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 March 31, 1997 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
_________________________________________________________________
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 March 31, 1997, Sealright Co., Inc. had 11,071,991 shares of
Common Stock outstanding. The market value of stock held by non-affiliates
is approximately $68.4 million.
SEALRIGHT CO., INC. AND SUBSIDIARIES
FORM 10-Q
MAY 15, 1997
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, 1996.
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997 and 1996
(In Thousands Except Per Share Data)
(Unaudited)
1997 1996
Net Sales $62,200 $ 63,553
Cost of Goods Sold 53,898 53,837
Gross Profit 8,302 9,716
SG&A Expenses 8,264 8,795
Other Expenses 249 234
Net Restructuring Expense (Gain) (615) 1,629
Operating Income (Loss) from
Continuing Operations 404 (942)
Interest Expense 1,249 1,350
Loss from Continuing Operations
Before Income Taxes (845) (2,292)
Income Taxes (348) (887)
Loss from Continuing Operations ($497) ($1,405)
Discontinued Operation, net of tax
Operating Loss - (486)
Gain on Disposal 54 -
Net Loss ($443) ($1,891)
Net Loss Per Share:
From Continuing Operations $(0.04) $ (0.13)
From Discontinued Operation $ 0.00 $ (0.04)
Net Loss Per Share $(0.04) $ (0.17)
Average Number of Common
Shares Outstanding 11,072 11,072
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 and DECEMBER 31, 1996
(In Thousands)
March 31, 1997 December 31, 1996
(Unaudited)
ASSETS
Current Assets
Cash $ 132 $ 264
Accounts receivable 29,211 23,173
Inventory 41,048 36,635
Income tax receivable 4,894 4,800
Prepaid expenses 1,227 1,121
Other current assets 1,805 922
Total current assets 78,317 66,915
Property, Plant & Equipment 236,796 241,770
Accumulated Depreciation (107,192) (105,517)
Property, Plant and Equipment, net 129,604 136,253
Goodwill, net 5,597 5,701
Other intangibles, net 5,501 5,645
Prepaid pension 2,741 2,682
Other 69 76
Net assets of discontinued operation 0 6,013
Total Assets $221,829 $223,285
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 and DECEMBER 31, 1996
(In Thousands)
March 31, 1997 December 31, 1996
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 6,200 $ 6,200
Accounts payable 17,217 12,862
Accrued vacation 2,449 2,543
Accrued workers' compensation reserve 2,460 2,646
Restructuring liability 706 1,555
Other accrued liabilities 6,918 5,326
Total current liabilities 35,950 31,132
Restructuring liability 225 300
Long term debt 75,250 81,800
Post-retirement liability 2,287 2,240
Pension liability 1,973 1,973
Deferred income taxes 14,618 13,871
Total liabilities 130,303 131,316
Common stock, par value $0.10,
shares authorized: 20,000,000; shares
issued and outstanding: 11,071,991
at March 31, 1997 and December 31, 1996 1,107 1,107
Additional paid-in capital 14,911 14,911
Retained earnings 75,766 76,209
Minimum pension liability adjustment (258) (258)
Total stockholders' equity 91,526 91,969
Total liabilities and stockholders' equity $221,829 $ 223,285
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997 and MARCH 31, 1996
(In Thousands)
(Unaudited)
1997 1996
Cash Flows from Operating Activities
Net Loss $ (443) $(1,891)
Adjustments to reconcile net loss to
net cash provided (used) by
continuing operations:
(Gain)loss from discontinued operation (54) 486
Depreciation & amortization 5,061 4,531
Deferred income taxes 752 (1,216)
LIFO provision 173 332
Gain on disposal of assets (715) 0
Changes in assets and liabilities:
Accounts Receivable (6,038) (8,132)
Inventory (4,586) (2,620)
Accounts Payable 4,355 8,850
Restructuring Liability (924) (1,063)
Other 2,125 (1,998)
Total adjustments $ 149 $ (830)
Net cash used by
continuing operations (294) (2,721)
Net cash used by discontinued
operation (1,358) (427)
Net cash used by operating activities (1,652) (3,148)
Cash Flows from Investing Activities
Capital expenditures $(3,925) $(3,108)
Capital expenditures of discontinued operation 0 (1,812)
Proceeds from sale of assets 11,995 0
Net cash provided (used) by
investing activities $ 8,070 $(4,920)
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997 and MARCH 31, 1996
(In Thousands)
(Unaudited)
1997 1996
Cash Flows from Financing Activities
Borrowings (Repayments) under bank credit
agreement $(5,000) $ 5,500
Repayments of long-term obligations (1,550) (1,550)
Dividends paid 0 (1,329)
Net cash provided (used) by
financing activities $(6,550) $ 2,621
Net decrease in cash $ (132) $(5,447)
Cash at beginning of period $ 264 $ 6,017
Cash at end of period $ 132 $ 570
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
MARCH 31, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENT PRESENTATION
The information included in these condensed consolidated
financial statements reflects all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management, are
necessary for a fair statement of the results for the interim
periods presented.
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, 1996.
