SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the
fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 1-7834
SEALED AIR CORPORATION
(Exact name of registrant as specified in its charter)
State or other jurisdiction
of incorporation or organization: Delaware
I.R.S. Employer Identification Number: 22-1682767
Address of principal executive offices: Park 80 East, Saddle
Brook, New Jersey 07663-5291
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 $0.01 New York Stock Exchange
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. [X]
The aggregate market value of the registrant's Common Stock
held by non-affiliates of the registrant on March 15, 1995 was
approximately $879,466,000.
The number of outstanding shares of the registrant's Common
Stock as of March 15, 1995 was 20,969,614.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1994 Annual Report to
Stockholders are incorporated by reference into Part I and Part
II of this Annual Report on Form 10-K.
Portions of the registrant's definitive proxy statement for
its 1995 Annual Meeting of Stockholders are incorporated by
reference into Part III of this Annual Report on Form 10-K.
<PAGE>
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 herein.**
(ii) Exhibits
Exhibit Number Description
3.1 Unofficial Composite Certificate of Incorporation
of the Company as currently in effect. (Exhibit
(2)(B) to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1992,
File No. 1-7834, is incorporated herein by
reference.)**
3.2 By-Laws of the Company as currently in effect.
(Exhibit 3.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1993, File No. 1-7834, is incorporated herein by
reference.)**
4.1 Credit Agreement dated as of June 8, 1994 among
the Company, certain of its subsidiaries, various
banks and Bankers Trust Company, as agent (Exhibit
4 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1994, File
No. 1-7834, is incorporated herein by reference.)**
4.2 Consent to Credit Agreement among the Company,
certain of its subsidiaries, various financial
institutions and Bankers Trust Company, as agent,
dated as of December 7, 1994 (Exhibit 4.1 to the
Company's Current Report on Form 8-K, Date of
Report January 10, 1995, File No. 1-7834, is
incorporated herein by reference.)**
4.3 Amendment No. 1 to Credit Agreement among the
Company, certain of its subsidiaries, various
financial institutions and Bankers Trust Company,
as agent, dated as of January 3, 1995 (Exhibit 4.2
to the Company's Current Report on Form 8-K, Date
of Report January 10, 1995, File No. 1-7834, is
incorporated herein by reference.)**
10.1 Contingent Stock Plan of the Company, as amended.
(Exhibit 4(c) to the Company's Registration
Statement on Form S-8, Registration No. 33-41734,
is incorporated herein by reference.)* **
10.2 Restricted Stock Plan for Non-Employee Directors
of the Company. (Exhibit A to the Company's Proxy
Statement for the annual meeting held on May 17,
1991, File No. 1-7834, is incorporated herein by
reference.)* **
10.3 Share Purchase Agreement dated as of January 10,
1995 among Sealed Air Corporation, Trigon
Industries Limited, Sealed Air Holdings (NZ)
Limited, a wholly owned New Zealand subsidiary of
Sealed Air, James William Ferguson Foreman and
Diane Shirley Foreman (Exhibit 2 to the Company's
Current Report on Form 8-K, Date of Report January
10, 1995, File No. 1-7834, is incorporated herein
by reference.)**
13 Portions of the Company's 1994 Annual Report to
Stockholders that are incorporated by reference
into this Annual Report on Form 10-K.
21 Subsidiaries of the Company.**
23 Consent of KPMG Peat Marwick 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.
**Previously filed.
(b) REPORTS ON FORM 8-K:
The Company did not file any reports on Form 8-K during the
fiscal quarter ended December 31, 1994.
<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 Amendment No. 1 to its Annual Report on Form 10-K
to be signed on its behalf by the undersigned, thereunto
duly authorized.
SEALED AIR CORPORATION
(Registrant)
Date: May 15, 1995 By s/William V. Hickey
William V. Hickey
Executive Vice President
<TABLE>
EXHIBIT 13
Selected Financial Data
(In thousands of dollars except per share data)
<CAPTION>
1994 1993 1992 1991(1) 1990
<S> <C> <C> <C> <C> <C>
Consolidated Earnings Statement Data
Net sales by class of product:
Engineered products $208,363 $180,508 $176,541 $165,926 $160,548
Surface protection and other
cushioning products 242,864 209,909 206,447 199,800 188,108
Food packaging products 56,444 51,023 52,727 49,207 44,247
Other products 11,515 10,254 10,343 20,195 20,365
Total 519,186 451,694 446,058 435,128 413,268
Cost of sales 327,423 282,147 278,427 271,006 262,694
Marketing, administrative and
development expenses 107,854 95,434 95,441 94,642 83,130
Operating profit 83,909 74,113 72,190 69,480 67,444
Other income (expense), net (22,706) (28,652) (33,372) (38,014) (42,970
Earnings before income taxes 61,203 45,461 38,818 31,466 24,474
Income taxes 23,987 19,547 18,050 15,291 13,094
Earnings before cumulative effect of
accounting change and early
redemption of subordinated notes 37,216 25,914 20,768 16,175 11,380
Cumulative effect of accounting change(2) - 1,459 - - -
Early redemption of subordinated
notes, net of income taxes(3) (5,576) - - - -
Net earnings $ 31,640 $ 27,373 $ 20,768 $ 16,175 $ 11,380
Earnings per common share(4):
Before cumulative effect of accounting
change and early redemption of
subordinated notes $ 1.87 $ 1.32 $ 1.08 $ .88 $ .65
Cumulative effect of accounting change(2) - .08 - - -
Early redemption of subordinated notes,
net of income taxes(3) (.28) - - - -
Net earnings $ 1.59 $ 1.40 $ 1.08 $ .88 $ .65
____________________________________________________________________________________________________
Consolidated Balance Sheet Data
Working capital $ 15,767 $ 33,828 $ 29,417 $ 18,495 $ 22,320
Total assets 331,117 279,818 268,264 274,877 225,473
Long-term debt, less
current installments 155,293 190,058 225,278 253,746 259,082
Shareholders' equity (deficit) 11,012 (29,419) (66,311) (94,626) (131,558)
</TABLE>
[FN]
(1)Includes the operations of Sentinel Holdings, Inc. from the date
of its acquisition in August 1991.
(2)Reflects cumulative effect of the implementation as of January 1,
1993 of Financial Accounting Standard No. 109, "Accounting for
Income Taxes." (See notes 1 and 7 to the Consolidated Financial
Statements.)
(3)Reflects charge arising from the early redemption in July 1994 of
the Company's 12-5/8% Senior Subordinated Notes, net of applicable
income taxes. (See note 4 to the Consolidated Financial Statements.)
(4)Per common share data has been restated for periods prior to 1992
to reflect the two-for-one stock split in the nature of a 100% stock
dividend distributed on September 18, 1992 to shareholders of record
at the close of business on September 4, 1992.
Management's Discussion and Analysis of Results of Operations and
Financial Condition
On January 10, 1995, the Company acquired Trigon Industries
Limited ("Trigon"), a privately owned New Zealand manufacturer of
flexible packaging materials, for a purchase price of approximately
$57 million consisting of 882,930 newly issued shares of the
Company's common stock and $25,496,000 in cash paid primarily from
borrowings under the Company's 1994 Credit Facility discussed below.
As this acquisition occurred after December 31, 1994, the following
discussion does not reflect any of the operating results of Trigon.
