Exhibit 99.2
W. R. Grace & Co.
Grace Packaging
Special-Purpose Combined
Financial Statements
December 31, 1997 and 1996
and for each of the three years in the
period ended December 31, 1997
Special-Purpose Report of Independent Certified Public Accountants
February 23, 1998, except for Note 17,
as to which the date is March 30, 1998
To the Board of Directors and Shareholders of
W. R. Grace & Co.
We have audited the accompanying special-purpose combined balance sheet of
W. R. Grace & Co. and its packaging business, excluding the Darex
Container Products business (the "Company") as of December 31, 1997 and
1996, and the related special-purpose combined statements of earnings and
cash flows for each of the three years in the period ended December 31,
1997. These special-purpose combined financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on the special-purpose combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the special-purpose combined
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying special-purpose combined financial statements were
prepared on the basis of presentation described in Note 1, and are not
intended to be a complete presentation of the consolidated assets,
liabilities, revenues and expenses of W. R. Grace & Co.
As disclosed in Note 14 to the accompanying special-purpose combined
financial statements, the packaging business has engaged in various
transactions and relationships with affiliated entities. The terms of
these transactions may differ from those that would result from
transactions among unrelated parties.
In our opinion, the accompanying special-purpose combined financial
statements audited by us present fairly, in all material respects, the
financial position of the Company as of December 31, 1997 and 1996, and its
earnings and cash flows for each of the three years in the period ended
December 31, 1997 pursuant to the basis of presentation described in
Note 1, in conformity with generally accepted accounting principles.
Price Waterhouse LLP
Ft. Lauderdale, Florida
W. R. Grace & Co.
Grace Packaging
Special-Purpose Combined Statement of Earnings
(Dollars in thousands, except for per share data)
1997 1996 1995
----------- ----------- -----------
Net sales $1,833,111 $1,741,602 $1,705,642
Cost of sale 1,187,109 1,151,006 1,078,100
----------- ----------- -----------
Gross profit 646,002 590,596 627,542
Marketing, administrative and development expenses 363,814 342,149 361,735
Restructuring costs and asset impairments 14,444 74,947 17,745
----------- ----------- -----------
Operating profit 267,744 173,500 248,062
Other expenses, net 4,072 3,678 12,589
----------- ----------- -----------
Earnings before income taxes 263,672 169,822 235,473
Income taxes 89,940 69,992 94,581
----------- ----------- -----------
Net earnings $173,732 $99,830 $140,892
=========== =========== ===========
See accompanying Notes to Special-Purpose Combined Financial Statements.
Special-Purpose Combined Balance Sheet
(Dollars in thousands, except for per share data)
December 31,
-------------------------------------------
1997 1996
-------------------- -------------------
Assets
Current Assets
Cash and cash equivalents $ - $ -
Notes and accounts receivable, net of allowances
for doubtful accounts of $7,256 in 1997 and $5,734 in 1996 272,194 262,392
Inventories 225,976 219,311
Deferred income taxes 22,323 22,409
Other current assets 6,865 10,981
---------- ---------
Total Current Assets 527,358 515,093
Properties and equipment, net 1,040,152 1,121,762
Goodwill, less accumulated amortization of $392 in 1997 and $88 in 1996 13,433 8,650
Deferred income taxes - 956
Other assets 65,888 56,427
---------- ---------
Total Assets $1,646,831 $1,702,888
---------- ---------
Liabilities and Equity
Current Liabilities
Accounts payable $ 114,907 $ 130,855
Other current liabilities 68,710 106,655
---------- ---------
Total Current Liabilities 183,617 237,510
Deferred income tax liability 13,939 -
Other liabilities 96,647 83,588
---------- ---------
Total Liabilities 294,203 321,098
---------- ---------
Commitments and contingencies (Notes 7 and 15)
Equity
Equity 1,482,682 1,428,925
Cumulative translation adjustments (130,054) (47,135)
---------- ---------
Total Equity 1,352,628 1,381,790
---------- ---------
Total Liabilities and Equity $1,646,831 $1,702,888
---------- ---------
See accompanying Notes to Special-Purpose Combined Financial Statements.
Special-Purpose Combined Statement Of Cash Flows
(Dollars in thousands, except for per share data)
1997 1996 1995
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES: $173,732 $99,830 $140,892
Net earnings
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization of property and equipment 106,563 90,914 75,578
Other depreciation and amortization 4,517 3,466 4,779
Restructuring 3,616 47,947 11,145
Asset impairment 10,828 27,000 6,600
Deferred tax provisions 14,981 (9,754) (8,838)
Net loss/(gain) on disposals of property and equipment 2,474 (929) 2,071
Changes in operating assets and liabilities, net of assets and
liabilities acquired
Notes and accounts receivable (5,236) (36,758) (25,506)
Inventories 116 38,784 (43,516)
Other current assets 5,028 507 3,784
Other assets (18,128) (22,754) (14,765)
Accounts payable (23,183) (18,761) (7,892)
Other accrued liabilities (47,936) (16,550) 1,301
Other liabilities 7,942 4,659 11,046
------- ------- -------
Net cash provided by operating activities 235,314 207,601 156,679
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment (101,997) (294,503) (293,272)
Proceeds from sales of property and equipment 1,882 1,457 246
Businesses acquired in purchase transactions, net of cash
acquired and debt assumed (15,224) (16,037) -
------- ------- -------
Net cash used in investing activities (115,339) (309,083) (293,026)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt - - -
Net advances (to)/from W. R. Grace & Co. - Conn. (119,975) 101,482 136,347
------- ------- -------
Net cash (used) provided by financing activities (119,975) 101,482 136,347
------- ------- -------
Effect of exchange rate changes on cash and cash equivalents - - -
CASH AND CASH EQUIVALENTS:
Net change during period - - -
Balance, beginning of period - - -
------- ------- -------
Balance, end of period $ - $ - $ -
------- ------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for income taxes $ 74,959 $ 79,746 $ 103,419
======= ======= =======
See accompanying Notes to Special-Purpose Combined Financial Statements.
