SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|☒||ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the fiscal year ended December 31, 2020
|☐||TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the transition period from to
Commission file number 1-12139
SEALED AIR CORPORATION
(Exact name of registrant as specified in its charter)
|(State or other jurisdiction of|
incorporation or organization)
| ||(I.R.S. Employer|
|2415 Cascade Pointe Boulevard|| |
|(Address of principal executive offices)|| ||(Zip Code)|
Registrant’s telephone number, including area code: (980)-221-3235
Securities registered pursuant to Section 12(b) of the Act:
|Title of Each Class||Trading Symbol(s)||Name of Each Exchange on Which Registered|
|Common Stock, par value $0.10 per share||SEE||New York Stock Exchange|
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
|Large Accelerated Filer|| ||☒|| ||Accelerated filer|| ||☐||Emerging growth company||☐|
| || || || |
|Non-accelerated filer|| ||☐ || ||Smaller reporting company|| ||☐|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $5,090,724,127, based on the closing sale price as reported on the New York Stock Exchange.
There were 154,919,232 shares of the registrant’s common stock, par value $0.10 per share, issued and outstanding as of February 16, 2021.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive proxy statement for its 2021 Annual Meeting of Stockholders, to be held on May 18, 2021, are incorporated by reference into Part III of this Form 10-K.
SEALED AIR CORPORATION AND SUBSIDIARIES
Table of Contents
Cautionary Notice Regarding Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 concerning our business, consolidated financial condition, results of operations, or cash flows. The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking statements so that investors can better understand a company’s future prospects and make informed investment decisions. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements can be identified by such words as “anticipate,” “believe,” “plan,” “assume,” “could,” “should,” “estimate,” “expect,” “intend,” “potential,” “seek,” “predict,” “may,” “will” and similar references to future periods. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding expected future operating results, expectations regarding the results of restructuring and other programs, anticipated levels of capital expenditures and expectations of the effect on our financial condition of claims, litigation, environmental costs, contingent liabilities and governmental and regulatory investigations and proceedings.
Please refer to Part I, Item 1A, “Risk Factors” for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. Any forward-looking statements made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
The following are important factors that we believe could cause actual results to differ materially from those in our forward-looking statements: global economic and political conditions, currency translation and devaluation effects, changes in raw material pricing and availability, competitive conditions, the success of new product offerings, consumer preferences, the effects of animal and food-related health issues, the effects of epidemics or pandemics, including the Coronavirus Disease 2019 (COVID-19), changes in energy costs, environmental matters, the success of our restructuring activities, the success of our merger, acquisition and equity investment strategies, the success of our financial growth, profitability, cash generation and manufacturing strategies and our cost reduction and productivity efforts, changes in our credit ratings, the tax benefit associated with the Settlement agreement (as defined in Part I, Item 1A, “Risk Factors”), regulatory actions and legal matters, and the other information referenced in Part I, Item 1A, “Risk Factors.” Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Item 1. Business
We are in business to protect, to solve critical packaging challenges, and to make our world better than we found it.
We are a leading global provider of packaging materials, equipment and services. Our portfolio of packaging solutions includes Cryovac® brand food packaging, Sealed Air® brand protective packaging, Autobag® brand automated systems, Bubble Wrap® brand packaging and SEE Automation solutions. Our packaging solutions are sold to an array of end markets including protein, foods, fluids, medical and life sciences, pet care, e-Commerce and logistics, and industrials. Our automated equipment, materials and services maximize food safety and security and product protection while minimizing waste.
Sealed Air Corporation (“Sealed Air” or the “Company”, also referred to as “we”, “us”, or “our”) was incorporated in Delaware in 1960. We conduct substantially all of our business through two wholly-owned subsidiaries, Cryovac, LLC and Sealed Air Corporation (US). We have two reportable segments, Food and Protective. Please refer to Part II, Item 8, “Financial Statements and Supplementary Data” for financial information about the Company and its subsidiaries, which is incorporated herein by reference. Please refer to “Segments”, below for information about the Company's reportable segments. Also, when we cross reference to a “Note,” we are referring to our “Notes to Consolidated Financial Statements,” unless the context indicates otherwise.
In 2020, we generated net sales of $4.9 billion, net earnings from continuing operations of $484 million, and net cash provided by operating activities of $737 million, all of which were higher than prior year results.
Market Strategy and Competitive Strengths
Our vision is to transform Sealed Air to a world-class company servicing the global packaging industry by executing our strategies:
Generate profitable growth;
Drive One SEE operational excellence;
Develop a One SEE high-performance culture; and
Deliver sustainable long-term value to our shareholders and society.
We focus on serving our customers by leveraging our competitive strengths which include differentiated materials, equipment and services; iconic brands; well-established customer relationships; and global scale and market access.
Differentiated Materials, Equipment and Services. For food industries we provide packaging materials, automated equipment, and services that extend shelf life, enhance brand images and drive operational excellence by eliminating waste, increasing processing speeds and reducing customers’ labor requirements. Within e-Commerce and industrial markets, we offer a broad range of protective packaging materials and automation solutions that prevent product damage, increase order fulfillment velocity, and generate savings through reductions in waste, dimensional weight and labor.
In 2020, we launched our SEE Automation Solutions strategy with the goal to provide a differentiated value proposition to our customers via world-class integrated solutions including automated equipment, services and materials. With SEE Automation Solutions, we aim to provide the best solutions, at the right price, while making them sustainable. We seek opportunities to help customers eliminate waste, simplify processes, remove people from harm's way and drive 'touchless' operations.
Iconic Brands. Our portfolio of leading packaging solutions includes Cryovac® brand food packaging, Sealed Air® brand protective packaging, Autobag® brand automated systems, Bubble Wrap® brand packaging, and SEE Automation solutions. We strive to ensure these brands continue to represent our commitment to deliver confidence in our solutions which provide security, safety, performance and innovation.
Well-established Customer Relationships. We have a broad and diversified customer base which includes the world’s leading food processors, e-Commerce and industrial manufacturers. We leverage extensive knowledge of our customers’ business when innovating new solutions, and partner with customers to effectively implement our solutions to improve and automate their operations. Our customer base is diverse, with no single customer or affiliated group of customers representing more than 10% of net sales in 2020, 2019 or 2018.
Global Scale and Market Access. Sealed Air serves a diverse global customer base with a sales and distribution network reaching 117 countries/territories. In 2020, 47% of net sales were from outside the U.S. Our global scale and agility have enabled us to address the evolving customer needs across our end markets and geographies. We partner with our customers as they expand their business on a global basis. Our broad geographic presence and extensive distribution network position us to capitalize on growth opportunities in markets around the world. We operate through our subsidiaries and have a presence in the U.S. and the 45 other countries/territories listed below.
|China||Guatemala||Mexico||Singapore||United Arab Emirates|
|Colombia||Hungary||Netherlands||South Africa||United Kingdom|
|Costa Rica||India||New Zealand||South Korea||Uruguay|
We face risks inherent in these international operations, such as currency fluctuations, inflation and political instability. Information on currency exchange risk appears in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of this Annual Report on Form 10-K, which is incorporated herein by reference. Other risks attendant to our international operations are set forth in Part I, Item 1A, “Risk Factors,” of this Annual Report on Form 10-K, which is incorporated herein by reference. Information on the impact of currency exchange on our Consolidated Financial Statements appears in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Financial information showing net sales for the year ended December 31, 2020 and total long-lived assets by geographic region as of December 31, 2020 appears in Note 6, “Segments,” which is incorporated herein by reference.
Reinvent SEE Business Transformation to SEE Operating Model
After completing an assessment of the organization and market opportunities available across the global packaging industry, we formulated and announced our Reinvent SEE business transformation and complementary restructuring program in 2018. The objective is to transform how we innovate, buy, make, and solve our customers’ most critical packaging challenges.
Since the program began in 2018, our Reinvent SEE business transformation, initially focused on optimizing our manufacturing processes and distribution network and improving our selling, general and administrative (“SG&A”) productivity, has driven significant structural operating leverage in the business, resulting in cumulative improvements to Adjusted EBITDA of $290 million. Operational disciplines are becoming embedded in the organization and demonstrating sustained results. We expect that the capabilities and governance processes established through the Reinvent SEE business transformation will translate well into our on-going continuous improvement system and enable us to generate additional savings opportunities into the future. We also expect our Reinvent SEE transformation to fuel top-line growth with a pipeline of opportunities being pursued within our commercial work streams, including those focused on growing our automation, digital and sustainability offerings. Our SEE Operating Model is rooted in economic value add with the goal to drive profitable, above market organic growth, and attractive returns on invested capital.
Refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for reconciliation of net earnings from continuing operations based on Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) to total company Adjusted EBITDA presented on a basis which does not conform to U.S. GAAP, which we refer to as “non-U.S. GAAP.”
Our Reinvent SEE behaviors are focused on the 4P'SSM:
Performance. Achieve world-class performance by driving growth above the markets we serve, increasing our operating leverage and maintaining a disciplined investment approach.
People. Develop a One SEE high performance culture focused on driving our purpose by creating a diverse and inclusive culture and developing, retaining and attracting the best and brightest workforce.
Products. Focus on increasing our innovation rate. Offer our customers the best solutions at the right price and make them sustainable.
Processes. Embed One SEE operational excellence culture into everything we do by eliminating waste, simplifying processes, automating and removing people from harm’s way.
Sustainability. Make our world better than we found it by reducing our resource intensity, diverting waste from landfills and improving employee safety.
Innovation, Research and Development
Our technical capabilities encompass a broad range of disciplines including food science, materials science, chemistry and chemical engineering, electrical and software engineering, microbiology, and packaging equipment design and engineering.
Our research and development activities are principally performed in:
•four Packaging Development and Innovation Centers located in the U.S., Italy and Singapore;
•seven Equipment Design Centers in the U.S., France, Switzerland, Italy and Singapore, targeting innovation in equipment and digital solutions; and
•39 Package Design and Applications Centers for Protective around the globe.
Our research and development expense was $96 million in 2020, $77 million in 2019 and $81 million in 2018. In 2020, we brought our Package Design and Application Centers and certain engineering teams under our overall Innovation, Research and Development organization to focus the centers and teams on innovation and product development. This reallocation follows an operational change as well as a shift in organizational reporting and responsibility. As a result, approximately $13 million in expenses related to the centers and those engineering teams are now included in research and development expenses for 2020. Previously, these costs were primarily considered sales and marketing expenses within selling, general and administrative expenses on the Consolidated Statements of Operations.
In addition to our direct spend, we also, from time to time seek to expand our research and development capabilities through acquisitions and strategic equity or other investments.
In 2018, we made our first investment in disruptive technologies and business models, which we now aggregate into our recently announced SEE Ventures. Under the SEE Ventures initiative, we will make selective entrepreneurial investments that present opportunities to accelerate innovation and increase speed to market, while creating a sustainable competitive advantage. SEE Ventures is part of our capital allocation strategy focused on investing in early stage disruptive technology and new business models for growth.
We own or are the licensee of approximately 2,950 U.S. and foreign patents and patent applications, and approximately 2,360 U.S. and foreign trademark registrations and trademark applications that relate to many of our products, manufacturing processes and equipment. We file annually an average of approximately 270 U.S. and foreign patent applications and approximately 45 U.S. and foreign trademark applications. Our business is not dependent upon any single patent or trademark alone. Rather, we believe that our success depends primarily on our sales and service, marketing, engineering and manufacturing skills and on our ongoing innovation and research and development efforts. We believe that the expiration or unenforceability of any single one of our patents, applications, licenses or trademark registrations would not be material to our business or our consolidated financial condition, results of operations, or cash flows.
At Sealed Air, sustainability is top of mind and part of our growth strategy. We focus on reducing climate-related emissions, water use, energy use and waste in our operations and throughout the supply chain while innovating and manufacturing high performance packaging.
In the market, we are focused on creating packaging that can be recovered and recycled, contributes to consumer waste diversion efforts, reduces greenhouse gases and increases the supply of material for future reuse. We are investing in innovation and development of end-to-end packaging, including materials and automation technologies, and participating in collaborations to create a circular economy for plastic with enhanced recyclability and reusability.
We are working to achieve our 2025 Sustainability and Plastics Pledge aimed to increase plastics circularity in the packaging industry through investing in innovation, reducing plastic waste and collaborating for change.
Investment in Innovation. Dedicating R&D resources to design and advance packaging solutions to be recyclable or reusable and contain more recycled and/or renewable content.
Reduce Plastic Waste. Achieving ambitious targets of recycled content across all packaging solutions which maximize post-consumer recycled content.
Collaborate for Change. Aligning with strategic partners to combine resources, expertise and corporate voices to find impactful ways to create a circular economy which includes technology investments to facilitate the reuse, collection and recycling of plastic. To that end, Sealed Air is a member of the Alliance to End Plastic Waste.
Our people strategy is to develop a One SEE high performance culture focused on driving our purpose. We seek to bring dedicated people with diverse backgrounds, expertise and talent to work at Sealed Air. We strive to manage our business in a way that represents our core values of:
Integrity - Intentionally choosing to do the right thing, every day, no matter the circumstance;
Determined - Empowered to deliver on our commitments;
Collaborative - Operating based on mutual trust and encouraging diverse thinking to achieve common objectives; and
Innovative - Thinking without limits to solve customer, company and societal challenges.
As of December 31, 2020, we had an employee base of approximately 16,500 people. The largest component of Sealed Air's workforce is approximately 10,000 direct manufacturing employees in our manufacturing facilities. We also generally employ:
•marketing, sales, business development and technical packaging employees who work in the field and at our customers' facilities;
•innovation, sustainability and development employees who work in one of our four comprehensive packaging development and innovation centers; and
•customer service and support personnel as well as administrative and management employees who work in our offices and in remote environments.
As of December 31, 2020, we had approximately 7,000 employees in the U.S. and approximately 9,500 employees outside the U.S. Our workforce is relatively stable and does not have significant seasonal fluctuations.
We had approximately 100 U.S. employees and 4,800 non-U.S. employees who were covered by collective bargaining agreements as of December 31, 2020. Many of the covered employees are represented by works councils or industrial boards, as is customary in the jurisdictions in which they are employed. The collective bargaining agreements covering approximately 41% of such employees, primarily outside the U.S., will expire during 2021 and we will be engaged in negotiations to attain new agreements.
