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SEE > SEC Filings for SEE > Form 10-Q on 6-Aug-2014All Recent SEC Filings

Show all filings for SEALED AIR CORP/DE

Form 10-Q for SEALED AIR CORP/DE


6-Aug-2014

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 2013 Form 10-K and our consolidated financial statements and related notes set forth in Item 8 of Part II of our 2013 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 or where otherwise noted. When we cross-reference to a "Note," we are referring to our "Notes to Condensed Consolidated Financial Statements," unless the context indicates otherwise.

In December 2013, we completed the sale of the rigid medical business. The operating results of the rigid medical business were reclassified to discontinued operations, net of tax, on the condensed consolidated statements of operations for the three and six months ended June 30, 2013. See Note 3, "Divestiture," for details of our sale of the rigid medical business. The following MD&A is on a continuing operations basis unless otherwise noted.

Recent Events

Amended and Restated Senior Secured Credit Facilities

On July 25, 2014, we amended and restated our senior secured credit facilities, including repayment of the outstanding Term Loan B. The amended and restated facility refinanced our Term Loan A, Term Loan B and revolving facilities. The new facilities, totaling $2.13 billion, are comprised of $1.33 billion for Term Loan A facilities and $700 million of revolving commitments. We also established a new $100 million delayed draw term Loan A facility. The amended and restated facility will provide approximately $15 million of annualized cash interest savings, in addition to a maturity extension and increased covenant flexibility. See Note 10, "Debt and Credit Facilities" for further details.

New Global Headquarters

On July 23, 2014, we announced that we will be establishing a new global headquarters in Charlotte, North Carolina. We will relocate the headquarters for our divisions, research and development facilities, and corporate offices. Within the next three years, we anticipate approximately 1,300 jobs will be relocated to Charlotte from our current corporate headquarters in Elmwood Park, New Jersey; all or part of its facilities in Saddle Brook, New Jersey; Danbury, Connecticut; Racine, Wisconsin; and, Duncan and Greenville, South Carolina. We will also relocate a small number of jobs from other locations. We expect that our relocation will result in less than $20 million of net cash costs over the next three years.

Repurchase of Common Stock

On June 13, 2014, we repurchased $130 million, or 3,932,244 shares, of common stock at a price of $33.06 per share from the WRG Asbestos PI Trust. We funded the stock repurchase with $110 million from committed credit facilities and $20 million of accumulated cash and cash equivalents.

12% Senior Notes

On February 14, 2014, we repaid our 12% Senior Notes on their maturity date using cash on hand and committed liquidity. See Note 10, "Debt and Credit Facilities" for further information.

Settlement agreement

On February 3, 2014, we funded the cash payment of $930 million and issued 18 million shares of our common stock reserved under the Settlement agreement. To fund the cash payment, we used $555 million of cash and cash equivalents and utilized borrowings of $260 million under our revolving credit facility and $115 million from our accounts receivable securitization programs.

New Segment Structure

Effective as of January 1, 2014, we changed our segment reporting structure. See Note 4, "Segments" for further information.


Table of Contents

Full Year 2014 Outlook

The Company increased its full year 2014 outlook for Net Sales, Adjusted EBITDA, Adjusted EPS and Free Cash Flow. For Net Sales, the Company estimates approximately $7.75 billion, a $50 million increase from previously provided guidance. This assumes an estimated unfavorable impact of approximately 1% from foreign currency translation. Adjusted EPS is expected to be in the range of $1.65 to $1.70 as compared to the previously provided guidance of $1.50 to $1.60.

Adjusted EBITDA is anticipated to be in the range of approximately $1.085 billion to $1.095 billion, an increase from the previously provided guidance of $1.050 billion to $1.070 billion. Free Cash Flow is estimated to be approximately $485 million as compared to the previously provided guidance of $425 million. The Company is revising its 2014 estimates for cash restructuring charges and capital expenditures to be approximately $135 million and approximately $150 million, respectively. Our Free Cash Flow target excludes the Settlement agreement payment.

We also estimate 2014 interest expense to be approximately $285 million ($273 million of cash interest expense) and depreciation and amortization to be approximately $315 million. We also anticipate a Tax Rate of approximately 27%. As a result of our repurchase of 3.9 million shares of our common stock in June 2014, as of June 30, 2014 we anticipate the full year weighted-average diluted share count to be approximately 213 million shares.

