希悅爾 (SEE) 2002 Q3 法說會逐字稿

This is premiere conferencing. Please stand by. Good morning, everyone, and welcome to the Sealed Air analyst and stockholder conference call. This call is being recorded. Leading the call today we have William V. Hickey, President and Chief Executive Officer and David H. Kelsey, Chief Financial Officer. After our prepared comments, we will be taking questions. You may place yourself in queue simply by pressing the * or asterisk key followed by the digit 1 on your touch-tone telephone. If your question has already been answered, you can remove yourself from the queue by pressing the pound key on your touch-tone telephone. Please limit yourself to one question per caller, so that others have a chance to ask their questions. Now I would like to turn the call over to Chip Cook, Director of Corporate Communications. Please go ahead, Mr. Cook.

Good morning. Before we begin our call today, I would like to remind you that statements made during this call stating management's outlook or predictions for the future are forward-looking statements. These statements are based solely on information that is now available to us. Our future performance may be materially different due to a number of factors. Many of these factors are listed in our most recent annual report on Form 10-K or in our quarterly report on Form 10-Q.

Now, I'll turn the call over to Bill Hickey, our CEO. Bill.

Thank you, Chip. Good morning. I'm Bill Hickey, President and CEO of Sealed Air. With me today is David Kelsey, our Chief Financial Officer. As an introduction, I will provide a brief overview of the highlights in our business for the third quarter of 2002. Dave will then review details of our financial results for the quarter. After Dave's remarks, I will provide an update on our legal proceedings. Subsequently, we will then take questions from the audience.

As we reported in our earnings release earlier today, Sealed Air sales increased 8% in the quarter to a record level of almost $826 million, surpassing the $800 million quarterly level for the first time in the company's history. This strong top line helped us to deliver earnings per share in line with market expectations. Sealed Air's performance in the third quarter reflects the strength of our business, and it especially reflects the focus and commitment of our more than 17,000 employees during these challenging times.

Cash flow continues to be a fundamental strength of our business. In the quarter, Sealed Air generated over 20 cents of EBITDA for every dollar of our sales. As a result, our free cash flow for the quarter was almost $85 million, and as a result, our debt position net of cash declined by almost $100 million in the quarter.

In summary, Sealed Air reported solid results for the third quarter of 2002. Our record sales led to an increase in earnings and substantial free cash flow, which we used to continue to strengthen our balance sheet. In a few minutes, I will address an update on our legal proceedings, but first Dave will review more of the highlights in our results for the quarter. Dave?

Thank you, Bill. I'd like to start with some additional comments on our sales. As Bill said, our third quarter sales were record-setting, up eight percent, or $60 million, including a $19 million positive effect from foreign currency translation. Our growth reflects four percent volume gains in our food packaging segment, and seven percent volume growth in protective and specialty packaging. Also, our protective and specialty segment had an additional four percent favorable revenue variance in the third quarter from businesses acquired in the past 12 months, which contributed $12 million to the top line.

To summarize our top line performance in the quarter, unit volume growth in food was four percent, in protective, seven percent, and for the total company, five percent, a $36 million favorable revenue variance. Mix and price were fractionally favorable in food, in protective, unfavorable by two percent, and unfavorable for the total company one percent, or $8 million. Currency translation was favorable in food three percent, in protective two percent, and company-wide, slightly under 2.5 percent.

Acquisitions were not a factor in food, and as I just stated, added four percent to protective, resulting in approximately 1.5 percent growth for total company revenue. Total revenue growth then was six percent in food and 10 percent in protective and eight percent for the company. The company's gross profit was 264 million for the third quarter. Gross profit margin was 32 percent, compared to 32.6 percent in the third quarter of 2001 and 33.1 percent in the second quarter of 2002.

