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 30, 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 8,701,806 shares of Common Stock ($.01 par value) outstanding as of
February 12, 2002.
BWAY CORPORATION
For the quarter ended December 30, 2001
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
Number
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 30, 2001
(Unaudited) and September 30, 2001 3
Consolidated Statements of Income for the Three
Months Ended December 30, 2001 and December 31, 2000
(Unaudited) 4
Consolidated Statements of Cash Flows for the Three
Months Ended December 30, 2001 and December 31, 2000
(Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 12
PART II--OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
2
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 30, September 30,
2001 2001
(Unaudited)
--------------- --------------
Assets
Cash and cash equivalents $ 57 $ 285
Accounts receivable, net of allowance for doubtful accounts
of $857 and $750 44,346 45,052
Inventories, net 45,998 44,989
Current income taxes receivable - 1,355
Deferred tax asset 11,880 11,880
Other 2,547 2,847
-------- --------
Total current assets 104,828 106,408
Property, plant and equipment, net 110,723 113,365
Other assets:
Intangible assets, net of accumulated amortization of $18,131 and $17,416 74,133 74,848
Deferred financing fees, net 4,028 4,322
Other 1,806 1,952
-------- --------
Total other assets 79,967 81,122
-------- --------
Total assets $295,518 $300,895
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 55,834 $ 68,881
Accrued salaries and wages 7,318 7,935
Accrued interest 2,280 4,844
Accrued rebates 6,859 5,129
Other 12,238 11,250
-------- --------
Total current liabilities 84,529 98,039
Long-term debt 119,912 112,808
Long-term liabilities:
Deferred income taxes 18,388 18,388
Other 11,317 11,225
-------- --------
Total long-term liabilities 29,705 29,613
-------- --------
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 37,350 36,413
-------- --------
74,209 73,272
Less treasury stock, at cost, 1,149,196 shares (12,837) (12,837)
-------- --------
Total stockholders' equity 61,372 60,435
-------- --------
Total liabilities and stockholders' equity $295,518 $300,895
======== ========
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 30, December 31,
2001 2000
--------------- --------------
Net sales $117,330 $107,574
Costs, expenses and other:
Cost of products sold (excluding depreciation and amortization) 104,443 98,605
Depreciation and amortization 4,833 5,353
Selling and administrative expense 3,306 3,558
Interest expense, net 3,267 3,931
Other, net (296) (23)
-------- --------
Total costs, expenses and other 115,553 111,424
Income (loss) before income taxes 1,777 (3,850)
Provision (benefit) for income taxes 840 (2,002)
-------- --------
Net income (loss) $ 937 $ (1,848)
======== ========
Earnings (loss) per common share:
---------------------------------
Basic earnings (loss) per common share $ 0.11 $ (0.20)
======== ========
Weighted average basic common shares outstanding 8,702 9,195
======== ========
Diluted earnings (loss) per common share $ 0.10 $ (0.20)
======== ========
Weighted average diluted common shares outstanding 8,990 9,195
======== ========
See notes to consolidated financial statements (unaudited).
4
BWAY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
- --------------------------------------------------------------------------------
Three Months Ended
---------------------------
December 30, December 31,
2001 2000
------------ -------------
Operating activities:
Net income (loss) $ 937 $ (1,848)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 4,118 4,383
Amortization of goodwill and other intangibles 715 970
Amortization of deferred financing costs 244 238
Provision for doubtful accounts 107 22
Gain on disposition of property, plant and equipment (291) (34)
Changes in assets and liabilities:
Accounts receivable 599 4,936
Inventories (1,009) (3,594)
Other assets 258 (262)
Accounts payable (8,081) (8,499)
Accrued liabilities (1,178) (4,503)
Income taxes, net 1,849 (2,068)
-------- ---------
Net cash used in operating activities (1,732) (10,259)
-------- ---------
Investing activities:
Capital expenditures (1,732) (2,011)
Proceeds from disposition of property, plant and equipment
and assets held for sale 486 9
Other 3 7
-------- ---------
Net cash used in investing activities (1,243) (1,995)
-------- ---------
Financing activities:
Net borrowings under bank revolving credit facility 7,104 18,100
Decrease in unpresented bank drafts (4,357) (5,665)
Purchases of treasury stock, net - (374)
Financing costs incurred - (250)
-------- ---------
Net cash provided by financing activities 2,747 11,811
-------- ---------
Net decrease in cash and equivalents (228) (443)
Cash and equivalents:
Beginning of period 285 961
-------- ---------
End of period $ 57 $ 518
======== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid (refunded) during the period for:
Interest $ 5,584 $ 6,205
======== =========
Income taxes $ (1,009) $ 66
======== =========
Noncash Investing And Financing Activities:
Amounts owed for capital expenditures $ 423 $ 476
======== =========
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 30, 2001 and September 30,
2001 and for the three months ended December 30, 2001 and December 31, 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 30, 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 September 30, 2001.
