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SEE > SEC Filings for SEE > Form 10-Q on 8-Nov-2013All Recent SEC Filings

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Form 10-Q for SEALED AIR CORP/DE


8-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The information in our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read together with our condensed consolidated financial statements and related notes set forth in Item 1 of Part I of this quarterly report on Form 10-Q, our MD&A set forth in Item 7 of Part II of our 2012 Annual Report on Form 10-K and our consolidated financial statements and related notes set forth in Item 8 of Part II of our Form 10-K. See Part II, Item 1A, "Risk Factors," below and "Cautionary Notice Regarding Forward-Looking Statements," above, and the information referenced therein, for a description of risks that we face and important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. All amounts and percentages are approximate due to rounding and all dollars are in millions, except per share amounts. When we cross-reference to a "Note," we are referring to our "Notes to Condensed Consolidated Financial Statements," unless the context indicates otherwise.

In November 2012, we completed the sale of Diversey Japan. The operating results of Diversey Japan were reclassified to discontinued operations, net of tax, on the condensed consolidated statements of operations for the three and nine months ended September 30, 2012. See Note 3, "Divestiture," for details of our sale of Diversey Japan. The following MD&A is on a continuing operations basis unless otherwise noted.

Recent Events

Quarterly Cash Dividends

On October 10, 2013, our Board of Directors declared a quarterly cash dividend of $0.13 per common share. This dividend is payable on December 20, 2013 to stockholders of record at the close of business on December 6, 2013. The estimated amount of this dividend payment is $25 million based on 196 million shares of our common stock issued and outstanding as of October 31, 2013.

In the third quarter of 2013, we renamed our global business divisions under our segment reporting structure. There was no impact to the reportable segment results. The following are the changes to the names of our three global business divisions:

Food Care, which was previously named Food & Beverage;

Diversey Care, which was previously named Institutional & Laundry; and

Product Care, which was previously named Protective Packaging.

See Note 4, "Segments," for further details of our segment structure.

2013 Earnings Quality Improvement Program (EQIP)

As announced on May 1, 2013, we commenced with EQIP, which is an initiative to deliver meaningful cost savings and network optimization. See below, and Note 9, "Restructuring Activities" for further details of the program.

2013 Revised Outlook

We now expect net sales in 2013 to be approximately $7.7 billion (representing a 1% growth, as compared with 2012) and Adjusted EPS to be in the range of $1.25 to $1.30. Adjusted EBITDA is expected to be approximately $1.055 billion and Free Cash Flow (Free Cash Flow represents cash flow from operations less capital expenditures) to be approximately $375 million. Our core tax rate for 2013 is now expected to be in the range of 20% to 23% compared to previously provided guidance of approximately 25%.

Additional full year 2013 outlook information includes:

interest expense of approximately $355 million (including $290 million of cash interest payments);

depreciation and amortization expense of approximately $310 million (including $170 million for property and equipment, $115 million for intangible assets and $25 million for share-based compensation);

cash tax payments of approximately $100 million; and

cash restructuring payments of approximately $140 million.

Our Adjusted EBITDA and Adjusted EPS outlook excludes the impact of special items and the payment under the Settlement agreement. Special items are described in more detail below and in Non-U.S. GAAP Information section included in this Quarterly Report on Form 10-Q.


Table of Contents

Highlights of Financial Performance

Below are highlights of our financial performance.



                                           Three Months Ended                            Nine Months Ended
                                              September 30,                %               September 30,                %
                                          2013            2012          Change         2013            2012          Change
Net sales                               $ 1,935.9      $  1,900.3           1.9 %    $ 5,750.2      $  5,670.3           1.4 %

Gross profit                            $   656.4      $    643.6           2.0 %    $ 1,939.5      $  1,893.0           2.5 %

As a % of net sales                          33.9 %          33.9 %                       33.7 %          33.4 %
Operating profit (loss)                 $   139.9      $ (1,191.0 )           # %    $   439.0      $   (999.5 )           # %

As a % of net sales                           7.2 %         (62.7 )%                       7.6 %         (17.6 )%
Net earnings (loss) available to
common stockholders from continuing
operations                              $    37.7      $ (1,238.3 )           # %    $    96.7      $ (1,267.3 )           # %

Net earnings (loss) per common share
from continuing operations-basic        $    0.19      $    (6.41 )           # %    $    0.50      $    (6.58 )           # %

