sealed air corporation annual report 1999

S E A L E D A I R C O R P O R A T I O N

A N N U A L R E P O R T 1 9 9 9

®

T H R E E D E C A D E S O F G R O W T H

Brought to you by Global Reports

Sealed Air Corporation is aleading global manufactur-

er of a wide range of protective,food and specialty packagingmaterials and systems.

Our principal food and specialtypackaging materials and systemsinclude a wide range of high per-formance materials includingshrink film products, non-shrinklaminate products and specialtypackaging systems marketed pri-marily under the Cryovac® trade-mark for a broad range of perish-able foods. These products alsoinclude Sealed Air’s Dri-Loc®absorbent pads used for the retailpackaging of meat, fish and poul-try, foam trays for supermarketsand other food processors, andrigid plastic containers for dairyand other food products.

Our principal protective packag-ing products are Bubble Wrap®and AirCap® air cellular cush-ioning materials, Fill Air™ andRapid Fill® inflatable packag-ing, Instapak® polyurethanefoam packaging systems, extrud-ed and laminated plank polyeth-ylene foams sold under theStratocell® and other trade-marks, Korrvu® suspension andretention packaging, Vistaflex®inflatable packaging, Cell-Aire®polyethylene foam, a wide rangeof protective and durable mailersand bags sold under a variety oftradenames including the widelyrecognized Jiffy™ trademark,shrink and non-shrink films,and certain paper-based protec-tive packaging materials andpackaging systems.

The paper used to print the front sec-tion of this report contains 10% post-consumer recycled fiber. The paperused to print the financial section ofthis report was manufactured by theCompany’s Reading, PA paper mill andcontains 100% recovered fiber.

® Registered in the United StatesPatent and Trademark Office and invarious other countries.

© Sealed Air Corporation 2000. Allrights reserved.

Table of Contents

Letter to Stockholders ..................................................................1

Three Decades of Growth ............................................................5

Selected Financial Data ..............................................................17

Management’s Discussion and Analysis ......................................17

Consolidated Financial Statements .............................................26

Notes to Consolidated Financial Statements...............................31

Auditors’ Reports ..................................................................56-57

Directors and Officers ................................................................58

Corporate Directory ...................................................................59

Safety and Environment .............................................................59

Code of Conduct........................................................................59

Stockholder Information ............................................................60

Capital Stock Information..........................................................60

1999


1999was ayear of accomplishment andsignificant progress for SealedAir. Our net sales, operatingprofit, net earnings and cashflow once again achieved newrecords.

Dear Fellow Stockholders:

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1999 Accomplishments

et sales increased 4%to $2,839,636,000from pro forma net

sales of $2,719,508,000 for1998. All of our major productlines and all major geographicareas around the world con-tributed to this growth.

Excluding the negative effect offoreign currency translation, netsales would have increased 6%from 1998’s pro forma net sales.

In addition, while 1998 was ayear of transition, in 1999 weoperated as one company fol-lowing the completion of theintegration of Sealed Air and theCryovac packaging business,with a single, entrepreneurial,performance-oriented culture.Our key earnings statementparameters improved in linewith our expectations andreflect a trend toward returningto Sealed Air’s historical levels,even in the face of higher pricesfor some of our raw materials.

Gross profit increased to$1,028,722,000 or 36.2% of netsales, operating profit increasedto $452,192,000 or 15.9% ofnet sales, and net earningsincreased to $211,461,000 or7.4% of net sales.

Our World Class Manufacturingprogram contributed significant-ly to a $30 million reduction ininventory levels during the year,reflecting firm management con-trol. Even excluding the effect offoreign currency, inventory levelsdeclined relative to net sales.

The Company’s cash flow asmeasured by EBITDA increasedto $677 million or 23.8% of netsales. During 1999 we reducedour outstanding debt by $257million and repurchased approxi-mately $42 million of our out-standing shares of common andpreferred stock, bringing thetotal debt reduction to $501 mil-lion and stock repurchases to$67 million since the Cryovacmerger was completed at the endof March 1998. At the sametime, we continued to make cap-ital investments to expand ourbusiness and made several smallacquisitions around the world.

We began to manufacture vari-ous of our protective packagingproducts in additional countries,including Argentina, Brazil,Venezuela, Portugal, the CzechRepublic, Greece, Israel andSouth Africa, continuing ourexpansion into new geographicareas and taking advantage of the

presence of the Cryovac infra-structure in several of thesecountries.

We introduced Vistaflex® inflat-able packaging, our first commer-cial product developed using thecombined technical and marketingtalent of our food and protectivepackaging businesses. This innova-tive engineered product is designedas an alternative to pre-moldedshapes and die cuts in high-volumeapplications. It offers efficiency andspace-saving benefits of beinginflated on-site, on demand at thecustomer’s operation.

We successfully implemented theCompany’s enterprise resourceplanning (ERP) software systemin our protective packaging man-ufacturing facilities in Canada.These implementations join ouralready functioning ERP systemsin Australasia and Latin America.We also laid the foundation forimplementing our global ERPsystem in North America andEurope beginning in 2000.

Finally, we successfully removedrestrictive corporate charter provi-sions, inherited as part of theCryovac merger, that limitedstockholder rights. This importantresult reaffirms our commitment

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to stockholder democracy and thetrust that exists between our stock-holders and our Company.

Three Decades of Growth

Sealed Air now has annual netrevenues of over $2.8 billion andis a leader in protective, food andspecialty packaging with over100 manufacturing facilities in46 countries.

Sealed Air has been committedto a clear set of strategic princi-ples since the early 1970’s. Wehave often quoted these princi-ples, and we intend to continuefollowing them in the future.They include:

• Producing differentiated, pro-prietary products that provide measurable economic benefits to our customers.

• Seeking market leadership in order to maximize profitability.

• Fostering technological leader-ship because it is the only long-term guarantee of market lead-ership.

• Developing global operations to compete effectively in the worldwide marketplace.

• Emphasizing products that provide high margins.

• Promoting efficiency in the useof capital.

• Encouraging low labor intensity.

We have grown over the lastthree decades by concentratingour activities in four areas:

• Developing innovative new products both through internalR&D and acquisitions.

• Geographic expansion.

• Building on core competencies.

• Expanding into new areas of specialty packaging.

This Annual Report reviews ourgrowth over the last threedecades and discusses our accom-plishments in these four areas. Italso discusses our outlook forusing activities in these areas toaccomplish our growth objectivesas we focus on meeting cus-tomer and marketplace needs.

Looking Ahead at 2000

We expect 2000 to be anothersuccessful year for Sealed Airwith continued growth in netsales and earnings. We continueto see many opportunities todevelop and introduce new prod-ucts, to expand geographicallyand to make additional acquisi-

tions that are consistent with ourstrategic objectives and thatshould broaden our ability tomeet the needs of our customersaround the world.

We are grateful to our more than15,000 employees around theworld for their dedication andhard work during the past yearand to our stockholders for theircontinued interest and support.

T. J. Dermot DunphyChairman of the Board andChief Executive Officer

William V. HickeyPresident and Chief Operating Officer

February 29, 2000

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s previously announced,I will retire as Chief

Executive Officer of SealedAir at the end of today. BillHickey, who has beenPresident of Sealed Air since1996, assumes the additionalrole of Chief ExecutiveOfficer on March 1, 2000.This completes a long-planned, gradual manage-ment transition.

I will remain non-executiveChairman of Sealed Air’sBoard of Directors and a sig-nificant individual stockhold-er. I am looking forward tothis new role and the contri-butions I can make to ourCompany in that role.

Bill Hickey and I have workedtogether for almost twentyyears, and I have full confi-dence that Sealed Air willcontinue to flourish under hisleadership. Bill has been amajor force behind some ofthe most important mile-stones and key growth initia-tives in Sealed Air’s history.

The future success of SealedAir will be assured by a newleader who will introduce newthinking and focus whilesimultaneously cultivatingand enhancing the Company’score strengths.

In the past three decades, SealedAir has grown from a smallcompany with $5 million in

at the interface with cus-tomers and suppliers. BillHickey is totally comfortablein a digital world.

Innovation in the way SealedAir does business is critical toour company’s future success.The new products in thepipeline give me enthusiasm.New products and the tech-nology that makes them pos-sible are the keys to top linegrowth. Bill Hickey bringsan understanding and love oftechnology that will energizethis area of the business.

Bill’s leadership is supportedby many experienced andtalented individuals whoclearly understand thefocused, articulated prioritieswithin the organization.

Thousands of employees shareour common vision of creat-ing a company of great ideas,people and products. Add tothis Bill Hickey’s intimateknowledge of our total busi-ness, leadership in technology,unlimited energy and SealedAir’s successful culture andyou get a company that willgreatly maximize the value ofyour stock– and mine.

T. J. Dermot Dunphy

February 29, 2000

revenue and a small operatingloss into a highly profitableglobal producer of protective,food and specialty packaging.

The organizational strengthsthat make this performancepossible are well known tomany of our stockholders: aculture based on trust thatstarts with our stockholdersand penetrates our company;an urge to differentiate andinnovate both in productsand in how we do business;and a belief that we are andwill be the best packagingcompany in the world.

This culture fosters an entre-preneurial spirit that is cou-pled with an expectation ofsuccess but tempered by ahumility that keeps us strivingto improve. When I look atSealed Air’s track record fordelivering on its plans to real-ize its growth objectives, Iagree with Winston Churchillthat “the farther backward Ilook, the farther forward Ican see.”

The growing significance ofcase-ready in food packagingand Internet packaging needsin the protective side of ourbusiness give me confidencethat the trend is favorable.The electronic communica-tions revolution is openingup possibilities of new andbetter ways to operate thebusiness both internally and

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THREEDECADES

OFGROWTH

ealed Air has a long recordof profitable growth. Thenext five pages briefly

review our history, including ourpredecessor old Sealed Air, overthe past three decades to highlightthe activities that have driven ourgrowth and that form the basicbuilding blocks on which weintend to construct our future.

We believe that looking at ourpast enables us to evaluate theaccomplishments that will helpguide our strategy in the future.We believe that our future will beone of growth, strong financialperformance and value deliveredto our customers and stockhold-ers through the application of ourstrategic principles.

The Early Years

Sealed Air was founded in 1960by Al Fielding and MarcChavannes, the inventors of ourBubble Wrap® air cellular cush-ioning material.

Sealed Air’s early years werechallenging as the Companyworked to develop market appli-cations for its new product. Bythe end of 1970, Bubble Wrap®cushioning had been recognizedas an innovative, differentiatedprotective packaging material,and its net sales had grown to$5 million.

The 1970’s

The Company recognized earlythe need to broaden its range ofproducts to meet its customers’needs. Thus, the Company com-

mitted itself to develop new prod-ucts through internal research anddevelopment. This led to theintroduction of Mail Lite® mail-ers lined with Bubble Wrap®cushioning as well as to the intro-duction of adhesive and cohesivefilms used for surface protection.

Our success in introducing theseproducts established Sealed Airas a leader in protective packag-ing with a commitment to tech-nical innovation and with corecompetencies in film laminationand coating.

Sealed Air’s Mail Lite® mailershelped us to capitalize on theearly growth of what hasbecome the small parcel ship-ment industry.

The Company also committeditself to geographic expansionand introduced its BubbleWrap® cushioning and protec-tive mailer products in Canada,the United Kingdom and otherWestern European countries.

The Company also committeditself to growing through a selec-tive acquisition program that was

designed to help the Companyimplement its strategic princi-ples. In 1976, Sealed Airacquired Instapak Corporation,which gave us our first engi-neered protective packagingproduct line and broadened therange of applications for ourproducts. The Instapak® prod-uct line was quickly introducedin Europe and Japan and fueledrapid growth. Instapak extendedour core competencies to includechemical formulation, packagingsystems and package design.

We also began to produce poly-ethylene foam in Europe and touse extrusion equipment to pro-duce our air cellular materials.

By the end of 1980, Sealed Air’snet sales had grown to $89 mil-lion, operating profit had grownto $13 million, and EBITDAhad grown to $17 million. TheCompany had operations in sixcountries.

The 1980’s

During the 1980’s, Sealed Aircontinued to broaden its rangeof products to meet its cus-tomers’ needs. The Companyalso continued to enjoy the ben-efits of growth from new prod-ucts, international expansion,new technologies, entry intonew areas of specialty packagingand through acquisitions.

PolyCap® non-barrier cushion-ing material was added to our aircellular product line to addresscustomer needs for economicalprotection of products that are

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lightweight, have relatively shortshipping cycles and do notrequire long-term storage.

Through internal developmentand a number of acquisitions,we added thin polyethylenefoams to our packaging prod-ucts in the United States, andwe expanded our protectivemailer product line with theacquisition of Jiffy PackagingCorporation in 1987.

Continuing its emphasis ontechnological innovation, theCompany developed a cost-effective means of producing

its a ir ce l lular mater ia l sthrough coextrusion.

We developed a new family ofInstapak® foam-in-place dis-pensing systems to improve con-sistency of application, ease ofuse and reliability of the sys-tems. Using our Instapak experi-ence, we implemented a systemsapproach to promoting ourother cushioning and surfaceprotection products.

We also developed an expandedrange of Instapak® foam formu-lations to offer different foamdensities and cell structures. These

created performance capabilitieswhich expanded the range ofapplications of Instapak® foam.

We continued to develop ourpackage design capabilities as weadded packaging labs in theUnited States and Europe.

The 1983 acquisition of ourDri-Loc® absorbent pad prod-uct line extended Sealed Air’spresence into food packagingfor the first time.

The Company also continued toemphasize geographic expansionas it extended its presence into

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The accompanying charts illustrate the growth of Sealed Air’s net sales, operating profit and cash flow as measured by EBITDA since1970 and are drawn from old Sealed Air’s financial statements prior to 1998 and Sealed Air’s financial statements since 1998.Restructuring and other unusual charges, net of $87.2 million incurred in 1998 are excluded for the purposes of this presentation. The5-year history of Sealed Air can be seen on page 17 of this report. The pro forma results of Sealed Air for 1998 and 1997 can be seen inFootnote 19 on page 54 of this report.

'70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98

3,000

2,500

1,000

500

(Millions of Dollars)

NET SALES

1970 – 1997 – Actual results of old Sealed Air prior to the merger. 1998 – 1999 – Actual results of Sealed Air since the merger.


additional European countries,including Holland, Spain, Italyand Sweden. We also expandedinto additional Asia/Pacificcountries, including HongKong, Malaysia, Singapore andTaiwan.

By the end of 1990, Sealed Air’snet sales had grown to $413million, operating profit hadgrown to $67 million, andEBIDTA had grown to $86 mil-lion. We had operations in 15countries.

In addition, we realized signifi-cant improvements in cashflow, return on capital and cus-tomer responsiveness as a resultof our implementation ofWorld Class Manufacturingthroughout our organization.

Our leveraged recapitalizationin 1989 sharpened our focus onmeeting the needs of our cus-tomers, cash flow and balancesheet management.

The Early 1990’s

During the early and mid-1990’s, Sealed Air, while payingoff its debt from the 1989recapitalization, continued tointroduce new protective pack-aging products such as Fill Air™

and Rapid Fill® inflatables forvoid fill applications andKorrvu® suspension and reten-tion packaging.

We also continued to broadenour range of Instapak® dispens-ing equipment by introducing

our Instapacker™ and Speedy-Packer™ high-speed foam-in-bag dispensing systems. OurVersaPacker™ bench-top foam-in-bag systems provided flexibil-ity for lower volume, multi-sta-tion or decentralized work cellpacking operations.

We added engineered polyethyl-ene foams to our product linefollowing the Sentinel acquisi-tion in 1991.

Continuing our emphasis ongeographic expansion, we beganto produce or sell various of ourprotective packaging products inNorway, Finland, the CzechRepublic and Poland in Europe,in Brazil and Mexico in LatinAmerica, and in China, India,Korea and Thailand in Asia.

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'70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98

150

100

50


OPERATING PROFIT


350

400

450

500


'70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98

200

100


EBITDA


See Note 7 in the Selected Financial Data.

800

700

600

500

With our acquisition of TrigonPackaging in 1995, we signifi-cantly expanded our food andspecialty packaging businesswith a variety of films and sys-tems for packaging perishablefoods. That acquisition alsostrengthened our core technolo-gies of multi-layer film extru-sion and printing.

Trigon also added securityenvelopes to our protectivepackaging product line and, atthe same time, expanded ourpresence in Asia and Europe.

Trigon, which was headquar-tered in New Zealand, providedus with a base to expand our

business in the South Pacific. In1996, we purchased the protec-tive packaging business of ourAustralian licensee, furtherexpanding our protective pack-aging business in Australia andNew Zealand.

Approaching 2000

At the end of 1997, just beforethe Cryovac merger, theCompany was generating $843million in net sales and $138million of operating profit, andit had EBITDA of $186 million.Sealed Air operated in 26 coun-tries and offered a broad range ofprotective and specialty packag-ing materials and systems.

With the Cryovac merger, wegained world class technicalcapability in film coextrusion,food science and printing toaugment our strength in pack-aging systems, chemical formu-lations and package design.Cryovac also brought to SealedAir a worldwide leadership posi-tion in food and specialty pack-aging products and operations inalmost 20 additional countries.

During 1999, our Cryovac busi-ness began commercial rollout ofour peelable lidding films and bar-rier foam trays for low oxygen caseready packaging of ground beef.This product facilitates nationaldistribution for the first time of

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retail ground beef packages fromcentralized processing locations.

We also began the commercialrollout of a poultry package thatis virtually leak proof and rapidlybecoming the industry standard.

In addition to our Vistaflex®engineered inflatable packaging,we introduced Instapak Quick™,which is designed for small vol-ume foam-in-place applications.

Since the merger, Sealed Air hasexpanded its protective packag-ing manufacturing presence into9 additional countries bothdirectly and through severalsmall acquisitions and strategicalliances. While none of these aresignificant in terms of Company-wide net sales today, each ofthem should help us to growgoing forward.

In 1999, Sealed Air generated$2.84 billion in net sales, $452 mil-lion in operating profit, and EBIT-DA of $677 million. We currentlyhave operations in 46 countries.

Looking Forward to 2000 and Beyond

Looking forward, we see ampleopportunity to continue to growby concentrating in the samefour areas we have in the past:

• Developing innovative new products through internal development and acquisitions.

• Geographic expansion.

• Building on core competencies.

• Expanding into new areas of specialty packaging.

We have as one of our goalsresuming double-digit net salesgrowth, not necessarily at thesame rate every year, but overtime, consistent with our recordover the last three decades. Atthe same time, we will seek tomaintain the financial character-istics of our business model,which include:

• Products developed, sold and priced based on their value to our customers.

• Gross and operating profit margins that are consistent

with those that Sealed Air has achieved historically.

• Returns on incremental capital invested that are significantly in excess of the cost of capital.

• Cash flow that will support our growth from internally generated funds.

The remainder of this AnnualReport discusses examples offuture growth opportunities.These are in addition to continu-ing to build our existing busi-nesses in North America andEurope.

The examples discussed repre-sent only a sample of thosewithin our reach. Our focus ison daily achievements designedto help us reach our growthgoals consistently over time.We do not expect the success ofone product or project to dic-tate whether or not we willreach our goals. We do expectthe consistent focus on thesesources of growth to promoteour success.

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igh abuse packagingoffers good growthpotential for Sealed Air.

Our Cryovac Division originallydeveloped its high abuse packag-ing technology to package prod-ucts for which strength and punc-ture resistance are important.

Our first high abuse packagingproduct was our TBG™ line ofshrink bags used to package meatthat contains a bone. Our originalTBG™ products were used topackage large meat items for ship-ment from food processors toretailers. We have broadened thisproduct line to include productsfor a variety of applications.

For example, our Rotated-PatchTBG™ bags provide protection

only on the sides of a meat pack-age that contains a bone, elimi-nating the excess cost of com-plete wrapping.

Our Max-Patch TBG™ productis used to package food for retaildisplay. Besides extending thefreshness of meat through its dis-tribution cycle, this clear, tightpackage offers the consumer theability to see the contents of the

package as well as leak-proofpackaging.

We are also extending high abusepackaging to new applicationsthat offer the opportunity toreplace heavy gauge paper andcorrugated materials and improvethe efficiency of our customers’operations.

These opportunities includefood applications such as pack-aging frozen foods for transportbetween processing facilities andpet food packaging. They alsoinclude non-food applicationssuch as automotive after-marketparts, printed materials andother consumer goods for whichstrength and puncture resistanceare important.

