt as of September 28, 1997 are as
follows (in thousands):
FISCAL YEAR
1998 $ 1,151
1999 131
2000
2001 750
2002 13,500
Thereafter 100,000
--------
$115,532
========
Based on quoted market prices and the borrowing rates currently available to
the Company for bank loans with similar terms and maturities, the fair value
of long-term debt at September 28, 1997 was estimated at $123.5 million and
at September 29, 1996 was estimated to approximate book value.
8. STOCKHOLDERS' EQUITY
Initial Public Offering
On June 20, 1995, the Company completed its IPO with the sale of 2,486,799
shares of common stock and realized net proceeds of approximately $20.3
million. On July 25, 1995, an additional 538,629 shares of the Company's
stock were sold to cover overallotments, providing additional net proceeds of
approximately $4.7 million.
F-14
Stock Option Plans
Immediately prior to the IPO in June 1995, the Company adopted the Brockway
Standard Holdings Corporation 1995 Long-Term Incentive Plan and the Formula
Plan for Non-Employee Directors (the "Formula Plan") for its directors,
officers, and key employees. On August 20, 1996, the Board of Directors i)
adopted the Amended and Restated 1995 Long-Term Incentive Plan (the "Amended
Incentive Plan"), which Amended Incentive Plan increased the aggregate number
of shares of common stock authorized for issuance under the Amended Incentive
Plan from 735,000 to 1,125,000, and ii) froze the Formula Plan with only
45,000 of the available 150,000 shares of common stock being granted
thereunder. The options generally become exercisable in installments of 33%
per year on each of the first through third anniversaries of the grant date
and the options expire ten years from date of grant; 4,200 of the options
have been exercised as of September 28, 1997.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-
average assumption: expected dividends of 0.0%, expected volatility of
30.00%, risk-free interest of 6.58%, and expected lives of 6.0 years.
A summary of the status of the Company's two stock option plans as of
September 28, 1997 and changes during fiscal 1995, 1996, and 1997 is
presented below:
WEIGHTED
AVERAGE
EXERCISE
FIXED OPTIONS SHARES PRICE
Outstanding at October 2, 1994 - $ -
Granted 319,500 9.81
Outstanding at October 1, 1995 319,500 9.81
Granted 579,600 12.49
Forfeited (6,300) 12.67
--------
Outstanding at September 29, 1996 892,800 11.52
Granted 66,300 14.06
Forfeited (12,600) 12.67
Exercised (4,200) 11.87
--------
Outstanding at September 28, 1997 942,300 11.72
========
Exercisable at October 1, 1995 - -
========
Exercisable at September 29, 1996 113,100 9.78
========
Exercisable at September 28, 1997 368,100 10.99
========
Weighted average grant date fair value of options granted
during the year ended September 28, 1997 $ 6.15
========
F-15
The following table summarizes information about stock options outstanding at
September 28, 1997:
WEIGHTED
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF SEPTEMBER 28, CONTRACTUAL EXERCISE SEPTEMBER 28, EXERCISE
EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE
$ 9.00 - 10.00 271,500 7.7 $ 9.67 186,000 $ 9.67
10.01 - 11.00 50,000 7.9 10.69 21,700 10.68
11.01 - 12.00 28,800 9.0 11.67 - -
12.01 - 13.00 532,000 8.7 12.54 160,400 12.58
14.01 - 15.00 55,500 9.6 14.33 - -
18.01 - 19.00 4,500 9.8 18.17 - -
------- --- ------ ------- ------
942,300 8.4 $11.72 368,100 $10.99
======= === ====== ======= ======
The range of exercise prices for options outstanding were $9.67 to $14.33 per
share.
The fair value of options granted during the year ended September 28, 1997
was $380,000. The Company applies Accounting Principles Board Opinion 25 and
related Interpretations in accounting for its stock option plans.