Prices for certain commodity raw materials such as polyethylene have been rising since bottoming out in the first quarter. Many of the more specialty-like raw materials used in the manufacture of our products have also increased in the third quarter, compared with the second quarter. Remember, though, that Sealed Air's business is based on selling differentiated products that add value to our customers' operations. We position them according to the benefits they provide. As a result, our margins do not move in lockstep with commodity raw material prices.

Marketing, administrative, and development expenses increased $10 million to 137 million, compared to the third quarter of 2001. This increase is in line with our revenue growth. Accordingly, these overhead expenses were essentially unchanged as a percent of revenue at 16.6 percent. Operating profit was 15.6 percent of net sales, comparable to the third quarter of 2001 after excluding goodwill amortization last year.

As we explained in our earlier conference calls, effective January 1, we implemented FAS-142, which revises the principles for amortizing goodwill. Consistent with this new accounting standard, we no longer expense goodwill amortization, whereas last year we expensed 14 million in the third quarter. Basic earnings per share were 70 cents for the quarter. The reported number last year for basic EPS was 40 cents per share. Adding back goodwill to 2001 third quarter EPS increases basic EPS by 17 cents, and as is converted EPS by 13 cents.

Before turning the call back to Bill, I'd like to share some of our cash flow and balance sheet achievements. As Bill mentioned, EBITDA for the third quarter was 166 million, or 20.1 percent of net sales, within our target range of 20 to 24 percent. Capital expenditures were 14 million for the quarter, compared with 29 million in last year's third quarter. As part of our world-class manufacturing program, we continue to identify opportunities to increase productivity of our existing capacity and have revised our total year estimate of capital spending down to between $80 and $100 million.

Next year, we expect capital spending to return to historic levels of $125 to $150 million. Our preliminary quarter end accounts receivable totaled $536 million, down $8 million from June 30, 2002, while our quarter to quarter revenue increased $40 million, compared to September 30th, 2001, the investment increase $4 million, while year over year quarterly revenue increased $60 million. Inventory investment at September 30th was $317 million, unchanged from June 30th. Total borrowings at September 30th, net of $77 million of cash, were $850 million, down approximately $100 million from net borrowings of $949 million at the start of the quarter.

The decrease in our debt balance during the third quarter is attributable to strong cash flow from operations, a net reduction in working capital assets, and continued modest capital spending. Looking ahead to the fourth quarter, we expect cash on hand to approach $100 million and outstanding debt to be reduced an additional $25 million. While we complete work on a new bank facility, we remain satisfied that we have ample liquidity to support our growth.

Now, I'd like to turn the call back to Bill.

Thank you for the update, Dave. Before we take questions, I indicated that I would provide an update on the company's legal proceedings. As we said in our press release this morning, the company's fraudulent transfer trial, originally scheduled to begin on September 30th, 2002, has been postponed in light of a recent opinion by the U.S. Court of Appeals for the 3rd circuit in the case of a company called Cybergenics. In the Cybergenics case, the court ruled that a creditor or a creditors committee may not assert a fraudulent transfer claim in a bankruptcy proceeding and that only a debtor in possession, or an appointed trustee may bring such actions.

In the Sealed Air case, the parties who brought the complaint were the asbestos personal injury and property damage creditors committee in the Grace Bankruptcy. Since the creditors committees, not the trustee or a debtor in possession, brought the fraudulent transfer case against Sealed Air, the court is reviewing how the case should proceed in view of the Cybergenics ruling. The court has indicated that it intends to try to the case in early December, but has not yet issued a written order to that effect. At this point, we are waiting for guidance from the court to further clarify how the trial will proceed and to confirm the new timetable.

Our case has been complicated by the Cybergenics case. We just don't know exactly in what form the case will go forward or when it will go forward. But what remains simple and straightforward, is our confidence in the integrity of the deal that we did in 1998 and our firm belief that WR Grace was solvent, even taking into effect post 1998 claims.

At this point we will open up for any questions but with the pending litigation, there will be some limits on what we can say. With that in mind, we are prepared to take any of your questions. Thank you.

