-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SAYbaeCt4+NQ5gJfBKh4VqzSms4d1zy+FKArkJ8E59/jesNFkT5msvfbdOYxulHS dv2c+b4YTZ1Q82Sa2fOXZg== 0000088204-97-000003.txt : 19970508 0000088204-97-000003.hdr.sgml : 19970508 ACCESSION NUMBER: 0000088204-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970325 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEALED AIR CORP CENTRAL INDEX KEY: 0000088204 STANDARD INDUSTRIAL CLASSIFICATION: 3089 IRS NUMBER: 221682767 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07834 FILM NUMBER: 97562055 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-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-7834 SEALED AIR CORPORATION (Exact name of registrant as specified in its charter) 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 per share New York Stock Exchange 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. [ ] The aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant on March 14, 1997 was approximately $1,674,883,000. The number of outstanding shares of the registrant's Common Stock as of March 14, 1997 was 42,593,346. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's 1996 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 1997 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K. PART I Item 1. Business Sealed Air Corporation (together with its subsidiaries, the "Company") is engaged primarily in a single line of business: the manufacture and sale of protective and specialty packaging products to a diverse group of customers throughout the world. The Company's principal protective packaging products are its engineered products and its surface protection and other cushioning products. Certain of these products are also produced for non-packaging applications. The Company's principal specialty packaging products are its food packaging products. The Company also manufactures and sells certain other products discussed below. The net sales contributed by each class of product for each of the five years in the period ended December 31, 1996 appear in the table under the caption "Selected Financial Data" in the Company's 1996 Annual Report to Stockholders, which data is incorporated herein by reference. The Company's operations are conducted primarily in the United States, Europe, the Asia/Pacific region, Canada and Latin America, and its products are distributed in these areas as well as in other parts of the world. Information by geographic area, including net sales, operating profit and identifiable assets, for each of the three years in the period ended December 31, 1996 appears in Note 3 of the Notes to Consolidated Financial Statements contained in the Company's 1996 Annual Report to Stockholders. Such Note is incorporated herein by reference. Engineered Products The Company's engineered products include its Instapak(R) polyurethane foam packaging systems, specialty polyethylene foams for packaging and non-packaging uses, and Korrvu(R) packaging products. Instapak(R) Systems Instapak(R) polyurethane foam packaging systems consist of proprietary blends of polyurethane chemicals and specially designed dispensing equipment, certain features of which are patented. The Company also manufactures high-performance polyolefin films designed for use with Instapak(R) packaging systems. Most of the Company's net sales from Instapak(R) systems are attributable to the sale of the polyurethane chemicals and polyolefin films used in the systems installed at customer locations. Instapak(R) chemicals, films and equipment are marketed as integrated packaging systems to provide protective packaging for a wide variety of products, including computer, electronic, office, medical and communications equipment, compressors and motors, furniture and spare parts, and void-fill packaging of office supplies, books, cosmetics and other small products for distribution. Instapak(R) systems are also used to produce polyurethane foams used in certain non-packaging applications, including Instapak(R) Floral, a foam used as a design base for artificial flower arrangements. The Company's Instapak(R) products are sold in all geographic areas in which the Company's operations are conducted. The Company maintains ongoing programs to develop new chemical formulations and new equipment models to meet evolving customer needs. An Instapak(R) packaging system allows a customer to create protective cushions for products of any shape and thus to tailor its protective packaging to its individual products and needs. When Instapak(R) chemicals are mixed together and dispensed, they expand up to 280 times their liquid volume within seconds after they are dispensed to form a foam cushion. Because Instapak(R) chemicals expand significantly in volume only when mixed together, the storage space required for the chemicals before use is very small. The Company purchases chemicals from various suppliers, including major chemical companies, and blends these chemicals according to its own proprietary formulations. The Company offers its Instapak(R) customers a family of protective packaging foams, ranging from low-density foams used for light cushioning and void-fill applications to heavy-duty foams used for blocking and bracing heavy items. The Company produces a number of dispensing equipment models for low, medium and high volume use. The Company's SpeedyPacker(TM) foam-in-bag system, introduced in 1996, and its High-Speed Instapacker(TM) foam-in-bag system produce ready-to-use foam cushions consisting of polyolefin film bags filled with Instapak(R) foam. Hand-held equipment models range from low- volume single station systems to microprocessor-controlled multiple station systems. Generally, customers may either buy or lease equipment from the Company. Customers are also able to produce pre-formed Instapak(R) foam cushions for use in packaging a wide range of products. The Company offers assistance to its customers in producing, or in preparing the molds used to produce, such pre- formed cushions. The Company offers Instamolder(TM) semi- automated cushion molding equipment that produces molded Instapak(R) cushions using its foam-in-bag systems. Specialty Polyethylene Foams The Company manufactures and sells extruded plank and laminated foams for packaging and non-packaging applications. Extruded plank foam is offered in varying densities and thicknesses up to three inches. Laminated foams, which are sold under various trademarks including Polylam(R) in the United States and Stratocell(TM) in Europe, are produced in various densities and laminated into thicknesses ranging up to six inches. Certain of the Company's specialty polyethylene foam product lines contain a percentage of post-consumer recycled polyethylene resins. These foams can be produced in various colors and are available in anti-static and fire retardant forms. The Company's specialty polyethylene foams are generally sold to fabricators and converters for packaging and non-packaging applications in which a clean, non-abrasive material is required with such properties as shock absorption, vibration dampening, thermal insulation or buoyancy. In packaging applications, these foams are fabricated into a wide range of protective packaging shapes, forms and die-cuts for designed packages in which a clean, attractive appearance and cushioning or blocking and bracing performance is needed. Non- packaging applications for specialty foams include construction, automotive, sporting and athletic equipment products. The Company's specialty polyethylene foams are sold in all geographic areas in which the Company's operations are conducted. Korrvu(R) Packaging Products The Company is engaged in the manufacture and sale of Korrvu(R) suspension and retention packaging. Korrvu(R) suspension packaging suspends the product to be packaged in the air space of its shipping container between two strong, flexible, low-slip films. Korrvu(R) retention packaging holds the product to be packaged against a corrugated base using a single sheet of flexible retention film. Korrvu(R) packaging is sold primarily in North America and Europe. Surface Protection and Other Cushioning Products The Company's surface protection and other cushioning products include air cellular cushioning materials, protective and durable mailers and bags, thin polyethylene foams, paper packaging products, automated packaging systems and certain other packaging products. Air Cellular Cushioning Materials The Company manufactures and markets Bubble Wrap(R) air cellular cushioning materials, which are also marketed under various other trademarks, including AirCap(R) and PolyCap(R). The Company's air cellular cushioning materials consist of air bubbles encapsulated between two layers of plastic film, each containing a barrier layer to retard air loss, that form a pneumatic cushion to protect products from damage through shock or vibration during shipment. The Company's PolyCap(R) line of air cellular cushioning material contains a lighter barrier layer than the Company's AirCap(R) line. The Company's air cellular cushioning materials are used by a wide variety of end users, including both manufacturers and retailers. AirCap(R) cushioning is used primarily to protect a wide variety of lightweight and medium-weight delicate items, such as instruments, electronic components and glassware, that have no limitation on their shipping and shelf-life cycles. PolyCap(R) cushioning is used primarily for a wide variety of lightweight products that have a relatively short shipping and shelf-life cycle. The Company also markets anti-static forms of its air cellular cushioning materials. The Company's air cellular materials are manufactured and sold primarily in North America, Europe and, since mid-1996, Australasia. The Company's air cellular cushioning materials are produced in various forms, including continuous rolls, perforated rolls and sheets, depending on customer preference. These materials can be used alone or laminated to other materials such as paper. They are also available in bag form (marketed under the trademark Bubblebags(R)), primarily used to provide product protection to small parts. The Company's air cellular cushioning materials can be varied in the size, shape and spacing of their encapsulated air bubbles and the thickness of the plastic to provide specific types of performance in cushioning, surface protection and void fill. Many of the Company's air cellular cushioning product lines contain post-industrial and post- consumer recycled polyethylene resins. The Company also manufactures and sells adhesive-coated air cellular cushioning material under the trademark Bubble Mask(R) and cohesive air cellular cushioning material under the trademark Cold Seal(R) AirCap(R). Polypride(TM) air cellular materials are multi-web materials with high tensile strength used primarily as furniture wrapping. Protective and Durable Mailers and Bags The Company manufactures and markets a variety of protective and durable mailers and bags that are made in several standard sizes and are used for mailing or shipping a wide variety of items for which clean, lightweight pre-constructed protective packages are desirable. They can provide the user with significant postage savings, ease of use and enhanced product protection relative to other types of mailers and shipping containers. The Company's mailers are marketed primarily in North America, Europe and the Asia/Pacific region. The Company's protective mailers include lightweight, tear-resistant mailers marketed under various trademarks, including Jiffylite(R) and Mail Lite(TM). These mailers, which are lined with air cellular cushioning material, are offered in heat- sealable or self-seal forms. These products also include the widely used Jiffy(TM) padded mailers made from recycled kraft paper padded with macerated recycled newspaper, Jiffy(TM) reinforced mailers, which are highly tear resistant and moisture retardant, Jiffy(TM) utility mailers, which are low-cost, lightweight mailers without padding, and Jiffy Rigi Bag(R) mailers, which are rigid mailers without padding that are well suited for products such as books and photographs. The Company also manufactures and markets Jiffy(TM) foam-lined mailers. The kraft paper used in many of these mailer lines and the foam lining of certain foam mailer products contain recycled content. The Company's durable plastic mailers and bags, which are produced from multi-layered polyolefin film, are lightweight, water-resistant and puncture-resistant and are available in tamper-evident varieties. Such mailers and bags are used by a wide range of customers including air courier, mail order, banking, postal, security and office supply services. Such mailers and bags are marketed under a number of brand names, including ShurTuff(R), MailTuff(TM), Trigon(R), Lab Pak(R), Keepsafe(TM) and Crush-Gard(TM). Thin Polyethylene Foams In addition to the specialty polyethylene foams described above, the Company manufactures thin polyethylene foams in roll and sheet form, in low, medium and special densities, in flat, ribbed or bag form and in a number of colors and thicknesses up to one-half inch. The Company also sells thin polyethylene foam that has anti-static properties and foam laminate products in which the foam is laminated to paper, polyethylene film or other substrates for specialized applications. Certain of the Company's thin polyethylene foam product lines include a percentage of post-consumer recycled resins. Such products are marketed primarily in North America and Europe and, since mid-1996, in Australasia. Low-density thin polyethylene foam manufactured by the Company is marketed under the trademark Cell-Aire(R) and is used primarily for surface protection and light-duty cushioning. Medium-density thin polyethylene foam is marketed under the trademark Cellu Cushion(R) as a cushioning material to protect products from damage through shock or vibration during shipment. The Company's Quicksilver(TM) cohesive polyethylene film and foam laminates and its Cellu-Mask(TM) adhesive foam laminates are used for masking and other surface protection applications. In 1996, the Company introduced its Dolphin Pad(TM) film and foam laminate wrap for the moving and storage industry. The Company also manufactures special density polyethylene foams for a variety of packaging and non-packaging applications. Paper Packaging Products The Company manufactures recycled kraft, tissue and creped