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 30, September 30,
(in thousands) 2001 2001
---------------- ---------------
Inventories at FIFO cost:
Raw materials $ 4,793 $ 4,911
Work-in-process 28,957 30,389
Finished goods 12,248 9,689
---------------- ---------------
45,998 44,989
LIFO reserve 365 365
Market reserve (365) (365)
---------------- ---------------
Inventories, net $ 45,998 $ 44,989
================ ===============
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 8.7 million and 9.2 million in the first fiscal
quarters of 2002 and 2001, respectively. Weighted average diluted common
shares outstanding were 9.0 million and 9.2 million in the first fiscal
quarters of 2002 and 2001, respectively.
4. CREDIT FACILITY
At December 30, 2001, the Company's borrowing limit under its $90 million
Credit Facility was $71.3 million. Based on certain borrowing restrictions,
the Company had $43.2 million excess availability at December 30, 2001. At
December 30, 2001, rate margins were 1.00% (prime) and 2.75% (LIBOR) and
actual borrowing rates were 5.75% (prime) and 4.78% (LIBOR). The Company
was in compliance with all restrictive covenants under the Credit Facility
at December 30, 2001. The Company's Credit Facility expires in May 2005.
6
5. RESTRUCTURING AND IMPAIRMENT CHARGE
The following table sets forth changes in the Company's restructuring
liabilities from September 30, 2001 to December 30, 2001. 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 September 30, 2001.
(in millions) Balance Balance
September 30, December 30,
2001 Expenditures 2001
------------- ------------ ------------
Restructuring liabilities:
Severance costs $ 0.2 $ (0.1) $ 0.1
Facility closure costs 3.4 (0.5) 2.9
Other 0.2 (0.1) 0.1
------ ------ ------
Total restructuring liabilities
included in other current
liabilities $ 3.8 $ (0.7) $ 3.1
====== ====== ======
The majority of the fixed assets impaired in the third quarter of fiscal
2001 have been disassembled and sold for scrap as of December 30, 2001.
Any remaining impaired assets not held for use will be scraped or
dismantled for space parts.
6. COMMITMENTS AND 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.
In December 2001, the Company discovered a hazardous waste site at its
Homerville, Georgia facility. The identified hazardous waste predates the
Company's ownership of the facility, which was acquired from Owens-Illinois
in 1989. The related purchase agreement provides for indemnification from
Owens-Illinois for pre-existing environmental issues. The Company has taken
steps to quantify and report the existence of the hazardous waste to the
Georgia Environmental Protection Division and Owens-Illinois. A preliminary
investigation has determined that required site remediation costs will
range from $0.3 million to $1.2 million.
In December 2001, the Company discovered an unlicensed landfill at the
Company's Cincinnati, Ohio facility. The identified landfill predates the
Company's acquisition of the property from Ball Corporation in 1996. As
part of the purchase agreement, Ball Corporation provided an
indemnification for pre-existing environmental issues, which is subject to
certain sharing ratios. The Company is liable for 20% of costs between
$0.3 million and $3.3 million and 35% of any costs exceeding $3.3 million.
The Company has notified Ball Corporation and the Ohio Environmental
Protection Agency to determine the required remediation.
The Company recorded a $0.6 million environmental charge during the first
quarter of fiscal 2002 for these matters.
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 off-site waste
disposal sites utilized by former or current facilities of the Company or
its various predecessors. Management believes that none of these matters
will have a material adverse effect on the operating results or financial
condition of the Company in light of both the Company's understanding of
the potential liability and the availability, in certain cases, of
contractual indemnification from sellers of businesses to the Company.
Because liability under CERCLA is retroactive, it is possible that in the
future the Company may incur liabilities with respect to other sites.
