<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the quarterly period ended September 30, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934
For the transition period from__________ to __________
Commission File Number 0-22508
SEDA SPECIALTY PACKAGING CORP.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-3928988
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2501 West Rosecrans Avenue, Los Angeles, CA 90059-3510
------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (310) 635-4444
--------------
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.
Yes X No .
--- ---
At November 1, 1996, the registrant had 5,257,910 shares of common
stock outstanding.
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SEDA SPECIALTY PACKAGING CORP.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I - Financial Information
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheet at September 30,1996
(unaudited) and December 31, 1995 2
Unaudited Condensed Consolidated Statement of Income for the
Three and Nine Months ended September 30, 1996 and 1995 3
Unaudited Condensed Consolidated Statement of Cash Flows for
the Nine Months ended September 30, 1996 and 1995 4
Notes to Unaudited Condensed Consolidated Financial Statements 5-7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Part II - Other Information
Items 1-6 are either not applicable or the required information
is included in the Financial Statements or Notes thereto included
in this Form 10-Q. NA
Signatures 11
</TABLE>
1
<PAGE> 3
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands except share data) 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 4,771 $ 3,508
Accounts receivable, less allowance for doubtful accounts
of $584 at September 30, 1996 and $424 at December 31, 1995 9,255 9,022
Inventories 7,823 7,158
Prepaid expenses and other current assets 842 743
Deferred income taxes 1,395 1,120
------- -------
Total current assets 24,086 21,551
Property, plant and equipment, net 45,698 43,342
Other assets 1,860 989
------- -------
$71,644 $65,882
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,079 $ 3,838
Income taxes payable 315 650
Accrued liabilities 2,323 1,718
Current portion of long-term debt 3,866 3,582
Current portion of obligations under capital leases 511 493
------- -------
Total current liabilities 12,094 10,281
Line of credit - 1,520
Long-term debt 9,835 12,453
Obligations under capital leases 484 805
Deferred income taxes 6,003 3,708
------- -------
Total liabilities 28,416 28,767
------- -------
Commitments and contingencies
Minority interest in consolidated subsidiary - 301
------- -------
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized
none outstanding - -
Common stock, $0.001 par value, 30,000,000 shares authorized,
5,257,910 shares issued and outstanding at September 30, 1996, and
5,097,500 shares issued and outstanding at December 31, 1995 5 5
Capital in excess of par value 29,669 26,983
Retained earnings 14,958 9,967
Treasury stock, at cost, 95,600 shares at September 30, 1996
and 13,000 shares at December 31, 1995 (1,404) (141)
------- -------
Total stockholders' equity 43,228 36,814
------- -------
$71,644 $65,882
======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
2
<PAGE> 4
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------- ------------------------------
(In thousands, except per share data) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $15,016 $11,595 $44,557 $29,151
Cost of sales 10,124 8,184 29,797 20,417
------- ------- ------- -------
Gross profit 4,892 3,411 14,760 8,734
Selling expenses 890 672 2,787 1,897
General and administrative expenses 973 704 3,171 1,840
------- ------- ------- -------
Income from operations 3,029 2,035 8,802 4,997
Interest expense 284 428 942 1,033
Other income (18) (44) (63) (158)
------- ------- ------- -------
Income before income taxes 2,763 1,651 7,923 4,122
Provision for income taxes 1,022 503 2,932 1,318
------- ------- ------- -------
Net income $ 1,741 $ 1,148 $ 4,991 $ 2,804
======= ======= ======= =======
Earnings per common and
common equivalent share $ 0.32 $ 0.23 $ 0.93 $ 0.56
======= ======= ======= =======
Weighted average number of common
and common equivalent shares 5,435 5,094 5,340 5,041
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
3
<PAGE> 5
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
(In thousands) 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,991 $ 2,804
------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,634 2,603
Change in allowance for doubtful accounts receivable 160 (50)
Deferred income taxes 600 518
Change in assets and liabilities:
Accounts receivable (393) (967)
Inventory (665) (1,435)
Prepaid expenses and other current assets (99) 106
Other assets (81) 673
Accounts payable 1,241 1,017
Income taxes payable (335) (135)
Accrued liabilities 605 622
------- --------
Total adjustments 4,667 2,952
------- --------
Net cash provided by operating activities 9,658 5,756
------- --------
Cash flows from investing activities:
Investment in ASC (283) (3,449)
Capital expenditures (2,693) (7,284)
------- --------
Net cash used in investing activities (2,976) (10,733)
------- --------
Cash flows from financing activities:
Repayments of lines of credit (1,520) (1,480)
Proceeds from lines of credit - 1,520
Purchase of treasury stock (1,263) -
Proceeds from issuance of long-term debt - 6,700
Principal payments of long-term debt and capital lease obligations (2,636) (3,623)
------- --------
Net cash provided by (used in) financing activities (5,419) 3,117
------- --------
Net increase (decrease) in cash and cash equivalents 1,263 (1,860)
Cash and cash equivalents at beginning of period 3,508 5,585
------- --------
Cash and cash equivalents at end of period $ 4,771 $ 3,725
======= ========
Other cash flow information:
Cash paid during the period for interest $ 948 $ 1,036
Cash paid during the period for taxes on income $ 2,636 $ 512
Non cash investing and financing activities:
Common stock issued for the acquisition of ASC $ 2,686 $ 650
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
4
<PAGE> 6
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1 - UNAUDITED INTERIM INFORMATION
The accompanying unaudited condensed consolidated financial statements include
all adjustments which in the opinion of management are necessary for a fair
presentation of the information for the interim periods herein reported. The
unaudited condensed consolidated financial statements include amounts that are
based on management's best estimates and judgments. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates. These unaudited condensed consolidated
financial statements should be read in conjunction with the financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 as filed with the Securities and Exchange Commission.
