UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For The Year Ended December 31, 1996 Commission file number 0-14825
SEALRIGHT CO., INC
(Exact name of registrant as specified in its charter)
9201 Packaging Drive
DeSoto, Kansas 66018
Telephone number (913) 583-3025
Incorporated in the State of Delaware
16-0876812
(IRS Employer Identification No.)
Securities Registered Pursuant to Section 12(g) of the Act:
Title of each class
Common stock, $.10 par value
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 [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrants' knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendments to this
Form 10-K. [X]
As of February 28, 1997, there were 11,071,991 shares of
Common Stock, $.10 par value, outstanding. On February 28, 1997,
the aggregate market value of such shares held by non-affiliates of
the Registrant was approximately $68.4 million.
Part II incorporates information by reference from the
Registrant's 1996 Annual Report to Stockholders. Part III
incorporates information by reference from the Registrant's
definitive proxy statement dated March 31, 1997.
<PAGE>
PART I
Item 1. Business.
Sealright Co., Inc., the Registrant, together with its
subsidiaries, is referred to herein as the "Company". The Company
was organized in 1964 as a Delaware corporation. The Company
manufacturers packaging and labeling systems primarily for the food
and beverage industries. The Company operates in the packaging
industry.
At December 31, 1996, the Company operated eight domestic
manufacturing facilities located in Fulton, New York, DeSoto,
Kansas, Los Angeles, California (2), Akron, Ohio, San Leandro,
California, Charlotte, North Carolina, and Raleigh, North Carolina.
Additionally, the Company operated one manufacturing facility in
Brisbane, Australia. In addition to these operating facilities, the
Company's four properties located in Kansas City, Missouri (2),
Kansas City, Kansas and Charlotte, North Carolina are held for
sale.
A majority of the Company's revenues are derived from the sale
of rigid paperboard containers, primarily for the retail and
wholesale packaged frozen dairy dessert industry. The containers
vary in style, size and composition and are marketed under the
following trade names: Bulkan*, Convocan*, Nestyle*, Ultrakan*, and
Vektor**.
The Bulkan container is a spirally wound container used in bulk
service applications such as food service, restaurants, and frozen
dessert stores. The Convocan container is a smaller retail-size
package that is cylindercally shaped and constructed from a one
piece sidewall rather than a spiral construction. The Convocan is
used primarily to package frozen dairy desserts. The Ultrakan
container is a cylindrical container formed from a one piece
*Registered
**Trademark
sidewall that is tailored to both the product and market in which
it is to be used. The Vektor container is similar to the Ultrakan
container in that its is not limited to a cylinder. Both the
Ultrakan and Vektor packages are used in a variety of food and non-food
applications. The Bulkan, Convocan, Ultrakan, and Vektor
packages are partially manufactured at the customers' facility with
equipment manufactured by the Company and leased to the customer.
Nestyle containers are tapered round packages available in a
variety of sizes for the retail market. These containers are used
for frozen dairy dessert, carryout foods, and non-food
applications. Generally, Nestyle containers are assembled at the
Company's facility and shipped nested to the customer for filling
and sealing.
The Company manufactures a variety of flexible packaging
materials to serve markets for container decoration and closures,
condiment pouches, food and medical packaging, as well as household
and personal care item packaging. The Company's flexible packaging
products are generally sold to manufacturers that use them as
packaging for end products. The Company sells flexible features
using the Pinch-N-Seal** and Jotto* trade names. The Company
manufactures proprietary film structures used in many of its
flexible packaging products as well as blown film products used in
the construction industry.
The Company manufactures and sells a full line of equipment to
apply sleeve labels to a variety of containers. These machines are
marketed both domestically and internationally and are sold under
the Styrotech7 trade name.
Historically, the Company's operations were managed on a
plant-by-plant profit center basis and organized into two distinct
product groups: rigid and flexible packaging. In December 1995,
the Company embarked on a restructuring and reorganization plan
(the "Restructuring Plan") to strengthen management and align
operations into a market-driven strategy. The Company now
organizes its products into the following categories: frozen dairy
dessert packaging, container decoration for the beverage and dairy
markets, dispensed sauce packaging for the food service markets,
*Registered
**Trademark
<PAGE>
As part of the Restructuring Plan, the Company is reducing
fixed overhead costs through facility consolidations and is
eliminating duplicative processes by centralizing various service
and food packaging. The Company also manufactures machinery that
it leases and sells to complement its packaging systems strategy in
various markets. functions. In early 1996, the Company ceased the
rigid paperboard packaging operations at its DeSoto, Kansas
facility and consolidated such operations into the Fulton, New York
and Los Angeles, California facilities. During the second quarter
of 1996, the Company relocated its machinery manufacturing and
research and development operations from other Kansas City area
facilities to the DeSoto facility, followed by the relocation of
the corporate headquarters from Overland Park, Kansas to the DeSoto
facility in the third quarter of 1996. During the first quarter of
1997, the Company completed the consolidation of the Raleigh, North
Carolina machine manufacturing operations into the DeSoto facility,
and expects to complete the consolidation of its Charlotte, North
Carolina flexible packaging operations into the Akron, Ohio
facility. The Company will continue to use the Raleigh facility as
a sales and service center. The Company expects to sell the Kansas
City, Missouri and Charlotte facilities during the first quarter of
1997.
On March 3, 1997, the Company sold its rigid plastic packaging
operation, which was incurring substantial losses. The operation
was sold for $9.0 million. The facility where this business was
previously conducted is now leased to the buyer. The operation
manufactured containers for cultured dairy products, marketed under
the Plastyle* trade name, for sale primarily in the western United
States. The Company sold its rigid plastic packaging operation
since it no longer fit the Company's long-range strategic plans.
Sources of Raw Materials
The Company purchases paperboard, steel, ink, adhesives,
resins, film, cartons and supplies from numerous vendors, some of
whom supply substantial amounts. While multiple sources of these
materials are available, the Company prefers to develop strategic
alliances with selective vendors in order to obtain the best
quality, service and price. The Company has experienced little or
no difficulty in obtaining adequate supplies of raw materials. The
Company does not purchase any raw materials under long-term or
take-or-pay supply contracts.
Trademarks and Patents
The Company's products are manufactured using machinery and
processes covered by patents owned or controlled by the Company.
The Company has domestic and foreign registered trademarks which
are used in connection with both product names and distinctive
designs. However, the Company views its business as one which is
not primarily dependent on patent or trademark protection.
On a non-exclusive basis the Company licenses others,
domestically and in foreign countries, to produce paperboard
components, assemble containers, sublease its machinery and use its
trademarks in the production of containers. Revenues from these
licensing activities have been negligible.
Seasonal Operations
The Company's business is somewhat seasonal due to the nature
of the frozen dessert and beverage markets. Approximately 55% of
the Company's sales and 70% of the Company's profits occur during
the second and third quarters.
<PAGE>
Customers
The Company has one customer, Dreyer's Grand Ice Cream, which
constituted approximately 13% of the Company's revenue for 1996.
While not anticipated, the loss of this account would have a
material adverse impact on the Company.
Sales and Backlog
As of December 31, 1996, the Company had backlog orders of
approximately $46 million. Most of the backlog is expected to be
shipped before the end of the first quarter of 1997.
Customers may place annual orders with shipments scheduled
over an extended period. A substantial portion of the Company's
sales are made under extended-term sales contracts that are subject
to periodic adjustments for raw material and other cost increases.
Backlog figures and comparisons to prior periods vary because of a
number of factors and are not necessarily indicative of past or
future operating results.
Competition
The Company's business is highly competitive and subject to
intense pricing pressures. There are numerous producers of
packaging materials supplying the frozen dessert other packaged
food markets. Many of these competitors are larger than the
Company and have greater financial resources.
In order to strengthen its competitive position, the Company
embarked on the Restructuring Plan in December 1995 (See Business -
General). While it is expected that the Restructuring Plan will
reduce costs and increase its competitive advantage, there is no
assurance that the Company's revenues or profits will increase.
While industry statistics are not available, the Company
believes it is the largest manufacturer of containers for the
frozen dessert market nationally. The Company's market penetration
varies from region to region and by type of container. The Company
believes it has a major competitive position in the bulk frozen
dessert container market, although competition in this market is
also very competitive.
In the half gallon, quart and pint frozen dessert market, the
Company's round containers compete with round containers
manufactured principally by Sweetheart Cup Company and Tetra Pak.
The Company's round containers also compete with the more
traditional square packages, which are manufactured by James River
Corporation and other companies. As a general matter, the
Company's frozen dessert containers are more expensive than square
packages. Accordingly, the Company's containers are primarily sold
to producers of premium frozen dessert to whom container quality,
product image and customer service are more important
considerations than price.
In non-dairy markets, the Company competes with numerous
companies which manufacture a variety of containers using many
different materials and forms of construction. The Company targets
its marketing of the Ultrakan and Vektor containers to customers
that emphasize product image. Depending on the market, price may
also be an important competitive factor. The Company does not have
a significant share of any such markets.
The Company's flexible packaging products enjoy an identity
for high-quality graphics and sophisticated laminations. The
Company's flexible packaging products are sold in highly
competitive markets which include snack foods, condiments, dried
fruits, container decorations and lidding for aseptically packaged
products. The flexible packaging market is highly fragmented and
the Company competes against many suppliers.
The Company also manufactures and sells sleeve label
application equipment for food and non-food markets both
domestically and internationally. These machines are sold through
both the Company's own sales force and through brokers. A
significant portion of these sales are to international customers
which present unique pricing and market risks.
Financial information about the Company's major markets.
(in thousands of dollars)
1996 1995 1994
Net Net Net
Revenues % Revenues % Revenues %
Packaging
Frozen Desserts $122,549 47 $138,330 49 $139,764 47
Other Food Products 98,651 38 98,455 35 98,575 33
Non-food 24,757 10 32,112 11 32,260 11
Medical 4,665 2 5,120 2 3,785 1
Other Dairy Products 2,268 1 2,161 1 1,598 6
Lease Revenue 4,346 2 4,489 2 4,670 2
Total $257,236 100 $280,667 100 $280,652 100
Financial information about the Company's foreign and domestic
operations and export sales.
(in thousands of dollars)
1996 1995 1994
Revenues
Domestic $237,433 $263,726 $270,650
Foreign 19,803 16,941 10,002
Total Revenues $257,236 $280,667 $280,652
Operating Income (Loss)
from Continuing Operations
Domestic $ 401 $ (1,141) $ 22,390
Foreign 3,800 4,235 3,101
Operating Income (Loss) $ 4,201 $ (3,094) $ 25,491
Identifiable Assets
Domestic $218,492 $224,977 $237,829
Foreign 4,793 2,864 1,825
Total Assets $223,285 $227,841 $239,654
Export sales are made mainly to customers in Canada, South
America, Western Europe, Japan and Australia.
Research and Development
The Company is actively engaged in designing and developing new
products and adapting existing products for new uses. A staff of
engineers, designers and machinery specialists evaluate product
ideas initiated by the Company's personnel or by customers seeking
new and better containers. The Company also has a staff of
designers and engineers responsible for the design, development and
modification of the Company's production processes and the
machinery used for production in the Company's plants and in
customers' facilities. Approximately $5,735,000, $6,032,000 and
$5,644,000 were expended for research and development in 1996, 1995
and 1994, respectively.
During 1996, as part of the Restructuring Plan, the Company
consolidated its Research and Development facility previously
located in Kansas City, Missouri into its corporate headquarters
facility in DeSoto, Kansas. The Company believes that certain
synergies may be gained by having its Research and Development
staff physically located with the Company's Marketing and Strategy
staff.
Environmental and Governmental Regulation
Since most of the Company's containers and packages are used
in the food industry, the Company is subject to the manufacturing
standards of and inspection by the U.S. Food and Drug
Administration. Historically, compliance with the standards of the
food industry has not had a material effect on the Company's
earnings, capital expenditures, or competitive position.
The manufacturing operations of the Company are subject to
federal, state, and local regulations governing the environment and
the discharge of materials into air, land and water as well as the
handling and disposal of solid and hazardous wastes. The Company
believe it is in substantial compliance with applicable
environmental regulations and does not believe that costs of
compliance will have a material adverse effect on its earnings,
capital expenditures, or competitive position.
The Company has been notified that it is a potentially
responsible party (PRP) under Comprehensive Environmental Response,
Compensation, and Liability Act of 1980(CERCLA) with respect to the
remediation of certain sites where hazardous substances have been
released into the environment. The Company cannot predict with
certainty the total costs of remediation. However, based on
investigations to date, the Company believes that any liability
with respect to these sites would not be material to the financial
condition and results of operations of the Company. There can be
no certainty that the Company will not be named as a PRP at
additional Superfund sites or be subject to other environmental
matters in the future or that the costs associated with those sites
or matters would not be material.
Employees
The Company's average number of employees for 1996 was 1,603.
Approximately 40% of the Company's employees are covered by collective
bargaining agreements. During 1997, two collective bargaining
agreements covering approximately 9% of the Company's employees are
scheduled for renegotiation. Management considers its employee
relations to be good.
Forward Looking Statements
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, any changes in which affect customer purchasing decisions as
well as the Company's revenues and margins, and successful execution of
the Company's Restructuring Plan.
The costs and benefits of the Company's Restructuring 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 or unneeded 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.
Item 2. Properties.
The following tables set forth the location, approximate square
footage, and principal use of each of the Company's facilities. The
Company believes that its facilities are well maintained and suitable
for their respective uses.
Owned Facilities
Square Principal
Location Feet Use
Kansas City, Missouri(1) 25,000 Office
Kansas City, Missouri(1) 60,000 Manufacturing
Fulton, New York 57,000 Warehouse
Fulton, New York 668,000 Manufacturing and
warehouse
Kansas City, Kansas(1)(2) 280,000 Warehouse
DeSoto, Kansas 480,000 Corporate office,
manufacturing,
warehouse
Los Angeles, California 172,000 Manufacturing
Los Angeles, California(2) 190,000 Manufacturing
San Leandro, California 129,000 Manufacturing and
warehouse
Akron, Ohio 105,000 Manufacturing and
warehouse
Charlotte, North Carolina(1) 115,000 Manufacturing and
warehouse
(1) Held for sale.
(2) Leased to a third party.
Leased Facilities
Square Lease
Location Feet Expiration Use
Los Angeles, California 51,000 2000 Warehouse
San Leandro, California 23,500 1997 Warehouse
Raleigh, North Carolina 7,500 1997 Office
Virginia, QLD., Australia 40,500 1998 Manufacturing and
warehouse
Item 3. Legal Proceedings.
In the ordinary course of business, the Company and its
subsidiaries are subject to various pending claims, lawsuits, and
contingent liabilities. The Company maintains appropriate insurance
policies to protect against various claims and lawsuits. The Company
does not believe that the disposition of these matters will have a
material adverse effect on the Company's consolidated financial position
or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
Quarter High Low Dividend per Share
1996
Fourth $12 1/2 $ 9 3/4 $ -
Third 12 1/2 11 1/16 $.120
Second 14 3/4 10 7/8 $.120
First 12 1/2 9 7/8 $.120
1995 Fourth $13 $10 1/2 $.120
Third 17 11 1/2 $.120
Second 19 3/4 15 3/4 $.120
First 19 1/2 16 3/4 $.120
The Common Stock, which has a par value of $.10 per share, is
traded in the over-the-counter market. It is included in the NASDAQ
National Market System ("NMS")under the symbol SRCO. The table above
sets forth the high and low sale prices, as quoted by NMS, and dividends
paid for each quarter of the last two calendar years. These quotations
reflect inter-dealer prices, without markup, markdown or commissions.
