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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

QUARTERLY REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended:

April 3, 2005

 

001-12415

(Commission File Number)

 


 

BWAY CORPORATION

(Exact name of registrant as specified in its charter)

 


 

DELAWARE

(State of incorporation)

 

36-3624491

(IRS Employer Identification No.)

 

8607 Roberts Drive, Suite 250

Atlanta, Georgia

(Address of principal executive offices)

 

30350-2237

(Zip Code)

 

(770) 645-4800

(Registrant’s telephone number)

 


 

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

As of May 17, 2005, there were 1,000 shares of BWAY Corporation’s Common Stock outstanding.

 



Table of Contents

BWAY CORPORATION

Quarterly Report on Form 10-Q

For the quarterly period ended April 3, 2005

 

INDEX

 

         

Page

Number


PART I – FINANCIAL INFORMATION     

Item 1.

   Financial Statements     
     Consolidated Balance Sheets at April 3, 2005 and October 3, 2004 (Unaudited)    1
     Consolidated Statements of Operations for the Three and Six Months Ended April 3, 2005 and April 4, 2004 (Unaudited)    2
     Consolidated Statements of Cash Flows for the Six Months Ended April 3, 2005 and April 4, 2004 (Unaudited)    3
     Notes to the Consolidated Financial Statements (Unaudited)    4

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    19

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk    26

Item 4.

   Controls and Procedures    26
PART II – OTHER INFORMATION     

Item 1.

   Legal Proceedings    27

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    27

Item 3.

   Defaults Upon Senior Securities    27

Item 4.

   Submission of Matters to a Vote of Security Holders    27

Item 5.

   Other Information    27

Item 6.

   Exhibits    27


Table of Contents

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

BWAY Corporation and Subsidiaries

Consolidated Balance Sheets (Unaudited)

 

($ in thousands)


   April 3,
2005


    October 3,
2004


 
Assets                 

Current assets

                

Cash and cash equivalents

   $ 14,413     $ 27,325  

Accounts receivable, net of allowance for doubtful accounts of $1,660 and $1,654

     91,168       81,039  

Inventories, net

     68,303       59,275  

Deferred tax assets

     10,585       8,839  

Other

     4,237       6,192  
    


 


Total current assets

     188,706       182,670  
    


 


Property, plant and equipment, net

     146,409       155,395  

Other assets

                

Goodwill

     220,725       220,297  

Other intangibles, net

     162,682       168,613  

Deferred financing costs, net of accumulated amortization of $3,025 and $1,965

     11,649       12,726  

Other

     1,484       1,703  
    


 


Total other assets

     396,540       403,339  
    


 


Total Assets

   $ 731,655     $ 741,404  
    


 


Liabilities and Stockholder’s Equity                 

Current liabilities

                

Accounts payable

   $ 75,495     $ 66,301  

Accrued salaries and wages

     9,990       8,604  

Accrued interest

     10,616       10,625  

Accrued rebates

     6,982       7,364  

Current portion of long-term debt

     —         19,700  

Other

     17,879       17,694  
    


 


Total current liabilities

     120,962       130,288  
    


 


Long-term debt

     395,300       395,300  

Other long-term liabilities

                

Deferred tax liabilities

     81,874       82,532  

Other

     18,983       18,279  
    


 


Total other long-term liabilities

     100,857       100,811  
    


 


Commitments and contingencies (Note 7)

                

Stockholder’s equity

                

Preferred stock, $.01 par value, shares authorized 5,000,000; none issued

     —         —    

Common stock, $.01 par value, shares authorized 24,000,000; shares issued 1,000

     —         —    

Additional paid-in capital

     104,022       104,022  

Retained earnings

     11,103       11,572  

Accumulated other comprehensive loss

     (589 )     (589 )
    


 


Total stockholder’s equity

     114,536       115,005  
    


 


Total Liabilities and Stockholder’s Equity

   $ 731,655     $ 741,404  
    


 


 

The accompanying notes are an integral part of the consolidated financial statements.

 

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Table of Contents

BWAY Corporation and Subsidiaries

Consolidated Statements of Operations (Unaudited)

 

     Three Months Ended

   Six Months Ended

 

($ in thousands)


   April 3,
2005


    April 4,
2004


   April 3,
2005


    April 4,
2004


 
Net sales    $ 206,830     $ 140,763    $ 381,537     $ 271,801  
    


 

  


 


Costs, expenses and other:

                               

Cost of products sold (excluding depreciation and amortization)

     176,868       121,811      332,806       234,628  

Depreciation and amortization

     13,093       8,210      23,193       17,463  

Selling and administrative expense

     5,962       4,181      10,034       7,566  

Restructuring charges

     527       23      878       85  

Interest expense, net

     8,068       5,854      15,773       12,326  

Financial advisory fees

     124       124      248       248  

Other, net

     (86 )     147      (653 )     108  
    


 

  


 


Total costs, expenses and other

     204,556       140,350      382,279       272,424  
    


 

  


 


Income (loss) before income taxes

     2,274       413      (742 )     (623 )

Income tax provision (benefit)

     854       160      (273 )     (359 )
    


 

  


 


Net income (loss)

   $ 1,420     $ 253    $ (469 )   $ (264 )
    


 

  


 


 

The accompanying notes are an integral part of the consolidated financial statements.

 

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BWAY Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

 

     Six Months Ended

 

($ in thousands)


   April 3,
2005


    April 4,
2004


 
Cash flows from operating activities:                 

Net loss

   $ (469 )   $ (264 )

Adjustments to reconcile net loss to net cash provided by operating activities:

                

Depreciation

     17,262       14,226  

Amortization of other intangibles

     5,931       3,237  

Amortization of deferred financing costs

     1,060       970  

Provision for doubtful accounts

     6       158  

Restructuring charges

     878       85  

Gain on disposition of property, plant and equipment

     (564 )     (9 )

Deferred income taxes

     (2,404 )     —    

Stock-based compensation

     713       460  

Changes in assets and liabilities:

                

Accounts receivable

     (10,135 )     (1,122 )

Inventories

     (9,028 )     (6,826 )

Other assets

     (181 )     (912 )

Accounts payable

     9,496       5,426  

Accrued and other liabilities

     (615 )     (4,312 )

Income taxes, net

     2,066       2,159  
    


 


Net cash provided by operating activities

     14,016       13,276  
    


 


Cash flows from investing activities:                 

Capital expenditures

     (8,527 )     (12,538 )

Business acquisitions, net of cash acquired

     (428 )     —    

Proceeds from disposition of property, plant and equipment

     255       96  

Proceeds from disposition of assets held for sale

     653       —    
    


 


Net cash used in investing activities

     (8,047 )     (12,442 )
    


 


Cash flows from financing activities:                 

Net borrowings under revolving credit facility

     —         2,462  

Repayments of term loan

     (19,700 )     —    

Increase (decrease) in unpresented bank drafts in excess of cash available for offset

     875       (2,985 )

Principal payments under capital leases

     (56 )     (43 )

Financing costs incurred

     —         (329 )
    


 


Net cash used in financing activities

     (18,881 )     (895 )
    


 


Net decrease in cash and equivalents      (12,912 )     (61 )
Cash and equivalents, beginning of period      27,325       248  
    


 


Cash and equivalents, end of period    $ 14,413     $ 187  
    


 


Supplemental disclosures of cash flow information:                 

Cash paid (refunded) during the period for:

                

Interest

   $ 14,748     $ 11,230  
    


 


Income taxes

   $ 65     $ (2,518 )
    


 


Non-cash investing and financing activities:                 

Amounts owed for capital expenditures

   $ 760     $ 474  
    


 


 

The accompanying notes are an integral part of the consolidated financial statements.

 

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BWAY Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

1. GENERAL

 

BWAY Corporation (“BWAY”), including its principal subsidiary, North America Packaging Corporation (“NAMPAC”), and each of their lesser subsidiaries (collectively the “Company”, “we”, “our” or “us”), is a leading North American manufacturer of metal and rigid plastic containers for paint and certain other consumer and industrial products. We operate the company as two divisions. Our BWAY Packaging Division focuses on metal containers and sells and markets its products under the BWAY Corporation name and our NAMPAC Division focuses on plastic containers and sells and markets its products under the NAMPAC name. Our metal containers include a wide variety of steel containers such as paint, aerosol and specialty cans that are used by our customers to package a diverse range of end-use products which, in addition to paint, include household and personal care products, automotive after-market products, paint thinners and driveway and deck sealants. Our plastic containers include injection molded plastic pails and blow-molded tight head containers and drums. Our end-use markets have historically exhibited stable demand characteristics and our customer base includes leading participants in these markets.

 

BWAY is a wholly-owned subsidiary of BCO Holding Company, an affiliate of Kelso & Company, L.P. (“Kelso”), a private equity firm, as a result of a transaction whereby all outstanding shares of BWAY’s common stock, with certain exceptions, were acquired on February 7, 2003 (the “Transaction”) by affiliates of Kelso and certain members of management. Effective with the Transaction, BWAY became a privately held company.

 

On July 7, 2004, we acquired all of the stock of NAMPAC from MVOC, LLC, a Delaware limited liability company and sole owner of the common shares of NAMPAC (the “NAMPAC Acquisition”). As a result of the acquisition, NAMPAC became a wholly owned subsidiary of BWAY. We paid approximately $213.8 million in cash for the acquisition, which was funded by a $30.0 million equity contribution from Kelso and certain members of our senior management and from a portion of the proceeds from a $225.0 million term loan facility. The results of operations related to this acquisition are included in the consolidated financial statements from the date of acquisition. Included in the purchase price is approximately $2.2 million in transaction costs associated with the acquisition.