As a part of the Reinvent SEE business transformation, we are focusing on improving our human capital strategy to help develop a One SEE high performance culture. We are taking actions to engage our workforce and focus on growth and the execution of our business strategies. Actions to improve organizational productivity have resulted in a more cohesive and total company focused mindset while generating cost savings opportunities. Teams that have historically supported our Food or Protective segments are now focused on Sealed Air's overall platform on a regional or global basis. Organizational improvements in 2020 aligned our company-wide focus on functions including digital transformation, automation, R&D, sustainability and marketing. We are focused on developing a One SEE high performance culture by instilling a strong service culture and developing, retaining and attracting the best and brightest workforce.
Sealed Air's management regularly reports and discusses our workforce and people management strategies and related matters with our Board of Directors and the Organization and Compensation Committee of the Board of Directors, including matters related to compensation, succession planning, corporate culture, employees engagement, and diversity, equity and inclusion.
Code of Conduct, Ethics and Core Competencies
In 2019, we refreshed our written Code of Conduct which reflects our purpose and values as an organization and how we should act. It encourages all employees to promote an ethical culture and to recognize and report integrity and compliance issues. Our Code of Conduct guides us in how to manage our daily processes and interactions with professionalism, respect and integrity. Employees attest annually to reviewing and adhering to the Code of Conduct.
Employees receive regular online education as part of enhanced global ethics and compliance programs. This training includes required and monitored course training for employees in specific roles based on associated risk and function. Required sessions include the Code of Conduct, anti-bribery, anti-corruption, conflicts of interest, and workplace respect, among other legal and compliance subject matters.
Health and Safety
Protecting the health, safety and well-being of our people continues to be a top priority. A culture of Zero Harm and safety is an organizational imperative. Our global safety program includes behavioral-based safety training, hazard recognition and remediation and driver safety training. We also utilize a proactive approach which observes and recognizes demonstrations of proper and prudent safety operations.
In 2020, COVID-19 presented the Company with new challenges related to the health and safety of our people. The Company adopted various safety measures including enhanced cleaning procedures, employee temperature checks, use of personal protective equipment for location-dependent workers, social distancing measures within operating sites, remote work arrangements for non-location dependent employees, visitor access restrictions and limitations on travel.
Diversity, Equity and Inclusion
We are a global company with an employee population representing a broad diversity of cultures, languages, ethnicities, and races. We strive to improve our workplace diversity in many ways and support an inclusive culture across the globe. We evaluate talent acquisition, career development and succession planning to identify and remove unintended biases and facilitate increased diversity of our leadership talent pipeline. Recent examples of our commitment to diversity, equity and inclusion include the following initiatives:
•Commitment to pay equity: We seek to drive pay equity based on experience and performance across the organization utilizing a structured global compensation framework.
•Diversity, Equity and Inclusion Council: In 2020, Sealed Air formed the Diversity, Equity and Inclusion Council, which is chaired by an executive team member to promote a diverse, trusting and inclusive culture for all employees.
•Women's Initiative Network (“WIN”): The WIN has been in place at Sealed Air for over ten years, with a mission to promote gender diversity with the objective to attract, retain and promote more females within Sealed Air. As of December 31, 2020, we had active WIN employee resource groups in over 18 countries.
•Unconscious Bias Training Program: In 2019, Sealed Air launched an unconscious bias training program focused on highlighting various dimensions of diversity including age, race, ethnicity, gender and sexual orientation. The program has reached more than 1,100 employees as of December 31, 2020, including the executive leadership team, international senior leaders, U.S. managers and employees at our Charlotte, North Carolina headquarters.
•CEO Action for Diversity & InclusionTM: Sealed Air is a signatory for the CEO Action for Diversity & InclusionTM, which a CEO-driven business commitment to advance diversity and inclusion within the workplace.
Recruiting, Retaining and Engaging Employees and Learning and Development
Sealed Air utilizes a global talent acquisition model to attract and place employees. From time to time, we conduct pulse surveys to solicit valuable and timely feedback from our employees on specific topics. We use the results of the pulse surveys for initiatives related to employee engagement including increased communication from managers or leaders, targeted training opportunities or other methods to improve our employees' career experiences.
We seek to strengthen the communities we are working and living in by leveraging our expertise in sustainability, food safety, food security, technology, and innovation to protect and solve critical challenges that face our world today. Sealed Air's community investment efforts are focused on three strategic impact areas: environmental, social and economic stability; technology and innovation; and community and equity.
We report our segment information in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, “Segment Reporting,” (“FASB ASC Topic 280”). See Note 6, “Segments,” for further information.
Food largely serves perishable food processors in fresh red meat, smoked and processed meat, poultry, seafood, plant-based and dairy (solids and liquids) markets worldwide. Food offers high-performance packaging materials and automated equipment solutions to increase food safety, extend shelf life, automate processes and optimize total cost. Its innovative, sustainable materials, automated equipment and services are designed to enable customers to reduce costs and enhance their
brands in the marketplace. Food solutions are marketed under the Cryovac® trademark and other highly recognized trade names including Cryovac Grip & Tear®, Cryovac Darfresh®, Cryovac Mirabella®, Simple Steps® and OptiDure™.
Food solutions are well aligned to capitalize on global market dynamics driven by continued urbanization, global growth of middle class, the e-food movement, growing consumer preference for smaller portions and healthier food choices, increasing labor scarcity and demand for more sustainable, secure packaging. Our solutions, innovative materials and proven equipment and services are designed to preserve nutrition while enhancing food safety. Technologies used in Food and continued investment in innovation positions us to not only address, but to be a global provider of solutions for sustainable packaging.
Food applications are largely sold direct to customers by our sales, marketing and customer service personnel throughout the world. Sales to governments, or government contracts, are not material to our Food segment. No single customer or affiliated group of customers represents more than 10% of segment revenue.
There are other manufacturers of products similar to those produced by Food, some that operate across multiple regions and others that operate in a single region or single country. Competing manufacturers produce a wide variety of food packaging based on plastic, metals and other materials.
Protective packaging solutions are utilized across many global markets and are especially valuable to e-Commerce, consumer goods, pharmaceutical and medical devices and industrial manufacturing. With automated equipment, sustainable materials and services, our solutions are designed to increase our customers' packaging velocity, minimize packaging waste, reduce labor dependencies and address dimensional weight challenges. Our product breadth combined with our global scale and reach helps support our customers' needs for performance excellence, consistency and reliability of supply wherever they operate around the world.
Protective solutions are marketed under brands including Bubble Wrap® brand inflatable packaging, Autobag® brand bagging systems and Sealed Air® brand performance shrink films. Protective product families include additional trade names, such as Instapak® polyurethane foam packaging solutions and Korrvu® suspension and retention packaging. Furthermore, we provide temperature assurance packaging solutions under the KevothermalTM and TempGuardTM brands.
Protective solutions are sold directly to our customers as well as through our partnership with a strategic network of distributors that service business and industrial end-users. In 2020, approximately 60% of our Protective sales were sold through distributors. We generally do not impose annual minimum purchase volume requirements on our distributors. Returns from our distributors in 2020 were not material. Sales to governments, or government contracts, are not material to our Protective segment. In 2020, one of our distributors represented approximately 10% of Protective's net sales. No other single customer or affiliated group of customers represented more than 10% of segment revenue.
There are other manufacturers of products similar to those produced by Protective. Additionally, there are products made using alternative packaging materials that customers use to provide protection against damage to their products during shipment and storage. Among the competitive materials are paper packaging, expanded plastics, corrugated die cuts, strapping, envelopes, reinforced bags, and corrugated boxes as well as various types of molded foam plastics, fabricated foam plastics, mechanical shock mounts, wood blocking and bracing systems, and an assortment of automated packaging and fulfillment systems. We believe that some of our direct competition within the protective packaging industry has a less diversified global presence.
Some of our Food and Protective competitors have been consolidating in recent years or have been involved in significant merger and acquisition activity, and we believe this trend may continue. Such consolidation could have an adverse impact on the pricing of our products and services and our ability to retain customers, which could in turn adversely affect our business, consolidated financial condition or results of operations. Additionally, we believe that a focus on sustainability, automation and equipment offering will continue to define the direction of the competitive landscape into the future in both segments.
Raw Materials and Purchasing
Suppliers provide raw materials, packaging components, contract manufactured goods, equipment and other direct materials, such as inks, films and paper. Our principal raw materials are polyolefin and other petrochemical-based resins, as well as paper pulp products. Raw materials typically represent approximately one-third of our consolidated cost of sales. We also purchase corrugated materials, cores for rolls of products such as films and Bubble Wrap® brand cushioning, inks for printed materials, and blowing agents used in the expansion of foam packaging products. In addition, we offer a wide variety of specialized packaging equipment, some of which we manufacture or have manufactured to our specifications, some of which we assemble and some of which we purchase from suppliers. Automated equipment and accessories are designed for e-Commerce fulfillment centers, industrial and food packaging equipment.
The vast majority of the raw materials required for the manufacture of our products and all components related to our equipment and accessories generally have been readily available on the open market and, in most cases, are available from several suppliers and are available in amounts sufficient to meet our manufacturing requirements. However, in some regions we rely on some sole-source suppliers, and the lack of availability of supplies could have a material negative impact on our consolidated financial condition or results of operations. Natural disasters such as hurricanes, tornados, earthquakes or other severe weather events, as well as political instability and terrorist activities, may negatively impact the production or delivery capabilities of refineries and natural gas and petrochemical suppliers and suppliers of other raw materials. Due to by-product/co-product chemical relationships to the automotive and housing markets, several materials may become difficult to source. These factors could lead to increased prices for our raw materials, curtailment of supplies, allocation of raw materials and other force majeure events by our suppliers. We purchase some materials used in our packaging products from materials recycled in our manufacturing operations or obtained through participation in recycling programs. Although we purchase some raw materials under long-term supply arrangements with third parties, these arrangements follow market forces and are in line with our overall global purchasing strategy, which seeks to balance the cost of acquisition and availability of supply.
We have a centralized supply chain organization, which includes centralized management of purchasing and logistic activities. Our objective is to leverage our global scale to achieve purchasing efficiencies and reduce our total delivered cost across all our regions. We do this while adhering to strategic performance metrics and stringent purchasing practices.
On a consolidated basis, there is minimal 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 results of operations typically trend directionally the same as our net sales seasonality. Historically, net sales in our Food segment 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 segment have also tended to be slightly lower in the first quarter and higher in the mid-third quarter and through the fourth quarter due to the holiday shopping season. However, the extent and timing of our results of operations may be difficult to predict if significant one-time transactions, events or non-recurring charges were to impact our business. Cash flow from operations has tended to be lower in the first quarter and higher in the fourth quarter, reflecting seasonality of sales and working capital changes, including the timing of certain annual incentive compensation payments.
Throughout 2020, the COVID-19 pandemic has resulted in anomalies to historical seasonality trends generated by changes in end-consumer behavior, such as an increase in e-Commerce sales, or temporary closures or productivity reductions within our customers' operations. We cannot predict the impact to the markets we serve or the timing or extent of sales due to the prolonged impact or future spread or worsening of the COVID-19 pandemic or future restrictions on commercial activities by governmental agencies to limit future spread of the virus. In addition to COVID-19, other factors may also outweigh the effects of seasonal changes in our net earnings results including, but not limited to, changes in raw materials and other costs, timing of pricing actions, foreign exchange rates, interest rates, taxes and the timing and amount of acquisition synergies and restructuring and other non-recurring charges.
Compliance with Government Regulations
As a manufacturer, we are subject to various laws, rules and regulations in the countries/territories, jurisdictions and localities in which we operate. These cover, among other things, the safe storage and use of raw materials and production chemicals, the release of materials into the environment, and standards for the treatment, storage and disposal of solid and hazardous wastes. We have an environmental management system that aids in our management of environmental, health and safety matters pertaining to our operations. Key elements of this environmental management system are implemented throughout our operations. We believe that compliance with current environmental and workplace health and safety laws and regulations has not had a material effect on our capital expenditures or consolidated financial condition.
In some jurisdictions in which our packaging products are sold or used, laws and regulations have been adopted or proposed that seek to regulate, among other things, minimum levels of recycled or reprocessed content and, more generally, the sale or disposal of packaging materials. We maintain programs designed to comply with these laws and regulations and to monitor their evolution. Various federal, state, local and foreign laws and regulations regulate some of our products and require us to register certain products and comply with specified requirements. We are also subject to various federal, state, local and foreign laws and regulations that regulate products manufactured and sold by us for controlling microbial growth on humans, animals and processed foods. In the U.S., these requirements are generally administered by the U.S. Food and Drug Administration (“FDA”). To date, the cost of complying with product registration requirements and FDA compliance, and similar non-U.S. laws, has not had a material adverse effect on our business, consolidated financial condition, results of operations, or cash flows.
We are subject to various federal, state, local and foreign laws and regulations which ensure safe working conditions for our employees. In the U.S., these requirements are generally administered by the U.S. Occupational Safety and Health Administration (“OSHA”). To date, the cost of complying with worker safety requirements and OSHA compliance, and similar non-U.S. laws, has not had a material adverse effect on our business, consolidated financial condition, results of operations, or cash flows.
Our emphasis on environmental, health and safety compliance provides us with risk reduction opportunities and cost savings through asset protection and protection of employees. We have policies in place which guide the Company in environmental, health and safety matters including training, materials conservation, communications, targets and transparency.
We maintain programs to comply with the various laws, rules and regulations related to the protection of the environment that we may be subject to in the many countries/territories in which we operate. See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Environmental Matters.”
Our Internet address is www.sealedair.com. We make available, free of charge, on or through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports that we file or furnish pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, or the Exchange Act, as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the Securities and Exchange Commission (“SEC”). The SEC maintains an Internet site that contains these filings and they can be accessed via the Internet address https://www.sec.gov. The information contained on, or that may be accessed through, our website is not incorporated by reference into, and is not a part of, this Form 10-K.
