希悅爾 (SEE) 2002 Q4 法說會逐字稿

Good day, everyone. And welcome to the Sealed Air analyst and stockholder conference call. Today's call is being recorded. Leading the call today we have William D. Hickey, President and Chief Executive Officer and David H. Kelsey, Chief Financial Officer.

After our prepared comments, we will be taking questions. To ask a question, please press the star key followed by the digit one on your touch tone phone. If you're using a speaker phone, please be sure your mute function is turned off so that your signal can reach our equipment. Again, star one to put yourself in the queue for questions. Please limit yourself to one question so that others may have a chance to ask theirs.

For opening remarks and introductions, I would like to turn the call over to Chip Cook, Director of Corporate Communications. Please go ahead, sir.

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 only 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 to start the call, I'll turn it over to Bill Hickey, our CEO.

William Hickey Thank you, Chip, good morning. I'm Bill Hickey, President and CEO of Sealed Air. With me is David Kelsey, our Chief Financial Officer. As an introduction, I will provide a brief overview of the highlights in our business for the fourth quarter and full-year 2002. Dave will then review the details of our financial results including the details of the charge we took in the fourth quarter for the asbestos settlement and related costs. After Dave's remarks, I will update you on the status of our settlement, after which we will take any questions which you may have.

For the second consecutive quarter, Sealed Air sales increased by 8%. The strong top line performance in the third and fourth quarter helped us to deliver operating earnings per common share excluding the asbestos settlement and related costs of $2.51 for the full year 2002, which compares favorably with the earnings guidance we provided to you at the beginning of 2002.

For the full year, sales increased approximately 4%, which is in the range of our expected mid-single digit top line objective forward growth. We generally expect our gross profit margin to be 33% or higher, marketing and administrative and development expenses to be in the range of 16% to 17% of sales and EBITDA margins to be 20% of sales or higher.

I am pleased to report that we met or exceeded all of these targets, excluding the asbestos settlement and related costs in our results for the full-year 2002.

Sealed Air generated significant cash flow in 2002, which we used to continue strengthening our balance sheet. We reduced our debt, we reduced advances on our accounts receivable securitization and finally, we purchased approximately $29m in preferred shares.

Our accomplishments for the year reflect the strength of our people and the strength of the Sealed Air organization. I want to take this opportunity to personally thank our employees, many of whom are shareholders listening to our call today.

Sealed Air faced a weak economy across many of our markets around the world and a major asbestos litigation in the United States. Yet, as we have done before, when confronted with extraordinary challenges, we remain keenly focused on our business and our operating priorities and at the end of the day, we delivered very solid financial results.

Now I will turn the call over to Dave to review the details of our financial performance. Dave?

Thank you, Bill. I'd like to start with some additional comments on our sales. As Bill said, our fourth quarter sales were record-setting, up 8% or $65m, including an $18m positive effect from foreign currency translation. Our growth reflects 4% volume gains in our food packaging segment and 9% volume growth in protective and specialty packaging. Also our protective and specialty segment had an additional 2% favorable revenue variance in the fourth quarter from businesses acquired in the past 12 months, which contributed $6m to the top line.

To summarize our top line performance in the quarter, unit volume growth in food was 4%, in protective 9%, and for the total company, 6% of $46m favorable variance. Mix and price were fractionally unfavorable in food, in protective, unfavorable by 2% and unfavorable for the total company, 1% or $6m. Currency translation was favorable in food 2%, in protective 2% and company-wide, slightly over 2%.

Acquisitions were not a factor in food and as I just stated, added 2% to protective, resulting slightly less than 1% growth company-wide.

Total revenue growth was 6% in food and 11% in protective and 8% for the company.

The company's gross profit was $283m for the fourth quarter, gross profit margin was 33.4% compared with 33.1% in the fourth quarter of 2001.

Average commodity resin prices for the quarter were consistent with the third quarter but up measurably from the trough that started in the fall of 2001 and persisted through the first half of 2002.

Remember, though, that Sealed Air's business is based on selling differentiated products that add value to our customer's operations. We position them according to the benefits they provide. As a result, our margins do not move in lockstep with commodity raw materials.