Net earnings (loss) per common share
from continuing operations-diluted      $    0.18      $    (6.41 )           # %    $    0.45      $    (6.58 )           # %

Weighted average number of common
shares outstanding:
Basic                                       194.9           193.2                        194.5           192.7

Diluted                                     213.7           193.2                        213.4           192.7

Non-U.S. GAAP adjusted diluted net
earnings per common share-continuing
operations(1)                           $    0.39      $     0.28          39.3 %    $    0.92      $     0.62          48.4 %

# Denotes a variance greater than or equal to 100%.

(1) See "Diluted Net Earnings per Common Share" below for a reconciliation of our U.S. GAAP EPS to our non-U.S. GAAP adjusted EPS.


Table of Contents

Diluted Net Earnings (Loss) per Common Share

The following table presents a reconciliation of our U.S. GAAP EPS to our
non-U.S. GAAP Adjusted EPS.



                                                   Three Months Ended September 30,                        Nine Months Ended September 30,
                                                   2013                       2012                         2013                       2012
                                                                        Net                                                     Net
                                             Net                      Earnings                       Net                      Earnings
                                           Earnings        EPS         (Loss)          EPS         Earnings        EPS         (Loss)          EPS
U.S. GAAP net earnings (loss) and EPS
available to common
stockholders-continuing operations        $     37.7     $  0.18     $ (1,238.3 )    $ (6.41 )    $     96.7     $  0.45     $ (1,267.3 )    $ (6.58 )

Adjusted net earnings and EPS impact of
special items(1)                                46.7        0.21        1,296.8         6.69            99.8        0.47        1,398.1         7.20

Non-U.S. GAAP net earnings and related
EPS available to common
stockholders-continuing operations        $     84.4     $  0.39     $     58.5      $  0.28      $    196.5     $  0.92     $    130.8      $  0.62

Weighted average number of common
shares outstanding-Diluted(2)                              213.7                       211.5                       213.4                       211.0

(1) For the three months ended September 30, 2013, this amount includes primarily restructuring and other charges of $49 million ($39 million, net of taxes) and associated costs of $9 million ($6 million, net of taxes), related to both our EQIP and IOP, and write down of non-strategic assets of $2 million ($2 million, net of taxes). For the three months ended September 30, 2012, this amount includes primarily impairment of goodwill and other intangible assets of $1,334 million ($1,262 million, net of taxes), restructuring and other charges of $37 million ($31 million, net of taxes) and associated costs of $3 million ($2 million, net of taxes) related to our IOP, non-recurring associated costs from Legacy Diversey restructuring programs of $2 million ($1million, net of taxes) and costs related to the acquisition and integration of Diversey of $1 million ($1 million, net of taxes).

For the nine months ended September 30, 2013, this amount includes primarily restructuring and other charges of $61 million ($47 million, net of taxes) and associated costs of $19 million ($13 million, net of taxes), related to both our EQIP and IOP, loss on debt redemption of $32 million ($21 million, net of taxes), write down of non-strategic assets of $8 million ($6 million, net of taxes) and foreign currency exchange losses related to Venezuelan subsidiaries of $13 million ($11 million, net of taxes). For the nine months ended September 30, 2012, this amount includes primarily impairment of goodwill and other intangible assets of $1,334 million ($1,262 million, net of taxes), restructuring and other charges of $110 million ($84 million, net of taxes) and associated costs of $10 million ($7 million, net of taxes) related to our IOP, impairment of equity method investment of $26 million ($18 million, net of taxes), non-recurring associated costs from legacy Diversey restructuring programs of $19 million ($24 million, net of taxes) and costs related to the acquisition and integration of Diversey of $5 million ($3 million, net of taxes).

(2) For 2012, for purposes of calculating Adjusted EPS, the dilutive impact of:
(i) the effect of the assumed issuance of 18 million shares of common stock reserved for the Settlement agreement and (ii) the effect of non-vested restricted stock and restricted stock units using the treasury stock method was included because we reported adjusted net earnings for 2012. These shares differ from the shares used to calculate net loss per common share included in the condensed consolidated statement of operations for U.S. GAAP reporting purposes because we reported a net loss for 2012, which does not include the effect of the items mentioned above as the effect was anti-dilutive.

See Note 17, "Net Earnings (Loss) Per Common Share," for details on the calculation of our U.S. GAAP basic and diluted EPS.