NOTE 3 - INVENTORIES
Inventories at March 31, 1997 and December 31, 1996, were:
1997 1996
(In Thousands)
Inventories Carried on LIFO Basis
Raw Materials $13,405 $11,337
Work-In-Process 5,279 4,719
Finished Goods 15,543 15,005
$34,227 $31,061
LIFO Reserve (754) (581)
Inventories Carried on LIFO Basis $33,473 $30,480
Inventories Carried on Average or FIFO Basis 7,575 6,155
$41,048 $36,635
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 March 31, 1997, 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 March 31, 1997, 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 - STATEMENT OF CASH FLOWS
Supplemental cash flow information is (in thousands):
1997 1996
Interest Paid (Net of Amount Capitalized) $ 1,422 $ 1,359
Income Taxes Paid 60 25
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Net sales for the first quarter of 1997 were $62.2 million versus
$63.6 million in the first quarter of 1996. Overall, sales declined
2%, or $1.4 million, from the prior year. All historical financial
information has been adjusted to present the plastic container
business that was sold during the first quarter of 1997 as a
discontinued operation. In the Company's dairy packaging market,
which includes frozen dairy desserts, unit sales increased
approximately 12 percent over last year while dollar sales increased
approximately two percent. The reduction in revenue per unit reflects
the pricing erosion sustained in this market year over year. Over the
last 12 months, the Company has secured a substantial portion of this
market under multi-year sole-source supply contracts, protecting the
Company's leadership position in frozen dairy desserts.
In the Company's food and beverage packaging market, sales revenue
fell $2.7 million from the first quarter of 1996. This decline is due
to manufacturing capacity constraints resulting from the Akron
facility consolidation that resulted in a backlog of approximately
$2.0 million. In addition, the Company discontinued sales to certain
non-strategic customers. Sales at the Company's Australian facility
were up $700,000 over the prior year as this location continues its
expansion into the beverage labeling market in Australia.
First quarter gross profit was $8.3 million, a decline of $1.4
million from the first quarter 1996. Gross margin for the quarter was
13.3% versus 15.3% last year. The primary reason for the decline
during the quarter was production inefficiencies resulting from the
Charlotte-to-Akron consolidation. These inefficiencies, coupled with
the temporary decline in capacity, reduced gross profit by an
estimated $1.3 million in the first quarter of 1997. The Akron
consolidation is substantially complete and the Akron facility is
expected to achieve projected operating and profit targets by the end
of the second quarter. The gross margin at the San Leandro,
California flexible-packaging facility and the Fulton, New York
paperboard-packaging facility improved considerably since last year.
Both of these facilities were the focus of consolidation and
reorganization efforts during the first and second quarters last year.
First quarter Selling, General and Administrative expenses were
$8.3 million which compares favorably to last year's expense of $8.8
million. SG&A expenses represented 13.3% of sales this year versus
13.8% last year. SG&A expenses continue to decline from last year due
to headcount reductions resulting from the companywide consolidation
and reorganization coupled with tight cost controls.
During the quarter, the Company sold the plastic-manufacturing
operation. This business was accounted for as a discontinued
operation at December 31, 1996 and the expected operating loss through
the date of sale and the loss on the sale were provided for at year-end.
The Company's actual loss on an after-tax basis of $54,000, was
less than provided for at December 31, 1996 and is reflected as a gain
from discontinued operation.
The Company also sold two idle facilities in Kansas City, Missouri
during the first quarter of 1997. A gain of approximately $700,000
was recorded as a credit to restructuring expense. These facilities
formerly housed the research-and-development and machine manufacturing
operations. These operations were transferred to the Company's
DeSoto, Kansas facility during 1996 as part of the companywide
restructuring. Restructuring expenses related to the Charlotte-to-Akron
consolidation were less than $100,000 during the quarter. Last
year the Company incurred restructuring expenses of $1.6 million
during the first quarter related to the DeSoto-to-Fulton
consolidation.
Interest expense for the quarter was $1.25 million which is down
from last year's expense of $1.35 million. The reduction in interest
expense is primarily attributed to a reduction in higher-cost fixed-rate
term debt towards lower-cost floating-rate bank debt coupled with
a $6.1 million reduction in the amount of total debt outstanding.
Interest capitalized into the cost of fixed assets was $119,000 during
the first quarter of 1997 versus $155,000 during the first quarter of
1996.
<PAGE>
Liquidity and Capital Resources
Cash used in operations declined approximately $1.5 million year-
over-year due primarily to the reduction in net loss in the first
quarter of 1997 versus 1996. Offsetting this improvement, however,
was a significant increase in cash used by the plastic-container
business during the quarter of approximately $1.4 million. This
operation was sold on March 3, 1997. The cash used by this operation
consisted primarily of operating losses sustained during January and
February. The sale of this business for approximately $9.0 million
plus proceeds from the sale of the two Kansas City, Missouri,
facilities resulted in approximately $12.0 million of cash proceeds
during the quarter. These proceeds were used to reduce bank debt by
$5.0 million as well as make a $1.6 million scheduled principal
repayment on the Company's term debt during the quarter. At March 31,
1997, the Company had $25 million available under its $30 million line
of credit. This facility is expected to be adequate to meet working
capital and investment needs for the foreseeable future.
Pursuant to its debt agreements, the Company must comply with
various financial covenants. During the first quarter, the
Company was granted a modification to the fixed charge coverage
ratio of these debt agreements for 1997. As of March 31, 1997,
the Company was in compliance with the modified fixed charge
coverage covenant.
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, Earnings Per Share, and SFAS No. 129,
Disclosure of Information about Capital Structure. These
statements require the Company to disclose the impact to earnings
per share resulting from financial instruments that may be
dilutive if converted into common stock as well as disclose the
terms and provisions of potentially dilutive instruments. The
Company intends to adopt these pronouncements as of December 31,
1997, but does not expect adoption will result in a material
impact to reported earnings per share.
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
None
<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: May 15, 1997 /s/ Charles F. Marcy
By: Charles F. Marcy
President & C.E.O.
Date: May 15, 1997 /s/ John T. Carper
By: John T. Carper
Senior Vice President
& C.F.O.
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