Thank you, Mr. Hickey. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, you will need to press the * followed by the digit 1 on your touch-tone telephone. If you find your question has been answered, and would like to withdraw from the queue, you may do so by pressing the # sign on your touch-tone phone. Also, if you are using a speakerphone, please pick up your handset before pressing the numbers. One moment please for the first question.

And our first question today comes from George with Salomon Smith Barney.

Thanks. Hey, guys, good morning.

Good morning. You're first again, George.

Well, you know, it's all downhill from here, I guess. In any event, in terms of the region, can you give us the walk around the globe that you normally do and can you also give us the trends of some of your more growth oriented businesses? And then I had a follow up.

OK. The walk around the world, these are third quarter 2002. They are revenue growth numbers excluding the effect of foreign exchange. North America is a plus 7%, Europe is a plus 4%, Latin America is a minus 1%, primarily due to Argentina, and Asia Pacific is a plus 2%.

OK. And on the growth businesses, Bill?

Growth businesses are essentially all double digits, our inflatable business is up high double digits. Our fluid business is up in the 20 percent range, and our case-ready continues at a double -- double-digit number, but actually for the quarter, it's slightly down than it was in the third quarter.

OK, and just -- have we heard anything from the 3rd Circuit yet in terms of the district court's progress or potential plan to move the trial forward?

No we have not, George. As I said in my closing comments, we are waiting to hear from the court as to the proposed process, as well as the timetable.

OK, thanks guys.

And we'll hear next from with .

Good morning, all.

Good morning.

And very good quarter. Could you just specify a little bit on the growth for inflatable, should we be looking at about 18 percent if fluid is 20 percent less?

Twenty percent plus inflatable -- if you give me a moment, , inflatable numbers are still in the high teens, about 16 percent.

OK. And then case-ready, lower than the second quarter, which if my memory serves me right was around 20 percent. Are we also in the 18 percent range, and is there any particular reason why it is slowing?

In case-ready?

Yes.

I think the principle thing in case-ready, , is not necessarily a change in the units. One of the large supermarket chains has eliminated pre-printed branding on their case-ready beef. And as a result, the package has a lower price because it's unprinted, so in effect, , what you're seeing in kind of the growth numbers is a reflection of unprinted films versus printed films.

So what you are saying is that it is down in terms of revenues, but not necessarily in terms of volume.

That's a pretty good indication. I think there was actually an announcement made by Tyson that they were going to discontinue their Thomas E. Wilson brands, which was one of the brands that was being printed.

OK, and if I may, just one last question. Based on your comments for the full year, it looks as though you are expecting the fourth quarter to be the same as the third, although seasonally speaking, when I went back to my numbers, it is usually sequentially higher. Anything happening in terms of the trends toward the end of the quarter or the beginning of this quarter?

No, , I think if you look at expectations for the holiday season, I think people are kind of being cautious and conservative, and I think that's part of our thinking.

OK, thanks a lot.

Thank you. And we'll go next to with Lehman Brothers.

Hey guys, this is actually .

Ah, , how are you doing?

Good, thank you. Dave, could you possibly give us the operating numbers by segment, do you have those yet?

Yes I do. Let's talk for the third quarter of this year.

All right.

In food, that was 76.3 million ...

OK.

Which is a 15.2 percent margin, which is pretty much unchanged from the third quarter of last year. Protective and specialty, 56.3 million, 17.4 percent, and corporate and other was a net deduction for margin of 3.9 million ...

OK.

So total operating margins of . Those numbers should add down and the percentage is 15.6 percent for the quarter.

OK. And then also, Bill, could you possibly comment on the outlook for protective packaging? The volumes in the quarter were a little bit better than we expected. I mean, is this a sustained improvement, or is this an inventory build?

No, as you've heard us say, you know, we are hopeful for a slow but continuing recovery in the economy, and I think the protective business kind of shows that. I don't feel it's an inventory build. Things are continuing into the fourth quarter, so, you know, maybe the Fed's been right there is a recovery -- but it's at a slow pace.