HIGH ABUSE

PACKAGING

H

Our high abuse technology was initially applied to fresh meat applications.High abuse patch material is an integralpart of our TBG™ shrink bag. It protectsthe package from puncture for meat products that contain a bone.

Our high abuse technology is being extendedoutside of our traditional food packaging toinclude items such as pet foods that have hard,sharp surfaces.

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CASEREADY

PACKAGING

s a leading supplier ofcase ready materialsand systems, Sealed Air

expects to realize significantgrowth as the fresh meat indus-try adopts case ready packaging.

Case ready packaging enables foodprocessors to prepare and packagefresh meat in a retail package at theprocessor’s plant. Case ready pack-aging aids in preserving the fresh-ness and cleanliness of the productfrom the time it is processed untilit is purchased by a consumer. Italso provides a package that isattractive to the consumer.

We offer a variety of case readypackaging formats, the newest ofwhich are our lidding film andtray combinations. Our barrierfoam trays, with the traditionallook of in-store consumer pack-ages, and our clear and glossy lid-ding films, which provide a clean,tight appearance to the wrapped

Our tray and film combinationscan be used for a wide variety ofproducts such as chops, steaks,sausages and ground beef, porkand poultry. Our Darfresh®vacuum skin packaging is usedfor case ready packaging ofitems such as pork chops, steaksand poultry.

In 1999, we began the commer-cial rollout of our peelable liddingfilms for case ready packaging ofground beef. These packages occu-py less space reducing the cost oftransporting the product. Thisenables, for the first time, retailground beef packages to beshipped long distances from cen-tralized processing locations tolocal retail outlets.

This technology, along with ourother case ready technologies,gives processors and retailers manyoptions for meeting the needs oftoday’s customers.

package, are combined to packagea variety of meats. With their bar-rier properties, both the tray andthe film retard oxygen from enter-ing the package. This helps toextend product shelf-life andfreshness. They can be combinedwith our Dri-Loc® absorbentpads, which soak up excess juicesin the package.

Although case ready packaging hasbeen used to package fresh poultryfor a number of years, case readypackaging of fresh beef, pork andother meats is still in its infancy.

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1 2 3

1. Meat processors package ground beef in our barrier foamtray and peelable lidding film and pack it in cases for ship-ment to grocery retailers.

2. When the retailer is ready to restock the meat case, thebarrier layer is removed from the package.

3. Within 30 minutes of removing the barrier layer, theground beef blooms to the bright red color that is so appeal-ing to customers.

Case ready products enable the retailer to maintain fresh,attractive fully stocked meat cases, helping ensure consumersatisfaction and improved profits.

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rigid containers. The net effect issignificant shipping and storagesavings and much less solid wasteto dispose of after the packagehas been emptied.

Food safety is improved since theflexible packages can be reheatedwithout removing the productfrom the package. This simplifiesrestaurant operations, and work-er safety is improved since thepackages do not have the sharpedges and metal filings that canbe found with metal cans.

Food quality can also beimproved, and our systems offercost benefits in terms of lowerequipment costs, lower spacerequirements, lower shippingcosts and higher yield from eachpackage.

ur fluid food packagingsystems and materialsoffer another major

opportunity for growth.

We offer a range of packagingsystems to package foods for usein restaurants, central kitchensand commissary systems.

The flexibility of our systemsenables food service providers tomeet a broad range of applica-tions. Our systems currentlypackage items such as soups,pizza sauce, taco meat, pickles,juices, condiments, mashed pota-toes, dressings, eggs and toppings.

We offer a range of packagingequipment that produces packagesranging from 6 ounces to 2 gal-lons. This range of flexibility allows

us to offer alternatives to plasticjars, table-top cartons and theNumber 10 can, which is the stan-dard container for many applica-tions in the restaurant industry.

These systems offer benefits forboth the processor and the cus-tomer. Our Cryovac® films andpackages require significantly lessspace throughout the distribu-tion and storage process than

FLUID FOOD

PACKAGING

O

Our flexible packaging sys-tems for fluid foods offer analternative to rigid packagessuch as cans and bottles.They are used to package analmost unlimited variety offood items.

Coupled with our fitment and dispenser systems, our fluid packagingcreates a clean, easy to useand maintain system fordispensing condiments.

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-commerce offers a breadthof opportunities for SealedAir. From net sales growth

from selling more of our currentproducts to more effective pur-chasing and better integration withour customers, we will seek to usethe Internet to its fullest potential.

Our products are ideally suited tosupport the needs of our existingcustomers as they shift from palletto parcel shipments as well as theneeds of new dot.com companiesas they establish fulfillment opera-tions. Our products help e-tailersand other e-commerce vendorsmake sure their products get totheir customers undamaged andlooking great every time. Sealed

Air has the products they needwhether they use inflatables orfoam for void fill, protective ordurable mailers for unitizing, aircellular products for cushioning, orKorrvu® suspension and retentionproducts or performance shrinkfilms for enhanced presentation.

Our process approach to packag-ing ensures that our products areefficient and easy to use. Our com-plete systems bring consistencyand reliability to the packagingprocess and can be integrated intothe high-volume fulfillment opera-tions that support Internet busi-nesses today.

With our extensive sales and tech-nical support presence in the field,we can respond quickly to cus-tomers’ needs in an environmentthat demands speed of decisionmaking, problem solving andimplementation of new packagingformats, and a mentality thatdemands service 24 hours a day, 7days a week.

E-commerceE

Bubble Wrap® Cushioning

Fill Air™

Instapak® Foam

Cryovac® Shrink FilmsMailers

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Inflatables


n 1999, we broadened thecommercial rollout of ourimproved Vistaflex® engi-

neered inflatable packaging. Thisinnovative new concept leveragesour polymer science, film extrusionand package design competenciesto deliver tough, high seal strengthmaterials developed through thecombined efforts of our food andprotective packaging technicalgroups. We believe Vistaflex®inflatables offer significant growthpotential for Sealed Air.

This new product offers value forour customers in many ways includ-ing material cost savings, reduced

material handling costs, reducedwarehouse space, and increasedlabor productivity. Vistaflex® pack-aging also provides superior productprotection and creates a visuallyappealing package for end users.Vistaflex® cushions are easy tounpack, reuse and recycle.

Vistaflex® packaging is designedand tested in our packaging labs byexperienced package designers. Itcan be customized for individualcustomer applications.

ENGINEEREDINFLATABLEPACKAGING

I

The packer loads multiplecushions onto theVistaflex® automatedinflation system.

The microprocessor con-trolled inflation systemautomatically inflates, sealsand tests each cushion.

Cushions are inflated ondemand and provide theultimate “just-in-time”packaging product.

Products are easily slippedinto the protective cushion forconsistent protection through-out the shipping cycle.

One pallet ofVistaflex® cushionscan replace an entiretruckload of conven-tional packagingmaterial (like moldedpulp or expanded polystyrene) providingexcellent materialhandling and storagesavings for our customers.

Vistaflex® packaging cushions are shipped un-inflated for spacesavings and are automatically inflated using the Vistaflex® pack-aging inflation system.

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atin America offers SealedAir an important opportu-nity for growth.

The region currently accountsfor approximately 7% of our netsales. Although Cryovac has pro-duced and sold food packagingand performance shrink films inLatin America for many years,the penetration of the advancedtypes of protective, specialty andfood packaging that Sealed Airoffers is still very low.

As the food industry in LatinAmerica adopts more advancedprocessing and packaging meth-ods, we expect to be able to

quickly bring new forms of foodpackaging such as case ready andfluid packaging into the LatinAmerican marketplace.

Sealed Air’s protective packagingbusiness first entered Latin

America in the early 1990’s.Since March 1998, we havebegun to produce several of ourprotective packaging products ina number of South Americancountries, including Argentina,Brazil, Chile and Venezuela. Wenow produce our BubbleWrap® air cellular cushioning,polyethylene foam and protec-tive mailers in South America.We intend to continue to buildour protective packaging busi-ness in Latin America, and weexpect the evolution of packag-ing in Latin America to pro-mote the growth of our protec-tive packaging products in thatgeographic region.

LATINAMERICA

L

Latin America has been an importantregion for Sealed Air for many years. We have developed packaging productsunique to the region and also have a history of introducing products developedin North America and Europe to spurgrowth in Latin America.

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m e also believe thatthe Asia/Pacificregion offers signifi-

cant opportunities for growth.

This region currently accounts forapproximately 10% of our netsales. We have manufactured orsold our food and protectivepackaging products in Japan andAustralasia for a number of years.These countries have usedadvanced packaging methods toprocess and package food andindustrial and consumer goodsfor some time.

Many of the developing countriesof Asia have not yet adoptedadvanced methods of packaging.We are increasing our presence inthese countries in all of our majorproduct lines to position ourselvesfor growth as changing tastes cre-

ate demand for the higher valuegoods that will require the perfor-mance packaging provided bySealed Air.

During the last year, for example,our net sales of food packagingproducts in China grew signifi-cantly from a relatively small basedue to our manufacturing capa-bility in China and our consistentquality and product performance.

ASIAPACIFIC

W

Home to over half of the world’s population,the Asia Pacific region offers significant growthopportunity as changing tastes create demandfor Sealed Air’s performance packaging. Withour substantial presence in the region, we arewell positioned to benefit.

16

During 1999, we also began toproduce protective mailers inChina, and we expect our protec-tive packaging business to con-tribute to our growth in thisimportant country.

We also introduced our Korrvu®product line in Singapore in1999, extending that business forthe first time outside of NorthAmerica and Europe.

We now have experienced sales,marketing and technical employeesas well as manufacturing capacity inmany of the important Asia/Pacificcountries. We expect to continue tobuild our business in this importantregion, and we expect theAsia/Pacific region to contribute sig-nificantly to Sealed Air’s growth andto become a greater portion of ourbusiness in the future.


Selected Financial Data(1)

(In thousands of dollars, except per share data)1999 1998 1997 1996 1995

Consolidated Statement of Earnings Data: Net sales $2,839,636 $2,506,756 $1,833,111 $1,741,602 $1,705,642Gross profit 1,028,722 868,736 646,002 590,596 627,542Operating profit (2) 452,192 259,332 267,744 173,500 248,062Earnings before income taxes 395,653 198,947 263,672 169,822 235,473Net earnings (2) 211,461 73,007 173,732 99,830 140,892Series A convertible preferred stock

dividends (3) 71,422 53,921

Earnings per common share (4)

Basic $ 1.69 $ 0.04 $ 2.54 $ 0.56 $ 1.33Diluted $ 1.68 $ 0.02 $ 2.39 $ 0.55 $ 1.30

Consolidated Balance Sheet Data:Working capital $ 221,130 $ 309,624 $ 343,741 $ 277,583 $ 289,605Total assets 3,855,233 4,039,930 1,646,831 1,702,888 1,477,360Long-term debt, less current installments 665,116 996,526 — — —Series A convertible preferred stock (3) 1,761,662 1,791,093 — — —Total shareholders’ equity (5) 551,030 437,045 1,352,628 1,381,790 1,173,962

Other Data:EBIT (6) $ 453,779 $ 252,576 $ 263,672 $ 169,822 $ 235,473Depreciation and amortization 223,399 195,954 111,080 94,380 80,357EBITDA (7) 677,178 448,530 374,752 264,202 315,830Capital expenditures 75,080 82,408 101,997 294,503 293,272

(1) The Selected Financial Data include the operations of the Cryovac packaging business for all periods presented. The operating results, cash flows, assets and liabilities of oldSealed Air are included for all periods subsequent to March 31, 1998. See Note 1 to the Consolidated Financial Statements.

(2) Operating profit is presented after giving effect to restructuring and asset impairment charges of $110,792, $14,444, $74,947 and $17,745 in 1998, 1997, 1996 and 1995,respectively. The 1998 restructuring and asset impairment charges were partially offset by a special credit of $23,610 related to the Company’s curtailment of a postretire-ment benefit plan. Net earnings in 1998 are presented after giving effect to a special income tax charge of $26,000. See Consolidated Statements of Earnings and Notes 8,9 and 11 to the Consolidated Financial Statements.

(3) The Series A convertible preferred stock pays a cash dividend at an annual rate of $2.00 per share, payable quarterly in arrears, and is subject to mandatory redemption onMarch 31, 2018 at $50 per share, plus any accrued and unpaid dividends. Dividends of $0.50 per share were declared for each of the four quarters of 1999 and the last threequarters of 1998 following the issuance of the shares in the transactions associated with the Merger.

(4) Prior to March 31, 1998, the Company did not have a separately identifiable capital structure upon which a calculation of earnings per common share could be based. Incalculating basic and diluted earnings per common share for periods prior to the Merger, retroactive recognition has been given to the transactions associated with the Merger.See Note 16 to the Consolidated Financial Statements.

(5) Since, prior to the Merger, the Company did not have a separately identifiable capital structure, shareholders’ equity for 1995 through 1997 represents the net assets ofCryovac.

(6) EBIT is defined as earnings before interest expense and provisions for income taxes.

(7) EBITDA is defined as EBIT plus depreciation, goodwill amortization and amortization of other intangible assets. EBITDA is a frequently used measure of a company’s abil-ity to generate cash to service its obligations, including debt service obligations, and to finance capital and other expenditures. EBITDA does not purport to represent netincome or net cash provided by operating activities, as those terms are defined under generally accepted accounting principles, and should not be considered as an alterna-tive to such measurements or as an indicator of the Company’s performance.

On March 31, 1998, the Company (formerly known as W. R. Grace & Co.)and the former Sealed Air Corporation(“old Sealed Air”) completed a series oftransactions as a result of which:

(a) The specialty chemicals business ofthe Company was separated from itspackaging business, after which thepackaging business (“Cryovac”) washeld by one group of wholly owned

subsidiaries, and the specialty chemi-cals business was held by anothergroup of wholly owned subsidiaries(“New Grace”); the Company andCryovac borrowed approximately$1.26 billion under two revolvingcredit agreements (the “Credit Agree-ments”) (which, as amended, are dis-cussed below) and transferredsubstantially all of those funds to NewGrace; and the Company distributed

all of the outstanding shares of com-mon stock of New Grace to its share-holders. As a result, New Gracebecame a separate publicly owned cor-poration that is unrelated to the Com-pany. These transactions are referred tobelow as the “Reorganization.”

(b) The Company recapitalized itsoutstanding shares of common stock,par value $0.01 per share, into a new

Management’s Discussion and Analysis of Results of Operations and Financial Condition


common stock and Series A convert-ible preferred stock (the “Series A Pre-ferred Stock”), each with a par value of$0.10 per share (the “Recapitalization”).

(c) A subsidiary of the Companymerged into old Sealed Air (the“Merger”), with old Sealed Air beingthe surviving corporation. As a result ofthe Merger, old Sealed Air became asubsidiary of the Company. The Company was renamed Sealed AirCorporation.

References to “Grace” in this Manage-ment’s Discussion and Analysis refer to theCompany before the Reorganization, theRecapitalization and the Merger.

The Merger was accounted for as a pur-chase of old Sealed Air by the Company asof March 31, 1998. Accordingly, thefinancial statements include the operatingresults and cash flows as well as the assetsand liabilities of Cryovac for all periodspresented. The operating results, cashflows, assets and liabilities of old Sealed Air are included from March 31, 1998.For periods prior to the Merger, the finan-cial statements exclude all of the assets, liabilities (including contingent liabilities),revenues and expenses of Grace other thanthe assets, liabilities, revenues and expensesof Cryovac.

In order to facilitate a review of the factors that affected the Company’s 1999operating results, the Company hasincluded selected unaudited pro formafinancial information in Note 19 to theConsolidated Financial Statements. Refer-ences to this information are includedbelow in the discussion of results of opera-tions to assist in understanding the factorsother than the Merger and its relatedtransactions that affected the Company’soperating results in the periods covered bythe Company’s Management’s Discussionand Analysis.

Results of Operations

Discussion and Analysis of ReportedOperating Results

The Company’s net sales increased 13% in1999 compared with 1998 and 37% in1998 compared with 1997.

Most of the increase in net sales in 1999and 1998 on a consolidated and geo-graphic basis as well as most of the increasein cost of sales, marketing, administrativeand development expenses and the sub-stantial increase in goodwill amortizationwere primarily due to the inclusion of theprotective packaging business of old SealedAir in the entire 1999 period and in thelast three quarters of 1998, and adjust-ments arising from the Merger, the Reor-ganization and the Recapitalization.

Net sales of the Company’s food and spe-cialty packaging segment constituted 62%of net sales in 1999, 67% in 1998 and87% in 1997. The balance of the net saleswere of products in the Company’s protec-tive packaging segment. The decline in theproportion of the Company’s net sales inthe food and specialty packaging segmentwas primarily due to the added sales of oldSealed Air’s protective packaging productsafter the Merger.

Net sales of food and specialty packagingproducts increased 5% in 1999 and 6% in1998. The increase in both periods wasdue to higher unit volume and the inclu-sion of old Sealed Air’s absorbent andother food packaging products in this seg-ment after the Merger, partially offset bythe negative effect of foreign currencytranslation. The increase in net sales in1998 was also partially offset by certainlower average selling prices in certainproduct lines and changes in product mix.Among the major classes of products inthis segment, net sales of flexible packag-ing materials and related equipment

increased 3% in 1999 and 2% in 1998.The increase in both periods was due pri-marily to higher unit volume and the addi-tion of old Sealed Air’s products, partiallyoffset by the negative effect of foreign cur-rency translation. Net sales of rigid pack-aging and absorbent products increased22% in 1999 and 71% in 1998. Theincrease in 1999 was primarily due tohigher unit volume, and net sales in bothperiods also increased substantially due tothe inclusion of old Sealed Air’s absorbentproducts in this class of products followingthe Merger.

Net sales of protective packaging productsincreased 31% in 1999 and 236% in1998. The increase in 1999 was due to theinclusion of old Sealed Air’s protectivepackaging products for the full twelvemonths of 1999 compared to only the lastnine months of 1998, increased unit vol-ume and, to a lesser extent, the added netsales of several small acquired businesses.The increase in 1998 reflected higher unitvolume but was primarily due to the addi-tional net sales of old Sealed Air’s protec-tive packaging products following theMerger.

Gross profit as a percentage of net sales was36.2% in 1999, 34.7% in 1998 and35.2% in 1997. The increase in 1999 wasdue to the higher level of net sales and costreductions arising out of improvements inthe Company’s operations partially offsetby certain higher raw material prices forcertain of the Company’s products. Thedecrease in 1998 compared to 1997 wasdue to a non-cash inventory charge of $8 million during the second quarter of 1998, resulting from the turnover of certain of the Company’s inventories pre-viously stepped up to fair value in connec-tion with the accounting for the Merger,to higher levels of depreciation arisingfrom capital expenditures made in prioryears, and to inventory and equipment


parts provisions in 1998, partially offset bycertain lower raw material costs.

Marketing, administrative and develop-ment expenses increased 8% in 1999 and34% in 1998. The 1999 and 1998increases were due primarily to the addi-tion of the operating costs of old SealedAir following the Merger and to integra-tion and information system costs. Thesubstantial majority of the Merger integra-tion costs incurred in 1998 met theaccounting and reporting requirements forrestructuring and asset impairment treat-ment. These costs are discussed below andalso in the later paragraphs discussing theCompany’s restructuring program. Inaddition, during the first quarter of 1998,Cryovac incurred $18,044,000 of corpo-rate allocations from Grace. Such alloca-tions ceased upon the Merger. Marketing,administrative and development expensesas a percentage of net sales were 18.6% in1999, 19.4% in 1998 and 19.8% in 1997. The 1999 expense level reflects con-tinued improvements in the Company’soperations.

Goodwill amortization increased in eachyear primarily due to goodwill resultingfrom the Merger.

The Company did not incur restructuringcharges in 1999. Restructuring costs andasset impairments were $110,792,000 in1998 and $14,444,000 in 1997. TheCompany’s 1998 restructuring and othercharges, net, reflect a $23,610,000 specialcredit to operations relating to the curtail-ment of certain post-retirement benefits.The 1997 Cryovac restructuring costsinclude $3,616,000 primarily related to arestructuring of Cryovac’s European oper-ations and asset impairment charges of$10,828,000 for certain long-lived assetsthat were determined to be impaired.

Operating profit increased 74% in 1999but decreased 3% in 1998. These changesreflect an increase in net sales and thechanges in costs and expenses discussedabove which included in 1998 the restruc-turing and other charges, net. Before giving effect to corporate operating

expenses, consisting primarily of goodwillamortization and restructuring and othercharges, net, operating profit of the Com-pany’s food and specialty packaging seg-ment constituted 55% and 61% ofoperating profit in 1999 and 1998, respec-tively. The balance of operating profitarose from the Company’s protectivepackaging segment. The decline in theproportion of the Company’s operatingprofit in the food and specialty packagingsegment was primarily due to the addedoperating profit of old Sealed Air’s protec-tive packaging products after the Merger.Due to the Merger, it is not practicable toprovide segmented operating profit infor-mation for 1997. Operating profit as apercentage of net sales was 15.9% in 1999,10.3% in 1998 and 14.6% in 1997.

