Sealed Air Corporation Elected to the Board in 1999 Michael Chu(1)(3) Senior Partner and Founding Partner, Jacqueline B
Total Page:16
File Type:pdf, Size:1020Kb
278190_SA 2006 Annual Report 3/12/07 8:35 PM Page 1 Annual Report 2006 We’re Always Looking Ahead 278190_SA 2006 Annual Report 2007.03.16 17:25 Page 2 Sealed Air is a leading global manufacturer of a wide range of food and protective packaging materials and systems. Our widely recognized brands include Bubble Wrap® cushioning, Jiffy® protective mailers and Cryovac® food packaging products. Our vision is to be the global supplier of choice for solutions, products and services that improve our customers’ bottom line. We will be an exceptional Company for our customers, our employees and our communities. 278190_01 3/12/07 8:45 PM Page 3 At Sealed Air, we believe that focusing on innovation is the only true way for a company to achieve sustainable, long-term success. We have a long, successful history of creating markets through innovation. Sealed Air was founded with the invention of Bubble Wrap® brand cushioning back in 1960, which led to the creation of the modern protective packaging market. Our Cryovac® brand food packaging technology created vacuum packaging and revolutionized the way fresh protein is distributed and sold at retail. We have steadily built on this foundation over the years. The future will bring even more exciting solutions as we continue to focus on developing innovative products and systems that meet and exceed our customers’ expectations. You can be assured that at Sealed Air, we’re always looking ahead to create value in an ever-expanding world of opportunities. 278190_SA 2006 Annual Report 2007.03.16 18:05 Page 4 Dear Fellow Stockholders: In 2006, Sealed Air’s operating performance demonstrated steady improvement as we progressed through the year. We accomplished this by focusing on profitable growth and by continuing to optimize the efficiency of our global supply chain. Our total net sales increased 6% for the year, to $4.3 billion, with positive growth in every major region of the world. Our sales growth was driven in particular by strong performance in Latin America, with sales up 14% excluding the effect of foreign currency translation. Our success in Latin America is attributable to continued economic development in the region and increasing domestic consumption and export of packaged protein in Brazil. We also experienced very strong double-digit growth in our businesses in both Russia and China, two of the other emerging “BRIC” economies.* This growth highlights the timeliness of our global manufacturing strategy as we are investing in new production capacity to most efficiently serve the needs of high growth potential markets in Asia, Eastern Europe and Latin America. While we have more work to do, we are pleased that our profitability steadily improved throughout the year. We finished 2006 on a strong note, as our operating profit in the fourth quarter increased by 12% compared with the prior year driven by Net Sales (in millions) improved operating efficiencies and lower average petrochemical-based raw material costs. We also returned approximately $100 million to our stockholders in 2006 through a combination of common stock repurchases and quarterly cash dividend payments. Even though our year-over-year average raw material costs improved for the first time in several quarters during the fourth quarter of 2006, we still experienced full year raw material costs that were approximately $60 million higher than 2005 on an equivalent volume basis. Our improved 2004 2005 2006 * The term “BRIC” refers to Brazil, Russia, India and China. 278190_03 3/12/07 8:45 PM Page 5 We’re expanding our global production capabilities to meet long-term opportunities for growth. 278190_04 3/12/07 8:45 PM Page 6 Our focus is on future innovations and new product development. 278190_SA 2006 Annual Report 2007.03.16 18:13 Page 7 Cryovac® Food Packaging WorldStar Awards Sealed Air’s Cryovac® brand food performance throughout 2006 is attributable to the progress made on our plans laid packaging business recently out at the beginning of the year to improve the profitability of the business. We received three WorldStar Awards, the packaging industry’s most accomplished this in part by increasing our market focus within our sales and marketing prestigious worldwide honors. organization, which should drive additional opportunities for growth and new product The Cryovac® Simple Steps™ development. We also increased our productivity by investing in new technologies and produce package was recognized for its easy-open, microwaveable focusing on best-in-class operations to enhance our performance and service levels as we design that offers a quick continue to meet and exceed the needs of our customers. and simple way to cook fresh vegetables. The Compression Pack for Dri-Loc® pads was Business Review recognized for its space saving Our food packaging segment, which got off to a difficult start in 2006 due to higher packaging format. The