NOTES TO SPECIAL-PURPOSE COMBINED FINANCIAL STATEMENTS
(Dollars in thousands, except for per share data)
Note 1. Basis of Presentation
General
W. R. Grace & Co. ("WRG"), through its subsidiaries, is a leading
manufacturer of packaging and specialty chemicals. The assets and
liabilities of WRG's packaging and specialty chemicals businesses are
currently owned by W. R. Grace & Co.-Conn. ("Grace Specialty
Chemicals"), a direct wholly owned subsidiary of WRG, and its subsidiaries.
In August 1997, WRG and Sealed Air Corporation ("Sealed Air") entered into a
definitive agreement ("Merger Agreement," and, together with related
agreements, "Transaction Agreements") to combine WRG's packaging business,
excluding the Darex Container Products business, with the business of Sealed
Air. Under the Transaction Agreements, WRG will separate its packaging
business and its specialty chemicals businesses into two separate groups of
subsidiaries (the "Separation"); WRG will contribute the stock of Grace
Specialty Chemicals to another wholly owned subsidiary, which will be renamed
"W. R. Grace & Co." ("New Grace"), and will spin off New Grace to WRG's
shareholders (the "Spin-off"); WRG (which, after the Spin-off, will own only
WRG's packaging business) will be recapitalized (the "Recapitalization"); and
a subsidiary of WRG will merge with Sealed Air (the "Merger"). The
Separation, Spin-off and Recapitalization are collectively referred to as the
"Reorganization". Upon consummation of the Reorganization and Merger, WRG
will be renamed "Sealed Air Corporation" ("New Sealed Air").
Prior to the spin-off, WRG and a packaging subsidiary will borrow
approximately $1,200,000 and transfer these funds to New Grace (the "Cash
Transfer"), and New Sealed Air will remain responsible for repaying the
$1,200,000.
The special-purpose combined financial statements of WRG and its packaging
business, excluding the Darex Container Products business ("Grace Packaging,"
and, together with WRG, the "Company"), have been prepared pursuant to Section
6.7(a) of the Merger Agreement, and exclude all the assets, liabilities
(including contingent liabilities), revenues and expenses of WRG other than
the assets, liabilities, revenues and expenses of Grace Packaging. As used
herein, "Grace" refers to the consolidated businesses of W. R. Grace & Co.
prior to the consummation of the Reorganization.
Grace Packaging is Grace's largest product line and includes the following
trademarked products: Cryovac([Registered]) flexible packaging systems,
Formpac([Trademark]) rigid foam trays, and Omicron([Trademark]) rigid plastic
cups and tubs. Grace Packaging is primarily engaged in producing flexible
packaging materials used in food processing and industrial and consumer
products, as well as packaging equipment.
Basis of Combination
The special-purpose combined financial statements have been prepared using
Grace's historical basis of accounting and include the assets, liabilities,
revenues, expenses and related taxes on income of Grace Packaging previously
included in the consolidated financial statements of Grace, and, as such,
include certain assets and liabilities of Grace Packaging that will be
retained by New Grace following the Reorganization, as contemplated by the
Transaction Agreements. Additionally, in accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 55 ("SAB 55"), the
special-purpose combined financial statements have been adjusted to include
certain expenses incurred by Grace on Grace Packaging's behalf. See Note 14
for a discussion of these corporate allocations.
The special-purpose combined financial statements do not include an allocation
of Grace's debt and related interest expense (except for interest capitalized
as a component of properties and equipment). Therefore, the special-purpose
combined financial statements may not necessarily reflect the financial
position and results of operations that would have occurred had Grace
Packaging been a stand-alone entity on the dates, and for the periods,
indicated. All transactions between and among Grace Packaging entities have
been eliminated.
The special-purpose combined financial statements also exclude dividends paid
by Grace to its shareholders, as the obligation to pay such dividends was
incurred by Grace and not by Grace Packaging on a stand-alone basis. See Note
12 for a discussion of equity.
Note 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting the reported amounts of assets and liabilities (including contingent
assets and liabilities) at the dates of the special-purpose combined financial
statements and the reported revenues and expenses during the periods
presented. Actual amounts could differ from those estimates.
Financial Instruments
Gains and losses on contracts that hedge firmly committed foreign currency
transactions are deferred and recorded in income or as adjustments of carrying
amounts in the period in which the related transactions are consummated.
Inventories
Inventories are stated at the lower of cost or market. The costs of most
U.S. inventories are determined on a last-in, first-out ("LIFO") basis, while
the costs of other inventories are determined on a first-in, first-out
("FIFO") basis.
Properties and Equipment
Properties and equipment are stated at cost, except for properties and
equipment that have been impaired, for which the carrying amount is reduced to
estimated fair value. Significant improvements are capitalized; repairs and
maintenance costs that do not extend the lives of the assets are charged to
expense as incurred. The cost and accumulated depreciation of assets sold or
otherwise disposed of are removed from the accounts, and any resulting gain or
loss is included in income when the assets are disposed of.
The cost of properties and equipment is depreciated over estimated useful
lives on a straight-line basis as follows: buildings - 20 to 40 years, and
machinery and other property and equipment - three to 20 years.
Goodwill and Other Intangible Assets
Goodwill arises from certain purchase transactions and is amortized on a
straight-line basis, generally over 40 years; other intangible assets are
amortized over their estimated lives on a straight-line basis.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," the Company reviews the carrying value of its assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be fully recoverable. The Company considers
various valuation factors, including discounted cash flows, fair values and
replacement costs, to assess any impairment of goodwill and other long-lived
assets.
Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), in 1996. As
permitted by SFAS No. 123, the Company continues to follow the measurement
provisions of Accounting Principles Board Opinion No. 25, "Accounting For
Stock Issued to Employees," and does not recognize stock compensation expense
with respect to its stock-based incentive plans, because it is the Company's
practice to grant options at an exercise price that is equal to the market
value of the Company's stock on the grant date.
Foreign Currency Translation
The Company follows the provisions of Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation" ("SFAS No. 52"). In
locations that are not considered highly inflationary under SFAS No. 52,
the local currency is considered to be the functional currency. As a
result, the balance sheets of the Company's foreign operations are
translated at the current exchange rate and statements of earnings are
translated at the average exchange rate during the applicable period
(except where a country has a highly inflationary economy). Assets and
liabilities of the Company's operations in countries with highly
inflationary economies are translated at the current exchange rate, except
that properties and equipment and inventories are translated at historical
exchange rates. Items included in statements of earnings of the Company's
operations in countries with highly inflationary economies are translated
at average rates of exchange prevailing during the period, except that
depreciation and costs of sales are translated at historical rates.