Marketing, administrative and development expenses increased 19% -- $19m to $147m compared to the fourth quarter of 2001. As a percent of revenue, these overhead expenses were 17.3% compared with 16.4% in the fourth quarter of 2001. This increased expense ratio reflects the cost of certain corporate projects. Excluding corporate spending, the ratio of these expenses to net sales for the quarter was unchanged from the prior year. Moreover, in 2003, we anticipate these expenses to remain in the 16% to 17% range Bill cited.

To reflect the agreement in principle to settle all asbestos-related litigation involving Sealed Air, we recorded a charge of 834m in the fourth quarter. We also recorded approximately $7m of legal and related fees in the quarter. These asbestos settlement expenses are expected to qualify for favorable tax treatment, and based on the advice of our advisers, we recorded a deduction that results in our showing an income tax benefit for the quarter.

Excluding the asbestos settlement charges, fully diluted earnings per share were 68 cents for the quarter. We have attached a table to our earnings release to reconcile pro forma earnings per share for the quarter and the year. The comparable EPS for the fourth quarter of 2001 was 63 cents per share.

Before turning the call back to Bill, I would also like to comment on some of our cash flow and balance sheet achievements. EBITDA for the fourth quarter was 183m or 21.7% of net sales. Over our threshold of 20%.

Capital expenditures were 33m for the quarter, compared with 37m in 2001's fourth quarter. Total year investment was 92m as we focused on improving productivity of existing assets, permitting us to defer spending on incremental capacity. In 2003, we expect capital spending to return to historic levels of $125m to $150m. Our quarter end accounts receivable totaled 547m, up $11m from September 30th, 2002. While our quarter-to-quarter revenue increased $20m. Compared to December 31, 2001, receivables investment increased $33m, while year-over-year quarterly revenue increased $65m . For purposes of this comparison, I've added back the 95.6m of receivables sold into our receivables securitization facility in 2001's first quarter. -- fourth quarter.

Inventory investment at December 31st was 329m, up 12m from September 30th. Total borrowings at year end, net of 127m of cash or $797m. Down approximately $54m from net borrowings of $851m at the start of the quarter. The decrease in our debt balance during the fourth quarter is attributable to strong cash flow from operations.

Looking ahead to 2003, we expect cash on hand to continue to grow to be in excess of $300m. Accordingly, internally generated cash should be sufficient to fund a substantial portion of the asbestos settlement we booked in the fourth quarter.

Finally, while we complete work on a new unsecured bank facility we remain satisfied that we have ample liquidity to support our growth. Now, I'd like to return the call to Bill.

Thank you, Dave. As I said in my opening comments I would bring you up to date on the status of our asbestos settlement. As most of you are aware, on December 6th, 2002, we announced that Sealed Air's Board of Directors had approved the terms of an agreement in principle with the committee of asbestos personal injury claimants and the committee of asbestos property damage claimants in the WR Grace bankruptcy proceeding. Sealed Air Board also authorized the company's management to complete a definitive settlement agreement consistent with those terms.

The committee of asbestos personal injury claimants and the committee of asbestos property damage claimants also approved the terms of the agreement in principle prior to our December 6th announcement. These approvals committed the parties to the terms of the agreement in principle and to completing a definitive agreement consistent with those terms. Since the approvals in December, a settlement agreement document has been drafted and circulated to all of the parties. The focus is now on reconciling comments on the document that have been collected by our legal counsel.

I want to emphasize that all of the parties are acting in good faith to complete the settlement document skin the with the material terms of our initial agreement in principle.

We expect the final settlement document to reflect those terms. We cannot pinpoint an exact completion date, but we will complete the agreement and have it signed by all of the parties as soon as possible. At this point in time, I do not expect the final document to be significantly different from the terms of that settlement we announced in December and, as we recorded in our financial statements at the end of the year.

Now I'd like to open up the meeting to your questions.