Highlights of Financial Performance

Below are highlights of our financial performance. See below for U.S. GAAP to
Non-U.S. GAAP reconciliations:



                                             Three Months Ended                          Six Months Ended
                                                  June 30,                 %                 June 30,                 %
                                            2014           2013         Change         2014           2013         Change
Net sales                                 $ 1,973.6      $ 1,937.4          1.9 %    $ 3,801.3      $ 3,766.3          0.9 %

Gross profit                              $   680.0      $   659.1          3.2 %    $ 1,321.0      $ 1,271.3          3.9 %

As a % of net sales                            34.5 %         34.0 %                      34.8 %         33.8 %
Operating profit                          $   172.3      $   165.8          3.9 %    $   327.2      $   293.2         11.6 %

As a % of net sales                             8.7 %          8.6 %                       8.6 %          7.8 %
Net earnings available to common
stockholders from continuing operations   $    60.3      $    54.3         11.0 %    $   132.1      $    55.0            # %

Net earnings per common share from
continuing operations - basic             $    0.28      $    0.28          1.3 %    $    0.63      $    0.28            # %

Net earnings per common share from
continuing operations - diluted           $    0.28      $    0.25         10.5 %    $    0.61      $    0.26            # %

Weighted average number of common
shares outstanding:
Basic                                         213.5          194.8                       210.1          194.3

Diluted                                       214.7          213.6                       214.6          213.2


Non-U.S. GAAP Adjusted EBITDA from
continuing operations                     $   284.1      $   262.2          8.4 %        536.3          493.6          8.7 %

Non-U.S. GAAP Adjusted EPS from
continuing operations                     $    0.42      $    0.35         20.0 %    $    0.75      $    0.58         29.3 %

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


Table of Contents

The following table presents a reconciliation of our U.S. GAAP net earnings from continuing operations to our non-U.S. GAAP Adjusted EBITDA:

                                                     Three Months Ended            Six Months Ended
                                                          June 30,                     June 30,
                                                     2014           2013          2014          2013
U.S. GAAP net earnings available to common
stockholders from continuing operations           $     60.3       $  54.3      $   132.1      $  55.0
Income tax provision                                    33.1          17.9           43.8          8.7
Interest expense                                        73.9          89.7          152.4        180.5
Depreciation and amortization                           81.6          81.8          164.4        161.3

EBITDA                                            $    248.9       $ 243.7      $   492.7      $ 405.5
Special items (1)                                       35.2          18.5           43.6         88.1

Adjusted EBITDA                                   $    284.1       $ 262.2      $   536.3      $ 493.6

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

                                                    Three Months Ended June 30,                            Six Months Ended June 30,
                                                  2014                       2013                       2014                       2013
                                            Net                        Net                        Net                        Net
                                          Earnings        EPS        Earnings        EPS        Earnings        EPS        Earnings        EPS
U.S. GAAP net earnings and EPS
available to common stockholders from
continuing operations                    $     60.3     $  0.28     $     54.3     $  0.25     $    132.1     $  0.61     $     55.0     $  0.26


Special items(1)                               30.3        0.14           19.6        0.09           29.9        0.14           68.8        0.32

Non-U.S. GAAP adjusted net earnings
and EPS available to common
stockholders - continuing operations     $     90.6     $  0.42     $     73.9     $  0.35     $    162.0     $  0.75     $    123.8     $  0.58

Weighted average number of common
shares outstanding - Diluted                              214.7                      213.6                      214.6                      213.2

(1) For the three months ended June 30, 2014, this amount primarily includes restructuring and other associated costs related to our EQIP and IOP programs of $25 million ($20 million, net of taxes) and impairment of equity method investment of $6 million ($4 million, net of taxes). For the three months ended June 30, 2013, this amount includes primarily restructuring and other associated costs related to EQIP and IOP programs of $17 million ($14 million, net of taxes). See Note 17, "Net Earnings (Loss) Per Common Share," for details on the calculation of our U.S. GAAP basic and diluted EPS.