The results for the three and nine month periods ended September 30, 1996 are
not necessarily indicative of results of operations for the year ending
December 31, 1996.
NOTE 2 - EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share is calculated using the
weighted average number of common shares issued and outstanding, adjusted for
treasury shares, and equivalent common shares derived from dilutive stock
options and warrants. The number of shares used in the calculations were as
follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------
1996 1995
------ ------
(In thousands)
<S> <C> <C>
Average shares outstanding 5,136 5,094
Common stock equivalents 299 -
------ ------
Weighted average number of common and
common equivalent shares 5,435 5,094
====== ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1996 1995
------ ------
(In thousands)
<S> <C> <C>
Average shares outstanding 5,070 5,041
Common stock equivalents 270 -
------ ------
Weighted average number of common and
common equivalent shares 5,340 5,041
====== ======
</TABLE>
5
<PAGE> 7
NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(In thousands)
<S> <C> <C>
Finished goods $ 3,266 $ 2,771
Work-in-process 1,699 1,845
Raw materials 2,858 2,542
-------- --------
$ 7,823 $ 7,158
======== ========
</TABLE>
NOTE 4 - AMENDED CREDIT AGREEMENT
On June 27, 1996, the Company amended its credit agreement with a bank to
provide financing of up to $21.7 million consisting of a $6 million term loan
commitment for the purchase of new equipment, a $7 million revolving line of
credit and $8.7 of term loans outstanding from its previous agreement. The
revolving line of credit expires June 30, 1998, and the term loan commitment
expires June 30, 1997. All amounts borrowed under the revolving line of credit
are due and payable upon expiration. Term loans are to be repaid over periods
of up to five years. The agreement is collateralized by a general first
priority lien on all the assets of the Company except certain property, plant
and equipment where the bank's security interest is subordinated to the holders
of other Company notes payable. Approximately $8.0 million was outstanding
under this agreement at September 30, 1996.
Interest on the revolving line of credit is payable monthly at an annual rate
equal to the bank's prime rate or, at the Company's option, 1.2% above the
London Interbank Offered Rate (LIBOR). Interest on the term loans is at
varying rates, at the Company's option, of from 1.5% to 1.75% above the bank's
certificate of deposit rate or LIBOR for an agreed upon time period.
The Company must adhere to covenants set forth in the agreement which require,
among other restrictions, that the Company maintain a minimum level of tangible
net worth (which effectively limited the amount available for the payment of
dividends at September 30, 1996 to approximately $6.0 million), working capital
and net income and certain minimum financial ratios, and that the Company
restrict the incurrence of additional debt without the bank's consent.
NOTE 5 - MAJOR CUSTOMER
Sales to a major customer amounted to $2,036,000 (14% of net sales) in the
three months ended September 30, 1996 and $1,303,000 (11% of net sales) in the
three months ended September 30, 1995. There were no individual customers that
represented over 10% of net sales for the nine month periods ended September
30, 1996 and 1995.
NOTE 6 - ACQUISITION OF REMAINING MINORITY INTEREST IN AMERICAN SAFETY CLOSURE
CORP.
Effective July 15, 1996, the Company acquired the remaining outstanding common
stock of American Safety Closure Corp. ("ASC") as contemplated in the Merger
Agreement of January 5, 1995 as amended.
