UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998
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 1-12139
SEALED AIR CORPORATION
(Exact name of registrant as specified in its charter)
State or other jurisdiction of incorporation or organization: Delaware
Address of principal executive offices: Park 80 East, Saddle Brook,
New Jersey 07663-5291
I.R.S. Employer Identification Number: 65-0654331
Registrant's telephone number, including area code: (201) 791-7600
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, par value $0.10 per share New York Stock Exchange, Inc.
Series A Convertible Preferred Stock, New York Stock Exchange, Inc.
par value $0.10 per share
Securities registered pursuant to Section 12(g) of the Act: None
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 ___
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 registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant on March 24, 1999 was approximately
$3,921,000,000.
The number of outstanding shares of the registrant's Common Stock as of
March 24, 1999 was 83,486,552.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's 1998
Annual Report to Stockholders are incorporated by reference into Parts I and II
of this Form 10-K. Portions of the registrant's definitive proxy statement for
its 1999 Annual Meeting of Stockholders are incorporated by reference into Part
III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
Sealed Air Corporation (together with its subsidiaries, the
"Company") is engaged in the manufacture and sale of a wide range of protective,
food and specialty packaging materials and systems throughout the world.
On March 31, 1998, the Company (formerly known as W. R. Grace
& Co.) and Sealed Air Corporation (US), a Delaware corporation formerly known as
Sealed Air Corporation ("old Sealed Air"), completed a series of transactions as
a result of which:
(a) The specialty chemicals business of the Company was
separated from its packaging business, the packaging business
("Cryovac") was contributed to one group of wholly owned subsidiaries,
and the specialty chemicals business was contributed to another group
of wholly owned subsidiaries ("New Grace"); the Company and Cryovac
borrowed approximately $1.26 billion under two new revolving credit
agreements and transferred substantially all of those funds to New
Grace; and the Company distributed all of the outstanding shares of
common stock of New Grace to its stockholders. As a result, New Grace
became a separate publicly owned company that is unrelated to the
Company. These transactions are referred to below as the
"Reorganization."
(b) The Company recapitalized its outstanding shares of common
stock, par value $0.01 per share, into a new common stock and Series A
convertible preferred stock, each with a par value of $0.10 per share
(the "Recapitalization").
(c) A subsidiary of the Company merged into old Sealed Air
(the "Merger"), with old Sealed Air being the surviving corporation. As
a result of the Merger, old Sealed Air became a subsidiary of the
Company, and the Company was renamed Sealed Air Corporation.
References to "Grace" in this Annual Report on Form 10-K refer to the Company
before the Reorganization, the Recapitalization and the Merger.
SEGMENTS
The Company operates in two reportable business segments: (i)
food and specialty packaging products and (ii) protective packaging products,
described more fully below. Information concerning the Company's reportable
segments appears in Note 3 of the Notes to Consolidated Financial Statements in
Item 8 of this Annual Report on Form 10-K, which Note is incorporated herein by
reference.
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FOOD AND SPECIALTY PACKAGING PRODUCTS
The Company's principal food and specialty packaging products
are its flexible materials and related products, comprising principally shrink
bag and film products, non-shrink laminates and specialty packaging systems
marketed primarily under the Cryovac (R) trademark for a broad range of
perishable food applications. This segment also includes the Company's rigid
packaging and absorbent pads, principally absorbent pads used for the retail
packaging of meat, fish and poultry, foam trays used by supermarkets and food
processors, and rigid plastic containers for dairy and other food products.
FLEXIBLE MATERIALS AND RELATED SYSTEMS
The Company produces a variety of high-performance proprietary
flexible films, bags and associated packaging equipment marketed and sold
primarily under the Cryovac (R) trademark in North America, Europe, Latin
America, South Africa and the Asia Pacific region that are used to package a
broad range of perishable foods such as fresh, smoked and processed meat
products, cheese, poultry, prepared foods (including soups and sauces for
restaurants and institutions) and produce. The Company also offers sterilized
medical bags and films for use with medical products and produce bags with
dispensing systems used by customers in supermarket produce departments.
Cryovac (R) food packaging products include shrink bags,
shrink films sold for food packaging applications and laminated films. Shrink
bags and films are multi-layered shrinkable plastic bags and films that mold
themselves to the shape of the product. Laminates are multi-layered,
non-shrinkable plastic materials used to package perishable foods and
shelf-stable products such as syrups and toppings. Films and bags are sold in
barrier and permeable forms, depending on whether oxygen or other gases can pass
through the material. Offerings include modified atmosphere packaging (MAP) that
is designed to provide a controlled gas environment within a package to extend
shelf life.
The Company's food packaging films and bags incorporate the
Company's core technologies, including proprietary film processing technology,
resin technology, and packaging and food science expertise. The Company seeks to
maintain technological leadership through a continuous program of research and
development in its core technologies.
For processed meats and poultry, Cryovac (R) cook-in bags and
laminates withstand high cooking temperatures while retaining product shape,
clarity and weight. For fresh-cut produce, the Company produces films that
permit oxygen to pass through at various rates, thereby matching the varying
respiration rates of different vegetables and permitting longer shelf life.
During 1998, the Company introduced a new low-oxygen packaging film for use with
MAP packaging. The Company's Cryovac (R) films offer a wide variety of other
characteristics, such as anti-fog, clarity, gloss, oxygen barrier or strength,
that meet customer demands in specific food packaging applications.
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The Company's food packaging equipment offerings include:
dispensing and loading units to package foods in shrink, vacuum or vacuum skin
packages using the Company's films and bags; form, fill and seal units to
package foods in pouches made using the Company's films; and bagging systems.
Systems are marketed to the food processing industry under the Cryovac (R)
trademark and other trademarks.
RIGID PACKAGING AND ABSORBENT PADS
The Company manufactures and sells Cryovac (R) polystyrene
foam trays that are used by supermarkets and by food processors to protect and
display fresh meat, poultry and produce. The Company also manufactures and sells
absorbent pads used for food packaging, including its Dri-Loc (R) absorbent
pads. The Company's foam trays and absorbent pads are often used together. The
Company's case-ready packaging customers, principally meat and poultry
processors, purchase trays, pads and specially-designed films and packaging
equipment to package centrally meat and poultry products prior to shipment to
the supermarket. The Company also manufactures rigid plastic containers,
primarily plastic tubs for dairy products such as margarine and yogurt, in
Australia that are marketed under the Omicron (TM) trademark.
PROTECTIVE PACKAGING PRODUCTS
The Company's protective packaging products include its
cushioning and surface protection products and certain other products. The
Company's principal cushioning and surface protection products are air cellular
cushioning materials, Cryovac (R) films for non-food applications, Instapak (R)
polyurethane foam packaging systems, polyethylene foam sheets and planks,
protective and durable mailers and bags, paper-based packaging products,
suspension and retention packaging and packaging systems.
CUSHIONING AND SURFACE PROTECTION PRODUCTS
AIR CELLULAR CUSHIONING MATERIALS: The Company manufactures
and markets Bubble Wrap (R) air cellular cushioning materials, which are also
marketed under various other trademarks, including AirCap (R) and PolyCap (R).
These materials consist of air bubbles encapsulated between two layers of
plastic film, each containing a barrier layer to retard air loss, that form a
pneumatic cushion to protect products from damage through shock or vibration
during shipment. The Company's air cellular cushioning materials are used by a
wide variety of end users, including both manufacturers and retailers.
CRYOVAC (R) FILMS FOR NON-FOOD APPLICATIONS: The Company
manufactures and sells Cryovac (R) films used to shrink-wrap a wide assortment
of industrial and consumer products. The Company's proprietary multi-layer films
provide features such as strength and clarity. In certain regions the Company
also offers shrink-wrap equipment for use with the Company's shrink films.
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INSTAPAK (R) SYSTEMS: Instapak (R) polyurethane foam packaging
systems consist of proprietary blends of polyurethane chemicals and specially
designed dispensing equipment. The Company also manufactures high-performance
polyolefin films designed for use with Instapak (R) packaging systems.
Instapak (R) chemicals, films and equipment are marketed as
integrated packaging systems to provide protective packaging for a wide variety
of products, including computer, electronic, office, medical and communications
equipment, compressors and motors, furniture and spare parts, and void-fill
packaging of office supplies, books, cosmetics and other small products for
distribution. Instapak (R) systems are also used to produce polyurethane foams
used in certain non-packaging applications, including Instapak (R) Floral, a
foam used as a design base for artificial flower arrangements.
POLYETHYLENE FOAMS: The Company manufactures thin polyethylene
foams in roll and sheet form, in low, medium and special densities, in flat,
ribbed or bag form and in a number of colors and thicknesses up to one-half
inch. The Company's low-density thin polyethylene foam is marketed under the
trademark Cell-Aire (R) and is used primarily for surface protection and
light-duty cushioning. The Company's medium-density thin polyethylene foam is
marketed under the trademark Cellu Cushion (R) as a cushioning material to
protect products from damage through shock or vibration during shipment.
The Company's CelluPlank (TM) plank foams and Stratocell (TM)
laminated polyethylene foams are generally sold to fabricators and converters
for packaging and non-packaging applications in which a clean, non-abrasive
material is required with such properties as shock absorption, vibration
dampening, thermal insulation or buoyancy. In packaging applications, these
foams are fabricated into a wide range of protective packaging shapes, forms and
die-cuts for designed packages in which a clean, attractive appearance and
cushioning or blocking and bracing performance is needed. Non-packaging
applications for specialty foams include construction, automotive, sporting and
athletic equipment products.
PROTECTIVE AND DURABLE MAILERS AND BAGS: The Company
manufactures and markets a variety of protective and durable mailers and bags
that are made in several standard sizes and are used for mailing or shipping a
wide variety of items for which clean, lightweight pre-constructed protective
packages are desirable. They can provide the user with significant postage
savings, ease of use and enhanced product protection relative to other types of
mailers and shipping containers.
The Company's protective mailers include lightweight,
tear-resistant paper mailers marketed under various trademarks, including
Jiffylite (R) and Mail Lite (R) mailers, lined with air cellular cushioning
material. These products also include the widely used Jiffy (TM) padded mailers
made from recycled kraft paper padded with macerated recycled newspaper and
other Jiffy (TM) mailers designed for particular applications.
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The Company's durable plastic mailers and bags, which are
produced from multi-layered polyolefin film, are lightweight, water-resistant
and puncture-resistant and are available in tamper-evident varieties. Such
mailers and bags are used by a wide range of customers including air courier,
mail order, banking, postal, security and office supply services. Such mailers
and bags are marketed under a number of brand names, including ShurTuff (R),
MailTuff (TM), Trigon (R), Lab Pak (R), Keepsafe (TM) and Crush-Gard (TM).
KORRVU (R) PACKAGING PRODUCTS: The Company manufactures and
sells Korrvu (R) suspension and retention packaging. Korrvu (R) suspension
packaging suspends the product to be packaged in the air space of its shipping
container between two strong, flexible, low-slip films. Korrvu (R) retention
packaging holds the product to be packaged against a corrugated base using a
single sheet of flexible retention film.
PACKAGING SYSTEMS: The Company produces and markets converting
systems that convert certain of the Company's packaging materials, including air
cellular cushioning materials, thin polyethylene foam and paper packaging
materials, into sheets of a pre-selected size and quantity or, for the Company's
recycled kraft paper, into paper dunnage material.
The Company offers two inflatable packaging systems, its Rapid
Fill (R) system, which consists of a compact, portable inflator and self-sealing
inflatable plastic bags, and its Fill-Air (TM) system, which converts rolls of
polyethylene film into continuous perforated chains of air-filled cushions on
demand.
OTHER PROTECTIVE PACKAGING PRODUCTS: The Company manufactures
recycled kraft, tissue and crepe paper for use as a raw material in the
manufacture of the Company's protective mailer and food packaging products. The
Company also manufactures and sells paper packaging products under the
trademarks Kushion Kraft (R), Custom Wrap (TM), Jiffy (TM) Padwrap (R) and Void
Kraft (TM) for industrial surface protection, furniture surface protection,
moving and storage blankets, and for use as cushioning or void fill in various
packaging applications.
Subsidiaries of the Company in certain foreign countries
produce loose-fill polystyrene packaging for sale to customers in those
countries.
OTHER PRODUCTS
The Company manufactures and sells a number of non-packaging
products, including specialty adhesive tapes, solar pool covers and solar
heating systems for swimming pools, recycled kraft, tissue and crepe paper sold
to unaffiliated customers, and certain products related to the elimination and
neutralization of static electricity.
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FOREIGN OPERATIONS
The Company operates in the United States and in 43 other
countries, and its products are distributed in those countries as well as in
other parts of the world. Since the Merger, the Company has begun extending its
protective packaging product offerings into countries where Cryovac had
established operations prior to the Merger and where old Sealed Air had not,
such as eastern Europe and parts of Latin America. In maintaining its foreign
operations, the Company runs the risks inherent in such operations, including
those of currency fluctuations. Information on currency exchange risks appears
in Item 7A of this Annual Report on Form 10-K. Financial information about
geographic areas, including net sales and total assets, for each of the three
years in the period ended December 31, 1998 appears in Note 3 of the Notes to
Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K,
which Note is incorporated herein by reference.
MARKETING, DISTRIBUTION AND CUSTOMERS
The Company employs over 1,200 field sales and technical
support representatives in the countries in which it operates who market the
Company's products through a large number of distributors, fabricators and
converters as well as directly to end users. In the United States and certain
other countries, the Company has separate sales and marketing groups for many of
its product lines. These groups often work together to develop market
opportunities for the Company's products.
To support the Company's food packaging customers, the Company
has food science laboratories in a number of locations that assist customers in
identifying the appropriate food packaging materials and systems to meet their
needs. The Company also offers customized graphic design services to its food
packaging and mailer customers.
To assist its marketing efforts for its protective packaging
products and to provide specialized customer services, the Company maintains
packaging laboratories in many of its United States and foreign facilities.
These laboratories are staffed by professional packaging engineers and equipped
with drop-testing and other equipment used to develop and test cost-effective
package designs to meet the particular protective packaging requirements of each
customer. Certain of these laboratories also design and construct molds for
Instapak (R) packaging customers who prefer to use preformed foam cushions.
The Company has no material long-term contracts for the
distribution of its products. In 1998, no customer or affiliated group of
customers accounted for as much as 10% of the Company's consolidated net sales.
Although net sales of both food and specialty packaging
products and protective packaging tend to be slightly higher in the fourth
quarter, the Company does not consider seasonality to be a material factor.
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COMPETITION
Competition for most of the Company's packaging products is
based primarily on packaging performance characteristics, service and price.
Since competition is also based upon innovations in packaging technology, the
Company's ongoing research and development programs are intended to enable the
Company to maintain technological leadership. Certain firms producing competing
products are well established and may have greater financial resources than the
Company.
There are a number of competing manufacturers of food
packaging products, including companies offering similar products that operate
on a global basis as well as those that operate in a region or single country.
Competing manufacturers produce a wide variety of plastic, paper and other
materials that are used for the packaging of food. The Company believes that it
is one of the leading suppliers of flexible materials and related systems in the
principal geographic areas in which it offers those products and one of the
leading suppliers of absorbent pads for food products to supermarkets and
poultry processors in the United States.
The Company's protective packaging products compete with
similar products made by others and with a number of other packaging materials,
all of which are used to provide protection against damage to the packaged
product during its shipment and storage. Competitive materials include various
forms of paper packaging products, expanded plastics, corrugated die cuts,
loosefill packaging materials, strapping, envelopes, reinforced bags,
boxes and other containers and various corrugated materials. Heavy-duty
applications of the Company's Instapak(R) packaging and its plank and laminated
foam products also compete with various types of molded foam plastics,
fabricated foam plastics and mechanical shock mounts and with wood blocking and
bracing systems. The Company believes that it is one of the leading suppliers of
air cellular cushioning materials containing a barrier layer and polyurethane
foam packaging systems in the geographic areas in which it sells these products.
As discussed below under "Environmental Matters," the Company
is also subject to competitive factors affecting packaging materials that are
based upon customers' environmental preferences.
RAW MATERIALS
The raw materials utilized in the Company's operations
generally have been readily available on the open market and in most cases are
available from several suppliers. Some materials used in the Company's
protective packaging products are reprocessed from scrap generated in the
Company's manufacturing operations or obtained through participation in
recycling programs. The principal raw materials used in the Company's food and
specialty products include polyolefin and other resins and films, paper and wood
pulp products and blowing agents used in foam products. The principal raw
materials used in the Company's protective packaging products include similar
raw materials as those used in its food and specialty products, as well as
polyurethane chemicals. The Company also offers a wide variety of specialized
packaging equipment, some of which it assembles and some of which it purchases
from other suppliers.
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PRODUCT DEVELOPMENT
The Company maintains a continuing effort to develop new
products and improvements to its existing products and processes as well as new
packaging and non-packaging applications for its products. From time to time the
Company also acquires promising new packaging designs or techniques developed by
others and commercializes them. Since the Merger, the Company has begun an
ongoing program of joint research and development projects combining the
technical capabilities of Cryovac and old Sealed Air. The Company incurred
expenses of $57,524,000 related to Company-sponsored research and development in
1998 compared with $40,675,000 during 1997 and $42,255,000 during 1996.
PATENTS AND LICENSES
The Company is the owner or licensee of a number of United
States and foreign patents and patent applications that relate to certain of its
products, manufacturing processes and equipment. While some of these patents and
licenses, as well as certain trademarks which the Company owns, offer some
protection and competitive advantage for the Company's products and their
manufacture, the Company believes that its success depends primarily on its
marketing, engineering and manufacturing skills and on its ongoing research and
development efforts. Therefore, the Company believes that the expiration or
unenforceability of any of such patents, applications or licenses would not be
material to the Company's business or financial position.
ENVIRONMENTAL MATTERS
The Company, like other manufacturers, is subject to various
laws, rules and regulations in the countries, jurisdictions and localities in
which it operates regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. The Company believes
that compliance with current environmental laws and regulations has not had a
material effect on the Company's capital expenditures or financial position.
In some jurisdictions in which the Company's packaging
products are sold or used, laws and regulations have been adopted or proposed
that seek to regulate, among other things, recycled or reprocessed content, sale
and disposal of packaging materials. In addition, customer demand for packaging
materials that are viewed as being "environmentally responsible" and that
minimize the generation of solid waste continues to evolve. While these issues
can be a competitive factor in the marketplace for packaging materials, the
Company maintains active programs designed to comply with these laws and
regulations, to monitor their evolution, and to meet such customer demand.
The Company believes that its packaging materials offer
superior packaging protection, enabling customers to achieve lower package cube
and weight using the Company's packaging materials than with many alternative
packaging methods, thereby reducing the disposal of damaged products as well as
the generation of packaging waste. Because the Company offers both plastic-based
and paper-based protective packaging materials, customers can select the
protective packaging materials that they consider to best meet their performance
and cost needs and
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environmental preferences. A number of the Company's protective packaging
product lines incorporate recycled or reprocessed content, and the Company
maintains ongoing efforts to add or increase recycled or reprocessed content in
many of its protective packaging product lines.
The Company also supports its customers' interests in
eliminating waste by offering or participating in collection programs for
certain of the Company's products or product packaging and for materials used in
certain of the Company's products, and, when possible, materials collected
through these collection programs are reprocessed and either reused in the
Company's protective packaging operations or offered to other manufacturers for
use in other products.
EMPLOYEES
At December 31, 1998, the Company had approximately 14,700
employees worldwide.
ITEM 2. PROPERTIES
The Company's food and specialty packaging products are
produced in 40 manufacturing facilities (15 in North America, 10 in Europe, 5 in
Latin America, 9 in the Asia Pacific region, and 1 in South Africa). Protective
packaging products are produced in 62 manufacturing facilities (29 in North
America, 18 in Europe, 4 in Latin America, and 11 in the Asia Pacific region,
including certain small converting facilities). Several of the Company's
manufacturing facilities serve both segments. The Company occupies other
facilities containing fabricating or converting operations or sales,
distribution, technical, warehouse or administrative offices at a number of
locations in the United States and in various foreign countries.
In the United States, the Company's food and specialty
products are manufactured at facilities in California, Indiana, Iowa,
Mississippi, Missouri, New York, North Carolina, Pennsylvania, South Carolina,
and Texas. Its protective packaging products are manufactured at facilities in
California, Connecticut, Georgia, Illinois, Massachusetts, Mississippi, New
Jersey, New York, North Carolina, Pennsylvania, South Carolina, Texas and
Washington. Because of the light but voluminous nature of the Company's air
cellular, polyethylene foam and protective mailer products, significant freight
savings may be realized by locating manufacturing facilities for these products
near markets. To realize the benefit of such savings, the Company has facilities
for manufacturing these products in various locations in proximity to major
markets.
The Company owns the large majority of its manufacturing
facilities, certain of which are owned subject to mortgages or similar financing
arrangements. The balance of the Company's manufacturing facilities are located
in leased premises. The Company's manufacturing facilities are usually located
in general purpose buildings in which the Company's specialized machinery for
the manufacture of one or more products is contained. The Company believes that
its manufacturing facilities are well maintained, suitable for their purposes,
and adequate for the Company's needs.
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ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various lawsuits and administrative
and other proceedings incidental to its business, including certain federal or
state governmental environmental proceedings or private environmental claims
relating to the cleanup of Superfund sites or other sites. While it is often
difficult to estimate potential environmental liabilities and the future impact
of environmental matters, based upon the information currently available to the
Company and its experience in dealing with such matters, the Company believes
that its potential liability with respect to such sites is not material. The
Company believes, after consulting with counsel, that the disposition of its
lawsuits and other legal proceedings, including environmental matters, will not
have a material effect on the Company's consolidated financial position.
In connection with the Reorganization, the Recapitalization
and the Merger, New Grace agreed to indemnify the Company against all
liabilities of Grace, whether accruing or occurring before or after the merger,
other than liabilities arising from or relating to Cryovac's operations. New
Grace also agreed to retain certain liabilities of Cryovac and to indemnify the
Company against such liabilities. The Company may remain liable with respect to
certain of such liabilities if New Grace fails to fulfill its indemnity
obligations to the Company. Based upon currently available information, the
Company believes that future costs related to such indemnified liabilities will
not have a material adverse effect on the Company's consolidated financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of 1998.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing in the table below sets forth the
current position or positions held by each executive officer of the Company, his
or her age as of March 15, 1999, the year in which he or she first was elected
to the position currently held with the Company or with old Sealed Air (as
indicated in the footnote to the table), and the year in which he or she first
was elected an officer of the Company or of old Sealed Air (as indicated in the
footnote to the table).
All of the Company's officers serve at the pleasure of the
Board of Directors. All officers have been employed by the Company or its
subsidiaries for more than five years except for Mr. Van Riper, who was elected
Senior Vice President and Chief Financial Officer of the Company effective July
1, 1998. Previously Mr. Van Riper was a partner in the accounting firm of KPMG
LLP, which were the independent accountants for old Sealed Air for many years
prior to the Merger and have acted as the independent accountants for the
Company since the Merger. There are no family relationships among any of the
Company's officers or directors.