On an unaudited pro forma basis, assuming that this acquisition
had occurred on January 1, 1994, the Company's net sales in 1994
would have been $591,529,000 and earnings and earnings per common
share, excluding the extraordinary after-tax charge to earnings
attributable to the refinancing of the Company's 12-5/8% senior
subordinaed Notes (the "12-5/8% Notes"), would have been $39,050,000
and $1.88, respectively. (See note 9 to the Consolidated Financial
Statements.) These pro forma results give effect to certain
adjustments and estimates and are not necessarily indicative of the
results of operations that would have occurred had the Trigon
acquisition actually taken place on January 1, 1994 or of the
Company's future operating results.
Results of Operations
Net Sales
Net sales increased 15% in 1994 compared with 1993 and 1% in
1993 compared with 1992.
The increase in net sales in 1994 resulted primarily from
increased unit volume in the Company's major classes of products
and, to a lesser extent, the additional net sales of businesses
acquired in 1994 and 1993. Higher average selling prices also
contributed modestly to the increase in net sales. Foreign currency
translation did not have a significant effect on the Company's
operating results in 1994.
The modest increase in net sales in 1993, which reflected the
worldwide recessionary business environment during 1993, resulted
primarily from increased unit volume in certain of the Company's
products and the additional sales of Shurtuff(R) durable mailers, a
product line acquired in August 1993. These higher net sales were
partially offset by the unfavorable effect of foreign currency
translation and, to a lesser extent, lower average selling prices in
certain product lines. The increase in net sales would have been
higher by approximately 3% in 1993 had foreign exchange rates for
1993 been at their 1992 levels.
Net sales from domestic operations increased 12% in 1994
compared with 1993 and 4% in 1993 compared with 1992. The increase
in 1994 resulted primarily from increases in unit volume of the
Company's major classes of products and the additional sales of
Shurtuff(R) durable mailer products. The increase in 1993 was
primarily due to increased unit volume of the Company's principal
engineered products, air cellular products and the additional sales
of Shurtuff(R) durable mailer products, which increases were
partially offset by lower net sales of food packaging products and,
to a lesser extent, other products.
Net sales from foreign operations increased 22% in 1994
compared with 1993 primarily due to increased unit volume of the
Company's major classes of products and the additional sales of
products added as a result of acquisitions that the Company made in
Europe during 1994. Net sales from foreign operations decreased 7%
in 1993 compared with 1992 primarily due to the unfavorable effect
of foreign currency translation in 1993 and lower average selling
prices in certain product lines, which more than offset higher unit
volume experienced by the Company's foreign operations in 1993.
Excluding the unfavorable effect of foreign currency translation,
net sales from foreign operations would have increased modestly in
1993.
Net sales of engineered products, which consist primarily of
Instapak(R) products and thick polyethylene foams, increased 15% in
1994 compared with 1993 and 2% in 1993 compared with 1992. The
increase in 1994 was due primarily to increased unit volume of these
products and Korrvu(R) suspension packaging as well as fabricated
packaging materials produced by Delsopak S.A., a small French
company acquired in May 1994. The 1993 increase was primarily due
to increased unit volume of thick polyethylene foams.
Net sales of surface protection and other cushioning products,
primarily air cellular products, thin polyethylene foam products and
protective and durable mailers, increased 16% in 1994 compared with
1993 and 2% in 1993 compared with 1992 primarily due to increased
unit volume of certain products, including in 1994 the additional
sales of Emballasje-Teknikk A/S, a Norwegian manufacturer of air
cellular and other protective packaging products that the Company
acquired in September 1994 and the additional sales of Shurtuff(R)
products, which also contributed to the 1993 increase.
Net sales of food packaging products, which consist primarily
of Dri-Loc(R) pads, increased 11% in 1994 compared with 1993 but
decreased 3% in 1993 compared with 1992. In each of 1994 and 1993,
this class of products experienced higher unit volume. In 1994, the
added sales of Hereford Paper and Allied Products Limited, an
English manufacturer of absorbent food pads that the Company
acquired in July 1994, also contributed to the increased sales. In
1993, changes in product mix to products with lower average selling
prices more than offset the higher 1993 unit volume.
Net sales of other products increased 12% in 1994 compared with
1993 but decreased 1% in 1993 compared with 1992.
Costs and Expenses
Cost of sales increased 16% in 1994 compared with 1993 and 1%
in 1993 compared with 1992 reflecting primarily the higher level of
net sales in each period. In 1994, the effect of certain higher raw
material costs was partially offset by certain production
efficiencies. In 1993, the effect of certain manufacturing
consolidation expenses was partially offset by certain lower raw
material costs. Cost of sales as a percentage of net sales
increased modestly in 1994, 1993 and 1992.
Marketing, administrative and development expenses increased
13% in 1994 compared with 1993 and remained substantially unchanged
in 1993 compared with 1992. The increase in 1994 reflects primarily
the Company's higher level of net sales, the added marketing,
administrative and development expenses of acquired companies, and
costs associated with integrating acquisitions completed in 1994.
Marketing, administrative and development expenses declined modestly
as a percentage of net sales each year from 1992 to 1994 primarily
reflecting certain operating efficiencies as well as certain cost
control measures.
Operating Profit
Operating profit increased 13% in 1994 compared with 1993 and
3% in 1993 compared with 1992 primarily due in each year to the
Company's higher net sales and the relative changes in the Company's
costs and expenses discussed above. Domestic operating profit
increased 12% in 1994 compared with 1993 and 10% in 1993 compared
with 1992.
Foreign operating profit increased 20% in 1994 compared with
1993 primarily due to higher net sales partially offset by changes
in certain costs and expenses. Foreign operating profit decreased
18% in 1993 compared with 1992 primarily reflecting the unfavorable
effect of foreign currency translation and the level of costs and
expenses related to sales.
Other Income (Expense)
Other income (expense) decreased to $22,706,000 in 1994
compared with $28,652,000 in 1993 and $33,372,000 in 1992. Interest
expense, which is the principal component of this item, decreased to
$19,363,000 in 1994 from $28,828,000 in 1993 and $31,080,000 in
1992. The lower amount of interest expense in each year resulted
primarily from lower average borrowings as well as, in 1994, the
refinancing of the 12-5/8% Notes at lower interest rates in July
1994.
Income Taxes
The Company's effective income tax rate was 39.2%, 43.0% and
46.5% in 1994, 1993 and 1992, respectively. The Company's effective
tax rate was higher than the statutory U.S. federal income tax rate
in each year primarily due to state income taxes, foreign
withholding taxes on the repatriation of accumulated earnings from
the Company's foreign subsidiaries and additional United States
income taxes on such accumulated foreign earnings. The Company's
effective tax rate declined to 39.2% in 1994 from 43.0% in 1993
primarily due to other lower tax provisions required, including a
lesser amount of U.S. expenses not subject to tax benefit. The
Company anticipates that its effective income tax rate in 1995 will
remain at a rate comparable to that in 1994.
