SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Quarter Ended March 31, 1998 Commission file number 0-14825
SEALRIGHT CO., INC.
(Exact name of registrant as specified in its charter)
Delaware 16-0876812
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
9201 Packaging Drive, DeSoto, Kansas 66018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 913-583-3025
_________________________________________________________________
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
(1) Yes X No (2) Yes X No
As of March 31, 1998, Sealright Co., Inc. had 11,078,232 shares of
Common Stock outstanding. The market value of stock held by non-affiliates
is approximately $84.4 million. .
SEALRIGHT CO., INC. AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 1998
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTRODUCTORY COMMENTS
The Consolidated Financial Statements included herein have been
prepared by Management, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although Management believes that the
disclosures are adequate to enable a reasonable understanding of
the information presented. It is recommended that these
Consolidated Financial Statements be read in conjunction with the
financial statements and the notes thereto included in the
Company's Annual Report on Form 10K, for the year ended December
31, 1997.
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
(In Thousands, Except Per Share Data)
(Unaudited)
1998 1997
Net Sales $57,208 $ 62,200
Cost of Goods Sold 49,500 53,898
Gross Profit 7,708 8,302
SG&A Expenses 8,148 8,264
Other Expenses 253 249
Net Restructuring Gain -- (615)
Operating Income (Loss) from
Continuing Operations (693) 404
Interest Expense 1,369 1,249
Loss from Continuing Operations
Before Income Taxes (2,062) (845)
Income Taxes (765) (348)
Loss from Continuing Operations (1,297) (497)
Discontinued Operation, net of tax
Gain on Disposal 593 54
Net Loss $ (704) $ (443)
Other Comprehensive Income, net of tax:
Foreign currency translation
adjustment 53 -
Other Comprehensive Income 53 -
Comprehensive Loss $ (651) $ (443)
Net Loss Per Share:
From Continuing Operations $ (0.11) $ (0.04)
From Discontinued Operation 0.05 0.00
Net Loss Per Share $ (0.06) $ (0.04)
Average Number of Common
Shares Outstanding 11,078 11,072
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, 1998 December 31, 1997
(Unaudited)
ASSETS
Current Assets
Cash $ 187 $ 1,454
Accounts receivable 27,743 27,496
Inventory 42,161 40,949
Income tax receivable 2,492 2,486
Prepaid expenses 1,725 947
Other current assets 90 64
Total current assets 74,398 73,396
Property, Plant & Equipment 244,141 246,676
Accumulated Depreciation (117,674) (118,609)
Property, Plant and Equipment, net 126,467 128,067
Goodwill, net 5,180 5,287
Other intangibles, net 4,650 4,796
Prepaid pension 2,549 2,674
Other 786 801
Total Assets $214,030 $215,021
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
March 31, 1998 December 31, 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 6,400 $ 7,075
Accounts payable 10,814 7,628
Accrued vacation 2,185 1,865
Accrued workers' compensation reserve 1,959 2,077
Restructuring liability 294 352
Bank Overdraft - 5,560
Other accrued liabilities 10,719 10,038
Total current liabilities 32,371 34,595
Long-term debt 76,350 73,925
Post-retirement liability 2,307 2,284
Pension liability 538 603
Deferred income taxes 11,026 11,645
Other 622 574
Total liabilities 123,214 123,626
Common stock, $0.10 par value,
20,000,000 shares authorized;
11,079,919 shares issued at
March 31, 1998, 11,075,921 shares
issued at December 31, 1997 1,108 1,108
Additional paid-in capital 15,012 14,958
Retained earnings 75,771 76,475
Treasury stock, at cost, 1,687
shares at March 31, 1998, 0 shares
at December 31, 1997 (14) -
Currency translation adjustment (1,004) (1,089)
Minimum pension liability adjustment (57) (57)
Total stockholders' equity 90,816 91,395
Total liabilities and stockholders' equity $214,030 $ 215,021
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
(In Thousands)
(Unaudited)
1998 1997
Cash Flows from Operating Activities
Net Loss $ (704) $ (443)
