SEC Filing | Sealed Air

================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q (Mark One) ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________to_______ Commission file number 1-12139 SEALED AIR CORPORATION (Exact name of registrant as specified in its charter) Delaware 65-0654331 ------------------------------- ---------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) Park 80 East Saddle Brook, New Jersey 07663-5291 ------------------------ ---------- (Address of Principal (Zip Code) Executive Offices) Registrant's telephone number, including area code (201) 791-7600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---- ---- There were 83,760,124 shares of the registrant's common stock, par value $0.10 per share, and 32,213,335 shares of the registrant's Series A convertible preferred stock, par value $0.10 per share, outstanding as of July 31, 2000. ================================================================================

PART I FINANCIAL INFORMATION --------------------- SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Statements of Earnings For the Three and Six Months Ended June 30, 2000 and 1999 (In thousands of dollars except per share data) (Unaudited) For the For the Three Months Ended Six Months Ended June 30 June 30 2000 1999 2000 1999 --------- --------- --------- --------- Net sales $731,542 $695,121 $1,448,130 $1,374,058 Cost of sales 477,569 441,541 936,168 874,780 --------- --------- ---------- --------- Gross profit 253,973 253,580 511,962 499,278 Marketing, administrative and development expenses 129,226 131,969 258,984 260,583 Goodwill amortization 12,381 12,331 24,691 24,582 --------- --------- ---------- -------- Operating profit 112,366 109,280 228,287 214,113 Other income (expense): Interest expense (13,923) (14,738) (27,011) (29,457) Other, net 329 1,143 (1,617) (1,021) --------- --------- ---------- --------- Other expense, net (13,594) (13,595) (28,628) (30,478) --------- --------- ---------- --------- Earnings before income taxes 98,772 95,685 199,659 183,635 Income taxes 44,941 44,493 90,845 85,829 --------- --------- ---------- -------- Net earnings $ 53,831 $ 51,192 $ 108,814 $ 97,806 ========= ========= ========== ======== Less: Series A preferred stock dividends 17,002 17,879 34,099 35,789 Add: Excess of book value over repurchase price of Series A preferred stock 32 29 2,811 39 --------- --------- ---------- -------- Net earnings ascribed to common shareholders $ 36,861 $ 33,342 $ 77,526 $ 62,056 ========= ========= ========= ======= Earnings per common share (See Note 3): Basic $ 0.44 $ 0.40 $ 0.93 $ 0.74 ========= ========= ========= ======= Diluted $ 0.44 $ 0.40 $ 0.89 $ 0.74 ========= ========= ========= ======= Weighted average number of common shares outstanding(000): Basic 83,674 83,626 83,651 83,505 ========= ========= ========== ======== Diluted 83,831 83,758 84,134 83,637 ========= ========= ========== ======== See accompanying notes to consolidated financial statements. 2

SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets June 30, 2000 and December 31, 1999 (In thousands of dollars except share data) June 30, December 31, 2000 1999 (Unaudited) ----------- ----------- ASSETS ------ Current assets: Cash and cash equivalents $ 18,766 $ 13,672 Notes and accounts receivable, net of allowances for doubtful accounts of $19,838 in 2000 and $21,396 in 1999 483,415 470,046 Inventories 272,291 245,934 Other current assets 74,358 73,572 ----------- ---------- Total current assets 848,830 803,224 ----------- ---------- Property and equipment: Land and buildings 423,446 426,460 Machinery and equipment 1,350,264 1,364,454 Other property and equipment 109,914 115,111 Construction in progress 69,263 40,106 ----------- ---------- 1,952,887 1,946,131 Less accumulated depreciation and amortization 957,297 922,722 ----------- ---------- Property and equipment, net 995,590 1,023,409 ----------- ---------- Goodwill, less accumulated amortization of $108,144 in 2000 and $84,699 in 1999 1,843,946 1,859,958 Other assets 176,712 168,642 ----------- ---------- Total assets $3,865,078 $3,855,233 =========== ========== See accompanying notes to consolidated financial statements. 3

SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets June 30, 2000 and December 31, 1999 (Continued) (In thousands of dollars except share data) June 30, December 31, 2000 1999 (Unaudited) ----------- ----------- LIABILITIES, CONVERTIBLE PREFERRED STOCK ---------------------------------------- & SHAREHOLDERS' EQUITY ---------------------- Current Liabilities: Short-term borrowings $ 143,360 $ 152,653 Current portion of long-term debt 6,083 6,908 Accounts payable 159,305 175,166 Other current liabilities 198,858 216,487 Income taxes payable 43,252 30,880 ----------- ---------- Total current liabilities 550,858 582,094 Long-term debt, less current portion 690,275 665,116 Deferred income taxes 209,610 214,906 Other liabilities 79,138 80,425 ----------- ---------- Total liabilities 1,529,881 1,542,541 ----------- ---------- Authorized 50,000,000 preferred shares. Series A convertible preferred stock, $50.00 per share redemption value, authorized 36,021,851 shares in 2000 and 1999, issued 36,014,699 shares in 2000 and 36,015,645 shares in 1999, including 2,046,364 shares in 2000 and 782,400 shares in 1999 in treasury, mandatory redemption in 2018 1,698,417 1,761,662 Shareholders' equity: Common stock, $.10 par value. Authorized 400,000,000 shares, issued 84,196,613 shares in 2000 and 84,135,255 shares in 1999 8,419 8,413 Additional paid-in capital 638,864 632,230 Retained earnings 206,788 132,073 Accumulated translation adjustment (175,102) (171,521) ----------- ----------- 678,969 601,195 ----------- ----------- Less: Deferred compensation 16,690 24,511 Less: Cost of treasury common stock, 517,396 shares in 2000 and 535,356 shares in 1999 23,497 23,652 Less: Minimum pension liability 2,002 2,002 ----------- ---------- Total shareholders' equity 636,780 551,030 ----------- ---------- Total liabilities, preferred stock and shareholders' equity $ 3,865,078 $ 3,855,233 =========== =========== See accompanying notes to consolidated financial statements. 4

SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2000 and 1999 (In thousands of dollars) (Unaudited) 2000 1999 ---------- ---------- Cash flows from operating activities: Net earnings $ 108,814 $ 97,806 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 109,289 111,946 Amortization of bond discount 161 19 Deferred tax benefit (175) (2,162) Net loss on disposals of fixed assets 113 105 Changes in operating assets and liabilities, net of businesses acquired: Notes and accounts receivable (28,177) (11,253) Inventories (30,708) (1,031) Other current assets (1,746) (422) Other assets (4,348) (1,542) Accounts payable (10,275) (9,753) Other current liabilities 10,837 (7,563) Other liabilities 835 4,317 ---------- ----------- Net cash provided by operating activities 154,620 180,467 ---------- ----------- Cash flows from investing activities: Capital expenditures for property and equipment (55,814) (31,843) Proceeds from sales of property and equipment 662 2,155 Businesses acquired in purchase transactions, net of cash acquired (28,342) (8,905) ---------- ------------ Net cash used in investing activities (83,494) (38,593) ---------- ------------ Cash flows from financing activities: Proceeds from long-term debt 182,901 298,175 Payment of long-term debt (141,426) (455,053) Payment of senior debt issuance costs 0 (1,950) Dividends paid on preferred stock (34,887) (35,821) Purchase of treasury common stock (15,239) 0 Purchase of treasury preferred stock (60,387) (2,836) Proceeds from stock option exercises 524 1,663 Net (payment of) proceeds from short-term borrowings (3,511) 69,352 ---------- ----------- Net cash used in financing activities (72,025) (126,470) ---------- ------------ Effect of exchange rate changes on cash and cash equivalents 5,993 (363) ---------- ------------ Cash and cash equivalents: Increase during the period 5,094 15,041 Balance, beginning of period 13,672 44,986 ---------- ----------- Balance, end of period $ 18,766 $ 60,027 ========== =========== See accompanying notes to consolidated financial statements. 5

SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2000 and 1999 (Continued) (In thousands of dollars) (Unaudited) 2000 1999 ------- ------- Supplemental Cash Flow Items: Interest payments, net of amounts capitalized $22,911 $30,135 ======= ======= Income tax payments $89,016 $85,275 ======= ======= Non-Cash Items: Issuance of shares of common stock to the profit-sharing plan $13,877 $ 8,823 ======= ======= See accompanying notes to consolidated financial statements. 6

SEALED AIR CORPORATION AND SUBSIDIARIES Consolidated Statements of Comprehensive Income For the Three and Six Months Ended June 30, 2000 and 1999 (In thousands of dollars) (Unaudited) For the For the Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net Earnings $ 53,831 $ 51,192 $ 108,814 $ 97,806 Other comprehensive loss: Foreign currency translation adjustments (6,186) (7,362) (3,581) (48,041) --------- --------- --------- --------- Comprehensive income $ 47,645 $ 43,830 $ 105,233 $ 49,765 ========= ========= ========= ========= See accompanying notes to consolidated financial statements. 7

SEALED AIR CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000 and 1999 (Amounts in thousands, except per share data) (Unaudited) (1) Basis of Consolidation The consolidated financial statements include the accounts of Sealed Air Corporation and its subsidiaries (the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation. In management's opinion, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the consolidated financial position and results of operations for the three and six months ended June 30, 2000 have been made. The consolidated statement of earnings for the three and six months ended June 30, 2000 is not necessarily indicative of the results to be expected for the full year. Certain prior period amounts, including segment information, have been reclassified to conform to the current year's presentation. (2) Equity The outstanding Series A preferred stock is convertible at any time into approximately 0.885 share of common stock for each share of preferred stock, votes with the common stock on an as-converted basis, pays a cash dividend, as declared by the Board of Directors, at an annual rate of $2.00 per share, payable quarterly in arrears, becomes redeemable at the option of the Company beginning March 31, 2001, subject to certain conditions, and is subject to mandatory redemption on March 31, 2018 at $50 per share, plus any accrued and unpaid dividends. Because it is subject to mandatory redemption, the Series A convertible preferred stock is classified outside of the shareholders' equity section of the consolidated balance sheets. (3) Earnings Per Common Share The following table sets forth the reconciliation of the basic and diluted earnings per common share computations for the three and six months ended June 30, 2000 and 1999. Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------- Basic EPS: Numerator - --------- Net earnings $53,831 $51,192 $108,814 $97,806 Add: Excess of book value over repurchase price of preferred stock 32 29 2,811 39 Less: Preferred stock dividends 17,002 17,879 34,099 35,789 ============================================================================================== Net earnings ascribed to common shareholders $36,861 $33,342 $ 77,526 $62,056 ============================================================================================== Denominator - ----------- Weighted average common shares outstanding - basic 83,674 83,626 83,651 83,505 - ---------------------------------------------------------------------------------------------- Basic earnings per common share (1) $ 0.44 $ 0.40 $ 0.93 $ 0.74 ============================================================================================== 8