As of January 1, 1993, the Company implemented Financial
Accounting Standards Board ("FASB") Statement No. 109, "Accounting
for Income Taxes" ("FAS 109"). Under FAS 109, deferred tax assets
and liabilities are established or modified based on enacted tax
laws or tax rates. For periods prior to January 1, 1993, the
Company accounted for income taxes as prescribed by Accounting
Principles Board Opinion No. 11 under which previously established
deferred tax assets and liabilities were not adjusted when tax laws
or tax rates were changed. As a result of implementing FAS 109, the
Company adjusted its deferred tax assets and liabilities in 1993 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 1993.
Early Redemption of Senior Subordinated Notes
On July 8, 1994, the Company redeemed all of the outstanding
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 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 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.
Earnings
Excluding the extraordinary charge to earnings in 1994
attributable to the refinancing of the 12-5/8% Notes and the
cumulative effect of the accounting change in 1993 related to the
implementation of FAS 109, earnings increased 44% in 1994 compared
with 1993 and 25% in 1993 compared with 1992. After giving effect
to these items, net earnings increased 16% in 1994 compared with
1993 and 32% in 1993 compared with 1992.
Liquidity and Capital Resources
On June 8, 1994, the Company and certain of its subsidiaries
entered into a credit agreement (the "1994 Credit Facility") with
Bankers Trust Company, as agent, and a syndicate of banks, 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"). The 12-5/8% Notes were redeemed on July 8, 1994 with the
proceeds of $178 million of borrowings under the 1994 Credit
Facility.
Long-term debt, less current installments declined to
$155,293,000 at December 31, 1994 from $190,058,000 at December 31,
1993 due primarily to a net reduction of outstanding long-term
indebtedness during 1994, while current installments of long-term
debt increased to $22,579,000 at December 31, 1994 from $10,061,000
at December 31, 1993 reflecting the timing of scheduled maturities.
As noted above, in connection with the Trigon acquisition, the
Company incurred $25,496,000 of additional borrowings in January
1995 primarily under the 1994 Credit Facility and also assumed
approximately $20 million of Trigon's net long-term indebtedness.
Such Trigon indebtedness is due in varying annual installments
through 2006 with fixed and variable interest rates ranging from
6.0% to 10.8%.
The 1994 Term Loan Facility is repayable at the rate of
$20,000,000 aggregate principal amount per year in equal quarterly
installments through June 30, 1999. The 1994 Revolving Credit
Facility has no required annual minimum paydown provision, but the
available commitment under such Facility will be reduced by
$25,000,000 on each of June 30, 1997 and June 30, 1998. The 1994
Credit Facility terminates on June 30, 1999, and all outstanding
loans thereunder must be repaid on or before such date.
The Company's obligations under the 1994 Credit Facility and
certain 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 December 31, 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 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 primarily with funds provided by operations
and borrowings under its available lines of credit. As of December
31, 1994, on a pro forma basis after giving effect to the Trigon
acquisition, such lines of credit amounted to approximately
$197,000,000 of which approximately $97,000,000 were unused. The
ability of the Company to make payments of principal and interest on
its indebtedness, and to comply with the financial covenants to
which it is subject in connection with such indebtedness, 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 shareholders' equity increased to $11,012,000 at
December 31, 1994 from a deficit of $29,419,000 at December 31, 1993
primarily as a result of the Company's net earnings for 1994 and the
value of shares of common stock issued for non-cash compensation and
for acquisitions. The prior deficit in shareholders' equity arose
from the payment in 1989 of a special cash dividend of approximately
$330 million.
Cash flows from operating activities were $62,941,000 in 1994,
$53,100,000 in 1993 and $46,526,000 in 1992. The increase each year
was due primarily to increased earnings partially offset by changes
in operating assets and liabilities.
Cash flows used in investing activities were $32,518,000 in
1994, $23,438,000 in 1993 and $10,147,000 in 1992. Such cash was
used primarily to fund capital expenditures and acquisitions. The
fluctuation between years was primarily due to the timing of
acquisitions and capital expenditures.
Cash flows used in financing activities were $39,097,000 in
1994, $36,206,000 in 1993 and $30,288,000 in 1992. Such activities
primarily involved, in 1994, the refinancing of the 12-5/8% Notes
and, in each year, repayment of long-term debt.
At December 31, 1994 the Company had working capital of
$15,767,000, or 5% of total assets, compared to working capital of
$33,828,000, or 12% of total assets, at December 31, 1993. The
decrease in working capital was due primarily to an increase in
current liabilities which more than offset increases in accounts
receivable and inventories and to a decrease in cash and cash
equivalents at December 31, 1994. Such changes to the Company's
operating accounts are primarily attributable to the 1994 level of
operations combined with the effect of acquisitions, the timing of
debt maturities and the refinancing of the 12-5/8% Notes.
The Company's ratio of current assets to current liabilities
(current ratio) was 1.1 at December 31, 1994 and 1.4 at December 31,
1993. The Company's ratio of current assets less inventory to
current liabilities (quick ratio) was 0.8 at December 31, 1994 and
1.0 at December 31, 1993. The decrease in the current ratio in 1994
resulted primarily from the decrease in working capital discussed
above.
Impact of Inflation
Inflation did not have a material impact on the Company's
consolidated financial statements in the 1992 to 1994 period.
Other Matters
In 1993 and 1994, 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. The adoption of such statements did not have a
material effect on the Company's consolidated financial statements.
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, 1994, the Company was a party to, or otherwise
involved in, several federal and state government environmental
proceedings or private environmental claims for the cleanup of
superfund or other sites. The Company may have potential liability
for investigation and clean-up 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, 1994 and 1993, such environmental
related provisions are not material and the Company believes that
its potential liability with respect to such sites is not material.
Environmental liabilities are paid over an extended period and the
timing of such payments cannot be predicted with certainty.