NAME AND AGE AS OF FIRST ELECTED TO FIRST ELECTED
CURRENT POSITION MARCH 15, 1999 CURRENT POSITION AN OFFICER
- ---------------- -------------- ---------------- -------------
T. J. Dermot Dunphy 66 1971 1971
Chairman of the Board,
Chief Executive Officer
and Director
William V. Hickey 54 1996 1980
President and Chief
Operating Officer
J. Gary Kaenzig, Jr.* 53 1998 1995
Executive Vice President
Bruce A. Cruikshank 55 1996 1990
Senior Vice President
Robert A. Pesci 53 1997 1990
Senior Vice President
Daniel S. Van Riper 58 1998 1998
Senior Vice President
and Chief Financial Officer
Jonathan B. Baker 46 1994 1994
Vice President
James A. Bixby 55 1990 1990
Vice President
Leonard R. Byrne* 57 1998 1998
Vice President
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Mary A. Coventry 45 1994 1994
Vice President
Jean-Luc Debry 53 1992 1992
Vice President
Paul B. Hogan 59 1995 1995
Vice President
James P. Mix 47 1994 1994
Vice President
Manuel Mondragon* 49 1999 1999
Vice President
J. Stuart K. Prosser* 53 1999 1999
Vice President
Abraham N. Reichental 42 1994 1994
Vice President
Horst Tebbe 58 1998 1986
Vice President
Alan S. Weinberg* 57 1998 1998
Vice President
Jeffrey S. Warren 45 1996 1996
Controller
H. Katherine White 53 1998 1996
General Counsel and
Secretary
*Prior to the Merger, Mr. Kaenzig served as Senior Vice President of Grace and
as President of Cryovac, and Messrs. Byrne, Mondragon, Prosser and Weinberg were
executives of Cryovac. Prior to the Merger, all other persons listed in the
table except Mr. Van Riper were executive officers of old Sealed Air.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The information appearing under the caption "Capital Stock
Information" in the Company's 1998 Annual Report to Stockholders is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing under the caption "Selected
Financial Data" in the Company's 1998 Annual Report to Stockholders is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The information appearing under the caption "Management's
Discussion and Analysis of Results of Operations and Financial Condition" in the
Company's 1998 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest
rates and foreign currency exchange rates, which may adversely affect its
results of operations and financial condition. The Company seeks to minimize
these risks through its regular operating and financing activities and, when
deemed appropriate, through the use of derivative financial instruments. The
Company does not purchase, hold or sell derivative financial instruments for
trading purposes.
INTEREST RATES
The Company uses interest rate swaps to reduce exposure to
fluctuations in interest rates by fixing the rate of interest the Company pays
on the notional amount of debt. Interest rate collars are used to reduce the
Company's exposure to fluctuations in the rate of interest by limiting
fluctuations in the rate of interest. At December 31, 1998, the Company had
interest rate swap and collar agreements, maturing at various dates through
March 2003, with a combined aggregate notional amount of $265,000,000. The fair
value of these agreements, which represents the estimated net payment that would
be made by the Company to terminate the agreements as advised by the Company's
banks, was $4,652,000 at December 31, 1998. A hypothetical 10% decrease in
interest rates would increase the amount to be paid by the Company to terminate
these agreements by approximately $3,933,000.
14
<PAGE>
The fair value of the Company's fixed rate debt also varies
with changes in interest rates. Generally, the fair value of fixed rate debt
will increase as interest rates fall and decrease as interest rates rise. At
December 31, 1998, the carrying value of the Company's total debt was
$1,081,657,000, of which only $3,477,000 was fixed rate debt. The estimated fair
value of the Company's total debt, which includes the cost of replacing the
Company's fixed rate debt with borrowings at current market rates, was
$1,082,392,000 at December 31, 1998. A hypothetical 10% decrease in interest
rates would result in an increase in the fair value of the total debt balance of
approximately $381,000.
FOREIGN EXCHANGE CONTRACTS
The Company uses interest rate and currency swaps to gain
access to additional sources of international financing while limiting foreign
exchange exposure and limiting or adjusting interest rate exposure by swapping
borrowings in U.S. dollars for borrowings denominated in foreign currencies. At
December 31, 1998, the Company had interest rate and currency swap agreements,
maturing at various dates through May 2002, with an aggregate notional amount of
$23,000,000. The estimated fair value of these contracts, which represents the
estimated net payment that would be made by the Company to terminate these
agreements based on the then current interest rates and foreign exchange rates,
was $379,000 at December 31, 1998. A hypothetical 10% decrease in interest rates
would increase the amount to be paid by the Company to terminate these
agreements by approximately $55,000. A hypothetical 10% adverse change in
foreign exchange rates at December 31, 1998 would increase the amount to be paid
by the Company by approximately $2,426,000. However, since these contracts hedge
foreign currency denominated transactions, any change in the fair value of the
contracts would be offset by changes in the underlying value of the transaction
being hedged.
The Company generally uses foreign currency forwards to fix
the amount payable on transactions denominated in foreign currencies. At
December 31, 1998, the Company had foreign currency forward contracts, maturing
at various dates through March 1999, with an aggregate notional amount of
$12,800,000. The estimated fair value of these contracts, which represents the
estimated net payment/(receipt) that would be made by (paid to) the Company to
terminate the agreements, was ($415,000) at December 31, 1998. A hypothetical
10% adverse change in foreign exchange rates at December 31, 1998 would decrease
the net amount received to terminate these contracts by approximately $307,000.
However, since these contracts hedge foreign currency denominated transactions,
any change in the fair value of the contracts would be offset by changes in the
underlying value of the transaction being hedged.
15
<PAGE>
FORWARD LOOKING INFORMATION
The above discussion of the Company's procedures to reduce
market risk and the estimated changes in fair value resulting from the Company's
sensitivity analyses are forward-looking statements of market risk assuming
certain adverse market conditions occur. Actual results in the future may differ
materially from these estimated results due to actual developments in the global
financial markets. The analysis methods used by the Company to assess and
mitigate risk discussed above should not be considered projections of future
events or losses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedule on
page F-2 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Part of the information required in response to this Item is
set forth in part I of this Annual Report on Form 10-K under the caption
"Executive Officers of the Registrant," and the balance will be set forth in the
Company's Proxy Statement for its 1999 Annual Meeting of Stockholders under the
captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance." All such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this Item will be set
forth in the Company's Proxy Statement for its 1999 Annual Meeting of
Stockholders under the captions "Directors' Compensation," "Summary Compensation
Table" and "Compensation Committee Interlocks and Insider Participation." Such
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required in response to this Item will be set
forth in the Company's Proxy Statement for its 1999 Annual Meeting of
Stockholders under the caption "Voting Securities," and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS A PART OF THIS ANNUAL REPORT ON FORM 10-K:
(i) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
See Index to Consolidated Financial Statements and Schedule on
page F-2 of this Annual Report on Form 10-K.
(ii) EXHIBITS
EXHIBIT NUMBER DESCRIPTION
2.1 Agreement and Plan of Merger dated as of August 14, 1997 by
and among Grace, Packco Acquisition Corp. and Sealed Air
Corporation. [Exhibit 2.1 to Grace's Current Report on Form
8-K, Date of Report August 14, 1997, File No. 1-12139, is
incorporated herein by reference.]
2.2 Distribution Agreement dated as of March 30, 1998 among the
Company, W. R. Grace & Co.-Conn. ("Grace-Conn."), and New
Grace. [Exhibit 2.2 to the Company's Current Report on Form
8-K, Date of Report March 31, 1998, File No. 1-12139, is
incorporated herein by reference.]
3.1 Amended and Restated Certificate of Incorporation of the
Company as currently in effect. [Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1998, File No. 1-12139, is incorporated herein by
reference.]
3.2 Amended and Restated By-Laws of the Company as currently in
effect. [Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1998, File No.
1-12139, is incorporated herein by reference.]
10.1 Employee Benefits Allocation Agreement dated as of March 30,
1998 among the Company, Grace-Conn. and New Grace. [Exhibit
10.1 to the Company's Current Report on Form 8-K, Date of
Report March 31, 1998, File No. 1-12139, is incorporated
herein by reference.]
10.2 Tax Sharing Agreement dated as of March 30, 1998 by and among
the Company, Grace-Conn. and New Grace. [Exhibit 10.2 to the
Company's Current Report on Form 8-K, Date of Report March 31,
1998, File No. 1-12139, is incorporated herein by reference.]
18
<PAGE>
10.3 Contingent Stock Plan of the Company, as amended. [Exhibit 4.3
to the Company's Registration Statement on Form S-8,
Registration No. 333-59197, is incorporated herein by
reference.]*
10.4 Restricted Stock Plan for Non-Employee Directors of the
Company. [Annex E to the Company's Proxy Statement for the
1998 Annual Meeting of Stockholders is incorporated herein by
reference.]*
10.5 Grace 1996 Stock Incentive Plan, as amended. [Exhibit 10.1 to
the Quarterly Report on Form 10-Q of Grace for the quarter
ended March 31, 1997, File No. 1-12139, is incorporated herein
by reference.]*
10.6 Grace 1994 Stock Incentive Plan, as amended. [Exhibit 10.6 to
the Current Report on Form 8-K filed October 10, 1996 of
Grace, File No. 1-12139, is incorporated herein by
reference.]*
10.7 Grace 1989 Stock Incentive Plan, as amended. [Exhibit 10.5 to
the Current Report on Form 8-K filed October 10, 1996 of
Grace, File No. 1-12139, is incorporated herein by
reference.]*
10.8 Grace 1986 Stock Incentive Plan, as amended. [Exhibit 10.4 to
the Current Report on Form 8-K filed October 10, 1996 of
Grace, File No. 1-12139, is incorporated herein by
reference.]*
10.9 Information concerning Grace's stock options and deferred
payment arrangements for Grace's LTIP awards that were assumed
by the Company. [Information under the headings "Stock
Options" and "LTIP" on pages 15-16 of the Proxy Statement for
the Company's 1999 Annual Meeting of Stockholders is
incorporated herein by reference.]*
10.10 Sealed Air Corporation Deferred Compensation Program for
Cryovac Employees.*
10.11 Form of Contingent Stock Agreement - Officer. [Exhibit 4.5 to
the Company's Registration Statement on Form S-8, Registration
No. 333-59197, is incorporated herein by reference.]*
10.12 Form of Contingent Stock Agreement - Section 162(m) Officer.
[Exhibit 4.6 to the Company's Registration Statement on Form
S-8, Registration No. 333-59197, is incorporated herein by
reference.]*
19
<PAGE>
10.13 Form of Restricted Stock Purchase Agreement. [Exhibit 4.4 to
the Company's Registration Statement on Form S-8, Registration
No. 333-59195, is incorporated herein by reference.]*
10.14 Global Revolving Credit Agreement (5-year) dated as of March
30, 1998 among the Company, certain of its subsidiaries
including Cryovac, Inc., ABN AMRO Bank N.V., Bankers Trust
Company, Bank of America National Trust and Savings
Association, NationsBank, N. A., and the other banks party
thereto. [Exhibit 10.3 to the Company's Current Report on Form
8-K, Date of Report March 31, 1998, File No. 1-12139, is
incorporated herein by reference.]
10.15 Global Revolving Credit Agreement (364-day) dated as of March
30, 1998 among the Company, certain of its subsidiaries
including Cryovac, Inc., ABN AMRO Bank N.V., Bankers Trust
Company, Bank of America National Trust and Savings
Association, NationsBank, N. A., and the other banks party
thereto. [Exhibit 10.4 to the Company's Current Report on Form
8-K, Date of Report March 31, 1998, File No. 1-12139, is
incorporated herein by reference.]
13 Portions of the Company's 1998 Annual Report to Stockholders
that are incorporated by reference into this Annual Report on
Form 10-K.
21 Subsidiaries of the Company.
23.1 Consent of KPMG LLP.
23.2 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
- ----------
*Compensatory plan or arrangement of management required to be filed as an
exhibit to this report on Form 10-K.
(B) REPORTS ON FORM 8-K:
The Company did not file any reports on Form 8-K during the fiscal
quarter ended December 31, 1998.
20
<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.
SEALED AIR CORPORATION
(Registrant)
Date: March 29, 1999 By S/T. J. DERMOT DUNPHY
------------------------------------
T. J. Dermot Dunphy
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange 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.
DATE
----
By S/ T. J. DERMOT DUNPHY March 29, 1999
------------------------------
T. J. Dermot Dunphy
Chairman of the Board, Chief Executive
Officer and Director
(Principal Executive Officer)
By S/DANIEL S. VAN RIPER March 29, 1999
---------------------------------
Daniel S. Van Riper
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By S/ JEFFREY S. WARREN March 29, 1999
---------------------------------
Jeffrey S. Warren
Controller
(Principal Accounting Officer)
By S/HANK BROWN March 29, 1999
---------------------------------
Hank Brown
Director
21
<PAGE>
By S/ JOHN K. CASTLE March 29, 1999
---------------------------------
John K. Castle
Director
By S/CHRISTOPHER CHENG March 29, 1999
---------------------------------
Christopher Cheng
Director
By S/ LAWRENCE R. CODEY March 29, 1999
---------------------------------
Lawrence R. Codey
Director
By S/ CHARLES F. FARRELL, JR. March 29, 1999
---------------------------------
Charles F. Farrell, Jr.
Director
By S/ DAVID FREEMAN March 29, 1999
---------------------------------
David Freeman
Director
By S/ VIRGINIA A. KAMSKY March 29, 1999
---------------------------------
Virginia A. Kamsky
Director
By S/ ALAN H. MILLER March 29, 1999
---------------------------------
Alan H. Miller
Director
By S/JOHN E. PHIPPS March 29, 1999
---------------------------------
John E. Phipps
Director
By S/ R. L. SAN SOUCIE March 29, 1999
---------------------------------
R. L. San Soucie
Director
22
<PAGE>
SEALED AIR CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Years ended December 31, 1998, 1997 and 1996
F-1
<PAGE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
Page
Independent Auditors' Reports *
Financial Statements:
Consolidated Statements of Earnings for the years
ended December 31, 1998, 1997 and 1996 *
Consolidated Balance Sheets - December 31, 1998 and 1997 *
Consolidated Statements of Equity
for the years ended December 31, 1998, 1997 and 1996 *
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996 *
Consolidated Statements of Comprehensive Income
for the years ended December 31, 1998, 1997 and 1996 *
Notes to Consolidated Financial Statements *
Independent Auditors' Reports on Schedule F-3
Consolidated Schedule:
II - Valuation and Qualifying Accounts F-5
* The information required appears on pages 26 through 58 of the Company's
1998 Annual Report to Stockholders and is incorporated by reference into
this Annual Report on Form 10-K.
All other schedules are omitted, as the required information is
inapplicable or the information is presented in the consolidated financial
statements or related notes.
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
Sealed Air Corporation:
Under date of January 27, 1999, we reported on the consolidated balance sheet of
Sealed Air Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of earnings, equity, comprehensive income, and cash
flows for the year then ended, as contained in the 1998 Annual Report to
Shareholders of Sealed Air Corporation. These consolidated financial statements
and our report thereon are incorporated by reference in this Annual Report on
Form 10-K. In connection with our audit of the aforementioned consolidated
financial statements, we also audited the related 1998 consolidated financial
statement schedule as listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
s/KPMG LLP
Short Hills, New Jersey
January 27, 1999
F-3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
Sealed Air Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 23, 1998, contained in the 1998 Annual Report to Shareholders of
Sealed Air Corporation (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedule for each of the two years in the
period ended December 31, 1997, listed in the Index to Consolidated Financial
Statements and Schedule of this Form 10-K. In our opinion, the Financial
Statement Schedule for the periods referred to above presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PRICEWATERHOUSECOOPERS LLP
s/PRICEWATERHOUSECOOPERS LLP
Ft. Lauderdale, Florida
February 23, 1998
F-4
<PAGE>
SEALED AIR CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997 and 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
Additions
Balance At Charged To Charged Balance At
Beginning Costs And To Other End
Description Of Year Expenses Accounts 1 Deductions 2 Of Year
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful accounts $7,256 $11,300 $5,539 $(6,150) $17,945
- -----------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997
Allowance for doubtful accounts $5,734 $ 2,695 $1,511 $(2,684) $ 7,256
- -----------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996
Allowance for doubtful accounts $4,259 $ 5,772 $ _ $(4,297) $ 5,734
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 In 1998, primarily allowance for doubtful accounts of old Sealed Air
acquired on March 31, 1998.
2 Primarily accounts receivable balances written off.
F-5
EXHIBIT 10.10
[GRAPHIC OMITTED]
SEALED AIR CORPORATION DEFERRED COMPENSATION PROGRAM
FOR CRYOVAC EMPLOYEES
1. NAME:
This plan shall be known as the "Sealed Air Corporation Deferred
Compensation Program for Cryovac Employees" (the "Plan").
2. PURPOSE AND INTENT:
Prior to April 1, 1998, the Participants in this Plan identified on
EXHIBIT A attached hereto had earned benefits under the W. R. Grace & Co.
Deferred Compensation Program (the "Prior Grace Plan"). Effective April 1, 1998,
Sealed Air Corporation (formerly known as W. R. Grace & Co.) (the "Company") no
longer sponsors, and the Participants no longer participate in or have any
benefits under, the Prior Grace Plan as the result of a corporate reorganization
and spin-off of certain business units. As a condition to such corporate
reorganization, the Company establishes this Plan effective April 1, 1998 for
the purpose of providing the Participants with the deferred compensation
benefits they had earned under the Prior Grace Plan through March 31, 1998, as
adjusted for periods after March 31, 1998 as hereinafter set forth. It is the
intent of the Company that benefits under the Plan shall not be taxable to any
Participant for income tax purposes until the time actually received by the
Participant. The provisions of the Plan shall be construed and interpreted to
effectuate such intent.
3. DEFINITIONS:
For purposes of the Plan, the following terms shall have the following
meanings:
(a) "Account" means the account established and maintained on the books
of the Company to record a Participant's interest under the Plan attributable to
amounts credited to the Participant pursuant to paragraph 5(a) below, as
adjusted from time to time pursuant to the terms of the Plan.
(b) "Beneficiary(ies)" means the person(s) or entity(ies) designated by
a Participant under the Prior Grace Plan to receive any amounts payable
following the Participant's death. The Participant's designation of a
Beneficiary may be changed under this Plan in accordance with procedures adopted
by the Committee from time to time. If a Participant's fails to designate a
Beneficiary or the designated Beneficiary fails to survive the Participant, then
the Beneficiary shall be the Participant's estate.
(c) "Claim" means a claim for benefits under the Plan.
(d) "Claimant" means a person making a Claim.
(e) "Committee" means the Sealed Air Corporation Retirement Committee.
<PAGE>
(f) "Company" means Sealed Air Corporation (formerly known as W. R.
Grace & Co.), a Delaware corporation, and any successor in interest thereto.
(g) "Participant" means each person identified on EXHIBIT A attached
hereto and made a part hereof.
(h) "Prime Rate" means the average of the "prime rates" (as reported in
THE WALL STREET JOURNAL as the base rate on corporate loans posted by at least
75% of the nation's 30 largest banks) in effect on the first day of each month
during each semiannual adjustment period (i.e., January 1 through June 30 and
July 1 through December 31).
(i) "Retirement" means a Participant's termination employment with the
Company and its subsidiaries on or after having attained age fifty-five (55).
4. ADMINISTRATION:
The Committee shall be responsible for administering the Plan. The
Committee shall have all of the powers necessary to enable it to properly carry
out its duties under the Plan. Not in limitation of the foregoing, the Committee
shall have the power to construe and interpret the Plan and to determine all
questions that shall arise thereunder. The Committee shall have such other and
further specified duties, powers, authority and discretion as are elsewhere in
the Plan either expressly or by necessary implication conferred upon it. The
Committee may appoint such agents as it may deem necessary for the effective
performance of its duties, and may delegate to such agents such powers and
duties as the Committee may deem expedient or appropriate that are not
inconsistent with the intent of the Plan. The decision of the Committee upon all
matters within its scope of authority shall be final and conclusive on all
persons, except to the extent otherwise provided by law.
5. OPERATION:
(a) ESTABLISHMENT OF ACCOUNTS. The Company shall establish and maintain
on its books an Account for each Participant. Each Account shall be designated
by the name of the Participant for whom established. The initial balance of the
Account for each Participant as of April 1, 1998 shall be as set forth on
EXHIBIT A.
(b) ACCOUNT ADJUSTMENTS. Each Account shall be adjusted semiannually on
each June 30 and December 31 at a per annum rate equal to the greater of (i) the
Prime Rate plus two (2) percentage points or (ii) one hundred twenty percent
(120%) of the Prime Rate.
(c) PAYMENT OF ACCOUNTS.
<TABLE>
<CAPTION>
<S> <C>
(i) TERMINATION OF EMPLOYMENT BEFORE RETIREMENT. If a Participant terminates employment
---------------------------------------------
with the Company prior to Retirement for any reason other than the Participant's death
(including, for example, as a result of the Participant's long term disability), the
balance in the Participant's Account as of the last day of the month following the
month in which such termination of employment occurs (the "Payment Date") shall be
paid to the Participant on or around the Payment Date in a single cash payment. For
purposes of this subparagraph, the Account shall be adjusted for earnings from the
date of the last adjustment under paragraph 5(b) above through the Payment Date, using
for such purpose the adjustment rate that was in effect under paragraph 5(b) for the
immediately preceding semi-annual adjustment period. Notwithstanding the foregoing,
if the Participant's employment is terminated other than due to the Participant's
voluntary resignation or termination by the Company for "cause" (as determined by the
Company in its reasonable discretion consistent with Company policies), any portion of
the Participant's Account attributable to deferral elections made under the Prior
Grace Plan for 1989 or prior periods shall be paid in accordance with the method
previously elected under the Prior Grace Plan.
(ii) RETIREMENT; AGE 70. In the event of a Participant's Retirement, or in the event a
-------------------
Participant attains age seventy (70) while still employed with the Company or any of
its subsidiaries, the Participant shall be paid the balance of the Participant's
Account in accordance with the method previously elected by the Participant under the
Prior Grace Plan. (The Prior Grace Plan permitted Participants to elect lump sum
payments or quarterly installments over a period selected by the Participant of 2-10
years, 15 years or 20 years.) Payments shall begin as soon as practicable following
Retirement or attainment of age seventy (70), as applicable. In addition, the Account
shall be adjusted (A) from the last semi-annual adjustment date through the first
payment date, using for such purpose the adjustment rate that was in effect under
paragraph 5(b) for the immediately preceding semi-annual adjustment period, and (B) if
installments have been elected, during the applicable payment period in a manner
consistent with the provisions of paragraph 5(b) above.
(iii) DEATH. If a Participant dies while in service and before commencement of benefits
-----
under the Plan at age 70, then the Company shall pay the Participant's Beneficiary an
amount equal to the greater of (A) the Participant's Account balance as of the date
of death or (B) the Participant's survivor benefit identified on EXHIBIT A attached
---------
hereto. (The amount of survivor benefits set forth on EXHIBIT A are not subject to
---------
adjustment pursuant to paragraph 5(b) above.) Such amount shall be paid in accordance
with the method of payment that would have been applicable in the case of the
Participant's Retirement. If a Participant dies after having commenced receiving
installment payments, the remaining installments shall be paid to the Beneficiary as
and when they would have otherwise been paid to the Participant.