Diluted EPS: Numerator - --------- Net earnings ascribed to common shareholders $36,861 $33,342 $ 77,526 $62,056 Less: Excess of book value over repurchase price of preferred stock 32 29 2,811 39 Add: Dividends associated with repurchased preferred stock 46 0 117 12 ============================================================================================== Net earnings ascribed to common shareholders $36,875 $33,313 $ 74,832 $62,029 ============================================================================================== Denominator - ----------- Weighted average common shares outstanding - basic 83,674 83,626 83,651 83,505 Effect of assumed exercise of stock options 123 132 123 132 Effect of conversion of repurchased preferred stock 34 0 360 0 - ---------------------------------------------------------------------------------------------- Weighted average common shares outstanding - diluted 83,831 83,758 84,134 83,637 - ---------------------------------------------------------------------------------------------- Diluted earnings per common share (2) $ 0.44 $ 0.40 $ 0.89 $ 0.74 ============================================================================================== (1) The basic earnings per common share calculation for the six months ended June 30, 2000 includes a $0.03 per share gain (excess of book value over repurchase price of preferred stock) attributable to the repurchase of preferred stock. Such gain is not included in the calculation of diluted earnings per common share for the three and six months ended June 30, 2000. The gain attributable to the repurchase of preferred stock was not significant in the three months ended June 30, 2000 and the 1999 periods. (2) For the purpose of calculating diluted earnings per common share, net earnings ascribed to common shareholders have been adjusted to exclude the gain attributable to the repurchase of preferred stock and to add back dividends attributable to such repurchased preferred stock in each period, and the weighted average common shares outstanding have been adjusted to assume conversion of the shares of preferred stock repurchased during each period in accordance with the Financial Accounting Standards Board's Emerging Issues Task Force Topic D-53 guidance. (4) Inventories At June 30, 2000 and December 31, 1999, the components of inventories by major classification were as follows: June 30, December 31, 2000 1999 ----------- ---------- Raw materials $ 64,433 $ 60,596 Work in process 51,378 43,021 Finished goods 174,748 157,341 ----------- ---------- Subtotal 290,559 260,958 Reduction of certain inventories to LIFO basis (18,268) (15,024) ----------- ----------- Total inventories $ 272,291 $ 245,934 =========== ========== 9

(5) Income Taxes The Company's effective income tax rates were 45.5% and 46.5% for the second quarters of 2000 and 1999, respectively, and 45.5% and 46.7% for the first six months of 2000 and 1999, respectively. Such rates were higher than the statutory U.S. federal income tax rate primarily due to the non-deductibility for tax purposes of goodwill amortization and state income taxes. (6) Long-Term Debt At June 30, 2000 and December 31, 1999, debt consisted primarily of borrowings that were made under the Credit Agreements described below, the 10-year 6.95% senior notes due May 2009 (the "Senior Notes"), the 7-year 5.625% euro notes due July 2006 (the "Euro Notes") and certain other loans. The Company's two principal credit agreements (as amended, the "Credit Agreements") are a 5-year revolving credit facility that expires on March 30, 2003 (included in long-term debt) and a 364-day revolving credit facility that expires on March 26, 2001 (included in short-term borrowings). The Company can borrow up to $900,000 in the aggregate under the Credit Agreements. As of June 30, 2000 and December 31, 1999, outstanding borrowings were $200,432 and $160,978, respectively, under the 5-year revolving credit facility and $12,953 and $38,342, respectively, under the 364-day revolving credit facility. The Credit Agreements provide that the Company and certain of its subsidiaries may borrow for various purposes, including the refinancing of existing debt, the provision of working capital and other general corporate needs, including acquisitions and capital expenditures. Amounts repaid under the Credit Agreements may be reborrowed from time to time. As of June 30, 2000, facility fees were payable on the total amounts available under the Credit Agreements and amounted to 0.095% and 0.100% per annum under the 5-year revolving credit facility and the 364-day revolving credit facility, respectively. The Company's obligations under the Credit Agreements bear interest at floating rates. The weighted average interest rate under the Credit Agreements was approximately 6.5% at June 30, 2000 and 6.0% at December 31, 1999. The Company had certain interest rate and currency swaps outstanding at June 30, 2000 and December 31, 1999, related to its obligations under the Credit Agreements. These agreements had the effect of adjusting the interest rates on a portion of such debt. The weighted average interest rate at June 30, 2000 and December 31, 1999 did not change significantly as a result of these derivative financial instruments. At June 30, 2000, the Company was party to interest rate swaps with an aggregate notional amount of approximately $147,250 with various expiration dates through November 2004 compared to forward-starting interest rate swaps with an aggregate notional amount of approximately $151,000 with various expiration dates through November 2004 at December 31, 1999. The interest rate swaps outstanding as of June 30, 2000 and December 31, 1999 had the effect of converting a portion of the Company's fixed rate debt to variable rate debt at U.S. dollar-denominated rates which ranged from 7.0% to 7.3% at June 30, 2000 and 6.2% to 6.5% at December 31, 1999, and euro-denominated rates which ranged from 4.3% to 5.0% at June 30, 2000 and 3.8% to 4.4% at December 31, 1999. The Credit Agreements provide for changes in borrowing margins based on financial criteria and the Company's senior unsecured debt ratings. The Credit Agreements, Senior Notes and Euro Notes impose certain limitations on the operations of the Company and certain of its subsidiaries. The Company was in compliance with these requirements as of June 30, 2000. 10