Our U.S. GAAP and non-U.S. GAAP income taxes are as follows:

                                                            Three Months Ended September 30,                                         Nine Months Ended September 30,
                                                        2013                                2012                                2013                                2012
                                                               Effective         (Benefit)         Effective                           Effective         (Benefit)         Effective
                                            Provision          Tax Rate          Provision         Tax Rate          Provision         Tax Rate          Provision         Tax Rate
U.S. GAAP Income Taxes                     $       12.3              24.6 %     $     (48.0 )             3.7 %     $       22.7             19.0 %     $     (55.4 )             4.2 %

Non-U.S. GAAP Income Taxes (Core Taxes)    $       25.6              23.3 %     $      32.5              35.7 %     $       57.9             22.8 %     $      51.5              28.3 %


Table of Contents

Net Sales by Geographic Region

Net sales by geographic region for the three and nine months ended September 30,
2013 compared to 2012 were as follows:



                                         Three Months Ended                          Nine Months Ended
                                           September 30,               %               September 30,               %
                                        2013           2012         Change          2013           2012         Change
North America                         $   768.7      $   754.0          1.9 %     $ 2,255.6      $ 2,223.3          1.5 %
As a % of net sales                        39.7 %         39.7 %                       39.2 %         39.2 %
Europe                                    616.1          595.9          3.4 %       1,838.6        1,841.1         (0.1 )%
As a % of net sales                        31.8 %         31.4 %                       32.0 %         32.5 %
Latin America                             205.4          202.7          1.3 %         611.1          583.6          4.7 %
As a % of net sales                        10.6 %         10.7 %                       10.6 %         10.3 %
AMAT(1)                                   215.5          204.1          5.6 %         636.4          592.7          7.4 %
As a % of net sales                        11.3 %         10.7 %                       11.1 %         10.5 %
JANZ(2)                                   130.2          143.6         (9.3 )%        408.5          429.6         (4.9 )%
As a % of net sales                         6.7 %          7.6 %                        7.1 %          7.6 %

Total                                 $ 1,935.9      $ 1,900.3          1.9 %     $ 5,750.2      $ 5,670.3          1.4 %

(1) AMAT = Asia, Middle East, Africa and Turkey

(2) JANZ = Japan, Australia and New Zealand

The components of the change in net sales by our geographic reporting regions for three months and nine months ended September 30, 2013 compared with 2012 were as follows:

                                                    North                          Latin
Three Months Ended September 30, 2013              America         Europe         America          AMAT(1)         JANZ(2)         Total
Change in Net Sales
Volume-Units                                      $     3.2            1.6             4.8             13.3             0.1       $  23.0
% change                                                0.4 %          0.3 %           2.4 %            6.5 %           0.1 %         1.2 %
Product price/mix                                      13.9           (4.3 )          12.6              4.6             1.1          27.9
% change                                                1.8 %         (0.7 )%          6.2 %            2.3 %           0.8 %         1.5 %
Foreign currency translation                           (2.3 )         23.1           (14.7 )           (6.7 )         (14.7 )       (15.3 )
% change                                               (0.3 )%         3.9 %          (7.3 )%          (3.3 )%        (10.2 )%       (0.8 )%

Total                                             $    14.8        $  20.4        $    2.7        $    11.2        $  (13.5 )     $  35.6

% change                                                1.9 %          3.5 %           1.3 %            5.5 %          (9.3 )%        1.9 %
Impact of foreign currency translation                  2.3          (23.1 )          14.7              6.7            14.7          15.3

Total constant dollar change (Non-U.S. GAAP)      $    17.1        $  (2.7 )      $   17.4        $    17.9        $    1.2       $  50.9

Constant dollar % change                                2.2 %         (0.4 )%          8.6 %            8.8 %           0.9 %         2.7 %


Table of Contents
                                                    North                          Latin
Nine Months Ended September 30, 2013               America         Europe         America         AMAT(1)         JANZ(2)          Total
Change in Net Sales
Volume-Units                                      $    19.1          (17.1 )          37.3            44.2             4.0        $  87.5
% change                                                0.9 %         (0.9 )%          6.4 %           7.5 %           0.9 %          1.5 %
Product price/mix                                      17.1           (1.5 )          25.2            10.4            (5.6 )         45.6
% change                                                0.8 %         (0.1 )%          4.3 %           1.8 %          (1.3 )%         0.8 %
Foreign currency translation                           (3.8 )         16.3           (34.9 )         (11.2 )         (19.6 )        (53.2 )
% change                                               (0.2 )%         0.9 %          (6.0 )%         (1.8 )%         (4.5 )%        (0.9 )%