(iv) CHANGE IN PAYMENT METHOD. A Participant may change
his or her payment method election applicable under
paragraph 5(c)(ii) above by making the change on such
forms, at such times and pursuant to such procedures
as the Committee may establish from time to time;
PROVIDED, HOWEVER, that such change of election shall
not become effective until the sixth (6th) month
following the date such change of election is made.
(v) UNFORESEEABLE EMERGENCY. Prior to a Participant's termination of employment with the
------------------------
Company, the Participant may, in the Committee's sole discretion, receive a withdrawal
from the Participant's Account in the case of an "unforeseeable emergency". A
Participant requesting a payment pursuant to this paragraph shall have the burden of
proof of establishing, to the Committee's satisfaction, the existence of such
"unforeseeable emergency", and the amount of the payment needed to satisfy the same.
In that regard, the Participant shall provide the Committee with such financial data
and information as the Committee may request. If the Committee determines that a
payment should be made to a Participant under this paragraph such payment shall be
made within a reasonable time after the Committee's determination of the existence of
such "unforeseeable emergency" and the amount of payment so needed. As used herein,
the term "unforeseeable emergency" means a severe financial hardship to a Participant
resulting from a sudden and unexpected illness or accident of the Participant or of a
dependent of the Participant, loss of the Participant's property due to casualty, or
other similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant. The circumstances that shall constitute
an "unforeseeable emergency" shall depend upon the facts of each case, but, in any
case, payment may not be made to the extent that such hardship is or may be relieved
(i) through reimbursement or compensation by insurance or otherwise, or (ii) by
liquidation of the Participant's assets, to the extent the liquidation of such assets
would not itself cause severe financial hardship. Examples of what are not considered
to be "unforeseeable emergencies" include the need to send a Participant's child to
college or the purchase of a home. Withdrawals of amounts because of an
"unforeseeable emergency" shall not exceed an amount reasonably needed to satisfy the
emergency need.
</TABLE>
(d) OTHER PAYMENT PROVISIONS. Any payment hereunder shall be subject to
applicable payroll and withholding taxes. In the event any amount becomes
payable under the provisions of the Plan to a Participant, Beneficiary or other
person who is a minor or an incompetent, whether or not declared incompetent by
a court, such amount may be paid directly to the minor or incompetent person or
to such person's fiduciary (or attorney-in-fact in the case of an incompetent)
as the Committee, in its sole discretion, may decide, and the Committee shall
not be liable to any person for any such decision or any payment pursuant
thereto.
(e) STATEMENTS OF ACCOUNT. Each Participant shall receive an annual
statement of the Participant's Account balance.
6. AMENDMENT, MODIFICATION AND TERMINATION OF THE PLAN:
The Board of Directors of the Company shall have the right and power at
any time and from time to time to amend the Plan in whole or in part and at any
time to terminate the Plan; provided, however, that no such amendment or
termination shall reduce the amount actually credited to a Participant's Account
or the Participant's survivor benefit under the Plan on the date of such
amendment or termination, or further defer the due dates for the payment of such
amounts, without the consent of the affected Participant.
7. CLAIMS PROCEDURES:
(a) GENERAL. In the event that a Claimant has a Claim under the Plan,
such Claim shall be made by the Claimant's filing a notice thereof with the
Committee within ninety (90) days after such Claimant first has knowledge of
such Claim. Each Claimant who has submitted a Claim to the Committee shall be
afforded a reasonable opportunity to state such Claimant's position and to
present evidence and other material relevant to the Claim to the Committee for
its consideration in rendering its decision with respect thereto. The Committee
shall render its decision in writing within ninety (90) days after the Claim is
referred to it, unless special circumstances require an extension of such time
within which to render such decision, in which event such decision shall be
rendered no later than one hundred eighty (180) days after the Claim is referred
to it. A copy of such written decision shall be furnished to the Claimant.
(b) NOTICE OF DECISION OF COMMITTEE. Each Claimant whose Claim has been
denied by the Committee shall be provided written notice thereof, which notice
shall set forth:
(i) the specific reason(s) for the denial;
(ii) specific reference to pertinent provision(s) of the Plan
upon which such denial is based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect such Claim and an explanation of
why such material or information is necessary; and
(iv) an explanation of the procedure hereunder for review of
such Claim;
all in a manner calculated to be understood by such Claimant.
(c) REVIEW OF DECISION OF COMMITTEE. Each such Claimant shall be
afforded a reasonable opportunity for a full and fair review of the decision of
the Committee denying the Claim. Such review shall be by the Committee. Such
appeal shall be made within ninety (90) days after the Claimant received the
written decision of the Committee and shall be made by the written request of
the Claimant or such Claimant's duly authorized representative of the Committee.
In the event of appeal, the Claimant or such Claimant's duly authorized
representative may review pertinent documents and submit issues and comments in
writing to the Committee. The Committee shall review the following:
(i) the initial proceedings of the Committee with respect to
such Claim;
(ii) such issues and comments as were submitted in writing by
the Claimant or the Claimant's duly authorized representative; and
(iii) such other material and information as the Committee, in
its sole discretion, deems advisable for a full and fair review of the
decision of the Committee.
The Committee may approve, disapprove or modify the decision of the Committee,
in whole or in part, or may take such other action with respect to such appeal
as it deems appropriate. The decision of the Committee with respect to such
appeal shall be made promptly, and in no event later than sixty (60) days after
receipt of such appeal, unless special circumstances require an extension of
such time within which to render such decision, in which event such decision
shall be rendered as soon as possible and in no event later than one hundred
twenty (120) days following receipt of such appeal. The decision of the
Committee shall be in writing and in a manner calculated to be understood by the
Claimant and shall include specific reasons for such decision and set forth
specific references to the pertinent provisions of the Plan upon which such
decision is based. The Claimant shall be furnished a copy of the written
decision of the Committee. Such decision shall be final and conclusive upon all
persons interested therein, except to the extent otherwise provided by
applicable law.
8. APPLICABLE LAW:
The Plan shall be construed, administered, regulated and governed in
all respects under and by the laws of the United States to the extent
applicable, and to the extent such laws are not applicable, by the laws of the
state of New Jersey.
9. MISCELLANEOUS:
A Participant's rights and interests under the Plan may not be assigned
or transferred by the Participant. The Plan shall be an unsecured, unfunded
arrangement. To the extent the Participant acquires a right to receive payments
from the Company under the Plan, such right shall be no greater than the right
of any unsecured general creditor of the Company. Nothing contained herein shall
be deemed to create a trust of any kind or any fiduciary relationship between
the Company and any Participant. The Plan shall be binding on the Company and
any successor in interest of the Company.
IN WITNESS WHEREOF, this instrument has been executed by an authorized
officer of the Company as of the 1st day of April, 1998.
SEALED AIR CORPORATION
By: /S/Mary A. Coventry
----------------------
Name: Mary A. Conventry
Title: Vice President
"Company"
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA (1) EXHIBIT 13
(In thousands of dollars, except per share data)
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF EARNINGS DATA:
Net sales $2,506,756 $1,833,111 $1,741,602 $1,705,642 $1,428,459
Gross profit 868,736 646,002 590,596 627,542 545,313
Operating profit (2) 259,332 267,744 173,500 248,062 237,349
Earnings before income taxes 198,947 263,672 169,822 235,473 227,752
Net earnings (2) 73,007 173,732 99,830 140,892 139,511
Series A convertible preferred stock
dividends (3) 53,921
- ----------------------------------------------------------------------------------------------------------
Earnings per common share (4)
Basic $ 0.04 $ 2.54 $ 0.56 $ 1.33 $ 1.33
Diluted $ 0.02 $ 2.39 $ 0.55 $ 1.30 $ 1.32
==========================================================================================================
CONSOLIDATED BALANCE SHEET DATA:
Working capital $ 309,624 $ 343,741 $ 277,583 $ 289,605 $ 224,815
Total assets 4,039,930 1,646,831 1,702,888 1,477,360 1,179,937
Long-term debt, less current installments 996,526 -- -- -- --
Series A convertible preferred stock (3) 1,791,093 -- -- -- --
Total shareholders' equity (5) 437,045 1,352,628 1,381,790 1,173,962 897,761
- ----------------------------------------------------------------------------------------------------------
OTHER DATA:
EBIT (6) $ 252,576 $ 263,672 $ 169,822 $ 235,473 $ 227,752
Depreciation and amortization 195,954 111,080 94,380 80,357 61,924
EBITDA (7) 448,530 374,752 264,202 315,830 289,676
Capital expenditures 82,408 101,997 294,503 293,272 185,940
==========================================================================================================
</TABLE>
(1) The Selected Financial Data include the operations of the Cryovac
packaging business for all periods presented. The operating results, cash
flows, assets and liabilities of old Sealed Air are included for all
periods subsequent to March 31, 1998. See Note 1 to the Consolidated
Financial Statements.
(2) Operating profit is presented after giving effect to restructuring and
asset impairment charges of $110,792, $14,444, $74,947, and $17,745 in
1998, 1997, 1996 and 1995, respectively. The 1998 restructuring and asset
impairment charges were partially offset by a special credit of $23,610
related to the Company's curtailment of a postretirement benefit plan.
Net earnings in 1998 is presented after giving effect to a special income
tax charge of $26,000. See Consolidated Statements of Earnings and Notes
8, 9 and 11 to the Consolidated Financial Statements.
(3) The Series A convertible preferred stock pays a cash dividend at an
annual rate of $2.00 per share, payable quarterly in arrears, and is
subject to mandatory redemption on March 31, 2018 at $50 per share, plus
any accrued and unpaid dividends. Dividends of $0.50 per share were
declared for the last three quarters of 1998 following the issuance of
the shares in the transactions associated with the Merger.
(4) Prior to March 31, 1998, the Company did not have a separately
identifiable capital structure upon which a calculation of earnings per
common share could be based. In calculating basic and diluted earnings
per common share for periods prior to the Merger, retroactive recognition
has been given to the transactions associated with the Merger. See Note
16 to the Consolidated Financial Statements.
(5) Since, prior to the Merger, the Company did not have a separately
identifiable capital structure, shareholders' equity for 1994 through
1997 represents the net assets of Cryovac.
(6) EBIT is defined as earnings before interest expense and provisions for
income taxes.
(7) EBITDA is defined as EBIT plus depreciation, goodwill amortization and
amortization of other intangible assets. EBITDA is a frequently used
measure of a company's ability to generate cash to service its
obligations, including debt service obligations, and to finance capital
and other expenditures. EBITDA does not purport to represent net income
or net cash provided by operating activities, as those terms are defined
under generally accepted accounting principles, and should not be
considered as an alternative to such measurements or as an indicator of
the Company's performance.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
On March 31, 1998, the Company (formerly known as W. R. Grace & Co.)
and Sealed Air Corporation ("old Sealed Air") completed a series of transactions
as a result of which:
(a) The specialty chemicals business of the Company was separated from
its packaging business, the packaging business ("Cryovac") was contributed to
one group of wholly owned subsidiaries, and the specialty chemicals business was
contributed to another group of wholly owned subsidiaries ("New Grace"); the
Company and Cryovac borrowed approximately $1.26 billion under two new revolving
credit agreements (the "Credit Agreements") that are discussed below and
transferred substantially all of those funds to New Grace; and the Company
distributed all of the outstanding shares of common stock of New Grace to its
stockholders. As a result, New Grace became a separate publicly owned company
that is unrelated to the Company. These transactions are referred to below as
the "Reorganization."
(b) The Company recapitalized its outstanding shares of common stock,
par value $0.01 per share ("Old Grace Common Stock"), into a new common stock
and Series A convertible preferred stock (the "Series A Preferred Stock"), each
with a par value of $0.10 per share (the "Recapitalization").
(c) A subsidiary of the Company merged into old Sealed Air (the
"Merger"), with old Sealed Air being the surviving corporation. As a result of
the Merger, old Sealed Air became a subsidiary of the Company, and the Company
was renamed Sealed Air Corporation.
References to "Grace" in this Management's Discussion and Analysis refer to the
Company before the Reorganization, the Recapitalization and the Merger.
The Merger was accounted for as a purchase of old Sealed Air by the
Company as of March 31, 1998. As a result, the financial statements include the
operating results and cash flows as well as the assets and liabilities of
Cryovac for all periods presented. The operating results, cash flows and assets
and liabilities of old Sealed Air are included for all periods subsequent to
March 31, 1998.
In order to facilitate a review of the factors other than the Merger
that affected the Company's 1998 operating results, the Company has included
unaudited selected pro forma earnings statement information in Note 19 to its
1998 Consolidated Financial Statements. A discussion and analysis of that
information is set forth below following the discussion of the Company's results
of operations and its restructuring program.
Results of Operations
The Company's net sales increased 37% in 1998 and 5% in 1997 compared
with the respective prior years. The substantial increase in net sales in 1998,
on a consolidated and geographic basis, as well as most of the increases in cost
of sales, marketing, administrative and development expenses and other costs and
expenses, including the substantial increases in interest expense and goodwill
amortization, that the Company experienced in 1998 were due to the inclusion of
old Sealed Air's operations for the last nine months of the year and the
financial statement effects arising from the Merger, the Reorganization and the
Recapitalization.
The increase in net sales in 1997 was primarily due to increased unit
volume partially offset by the negative effect of foreign currency translation
as the U.S. dollar strengthened against most foreign currencies and, to a lesser
extent, changes in product mix. Excluding the negative effect of foreign
currency translation, net sales would have increased 9% in 1997 compared with
1996. Net sales also benefited in 1997 from the added net sales of businesses
that Cryovac acquired in 1997, which acquisitions were not material to the
Consolidated Financial Statements.
Net sales of products in the Company's food and specialty packaging
segment constituted 67% of net sales in 1998 and 87% of net sales in each of
1997 and 1996. The balance of net sales in each year were of products in the
Company's protective packaging segment. The decline in the portion of net sales
of the food and specialty packaging segment in 1998 was due primarily to the
addition of the net sales of protective packaging products of old Sealed Air
following the Merger.
2
<PAGE>
Net sales of food and specialty packaging products increased 6% in 1998
and 5% in 1997 primarily due to the inclusion in 1998 of old Sealed Air's
absorbent pad products in this segment after the Merger, as well as in both
years increased unit volume partially offset by the negative effect of foreign
currency translation. The increase in net sales in 1998 was also partially
offset by certain lower average selling prices in certain product lines and
changes in product mix. Among the major classes of products in this segment, net
sales of flexible materials and related equipment increased 2% in 1998 and 6% in
1997 compared with the prior year primarily due to increased unit volume
partially offset by the negative effect of foreign currency translation and the
related factors mentioned above. Net sales of rigid packaging and absorbent
products increased 71% in 1998 but decreased 6% in 1997. The substantial
increase in 1998 resulted primarily from the inclusion of old Sealed Air's
absorbent products in this class of products following the Merger. The decline
in net sales in 1997 was primarily due to lower unit volume and the negative
effect of foreign currency translation.
Net sales of protective packaging products increased 236% in 1998
primarily due to the additional net sales of old Sealed Air's protective
packaging products following the Merger and increased 5% in 1997 primarily due
to increased unit volume partially offset by the negative effect of foreign
currency translation and the related factors mentioned above.
Cost of sales increased 38% in 1998 and 3% in 1997. As noted above,
most of the 1998 increase reflects the added costs associated with the addition
of the net sales of old Sealed Air following the Merger. In addition, during the
second quarter of 1998, the Company incurred a non-cash inventory charge of $8
million resulting from the turnover of certain of the Company's inventories
previously stepped up to fair value in connection with the accounting for the
Merger. The increase in cost of sales in 1997 was due primarily to the higher
level of net sales and higher levels of manufacturing-related depreciation
resulting from the completion of certain major manufacturing expansion projects,
partially offset by cost savings arising from a worldwide restructuring program
that Grace began to implement in 1995. Cost of sales as a percentage of net
sales was 65.3% in 1998, 64.8% in 1997 and 66.1% in 1996.
Marketing, administrative and development expenses increased 34% in
1998 and 6% in 1997. As noted above, most of the 1998 increase reflects the
added operating costs of old Sealed Air following the Merger. Also, such
expenses in 1998 include Merger integration costs and information system
investments. The Company expects that certain of these costs will continue in
1999 as the Company continues to undertake actions to combine business
organizations and processes following the Merger and to install a company wide
information system. The substantial majority of the Merger integration costs
pursuant to the Company's development of a combined operating plan meet the
accounting and reporting requirements for restructuring and asset impairment
treatment. These costs are discussed below and in the paragraphs discussing the
Company's Restructuring Program. In addition, during the first quarter of 1998,
Cryovac incurred $18,044,000 of corporate allocations from Grace. Corporate
allocations from Grace ceased upon the Merger. The increase in 1997 was
primarily due to increased corporate allocations from Grace as well as the
increase in net sales, partially offset by cost savings realized as part of the
restructuring program that Grace began to implement in 1995. Marketing,
administrative and development expenses as a percentage of net sales were 19.4%
in 1998, 19.8% in 1997 and 19.6% in 1996.
The significant increase in goodwill amortization in 1998 was due to
the Merger.
Restructuring costs and asset impairments were $110,792,000 in 1998,
$14,444,000 in 1997 and $74,947,000 in 1996. As discussed below, the
restructuring and asset impairment costs in 1998 arose from a review of its
operations that the Company undertook following the Merger as part of its
development of a combined operating plan for the integration of old Sealed Air
and Cryovac. The review considered organization and business structures and
methods, the nature and extent of manufacturing and business operations in each
region of the world, including assets and resources deployed, and current
3
<PAGE>
business and economic trends. Such 1998 costs were partially offset by a
$23,610,000 special credit to operations that the Company recognized in the
fourth quarter of 1998 relating to the curtailment of certain post-retirement
benefits. Cryovac recorded restructuring charges of $3,616,000 in 1997 and
$47,947,000 in 1996 that were primarily related to a restructuring of Cryovac's
European operations that Grace began in 1995. These charges consisted primarily
of costs related to employee severance and lease terminations. Cryovac also
incurred asset impairment charges of $10,828,000 in 1997 and $27,000,000 in 1996
for certain long-lived assets and related goodwill that were determined to be
impaired.
Operating profit decreased 3% in 1998 but increased 54% in 1997
primarily due to the changes in costs and expenses discussed above. Before
giving effect to corporate operating expenses, consisting primarily of goodwill
amortization and restructuring and other changes, net, operating profit of the
Company's food and specialty packaging segment constituted 61% of operating
profit in 1998, and the balance of operating profit arose from the Company's
protective packaging segment. It is not practicable to provide segmented
operating profit information for prior years. Operating profit as a percentage
of net sales was 10.3% in 1998, 14.6% in 1997 and 10.0% in 1996.
Interest expense in 1998 reflects primarily interest on the debt
incurred under the Credit Agreements in connection with the Reorganization.
Prior to the Merger, Grace generally borrowed on behalf of Cryovac and did not
allocate borrowings or their related interest expense to Cryovac. Accordingly,
there is no interest expense reflected in the statements of earnings for 1997 or
1996. Other expense, net increased in 1998 over 1997 primarily due to losses
related to the settlement of foreign exchange transactions.
The Company's effective income tax rate for 1998 was 46.7%, excluding
the effects of the $87,182,000 of net restructuring and other charges and a $26
million special income tax charge that the Company incurred in 1998 related to
the net tax effect of the assumed repatriation to the U.S. of the portion of
accumulated net earnings of the Company's foreign subsidiaries that are not
considered to be reinvested indefinitely in their businesses. Without these
exclusions, the Company's effective income tax rate for 1998 was 63.3%. Such
effective tax rate was higher than statutory rates primarily due to the charges
mentioned above and the non-deductibility of goodwill amortization for tax
purposes. The Company expects that its effective tax rate will remain higher
than statutory rates in 1999 and subsequent years due to the non-deductibility
of goodwill for tax purposes. The effective tax rates in 1997 and 1996 were
34.1% and 41.2%, respectively. The lower effective tax rate in 1997 and the
higher effective tax rate in 1996 resulted primarily from changes in U.S. and
foreign taxes on foreign operations in each period.
Net earnings decreased 58% in 1998 due primarily to the decline in
operating profit as well as the higher levels of interest expense and income
taxes. Net earnings increased 74% in 1997 primarily due to the higher level of
operating profit and, to a lesser extent, a decrease in the effective income tax
rate compared to 1996.
Basic earnings per common share were $0.04 for 1998, $2.54 for 1997 and
$0.56 for 1996. Diluted earnings per common share were $0.02 for 1998, $2.39 for
1997 and $0.55 for 1996. Earnings per common share have been calculated for all
periods in accordance with Staff Accounting Bulletin No. 98, "Computation of
Earnings Per Share", since the Company did not have a separately identifiable
capital structure upon which a calculation of earnings per common share could be
based prior to March 31, 1998. Accordingly, net earnings were reduced for
preferred stock dividends (as if such shares had been outstanding during each
year) to arrive at earnings ascribed to the common stockholders.
Restructuring Program
Following the Merger, the Company undertook a review of its operations
in order to develop a combined operating plan for the integration of old Sealed
Air and Cryovac. As part of this plan, during the third quarter of 1998, the
Company announced and began to implement a restructuring program and recorded a
pre-tax charge of $111,074,000 to recognize the restructuring costs and related
asset impairments. By the end of 1999, the Company expects to complete the
actions involved in the restructuring program. However the Company expects that
certain cash outlays, which it does not expect to be material, will continue
into future years.
4
<PAGE>
The business operating changes made as a result of the Company's
combined operating plan include the following:
o Combining or eliminating certain small facilities and
administrative support functions;
o Reorganizing sales and marketing to add sales people in the field
and increase customer access;
o Integrating Cryovac's industrial and consumer films product line
into the Company's protective packaging business segment;
o Leveraging Cryovac's infrastructure in Latin America and Asia to
accelerate growth of the Company's protective packaging business
segment;
o Eliminating layers of management;
o Centralizing Cryovac's U.S. research facilities to capitalize more
efficiently on R & D strengths;
o Streamlining the Cryovac manufacturing organization; and
o Identifying impaired and unnecessary facilities and equipment in
connection with the combined operating plan.
The portion of the 1998 restructuring and asset impairment charge
applicable to the Company's food and specialty packaging segment amounted to
$97,064,000, and the portion applicable to the protective packaging segment
amounted to $14,010,000. The Company expects to incur approximately $43 million
of cash outlays to complete the restructuring program, primarily for severance
and personnel related costs, costs of terminating leases and facilities and
equipment disposition costs. Approximately $16,365,000 of such outlays were
incurred in 1998. The remainder of the charge represents non-cash write-offs or
write-downs of impaired property and equipment, intangibles and other assets
identified in developing the combined operating plan. Such non-cash write-offs
or write-downs apply both to assets held for use and to assets held for
disposition as the assets to be disposed are excess or idle and are no longer
used to any significant extent in the business. Amounts were determined based on
an assessment of fair value using valuation factors prescribed by generally
accepted accounting principles, including discounted cash flows and other
methods.