(7) Restructuring and Other Charges The Company's restructuring reserve, which arose primarily out of a restructuring undertaken by the Company during the third quarter of 1998, amounted to $2,601 at June 30, 2000 and $4,996 at December 31, 1999. The components of the restructuring charges, spending and other activity through June 30, 2000 and the remaining reserve balance at June 30, 2000 were as follows: Employee Contract Termination Plant/Office Termination Costs Closures Costs Total - ---------------------------------------------------------------------------------------------- Restructuring provision recorded in 1998 $ 39,848 $ 2,291 $ 1,150 $ 43,289 Payments during 1998 (14,486) (729) (1,150) (16,365) - ---------------------------------------------------------------------------------------------- Restructuring reserve at December 31, 1998 25,362 1,562 - 26,924 Payments during 1999 (21,392) (536) - (21,928) - ---------------------------------------------------------------------------------------------- Restructuring reserve at December 31, 1999 3,970 1,026 - 4,996 Payments during 2000 (2,121) (274) - (2,395) - ---------------------------------------------------------------------------------------------- Restructuring reserve at June 30, 2000 $ 1,849 $ 752 $ - $ 2,601 - ---------------------------------------------------------------------------------------------- The cash outlays include primarily severance and other personnel-related costs, costs of terminating leases, and facilities and equipment disposition costs. As of September 30, 1998, in connection with the restructuring, the Company planned to eliminate approximately 750 positions or approximately 5% of its workforce, of which 746 positions had been eliminated as of June 30, 2000. All restructuring actions were substantially completed as of June 30, 2000. The remaining reserves of $2,601 are related principally to outstanding employee severances and lease termination costs that are expected to be completed during 2000 and to a limited extent in later years. (8) Business Segment Information The Company operates in two reportable business segments: (i) Food Packaging and (ii) Protective and Specialty Packaging. The Food Packaging segment comprises primarily the Company's Cryovac(R) food products. The Protective and Specialty Packaging segment includes the aggregation of the Company's packaging products, engineered products and specialty products, all of which products are principally for non-food applications. The Food Packaging segment includes flexible materials and related systems (shrink film products, laminated films and packaging systems marketed primarily under the Cryovac(R) trademark for a broad range of perishable foods). This segment also includes rigid packaging and absorbent pads (absorbent pads used for the packaging of meat, fish and poultry, foam trays for supermarkets and food processors, and rigid plastic containers for dairy and other food products). The Protective and Specialty Packaging segment includes cushioning and surface protection products (including air cellular cushioning materials, films for non-food applications, polyurethane foam packaging systems sold under the Instapak(R) trademark, polyethylene foam sheets and planks, a comprehensive line of protective and durable mailers and bags, certain paper-based protective packaging materials, suspension and retention packaging, and packaging systems) and other products (principally specialty adhesive products). 11

For the For the Three Months Ended Six Months Ended June 30, June 30, -------------------------------------------------- 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------- Net sales Food Packaging $ 439,298 $ 425,868 $ 868,699 $ 845,561 Protective and Specialty Packaging 292,244 269,253 579,431 528,497 - -------------------------------------------- --------- --------- ----------- ----------- Total segments $ 731,542 $ 695,121 $ 1,448,130 $ 1,374,058 ============================================ ========= ========= =========== =========== Operating profit Food Packaging $ 71,176 $ 72,146 $ 140,561 $ 139,028 Protective and Specialty Packaging 58,991 57,275 122,073 111,285 - -------------------------------------------- --------- --------- ----------- ----------- Total segments 130,167 129,421 262,634 250,313 Corporate operating expenses(1) (17,801) (20,141) (34,347) (36,200) - -------------------------------------------- --------- --------- ----------- ----------- Total $ 112,366 $ 109,280 $ 228,287 $ 214,113 ============================================ ========= ========= =========== =========== Depreciation and amortization Food Packaging $ 26,884 $ 26,843 $ 54,501 $ 54,743 Protective and Specialty Packaging 14,736 15,869 29,677 31,457 - -------------------------------------------- --------- --------- ----------- ----------- Total segments 41,620 42,712 84,178 86,200 Corporate (including goodwill amortization) 12,578 13,447 25,111 25,746 - -------------------------------------------- --------- --------- ----------- ----------- Total $ 54,198 $ 56,159 $ 109,289 $ 111,946 ============================================ ========= ========= =========== =========== (1) Includes goodwill amortization of $12,381 and $12,331 for the three months ended June 30, 2000 and 1999, respectively, and $24,691 and $24,582 for the six months ended June 30, 2000 and 1999, respectively. (9) Acquisitions During the first six months of 2000, the Company made several small acquisitions. These transactions, which were effected in exchange for cash in the aggregate amount of approximately $28,000, were accounted for as purchases and were not material to the Company's consolidated financial statements. On June 28, 2000, the Company and Dolphin Packaging PLC ("Dolphin"), a publicly traded U.K. company, announced a cash takeover offer by the Company's U.K. subsidiary for all of the outstanding shares of Dolphin at a price of (pound)3.30 per share, amounting to approximately $118,000 in the aggregate at the then current exchange rates. On August 2, 2000, the Company acquired more than 96% of Dolphin's outstanding shares pursuant to this offer. The Company expects to acquire the balance of the shares prior to the end of the third quarter of 2000 on the same terms. This transaction is not material to the Company's consolidated financial statements. 12

