Filed with the SEC from June 28 to July 4:
Sealed Air (SEE)
Mutual-fund firm Davis Selected Advisers decreased its holdings to 10,267,901 shares (5.3%) with its sale of 1,310,490 shares from April 30 through June 29 at prices ranging from $14.88 to $19.40 apiece. Davis also disclosed buying 370 shares on May 2 at $18.91 apiece.
Acquisition of Diversey
On October 3, 2011, we completed the acquisition of Diversey, a leading global provider of commercial cleaning, sanitation and hygiene products, services and solutions for food safety and service, food and beverage plant operations, floor care, housekeeping and room care, laundry and hand care. Under the terms of the acquisition agreement, we paid in aggregate $2.1 billion in cash consideration and an aggregate of approximately 31.7 million shares of Sealed Air common stock to the shareholders of Diversey. We financed the payment of the cash consideration through (a) borrowings under our new Credit Facility, (b) proceeds from our issuance of the Notes and (c) cash on hand. In connection with the acquisition, we also used our new borrowings to retire approximately $1.6 billion of existing indebtedness of Diversey. As of March 4, 2011, Diversey had approximately 10,170 employees and reported net sales of $3.1 billion for the year ended December 31, 2010. See Note 3, â€śAcquisition of Diversey Holdings, Inc.,â€ť for further information about the acquisition and â€śNew Segment Structureâ€ť below for information about our announcement of the expected establishment of new business units and our current segment reporting structure.
The consolidated financial statements and information included in this Annual Report on Form 10-K (â€śForm 10-Kâ€ť) includes the financial results of Diversey for the period beginning October 3, 2011 (the â€śacquisition dateâ€ť) through December 31, 2011. The financial results included in this Form 10-K related to the acquisition method of accounting for the Diversey transaction are subject to change as the acquisition method of accounting is not yet finalized and dependent upon the finalization of managementâ€™s review of certain independent valuations and studies that are still in process. See Note 3, â€śAcquisition of Diversey Holdings, Inc.,â€ť for further information about the acquisition and related transactions and the acquisition method of accounting.
New Segment Structure
On November 3, 2011, we announced the expected establishment of new business units for our segment reporting structure. The new segment reporting structure will consist of three global business units. This new structure is expected to be implemented in 2012 and will replace our existing seven business unit structure and Diverseyâ€™s legacy four region-based structure.
The new segment reporting structure will include the following:
Food & Beverage â€” This new segment will combine our legacy Food Packaging and Food Solutions businesses with Diverseyâ€™s Food & Beverage applications. This segment will focus on providing solutions that improve the management of contamination risk associated with food production and processing, extend product shelf life through packaging technologies, and improve merchandising, ease-of-use and back-of-house processes. These solutions are designed to reduce customersâ€™ total operating costs, improve operational efficiencies and reduce food waste and water and energy use.
Institutional & Laundry â€” This new segment will represent the legacy Diversey business serving institutional and industrial end-users such as food service providers, lodging establishments, building service contractors, building managers and property owners, retail outlets, schools and health care facilities. This segment will focus on developing differentiated solutions for facility hygiene, food safety and security in food service operations, and infection control. In addition, this segment offers a wide range of value-added services, including food safety and application training and consulting, and auditing of hygiene and water management. These solutions create business value by improving operating efficiency, mitigating risk and reducing the overall environmental footprint of commercial and industrial facilities.
Protective Packaging â€” This new segment will combine our legacy Protective Packaging, Shrink Packaging and Specialty Materials businesses to provide customers with a broad portfolio of protective packaging systems across a range of applications and industries.
There will also be an â€śOtherâ€ť category, which will include our legacy Medical Applications business and New Ventures.
Until the new organization is implemented, we will continue to report our segment results using the following structure: Food Packaging, Food Solutions, Protective Packaging, Diversey and an Other category. Additionally, there will be no immediate changes in how we manage our business with our customers, including the products, solutions and services we provide, however, our businesses will pursue revenue synergy opportunities where available.
New Directors Elected
On January 30, 2012, we announced that Mr. Jerry R. Whitaker was elected to our Board of Directors as an independent director, effective immediately. Mr. Whitaker is the retired President of the Electrical Sector-Americas Group of Eaton Corporation, a global diversified power management company that manufactures electrical and industrial products and services. The Electrical Sector-Americas represents the largest operating unit of Eaton Corporation. During Mr. Whitakerâ€™s 17-year tenure at Eaton Corporation, he held several executive management positions and established a track record of improving profitability across the multinational manufacturing footprint and expanding Eatonâ€™s market presence in targeted segments. Currently, Mr. Whitaker serves as a director of Matthews International Inc. and as a director of Crescent Electric Supply Company. He also serves on the boards of the Carnegie Science Center (serving as Chairman of the Carnegie Science Center Awards for Excellence over the last ten years), the Allegheny Conference on Community Development, Pittsburgh American Middle East Institute and the Corporate Circles Board of the Pittsburgh Cultural Trust. Mr. Whitaker holds a bachelor of science degree in electrical engineering from Syracuse University and a master of business administration degree from George Washington University.
On January 17, 2012, we announced that Mr. Richard L. Wambold was elected to our Board of Directors as an independent director, effective March 1, 2012. Mr. Wambold was formerly the Chief Executive Officer of Pactiv/Reynolds Foodservice and Consumer Products, a global manufacturer and supplier of consumer food and beverage packaging and store products. Previously, Mr. Wambold served for approximately 12 years as Chairman of the Board and Chief Executive Officer of Pactiv Corporation, a global provider of advanced packaging solutions. Currently, Mr. Wambold is a private investor and serves as a director of Cooper Tire and Rubber Company and as a director of Precision Castparts Corporation.
Our Business Strategies
We are focused on protection and expanding our presence by innovating solutions that improve food safety and security, facility hygiene and product protection. Our strategy aligns with three global trends: the increased demand for protein and high-quality prepared foods from an expanding middle class in developing regions; greater public and regulatory demand for safe, efficient and hygienic environments; and the expansion of global supply chains and e-commerce, which require efficient packaging solutions. Our business is well positioned to leverage these trends through our extensive portfolio of proprietary solutions, leading research and development teams, our large international footprint and presence in developing regions, our access to broad distribution networks and our high levels of customer service.
The key strategic priorities developed to achieve our growth goals are:
Maintain and Expand our Positions with Key Customers. We have developed a reputation for delivering exceptional value to our customers as proven by our long-standing relationships and market leadership positions. Our total systems solution model often involves technology and equipment installed within our customersâ€™ facilities which further enhances the value we bring to our customers. We plan to build on the strength of these relationships to deliver end-to-end solutions across the food â€śProduction-Packaging-Pre paration-Consumptionâ€ť continuum to become an increasingly important partner to our customers.
Position our Company to Capture Growth Opportunities in Developing Regions. We are focused on realizing growth from developing regions due to favorable demand trends, including: greater disposable income from a growing middle class; the continued urbanization of populations; increased wealth per capita driving greater demand for protein and higher quality foods; and expansion of cold supply chains and Western-style retail supermarkets, which require more packaging. As a result, these regions represent opportunities for enhanced food production, packaging and processing, which offer growth opportunities for our solutions.
Extend Reach and Maintain Innovation Leadership. The Diversey acquisition provides additional scope, scale, and geographic reach to deliver proprietary solutions to address our customersâ€™ unmet needs in managing food safety, hygiene and shelf life performance while maximizing productivity and risk management and reducing costs. We believe our extensive competencies in food science, equipment automation, cleaning and sanitation and process integration position us to address these unmet needs globally. We plan to build on these combined strengths by innovating new end-to-end solutions across the food â€śProduction-Packaging-Pre paration-Consumptionâ€ť continuum that will provide measurable value for our customers and ultimately enhance the efficacy and efficiency of food supply chains.
Integrate Diversey and Realize Cost Savings and Revenue Synergies. We intend to achieve commercial and financial benefits from our integration of Diversey. We are proceeding with our extensive integration plan that addresses both commercial opportunities and areas for cost savings. We expect to realize approximately $110 million to $115 million of annual gross cost savings by the end of 2014. We continue to anticipate $70 million of revenue synergies by the end of 2013, largely from expanding our access and presence within our food and beverage processing customersâ€™ businesses and broadening our reach in developing regions. We believe that cost and revenue synergies will further enhance our financial profile and future free cash flow generation.
Utilize Free Cash Flow to Repay Debt Obligations. We have a long track record of free cash flow generation and deleveraging through the economic cycle. We plan to use internally-generated free cash flow to repay our debt obligations. As of December 31, 2011, our net debt was $5.2 billion. Our goal is to reduce net debt to $4.9 billion by the end of 2012 and then to $4.5 billion by the end of 2013. In addition, we plan to opportunistically invest in our businesses to further enhance our free cash flow generation in the future, which will create additional value for shareholders.
Products and Services
Our Diversey segment offers a wide range of products and services designed primarily for use in five application categories: food service, food and beverage manufacturing and processing, floor care, restroom care and other housekeeping, and laundry. Many of our products are consumable and require periodic replacement, which generates recurring revenue and helps provide consistency in business performance.
