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 July 1, 2001
Commission File Number 0-26178
BWAY Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 36-3624491
(State of incorporation) (IRS Employer Identification No.)
8607 Roberts Drive, Suite 250
Atlanta, Georgia 30350-2230
(Address of principal executive offices)
(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
---- ----
There were 8,737,706 shares of Common Stock ($.01 par value) outstanding as of
July 30, 2001.
BWAY CORPORATION
For the quarter ended July 1, 2001
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
Number
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at July 1, 2001 (Unaudited) 3
and October 1, 2000
Consolidated Statements of Income for the Three Months 4
and Nine Months Ended July 1, 2001 and July 2, 2000
(Unaudited)
Consolidated Statements of Cash Flows for the Nine Months 5
Ended July 1, 2001 and July 2, 2000 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II--OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
2
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
_______________________________________________________________________________________________________
July 1, 2001 October 1,
(Unaudited) 2000
------------ ----------
Assets
Cash and equivalents $ 1,384 $ 961
Accounts receivable, net of allowance for doubtful
accounts of $592 and $508 50,196 44,083
Inventories, net 45,691 45,522
Current income taxes receivable 1,440 3,048
Deferred tax asset 16,011 8,988
Assets held for sale 1,023 5,284
Other 2,404 1,823
-------- --------
Total current assets 118,149 109,709
Property and equipment, net 114,149 133,870
Other assets:
Intangible assets, net 76,116 82,636
Deferred financing fees, net 4,289 3,189
Other 1,747 3,319
-------- --------
Total other assets 82,152 89,144
-------- --------
Total assets $314,450 $332,723
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 64,488 $ 67,155
Accrued salaries and wages 7,579 8,032
Accrued rebates 5,294 5,029
Other 14,705 14,910
-------- --------
Total current liabilities 92,066 95,126
Long-term debt 130,000 126,200
Long-term liabilities:
Deferred income taxes 22,044 22,044
Other 10,984 10,392
-------- --------
Total long-term liabilities 33,028 32,436
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, authorized 5,000,000 shares - -
Common stock, $.01 par value; authorized 24,000,000 shares,
issued 9,851,002 shares 99 99
Additional paid-in capital 36,760 36,760
Retained earnings 35,108 52,901
-------- --------
71,967 89,760
Less treasury stock, at cost, 1,113,296 at July 1, 2001 and 584,184 (12,611) (10,799)
shares at October 1, 2000 -------- --------
Total stockholders' equity 59,356 78,961
-------- --------
Total liabilities and stockholders' equity $314,450 $332,723
======== ========
See notes to consolidated financial statements (unaudited).
3
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
_____________________________________________________________________________________________________________________
Three Months Ended Nine Months Ended
--------------------- ---------------------
July 1, July 2, July 1, July 2,
2001 2000 2001 2000
-------- -------- -------- ---------
Net sales $122,975 $121,265 $336,655 $347,733
Costs, expenses and other:
Cost of products sold (excluding depreciation and
amortization) 107,005 102,590 301,237 300,353
Depreciation and amortization 5,222 6,412 15,621 16,731
Selling and administrative expenses 3,620 3,857 11,330 13,371
Restructuring and impairment charge 21,500 21,500 5,900
Interest expense, net 3,689 4,363 11,646 12,580
Other, net (848) 30 (873) (185)
-------- -------- -------- --------
Total costs, expenses and other 140,188 117,252 360,461 348,750
-------- -------- -------- --------
Income (loss) before income taxes and extraordinary item (17,213) 4,013 (23,806) (1,017)
Provision (benefit) for income taxes (3,380) 2,187 (6,323) (554)
-------- -------- -------- --------
Income (loss) before extraordinary item (13,833) 1,826 (17,483) (463)
Extraordinary loss resulting from the extinguishment of debt -
net of related tax benefit of $112 (310) (310)
-------- -------- -------- --------
Net income (loss) $(14,143) $ 1,826 $(17,793) $ (463)
======== ======== ======== ========
Income (loss) per common share:
-------------------------------
Basic earnings (loss) before extraordinary item $ (1.56) $ 0.20 $ (1.95) $ (0.05)
Extraordinary item net of related tax benefit (0.04) (0.03)
-------- -------- -------- --------
Basic earnings (loss) per common share $ (1.60) $ 0.20 $ (1.98) $ (0.05)
======== ======== ======== ========
Weighted average basic common shares outstanding 8,854 9,278 8,982 9,280
======== ======== ======== ========
Diluted earnings (loss) before extraordinary item $ (1.56) $ 0.20 $ (1.95) $ (0.05)
Extraordinary item (0.04) (0.03)
-------- -------- -------- --------
Diluted earnings (loss) per common share $ (1.60) $ 0.20 $ (1.98) $ (0.05)
======== ======== ======== ========
Weighted average diluted common shares outstanding 8,854 9,319 8,982 9,280
======== ======== ======== ========
See notes to consolidated financial statements (unaudited).
