SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 07663-5291
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 19,967,212 shares of the registrant's common stock, par
value $0.01 per share, outstanding as of October 31, 1994.
<TABLE>
PART I
FINANCIAL INFORMATION
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Three Months and Nine Months Ended September 30, 1994 and 1993
(In thousands of dollars except per share data)
(Unaudited)
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales $131,121 $110,215 $375,343 $333,013
Cost of sales 83,189 68,796 235,199 207,356
Gross profit 47,932 41,419 140,144 125,657
Marketing, administrative and
development expenses 26,574 23,026 77,689 69,829
Operating profit 21,358 18,393 62,455 55,828
Other income (expense):
Interest income 254 244 859 748
Interest expense (3,649) (7,490) (16,074) (21,821)
Other, net (840) (741) (3,178) (980)
Other income (expense), net (4,235) (7,987) (18,393) (22,053)
Earnings before income taxes 17,123 10,406 44,062 33,775
Income taxes 6,814 4,579 17,536 14,861
Earnings before cumulative
effect of accounting change
and early extinguishment of
subordinated notes 10,309 5,827 26,526 18,914
Cumulative effect of accounting
change - - - 1,459
Early extinguishment of subord-
inated debt, net of taxes - - (5,576) -
Net earnings $ 10,309 $ 5,827 $ 20,950 $ 20,373
Earnings per share:
Before cumulative effect of
accounting change and early
extinguishment of
subordinated debt $ 0.52 $ 0.30 $ 1.33 $ 0.97
Cumulative effect of
accounting change - - - 0.08
Early extinguishment of
subordinated debt - - (0.28) -
Net earnings per common share $ 0.52 $ .30 $ 1.05 $ 1.05
Weighted average number of
shares outstanding (000) 19,957 19,661 19,928 19,508
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
SEALED AIR CORPORATION
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993
(In thousands of dollars except share data)
<CAPTION>
September 30, December 31,
1994 1993
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,102 $ 19,392
Accounts receivable, less allowance for
doubtful accounts of $3,329 in 1994 and
$2,675 in 1993 85,894 66,966
Other receivables 2,749 2,598
Inventories 36,233 32,035
Prepaid expenses 1,093 1,278
Deferred taxes 5,757 5,892
Total current assets 141,828 128,161
Property and equipment:
Land and buildings 63,426 58,658
Machinery and equipment 137,508 121,782
Leasehold improvements 4,847 4,202
Furniture and fixtures 9,918 10,180
Construction in progress 7,990 7,386
223,689 202,208
Less accumulated depreciation and amortization 93,180 81,458
Property and equipment, net 130,509 120,750
Patents, patent applications and rights, less
accumulated amortization of $11,498 in 1994
$10,357 in 1993 9,860 8,348
Excess of cost over fair value of net assets
acquired, less accumulated amortization of
$4,482 in 1994 and $3,988 in 1993 10,752 8,190
Deferred financing and other costs, less
accumulated amortization of $10,572 in 1994 and
$16,262 in 1993 1,006 1,611
Other assets 11,404 12,758
$305,359 $279,818
See accompanying notes to consolidated financial statements.
SEALED AIR CORPORATION
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993 (Continued)
(In thousands of dollars except share data)
September 30, December 31,
1994 1993
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable and current
installments of long-term debt $ 20,963 $ 15,618
Accounts payable 32,385 22,908
Accrued interest 1,962 11,127
Other accrued liabilities 37,088 33,640
Income taxes payable 15,218 11,040
Total current liabilities 107,616 94,333
Long-term debt, less current
installments 174,183 190,058
Deferred income taxes 15,423 14,960
Other non-current liabilities 8,786 9,886
Total liabilities 306,008 309,237
Shareholders' equity (deficit):
Common stock, $.01 par value. Authorized
35,000,000 shares, issued 20,082,018 shares
in 1994 and 19,924,661 shares in 1993 201 199
Additional paid-in capital 113,202 108,361
Retained earnings (deficit) (116,726) (137,676)
Accumulated translation adjustment 6,624 5,063
3,301 (24,053)
Less deferred compensation and cost ($246
in 1994 and 1993) of 119,306 shares
in 1994 and 1993 of common stock
held as treasury stock 3,950 5,366
Shareholders' equity (deficit) (649) (29,419)
$305,359 $279,818
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements (abbreviated) of Cash Flows
For the Nine Months Ended September 30, 1994 and 1993
(In thousands of dollars)
(Unaudited)
<CAPTION>
1994 1993
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 20,950 $20,373
Adjustments to net earnings to reconcile to
net cash provided by operating activities:
Cumulative adjustment for effect of accounting
change - (1,459)
Early extinguishment of subordinated notes 5,576 -
Depreciation and amortization 18,200 18,551
Deferred credits - income taxes and other (487) (1,031)
Net losses on disposals of fixed assets 450 50
Other, net 1,891 (501)
Cash provided (used) by changes in:
Receivables (15,876) (945)
Inventories (2,944) 1,242
Prepaid expenses 345 986
Accounts payable 7,578 96
Accrued interest (9,165) (5,770)
Other accrued liabilities 1,757 (1,683)
Income taxes payable 7,667 3,695
Net cash provided by operating activities 35,942 31,120
