SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 42,434,896 shares of the registrant's common stock, par
value $0.01 per share, outstanding as of May 3, 1996.
PART I
FINANCIAL INFORMATION
<TABLE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Three Months Ended March 31, 1996 and
1995 (In thousands of dollars except per share
data) (Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Net sales $185,930 $173,354
Cost of sales 117,189 112,547
Gross profit 68,741 60,807
Marketing, administrative and
development expenses 38,855 35,885
Operating profit 29,886 24,922
Other income (expense):
Interest income 250 218
Interest expense (3,511) (5,037)
Other, net (361) (974)
Other income (expense), net (3,622) (5,793)
Earnings before income taxes 26,264 19,129
Income taxes 10,374 7,556
Net earnings $ 15,890 $ 11,573
Net earnings per common share $ 0.37 $ 0.28
Weighted average number of
shares outstanding (000) 42,416 41,774
See accompanying notes to consolidated financial
statements.
</TABLE>
2
<TABLE>
SEALED AIR CORPORATION
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
(In thousands of dollars except share data)
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,757 $ 7,661
Accounts receivable, less allowance for
doubtful accounts of $5,697 in 1996 and
$5,261 in 1995 118,594 116,446
Other receivables 6,195 6,170
Inventories 53,519 54,500
Prepaid expenses 3,400 2,470
Deferred taxes 8,793 8,912
Total current assets 202,258 196,159
Property and equipment:
Land and buildings 77,962 77,603
Machinery and equipment 181,887 177,832
Leasehold improvements 6,662 6,766
Furniture and fixtures 12,047 11,956
Construction in progress 8,112 10,711
286,670 284,868
Less accumulated depreciation and amortization 120,213 115,012
Property and equipment, net 166,457 169,856
Patents, patent applications and rights, less
accumulated amortization of $13,989 in 1996
$13,619 in 1995 11,757 12,107
Excess of cost over fair value of net assets
acquired, less accumulated amortization of
$8,394 in 1996 and $7,607 in 1995 42,008 41,932
Other assets 23,491 23,491
$445,971 $443,545
See accompanying notes to consolidated financial statements.
</TABLE>
3
<TABLE>
SEALED AIR CORPORATION
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
(Continued) (In thousands of dollars except
share data)
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current
installments of long-term debt $ 22,879 $36,840
Accounts payable 44,182 44,460
Accrued interest 1,536 1,560
Other accrued liabilities 49,460 55,624
Income taxes payable 21,117 15,730
Total current liabilities 139,174 154,214
Long-term debt, less current
installments 146,489 149,808
Deferred income taxes 21,811 21,875
Other non-current liabilities 11,379 11,310
Total liabilities 318,853 337,207
Shareholders' equity:
Common stock, $.01 par value. Authorized
60,000,000 shares, issued 42,638,963 shares
in 1996 and 42,506,573 shares in 1995 426 425
Additional paid-in capital 162,226 158,400
Retained earnings (deficit) (37,418) (53,308)
Accumulated translation adjustment 7,742 7,279
132,976 112,796
Less deferred compensation and cost ($246
in 1996 and 1995) of 224,758 shares
in 1996 and 1995 of common
stock held as treasury stock 5,858 6,458
Shareholders' equity 127,118 106,338
$445,971 $443,545
See accompanying notes to consolidated financial statements.
</TABLE>
4
<TABLE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements (abbreviated) of Cash
Flows For the Three Months Ended March 31, 1996
and 1995
(In thousands of dollars)
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 15,890 $11,573
Adjustments to net earnings to reconcile to
net cash provided by operating activities:
Depreciation and amortization 9,147 8,491
Deferred credits - income taxes and other 191 168
Net (gain) loss on disposals of fixed assets (84) 72
Other, net (1,770) (710)
Cash provided (used) by changes in:
Receivables (2,173) (12,017)
Inventories 981 (4,874)
Prepaid expenses (930) (989)
Accounts payable (278) (3,212)
Accrued interest (24) 345
Other accrued liabilities (2,718) (1,983)
Income taxes payable 5,387 4,336
Net cash provided by operating activities 23,619 1,200
Cash Flows From Investing Activities:
Capital expenditures for property and equipment (2,858) (3,700)
Proceeds from sales of property and equipment 495 9
Net cash utilized in purchase of subsidiaries 0 (24,157)
Net cash used in investing activities (2,363) (27,848)
Cash Flows From Financing Activities:
Proceeds from long-term debt 11,334 59,645
Payments of long-term debt (27,905) (33,853)
Net proceeds (payments) on notes payable (507) 1,543
Net cash provided (used) by financing activities (17,078) 27,335
Effect of exchange rate changes on cash and cash
equivalents (82) 363
Cash and Cash Equivalents:
Increase during the period 4,096 1,050
Balance, beginning of period 7,661 11,153
Balance, end of period $ 11,757 $ 12,203
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 3,466 $ 4,617
Income taxes $ 4,987 $ 3,860
See accompanying notes to consolidated financial statements.
