SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Quarter Ended June 30, 1996 Commission file number 0-14825
SEALRIGHT CO., INC.
(Exact name of registrant as specified in its charter)
Delaware 16-0876812
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9201 Packaging Drive, DeSoto, Kansas 66018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 913-583-3025
__7101 College Boulevard, Overland Park, Kansas 66210-1891______
Former name, former address and former fiscal year, if changed
since last report.
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.
(1) Yes X No (2) Yes X No
As of June 30, 1996, Sealright Co., Inc. had 11,070,991 shares of
Common Stock outstanding. The market value of stock held by non-
affiliates is approximately $66,586,000.
SEALRIGHT CO., INC. AND SUBSIDIARIES
FORM 10-Q
August 2, 1996
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTRODUCTORY COMMENTS
The Consolidated Financial Statements included herein have been
prepared by Management, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although Management believes that the
disclosures are adequate to enable a reasonable understanding of
the information presented. It is suggested that these Consolidated
Financial Statements be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual
Report on Form 10K, for the year ended December 31, 1995.
Except for historical information contained herein, the matters set
forth in this report or in oral statements made by officers of the
Company are forward looking statements that involve certain risks
and uncertainties that could cause actual results to differ
materially from those in the forward looking statements. The
Company's expectations respecting future revenues and profits
assume, among other things, reasonable continued growth in the
general economy which affects demand for the Company's products,
reasonable stability in raw material pricing, changes in which
affect customer purchasing decisions as well as the Company's
revenues and margins, and successful execution of the Company's
previously announced restructuring plan.
The costs and benefits of the Company's restructuring and facility
consolidation plan may vary from the Company's original
expectations due to various factors such as: the extent of
management's ability to control costs, inefficiencies, overheads
and operational issues during the transition period; sales prices
realized upon future disposal of redundant assets, particularly
real property which is subject to future supply and demand
conditions in various real estate markets; higher or lower than
anticipated rates of relocation or resignation of employees who
otherwise would receive termination payments and difficulties
inherent in forecasting results of an operating mode different from
that which exists at the time the forecast is made. Investors are
also advised to consider other risks and uncertainties that may be
discussed in documents filed by the Company with the Securities and
Exchange Commission.
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE PERIODS ENDED June 30, 1996 and 1995
(In Thousands Except Per Share Data)
(Unaudited)
Three Months Six Months
Ended June 30 Ended June 30
1996 1995 1996 1995
Net Sales $74,350 $84,059 $140,795 $154,673
Cost of Sales 60,723 66,378 118,249 123,872
Gross Profit 13,627 17,681 22,546 30,801
Selling, General & Admin. Expense 8,515 9,470 17,310 17,482
Other Expense 248 396 483 784
Restructuring Expense 820 -- 2,449 --
Operating Income 4,044 7,815 2,304 12,535
Interest Expense 1,382 1,353 2,732 2,500
Income (Loss) Before Income Taxes 2,662 6,462 (428) 10,035
Provision for Inc. Taxes (Benefit) 1,037 2,510 (162) 3,996
NET INCOME (LOSS) $ 1,625 $ 3,952 $ (266) $ 6,039
NET INCOME (LOSS) PER SHARE $ 0.15 $ 0.36 $ (0.02) $ 0.54
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 11,072 11,096 11,072 11,095
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
(In Thousands)
(Unaudited)
June 30, 1996 December 31, 1995
ASSETS
Current Assets
Cash $ 1,033 $ 6,017
Accounts Receivable 29,506 22,591
Inventories (Note 3) 44,342 39,848
Income Taxes Receivable 3,880 --
Deferred Tax Asset 3,361 190
Other Current Assets 3,649 2,449
Total Current Assets 85,771 71,095
Property, Plant & Equipment 246,711 240,065
Less: Accumulated Depreciation 103,967 97,762
Total Property, Plant and Equipment 142,744 142,303
Intangibles, Net 13,938 14,699
TOTAL ASSETS $242,453 $228,097
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current Maturities of Long-Term Debt $ 6,200 $ 6,200
Accounts Payable 18,366 12,874
Accrued Vacation 3,482 3,253
Accrued Workers' Compensation Reserve 2,152 2,675
Restructuring Liability 1,958 3,259
Accrued Liabilities 4,803 1,989