Interest expense increased in 1999 and1998 since the indebtedness incurredunder the Credit Agreements was out-standing for the full twelve months of1999 but only for the last nine months of1998. There is no interest expensereflected in the statement of earnings for1997 since Grace generally borrowed onbehalf of Cryovac and did not allocateborrowings or their related interestexpense to Cryovac.

The changes in other income (expense),net, in each year primarily reflect theeffects of foreign exchange transactions.

The Company’s effective income tax rateswere 46.6%, 46.7% and 34.1% in 1999,1998 and 1997, respectively. The 1999effective tax rate was higher than statutoryrates due to the non-deductibility of goodwill amortization. The 1998 effectiverate noted above excludes the effects of the $87,182,000 of net restructuring and other charges and a $26,000,000 spe-cial income tax charge for the assumedrepatriation to the U.S. of the portion ofthe accumulated earnings of the Com-pany’s foreign subsidiaries that were notconsidered to be permanently invested intheir businesses. Including these items, theeffective rate for 1998 was 63.3% and washigher than statutory rates primarily dueto the charges noted above and the non-

deductibility of goodwill amortization fortax purposes. The Company expects that its effective tax rate will continue to remain higher than statutory rates for 2000 due primarily to the non-deductibility of goodwill amortization for tax purposes. The effective tax rate in1997 was lower than the 1998 effective taxrate primarily due to the significantlyhigher levels of non-deductible goodwillamortization in 1998 and changes in U.S.and foreign taxes on foreign operations.

Net earnings increased 190% to$211,461,000 in 1999 compared to$73,007,000 in 1998, primarily resultingfrom the Company’s higher operatingprofit in 1999 and the absence in 1999 of the special income tax charge incurredin 1998 as discussed above. Net earningsdecreased 58% in 1998 due primarily tothe decline in operating profit as well asthe higher levels of interest expense andincome taxes.

Basic earnings per common share were$1.69 for 1999, $0.04 for 1998 and $2.54for 1997. Diluted earnings per commonshare were $1.68 for 1999, $0.02 for 1998and $2.39 for 1997. Earnings per com-mon share were calculated in accordancewith Staff Accounting Bulletin No. 98,“Computation of Earnings Per Share”, forthe 1998 and 1997 periods, since theCompany did not have a separately identi-fiable capital structure upon which a cal-culation of earnings per common sharecould be based prior to March 31, 1998.Accordingly, net earnings were reduced forpreferred stock dividends (as if such shareshad been outstanding during each year) toarrive at earnings ascribed to commonshareholders.

Restructuring Program

Following the Merger, the Companyundertook a review of its operations inorder to develop a combined operatingplan for the integration of old SealedAir and Cryovac. As part of this plan,during the third quarter of 1998, theCompany announced and began toimplement a restructuring program and


recorded a pre-tax charge of $111,074,000to recognize the restructuring costs andrelated asset impairments.

The business operating changes made as aresult of the Company’s combined operat-ing plan include the following:

• Combining or eliminating certainsmall facilities and administrativesupport functions;

• Reorganizing sales and marketing toadd sales people in the field andincrease customer access;

• Integrating Cryovac’s industrial andconsumer films product line into theCompany’s protective packagingbusiness segment;

• Leveraging Cryovac’s infrastructurein Latin America and Asia to acceler-ate growth of the Company’s protec-tive packaging business segment;

• Eliminating layers of management;

• Centralizing Cryovac’s U.S. researchfacilities to capitalize more efficientlyon R & D strengths;

• Streamlining the Cryovac manufac-turing organization; and

• Identifying impaired and unneces-sary facilities and equipment in connection with the combined operating plan.

The portion of the 1998 restructuring and asset impairment charge applicable to the Company’s food and specialty pack-aging segment amounted to $97,064,000,and the portion applicable to the pro-tective packaging segment amounted to$14,010,000.

As part of the restructuring, the Companyeliminated approximately 750 positionsthrough December 31, 1999, or 5% of itstotal workforce. As of December 31,1999, all restructuring actions includingemployee severances and asset dispositionswere substantially completed. There

remains to be paid in future periodsapproximately $5 million of the original$43 million estimate of cash outlays. Suchremaining outlays are principally foremployee severances, lease terminationsand other exit costs.

The Company expects to realize approxi-mately $45 million in annual operatingcost savings beginning in the year 2000.The anticipated $45 million savingsinclude reductions in depreciation andamortization of approximately $8 millionper annum, which began in the fourthquarter of 1998, and reductions in cashoperating expenses of approximately $37 million per annum that relate primar-ily to payroll and related payroll tax andbenefit expenses. The reductions in cashoperating expenses began upon elimina-tion of the employee positions. The Company estimates that approximately$30 million of these cash operatingexpense reductions were realized in 1999;these reductions were modest in amountfor 1998. Of the $45 million anticipatedsavings, approximately 40% should berealized from reductions in manufacturingcosts and 60% should be realized fromreductions in other operating costs. Addi-tional information is included in Note 9 tothe Consolidated Financial Statements.

Discussion and Analysis of Pro FormaOperating Results

The following discussion compares theCompany’s 1999 reported operatingresults and the unaudited selected proforma earnings statement information for1998 and 1997 that appear in Note 19 to the Consolidated Financial Statements.The 1998 and 1997 pro forma informa-tion has been prepared as if the Reorgani-zation, the Recapitalization and theMerger had occurred on January 1, 1997and illustrates the operations of Cryovacand old Sealed Air on a combined basis in1997 and 1998. However, it is notintended to represent what the Company’sactual results of operations would havebeen in 1997 or 1998 had these trans-actions actually occurred on January 1,1997.

Net sales increased 4% in 1999 to$2,839,636,000 and increased 2% in1998 to $2,719,508,000. The increase inboth periods was due primarily to higherunit volume. In addition, average sellingprice and product mix changes had aminor negative effect on net sales in 1998.

Excluding the negative effect of foreigncurrency translation, net sales in 1999 and1998 would have increased 6% and 5%,respectively. In 1999, net sales continuedto be affected by the continued weaknessof foreign currencies compared with theU.S. dollar in Latin America and Europe.Net sales were affected in 1998 by the con-tinued weakness of foreign currenciescompared with the U.S. dollar, particu-larly in the Asia-Pacific and Latin Amer-ican regions, sluggish sales in Asia and other markets, and the spillover effectof the Asian economic crisis into othermarkets.

Net sales from North American operationsincreased 5% in 1999 compared to 1998and 4% in 1998 compared to 1997 pri-marily due to increased unit volume. In1999 and 1998, the net sales in NorthAmerica represented 57% and in 1997represented 55% of consolidated net sales,respectively. Substantially all of the NorthAmerican net sales for each year representnet sales from the United States.

Net sales from foreign operations, whichrepresented 43% of net sales in 1999 and1998, and 45% of net sales in 1997,increased 4% in 1999 and decreased 1%in 1998. The increase in 1999 was pri-marily due to higher unit volume and, toa lesser extent, the added net sales of sev-eral small acquired businesses, partially off-set by the negative effect of foreigncurrency translation. Excluding the nega-tive effect of foreign currency translation,net sales would have increased 8% in1999. The decrease in 1998 was primarilydue to the negative effect of foreign cur-rency translation. Excluding this negativeeffect, foreign net sales would haveincreased 6% primarily due to increasedunit volume. No country other than theUnited States accounts for more than 10%of the Company’s total net sales.


Net sales of the Company’s food and spe-cialty products segment increased 3% in1999 and increased marginally in 1998.The increase in 1999 was due primarily tohigher unit volume partially offset by thenegative effect of foreign currency transla-tion. Excluding the negative effect of for-eign currency translation, net sales of thissegment would have increased 6% in1999. The increase in 1998 was due pri-marily to increased unit volume partiallyoffset by the negative effect of foreign cur-rency translation, certain lower averageselling prices in certain product lines andchanges in product mix. Excluding theeffect of foreign currency translation, netsales of this segment would have increased5% in 1998.

Net sales of the Company’s protectivepackaging segment increased 7% in 1999and 3% in 1998. The increase in 1999 wasprimarily due to higher unit volume and,to a lesser extent, the added net sales ofseveral small acquired businesses partiallyoffset by the negative effect of foreign cur-rency translation. The increase in 1998was primarily due to higher unit volume,which was partially offset by the negativeeffect of foreign currency translation, andcertain lower average selling prices in cer-tain product lines. Excluding the effect offoreign currency translation, net sales inthis segment would have increased 8% in1999 and 5% in 1998.

Gross profit as a percentage of net sales was36.2% for 1999, 35.2% in 1998, and35.7% in 1997. The increase in 1999 wasdue to the higher level of net sales and costreductions arising out of improvements inthe Company’s operations, partially offsetby certain higher raw material prices forcertain of the Company’s products. Thedecrease in 1998 as compared to 1997 wasprimarily due to the higher levels of depre-ciation arising from capital expendituresmade in prior years and to inventory andequipment parts provisions in 1998, par-tially offset by certain lower raw materialcosts. The Company also incurred certainmanufacturing and product introductioncosts that affected the first quarter of 1998.Pro forma cost of sales in 1998 excludes

the $8 million non-cash inventory chargethat the Company incurred during thesecond quarter of 1998 discussed above.

Marketing, administrative and develop-ment expenses as a percentage of net saleswas 18.6% in 1999, 19.0% in 1998 and18.5% in 1997. The decrease in 1999compared to 1998 reflects the continuedimprovements in the Company’s opera-tions, partially offset by integrationexpenses and increases in information sys-tems costs. The marginal increase in 1998compared to 1997 resulted primarily frommerger integration activities and informa-tion system costs.

Operating profit increased 15% in 1999but decreased 5% in 1998, before givingeffect to the net restructuring and othercharges in 1998 and 1997. The increase in1999 was due primarily to the higher levelof net sales and the changes in costs andexpenses discussed above. The decrease in1998 was primarily due to the changes ingross profit and marketing, administrativeand development expenses discussed above.

Other expense, net, primarily reflectsinterest expense. The decrease in all periodswas primarily due to a decrease in interestexpense resulting from the lower level ofdebt outstanding in each period comparedto the prior year. In addition, the 1999decrease in other expense, net, also reflectslower exchange losses related to the effectsof foreign exchange transactions.

Net earnings increased to $211,461,000in 1999 primarily due to the higher levelof operating profit but declined to$81,492,000 in 1998 from $184,535,000in 1997 primarily due to the lower level ofoperating profit and higher income taxes.

Basic and diluted earnings per commonshare amounted to $1.69 and $1.68 for1999, respectively, and $0.14 and $0.12,respectively, for 1998, on a pro formabasis, compared with $1.35 basic anddiluted earnings per common share for1997, on a pro forma basis. The effect ofthe conversion of the Company’s out-standing convertible preferred stock is not

considered in the calculation of dilutedearnings per common share as the effect isanti-dilutive (i.e., would increase earningsper common share to $1.85 for 1999compared with $1.43 for 1998 and $1.51for 1997, on a pro forma basis and exclud-ing the effects in 1998 and 1997 of the netrestructuring and other charges and in1998 the special income tax charge dis-cussed above).

Liquidity and Capital Resources

The Company’s principal sources of liq-uidity are cash flows from operations andamounts available under the Company’sexisting lines of credit, including princi-pally the Credit Agreements describedbelow.

Net cash provided by operating activitiesamounted to $430,354,000 in 1999,$411,646,000 in 1998 and $235,314,000in 1997. The increase in 1999 was due tonet earnings from the inclusion of theoperations of old Sealed Air for the fulltwelve months of 1999 as well as increasednet earnings. This increase was partiallyoffset by changes in operating assets andliabilities in the ordinary course of busi-ness, which included the timing of cashpayments related to the restructuring andrelated charges. The increase in cash flowin 1998 was primarily due to the inclusionof the operations of old Sealed Air fromApril 1, 1998 and changes in operatingassets and liabilities arising in the ordinarycourse of business.

Net cash used in investing activitiesamounted to $97,285,000 in 1999,$38,316,000 in 1998 and $115,339,000in 1997. In each year, the net cash used ininvesting activities was used primarily forcapital expenditures and acquisitions. Theincrease in net cash used in 1999 was dueprimarily to the absence in 1999 of thecash acquired from old Sealed Air in theMerger, which in 1998 more than offsetthe cash used for other acquisitions andpartially offset the cash used for capitalexpenditures. The 1999 period alsoincludes $25,811,000 of cash used tomake various small acquisitions in 1999.


Capital expenditures were $75,080,000 in 1999, $82,408,000 in 1998 and$101,997,000 in 1997. Capital expendi-tures for the Company’s food and spe-cialty packaging segment amounted to$51,307,000 and $48,497,000 in 1999and 1998, respectively, and capital expen-ditures for the protective packaging seg-ment amounted to $23,773,000 and$31,487,000 in 1999 and 1998, respec-tively. There were no corporate capitalexpenditures in 1999 compared to$2,424,000 in 1998. Due to the Merger, it is not practicable to provide segmentinformation for 1997. The decrease incapital expenditures in 1999 compared to1998 was primarily due to the manage-ment of capital planning and projectspending; however, the Company cur-rently anticipates that capital expendituresin 2000 will be in the range of $125 mil-lion to $150 million. The decrease in 1998reflects the completion in 1997 and early1998 of several of Cryovac’s major manu-facturing expansion programs. As theassets of old Sealed Air were acquired inthe Merger through the issuance of com-mon stock, the consolidated statement ofcash flows for 1998 does not reflect thechanges in the related balance sheet itemscaused by the addition of old Sealed Air’sassets and liabilities, except for old SealedAir’s cash balance. The acquisition of suchnet assets is reflected as supplementaryinformation in Note 15 to the Consoli-dated Financial Statements.

Net cash used in financing activitiesamounted to $367,183,000 in 1999,$325,093,000 in 1998 and $119,975,000in 1997. The net cash used in financingactivities in 1999 and 1998 was used pri-marily to refinance or repay outstandingdebt, principally under the Credit Agree-ments, to pay dividends on the Company’sSeries A preferred stock and to purchasetreasury stock. The 1999 period reflectsthe issuance of Senior Notes and EuroNotes, described below, the net proceedsof which (approximately $500,491,000) were used to refinance debt under theCredit Agreements. Since the Merger, theCompany has reduced its debt by approx-imately $501,000,000. Cash flows fromfinancing activities in 1998 also reflectedthe proceeds from borrowings under theCredit Agreements, offset by the transferof funds to New Grace in connection with

the Reorganization. The net cash used infinancing activities in 1997 reflects netcash that was advanced by Cryovac toGrace as part of Grace’s centralized cashmanagement system, whereby cashreceived from operations was transferredto, and disbursements were funded from,Grace’s centralized corporate accounts.

At December 31, 1999, the Company hadworking capital of $221,130,000, or 6%of total assets, compared to working capi-tal of $309,624,000, or 8% of total assets,at December 31, 1998. The decline inworking capital in 1999 reflects anincrease in short-term borrowings and theimprovement in the Company’s opera-tions resulting in lower levels of cash andcash equivalents and inventories. Thesechanges were partially offset by an increasein notes and accounts receivable, as well asa reduction in other current liabilitiesrelating primarily to payments made dur-ing 1999 related to restructuring.

The ratio of current assets to current liabilities (current ratio) was 1.4 at Decem-ber 31, 1999 compared with 1.6 at Decem-ber 31, 1998. The ratio of current assetsless inventory to current liabilities (quickratio) was 1.0 at December 31, 1999 and1.1 at December 31, 1998. The decreasesin these ratios in 1999 resulted primarilyfrom the decreases in working capital dis-cussed above.

At December 31, 1999, the Company’soutstanding debt consisted primarily ofborrowings made under the Credit Agree-ments, the Senior Notes, and the EuroNotes, described below, and certain otherloans incurred by the Company’s sub-sidiaries. The Company’s outstanding debtas of December 31, 1998 primarilyincluded borrowings under the CreditAgreements and certain other loansincurred by the Company’s subsidiaries.

During 1999, the Company issued euro200 million (approximately $205 million,at the then current exchange rate) aggre-gate principal amount of 7-year 5.625%notes (the “Euro Notes”) and $300 mil-lion aggregate principal amount of 10-year6.95% senior notes (the “Senior Notes”).The net proceeds from these note issu-ances of approximately $500,491,000 inthe aggregate were used to refinance out-

standing borrowings under the CreditAgreements. As of December 31, 1999,the Company has entered into certainforward-starting interest rate swap agree-ments that have the effect of converting aportion of these fixed rate notes to variablerate debt at U.S. denominated rates whichranged from 6.2% to 6.5%, and eurodenominated rates which ranged from3.8% to 4.4% at December 31, 1999.

The Company’s two principal CreditAgreements are a 5-year revolving creditfacility that expires on March 30, 2003(included in long-term debt) and a364-day revolving credit facility thatexpires on March 27, 2000 (included inshort-term borrowings). The Companyintends to renew the 364-day revolvingcredit facility prior to its expiration for anadditional 364-day period. During 1999,the Company voluntarily reduced theamounts available under the Credit Agree-ments to $1.125 billion in the aggregateand expects further voluntary reductionstotaling $225 million in connection withthe renewal of the 364-day revolving creditfacility. As of December 31, 1999 and1998, outstanding borrowings were$160,978,000 and $990,000,000, respec-tively, under the 5-year revolving creditfacility and $38,342,000 and $19,933,000,respectively, under the 364-day revolvingcredit facility. The Credit Agreements pro-vide that the Company and certain of itssubsidiaries may borrow for various pur-poses, including the refinancing of existingdebt, the provision of working capital andother general corporate needs, includingacquisitions and capital expenditures.Amounts repaid under the Credit Agree-ments may be reborrowed from time totime. As of December 31, 1999, facilityfees were payable on the total amountsavailable under the Credit Agreements and amounted to 0.095% and 0.100%per annum under the 5-year revolvingcredit facility and the 364-day revolvingcredit facility, respectively.

The Company’s obligations under theCredit Agreements bear interest at floatingrates. The weighted average interest rateunder the Credit Agreements was approx-imately 6.0% at December 31, 1999 and5.8% at December 31, 1998. The Com-pany had certain interest rate and currencyswaps outstanding at December 31, 1999,


and had certain interest rate swap agree-ments outstanding at December 31, 1998related to its obligations under the CreditAgreements. These agreements had theeffect of fixing or adjusting the interestrates on a portion of such debt. Theweighted average interest rate at Decem-ber 31, 1999 and 1998 did not change significantly as a result of these derivativefinancial instruments.

The Credit Agreements provide forchanges in borrowing margins based onfinancial criteria and the Company’s seniorunsecured debt ratings. The Credit Agree-ments, Senior Notes and Euro Notesimpose certain limitations on the opera-tions of the Company and certain of itssubsidiaries. The Company was in com-pliance with these requirements as of December 31, 1999.

At December 31, 1999, the Company hadavailable lines of credit, including thoseavailable under the Credit Agreements, ofapproximately $1.3 billion of whichapproximately $1.1 billion were unused.

The Series A Preferred Stock votes withthe common stock on an as-convertedbasis, pays a cash dividend, as declared bythe Company’s Board of Directors, at anannual rate of $2.00 per share, payablequarterly in arrears, becomes redeemableat the option of the Company beginningMarch 31, 2001, subject to certain condi-tions, and will be subject to mandatoryredemption on March 31, 2018 at $50.00per share, plus any accrued and unpaiddividends. Because it is subject to manda-tory redemption, the Series A PreferredStock is classified outside of the share-holders’ equity section of the balance sheet.

The Company’s shareholders’ equity was$551,030,000 at December 31, 1999 com-pared to $437,045,000 at December 31,1998. Shareholders’ equity increased in1999 due to the Company’s net earningsof $211,461,000, which were partially offset by preferred stock dividends of$71,422,000 and by an additional for-

eign currency translation adjustment of $46,678,000.

Other Matters

Quantitative and Qualitative Disclosuresabout Market Risk

The Company is exposed to market riskfrom changes in interest rates and foreigncurrency exchange rates, which mayadversely affect its results of operations andfinancial condition. The Company seeksto minimize these risks through regularoperating and financing activities and,when deemed appropriate, through theuse of derivative financial instruments.The Company does not purchase, hold orsell derivative financial instruments fortrading purposes.