The Company suspended its regular dividend during the fourth
quarter of 1996. The Company is subject to restrictions governing the
payment of dividends by its various borrowing agreements (See
"Management Discussion and Analysis"). The Company expects to resume a
dividend when the Company's performance warrants such resumption and the
Company is permitted to do so by its borrowing agreements.
As of December 31, 1996, there were approximately 419
shareholders of record.
Item 6. Selected Financial Data.
The selected financial data for the five years ended December 31,
1996 are incorporated herein by reference from the Company's 1996 Annual
Report to Stockholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Management's review and comments on the consolidated financial
statements are set forth in the Company's 1996 Annual Report and are
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Company, including
notes thereto, together with the report thereon of KPMG Peat Marwick LLP
("Peat Marwick") dated February 9, 1997, and supplementary data
appearing in the 1996 Annual Report to Shareholders are incorporated
herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Peat Marwick served as the auditors of the Company's books and
records for the fiscal year ended December 31, 1996. Representatives of
Peat Marwick are expected to attend the Annual Meeting and, if present,
will be available to respond to appropriate questions by stockholders
and will have an opportunity to make a statement if they desire.
Pursuant to recommendation made to it by the Audit Committee, on
March 12, 1996 the Board of Directors dismissed Arthur Andersen LLP
("Arthur Andersen") and engaged Peat Marwick to serve as the independent
public accountants of the Company's books and records for the fiscal
year ending December 31, 1996, such replacement and engagement to be
effective beginning April 1, 1996. The Audit Committee's recommendation
to change independent public accountants was made on the basis of
written presentations made by several independent public accounting
firms (including Arthur Andersen and Peat Marwick) to the Audit
Committee.
The certifying accountant's report of Arthur Andersen for each of
the fiscal years ended December 31, 1995 and 1994, respectively,
contains no adverse opinion, disclaimer of opinion or qualifications or
modifications as to uncertainty, audit scope or accounting principles.
There were no disagreements with Arthur Andersen on any matter of
accounting principle or practice, financial statement disclosure, or
auditing scope or procedure for the fiscal years ended December 31, 1995
and 1994, respectively.
The Company provided notice to Arthur Andersen on March 12, 1996
and filed Form 8-K on April 1, 1996 in accordance with Item 304 of
Regulation S-K.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding directors and executive officers is
incorporated herein by reference from the Company's definitive proxy
statement dated March 31, 1997.
Item 11. Executive Compensation.
Information regarding executive compensation is incorporated
herein by reference from the Company's definitive proxy statement dated
March 31, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Information regarding security ownership of certain beneficial
owners and management is incorporated herein by reference from the
Company's definitive proxy statement dated March 31, 1997.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form
8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Page
Consolidated Income Statements for 13
the years ended December 31, 1996,
1995, and 1994
Consolidated Balance Sheets at 14-15
December 31, 1996 and 1995
Consolidated Statements of Cash 16-17
Flows for the years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of 18
Stockholders' Equity for
years ended December 31, 1996,
1995, and 1994
Notes to Consolidated Financial 19
Statements
Report of Independent Public 28
Accountants
Incorporated herein by reference from the indicated
pages of the 1996 Annual Report to Shareholders.
(2) Exhibits
Certain of the exhibits to this Report are hereby
incorporated by reference from other documents on file
with the Commission with which they are physically filed,
to be a part hereof as of their respective dates.
Exhibit
Number Description
3(a) Certificate of Incorporation, as amended, of
the Registrant (Incorporated by reference from
Exhibit 3(a) to Form 10-K for year ended
December 31, 1987)
3(b) Amended and Restated Bylaws dated February 17,
1988 (Incorporated by reference from Exhibit
3(b) to Form 10-K for year ended December 31,
1987)
4(a) Specimen Common Stock Certificate (Incorporated
by reference from Exhibit 4 to Amendment No. 1
to Form S-1, effective April 2, 1986
(Registration No. 33-3508)("Form S-1"))
4(b) Loan Agreement with Metropolitan Life Insurance Company
for $40,000,000, 8.15% Senior Notes due October 22, 1998
(Incorporated by reference from Exhibit 4(d) to Form 10-K
for year ended December 31, 1993.)
4(c) Credit Agreement with UMB Bank, n.a. dated
October 22, 1991 for a $25,000,000 line of
credit (Incorporated by reference from Exhibit
4(c) to Form 10-K for year ended December 31,
1993.)
4(d) Note Agreement with The Prudential Insurance
Company of America for $35,000,000, 6.75%
Senior Notes due September 9, 2008
(Incorporated by reference from Exhibit 4(b) to
Form 10-K for year ended December 31, 1993.)
4(e) First Amendment to the credit agreement with
UMB Bank, n.a. for a $30,000,000 line of credit
dated August 5, 1994. (Incorporated by
reference from Exhibit 4(d) to Form 10-K for
the year ended December 31, 1994.)
4(f) Second Amendment to the credit agreement with
UMB Bank, n.a. for a $40,000,000 line of credit
dated December 20, 1994. (Incorporated by
reference from Exhibit 4(e) to Form 10-K for
the year ended December 31, 1994.)
4(g) Master Shelf Agreement with Prudential Insurance Company
of America for $75,000,000 Senior Notes and $30,000,000,
7.09% Senior Notes, Series A, due October 17, 2010.
(Incorporated by reference from Exhibit 4(g) to Form 10-K
for the year ended December 31, 1995.)
4(h) Third Amendment to the credit agreement with
UMB Bank, n.a. for a $30,000,000 line of credit
dated December 1, 1995. (Incorporated by
reference from Exhibit 4(h) to Form 10-K for
the year ended December 31, 1995.)
4(i) Waiver of compliance and amendment to note
agreements with The Prudential Insurance
Company of America, Metropolitan Life Insurance
Company, Mutual of Omaha Insurance Company, and
UMB Bank, n.a. dated January 24, 1996, filed
herewith.
4(j) Waiver of compliance to note agreements with
The Prudential Insurance Company of America,
Metropolitan Life Insurance Company, Mutual of
Omaha Insurance Company, and UMB Bank, n.a.
dated October 17, 1996 filed herewith.
10(a) Trademark License Agreement between Sealright
Co., Inc. and Sealright Packaging Company dated
December 31, 1990 (Incorporated by reference
from Exhibit 10(h) to Form 10-K for year ended
December 31, 1993.)
10(b) Patent License Agreement between Sealright Co.,
Inc. and Sealright Packaging Company dated
December 31, 1990 (Incorporated by reference
from Exhibit 10(i) to Form 10-K for year ended
December 31, 1993.)
10(c) Incentive Compensation Plan of Sealright Co.,
Inc. effective January 1, 1986 (Incorporated by
reference from Exhibit 10(i) to Form S-1)
10(d) Sealright Co., Inc. Amended and Restated 1987
Stock Option Plan (Incorporated by reference
from Form S-8, effective November 2, 1988
(Registration No. 33-25304))
10(e) Retirement Income Plan of Sealright Co., Inc.
dated January 1, 1994 (Incorporated by
reference from Exhibit 10(n) to Form 10-K for
year ended December 31, 1993.)
10(f) Sealright Co., Inc. and Subsidiaries Long-Term
Incentive Plan "Restated" effective January 1,
1992 and amended on January 15, 1992
(Incorporated by reference from Exhibit 10(o)
to Form 10-K for year ended December 31, 1993.)
10(g) Employment Agreement with John T. Carper, Vice
President-Finance effective May 16, 1994.
(Incorporated by reference from Exhibit 10(n)
to Form 10-K for the year ended December 31,
1994.)
10(h) Sealright Co., Inc. Deferred Compensation Plan effective
January 1, 1994. (Incorporated by reference from Exhibit
10(o) to Form 10-K for the year ended December 31, 1994.)
10(i) Employment Term Sheet with Charles F. Marcy, President
and Chief Executive Officer effective August 14, 1995.
(Incorporated by reference from Exhibit 10(p) to Form 10-K
for the year ended December 31, 1995.)
10(j) Stock Option Agreement with Charles F. Marcy effective
August 14, 1995. (Incorporated by reference from Exhibit
10(q) to Form 10-K for the year ended December 31, 1995.)
10(k) Incentive Stock Option Agreement with Charles F. Marcy
effective August 14, 1995. (Incorporated by reference
from Exhibit 10(r) to Form 10-K for the year ended
December 31, 1995.)
10(l) Noncompetition and Nondisclosure Agreement with Charles
F. Marcy effective August 14, 1995. (Incorporated by
reference from Exhibit 10(s) to Form 10-K for the year
ended December 31, 1995.)
10(m) Separation Agreement with Marvin W. Ozley effective
August 14, 1995. (Incorporated by reference from Exhibit
10(t) to Form 10-K for the year ended December 31, 1995.)
10(n) Sealright Long-Term Savings Plan (Incorporated by
reference from Form S-8, effective February 16, 1996
(Registration No. 333-00979))
10(o) Sealright Co., Inc. 1995 Stock Option Plan, filed
herewith.
10(p) Employment Term Sheet with J. Patrick Muldoon, Vice
President, effective January 5, 1996, filed herewith.
10(q) Assignment and Bill of Sale and Assumption of
Liabilities between Sealright Co., Inc. and
Sealright Packaging Company dated December 31,
1996, filed herewith.
10(r) Assignment and Bill of Sale between Sealright
Co., Inc. and Sealright Manufacturing - West,
Inc. dated December 31, 1996, filed herewith.
13 1996 Annual Report to Shareholders, filed
herewith.
21 Subsidiaries of the Registrant, filed herewith.
23(a) Consent of KPMG Peat Marwick LLP, for financial
statements for the year ended December 31,
1996, filed herewith.
23(b) Consent of Arthur Andersen LLP, for financial
statements for the years ended December 31,
1995 and 1994, filed herewith.
(b) Reports on Form 8-K
No report on Form 8-K was filed during last quarter of the period
covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By/s/ Charles F. Marcy
Charles F. Marcy
President and Chief
Executive Officer
Dated: March 21, 1997
Pursuant to the requirements of the Securities Act of 1934,
this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Charles F. Marcy President and Chief March 21, 1997
Charles F. Marcy Executive Officer
/s/ John T. Carper Senior Vice President March 21, 1997
John T. Carper Finance and Principal
Accounting Officer
/s/ G. Kenneth Baum Director March 21, 1997
G. Kenneth Baum
/s/ D. Patrick Curran Director March 21, 1997
D. Patrick Curran
/s/ F. O. DeSieghardt Director March 21, 1997
Frederick O. DeSieghardt
/s/ Robert F. Hagans Director March 21, 1997
Robert F. Hagans
/s/ Marvin W. Ozley Director March 21, 1997
Marvin W. Ozley
/s/ Arthur R. Schulze Director March 21, 1997
Arthur R. Schulze
/s/Charles A. Sullivan Director March 21, 1997
Charles A. Sullivan
/s/ William D. Thomas Director March 21, 1997
William D. Thomas
Exhibit 4(i)
Letter Amendment
January 24, 1996
Mr. Paul L. Meiring, Vice President
The Prudential Insurance Company of America
2200 Ross Avenue, Suite 4200E
Dallas, Texas 75201
Dear Paul:
Sealright will restructure its operations beginning in the fourth
quarter of 1995. The restructuring will negatively impact Sealright's fourth
quarter 1995 earnings as well as 1996 earnings. As a result, Sealright is
requesting that The Prudential Insurance Company of America temporarily amend
paragraph 6F of the Note Agreement dated September 9, 1993 and paragraph 6F of
the Master Shelf Agreement dated October 17, 1995 (collectively, the
"Agreements"; capitalized terms used herein have the meanings specified in the
Agreements unless otherwise defined herein) to read as follows:
6F. Fixed Charges Coverage.
"The Company covenants that it will not suffer or permit, as of the end
of any fiscal quarter of the Company, Consolidated Net Income Available for
Fixed Charges for its four (4) most recent consecutive fiscal quarters (taken
as a whole) to be less than the percent shown for the corresponding period on
the following table of the aggregate amount of Fixed Charges for such period
of four (4) fiscal quarters (taken as a whole).
Four Quarters Ended Minimum Ratio
December 31, 1995 190%
March 31, 1996 107%
June 30, 1996 55%
September 30, 1996 78%
December 31, 1996 154%
March 31, 1997 and each quarter
thereafter 200%
For each fiscal quarter of the Company ending on and after December 31,
1995 to and including December 31, 1996, there shall be excluded from
Consolidated Net Income Available for Fixed Charges the restructuring charge
which will be a segregated line item published in the Company's fourth quarter
financial statements in an amount not to exceed $17.0 million
On and after the effective date of this letter amendment, each reference n
the Agreements to "this Agreement", "hereunder", "hereof", or words of like
import referring to the Agreements, and each reverence in the Notes to "the
Agreements", "thereunder", "thereof", or words of like import referring to the
Agreements, shall mean the Agreements, as amended by this letter amendment.
The Agreements, as amended by this letter amendment, are and shall continue to
be in full force and effect and are hereby in all aspects ratified and
confirmed. The execution, delivery, and effectiveness of this letter
amendment shall not, except as expressly provided herein, operate as a waiver
of any right, power or remedy under the Agreement nor constitute a waiver of
any provision of the Agreements. This letter amendment may be executed in
any number of counterparts and by any combination of parties hereto in
separate counterparts, each of which counterparts shall be an original and all
of which taken together shall constitute one and the same letter amendment.
If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning at least a counterpart of this letter
amendment to my attention. This Letter amendment is effective upon execution.
The Prudential Insurance Company of America Sealright Co., Inc.
/s/ Paul L. Meiring /s/ John T. Carper
Vice President Senior Vice President
January 26, 1996 January 24, 1996
<PAGE>
January 24, 1996
Mr. Hal Candland, Senior Investment Analyst
Metropolitan Life Insurance Company
Corporate Investments, Central Territory
One Lincoln Center, Suite 800
Oakbrook Terrace, Illinois 60181
Dear Mr. Candland:
Sealright will restructure its operations beginning in the fourth quarter
of 1995. The restructuring will negatively impact Sealright's fourth quarter
1995 earnings as well as 1996 earnings. As a result, Sealright is requesting
that Metropolitan Life Insurance Company temporarily amend section 4.06 of the
note agreement dated October 22, 1991 to read as follows:
4.06 Fixed Charges Coverage.
"The Company covenants that it will not suffer or permit, as of the end of
any fiscal quarter of the Company, Consolidated Net Income Available for Fixed
Charges for its four (4) most recent consecutive fiscal quarters (taken as a
whole) to be less than the percent shown for the corresponding period on the
following table of the aggregate amount of Fixed Charges for such period of
four (4) fiscal quarters (taken as a whole).
Four Quarters Ended Minimum Ratio
December 31, 1995 190%
March 31, 1996 107%
June 30, 1996 55%
September 30, 1996 78%
December 31, 1996 154%
For each fiscal quarter of the Company ending on and after December 31,
1995 to and including December 31, 1996, there shall be excluded from
Consolidated Net Income Available for Fixed Charges the restructuring charge
which will be a segregated line item published in the Company's fourth quarter
financial statements in an amount not to exceed $17.0 million This temporary
amendment to the credit agreement will terminate with the December 31, 1996
quarterly calculation. If the Fixed Charge Coverage ratio should fall below
the amended minimum ratios, this amendment is null and void."
The amendment to he credit agreement is effective upon the execution of
this letter agreement.
Metropolitan Life Insurance Company Sealright Co., Inc.
