<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 June 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 July 1, 1996, the registrant had 5,097,500 shares of common stock
outstanding.
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SEDA SPECIALTY PACKAGING CORP.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheet at June 30,1996
(unaudited) and December 31, 1995 2
Unaudited Condensed Consolidated Statement of Income for the
Three and Six Months ended June 30, 1996 and 1995 3
Unaudited Condensed Consolidated Statement of Cash Flows for
the Six Months ended June 30, 1996 and 1995 4
Notes to Unaudited Condensed Consolidated Financial Statements 5-6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders 9
Items 1-3, 5 & 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 10
</TABLE>
1
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SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands except share data) 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 2,956 $ 3,508
Accounts receivable, less allowance for doubtful accounts
of $551 at June 30, 1996 and $424 at December 31, 1995 9,555 9,022
Inventories 7,081 7,158
Prepaid expenses and other current assets 873 743
Deferred income taxes 1,398 1,120
-------------------------
Total current assets 21,863 21,551
Property, plant and equipment, net 42,396 43,342
Other assets 1,164 989
-------------------------
$ 65,423 $ 65,882
=========================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,583 $ 3,838
Income taxes payable 265 650
Accrued liabilities 2,545 1,718
Current portion of long-term debt 3,739 3,582
Current portion of obligations under capital leases 524 493
-------------------------
Total current liabilities 10,656 10,281
Line of credit - 1,520
Long-term debt 10,704 12,453
Obligations under capital leases 589 805
Deferred income taxes 4,371 3,708
-------------------------
Total liabilities 26,320 28,767
-------------------------
Commitments and contingencies
Minority interest in consolidated subsidiary 301 301
-------------------------
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,
5,097,500 shares issued and outstanding 5 5
Capital in excess of par value 26,983 26,983
Retained earnings 13,218 9,967
Treasury stock, at cost, 96,500 shares at June 30, 1996
and 13,000 shares at December 31, 1995 (1,404) (141)
-------------------------
Total stockholders' equity 38,802 36,814
-------------- ----------
$ 65,423 $ 65,882
=========================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
2
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SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ---------------------------
(In thousands, except per share data) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $14,598 $ 9,192 $29,541 $17,556
Cost of sales 9,674 6,369 19,673 12,233
------------------------ -------------------------
Gross profit 4,924 2,823 9,868 5,323
Selling expenses 916 607 1,897 1,225
General and administrative expenses 1,066 615 2,198 1,136
------------------------ -------------------------
Income from operations 2,942 1,601 5,773 2,962
Interest expense 322 324 658 605
Other income (19) (71) (45) ( 114)
------------------------ -------------------------
Income before income taxes 2,639 1,348 5,160 2,471
Provision for income taxes 976 445 1,909 815
------------------------ -------------------------
Net income $ 1,663 $ 903 $ 3,251 $ 1,656
======================== =========================
Earnings per common and
common equivalent share $ 0.31 $ 0.18 $ 0.61 $ 0.33
======================== =========================
Weighted average number of common
and common equivalent shares 5,357 5,015 5,292 5,015
======================== =========================
</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>
Six Months Ended June 30,
-------------------------
(In thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,251 $ 1,656
----------------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,417 1,463
Change in allowance for doubtful accounts receivable 127 (80)
Deferred income taxes 384 517
Change in assets and liabilities:
Accounts receivable (660) (577)
Inventory 77 (736)
Prepaid expenses and other current assets (130) 290
Other assets 31 919
Accounts payable (255) 979
Income taxes payable (385) (150)
Accrued liabilities 827 (237)
----------------------
Total adjustments 2,433 2,388
----------------------
Net cash provided by operating activities 5,684 4,044
----------------------
Cash flows from investing activities:
Investment in ASC (206) (3,449)
Capital expenditures (1,471) (6,995)
----------------------
Net cash used in investing activities (1,677) (10,444)
----------------------
Cash flows from financing activities:
Repayments of 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 (1,776) (2,782)
----------------------
Net cash provided by (used in) financing activities (4,559) 3,918
----------------------
Net decrease in cash and cash equivalents (552) (2,482)
Cash and cash equivalents at beginning of period 3,508 5,585
----------------------
Cash and cash equivalents at end of period $ 2,956 $ 3,103