All right, let's hope so. Thanks for the -- thank you.

Our next question today comes from with .

Hi, I've got a couple of questions. First, could you tell us how many shares you repurchased of either the preferred or the common on the quarter?

I don't have that at my fingertips, Charlie. Let me see -- it looks like -- I have a year to date number, but -- the only number I have in front of me, so I'll have to ask you to do a little bit of the arithmetic off line is roughly 710,000 of preferred or $26 million that we bought back through September, year to date.

OK. And then is there -- do you have -- is working capital below a sustainable level, do you think?

Below a sustainable level?

At this level, or bring it down more?

You know, I think the fact that we were able to hold it at current levels and generate the sales growth that we did in the third quarter is, I think, indicative of being at a good equilibrium point, particularly as it relates to inventory. You know, having done that with some of the raw material price escalation I think was a good accomplishment for our operating folks. On the receivables side, there are always opportunities to collect cash more quickly. But I think we -- you know, we managed that well in the third quarter. We'll continue to manage it aggressively in the fourth quarter, but I'm not prepared to say that we're going to bring that down by any substantial amount.

OK, and then just lastly, it seems like your cap ex is going to come in now for the year at roughly half of what you projected at the beginning of the year, so could you tell us where you've cut back?

I wouldn't call it cutting back. You know, as I said in the comment, we, through our world-class manufacturing program have been focused on increasing the productivity of our existing capacity. And if you look back over the last, oh, four, five years, we have invested considerable capital in the business, and we're -- you know, we're running those plants very efficiently. If you look at where we expected to spend the 150 million, a fair amount of that was overseas. I think the spending has actually held up much closer to those target numbers in North America.

OK. Thanks.

And just as a reminder, if you do have a question today, please press star, one on your touch-tone telephone keypad. We also ask that you keep your questions to one question and also please pick up your handset before asking a question.

If you find your question has been answered, you can remove yourself from the queue by pressing the # sign. Our next question today comes from with Morgan Stanley.

That's an interesting pronunciation. Thank you, very much. Good morning, gentlemen. Just a quick question on some of the pricing trends you are seeing, particularly on some of the less specialized side. I think David mentioned earlier, some of the rising raw material costs. You guys are probably less impacted than many. I was wondering if you can give us an update on your ability raise prices in the face of some of these higher costs.

, we did announce a price increase on the protective side of our business so basically the resin based materials and that is still in process of being implemented, but as we all know, price increases in this market are extremely challenging.

Right. When did you, can you give us some information about the level of the price increase and the timing of that?

I think we announced it in August and it was pending on the products somewhere between five and seven percent.

OK. Great. And then, just Bill, your comment, I think you sort of touched on your expectations, but maybe drill down a little bit to some of it. In North America, as you've gone through the quarter here, obviously, I think the sense has been there is significant weaken since September, just wondering if you're seeing any kind of, if you guys saw that, those kinds of trends as well and whether you're seeing any kind of pick up here in the first 2 weeks of the, of October.

No. actually, our September was okay. It was actually ahead of August and slightly comparable to July and as I answered an earlier questions, Eadings, we're also seeing it continue into October. So, you know, the protective side of the business is showing a seasonal pickup, which obviously, also happens at this time of the year, anyway. And let's not forget that we're looking at coms to last year. You know, following September, where the, you know, the economy took a giant step backwards.

Right. Got it. Thanks very much.

And moving on to Rick with Associates.

Hi. At the beginning of the conference call, you made a statement that you thought the company was solvent, even if you took into consideration post 1998 claims. Can you sort of take us through that logic since the marketplace seems to not, you know, not be giving you the benefit of the doubt, there? Can you just take me through -- I understand that these things are going to be decided in court, but just what the logic is?