/s/ Robert B. Bodett /s/ John T. Carper
Assistant Vice President Senior Vice President
January 25, 1996 January 24, 1996
holder of note 1. - $22,000,000
Metropolitan Insurance and Annuity Company
/s/ Gregory J. Yoder
Vice President
January 30, 1996
holder of note 4. - $3,000,000
<PAGE>
January 24, 1996
Mr. Marvin D. Anderson, First Vice President
Investment/Securities Accounting
Mutual of Omaha Insurance Company
Mutual of Omaha Plaza
Omaha, Nebraska 68175
Dear Mr. Anderson:
Sealright will restructure its operations beginning in the fourth quarter
of 1995. The restructuring will negatively impact Sealright's fourth quarter
1995 earnings as well as 1996 earnings. As a result, Sealright is requesting
that Metropolitan Life Insurance Company temporarily amend section 4.06 of the
note agreement dated October 22, 1991 to read as follows:
4.06 Fixed Charges Coverage.
"The Company covenants that it will not suffer or permit, as of the end of
any fiscal quarter of the Company, Consolidated Net Income Available for Fixed
Charges for its four (4) most recent consecutive fiscal quarters (taken as a
whole) to be less than the percent shown for the corresponding period on the
following table of the aggregate amount of Fixed Charges for such period of
four (4) fiscal quarters (taken as a whole).
Four Quarters Ended Minimum Ratio
December 31, 1995 190%
March 31, 1996 107%
June 30, 1996 55%
September 30, 1996 78%
December 31, 1996 154%
For each fiscal quarter of the Company ending on and after December 31,
1995 to and including December 31, 1996, there shall be excluded from
Consolidated Net Income Available for Fixed Charges the restructuring charge
which will be a segregated line item published in the Company's fourth quarter
financial statements in an amount not to exceed $17.0 million This temporary
amendment to the credit agreement will terminate with the December 31, 1996
quarterly calculation. If the Fixed Charge Coverage ratio should fall below
the amended minimum ratios, this amendment is null and void."
<PAGE>
The amendment to he credit agreement is effective upon the execution of
this letter agreement.
Mutual of Omaha Insurance Company Sealright Co., Inc.
/s/ Marvin D. Andersen /s/ John T. Carper
First Vice President Senior Vice President
January 26, 1996 January 24, 1996
United of Omaha Life Insurance Company
/s/ Marvin D. Andersen
First Vice President
January 26, 1996
<PAGE>
January 24, 1996
Mr. Jim Sangster
Divisional Executive Vice President
UMB Bank, N.A.
1010 Grand Boulevard
P.O. Box 419226
Kansas City, Missouri 64141-6226
Dear Jim:
Sealright will restructure its operations beginning in the fourth quarter
of 1995. The restructuring will negatively impact Sealright's fourth quarter
1995 earnings as well as 1996 earnings. As a result, Sealright is requesting
that UMB Bank, N.A. temporarily amend section 5.9.5 of the credit agreement
dated October 22, 1991 to read as follows:
5.9.5 Fixed Charges Coverage.
"Sealright will not suffer or permit, as of the end of any fiscal quarter
of Sealright, Consolidated Net Income Available for Fixed Charges for its four
(4) most recent consecutive fiscal quarters (taken as a whole) to be less than
the percent shown for the corresponding period on the following table of the
aggregate amount of Fixed Charges for such period of four (4) fiscal quarters
(taken as a whole).
Four Quarters Ended Minimum Ratio
December 31, 1995 190%
March 31, 1996 107%
June 30, 1996 55%
September 30, 1996 78%
December 31, 1996 154%
Excluded from Consolidated Net Income Available for Fixed Charges for the
duration of this amendment is the restructuring charge which will be a
segregated line item published in the company's fourth quarter financial
statements in an amount not to exceed $17.0 million. This temporary amendment
to the credit agreement will terminate with the December 31, 1996 quarterly
calculation. If the Fixed Charges Coverage ratio should fall below the
amended minimum ratios, this amendment is null and void."
<PAGE>
The amendment to the credit agreement is effective upon the execution of
this letter agreement.
UMB Bank, N.A. Sealright Co., Inc.
/s/ James A. Sangster /s/ John T. Carper
Divisional EVP Senior Vice President
January 26, 1996 January 26, 1996
Exhibit 4(j)
John T. Carper
Senior Vice President Finance
October 17, 1996
The Prudential Insurance Company
of America
c/o Prudential Capital Group
2200 Ross Ave., Suite 4200E
Dallas, Texas 75201
Ladies & Gentlemen:
We refer to the Note Agreement dated as of
September 9, 1993 between the undersigned, Sealright Co.,
Inc. (the "Company") and you (the "Note Agreement") and the
Master Shelf Agreement dated as of October 17, 1995 between
the Company and you (the "Shelf Agreement;" the Note
Agreement and the Shelf Agreement are herein referred to as
the "Agreements"). Unless otherwise defined herein, the
terms defined in the Agreements shall be used herein as
therein defined.
The Company was not in compliance with paragraph
6F, "Fixed Charge Coverage", of each of the Agreements as of
September 30, 1996, the end of the third fiscal quarter of
the Company. We have requested that you waive the Event of
Default caused by non-compliance with paragraph 6F of each
of the Agreements for the third fiscal quarter of the
Company.
If you agree to the above waiver of the Event of
Default caused by non-compliance with paragraph 6F of each
of the Agreements as of September 30, 1996, the end of the
third fiscal quarter of the Company, please evidence such
agreement by executing and returning at least one
counterpart of this waiver to the Company at its address at
9201 Packaging Drive, DeSoto, Kansas, 66018, Attention of
Chief Financial Officer.
This waiver shall become effective as of the date
first above written when and if counterparts of this waiver
shall have been executed by you. The effectiveness of this
waiver is conditioned upon the accuracy of the factual
matters described above. The execution, delivery and
effectiveness of this letter waiver shall not, except as
expressly provided herein, operate as a waiver of any right,
power or remedy under the Agreements nor constitute a waiver of
any provision of the Agreements. This waiver is subject to the
provisions of paragraph 11C of the Agreements.
Very truly yours,
SEALRIGHT CO., INC.
/s/ John T. Carper
Senior Vice President
Agreed to and accepted
as of the date
first above written:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
/s/ Robert G. Gwin
Vice President
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
FIXED INCOME INVESTMENTS PRIVATE PLACEMENT UNIT
334 MADISON AVENUE, PO BOX 633, CONVENT STATION, NJ 07961-0633
October 22, 1996
Sealright Co., Inc.
9201 Packaging Drive
DeSoto, Kansas 66018
Attention: Chief Financial Officer
Dear Sirs:
Reference is made to the Loan Agreements (as amended, the
"Agreements") dated October 22, 1991 between Sealright Co.,
Inc. (the "Company") and Metropolitan Life Insurance Company
("MetLife") and Metropolitan Insurance and Annuity Company
("MIAC"), respectively, and the Company's 8.15% Notes due
October 22, 1998 issued thereunder (as amended, the
"Notes"). Unless otherwise defined, capitalized terms used
herein shall have the meanings specified in the Notes.
The Company has requested in its letters dated October 14
and 17, 1996, the MetLife and MIAC agree to waive, for the
fiscal quarter ended September 30, 1996, compliance with
Section 4.06 of the Notes.
As holders of the Notes, as parties to the respective
Agreements and subject to the Company's agreement herewith
as evidenced by its signature at the foot hereof, MetLife
and MIAC hereby agree to waive any Event of Default
resulting from noncompliance with Section 4.06 of the Notes
for the fiscal quarter ended September 30, 1996.
It is understood that, notwithstanding the waiver in the
previous paragraph, the provisions of Section 4.06 of the
Notes shall once again apply after September 30, 1996. It
is further understood that, if any fees or other
consideration shall be received by any senior lender of the
Company, including but not limited to Prudential Capital
Group, in connection with any default or event of default
resulting from noncompliance with any fixed charge ratio or
similar requirement for the fiscal quarter ended September
30, 1996, MetLife, MIAC and any other holder of the Notes
shall receive a fee in an amount equal to that received by
such senior lender.
This agreement shall not become effective unless and until
all senior lenders of the Company have agreed in writing to
waive any default or event of default resulting from
noncompliance with any fixed charge ratio or similar
requirement for the fiscal quarter ended September 30, 1996,
and the Company has notified MetLife and MIAC in writing of
that fact.
If the Company is in agreement with the foregoing, please
evidence the Company's acceptance by signing the enclosed
counterpart hereof and returning the same to MetLife,
whereupon this letter will become a binding agreement among
the Company, MetLife and MIAC as of the date hereof.
Very truly yours,
METROPOLITAN LIFE INSURANCE COMPANY
By/s/ Joseph A. Augustini
Vice President
METROPOLITAN LIFE INSURANCE COMPANY
By /s/ Joseph A. Augustini
Vice President
On behalf of Separate Accounts Nos. 74
and 78
METROPOLITAN INSURANCE AND
ANNUITY COMPANY
By /s/Janus A. Wiviolt
Vice President
Agreed to and
accepted as of the date
first above written
SEALRIGHT CO., INC.
By /s/ John T. Carper
Senior Vice President Finance
<PAGE>
John T. Carper
Senior Vice President Finance
October 17, 1996
Mr. James A. Sangster
Divisional Executive Vice President
UMB Bank, n.a.
1010 Grand
Kansas City, MO 64106
Dear Jim:
We refer to the Note Agreement dated as of October
22, 1991, as amended, between the undersigned, Sealright
Co., Inc. (the "Company") and UMB Bank, n.a. (the "Note
Agreement"). Unless otherwise defined herein, the terms
defined in the Note Agreement shall be used herein as
therein defined.
The Company was not in compliance with paragraph
5.9.5, "Fixed Charge Coverage", of the Agreement as of
September 30, 1996, the end of the third fiscal quarter of
the Company. We have requested that you waive the Event of
Default caused by non-compliance with paragraph 5.9.5 of
the Note Agreement for the third fiscal quarter of the
Company.
If you agree to the above waiver of the Event of
Default caused by non-compliance with paragraph 5.9.5 of the
Note Agreement as of September 30, 1996, the end of the
third fiscal quarter of the Company, please evidence such
agreement by executing and returning at least one
counterpart of this waiver to the Company at its address at
9201 Packaging Drive, DeSoto, Kansas, 66018, Attention of
Chief Financial Officer.
This waiver shall become effective as of the date
first above written when and if counterparts of this waiver
shall have been executed by you. The effectiveness of this
waiver is conditioned upon the accuracy of the factual
matters described above. The execution, delivery and
effectiveness of this letter waiver shall not, except as
expressly provided herein, operate as a waiver of any right,
power or remedy under the Agreement nor constitute a waiver
of any provision of the Agreement.
Very truly yours,
SEALRIGHT CO., INC.
/s/ John T. Carper
Senior Vice President
Agreed to and accepted
as of the date
first above written:
UMB BANK, N.A.
/s/ James A. Sangster
Divisional Executive Vice President
<PAGE>
John T. Carper
Senior Vice President Finance
October 17, 1996
Mr. Kent Knudsen, Vice President
Mutual of Omaha Insurance Company
Mutual of Omaha Plaza
Omaha, BE 68175-1011
Dear Kent:
We refer to the Note Agreement dated as of October
22, 1991, as amended, between the undersigned, Sealright
Co., Inc. (the "Company") and Mutual of?Omaha Insurance
Company and United of Omaha Insurance Company (the "Note
Agreement"). Unless otherwise defined herein, the terms
defined in the Note Agreement shall be used herein as
therein defined.
The Company was not in compliance with paragraph
4.06, "Fixed Charge Coverage", of the Agreement as of
September 30, 1996, the end of the third fiscal quarter of
the Company. We have requested that you waive the Event of
Default caused by non-compliance with paragraph 4.06 of the
Note Agreement for the third fiscal quarter of the Company.
If you agree to the above waiver of the Event of
Default caused by non-compliance with paragraph 4.06 of the
Note Agreement as of September 30, 1996, the end of the
third fiscal quarter of the Company, please evidence such
agreement by executing and returning at least one
counterpart of this waiver to the Company at its address at
9201 Packaging Drive, DeSoto, Kansas, 66018, Attention of
Chief Financial Officer.
This waiver shall become effective as of the date
first above written when and if counterparts of this waiver
shall have been executed by you. The effectiveness of this
waiver is conditioned upon the accuracy of the factual
matters described above. The execution, delivery and
effectiveness of this letter waiver shall not, except as
expressly provided herein, operate as a waiver of any right,
power or remedy under the Agreement nor constitute a waiver
of any provision of the Agreement.
Very truly yours,
SEALRIGHT CO., INC.
/s/ John T. Carper
Senior Vice President
Agreed to and accepted
as of the date
first above written:
MUTUAL OF OMAHA INSURANCE COMPANY
/s/ Kent Knudsen
Virst Vice President
UNITED OF OMAHA INSURANCE COMPANY
/s/ Kent Knudsen
Virst Vice President
Exhibit 10(o)
SEALRIGHT CO., INC. 1995 STOCK OPTION PLAN
_______________
Section I. Purpose
The purpose of this Plan is to provide an incentive and to
encourage ownership of the Company's stock by the grant of stock
options to certain "Key Employees" of the Company or its
subsidiaries. It is intended that some options granted pursuant
to the Plan may qualify as Incentive Stock Options ("ISO's"), as
defined in Section 422(b) of the Internal Revenue Code of 1986,
as amended ("Code"), and some options granted pursuant to the
Plan may not qualify as ISO's and will be non-qualified stock
options ("NQSO's").
Section II. Definitions
A. "Board of Directors" means the board of directors of the
Company.
B. "Common Stock" means shares of the common stock
(including treasury stock), par value $.01 per share, of the
Company.
C. "Company" means Sealright Co., Inc. or any successor
thereto.
D. "Committee" means the compensation committee established
by the Board of Directors of the Company.
E. "Disability" means inability of a Participant to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last
for a continuous period of not less than 12 months. A
Participant shall not be considered to be disabled unless the
Participant furnishes the Company proof of the existence thereof
in such form and manner, and at such times, as the Committee may
require.
F. "Fair Market Value", as of a given date, means the fair
market value of one share of Common Stock as determined by the
Committee in accordance with procedures established by the
Committee and in accordance with the provisions of the Code and
the regulations thereunder.
G. "Key Employee" means a person who is employed in a
position of managerial responsibility by the Company or a
Subsidiary. A non-employee member of the Board of Directors of a
Subsidiary can not be a Key Employee.
H. "Parent" means any corporation (other than the Company
or a Subsidiary) in an unbroken chain of corporations ending with
the Company if at the time of the grant of an option each of the
corporations, other than the Company or a Subsidiary, owns stock
possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other
corporations in such chain.
I. "Participant" means a Key Employee who is granted a
stock option hereunder.
J. "Plan" means the Sealright Co., Inc. 1995 Stock Option
Plan.
K. "Subsidiary" means any corporation, other than the
Company, in an unbroken chain of corporations beginning with the
Company if, at the time of grant of an option hereunder, each of
the corporations, other than the last corporation in the unbroken
chain, owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the
other corporations in such chain.
L. "Ten Percent Shareholder" means a person who owns, on the
date of grant of an ISO, more than 10% of the total combined
voting power of all classes of stock of the Company, or its
Parent or Subsidiary
Section III. Stock
The stock which may be granted under the Plan shall not
exceed, in the aggregate, 700,000 shares of the Company's Common
Stock; provided, however, the maximum number of shares with
respect to which options may be granted under the Plan during any
calendar year to any eligible employee shall not exceed 10% of
such amount. Such shares may be, in whole or in part, as the
Board of Directors shall from time to time determine, authorized
but unissued shares, or issued shares which shall have been
reacquired by the Company. If an option expires or is terminated
or surrendered without having been fully exercised, the
unpurchased shares of Common Stock subject to the option shall
again be available for grant under this Plan.