Letters of Credit
At December 30, 2001, the Company had standby letters of credit in the
aggregate amount of $4.3 million in favor of the Company's workers'
compensation insurer, purchasing card vendor and a foreign supplier.
7. STOCKHOLDERS' EQUITY
Stock Option Replacement Program
On July 27, 2001, the Company canceled certain outstanding options with an
exercise price of $9.00 or more in connection with the Company's Stock
Option Replacement Program. On January 29, 2002, the Company reissued
options to acquire a number of shares equal to the number of shares
canceled. The new options have an exercise price of $11.05 per share, which
is equal to the closing price of the Company's Common Stock on January 28,
2002. Fifty percent of the new options issued to each person were
immediately exercisable on January 29, 2002 and the remaining 50% will be
exercisable on January 29, 2003. The reissued options expire January 29,
2012.
7
8. RECENT ACCOUNTING PRONOUNCEMENTS
The Emerging Issues Task Force reached a consensus in September 2000
regarding Issue No. 00-10, Accounting for Shipping and Handling Fees and
Costs, which requires companies to report shipping and handling fees and
costs as a component of cost of sales. The Company adopted this consensus
in the fourth fiscal quarter of 2001, the effect of which was offsetting
increases in net sales and cost of sales in the consolidated statements of
operations for all reported periods. The reclassification of $4.5 million
for the first quarter of fiscal 2001 was reflected in the financial
statements for comparative purposes.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS') 142, Goodwill and Other Intangible
Assets, which changes the method of accounting for goodwill and other
intangible assets. Upon adoption, goodwill will no longer be subject to
amortization over its estimated useful life. Rather, goodwill will be
subject to at least annual assessments by reporting units for goodwill
impairment based on fair value measurements. All other acquired intangibles
will be separately recognized if the benefit of the intangible asset is
obtained through contractual or other legal rights, or if the intangible
asset can be sold, transferred, licensed or exchanged, regardless of the
Company's intent to do so. Other intangibles will be amortized over their
useful lives. SFAS 142 becomes effective for the Company at the beginning
of fiscal 2003. The Company is assessing the Statement's impact on the
Company's financial position and operating results.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto included in Item 1
of this report.
Critical Accounting Policies
The Company's consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP"), which often requires the judgment of management in the selection and
application of certain accounting principles and methods. Management believes
the quality and reasonableness of its most critical policies enable the fair
presentation of its 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.
In response to the Securities and Exchange Commission's ("SEC") Release No.
33-8040, Cautionary Advice Regarding Disclosure About Critical Accounting
Policies, the Company has identified the following as the most critical
accounting policies upon which its financial status depends. These critical
policies were determined by considering accounting policies that involve the
most complex or subjective decisions or assessments. The Company's most critical
accounting policies are those related to revenue recognition, accounts
receivable allowances, inventory valuation.
Revenue Recognition and Accrued Rebates - The Company recognizes revenue
when product is shipped and title and risk of loss passes to its customers.
Provisions for discounts, returns, allowances, customer rebates and other
adjustments are provided for in the same period as the related revenues are
recorded. The Company enters into contractual agreements with its customers
for rebates on certain products. As sales occur, a provision for rebates is
accrued on the balance sheet and is a charge against net sales.
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. The Company estimates reserves for inventory obsolescence and
shrinkage based on its judgment of future realization. A large portion of
the Company's inventory is manufactured to customer specifications and is
not subject to rapid technological change. Other inventory is generally
less specific and saleable to multiple customers. Management does not
believe changes are reasonably likely to have a material impact on the
valuation of its inventories.
Trade Accounts and Notes Receivable - Management estimates allowances for
collectibility related to its trade accounts and note receivables. These
allowances are based on the customer relationships, the aging and turns of
accounts receivable, credit worthiness of customers, credit concentrations
and payment history. Although management monitors collections and credit
worthiness, the inability of a particular customer to pay its debts could
impact collectibility of receivables and could have an impact on future
revenues if the customer is unable to arrange other financing. Management
does not believe these conditions are reasonably likely to have a material
impact on the collectibility of its receivables or future revenues.