 

We operate on a 52/53-week fiscal year ending on the Sunday closest to September 30. The first three quarterly fiscal periods end on the Sunday closest to December 31, March 31 or June 30 of the applicable quarter. Fiscal 2004 was a 53-week fiscal year with the additional week occurring in the first fiscal quarter, which ended January 4, 2004. Our NAMPAC subsidiary reports its operations on a calendar month basis and its financial position and results of operations are consolidated in the accompanying financial statements as of and for the three and six months ended March 31, 2005. The balance sheet dated October 3, 2004 includes NAMPAC as of September 30, 2004. There were no material transactions between September 30, 2004 and October 3, 2004 or between March 31, 2005 and April 4, 2005 related to NAMPAC that required adjustment in the consolidated financial statements.

 

We have prepared the accompanying consolidated financial statements without audit. Certain information and footnote disclosures, including significant accounting policies, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The consolidated financial statements as of April 3, 2005 and October 3, 2004 and for the three and six months ended April 3, 2005 and April 4, 2004 include all normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for these periods. Operating results for the three and six months ended April 3, 2005 are not necessarily indicative of the results that may be expected for the entire fiscal year. These statements and the accompanying notes should be read in conjunction with our Annual Report on Form 10-K for the year ended October 3, 2004 (the “Annual Report”).

 

Stock-Based Compensation

 

We account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion 25, Accounting for Stock Issued to Employees, and related interpretations (“APB 25”). Accordingly, we are not required to record compensation expense when the exercise price of stock options granted to employees or directors is equal to or greater than the fair market value of the stock when the option is granted. If compensation expense for our stock-based compensation plan had been determined based on the calculated fair value of the option awards determined at the applicable grant dates, our net income (loss) would be as follows:

 

     Three Months Ended

    Six Months Ended

 

($ in thousands)


   April 3,
2005


    April 4,
2004


    April 3,
2005


    April
4,
2004


 

Net income (loss), as reported

   $ 1,420     $ 253     $ (469 )   $ (264 )

Stock-based compensation included in net income (loss), net of tax (1)

     257       208       450       195  

Pro forma stock-based compensation under SFAS 123, net of tax

     (701 )     (621 )     (1,368 )     (859 )
    


 


 


 


Pro forma net income (loss)

   $ 976     $ (160 )   $ (1,387 )   $ (928 )
    


 


 


 



(1) Stock-based compensation included in net income (loss), net of tax, recorded for the periods presented relates to stock options issued pursuant to the BCO Holding Stock Incentive Plan.

 

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Table of Contents

Reclassifications

 

We have reclassified certain prior year data in order to conform to the current presentation.

 

Recent Accounting Pronouncements

 

In November 2004, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 151, Inventory Costs, an amendment of Accounting Research Bulletin No. 43, Chapter 4, which amends the guidance in Accounting Research Bulletin (“ARB”) No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 will be effective for inventory costs incurred beginning with our fiscal year 2006, which begins October 3, 2005. We do not believe the adoption of SFAS No. 151 will have a material impact on our financial statements.

 

In December 2004, the FASB issued FASB Staff Position No. FAS 109-1 (“FSP FAS 109-1”), Application of FASB Statement No. 109, “Accounting for Income Taxes”, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004. The American Jobs Creation Act of 2004 (the “AJCA”) introduces a special 9% tax deduction on qualified production activities. FSP FAS 109-1 clarifies that this tax deduction should be accounted for as a special tax deduction in accordance with SFAS 109. The provisions of the AJCA will not be applicable to us until fiscal 2006. We are currently evaluating the AJCA to determine the extent, if any, to which the deductions created by the AJCA will be available to us.

 

In December 2004, the FASB issued a revision to SFAS No. 123, Share-Based Payment (“SFAS No. 123R”). The revision requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments granted to employees. The statement eliminates the alternative method of accounting for employee share-based payments previously available under APB 25. For purposes of SFAS No. 123R, a nonpublic entity as defined in the Statement includes entities that have only debt securities trading in a public market. As a “nonpublic entity,” as defined by the Statement, SFAS No. 123R is not effective for us until the beginning of fiscal 2007.

 

In March 2005, the Securities and Exchange Commission (the “SEC”) released SEC Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment. SAB No. 107 provides the SEC staff’s position regarding the implementation of SFAS No. 123R. SAB No. 107 contains interpretive guidance related to the interaction between SFAS No. 123R and certain SEC rules and regulations, as well as provides the staff’s views regarding the valuation of share-based payment transactions. We will evaluate the provisions of SAB No. 107 and incorporate it as part of our adoption of SFAS 123R.

 

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Table of Contents

2. INVENTORIES

 

Inventories consist of the following:

 

($ in thousands)


   April 3,
2005


    October 3,
2004


 

Inventories at FIFO cost:

                

Raw materials

   $ 16,759     $ 15,405  

Work-in-process

     37,246       27,081  

Finished goods

     26,800       21,324  
    


 


       80,805       63,810  

LIFO reserve

     (12,502 )     (4,535 )
    


 


Inventories, net

   $ 68,303     $ 59,275  
    


 


 

During the first six months of fiscal 2005, the LIFO reserve increased $8.0 million as a result of rising steel and plastic resin costs.

 

3. GOODWILL AND OTHER INTANGIBLES

 

We amortize finite-lived, identifiable intangible assets over their remaining useful lives, which range from 3 to 18 years. These finite-lived intangibles are amortized in proportion to the underlying cash flows that were used in determining their initial valuation. We periodically review the underlying cash flow assumptions to determine if they remain reasonable. The portion of these intangibles associated with the carryover basis from Predecessor (as defined in the Annual Report) continues to be amortized on a straight-line basis.

 

The following table sets forth the identifiable intangible assets by major asset class:

 

     April 3, 2005

   October 3, 2004

($ in thousands)


   Gross
Carrying
Amount


   Accumulated
Amortization


    Net

   Gross
Carrying
Amount


   Accumulated
Amortization


    Net

Amortized intangible assets                                            

Customer relationships (1)

   $ 158,060    $ (16,846 )   $ 141,214    $ 158,060    $ (11,768 )   $ 146,292

Tradenames (2)

     22,833      (2,327 )     20,506      22,833      (1,504 )     21,329

Non-compete agreements (3)

     401      (52 )     349      401      (22 )     379
    

  


 

  

  


 

Total amortized intangible assets

   $ 181,294    $ (19,225 )   $ 162,069    $ 181,294    $ (13,294 )   $ 168,000
    

  


 

  

  


 

Unamortized intangible assets                                            

Technology

   $ 613    $ —       $ 613    $ 613    $ —       $ 613
    

  


 

  

  


 

Total identifiable intangible assets

   $ 181,907    $ (19,225 )   $ 162,682    $ 181,907    $ (13,294 )   $ 168,613
    

  


 

  

  


 


(1) Useful lives range between 14 and 18 years.
(2) Useful lives range between 10 and 15 years.
(3) Useful lives range between 3 and 4 years.

 

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Expected amortization expense by fiscal year is as follows:

 

($ in thousands)

 

    

Fiscal Year Ending:


   Amount

2005

   $ 11,862

2006

     13,003

2007

     13,405

2008

     12,900

2009

     12,510

Thereafter

     104,320
    

     $ 168,000
    

 

Of the fiscal 2005 expected amortization of $11.9 million, we recorded approximately $3.0 million in each of the first and second quarters of fiscal 2005.

 

The following table sets forth the change in the carrying amount of goodwill by reportable segment during the six months period ended April 3, 2005. The change relates to purchase accounting adjustments primarily related to transactions costs associated with the NAMPAC Acquisition. Although substantially complete, the purchase price allocation for the NAMPAC Acquisition will be completed within one year of the acquisition date.

 

($ in thousands)


   Metal
Packaging


   Plastic
Packaging


   Total

Goodwill                     

Balance, October 3, 2004

   $ 112,556    $ 107,741    $ 220,297

Additions related to the NAMPAC Acquisition

     —        428      428
    

  

  

Balance, April 3, 2005

   $ 112,556    $ 108,169    $ 220,725
    

  

  

 

4. LONG-TERM DEBT

 

Long-term debt consists of the following:

 

($ in thousands)


   April 3,
2005


   October 3,
2004


10% senior subordinated notes, due 2010

   $ 200,000    $ 200,000

Senior credit facility: Term loan

     195,300      215,000
    

  

Long-term debt

     395,300      415,000

Less: Current portion

     —        19,700
    

  

Long-term debt

   $ 395,300    $ 395,300
    

  

 

10% Senior Subordinated Notes Due 2010

 

On November 27, 2002, BWAY Finance completed a private offering of $200.0 million principal amount of 10% Senior Subordinated Notes due 2010, which we assumed on February 7, 2003 in connection with the Transaction. In December 2003, we exchanged the notes for new notes registered under the Securities Act in an equal principal amount (the “Notes”). The Notes mature on October 15, 2010.

 

The Notes are unsecured senior subordinated obligations of the Company and are effectively subordinated to all senior debt obligations (as defined in the indenture) of the Company. Interest on the Notes is payable semi-annually in arrears on April 15 and October 15 of each year.

 

Except in certain cases following an equity offering, as described below, we cannot redeem these notes until October 15, 2006. Thereafter, we may redeem some or all of these notes at the redemption prices specified in the indenture to the notes (105.0% on October 15, 2006 declining annually to 100% on October 15, 2009), plus accrued and unpaid interest to the date of redemption.

