Sealed Air Reports Third Quarter 2012 Results

Third Quarter Highlights

• Sealed Air announced sale of Diversey Japan, now classified as discontinued operations
• Sales of $2.0 billion, $1.9 billion continuing operations and $79 million discontinued operations; 2% organic growth v. prior year
• Pro forma developing region sales realize 10% organic growth v. 2011 - now 24% of global sales
• Adjusted EBITDA of $285 million, $272 million continuing operations and $13 million discontinued operations; increases 4% on a constant dollar basis v. prior year
• Adjusted EPS of $0.31, $0.28 continuing operations and $0.03 discontinued operations
• Cost synergy benefits increase to $29 million in the quarter
• Profitability tracks higher on improved performance, seasonality, synergies and lower costs
• Non-cash goodwill impairment charge recorded related to Diversey segment
• Earnings assumptions maintained and guidance updated for discontinued operations

ELMWOOD PARK, N.J.--(BUSINESS WIRE)--Nov. 2, 2012-- Sealed Air Corporation (NYSE:SEE) today announced financial results for the third quarter of 2012. The Company noted that following the announced sale of its Diversey Japan business, it has classified Diversey Japan as a discontinued operation as of September 30, 2012. Prior year reported and pro forma financial results have been revised to reflect this discontinued operation.

Sales for the third quarter 2012 totaled $2.0 billion including $1.9 billion from continuing operations and $79 million of sales from discontinued operations. Sales from continuing operations increased 52% over 2011, including a 56% increase from the Diversey acquisition, a 2% increase in organic sales, and 5% unfavorable currency translation.

Pro forma sales from continuing operations increased 2% on a constant dollar basis from 1% in both higher volumes and price/mix. Sales from continuing operations decreased 5% on a reported basis, including 7% from unfavorable foreign exchange translation. While we achieved positive volume growth in most regions, our Europe business continued to feel the effects of the European economic slowdown. Our growth was attributable to the successful execution of our growth programs, expansion in developing regions, the steady adoption of new solutions, and a net gain in new customer relationships.

Adjusted EPS was $0.31 for the third quarter, comprised of $0.28 from continuing operations and $0.03 from discontinued operations. We reported a loss of $6.06 per share from continuing operations, which included a $6.18 per share non-cash goodwill impairment charge and a $0.18 per share unfavorable effect from special items. Adjusted diluted EPS for 2011 was $0.48, or $0.41 on a reported basis.

On a constant dollar basis, adjusted EBITDA increased versus the prior year for both total and continuing operations results. Total Adjusted EBITDA for the quarter was $285 million or 14.4% of sales, which includes a $14 million unfavorable impact from currency translation. On a constant dollar basis, this represents a 4% increase compared with 2011 pro forma adjusted EBITDA of $287 million. On a continuing operations basis (excluding Diversey Japan), adjusted EBITDA for the quarter was $272 million or 14.3% of sales, which also includes a $14 million unfavorable impact from currency translation. On a constant dollar basis, this represents a 2% increase compared with pro forma 2011 results of $281 million.

Commenting on our operating performance, William V. Hickey, Chairman and Chief Executive Officer, stated:

“Strong operational execution from our supply chain organization, a favorable price/cost spread, seasonality, and ongoing realization of synergies helped drive solid progress sequentially and year over year on top line results and on profitability, excluding the unfavorable impact of foreign currency. All of which, gives us good momentum as we finish 2012. Our sales and marketing teams continued to grow our presence in our targeted growth areas, driving net gains from new and expanded account wins, and we achieved an additional $10 million in synergy sales.”

Third Quarter Segment Review

The following year-over-year net sales discussions present both actual and constant dollar sales performance. The “constant dollar” results exclude the impact of currency translation. Additionally, “adjusted operating profit” results exclude impairment of goodwill and other intangible assets, restructuring and special items. The balance of the discussion is presented on a U.S. GAAP basis.

Food Packaging Segment

Sales were 2% higher on a constant dollar basis or decreased 4% on a reported basis. Food Packaging achieved 2% higher volumes, led by 8% volume growth in Latin America and positive volume growth in all other regions. Prior and current pricing actions were offset by unfavorable product mix, primarily in North America. Adjusted operating profit decreased 7% to $70 million, or 13.6% of net sales, and was $69 million or 13.4% of net sales on a reported basis. These results compare with $75 million, or 14.2% of net sales, in 2011. On a sequential basis, third quarter 2012 operating profit and margin results were significantly higher due to improved operational execution, tight control of expenses and lower petrochemical based raw material costs.