======================
Other cash flow information:
Cash paid during the period for interest $ 661 $ 608
Cash paid during the period for taxes on income $ 1,936 $ 291
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
4
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SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 six month periods ended June 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
June 30,
-------------------------
1996 1995
-------------------------
(In thousands)
<S> <C> <C>
Average shares outstanding 5,004 5,015
Common stock equivalents 353 -
-------------------------
Weighted average number of common and
common equivalent shares 5,357 5,015
=========================
Six Months Ended
June 30,
-------------------------
1996 1995
-------------------------
(In thousands)
Average shares outstanding 5,037 5,015
Common stock equivalents 255 -
-------------------------
Weighted average number of common and
common equivalent shares 5,292 5,015
=========================
</TABLE>
5
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NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------------------------
(In thousands)
<S> <C> <C>
Finished goods $ 2,906 $ 2,771
Work-in-process 1,521 1,845
Raw materials 2,654 2,542
---------------------------
$ 7,081 $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 $8.6 million was outstanding
under this agreement at June 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 June 30, 1996 to approximately $2.4 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.
6
<PAGE> 8
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - JUNE 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 June 30, 1996 and 1995
Net sales for the three months ended June 30, 1996 increased approximately 59%
to $14.6 million compared to $9.2 million for the three months ended June 30,
1995. This increase resulted from a 57% increase in sales of containers and a
61% increase in sales of closures and custom products. Approximately 51% of
the increase in net sales was a result of the Company's acquisition of a
majority interest in American Safety Closure Corp. ("ASC") in mid 1995. The
remaining increases were largely due to increased demand from existing
customers and an expanding customer base. The increase in net sales was
primarily a result of increased quantities of products sold, a greater
percentage of tubes with dispensing closures, and higher average container
prices resulting from a change in product mix.
Gross profit for the three months ended June 30, 1996 increased approximately
74% to $4.9 million from $2.8 million in the comparable period of 1995. As a
percentage of net sales, gross profit increased to 33.7% for the three months
ended June 30, 1996, from 30.7% 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 percentage 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 three months ended June 30, 1996 increased 51% to
$916,000 compared to $607,000 for the comparable period of the prior year. As
a percentage of net sales, selling expenses decreased to 6.3% for the three
months ended June 30, 1996 from 6.6% for the corresponding period of 1995. The
changes were due primarily to higher freight costs and commissions and the
inclusion of ASC selling expenses.
General and administrative expenses for the three months ended June 30, 1996
increased to $1,066,000 from $615,000 for the three months ended June 30, 1995.
As a percentage of sales, general and administrative expenses increased to 7.3%
for the three months ended June 30, 1996 from 6.7% for the same period in 1995.
The addition of ASC administrative expenses, higher salaries and higher
professional
7
<PAGE> 9
fees related to investment banking services and shareholder relations were the
primary reasons for the increase in 1996.
Interest expense for the three months ended June 30, 1996 was relatively
unchanged at $322,000 as compared to $324,000 in the same period in 1995.
Other income is primarily interest income on short-term investments.
The higher effective tax rate for the first quarter of 1996 of 37.0% as
compared to 33.0% for the comparable period of 1995 reflects a reduction in the
estimated state income tax credits related to the Company's location in a
designated revitalization zone.
Six Months Ended June 30, 1996 and 1995
Net sales for the six months ended June 30, 1996 increased approximately 68% to
$29.5 million compared to $17.6 million for the six months ended June 30, 1995.
This increase resulted from a 70% increase in sales of containers and a 66%
increase in sales of closures and custom products. Approximately 46% of the
increase in net sales was a result of the Company's acquisition of a majority
interest in American Safety Closure Corp. ("ASC") in mid 1995. The remaining
increases were largely due to increased demand from existing customers and an
expanding customer base. The increase in net sales was primarily a result of
increased quantities of products sold, a greater percentage of tubes with
dispensing closures, and higher average container prices resulting from a
change in product mix.