<TABLE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Years Ended December 31, 1994, 1993 and 1992
(In thousands of dollars except per share data)
<CAPTION>
1994 1993 1992
____________________________________________________________________________________
<S> <C> <C> <C>
Net sales $519,186 $451,694 $446,058
Cost of sales 327,423 282,147 278,427
Gross profit 191,763 169,547 167,631
Marketing, administrative and
development expenses 107,854 95,434 95,441
Operating profit 83,909 74,113 72,190
Other income (expense):
Interest income 1,140 1,145 1,010
Interest expense (19,363) (28,828) (31,080)
Other, net (4,483) (969) (3,302)
Other income (expense), net (22,706) (28,652) (33,372)
Earnings before income taxes 61,203 45,461 38,818
Income taxes 23,987 19,547 18,050
Earnings before cumulative effect of
accounting change and early redemption
of subordinated notes 37,216 25,914 20,768
Cumulative effect of accounting change - 1,459 -
Early redemption of subordinated notes,
net of income taxes (5,576) - -
Net earnings $ 31,640 $ 27,373 $ 20,768
Earnings per common share:
Before cumulative effect of accounting change
and early redemption of subordinated notes $ 1.87 $ 1.32 $ 1.08
Cumulative effect of accounting change - .08 -
Early redemption of subordinated notes,
net of income taxes (.28) - -
Net earnings per common share $ 1.59 $ 1.40 $ 1.08
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
(In thousands of dollars except share data)
<CAPTION>
1994 1993
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $11,153 $ 19,392
Accounts receivable, less allowance for doubtful
accounts of $3,970 in 1994 and $2,675 in 1993 91,321 66,966
Other receivables 3,866 2,598
Inventories 38,259 32,035
Prepaid expenses 1,009 1,278
Deferred income taxes 6,223 5,892
Total current assets 151,831 128,161
Property and equipment:
Land and buildings 67,226 58,658
Machinery and equipment 141,981 121,782
Leasehold improvements 5,029 4,202
Furniture and fixtures 12,224 10,180
Construction in progress 5,864 7,386
232,324 202,208
Less accumulated depreciation and amortization 96,154 81,458
Property and equipment, net 136,170 120,750
Patents and patent rights, less accumulated
amortization of $11,819 in 1994 and $10,357 in 1993 9,647 8,348
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $4,715 in 1994 and
$3,988 in 1993 19,710 8,190
Deferred financing and other costs, less accumulated
amortization of $153 in 1994 and $16,262 in 1993 931 1,611
Other assets 12,828 12,758
$331,117 $279,818
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
1994 1993
<S> <C> <C>
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Notes payable $ 7,929 $ 5,557
Current installments of long-term debt 22,579 10,061
Accounts payable 43,009 22,908
Accrued wages, salaries and related costs 20,788 17,368
Accrued interest 1,323 11,127
Other accrued liabilities 23,859 16,272
Income taxes payable 16,577 11,040
Total current liabilities 136,064 94,333
Long-term debt, less current installments 155,293 190,058
Deferred income taxes 17,215 14,960
Deferred credits and other liabilities 11,533 9,886
Total liabilities 320,105 309,237
Commitments and contingent liabilities (notes 5 and 8)
Shareholders' equity (deficit):
Preferred stock, no par value. Authorized 1,000,000
shares, none issued in 1994 and 1993 - -
Common stock, $.01 par value. Authorized: 35,000,000
shares in 1994 and 1993; Issued: 20,111,618
shares in 1994 and 19,924,661 shares in 1993 201 199
Additional paid-in capital 114,686 108,361
Retained earnings (deficit) (106,036) (137,676)
Accumulated translation adjustment 6,126 5,063
14,977 (24,053)
Less deferred compensation and cost of treasury stock 3,965 5,366
Shareholders' equity (deficit) 11,012 (29,419)
$331,117 $279,818
</TABLE>
<TABLE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity (Deficit)
Years Ended December 31, 1994, 1993 and 1992
(In thousands of dollars)
<CAPTION>
Additional Retained Accumulated
Common Paid-in Earnings Translation Deferred Treasury
Stock Capital (Deficit) Adjustment Compensation Stock
__________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $ 96 $ 88,607 $(185,817) $ 7,802 $ (5,052) $ (262)
Net earnings - - 20,768 - - -
Two-for-one stock split 96 (96) - - - -
Proceeds from awards of contingent stock, net 1 101 - - - -
Excess of fair value over proceeds from awards
of contingent stock, net - 1,218 - - (1,218) -
Amortization - - - - 2,802 -
Tax benefit in excess of amortization on
stock awards - 405 - - - -
Non-cash compensation 1 3,786 - - - -
Shares issued in acquisitions - 1,530 - - - -
Foreign currency translation - - - (1,079) - -
Balance, December 31, 1992 194 95,551 (165,049) 6,723 (3,468) (262)
Net earnings - - 27,373 - - -
Proceeds from awards of contingent stock, net 2 199 - - - -
Excess of fair value over proceeds from awards
of contingent stock, net - 4,591 - - (4,591) -
Amortization - - - - 2,929 -
Tax benefit in excess of amortization on
stock awards - 542 - - - -
Contingent stock forfeited - (10) - - 10 (1)
Non-cash compensation 1 1,807 - - - -
Shares issued in acquisitions 2 5,681 - - - 17
Foreign currency translation - - - (1,660) - -
Balance, December 31, 1993 199 108,361 (137,676) 5,063 (5,120) (246)
Net earnings - - 31,640 - - -
Proceeds from awards of contingent stock, net 1 52 - - - -
Excess of fair value over proceeds from awards
of contingent stock, net - 1,615 - - (1,615) -
Amortization - - - - 2,957 -
Tax benefit in excess of amortization on
stock awards - 664 - - - -
Contingent stock forfeited - (61) - - 61 (2)
Non-cash compensation 1 2,360 - - - -
Shares issued in acquisitions - 1,695 - - - -
Foreign currency translation - - - 1,063 - -
Balance, December 31, 1994 $ 201 $ 114,686 $(106,036) $ 6,126 $ (3,717) $ (248)
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1994, 1993 and 1992
(In thousands of dollars)
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 31,640 $ 27,373 $ 20,768
Adjustments to net earnings to reconcile to
net cash provided by operating activities:
Cumulative adjustment for effect of accounting change - (1,459) -
Early redemption of subordinated notes 5,576 - -
Depreciation and amortization of property and equipment 14,921 14,334 13,770
Other depreciation and amortization 8,599 10,210 9,837
Deferred tax provision 385 2,886 810
Net losses on disposals of property and equipment 397 408 247
Non-cash compensation 3,100 2,293 1,836
Other, net (505) (2,172) (760)
Change in operating assets and liabilities:
Receivables (17,478) (1,716) 201
Inventories (4,018) (2,466) 99
Prepaid expenses 666 (664) 1,620
Accounts payable 14,913 1,555 (515)
Accrued interest (9,810) (519) (152)
Other accrued liabilities 4,264 1,892 (3,166)
Income taxes payable 10,291 1,145 1,931
Net cash provided by operating activities 62,941 53,100 46,526
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (17,470) (22,474) (11,226)
Proceeds from joint venture - - 1,000
Proceeds from sales of property and equipment 226 203 79
Net cash utilized in purchase of subsidiaries (15,274) (1,167) -
Net cash used in investing activities (32,518) (23,438) (10,147)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 203,857 5,501 -
Principal payments on long-term debt (234,613) (43,753) (24,326)
Net (payments) proceeds on notes payable (293) 2,046 (5,962)
Subordinated debt redemption premium (8,048) - -
Net cash used in financing activities (39,097) (36,206) (30,288)
Effect of exchange rate changes on cash and cash equivalents 435 (106) (207)
CASH AND CASH EQUIVALENTS:
(Decrease) increase during the period (8,239) (6,650) 5,884
Balance, beginning of period 19,392 26,042 20,158
Balance, end of period $ 11,153 $ 19,392 $ 26,042
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 28,645 $ 26,735 $ 28,577
Income taxes $ 14,349 $ 16,058 $ 15,714
See accompanying notes to consolidated financial statements.
</TABLE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies
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. Certain of the Company's non-U.S.
subsidiaries are included in the consolidated financial statements
on a calendar year basis while the remaining non-U.S. subsidiaries
are included on the basis of a fiscal year ended November 30.
During 1994, the Company's German subsidiary, Sealed Air GmbH,
changed its fiscal year to the calendar year. During 1993, the
Company's U.K. subsidiary, Sealed Air Limited, changed its fiscal
year to the calendar year. These changes did not have a material
effect on the Company's consolidated financial statements.
Prior years' financial statement amounts have been reclassified to
conform with their 1994 presentation.
Foreign Currency
All balance sheet accounts are translated at year-end exchange
rates, and statement of earnings items are translated at applicable
month-end exchange rates. Resulting translation adjustments are
made directly to a separate component of shareholders' equity
(deficit).
Earnings before income taxes include aggregate exchange losses of
$697,000, $86,000 and $819,000 for the years ended December 31,
1994, 1993 and 1992 respectively.