Total Current Liabilities 36,961 30,250
Long-Term Debt 83,900 77,400
Deferred Income Taxes 18,795 14,168
Post-Retirement Benefits 2,334 2,241
Pension Liability 917 917
Restructuring Liability 450 1,105
Stockholders' Equity
Common Stock, Par Value $.10
Authorized 20,000,000 shares;
issued and outstanding 11,071,991
as of June 30, 1996 and December 31,
1995, respectively 1,107 1,107
Paid-In Capital 14,911 14,911
Retained Earnings 83,078 85,998
Total Stockholders' Equity 99,096 102,016
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $242,453 $228,097
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED June 30, 1996 and June 30, 1995
(In Thousands)
(Unaudited)
1996 1995
Cash Flows from Operating Activities:
Net Income (Loss) $ (266) $ 6,039
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation & Amortization 9,915 9,642
Deferred Tax Provision (261) 2,487
LIFO Reserve Provision 190 203
Changes in Assets and Liabilities:
Accounts Receivable, Net (7,014) (5,687)
Inventories (4,684) (5,783)
Accounts Payable 5,491 2,796
Other (2,155) (1,824)
Total Adjustments $ 1,482 $ 1,834
Net Cash Provided By Operating Activities $ 1,216 $ 7,873
Cash Flows from Investing Activities:
Capital Expenditures $(10,047) $(11,224)
Proceeds from Disposal of Equipment 1 117
Net Cash Used in
Investing Activities: $(10,046) $(11,107)
Cash Flows from Financing Activities:
Net Borrowings Under Revolving
Credit Agreement $ 9,000 $ 11,500
Proceeds from Common Stock Issued -- 152
Principal Payments of Long-Term Debt (2,500) (3,391)
Dividends Paid (2,654) (2,653)
Net Cash Provided by
Financing Activities $ 3,846 $ 5,608
Net (Decrease) Increase in Cash $ (4,984) $ 2,374
Cash, Beginning of Year 6,017 1,057
Cash, End of Six Months $ 1,033 $ 3,431
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
10-Q
JUNE 30, 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENT PRESENTATION
In the opinion of Management, the accompanying unaudited
consolidated financial statements contain normal interim
adjustments necessary to present fairly the financial position of
Sealright Co., Inc. and Subsidiaries as of June 30, 1996 and
December 31, 1995, and the results of their operations for the
quarters ended June 30, 1996 and 1995.
NOTE 2 - ACCOUNTING PRINCIPLES AND POLICIES
The accompanying financial statements have been prepared
consistent with the accounting principles and policies described
more fully in Note 1 of the Company's Annual Report for the year
ended December 31, 1995.
NOTE 3 - INVENTORIES
Inventories at June 30, 1996 and December 31, 1995, were:
1996 1995
(In Thousands)
Inventories Carried on LIFO Basis
Raw Materials $16,480 $13,395
Work-In-Process 6,056 9,163
Finished Goods 17,402 12,714
$39,938 $35,272
LIFO Reserve (1,656) (1,466)
Inventories Carried on LIFO Basis $38,282 $33,806
Inventories Carried on Average or FIFO Basis 6,060 6,042
$44,342 $39,848
Because the inventory determination under the LIFO method can only
be made at the end of each fiscal year based on the inventory
levels and costs at that time, interim LIFO determinations,
including those at June 30, 1996, must necessarily be based on
management's estimate of expected year-end inventory levels and
costs. Since estimates of future inventory levels and prices are
subject to many factors beyond the control of management, interim
financial results are subject to final year-end LIFO inventory
amounts. Accordingly, inventory components reported for the period
ending June 30, 1996, are estimates based on management's knowledge
of the Company's production cycle, the costs associated with this
cycle and the sales and purchasing volume of the Company.
NOTE 4 - STATEMENTS OF CASH FLOWS
Supplemental cash flow information is (in thousands):
1996 1995
Interest Paid (Net of Amount Capitalized) $ 2,697 $ 2,140
Income Taxes Paid 190 1,390
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Net sales for the second quarter of 1996 were $74.4 million, a
decrease of 11.6% from the same quarter of 1995. This decline in
sales volume was equally shared across both major segments of the
Company's business - flexible packaging and rigid packaging. The
decline in flexible packaging was anticipated as 1995 sales were
slightly inflated due to customer purchases in advance of price
increases. Additionally, the Company has withdrawn from some non-
strategic product lines affecting year over year comparisons.
Rigid paperboard packaging, sold primarily to the frozen dessert
market, is down from the prior year due to the loss of two
customers and two other significant factors. First, overall market
sales of frozen desserts is down from 1995 because of an
unseasonably cool and wet spring which depressed consumer sales.