As part of the restructuring, the Company is eliminating 750 positions,
or approximately 5% of its total workforce, as a result of the closing of
certain facilities and the combination or elimination of certain administrative
and other functions. Through December 31, 1998, approximately 510 positions had
been eliminated.
The Company expects to realize approximately $45 million in annual
operating cost savings beginning in the year 2000 after all of the restructuring
actions have been completed. The anticipated $45 million savings include
reductions in depreciation and amortization of approximately $8 million per
annum beginning for the most part in the fourth quarter of 1998 and reductions
in cash operating expenses of approximately $37 million per annum that relate
primarily to payroll and related payroll tax and benefit expenses. The
reductions in cash operating expenses begin upon elimination of the employee
positions. Over $20 million of these cash operating expense reductions are
expected to be realized in 1999; these deductions were modest in amount for
1998. Of the $45 million anticipated savings, approximately 40% should be
realized from reductions in manufacturing costs and 60% should be realized from
reductions in other operating costs. Additional information is included in Note
9 to the Consolidated Financial Statements.
5
<PAGE>
Discussion and Analysis of Pro Forma Operating Results
The following discussion relates to the unaudited selected pro forma
earnings statement information that appears in Note 19 to the Consolidated
Financial Statements. This information has been prepared as if the
Reorganization, the Recapitalization and the Merger had occurred on January 1,
1997 and illustrates the operations of Cryovac and old Sealed Air on a combined
basis in 1997 and 1998. However, it is not intended to represent what the
Company's actual results of operations would have been in 1997 or 1998 had these
transactions actually occurred on January 1, 1997.
On a pro forma basis, net sales increased 2% in 1998 to $2,719,508,000
compared with $2,674,664,000 for 1997. Net sales were affected in 1998 by the
continued weakness of foreign currencies compared with the U.S. dollar,
particularly in the Asia-Pacific and Latin American regions, sluggish sales in
Asia and other markets, and the spillover of the Asian economic crisis into
other markets. Excluding the negative effect of foreign currency translation,
net sales in 1998 would have increased 5% on a pro forma basis compared to 1997,
primarily due to higher unit volume. Average selling price and product mix
changes had a minor negative effect on net sales in 1998.
Net sales from North American operations increased 4% on a pro forma
basis compared with 1997 primarily due to increased unit volume. In 1998 and
1997 the net sales of North America represented 57% and 55% of pro forma
consolidated net sales, respectively. Substantially all of the North American
net sales for both periods represent United States' sales. Net sales from
foreign operations, which represented 43% and 45% of pro forma net sales in 1998
and 1997, respectively, decreased 1% in 1998 primarily due to the negative
effect of foreign currency translation. Excluding this negative effect, pro
forma foreign net sales would have increased 6% primarily due to increased unit
volume. No country other than the United States accounts for more than 10% of
the Company's total net sales.
Net sales of the Company's food and specialty products segment
increased marginally in 1998 on a pro forma basis. This increase was due
primarily to increased unit volume partially offset by the negative effect of
foreign currency translation, certain lower average selling prices in certain
product lines and changes in product mix. Excluding the effect of foreign
currency translation, net sales of this segment would have increased on a pro
forma basis by 5% in 1998.
Net sales of the Company's protective packaging segment increased 3% on
a pro forma basis in 1998 primarily due to higher unit volume, which was
partially offset by the negative effect of foreign currency translation and
certain lower average selling prices in certain product lines. Excluding the
effect of foreign currency translation, net sales in this segment would have
increased on a pro forma basis by 5% in 1998.
On a pro forma basis, gross profit as a percentage of net sales
decreased to 35.2% in 1998 from 35.7% in 1997. This decrease was primarily due
to the higher levels of depreciation arising from capital expenditures made in
prior years and to inventory and equipment parts provisions, partially offset by
certain lower raw material costs. The Company also incurred certain
manufacturing and product introduction costs that affected the first quarter of
1998. Pro forma cost of sales in 1998 excludes the $8 million non-cash inventory
charge that the Company incurred during the second quarter of 1998 that is
discussed above.
On a pro forma basis, marketing, administrative and development
expenses as a percentage of net sales increased modestly to 19.0% in 1998
compared with 18.5% in 1997 primarily as a result of merger integration
activities and information system investments.
On a pro forma basis, before giving effect to the net restructuring and
other charges in 1998 and 1997, operating profit decreased 5% in 1998 primarily
due to the pro forma changes in gross profit and marketing, administrative and
development expenses discussed above.
6
<PAGE>
On a pro forma basis, other expense, net primarily reflects interest
expense on the borrowings under the Credit Agreements entered into in connection
with the Reorganization.
On a pro forma basis, net earnings declined to $81,492,000 in 1998 from
$184,535,000 in 1997 primarily due to the lower level of operating profit and
the higher levels of interest expense and income taxes.
On a pro forma basis, basic and diluted earnings per common share
amounted to $0.14 and $0.12, respectively, for 1998 compared with $1.35 for
1997. The effect of the conversion of the Company's outstanding convertible
preferred stock is not considered in the calculation of diluted earnings per
common share because it would be anti-dilutive (i.e., would increase earnings
per share on a pro forma basis to $1.43 for 1998 compared with $1.51 for 1997,
excluding the effects in 1998 and 1997 of the net restructuring and other
charges and in 1998 of the special tax charge discussed above).
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash flows from
operations and amounts available under the Company's existing lines of credit,
including the Credit Agreements mentioned above. Prior to March 31, 1998,
Cryovac participated in Grace's centralized cash management system, whereby cash
received from operations was transferred to, and disbursements were funded from,
Grace's centralized corporate accounts. As a result, any cash flows from
operations that were in excess of Cryovac's cash needs were transferred to these
corporate accounts and used for other corporate purposes. In connection with the
Reorganization, most of Cryovac's net cash at March 31, 1998 (other than
$51,259,000 of cash recorded on the balance sheet of old Sealed Air immediately
before the Merger) was retained by New Grace.
Net cash provided by operating activities amounted to $411,646,000 in
1998, $235,314,000 in 1997 and $207,601,000 in 1996. The increase in cash flow
in 1998 was primarily due to the inclusion of the operations of old Sealed Air
from April 1, 1998, higher levels of depreciation and amortization and changes
in operating assets and liabilities arising in the ordinary course of business.
The increase in cash flow in 1997 was primarily due to increased net earnings
(excluding the non-cash portion of restructuring and asset impairment costs) and
higher levels of depreciation and amortization partially offset by changes in
working capital items.
Net cash used in investing activities amounted to $38,316,000 in 1998,
$115,339,000 in 1997 and $309,083,000 in 1996. The cash acquired from old Sealed
Air in the Merger more than offset the cash used for other acquisitions and
partially offset the cash used for capital expenditures in 1998. Substantially
all of the cash used in investing activities in 1997 and 1996 was used for
capital expenditures and acquisitions. Capital expenditures were $82,408,000 in
1998, $101,997,000 in 1997 and $294,503,000 in 1996. In 1998, capital
expenditures for the Company's food and specialty packaging segment amounted to
$48,497,000, and capital expenditures for the protective packaging segment
amounted to $31,487,000. Corporate capital expenditures amounted to $2,424,000
in 1998. It is not practicable to provide such information for prior years. The
decrease in 1998 reflects the completion in 1997 and early 1998 of several of
Cryovac's major manufacturing expansion programs. As the assets of old Sealed
Air were acquired in the Merger through the issuance of common stock, the
consolidated statement of cash flows for 1998 does not reflect the changes in
the related balance sheet items caused by the addition of old Sealed Air's
assets and liabilities, except for old Sealed Air's cash balance. The
acquisition of such net assets is reflected as supplementary information in Note
15 to the Consolidated Financial Statements.
Net cash used in financing activities amounted to $325,093,000 in 1998
and $119,975,000 in 1997 while financing activities provided $101,482,000 in
cash to Cryovac in 1996. Net cash used in financing activities in 1998 related
primarily to the repayment of debt, principally relating to the Credit
Agreements, the payment of dividends on the Company's preferred stock, and the
purchase of shares of common stock and Series A Preferred Stock for treasury.
Cash flows from financing activities in 1998 also reflected the proceeds from
borrowings under the Credit Agreements, offset by the transfer of funds to New
Grace in connection with the Reorganization. The net cash used in financing
activities in 1997 reflects net cash that was advanced by Cryovac to Grace
pursuant to the cash management procedures discussed above. In 1996, Cryovac
received $101,482,000 of net cash advances pursuant to these procedures.
7
<PAGE>
At December 31, 1998, the Company had working capital of $309,624,000,
or 8% of total assets, compared to working capital of $343,741,000, or 21% of
total assets, at December 31, 1997. Working capital declined primarily due to an
increase of $85,131,000 in short-term borrowings and current installments of
long-term debt primarily arising out of borrowings made under the Credit
Agreements, a net increase of $61,687,000 in accounts payable, and an increase
of $204,555,000 in other current liabilities relating principally to costs
associated with the Company's 1998 restructuring program, interest expense,
income taxes, dividends on preferred stock and payroll and payroll-related
liabilities, that more than offset the acquired working capital of old Sealed
Air and increases in current assets.
The ratio of current assets to current liabilities (current ratio) was
1.6 at December 31, 1998 compared with 2.9 at December 31, 1997. The ratio of
current assets less inventory to current liabilities (quick ratio) was 1.1 at
December 31, 1998 and 1.6 at December 31, 1997. The decreases in these ratios in
1998 resulted primarily from the decreases in working capital discussed above.
In connection with the Reorganization, the Company entered into the
Credit Agreements, a $1 billion 5-year revolving credit facility that expires on
March 30, 2003 and a $600 million 364-day revolving credit facility that expires
on March 29, 1999. The Company has received commitments to renew such 364-day
facility for an additional 364-day period prior to its expiration. The Credit
Agreements provide that the Company and certain of its subsidiaries may borrow
for various purposes, including the refinancing of existing debt, the provision
of working capital and for other general corporate needs. Long-term debt, less
current installments, outstanding at December 31, 1998 includes primarily
borrowings under the Credit Agreements made in connection with the
Reorganization, less prepayments made through December 31, 1998. During 1998,
the Company repaid $243,874,000 of borrowings.
The Company's obligations under the Credit Agreements bear interest at
floating rates. The weighted average interest rate under the Credit Agreements
was approximately 5.8% at December 31, 1998. The Company has entered into
certain interest rate swap agreements that have the effect of fixing the
interest rates on a portion of such debt. The weighted average interest rate at
December 31, 1998 did not change significantly as a result of these derivative
financial instruments agreements.
The Credit Agreements provide for changes in borrowing margins based on
financial criteria and the Company's senior unsecured credit ratings, and impose
certain limitations on the operations of the Company and certain of its
subsidiaries. These limitations include financial covenants relating to interest
coverage and debt leverage as well as certain restrictions on the incurrence of
additional indebtedness, the creation of liens, mergers and acquisitions, and
certain dispositions of property or assets. The Company was in compliance with
these requirements as of December 31, 1998.
The Company had available lines of credit at December 31, 1998, under
the Credit Agreements and other credit facilities, of approximately $1.8
billion, of which approximately $716 million were unused.
Prior to the Merger, Cryovac had no capital structure since it was
operated by divisions or subsidiaries of Grace. In addition, there was no
allocation to Cryovac of borrowings and related interest expense, except for
interest capitalized as a component of Cryovac's properties and equipment.
Therefore, the financial position of the Company at December 31, 1997 is not
indicative of the financial position that would have existed if Cryovac had been
an independent stand-alone entity at that time. At December 31, 1998, the
consolidated balance sheet reflects the consolidated financial position of the
Company, as adjusted for the Reorganization, the Recapitalization and the
Merger.
8
<PAGE>
Since Cryovac did not have a separately identifiable capital structure
before Merger, the balance sheet at December 31,1997 reflects the net assets of
Cryovac at such date rather than shareholders' equity. In the Recapitalization,
among other things, the Company recapitalized the outstanding shares of Old
Grace Common Stock into outstanding shares of a new Company common stock and the
Series A Preferred Stock. In the Merger, the Company issued 42,624,246 shares of
common stock to the shareholders of old Sealed Air.
The Series A Preferred Stock votes with the common stock on an
as-converted basis, pays a cash dividend, as declared by the Company's Board of
Directors, at an annual rate of $2.00 per share, payable quarterly in arrears,
becomes redeemable at the option of the Company beginning March 31, 2001,
subject to certain conditions, and will be subject to mandatory redemption on
March 31, 2018 at $50.00 per share, plus any accrued and unpaid dividends.
Because it is subject to mandatory redemption, the Series A Preferred Stock is
classified outside of the shareholders' equity section of the balance sheet.
The Company's shareholders' equity was $437,045,000 at December 31,
1998 compared with total equity of $1,352,628,000 at December 31, 1997. The
decrease resulted primarily from the transactions involved in the
Reorganization, the Recapitalization and the Merger.
Other Matters
Environmental Matters
The Company is subject to loss contingencies resulting from
environmental laws and regulations, and it accrues for anticipated costs
associated with investigatory and remediation efforts when an assessment has
indicated that a loss is probable and can be reasonably estimated. These
accruals do not take into account any discounting for the time value of money
and are not reduced by potential insurance recoveries, if any. Environmental
liabilities are reassessed whenever circumstances become better defined and/or
remediation efforts and their costs can be better estimated. These liabilities
are evaluated periodically based on available information, including the
progress of remedial investigations at each site, the current status of
discussions with regulatory authorities regarding the methods and extent of
remediation and the apportionment of costs among potentially responsible
parties. As some of these issues are decided (the outcomes of which are subject
to uncertainties) and/or new sites are assessed and costs can be reasonably
estimated, the Company adjusts the recorded accruals, as necessary. However, the
Company believes that it has adequately reserved for all probable and estimable
environmental exposures.
Year 2000 Computer System Compliance
The Company is addressing various Year 2000 issues. Year 2000 issues
arise from computer programs that utilize only the last two digits of a year to
define a particular year rather than the complete four-digit year. As a result,
certain computer programs may not properly process certain dates, particularly
those that fall into the year 2000 or subsequent years. Year 2000 issues affect
both computer-based information systems and systems with embedded
microcontrollers or microcomputers.
In addressing these issues, the Company has considered the following
four areas: (a) computer-based information technology systems, (b) other systems
not directly involving information technology, including embedded systems, (c)
packaging and dispensing equipment used by the Company's customers, and (d) Year
2000 readiness of the Company's key suppliers and customers. The Company's
action plan for dealing with these issues consists of the following four phases:
(1) identifying the potentially affected items, (2) assessing the effect of Year
2000 issues on these items, (3) remediating the deficiencies of these items with
updates, repairs or replacements, and (4) testing these items.
9
<PAGE>
STATE OF READINESS
The Company has examined the hardware and software of its
computer-based information technology systems, including mainline systems,
personal computers and telephone systems. The Company has also examined other
devices incorporating electronic microchips that might fail as a result of the
Year 2000 issue. These include security and control systems in Company
facilities and programmable logic controllers and microcomputers embedded into
production and other equipment in the Company's plants and warehouses. The
Company has substantially finished the identification and assessment phases of
its Year 2000 action plan in these two areas. The Company has also completed
approximately 85% of the remediation and testing phases of the plan for these
areas. The Company expects to complete its work on Year 2000 issues for
computer-based information technology systems by June 30, 1999 and for
non-information technology systems by September 30, 1999.
The Company has examined certain packaging and dispensing equipment
that it has sold or leased to customers in order to identify Year 2000 issues.
This equipment often incorporates microprocessors as controllers. The Company
believes that no further remediation is necessary for these devices.
The Company has conducted an initial Year 2000 issue survey of key
suppliers, particularly single-source suppliers of important raw materials, and
initial responses have been received. Remedial action will be requested as
required. The Company expects that all survey activity regarding suppliers will
be completed by May 31, 1999. In addition, the Company intends to contact
certain customers by May 31, 1999 regarding their overall Year 2000 readiness.
COSTS
The Company estimates that the total costs to address the Company's
Year 2000 issues will be in the neighborhood of $10 million. No significant
information technology projects have been deferred by the Company due to Year
2000 issues.
RISKS
While the Company believes that it is taking all steps reasonably
necessary to assure its ability to conduct business and to safeguard its assets
during the period affected by Year 2000 issues, risks cannot in every case be
eliminated. Utilities and other sole-source suppliers may disrupt one or more of
the Company's operations if they are unable to conduct business during this
period.
If the Company is unable to complete its remediation efforts
satisfactorily and on a timely basis, substantial business interruptions may
occur in its operations. These could include disruptions to manufacturing
operations, logistics, invoicing, collections and vendor payments. The Company's
efforts described herein are expected to reduce the Company's uncertainty about
Year 2000 issues. The Company believes that its efforts to date in this regard
have contributed to reducing the risk of significant interruptions of its
operations, and it intends to pursue these efforts as described herein.
CONTINGENCY PLANS
The Company has certain contingency measures in place, including in
some cases dual utility services, backup power equipment, backup data centers,
manual backup procedures and alternate suppliers. The Company is developing a
formal Year 2000 contingency plan to implement additional protection measures.
The Company expects to complete this plan during the first half of 1999 and to
implement it on a timely basis.
10
<PAGE>
EURO CONVERSION
On January 1, 1999, eleven of the fifteen members of the European
Union (the "participating countries") established fixed conversion rates between
their existing currencies (the "legacy currencies") and introduced the euro, a
single common non-cash currency. The euro is now traded on currency exchanges
and is being used in business transactions.
At the beginning of 2002, new euro-denominated bills and coins will be
issued to replace the legacy currencies, and the legacy currencies will be
withdrawn from circulation. By 2002, all companies operating in the
participating countries are required to restate their statutory accounting data
into euros as their base currency.
In 1998, the Company established plans to address the systems and
business issues raised by the euro currency conversion. These issues include,
among others, (1) the need to adapt computer, accounting and other business
systems and equipment to accommodate euro-denominated transactions, (2) the need
to modify banking and cash management systems in order to be able to handle
payments between customers and suppliers in legacy currencies and euros between
1999 and 2002, (3) the requirement to change the base statutory and reporting
currency of each subsidiary in the participating countries into euros during the
transition period, (4) the foreign currency exposure changes resulting from the
alignment of the legacy currencies into the euro, and (5) the identification of
material contracts and sales agreements whose contractual stated currency will
need to be converted into euros.
The Company believes that it will be euro compliant by January 1, 2002.
The Company is implementing plans to accommodate euro-denominated transactions
and to handle euro payments with third party customers and suppliers in the
participating countries. The Company plans to meet the requirement to convert
statutory and reporting currencies to the euro by acquiring and installing new
financial software systems. If there are delays in such installation, the
Company plans to pursue alternate means to convert statutory and reporting
currencies to the euro by 2002. The Company expects that its foreign currency
exposures will be reduced as a result of the alignment of legacy currencies, and
the Company believes that all material contracts and sales agreements requiring
conversion will be converted to euros prior to January 1, 2002.
Although additional costs are expected to result from the
implementation of the Company's plans, the Company also expects to achieve
benefits in its treasury and procurement areas as a result of the elimination of
the legacy currencies. Since the Company has operations in each of its business
segments in the participating countries, each of its business segments will be
affected by the conversion process. However, the Company expects that the total
impact of all strategic and operational issues related to the euro conversion,
and the cost of implementing its plans for the euro conversion will not have a
material adverse impact on its financial condition or results of operations.
Recently Issued Statements of Financial Accounting Standards
In March 1998, the American Institute of Certified Public Accounts
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." This SOP, which
the Company will adopt beginning January 1, 1999, provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. This SOP also identifies the characteristics of internal-use software and
provides examples to assist in determining when computer software is for
internal use. The Company does not expect the adoption of this SOP to have a
material impact on its financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement, which the
Company expects to adopt beginning January 1, 2000, establishes accounting and
operating standards for hedging activities and derivative instruments, including
certain derivative instruments embedded in other contracts. The Company is
reviewing the potential impact, if any, of SFAS No. 133 on its Consolidated
Financial Statements.
11
<PAGE>
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits", which became effective for
the Company beginning January 1, 1998. SFAS No. 132 requires additional
information about changes in benefit obligations and the fair value of plan
assets during the period, while standardizing the disclosure requirements for
pensions and other post-retirement benefits. The Company has included, to the
extent information is readily available, the necessary disclosures in its
Consolidated Financial Statements for the year ended December 31, 1998.
In June 1997, the FASB released SFAS No. 130, "Reporting Comprehensive
Income", and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." Both statements became effective for the Company beginning
January 1, 1998. These statements require disclosure of certain components of
changes in equity and certain information about operating segments and
geographic areas of operation, respectively. The Company adopted SFAS No. 130 in
the first quarter of 1998 and has applied the requirements of SFAS No. 131 to
its 1998 Consolidated Financial Statements.
Forward-Looking Statements
Certain statements made by the Company in this report and in future
oral and written statements by management of the Company may be forward-looking.
These statements include comments as to the Company's beliefs and expectations
as to future events and trends affecting the Company's business, its results of
operations and its financial condition. These forward-looking statements are
based upon management's current expectations concerning future events and
discuss, among other things, anticipated future performance and future business
plans. Forward-looking statements are identified by such words and phrases as
"expects," "intends," "believes," "will continue," "plans to," "could be" and
similar expressions. Forward-looking statements are necessarily subject to
uncertainties, many of which are outside the control of the Company, that could
cause actual results to differ materially from such statements.
While the Company is not aware that any of the factors listed below
will adversely affect the future performance of the Company, the Company
recognizes that it is subject to a number of uncertainties, such as business and
market conditions in Asia, Latin America and other geographic areas around the
world, changes in the value of foreign currencies against the U.S. dollar, the
ability of the Company to complete integration and restructuring activities
relating to the merger of old Sealed Air and Cryovac and the success of those
efforts, general economic, business and market conditions, conditions in the
industries and markets that use the Company's packaging materials and systems,
the development and success of new products, the Company's success in entering
new markets, competitive factors, raw material availability and pricing, changes
in the Company's relationship with customers and suppliers, future litigation
and claims (including environmental matters) involving the Company, changes in
domestic or foreign laws or regulations, or difficulties related to Year 2000 or
the euro conversion.
