<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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 1-12139
SEALED AIR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 65-0654331
- ------------------------------- -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Park 80 East
Saddle Brook, New Jersey 07663-5291
- ------------------------------- -----------------------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (201) 791-7600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO | |
There were 83,734,577 shares of the registrant's common stock, par value $0.10
per share, outstanding as of July 31, 2001.
<Page>
<Table>
PART I
FINANCIAL INFORMATION
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Three and Six Months Ended June 30, 2001 and 2000
(In thousands of dollars except for per share data)
(Unaudited)
<Caption>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------- --------- ----------- -----------
Net sales $ 761,599 $ 756,841 $ 1,519,871 $ 1,498,305
Cost of sales 519,445 502,868 1,037,472 986,343
--------- --------- ----------- -----------
Gross profit 242,154 253,973 482,399 511,962
Marketing, administrative
and development expenses 126,682 129,226 258,844 258,984
Goodwill amortization 14,104 12,381 28,364 24,691
Restructuring and other charges 6,057 -- 6,057 --
--------- --------- ----------- -----------
Operating profit 95,311 112,366 189,134 228,287
Other income (expense):
Interest expense (18,878) (13,923) (38,892) (27,011)
Other (expense) income, net (1,400) 329 (11,563) (1,617)
--------- --------- ----------- -----------
Other (expense), net (20,278) (13,594) (50,455) (28,628)
--------- --------- ----------- -----------
Earnings before
income taxes 75,033 98,772 138,679 199,659
Income taxes 35,769 44,941 64,855 90,845
--------- --------- ----------- -----------
Net earnings $ 39,264 $ 53,831 $ 73,824 $ 108,814
========= ========= =========== ===========
Less: Series A
preferred stock dividends 13,804 17,002 27,558 34,099
Add: Excess of book value
over repurchase price of
Series A preferred stock -- 32 4,035 2,811
--------- --------- ----------- -----------
Net earnings ascribed to
common shareholders $ 25,460 $ 36,861 $ 50,301 $ 77,526
========= ========= =========== ===========
Earnings per common share
(See Note 3):
Basic $ 0.30 $ 0.44 $ 0.60 $ 0.93
========= ========= =========== ===========
Diluted $ 0.30 $ 0.44 $ 0.55 $ 0.89
========= ========= =========== ===========
Weighted average number of
common shares outstanding (000):
Basic 83,660 83,674 83,654 83,651
========= ========= =========== ===========
Diluted 83,660 83,831 83,695 84,134
========= ========= =========== ===========
</Table>
See accompanying notes to consolidated financial statements.
2
<Page>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2001 and December 31, 2000
(In thousands of dollars, except share data)
<Table>
<Caption>
June 30, December 31,
2001 2000
---------- ------------
(Unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 64,675 $ 11,229
Notes and accounts receivable, net of
allowances for doubtful accounts of
$22,485 in 2001 and $21,171 in 2000 460,610 505,935
Inventories 307,433 309,116
Other current assets 58,116 50,800
---------- ----------
Total current assets 890,834 877,080
---------- ----------
Property and equipment:
Land and buildings 433,076 440,468
Machinery and equipment 1,401,535 1,405,119
Other property and equipment 112,049 112,184
Construction-in-progress 120,730 85,707
---------- ----------
2,067,390 2,043,478
Less accumulated depreciation and amortization 1,045,832 1,011,337
---------- ----------
Property and equipment, net 1,021,558 1,032,141
---------- ----------
Goodwill, less accumulated amortization of
$163,245 in 2001 and $135,240 in 2000 1,927,239 1,959,909
Other assets 173,604 178,968
---------- ----------
Total Assets $4,013,235 $4,048,098
========== ==========
</Table>
See accompanying notes to consolidated financial statements.
3
<Page>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2001 and December 31, 2000 (Continued)
(In thousands of dollars, except share data)
<Table>
<Caption>
June 30, December 31,
2001 2000
----------- ------------
(Unaudited)
LIABILITIES, PREFERRED STOCK & SHAREHOLDERS' EQUITY
- ---------------------------------------------------
Current Liabilities:
Short-term borrowings $ 207,984 $ 290,428
Current portion of long-term debt 1,072 1,418
Accounts payable 153,662 154,881
Other current liabilities 185,543 194,958
Income taxes payable 75,515 32,883
----------- -----------
Total current liabilities 623,776 674,568
Long-term debt, less current portion 933,719 944,453
Deferred income taxes 205,340 210,581
Other liabilities 73,496 72,994
----------- -----------
Total Liabilities 1,836,331 1,902,596
----------- -----------
Authorized 50,000,000 preferred shares. Series A
convertible preferred stock, $50.00 per share
redemption value, authorized 28,289,714 shares
in 2001 and 2000, outstanding 27,608,562 shares in
2001 and 27,847,462 shares in 2000, mandatory
redemption in 2018 1,380,428 1,392,373
Shareholders' equity:
Common stock, $.10 par value per share. Authorized
400,000,000 shares; issued 84,374,692 shares in
2001 and 84,352,492 shares in 2000 8,438 8,435
Additional paid-in capital 693,758 689,084
Retained earnings 339,392 293,126
Accumulated translation adjustment (201,593) (187,779)
----------- -----------
839,995 802,866
----------- -----------
Less: Deferred compensation 10,873 17,073
Less: Cost of treasury common stock, 709,265
shares in 2001 and 706,265 shares in 2000 31,125 31,143
Less: Minimum pension liability 1,521 1,521
----------- -----------
Total Shareholders' Equity 796,476 753,129
----------- -----------
Total Liabilities, Preferred Stock and
Shareholders' Equity $ 4,013,235 $ 4,048,098
=========== ===========
</Table>
See accompanying notes to consolidated financial statements.
4
<Page>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2001 and 2000
(In thousands of dollars)
(Unaudited)
<Table>
<Caption>
2001 2000
--------- ---------
Cash flows from operating activities:
Net earnings $ 73,824 $ 108,814
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 113,374 109,289
Amortization of bond discount 171 161
Deferred tax benefit (5,472) (175)
Non-cash portion of restructuring and
other charges 1,557 --
Net (gain)loss on disposals of property
and equipment (50) 113
Changes in operating assets and liabilities, net of
businesses acquired:
Notes and accounts receivable 30,253 (28,177)
Inventories (7,137) (30,708)
Other current assets (4,832) (1,746)
Other assets (3,561) (4,348)
Accounts payable 3,435 (10,275)
Other current liabilities 39,842 10,837
Other liabilities 2,925 835
--------- ---------
Net cash provided by operating activities 244,329 154,620
--------- ---------
Cash flows from investing activities:
Capital expenditures for property and equipment (80,951) (55,814)
Proceeds from sales of property and equipment 1,731 662
Businesses acquired in purchase transactions,
net of cash acquired (12,088) (28,342)
--------- ---------
Net cash used in investing activities (91,308) (83,494)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 442,181 182,901
Payment of long-term debt (431,939) (141,426)
Payment of senior debt issuance costs (1,875) --
Dividends paid on preferred stock (28,019) (34,887)
Purchases of treasury common stock -- (15,239)
Purchases of preferred stock (7,909) (60,387)
Proceeds from stock option exercises -- 524
Net payment of short-term borrowings (76,812) (3,511)
--------- ---------
Net cash used in financing activities (104,373) (72,025)
--------- ---------
Effect of exchange rate changes on cash and cash
equivalents 4,798 5,993
--------- ---------
Cash and cash equivalents:
Increase during the period 53,446 5,094
Balance, beginning of period 11,229 13,672
--------- ---------
Balance, end of period $ 64,675 $ 18,766
========= =========
</Table>
See accompanying notes to consolidated financial statements.
5
<Page>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2001 and 2000 (Continued)
(In thousands of dollars)
(Unaudited)
<Table>
<Caption>
2001 2000
---------- -----------
Supplemental Cash Flow Items:
Interest payments, net of amounts capitalized $ 37,311 $ 22,911
========== ===========
Income tax payments $ 55,183 $ 89,016
========== ===========
Non-Cash Items:
Issuance of shares of common stock to the
profit-sharing plan $ -- $ 13,877
========== ===========
</Table>
See accompanying notes to consolidated financial statements.
6
<Page>
SEALED AIR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Three and Six Months Ended June 30, 2001 and 2000
(In thousands of dollars)
(Unaudited)
<Table>
<Caption>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
2001 2000 2001 2000
-------- -------- -------- ---------
Net Earnings $ 39,264 $ 53,831 $ 73,824 $ 108,814
Other comprehensive loss:
Foreign currency translation
adjustments (2,142) (6,186) (13,814) (3,581)
-------- -------- -------- ---------
Comprehensive income $ 37,122 $ 47,645 $ 60,010 $ 105,233
======== ======== ======== =========
</Table>
See accompanying notes to consolidated financial statements.
7
<Page>
SEALED AIR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2001 and 2000
(Amounts in thousands of dollars, except share and per share data)
(Unaudited)
(1) Basis of Consolidation
The consolidated financial statements include the accounts of Sealed Air
Corporation and its subsidiaries (the "Company"). All significant intercompany
transactions and balances have been eliminated in consolidation. In management's
opinion, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the consolidated financial position as of
June 30, 2001 and results of operations for the three and six months ended June
30, 2001 and 2000 have been made. The consolidated statements of earnings for
the three and six months ended June 30, 2001 are not necessarily indicative of
the results to be expected for the full year.