Accordingly, no compensation cost has been recognized for its fixed stock
option plans. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant dates for awards under
those plans consistent with the method of FASB Statement 123, the Company's
net income and earnings per share for each of the three years in the period
ended September 28, 1997 would have been reduced to the pro forma amounts
indicated below:
1997 1996 1995
Net income to common shareholders (in thousands):
As reported $13,104 $1,184 $8,773
======= ====== ======
Pro forma $12,334 $ 712 $8,671
======= ====== ======
Net income per common and common equivalent share:
As reported $ 1.31 $ 0.13 $ 1.24
======= ====== ======
Pro forma $ 1.24 $ 0.08 $ 1.22
======= ====== ======
Shareholder Rights Plan
The Company has a Shareholder Rights Plan, as amended by Amendment 1 to the
Rights Plan dated February 12, 1996, as amended by Amendment 2 to the Rights
Plan dated November 26, 1997 (as amended, 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
F-16
fifteen-hundredth share of Junior Participating Series A Preferred Stock at
an exercise price of $60 per share subject to adjustment to prevent
dilution. The rights have no voting power and no current dilutive effect on
earnings per common share. The rights expire on June 15, 2005 and are
redeemable at the discretion of the Board of Directors at $.01 per share.
If a person acquires 15% ownership, except in an offer approved by the
Company under the Rights Plan, then each right not owned by the acquirer or
related parties will entitle its holder to purchase, at the right's
exercise price, additional shares of common stock or common stock
equivalents. In addition, after an acquirer obtains 15% ownership, if the
Company is involved in certain mergers, business combinations, or asset
sales, each right not owned by the acquirer or related persons will entitle
its holder to purchase, at the right's exercise price, additional shares of
common stock of the other party to the transaction.
9. INCOME TAXES
The Company files a consolidated federal income tax return. Deferred income
taxes are provided to recognize the differences between the carrying amount
of assets and liabilities for financial statement purposes and the amounts
used for income tax purposes.
Components of net deferred tax liability are as follows (in thousands):
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
Deferred tax liabilities:
Property, plant, and equipment $23,071 $16,452
Inventory 1,241 660
Other 114 1,097
------- -------
24,426 18,209
Deferred tax assets:
Restructuring and reorganization reserves 4,685 2,279
Employee benefits 7,836 1,404
Customer claims/rebates 101 1,346
Accounts receivable 230 244
Other 1,716 1,206
------- -------
14,568 6,479
------- -------
Net deferred tax liability $ 9,858 $11,730
======= =======
Net current deferred tax asset $(5,111) $(2,405)
Net noncurrent deferred tax liability 14,969 14,135
------- -------
$ 9,858 $11,730
======= =======
F-17
The provision for income taxes is reconciled with the federal statutory
rate as follows (dollars in thousands):
1997 1996 1995
----------------- ----------------- -------------------
AMOUNT % AMOUNT % AMOUNT %
Income tax at federal statutory rate $7,788 35.0% $2,435 35.0% $5,178 35.0 %
State income taxes, net of federal
income tax benefit 549 2.5% 314 4.5% 562 3.8 %
Nondeductible amortization of
intangibles 754 3.4% 476 6.8% 304 2.1 %
Other 55 0.2% 14 0.2% (23) (0.2)%
------- ---- ------- ---- ------- -----
$9,146 41.1% $3,239 46.5% $6,021 40.7 %
======= ==== ======= ==== ======= =====
The components of the provision for income taxes are as follows (in
thousands):
SEPTEMBER 28, SEPTEMBER 29, OCTOBER 1,
1997 1996 1995
Current:
Federal $ 9,569 $ 7,265 $ 4,287
State 1,449 811 420
Deferred (1,872) (4,837) 1,314
------- ------- -------
$ 9,146 $ 3,239 $ 6,021
======= ======= =======
10. LEASE COMMITMENTS
The Company leases warehouses, office space, equipment, and vehicles under
operating leases. Rent expense during each of the last three fiscal years
was approximately $4.2 million (1997), $3.3 million (1996), and $2.6
million (1995).