 

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At any time before October 15, 2005, we can choose to redeem up to 35% of these outstanding notes with money that we raise in one or more equity offerings, as long as: we pay 110% of the face amount of the notes, plus interest; we redeem the notes within 90 days of completing the equity offering; and at least 65% of the aggregate principal amount of notes issued remains outstanding afterwards.

 

Upon the occurrence of a Change in Control (as defined in the indenture) the holders of these notes could require us to repurchase the notes at 101% of the principal amount plus accrued and unpaid interest to the date of repurchase.

 

The indenture governing these notes contains covenants that, among other things, limit our ability (and some or all of our subsidiaries) to: incur additional debt, pay dividends or distributions on our capital stock or to repurchase our capital stock, make certain investments, create liens on our assets to secure debt, engage in transactions with affiliates, merge or consolidate with another company and transfer and sell assets. These covenants are subject to a number of important limitations and exceptions. At April 3, 2005, we were in compliance will all applicable covenants contained in the indenture.

 

Under the terms of the indenture and in connection with its guarantee of our Credit Facility, NAMPAC and its subsidiaries have fully and unconditionally guaranteed the Notes. The indenture requires any current or future subsidiary of the Company that guarantees certain indebtedness of the Company to guarantee the Notes.

 

We incurred and have deferred approximately $8.0 million in financing costs related to the underwriting and registration of these notes. We are amortizing these deferred costs to interest expense over the remaining term of the notes. At April 3, 2005 and October 3, 2004, approximately $5.7 million and $6.3 million, respectively, of the deferred costs were unamortized.

 

Credit Facility

 

Our current credit facility consists of (a) a $225.0 million term loan facility (the “Term Loan”), which matures June 30, 2011 (or April 15, 2010 under certain conditions) and (b) a $30.0 million revolving credit facility (the “Revolver”), which matures June 30, 2009 (the Term Loan and Revolver, collectively, the “Credit Facility”).

 

We made voluntary prepayments on the Term Loan of $19.1 million in December 2004. We also made a required prepayment of $0.6 million on the Term Loan in December 2004, which represented the net proceeds from the sale of assets related to our closed Southwest manufacturing facility. As a result of these prepayments, our next scheduled quarterly repayment of approximately $0.1 million becomes due in June 2008. Repayments, whether scheduled or voluntary, permanently reduce the Term Loan.

 

Interest accrues on the Term Loan and the Revolver at an applicable margin plus either (a) a base rate (which is the higher of prime or 0.5% in excess of the overnight federal funds rate) or (b) a Eurodollar rate. For the Term Loan, the applicable margins were initially fixed at 1.25% for base rate loans and at 2.25% for Eurodollar rate loans, and can range from 1.00% to 2.00%, respectively, based upon meeting specified consolidated leverage ratio targets. For the Revolver, the applicable margins were initially fixed at 1.75% for base rate loans and 2.75% for Eurodollar rate loans, and can range from 1.00% to 2.00%, respectively, based upon meeting specified consolidated leverage ratio targets. Borrowing at the base rate or the Eurodollar rate is at our discretion.

 

After December 31, 2004, rate margins became subject to quarterly change based on our ratio of Consolidated Indebtedness to Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization), each as defined in the underlying credit agreement. Based on our ratio of Consolidated Indebtedness to Consolidated EBITDA as of January 2, 2005, the rate margins did not change in the quarter ended April 3, 2005 from those initially set as described above.

 

We incurred and have deferred approximately $6.7 million in financing costs related to the underwriting of the Credit Facility, which includes a carry forward of approximately $0.2 million of unamortized deferred financing costs associated with the previous credit facility pursuant to Emerging Issues Task Force Issue 98-14, Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements. We are amortizing $5.7 million of these deferred costs, which are associated with the Term Loan, to interest expense over the term of the loan in proportion to the outstanding principal. We are amortizing the remaining $1.0 million, which includes the $0.2 million carry forward, on a straight-line basis over the term of the Revolver. At April 3, 2005 and October 3, 2004, approximately $5.9 million and $6.4 million, respectively, of the deferred costs were unamortized.

 

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At April 3, 2005, we were in compliance will all applicable credit agreement covenants related to the Credit Facility.

 

BCO Holding and each of our subsidiaries, including NAMPAC and its subsidiaries, have guaranteed our obligations under the Credit Facility, which is secured by substantially all of our assets and the assets of BCO Holding. In addition, we have pledged as collateral all of the issued and outstanding stock of our subsidiaries, which are wholly-owned by BWAY.

 

At April 3, 2005, we had $6.7 million in standby letter of credit commitments that reduced our available borrowings under the Revolver to $23.3 million. At April 3, 2005, we did not have any outstanding Revolver borrowings. The borrowing rate on the Term Loan borrowings as of April 3, 2005 was approximately 5.0%.

 

Scheduled maturities of long-term debt as of April 3, 2005 are as follows:

 

($ in thousands)

 

    

Fiscal Year Ending:


   Amount

2005

   $ —  

2006

     —  

2007

     —  

2008

     94

2009

     992

Thereafter

     394,214
    

     $ 395,300
    

 

5. EMPLOYMENT BENEFIT OBLIGATIONS

 

The following table summarizes our employee benefit obligation liabilities as of April 3, 2005 and October 3, 2004.

 

($ in thousands)


   April 3,
2005


   October 3,
2004


Defined benefit pension liability

   $ 3,807    $ 4,264

Retiree medical and other postretirement benefits

     5,132      4,912

Deferred compensation

     5,862      5,658
    

  

     $ 14,801    $ 14,834
    

  

 

The following table summarizes the components of net periodic benefit cost. Net periodic pension costs relate to a defined benefit plan that we acquired in July 2004. Accordingly, there was no net periodic pension cost for the three and six months ended April 4, 2004. The defined benefit plan was frozen effective October 31, 2004.

 

     Defined Benefit Pension
Plan


    Other Postretirement Benefits

     Three Months
Ended


    Six Months
Ended


   

Three Months

Ended


  

Six Months

Ended


($ in millions)


   April 3, 2005

    April 3,
2005


   April 4,
2004


   April 3,
2005


   April 4,
2004


Service cost

   $ —       $ 71     $ 1    $ 1    $ 2    $ 2

Interest cost

     154       301       107      100      190      200

Expected return on plan assets

     (144 )     (294 )     —        —        —        —  

Recognized net actuarial loss

     —         —         17      17      28      33
    


 


 

  

  

  

Net periodic benefit costs

   $ 10     $ 78     $ 125    $ 118    $ 220    $ 235
    


 


 

  

  

  

 

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Table of Contents

During the three months ended April 3, 2005, we contributed approximately $0.5 million to the defined benefit pension plan. We do not expect to make any further contributions to the plan during the remainder of the fiscal year.

 

6. RESTRUCTURING AND EXIT LIABILITY

 

The following table sets forth changes in our restructuring and exit liabilities from October 3, 2004 to April 3, 2005. The nature of the liabilities has not changed from that previously reported in the Annual Report. The restructuring and exit liabilities are included in other current liabilities.

 

($ in millions)


   Balance
October 3,
2004


   Additions/
Adjustments


    Expenditures

    Balance
April 3, 2005


Restructuring liability:

                             

Facility closure costs

   $ 0.1    $ 0.7     $ (0.7 )   $ 0.1

Severance costs

     —        0.3       (0.1 )     0.2
    

  


 


 

Total restructuring liability

   $ 0.1    $ 1.0     $ (0.8 )   $ 0.3
    

  


 


 

Exit liability:

                             

Facility closure costs

   $ 0.2    $ (0.1 )   $ (0.1 )   $ —  
    

  


 


 

 

All of the exit liability relates to our metal packaging segment. The restructuring liability by segment is as follows.

 

($ in millions)


   Balance
October 3,
2004


   Additions

   Expenditures

    Balance
April 3, 2005


Restructuring liability:

                            

Metal packaging segment

   $ 0.1    $ 0.3    $ (0.3 )   $ 0.1

Plastics packaging segment

     —        0.7      (0.5 )     0.2
    

  

  


 

Total restructuring liability

   $ 0.1    $ 1.0    $ (0.8 )   $ 0.3
    

  

  


 

 

Restructuring Charges

 

During the three and six months ended April 3, 2005, we recorded restructuring charges of $0.6 million and $1.0 million, respectively, related to costs associated with the shutdown of our manufacturing facility in Picayune, Mississippi ($0.3 million), costs associated with the shutdown or planned shutdown of certain of our plastics manufacturing facilities, as discussed below, primarily related to the removal of equipment ($0.4 million) and severance costs associated with the closure of certain of the plastics manufacturing facilities ($0.3 million).

 

In addition, during the three and six months ended April 3, 2005, we recorded approximately $2.9 million and $3.9 million, respectively, of additional depreciation associated with the shortened useful lives of equipment which has, or will be, taken out of service in association with the planned closure of certain of our plastics manufacturing facilities, as discussed below.

 

In October 2004, our Board approved a plan to close certain plastics manufacturing facilities that became redundant as a result of the NAMPAC Acquisition. We ceased operations at one of the facilities at the end of fiscal 2004, and the remaining facilities were closed in April 2005. Approximately 140 hourly and approximately 20 salaried employees were affected by the facility closures. We believe the consolidation of existing business from these closed facilities into our NAMPAC facilities will result in lower overall manufacturing costs and improved manufacturing capacity.