Prior period net sales and cost of sales have been reclassified to conform to
the current year's presentation with respect to Emerging Issues Task Force Issue
No. 00-10, "Accounting for Shipping and Handling Fees and Costs", which the
Company adopted during the fourth quarter of 2000.
Certain other prior period amounts have been reclassified to conform to the
current year's presentation.
(2) Series A Convertible Preferred Stock
The outstanding Series A preferred stock is convertible at any time into
approximately 0.885 share of common stock for each share of preferred stock,
votes with the common stock on an as-converted basis and pays a cash dividend,
as declared by the Board of Directors, at an annual rate of $2.00 per share,
payable quarterly in arrears. Subject to certain conditions (which have not been
met as of June 30, 2001) set forth in the Company's Certificate of
Incorporation, as amended, the Series A preferred stock is redeemable at the
option of the Company. The Series A preferred stock is also subject to mandatory
redemption on March 31, 2018 at $50 per share, plus any accrued and unpaid
dividends to the extent such shares remain outstanding. Because it is subject to
mandatory redemption, the Series A convertible preferred stock is classified
outside of the shareholders' equity section of the consolidated balance sheet.
At its date of issuance, the fair value of the Series A preferred stock exceeded
its mandatory redemption amount primarily due to the common stock conversion
feature of such preferred stock. Accordingly, the book value of the Series A
preferred stock is reflected in the consolidated balance sheet at its mandatory
redemption value. During the first six months of 2001, the Company repurchased
approximately 238,900 shares of the Company's Series A convertible preferred
stock at a cost of approximately $7,909, which represents a cost that is
approximately $4,035 below its book value. This excess of book value over the
repurchase price of the preferred stock was recorded as an increase to
additional paid-in-capital.
8
<Page>
(3) Earnings Per Common Share
The following table sets forth the reconciliation of the basic and diluted
earnings per common share computations for the three and six months ended June
30, 2001 and 2000.
<Table>
<Caption>
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------
Basic EPS:
NUMERATOR
Net earnings $39,264 $53,831 $73,824 $108,814
Add: Excess of book value over
repurchase price of preferred stock -- 32 4,035 2,811
Less: Preferred stock dividends 13,804 17,002 27,558 34,099
==============================================================================================
Net earnings ascribed to common
shareholders $25,460 $36,861 $50,301 $ 77,526
==============================================================================================
DENOMINATOR
Weighted average common shares
outstanding - basic 83,660 83,674 83,654 83,651
- ----------------------------------------------------------------------------------------------
Basic earnings per common share (1) $ 0.30 $ 0.44 $ 0.60 $ 0.93
==============================================================================================
Diluted EPS:
NUMERATOR
Earnings ascribed to common
shareholders $25,460 $36,861 $50,301 $ 77,526
Less: Excess of book value over
repurchase price of preferred stock -- 32 4,035 2,811
Add: Dividends associated with
repurchased preferred stock -- 46 -- 117
==============================================================================================
Net earnings ascribed to common
shareholders - diluted $25,460 $36,875 $46,266 $ 74,832
==============================================================================================
DENOMINATOR
Weighted average common shares
outstanding - basic 83,660 83,674 83,654 83,651
Effect of assumed exercise of options -- 123 -- 123
Effect of conversion of repurchased
preferred stock -- 34 41 360
- ----------------------------------------------------------------------------------------------
Weighted average common shares
outstanding - diluted 83,660 83,831 83,695 84,134
- ----------------------------------------------------------------------------------------------
Diluted earnings per common share (2) $ 0.30 $ 0.44 $ 0.55 $ 0.89
==============================================================================================
</Table>
(1) The basic earnings per common share calculations for the six months ended
June 30, 2001 and 2000 include $0.05 and $0.03 per share gains,
respectively, attributable to the repurchase of preferred stock for an
amount below its book value. Such gains are not included in the
calculations of diluted earnings per common share for the three and six
months ended June 30, 2001 and 2000. The gains attributable to the
repurchase of preferred stock were not significant in the three months
ended June 30, 2001 and 2000.
(2) For the purpose of calculating diluted earnings per common share, net
earnings ascribed to common shareholders have been adjusted to exclude the
gains attributable to the repurchase of preferred stock for an amount
below its book value and to add back dividends attributable to such
repurchased preferred stock in each period, and the weighted average
common shares outstanding have been adjusted to assume conversion of the
shares of preferred stock repurchased during each period in accordance
with the Financial Accounting Standards Board's Emerging Issues Task Force
Topic D-53 guidance. The assumed conversion of the outstanding preferred
stock is not considered in the calculation of diluted earnings per common
share for all periods as the effect would be antidilutive.
9
<Page>
(4) Inventories
At June 30, 2001 and December 31, 2000, the components of inventories by major
classification were as follows:
<Table>
<Caption>
June 30, December 31,
2001 2000
--------- ------------
Raw materials $ 72,897 $ 72,537
Work in process 64,511 63,798
Finished goods 191,980 193,169
--------- ---------
Subtotal 329,388 329,504
Reduction of certain
inventories to LIFO basis (21,955) (20,388)
--------- ---------
Total inventories $ 307,433 $ 309,116
========= =========
</Table>
(5) Income Taxes
The Company's effective income tax rates were 47.7% and 45.5% for the three
months ended June 30, 2001 and 2000, respectively, and 46.8% and 45.5% for the
first six months of 2001 and 2000, respectively. Such rates were higher than the
statutory U.S. federal income tax rate primarily due to state income taxes and
non-deductible goodwill amortization.
(6) Debt
A summary of long-term debt at June 30, 2001 and December 31, 2000 follows:
<Table>
<Caption>
June 30, December 31,
2001 2000
- -----------------------------------------------------------------------------------
Credit Agreement due March 2003 $ 161,914 $ 456,263
5.625% Euro Notes due July 2006, less discount of
$902 and $1,056 in 2001 and 2000, respectively 171,499 185,145
8.75% Senior Notes due July 2008 less discount of
$4,221 in 2001 295,779 --
6.95% Senior Notes due May 2009, less discount of
$1,823 and $1,909 in 2001 and 2000, respectively 298,177 298,091
Other 7,422 6,372
- -----------------------------------------------------------------------------------
Total 934,791 945,871
Less current portion (1,072) (1,418)
- -----------------------------------------------------------------------------------
Long-term debt, less current portion $ 933,719 $ 944,453
===================================================================================
</Table>
On June 26, 2001, the Company issued $300,000 aggregate principal amount of
7-year 8.75% senior notes ("8.75% Senior Notes") under Rule 144A and Regulation
S of the Securities Act of 1933, as amended. Accrued interest on the 8.75%
Senior Notes is payable semi-annually in cash on January 1 and July 1 of each
year, commencing on January 1, 2002. The proceeds of $295,773 from the issuance
of the 8.75% Senior Notes were used to refinance outstanding borrowings under
the 5-year revolving credit facility described below.
At December 31, 2000 the Company's two principal credit agreements were a 5-year
$525,000 revolving credit facility that expires on March 30, 2003 (included in
long-term debt) and a 364-day $375,000 revolving credit facility that the
Company cancelled on March 23, 2001 (included in short-term borrowings). On
March 23, 2001, the Company replaced this 364-day revolving credit facility with
a new $194,375 364-day revolving credit facility on substantially similar terms,
except for higher borrowing margins and facility fees, to the cancelled
facility. Outstanding borrowings under the cancelled 364-day revolving credit
facility were $127,885 at December 31, 2000. No borrowings
10
<Page>
were outstanding under this facility at the time of its cancellation. At June
30, 2001, there were no outstanding borrowings under the new 364-day
revolving credit facility.
Such revolving credit facilities provide that the Company and certain of its
subsidiaries may borrow for various purposes, including the refinancing of
existing debt, the provision of working capital and other general corporate
needs, including acquisitions, repurchase of the Company's outstanding common
and preferred stock and capital expenditures. Amounts repaid under such credit
facilities may be reborrowed from time to time. As of June 30, 2001, facility
fees were payable on the total amounts available under such credit facilities at
the rates of 0.125% and 0.300% per annum under the 5-year revolving credit
facility and the new 364-day revolving credit facility, respectively.
The Company's obligations under the revolving credit facilities referred to in
the two preceding paragraphs bear interest at floating rates. The weighted
average interest rate under such credit facilities was approximately 5.5% at
June 30, 2001 and approximately 7.0% at December 31, 2000.
These revolving credit facilities provide for changes in borrowing margins based
on the Company's senior unsecured debt ratings and, in addition with respect to
the 5-year revolving credit facility, certain financial criteria. These
revolving credit facilities, the Euro Notes, the 8.75% Senior Notes and the
6.95% Senior Notes impose certain limitations on the operations of the
Company and certain of its subsidiaries. The Company was in compliance with
these requirements as of June 30, 2001.
At June 30, 2001 and December 31, 2000, the Company was not party to any
material derivative instruments.