4
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
_________________________________________________________________________________________________________________________
Nine Months Ended
-------------------------------
July 1, 2001 July 2, 2000
------------ ------------
Operating activities:
Net loss $(17,793) $ (463)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation 13,149 13,752
Amortization of goodwill and other intangibles 2,472 2,979
Amortization of deferred financing costs 738 633
Write-off of deferred loan fees related to debt extinguishment 422
Provision for doubtful accounts 84 66
Restructuring and impairment charge 21,500 5,900
Gain on disposition of property and equipment (900) 19
Deferred income taxes (7,023)
Changes in assets and liabilities:
Accounts receivable (6,402) 4,507
Inventories (374) (4,713)
Other assets 1,403 1,529
Accounts payable 7,399 (8,468)
Accrued liabilities (5,406) (10,959)
Income taxes, net 1,608 479
-------- --------
Net cash provided by operating activities 10,877 5,261
-------- --------
Investing activities:
Capital expenditures (5,796) (9,588)
Proceeds from disposition of property and equipment 5,098 107
Other 62 (12)
-------- --------
Net cash used in investing activities (636) (9,493)
-------- --------
Financing activities:
Net borrowings under bank revolving credit agreement 53,800 9,000
Extinguishment of long-term debt (50,000)
Decrease in unpresented bank drafts (9,545) (4,416)
Purchases of treasury stock, net (1,812) (394)
Financing costs incurred (2,261) (313)
-------- --------
Net cash provided by (used in) financing activities (9,818) 3,877
-------- --------
Net increase (decrease) in cash and equivalents 423 (355)
Cash and equivalents:
Beginning of period 961 696
-------- --------
End of period $ 1,384 $ 341
======== ========
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Interest $ 13,488 $ 14,689
======== ========
Income taxes $ (1,020) $ (1,034)
======== ========
Noncash investing and financing activities:
Amounts owed for capital expenditures $ 632 $ 467
======== ========
See notes to consolidated financial statements (unaudited).
5
BWAY CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
________________________________________________________________________________
1. GENERAL
The accompanying consolidated financial statements have been prepared by
the Company without audit. Certain information and footnote disclosures,
including significant accounting policies, normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted.
The consolidated financial statements as of July 1, 2001 and October 1,
2000 and for the three and nine month periods ended July 1, 2001 and July
2, 2000 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 nine month periods ended July
1, 2001 are not necessarily indicative of the results that may be expected
for the entire year. These statements and the accompanying notes should be
read in conjunction with the Company's Annual Report on Form 10-K for the
year ended October 1, 2000.
The Company operates on a 52/53 week fiscal year ending on the Sunday
closest to September 30 of the applicable year. The first three quarterly
fiscal periods end on the Sunday closest to December 31, March 31 or June
30 of the applicable quarter.
On July 1, 2001, the Company merged its Milton Can Company, Inc. subsidiary
into its BWAY Manufacturing, Inc. ("BMI") subsidiary. After the merger, BMI
is the Company's sole significant subsidiary and responsible for all
manufacturing operations and material center services. The Company sells
and markets its products under the BWAY Corporation name.