</TABLE>
5
SEALED AIR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996 and 1995
(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
ended March 31, 1996 have been made. Where appropriate, financial
statement amounts for prior periods have been reclassified to conform
with their 1996 presentation.
(2) Income Taxes
An explanation of the difference between the effective income tax
rate and statutory U.S. federal income tax rate expressed as a
percentage of earnings before income taxes for the three months
ended March 31, 1996 and 1995 follows:
1996 1995
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 0.6 1.5
Tax effect of U.S. expenses not subject to
tax benefit 0.4 1.1
State income taxes, net of U.S. federal
income tax benefit 4.0 3.9
Taxes on foreign earnings at other than the
statutory U.S. federal income tax rate (1.4) (2.4)
Other miscellaneous items 0.9 0.4
Effective income tax rate 39.5% 39.5%
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
The Company's net sales increased 7% in the first quarter of 1996
compared with the first quarter of 1995. The increase in net sales
primarily reflects increased unit volume in the Company's major
classes of products and higher average selling prices for certain
products. Foreign currency translation contributed minimally to
the increase in net sales.
Net sales from domestic operations increased 5% and net sales from
foreign operations increased 11% in the first quarter of 1996 compared
to the first quarter of 1995 primarily due to the factors mentioned
above.
Net sales of engineered products, primarily Instapak(R) products and
thick polyethylene foams, increased 15% in the first quarter of 1996
primarily due to increased unit volume of the Company's Instapak(R)
and thick polyethylene foam products and higher average selling prices
for certain products.
Net sales of surface protection and other cushioning products,
primarily air cellular products, other polyethylene foam products and
protective and durable mailers and bags, increased 2% in the first
quarter of 1996 primarily due to increased unit volume in certain
products partially offset by lower sales of certain paper products.
Net sales of food packaging products increased 9% in the first quarter
of 1996 primarily due to higher average selling prices for certain
products and changes in product mix, partially offset by a decrease in
unit volume in certain products.
Cost of sales increased 4% in the first quarter of 1996 primarily
reflecting the Company's higher level of net sales and the effect of
certain lower raw material costs.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Gross profit increased 13% in the first quarter of 1996 reflecting the
Company's higher level of net sales and the proportionately lower
increase in cost of sales discussed above. As a result, as a percent
of net sales, gross profit increased from 35.1% in 1995 to 37.0% in
the 1996 period.
Marketing, administrative and development expenses increased 8% in the
first quarter of 1996, primarily reflecting the Company's higher level
of net sales as well as the Company's continued global expansion
efforts.
Operating profit increased 20% in the first quarter of 1996 primarily
reflecting the Company's higher level of net sales and the changes in
costs and expenses discussed above.
Interest expense, which is the principal component of other income
(expense), net, decreased to $3,511,000 in the first quarter of 1996
from $5,037,000 in the first quarter of 1995 primarily reflecting the
decrease in the Company's outstanding indebtedness as well as lower
effective interest rates in comparison to the first quarter of 1995.
The Company's effective income tax rate was 39.5% in the first quarter
of 1996 and 1995.
Net earnings for the quarter increased 37% to $15,890,000, or $.37 per
share, compared with net earnings of $11,573,000, or $.28 per share,
for the first quarter of 1995 primarily reflecting the Company's
higher level of operating profit and lower interest expense.
Liquidity and Capital Resources
The Company's principal sources of liquidity are cash flows from
operations and amounts available under the Company's existing lines of
credit. The Company has met, and currently expects that it will
continue to meet, substantially all of its working capital and capital
expenditure requirements as well as its debt servicing requirements
with funds provided by operations and borrowings made either under its
available lines of credit or otherwise.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Net cash provided by operating activities amounted to $23,619,000 in
the first quarter of 1996 compared with $1,200,000 for the 1995 period
primarily due to changes in operating assets and liabilities,
discussed below, and the Company's higher level of net earnings. In
the 1995 period, net cash flows provided by operations were lower than
those in the 1996 period primarily due to changes in operating assets
and liabilities from their December 31, 1994 levels. Such changes in
the first quarter of 1995 were primarily due to the Company's higher
level of operations and the timing of payments in the 1995 period,
including the effect on operations of the acquisitions of Trigon
Industries Limited in early 1995 (the "Trigon Acquisition") and of
other businesses that the Company acquired during 1994.