Section IV. Eligibility
A stock option may be granted under the Plan only to a Key
employee.
Section V. Stock Options
A. Option Price. Except as provided below, the purchase
price of Common Stock under each ISO and NQSO granted hereunder
shall not be less than one hundred percent (100%) of the Fair
Market Value of the Common Stock at the close of market on the
day of grant of the option. The purchase price of Common Stock
under each ISO granted to a Ten Percent Shareholder shall not be
less than 110% of the Fair Market Value of the Common Stock at
the close of market on the day prior to the grant of the option.
B. Term and Exercise of Options. Except as provided below,
the term of each option shall not be more than ten (10) years
from the date of granting thereof. The term of each ISO granted
to a Ten Percent Shareholder shall not be more than five (5)
years from the date of granting thereof. In no case may an
option be exercised within six months of the date of the granting
thereof. Within such limits, options will be exercisable at such
time or times, and subject to such restrictions and conditions,
as the Committee shall, in each instance, approve, which need not
be uniform for all Participants; provided, however, that except
as provided in Subsection D of this Section and Section X, no
option may be exercised at any time unless the Participant is
then an employee of the Company or a Subsidiary and has been so
employed continuously since the granting of the option or was an
employee of the Parent of the Company at the time of grant and
has been continuously employed since that time by either such
Parent or by the Company or by a Subsidiary.
C. Non-Transferability of Options. Each option granted
under the Plan shall by its terms be non-transferable otherwise
than by will or by the laws of descent and distribution, and an
option may be exercised, during the lifetime of the Participant,
only by the Participant.
D. Termination of Employment. Subject to the restrictions
on the Optionee's exercise of an option described in Subsection B
of this Section and the provisions of Subsection G of this
Section, options may contain such provisions as the Committee
shall determine regarding the extent (if any) to which options
may be exercised after termination of employment; provided,
however, that ISO's shall be subject to the following
restrictions:
(a) If a Participant terminates employment for any
reason other than death or Disability, the Participant may
not in any event exercise any ISO held by such Participant
after the date which is three (3) months after the date of
the Participant's employment termination.
(b) If a Participant's employment is terminated by
reason of death or Disability, the Participant or the
personal representative of the Participant may not in any
event exercise an ISO after the date which is twelve (12)
months after the date of such termination.
E. Leaves of Absence. The option agreements issued
pursuant to this Plan may contain such provisions as the
Committee shall determine with respect to approved leaves of
absence.
F. Payment of Option Price. The purchase price is to be
paid in full upon the exercise of an option, either (i) in cash;
or (ii) in the discretion of the Committee by the tender to the
Company of shares of the Common Stock owned by the Participant
and registered in the Participant's name having a Fair Market
Value equal to the cash exercise price of the option being
exercised; or (iii) in the discretion of the Committee, by any
combination of the payment methods specified in clauses (i) and
(ii) hereof. The proceeds of sale of stock subject to option are
to be added to the general funds of the Company, if cash, or to
the shares of the Common Stock held in treasury, if shares of
Common Stock, and used for the corporate purposes of the Company
as the Committee shall determine.
G. Limitation on Exercise of Options. The maximum
aggregate Fair Market Value (determined at the time an option is
granted) of the Common Stock with respect to which ISO's are
exercisable for the first time by any Participant during any
calendar year (under all plans of the Company and its Parent and
Subsidiaries) shall not exceed $100,000. If the provisions of
this Section limit the exercisability of certain ISO's which
would otherwise become exercisable on account of an event
described in Subsection D of this Section or Section X, the
Committee, in its sole discretion, shall determine the times at
which such ISO's become exercisable so that the provisions of
this Subsection G are not violated; provided that in no event
shall any ISO be exercisable more than ten (10) years from the
date of granting thereof (five (5) years in the case of ISO's
granted to Ten Percent Shareholders).
Section VI. Administration
This Plan shall be administered by the Committee. Subject
to the express provisions of this Plan, the Committee shall have
complete authority to:
A. determine the individuals to whom and the time or
times when options shall be granted.
B. determine the number of shares to be subject to each
option and the terms and provisions including the qualified
status of each option.
C. interpret the Plan.
D. prescribe, amend and rescind rules and regulations
relating to the Plan.
E. cancel, with the consent of a Participant, any
option previously granted to such Participant and to grant a
new option in place thereof; and
F. make all determinations not specifically set forth
in (A) through (E) above which it considers necessary or
advisable for the administration of this Plan.
All determinations by the Committee with respect to (A)
through (F) above shall be final. In the event the Company or
any Subsidiary enters into a transaction described in Section
424(a) of the Code with any other corporation, the Committee may
grant options to employees or former employees of such
corporation in substitution of options previously granted to them
upon such terms and conditions as shall be necessary to qualify
such grant as a substitution described in Section 424(a) of the
Code.
Section VII. Committee
The Committee shall at all times be constituted to comply
with the requirements of Rule 16 b-3 under the Securities
Exchange Act of 1934, as the same may from time to time be
amended. As of the date of adoption of this Plan by the Board of
Directors of the Company, Rule 16 b-3 requires that the Committee
shall consist of two (2) or more members of the Board of
Directors who were not at anytime within one year prior to their
appointment as Committee members and are not during such service
granted or awarded equity securities pursuant to this Plan or any
other plan of the Company or any affiliate of the Company (as
defined in the Securities Exchange Act of 1934) except as
permitted by Rule 16 b-3. The members of the Committee shall be
appointed by and shall serve at the pleasure of the Board of
Directors, which may from time to time appoint members in
substitution for members previously appointed and fill vacancies,
however caused, in the Committee. Each member shall also be an
"outside director" within the meaning of Section 162(m) of the
Code. The Committee may select one of its members as its
Chairman and shall hold its meetings at such times and places as
it may determine. A majority of its members shall constitute a
quorum. All recommendations by the Committee shall be made by a
majority of its members.
Section VIII. Effect of Change in Stock
Notwithstanding any other provision in the Plan, if there is
any change in the Common Stock of the Company by reason of stock
dividends, spinoffs, split ups, recapitalizations, mergers,
consolidations, reorganizations, combinations or exchanges of
shares and the like, the number and class of shares available for
grants of options, the number of shares subject to any
outstanding options and the price thereof, as applicable, shall
be adjusted to the same proportionate number and class of shares
an price as in effect before such change.
Section IX. Amendment or Termination
Unless this Plan shall theretofore have been terminated as
hereinafter provided, this Plan shall terminate, and no stock
option shall be granted hereunder, after ten (10) years from the
date of its adoption by the Board of Directors. Any stock
options outstanding at the termination of this plan shall
continue in full force and effect and shall not be affected by
such termination of this Plan. The Board of Directors of the
Company may, at any time prior to that date, terminate this Plan
or make such modifications of the Plan as it may deem advisable;
provided, however, that the Board of Directors may not, without
further approval by the holders of the Common Stock of the
Company, (a) increase the maximum number of shares for which
options may be granted (except under the anti-dilution provisions
in Section VIII), (b) change the class of employees to whom
options may be granted, (c) withdraw the authority to administer
the Plan from a committee whose members meet the requirements of
Section VII or (d) materially increase the benefits accruing to
Participants.
Section X. Change of Control
In the event that:
A. any person, other than the Company, shall acquire
more than 25% of the Common Stock through a tender
offer, exchange offer or otherwise; or
B. the Company shall be liquidated or dissolved
following a sale of all or substantially all of its assets;
or
C. the Company shall not be the surviving parent
corporation resulting from any merger or consolidation to
which it is a party,
then, if a Participant's employment with the Company or a Parent
or Subsidiary is voluntarily or involuntarily terminated within
one year after any such event, any then outstanding stock option
held by such Participant for a period of not less than six months
shall immediately mature and vest in full and any such stock
option shall be settled by the payment to such Participant of an
amount equal to the excess, if any, of the aggregate Fair Market
Value of the shares subject thereto on the Special Maturity Date,
as hereinafter defined, over the aggregate exercise price of such
option; provided, however, that the Board of Directors may, by
unanimous resolution adopted prior to an event described in
clause (C) above, provide that such maturity shall not result
from an event in clause (C) above. For purposes of an event
specified in clause (A) above, the Special Maturity Date for
purposes hereof shall be the date on which the Common Stock had
the highest Fair Market Value during the period in which the
tender or exchange offer was outstanding, or, in the event no
tender or exchange offer was outstanding, the date the person has
first acquired, in the aggregate, 25% of the Common Stock. For
purposes of an event specified in clause (B) or (C), the Special
Maturity Date shall be the effective date of the liquidation,
dissolution, merger or consolidation. Settlement shall be made
in cash within not less than five (5) days following the
Participant's termination of employment.
Section XI. Withholding
The Company, at the time any distribution is made under this
Plan, whether in cash or in shares of stock, may withhold from
such payment any amount necessary to satisfy Federal and state
income tax withholding requirements with respect to such
distribution. Such withholding may be in cash or in shares of
stock.
Section XII. Miscellaneous
A. Rights to Continued Employment. Nothing in this Plan or
in any option granted pursuant to this Plan shall confer on any
individual any right to continue in the employ of the Company or
a Subsidiary or interfere with the right of the Company or a
Subsidiary to terminate the individual's employment at any time.
B. Retirement Plan Rights. Benefits received under this
Plan by a Participant shall not affect or be used in the
calculation of the Participant's pension or other retirement
benefits under any other plan maintained by the Company.
C. Investment Undertakings. Until and unless the issuance
of shares of Common Stock pursuant to this Plan shall have been
registered pursuant to the Securities Act of 1933 and applicable
state securities laws, each Participant acquiring shares of
Common Stock under this Plan may be required, as a condition
precedent to such issuance, to execute and deliver to the Company
a letter or certificate containing such investment
representations, agreements restricting sale (including, without
limitation, provision for stop transfer orders and restrictive
legend on stock certificates) and confirmation of other relevant
facts to support any exemption from the registration requirements
under the Securities Act of 1933 and such state securities laws
on which the Company intends to rely, all as shall be deemed
reasonably necessary by counsel for the Company and in such form
as such counsel shall determine.
Section XIII. Effectiveness of the Plan
This Plan will be effective upon adoption by the Board of
Directors of the Company, subject, however, to its approval by
the stockholders of the Company given within 12 months after the
date the Plan is adopted by the Board of Directors, at a regular
meeting of the stockholders or at a special meeting of the
stockholders duly called and held for such purpose. Grants of
options made prior to stockholder approval shall be subject to
the obtaining of such approval, and if such approval is not
obtained as aforesaid, such grants shall not be effective for any
purpose.
The foregoing Plan was adopted by the Board of Directors of
the Company on March 13, 1995 and approved by the stockholders of
the Company on ______________________.
Sealright Co., Inc.
By___________________________
__________________________________
Attest
Exhibit 10(p)
TERM SHEET
for
J. PATRICK MULDOON
VICE PRESIDENT, MARKETING & STRATEGY OF SEALRIGHT CO., INC.
1. Position
- Vice President, Marketing & Strategy
2. Cash Compensation
- $155,000 annual base salary
- $26,000 signing bonus (paid upon starting date)
- 30% of base pay annual bonus
1996 bonus guaranteed minimum of $31,000
3. Stock Options/Stock Bonus
- 15,000 shares granted at date of hire, 5 year equal
vest, 10 year life
4. Fringe Benefits
- Company car at Executive level
- Tax return preparation
- 3 weeks vacation
- Annual Executive physical
- Country club membership - mid level
- Deferred Compensation Plan participation
- Standard relocation package
- Standard employee benefit plans participation
5. Severance Agreement:
- Upon termination of employment by Company, except for
cause, payment of 12 months' salary in lump sum.
Exhibit 10(q)
ASSIGNMENT AND BILL OF SALE
AND
ASSUMPTION OF LIABILITIES
KNOW ALL MEN BY THESE PRESENTS, that Sealright Co.,
Inc., a Delaware corporation ("Sealright"), for good and valuable
consideration to it in hand paid (receipt of which is hereby
acknowledged), does hereby by these presents, irrevocably sell,
assign, transfer and deliver unto Sealright Packaging Company, a
Kansas corporation ("Packaging"), its successors and assigns, all
of Sealright's right, title and interest in and to all of the
assets, accounts receivable, leased machinery and customer
accounts described on Exhibit A attached hereto and made a part
hereof, (the "Assets") and the obligations, liabilities and
indebtedness related thereto, if any (the "Liabilities") wherever
such Assets and Liabilities may be located and whether or not
reflected on the balance sheet of Sealright.
TO HAVE AND TO HOLD, unto Packaging, its successors and
assigns, FOREVER.
Sealright hereby binds itself, its successors and
assigns, to forever warrant and defend the title to the Assets
unto Packaging, its successors and assigns, against the lawful
claims of any and all persons whomsoever.
Sealright agrees that it shall execute and deliver or
cause to be executed and delivered from time to time such
instruments, documents, agreements, consents and assurances and
take such other actions as Packaging may require to more
effectively convey, transfer to and vest in Packaging and to put
Packaging in possession of the Assets.
This instrument shall be binding upon, inure to the
benefit of and be enforceable by Sealright and Packaging and
their respective successors and assigns.
The undersigned, Packaging, in connection with the
sale, assignment, transfer and delivery of the Assets and
Liabilities from Sealright, hereby agrees that it will accept the
Assets and Liabilities and as a part of the consideration
therefore hereby agrees to assume and hereafter perform,
discharge and pay any and all of the Liabilities.
IN WITNESS WHEREOF, the undersigned have executed this
instrument as of the 31st day of December, 1996.
Sealright Co., Inc. Sealright Packaging
Company
By:________________________________ By:________________________________
John T. Carper, Senior Vice President John T.
Carper, Senior Vice President
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF JOHNSON )
This instrument was acknowledged before me on the
day of December, 1996, by John T. Carper, Senior Vice President
of Sealright Co., Inc., a Delaware corporation, on behalf of said
corporation.
_________________________________________
Notary Public
My commission expires:
______________________
STATE OF KANSAS )
) ss.
COUNTY OF JOHNSON )
This instrument was acknowledged before me on the
day of December, 1996, by John T. Carper, Senior Vice President
of Sealright Packaging Company, a Kansas corporation, on behalf
of said corporation.
_________________________________________
Notary Public
My commission expires:
______________________
Exhibit 10(r)
ASSIGNMENT AND BILL OF SALE
KNOW ALL MEN BY THESE PRESENTS, that Sealright Co., Inc., a
Delaware corporation ("Sealright"), for good and valuable consideration
to it in hand paid (receipt of which is hereby acknowledged), does hereby
by these presents, irrevocably sell, assign, transfer and deliver unto
Sealright Manufacturing - West, Inc., a Missouri corporation ("West"),
its successors and assigns, all of Sealright's right, title and interest
in and to all of the operating assets of the Engineering Services and of
the Packaging Technology Center as described on Exhibit A attached hereto
and made a part hereof, (the "Assets") wherever such Assets may be located
and whether or not reflected on the balance sheet of Sealright.
TO HAVE AND TO HOLD, unto West, its successors and assigns, FOREVER.
Sealright hereby binds itself, its successors and assigns, to
forever warrant and defend the title to the Assets unto West, its
successors and assigns, against the lawful claims of any and all persons
whomsoever.