paper for use as a raw material in the manufacture of the Company's protective mailer and food packaging products. The Company also manufactures and sells paper packaging products under the trademarks Kushion Kraft(R), Custom Wrap(TM), Jiffy(TM) Padwrap(R) and Void Kraft(TM) for industrial surface protection, furniture surface protection, moving and storage blankets, and for use as cushioning or void fill in various packaging applications. The Company's paper packaging products are sold primarily in North America and Europe. Packaging Systems The Company produces and markets the Instasheeter(TM) high-speed converting system, designed for on-line packaging applications, which automatically converts the Company's flexible packaging materials, including air cellular cushioning materials, thin polyethylene foam and paper packaging materials, described above, into sheets of a pre-selected size and quantity. The Company also produces and markets the Accu-Cut(TM) converting system, an economical system for converting the Company's flexible packaging materials in off-line packaging applications. Such systems are sold primarily in North America and Europe. The Company's Jiffy Packer(TM) high-speed paper dunnage system, which is marketed in Europe under the name Paperboy(TM) and in Japan under the name Eco Packer(TM), produces paper dunnage material on site from the Company's multi-ply Void Kraft(TM) recycled kraft paper. The Jiffy Packer(TM) system is also offered in a bench-top version. The Company's Rapid Fill(R) inflatable packaging system, marketed primarily in North America, consists of a compact, portable inflator and self-sealing inflatable plastic bags, available in several sizes. When inflated, the bags can be used in a wide range of void fill applications, and they can be deflated and re-inflated for reuse. The Company sells on-site packaging systems for void fill and light-duty cushioning applications. These systems, marketed primarily in Europe under the trademark Fill Air(TM), convert rolls of polyethylene film into packaging materials on demand. Other Surface Protection and Cushioning Products The Company participates in a joint venture named PolyMask Corporation with Minnesota Mining and Manufacturing Company ("3M") that manufactures and sells protective tapes consisting of adhesive-coated polyethylene films marketed by 3M. These products are used primarily for protecting the surfaces of polished metal, glass, plastic and other materials from abrasion during fabrication, handling and shipping. This joint venture is accounted for using the equity method. The Company manufactures and sells specialty plastic films in Europe for a variety of packaging and non-packaging applications. Food Packaging Products The Company's food packaging products include absorbent pads, produce bags, and flexible films, bags, pouches and related equipment. Absorbent Pads and Produce Bags The Company manufactures and sells absorbent pads used for food packaging, including its Dri-Loc(R) absorbent pads, certain features of which are covered by patents. The Company also produces other absorbent pads that utilize the features of its Dri-Loc(R) pads, including the Company's Pad-Loc(TM) pad for the poultry processor industry. These products are used in meat, fish and poultry trays to absorb excess fluids and are sold in the geographic areas in which the Company's operations are conducted. The Company's Dri-Loc(R) pads consist of two layers of polyethylene film sealed on all four sides which enclose a layer of fluffed virgin wood-pulp fibers. On one side, the layer of film has tiny openings that permit fluids to be absorbed and retained by the enclosed fibers. The Company believes that Dri- Loc(R) pads are more effective and more attractive in use than conventional absorbent pads. The Company also manufactures conventional padding, sold as individual pads and in roll stock form for use by converters and processors to prepad trays. This padding consists of layers of bleached crepe tissue with one or two outer layers of polyethylene film. The Company also sells supermarket display case liners, which are similar in construction to conventional padding, under the trademark Cellu Liner(TM). The Company also offers its All Star(TM) produce bagging systems, which consist of easy-open plastic bags with star seal bottoms that are dispensed one at a time through patented dispensers supplied by the Company, for use in supermarket produce departments. Flexible Films and Related Equipment The Company produces a variety of flexible films, bags and pouches and associated packaging equipment marketed and sold primarily in the Asia/Pacific region and Europe and used to package a broad range of perishable foods such as meat, poultry, fish, prepared foods, cheese and other dairy products. The Company produces proprietary flexible films, bags and pouches in permeable and barrier varieties. The Company's permeable films, bags and pouches are designed primarily for frozen or dried foods. The oxygen permeability and water vapor barrier properties of the film allow for the retention of fresh product color and appearance to enhance product presentation. The Company's barrier films, bags and pouches provide a high barrier to oxygen and water, allowing extended storage for fresh chilled or processed products by preserving the texture, taste and moisture balance of the chilled or processed product. Both permeable and barrier films and bags are produced in various grades to meet customer requirements. The Company markets permeable and barrier shrinkbags under the Shrinkvac(R) and other trademarks. Permeable and barrier vacuum skin packaging is marketed under the Intact(R) and Tri-fresh(TM) trademarks. The Company also offers Tuf-flex(TM) barrier pouches with high puncture resistance. The Company's food packaging equipment offerings include automatic film and bag making, dispensing and loading units to package foods in vacuum or vacuum skin packages using the Company's films. Systems are marketed to the food processing industry under the Intact(R), Flexibag(TM) and other trademarks. The Company also manufactures printed co-extruded films for packaging frozen foods and other loose food products as well as a wide range of mono- and multi-layer films for other food and general applications. Other Products The Company's other products consist primarily of specialty adhesive products, loose-fill polystyrene packaging, paper products, products that control static electricity, and recreation and energy conservation products. Through a subsidiary in New Zealand, the Company manufactures and sells a wide range of specialty adhesive tapes on a variety of substrates. These specialty adhesive tapes provide custom formulations for a wide range of applications that include the tape strip or closure tape for disposable diapers, foil tapes used in heating, air conditioning and refrigeration, and cloth based tapes used in construction and underground applications on pipe work for corrosion protection. Subsidiaries of the Company in the Asia/Pacific region and Mexico produce loose-fill polystyrene packaging for sale to customers in those countries. As noted above, the Company manufactures recycled kraft, tissue and creped paper and sells such paper to unaffiliated customers in the United States. In addition to air cellular cushioning materials and polyethylene foam with anti-static properties, the Company sells other products related to the elimination and neutralization of static electricity, including conductive shielding bags and floor and benchtop mats. Static control products, which are sold primarily in the Asia/Pacific region, are used principally by manufacturers of static-sensitive microelectronic devices. Translucent air cellular material similar to AirCap(R) cushioning that is fabricated into solar pool covers is sold in certain countries outside the United States. In the United States, the Company manufactures and sells solar heating systems for swimming pools that use thermostatically controlled pumps to circulate pool water through plastic solar collector panels. Foreign Operations The Company manufactures and sells most of its product lines in a number of foreign countries as well as in the United States, as described more fully above. In addition, the Company has unaffiliated foreign licensees that manufacture certain of its protective packaging products in Chile, England, Japan, the Netherlands, South Africa and Sweden. Licensing revenues are not material to the Company's consolidated financial statements. During 1996, 1995 and 1994, foreign net sales represented approximately 39%, 38% and 29%, respectively, of the Company's total net sales, while operating profit from foreign operations represented approximately 27%, 30% and 21%, respectively, of the Company's total operating profit. For a discussion of the factors affecting these changes in foreign net sales and operating profit, see Management's Discussion and Analysis of Results of Operations and Financial Condition, which appears in the Company's 1996 Annual Report to Stockholders and is incorporated by reference into Item 7 of this Annual Report on Form 10-K. In maintaining its foreign operations, the Company runs the risks inherent in such operations, including those of currency fluctuations. Marketing, Distribution and Customers The Company employs several hundred sales and account representatives in the countries in which it has operations who market the Company's products through a large number of distributors, fabricators and converters as well as directly to end users. In the United States and certain other countries, the Company has separate sales and marketing groups for its engineered products, its surface protection and other cushioning products, its food packaging products and certain of its other products. These groups often work together to develop market opportunities for the Company's products. To assist its marketing efforts and to provide specialized customer services, the Company maintains packaging laboratories in many of its United States and foreign facilities. These laboratories are staffed by professional packaging engineers and equipped with drop-testing and other equipment used to develop and test cost-effective package designs to meet the particular protective packaging requirements of each customer. Certain of these laboratories also design and construct molds for Instapak(R) packaging customers who prefer to use preformed foam cushions. The Company has no material long-term contracts for the distribution of its packaging products. In 1996, no customer or affiliated group of customers accounted for as much as 10% of the Company's consolidated net sales. Raw Materials The raw materials utilized in the Company's operations generally have been readily available on the open market and are purchased from several suppliers, reprocessed from scrap generated in the Company's manufacturing operations or obtained through participation in recycling programs. The principal raw materials used in the Company's operations include polyethylene and other resins and films, polyurethane chemicals, paper and wood pulp products (including recycled or reprocessed paper products, resins, films and chemicals), and blowing agents used in foam products. Product Development The Company incurred expenses of $15,449,000 related to Company-sponsored research and development in 1996 compared with $14,597,000 during 1995 and $10,912,000 during 1994. The Company maintains a continuing effort to develop new products based on its existing product lines as well as new packaging and non- packaging applications for its products. The Company also maintains ongoing efforts to add or increase recycled or reprocessed content in its product lines. Patents and Licenses The Company is the owner or licensee of a number of United States and foreign patents and patent applications that relate to certain of its products, manufacturing processes and equipment. While some of these patents and licenses, as well as certain trademarks which the Company owns, offer some protection and competitive advantage for the Company's products and their manufacture, the Company believes that its success depends primarily on its marketing, engineering and manufacturing skills and on its research and product technology. Competition Competition for most of the Company's protective and specialty packaging products is based primarily on packaging performance characteristics, service and price. Certain firms producing competing products are well established and may have greater financial resources than the Company. The Company's protective packaging products compete with similar products made by others and with a number of other packaging materials, including various forms of paper packaging products, expanded plastics, corrugated die cuts, loosefill packaging materials, and with envelopes, reinforced bags, boxes and other containers and various corrugated materials. Heavy- duty applications of the Company's engineered products also compete with various types of molded foam plastics, fabricated foam plastics and mechanical shock mounts and with wood blocking and bracing systems. As discussed below under "Environmental Matters," the Company is also subject to competitive factors affecting packaging materials that are based upon customers' environmental preferences. The Company believes that it is a leading manufacturer of air cellular cushioning materials containing a barrier layer and polyurethane foam packaging systems in the geographic areas in which it sells these products. There are a number of competing manufacturers of food packaging products. The Company believes that its Dri-Loc(R) products have a competitive advantage over conventional pads because of their efficiency and appearance in use. Conventional pads and display case liners compete primarily on the basis of price, absorbency and service. The Company believes it is one of the leading suppliers of meat, fish and poultry absorbent pads to supermarkets and poultry processors in the United States and Europe. The Company's food packaging films and systems compete with similar flexible films and systems produced by other companies around the world as well as with other food packaging materials. Environmental Matters The Company, like other manufacturers, is subject to various laws, rules and regulations in the countries, jurisdictions and localities