 

We expect to incur future restructuring charges of approximately $3.0 million to $4.0 million related to facility shutdown and holding costs, which include approximately $1.5 million to $2.5 million related to long-term lease obligations, net of estimated sublease proceeds, on the closed facilities.

 

As of April 3, 2005, the remaining book value of property, plant and equipment associated with these closed facilities was approximately $1.9 million. We expect to relocate a portion of these remaining assets to other of our NAMPAC facilities, and we expect to offer a portion of the assets for sale. We expect to incur capital expenditures in fiscal 2005 of approximately $2.6 million related to the relocation of assets from these closed facilities.

 

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Table of Contents

7. COMMITMENTS AND CONTINGENCIES

 

Environmental

 

We are subject to a broad range of federal, state and local environmental, health and safety laws, including those governing discharges to air, soil and water, the handling and disposal of hazardous substances and the investigation and remediation of contamination resulting from the release of hazardous substances. We believe that we are currently in compliance with all applicable environmental, health and safety laws, though future expenditures may be necessary in order to maintain such compliance, including compliance with air emission control requirements for volatile organic compounds. In addition, in the course of our operations we use, store and dispose of hazardous substances. Some of our current and former facilities are currently involved in environmental investigations and remediation resulting from releases of hazardous substances or the presence of other constituents. While we do not believe that any investigation or identified remediation obligations will have a material adverse effect on our operating results or financial condition, there are no assurances that such obligations will not arise in the future. Many of our facilities have a history of industrial usage for which investigation and remediation obligations could arise in the future and which could have a material adverse effect on our operating results or financial condition.

 

We believe future expenditures will be necessary in order to comply with federal Maximum Achievable Control Technology (“MACT”) regulations, which relate to air emission control requirements for Hazardous Air Pollutants (“HAP”) and volatile organic compounds. These regulations become effective in November 2006.

 

In the first quarter of fiscal 2004, we received information indicating that the State of Georgia may consider the Company a potentially responsible party (“PRP”) at a waste disposal site in Georgia. Our possible PRP status is based on documents indicating that waste materials were transported to the site from our Homerville, Georgia facility prior to our acquisition of the facility in 1989. Presently, we are unable to determine the amount or likelihood of any liability as a result of this information or the extent to which, if necessary, we are covered by the indemnification agreement from the prior owner of the facility.

 

From time to time, we receive requests for information or are identified as a PRP pursuant to the Federal Comprehensive Environmental Response, Compensation and Liability Act or analogous state laws with respect to off-site waste disposal sites utilized by our current or former facilities or our predecessors in interest. We do not believe that any of these identified matters will have a material adverse effect on our operating results or financial condition.

 

We record reserves for environmental liabilities when environmental investigation and remediation obligations are probable and related costs are reasonably estimable. We have accrued liabilities of approximately $0.2 million for environmental investigation and remediation obligations as of April 3, 2005 and October 3, 2004; however, we cannot guarantee that future expenditures will not exceed the amounts accrued.

 

Litigation

 

We are involved in legal proceedings from time to time in the ordinary course of business. We believe that the outcome of these proceedings will not have a material effect on our financial condition or results of operations. At April 3, 2005 and October 3, 2004, we had accrued approximately $0.6 million and $0.7 million, respectively, related to pending litigation matters.

 

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Table of Contents

Letters of Credit

 

At April 3, 2005, a bank had issued standby letters of credit on our behalf in the aggregate amount of $6.7 million primarily in favor of our workers’ compensation insurers and purchasing card vendor.

 

Commodity Risk

 

We are subject to various risks and uncertainties related to changing commodity prices for and the availability of the materials used in the manufacture of our products (primarily steel and resin).

 

8. BUSINESS SEGMENTS

 

Our operations are organized and reviewed by management along our products lines in two reportable segments —Metal Packaging and Plastics Packaging. We operate these reportable segments as separate divisions and differentiate the segments based on the nature of the products and services they offer. The primary raw material and manufacturing process are unique for each segment. A further description of each business segment and of our Corporate services area follows:

 

Metal Packaging. Metal Packaging includes the metal packaging products and material center services that we have historically offered. Primarily products in this segment include paint cans, aerosol containers, ammunition boxes and other general line containers made from steel. Metal Packaging is a separate division of the Company with management and production facilities and processes distinct from our Plastics Packaging Division.

 

Plastics Packaging. Plastics Packaging includes the plastics packaging products manufactured and distributed by NAMPAC and, to a lesser extent, those resulting from the acquisition of SST Industries in fiscal 2003 (the “SST Acquisition”). Principal products in this segment include open- and tight-head pails and drums, other multi-purpose rigid industrial plastic packaging and a limited range of consumer plastic packaging. Plastics Packaging is a separate division of the Company with management and production facilities and processes distinct from our Metal Packaging Division.

 

Corporate. Corporate includes accounting and finance, information technology, payroll and human resources and various other overhead charges, each to the extent not allocated to the divisions.

 

Segment asset disclosures include, among other things, inventories, property, plant and equipment, goodwill and other intangible assets. The accounting policies of our segments have not changed from those described in the Annual Report. There were no intersegment sales in the periods presented. Management’s evaluation of segment performance is principally based on EBITDA.

 

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Table of Contents

The following sets forth certain financial information attributable to our business segments for three and six months ended April 3, 2005 and April 4, 2004.

 

     Three Months Ended

   Six Months Ended

 

($ in thousands)


   April 3,
2005


    April 4,
2004


   April 3,
2005


    April 4,
2004


 
Net sales                                

Metal packaging

   $ 130,049     $ 133,226    $ 240,088     $ 256,713  

Plastics packaging

     76,781       7,537      141,449       15,088  
    


 

  


 


Consolidated net sales

   $ 206,830     $ 140,763    $ 381,537     $ 271,801  
    


 

  


 


Income (loss) before income taxes                                

Metal packaging

   $ 23,104     $ 16,317    $ 35,634     $ 31,820  

Plastics packaging

     3,720       649      7,137       1,317  
    


 

  


 


Segment earnings before depreciation and amortization

     26,824       16,966      42,771       33,137  
    


 

  


 


Corporate undistributed expenses

     2,948       2,319      4,322       3,778  

Depreciation and amortization (see below)

     13,093       8,210      23,193       17,463  

Restructuring charges

     527       23      878       85  

Interest expense, net

     8,068       5,854      15,773       12,326  

Other, net

     (86 )     147      (653 )     108  
    


 

  


 


Consolidated income (loss) before income taxes

   $ 2,274     $ 413    $ (742 )   $ (623 )
    


 

  


 


Depreciation and amortization                                

Metal packaging

   $ 5,911     $ 7,180    $ 11,033     $ 15,404  

Plastics packaging

     6,670       447      11,139       892  
    


 

  


 


Segment depreciation and amortization

     12,581       7,627      22,172       16,296  

Corporate

     512       583      1,021       1,167  
    


 

  


 


Consolidated depreciation and amortization

   $ 13,093     $ 8,210    $ 23,193     $ 17,463  
    


 

  


 


 

The following table sets forth total assets attributable to our business segments as of April 3, 2005 and October 3, 2004.

 

($ in thousands)


   April 3,
2005


   October 3,
2004


Total assets              

Metal packaging

   $ 327,223    $ 318,942

Plastics packaging

     276,007      284,740
    

  

Segment assets

     603,230      603,682

Corporate

     128,425      137,722
    

  

Consolidated total assets

   $ 731,655    $ 741,404
    

  

 

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Table of Contents

9. SUPPLEMENTAL GUARANTOR SUBSIDIARIES INFORMATION

 

Our 10% Senior Subordinated Notes due 2010 and Term Loan are guaranteed on a full, unconditional joint and several basis by our wholly owned subsidiaries. The following condensed, consolidating financial information presents the consolidating financial statements of BWAY and its subsidiaries, all of which have guaranteed the Notes and Term Loan, as of and for the three months ended April 3, 2005. Separate financial statements of the guarantor subsidiaries are not presented because we have determined that they would not be material to investors.

 

Prior to the refinancing of our revolving credit facility and the acquisition of NAMPAC, each of which occurred in July 2004, BWAY and each of its subsidiaries were borrowers under our revolving credit facility then in effect. Prior to its merger with and into BWAY during fiscal 2004, BWAY Manufacturing, Inc. was a guarantor of the Notes. Prior to the merger of BWAY and BWAY Manufacturing, Inc., BWAY was a holding company with no independent operations.

 

Effective with the refinancing of the revolving credit facility and the Term Loan borrowing, BWAY is the sole borrower under the Credit Facility and each of its subsidiaries, including NAMPAC, are guarantors. In addition, all of BWAY’s direct and indirect subsidiaries, including NAMPAC, have guaranteed the Notes.

 

Based on the above events, we have not presented condensed, consolidating financial information for the periods preceding July 2004, as we believe such consolidating information is not required.