F-18
At September 28, 1997, future minimum rental payments under capitalized leases
and under noncancelable operating leases are as follows (in thousands):
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
1998 $137 $ 3,526
1999 137 2,633
2000 1,964
2001 1,679
2002 1,202
Thereafter 2,131
-------- ------------
Total minium lease payments 274 $13,135
============
Imputed interest at 8.66% (22)
--------
Present value of minimum capitalized lease payments $252
========
11. PROFIT SHARING AND PENSION PLANS
The Company has qualified profit sharing and savings plans for specified
employees. These plans are contributory defined contribution plans which
provide for employee contributions with a Company matching provision, and
for certain employees a deferred profit sharing component funded by the
Company. The Company's net contributions to the profit sharing and savings
plans for each of the last three fiscal years were approximately $0.7
million (1997), $1.5 million (1996), and $1.2 million (1995).
BSNJ has a noncontributory defined benefit pension plan covering a majority
of its salaried employees. The plan provides benefit payments using a
formula based on an employee's compensation and length of service. BSNJ
funds the plan in amounts equal to the minimum funding requirements of the
Employee Retirement Income Security Act of 1974, plus additional amounts as
BSNJ actuarial consultants advise to be appropriate and as management
approves from time to time. The Company froze this plan effective December
31, 1996.
The periodic net pension income related to continuing operations is
comprised of the following:
PERIOD FROM
MAY 28, 1996
(ACQUISITION)
YEAR ENDED THROUGH
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
Service cost - benefits earned during the period $ 31,100 $ 42,000
Interest cost on projected benefit obligation 191,300 81,000
Actual return on assets (399,800) (183,000)
------------------- -------------------
Net pension income $(177,400) $ (60,000)
=================== ===================
F-19
The following table shows the plans' funded status and amounts recognized in
the balance sheet:
PERIOD FROM
MAY 28, 1996
(ACQUISITION)
YEAR ENDED THROUGH
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
Actuarial present value of benefit obligations - Vested $ 2,242,800 $ 2,288,000
=========== ===========
Accumulated benefit obligation $ 2,242,800 $ 2,288,000
=========== ===========
Fair value of plan assets $ 4,911,800 $ 4,966,800
Projected benefit obligation (2,242,800) (3,256,800)
----------- -----------
Funded status 2,669,000 1,710,000
Unrecognized net gain (832,500) (290,000)
Unrecognized prior service cost 327,200
----------- -----------
Prepaid pension expense $ 2,163,700 $ 1,420,000
=========== ===========
The actuarial assumptions used were:
Discount rate 7.25% 7.75%
=========== ===========
Rate of increase in compensation levels 6.00% 6.00%
=========== ===========
Expected return on assets 9.00% 9.00%
=========== ===========
Most of BSNJ's union employees are covered under multi-employer defined
benefit plans administered by the union. Total contributions charged to
expense for such plans are $0.7 million as of September 28, 1997.
In connection with the acquisition of MCC, the Company assumed three defined
benefit postretirement medical plans. These plans are noncontributory and
provide certain medical benefits after retirement to covered union employees.
In June 1997, the Company and employees belonging to one union representing
approximately 50% of the employees at MCC reached a new collective bargaining
agreement. One of the provisions of the new agreement eliminates
postretirement medical benefits provided by the Company which resulted in the
recording of a curtailment gain of approximately $5.8 million.