12
<PAGE>
<TABLE>
<CAPTION>
SEALED AIR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31, 1998, 1997 and
1996 (In thousands of dollars, except per share data)
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 2,506,756 $ 1,833,111 $ 1,741,602
Cost of sales 1,638,020 1,187,109 1,151,006
- -------------------------------------------------------------------------------------------------------------------
Gross profit 868,736 646,002 590,596
Marketing, administrative and development expenses 486,160 363,454 341,807
Goodwill amortization 36,062 360 342
Restructuring and other charges, net 87,182 14,444 74,947
- -------------------------------------------------------------------------------------------------------------------
Operating profit 259,332 267,744 173,500
Interest expense (53,629) -- --
Other income(expense), net (6,756) (4,072) (3,678)
- -------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 198,947 263,672 169,822
Income taxes 125,940 89,940 69,992
- -------------------------------------------------------------------------------------------------------------------
Net earnings $ 73,007 $ 173,732 $ 99,830
===================================================================================================================
Add: Excess of book value over repurchase price of
Series A preferred stock 1,798
Less: Series A preferred stock dividends 53,921
Less: Retroactive recognition of preferred stock dividends 18,011 72,044 72,044
- -------------------------------------------------------------------------------------------------------------------
Net earnings ascribed to common shareholders $ 2,873 $ 101,688 $ 27,786
===================================================================================================================
Earnings per common share :
Basic $ 0.04 $ 2.54 $ 0.56
Diluted $ 0.02 $ 2.39 $ 0.55
===================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
13
<PAGE>
<TABLE>
<CAPTION>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(In thousands of dollars, except share data)
1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 44,986 $ --
Notes and accounts receivable, net of allowances for doubtful
accounts of $17,945 in 1998 and $7,256 in 1997 453,124 272,194
Inventories 275,312 225,976
Prepaid expenses 11,316 3,829
Deferred income taxes 59,876 22,323
Other current assets -- 3,036
- -------------------------------------------------------------------------------------------------------------------------------
Total current assets 844,614 527,358
Property and equipment, net 1,116,582 1,040,152
Goodwill, less accumulated amortization of $36,083 in 1998 and $392 in 1997 1,907,736 13,433
Deferred income taxes 10,758 --
Other assets 160,240 65,888
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 4,039,930 $ 1,646,831
===============================================================================================================================
LIABILITIES, PREFERRED STOCK AND EQUITY
Current liabilities:
Short-term borrowings $ 68,173 $ --
Current portion of long-term debt 16,958 --
Accounts payable 176,594 114,907
Other current liabilities 273,265 68,710
- -------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 534,990 183,617
Long-term debt, less current portion 996,526 --
Deferred income taxes 200,699 13,939
Other liabilities 79,577 96,647
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,811,792 294,203
- -------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 18)
===============================================================================================================================
Series A convertible preferred stock, $50.00 per share redemption value,
Authorized 50,000,000 shares, issued 36,021,851 shares in 1998, including
200,000 shares in treasury, mandatory redemption in 2018 1,791,093
- -------------------------------------------------------------------------------------------------------------------------------
Equity:
Net assets 1,482,682
Accumulated translation adjustment (130,054)
- -------------------------------------------------------------------------------------------------------------------------------
Total equity 1,352,628
- -------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.10 par value. Authorized 400,000,000
shares in 1998; issued 83,806,361 shares in 1998 8,380
Additional paid-in capital 610,505
Retained earnings (deficit) (7,966)
Accumulated translation adjustment (124,843)
- -------------------------------------------------------------------------------------------------------------------------------
486,076
- -------------------------------------------------------------------------------------------------------------------------------
Less: Deferred compensation 28,683
Less: Cost of treasury common stock, 494,550 shares 17,234
Less: Minimum pension liability 3,114
- -------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 437,045
- -------------------------------------------------------------------------------------------------------------------------------
Total Liabilities, Preferred Stock and Equity $ 4,039,930 $ 1,646,831
===============================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
14
<PAGE>
<TABLE>
<CAPTION>
SEALED AIR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY YEARS
Ended December 31, 1998, 1997 and 1996
(In thousands of dollars)
Other Comprehensive
Income
----------------------
Additional Retained Treasury Accumulated Minimum
Common Paid-In Earnings Deferred Common Translation Pension Pre-Merger
Stock Capital (Deficit) Compensation Stock Adjustment Liability Net Assets Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 $(47,265) $1,227,613 $1,180,348
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 99,830 99,830
Net activity with Grace 101,482 101,482
Foreign currency translation 130 130
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 (47,135) 1,428,925 1,381,790
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 173,732 173,732
Net activity with Grace (119,975) (119,975)
Foreign currency translation (82,919) (82,919)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 (130,054) 1,482,682 1,352,628
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings for quarter
ended March 31, 1998 27,052 27,052
Net activity with Grace 23,939 23,939
Reorganization and $ 4,065 $(1,530,292) $ -- $ -- $ -- -- $ -- (1,533,673) (3,059,900)
Recapitalization
Issuance of common stock in Merger 4,262 2,106,490 -- (9,649) -- -- -- 2,101,103
Effect of contingent stock
transactions, net 52 32,073 -- (19,034) (182) -- -- 12,909
Shares issued for non-cash
compensation 1 436 -- -- -- -- -- 437
Purchase of preferred stock -- 1,798 -- -- -- -- -- 1,798
Purchase of common stock -- -- -- -- (17,052) -- -- (17,052)
FAS 87 pension adjustment -- -- -- -- -- -- (3,114) (3,114)
Foreign currency translation -- -- -- -- -- 5,211 -- 5,211
Net earnings-April 1 through
December 31, 1998 -- -- 45,955 -- -- -- -- 45,955
Dividends on preferred stock -- -- (53,921) -- -- -- (53,921)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1998 $ 8,380 $ 610,505 $ (7,966) $(28,683) $(17,234) $(124,843) $ (3,114) $ $ 437,045
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
15
<PAGE>
<TABLE>
<CAPTION>
SEALED AIR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
(In thousands of dollars)
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 73,007 $ 173,732 $ 99,830
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization of property and equipment 141,457 106,563 90,914
Goodwill and other amortization 54,497 4,517 3,466
Non-cash portion of restructuring and other charges, net 44,175 14,444 74,947
Deferred tax provisions 24,022 14,981 (9,754)
Net loss(gain) on disposals of property and equipment 1,980 2,474 (929)
Non-cash compensation 437 -- --
Changes in operating assets and liabilities, net of assets
and liabilities acquired and transfers to/from Grace:
Notes and accounts receivable (31,560) (5,236) (36,758)
Inventories 33,110 116 38,784
Other current assets (926) 5,028 507
Other assets (15,251) (18,128) (22,754)
Accounts payable 7,685 (23,183) (18,761)
Income taxes payable 28,302 -- --
Other current liabilities 45,526 (47,936) (16,550)
Other liabilities 5,185 7,942 4,659
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 411,646 235,314 207,601
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures for property and equipment (82,408) (101,997) (294,503)
Proceeds from sales of property and equipment 1,141 1,882 1,457
Businesses acquired in purchase transactions, net of cash
acquired 42,951 (15,224) (16,037)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (38,316) (115,339) (309,083)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net advances (to)from Grace (20,369) (119,975) 101,482
Proceeds from Credit Agreements 1,259,221
Payment of debt, principally Credit Agreements (265,606)
Transfer of funds to New Grace (1,258,807)
Net proceeds (payments) on short-term borrowings 21,732
Purchase of treasury common stock (17,052)
Purchase of treasury preferred stock (8,202)
Dividends paid on preferred stock (36,010)
- -----------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (325,093) (119,975) 101,482
- -----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (3,251) -- --
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents:
Net change during the period 44,986 -- --
Balance, beginning of period -- -- --
- -----------------------------------------------------------------------------------------------------------------
Balance, end of period $ 44,986 $ -- $ --
=================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
16
<PAGE>
SEALED AIR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 1998, 1997 and 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $ 73,007 $ 173,732 $ 99,830
Other comprehensive income:
Minimum pension liability, less income taxes of $2,360 (3,114) -- --
Foreign currency translation adjustments 5,211 (82,919) 130
- -------------------------------------------------------------------------------------------------------
Comprehensive income $ 75,104 $ 90,813 $ 99,960
=======================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
SEALED AIR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except for per share data)
- --------------------------------------------------------------------------------
NOTE 1 BASIS OF PRESENTATION
GENERAL
On March 31, 1998, the Company (formerly known as W. R. Grace & Co.) and Sealed
Air Corporation ("old Sealed Air") completed a series of transactions as a
result of which:
(a) The specialty chemicals business of the Company was separated
from its packaging business, the packaging business ("Cryovac")
was contributed to one group of wholly owned subsidiaries, and
the specialty chemicals business was contributed to another
group of wholly owned subsidiaries ("New Grace"); the Company
and Cryovac borrowed approximately $1.26 billion under two new
revolving credit agreements (the "Credit Agreements") and
transferred substantially all of those funds to New Grace; and
the Company distributed all of the outstanding shares of common
stock of New Grace to its shareholders. As a result, New Grace
became a separate publicly owned corporation that is unrelated
to the Company. These transactions are referred to below as the
"Reorganization".
(b) The Company recapitalized its outstanding shares of common
stock, par value $0.01 per share ("Grace Common Stock"), into a
new common stock and Series A convertible preferred stock, each
with a par value of $0.10 per share (the "Recapitalization").
(c) A subsidiary of the Company merged into old Sealed Air (the
"Merger"), with old Sealed Air being the surviving corporation.
As a result of the Merger, old Sealed Air became a subsidiary of
the Company, and the Company was renamed Sealed Air Corporation.
As used in these Notes, the term "Company" means the Company and its
subsidiaries after giving effect to the Reorganization, the Recapitalization and
the Merger, and the term "Grace" refers to the Company with respect to periods
prior to such transactions. The agreements pursuant to which the Reorganization,
the Recapitalization and the Merger were carried out are referred to in these
Notes as the "Transaction Agreements".
17
<PAGE>
BASIS OF FINANCIAL STATEMENTS
The Merger was accounted for as a purchase of old Sealed Air by the Company as
of March 31,1998. Accordingly, the financial statements include the operating
results and cash flows as well as the assets and liabilities of Cryovac for all
periods presented. The operating results, cash flows, assets and liabilities of
old Sealed Air are included from March 31, 1998. See Note 19 for unaudited
selected pro forma statement of earnings information for the years ended
December 31, 1998 and 1997. For periods prior to the Merger, the financial
statements exclude all of the assets, liabilities (including contingent
liabilities), revenues and expenses of Grace other than the assets, liabilities,
revenues and expenses of Cryovac.
Subsequent to the Merger, the consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
For periods prior to the Merger, the financial statements were prepared as
special-purpose combined financial statements as provided for in the Transaction
Agreements using Grace's historical basis of accounting. Such financial
statements include the assets, liabilities, revenues, expenses and related taxes
on income of Cryovac previously included in the consolidated financial
statements of Grace, and they include certain assets and liabilities of Cryovac
that were retained by New Grace in connection with the Reorganization, as
contemplated by the Transaction Agreements. In accordance with Securities and
Exchange Commission Staff Accounting Bulletin ("SAB") No. 55, the financial
statements for periods prior to March 31, 1998 include certain expenses incurred
by Grace on Cryovac's behalf. See Note 17 for a discussion of these corporate
allocations.
For periods prior to the Merger, the financial statements do not include an
allocation of Grace's debt and related interest expense (except for interest
capitalized as a component of Cryovac's property and equipment). Therefore, the
financial statements for the periods prior to March 31, 1998 may not necessarily
reflect the financial position and results of operations that would have
occurred had Cryovac been a stand-alone entity on such dates and for the periods
then ended. All transactions between and among subsidiaries and operating units
within Cryovac have been eliminated in consolidation.
The financial statements also exclude dividends paid by Grace to its
shareholders in periods prior to March 31, 1998, as the obligation to pay such
dividends was incurred by Grace and not by Cryovac on a stand-alone basis. See
Note 14 for a discussion of Shareholders' Equity.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting the reported amounts of assets and liabilities (including contingent
assets and liabilities) at the dates of the financial statements and the
reported revenues and expenses during the periods presented. Actual amounts
could differ from those estimates.
18
<PAGE>
CASH AND CASH EQUIVALENTS
Investments with original maturities of three months or less are considered to
be cash equivalents. The Company's policy is to invest cash in excess of
short-term operating and debt service requirements in such cash equivalents.
These instruments are stated at cost, which approximates market because of the
short maturity of the instruments.
FINANCIAL INSTRUMENTS
The Company has limited involvement with derivative financial instruments that
have off-balance-sheet risk. These financial instruments generally include cross
currency swaps, interest rate swaps, caps and collars and foreign exchange
forwards and options relating to the Company's borrowing and trade activities.
Such financial instruments are used to manage the Company's exposure to
fluctuations in interest rates and foreign exchange rates. The Company does not
purchase, hold or sell derivative financial instruments for trading or
speculative purposes. The Company is exposed to credit risk in the event of the
inability of the counterparties to perform under their obligations. However, the
Company seeks to minimize such risk by entering into transactions with
counterparties that are major financial institutions with high credit ratings.
The Company records realized and unrealized gains and losses from foreign
exchange hedging instruments (including cross currency swaps, forwards and
options) differently depending on whether the instrument qualifies for hedge
accounting. Gains and losses on those foreign exchange instruments that qualify
as hedges are deferred as part of the cost basis of the asset or liability being
hedged and are recognized in the statement of earnings in the same period as the
underlying transaction. Realized and unrealized gains and losses on instruments
that do not qualify for hedge accounting are recognized currently in the
statement of earnings.
The Company records the net payments or receipts from interest rate swaps, caps,
collars and the interest rate component of cross currency swaps as adjustments
to interest expense on a current basis. If an interest rate hedging instrument
were terminated prior to the maturity date, any gain or loss would be amortized
into earnings over the shorter of the original term of the derivative instrument
and the underlying transaction.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of most U.S.
inventories is determined on a last-in, first-out ("LIFO") basis, while the cost
of other inventories is determined on a first-in, first-out ("FIFO") basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, except for property and equipment
that have been impaired, for which the carrying amount is reduced to estimated
fair value. Significant improvements are capitalized; repairs and maintenance
costs that do not extend the lives of the assets are charged to expense as
incurred. The cost and accumulated depreciation of assets sold or otherwise
disposed of are removed from the accounts, and any resulting gain or loss is
included when the assets are disposed of.
The cost of property and equipment is depreciated over their estimated useful
lives on a straight-line basis as follows: buildings-20 to 40 years; machinery
and other property and equipment - 3 to 20 years.
19
<PAGE>
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill arising from the Merger, including certain trademarks, as well as
goodwill resulting from other purchase transactions is amortized on a
straight-line basis, generally over 40 years. The carrying value of goodwill is
periodically reviewed by the Company. Impairments are recognized when the
expected future undiscounted cash flows derived from such goodwill are less than
their carrying value. Other intangible assets are included in other assets at
cost and consist primarily of patents, licenses and non-compete agreements. They
are amortized over the shorter of their legal lives or their estimated useful
lives on a straight-line basis, generally ranging from 3 to 20 years.
Identifiable intangibles individually and in the aggregate comprise less than 5%
of the Company's consolidated assets.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of", the Company reviews the carrying value of its assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be fully recoverable. The Company considers
various valuation factors prescribed by SFAS No. 121, principally discounted
cash flows, to assess the fair values of long-lived assets to be held and used.
If the sum of the expected future undiscounted cash flows is less than the
carrying amount of the asset, a loss is recognized for the difference between
the fair value and the carrying amount. Assets to be disposed of by sale or
abandonment, and where management has the current ability to remove such assets
from operations, are recorded at the lower of carrying amount or fair value less
cost of disposition. Depreciation for these assets is suspended during the
disposal period, which is generally less than one year.
STOCK-BASED COMPENSATION
The Company adopted the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", in 1996. As permitted by SFAS No. 123, the Company
continues to follow the measurement provisions of Accounting Principles Board
Opinion ("APB") No. 25, "Accounting For Stock Issued to Employees."
FOREIGN CURRENCY TRANSLATION
In non-U.S. locations that are not considered highly inflationary the balance
sheets are translated at the end of period exchange rates and statements of
earnings are translated at the average exchange rates during the applicable
period with translation adjustments accumulated in shareholders' equity. Assets
and liabilities of the Company's operations in countries with highly
inflationary economies are translated at the end of period exchange rates,
except that certain financial statement amounts are translated at historical
exchange rates. Items included in statements of earnings of the Company's
operations in countries with highly inflationary economies are translated at
average rates of exchange prevailing during the period, except that certain
financial statement amounts are translated at historical rates.
INCOME TAXES
The Company and its domestic subsidiaries file a consolidated U.S. federal
income tax return. The Company's non-U.S. subsidiaries file income tax returns
in their respective local jurisdictions. During the third quarter of 1998, the
Company began providing for income taxes on that portion of its foreign
subsidiaries' accumulated earnings that management believes are not reinvested
indefinitely in their businesses.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. A valuation allowance is provided when it is
more likely than not that all or some portion of the deferred tax asset will not
be realized. Deferred tax liabilities or assets at the end of each period are
determined using the tax rates then in effect.
20
<PAGE>
For periods prior to the Merger, Cryovac's U.S. operations were included in
Grace's U.S. federal and state income tax returns. For these periods, Grace's
consolidated income tax provision was generally allocated to Cryovac as if
Cryovac filed separate income tax returns, and the allocated current provision
was settled with Grace on a current basis. Under the terms of the Transaction
Agreements, New Grace retained the liability for substantially all tax
liabilities of Cryovac attributable to periods ended on and prior to the Merger.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and amounted to $57,524,
$40,675, and $42,255 in 1998, 1997 and 1996, respectively, including corporate
allocations from Grace of $5,074 in 1996.
EARNINGS PER COMMON SHARE
Earnings per common share information has been calculated in accordance with
SFAS No. 128, "Earnings Per Share", and SAB No. 98, "Computation of Earnings Per
Share" ("SAB No. 98"), since Cryovac did not have a separately identifiable
capital structure upon which a calculation of earnings per common share could be
based prior to the Reorganization and the Recapitalization. The impact of the
preferred stock repurchases on earnings per common share has been reflected in
accordance with the Financial Accounting Standards Board's Emerging Issues Task
Force Topic D-53 guidance.
ENVIRONMENTAL EXPENDITURES
Except as described in Note 18 with respect to the Reorganization, environmental
expenditures that relate to ongoing business activities are expensed or
capitalized, as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future net
sales, are expensed. Liabilities are recorded when the Company determines that
environmental assessments or remediations are probable and that the cost or a
range of costs to the Company associated therewith can be reasonably estimated.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current
year's presentation.
NOTE 3 BUSINESS SEGMENT INFORMATION
The Company operates in two reportable business segments: (i) Food and Specialty
Packaging and (ii) Protective Packaging. The Food and Specialty Packaging
segment comprises the Company's Cryovac(R) food and specialty products. The
Protective Packaging segment includes the aggregation of the Company's packaging
products, engineered products and specialty products, all of which products are
for non-food applications.
The Food and Specialty Packaging segment includes flexible materials and related
systems (shrink film products, laminated films and specialty packaging systems
marketed primarily under the Cryovac(R) trademark for a broad range of
perishable foods), and rigid packaging and absorbent pads (absorbent pads used
for the packaging of meat, fish and poultry, foam trays for supermarkets and
food processors, and rigid plastic containers for dairy and other food
products). Net sales of flexible materials and related systems were 1998 -
$1,527,908; 1997 - $1,497,127; and 1996 - $1,411,479 and net sales of rigid
packaging and absorbent pads were 1998 - $156,172; 1997 - $91,468; and 1996 -
$97,225.
The Protective Packaging segment includes cushioning and surface protection
products (including air cellular cushioning materials, films for non-food
applications, polyurethane foam packaging systems sold under the Instapak(R)
trademark, polyethylene foam sheets and planks, a comprehensive line of
protective and durable mailers and bags, certain paper-based protective
packaging materials, suspension and retention packaging, and packaging systems)
and other products (principally specialty adhesive products). Net sales of
cushioning and surface protection products were: 1998 - $794,593; 1997 -
$244,516; and 1996 - $232,898. Net sales of other products for 1998 comprised
approximately 1% of consolidated net sales. Cryovac did not have net sales of
other products in 1997 and 1996.
Subsequent to the Merger and the implementation of the Company's combined
operating plan, Cryovac's film products for non-food applications were
integrated into the Protective Packaging segment. The restatement of prior
year's operating results to reflect this realignment is not practicable (except
to identify the amount of net sales for 1997 and 1996, provided above) as prior
to the Merger Cryovac conducted its operations as one business segment and
comparable discrete financial information for 1997 and 1996 is not available.
21
<PAGE>
1998
================================================================================
Net Sales
Food and Specialty Packaging $ 1,684,080
Protective Packaging 822,676
- --------------------------------------------------------------------------------
Total segments $ 2,506,756
================================================================================
Operating profit
Food and Specialty Packaging $ 238,613
Protective Packaging 155,446
- --------------------------------------------------------------------------------
Total segments 394,059
Restructuring and other charges, net (1) (87,182)
Corporate operating expenses (including goodwill
amortization of $36,062) (47,545)
- --------------------------------------------------------------------------------
Total $ 259,332
================================================================================
Depreciation and amortization
Food and Specialty Packaging $ 113,258
Protective Packaging 45,834
- --------------------------------------------------------------------------------
Total segments 159,092
Corporate (including goodwill and other amortization) 36,862
- --------------------------------------------------------------------------------
Total $ 195,954
================================================================================
Capital expenditures
Food and Specialty Packaging $ 48,497
Protective Packaging 31,487
- --------------------------------------------------------------------------------
Total segments 79,984
Corporate 2,424
- --------------------------------------------------------------------------------
Total $ 82,408
================================================================================
Assets (2)
Food and Specialty Packaging $ 1,440,091
Protective Packaging 644,539
- --------------------------------------------------------------------------------
Total segments 2,084,630
Corporate (including goodwill, net of $1,907,736) 1,955,300
- --------------------------------------------------------------------------------
Total $ 4,039,930
================================================================================
(1) Restructuring and other charges, net was $73,172 for Food and Specialty
Packaging (including a net non-cash charge of $46,021) and $14,010 for
Protective Packaging (including a net non-cash credit of $1,846).
(2) Plant and equipment facilities and other resources of the Food and
Specialty Packaging segment are used to manufacture films (non-food
applications) for the Protective Packaging segment. A proportionate share
of depreciation and other costs of manufacturing are allocated to the
Protective Packaging segment.
22
<PAGE>
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------
Net sales: (3)
<S> <C> <C> <C>
North America $1,404,779 $ 953,281 $ 864,254
Europe 692,375 526,829 530,328
Latin America 173,750 152,047 144,460
Asia Pacific 235,852 200,954 202,560
- --------------------------------------------------------------------------------------
Total $2,506,756 $1,833,111 $1,741,602
======================================================================================
1998 1997 1996
- --------------------------------------------------------------------------------------
Total long-lived assets:
North America (4) $2,716,288 $ 694,136 $ 677,620
Europe 285,834 224,742 263,534
Latin America 59,292 66,180 63,709
Asia Pacific 123,144 134,415 181,976
- --------------------------------------------------------------------------------------
Total $3,184,558 $1,119,473 $1,186,839
======================================================================================
</TABLE>
(3) Net sales attributed to the geographic areas represent trade sales to
external customers. Net sales in North America represent primarily net
sales in the United States. No non-U.S. country has net sales in excess of
10% of consolidated net sales or long-lived assets in excess of 10% of
consolidated long-lived assets.
(4) Includes goodwill, net of $1,907,736 in 1998.
NOTE 4 ACQUISITIONS
In the Merger, the Company issued 42,624,246 shares of common stock at a value
of $49.52 per share and incurred costs of approximately $30,000 for a purchase
price of $2,141,000 in exchange for the net assets of old Sealed Air. The fair
value of such net assets included approximately $181,000 of property and
equipment, approximately $95,800 of working capital (including cash of $51,259),
and other long-term net liabilities of approximately $71,500 resulting in
principally goodwill of approximately $1,935,700.