6
<PAGE> 8
The transaction has been reflected in the accompanying condensed financial
statements using the purchase method of accounting. The cost of the
acquisition of the minority interest was $458,000 in cash and $2,686,000 for
160,410 shares of SEDA common stock (valued at $16 3/4, the fair value at July
15, 1996), bringing the total cost of the acquisition of ASC to $4,009,000 in
cash and $3,336,000 for 242,910 shares of SEDA common stock. The cost of the
acquisition has been allocated to the assets acquired and the liabilities
assumed based upon their estimated fair values. ASC's results of operations
have been included in the Company's consolidated results since June 22, 1995.
A summary of the purchase price allocation as reflected in the accompanying
condensed financial statements is as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Net working capital deficit $ (1,943)
Property, plant and equipment 10,286
Deferred income taxes (782)
Other assets 222
Long-term debt (1,403)
Goodwill 965
--------
Total investment $ 7,345
========
</TABLE>
The following table presents the unaudited pro forma results of operations as
if SEDA had acquired 100% of ASC at the beginning of each respective period
presented. These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what would have occurred had the
acquisition actually been made as of those dates or of results which may occur
in the future.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1996 1995
------------ ------------
(In thousands except per share data)
<S> <C> <C>
Net sales $44,557 $33,223
Net income 4,818 2,365
Earnings per common and common equivalent share 0.87 0.45
</TABLE>
7
<PAGE> 9
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - SEPTEMBER 30, 1996 VS. 1995
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts may contain forward-looking statements that involve a number
of known and unknown risks and uncertainties that could cause actual results to
differ materially from those discussed or anticipated by management. Potential
risks and uncertainties include, among other factors, general business
conditions, competitive market conditions, success of the Company's growth
strategy, delays or cancellation of orders, changes in the mix of products
sold, concentration of raw materials suppliers, fluctuating raw materials
prices, concentration of sales in markets and customers, changes in
manufacturing efficiencies, development and introduction of new products,
fluctuations in margins, timing of significant orders, and other risks and
uncertainties currently unknown to management.
RESULTS OF OPERATIONS:
Three Months Ended September 30, 1996 and 1995
Net sales for the three months ended September 30, 1996 increased approximately
30% to $15.0 million compared to $11.6 million for the three months ended
September 30, 1995. This increase resulted from a 38% increase in sales of
containers and an 18% increase in sales of closures and custom products. The
increases were largely due to increased demand for flexible plastic tubes, PET
bottles and custom products both from existing customers and an expanding
customer base.
Gross profit for the three months ended September 30, 1996 increased
approximately 43% to $4.9 million from $3.4 million in the comparable period of
1995. As a percentage of net sales, gross profit increased to 32.6% for the
three months ended September 30, 1996, from 29.4% in the comparable period of
the prior year. The improvement in gross margin percentage was caused
primarily by lower raw material costs, a favorable change in product mix
reflecting a greater percentage of higher margin products, and improved
manufacturing economies related to higher production levels, partially offset
by a higher number of third party dispensing closures on tubes sold.
Selling expenses for the three months ended September 30, 1996 increased 32% to
$890,000 compared to $672,000 for the comparable period of the prior year. As
a percentage of net sales, selling expenses increased to 5.9% for the three
months ended September 30, 1996 from 5.8% for the corresponding period of 1995.
The changes were due primarily to higher payroll costs, freight costs and
commissions related to the higher net sales volume.
General and administrative expenses for the three months ended September 30,
1996 increased to $973,000 from $704,000 for the three months ended September
30, 1995. As a percentage of sales, general and administrative expenses
increased to 6.5% for the three months ended September 30, 1996 from 6.1% for
the same period in 1995. Higher payroll costs, bad debt expenses and
professional fees related to investment banking services were the primary
reasons for the increase in 1996.
8
<PAGE> 10
Interest expense for the three months ended September 30, 1996 was $284,000 as
compared to $428,000 in the same period in 1995 due to lower outstanding debt
and lower interest rates. Other income is primarily interest income on
short-term investments.
The higher effective tax rate for the third quarter of 1996 of 37.0% as
compared to 30.5% for the comparable period of 1995 reflects a reduction in
estimated state income tax credits related to the Company's location in a
designated revitalization zone.
Nine Months Ended September 30, 1996 and 1995
Net sales for the nine months ended September 30, 1996 increased approximately
53% to $44.6 million compared to $29.2 million for the nine months ended
September 30, 1995. This increase resulted from a 57% increase in sales of
containers and a 46% increase in sales of closures and custom products.
Approximately 37% of the increase in net sales was a result of the Company's
acquisition of a majority interest in ASC in mid 1995. The remaining increases
were largely due to increased demand for flexible plastic tubes, PET bottles
and custom products both from existing customers and from an expanding customer
base.