Adjustments to reconcile net loss to
net cash used by continuing operations:
Gain from discontinued operation (593) (54)
Depreciation & amortization 4,620 5,061
Deferred income taxes (650) 752
(Gain) loss on disposal of assets 5 (715)
Changes in assets and liabilities:
Accounts Receivable (247) (6,038)
Inventory (1,211) (4,413)
Accounts Payable 3,186 4,355
Restructuring Liability (58) (924)
Other (5,322) 2,125
Total adjustments $ (270) $ 149
Net cash used by
continuing operations (974) (294)
Net cash used by discontinued
operation - (1,358)
Net cash used by operating activities $ (974) $(1,652)
Cash Flows from Investing Activities
Capital expenditures $(7,324) $(3,925)
Proceeds from sale of assets 5,241 11,995
Net cash provided (used) by
investing activities $(2,083) $ 8,070
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
(In Thousands)
(Unaudited)
1998 1997
Cash Flows from Financing Activities
Borrowings (Repayments) under bank credit
agreement $ 3,300 $(5,000)
Repayments of long-term obligations (1,550) (1,550)
Redemption of treasury stock (14) -
Issuance of common stock 54 -
Net cash provided (used) by
financing activities $ 1,790 $(6,550)
Net decrease in cash $(1,267) $ (132)
Cash at beginning of period $ 1,454 $ 264
Cash at end of period $ 187 $ 132
Supplemental cash flow information is (in thousands):
Three Months Ended March 31, 1998 1997
Interest Paid (Net of Amount Capitalized) $ 1,460 $ 1,422
Income Taxes Paid 6 60
<PAGE>
SEALRIGHT CO., INC. AND SUBSIDIARIES
MARCH 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENT PRESENTATION
The information included in these condensed consolidated
financial statements reflects all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management, are
necessary for a fair statement of the results for the interim
periods presented.
NOTE 2 - ACCOUNTING PRINCIPLES AND POLICIES
The accompanying financial statements have been prepared
consistent with the accounting principles and policies described
more fully in Note 1 of the Company's annual report filed on Form
10-K for the year ended December 31, 1997.
Effective March 31, 1998, the Company adopted SFAS No. 130,
Reporting Comprehensive Income. This statement established
standards for reporting and display of items that affect
stockholders' equity but are not components of reported net income.
The Company's only component of comprehensive income is foreign
currency translation adjustment. The impact of this adoption was
not material.
NOTE 3 - INVENTORIES
Inventories at March 31, 1998 and December 31, 1997, were:
1998 1997
(In Thousands)
Inventories Carried on LIFO Basis
Raw Materials $15,243 $14,780
Work-In-Process 6,803 4,044
Finished Goods 15,432 17,207
Total FIFO Basis $37,478 $36,031
FIFO Basis in excess of LIFO Basis (246) (246)
Total LIFO Basis $37,232 $35,785
Inventories Carried on average cost or
FIFO Basis 4,929 5,164
Total $42,161 $40,949
Because the inventory determination under the LIFO method can
only be made at the end of each fiscal year based on the inventory
levels and costs at that time, interim LIFO determinations,
including those at March 31, 1998, must necessarily be based on
management's estimate of expected year-end inventory levels and
costs. Since estimates of future inventory levels and prices are
subject to many factors beyond the control of management, interim
financial results are subject to final year-end LIFO inventory
amounts. Accordingly, inventory components reported for the period
ending March 31, 1998, are estimates based on management's
knowledge of the Company's production cycle, the costs associated
with this cycle and the sales and purchasing volume of the Company.
NOTE 4 - DISCONTINUED OPERATION
On March 3, 1998, the Company sold the facility that formerly
housed the plastic container manufacturing operation. The plastic
container manufacturing operation was sold during the first quarter
of 1997. The facility was sold for $4.9 million. The Company
recorded a gain on the sale of $593,000, net of tax. The sale of
the operation and the sale of the facility were accounted for as a
discontinued operation.
