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 December 31, 2000
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 9,154,118 shares of Common Stock ($.01 par value) outstanding as of
January 18, 2001.
BWAY CORPORATION
For the quarter ended December 31, 2000
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
Number
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 2000 (Unaudited) and 3
October 1, 2000
Consolidated Statements of Income for the Three Months Ended December 4
31, 2000 and January 2, 2000 (Unaudited)
Consolidated Statements of Cash Flows for the Three Months Ended 5
December 31, 2000 and January 2, 2000 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results 9
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)
----------------------------------------------------------------------------------------------------------------
December 31, October 1,
2000 2000
(Unaudited)
---------------- --------------
Assets
Cash and cash equivalents $ 518 $ 961
Accounts receivable, net of allowance for doubtful accounts
accounts of $530 and $508 39,125 44,083
Inventories, net 49,116 45,522
Current income taxes receivable 5,116 3,048
Deferred tax asset 8,988 8,988
Assets held for sale 5,284 5,284
Other 2,208 1,823
-------- --------
Total current assets 110,355 109,709
Property and equipment, net 130,983 133,870
Other assets:
Intangible assets, net 81,666 82,636
Deferred financing fees, net 3,201 3,189
Other 3,196 3,319
-------- --------
Total other assets 88,063 89,144
-------- --------
Total assets $ 329,401 $ 332,723
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 52,220 $ 67,155
Accrued salaries and wages 6,400 8,032
Accrued rebates 6,118 5,029
Other 11,020 14,910
-------- --------
Total current liabilities 75,758 95,126
Long-term debt 144,300 126,200
Long-term liabilities:
Deferred income taxes 22,044 22,044
Other 10,560 10,392
-------- --------
Total long-term liabilities 32,604 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 51,053 52,901
-------- --------
87,912 89,760
Less treasury stock, at cost, 660,084 and 584,184 shares (11,173) (10,799)
-------- --------
Total stockholders' equity 76,739 78,961
-------- --------
Total liabilities and stockholders' equity $ 329,401 $ 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
------------------
December 31, January 2,
2000 2000
------------------- -----------------
Net sales $ 103,107 $ 106,739
Costs, expenses and other:
Cost of products sold (excluding depreciation and amortization) 94,138 95,402
Depreciation and amortization 5,353 5,044
Selling and administrative expenses 3,558 4,357
Interest expense, net 3,931 3,890
Other, net (23) (181)
------------------- -----------------
Total costs, expenses and other 106,957 108,512
Loss before income taxes (3,850) (1,773)
Benefit from income taxes (2,002) (807)
------------------- -----------------
Net loss $ (1,848) $ (966)
=================== =================
Loss per common share:
----------------------
Basic and diluted loss per common share $ (0.20) $ (0.10)
=================== =================
Weighted average basic and diluted common shares outstanding 9,195 9,303
=================== =================
See notes to consolidated financial statements (unaudited).
4
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
------------------
December 31, January 2,
2000 2000
----------------- ---------------
Operating activities:
Net loss $ (1,848) $ (966)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 4,383 4,052
Amortization of goodwill and other intangibles 970 993
Amortization of deferred financing costs 238 187
Provision for doubtful accounts 22 25
Gain on disposition of property, plant and equipment (34) (29)
Changes in assets and liabilities:
Accounts receivable 4,936 8,550
Inventories (3,594) (18,104)
Other assets (262) (206)
Accounts payable (8,499) (46)
Accrued liabilities (4,503) (2,966)
Income taxes, net (2,068) (816)
----------------- ---------------
Net cash used in operating activities (10,259) (9,326)
----------------- ---------------
Investing activities:
Capital expenditures (2,011) (3,422)
Proceeds from disposition of property, plant and equipment 9 -
Other 7 -
----------------- ---------------
Net cash used in investing activities (1,995) (3,422)
----------------- ---------------
Financing activities:
Net borrowings under bank revolving credit agreement 18,100 23,600
Decrease in unpresented bank drafts (5,665) (8,813)
Purchases of treasury stock, net (374) (48)
Financing costs incurred (250) (313)
----------------- ---------------
Net cash provided by financing activities 11,811 14,426
----------------- ---------------
Net increase (decrease) in cash and equivalents (443) 1,678
Cash and equivalents:
Beginning of period 961 696
----------------- ---------------
End of period $ 518 $ 2,374
================= ===============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 6,205 $ 6,356
================= ===============
Income taxes $ 66 $ 9
================= ===============
Noncash Investing And Financing Activities:
================= ===============
Amounts owed for capital expenditures $ 476 $ 865
================= ===============
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 December 31, 2000 and October 1, 2000
and for the three months ended December 31, 2000 and January 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 months ended December 31, 2000 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.