The global sustainability movement is expected to be a long-term driver of growth in the industries we serve, as customers seek products and expertise that reduce their environmental profile while also providing clean, hygienic facilities that reduce the risk of human- and food-borne infection. Our extensive suite of products, services and solutions improves our customersâ€™ operational efficiency as well as their cleaning, sanitizing and hygiene results, which we believe assists them in protecting their brands. We also help our customers achieve their goals of reducing waste, energy and water consumption, and we are able to provide documented analysis of the cost and resource savings they can achieve by implementing our solutions.
Food Service. Food Service products remove soil and address microbiological contamination on food contact surfaces. Our food service products include chemicals for washing dishes, glassware, flatware, utensils and kitchen equipment; dish machines; pre-rinse units; dish tables and racks; food handling and storage products; and safe floor systems and tools. We also manufacture and supply kitchen cleaning products, such as general purpose cleaners, lime scale removers, bactericides/disinfectant s, detergents, oven and grill cleaners, general surface degreasers, floor cleaners and food surface disinfectants. In addition, we provide customers with expertise to execute cleaning and hygiene programs. These applications are sold into a variety of end use applications, including contract and in-flight caterers, restaurant chains and lodging establishments. We also have a relationship with Cintas Corporation through which we provide application expertise and a food service portfolio under Cintasâ€™ Signet TM brand.
Food and Beverage Manufacturing and Processing. Food and Beverage Manufacturing and Processing products include detergents, cleaners, sanitizers and lubricants, as well as cleaning systems, electronic dispensers and chemical injectors for the application of chemical products and improvement of operational efficiency and sanitation. We also offer gel and foam products for manual open plant cleaning, acid and alkaline cleaners and membrane cleaning products. In addition, we provide consulting services in the areas of food safety, water and energy use reduction and quality management.
Floor Care. We manufacture a broad range of floor care products and systems, including finishes, waxes, cleaners, degreasers, polishes, sealers and strippers for all types of flooring surfaces, including vinyl, terrazzo, granite, concrete, marble, linoleum and wood. We also provide a full range of carpet cleaners, such as extraction cleaners and shampoos; carpet powders; treatments, such as pre-sprays and deodorizers; and a full line of carpet spotters. Our range of products also includes carpet cleaning and floor care machines, as well as utensils and tools, which support the cleaning and maintenance process. Among the product brands are TASKI Â® floor care machines and Signature Â® floor finish. These products are sold primarily for use in building management, retail, lodging and health care customer sectors.
Restroom Care and Other Housekeeping. We offer a fully integrated line of products and dispensing systems for hard surface cleaning, disinfecting and sanitizing, hand washing and air deodorizing and freshening. Our restroom care and other housekeeping products include bowl and hard surface cleaners, hand soaps, sanitizers, air care products, general purpose cleaners, disinfectants and specialty cleaning products. Among the product brands are Clax Â® , J-Flex tm and Oxivir Â® . These products are sold into the food service, building management, retail, lodging and health care customer sectors.
Laundry. We offer detergents, stain removers, fabric conditioners, softeners and bleaches in liquid, powder and concentrated forms to clean items such as bed linen, clothing and table linen. Our range of products covers requirements of fabric care for domestic-sized machines in small lodging facilities to washers in commercial laundry facilities. We also offer customized washing programs for different levels and types of soils, a comprehensive range of dispensing equipment and a selection of process control and management information systems. Through a joint venture with Standard Textile Company, we provide a commercial laundry application that combines a unique activator unit with proprietary chemistry to deliver a fully integrated cleaning and sanitizing solution. Leading brands include Clax Â® , Suma Â® and Proteus tm . These products are sold primarily into the lodging, and health care and commercial laundry customer sectors.
Diversey Segment End-Users and Customers
We offer our Diversey products directly or through third-party distributors to end-users in seven sectors â€” food service, lodging, retail, health care, building managers/service contractors, food and beverage and other.
Food Service. End-users include fast food and full-service restaurants as well as contract caterers.
Lodging. We serve many of the largest hotel chains in the world as well as local independent properties and regional chains.
Retail. Retail end-users include supermarkets, drug stores, discounters, hypermarkets and wholesale clubs.
Health Care. These customers include both public and private hospitals, long-term care facilities and other facilities where medical services are performed.
Building Service Contractors/Facility Management. These end-users include building owners/managers as well as building service contractors and building owners/managers. Contractors clean, maintain and manage a variety of facilities including office buildings, retail stores, health care facilities, production facilities, and education and government institutions.
Food and Beverage. Food and Beverage end-users include dairy plants, dairy farms, breweries, soft-drink and juice bottling plants, protein and processed food production facilities, and other food processors.
In addition, we serve customers in cash and carry establishments, industrial plants and laundries. Cash and carry establishments are stores in which professional end-users purchase products for their own use.
We also focus on growth by utilizing our technologies in new market segments. This category includes specialty materials serving both packaging and non-packaging applications and medical products and applications. Additionally, this category includes several of our new ventures, such as vacuum insulated panels.
Our Specialty Materials business seeks to expand our product portfolio and core competencies into specialized and non-packaging applications and new market segments. We sell specialty materials products primarily to fabricators and manufacturers encompassing a wide array of businesses and end uses.
The goal of our Medical Applications business is to provide solutions offering superior protection and reliability to the medical, pharmaceutical and medical device industries. We sell medical applications products directly to medical device manufacturers and pharmaceutical companies and to the contract packaging firms that supply them.
Our New Ventures area includes several development projects. These include technologies and solutions sourced from renewable materials, proprietary process technologies that have opportunity for application within our manufacturing processes and for future licensing, and equipment systems that offer an automated packaging service for high-volume fulfillment or pick-and-pack operators. Two examples of development projects are the I-Pack and Ultipack automated void reduction and containment systems that provide efficient, automated packaging processes that minimize carton sizes and void fill requirements. These systems are being offered as a service and sold using a unique per-package charge model.
In addition to net sales from products produced in our facilities, we also sell products fabricated by other manufacturers, which we refer to as â€śoutsourced products.â€ť Outsourced products are mostly sold in our Food Solutions and Diversey segments. Food Solutionsâ€™ outsourced products include, among others, foam and solid plastic trays and containers fabricated primarily in North America and in Europe that largely support our Food Solution segmentâ€™s case ready products. Diverseyâ€™s outsourced products include, among others, most non-chemical products, including, dosing and dispensing equipment, cleaning tools and utensils, paper products and food and beverage cleaning equipment fabricated primarily in Europe and Asia. In addition, we also outsource certain of our chemical products in our floor care line.
Hank Brown Director since 1997 Audit Committee (Chair) Nominating and Corporate Governance Committee Age 72
Mr. Brown has served as Senior Counsel with the law firm of Brownstein Hyatt Farber Schreck since June 2008, where he is a member of the Government Relations and Natural Resources groups. Previously, Mr. Brown was President of the University of Colorado from August 2005 until March 2008. Prior to that service, he was President and Chief Executive Officer of The Daniels Fund, a charitable foundation, from July 2002 until August 2005. Mr. Brown is a director of Sensient Technologies Corporation. Previously, Mr. Brown served as a director of Guaranty Bancorp and Delta Petroleum Corporation and other public companies.
Mr. Brown has a bachelor of science degree in accounting as well as a law degree from the University of Colorado. He also has a master of laws degree in taxation from George Washington University. Additionally, he is a certified public accountant. Mr. Brown spent six years serving Colorado in the U.S. Senate, five consecutive terms in the U.S. House of Representatives representing Coloradoâ€™s 4th Congressional District and four years in the Colorado Senate. Mr. Brown was also President of the University of Northern Colorado and was a Vice President of Monfort of Colorado, a Fortune 500 company and a major meat packer and processor. Mr. Brown has extensive leadership experience gained as a U.S. Senator, president of two universities and the head of a foundation, all involving management of complex operations and contributing to strategic planning. He is knowledgeable about the meat processing business, which is important for an understanding of our Food Packaging and Food Solutions business segments. Mr. Brown has experience as a director of other public companies, which aids in the exchange of ideas and strategies. Mr. Brownâ€™s background also enables him to guide the company in legislative and governmental affairs and in the legal and regulatory environment.
Michael Chu Director since 2002 Audit Committee Organization and Compensation Committee Age 63
Mr. Chu is Managing Director and Co-Founder of IGNIA Fund, an investment firm based in Monterrey, Mexico, dedicated to investing in commercial enterprises serving low-income populations in developing countries, since July 2007. He is also Senior Advisor since June 2007 (previously Senior Partner and Managing Director from August 2000 to June 2007) and Founding Partner of Pegasus Capital, a private investment firm deploying equity capital in Latin America. Mr. Chu has been a Senior Lecturer on the faculty of the Harvard Business School since July 2003. Mr. Chu serves as a director of Arcos Dorados, a public company and the largest operator of McDonaldâ€™s restaurants in Latin America and the worldâ€™s largest McDonaldâ€™s franchisee.
Mr. Chu received his bachelor of arts degree from Dartmouth College and his masters of business administration with highest distinction from Harvard Business School. His experience includes serving as a management consultant with Boston Consulting Group, in senior management positions with U.S. corporations and as an executive and limited partner with Kohlberg Kravis Roberts & Co., a private equity firm. Additionally, he is director emeritus of ACCION International, a non-profit corporation dedicated to microfinance and a member of the investment committee of ACCION Investments. Mr. Chu previously served as the President and Chief Executive Officer of ACCION International. He brings to the Board extensive international experience, particularly in the increasingly important region of Latin America, where Mr. Chu grew up. Mr. Chu has proven leadership capabilities and an entrepreneurial vision, as demonstrated by his roles with IGNIA and Pegasus Capital. He also has experience as a chief financial officer and extensive involvement in mergers and acquisitions.