Food Solutions Segment

Sales increased 1% on a constant dollar basis with 2% higher volumes led by strength in fluids packaging in North America. Price/mix declined by 1%, primarily in North America. Third quarter sales decreased 4% on a reported basis. Adjusted operating profit increased 10% to $32 million, or 12.7% of net sales, on lower petrochemical based raw material costs and solid operational performance. Reported operating profit increased 9% to $32 million, or 12.5% of net sales, compared with $29 million or 11.1% in 2011.

Protective Packaging Segment

Sales decreased 1% on a constant dollar basis, or 5% on a reported basis, with relatively steady volume performance and 1% lower price/mix. We continued to achieve 2% higher volumes in North America due to our expanded market presence and strength in new solutions targeting e-commerce applications. This growth was partially offset by 2% lower EMEA volumes due to weak economic conditions in southern Europe. On an adjusted basis, third quarter 2012 operating profit was $49 million, or 14.3% of net sales, due to expense control and benefits from our innovative, more sustainable film structures. Reported operating profit held steady at $48 million, but margin increased 70 basis points to 14.1%. This compares with $49 million or 13.4% of net sales in 2011.

Diversey Segment (reflects discontinued operations impact for Diversey Japan and pro forma information for 2011 results)

On a constant dollar basis, third quarter 2012 sales increased 2% to $835 million, with $756 million from continuing operations and $79 million from discontinued operations. The constant dollar sales increase reflects 2% higher price from prior pricing actions and a modest 0.5% decline in unit volumes. Pro forma sales, including the effect of foreign exchange, decreased 6% on a year-over-year basis to $777 million, which included $699 million from continuing operations and $79 million from discontinued operations. Volumes achieved solid growth in developing regions but remained weak in EMEA and to a lesser extent in North America. Unit volume performance in EMEA declined modestly compared to prior quarters as weakness in southern Europe offset more stabilized demand in northern Europe.

Reported and on an adjusted basis, operating profit was $39 million, or 5.1% of net sales, with $30 million from continuing operations and $10 million from discontinued operations. Third quarter operating profit includes an unfavorable currency translation of $7 million. This compares with pro forma adjusted operating profit of $41 million or 4.9% of net sales in 2011, with $36 million from continuing operations and $4 million from discontinued operations. Pro forma operating profit for third quarter 2011 was $34 million or 4.1% of net sales, with $29 million from continuing operations and $4 million from discontinued operations. The segment benefited from approximately $15 million in cost synergies and a positive price/cost spread, which were offset by ongoing investments in the business.

On October 30, 2012, we announced the signing of a definitive agreement to sell our Diversey Japan business for approximately USD-equivalent 377 million, gross. We expect to record a pre-tax gain on the sale of approximately USD-equivalent 260 million when the transaction is completed in the fourth quarter. The transaction is subject to customary closing conditions and is expected to be completed by year end. The results of Diversey Japan’s business have been classified as discontinued operations, net of taxes, and its business results combined with costs associated with the transaction are reported as “income or loss from discontinued operations” (net of tax) in the consolidated statement of operations. Diversey Japan assets and liabilities are segregated on the balance sheet as “assets/liabilities held for sale”.

Included for reference in the attached financial tables are revised financials reflecting the classification of Diversey Japan business to discontinued operations for the first three quarters of 2012 and the fourth quarter of 2011, as well as pro forma results for the first three quarters of 2011.

Other Category

Sales increased 12% on a constant dollar basis, or 4% on a reported basis, with 8% higher volumes, 3% increase in price/mix and 1% from an acquisition. Volume growth was largely from our Medical Applications business on expanded market presence in EMEA and Asia Pacific. Adjusted and reported operating profit increased to $3 million, or 3.2% of net sales. This compares with $0.5 million or 0.6% of net sales, in 2011.

Free Cash Flow and Net Debt

We generated free cash flow of $34 million in the quarter, including $28 million from continuing operations and $7 million from discontinued operations (free cash flow is pre-restructuring and mandatory debt payments). Additionally, we prepaid our third quarter 2013 term loan installments of $30 million. For the first nine months of 2012, we generated $158 million of free cash flow with $139 from continuing operations and $19 million from discontinued operations. As of early fourth quarter 2012, we had prepaid all of our 2013 installments.

In the third quarter, we reduced our net debt by approximately $35 million to $5.26 billion due to seasonally higher levels of cash generation from the businesses and effective management of inventory levels. Our net debt includes the W. R. Grace settlement liability.

