Sealed Air Corporation Business Information, Profile, and History

Company Perspectives:

The Sealed Air Advantage is rooted in values that go back to the early days of the company. Although we are flexible enough to change over time by growth, acquisition, global expansion, societal change and new ideas, the core of the culture and philosophy remains constant, and is protected and reinforced by leadership. Sealed Air's daily operating priorities and Code of Conduct are the foundation of the company. These are woven into the fabric of everything we do at Sealed Air.

Our first priority is our customer. Throughout the life of our company, our success has been and always will be measured by our customers' success. Our second priority is cash flow. We encourage employees to spend the company's money like it is their own, because in a real sense, it is. Through our profit-sharing plan many of our employees are shareholders. The third priority is our World Class Manufacturing initiative that focuses all of us on doing our jobs a little better every day. Through employee involvement and teams, we seek to identify opportunities to create faster, simpler processes that enhance our ability to serve customers and improve cash flow. The fourth priority is innovation, and from day one, that is what Sealed Air has focused on in every aspect of our business. Our final priority is earnings per share. If we practice and successfully execute the first four fundamental priorities, growth in earnings will follow. Growth will ensure the company's long-term value and security.

History of Sealed Air Corporation

Sealed Air Corporation is one of the world's leading manufacturers of food, protective, and specialty packaging materials. The company is best-known for its protective packaging products, including AirCap and Bubble Wrap air cellular cushioning materials; inflatable packaging products under the Fill-Air and Rapid Fill brand names; Instapak, a system for injecting a protective, expanding polyurethane foam into shipping cartons and other containers; and protective mailers and bags sold under the Jiffy brand. Since its 1998 acquisition of the packaging business of W.R. Grace & Company, however, Sealed Air has derived the majority of its revenues from its line of food packaging products, mainly marketed under the Cryovac trademark. These items, which include shrink bags and films, laminated films, foam and solid plastic trays and containers, and absorbent pads, are used to package a wide variety of perishable foods, such as cheeses, produce, poultry, and fresh, smoked, and processed meat. The company has operations in 50 countries, though its products are distributed in many more. The United States accounts for about 55 percent of net sales; Europe, the Middle East, and Africa, 26 percent; the Asia-Pacific region, 10 percent; Latin America, 7 percent; and Canada, 3 percent.

Bubble Wrap Beginnings

Sealed Air was founded by U.S. engineer Alfred W. Fielding and Swiss inventor Marc A. Chavannes, the two men who gave the world Bubble Wrap. The product, first developed in 1957, was initially created in response to a client's request for a new type of plastic wallpaper. When that idea fizzled, the pair found some success marketing the product as a greenhouse insulator. They finally stumbled onto the idea of adapting it for the packaging market. After a few years of tinkering with manufacturing methods and hustling for seed capital, Fielding and Chavannes launched Sealed Air Corporation in 1960. With $85,000 raised through an initial public stock offering, production of the AirCap material began in earnest the following year. In its earliest form AirCap packaging material suffered from slightly leaky bubbles. In spite of the problems, however, the product gained popularity throughout the 1960s, and by the middle of the decade research efforts had led to the development of a special coating that prevented the bubbles from losing air. By 1969 Bubble Wrap was beginning to catch on. For that year, Sealed Air reported sales of $4 million. This represented nearly the entire market for Bubble Wrap, because the product was still proprietary at the time.

In 1970 Sealed Air suffered a small deficit, despite continuing gains in sales. In the face of criticism from some members of the company's board, President Ted Bowers suddenly resigned. To replace him, the board turned to one of its members, T.J. Dermot Dunphy, an Irishman who had studied at Oxford and at Harvard Business School. Dunphy, who became CEO in 1971, had arrived on the Sealed Air board two years earlier after selling his own small packaging company, Custom-Made Packaging (which sold popsicle wrappers and the like), to Hammermill Paper. With cash on hand from that sale, Dunphy had asked friends at the investment firm Donaldson, Lufkin & Jenrette to find a public company for him to lead. Bowers's unexpected departure created that opportunity at Sealed Air.