Interest Rates

The Company uses interest rate swaps tomanage its exposure to fluctuations ininterest rates. The Company also usesinterest rate collars to reduce the Com-pany’s exposure to fluctuations in the rateof interest by limiting interest rates to agiven range. At December 31, 1999, theCompany had forward-starting interestrate swaps, that have the effect of convert-ing a portion of the Company’s fixed ratedebt to variable rate debt, and an interestrate collar agreement, maturing at variousdates through November 2004, with acombined aggregate notional amount ofapproximately $159,000,000 comparedwith interest rate swap and collar agree-ments with a combined aggregate notionalamount of $265,000,000 at Decem-ber 31, 1998. The interest rate swap agree-ments outstanding at December 31, 1998had the effect of converting a portion ofthe Company’s variable rate debt to fixedrate debt. The fair value of these agree-ments, which represents the estimated netpayment that would be made by the Com-pany to terminate the agreements asadvised by the Company’s banks, was$1,260,000 at December 31, 1999. Ahypothetical 10% increase in interest rates

would increase the amount to be paid bythe Company to terminate these agree-ments by approximately $2,756,000.

The fair value of the Company’s fixed ratedebt also varies with changes in interestrates. Generally, the fair value of fixed ratedebt will increase as interest rates fall anddecrease as interest rates rise. At Decem-ber 31, 1999, the carrying value of theCompany’s total debt was $824,677,000,of which $502,244,000 was fixed ratedebt. At December 31, 1998, the carryingvalue of the Company’s total debt was$1,081,657,000 of which $3,477,000 was fixed rate debt. The estimated fairvalue of the Company’s total debt, whichincludes the cost of replacing the Com-pany’s fixed rate debt with borrowings atcurrent market rates, was approximately$787,589,000 at December 31, 1999compared to $1,082,392,000 at Decem-ber 31, 1998. A hypothetical 10% decreasein interest rates would result in an increasein the fair value of the total debt balance ofapproximately $23,138,000.

Foreign Exchange Contracts

The Company uses interest rate and cur-rency swaps to limit foreign exchangeexposure and limit or adjust interest rateexposure by swapping certain borrowingsin U.S. dollars for borrowings denomi-nated in foreign currencies. At Decem-ber 31, 1999, the Company had interestrate and currency swap agreements, matur-ing through March 2002, with an aggre-gate notional amount of approximately$5,000,000 compared to an aggregatenotional amount of $23,000,000 atDecember 31, 1998. The estimated fairvalue of these contracts, which representsthe estimated net payment that would bereceived by the Company in the event oftermination of these agreements based onthe then current interest rates and foreignexchange rates, was $85,000 at Decem-ber 31, 1999. A hypothetical 10%decrease in interest rates would result in animmaterial change in the amount to bereceived by the Company to terminate


these agreements. A hypothetical 10%adverse change in foreign exchange rates atDecember 31, 1999 would cause theCompany to pay approximately $442,000to terminate these contracts. However,since these contracts hedge foreign cur-rency denominated transactions, anychange in the fair value of the contractswould be offset by changes in the underly-ing value of the transaction being hedged.

The Company uses foreign currency forwards to fix the amount payable on cer-tain transactions denominated in foreigncurrencies. At December 31, 1999, theCompany did not have any material for-eign currency forward contacts outstand-ing while at December 31, 1998, anaggregate notional amount of approxi-mately $12,800,000 was outstanding.

Environmental Matters

The Company is subject to loss contin-gencies resulting from environmental laws and regulations, and it accrues foranticipated costs associated with investi-gatory and remediation efforts when anassessment has indicated that a loss isprobable and can be reasonably estimated.These accruals do not take into accountany discounting for the time value ofmoney and are not reduced by potentialinsurance recoveries, if any. Environmen-tal liabilities are reassessed whenever cir-cumstances become better defined and/orremediation efforts and their costs can bebetter estimated. These liabilities are eval-uated periodically based on available infor-mation, including the progress of remedialinvestigations at each site, the current sta-tus of discussions with regulatory authori-ties regarding the methods and extent ofremediation and the apportionment ofcosts among potentially responsible par-ties. As some of these issues are decided(the outcomes of which are subject touncertainties) and/or new sites are assessedand costs can be reasonably estimated, theCompany adjusts the recorded accruals, as necessary. However, the Companybelieves that it has adequately reserved forall probable and estimable environmentalexposures. In connection with the Reor-ganization, certain environmental liabil-ities of Cryovac were retained by orassumed by New Grace.

Year 2000 Computer SystemCompliance

The Company completed addressing its Year 2000 issues by December 31,1999. Year 2000 issues arose from com-puter programs that utilize only the lasttwo digits of a year to define a particularyear rather than the complete four digits.As a result, there was a concern that certaincomputer programs would not properlyprocess certain dates, particularly thosethat fall into the year 2000 or subsequentyears. Year 2000 issues affected both computer-based information systems andsystems with embedded microcontrollersor microcomputers.

The Company incurred total costs,including an estimate of internallyincurred cost, of approximately $8 millionto address Year 2000 issues. The Companydid not experience any significant disrup-tions to its financial or operating activitiescaused by failure of its computers and sys-tems resulting from Year 2000 issues.Additionally, the Company did not deferany significant information technologyprojects due to Year 2000 issues. TheCompany does not expect Year 2000issues to have a significant effect on theCompany’s operations or financial resultsin the future.

Risks

Most Year 2000 issues would haveoccurred on or about January 1, 2000;however, such issues may still arise in thefuture. While the Company believes that ithas taken all steps reasonably necessary toassure its ability to conduct business and tosafeguard its assets from the effects of Year2000 issues, risks cannot in every case beeliminated.

Euro Conversion

On January 1, 1999, eleven of the fifteenmembers of the European Union (the“participating countries”) established fixedconversion rates between their existingcurrencies (the “legacy currencies”) andintroduced the euro, a single commonnon-cash currency. The euro is now tradedon currency exchanges and is being used inbusiness transactions.

At the beginning of 2002, new euro-denominated bills and coins will be issuedto replace the legacy currencies, and thelegacy currencies will be withdrawn fromcirculation. By 2002, all companies oper-ating in the participating countries arerequired to restate their statutory account-ing data into euros as their base currency.

In 1998, the Company established plansto address the systems and business issuesraised by the euro currency conversion.These issues include, among others, (a) theneed to adapt computer, accounting andother business systems and equipment toaccommodate euro-denominated transac-tions, (b) the need to modify banking andcash management systems in order to beable to handle payments between cus-tomers and suppliers in legacy currenciesand euros between 1999 and 2002, (c) therequirement to change the base statutoryand reporting currency of each subsidiaryin the participating countries into eurosduring the transition period, (d) the for-eign currency exposure changes resultingfrom the alignment of the legacy curren-cies into the euro, and (e) the identifica-tion of material contracts and salesagreements whose contractual stated cur-rency will need to be converted into euros.

The Company believes that it will be eurocompliant by January 1, 2002. The Com-pany has implemented plans to accommo-date euro-denominated transactions andto handle euro payments with third partycustomers and suppliers in the participat-ing countries. The Company plans tomeet the requirement to convert statutoryand reporting currencies to the euro byacquiring and installing new financial soft-ware systems. If there are delays in suchinstallation, the Company plans to pursuealternate means to convert statutory andreporting currencies to the euro by 2002.The Company expects that its foreign cur-rency exposures will be reduced as a resultof the alignment of legacy currencies, andthe Company believes that all materialcontracts and sales agreements requiringconversion will be converted to euros priorto January 1, 2002.

Although additional costs are expected toresult from the implementation of theCompany’s plans, the Company also


expects to achieve benefits in its treasuryand procurement areas as a result of theelimination of the legacy currencies. Sincethe Company has operations in each of itsbusiness segments in the participatingcountries, each of its business segmentswill be affected by the conversion process.However, the Company expects that thetotal impact of all strategic and operationalissues related to the euro conversion andthe cost of implementing its plans for theeuro conversion will not have a materialadverse impact on its consolidated finan-cial condition, results of operations orreportable segments.

Recently Issued Statements of FinancialAccounting Standards

In June 1999, the Financial AccountingStandards Board (“FASB”) issued State-ment of Financial Accounting Standards(“SFAS”) No. 137, “Accounting for Deriv-ative Instruments and Hedging Activities– Deferral of the Effective Date of FASBStatement No. 133.” This Statementdefers the effective date of SFAS No. 133,“Accounting for Derivative Instrumentsand Hedging Activities.” SFAS No. 133,which the Company expects to adoptbeginning January 1, 2001, establishesaccounting and operating standards for

hedging activities and derivative instru-ments, including certain derivative instru-ments embedded in other contracts. TheCompany is reviewing the potentialimpact, if any, of SFAS No. 133 on itsConsolidated Financial Statements.

Forward-Looking Statements

Certain statements made by the Companyin this report and in future oral and writ-ten statements by management of theCompany may be forward-looking. Thesestatements include comments as to theCompany’s beliefs and expectations as tofuture events and trends affecting theCompany’s business, its results of opera-tions and its financial condition. Theseforward-looking statements are basedupon management’s current expectationsconcerning future events and discuss,among other things, anticipated futureperformance and future business plans.Forward-looking statements are identifiedby such words and phrases as “expects,”“intends,” “believes,” “will continue,”“plans to,” “could be” and similar expres-sions. Forward-looking statements are nec-essarily subject to uncertainties, many ofwhich are outside the control of the Com-pany, that could cause actual results to dif-fer materially from such statements.

While the Company is not aware that anyof the factors listed below will adverselyaffect the future performance of the Com-pany, the Company recognizes that it issubject to a number of uncertainties, suchas business and market conditions in Asia,Latin America and other geographic areasaround the world, changes in the value offoreign currencies against the U.S. dollar,the ability of the Company to realize fullythe benefits of the restructuring programrelating to the integration of old Sealed Airand Cryovac, the success of certain infor-mation systems projects, general eco-nomic, business and market conditions,conditions in the industries and marketsthat use the Company’s packaging materi-als and systems, the development and suc-cess of new products, the Company’ssuccess in entering new markets, competi-tive factors, raw material availability andpricing, changes in the Company’s rela-tionships with customers and suppliers,future litigation and claims (includingenvironmental matters) involving theCompany, changes in domestic or foreignlaws or regulations, or difficulties relatedto any remaining Year 2000 issues or theeuro conversion.


SEALED AIR CORPORATION AND SUBSIDIARIES

Consolidated Statements of EarningsYears Ended December 31, 1999, 1998 and 1997(In thousands of dollars, except for per share data)

1999 1998 1997

Net sales $2,839,636 $2,506,756 $1,833,111Cost of sales 1,810,914 1,638,020 1,187,109

Gross profit 1,028,722 868,736 646,002Marketing, administrative and development expenses 527,126 486,160 363,454Goodwill amortization 49,404 36,062 360Restructuring and other charges, net — 87,182 14,444

Operating profit 452,192 259,332 267,744Interest expense (58,126) (53,629) —Other income(expense), net 1,587 (6,756) (4,072)

Earnings before income taxes 395,653 198,947 263,672Income taxes 184,192 125,940 89,940

Net earnings $ 211,461 $ 73,007 $ 173,732

Add: Excess of book value over repurchase price ofSeries A preferred stock 1,568 1,798

Less: Series A preferred stock dividends 71,422 53,921Less: Retroactive recognition of preferred stock dividends — 18,011 72,044

Net earnings ascribed to common shareholders $ 141,607 $ 2,873 $ 101,688

Earnings per common share:Basic $ 1.69 $ 0.04 $ 2.54Diluted $ 1.68 $ 0.02 $ 2.39

See accompanying Notes to Consolidated Financial Statements.



Consolidated Balance SheetsDecember 31, 1999 and 1998(In thousands of dollars, except share data)

1999 1998

AssetsCurrent assets:

Cash and cash equivalents $ 13,672 $ 44,986Notes and accounts receivable, net of allowances for doubtful accounts of $21,396 in 1999 and $17,945 in 1998 470,046 453,124

Inventories 245,934 275,312Prepaid expenses 9,976 11,316Deferred income taxes 63,596 59,876

Total current assets 803,224 844,614Property and equipment, net 1,023,409 1,116,582Goodwill, less accumulated amortization of $84,699 in 1999 and $36,083 in 1998 1,859,958 1,907,736Deferred income taxes 8,494 10,758Other assets 160,148 160,240

Total Assets $3,855,233 $4,039,930

Liabilities, Preferred Stock and Shareholders’ EquityCurrent liabilities:

Short-term borrowings $ 152,653 $ 68,173Current portion of long-term debt 6,908 16,958Accounts payable 175,166 176,594Other current liabilities 247,367 273,265

Total current liabilities 582,094 534,990Long-term debt, less current portion 665,116 996,526Deferred income taxes 214,906 200,699Other liabilities 80,425 79,577

Total liabilities 1,542,541 1,811,792

Commitments and contingencies (Note 18)

Authorized 50,000,000 preferred shares. Series A convertible preferred stock, $50.00 per share redemption value, authorized 36,021,851 shares in 1999 and 1998, issued 36,015,645 shares in 1999 and 36,021,851 shares in 1998, including 782,400 shares in 1999 and 200,000 shares in 1998 in treasury, mandatory redemption in 2018 1,761,662 1,791,093

Shareholders’ equity:Common stock, $.10 par value per share. Authorized 400,000,000 shares; issued 84,135,255 shares in 1999 and 83,806,361 shares in 1998 8,413 8,380

Additional paid-in capital 632,230 610,505Retained earnings (deficit) 132,073 (7,966)Accumulated translation adjustment (171,521) (124,843)

601,195 486,076

Less: Deferred compensation 24,511 28,683Less: Cost of treasury common stock, 535,356 shares in 1999 and

494,550 shares in 1998 23,652 17,234Less: Minimum pension liability 2,002 3,114

Total shareholders’ equity 551,030 437,045

Total Liabilities, Preferred Stock and Shareholders’ Equity $3,855,233 $4,039,930




Consolidated Statements of EquityYears Ended December 31, 1999, 1998 and 1997(In thousands of dollars)

Other Comprehensive Income

Additional Retained Deferred Treasury Accumulated MinimumCommon Paid-In Earnings Compen- Common Translation Pension Pre-Merger

Stock Capital (Deficit) sation Stock Adjustment Liability Net Assets Total

Balance atDecember 31, 1996 $ (47,135) $ 1,428,925 $ 1,381,790

Net earnings 173,732 173,732Net activity with Grace (119,975) (119,975)Foreign currency translation (82,919) (82,919)

Balance atDecember 31, 1997 (130,054) 1,482,682 1,352,628

Net earnings for quarter ended March 31, 1998 27,052 27,052

Net activity with Grace 23,939 23,939Reorganization and

Recapitalization $ 4,065 $(1,530,292) $ — $ — $ — — $ — (1,533,673) (3,059,900)Issuance of common

stock in Merger 4,262 2,106,490 — (9,649) — — — 2,101,103Effect of contingent

stock transactions, net 52 32,073 — (19,034) (182) — — 12,909Shares issued for non-cash

compensation 1 436 — — — — — 437Purchase of preferred stock — 1,798 — — — — — 1,798Purchase of common stock — — — — (17,052) — — (17,052)FAS 87 pension adjustment — — — — — — (3,114) (3,114)Foreign currency translation — — — — — 5,211 — 5,211Net earnings-April 1 through

December 31, 1998 — — 45,955 — — — — 45,955Dividends on preferred stock — — (53,921) — — — — (53,921)

Balance atDecember 31, 1998 8,380 610,505 (7,966) (28,683) (17,234) (124,843) (3,114) 437,045

Effect of contingent stock transactions, net 25 12,718 — 4,172 (16) — — 16,899

Shares issued for non-cashcompensation 1 5,107 — — 7,787 — — 12,895

Exercise of stock options 6 2,023 — — — — — 2,029Purchase of preferred stock — 1,568 — — — — — 1,568Conversion of preferred stock 1 309 — — — — — 310Purchase of common stock — — — — (14,189) — — (14,189)FAS 87 pension adjustment — — — — — — 1,112 1,112Foreign currency translation — — — — — (46,678) — (46,678)Net earnings — — 211,461 — — — — 211,461Dividends on preferred stock — — (71,422) — — — — (71,422)

Balance atDecember 31, 1999 $ 8,413 $ 632,230 $ 132,073 $ (24,511) $ (23,652) $ (171,521) $ (2,002) $ $ 551,030




Consolidated Statements of Cash FlowsYears Ended December 31, 1999, 1998 and 1997(In thousands of dollars)

1999 1998 1997

Cash flows from operating activities:Net earnings $ 211,461 $ 73,007 $ 173,732Adjustments to reconcile net earnings to cash

provided by operating activities:Depreciation and amortization of property and equipment 146,549 141,457 106,563Goodwill and other amortization 76,850 54,497 4,517Amortization of bond discount 169 — —Non-cash portion of restructuring and other charges, net — 44,175 14,444Deferred tax provisions 19,358 24,022 14,981Net loss on disposals of property and equipment 149 1,980 2,474Non-cash compensation 9,934 437 —Changes in operating assets and liabilities, net of

businesses acquired and transfers to/from Grace:Notes and accounts receivable (31,984) (31,560) (5,236)Inventories 21,229 33,110 116Other current assets 670 (926) 5,028Other assets 1,772 (15,251) (18,128)Accounts payable 1,750 7,685 (23,183)Income taxes payable (16,491) 28,302 —Other current liabilities (10,299) 45,526 (47,936)Other liabilities (763) 5,185 7,942

Net cash provided by operating activities 430,354 411,646 235,314

Cash flows from investing activities:Capital expenditures for property and equipment (75,080) (82,408) (101,997)Proceeds from sales of property and equipment 3,606 1,141 1,882Businesses acquired in purchase transactions, net of cash

acquired (25,811) 42,951 (15,224)

Net cash used in investing activities (97,285) (38,316) (115,339)

Cash flows from financing activities:Net advances to Grace — (20,369) (119,975)Proceeds from long-term debt 572,831 1,259,221Payment of long-term debt (903,941) (265,606)Payment of senior debt issuance costs (3,412) —Transfer of funds to New Grace — (1,258,807)Net proceeds on short-term borrowings 74,848 21,732Purchases of treasury common stock (14,189) (17,052)Purchases of treasury preferred stock (27,552) (8,202)Dividends paid on preferred stock (71,616) (36,010)Proceeds from stock option exercises and other 5,848 —

Net cash used in financing activities (367,183) (325,093) (119,975)

Effect of exchange rate changes on cash and cash equivalents 2,800 (3,251) —

Cash and cash equivalents:Net change during the period (31,314) 44,986 —Balance, beginning of period 44,986 — —

Balance, end of period $ 13,672 $ 44,986 $ —




Consolidated Statements of Comprehensive IncomeYears Ended December 31, 1999, 1998 and 1997(In thousands of dollars)

1999 1998 1997

Net earnings $ 211,461 $ 73,007 $ 173,732Other comprehensive income:

Minimum pension liability, net of an income tax charge in1999 of $1,020 and an income tax benefit in 1998 of $2,360 1,112 (3,114) —

Foreign currency translation adjustments (46,678) 5,211 (82,919)

Comprehensive income $ 165,895 $ 75,104 $ 90,813



General

On March 31, 1998, the Company (for-merly known as W. R. Grace & Co.) andthe former Sealed Air Corporation (“oldSealed Air”) completed a series of transac-tions as a result of which:

(a) The specialty chemicals business of the Company was separated from its packaging business, after which thepackaging business (“Cryovac”) washeld by one group of wholly ownedsubsidiaries, and the specialty chemi-cals business was held by another groupof wholly owned subsidiaries (“NewGrace”); the Company and Cryovacborrowed approximately $1,260,000under two revolving credit agreements(the “Credit Agreements”) (which, asamended, are discussed below) andtransferred substantially all of thosefunds to New Grace; and the Com-pany distributed all of the outstand-ing shares of common stock of New Grace to its shareholders. As aresult, New Grace became a separatepublicly owned corporation that is unrelated to the Company. Thesetransactions are referred to below as the“Reorganization”.

(b) The Company recapitalized itsoutstanding shares of common stock,par value $0.01 per share (“GraceCommon Stock”), into a new com-mon stock and Series A convertiblepreferred stock, each with a par value of$0.10 per share (the “Recapitalization”).

(c) A subsidiary of the Companymerged into old Sealed Air (the“Merger”), with old Sealed Air being

the surviving corporation. As a result of the Merger, old Sealed Air became a subsidiary of the Company. TheCompany was renamed Sealed AirCorporation.