Second, several of the Company's key customers were forced to
significantly reduce marketing and promotional spending in the face
of steeply rising butterfat costs - a major raw material. Premium
ice cream manufacturers, Sealright's primary customers, were hit
particularly hard as their product contains higher amounts of
butterfat. Rigid plastics sales, primarily to the cultured dairy
market, were also down due to competitive pressures and delays in
the market acceptance and delivery of new OMV manufacturing
technology.
Gross profit margins of 18.3% were down from the same quarter
last year due to manufacturing inefficiencies incurred during the
shut down of packaging operations in the DeSoto, Kansas plant.
Operations from that plant were relocated to the Fulton, New York
and Los Angeles, California plants. The Company's machinery
manufacturing and Research & Development operations were relocated
from other Kansas City area facilities to the DeSoto plant late in
the second quarter. The corporate headquarters will be relocated
during the third quarter of 1996, thereby reducing the fixed costs
associated with the three facilities. Additionally, operational
inefficiencies resulting from low volume and the incorporation of
new manufacturing technologies have depressed margins in the rigid
plastics operation in Los Angeles and the flexible packaging
operation in San Leandro, California.
Selling, General & Administrative Expenses for the quarter are
down by 10% from the second quarter of 1995 due to aggressive and
ongoing cost cutting activities which have been implemented
throughout the year.
Interest expense is up very slightly due to higher debt
levels.
The Restructuring Expense of $0.8 million for the quarter
consists of costs associated with the relocation of equipment from
the DeSoto, Kansas plant to the Fulton, New York and Los Angeles,
California plants as well as the relocation of machine
manufacturing and R&D activities to DeSoto. Also included in these
costs are employee relocation expenses related to management
reorganization.
Year-to-date Net Sales are nearly 9% below last year's results
due primarily to factors mentioned above for the second quarter.
Gross Margins for the year-to-date period are below prior year
levels due to sales volume reductions and manufacturing
inefficiencies related to the discontinuation of rigid paperboard
packaging operations in DeSoto, Kansas and the related relocation
of manufacturing operations to the New York and California plants.
Year-to-date Selling, General and Administrative expenses are
down slightly from the prior year. First quarter SG&A expenses
were $800 thousand above the prior year due to expenses associated
with the reorganization, implementation of the Company's new
information system project and other operating expenses.
Reorganization related expenses subsided late in the first quarter
and the impact of aggressive cost cutting reduced second quarter
SG&A expenses. Management expects these cost cutting measures will
continue to positively impact future performance. Continued cost
reduction initiatives are a management priority.
Interest costs for the six month period are up by 9% due to
reduced interest expense capitalization - a result of reduced
capital spending and higher levels of debt. During late 1995, the
Company took advantage of the favorable interest rate environment
and issued $30MM of senior notes, increasing the amount of leverage
employed to fund the Company's operations.
The Restructuring Expense of $2.4 million consists primarily
of equipment relocation expenses associated with the consolidation
of rigid packaging operations in New York and California as well as
employee recruiting and relocation expenses associated with
management reorganization.
Liquidity and Capital Resources
Net Cash Provided by Operating Activities for the six month
period ended June 30, 1996 of $1.2 million compared to $7.9 million
for the same period in 1995. The reduction in Net Income from year
to year is the primary factor in the reduction. Capital
Expenditures for the six month period of $10 million were directed
primarily at plant consolidation activities, cost savings
initiatives and the Company's new state-of-the-art Information
System.
At June 30, 1996, the Company had borrowed $9.0 million
against its $30 million bank line of credit at an average interest
rate of 5.95%. The remaining $21 million of available credit is
significantly more than the Company's anticipated needs for working
capital and investment spending for the balance of the year.
<PAGE>
PART II - OTHER INFORMATION
Item 1.) Legal Proceeding
None
Item 2.) Changes in Securities
None
Item 3.) Defaults Upon Senior Securities
None
Item 4.) Submission of Matters to a Vote of Securities Holders
None
Item 5.) Other Materially Important Events
None
Item 6.) Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule
<PAGE>
SALES OF UNREGISTERED SECURITIES
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SEALRIGHT CO., INC.
Date: August 9, 1996 /s/ Charles F. Marcy
By: Charles F. Marcy
President & CEO
Date: August 9, 1996 /s/ John T. Carper
By: John T. Carper
Senior Vice President
Finance & CFO
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