Ladies and gentlemen, we will now begin the question and answer session. If you have a question, you will need to press the star key followed by the digit one on your touch tone phone. Again, star one. If you're using a speaker phone, please press your mute function to allow your signal to reach our equipment. We'll pause just a moment for our first question. We'll go first to George Staphos at Salomon Smith Barney.

George Staphos Good morning. If you could give us the typical geographic breakdown, that would be helpful, Bill. As a sidebar on the one question could you give us an outlook for food volumes and whether you have any concerns on the cattle cycle at this juncture? Thanks.

Okay, George, let me do as you and I refer to it around the world and we'll do by region, unit growth excluding the effect of foreign exchange.

George Staphos Right.

Okay. North America, plus 9%, Europe, plus 1%, Latin America, plus 3%, Asia plus 17%.

George Staphos Okay.

For a total company growth of the 8% that was referred to by Dave.

Okay.

As also Dave indicated on the food side our unit growth was about 4%. That's reasonably consistent with our expectations for the current year.

George Staphos Okay. You don't expect any dramatic falloff then implicit in your answer from any contractions or the red meat portion of the business? Or do you expect one?

Well, George, the cattle cycle has been referred to now for the last three years. I remember I first heard it in 1999 that in 2000 the cattle herd would decline. I'm not sure I understand all of the dynamics of the cycle, but for the last three years, they keep finding cows and that, plus the ability of our sales and our applications organization to continue to find new applications for our products with the same number of animals gives me a relatively high degree of confidence that that mid-single digit number is a reasonable place to be for 2003.

George Staphos One last follow-up. You're only up 1%. Was that surprising to you?

I think you've heard me say, George, on these calls, Europe is still a very slow economy and it continues to be.

Okay. Fair enough, guys, I'll be back.

We'll go next to Ghansham Panjabifrom Lehman Brothers.

Ghansham Panjabi Good morning, guys.

Good morning.

Ghansham Panjabi Can you break out the operating profit numbers by segment? Do you have those?

Yes, I do. For the fourth quarter, in food it was $97m.

Ghansham Panjabi Okay.

Protective and specialty 54 million, in corporate it was an expense of 14.6m to bring you down to a total of 136.2m .

136.2m. Thank you very much. If I incorporate your numbers correctly, with cash flow about 275 for the year?

No, it was more in the order of 260.

260?

Yeah.

What are your expectations for '03?

I think we expect to be in the 250m plus range.

Okay. And also one final question. Can you sort of lead us through the assumptions behind your '03 EPS guidance in terms of top line growth, et cetera?

You know, I'd rather not walk through a road map here just in the interest of time, but I think if you look at our numbers and look at our reasonable sales growth and assume our targets on margins and expenses make sense, it will work out. I do want to follow up on Dave's comment when you looked at the segment. Essentially that gives us a segment operating profit in food of 18.6% and a segment operating profit in protective and specialty of about 16.6%. Those are closing in on our 18% overall goal.

Yes, certainly. Thank you very much.

Thanks.

We'll go next to

at Morgan Stanley.

Edings Thibault Good morning, gentlemen.

Good morning.

Just a quick question, number one on corporate projects, Dave, could you provide more color and am I right in reading that the corporate projects you refer to are in fact now -- were concluded before the end of the quarter and will not be necessarily impacting 2003 and then, Dave, I'd like to get your thoughts on the announcement by Tyson that they'll be re-entering the branded beef and pork market, something that I gathered they had withdrawn from under the Thomas E. Wilson [search] last year. Are you seeing any build up to that in your inventories and your orders? And what your expectations are for the full year.

Let me address the question about our SG & A expenses. The accounting standards are pretty strict about referring to things as one-time or nonrecurring, but in fact, the projects that contributed to the majority of that expense growth at the corporate level are completed and we would expect to see the benefits from them in 2003 with no corresponding expense related to those specific projects. So we would expect to be in that 16% to 17% range for our overall SG & A expense next year. On the topic of Tyson, I think I'll defer that one to Mr. Hickey's thoughts.