Income Taxes
The Company's U.S. operations are included in Grace's U.S. federal and state
income tax returns. Grace's consolidated income tax provision has generally
been allocated to the Company as if the Company filed separate income tax
returns. The allocated current provision is settled with Grace on a current
basis. No liability for potential future income tax assessments relating to
prior years is included in the special-purpose combined financial statements.
Deferred tax assets and liabilities are recognized with respect to the future
tax consequences attributable to differences between the financial statement
amounts for existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. A valuation allowance is
provided when it is more likely than not that all or some portion of a
deferred tax asset will not be realized. Deferred tax liabilities or assets
at the end of each period are determined using the tax rates then in effect.
Research and Development
Research and development costs are expensed as incurred and amounted to
$40,675, $42,255 and $36,926 in 1997, 1996 and 1995, respectively,
including corporate allocations. See Note 14 for further information.
Other Expenses, Net
Other expenses, net consists primarily of losses on the sale of receivables
(see Note 5), realized foreign exchange gains and losses, gains and losses
on the disposal of fixed assets and equity interest in the gains and losses
of affiliated companies.
Earnings per Share
For the periods presented, the Company was a business unit of Grace and did
not have a separate identifiable capital structure upon which a calculation
of earnings per share could be based. Historical earnings per share of
Grace Packaging calculated on an equivalent share basis (i.e., using the
weighted average number of shares of WRG common stock outstanding) were
$2.35, $1.09 and $1.47 for the years ended December 31, 1997, 1996 and
1995, respectively. The equivalent earnings per share of Grace Packaging
are not necessarily indicative of the results that would have occurred had
Grace Packaging been a stand-alone entity for the periods presented.
The weighted average number of common shares used to compute equivalent
earnings per share amounts were 74.0 million for 1997, 92.0 million for 1996
and 95.8 million for 1995.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130") effective for fiscal years
beginning after December 15, 1997. The Company will adopt SFAS 130 in 1998.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") effective for
fiscal years beginning after December 15, 1997. The Company will adopt SFAS
131 in 1998.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits" ("SFAS 132") effective for fiscal years beginning after December 15,
1997. The Company will adopt SFAS 132 in 1998.
Reclassifications
Certain prior period amounts have been reclassified to conform to current year
presentation.
Note 3. Acquisitions
In 1997 the Company purchased all the shares of Shurpack, Inc., a US
manufacturer of flexible food packaging for net cash consideration of $12,137.
This transaction was accounted for as a purchase and resulted in goodwill of
$5,087.
During 1997 the Company invested approximately $3,000 in Grace Packaging
Gaoming Co. Ltd. ("Gaoming"), a Chinese manufacturer of shrink films for
sausage casings. Gaoming was a joint venture previously accounted for as an
investment under the equity method prior to this additional investment. As a
result of the consolidation of Gaoming, the Company recorded minority interest
of $2,680 at December 31, 1997.
In 1996, the Company acquired Cypress Packaging, Inc., a U.S. manufacturer of
flexible packaging primarily for the retail pre-cut produce market segment,
for net cash consideration of $16,838. This transaction was accounted for as
a purchase and resulted in goodwill of $8,738.
Note 4. Other Balance Sheet Items
The Company's other balance sheet items consist of the following:
December 31,
------------------------
1997 1996
---------- ----------
Inventories (at FIFO, which approximates current
cost):
Raw materials $44,043 $40,853
Work in process 54,532 54,781
Finished goods 142,282 140,908
---------- ----------
240,857 236,542
Reduction of certain inventories to LIFO basis (14,881) (17,231)
---------- ----------
Total $225,976 $219,311
========== ==========
Inventories accounted for on a LIFO basis represented approximately 27% of
total inventories at December 31, 1997 and 1996. The liquidation of prior
years' LIFO inventory layers in 1996 did not materially affect the Company's
results of operations.
December 31,
------------------------
1997 1996
---------- ----------
Other Assets:
Leased equipment, net $40,250 $30,905
Long-term lease receivables 7,800 11,086
Pension intangible 6,900 --
Other intangible assets, net 8,515 5,343
Investment in joint ventures and affiliates -- 4,784
Other 2,423 4,309
------ ------
Total $65,888 $56,427
====== ======
Leased equipment consists of equipment held for lease or equipment at
customer locations under no-charge operating lease arrangements. Leased
equipment is recorded at cost less accumulated amortization. Amortization
is calculated over a term relevant to the agreement, generally from three
to 10 years.
The Company recorded $4,151 and $4,832 of current lease receivables, and
$7,800 and $11,086 in long-term lease receivables, related to sales-type
lease arrangements at December 31, 1997 and 1996, respectively.
See Note 10 for information concerning pension intangible.
Other intangibles consist mainly of patents, licenses and non-compete
agreements. Intangibles are amortized over the useful life or the shorter of
the term of the related agreement or four years.
Total amortization expense related to leased equipment and intangible assets
was $4,517, $3,466 and $4,779 during the years ended December 31, 1997, 1996
and 1995, respectively.
December 31,
------------------------
1997 1996
---------- ----------
Other Current Liabilities:
Accrued incentive compensation and other
employee benefits $23,025 $25,993
Accrued salaries, wages and related taxes 17,650 16,094
Accrued restructuring costs 12,943 38,921
Accrued operating expenses 9,100 11,937
Other 5,992 13,710
--------- ----------
Total $68,710 $106,655
========= ==========
December 31,
------------------------
1997 1996
---------- ----------
Other Liabilities:
Other postretirement benefits $59,900 $59,600
Pensions 14,000 4,200
Long-term incentive program 8,900 7,100
Statutory social security 3,058 3,577
Deferred income 1,656 1,636
Other 9,133 7,475
--------- ----------
Total $96,647 $83,588
========= ==========
Unfunded statutory social security obligations represent the present value
of the Company's future social security obligations for certain eligible,
active employees in France based on actuarial calculations.
See Notes 8, 10 and 11 for information concerning restructuring, pension
and other postretirement benefit obligations, respectively.
