Sealed Air Files Form 8-K/A Detailing Preliminary Pro Forma Impact of Diversey Acquisition
Form 8-K/A Printer-friendly Release
ELMWOOD PARK, N.J.--(BUSINESS WIRE)--Dec. 19, 2011--
This press release contains unaudited pro forma information and additional Non-U.S. GAAP information, which is provided for informational and illustrative purposes and is preliminary based on currently available information, which we believe is reasonable, but may be subject to change and differ materially from these statements. This pro forma information does not purport to project the future consolidated financial condition or results of operations for the combined company.
Financial Statements and Exhibits of Note
The following pro forma net earnings per share (EPS) and pro forma Adjusted EPS discussion references a revised pro forma Adjusted EPS calculation which excludes the combined company’s amortization of intangibles, non-cash interest expense, non-cash taxes and special items. We believe this revised Adjusted EPS definition helps management and investors better understand and evaluate the operating results and trends of the business. We believe that this metric, combined with other U.S. GAAP and non-U.S. GAAP metrics such as EBITDA, Adjusted EBITDA and Free Cash Flow will also aid in the comparison of our operating results with peers. For reporting consistency, we have elected to use our current free cash flow metric to convey cash financial results.
Earnings Per Share (EPS) and Adjusted Earnings Per Share (Adjusted EPS)
Our preliminary pro forma 2010 financial information includes an EPS of
The pro forma financial statements also present EPS of
The pro forma EPS results in both periods include the interest expense associated with the incremental debt incurred to finance the acquisition. The EPS impact of the new financings for the acquisition is estimated to have had a
Net Earnings and Adjusted EBITDA
The preliminary pro forma 2010 financial statements present net earnings of
The preliminary pro forma net earnings for the first nine months of 2011 is
Depreciation and Amortization (D&A) and Purchase Accounting Adjustments
The preliminary pro forma financial statements present 2010 D&A of
Marketing Administrative and Development Expenses (SG&A)
The preliminary pro forma financial statements present expenses in SG&A relating to cash-settled stock appreciation rights (“SARs”) issued to select Diversey employees in connection with the acquisition of
Tax Rates
The filing presents pro forma effective income tax rates, which we believe are not indicative of future rates. Additionally, we have provided our preliminary 2012 core tax rate estimate of 30%, which excludes the tax impact of special items such as restructuring and integration costs. At this time, we are not able to estimate our 2012 effective income tax rate including such items. We expect to achieve lower effective income tax rates over time due to U.S. debt reduction, planning, and the benefits of the European principal company structure (as described in Diversey’s public filings), which we expect to launch in
Business
Forward-Looking Statements
This press release and supplement contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by such words as “anticipates,” “believes,” “plan,” “assumes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans to,” “will” and similar expressions. Examples of these forward-looking statements include preliminary 2012 financial performance projections for our core tax rate and depreciation and amortization, as well as our expectation of a cash tax benefit. These statements reflect our beliefs and expectations as to future events and trends affecting our business, our consolidated financial position and our results of operations. A variety of factors may cause actual results to differ materially from these expectations, including general domestic and European economic and political conditions affecting packaging utilization; changes in our raw material and energy costs; credit ratings; competitive conditions and contract terms; currency translation and devaluation effects, including
Non-U.S. GAAP Information
In this press release we present financial information in accordance with generally accepted accounting principals in
Our management will assess our financial results, such as gross profit, operating profit and diluted net earnings per common share ("EPS") performance, both on a U.S. GAAP basis and on a non-U.S. GAAP basis. Examples of some other supplemental financial metrics our management will also use to assess our financial results include: EBITDA, Adjusted EBITDA and Adjusted EPS. These non-U.S. GAAP financial measures provide management with additional means to understand and evaluate the operating results and trends in our ongoing business by eliminating certain non-recurring expenses (which may not occur in each period presented) and other items that management believes might otherwise make comparisons of our ongoing business with prior periods and competitors more difficult, obscure trends in ongoing operations or reduce management’s ability to make useful forecasts.
The non-U.S. GAAP financial metrics mentioned above exclude items we consider unusual or special items and, in the case of Adjusted EPS, exclude the amortization of intangible assets, non-cash interest expense and non-cash taxes. We evaluate the unusual or special items on an individual basis. Our evaluation of whether to exclude an unusual or special item for purposes of determining our non-U.S. GAAP financial performance considers both the quantitative and qualitative aspects of the item, including, among other things (i) its size and nature, (ii) whether or not it relates to our ongoing business operations, and (iii) whether or not we expect it to occur as part of our normal business on a regular basis. For purposes of determining non-U.S. GAAP financial performance, unusual or special items and their related tax effect are excluded. Further, the items excluded from these non-U.S. GAAP financial measures may also be excluded from the calculations of our performance measures set by the Organization and Compensation Committee of our Board of Directors for purposes of determining incentive compensation. Thus, our management believes that this information may be useful to investors.