Just prior to the beginning of the Dunphy era, Sealed Air had added a set of products to its line. By laminating AirCap cushioning material to kraft paper, the company developed its Mail Lite shipping envelopes, first sold in 1971. A smaller, cheaper version of Mail Lite called Bubble-Lite was introduced a few years later. The company also became international around this time, with the 1970 acquisition of Smith Packaging Ltd., later renamed Sealed Air of Canada, Ltd. Under Dunphy, the company's minor stumble of 1970 was quickly reversed, and by 1972 Sealed Air's sales had passed the $10 million mark. Another new product, PolyMask, was introduced in 1973. PolyMask, a pressure sensitive polyethylene film for protecting delicate surfaces against scratches, was the first Sealed Air product not based on its air bubble technology. For 1973, the company's after-tax profits topped $1 million for the first time. Of its $13.6 million in sales for that year, about 60 percent came from AirCap and about 20 percent from Mail Lite. The rest came mostly from the manufacture and distribution of a variety of packaging products by its Canadian subsidiary. The company's biggest customer was the electronics industry, which accounted for about 40 percent of sales.

Sealed Air made its first foray into Europe in 1973, acquiring 10 percent of Sibco Universal, S.A., a French manufacturing firm. Over the next few years, Sealed Air bought the rest of Sibco. During the mid-1970s Sealed Air's researchers came up with another innovative use for the company's air cell technology. The Sealed Air Solar Pool Blanket was essentially a big sheet of Bubble Wrap that was placed on swimming pools. The Solar Pool Blanket allowed the sun's rays to heat the water and sharply reduced the evaporative loss of water and treatment chemicals. By 1977 the Solar Pool Blanket was generating 6 percent of company sales. As an offshoot of the pool blanket, the company also began making a roof-mounted solar water heater designed mainly for heating swimming pools.

Expansion Through Acquisition: Late 1970s and 1980s

The most important development of 1977 was the acquisition of Instapak Corporation, producers of a revolutionary "foam-in-place" cushioning system. The foam-in-place process, initially conceived in the 1950s by engineers at Lockheed Corporation, involves surrounding a product with urethane in a liquid form that would then quickly expand into a semirigid foam. The idea was finally made practical in 1969 by inventor Richard Sperry (whose grandfather, Elmer Sperry, invented the gyroscope). Instapak was made a division of Sealed Air, and it quickly became one of the company's most important products, generating almost as great a share of total sales as Bubble Wrap by the end of the decade. Foreign sales also increased dramatically during the second half of the 1970s, accounting for nearly a quarter of the company's total by 1977. By 1979 Sealed Air's annual sales had grown to more than $70 million.

By the beginning of the 1980s, foam-in-place was clearly a product destined for bigger things, and Sealed Air still had virtually no competition in the area. The pool blankets were also doing well, selling as fast as the company could make them. In 1981 Sealed Air added PolyCap to its product line. PolyCap was essentially a lower-cost, less durable version of AirCap, without the barrier coating, providing a less expensive option for products that required only a relatively short period of protection. Sealed Air broadened its product line further in 1983 by purchasing Cellu-Products Co., a Hickory, North Carolina, manufacturer of packaging materials, for $20 million. The Cellu-Products acquisition added thin-grade polyethylene foam, coated films, and other plastic and paper materials to the company's growing collection of packaging products. Sealed Air also gained its first presence in the food packaging segment in 1983 through the acquisition of the Dri-Loc line of absorbent pad products, which were used underneath meat, fish, and poultry sold in supermarkets. Although the recession of 1982 took a bite out of Sealed Air's revenue and earnings figures, the emergence of personal computers and other related electronic gizmos brought a new wave of business, and by 1983 the company's sales had grown to $124 million.

In an effort to diversify its product line further, and in part to prepare itself for the impending expiration of its Bubble Wrap patents, Sealed Air acquired several smaller companies during the middle part of the 1980s. In 1984 the company acquired Cortec Corporation, a small anticorrosive chemical firm. Cortec was sold off only a few years later, after being caught illegally shipping chemicals to Libya. Other acquisitions that yielded happier results included Static, Inc., in 1985; a Canadian spa manufacturer in 1987; and a Swedish packaging company in 1987. More important was the company's 1987 purchase of Jiffy Packaging Corporation, which manufactured padded mailers for items such as floppy disks and books. The addition of Jiffy solidified Sealed Air's dominant position in the protective mailer market. The year 1987 also saw company cofounders Fielding and Chavannes both retire from the firm. During this period, Sealed Air also began incorporating recycled materials into a number of its air bubble and paper packaging products, at a time when few companies in the industry were doing so.