 

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Table of Contents

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet

April 3, 2005

 

     BWAY
Corporation


    Guarantor
Subsidiaries


    Eliminations

    Consolidated

 
Assets                                 

Current Assets

                                

Cash and cash equivalents

   $ 14,204     $ 209     $ —       $ 14,413  

Accounts receivable, net

     56,856       34,312       —         91,168  

Inventories, net

     53,500       14,803       —         68,303  

Deferred tax assets

     9,869       716       —         10,585  

Other

     3,115       1,122       —         4,237  
    


 


 


 


Total current assets

     137,544       51,162       —         188,706  
    


 


 


 


Property, plant and equipment, net

     95,957       50,452       —         146,409  

Other assets

                                

Goodwill

     120,259       100,466       —         220,725  

Other intangibles, net

     61,470       101,212       —         162,682  

Deferred financing fees, net

     11,649       —         —         11,649  

Other

     914       570       —         1,484  

Investment in subsidiaries

     213,830       —         (213,830 )     —    
    


 


 


 


Total other assets

     408,122       202,248       (213,830 )     396,540  
    


 


 


 


Total Assets    $ 641,623     $ 303,862     $ (213,830 )   $ 731,655  
    


 


 


 


Liabilities and Stockholder’s Equity                                 

Current liabilities

                                

Accounts payable

   $ 46,852     $ 28,643     $ —       $ 75,495  

Accrued salaries and wages

     8,163       1,827       —         9,990  

Accrued interest

     10,616       —         —         10,616  

Accrued rebates

     6,696       286       —         6,982  

Other

     16,621       1,258       —         17,879  
    


 


 


 


Total current liabilities

     88,948       32,014       —         120,962  
    


 


 


 


Long-term debt

     395,300       —         —         395,300  

Other long-term liabilities

                                

Deferred tax liabilities

     33,160       48,714       —         81,874  

Intercompany

     (5,270 )     5,270       —         —    

Other

     14,949       4,034       —         18,983  
    


 


 


 


Total other long-term liabilities

     42,839       58,018       —         100,857  
    


 


 


 


Stockholder’s equity

                                

Common stock

     —         1       (1 )     —    

Additional paid-in capital

     104,022       213,845       (213,845 )     104,022  

Retained earnings

     11,103       573       (573 )     11,103  

Accumulated other comprehensive loss

     (589 )     (589 )     589       (589 )
    


 


 


 


Total stockholder’s equity

     114,536       213,830       (213,830 )     114,536  
    


 


 


 


Total Liabilities and Stockholder’s Equity    $ 641,623     $ 303,862     $ (213,830 )   $ 731,655  
    


 


 


 


 

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Table of Contents

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Balance Sheet

October 3, 2004

 

     BWAY
Corporation


    Guarantor
Subsidiaries


    Eliminations

    Consolidated

 

Current Assets

                                

Cash and cash equivalents

   $ 22,800     $ 4,525     $ —       $ 27,325  

Accounts receivable

     52,618       28,421       —         81,039  

Inventories, net

     43,544       15,731       —         59,275  

Deferred tax assets

     7,717       1,122       —         8,839  

Other

     5,945       247       —         6,192  
    


 


 


 


Total current assets

     132,624       50,046       —         182,670  
    


 


 


 


Property, plant and equipment, net

     106,625       48,770       —         155,395  

Other assets

                                

Goodwill

     120,259       100,038       —         220,297  

Other intangibles, net

     64,899       103,714       —         168,613  

Deferred financing fees, net

     12,726       —         —         12,726  

Other

     1,140       563       —         1,703  

Investment in subsidiaries

     213,037       —         (213,037 )     —    
    


 


 


 


Total other assets

     412,061       204,315       (213,037 )     403,339  
    


 


 


 


Total Assets    $ 651,310     $ 303,131     $ (213,037 )   $ 741,404  
    


 


 


 


Current liabilities

                                

Accounts payable

   $ 36,713     $ 29,588     $ —       $ 66,301  

Accrued salaries and wages

     6,544       2,060       —         8,604  

Accrued interest

     10,625       —         —         10,625  

Accrued rebates

     6,974       390       —         7,364  

Current portion of long-term debt

     19,700       —         —         19,700  

Other

     15,072       2,622       —         17,694  
    


 


 


 


Total current liabilities

     95,628       34,660       —         130,288  
    


 


 


 


Long-term debt

     395,300       —         —         395,300  

Other long-term liabilities

                                

Deferred tax liabilities

     33,818       48,714       —         82,532  

Intercompany

     (2,347 )     2,347       —         —    

Other

     13,906       4,373       —         18,279  
    


 


 


 


Total other long-term liabilities

     45,377       55,434       —         100,811  
    


 


 


 


Stockholder’s equity

                                

Common stock

     —         1       (1 )     —    

Additional paid-in capital

     104,022       213,845       (213,845 )     104,022  

Retained earnings

     11,572       (220 )     220       11,572  

Accumulated other comprehensive loss

     (589 )     (589 )     589       (589 )
    


 


 


 


Total stockholder’s equity

     115,005       213,037       (213,037 )     115,005  
    


 


 


 


Total Liabilities and Stockholder’s Equity    $ 651,310     $ 303,131     $ (213,037 )   $ 741,404  
    


 


 


 


 

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Table of Contents

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations

For the three months ended April 3, 2005

 

     BWAY
Corporation


    Guarantor
Subsidiaries


    Eliminations

    Consolidated

 

Net sales

   $ 133,979     $ 72,851     $ —       $ 206,830  
    


 


 


 


Costs, expenses and other

                                

Cost of products sold (excluding depreciation and amortization)

     109,615       67,430       (177 )     176,868  

Depreciation and amortization

     9,436       3,657       —         13,093  

Selling and administrative expenses

     4,992       970       —         5,962  

Restructuring charges

     527       —         —         527  

Interest expense, net

     8,070       (2 )     —         8,068  

Financial advisory fees

     124       —         —         124  

Other, net

     (33 )     (230 )     177       (86 )
    


 


 


 


Total costs, expenses and other

     132,731       71,825       —         204,556  
    


 


 


 


Income before taxes

     1,248       1,026       —         2,274  

Income tax provision

     472       382       —         854  

Equity in income of subsidiaries

     644       —         (644 )     —    
    


 


 


 


Net income

   $ 1,420     $ 644     $ (644 )   $ 1,420  
    


 


 


 


 

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Operations

For the six months ended April 3, 2005

 

     BWAY
Corporation


    Guarantor
Subsidiaries


    Eliminations

    Consolidated

 

Net sales

   $ 249,360     $ 132,177     $ —       $ 381,537  
    


 


 


 


Costs, expenses and other

                                

Cost of products sold (excluding depreciation and amortization)

     211,000       122,161       (355 )     332,806  

Depreciation and amortization

     16,012       7,181       —         23,193  

Selling and administrative expenses

     7,882       2,152       —         10,034  

Restructuring charges

     878       —         —         878  

Interest expense, net

     15,775       (2 )     —         15,773  

Financial advisory fees

     248       —         —         248  

Other, net

     (432 )     (576 )     355       (653 )
    


 


 


 


Total costs, expenses and other

     251,363       130,916       —         382,279  
    


 


 


 


(Loss) income before taxes

     (2,003 )     1,261       —         (742 )

Income tax (benefit) provision

     (741 )     468       —         (273 )

Equity in income of subsidiaries

     793       —         (793 )     —    
    


 


 


 


Net (loss) income

   $ (469 )   $ 793     $ (793 )   $ (469 )
    


 


 


 


 

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Table of Contents

BWAY Corporation and Subsidiaries

Supplemental Condensed Consolidating Statement of Cash Flows

For the six months ended April 3, 2005

 

     BWAY
Corporation


    Guarantor
Subsidiaries


    Eliminations

   Consolidated

 

Net cash provided by (used in) operating activities

   $ 15,366     $ (1,350 )   $ —      $ 14,016  
    


 


 

  


Cash Flows from Investing Activities

                               

Capital expenditures

     (4,082 )     (4,445 )     —        (8,527 )

Business acquisitions, net of cash acquired

     (428 )                    (428 )

Other

     908               —        908  
    


 


 

  


Net cash used in investing activities

     (3,602 )     (4,445 )     —        (8,047 )
    


 


 

  


Cash Flows from Financing Activities

                               

Repayments of term loan

     (19,700 )             —        (19,700 )

Other

     (660 )     1,479       —        819  
    


 


 

  


Net cash (used in) provided by financing activities

     (20,360 )     1,479       —        (18,881 )
    


 


 

  


Net decrease in cash and cash equivalents

     (8,596 )     (4,316 )     —        (12,912 )

Cash and cash equivalents, beginning of period

     22,800       4,525       —        27,325  
    


 


 

  


Cash and cash equivalents, end of period

   $ 14,204     $ 209     $ —      $ 14,413  
    


 


 

  


 

18


Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, which often require the judgment of management in the selection and application of certain accounting principles and methods. We believe that the quality and reasonableness of our most critical policies enable the fair presentation of our financial position and results of operations. However, investors are cautioned that the sensitivity of financial statements to these methods, assumptions and estimates could create materially different results under different conditions or using different assumptions. The following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes included in Item 1 of this report.

 

NAMPAC Acquisition. On July 7, 2004, we acquired all of the issued and outstanding shares of stock of NAMPAC, a manufacturer of rigid plastic containers for industrial packaging markets. We paid approximately $213.8 million in cash for the acquisition, which was funded by a $30.0 million equity contribution from Kelso and certain members of our senior management and from a portion of the proceeds from a $225.0 million term loan facility. The results of operations related to this acquisition are included in the consolidated financial statements from the date of acquisition.

 

Results of Operations

 

Our operations are organized and reviewed by management along our products lines in two reportable segments —Metal Packaging and Plastics Packaging. We operate these reportable segments as separate divisions and differentiate the segments based on the nature of the products and services they offer. The primary raw material and manufacturing process are unique for each segment. In addition to the business segments, we report certain items as “corporate,” which relate to corporate services including accounting and finance, information technology, payroll and human resources and various other overhead charges, each to the extent not allocated to the divisions.