2. INVENTORIES
Inventories are carried at the lower of cost or market, with cost
determined under the last-in, first-out (LIFO) method of inventory
valuation and are summarized as follows:
July 1, October 1,
2001 2000
-------- ----------
Inventories at FIFO cost:
Raw materials $ 5,256 $ 6,033
Work-in-process 30,710 30,415
Finished goods 9,725 9,074
------- -------
45,691 45,522
LIFO reserve 161 161
Market reserve (161) (161)
------- -------
Inventories, net $45,691 $45,522
======= =======
3. INTANGIBLE ASSETS
In June 2001, the Company recorded a $4.2 million impairment charge for
goodwill and other intangible assets related to the Company's third quarter
fiscal 2001 restructuring charge. The impairment charge consisted of $3.7
million related to tradenames of the former Milton Can Company, Inc.
subsidiary that was merged into BMI on July 1, 2001, and $0.5 in
unamortized goodwill that was impaired by the sale of the Platemasters
facility. After the impairment, intangible assets consist of the following:
July 1, October 1,
2001 2000
------- ----------
Goodwill, net of accumulated amortization of $13,737 and $12,166 $71,348 $73,420
------- -------
Other intangibles:
Customer lists 7,743 7,753
Tradenames 4,704
Noncompete agreements 4,494 4,509
------- -------
12,237 16,966
Less accumulated amortization (7,469) (7,750)
------- -------
Other intangibles, net 4,768 9,216
------- -------
Intangibles, net $76,116 $82,636
======= =======
6
4. STOCKHOLDERS' EQUITY
Earnings per common share are based on the weighted average number of
common shares. Diluted earnings per common share include common stock
equivalents outstanding during each period presented including vested and
unvested shares issued under the Company's current long-term incentive
plan, as amended. Weighted average basic and diluted common shares
outstanding were 8.9 million and 9.3 million in the third fiscal quarters
of 2001 and 2000, respectively. For the nine-month period ended July 2,
2000, approximately 24,000 of common stock equivalents were excluded from
the related diluted loss per common share calculation. For the three and
nine-month periods ended July 1, 2001, there were no common stock
equivalents that were anti-dilutive. In November 2000, the Company's Board
of Directors approved a $3 million increase in the Company's stock
repurchase program. During the third quarter of fiscal 2001, the Company
purchased 324,600 shares of treasury stock for approximately $947,000.
During the nine month period ended July 1, 2001, the Company purchased
529,112 shares of treasury stock for approximately $1.8 million. The
Company expects to continue its historical practice of purchasing its stock
for treasury.
5. CREDIT AGREEMENT
On May 22, 2001, the Company entered into a new credit agreement with
Bankers Trust Company (an affiliate of Deutsche Bank) as agent ("Credit
Facility"). The Credit Facility is a $90 million secured, four-year
agreement. Available borrowings under the Credit Facility are limited to a
borrowing base that consists of $25 million related to fixed assets ("Fixed
Asset Sub-limit") and percentages of eligible accounts receivable and
inventories. The Credit Facility is subject to certain restrictive
covenants. (See Exhibit 10.1, the full text of the Credit Facility as
amended.) Interest rates under the Credit Facility are either prime (as
determined by Deutsche Bank AG, New York branch) plus an applicable rate
margin or at LIBOR plus an applicable rate margin at the option of the
Company. Initial borrowings under the Credit Facility were used to repay
all obligations and terminate the Company's then existing Credit Agreement.
The new Credit Facility expires May 22, 2005.
Associated with the Company's new Credit Facility, a $0.4 million charge to
write-off unamortized deferred financing costs associated with the previous
credit agreement is reflected in the statement of income as an
extraordinary item net of its related tax benefit of $0.1 million.
Additionally, the Company has deferred approximately $2.0 million in
financing costs related to the underwriting of the Credit Facility, which
will be amortized to interest expense over its four-year term.
At July 1, 2001, the Company had an available borrowing limit of $84.5
million under its $90 million Credit Facility. The Company had borrowed
$30.0 million of available borrowings at July 1, 2001. At July 1, 2001, the
prime rate margin was 1.000% and the LIBOR rate margin was 2.750%.
6. RESTRUCTURING AND IMPAIRMENT CHARGE AND PURCHASE ACCOUNTING LIABILITIES
The following table sets forth changes in the Company's purchase accounting
and restructuring liabilities from October 1, 2000 to July 1, 2001. New
charges relate to the $5.3 million restructuring charge recorded in June
2001, as discussed below.
