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 June 30,1996
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 42,441,096 shares of the registrant's common stock,
par value $0.01 per share, outstanding as of August 6, 1996.
PART I
FINANCIAL INFORMATION
<TABLE>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Three Months and Six Months Ended June 30, 1996 and 1995
(In thousands of dollars except per share data)
(Unaudited)
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $193,116 $182,087 $379,046 $355,441
Cost of sales 120,455 118,933 237,644 231,480
Gross profit 72,661 63,154 141,402 123,961
Marketing, administrative and
development expenses 40,137 36,296 78,992 72,181
Operating profit 32,524 26,858 62,410 51,780
Other income (expense):
Interest income 380 312 630 530
Interest expense (3,828) (5,253) (7,339) (10,290)
Other, net (29) (1,053) (390) (2,027)
Other income (expense), net (3,477) (5,994) (7,099) (11,787)
Earnings before income taxes 29,047 20,864 55,311 39,993
Income taxes 11,474 8,241 21,848 15,797
Net earnings $ 17,573 $ 12,623 $ 33,463 $ 24,196
Net earnings per common share $ 0.42 $ 0.30 $ 0.79 $ 0.58
Weighted average number of
shares outstanding (000) 42,446 42,074 42,431 41,926
See accompanying notes to consolidated financial statements.
</TABLE>
2
<TABLE>
SEALED AIR CORPORATION
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(In thousands of dollars except share data)
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,097 $ 7,661
Accounts receivable, less allowance for
doubtful accounts of $6,087 in 1996 and
$5,261 in 1995 123,518 116,446
Other receivables 8,240 6,170
Inventories 55,865 54,500
Prepaid expenses 3,858 2,470
Deferred taxes 8,773 8,912
Total current assets 217,351 196,159
Property and equipment:
Land and buildings 78,066 77,603
Machinery and equipment 182,839 177,832
Leasehold improvements 6,751 6,766
Furniture and fixtures 11,853 11,956
Construction in progress 10,625 10,711
290,134 284,868
Less accumulated depreciation and amortization 124,579 115,012
Property and equipment, net 165,555 169,856
Patents, patent applications and rights, less
accumulated amortization of $14,304 in 1996
and $13,619 in 1995 11,472 12,107
Excess of cost over fair value of net assets
acquired, less accumulated amortization of
$10,173 in 1996 and $7,607 in 1995 41,307 41,932
Other assets 38,362 23,491
$474,047 $443,545
See accompanying notes to consolidated financial statements.
</TABLE>
3
<TABLE>
SEALED AIR CORPORATION
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 (Continued)
(In thousands of dollars except share data)
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable and current
installments of long-term debt $ 20,335 $ 36,840
Accounts payable 43,053 44,460
Accrued interest 1,715 1,560
Other accrued liabilities 61,384 55,624
Income taxes payable 15,802 15,730
Total current liabilities 142,289 154,214
Long-term debt, less current
installments 152,382 149,808
Deferred income taxes 21,907 21,875
Other non-current liabilities 11,803 11,310
Total liabilities 328,381 337,207
Shareholders' equity:
Common stock, $.01 par value. Authorized
60,000,000 shares in 1996 and 1995, issued
42,659,654 shares in 1996 and 42,506,573
shares in 1995 426 425
Additional paid-in capital 162,452 158,400
Retained earnings (deficit) (19,845) (53,308)
Accumulated translation adjustment 7,540 7,279
150,573 112,796
Less deferred compensation and cost ($227
in 1996 and $246 in 1995) of 225,758 shares
in 1996 and 224,758 in 1995 of common stock
held as treasury stock 4,907 6,458
Shareholders' equity 145,666 106,338
$474,047 $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 Six Months Ended June 30, 1996 and 1995
(In thousands of dollars)
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 33,463 $24,196
Adjustments to net earnings to reconcile to
net cash provided by operating activities:
Depreciation and amortization 19,264 17,202
Deferred credits - income taxes and other (81) 761
Net losses on disposals of fixed assets (21) 110
Other, net (1,520) (2,823)
Cash provided (used) by changes in:
Receivables (9,142) (19,037)
Inventories 794 (5,612)
Prepaid expenses (1,388) (1,012)
Accounts payable (1,407) (5,204)
Accrued interest 155 616
Other accrued liabilities 9,413 3,759
Income taxes payable 72 1,114
Net cash provided by operating activities 49,602 14,070
Cash Flows From Investing Activities:
Capital expenditures for property and equipment (6,302) (8,929)
Proceeds from sales of property and equipment 530 249
Net cash utilized in purchase of subsidiaries (20,653) (24,157)
Net cash used in investing activities (26,425) (32,837)
Cash Flows From Financing Activities:
Proceeds from long-term debt 75,063 64,039
Payments of long-term debt (85,890) (57,058)
Net (payments) proceeds on notes payable (2,845) 8,778
Net cash provided (used) by financing activities (13,672) 15,759
Effect of exchange rate changes on cash and cash
equivalents (69) 515
Cash and Cash Equivalents:
Increase (decrease) during the period 9,436 (2,493)
Balance, beginning of period 7,661 11,153
Balance, end of period $ 17,097 $ 8,660
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 6,816 $ 9,526
Income taxes $ 21,776 $ 15,323
See accompanying notes to consolidated financial statements.