For the six months ended June 30, 2014, this amount primarily includes restructuring and other associated costs related to our EQIP and IOP programs of $36 million ($28 million, net of taxes), foreign currency exchange losses related to Venezuelan subsidiaries of $15 million ($15 million, net of taxes), impairment of equity method investment of $6 million ($4 million, net of taxes) and impairment of assets of $4 million ($4 million, net of tax). These amounts were partially offset by gain on Claims Settlement of $21 million ($21 million, net of taxes). For the six months ended June, 2013, this amount includes primarily loss on debt redemption of $32 million ($21 million, net of taxes), restructuring and other associated costs related to EQIP and IOP programs of $22 million ($16 million, net of taxes), SARs expense of $18 million ($16 million, net of taxes), and foreign currency exchange losses related to Venezuelan subsidiaries of $14 million ($14 million, net of taxes). See Note 17, "Net Earnings (Loss) Per Common Share," for details on the calculation of our U.S. GAAP basic and diluted EPS.


Table of Contents

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

                                                             Three Months Ended June 30,                                        Six Months Ended June 30,
                                                        2014                             2013                             2014                             2013
                                                              Effective                        Effective                        Effective                        Effective
                                              Provision       Tax Rate         Provision       Tax Rate         Provision       Tax Rate         Provision       Tax Rate
U.S. GAAP                                    $      33.1            35.4 %    $      17.9            24.8 %    $      43.8            24.9 %    $       8.7            13.7 %

Non-U.S. GAAP                                $      38.0            29.5 %    $      21.8            22.8 %    $      57.4            26.2 %    $      33.0            21.0 %

See "Use of Non-U.S. GAAP Information" above for further details.

Foreign Currency Translation Impact on Condensed Consolidated Financial Results

Since we are a U.S. domiciled company, we translate our foreign currency-denominated financial results into U.S. dollars. Due to the changes in the value of foreign currencies relative to the U.S. dollar, translating our financial results from foreign currencies to U.S. dollars may result in a favorable or unfavorable impact. Historically, the most significant currencies that have impacted the translation of our condensed consolidated financial results into U.S. dollars are the euro, the Australian dollar, the Brazilian real, the British pound, the Canadian dollar and the Mexican peso.

More than 60% of our net sales for the three and six months ended June 30, 2014 were generated outside the U.S.

The table below presents the approximate favorable or (unfavorable) impact foreign currency translation had on our condensed consolidated financial results.

                                                 Three Months          Six Months
                                                     Ended                Ended
                                                 June 30, 2014        June 30, 2014
 Net sales                                      $         (22.1 )    $         (74.0 )

 Cost of sales                                  $          16.9      $          53.4

 Selling, general and administrative expenses   $           0.5      $           8.1

 Adjusted EBITDA                                $          (3.8 )    $         (12.0 )

Net Sales by Geographic Region

Net sales by geographic region for the three and six months ended June 30, 2014
compared to 2013 were as follows:



                                           Three Months Ended                           Six Months Ended
                                                June 30,                 %                  June 30,                 %
                                          2014           2013         Change          2014           2013         Change
North America                           $   783.7      $   768.5          2.0 %     $ 1,504.9      $ 1,471.4          2.3 %
As a % of net sales                          39.7 %         39.7 %                       39.6 %         39.1 %
Europe                                      635.8          600.6          5.9 %     $ 1,222.0      $ 1,179.3          3.5 %
As a % of net sales                          32.2 %         31.0 %                       32.1 %         31.3 %
Latin America                               200.0          212.1         (5.6 )%    $   387.3      $   412.5         (6.1 )%
As a % of net sales                          10.1 %         10.9 %                       10.2 %         11.0 %
AMAT(1)                                     225.3          222.3          1.3 %     $   424.1      $   420.7          0.9 %
As a % of net sales                          11.4 %         11.5 %                       11.2 %         11.2 %
JANZ(2)                                     128.8          133.9         (3.9 )%    $   263.0      $   282.4         (6.8 )%
As a % of net sales                           6.5 %          6.9 %                        6.9 %          7.5 %

Total                                   $ 1,973.6      $ 1,937.4          1.9 %     $ 3,801.3      $ 3,766.3          0.9 %