During 1998, the Company made certain other small acquisitions. These
transactions, which were effected in exchange for cash, were accounted for as
purchases and were not material to the Company's consolidated financial
statements.
In 1997, Cryovac purchased all the shares of Schurpack, Inc., a U.S.
manufacturer of flexible food packaging, for net cash consideration of $12,137.
This transaction was accounted for as a purchase and resulted in goodwill of
$5,087.
In 1996, Cryovac acquired Cypress Packaging, Inc., a U.S. manufacturer of
flexible packaging primarily for retail pre-cut produce, for net cash
consideration of $16,838. This transaction was accounted for as a purchase and
resulted in goodwill of $8,738.
23
<PAGE>
NOTE 5 INVENTORIES
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------
Inventories (at FIFO, which approximates current cost):
<S> <C> <C>
Raw materials $ 63,805 $ 44,043
Work in process 50,714 54,532
Finished goods 176,965 142,282
- -------------------------------------------------------------------------------------------------------------
291,484 240,857
Reduction of certain inventories to LIFO basis (16,172) (14,881)
- -------------------------------------------------------------------------------------------------------------
Total $ 275,312 $ 225,976
- -------------------------------------------------------------------------------------------------------------
Inventories accounted for on a LIFO basis represented approximately 47% and 27%
of total inventories at December 31, 1998 and 1997.
NOTE 6 PROPERTY AND EQUIPMENT
December 31,
- -------------------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 28,569 $ 13,219
Buildings 392,020 306,880
Machinery and equipment 1,349,716 1,125,567
Other property and equipment 121,252 119,533
Construction-in-progress 54,538 187,797
- -------------------------------------------------------------------------------------------------------------
1,946,095 1,752,996
Accumulated depreciation and amortization (829,513) (712,844)
- -------------------------------------------------------------------------------------------------------------
Property and equipment, net $ 1,116,582 $ 1,040,152
=============================================================================================================
Interest cost capitalized during 1998, 1997 and 1996 was $4,994, $12,775 and
$17,650, respectively.
NOTE 7 OTHER LIABILITIES
December 31,
- -------------------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other current liabilities:
Accrued salaries, wages and related costs $ 98,769 $ 40,675
Accrued restructuring costs (Note 9) 28,355 12,943
Accrued operating expenses 80,152 15,092
Accrued dividends and interest 23,056 --
Income taxes payable 42,933 --
- -------------------------------------------------------------------------------------------------------------
Total $ 273,265 $ 68,710
=============================================================================================================
December 31,
- -------------------------------------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------
Other liabilities:
Other postretirement benefits $ 4,916 $ 59,900
U.S. pension liability -- 14,000
Long-term incentive program -- 8,900
Non-U.S. statutory social security and pension obligations 26,893 3,058
Other various liabilities 47,768 10,789
- -------------------------------------------------------------------------------------------------------------
$ 79,577 $ 96,647
=============================================================================================================
</TABLE>
Non-U.S. statutory social security and pension obligations primarily represent
the present value of the Company's unfunded future obligations for certain
eligible, active non-U.S. employees based on actuarial calculations.
24
<PAGE>
NOTE 8 INCOME TAXES
The components of earnings before income taxes were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 132,448 $ 105,694 $ 101,012
Foreign 66,499 157,978 68,810
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 198,947 $ 263,672 $ 169,822
===============================================================================================================================
The components of the provision for income taxes were as follows:
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
Current tax expense:
Federal $ 54,249 $ 26,905 $ 41,986
State and local 11,830 5,233 7,245
Foreign 35,839 42,821 30,515
- -------------------------------------------------------------------------------------------------------------------------------
Total current 101,918 74,959 79,746
- -------------------------------------------------------------------------------------------------------------------------------
Deferred tax expense (benefit):
Federal 1,315 6,465 (8,891)
State and local 283 1,055 (328)
Foreign 22,424 7,461 (535)
- -------------------------------------------------------------------------------------------------------------------------------
Total deferred 24,022 14,981 (9,754)
- -------------------------------------------------------------------------------------------------------------------------------
Total provision $ 125,940 $ 89,940 $ 69,992
===============================================================================================================================
Deferred tax (liabilities) assets consist of the following:
December 31,
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accruals not yet deductible for tax purposes $ 28,431 $ 10,931
Research and development 21,027 25,337
Postretirement benefits other than pensions 1,944 21,643
Employee benefit items 11,864 6,429
Inventories 23,777 8,877
Foreign net operating loss carryforwards and investment tax allowances 26,490 25,118
Other 6,200 7,642
- --------------------------------------------------------------------------------------------------------------------------------
Gross deferred tax assets 119,733 105,977
Valuation allowance (16,281) (10,445)
- --------------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 103,452 95,532
- --------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization (128,802) (71,814)
Intangibles (31,698) --
Unremitted foreign earnings (32,204) --
Pension (18,545) --
Capitalized interest (12,533) (15,126)
Other (9,824) (208)
- --------------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (233,606) (87,148)
- --------------------------------------------------------------------------------------------------------------------------------
Net deferred tax (liabilities) assets $ (130,154) $ 8,384
================================================================================================================================
</TABLE>
The U.S. federal statutory corporate tax rate reconciles to the Company's
effective tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. federal tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 4.0 1.5 2.4
U.S. and foreign taxes on unremitted earnings 14.1 -- --
Foreign taxes on foreign operations in excess of U.S. tax rates 2.6 (2.6) 3.4
Non-deductible expenses, primarily goodwill amortization 7.6 0.2 0.4
- -----------------------------------------------------------------------------------------------------------------------------
Effective tax rate 63.3% 34.1% 41.2%
=============================================================================================================================
</TABLE>
25
<PAGE>
The Company has concluded that it is more likely than not that the balance of
deferred tax assets, net of the valuation allowance, of $103,452 at December 31,
1998 will be realized based upon anticipated future results. The valuation
allowance of $16,281 at December 31, 1998 has been recorded due to the
uncertainty of the realization of certain foreign deferred tax assets, primarily
relating to foreign investment tax allowances that arose during 1996.
During the third quarter of 1998, the Company began providing for income taxes
on that portion of foreign subsidiaries' accumulated earnings that management
believes are not reinvested indefinitely in their businesses. Such provision
resulted in an income tax charge of $26,000 in respect of such accumulated
earnings. Previously, the Company and Grace treated the accumulated earnings of
the Company's foreign subsidiaries as reinvested indefinitely in their
businesses, and therefore no income taxes were provided in the financial
statements with respect to future repatriation of such accumulated earnings.
As part of the Transaction Agreements, the Company entered into a Tax-Sharing
Agreement with New Grace. This Tax-Sharing Agreement provides, among other
things, that tax liabilities of Cryovac attributable to periods ended on and
prior to the Merger will be substantially the responsibility of New Grace. The
Tax-Sharing Agreement also restricts the Company and New Grace from engaging in
certain transactions for two years following the Merger.
At December 31, 1998, there were $47,865 of foreign net operating loss
carryforwards ($16,299 tax effected) and $33,970 of investment tax allowances
($10,191 tax effected) that originated prior to the Merger, the majority of
which have no expiration period. In accordance with the Tax-Sharing Agreement,
New Grace is entitled to receive the tax benefit of such carryforwards and
allowances, as they are realized by the Company.
NOTE 9 RESTRUCTURING COSTS AND OTHER CHARGES, NET
1998 RESTRUCTURING PROGRAM
After the Merger, the Company conducted a review of its operations in order to
develop a combined operating plan for old Sealed Air and Cryovac. The review
considered organization and business structures and methods, the nature and
extent of manufacturing and business operations in each region of the world,
including assets and resources deployed, and current business and economic
trends. As a result of such review, during the third quarter of 1998, the
Company announced and began implementation of a restructuring program. Charges
to operations arising out of this program amounted to $111,074 and included
$39,848 of employee termination costs, $3,441 of exit costs and $67,785 of asset
impairments related to long-lived assets either held for use or held for
disposition. The portion of the 1998 restructuring and asset impairment charge
applicable to the Company's food and specialty packaging segment amounted to
$97,064 and the portion applicable to the protective packaging segment amounted
to $14,010. The asset impairment amount of $67,785 includes write-downs or
write-offs of $47,083 for property, plant and equipment, $13,008 for goodwill,
and $7,694 for certain other long-lived intangible assets. The reduction in
depreciation and amortization attributable to such asset impairments amounted to
approximately $2,000 in 1998. The $67,785 asset impairment charge includes
$20,021 of long-lived assets, primarily machinery and equipment, that have
either been disposed of or are held for disposition and the remaining amount of
$47,764 are long-lived assets held for use. The remaining carrying value as of
December 31, 1998 of assets held for disposition was approximately $3,600, and
the effect of suspending depreciation on such assets is immaterial to the
consolidated financial statements. The Company expects to incur approximately
$43,289 of cash outlays to carry out this restructuring program, of which
approximately $16,365 was paid in 1998. These cash outlays include primarily
severance and other personnel related costs, costs of terminating leases and
facilities and equipment disposition costs. In connection with the
restructuring, the Company is eliminating 750 positions, or approximately 5% of
its workforce, across all functional areas. Through December 31, 1998,
approximately 510 positions had been eliminated, and all restructuring actions,
including remaining asset dispositions, are expected to be completed by the end
of 1999 although certain cash outlays will continue into future years.
26
<PAGE>
The components of the 1998 restructuring charges, spending and other activity
during 1998 and the remaining reserve balance at December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Employee
Termi- Plant/ Contract
nation Office Termination
Costs Closures Costs Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Restructuring provision recorded in 1998 $ 39,848 $ 2,291 $ 1,150 $ 43,289
Cash payments during 1998 (14,486) (729) (1,150) (16,365)
- ----------------------------------------------------------------------------------------------------------
Restructuring reserve at December 31, 1998 25,362 1,562 -- 26,924
==========================================================================================================
</TABLE>
Restructuring and other charges, net in the accompanying 1998 consolidated
statement of earnings include the effect of a special credit to operations
amounting to $23,610 relating to the curtailment of certain postretirement
benefits. See Note 11.
PRE-MERGER RESTRUCTURING PROGRAM
Grace began to implement a worldwide program in 1995 focused on streamlining
processes and reducing general and administrative expenses and factory
administration costs. Under this program, Grace continued to implement
additional cost reductions and effect improvements in 1996 and 1997 as it
further evaluated and reengineered its operations. In connection with these
programs, Grace recorded restructuring charges of $3,616 in 1997 and $47,947 in
1996. These charges primarily related to headcount reductions in Cryovac and the
restructuring of Cryovac's European operations in areas such as working capital
management, manufacturing and sales.
The components of the 1997 and 1996 restructuring charges, as well as spending
and other activity during 1998, 1997 and 1996, and the remaining reserve
balances at December 31, 1998, were as follows:
<TABLE>
<CAPTION>
Employee
Termi- Plant/
Nation Office Other
Costs Closures Costs Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Restructuring reserve at December 31, 1995 $ 11,674 $ 1,006 $ 300 $ 12,980
Restructuring provisions recorded in 1996 41,328 4,400 2,219 47,947
Cash payments during 1996 (19,971) (200) (1,835) (22,006)
- --------------------------------------------------------------------------------------------------------------------------------
Restructuring reserve at December 31, 1996 33,031 5,206 684 38,921
Restructuring provisions recorded in 1997 3,200 -- 416 3,616
Cash payments during 1997 (26,074) (2,420) (1,100) (29,594)
- --------------------------------------------------------------------------------------------------------------------------------
Restructuring reserve at December 31, 1997 10,157 2,786 -- 12,943
Cash payments during 1998 (3,516) -- -- (3,516)
Liability retained by New Grace at March 31, 1998 (5,015) (2,699) -- (7,714)
Reversal of restructuring (282) -- -- (282)
- --------------------------------------------------------------------------------------------------------------------------------
Restructuring reserve at December 31, 1998 $ 1,344 $ 87 $ -- $ 1,431
================================================================================================================================
</TABLE>
27
<PAGE>
Employee termination costs for Grace's restructuring program primarily represent
severance pay and other benefits (including benefits under long-term incentive
programs paid over time) associated with the elimination of approximately 400
Cryovac positions worldwide. As of December 31, 1998, substantially all of these
positions had been eliminated.
In connection with the Reorganization and the Merger, certain obligations
related to Grace's restructuring program were retained by New Grace. As of March
31, 1998, the Company's liability with respect to such obligations, amounting to
approximately $7,714 together with related deferred income taxes, was reversed
and accounted for as an equity contribution to the Company from Grace.
During 1997 and 1996, Grace determined that, due to certain market demand shifts
and manufacturing capacity strategies, certain long-lived assets and related
goodwill were impaired. As a result, in 1997 and 1996, Grace recorded non-cash
pre-tax charges of approximately $10,828 and $27,000, respectively. The
components of such 1997 and 1996 charges were as follows:
1997 1996
- --------------------------------------------------------------------------------
Property and equipment $ 10,828 $ 9,000
Goodwill and other intangible assets -- 11,100
Long-term investments -- 4,200
Other assets -- 2,700
- --------------------------------------------------------------------------------
$ 10,828 $ 27,000
================================================================================
NOTE 10 EMPLOYEE BENEFITS AND INCENTIVE PROGRAMS
PROFIT-SHARING AND RETIREMENT SAVINGS PLANS
Subsequent to the Merger, the Company adopted the non-contributory
profit-sharing plan that was offered by old Sealed Air to certain of its U.S.
employees prior to the Merger. This plan covers most of the Company's U.S.
employees. Contributions to this plan, which are made at the discretion of the
Board of Directors, may be made in cash, shares of the Company's common stock,
or in a combination of cash and shares of the Company's common stock. The
Company also maintains contributory thrift and retirement savings plans in which
most U.S. employees of the Company are eligible to participate, except those
employees who are covered by certain collective bargaining agreements that do
not provide for participation in such plans. These plans generally provide for
Company contributions based upon the amount contributed to the plans by the
participants. Company contributions to or provisions for its profit-sharing and
retirement savings plans are charged to operations and amounted to $22,919 in
1998.
PENSION PLANS
Substantially all of the U.S. and non-U.S. employees who were employed by
Cryovac at the time of the Merger were covered by contributory or
non-contributory defined benefit plans sponsored by Grace. Benefits were
generally based on final average salary and years of service. Grace had funded
its pension plans in accordance with local laws and regulations. Plan assets
consisted primarily of publicly traded common stocks, fixed income securities
and cash equivalents.
Upon the Merger, the participation of substantially all of the Company's U.S.
employees in defined benefit plans sponsored by Grace ceased, and the pension
obligations relating to these plans were retained by New Grace. As of March 31,
1998, the pension liability with respect to such employees, including related
deferred income taxes, was reversed and accounted for as an equity contribution
to the Company from Grace.
28
<PAGE>
Separate calculations of Cryovac's net pension cost and funded status within
Grace's U.S. pension plans were performed for prior years. Cryovac's total
pension expense for U.S. plans consisted of the following components:
<TABLE>
<CAPTION>
Quarter Ended Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------------------
March 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost on benefits earned during the year $ 1,520 $ 5,800 $ 6,400
Interest cost on benefits earned in prior years 3,251 12,700 12,100
Actual return on plan assets (3,587) (13,900) (18,800)
Deferred gain on plan assets 273 -- 5,800
Amortization of net gain and prior service costs (365) (900) (200)
- ----------------------------------------------------------------------------------------------------------------------------
Net pension cost $ 1,092 $ 3,700 $ 5,300
- ----------------------------------------------------------------------------------------------------------------------------
Cryovac's funded status within Grace's U.S. plans as of December 31, 1997 under
SFAS No. 132 was as follows:
Change in benefit obligation:
Benefit obligation at December 31, 1996 $ 163,000
Service cost 5,800
Interest cost 12,700
Amendments 1,000
Actuarial loss 27,500
Benefit paid (8,000)
- ----------------------------------------------------------------------------------------------------------------------------
Benefit obligation at December 31, 1997 $ 202,000
- ----------------------------------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at December 31, 1996 $ 158,700
Actual return on plan assets 23,900
Employer contributions 700
Benefits paid (8,000)
- ----------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31, 1997 $ 175,300
============================================================================================================================
Funded status:
Benefit obligation in excess of plan assets $ (26,700)
Unrecognized net (asset) obligation (6,000)
Unrecognized net prior service cost 14,900
Unrecognized net actuarial loss 10,700
- ----------------------------------------------------------------------------------------------------------------------------
Accrued pension cost $ (7,100)
============================================================================================================================
Amount recognized in the consolidated balance sheet consists of:
Accrued benefit liability $ (14,000)
Intangible asset 6,900
- ----------------------------------------------------------------------------------------------------------------------------
Net amount recognized $ (7,100)
============================================================================================================================
</TABLE>
The following significant assumptions were used in calculating the pension cost
and funded status presented above:
1997 1996
- --------------------------------------------------------------------------------
Discount rate at December 31, 7.3% 8.0%
Expected long-term rate of return 9.0% 9.0%
Rate of compensation increase 4.5% 4.5%
================================================================================
The Company maintains pension plans for certain U.S. employees including
employees who are covered by collective bargaining agreements. Subsequent to the
Merger, the Company established a pension plan for U.S. employees who were
employees of Cryovac at the time of the Merger and who participated in Grace's
principal U.S. pension plan (the "Grace Salaried Plan"). The new plan is
intended to provide restorative benefits to the extent required, if any, should
the Company's intended profit-sharing plan benefits be insufficient to provide
retiree benefits approximately equivalent in amount to the Grace Salaried Plan.
Pension cost for all U.S. pension plans charged to operations since the Merger
amounted to $803, and the balance sheet as of December 31, 1998 includes an
intangible asset, accumulated other comprehensive income and an accrued benefit
liability relating to such plans amounting to $3,613, $2,922 and $2,613,
respectively. The aggregate benefit obligation and fair value of plan assets at
such date amounted to approximately $16,700 and $12,400, respectively.
29
<PAGE>
In connection with the Reorganization and the Merger, the Company either assumed
or established pension plans for certain of its non-U.S. Cryovac employees.
Pension assets acquired by the Company from Grace with respect to these plans
were recorded in the accounts with a corresponding credit to shareholders'
equity, net of related deferred income taxes.
Historically, Grace did not calculate net pension cost and funded status
separately for Cryovac within its non-U.S. plans. The Cryovac employees
historically comprised approximately 66% of the total active participants in
Grace's non-U.S. plans. Net pension cost for these plans was allocated annually
to Cryovac by Grace. Total pension cost (income) allocated to Cryovac in
connection with these plans was $(242) for the first quarter of 1998 and $800
and $3,000 for 1997 and 1996, respectively. Prior to the Merger, no portion of
Grace's non-U.S. pension assets or liabilities was allocated to Cryovac, on the
basis that Cryovac's non-U.S. employees were considered to have participated in
a multi-employer pension plan as defined in SFAS No. 87, "Employer's Accounting
for Pensions."
The following tables set forth the components of net pension cost and the funded
status of the non-U.S. Grace-sponsored pension plans for all Grace businesses:
<TABLE>
<CAPTION>
Quarter Ended Years Ended December 31,
- --------------------------------------------------------------------------------------------------------
March 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost on benefits earned during the year $ 2,799 $ 10,000 $ 10,700
Interest cost on benefits earned in prior years 4,744 19,400 23,100
Actual return on plan assets (8,017) (51,100) (39,100)
Deferred (loss)gain on plan assets (221) 20,400 8,200
Amortization of net (loss)gain and prior service costs 108 (500) (300)
Net curtailment and settlement loss (gain) 125 3,700 (2,400)
- --------------------------------------------------------------------------------------------------------
Net pension (gain)cost $ (462) $ 1,900 $ 200
- --------------------------------------------------------------------------------------------------------
Assets Exceed Accumulated
Accumulated Benefits Exceed
Benefits Assets
December 31, December 31,
- ------------------------------------------------------------------------------------------------------------------
1997 1997
- ------------------------------------------------------------------------------------------------------------------
Actuarial present value of:
<S> <C> <C>
Vested benefit obligation $ 194,300 $ 76,200
- ------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 194,900 83,600
- ------------------------------------------------------------------------------------------------------------------
Total projected benefit obligation 205,000 100,100
Plan assets at fair value 339,100 2,600
- ------------------------------------------------------------------------------------------------------------------
Plan assets in excess of(less than) projected benefit obligation 134,100 (97,500)
Unamortized net (gain) loss at initial adoption (3,400) 2,900
Unamortized prior service cost 3,600 --
Unrecognized net (gain)loss (14,900) 20,300
- ------------------------------------------------------------------------------------------------------------------
Prepaid(accrued) pension cost $ 119,400 $ (74,300)
==================================================================================================================
</TABLE>
Separate calculations of the Company's net pension cost and funded status for
its non-U.S. pension plans were performed for the period from April 1, 1998 to
December 31, 1998. The following presents the Company's funded status and
pension expense for 1998 under SFAS No. 132:
Change in benefit obligation:
Benefit obligation at April 1, 1998 $ 119,890
Service cost 4,165
Interest cost 5,819
Actuarial (gain) loss 1,631
Benefits paid (3,666)
Employee contributions 328
Foreign exchange impact 414
- -------------------------------------------------------------------------------
Benefit obligation at December 31, 1998 $ 128,581
===============================================================================
Change in plan assets:
Fair value of plan assets at April 1, 1998 $ 151,019
Actual return on plan assets 9,766
Employer contributions 1,868
Benefits paid (3,666)
Employee contributions 328
Foreign exchange impact (5,265)
- -------------------------------------------------------------------------------
Fair value of plan assets at December 31, 1998 $ 154,050
===============================================================================
Funded status:
Plan assets in excess of benefit obligation $ 25,469
Unrecognized net (asset) obligation (426)
Unrecognized net prior service cost 528
Unrecognized net actuarial loss 9,543
- -------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 35,114
===============================================================================
Amount recognized in the consolidated balance sheet consists of:
Prepaid (accrued) benefit cost $ 55,242
Accrued benefit liability (23,410)
Intangible asset 730
Accumulated other comprehensive income 2,552
- -------------------------------------------------------------------------------
Net amount recognized $ 35,114
===============================================================================
Components of net periodic benefit cost for period
April 1, 1998 to December 31, 1998:
Service cost $ 4,165
Interest cost 5,819
Expected return on plan assets (9,766)
Amortization of (asset) obligation (375)
Amortization of prior service cost 79
Amortization of net (gain)loss 234
- -------------------------------------------------------------------------------
Net periodic pension cost $ 156
===============================================================================
30
<PAGE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were $35,566, $28,169 and $5,031 as of December 31, 1998.
The following significant assumptions (weighted averages for 1998) were used in
calculating the pension cost and funded status presented above:
1998 1997 1996
- --------------------------------------------------------------------------------
Discount rate at December 31 6.8% 2.3 - 7.5% 3.4 - 8.7%
Expected long-term rate of return 9.0% 6.0 - 10.5% 6.0 - 10.5%
Rate of compensation increase 4.3% 2.0 - 5.0% 2.5 - 7.5%
================================================================================
Non-U.S. plan disclosures above as of and for the years ended December 31, 1997
and 1996 are presented in accordance with SFAS No. 87 as information necessary
to provide complete disclosures in accordance with SFAS No. 132 is not readily
available. The principal disclosures omitted are reconciliations for the year
ended December 31, 1997 of the plans' benefit obligations and assets and the
plans' funded status as of December 31, 1997.