Note 5. Sale of Accounts Receivable
During 1995, Grace entered into agreements to sell up to $120,000 of interests
in designated pools of accounts receivable. At December 31, 1995, $116,000
had been received pursuant to such sales, including $47,068 relating to
accounts receivable of Grace Packaging. The amounts sold have been reflected
as reductions to accounts receivable. Under the terms of the agreements, new
interests in accounts receivable were sold as collections reduced previously
sold accounts. The losses related to such sales were expensed as incurred.
These agreements were terminated as to Grace Packaging during September 1996
with no gain or loss incurred on termination.
Note 6. Income Taxes
The components of earnings before income taxes were as follows:
1997 1996 1995
------ ------ ------
Domestic $105,694 $101,012 $117,100
Foreign 157,978 68,810 118,373
------- ------- -------
Total $263,672 $169,822 $235,473
======= ======= =======
The components of the provision for income taxes were as follows:
1997 1996 1995
------ ------ ------
Current tax expense
Federal $26,905 $41,986 $46,550
State and local 5,233 7,245 9,872
Foreign 42,821 30,515 46,997
------ ------ -------
Total current 74,959 79,746 103,419
------ ------ -------
Deferred tax expense/(benefit)
Federal 6,465 (8,891) (8,011)
State and local 1,055 (328) (826)
Foreign 7,461 (535) (1)
------ ------ -------
Total deferred 14,981 (9,754) (8,838)
------ ------ -------
Total provision $89,940 $69,992 $94,581
====== ====== ======
Deferred tax assets/(liabilities) consist of the following:
December 31,
------------------
1997 1996
------- -------
Reserves not yet deductible for tax purposes $10,931 $15,231
Research and development expenses 25,337 24,306
Postretirement benefits other than pensions 21,643 20,860
Employee benefit items 6,429 6,004
Capitalized inventory costs and inventory reserves 8,877 4,367
Foreign net operating loss carryforwards, investment tax
allowances and foreign tax credits 25,118 33,422
Other 7,642 5,136
------- -------
Gross deferred tax assets 105,977 109,326
Valuation allowance (10,445) (18,599)
------- -------
Total deferred tax assets 95,532 90,727
------- -------
Depreciation and amortization (71,814) (52,175)
Capitalized interest (15,126) (14,384)
Other (208) (803)
Total deferred tax liabilities (87,148) (67,362)
------- -------
Net deferred tax assets $8,384 $23,365
======= =======
The U.S. federal statutory corporate tax rate reconciles to the Company's
effective tax rate as follows:
1997 1996 1995
------ ------ ------
Statutory U.S. federal tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit 1.5 2.4 2.3
U.S. and foreign taxes on foreign operations (2.6) 3.4 2.6
Other 0.2 0.4 0.3
---- ---- ----
Effective tax rate 34.1% 41.2% 40.2%
==== ==== ====
The Company has concluded that it is more likely than not that the remaining
balance of deferred tax assets of $95,532 after consideration of the valuation
allowance at December 31, 1997, will be realized based upon anticipated future
results. The valuation allowance of $10,445 at December 31, 1997 has
been recorded due to the uncertainty of the realization of certain foreign
deferred tax assets, primarily relating to foreign investment tax allowances
that arose during 1996.
Provision has not been made for additional federal, state or foreign taxes on
undistributed earnings of foreign subsidiaries. It is management's current
intent that these earnings will continue to be reinvested indefinitely. The
distribution of these earnings would result in additional foreign withholding
taxes and additional U.S. federal income taxes to the extent they are not
offset by foreign tax credits. It is not practicable to estimate the total tax
liability that would be incurred upon such distribution.
At December 31, 1997, there were $36,823 of foreign net operating loss
carryforwards ($14,867 tax effected), $26,040 of investment tax allowances
($7,812 tax effected) and $2,439 of foreign tax credits, the majority of which
have no expiration period. In accordance with the Transaction Agreements, New
Grace will receive cash from New Sealed Air equivalent to the tax benefit of
such tax attributes as realized.
Note 7. Properties and Equipment
December 31,
---------------------------
1997 1996
---------- ----------
Land and improvements $13,219 $14,940
Buildings 306,880 280,982
Machinery and equipment 1,125,567 1,026,876
Other property and equipment 119,533 127,512
Construction in progress 187,797 327,925
--------- ---------
1,752,996 1,778,235
Accumulated depreciation and amortization (712,844) (656,473)
--------- ---------
Properties and equipment, net $1,040,152 $1,121,762
========= =========
Depreciation and amortization expense relating to properties and equipment
amounted to $106,563, $90,914 and $75,578 in 1997, 1996 and 1995, respectively.
Interest cost capitalized during 1997, 1996 and 1995 was $12,775, $17,650 and
$15,071, respectively.
Leases
Future minimum payments for operating leases as of December 31, 1997 are as
follows:
1998 $10,444
1999 8,648
2000 7,234
2001 5,756
2002 3,349
2003 and beyond 680
------
Total minimum payments $36,111
======
Rental expense for operating leases was $9,588, $12,036 and $11,560 in 1997,
1996 and 1995, respectively.
Note 8. Restructuring Costs and Asset Impairments
Restructuring Costs
The Company began implementing a worldwide program in 1995 focused on
streamlining processes and reducing general and administrative expenses and
factory administration costs. Under this program, the Company has continued
to implement additional cost reductions and efficiency improvements, as it has
further evaluated and reengineered its operations. In connection with these
programs, the Company recorded restructuring charges of $3,616 in 1997,
$47,947 in 1996 and $11,145 in 1995. These charges primarily related to
headcount reductions and the restructuring of the Company's European
operations (in areas such as working capital management, manufacturing and
sales).