(7) Restructuring and Other Charges
2001 Restructuring and other charges
During 2001, based on weakening economies, especially in the U.S., the
Company began to conduct a review of its business to reduce costs and
expenses, simplify business processes and organizational structure, and to
refine further the Company's manufacturing operations and product offerings.
The review is taking into consideration the current business and economic
trends around the world and the impact of such trends on assets and resources
deployed in the Company's business. As a result of such review, during the
second quarter, the Company announced and began implementing a restructuring
program. Charges to operations arising out of this program amounted to $6,057
and included $3,914 of employee termination costs, $586 of facility exit
costs and $1,557 of asset impairments related to long-lived assets either
held for use or held for disposition. The portion of this restructuring
charge related to the Company's food packaging segment amounted to $3,831 and
the portion applicable to the protective and specialty packaging segment
amounted to $2,226. The asset impairment charge relates to production
machinery and equipment which is being impaired as a result of the
rationalization of a small product line. The annual reduction of depreciation
expense as a result of such asset impairments is $179. The Company expects to
incur approximately $4,500 of cash outlays to carry out the restructuring
program as it relates to charges incurred through June 30, 2001. These cash
outlays include primarily severance and other personnel-related costs and the
costs of terminating a lease. In connection with the restructuring charge as
reflected at June 30, 2001, the Company is eliminating approximately 80
positions. These 80 positions are primarily involved in the Company's
manufacturing and sales and marketing functions in its North American and
European operations. Through June 30, 2001, 43 positions had been eliminated,
and the remaining restructuring actions accrued for during the second quarter
of 2001, including the disposition of impaired assets, are expected to be
completed during the remainder of 2001 and during 2002, although certain cash
outlays are expected to continue into future years. The Company expects that
this deliberate business review will continue throughout the remainder of
2001 and is expected to result in additional actions and charges during the
last six months of 2001.
11
<Page>
The components of the 2001 Restructuring program as they relate to the June 30,
2001 restructuring charge are as follows:
<Table>
<Caption>
Employee
Termination Plant/Office
Costs Exit Cost Total Cost
- ---------------------------------------------------------------------------------------
Restructuring liability recorded in 2001 $ 3,914 $ 586 $ 4,500
Cash payments during 2001 (1,631) -- (1,631)
- ---------------------------------------------------------------------------------------
Restructuring liability at June 30, 2001 $ 2,283 $ 586 $ 2,869
- ---------------------------------------------------------------------------------------
</Table>
1998 Restructuring program
The Company's restructuring liability, which arose primarily out of a
restructuring undertaken by the Company during the third quarter of 1998,
amounted to $335 at June 30, 2001 and $537 at December 31, 2000. Spending
activity through June 30, 2001 and the remaining reserve balance at June 30,
2001 were as follows:
<Table>
<Caption>
Employee
Termination
Costs
- --------------------------------------------------------------------------------
Restructuring liability at December 31, 2000 $ 537
Payments during 2001 (202)
- --------------------------------------------------------------------------------
Restructuring liability at June 30, 2001 $ 335
- --------------------------------------------------------------------------------
</Table>
The 2001 cash outlays include primarily severance and other personnel-related
costs. All restructuring actions were completed prior to June 30, 2001, and the
remaining liability of $335 is related principally to outstanding employee
severance costs that are expected to be paid during 2001.
(8) Business Segment Information
The Company operates in two reportable business segments: (i) Food Packaging and
(ii) Protective and Specialty Packaging. The Food Packaging segment comprises
primarily the Company's Cryovac(R) food packaging products. The Protective and
Specialty Packaging segment includes the aggregation of the Company's protective
packaging products, engineered products and specialty products, all of which
products are used principally for non-food packaging applications.
The Food Packaging segment includes flexible materials and related systems
(shrink film and bag products, laminated films and packaging systems marketed
primarily under the Cryovac(R) trademark for packaging a broad range of
perishable foods). This segment also includes rigid packaging and absorbent pads
(foam and solid plastic trays and containers for the packaging of a wide variety
of food products and absorbent pads used for the packaging of meat, fish and
poultry).
The Protective and Specialty Packaging segment includes cushioning and surface
protection products (including air cellular cushioning materials, films for
non-food applications, polyurethane foam packaging systems sold under the
Instapak(R) trademark, polyethylene foam sheets and planks, a comprehensive line
of protective and durable mailers and bags, certain paper-based protective
packaging materials, suspension and retention packaging, inflatable packaging
and packaging systems) and other products.
12
<Page>
<Table>
<Caption>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------------
2001 2000 2001 2000
=======================================================================================================
Net sales
Food Packaging $ 464,439 $ 450,799 $ 917,251 $ 890,583
Protective and Specialty
Packaging 297,160 306,042 602,620 607,722
- -------------------------------------------------------------------------------------------------------
Total $ 761,599 $ 756,841 $ 1,519,871 $ 1,498,305
=======================================================================================================
Operating profit
Food Packaging $ 70,368 $ 71,176 $ 129,270 $ 140,561
Protective and Specialty
Packaging 50,920 58,991 105,133 122,073
- -------------------------------------------------------------------------------------------------------
Total segments 121,288 130,167 234,403 262,634
Restructuring and other charges (1) (6,057) -- (6,057) --
Corporate operating expenses(2) (19,920) (17,801) (39,212) (34,347)
- -------------------------------------------------------------------------------------------------------
Total $ 95,311 $ 112,366 $ 189,134 $ 228,287
=======================================================================================================
Depreciation and amortization
Food Packaging $ 27,237 $ 26,884 $ 55,180 $ 54,501
Protective and Specialty
Packaging 14,646 14,736 29,387 29,677
- -------------------------------------------------------------------------------------------------------
Total segments 41,883 41,620 84,567 84,178
Corporate (including goodwill
and other amortization) 14,324 12,578 28,807 25,111
- -------------------------------------------------------------------------------------------------------
Total $ 56,207 $ 54,198 $ 113,374 $ 109,289
=======================================================================================================
</Table>
(1) Restructuring and other charges were $3,831 for Food Packaging and $2,226
for Protective and Specialty Packaging.
(2) Includes goodwill amortization of $14,104 and $12,381 for the three months
ended June 30, 2001 and 2000, respectively, and $28,364 and $24,691 for
the six months ended June 30, 2001 and 2000, respectively.
(9) Commitments and Contingencies
On March 31, 1998, the Company completed a multi-step transaction (the "Cryovac
Transaction"), which brought the Cryovac packaging business ("Cryovac") and the
former Sealed Air Corporation ("old Sealed Air") under the common ownership of
the Company. These businesses operate as subsidiaries of the Company, and the
Company acts as a holding company. As part of that transaction, the Cryovac
packaging business, held by various direct and indirect subsidiaries of the
Company, was separated from the remaining businesses of the Company. Such
remaining businesses were then contributed to a company now known as W. R. Grace
& Co. ("New Grace"), whose shares were distributed to the Company's
stockholders. As a result, New Grace became a separate publicly owned company.
The Company recapitalized its outstanding shares of common stock into a new
common stock and a new convertible preferred stock. A subsidiary of the Company
then merged into old Sealed Air, which changed its name to Sealed Air
Corporation (US). The agreements pursuant to which the Cryovac Transaction was
carried out are referred to below as the "Transaction Agreements."
In connection with the Cryovac Transaction, New Grace and its subsidiaries
retained all liabilities arising out of their operations before the Cryovac
Transaction, whether accruing or occurring before or after the Cryovac
Transaction, other than liabilities arising from or relating to Cryovac's
operations. The liabilities retained by New Grace include, among others,
liabilities relating to asbestos-containing products previously manufactured or
sold by New Grace's subsidiaries prior to the Cryovac Transaction, including its
primary U.S. operating subsidiary, which has operated for decades and has been a
subsidiary of New Grace since the Cryovac Transaction. The Transaction
Agreements provided that, should any claimant seek to hold the Company,
including any of its subsidiaries, responsible for liabilities of New Grace or
its subsidiaries, including such asbestos-related liabilities, New Grace and its
subsidiaries would indemnify and defend the Company.
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Since the beginning of 2000, the Company has been served with a number of
lawsuits (the "New Grace-Related Claims") alleging that, as a result of the
Cryovac Transaction, the Company is responsible for alleged asbestos liabilities
of New Grace and its subsidiaries, certain of which are also named as
co-defendants in many of these actions. These actions include several purported
class action lawsuits and a number of personal injury lawsuits. Some plaintiffs
seek damages for personal injury or wrongful death while others seek medical
monitoring, environmental remediation or remedies related to an attic insulation
product. Neither old Sealed Air nor Cryovac has ever produced or sold any
asbestos-containing material. These cases are all in the pre-trial stage, and
none has been resolved through judgment, settlement or otherwise. All such cases
pending on May 3, 2001 have been stayed in connection with New Grace's Chapter
11 bankruptcy proceeding discussed below. Two committees appointed in New
Grace's bankruptcy case to represent asbestos plaintiffs have recently filed a
motion seeking the bankruptcy court's permission to pursue fraudulent transfer
claims against the Company and certain other entities. A hearing on this request
is currently set for early September 2001.