Okay. Thanks, Dave. Edings, as you know, Tyson had introduced the Thomas E. Wilson brand, actually, IBP introduced it prior to their acquisition by Tyson. That was brought through one of the large retailers. It has subsequently been decided by the retailer to de-emphasize the Thomas E. Wilson brand so that that brand is not offered in that particular retailer. If you remember, Tyson is a significant player in branded poultry and it's not unusual for them to, you know, want to adopt the same strategy in beef. At this point, we've seen no significant change in our business with Tyson on this particular aspect of the product line.

But would you expect to see a positive change if indeed they're successful as far as the types of products they've talked about on the ready to eat, would that be -- would that be up Sealed Air's alley? It's hard to imagine it wouldn't be.

Those would be positive if it became a much more significant part of their beef business, yes that would be positive.

Great. Thanks very much.

Next to John McNulty at Credit Suisse First Boston.

Hi, Bill and David.

Good morning.

On the corporate projects, can you give us a little clarity as to what some of the projects actually were? Just because the number did seem like it was relatively a good bit larger than we expected. And then on the other side, as far as your protective volumes, which clearly were up a lot more than what we would have even expected, can you give us a feel for what end markets you might be seeing strength from and which ones you may be seeing a lot of weakness from?

The largest single project related to some housekeeping work that we did on our worldwide organization, so we were trying to streamline the way our international subsidiaries in particular organize to allow us to move capital around our international operations in a more efficient fashion. So that is a project we undertook the middle of last year and completed in the fourth quarter.

All right. John, let me add to Dave's comment. Let's not forget, too, there's an impact on foreign exchange which comes through the expenses. In other words, to the extent that it increases our sales, it also was a factor in increasing our expenses. And obviously as most people have experienced that expense flows through the SG & A line as well as it flows through sales.

Okay, sure.

Now, the second part of your question was on highlights of the growth on protective?

Yeah, what end market you might be seeing relative strength and where you might be seeing some weakness?

Actually in the fourth quarter, there were kind of two bright spots. One was the e-tailer business. Interesting there's been comment that the holiday season overall was probably not as strong as a lot of people would have hoped for. And that's probably an accurate number, but what helped our business is that there was a bigger shift from the store outlet to the e-tailor outlet. We actually saw that continue right up to the end of December. The other strong spot in the business in the fourth quarter was the low end medium priced home decorations and furnishings which obviously are a follow-on to the home buying/home building trend which has continued to be strong. The weak spots continue to be technology and Telecom and those are have not shown any significant sign of recovery.

Okay. And then is it safe to assume, as far as the protective unfavorable mix that you were talking about, that's partially tied to what you were saying as far as the low-end median priced home decor packaging.

Yes.

Okay. Great. Thanks a lot.

Let's go to Charlie [Lecastro with Kaplan].

I have a couple of questions. First, what do you think the timing of the tax recovery is and can you carry it back or do you have to carry it forward? That's the first question. The second thing is, Bill, you said recently you thought free cash flow would be bumping up against 10% of sales. David's forecasted 250 for next year is less than 8% of sales. Cow reconcile those two numbers?

Sure. But let me suggest, Charlie, you only get one question. As far as -- let me take the second part of your question first, is that, I think Dave was conservative like Chief Financial Officers are supposed to be and we've always said our number is in the 7% to 9% of sales and I think Dave said, you know, 250 plus. So I feel comfortable that 275 to 300 is 250 plus. So I guess we'll have to see how strong the year turns out to be.

And the other part of your question, Charlie, the first part is the timing of the tax benefit is just something I can't predict. You know, obviously it's all keyed on the timing of the Grace re-organization and Grace coming out of bankruptcy. Because our payments will not be made until those events occur. And I just am unable to predict when that might be. And so obviously we would need that event to occur before we could claim any tax credits. So at sometime in the future, whether it's six months or 24 months, I just don't know.

Okay. Thanks.

We'll go next to Dan Khoshaba at Deutsche Banc.

Good morning.

Good morning.

I know you gave out a number of a combination of price and mix, but could give us a price in the quarter for food and protective, the effect of it?

I'm not sure that's something we can do because of the way the system comes together.

Because of the conversation we had earlier, Dan about the move in mix we experience in protective, it really is not possible for us to break out price as distinct from mix in any meaningful way to share in the call.