As used in these Notes, the term “Com-pany” means the Company and its sub-sidiaries after giving effect to theReorganization, the Recapitalization andthe Merger, and the term “Grace” refers tothe Company with respect to periods priorto such transactions. The agreements pur-suant to which the Reorganization, theRecapitalization and the Merger were car-ried out are referred to in these Notes asthe “Transaction Agreements”.

Basis of Financial Statements

The Merger was accounted for as a pur-chase of old Sealed Air by the Company asof March 31,1998. Accordingly, the finan-cial statements include the operatingresults and cash flows as well as the assetsand liabilities of Cryovac for all periodspresented. The operating results, cashflows, assets and liabilities of old Sealed Airare included from March 31, 1998. SeeNote 19 for unaudited selected pro formastatement of earnings information for theyears ended December 31, 1998 and1997. For periods prior to the Merger, thefinancial statements exclude all of theassets, liabilities (including contingent lia-bilities), revenues and expenses of Graceother than the assets, liabilities, revenuesand expenses of Cryovac.

For periods prior to the Merger, the finan-cial statements were prepared as special-purpose combined financial statements asprovided for in the Transaction Agree-

ments using Grace’s historical basis ofaccounting. Such financial statementsinclude the assets, liabilities, revenues,expenses and related taxes on income ofCryovac previously included in the consol-idated financial statements of Grace, andthey include certain assets and liabilities ofCryovac that were retained by New Gracein connection with the Reorganization, ascontemplated by the Transaction Agree-ments. In accordance with Securities andExchange Commission Staff AccountingBulletin (“SAB”) No. 55, the financialstatements for periods prior to March 31,1998 include certain expenses incurred byGrace on Cryovac’s behalf. See Note 17 fora discussion of these corporate allocations.

For periods prior to the Merger, the finan-cial statements do not include an alloca-tion of Grace’s debt and related interestexpense (except for interest capitalized as acomponent of Cryovac’s property andequipment). Therefore, the financial state-ments for the periods prior to March 31,1998 may not necessarily reflect the finan-cial position and results of operations thatwould have occurred had Cryovac been astand-alone entity on such dates and forthe periods then ended. All transactionsbetween and among subsidiaries and oper-ating units within Cryovac have beeneliminated in consolidation.

The financial statements also exclude divi-dends paid by Grace to its shareholders inperiods prior to March 31, 1998, as theobligation to pay such dividends wasincurred by Grace and not by Cryovac ona stand-alone basis. See Note 14 for a dis-cussion of Shareholders’ Equity.


Notes to Consolidated Financial Statements(In thousands of dollars, except for per share data)

Note 1 Basis of Presentation


Basis of Consolidation

The consolidated financial statementsinclude the accounts of the Company andits subsidiaries. All significant intercom-pany transactions and balances have beeneliminated in consolidation.

Use of Estimates

The preparation of financial statements inconformity with generally acceptedaccounting principles requires manage-ment to make estimates and assumptionsaffecting the reported amounts of assetsand liabilities (including contingent assetsand liabilities) at the dates of the financialstatements and the reported revenues andexpenses during the periods presented.Actual amounts could differ from thoseestimates.

Revenue Recognition

Revenue is recognized upon shipment ofgoods to customers.

Cash and Cash Equivalents

Investments with original maturities ofthree months or less are considered to becash equivalents. The Company’s policy isto invest cash in excess of short-term oper-ating and debt service requirements insuch cash equivalents. These instrumentsare stated at cost, which approximatesmarket because of the short maturity ofthe instruments.

Financial Instruments

The Company has limited involvementwith derivative financial instruments thathave off-balance-sheet risk. These financialinstruments generally include cross cur-rency swaps, interest rate swaps, caps andcollars and foreign exchange forwards andoptions relating to the Company’s borrow-ing and trade activities. Such financialinstruments are used to manage the Com-

pany’s exposure to fluctuations in interestrates and foreign exchange rates. TheCompany does not purchase, hold or sellderivative financial instruments for tradingor speculative purposes. The Company isexposed to credit risk in the event of theinability of the counterparties to performunder their obligations. However, theCompany seeks to minimize such risk byentering into transactions with counter-parties that are major financial institutionswith high credit ratings.

The Company records realized and unre-alized gains and losses from foreignexchange hedging instruments (includingcross currency swaps, forwards andoptions) differently depending on whetherthe instrument qualifies for hedgeaccounting. Gains and losses on those for-eign exchange instruments that qualify ashedges are deferred as part of the cost basisof the asset or liability being hedged andare recognized in the statement of earningsin the same period as the underlying trans-action. Realized and unrealized gains andlosses on instruments that do not qualifyfor hedge accounting are recognized cur-rently in the statement of earnings.

The Company records the net paymentsor receipts from interest rate swaps, caps,collars and the interest rate component ofcross currency swaps as adjustments tointerest expense on a current basis. If aninterest rate hedging instrument were ter-minated prior to the maturity date, anygain or loss would be amortized into earn-ings over the shorter of the original term ofthe derivative instrument and the underly-ing transaction.

Inventories

Inventories are stated at the lower of costor market. The cost of most U.S. invento-ries is determined on a last-in, first-out(“LIFO”) basis, while the cost of otherinventories is determined on a first-in,first-out (“FIFO”) basis.

Property and Equipment

Property and equipment are stated at cost,except for property and equipment thathave been impaired, for which the carry-ing amount is reduced to estimated fairvalue. Significant improvements are capi-talized; repairs and maintenance costs thatdo not extend the lives of the assets arecharged to expense as incurred. The costand accumulated depreciation of assetssold or otherwise disposed of are removedfrom the accounts, and any resulting gainor loss is included when the assets are disposed of.

The cost of property and equipment isdepreciated over their estimated usefullives on a straight-line basis as follows:buildings – 20 to 40 years; machinery and other property and equipment – 3 to20 years.

Goodwill and Other Intangible Assets

Goodwill is amortized on a straight-linebasis principally over a 40-year period.Other intangible assets are included inother assets at cost and consist primarily ofpatents, licenses, trademarks and non-compete agreements. They are amortizedover the shorter of their legal lives or theirestimated useful lives on a straight-linebasis, generally ranging from 3 to 20 years.Identifiable intangibles individually and inthe aggregate comprise less than 5% of theCompany’s consolidated assets.

Impairment of Long-Lived Assets

The Company periodically reviews thecarrying value of its long-lived assetsincluding property and equipment, good-will and other intangible assets for impair-ment whenever events or changes incircumstances indicate that the carryingamount of such assets may not be fullyrecoverable. Impairments are recognizedwhen the expected future undiscountedcash flows derived from such assets are less

Note 2 Summary of Significant Accounting Policies


than their carrying value. For such cases,losses are recognized for the differencebetween the fair value and the carryingamount. The Company considers variousvaluation factors, principally discountedcash flows, to assess the fair values of long-lived assets. Assets to be disposed of by saleor abandonment, and where managementhas the current ability to remove suchassets from operations, are recorded at the lower of carrying amount or fair valueless cost of disposition. Depreciation forthese assets is suspended during the dis-posal period, which is generally less thanone year.

Stock-Based Compensation

The Company has adopted the disclosureprovisions of SFAS No. 123, “Accountingfor Stock-Based Compensation.” As per-mitted by SFAS No. 123, the Companycontinues to follow the measurement pro-visions of Accounting Principles BoardOpinion (“APB”) No. 25, “Accounting forStock Issued to Employees.”

Foreign Currency Translation

In non-U.S. locations that are not consid-ered highly inflationary, the balance sheetsare translated at the end of periodexchange rates, and statements of earningsare translated at the average exchange ratesduring the applicable period with transla-tion adjustments accumulated in share-holders’ equity. Assets and liabilities of theCompany’s operations in countries withhighly inflationary economies are trans-lated at the end of period exchange rates,except that certain financial statementamounts are translated at historicalexchange rates. Items included in state-ments of earnings of the Company’s oper-ations in countries with highly inflationaryeconomies are translated at average rates ofexchange prevailing during the period,

except that certain financial statementamounts are translated at historicalexchange rates.

Income Taxes

The Company and its domestic sub-sidiaries file a consolidated U.S. federalincome tax return. The Company’s non-U.S. subsidiaries file income tax returns intheir respective local jurisdictions. Duringthe third quarter of 1998, the Companybegan providing for income taxes on thatportion of its foreign subsidiaries’ accumu-lated earnings that management believesare not reinvested indefinitely in theirbusinesses.

Income taxes are accounted for under theasset and liability method. Deferred taxassets and liabilities are recognized for thefuture tax consequences attributable to dif-ferences between the financial statementcarrying amounts of existing assets and lia-bilities and their respective tax bases andoperating loss and tax credit carryfor-wards. A valuation allowance is providedwhen it is more likiely than not that all orsome portion of the deferred tax asset willnot be realized. Deferred tax liabilities orassets at the end of each period are deter-mined using the tax rates then in effect.

For periods prior to the Merger, Cryovac’sU.S. operations were included in Grace’sU.S. federal and state income tax returns.For these periods, Grace’s consolidatedincome tax provision was generally allo-cated to Cryovac as if Cryovac filed sepa-rate income tax returns, and the allocatedcurrent provision was settled with Graceon a current basis. Under the terms of theTransaction Agreements, New Graceretained the liability for substantially alltax liabilities of Cryovac attributable toperiods ended on and prior to the Merger.

Research and Development

Research and development costs areexpensed as incurred and amounted to$56,452, $57,524 and $40,675 in 1999,1998 and 1997, respectively.

Earnings per Common Share

Earnings per common share informationhas been calculated in accordance withSFAS No. 128, “Earnings Per Share,” andSAB No. 98, “Computation of EarningsPer Share,” since Cryovac did not have aseparately identifiable capital structureupon which a calculation of earnings percommon share could be based prior to theReorganization and the Recapitalization.

Environmental Expenditures

Except as described in Note 18 withrespect to the Reorganization, environ-mental expenditures that relate to ongoingbusiness activities are expensed or capital-ized, as appropriate. Expenditures thatrelate to an existing condition caused bypast operations, and which do not con-tribute to current or future net sales, areexpensed. Liabilities are recorded when theCompany determines that environmentalassessments or remediations are probableand that the cost or a range of costs to theCompany associated therewith can be reasonably estimated. In connection withthe Reorganization, certain environmental liabilities of Cryovac were retained by orassumed by New Grace.

Reclassifications

Certain prior period amounts have beenreclassified to conform to the current year’spresentation.


The Company operates in two reportablebusiness segments: (i) Food and SpecialtyPackaging and (ii) Protective Packaging.The Food and Specialty Packaging seg-ment comprises the Company’s Cryovac®

food and specialty packaging products.The Protective Packaging segment in-cludes the aggregation of the Company’spackaging products, engineered productsand specialty products, which products areprincipally for non-food applications.

The Food and Specialty Packaging seg-ment includes flexible materials andrelated systems (shrink film products, lam-inated films and specialty packaging sys-tems marketed primarily under theCryovac® trademark for a broad range ofperishable foods), and rigid packaging andabsorbent pads (absorbent pads used forthe packaging of meat, fish and poultry,foam trays for supermarkets and food pro-cessors, and rigid plastic containers for dairy

and other food products). Net sales of flexi-ble materials and related systems were:1999 – $1,585,073; 1998 – $1,539,817; and 1997 – $1,497,127. Net sales of rigidpackaging and absorbent pads were: 1999 – $176,057; 1998 – $144,263; and1997 – $91,468. Products in this segmentare primarily sold to food processors, dis-tributors and food service businesses.

The Protective Packaging segment includescushioning and surface protection prod-ucts (including air cellular cushioningmaterials, films for non-food applications,polyurethane foam packaging systems soldunder the Instapak® trademark, polyethyl-ene foam sheets and planks, a comprehen-sive line of protective and durable mailersand bags, certain paper-based protectivepackaging materials, suspension and reten-tion packaging, and packaging systems)and other products (principally specialtyadhesive products). Net sales of cushion-

ing and surface protection products were:1999 – $1,043,071; 1998 – $794,593;and 1997 – $244,516. Net sales of otherproducts for 1999 and 1998 were approx-imately 1% of consolidated net sales.Cryovac did not have net sales of otherproducts in 1997. Products in this seg-ment are primarily sold to distributors andmanufacturers.

Subsequent to the Merger, Cryovac’s filmproducts for non-food applications wereintegrated into the Protective Packagingsegment. The restatement of 1997 operat-ing results to reflect this realignment is notpracticable (except to identify the amountof net sales for 1997 provided above) as,prior to the Merger, Cryovac conducted itsoperations as one business segment, andcomparable discrete financial informationfor 1997 is not available.

Note 3 Business Segment Information

1999 1998

Net salesFood and Specialty Packaging $1,761,130 $1,684,080Protective Packaging 1,078,506 822,676

Total segments $2,839,636 $2,506,756

Operating profitFood and Specialty Packaging $ 289,757 $ 238,613Protective Packaging 234,659 155,446

Total segments 524,416 394,059Restructuring and other charges, net (1) — (87,182)Corporate operating expenses (including goodwill amortization of $49,404

and $36,062 in 1999 and 1998, respectively) (72,224) (47,545)

Total $ 452,192 $ 259,332

Depreciation and amortizationFood and Specialty Packaging $ 112,960 $ 113,258Protective Packaging 59,351 45,834

Total segments 172,311 159,092Corporate (including goodwill and other amortization) 51,088 36,862

Total $ 223,399 $ 195,954

(1) Restructuring and other charges, net in 1998 were $73,172 for Food and Specialty Packaging (including a net non-cash charge of $46,021) and $14,010 for Protective Packaging (including a net non-cash credit of $1,846).

(Continued on following page.)


1999 1998

Capital expendituresFood and Specialty Packaging $ 51,307 $ 48,497Protective Packaging 23,773 31,487

Total segments 75,080 79,984Corporate — 2,424

Total $ 75,080 $ 82,408

Assets(2)

Food and Specialty Packaging $1,291,959 $1,440,091Protective Packaging 688,627 644,539

Total segments 1,980,586 2,084,630Corporate (including goodwill, net of $1,859,958 and $1,907,736 in 1999

and 1998, respectively) 1,874,647 1,955,300

Total $3,855,233 $4,039,930

(2) Plant and equipment facilities and other resources of the Food and Specialty Packaging segment are used to manufacture films (non-food applications) for the Protective Packaging segment. A proportionate share of depreciation and other costs of manufacturing are allocated to the Protective Packaging segment.

Geographic Information1999 1998 1997

Net sales: (3)

North America $1,617,762 $1,404,779 $ 953,281Europe 752,486 692,375 526,829Latin America 185,418 173,750 152,047Asia Pacific 283,970 235,852 200,954

Total $2,839,636 $2,506,756 $1,833,111

1999 1998 1997

Total long-lived assets: (3)

North America (4) $2,569,071 $2,716,288 $ 694,136Europe 281,951 285,834 224,742Latin America 58,638 59,292 66,180Asia Pacific 133,855 123,144 134,415

Total $3,043,515 $3,184,558 $1,119,473

(3) Net sales attributed to the geographic areas represent trade sales to external customers. Net sales in North America represent primarily net sales in the United States. No non-U.S. country has net sales in excess of 10% of consolidated net sales or long-lived assets in excess of 10% of consolidated long-lived assets.

(4) Includes goodwill, net, of $1,859,958 and $1,907,736 in 1999 and 1998, respectively.


In 1999, the Company made several smallacquisitions. These transactions, whichwere effected in exchange for cash, wereaccounted for as purchases and were notmaterial to the Company’s consolidatedfinancial statements.

In connection with the Merger in 1998,the Company issued 42,624,246 shares of common stock at a value of $49.52 per share and incurred costs of approxi-mately $30,000 for a purchase price of$2,141,000 in exchange for the net assets

of old Sealed Air. The fair value of such netassets included approximately $181,000 of property and equipment, approxi-mately $95,800 of working capital(including cash of $51,259), and otherlong-term net liabilities of approximately$71,500 resulting in principally goodwillof approximately $1,935,700 which isbeing amortized over a 40-year period.

During 1998, the Company made certainother small acquisitions. These transac-tions, which were effected in exchange for

cash, were accounted for as purchases andwere not material to the Company’s con-solidated financial statements.

In 1997, Cryovac purchased all the sharesof Schurpack, Inc., a U.S. manufacturer offlexible food packaging, for net cash con-sideration of $12,137. This transactionwas accounted for as a purchase andresulted in goodwill of $5,087.

Note 4 Acquisitions

Note 5 InventoriesDecember 31,

1999 1998

Inventories (at FIFO, which approximates current cost):Raw materials $ 60,596 $ 63,805Work in process 43,021 50,714Finished goods 157,341 176,965

260,958 291,484Reduction of certain inventories to LIFO basis (15,024) (16,172)

Total $245,934 $275,312

Inventories accounted for on a LIFO basis represented approximately 46% and 47% of total inventories at December 31, 1999 and 1998,respectively.


December 31,

1999 1998

Land and improvements $ 29,744 $ 28,569Buildings 396,716 392,020Machinery and equipment 1,364,454 1,349,716Other property and equipment 115,111 121,252Construction-in-progress 40,106 54,538

1,946,131 1,946,095Accumulated depreciation and amortization (922,722) (829,513)

Property and equipment, net $1,023,409 $1,116,582

Interest cost capitalized during 1999, 1998 and 1997 was $3,000, $4,994 and $12,775, respectively.

Note 7 Other Liabilities

December 31,

1999 1998

Other current liabilities:Accrued salaries, wages and related costs $105,811 $ 98,769Accrued restructuring costs (Note 9) 5,420 28,355Accrued operating expenses 76,759 80,152Accrued dividends and interest 28,497 23,056Income taxes payable 30,880 42,933

Total $247,367 $273,265

December 31,

1999 1998

Other liabilities:Other postretirement benefits $ 4,309 $ 4,916Non-U.S. statutory social security and pension obligations 31,625 28,888Other various liabilities 44,491 45,773

Total $ 80,425 $ 79,577

Non-U.S. statutory social security and pension obligations primarily represent the present value of the Company’s unfunded future obligations for certain eligible, active non-U.S. employees based on actuarial calculations.

Note 6 Property and Equipment


The components of earnings before income taxes were as follows:1999 1998 1997

Domestic $233,493 $132,448 $105,694Foreign 162,160 66,499 157,978

Total $395,653 $198,947 $263,672

The components of the provision for income taxes were as follows: 1999 1998 1997

Current tax expense:Federal $ 77,391 $ 54,249 $ 26,905State and local 20,455 11,830 5,233Foreign 66,988 35,839 42,821

Total current 164,834 101,918 74,959

Deferred tax expense:Federal 10,371 1,315 6,465State and local 2,593 283 1,055Foreign 6,394 22,424 7,461

Total deferred 19,358 24,022 14,981

Total provision $184,192 $125,940 $ 89,940

Deferred tax assets (liabilities) consist of the following:December 31,

1999 1998

Accruals not yet deductible for tax purposes $ 26,077 $ 28,431Research and development 12,401 21,027Postretirement benefits other than pensions 1,732 1,944Employee benefit items 20,516 11,864Inventories 17,617 23,777Foreign net operating loss carryforwards and investment tax allowances 24,946 26,490Other 7,792 6,200

Gross deferred tax assets 111,081 119,733Valuation allowance (15,412) (16,281)

Total deferred tax assets 95,669 103,452

Depreciation and amortization (122,032) (128,802)Intangibles (34,055) (31,698)Unremitted foreign earnings (35,750) (32,204)Pension (21,216) (18,545)Capitalized interest (14,487) (12,533)Other (10,945) (9,824)

Total deferred tax liabilities (238,485) (233,606)

Net deferred tax liabilities $(142,816) $(130,154)

Note 8 Income Taxes



The U.S. federal statutory corporate tax rate reconciles to the Company’s effective tax rate as follows:

1999 1998 1997

Statutory U.S. federal tax rate 35.0% 35.0% 35.0%State income taxes, net of federal tax benefit 3.8 4.0 1.5U.S. and foreign taxes on unremitted earnings .9 14.1 —Foreign taxes on foreign operations in excess of U.S. tax rates 1.8 2.6 (2.6)Non-deductible expenses, primarily goodwill amortization 5.1 7.6 0.2

Effective tax rate 46.6% 63.3% 34.1%

The Company has concluded that it ismore likely than not that the balance ofdeferred tax assets, net of the valuationallowance, of $95,669 at December 31,1999 will be realized based upon antici-pated future results. The balance of thevaluation allowance of $15,412 at Decem-ber 31, 1999 is due to the uncertainty of the realization of certain foreigndeferred tax assets, primarily relating toforeign investment tax allowances thatarose during 1996.

