Sealed Air(SEE) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company reported increased net sales and earnings for the nine-month period, alongside a significant decrease in cash and operating cash flow Financial Performance | Financial Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $4,236.0 M | $4,002.3 M | +5.8% | | Gross Profit | $1,348.9 M | $1,205.5 M | +11.9% | | Operating Profit | $716.8 M | $600.7 M | +19.3% | | Net Earnings from Continuing Operations | $396.6 M | $322.2 M | +23.1% | | Diluted EPS from Continuing Operations | $2.68 | $2.10 | +27.6% | Balance Sheet Summary | Balance Sheet Item | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $248.8 M | $561.0 M | | Inventories, net | $962.4 M | $725.7 M | | Total Assets | $6,075.1 M | $6,229.3 M | | Total Debt (Current + Long-term) | $3,639.1 M | $3,708.1 M | | Total Stockholders' Equity | $218.2 M | $248.7 M | Cash Flow Summary | Cash Flow Item | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $320.8 M | $377.5 M | | Net cash used in investing activities | ($183.8 M) | ($154.3 M) | | Net cash used in financing activities | ($419.0 M) | ($379.2 M) | Note 3: Revenue Recognition Revenue performance varied by segment, with growth in Food offset by a decline in the Protective segment during Q3 2022 Segment Revenue (In millions) | Segment Revenue (In millions) | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Food | $829.8 | $797.4 | $2,443.3 | $2,236.3 | | Protective | $570.6 | $609.3 | $1,792.7 | $1,766.0 | | Total | $1,400.4 | $1,406.7 | $4,236.0 | $4,002.3 | Note 5: Acquisition and Divestiture Activity The company acquired Foxpak Flexibles Ltd for $9.7 million to enhance digital printing capabilities in its Food segment - Acquired Foxpak Flexibles Ltd for $9.7 million, adding digital printing capabilities to the Food segment[55][56] Note 6: Segments Both Food and Protective segments reported year-to-date growth in net sales and improved Adjusted EBITDA margins Segment Performance (YTD 2022 vs YTD 2021) | Segment Performance (YTD 2022 vs YTD 2021) | Food | Protective | | :--- | :--- | :--- | | Net Sales | $2,443.3 M (up 9.3%) | $1,792.7 M (up 1.5%) | | Adjusted EBITDA | $553.4 M (up 14.2%) | $363.2 M (up 13.5%) | | Adjusted EBITDA Margin | 22.6% (from 21.7%) | 20.3% (from 18.1%) | Note 12: Restructuring Activities The 'Reinvent SEE' restructuring program was extended, with total spending approaching its authorized limit - The 'Reinvent SEE' restructuring program has been extended to the end of 2022, with cumulative spend to date of $208 million out of a total authorized range of $210-$220 million[88][89] - In the first nine months of 2022, total charges related to the program were $13.1 million, consisting of $4.6 million in restructuring charges and $8.5 million in other associated costs[87][89] Note 13: Debt and Credit Facilities The company managed its $3.64 billion debt portfolio through refinancing and new note issuance during the period Debt Composition (In millions) | Debt Component | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current debt | $403.4 M | $488.5 M | | Total long-term debt | $3,235.7 M | $3,219.6 M | | Total debt | $3,639.1 M | $3,708.1 M | - In March 2022, the company amended and restated its senior secured credit facility, extending maturity to 2027 and transitioning from LIBOR to SOFR[95] - In April 2022, issued $425 million in 5.000% senior notes due 2029 to repurchase existing notes due 2023, recognizing a $10.5 million pre-tax loss on the transaction[98][101] Note 18: Commitments and Contingencies The company faces a significant potential tax liability from an IRS dispute and has settled a class action lawsuit - The IRS is challenging a tax deduction from 2014 related to the Cryovac transaction settlement, potentially resulting in a $525 million tax liability[150][154] - A securities class action lawsuit was settled for $12.5 million, which will be covered by the company's insurance[158] Note 19: Stockholders' Equity Capital was returned to shareholders through significant share repurchases and consistent quarterly dividends - Repurchased 4.5 million shares for $280.1 million in the first nine months of 2022[162] - As of September 30, 2022, $616.4 million remained under the current $1.0 billion share repurchase authorization[161] - Declared and paid quarterly cash dividends of $0.20 per common share throughout 2022[165][166] Note 23: Subsequent Events The company announced a definitive agreement to acquire Liquibox for $1.15 billion subsequent to the reporting period - Announced the planned acquisition of Liquibox for $1.15 billion in cash, expected to close in Q1 2023[183] Management's Discussion and Analysis of Financial Condition