 

Metal Packaging. Metal Packaging includes our metal packaging products and material center services. Principal products in this segment include paint cans, aerosol containers, ammunition boxes and other general line containers made from steel. Metal Packaging is a separate division of the Company with management and production facilities and processes distinct from our Plastics Packaging Division.

 

Plastics Packaging. Plastics Packaging includes the plastics packaging products manufactured and distributed by NAMPAC and, to a lesser extent, those resulting from the SST Acquisition in fiscal 2003. Principal products in this segment include open- and tight-head pails and drums, other multi-purpose rigid industrial plastic packaging and a limited range of consumer plastic packaging. Plastics Packaging is a separate division of the Company with management and production facilities and processes distinct from our Metal Packaging Division.

 

In the following tables, certain percentage changes, generally those of increases or decreases in excess of 100%, are not meaningful and have not been presented.

 

19


Table of Contents

The following table set forth changes in our statements of operations and line items as a percentage of net sales for the three months ended April 3, 2005 and April 4, 2004.

 

     Three Months Ended

   Change

   

As a % of Net Sales

Three Months Ended


 

($ in thousands)


   April 3,
2005


    April 4,
2004


   $

    %

    April 3,
2005


    April 4,
2004


 

Net sales

   $ 206,830     $ 140,763    $ 66,067     46.9 %   100.0 %   100.0 %

Cost of products sold (excluding depreciation and amortization

     176,868       121,811      55,057     45.2 %   85.5 %   86.5 %
    


 

  


 

 

 

Gross margin

     29,962       18,952      11,010     58.1 %   14.5 %   13.5 %
    


 

  


 

 

 

Depreciation and amortization

     13,093       8,210      4,883     59.5 %   6.3 %   5.8 %

Selling and administrative expenses

     5,962       4,181      1,781     42.6 %   2.9 %   3.0 %

Restructuring charges

     527       23      504     —       0.3 %   —    

Interest expense, net

     8,068       5,854      2,214     37.8 %   3.9 %   4.2 %

Financial advisory fees

     124       124      —       —       0.1 %   0.1 %

Other, net

     (86 )     147      (233 )   —       —       0.1 %
    


 

  


 

 

 

Income before income taxes

     2,274       413      1,861     —       1.1 %   0.3 %

Income tax provision

     854       160      694     —       0.4 %   0.1 %
    


 

  


 

 

 

Net income

     1,420     $ 253    $ 1,167     —       0.7 %   0.2 %
    


 

  


 

 

 

 

The following table set forth changes in our statements of operations and line items as a percentage of net sales for the six months ended April 3, 2005 and April 4, 2004.

 

     Six Months Ended

    Change

   

As a % of Net Sales

Six Months Ended


 

($ in thousands)


   April 3,
2005


    April 4,
2004


    $

    %

    April
3, 2005


    April
4, 2004


 

Net sales

   $ 381,537     $ 271,801     $ 109,736     40.4 %   100.0 %   100.0 %

Cost of products sold (excluding depreciation and amortization

     332,806       234,628       98,178     41.8 %   87.2 %   86.3 %
    


 


 


 

 

 

Gross margin

     48,731       37,173       11,558     31.1 %   12.8 %   13.7 %
    


 


 


 

 

 

Depreciation and amortization

     23,193       17,463       5,730     32.8 %   6.1 %   6.4 %

Selling and administrative expenses

     10,034       7,566       2,468     32.6 %   2.6 %   2.8 %

Restructuring charges

     878       85       793     —       0.2 %   —    

Interest expense, net

     15,773       12,326       3,447     28.0 %   4.1 %   4.5 %

Financial advisory fees

     248       248       —       —       0.1 %   0.1 %

Other, net

     (653 )     108       (761 )   —       (0.2 )%   —    
    


 


 


 

 

 

Loss before income taxes

     (742 )     (623 )     (119 )   19.1 %   (0.2 )%   (0.2 )%

Income tax benefit

     (273 )     (359 )     86     (24.0 )%   (0.1 )%   (0.1 )%
    


 


 


 

 

 

Net loss

   $ (469 )   $ (264 )   $ (205 )   77.7 %   (0.1 )%   (0.1 )%
    


 


 


 

 

 

 

20


Table of Contents

Net Sales

 

Net Sales by Segment

 

     Three Months Ended

   Change

   

As a % of the Total

Three Months Ended


 

($ in thousands)


   April 3,
2005


   April 4,
2004


   $

    %

    April 3,
2005


    April 4,
2004


 

Metal packaging

   $ 130,049    $ 133,226    $ (3,177 )   (2.4 )%   62.9 %   94.6 %

Plastics packaging

     76,781      7,537      69,244     —       37.1 %   5.4 %
    

  

  


 

 

 

Consolidated net sales

   $ 206,830    $ 140,763    $ 66,067     46.9 %   100.0 %   100.0 %
    

  

  


 

 

 

     Six Months Ended

   Change

   

As a % of the Total

Six Months Ended


 

($ in thousands)


   April 3,
2005


   April 4,
2004


   $

    %

    April 3,
2005


    April 4,
2004


 

Metal packaging

   $ 240,088    $ 256,713    $ (16,625 )   (6.5 )%   62.9 %   94.4 %

Plastics packaging

     141,449      15,088      126,361     —       37.1 %   5.6 %
    

  

  


 

 

 

Consolidated net sales

   $ 381,537    $ 271,801    $ 109,736     40.4 %   100.0 %   100.0 %
    

  

  


 

 

 

 

The decrease in metal packaging segment net sales for the three and six months is primarily related to the loss of the Folgers coffee can business in fiscal 2004 and to voluntary reductions in dilutive material center sales as capacity was redirected to meet internal needs, partially offset by volume gains in other products and higher selling prices related to the pass through of higher metal costs. The increase in plastics packaging segment net sales for the three and six months is attributable to the NAMPAC Acquisition, which occurred in July 2004.

 

Cost of Products Sold

 

Cost of Products Sold by Segment

 

(excluding depreciation and amortization)

 

     Three Months Ended

   Change

   

As a % of the Total

Three Months Ended


 

($ in thousands)


   April 3,
2005


   April 4,
2004


   $

    %

    April 3,
2005


    April 4,
2004


 

Metal packaging

   $ 104,855    $ 115,038    $ (10,183 )   (8.9 )%   59.3 %   94.4 %

Plastics packaging

     71,939      6,711      65,228     —       40.7 %   5.5 %
    

  

  


 

 

 

Segment cost of products sold

   $ 176,794    $ 121,749    $ 55,045     45.2 %   100.0 %   99.9 %
    

  

  


 

 

 

Corporate undistributed expenses

     74      62      12     19.4 %   0.0 %   0.1 %
    

  

  


 

 

 

Consolidated cost of products sold

   $ 176,868    $ 121,811    $ 55,057     45.2 %   100.0 %   100.0 %
    

  

  


 

 

 

     Six Months Ended

   Change

   

As a % of the Total

Six Months Ended


 

($ in thousands)


   April 3,
2005


   April 4,
2004


   $

    %

    April 3,
2005


    April 4,
2004


 

Metal packaging

   $ 200,833    $ 221,200    $ (20,367 )   (9.2 )%   60.3 %   94.3 %

Plastics packaging

     131,841      13,343      118,498     —       39.6 %   5.7 %
    

  

  


 

 

 

Segment cost of products sold

   $ 332,674    $ 234,543    $ 98,131     41.8 %   100.0 %   100.0 %
    

  

  


 

 

 

Corporate undistributed expenses

     132      85      47     55.3 %   0.0 %   0.0 %
    

  

  


 

 

 

Consolidated cost of products sold

   $ 332,806    $ 234,628    $ 98,178     41.8 %   100.0 %   100.0 %
    

  

  


 

 

 

 

The decrease in cost of products sold, excluding depreciation and amortization, (“CPS”) for the metal packaging segment during the second quarter and first six months of fiscal 2005 from the comparable periods in fiscal 2004 is primarily due to the decrease in segment net sales, as discussed above, partially offset by an additional expense of approximately $2.4 million and $4.1 million in the second quarter and first six months of fiscal 2005, respectively, related to an increase in the LIFO reserve resulting from the higher cost of steel.

 

Metal packaging segment CPS as a percentage of segment net sales decreased to 80.6% in the second quarter of fiscal 2005 from 86.3% in the second quarter of fiscal 2004 and decreased to 83.6% in the first six months of fiscal 2005 from 86.2% in the first six months of fiscal 2004. The decrease in CPS as a percentage of segment net sales in each of the second quarter and first six months of fiscal 2005 from the comparable periods in fiscal 2004 is primarily due to the timing of when steel cost increases are recognized in CPS as compared to when the pass through of steel surcharges to customers is recognized in net sales. We believe the improvements in metal packaging segment CPS as a percentage of segment net sales are temporary, and we anticipate the percentages will begin to increase to historic percentages in the coming quarters. In the fourth quarter of fiscal 2004, we began the implementation of a lean manufacturing program in the metal packaging segment to increase its operating efficiency and productivity. We began realizing the benefits of this initiative during the second quarter of fiscal 2005, and we expect to realize additional benefits in the second half of fiscal 2005.

 

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Table of Contents

The increase in CPS for the plastics packaging segment in the second quarter and first six months of fiscal 2005 from the comparable periods in fiscal 2004 is primarily due to the NAMPAC Acquisition, which occurred in July 2004.