Use of Estimates - The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Results of Operations
Net sales increased 9.1% in the first quarter of fiscal 2002 to $117.3 million
from $107.6 million in the first quarter of fiscal 2001. The increase is
partially due to a major customer pre-buying cans to facilitate production
shifts between their plants and to unusually weak net sales in the first quarter
of fiscal 2001. New business gained in the second half of fiscal 2001 also
contributed to the increased sales in first quarter of fiscal 2002.
Cost of products sold (excluding depreciation and amortization) increased 5.9%
to $104.4 million in the first quarter of fiscal 2002 from $98.6 million in the
first quarter of fiscal 2001. Cost of products sold as a percentage of net sales
decreased to 89.0% in the first quarter of fiscal 2002 from 91.7% in the first
quarter of fiscal 2001. The decrease in cost of products sold as a percentage of
net sales was due to increased volume efficiencies and improved operating
performance at certain of the Company's facilities. As more fully described in
Note 6 to the consolidated financial statements presented in Item I, the Company
recorded a $0.6 million environmental charge to costs of products sold in the
first quarter of fiscal 2002.
Depreciation and amortization expense decreased $0.6 million or 9.7% to $4.8
million in the first quarter of fiscal 2002 from $5.4 million in the first
quarter of fiscal 2001. The decrease is primarily due to the impairment charge
recorded in the third quarter of fiscal 2001, which included a write-off of
$12.0 million of redundant equipment and $4.2 million of goodwill and other
intangibles, partially offset by depreciation expense on fiscal 2002 capital
expenditures.
Selling and administrative expense decreased 7.1% to $3.3 million in the first
quarter of fiscal 2002 from $3.6 million in the first quarter of fiscal 2001.
Selling and administrative expense as a percentage of net sales decreased to
2.8% for the first quarter of fiscal 2002 from 3.3% for the first quarter of
fiscal 2001. The decrease in selling and administrative expense was primarily
due to ongoing efforts to control corporate overhead costs.
Interest expense decreased 16.9% or $0.6 million to $3.3 million in the first
quarter of fiscal 2002 from $3.9 million in the first quarter of fiscal 2001.
The decrease is primarily attributable to lower market interest rates and lower
average indebtedness. The Company's outstanding bank debt decreased $24.4
million to $19.9 million at December 30, 2001 from $44.3 at December 31, 2000
primarily due to improved operating results and better working capital
management.
Other income of $0.3 million in the first quarter of fiscal 2002 relates
primarily to the gain on sale of machinery and equipment included in Assets Held
for Sale at September 30, 2001 for $0.2 million.
Income before taxes increased $5.6 million to $1.8 million in the first quarter
of fiscal 2002 from a loss of $3.9 million in the first quarter of fiscal 2001.
The increase was due to the factors discussed above. The provision for income
taxes was $0.8 million in the first quarter of fiscal 2002. The Company recorded
a tax benefit of $2.0 million in the first quarter of fiscal 2001 resulting from
the operating losses recorded during the same period.
Diluted earnings per common share increased $0.30 to $0.10 for the first quarter
of fiscal 2002 from a diluted loss per common share of $0.20 for the first
quarter of fiscal 2001. The weighted-average diluted common shares outstanding
were 9.0 million and 9.2 million for the respective quarters.
9
Liquidity and Capital Resources
The Company's cash requirements for operations and capital expenditures during
the first quarter of fiscal 2002 were primarily financed through borrowings
under the Company's Credit Facility. During the fiscal quarter, cash and cash
equivalents decreased $0.2 million and net Credit Facility borrowings increased
$7.1 million. Borrowings are typically the highest during the first quarter of
the fiscal year due to payments of year-end accounts payable. Borrowings were
$11.0 million lower during the first quarter of fiscal 2002 compared to the
first quarter of fiscal 2001.
At December 30, 2001, the Company had a $90 million Credit Facility with an
available borrowing limit of $71.3 million and excess availability of $43.2
million. The Credit Facility limits available borrowings based on a fixed asset
sublimit and percentages of eligible accounts receivable and inventories. The
difference between the available borrowing limit and excess availability relates
to borrowings outstanding, standby letters of credit and lockbox receipts in
transit. The Company was in compliance with all Credit Facility covenants at
December 30, 2001.