Synergies and 2011-2014 Integration & Optimization Program

We announced our 2011-2014 Integration & Optimization Program in the fourth quarter of 2011, and in the second quarter of 2012, we expanded the program to address increasing macroeconomic weakness. We still expect approximately 40% of the program benefits to be realized in Cost of Sales and 60% in SG&A.

The 2011-2014 Integration & Optimization Program is summarized as:

*Updated full year estimate.

The actual timing of future costs and cash payments is subject to change due to a variety of factors that may cause a portion of the spending and benefits to occur later than we currently expect. Additionally, changes in foreign exchange translation may impact future costs and benefits.

Revenue Synergies

We achieved estimated annualized synergy revenue of approximately $25 million year-to-date and are working with targeted accounts to close additional opportunities. We continue to target $70 million in revenue synergies by the end of 2013.

Goodwill

As part of our interim review for impairment of our reporting segments, we identified an impairment within our Diversey segment due to lower-than-anticipated growth rates and operating margin performance from challenging macroeconomic conditions. As a result, we have recorded a non-cash, pre-tax charge for impairment of goodwill and certain intangible assets of $1.2 billion. This estimated amount is subject to finalization. Goodwill arises in an acquisition when the fair value paid for a business exceeds the value of the identifiable net assets. We do not expect this impairment to result in any future cash expenditures, impact liquidity, affect the ongoing business or financial performance of the Diversey segment, or impact compliance with our debt covenants.

2012 Outlook for Continuing Operations

Commenting on our outlook, Mr. Hickey stated:

“While we remain confident in the underlying fundamentals of our business and achieved good momentum in the third quarter, uncertainty in end market demand and relative customer confidence to drive near-term capital investment keeps us cautious for the fourth quarter. We are anticipating improved sales and adjusted EBITDA performance from continuing operations on a year-over-year and sequential basis as we continue to execute on our growth programs, maintain tight cost controls, and seek to exceed synergy goals. The strength of seasonal trends, moderating raw material costs and foreign exchange rates are drivers to performance within our range. Additionally, we look to complete the sale of our Diversey Japan business and exceed our net debt target of $4.95 billion by year end by leveraging proceeds from the sale.”

We have adjusted our full year 2012 guidance assumptions to reflect the classification of Diversey Japan as discontinued operations.

• Net sales: Approximately $7.7 billion from continuing operations, including $300 million of unfavorable foreign currency translation. This compares with prior guidance of $7.7 billion and an assumption of $400 million of unfavorable foreign currency translation;
• Adjusted EBITDA: $995 to $1,010 million from continuing operations, including $30 million of unfavorable foreign currency translation. This compares with $1,050 to $1,075 million;
• Interest expense: $390 million, of which $320 million is cash interest expense. This compares with prior guidance of $380 million of interest expense, of which $320 million was cash interest. Guidance is revised to reflect the increased rate of amortization due to our prepayment of term loans;
• Core tax rate: 29%. This compares with prior guidance of 30%;
• Free Cash Flow (pre-restructuring payments): $375 to $400 million from continuing operations, which compares with prior guidance of $425 to $450 million; and
• Adjusted EPS: $0.90 to $1.00 from continuing operations, compared with prior guidance of $1.00 to $1.10.

Our full year 2012 guidance assumptions referenced in our second quarter 2012 earnings release for depreciation and amortization, raw material inflation, cash taxes, capital expenditures and our full year average fully diluted common share count have not changed. Adjusted EPS guidance excludes the payment of the W. R. Grace settlement, as the exact timing of the settlement is unknown. Final payment of the W. R. Grace settlement is expected to be accretive to adjusted 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 amount. Additionally, guidance excludes any non-operating gains or losses that may be recognized in 2012 due to currency fluctuations in Venezuela.

Web Site and Conference Call Information

William V. Hickey, our Chairman and CEO, Jerome A. Peribere, our President and COO, and Carol P. Lowe, our Senior Vice President and CFO, will conduct an investor conference call today at 9:00 a.m. (ET) to discuss our earnings results. The conference call will be webcast live on our web site at www.sealedair.com in the Investor Information section. The link to the event can be found on the Investor Information home page as well as under the Presentations & Events tab. Listeners should go to the web site prior to the call to register and to download and install any necessary audio software. A replay of the webcast will also be available on the Company’s web site.