I'm not sure I can take you through it over the telephone, but as we had said on several occasions, we believe that WR Grace was solvent even taking effects of the post 1998 claims and that's what we're prepared to present in the court. And that's about as far as I can tell you at this point.

All right. Thanks.

And we'll hear next from with a follow up, from Salomon Smith Barney.

Hi guys, I'll make it quick since this is the second time around. Can you -- can you go over whether there have been any other changes in the case-ready business? Obviously, maybe there's less value added. But do you believe volumes have slowed at all, because there's not really been any new retailers that I can remember that have actually announced they're going case-ready. Perhaps I'm wrong, but if you can give us some detail there.

No, there's still not a major retailer, , that has converted over to case-ready, but you are seeing some of the smaller companies convert over to it, and you're also seeing a lot more of the specialty meats -- you're seeing a lot of veal now go over to case-ready. It's not some of the more popular beef brands, but you've now got a fairly large penetration in turkey, fairly large penetration is specialty meats, and in Europe, where we had a very good quarter in Europe in terms of growth in case-ready.

So some of the programs that we've introduced in Europe, which is a different format, are having very good acceptance in the marketplace.

Where would you say penetration are right now in, you know, chopped meat, whole muscle?

Oh, I think I'd still say overall the numbers are something like still, you know, six to 10 percent depending on where you are. If you go back to Tysons' quarterly earnings, they actually in their quarterly earnings in June said that beef case-ready was 6.7 percent of their sales for the beef sector and pork case-ready was 10 percent of their sales for the pork sector.

And they are a reasonably good indicator of the market.

Great. OK, guys, good luck on the quarter.

We do have a couple of questions that have come in over the Internet since this call is also being Webcast. First question is, didn't Judge establish a process whereby the case goes forward through another type of action, getting around the Cybergenics limitation?

I don't -- I guess my answer to that is, as I stated, that the court is looking at a variety of options on how to proceed but at this point hasn't issued an order to indicate either how it will proceed or the timetable. So that's all I can tell you on that one.

There was another question, how many shares remain outstanding on the preferred stock as of September 30th?

And if I look at my number, it should be somewhere around 26 million shares, approximately. So that's where we stand on the preferred stock at the end of September.

The other question that's come over the Internet is, it says, has Sealed Air taken advantage of the price decline on the convertible preferred and continuing purchasing the Sealed Air preferred stock?

I think what I will kind of say there is because of the pending litigation in the courts, we are currently not making any share repurchases. This could change, but as you heard us on a number of occasions say, we typically do not disclose when we are in the market.

OK, do we have any other questions?

Yes, sir. Our next question comes from from Capital.

Actually, my questions are answered. I tried to drop off. Thanks.

OK. We'll move on then to with and Company.

Good morning. Earlier in the call, you said that you're going to be in negotiations for a new bank agreement shortly. I was wondering if I could take the temperature of the banks a little bit vis-a-vis your pending potential litigation, and are they talking about, you know, wanting security. Or are they worried about you having to post a bond or anything like that, vis-a-vis the upcoming trial if indeed there is one.

I'll ask Dave to answer that question.

The current bank facility we have has been in place for over four years, so we've developed an excellent working relationship with the banks, and we have kept them very informed of the proceedings. We are right now, as I indicated on my prepared remarks, in the midst of negotiations for a new facility. I think, in general, the market for bank financing has changed fairly dramatically since 1998, and it's not uncommon for companies with BBB ratings such as Sealed Air to have to include collateral as part of new bank facilities. So we would anticipate a collateral component to the new facility that we are working on.

Do you have negative pledge clauses in your bonds?

There are a number of covenants in the bonds. I'm really not prepared during the call this morning to get into that in detail. I'd be glad to follow up with you if you'd like to call into .

Thank you.

OK, next question.

Our next question today comes from with Partners.

Good morning, gentlemen.

Good morning, Charlie.