Sealright agrees that it shall execute and deliver or cause to
be executed and delivered from time to time such instruments, documents,
agreements, consents and assurances and take such other actions as West
may require to more effectively convey, transfer to and vest in West and
to put West in possession of the Assets.
This instrument shall be binding upon, inure to the benefit of
and be enforceable by Sealright and West and their respective successors
and assigns.
The undersigned, West, in connection with the sale, assignment,
transfer and delivery of the Assets from Sealright, hereby agrees that it
will accept the Assets.
IN WITNESS WHEREOF, the undersigned have executed this instrument
as of the 31st day of December, 1996.
Sealright Co., Inc. Sealright Manufacturing - West, Inc.
By /s/ John T. Carper By: /s/ John T. Carper
John T. Carper, Senior Vice President John T. Carper, Senior Vice President
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF JOHNSON )
This instrument was acknowledged before me on the day of
December, 1996, by John T. Carper, Senior Vice President of Sealright Co.,
Inc., a Delaware corporation, on behalf of said corporation.
_________________________________________
Notary Public
My commission expires:
_____________________
STATE OF KANSAS )
) ss.
COUNTY OF JOHNSON )
This instrument was acknowledged before me on the day of
December, 1996, by John T. Carper, Senior Vice President of Sealright
Manufacturing - West, Inc., a Missouri corporation, on behalf of said
corporation.
_________________________________________
Notary Public
My commission expires:
_____________________
Exhibit 13
These 20 words inspired every action in 1996:
The new Sealright and its people will grow and prosper
through multifaceted, enduring relationships with leading
consumer-products companies worldwide.
These strategies are making Vision Sealright reality:
Build strong partnerships with select dairy, food, and
beverage companies worldwide;
Leverage world-class customer service to achieve competitive
advantage;
Deliver consistent high quality at the lowest possible cost;
Develop innovative new packaging solutions;
Create a team-oriented, empowered culture focused on
increasing shareholder value.
Since December 14, 1995, we have focused on executing those
five fundamental strategies consistently and uniformly as we
move the new Sealright to a future of profitable growth.
We progressed strongly, if not always smoothly, in 1996. The
challenges were great, including a tough year for the frozen
dessert industry and a very disappointing performance at our
Los Angeles rigid-plastics plant. The transition to the new
Sealright was difficult as we consolidated and reorganized:
service suffered, inefficiencies were more costly than
anticipated, and the overall impact of the transition caused
us to fall short of our 1996 financial goals.
Now the painful and costly transitions of 1996 are behind
us. While great challenges remain, the new Sealright is well
positioned for success in 1997.
The foundation of that success is the essence of Vision
Sealright: growth and prosperity through the power of
customer partnerships. We are focusing on our customers'
needs at all times and on meeting and exceeding their
expectations. In that way the new Sealright, its employees,
and its stockholders will grow and flourish worldwide with
our customers as we help them succeed and profit.
For that reason the foremost strategy of the new Sealright -
indeed, our cornerstone - is our determination to build
strong, multifaceted customer partnerships with select
dairy, food, and beverage marketers worldwide. These
relationships are founded on long-term agreements that will
benefit both Sealright and its customers for years to come.
Organizational changes throughout the company have improved
Sealright's focus on customer partners and their needs.
Key-account teams comprising sales, service, marketing, finance,
and production people are assigned to the customers with the
greatest potential for profitable growth. Seven key-account
partnerships established during 1996 with customers like
Nestle, Kraft, Dreyer's, and McDonald's are the models for
many more in 1997 and beyond.
The goal is a total packaging partnership with all major
customers, anchored by long-term contracts for Sealright to
provide the full range of value-added products and services.
By the end of 1996 we had a substantial portion of our
frozen dessert customers under long-term sole-source
agreements, with additional agreements expected in 1997.
These agreements protect market share, a significant
consideration, but their role in positioning Sealright to
grow with its customers is even more important.
To capitalize on the position made possible by such
relationships, during 1996 Sealright built its first truly
integrated research-and-development and marketing-and-strategy
organization. This team evaluated the company's markets and
product lines relative to our vision and long-range goals.
Based on this, we set priorities for markets and product groups.
Our top marketing priority is to build on Sealright's
position of strength as North America's leading supplier of
frozen dessert packaging. Revenues from frozen dessert
packaging dipped in 1996 as the ice cream industry weathered
a disappointing year. However, Sealright's share of market
remained solid as the company won every major contract for
which it competed.
A second key priority is the dispensed-sauce packaging
market. Sealright's customers for dispensed-sauce packaging
are the condiment suppliers to McDonald's. By mid-1997 the
Sealright Quikspread system will be dispensing Big Mac
special sauce and other condiments in every McDonald's
restaurant in America, doubling the business we had in 1995.
The Quikspread system debuted in McDonald's stores in such
emerging markets as South Africa and China during 1996, and
we expect further international growth with McDonald's
suppliers in the years to come.
We also are aggressively positioning Sealright for
leadership and profitable growth in beverage labeling
markets, including milk and other drinks produced in dairy
plants. Among ice cream processors, Sealright packaging has
been recognized for decades as brand-building packaging. Now
Sealright labeling for milk and other refrigerated drinks is
on the threshold of similar recognition throughout the dairy
industry as processors endeavor to increase their share of
the beverage business through better marketing. With high-impact
graphics (far superior to paper labels) completely
around the milk bottle, Sealright labeling can bring the
marketing momentum of the "milk mustache" advertising
campaign right to the point of purchase. West Lynn Creamery,
a large Eastern marketer of milk and other refrigerated
beverages, is a customer partner using Sealright's high-impact
labels to grow its single-serve business. During 1997
Sealright labeling will appear on gallon and half-gallon
milk bottles marketed by other customer partners.
A vital factor in the success of our customer-partnership
strategy will be a culture of customer service unequaled in
our industry. That's what we mean by our second strategy,
"world-class customer service." Providing world-class
customer service consistently will earn Sealright
significant competitive advantage.
As we consolidated operations last year, we faced many
customer-service challenges, especially during the busy
spring and summer months. We created a new customer-service
organization in 1996, and we expect great improvements in
1997 as the unified organization builds on its experience.
We also will use new teams to integrate sales and operations
planning, maintaining a sense of urgency and delivering
better service.
The new centralized, standardized information system we
began to create in 1996 is crucial to customer service. The
new information system will be on line in mid-1997, with
more and more features coming throughout the year.
The new information system also will make significant
contributions to our third strategy: "deliver consistent
high quality at the lowest possible cost." Your company was
successful in this area during 1996, as we reduced selling,
general, and administrative costs dramatically and made
major changes to reduce operating costs and improve margins.
Overall, including the impact of inefficiencies, the
restructuring was more costly than planned, but we are
confident that future returns will reward the company and
its shareholders.
One of the new Sealright's key attributes is the new Supply
Chain organization, with centralized purchasing, quality,
and manufacturing operations to capitalize on our scale and
capabilities. Very talented new leadership combined with
sacrifice and dedication by all Sealright employees to
successfully complete the consolidation of all paperboard-
packaging operations into Los Angeles and Fulton, New York,
during 1996. We also completed the consolidation of
engineering, research, and corporate headquarters into the
DeSoto, Kansas, building during 1996.
Later in 1996 we began to consolidate all operations related
to flexible packaging, announcing that we would move
production from Raleigh and Charlotte by early 1997. Also,
in March of 1997 we sold the unprofitable Los Angeles-based
rigid-plastics business, which no longer fit Sealright's
strategic product portfolio. The company accounted for
substantially all the costs of these decisions in 1996,
including pre-tax restructuring expenses of $4.8 million and
pre-tax charges of $8.1 million for the discontinued rigid-
plastics operation.
This completes our planned facilities consolidation.
Sealright operated nine production facilities when we began
the process. Now we operate only five, which takes
significant costs out of the company with very little
reduction in capacity. This will make us much more efficient
in the years to come. Also, the consolidation will improve
the company's balance sheet, as we are selling four
facilities and reducing our asset base.
With additional cost-reduction initiatives contributing in
1997, including new programs to reduce operating waste and
increase purchasing efficiencies, your company expects to
reap the benefits of its facilities consolidation and the
"lowest possible cost" strategy through higher margins this
year and continuing margin improvements in the years ahead.
Accelerating the pace of innovation, the new Sealright's
fourth strategy, was a prime reason we integrated the
research-and-development and marketing-and-strategy
functions during 1996. This combined organization increased
Sealright's focus on understanding the needs of our
customers, allowing us to wisely allocate resources for
maximum advantage.
Sealright R&D focuses on developing new packaging solutions
that meet or exceed customer needs through combinations of
paperboard, plastic, and flexible materials and machinery
systems. The fruits of innovation include such new products
as a faster Convocan packaging system, special Styrotech
label-application equipment for refrigerated-drink
processors, and more efficient roll-fed labels for
beverages.
Other innovations, including new package sizes and dramatic
developments in high-gloss, scuff-resistant packaging,
already are contributing to our success with such brands as
Starbucks and Healthy Choice. New products also play a role
in our aggressive goals for profitable growth in beverage
labeling markets, including milk and other drinks produced
in dairy plants.
Other developmental projects, including several in
partnership with key customers like Dreyer's, Kraft, and
ConAgra, are designed to yield new products and open new
markets in the near future. All these innovations are
contributing to your company's ability to deliver value-added
products and to build long-term customer partnerships.
Finally, in 1996 we developed a new Human Resources
organization to cultivate teamwork, our fifth strategy,
among Sealright's talented people across the nation. Better
internal communication and a very sophisticated program for
setting and measuring individual goals are strengthening the
relationship between the efforts of Sealright team members
and the company's goals and performance. In other words, in
1997 we are aligning the goals of every employee and every
department with the goals of the entire company. We also
have introduced new compensation and incentive systems;
these reward employees, mostly in Sealright stock rather
than cash, for performance that increases the company's
value to shareholders.
These initiatives are helping Sealright team members focus
on actions that serve customers and strengthen our strategic
partnerships. This will lead to profitable growth and
greater shareholder value. That, of course, is what Vision
Sealright is all about, and why I believe that Sealright
will reward the confidence of its stockholders.
Charles F. Marcy
President and Chief Executive Officer
FINANCIAL INFORMATION
(In thousands, except per share data)
(Restated for Discontinued Operation)
FIVE-YEAR SUMMARY
For the Years
0 Ended December 31, 1996 1995 1994 1993 1992
INCOME STATEMENT DATA
Net sales $257,236 $280,667 $280,652 $262,383 $250,851
Cost of Sales 213,502 227,399 215,967 202,865 185,895
Gross Profit 43,734 53,268 64,685 59,518 64,956
SG&A Expense 33,766 38,035 37,523 34,750 32,344
Other Expense 990 1,452 1,671 1,830 1,650
Restructuring Expense 4,777 16,875 - - 1,586
Operating Income(Loss) from
Continuing Operations 4,201 (3,094) 25,491 22,938 29,376
Interest Expense 5,466 5,017 3,218 3,648 2,844
Income(Loss)from
Continuing Operations
before cumulative effect
of accounting changes,
income taxes and
extraordinary loss (1,265) (8,111) 22,273 19,290 26,532
Income taxes (457) (3,276) 8,985 8,120 10,597
Income (Loss) from
Continuing Operations
before cumulative effect
of accounting changes and
extraordinary loss (808) (4,835) 13,288 11,170 15,935
Discontinued Operation,
net of tax:
Operating Income (Loss) (2,140) (799) 47 (85) 208
Estimated Loss on
Disposal (2,856) - - - -
Income (Loss) From
Discontinued Operation (4,996) (799) 47 (85) 208
Cumulative effect of
accounting changes,
net of tax - - - - (2,416)
Extraordinary Loss,
net of tax - (94) - - -
Net Income (Loss) $ (5,804) $(5,728) $13,335 $ 11,085 $ 13,727
Years Ended December 31, 1996 1995 1994 1993 1992
COMMON SHARE DATA
Earnings(Loss)Per Share from:
Continuing Operations $ (0.07) $(0.44) $ 1.20 $ 1.00 $ 1.44
Discontinued Operation (0.45) (0.07) * * 0.02
Cumulative effect of
accounting changes - - - - (0.22)
Extraordinary Loss - (0.01) - - -
Earnings(Loss) per share $ (0.52) $(0.52) $ 1.20 $ 1.00 $ 1.24
Dividends per share .36 $ .48 $ .46 $ .445 $ .41
Average shares outstanding 11,072 11,083 11,075 11,075 11,090
Common shares outstanding
at year-end 11,072 11,072 11,063 11,063 11,059
Book Value per share $8.31 $9.20 $10.20 $9.46 $8.90
Ending market price
per share $10 1/2 $11 1/8 $18 1/4 $15 1/4 $ 22
*Less than $0.01 per share<PAGE>
BALANCE SHEET DATA
(Restated for Discontinued Operation)
(In thousands, except ratios)
1996 1995 1994 1993 1992
Net Working Capital $ 35,783 $ 37,992 $ 37,429 $ 42,170 $ 34,822
Net Property, Plant
& Equipment 136,253 135,854 146,828 118,197 105,784
Total Assets 223,285 227,841 239,654 212,455 188,942
Total Debt 88,000 83,600 80,726 68,895 56,648
Stockholders' Equity 91,969 102,016 112,892 104,647 98,429
Current Ratio 2.15 2.26 2.06 2.58 2.36
Total Debt to
Capital Ratio 48.8 45.0 41.7 39.8 36.6
OTHER DATA
(In thousands, except number of employees)
Depreciation and
Amortization Expense 16,078 19,320 17,148 15,343 13,044
Capital Expenditures 15,623 15,937 44,280 26,288 16,521
Dividends Paid 3,985 5,313 5,090 4,922 4,534
Average Number of
Employees 1,603 1,909 1,959 1,937 1,746
<PAGE>
RESULTS OF
(Restated for Discontinued Operation)
(Percentage of net sales)
Years Ended December 31, 1996 1995 1994 1993 1992
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 83.0 81.0 77.0 77.3 74.1
Gross Margin 17.0 19.0 23.0 22.7 25.9
Selling, general and
administrative
expenses 13.1 13.6 13.4 13.2 12.9
Other Expense 0.4 0.5 0.6 0.7 0.7
Restructuring Expense 1.9 6.0 - - 0.6
Operating Income(Loss) 1.6 (1.1) 9.0 8.8 11.7
Interest Expense 2.1 1.8 1.1 1.4 1.1
Income(Loss) from
Continuing Operations
before cumulative
effect of accounting
changes, income taxes
and extraordinary loss (0.5) (2.9) 7.9 7.4 10.6
Income taxes (0.2) (1.2) 3.2 3.1 4.2
Income(Loss) from:
Continuing Operations (0.3) (1.7) 4.7 4.3 6.4
Discontinued Operation (0.8) (0.3) * * 0.1
Estimated Loss on
Disposal of Discontinued
Operation (1.2) - - - -
Cumulative effect of
accounting changes - - - - (1.0)
Extraordinary Loss - * - - -
Net Income (Loss) (2.3)% (2.0)% 4.8% 4.2% 5.5%
*Less than 0.1%<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
1996 compared to 1995
The Company recorded net sales from continuing operations of $257.2
million for 1996, a decrease of $23.4 million, or 8.3%, from 1995. The
loss of revenue is primarily attributable to decreased consumer demand for
the Company's customers' products. This was due to less-than favorable
weather conditions in the summer of 1996 and increased raw material
costs, which resulted in higher retail prices. Reduced demand coupled
with continuing competitive pricing pressure contributed to reduced
revenue in the Company's frozen dessert packaging business. In addition,
the Company experienced reduced sales with smaller, non-strategic flexible
packaging customers.