Item 1A. Risk Factors
The risks described below should be carefully considered before making an investment decision. These are the most significant risk factors, but they are not the only risk factors that should be considered in making an investment decision. This Form 10-K also contains and may incorporate by reference forward-looking statements that involve risks and uncertainties. See the “Cautionary Notice Regarding Forward-Looking Statements,” immediately preceding Part I, of this Form 10-K. Our business, consolidated financial condition, results of operations, or cash flows could be materially adversely affected by any of these risks. The trading price of our securities could decline due to any of these risks, and investors in our securities may lose all or part of their investment.
The COVID-19 pandemic could adversely impact the health and safety of our employees, our business continuity, consolidated financial condition, results of operations, or cash flows.
Even though our business operations have been deemed essential by many governmental agencies in previous government-imposed commercial and social restrictions, there could be unpredictable disruptions to the Company’s operations or our customers' operations as a result of the current COVID-19 pandemic. We and some of our customers have experienced facility shutdowns during the pandemic. Unpredictable disruptions to the Company’s operations or our customers’ operations could reduce our future revenues and negatively impact the Company’s financial condition. The COVID-19 pandemic may result in supply chain and operational disruptions such as the availability and transportation of raw materials or the ability for our packaging and equipment specialists to visit customer facilities. Affected employees could impact the Company’s ability to operate our facilities and distribute products to our customers in a timely fashion.
In addition, the COVID-19 pandemic has, at times, resulted in volatility and disruptions in the capital and credit markets as well as widespread economic deterioration including an increase in global unemployment. This economic and market volatility and loss of employment may negatively impact consumer buying habits, which could adversely affect the Company’s financial results.
We experienced limited facility closures as a result of initial government orders in response to the pandemic. Additionally, in some jurisdictions, we have at times reduced production capacity due to local social distancing requirements which limit the number of employees in our facility. These instances have not had a material impact on our operations to date. However, the extent to which our operations may be impacted by the COVID-19 pandemic in the future will depend largely on continued developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak, including variants of the virus, and actions by government authorities to contain the outbreak or treat its impact, including the effectiveness and distribution of vaccines.
Uncertain global economic conditions have had and could continue to have an adverse effect on our consolidated financial condition, results of operations, or cash flows.
Uncertain global economic conditions have had and may continue to have an adverse impact on our business in the form of lower net sales due to weakened demand, unfavorable changes in product price/mix, or lower profit margins. For example, global economic downturns have adversely impacted some of our end-users and customers, such as food processors, distributors, supermarket retailers, restaurants, industrial manufacturers, retail establishments, business service contractors and e-Commerce and mail order fulfillment firms, and other end-users that are particularly sensitive to business and consumer spending.
During economic downturns or recessions, there can be a heightened competition for sales and increased pressure to reduce selling prices as our customers may reduce their volume of purchases from us. If we lose significant sales volume or reduce selling prices significantly, there could be a negative impact on our consolidated financial condition, results of operations, profitability or cash flows.
Also, reduced availability of credit may adversely affect the ability of some of our customers and suppliers to obtain funds for operations and capital expenditures. This could negatively impact our ability to obtain necessary supplies as well as our sales of materials and equipment to affected customers. This also could result in reduced or delayed collections of outstanding accounts receivable.
The global nature of our operations exposes us to numerous risks that could materially adversely affect our consolidated financial condition, results of operations, or cash flows.
We operate in 46 countries/territories, and our products are distributed to 117 countries/territories around the world. A large portion of our manufacturing operations are located outside of the U.S. and 47% of our net sales are generated outside of the U.S. These operations, particularly in developing regions, are subject to various risks that may not be present or as significant for our U.S. operations. Economic uncertainty in some of the geographic regions in which we operate, including developing regions, could result in the disruption of commerce and negatively impact cash flows from our operations in those areas.
Risks inherent in our international operations include:
•foreign currency exchange controls and tax rates;
•foreign currency exchange rate fluctuations, including devaluations;
•adverse impacts resulting from regional or global human health related illnesses;
•the potential for changes in regional and local economic conditions, including local inflationary pressures or impacts resulting from the United Kingdom's exit from the European Union;
•restrictive governmental actions such as those on transfer or repatriation of funds and trade protection matters, including antidumping duties, tariffs, embargoes and prohibitions or restrictions on acquisitions or joint ventures;
•changes in laws and regulations, including the laws and policies of the U.S. affecting trade and foreign investment;
•the impact of customer perceptions or regulatory developments related to sustainability concerns;
•the difficulty of enforcing agreements and collecting receivables through certain foreign legal systems;
•variations in protection of intellectual property and other legal rights;
•more expansive legal rights of foreign unions or works councils;
•changes in labor conditions and difficulties in staffing and managing international operations;
•import and export delays caused, for example, by an extended strike at the port of entry, could cause a delay in our supply chain operations;
•social plans that prohibit or increase the cost of certain restructuring actions;
•the potential for nationalization of enterprises or facilities;
•unsettled political conditions and possible terrorist attacks against U.S. or other interests; and
•potential tax inefficiencies and tax costs in repatriating funds from our non-U.S. subsidiaries.
These and other factors may have a material adverse effect on our international operations and, consequently, on our consolidated financial condition, results of operations, or cash flows.
We experience competition in the markets for our products and services and in the geographic areas in which we operate.
Our packaging products and equipment solution offerings compete with similar products made by other manufacturers and with a number of other types of materials or products. We compete on the basis of performance characteristics of our products, as well as service, price, sustainability and innovations in technology. A number of competing domestic and foreign companies are well-established.
Customers in the e-Commerce and food service industry and peers in the packaging industry have been consolidating in recent years, and we believe this trend may continue. Such consolidation could have an adverse impact on the pricing of our products and services and our ability to retain customers, which could in turn adversely affect our business, consolidated financial condition or results of operations.
Our inability to maintain a competitive advantage could result in lower prices or lower sales volumes for our products. Additionally, we may not successfully implement our pricing actions. These factors may have an adverse impact on our consolidated financial condition, results of operations, or cash flows.
Concerns about the impact that some plastic materials have on the environment, along with changes in legal or regulatory requirements, customer preferences or market measures to address these concerns, may negatively affect our business and operations.
Public attention to plastic waste and its associated environmental impact continues to increase. Some jurisdictions have laws and regulations that govern the registration and labeling of some of our products. Customer preferences and buying
behaviors may change as a result of public attention to plastic waste and current and future regulations. Currently, single-use plastic bans and/or proposals have focused on specific items such as grocery bags, cutlery, beverage straws and stir sticks, expanded polystyrene or oxo-degradable plastic. At present, none of the products we manufacture have been banned.
We maintain programs designed to comply with laws and regulations and to monitor their evolution. We also continue to innovate our packaging solutions to exceed recyclability or reusability requirements, address cube optimization to eliminate non-recyclable plastic waste, and increase the use of recycled and/or renewable materials. We believe that execution of our strategy positions us to exceed sustainability and recyclability demands of our customers with innovative solutions and new formulations of our materials. However, future development of government policies to restrict waste imports and/or expand bans beyond single-use plastics, as well as changes in customer preferences may have an adverse effect on our business, consolidated financial condition, results of operations, or cash flows.
We may not be able to successfully integrate acquired businesses without significant use of resources or diversion of management’s attention. Additionally, these businesses may underperform relative to our expectations.
Acquisitions involve numerous risks, including difficulty in determining valuation, integration of acquired operations, technologies, services and products, key personnel turnover, and the diversion of management's attention from other business matters. Ultimately, we may be unable to achieve the expected benefits and synergies which could adversely affect our business. Additionally, future acquisition activity may be limited by the availability of suitable acquisition candidates.
As a result of acquisitions, we may record a significant amount of goodwill and other identifiable intangible assets and we may never realize the full carrying value of the related assets.
As a result of acquisitions, we may record a significant amount of goodwill and other identifiable intangible assets, including customer relationships, trademarks and developed technologies.
We test goodwill and intangible assets with indefinite useful lives for possible impairment annually during the fourth quarter of each fiscal year or more frequently if events or changes in circumstances indicate that the asset might be impaired. Amortizable intangible assets are periodically reviewed for possible impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable. In the event that we determine that events or circumstances exist that indicate that the carrying value of goodwill or identifiable intangible assets may no longer be recoverable, we might have to recognize a non-cash impairment of goodwill or other identifiable intangible assets, which could have a material adverse effect on our consolidated financial condition or results of operations.
Political and economic instability and risk of government actions affecting our business and our customers or suppliers may adversely impact our business, results of operations and cash flows.
We are exposed to risks inherent in doing business in each of the countries or territories in which we or our customers or suppliers operate including: civil unrest, acts of terrorism, sabotage, epidemics, force majeure, war or other armed conflict and related government actions, including sanctions/embargoes, the deprivation of contract rights, the inability to obtain or retain licenses required by us to operate our plants or import or export our goods or raw materials, the expropriation or nationalization of our assets, and restrictions on travel, payments or the movement of funds. Geopolitical events may have a negative impact on the global industrial macro-economic environment and could materially adversely impact our consolidated financial condition, results of operations, or cash flows.
If we are not able to protect our trade secrets or maintain our trademarks, patents and other intellectual property, we may not be able to prevent competitors from developing similar products or from marketing their products in a manner that capitalizes on our trademarks, and this loss of a competitive advantage could decrease our profitability and liquidity.
Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our owned and licensed intellectual property. If we were unable to maintain the proprietary nature of our intellectual property and our significant current or future products, the resulting loss of associated competitive advantage could lead to decreased sales or increased operating costs, either of which could have a material adverse effect on our business, consolidated financial condition or results of operations.
We rely on trade secrets to maintain our competitive position, including protecting the formulation and manufacturing techniques of many of our products. As such, we have not sought U.S. or international patent protection for some of our principal product formulas and manufacturing processes. Accordingly, we may not be able to prevent others from developing products that are similar to or competitive with our products.
We own a large number of patents and pending patent applications on our products, aspects thereof, methods of use and/or methods of manufacturing. There is a risk that our patents may not provide meaningful protection and patents may never be issued for our pending patent applications.
We own, or have licenses to use, all of the material trademark and trade name rights used in connection with the packaging, marketing and distribution of our major products both in the U.S. and in other countries/territories where our products are principally sold. Trademark and trade name protection is important to our business. Although most of our trademarks are registered in the U.S. and in the foreign countries/territories in which we operate, we may not be successful in asserting trademark or trade name protection. In addition, the laws of some foreign countries/territories may not protect our intellectual property rights to the same extent as the laws of the U.S. The costs required to protect our trademarks and trade names may be substantial.
We cannot be certain that we will be able to assert these intellectual property rights successfully in the future or that they will not be invalidated, circumvented or challenged. Other parties may infringe on our intellectual property rights and may thereby dilute the value of our intellectual property in the marketplace. Third parties, including competitors, may assert intellectual property infringement or invalidity claims against us that could be upheld. Intellectual property litigation, which could result in substantial cost to and diversion of effort by us, may be necessary to protect our trade secrets or proprietary technology or for us to defend against claimed infringement of the rights of others and to determine the scope and validity of others’ proprietary rights. We may not prevail in any such litigation, and if we are unsuccessful, we may not be able to obtain any necessary licenses on reasonable terms or at all.
Any failure by us to protect our trademarks and other intellectual property rights may have a material adverse effect on our business, consolidated financial condition, results of operations, or cash flows.
Raw material pricing, including how our selling prices reflect the cost of raw materials, availability and allocation by suppliers as well as energy-related costs may negatively impact our results of operations, including our profit margins.
We use petrochemical-based raw materials to manufacture many of our products. The prices for these raw materials are cyclical and increases in market demand or fluctuations in the global trade for petrochemical-based raw materials and energy could increase our costs. While historically we have been able to successfully manage the impact of higher raw material costs by increasing our selling prices, if we are unable to minimize the effects of increased raw material costs through sourcing, pricing or other actions, our business, consolidated financial condition or results of operations may be materially adversely affected. A portion of our sales prices, specifically within Food's North American and APAC business, is determined using formula based pricing which reflects changes in underlying raw material indices. Formula based pricing lags raw material cost movement by approximately six months. We may experience a benefit (when resin prices decrease) or detriment (when resin prices increase) to our cost of goods sold before those price changes are reflected in our selling prices. As such, trends in raw material pricing may have a negative impact on future profit margins. We also have some sole-source suppliers, and the lack of availability of supplies could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.
Natural disasters, such as a hurricane, tornado, earthquake or other severe weather event, as well as political instability and terrorist activities, may negatively impact the production or delivery capabilities of refineries and natural gas and petrochemical suppliers and suppliers of other raw materials in the future. These factors could lead to increased prices for our raw materials, curtailment of supplies, allocation of raw materials, and other force majeure events of our suppliers and harm relations with our customers which could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.
Unfavorable customer responses to price increases could have a material adverse impact on our sales and earnings.
From time to time, and especially in periods of rising raw material costs, we increase the prices of our products. Significant price increases could impact our earnings depending on, among other factors, the pricing by competitors of similar products and the response by the customers to higher prices. Such price increases may result in lower volume of sales and a subsequent decrease in gross margin and adversely impact our results of operations.
Demand for our products could be adversely affected by changes in consumer preferences or if we are not able to innovate and bring new products to market.
Our sales depend heavily on the volumes of sales by our customers in food processing and service industries, the industrial manufacturing and electronics sectors, and e-Commerce. Consumer preferences for food and durable goods
packaging can influence our sales. Consumer preferences for fresh and unpackaged foods and the global e-Commerce and industrial market change over time. Changes in consumer behavior, including changes driven by cost, availability, durability, sustainability, innovation, or various health-related concerns and perceptions, could negatively impact demand for our products.
Innovation is key to our strategy. Our performance and prospects for future growth could be adversely affected if new products do not meet sales or margin expectations and we are not able to meet our innovation rate goals. Our customers' preferences continue to trend towards sustainable packaging solutions. We believe that we are well positioned to offer these solutions to our customers, but our success is dependent on continued innovation in sustainability and our ability to bring new products to market in an efficient manner.
Our competitive advantage is due in part to our ability to develop and introduce new and sustainable products in a timely manner at favorable margins. The development and introduction cycle of new products can be lengthy and involve high levels of investment. New products may not meet sales or margin expectations due to many factors, including our inability to (i) accurately predict demand, end-user preferences and evolving industry and regulatory standards; (ii) resolve technical and technological challenges in a timely and cost-effective manner; or (iii) achieve manufacturing efficiencies.