While the allegations in these actions directed to the Company vary, these
actions all appear to allege that the transfer of the Cryovac business as part
of the Cryovac Transaction was a fraudulent transfer or gave rise to successor
liability. Under a theory of successor liability, plaintiffs with claims against
New Grace and its subsidiaries may attempt to hold the Company derivatively
liable for liabilities which arose with respect to activities conducted prior to
the Cryovac Transaction by New Grace's primary U.S. operating subsidiary or
other subsidiaries. A transfer would be a fraudulent transfer if the transferor
received less than reasonably equivalent value and the transferor was insolvent
or was rendered insolvent by the transfer, was engaged or was about to engage in
a business for which its assets constitute unreasonably small capital, or
intended to incur or believed that it would incur debts beyond its ability to
pay as they mature. A transfer may also be fraudulent if it was made with actual
intent to hinder, delay or defraud creditors. If any transfers in connection
with the Cryovac Transaction were found by a court to be fraudulent transfers,
the Company could be required to return the property or its value to the
transferor or could be required to fund certain liabilities of New Grace or its
subsidiaries for the benefit of their creditors, including asbestos claimants.
In the Joint Proxy Statement furnished to their respective stockholders in
connection with the Cryovac Transaction, both Sealed Air and Grace stated that
it was their belief that New Grace and its subsidiaries were adequately
capitalized and would be adequately capitalized after the Cryovac Transaction
and that none of the transfers contemplated to occur in the Cryovac Transaction
would be a fraudulent transfer. They also stated their belief that the Cryovac
Transaction complied with other relevant laws. However, if a court applying the
relevant legal standards reached conclusions adverse to the Company, such
determination could have a materially adverse effect on the Company's
consolidated results of operations and financial position.
On April 2, 2001, New Grace and certain of its subsidiaries filed a petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S.
Bankruptcy Court in the District of Delaware. New Grace stated that the filing
was made in response to a sharply increasing number of asbestos claims.
In connection with its Chapter 11 filing, New Grace filed an application with
the Bankruptcy Court seeking to stay, among other things, all actions related to
the New Grace-Related Claims asserted against the Company. The court issued an
order dated May 3, 2001 staying all such filed or pending actions against the
Company. On June 1, 2001, New Grace requested that the court modify its order to
stay cases filed against the Company since May 3, 2001 as well as all future
cases that may be filed against the Company. As of August 7, 2001, the court had
not yet ruled on such request. The Company believes that New Grace's filing for
reorganization may provide a single forum in which all claims related to New
Grace's liabilities, including the New Grace-Related Claims, might be resolved.
The New Grace bankruptcy proceeding is in the very early stages and could take a
few years to complete.
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The Company believes that it has strong defenses to the New Grace-Related
Claims, and the Company intends to defend its interests vigorously. It is not
possible to determine at this stage of the proceeding the ultimate amount of
asbestos-related and other claims which may be made against the Company. In
connection with New Grace's bankruptcy proceeding, the Company could incur
additional costs in the resolution of claims against the Company that could
become material to its consolidated results of operations and financial
position.
During the first three months of 2001, the Company recorded a charge,
unrelated to the asbestos claims described above, in other expense and
recorded other current liabilities amounting to approximately $8,000, which
is primarily a result of the Company's guarantee, entered into at the time of
the Cryovac Transaction, of certain debt payable by a subsidiary of New
Grace, which subsidiary filed for reorganization along with New Grace as
described above. As a result of the bankruptcy filing, the Company has
provided in full for its guarantee of such indebtedness.
(10) Acquisitions
During the first six months of 2001, the Company made acquisitions for cash in
the aggregate amount of approximately $12,000. These acquisitions were accounted
for as purchases and were not material to the Company's consolidated financial
statements.
(11) New Accounting Pronouncements
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137 and SFAS No. 138. This statement
requires the recognition of derivative financial instruments on the balance
sheet as assets or liabilities, at fair value. Gains or losses resulting from
changes in the value of derivatives are accounted for depending on the intended
use of the derivative and whether it qualifies for hedge accounting. The
implementation of this standard did not have a material effect on the Company's
consolidated financial statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001 as well as all
purchase method business combinations completed after June 30, 2001. SFAS No.
142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 will
also require that intangible assets with definite useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
The Company adopted the provisions of SFAS No. 141 immediately and will adopt
SFAS No. 142 effective January 1, 2002. Any goodwill and any intangible asset
determined to have an indefinite useful life that are acquired in a purchase
business combination completed after June 30, 2001 will not be amortized, but
will continue to be evaluated for impairment in accordance with the appropriate
pre-SFAS 142 accounting literature. Goodwill and intangible assets acquired in
business combinations completed before July 1, 2001 will continue to be
amortized through the end of 2001.
In connection with the transitional impairment evaluation, SFAS No. 142 will
require the Company to perform an assessment of whether there is an indication
that goodwill and other intangible assets are impaired as of January 1, 2002.
The assessment process will be completed by June 30, 2002 and the recording of
any impairment loss will be completed as soon as possible but no later than the
end of 2002. Any transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in the Company's statement
of earnings.
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As of June 30, 2001, the Company has unamortized goodwill in the amount of
$1,927,239 and unamortized identifiable intangible assets in the amount of
approximately $26,000, all of which will be subject to the transition provisions
of SFAS No. 141 and 142. Amortization expense related to goodwill was $51,776
and $28,364 for the year ended December 31, 2000 and the six months ended June
30, 2001, respectively. Because of the extensive effort needed to comply with
adopting SFAS Nos. 141 and 142, it is not practicable to reasonably estimate the
impact of adopting these Statements on the Company's financial statements at the
date of this report, including whether any transitional impairment losses will
be required to be recognized as the cumulative effect of a change in accounting
principle; however, beginning January 1, 2002, the Company will no longer record
amortization expense related to goodwill.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Net sales for the second quarter of 2001 increased 1% to $761,599,000
compared with $756,841,000 for the second quarter of 2000. For the first six
months of 2001, the Company's net sales increased 1% to $1,519,871,000 compared
with net sales of $1,498,305,000 in the 2000 period. The increases in net sales
in both periods were primarily due to the added net sales of several acquired
businesses and to a lesser extent, higher average selling prices for certain of
the Company's products, partially offset by lower sales volume for certain of
the Company's products and the negative effect of foreign currency translation.
The Company's net sales were affected in the second quarter and first six
months of 2001 by the continued weakness of foreign currencies in Europe and the
Asia Pacific region compared with the U.S. dollar, the further slowing of
industrial economies, primarily in the U.S., as well as the continued, yet
diminishing, disruption of meat supply and beef consumption in Europe. Excluding
the negative effect of foreign currency translation, net sales would have
increased 3% for the second quarter and 4% for the first six months of 2001
compared to the respective 2000 periods.
Net sales from domestic operations remained relatively flat for the second
quarter and increased approximately 1% for the first six months of 2001 compared
with the respective 2000 periods, primarily due to the added net sales of
several acquired businesses and, to a lesser extent, higher average selling
prices for certain of the Company's products, partially offset by lower sales
volume for certain of the Company's products. Net sales from foreign operations
increased approximately 2% for the second quarter and first six months of 2001
compared with the respective 2000 periods, primarily due to the added net sales
of several acquired businesses and, to a lesser extent, increased sales volume
for certain of the Company's products, partially offset by the negative effect
of foreign currency translation. As a percentage of total net sales, net sales
from foreign operations represented approximately 45% and 44% in the second
quarter of 2001 and 2000, respectively, and 45% in the first six months of 2001
and 2000.
Net sales of the Company's food packaging segment, which consists
primarily of the Company's Cryovac(R) food packaging products and Dri-Loc(R)
absorbent pads, increased approximately 3% for the second quarter and first six
months of 2001 compared with the respective 2000 periods. These increases were
due primarily to the added net sales of several acquired businesses and, to a
lesser extent, higher average selling prices for certain of the Company's
products, partially offset by the negative effect of foreign currency
translation. Unit volume was essentially flat compared to the second quarter and
first six months of 2000 for the food packaging segment. This was partially due
to the disruption of meat supply and reduced beef consumption caused by the
outbreak of foot-and-mouth disease and concerns over bovine spongiform
encephalopathy (BSE or "mad-cow" disease), principally in Europe, which effect
has diminished during the second quarter of 2001. Excluding the negative effect
of foreign currency translation, net sales of this
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segment would have increased by 6% for the second quarter and for the first six
months of 2001 compared with the respective 2000 periods.
Net sales of the Company's protective and specialty packaging segment,
which consists primarily of the Company's Instapak(R) chemicals and equipment,
Cryovac(R) performance shrink films, Bubble Wrap(R) cushioning, polyethylene
foam surface protection materials, and Jiffy(R) protective and durable mailers
and bags, decreased 3% for the second quarter and 1% for the first six months of
2001 compared to the respective 2000 periods. The decrease in both periods was
due primarily to lower sales volume of certain products and the negative effect
of foreign currency translation, partially offset by the added net sales of
several acquired businesses. The further softening of economic conditions in the
second quarter of 2001, primarily in the U.S., resulted in the lower sales
volumes in 2001. Excluding the negative effect of foreign currency translation,
net sales of this segment would have decreased 1% for the second quarter and
increased 2% for the first six months of 2001 compared to the respective 2000
periods.