F-20
As of September 28, 1997, in accordance with the terms of two applicable
collective bargaining agreements the Company continues to offer
postretirement medical coverage to certain union employees who retire from
employment at MCC. Net periodic postretirement medical benefit plan expense
from the period October 28, 1996 (date of acquisition) through September 28,
1997 includes the following components:
Service cost - benefits earned during the year $178,114
Interest cost on accumulated postretirement
medical benefit plan obligation 471,914
----------------
Net periodic postretirement medical benefit
plan expense $650,028
================
The following table sets forth the combined status of the defined benefit
postretirement medical benefit plans at September 28, 1997:
Accumulated postretirement medical benefit obligation:
Current retirees $2,937,542
Fully eligible active plan participants 1,105,936
Employees not yet eligible for retirement 2,868,667
----------------
Total accumulated postretirement medical benefit obligation 6,912,145
Net periodic postretirement medical benefit plan expense 650,028
----------------
Accrued postretirement medical benefit plan expense $7,562,173
================
The actuarial assumptions used were:
Discount rate 7.50%
=====
Medical expense trend rate 10.5% to 5.5%
================
Average retirement age 62
The 1983 Group Annuitant Mortality Table
12. RELATED PARTY TRANSACTIONS
BSI was a party to a management agreement with AB Leasing and Management,
Inc. (``AB Leasing''), a company related by common ownership, whereby BSI
paid AB Leasing on an annual basis the greater of $200 thousand or 15% of
net income, as defined. Upon the completion of the IPO, the Company's
management agreement with AB Leasing was terminated. In connection with the
termination, the Company paid $1.995 million, through the issuance of
199,500 shares of common stock to AB Leasing just prior to the effectiveness
of the Offering. The Company recorded a nonrecurring, noncash, pre-tax
charge to operations of $1.995 million in connection therewith in the third
quarter of 1995. BSI expensed fees of approximately $1.08 million in fiscal
1995 for management services including strategic and financial planning. BSI
also reimbursed AB Leasing for certain expenses incurred on behalf of BSI
amounting to approximately $309 thousand in fiscal 1995.
F-21
BSNJ leases its primary operating facility under an operating lease from a
partnership in which certain members of the Company's management are
partners. The lease, which is for a five-year period ending on September
30, 1999 with renewal options, carries a monthly lease payment of $52,457.
In 1997, 1996 and 1995, the Company purchased computer software and
incurred related implementation costs totaling approximately $0.6 million,
$1.2 million and $2.5 million, respectively, from a software company which
has certain directors who are also directors of the Company.
13. REORGANIZATION AND RESTRUCTURING
The acquisitions of BSNJ, BSO, and MCC have resulted in redundancy of
facilities and equipment. Management has committed to a plan to exit
certain activities of the acquired companies and integrate acquired assets
and businesses with BWAY facilities. In connection with recording the
purchases, the Company established reorganization liabilities of
approximately $3.0 million and $2.8 million during fiscal 1997 and 1996,
respectively, which were classified as other current liabilities. The
liabilities represent the direct costs expected to be incurred which have
no future economic benefit to the Company and include charges relating to
the closing of four manufacturing facilities and severance costs. The
reorganization liability includes the following (in thousands):
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
Closing/abandonment of facilities $1,395 $2,046
Severance and benefit costs 612
------ ------
$1,395 $2,658
====== ======
The Company has charged approximately $4.3 million against the
reorganization liability during fiscal 1997 and approximately $114 thousand
during fiscal 1996.
Also, during the fourth quarter of fiscal 1996, the Company recorded a
restructuring charge comprised of a write-down of assets to be disposed
against operations of $12.9 million. Increased volume resulting from the
acquisitions provided the opportunity for the Company to consolidate
certain of its manufacturing processes to meet increased customer demand
and improve efficiencies, which will result in the disposal of surplus
equipment and currently productive manufacturing equipment for scrap values
beginning in early fiscal 1997 and ending in fiscal 1998. When fully
implemented, the rationalization is expected on an overall basis, to result
in reduced overhead expense, and enhanced operational efficiencies.
14. CONTINGENCIES
Environmental
The Company continues to monitor and evaluate on an ongoing and regular
basis its compliance with applicable environmental laws and regulations.