Large-scale animal health issues as well as other health issues affecting the food industry and disruptive forces of nature, including those resulting from climate change, such as significant regional droughts, prolonged severe weather conditions, floods, and natural disasters may lead to decreased revenues.
We manufacture and sell food packaging products, among other products. Various forces of nature affecting the food industry have in the past and may in the future have a negative effect on the sales of food packaging products. Outbreaks of animal diseases may lead governments to restrict exports and imports of potentially affected animals and food products, leading to decreased demand for our products and possibly also to the culling or slaughter of significant numbers of the animal population otherwise intended for food supply. Other disruptive forces of nature such as droughts, floods and other severe weather can lead to agricultural market disruptions resulting in reduced herd size or modifications to the traditional herd cycles which could affect supply or demand for our products. Also, consumers may change their eating habits as a result of perceived problems with certain types of food. These factors may lead to reduced sales of food packaging products, which could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.
Cyber risk and the failure to maintain the integrity of our operational or security systems or infrastructure, or those of third parties with which we do business, could have a material adverse effect on our business, consolidated financial condition, results of operations, or cash flows.
We are subject to an increasing number of information technology vulnerabilities, threats and targeted computer crimes which pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. Disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber attacks or security breaches of our networks or systems, could result in the loss of customers and business opportunities, legal liability, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensatory costs, and additional compliance costs, any of which could materially adversely affect our business, consolidated financial condition and results of operations. To mitigate these threats to our business, we maintain a cyber security program aligned with industry frameworks designed to protect, detect, and respond to internal and external threats. While we have experienced, and expect to continue to experience, attacks attempting to breach the security of our network and systems, none have resulted in a breach with material impact or any penalties or settlement for the three years ended December 31, 2020.
We also maintain and have access to sensitive, confidential or personal data or information in certain of our businesses that is subject to privacy and security laws, regulations and customer controls. Despite our efforts to protect such sensitive, confidential or personal data or information, our facilities and systems and those of our customers and third-party service providers may be vulnerable to security breaches, theft, misplaced or lost data, programming and/or human errors that could lead to the compromising of sensitive, confidential or personal data or information, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions, which in turn could adversely affect our business, consolidated financial condition, results of operations, or cash flows.
The regulatory environment surrounding cybersecurity and data privacy is increasingly demanding, with new and changing regulations. We could be required to expend additional resources to comply with any such regulations, and failure to comply could subject us to significant penalties or claims.
A major loss of or disruption in our manufacturing and distribution operations or our information systems and telecommunication resources could adversely affect our business, consolidated financial condition, results of operations, or cash flows.
If we were to experience a natural disaster, such as a hurricane, tornado, earthquake or other severe weather event, a casualty loss from an event such as a fire or flood, at one of our larger strategic facilities, or experience adverse impacts, such as plant shutdowns or travel restrictions due to regional or global human health related illness or if such events were to affect a key supplier, our supply chain or our information systems and telecommunication resources, then there could be a material adverse effect on our consolidated financial condition or results of operations. We are dependent on internal and third-party information technology networks and systems, including the Internet, to process, transmit and store electronic information. In particular, we depend on our information technology infrastructure for fulfilling and invoicing customer orders, applying cash receipts, and placing purchase orders with suppliers, making cash disbursements, and conducting digital marketing activities, data processing and electronic communications among business locations.
We also depend on telecommunication systems for communications between company personnel and our customers and suppliers. Future system disruptions, security breaches or shutdowns could significantly disrupt our operations or result in lost or misappropriated information and may have a material adverse effect on our business, consolidated financial condition, results of operations, or cash flows.
If we are unable to retain key employees and other personnel, our consolidated financial condition or results of operations may be adversely affected or we may not be able to execute our strategies.
Our success and execution of our strategy depends largely on the efforts and abilities of our management team and other key personnel. Their experience and industry contacts significantly benefit us, and we need their expertise to execute our business strategies, including our strategies related to innovation, automation and sustainability. If any such employee were to cease working for us and we were unable to replace them, our business, consolidated financial condition, results of operations, or cash flows may be materially adversely affected.
We could experience disruptions in operations and/or increased labor costs.
In Europe and Latin America, most of our employees are represented by either labor unions or workers' councils and are covered by collective bargaining agreements that are generally renewable on an annual basis. As is the case with any negotiation, we may not be able to negotiate acceptable new collective bargaining agreements, which could result in strikes or work stoppages by affected workers. Renewal of collective bargaining agreements could also result in higher wages or benefits paid to union members. A disruption in operations or higher ongoing labor costs could materially adversely affect our business.
Legal, Regulatory and Compliance Risks
We are involved in an ongoing investigation by the U.S. Securities and Exchange Commission.
The Company previously received from the staff of the SEC subpoenas for documents and requests for information in connection with the SEC's previously disclosed investigation. Those subpoenas and requests sought documents and information regarding the Company's accounting for income taxes, its financial reporting and disclosures, the process by which the Company selected its former independent audit firm which audited the fiscal years of 2015 through 2018, the independence of that audit firm, and other matters.
The Company is fully cooperating with the SEC. The Company understands that the SEC's investigation is continuing and cannot predict the outcome or duration of that investigation. Any determination that the Company's previous audit firm was not independent during the years it audited could require that certain of our historical financial statements be re-audited by a different registered public accounting firm which could affect our ability to comply with certain reporting obligations imposed by federal securities laws.
We are the subject of various legal proceedings, and may be subject to future claims and litigation, that could have a material adverse effect on our business, results of operations or cash flows.
We are involved from time to time in various legal proceedings, including the securities class action lawsuit, stockholder derivative action and other actions described in Part I, Item 3, “Legal Proceedings”. Litigation, in general, and securities, derivative actions and class action litigation, in particular, can be expensive and disruptive. Some of these proceedings may involve parties seeking large and/or indeterminate amounts, including punitive or exemplary damages, and may remain unresolved for several years. Litigation and other adverse legal proceedings could materially adversely affect our businesses,
operating results and/or cash flows because of reputational harm to us caused by such proceedings, the cost of defending such proceedings, the cost of settlement or judgments against us or the changes in our operations that could result from such proceedings.
Our operations are subject to a variety of environmental laws that expose us to regulatory scrutiny, potential financial liability and increased operating costs.
Our operations are subject to a number of federal, state, local and foreign environmental, health and safety laws and regulations that govern, among other things, the manufacture of our products, handling, transportation, storage and disposal of hazardous materials, and the discharge of pollutants into the air, soil and water along with similar legislation aimed at addressing climate change issues.
Many jurisdictions require us to have operating permits for our production and warehouse facilities and operations. Any failure to obtain, maintain or comply with the terms of these permits could result in fines or penalties, revocation or nonrenewal of our permits, or orders to cease certain operations, and may have a material adverse effect on our business, financial condition, results of operations, or cash flows.
We generate, use and dispose of hazardous materials in our manufacturing processes. In the event our operations result in the release of hazardous materials into the environment, we may become responsible for the costs associated with the investigation and remediation of sites at which we have released pollutants, or sites where we have disposed or arranged for the disposal of hazardous wastes, even if we fully complied with applicable environmental laws at the time of disposal. We have been, and may continue to be, responsible for the cost of remediation at some locations.
We are also subject to various federal, state, local and foreign laws and regulations that regulate products manufactured and sold by us for controlling microbial growth on humans, animals and processed foods. In the U.S., these requirements are generally administered by the FDA. We maintain programs designed to comply with these laws and regulations and to monitor their evolution. To date, the cost of complying with product registration requirements and FDA compliance has not had a material adverse effect on our business, consolidated financial condition, results of operations, or cash flows.
We cannot predict with reasonable certainty the future cost to us of environmental compliance, product registration, or environmental remediation. Environmental laws have become more stringent and complex over time. Our environmental costs and operating expenses will be subject to evolving regulatory requirements and will depend on the scope and timing of the effectiveness of requirements in these various jurisdictions. As a result of such requirements, we may be subject to an increased regulatory burden, and we expect significant future environmental compliance obligations in our operations. Increased compliance costs, increasing risks and penalties associated with violations, or our inability to market some of our products in certain jurisdictions may have a material adverse effect on our business, consolidated financial condition, results of operations, or cash flows.
Product liability claims or regulatory actions could adversely affect our financial results or harm our reputation or the value of our brands.
Claims for losses or injuries purportedly caused by some of our products arise in the ordinary course of our business. In addition to the risk of substantial monetary judgments, product liability claims or regulatory actions could result in negative publicity that could harm our reputation in the marketplace or adversely impact the value of our brands or our ability to sell our products in certain jurisdictions. We could also be required to recall possibly defective products, or voluntarily do so, which could result in adverse publicity and significant expenses. Although we maintain product liability insurance coverage, potential product liability claims could be excluded or exceed coverage limits under the terms of our insurance policies or could result in increased costs for such coverage.
Changes in U.S. trade policies and regulations, as well as the overall uncertainty surrounding international trade relations, could materially adversely affect our consolidated financial condition, results of operations, or cash flows.
Continued developments and recent changes in U.S. trade policies, have had, and we expect that they will continue to have, an adverse effect on our costs of products sold and margins in our North America region. On July 1, 2020, the United States-Mexico-Canada Agreement (USMCA) became effective which replaced the North American Free Trade Agreement (NAFTA). Uncertainty remains on future trade deals or continued tariffs placed on imports and exports to and from other countries. Additional tariffs and changes to the U.S. trade policies would likely adversely impact our business. Furthermore, other countries may change their own trade policies, including the imposition of additional tariffs and quotas, which could also adversely affect our business outside the U.S.
In order to mitigate the impact of these trade-related increases on our costs of products sold, we may increase prices in certain markets and, over the longer term, make changes in our supply chain and, potentially, our U.S. manufacturing strategy. Implementing price increases may cause our customers to find alternative sources for their products. We may be unable to successfully pass on these costs through price increases; adjust our supply chain without incurring significant costs; or locate alternative suppliers for raw materials or finished goods at acceptable costs or in a timely manner. Our inability to effectively manage the negative impacts of changing U.S. and foreign trade policies could materially adversely impact our consolidated financial condition, results of operations, or cash flows.
The U.S. Internal Revenue Service (the “IRS”) has indicated that it intends to disallow our deduction of the approximately $1.49 billion for the payments made pursuant to the Settlement agreement (as defined below).
In the past, we have reduced taxable income by approximately $1.49 billion for the payments made pursuant to the Settlement agreement and thus have reduced our U.S. federal tax liability by approximately $525 million. The IRS has proposed to disallow, as deductible expense, the entirety of the $1.49 billion settlement payments. Although we believe that we have meritorious defenses to the proposed disallowance and are protesting it with the IRS, this matter may not be resolved in 2021 and there can be no assurance that it will be resolved in the Company's favor. An unfavorable resolution of this matter could have a material adverse effect on our consolidated financial condition and results of operations, or cash flows.
We are subject to taxation in multiple jurisdictions. As a result, any adverse development in the tax laws of any of these jurisdictions or any disagreement with our tax positions could have a material adverse effect on our business, consolidated financial condition, results of operations, or cash flows.
We are subject to taxation in, and to the tax laws and regulations of, multiple jurisdictions as a result of the international scope of our operations and our corporate and financing structure. Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. In 2017 the United States (U.S.) enacted significant tax reform, (the Tax Cuts and Jobs Act or “TCJA”) and certain provisions or interpretations of the new law may adversely affect us. For example, the one-time mandatory tax on previously deferred foreign earnings of foreign subsidiaries, or “Transition Tax”, involved complex calculations and had a material impact on our financial results in 2018.
Many countries in the European Union, as well as a number of other countries and organizations such as the Organization for Economic Co-operation and Development, are actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in countries where we do business.
Additional changes in tax laws could increase our overall taxes and our business, consolidated financial condition or results of operations could be adversely affected in a material way. The tax authorities in any applicable jurisdiction, including the U.S., may disagree with the positions we have taken or intend to take regarding the tax treatment or characterization of any of our transactions. If any applicable tax authorities, including U.S. tax authorities, were to successfully challenge the tax treatment or characterization of any of our transactions, it could have a material adverse effect on our business, consolidated financial condition, results of our operations, or cash flows.
Although the Settlement agreement (as defined below) has been implemented and we have been released from the various asbestos-related, fraudulent transfer, successor liability, and indemnification claims made against us arising from a 1998 transaction with Grace (as defined below), if the courts were to refuse to enforce the injunctions or releases contained in the Plan (as defined below) and the Settlement agreement with respect to any claims and if Grace were unwilling or unable to defend and indemnify us for such claims, then we could be required to pay substantial damages, which could have a material adverse effect on our consolidated financial condition and results of operations. We were also a defendant in a number of asbestos-related actions in Canada arising from Grace’s activities in Canada prior to the 1998 transaction.
On March 31, 1998, we completed a multi-step transaction (the “Cryovac transaction”) involving W.R. Grace & Co. (“Grace”) which brought the Cryovac packaging business and the former Sealed Air’s business under the common ownership of the Company. As part of that transaction, Grace and its subsidiaries retained all liabilities arising out of their operations before the Cryovac transaction (including asbestos-related liabilities), other than liabilities relating to Cryovac’s operations, and agreed to indemnify the Company with respect to such retained liabilities. Beginning in 2000, we were served with a number of lawsuits alleging that the Cryovac transaction was a fraudulent transfer or gave rise to successor liability or both, and that as a result we were responsible for alleged asbestos liabilities of Grace and its subsidiaries. On April 2, 2001, Grace and a number of its subsidiaries filed petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). In connection with Grace’s Chapter 11 case, the Bankruptcy Court issued orders staying all asbestos actions against the Company (the “Preliminary Injunction”) but granted the official committees appointed to represent asbestos claimants in Grace’s Chapter 11 case (the “Committees”) permission to pursue fraudulent transfer, successor liability, and other claims against the Company and its subsidiary Cryovac, Inc. based upon the
Cryovac transaction. In November 2002, we reached an agreement in principle with the Committees to resolve all current and future asbestos-related claims made against us and our affiliates, as well as indemnification claims by Fresenius Medical Care Holdings, Inc. and affiliated companies, in each case, in connection with the Cryovac transaction (as memorialized by the parties and approved by the Bankruptcy Court, the “Settlement agreement”). A definitive Settlement agreement was entered into as of November 10, 2003 consistent with the terms of the agreement in principle. On June 27, 2005, the Bankruptcy Court approved the Settlement agreement and the Settlement agreement was subsequently incorporated into the plan of reorganization for Grace filed in September 2008 (as filed and amended from time to time, the "Plan"). Subsequently, the Bankruptcy Court (in January and February 2011) and the United States District Court for the District of Delaware (in January and June 2012) entered orders confirming Grace’s plan of reorganization in its entirety.