in which it operates regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. The Company believes that compliance with current environmental laws and regulations has not had a material effect on the Company's capital expenditures or financial position. In some jurisdictions in which the Company's packaging products are sold or used, laws and regulations have been adopted or proposed that seek to regulate, among other things, recycled or reprocessed content, sale and disposal of packaging materials. In addition, customer demand for packaging materials that are viewed as being "environmentally responsible" and that minimize the generation of solid waste continues to evolve. While these issues have become a competitive factor in the marketplace for packaging materials, the Company maintains active programs designed to comply with these laws and regulations, to monitor their evolution, and to meet such customer demand. The Company believes that its protective packaging materials offer superior packaging protection, enabling customers to achieve lower package cube and weight using the Company's protective packaging materials than with many alternative packaging methods, thereby reducing the disposal of damaged products as well as the generation of packaging waste. Because the Company offers both plastic-based and paper-based protective packaging materials, customers can select the protective packaging materials that they consider to best meet their performance and cost needs and environmental preferences. A number of the Company's product lines incorporate recycled or reprocessed content, and the Company maintains ongoing efforts to add or increase recycled or reprocessed content in many of its product lines. The Company also supports its customers' interests in eliminating waste by offering or participating in collection programs for certain of the Company's products or product packaging and for materials used in certain of the Company's products, including programs aimed at recovering and recycling polyethylene materials from customers in the United States, an Instapak(R) foam return program with return sites throughout the United States, collection programs for packaging materials in Germany and elsewhere in Europe, and local newspaper collection programs to obtain materials used to produce Jiffy(TM) padded mailers and certain other products. Whenever possible, materials collected through these collection programs are reprocessed and either reused in the Company's operations or offered to other manufacturers for use in other products. Certain of the Company's protective packaging products can be reused and, as an alternative to recycling or disposal in solid waste landfills, are suitable fuel sources for waste-to-energy conversion facilities. Employees At December 31, 1996, the Company had approximately 4,200 employees worldwide, with approximately 600 employees covered by collective bargaining agreements. The Company believes that its employee relations are satisfactory. Item 2. Properties The Company has manufacturing facilities at twenty-five locations in the United States, five other locations in North America, including three facilities in Canada and two in Mexico, nineteen locations in Europe, including facilities in England, France, Germany, Italy, the Netherlands, Norway, Spain and Sweden, and eight locations in the Asia/Pacific region, including two facilities in New Zealand and facilities in Australia, Hong Kong, Malaysia, Singapore, Taiwan and Thailand. The Company occupies other facilities containing fabricating or converting operations or sales, distribution, technical, warehouse or administrative offices at several locations in the United States, in Brazil, Belgium, Finland, China, India, Japan and Korea and in a number of the other countries in which the Company manufactures its products. In the United States, the Company's Instapak(R) products are manufactured at facilities in Connecticut and North Carolina, its surface protection and other cushioning products and certain of its other products are manufactured at facilities in California, Georgia, Illinois, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Texas and Washington, and its food packaging products are manufactured at facilities in California, Mississippi, North Carolina and Pennsylvania. Because of the light but bulky nature of the Company's air cellular, polyethylene foam and protective mailer products, significant freight savings may be realized by locating manufacturing facilities for these products near markets. To realize the benefit of such savings, the Company has facilities for manufacturing these products in various locations in proximity to major markets. The Company owns thirty of its manufacturing facilities, certain of which are owned subject to mortgages or similar financing arrangements. The balance of the Company's manufacturing facilities are located in leased premises. The Company's manufacturing facilities are usually located in general purpose buildings in which the Company's specialized machinery for the manufacture of one or more products is contained. The Company believes that its manufacturing facilities are well maintained, suitable for their purposes, and adequate for the Company's needs. Item 3. Legal Proceedings The Company is a party to various lawsuits and administrative and other proceedings incidental to its business, including certain federal or state governmental environmental proceedings or private environmental claims relating to the cleanup of Superfund sites or other sites. While it is often difficult to estimate potential environmental liabilities and the future impact of environmental matters, based upon the information currently available to the Company and its experience in dealing with such matters, the Company believes that its potential liability with respect to such sites is not material. The Company believes, after consulting with counsel, that the disposition of its lawsuits and other legal proceedings, including environmental matters, will not have a material effect on the Company's consolidated financial statements. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of the Company's stockholders during the fourth quarter of 1996. Executive Officers of the Registrant The information appearing in the table below sets forth the current position or positions held by each executive officer of the Company, his or her age as of March 15, 1997, the year in which he or she first was elected to the position currently held, and the year in which he or she first was elected an officer of the Company. All of the Company's officers serve at the pleasure of the Board of Directors. All officers have been employed by the Company or its subsidiaries for more than five years. There are no family relationships among any of the Company's officers or directors. Name and Age as of First Elected to First Elected Current Position March 15, 1997 Current Position an Officer T. J. Dermot Dunphy 64 1996 1971 Chairman of the Board, Chief Executive Officer and Director William V. Hickey 52 1996 1980 President and Chief Operating Officer Bruce A. Cruikshank 54 1996 1990 Senior Vice President Elmer N. Funkhouser III 55 1984 1982 Senior Vice President Robert A. Pesci 51 1997 1990 Senior Vice President Jonathan B. Baker 44 1994 1994 Vice President James A. Bixby 53 1990 1990 Vice President Mary A. Coventry 43 1994 1994 Vice President Jean-Luc Debry 51 1992 1992 Vice President Paul B. Hogan 57 1995 1995 Vice President James P. Mix 45 1994 1994 Vice President Abraham N. Reichental 40 1994 1994 Vice President Name and Age as of First Elected to First Elected Current Position March 15, 1997 Current Position an Officer Horst Tebbe 56 1997 1986 Vice President-Finance and Chief Financial Officer Jeffrey S. Warren 43 1996 1996 Controller H. Katherine White 51 1996 1996 Secretary PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The information appearing under the caption "Common Stock Information" in the Company's 1996 Annual Report to Stockholders is incorporated herein by reference. Item 6. Selected Financial Data The information appearing under the caption "Selected Financial Data" in the Company's 1996 Annual Report to Stockholders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information appearing under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" in the Company's 1996 Annual Report to Stockholders is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data Interim Financial Information (Unaudited) The information appearing under the caption "Interim Financial Information (Unaudited)" in the Company's 1996 Annual Report to Stockholders is incorporated herein by reference. Financial Statements and Schedule See Index to Consolidated Financial Statements and Schedule on page F-2 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant Part of the information required in response to this Item is set forth in Part I of this Annual Report on Form 10-K under the caption "Executive Officers of the Registrant," and the balance will be set forth in the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders under the captions "Information Concerning Nominees" and "Section 16(a) Beneficial Ownership Reporting Compliance." All such information is incorporated herein by reference. Item 11. Executive Compensation The information required in response to this Item will be set forth in the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders under the caption "Directors' Compensation" and under the subheadings "Summary Compensation Table" and "Compensation Committee Interlocks and Insider Participation" under the caption "Executive Compensation." Such information is incorporated herein by reference. Such incorporated information does not include the information under the subheadings "Report of Organization and Compensation Committee on Executive Compensation" and "Common Stock Performance Comparison" under the caption "Executive Compensation" in such Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required in response to this Item will be set forth in the Company's Proxy Statement for its 1997 Annual Meeting of Stockholders under the caption "Voting Securities," and such information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Not applicable. PART IV 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 Description Number 3.1 Unofficial Composite Certificate of Incorporation of the Company as currently in effect. 3.2 By-Laws of the Company as currently in effect. (Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996, File No. 1-7834, is incorporated herein by reference.) 4.1 Amended and Restated Credit Agreement among the Company, certain of its subsidiaries, Bankers Trust Company, as agent, and various financial institutions, dated as of June 8, 1994 and amended and restated as of August 22, 1996. (Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1996, File No. 1-7834, is incorporated herein by reference.) 10.1 Contingent Stock Plan of the Company, as amended. (Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, File No. 1-7834, is incorporated herein by reference.)* 10.2 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 herein by reference.)* 13 Portions of the Company's 1996 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. (b) Reports on Form 8-K: The Company did not file any reports on Form 8-K during the fiscal quarter ended December 31, 1996. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 (Registrant) Date: March 24, 1997 By s/T. J. DERMOT DUNPHY T. J. Dermot Dunphy Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date By s/ T. J. DERMOT DUNPHY March 24, 1997 T. J. Dermot Dunphy Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer) By s/ HORST TEBBE March 24, 1997 Horst Tebbe Vice President-Finance and Chief Financial Officer (Principal Financial Officer) By s/ JEFFREY S. WARREN March 24, 1997 Jeffrey S. Warren Controller (Principal Accounting Officer) By s/ JOHN K. CASTLE March 24, 1997 John K. Castle Director By s/ LAWRENCE R. CODEY March 24, 1997 Lawrence R. Codey Director By s/ CHARLES F. FARRELL, JR. March 24, 1997 Charles F. Farrell, Jr. Director By s/ DAVID FREEMAN March 24, 1997 David Freeman Director By s/ ALAN H. MILLER March 24, 1997 Alan H. Miller Director By s/ R. L. SAN SOUCIE March 24, 1997 R. L. San Soucie Director SEALED AIR CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Years ended December 31, 1996, 1995 and 1994 F-1 SEALED AIR CORPORATION AND SUBSIDIARIES Index to Consolidated Financial Statements and Schedule Page Independent Auditors' Report * Financial Statements: Consolidated Statements of Earnings for the years ended December 31, 1996, 1995 and 1994 * Consolidated Balance Sheets - December 31, 1996 and 1995 * Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 * Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 * Notes to Consolidated Financial Statements * Independent Auditors' Report on Schedule F-3 Consolidated Schedule: II - Valuation and Qualifying Accounts F-4 *The information required appears on pages 21 through 36 of the Company's 1996 Annual Report to Stockholders and is incorporated by reference into this Annual Report on Form 10-K. All other schedules are omitted, as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. F-2 Independent Auditors' Report on Schedule The Board of Directors and Shareholders Sealed Air Corporation: Under date of January 20, 1997, we reported on the consolidated balance sheets of Sealed Air Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, as contained in the 1996 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1996. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. s/KPMG Peat Marwick LLP Short Hills, New Jersey January 20, 1997 F-3 SCHEDULE II SEALED AIR CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (In thousands of dollars)
ADDITIONS BALANCE AT CHARGED TO CHARGED TO BEGINNING COSTS AND OTHER DEDUCTIONS BALANCE AT DESCRIPTION OF YEAR EXPENSES ACCOUNTS (1) (2) END OF YEAR Year ended December 31, 1996 Allowance for doubtful accounts $5,261 $1,151 $ 301 $1,090 $5,623 Year ended December 31, 1995 Allowance for doubtful accounts $3,970 $2,421 $ 350 $ 1,480 $5,261 Year ended December 31, 1994 Allowance for doubtful accounts $2,675 $ 1,210 $ 764 $ 679 $3,970 (1) Primarily recoveries of bad debts and allowance for doubtful accounts of companies acquired at dates of acquisition. (2) Primarily accounts receivable balances written off.