Expenditures are expensed or capitalized depending on their future economic
benefit. Expenditures that relate to an existing condition caused by past
operations and that have no future economic benefit are expensed.
Liabilities for noncapital expenditures are recorded when environmental
remediation is probable and the costs can be reasonably estimated. The
Company believes that it is in compliance in all material respects with
applicable federal, state, and local environmental regulations.
F-22
The Company (and, in some cases, predecessors to the Company) have, from
time to time, received requests for information or notices of potential
responsibility pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") with respect to certain waste
disposal sites utilized by former or current facilities of the Company or
its various predecessors. To the Company's knowledge, all such matters
which have not been resolved are, subject to certain limitations,
indemnified by the sellers of the relevant Company affiliates, and all such
unresolved matters have been accepted for indemnification by such sellers.
Because liability under CERCLA is retroactive, it is possible that in the
future the Company may incur liability with respect to other sites.
Environmental investigations voluntarily conducted by the Company at its
Homerville, Georgia facility in 1993 and 1994 detected certain conditions
of soil and groundwater contamination, that predated the Company's 1989
acquisition of the facility from Owens-Illinois. Such contamination is
subject to indemnification by Owens-Illinois. The Company and Owens-
Illinois have entered into a supplemental agreement affirming Owens-
Illinois's responsibility for this matter and establishing procedures for
Owens-Illinois investigation and remediation of the contamination. In 1994,
the Georgia Department of Natural Resources ("DNR") determined that further
investigation must be completed before DNR decides whether corrective
action is needed. Owens-Illinois' investigation of the contamination is
continuing. Owens-Illinois is managing the remediation activities and
paying for such work directly. Preliminary consultant estimates indicated
that the cost of cleanup could range from $1 million to $6 million,
depending on the extent of contamination. Since Owens-Illinois is
conducting the remediation work, management has no way of determining the
actual costs related to the clean-up efforts. Management does not believe
that the final resolution of this matter will have a material adverse
effect on the results of operations or financial condition of the Company,
and has not accrued a liability with respect to this matter because it
believes that a loss contingency is not probable.
The Cincinnati facility, which was acquired in the MCC Acquisition, is
listed on environmental agency lists as a site that may require
investigation for potential contamination. The listings could result in a
requirement for the Company to investigate and remediate the facility. To
date, no agency has required such action and the cost of any investigation
or remediation can not be reasonably estimated. BMFCC has agreed to
indemnify the Company, subject to certain limitations.
At the Peabody, Massachusetts facility, which was previously leased by
BSNJ, groundwater remediation is underway. The owner of the facility has
agreed to retain all liability for the remediation. In addition, the former
shareholders of Milton Can, subject to certain limitations, indemnified the
Company for liabilities associated with the contamination.
Management believes that none of these matters will have a material adverse
effect on the results of operations or financial condition of the Company
in light of both the potential indemnification obligations of others to the
Company and the Company's understanding of the underlying potential
liability.
Letters of Credit
At September 28, 1997, 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.
15. CONCENTRATIONS OF CREDIT RISK
The Company sells its metal containers to a large number of customers in
numerous industry sectors. To reduce credit risk, the Company sets credit
limits and performs ongoing credit evaluations. Sales to the Company's ten
largest customers amounted to approximately 38% (1997), 39% (1996), and 43%
(1995), of the Company's sales including sales to one customer of 10%
(1997), 13% (1996), and 13% (1995).
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. Accounts receivable from one customer amounted to approximately
11% of total accounts receivable at September 29, 1996.