Cryovac® petrochemical-based raw material costs, demonstrated improved operating performance saddle pack-style poultry package was recognized for offering as the year progressed. Our net sales in this segment increased 7% during 2006 with versatile meal preparation and sales being driven by strength in Latin America, the performance of our key growth easy storage. These same package programs of Case Ready Packaging and Vertical Pouch Packaging, as well as the impact designs also were honored with 2006 Top Packaging Awards from of acquisitions made during the year. Our Case Ready business once again posted the Flexible Packaging Association. solid double-digit growth for the year, passing the $400 million milestone. Our Vertical Pouch Packaging business also expanded at a double-digit rate for the year, exceeding $100 million in total sales. We also continue to be encouraged by the growth we are seeing with our Simple Steps™ heat-and-serve package, which is one of our primary packaging solutions to meet the increasing market demand for ready meals and convenience foods. Our acquisition of Nelipak Holdings B.V. in January 2006 broadened our ability to meet the growing needs of the healthcare industry. Our traditional flexible Medical Products business also had a very good year, with sales increasing by more than 20%, as we continue to deliver value-added packaging alternatives for pharmaceutical solutions to the developing market in Asia. 278190_SA 2006 Annual Report 2007.03.16 18:15 Page 8 Inflatable Packaging Innovations Sealed Air has been a leader in developing inflatable packaging Our protective packaging segment performed very well during 2006, as our efforts to solutions that deliver numerous optimize our production efficiencies and focus on profitable growth produced positive benefits for our customers ranging from logistics savings to results. Segment net sales increased 5% during 2006, primarily driven by price increases improved productivity. In 2006, implemented during the year to offset continued higher raw material costs. The strength we introduced our new Fill-Air ® of innovative new products and systems also contributed to our sales growth in 2006. 2000 inflatable packaging system for high volume void-fill Our sales for inflatable products grew at a double-digit rate for the year, as new system applications. We also introduced introductions for NewAir I.B.™ cushioning and Fill-Air® inflatable cushions are our NewAir I.B.™ 600 system for meeting the needs of our customers and driving incremental packaging material sales. high-speed on-site, on-demand high performance cushioning We are particularly pleased that we achieved a greater than 20% increase in our protective requirements. Adding to Sealed packaging segment operating profit in 2006 compared with the prior year. As a percentage Air’s broad inflatable packaging of net sales, our segment operating profit margin improved by nearly 200 basis points offering, we unveiled our new FillTeck™ inflatable cushioning in 2006 compared with 2005. This performance is directly attributable to our actions system in 2006, which enables to streamline the business and to enhance the profitability of the products we sell. users to customize the height and length of their cushion sizes for optimal flexibility. Looking Ahead As we look ahead, we are very encouraged about the growth opportunities for our business and our ability to continue to generate significant cash flow. In addition to our opportunities for organic growth and geographic expansion, we also expect to leverage recent acquisitions we have made to expand our product offering in a number of strategic areas. One particular area of emphasis is to develop innovative solutions that meet the growing market demand for environmentally friendly, sustainable packaging materials. In late 2006, we acquired a majority interest in Biosphere Industries, LLC, a late stage start-up company based in California that has developed a proprietary process for manufacturing sustainable rigid packaging materials made from annually renewable resources. We intend to utilize our technical resources to further develop this technology and broaden our product offering so we can continue to be a leader in creating innovative packaging solutions that have a positive impact on our world. 278190_07 3/12/07 8:46 PM Page 9 We’re a leader in creating performance solutions that have a positive impact on our world. 278190_08 3/12/07 8:46 PM Page 10 We’re increasing our speed to market through best-in-class operations and teamwork. 278190_SA 2006 Annual Report 2007.03.16 18:17 Page 11 Acquisitions Sealed Air has a long history of growth through both internal Our global manufacturing strategy is focused on aligning our global production development and by making strategic acquisitions. In 2006, capabilities with long-term opportunities for growth in developing markets around the we acquired three different world. If you look back to the year 2002, 55% of our total revenues were generated businesses to broaden and from the United States.