Good day, ladies and gentlemen, and welcome to the Quarter Four 2013 Sealed Air Earnings Conference Call. My name is Matthew, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now, I'd like to turn the call over to Lori Chaitman, Vice President of Investor Relations. Please proceed, ma'am.

Thank you, and good morning, everyone. Before we begin our call today, I'd like to note that we have provided a slide presentation to help guide our discussion. This presentation can be found on today's webcast and can be downloaded from our IR website at sealedair.com. I would like remind you that statements made during this call stating management's outlook or predictions for the future are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the information in the section entitled Forward-Looking Statements in our earnings release, which replies to this call. Additionally, our future performance may differ due to a number of factors. Many of these factors are listed in our most recent annual report on Form 10-K and as revised and updated on our quarterly reports on Form 10-Q, which you can also find on our website at sealedair.com. We also discuss financial measures that do not conform to U.S. GAAP. You may find important information on our use of these measures and their reconciliation to U.S. GAAP in the financial tables that we have included in our earnings release. Please note that we will end the call by 11 a.m. today. Now I'll turn the call over to Jerome Peribere, our President and CEO. Jerome?

Thank you, Lori, and good morning, everyone. 2013 was a solid year for Sealed Air. We made significant progress on our Get Fit strategy. We increased EBITDA, excluding SARs, on a year-over-year basis by 7% in 2013 and this is only the second time the company has delivered EBITDA margin growth in 11 years and that should speak for this leadership team. I'm also very pleased that we held firm on our pricing initiatives, reinforced our efforts in the fourth quarter. And in the fourth quarter, we delivered favorable price/mix trends in every division in every region. Our free cash flow performance was outstanding. In addition to our forecast on reducing working capital as the Grace settlement became more likely, we put forth a tremendous effort over the last few months of 2013 to generate cash. We generated $509 million of free cash flow. The Grace settlement is a significant development and what I would call a major milestone. It brings closure to an important legal matter after more than a decade. We will no longer incur interest on the settlement liability and we anticipate meaningful cash tax benefits. This will provide us with additional financial flexibility and cash generation in future years. And we're very happy with what we have accomplished in 2013. Not only have we started to change our go-to-market strategy, but we also rebranded the company, reorganized Diversey Care, reengaged our employees and set the foundation to reimagine the company. Along the way, we are improving the delivery on our objectives. Since we started this journey, we have heard -- we have heard -- you have heard us back -- talk about a more disciplined pricing strategy and passing on our raw material cost increases. We started that initiative in Q1 and Q2 with moderate success,…

Thank you, Jerome, and good morning, everyone. If you are following along with our presentation, Slide 10 provides a bridge for net sales growth on a year-over-year basis for the quarter and full year. We delivered 3% growth in the fourth quarter and 2% growth for the full year. Currency had a 1% unfavorable impact on the quarter and full year 2013, primarily due to declines in Latin American currencies, most notably in Argentina and Brazil. For the quarter, volumes contributed $27 million and price/mix was $52 million positive, driven by favorable trends in all divisions and in all regions. For the year, volumes contributed $114 million and price/mix was $94 million positive, primarily due to favorable trends for Food Care and Diversey Care. Slide 11, just like the adjusted EBITDA bridge, excluding SARs, for the fourth quarter and full year 2013, for the quarter, adjusted EBITDA was essentially flat compared to last year. Favorable mix and price cost spread of $26 million and cost synergies of $28 million were largely offset by $31 million in unfavorable supply chain cost and $17 million in performance-based compensation. The unfavorable supply chain costs were primarily related to $12 million of nonmaterial inflation, $8 million of LIFO adjustments and $4 million for timing of inventory adjustments. We recorded additional performance-based compensation of $17 million in the fourth quarter. This is in recognition of our strong year-over-year performance for the full year 2013 in the areas of adjusted EBITDA, working capital management and other key financial metrics. For the year, adjusted EBITDA, excluding SARs, increased to $1.07 billion from $1 billion in 2012. The 7% increase in EBITDA was attributable to $112 million of cost synergies, $41 million of favorable mix and price cost spread and $40 million in volume. These increases were partially…

[Operator Instructions] And your first question comes from the line of George Staphos of Bank of America Merrill Lynch.