Investors who cannot access the webcast may listen to the conference call live via telephone by dialing (888) 680-0892 (domestic) or (617) 213-4858 (international) and use the participant code 88915180. Telephonic replay will be available beginning today at 11:00 a.m. (ET) and ending on Friday, November 23, 2012 at 11:59 p.m. (ET). To listen to the replay, please dial (888) 286-8010 (domestic) or (617) 801-6888 (international) and use the confirmation code 77202308.

Business

Sealed Air is a global leader in food safety and security, facility hygiene and product protection. With widely recognized and inventive brands such as Bubble Wrap^® brand cushioning, Cryovac^® brand food packaging solutions and Diversey^TM brand cleaning and hygiene solutions, Sealed Air offers 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. On a pro forma basis, Sealed Air generated revenue of $8.1 billion in 2011, and has approximately 26,300 employees who serve customers in 175 countries. To learn more, visit www.sealedair.com.

Non-U.S. GAAP Information

In this press release and supplement, we have included several non-U.S. GAAP financial measures, including adjusted EPS, adjusted Cash EPS, net sales on a "constant dollar" basis, adjusted gross profit, adjusted operating profit, adjusted net earnings, free cash flow and EBIT, EBITDA and Adjusted EBITDA. We present results and guidance, adjusted to eliminate the effects of specified items that would otherwise be included under U.S. GAAP, to aid in comparisons with other periods or prior guidance. We may use adjusted EPS, net sales on a constant dollar basis, adjusted net earnings, adjusted gross profit, adjusted operating profit, measures of cash flow, net debt, and EBITDA figures to determine performance-based compensation. Our management uses financial measures excluding the effects of foreign currency translation in evaluating operating performance. Management believes that this information may be useful to investors. For important information on our use of non-U.S. GAAP financial measures, see the attached supplementary information entitled “Explanatory Note on Use of Non-U.S. GAAP Financial Information,” “Reconciliation of U.S. GAAP Gross Profit and Operating Profit to Non-U.S. GAAP Adjusted Gross Profit and Operating Profit,” “Reconciliation of U.S. GAAP Diluted Net (Loss) Earnings Per Common Share to Non-U.S. GAAP Adjusted Diluted Net Earnings per Common Share,” “Revision for Discontinued Operations,” “Additional Pro Forma Information,” “Non-U.S. GAAP Free Cash Flow,” “Reconciliation of Net (Loss) Earnings Available to Common Stockholders to Non-U.S. GAAP EBIT, EBITDA and Adjusted EBITDA,” “Components of Change in Net Sales - Business Segments and Other” and “Components of Change in Net Sales-Geographic Region.”

Non-U.S. GAAP free cash flow may not represent residual cash available for discretionary or non-discretionary expenditures that are not deducted from this measure, including mandatory debt servicing.

Forward-Looking Statements

This press release and supplement contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by such words as “anticipates,” “believes,” “plan,” “assumes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans to,” “will” and similar expressions. Examples of these forward-looking statements include 2012 financial expectations and assumptions associated with our 2011-2014 Integration & Optimization Program, availability and pricing of raw materials, success of our growth programs, economic conditions, and the success of pricing actions. These statements reflect our beliefs and expectations as to future events and trends affecting our business, our consolidated financial position and our results of operations. A variety of factors may cause actual results to differ materially from these expectations, including general domestic and international economic and political conditions affecting packaging utilization; changes in our raw material and energy costs; credit ratings; competitive conditions and contract terms; currency translation and devaluation effects, including Venezuela; the success of our financial growth, profitability and manufacturing strategies and our cost reduction and productivity efforts; the effects of animal and food-related health issues; pandemics; environmental matters; regulatory actions and legal matters; and the successful integration of Diversey. For more extensive information, see “Risk Factors” and “Cautionary Notice Regarding Forward-Looking Statements,” which appear in our most recent Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, and as revised and updated by our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, whether as a result of new information, future events, or otherwise.

SEALED AIR CORPORATION

SUPPLEMENTARY INFORMATION

EXPLANATORY NOTE ON USE OF NON-U.S. GAAP FINANCIAL INFORMATION

In this supplementary information 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, the 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 (“EPS”), 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 (“EBITDA”), 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 (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 management’s ability to make useful forecasts. Our non-U.S. GAAP financial measures are also 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. We also present Adjusted Cash EPS, which excludes the amortization of acquired intangible assets, non-cash interest expense (including the accrued interest expense related to the Settlement agreement) and non-cash taxes, which aids in presenting our EPS on an adjusted cash basis.

Another non-U.S. GAAP financial measure we present is our core effective income tax rate or provision, ("core tax rate"). 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.