Lawrence R. Codey Director since 1993 Audit Committee Organization and Compensation Committee (Chair) Age 67
Mr. Codey is a retired President and Chief Operating Officer of Public Service Electric and Gas Company (PSE&G), a public utility. Currently, Mr. Codey serves as a director of New Jersey Resources Corporation, a natural gas holding company, where he is lead director and chairs the executive committee and also serves on the governance and audit committees. Further, he serves as a director of Horizon Blue Cross Blue Shield of New Jersey, a health insurance company, where he chairs the audit committee and is a member of the governance committee. Mr. Codey also serves on the board of United Water Resources, a subsidiary of Suez Environment, where he chairs the compensation committee of that subsidiary and is a member of the audit committee. Neither Horizon Blue Cross Blue Shield of New Jersey nor United Water Resources is a public company.
Mr. Codey received his bachelor of science degree from St. Peterâ€™s College, a juris doctor degree from Seton Hall School of Law, and a masters in business administration from Rutgers University. In addition, he completed the Advanced Management program at Harvard Universityâ€™s School of Business. Mr. Codeyâ€™s career at PSE&G started as a trial attorney and then as a Vice President in charge of preparation and presentation of utility rate proceedings before both federal and state regulatory bodies. Thereafter, Mr. Codey was in charge of the gas business unit and subsequently the electric business unit. Mr. Codey previously served on the Board of Directors of Public Service Enterprise Group, an energy holding company of which PSE&G was its largest subsidiary. Mr. Codey has served on numerous governmental and non-governmental boards and commissions, including the EPA Clean Air Act Advisory Committee under both President George W. Bush and President William J. Clinton. In addition to the knowledge gained from his experience as our director, Mr. Codey has a broad background of experience and education in the areas of executive management, general management, legal and regulatory matters, finance, accounting, human resource management, legislative and governmental affairs, environmental affairs, and operations. He has been accountable for the performance of large, complex, multi-disciplined organizations and brings that discipline to the Board. Mr. Codey also brings to the Board the experience of a director who has served in various leadership capacities across an array of companies involved in energy, utilities and government.
Patrick Duff Director since 2010 Audit Committee Age 54
Mr. Duff is a general partner of Prospect Associates, a private investment firm. Previously, he served as a director of Hercules, Inc. While at Hercules, Mr. Duff was chairman of the audit committee and served on the corporate governance, nominating and ethics committee, emergency committee and finance committee.
Mr. Duff received his bachelor of science degree in accounting from Lehigh University and a masters of business administration degree from the Columbia Graduate School of Business. He taught security analysis at Columbia University from 1993 until 1999. Formerly, Mr. Duff was a senior managing director at Tiger Management Corp., an investment management firm, from 1989 through December 1993, where he was a member of the management committee. Prior to joining Tiger in 1989, Mr. Duff worked in asset management at Mitchell Hutchins and Capital Builders Advisory Services. He is a certified public accountant and a chartered financial analyst. Mr. Duff has an extensive knowledge of investing, asset management and financial markets gained from his experience with Tiger and with prior employers as well as through his teaching position at Columbia University. He brings a unique perspective to the Board as a stockholder and investor. In addition, he has accounting and financial expertise. He also has prior board experience, including service on a public company board.
T.J. Dermot Dunphy Director since 1969 Age 80
Mr. Dunphy has been the Chairman of Kildare Enterprises, LLC, a private equity investment and management firm, since November 2000. Prior to that, he was Chairman of the Board of Sealed Air from 1998 to November 2000 and was Chief Executive Officer of Sealed Air from March 1971 until his retirement in February 2000.
Mr. Dunphy graduated from Oxford University and has a masters of business administration from Harvard Business School. He has a long and distinguished business career, with a major emphasis on the packaging industry. Prior to being elected President of Sealed Air, he worked for Westinghouse Electric Corporation in several marketing and management roles and then became President of Custom-Made Packaging, Inc., a small manufacturer of flexible packaging products. From 1971 until he retired as Chief Executive Officer in 2000, we grew from a corporation that had annual sales of approximately $5 million and a small operating loss, to a highly profitable corporation with annual sales of approximately $3.0 billion. Mr. Dunphy is a former director of FleetBoston Financial Corporation, Public Service Enterprise Group, Inc., and Noveon, Inc. He was a director of Formica Corporation and Rockaway Corporation when they were independent publicly owned companies. Mr. Dunphy was also, for ten years, a director of Loctite Corporation. The foregoing directorships were more than five years prior to the date of this Proxy Statement. Mr. Dunphy has led packaging companies as chief executive officer for 40 years. He is highly knowledgeable about our business, the industries in which we operate and the technology and innovations relevant to us. He led the development of our international operations with nearly 50% of our sales being overseas by the time of his retirement. Mr. Dunphy has extensive experience in corporate finance in his work with both public and private entities. He gained valuable public company governance knowledge as a director of numerous public companies and has been on the forefront of corporate governance issues while leading Sealed Air.
William V. Hickey Director since 1999 Age 67
Mr. Hickey has been the President and Chief Executive Officer of Sealed Air since March 2000. He is a director of Public Service Enterprise Group Incorporated, a public utility, and Sensient Technologies Corporation, a global manufacturer and marketer of colors, flavors and fragrances and other specialty chemicals.
Mr. Hickey received his bachelor of science degree in engineering from the United States Naval Academy and his masters of business administration from the Harvard Business School. He received a certificate in professional accounting from Northwestern University and is a certified public accountant. In addition to his work as a certified public accountant, Mr. Hickey was a financial executive at a public company prior to joining Sealed Air. At Sealed Air, prior to his current appointment, Mr. Hickey served in a variety of increasingly responsible executive positions, including Controller, Vice President & General Manager of the Cellu Products Division and Food Packaging Division, Chief Financial Officer, Executive Vice President and Chief Operating Officer. Since Mr. Hickey joined us in 1980, we have grown from net sales of $78 million to a highly profitable corporation with net sales of approximately $8.1 billion on a pro forma basis. Mr. Hickey has demonstrated exceptional leadership in his twelve years as our President and Chief Executive Officer. His past experience as a chief financial officer and as controller, coupled with his time as a certified public accountant, enable him to guide the financial aspects of the business. Moreover, his experience as a division manager of Sealed Air gives him hands-on experience managing our sales, marketing and manufacturing operations. Mr. Hickeyâ€™s extensive knowledge of the Company, his understanding of the businesses we are in and seek to enter, and his expertise in financial matters, financial markets and strategic planning, combine to make him a key contributor to the Board.
Jacqueline B. Kosecoff Director since 2005 Nominating and Corporate Governance Committee Organization and Compensation Committee Age 62
Dr. Kosecoff is a managing partner at Moriah Partners, LLC, an investment firm. Prior to such position, she served as Senior Advisor for Optum, a leading information and technology-enabled health services business. Optum, a UnitedHealth Group company, is comprised of three independent businessesâ€”OptumHealth, OptumInsight and OptumRxâ€”representing over 30,000 employees worldwide who collaborate to deliver integrated, intelligent solutions that work to modernize the health system and improve overall population health. From 2007 to 2011 Dr. Kosecoff was CEO, OptumRx (previously Prescriptions Solutions), a UnitedHealth Group company, where she was responsible for Unitedâ€™s PBM, Specialty Pharmacy, and Consumer Health Products with revenues of approximately $19 billion and serving 14 million members. UnitedHealth Group is a diversified health and well-being company, serving more than 75 million people. Prior to that, and upon joining UnitedHealth Group in 2005, Dr. Kosecoff was responsible for UnitedHealth Groupâ€™s Medicare Part D business, Prescription Solutions PBM, and its consumer health product division serving seniors.
Dr. Kosecoff joined UnitedHealth Group as part of its acquisition of PacifiCare Health Systems in 2005. At PacifiCare, Dr. Kosecoff served as Executive Vice President with responsibility for its specialty businesses, including its PBM, the Medicare Part D Drug Program, PacifiCare Behavioral Health, PacifiCare Dental & Vision, and Womenâ€™s Health Solutions. She is currently a Director of CareFusion Corporation, a global medical technology company, where she serves on the audit committee, and STERIS Corporation, a global leader in infection prevention, contamination control and surgical and critical care technologies, where she serves as chair of the compliance committee and also serves on the governance and nominating committee.
Dr. Kosecoff received a bachelor of arts degree from the University of California, Los Angeles. She received a master of science degree in applied mathematics from Brown University and a Ph.D. degree in research methods from the University of California, Los Angeles. Previously, she founded information technology and drug development businesses in the medical field. Dr. Kosecoff was also previously on the faculty on the Schools of Medicine and Public Health at the University of California, Los Angeles. She has served as a consultant to the World Health Organizationâ€™s Global Quality Assessment Programs, on the Institute of Medicineâ€™s Board of Health Care Services, the RAND Graduate Schoolâ€™s Board of Governors, and the Board of Directors for ALARIS, City of Hope, the Alliance for Aging Research, and the Pharmaceutical Care Management Association. Dr. Kosecoff is a seasoned health care executive. Dr. Kosecoff brings to the Board her outstanding background as a business leader in the medical field. Sealed Air benefits from her experience in leading complex operations and in strategic planning. Additionally, Dr. Kosecoff brings an entrepreneurial direction to the Company.
