<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 March 31 ,1997 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
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SEDA SPECIALTY PACKAGING CORP.
(Exact Name of Registrant as Specified in Its Charter)
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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
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(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code (310) 635-4444
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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 May 1, 1997 the registrant had 5,261,138 shares of common stock outstanding.
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SEDA SPECIALTY PACKAGING CORP.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
Part I - Financial Information
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheet at March 31,1997
(unaudited) and December 31, 1996 2
Unaudited Condensed Consolidated Statement of Income for the
Three Months ended March 31, 1997 and 1996 3
Unaudited Condensed Consolidated Statement of Cash Flows for
the Three Months ended March 31, 1997 and 1996 4
Notes to Unaudited Condensed Consolidated Financial Statements 5-6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
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 9
</TABLE>
1
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SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1997 1996
--------- ------------
<S> <C> <C>
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 3,021 $ 2,628
Accounts receivable, less allowance for doubtful accounts
of $385 at March 31, 1997 and $380 at December 31, 1996 11,018 10,477
Inventories 7,849 8,698
Prepaid expenses and other current assets 546 1,083
Deferred income taxes 1,930 1,880
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Total current assets 24,364 24,766
Property, plant and equipment, net 44,888 45,322
Other assets 4,508 4,115
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$ 73,760 $ 74,203
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,256 $ 5,024
Income taxes payable 314 --
Accrued liabilities 1,864 2,159
Current portion of long-term debt 3,889 6,616
Current portion of obligations under capital leases 516 514
-------- --------
Total current liabilities 10,839 14,313
Line of credit -- 950
Long-term debt 7,762 5,982
Obligations under capital leases 221 349
Deferred income taxes 7,991 7,569
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Total liabilities 26,813 29,163
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Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000 shares authorized
none outstanding -- --
Common stock, $0.001 par value, 30,000 shares authorized,
5,261 shares issued and outstanding 5 5
Capital in excess of par value 29,723 29,723
Retained earnings 18,623 16,716
Treasury stock, at cost, 96 shares (1,404) (1,404)
-------- --------
Total stockholders' equity 46,947 45,040
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$ 73,760 $ 74,203
======== ========
</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 March 31,
-----------------------------
(In thousands, except per share data) 1997 1996
-------- --------
<S> <C> <C>
Net sales $ 16,213 $ 14,943
Cost of sales 10,908 9,999
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Gross profit 5,305 4,944
Selling expenses 1,104 981
General and administrative expenses 979 1,132
-------- --------
Income from operations 3,222 2,831
Interest expense 252 336
Other income (9) (26)
-------- --------
Income before income taxes 2,979 2,521
Provision for income taxes 1,072 933
-------- --------
Net income $ 1,907 $ 1,588
======== ========
Earnings per common and
common equivalent share $ 0.35 $ 0.30
======== ========
Weighted average number of common
and common equivalent shares 5,449 5,218
======== ========
</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>
Three Months Ended March 31,
----------------------------
(In thousands) 1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,907 $ 1,588
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,365 1,202
Change in allowance for doubtful accounts receivable 5 130
Deferred income taxes 372 485
Change in assets and liabilities:
Accounts receivable (546) (810)
Inventory 849 313
Prepaid expenses and other current assets 537 159
Other assets (427) 82
Accounts payable (768) (99)
Income taxes payable 314 (118)
Accrued liabilities (295) (54)
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Total adjustments 1,406 1,290
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Net cash provided by operating activities 3,313 2,878
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Cash flows from investing activities:
Investment in ASC -- (112)
Capital expenditures (897) (469)
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Net cash used in investing activities (897) (581)
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Cash flows from financing activities:
Repayments of lines of credit (950) (1,520)
Purchase of treasury stock -- (821)
Proceeds from issuance of long-term debt 3,100 --
Principal payments of long-term debt and capital lease obligations (4,173) (1,034)
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Net cash used in financing activities (2,023) (3,375)
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Net increase (decrease) in cash and cash equivalents 393 (1,078)
Cash and cash equivalents at beginning of period 2,628 3,508
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Cash and cash equivalents at end of period $ 3,021 $ 2,430
======= =======
Other cash flow information:
Cash paid during the period for interest $ 248 $ 338
Cash paid during the period for taxes on income $ 34 $ 500
</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
MARCH 31, 1997
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, 1996 as filed with
the Securities and Exchange Commission. The results for the three months ended
March 31, 1997 are not necessarily indicative of results of operations for the
year ending December 31, 1997.