 

Plastics packaging segment CPS as a percentage of segment net sales increased to 93.7% in the second quarter of fiscal 2005 from 89.0% in the second quarter of fiscal 2004 and increased to 93.2% in the first six months of fiscal 2005 from 88.4% in the first six months of fiscal 2004 primarily as a result of higher operating costs associated with the NAMPAC Acquisition and to higher raw material costs for plastic resin. Additionally, segment CPS for the second quarter and first six months of fiscal 2005 was impacted by approximately $2.1 million and $3.9 million, respectively, related to an increase in the LIFO reserve resulting from increased raw material costs.

 

Depreciation and Amortization

 

Depreciation and Amortization by Segment

 

     Three Months Ended

   Change

   

As a % of the Total

Three Months Ended


 

($ in thousands)


   April 3,
2005


   April 4,
2004


   $

    %

    April 3,
2005


    April 4,
2004


 

Metal packaging

   $ 5,911    $ 7,180    $ (1,269 )   (17.7 )%   45.1 %   87.5 %

Plastics packaging

     6,670      447      6,223     —       50.9 %   5.4 %
    

  

  


 

 

 

Segment depreciation and amortization

   $ 12,581    $ 7,627    $ 4,954     65.0 %   96.1 %   92.9 %
    

  

  


 

 

 

Corporate

     512      583      (71 )   (12.2 )%   3.9 %   7.1 %
    

  

  


 

 

 

Consolidated depreciation and amortization

   $ 13,093    $ 8,210    $ 4,883     59.5 %   100.0 %   100.0 %
    

  

  


 

 

 

     Six Months Ended

   Change

   

As a % of the Total

Six Months Ended


 

($ in thousands)


   April 3,
2005


   April 4,
2004


   $

    %

    April 3,
2005


    April 4,
2004


 

Metal packaging

   $ 11,033    $ 15,404    $ (4,371 )   (28.4 )%   47.6 %   88.2 %

Plastics packaging

     11,139      892      10,247     —       48.0 %   5.1 %
    

  

  


 

 

 

Segment depreciation and amortization

   $ 22,172    $ 16,296    $ 5,876     36.1 %   95.6 %   93.3 %
    

  

  


 

 

 

Corporate

     1,021      1,167      (146 )   (12.5 )%   4.4 %   6.7 %
    

  

  


 

 

 

Consolidated depreciation and amortization

   $ 23,193    $ 17,463    $ 5,730     32.8 %   100.0 %   100.0 %
    

  

  


 

 

 

 

The decrease in metal packaging segment depreciation and amortization expense for the second quarter and first six months of fiscal 2005 over the comparable periods in fiscal 2004 primarily relates to additional depreciation expense of $1.9 million and $5.0 million in the second quarter and first six months of fiscal 2004, respectively, related to the shortened useful lives of assets disposed of following the closure of our Picayune, Mississippi manufacturing facility in the second half of fiscal 2004. In the second quarter and first six months of fiscal 2005, plastics packaging segment depreciation and amortization includes approximately $3.5 million and $6.8 million, respectively, related to assets acquired in connection with the NAMPAC Acquisition and approximately $2.9 million and $3.9 million, respectively, of additional depreciation associated with the shortened useful lives on certain assets, primarily equipment, to be disposed of in connection with the closure of certain of our plastics manufacturing facilities.

 

Selling and Administrative Expenses

 

Selling and Administrative Expenses by Segment

 

     Three Months Ended

   Change

   

As a % of the Total

Three Months Ended


 

($ in thousands)


   April 3,
2005


   April 4,
2004


   $

   %

    April 3,
2005


    April 4,
2004


 

Metal packaging

   $ 2,090    $ 1,871    $ 219    11.7 %   35.1 %   44.8 %

Plastics packaging

     1,122      177      945    —       18.8 %   4.2 %
    

  

  

  

 

 

Segment selling and administrative expenses

   $ 3,212    $ 2,048    $ 1,164    56.8 %   53.9 %   49.0 %
    

  

  

  

 

 

Corporate undistributed expenses

     2,750      2,133      617    28.9 %   46.1 %   51.0 %
    

  

  

  

 

 

Consolidated selling and administrative expenses

   $ 5,962    $ 4,181    $ 1,781    42.6 %   100.0 %   100.0 %
    

  

  

  

 

 

 

22


Table of Contents

($ in thousands)


   Six Months Ended

   Change

   

As a % of the Total

Six Months Ended


 
   April 3,
2005


   April 4,
2004


   $

    %

    April 3,
2005


    April 4,
2004


 

Metal packaging

   $ 3,621    $ 3,693    $ (72 )   (1.9 )%   36.1 %   48.8 %

Plastics packaging

     2,471      428      2,043     —       24.6 %   5.7 %
    

  

  


 

 

 

Segment selling and administrative expenses

   $ 6,092    $ 4,121    $ 1,971     47.8 %   60.7 %   54.5 %
    

  

  


 

 

 

Corporate undistributed expenses

     3,942      3,445      497     14.4 %   39.3 %   45.5 %
    

  

  


 

 

 

Consolidated selling and administrative expenses

   $ 10,034    $ 7,566    $ 2,468     32.6 %   100.0 %   100.0 %
    

  

  


 

 

 

 

The change in metal packaging segment selling and administrative expenses for the second quarter and first six months of fiscal 2005 from comparable periods of fiscal 2004 relates primarily to the timing of certain sales expenses.

 

The increase in plastics packaging segment selling and administrative expenses for the second quarter and first six months of fiscal 2005 over the comparable periods of fiscal 2004 is primarily related to higher costs associated with the NAMPAC Acquisition, which occurred in the fourth quarter of fiscal 2004.

 

The increase in corporate undistributed selling and administrative expenses for the second quarter and first six months of fiscal 2005 over the comparable periods of fiscal 2004 primarily relates to higher stock based compensation, bonus expense and professional fees primarily related to our Sarbanes-Oxley compliance initiative. The increase in corporate undistributed selling and administrative expenses for the first six months of fiscal 2005 over the first six months of fiscal 2004 was partially offset by a recovery in the first quarter of fiscal 2005 of a previously written-off note receivable.

 

Interest, Taxes and Other

 

Interest Expense, Net. Interest expense, net, increased $2.2 million to $8.1 million in the second quarter of fiscal 2005 and increased $3.4 million to $15.8 million in the first six months of fiscal 2005 over the comparable second quarter and first six months of fiscal 2004, respectively. The increases are primarily attributable to the higher debt associated with the NAMPAC Acquisition, which occurred in the fourth quarter of fiscal 2004.

 

Income Tax Provision (Benefit). The income tax provision increased $0.7 million to $0.9 million in the second quarter of fiscal 2005 from $0.2 million in the second quarter of fiscal 2004 and the income tax benefit decreased $0.1 million to $(0.3) million in the first six months of fiscal 2005 from $(0.4) million in the first six months of fiscal 2004. The effective tax rate decreased for the second quarter and first six months of fiscal 2005 from the comparable periods in fiscal 2004 partially due to the impact on the effective rate associated with the NAMPAC Acquisition. The decrease in the effective tax rate for the first six months of fiscal 2005 from the first six months of fiscal 2004 was also impacted by a tax provision adjustment in the first six months of fiscal 2004 associated with the filing of the preceding year’s tax return.

 

Other, Net. Other, net, in the first six months of fiscal 2005 relates primarily to gains on the sale of idled equipment and a vacant manufacturing facility in Dallas, Texas, each of which occurred in the first quarter of fiscal 2005.

 

Liquidity and Capital Resources

 

Our cash requirements for capital expenditures during the first six months of fiscal 2005 were financed through operations. During the first six months of fiscal 2005, cash and cash equivalents decreased $12.9 million, primarily due to repayments of a portion of our borrowings outstanding under our Term Loan. During the first six months of fiscal 2004, cash and cash equivalents decreased $0.1 million, and we borrowed $2.5 million under our revolving credit facility.

 

The $19.7 million reduction in the Term Loan during the first six months of fiscal 2005 consists of voluntary prepayments of $19.1 million and a required prepayment of $0.6 million. The required repayment represented the net proceeds from the sale of assets related to a vacant manufacturing facility in Dallas, Texas. As a result of these prepayments, our next scheduled quarterly repayment of approximately $0.1 million becomes due in June 2008. Repayments, whether scheduled or voluntary, permanently reduce the Term Loan.

 

At April 3, 2005, we had $23.3 million in revolving credit available after taking into consideration $6.7 million in standby letters of credit, which reduce available borrowings under the $30.0 million Term Loan. We were in compliance with all debt covenants at April 3, 2005 related to the Credit Facility and the Notes.

 

23


Table of Contents

Net cash provided by operating activities was $14.0 million during each of the first six months of fiscal 2005 compared to $13.3 million in the first six months of fiscal 2004. During the first six months of fiscal 2005 and fiscal 2004, cash from operating activities was primarily provided by net income before depreciation and amortization and increases in accounts payable. In addition, in the first six months of fiscal 2004, we received approximately $2.5 million, net, from income tax refunds. During each of the first six months of fiscal 2005 and fiscal 2004, cash used in operating activities was primarily related to increases in accounts receivable, purchases of inventories and reductions in accrued liabilities, including interest. Cash interest paid during the first six months of fiscal 2005 was $14.7 million compared to $11.2 million paid during the first six months of fiscal 2004. The increase in cash interest paid relates primarily to increased debt related to the NAMPAC Acquisition in the fourth quarter of fiscal 2004.