Total                                             $    32.4        $  (2.3 )      $   27.6        $   43.4        $  (21.2 )      $  79.9

% change                                                1.5 %         (0.1 )%          4.7 %           7.5 %          (4.9 )%         1.4 %
Impact of foreign currency translation                  3.8          (16.3 )          34.9            11.2            19.6           53.2

Total constant dollar change (Non-U.S. GAAP)      $    36.2        $ (18.6 )      $   62.5        $   54.6        $   (1.6 )      $ 133.1

Constant dollar % change                                1.7 %         (1.0 )%         10.7 %           9.3 %          (0.4 )%         2.3 %

(1) AMAT = Asia, Middle East, Africa and Turkey

(2) JANZ = Japan, Australia and New Zealand

Foreign Currency Translation Impact on Net Sales

Approximately 60% of our consolidated net sales in the three and nine months ended September 30, 2013 were generated outside the U.S. Since we are a U.S. domiciled company, we translate our foreign currency-denominated net sales into U.S. dollars. Due to the changes in the value of foreign currencies relative to the U.S. dollar, translating our net sales from foreign currencies to U.S. dollars may result in a favorable or unfavorable impact to our consolidated net sales results. Historically, the most significant currencies that have impacted the translation of our net sales and our other consolidated financial results are the euro, the Australian dollar, the Brazilian real, the Canadian dollar, the British pound and the Mexican peso.

We experienced an unfavorable foreign currency translation impact on net sales of $15 million in the three months ended September 30, 2013 and $53 million in the nine months ended September 30, 2013 compared with the same periods of 2012. This was primarily due to the strengthening of the U.S. dollar relative to the Australian dollar, Canadian dollar and Brazilian real, partially offset by the weakening of the U.S. dollar relative to the euro.

We anticipate an unfavorable effect of foreign currency translation of approximately 1% on full year 2013 net sales compared with full year 2012.


Table of Contents

Net Sales by Segment Reporting Structure

The following table presents net sales by our segment reporting structure.



                                         Three Months Ended                          Nine Months Ended
                                           September 30,               %               September 30,               %
                                        2013           2012          Change         2013           2012          Change
Net sales:
Food Care                             $   950.5      $   935.5           1.6 %    $ 2,799.5      $ 2,753.2           1.7 %
As a % of net sales                        49.1 %         49.2 %                       48.7 %         48.6 %
Diversey Care                             531.9          527.2           0.9 %      1,614.6        1,597.9           1.0 %
As a % of net sales                        27.5 %         27.7 %                       28.1 %         28.2 %
Product Care                              402.7          388.9           3.5 %      1,183.6        1,171.0           1.1 %
As a % of net sales                        20.8 %         20.5 %                       20.6 %         20.7 %
Other Category                             50.8           48.7           4.3 %        152.5          148.2           2.9 %
As a % of net sales                         2.6 %          2.6 %                        2.7 %          2.6 %

Total                                 $ 1,935.9      $ 1,900.3           1.9 %    $ 5,750.2      $ 5,670.3           1.4 %

Components of Change in Net Sales by Segment Reporting Structure

The following table presents the components of change in net sales by our segment reporting structure for three and nine months ended September 30, 2013 compared with 2012.

We also present the change in net sales excluding the impact of foreign currency translation, a non-U.S. GAAP measure, which we define as "constant dollar." We believe using constant dollar measures aids in the comparability between periods as it eliminates the volatility of changes in foreign currency exchange rates.

Three Months Ended September 30, 2013                         Food Care             Diversey Care             Product Care           Other Category             Total Company
Volume - Units                                           $  13.8         1.5 %    $ (3.7 )      (0.7 )%    $ 13.1         3.4 %    $  (0.2 )      (0.5 )%    $  23.0         1.2 %
Product price/mix(1)                                        15.5         1.7         9.4         1.8          2.2         0.6          0.8         1.6          27.9         1.5
Foreign currency translation                               (14.3 )      (1.5 )      (1.0 )      (0.2 )       (1.5 )      (0.4 )        1.5         3.2         (15.3 )      (0.8 )