Do you -- is there any meaningful changes one way or another taking place, particularly, I guess, -- what I wanted to go into was really food, where resin prizes seem to be moving higher and some price increase announcements for down the road?

Well that, is to more of an issue of what we'll be talking about at the end of the first quarter, but I think we've, in general, if you were to look at individual product, average selling prices, you'd see stable to increased prices over the course of the past year.

For selling prices or for resin?

For selling prices.

Selling price, right.

Resin was up considerable in the second half of the year from the first half. It's returned to more normal levels.

Let me ask you, during the last resin cycle, I believe it was the second half of '99, early 2000, there were a number of sequential resin price increases and everybody had been impacted a little bit, but it seemed to me that you guys were a little bit behind the eight ball in terms of pushing through higher selling prices and recovering that higher resin cost. Is there anything you're doing differently this time in anticipation of, perhaps, higher resin costs throughout the year to make sure you might be ahead of that group this time?

Yeah, Dan, this is bill. Let me just go back and try to pause it, while we said consistently for 20 years, we try not to run the business on the resin cycle. We try to get our product offering to where we bring the value to the customers and we try not to move in lockstep with the ups and downs of the commodity cycle. I think you can follow our history. It's been pretty consistent for 20-plus years. And we really don't plan to change the playbook. Now, you know, if prices continue to climb or there's other supply issues caused by geopolitical items, then we'll obviously have to take a second look at it, but we kind of want to run the business with kind of the game plan that we feel is the one that suits how we run the business.

I hear you, so I guess then the question is, if resin prices were to move sharply higher, and I don't know if they will, obviously, but some people feel they could, would that in your view be negative to margins? Because it was in the last cycle at least for a period of time.

Right. And I think what happens is, if you look at a chart prepared over a long period of time between the commodity price cycle on resin and Sealed Air's margins, you will actually see some contraction in margin as resin goes up, but we've concluded over the years that there's also an expansion to a greater degree when the commodity cycle goes the other way and at necessary points in the cycle when we need to we will act on price.

Right. Last question, if I could, and a very quick one. Protective volumes were, I think pretty strong in the quarter. First of all, is that sustainable? Are you seeing a recovery in volumes there or do you think it's more of an inventory build, perhaps related to the expectations that resin prices will increase in the next few months? What do you make with the strong growth in protective?

I think a couple of things. One, as I answered in response to an earlier question, we did see a strong conclusion in the fourth quarter primarily from the e-tailor segment of the business and the low and mid-priced home decoration and furnishings, which I guess are consistent with what's happening in the home building and home sale market and also reflecting continuing shift from the historical pattern of store retailers to the e-tailers. I think I bought 25% of my holiday gifts on the Internet this year.

The other thing is, we continue to bring out new and innovative products. We have a new version of our Fill-Air, which brings the entry cost down and makes ease of use. We've also shown our inflatable Bubble Wrap and we still have a reasonably strong pipeline of new products on the protective side. I think if you combine all of those, you see some of the reasons behind all growth in the fourth quarter.

Now, to answer your broader question on the economy, that's still quite sketchy. There's a high degree of uncertainty on the part of our customers. Everyone's concerned about oil prices and, you know, natural gas prices which have gone back up over $5. And, you know, concern about the geopolitical issues, but on the other hand, I do think there is a slow recovery, probably much slower than the traditional business cycle coming out of a recession. But we are seeing slow growth, but it is positive. And, of course, that helps our business. But to answer your question in summary, could we see 9% to 11% through 2003? That's probably higher than we expect it to be. Again, we're still reasonably comfortable with the mid-to-high single digits.

Our next question from Rosemarie Morbelli.

Good morning all and congratulations, actually on a very good fourth quarter. And keeping your focus amidst the asbestos saga. Just continuing on the growth question, could you touch on how well you did on the food side in terms of the new products introduction there?

Sure, Rosemarie, I'd be happy to. I was hoping someone would --

Rosemarie Morbelli Congratulate you?