On February 3, 2014 (the “Effective Date”), in accordance with the Plan, Grace emerged from bankruptcy. In accordance with the Plan and the Settlement agreement, on the Effective Date, Cryovac, Inc. made aggregate cash payments in the amount of $929.7 million to the WRG Asbestos PI Trust (the “PI Trust”) and the WRG Asbestos PD Trust (the “PD Trust”) and transferred 18 million shares of Sealed Air common stock to the PI Trust. Among other things, the Plan incorporated and implemented the Settlement agreement and provided for the establishment of two asbestos trusts under Section 524(g) of the U.S. Bankruptcy Code to which present and future asbestos-related personal injury and property damage claims are channeled. The Plan also provided injunctions and releases with respect to asbestos claims and certain other claims for our benefit. In addition, under the Plan and the Settlement agreement, Grace is required to indemnify us with respect to asbestos and certain other liabilities. Notwithstanding the foregoing, and although we believe the possibility to be remote, if any courts were to refuse to enforce the injunctions or releases contained in the Plan and the Settlement agreement with respect to any claims, and if, in addition, Grace were unwilling or unable to defend and indemnify us for such claims, then we could be required to pay substantial damages, which could have a material adverse effect on our consolidated financial condition, results of operations, profitability or cash flows.
Fluctuations between foreign currencies and the U.S. dollar could materially impact our consolidated financial condition or results of operations.
Approximately 47% of our net sales in 2020 were generated outside the U.S. We translate sales and other results denominated in foreign currency into U.S. dollars for our Consolidated Financial Statements. As a result, the Company is exposed to currency fluctuations both in receiving cash from its international operations and in translating its financial results into U.S. dollars. During periods of a strengthening U.S. dollar, our reported international sales and net earnings could be reduced because foreign currencies may translate into fewer U.S. dollars. Foreign exchange rates can also impact the competitiveness of products produced in certain jurisdictions and exported for sale into other jurisdictions. These changes may impact the value received for the sale of our goods versus those of our competitors. The Company cannot predict the effects of exchange rate fluctuations on its future operating results. As exchange rates vary, the Company's results of operations and profitability may be adversely impacted. While we use financial instruments to hedge certain foreign currency exposures, this does not insulate us completely from foreign currency effects and exposes us to counterparty credit risk for non-performance. See Note 15, “Derivatives and Hedging Activities,” of the Notes. Such hedging activities may be ineffective or may not offset more than a portion of the adverse financial effect resulting from foreign currency variations. The gains or losses associated with hedging activities may negatively impact the Company's results of operations.
In all jurisdictions in which we operate, we are also subject to laws and regulations that govern foreign investment, foreign trade and currency exchange transactions. These laws and regulations may limit our ability to repatriate cash as dividends or otherwise to the U.S. and may limit our ability to convert foreign currency cash flows into U.S. dollars.
We have recognized foreign exchange losses related to the currency devaluations in Argentina and its designation as a highly inflationary economy under U.S. GAAP. See Note 2, “Summary of Significant Accounting Policies and Recently Issued Accounting Standards,” for additional information.
Our annual effective income tax rate can change materially as a result of changes in our geographic mix of U.S. and foreign earnings and other factors, including changes in tax laws and changes made by regulatory authorities.
Our overall effective income tax rate is equal to our total tax expense as a percentage of total earnings before tax. However, income tax expense and benefits are not recognized on a global basis but rather on a jurisdictional or legal entity basis. Losses in one jurisdiction may not be used to offset profits in other jurisdictions and may cause an increase in our tax rate. Changes in the mix of earnings (or losses) between jurisdictions and assumptions used in the calculation of income taxes, among other factors, could have a significant effect on our overall effective income tax rate. Additionally, changes in tax laws and changes made by regulatory authorities could have a significant effect on our overall effective income tax rate.
We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on time or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to affect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The credit agreement governing the senior secured credit facilities, the indentures that govern our senior notes and the agreements covering our accounts receivable securitization programs restrict our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.
In addition, we conduct a substantial portion of our operations through our subsidiaries, certain of which are not guarantors of our indebtedness. Accordingly, repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of our indebtedness, our subsidiaries do not have any obligation to pay amounts due on indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. The indenture governing certain of our senior notes and the credit agreement governing the senior secured credit facilities limit the ability of certain of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us. These limitations are subject to qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.
Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our consolidated financial condition, results of operations, or cash flows.
If we cannot make scheduled payments on our debt, we will be in default, our note holders and lenders could accelerate the repayment of our borrowings, the lenders could terminate their commitments to loan money and/or foreclose against the assets securing the borrowings, and we could be forced into bankruptcy or liquidation.
The terms of our credit agreement governing our senior secured credit facilities, our accounts receivable securitization programs, our supply chain financing programs, and the indentures governing our senior notes restrict our current and future operations, particularly our ability to respond to changes in market conditions or to take certain actions.
The indentures governing our senior notes and the credit agreement governing our senior secured credit facilities and our accounts receivable securitization programs contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:
•incur additional indebtedness;
•pay dividends or make other distributions or repurchase or redeem capital stock;
•prepay, redeem or repurchase certain debt;
•make loans and investments;
•enter into transactions with affiliates;
•alter the businesses we conduct;
•enter into agreements restricting our subsidiaries’ ability to pay dividends; and
•consolidate, merge or sell all or substantially all of our assets.
In addition, the restrictive covenants in the credit agreement governing our senior credit facilities require us to maintain a specified net leverage ratio. Our ability to meet this financial ratio can be affected by events beyond our control.
A breach of the covenants under the indenture governing our senior notes or under the credit agreement governing our senior secured credit facilities could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement governing our senior secured credit facilities would permit the lenders under our senior secured credit facilities to terminate all commitments to extend further credit under those facilities. Furthermore, if we were unable to repay the amounts due and payable under our senior secured credit facilities, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders or note holders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. As a result of these restrictions, we may be:
•limited in how we conduct our business;
•unable to respond to changing market conditions;
•unable to raise additional debt or equity financing to operate during general economic or business downturns or to repay other indebtedness when it becomes due; or
•unable to compete effectively or to take advantage of new business opportunities.
In addition, amounts available under our accounts receivable securitization programs and/or utilization of our supply chain financing programs can be impacted by a number of factors, including but not limited to our credit ratings, accounts receivable or payable balances, the creditworthiness of us or our customers, our receivables collection experience and/or our trade payable payment history.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Borrowings under our senior secured credit facilities are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed will remain the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. As of December 31, 2020, we had $696 million of long-term borrowings under our senior secured credit facilities at variable interest rates. A 1/8% increase or decrease in the assumed interest rates on the senior secured credit facilities would result in a $0.9 million increase or decrease in annual interest expense. In the future, we may enter into interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.
The full realization of our deferred tax assets may be affected by a number of factors, including future earnings and the feasibility of on-going planning strategies.
We have deferred tax assets including state and foreign net operating loss carryforwards, accruals not yet deductible for tax purposes, employee benefit items and other items. We have established valuation allowances to reduce the deferred tax assets to an amount that is more likely than not to be realized. Our ability to utilize the deferred tax assets depends in part upon our ability to generate future taxable income within each respective jurisdiction during the periods in which these temporary differences reverse or our ability to carryback any losses created by the deduction of these temporary differences. We expect to realize the assets over an extended period. If we are unable to generate sufficient future taxable income in the U.S. and/or certain foreign jurisdictions, or if there is a significant change in the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowances against our deferred tax assets. Our effective tax rate would increase if we were required to increase our valuation allowances against our deferred tax assets.
Disruption and volatility of the financial and credit markets could affect our external liquidity sources.
Our principal sources of liquidity are accumulated cash and cash equivalents, short-term investments, cash flow from operations and amounts available under our lines of credit, including our senior secured credit facilities, and our accounts receivable securitization programs. We may be unable to refinance any of our indebtedness, including our senior notes, our accounts receivable securitization programs and our senior secured credit facilities, on commercially reasonable terms or at all.
Additionally, conditions in financial markets could affect financial institutions with which we have relationships and could result in adverse effects on our ability to utilize fully our committed borrowing facilities. For example, a lender under the senior secured credit facilities may be unwilling or unable to fund a borrowing request, and we may not be able to replace such lender.
Our insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage could materially and adversely impact our business.
Our business is subject to operating hazards and risks relating to handling, storing, transporting and use of the products we sell. We maintain insurance policies in amounts and with coverage and deductibles that we believe are reasonable and prudent. Nevertheless, our insurance coverage may not be adequate to protect us from all liabilities and expenses that may arise from claims for personal injury or death or property damage arising in the ordinary course of business, and our current levels of insurance may not be maintained or available in the future at economical prices. If a significant liability claim is brought against us that are not adequately covered by insurance, we may have to pay the claim with our own funds, which could have a material adverse effect on our business, consolidated financial condition, results of operations, or cash flows.
Item 1B. Unresolved Staff Comments
Item 2. Properties
We manufacture products in 106 facilities, with 15 of those facilities serving both of our business segments. The following table shows our manufacturing facilities by geographic region and our business segment reporting structure:
|Geographic Region||Number of Manufacturing Facilities||Food Manufacturing Facilities||Protective Manufacturing Facilities|
|North America||43 ||10 ||36 |
|Europe, Middle East and Africa ("EMEA")||29 ||11 ||24 |
|Asia, Australia and New Zealand ("APAC")||28 ||9 ||24 |
|South America||6 ||6 ||1 |
|Total||106 ||36 ||85 |
Other Property Information
We own the large majority of our manufacturing facilities. Some of these facilities are subject to secured or other financing arrangements. We lease the balance of our manufacturing facilities, which are generally smaller sites. Our manufacturing facilities are usually located in general purpose buildings that house our specialized machinery for the manufacture of one or more products. Because of the relatively low density of our air cellular, polyethylene foam and protective mailer products, we realize significant freight savings by locating our manufacturing facilities for these products near our customers and distributors.
We also occupy facilities containing sales, distribution, technical, warehouse or administrative functions at a number of locations in the U.S. and in many foreign countries/territories. Some of these facilities are located on the manufacturing sites that we own and some of these are leased. Stand-alone facilities of these types are generally leased. Our global headquarters is located in an owned property in Charlotte, North Carolina. For a list of those countries and territories outside of the U.S. where we have operations, see Global Scale and Market Access within “Market Strategy and Competitive Strengths” above.
We believe that our manufacturing, warehouse, office and other facilities are well maintained, suitable for their purposes and adequate for our needs.
Item 3. Legal Proceedings
The information set forth in Note 20, “Commitments and Contingencies,” under the captions “Settlement Agreement Tax Deduction” and “Environmental Matters” is incorporated herein by reference.
Following the announcement on June 20, 2019 that the Company had terminated the employment of William G. Stiehl as Chief Financial Officer, the Company received a Grand Jury subpoena from the United States Attorney's Office for the Western District of North Carolina (the “U.S. Attorney's Office”) seeking documents relating to that termination and relating to the process by which the Company selected its former independent audit firm for the fiscal years of 2015 through 2018. The Company has been advised by the U.S. Attorney's Office that it has completed its investigation of these matters and will not be taking any action.
The Company previously received from the staff of the SEC subpoenas for documents and requests for information in connection with the SEC's previously disclosed investigation. Those subpoenas and requests sought documents and information regarding the Company's accounting for income taxes, its financial reporting and disclosures, the process by which the Company selected its former independent audit firm which audited the fiscal years of 2015 through 2018, the independence of that audit firm, and other matters. The Company is fully cooperating with the SEC. The Company understands that the SEC's investigation is continuing and cannot predict the outcome or duration of that investigation.
On November 1, 2019, purported Company stockholder UA Local 13 & Employers Group Insurance Fund filed a putative class action complaint in the United States District Court for the Southern District of New York against the Company and certain of its current and former officers. On June 4, 2020, the complaint was amended to remove all individual defendants other than the Company’s former CFO and to add a plaintiff, and on July 13, 2020, the complaint was further amended to identify a total of four plaintiffs. The complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder based on allegedly false and misleading statements and omissions concerning the Company’s hiring of Ernst & Young LLP as its independent auditors and concerning the Company's corporate policies and procedures. The plaintiffs seek to represent a class of purchasers of the Company’s common stock between November 17, 2014 and June 20, 2019. The complaint seeks, among other things, unspecified compensatory damages, including interest, and attorneys’ fees and costs. On September 4, 2020, the Company filed a motion to dismiss the complaint, and after briefing the motion, will await a decision by the court.
On January 14, 2020, a stockholder derivative lawsuit was filed in the United States District Court for the District of Delaware by an alleged stockholder of the Company, purportedly on the Company’s behalf. The suit was brought against certain of the Company’s current and former directors and officers and against the Company, as a nominal defendant. The complaint contains allegations against the individual defendants under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder similar to those in the class action complaint discussed above, as well as allegations of violations of Section 14(a) under the Exchange Act. The complaint also alleges breach of fiduciary duty, unjust enrichment and waste of corporate assets by the individual defendants for, among other things, failure to correct the alleged false and misleading statements, insider sales of the company’s stock, compensation benefiting from the alleged artificially inflated stock value, company repurchases of shares based on the alleged inflated stock value, and costs in connection with lawsuits and internal investigations. The complaint seeks unspecified damages for Sealed Air, restitution, and reformation and improvement of Sealed Air’s corporate governance and internal procedures regarding compliance with laws. On May 8, 2020, this lawsuit was stayed pending resolution of a motion to dismiss the putative class action described above.
We are also involved in various other legal actions incidental to our business. We believe, after consulting with counsel, that the disposition of these other legal proceedings and matters will not have a material effect on our consolidated financial condition or results of operations including potential impact to cash flows.