During the third quarter of 1998, theCompany began providing for incometaxes on that portion of foreign subsidiaries’accumulated earnings that managementbelieves are not reinvested indefinitely in

their businesses. Such provision resulted inan income tax charge of $26,000 inrespect of such accumulated earnings. Pre-viously, the Company and Grace treatedthe accumulated earnings of the Com-pany’s foreign subsidiaries as reinvestedindefinitely in their businesses, and there-fore no income taxes were provided in thefinancial statements with respect to futurerepatriation of such accumulated earnings.

As part of the Transaction Agreements, theCompany entered into a Tax-SharingAgreement with New Grace. This Tax-Sharing Agreement provides, among otherthings, that tax liabilities of Cryovac attrib-utable to periods ended on and prior tothe Merger will be substantially the

responsibility of New Grace. The Tax-Sharing Agreement also restricts the Com-pany and New Grace from engaging incertain transactions prior to March 31,2000.

At December 31, 1999, there were$44,517 of foreign net operating losscarryforwards ($14,870 tax effected) and$33,587 of investment tax allowances($10,076 tax effected), the majority ofwhich originated prior to the Merger, andhave no expiration period. In accordancewith the Tax-Sharing Agreement, NewGrace is entitled to receive the tax benefitof such carryforwards and allowances, asthey are realized by the Company.

Note 9 Restructuring Costs and Other Charges, Net

1998 Restructuring Program

After the Merger, the Company con-ducted a review of its operations in orderto develop a combined operating plan forold Sealed Air and Cryovac. The reviewconsidered organization and businessstructures and methods, the nature andextent of manufacturing and businessoperations in each region of the world,including assets and resources deployed,and current business and economic trends.As a result of such review, during the thirdquarter of 1998, the Company announcedand began implementation of a restruc-turing program. Charges to operationsarising out of this program amounted to $111,074 and included $39,848 ofemployee termination costs, for approxi-mately 750 positions or approximately 5%

of its workforce across all functional areas,$3,441 of exit costs and $67,785 of assetimpairments related to long-lived assetseither held for use or held for disposition.The portion of the 1998 restructuring andasset impairment charge applicable to theCompany’s food and specialty packagingsegment amounted to $97,064 and theportion applicable to the protective pack-aging segment amounted to $14,010. Theasset impairment amount of $67,785includes write-downs or write-offs of$47,083 for property, plant and equip-ment, $13,008 for goodwill, and $7,694for certain other long-lived intangibleassets. The $67,785 asset impairmentcharge includes $20,021 of long-livedassets, primarily machinery and equip-ment, that have been disposed and theremaining amount of $47,764 are long-

lived assets held for use. The Companyexpects to incur approximately $43,289 ofcash outlays to carry out this restructuringprogram, of which approximately $38,293was paid through December 31, 1999.These cash outlays include primarily sever-ance and other personnel related costs,costs of terminating leases and facilitiesand equipment disposition costs. As of December 31, 1999, all restructuringactions were substantially completedincluding the elimination of 744 posi-tions, and the remaining reserves of$4,996 are related principally to outstand-ing employee severances and lease termi-nation costs that are expected to becompleted during 2000 and to a limitedextent in later years.



The following table presents the rollforward of the liabilities for the pre-Merger restructuring from December 31, 1996 to December 31, 1999:

EmployeeTermination Plant/Office Other

Costs Closures Costs Total

Restructuring reserve at December 31, 1996 $ 33,031 $ 5,206 $ 684 $ 38,921Restructuring provisions recorded in 1997 3,200 — 416 3,616Payments during 1997 (26,074) (2,420) (1,100) (29,594)

Restructuring reserve at December 31, 1997 10,157 2,786 — 12,943Payments during 1998 (3,516) — — (3,516)Liability retained by New Grace at March 31, 1998 (5,015) (2,699) — (7,714)Reversal of restructuring (282) — — (282)

Restructuring reserve at December 31, 1998 1,344 87 — 1,431Payments during 1999 (951) (56) — (1,007)

Restructuring reserve at December 31, 1999 $ 393 $ 31 $ — $ 424

Employee termination costs for this pre-Merger restructuring program at Decem-ber 31, 1999 primarily representedseverance pay and other benefits (includ-ing benefits under long-term incentiveprograms paid over time) associated withthe elimination of approximately 400Cryovac positions worldwide. As ofDecember 31, 1999, all of these positionshad been eliminated. The remainingreserves at December 31, 1999 are related

to outstanding employee separation costswhich are expected to be completed dur-ing 2000.

In connection with the Reorganizationand the Merger, certain obligations relatedto Grace’s restructuring program wereretained by New Grace. As of March 31,1998, the Company’s liability with respectto such obligations, amounting to approx-imately $7,714 together with related

deferred income taxes, was reversed andaccounted for as an equity contribution tothe Company from Grace.

During 1997, Grace determined that, dueto certain market demand shifts and man-ufacturing capacity strategies, certainproperty and equipment were impaired.As a result, in 1997, Grace recorded non-cash pre-tax charges of approximately$10,828.

Restructuring and other charges, net, inthe accompanying 1998 consolidatedstatement of earnings include the effect ofa special credit to operations amounting to$23,610 relating to the curtailment of cer-tain postretirement benefits. See Note 11.

Pre-Merger Restructuring Program

Grace began to implement a worldwideprogram in 1995 focused on streamliningprocesses and reducing general andadministrative expenses and factoryadministration costs. In connection with

this program, Grace recorded a restruc-turing charge of $3,616 in 1997. Thischarge primarily related to headcountreductions in Cryovac and the restructur-ing of Cryovac’s European operations inareas such as working capital manage-ment, manufacturing and sales.

The components of the 1998 restructuring charges, as well as the spending and other activity during 1999 and 1998, and the remainingreserve balance at December 31, 1999 were as follows:

Employee ContractTermination Plant/Office Termination

Costs Closures Costs Total

Restructuring provision recorded in 1998 $ 39,848 $ 2,291 $ 1,150 $ 43,289Payments during 1998 (14,486) (729) (1,150) (16,365)

Restructuring reserve at December 31, 1998 25,362 1,562 — 26,924Payments during 1999 (21,392) (536) — (21,928)

Restructuring reserve at December 31, 1999 $ 3,970 $ 1,026 $ — $ 4,996


Note 10 Employee Benefits and Incentive Programs

Profit-Sharing and Retirement SavingsPlans

The Company has a non-contributoryprofit-sharing plan covering most of theCompany’s U.S. employees. Contribu-tions to this plan, which are made at thediscretion of the Board of Directors, maybe made in cash, shares of the Company’scommon stock, or in a combination ofcash and shares of the Company’s com-mon stock. The Company also maintainscontributory thrift and retirement savingsplans in which most U.S. employees of theCompany are eligible to participate. Theseplans, certain of which were offered by oldSealed Air to certain of its U.S. employeesprior to the Merger, were adopted by theCompany subsequent to the Merger. Thecontributory thrift and retirement savings

plans generally provide for Company con-tributions based upon the amount con-tributed to the plans by the participants.Company contributions to or provisionsfor its profit-sharing and retirement sav-ings plans are charged to operations andamounted to $31,852 and $22,919 in1999 and 1998, respectively. Included innon-cash compensation in 1999 is $8,823related to the shares of common stockissued for a portion of the Company’s con-tribution to its profit-sharing plan.

Pension Plans

Substantially all of the U.S. and non-U.S.employees who were employed by Cryovacat the time of the Merger were covered bycontributory or non-contributory definedbenefit plans sponsored by Grace. Benefits

were generally based on final average salaryand years of service. Grace had funded itspension plans in accordance with locallaws and regulations. Plan assets consistedprimarily of publicly traded commonstocks, fixed income securities and cashequivalents.

Upon the Merger, the participation ofmost of the Company’s U.S. employees indefined benefit plans formerly sponsoredby Grace ceased. The pension obligationsrelating to Grace’s principal U.S. pensionplan (the “Grace Salaried Plan”) wereretained by New Grace. As of March 31,1998, the pension liability with respect tothe Grace Salaried Plan, including relateddeferred income taxes, was reversed andaccounted for as an equity contribution tothe Company from Grace.

Separate calculations of Cryovac’s net pension cost and funded status within Grace’s U.S. pension plans were performed for prior years.Cryovac’s total pension expense for U.S. plans consisted of the following components:

Quarter Ended Year Ended

March 31, 1998 December 31,1997

Service cost on benefits earned during the year $ 1,520 $ 5,800Interest cost on benefits earned in prior years 3,251 12,700Actual return on plan assets (3,587) (13,900)Deferred gain on plan assets 273 —Amortization of net gain and prior service costs (365) (900)

Net pension cost $ 1,092 $ 3,700

The following significant assumptions were used in calculating the pension cost presented above:1997

Discount rate at December 31 7.3%Expected long-term rate of return 9.0%Rate of compensation increase 4.5%


The Company maintains pension plansfor certain U.S. employees, including certain employees who are covered by col-lective bargaining agreements. Subsequentto the Merger, the Company established apension plan for U.S. employees who wereemployees of Cryovac at the time of theMerger and who participated in the Grace

Salaried Plan. The new plan is intended toprovide restorative benefits to the extentrequired, if any, should the Company’sassumed profit-sharing plan benefits beinsufficient to provide retiree benefits atleast equivalent in amount to the GraceSalaried Plan. Pension cost for all U.S.pension plans charged to operations dur-

ing 1999, and for the 1998 period subse-quent to the Merger amounted to $1,088and $803, respectively. The balancesheet as of December 31, 1999 andDecember 31, 1998 includes the follow-ing related to such plans: an intangibleasset of $1,610 and $3,613, respectively;accumulated other comprehensive income


of $572 and $2,922, respectively; and anaccrued benefit liability of $599 and$2,613, respectively. As of December 31,1999, the balance sheet also includes a pre-paid pension asset of $1,964 related tosuch plans. The aggregate benefit obliga-tion at December 31, 1999 and 1998amounted to $15,369 and $16,700,respectively, while the fair value of planassets at such date amounted to $14,170and $12,400, respectively.

In connection with the Reorganizationand the Merger, the Company either

assumed or established pension plans forcertain of its non-U.S. Cryovac employees.Pension assets acquired by the Companyfrom Grace with respect to these planswere recorded in the accounts with a cor-responding credit to shareholders’ equity,net of related deferred income taxes.

Historically, Grace did not calculate netpension cost and funded status separatelyfor Cryovac within its non-U.S. plans.The Cryovac employees historically com-prised approximately 66% of the totalactive participants in Grace’s non-U.S.

plans. Net pension cost for these plans was allocated annually to Cryovac byGrace. Total pension (income) cost allo-cated to Cryovac in connection with theseplans was $(242) for the first quarter of1998 and $800 for 1997. Prior to theMerger, no portion of Grace’s non-U.S.pension assets or liabilities was allocated toCryovac, on the basis that Cryovac’s non-U.S. employees were considered to haveparticipated in a multi-employer pensionplan as defined in SFAS No. 87,“Employer’s Accounting for Pensions.”

The following tables set forth the components of net pension cost of the non-U.S. Grace-sponsored pension plans for all Grace businesses:

Quarter Ended Year Ended

March 31, 1998 December 31, 1997

Service cost on benefits earned during the year $ 2,799 $ 10,000Interest cost on benefits earned in prior years 4,744 19,400Actual return on plan assets (8,017) (51,100)Deferred (loss) gain on plan assets (221) 20,400Amortization of net gain (loss) and prior service costs 108 (500)Net curtailment and settlement loss 125 3,700

Net pension (gain) cost $ (462) $ 1,900

The following presents the Company’s funded status and pension expense for 1999 and from April 1, 1998 to December 31, 1998 under SFAS No. 132 for its non-U.S. pension plans:

Change in benefit obligation: 1999 1998

Benefit obligation at beginning of period $128,581 $ —Benefit obligation at April 1, 1998 — 119,890Service cost 6,984 4,165Interest cost 7,116 5,819Actuarial loss 2,659 1,172Benefits paid (8,899) (3,833)Employee contributions 1,282 954Foreign exchange impact (4,517) 414

Benefit obligation at end of period $133,206 $128,581

Change in plan assets:

Fair value of plan assets at beginning of period $145,601 $ —Fair value of plan assets at April 1, 1998 — 151,019Actual return on plan assets 19,712 402Employer contributions 2,438 2,151Benefits paid (8,899) (3,833)Employee contributions 1,282 954Foreign exchange impact 434 (5,092)

Fair value of plan assets at end of period $160,568 $145,601



The projected benefit obligation, accu-mulated benefit obligation, and fair valueof plan assets for pension plans with accu-

mulated benefit obligations in excess ofplan assets were $31,120, $25,428 and$4,920 as of December 31, 1999, respec-

tively, and $35,566, $28,169 and $5,031as of December 31, 1998, respectively.

Funded status: 1999 1998

Plan assets in excess of benefit obligation $ 27,362 $ 17,020Unrecognized net asset (212) (678)Unrecognized net prior service cost 706 779Unrecognized net actuarial loss 9,125 17,993

Prepaid pension cost at end of period $ 36,981 $ 35,114

Amount recognized in the consolidated balance sheet consists of:

Prepaid benefit cost $ 57,364 $ 55,242Accrued benefit liability (23,646) (23,410)Intangible asset 493 730Accumulated other comprehensive income 2,770 2,552

Net amount recognized $ 36,981 $ 35,114

For periodYear ended April 1, 1998 to

Components of net periodic benefit cost: December 31, 1999 December 31, 1998

Service cost $ 6,984 $ 4,165Interest cost 7,116 5,819Expected return on plan assets (12,169) (9,766)Amortization of asset (487) (375)Amortization of prior service cost 106 79Amortization of net loss 1,096 234

Net periodic pension cost $ 2,646 $ 156

The following significant assumptions (weighted averages for 1999 and 1998) were used in calculating the pension cost and funded statuspresented above:

1999 1998 1997

Discount rate at December 31 5.7% 6.3% 2.3 - 7.5%Expected long-term rate of return 8.6% 8.9% 6.0 - 10.5%Rate of compensation increase 3.7% 4.0% 2.0 - 5.0%

Long-Term Incentive Program

Grace maintained a Long-Term IncentiveProgram (“LTIP”) in which certain Cryovac employees were eligible to par-ticipate prior to the Reorganization andthe Merger. In conjunction with the

Reorganization and the Merger, the eligi-ble Cryovac employees ceased to partici-pate in the LTIP, and LTIP liabilitiesrelated to Cryovac employees wereassumed by New Grace. As of March 31,1998, the Company’s liability with respectto LTIP obligations retained by New

Grace, including related deferred incometaxes, was reversed and accounted for asan equity contribution to the Companyfrom Grace. LTIP expense related to Cryovac employees was $5,900 for 1997.


Prior to the Merger, Grace maintainedpostretirement healthcare and life insur-ance benefit plans for its U.S. employees.SFAS No. 106, “Employer’s Accountingfor Postretirement Benefits Other ThanPensions,” which requires the accrualmethod of accounting for the future costsof postretirement health care and lifeinsurance benefits over the employees’years of service, was applied to determinethe cost of the benefits. Grace paid the costof postretirement benefits as they wereincurred.

Subsequent to the Merger, the Companychanged the eligibility provisions of theformer Grace postretirement healthcareplan. The changes had the effect of cur-tailing benefits for substantially all future

retirees other than those for whom NewGrace retained responsibility. In addition,the plan was amended to increase theamount of future retirees’ contributions,thereby further reducing the Company’spostretirement benefit costs. During thefourth quarter of 1998, the liability elimi-nated and credited to operationsamounted to $23,610. At December 31,1999 and December 31,1998, the accruedbenefit liability amounted to $4,309 and$4,916, respectively. For the year endedDecember 31, 1999, there was a netpostretirement credit to operations of$607. For the nine months ended Decem-ber 31, 1998, there was a net postretire-ment credit of $469. These net periodicpostretirement credits, together with otherremaining postretirement healthcare plan

disclosures under SFAS No. 132, are notmaterial to the consolidated financialstatements.

Under the terms of the Transaction Agree-ments, New Grace retained the postretire-ment benefit obligations related to allCryovac employees who had retired priorto the Merger and to active Cryovacemployees who were eligible to receivepostretirement benefits should they havemet the age and service requirements toretire at any time on or before March 31,1999. As of March 31, 1998, the liabilityretained by New Grace ($30.9 million)was reversed and accounted for as anequity contribution to the Company fromGrace, net of related deferred income taxes.

Note 11 Other Postretirement Benefit Plans

Net periodic postretirement benefit cost consisted of the following components:

Quarter EndedMarch 31, 1998 December 31, 1997

Service cost $ 200 $ 800Interest cost on accumulated benefit obligation 1,000 3,600Amortization of prior service credit (400) (1,500)

Net postretirement benefit cost $ 800 $ 2,900

Note 12 Debt

A summary of long-term debt at December 31, 1999 and 1998 follows:December 31,

1999 1998

Credit Agreement due March 2003 $ 160,978 $ 990,0005.625% Euro Notes due July 2006,

less discount of $1,317 in 1999 200,858 —6.95% Senior Notes due May 2009,

less discount of $2,071 in 1999 297,929 —Other 12,259 23,484

Total 672,024 1,013,484Less current installments (6,908) (16,958)

Long-term debt, less current installments $ 665,116 $ 996,526



The Company’s two principal CreditAgreements are a 5-year revolving creditfacility that expires on March 30, 2003(included in long-term debt) and a 364-day revolving credit facility thatexpires on March 27, 2000 (included inshort-term borrowings). During 1999, the Company voluntarily reduced theamounts available under the Credit Agree-ments to $1,125,000 in the aggregate. As of December 31, 1999 and 1998, out-standing borrowings were $160,978 and$990,000, respectively, under the 5-yearrevolving credit facility and $38,342 and$19,933, respectively, under the 364-dayrevolving credit facility. The Credit Agree-ments provide that the Company and cer-tain of its subsidiaries may borrow forvarious purposes, including the refinanc-ing of existing debt, the provision of work-ing capital and other general corporateneeds, including acquisitions and capitalexpenditures. Amounts repaid under theCredit Agreements may be reborrowedfrom time to time. As of December 31,1999, 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-yearrevolving credit facility and the 364-dayrevolving credit facility, respectively.

The Company’s obligations under theCredit Agreements bear interest at floatingrates. The weighted average interest rateunder the Credit Agreements was approx-imately 6.0% and 5.8% at December 31,1999 and 1998, respectively. The Com-pany had certain interest rate and currencyswaps outstanding at December 31, 1999,and had certain interest rate swap agree-ments outstanding at December 31, 1998related to its obligations under the Credit

Agreements. These agreements had theeffect of fixing or adjusting the interestrates on a portion of such debt. Theweighted average interest rates at Decem-ber 31, 1999 and 1998 did not change sig-nificantly as a result of these derivativefinancial instruments.

The Credit Agreements provide forchanges in borrowing margins based onfinancial criteria and the Company’s seniorunsecured debt ratings, and impose cer-tain limitations on the operations of theCompany and certain of its subsidiaries.The limitations include financial cove-nants relating to interest coverage and debtleverage as well as certain restrictions onthe incurrence of additional indebtedness,the creation of liens, mergers and acquisi-tions, and certain dispositions of propertyand assets. The Company was in compli-ance with these requirements as of Decem-ber 31, 1999.

During 1999, the Company issued euro200,000 (approximately $205,000, at thethen current exchange rate) aggregateprincipal amount of 7-year 5.625% notes(the “Euro Notes”) and $300,000 aggre-gate principal amount of 10-year 6.95%senior notes (the “Senior Notes”). The netproceeds of these note issuances of approx-imately $500,491 in the aggregate wereused to refinance outstanding borrowingsunder the Credit Agreements. Accruedinterest on the Euro Notes is payableannually in cash on July 19 of each year,commencing July 19, 2000, and accruedinterest on the Senior Notes is payablesemi-annually in cash on May 15 andNovember 15 of each year, which pay-ments commenced on November 15,1999. The yields to maturity at the date ofissuance for the Euro Notes and Senior

Notes were approximately 5.75% and7.05%, respectively.

The Senior Notes and Euro Notes imposecertain limitations on the operations of theCompany and certain of its subsidiaries.The limitations include restrictions on thecreation of liens, merger or consolidationof the Company and disposition of sub-stantially all of the Company’s assets. TheSenior Notes also include restrictions onsale-leaseback transactions. The Companywas in compliance with these require-ments as of December 31, 1999.

Debt at December 31, 1999 and 1998also included $114,311 and $48,240,respectively, of short-term borrowings by certain of the Company’s non-U.S.subsidiaries under local lines of credit and $12,259 and $23,484, respectively, of long-term debt incurred by certain of the Company’s U.S. and non-U.S. subsidiaries.