Cash Flows From Investing Activities:
Capital expenditures for property and equipment (14,207) (17,197)
Proceeds from sales of property and equipment 67 100
Purchase of assets of acquired business - (829)
Net cash utilized in acquisitions of subsidiaries (6,587) -
Net cash used in investing activities (20,727) (17,926)
Cash Flows From Financing Activities:
Proceeds from long-term debt 187,420 4,077
Payments of long-term debt (204,737) (36,970)
Net (payments) proceeds on notes payable 472 3,212
Subordinated debt redemption premium (8,048) -
Net cash used in financing activities (24,893) (29,681)
Effect of exchange rate changes on cash and cash
equivalents 388 (52)
Cash and Cash Equivalents:
Decrease during the period (9,290) (16,539)
Balance, beginning of period 19,392 26,042
Balance, end of period $ 10,102 $ 9,503
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 24,792 $ 25,338
Income taxes $ 13,338 $ 11,166
See accompanying notes to consolidated financial statements.
</TABLE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 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 quarter and nine months ended September 30, 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 in 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 nine months
ended September 30, 1994 and 1993 follows:
1994 1993
Statutory U.S. federal income tax rate 35.0% 35.0%
Provision for foreign withholding taxes and
additional U.S. taxes on the accumulated
earnings of foreign subsidiaries 2.1 1.5
Tax effect of U.S. expenses not subject to
tax benefit 0.3 0.5
State income taxes, net of U.S. federal
income tax benefit 4.0 4.2
Taxes on foreign earnings at other than the
statutory U.S. federal income tax rate (1.5) 0.6
Other miscellaneous items (0.1) 2.2
Effective income tax rate 39.8% 44.0%
SEALED AIR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1994 and 1993
(Unaudited)
(3) Early Redemption of Subordinated Notes
On June 8, 1994, the Company entered into a credit agreement with
Bankers Trust Company, as agent, and a syndicate of banks and
called for redemption all of its outstanding $170,000,000 12-
5/8% Senior Subordinated Notes (the "12-5/8% Notes") at a price
of 104.734% of their aggregate principal amount together with
accrued interest to the date of redemption. The 12-5/8% Notes
were redeemed on July 8, 1994 from the proceeds of a $100 million
term-loan borrowing and $78 million of revolving credit
borrowings under such credit agreement. The early redemption of
the 12-5/8% Notes resulted in an after-tax charge to earnings of
$5,576,000, or $.28 per share, in the second quarter and first
nine months of 1994, reflecting the 4.734% call premium due on
the redemption of the 12-5/8% Notes and the write-off of the
related unamortized deferred financing costs.
(4) Acquisitions
In May 1994, the Company acquired the outstanding capital stock
of Delsopak, S.A. of France and an exclusive license and option
to purchase certain patents. In July 1994, the Company acquired
the outstanding capital stock of Hereford Paper and Allied
Products Limited of England. In September 1994, the Company
acquired the outstanding capital stock of Emballasje-Teknikk A/S
of Norway. These transactions, each of which was effected in
exchange for shares of the Company's common stock and cash, were
not material to the Company's consolidated financial statements.
(5) 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.
Results of Operations
The Company's net sales increased 19% in the third quarter and
13% in the first nine months of 1994 compared with the respective
1993 periods primarily due to the factors discussed below. Net
sales from domestic operations increased 17% in the third quarter
and 12% in the first nine months of 1994 while net sales from
foreign operations increased 26% in the third quarter and 14% in
the first nine months of 1994.
Net sales of engineered products, primarily Instapak(R) products
and thick polyethylene foams, increased 21% in the third quarter
and 13% in the first nine months of 1994 primarily due to
increased unit volume of Instapak(R) products, Korrvu(R)
suspension packaging and thick polyethylene foams as well as
fabricated packaging materials produced by Delsopak S.A., a small
French company that the Company acquired in May, 1994. Net sales
of surface protection and other cushioning products, primarily
air cellular products, other polyethylene foam products and
protective and durable mailers, increased 19% in the third
quarter and 14% in the first nine months of 1994 due primarily to
increased unit volume, including the added sales of Shurtuff(R)
durable mailers, a product line that the Company acquired in
August, 1993. Net sales of food packaging products increased 16%
in the third quarter and 7% in the first nine months of 1994
primarily due to increased unit volume partially offset by lower
average selling prices for certain products and changes in
product mix. Foreign currency translation had a modestly
negative effect on the Company's operating results for the first
nine months of 1994 but contributed minimally to results for the
third quarter of 1994.