F-4 EX-3.1 2 EXHIBIT 3.1 UNOFFICIAL COMPOSITE CERTIFICATE OF INCORPORATION OF SEALED AIR CORPORATION (as amended through May 19, 1995) FIRST: The name of the corporation is Sealed Air Corporation. SECOND: The registered office of the corporation in the State of Delaware is to be located at Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. Its registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total number of shares of stock which the corporation shall have authority to issue is sixty-one million (61,000,000), sixty million (60,000,000) of which shall be common stock with a par value of One Cent ($.01) per share, amounting in the aggregate to Six Hundred Thousand Dollars ($600,000), and one million (1,000,000) of which shall be preferred stock without par value. The preferred stock may be issued from time to time in one or more series. The powers, designations, preferences and other rights and qualifications, limitations or restrictions of the preferred stock of each series shall be such as are stated and expressed in this Article Fourth and, to the extent not stated and expressed herein, shall be such as may be fixed by the board of directors (authority so to do being hereby expressly granted) and stated and expressed in a resolution or resolutions adopted by the board of directors providing for the initial issue of preferred stock of such series. Such resolution or resolutions shall (a) fix the dividend rights of holders of shares of such series, (b) fix the terms on which stock of such series may be redeemed if the shares of such series are to be redeemable, (c) fix the rights of the holders of stock of such series upon dissolution or any distribution of assets, (d) fix the terms or amount of the sinking fund, if any, to be provided for the purchase or redemption of stock of such series, (e) fix the terms upon which the stock of such series may be converted into or exchanged for stock of any other class or classes or of any one or more series of preferred stock if the shares of such series are to be convertible or exchangeable, (f) fix the voting rights, if any, of the shares of such series and (g) fix such other powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof desired to be so fixed. Except to the extent otherwise provided in the resolution or resolutions of the board of directors providing for the initial issue of shares of a particular series or expressly required by law, holders of shares of preferred stock of any series shall be entitled to one vote for each share thereof so held, shall vote share for share with the holders of the common stock without distinction as to class and shall not be entitled to vote separately as a class or series of a class. The number of shares of preferred stock authorized to be issued may be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the corporation entitled to vote, and the holders of the preferred stock shall not be entitled to vote separately as a class or series of a class on any such increase or decrease. All shares of any one series of preferred stock shall be identical with each other in all respects except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall accumulate, and all series of preferred stock shall rank equally and be identical in all respects except as specified in the respective resolutions of the board of directors providing for the initial issue thereof. Subject to the prior and superior rights of the preferred stock as set forth in any resolution or resolutions of the board of directors providing for the initial issuance of any particular series of preferred stock, such dividends (payable in cash, stock or otherwise) as may be determined by the board of directors may be declared and paid on the common stock from time to time out of any funds legally available therefor and the preferred stock shall not be entitled to participate in any such dividend. FIFTH: The name of the incorporator is Edward Beuchert and his mailing address is Room 1410, 25 Broad Street, New York, New York 10004. SIXTH: The corporation is to have perpetual existence. SEVENTH: The private property of the stockholders shall not be subject to the payment of the corporate debts to any extent whatever except as otherwise provided by law. EIGHTH: In furtherance, and not in limitation of the powers conferred by statute, the board of directors is expressly authorized: A. To make, alter or repeal the by-laws of the corporation; B. To authorize and cause to be executed mortgages and liens, with or without limit as to amount, upon the real and personal property of the corporation; C. To authorize the guaranty by the corporation of securities, evidences of indebtedness and obligation of other persons, corporations and business entities; D. By resolution adopted by a majority of the whole board, to designate one or more committees, each committee to consist of two or more of the directors of the corporation, which, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The members of any such committee present at any meeting and not disqualified from voting may, whether or not they constitute a quorum, unanimously appoint another member of the board of directors to act at the meeting in the place of any absent or disqualified member. All corporate powers of the corporation shall be exercised by the board of directors except as otherwise provided herein or by law. NINTH: Any property of the corporation less than all of its assets including goodwill and its corporate franchise, deemed by the board of directors to be not essential to the conduct of the business of the corporation, may be sold, leased, exchanged or otherwise disposed of by authority of the board of directors. All of the property and assets of the corporation including its goodwill and its corporate franchises, may be sold, leased or exchanged upon such terms and conditions and for such consideration (which may be in whole or in part shares of stock and/or other securities of any other corporation or corporations) as the board of directors shall deem expedient and for the best interests of the corporation, when and as authorized by the affirmative vote of the holders of a majority of the stock issued and outstanding having voting power given at a stockholders' meeting duly called for that purpose upon at least 20 days' notice containing notice of the proposed sale, lease or exchange, or when authorized by the written consent of the holders of a majority of the voting stock issued and outstanding. TENTH: A director or officer of the corporation shall not be disqualified by his office from dealing or contracting with the corporation either as a vendor, purchaser or otherwise, nor shall any transaction or contract of the corporation be void or voidable by reason of the fact that any director or officer or any firm of which any director or officer is a member or any corporation of which any director or officer is a stockholder, officer or director, is in any way interested in such transaction or contract, provided that such transaction or contract is or shall be authorized, ratified or approved either (1) by a vote of a majority of a quorum of the board of directors or of a committee thereof, without counting in such majority any director so interested (although any director so interested may be included in such quorum), or (2) by a majority of a quorum of the stockholders entitled to vote at any meeting. No director or officer shall be liable to account to the corporation for any profits realized from any such transaction or contract authorized, ratified or approved as aforesaid by reason of the fact that he, or any firm of which he is a member or any corporation of which he is a stockholder, officer or director, was interested in such transaction or contract. Nothing herein contained shall create liability in the events above described or prevent the authorization, ratification or approval of such contracts in any other manner permitted by law. ELEVENTH: No person shall be liable to the corporation for any loss or damage suffered by it on account of any action taken or omitted to be taken by him as a director or officer of the corporation in good faith, if such person (i) exercised or used the same degree of diligence, care and skill as an ordinarily prudent man would have exercised or used under the circumstances in the conduct of his own affairs, or (ii) took, or omitted to take, such action in reliance upon advice of counsel for the corporation, or upon statements made or information furnished by officers or employees of the corporation which he had reasonable grounds to believe to be true, or upon a financial statement of the corporation prepared by an officer or employee of the corporation in charge of its accounts or certified by a public accountant or firm of public accountants. TWELFTH: Any contract, transaction or act of the corporation or of the board of directors which shall be approved or ratified by a majority of a quorum of the stockholders entitled to vote at any meeting shall be as valid and binding as though approved or ratified by every stockholder of the corporation; but any failure of the stockholders to approve or ratify such contract, transaction or act, when and if submitted, shall not be deemed in any way to invalidate the same or to deprive the corporation, its directors or officers of their right to proceed with such contract, transaction or act. THIRTEENTH: Every person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the corporation to the fullest extent legally permissible under the General Corporation Law of the State of Delaware against all expenses, liability and loss (including attorney's fees, judgments, fines and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right which may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such directors, officers or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any by-law, agreement, vote of stockholders, provision of law or otherwise, as well as their rights under this Article. The Board of Directors may adopt by-laws from time to time with respect to indemnification to provide at all times the fullest indemnification permitted by the General Corporation Law of the State of Delaware and may cause the corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation, as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the corporation would have the power to indemnify such person against such liability. FOURTEENTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. FIFTEENTH: Meetings of stockholders and directors may be held within or without the State of Delaware, as the by-laws may provide. The books of account of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. Elections of directors need not be by written ballot unless the by-laws of the corporation shall so provide. SIXTEENTH: Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, the meeting and vote of stockholders may be dispensed with if a written consent to such corporate action is signed by the holders of 51% of the stock who would have been entitled to vote upon such corporate action if a meeting were held; provided that in no case shall a written consent be by the holders of stock having less than the minimum percentage of the vote required herein or by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent. SEVENTEENTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. EIGHTEENTH: A director of the corporation shall not be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or the limitation thereof is not permitted under the Delaware General Corporation Law as the same exists or may hereafter be amended. Any repeal or modification of the foregoing paragraph of this Article EIGHTEENTH shall not adversely affect any right or protection of a director of the corporation existing hereunder with respect to any act or omission occurring prior to or at the time of such repeal or modification. IN WITNESS WHEREOF the undersigned, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate February 13, 1969. EX-21 3 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY The following table sets forth the name and state or other jurisdiction of incorporation of the Company's subsidiaries. Except as otherwise indicated, each subsidiary is wholly-owned, directly or indirectly, by the Company. Except as noted, such subsidiaries do business under their corporate names. Aire Sellado, S.A. de C.V. Mexico Danco (NZ) Limited*** New Zealand E.T. Bygg AS Norway Noja Inmobiliaria, S.A. de C.V. Mexico Norlepak Oy Finland Omni Supply Inc.