Management's Discussion and Analysis of Results of Operations and Financial Condition - ----------------------------------------------------------------- Net sales for the second quarter of 2000 increased 5% to $731,542,000 compared with $695,121,000 for the second quarter of 1999. For the six-month period, the Company's net sales increased 5% to $1,448,130,000 compared with net sales of $1,374,058,000 in the 1999 period. The increases in net sales in both periods were primarily due to higher unit volume and, to a lesser extent, higher average selling prices for certain of the Company's products and the added net sales of several small acquired businesses, partially offset by the negative effect of foreign currency translation. The Company's net sales were affected in the second quarter and first six months of 2000 by the continued weakness of foreign currencies in Europe, Latin America and the Asia Pacific region compared with the U.S. dollar. Excluding the negative effect of foreign currency translation, net sales would have increased 9% for both the second quarter and the first six months of 2000 compared to the respective 1999 periods. Net sales from domestic operations increased approximately 8% for the second quarter and first six months of 2000 compared with the respective 1999 periods, primarily due to increased unit volume and, to a lesser extent, higher average selling prices for certain of the Company's products. Net sales from foreign operations increased approximately 2% for the second quarter and first six months of 2000 compared with the respective 1999 periods, primarily due to increased unit volume and, to a lesser extent, the added net sales of several small acquired businesses, partially offset by the negative effect of foreign currency translation. As a percentage of total net sales, net sales from foreign operations represented approximately 44% and 46% in the second quarter of 2000 and 1999, respectively, and 45% and 46% in the first six months of 2000 and 1999, respectively, of the Company's total net sales. Net sales of the Company's food packaging products segment, which consists primarily of the Company's Cryovac(R) food packaging products and Dri-Loc(R) absorbent pads, increased approximately 3% for the second quarter and first six months of 2000 compared with the respective 1999 periods. These increases were due primarily to higher unit volume partially offset by the negative effect of foreign currency translation. For the second quarter, net sales for this segment also benefited from certain higher average selling prices. Excluding the negative effect of foreign currency translation, net sales of this segment would have increased by 7% for the second quarter and 6% for the first six months of 2000 compared with the respective 1999 periods. Net sales of the Company's protective and specialty packaging segment, which consists primarily of Instapak(R) chemicals and equipment, Cryovac(R) industrial and consumer packaging, air cellular and polyethylene foam surface protection and cushioning materials and protective and durable mailers and bags, increased 9% for the second quarter and 10% for the first six months of 2000 compared to the respective 1999 periods. These increases were due primarily to higher unit volume and, to a lesser extent, certain higher average selling prices and the added net sales of several small acquired businesses. Excluding the negative 13

effect of foreign currency translation, net sales of this segment would have increased 11% for the second quarter and 13% for the first six months of 2000 compared to the respective 1999 periods. Gross profit as a percentage of net sales was 34.7% for the second quarter and 35.4% for the first six months of 2000 compared to 36.5% and 36.3% for the respective 1999 periods. The decrease in gross profit as a percentage of net sales in both periods was due primarily to higher raw material costs in the 2000 periods. Marketing, administrative and development expenses and goodwill amortization declined modestly as a percentage of net sales for the second quarter and first six months of 2000 compared with the respective 1999 periods. These expenses declined to 19.4% of net sales for the second quarter of 2000 compared to 20.8% for the 1999 period and were 19.6% of net sales for the first six months of 2000 compared to 20.8% for the 1999 period. As in the second quarter and first six months of 1999, the Company continued to incur information system costs related to implementation of its enterprise resource planning system. Other expense, net, which consists primarily of interest expense, was essentially unchanged for the second quarter and declined modestly for the first six months of 2000 compared with the respective 1999 periods. The decrease in interest expense for these periods was primarily due to the lower level of debt outstanding during the 2000 periods compared with the respective 1999 periods. Debt outstanding at June 30, 2000 was modestly higher than debt outstanding at December 31, 1999. The Company's effective income tax rates were 45.5% and 46.5% in the second quarters of 2000 and 1999, respectively, and 45.5% and 46.7% for the first six months of 2000 and 1999, respectively. These rates are higher than the statutory U.S. federal income tax rate primarily due to the non-deductibility for tax purposes of goodwill amortization and state income taxes. The Company expects that its effective tax rate will remain higher than statutory rates for 2000. As a result of the above, the Company's net earnings were $53,831,000 for the second quarter of 2000 and $108,814,000 for the first six months of 2000 compared to net earnings of $51,192,000 and $97,806,000 for the respective 1999 periods. Basic and diluted earnings per common share were $0.44 for the second quarter of 2000 and $0.40 for the second quarter of 1999. Basic earnings per common share were $0.93 and diluted earnings per common share were $0.89 for the first six months of 2000 and basic and diluted earnings per common share were $0.74 for the first six months of 1999. The basic earnings per common share calculation for the six months ended June 30, 2000 includes a $0.03 per share gain attributable to the repurchase of preferred stock. Such gain is not included in the calculation of diluted earnings per common share. The gain attributable to the repurchase of preferred stock was not significant in the second quarter of 2000 and the respective 1999 periods. The diluted earnings per common share for the second quarter and first six months of 2000 is calculated assuming the conversion of the shares of preferred stock repurchased during the period in accordance with the Financial Accounting Standards Board's Emerging Issues Task Force Topic D-53 guidance. The effect of the conversion of the 14