No, actually ask the question. I want to highlight our case-ready, which we told you a year ago, we hope to hit $200m in the year. And we came in slightly over 200m for the full-year 2002. And we even ended case-ready on a high note in the quarter. I was very pleased by the growth in Europe where we had a 37% growth in case-ready as we brought on a couple of new supermarkets in Spain, Italy and France. So that was positive. Some of our other new products, Vertical Pouch Packaging continued to grow in the high teens, just under 20% and on the protective side, our inflatable product offering, again, was in the high teens. So all of the new products are on track and we look for their continued growth in 2003.

On the protective side, it was a strong growth and the consumer confidence seems to be eroding. If you look at the trend, if you look at January and I guess we have to look at January, beginning to end of the month as opposed to comparing it to December, when you eliminate the Christmas season, what are you really seeing trend-wise?

Well, I think Rosemarie, as we said in response to other questions as well as some of the opening comments is that we still see 2003 as being a mid-single digit to high single digit year. And, you know, that obviously is based on a continued recovery in the economy and not only in the United States, but around the world. And the colleagues I talked to in this country as well as other parts of the world suggest a high degree of uncertainty on not only the issues of the economy, but on the geopolitical situation. And I think what you're seeing on a part of a lot of companies is a reluctance to commit to new projects until the horizon becomes clear. I'm comfortable, kind of the mid-single digit number at this point in time.

Lastly, since you are not going to be paying anything, if I understood properly, which I may not have, on the asbestos settlement until Grace resolves its bankruptcy, what are going to be the impact of all of this in 2003? In other words, are you going to reserve the amount of cash you need to pay? Are we seeing 9m more shares outstanding for the full year? And what does this do to the tax rates? Could you give us a feel for what is actually going to happen in 2003?

I'll let Dave do that.

Sure, Rosemarie. Starting from the back, on the tax rate, we would see a modest decline in our effective tax rate in 2003, but that really is unrelated to the settlement and is more having to do with a mix of business and where that's -- where we'd expect the profits to be geographically in 2003 compared to 2002. The specific impact of the settlement will come in two places -- the cash portion, which, as Bill indicated, we do not fund until the re-organization plan of Grace is in place, will accrue interest at a 5.5% rate. So for the year, that is, I think, something in the order of $26m of interest. And it will have an after-tax impact of about $17.5m or 16 cents a share on an as-if converted base is. That leads into the other item that will affect us. The 9m shares will be included in the denominator when we calculate our as-if converted earnings per share. That's a little bit less than 10% dilution after you convert the preferred into its common equivalence. We will be reporting earnings per share next year reflecting Boeing of those items and, hence the guidance that we gave late last year that with those two settlement impacts in, we would expect earnings per share to be in the 240 to 245 range.

Okay, thank you.

We'll go next to [Uzi] Zimmerman at JMG capital.

Do you expect Grace to resolve the bankruptcy or come out with a re-organization plan in the second half of this year?

That's a question you ought to refer to Grace management. We are not involved in that process.

The preferred buyback, can you tell me the number of shares the average price and if you'll continue to do that?

William Hickey I said $29m worth of shares. I don't have the expect number of the price, but we have been in the market a number of times during 2003. That number is about 7m

About 780,000 -- actually, 782,500 to be exact.

Year-to-date number?

Yes, that's a full year 2002, right. That's the $29m that I referred to. And about the only comment I'll say is that we still have an authorization to buy back somewhere between 7% and 7.5% of the outstanding shares. And from time to time, we are in the market.

Uzi Zimmerman Right. The debt reduction, what was it for the quarter only?

Dave?

For the quarter only --

54m? Where are the numbers?

Let me shuffle some papers here, because I know I -- Let's see. Yeah, it looks like it's a net of cash, about $50m that we brought debt down in the fourth quarter.

William Hickey Great. Thank you.

David Kelsey You're welcome.

We'll go next to Patrick Duff, Prospect Associates.

Good morning.

Hi, Pat.

Could you spend a minute on the Far East where business is very robust and share with us a little bit about what's going on there in the various countries, how you're doing penetrating new customers, getting them to convert over to some of your protective packaging from some of their traditional packaging materials. I would imagine you're fairly optimistic that the trend you're experiencing now will continue. It's got to be a bright spot for you on a going-forward basis?