F-23
16. QUARTERLY INFORMATION (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
FIRST SECOND THIRD FOURTH
FISCAL YEAR 1997: Quarter QUARTER QUARTER QUARTER
Net sales $91,166 $100,178 $109,676 $101,130
======= ======== ======== ========
Gross profit $10,441 $ 14,560 $ 13,432 $ 13,451
======= ======== ======== ========
Net income $ 1,418 $ 3,237 $ 4,399 $ 4,050
======= ======== ======== ========
Earnings per common share:
Net income $ 0.15 $ 0.33 $ 0.44 $ 0.40
======= ======== ======== ========
FISCAL YEAR 1996:
Net sales $58,154 $ 61,768 $ 73,715 $ 89,468
======= ======== ======== ========
Gross profit $ 7,563 $ 9,985 $ 12,001 $ 11,159
======= ======== ======== ========
Income before extraordinary items $ 2,219 $ 2,788 $ 3,867 $ (5,155)
Extraordinary items (2,535)
------- -------- -------- --------
Net income $ 2,219 $ 2,788 $ 1,332 $ (5,155)
======= ======== ======== ========
Earnings per common share:
Income before extraordinary item $ 0.23 $ 0.31 $ 0.42 $ (0.52)
======= ======== ======== ========
Net income $ 0.23 $ 0.31 $ 0.15 $ (0.52)
======= ======== ======== ========
F-24
INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule I - . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Schedule II - . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
S-1
SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF
BWAY CORPORATION
CONDENSED BALANCE SHEETS
(In Thousands)
September 28, September 29,
1997 1996
-------------------------------------------------------
ASSETS:
Cash $ 173
Investments in subsidiaries $136,562 82,899
Other assets 181 259
------------------------ -----------------------
$136,743 $83,331
======================== =======================
LIABILITIES:
Intercompany payable - BSI $ 49,205 $ 9,423
Other liabilities 2,072 1,279
------------------------ -----------------------
51,277 10,702
------------------------ -----------------------
STOCKHOLDERS' EQUITY:
Common stock 99 66
Additional paid-in capital 37,629 37,612
Retained earnings 48,673 35,569
------------------------ -----------------------
86,401 73,247
Less treasury stock, at cost (935) (618)
------------------------ -----------------------
Total stockholders' equity 85,466 72,629
------------------------ -----------------------
$136,743 $83,331
======================== =======================
S-2
SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF
BWAY CORPORATION
CONDENSED STATEMENTS OF INCOME
(In Thousands)
September 28, September 29, October 1,
1997 1996 1995
--------------------------------------------------------
Management fees charged to subsidiaries $ 1,545 $1,030 $ 359
Interest income 362 199
Other income/(expense),net 151 (830) (287)
---------------- ------------- ---------------
Income before income taxes and equity in
undistributed earnings of subsidiaries 1,696 562 271
Income tax expense 695 229 108
---------------- ------------- ---------------
Income before equity in undistributed earnings
of subsidiaries 1,001 333 163
Equity in undistributed earnings of subsidiaries 12,103 851 8,610
---------------- ------------- ---------------
Net income $13,104 $1,184 $8,773
================ ============= ===============
S-3
SCHEDULE I - CONDENSED FINANCIAL STATEMENTS OF
BWAY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
Year Ended
------------------------------------------------------
September 28, September 29, October 1,
1997 1996 1995
------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 13,104 $ 1,184 $ 8,773
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiaries (12,103) (851) (8,610)
Termination of AB Leasing contract through issuance
of common shares 1,995
Changes in assets and liabilities:
Other assets 78 (258) 498
Other liabilities 793 781
Income tax payable (910) 112
Intercompany payable 41,256 22,450 (14,051)
------------------ -------------- --------------
Net cash provided by (used in) operating activities 43,128 22,396 (11,283)
------------------ -------------- --------------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (42,154) (27,617)
------------------ -------------- --------------
Net cash (used in) investing activities (42,154) (27,617)
------------------ -------------- --------------
FINANCING ACTIVITIES:
Purchase of treasury stock (1,147) (9,469) (99)
Proceeds from Initial Public Offering 24,966
Proceeds from issuance of stock before Initial Public
Offering 505
------------------ -------------- --------------
Net cash (used in) provided by financing activities (1,147) (9,469) 25,372
------------------ -------------- --------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (173) (14,690) 14,089
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR 173 14,863 774
------------------ -------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 0 $ 173 $ 14,863
================== ============== ==============
S-4
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Income taxes $ 695 $ 229 $ 108
================== ================ ==============
NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisitions $ 14,600
================
Common stock issued under employee savings plan $ 830 $ 589
================== ================
S-5
SCHEDULE II - CONDENSED VALUATION AND QUALIFYING ACCOUNTS
BWAY CORPORATION AND SUBSIDIARIES
(In Thousands)
Balance Additions Balance
at Charged to at
Beginning Costs and (1) End
Description of Period Expenses Deductions of Period
- ---------------------------------- ------------ ------------ ------------- -----------
Allowance for doubtful accounts:
Year ended October 1, 1995 583 (41) 156 386
Year ended September 29, 1996 386 188 184 390
Year ended September 28, 1997 390 350 160 580
- --------------
(1) Deductions from the allowance for doubtful accounts represent the net
write-off of uncollectible accounts receivable.