** North Carolina PolyMask Corporation* Delaware Polypride, Inc. Delaware Sealed Air Australia Pty. Limited Queensland, Australia Sealed Air Brasil Ltda. Brazil Sealed Air B.V. Netherlands Sealed Air (Canada) Inc. Ontario, Canada Sealed Air Espana, S.A. Spain Sealed Air (Far East) Limited Hong Kong Sealed Air (FPD) Limited England Sealed Air GmbH Germany Sealed Air Japan Limited Nevada Sealed Air (Korea) Limited Korea Sealed Air Limited England Sealed Air (Malaysia) Sdn. Bhd. Malaysia Sealed Air N.V. Belgium Sealed Air (NZ) Limited New Zealand Sealed Air Norge AS Norway Sealed Air Oy Finland Sealed Air Packaging (Shanghai) China Co. Ltd. Sealed Air S.A.** France Sealed Air (Singapore) Pte. Singapore Limited Sealed Air S.p.A. Italy Sealed Air Svenska AB Sweden Sealed Air Systems S.A. France Sealed Air Taiwan Limited Taiwan Sealed Air Thailand Limited Thailand Sealed Air Trucking, Inc. Delaware Trigon Packaging Systems (NZ) New Zealand Limited**** Trigon/Viskase Pty. Limited* Queensland, Australia *The Company owns 50% of the outstanding shares. **The Company indirectly owns a majority of the outstanding shares. ***Does business as Sealed Air (New Zealand) Packaging Products Division. ****Does business as Sealed Air (New Zealand) Food Packaging Division. Certain subsidiaries are omitted from the above table. Such subsidiaries, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of December 31, 1996. EX-23 4 EXHIBIT 23 Independent Auditors' Consent The Board of Directors Sealed Air Corporation: We consent to incorporation by reference in Registration Statement No. 33-41734 on Form S-8, Registration Statement No. 333-341 on Form S-3, Registration Statement No. 333-03985 on Form S-8, Registration Statement No. 33-57441 on Form S-3, Registration Statement No. 33-58843 on Form S-3, Registration Statement No. 333-7297 on Form S-3 and Registration Statement No. 333-7311 on Form S-3 of Sealed Air Corporation of our reports dated January 20, 1997, relating to the consolidated balance sheets of Sealed Air Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the years in the three-year period ending December 31, 1996, and related schedule, which reports appear in or are incorporated by reference in the December 31, 1996 annual report on Form 10-K of Sealed Air Corporation. s/KPMG Peat Marwick LLP Short Hills, New Jersey March 24, 1997 EX-13 5 EXHIBIT 13 PORTION'S OF SEALED AIR CORPORATION'S 1996 ANNUAL REPORT THAT ARE INCORPORATED BY REFERENCE SELECTED FINANCIAL DATA (In thousands of dollars except per share data)
1996 1995(1) 1994 1993 1992 Consolidated Earnings Statement Data Net sales by class of product: Engineered products $284,974 $252,535 $208,363 $180,508 $176,541 Surface protection and other cushioning products 368,692 333,519 234,587 204,645 200,396 Food packaging products 106,473 103,866 56,444 51,023 52,727 Other products 29,473 33,200 19,792 15,518 16,394 Total 789,612 723,120 519,186 451,694 446,058 Cost of sales 495,185 466,952 327,423 282,147 278,427 Marketing, administrative and development expenses 164,355 147,288 107,854 95,434 95,441 Operating profit 130,072 108,880 83,909 74,113 72,190 Other income (expense), net (15,477) (21,726) (22,706) (28,652) (33,372) Earnings before income taxes 114,595 87,154 61,203 45,461 38,818 Income taxes 45,266 34,426 23,987 19,547 18,050 Earnings before cumulative effect of accounting change and early redemption of subordinated notes 69,329 52,728 37,216 25,914 20,768 Cumulative effect of accounting change(2) - - - 1,459 - Early redemption of subordinated notes, net of income taxes(3) - - (5,576) - - Net earnings $ 69,329 $ 52,728 $ 31,640 $ 27,373 $ 20,768 Earnings per common share(4): Before cumulative effect of accounting change and early redemption of subordinated notes $ 1.63 $ 1.25 $ .94 $ .66 $ .54 Cumulative effect of accounting change(2) - - - .04 - Early redemption of subordinated notes, net of income taxes(3) - - (.14) - - Net earnings per common share $ 1.63 $ 1.25 $ .80 $ .70 $ .54 Consolidated Balance Sheet Data Working capital $ 58,910 $ 41,945 $ 15,767 $ 33,828 $ 29,417 Total assets 467,119 443,545 331,117 279,818 268,264 Long-term debt, less current installments 99,900 149,808 155,293 190,058 225,278 Shareholders' equity (deficit) 186,649 106,338 11,012 (29,419) (66,311) (1)Includes the operations of Trigon Industries Limited from the date of its acquisition in January 1995. (2)Reflects cumulative effect of the implementation as of January 1, 1993 of Financial Accounting Standard No. 109, "Accounting for Income Taxes." (3)Reflects after-tax charge to earnings arising from the early redemption in 1994 of the Company's 12-5/8% Senior Subordinated Notes. (4)Per common share data has been restated for periods prior to 1995 to reflect the effect of a two-for-one stock split in the nature of a 100% stock dividend distributed on September 29, 1995 to shareholders of record at the close of business on September 15, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Net Sales Net sales increased 9% in 1996 compared with 1995 and 39% in 1995 compared with 1994. The 1996 increase in net sales was due primarily to higher unit volume in the Company's major classes of products, the added net sales of businesses acquired during 1996, discussed below, and higher average selling prices for certain products. Foreign currency translation did not have a material effect on the Company's operating results in 1996 or 1995. During 1996, the Company made several acquisitions. These included the acquisition in June 1996 of the protective packaging business of Southcorp Holdings Limited, which had previously been the Company's licensee in Australasia. They also included small acquisitions in Canada, Finland, Germany and the United States. These transactions, which were effected for cash in the aggregate amount of approximately $30 million and accounted for as purchases, were not material to the Company's consolidated financial statements. Approximately two-fifths of the 1995 increase in net sales resulted from the added sales of Trigon Industries Limited ("Trigon"), which the Company acquired in early January 1995. Trigon's operations have subsequently been integrated into the Company's other operations. Trigon, originally based in New Zealand, was a multinational manufacturer of food packaging materials and systems, durable mailers and bags and specialty adhesive products. The 1995 increase also reflected higher average selling prices for certain products, higher unit volume in the Company's major classes of products and the added net sales of other foreign businesses acquired during 1994. Net sales from domestic operations increased 8% in 1996 compared with 1995 and 20% in 1995 compared with 1994. The 1996 increase was due primarily to higher unit volume in certain of the Company's major classes of products as well as higher average selling prices for certain products. The 1995 increase was due primarily to higher average selling prices for certain products, the added net sales of Trigon's U.S. operations and higher unit volume in certain of the Company's major classes of products. Net sales from foreign operations increased 11% in 1996 compared with 1995 and 86% in 1995 compared with 1994. The 1996 increase was primarily due to the added net sales of businesses acquired in 1996, higher unit volume in certain of the Company's major classes of products and, to a lesser extent, higher average selling prices for certain products. The 1995 increase resulted primarily from the added net sales of Trigon's operations outside of the United States, the added net sales of other foreign businesses acquired during 1994, increased unit volume in the Company's major classes of products, higher average selling prices for certain products and the modest contribution of foreign currency translation. Net sales of engineered products, which consist primarily of Instapak(R) products and thick polyethylene foams, increased 13% in 1996 compared with 1995 and 21% in 1995 compared with 1994. The increase in net sales in both 1996 and 1995 was due primarily to higher unit volume and, to a lesser extent, 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 11% in 1996 compared with 1995 and 42% in 1995 compared with 1994. In 1996, the increase was due primarily to higher unit volume, the added net sales of businesses acquired in 1996 and, to a lesser extent, higher average selling prices for certain products. The 1995 increase resulted primarily from the added net sales of Trigon's durable mailer and bag products, higher average selling prices for certain products, the added sales of businesses acquired during 1994, and higher unit volume for certain products. Net sales of food packaging products, which consist primarily of Dri-Loc (R) pads and food packaging films and systems, increased 3% in 1996 compared with 1995 and 84% in 1995 compared with 1994. The 1996 increase was due primarily to higher unit volume of the Company's Dri-Loc (R) products, which was partially offset by the effect of the transfer during 1996 of the sales of certain food packaging products in Australia to a small unconsolidated joint venture in that country and the effect of lower unit volume in certain other food packaging products. The increase in 1995 was due primarily to the added sales of Trigon's food packaging products and, to a lesser extent, higher unit volume. Net sales of other products decreased to $29,473,000 in 1996 from $33,200,000 in 1995 primarily due to decreased unit volume of the Company's mill tonnage paper products partially offset by an increase in unit volume of the Company's specialty adhesive products. Net sales of other products increased to $33,200,000 in 1995 from $19,792,000 in 1994 primarily due to the added net sales of specialty adhesive products resulting from the Trigon acquisition. Costs and Expenses Cost of sales increased 6% in 1996 compared with 1995 and 43% in 1995 compared with 1994. The increase in both the 1996 and 1995 periods reflects primarily the higher level of net sales in each period. Cost of sales as a percentage of sales was 62.7%, 64.6% and 63.1% in 1996, 1995 and 1994, respectively. In 1996, cost of sales as a percentage of net sales benefited from certain lower raw material costs, but in 1995 it increased due to certain higher raw material costs and the impact of the Trigon and other acquisitions. Marketing, administrative and development expenses increased 12% in 1996 compared with 1995 and 37% in 1995 compared with 1994. The increase in both 1996 and 1995 reflects primarily the Company's higher level of operations, including the added marketing, administrative and development expenses of acquired companies. The increase also reflects costs associated with the integration of these companies. Marketing, administrative and development expenses changed modestly as a percentage of net sales each year from 1994 through 1996. Operating Profit Operating profit increased 19% in 1996 compared with 1995 and 30% in 1995 compared with 1994. Domestic operating profit increased 26% in 1996 compared with 1995 and 15% in 1995 compared with 1994, and foreign operating profit increased 5% in 1996 compared with 1995 and 83% in 1995 compared with 1994. In each case, these increases were due primarily to the Company's higher level of net sales and the relative changes in costs and expenses discussed above. While consolidated and domestic operating profit increased in 1996 as a percentage of net sales, foreign operating profit decreased as a percentage of net sales primarily due to the added expenses of acquired companies, including additional amortization of acquired intangible assets, and integration costs. Other Income (Expense) Other expense decreased to $15,477,000 in 1996 compared with $21,726,000 in 1995 and $22,706,000 in 1994. Interest expense, which is the principal component of this item, decreased to $13,350,000 in 1996 from $19,106,000 in 1995 and $19,363,000 in 1994. The decrease in interest expense in 1996 resulted primarily from lower levels of outstanding indebtedness compared with 1995 and, to a lesser extent, lower effective interest rates. During 1995, although the Company had higher levels of outstanding indebtedness compared with 1994, the effective interest rates on such indebtedness were lower than those which prevailed in 1994 primarily due to the refinancing in July 1994 of the Company's 12-5/8% Senior Subordinated Notes (the "12-5/8% Notes"). Income Taxes The Company's effective income tax rate was 39.5% in 1996 and 1995 and 39.2% in 1994. 