Bill, can you sort of talk about -- obviously working capital management, cap ex, the way you're running the company is very analogous to when you ran the company during the recount period of '89. What sort of target ratios in terms of debt to capital -- how far could one expect repurchasing preferreds -- how far -- what types of issues you would be expecting in terms of capital management -- that's the first issue I want to touch on.

Well, Charlie, I think that, you know, kind of the short answer is, you know, we're always going to run the company based on our priorities, which is, you know, putting the customer first and managing for the cash flow. And that isn't changing. In the environment that we're in, we're trying to be a little tighter on working capital, which we have done. I think we've brought our receivables down and held our inventory flat despite the increase in sales. So I think you shouldn't view this as anything extraordinary, but hopefully the kind of management we want to do on an ongoing basis.

But you're obviously tightening up a bit more than usual.

Yes, yes, and I think that's the case. I mean, I think ...

But that's releasing a lot of free cash flow, Bill.

That's right. And essentially, as Dave indicated, our net debt's down -- actually, as I indicated, our net debt's down by $100 million in the quarter, which we are doing.

Is there an appetite for a greater level of repurchase of the preferred of Bill?

Yeah, well, it's like as I answered the question as little bit earlier, Charlie, because of the pending litigation and the trial, we're currently not making any share repurchases. Obviously, this could change, but we typically don't disclose when we're in the market.

OK. Just a second follow up and then I'll stop. Bill, is there, is Cryovac totally separable if you get into a very ugly situation where you force a divest just to pick the you know, one of those bad scenarios, is it a very separable operation, or is it more integrated into the Sealed Air Corporation today than it was when you bought it, obviously it's more integrated to some degree?

You know, Charlie, as I think you've heard me say before, I mean, we are in this to win. It seems clear to us that we can still win even with the judge's July 29th ruling. In fact, as I mentioned earlier, our experts will be expected to show that WR Grace was solvent in 1998 even with the court's hindsight ruling. And again, we're in this to win and if we don't on the first round, we will appeal to the 3rd Circuit in Philadelphia. End of answer.

And we'll move on to Josh with Elliot.

Yes. Could you comment on whether the company is in or is open to the possibly of settlement discussion with litigation plaintiffs?

I think I will basically say that we're focused on you know, preparing for the upcoming trial. But, and we're in this to win but as far as we're concerned, all options are open to resolve these matters.

Thank you.

And just a reminder today, if your question has already been answered, you can remove yourself from the queue by pressing the # sign on your touch-tone telephone. And please limit yourself to one question.

We do have one additional question coming over the webcast. That question is: "You filed a motion to dismiss the case based on the Cybergenics case, do you have any hope for this?" I always have hope. But, I'm not sure the case will be dismissed. I mean, I think the court's indicated as I said earlier, that it will proceed. We just, at this point, don't know the form or the timetable. Okay, next question.

OK. We'll hear next from John with .

Good morning all. I wonder if Sealed Air looked at or considered the Films business of before bought it?

I will tell you that we are aware of the business, actually its plant is located not too far from one of our plants. But it is one that doesn't fit our business profile.

In what way is it not a fit?

Just the product offering and the product fit. That's all. I mean, it just doesn't. I also think that, I mean, I think if you look at that, was really part of the other transaction.

Yeah. There was a swap.

So I don't think the business was for sale as is. I mean, I don't think it sort of went out on the market as a sale. I think it came up as a swap during the transaction between and the other party.

Right. Fair enough, Bill. I think you told me why it's a non-event for Sealed Air. Thank you.

And we'll hear next from with Black Diamond Research.

Yes. Hi. You mentioned a couple of times that your expert's analysis of since '98, even including hindsight, would expect to show that they were . Just curious if that analysis included some assumption of liability related to the zone laid attic insulation as well as the personal injury and property cases? And then I had one follow up.

Yes. Well, I think, I mean I think the analysis was prepared by our experts in these matters and their analysis shows was solved and I think that's about as far as I can go prior to the trial.