Kenneth P. Manning Director since 2002 Audit Committee Nominating and Corporate Governance Committee Age 70
Mr. Manning has been Chairman and Chief Executive Officer of Sensient Technologies Corporation, a global manufacturer and marketer of colors, flavors and fragrances and other specialty chemicals, since 1996. At Sensient, he was the architect of that companyâ€™s strategic moves overseas and the transformation of the company from a producer of yeast and other commodities into a producer of flavor, fragrance and colors for foods, beverages, cosmetics and pharmaceuticals. Sensient also manufactures color, ink and other specialty chemicals for inkjet inks, display imaging systems and other applications. Sensient now has 70 locations in more than 30 countries. Mr. Manning is also a director of Sensient. Previously, Mr. Manning was a director of Badger Meter, Inc., a manufacturer of flow measurement and control products. In all, Mr. Manning has been a director in five different public companies.
Mr. Manning received his bachelor of science degree in mechanical engineering from Rensselaer Polytechnic Institute and his master of business administration degree from American University in operations research. He also has an honorary doctorâ€™s degree from Cardinal Stritch University and Marian University. Prior to joining Sensient, Mr. Manning worked for W. R. Grace, where he held various executive positions including: Assistant to the CEO, Vice President of Operationsâ€”European Division, President of the Educational Products Division, President of Real Estate Division, Vice Presidentâ€”Corporate Technical Group and President and CEO of the Ambrosia Chocolate Division. Mr. Manning retired from the United States Naval Reserve as an Aerospace Engineering Duty Officer with the rank of Rear Admiral. He served on active duty in the United States Navy from 1963 to 1967 and during his tenure in the Reserve, was the Commanding Officer of four different commands. His last assignment was Director of the Naval Reserve Air System Program. His military awards include the Legion of Merit. Mr. Manning is a member of the American Society of Mechanical Engineers and the American Chemical Society, Navy League, the United States Naval Institute, the Naval Reserve Association, and the National Maritime Historic Association. He is also a Knight of Malta. Mr. Manning has extensive executive experience in international business, specialty chemicals and the food and beverage industry, with 16 years as a CEO and an additional four years as a COO.
William J. Marino Director since 2002 Lead Director since 2011
Nominating and Corporate Governance Committee (Chair) Organization and Compensation Committee Age 68
Effective March 1, 2011, Mr. Marino retired from his position as Chairman, President and Chief Executive Officer of Horizon Blue Cross Blue Shield of New Jersey (Horizon BCBSNJ), an exempt not-for-profit health service corporation under Section 501(m) of the Internal Revenue Code , a position he had held since January 2010. Horizon BCBSNJ is New Jerseyâ€™s largest health insurer, providing coverage for over 3.6 million people. Prior to becoming Chairman, Mr. Marino was Horizon BCBSNJâ€™s President and Chief Executive Officer since January 1994. Since November 2010 Mr. Marino has served as a director of Sun Bancorp, Inc., where he chairs the nominating and corporate governance committee and is a member of the asset and liability committee. Mr. Marino is a director of Care Core National, a privately held company which provides care and utilization management services to its clients, primarily large insurers, LCA Holdings, a privately held company which provides home health care services to a large population of individual patients via its customers in both the private and public sectors, and Horizon HealthCare Innovations, a subsidiary of Horizon BCBSNJ which creates and manages new delivery and financing mechanisms in the healthcare system.
Mr. Marino graduated from St. Peterâ€™s College with a bachelor of science degree in economics. He joined Horizon BCBSNJ as Senior Vice President of Health Industry Services in January 1992, and was responsible for all aspects of managed care operations in New Jersey, as well as market research, product development, provider relations and health care management. Mr. Marino has over 40 years of experience in the health and employee benefits field, primarily in managed care, marketing and management. Before joining Horizon BCBSNJ he was Vice President of Regional Group Operations for New York and Connecticut for the Prudential, capping a 23-year career with them. Mr. Marino also serves as a director or trustee for numerous New Jersey-based cultural and community organizations. Mr. Marino has extensive experience in the areas of management and strategic planning, as evidenced by his career at Horizon BCBSNJ. His area of expertise in health services is beneficial to the Board, particularly in the medical applications business. The breadth of his involvement in many community organizations has given him knowledge of corporate governance processes and practices and organizational structure optimization.
Richard L. Wambold Director since 2012 Age 60
Mr. Wambold was elected to the Board of the Company in March 2012. Mr. Wambold previously served as the Chief Executive Officer of Reynolds/Pactiv Foodservice and Consumer Products, a global manufacturer and supplier of consumer food and beverage packaging and store products from November 2010 until January 2011. Mr. Wambold was Chief Executive Officer of Pactiv Corporation, a global provider of advanced packaging solutions, from 1999 until November 2010 and was Chairman of the Board from 2000 until November 2010. Mr. Wambold has been a private investor since January 2011. Mr. Wambold is also a director of Precision Castparts Corp. and Cooper Tire & Rubber Company.
Mr. Wambold holds a B.A. in Government and an M.B.A. from the University of Texas. Mr. Wamboldâ€™s education, board member experience, business management experience, including his service as a chief executive officer, and knowledge of the packaging industry qualify him to continue to serve as a member of the Board of Directors.
Jerry R. Whitaker Director since 2012 Age 61
Mr. Whitaker was elected to the Board of the Company in January 2012. Mr. Whitaker served as President of Electrical Sector-Americas, Eaton Corporation, a global manufacturer of highly engineered products, until his retirement in June 2011. Prior thereto, he served in various management positions at Eaton Corporation since 1994. Prior to joining Eaton Corporation, Mr. Whitaker spent 22 years with Westinghouse Electric Corp.
Mr. Whitaker received a Bachelor of Science degree from Syracuse University and a Masters in Business Administration from George Washington University. He currently serves as a director of Crescent Electric Company, an independent distributor of electrical hardware and supplies, and Matthews International Corporation. Mr. Whitaker also serves on the Boards of the Carnegie Science Center, The Allegheny Conference on Community Development, the Pittsburgh Middle East Institute and the Corporate Circles Board of the Pittsburgh Cultural Trust. Mr. Whitakerâ€™s experience and knowledge as an executive in global manufacturing industries are valuable resources to the Company.
MANAGEMENT DISCUSSION FROM LATEST 10K
We are a global leader in food safety and security, facility hygiene and product protection. We serve an array of end markets including food and beverage processing, food service, retail, health care and industrial, commercial and consumer applications. We have widely recognized and inventive brands such as Bubble Wrap Â® brand cushioning, Cryovac Â® brand food packaging solutions and now, as a result of our acquisition of Diversey on October 3, 2011, Diversey Â® brand cleaning and hygiene solutions. We offer efficient and sustainable solutions that create business value for customers, enhance the quality of life for consumers and provide a cleaner and healthier environment for future generations.
At December 31, 2011, we employed approximately 8,200 sales, marketing and customer service personnel throughout the world who sell and market our products to and through a large number of distributors, fabricators, converters, e-commerce and mail order fulfillment firms, and contract packaging firms as well as directly to end-users such as food processors, foodservice businesses, supermarket retailers, lodging, retail pharmaceutical companies, health care facilities, medical device manufacturers, and other manufacturers. We have no material long-term contracts for the distribution of our products. In 2011, no customer or affiliated group of customers accounted for 10% or more of our consolidated net sales.
Historically, net sales in our food businesses have tended to be slightly lower in the first quarter and slightly higher towards the end of the third quarter through the fourth quarter, due to holiday events. Net sales in our Protective Packaging segment have also tended to be slightly lower in the first quarter and higher during the â€śback-to-schoolâ€ť season in the mid-third quarter and through the fourth quarter due to the holiday shopping season. The Diversey segmentâ€™s net sales trend slightly lower in the first quarter, while second quarter sales represent a modest seasonal peak due to the European-based lodging and food and beverage demand. On a consolidated basis, there is little seasonality in the business, with net sales slightly lower in the first quarter and slightly higher towards the end of the third quarter through the fourth quarter. Our consolidated net earnings typically trend directionally the same as our net sales seasonality.
However, other factors may outweigh the effects of seasonal changes in our net earnings results including, but not limited to, changes in raw materials and other costs, foreign exchange rates, interest rates, taxes and restructuring and the timing and amount of acquisition synergies and other non-recurring charges.
Competition for most of our packaging products is based primarily on packaging performance characteristics, service and price. Competition is also based upon innovations in packaging technology and, as a result, we maintain ongoing research and development programs to enable us to maintain technological leadership. Our Diversey solutions face a wide spectrum of competitors across each product category. Competition is both global and regional in scope and includes numerous small, local competitors with limited product portfolios and geographic reach. For more details, see â€śCompetitionâ€ť included in â€śBusiness,â€ť of Item 1, Part I.