-----------------------------------------------------------------------------------------------------------------
(In millions)
Balance New Balance
October 1, 2000 Charges Expenditures July 1, 2001
--------------- ------ ------------ ------------
Purchase accounting liabilities:
Equipment demolition costs $1.1 $ -- $(1.1) $ --
Severance costs 0.2 -- (0.2) --
Facility closure costs 1.2 -- (1.2) --
-----------------------------------------------------------------------------------------------------------------
2.5 -- (2.5) --
-----------------------------------------------------------------------------------------------------------------
Restructuring liabilities:
Severance costs 0.1 0.5 (0.2) 0.4
Facility closure costs 0.4 4.6 (0.4) 4.6
Other 0.4 0.2 (0.3) 0.3
-----------------------------------------------------------------------------------------------------------------
0.9 5.3 (0.9) 5.3
-----------------------------------------------------------------------------------------------------------------
Total restructuring and purchase
accounting liabilities included in
other current liabilities $3.4 $5.3 $(3.4) $5.3
=================================================================================================================
-----------------------------------------------------------------------------------------------------------------
7
In June 2001, the Company recorded a $21.5 million restructuring and
impairment charge related primarily to a manufacturing and cost structure
rightsizing plan. The $21.5 million charge includes $16.2 million for asset
impairments and $5.3 million for restructuring charges. The asset
impairments relate to the write off of $4.2 million in intangibles and
$12.0 million in redundant equipment at the facilities to be closed. The
redundant equipment was taken out of service by July 1, 2001. Facility
closure costs consisting primarily of future lease obligations, relate to
the closing of the Company's manufacturing facilities in Elizabeth, New
Jersey and Garland, Texas. Of the 208 employees to be terminated, 35 were
terminated by July 1, 2001. The remaining 173 terminations should be
completed before the Company's fiscal 2001 year end.
As part of the Company's rightsizing plan, on April 2, 2001, the Company
sold the majority of the equipment, inventories and accounts receivable of
its Platemasters facility, which provided pre-press services both to the
Company and outside customers. The Platemasters assets were sold for $0.5
million, which approximated book value. In conjunction with the sale, the
buyer and the Company executed an agreement whereby the buyer will be the
exclusive supplier of certain pre-press services to the Company for a term
of three years at market rates.
7. RECENT ACCOUNTING PRONOUNCEMENTS
As of October 2, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities, as amended in June 2000 by SFAS 138,
Accounting for Certain Derivative Instruments and Certain Hedging
Activities. SFAS 133, as amended, requires the Company to recognize all
derivatives as either assets or liabilities in the balance sheet and
measure such instruments at fair value. The adoption of these standards has
not had a material impact on the Company's consolidated financial
statements.
In July 2001, the FASB issued two new pronouncements: SFAS No. 141,
"Business Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 requires the purchase method of
accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. SFAS 142 affects goodwill and
indefinite lived other intangibles by discontinuing ratable amortization in
favor of periodic impairment testing. SFAS 142 is effective for fiscal
years beginning after December 15, 2001; however, the Company is
considering the early adoption of this statement. The Company is evaluating
the impact of the adoption of these standards and has not yet determined
the effect of adoption on its financial position and results of operations.
During the first nine months of fiscal 2001, the Company recorded
goodwill amortization expense of $1.7 million or $0.19 per share.
8. SUBSEQUENT EVENTS
On June 11, 2001, the Company issued an offer to exchange all outstanding
options to purchase common stock issued under the BWAY 1995 Long Term Stock
Incentive Plan (the "Plan"), as amended and restated. The offer allowed all
holders, including employees and directors, to tender for cancellation any
option with an exercise price per share of $9.00 or more in exchange for
new options that will be granted under the Plan at fair market value of the
stock on or about the first business day that is at least six months and
one day following the date the tendered options are accepted for exchange.
As of the July 31, 2001 offer expiration date, optionees had tendered
1,198,622 options, representing 99.3% of the eligible options for
cancellation with a $13.44 average option price. The Company accepted all
options tendered for cancellation on July 31, 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales increased 1.4% in the third quarter of fiscal 2001 to $123.0 million
from $121.3 million in the third quarter of fiscal 2000. Net sales decreased
3.2% to $336.7 million in the first nine months of fiscal 2001 from $347.7
million in the first nine months of fiscal 2000. The 1.4% increase for the
quarter indicates slightly stronger conditions in the Company's markets and a
specific improvement in aerosol can sales. The year-to-date net sales decrease
resulted from a general business slowdown and inventory reductions on the part
of the Company's customers during the first half of fiscal 2001. Additionally,
year-to-date net sales were affected by the Company's strategic decision to exit
certain customer relationships where technical and production requirements did
not match the existing capabilities at the Company's material center services
operations.