The components of the 1997, 1996 and 1995 restructuring charges, spending and
other activity during 1997, 1996 and 1995, and the remaining reserve balances
at December 31, 1997 were as follows:
Employee
Termination Plant/Office Other
Benefits Closures Costs Total
----------- ------------ ----------- -----
Restructuring reserve at December 31, 1994 $2,837 $506 $ -- $3,343
Restructuring provisions recorded in 1995 9,845 500 800 11,145
Cash payments during 1995 (1,008) -- (500) (1,508)
------- ------- ------- -------
Restructuring reserve at December 31, 1995 11,674 1,006 300 12,980
Restructuring provisions recorded in 1996 41,328 4,400 2,219 47,947
Cash payments during 1996 (19,971) (200) (1,835) (22,006)
------- ------- ------- -------
Restructuring reserve at December 31, 1996 33,031 5,206 684 38,921
Restructuring provisions recorded in 1997 3,200 -- 416 3,616
Cash payments during 1997 (26,074) (2,420) (1,100) (29,594)
------- ------- ------- -------
Restructuring reserve at December 31, 1997 $10,157 $2,786 $ -- $12,943
======= ======= ======= =======
Employee termination benefits primarily represent severance pay and other
benefits (including benefits under long-term incentive programs paid over
time) associated with the elimination of approximately 400 positions
worldwide. Through December 31, 1997, approximately 360 positions had been
eliminated.
Subsequent to the Reorganization, certain restructuring obligations (for which
approximately $1,100 was accrued as of December 31, 1997) will be retained by
New Grace. As of the date of the Reorganization, the Company's liability with
respect to such restructuring obligations retained by New Grace, including
related deferred income taxes, will be reversed and accounted for as an equity
contribution from Grace.
Asset Impairments
During 1997, 1996 and 1995, the Company determined that, due to certain market
demand shifts and manufacturing capacity strategies, certain long-lived assets
and related goodwill were impaired. As a result, in 1997, 1996 and 1995 the
Company recorded noncash pretax charges of approximately $10,828, $27,000 and
$6,600, respectively. The components of the 1997, 1996 and 1995 charges were
as follows:
1997 1996 1995
------ ------ ------
Properties and equipment $ 10,828 $ 9,000 $ 1,900
Goodwill and other intangible assets - 11,100 300
Long-term investments - 4,200 4,400
Other assets - 2,700 -
------ ------ -----
$ 10,828 $ 27,000 $ 6,600
====== ====== =====
Note 9. Long-Term Incentive Program
Certain Grace Packaging employees participate in Grace's Long-Term Incentive
Program ("LTIP"), which provides that employees can earn performance units
based upon the achievement of targeted earnings and shareholder value creation
goals over a three-year period. These performance units are equivalent in
value to a share of Grace common stock at the end of the three-year period.
Awards are paid to participants following the end of each three-year period.
Provisions for the LTIP awards are made quarterly based upon progress toward
meeting the targets described above. LTIP expense included in the
special-purpose combined financial statements related to Grace Packaging
employees was $5,900, $1,900 and $7,000 for 1997, 1996 and 1995, respectively.
In accordance with SAB 55, the special-purpose combined financial statements
also reflect an allocation of LTIP expense related to Grace corporate
employees that performed services on behalf of Grace Packaging. See Note 14
for a discussion of corporate allocations. The provision included in the
special-purpose combined financial statements for allocated LTIP expenses was
$23,710, $9,293 and $10,811 for 1997, 1996 and 1995, respectively.
In conjunction with the Reorganization, LTIP liabilities related to Grace
Packaging employees (for which approximately $8,900 was accrued as of December
31, 1997) will be retained by New Grace and the participation of Grace
Packaging employees in Grace's LTIP will cease. As of the date of the
Reorganization, the Company's liability with respect to LTIP obligations
retained by New Grace, including related deferred income taxes, will be
reversed and accounted for as an equity contribution from Grace.
Note 10. Pension Plans
Substantially all of the Company's U.S. employees are covered by
non-contributory defined benefit plans sponsored by Grace. Benefits are
generally based on final average salary and years of service. Grace funds its
U.S. pension plans in accordance with U.S. federal laws and regulations. Plan
assets consist primarily of publicly traded common stocks, fixed income
securities and cash equivalents.
Separate calculations of Grace Packaging's net pension cost and funded status
within Grace's U.S. pension plans have been performed. Grace Packaging's
total pension expense consists of the following components:
1997 1996 1995
-------- -------- --------
Service cost on benefits earned during the year $ 5,800 $ 6,400 $ 5,200
Interest cost on benefits earned in prior years 12,700 12,100 10,800
Actual return on plan assets (13,900) (18,800) (22,200)
Deferred gain on plan assets - 5,800 10,600
Amortization of net gains and prior service costs (900) (200) (1,300)
-------- -------- --------
Net pension cost $ 3,700 $ 5,300 $ 3,100
======== ======== ========
Grace Packaging's funded status within Grace's U.S. plans was as follows:
December 31,
1997 1996
------ ------
Actuarial present value of benefit obligation:
Vested 186,500 150,000
------- -------
Accumulated benefit obligation 189,300 152,400
------- -------
Total projected benefit obligation 202,000 163,000
Plan assets at fair value 175,300 158,700
------- -------
Plan assets less than projected benefit obligation (26,700) (4,300)
Unamortized net gain at initial adoption (6,000) (7,500)
Unamortized prior service cost 14,900 6,100
Unrecognized net loss 10,700 1,500
------- -------
Accrued pension cost (7,100) (4,200)
Adjustment required to recognize minimum liability (6,900) -
------- -------
Accrued pension cost liability recognized in the balance sheet (14,000) (4,200)
======= =======
The following significant assumptions were used in calculating the Company's
U.S. pension cost and funded status:
1997 1996 1995
------ ------ ------
Discount rate at December 31, 7.3% 8.0% 7.3%
Expected long-term rate of return 9.0% 9.0% 9.0%
Rate of compensation increase 4.5% 4.5% 4.5%
The Company's non-U.S. employees participate in various Grace-sponsored
retirement plans. Net pension cost for these plans has been allocated annually
to the Company by Grace. Total pension costs allocated to the Company in
connection with these plans were $800, $3,000 and $500 in 1997, 1996 and 1995,
respectively. No portion of the non-U.S. pension assets or liabilities has
been allocated to the Company, on the basis that non-U.S. employees are
considered to have participated in a multiemployer pension plan as defined in
Statement of Financial Accounting Standards No. 87, "Employer's Accounting for
Pensions."