Total change (U.S. GAAP)                                 $  15.0         1.7 %    $  4.7         0.9 %     $ 13.8         3.6 %    $   2.2         4.3 %     $  35.6         1.9 %

Impact of foreign currency translation                   $  14.3         1.5      $  1.0         0.2       $  1.5         0.4      $  (1.6 )      (3.2 )     $  15.3         0.8

Total constant dollar change (Non-U.S. GAAP)             $  29.3         3.2 %    $  5.7         1.1 %     $ 15.3         4.0 %    $   0.6         1.1 %     $  50.9         2.7 %


Table of Contents
Nine Months Ended September 30, 2013                        Food Care              Diversey Care            Product Care           Other Category            Total Company
Volume - Units                                         $  53.4         1.9 %        5.6         0.3 %      28.1         2.4 %        0.4         0.3 %    $  87.5         1.5 %
Product price/mix(1)                                      29.0         1.1         23.1         1.4        (9.2 )      (0.8 )        2.7         1.8         45.6         0.8
Foreign currency translation                             (36.1 )      (1.3 )      (12.0 )      (0.7 )      (6.3 )      (0.5 )        1.2         0.8        (53.2 )      (0.9 )

Total change (U.S. GAAP)                               $  46.3         1.7 %    $  16.7         1.0 %    $ 12.6         1.1 %    $   4.3         2.9 %    $  79.9         1.4 %

Impact of foreign currency translation                 $  36.1         1.3      $  12.0         0.7      $  6.3         0.5      $  (1.2 )      (0.8 )    $  53.2         0.9

Total constant dollar change (Non-U.S. GAAP)           $  82.4         3.0 %    $  28.7         1.7 %    $ 18.9         1.6 %    $   3.1         2.1 %    $ 133.1         2.3 %

(1) Our product price/mix reported above includes the net impact of our pricing actions and rebates as well as the period-to-period change in the mix of products sold. Also included in our reported product price/mix is the net effect of some of our customers purchasing our products in non-U.S. dollar, euro or Latin American currencies denominated countries at selling prices denominated in U.S. dollars, euros or Latin America currencies. This primarily arises when we export products from the U.S., euro-zone and Latin American countries. The impact to our reported product price/mix of these purchases in other countries at selling prices denominated in U.S. dollars, euros, or Latin American currencies was not material in the periods included in the tables above.

The following discussion of net sales is presented on a constant dollar or organic basis.

Food Care Segment Net Sales

Three Months Ended September 30, 2013 Compared With the Same Period of 2012

The $29 million, or 3%, constant dollar increase in net sales in 2013 compared with 2012 was primarily due to:

favorable product price/mix in Latin America of $10 million, or 7%, primarily in Brazil and Argentina as a result of our pricing initiatives implemented to offset increases in raw material costs;

favorable product price/mix in North America of $8 million, or 2%, due to increased sales of products with higher average selling prices;

higher unit volumes in AMAT of $7 million, or 10%, and in Latin America of $3 million, or 2%, due to an increase in beef production rates, hygiene standards as well as strong customer acceptance of new products; and

higher unit volumes in North America of $4 million, or 1%, and in Europe $2.4 million, or 1%, due to increases in equipment sales to new and existing customers.

These favorable factors were partially offset by lower sales in New Zealand of $2 million, or 2%, due to the current drought in this region and its impact on the dairy market.

Nine Months Ended September 30, 2013 Compared With the Same Period of 2012

The $82 million, or 3%, constant dollar increase in net sales in 2013 compared with 2012 was primarily due to:

higher unit volumes in Latin America of $27 million, or 7%, and in AMAT of $26 million, or 14%, due to an increase in beef production rates, hygiene standards as well as strong customer acceptance of new products;

favorable product price/mix in Latin America of $20 million, or 5%, reflecting favorable results from the progression of our pricing initiatives implemented to offset increases in raw material costs, specifically in Brazil and Argentina; and

higher unit volumes in North America of $7 million, or 1%, mainly due to an increase in sales to new and existing customers.

These favorable factors were partially offset by lower unit volumes in Europe of $4 million, or 1%, due to the challenging economic environment, especially in Western Europe.


Table of Contents

Diversey Care Segment Net Sales

Three Months Ended September 30, 2013 Compared With the Same Period of 2012

The $6 million, or 1%, constant dollar increase in net sales in 2013 compared with 2012 was primarily due to:

. . .

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