Gross profit from continuing operations for 1996 was $43.7 million, a
decline of $9.5 million, or 17.9%, from 1995. The Company's gross margin
declined 2.0 percentage points from 19.0% to 17.0% during the year. The
decline is primarily attributed to lower sales volume, which resulted in
less fixed overhead absorption, reduced revenue per unit in response to
competitive pricing pressures, and to a lesser extent move-related
inefficiencies stemming from the DeSoto facility consolidation, and
operational issues at the San Leandro facility. Production inefficiencies
at the Fulton facility resulting from the DeSoto consolidation and
operational issues at the San Leandro facility were isolated to the first
and second quarters of 1996.
The plastics manufacturing operation experienced a 19.4% decline in
revenue and a 168% increase in operating loss during 1996. The revenue
decline was attributed to lost business and continued pricing pressures in
the rigid plastics packaging market. The Company encountered service
issues while converting customers to new state-of-the-art thermoforming
equipment, resulting in lost business. Inefficiencies and waste resulting
from the implementation of new thermoforming equipment coupled with the
significant loss of sales resulted in the increase in operating loss.
During the fourth quarter, the Company decided to exit its plastics
container business. This operation was sold on March 3, 1997, for $9.0
million cash. Management believes that the ultimate loss on the sale of
the operation is not materially different than that previously provided.
The Company has reflected the results of operations of the plastic
container business as a discontinued operation in the accompanying
consolidated financial statements and prior year amounts have been
restated.
Selling, general and administrative expense decreased 11.2% during 1996 as
a result of reduced headcount from the Company-wide facility consolidation
and reorganization plan announced in 1995, the elimination of the
Corporate office expense, and tight cost controls throughout the year.
Management expects a further reduction of 6% in SG&A expenses in 1997 as
it experiences the full year impact of cost reduction measures.
The Company incurred restructuring-related expenses of $4.8 million during
the year relating primarily to moving equipment and personnel and
severance in conjunction with the facility consolidation plan. The
restructuring plan is expected to be completed during the first quarter of
1997. The Company does not expect to incur material restructuring-related
expenses in 1997.
Interest expense increased 8.9% during the year reflecting higher levels
of debt throughout 1996. The Company was not able to reduce debt during
the year due to weak cash flow as a result of operating issues previously
discussed. The Company paid a penalty of $47,000 to its senior lenders
during the fourth quarter of 1996 as a result of not achieving the
required minimum level of fixed charge coverage as stipulated in the
Company's loan agreements. This amount was reflected as interest expense.
Due to the taxable loss for 1996, an income tax benefit has been provided
at a 36.1% effective tax rate. The Company recorded a tax benefit of
40.4% during 1995.
1995 Compared to 1994
The Company recorded net sales of $280.7 million for 1995. For the year,
unit volume declined by approximately 4% offset by increases in prices as
a result of higher raw material costs.
Gross profit from continuing operations for 1995 was $53.3 million,
reflecting an $11.4 million, or 17.7%, decline from 1994. The
considerable erosion of gross margin, which declined 4.0 percentage points
from 23.0% to 19.0%, resulted primarily from reduced volume and to a
lesser extent, competitive pricing and increased raw material costs. Unit
volume was off from 1994 levels due to customers' reducing inventory
purchased prior to announced price increases earlier in the year and
several lost customers. As a result, lower volume contributed to reduced
levels of fixed overhead coverage. Pricing pressure remained intense in
the rigid paperboard market as competitors continued to pursue Sealright's
dominant market share. The Company experienced a margin squeeze early in
the year as raw material costs increased faster than the Company's ability
to pass on increases.
During 1995, the Company's plastics manufacturing operation suffered a
5.3% decline in revenue and recorded a pre-tax operating loss of $1.3
million. Revenue declined due to continued pricing pressure in the
cultured dairy packaging market. The operation suffered a loss due to
inefficiencies associated with converting production to new thermoforming
equipment and pricing.
Selling, general, and administrative expenses increased 1.4% from 1994, or
$0.5 million. The Company experienced increases in bad debt, workers'
compensation, and postretirement expenses which contributed to the
increase. Additionally, restructuring-related charges negatively impacted
the Company. The Company did not pay any management performance-related
bonuses during 1995 which partially offset the increases previously
mentioned.
In December, 1995, the Company recorded a $16.9 million charge to cover
costs associated with a Company-wide facility consolidation and
reorganization. The program called for closing four Company-owned
facilities, reducing the Company's workforce by 12%, and realigning
management along functional lines as opposed to geographic profit centers.
Interest expense for 1995 was $5.0 million, or 55.9% higher than 1994.
The large increase in interest expense resulted from a 45.1% reduction, or
$0.9 million, in capitalized interest over 1994. The Company capitalized
considerably more interest in 1994 associated with the construction of its
DeSoto, Kansas manufacturing facility. The company's level of
indebtedness increased 3.6% since 1994, and the interest rate on the
Company's debt portfolio remained flat.
Due to the taxable loss for 1995, an income tax benefit was provided at a
40.4% effective tax rate. The Company recorded a tax provision based on a
40.3% effective tax rate during 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is internally generated funds.
Cash provided by operating activities during 1996 was $13.1 million, a
decrease of $15.3 million from 1995. Cash from operations decreased
primarily as a result of lower revenue and profit. The Company sustained
negative cash flow from its plastic manufacturing operation as a result of
start-up and conversion-related expenses resulting from new thermoforming
machinery. Additionally, the Company expended approximately $7.3 million
of cash in conjunction the Company-wide consolidation and restructuring
during 1996.
Including both continuing and discontinued operations, the Company
invested $19.4 million in capital expenditures during 1996, down $1.9
million from 1995. Major capital expenditures during the year included a
new Company-wide management information system, equipment leased to
customers, various production-related equipment, and other cost savings
initiatives. The Company expects capital expenditures for 1997 to
approximate the 1996 level of spending.
At December 31, 1996, the Company had $88.0 million of outstanding debt,
an increase of $4.4 million over 1995. The portfolio is comprised of
fixed and floating rate obligations with a weighted-average interest rate
of 7.0% at December 31, 1996. During the year, the Company made scheduled
principal repayments of $6.2 million on its 1991 senior notes. At
December 31, 1996, the Company had $10.0 million outstanding on its $30.0
million bank line of credit.
The Company expects that its operating cash flow will be sufficient to
fund capital expenditures and working capital requirements in 1997. The
Company expects to repay a portion of its bank borrowings during 1997 as a
result of selling the plastics operation and other idle facilities,
reducing restructuring-related expenditures, and a reduced fixed-cost
structure as a result of the restructuring.
During the fourth quarter of 1995, the Company was granted a modification
to its senior loan agreements that reduced the required level of fixed
charge coverage compliance. For the third and fourth quarter of 1996, the
Company was not in compliance with the required level of fixed charge
coverage and was granted a waiver. The Company paid a penalty to its
lenders during the fourth quarter as a result of non-compliance and was
granted a modification through January 1, 1998. Management expects that
the Company's operating results will be sufficient to meet the modified
covenants.
The Company suspended its regular dividend during the fourth quarter of
1996. The Company intends to resume regular dividend payments in the
future once operating performance warrants the resumption.
With the exception of historical information, certain matters discussed
are forward-looking statements that involve estimates, risks, and
uncertainties including, but not limited to, economic conditions,
fluctuating raw material prices, competitive conditions and pricing, and
other risks as discussed more fully in filings with the Securities and
Exchange Commission. <PAGE>
CONSOLIDATED BALANCE SHEETS (Dollar amounts in thousands)
As of December 31, 1996 1995
ASSETS
CURRENT ASSETS
Cash and equivalents $ 264 $ 6,017
Accounts receivable, less allowance
for doubtful accounts of $453
in 1996 and $408 in 1995 23,173 22,591
Inventories 36,635 36,995
Income tax receivable (Note 2) 4,800 -
Deferred income taxes (Note 2) - 190
Prepaid expenses 1,121 1,739
Other current assets 922 710
Total current assets 66,915 68,242
Property, Plant and Equipment
Land 7,984 7,984
Buildings and improvements 48,060 45,022
Machinery and equipment 172,755 162,537
Furniture and fixtures 12,971 12,673
Property, plant and equipment, gross 241,770 228,216
Less--accumulated depreciation 105,517 92,362
Property, plant and equipment, net 136,253 135,854
OTHER ASSETS
Goodwill, net 5,701 6,121
Other intangibles, net 5,645 6,595
Prepaid pension (Note 5) 2,682 2,700
Other 76 -
Total other assets 14,104 15,416
Net assets of discontinued operation (Note 10) 6,013 8,329
Total assets $223,285 $227,841
===========================================================================
The accompanying notes are an integral part of these statements.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY (Dollar amounts in thousands)
As of December 31, 1996 1995
CURRENT LIABILITIES
Current portion of long-term debt (Note 3) $ 6,200 $ 6,200
Accounts payable 12,862 12,874
Accrued vacation 2,543 3,253
Accrued workers' compensation reserve 2,646 2,675
Restructuring liability(Note 8) 1,555 3,259
Other accrued liabilities 5,326 1,989
Total current liabilities 31,132 30,250
Restructuring liability (Note 8) 300 1,105
Long-term debt (Note 3) 81,800 77,400
Postretirement benefit liability (Note 6) 2,240 2,241
Pension liability (Note 5) 1,973 1,634
Deferred income taxes (Note 2) 13,871 13,195
Commitments and contingencies (Note 4) - -
Total liabilities $131,316 $125,825
STOCKHOLDERS' EQUITY (Notes 1, 5 and 7)
Common stock, par value $.10
Shares authorized: 20,000,000;
Shares issued and outstanding:
11,071,991 at December 31, 1996
and 1995, respectively 1,107 1,107
Additional paid-in capital 14,911 14,911
Retained earnings 76,209 85,998
Minimum pension liability adjustment (258) -
Total stockholders' equity $ 91,969 $102,016
Total liabilities and stockholders' equity $223,285 $227,841
========================================================================
The accompanying notes are an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS (Dollar amounts in thousands, except
per share data)
For the Years Ended December 31, 1996 1995 1994
Net Sales $257,236 $280,667 $280,652
Cost of Goods Sold 213,502 227,399 215,967
Gross Profit 43,734 53,268 64,685
Selling, General and
Administrative Expenses 33,766 38,035 37,523
Other Expense 990 1,452 1,671
Restructuring Expense (Note 8) 4,777 16,875 -
Operating Income (Loss) from
Continuing Operations 4,201 (3,094) 25,491
Interest Expense (Note 3) 5,466 5,017 3,218
Income(Loss) from Continuing
Operations Before Income Taxes (1,265) (8,111) 22,273
Income Taxes (Note 2) (457) (3,276) 8,985
Income(Loss) from Continuing
Operations (808) (4,835) 13,288
Discontinued Operation, net of tax
Income(Loss)from operations(Note 10) (2,140) (799) 47
Estimated Loss on Disposal (2,856) - -
Income(Loss) from Discontinued
Operation (4,996) (799) 47
Income (loss) before
Extraordinary Item (5,804) (5,634) 13,335
Extraordinary Loss, Net
of tax (Note 9) - (94) -
Net Income(Loss) $(5,804) $ (5,728) $ 13,335
========================================================================
Net Income (Loss) Per Share from:
Continuing Operations $ (0.07) $ (0.44) $ 1.20
Discontinued Operation (0.45) (0.07) *
Extraordinary Item - (0.01) -
Net Income(Loss) Per Share $ (0.52) $ (0.52) $ 1.20
*Less than $0.01 per share
=======================================================================
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except
share data)
Additional Minimum
No. of Common Paid-In Retained Pension
Shares Stock Capital Earnings Liability Total
BALANCE, December 31, 1993 11,063 $1,106 $14,747 $88,794 $ -- $104,647
Net income -- -- -- 13,335 -- 13,335
Dividends paid ($0.46
per share) -- -- -- (5,090) -- (5,090)
Minimum pension liability -- -- -- -- -- --
BALANCE, December 31, 1994 11,063 $1,106 $14,747 $97,039 $ -- $112,892
Net loss -- -- -- (5,728) -- (5,728)
Exercise of stock options
(Note 7) 9 1 164 -- -- 165
Dividends paid ($0.48
per share) -- -- -- (5,313) -- (5,313)
Minimum pension liability -- -- -- -- -- --
BALANCE, December 31, 1995 11,072 $1,10 $14,911 $85,998 $ -- $102,016
Net loss -- -- -- (5,804) -- (5,804)
Dividends paid ($0.36
per share) -- -- -- (3,985) -- (3,985)
Minimum pension liability -- -- -- -- (258) (258)
BALANCE, December 31, 1996 11,072 $1,107 $14,911 $76,209 $ (258) $ 91,969
===============================================================================
The accompanying notes are an integral part of these statements.<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands)
For the Years Ended December 31, 1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $(5,804) $(5,728) $13,335
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
(Income)loss from discontinued
operation 2,140 799 (47)
Estimated loss of disposal of
discontinued operation 2,856 - -
Depreciation & amortization 16,078 19,320 17,148
Deferred income taxes 1,270 (4,574) 1,245
LIFO provision (benefit) (885) 1,111 (243)
(Gain) loss from disposal of equipment (20) 183 (12)
Restructuring expense 4,777 16,875 -
Extraordinary loss - 94 -
Changes in assets and liabilities:
Accounts receivable, net (582) 2,690 (6,887)
Inventories 1,245 4,098 (6,486)
Accounts payable (12) (3,055) 3,684
Restructuring liability (7,286) (328) -
Other (1,822) (1,751) 4,109
Total adjustments 17,759 35,462 12,511
Net cash provided by continuing operations 11,955 29,734 25,846
Net cash provided by (used in)
discontinued operation 1,127 (1,347) (132)
NET CASH PROVIDED BY OPERATING ACTIVITIES $13,082 $28,387 $25,714
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (15,623) (15,937) (44,280)
Capital expenditures of
discontinued operation (3,807) (5,374) (98)
Proceeds from disposal of equipment 180 158 237
Short-term investments - - 10,500
NET CASH USED IN INVESTING ACTIVITIES $(19,250)$(21,153) $(33,641)
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollar amounts in thousands)
For the Years Ended December 31, 1996 1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (repayment) under bank
credit agreement 10,000 (18,500) 18,500
Long-term financing 600 30,000 -
Principal repayments (6,200) (8,626) (6,715)
Dividends paid (3,985) (5,313) (5,090)
Proceeds from exercise of stock
options - 165 -
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 415 (2,274) 6,695
Net increase (decrease) in cash
and equivalents $(5,753) $4,960 $(1,232)
CASH AND EQUIVALENTS, Beginning of Year $ 6,017 $ 1,057 $ 2,289
CASH AND EQUIVALENTS, End of Year $ 264 $ 6,017 $ 1,057
==========================================================================
Supplemental cash flow information (in thousands):
Cash paid during the year for-- 1996 1995 1994
Interest (net of amount capitalized) $ 5,456 $ 4,902 $ 3,303
Income Taxes 720 1,806 7,013
The accompanying notes are an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Business--Sealright Co., Inc. (the Company) serves
the food industry by providing container components and production systems
for packaging food, primarily in round paperboard containers. In addition
to sales in the dairy industry, the Company manufactures packaging films,
supplies flexible packaging, labeling and label-application equipment.
The Company also operates a subsidiary in Australia which supplies
packaging to the dairy and beverage industry in that country.
b. Principles of Consolidation--The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
c. Inventories--Inventories are stated at the lower of cost or market.