 

Net cash used in investing activities was $8.0 million during the first six months of fiscal 2005 compared to $12.4 million during the first six months of fiscal 2004. Net cash used in investing activities was primarily used for capital expenditures during the first six months of each fiscal year. Capital expenditures decreased $4.0 million in the first six months of fiscal 2005 compared to the first six months of fiscal 2004 primarily as a result of higher capital expenditures in the first six months of fiscal 2004 related to the opening of our Sturtevant, Wisconsin manufacturing facility. Net cash used in investing activities in the first six months of fiscal 2005 was increased due to approximately $0.4 million of additional acquisition costs associated with the NAMPAC Acquisition and was reduced by $0.9 million related to proceeds from the sale of property, plant and equipment and assets held for sale.

 

Net cash used in financing activities was $18.9 million and $0.9 million during the first six months of fiscal 2005 and fiscal 2004, respectively. In the first six months of fiscal 2005, $19.7 million was used to repay outstanding Term Loan borrowings whereas in the first six months of fiscal 2004, $2.5 million was borrowed under the revolving credit facility. There were no outstanding revolving credit facility borrowings at the end of the first six months of fiscal 2005. Increases in unpresented bank drafts in excess of cash available for offset provided cash of $0.9 million in the first six months of fiscal 2005 and decreases in unpresented bank drafts in excess of cash available for offset used cash of $3.0 million in the first six months of fiscal 2004.

 

We expect that cash provided from operations and available borrowings under our revolving credit facility will provide sufficient working capital to operate our business, to make expected capital expenditures and to meet foreseeable liquidity requirements, including debt service on our long-term debt, during the next 12 months. We cannot provide assurance, however, that this will be the case.

 

Interest Rate Risk

 

The interest rate on our outstanding 10% senior subordinated notes is fixed. As such, our cash flows and earnings related to these notes are not exposed to the market risk of interest rate changes. However, holders of the notes are exposed to market risk associated with interest rate changes that impact the fair value of the notes prior to maturity.

 

Interest accrues on the Term Loan and the Revolver at an applicable margin plus either (a) a base rate (which is the higher of prime or 0.5% in excess of the overnight federal funds rate) or (b) a Eurodollar rate. For the Term Loan, the applicable margins were initially fixed at 1.25% for base rate loans and at 2.25% for Eurodollar rate loans, and can range from 1.00% to 2.00%, respectively, based upon meeting specified consolidated leverage ratio targets. For the Revolver, the applicable margins were initially fixed at 1.75% for base rate loans and 2.75% for Eurodollar rate loans, and can range from 1.00% to 2.00%, respectively, based upon meeting specified consolidated leverage ratio targets. Borrowing at the base rate or the Eurodollar rate is at our discretion.

 

After December 31, 2004, rate margins became subject to quarterly change based on our ratio of Consolidated Indebtedness to Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization), each as defined in the underlying credit agreement. Based on our ratio of Consolidated Indebtedness to Consolidated EBITDA as of January 2, 2005, the rate margins did not change in the quarter ended April 3, 2005 from those initially set as described above.

 

At April 3, 2005, we have Credit Facility borrowings outstanding of $195.3 million that are subject to interest rate risk. Each 100 basis point increase in interest rates on these borrowings would reduce quarterly pretax earnings and cash flows by approximately $0.5 million based on the balance at April 3, 2005. We do not manage this interest rate risk with rate caps or other derivative instruments.

 

24


Table of Contents

Commodity Risk

 

We are subject to various risks and uncertainties related to changing commodity prices for and the availability of the materials used in the manufacture of our products (primarily steel and resin). We do not manage this commodity risk with futures contracts or other derivative instruments, but we manage it, to the extent practicable, through customer contract provisions allowing for price changes based on fluctuations in our cost of certain raw materials and through the pre-buying of raw materials prior to price increases.

 

Critical Accounting Policies

 

For a summary of our critical accounting policies, see management’s discussion and analysis in Item 7 of the Annual Report. The critical accounting policies have not changed since October 3, 2004.

 

Recent Accounting Pronouncements

 

For a summary of recent accounting pronouncements, see “Recent Accounting Pronouncements” under Note 1 to the unaudited consolidated financial statements in Item 1 of this report.

 

Off-Balance Sheet Arrangements

 

As of April 3, 2005, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

 

Contractual Obligations

 

For a summary of our significant contractual obligations, see the “Contractual Obligations and Commercial Commitments” section of Item 7 in the Annual Report. The nature of the obligations has not materially changed since October 3, 2004.

 

At April 3, 2005, a bank had issued standby letters of credit on our behalf in the aggregate amount of $6.7 million primarily in favor of our workers’ compensation insurers and purchasing card vendor.

 

Environmental Matters

 

We are subject to a broad range of federal, state and local environmental, health and safety laws, including those governing discharges to air, soil and water, the handling and disposal of hazardous substances and the investigation and remediation of contamination resulting from the release of hazardous substances. We believe that we are currently in compliance with all applicable environmental, health and safety laws, though future expenditures may be necessary in order to maintain such compliance, including compliance with air emission control requirements for volatile organic compounds. In addition, in the course of our operations we use, store and dispose of hazardous substances. Some of our current and former facilities are currently involved in environmental investigations and remediation resulting from releases of hazardous substances or the presence of other constituents. While we do not believe that any investigation or identified remediation obligations will have a material adverse effect on our operating results or financial condition, there are no assurances that such obligations will not arise in the future. Many of our facilities have a history of industrial usage for which investigation and remediation obligations could arise in the future and which could have a material adverse effect on our operating results or financial condition.

 

We believe future expenditures will be necessary in order to comply with federal Maximum Achievable Control Technology (“MACT”) regulations, which relate to air emission control requirements for Hazardous Air Pollutants (“HAP”) and volatile organic compounds. These regulations become effective in November 2006.

 

In the first quarter of fiscal 2004, we received information indicating that the State of Georgia may consider the Company a potentially responsible party (“PRP”) at a waste disposal site in Georgia. Our possible PRP status is based on documents indicating that waste materials were transported to the site from our Homerville, Georgia facility prior to our acquisition of the facility in 1989. Presently, we are unable to determine the amount or likelihood of any liability as a result of this information or the extent to which, if necessary, we are covered by the indemnification agreement from the prior owner of the facility.

 

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From time to time, we receive requests for information or are identified as a PRP pursuant to the Federal Comprehensive Environmental Response, Compensation and Liability Act or analogous state laws with respect to off-site waste disposal sites utilized by our current or former facilities or our predecessors in interest. We do not believe that any of these identified matters will have a material adverse effect on our operating results or financial condition.

 

We record reserves for environmental liabilities when environmental investigation and remediation obligations are probable and related costs are reasonably estimable. We have accrued liabilities of approximately $0.2 million for environmental investigation and remediation obligations as of April 3, 2005 and October 3, 2004; however, we cannot guarantee that future expenditures will not exceed the amounts accrued.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We do not purchase, sell or hold derivatives or other market risk-sensitive instruments to hedge commodity price risk, interest rate risk or exchange rate risk or for trading purposes. For a discussion of interest rate risk and its relation to our indebtedness see “Liquidity and Capital Resources” in Item 2 above.

 

Item 4. Controls and Procedures

 

We periodically review the design and effectiveness of our disclosure controls and internal control over financial reporting, including compliance with various laws and regulations that apply to our operations. We make modifications to improve the design and effectiveness of our disclosure controls and internal control structure, and may take other corrective action, if our reviews identify a need for such modifications or actions. In designing and evaluating the disclosure controls and procedures and internal control for financial reporting, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

 

An evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that as of April 3, 2005, our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and timely reported as provided in the Securities and Exchange Commission rules and forms. No changes occurred during the quarter ended April 3, 2005 in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

 

There were no events to report under this item for the quarter ended April 3, 2005.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no events to report under this item for the quarter ended April 3, 2005.

 

Item 3. Defaults Upon Senior Securities

 

There were no events to report under this item for the quarter ended April 3, 2005.

 

Item 4. Submission of Matters to a Vote of Security Holders

 

There were no events to report under this item for the quarter ended April 3, 2005.

 

Item 5. Other Information

 

There were no events to report under this item for the quarter ended April 3, 2005.

 

Item 6. Exhibits

 

See Index to Exhibits.

 

FORWARD-LOOKING STATEMENTS

 

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 judgment 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, competitive risks from substitute products and other container manufacturers, termination of the Company’s customer contracts, loss or reduction of business from key customers, dependence on key personnel, changes in steel, resin and other raw material costs or availability, labor unrest, catastrophic loss of one of the Company’s manufacturing facilities, environmental exposures, management’s inability to identify or execute selective acquisitions, failures in the Company’s computer systems, unanticipated expenses, delays in implementing cost reduction initiatives, potential equipment malfunctions and the other factors discussed in the Company’s filings with the Securities and Exchange Commission. The Company takes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrences of unanticipated events or changes to future operating results.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    BWAY Corporation
    (Registrant)

Date: May 18, 2005

  By:  

/s/ Jean-Pierre M. Ergas


        Jean-Pierre M. Ergas
        Chairman and
        Chief Executive Officer
        (Principal Executive Officer)

Date: May 18, 2005

  By:  

/s/ Kevin C. Kern


        Kevin C. Kern
       

Vice President, Administration and

Chief Financial Officer

        (Principal Financial Officer and
        Chief Accounting Officer)

 

 


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INDEX TO EXHIBITS

 

Exhibit No.

  

Description of Document


31.1    Certification of Chief Executive Officer required by Rule 13a-14(a) (17 C.F.R. 240.13a-14(a)).
31.2    Certification of Chief Financial Officer required by Rule 13a-14(a) (17 C.F.R. 240.13a-14(a)).
32.1    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.