Item 4. Mine Safety Disclosures.
Information About Our Executive Officers
The information appearing in the table below sets forth the current position or positions held by each of our executive officers, the officer’s age as of January 31, 2021, the year in which the officer was first elected to the position currently held with us and the year in which such person was first elected an officer. All of our officers serve at the pleasure of the Board of Directors.
There are no family relationships among any of our executive officers or directors.
Name and Current Position(1)
|Age as of January 31, 2021||First Elected to Current Position||First Elected an Executive Officer|
|Edward L. Doheny II|
President and Chief Executive Officer
James M. Sullivan(2)
Senior Vice President and Chief Financial Officer
Christopher J. Stephens, Jr.(2)
Senior Vice President and Chief Financial Officer-Designate
|Emile Z. Chammas|
Senior Vice President, Chief Manufacturing and Supply Chain Officer & Chief Transformation Officer
|Susan C. Edwards|
Vice President, Chief Human Resources Officer
|Sergio A. Pupkin|
Vice President, Chief Growth & Strategy Officer
|Angel S. Willis|
Vice President, General Counsel and Secretary
|Michael A. Leon|
Chief Accounting Officer and Controller
(1) Karl Deily stepped down from his position as Senior Vice President and Chief Commercial Officer effective as of December 31, 2020 and will continue to serve the Company in an advisory role until his retirement on April 2, 2021.
(2) Effective February 26, 2021, Mr. Sullivan will step down as Senior Vice President and Chief Financial Officer, and Mr. Stephens will assume that position. Mr. Sullivan’s employment with the Company will continue through March 31, 2021 (or any earlier date as Mr. Sullivan and the Company may mutually agree).
Mr. Doheny joined Sealed Air as Chief Operating Officer and CEO-Designate in September 2017 and was elected a Director of Sealed Air Corporation. He became President and CEO effective January 1, 2018. Prior to joining the Company in September 2017, Mr. Doheny served as President and Chief Executive Officer and a Director of Joy Global Inc., a manufacturer and servicer of high productivity mining equipment, from 2013 through 2017. Mr. Doheny also served as Executive Vice President of Joy Global and President and Chief Operating Officer of its Underground Mining Machinery business from 2006 to 2013, where he had global responsibility for the company's underground mining machinery business. Prior to joining Joy Global, Mr. Doheny had a 21-year career with Ingersoll Rand Corporation holding a series of senior executive positions of increasing responsibility, including President of Industrial Technologies from 2003 to 2005 and President of the Air Solutions Group from 2000 to 2003.
Mr. Sullivan joined Sealed Air as Senior Vice President and Chief Financial Officer effective June 24, 2019. Mr. Sullivan joined the Company with more than 20 years of experience in leadership roles in the industrial and manufacturing sectors. He most recently served as Executive Vice President and CFO of Joy Global from 2012 to 2017, where he oversaw the company’s global finance and accounting organization. Prior to joining Joy Global, Mr. Sullivan served as Executive Vice President and CFO of Solutia, a chemical manufacturing company, from 2004 until its acquisition by Eastman Chemical Company in 2012. Prior to being appointed Solutia's CFO, Mr. Sullivan spent five years as Solutia’s Vice President and Controller.
Mr. Stephens joined Sealed Air as Senior Vice President and Chief Financial Officer-Designate effective January 1, 2021. Previously, he had served as Senior Vice President, Finance and Chief Financial Officer, of Barnes Group Inc. since January 2009. Barnes Group Inc. is a global provider of engineered products, technologies and solutions to a range of industries including aerospace, transportation, manufacturing, automation and packaging. Prior his role at Barnes Group, Mr. Stephens held key leadership roles at Honeywell International, serving as President of the Consumer Products Group from 2007 to 2008, and Vice President and Chief Financial Officer of Honeywell Transportation Systems from 2003 to 2007. Prior to Honeywell, he held roles with increasing responsibility at The Boeing Company, serving as Vice President and General Manager, Boeing
Electron Dynamic Devices; Vice President, Business Operations, Boeing Space and Communications; and Vice President and Chief Financial Officer, Boeing Satellite Systems.
In 2019, Mr. Chammas' responsibilities were expanded to include Chief Transformation Officer in addition to his previously existing role of Senior Vice President and Chief Manufacturing and Supply Chain Officer, which he held since November 2010. As Chief Transformation Officer, Mr. Chammas has company-wide leadership of the Reinvent SEE business transformation. Prior to joining the Company, Mr. Chammas was Vice President, Worldwide Supply Chain, for the Wm. Wrigley Jr. Company, a confectionery company, from 2008 through 2010, and served in management positions of increasing responsibility in supply chain, operations and procurement with the Wm. Wrigley Jr. Company from 2002 through 2008.
Ms. Edwards was named Vice President and Chief Human Resources Officer and appointed as an executive officer of the Company in 2019. She has had responsibility for the Company's global human resource function, including under her previous title, Vice President, Human Resources, since January 2017. Ms. Edwards initially joined Sealed Air in 2011 as Vice President, Global HR Business Partner of Food. From 2014 through 2017, she served as Vice President, HR Business Partner. Prior to joining the Company, Ms. Edwards held leadership roles for several global corporations including CIRCOR International, where she was responsible for strategic HR and integration leadership from 2009 until 2011. Prior to CIRCOR, she held many roles with increasing responsibility at Snap-on Incorporated from 2001 until 2009 culminating with her role as Vice President of Rapid Continuous Improvement.
Mr. Pupkin was named Vice President and Chief Growth & Strategy Officer and appointed an executive officer of the Company in 2020. In this role, he is responsible for corporate strategy, global mergers and acquisitions, brand communications and our digital business, including e-Commerce and SealedAir.com. Prior to his current role, Mr. Pupkin became Chief Strategy Officer in 2019 and served as Vice President, Corporate Strategy, Mergers and Acquisitions from 2016 to 2019. From 2011 to 2016 Mr. Pupkin held leadership positions in our former Diversey Care segment and joined Sealed Air in 2011 as a result of the Diversey acquisition. At the time of the acquisition, Mr. Pupkin had over 14 years of increasing responsibility in strategic marketing, business development, sales, and general management for Diversey, Inc. and predecessor companies.
Ms. Willis joined Sealed Air in 2019 as Vice President, General Counsel and Secretary. She was appointed as an executive officer of the Company in 2020. Prior to joining Sealed Air, Ms. Willis served as Vice President & Deputy General Counsel at Ingersoll Rand. In that role, she led the legal aspects of strategic transactions such as mergers and acquisitions and all legal affairs for Europe, Middle East, India and Africa. Overall, Ms. Willis held numerous legal roles with broad scope supporting commercial business units, functions and regions at Ingersoll Rand from 2005 through 2018. Prior to joining Ingersoll Rand, Ms. Willis was Corporate Counsel at Cummins, Inc. and Associate at Ice Miller, LLP.
Mr. Leon was appointed as Chief Accounting Officer and Controller in 2018. Prior to the appointment, he served as the Company’s Assistant Corporate Controller since December 2014. Before joining the Company, Mr. Leon held various accounting and finance positions with increasing levels of responsibilities at a Big 4 public accounting firm and at several diversified global manufacturing companies, including SPX Corporation from 2012 to 2014, and United Technologies Corporation and its predecessor company, Goodrich Corporation, from 2006 to 2012. He has extensive financial and accounting experience, including financial reporting, financial planning and analysis, mergers and acquisitions, and internal audit, among others.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders
Our common stock is listed on the New York Stock Exchange with the trading symbol SEE. As of February 16, 2021, there were approximately 3,172 holders of record of our common stock.
Common Stock Performance Comparisons
The following graph shows, for the five years ended December 31, 2020, the cumulative total return on an investment of $100 assumed to have been made on December 31, 2015 in our common stock. The graph compares this return (“SEE”) with that of comparable investments assumed to have been made on the same date in: (a) the Standard & Poor’s 500 Stock Index (“Composite S&P 500”) and (b) a market capitalization-weighted self-constructed peer group (“Peer Group”).
The Peer Group includes Sealed Air and the following companies: AptarGroup, Inc.; Ashland Global Holdings Inc.; Avery Dennison Corporation; Avient Corporation; Axalta Coating Systems Ltd.; Ball Corporation; Berry Global Group, Inc.; Celanese Corporation; Crown Holdings, Inc.; Graphic Packaging Holding Company; Greif, Inc.; H.B. Fuller Company; Owens-Illinois, Inc.; Packaging Corporation of America; Silgan Holdings Inc.; and Sonoco Products Company. Bemis Company, Inc. was previously included in our peer group and has been removed due to its acquisition by Amcor PLC in 2019. Maple Leaf Foods was previously included in our peer group and was replaced by H.B. Fuller Company in 2020 as H.B. Fuller's size, industry and country of domicile were deemed to be more aligned with Sealed Air. The Peer Group is consistent with the peer companies used by the Organization and Compensation Committee of our Board of Directors (“O&C Committee”) in connection with certain aspects of our executive compensation programs. The O&C Committee includes companies primarily in the materials sector that are comparable to Sealed Air based on sales, percentage of sales outside of the U.S., number of employees and market capitalization.
Total return for each assumed investment assumes the reinvestment of all dividends on December 31 of the year in which the dividends were paid.
Recent Sales of Unregistered Securities
Issuer Purchases of Equity Securities
The table below sets forth the total number of shares of our common stock, par value $0.10 per share, that we repurchased in each month of the quarter ended December 31, 2020, the average price paid per share and the maximum number of shares that may yet be purchased under our publicly announced plans or programs.
Total Number of Shares Purchased(ii)
|Average Price Paid Per Share||Total Number of Shares Purchased as Part of Announced Plans or Programs||Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs|
|Balance as of September 30, 2020|| || || ||$||687,637,375 |
|October 1, 2020 through October 31, 2020||102,840 ||$||40.32 ||98,532 ||683,664,705 |
|November 1, 2020 through November 30, 2020||7,745 ||$||42.89 ||7,602 ||683,338,632 |
December 1, 2020 through December 31, 2020(i)
|228,805 ||$||45.08 ||228,805 ||673,023,477 |
|Total||339,390 ||334,939 ||$||673,023,477 |
(i)Of those shares purchased, 35,100 shares at an average price of $45.76 per share, settled in January 2021.
(ii)On May 2, 2018, the Board of Directors increased the total authorization to repurchase the Company's issued and outstanding stock to $1.0 billion. This program has no expiration date and replaced the previous authorizations. We from time to time acquire shares by means of (i) open market transactions, including through plans complying with Rule 10b5-1 under the Exchange Act, and privately negotiated transactions, including accelerated share repurchase programs, pursuant to our publicly announced program described above and (ii) shares withheld from restricted share awards under our Omnibus Incentive Plan pursuant to the provision thereof that permits tax withholding obligations or other legally required charges to be satisfied by having us withhold shares from an award under that plan. We report price calculations in column (b) in the table above only for shares purchased as part of our publicly announced program, when applicable. For shares withheld for minimum tax withholding obligations or other legally required charges, we withhold shares at a price equal to their fair market value.
|Period||Shares withheld for tax obligations and charges||Average withholding price for shares in column “a”|
|October 2020||4,308 ||$||40.35 |
|November 2020||143 ||$||42.42 |
|December 2020||— ||$||— |
|Total||4,451 || |
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information in this MD&A should be read together with our Consolidated Financial Statements and related notes set forth in Part II, Item 8, as well as the discussion included in Part I, Item 1A, “Risk Factors,” of this Annual Report on Form 10-K. All amounts and percentages are approximate due to rounding and all dollars are in millions, except per share amounts.
Business and Reportable Segments
Sealed Air is in business to protect, to solve critical packaging challenges and to make our world better than we found it. Our materials, automated equipment and services maximize food safety and security and product protection while minimizing waste. We serve an array of end markets including protein, foods, fluids, medical and life sciences, pet care, e-Commerce and logistics, and industrials. In the markets we serve, we leverage our differentiated materials, equipment and services; iconic brands; well-established customer relationships; and global scale and market access. Our portfolio of packaging solutions includes Cryovac® brand food packaging, Sealed Air® brand protective packaging, Autobag® brand automated packaging systems, Bubble Wrap® brand packaging, and SEE Automation solutions.
The Company’s segment reporting structure consists of two reportable segments, Food and Protective, and a Corporate category. One of the components of our Reinvent SEE business transformation is to enhance the operational efficiency of the Company by acting as “One SEE”. To that end, organizations and teams focused solely on Food or Protective have merged to bring focus on the strategic direction of the total Company. Karl Deily stepped down from his position as Senior Vice President and Chief Commercial Officer effective as of December 31, 2020 and will continue to serve the Company in an advisory role until his retirement on April 2, 2021. Effective January 1, 2021, Sealed Air's regional leaders, consisting of the President of Asia Pacific (“APAC”), the President of Europe, Middle East and Africa (“EMEA”), and the President of the Americas, assumed Mr. Deily's responsibilities on a regional basis, reporting directly to the President and Chief Executive Officer. Notwithstanding these actions, the Company's chief operating decision maker continues to review and assess performance and make operating decisions based on the Food and Protective reporting structure. We continue to conclude that Food and Protective represents our reportable segments under FASB ASC Topic 280 as of December 31, 2020.
The Company’s Food and Protective segments are considered reportable segments under FASB ASC Topic 280. Our reportable segments are aligned with similar groups of products and customers. Corporate includes certain costs that are not allocated to or monitored by the reportable segments' management. See Note 6, “Segments,” for additional information.
In the second quarter 2020, we renamed our reporting segments from Food Care to Food and from Product Care to Protective. This segment reporting name change aligns with our use internally and in the markets we serve. There was no change in the composition of the segments and no impact on prior period results of our reporting segments.
Business Environment and Overview
We employ 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, food service businesses, supermarket retailers, lodging, retail pharmaceutical companies, healthcare facilities, medical device manufacturers, and other manufacturers. We generally do not impose annual minimum purchase volume requirements on our distributors. Returns from our distributors in 2020 were not material. In 2020, 2019 or 2018, no customer or affiliated group of customers accounted for 10% or more of our consolidated net sales.