The Company had available lines of credit under the Credit Agreements andother credit facilities of approximately$1,300,000 and $1,800,000 at Decem-ber 31, 1999 and 1998, respectively, ofwhich approximately $1,100,000 and$700,000 were unused at December 31,1999 and 1998, respectively. The Com-pany is not subject to any material compensating balance requirements inconnection with its lines of credit.

Scheduled annual maturities of long-term debt, exclusive of debt discounts, for the five years subsequent to Decem-ber 31, 1999 are as follows: 2000 –$6,908; 2001 – $1,419; 2002 – $1,142;2003 – $161,998; 2004 – $809 and there-after – $503,136.


The Company uses derivative financialinstruments to manage its exposure tofluctuations in interest rates and foreignexchange rates. The Company does notpurchase, hold or sell derivative financialinstruments for trading purposes.

The Company uses interest rate swaps tomanage its exposure to fluctuations in

interest rates. At December 31, 1999, theCompany was party to forward-startinginterest rate swaps with an aggregatenotional amount of approximately$151,000 with various expiration datesthrough November 2004 compared tointerest rate swaps with an aggregatenotional amount of approximately$257,000 and various expiration dates

through March 2003 at December 31,1998. The forward-starting interest rateswaps outstanding at December 31, 1999have the effect of converting a portion ofthe Company’s fixed rate debt to variablerate debt at U.S. denominated rates whichranged from 6.2% to 6.5% and eurodenominated rates which ranged from3.8% to 4.4% at December 31, 1999.

Note 13 Financial Instruments


The Company is required by generallyaccepted accounting principles to discloseits estimate of the fair value of materialfinancial instruments, including thoserecorded as assets or liabilities in its con-solidated financial statements and deriva-tive financial instruments. The fair value ofthe Company’s Senior Notes, Euro Notesand Series A convertible preferred stockare based on quoted market prices. The

fair value estimates of the Company’s vari-ous other debt instruments were derivedby evaluating the nature and terms of eachinstrument, considering prevailing eco-nomic and market conditions, and exam-ining the cost of similar debt offered at thebalance sheet date. Such estimates are sub-jective and involve uncertainties and mat-ters of significant judgment and thereforecannot be determined with precision.

Changes in assumptions could signifi-cantly affect the Company’s estimates.

All financial instruments inherently exposethe holders to market risk, includingchanges in currency and interest rates. TheCompany manages its exposure to thesemarket risks through its regular operatingand financing activities and when appro-priate, through the use of derivative finan-cial instruments.

The carrying amounts of current assets and liabilities approximate fair value due to their short-term maturities. The carrying amounts andestimated fair values of the Company’s material financial instruments at December 31, 1999 and 1998 were as follows:

1999 1998

Carrying Fair Carrying FairAmount Value Amount Value

Financial assets:Foreign exchange forward contracts $ — $ — $ — $ 415

Financial liabilities:Debt:

Credit Agreements 199,320 199,320 1,009,933 1,009,933Derivatives — (85) — 3,373

Credit Agreements, net 199,320 199,235 1,009,933 1,013,306

Senior Notes 297,929 273,263 — —Derivatives — 857 — —

Senior Notes, net 297,929 274,120 — —

Euro Notes 200,858 188,545 — —Derivatives — (20) — —

Euro Notes, net 200,858 188,525 — —

Other foreign loans 123,462 123,853 68,375 68,961Derivatives — 423 — 1,658

Foreign loans, net 123,462 124,276 68,375 70,619

Other loans 3,108 2,609 3,349 3,498

Total debt $ 824,677 $ 788,765 $1,081,657 $1,087,423

Series A convertible preferred stock $1,761,662 $1,779,279 $1,791,093 $1,858,258


Substantially all of the swaps outstandingat December 31, 1998 fixed the rate ofinterest paid on the notional amount ofcertain U.S. dollar denominated long-term debt at rates which ranged from5.05% to 5.82% at December 31, 1998.

Interest rate collars are used to reduce theCompany’s exposure to fluctuations ininterest rates by limiting fluctuations inthe rate of interest the Company pays on anotional amount of debt. At Decem-ber 31, 1999 and 1998, the Companywas party to interest rate collars with anaggregate notional amount of approxi-mately $8,000 with expiration datesthrough June 2001.

The Company uses interest rate and cur-rency swaps to gain access to additionalsources of international financing whilelimiting foreign exchange exposure andlimiting or adjusting interest rate exposureby swapping borrowings in U.S. dollars

for borrowings denominated in foreigncurrencies. At December 31, 1999, theCompany was party to interest rate andcurrency swaps with an aggregate notionalamount of approximately $5,000 and var-ious expiration dates through March 2002compared with an aggregate notionalamount of approximately $23,000 andvarious expiration dates through May2002 at December 31, 1998.

The Company uses foreign currency for-wards to fix the amount payable on trans-actions denominated in foreign currencies.The Company was not party to any mate-rial foreign currency forwards at Decem-ber 31, 1999. The notional principalamount of foreign currency forwards atDecember 31, 1998 was approximately$12,800, which expired through March1999.

The fair values of the Company’s variousderivative instruments, as advised by the

Company’s bankers, generally reflect theestimated amounts that the Companywould receive or pay to terminate the con-tracts at the reporting date.

Unrealized and realized gains and losses onthe Company’s financial instruments andderivatives were not material to the con-solidated financial statements in 1999,1998 or 1997.

The Company is exposed to credit lossesin the event of the inability of the coun-terparties to its outstanding derivative con-tracts to perform their obligations, but itdoes not expect any counterparties to failto perform given their high credit ratingsand financial strength. The Companybelieves that its exposure to losses in con-junction with its derivative contractswould not be material in the case of non-performance on the part of the counter-parties to such agreements.

The Company’s shareholders’ equityincreased to $551,030 at December 31,1999 from $437,045 at December 31,1998, primarily as a result of the increasein net earnings in 1999, which was par-tially offset by the payment of preferredstock dividends and additional foreigncurrency translation adjustments.

In connection with the Reorganizationand the Merger, certain assets and liabili-ties of Cryovac were retained by NewGrace as contemplated by the TransactionAgreements. Accordingly, as of March 31,1998, these assets and liabilities wereaccounted for as an equity contribution tothe Company from Grace, net of relateddeferred income taxes. Certain other assets

and liabilities related to non-U.S. pensionplans, deferred income tax liabilities andother items arising directly from the Reor-ganization have been accounted for as acontribution to, or distribution from,Cryovac. The following is a summary ofthe net activity affecting the Company’sequity in connection with the Reorganiza-tion during 1998:

Assets transferred to the Company $ 81,905Liabilities retained by New Grace 51,671Liabilities transferred to the Company (24,926)Tax adjustment, including deferred taxes (64,342)Net advances to Grace (20,369)

$ 23,939


The tax adjustment includes the transferof deferred income tax balances to theCompany relating to the underlying assetsand liabilities transferred to the Company,the elimination of certain deferred income

tax assets which represent pre-Mergeraccumulated net operating loss benefitsnot available to the Company, and certainadjustments relating to the Tax-SharingAgreement with New Grace.

Common Stock

In connection with the Recapitalization,the Company, among other things, recap-italized the outstanding shares of Grace

Note 14 Shareholders’ Equity


The following is a summary of changes during 1999 and 1998 in shares of common stock:

1999 1998Changes in common stock:

Number of shares, beginning of year 83,806,361 —Issued in Recapitalization — 40,647,815Issued in Merger — 42,624,246Shares issued for contingent stock 246,300 522,300Non-cash compensation 13,000 12,000Conversion of preferred stock 5,483 —Exercise of stock options 64,111 —

Number of shares issued, end of year 84,135,255 83,806,361

Changes in common stock in treasury:Number of shares held, beginning of year 494,550 —Contingent stock forfeited 15,400 3,550Purchase of shares during period 251,000 491,000Non-cash compensation (50,000) —Profit sharing contribution (175,594) —

Number of shares held, end of year 535,356 494,550

Contingent Stock Plan and DirectorsStock Plan

The Company’s contingent stock plan wasadopted following the Merger and pro-vides for the granting to employees ofawards to purchase common stock (duringthe succeeding 60-day period) for less than100% of fair market value at the date ofaward. Shares issued under the contingentstock plan (“contingent stock”) arerestricted as to disposition by the holdersfor a period of at least three years afteraward. In the event of termination of employment prior to lapse of the restric-tion, the shares are subject to an option torepurchase by the Company at the price atwhich the shares were issued. Such restric-tion lapses prior to the expiration of thevesting period if certain events occur thataffect the existence or control of the Com-pany. The aggregate fair value of contin-gent stock issued is credited to commonstock and additional paid-in capitalaccounts, and the unamortized portion ofthe compensation is deducted from share-holders’ equity. The excess of fair valueover the award price of contingent stock is

charged to operations as compensationover a three-year period. Such chargesamounted to $15,679 and $10,732 in1999 and 1998, respectively. Shares issuedunder the old Sealed Air contingent stockplan that were forfeited amounted to(1,000) shares and 2,800 shares in 1999and 1998, respectively.

Non-cash compensation includes sharesissued to non-employee directors in theform of awards under the Company’srestricted stock plan for non-employeedirectors (the “Directors Stock Plan”). TheDirectors Stock Plan was adopted follow-ing the Merger and provides for annualgrants of shares to non-employee directors,and interim grants of shares to eligibledirectors elected at other than an annualmeeting, at an amount less than 100% offair value at date of grant, in lieu of cashpayments for certain directors’ fees. Sharesissued under this plan are restricted as todisposition by the holders as long as suchholders remain directors of the Company.The excess of fair value over the price atwhich shares are issued under this plan ischarged to operations at the date of such

grant. Such charges amounted to $842and $437 in 1999 and 1998, respectively.Also included in non-cash compensationin 1999 is $269 of amortization expenserelated to the issuance of 50,000 shares of the Company’s common stock inexchange for certain non-employee con-sulting services. Such shares vest ratablyover a five-year period.

The Company has adopted only the dis-closure provisions of SFAS No. 123,“Accounting for Stock-Based Compensa-tion,” but applies APB No. 25 and related interpretations in accounting forthese plans.

The compensation cost that has beencharged against income for such plans wasnoted above. Since such compensationcost is consistent with the compensationcost that would have been recognized forsuch plans under the provisions of SFASNo. 123, the pro forma disclosure require-ments under such statement are notapplicable for these plans.


Common Stock into 40,647,815 shares of the Company’s common stock and36,021,851 shares of Series A convertible

preferred stock (convertible into approxi-mately 31,900,000 shares of the Company’scommon stock), each with a par value of

$0.10 per share. In the Merger, the Com-pany issued 42,624,246 shares of commonstock to the shareholders of old Sealed Air.


The following is a summary of changes during 1999 and 1998 in shares of preferred stock:1999 1998

Changes in preferred stock:Number of shares issued, beginning of year 36,021,851 —Conversion of preferred stock (6,206) —Issued in Recapitalization — 36,021,851

Number of shares issued, end of year 36,015,645 36,021,851

Changes in preferred stock in treasury:Number of shares held, beginning of year 200,000 —Purchase of shares during period 582,400 200,000

Number of shares held, end of year 782,400 200,000

Redeemable Preferred Stock – Series AConvertible Preferred Stock

The outstanding preferred stock is con-vertible at any time into approximately0.885 share of common stock for eachshare of preferred stock, votes with thecommon stock on an as-converted basis,pays a cash dividend, as declared by theBoard of Directors, at an annual rate of

$2.00 per share, payable quarterly inarrears, becomes redeemable at the optionof the Company beginning March 31,2001, subject to certain conditions, and issubject to mandatory redemption onMarch 31, 2018 at $50 per share, plus anyaccrued and unpaid dividends. Because itis subject to mandatory redemption, theconvertible preferred stock is classifiedoutside of the shareholders’ equity section

of the balance sheet. At its date of issuance,the fair value of the convertible preferredstock exceeded its mandatory redemptionamount primarily due to the commonstock conversion feature of such preferredstock. Accordingly, the carrying amount ofthe convertible preferred stock is reflectedin the consolidated balance sheet at itsmandatory redemption value.

A summary of the changes in shares available for the Contingent Stock Plan and the Directors Stock Plan follows:

1999 1998

Changes in Contingent Stock Plan shares:Number of shares available, beginning of year 1,978,450 —Establishment of plan following the Merger — 450,450Increase in shares authorized during the year — 2,049,550Shares issued for new awards (246,300) (522,300)Contingent stock forfeited 16,400 750

Number of shares available, end of year 1,748,550 1,978,450

Weighted average per share market value of stock on grant date $ 55.19 $ 58.37

Changes in Directors Stock Plan shares:Number of shares available, beginning of year 88,000 —Establishment of plan following the Merger — 100,000Shares issued for new awards (13,000) (12,000)

Number of shares available, end of year 75,000 88,000

Weighted average per share market value of stock on grant date $ 64.88 $ 36.33



Stock Options

Prior to the Reorganization and the Mer-ger, certain of Cryovac’s employees partic-ipated in stock option plans maintained byGrace. Under the terms of those plans,options were granted at an exercise priceequal to the fair market value of GraceCommon Stock on the date of grant,became exercisable at the time or timesdetermined by a committee of Grace’sBoard of Directors, and had terms of up toten years and one month. In connectionwith the Reorganization and the Merger,the Company terminated those plans

except with respect to outstanding optionsheld by Cryovac employees at the time ofthe Merger. Under the Transaction Agree-ments, such options became options topurchase the Company’s common stock,and the number of shares covered by andexercise price of such options were adjusted at the time of the Merger to pre-serve their economic value. No optionshave been granted to Cryovac employeessince 1997.

Options to purchase 490,177 shares ofcommon stock were outstanding at March31, 1998 at an average exercise price of

$37.02 per share after giving effect to theadjustments provided for in the Transac-tion Agreements. Such options are exercis-able over terms extending to 2007. Noneof the options outstanding following theMerger were exercised during 1998.

During 1999, 64,111 options were exer-cised with an aggregate exercise price of$2,029. At December 31, 1999, 426,066options to purchase shares of commonstock were still outstanding at an averageexercise price of $37.83 per share. Exerciseprices relating to such options range from$18.95 to $42.19 per common share.

The pro forma effect on earnings and earnings per common share of applying SFAS No. 123 for those options granted during 1997 and1996 to employees of Cryovac were as follows:

Year Ended December 31,1999 1998 1997

Net earnings ascribed to common shareholders:As reported $141,607 $ 2,873 $101,688Pro forma (1) 140,867 1,673 100,288

Basic earnings per common share:As reported $ 1.69 $ 0.04 $ 2.54Pro forma (1) 1.69 0.02 2.51

Diluted earnings per common shareAs reported $ 1.68 $ 0.02 $ 2.39Pro forma (1) 1.67 0.00 2.37

(1) These pro forma amounts calculated in accordance with SFAS No. 123 may not be indicative of future net earnings or earnings per common share effects.

The fair value of option grants was estimated using the Black-Scholes option pricing model with the following historical weighted-averageassumptions:

1997

Dividend yields 1%Expected volatility 29%Risk-free interest rates 6%Expected life (in years) 4

Based on the above assumptions, the weighted-average fair value of each option granted was $16.00 for 1997 before giving effect to adjust-ments provided for in the Transaction Agreements.


Note 15 Supplementary Cash Flow Information

1999 1998 1997

Interest payments, net of amounts capitalized $ 51,810 $ 47,997 $ —Income tax payments 172,980 80,069 74,959

The consolidated statement of cash flows for the year ended December 31, 1998 excludes the following non-cash transactions that wereaccounted for as changes in additional paid-in capital:

Issuance of 36,021,851 shares of Series A convertible preferred stock and 40,647,815shares of common stock in connection with the Reorganization and Recapitalization $1,801,093

Net assets acquired in the Merger in exchange for 42,624,246 shares of common stock 2,110,752Liabilities assumed by the Company, net (7,363)Liabilities retained by New Grace 51,671

In calculating basic and diluted earningsper common share for 1998 and 1997,retroactive recognition has been given tothe Recapitalization as if it had occurredon January 1, 1997 in accordance withSAB No. 98. Accordingly, net earningswere reduced in such years for preferredstock dividends (as if such shares had beenoutstanding during each period) to arriveat earnings ascribed to common share-holders. The weighted average number of

outstanding common shares used to calcu-late basic earnings per common share insuch years was calculated on an equivalentshare basis using the weighted averagenumber of shares of common stock out-standing for the first quarter of 1998 andfor the 1997 period, adjusted to reflect the terms of the Recapitalization. Theweighted average number of commonshares used to calculate diluted earningsper common share also considers the exer-

cise of dilutive stock options in each yearand repurchased preferred stock in 1999and 1998. Except as noted in the tablebelow, the outstanding preferred stock isnot assumed to be converted in the cal-culation of diluted earnings per commonshare for 1999 and 1998 because the treat-ment of the preferred stock as the com-mon stock into which it is convertiblewould be anti-dilutive (i.e., would increaseearnings per common share) in those years.

Note 16 Earnings Per Common Share

The following table sets forth the reconciliation of the basic and diluted earnings per common share computations for the years ended December 31, 1999, 1998 and 1997 (shares in thousands).

1999 1998(a) 1997(a)

Basic EPS:NumeratorNet earnings $211,461 $ 73,007 $173,732Add: Excess of book value over repurchase price of preferred stock 1,568 1,798 —Less: Preferred stock dividends 71,422 53,921 —Less: Retroactive recognition of preferred stock dividends — 18,011 72,044

Earnings ascribed to common shareholders $141,607 $ 2,873 $101,688

DenominatorWeighted average common shares outstanding – basic 83,553 72,997 40,052

Basic earnings per common share $ 1.69 $ 0.04 $ 2.54



Cash

Prior to the Merger, Cryovac used Grace’scentralized cash management services.Under such service arrangements, excessdomestic cash was invested and disburse-ments were funded centrally by Grace onbehalf of Cryovac.

Shared Services and Facilities

Prior to the Merger, Grace allocated a por-tion of its domestic and overseas regionalcorporate expenses to Cryovac. Theseexpenses reflected corporate overhead;benefit administration; risk management/insurance administration; tax and treasury/cash management services; environmentalservices; litigation administration services;general legal services, including intellectualproperty; and other support and executivefunctions. Allocations and charges werebased on either a direct cost pass-throughor a percentage allocation for services pro-vided, based on factors such as net sales,management effort or headcount.

Domestic corporate expenses of Graceallocated to Cryovac in accordance withSAB No. 55 totaled $18,044 and $28,213for 1998 and 1997, respectively, and wereincluded in marketing, administrative anddevelopment expenses.

Grace management believed that the basisused for allocating corporate services wasreasonable and that the terms of thesetransactions would not materially differfrom those among unrelated parties.

The statements of earnings for periodsprior to the Merger also included alloca-tions of costs for general and administra-tive services and maintenance services forfacilities that Cryovac shared with otherGrace businesses as well as data processingservices provided by Grace’s Europeancentral data processing facility. The allo-cated costs and expenses related to generaland administrative functions, mainte-nance, data processing and other facilitysupport functions were estimated to beapproximately $14,000 for the 1998period and $55,802 for 1997. Of these

amounts, $6,181 was included in cost ofsales and $49,621 was included in market-ing, administrative and developmentexpenses in 1997. The cost allocations forthese services were determined based onmethods that Grace management consid-ered to be reasonable.

Prior to the Merger, Grace also chargedCryovac for its share of domestic workers’compensation, automobile and other general business liability insurance pre-miums and claims, which were all handledby Grace on a corporate basis. Thesecharges were based on Cryovac’s actualand expected future experience, includingannual payroll expense, and were not sig-nificant to Cryovac’s results of operations.

Allocation of Long-Term Incentive Program Expense

In accordance with SAB No. 55, the finan-cial statements for 1997 reflect an alloca-tion of $23,710 of LTIP expense related toGrace corporate employees who per-formed services on behalf of Cryovac.

Diluted EPS:NumeratorEarnings ascribed to common shareholders $141,607 $ 2,873 $101,688Add: Dividends associated with outstanding preferred stock — — 72,044Add: Dividends associated with preferred stock repurchased 916 316 —Less: Excess of book value over repurchase of preferred stock 1,568 1,798 —

Earnings ascribed to common shareholders – diluted $140,955 $ 1,391 $173,732

DenominatorWeighted average common shares outstanding – basic 83,553 72,997 40,052Effect of assumed exercise of options 131 118 917Effect of assumed conversion of preferred stock — — 31,864Weighted average of preferred stock purchased 444 158 —

Weighted average common shares outstanding – diluted 84,128 73,273 72,833

Diluted earnings per common share $ 1.68 $ 0.02 $ 2.39

(a) Such earnings per common share amounts are not necessarily indicative of the results that would have occurred had Cryovac been a stand-alone company prior to theReorganization, the Recapitalization and the Merger.