Company's outstanding convertible preferred stock is not considered in the calculation of diluted earnings per common share in the second quarter and first six months of 2000 and the respective 1999 periods because it would be antidilutive. Liquidity and Capital Resources - ------------------------------- The Company's principal sources of liquidity are cash flows from operations and amounts available under the Company's existing lines of credit, including principally the Credit Agreements mentioned below. Net cash provided by operating activities amounted to $154,620,000 and $180,467,000 in the first six months of 2000 and 1999, respectively. The decrease in operating cash flows for the first six months of 2000 was primarily due to changes in operating assets and liabilities in the ordinary course of business, including primarily higher levels of notes and accounts receivable and inventory that more than offset the increase in net earnings. Net cash used in investing activities amounted to $83,494,000 in the first six months of 2000 compared to $38,593,000 in the 1999 period. The increase in net cash used in the first six months of 2000 was primarily due to a higher level of capital expenditures and several small acquisitions in the 2000 period. Capital expenditures were $55,814,000 in the 2000 period and $31,843,000 in the 1999 period. Net cash used in financing activities amounted to $72,025,000 in the first six months of 2000 and $126,470,000 in the first six months of 1999. The decrease in net cash used in the first six months of 2000 was due to a greater amount of net borrowings during the 2000 period, partially offset by an increase in the purchase of treasury stock. At June 30, 2000, the Company had working capital of $297,972,000, or 8% of total assets, compared to working capital of $221,130,000, or 6% of total assets, at December 31, 1999. The increase in working capital was primarily due to an increase in notes and accounts receivable and inventories offset by a decrease in short-term borrowings, accounts payable and other current liabilities due to the timing of cash payments which were partially offset by an increase in income taxes payable. The Company's ratio of current assets to current liabilities (current ratio) was 1.5 at June 30, 2000 and 1.4 at December 31, 1999. The Company's ratio of current assets less inventory to current liabilities (quick ratio) was 1.0 at June 30, 2000 and December 31, 1999. At June 30, 2000 and December 31, 1999, debt consisted primarily of borrowings that were made under the Credit Agreements described below, the 10-year 6.95% senior notes due May 2009 (the "Senior Notes"), the 7-year 5.625% euro notes due July 2006 (the "Euro Notes") and certain other loans. The Company's two principal credit agreements (as amended, the "Credit Agreements") are a 5-year revolving credit facility that expires on March 30, 2003 (included in long-term debt) and a 364-day revolving credit facility that expires on March 26, 2001 (included in short-term borrowings). The Company can borrow up to $900,000,000 in the aggregate under 15

the Credit Agreements. As of June 30, 2000 and December 31, 1999, outstanding borrowings were $200,432,000 and $160,978,000, respectively, under the 5-year revolving credit facility and $12,953,000 and $38,342,000, respectively, under the 364-day revolving credit facility. The Credit Agreements provide that the Company and certain of its subsidiaries may borrow for various purposes, including the refinancing of existing debt, the provision of working capital and other general corporate needs, including acquisitions and capital expenditures. Amounts repaid under the Credit Agreements may be reborrowed from time to time. As of June 30, 2000, facility fees were payable on the total amounts available under the Credit Agreements and amounted to 0.095% and 0.100% per annum under the 5-year revolving credit facility and the 364-day revolving credit facility, respectively. The Company's obligations under the Credit Agreements bear interest at floating rates. The weighted average interest rate under the Credit Agreements was approximately 6.5% at June 30, 2000 and 6.0% at December 31, 1999. The Company had certain interest rate and currency swaps outstanding at June 30, 2000 and December 31, 1999, related to its obligations under the Credit Agreements. These agreements had the effect of adjusting the interest rates on a portion of such debt. The weighted average interest rate at June 30, 2000 and December 31, 1999 did not change significantly as a result of these derivative financial instruments. At June 30, 2000, the Company was party to interest rate swaps with an aggregate notional amount of approximately $147,250,000 with various expiration dates through November 2004 compared to forward-starting interest rate swaps with an aggregate notional amount of approximately $151,000,000 with various expiration dates through November 2004 at December 31, 1999. The interest rate swaps outstanding as of June 30, 2000 and December 31, 1999 had the effect of converting a portion of the Company's fixed rate debt to variable rate debt at U.S. dollar-denominated rates which ranged from 7.0% to 7.3% at June 30, 2000 and 6.2% to 6.5% at December 31, 1999, and euro-denominated rates which ranged from 4.3% to 5.0% at June 30, 2000 and 3.8% to 4.4% at December 31, 1999. The Credit Agreements provide for changes in borrowing margins based on financial criteria and the Company's senior unsecured debt ratings. The Credit Agreements, Senior Notes and Euro Notes impose certain limitations on the operations of the Company and certain of its subsidiaries. The Company was in compliance with these requirements as of June 30, 2000. At June 30, 2000, the Company had available lines of credit, including those available under the Credit Agreements, of approximately $1.2 billion of which approximately $900 million were unused. The Company's shareholders' equity was $636,780,000 at June 30, 2000 compared to $551,030,000 at December 31, 1999. Shareholders' equity increased in 2000 due to the Company's net earnings of $108,814,000, which were partially offset by the payment of preferred stock dividends of $34,099,000 and by an additional foreign currency translation adjustment of $3,581,000. 16