Gross profit as a percentage of net sales was 31.8% for the second quarter
and 31.7% for the first six months of 2001 compared to 33.6% and 34.2% for the
respective 2000 periods. These decreases were due primarily to the lower sales
volume of certain food and protective packaging products and changes in product
mix compared to the 2000 periods and were partially offset by modestly lower
costs for certain raw materials, which the Company began to realize in the
second quarter of 2001.
Marketing, administrative and development expenses and goodwill
amortization declined to 18.5% of net sales for the second quarter of 2001
compared to 18.7% for the 2000 period and were 18.9% of net sales for the first
six months of 2001 and 2000.
Other expense, net, increased in the second quarter and first six months
of 2001 compared to the 2000 periods primarily due to increased interest expense
resulting from the higher levels of debt outstanding compared to the
corresponding periods in 2000. The increase in the first six months of 2001 was
also due to charges, unrelated to the asbestos claims described below, amounting
to approximately $8,000,000 which were primarily a result of the Company's
guarantee, entered into at the time of the Cryovac Transaction, of certain debt
payable by a subsidiary of W.R. Grace & Co. ("New Grace"), which subsidiary
filed for reorganization along with New Grace under Chapter 11 of the U.S.
Bankruptcy Code on April 2, 2001. As a result of that filing, the Company has
provided in full for its guarantee of such indebtedness.
The Company's effective income tax rates were 47.7% and 45.5% in the
second quarters of 2001 and 2000, respectively, and 46.8% and 45.5% for the
first six months of 2001 and 2000, respectively. These rates are higher than the
statutory U.S. federal income tax rate primarily due to state income taxes and
non-deductible goodwill amortization. The effective rates were higher in the
second quarter and first six months of 2001 compared to the 2000 periods
primarily due to lower earnings before income taxes. The Company expects that
its effective tax rate will remain higher than statutory rates for 2001.
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As a cumulative result of the above, the Company's net earnings were
$39,264,000 for the second quarter of 2001 and $73,824,000 for the first six
months of 2001 compared to net earnings of $53,831,000 and $108,814,000 for the
respective 2000 periods.
Basic and diluted earnings per common share were $0.30 for the second
quarter of 2001 and $0.44 for the second quarter of 2000. Basic earnings per
common share were $0.60 and diluted earnings per common share were $0.55 for the
first six months of 2001 and basic earnings per common share were $0.93 and
diluted earnings per common share were $0.89 for the first six months of 2000.
The basic earnings per common share calculations for the first six months of
2001 and 2000 include $0.05 and $0.03 per share gains, respectively,
attributable to the repurchase of preferred stock for an amount below its $50
per share book value. Such gains are not included in the calculations of diluted
earnings per common share for any of the periods presented. The gains
attributable to the repurchase of preferred stock were not significant in the
second quarters of 2001 and 2000. The diluted earnings per common share for the
second quarter and first six months of 2001 and 2000 are calculated assuming the
conversion of the shares of preferred stock repurchased during each period in
accordance with the Financial Accounting Standards Board's Emerging Issues Task
Force Topic D-53 guidance. The effect of the conversion of the Company's
outstanding convertible preferred stock is not considered in the calculations of
diluted earnings per common share in the second quarter and first six months of
2001 and 2000 because the effect would be antidilutive.
2001 RESTRUCTURING AND OTHER CHARGES
During 2001, based on weakening economies, especially in the U.S., the
Company began to conduct a review of its business to reduce costs and expenses,
simplify business processes and organizational structure, and to refine further
the Company's manufacturing operations and product offerings. The review is
taking into consideration the current business and economic trends around the
world and the impact of such trends on assets and resources deployed in the
Company's business. As a result of such review, during the second quarter, the
Company announced and began implementing a restructuring program. It is expected
that this deliberate business review will continue throughout the remainder of
2001 and is expected to result in additional actions and charges during the last
six months of 2001.
At June 30, 2001 the Company recognized charges arising out of this
program of $6,057,000 which included $3,914,000 of employee termination costs,
$586,000 of facility exit costs and $1,557,000 of asset impairments related to
long-lived assets either held for use or held for disposition. The portion of
this restructuring charge related to the Company's food packaging segment
amounted to $3,831,000 and the portion applicable to the protective and
specialty packaging segment amounted to $2,226,000. In addition to the charges
recognized at June 30, 2001, the Company has identified additional actions to be
undertaken which it has not yet begun. The additional charges, which are
expected to be reported when they become recognizable for accounting purposes,
are estimated to be
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approximately $10,000,000 and are primarily related to employee severance and
related personnel costs. In addition to the charges recorded at June 30, 2001
and the estimated costs of projects identified but not yet begun, as the
business review continues through 2001, additional costs may be incurred as
further actions are identified and developed.
In connection with the restructuring charge incurred during the second
quarter 2001, the Company is eliminating approximately 80 positions. These 80
positions are primarily involved in the Company's manufacturing and sales and
marketing functions in its North American and European operations. It is
anticipated that actions that have been identified but are not yet underway
will eliminate approximately 150 further positions. Such positions are across
all functional areas of the Company. These position eliminations are the result
of rationalizing certain product lines, combining or eliminating certain
functions and simplifying certain supervisory structures.
In connection with the restructuring charge incurred during the second
quarter 2001, the Company expects to incur approximately $4,500,000 of cash
outlays, primarily for severance and other personnel-related costs as well as
the costs of terminating a lease. Through June 30, 2001, 43 positions, of the 80
positions noted above, had been eliminated. All restructuring actions, including
the disposition of impaired assets, are expected to be completed during the
remainder of 2001 and during 2002 although certain cash outlays will continue
into future years.
The Company anticipates annual cost savings related to the charges
incurred during the second quarter of 2001 of approximately $5,500,000. The cost
savings are estimated to be realized at their full year run rate by the end of
2002, once all restructuring actions have been completed.
The asset impairment charge recognized at June 30, 2001, relates to
production machinery and equipment which is being impaired as a result of the
rationalization of a small product line. Included in the annual cost savings
stated above is the annual reduction of depreciation expense of $179,000 as a
result of such asset impairments.
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,
including primarily the Company's principal revolving credit agreements
mentioned below.
Net cash provided by operating activities amounted to $244,329,000 and
$154,620,000 in the first six months of 2001 and 2000, respectively. The
increase in operating cash flows for the first six months of 2001 compared to
the 2000 period was primarily due to changes in operating assets and liabilities
in the ordinary course of business, including primarily changes in notes and
accounts receivable, income taxes payable and inventory which were partially
offset by a decrease in net earnings.
Net cash used in investing activities amounted to $91,308,000 in the first
six months of 2001 compared to $83,494,000 in the 2000 period. The increase in
net cash used in these
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activities in the first six months of 2001 was primarily due to a higher level
of capital expenditures partially offset by lower levels of cash used for
acquisitions in 2001. Capital expenditures were $80,951,000 in the 2001 period
and $55,814,000 in the 2000 period. The Company currently anticipates that
capital expenditures for the full year of 2001 will be in the range of
$150,000,000.
Net cash used in financing activities amounted to $104,373,000 in the
first six months of 2001 and $72,025,000 in the first six months of 2000. The
increase in net cash used in these activities in the first six months of 2001
was primarily due to an increase in net payments of debt during the 2001 period,
partially offset by a decrease in the purchase of the Company's common and
preferred stock.
During the first six months of 2001, the Company repurchased 238,900
shares of its preferred stock at a cost of approximately $7,909,000 pursuant to
a share repurchase program adopted by the Company's Board of Directors. During
the first six months of 2000, the Company repurchased 1,263,964 shares of its
preferred stock and 314,818 shares of its common stock at a cost of
approximately $60,387,000 and $15,239,000, respectively, pursuant to this
program. As of June 30, 2001, the total number of shares authorized to be
repurchased under this program amounted to approximately 16,977,000 shares of
common stock on an as-converted basis, of which approximately 8,676,000 had been
repurchased, leaving approximately 8,301,000 shares of common stock on an
as-converted basis available for repurchase under this program.
At June 30, 2001, the Company had working capital of $267,058,000, or 7%
of total assets, compared to working capital of $202,512,000, or 5% of total
assets, at December 31, 2000. Total current assets increased primarily due to an
increase in cash and cash equivalents partially offset by a decrease in notes
and accounts receivable. Total current liabilities decreased primarily due to a
decrease in short-term borrowings partially offset by an increase in income
taxes payable.
The Company's ratio of current assets to current liabilities (current
ratio) was 1.4 at June 30, 2001 and 1.3 at December 31, 2000. The Company's
ratio of current assets less inventory to current liabilities (quick ratio) was
0.9 at June 30, 2001 and 0.8 at December 31, 2000.
At both June 30, 2001 and December 31, 2000, the Company's outstanding
debt consisted of borrowings made under the revolving credit agreements, its
5.625% Euro Notes due July 2006, its 6.95% Senior Notes due May 2009, and
certain other loans incurred by the Company's subsidiaries. In addition, as
of June 30, 2001, outstanding debt also included its 8.75% Senior Notes due
July 2008 described below.