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:
December 31, October 1,
2000 2000
------------- -----------
Inventories at FIFO cost:
Raw materials $ 6,132 $ 6,033
Work-in-process 33,223 30,415
Finished goods 9,831 9,074
------------- -----------
49,186 45,522
LIFO reserve 91 161
Market reserve (161) (161)
------------- -----------
Inventories, net $ 49,116 $ 45,522
============= ===========
3. STOCKHOLDERS' EQUITY
Earnings per common share are based on the weighted average number of common
shares and 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 common shares
outstanding were 9.2 million and 9.3 million in the first fiscal quarters of
2001 and 2000, respectively. Weighted average diluted common shares
outstanding were 9.2 million and 9.3 million in the first fiscal quarters of
2001 and 2000, respectively. For the fiscal quarters ended December 31, 2000
and January 2, 2000, approximately 4,000 and 6,000 common stock equivalents,
respectively, were excluded from the related diluted loss per common share
calculation because they were anti-dilutive due to the net loss during the
period. During the first quarter of fiscal 2001, the Company purchased
$374,000 of treasury stock. In November 2000, the Company's Board of
Directors approved a $3 million increase in the Company's stock repurchase
program. The Company has historically purchased its stock and expects to
continue this practice in the future.
4. CREDIT AGREEMENT
At December 31, 2000, the Company had a borrowing limit under its Credit
Agreement of $125 million. Due to certain Credit Agreement restrictions,
$72.5 million of the $125 million was available to the Company. The Company
had borrowed $44.3 million of available borrowings at December 31, 2000. The
Company's Credit Agreement expires in June 2002.
On November 8, 2000, the Company and its lenders executed an amendment to the
Credit Agreement that modified certain restrictive covenants. As of December
31, 2000, the Company was in compliance with all restrictive covenants under
the Credit Agreement, as amended.
6
5. 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 December 31, 2000. The
nature of the liabilities has not changed from those previously reported in
the Company's Annual Report on Form 10-K for the fiscal year ended October
1, 2000.
(in millions) Balance Balance
October 1, New December 31,
2000 Charges Expenditures 2000
------------ ---------- ------------ ------------
Purchase accounting
liabilities:
Equipment demolition costs $ 1.1 $ -- $ (0.9) $ 0.2
Severance costs 0.2 -- (0.2) --
Facility closure costs 1.2 -- (0.3) 0.9
------------ ---------- ------------ ------------
Total purchase
accounting liabilities 2.5 -- (1.4) 1.1
------------ ---------- ------------ ------------
Restructuring liabilities :
Severance costs 0.1 -- (0.1) --
Facility closure costs 0.4 -- -- 0.4
Other 0.4 -- (0.1) 0.3
------------ ---------- ------------ ------------
Total restructuring
liabilities 0.9 -- (0.2) 0.7
------------ ---------- ------------ ------------
Total restructuring and
purchase accounting
liabilities included in
other current liabilities $ 3.4 $ -- $ (1.6) $ 1.8
============ ========== ============ ============
6. CONTINGENCIES
Environmental
The Company continues to monitor and evaluate on an ongoing and regular
basis its compliance with applicable environmental laws and regulations.
Liabilities for non-capital expenditures are recorded when environmental
remediation is probable and the costs can be reasonably estimated. The
Company believes that it is in substantial compliance with all material
federal, state and local environmental requirements.