On June 28, 2000, the Company and Dolphin Packaging PLC ("Dolphin"), a publicly traded U.K. company, announced a cash takeover offer by the Company's U.K. subsidiary for all of the outstanding shares of Dolphin at a price of (pound)3.30 per share, amounting to approximately $118,000,000 in the aggregate at the then current exchange rates. On August 2, 2000, the Company acquired more than 96% of Dolphin's outstanding shares pursuant to this offer. The Company expects to acquire the balance of the shares prior to the end of the third quarter of 2000 on the same terms. This transaction is not material to the Company's consolidated financial statements. Since June 30, 2000, the Company has made certain other small acquisitions, which were effected in exchange for cash in the aggregate amount of approximately $9,000,000, were accounted for as purchases and were not material to the Company's consolidated financial statements. Other Matters - ------------- Quantitative and Qualitative Disclosures about Market Risk - ---------------------------------------------------------- For a discussion of market risks at December 31, 1999, refer to "Management's Discussion and Analysis of Results of Operations and Financial Condition - Quantitative and Qualitative Disclosures about Market Risk" in the Company's 1999 Annual Report to Stockholders. The Company is exposed to market risk from changes in interest rates and foreign currency exchange rates, which may adversely affect its results of operations and financial condition. The Company seeks to minimize these risks through regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company does not purchase, hold or sell derivative financial instruments for trading purposes. Interest Rates The Company uses interest rate swaps to manage its exposure to fluctuations in interest rates. The Company also uses interest rate collars to reduce its exposure to fluctuations in the rate of interest by limiting interest rates to a given range. At June 30, 2000, the Company had interest rate swaps that had the effect of converting a portion of the Company's fixed rate debt to variable rate debt, and an interest rate collar agreement, maturing at various dates through November 2004, with a combined aggregate notional amount of approximately $155,000,000 compared with forward-starting interest rate swaps and an interest rate collar agreement with a combined aggregate notional amount of approximately $159,000,000 at December 31, 1999. 17

At June 30, 2000, the carrying value of the Company's total debt was $839,718,000, of which approximately $489,314,000 was fixed rate debt. At December 31, 1999, the carrying value of the Company's total debt was $824,677,000 of which $502,244,000 was fixed rate debt. Foreign Exchange Contracts The Company uses interest rate and currency swaps to limit foreign exchange exposure and limit or adjust interest rate exposure by swapping certain borrowings in U.S. dollars for borrowings denominated in foreign currencies. At June 30, 2000 and December 31, 1999, the Company had interest rate and currency swap agreements, maturing through March 2002, with an aggregate notional amount of approximately $5,000,000. The Company uses foreign currency forwards to fix the amount payable on certain transactions denominated in foreign currencies. At June 30, 2000, the Company had foreign currency forward agreements, maturing through December 2000, with an aggregate notional amount of approximately $9,000,000. At December 31, 1999, the Company did not have any material foreign currency forward contracts outstanding. Environmental Matters - --------------------- The Company is subject to loss contingencies resulting from environmental laws and regulations, and it accrues for anticipated costs associated with investigatory and remediation efforts when an assessment has indicated that a loss is probable and can be reasonably estimated. These accruals do not take into account any discounting for the time value of money and are not reduced by potential insurance recoveries, if any. Environmental liabilities are reassessed whenever circumstances become better defined and/or remediation efforts and their costs can be better estimated. These liabilities are evaluated periodically based on available information, including the progress of remedial investigations at each site, the current status of discussions with regulatory authorities regarding the methods and extent of remediation and the apportionment of costs among potentially responsible parties. As some of these issues are decided (the outcomes of which are subject to various uncertainties) and/or new sites are assessed and costs can be reasonably estimated, the Company adjusts the recorded accruals, as necessary. However, the Company believes that it has adequately reserved for all probable and estimable environmental exposures. Euro Conversion - --------------- On January 1, 1999, eleven of the fifteen members of the European Union (the "participating countries") established fixed conversion rates between their existing currencies (the "legacy currencies") and introduced the euro, a single common non-cash 18

currency. The euro is now traded on currency exchanges and is being used in business transactions. At the beginning of 2002, new euro-denominated bills and coins will be issued to replace the legacy currencies, and the legacy currencies will be withdrawn from circulation. By 2002, all companies operating in the participating countries are required to restate their statutory accounting data into euros as their base currency. In 1998, the Company established plans to address the systems and business issues raised by the euro currency conversion. These issues include, among others, (1) the need to adapt computer, accounting and other business systems and equipment to accommodate euro-denominated transactions, (2) the need to modify banking and cash management systems in order to be able to handle payments between customers and suppliers in legacy currencies and euros until 2002, (3) the requirement to change the base statutory and reporting currency of each subsidiary in the participating countries into euros during the transition period, (4) the foreign currency exposure changes resulting from the alignment of the legacy currencies into the euro, and (5) the identification of material contracts and sales agreements whose contractual stated currency will need to be converted into euros. The Company believes that it will be euro compliant by January 1, 2002. The Company has implemented plans to accommodate euro-denominated transactions and to handle euro payments with third party customers and suppliers in the participating countries. The Company plans to meet the requirement to convert statutory and reporting currencies to the euro by acquiring and installing new financial software systems. If there are delays in such installation, the Company plans to pursue alternate means to convert statutory and reporting currencies to the euro by 2002. The Company believes that its foreign currency exposures have been reduced as a result of the alignment of legacy currencies. The Company believes that all material contracts and sales agreements requiring conversion will be converted to euros prior to January 1, 2002. Although additional costs are expected to result from the implementation of the Company's plans, the Company also expects to achieve benefits in its treasury and procurement areas as a result of the elimination of the legacy currencies. Since the Company has operations in each of its business segments in the participating countries, each of its business segments will be affected by the conversion process. However, the Company expects that the total impact of all strategic and operational issues related to the euro conversion and the cost of implementing its plans for the euro conversion will not have a material adverse impact on its consolidated financial condition, results of operations or reportable segments. Recently Issued Statements of Financial Accounting Standards - ------------------------------------------------------------ In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an amendment of FASB Statement No. 133." In 19