Our net sales are sensitive to developments in our customersâ€™ business or market conditions, changes in the global economy, and the effects of foreign currency translation. Our costs can vary materially due to changes in input costs, including petrochemical-related costs (primarily resin costs), which are not within our control. Consequently, our management focuses on reducing those costs that we can control and using petrochemical-based and other raw materials as efficiently as possible. We also believe that our global presence helps to insulate us from localized changes in business conditions.
We manage our businesses to generate substantial operating cash flow. We believe that our operating cash flow will permit us to continue to spend on innovative research and development and to invest in our business by means of capital expenditures for property and equipment and acquisitions. Moreover, we expect that our ability to generate substantial operating cash flow should provide us with the flexibility to repay debt and to return capital to our stockholders.
Significant 2011 Events
Acquisition of Diversey
On October 3, 2011, we completed the acquisition of Diversey. The financial results presented in this MD&A include the financial results of Diversey for the period beginning October 3, 2011 through December 31, 2011. See Note 1, â€śOrganization and Nature of Operations,â€ť and Note 3, â€śAcquisition of Diversey Holdings, Inc.,â€ť for further details.
Quarterly Cash Dividends
We declared and paid quarterly cash dividends of $0.13 per common share on March 18, 2011 to stockholders of record at the close of business on March 4, 2011, on June 17, 2011 to stockholders of record at the close of business on June 3, 2011, on September 16, 2011 to stockholders of record at the close of business on September 2, 2011 and on December 16, 2011 to stockholders of record at the close of business on December 2, 2011. We used available cash totaling $87 million to pay these quarterly cash dividends.
On February 16, 2012, our Board of Directors declared a quarterly cash dividend of $0.13 per common share payable on March 16, 2012 to stockholders of record at the close of business on March 2, 2012. The estimated amount of this dividend payment is $25 million based on 192 million shares of our common stock issued and outstanding as of January 31, 2012.
Cost of Sales
Our primary input costs include raw materials such as polyolefin and other petrochemical-based resins and films, caustic soda, solvents, waxes, phosphates, surfactants, chelates, fragrances and paper and wood pulp products. These raw materials represent approximately one third of our cost of sales. Our other cost of sales inputs include direct and indirect labor, other raw materials and other input costs, including energy-related costs and transportation costs. The costs for our raw materials are impacted by the rise and fall in crude oil and natural gas prices, since they serve as feedstocks utilized in the production of our raw materials. The prices for these feedstocks have been particularly volatile in recent years as a result of changes in global demand. In addition, supply and demand imbalances of intermediate compounds such as benzene and supplier facility outages have impacted resin costs. Although changes in the prices of crude oil and natural gas are indicative of the variations in certain raw materials and energy-related costs, they are not perfect benchmarks. We continue to monitor changes in raw material and energy-related costs as they occur and take pricing actions as appropriate to lessen the impact of cost increases when they occur.
In this cost of sales section and in the marketing, administrative and development expenses section below, when we refer to â€śvariable incentive compensationâ€ť we are referring to our annual U.S. profit sharing contribution (in both sections) and our annual cash incentive compensation (in the marketing, administrative and development expenses section). Variable incentive compensation does not include our share-based incentive compensation programs. Details about our share-based incentive compensation programs are included in Note 18, â€śStockholdersâ€™ Equity.â€ť
We continue to anticipate $70 million of revenue synergies by the end of 2013, largely from expanding our access and presence within our food and beverage processing customersâ€™ businesses and broadening our reach in developing regions. In the fourth quarter of 2011, we began to secure new accounts and are currently in the process of closing additional opportunities with customers.
European Principal Company
In May 2011, before the acquisition of Diversey, Diversey approved, subject to successful works council consultations, plans to reorganize its European operations to function under a centralized management and supply chain model. After completing the reorganization in 2012, the European Principal Company ("EPC"), based in the Netherlands, is expected to centrally manage Diverseyâ€™s European operations. The European subsidiaries will execute sales and distribution locally, and local production companies will act as toll manufacturers on behalf of the EPC.
As part of the planning for this reorganization, in the fourth quarter of 2011, we recognized associated costs of $4 million, which are included in marketing, administrative and development expenses in the consolidated statements of operations and restructuring charges related to termination benefits of $1 million.
We anticipate benefits from this reorganization to come from lower overhead costs from a centralized management and supply chain model as well as tax savings. We anticipate additional associated and/or restructuring costs in 2012 and net benefits to begin in 2013. The amount and timing of costs and benefits is subject to change due to a variety of factors such as the overall profitability of our European business, administrative efficiency, and foreign currency exchange translation.
Global Manufacturing Strategy
We announced our global manufacturing strategy program in 2006 and completed the program in 2010. The goals of this multi-year program were to realign our manufacturing footprint to expand capacity in growing markets, to further improve our operating efficiencies, and to implement new technologies more effectively. Additionally, we optimized certain manufacturing platforms in North America and Europe into centers of excellence. By taking advantage of new technologies and streamlining production on a global scale, we have continued to enhance our profitable growth and our global leadership position and have produced meaningful benefits.
Food Solutions Segment Operating Profit
2011 compared with 2010
The increase in operating profit in 2011 compared with 2010 was primarily due to the net favorable impacts of the changes in net sales mentioned above. These factors were partially offset by higher raw materials costs, which we estimate to be $25 million higher in 2011 compared with 2010.
2010 compared with 2009
The increase in operating profit in 2010 compared with 2009 was primarily due to the favorable impacts of the increase in unit volumes and product price/mix, both mentioned above. Also contributing to this segmentâ€™s increase in operating profit were lower marketing, administrative and development expenses as a percentage of net sales, which include the impact of lower variable incentive compensation expenses mentioned above. These factors were partially offset by higher raw materials costs of approximately $30 million.
Protective Packaging Segment Operating Profit
2011 compared with 2010
The increase in operating profit in 2011 compared with the same periods in 2010 was primarily due to the net favorable impacts of the changes in net sales mentioned above. These factors were partially offset by higher raw materials costs, which we estimate to be $32 million higher in 2011 compared with 2010.
2010 compared with 2009
The increase in operating profit in 2010 compared with 2009 was primarily due to the favorable impact of the increase in unit volumes mentioned above. Also contributing to this segmentâ€™s increase in operating profit were lower marketing, administrative and development expenses as a percentage of net sales, which include the impact of lower variable incentive compensation expenses mentioned above. These factors were partially offset by higher raw materials costs of approximately $35 million. Expenses included in this segmentâ€™s operating profit related to the closure of a small factory in Europe were $3 million in 2010.
Diversey Segment Operating Loss
Our Diversey segment reported a $3 million operating loss in 2011. This loss reflects the results of Diversey from October 3, 2011 through December 31, 2011.
Net Gains on Sale of Available-for-Sale Securities
In 2010, we sold our five auction rate security investments, representing our total holdings of these securities. These sales resulted in a pre-tax gain of $7 million ($4 million, net of taxes). Before we sold these investments, we recognized $1 million of pre-tax other-than-temporary impairment in 2010 due to the decline in estimated fair value of some of these investments.
Our valuation of our auction rate security investments resulted in the recognition of other-than-temporary impairment of $4 million ($2 million, net of taxes) in 2009.
Foreign Currency Exchange (Losses) Gains Related to Venezuelan Subsidiaries
Effective January 1, 2010, Venezuela was designated a highly inflationary economy. The foreign currency exchange gains and losses we recorded in 2011 and 2010 for our Venezuelan subsidiary were the result of two factors: 1) the significant changes in the exchange rates used to settle bolivar-denominated transactions and 2) the significant changes in the exchange rates used to remeasure our Venezuelan subsidiaryâ€™s financial statements at the balance sheet date. We believe these gains and losses are attributable to the unstable foreign currency environment in Venezuela. See â€śVenezuelaâ€ť in â€śForeign Exchange Ratesâ€ť of Item 7A, â€śQuantitative and Qualitative Disclosures About Market Risk,â€ť for further discussion on Venezuela.
Loss on Debt Redemption
In December 2010, we completed an early redemption of $150 million of the outstanding $300 million principal amount of our 12% Senior Notes due February 14, 2014. We redeemed the notes at 127% of the principal amount plus accrued interest. The aggregate redemption price was $196 million, including $5 million of accrued interest. We funded the redemption with available cash. We recorded a pre-tax loss of $41 million resulting from the 27% premium. We also recognized a gain of $2 million from the termination of a related interest rate swap. As a result, the total net pre-tax loss was $39 million, which equated to a $0.14 per common share decrease to our reported diluted net earnings per common share. The annual pre-tax interest expense savings from this redemption is $18 million, which equates to $0.06 per diluted common share, beginning in December 2010 through February 2014.
In 2009, we redeemed the entire $431.3 million of our 3% Convertible Senior Notes due 2033 and recorded a $3 million pre-tax loss. This loss represented a 0.429% call premium of $2 million and a write-down of the remaining debt issuance costs of $1 million related to the issuance of these senior notes in July 2003.
The losses associated with our debt redemptions have been excluded from our non-U.S. GAAP adjusted diluted net earnings per common share. See â€śDiluted Net Earnings Per Common Shareâ€ť below for further details.
Other Expense, Net
See Note 20, â€śOther Expense, net,â€ť for the components and discussion of other expense, net.
