Exhibit 99.3
North America Packaging Corporation and Subsidiary
Unaudited Condensed Financial Statements
INDEX
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Unaudited Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 | | 1 |
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Unaudited Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2004 and June 30, 2003 | | 3 |
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Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and June 30, 2003 | | 4 |
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Unaudited Notes to the Condensed Consolidated Financial Statements | | 5 |
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North America Packaging Corporation and Subsidiary
Unaudited Condensed Consolidated Balance Sheets
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| | | June 30, 2004
| | December 31, 2003 (1)
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Assets | | | | | | |
Current assets: | | | | | | |
Cash | | $ | 2,010,602 | | $ | — |
Trade receivables, less allowance for doubtful accounts of $592,400 and $495,700, respectively | | | 28,401,738 | | | 20,185,241 |
Inventories, net of reserve of $394,600 and $406,700, respectively | | | 15,754,717 | | | 13,949,957 |
Prepaid expenses | | | 656,112 | | | 1,002,297 |
Income taxes receivable | | | — | | | 2,744,016 |
Other current receivables | | | 1,295,600 | | | 899,276 |
Deferred income taxes | | | 903,999 | | | 903,999 |
Other current assets | | | 65,842 | | | 134,882 |
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Total current assets | | | 49,088,610 | | | 39,819,668 |
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Property, plant and equipment, net of accumulated depreciation and amortization of $17,521,900 and $14,866,766, respectively | | | 36,212,486 | | | 37,381,987 |
Deferred financing cost, net | | | 1,007,411 | | | 1,187,411 |
Goodwill | | | 29,260,394 | | | 29,260,394 |
Fair value of interest rate swap | | | 82,516 | | | — |
Deposits | | | 528,577 | | | 765,034 |
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Total assets | | $ | 116,179,994 | | $ | 108,414,494 |
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| | | June 30, 2004
| | | December 31, 2003 (1)
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Liabilities and stockholders’ (deficit) equity | | | | | | | | |
Current Liabilities: | | | | | | | | |
Bank overdraft | | $ | — | | | $ | 114,310 | |
Trade accounts payable | | | 23,961,452 | | | | 20,666,035 | |
Accrued expenses and other liabilities | | | 5,761,630 | | | | 4,444,440 | |
Notes payable to financial institution under revolving loan | | | 18,100,000 | | | | 16,478,637 | |
Current portion of long-term debt | | | 6,000,000 | | | | 6,000,000 | |
Income taxes payable | | | 7,922,804 | | | | — | |
Capital lease obligations | | | — | | | | 102,357 | |
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Total current liabilities | | | 61,745,886 | | | | 47,805,779 | |
Long-term debt, less current portion | | | 17,500,000 | | | | 20,574,598 | |
Accrued pension liability | | | 2,257,058 | | | | 3,268,577 | |
Dividend payable | | | 1,251,551 | | | | 814,956 | |
Accrued long-term incentive plan | | | 1,471,289 | | | | 1,191,289 | |
Series A redeemable convertible preferred stock | | | 21,538,000 | | | | 21,538,000 | |
Redeemable common stock warrants | | | 16,714,960 | | | | 6,196,046 | |
Capital lease obligations | | | — | | | | 333,792 | |
Deferred income taxes | | | 2,867,500 | | | | 2,867,500 | |
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Total liabilities | | | 125,346,244 | | | | 104,590,537 | |
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Stockholders’ (deficit) equity: | | | | | | | | |
Series B preferred stock, $.01 par value; authorized 5,000 shares; issues and outstanding 2,388 in 2004 and 2003 (liquidation value of $1,000 per share, plus accrued and unpaid dividends) | | | 24 | | | | 24 | |
Common stock, par value $.01 per share; authorized 449,000 shares; issued and outstanding 60,000 shares in 2004 and 2003 | | | 600 | | | | 600 | |
Accumulated other comprehensive loss | | | (374,466 | ) | | | (531,580 | ) |
Additional paid-in capital | | | 3,387,376 | | | | 3,387,376 | |
Retained (deficit) earnings | | | (12,179,784 | ) | | | 967,537 | |
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Total stockholders’ (deficit) equity | | | (9,166,250 | ) | | | 3,823,957 | |