Cash and Cash Equivalents
The Company's policy is to invest cash in excess of short-term
operating and debt service requirements in temporary cash
investments with original maturities of three months or less of
$7,426,000 and $4,347,000 at December 31, 1994 and 1993,
respectively. These instruments consisted of money market and
commercial paper amounts stated at cost, which approximates market
because of the short maturity of these instruments.
Financial Instruments
The Company is a party to various financial instruments with
off-balance-sheet risk. These financial instruments include
interest rate swap and cap agreements, foreign currency swap
agreements, foreign exchange contracts and foreign currency option
contracts. Such financial instruments are used to limit, fix or
offset certain interest rate or foreign currency exposures with
respect to the Company's borrowings, trade activities and
acquisitions. The Company does not purchase, hold or sell financial
instruments for trading purposes. The Company would be exposed to
credit risk in the event of non-performance by the counterparties to
such financial instruments. However, the Company seeks to minimize
such risk by entering into such transactions with counterparties who
are major financial institutions with high credit ratings.
Gains and losses on the various financial instruments are included
in the carrying amounts of those underlying assets or liabilities
for which the financial instruments were entered and are recognized
in income as part of those carrying amounts. Gains and losses
related to qualifying hedges of firm commitments or anticipated
transactions are also deferred and are recognized in income or as
adjustments of carrying amounts when the hedged transaction occurs.
Gains and losses on foreign currency contracts and options that do
not qualify as hedges are recognized as other income or expense.
Inventories
Inventories are stated at the lower of cost or market. The majority
of U.S. inventories are valued using the last-in, first-out ("LIFO")
method; other U.S. inventories, principally parts used in packaging
systems, are valued using the first-in, first-out ("FIFO") method.
Inventories of foreign operations are valued using primarily the
FIFO method. Had the FIFO method (which approximates current cost)
been used for all inventory at December 31, 1994, inventories would
have been higher by $4,848,000 ($1,158,000 and $2,280,000 in 1993
and 1992, respectively). The cost elements of work in process and
finished goods inventories are raw materials, direct labor and
manufacturing overhead. Because the cost of certain inventories is
determined on the LIFO method, it is not practicable to present
separately the components of inventories (raw materials, work in
process and finished goods).
Property and Equipment
Property and equipment are stated at acquisition cost. Property and
equipment no longer in use or surplus to the Company's needs are
carried at the lower of cost or fair value. Depreciation of
buildings and equipment is provided over the estimated useful lives
(generally periods ranging up to 40 years and 10 years,
respectively) of the related assets. Amortization of leasehold
improvements is provided over the lesser of the term of the lease
and the asset's useful life. The Company uses primarily the
straight-line method of depreciation for financial reporting
purposes and accelerated methods of depreciation for income tax
purposes.
Intangibles and Other Assets
Patents and patent rights are stated at acquisition cost.
Amortization of patents is recorded using the straight-line method
over the legal lives of the patents, generally for periods ranging
up to 17 years. The excess of cost over fair value of net assets
acquired is amortized over periods ranging up to 40 years. Other
intangible assets, including non-competition agreements, included in
other assets are amortized over the life of such agreements. The
carrying value of intangible assets is periodically reviewed by the
Company and impairments are recognized when the expected future
operating cash flows derived from such intangible assets are less
than their carrying value.
Deferred financing costs, which were incurred by the Company in
connection with various financing instruments, are capitalized and
charged to operations as additional interest expense over the life
of the underlying indebtedness using the interest method adjusted to
give effect to any early repayments.
Employee Benefit Plans
The Company has a noncontributory profit-sharing plan covering most
U.S. employees except those employees covered by collective
bargaining agreements. 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 has a
thrift and section 401(k) plan 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 the plan. Under this plan, the Company
matches 50% of each employee's contributions to a maximum Company
contribution of 3% of the employee's compensation. Forfeitures of
nonvested interests in each of these plans remain in the respective
plans for the benefit of the remaining participants. The Company
also has pension or profit-sharing plans for employees of certain
foreign subsidiaries and certain U.S. employees who are covered by
collective bargaining agreements. Company contributions to or
provisions for its profit-sharing, thrift and pension plans, net of
forfeitures, are charged to operations and amounted to $8,718,000 in
1994 ($6,734,000 and $5,870,000 in 1993 and 1992, respectively).
The Company provides various other benefit programs to active
employees including group medical, insurance and other welfare
benefits. The costs of these benefit programs are charged to
operations as incurred. Eligibility to participate in these
programs generally ceases upon retirement or other separation from
service except as required by applicable law.
Research and Development Costs
Research and development costs are charged to operations as incurred
and amounted to $10,912,000 in 1994 ($9,168,000 and $9,414,000 in
1993 and 1992, respectively).
Environmental Expenditures
Environmental expenditures that relate to ongoing business ctivities
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 revenues, are expensed.
Liabilities are recorded when the Company determines that
environmental assessments or remediations are probable and that the
costs or a range of costs to the Company associated therewith can be
reasonably estimated.
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.
As of January 1, 1993, the Company implemented FASB Statement No.
109 ("FAS 109"), "Accounting for Income Taxes," which prescribes the
liability method of accounting for income taxes. Prior to January
1, 1993, the Company accounted for income taxes as prescribed by
Accounting Principles Board Opinion No. 11 ("APB 11") under which
deferred taxes were recorded based on the current period's tax rates
and laws and were not adjusted for subsequent changes in tax rates
or laws. Under the liability method, deferred taxes are determined
based on the difference between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse.
Deferred tax assets are recorded when it is more likely than not
such tax benefits will be realized (note 7).
Earnings Per Common Share
Earnings per common share are computed on the basis of the weighted
average number of shares of common stock outstanding during the
year, including contingent stock awards and shares issued as non-
cash compensation (note 6). The weighted average number of common
shares outstanding in 1994 was 19,942,000 (19,584,000 and 19,208,000
in 1993 and 1992, respectively).
Note 2 Acquisitions
In December 1994, the Company acquired SPIC Srl, an Italian
manufacturer of air cellular and other protective packaging
products. In September 1994, the Company acquired Emballasje-
Teknikk A/S, a Norwegian manufacturer of air cellular and other
protective packaging products. In July 1994, the Company acquired
Hereford Paper and Allied Products Limited, an English manufacturer
of absorbent food pads. In May 1994, the Company acquired Delsopak
S.A., a French fabricator of polyethylene foam and other protective
packaging products, and an exclusive license and option to purchase
certain patents related to its business.
In August 1993, the Company acquired the assets of the Shurtuff
Division of Shuford Mills, Inc., a manufacturer of durable
protective mailers. In July 1993, the Company acquired the assets
of Polypride, Inc., a manufacturer of multi-web air cellular
materials. In April 1992, the Company acquired Aire Sellado S.A. de
C.V., the Mexican licensee of the Company's air cellular technology.
These transactions, each of which was effected in exchange for
shares of the Company's common stock, cash or a combination of
shares of the Company's common stock and cash, were accounted for as
purchases, and were not material to the Company's consolidated
financial statements in the years in which they were made
individually or in the aggregate.