OK. And then, I guess there's been a lot of submittals by various interested parties in how to move this thing forward in light of CyberGenics, and just curious if any - to me, logically, it seems like, well, why should we push forward with the fraudulent transfer before we even have resolved this issue of whether or not was solvent.

And I'm just curious if anybody's suggested, hey, why don't we focus on the ultimate liability and solvency before we even think about transfer. I wonder if that was one of the submittals? Because I hadn't picked up on that if it was.

Yes. No. I mean, I do know there were probably half a dozen proposals submitted by a variety of parties on how to proceed. I don't believe that was one of them. But if you think it makes sense, I'd be happy to ask one of our lawyers at the appropriate time if that's something that ought to be considered.

Well, thanks a lot.

Our next question today comes from with Capital.

Good morning gentlemen. Just a couple of quick questions. Can you break out the current outstandings under your current revolving credit facility?

Sure, . Very easy. Zero.

All right. Fair enough. And who's the lead bank on the current facility?

AMB is the lead bank.

And do you envision them being the lead bank on the new facility once it's completed?

We're talking to several banks about what their rolls will be in the new facility.

And regarding your cash flows, nearly - a great percentage of your revenues are generated off shore. What percentage of your pre cash flow is generated off shore?

I think, , I would say if you look at the mix of our business being about 52 percent on shore, 48 percent off shore and the fact that kind of the corporate headquarters is in this country. You can probably use that mix as a good indication of cash flow.

I think, you know, that and add to that the fact that because of the size, our North American businesses tend to have slightly higher profit margins. That we have more than half of the cash flow coming out of our North American operations.

And our next question today is a follow up from with Engleton Snyder.

Bill, could you give us a feel as to which areas are strongest in your protective packaging whether there are some areas in the marketplace where you actually see continuing decline?

No. No, . I think it's been, you know, pretty solid a, you know, across the business in just, you know, looking at the pieces on the protective side. There is, you know, reasonable growth on air cellular side, on the protective mailer side, on the packaging phone side. It's pretty much across the board.

And what about in the markets you served? You serve?

Well, a lot of -- you mean in terms of the end markets. In terms of the end markets, interestingly enough, one of the stronger components of the end market applications has been the retail sector, which is what goes through the office superstores and other retail channels, as well as catalogue sales, you're still seeing extremely kind of sluggish demand in the kind of telecom/tech sector. I was talking to the sales manager out in California a couple of days ago, and he still continues to find that whole sector very, very slow.

Have you seen any change in trend or is your expectation that the consumer is going to stop buying. I mean, at some point, they have to. And therefore, the protective packaging is going to start slowing substantially if people don't buy from superstores, retails?

Well, we have a remarkable economy, , and the consumer, I think, has sort of been unpredictable as to their behavior, and I'm not sure I'm prepared to predict the consumer's going to turn the other way.

But in addition, though, as I said in my earlier comments, we are also beginning to see some slow but steady kind of pick up in the industrial sector other than telecom and tech.

Oh, OK. I missed your comments on the industrial side. And then lastly, the other expense linked to the legal proceedings, the 3.8 million. Is that a new level or do you think it is going to continue to increase over time?

Well, I think, actually, the number for the quarter was about 5.6 million for the quarter was our legal expense. And most of that work was in preparation for the trial, which, as you know, was scheduled to begin on September 30th. And, you know, that includes all of the work in preparing as well as the experts' analysis that were part of the trial preparation.

We do not expect to run at that rate in the fourth quarter. We expect that to drop down to a level comparable to the first and second quarters, as most, if not substantially all, of the trial preparation has been completed.

And I am assuming that you have no guess for 2003.

And I have no guess for 2003.

OK, thanks.

And moving on to with for a follow up.

Hey Bill, just the -- what is the -- is there a statute of limitations in which this suit has to be brought, and when is the deadline on that if things kind of keep getting bogged down?

