SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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 1-7834
SEALED AIR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-1682767
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification Number)
Park 80 East 07662-5291
Saddle Brook, New Jersey (Zip Code)
(Address of Principal
Executive Offices)
Registrant's telephone number, including area code (201) 791-7600
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
There were 19,901,755 shares of the registrant's common stock, par
value $0.01 per share, outstanding as of April 28, 1994.
<TABLE>
PART I
FINANCIAL INFORMATION
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Three Months Ended March 31, 1994 and 1993
(In thousands of dollars except per share data)
(Unaudited)
<CAPTION>
1994 1993
<S> <C> <C>
Net sales $117,461 $109,146
Cost of sales 73,003 68,039
Gross profit 44,458 41,107
Marketing, administrative and
development expenses 24,936 23,014
Operating profit 19,522 18,093
Other income (expense):
Interest income 182 106
Interest expense (6,196) (7,473)
Other, net (928) 92
Other income (expense), net (6,942) (7,275)
Earnings before income taxes 12,580 10,818
Income taxes 5,032 4,760
Earnings before cumulative
effect of accounting change 7,548 6,058
Cumulative effect of
accounting change - 1,459
Net earnings $ 7,548 $ 7,517
Earnings per share before cumulative
effect of accounting change $ .38 $ .31
Earnings per share from cumulative
effect of accounting change - .08
Earnings per common share $ .38 $ .39
Weighted average number of
shares outstanding (000) 19,899 19,381
See accompanying notes to consolidated financial statements.
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<TABLE>
SEALED AIR CORPORATION
Consolidated Balance Sheets
March 31, 1994 and December 31, 1993
(In thousands of dollars except share data)
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,219 $ 19,392
Accounts receivable, less allowance for
doubtful accounts of $2,888 in 1994 and
$2,675 in 1993 73,222 66,966
Other receivables 2,769 2,598
Inventories 32,386 32,035
Prepaid expenses 1,414 1,278
Deferred taxes 5,795 5,892
Total current assets 126,805 128,161
Property and equipment:
Land and buildings 60,819 58,658
Machinery and equipment 122,610 121,782
Leasehold improvements 4,207 4,202
Furniture and fixtures 10,329 10,180
Construction in progress 9,517 7,386
207,482 202,208
Less accumulated depreciation and amortization 85,293 81,458
Property and equipment, net 122,189 120,750
Patents, patent applications and rights, less
accumulated amortization of $10,684 in 1994
$10,357 in 1993 8,022 8,348
Excess of cost over fair value of net assets
acquired, less accumulated amortization of
$4,147 in 1994 and $3,988 in 1993 8,122 8,190
Deferred financing and other costs, less
accumulated amortization of $16,446 in 1994
and $16,262 in 1993 1,427 1,611
Other assets 11,674 12,758
$278,239 $279,818
See accompanying notes to consolidated financial statements.
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<TABLE>
SEALED AIR CORPORATION
Consolidated Balance Sheets
March 31, 1994 and December 31, 1993 (Continued)
(In thousands of dollars except share data)
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable and current
installments of long-term debt $ 18,336 $ 15,618
Accounts payable 23,517 22,908
Accrued interest 5,691 11,127
Other accrued liabilities 27,407 33,640
Income taxes payable 15,517 11,040
Total current liabilities 90,468 94,333
Long-term debt, less current
installments 181,197 190,058
Deferred income taxes 15,393 14,960
Other non-current liabilities 9,842 9,886
Total liabilities 296,900 309,237
Shareholders' equity (deficit):
Common stock, $.01 par value. Authorized
35,000,000 shares, issued 20,021,061 shares
in 1994 and 19,924,661 shares in 1993 200 199
Additional paid-in capital 111,258 108,361
Retained earnings (deficit) (130,128) (137,676)
Accumulated translation adjustment 5,156 5,063
(13,514) (24,053)
Less deferred compensation and cost ($246
in 1994 and $245 in 1993) of 119,806 shares
in 1994 and 119,306 shares in 1993 of
common stock held as treasury stock 5,147 5,366
Shareholders' equity (deficit) (18,661) (29,419)
$278,239 $279,818
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements (abbreviated) of Cash Flows
For the Three Months Ended March 31, 1994 and 1993
(In thousands of dollars)
(Unaudited)
<CAPTION>
1994 1993
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 7,548 $ 7,517
Adjustments to net earnings to reconcile to
net cash provided by operating activities:
Cumulative adjustment for effect of accounting
change - (1,459)
Depreciation and amortization 6,126 6,085
Deferred credits - income taxes and other (44) (410)
Net losses on disposals of fixed assets 58 35
Other, net 817 (200)
Cash provided (used) by changes in:
Receivables (6,427) (1,288)
Inventories (351) (662)
Prepaid expenses (136) (373)
Accounts payable 609 (1,224)
Accrued interest (5,436) (5,337)
Other accrued liabilities (4,097) (4,425)
Income taxes payable 4,477 3,508
Net cash provided by operating activities 3,144 1,767
Cash Flows From Investing Activities:
Capital expenditures for property and equipment (4,834) (6,763)
Proceeds from sales of property and equipment 19 4
Net cash used in investing activities (4,815) (6,759)
Cash Flows From Financing Activities:
Proceeds from long-term debt 1,324 4,074
Payments of long-term debt (17,730) (16,397)
Net proceeds on notes payable 9,834 647
Net cash used in financing activities (6,572) (11,676)
Effect of exchange rate changes on cash and cash
equivalents 70 (147)
Cash and Cash Equivalents:
Decrease during the period (8,173) (16,815)
Balance, beginning of period 19,392 26,042
Balance, end of period $ 11,219 $ 9,227
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 11,448 $ 12,027
Income taxes $ 555 $ 1,252
See accompanying notes to consolidated financial statements.