On June 26, 2001, the Company issued $300,000,000 aggregate principal
amount of 7-year 8.75% senior notes ("8.75% Senior Notes") under Rule 144A and
Regulation S of the Securities Act of 1933, as amended. Accrued interest on the
8.75% Senior Notes is payable semi-annually in cash on January 1 and July 1 of
each year, commencing on January 1, 2002. The proceeds of $295,773,000 from the
issuance of the 8.75% Senior Notes were used to refinance outstanding borrowings
under the 5-year revolving credit facility described
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below. At June 30, 2001, the outstanding borrowings under the 8.75% Senior Notes
were $295,779,000 net of unamortized bond discount of $4,221,000.
At December 31, 2000 the Company's two principal credit agreements were
a 5-year $525,000,000 revolving credit facility that expires on March 30,
2003 (included in long-term debt) and a 364-day $375,000,000 revolving credit
facility the Company cancelled on March 23, 2001 (included in short-term
borrowings). On March 23, 2001, the Company replaced this 364-day revolving
credit facility with a new $194,375,000 364-day revolving credit facility on
substantially similar terms, except for higher borrowing margins and facility
fees, to the cancelled facility. As of June 30, 2001 and December 31, 2000,
outstanding borrowings were $161,914,000 and $456,263,000, respectively,
under the 5-year revolving credit facility. Outstanding borrowings under the
cancelled 364-day revolving credit facility were $127,885,000 at December 31,
2000. No borrowings were outstanding under this facility at the time of its
cancellation. At June 30, 2001, there were no outstanding borrowings under
the new 364-day revolving credit facility.
Such revolving credit facilities provide that the Company and certain of
its subsidiaries may borrow for various purposes, including the refinancing of
existing debt, the provision of working capital and other general corporate
needs, including acquisitions, repurchase of the Company's outstanding common
and preferred stock and capital expenditures. Amounts repaid under such credit
facilities may be reborrowed from time to time. As of June 30, 2001, facility
fees were payable on the total amounts available under such credit facilities at
the rates of 0.125% and 0.300% per annum under the 5-year revolving credit
facility and the new 364-day revolving credit facility, respectively.
The Company's obligations under the revolving credit facilities referred
to in the two preceding paragraphs bear interest at floating rates. The weighted
average interest rate under such credit facilities was approximately 5.5% at
June 30, 2001 and approximately 7.0% at December 31, 2000.
These revolving credit facilities provide for changes in borrowing
margins based on the Company's senior unsecured debt ratings and, in addition
with respect to the 5-year revolving credit facility, certain financial
criteria. These revolving credit facilities, the Euro Notes, the 8.75% Senior
Notes and the 6.95% Senior Notes impose certain limitations on the operations
of the Company and certain of its subsidiaries. The Company was in compliance
with these requirements as of June 30, 2001.
At June 30, 2001 and December 31, 2000, the Company was not party to
any material derivative instruments.
At June 30, 2001, the Company had available committed and uncommitted
lines of credit, including those available under the revolving credit
facilities as discussed above, of approximately $1,056,000,000 of which
approximately $686,000,000 were unused.
The Company's shareholders' equity was $796,476,000 at June 30, 2001
compared to $753,129,000 at December 31, 2000. Shareholders' equity increased
in 2001 due to the Company's net earnings of $73,824,000, which were
partially offset by the payment of
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preferred stock dividends of $27,558,000 and by an additional foreign
currency translation adjustment of $13,814,000.
During the first six months of 2001, the Company made acquisitions for
cash in the aggregate amount of approximately $12,000,000. These acquisitions
were accounted for as purchases and were not material to the Company's
consolidated financial statements.
OTHER MATTERS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of market risks at December 31, 2000, refer to
"Management's Discussion and Analysis of Results of Operations and Financial
Condition - Quantitative and Qualitative Disclosures about Market Risk" in the
Company's Annual Report to Stockholders for the year ended December 31, 2000.
The Company is exposed to market risk from changes in interest rates and
foreign currency exchange rates, which may adversely affect its results of
operations and financial condition. The Company seeks to minimize these risks
through regular operating and financing activities and, when deemed appropriate,
through the use of derivative financial instruments. The Company does not
purchase, hold or sell derivative financial instruments for trading purposes.
INTEREST RATES
The Company uses interest rate swaps to manage its exposure to
fluctuations in interest rates. The Company also uses interest rate collars to
reduce its exposure to fluctuations in the rate of interest by limiting interest
rates to a given range. At December 31, 2000, the Company had an immaterial
interest rate collar agreement related to a foreign subsidiary's floating rate
indebtedness which matured in June 2001.
At June 30, 2001, the carrying value of the Company's total long-term debt
and short-term borrowings was $1,142,775,000 of which approximately $770,539,000
was fixed rate debt. At December 31, 2000, the carrying value of the Company's
total long-term debt and short-term borrowings was $1,236,299,000 of which
$489,607,000 was fixed rate debt.
FOREIGN EXCHANGE CONTRACTS
The Company uses interest rate and currency swaps to limit foreign
exchange exposure and limit or adjust interest rate exposure by swapping certain
borrowings in U.S. dollars for borrowings denominated in foreign currencies. The
Company had no interest rate and currency swap agreements outstanding at June
30, 2001 or December 31, 2000.
The Company uses foreign currency forwards to fix the amount payable on
certain transactions denominated in foreign currencies. The terms of such
instruments are generally twelve months or less. At June 30, 2001 and December
31, 2000, the Company's outstanding
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foreign currency forward contracts were not material to the Company's
consolidated financial position or results of operations.
CRYOVAC TRANSACTION
On March 31, 1998, the Company completed a multi-step transaction (the
"Cryovac Transaction"), which brought the Cryovac packaging business ("Cryovac")
and the former Sealed Air Corporation ("old Sealed Air") under the common
ownership of the Company. These businesses operate as subsidiaries of the
Company, and the Company acts as a holding company. As part of that transaction,
the Cryovac packaging business, held by various direct and indirect subsidiaries
of the Company, was separated from the remaining businesses of the Company. Such
remaining businesses were then contributed to a company now known as W. R. Grace
& Co. ("New Grace"), whose shares were distributed to the Company's
stockholders. As a result, New Grace became a separate publicly owned company.
The Company recapitalized its outstanding shares of common stock into a new
common stock and a new convertible preferred stock. A subsidiary of the Company
then merged into old Sealed Air, which changed its name to Sealed Air
Corporation (US). The agreements pursuant to which the Cryovac Transaction was
carried out are referred to below as the "Transaction Agreements."
CONTINGENCIES RELATED TO THE CRYOVAC TRANSACTION
In connection with the Cryovac Transaction, New Grace and its subsidiaries
retained all liabilities arising out of their operations before the Cryovac
Transaction, whether accruing or occurring before or after the Cryovac
Transaction, other than liabilities arising from or relating to Cryovac's
operations. The liabilities retained by New Grace include, among others,
liabilities relating to asbestos-containing products previously manufactured or
sold by New Grace's subsidiaries prior to the Cryovac Transaction, including its
primary U.S. operating subsidiary, which has operated for decades and has been a
subsidiary of New Grace since the Cryovac Transaction. The Transaction
Agreements provided that, should any claimant seek to hold the Company,
including any of its subsidiaries, responsible for liabilities of New Grace or
its subsidiaries, including such asbestos-related liabilities, New Grace and its
subsidiaries would indemnify and defend the Company.
Since the beginning of 2000, the Company has been served with a number of
lawsuits (the "New Grace-Related Claims") alleging that, as a result of the
Cryovac Transaction, the Company is responsible for alleged asbestos liabilities
of New Grace and its subsidiaries, certain of which are also named as
co-defendants in many of these actions. These actions include several purported
class action lawsuits and a number of personal injury lawsuits. Some plaintiffs
seek damages for personal injury or wrongful death while others seek medical
monitoring, environmental remediation or remedies related to an attic insulation
product. Neither old Sealed Air nor Cryovac has ever produced or sold any
24
<Page>
asbestos-containing material. These cases are all in the pre-trial stage, and
none has been resolved through judgment, settlement or otherwise. All such cases
pending on May 3, 2001 have been stayed in connection with New Grace's Chapter
11 bankruptcy proceeding discussed below. Two committees appointed in New
Grace's bankruptcy case to represent asbestos plaintiffs have recently filed a
motion seeking the bankruptcy court's permission to pursue fraudulent transfer
claims against the Company and certain other entities. A hearing on this request
is currently set for early September 2001.