Gross profit for the six months ended June 30, 1996 increased approximately 85%
to $9.9 million from $5.3 million in the comparable period of 1995. As a
percentage of net sales, gross profit increased to 33.4% for the six months
ended June 30, 1996, from 30.3% 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 percentage 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 six months ended June 30, 1996 increased 55% to
$1,897,000 compared to $1,225,000 for the comparable period of the prior year.
As a percentage of net sales, selling expenses decreased to 6.4% for the six
months ended June 30, 1996 from 7.0% for the corresponding period of 1995. The
changes were due primarily to higher freight costs and commissions and the
inclusion of ASC selling expenses.
General and administrative expenses for the six months ended June 30, 1996
increased to $2,198,000 from $1,136,000 for the six months ended June 30, 1995.
As a percentage of sales, general and administrative expenses increased to 7.4%
for the six months ended June 30, 1996 from 6.5% for the same period in 1995.
Higher salaries, 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 six months ended June 30, 1996 increased to $658,000
as compared to $605,000 in the same period in 1995 because of the addition of
ASC interest bearing debt. Other income is primarily interest income on
short-term investments.
8
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The higher effective tax rate for the first six months of 1996 of 37.0% as
compared to 33.0% for the comparable period of 1995 reflects a reduction in the
estimated state income tax credits related to the Company's location in a
designated revitalization zone.
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 six months ended June 30, 1996 was $5.7
million as compared to $4.0 million for the same period of 1995, reflecting the
higher net income in the first six months of 1996. Cash used for the
acquisition of machinery and equipment was $1.5 million in the first six months
of 1996 compared to $7.0 million for the same period of 1995. Cash used in the
first six months of 1996 related to the acquisition of ASC was only $0.2
million compared to $3.4 million in the first six months of 1995. Cash used in
financing activities during the six months ended June 30, 1996 was $4.6 million
as compared to $3.9 million cash provided by financing activities in the first
six 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 six months of 1996.
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 12, 1996, the Company held its 1996 Annual Meeting of Shareholders (the
"Annual Meeting"). At the Annual Meeting, two matters were submitted to the
Company's shareholders: (i) the election of all members of the Company's Board
of Directors, and (ii) ratification of Price Waterhouse LLP as the Company's
independent auditors.
The votes cast with respect to said matters were as follows (votes reflect
5,097,500 shares of Common Stock issued and outstanding as of the record date
for the Annual Meeting):
<TABLE>
<CAPTION>
Votes Votes Broker
Matter Votes For Against Withheld Abstaining Non-Votes
- ------ --------- ------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Election of directors (1) 4,248,939 -- 500 -- --
Price Waterhouse LLP 4,249,439 -- -- -- --
- ---------------
</TABLE>
(1) Each nominee for director received the number of votes indicated
9
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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 August 13, 1996 Shawn Sedaghat
------------------- --------------------------------------------------
Shawn Sedaghat
Chairman, President and Chief Executive Officer
Date August 13, 1996 Ronald W. Johnson
------------------- --------------------------------------------------
Ronald W. Johnson
Vice President of Finance, Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S JUNE 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,956
<SECURITIES> 0
<RECEIVABLES> 10,106
<ALLOWANCES> 551
<INVENTORY> 7,081
<CURRENT-ASSETS> 21,863
<PP&E> 55,857
<DEPRECIATION> 13,461
<TOTAL-ASSETS> 65,423
<CURRENT-LIABILITIES> 10,656
<BONDS> 11,293
0
0
<COMMON> 5
<OTHER-SE> 38,797
<TOTAL-LIABILITY-AND-EQUITY> 65,423
<SALES> 29,541
<TOTAL-REVENUES> 29,541
<CGS> 19,673
<TOTAL-COSTS> 19,673
<OTHER-EXPENSES> 4,095
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 658
<INCOME-PRETAX> 5,160
<INCOME-TAX> 1,909
<INCOME-CONTINUING> 3,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,251
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
</TABLE>
