2011 Annual Report

CEO Letter

“Sealed Air’s growth has always come from challenging our own notion of how ‘our products protect your products.’ By having the courage to redefine protection, we have always maximized the value we offer as customer and consumer needs evolve.”

William V. Hickey

President and Chief Executive Officer


The year 2011 was a transformative one for Sealed Air, marked by our acquisition of Diversey. It was also a year of sound operational performance, ongoing productivity improvements, record safety performance and solid free cash flow generation from our legacy business—all in the face of challenging macro-economic conditions. These events and achievements have created a foundation for what we believe will be a successful 2012.

Committed to Long-Term Growth & Value Creation

Throughout our history, we have prided ourselves in our inventive and entrepreneurial culture, our broad portfolio of proprietary solutions that improve customers’ productivity and reduce their operating costs. We have also earned our customers’ trust as their partner and an industry thought leader. These traits and a lot of hard work have allowed us to position the organization on the “right side of the growth curve,” and achieve or maintain a #1 or #2 market position in the principal applications we target.

We have also demonstrated the flexibility to adapt and reinvent our business to maximize our growth opportunities and maintain our leadership position with integrated solutions—no matter where our customers do business. In 2011, we adapted our business and aligned our growth strategy with three primary mega-trends:

  1. Increasing demand for protein and high-quality, prepared foods from an expanding middle class, who are seeking higher standards of living in developing regions, and are being served by expanding regional and global food supply chain networks;
  2. Greater public awareness and regulatory mandates for safe, efficient, and hygienic environments that reinforce personal safety and the well-being of employees and customers in increasingly urbanized environments; and
  3. Expanding global supply chains and e-commerce channels, which require efficient protective packaging solutions from the factory floor to consumers’ doorsteps.

While our legacy organization has actively addressed these trends, our acquisition of Diversey provides a catalyst for us to redefine protection and be a leader in providing solutions that ensure safer and more hygienic environments. As a result, we have expanded our growth opportunities to include an estimated $40 billion cleaning and sanitation market,1 with attractive growth opportunities among food and beverage processors and in developing regions—key areas of focus for us.

We expect that the combination of our two leading global organizations will produce next-generation solutions that will offer stronger value propositions to customers, improved sales growth, and greater differentiation for our shared portfolio and global platform. The addition of Diversey provides greater reach, most notably in shared and under-penetrated food and beverage processor accounts. Here, our new organization can leverage a more extensive service platform and deeper customer relationships to drive growth. We also have enhanced growth opportunities among business supply distributors, a sales channel utilized by both legacy organizations. And lastly, we have the opportunity to leverage Diversey’s extensive infrastructure, market presence and customer relationships in developing regions to accelerate growth programs across each of our businesses.

The Synergy Value of Redefining Protection

We continue to believe strongly that 2011 was the right time to expand our growth opportunities and invest in our future to improve value creation for all of our stakeholders. After investing resources over the past five years to optimize our legacy internal operations, lower our cost structure, transition to a standard ERP system, revitalize our R&D pipeline, and build a solid balance sheet—our team was ready to focus on the next 10 years as a period of transformational growth. While the Diversey transaction initially met with a mixed reaction from investors, I believe that our commitment to expand our leadership presence in food safety and security and facility hygiene is the right long-term strategy for the organization and Diversey was the right investment to drive long-term stockholder value.

With Diversey, we are focused on being a global leader in sustainable solutions that improve food safety and security, facility hygiene and product protection—protecting what is important: what you eat and drink, where you go and the valuable goods you ship.

The global business unit structure we expect to implement in 2012 will align three business areas to a specific protection theme: Food & Beverage, Institutional & Laundry, and Protective Packaging. Each business area will continue to leverage our expansive, shared global infrastructure and our core competencies in advanced material science, microbiology, food science and engineering to improve the efficiency and efficacy of protection solutions for customers worldwide. As we transition to this structure, our businesses will be focusing their attention and investments on a core growth strategy that emphasizes sustaining our current market footprint in North America, maintaining our leadership positions in the EMEA markets, and accelerating growth in developing regions. We believe this approach will ultimately generate the most growth opportunity, value and return on our investment.

As you will see in this year’s annual report, the new Sealed Air is positioned to create measurable value for our customers and their operations through solutions that improve safety and risk management, drive operational efficiencies through automation and deliver water, waste and energy reduction. Additionally, we ensure downstream benefits such as extended shelf life, which reduces food waste, brand enhancement, and value-added convenience features for both customers and consumers.