Note 3 Geographic Areas
Sealed Air Corporation is a multinational company engaged in a
single line of business, the manufacture and sale of protective and
specialty packaging materials and systems to a diverse group of
customers. The Company's operations are conducted primarily in the
United States, Europe and other countries, including primarily
countries in North America and the Asia/Pacific region, and its
products are distributed in these areas as well as other parts of
the world. Net sales for each major geographic area include
transfers to other geographic areas. Such transfers are made at
prices intended to provide reasonable and appropriate returns to the
selling unit, and applicable eliminations have been applied to the
intergeographic transactions.
Operating profit consists of net sales less operating expenses.
Other income (expense), net and income taxes have not been added or
deducted in the computation of operating profit for each geographic
area. Corporate expenses have been allocated to the geographic
areas for whose benefit the expenses were incurred.
Identifiable assets are those assets that are used in the Company's
operations in each geographic area.
Information by Major Geographic Area:
(In thousands of dollars)
Net Operating Identifiable
Sales Profit Assets
1994
United States $385,484 $ 65,884 $196,941
Europe 107,990 13,882 125,283
Other 44,681 4,143 28,807
Eliminations (18,969) - (19,914)
Consolidated $519,186 $ 83,909 $331,117
1993
United States $341,321 $ 59,059 $192,868
Europe 87,939 12,433 77,904
Other 34,893 2,621 22,891
Eliminations (12,459) - (13,845)
Consolidated $451,694 $ 74,113 $279,818
1992
United States $327,966 $ 53,886 $186,479
Europe 100,765 15,731 75,037
Other 30,919 2,573 20,135
Eliminations (13,592) - (13,387)
Consolidated $446,058 $ 72,190 $268,264
NOTE: Net sales shown for the United States, Europe and Other
include transfers to other geographic areas as follows: United
States, 1994 --$14,850,000; 1993 --$11,130,000; 1992 --
$12,471,000; Europe, 1994 --$1,368,000; 1993 --$754,000; 1992
- --$886,000; Other, 1994 -- $2,751,000; 1993 --$575,000; 1992
- --$235,000.
Note 4 Long-Term Debt
A summary of long-term debt at December 31, 1994 and 1993 follows:
(In thousands of dollars)
<TABLE>
1994 1993
<S> <C> <C>
1994 Credit Facility $155,681 $ -
12-5/8% Senior Subordinated Notes - 170,000
Senior Secured Credit Agreement - 16,851
Other foreign loans 20,729 9,948
Other 1,462 3,320
Total 177,872 200,119
Less current installments 22,579 10,061
Long-term debt, less current installments $155,293 $190,058
</TABLE>
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 July
8, 1994, the Company redeemed at a price of 104.734% of their
aggregate principal amount all of the outstanding 12-5/8% Senior
Subordinated Notes (the "12-5/8% Notes") 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. The
early redemption of the 12-5/8% Notes resulted in a charge to
earnings of $5,576,000, or $.28 per share, after giving effect to an
income tax benefit of $3,716,000 in 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. At December
31, 1994, the Company's borrowings under the 1994 Credit Facility
consisted of $71,681,000 of indebtedness under the 1994 Revolving
Credit Facility and $84,000,000 of indebtedness under the 1994 Term
Loan Facility. The weighted average interest rate under the 1994
Credit Facility was 7.1% at December 31, 1994.
Long-term debt at December 31, 1993 consisted primarily of the 12-
5/8% Notes and indebtedness under the Company's prior senior secured
credit agreement. Such senior secured credit agreement bore
interest at floating rates with a weighted average rate of 9.2% at
December 31, 1993. The remaining principal amount outstanding under
such senior secured credit agreement was repaid during 1994.
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 through June 30, 1999. 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. The 1994 Credit Facility terminates on June 30,
1999.
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
rates 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 December
31, 1994.
Other foreign loans, certain of which are secured by foreign assets,
are due in varying annual installments through 2006 with fixed and
variable interest rates with weighted average interest rates of 9.2%
and 7.9% at December 31, 1994 and 1993, respectively.
Under the 1994 Credit Facility and other credit facilities, the
Company had available lines of credit at December 31, 1994 of
approximately $197,000,000 of which approximately $123,000,000 was
unused. The Company is not subject to any material compensating
balance requirements in connection with its lines of credit (note
9).
Scheduled annual maturities of long-term debt for the five years
subsequent to December 31, 1994 are as follows: 1995 --
$22,579,000; 1996 -- $30,964,000; 1997 --$23,888,000; 1998 --
$22,025,000 and 1999 -- $75,311,000.
Note 5 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. 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. The carrying amounts
and estimated fair values of the Company's financial instruments at
December 31, 1994 and 1993 are as follows:
(In thousands of dollars)
<TABLE>
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 11,153 $ 11,153 $ 19,392 $ 19,392
Accounts receivable, net 91,321 91,321 66,966 66,966
Other assets (derivatives) 1,086 1,484 418 418
Financial liabilities:
Accounts payable 43,009 43,009 22,908 22,908
Debt:
1994 Credit Facility 155,681 155,681 - -
12-5/8% Senior Subordinated Notes - - 170,000 183,600
Senior Secured Credit Agreement - - 16,851 16,851
Other Foreign Loans 20,729 20,733 9,948 9,728
Other 1,462 1,302 3,320 3,494
Debt (derivatives) - 156 - 1,009
</TABLE>
The carrying amounts of cash and cash equivalents, accounts
receivable, net of the allowance for doubtful accounts, and accounts
payable approximate fair value due to their short-term maturity. The
Company believes that due to the large number of customers with
which it deals and their dispersion across many different geographic
areas, concentration of credit risk with respect to accounts
receivable is limited.
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 time such estimates are
made. In the case of the 12-5/8% Notes, such estimate is based on a
published over-the-counter bid price.
The Company has limited involvement with derivative financial
instruments. The Company uses such instruments are used primarily
to manage market risks from changes in foreign exchange rates as
well as the exposure related to outstanding borrowings which are
dependent on changes in interest rates. The Company does not hold
or issue financial instruments for trading purposes.
Other assets (derivatives) in the preceding table includes foreign
currency options and forwards. Foreign currency options and
forwards are generally used by the Company to limit the risk on
anticipated international transactions and future foreign currency
commitments. At December 31, 1994, the Company was party to several
foreign currency options with an aggregate notional amount of
approximately $59 million, primarily for the purchase of New Zealand
dollars in anticipation of the Company's acquisition of Trigon
Industries Limited (see note 9). Such options have various
expiration dates up to November 1995. At December 31, 1993 the
Company was party to foreign currency options with an aggregate
notional amount of $11 million. The Company believes that its risk
of loss on such options is limited to unamortized premium paid for
such options, which amortization is not material to the Company's
financial statements. At December 31, 1994 and 1993, the Company
was not party to any material foreign currency forwards.
Debt (derivatives) in the preceding table includes interest rate and
currency swaps and interest rate caps. Interest rate and currency
swaps allow the Company to swap borrowings denominated in U.S.
dollars for borrowings denominated in foreign currencies, gaining
access to additional sources of international financing while
limiting foreign exchange risk. At December 31, 1994 and 1993, the
Company was party to several such interest rate and currency swaps
with an aggregate notional amount of approximately $22.8 million and
$16.1 million, respectively. Such swaps have various expiration
dates up to December 1995.