and Results of Operations Sales growth was driven by price realization offsetting volume declines, though free cash flow decreased due to inventory investments Highlights of Financial Performance The company achieved broad growth across key GAAP and non-GAAP metrics, including net sales, operating profit, and Adjusted EPS YTD Performance Summary (In millions, except EPS) | Metric (YTD 2022 vs YTD 2021) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $4,236.0 M | $4,002.3 M | 5.8% | | Operating profit | $716.8 M | $600.7 M | 19.3% | | Net earnings from continuing operations | $396.6 M | $322.2 M | 23.1% | | Non-U.S. GAAP Adjusted EBITDA | $913.0 M | $801.9 M | 13.9% | | Non-U.S. GAAP Adjusted EPS | $3.11 | $2.43 | 28.0% | Results of Operations Price increases drove net sales growth by offsetting volume declines and currency headwinds, improving gross margin YTD 2022 Net Sales Change Contribution | YTD 2022 Net Sales Change Contribution | Percentage | | :--- | :--- | | Price | +14.9% | | Volume | -4.3% | | Acquisition (Divestiture) | -0.8% | | Foreign currency translation | -4.0% | | Total change (U.S. GAAP) | +5.8% | - Food segment constant dollar sales increased 13.5% YTD, driven by favorable pricing of $332 million, partially offset by lower volumes of $35 million[217][219] - Protective segment constant dollar sales increased 5.1% YTD, as favorable pricing of $263 million was partially offset by lower volumes of $137 million due to recessionary pressures[217][221][226] Liquidity and Capital Resources Liquidity remains solid, but operating and free cash flow declined significantly due to increased working capital investment Free Cash Flow (In millions) | Metric (In millions) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Cash flow provided by operating activities | $320.8 | $377.5 | | Capital expenditures | ($183.5) | ($154.8) | | Non-U.S. GAAP free cash flow | $137.3 | $222.7 | - The decrease in operating cash flow was primarily driven by unfavorable working capital changes, including a $120 million higher use of cash for inventory and $169 million lower cash generation from accounts payable compared to 2021[289] - Net debt increased by $243.2 million since year-end 2021 to $3.39 billion[285] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency, particularly in Argentina, and interest rate fluctuations - Recognized a $6 million net foreign currency exchange loss in the first nine months of 2022 related to the designation of Argentina as a highly inflationary economy[311] - A hypothetical 10% increase in interest rates would result in a $76 million decrease in the fair value of the company's total debt balance[309] - The company's €400 million senior notes are designated as a net investment hedge against fluctuations in its investment in a European subsidiary[317] Controls and Procedures Management concluded that disclosure controls and internal controls over financial reporting were effective - Management concluded that disclosure controls and procedures were effective at the 'reasonable assurance' level as of the end of the reporting period[323] - No material changes to internal control over financial reporting were identified during the quarter ended September 30, 2022[324] PART II. OTHER INFORMATION Legal Proceedings This section references Note 18 for details on key legal matters, including an IRS dispute and a lawsuit settlement - Refers to Note 18 for details on the Settlement Agreement Tax Deduction dispute with the IRS, the Securities Class Action settlement, and Environmental Matters[325] Risk Factors The conflict between Russia and Ukraine is identified as a significant risk impacting supply chains, costs, and assets - The conflict between Russia and Ukraine poses risks including supply chain disruptions, increased costs, and currency losses[327] - As of September 30, 2022, net assets in Russia were $79 million and in Ukraine were $4 million[328] Unregistered Sales of Equity Securities and Use of Proceeds The company executed share repurchases totaling $30.0 million during the third quarter under its authorized program Share Repurchases in Q3 2022 | Period (2022) | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July | 0 | N/A | | August | 0 | N/A | | September | 614,190 | $48.81 | | Q3 Total | 614,190 | $48.81 | - As of September 30, 2022, approximately $616.4 million remained available for repurchase under the company's authorized plan[330] Exhibits This section lists all filed exhibits, including governance documents, executive certifications, and XBRL data - Filed exhibits include CEO and CFO certifications pursuant to Rule 13a-14(a) and 18 U.S.C. § 1350, along with corporate governance documents and XBRL data[333]