While the allegations in these actions directed to the Company vary, these
actions all appear to allege that the transfer of the Cryovac business as part
of the Cryovac Transaction was a fraudulent transfer or gave rise to successor
liability. Under a theory of successor liability, plaintiffs with claims against
New Grace and its subsidiaries may attempt to hold the Company derivatively
liable for liabilities which arose with respect to activities conducted prior to
the Cryovac Transaction by New Grace's primary U.S. operating subsidiary or
other subsidiaries. A transfer would be a fraudulent transfer if the transferor
received less than reasonably equivalent value and the transferor was insolvent
or was rendered insolvent by the transfer, was engaged or was about to engage in
a business for which its assets constitute unreasonably small capital, or
intended to incur or believed that it would incur debts beyond its ability to
pay as they mature. A transfer may also be fraudulent if it was made with actual
intent to hinder, delay or defraud creditors. If any transfers in connection
with the Cryovac Transaction were found by a court to be fraudulent transfers,
the Company could be required to return the property or its value to the
transferor or could be required to fund certain liabilities of New Grace or its
subsidiaries for the benefit of their creditors, including asbestos claimants.
In the Joint Proxy Statement furnished to their respective stockholders in
connection with the Cryovac Transaction, both Sealed Air and Grace stated that
it was their belief that New Grace and its subsidiaries were adequately
capitalized and would be adequately capitalized after the Cryovac Transaction
and that none of the transfers contemplated to occur in the Cryovac Transaction
would be a fraudulent transfer. They also stated their belief that the Cryovac
Transaction complied with other relevant laws. However, if a court applying the
relevant legal standards reached conclusions adverse to the Company, such
determination could have a materially adverse effect on the Company's
consolidated results of operations and financial position.
On April 2, 2001, New Grace and certain of its subsidiaries filed a
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the
U.S. Bankruptcy Court in the District of Delaware. New Grace stated that the
filing was made in response to a sharply increasing number of asbestos claims.
In connection with its Chapter 11 filing, New Grace filed an application
with the Bankruptcy Court seeking to stay, among other things, all actions
related to the New Grace-Related Claims asserted against the Company. The court
issued an order dated May 3, 2001 staying all such filed or pending actions
against the Company. On June 1, 2001, New Grace requested that the court modify
its order to stay cases filed against the Company
25
<Page>
since May 3, 2001 as well as all future cases that may be filed against the
Company. As of August 7, 2001, the court had not yet ruled on such request. The
Company believes that New Grace's filing for reorganization may provide a single
forum in which all claims related to New Grace's liabilities, including the New
Grace-Related Claims, might be resolved. The New Grace bankruptcy proceeding is
in the very early stages and could take a few years to complete.
The Company believes that it has strong defenses to the New Grace-Related
Claims, and the Company intends to defend its interests vigorously. It is not
possible to determine at this stage of the proceeding the ultimate amount of
asbestos-related and other claims which may be made against the Company. In
connection with New Grace's bankruptcy proceeding, the Company could incur
additional costs in the resolution of claims against the Company that could
become material to its consolidated results of operations and financial
position.
ENVIRONMENTAL MATTERS
The Company is subject to loss contingencies resulting from environmental
laws and regulations, and it accrues for anticipated costs associated with
investigatory and remediation efforts when an assessment has indicated that a
loss is probable and can be reasonably estimated. These accruals do not take
into account any discounting for the time value of money and are not reduced by
potential insurance recoveries, if any. Environmental liabilities are reassessed
whenever circumstances become better defined and/or remediation efforts and
their costs can be better estimated. These liabilities are evaluated
periodically based on available information, including the progress of remedial
investigations at each site, the current status of discussions with regulatory
authorities regarding the methods and extent of remediation and the
apportionment of costs among potentially responsible parties. As some of these
issues are decided (the outcomes of which are subject to uncertainties) and/or
new sites are assessed and costs can be reasonably estimated, the Company
adjusts the recorded accruals, as necessary. The Company believes that it has
adequately reserved for all probable and estimable environmental exposures.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen members of the European Union
(the "participating countries") established fixed conversion rates between their
existing currencies (the "legacy currencies") and introduced the euro, a single
common non-cash currency. On January 1, 2001, the number of participating
countries increased to twelve with the addition of Greece.
At the beginning of 2002, new euro-denominated bills and coins will be
issued to replace the legacy currencies, and the legacy currencies will be
withdrawn from circulation. By
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<Page>
2002, all companies operating in the participating countries are required to
restate their statutory accounting data into euros as their base currency.
In 1998, the Company established plans to address the systems and business
issues raised by the euro currency conversion. These issues include, among
others, (a) the need to adapt computer, accounting and other business systems
and equipment to accommodate euro-denominated transactions, (b) the need to
modify banking and cash management systems in order to be able to handle
payments between customers and suppliers in legacy currencies and euros between
1999 and 2002, (c) the requirement to change the base statutory and reporting
currency of each subsidiary in the participating countries into euros during the
transition period, (d) the foreign currency exposure changes resulting from the
alignment of the legacy currencies into the euro, and (e) the identification of
material contracts and sales agreements whose contractual stated currency will
need to be converted into euros.
The Company believes that it will be euro compliant by January 1, 2002.
The Company has implemented plans to accommodate euro-denominated transactions
and to handle euro payments with third party customers and suppliers in the
participating countries. The Company plans to meet the requirement to convert
statutory and reporting currencies to the euro in part by acquiring and
installing new financial software systems and in part by modifying existing
systems. If there are delays in such installation, the Company plans to pursue
alternate means to convert statutory and reporting currencies to the euro by
2002. The Company expects that its foreign currency exposures will be reduced as
a result of the alignment of legacy currencies, and the Company believes that
all material contracts and sales agreements requiring conversion will be
converted to euros prior to January 1, 2002.
Although additional costs are expected to result from the implementation
of the Company's plans, the Company also expects to achieve benefits in its
treasury and procurement areas as a result of the elimination of the legacy
currencies. Since the Company has operations in each of its business segments in
the participating countries, each of its business segments will be affected by
the conversion process. However, the Company expects that the total impact of
all strategic and operational issues related to the euro conversion and the cost
of implementing its plans for the euro conversion will not have a material
adverse impact on its consolidated financial condition, results of operations or
reportable segments.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS")No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. SFAS No. 142 will require
that goodwill and intangible assets with indefinite useful lives no longer
27
<Page>
be amortized, but instead tested for impairment at least annually in accordance
with the provisions of SFAS No. 142. SFAS No. 142 will also require that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
The Company adopted the provisions of SFAS No. 141 immediately and SFAS
No. 142 effective January 1, 2002. Any goodwill and any intangible asset
determined to have an indefinite useful life that are acquired in a purchase
business combination completed after June 30, 2001 will not be amortized, but
will continue to be evaluated for impairment in accordance with the appropriate
pre-SFAS No. 142 accounting literature. Goodwill and intangible assets acquired
in business combinations completed before July 1, 2001 will continue to be
amortized through the end of 2001.
In connection with the transitional impairment evaluation, SFAS No. 142
will require the Company to perform an assessment of whether there is an
indication that goodwill and other intangible assets are impaired as of January
1, 2002. The assessment process will be completed by June 30, 2002 and the
recording of any impairment loss will be completed as soon as possible but no
later than the end of 2002. Any transitional impairment loss will be recognized
as the cumulative effect of a change in accounting principle in the Company's
statement of earnings.
As of June 30, 2001, the Company has unamortized goodwill in the amount of
$1,927,239,000 and unamortized identifiable intangible assets in the amount of
approximately $26,000,000, all of which will be subject to the transition
provisions of SFAS No. 141 and 142. Amortization expense related to goodwill was
$51,776,000 and $28,364,000 for the year ended December 31, 2000 and the six
months ended June 30, 2001, respectively. Because of the extensive effort needed
to comply with adopting SFAS Nos. 141 and 142, it is not practicable to
reasonably estimate the impact of adopting these Statements on the Company's
financial statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle; however, beginning
January 1, 2002, the Company will no longer record amortization expense related
to goodwill.
FORWARD-LOOKING STATEMENTS
Certain statements made by the Company in this report and in future oral
and written statements by management of the Company may be forward-looking.
These statements include comments as to the Company's beliefs and expectations
as to future events and trends affecting the Company's business, its results of
operations and its financial condition. These forward-looking statements are
based upon management's current expectations concerning future events and
discuss, among other things, anticipated future performance and future business
plans. Forward-looking statements are identified by such words and
28
<Page>
phrases as "expects," "intends," "believes," "will continue," "plans to," "could
be," "estimates" and similar expressions. Forward-looking statements are
necessarily subject to risks and uncertainties, many of which are outside the
control of the Company, that could cause actual results to differ materially
from such statements.
The Company recognizes that it is subject to a number of risks and
uncertainties that may affect the future performance of the Company, such as:
economic, political, business and market conditions in the geographic areas in
which it conducts business; changes in the value of foreign currencies against
the U.S. dollar; difficulties related to the euro conversion; interest rate
changes and credit availability; the success of certain information systems
projects; factors affecting the customers, industries and markets that use the
Company's packaging materials and systems; competitive factors; the development
and success of new products; the Company's success in entering new markets and
acquiring and integrating new businesses; the magnitude and timing of capital
expenditures; production capacity; inventory management; raw material
availability and pricing; changes in energy-related expenses; changes in the
Company's relationships with customers and suppliers; legal proceedings and
claims (including environmental and asbestos matters) involving the Company; the
effect on the Company of the bankruptcy filing by New Grace and its subsidiaries
and other New Grace-related matters; the effects of foot-and-mouth and BSE
("mad-cow") disease on the Company's customers; changes in domestic or foreign
laws or regulations, or governmental or agency actions.