NOTE 2 - EARNINGS PER 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.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," which simplifies
the current standards for computing earnings per share. SFAS 128 is effective
for both interim and annual periods ending after December 15, 1997, and earlier
application is not permitted. However, pursuant to the requirements of the
Securities and Exchange Commission the following pro forma amounts have been
computed in accordance with the provisions of SFAS 128:
<TABLE>
<CAPTION>
Three Months Ended March 31,
(In thousands, except per share data) 1997 1996
- ------------------------------------- ------ ------
<S> <C> <C>
Net income $1,907 $1,588
====== ======
Weighted average shares outstanding 5,166 5,069
Dilutive stock options and warrants 283 149
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Weighted average shares plus assumed conversions 5,449 5,218
====== ======
Basic earnings per share $ 0.37 $ 0.31
====== ======
Diluted earnings per share $ 0.35 $ 0.30
====== ======
</TABLE>
5
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NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1997 1996
- -------------- ------ ------------
<S> <C> <C>
Finished goods $2,592 $3,122
Work-in-process 1,884 1,667
Raw materials 3,373 3,909
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$7,849 $8,698
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</TABLE>
NOTE 4 - AMENDED CREDIT AGREEMENT
On March 19, 1997, the Company amended its credit agreement with a bank to
provide financing of an additional $3.1 million term loan, under the same terms
and conditions of its previous credit agreement, for the specific purpose of
repaying in full the building mortgage on the Company's facility in Southern
California. The Company subsequently borrowed the $3.1 million under this
agreement and repaid the mortgage.
6
<PAGE> 8
SEDA SPECIALTY PACKAGING CORP. & Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - MARCH 31, 1997 VS. 1996
"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:
Net sales for the three months ended March 31, 1997 increased approximately 8%
to $16.2 million compared to $14.9 million for the three months ended March 31,
1996. This increase resulted primarily from an increase in sales of containers,
particularly flexible plastic tubes, partially offset by a decline in the sales
of closures and custom products. Although closure sales in the first quarter of
1997 were lower than the first quarter of 1996, such sales were higher than any
other 1996 quarter. The increases were largely due to increased demand from
existing customers and an expanding customer base.
Gross profit for the three months ended March 31, 1997 increased approximately
7% to $5.3 million from $4.9 million in the comparable period of 1996. As a
percentage of net sales, gross profit decreased to 32.7% for the three months
ended March 31, 1997, from 33.19% in the comparable period of the prior year.
The change in gross margin percentage was caused primarily by higher raw
material costs and changes in product mix.
Selling expenses for the three months ended March 31, 1997 increased 13% to
$1,104,000 compared to $981,000 for the comparable period of the prior year. As
a percentage of net sales, selling expenses increased to 6.8% for the three
months ended March 31, 1997 from 6.6% for the corresponding period of 1996.
The changes were due primarily to higher salaries and higher freight costs.
General and administrative expenses for the three months ended March 31, 1997
decreased to $979,000 from $1,132,000 for the three months ended March 31, 1996.
As a percentage of sales, general and administrative expenses decreased to 6.0%
for the three months ended March 31, 1997 from 7.6% for the same period in 1996.
Lower bad debt expense was the primary reason for the decrease in 1997.
Interest expense for the three months ended March 31, 1997 decreased to $252,000
as compared to $336,000 in the same period in 1996, primarily as a result of
lower interest bearing debt outstanding during the period. Other income is
primarily interest income on short-term investments.
The effective tax rate for the first quarter of 1997 of 36.0% as compared to
37.0% for the comparable period of 1996 reflects an increase in the estimated
state income tax credits related to the Company's location in a designated
revitalization zone.
7
<PAGE> 9
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 three months ended March 31, 1997 was $3.3
million as compared to $2.9 million for the same period of 1996, reflecting the
higher net income in the first quarter of 1997. Cash used for the acquisition of
machinery and equipment was $0.9 million in the first three months of 1997
compared to $0.5 million for the same period of 1996. Cash used in financing
activities during the three months ended March 31, 1997 was $2.0 million as
compared to $3.4 million in the first three months of 1996, due to treasury
stock purchases and the repayment of $1.5 million on the Company's line of
credit in the first three months of 1996 versus a repayment of $950,000 on the
Company's line of credit in 1997. The Company also borrowed $3.1 million under
its bank credit agreement and repaid the mortgage on its Southern California
facility of approximately the same amount.
8
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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 May 14, 1997 /s/ Shawn Sedaghat
------------------ -----------------------------------
Shawn Sedaghat
Chairman, President and Chief
Executive Officer
Date May 14, 1997 /s/ Ronald W. Johnson
------------------ -----------------------------------
Ronald W. Johnson
Vice President of Finance, Chief
Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S MARCH 31, 1997 UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,021
<SECURITIES> 0
<RECEIVABLES> 11,403
<ALLOWANCES> 385
<INVENTORY> 7,849
<CURRENT-ASSETS> 24,364
<PP&E> 62,175
<DEPRECIATION> 17,287
<TOTAL-ASSETS> 73,760
<CURRENT-LIABILITIES> 10,839
<BONDS> 7,983
0
0
<COMMON> 5
<OTHER-SE> 46,942
<TOTAL-LIABILITY-AND-EQUITY> 73,760
<SALES> 16,213
<TOTAL-REVENUES> 16,213
<CGS> 10,908
<TOTAL-COSTS> 10,908
<OTHER-EXPENSES> 2,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 252
<INCOME-PRETAX> 2,979
<INCOME-TAX> 1,072
<INCOME-CONTINUING> 1,907
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,907
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