Reconciliation of U.S. GAAP Pro Forma Combined Net Earnings to Non-U.S. GAAP Pro Forma Combined | ||||||||
Nine Months | Year | |||||||
Ended | Ended | |||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
U.S. GAAP Pro Forma Combined Net Earnings | $ | 126.1 | $ | 123.2 | ||||
Pro forma combined company intangibles amortization expense (net of taxes of $15.4 million in 2011 and $20.7 million in 2010) |
92.4 |
124.2 | ||||||
Pro forma combined company non-cash interest expense including accrued interest on the Settlement agreement (net of taxes of $0.9 million in 2011 and $1.2 million in 2010) |
44.1 |
58.9 | ||||||
Pro forma combined company non-cash income taxes | (15.8 | ) | 10.1 | |||||
Loss on debt redemption (net of taxes of $14.2 million) | — | 24.3 | ||||||
Global manufacturing strategy and restructuring and other charges (net of taxes of $2.3 million) |
— |
5.1 | ||||||
European manufacturing facility closure charges (net of taxes of $2.1 million) | — | 4.8 | ||||||
Gain on sale of available-for-sale securities, net of impairment (net of taxes of $2.2 million) | — | (3.7 | ) | |||||
Diversey historical restructuring programs charges and other special items conformed to Sealed Air’s policy for inclusion in adjusted net earnings (net of taxes of $11.0 million in 2011 and $22.3 million in 2010) |
13.8 |
23.8 | ||||||
Pro forma combined company foreign currency exchange losses (gains) related to Venezuelan subsidiaries (net of taxes of $0.5 million in 2010) |
— |
(1.1 | ) | |||||
Non-U.S. GAAP Pro Forma Combined Adjusted Net Earnings | $ | 260.6 | $ | 369.6 | ||||
Reconciliation of U.S. GAAP Pro Forma Combined Diluted Net Earnings per Common Share to Non-U.S. | ||||||||
Nine Months | Year | |||||||
Ended | Ended | |||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
U.S. GAAP Pro Forma Combined Diluted Net Earnings per Common Share | $ | 0.60 | $ | 0.59 | ||||
Per diluted share impact of the following items: | ||||||||
Pro forma combined company intangibles amortization expense | 0.44 | 0.60 | ||||||
Pro forma combined company non-cash interest expense | 0.21 | 0.28 | ||||||
Pro forma combined company non-cash income taxes | (0.07 | ) | 0.05 | |||||
Loss on debt redemption | — | 0.12 | ||||||
Global manufacturing strategy and restructuring and other charges | — | 0.03 | ||||||
European manufacturing facility closure charges | — | 0.02 | ||||||
Gain on sale of available-for-sale securities, net of impairment | — | (0.02 | ) | |||||
Diversey historical restructuring programs charges and other special items conformed to Sealed Air’s policy for inclusion in adjusted net earnings |
0.07 |
0.11 | ||||||
Pro forma combined company foreign currency exchange losses (gains) related to Venezuelan subsidiaries |
— |
(0.01 | ) | |||||
Non-U.S. GAAP Pro Forma Combined Adjusted Diluted Net Earnings per Common Share |
$ |
1.25 |
$ |
1.77 |
||||
Pro Forma Diluted Weighted-average shares outstanding | 209.2 | 208.4 | ||||||
Reconciliation of Pro Forma Combined Net Earnings to Pro Forma | ||||||||
Nine Months | Year | |||||||
Ended | Ended | |||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Pro Forma Combined Net Earnings | $ | 126.1 | $ | 123.2 | ||||
Pro forma combined interest expense | 295.6 | 409.7 | ||||||
Pro forma combined income taxes | 100.1 | 115.0 | ||||||
Pro forma combined depreciation and amortization (1) | 245.7 | 339.0 | ||||||
Pro Forma Combined EBITDA | $ | 767.5 | $ | 986.9 | ||||
As a % of total net sales | 12.7 | % | 13.0 | % | ||||
Pro forma combined company share-based compensation expense (2) | $ | 26.4 | $ | 42.9 | ||||
Pro forma combined company foreign currency exchange losses (gains) related to Venezuelan subsidiaries |
0.1 |
(1.6 | ) | |||||
Sealed Air – European manufacturing facility closure charges | 0.2 | 6.9 | ||||||
Sealed Air – Settlement agreement and related costs | 0.8 | 0.6 | ||||||
Sealed Air – loss on debt redemption | — | 38.5 | ||||||
Sealed Air – Global manufacturing strategy and restructuring and other charges | — | 7.4 | ||||||
Sealed Air – gain on sale of available-for-sale securities, net of impairment | — | (5.9 | ) | |||||
Diversey – historical restructuring programs charges and other one-time costs conformed to Sealed Air’s policy for inclusion in the pro forma combined adjusted EBITDA (3) |