LONG-TERM INCENTIVE PROGRAM
Grace maintained a Long-Term Incentive Program ("LTIP") in which certain Cryovac
employees were eligible to participate prior to the Reorganization and the
Merger. In conjunction with the Reorganization and the Merger, the eligible
Cryovac employees ceased to participate in the LTIP, and LTIP liabilities
related to Cryovac employees were assumed by New Grace. As of March 31, 1998,
the Company's liability with respect to LTIP obligations retained by New Grace,
including related deferred income taxes, was reversed and accounted for as an
equity contribution to the Company from Grace. LTIP expense related to Cryovac
employees was for $5,900 and $1,900 for 1997 and 1996, respectively.
NOTE 11 OTHER POSTRETIREMENT BENEFIT PLANS
Prior to the Merger, Grace maintained postretirement healthcare and life
insurance benefit plans for its U.S. employees. SFAS No. 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions", which requires the
accrual method of accounting for the future costs of postretirement health care
and life insurance benefits over the employees' years of service, was applied to
determine the cost of the benefits. Grace paid the cost of post-retirement
benefits as they were incurred.
Subsequent to the Merger, the Company changed the eligibility provisions of the
former Grace postretirement healthcare plan. The changes had the effect of
curtailing benefits for substantially all future retirees other than those for
whom New Grace retained responsibility. In addition, the plan was amended to
increase the amount of future retirees' contributions, thereby further reducing
the Company's postretirement benefit costs. During the fourth quarter of 1998,
the liability eliminated and credited to operations amounted to $23,610. At
December 31, 1998, the accrued benefit liability amounted to approximately
$4,900. For the nine months ended December 31, 1998, there was a net
postretirement benefit credit to operations of $469 which, together with other
remaining postretirement healthcare plan disclosures under SFAS No. 132, is not
material to the consolidated financial statements.
Under the terms of the Transaction Agreements, New Grace retained the
postretirement benefit obligations related to all Cryovac employees who had
retired prior to the Merger and to active Cryovac employees who would be
eligible to receive postretirement benefits should they meet the age and service
requirements to retire at any time on or before March 31, 1999. As of March 31,
1998, the liability retained by New Grace ($30.9 million) was reversed and
accounted for as an equity contribution to the Company from Grace, net of
related deferred income taxes.
31
<PAGE>
Separate calculations of net postretirement benefit costs and accrued
obligations for Cryovac participants within the Grace retiree medical and life
insurance plans were performed for 1997. Accrued postretirement benefit
obligations included in other liabilities as of December 31, 1997 under SFAS No.
132 are summarized as follows:
Change in benefit obligation:
Benefit obligation at December 31, 1996 $ 45,300
Service cost 800
Interest cost 3,600
Actuarial loss 4,000
Benefit paid (2,500)
- --------------------------------------------------------------------------------
Benefit obligation at December 31, 1997 $ 51,200
================================================================================
Change in plan assets:
Fair value of plan assets at December 31, 1996 $ --
Actual return on plan assets 2,500
Employer contributions (2,500)
- --------------------------------------------------------------------------------
Fair value of plan assets at December 31, 1997 $ --
================================================================================
Funded status:
Benefit obligation in excess of plan assets $(51,200)
Unrecognized net prior service cost (12,800)
Unrecognized net actuarial loss 4,100
- --------------------------------------------------------------------------------
Accrued postretirement cost $(59,900)
================================================================================
Amount recognized in the consolidated balance sheet consists of:
Accrued benefit cost $(59,900)
================================================================================
Net periodic postretirement benefit cost consisted of the following components:
<TABLE>
<CAPTION>
Quarter Ended
March 31, December 31,
1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 200 $ 800 $ 800
Interest cost on accumulated benefit obligation 1,000 3,600 3,400
Amortization of prior service credit (400) (1,500) (1,600)
- -------------------------------------------------------------------------------------------------
Net postretirement benefit cost $ 800 $ 2,900 $ 2,600
=================================================================================================
</TABLE>
NOTE 12 DEBT
At December 31, 1998, debt consisted primarily of borrowings that were made in
connection with the Reorganization under the Credit Agreements described below.
Debt also included certain other loans incurred by the Company's subsidiaries.
The balance sheet at December 31, 1997 does not reflect any long-term debt or
short-term borrowings because, prior to the Merger, Grace generally borrowed on
behalf of Cryovac and did not allocate such debt to Cryovac.
In connection with the Reorganization, the Company entered into two Credit
Agreements, a $1 billion 5-year revolving credit facility that expires on March
30, 2003 (included in long-term debt) and a $600 million 364-day revolving
credit facility that expires on March 29, 1999 (included in short-term
borrowings). As of December 31, 1998, outstanding borrowings under the 5-year
and 364-day revolving credit facilities were $990,000 and $19,933, respectively.
The Company plans to renew such 364-day facility for an additional 364-day
period prior to its expiration. The Credit Agreements provide that the Company
and certain of its subsidiaries may borrow for various purposes, including the
refinancing of existing debt, the provision of working capital and other general
corporate needs.
32
<PAGE>
The Company's obligations under the Credit Agreements bear interest at floating
rates. The weighted average interest rate under the Credit Agreements was
approximately 5.8% at December 31, 1998. The Company has entered into certain
interest rate swap agreements that have the effect of fixing the interest rates
on a portion of such debt. The weighted average interest rate at December 31,
1998 did not change significantly as a result of these derivative financial
instruments.
The Credit Agreements provide for changes in borrowing margins based on
financial criteria and the Company's senior unsecured debt ratings, and impose
certain limitations on the operations of the Company and certain of its
subsidiaries. These limitations include financial covenants relating to interest
coverage and debt leverage as well as certain restrictions on the incurrence of
additional indebtedness, the creation of liens, mergers and acquisitions, and
certain dispositions of property and assets. The Company was in compliance with
these requirements as of December 31, 1998.
Debt at December 31, 1998 also included $48,240 of short-term borrowings by
certain of the Company's non-U.S. subsidiaries under local lines of credit and
$23,484 of long-term debt incurred by certain of the Company's U.S. and non-U.S.
subsidiaries. Such long-term debt is due in varying annual installments through
2006.
The Company had available lines of credit at December 31, 1998 under the Credit
Agreements and other credit facilities of approximately $1.8 billion of which
approximately $716 million were unused. The Company is not subject to any
material compensating balance requirements in connection with its lines of
credit.
Scheduled annual maturities of long-term debt for the five years subsequent to
December 31, 1998 are as follows: 1999 - $16,958; 2000 - $1,737; 2001 - $1,226;
2002 - $1,189; and 2003 - $992,374.
NOTE 13 FINANCIAL INSTRUMENTS
The Company is required by generally accepted accounting principles to disclose
its estimate of the fair value of material financial instruments, including
those recorded as assets or liabilities in its consolidated financial statements
and derivative financial instruments. The fair value of the Company's series A
convertible preferred stock is based on quoted market prices. The fair value
estimates of the Company's various debt instruments were derived by evaluating
the nature and terms of each instrument, considering prevailing economic and
market conditions, and examining the cost of similar debt offered at the balance
sheet date. Such estimates are subjective and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the Company's estimates.
33
<PAGE>
The carrying amounts of current assets and liabilities approximate fair value
due to their short-term maturities. The carrying amounts and estimated fair
values of the Company's material financial instruments at December 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
===========================================================================================================
Financial assets:
<S> <C> <C> <C> <C>
Foreign exchange forward contracts $ -- $ 415 $ -- $ --
- -----------------------------------------------------------------------------------------------------------
Financial liabilities:
Debt:
Credit Agreements 1,009,933 1,009,933 -- --
Derivatives -- 3,373 -- --
- -----------------------------------------------------------------------------------------------------------
Credit Agreements, net 1,009,933 1,013,306 -- --
Other foreign loans 68,375 68,961 -- --
Derivatives -- 1,658 -- --
- -----------------------------------------------------------------------------------------------------------
Foreign loans, net 68,375 70,619 -- --
Other loans 3,349 3,498 -- --
- -----------------------------------------------------------------------------------------------------------
Total debt $ 1,081,657 $ 1,087,423 $ -- $ --
===========================================================================================================
Series A Convertible preferred stock $ 1,791,093 $ 1,858,258 $ -- $ --
===========================================================================================================
</TABLE>
The Company uses derivative financial instruments to manage its exposure to
fluctuations in interest rates and foreign exchange rates. The Company does not
purchase, hold or sell derivative financial instruments for trading purposes.
The Company uses interest rate swaps to reduce exposure to fluctuations in
interest rates by fixing the rate of interest the Company pays on the notional
amount of debt. At December 31, 1998, the Company was party to interest rate
swaps with an aggregate notional amount of approximately $257,000 with various
expiration dates through March 2003. Substantially all of these swaps fix the
rate of interest paid on the notional amount of certain U.S. dollar denominated
long-term debt at rates which ranged from 5.05% to 5.82% at December 31, 1998.
Interest rate collars are used to reduce the Company's exposure to fluctuations
in interest rates by limiting fluctuations in the rate of interest the Company
pays on a notional amount of debt. At December 31, 1998, the Company was party
to interest rate collars with an aggregate notional amount of approximately
$8,000 with expiration dates through June 2001.
The Company uses interest rate and currency swaps to gain access to additional
sources of international financing while limiting foreign exchange exposure and
limiting or adjusting interest rate exposure by swapping borrowings in U.S.
dollars for borrowings denominated in foreign currencies. At December 31, 1998,
the Company was party to interest rate and currency swaps with an aggregate
notional amount of approximately $23,000 and various expiration dates through
May 2002.
The Company generally uses foreign currency options to limit the risk on
anticipated international transactions. The Company was not party to any foreign
currency options at December 31, 1998 or 1997. The Company generally uses
foreign currency forwards to fix the amount payable on transactions denominated
in foreign currencies. The Company was party to foreign currency forwards with
an aggregate notional principal amount of approximately $12,800 at December 31,
1998. Such forward contracts expire through March 1999. The notional principal
amount of forward foreign currency exchange contracts at December 31, 1997 was
approximately $33,300, which contracts were entered into between Cryovac and
Grace.
34
<PAGE>
The fair values of the Company's various derivative instruments, as advised by
the Company's bankers, generally reflect the estimated amounts that the Company
would receive or pay to terminate the contracts at the reporting date.
Unrealized and realized gains and losses on the Company's financial instruments
and derivatives were not material to the consolidated financial statements in
1998, 1997 or 1996.
The Company is exposed to credit losses in the event of the inability of the
counterparties to its outstanding derivative contracts to perform their
obligations, but it does not expect any counterparties to fail to perform given
their high credit ratings and financial strength. The Company believes that
off-balance sheet risk in conjunction with its derivative contracts would not be
material in the case of non-performance on the part of the counterparties to
such agreements.
All financial instruments inherently expose the holders to market risk,
including changes in currency and interest rates. The Company manages its
exposure to these market risks through its regular operating and financing
activities and when appropriate, through the use of derivative financial
instruments.
NOTE 14 SHAREHOLDERS' EQUITY
Prior to the Reorganization and the Merger, Cryovac's operations were conducted
by divisions or subsidiaries of Grace rather than by a distinct consolidated
legal entity. Accordingly, there are no customary equity and capital accounts
for periods ended on or before March 31, 1998. For such periods, Cryovac's
operations were funded by means of intercompany accounts with Grace. Therefore,
equity also included intercompany balances due to Grace arising from the funding
of Cryovac as well as balances related to transactions and other charges and
credits between Cryovac and Grace. The financial statements prior to the
Reorganization and Merger include equity balances related only to Cryovac.
Therefore, changes within the equity accounts of Grace related to, among other
things, the declaration and payment of dividends to its shareholders, the
addition of capital contributions, the granting and exercising of stock options
and the purchase of treasury stock have been excluded, since such movements
related to Grace and not to Cryovac on a stand-alone basis. Similarly, due to
the above factors, it was not possible to present separately within equity the
retained earnings of Grace related to Cryovac.
In connection with the Reorganization and the Merger, certain assets and
liabilities of Cryovac were retained by New Grace as contemplated by the
Transaction Agreements. Accordingly, as of March 31, 1998, these assets and
liabilities were accounted for as an equity contribution to the Company from
Grace, net of related deferred income taxes. Certain other assets and
liabilities related to non-U.S. pension plans, deferred income tax liabilities
and other items arising directly from the Reorganization have been accounted for
as a contribution to, or distribution from, Cryovac. The following is a summary
of the net activity affecting the Company's equity in connection with the
Reorganization:
- --------------------------------------------------------------------------------
Assets transferred to the Company $ 81,905
Liabilities retained by New Grace 51,671
Liabilities transferred to the Company (24,926)
Tax adjustment, including deferred taxes (64,342)
Net advances to Grace (20,369)
- --------------------------------------------------------------------------------
$ 23,939
================================================================================
The tax adjustment includes the transfer of deferred income tax balances to the
Company relating to the underlying assets and liabilities transferred to the
Company, the elimination of certain deferred income tax assets which represent
pre-Merger accumulated net operating loss benefits not available to the Company,
and certain adjustments relating to the Tax-Sharing Agreement with New Grace.
35
<PAGE>
COMMON STOCK
In connection with the Recapitalization, the Company, among other things,
recapitalized the outstanding shares of Old Grace Common Stock into 40,647,815
shares of the Company's common stock and 36,021,851 shares of Series A
convertible preferred stock (convertible into approximately 31,900,000 shares of
the Company's common stock), each with a par value of $0.10 per share. In the
Merger, the Company issued 42,624,246 shares of common stock to the shareholders
of old Sealed Air.
The following is a summary of changes during 1998 in shares of common stock:
1998
- --------------------------------------------------------------------------------
Changes in common stock:
Issued in Recapitalization 40,647,815
Issued in Merger 42,624,246
Shares issued for contingent stock 522,300
Non-cash compensation 12,000
- --------------------------------------------------------------------------------
Number of shares issued, end of year 83,806,361
================================================================================
Changes in common stock in treasury:
Contingent stock forfeited 3,550
Purchase of shares during period 491,000
- --------------------------------------------------------------------------------
Number of shares held, end of year 494,550
================================================================================
CONTINGENT STOCK PLAN AND DIRECTORS STOCK PLAN
The Company's contingent stock plan was adopted following the Merger and
provides for the granting to employees of awards to purchase common stock
(during the succeeding 60-day period) for less than 100% of fair market value at
the date of award. Shares issued under the contingent stock plan ("contingent
stock") are restricted as to disposition by the holders for a period of at least
three years after issue. In the event of termination of employment prior to
lapse of the restriction, the shares are subject to an option to repurchase by
the Company at the price at which the shares were issued. Such restriction will
lapse prior to the expiration of the vesting period if certain events occur that
affect the existence or control of the Company. The aggregate fair value of
contingent stock issued is credited to common stock and additional paid-in
capital accounts, and the unamortized portion of the compensation is deducted
from shareholders' equity. The excess of fair value over the award price of
contingent stock is charged to operations as compensation over a three-year
period. In 1998, such charges amounted to $10,732. Shares issued under the old
Sealed Air contingent stock plan that were forfeited during 1998 amounted to
2,800 shares.
Non-cash compensation includes shares issued to non-employee directors in the
form of awards under the Company's restricted stock plan for non-employee
directors (the "Directors Stock Plan"). The Directors Stock Plan was adopted
following the Merger and provides for annual grants of shares to non-employee
directors, and interim grants of shares to eligible directors elected at other
than an annual meeting, at an amount less than 100% of fair value at date of
grant in lieu of cash payments for certain directors' fees. Shares issued under
this plan are restricted as to disposition by the holders as long as such
holders remain directors of the Company. The excess of fair value over the price
at which shares are issued under this plan is charged to operations at the date
of such grant. In 1998, such charges amounted to $437.
36
<PAGE>
The Company has adopted only the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies APB No. 25 and related
interpretations in accounting for these plans.
The compensation cost that has been charged against income for such plans was
noted above. Since such compensation cost is consistent with the compensation
cost that would have been recognized for such plans under the provisions of SFAS
No. 123, the pro forma disclosure requirements under such statement are not
applicable for these plans.
A summary of the changes in shares available for the Contingent Stock Plan and
the Directors Stock Plan follows:
1998
- --------------------------------------------------------------------------------
Changes in Contingent Stock Plan shares:
Establishment of plan following the Merger 450,450
Increase in shares authorized during the year 2,049,550
Shares issued for new awards (522,300)
Contingent stock forfeited
750
- --------------------------------------------------------------------------------
Number of shares available, end of year 1,978,450
- --------------------------------------------------------------------------------
Weighted average per share market value of stock on grant date $ 58.37
================================================================================
Changes in Directors Stock Plan shares:
Establishment of plan following the Merger 100,000
Shares issued for new awards (12,000)
- --------------------------------------------------------------------------------
Number of shares available, end of year 88,000
- --------------------------------------------------------------------------------
Weighted average per share market value of stock on grant date $ 36.33
================================================================================
REDEEMABLE PREFERRED STOCK - SERIES A CONVERTIBLE PREFERRED STOCK
The outstanding preferred stock is convertible at any time into approximately
0.8845 share of common stock for each share of preferred stock, votes with the
common stock on an as-converted basis, pays a cash dividend, as declared by the
Board of Directors, at an annual rate of $2.00 per share, payable quarterly in
arrears, becomes redeemable at the option of the Company beginning March 31,
2001, subject to certain conditions, and is subject to mandatory redemption on
March 31, 2018 at $50 per share, plus any accrued and unpaid dividends. Because
it is subject to mandatory redemption, the convertible preferred stock is
classified outside of the shareholders' equity section of the balance sheet. At
its date of issuance, the fair value of the convertible preferred stock exceeded
its mandatory redemption amount primarily due to the common stock conversion
feature of such preferred stock. Accordingly, the carrying amount of the
convertible preferred stock is reflected in the consolidated balance sheet at
its mandatory redemption value.
The following is a summary of changes during 1998 in shares of preferred stock:
1998
- --------------------------------------------------------------------------------
Changes in preferred stock:
Issued in Recapitalization 36,021,851
- --------------------------------------------------------------------------------
Number of shares issued, end of year 36,021,851
================================================================================
Changes in preferred stock in treasury:
Purchase of shares during period 200,000
- --------------------------------------------------------------------------------
Number of shares held, end of year 200,000
================================================================================
37
<PAGE>
STOCK OPTIONS
Prior to the Reorganization and the Merger, certain of Cryovac's employees
participated in stock incentive plans maintained by Grace. Under the terms of
those plans, options were granted at an exercise price equal to the fair market
value of Old Grace Common Stock on the date of grant, became exercisable at the
time or times determined by a committee of Grace's Board of Directors, and had
terms of up to ten years and one month. In connection with the Reorganization
and the Merger, the Company terminated those plans except with respect to
outstanding options held by Cryovac employees at the time of the Merger. Under
the Transaction Agreements, such options became options to purchase the
Company's common stock, and the number of shares covered by and exercise price
of such options were adjusted at the time of the Merger to preserve their
economic value.
Options to purchase approximately 489,000 shares of common stock were
outstanding at March 31, 1998 at an average exercise price of $37.02 per share
after giving effect to the adjustments provided for in the Transaction
Agreements. Such options are exercisable over terms extending to 2007. None of
the options outstanding following the Merger was exercised during 1998.
No options were granted to Cryovac employees during 1998. The pro forma effect
on earnings and earnings per common share of applying SFAS No. 123 for those
options granted during 1997 and 1996 to employees of Cryovac were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings ascribed to common shareholders:
As reported $ 2,873 $ 101,688 $ 27,786
Pro forma (1) 1,673 $ 100,288 $ 27,186
- -----------------------------------------------------------------------------------------
Basic earnings per common share:
As reported $ 0.04 $ 2.54 $ 0.56
Pro forma (1) 0.02 $ 2.51 $ 0.55
- -----------------------------------------------------------------------------------------
Diluted earnings per common share:
As reported $ 0.02 $ 2.39 $ 0.55
Pro forma (1) 0.00 $ 2.37 $ 0.54
=========================================================================================
</TABLE>
(1) These pro forma amounts calculated in accordance with SFAS No. 123 may not
be indicative of future net earnings or earnings per common share effects.
The fair value of option grants was estimated using the Black-Scholes option
pricing model with the following historical weighted-average assumptions:
1997 1996
- --------------------------------------------------------------------------------
Dividend yields 1% 1%
Expected volatility 29% 26%
Risk-free interest rates 6% 6%
Expected life (in years) 4 4
- --------------------------------------------------------------------------------
Based on the above assumptions, the weighted-average fair value of each option
granted was $16.00 for 1997 and $14.00 for 1996 before giving effect to
adjustments provided for in the Transaction Agreements.
NOTE 15 SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest payments, net of amounts capitalized $ 47,997 $ -- $ --
Income tax payments 80,069 74,959 79,746
</TABLE>
38
<PAGE>
The consolidated statement of cash flows for the year ended December 31, 1998
excludes the following non-cash transactions that were accounted for as changes
in additional paid-in capital:
<TABLE>
<CAPTION>
<S> <C>
Issuance of 36,021,851 shares of Series A convertible preferred stock and 40,647,815
shares of common stock in connection with the Reorganization and Recapitalization $ 1,801,093
Net assets acquired in the Merger in exchange for 42,624,246 shares of common stock 2,110,752
Liabilities assumed by the Company, net (7,363)
Liabilities retained by New Grace 51,671
</TABLE>
NOTE 16 EARNINGS PER COMMON SHARE
In calculating basic and diluted earnings per common share for 1998, 1997 and
1996, retroactive recognition has been given to the Recapitalization as if it
had occurred on January 1, 1996 in accordance with SAB No. 98. Accordingly, net
earnings have been reduced for preferred stock dividends (as if such shares had
been outstanding during each period) to arrive at earnings ascribed to common
shareholders. The weighted average number of outstanding common shares used to
calculate basic earnings per common share has been calculated on an equivalent
share basis using the weighted average number of shares of common stock
outstanding for the first quarter of 1998 and for the 1997 and 1996 periods,
adjusted to reflect the terms of the Recapitalization. The weighted average
number of common shares used to calculate diluted earnings per common share also
considers the exercise of dilutive stock options in each year and repurchased
preferred stock in 1998. Except as noted in the table below, the outstanding
preferred stock is not assumed to be converted in the calculation of diluted
earnings per common share for 1998 or 1996 because the treatment of the
preferred stock as the common stock into which it is convertible would be
anti-dilutive (i.e., would increase earnings per common share) in those years.
The following table sets forth the reconciliation of the basic and diluted
earnings per common share computations for years ended December 31, 1998, 1997
and 1996 (shares in thousands).