Interest rate caps limit exposure to rising interest rates by giving
the Company the right to receive, at specified intervals, the
difference between certain fixed and floating interest rates
multiplied by agreed notional principal amounts. At December 31,
1994, the Company was party to several interest rate caps with
various expiration dates up to December 1997 with an aggregate
notional amount of approximately $90 million. Such instruments were
designated as hedges against borrowings under the 1994 Credit
Facility. As of December 31, 1993, the Company was not party to any
interest rate cap agreements.
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, thereby taking into account the
current unrealized gains or losses of open contracts.
Realized gains and losses on its financial instruments and
derivatives were not material to the Company's consolidated
financial statements.
The Company is exposed to credit losses in the event of non-
performance by the counterparties to its interest rate and currency
swaps and interest rate caps but it does not expect any
counterparties to fail to meet their obligations given their high
credit ratings and financial strength. The Company believes that
off-balance sheet risk in conjunction with interest rate and
currency swaps would not be material in the case of non-performance
on the part of counterparties on such agreements. The Company
believes that there is minimal off-balance sheet risk relating to
interest rate caps.
Note 6 Shareholders' Equity (Deficit)
The Company's shareholders' equity increased to $11,012,000 at
December 31, 1994 from a deficit of $29,419,000 at December 31, 1993
primarily as a result of the Company's net earnings in 1994 and the
value of shares of common stock issued for non-cash compensation and
for acquisitions. The prior deficit in shareholders' equity arose
from the payment in 1989 of a special cash dividend of approximately
$330 million.
A two-for-one stock split in the nature of a 100% stock dividend was
distributed on September 18, 1992 to the holders of record of the
Company's common stock at the close of business on September 4,
1992.
<TABLE>
A summary of changes in issued and outstanding shares of common stock and shares of treasury
stock of the Company follows:
1994 1993 1992
<S> <C> <C> <C>
Changes in common stock:
Number of shares issued, beginning of year 19,924,661 19,343,238 9,554,681
Two-for-one stock split - - 9,671,619
Non-cash compensation 78,200 70,900 52,741
Awards of contingent stock 52,000 294,200 34,200
Shares issued in acquisitions 56,757 216,323 29,997
Number of shares issued, end of year 20,111,618 19,924,661 19,343,238
Changes in treasury stock:
Number of shares held, beginning of year 119,306 126,986 63,493
Two-for-one stock split - - 63,493
Shares issued in acquisition - (8,180) -
Contingent stock forfeited 3,000 500 -
Number of shares held, end of year 122,306 119,306 126,986
</TABLE>
Non-cash compensation in each year includes shares issued for a
portion of the Company's contribution to its profit-sharing plan for
the respective preceding year and shares issued to non-employee
directors in the form of awards under the restricted stock plan for
non-employee directors discussed below. The aggregate amount of
non-cash compensation charged to operations amounted to $3,100,000,
$2,293,000 and $1,836,000 in 1994, 1993 and 1992, respectively.
The Company's contingent stock plan 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 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 three-year period if certain events
occur which affect the existence or control of the Company. At
December 31, 1994, 490,200 shares of common stock were reserved for
issuance under such plan.
The excess of fair value over the award price of contingent stock is
charged to operations as compensation over the vesting periods of
such awards. In 1994, such charges amounted to $2,957,000
($2,929,000 and $2,802,000 in 1993 and 1992, respectively).
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 (deficit).
The Company's restricted stock plan for non-employee directors
provides for initial grants of shares to newly elected non-employee
directors and annual grants of shares to non-employee directors for
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 granting price of shares issued under this plan is charged
to operations at the date of such grant. In 1994 the Company issued
5,600 shares under such plan (3,600 and 4,600 in 1993 and 1992,
respectively). At December 31, 1994, 82,200 shares of common stock
were reserved for issuance under such plan.
The Company currently has the authority to issue 1,000,000 shares of
preferred stock, without par value, none of which were issued at
December 31, 1994.
Note 7 Income Taxes
The Company adopted FAS 109 effective January 1, 1993. FAS 109
provides a liability method under which deferred taxes are provided
based upon enacted tax rates and laws applicable to the periods in
which the taxes become payable. For periods prior to January 1,
1993, the Company accounted for income taxes as prescribed by APB 11
under which deferred taxes were recorded based on the current
period's tax rates and laws without adjustment for subsequent
changes. The cumulative effect of this change at January 1, 1993
was a reduction of deferred tax liability and a corresponding credit
to earnings of $1,459,000, or $0.08 per share.
The components of earnings before income taxes and the cumulative
effect of this accounting change in 1993 and the early redemption of
the 12-5/8% Notes in 1994 (note 4) follow:
(In thousands of dollars)
<TABLE>
1994 1993 1992
<S> <C> <C> <C>
Domestic $ 44,150 $ 32,721 $ 24,246
Foreign 17,053 12,740 14,572
$ 61,203 $ 45,461 $ 38,818
The components of the provision for income taxes on earnings before the cumulative effect of accounting
change in 1993 and the early redemption of the 12-5/8% Notes in 1994 follow:
</TABLE>
(In thousands of dollars)
<TABLE>
<CAPTION>
1994 1993 1992
______________________________________________________________________________________________
Current tax provision:
<S> <C> <C> <C>
U.S. federal $ 13,543 $ 9,816 $ 9,364
U.S. state and local 3,981 2,210 2,525
Foreign 6,078 4,635 5,351
23,602 16,661 17,240
Deferred tax provision (benefit):
Domestic 631 3,090 400
Foreign (246) (204) 410
385 2,886 810
Provision for income taxes $ 23,987 $ 19,547 $ 18,050
</TABLE>
<TABLE>
The Company's deferred tax liability net of deferred tax assets at December 31, 1994 and 1993 amounted to
$10,444,000 and $8,490,000, respectively. The significant components of the Company's deferred tax
liabilities and assets at December 31, 1994 as established in accordance with FAS 109 are as follows:
(In thousands of dollars)
1994 1993
_____________________________________________________________________________________________
<S> <C> <C>
Deferred tax assets:
Facilities consolidation and integration $ 3,207 $ 2,766
Accrued expenses 1,787 2,237
Deferred financing and other costs 202 1,000
Property and equipment 2,555 1,636
Deferred revenue 600 924
Other 4,420 2,501
12,771 11,064
Valuation allowance (725) -
Net deferred tax asset $12,046 $11,064
Deferred tax liabilities:
Property and equipment $16,373 $14,071
Patents and other intangibles 1,927 2,611
Other 4,190 2,872
Net deferred tax liability $22,490 $19,554
</TABLE>
<TABLE>
Prior to the implementation of FAS 109, deferred income taxes arose from differences in the timing of the
recognition of revenue and expenses for income tax purposes without subsequent adjustment for changes in
tax laws and regulations. The major components of the deferred income tax provision (benefit) relate to
deferred revenue, amortization, depreciation and other items.
(In thousands of dollars)
1992
<S> <C>
Domestic:
Facilities consolidation and integration expense $(412)
Deferred revenue 349
Amortization 438
Non-cash compensation (382)
Depreciation 496
Other (89)
Domestic deferred tax provision 400
Foreign:
Depreciation 202
Other 208
Foreign deferred tax provision 410
Deferred tax provision $ 810
</TABLE>
The Company expects that it is more likely than not that the
deferred tax assets of $12,046,000 at December 31, 1994 will be
realized based on the future reversals of existing deferred tax
liabilities and the continuation of earnings, which may be affected
by factors outside the Company's control. The valuation allowance
of $725,000 was established in 1994 for certain foreign deferred tax
assets primarily relating to insignificant net operating losses.