Cost of products sold (excluding depreciation and amortization) increased 4.3%
to $107.0 million in the third quarter of fiscal 2001 from $102.6 million in the
third quarter of fiscal 2000. Cost of products sold (excluding depreciation and
amortization) as a percentage of net sales increased to 87.0% in the third
quarter of fiscal 2001 from 84.6% in the third quarter of fiscal 2000. Cost of
products sold (excluding depreciation and amortization) increased 0.3% to $301.2
million for the first nine months of fiscal 2001 from $300.4 million for the
first nine months of fiscal 2000. Cost of products sold (excluding depreciation
and amortization) as a percentage of net sales increased to 89.5% in the first
nine months of fiscal 2001 from 86.4% in the first nine months of fiscal 2000.
The increase in cost of product sold (excluding depreciation and amortization)
as a percentage of net sales for the quarter was primarily due to changes in the
Company's reserves for slow moving and obsolete inventory and inventory
shrinkage. The fiscal 2001 year-to-date increase in cost of products sold
(excluding depreciation and amortization) as a percentage of net sales was
primarily attributable to lower sales and weak operating performance at certain
of the Company's manufacturing facilities during the first half
8
of fiscal 2001. Additionally, shortfalls in sales volumes have made
manufacturing improvement initiatives more difficult and slower to achieve.
Gross margin (excluding depreciation and amortization) for the third quarter of
fiscal 2001 was 13.0% of net sales compared to 15.4% for the third quarter of
fiscal 2000. Gross margin (excluding depreciation and amortization) for the
nine months of fiscal 2001 was 10.5% of net sales compared to 13.6% for the
first nine months of fiscal 2000. The decreases in gross margin as a percentage
of net sales are due to the factors discussed above.
Depreciation and amortization expense decreased $1.2 million to $5.2 million in
the third quarter of fiscal 2001 from $6.4 million in the third quarter of
fiscal 2000. Depreciation and amortization decreased $1.1 million to $15.6
million in the first nine months of fiscal 2001 from $16.7 million in the first
nine months of fiscal 2000. The three and nine month periods ended July 2, 2000
include additional depreciation of approximately $1.1 million and $1.4 million,
respectively, due to the shortened useful lives of certain computer systems and
equipment. The current year depreciation related to the Company's capital
expenditure program partially offset the decrease discussed above.
Selling and administrative expense decreased 6.1% to $3.6 million in the third
quarter of fiscal 2001 from $3.9 million in the third quarter of fiscal 2000.
Selling and administrative expense as a percentage of net sales decreased to
2.9% for the third quarter of fiscal 2001 from 3.2% for the third quarter of
fiscal 2000. Selling and administrative expense decreased 15.3% to $11.3 million
in the first nine months of fiscal 2001 from $13.4 million in the first nine
months of fiscal 2000. Selling and administrative expense as a percentage of
net sales decreased to 3.4% for the first nine months of fiscal 2001 from 3.8%
for the first nine months of fiscal 2000. The elimination of overhead costs
related to the Company's fiscal 2000 restructuring was the primary reason for
the decrease in selling and administrative expense.
In the third quarter of fiscal 2001, the Company recorded a restructuring and
impairment charge of $21.5 million. The Company is rightsizing its
manufacturing cost structure by consolidating four smaller plants into two
larger plants to achieve greater economies of scale and lower overall
manufacturing cost. The Company's Elizabeth, New Jersey facility will be closed
and the business volume will be reallocated primarily to the Company's York,
Pennsylvania facility. A second plant located in Garland, Texas will also
cease operations with business volume reallocated primarily to the Company's
plants in Dallas, Texas. The $21.5 million charge includes $16.2 million for
asset impairments and $5.3 million for restructuring charges. The asset
impairments relate to the write off of $4.2 million in intangibles and $12.0
million in redundant equipment at the facilities to be closed.