Our effective income tax rate was 31.0% for 2011, 25.5% for 2010 and 25.9% for 2009. As described below, the Diversey operations and the costs of the Diversey acquisition increased our 2011 effective tax rate. The costs of the acquisition are not expected to recur to the same extent in future years. As such, we expect an effective income tax rate of approximately 30% for 2012.
For 2011 and 2010, our effective income tax rate was lower than the statutory U.S. federal income tax rate of 35% primarily due to the lower net effective income tax rate on foreign earnings, as well as income tax benefits from tax credits and the domestic manufacturing deduction, partially offset by state income taxes and, in 2011, nondeductible expenses incurred in connection with the Diversey acquisition.
See Note 16, â€śIncome Taxes,â€ť for a reconciliation of the U.S. federal statutory rate to our effective tax rate, which also shows the major components of the year over year changes.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Cautionary Notice Regarding Forward-Looking Statements
This report contains â€śforward-looking statementsâ€ť within the meaning of the Private Securities Litigation Reform Act of 1995 concerning our business, consolidated financial condition and results of operations. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, costs, plans and objectives are forward-looking statements. The SEC encourages companies to disclose forward-looking statements so that investors can better understand a companyâ€™s future prospects and make informed investment decisions. Some of our statements in this report, in documents incorporated by reference into this report and in our future oral and written statements may be forward-looking. These statements reflect our beliefs and expectations as to future events and trends affecting our business, our consolidated financial condition and results of operations. These forward-looking statements are based upon our current expectations concerning future events and discuss, among other things, anticipated future financial performance and future business plans. Forward-looking statements are necessarily subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Forward-looking statements can be identified by such words as â€śanticipates,â€ť â€śbelieves,â€ť â€śplan,â€ť â€śassumes,â€ť â€ścould,â€ť â€śshould,â€ť â€śestimates,â€ť â€śexpects,â€ť â€śintends,â€ť â€śpotential,â€ť â€śseek,â€ť â€śpredict,â€ť â€śmay,â€ť â€świllâ€ť and similar expressions. Examples of these forward-looking statements include projections regarding our 2012 outlook EPS guidance and other projections relating to our financial performance such as those in the â€śComponents of Change in Net Salesâ€ť and â€śCost of Salesâ€ť sections of our MD&A.
The following are important factors that we believe could cause actual results to differ materially from those in our forward-looking statements: the implementation of our Settlement agreement regarding the various asbestos-related, fraudulent transfer, successor liability, and indemnification claims made against the Company arising from a 1998 transaction with W. R. Grace & Co.; global economic conditions; changes in our credit ratings; changes in raw material pricing and availability; changes in energy costs; competitive conditions; currency translation and devaluation effects, including in Venezuela; the success of our financial growth, profitability, cash generation and manufacturing strategies and our cost reduction and productivity efforts; the effects of animal and food-related health issues; pandemics; consumer preferences; environmental matters; regulatory actions and legal matters; successful integration of Diversey and the other information referenced below under Item 1A, â€śRisk Factors.â€ť Except as required by the federal securities laws, we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Non-U.S. GAAP Information
In our MD&A, we present financial information in accordance with U.S. GAAP. We also present financial information that does not conform to U.S. GAAP, which we refer to as non-U.S. GAAP, as our management believes it is useful to investors. In addition, non-U.S. GAAP measures are used by management to review and analyze our operating performance and, along with other data, as internal measures for setting annual budgets and forecasts, assessing financial performance, providing guidance and comparing our financial performance with our peers. The non-U.S. GAAP information has limitations as an analytical tool and should not be considered in isolation from or as a substitute for U.S. GAAP information. It does not purport to represent any similarly titled U.S. GAAP information and is not an indicator of our performance under U.S. GAAP. Further, non-U.S. GAAP financial measures that we present may not be comparable with similarly titled measures used by others. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparable U.S. GAAP financial measure to arrive at these non-U.S. GAAP financial measures.
Our management will assess our financial results, such as gross profit, operating profit and diluted net earnings per common share (â€śEPSâ€ť), both on a U.S. GAAP basis and on an adjusted non-U.S. GAAP basis. Examples of some other supplemental financial metrics our management will also use to assess our financial performance include Earnings before Interest Expense, Taxes, Depreciation and Amortization (â€śEBITDAâ€ť), Adjusted EBITDA, Adjusted EPS, Adjusted Cash EPS and Free Cash Flow. These non-U.S. GAAP financial measures provide management with additional means to understand and evaluate the core operating results and trends in our ongoing business by eliminating certain one-time expenses and/or gains (which may not occur in each period presented) and other items that management believes might otherwise make comparisons of our ongoing business with prior periods and peers more difficult, obscure trends in ongoing operations or reduce managementâ€™s ability to make useful forecasts. Our non-U.S. GAAP financial measures may also be considered in calculations of our performance measures set by the Organization and Compensation Committee of our Board of Directors for purposes of determining incentive compensation.
The non-U.S. GAAP financial metrics mentioned above exclude items we consider unusual or special items and also exclude their related tax effects. We evaluate the unusual or special items on an individual basis. Our evaluation of whether to exclude an unusual or special item for purposes of determining our non-U.S. GAAP financial measures considers both the quantitative and qualitative aspects of the item, including, among other things (i) its nature, (ii) whether or not it relates to our ongoing business operations, and (iii) whether or not we expect it to occur as part of our normal business on a regular basis.
Another non-U.S GAAP financial metric we present is our core income tax rate or provision (â€ścore tax rateâ€ť). Our core tax rate is a measure of our U.S. GAAP effective tax rate, adjusted to exclude the tax impact from the special items that are excluded from our Adjusted net earnings and Adjusted EPS metrics. We consider our core tax rate as an indicator of the taxes on our core business. The tax situation and effective tax rate in the specific countries where the excluded or special items occur will determine the impact (positive or negative) to our core tax rate.
In our â€śHighlights of Financial Performance,â€ť â€śNet Sales by Segment Reporting Structure,â€ť â€śNet Sales by Geographic Regionâ€ť and in some of the discussions and tables that follow, we exclude the impact of foreign currency translation when presenting net sales information, which we define as â€śconstant dollar.â€ť Changes in net sales excluding the impact of foreign currency translation are non-U.S. GAAP financial measures. As a worldwide business, it is important that we take into account the effects of foreign currency translation when we view our results and plan our strategies. Nonetheless, we cannot control changes in foreign currency exchange rates. Consequently, when our management looks at our financial results to measure the core performance of our business, we exclude the impact of foreign currency translation. We also may exclude the impact of foreign currency translation when making incentive compensation determinations. As a result, our management believes that these presentations are useful internally and may be useful to investors.
On April 19, 2012, our Board of Directors declared a quarterly cash dividend of $0.13 per common share. This dividend is payable on June 15, 2012 to stockholders of record at the close of business on June 1, 2012. The estimated amount of this dividend payment is $25 million based on 194 million shares of our common stock issued and outstanding as of April 30, 2012.
On February 16, 2012, our Board of Directors declared a quarterly cash dividend of $0.13 per common share, which was paid on March 16, 2012 to stockholders of record at the close of business on March 2, 2012. We used $25 million of available cash to pay this quarterly cash dividend.
Acquisition of Diversey
On October 3, 2011, we completed the acquisition of Diversey. The financial results presented in this MD&A include the financial results of Diversey for the three months ended March 31, 2012. See Note 1, â€śOrganization and Basis of Presentation,â€ť and Note 3, â€śAcquisition of Diversey Holdings, Inc.,â€ť for further details.
We continue to anticipate our 2012 Adjusted EPS to be in the range of $1.50 per share to $1.60 per share.
Our Adjusted EPS range reflects the following revised or updated assumptions:
â€˘ net sales in the lower end of the range of $8.2 billion to $8.3 billion, reflecting current economic conditions in Europe. Our full year net sales assumptions include 3% - 4% constant dollar sales growth in our Food Packaging and Food Solutions segments, 4% - 5% constant dollar sales growth in our Protective Packaging segment and 3% constant dollar sales growth in our Diversey segment compared with legacy Diversey 2011 net sales;
â€˘ non-cash, share-based compensation of $55 million, which now includes an anticipated $30 million for our 2012 U.S. profit sharing contribution in Company stock;
â€˘ a core tax rate of 27%, resulting from a more favorable mix of pre-tax net earnings on an Adjusted EPS basis; and
â€˘ cost synergies from our 2011-2014 Integration and Optimization Program of $70 million in 2012 (See â€ś2011-2014 Integration and Optimization Programâ€ť below).
Our Adjusted EPS outlook continues to exclude the accretive impact of the payment of the Settlement agreement, as the timing of the settlement is unknown. Final payment of the Settlement agreement is expected to be accretive to EPS by approximately $0.13 annually following the payment date under the assumption of using a substantial portion of cash on hand for the payment and ceasing to accrue interest on the Settlement agreement amount and using a 35% tax rate.
None of the other assumptions outlined in our 2011 Annual Report on Form 10-K for our Adjusted EPS guidance have changed.
Costs Related to the Acquisition of Diversey
We recorded $2 million of transaction and integration costs directly related to the acquisition of Diversey in the first quarter of 2012. These costs primarily consist of professional and consulting fees. As discussed above, we have excluded these costs from our Adjusted EPS calculations in 2012. See Note 3, â€śAcquisition of Diversey Holdings, Inc.,â€ť for further discussion of the acquisition.