Cost of sales increased 21% in the third quarter and 13% in the
first nine months of 1994 primarily reflecting the Company's
higher level of net sales and certain higher raw material costs.
Marketing, administrative and development expenses increased 15%
in the third quarter and 11% in the first nine months of 1994,
primarily due to the higher level of net sales. As a percentage
of net sales, cost of sales increased modestly primarily due to
the effect of certain higher raw material costs in the 1994
periods while marketing, administrative and development expenses
declined modestly.
Operating profit increased 16% in the third quarter and 12% in the
first nine months of 1994 primarily reflecting the Company's
higher net sales and the effect of the changes in costs and
expenses discussed above.
Interest expense, which is the principal component of other
expense, net, decreased to $3,649,000 in the third quarter and
$16,074,000 in the first nine months of 1994 compared to
$7,490,000 in the third quarter and $21,821,000 in the first nine
months of 1993 primarily due to the refinancing, which is
discussed below, of the Company's 12-5/8% Senior Subordinated
Notes (the "12-5/8% Notes") at lower interest rates and lower
average borrowings.
The Company's effective income tax rate decreased to 39.8% in the
third quarter of 1994 from 44.0% for the third quarter of 1993
primarily reflecting lower tax provisions required, including
primarily lower taxes on foreign earnings at other than the
statutory U.S. federal income tax rate.
Net earnings for the quarter increased 77% to $10,309,000, or $.52
per share, compared with net earnings of $5,827,000, or $.30 per
share, for the third quarter of 1993. Due to the effect of a
cumulative credit to earnings in the first quarter of 1993
attributable to the implementation of a new accounting standard
relating to income taxes and an extraordinary charge to earnings
in the second quarter of 1994 attributable to the refinancing of
the 12-5/8% Notes, net earnings increased modestly in the nine-
month period. However, before giving effect to these items,
earnings increased 40% to $26,526,000, or $1.33 per share, for the
first nine months of 1994 compared with $18,914,000, or $0.97 per
share, for the first nine months of 1993.
The Company incurred an extraordinary charge to earnings of
$5,576,000, or $.28 per share, after taxes in the second quarter
of 1994 in connection with the early redemption of the 12-5/8%
Notes, which were refinanced on July 8, 1994 with the proceeds of
borrowings under the 1994 Credit Facility (as defined below).
This extraordinary charge to earnings reflects the 4.734% call
premium paid on the redemption of the 12-5/8% Notes and the
write-off of the related unamortized deferred financing costs. In
the 1993 nine-month period, net earnings were favorably impacted
by a cumulative credit adjustment to earnings of $1,459,000, or
$.08 per share, resulting from the adoption at the beginning of
1993 of Financial Accounting Standard No. 109 relating to
accounting for income taxes.
Liquidity and Capital Resources
On June 8, 1994, the Company and certain of its subsidiaries
entered into a credit agreement with Bankers Trust Company, as
agent for a syndicate of banks (the "1994 Credit Facility"), which
provides for a five-year $175 million unsecured revolving credit
facility (the "1994 Revolving Credit Facility") and an unsecured
five-year $100 million term loan facility (the "1994 Term Loan
Facility"). On such date, the Company also called for redemption
at a price of 104.734% of their aggregate principal amount all of
the outstanding 12-5/8% Notes. These Notes were redeemed on July
8, 1994 from the proceeds of a $100 million borrowing under the
1994 Term Loan Facility and a $78 million borrowing under the 1994
Revolving Credit Facility, which borrowings were made immediately
prior to such redemption date.
Under the terms of the 1994 Credit Facility, $20,000,000 aggregate
principal amount of the 1994 Term Loan Facility is repayable each
year in equal quarterly installments beginning on September 30,
1994. There is no required annual minimum paydown provision under
the 1994 Revolving Credit Facility, but the available commitment
under this Facility will be reduced by $25 million on each of June
30, 1997 and June 30, 1998. Such Facilities terminate on June 30,
1999, and all amounts outstanding there under must be repaid on or
before such date.
