Sealed Air Corporation (NYSE-SEE) reported today fourth quarter and full year operating results in line with expectations. Commenting on the Company’s full year performance, William V. Hickey, President and Chief Executive Officer, stated:
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“In light of the challenging economic climate, we are pleased that our Company was able to maintain net sales essentially even with 2000, continue to add new customers and achieve significant progress in our strategic growth initiatives including case ready, fluids and inflatables. We achieved operating cash flow, as measured by EBITDA, of 20% of net sales before reflecting the impact of restructuring charges, which is consistent with our long-term goals. We reduced marketing, administrative and development expenses on an absolute basis and as a percent of net sales for the year. We completed a targeted review to reduce costs and expenses and simplify our business processes. As a result, I am confident that Sealed Air enters 2002 an even stronger company poised to benefit from an upturn in the economy.”
For the quarter, both basic and diluted earnings per common share were $0.30. For the full year, basic and diluted earnings per common share were $1.30 and $1.22. The conversion of the Company’s outstanding preferred stock is not considered in the calculation of diluted earnings per common share because the effect would be anti-dilutive.
If earnings per share were calculated as if the Company’s outstanding preferred stock had been converted into common stock, and excluding Restructuring and other charges discussed below, earnings per share would have been $0.49 in the fourth quarter. For the full year, using the as-if-converted calculation and excluding Restructuring and other charges and the first quarter provision for the guarantee of debt for an unrelated company discussed below, earnings per share would have been $1.68. Analysts who follow the Company generally use this as-if-converted calculation as the method of comparison for their published earnings estimates.
Results for the Fourth Quarter of 2001 include:
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By GlobalDataNet sales declined 2% compared to the fourth quarter of 2000, due primarily to lower sales volumes for certain protective and specialty packaging products and, to a lesser extent, changes in product mix, partially offset by the added net sales of acquired businesses. Foreign currency translation had a minimal effect compared to the fourth quarter of 2000.
Net sales of the food packaging segment increased 2%, due primarily to higher sales volume for certain products.
The continuing recessionary environment contributed to a decrease of 7% in net sales of the protective and specialty packaging segment. This decrease was due primarily to lower sales volume for certain products and, to a lesser extent, changes in product mix, partially offset by the added net sales of acquired businesses.
Gross profit was $258,284,000 or 33.1% of net sales compared to $269,908,000 or 33.9% of net sales for the fourth quarter of 2000. This decrease was due primarily to lower sales volume of certain products and changes in product mix compared to the 2000 period. The decrease was partially offset by lower costs for certain raw materials.
Marketing, administrative and development expenses were essentially flat at $127,901,000 or 16.4% of net sales compared to $127,538,000 or 16.0% of net sales for the fourth quarter of 2000. Goodwill amortization increased to $14,552,000 from $13,647,000 primarily due to acquisitions.
The Company incurred Restructuring and other charges of $22,804,000 in the fourth quarter. Please see below, under Results for the Full Year 2001, for a discussion of the Restructuring and other charges.
Operating profit decreased to $93,027,000 from $129,970,000 in 2000 due to a combination of Restructuring and other charges, the decrease in net sales and the lower gross profit percentage, discussed above. Excluding the Restructuring and other charges, operating profit was 14.8% of net sales compared to 16.2% of net sales for the fourth quarter of 2000.
The effective tax rate was 48.9%. This effective tax rate is higher than applicable statutory rates due primarily to non-deductible goodwill amortization.
Net earnings were $38,463,000 compared to $61,791,000 for the fourth quarter of 2000 as impacted by factors noted above.
Basic and diluted earnings per common share were both $0.30 as compared to basic and diluted earnings per common share of $0.97 and $0.56, respectively, for the fourth quarter 2000. The 2000 basic earnings per common share includes a per share gain of $0.40 attributable to the repurchase of preferred stock below redemption value. Such gain for the fourth quarter of 2001 was immaterial. Diluted earnings per common share excludes the impact of such gains attributable to the repurchase of preferred stock.
Earnings per common share were $0.62 assuming conversion of the Company’s outstanding preferred stock and excluding goodwill amortization and the impact of the Restructuring and other charges referenced above.
Results for the Full Year 2001 include:
Net sales increased 2% year over year, excluding the negative effect of foreign currency translation, primarily due to the added net sales of acquired businesses, partially offset by lower sales volumes for certain products. Including the negative effect of foreign currency translation, net sales were essentially even at $3,067,482,000 for the full year 2001 compared to $3,067,714,000 for the full year 2000.