Implementation of FAS 109 required certain adjustments to intangible
assets arising from acquisitions by the Company. As a result, the
Company increased patents and other intangible assets as recorded on
its balance sheet at January 1, 1993 by approximately $2,000,000.
An explanation of the difference between the effective income tax
rate and the statutory U.S.
federal income tax rate expressed as a percentage of earnings before
income taxes for the years ended December 31, 1994, 1993 and 1992
follows:
<TABLE>
1994 1993 1992
<S> <C> <C> <C>
Statutory U.S. federal income tax rate 35.0% 35.0% 34.0%
Provision for foreign withholding taxes
and additional U.S. taxes on
repatriated and accumulated earnings of
foreign subsidiaries 1.4 1.8 2.2
Tax effect of U.S. expenses not subject
to tax benefit 0.5 1.7 3.0
State income taxes, net of U.S. federal income tax benefit 4.1 4.2 4.3
Taxes on foreign earnings at other than the
statutory U.S. federal income tax rate (1.0) (1.1) 0.7
Other miscellaneous items (0.8) 1.4 2.3
Effective income tax rate 39.2% 43.0% 46.5%
</TABLE>
The Company's tax provision for 1994, 1993 and 1992 gives effect to
foreign withholding taxes on the repatriation of accumulated
earnings from the Company's foreign subsidiaries and additional U.S.
taxes on such accumulated earnings. The Company has provided U.S.
and foreign income taxes on the accumulated earnings of the
Company's foreign subsidiaries through December 31, 1994.
The Company's Dutch subsidiary is entitled to certain tax incentives
to manufacture certain product lines under agreements with local tax
authorities. The total amount of such incentives is dependent on
the profitability of such product lines over a period extending
through 1999.
Note 8 Commitments and Contingent Liabilities
The Company is obligated under the terms of various leases covering
many of the facilities occupied by the Company. The Company
accounts for substantially all of its leases as operating leases.
Net rental expense for 1994 was $8,281,000 ($7,803,000 and
$7,888,000 in 1993 and 1992, respectively). Estimated future
minimum annual rental commitments under noncancelable real property
leases expiring through 2006 are as follows: 1995 -- $6,977,000;
1996 -- $5,385,000; 1997 -- $4,538,000; 1998 -- $3,849,000; 1999 --
$2,792,000; and subsequent years - $7,495,000.
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, 1994, the Company was a party to, or otherwise
involved in, several federal and state government environmental
proceedings or private environmental claims for the cleanup of
superfund or other sites. The Company may have potential liability
for investigation and clean-up 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, 1994 and 1993, such environmental
related provisions are not material, and the Company believes that
its potential liability with respect to such sites is not material.
Environmental liabilities are 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
statements.
Note 9 Subsequent Acquisition of Trigon Industries Limited
(unaudited)
On January 10, 1995, the Company acquired Trigon Industries Limited
("Trigon"), a privately owned, New Zealand based manufacturer of
flexible packaging materials, for 882,930 newly issued shares of
common stock valued at $35.70 per share and $25,496,000 in cash
primarily provided by proceeds from borrowings under the 1994 Credit
Facility representing a purchase price of approximately $57 million.
Such acquisition is being accounted for as a purchase.
The following table presents selected financial information
(unaudited) for the Company and Trigon on a pro forma basis as if
such acquisition had occurred on January 1, 1994. Such information
combines consolidated earnings statement data for the Company for
the year ended December 31, 1994 with consolidated income statement
data of Trigon for the twelve months ended September 30, 1994. Such
information gives effect to pro forma adjustments necessary to
account for the acquisition as a purchase, principally for the
amortization of the excess of cost over fair value of net assets
acquired and other intangible assets, specific cost reductions which
management expects to realize from the combined operations, interest
expense on borrowings incurred to finance the acquisition, and
additional shares issued in the acquisition.
<TABLE>
(Amount in thousands, except per common share data) 1994
<S> <C>
Net sales $591,529
Earnings(1) 39,050
Earnings per common share(1) 1.88
</TABLE>
(1) Before reflecting the after-tax charge of $5,576,000, or $0.28
per share, to earnings in 1994 arising from the early redemption of
the 12-5/8% Notes.
Pro forma results are not necessarily indicative of future results
or of the results that would have occurred had the acquisition
actually taken place on January 1, 1994.
Independent Auditors' Report
The Board of Directors and Shareholders
Sealed Air Corporation:
We have audited the accompanying consolidated balance sheets of
Sealed Air Corporation and subsidiaries as of December 31, 1994 and
1993 and the related consolidated statements of earnings,
shareholders' equity (deficit) and cash flows for each of the years
in the three-year period ended December 31, 1994. 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 audits.
We conducted our audits 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 audits provide 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, 1994 and 1993, and the results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 7 to the consolidated financial
statements, the Company changed its method of accounting for income
taxes in 1993.
KPMG Peat Marwick LLP
Short Hills, New Jersey
January 18, 1995
<TABLE>
Interim Financial Information (Unaudited)
(In thousands of dollars except per share data)
<CAPTION>
Quarter Net sales Gross Profit Net Earnings Earnings Per Share
1994 1993 1994 1993 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First(1)$117,461 $109,146 $ 44,458 $ 41,107 $ 7,548 $ 7,517 $ .38 $ .39
Second(2)126,761 113,652 47,754 43,131 3,093 7,029 .15 .36
Third 131,121 110,215 47,932 41,419 10,309 5,827 .52 .30
Fourth 143,843 118,681 51,619 43,890 10,690 7,000 .54 .35
Year $519,186 $451,694 $191,763 $169,547 $ 31,640 $ 27,373 $ 1.59 $ 1.40
<FN>
(1)Included in net earnings and earnings per share for the first quarter of 1993 is a cumulative credit of
$1,459,000, or $0.08 per share, resulting from the implementation of Financial Accounting Standard No. 109.
(2) Included in net earnings and earnings per share for the second quarter of 1994 is an after-tax charge of $5,576,000,
or $0.28 per share, resulting from the early redemption of the Company's 12-5/8% Senior Subordinated notes.
</FN>
</TABLE>
<TABLE>
Common Stock Information
1993 High Low
<S> <C> <C> <C>
The Company's Common Stock is listed
on the New York Stock Exchange
(trading symbol: SEE). First Quarter $26 $21
The adjacent table sets forth the Second Quarter $25-7/8 $21-3/4
high and low sales prices for the
Company's Common Stock for each quarter Third Quarter $29-1/4 $23-1/8
during the two-year period ended
December 31, 1994. Fourth Quarter $32 $27
The Company is currently subject to 1994
certain covenants in loan documents
that restrict the payment of cash First Quarter $31-5/8 $28-1/8
dividends. No dividends were paid
in 1994 or 1993. Second Quarter $30-1/8 $26-5/8
As of March 10, 1995, there were approximately Third Quarter $36-1/4 $27-5/8
1,220 holders of record of the Company's
Common Stock. Fourth Quarter $36-1/4 $30-1/2
</TABLE>