2011-2014 Integration and Optimization Program
In December 2011, we initiated a restructuring program associated with the integration of the Diversey business. The program primarily consists of (i) reduction in headcount, (ii) consolidation of facilities, and (iii) consolidation and streamlining of certain customer and vendor contracts and relationships. The program is expected to be completed in 2014.
In the first quarter of 2012, we incurred a pre-tax restructuring charge of $47 million, or $0.15 on an earnings per share basis. This charge was primarily for severance and termination and benefits costs, of which $26 million was paid in the quarter. This restructuring charge includes $7 million related to SARs that were granted as part of the total consideration for the acquisition of Diversey. See Note 15, â€śStockholdersâ€™ Equity,â€ť for further discussion of SARs. In the first quarter of 2012, we also incurred associated costs for asset impairments of $5 million, which are included in cost of sales on our condensed consolidated statements of operations and were attributable to our Food Packaging segment. See Note 9, â€śRestructuring Activities,â€ť for further discussion of the 2011-2014 Integration and Optimization Program.
Food Packaging Segment Operating Profit
First Quarter 2012 as compared with First Quarter 2011
Food Packagingâ€™s operating profit declined 4% to $60 million as compared with $63 million in the prior period. This decline was primarily due to the associated costs related to the 2011 â€“ 2014 Integration and Optimization Program of $5 million mentioned above. Excluding these costs, this segmentâ€™s operating profit increased $2 million to $65 million, or 4% higher than the prior period. This increase was primarily due to the favorable impact of increased net sales discussed above. Also, excluding the associated costs mentioned above, this segmentâ€™s operating profit was flat as a percentage of net sales, in the first quarter of 2012 as compared with the prior period.
Food Solutions Segment Operating Profit
First Quarter 2012 as compared with First Quarter 2011
Food Solutionsâ€™ operating profit increased 37% to $27 million as compared with $19 million in the prior period. This increase was primarily due to the favorable impact of increased net sales discussed above, which also contributed to the increase in this segmentâ€™s operating profit as a percentage of net sales. This segmentâ€™s operating profit as a percentage of net sales increased to 11.1% from 8.5% in the prior period primarily due to benefits realized from prior pricing actions.
Protective Packaging Segment Operating Profit
First Quarter 2012 as compared with First Quarter 2011
Protective Packagingâ€™s operating profit increased 16% to $47 million as compared with $40 million in the prior period. This increase was primarily due to the favorable impact of increased net sales discussed above, which also contributed to the increase in this segmentâ€™s operating profit as a percentage of net sales. This segmentâ€™s operating profit as a percentage of net sales increased to 13.5% from 11.9% in the prior period primarily due to benefits realized from prior pricing actions.
Amanda H. Butler
Thank you, and good morning, everyone. Before we begin our call today, I'd like to remind you that statements made during this call stating management's outlook or predictions for the future, are forward-looking statements. And these statements are made solely on the information that is now available to us. And we encourage you to review the information in the section entitled Forward-Looking Statements in our earnings release, which applies to this call as well. Additionally, our future performance may be different due to a number of factors, and many of these factors are listed in our most recent annual report on Form 10-K, which you can find on our website at sealedair.com. We also discussed financial measures that do not conform to U.S. GAAP. You may find important information on our use of these measures and the reconciliation to U.S. GAAP in the financial tables that we have included in our earnings release.
And lastly, we have used pro forma results for certain metrics in the first quarter to aid in the comparison of our performance to historical combined metrics of Sealed Air and Diversey. These pro forma results are also available supplements in our earnings release, which also can be found on our website.
Now I'll turn the call over to Bill Hickey, our CEO. Bill?
William V. Hickey
Thank you, Amanda, and good morning to everyone on the call. During this morning's call, I'll try to give our update on our progress in achieving our full year 2012 targets and highlights of our sales performance through the first quarter. Tod will then follow me with additional detail on the financial results, liquidity measures and key balance sheet items. We'll then follow that with opportunities for questions from both the callers on the telephone lines, as well as our webcast participants, who are invited to text in any questions you might have.
Our first quarter ought to demonstrate to you our focus on 2012 objectives of integrating the Diversey business, achieving our adjusted EBITDA goals and on reducing our debt. We are realizing higher synergies as a result of the outstanding progress our teams have made in transitioning the organization into 3 new businesses, which will be leveraging shared platform of functional support, including optimized global supply chain network, as well as an integrated and shared R&D, HR and information technology functions among others. Additionally, we have increased the size of the overall benefits of the program in 2012, as well as through 2014 as our integrations teams continue to finalize the details of their respective programs.
These cost synergies, combined with the focus on execution on core business plans, organic growth in all segments and regions, drove first quarter EBITDA results that are pacing within our plan and are still in line for us to achieve our 2012 targets for adjusted EBITDA, free cash flow, net debt and our adjusted and cash earnings per share guidance ranges.
Let me take a minute to look at some of the key metrics that we are following. In the quarter, we achieved an adjusted EBITDA of $236 million, or about 12.3% adjusted EBITDA margin for the quarter. This represents steady performance on $1 and margin basis versus pro forma results in the first quarter of 2011, even though market conditions and input costs have become more challenging in the first quarter of 2012. We're also comfortable with our free cash flow and net debt outlook and continue to expect to generate $450 million to $475 million of free cash flow in 2012. Tod will discuss additional details on our cash flow after my comments.
Lastly, we prepay $31 million of our outstanding term loans in the quarter, staying a year ahead on our payment installments and remaining committed on using cash to pay down debt. Looking at earnings per share, we did report a loss of $0.03 per share in the quarter but that did include the impact of $0.21 of special items including integration costs and restructuring costs. Excluding the impact of the special items, adjusted earnings per share was $0.18 and of course, that does include the effect of purchase price amortization, which on an after-tax basis, approximately $0.11 per share.
Reported sales for the quarter were $1.92 billion, reflecting a 4% increase in constant dollar sales from our legacy Sealed Air business. Two of that came from higher price, and 2% of that came from higher volumes. I'm particularly pleased that we're able to report positive volume in all of our businesses in what many industry peers have not been able to do.
On a pro forma basis, sales increased 1% or approximately 3% on a constant dollar basis as currency was a headwind for us in the quarter. All regions reported growth with 2% constant dollar sales in the North America, 1% growth in the EMEA region and developing regions achieved a 9% growth with solid performance in Latin America, Southeast Asia, India and the Middle East, which includes Turkey, Egypt and the UAE. Our volume growth reflected our ability to hold or expand our market presence in each of our businesses and largely perform above industry and customer production rates, as our market-facing teams continue to execute on their growth programs. These include achieving our targeted top line synergies where we have achieved just under $10 million to date on an annual rate, but we are tracking above plan as we only expected top line synergies to materialize in the second quarter and beyond.
Although still early and ahead of plan, our food and beverage team has already signed over 10 customers that include large multinationals and local regional food processors in 4 regions of the world. Of note, volume growth in Protective Packaging North America was quite strong due to the excess of our innovative solutions, new growth programs and equipment sales that served a strong e-commerce sector and more modest growth in the core industrial sector.
Diversey also had strong pockets of growth, most notably in the developing regions of the world and in growth programs targeting expanded presence in key global accounts. TASKI brand floor care innovations was a particular note in the quarter as we expanded that line into Asia. We also succeeded in nearly doubling our sales through our new partner alliances with Synthos, Staples and GE Water. Although starting off on a small base, this pace suggests a solid start to our second year with our new strategic partners.
Additionally, our Food Packaging and Food Solutions segments are showing strong resilience despite low to modest customer production rates, and we've done that with ongoing innovation in new products and a continuing 9% increase in case-ready and an 8% increase in fluid packaging solutions on a global basis.
Looking specifically at the Diversey segment on a pro forma basis, we achieved 1% constant dollar sales growth from 3% higher pricing and 2% lower volume in the quarter, a trend that is slightly better than fourth quarter results and suggest a stabilization in Europe. The Diversey segment exhibited particular strength in a number of areas, as 85% of Diversey's revenue base did demonstrate 2% to 3% constant dollar sales growth on a global basis and these same areas of the business also achieved approximately 10% to 20% growth in the developing regions of the world. The sector showing the strength include the distribution channel, food and beverage, food service and lodging and laundry. As an example, food service grew 3% globally, and 20% in developing parts of the world.
Food and beverage grew 2% globally and 10% in the core developing region of the world, including Southeast Asia, India, the Middle East, Turkey and Africa. Regional highlights include a 6% constant dollar sales growth rate in Asia-Pacific and 8% growth rate in Latin America where, in particular in Latin America, we achieved a 20% growth in retail and a 30% growth in the Food Service sector.
Clearly, there were some offsets to these solid gains, and the areas of weakness reflect the ongoing challenge in the EMEA region, primarily economic weakness in Europe, which makes up about 80% of our EMEA region. And the sectors that are showing the greatest strength were the Building Service Contractors segment at 2%, the Food and Beverage sector and the distribution channel, which both grew at 3% and the laundry and lodging sector at 6%. Food service held steady year-over-year, but we expect improvement in the second quarter.