24.8 |
46.1 |
||||||
Pro Forma Combined Adjusted EBITDA | $ | 819.8 | $ | 1,121.8 | ||||
As a % of total net sales | 13.5 | % | 14.8 | % | ||||
(1) Pro forma combined depreciation and amortization expense consists of:
Nine Months | Year | |||||||
Ended | Ended | |||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Sealed Air depreciation and amortization expense as reported | $ | 109.6 | $ | 154.7 | ||||
Diversey depreciation and amortization expense as reported | 87.5 | 116.8 | ||||||
Pro forma adjustments: | ||||||||
Eliminate Diversey’s historical amortization expense on intangible assets (4) | (26.7 | ) | (36.1 | ) | ||||
Reclassification of Diversey customer equipment depreciation due to policy harmonization | (29.4 | ) | (36.0 | ) | ||||
Depreciation and amortization on Diversey’s property and equipment | 31.4 | 44.7 | ||||||
Incremental depreciation expense on step-up of property and equipment | 4.4 | 5.9 | ||||||
Pro forma Diversey depreciation and amortization on property and equipment | 35.8 | 50.6 | ||||||
New amortization expense based on the preliminary fair value of intangible assets acquired | 100.3 | 133.7 | ||||||
Pro forma Diversey total depreciation and amortization | 136.1 | 184.3 | ||||||
Pro forma combined company depreciation and amortization expense | $ | 245.7 | $ | 339.0 |
(2) Includes share-based compensation as reported for both companies. Does not include the incremental compensation expense related to the SARs since these awards are settled in cash.
(3) These amounts include certain historical adjustments previously included in Diversey’s calculation of Credit Agreement EBITDA (as defined in their public filings). Diversey’s Credit Agreement EBITDA was a financial measure that was used in the calculation of compliance with Diversey’s previous financial covenants under their previous senior secured credit facilities. Diversey’s senior secured credit facilities were terminated when we completed the acquisition, and accordingly Diversey’s Credit Agreement EBITDA is no longer applicable to the combined company. As a result of our review of the calculation of Diversey’s Credit Agreement EBITDA, we concluded that some of the adjustments included in that calculation are not applicable to our calculation of Adjusted EBITDA. Sealed Air’s Adjusted EBITDA calculation is an operational measure and is among the various indicators used by our management to measure the performance of our operations and aid in the comparison with other periods. This operational measure is among the criteria upon which incentive compensation may be based. This calculation is not used in the calculation of compliance with our existing Credit Facility financial covenants.
(4) We do not anticipate this reclassification of Diversey’s customer equipment depreciation due to policy harmonization, to have a material impact to the combined company’s consolidated cash flows. Please refer to Note 3, “Accounting Policies” in the 8-K/A filing for further details.
Additional Information |
||||||||
Reconciliation of Pro Forma Combined Capital Expenditures | ||||||||
Nine Months | Year | |||||||
Ended | Ended | |||||||
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Sealed Air capital expenditures as reported | $ | 78.1 | $ | 87.6 | ||||
Diversey capital expenditures as reported | 79.9 | 94.7 | ||||||
Pro forma adjustments: | ||||||||
Eliminate Diversey’s historical capital expenditures related to certain equipment leased to its customers in conformity with Sealed Air’s policy |
(32.8 |
) |
(37.3 |
) | ||||
Eliminate Diversey’s historical capital expenditures in conformity with other Sealed Air policies |
(5.7 |
) |
(7.6 |
) | ||||
Pro forma combined capital expenditures | $ | 119.5 | $ | 137.4 | ||||
Preliminary Pro Forma (PF) 2010 Data for Comparison in Cash Earnings Evaluations Presented in June 2011 |
|||||
PF2010 – Provided December 2011 | PF2010 – Provided June 2011 | ||||
($ millions, except share count) | UPDATED | ||||
PF Adjusted EBITDA (excludes synergies) | $1,122 | $1,185 | |||
PF Cash interest expense | $319 | $300 | |||
PF Cash taxes | $105 | $232 | |||
PF Capital expenditures | $137 | $182 | |||
PF Diluted share count | 208.4 | 209 |
Source:
Sealed Air Corporation
Amanda Butler, 201-791-7600