S-6
INDEX TO EXHIBITS
================================================
Exhibit Description of Document Location of Document
No. in Sequential
Numbering System +
3.1 Amended and Restated Certificate of Incorporation
of the Company. (3)
3.2 Amended and Restated By-laws of the Company (1)
3.3 Rights Agreement dated as of June 9, 1995
between the Company and Harris Trust and
Savings Bank, as Rights Agent (1)
3.4 Amendments to Rights Agreement dated as of
February 12, 1996 between the Company and
Harris Trust and Savings Bank, as Rights Agent (3)
3.5 Amendment No. 2 to Rights Agreement dated as
of August 19, 1997 between the Company and
Harris Trust and Savings Bank, as Rights Agent
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 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.
4.4 Indenture dated as of April 11, 1997 among
the Company, the subsidiary guarantors named
therein and Harris Savings and Trust Company,
as trustee (6)
4.5 Forms of Series A and Series B 10 1/4% Senior
Subordinated Notes (contained in Exhibit 4.3
as Exhibit A and B thereto, respectively) (6)
4.6 Form of Guarantee (contained in Exhibit 4.3
as Exhibit F thereto) (6)
4.7 Registration Rights Agreement dated as of
April 11, 1997 among the Company, the
subsidiary guarantors named therein, BT
Alex.Brown Incorporated (formerly known as
Bankers Trust Company), Bear, Stearns & Co.
Inc., and NationsBanc Capital Markets, Inc. (6)
The Registrant will furnish to the
Commission, upon request, each instrument
defining the rights of holders of long-term
debt of the Registrant and its subsidiaries
where the amount of such debt does not exceed
10 percent of the total assets of the
Registrant and its subsidiaries on a
consolidated basis.
10.1 Asset Purchase Agreement dated December 19,
1988 between BS Holdings Corporation, BW
Plastics, Inc., BW-Morrow Plastics, Inc. and
Owens-Illinois Group, Inc. (1)
10.2 Registration Agreement dated as of January
30, 1989 between BS Holdings Corporation and
certain stockholders (1)
10.3 Acquisition Agreement dated as of March 4,
1993 between Ellisco Inc. and BSI (1)
10.4 Stock Purchase Agreement dated April 27, 1993
among Armstrong Industries, Inc., its
stockholders, Armstrong Containers, Inc. and (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 Memorandum of Agreement dated October 11,
1993 between The Folgers Company and BSI ** (1)
10.9 Contract and Lease dated September 3, 1968,
between the City of Picayune, Mississippi and
Standard Container Company (1)
10.10 Lease dated February 24, 1995 between Tab
Warehouse Fontana II and BSI (1)
10.11 Garland, Texas Industrial Net Lease dated
January 14, 1985 between MRM Associates and
Armstrong Containers, Inc. (1)
10.12 Gross Lease Agreement dated August 10, 1990
between Colonel Estates Joint Venture and BSI (1)
10.13 Lease dated February 11, 1991 between Curto
Reynolds Oelerich Inc. and Armstrong
Containers, Inc. (1)
10.14 Lease Agreement dated November 16, 1996
between Shelby Distribution Park and Brockway
Standard, Inc., as amended December 26, 1996.