Two-part... [Technical Difficulty]

Operator, if need be, you could move to the next question, then we can go back to George.

Next question then comes from the line of Alex Ovshey, who is from Goldman Sachs.

It's actually Usha Guntupalli on behalf of Alex. A quick question on the pricing growth. Could you remind us how much pricing growth is factored in your 2014 EBITDA guidance?

So, what -- the amount we gave for the organic growth, it's slightly more on pricing than it is on volume, but we will benefit top line for both price as well as volume. But again, that's being offset by currency, negative currency impact, as well as very intended product, customer and geographical rationalization to improve the quality of the business. So again, we said 3% to 4% organic growth with that more heavily weighted on pricing.

Got it. And is your target to mostly offset resin inflation? Or is your target to get pricing over and above resin inflation?

The minimum is resin inflation, but we also have inflation above just our resin cost. We have other nonmaterial inflation, whether it's utilities and things like that. And our expectation is to be more than whole, so that we see margin expansion. Jerome, I don't know if...

So let me repeat what I said 1 year ago and not wavering an inch on this. We have, in Sealed Air, we have a very clear and determined left brain and a very clear and determined right brain. The left brain is about discipline and Get Fit. A very clear element of the Get Fit component is to start by recouping our cost increases. And you heard in my prepared remarks that we have not been very successful in Q1 and Q2 with our price increases compared to our cost increases. Remember that in the U.S., resin prices went up by $0.12 in January of last year. And we have implemented those cost increases, but -- those price increases, but not fully. I was dissatisfied toward the year as to the rate of implementation. And I must clearly say that I was quite happy with our result, determination and the systems that we have put in place with regards to our October announcement effective November 1. And there is -- there's all kinds of things, including a cultural change that we needed to make sure was happening in our various markets. And I must admit that our people saw that it was possible and we're not here in the business of absorbing those costs. So we need to make sure that our people start by understanding that very clearly that we are not in the business of absorbing it completely or partially. And for 2014, we're going to continue to raise this. The resin suppliers have announced $0.04 for February. There's a very large supplier who has announced a $0.06 for March and we're not going to be waiting. You're going to see very soon that we are announcing officially price increases to cover for those costs because we…

Your next question is now from George Staphos of Bank of America Merrill Lynch.

I'm not sure what happened before with the transmission, but thanks for getting me in the queue. Real -- just brass tacks kind of question here in 2 parts. You, I think, said your adjusted earnings pre-SARs is $1.39 for the year that just passed. I think in the past, the benefit of Grace would be something in the low teens from an earnings per share standpoint and realizing that's a full year number, but we'll use it to start. If I just add the 2 together, I get in to the low end of your guidance range for the year. And [Audio Gap]

the low end. We will have benefit on cost savings that were estimating additional synergy costs. Those, we have factored in approximately $80 million that will benefit in 2014. However, a lot of that is utilized by that $55 million to $60 million in annual inflationary costs that we see. Now, a lot of you would say, "Carol, you told us last year, it was $55 million to $60 million. Why is it still $55 million to $60 million when we've had headcount reductions?" One of the challenges that we faced is that we do have a pretty large employee base and some highly inflationary economy specifically in Latin America. And that has created a drag where we're not realizing quite as much of a reduction in that annual compensation increase. What our forecast represents in total is we've conducted a very detailed bottom-up forecast that our divisions have put together, they believe in, they have high confidence in. We've always said that this new management team for Sealed Air, we're going to be very prudent [Audio Gap] ...in our expectations. Please rest assured, we clearly have internal stretch goals, but what we're presenting to you today is something we feel very confident about.

So let me add just a little bit of [Audio Gap]

Next question is from Ghansham Panjabi of Robert W. Baird. Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division: Just given the increase in Europe from a volume perspective, understanding that comps are easy. Jerome, should we start to expect that the next leg of pricing for the company starts to focus on that region? I assume that raw material prices could start to book higher if the recovery there is sustainable.