I am excited about the opportunities ahead for Sealed Air based on what we have learned following the close of the Diversey transaction in October 2011. The diligent analysis of over ten integration teams has yielded 2013 goals that include cost synergy targets that are double our initial estimate and have reinforced our free cash flow targets—core to achieving our net debt target and long-term capital structure of a 3.0x to 3.5x net debt to EBITDA ratio by the end of 2013. These goals include:

  • $8.6 billion in annual revenue, including $70 million in revenue synergies;
  • $100 million in annual cost synergies;
  • $1.4 billion in adjusted EBITDA ($1.45 billion run-rate at end-2013);
  • $600 million in annual free cash flow; and
  • $4.5 billion in net debt.

Committed and Aligned to Achieve Success

Both senior management and the Board are committed to achieving a successful integration, realizing our 2013 goals, and delivering the earnings improvement and stockholder value creation that we expect will follow when we perform to plan over the next two years. To our disappointment, 2011 became a challenging year for our stockholders due to the significant decline in our stock price following the announcement of our Diversey acquisition. In response, the Board took a hard look at our strategy and took meaningful actions. We reaffirmed the strategic rationale supporting the Diversey transaction, appointed a new lead director, Mr. William Marino, and two additional independent Board members, and we aligned our incentive compensation programs to include our 2013 goals and total shareholder return (among other metrics).

As we move ahead and execute on our plans, we commit to our stockholders that we will:

  • Put our full effort into achieving the success of our deal;
  • Set clear, reasonable performance goals and communicate them;
  • Report on our progress toward achieving our goals; and
  • Share our insights along the way.

These commitments, along with the placement of a solid senior management team which represents industry-leading executives with an average tenure of 20 years, who know their markets and know how to win, position us to successfully execute on our integration and growth programs.

Growing on Solid Fundamentals

Our 2013 plans are built on a solid legacy Sealed Air foundation. In 2011, despite the slowing pace of growth in the second half of the year, our businesses maintained constant dollar growth, solid free cash flow generation and ongoing penetration across customer accounts and in developing regions. Our core drivers of success were our ongoing expansion into developing regions, our solid pipeline of innovations, which continued to offer lower total cost solutions for customers, superior customer service and strong access to diverse distribution channels. For the legacy Sealed Air business, this resulted in full year:

  • 5% constant dollar growth, including 2% volume growth and 3% price/mix growth;
  • Launch of nearly 40 new solutions, with 17% of sales from new solutions (+200 bps vs. 2010);
  • Approximately $30 million in productivity benefits from our commitment to continuous improvement;
  • Another year of record safety performance; and
  • Maintenance of relatively steady operating profit margins versus 2010, reflecting 80% recovery of petrochemical-based raw material costs.

During the year, we maintained our strong liquidity position with approximately $1.5 billion in available funds to meet an estimated $830 million obligation associated with the W. R. Grace settlement. We finished the year with over $700 million in cash and cash equivalents, allowing us to be well positioned to fund the settlement when it becomes due. We continue to expect the payment of the settlement to be accretive to our post-payment diluted earnings per share by $0.13 annually and yield over $350 million in cash tax benefits, which will either aid in our reduction of debt or allow us to return cash to stockholders if we have already achieved our targeted $4.5 billion net debt level.

Focused on the Deliverables: 2012 Milestones

As we continue to look to the future with great optimism, our priorities are to place our customers first and complete key milestones necessary to achieve our long-term goals.

In 2012, our organization will be focused on five objectives:

  • Achieving $50 million in cost synergies and increasing our rate of revenue synergies to meet our 2013 goal of $70 million;
  • Successful integration of the business by executing on integration plans across back-office functions and within our supply chain network, as well as transitioning to three business areas;
  • Achieving approximately $1.2 billion in adjusted EBITDA from the benefits of organic sales growth, productivity improvements, synergies and legacy restructuring programs;
  • Generating cash flow to reduce debt, with estimated $450 to $475 million of free cash flow (includes working capital), and decreasing net debt from $5.2 billion to a target of $4.9 billion by year-end; and
  • Developing our people by providing a cohesive and collaborative environment that will allow our employees to thrive, offer greater development opportunities and ensure skills required to achieve our growth strategies are in place.

As we look ahead, we believe we have identified the right markets for growth and the right strategy to achieve our goals. We have the expertise and leadership, technological capability and global platform that will define Sealed Air as an unparalleled protection company dedicated to deliver on our commitments to our stakeholders.

William V. Hickey signature

William V. Hickey

President and Chief Executive Officer

1 “World Food Safety Products” Freedonia, 2010; “World Industrial and Institutional Cleaning Chemicals” Freedonia, 2010