10.15 Lease dated August 9, 1991 between DK
Containers, Inc. and Smith Barney Birtcher
Institutional Fund-I Limited Partnership and (1)
the First Amendment thereto
10.16 Lease dated September 2, 1994 between
Division Street Partners, L.P. and BSNJ (8)
10.17 Employee Stock Purchase Agreement dated March
4, 1994 among BS Holdings Corporation, Perry
Schwartz, Mid-America Group, Ltd., Warren J.
Hayford and Daniel P. Casey* (1)
10.18 Agreement, dated May 15, 1995, between BSI
and Owens-Illinois, Inc. Pursuant to (S) 9.9
(d) of the December 19, 1988 Stock Purchase (1)
Agreement
10.19 Settlement Agreement, dated June 30, 1997
between BWAY Corporation and Owens-Illinois
Group, Inc.
10.20 BWAY Corporation Amended and Restated 1995
Long-Term Incentive Plan.* (8)
10.21 Brockway Standard Holdings Corporation
Formula Plan for Non-Employee Directors* (1)
10.22 Cooperation Agreement between Ball
Corporation and BWAY Corporation, dated (3)
January 4, 1996.
10.23 Merger Agreement with Milton Can Company,
Inc., dated March 12, 1996. (3)
10.24 Amendment #1 to the Merger Agreement with
Milton Can Company, Inc., dated April 30, 1996 (3)
10.25 Asset Purchase Agreement dated April 29,
1996, between Brockway Standard, Inc., BWAY
Corporation, Van Dorn Company and Crown Cork
& Seal Company, Inc. (3)
10.26 Employment Agreement between the Company and
David P. Hayford, dated as of June 15, 1995* (4)
10.27 Employment Agreement between the Company and
James W. Milton, dated as of May 28, 1996* (4)
10.28 Amended and Restated Registration Rights
Agreement dated as of May 28, 1996, between
BWAY Corporation and certain shareholders. (4)
10.29 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)
10.30 Amendment No. 1 to the Asset Purchase Agreement
dated October 28, 1996 between Milton Can
Company, Inc., BWAY Corporation, Ball Metal Food
Container Corp., and Ball Corporation (5)
10.31 Purchase Agreement dated as of April 8, 1997 among
the Company, the subsidiary guarantors named therein,
BT Alex. Brown Incorporated (formerly known as Bankers
Trust Company), Bear, Stearns & Co. Inc. and
NationsBanc Capital Markets, Inc. (6)
10.32 Brockway Standard (Ohio), Inc. Bargaining Unit
Savings Plan * (7)
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
____________________________
* Management contract or compensatory plan or arrangement.
+ This information appears only in the manually signed original copies of
this report.
** Confidential treatment requested.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-91114).
(2) Incorporated by reference to the Company's Form 10-K for the fiscal year
ending October 1, 1995 (File No. 0-26178).
(3) Incorporated by reference to the Company's Form 10-Q for the period ending
March 31, 1996 (File No. 0-26178).
(4) Incorporated by reference to the Company's Form 10-Q for the period ending
June 30, 1996 (File No. 0-26178).
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed
on November 12, 1996 (File No. 0-26178).
(6) Incorporated by reference to the Company's Registration Statement on Form
S-4 (File No. 333-26013).
(7) Incorporated by reference to the Company's Registration Statement on Form
S-8 (File No. 333-39225).
(8) Incorporated by reference to the Company's Form 10-K for the fiscal year
ending September 29, 1996 (File No. 0-26178).