Excluding the negative effect of foreign currency translation, net sales of the food packaging segment increased 5% primarily due to the added net sales of acquired businesses and, to a lesser extent, higher average selling prices and higher sales volumes for certain products. Including the negative effect of foreign currency translation, net sales of the food packaging segment increased 2% to $1,880,281,000 in 2001 compared to $1,837,294,000 in 2000.
Excluding the negative effect of foreign currency translation, net sales of the protective and specialty packaging segment declined 2% primarily due to lower sales volumes for certain products, partially offset by the added net sales of acquired businesses. Including the negative effect of foreign currency translation, net sales of the protective and specialty packaging segment declined 4% to $1,187,201,000 in 2001 compared to $1,230,420,000 in 2000.
Gross profit was $990,287,000 or 32.3% of net sales in 2001 compared to $1,035,304,000 or 33.7% of net sales in 2000. This decrease was primarily due to lower sales volume of certain protective and specialty packaging products as well as changes in product mix compared to the 2000 period and was partially offset by lower costs for certain raw materials.
Marketing, administrative and development expenses decreased 1% to $513,086,000 in 2001 from $516,312,000 in 2000. As a percent of net sales, these expenses were 16.7% in 2001 and 16.8% in 2000. Goodwill amortization increased to $57,005,000 from $51,776,000 in 2000 primarily due to acquisitions.
The Company incurred Restructuring and other charges of $32,805,000 for the full year of 2001. These charges were associated with the Company’s planned review of its business, announced in April, and completed in the fourth quarter of 2001. The Company conducted the review to reduce costs and expenses, simplify business processes and organizational structure, and refine further its manufacturing operations and product offerings. Actions resulting from this review should enhance the fundamental strengths and growth prospects of the business as the Company continues to focus on bringing packaging solutions to its customers. The Restructuring and other charges incurred for the full year of 2001 include $23,877,000 of employee termination costs, $1,641,000 of facility exit costs and $7,287,000 of long-lived asset impairments. As a result of the charges incurred for the full year of 2001, the Company expects annual savings of approximately $23,000,000 by the end of 2002. As part of the restructuring, the Company is eliminating approximately 790 positions worldwide. However, following the consolidation of certain manufacturing operations, the net reduction in employment is expected to total approximately 470.
Operating profit was $387,391,000 compared to $468,463,000 in 2000. This decrease was mainly due to Restructuring and other charges and the lower gross profit discussed above. Excluding the Restructuring and other charges, operating profit as a percent of net sales was 13.7% in 2001 and 15.2% in 2000.
Other expense, net, increased due to increased interest expense resulting from higher levels of debt outstanding compared to the corresponding period in 2000 and income recorded in 2000 from a one-time fee of $10,000,000 received from a third party for the assignment of a contract. The increase in 2001 was also due to a first quarter provision of approximately $8,000,000 primarily for the provision for the guarantee of certain debt payable by a subsidiary of W.R. Grace & Co., which filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on April 2, 2001.
The effective tax rate was 47.3% for the full year 2001. The Company’s effective tax rate is higher than applicable statutory rates primarily due to the non-deductibility for tax purposes of goodwill amortization.
Net earnings for the full year were $156,697,000 in 2001 compared to $225,319,000 in 2000 as impacted by factors noted above.
Basic and diluted earnings per common share were $1.30 and $1.22, respectively, as compared to basic and diluted earnings per common share of $2.47 and $1.93 for 2000. Basic earnings per common share for the full year 2001 and 2000 includes a per share gain of $0.09 and $0.54, respectively, attributable to the repurchase of preferred stock below redemption value. Diluted earnings per common share excludes such gain. The lower per share gain in 2001 was partially offset by the lower aggregate dividends due to the lower number of preferred shares outstanding compared to 2000.
Earnings per common share were $2.21 assuming conversion of the Company’s outstanding preferred stock and excluding goodwill amortization, the impact of the Restructuring and other charges and the provision for the guarantee of debt discussed above.
Commenting on the Company’s outlook, Mr. Hickey stated, “While it may be too early to know with certainty how quickly general economic conditions will improve, we remain confident in the strength and fundamentals of our business. Assuming gradually improving business conditions through the end of 2002 and anticipated cost savings from our restructuring activities, for the full year 2002 the Company should achieve an increase in earnings per share of at least 15% over the $1.68 presented in today’s release, computed on a comparable basis.”
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