</TABLE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1994 and 1993
(Unaudited)
(1) Principles of Consolidation
The consolidated financial statements include the accounts of Sealed
Air Corporation and its subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated in
consolidation. In management's opinion, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of
the results of operations for the three months ended March 31, 1994
have been made.
Where appropriate, financial statement amounts for prior periods have
been reclassified to conform with their 1994 presentation.
(2) Income Taxes
Effective January 1, 1993 the Company adopted Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes" ("FAS
109"). The cumulative effect of this change at January 1, 1993 was a
reduction to the net deferred tax liability and a corresponding credit
to earnings of $1,459,000, or $0.08 per share. Adoption of FAS 109 has
not had a material impact on the Company's effective tax rate in
subsequent periods.
An explanation of the difference between the effective income tax rate
and statutory U.S. federal income tax rate expressed as a percentage of
earnings before income taxes for the three months ended March 31, 1994
and 1993 follows:
1994 1993
Statutory U.S. federal income tax rate 35.0% 34.0%
Provision for foreign withholding taxes and
additional U.S. taxes on the accumulated
earnings of foreign subsidiaries 1.9 1.4
Tax effect of U.S. expenses not subject to
tax benefit 0.5 1.7
State income taxes, net of U.S. federal
income tax benefit 4.0 3.1
Taxes on foreign earnings at other than the
statutory U.S. federal income tax rate (1.9) 1.8
Other miscellaneous items 0.5 2.0
Effective income tax rate 40.0% 44.0%
(3) Other Matters
In 1992 and 1993, the FASB issued Statement No. 112, "Employers'
Accounting for Post- employment Benefits", and Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities",
which are effective for fiscal years beginning after December 15, 1993.
Adoption of such financial accounting statements did not have a
material effect on the Company's consolidated financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
The Company's net sales increased 8% in the first quarter of 1994
compared with the first quarter of 1993 primarily due to increased unit
volume of the Company's major classes of products and, to a lesser
extent, the added sales of Shurtuff(R) durable mailers, a product line
that the Company acquired in August, 1993. This increase in net sales
was partially offset by lower average selling prices for certain
products and, to a lesser extent, the modestly unfavorable effect of
foreign currency translation.
Net sales from domestic operations increased 8% in the first quarter of
1994 compared with the 1993 period primarily due to increases in unit
volume of Instapak(R) products, air cellular products and the added
sales of Shurtuff(R) durable mailer products, partially offset by lower
average selling prices in certain product lines. Net sales from
foreign operations increased approximately 7% in the first quarter of
1994 primarily due to increases in unit volume in each major class of
products partially offset by lower average selling prices for certain
products.
Reflecting these factors, net sales of engineered products, primarily
Instapak(R) products and thick polyethylene foams, increased 7% in the
first quarter of 1994 compared with the 1993 period primarily due to
increased unit volume of Instapak(R) products, Korrvu(R) suspension
packaging and, to a lesser extent, thick polyethylene foams. Net sales
of surface protection and other cushioning products, primarily air
cellular products, other polyethylene foam products and mailers,
increased 9% in the first quarter of 1994 compared with the first
quarter of 1993 due primarily to increased unit volume and, to a lesser
extent, the added sales of Shurtuff(R) durable mailers, partially
offset by lower average selling prices for certain products. Net sales
of food packaging products increased 7% in the first quarter of 1994
compared with the 1993 period due primarily to increased unit volume
partially offset by lower average selling prices.