Well, Charlie, since the suit's been brought, I don't think the statute of limitation affects it since it's already been brought. I think, though, the statute on fraudulent transfer is different in different parts of the country, but I believe it averages four years. But in our case, it really doesn't matter, since the charges have already been brought.

OK, thanks.

And we now take a question from with Capital.

One of the reasons that I think your shares trade at such a discount is not many investors want to be around for the nightmare scenario of a loss in court and then a big judgement and there's been stories of a multibillion dollar bond having to be placed, something happened back a few years ago with a company called . Have you thought about what you would do in that kind of a scenario and would you consider the defense that Texaco used about 12 years ago with Penzoil and actually filed for bankruptcy as a legal technique.

Well, I'll tell you, Bob, I am not a lawyer. But it's my understanding that unlike state courts, where the Texaco matter was heard, where the law may require a bond pending an appeal, in federal court, a federal judge has wide latitude. So it is essentially up to the judge. And I can assure you that no one benefits from a burdensome ruling. Not Grace as a state and not the creditors.

hasn't proven himself to be anything but plaintiff friendly, though, no?

I mean, I think he hasn't heard the case yet.

Thank you.

OK. We have a couple of more Internet questions on the web. Let me just see if I can pick those up. OK. One question is, "With the delay in the trial, might we have a renewed opportunity to pursue our appeal on the standards of solvency?" And the answer is, we don't know. We don't think so.

The next question that came on the web was, "Do we expect the 3rd Circuit to be involved prior to the trial on the basis, is any, on which the trial can proceed?" I don't know the answer to that question either. Let's see. Trying to go here, another question,

"I am sure that your shareholders would welcome a reasonable settlement of the fraudulent transfer case. Is there a chance a dialog could develop between the parties leading to an acceptable settlement that would allow the company to move forward?"

As I said in response to an earlier question, you know, we are focused on preparing for the trial. We're in this to win. But any and all options are open to resolve this matter and let the company get back to, from, to running what I believe is a wonderful packaging company. Let me see if I, see, did I read it right? I think I've covered the ones on the Internet, here for now. Can I take another one over the telephone?

There are no questions at this time, sir. I'll turn the call back to you.

OK. I do want to thank everyone for participating in the call today. And for your questions. As al of you know, we have five priorities for running our business at Sealed Air. And these are listed on our number one priority card, which many of you have seen. Our first priority is putting the customer first and our second priority is managing the business for cash flow. With record sales in the third quarter, and $100 million reduction in net debt in the quarter, these results clearly demonstrate our commitment to the first two fundamentals on our priority card.

The other two fundamentals on the priority card are world class manufacturing and innovation, where investment today makes us better tomorrow.

So our commitment to world class manufacturing, we focus on continuing improvement on operations and business processes around the world. In the third quarter, world class manufacturing efforts helped to yield improvements in productivity that contributed to a reduced need for capital spending.

Regarding innovation, we reported two good examples of our innovation in the third quarter and our commitment to this priority. First, we announced the construction of a new plant to support the growth in our medical packaging business. Second, our OS oxygen scavenging film, which is used for pasta, took home the top prize in the prestigious Dupont packaging award competition.

At Sealed Air we remain committed to the first four fundamentals on our priority card. The fifth priority is earnings per share and our view is that if you practice the first four fundamental priorities well, earnings per share will follow. And we saw this in the third quarter.

It is clear from our results that we have a strong company with over 17,000 employees around the world who are dedicated to making Sealed Air the best packaging company in the world. We remain focused on the long term fundamental priorities that continue to drive favorable results for Sealed Air. The upcoming trial is also important to all of us.

Including our investors, our employees, our customers, and our other constituents around the world. I can assure you that we have a team of experts in place who will guide this through to a successful conclusion. We believe in our case and we look forward to demonstrating the integrity of the company and the integrity of the transaction.

I remain committed to building the long term value of Sealed Air to ensure the security of our employees, the needs of our customers, and the rights of our shareholders. Thank you very much.

And that does conclude our presentation today. We thank you all for your participation.