The Company currently intends to make principal payments due under
the 1994 Credit Facility primarily out of funds provided by
operations. Long-term debt, less current installments, declined to
$174,183,000 at September 30, 1994 from $190,058,000 at December
31, 1993 due to repayments of the Company's long term debt,
partially offset by additional borrowings in connection with
acquisitions made in 1994. Notes payable and current installments
of long-term debt increased to $20,963,000 at September 30, 1994
from $15,618,000 at December 31, 1993 primarily due to the timing
of maturities. At September 30, 1994, the Company's available
lines of credit, including the 1994 Revolving Credit Facility,
amounted to approximately $201,000,000 of which approximately
$114,000,000 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 1994 Credit Facility and
certain other loans and other lines of credit bear interest at
floating rates. The 1994 Credit Facility provides for changes in
interest rate margins based on certain financial criteria and
imposes certain limitations on the operations of the Company that
include restrictions on the incurrence of additional indebtedness,
the creation of liens, the making of investments and capital
expenditures, dispositions of property or assets, certain
transactions with affiliates, and the payment by the Company of
cash dividends to its stockholders as well as certain financial
covenants including requirements as to interest coverage and debt
leverage. The Company was in compliance with these requirements
as of September 30, 1994.
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.
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 is 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 $649,000 at September 30, 1994 from $29,419,000 at
December 31, 1993 primarily as a result of the Company's net
earnings for the first nine months of 1994 and common stock issued
in 1994 for non-cash compensation and for acquisitions.
Cash flows from operating activities increased to $35,942,000 in
the first nine months of 1994 compared with $31,120,000 for the
1993 period primarily due to the increase in earnings before the
cumulative adjustment in 1993 for the effect of the accounting
change discussed above and the charge discussed above in the
second quarter of 1994 related to the early extinguishment of the
12-5/8% Notes, and changes in operating assets and liabilities.
Cash flows used in investing activities were $20,727,000 in the
first nine months of 1994 compared with $17,926,000 for the 1993
period. Such cash was used primarily to fund capital expenditures
and acquisitions effected in the respective periods. Capital
expenditures were $14,207,000 in the first nine months of 1994
compared with $17,197,000 in the 1993 period.
Cash flows used in financing activities were $24,893,000 in the
first nine months of 1994 compared with $29,681,000 in the 1993
period. In each period, such cash was used primarily to repay
long-term debt. Such cash flows, in the 1994 period, also reflect
the refinancing of the 12-5/8% Notes.
At September 30, 1994, the Company had working capital of
$34,212,000, or 11% of total assets, compared with $33,828,000, or
12% of total assets, at December 31, 1993. The increase in
working capital was due primarily to increases in accounts
receivable and inventories and a decrease in accrued interest
which were partially offset by increases in accounts payable and
accrued liabilities attributable to the Company's level of
operations. Accounts receivable, inventories and accounts payable
increased during the first nine months of 1994 due primarily to
higher net sales and the timing of payments. Accrued interest
declined due to the lower rate of interest under the 1994 Credit
Facility and the timing of scheduled payments.
The Company's ratio of current assets to current liabilities
(current ratio) was 1.3 at September 30, 1994 and 1.4 at December
31, 1993. The Company's ratio of current assets less inventory to
current liabilities (quick ratio) was 1.0 at September 30, 1994
and December 31, 1993.
Part II
Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the quarter ended September 30, 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: November 10, 1994 By s/William V. Hickey
William V. Hickey
Senior Vice President-Finance
(Authorized Executive Officer
and Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30,1994 AND THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30,1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000088204
<NAME> SEALED AIR CORPORATION
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 10,102,000
<SECURITIES> 0
<RECEIVABLES> 89,223,000
<ALLOWANCES> 3,329,000
<INVENTORY> 36,233,000
<CURRENT-ASSETS> 141,828,000
<PP&E> 223,689,000
<DEPRECIATION> 93,180,000
<TOTAL-ASSETS> 305,359,000
<CURRENT-LIABILITIES> 107,616,000
<BONDS> 0
<COMMON> 201,000
0
0
<OTHER-SE> (850,000)
<TOTAL-LIABILITY-AND-EQUITY> 305,359,000
<SALES> 375,343,000
<TOTAL-REVENUES> 375,343,000
<CGS> 235,199,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 77,689,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,074,000
<INCOME-PRETAX> 44,062,000
<INCOME-TAX> 17,526,000
<INCOME-CONTINUING> 26,526,000
<DISCONTINUED> 0
<EXTRAORDINARY> (5,576,000)<F1>
<CHANGES> 0
<NET-INCOME> 20,950,000
<EPS-PRIMARY> 1.05<F2>
<EPS-DILUTED> 0
<FN>
<F1>Cost of the early extinguishment of the Company's 12-5/8% Subordinated Notes
Charge reflects the 4.734% call premium paid at redemption and the w/o of
related unamortized deferred financing costs. Amount is net of tax.
<F2>Earnings per share before extraordinary charge $1.33
Extraordinary charge to earnings (.28)
Net earnings per share $1.05
</FN>
</TABLE>