June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective date of FASB Statement No. 133." This Statement defers the effective date of SFAS No. 133 , "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended, which the Company expects to adopt beginning January 1, 2001, establishes accounting and operating standards for hedging activities and derivative instruments, including certain derivative instruments embedded in other contracts. The Company is reviewing the potential impact, if any, of SFAS Nos. 138 and 133 on its Consolidated Financial Statements. Forward-Looking Statements - -------------------------- Certain statements made by the Company in this Form 10-Q and in future oral and written statements by management of the Company may be forward-looking. These statements include comments as to the Company's beliefs and expectations as to future events and trends affecting the Company's business, its results of operations and its financial condition. These forward-looking statements are based upon management's current expectations concerning future events and discuss, among other things, anticipated future performance and future business plans. Forward-looking statements are identified by such words and phrases as "expects," "intends," "believes," "will continue," "plans to," "could be" and similar expressions. Forward-looking statements are necessarily subject to uncertainties, many of which are outside the control of the Company, that could cause actual results to differ materially from such statements. While the Company is not aware that any of the factors listed below will adversely affect the future performance of the Company, the Company recognizes that it is subject to a number of uncertainties, such as economic, business and market conditions in the geographic areas in which it conducts business, changes in the value of foreign currencies against the U.S. dollar, the success of certain information systems projects, factors affecting the customers, industries and markets that use the Company's packaging materials and systems, the development and success of new products, the Company's success in entering new markets and acquiring and integrating new businesses, the timing of capital expenditures, competitive factors, raw material availability and pricing, changes in the Company's relationship with customers and suppliers, litigation and claims (including environmental matters) involving the Company, changes in domestic or foreign laws or regulations, or difficulties related to the euro conversion. 20

PART II OTHER INFORMATION ----------------- Item 4. Submission of Matters to a Vote of Security Holders. - ------ --------------------------------------------------- On May 19, 2000, the Company held its annual meeting of stockholders (the "Annual Meeting"). At the Annual Meeting the stockholders voted: (i) to elect the entire Board of Directors of the Company; (ii) to approve the Company's Performance-Based Compensation Program (as described below); and (iii) to ratify the selection of KPMG LLP as the Company's independent accountants for the fiscal year ending December 31, 2000. A total of 73,949,347 shares of common stock and 27,852,232 shares of Series A convertible preferred stock ("preferred stock") were present in person or by proxy at the Annual Meeting, representing approximately 98,598,572 votes, or approximately 86% of the voting power of the Company entitled to vote at the Annual Meeting. Each share of common stock was entitled to one vote on each matter before the meeting, and each share of preferred stock was entitled to 0.885 votes on each matter before the meeting. The stockholders voted to approve the Company's Performance-Based Compensation Program. The Performance-Based Compensation Program was adopted in order to provide the Company's eligible employees with incentive compensation that meets the requirements of performance-based compensation under Section 162(m) of the Internal Revenue Code, as amended, and thus is fully deductible for U.S. income tax purposes. The Performance-Based Compensation Program provides for cash awards in the form of annual cash bonuses and awards of the Company's common stock under the Company's Contingent Stock Plan. Performance-based awards under the program require attainment of objective, pre-established goals based upon financial or strategic criteria. The votes cast on the matters before the Annual Meeting were as set forth below: I. Nominees for Election Number of Votes to Board of Directors: In Favor Withheld Hank Brown 98,160,736 437,837 John K. Castle 98,167,948 430,624 Lawrence R. Codey 98,173,990 424,582 T. J. Dermot Dunphy 98,171,365 427,208 Charles F. Farrell, Jr. 98,162,917 435,655 William V. Hickey 98,177,910 420,662 Shirley Ann Jackson 98,156,475 442,097 Virginia A. Kamsky 98,113,966 484,606 Alan H. Miller 98,151,419 447,153 John E. Phipps 78,033,675 20,564,897 21

II. Approval of the Corporation's For 91,392,449 Performance-Based Against 6,695,937 Compensation Program: Abstentions 510,186 III. Ratification of KPMG For 98,242,370 LLP as Independent Against 76,440 Accountants: Abstentions 279,762 Item 6. Exhibits and Reports on Form 8-K. - ------ -------------------------------- (a) Exhibits Exhibit Number Description 10 Sealed Air Corporation Performance-Based Compensation Program, as approved by the Company's stockholders. [Annex A to the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders is incorporated herein by reference.] 27 Financial Data Schedule (b) Reports on Form 8-K The Company did not file any Reports on Form 8-K during the second quarter of 2000. 22

Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SEALED AIR CORPORATION Date: August 11, 2000 By /s/ Jeffrey S. Warren ----------------------- Jeffrey S. Warren Controller (Authorized Executive Officer and Chief Accounting Officer)

5 The schedule contains summary information extracted from the consolidated statement of earnings for the six months ended June 30, 2000 and the consolidated balance sheet at June 30, 2000 and is qualified in its entirety by reference to such financial statements. 0001012100 SEALED AIR CORPORATION 6-MOS DEC-31-2000 JUN-30-2000 18,766,000 0 503,253,000 19,838,000 272,291,000 848,830,000 1,952,887,000 957,297,000 3,865,078,000 550,858,000 690,275,000 1,698,417,000 0 8,419,000 628,361,000 3,865,078,000 1,448,130,000 1,448,130,000 936,168,000 936,168,000 283,675,000 0 27,011,000 199,659,000 90,845,000 108,814,000 0 0 0 108,814,000 0.93 0.89