Absolutely, Pat. The reasons for the strong performances is obviously not due to one item, but a number of items. One, of course, is the continued move of manufacturing from our developed world to the Far East. We have seen a number of customers, interestingly enough, that had shifted production from the West Coast of the United States down to Mexico and then within the last year moved from Mexico to China. So we are seeing that continued flow of manufacturing to Asia and most cases or a number of cases, a lot of the packaging specifications and the customer relationships exist back here in the United States or in Europe and we kind of follow those through. The other is we continue to focus our sales force. We now have three manufacturing locations in China. We have organized our efforts in Asia on a product line basis, so we're getting more focus. And as products continue to become sophisticated and products continue to have to be shipped, we remain the beneficiaries of that. And, of course, their own growth continues to increase. And although we're primarily a supplier to the export market, there is a gradually increasing domestic market in Asia, which we hope to benefit from also.

One follow-up. Do you have an estimate or a number on what percentage of the sales came from China and what sort of increase that would have been on a year-over-year basis?

Pat, obviously we have it, I just don't have it in front of me.

I'll follow up with Chip.

All right.

Patrick Duff Thanks very much.

We go next to Larry Robbins, Glennview Capital.

Actually, my questions have been asked and answered.

Okay.

We go next to Chris [Kapsch] Black Diamond Research.

You discussed a little bit about the mix effect and the protective side. I was wondering if you could elaborate that a little bit more? What's causing the dampening effect and how do you see that dynamic playing out in 2003? And then I had one follow-up.

I think on the mix effect as we've indicated earlier, to the extent that a lot of the growth was in kind of the low and mid-price home decorations and furnishings, they're generally at the low end of the packaging technology. Those are reasonably low-end products, and that's where we've seen the growth. Also during the year, we've seen what we call our Bubble Wrap Light material, which is a lighter gauge, lighter version of our Bubble Wrap, which has really opened up kind of a lower end segment of our markets. Those are the principle reasons for the mix effect. And to the extent the economy remains weak, I would expect the trend to kind of continue in this kind of environment. Most customers continue to look for good value at a reasonable price and we try to have a product that fits that.

Okay. And then you have sort of a greater component of equipment sales in your mix versus a lot of your competitors. And you post solid results here despite a severe recessioning in capital spending in the economy. I'm just wondering if you have some internal gauge which tracks -- I don't know if the RFQ activity for machines or equipment, but how is that sort of -- would have been the sequential trends in that sort of activity, sort of as a harbinger of what 2003 might be in terms of equipment salesto drive organic growth?

Let me get back to clarify a fact here. Is that equipment still is less than 10% of our business. So roughly 90% of our revenue is the sale of consumerable packaging materials. So the, you know, the equipment component is only 10%. And as in most kind of machinery environments, that business has been relatively slow. It does reflect the economy overall. In terms of -- in terms of any indication of some hope there for an up tick, there was a period in 2002 where kind of the order books were pretty lean. I can say that as we got through towards the end of 2002, probably the second half of the third quarter on, there was more interest on the part of customers in at least exploring opportunities to buy new equipment. But in a number of cases that has not yet turned into orders. And I think, as I mentioned earlier, one of the overhangs on that right now is the uncertainty in the economy. I guess uncertainty is the operative word. And that's holding up a lot of captain vestments by our customers.

Our final question is from Tim Burns at [Cranial] Capital.

I didn't realize Cracker Barrel had an e-tailing business. You talked about 25% of your Christmas shopping. That's a lot of meat and sausage.

I thought you were the guys using it, Tim.

Exactly. Along the machinery lines, I had two or three questions. Did Shanklin meet your expectations? Did it turn over new film sales, did it provide a pipeline of parts and technical knowledge within the plants that you sell your shrink films to?

I will say that being a machinery supplier, the business at Shanklin has definitely felt the effects of the recession.

Sure.