Finished products, work in process and raw material inventories are
carried at last-in, first-out (LIFO) cost. Certain machine parts and
supplies inventories are carried at average cost, while others are carried
at first-in, first-out (FIFO) cost. Inventories include the cost of
material, labor and factory overhead required in the production of the
Company's products. Inventories at December 31 of each year were:
(In thousands) 1996 1995
Inventories carried on LIFO basis
Raw materials $11,337 $12,398
Work in process 4,719 8,497
Finished goods 15,005 11,523
Total FIFO basis $31,061 32,418
FIFO basis in excess of LIFO basis (581) (1,466)
Total LIFO basis 30,480 30,952
Inventories carried on average cost
or FIFO basis 6,155 6,043
Total $36,635 $36,995
During 1996, the Company liquidated certain LIFO inventories that were
carried at lower costs prevailing in prior years. The effect of this
liquidation was not significant.
d. Property, Plant and Equipment--Property, plant and equipment has been
recorded at cost and such assets are being depreciated over their
estimated useful lives using the straight-line method. The estimated
useful lives are as follows:
Buildings and improvements 5 to 45 years
Machinery and equipment 3 to 15 years
Furniture and fixtures 3 to 8 years
Maintenance and repairs are charged to expense as incurred. The cost and
accumulated depreciation of assets retired are removed from the accounts,
and any resulting gains or losses are reflected in current income.
The Company manufactures and leases equipment to its customers under
operating leases which may be canceled by either the Company or customer.
This equipment has been recorded at cost, and classified as machinery and
equipment.
At December 31, 1996, the Company held its Kansas City, Missouri,
Charlotte, North Carolina, and Kansas City, Kansas facilities for sale.
The Kansas City, Kansas property is currently leased to a third party.
The carrying value of these facilities at December 31, 1996 and 1995 was
approximately $4,485,000 and $4,592,000, respectively.
e. Interest Capitalization -- Interest capitalized on construction of
buildings, machinery and equipment was $729,000, $1,121,000 and $2,041,000
in 1996, 1995 and 1994, respectively. Building and equipment under
construction at December 31, 1996, 1995 and 1994 was $8,872,000,
$7,092,000 and $30,069,000, respectively.
f. Goodwill -- The excess of purchase price over fair value of net
assets acquired was recorded in connection with the acquisition of Indopak
in 1986, Jaite Packaging, Inc. in 1990, and Venture Packaging, Inc. in
1992, and is being amortized ratably over 20, 30 and 20 years,
respectively. Accumulated amortization was $3,628,000 and $3,208,000, as
of December 31, 1996 and 1995, respectively. The related amortization
expense charged to operations during the years ended December 31, 1996,
1995 and 1994 was $420,000, $420,000 and $455,000, respectively.
g. Other Intangible Assets -- At December 31, 1996, other intangible
assets consisted primarily of covenants not to compete, pension assets,
customer lists and work forces associated with the Company's acquisitions.
These assets are being amortized over the respective remaining lives of
the assets, ranging from three to 20 years. Accumulated amortization on
these assets totaled $6,071,000 and $5,673,000 at December 31, 1996 and
1995, respectively. The related amortization expense charged to
operations during the years ended December 31, 1996, 1995 and 1994 was
$594,000, $1,179,000 and $1,148,000, respectively.
The Company assesses the recoverability of intangible assets by
determining whether the amortization of the balance over its remaining
life can be recovered through undiscounted future operating cash flows.
The amount of impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting
the Company's average cost of funds. The assessment of the recoverability
of intangible assets will be impacted if estimated future operating cash
flows are not achieved.
h. Research and Development--Research and development costs from
continuing operations are charged to expense as incurred and amounted to
$5,735,000, $6,032,000 and $5,644,000, in 1996, 1995 and 1994,
respectively.
i. Earnings Per Share--Earnings per share has been calculated based on
the weighted average number of common and common stock equivalent shares
outstanding, which were 11,072,000, 11,083,000 and 11,075,000 in 1996,
1995 and 1994, respectively.
j. Revenue Recognition--Revenue from the sale of packaging and packaging
equipment is recognized at the time ownership of the product is
transferred to the customer. Revenue from operating leases of packaging
equipment is recognized monthly in accordance with the terms of the
respective leases.
Revenues pertaining to operating leases are included in net sales and
amounted to $4,519,000, $4,489,000 and $4,670,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
k. Foreign Operations -- Assets and liabilities related to foreign
operations are translated at the exchange rate as of the balance sheet
date. All revenue and expense accounts are translated at a weighted-
average of exchange rates in effect during the year. The translation
adjustments were immaterial in 1996 and 1995.
l. New Accounting Pronouncements -- The Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of" in 1996. The adoption of this standard did not
have a material impact on the Company's financial statements. The Company
also adopted SFAS No. 123, "Accounting for Stock Based Compensation" in
1996. The Company has elected to continue to apply the provisions of APB
No. 25 and provide proforma net income and earnings per share disclosures
for stock option grants made during 1995 and 1996 using the fair-value-
based method defined in SFAS No. 123.
m. The carrying value of the Company's fixed rate debt portfolio
approximates fair value. The estimates of fair values are based on
estimated borrowing costs available to the Company for debt with similar
terms and remaining maturities.
n. Discontinued Operation -- During the fourth quarter of 1996, the
Company decided to exit its plastics container business. The operations
of the plastics container business have been presented as a discontinued
operation and the 1995 and 1994 financial statements have been restated to
present the assets, liabilities and operations of the plastics container
business as a discontinued operation. The sale of this business was
consummated on March 3, 1997.
o. Use of Estimates -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
<PAGE>
2 INCOME TAXES
Total income taxes are allocated as follows (Dollar amounts in thousands):
For the years ended December 31, 1996 1995 1994
Continuing operations $ (457) $(3,276) $8,985
Discontinued operation (3,062) (490) 32
Extraordinary loss 0 (63) 0
Total tax provision (benefit) $(3,519) $(3,829) $9,017
Taxes from continuing operations were as follows:
Current
Federal $(1,971) $ 1,021 $6,553
State and local 244 277 1,187
Total current tax provision (benefit) (1,727) 1,298 7,740
Deferred
Federal 1,084 (4,142) 1,025
State and local 186 (432) 220
Total deferred tax provision (benefit) 1,270 (4,574) 1,245
Total tax provision (benefit) $ (457) $(3,276) $8,985
A reconciliation of the income tax provision (benefit) from continuing
operations to the statutory federal rate is as follows:
For the years ended December 31,
1996 1995 1994
Statutory federal tax rate (35.0%) (35.0%) 35.0%
Non-deductible expenses 15.8 1.6 0.8
State income and franchise taxes 9.2 (1.0) 3.8
Credits and FSC benefit (16.5) (3.1)
Valuation allowance 19.8 - -
Taxes over accrued in prior years (32.4) - -
Other 3.0 (2.9) 0.7
Total (36.1%) (40.4%) 40.3%
===========================================================================
<PAGE>
During 1996, the Company evaluated its income tax liability and determined
the prior years balance was over accrued. Accordingly, the Company
reduced its tax liability and reduced income tax expense by $409,000 in
1996.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1996 and 1995 are as follows:
As of December 31, 1996 1995
Deferred tax assets:
Net operating loss carryforwards $ 1,309 $ 829
Accrued postretirement cost 896 896
Accrued vacation 473 1,071
Accrued workers' compensation reserve 1,040 1,270
Other 706 801
Total gross deferred tax assets 4,424 4,867
Less valuation allowance (250) 0
Net deferred tax assets 4,174 4,867
Deferred tax liabilities:
Property, plant and equipment (13,861) (13,153)
Inventories (4,006) (3,951)
Prepaid pension, net (582) (768)
Total gross deferred tax liabilities $(18,449) $(17,872)
Net deferred tax liability $(14,275) $(13,005)
==========================================================================
The Company has recorded a valuation allowance for deferred tax assets as
of December 31, 1996 of $250,000. No valuation allowance was provided at
January 1, 1996 and 1995. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax asset will not be realized. The
ultimate realization of deferred tax asset is dependent upon the
generation of future taxable income during the periods in which the
temporary differences become deductible. Management believes it is more
likely than not the Company will realize the benefits of these deductible
differences, net of existing valuation allowances, at December 31, 1996.
At December 31, 1996, the Company had net operating loss carryforwards for
state income tax purposes of $18,701,000 which were available to offset
future state taxable income, if any, through 2006. In addition, the
Company had alternative minimum tax credit carryforwards of approximately
$1,025,000 which were available to reduce federal regular income taxes, if
any, over an indefinite period.
The Company's current assets reflect income taxes receivable of $4,800,000
as of December 31, 1996. This amount was based on estimated refunds of
taxes paid in prior years due to the carryback of the taxable net
operating loss for 1996.
3 DEBT OBLIGATIONS
Total debt consists of (Dollar amounts in thousands):
As of December 31, 1996 1995
8.15% Senior notes due 1998 $12,400 $18,600
6.75% Senior notes due 2008 35,000 35,000
7.09% Senior notes due 2010 30,000 30,000
Bank Credit Agreement 10,000 -
Other 600 -
Total debt $88,000 $83,600
Less current portion (6,200) (6,200)
Total long-term debt $ 81,800 $77,400
===========================================================================
The Company must comply with various financial covenants under its debt
agreements. In conjunction with the 1995 restructuring, the Company
obtained a temporary modification of its credit agreement for 1995 and
1996. The Company did not meet the fixed charge coverage requirements of
the temporary modification as of September 30, 1996 and December 31, 1996.
The Company obtained a waiver for the fixed charge coverage ratio for the
third and fourth quarter of 1996. The Company paid a fee of $47,000 in
conjunction with the fourth quarter waiver, which was reflected as
interest expense during the fourth quarter. The Company obtained a
modification of its credit agreements for 1997 which modifies the minimum
level of fixed charge coverage compliance.
Required principal repayments for the next five years are $6,200,000 in
1997, $7,075,000 in 1998 and $3,500,000 in 1999, 2000, and 2001.
The Company may borrow up to $30,000,000 under the terms of a bank credit
agreement which expires October 31, 1998. At December 31, 1996,
$20,000,000 was available under the bank credit agreement. The unused
portion of the bank credit agreement may be used by the Company at any
time. Borrowings under the agreement bear interest (6.59% at December 31,
1996) at either the London Interbank Offered Rate plus .5% or prime less
.5%, at the option of the Company. The Company must pay a facility fee of
.125% of the unused portion of the commitment.
The Company's senior loan agreements prohibit the Company from paying
cumulative dividends in excess of 50% of the Company's cumulative net
income or 100% net loss, as adjusted, from date of the agreements. At
December 31, 1996, the Company's most restrictive cumulative dividend
deficit was approximately $4,800,000. The Company is also prohibited from
paying a dividend by the modification to its credit agreements. The
Company discontinued its regular dividend in the fourth quarter of 1996.
4 COMMITMENTS AND CONTINGENCIES
Future minimum rental payments required under the terms of operating
leases that have initial or remaining noncancelable lease terms in excess
of one year from December 31, 1996, are as follows (in thousands):
December 31, Amount
1997 $ 1,530
1998 1,391
1999 896
2000 385
2001 86
Principal operating leases are for equipment, warehouse facilities and
office space. Rent expense related to continuing operations for all
operating leases was $2,628,000, $2,084,000 and $1,872,000 in 1996, 1995
and 1994, respectively. Rent is expensed ratably over the life of each
lease, although the timing of rental payments may be scheduled
differently. It is expected that in the ordinary course of business that
leases will be renewed or replaced as they expire.
At December 31, 1996, the Company had stand-by letters of credit
outstanding totaling USD$3,402,000 and AUD$150,000 securing a workers'
compensation policy, a municipal obligation, and performance obligations
associated with a grant from the State of Queensland, Australia.
The Company is a party to various legal and environmental matters
incidental to its business. In the opinion of management, these matters
will not have a material impact on the Company's consolidated financial
statements. Liabilities for loss contingencies are recorded when it is
probable that a liability has been incurred and the amount of the loss can
be reasonably estimated.
5 EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have five defined benefit pension plans
covering substantially all employees. Benefits for the salaried
retirement income plans are based on employee compensation during the five
highest consecutive years in the final 10 years prior to retirement. All
hourly and union employee benefits are based on a flat rate per year of
service.
Total pension expense was $774,000, $794,000 and $794,000 in 1996, 1995
and 1994, respectively, including amortization of prior service costs over
25 years. In 1996 and 1995, the Company recognized a curtailment in three
pension plans in conjunction with the Company-wide restructuring. A
curtailment expense of $6,000 and $374,000 was recorded as part of
restructuring expense in 1996 and 1995, respectively.
The funded status of the plans was as follows (Dollar amounts in
thousands):
As of December 31, 1996 1995
Plan Assets Plan Assets
In Excess Accumulated In Excess Accumulated
of Benefits in of Benefits in
Accumulated Excess of Accumulated Excess of
Benefits Plan Assets Benefits Plan Assets
Actuarial present value of
benefit obligations:
Vested benefits $ 29,702 $ 20,963 $ 29,445 $ 20,869
Non-vested benefits 347 158 441 339
Accumulated benefit obligation 30,049 21,121 29,886 21,208
Projected compensation increases 3,020 - 3,992 -
Projected benefit obligation 33,069 21,121 33,878 21,208
Estimated fair value of plan asset 40,713 19,411 39,185 19,551
Plan assets in excess (less than)
the projected benefit obligation 7,644 (1,710) 5,307 (1,657)
Unrecognized transition asset (344) (515) (918) (712)
Unrecognized prior service cost 288 1,078 370 1,709
Unrecognized gains (4,906) (323) (2,059) (57)
Adjustment for minimum liability - (503) - (917)
Net pension asset (liability) $ 2,682 $ (1,973) $ 2,700 $ (1,634)
===============================================================================
Pension expense consisted of the following (in thousands):
For the Years Ended December 31, 1996 1995 1994
Benefits earned during the year $ 1,745 $ 1,572 $ 1,682
Interest cost on projected
benefit obligation 4,104 4,109 3,744
5,849 5,681 5,426
Less:
Actual return on assets (5,336) (8,039) (538)
Net amortization 261 3,152 (4,094)
Net pension expense $ 774 $ 794 $ 794
<PAGE>
Plan assets are invested in interest-bearing securities (bonds, fixed
income and money market funds), and domestic and international equity
securities.
In determining the actuarial present value of the projected benefit
obligation, the assumed discount rate was 7.75% in 1996 and 7.50% in 1995,
respectively. The assumed rate of increase in future compensation levels
was 5.5%, and the expected long-term rate of return on assets was 9.25%
and 9.00% in 1996 and 1995, respectively.
The Company makes contributions to a defined benefit multi-employer
pension plan for certain union employees of Indopak, a wholly owned
subsidiary. Amounts charged and contributed to the plan totaled $350,000,
$239,000, and $172,000 in 1996, 1995 and 1994, respectively.
The Company has a long-term savings plan available to substantially all
non-union employees. The total expense to the Company for the plan was
$697,000, $686,000 and $636,000 in 1996, 1995 and 1994, respectively.
Effective March 1, 1996, the Company's contribution was changed from a
cash match to a match in the form of Sealright Co., Inc. common stock.
In 1994, the Company established an unfunded supplemental executive
retirement plan for certain officers and key employees whose benefits are
reduced because of compensation deferral elections or limitations under
federal tax laws. The Company's plan expense was $84,000, $136,000 and
$140,000 in 1996, 1995 and 1994, respectively.