</TABLE>
5
SEALED AIR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 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 June 30, 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 six
months ended June 30, 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 0.5 1.4
Tax effect of U.S. expenses not subject to
tax benefit 0.4 1.0
State income taxes, net of U.S. federal
income tax benefit 4.3 4.1
Taxes on foreign earnings at other than the
statutory U.S. federal income tax rate (0.3) (1.0)
Other miscellaneous items (0.4) (1.0)
Effective income tax rate 39.5% 39.5%
(3) Acquisition
On June 28, 1996, the Company acquired the Australian and New
Zealand protective packaging business of Southcorp Holdings
Limited for cash. The acquisition was accounted for as a
purchase and was not material to the Company's consolidated
financial statements.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
The Company's net sales increased 6% in the second quarter and
7% in the first six months of 1996 compared to the second
quarter and first six months of 1995. The increase in net
sales primarily reflects increased unit volume and higher
average selling prices for certain products.
Net sales from domestic operations increased 8% in the second
quarter and 7% in the first six months of 1996 while net sales
from foreign operations increased 2% in the second quarter and
6% in the first six months of 1996 compared to the 1995
periods.
Net sales of engineered products, primarily Instapak(R)
products and thick polyethylene foams, increased 12% in the
second quarter and 13% in the first six months of 1996
primarily due to increased unit volume of Instapak(R) products
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 7% in the second quarter and 6% in the first six
months of 1996 due primarily to increased unit volume and
higher average selling prices for certain products.
Net sales of food packaging products increased 3% in the
second quarter and 6% in the first six months of 1996
primarily due to higher average selling prices for certain
products and changes in product mix.
Net sales of other products decreased to $8,205,000 from
$10,868,000 in the second quarter of 1995 and to $13,968,000
from $19,131,000 in the first six months of 1995 primarily due
to a decrease in unit volume of the Company's mill tonnage
paper products and certain specialty adhesive products.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Cost of sales increased 1% in the second quarter and 3% in the
first six months of 1996 primarily reflecting the Company's
higher level of net sales and the effect of certain lower raw
material costs.
Gross profit increased 15% in the second quarter and 14% in
the first six months 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 to 37.6% from 34.7% in the
second quarter of 1995 and to 37.3% from 34.9% in the first
six months of 1995.
Marketing, administrative and development expenses increased
11% in the second quarter and 9% in the first six months of
1996, primarily reflecting the higher level of net sales as
well as the Company's continued global expansion efforts,
including costs associated with the acquisition late in June
1996 of the Australian and New Zealand protective packaging
business of Southcorp Holdings Limited (the "Southcorp
Acquisition").
Operating profit increased 21% in the second quarter and first
six months 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 $3,828,000 in the second
quarter and $7,339,000 in the first six months of 1996
compared to $5,253,000 and $10,290,000 in the second quarter
and first six months of 1995, respectively, primarily
reflecting a decrease in the Company's average outstanding
indebtedness as well as lower effective interest rates during
the 1996 periods.
The Company's effective income tax rate was 39.5% in the
second quarter and first six months of 1996 and 1995.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Net earnings increased 39% to $17,573,000, or $0.42 per share,
for the second quarter and 38% to $33,463,000, or $0.79 per
share, for the first six months of 1996 compared with net
earnings of $12,623,000, or $.30 per share, and $24,196,000,
or $0.58 per share, for the second quarter and first six
months 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.
Net cash provided by operating activities amounted to
$49,602,000 in the first six months of 1996 compared with
$14,070,000 for the 1995 period. The increase in net cash
provided by operating activities in 1996 was primarily due
to increased net earnings and the lower amounts of cash used
by changes in receivables, inventories, accounts payable and
accrued liabilities. These changes reflected mainly the timing
of payments and a higher level of efficiency in working capital
utilization. The lower amount of cash provided by operations
in 1995 included the effect on operating cash flows of integrating
the activities of Trigon Industries Limited acquired in early
1995, (the "Trigon Acquisition") and businesses acquired during
1994 into the Company.
Net cash used in investing activities of $26,425,000 and
$32,837,000 for the first six months of 1996 and 1995,
respectively, primarily included net cash used in connection
with the Southcorp Acquisition in the 1996 period and the
Trigon Acquisition in the 1995 period. Cash used for capital
expenditures amounted to $6,302,000 in the first six months of
1996 compared with $8,929,000 in the 1995 period primarily due
to the timing of capital expenditures.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Net cash used in financing activities amounted to $13,672,000
in the first six months of 1996 compared with net cash
provided by financing activities of $15,759,000 in the first
six months of 1995. In the 1996 period, net repayments of
long-term debt were partially offset by borrowings incurred in
connection with the Southcorp Acquisition. The 1995 period
included primarily borrowings incurred in connection with the
Trigon Acquisition and working capital borrowings, which were
partially offset by certain repayments of long-term debt in
the first six months of 1995.