29
<Page>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On March 31, 1998, the Company completed a multi-step transaction (the
"Cryovac Transaction"), which brought the Cryovac packaging business ("Cryovac")
and the former Sealed Air Corporation ("old Sealed Air") under the common
ownership of the Company. These businesses operate as subsidiaries of the
Company, and the Company acts as a holding company. As part of that transaction,
the Cryovac packaging business, held by various direct and indirect subsidiaries
of the Company, was separated from the remaining businesses of the Company. Such
remaining businesses were then contributed to a company now known as W. R. Grace
& Co. ("New Grace"), whose shares were distributed to the Company's
stockholders. As a result, New Grace became a separate publicly owned company.
The Company recapitalized its outstanding shares of common stock into a new
common stock and a new convertible preferred stock. A subsidiary of the Company
then merged into old Sealed Air, which changed its name to Sealed Air
Corporation (US). The agreements pursuant to which the Cryovac Transaction was
carried out are referred to below as the "Transaction Agreements."
In connection with the Cryovac Transaction, New Grace and its subsidiaries
retained all liabilities arising out of their operations before the Cryovac
Transaction, whether accruing or occurring before or after the Cryovac
Transaction, other than liabilities arising from or relating to Cryovac's
operations. The liabilities retained by New Grace include, among others,
liabilities relating to asbestos-containing products previously manufactured or
sold by New Grace's subsidiaries prior to the Cryovac Transaction, including its
primary U.S. operating subsidiary, which has operated for decades and has been a
subsidiary of New Grace since the Cryovac Transaction. The Transaction
Agreements provided that, should any claimant seek to hold the Company,
including any of its subsidiaries, responsible for liabilities of New Grace or
its subsidiaries, including such asbestos-related liabilities, New Grace and its
subsidiaries would indemnify and defend the Company.
Since the beginning of 2000, the Company has been served with a number of
lawsuits (the "New Grace-Related Claims") alleging that, as a result of the
Cryovac Transaction, the Company is responsible for alleged asbestos liabilities
of New Grace and its subsidiaries, certain of which are also named as
co-defendants in many of these actions. These actions include several purported
class action lawsuits and a number of personal injury lawsuits. Some plaintiffs
seek damages for personal injury or wrongful death while others seek medical
monitoring, environmental remediation or remedies related to an attic insulation
product. Neither old Sealed Air nor Cryovac has ever produced or sold any
asbestos-containing material. These cases are all in the pre-trial stage, and
none has been resolved through judgment, settlement or otherwise. All such cases
pending on May 3, 2001
30
<Page>
have been stayed in connection with New Grace's Chapter 11 bankruptcy proceeding
discussed below. Two committees appointed in New Grace's bankruptcy case to
represent asbestos plaintiffs have recently filed a motion seeking the
bankruptcy court's permission to pursue fraudulent transfer claims against the
Company and certain other entities. A hearing on this request is currently set
for early September 2001.
While the allegations in these actions directed to the Company vary, these
actions all appear to allege that the transfer of the Cryovac business as part
of the Cryovac Transaction was a fraudulent transfer or gave rise to successor
liability. Under a theory of successor liability, plaintiffs with claims against
New Grace and its subsidiaries may attempt to hold the Company derivatively
liable for liabilities which arose with respect to activities conducted prior to
the Cryovac Transaction by New Grace's primary U.S. operating subsidiary or
other subsidiaries. A transfer would be a fraudulent transfer if the transferor
received less than reasonably equivalent value and the transferor was insolvent
or was rendered insolvent by the transfer, was engaged or was about to engage in
a business for which its assets constitute unreasonably small capital, or
intended to incur or believed that it would incur debts beyond its ability to
pay as they mature. A transfer may also be fraudulent if it was made with actual
intent to hinder, delay or defraud creditors. If any transfers in connection
with the Cryovac Transaction were found by a court to be fraudulent transfers,
the Company could be required to return the property or its value to the
transferor or could be required to fund certain liabilities of New Grace or its
subsidiaries for the benefit of their creditors, including asbestos claimants.
In the Joint Proxy Statement furnished to their respective stockholders in
connection with the Cryovac Transaction, both Sealed Air and Grace stated that
it was their belief that New Grace and its subsidiaries were adequately
capitalized and would be adequately capitalized after the Cryovac Transaction
and that none of the transfers contemplated to occur in the Cryovac Transaction
would be a fraudulent transfer. They also stated their belief that the Cryovac
Transaction complied with other relevant laws. However, if a court applying the
relevant legal standards reached conclusions adverse to the Company, such
determination could have a materially adverse effect on the Company's
consolidated results of operations and financial position.
On April 2, 2001, New Grace and certain of its subsidiaries filed a
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the
U.S. Bankruptcy Court in the District of Delaware. New Grace stated that the
filing was made in response to a sharply increasing number of asbestos claims.
In connection with its Chapter 11 filing, New Grace filed an application
with the Bankruptcy Court seeking to stay, among other things, all actions
related to the New Grace-Related Claims asserted against the Company. The court
issued an order dated May 3, 2001 staying all such filed or pending actions
against the Company. On June 1, 2001, New Grace requested that the court modify
its order to stay cases filed against the Company since May 3, 2001 as well as
all future cases that may be filed against the Company. As of August 7, 2001,
the court had not yet ruled on such request. The Company believes that New
31
<Page>
Grace's filing for reorganization may provide a single forum in which all claims
related to New Grace's liabilities, including the New Grace-Related Claims,
might be resolved. The New Grace bankruptcy proceeding is in the very early
stages and could take a few years to complete.
The Company believes that it has strong defenses to the New Grace-Related
Claims, and the Company intends to defend its interests vigorously. It is not
possible to determine at this stage of the proceeding the ultimate amount of
asbestos-related and other claims which may be made against the Company. In
connection with New Grace's bankruptcy proceeding, the Company could incur
additional costs in the resolution of claims against the Company that could
become material to its consolidated results of operations and financial
position.
Information related to the aforementioned matters also appeared in Part I,
Item 3 of the Company's Annual Report on Form 10-K for the year ended December
31, 2000 and in Part II, Item 1 of the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On June 26, 2001, the Company issued $300 million aggregate principal
amount of 7-year 8.75% senior notes ("8.75% Senior Notes") under Rule 144A and
Regulation S of the Securities Act of 1933, as amended (the "Securities Act").
The net proceeds from the issuance of the 8.75% Senior Notes were used to
refinance outstanding borrowings under the 5-year revolving credit facility
described under Liquidity and Capital Resources in the Management's Discussion
and Analysis of Results of Operations and Financial Condition in Part I of this
Form 10-Q. The 8.75% Senior Notes impose certain limitations on the operations
of the Company and certain of its subsidiaries. The limitations include
restrictions on the creation of liens, entrance into sale-leaseback
transactions, merger or consolidation of the Company and disposition of
substantially all of the Company's assets. The Company was in compliance with
these requirements as of June 30, 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 18, 2001, the Company held its annual meeting of stockholders (the
"Annual Meeting"). At the Annual Meeting the stockholders voted: (i) to elect
the entire Board of Directors of the Company and (ii) to ratify the selection of
KPMG LLP as the Company's independent accountants for the fiscal year ending
December 31, 2001.
A total of 76,601,329 shares of common stock and 23,771,249 shares of
Series A convertible preferred stock ("preferred stock") were present in person
or by proxy at the Annual Meeting, representing approximately 97,638,884 votes,
or approximately 90% of the voting power of the Company entitled to vote at the
Annual Meeting. Each share of common stock was entitled to one vote on each
matter before the meeting, and each share of preferred stock was entitled to
0.885 of a vote on each matter before the meeting.
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<Page>
The votes cast on the matters before the Annual Meeting were as set forth below:
<Table>
<Caption>
I. Nominees for Election Number of Votes
to Board of Directors: In Favor Withheld
Hank Brown 96,825,350 813,534
John K. Castle 96,844,835 794,049
Lawrence R. Codey 96,856,663 782,220
T. J. Dermot Dunphy 96,794,438 844,446
Charles F. Farrell, Jr. 96,829,852 809,031
William V. Hickey 96,884,076 754,807
Shirley Ann Jackson 96,844,562 794,321
Alan H. Miller 96,833,362 805,521
II. Ratification of KPMG For 97,062,623
LLP as Independent Against 100,862
Accountants: Abstentions 475,397
</Table>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Number Description
-------------- -----------
3.1 Amended and Restated Certificate of Incorporation of
the Company as currently in effect. [Exhibit 3.1 to
the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, File No. 1-12139, is
incorporated herein by reference.]
3.2 Amended and Restated By-Laws of the Company as
currently in effect. [Exhibit 3.3 to the Company's
Annual Report on Form 10-K for the year ended December
31, 2000, File No. 1-12139, is incorporated herein by
reference.]
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<Page>
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the second quarter
of 2001.
34
<Page>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEALED AIR CORPORATION
Date: August 10, 2001 By /s/ Jeffrey S. Warren
----------------------------
Jeffrey S. Warren
Controller
(Authorized Executive Officer
and Chief Accounting Officer)
35