Separate calculations for the components of net pension cost for the Company
and the Company's funded status within the Grace-sponsored non-U.S. plans are
not available. The following tables reflect the components of net pension
cost and the funded status of the non-U.S., Grace-sponsored pension plans for
all Grace businesses:
1997 1996 1995
------ ------ ------
Service cost on benefits earned during the year $ 10,000 $ 10,700 $ 10,500
Interest cost on benefits earned in prior years 19,400 23,100 21,400
Actual return on plan assets (51,100) (39,100) (52,000)
Deferred gain on plan assets 20,400 8,200 26,200
Amortization of net gains and prior service costs (500) (300) (800)
Net curtailment and settlement loss (gain) 3,700 (2,400) -
------- ------- -------
Net pension cost $ 1,900 $ 200 $ 5,300
======= ======= =======
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
December 31, December 31,
-------------------------- --------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Actuarial present value of benefit obligation:
Vested $ 194,300 $ 161,800 $ 76,200 $ 75,200
-------- ------- ------- -------
Accumulated benefit obligation $ 194,900 $ 162,500 $ 83,600 $ 82,800
-------- ------- ------- -------
Total projected benefit obligation 205,000 $ 183,200 $ 100,100 $ 103,300
Plan assets at fair value 339,100 313,400 2,600 6,100
-------- ------- ------- -------
Plan assets in excess of/(less than) projected benefit
obligation 134,100 130,200 (97,500) (97,200)
Unamortized net (gain)/loss at initial adoption (3,400) (4,700) 2,900 3,800
Unamortized prior service cost 3,600 4,100 - -
Unrecognized net (gain)/loss (14,900) (17,300) 20,300 15,000
-------- ------- ------- -------
Prepaid/(accrued) pension cost $ 119,400 $112,300 $(74,300) $(78,400)
======== ======= ======= =======
The following significant assumptions were used in calculating the pension
cost and funded status for the non-U.S. Grace-sponsored pension plans for all
Grace businesses:
1997 1996 1995
------ ------ ------
Discount Rate at December 31, 2.3-7.5% 3.4-8.7% 5.1-11.6%
Expected long-term rate of return 6.0-10.5% 6.0-10.5% 6.0-10.5%
Rate of compensation increase 2.0-5.0% 2.5-7.5% 4.0-7.5%
The Company's participants historically comprised approximately 66% of the
total participants in the non-U.S. Grace-sponsored pension plans.
Subsequent to the Reorganization, the pension obligations relating to
substantially all of the Company's U.S. employees will be retained by New
Grace. As of the date of the Reorganization, the Company's liability with
respect to such employees to be retained by New Grace, including related
deferred income taxes, will be reversed and accounted for as an equity
contribution from Grace.
Subsequent to the Reorganization, it is expected that New Sealed Air will
assume substantially all of the pension obligations related to the Company's
non-U.S. employees and will also receive a corresponding amount of assets from
the non-U.S. Grace plans. However, differences, if any, between the non-U.S.
projected benefit obligations assumed by New Sealed Air and the value of the
assets transferred related to such obligations will be accounted for as a
contribution to, or distribution from, Grace Packaging.
Note 11. Other Postretirement Benefit Plans
The Company's U.S. retired employees receive certain postretirement health
care and life insurance benefits under plans established by Grace. Those
retiree medical and life insurance plans provide for various levels of
benefits to employees (depending on their dates of hire) who retire from the
Company after age 55 with at least 10 years of service. The plans are
unfunded.
The Company applies Statement of Financial Accounting Standards No. 106,
"Employer's Accounting for Postretirement Benefits Other than Pensions," which
requires the accrual method of accounting for the future costs of
postretirement health care and life insurance benefits over the employees'
years of service. Grace pays the costs of postretirement benefits as they are
incurred.
Actuarial calculations of net postretirement benefit costs and accrued
obligations for Grace Packaging participants within the Grace retiree medical
and life insurance plans were performed as if Grace Packaging were a
stand-alone entity. Included in other liabilities are the following:
Accumulated postretirement benefit obligation:
December 31,
1997 1996
-------- --------
Retirees $ 23,900 $ 23,500
Fully eligible participants 3,300 2,500
Active ineligible participants 24,000 19,300
------- -------
51,200 45,300
Unrecognized net loss (4,100) -
Unrecognized prior service benefit 12,800 14,300
------- -------
Accrued postretirement benefit obligation $ 59,900 $ 59,600
======= =======
Net periodic postretirement benefit cost for 1997, 1996 and 1995 consists of
the following components:
1997 1996 1995
------ ------ ------
Service cost $ 800 $ 800 $ 600
Interest cost on accumulated postretirement benefit
obligation 3,600 3,400 3,900
Amortization of net loss - - -
Amortization of prior service benefit (1,500) (1,600) (1,800)
----- ----- -----
Net periodic postretirement benefit cost $ 2,900 $ 2,600 $ 2,700
===== ===== =====
Medical care cost trend rates were projected at 8.7% in 1997, declining to
5.0% through 2001 and remaining level thereafter. An increase of one
percentage point in each year's assumed medical care cost trend rate, holding
all other assumptions constant, would increase the annual net periodic
postretirement benefit cost by $185 and the accumulated postretirement benefit
obligation by $2,500. The discount rates at December 31, 1997, 1996 and 1995
were 7.3%, 8.0% and 7.3%, respectively.
Subsequent to the Reorganization, the postretirement obligation related to all
retired Grace Packaging employees and those active Grace Packaging employees
who would be eligible to receive postretirement benefits if they should
retire at any time on or before the first anniversary of the Reorganization,
will be retained by New Grace. As of the date of the Reorganization, the
Company's liability to be retained by New Grace, including related deferred
income taxes, will be reversed and accounted for as an equity contribution
from Grace.
Note 12. Equity
Because Grace Packaging operations have been conducted by divisions or
subsidiaries of Grace Specialty Chemicals, rather than by a distinct
consolidated legal entity, there are no customary equity and capital accounts.
Grace Packaging's operations are funded by means of intercompany accounts with
Grace Specialty Chemicals. Therefore, equity also includes intercompany
balances due to Grace Specialty Chemicals arising from the funding of Grace
Packaging, as well as balances related to transactions and other charges and
credits between Grace Packaging and Grace, as more fully described in Note 14.