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Total liabilities and stockholders’ (deficit) equity | | $ | 116,179,994 | | | $ | 108,414,494 | |
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| (1) | The balance sheet at December 31, 2003 has been derived from the Company’s audited financial statements. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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North America Packaging Corporation and Subsidiary
Unaudited Condensed Consolidated Statements of Operations
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| | | Six Months Ended
June 30, 2004
| | | Six Months Ended
June 30, 2003
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Net Sales | | $ | 127,338,146 | | | $ | 114,206,750 | |
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Operating costs and expenses: | | | | | | | | |
Cost of products sold | | | 112,147,430 | | | | 100,272,092 | |
Selling and administrative expenses | | | 8,404,436 | | | | 7,158,564 | |
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Operating income | | | 6,786,280 | | | | 6,776,094 | |
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Other income (expense): | | | | | | | | |
Interest expense, net | | | (12,024,862 | ) | | | (2,245,310 | ) |
Other, net | | | 381,728 | | | | 329,219 | |
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Other income (expense), net | | | (11,643,134 | ) | | | (1,916,091 | ) |
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(Loss) income before income taxes | | | (4,856,854 | ) | | | 4,860,003 | |
Income tax expense | | | (8,208,083 | ) | | | — | |
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Net (loss) income | | $ | (13,064,937 | ) | | $ | 4,860,003 | |
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Net (loss) income | | $ | (13,064,937 | ) | | $ | 4,860,003 | |
Change in fair value of interest rate swap | | | 157,114 | | | | — | |
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Comprehensive (loss) income | | $ | (12,907,823 | ) | | $ | 4,860,003 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
North America Packaging Corporation and Subsidiary
Unaudited Condensed Consolidated Statements of Cash Flows
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| | | Six Months Ended
June 30, 2004
| | | Six Months
Ended June 30,
2003
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Net cash provided by operating activities | | $ | 6,474,349 | | | $ | 3,003,401 | |
Cash flows from investing activities: | | | | | | | | |
Net purchases of property, plant and equipment | | | (2,885,418 | ) | | | (4,222,831 | ) |
Net change in deposits | | | 236,457 | | | | 216,806 | |
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Net cash used in investing activities | | | (2,648,961 | ) | | | (4,006,025 | ) |
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Cash flows from financing activities: | | | | | | | | |
Repayment of borrowings, net | | | (3,000,000 | ) | | | — | |
Payments of principal under capital lease | | | (436,149 | ) | | | — | |
Redemption of Series A preferred shares | | | — | | | | (2,000,000 | ) |
Payment of cash dividends | | | — | | | | (955 | ) |
Net proceeds from revolving loan | | | 1,621,363 | | | | 3,853,148 | |
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Net cash (used in) provided by financing activities | | | (1,814,786 | ) | | | 1,852,193 | |
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Net increase (decrease) in cash and cash equivalents | | | 2,010,602 | | | | 849,569 | |
Cash and cash equivalents at beginning of period | | | — | | | | 318,632 | |
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Cash and cash equivalents at end of period | | $ | 2,010,602 | | | $ | 1,168,201 | |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
North America Packaging Corporation and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Operations
Unaudited Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the interim financial statements. Operating results for the six-months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.
Operations
North America Packaging Corporation and Subsidiary, (the “Company”) operates ten plants throughout the United States of America, Canada and Puerto Rico and is engaged in the manufacturing of a wide range of rigid industrial plastic packaging.