At June 30, 1996, the Company had working capital of
$75,062,000, or 16% 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 a decrease in notes payable
and current installments of long-term debt. Cash and accounts
receivable increased during the first six months of 1996 due
primarily to the higher level of operations and the timing of
customer payments. Working capital items at June 30, 1996
also included current assets acquired in connection with the
Southcorp Acquisition. Notes payable and current installments
of long-term debt decreased primarily due to repayments made
during the first six months of 1996.
The Company's ratio of current assets to current liabilities
(current ratio) was 1.5 at June 30, 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 June
30, 1996 and 0.9 at December 31, 1995.
Long-term debt, less current installments, increased to
$152,382,000 at June 30, 1996 from $149,808,000 at December
31, 1995 reflecting certain repayments of indebtedness offset
by additional long-term indebtedness incurred in connection
with the Southcorp Acquisition. Notes payable and current
installments of long-term debt decreased to $20,335,000 at
June 30, 1996 from $36,840,000 at December 31, 1995 primarily
due to repayments made in the first six months of 1996. At
June 30, 1996,
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
the Company's available lines of credit amounted to
approximately $251,356,000 of which approximately $122,679,000
were unused. Such lines of credit permit the Company and certain
of its subsidiaries to borrow 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, which provides for a $200
million revolving credit facility (the "1994 Credit
Facility"). The 1994 Credit Facility formerly included a $100
million term loan which the Company paid in full prior to June
30, 1996. This Facility has no required annual minimum
paydown provision, but the available commitment under the
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, 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 June 30, 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
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 $145,666,000
at June 30, 1996 from $106,338,000 at December 31, 1995
primarily as a result of the Company's net earnings for the
first six months of 1996 and the value of shares of common
stock issued during the first six months of 1996 for non-cash
compensation.
12
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders
On May 17, 1996, the Company held its annual
meeting of stockholders, at which the stockholders
elected the whole Board of Directors for the ensuing
year, approved various amendments to the Company's
Restricted Stock Plan for Non-Employee Directors, and
ratified the appointment of KPMG Peat Marwick LLP as
the Company's independent public accountants for 1996.
A total of 38,663,039 shares of common stock
were voted in person or by proxy at the annual meeting,
representing approximately 91% of the shares entitled
to vote at such meeting. There were no broker
non-votes. The votes cast on the matters before the
meeting were as follows:
Nominees for Election Number of Votes
to Board of Directors: In Favor Withheld
John K. Castle 38,323,021 340,018
Lawrence R. Codey 38,359,784 303,255
T.J. Dermot Dunphy 38,307,343 355,696
Charles F. Farrell, Jr. 38,332,784 330,255
David Freeman 38,346,812 316,227
Alan H. Miller 38,345,140 317,899
Robert L. San Soucie 38,328,617 334,422
Number of Votes
Approval of proposed For 37,360,251
amendments to Restricted Against 1,037,738
Stock Plan for Non- Abstentions 265,050
Employee Directors
Ratification of KPMG For 38,513,914
Peat Marwick LLP as Against 59,174
independent auditors Abstentions 89,951
13
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number Description
10 Restricted Stock Plan for Non-Employee
Directors of the Company, as amended. (Exhibit
A to the Company's Proxy Statement for the annual
meeting of stockholders held on May 17, 1996,
File Number 1-7834, is incorporated by reference.)
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 June 30,
1996.
14
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: August 9, 1996 By s/Warren H. McCandless
Warren H. McCandless
Senior Vice President-Finance
(Authorized Executive Officer
and Principal Financial
Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the consolidated
statements of earnings for the six months ended June 30, 1996 and the
consolidated balance sheet at June 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000088204
<NAME> SEALED AIR CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 17,097,000
<SECURITIES> 0
<RECEIVABLES> 129,605,000
<ALLOWANCES> 6,087,000
<INVENTORY> 55,865,000
<CURRENT-ASSETS> 217,351,000
<PP&E> 290,134,000
<DEPRECIATION> 124,579,000
<TOTAL-ASSETS> 474,047,000
<CURRENT-LIABILITIES> 142,289,000
<BONDS> 0
<COMMON> 426,000
0
0
<OTHER-SE> 145,240,000
<TOTAL-LIABILITY-AND-EQUITY> 474,047,000
<SALES> 379,046,000
<TOTAL-REVENUES> 379,046,000
<CGS> 237,644,000
<TOTAL-COSTS> 237,644,000
<OTHER-EXPENSES> 78,992,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,339,000
<INCOME-PRETAX> 55,311,000
<INCOME-TAX> 21,848,000
<INCOME-CONTINUING> 33,463,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,463,000
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0
</TABLE>