By 1988 Sealed Air had annual sales of $346 million, and it earned $42 million in profit that year. All told, $127 million of the company's sales came from Instapak, which by this time had more or less replaced Bubble Wrap as the flagship product. Meanwhile, Sealed Air's researchers, as well as freelancer Sperry (who had developed Instapak), kept busy at the drawing board. One new wrinkle was a pair of systems called Instapacker and VersaPacker, which could produce bags full of protective foam at the touch of a button.

Dunphy pulled off a remarkable financial maneuver in 1989. The company had been so profitable over the previous few years that it found itself with a huge cash surplus. Because Dunphy could not find any more companies that he felt were good acquisition candidates, he had no obvious outlets for this cash buildup. In order to avoid becoming too attractive a target for a takeover, as well as to create what he called a "controlled crisis" to shake his managers out of their complacency, Dunphy decided to give the money away. He announced a $40-per-share special dividend, amounting to a $328 million gift to shareholders. The move increased the company's long-term debt from $19 million to over $300 million, made up of a combination of bank loans and junk bonds.

Dunphy hoped that leveraging the company would push it to new heights of efficiency, and he was correct. The new debt situation necessitated changes in the way the company handled inventory and led to other cost-cutting measures. These changes enabled the company to begin repaying its debts ahead of schedule, creating further savings. At the same time, an unexpected reduction in the cost of raw materials resulted in yet more opportunities to work down part of the debt with extra cash. By the early 1990s it was clear that the gamble had paid off, and Sealed Air was ready to go shopping once again. In 1991 the company acquired a small company called Korrvu, which produced transparent suspension packaging--an innovative product that protects fragile items in a trampoline-like membrane. Sentinel Foam & Envelope Corporation, a packaging firm based in Philadelphia, was also acquired that year.

Significant International Expansion: Early to Mid-1990s

Sealed Air's sales figures stalled somewhat during the first part of the 1990s, advancing from $413 million in 1990 to only $452 million in 1993. Nevertheless, the company was able to generate solid profits each year. In order to boost revenue, Dunphy began concentrating heavily on worldwide expansion. Instapak was introduced in Mexico, and the company opened manufacturing facilities in Germany and Spain. Throughout, the company continued to emphasize research and development, and new products were unveiled at a steady pace. One such product was Floral, introduced in 1993. Floral was a foam that served as a base in artificial flower arrangements. Within a year of its first appearance, Floral was generating sales in the neighborhood of $5 million.

As the 1990s continued, Sealed Air made additional strategic acquisitions. In 1993 the company purchased the Shurtuff Division of Shuford Mills, Inc. Shurtuff's extremely durable plastic-based mailers meshed well with Sealed Air's existing protective mailer product line. On the product front, the company developed a new inflatable packaging system called VoidPak. The acquisition department was very active in 1994. The company reinforced its European food pad business with the purchase of Hereford Paper and Allied Products Ltd., an English food pad manufacturing firm. Packaging companies based in Norway, France, and Italy were also acquired during the year. The French acquisition added two product lines, Sup-Air-Pack and Fill Air, to the company's collection of inflation-based systems, an area considered to hold great promise for the future. Toward the end of the year the company reorganized its management structure so that its important product lines were coordinated globally rather than country by country. This move reflected an increasing focus on the international market, which was expected to continue through the rest of the century. For 1994 sales numbers at Sealed Air made their first significant jump in several years, exceeding $500 million for the first time in company history. Earnings, at $31.6 million, reached record levels as well.

Sealed Air's biggest acquisition of this period came in January 1995, when it acquired Trigon Industries Limited, a New Zealand company with operations in Australia, England, Germany, and the United States, for $54.6 million. With annual sales of $72 million, Trigon had an immediate and significant impact on Sealed Air's balance sheet as well as on its geographic reach, providing a base for expansion in the South Pacific. Trigon's lines of packaging films and systems for perishable foods almost doubled Sealed Air's food packaging operations. Other Trigon products included durable mailers and bags and specialty adhesive products.