Note 17 Certain Transactions with Grace


Note 18 Commitments and Contingencies

The Company is obligated under theterms of various leases covering many ofthe facilities that it occupies. The Com-pany accounts for substantially all of itsleases as operating leases. Net rentalexpense was $24,667, $20,873, and$9,588 for 1999, 1998 and 1997, respec-tively. Estimated future minimum annualrental commitments under non-cancelablereal property leases are as follows: 2000 –$21,604; 2001 – $16,483; 2002 – $10,953;2003 – $7,383; 2004 – $5,691 and subse-quent years – $13,824.

The Company’s worldwide operations aresubject to environmental laws and regula-tions which, among other things, imposelimitations on the discharge of pollutantsinto the air and water and establish stan-dards for the treatment, storage and dis-posal of solid and hazardous wastes. TheCompany reviews the effects of environ-mental laws and regulations on its opera-tions and believes that it is in substantialcompliance with all material applicableenvironmental laws and regulations.

At December 31, 1999, the Company wasa party to, or otherwise involved in, severalfederal and state government environmen-tal proceedings and private environmentalclaims for the cleanup of Superfund orother sites. The Company may havepotential liability for investigation andclean up of certain of such sites. At most ofsuch sites, numerous companies, includ-ing either the Company or one of its pre-decessor companies, have been identifiedas potentially responsible parties ("PRPs")under Superfund or related laws. It is theCompany’s policy to provide for environ-mental cleanup costs if it is probable that aliability has been incurred and if anamount which is within the estimatedrange of the costs associated with variousalternative remediation strategies is reason-ably estimable, without giving effect to

any possible future insurance proceeds. Asassessments and cleanups proceed, theseliabilities are reviewed periodically andadjusted as additional informationbecomes available. At December 31, 1999and 1998, such environmental relatedprovisions were not material. While it isoften difficult to estimate potential liabili-ties and the future impact of environmen-tal matters, based upon the informationcurrently available to the Company and itsexperience in dealing with such matters,the Company believes that its potential liability with respect to such sites is notmaterial to the Company’s consolidatedfinancial position. Environmental liabili-ties may be paid over an extended period,and the timing of such payments cannotbe predicted with certainty.

The Company is also involved in vari-ous legal actions incidental to its busi-ness. Company management believes,after consulting with counsel, that thedisposition of its litigation and otherlegal proceedings and matters, includingenvironmental matters, will not have amaterial effect on the Company’s con-solidated financial position.

In connection with the Reorganization,certain environmental liabilities ofCryovac were retained by or assumed byNew Grace. As of March 31, 1998, theCompany’s liability with respect to suchenvironmental obligations retained byNew Grace, including related deferredincome taxes, was reversed and accountedfor as an equity contribution to the Com-pany from Grace.

Contingent Liabilities Indemnified byNew Grace

Pursuant to the Transaction Agreements,New Grace agreed to indemnify the Company against all liabilities of Grace,

whether accruing or occurring before orafter the Merger, other than liabilities aris-ing from or relating to Cryovac’s opera-tions. New Grace also agreed to retaincertain liabilities of Cryovac and to indem-nify the Company against such liabilities.The Company may remain contingentlyliable with respect to certain of such liabil-ities if New Grace fails to fulfill its indem-nity obligations to the Company. Basedupon currently available information, theCompany believes that future costs relatedto such indemnified liabilities will nothave a material adverse effect on the Com-pany’s results of operations or consolidatedfinancial position.

Guarantee of New Grace OutstandingPublic Debt

The Company is the guarantor of certainoutstanding public debt that was assumedby New Grace pursuant to the TransactionAgreements. At December 31, 1999 and1998, approximately $32,000 of such debtwas outstanding. New Grace has indemni-fied the Company against any liability aris-ing under such guarantee pursuant to theTransaction Agreements.

Transaction Agreements

Pursuant to the Transaction Agreements,final determinations and accountings arenecessary with respect to matters pertain-ing to the Reorganization and the Merger.The Company believes that the final out-come of such matters will not have a mate-rial effect on its consolidated financialposition.


Year Ended December 31,1999 1998 1997

(Amounts in thousands, except for per share data) Reported Pro Forma Pro Forma

Net sales by segment:Food and Specialty Packaging $1,761,130 $1,709,428 $1,691,978Protective Packaging 1,078,506 1,010,080 982,686

Net sales 2,839,636 2,719,508 2,674,664Cost of sales 1,810,914 1,762,957 1,719,246

Gross profit 1,028,722 956,551 955,418Marketing, administrative and development expenses 527,126 516,269 495,685Goodwill amortization 49,404 47,893 48,005Restructuring and other charges, net — 87,182 14,444

Operating profit 452,192 305,207 397,284Other expense, net (56,539) (82,141) (89,390)

Earnings before income taxes 395,653 223,066 307,894Income taxes 184,192 141,574 123,359

Net earnings $ 211,461 $ 81,492 $ 184,535

Less: Preferred stock dividends 71,422 71,932 72,044Add: Excess of book value over repurchase price of preferred stock 1,568 1,798 —

Net earnings ascribed to common shareholders $ 141,607 $ 11,358 $ 112,491

Earnings per common share (1)

Basic $ 1.69 $ 0.14 $ 1.35Diluted $ 1.68 $ 0.12 $ 1.35

Weighted average number of common shares outstanding:Basic 83,553 83,478 83,272Diluted 84,128 83,754 83,381

(1) For purposes of calculating basic and diluted earnings per common share, net earnings for 1998 and 1997 have been reduced by the dividends ($18,011 in 1998 for the firstquarter and $72,044 in 1997) that would have been payable on the Company’s Series A convertible preferred stock (as if such shares had been outstanding during such peri-ods) to arrive at earnings ascribed to common shareholders. The weighted average number of outstanding common shares used to calculate basic earnings per common shareis calculated on an equivalent share basis using the weighted average number of shares of common stock outstanding for the first quarter of 1998 and for 1997, adjusted toreflect the terms of the Recapitalization. The assumed conversion of the convertible preferred stock is not considered in the calculation of diluted earnings per common sharein either 1998 or 1997 as the effect would be anti-dilutive (i.e., would increase earnings per common share) in each year.

Note 19 Selected Pro Forma Statement of Earnings Information (Unaudited)

The following table presents selectedunaudited pro forma statement of earn-ings information for the years endedDecember 31, 1998 and 1997 that hasbeen prepared as if the Reorganization, theRecapitalization and the Merger hadoccurred on January 1, 1997. Such infor-mation reflects pro forma adjustmentsmade in combining the historical results ofold Sealed Air and Cryovac as a result of

such transactions for the years presented.Such amounts include, among otherthings, incremental goodwill amortizationof approximately $10,300 and $41,200and incremental interest expense ofapproximately $20,400 and $81,600 inthe first quarter of 1998 and full year1997, respectively. Such amounts excludea non-cash inventory charge of approxi-mately $8 million recorded in the second

quarter of 1998 resulting from theturnover of certain of the Company’sinventories previously stepped-up to fairvalue in connection with the Merger. Thispro forma information is not intended torepresent what the Company’s actualresults of operations would have been forsuch years, if such transactions hadoccurred on January 1, 1997.


First Second Third Fourth(Amounts in thousands, except for per share data) Quarter Quarter Quarter Quarter

1999Net sales $678,937 $695,121 $714,755 $750,823Gross profit 245,698 253,580 257,204 272,240Net earnings 46,614 51,192 53,712 59,943Preferred stock dividends 17,910 17,879 17,879 17,754Earnings per common share – basic (1) 0.34 0.40 0.43 0.52Earnings per common share – diluted (1) 0.34 0.40 0.43 0.50

1998Net sales $431,035 $670,005 $684,302 $721,414Gross profit 140,122 227,060 241,053 260,501Net earnings (loss) 27,052 35,565 (54,103) 64,493Preferred stock dividends — 18,011 17,999 17,911Earnings (loss) per common share – basic (2) 0.22 (3) 0.21 (0.85) 0.57Earnings (loss) per common share – diluted (2) 0.22 (3) 0.21 (0.85) 0.56

(1) The sum of the four quarters earnings per common share may not equal the amounts reported for the full year since each period is calculated separately.

(2) Because of the effects of the Recapitalization and the Merger, the sum of the four quarters earnings per common share amounts do not necessarily equal the amounts reportedfor the full year.

(3) Such earnings per common share are not necessarily indicative of the results that would have occurred had Cryovac been a stand-alone company prior to the Reorganization, Recapitalization and the Merger.

Note 20 Interim Financial Information (Unaudited)


Report of Independent Certified Public Accountants

To the Board of Directors and Shareholders of Sealed Air Corporation

We have audited the accompanying consolidated balance sheets of Sealed Air Corporation and subsidiaries as of December 31, 1999 and1998, and the related consolidated statements of earnings, equity, comprehensive income, and cash flows for the years then ended. Theseconsolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examin-ing, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the account-ing principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SealedAir Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the yearsthen ended in conformity with generally accepted accounting principles.

KPMG LLPShort Hills, New JerseyJanuary 25, 2000

LLP


Report of Independent Certified Public Accountants

February 23, 1998

To the Board of Directors and Shareholders ofSealed Air Corporation

We have audited the accompanying consolidated statements of earnings, of comprehensive income, of equity and of cash flows of Sealed AirCorporation (the “Company”) for the year ended December 31, 1997. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financial statements based on our audit. We have not audited the consol-idated financial statements of Sealed Air Corporation for any period subsequent to December 31, 1997.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Webelieve that our audit provides a reasonable basis for our opinion.

The accompanying financial statements were prepared on the basis of presentation described in Note 1, and are not intended to be a com-plete presentation of the consolidated assets, liabilities, revenues and expenses of the Company. Also as described in Note 1, the Companycompleted a reorganization, recapitalization and merger on March 31, 1998. The accompanying financial statements for the year endedDecember 31, 1997 do not reflect the effects of such transactions.

As disclosed in Note 17, the Company has engaged in various transactions and relationships with affiliated entities. The terms of these trans-actions may differ from those that would result from transactions among unrelated parties.

In our opinion , the accompanying financial statements audited by us present fairly, in all material respects, the earnings and cash flows ofthe Company for the year ended December 31, 1997 pursuant to the basis of presentation described in Note 1, in conformity with gener-ally accepted accounting principles.

PricewaterhouseCoopers LLPFort Lauderdale, Florida


Hank Brown(1)

President,University ofNorthern ColoradoElected to Board in 1997

John K. Castle(2)

Chairman andChief Executive Officer,Castle Harlan, Inc.(Merchant Banking Firm)Elected to Board in 1971

Christopher Cheng(1)

Chairman andManaging Director,Wing Tai Group of Companies(Garment Manufacturer Based in Hong Kong)Elected to Board in 1997

Lawrence R. Codey(1)

Former President, Public Service Electric andGas CompanyElected to Board in 1993

T. J. Dermot DunphyChairman of the Board, Sealed Air CorporationElected to Board in 1969

Charles F. Farrell, Jr.(1)

President, Crystal Creek Associates, LLC(Investment Management andBusiness Consulting Firm)Elected to Board in 1971

David Freeman(2)

Former Chairman and Chief Executive Officer,Loctite Corporation(Manufacturer of Adhesives & Sealants)Elected to Board in 1993

William V. HickeyPresident andChief Executive Officer,Sealed Air CorporationElected to Board in 1999

Shirley Ann Jackson(1)

President,Rensselaer PolytechnicInstituteElected to Board in 1999

Virginia A. Kamsky(2)

Founder, Chairman andChief Executive Officer,Kamsky Associates Inc.(Advisory, Consultancy and Investment Firm Specializing in China)Elected to Board in 1990

Alan H. Miller(2)

Private InvestorElected to Board in 1984

John E. Phipps(2)

Private Investor Elected to Board in 1975

Directors

William V. HickeyPresident andChief Executive OfficerFirst elected an officer in 1980

Leonard R. ByrneSenior Vice PresidentFirst elected an officer in 1998

Bruce A. CruikshankSenior Vice PresidentFirst elected an officer in 1990

Robert A. PesciSenior Vice PresidentFirst elected an officer in 1990

Daniel S. Van RiperSenior Vice President andChief Financial OfficerFirst elected an officer in 1998

Jonathan B. BakerVice PresidentFirst elected an officer in 1994

James A. BixbyVice PresidentFirst elected an officer in 1990

Mary A. CoventryVice PresidentFirst elected an officer in 1994

Jean-Luc DebryVice PresidentFirst elected an officer in 1992

Paul B. HoganVice PresidentFirst elected an officer in 1995

James P. MixVice PresidentFirst elected an officer in 1994

Manuel MondragonVice PresidentFirst elected an officer in 1999

J. Stuart K. ProsserVice PresidentFirst elected an officer in 1999

Abraham N. ReichentalVice PresidentFirst elected an officer in 1994

Hugh L. SargantVice PresidentFirst elected an officer in 1999

Horst TebbeVice President First elected an officer in 1986

Alan S. WeinbergVice PresidentFirst elected an officer in 1998

Tod S. ChristieTreasurerFirst elected an officer in 1999

Jeffrey S. WarrenController First elected an officer in 1996

H. Katherine WhiteGeneral Counsel and SecretaryFirst elected an officer in 1996

Officers

58

(1) Member of the Audit Committee

(2) Member of Organization and Compensation Committee

The dates shown above indicate the year in which each of the directors was first elected a director of the Company or old Sealed Air. Dr. Jackson also served as a director of old Sealed Air from 1992 to 1995.

The dates shown above indicate the year in which each of the officers was first elected an officer of the Company or old Sealed Air.


59

Corporate Headquarters

Sealed Air CorporationPark 80 EastSaddle Brook, NJ 07663 - 5291Phone: (201) 791-7600Telefax: (201) 703-4205

Europe

BelgiumCzech RepublicDenmarkEngland FinlandFranceGermanyGreeceHolland HungaryIrelandIsraelItalyNorwayPolandPortugalRussiaSpainSwedenSwitzerland

Africa

South Africa

Asia

ChinaHong KongIndiaIndonesiaJapanKoreaMalaysiaPhilippinesSingaporeTaiwanThailand

Australasia

AustraliaNew Zealand

Corporate Directory

Sealed Air is committed to providingsafe working conditions for its employ-ees and to investing in product research,development and testing to promotethe safe design, use and handling of itsproducts throughout the world.

We are dedicated to being pro-active onenvironmental issues affecting our busi-ness and industry. Our Environment,Health and Safety Steering Committee,comprised of corporate and operating

personnel, is committed to seeing thatour operations are conducted in a waythat is consistent with sound environ-mental practices.

Through innovative incentive programsand other loss control efforts, we strive toimprove workplace safety and reduce ouraccident frequency. We also work towardsafety and environmental excellence as anintegral part of our World Class Manu-facturing program.

We use significant amounts of recycledmaterials in our protective packagingproducts both by acquiring such materialsfrom third parties, such as newspaperswhich are used in our Jiffy™ PaddedMailers, and by recycling and reprocessingscrap materials generated in our manufac-turing processes. We also participate inprograms to collect packaging materialsfrom our distributors and other customersand recycle and reprocess those materials.

Safety and Environment

The Americas

ArgentinaBrazilCanadaChileColombiaCosta RicaGuatemalaMexicoPeruUnited StatesUruguayVenezuela

Code of Conduct

Under our Code of Conduct, we seek toconduct our business in accordance withthe highest standards of business ethicsat all of our locations throughout theworld, and we encourage employees tobring ethical questions to management’sattention so that we can maintain ourhigh standards.

The common values of high businessethics that have characterized our approachto business throughout our historydemand high professional standards, placea premium on honesty and fair dealing inrelationships with our customers, suppliers,employees and other persons with whomwe have business relationships, and antici-

pate that we will compete vigorously andfairly in the markets we serve and complywith laws that affect our business.

The Code of Conduct also reinforcesour commitment to the spirit and prac-tice of equal employment opportunityand the benefits of a diverse work force.

Countries In Which Sealed Air Operates


Annual Meeting

The Annual Meeting of the stockholdersof the Company is scheduled to be heldon May 19, 2000 at 10:00 A.M. localtime at the Saddle Brook Marriott,Garden State Parkway at I-80, SaddleBrook, New Jersey 07663-5894.

Sealed Air’s Annual Report toStockholders is sent to all stockholders ofrecord and to the street name holdersthrough banks and brokerage houseseach year at the end of March unlesselectronic access has been authorized bythe stockholder. It can also be accessedthrough the Company’s web site athttp://www.sealedair.com.

Press Releases

As a New York Stock Exchange listed com-pany (NYSE symbol: SEE), Sealed Airissues quarterly earning reports and othernews releases to the general media. They canalso be accessed through the Company’sweb site at http://www.sealedair.com ordirectly at http://www.cfonews.com/see.

Stockholders who wish to receive papercopies of these releases should advise theCompany by calling 1-800-350-9512 orby writing to Investor Relations at theaddress below.

Investor RelationsSealed Air CorporationPark 80 EastSaddle Brook, New Jersey 07663-5291

Securities and Exchange CommissionReports

Sealed Air’s Annual Report on Form 10-K filed with the Securities and ExchangeCommission is available at the end ofMarch each year, and quarterly Form 10-Q reports are available in mid-May, mid-August, and mid-November each year.

Copies may be obtained upon request tothe Company as indicated above. They arealso available through the Company’s website at http://www.sealedair.com or directlyat http://www.cfonews.com/see. For addi-tional information please contact:

J. Ryan FlanaganDirector of CorporateCommunications201-791-7600

Stock Transfer Agent

First Chicago Trust Company,A Division of EquiServePost Office Box 2500Jersey City, New Jersey 07303-2500

For your convenience, our transfer agentmaintains a Telephone Response Centerto respond to questions that stockholdersof record may have about their accounts.You may call them at 201-324-1225between the hours of 8:00 A.M. and10:00 P.M. Eastern Time, seven days aweek. Service representatives are availablefrom 8:30 A.M. to 7:00 P.M. EasternTime, Monday through Friday.

When calling, please have your socialsecurity number or taxpayer identifica-tion number available, and please identi-fy yourself as a Sealed Air stockholder.You will also need to furnish them withthe name in which your account ismaintained.

Auditors

KPMG LLPShort Hills, New Jersey

Capital Stock Information

In connection with the Cryovac merger, theCompany issued its Common Stock, parvalue $0.10 per share, on March 31, 1998.The Company’s Common Stock is listedon the New York Stock Exchange (tradingsymbol: SEE). The adjacent table sets forththe high and low sales prices of theCommon Stock for each quarter beginningApril 1, 1998 through December 31, 1999.The adjacent table also sets forth the highand low sales prices of the Common Stockof old Sealed Air before the Cryovac transac-tion for the quarter ended March 31, 1998.No dividends were paid on Sealed Air’sCommon Stock in 1999 and 1998. TheCompany does not currently intend tobegin paying dividends on its CommonStock. As of March 3, 2000, there wereapproximately 11,188 holders of record ofthe Company’s Common Stock.

In connection with the Cryovac merger, theCompany issued its Series A ConvertiblePreferred Stock on March 31, 1998, whichis also listed on the New York StockExchange (trading symbol: SEE PrA). Theadjacent table sets forth the high and low

sales prices for Sealed Air’s Preferred Stockfor each quarter beginning April 1, 1998through December 31, 1999. Quarterlydividends of $0.50 per share payable as

declared on the Preferred Stock com-menced on July 1, 1998. As of March 3,2000, there were approximately 9,607holders of record of the Preferred Stock.

60

Stockholder Information

Common Stock

1998 High Low

First Quarter $70 $55-3/16Second Quarter $66-1/2 $36-1/16Third Quarter $44-3/8 $31-9/16Fourth Quarter $51-13/16 $27-3/8

1999 High Low

First Quarter $56-3/4 $46-3/4Second Quarter $68-7/16 $48-2/16Third Quarter $65-7/8 $51-2/16Fourth Quarter $58-2/16 $44-9/16

Preferred Stock1998 High Low

Second Quarter $63-1/4 $41-1/2Third Quarter $46-5/8 $35-7/8Fourth Quarter $51-7/8 $31-7/16

1999 High Low

First Quarter $55 $48Second Quarter $65 $48-3/4Third Quarter $62-3/4 $50Fourth Quarter $56 $46-11/16


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sealed air corporation annual report 1999

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