The Company has an incentive compensation plan which provides for payment
of cash bonus awards to officers and key employees based upon achievement
of specific financial goals. During 1996 and 1995, no awards were made
under the plan. The Company's total plan expense was $1,175,000 in 1994.
6 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Employees hired prior to January 1, 1992 who retire from the Company on or
after attaining age 55 and have rendered service to the Company ranging
from 10 to 15 years are entitled to postretirement life insurance and
health care coverage. These benefits are subject to retirees'
contributions, deductibles, copayment provisions and other limitations.
The Company may amend, change or terminate the plan. The Company has
recorded a post-retirement benefit liability relating to life insurance
coverages provided. No liability has been recorded for the healthcare
coverage, as retirees pay substantially all of the health care costs
through premiums. Any shortfall of premiums in relationship to actual
costs are charged to expense with the intent of recovering these costs in
future periods.
The following table reconciles the plan's funded status to the accrued
postretirement life insurance cost liability as reflected on the
consolidated balance sheets as of December 31, 1996 and 1995 (in
thousands):
1996 1995
Accumulated postretirement benefit obligation:
Retirees $(1,555) $(1,600)
Other fully eligible participants (286) (322)
Other active participants (247) (298)
Unrecognized net gain (152) (21)
Accrued postretirement liability $(2,240) $(2,241)
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% and 7.50% in 1996 and 1995,
respectively.
Postretirement expense consisted of the following (in thousands):
1996 1995 1994
Service cost $ 25 $ 23 $ 26
Interest cost 162 167 160
Total postretirement expense $ 187 $190 $186
7 STOCK OPTION PLANS
The Company has two stock option plans with 850,000 shares of the
Company's common stock reserved for these plans. The first plan was
adopted in 1987 and has 150,000 shares of common stock reserved. Options
issued under the 1987 plan are non-qualified. The second plan was adopted
in 1995 and has 700,000 shares of common stock reserved. Both incentive
and non-qualified options may be issued under the 1995 plan. Under both
plans, the exercise price of each option equals the market price of the
Company's stock on the date of grant. The maximum term of each option is
ten years. Options vest at varying rates depending on the circumstances
under which the grants are made. From time to time, the Company issues
options outside of either plan.
<PAGE>
Information regarding the Company's stock options is summarized below:
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
1996 Price 1995 Price 1994 Price
Options outstanding at
beginning of year 249,500 $14.56 146,500 $13.50 96,500 $14.20
Granted 57,000 $11.78 105,000 $15.77 50,000 $15.10
Exercised - - (2,000) $12.75 - -
Forfeited (13,500) $16.00 - - - -
Expired - $ - - - - -
Options outstanding at
end of year 293,000 $14.69 249,500 $14.56 146,500 $13.50
Options exercisable at
end of year 130,000 96,500 72,000
Weighted average fair value
of options granted during
the year $156,750 $213,150 $335,000
December 31, 1996 Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Range of Exercise Remaining Exercise Exercise
Prices Number Life (years) Price Number Price
$10.88-$15.00 162,500 5.76 $13.08 79,500 $14.06
$15.25-$20.75 130,500 7.60 $16.70 50,500 $17.82
Total 293,000 6.58 $14.69 130,000 $15.52
The Company applied APB Opinion No. 25 in accounting for stock option
grants and, accordingly, no compensation cost has been recognized. Had
the Company recognized a compensation expense in accordance with SFAS No.
123, the Company's net loss would have been increased to the pro forma
amounts indicated below:
1996 1995
Net Income(Loss) As Reported $(5,804) $(5,728)
Pro Forma (5,902) (5,861)
Earnings(Loss) Per Share As Reported (0.52) (0.52)
Pro Forma (0.53) (0.53)
In accordance with SFAS No. 123, the compensation cost of options granted
during the year is reflected over the vesting period of the options,
generally five years. The Company did not apply the provisions of SFAS
No. 123 prior to 1995. As such, the pro forma net income and loss
reflects only the cost of options granted in 1996 and 1995.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model. The following assumptions
were used.
Year of Grant 1996 1995
Expected Dividend Yield 1.0% 2.9%
Expected Volatility 27.6% 28.3%
Risk Free Interest Rate 6.4% 5.4%
Expected Remaining Life 6.6 years 5.6 years
Option Value $2.75 $2.03
In addition to the fixed options listed above, there are two outstanding
options awarded under the Long-Term Incentive Plan (LTIP) in 1994. The
LTIP was discontinued in 1994. The options are exercisable into 4,000
shares of common stock at a strike price of $21.75. As the options are
exercised, a proportionate number of restricted shares are issued. The
restrictions prohibiting the sale or transfer lapse three years following
issuance. The options expire on February 28, 1998. Performance bonuses
associated with the LTIP award of $244,000 were expensed to income in
1994.
8 RESTRUCTURING EXPENSE
In the fourth quarter of 1995, the Company announced a functional
reorganization and facilities consolidation plan to significantly reduce
the Company's cost structure and improve productivity. The consolidated
statement of operations for 1995 includes $16,875,000 of pretax charges
($10,125,000 after tax or $0.92 per share) relating to this plan. As of
December 31, 1995, $328,000 had been paid, $9,670,000 was reflected on the
1995 consolidated balance sheet as a write down of long-term assets,
$2,140,000 was reflected as a write down of current assets and $4,364,000
of this amount remained in accrued liabilities representing approximately
$3,905,000 related to severance, $225,000 related to outplacement, and
$234,000 related to exiting the corporate office lease and legal expenses.
During 1996, the Company consolidated the paperboard manufacturing
operations conducted at its DeSoto, Kansas facility, and moved the
corporate office, machine manufacturing operations, and research and
development to the DeSoto facility. The costs associated with moving
manufacturing equipment and personnel were $4,092,000 during 1996. In the
fourth quarter of 1996, the Company reflected an additional restructuring
charge of $685,000 relating to severance expense associated with
consolidating the Company's Charlotte, North Carolina flexible packaging
facility and curtailing operations at the Raleigh, North Carolina machine
manufacturing facility. At December 31, 1996, $1,855,000 remained on the
consolidated balance sheet as accrued restructuring liability. Of this
amount, $1,737,000 is related to severance, $86,000 is related to
outplacement, and $32,000 is related to legal expenses.
The net number of employees affected as a result of the restructuring
during 1996 was 180, or a reduction of 10 percent. Approximately 100
employees will be affected as a result of the Charlotte and Raleigh
consolidations. Affected employees are from the salaried, hourly and
union groups of the Company and include senior management, middle
management, clerical and production employees.
9 EXTRAORDINARY LOSS
During the fourth quarter of 1995, the Company retired, at a premium,
$1,850,000 of industrial revenue bonds issued in 1989 in conjunction with
the construction of the Company's Engineering Services facility. The
redemption resulted in an extraordinary charge of $94,000, comprised of
the call premium and unamortized issuance costs totaling $157,000, net of
an income tax benefit of $63,000.
10 DISCONTINUED OPERATION AND SUBSEQUENT EVENT
During the fourth quarter of 1996, the Company decided to exit its
plastics container business which manufactured rigid plastic thermoformed
and injection molded containers for the cultured dairy industry. The
operations of the plastics container business have been presented as a
discontinued operation. The estimated loss on disposal of $2,856,000
includes income taxes of $1,750,000 as well as $1,000,000 for operating
losses during the phase-out period.
The sale of this business was consummated on March 3, 1997 for cash of
$8,960,000. Management believes that the ultimate loss on the sale of the
operation is not materially different than that previously provided for.
The Company retained the land and building which it will lease to the
buyer with an option to buy.
<PAGE>
The operating results of the discontinued operation are summarized below:
1996 1995 1994
Revenues $11,007 $13,656 $14,418
Income(loss) from operations (3,452) (1,289) 79
Income taxes 1,312 490 (32)
Net income(loss) $(2,140) $ (799) $ 47
Net assets of the discontinued operation are summarized below:
1996 1995
Inventories $2,705 $2,853
Machinery and molds, net 6,005 6,449
Deferred income tax liability (1,497) (973)
Estimated loss on disposal (1,200) -
Net assets $6,013 $8,329
11 QUARTERLY INFORMATION (Unaudited)
The following presents selected quarterly data for the three most recent
fiscal years (in thousands, except per share data). Sales and gross
profit have been restated to reflect the discontinued operation.
Net Income
Net Income (Loss)
Net Sales Gross Profit (Loss) Per Share
1996
Fourth quarter $56,648 $ 5,978 $ (7,262) $(0.65)
Third quarter 65,564 13,693 1,724 0.15
Second quarter 71,471 14,347 1,625 0.15
First quarter 63,553 9,716 (1,891) (0.17)
1995
Fourth quarter $60,085 $ 8,449 $(12,814) $(1.16)
Third quarter 72,949 13,524 1,047 0.09
Second quarter 80,524 18,004 3,952 0.36
First quarter 67,109 13,291 2,087 0.19
1994
Fourth quarter $62,851 $11,886 $ 1,030 $0.09
Third quarter 76,027 18,103 4,492 0.41
Second quarter 76,620 20,297 5,665 0.51
First quarter 65,154 14,399 2,148 0.19
The following table sets forth the range of sales prices, as quoted by
NASDAQ National Market System, and dividends paid for the indicated
periods.
MARKET AND DIVIDEND DATA (Unaudited):
1996 1995
Dividend Dividend
Quarter High Low per Share High Low per Share
Fourth 12 1/2 9 3/4 - 13 10 1/2 $.12
Third 12 1/2 11 1/16 $.12 17 11 1/2 $.12
Second 14 3/4 10 7/8 $.12 19 3/4 15 3/4 $.12
First 12 1/2 9 7/8 $.12 19 1/2 16 3/4 $.12
At December 31, 1996, there were 419 stockholders of record. Since many
stockholders hold their certificates in street name, in addition to many
employees owning stock by virtue of their participation in the Company's
Long-Term Savings Plan, management estimates the number of individual
stockholders is approximately 2,900.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Sealright Co., Inc., and
Subsidiaries:
We have audited the accompanying consolidated balance sheet of SEALRIGHT
CO., INC. (a Delaware corporation), AND SUBSIDIARIES as of December 31,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the year ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements as of December 31, 1995 and for the years ended
December 31, 1995 and 1994, were audited by other auditors whose report
dated February 2, 1996, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present
fairly, in all material respects, the financial position of Sealright Co.,
Inc., and Subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Kansas City, Missouri
February 9, 1997, except for
the second paragraph of Note 10
which is as of March 3, 1997
<PAGE>
Sealright Locations
DeSoto Facility
9201 Packaging Drive
DeSoto, KS 66018
Fulton Facility
100 State Street
Fulton, NY 13069
Los Angeles Facility
4209 East Noakes Street
Los Angeles, CA 90023
San Leandro Facility
2450 Alvarado Street
San Leandro, CA 94577
Raleigh Facility
831 Purser Drive
Raleigh, NC 27603
Akron Facility
1972 Akron-Peninsula Road
Akron, OH 44313
Sealright Packaging Company of Australia, PTY., Ltd.
Virginia, Queensland, Australia
<PAGE>
BOARD OF DIRECTORS
G. Kenneth Baum
Chairman of the Board
George K. Baum Group, Inc.
D. Patrick Curran
Chairman of the Board and
President
Curran Companies
Frederick O. DeSieghardt
Retired Vice Chairman of the Board
Sealright Co., Inc.
Robert F. Hagans
Retired Chairman of the Board
Unitog Company
Charles F. Marcy
President and Chief Executive Officer
Sealright Co., Inc.
Marvin W. Ozley
Retired Chairman of the Board
Sealright Co., Inc.
Arthur R. Schulze
Retired Vice Chairman of the Board
General Mills, Inc.
Charles A. Sullivan
Chairman of the Board and
Chief Executive Officer
Interstate Bakeries Corporation
William D. Thomas
President
George K. Baum Group, Inc.
<PAGE>
SEALRIGHT CO., INC.
EXECUTIVE LEADERSHIP TEAM
Charles F. Marcy
President and Chief Executive Officer
Richard F. Anderson
Sealright International
John T. Carper
Finance and Accounting
Mark E. Dowey
Dairy Sales
J. Patrick Muldoon
Marketing and Strategy
Research and Development
Shawn K. Nicholas
Customer Service
Steven D. Saucier
Supply Chain
John T. Slattery
Information Systems
T. Carl Walker, II
Human Resources
A. Lawrence Walton
Food and Beverage Sales
<PAGE>
CORPORATE AND STOCKHOLDER INFORMATION
Annual Meeting
The annual meeting of stockholders will be held at 9:00 a.m. on Friday,
May 23, 1997, in the Dallas Room at the Doubletree Hotel, 10100 College
Boulevard, Overland Park, Kansas.
Common Stock
Sealright Co., Inc. common stock is traded in the over-the-counter market
under the symbol SRCO.
Form 10-K
A copy of Sealright's Form 10-K report and proxy filed with the Securities
and Exchange Commission may be obtained without charge by writing:
Investor Relations Officer --
Sealright Co., Inc.
9201 Packaging Drive
DeSoto, Kansas 66018,
or you may call Sealright's Investor Relations Publications line at (913)
583-8244. Other investor relations calls may be directed to Mr. John T.
Carper, Senior Vice President - Finance, at (913) 583-8730.
Transfer Agent and Registrar
UMB Bank, n.a.
Securities Transfer Division
P. O. Box 410064
Kansas City, Missouri 64141-0064
General Counsel
Bryan Cave LLP
Overland Park, Kansas
Independent Public Accountants
KPMG Peat Marwick LLP
Kansas City, Missouri
Exhibit 21
Sealright Co., Inc. and Subsidiaries
Subsidiaries of Registrant
State/Country of
Name Incorporation
Sealright Co., Inc. Delaware
Sealright Manufacturing - West, Inc. Missouri
Sealright Manufacturing - East, Inc. Ohio
Sealright Manufacturing - Fulton, Inc. New York
Sealright Packaging Company Kansas
Venture Packaging, Inc. North Carolina
Sealright FSC, Inc. Barbados
Sealright Packaging Company of Australia
Australia Pty. Ltd.
Exhibit 23(a)
Consent of Independent Auditors
The Board of Directors
Sealright Co., Inc.:
We consent to incorporation by reference in the registration statements
(No. 33-25304 and No. 333-00979) on Form S-8 of Sealright Co., Inc. of our
report dated February 9, 1997, except for the second paragraph of
note 10 which is as of March 3, 1997, relating to the consolidated balance
sheet of Sealright Co., Inc. and subsidiaries as of December 31, 1996,
and the related consolidated statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1996, which report
is incorporated by reference in the December 31, 1996, annual report on
Form 10-K of Sealright Co., Inc.
KPMG Peat Marwick LLP
Kansas City, Missouri
March 20, 1997
Exhibit 23(b)
Consent of Independent Public Accountants
We served as independedn public accountants to the Company for the
years ended December 31, 1995 and 1994, and we hereby consent to the
incorporation of our reports indluced or incorporated by reference in
this Form 10-K into the Company's previously filed Registration Statement
file number 33-25304 and 333-00979.
Arthur Andersen LLP
Kansas City, Missouri
March 20, 1997
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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<RECEIVABLES> 23,626
<ALLOWANCES> 453
<INVENTORY> 36,635
<CURRENT-ASSETS> 66,915
<PP&E> 241,770
<DEPRECIATION> 105,517
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<BONDS> 81,800
0
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<TOTAL-LIABILITY-AND-EQUITY> 223,285
<SALES> 257,236
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<CGS> 213,502
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<INCOME-TAX> (457)
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<NET-INCOME> (5,804)
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