Recently Issued Accounting Standards
In January 2003, Financial Accounting Standards Board Interpretation No. 46,Consolidation of Variable Interest Entities (“FASB Interpretation No. 46”), was issued. Among other things, FASB Interpretation No. 46 defines a variable interest entity (“VIE”) as an entity that either has investor voting rights that are not proportional to their economic interests or has equity investors that do not provide sufficient financial resources for the entity to support its activities. FASB Interpretation No. 46 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss from the VIE’s activities. If no company is subject to a majority of such risk, consolidation would be required by a company that is entitled to receive a majority of the VIE’s residual returns. The Company intends to adopt FASB Interpretation No. 46 effective April 1, 2005, when adoption is mandatory for non-public companies. While management has not completed its evaluation of FASB Interpretation No. 46 at this time, it does not expect that the adoption of FASB Interpretation No. 46 will have a significant impact on the Company’s financial statements.
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2. Inventory
Inventories consist of the following:
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| | | June 30, 2004
| | December 31, 2003
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Finished products | | $ | 6,882,303 | | $ | 7,351,093 |
In-process products | | | 153,004 | | | 102,392 |
Raw materials | | | 8,719,410 | | | 6,496,472 |
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| | | $ | 15,754,717 | | $ | 13,949,957 |
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3. Property and Equipment
Property, plant and equipment consists of the following:
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| | | June 30, 2004
| | | December 31, 2003
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Land and buildings | | $ | 2,414,883 | | | $ | 2,414,883 | |
Machinery and equipment | | | 47,675,907 | | | | 46,629,478 | |
Leasehold improvements | | | 1,754,759 | | | | 1,633,353 | |
Construction in progress | | | 1,888,837 | | | | 1,571,039 | |
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| | | | 53,734,386 | | | | 52,248,753 | |
Accumulated depreciation and amortization | | | (17,521,900 | ) | | | (14,866,766 | ) |
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| | | $ | 36,212,486 | | | $ | 37,381,987 | |
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4. Long-Term Incentive Plan
In 2001, the Company adopted the Long-Term Incentive Plan to provide incentive opportunities that attract, retain and motivate key employees. The Plan is a cash-based, long-term incentive plan. The Plan authorizes the grant of Phantom Stock Units, as defined in the Plan, that provide participants with an opportunity to participate in the growth of shareholder value over time.
Changes in the fair value of the Phantom Stock Units between the date of grant and the measurement date result in changes to the overall compensation cost that is recorded. Costs associated with this plan are charged to expense over the period in which the plan participants provide services to the Company. During the six months ended June 30, 2004 and June 30, 3003, the Company accrued $280,000 and $595,644 in compensation cost related to outstanding grants under the Plan.
As a result of the transaction described in Note 7, the vesting of the Phantom Stock Units was accelerated and participants received cash totaling approximately $ 7,349,000.
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5. Pensions
The following table sets forth the components of net periodic pension cost for the defined benefit plans in the statements of operations:
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| | | Six Months Ended
June 30, 2004
| | | Six Months Ended
June 30, 2003
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Defined benefit plans: | | | | | | | | |
Service cost | | $ | 415,722 | | | $ | 352,247 | |
Interest cost on projected benefit obligation | | | 353,349 | | | | 316,756 | |
Expected return on plan assets | | | (304,161 | ) | | | (256,863 | ) |
Net recognized amortization and deferral | | | 50,015 | | | | 17,625 | |
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Net periodic pension cost for defined benefit plans | | $ | 514,925 | | | $ | 429,765 | |
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6. Common Stock Warrants
Pursuant to a stock purchase agreement dated May 28, 2004, BWAY Corporation acquired all of the issued and outstanding shares of the Company, pursuant to a stock purchase agreement. As a result of the acquisition, the Company redeemed its remaining outstanding common stock warrants resulting in the recording of $10,518,914 in interest expense in the period ended June 30, 2004. This amount represents the difference between the redemption amount of the warrants of $16,714,960 and the recorded warrant value of $6,196,046.
7. Subsequent Events
Effective July 7, 2004, BWAY Corporation (“BWAY”) acquired all of the issued and outstanding shares of stock of the Company, pursuant to a stock purchase agreement, dated as of May 28, 2004. As a result of the Acquisition, the Company became a wholly owned subsidiary of BWAY.
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