The positive growth in these regions and these sectors was definitely impacted by weaknesses in the sectors that we noted in the fourth quarter. The Education and Government sector, which has been impacted by austerity measures in several governments across Europe, lower volume and licensed consumer brands in Europe, which we sell through big-box stores and distribution, and in retail and healthcare. Unique to the first quarter was a significant volume decline in North America, specifically due to a shift in timing of 2 custom orders in the first quarter. These were very specific cases, which impacted the first quarter but will normalize later in Q2.
North American volumes on the Diversey side were also modestly impacted by one food and beverage customer's closing of their facilities related to the media concerns associated with lean, finely textured beef, and we are currently not expecting that customer to come back on to manufacturing in 2012 and will probably continue to unfavorably impact North American volumes for the balance of the year.
Across all of our business, the price/mix was a solid contributor with all businesses generating positive price in the quarter from prior actions taken in 2011, and all business achieved positive price cost spread in the quarter. Our businesses have pursued additional pricing actions in Q1 and some going into effect in Q2, but many of those benefits will not be realized until late in the second quarter. These pricing actions seek to continue to recover residual 2011 higher cost and our ongoing assumption of additional raw material inflation of 3% to 5% in 2012.
In the first quarter, raw material inflation ran slightly below that range. We do favorable supply/demand in the industry, however, higher raw material prices did go into effect at the end of the first quarter, and we expect to see that impact in the second quarter.
Looking specifically at pricing performance in the Diversey business in the quarter, the team successfully generated pricing benefits that exceeded first quarter material costs and recovery costs from the first -- from the fourth quarter of 2011. However, this benefit was offset at the operating profit line from unfavorable product mix and lower product volume. The mix effect was primarily due to lower volumes in the quarter from Europe, particularly from more favorable product applications such as floor care. As noted earlier, we implemented incremental pricing actions in the first quarter, which we expect to realize the benefits of in the latter portion of the second quarter.
Additionally, peak seasonal volumes in the second quarter with the sales mix of approximately 26% are expected to offset some of the unfavorable mix going forward, as should the higher use of certain more favorable products to the summer and autumn months. For example, floor care products are more heavily bought in the summer for school refurbishing during the summer break and in early third quarter for retail stores prepping for holiday season traffic.
Looking ahead to the balance of the year, we are confident we're executing solidly on our core objectives of integrating the Diversey business, achieving our synergies and reducing our debt. We also will continue to rebuild credibility with our customers, both locally and globally, through innovative solutions and expanding our developing region reach.
We are excited that our new organizational design and synergy opportunities are being achieved at an accelerated rate and the vision for Sealed Air is beginning to resonate with our customers. Our businesses and teams are very engaged in not only finalizing their new organizations but staying focused on our customers and expanding our market presence through leading market-facing teams and a global footprint and an innovation pipeline and growth programs.
A simple example of this is in our North American Food and Beverage business, which is transitioning into a new business unit with Diversey, was also able to launch 4 new products in the first quarter and were recognized with an achievement award by the Flexible Packaging Association at the same time.
I am proud to say that our Food and Beverage business is not unique as each of our businesses has developed an extensive portfolio of opportunities through our core R&D efforts. We've been working aggressively in the last 6 months calling on our target customers, piloting new products and engaging in a number of bids to incorporate Sealed Air into our customers' operations. Although these efforts are not in our first quarter results, we are seeing a strong pipeline that complements our core business and a stronger roadmap for our business leaders as our customers clearly want alternatives to the status quo. What is also exciting is that just over 180 days post-close, customers will see our food and beverage and institutional laundry teams as one organization at the National Restaurant Association, which convenes over the weekend.
Here, we will outline to food processors and food service organizations how they can leverage our unique position, to protect, enhance and differentiate their products and their operations with the unique portfolio of solutions that encompass product protection, food and workplace safety, sustainability and operating efficiency.
At the National Restaurant show, where we're featuring a number of new Diversey and Cryovac-branded food-oriented solutions that include cleaning and hygiene solutions designed to address worker safety, productivity and sustainability through dosing and dispensing control system, our hand care system, as well as ovenable packaging and a pre-plated Ready Meal microwavable solution.
While we are encouraged by our progress to date and are tracking close to plan in the first quarter, we are cautious on the macroeconomic outlook for the balance of the year, and are maintaining our current adjusted EBITDA, free cash flow and net debt targets, as well as our adjusted and cash EPS in ranges.
Although our synergies are higher than anticipated and our tax rate is more favorable than expected, any possible upside to our results if economic conditions improve because of the near-term macro uncertainties in Europe, we are holding to our initial range.
Moving past the seasonally-low first quarter, we expect sales, adjusted EBITDA and earnings to be more pronounced in the second half of the year, accelerated from improving seasonal trends, higher price benefits and a flow-through of the higher level of our cost synergies.
In April, our business appeared to be generally trending to first quarter organic sales results, which sets our expectations for approximately a 3% to 4% constant dollar growth on our 2 Food businesses, a 4% to 5% growth in Protective Packaging, and approximately 3% constant dollar growth in the Diversey business. This is slightly lower than initially anticipated and largely reflects uncertainty in the economic outlook. These top line assumptions continue to produce a full year sales range of approximately $8.2 billion to $8.3 billion, and we are more comfortable at the lower end of this range.
Now at this time, I'll pass the call over to Tod Christie, our Treasurer and Interim CFO, to discuss first quarter financial results and the integration program in more detail.
Tod S. Christie
Thanks, Bill, and good morning, everyone. I'll provide some additional details on our first quarter results, and then I'll also address details of key balance sheet, free cash flow and liquidity items.
As you may have seen in our press release, our adjusted EBITDA was $236 million in the first quarter, which was even with pro forma results for the first quarter of 2011 and pacing within our plan. In our supplemental tables that are attached to the press release, we've provided adjusted operating profit plus depreciation and amortization at the segment level, which provides a reasonable approximation of each segment's contribution to adjusted EBITDA. Looking at these results, we achieved improved performance on both an absolute dollar and margin basis in our Food and Protective segments as a result of higher sales and increased operating profits.
Together, these segments improved their year-over-year performance by 10% or $15 million. On a pro forma basis, Diversey's performance declined by $16 million to $50 million as a result of lower volumes and mix, which Bill noted a few minutes ago, factors that we expect will improve as the year progresses.
Now I'd like to turn your attention to free cash flow and liquidity items. Free cash flow was $30 million in the first quarter and was $26 million lower than the first quarter of 2011 due to an increase in interest payments and higher capital expenditures to support our larger business. Changes in working capital items resulted in the net use of cash of $35 million in the quarter, as we increased inventories in preparation for the start-up of our European principal company structure and experienced our normal seasonal build in other regions and businesses.
Receivables generated $56 million of cash in the quarter as a result of lower sequential sales. I'm pleased to note that our receivables portfolio continued to perform well in spite of the economic challenges in Europe. Cash and cash equivalents were $530 million at March 31, down $184 million from December 31, 2011. In addition to being our seasonal low quarter from an operational standpoint, the first quarter is typically characterized by above-average disbursements.
During the quarter, we paid $116 million of interest, more than 1/3 of the total $320 million that we anticipated paying during the year. We also paid $55 million under long-term and annual incentive compensation plans, $31 million for our first quarter 2013 term loan prepayments, $26 million to pay our restructuring obligations under our Integration & Optimization Program, and $25 million for our quarterly dividends.
As we noted in the press release today, we continue to target 2012 annual free cash flow of $450 million to $475 million. We expect that free cash flow will improve over the balance of the year, particularly in the second half, through a combination of improved operating performance, normal seasonal business trends, realization of additional cash benefits through achievement of our synergies, and continued focus on working capital improvements.
As of March 31, we had total cash and committed liquidity of $1.3 billion. Our net debt was $5.3 billion in March 31, reflecting normal seasonal uses of cash and prepayments of our first quarter 2013 installments on our term loans as we continue our plans to stay a year ahead of our bank loan repayments. We continue to target the use of the substantial majority of our free cash flow for debt repayments after providing for our dividend payments and restructuring obligations. And in April, we paid our second quarter 2013 term loan installments.
Today, we went live with our European principal company structure for our Diversey European operations. This is an important milestone and represents the culmination of many months of hard work by the project teams. In the first quarter, we recognized $5 million in costs related to the implementation of this program, which we've included in special items. We anticipate that future benefits from this reorganization will arise from more efficient management and lower overhead costs from a centralized management team and supply chain model, as well as tax savings.
In summary, we remain well positioned to fund day-to-day operations of our new combined company, return cash to our shareholders through our regular quarterly dividend and prepay our outstanding term loans.
You may have seen that W.R. Grace has recently completed settlement agreements with certain claimants and has requested approval of the bankruptcy court. While we view this as a positive development, there are other outstanding appeals, and the funding date of our obligation remains uncertain. However, we continue to stand ready to fund the pending W.R. Grace settlement upon Grace's emergence from bankruptcy.
And now, I'll turn the microphone back to Bill to open the call to your questions.
William V. Hickey
Great. Thanks, Tod. I would like to add Tod's compliments to the European team that's been working for months on bringing live our EPC. Today is day one of the go live. So to our European team and EPC members, thank you for the hard work you've put in on this.
With that though, operator, I would like to open the call up to questions from the participants, and I will also look in the text questions that come in from our webcast participants as well. Operator?