(1) AMAT consists of Asia, Middle East, Africa and Turkey

(2) JANZ consists of Japan, Australia and New Zealand


Table of Contents

The components of the change in net sales by geographic region for three and six months ended June 30, 2014 compared with 2013 were as follows:

                                                      North                        Latin
Three Months Ended June 30, 2014                     America        Europe        America         AMAT          JANZ          Total
Change in Net Sales
Volume-Units                                         $   (7.2 )     $   4.7       $  (13.5 )     $  11.0       $  (2.9 )     $  (7.9 )
% change                                                 (0.9 )%        0.8 %         (6.3 )%        4.9 %        (2.2 )%       (0.4 )%
Product price/mix                                        27.5          (0.6 )         30.2           3.9           5.3          66.3
% change                                                  3.6 %        (0.1 )%        14.3 %         1.7 %         3.9 %         3.4 %
Foreign currency translation                             (5.1 )        31.1          (28.8 )       (11.9 )        (7.5 )       (22.2 )
% change                                                 (0.7 )%        5.2 %        (13.6 )%       (5.3 )%       (5.6 )%       (1.1 )%

Total                                                $   15.2       $  35.2       $  (12.1 )     $   3.0       $  (5.1 )     $  36.2

% change                                                  2.0 %         5.9 %         (5.6 )%        1.3 %        (3.9 )%        1.9 %
Impact of foreign currency translation               $    5.1       $ (31.1 )     $   28.8       $  11.9       $   7.5       $  22.2


Total constant dollar change (Non-U.S. GAAP)         $   20.3       $   4.1       $   16.7       $  14.9       $   2.4       $  58.4

Constant dollar % change                                  2.7 %         0.7 %          8.0 %         6.6 %         1.7 %         3.0 %

                                                      North                        Latin
Six Months Ended June 30, 2014                       America        Europe        America         AMAT          JANZ          Total
Change in Net Sales
Volume-Units                                         $  (16.5 )     $  (6.7 )     $  (11.4 )     $  19.2       $  (4.4 )     $ (19.8 )
% change                                                 (1.1 )%       (0.6 )%        (2.8 )%        4.6 %        (1.5 )%       (0.5 )%
Product price/mix                                        60.8           4.2           46.8           9.1           7.9         128.8
% change                                                  4.1 %         0.3 %         11.4 %         2.2 %         2.8 %         3.4 %
Foreign currency translation                            (10.8 )        45.2          (60.6 )       (24.9 )       (22.9 )       (74.0 )
% change                                                 (0.7 )%        3.8 %        (14.7 )%       (5.9 )%       (8.1 )%       (2.0 )%


Total                                                $   33.5       $  42.7       $  (25.2 )     $   3.4       $ (19.4 )     $  35.0

% change                                                  2.3 %         3.5 %         (6.1 )%        0.9 %        (6.8 )%        0.9 %
Impact of foreign currency translation               $   10.8       $ (45.2 )     $   60.6       $  24.9       $  22.9       $  74.0

Total constant dollar change (Non-U.S. GAAP)         $   44.3       $  (2.5 )     $   35.4       $  28.3       $   3.5       $ 109.0

Constant dollar % change                                  3.0 %        (0.3 )%         8.6 %         6.8 %         1.3 %         2.9 %


Net Sales by Segment

The following table presents net sales by segment:

                                            Three Months Ended                           Six Months Ended
                                                 June 30                  %                  June 30                  %
                                           2014           2013         Change          2014           2013         Change
Net Sales:
Food Care                                $   962.1      $   947.0          1.6 %     $ 1,866.4      $ 1,850.1          0.9 %
As a % of Total Company net sales             48.7 %         48.9 %                       49.1 %         49.1 %
Diversey Care                                581.3          570.0          2.0 %       1,086.4        1,082.9          0.3 %
As a % of Total Company net sales             29.5 %         29.4 %                       28.6 %         28.8 %
Product Care                                 408.7          394.8          3.5 %         802.5          782.0          2.6 %
As a % of Total Company net sales             20.7 %         20.4 %                       21.1 %         20.8 %

Total Reportable Segments Net Sales        1,952.1        1,911.8          2.1 %       3,755.3        3,715.0          1.1 %
Other                                         21.5           25.6        (16.0 )%         46.0           51.3        (10.3 )%