Environmental investigations voluntarily conducted by the Company at its
Homerville, Georgia facility in 1993 and 1994 detected certain conditions of
soil and groundwater contamination that management believes predated the
Company's 1989 acquisition of the facility from Owens-Illinois. Such pre-
1989 contamination is subject to indemnification by Owens-Illinois. The
Company and Owens-Illinois have entered into supplemental agreements
establishing procedures for investigation and remediation of the
contamination. In 1994, the Georgia Department of Natural Resources ("DNR")
determined that further investigation must be completed before DNR decides
whether corrective action is needed. In August 1999, DNR signed a consent
order that had been submitted by the Company and Owens-Illinois. In January
2000, the Company and Owens-Illinois submitted to DNR a report containing
the results of the investigation of the facility. In December 2000, DNR
asked the Company and Owens-Illinois to modify the investigation report to
address certain issues. Such request may necessitate additional
investigatory work at the site. Owens-Illinois and the Company are currently
discussing the requested modifications with DNR.
In April 1999 at the Company's Homerville, Georgia facility, the Company
entered into a consent order with the Georgia Department of Natural
Resources ("DNR") related to certain industrial wastewater and cooling water
discharges that exceeded allowable limits. The project related to the
consent order is complete with expenditures to date of approximately
$200,000. In the first quarter of fiscal 2001, the DNR terminated the
consent order.
The Company (and, in some cases, predecessors to the Company) has, from time
to time, received requests for information or notices of potential
responsibility pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA") with respect to certain waste
disposal sites utilized by former or current facilities of the Company or
its various predecessors. To the Company's knowledge, all such matters which
have not been resolved are, subject to certain limitations, indemnified by
the sellers of the relevant Company affiliates, and all such unresolved
matters have been accepted for indemnification by such sellers. Because
liability under CERCLA is retroactive, it is possible that in the future the
Company may incur liabilities with respect to other sites.
7
Management believes that none of these matters will have a material adverse
effect on the results of operations or financial condition of the Company in
light of both the potential indemnification obligations of others to the
Company and the Company's understanding of the underlying potential
liability.
7. RECENT ACCOUNTING PRONOUNCEMENTS
As of October 2, 2000, the Company adopted the 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 did not have
a material impact on the Company's consolidated financial statements.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales decreased 3.4% in the first quarter of fiscal 2001 to $103.1 million
from $106.7 million in the first quarter of fiscal 2000. The decrease results
primarily from a general business slowdown, continued inventory reductions on
the part of the Company's customers, and slower than anticipated realization of
new business.
Cost of products sold (excluding depreciation and amortization) decreased 1.3%
to $94.1 million in the first quarter of fiscal 2001 from $95.4 million in the
first quarter of fiscal 2000. Cost of products sold as a percentage of net sales
increased to 91.3% in the first quarter of fiscal 2001 from 89.4% in the first
quarter of fiscal 2000. The increase in cost of products sold 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 quarter of fiscal 2001. The Company's Cincinnati, Ohio material center
services operation performed significantly below expectations during the
quarter. The Company has conducted a strategic review of this facility and is
exiting certain customer relationships where technical and production
requirements do not fit the capability of the facility.
Depreciation and amortization expense increased $0.4 million to $5.4 million in
the first quarter of fiscal 2001 from $5.0 million in the first quarter of
fiscal 2000. The increase is primarily due to the Company's capital expenditure
program.
Selling and administrative expense decreased 18.3% to $3.6 million in the first
quarter of fiscal 2001 from $4.4 million in the first quarter of fiscal 2000.
Selling and administrative expense as a percentage of net sales decreased to
3.5% for the first quarter of fiscal 2001 from 4.1% for the first quarter of
fiscal 2000. The decrease in selling and administrative expense was primarily
the result of the elimination of overhead costs due to the Company's
restructuring during the second quarter of fiscal 2000.
Interest expense was $3.9 million in each of the first fiscal quarters of 2001
and 2000. The Company's outstanding debt under the Credit Agreement decreased to
$44.3 million at December 31, 2000 from $70.1 at January 2, 2000. However, the
Company's borrowing rate under the Credit Agreement increased from the first
quarter of fiscal 2000 to the first quarter of fiscal 2001 due to higher London
InterBank Offered Rates ("LIBOR") and higher rate margins.