Clearly they have endured the downturn in the economy like all other suppliers of machinery. To the extent that it's helped us broaden the product offering to be able to provide a full solution to our customers for our customers to be able to hold one supplier accountable fort performance of their packaging operations, it has met our expectations.

Uh-huh. And with regard to, I think Dan mentioned, is this growth in protectives real or is it inventory building? Let's face it, the protective product line itself is kind of bulky.

Yeah, that was the response I should have given to Dan, you really can't inventory Bubble Wrap very long.

You can speculate if it's a quick, easy war, which I don't know if that's true, there would be a surge in economic activity and there might be a run for the order book, but it seems like that's a tough product to kind of, you know, build a lot of inventory. The other question, I guess is, in terms of the company getting this asbestos thing behind you, it's not over yet, but hopefully it's over, I mean, you guys have endured, you know, you've had shackles on both legs, both arms you've been shut out from doing anything aggressively on the M & A front, you've slowed down your R & D. What can we look forward to over the next couple years with a positive settlement and Sealed Air moving back into the realm of a real company, not one in a vacuum.

It will feel good to get the shackles off, so to speak, but I do think the settlement is substantially behind us. As I mentioned in my comments, we're essentially down to the wording of the detailed agreement. And I expect that to be done in a reasonable amount of time. And I don't expect it to be any different than we announced back in December.

As far as what comes after that, I think obviously what we want to do is pay off those cash obligations as soon as possible. And, you know, use our cash flow first to bring our debt down and then we remain open to other ways to grow the business. I think you'll find us back in sort of the M & A market so to speak, and we continue to be active, long-term buyers of our shares. Those are the three places we use our cash flow and I don't expect that to change once the shackles are off.

Well, you know, given what's going on in the world and what you guys have -- your private hell you've gone through, where you're ending up with margins, I would say, it's a pretty good job. I wish you guys all the best in 2003.

Great, thanks, Tim.

I look forward to that meat and sausage gift. I must be delayed.

Keep shopping, Tim. Okay. Before -- I don't know, operator if there are any questions, but we do have one question on the Internet. Actually, two. I think I've already answered one. One question came over the Internet that asked what is the status of the asbestos settlement, I.E., where are you in the process? I think we've already responded to that. And second question that came over the Internet from our webcast is, was can you talk about the pricing environment in light of the continued weak economic activity? I think we've kind of talked about that, too, in the issues of kind of mix and the overall customer base, continuing to look for value in their packaging materials. I would say that, you know, over the last probably two to three years pricing has been essentially flat. We did have some price increases back in the resin spike of 2001 where I believe we had three price increases in a five-month period. But other than that, you know, the pricing environment reflects I think what people are seeing around the world, generally a period of price stability. I think that cover the questions on the Internet. Operator, do we have any more questions on the telephone, callers.

No, sir, that concludes our question and answer session. Mr. Hickey, I'll turn it back to you for closing remarks.

Okay. Thank you very much for participating in the call today. In closing, I want to say that I look forward with great eagerness and as Tim Burns said, without shackles, to 2003 and beyond, Sealed Air delivered positive operating results in 2002, even in the face of the challenges of last year. With the asbestos litigation essentially behind us, all of us at Sealed Air can now focus our time and attention to the business.

We have a bright future. Our sales force remains focused on finding new customers and applications for existing products around the world. The favorable long-term trends like the demand for convenience, the desire for improved safety and hygiene, continued to lift our business, including our strategic growth initiatives, case-ready, vertical pouch packaging and inflatables. Our organization remains focused on constant improvement in our process with particular emphasis on asset utilization. Through our industry leading RD & E efforts, we keep fulfilling our differentiated product strategy by improving existing products and adding new products that add value to our customers. Although near-term geopolitical and economic uncertainties somewhat cloud the immediate future, I am confident in the long-term outlook for Sealed Air.

I want to thank all of our shareholders for the confidence you've had in us through what was a very challenging and difficult 2002. And like all of you, I am personally very glad to be a Sealed Air shareholder. Thank you very much.

Ladies and gentlemen, thank you for joining us for this Sealed Air conference. At this time, we have concluded and you may disconnect.--- 0