Credit Facility interest rates are based on interest rate margins for either the
prime rate (as determined by Deutsche Bank AG, New York branch) or LIBOR. The
Company has the option to borrow at either the prime or LIBOR rate margin. The
interest rate margin on prime borrowings is fixed at 1.0% and the LIBOR interest
rate margin is fixed at 2.75% through fiscal year 2002. Beginning in fiscal
2003, the LIBOR rate margin shall be determined quarterly based on the Company's
ratio of total indebtedness to EBITDA.
Net cash used in operating activities was $1.7 million during the first quarter
of fiscal 2002 compared to $10.3 million used during the first quarter of fiscal
2001. During the first quarter of fiscal 2002, cash from operating activities
was primarily provided by net income before depreciation and amortization and by
income tax refunds. 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, and 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 $1.2 million during the first quarter
of fiscal 2002 compared to $2.0 million during the first quarter of fiscal 2001.
Net cash used in investing activities was primarily used for capital
expenditures during the first quarter of each fiscal year. Net cash used in
investing activities in the first quarter of fiscal 2002 was partially offset by
$0.5 million in proceeds from the disposition of property, plant and equipment.
Net cash provided by financing activities was $2.7 million during the first
quarter of fiscal 2002 compared to $11.8 million during the first quarter of
fiscal 2001. Net borrowings under the Company's Credit Facility decreased $11.0
million to $7.1 million for the first fiscal quarter of 2002 compared to $18.1
million for the first fiscal quarter of 2001. Cash used in financing activities
for the first fiscal quarter of 2002 was primarily used to decrease unpresented
bank drafts.
At December 30, 2001, Credit Facility covenants prohibited the Company from
paying shareholder dividends, making other restrictive payments or incurring
additional indebtedness. The Indenture governing the Company's $100 million
Senior Subordinated Notes also contains certain restrictive covenants, including
limitations on asset sales and additional indebtedness. Covenants in the
Indenture restricted the Company's ability to pay shareholder dividends and
other restricted payments in an amount greater than $9.6 million at December 30,
2001.
Management believes that cash provided from operations and borrowings available
under the Credit Facility will provide it with sufficient liquidity to meet its
operating and capital expenditure needs in the next 12 months.
The Company is assessing and considering various strategic options to optimize
shareholder value. Management is investigating a broad range of possibilities
including, but not limited to, internal expansion, acquisitions, a business
combination and a recapitalization.
Commitments and Contingencies
On January 22, 2002, the SEC issued an interpretive release on disclosures
related to liquidity and capital resources, including off-balance sheet
arrangements. The Company does not have any off-balance sheet arrangements.
The Company is not aware of factors that are reasonably likely to adversely
affect liquidity trends. However, the following additional information is
provided to assist financial statement users.
10
Related Party Transactions
The Company leases a warehouse and a manufacturing facility in Elizabeth, New
Jersey under operating leases with partnerships of which a member of the
Company's board is a partner. The manufacturing facility was closed in fiscal
year 2001 and reserves were included in the Company's 2001 restructuring and
impairment charge to offset future lease obligations, net of expected income
from subleasing the excess space. The Company continues to use the warehouse and
is actively marketing the manufacturing facility for sublease. Management does
not believe these related party transactions will materially affect the results
of operations, cash flows or financial position of the Company in the future.
The Company does not have any arrangements or transactions with unconsolidated,
limited or special purpose entities in which the Company has an ownership or
other controlling interest.
Contractual Obligations and Commercial Commitments
The following chart sets forth the Company's material contractual cash
obligations as of December 30, 2001.
(in millions) Payments Due by Period
Contractual Obligations Total Less than 1 year 1 - 3 years 4 - 5 years After 5 years
Long-term debt $119.9 $ -- $ -- $ 119.9 $ --
Operating leases 35.8 5.4 8.8 5.8 15.8
Other long-term obligations (1) 9.4 0.1 0.4 0.9 8.0
Total contractual cash obligations $165.1 $ 5.5 $ 9.2 $ 126.6 $ 23.8
(1) Other long-term obligations include certain future payments related to
supplemental executive retirement benefit obligations for certain of the
Company's current and retired executives. The amounts shown in the table
are the maximum future benefit payments subject to certain actuarial
assumptions regarding life expectancy, which will differ from the
actuarially determined liability related to these obligations. The amounts
are included in the Company's consolidated balance sheet in "Other
Long-Term Liabilities" as of December 30, 2001.