The special-purpose combined financial statements include equity balances
related only to Grace Packaging. Therefore, changes within the equity accounts
of Grace related to the declaration and payment of dividends to its
shareholders, the addition of capital contributions, the granting and
exercising of stock options and the purchase of treasury stock have been
excluded, since such movements related to Grace and not to Grace Packaging on
a stand-alone basis. Similarly, due to the above factors, it has not been
possible to present separately within equity the retained earnings of Grace
related to Grace Packaging. A summary of changes in equity follows:
<CAPITAL>
1997 1996 1995
------ ------ ------
Balance, beginning of year $ 1,428,925 $ 1,227,613 $ 950,374
Net earnings 173,732 99,830 140,892
Advances (to) from Grace Specialty
Chemicals, net (119,975) 101,482 136,347
-------- --------- ---------
Balance, end of year $ 1,482,682 $ 1,428,925 $ 1,227,613
========= ========= =========
Cumulative translation adjustments for the three years ended December 31, 1997
were as follows:
<CAPITAL>
1997 1996 1995
------ ------ ------
Balance, beginning of year $ (47,135) $ (47,265) $ (52,613)
Translation adjustment (82,919) 130 5,348
------- ------- -------
Balance, end of year $ (130,054) $ (47,135) $ (47,265)
======= ======= =======
Stock Options
Certain of the Company's employees participate in WRG's stock incentive plans.
Options granted under these plans have an exercise price equal to the market
value of WRG's common stock on the date of grant, become exercisable at the
time or times determined by a committee of WRG's Board of Directors and have
terms of up to ten years and one month. Options to purchase approximately 4.5
million shares of WRG common stock were outstanding at December 31, 1997, at
an average exercise price of approximately $36.00. Options held by current
and former employees of Grace Packaging represent approximately 14.5% of the
4.5 million options outstanding as of December 31, 1997.
Concurrent with the Reorganization, the outstanding options to purchase WRG
common stock that are held by Grace Packaging employees will be converted to
options to purchase common stock of New Sealed Air. All other options will be
converted to options to purchase common stock of New Grace. The number of
shares that can be purchased when the stock options are exercised, and the
exercise price, will be adjusted using formulas designed to maintain the
approximate economic value of the options at the time of the Reorganization.
The pro forma effects on earnings of applying SFAS No. 123 for those options
granted during 1997, 1996 and 1995 to employees of Grace Packaging were
$1,400, $600 and $500, respectively. The fair value of option grants were
estimated using the Black-Scholes option pricing model with the following
historical weighted-average assumptions:
1997 1996 1995
---- ---- ----
Dividend yields 1% 1% 3%
Expected volatility 29% 26% 25%
Risk-free interest rates 6% 6% 7%
Expected life (in years) 4 4 4
Based on the above assumptions, the weighted-average fair value of each option
granted was $16.00 for 1997, $14.00 for 1996 and $7.00 for 1995.
Note 13. Financial Instruments
Fair Value of Financial Instruments
At December 31, 1997 and 1996, the carrying value of financial instruments
such as accounts receivable, other assets, accounts payable, and accrued
liabilities approximated their fair values, based on the short-term maturities
of these instruments.
Foreign Currency Contracts
Grace Packaging enters into forward foreign exchange sales and purchase
contracts with Grace in order to hedge foreign currency exposures related to
firm commitments to purchase inventory and fixed assets, as well as firm
commitments to sell products. Gains and losses associated with these forward
currency exchange contracts are deferred and included in the measurement of the
related foreign currency transaction. However, losses are not deferred if it
is estimated that deferral would result in the recognition of losses in later
periods.
The notional principal amounts of forward foreign currency exchange contracts
at December 31, 1997 and 1996 were $33,317 and $37,600, respectively. Fair
market values were not significant. The Company may be exposed to foreign
exchange loss in the event of nonperformance by Grace, but considers the
likelihood of nonperformance remote.
Concentrations of Risk
Financial instruments that potentially expose the Company to concentrations of
credit risk consist primarily of trade accounts receivable. A significant
portion of the Company's sales are to customers in the food processing or
distribution industry and, as such, the Company is directly affected by
economic factors impacting that industry. The Company does not require
collateral; however, the credit risk associated with trade receivables is
minimal due to the Company's large customer base. Historically, the Company
has not experienced significant losses on trade receivables.
The Company relies on certain vendors to supply its primary raw material
needs; however, the Company believes that other suppliers could provide for
the Company's needs on comparable terms. Adverse changes in the supply flow
could, however, cause delays in manufacturing.
Note 14. Related Party Transactions and Allocations
Cash
Grace Packaging has used Grace's centralized cash management services. Under
such service arrangements, excess domestic cash was invested, and
disbursements were funded, centrally by Grace on behalf of Grace Packaging.
Shared Services
Grace has allocated a portion of its domestic and overseas regional corporate
expenses to its business units, including Grace Packaging. These expenses
have reflected corporate overhead; benefit administration; risk
management/insurance administration; tax and treasury/cash management
services; environmental services; litigation administration services; general
legal services, including intellectual property; and other support and
executive functions. Allocations and charges are based on either a direct
cost pass-through or a percentage allocation for services provided, based on
factors such as net sales, management effort, or headcount.
Domestic corporate expenses of Grace allocated to Grace Packaging in
accordance with SAB 55 totaled $28,213, $15,175 and $22,542 for 1997, 1996 and
1995, respectively, and are included in marketing, administrative and
development expenses.
Domestic research and development expenses of Grace and allocated to Grace
Packaging in accordance with SAB 55 totaled $5,074 and $6,851 for 1996 and
1995, respectively, and are included in marketing, administrative and
development expenses.
Management believes that the basis used for allocating corporate services is
reasonable and that the terms of these transactions would not materially
differ from those among unrelated parties.
Additionally, the accompanying statement of earnings includes allocations of
costs for general and administrative services and maintenance services for
shared facilities as well as data processing services provided by Grace's
European central data processing facility. The allocated costs and expenses
related to general and administrative functions, maintenance, data processing
and other facility support functions were $55,802, $84,005 and $99,437 for
1997, 1996 and 1995, respectively. Of these amounts $6,181 has been included
in cost of sales and $49,621 has been included in marketing, administrative
and development expenses in 1997 ($15,226 and $68,779 in 1996, and $15,236 and
$84,201 in 1995). The cost allocations for these services were determined
based on methods that management considers to be reasonable.