The Trigon purchase was followed by the June 1996 acquisition of the Australian and New Zealand protective packaging business of Southcorp Holdings Limited. This further bolstered Sealed Air's position in the South Pacific, as the company saw its overseas sales grow to nearly 40 percent of overall sales. In 1985, by comparison, non-U.S. sales totaled only about 18 percent of total sales. By 1997 net sales at the company reached $843 million, while operating profits were a record $138 million.

Late 1990s Merger with Cryovac

In March 1998 Sealed Air completed the biggest deal in its history, merging with the Cryovac packaging business of W.R. Grace & Company in a complicated stock and cash transaction valued at $4.9 billion. W.R. Grace transferred Cryovac to Sealed Air in return for $1.26 billion, which was given to Grace's other subsidiaries. This group of subsidiaries was spun off to shareholders as a separate publicly owned company that assumed the W.R. Grace name. The merged Cryovac-Sealed Air entity became a subsidiary of the old W.R. Grace, which was renamed Sealed Air Corporation. The deal was undertaken in such a complex way both to ensure that it was done on a tax-free basis and to shield Sealed Air from the mounting asbestos liabilities of one of the spun-off Grace units, Grace Construction Products, which had made asbestos-containing products.

The addition of Cryovac was a "dream" deal for Dunphy, who had held off on discussions with Grace executives about a merger for two decades. The Cryovac operations were in fact much larger than those of the old Sealed Air, and the company saw its sales triple to more than $2.5 billion following the merger. Cryovac specialized in food packaging products, making that segment Sealed Air's largest, accounting for 60 percent of sales. The acquired lines were led by Cryovac itself, a material used to vacuum-seal food packages. The deal also significantly enhanced Sealed Air's worldwide profile, adding operations in nearly 20 more countries. Following the merger, Sealed Air remained headquartered in Saddle Brook, New Jersey, and Dunphy continued to serve as chairman and CEO.

A few months after the merger was consummated, Sealed Air announced that it would eliminate about 750 jobs from its enlarged workforce of 14,500, a reduction of more than 5 percent, as part of a restructuring program. The company combined or eliminated certain small facilities and administrative support functions, eliminated "layers of management," and centralized Cryovac's U.S. research facilities. Charges associated with this restructuring totaled $111 million, reducing net earnings for 1998 to $73 million.

Sealed Air continued its history of innovation in 1999, introducing VistaFlex engineered inflatable packaging, which was designed as an alternative to corrugated inserts and other premolded shapes and die-cuts used in high-volume protective packaging applications. Also debuting that year was Instapak Quick, a simplified version of the Instapak foam-in-bag product that was targeted at smaller companies selling products over the Internet. The company also completed a number of small acquisitions from 1999 to 2001. These included manufacturers of air cellular cushioning products in Latin America, Asia, and South Africa and producers of foam and solid plastic trays used in food packaging in Latin America, Europe, and Australia. During the third quarter of 2000 a larger deal was finalized, with Sealed Air paying about $119 million for Dolphin Packaging plc, a U.K. maker of foam food trays. Another significant purchase was that of Shanklin Corporation, a U.S. manufacturer of shrink film packaging equipment, in a deal completed later in 2000. In early 2000, meantime, Dunphy retired from the CEO position, while remaining chairman. President and COO William V. Hickey, who had joined Sealed Air in 1980, was promoted to president and CEO.

Asbestos-Related and Other Travails in the Early 2000s

By the early 2000s, some analysts were beginning to question the wisdom of the Cryovac merger. The deal had greatly expanded Sealed Air's operations in Asia and Europe, meaning that the company suffered in a more pronounced way from the economic troubles in Asia that cropped up in the late 1990s and from the decline in meat consumption in Europe that followed the outbreaks of mad cow and foot-and-mouth disease. Even more ominously, the merger had left Sealed Air exposed to potential liabilities related to asbestos claims, despite both the structure of the merger, which had explicitly shielded Sealed Air from W.R. Grace's asbestos exposure, and the fact that neither Sealed Air nor Cryovac had ever produced or sold any products containing asbestos.