Loss before taxes increased $2.1 million to $3.9 million in the first quarter of
fiscal 2001 from $1.8 million in the first quarter of fiscal 2000. The increase
was due to the factors discussed above. The income tax benefit increased $1.2
million to $2.0 million in the first quarter of fiscal 2001 from $0.8 million in
the first quarter of fiscal 2000. The increase is due to a greater loss and to a
higher effective tax rate.
Diluted loss per common share increased $0.10 to $0.20 for the first quarter of
fiscal 2001 from $0.10 from the first quarter of 2000. The weighted average
diluted common shares outstanding were 9.2 million and 9.3 million for the
respective quarters.
Liquidity and Capital Resources
The Company's cash requirements for operations and capital expenditures during
the quarter ended December 31, 2000 were primarily financed through internally
generated cash flows and borrowings under the Company's Credit Agreement. At
December 31, 2000, the Company had a borrowing limit under its Credit Agreement
of $125 million. The Company was in compliance with all Credit Agreement
covenants for the quarter ended December 31, 2000. Interest rates under the
Credit Agreement are either prime (as determined by Bank of America) plus an
applicable rate margin or at LIBOR plus an applicable rate margin at the option
of the Company. Rate margins are reset quarterly based on financial performance
during the preceding four quarters. At December 31, 2000, the prime rate margin
was 0.625% and the LIBOR rate margin was 1.625%.
As of December 31, 2000, the Company had borrowed $44.3 million of the $125
million borrowing limit. However, the Credit Agreement covenants limit
borrowings to a maximum leverage ratio based on the Company's earnings before
interest, taxes, depreciation and amortization (EBITDA) and total debt. As of
December 31, 2000, this covenant effectively limited the Company's available
borrowings to a total of $72.5 million.
Net cash used in operating activities was $10.3 million during the first quarter
of fiscal 2001 compared to $9.3 million used during the first quarter of fiscal
2000. During the first quarter of fiscal 2001, cash from operating activities
was primarily provided by net income before depreciation and amortization and by
reductions of accounts receivable. Cash was primarily used to reduce accounts
payable and accrued liabilities and to increase inventories. Inventories are
generally lower and accounts payable are generally higher at the fiscal year
end. The first quarter is typically negatively impacted as inventory and
accounts payable return to normal operating levels during the quarter.
Net cash used in investing activities was $2.0 million during the first quarter
of fiscal 2001 compared to $3.4 million during the first quarter of fiscal 2000.
Net cash used in investing activities was primarily used for capital
expenditures during the first quarter of each fiscal year.
9
Net cash provided by financing activities was $11.8 million during the first
quarter of fiscal 2001 compared to $14.4 million during the first quarter of
fiscal 2000. Net borrowings under the Company's credit agreement decreased $5.5
million to $18.1 million for the first fiscal quarter of 2001 compared to $23.6
million for the first fiscal quarter of 2000. Cash used in financing activities
for the first fiscal quarter of 2001 was used to decrease unpresented bank
drafts and to purchase treasury stock.
At December 31, 2000, the Company was restricted in its ability to pay dividends
and make other restricted payments in an amount greater than approximately $1.6
million. The Company's subsidiaries are restricted in their ability to transfer
funds to the Company, except for funds to be used to effect approved
acquisitions, pay dividends in specified amounts, reimburse the Company for
operating and other expenditures made on behalf of the subsidiaries and repay
permitted intercompany indebtedness.
Management believes that cash provided from operations and borrowings available
under the Credit Agreement will provide it with sufficient liquidity to meet its
operating and capital expenditure needs in the next 12 months.
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 Agreement are variable subject to
market changes and applicable rate margins based on the Company's financial
performance. At December 31, 2000, the Company had borrowings under the Credit
Agreement of $44.3 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 at the debt level at December 31, 2000.
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. There were no reports filed on Form 8-K during the
quarter ended December 31, 2000.
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: January 30, 2001 By: /s/ Kevin C. Kern
--------------------------------
Kevin C. Kern
Vice President and
Corporate Controller
(Principal Financial Officer and
Principal Accounting Officer)
Form 10-Q: For the quarterly period ended December 31, 2000
12
INDEX TO EXHIBITS
--------------------------------------------
Exhibit
No. Description of Document
----------- -----------------------------------------------------------
None
13