NOTE 5 - SALE OF COMPANY
On March 2, 1998, the Company entered into a definitive
agreement for a cash merger with Huhtamaki, Oy, a worldwide food
and packaging company based in Finland. Simultaneous with the
merger, the Company will distribute, as a partial redemption of
outstanding Company stock, its flexible packaging business to
existing shareholders, forming a new public company. The flexible
packaging business will consist of the operations conducted in
Akron, Ohio, San Leandro, California, and the Styrotech sleeve
label machine operation. Shareholders will receive $11.00 per
share in cash and one-half share of stock of the new corporation in
exchange for each share of the Company. The transaction, which is
subject to various regulatory and shareholder approvals, is
expected to close in the third quarter.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION
Sale of Company
On March 2, 1998, the Company entered into a definitive
agreement for a cash merger with Huhtamaki, Oy, a worldwide food
and packaging company based in Finland. Simultaneous with the
merger, the Company will distribute, as a partial redemption of
outstanding Company stock, its flexible packaging business to
existing shareholders, forming a new public company. The
flexible packaging business will consist of the operations
conducted in Akron, Ohio, San Leandro, California, and the
Styrotech sleeve label machine operation. Shareholders will
receive $11.00 per share in cash and one-half share of stock of
the new corporation in exchange for each share of the Company.
The transaction, which is subject to various regulatory and
shareholder approvals, is expected to close in the third quarter.
Results of Operations
Net sales for the first quarter of 1998 were $57.2 million
versus $62.2 million in the first quarter of 1997, a decline of
$5 million, or 8.0%. The decline in revenue from the prior year
occurred primarily in the Company's flexible packaging operations
(as defined above). Due to a decline in the end-market demand of
four key customers at the San Leandro, California facility
coupled with a decline in revenue at the Akron, Ohio facility
resulting from lost customers associated with the consolidation
of the Charlotte, North Carolina facility in early 1997, revenue
declined $4.2 million from the first quarter of 1997. Sales of
the Company's Styrotech sleeve label machines declined $600,000
as compared to the first quarter 1997 due to competitive
pressures.
Gross profit for the first quarter of 1998 was $7.7 million
versus $8.3 million for the first quarter of 1997. The Company's
gross margin for the quarter was 13.5% as compared to 13.4% in
1997. Despite the significant reduction in revenue, consolidated
gross margin increased slightly due to improved manufacturing
efficiencies in most areas of the Company. The improved
performance reflects the aggressive cost reduction measures
implemented in late 1997. In addition, the Company experienced
significant improvement in its customer equipment leasing and
service operation.
Selling, General and Administrative expenses were down $0.1
million from the prior year. During the first quarter of 1998,
the Company incurred approximately $0.4 million of one-time
expenses associated with the pending merger transaction.
Adjusting to exclude these expenses, operating SG&A expense was
down approximately 6% from the first quarter of 1997, reflecting
the full-year impact of the majority of the cost reductions
associated with the company-wide restructuring.
Interest expense for the first quarter was $1.4 million as
compared to $1.3 million during 1997. Interest expense increased
primarily due to a higher average level of debt during 1998 as
compared to 1997 and a reduction in the amount of interest
capitalized.
During the quarter, the Company sold the facility that formerly
housed the plastic container manufacturing operation. The
plastic container manufacturing operation was sold during the
first quarter of 1997. The facility was sold for $4.9 million.
The Company recorded a gain on the sale of $593,000, net of tax.
The sale of the operation and the sale of the facility were
accounted for as a discontinued operation.
Liquidity and Capital Resources
Cash used in operations decreased by $0.7 million year-over-year.