On a consolidated basis, there is minimal 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 results of operations typically trend directionally the same as our net sales seasonality. In 2021, we expect our results of operations to trend higher in the second half of the year compared to the first half, largely due to the effects of higher raw material costs along with the timing of corresponding recovery in our selling prices. Formula based pricing lags raw material cost movement by approximately six months. Approximately one-third of Food's sales are subject to formula based pricing, predominantly within North America and APAC. Formula based pricing does not comprise a significant portion of sales in our Protective segment. Historically, net sales in our Food segment 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 segment have also tended to be slightly lower in the first quarter and higher in the mid-third quarter and through the fourth quarter due to the holiday shopping season. However, the extent and timing of our results of operations may be difficult to predict if significant one-time transactions, events or non-recurring charges were to impact our business. Cash flow from operations has tended to be lower in the first quarter and higher in the fourth quarter, reflecting seasonality of sales and working capital changes, including the timing of certain annual incentive compensation payments.
Throughout 2020, the COVID-19 pandemic has resulted in anomalies to historical seasonality trends generated by changes in end-consumer behavior, such as an increase in e-Commerce sales, or temporary closures or productivity reductions within our customers' operations. We cannot predict the impact to the markets we serve or the timing or extent of sales due to the prolonged impact or future spread or worsening of the COVID-19 pandemic or future restrictions on commercial activities by governmental agencies to limit future spread of the virus. In addition to COVID-19, other factors may also outweigh the effects of seasonal changes in our net earnings results including, but not limited to, changes in raw materials and other costs, timing of pricing actions, foreign exchange rates, interest rates, taxes and the timing and amount of acquisition synergies and restructuring and other non-recurring charges.
Competition for most of our packaging products is based primarily on packaging performance characteristics, automation, service and price. Since competition is also based upon innovations in packaging technology, we maintain ongoing research and development programs to enable us to maintain technological leadership. Competition is both global and regional in scope and includes numerous smaller, local competitors with limited product portfolios and geographic reach.
Our net sales are sensitive to developments in our customers’ 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 mitigate the impact on the total Company of 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, 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.
Each issue of our outstanding senior notes imposes limitations on our operations and those of specified subsidiaries. Our Credit Facility contains customary affirmative and negative covenants for credit facilities of this type, including limitations on our indebtedness, liens, investments, restricted payments, mergers and acquisitions, dispositions of assets, transactions with affiliates, amendment of documents and sale leasebacks, and a covenant specifying a maximum leverage ratio of debt to EBITDA. We expect continued compliance with our debt covenants including the covenant leverage ratio over the next 12 months. See Note 14, “Debt and Credit Facilities” for further details.
Non-U.S. GAAP Information
We present financial information that conforms to U.S. GAAP. We also present financial information that does not conform to U.S. GAAP, as our management believes it is useful to investors. In addition, non-U.S. GAAP financial 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. Non-U.S. GAAP financial measures also provide management with additional means to understand and evaluate the core operating results and trends in our ongoing business by eliminating certain 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 management’s ability to make useful forecasts. Non-U.S. GAAP information does not purport to represent any similarly titled U.S. GAAP information and is not an indicator of our performance under U.S. GAAP. Investors are cautioned against placing undue reliance on these non-U.S. GAAP financial 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, described below.
The non-U.S. GAAP financial metrics exclude certain specified items (“Special Items”), including restructuring charges and restructuring associated costs, certain transaction and other charges related to acquisitions and divestitures, gains and losses related to acquisitions and divestitures, special tax items or tax benefits (collectively, “Tax Special Items”) and certain other items. We evaluate 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.
When we present Non-U.S. GAAP forward-looking guidance, we do not also provide guidance for the most directly comparable U.S. GAAP financial measures, as they are not available without unreasonable effort due to the high variability, complexity, and low visibility with respect to certain Special Items, including gains and losses on the disposition of businesses,
the ultimate outcome of certain legal or tax proceedings, foreign currency gains or losses resulting from the volatile currency market in Argentina, and other unusual gains and losses. These items are uncertain, depend on various factors, and could be material to our results computed in accordance with U.S. GAAP.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is defined as Earnings before Interest Expense, Taxes, Depreciation and Amortization, adjusted to exclude the impact of Special Items. Management uses Adjusted EBITDA as one of many measures to assess the performance of the business. Additionally, Adjusted EBITDA is the performance metric used by the Company's chief operating decision maker to evaluate performance of our reportable segments. Adjusted EBITDA is also a metric used to determine performance in the Company's Annual Incentive Plan. We do not believe there are estimates underlying the calculation of Adjusted EBITDA, other than those inherent in our U.S. GAAP results of operations, which would render the use and presentation of Adjusted EBITDA misleading. While the nature and amount of individual Special Items vary from period to period, we believe our calculation of Adjusted EBITDA is applied consistently to all periods and, in conjunction with other U.S. GAAP and non-U.S. GAAP financial measures, Adjusted EBITDA provides a useful and consistent comparison of our Company's performance to other periods.
The following table shows a reconciliation of U.S. GAAP Net Earnings from continuing operations to non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations:
| ||Year Ended December 31,|
|Net earnings from continuing operations||$||484.1 ||$||293.7 ||$||150.3 |
|Interest expense, net||174.4 ||184.1 ||177.9 |
|Income tax provision||142.1 ||76.6 ||307.5 |
Depreciation and amortization, net of adjustments(1)
|216.5 ||184.5 ||159.0 |
|Special Items:|| || || |
|11.0 ||41.9 ||47.8 |
Other restructuring associated costs
|19.5 ||60.3 ||15.8 |
Foreign currency exchange loss due to highly inflationary economies
|4.7 ||4.6 ||2.5 |
Loss on debt redemption and refinancing activities
|— ||16.1 ||1.9 |
|Increase in fair value of equity investment||(15.1)||— ||— |
Charges related to acquisition and divestiture activity
|7.1 ||14.9 ||34.2 |
Charges related to the Novipax settlement agreement
|— ||59.0 ||— |
Gain from class-action litigation settlement
|— ||— ||(14.9)|
|Other Special Items||6.8 ||29.1 ||7.5 |
|Pre-tax impact of Special Items||34.0 ||225.9 ||94.8 |
Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations
|$||1,051.1 ||$||964.8 ||$||889.5 |
(1)Includes depreciation and amortization adjustments of $(0.8) million and $(2.4) million for the years ended December 31, 2019 and 2018, respectively.
The Company may also assess performance using Adjusted EBITDA Margin. Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by net sales. We believe that Adjusted EBITDA Margin is a useful measure to assess the profitability of sales made to third parties and the efficiency of our core operations.
Adjusted Net Earnings and Adjusted Earnings Per Share
Adjusted Net Earnings and Adjusted Earnings Per Share (“Adjusted EPS”) are also used by the Company to measure total company performance. Adjusted Net Earnings is defined as U.S. GAAP net earnings from continuing operations excluding the impact of Special Items. Adjusted EPS is defined as our Adjusted Net Earnings divided by the number of diluted shares outstanding. We believe that Adjusted Net Earnings and Adjusted EPS are useful measurements of Company performance, along with other U.S. GAAP and non-U.S. GAAP financial measures, because they incorporate non-cash items of depreciation
and amortization, including stock-based compensation, which impact the overall performance and net earnings of our business. Additionally, Adjusted Net Earnings and Adjusted EPS reflect the impact of our Adjusted Tax Rate and interest expense on a net and per share basis. While the nature and amount of individual Special Items vary from period to period, we believe our calculation of Adjusted Net Earnings and Adjusted EPS is applied consistently to all periods and, in conjunction with other U.S. GAAP and non-U.S. GAAP financial measures, Adjusted Net Earnings and Adjusted EPS provide a useful and consistent comparison of our Company's performance to other periods.
The following table shows a reconciliation of U.S. GAAP Net Earnings and Diluted Earnings per Share from continuing operations to Non-U.S. GAAP Adjusted Net Earnings and Adjusted EPS from continuing operations.
| ||Year Ended December 31,|
|(In millions, except per share data)||Net Earnings||Diluted EPS||Net Earnings||Diluted EPS||Net Earnings||Diluted EPS|
U.S. GAAP net earnings and diluted EPS from continuing operations(1)
|$||484.1 || ||$||3.10 || ||$||293.7 || ||$||1.89 ||$||150.3 ||$||0.94 |
|14.3 || ||0.09 || ||145.0 || ||0.93 ||250.6 ||1.56 |
Non-U.S. GAAP adjusted net earnings and adjusted EPS available from continuing operations
|$||498.4 || ||$||3.19 || ||$||438.7 || ||$||2.82 ||$||400.9 || ||$||2.50 |
Weighted average number of common shares outstanding – Diluted
|156.0 || ||155.2 || ||160.2 |
(1)Net earnings per common share are calculated under the two-class method.
(2)Includes pre-tax Special Items, less Tax Special Items and the tax impact of Special Items as seen in the following calculation of non-U.S. GAAP Adjusted income tax rate.
Adjusted Tax Rate
We also present our adjusted income tax rate (“Adjusted Tax Rate”). The Adjusted Tax Rate is a measure of our U.S. GAAP effective tax rate, adjusted to exclude the tax impact from the Special Items that are excluded from our Adjusted Net Earnings and Adjusted EPS metrics as well as expense or benefit from any special taxes or Tax Special Items. The Adjusted Tax Rate is an indicator of the taxes on our core business. The tax circumstances and effective tax rate in the specific countries where the Special Items occur will determine the impact (positive or negative) to the Adjusted Tax Rate. While the nature and amount of Tax Special Items vary from period to period, we believe our calculation of the Adjusted Tax Rate is applied consistently to all periods and, in conjunction with our U.S. GAAP effective income tax rate, the Adjusted Tax Rate provides a useful and consistent comparison of the impact that tax expense has on our Company's performance.
The following table shows our calculation of the non-U.S. GAAP Adjusted income tax rate:
| ||Year Ended December 31,|
|(In millions, except per share data)||2020||2019||2018|
|U.S. GAAP Earnings before income tax provision from continuing operations||$||626.2 ||$||370.3 ||$||457.8 |
|Pre-tax impact of Special Items||34.0 ||225.9 ||94.8 |
|Non-U.S. GAAP Adjusted Earnings before income tax provision from continuing operations||$||660.2 ||$||596.2 ||$||552.6 |
|U.S. GAAP Income tax provision from continuing operations||$||142.1 ||$||76.6 ||$||307.5 |
Tax Special Items(1)
|12.1 ||25.5 ||(178.3)|
Tax impact of Special Items(2)
|7.6 ||55.4 ||22.5 |
|Non-U.S. GAAP Adjusted Income tax provision from continuing operations||$||161.8 ||$||157.5 ||$||151.7 |
|U.S. GAAP Effective income tax rate||22.7 ||%||20.7 ||%||67.2 ||%|
|Non-U.S. GAAP Adjusted income tax rate||24.5 ||%||26.4 ||%||27.5 ||%|
(1)For the year ended December 31, 2020, Tax Special Items reflect net benefits from audit settlements and retroactive application of new GILTI regulations, offset by withholding expense related to cash repatriation initiatives. For the year ended December 31, 2019, Tax Special Items reflect net benefits from tax optimization initiatives and research and development credits. For the year ended December 31, 2018, the Tax Special Items included $222 million of expense for the one-time tax on unrepatriated earnings (U.S. Tax Reform Transition Tax), partially offset by the release of valuation allowances associated with tax initiatives
(2)The tax rate used to calculate the tax impact of Special Items is based on the jurisdiction in which the item was recorded.
Organic and Constant Dollar Measures
In our “Net Sales by Geographic Region,” “Net Sales by Segment” 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 “constant dollar” and we exclude acquisitions in the first year after closing, divestiture activity and the impact of foreign currency translation when presenting net sales information, which we define as “organic.” Changes in net sales excluding the impact of foreign currency translation and/or acquisition and divestiture activity are non-U.S. GAAP financial measures. As a worldwide business, it is important that we consider 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 analyzes our financial results including performance metrics such as sales, cost of goods sold or selling, general and administrative expense, to measure the core performance of our business, we may exclude the impact of foreign currency translation by translating our current period results at prior period foreign currency exchange rates. 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.
Refer to these specific tables presented later in our Management’s Discussion and Analysis of Financial Condition and Results of Operations for reconciliations of these non-U.S. GAAP financial measures to their most directly comparable U.S. GAAP measures.
Free Cash Flow
In addition to net cash provided by operating activities, we use free cash flow as a useful measure of performance and an indication of the strength and ability of our operations to generate cash. We define free cash flow as cash provided by operating activities less capital expenditures (which is classified as an investing activity). Free cash flow is not defined under U.S. GAAP. Therefore, free cash flow should not be considered a substitute for net income or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to similarly titled measures used by other companies. Free cash flow does not represent residual cash available for discretionary expenditures, including certain debt servicing requirements or non-discretionary expenditures that are not deducted from this measure.
Refer to the specific tables presented later in our Management’s Discussion and Analysis of Financial Condition and Results of Operations under Analysis of Historical Cash Flow for reconciliations of these non-U.S. GAAP financial measures to their most directly comparable U.S. GAAP measures.
Executive Summary for 2020
COVID-19 presented new challenges for Sealed Air's global operations throughout 2020. While focusing on the health and safety of our employees, suppliers and customers globally, we continue to operate and serve customers' needs, with only limited facility closures as a result of initial government orders in response to the pandemic. Our local, regional and corporate crisis management teams remain active and business continuity plans remain in effect.
Since March 2020, there has been an imbalance across our end-markets due to changes in consumer behaviors, modifications made by our customers, governmental restrictions and other COVID-19 related factors. Within our Food reporting segment, there has been strong demand in retail channels with continuing softness in food service. Food processors are working hard to meet increased retail demand while balancing labor shortages and social distancing within their operations. In Protective, e-Commerce, retail and logistics exhibited strength throughout the year due to shifts in consumer behavior. The growth in e-Commerce, logistics and fulfillment was offset by industrial end-markets which were soft during the year.