Prior to the Reorganization, New Grace and the Company expect to enter into
short-term administrative and support service agreements, as necessary.
Grace has also charged Grace Packaging for its share of domestic workers'
compensation, automobile and other general business liability insurance
premiums and claims, which have all been handled by Grace on a corporate
basis. These charges have been based on Grace Packaging's actual and expected
future experience, including actual payroll expense, and have not been
significant to the Company's results of operations.
Shared Facilities
The Company shares certain sales, manufacturing and administration facilities
with Grace. Subsequent to the Reorganization, ownership of these shared
facilities will either be retained by the Company, retained by New Grace or
physically divided between the Company and New Grace. In certain locations
where the ownership of facilities cannot be legally divided in accordance with
the business needs of Grace Packaging and New Grace, the two parties will
enter into lease or similar agreements under which one of the parties will
retain ownership of land and buildings and lease space to the other.
The property and equipment included in the accompanying balance sheets have
been allocated in accordance with the expected ownership of such assets
subsequent to the Reorganization.
Note 15. Commitments and Contingencies
Contingent Non-Grace Packaging Liabilities
New Grace has agreed to indemnify the Company against all liabilities of
Grace, whether relating to events occurring before or after the
Reorganization, other than liabilities arising from or relating to Grace
Packaging operations (unless otherwise retained by New Grace under the terms
of the Transaction Agreements). After the Reorganization, the Company may
remain contingently liable with respect to pre-Reorganization liabilities that
are not related to Grace Packaging operations. Management believes that in
view of the nature of the non-Grace Packaging liabilities, New Grace's
agreement to indemnify the Company and the expected impact of the
Reorganization on New Grace's financial position, the risk of loss to the
Company from non-Grace Packaging liabilities is remote.
Environmental
The Company is subject to loss contingencies resulting from environmental laws
and regulations. The Company 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. The Company's liabilities for
environmental investigatory and remediation costs totaled approximately $4,700
and $4,800 at December 31, 1997 and 1996, respectively, and are included in
other current liabilities in the accompanying special-purpose combined balance
sheet.
The Company's environmental liabilities are reassessed whenever circumstances
become better defined and/or remediation efforts and their costs can be better
estimated. These liabilities are currently evaluated periodically, based on
available information, including the progress of remedial investigation 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 will continue to
review and analyze the need for adjustments to the recorded accruals.
However, the Company believes that it is adequately reserved for all probable
and estimable environmental exposures.
Subsequent to the Reorganization, certain Grace Packaging environmental
liabilities (for which approximately $4,000 was accrued as of December 31,
1997) will be retained by New Grace. As of the date of the Reorganization,
the Company's liability with respect to such environmental obligations
retained by New Grace, including related deferred income taxes, will be
reversed and accounted for as an equity contribution from Grace.
Guarantee of New Grace Outstanding Public Debt
WRG currently is the guarantor of the outstanding public debt (approximately
$652,200 at December 31, 1997) of Grace Specialty Chemicals, which will be
owned by New Grace upon completion of the Reorganization. WRG will continue
as the guarantor of any of such debt remaining outstanding following the
Reorganization (see Note 17). New Grace will indemnify New Sealed Air
against any liability arising from the guarantee. To the extent that more than
$50,000 of such debt remains outstanding after the Reorganization, New Sealed
Air will receive a letter of credit to be obtained by New Grace to cover any
payments it must make under its guarantee.
Note 16. Information About Foreign Operations
The table below provides information pertaining to Grace Packaging's
operations by geographic area. Interregion sales, eliminated in combination,
were not significant.
United
States
and Asia Latin
Canada Europe Pacific America Total
-------- ------ ------- ------- -----
Net Sales 1997 $953,281 $526,829 $200,954 $152,047 $1,833,111
1996 864,254 530,328 202,560 144,460 1,741,602
1995 859,223 520,571 194,836 131,012 1,705,642
Earnings before income
taxes(1) 1997 137,694 79,894 19,431 26,653 263,672
1996 95,543 16,987 26,557 30,735 169,822
1995 108,283 63,222 38,057 25,911 235,473
Identifiable assets 1997 903,361 407,878 201,308 134,284 1,646,831
1996 873,754 452,272 258,563 118,299 1,702,888
1995 726,243 454,607 193,544 102,966 1,477,360
(1) Includes 1997, 1996 and 1995 pretax charges of $14,444, $74,947 and
$17,745, respectively, relating to restructuring costs and asset
impairments (see Note 8).
Note 17. Subsequent Events
On March 20, 1998, WRG's shareholders approved the Reorganization and
Merger. The Merger was also approved by Sealed Air's shareholders on March
23, 1998. The accompanying special-purpose combined financial statements
do not reflect the effects of the Reorganization, Cash Transfer and Merger
(all of which are expected to be completed by March 31, 1998).
As discussed in Note 1, Grace Specialty Chemicals is to receive a Cash
Transfer of approximately $1,200,000. Grace Specialty Chemicals intends to
use the cash to repay substantially all of its debt, including approximately
$644,000 of publicly held debt guaranteed by WRG. On March 10, 1998, Grace
Specialty Chemicals offered to purchase such debt. The offers expired on
March 27, 1998, by which time approximately $611,000 of the debt had been
tendered. It is anticipated that the tendered debt will be accepted for
payment by Grace Specialty Chemicals on March 31, 1998, subject to the
consummation of the Merger, with payment to be made promptly thereafter. The
publicly held debt of $8,500 that was not subject to the offer was repaid in
full during March 1998.
Note 18. Quarterly Summary (Unaudited)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
--------- --------- --------- ---------
1997
Net sales $422,693 $463,211 $461,835 $485,372
Cost of sales 274,629 299,528 299,699 313,253
Net earnings 37,260 38,259 36,026 62,187(1)
1996
Net sales $409,141 $426,340 $436,131 $469,990
Cost of sales 265,534 286,270 288,530 310,672
Net earnings 29,780 7,975 41,058 21,017
(1) Net earnings for the first three quarters of 1997 reflect income taxes
using an estimated effective tax rate of 41.2%. Net earnings for the
fourth quarter of 1997 include an income tax benefit to adjust the
Company's full year effective tax rate to 34.1%.