Operating income declined by $1.1 million since the first
quarter of 1997, reducing cash flow from operations. Cash used
to fund working capital requirements decreased by $1.2 million as
compared to the first quarter of 1997 as the Company reduced the
amount of inventory and receivables at its flexible packaging
facilities. During the first quarter of 1997, $1.4 million of
cash was used by the discontinued operation. This use did not
recur in 1998. During the first quarter, the Company invested
$7.3 million in new equipment, an increase from 1997 when the
Company expended $3.9 million. A majority of the capital
expenditures were in the Company's paperboard packaging
operations with the largest project consisting of a new state-of-the-art
lithographic printing press that is being installed in
the Fulton, New York rigid paperboard facility. The press is
expected to be substantially complete and operational by the end
of the second quarter. The press is expected to result in
substantial future cost savings to the Company due to a
significant reduction in outsourced litho printing. During the
quarter, the Company sold a former manufacturing facility in Los
Angeles, California as well as several other idle pieces of
manufacturing equipment.
To fund the cash used in the operation, the Company borrowed an
additional $3.3 million on its revolving loan, increasing the
balance to $12.5 million at March 31. Total debt outstanding
increased $1.8 million since December 31, 1997. The Company has
$17.5 million available under its working capital facility which
is expected to be sufficient to cover operating necessities until
consummation of the merger.
Pursuant to its debt agreements, the Company must comply with
various financial covenants. As of March 31, 1998, the Company
was in compliance with its financial covenants.
Year 2000 Compliance
The Company is currently in the process of improving its
computer systems and software applications by implementing a new
enterprise-wide software system. Since the inception of the
project in 1996, the Company has expended approximately $6.5
million, $1.5 million of which has been charged to operations.
The system is currently in operation at three of the Company's
five domestic locations. The Company has plans to implement the
software at the remaining two domestic facilities during 1998 and
at its Australian facility during 1999. The remaining costs
associated with implementing the system at these facilities is
expected to be approximately $750,000, substantially all of which
is expected to be capitalized. In addition to expanded
management information reporting and other operational
improvements, the new software system will allow the Company to
correctly record yearly dates for year 2000 and beyond.
New Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information. In February 1998, the FASB also issued
SFAS No. 132, Employers' Disclosures about Pension and Other
Postretirement Benefits. These pronouncements expand the
disclosure requirements of the Company and are required to be
adopted no later than December 31, 1998. The Company does not
expect to adopt these pronouncements prior the merger.
<PAGE>
PART II - OTHER INFORMATION
Item 1.) Legal Proceeding
None
Item 2.) Changes in Securities
None
Item 3.) Defaults Upon Senior Securities
None
Item 4.) Submission of Matters to a Vote of Securities Holders
During the preceding 90-day period, the Company
has not had a submission of a matter for the vote of
security holders. It is expected that during the
second quarter of 1998, the Company will distribute a
definitive proxy statement and combined prospectus for
the new flexible packaging company, as described
elsewhere in this Form 10-Q, to its shareholders.
Shareholders will be asked to consider and vote upon
the proposed transaction.
Item 5.) Other Materially Important Events
On March 2, 1998, the Company entered into a
definitive agreement for the sale of the Company. See
Item 2, Management's Discussion and Analysis of
Operations and Financial Condition.
Item 6.) Exhibits and Reports on Form 8-K
On March 2, 1998, the Company filed Form 8-K which
disclosed that several of the Company's shareholders had
entered in to an irrevocable proxy and stock option
agreement in conjunction with the definitive agreement
for sale of the company. Pursuant to the proxy
agreement, the shareholders, who collectively control
approximately 40% of the Company's outstanding shares,
granted a proxy to principals of Huhtamaki, Oy, to vote
in favor of the merger and other related matters. The
Form 8-K also disclosed that the Company had entered into
a definitive agreement for the sale of the Company.
Filed as exhibits to the Form 8-K were the merger
agreement, the proxy agreement, and the press release
which discussed the transaction.
SALES OF UNREGISTERED SECURITIES
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
SEALRIGHT CO., INC.
Date: May 14, 1998 /s/ Charles F. Marcy
By: Charles F. Marcy
President & C.E.O.
Date: May 14, 1998 /s/ John T. Carper
By: John T. Carper
Senior Vice President
& C.F.O.
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