Cost of sales increased 7% in the first quarter of 1994 compared with
the first quarter of 1993, and marketing, administrative and
development expenses increased 8% in the first quarter of 1994 compared
with the first quarter of 1993, primarily due in each case to the
higher level of net sales. As a percentage of net sales, each of cost
of sales and marketing, administrative and development expenses
remained substantially unchanged in the first quarter of 1994 compared
with the 1993 period.
Operating profit increased 8% primarily reflecting the Company's higher
net sales.
Interest expense, which is the principal component of other expense,
net, decreased to $6,196,000 in the first quarter of 1994 compared to
$7,473,000 in the 1993 period primarily due to lower average
outstanding borrowings in the 1994 period.
The Company's effective income tax rate decreased to 40.0% in the first
quarter of 1994 from 44.0% for the first quarter of 1993 primarily
reflecting lower tax provisions required, including primarily a lower
foreign tax component of total income tax expense.
Excluding the cumulative effect of the Company's adoption in 1993 of
Financial Accounting Standard No. 109 ("FAS 109") discussed below,
earnings increased 25% to $7,548,000 in the first quarter of 1994
compared with $6,058,000 for the first quarter of 1993, and earnings
per share increased to $0.38 for the first quarter of 1994 compared
with $0.31 for the first quarter of 1993.
Change in Accounting for Income Taxes
The Company implemented FAS 109, "Accounting for Income Taxes", as of
January 1, 1993. As a result, the Company adjusted its deferred tax
assets and liabilities to conform with current enacted tax rates and
made certain other adjustments required by FAS 109. The cumulative
effect of this accounting change resulted in a credit to earnings of
$1,459,000, or $0.08 per share, in the first quarter of 1993. Adoption
of FAS 109 has not had a material impact on the Company's effective tax
rate in subsequent periods.
Liquidity and Capital Resources
Long-term debt, less current installments declined to $181,197,000 at
March 31, 1994 from $190,058,000 at December 31, 1993 due primarily to
the repayment of the remaining balance outstanding under a senior
secured credit agreement with Bankers Trust Company, as agent for a
syndicate of banks (as amended, the "1989 Credit Agreement"). In March
1994, the Company refinanced the remaining balance under the 1989
Credit Agreement out of working capital and a $7,000,000 drawing under
a $35,000,000 unsecured revolving credit agreement entered into with
United Jersey Bank (the "UJB Credit Agreement"), which revolving credit
agreement provides for the payment of interest at rates lower than
those provided for in the 1989 Credit Agreement. Notes payable and
current installments of long-term debt increased to $18,336,000 at
March 31, 1994 from $15,618,000 at December 31, 1993 primarily due to
borrowings under the UJB Credit Agreement.
At March 31, 1994, the Company's long-term debt consisted primarily of
$170,000,000 of 12-5/8% Senior Subordinated Notes due July 1, 1999 (the
"Senior Subordinated Notes") as well as $11,197,000 of other long-term
borrowings. Including the UJB Credit Agreement, as of March 31, 1994,
the Company's available lines of credit amounted to approximately
$58,200,000 of which approximately $42,800,000 were unused. Such lines
of credit permit the Company and certain of its subsidiaries to make
borrowings for working capital and other corporate purposes.
The Company's obligations under the UJB Credit Agreement and certain
other loans and other lines of credit bear interest at floating rates.
The UJB Credit Agreement provides for changes in interest rate margins
based on certain financial criteria and imposes certain limitations on
the operations of the Company as well as certain financial covenants
including requirements as to interest coverage, current ratio and
adjusted net worth. The Company was in compliance with these
requirements as of March 31, 1994.
Interest on the Senior Subordinated Notes is payable each January 1 and
July 1, and such Notes mature on July 1, 1999. The Company has the
right to redeem the Senior Subordinated Notes in whole or in part at
any time at a premium that scales down to 100% of their principal
amount at July 1, 1997, and beginning July 1, 1994 the Company may
refinance such Notes at the applicable premium from the proceeds of
monies borrowed having a lower effective interest cost. For the twelve
month period that begins on July 1, 1994, such premium is 104.734% of
the principal amount of such notes. The Senior Subordinated Notes
impose certain limitations on the operations of the Company and its
subsidiaries that include restrictions on the incurrence of additional
indebtedness, the creation of liens, the making of investments,
dispositions of property or assets, certain transactions with
affiliates, and the payment by the Company of cash dividends to its
stockholders.