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. The Company anticipates that its effective income tax rate in 1997 will remain at a rate comparable to that in 1996. Earnings Net earnings increased 31% in 1996 compared with 1995. Earnings increased 42% in 1995 compared with 1994, excluding the effect of an extraordinary charge to earnings in 1994 of $5,576,000, or $0.14 per share, attributable to the refinancing of the 12-5/8% Notes. After giving effect to this charge, net earnings increased 67% in 1995 compared with 1994. 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 by borrowings under its available lines of credit or otherwise. Cash flows from operating activities were $116,065,000 in 1996, $75,218,000 in 1995 and $62,941,000 in 1994. The increase each year was due primarily to higher levels of earnings, higher levels of depreciation and amortization, and changes in operating assets and liabilities resulting primarily from the Company's higher level of operations. Cash flows used in investing activities were $45,544,000 in 1996, $47,993,000 in 1995 and $32,518,000 in 1994. Such cash was used primarily to fund acquisitions and capital expenditures. The fluctuation between years was primarily due to the timing of acquisitions and capital expenditures. Cash flows used in financing activities were $75,121,000 in 1996, $30,912,000 in 1995 and $39,097,000 in 1994. The higher amount of net cash used in financing activities in 1996 primarily reflects the higher level of net repayments of outstanding debt in 1996. At December 31, 1996, the Company had working capital of $58,910,000, or 13% of total assets, compared to working capital of $41,945,000, or 9% of total assets, at December 31, 1995. The increase in working capital was due primarily to an increase in accounts receivable resulting from the Company's higher level of net sales and a decrease in current portion of long-term debt and notes payable resulting from the timing of scheduled maturities on the remaining outstanding debt. These changes were partially offset by an increase in accrued liabilities, which was primarily due to the higher level of operations. The Company's ratio of current assets to current liabilities (current ratio) was 1.4 at December 31, 1996 and 1.3 at December 31, 1995. The Company's ratio of current assets less inventory to current liabilities (quick ratio) was 1.0 at December 31, 1996 and 0.9 at December 31, 1995. The increases in these ratios in 1996 resulted primarily from the increase in working capital discussed above. Long-term debt, less current installments, declined to $99,900,000 at December 31, 1996 from $149,808,000 at December 31, 1995 due primarily to net repayments of outstanding long-term debt during 1996, including the repayment of the term loan portion of the BT Credit Agreement, mentioned below. Current installments of long-term debt declined to $2,891,000 at December 31, 1996 from $17,953,000 at December 31, 1995 reflecting the timing of scheduled maturities on the remaining outstanding debt. The Company's principal credit agreement is an unsecured $200 million revolving credit facility with Bankers Trust Company, as agent for a syndicate of banks (the "BT Credit Agreement"), that expires on June 30, 2001. As of December 31, 1996, the Company's available lines of credit, including the BT Credit Agreement, amounted to approximately $256 million of which approximately $194 million was 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 obligations under the BT Credit Agreement and certain other loans and lines of credit bear interest at floating rates. The Company has entered into certain derivative financial instruments, including interest rate swap, interest rate collar and interest rate and currency swap agreements that have the effect of fixing or limiting the Company's exposure to fluctuations in interest rates on a portion of the Company's floating rate debt. The BT Credit Agreement provides for changes in borrowing margins based on financial criteria and imposes certain limitations on the operations of the Company and its subsidiaries. These limitations include restrictions on the incurrence of additional indebtedness, the creation of liens, the making of investments, dispositions of property or assets, certain transactions with affiliates, and the payment by the Company of cash dividends to its stockholders, as well as financial covenants relating to interest coverage and debt leverage. The Company was in compliance with these requirements as of December 31, 1996. The Company's shareholders' equity increased to $186,649,000 at December 31, 1996 from $106,338,000 at December 31, 1995 primarily as a result of the Company's net earnings for 1996. Impact of Inflation Inflation did not have a material impact on the Company's consolidated financial statements in the 1994 to 1996 period. Other Matters 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, 1996, the Company was a party to, or otherwise involved in, several federal and state government environmental proceedings and private environmental claims for the cleanup of Superfund or other sites. The Company may have potential liability for investigation and cleanup of certain 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, 1996 and 1995, such environmental related provisions were not material. While it is often difficult to estimate potential liabilities and the future impact of environmental matters, based upon the information currently available to the Company and its experience in dealing with such matters, 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, 1996, 1995 and 1994 (In thousands of dollars except per share data)
1996 1995 1994 ________________________________________________________________________________________ Net sales $789,612 $723,120 $519,186 Cost of sales 495,185 466,952 327,423 Gross profit 294,427 256,168 191,763 Marketing, administrative and development expenses 164,355 147,288 107,854 Operating profit 130,072 108,880 83,909 Other income (expense): Interest income 1,482 1,187 1,140 Interest expense (13,350) (19,106) (19,363) Other, net (3,609) (3,807) (4,483) Other income (expense), net (15,477) (21,726) (22,706) Earnings before income taxes 114,595 87,154 61,203 Income taxes 45,266 34,426 23,987 Earnings before early redemption of subordinated notes 69,329 52,728 37,216 Early redemption of subordinated notes, net of income taxes - - (5,576) Net earnings $ 69,329 $ 52,728 $ 31,640 Earnings per common share: Before early redemption of subordinated notes $ 1.63 $ 1.25 $ 0.94 Early redemption of subordinated notes, net of income taxes - - (.14) Net earnings per common share $ 1.63 $ 1.25 $ 0.80 See accompanying notes to consolidated financial statements.
SEALED AIR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995 (In thousands of dollars except share data)
1996 1995 Assets Current assets: Cash and cash equivalents $ 2,985 $ 7,661 Accounts receivable, less allowance for doubtful accounts of $5,623 in 1996 and $5,261 in 1995 124,204 116,446 Other receivables 8,258 6,170 Inventories 57,231 54,500 Prepaid expenses 1,095 2,470 Deferred income taxes 13,193 8,912 Total current assets 206,966 196,159 Property and equipment: Land and buildings 81,629 77,603 Machinery and equipment 199,275 177,832 Leasehold improvements 8,409 6,766 Furniture and fixtures 12,029 11,956 Construction in progress 6,139 10,711 307,481 284,868 Less accumulated depreciation and amortization 132,919 115,012 Property and equipment, net 174,562 169,856 Patents and patent rights, less accumulated amortization of $15,139 in 1996 and $13,619 in 1995 11,998 12,107 Excess of cost over fair value of net assets acquired, less accumulated amortization of $12,966 in 1996 and $7,607 in 1995 47,840 41,932 Other assets 25,753 23,491 $467,119 $443,545 See accompanying notes to consolidated financial statements. 1996 1995 Liabilities and Shareholders' Equity Current liabilities: Notes payable $12,674 $18,887 Current installments of long-term debt 2,891 17,953 Accounts payable 46,934 44,460 Accrued wages, salaries and related costs 33,448 26,759 Accrued interest 323 1,560 Other accrued liabilities 36,078 28,865 Income taxes payable 15,708 15,730 Total current liabilities 148,056 154,214 Long-term debt, less current installments 99,900 149,808 Deferred income taxes 19,863 21,875 Other liabilities 12,651 11,310 Total liabilities 280,470 337,207 Commitments and contingent liabilities (notes 4, 5 and 8) Shareholders' equity: Preferred stock, no par value. Authorized: 1,000,000 shares; none issued in 1996 and 1995 - - Common stock, $.01 par value. Authorized: 60,000,000 shares in 1996 and 1995; Issued: 42,747,704 shares in 1996 and 42,506,573 shares in 1995 427 425 Additional paid-in capital 167,801 158,400 Retained earnings (deficit) 16,021 (53,308) Accumulated translation adjustment 8,615 7,279 192,864 112,796 Less: Deferred compensation 5,988 6,232 Treasury stock at cost: 226,758 shares held in 1996 and 224,758 shares held in 1995 227 226 Total shareholders' equity 186,649 106,338 $467,119 $443,545
SEALED AIR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, 1996, 1995 and 1994 (In thousands of dollars)
Additional Retained Accumulated Common Paid-in Earnings Translation Deferred Treasury Stock Capital (Deficit) Adjustment Compensation Stock Total Balance, December 31, 1993 $ 199 $108,361 $(137,676) $ 5,063 $ (5,120) $ (246) $ (29,419) Net earnings - - 31,640 - - - 31,640 Proceeds from awards of contingent stock, net 1 52 - - - - 53 Excess of fair value over proceeds from awards of contingent stock, net - 1,615 - - (1,615) - - Amortization - - - - 2,957 - 2,957 Tax benefit in excess of amortization on stock awards - 664 - - - - 664 Contingent stock forfeited - (61) - - 61 (2) (2) Shares issued for non-cash compensation 1 2,360 - - - - 2.361 Shares issued in acquisitions - 1,695 - - - - 1,695 Foreign currency translation - - - 1,063 - - 1,063 Balance, December 31, 1994 $ 201 $114,686 $(106,036) $ 6,126 $ (3,717) $ (248) $ 11,012 Net earnings - - 52,728 - - - 52,728 Proceeds from awards of contingent stock, net - 160 - - - - 160 Excess of fair value over proceeds from awards of contingent stock, net 2 5,931 - - (5,933) - - Amortization - - - - 3,370 - 3,370 Tax benefit in excess of amortization on stock awards - 527 - - - - 527 Contingent stock forfeited - (48) - - 48 (2) (2) Shares issued for non-cash compensation 1 3,239 - - - - 3,240 Shares issued in acquisitions 9 34,117 - - - 24 34,150 Stock split 212 (212) - - - - - Foreign currency translation - - - 1,153 - - 1,153 Balance, December 31, 1995 $ 425 $ 158,400 $(53,308) $ 7,279 $ (6,232) $ (226) $ 106,338 Net earnings - - 69,329 - - - 69,329 Proceeds from awards of contingent stock, net - 92 - - - - 92 Excess of fair value over proceeds from awards of contingent stock, net 1 3,304 - - (3,305) - - Amortization - - - - 3,498 - 3,498 Tax benefit in excess of amortization on stock awards - 1,700 - - - - 1,700 Contingent stock forfeited - (51) - - 51 (1) (1) Shares issued for non-cash compensation 1 3,743 - - - - 3,744 Shares issued related to prior year acquisition - 613 - - - - 613 Foreign currency translation - - - 1,336 - - 1,336 Balance, December 31, 1996 $ 427 $ 167,801 $ 16,021 $ 8,615 $ (5,988) $ (227) $186,649 See accompanying notes to consolidated financial statements.