At December 30, 2001, the Company had standby letters of credit in the aggregate
amount of $4.3 million in favor of the Company's workers' compensation insurer,
purchasing card vendor and a foreign supplier. These standby letters of credit
expire in less than one year.
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.
In December 2001, the Company discovered a hazardous waste site at its
Homerville, Georgia facility. The identified hazardous waste predates the
Company's ownership of the facility, which was acquired from Owens-Illinois in
1989. The related purchase agreement provides for indemnification from
Owens-Illinois for pre-existing environmental issues. The Company has taken
steps to quantify and report the existence of the hazardous waste to the Georgia
Environmental Protection Division and Owens-Illinois. A preliminary
investigation has determined that required site remediation costs will range
from $0.3 million to $1.2 million.
In December 2001, the Company discovered an unlicensed landfill at the Company's
Cincinnati, Ohio facility. The identified landfill predates the Company's
acquisition of the property from Ball Corporation in 1996. As part of the
purchase agreement, Ball Corporation provided an indemnification for
pre-existing environmental issues, which is subject to certain sharing ratios.
The Company is liable for 20% of costs between $0.3 and $3.3 million and 35% any
costs exceeding $3.3 million. The Company has notified Ball Corporation and the
Ohio Environmental Protection Agency to determine the required remediation.
The Company recorded a $0.6 million environmental charge during the first
quarter of fiscal 2002 for these matters.
11
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 off-site waste disposal sites utilized
by former or current facilities of the Company or its various predecessors.
Management believes that none of these matters will have a material adverse
effect on the operating results or financial condition of the Company in light
of both the Company's understanding of the potential liability and the
availability, in certain cases, of contractual indemnification from sellers of
businesses to the Company. Because liability under CERCLA is retroactive, it is
possible that in the future the Company may incur liabilities with respect to
other sites.
Pension Plans and Retiree Benefits
The Company's pension plans and retiree benefits are discussed in the notes to
the consolidated financial statements included in the Company's Annual Report on
Form 10-K as of September 30, 2001. The Company sponsors a qualified defined
contribution profit sharing and savings plan for specified employees that
provides for employee contributions with a Company matching provision, and, for
certain employees, a deferred profit sharing component funded by the Company.
The Company also sponsors a defined benefit post-retirement benefit plan
applicable to certain union employees at the Company's Cincinnati, Ohio
manufacturing facility. The Company has an unfunded benefit obligation of $4.1
million at September 30, 2001 related to this defined benefit plan.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The fair value of the Company's Senior Subordinated Notes due 2007 is exposed to
the market risk of interest rate changes. The Company's cash flows and earnings
are also exposed to the market risk of interest rate changes resulting from
variable rate borrowings under the Company's Credit Facility.
The Company's Credit Facility permits the Company to borrow up to $90 million
provided certain assets are sufficient and certain restrictive covenants are
met. Borrowings under the Credit Facility bear interest at either the prime rate
or the London InterBank Offered Rate ("LIBOR") plus an applicable spread
percentage. The Company determines whether to borrow at prime or LIBOR plus the
applicable rate margin based on cash requirements. The interest rate spread on
prime borrowings is fixed at 1.0%. The interest rate spread on LIBOR borrowings
at December 30, 2001 was 2.75% and the rate spread is fixed through fiscal year
2002. Beginning in fiscal 2003, the LIBOR rate margin shall be determined
quarterly based on the Company's ratio of total indebtedness to EBITDA. At
December 30, 2001, the Company had borrowings under the Credit Facility of $19.9
million that were subject to interest rate risk. Each 100 basis point increase
in interest rates would impact quarterly pretax earnings by less than $0.1
million at the December 30, 2001 debt level.
The Company does not enter into derivatives or other market risk sensitive
instruments to hedge interest rate risk or for trading purposes.
12
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 30, 2001.
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, timing and cost of plant start-up and closure; the Company's
ability to successfully integrate acquired businesses; labor unrest; changes in
market price or market demand; changes in raw material costs or availability;
loss of business from customers; unanticipated expenses; changes in financial
markets; potential equipment malfunctions; and the other factors discussed in
the Company's filings with the Securities and Exchange Commission.
13
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: February 13, 2002 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 December 30, 2001
14
INDEX TO EXHIBITS
Exhibit
No. Description of Document
------------- -------------------------------------------------------------
None
15