The Company recorded a restructuring and impairment charge of $5.9 million in
the second quarter of fiscal 2000 related to the simplification of the Company's
structure which facilitated the closing of two administrative offices,
termination of 89 employees and write-down of certain material center equipment
held for disposal.
Interest expense decreased 15.4% to $3.7 million in the third quarter of fiscal
2001 from $4.4 million in the third fiscal quarter of 2000. The Company's total
debt decreased to $130.0 million at July 1, 2001 from $155.5 million at July 2,
2000. Interest expense decreased 7.4% to $11.6 million for the first nine
months of fiscal 2001 from $12.6 million for the first nine months of fiscal
2000. Net interest expense decreased due to a reduction in average borrowings
and generally lower interest rates. The Company's borrowing rate under the
Credit Facility is impacted by market rates and contractual rate margins.
On April 4, 2001, the Company sold the Chicago, Illinois material center
services property for $5.2 million. A gain of $0.9 million was recognized as
other income in the third quarter of fiscal 2001.
Income (loss) before income taxes and extraordinary item decreased $21.2 million
to a loss of $17.2 million in the third quarter of fiscal 2001 from income of
$4.0 million in the third quarter of fiscal 2000. Loss before income taxes and
extraordinary item decreased $22.8 million to $23.8 million in the first nine
months of fiscal 2001 from $1.0 million for the first nine months of fiscal
2000. The changes in income (loss) before income taxes and extraordinary item
are due to the factors discussed above.
The provision (benefit) for income taxes changed $5.6 million to a benefit of
$3.4 million in the third quarter of fiscal 2001 from a provision of $2.2
million in the third quarter of fiscal 2000. The change is due to the change in
income (loss) before income taxes and extraordinary item offset by a reduced
effective tax rate. The benefit for income taxes increased $5.8 million to $6.3
million in the first nine months of fiscal 2001 from $0.6 million in the first
nine months of fiscal 2000. The increase is due to an increase in the Company's
loss before income taxes and extraordinary item offset by a reduced effective
tax rate.
Basic and diluted earnings (loss) per common share decreased $1.80 to ($1.60)
for the third quarter of fiscal 2001 from $0.20 for the third quarter of 2000.
The weighted-average diluted common shares outstanding were 8.9 million and 9.3
million for the respective quarters. Basic and diluted loss per common share
increased $1.93 to ($1.98) for the first nine months of fiscal 2001 from ($0.05)
for the first nine months of fiscal 2000. The weighted-average diluted common
shares outstanding were 9.0 million and 9.3 million for the respective nine-
month periods.
9
Liquidity and Capital Resources
The Company's cash requirements for operations and capital expenditures during
the first nine months of fiscal 2001 were primarily financed through internally
generated cash flows and borrowings under the Company's credit agreements. On
May 22, 2001, the Company entered into a new credit agreement with Bankers Trust
Company (an affiliate of Deutsche Bank) for a new four-year, $90 million secured
credit facility. The Company used initial borrowings under the new Credit
Facility to repay obligations under the Company's Credit Agreement, which was
terminated. The new Credit Facility replaced the Company's $125 million credit
agreement. The Company believes the new Credit Facility will sufficiently
support ongoing operations. In connection with the new Credit Facility, the
Company incurred approximately $2.0 million in financing fees that will be
amortized over the life of the four-year agreement.
At July 1, 2001, the Company had a borrowing limit under its new Credit Facility
of $90 million. Interest rates under the new Credit Facility are either prime
(as determined by Deutsche Bank AG, New York Branch) plus an applicable rate
margin or at LIBOR plus an applicable rate margin at the option of the Company.
At July 1, 2001, the prime rate margin was 1.000% and the LIBOR rate margin was
2.750%.
As of July 1, 2001, the Company had borrowed $30.0 million under the $90 million
Credit Facility. Available borrowings under the Credit Facility are based on a
borrowing base, which was limited to $84.5 million at July 1, 2001.
Net cash provided by operating activities during the first nine months of fiscal
2001 was $10.9 million compared to $5.3 million provided during the first nine
months of fiscal 2000. During the first nine months of fiscal 2001, cash from
operating activities was primarily provided by income before depreciation,
amortization and restructuring and by increased trade payables. Cash was
primarily used to increase accounts receivable and reduce accrued liabilities.