SEALED AIR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1996, 1995 and 1994 (In thousands of dollars)
1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 69,329 $ 52,728 $ 31,640 Adjustments to reconcile net earnings to net cash provided by operating activities: Early redemption of subordinated notes - - 5,576 Depreciation and amortization of property and equipment 22,862 20,473 14,921 Other depreciation and amortization 17,035 14,807 8,599 Deferred tax provision (5,297) (1,375) 385 Net losses on disposals of property and equipment 149 273 397 Non-cash compensation 3,242 3,556 3,256 Other, net 2,217 811 (661) Change in operating assets and liabilities: Receivables (7,798) (13,016) (17,478) Inventories 1,164 (5,953) (4,018) Prepaid expenses 1,644 (1,441) 666 Accounts payable 1,113 (9,262) 14,913 Accrued interest (1,237) 237 (9,810) Other accrued liabilities 13,356 10,813 4,264 Income taxes payable (1,714) 2,567 10,291 Net cash provided by operating activities 116,065 75,218 62,941 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures for property and equipment (17,015) (21,056) (17,470) Proceeds from sales of property and equipment 1,497 776 226 Net cash utilized in purchase of subsidiaries (30,026) (27,713) (15,274) Net cash used in investing activities (45,544) (47,993) (32,518) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 108,131 75,271 203,85 Principal payments on long-term debt (177,039) (114,281) (234,613) Net (payments on) proceeds from notes payable (6,213) 8,098 (293) Subordinated debt redemption premium - - (8,048) Net cash used in financing activities (75,121) (30,912) (39,097) Effect of exchange rate changes on cash and cash equivalents (76) 195 435 CASH AND CASH EQUIVALENTS: Decrease during the period (4,676) (3,492) (8,239) Balance, beginning of period 7,661 11,153 19,392 Balance, end of period $ 2,985 $ 7,661 $ 11,153 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 14,173 $ 18,582 $ 28,645 Income taxes $ 39,991 $ 33,898 $ 14,349 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. Prior years' financial statement amounts have been reclassified to conform with their 1996 presentation. Foreign Currency All balance sheet accounts are translated at year-end exchange rates, and statement of earnings items are translated at weighted average month-end exchange rates. Resulting translation adjustments are made directly to a separate component of shareholders' equity. Earnings before income taxes includes an aggregate exchange gain of $271,000 for the year ended December 31, 1996 and aggregate exchange losses of $828,000 and $697,000 for the years ended December 31, 1995 and 1994, respectively. Cash and Cash Equivalents Investments with original maturities of three months or less are considered to be cash equivalents. The Company's policy is to invest cash in excess of short-term operating and debt service requirements in such cash equivalents, which amounted to $3,489,000 and $6,134,000 at December 31, 1996 and 1995, 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. Derivative Financial Instruments The Company has limited involvement with derivative financial instruments that have off-balance-sheet risk. These financial instruments generally include interest rate and currency swap agreements, interest rate swap agreements, interest rate collar agreements, foreign exchange forward 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 and trade activities. The Company does not purchase, hold or sell derivative financial instruments for trading purposes. The Company is exposed to credit risk in the event of the inability of the counterparties to its outstanding derivative contracts to perform their obligations. However, the Company seeks to minimize such risk by entering into such transactions with counterparties that are major financial institutions with high credit ratings. Gains and losses related to qualifying hedges of firm commitments or anticipated transactions are deferred and are recognized in income or as adjustments of carrying amounts when the underlying hedged transaction is settled. Gains and losses on financial instruments that do not qualify as hedges are recognized as other income or expense on a current basis. 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, 1996, inventories would have been higher by $4,729,000 ($4,557,000 and $4,848,000 in 1995 and 1994, 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 or the asset's useful life. The Company generally uses 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 and patent rights is recorded using the straight-line method over the legal lives of the patents, generally for periods ranging up to 20 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, usually ranging from 1 to 5 years. The carrying value of the excess of cost over fair value of net assets acquired is periodically reviewed by the Company. Impairments are recognized when the expected future undiscounted operating cash flows derived from such intangible assets are less than their carrying value. Impairment of Long-Lived Assets Long-lived assets, including property and equipment, certain intangibles, and the excess of cost over fair value of net assets acquired related to those assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and the carrying amount. Employee Benefit Plans The Company has a non-contributory profit-sharing plan covering most U.S. employees, except those employees covered by collective bargaining agreements that do not provide for their participation. 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 non-vested interests in each of these plans remain in the respective plans for the benefit of the remaining participants. The Company also has pension or other retirement 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 other retirement plans, net of forfeitures, are charged to operations and amounted to $10,903,000 in 1996 ($10,069,000 and $8,718,000 in 1995 and 1994, 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 $15,449,000 in 1996 ($14,597,000 and $10,912,000 in 1995 and 1994, respectively). Environmental Expenditures Environmental expenditures that relate to ongoing business activities 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. The Company provides for taxes on the assumed repatriation of accumulated earnings of its foreign subsidiaries. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. A valuation allowance is provided when it is more likely than not that all or some portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income in the years in which those temporary differences are expected to be recovered or settled. 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. The weighted average number of common shares outstanding in 1996 was 42,459,000 (42,057,000 and 39,884,000 in 1995 and 1994, respectively). Other Matters The Company is primarily 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 throughout the world. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral from its customers. No single customer or affiliated group of customers accounts for more than 10% of the Company's net sales. In conformity with generally accepted accounting principles, management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities to prepare the Company's consolidated financial statements. Actual results could differ from these estimates. Note 2 Acquisitions In June 1996, the Company acquired the Australian and New Zealand protective packaging business of Southcorp Holdings Limited. During 1996, the Company also made several other small acquisitions, including acquisitions in Canada, Finland, Germany and the United States. These transactions, which were effected for cash in the aggregate amount of approximately $30 million and accounted for as purchases, were not material to the Company's consolidated financial statements. On January 10, 1995, the Company acquired Trigon Industries Limited ("Trigon"), a privately owned, New Zealand-based manufacturer of food packaging films and systems, durable mailers and bags and specialty adhesive products, for 882,930 newly issued shares of common stock valued at $35.70 per share and $25,592,000 in cash primarily provided by proceeds from borrowings under the BT Credit Agreement (note 4), representing a purchase price of approximately $57 million. The acquired net assets of Trigon included property and equipment of approximately $28,400,000, intangible assets of approximately $43,000,000 including trademarks, non-competition agreements, and the excess of cost over the fair value of net assets acquired, $25,000,000 of net indebtedness, and working capital of approximately $12,000,000. Such acquisition was accounted for as a purchase. During 1995, the Company made certain other small acquisitions in the United States. These transactions, which were effected in exchange for shares of the Company's common stock, cash or a combination of the Company's common stock and cash, were accounted for as purchases and were not material to the Company's consolidated financial statements. During 1994, the Company made several small acquisitions in England, France, Italy and Norway. These transactions, which were 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. Note 3 Geographic Areas The Company's operations are conducted primarily in the United States, Europe, the Asia/Pacific region, Canada and Latin America, 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 1996 United States $ 504,449 $ 95,375 $ 213,223 Europe 204,474 25,696 156,242 Asia/Pacific & Other 113,687 9,001 97,654 Eliminations (32,998) - - Consolidated $ 789,612 $ 130,072 $ 467,119 1995 United States $ 464,820 $ 75,828 $ 213,099 Europe 188,558 24,617 153,563 Asia/Pacific & Other 94,864 8,435 76,883 Eliminations (25,122) - - Consolidated $ 723,120 $ 108,880 $ 443,545 1994 United States $385,484 $ 65,884 $185,510 Europe 107,990 13,882 116,800 Asia/Pacific & Other 44,681 4,143 28,807 Eliminations (18,969) - - Consolidated $519,186 $ 83,909 $331,117 NOTE: Net sales shown for the United States, Europe and Asia/Pacific and Other include transfers to other geographic areas as follows: United States, 1996--$22,888,000; 1995 --$18,412,000; 1994 --$14,850,000; Europe, 1996 - - --$4,781,000; 1995 --$2,398,000; 1994 --$1,368,000; Asia/Pacific and Other, 1996--$5,329,000; 1995 --$4,312,000; 1994 --$2,751,000.
Note 4 Long-Term Debt A summary of long-term debt at December 31, 1996 and 1995 follows: (In thousands of dollars)
1996 1995 BT Credit Agreement $38,228 $146,611 Foreign loans 59,719 16,352 Other 4,844 4,798 Total 102,791 167,761 Less current installments 2,891 17,953 Long-term debt, less current installments $ 99,900 $149,808
The Company's principal credit agreement (the "BT Credit Agreement"), as amended and restated in August 1996, is an unsecured $200 million revolving credit facility ("Revolving Facility") that expires on June 30, 2001. Before its restatement, the BT Credit Agreement also provided for a $100 million term loan ("Term Loan"), the remaining portion of which was repaid during 1996. The Revolving Facility has no minimum annual paydown provision. The Company's borrowings under the Revolving Facility amounted to $38,228,000 at December 31, 1996. At December 31, 1995, the Company's outstanding borrowings under the Revolving Facility and the Term Loan were $83,611,000 and $63,000,000, respectively. The weighted average interest rates under the BT Credit Agreement were approximately 6.8% and 7.1% at December 31, 1996 and 1995, respectively. Had the Company not been a party to derivative financial instruments, discussed below, at December 31, 1996 and 1995, the weighted average interest rates related to the BT Credit Agreement would have been approximately 6.7% and 7.1%, respectively. Foreign loans have been incurred for acquisitions, working capital and other corporate purposes. Certain of such loans are secured by foreign assets of approximately $14 million and are due in varying annual installments through 2010 with fixed and variable interest rates. The weighted average interest rates on such loans were 7.4% and 7.8% at December 31, 1996 and 1995, respectively. The Company's obligations under the BT Credit Agreement and certain foreign and other loans and lines of credit bear interest at floating rates. The Company utilizes certain derivative financial instruments to manage its exposure to fluctuations in interest rates, including interest rate swaps and collars and interest rate and currency swaps. The BT Credit Agreement provides for changes in borrowing margins based on certain financial criteria and imposes certain limitations on the operations of the Company and its subsidiaries that include restrictions on the incurrence of additional indebtedness, the creation of liens, the making of investments, 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 relating to interest coverage and debt leverage. The Company was in compliance with these requirements as of December 31, 1996. Under the BT Credit Agreement and other credit facilities, the Company had available lines of credit at December 31, 1996 of approximately $256 million of which approximately $194 million was unused. The Company is not subject to any material compensating balance requirements in connection with its lines of credit. Scheduled annual maturities of long-term debt for the five years subsequent to December 31,1996 are as follows: 1997 -- $2,891,000; 1998 -- $9,183,000; 1999 - - --$27,968,000; 2000 -$1,526,000 and 2001 -- $57,549,000. In 1994, the Company redeemed all of its then outstanding 12-5/8% Senior Subordinated Notes (the "12-5/8% Notes"), incurring an after-tax charge to earnings of $5,576,000, or $0.14 per share. 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. 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 balance sheet date. 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 of current assets and liabilities approximate fair value due to their short-term maturity. The carrying amounts and estimated fair values of the Company's material, non-current financial instruments at December 31, 1996 and 1995 are as follows: (In thousands of dollars)
1996 1995 Carrying Fair Carrying Fair Amount Value Amount Value Financial liabilities: Debt: BT Credit Agreement $38,228 $38,228 $146,611 $146,611 Derivatives - 2,265 - 668 BT Credit Agreement, net 38,228 40,493 146,611 147,279 Foreign loans 59,719 60,163 16,352 16,530 Derivatives - 324 - - Foreign loans, net 59,719 60,487 16,352 16,530 Other loans 4,844 4,565 4,798 5,001 Other liabilities 12,651 12,651 11,310 11,310