On April 21, 1994, the Company's Board of Directors authorized the
Company's management to pursue the refinancing of the Senior
Subordinated Notes out of the proceeds of borrowings under a new bank
credit facility and a new issue of senior subordinated notes, both of
which the Company is in the process of negotiating. Subject to the
successful completion of these negotiations and financial market
conditions, the Company expects to redeem the Senior Subordinated Notes
during the second half of 1994. The Company expects that the
refinancing of the Senior Subordinated Notes will result in an after-
tax extraordinary charge to earnings at or prior to the date in which
the refinancing occurs of approximately $5.8 million arising primarily
from the call premium on the Senior Subordinated Notes. The Company
expects the refinancing of the Senior Subordinated Notes to reduce the
Company's future interest costs and to provide the Company with
increased operating and financial flexibility.
The Company expects that the payment of principal and interest on its
indebtedness will remain a significant use of the Company's funds for
the foreseeable future. The Company also expects to continue to make
the principal and interest payments on its outstanding indebtedness as
well as to meet its working capital and capital expenditure
requirements with funds provided by operations and borrowings under its
available lines of credit. By its terms, the UJB Credit Agreement will
terminate upon the refinancing of the Senior Subordinated Notes. The
Company expects that such credit agreement will be replaced by the new
bank credit facility that the Company is negotiating.
The ability of the Company to make payments of principal and interest
on its indebtedness, and to comply with the financial covenants
(discussed above) to which it is subject, or to which it may become
subject in connection with refinancing of the Senior Subordinated
Notes, is and will be dependent on the Company's future performance and
business growth, which are subject to financial, economic, competitive
and other factors affecting the Company, many of which may be beyond
the Company's control.
The Company's deficit in shareholders' equity, which resulted from the
payment of a special cash dividend of $40 per share to the Company's
stockholders in 1989 ($20 per share after giving effect to a two-for-
one stock split distributed in September 1992) and financing
transactions related to the payment of that dividend, declined to
$18,661,000 at March 31, 1994 from $29,419,000 at December 31, 1993
primarily as a result of the Company's net earnings for the first
quarter of 1994 and the value of shares of common stock issued in such
quarter for non-cash compensation.
Cash flows from operating activities increased to $3,144,000 in the
first quarter of 1994 compared with $1,767,000 for the 1993 period
primarily due to the absence in the 1994 period of the cumulative
adjustment to earnings made in the 1993 period to reflect the adoption
of FAS 109, partially offset by changes in operating assets and
liabilities.
Cash flows used in investing activities were $4,815,000 in the first
quarter of 1994 compared with $6,759,000 for the 1993 period. Such
cash was used primarily to fund capital expenditures. The fluctuation
between periods was primarily due to the timing of capital
expenditures.
Cash flows used in financing activities were $6,572,000 in the first
quarter of 1994, compared with $11,676,000 in the 1993 period. In each
period, such cash was used primarily to prepay long-term debt. The
lower amount of such cash used in financing activities in the first
quarter of 1994 primarily reflects the effect of borrowings under the
UJB Credit Agreement.
At March 31, 1994 the Company had working capital of $36,337,000 or 13%
of total assets compared with working capital of $33,828,000 or 12% of
total assets at December 31, 1993. The increase in working capital was
primarily due to an increase in accounts receivable and a decrease in
accrued interest and other accrued liabilities. Accounts receivable
increased in the first three months of 1994 primarily due to increased
net sales and the timing of customer payments. Accrued interest
decreased primarily due to the semi-annual interest payment on the
Senior Subordinated Notes that was made in January 1994. Accrued
liabilities decreased from December 31, 1993 to March 31, 1994
primarily due to the Company's contribution to its profit-sharing plan
for the year ended December 31, 1993, which was made partially in cash
and partially in newly-issued shares of the Company's common stock.
The Company's ratio of current assets to current liabilities (current
ratio) was 1.4 at both March 31, 1994 and December 31, 1993. The
Company's ratio of current assets less inventory to current liabilities
(quick ratio) was 1.0 at both March 31, 1994 and December 31, 1993.
Part II
Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the quarter ended March 31, 1994.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SEALED AIR CORPORATION
Date: May 2, 1994 By s/William V. Hickey
William V. Hickey
Senior Vice President-Finance
(Authorized Executive Officer
and Principal Financial
Officer)