During the first nine months of fiscal 2000, cash from operating activities was
primarily provided by income before depreciation, amortization and restructuring
and by reductions in accounts receivable. Cash was primarily used to increase
inventories and reduce accounts payable and accrued liabilities.
Net cash used in investing activities during the first nine months of fiscal
2001 decreased $8.9 million to $0.6 million from $9.5 million for the first nine
months of fiscal 2000. Net cash used in investing activities was primarily used
for capital expenditures during the first nine months of each fiscal year.
Lower capital expenditures in the first nine months of fiscal 2001 are a result
of management's intent to closely control capital expenditures and focus free
cash flow primarily on debt reduction. Cash in the first nine months of fiscal
2001 was primarily provided in the third quarter by proceeds from the sale of
the Company's Chicago, Illinois material centers property, partially offset by
capital expenditures.
Net cash used in financing activities was $9.9 million during the first nine
months of fiscal 2001 compared to $3.9 million provided during the first nine
months of fiscal 2000. Net borrowings under the Company's credit agreements
decreased $5.2 million to $3.8 million for the first nine months of fiscal 2001
compared to $9.0 million for the first nine months of fiscal 2000. Cash used in
financing activities for the first nine months of fiscal 2001 was used to
decrease unpresented bank drafts, to purchase treasury stock and to pay
financing costs associated with the Company's credit agreements. Cash used in
the first nine months of fiscal 2000 was primarily used to decrease unpresented
bank drafts.
Management believes that cash provided from operations and borrowings available
under its credit facility will provide it with sufficient liquidity to meet its
operating and capital expenditure needs in the next 12 months.
Note: This document contains forward-looking statements as encouraged by the
Private Securities Litigation Reform Act of 1995. All statements contained in
this document, other than historical information, are forward-looking
statements. These statements represent management's current 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, timing and costs of plant start-up and closure; the
Company's ability to successfully integrate acquired businesses; labor unrest;
changes in market price or market demand; changes in raw material costs or
availability; loss of business from customers; unanticipated expenses; changes
in financial markets; potential equipment malfunctions; and the other factors
discussed in the Company's filings with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's interest rates under its Credit Facility are variable subject to
market changes and applicable rate margins based on the Company's financial
performance. At July 1, 2001, the Company had borrowings under the Credit
Facility of $30.0 million that were subject to interest rate risk. Each 100
basis point increase in interest rates would impact quarterly pretax earnings by
$0.1 million based on the July 1, 2001 debt level.
10
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
See Index to Exhibits.
A current report on Form 8-K was filed July 10, 2001 reporting the dissemination
of a letter by the Company's chairman of the board and CEO which included
certain forward looking statements pursuant to Regulation FD. The letter was
sent to certain option holders who are able to participate in the Company's
stock option replacement program pursuant to a tender offer as amended and filed
July 10, 2001 on Form SC TO-I/A.
11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BWAY Corporation
(Registrant)
Date: August 15, 2001 By: /s/ Kevin C. Kern
---------------------------------------
Kevin C. Kern
Vice President of Administration
and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Form 10-Q: For the quarterly period ended July 1, 2001
12
INDEX TO EXHIBITS
-------------------------------------------------
Exhibit
No. Description of Document
------- --------------------------------------------------------------------
4.1 Offer to exchange all outstanding options to purchase common stock
issued under the BWAY 1995 Long Term Stock Incentive Plan (the
"Plan'), as amended and restated, that have an exercise price of
$9.00 per share or more for new options to be granted under the BWAY
1995 Long Term Stock Incentive Plan, as amended and restated, dated
June 11, 2001.
10.1 Credit Agreement among Armstrong Containers, Inc., BWAY Corporation,
BWAY Manufacturing, Inc. and Milton Can Company, Inc. as borrowers
with BWAY Corporation, as funds administrator, the lenders, and
Bankers Trust Company, as agent and Bank of America, N.A., as
documentation agent, dated as of May 22, 2001, as amended.
10.2 Change in Control Agreement, between BWAY Corporation and Thomas
Eagleson, dated August 9, 2001.
10.3 Change in Control Agreement, between BWAY Corporation and Kevin C.
Kern, dated August 9, 2001.
10.4 Change in Control Agreement, between BWAY Corporation and Kenneth
Roessler, dated August 9, 2001.
13