Gross profit for the nine months ended September 30, 1996 increased
approximately 69% to $14.8 million from $8.7 million in the comparable period
of 1995. As a percentage of net sales, gross profit increased to 33.1% for the
nine months ended September 30, 1996, from 30.0% in the comparable period of
the prior year. The improvement in gross margin percentage was caused
primarily by lower raw material costs, a favorable change in product mix
reflecting a greater percentage of higher margin products, and improved
manufacturing economies related to higher production levels, partially offset
by a higher number of third party dispensing closures on tubes sold and the
consolidation of ASC which produced products with lower gross margins than the
other operations of the Company.
Selling expenses for the nine months ended September 30, 1996 increased 47% to
$2,787,000 compared to $1,897,000 for the comparable period of the prior year.
As a percentage of net sales, selling expenses decreased to 6.3% for the nine
months ended September 30, 1996 from 6.5% for the corresponding period of 1995.
The changes were due primarily to higher freight costs, payroll costs and
commissions and the inclusion of ASC selling expenses.
General and administrative expenses for the nine months ended September 30,
1996 increased to $3,171,000 from $1,840,000 for the nine months ended
September 30, 1995. As a percentage of sales, general and administrative
expenses increased to 7.1% for the nine months ended September 30, 1996 from
6.3% for the same period in 1995. Higher payroll costs, the addition of ASC
administrative expenses, and higher professional fees related to investment
banking services and shareholder relations and higher bad debt expenses were
the primary reasons for the increase in 1996.
Interest expense for the nine months ended September 30, 1996 decreased to
$942,000 as compared to $1,033,000 in the same period in 1995 because of lower
interest rates and the reduction of ASC interest bearing debt in 1996. Other
income is primarily interest income on short-term investments.
The higher effective tax rate for the first nine months of 1996 of 37.0% as
compared to 32.0% for the comparable period of 1995 reflects a reduction in
estimated state income tax credits related to the Company's location in a
designated revitalization zone.
9
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term liquidity needs have generally consisted of operating
capital necessary to fund growth in receivables and inventory. It has
satisfied the short-term requirements with cash generated from operations and
secured bank lines of credit. Long-term liquidity needs generally relate to
capital expenditures necessary to expand the Company's manufacturing
operations. The Company meets its long-term liquidity requirements with cash
generated from operations and five-year secured notes or capital leases with
banks and finance companies. The Company believes that cash generated by
operations, supplemented as necessary with funds expected to be available under
its bank credit agreement (which expires June 30, 1998), will provide
sufficient resources to meet present and reasonably foreseeable working capital
requirements, debt service and other cash needs throughout the term of the
agreement.
Cash provided by operations for the nine months ended September 30, 1996 was
$9.7 million as compared to $5.8 million for the same period of 1995,
reflecting the higher net income in the first nine months of 1996. Cash used
for the acquisition of machinery and equipment was $2.7 million in the first
nine months of 1996 compared to $7.3 million for the same period of 1995. Cash
used in the first nine months of 1996 related to the acquisition of ASC was
only $0.3 million compared to $3.4 million in the first nine months of 1995.
Cash used in financing activities during the nine months ended September 30,
1996 was $5.4 million as compared to $3.1 million cash provided by financing
activities in the first nine months of 1995, due to new long-term debt of $6.7
million in 1995 versus the repayment of $1.5 million on the Company's line of
credit and the purchase of treasury stock in the first nine months of 1996.
10
<PAGE> 12
SEDA SPECIALTY PACKAGING CORP.
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.
SEDA SPECIALTY PACKAGING CORP. .
(Registrant)
Date November 13, 1996 /s/ Shawn Sedaghat
------------------------- -----------------------------------
Shawn Sedaghat
Chairman, President and
Chief Executive Officer
Date November 13, 1996 /s/ Ronald W. Johnson
------------------------- -----------------------------------
Ronald W. Johnson
Vice President of Finance,
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S SEPTEMBER 30, 1996 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,771
<SECURITIES> 0
<RECEIVABLES> 9,839
<ALLOWANCES> 584
<INVENTORY> 7,823
<CURRENT-ASSETS> 24,086
<PP&E> 57,079
<DEPRECIATION> 11,381
<TOTAL-ASSETS> 71,644
<CURRENT-LIABILITIES> 12,094
<BONDS> 10,319
0
0
<COMMON> 5
<OTHER-SE> 43,223
<TOTAL-LIABILITY-AND-EQUITY> 71,644
<SALES> 44,557
<TOTAL-REVENUES> 44,557
<CGS> 29,797
<TOTAL-COSTS> 29,797
<OTHER-EXPENSES> 5,958
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 942
<INCOME-PRETAX> 7,923
<INCOME-TAX> 2,932
<INCOME-CONTINUING> 4,991
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,991
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.93
</TABLE>