By 2000 Sealed Air had been named as a party in a number of lawsuits alleging that the company was responsible for possible asbestos liabilities. The asbestos claimants were suing both Sealed Air and W.R. Grace charging that Grace had fraudulently transferred Cryovac's assets in order to shelter them from Grace's asbestos liabilities. They further contended that Sealed Air was the true successor to the "old" W.R. Grace and that without Cryovac the "new" Grace was insolvent at the time of its spinoff because of the growing number of asbestos lawsuits that it faced. Weighed down by these asbestos claims, W.R. Grace filed for Chapter 11 bankruptcy protection in April 2001--a development that boded ill for Sealed Air being exonerated from the charges. Meanwhile, in response to the difficult operating environment engendered by the global economic downturn and the aforementioned decline in meat consumption, Sealed Air in 2001 conducted another restructuring, this one consisting of 470 job cuts, a $32.8 million charge, and projected annual cost savings of $23 million.

Asbestos-related events dominated 2002. Sealed Air faced a federal fraudulent-transfer lawsuit that was in its pretrial phase. In late July the company suffered a blow when the federal judge in the case issued a ruling that post-1998 asbestos claims could be considered when determining whether the new W.R. Grace was solvent when it transferred Cryovac to Sealed Air. The defendants had contended that only claims pending at the time of the merger should be considered. This news sent Sealed Air's stock plunging by 62 percent over a two-day period, although it soon recovered somewhat. With the outcome of the trial, scheduled to begin in early December 2002, in serious doubt, Sealed Air reached an agreement in late November to settle all current and future asbestos-related claims. The company agreed to pay $834 million in cash and stock into a trust that would be established as part of the bankruptcy-reorganization plan of W.R. Grace. The trust would make payments to asbestos victims on behalf of Grace and its former subsidiaries. To cover the settlement costs and associated legal fees, Sealed Air recorded an $850.1 million charge at year-end, leading to a net loss for 2002 of $309.1 million. The agreement, which appeared to represent an end to the company's asbestos nightmare, put air back into the company's stock, sending it ballooning 56 percent and returning it to where it was prior to the critical July 2002 pretrial ruling. Sealed Air could now once again focus its full attention on developing and acquiring innovative packaging products and successfully marketing them.

Principal Subsidiaries: Cryovac, Inc.; Sealed Air Corporation (US).

Principal Competitors: Pactiv Corporation; Bemis Company, Inc.; Minnesota Mining & Manufacturing Company; AEP Industries, Inc.; Reynolds Food Packaging; Interplast Group, Ltd.

Chronology

• Key Dates:
• 1960: Inventors of Bubble Wrap cushioning, originally called AirCap, found Sealed Air Corporation; $85,000 is raised through an initial public offering.
• 1961: Production of AirCap material begins in earnest.
• 1970: Expansion beyond the United States begins with the acquisition of Smith Packaging Ltd., later renamed Sealed Air of Canada, Ltd.
• 1971: Company begins selling Mail Lite cushioned shipping envelopes; T.J. Dermot Dunphy is named company CEO.
• 1977: Instapak Corporation, makers of a "foam-in-place" cushioning system, is acquired.
• 1983: Sealed Air purchases Cellu-Products Co., maker of thin-grade polyethylene foam, coated films, and other plastic and paper packaging products; first foray into food packaging comes via the purchase of the Dri-Loc absorbent pad product line.
• 1987: Jiffy Packaging Corporation, producer of padded mailers for such items as floppy disks and books, is acquired.
• 1989: Company effects a leveraged recapitalization to ward off takeover bids and sharpen the firm's focus.
• 1994: Acquisition of a French firm adds the Fill Air line of inflation-based packaging to the fold.
• 1995: New Zealand-based Trigon Industries Limited is acquired, nearly doubling Sealed Air's food packaging operations.
• 1998: Sealed Air merges with the Cryovac food-packaging business of W.R. Grace & Company.
• 2002: Company agrees to pay $834 million to settle all current and future asbestos-related claims connected with Grace.