-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, INO1BglQnavBkkaiKpE2gQENC/t5UDR+RhTPVHMYUnwXGwMPkWf7nx2iytYaWlEA 934LO6PRLXqOx9gT2lboKw== 0000088204-95-000018.txt : 19950517 0000088204-95-000018.hdr.sgml : 19950517 ACCESSION NUMBER: 0000088204-95-000018 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950516 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEALED AIR CORP CENTRAL INDEX KEY: 0000088204 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PLASTIC PRODUCTS [3080] IRS NUMBER: 221682767 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-07834 FILM NUMBER: 95540118 BUSINESS ADDRESS: STREET 1: PARK 80 EAST CITY: SADDLE BROOK STATE: NJ ZIP: 07662 BUSINESS PHONE: 2017917600 FORMER COMPANY: FORMER CONFORMED NAME: CHAVANNES M A DATE OF NAME CHANGE: 19670406 10-K405/A 1 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. 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. 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 EX-13 2 EXHIBIT 13 Selected Financial Data (In thousands of dollars except per share data)
1994 1993 1992 1991(1) 1990 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)
[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. 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)
1994 1993 1992 ____________________________________________________________________________________ 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.
SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1994 and 1993 (In thousands of dollars except share data)
1994 1993 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.
1994 1993 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
SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity (Deficit) Years Ended December 31, 1994, 1993 and 1992 (In thousands of dollars)
Additional Retained Accumulated Common Paid-in Earnings Translation Deferred Treasury Stock Capital (Deficit) Adjustment Compensation Stock __________________________________________________________________________________________________________________________ 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.
SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years Ended December 31, 1994, 1993 and 1992 (In thousands of dollars)
1994 1993 1992 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.
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) 1994 1993 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
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) 1994 1993 Carrying Fair Carrying Fair Amount Value Amount Value 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
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. A summary of changes in issued and outstanding shares of common stock and shares of treasury stock of the Company follows: 1994 1993 1992 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
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) 1994 1993 1992 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:
(In thousands of dollars)
1994 1993 1992 ______________________________________________________________________________________________ Current tax provision: 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
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 _____________________________________________________________________________________________ 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
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 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
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: 1994 1993 1992 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%
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. (Amount in thousands, except per common share data) 1994 Net sales $591,529 Earnings(1) 39,050 Earnings per common share(1) 1.88
(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 Interim Financial Information (Unaudited) (In thousands of dollars except per share data)
Quarter Net sales Gross Profit Net Earnings Earnings Per Share 1994 1993 1994 1993 1994 1993 1994 1993 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 (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.
Common Stock Information 1993 High Low 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
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