The Company utilizes derivative financial instruments to manage its exposure to fluctuations in interest rates and foreign exchange rates. The Company does not purchase, hold or sell derivative financial instruments for trading purposes. Interest rate swaps and interest rate collars are used to reduce the Company's exposure to fluctuations in interest rates by fixing or limiting the rate of interest the Company pays on the notional amount of debt. At December 31, 1996, the Company was party to interest rate swaps and collars with an aggregate notional amount of $22 million with various expiration dates through June 2001. At December 31, 1995, the Company was party to interest rate swaps with an aggregate notional amount of $50 million with various expiration dates through June 1999. Interest rate and currency swaps allow the Company to gain access to additional sources of international financing while limiting foreign exchange and interest rate exposure by swapping borrowings in U.S. dollars for borrowings denominated in foreign currencies. At December 31, 1996, the Company was party to interest rate and currency swaps with an aggregate notional amount of $30 million and various expiration dates through December 2001. At December 31, 1995, the Company was party to interest rate and currency swaps with an aggregate notional amount of $44 million with various expiration dates through June 1999. Foreign currency options and forwards are generally used by the Company to limit the risk on anticipated international transactions. At December 31, 1996, the Company was not party to any material foreign currency options or forwards. At December 31, 1995, the Company was party to foreign currency options with an aggregate notional amount of approximately $14 million but was not party to any material foreign currency forwards. The carrying value and fair value of the foreign currency options were not material at December 31, 1995. 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. Unrealized losses and realized gains and losses on the Company's financial instruments and derivatives were not material to the consolidated financial statements in 1996, 1995, and 1994. The Company is exposed to credit losses in the event of the inability of the counterparties to its outstanding derivative contracts to perform their obligations, but it does not expect any counterparties to fail to do so given their high credit ratings and financial strength. The Company believes that off-balance sheet risk in conjunction with its derivative contracts would not be material in the case of non-performance on the part of the counterparties to such agreements. Note 6 Shareholders' Equity The Company's shareholders' equity increased to $186,649,000 at December 31, 1996 from $106,338,000 at December 31, 1995 primarily as a result of the Company's net earnings in 1996. On September 29, 1995, the Company distributed a two-for-one stock split in the nature of a 100% stock dividend (the "1995 stock split") to the holders of record of the Company's common stock at the close of business on September 15, 1995. As a result, a transfer was made from additional paid-in capital to common stock in an amount equal to the aggregate par value of the shares of common stock issued pursuant to this stock split. All per share data and share information in the consolidated financial statements and notes thereto have been adjusted to give retroactive effect to the 1995 stock split where appropriate. A summary of changes in issued and outstanding shares of common stock and shares of treasury stock of the Company follows:
1996 1995 1994 Changes in common stock: Number of shares issued, beginning of year 42,506,573 20,111,618 19,924,661 Non-cash compensation 127,590 80,400 78,200 Awards of contingent stock 92,850 157,550 52,000 Shares issued related to acquisitions 20,691 957,335 56,757 Two-for-one stock split - 21,199,670 - Number of shares issued, end of year 42,747,704 42,506,573 20,111,618 Changes in treasury stock: Number of shares held, beginning of year 224,758 122,306 119,306 Shares issued in acquisition - (11,927) - Contingent stock forfeited 2,000 2,000 3,000 Two-for-one stock split - 112,379 - Number of shares held, end of year 226,758 224,758 122,306
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 (the "Directors Stock Plan"), discussed below. The aggregate amount of non-cash compensation charged to operations amounted to $3,242,000, $3,556,000 and $3,256,000 in 1996, 1995 and 1994, 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 at least 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 vesting period if certain events occur which affect the existence or control of the Company. The excess of fair value over the award price of Contingent Stock is charged to operations as compensation over a three-year period. In 1996, such charges amounted to $3,498,000 ($3,370,000 and $2,957,000 in 1995 and 1994, 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. The Company's restricted stock plan for non-employee directors provides annual grants of shares to non-employee directors, and interim grants of shares to eligible directors elected at other than an annual meeting, 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 1996, such charges amounted to $246,000 ($63,000 and $150,000 in 1995 and 1994, respectively). 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, 1996. The Company has adopted only the disclosure provisions of Financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based Compensation," but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans. The compensation cost that has been charged against income for the Company's stock-based compensation was noted above. Since such compensation cost is consistent with the compensation cost that would have been recognized for the Company's stock plans under the provisions of FASB Statement No. 123, the pro forma disclosure requirements under such statement are not applicable. A summary of the changes in shares available for the Directors Stock Plan and the Contingent Stock Plan follows:
Changes in the Directors Stock Plan shares: 1996 1995 1994 Number of shares available, beginning of year 161,400 82,200 87,800 Shares issued for new awards (1) (7,200) (1,500) (5,600) Two-for-one stock split - 80,700 - Reduction in shares authorized during year (125,000) - - Number of shares available, end of year 29,200 161,400 82,200 Weighted average per share market value of stock on grant date (2) $35.13 $21.50 $13.89 Changes in the Contingent Stock Plan shares: 1996 1995 1994 Number of shares available, beginning of year 737,000 505,900 554,900 Shares issued for new awards (1) (92,850) (157,550) (52,000) Contingent stock forfeited 2,000 2,000 3,000 Two-for-one stock split - 386,650 - Number of shares available, end of year 646,150 737,000 505,900 Weighted average per share market value of stock on grant date (2) $36.59 $21.97 $16.04 (1) For the Directors Stock Plan during 1995, all 1,500 shares were issued before the September 1995 stock split. For the Contingent Stock Plan during 1995, 119,050 shares were issued before such stock split and the remaining 38,500 shares were issued after the stock split. (2) Per share data adjusted to reflect the effect of the September 1995 two-for-one stock split paid in the nature of a 100% stock dividend.
Note 7 Income Taxes The Company's method of accounting for income taxes is the asset and liability method, under which deferred tax assets and liabilities are recognized for temporary differences and are measured using enacted tax rates and laws applicable to the periods in which the taxes become payable. The components of earnings before income taxes and, in 1994, before the early redemption of the 12-5/8% Notes (note 4) follow: (In thousands of dollars)
1996 1995 1994 Domestic $ 91,055 $ 61,007 $ 44,150 Foreign 23,540 26,147 17,053 $114,595 $ 87,154 $ 61,203 The components of the provision for income taxes on earnings and, in 1994, before the effect of the early redemption of the 12-5/8% Notes follow:
(In thousands of dollars)
1996 1995 1994 Current tax provision: U.S. federal $ 31,888 $ 20,624 $ 13,543 U.S. state and local 8,085 5,830 3,981 Foreign 10,590 9,347 6,078 50,563 35,801 23,602 Deferred tax provision (benefit): Domestic (4,067) (2,589) 631 Foreign (1,230) 1,214 (246) (5,297) (1,375) 385 Provision for income taxes $ 45,266 $ 34,426 $ 23,987 The Company's deferred tax liability, net of deferred tax assets, at December 31, 1996 and 1995 amounted to $6,014,000 and $12,452,000, respectively. The principal components of the Company's deferred tax assets and liabilities at December 31, 1996 and 1995 are as follows:
(In thousands of dollars)
1996 1995 Deferred tax assets: Accrued expenses $ 7,970 $ 3,057 Facilities consolidation and integration 3,801 4,485 Patents and other intangibles 2,830 933 Property and equipment 1,169 3,076 Deferred revenue 1,128 694 Deferred compensation 1,121 683 Inventory 824 745 Bad debts 732 626 Other 5,159 2,439 24,734 16,738 Valuation allowance (277) (522) Deferred tax asset $24,457 $16,216 Deferred tax liabilities: Property and equipment $24,944 $21,670 Deferred revenue 855 1,230 Patents and other intangibles 598 756 Other 4,074 5,012 Deferred tax liability $30,471 $28,668
The Company expects that it is more likely than not that the net deferred tax assets of $24,457,000 at December 31, 1996 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 $277,000 is maintained for certain foreign deferred tax assets primarily relating to insignificant net operating losses. The net change in the valuation allowance for deferred tax assets was a decrease of $245,000 in 1996 related to benefits arising from these net operating losses. 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, 1996, 1995 and 1994 follows:
1996 1995 1994 Statutory U.S. federal income tax rate 35.0% 35.0% 35.0% Provision for foreign withholding taxes and additional U.S. taxes on repatriated and accumulated earnings of foreign subsidiaries 0.1 0.1 1.4 Tax effect of expenses not subject to tax benefit 1.4 1.7 0.5 State income taxes, net of U.S. federal income tax benefit 4.5 4.0 4.1 Taxes on foreign earnings at other than the statutory U.S. federal income tax rate (0.6) (0.4) (1.0) Other miscellaneous items (0.9) (0.9) (0.8) Effective income tax rate 39.5% 39.5% 39.2%
The Company's tax provisions for 1996, 1995 and 1994 give effect to foreign withholding taxes on the repatriation of accumulated earnings from the Company's foreign subsidiaries and additional, if any, 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, 1996. 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 1996 was $10,939,000 ($10,228,000 and $8,281,000 in 1995 and 1994, respectively). Estimated future minimum annual rental commitments under noncancelable real property leases expiring through 2023 are as follows: 1997 - - - $9,355,000; 1998 - $7,285,000; 1999 - $4,992,000; 2000 - $3,863,000; 2001 - $3,196,000; and subsequent years - $9,125,000. 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, 1996, the Company was a party to, or otherwise involved in, several federal and state government environmental proceedings and private environmental claims for the cleanup of Superfund or other sites. The Company may have potential liability for investigation and cleanup of certain 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, 1996 and 1995, such environmental related provisions are not material. While it is often difficult to estimate potential liabilities and the future impact of environmental matters, based upon the information currently available to the Company and its experience in dealing with such matters, the Company believes that its potential liability with respect to such sites is not material. Environmental liabilities may be 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. 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, 1996 and 1995 and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. 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, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. s/KPMG Peat Marwick LLP Short Hills, New Jersey January 20, 1997 INTERIM FINANCIAL INFORMATION (Unaudited) (In thousands of dollars except per share data)
Quarter Net Sales Gross Profit Net Earnings 1996 1995 1996 1995 1996 1995 First $185,930 $173,354 $ 68,741 $ 60,807 $ 15,890 $ 11,573 Second 193,116 182,087 72,661 63,154 17,573 12,623 Third 196,532 178,536 73,126 62,432 17,141 13,442 Fourth 214,034 189,143 79,899 69,775 18,725 15,090 Year $789,612 $723,120 $294,427 $256,168 $ 69,329 $ 52,728
Earnings Per Share (1) 1996 1995 First $ .37 $ .28 Second .42 .30 Third .40 .32 Fourth .44 .35 Year $ 1.63 $ 1.25 (1) Earnings per share adjusted to reflect the effect of the September 1995 two-for-one stock split paid in the nature of a 100% stock dividend.
COMMON STOCK INFORMATION The Company's Common Stock is listed on the New York Stock
1995 High Low Exchange(trading symbol: SEE). First Quarter $22-3/4 $17-15/16 The adjacent table sets forth the Second Quarter $22-7/8 $20-1/8 high and low sales prices for the Company's Common Stock for each quarter during the two-year period Third Quarter $28-1/4 $22-1/8 ended December 31, 1996. Fourth Quarter $30-3/4 $24-1/4
The Company is currently subject to certain covenants in loan documents that limit the payment of cash dividends. No dividends were paid in 1996 or 1995.
1996 High Low First Quarter $35-1/4 $26 Second Quarter $38-1/4 $32-3/8 As of March 4, 1997, there were approximately 1,334 holders of Third Quarter $39 $30-1/8 record of the Company's Common Stock. Fourth Quarter $44-1/8 $37 Stock prices for periods prior to the fourth quarter of 1995 have been adjusted to reflect the effect of a two-for-one stock split in the nature of a 100% stock dividend distributed on September 29, 1995 to stockholders of record at the close of business on September 15, 1995.
EX-27 6
5 The schedule contains summary information extracted from the consolidated statement of earnings for the twelve months ended December 31, 1996 and the consolidated balance sheet at December 31, 1996 and is qualified in its entirety by reference to such financial statements. 0000088204 SEALED AIR CORPORATION 12-MOS DEC-31-1996 DEC-31-1996 2,985,000 0 129,827,000 5,623,000 57,231,000 206,966,000 307,481,000 132,919,000 467,119,000 148,056,000 0 427,000 0 0 186,222,000 467,119,000 789,612,000 789,612,000 495,185,000 495,185,000 164,355,000 1,151,000 13,350,000 114,595,000 45,266,000 69,329,000 0 0 0 69,329,000 1.63 0
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