Net cash used in investing activities amounted to $2,363,000 in the
first quarter of 1996 compared with $27,848,000 for the first quarter
of 1995. Net cash used in investing activities in the 1995 period
included net cash used in connection with the Trigon Acquisition.
Cash used for capital expenditures amounted to $2,858,000 in the first
quarter of 1996 compared with $3,700,000 in the 1995 period primarily
due to the timing of capital expenditures.
Net cash used in financing activities amounted to $17,078,000 in the
first quarter of 1996 compared with net cash provided by financing
activities of $27,335,000 in the 1995 period primarily due to the net
repayment of long-term debt in the 1996 period. Proceeds from long
term debt in the 1995 period included primarily borrowings incurred in
connection with the Trigon Acquisition.
At March 31, 1996, the Company had working capital of $63,084,000, or
14% of total assets, compared with $41,945,000, or 9% of total assets,
at December 31, 1995. The increase in working capital was due
primarily to increases in cash and accounts receivable and decreases
in accrued liabilities and notes payable and current installments of
long-term debt which were partially offset by an increase in income
taxes payable. Cash, accounts receivable and income taxes payable
increased during the first quarter of 1996 due
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
primarily to the higher level of operations and the timing of
payments. Other accrued liabilities declined primarily due to the
Company's contribution to its profit-sharing plan for the year ended
December 31, 1995, which was made partially in newly issued common
stock and partially in cash. Notes payable and current installments
of long-term debt decreased primarily due to certain repayments made
during the first quarter of 1996.
The Company's ratio of current assets to current liabilities (current
ratio) was 1.5 at March 31, 1996 and 1.3 at December 31, 1995. The
Company's ratio of current assets less inventory to current
liabilities (quick ratio) was 1.1 at March 31, 1996 and 0.9 at
December 31, 1995.
Long-term debt, less current installments, decreased to $146,489,000
at March 31, 1996 from $149,808,000 at December 31, 1995 and notes
payable and current installments of long-term debt decreased to
$22,879,000 at March 31, 1996 from $36,840,000 at December 31, 1995
primarily due to repayments made in the first quarter of 1996. At
March 31, 1996, the Company's available lines of credit amounted to
approximately $253,759,000 of which approximately $167,384,000 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 principal credit facility is an unsecured 1994 credit
agreement, as amended, with Bankers Trust Company, as agent for a
syndicate of banks (the "1994 Credit Facility"), which provides for a
$200 million revolving credit facility (the "1994 Revolving Credit
Facility") and a $100 million term loan (the "1994 Term Loan") both of
which terminate on June 30, 1999.
The 1994 Term Loan 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
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 loans and other lines of credit bear interest at floating rates.
The Company has entered into certain interest rate swap agreements
that have the effect of converting a portion of the Company's floating
rate debt to fixed rate debt. 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 March 31, 1996.
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 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 shareholders' equity increased to $127,118,000 at March
31, 1996 from $106,338,000 at December 31, 1995 primarily as a result
of the Company's net earnings for the first quarter of 1996 and the
value of shares of common stock issued during the first quarter of
1996 for non-cash compensation.
11
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number
Description
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 March 31, 1996.
12
Signatures
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
SEALED AIR CORPORATION
Date: May 10, 1996 By s/Warren H. McCandless
Warren H. McCandless
Senior Vice President-Finance
(Authorized Executive Officer
and Principal Financial Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the consolidated
statements of earnings for the three months ended March 31, 1996 and the
consolidated balance sheet at March 31, 1996 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0000088204
<NAME> SEALED AIR CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 11,757,000
<SECURITIES> 0
<RECEIVABLES> 124,291,000
<ALLOWANCES> 5,697,000
<INVENTORY> 53,519,000
<CURRENT-ASSETS> 202,258,000
<PP&E> 286,670,000
<DEPRECIATION> 120,213,000
<TOTAL-ASSETS> 445,971,000
<CURRENT-LIABILITIES> 139,174,000
<BONDS> 0
<COMMON> 426,000
0
0
<OTHER-SE> 126,692,000
<TOTAL-LIABILITY-AND-EQUITY> 445,971,000
<SALES> 185,930,000
<TOTAL-REVENUES> 185,930,000
<CGS> 117,189,000
<TOTAL-COSTS> 117,189,000
<OTHER-EXPENSES> 38,855,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,511,000
<INCOME-PRETAX> 26,264,000
<INCOME-TAX> 10,374,000
<INCOME-CONTINUING> 15,890,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,890,000
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0
</TABLE>