In 2020, we launched our SEE Automation Solutions strategy. We seek to solve our customers’ automation needs and provide a differentiated value proposition to our customers including automated equipment, services and materials. With SEE
Automation, we are taking an integrated solutions approach and looking for opportunities to help customers eliminate waste, simplify processes, remove people from harm's way and drive 'touchless' operations. Across both our segments, capital-intensive equipment and automated solutions were negatively impacted during the first half of 2020 by the slowdown on capital expenditures by our customers, as well as order and installation delays due to social distancing measures. However, our equipment and automated solutions business increased in the second half of 2020 as customers resumed essential purchases and began to invest in automation.
We continue to execute our Reinvent SEE business transformation, focused on the 4P'SSM: Performance, People, Products, Process and Sustainability. During the year, Reinvent SEE delivered incremental Adjusted EBITDA benefits of $118 million. The full year benefits to Adjusted EBITDA from Reinvent SEE were partially offset by negative foreign currency impacts and higher expenses associated with labor inflation, incentive compensation and investments in the business. We expect the Reinvent SEE business transformation to deliver incremental cost benefits to Adjusted EBITDA of approximately $65 million in 2021 compared to 2020. We also expect that the capabilities and governance processes established through the Reinvent SEE business transformation will transition well into our SEE Operating Model and an on-going continuous improvement system and enable us to generate additional savings and growth opportunities beyond 2021.
For the year ended December 31, 2020, we incurred approximately $31 million, or $23 million net of tax, in restructuring and restructuring associated charges primarily related to our Reinvent SEE business transformation initiatives. Cash payments, including restructuring payments related to our Reinvent SEE business transformation and legacy programs, were $74 million. See Note 12, “Restructuring Activities,” for additional details regarding each of the Company’s restructuring programs.
In 2020, the Company's net sales increased $112 million or 2% to $4,903 million, primarily driven by incremental contributions from the 2019 acquisition of Automated Packaging Systems. Foreign currency had a negative impact on net sales of $82 million or 2%. Food's net sales decreased $55 million or 2% in 2020. The decrease was driven by the impact of unfavorable foreign currency. Excluding currency headwinds, Food net sales increased $27 million or 1% on favorable volume and pricing trends and contributions from two small acquisitions made in 2019. In Protective, net sales increased $167 million or 9%, including $166 million from the Automated Packaging Systems acquisition noted above. See Note 3, “Revenue Recognition, Contracts with Customers,” for additional details regarding revenue recognition.
Impact of COVID-19
On March 11, 2020, the World Health Organization declared the Coronavirus Disease 2019 (“COVID-19”) outbreak as a global pandemic. Additionally, many international heads of state, including the President of the United States, declared the COVID-19 outbreak to be a national emergency in their respective countries. In response to these declarations and the rapid spread of COVID-19 across many countries, governmental agencies around the world (including federal, state and local governments in the U.S.) implemented varying degrees of restrictions on social and commercial activities to promote social distancing in an effort to slow the spread of the illness. These measures, as well as future measures, had and will continue to have a significant adverse impact upon many sectors of the global economy. Additionally, the virus continues to spread in some parts of the world, including regions of the U.S.
We continue to monitor the impact that COVID-19 has on all aspects of our business and geographies, including the impact on our employees, customers, suppliers, business partners and distribution channels. Our crisis management teams, which are comprised of cross functional and regional leaders, continue to assess the evolving situation and implement business continuity plans at both the regional and headquarter levels. See Part I, Item 1A, “Risk Factors,” above for additional risks related to the COVID-19 pandemic.
We cannot predict the impact on our operations or markets we serve due to the future spread or worsening of the COVID-19 pandemic or future restrictions on commercial activities by governmental agencies to limit the spread of the virus.
Employee Health and Safety and Business Continuity
The health and safety of Sealed Air’s employees, suppliers and customers globally continues to be the Company’s top priority. Safety measures remain in place at Sealed Air sites such as: enhanced cleaning procedures, employee temperature checks, use of personal protective equipment for location-dependent workers, social distancing measures within operating sites, remote work arrangements for non-location dependent employees, visitor access restrictions and limitations on travel.
In remote working environments, we continue our efforts to mitigate information technology risks including failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber attacks and security breaches of our networks or systems. Additionally, we continue to execute all activities related to our internal control over financial
reporting in our remote environment. There has not been any change in our internal control over financial reporting during the year ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Supply Chain and Operations
Sealed Air's global operations continue to operate and serve customers' needs. We experienced limited facility closures in 2020 as a result of initial government orders in response to the pandemic. Additionally, in some jurisdictions, we have at times reduced production capacity due to local social distancing requirements which limit the number of employees at any given time in our facilities. These instances have not had a material impact on our operations to date. We continue to closely monitor our location-dependent operations.
The impact of COVID-19 has resulted in approximately $16 million in unanticipated net expenses for the year ended December 31, 2020. These costs included additional personal protective gear, cleaning and other health and hygiene supplies and related expenses; higher employment costs related to COVID-19; and incremental freight due to sourcing changes along with other higher manufacturing related costs, net of direct government assistance.
The health of our workforce, and our ability to meet staffing needs in our manufacturing facilities, distribution of our products and other critical functions are key to our operations.
Markets We Serve
Early during the implementation of initial commercial and social restrictions due to the pandemic, employees within “Food and Agriculture” and “Transportation and Logistics” sectors, including their respective supply chains such as packaging material providers, were deemed “Essential Critical Infrastructure Workers” by the U.S. Department of Homeland Security and similarly by other international governmental agencies. These designations covered the majority of Sealed Air employees and allowed us to continue operations in order to serve our customers.
Some sectors, such as industrial goods, capital-intensive equipment and parts of the food industry including food service and restaurants have experienced adverse impacts as a result of the pandemic. Early in the pandemic, sales of capital-intensive equipment that serves food market segments was negatively impacted due to customers' re-evaluation of investments and delays due to restrictions on third-party visitors and installations in light of current social distancing measures. However, our equipment solutions business increased in the second half of the year as customers began to resume essential investments. Some end-segments of our business experienced increased demand from shifts in consumer behavior, including e-Commerce and fulfillment within our Protective segment.
Liquidity and Financial Position
As of December 31, 2020, Sealed Air had approximately $1.7 billion of liquidity available, comprised of $549 million in cash and $1,146 million of undrawn, committed credit facilities. The Company does not have long-term debt maturing until August 2022. See Note 10, “Accounts Receivable Securitization Programs” and Note 14, “Debt and Credit Facilities” for further details.
Highlights of Financial Performance
Below are the highlights of our financial performance for the three years ended December 31, 2020, 2019 and 2018.
|Year Ended December 31,||% Change|
|(In millions, except per share amounts)||2020||2019||2018||2020 vs. 2019||2019 vs. 2018|
|Net sales||$||4,903.2 ||$||4,791.1 ||$||4,732.7 ||2.3 ||%||1.2 ||%|
|Gross profit||$||1,609.3 ||$||1,564.8 ||$||1,502.1 ||2.8 ||%||4.2 ||%|
|As a % of net sales||32.8 ||%||32.7 ||%||31.7 ||%|
|Operating profit ||$||788.1 ||$||578.5 ||$||656.3 ||36.2 ||%||(11.9)||%|
|As a % of net sales||16.1 ||%||12.1 ||%||13.9 ||%|
|Net earnings from continuing operations||$||484.1 ||$||293.7 ||$||150.3 ||64.8 ||%||95.4 ||%|
|Gain (Loss) on sale of discontinued operations, net of tax||18.8 ||(30.7)||42.8 ||#||#|
|Net earnings ||$||502.9 ||$||263.0 ||$||193.1 ||91.2 ||%||36.2 ||%|
|Continuing operations||$||3.12 ||$||1.90 ||$||0.94 ||64.2 ||%||#|
|Discontinued operations||0.12 ||(0.20)||0.27 ||#||#|
|Net earnings per common share - basic||$||3.24 ||$||1.70 ||$||1.21 ||90.6 ||%||40.5 ||%|
|Continuing operations||$||3.10 ||$||1.89 ||$||0.94 ||64.0 ||%||#|
|Discontinued operations||0.12 ||(0.20)||0.26 ||#||#|
|Net earnings per common share - diluted||$||3.22 ||$||1.69 ||$||1.20 ||90.5 ||%||40.8 ||%|
Weighted average number of common shares outstanding:
|Basic||155.2 ||154.3 ||159.4 |
|Diluted||156.0 ||155.2 ||160.2 |
Non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations(1)
|$||1,051.1 ||$||964.8 ||$||889.5 ||8.9 ||%||8.5 ||%|
Non-U.S. GAAP Adjusted EPS from continuing operations(2)
|$||3.19 ||$||2.82 ||$||2.50 ||13.1 ||%||12.8 ||%|
# Denotes a variance greater than or equal to 100% or equal to or less than (100)%.
(1)See “Non-U.S. GAAP Information” for a reconciliation of U.S. GAAP net earnings from continuing operations to non-U.S. GAAP Total Company Adjusted EBITDA from continuing operations.
(2)See “Non-U.S. GAAP Information” for a reconciliation of U.S. GAAP net earnings and diluted earnings per share from continuing operations to our non-U.S. GAAP Adjusted Net Earnings and Adjusted EPS from continuing operations.
Foreign Currency Translation Impact on Consolidated Financial Results
Since we are a U.S. domiciled company, we translate our foreign currency-denominated financial results into U.S. dollars. Due to the changes in the value of foreign currencies relative to the U.S. dollar, translating our financial results from foreign currencies to U.S. dollars may result in a favorable or unfavorable impact. Historically, the most significant currencies that have impacted the translation of our consolidated financial results are the euro, the Australian dollar, the Mexican peso, the British pound, the Canadian dollar, the New Zealand dollar, the Brazilian real and the Chinese renminbi.
The following table presents the approximate favorable or (unfavorable) impact foreign currency translation had on certain of our consolidated financial results:
|(In millions)||2020 vs. 2019||2019 vs. 2018|
|Cost of sales||60.0 ||98.4 |
|Selling, general and administrative expenses||5.6 ||16.3 |
|Non-U.S. GAAP Adjusted EBITDA||(15.6)||(25.3)|
Net Sales by Geographic Region
The following tables present the components of the change in net sales by geographic region for the year ended December 31, 2020 compared with 2019 and for the year ended December 31, 2019 compared with 2018.
|(In millions)||North America||EMEA||APAC||South America||Total|
|2019 Net Sales||$||2,828.1 ||59.0 ||%||$||1,010.4 ||21.1 ||%||$||718.8 ||15.0 ||%||$||233.8 ||4.9 ||%||$||4,791.1 ||100.0 ||%|
|Price||(36.5)||(1.3)||%||1.7 ||0.2 ||%||(1.0)||(0.1)||%||35.0 ||15.0 ||%||(0.8)||— ||%|
|21.6 ||0.8 ||%||(14.8)||(1.5)||%||11.5 ||1.6 ||%||4.0 ||1.7 ||%||22.3 ||0.4 ||%|
|Total organic change (non-U.S. GAAP)||(14.9)||(0.5)||%||(13.1)||(1.3)||%||10.5 ||1.5 ||%||39.0 ||16.7 ||%||21.5 ||0.4 ||%|
|Acquisition||133.5 ||4.7 ||%||33.0 ||3.3 ||%||5.6 ||0.7 ||%||0.3 ||0.1 ||%||172.4 ||3.6 ||%|
|Total constant dollar change (non-U.S. GAAP)||118.6 ||4.2 ||%||19.9 ||2.0 ||%||16.1 ||2.2 ||%||39.3 ||16.8 ||%||193.9 ||4.0 ||%|
|Foreign currency translation||(18.6)||(0.7)||%||1.3 ||0.1 ||%||1.1 ||0.2 ||%||(65.6)||(28.0)||%||(81.8)||(1.7)||%|
|Total change (U.S. GAAP)||100.0 ||3.5 ||%||21.2 ||2.1 ||%||17.2 ||2.4 ||%||(26.3)||(11.2)||%||112.1 ||2.3 ||%|
|2020 Net Sales||$||2,928.1 ||59.7 ||%||$||1,031.6 ||21.0 ||%||$||736.0 ||15.0 ||%||$||207.5 ||4.2 ||%||$||4,903.2 ||100.0 ||%|
|(In millions)||North America||EMEA||APAC||South America||Total|
|2018 Net Sales||$||2,734.9 ||57.8 ||%||$||1,038.5 ||21.9 ||%||$||729.8 ||15.4 ||%||$||229.5 ||4.8 ||%||$||4,732.7 ||100.0 ||%|
|Price||(7.3)||(0.3)||%||1.0 ||0.1 ||%||(0.6)||(0.1)||%||49.4 ||21.5 ||%||42.5 ||0.9 ||%|
|(42.8)||(1.5)||%||(3.8)||(0.4)||%||(6.9)||(0.9)||%||11.6 ||5.1 ||%||(41.9)||(0.9)||%|
|Total organic change (non-U.S. GAAP)||(50.1)||(1.8)||%||(2.8)||(0.3)||%||(7.5)||(1.0)||%||61.0 ||26.6 ||%||0.6 ||— ||%|
|Acquisition||147.5 ||5.4 ||%||24.1 ||2.4 ||%||23.2 ||3.2 ||%||0.2 ||0.1 ||%||195.0 ||4.1 ||%|
|Total constant dollar change (non-U.S. GAAP)||97.4 ||3.6 ||%||21.3 ||2.1 ||%||15.7 ||2.2 ||%||61.2 ||26.7 ||%||195.6 ||4.1 ||%|
|Foreign currency translation||(4.2)||(0.2)||%||(49.4)||(4.8)||%||(26.7)||(3.7)||%||(56.9)||(24.8)||%||(137.2)||(2.9)||%|
|Total change (U.S. GAAP)||93.2 ||3.4 ||%||(28.1)||(2.7)||%||(11.0)||(1.5)||%||4.3 ||1.9 ||%||58.4 ||1.2 ||%|
|2019 Net Sales||$||2,828.1 ||59.0 ||%||$||1,010.4 ||21.1 ||%||$||718.8 ||15.0 ||%||$||233.8 ||4.9 ||%||$||4,791.1 ||100.0 ||%|
(1) Our volume reported above includes the net impact of changes in unit volume as well as the period-to-period change in the mix of products sold.
Net Sales by Segment
The following tables present the components of change in net sales by our segment reporting structure for the year ended December 31, 2020 compared with 2019 and for the year ended December 31, 2019 compared with 2018.