Total Company Net Sales                  $ 1,973.6      $ 1,937.4          1.9 %     $ 3,801.3      $ 3,766.3          0.9 %


Table of Contents

Components of Change in Net Sales by Segment

The following table presents the components of change in net sales by segment for three and six months ended June 30, 2014 compared with the same periods of 2013. 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 June 30, 2014                                   Food Care               Diversey Care             Product Care                Other                 Total Company
Volume - Units                                                $  (8.3 )      (0.9 )%    $   4.6         0.8 %     $  0.8         0.2 %    $ (5.0 )      (19.5 )%    $  (7.9 )      (0.4 )%
Product price/mix(1)                                             43.0         4.6          10.6         1.9         12.1         3.0         0.6          2.3          66.3         3.4
Foreign currency translation                                    (19.6 )      (2.1 )        (3.9 )      (0.7 )        1.0         0.3         0.3          1.2         (22.2 )      (1.1 )

Total change (U.S. GAAP)                                      $  15.1         1.6 %     $  11.3         2.0 %     $ 13.9         3.5 %    $ (4.1 )      (16.0 )%    $  36.2         1.9 %

Impact of foreign currency translation                        $  19.6         2.1       $   3.9         0.7       $ (1.0 )      (0.3 )    $ (0.3 )       (1.2 )     $  22.2         1.1

Total constant dollar change (Non-U.S. GAAP)                  $  34.7         3.7 %     $  15.2         2.7 %     $ 12.9         3.2 %    $ (4.4 )      (17.2 )%    $  58.4         3.0 %


Six Months Ended June 30, 2014                                     Food Care               Diversey Care             Product Care                Other                 Total Company
Volume - Units                                                $  (9.9 )      (0.5 )%    $  (5.5 )      (0.5 )%    $  2.6         0.3 %    $ (7.0 )      (13.6 )%    $ (19.8 )      (0.5 )%
Product price/mix(1)                                             80.2         4.3          26.8         2.4         20.5         2.6         1.3          2.5         128.8         3.4
Foreign currency translation                                    (54.0 )      (2.9 )       (17.8 )      (1.6 )       (2.6 )      (0.3 )       0.4          0.8         (74.0 )      (2.0 )

Total change (U.S. GAAP)                                      $  16.3         0.9 %     $   3.5         0.3 %     $ 20.5         2.6 %    $ (5.3 )      (10.3 )%    $  35.0         0.9 %

Impact of foreign currency translation                        $  54.0         2.9       $  17.8         1.6       $  2.6         0.3      $ (0.4 )       (0.8 )     $  74.0         2.0

Total constant dollar change (Non-U.S. GAAP)                  $  70.3         3.8 %     $  21.3         1.9 %     $ 23.1         2.9 %    $ (5.7 )      (11.1 )%    $ 109.0         2.9 %

(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 or euro denominated countries at selling prices denominated in U.S. dollars or euros. This primarily arises when we export products from the U.S. and euro-zone countries.

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

Food Care

Three Months Ended June 30, 2014 Compared With the Same Period of 2013

The $35 million, or 4%, constant dollar increase in net sales in 2014 compared with 2013 was primarily due to favorable product price/mix in North America, Latin America and AMAT reflecting favorable results from the progression of our pricing and value initiatives implemented to offset increase in raw material costs, currency de-valuation and non-material inflationary costs. These favorable drivers were partially offset by lower unit volumes largely attributable to a decline in beef production in North America and the impact of PED virus related to the pork market in both North America and Mexico, and lower unit volumes in JANZ, mostly in New Zealand due to customer and product rationalization efforts. We anticipate beef production in North America and Mexico to continue to decline in to the second half of 2014.

Six Months Ended June 30, 2014 Compared With the Same Period of 2013

The $70 million, or 4%, constant dollar increase in net sales in 2014 compared with 2013 was primarily due to favorable product price/mix in North America, Latin America and AMAT reflecting favorable results from the progression of our pricing and value initiatives implemented to offset increase in raw material costs, currency de-valuation and non-material inflationary costs. These favorable drivers were partially offset by lower unit volumes largely attributable to a decline in beef production in North America and PED virus . . .

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