<TABLE>
<CAPTION>
1998 (a) 1997 (a) 1996 (a)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS:
NUMERATOR
Net earnings $ 73,007 $173,732 $ 99,830
Add: Excess of book value over repurchase price of preferred
Stock 1,798 -- --
Less: Preferred stock dividends 53,921 -- --
Less: Retroactive recognition of preferred stock dividends 18,011 72,044 72,044
- -----------------------------------------------------------------------------------------------
Earnings ascribed to common shareholders $ 2,873 $101,688 $ 27,786
===============================================================================================
DENOMINATOR
Weighted average common shares outstanding - basic 72,997 40,052 49,782
- -----------------------------------------------------------------------------------------------
Basic earnings per common share $ 0.04 $ 2.54 $ 0.56
===============================================================================================
39
<PAGE>
Diluted EPS:
NUMERATOR
Earnings ascribed to common shareholders $ 2,873 $101,688 $ 27,786
Add: Dividends associated with outstanding preferred stock -- 72,044 --
Add: Dividends associated with preferred stock repurchased 316 -- --
Less: Excess of book value over repurchase of preferred stock 1,798 -- --
- -----------------------------------------------------------------------------------------------
Earnings ascribed to common shareholders-diluted 1,391 173,732 27,786
===============================================================================================
DENOMINATOR
Weighted average common shares outstanding - basic 72,997 40,052 49,782
Effect of assumed exercise of options 118 917 812
Effect of assumed conversion of preferred stock -- 31,864 --
Weighted average of preferred stock purchased 158 -- --
- -----------------------------------------------------------------------------------------------
Weighted average common shares outstanding - diluted 73,273 72,833 50,594
- -----------------------------------------------------------------------------------------------
Diluted earnings per common share $ 0.02 $ 2.39 $ 0.55
===============================================================================================
</TABLE>
(a) Such earnings per common share amounts are not necessarily indicative of
the results that would have occurred had Cryovac been a stand-alone company
prior to the Reorganization, Recapitalization and the Merger.
NOTE 17 CERTAIN TRANSACTIONS WITH GRACE
CASH
Prior to the Merger, Cryovac used Grace's centralized cash management services.
Under such service arrangements, excess domestic cash was invested, and
disbursements were funded, centrally by Grace on behalf of Cryovac.
SHARED SERVICES AND FACILITIES
Prior to the Merger, Grace allocated a portion of its domestic and overseas
regional corporate expenses to Cryovac. These expenses reflected corporate
overhead; benefit administration; risk management/insurance administration; tax
and treasury/cash management services; environmental services; litigation
administration services; general legal services, including intellectual
property; and other support and executive functions. Allocations and charges
were based on either a direct cost pass-through or a percentage allocation for
services provided, based on factors such as net sales, management effort or
headcount.
Domestic corporate expenses of Grace allocated to Cryovac in accordance with SAB
No. 55 totaled $18,044, $28,213 and $15,175 for 1998, 1997 and 1996,
respectively, and were included in marketing, administrative and development
expenses.
Domestic research and development expenses of Grace allocated to Cryovac in
accordance with SAB No. 55 totaled $5,074 for 1996 and are included in
marketing, administrative and development expenses. No amounts were allocated
for 1998 or 1997.
Grace management believed that the basis used for allocating corporate services
was reasonable and that the terms of these transactions would not materially
differ from those among unrelated parties.
The statements of earnings for periods prior to the Merger also included
allocations of costs for general and administrative services and maintenance
services for facilities that Cryovac shared with other Grace businesses as well
as data processing services provided by Grace's European central data processing
facility. The allocated costs and expenses related to general and administrative
functions, maintenance, data processing and other facility support functions
were estimated to be approximately $14,000 for the 1998 period and $55,802 and
$84,005 for 1997 and 1996, respectively. Of these amounts, $6,181 was included
in cost of sales and $49,621 was included in marketing, administrative and
development expenses in 1997 ($15,226 and $68,779 in 1996). The cost allocations
for these services were determined based on methods that Grace management
considered to be reasonable.
Prior to the Merger, Grace also charged Cryovac for its share of domestic
workers' compensation, automobile and other general business liability insurance
premiums and claims, which were all handled by Grace on a corporate basis. These
charges were based on Cryovac's actual and expected future experience, including
annual payroll expense, and were not significant to Cryovac results of
operations.
40
<PAGE>
ALLOCATION OF LONG-TERM INCENTIVE PROGRAM EXPENSE
In accordance with SAB No. 55, the financial statements for 1997 and 1996
reflect an allocation of LTIP expense related to Grace corporate employees that
performed services on behalf of Cryovac. The provision included in the financial
statements for allocated LTIP expenses was $23,710 and $9,293 for 1997 and 1996,
respectively.
NOTE 18 COMMITMENTS AND CONTINGENCIES
The Company is obligated under the terms of various leases covering many of the
facilities that it occupies. The Company accounts for substantially all of its
leases as operating leases. Net rental expense was $20,873, $9,588, and $12,036
for 1998, 1997 and 1996, respectively. Estimated future minimum annual rental
commitments under non-cancelable real property leases expiring through 2023 are
as follows: 1999 - $19,686; 2000 - $16,767; 2001 - $12,481; 2002 - $8,369; 2003
- - $6,574; and subsequent years - $15,557.
The Company's worldwide operations are subject to environmental laws and
regulations which, among other things, impose limitations on the discharge of
pollutants into the air and water and establish standards for the treatment,
storage and disposal of solid and hazardous wastes. The Company reviews the
effects of environmental laws and regulations on its operations and believes
that it is in substantial compliance with all material applicable environmental
laws and regulations.
At December 31, 1998, the Company was a party to, or otherwise involved in,
several federal and state government environmental proceedings and private
environmental claims for the cleanup of Superfund or other sites. The Company
may have potential liability for investigation and clean up of certain of such
sites. At most of such sites, numerous companies, including either the Company
or one of its predecessor companies, have been identified as potentially
responsible parties ("PRPs") under Superfund or related laws. It is the
Company's policy to provide for environmental cleanup costs if it is probable
that a liability has been incurred and if an amount which is within the
estimated range of the costs associated with various alternative remediation
strategies is reasonably estimable, without giving effect to any possible future
insurance proceeds. As assessments and cleanups proceed, these liabilities are
reviewed periodically and adjusted as additional information becomes available.
At December 31, 1998 and 1997, such environmental related provisions were not
material. While it is often difficult to estimate potential liabilities and the
future impact of environmental matters, based upon the information currently
available to the Company and its experience in dealing with such matters, the
Company believes that its potential liability with respect to such sites is not
material to the Company's consolidated financial position. Environmental
liabilities may be paid over an extended period, and the timing of such payments
cannot be predicted with certainty.
The Company is also involved in various legal actions incidental to its
business. Company management believes, after consulting with counsel, that the
disposition of its litigation and other legal proceedings and matters, including
environmental matters, will not have a material effect on the Company's
consolidated financial position.
In connection with the Reorganization, certain environmental liabilities of
Cryovac were retained by or assumed by New Grace. As of March 31, 1998, the
Company's liability with respect to such environmental obligations retained by
New Grace, including related deferred income taxes, was reversed and accounted
for as an equity contribution to the Company from Grace.
CONTINGENT LIABILITIES INDEMNIFIED BY NEW GRACE
Pursuant to the Transaction Agreements, New Grace agreed to indemnify the
Company against all liabilities of Grace, whether accruing or occurring before
or after the Merger, other than liabilities arising from or relating to
Cryovac's operations. New Grace also agreed to retain certain liabilities of
Cryovac and to indemnify the Company against such liabilities. The Company may
remain contingently liable with respect to certain of such liabilities if New
Grace fails to fulfill its indemnity obligations to the Company. Based upon
currently available information, the Company believes that future costs related
to such indemnified liabilities will not have a material adverse effect on the
Company's results of operations or consolidated financial position.
41
<PAGE>
GUARANTEE OF NEW GRACE OUTSTANDING PUBLIC DEBT
The Company is the guarantor of certain outstanding public debt that was assumed
by New Grace pursuant to the Transaction Agreements. At December 31, 1998,
approximately $32,000 of such debt was outstanding. New Grace has indemnified
the Company against any liability arising under such guarantee pursuant to the
Transaction Agreements.
TRANSACTION AGREEMENTS
Pursuant to the Transaction Agreements final determinations and accountings are
necessary with respect to matters pertaining to the Reorganization and the
Merger. The Company believes that the final outcome of such matters will not
have a material effect on its consolidated financial position.
NOTE 19 SELECTED PRO FORMA STATEMENT OF EARNINGS INFORMATION (UNAUDITED)
The following table presents selected unaudited pro forma statement of earnings
information for the years ended December 31, 1998 and 1997 that has been
prepared as if the Reorganization, the Recapitalization and the Merger had
occurred on January 1, 1997. Such information reflects pro forma adjustments
made in combining the historical results of old Sealed Air and Cryovac as a
result of such transactions for the years presented. Such amounts include, among
other things, incremental goodwill amortization of approximately $10,300 and
$41,200 and incremental interest expense of approximately $20,400 and $81,600 in
the first quarter of 1998 and full year 1997, respectively. Such amounts exclude
a non-cash inventory charge of approximately $8 million recorded in the second
quarter of 1998 resulting from the turnover of certain of the Company's
inventories previously stepped-up to fair value in connection with the Merger.
This pro forma information is not intended to represent what the Company's
actual results of operations would have been for such years, if such
transactions had occurred on January 1, 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997
(Amounts in thousands, except for per share data) Pro Forma Pro Forma
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales by segment:
Food and Specialty Packaging $ 1,709,428 $ 1,691,978
Protective Packaging 1,010,080 982,686
- ------------------------------------------------------------------------------------------------
Net sales 2,719,508 2,674,664
Cost of sales 1,762,957 1,719,246
- ------------------------------------------------------------------------------------------------
Gross profit 956,551 955,418
Marketing, administrative and development expenses 516,269 495,685
Goodwill amortization 47,893 48,005
Restructuring and other charges, net 87,182 14,444
- ------------------------------------------------------------------------------------------------
Operating profit 305,207 397,284
Other expense, net (82,141) (89,390)
- ------------------------------------------------------------------------------------------------
Earnings before income taxes 223,066 307,894
Income taxes 141,574 123,359
- ------------------------------------------------------------------------------------------------
Net earnings $ 81,492 $ 184,535
- ------------------------------------------------------------------------------------------------
Less: Preferred stock dividends 71,932 72,044
Add: Excess of book value over repurchase price of preferred stock 1,798 --
- ------------------------------------------------------------------------------------------------
Net earnings ascribed to common shareholders $ 11,358 $ 112,491
- ------------------------------------------------------------------------------------------------
Earnings per common share (1)
Basic $ 0.14 $ 1.35
Diluted $ 0.12 $ 1.35
- ------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding:
Basic 83,478 83,272
Diluted 83,754 83,381
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) For purposes of calculating basic and diluted earnings per common share,
net earnings for 1998 and 1997 have been reduced by the dividends ($18,011
in 1998 for the first quarter and $72,044 in 1997) that would have been
payable on the preferred stock (as if such shares had been outstanding
42
<PAGE>
during such periods) to arrive at earnings ascribed to common shareholders.
The weighted average number of outstanding common shares used to calculate
basic earnings per common share is calculated on an equivalent share basis
using the shares of common stock outstanding for the first quarter of 1998
and for 1997, adjusted to reflect the terms of the Recapitalizaiton. The
assumed conversion of the preferred stock is not considered in the
calculation of diluted earnings per common share in either 1998 or 1997 as
the effect would be anti-dilutive (i.e., would increase earnings per share)
in each year.
NOTE 20 INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
(Amounts in thousands, except for per share data) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------
1998
<S> <C> <C> <C> <C>
Net sales $ 431,035 $ 670,005 $ 684,302 $ 721,414
Cost of sales 290,913 442,945 443,249 460,913
Net earnings(loss) 27,052 35,565 (54,103) 64,493
Preferred stock dividends -- 18,011 17,999 17,911
Earnings(loss) per common share - basic (2) 0.22(3) 0.21 (0.85) 0.57
Earnings(loss) per common share - diluted (2) 0.22(3) 0.21 (0.85) 0.56
1997
Net sales $ 422,693 $ 463,211 $ 461,835 $ 485,372
Cost of sales 274,629 299,528 299,699 313,253
Net earnings (1) 37,260 38,259 36,026 62,187
Earnings per common share - basic (3) 0.47 0.51 0.45 1.10
Earnings per common share - diluted (3) 0.47 0.51 0.45 0.85
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Net earnings for the first three quarters of 1997 reflect income taxes
using an estimated effective tax rate of 41.2%. Net earnings for the fourth
quarter of 1997 include an income tax benefit to adjust Cryovac's full-year
effective tax rate to 34.1 %.
(2) Because of the effects of the Recapitalization and the Merger, the sum of
the four quarters earnings per common share amounts do not necessarily
equal the amounts reported for the full year.
(3) Such earnings per common share are not necessarily indicative of the
results that would have occurred had Cryovac been a stand-alone company
prior to the Reorganization, Recapitalization and the Merger.
43
<PAGE>
KPMG LLP
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Sealed Air Corporation
We have audited the accompanying consolidated balance sheet of Sealed Air
Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of earnings, equity, comprehensive income, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sealed Air
Corporation and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s. KPMG LLP
KPMG LLP
Short Hills, New Jersey
January 27, 1999
<PAGE>
PRICEWATERHOUSECOOPERS LLP
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
February 23, 1998
To the Board of Directors and Shareholders of
Sealed Air Corporation
We have audited the accompanying consolidated balance sheet of Sealed Air
Corporation (the "Company") as of December 31, 1997, and the related
consolidated statements of earnings, of comprehensive income, of equity and of
cash flows for each of the two years in the period ended December 31, 1997.
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 audits. We have not audited the consolidated financial statements of
Sealed Air Corporation for any period subsequent to December 31,1997.
We conducted our audits 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 presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying financial statements were prepared on the basis of presentation
described in Note 1, and are not intended to be a complete presentation of the
consolidated assets, liabilities, revenues and expenses of the Company. Also as
described in Note 1, the Company completed a reorganization, recapitalization
and merger on March 31, 1998. The accompanying financial statements for the 1997
and 1996 periods do not reflect the effects of such transactions.
As disclosed in Note 17, the Company has engaged in various transactions and
relationships with affiliated entities. The terms of these transactions may
differ from those that would result from transactions among unrelated parties.
In our opinion, the accompanying financial statements audited by us present
fairly, in all material respects, the financial position of the Company as of
December 31, 1997, and its earnings and cash flows for each of the two years in
the period ended December 31, 1997 pursuant to the basis of presentation
described in Note 1, in conformity with generally accepted accounting
principles.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
<PAGE>
Capital Stock Information
In connection with the Cryovac merger, the Company issued its Common Stock, par
value $0.10 per share, on March 31, 1998. The Company's Common Stock is listed
on the New York Stock Exchange (trading symbol: SEE). The adjacent table sets
forth the high and low sales prices of the Common Stock for each quarter
beginning April 1, 1998 through December 31, 1998. The adjacent table also sets
forth the high and low sales prices of the Common Stock of old Sealed Air before
the Cryovac transaction for each quarter from January 1, 1997 through March 31,
1998. No dividends were paid on Sealed Air's common stock in 1997 or 1998. The
Company does not currently intend to begin paying dividends on its Common Stock.
As of March 8, 1999, there were approximately 10,429 holders of record of the
Company's Common Stock.
In connection with the Cryovac merger, the Company issued its Series A
Convertible Preferred Stock on March 31, 1998, which is also listed on the New
York Stock Exchange (trading symbol: SEE PrA). The adjacent table sets forth the
high and low sales prices for Sealed Air's Preferred Stock for each quarter
beginning April 1, 1998 through December 31, 1998. Quarterly dividends of $0.50
per share payable as declared on the Preferred Stock commenced on July 1, 998.
As of March 8, 1999, there were approximately 8,815 holders of record of the
Preferred Stock.
COMMON STOCK
1997 High Low
First Quarter $ 48 $ 39-3/4
Second Quarter $ 49-5/8 $ 41-1/4
Third Quarter $ 55-3/8 $ 45-15/16
Fourth Quarter $ 63 $ 49-3/4
- --------------------------------------------------------------------------------
1998 High Low
First Quarter $ 70 $ 55-3/16
Second Quarter $ 66-1/2 $ 36-1/16
Third Quarter $ 44-3/8 $ 31-9/16
Fourth Quarter $ 51-13/16 $ 27-3/8
- --------------------------------------------------------------------------------
PREFERRED STOCK
1998 High Low
Second Quarter $ 63-1/4 $ 41-1/2
Third Quarter $ 46-5/8 $ 35-7/8
Fourth Quarter $ 51-7/8 $ 31-7/16
- --------------------------------------------------------------------------------
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
The following table sets forth the name and state or other jurisdiction
of incorporation of the Company's subsidiaries. Except as otherwise indicated,
each subsidiary is wholly-owned, directly or indirectly, by the Company and does
business under its corporate name.
Anpak Limited England
Creative Packaging Corporation* Japan
Cryovac Africa (Pty) Limited South Africa
Cryovac AG Switzerland
Cryovac AS Norway
Cryovac Australia Pty. Ltd. Australia
Cryovac Belgium N.V. Belgium
Cryovac Brazil Holdings Ltda. Brazil
Cryovac Brazil Ltda. Brazil
Cryovac B.V. Netherlands
Cryovac Central America, S.A. Guatemala
Cryovac Chile Holdings, LLC. Delaware
Cryovac Chile Industrial Ltda. Chile
Cryovac China Holdings I, Inc. China
Cryovac Far East Holdings, LLC. Delaware
Cryovac (Gaoming) Co., Ltd.** China
Cryovac Holdings, LLC Delaware
Cryovac Holdings, S.A. de C.V. Mexico
Cryovac, Inc. Delaware
Cryovac India Private Limited India
Cryovac International Holdings, Inc. Delaware
Cryovac (Ireland) Limited Ireland
Cryovac Japan K.K. Japan
Cryovac Korea Inc. Korea
Cryovac (Malaysia) Sdn Bhd Malaysia
Cryovac Multiflex GmbH Germany
Cryovac New Zealand Limited New Zealand
Cryovac Oy Finland
Cryovac Packaging Portugal Portugal
Embalagens, Lda.
Cryovac Packaging Spain S.L. Spain
Cryovac (Philippines) Inc. Philippines
Cryovac Poland Holdings, Inc. Delaware
Cryovac Poland Sp. z.o.o. Poland
Cryovac Rigid Packaging Pty. Ltd. Australia
Cryovac (Singapore) Pte. Ltd. Singapore
Cryovac S.p.A. Italy
Cryovac Sweden AB Sweden
Cryovac Systems Hong Kong Limited Hong Kong
Cryovac (Thailand) Limited Thailand
Cryovac UK Limited England
Cryovac Verpackungen GmbH Germany
Danco (NZ) Limited*** New Zealand
Limited Liability Company "Sealed Russia
Air"
L'Imballaggio S.r.l. Italy
Omni Supply Inc.** North Carolina
PolyMask Corporation* Delaware
Polypride, Inc. Delaware
Sealed Air Argentina S.A. Argentina
Sealed Air Australia Pty. Limited Queensland, Australia
Sealed Air Brasil Ltda. Brazil
Sealed Air B.V. Netherlands
Sealed Air (Canada) Inc. Ontario, Canada
Sealed Air Colombia Ltda. Colombia
Sealed Air Corporation (US) Delaware
Sealed Air Denmark A/S Denmark
Sealed Air Espana, S.A. Spain
Sealed Air (FPD) Limited England
Sealed Air (Gaoming) Packaging China
Co., Ltd.
<PAGE>
Sealed Air GmbH Germany
Sealed Air (Hong Kong) Limited Hong Kong
Sealed Air Hungary Ltd. Hungary
Sealed Air Japan Limited Nevada
Sealed Air (Korea) Limited Korea
Sealed Air Limited England
Sealed Air (Malaysia) Sdn. Bhd. Malaysia
Sealed Air de Mexico, S.A. de C.V. Mexico
Sealed Air Norge AS Norway
Sealed Air N.V. Belgium
Sealed Air (NZ) Limited New Zealand
Sealed Air Oy Finland
Sealed Air Packaging S.A. France
Sealed Air Packaging (Shanghai) Co., Ltd. China
Sealed Air Peru S.R.L. Peru
Sealed Air (Philippines) Inc. Philippines
Sealed Air Polska Sp. z.o.o. Poland
Sealed Air S.A.** France
Sealed Air (Singapore) Pte. Limited Singapore
Sealed Air S.p.A. Italy
Sealed Air s.r.o Czech Republic
Sealed Air Svenska AB Sweden
Sealed Air Taiwan Limited Taiwan
Sealed Air Thailand Limited Thailand
Sealed Air Trucking, Inc. Delaware
Sealed Air Uruguay S.A. Uruguay
Sealed Air de Venezuela, S.A. Venezuela
Tepak S.p.A. Italy
ZAO Cryovac Kaustik Russia
- ----------
* The Company directly or indirectly owns 50% of the outstanding shares.
** The Company directly or indirectly owns a majority of the outstanding
shares.
*** Does business as Sealed Air (New Zealand) Packaging Products Division.
Certain subsidiaries are omitted from the above table. Such
subsidiaries, if considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary as of December 31, 1998
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Sealed Air Corporation:
We consent to incorporation by reference in Registration Statements on Form S-8
(Nos. 333-50603, 333-59197, and 333-59195) of Sealed Air Corporation of our
reports dated January 27, 1999, relating to the consolidated balance sheet of
Sealed Air Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of earnings, equity, comprehensive income, and cash
flows for the year then ended, and the related schedule, which reports appear in
or are incorporated by reference in this Annual Report on Form 10-K.
KPMG LLP
s/KPMG LLP
Short Hills, New Jersey
March 29, 1999
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in Registration Statements
on Form S-8 (Nos. 333-50603, 333-59197, and 333-59195) of Sealed Air Corporation
of our report dated February 23, 1998 contained in the Annual Report to
Shareholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, contained in this Annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
s/PRICEWATERHOUSECOOPERS LLP
Ft. Lauderdale, Florida
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the
consolidated statement of earnings for the twelve months ended December 31, 1998
and the consolidated balance sheet at December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001012100
<NAME> SEALED AIR CORPORATION
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 44,986,000
<SECURITIES> 0
<RECEIVABLES> 453,124,000
<ALLOWANCES> 17,945,000
<INVENTORY> 275,312,000
<CURRENT-ASSETS> 844,614,000
<PP&E> 1,116,582,000
<DEPRECIATION> 829,513,000
<TOTAL-ASSETS> 4,039,930,000
<CURRENT-LIABILITIES> 534,990,000
<BONDS> 0
1,791,093,000
0
<COMMON> 8,380,000
<OTHER-SE> 428,665,000
<TOTAL-LIABILITY-AND-EQUITY> 4,039,930,000
<SALES> 2,506,756,000
<TOTAL-REVENUES> 2,506,756,000
<CGS> 1,638,020,000
<TOTAL-COSTS> 1,638,020,000
<OTHER-EXPENSES> 609,404,000
<LOSS-PROVISION> 11,300,000
<INTEREST-EXPENSE> 53,629,000
<INCOME-PRETAX> 198,947,000
<INCOME-TAX> 125,940,000
<INCOME-CONTINUING> 73,007,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,007,000
<EPS-PRIMARY> .04
<EPS-DILUTED> .02
</TABLE>