So, Ghansham, good to hear from you. The pricing -- the cost raw materials increases right now are fairly widespread but depending on the region and depending on the raw material. Benzene prices have gone -- have been shooting very high and this is affecting MDI and this is affecting the propylene chain. So our Instapak business is affected and we are announcing price increases. We have announced price increases in Europe. And we are announcing price increases in North America to that effect. The polyolefin business prices are mostly coming from -- in North America and the market is somewhat softer in Europe. But we also have announced some price increases in our films and polyethylene-based products. Bearing in mind also, there are some price increases affecting the nylon base. So the reality is that the raw materials are increasing in different areas at different levels, but what has been a very clear trend is that the benzene prices have been very firm, and this is -- and therefore, we need to react quickly in that.

Your next question comes from Anthony Pettinari of Citigroup.

At your Analyst Day in September, you guided to 2016 sales of, I think roughly, $8.3 billion to $8.5 billion. And when I think about sales guidance for 2014 being basically flat and that top line growth guidance maybe being back-end loaded to 2015, 2016, I'm just wondering how we should think about that. Is 2014 just really impacted by the FX headwinds? Or are you expecting some sort of contribution from emerging markets or a price that you expect to really accelerate in 2015, 2016?

So 2 points here. One is that you need to compare at equal, equal [Audio Gap] is that I would have done faster in 2013 in retrospect is go stronger at the low-quality businesses. We need to continue and we will this year continue to streamline for bleeders or for low-return customers. This is applying to every single of our product line in every single of our 3 divisions. So I am -- I want growth, but I don't -- I first want quality growth. And to have quality growth, you need first to have a streamlined and clean portfolio. And that's going to continue in 2014, which is affecting our top line growth in general. So we really take at heart this Get Fit. We're taking it very, very seriously because it is our disciplined approach, which is going to make a different company.

Our next question comes from the line of John McNulty of Credit Suisse. John P. McNulty - Crédit Suisse AG, Research Division: Question on working capital, or maybe 2 related questions on it. The first is it looks like you took a really serious push on working capital, especially in the fourth quarter. I'm wondering on the inventory side or the inventory reduction side, if that reduction had any operating issues or resulted in any operating issues, or maybe you didn't run at optimal rates across your normal platform and if that had any impact on, say, the margins? And then just as a follow-up, how should we think about working capital improvements and the potential for that in 2014? Because it did seem like you had some really, really big improvements in the fourth quarter in 2013 overall.

John, great questions. In terms of unabsorbed overhead, which is what we would have experienced if we had a lot of inefficiencies, in total for the company, no, on a collective basis, we did not. The negative impact that we did see is the LIFO adjustment that I referenced, because it spoke specifically for our Product Care business, as we reduced some inventory levels and because of the way LIFO works, we ate back into levels as far back as a basis to 1994. And because of that, we had that LIFO -- negative LIFO impact. So that's really the main obvious thing that we saw. We're very confident about our ability to continue to monetize working capital to create good cash flow for the company. One thing we were able to push really hard on the last couple of months of the year was accelerating collection of past dues. We've shared publicly in Q3 that our past dues were approximately $200 million. We still have $160 million of past dues. So we still have opportunity. Our cash flow that we're forecasting, if you do the walk, you'll see that the primary difference going from the $509 million for 2013 to the $410 million that we're forecasting -- for 2013, $410 million for 2014, is driven by the increase in restructuring charges to $150 million, as well as the increase in CapEx. So those are the 2 primary drivers for the decrease. We do believe we have additional opportunity in working capital and that will be part of our stretch goal internally.

So remember what short-term incentive compensation is based for our people. It's based on EBITDA and we almost reached our objective there; on productivity improvement, which is measured as expense to gross profit; and on working capital as a percentage of net sales too. As Carol said in the prepared remarks, we have improved 200 basis points, from 19% to 17%, and we're going to continue to improve. We can do that. Have we put a very strong stretch goal in Q4 internally? The answer is yes. And it is yes because the Grace settlement was coming and we wanted to come with a lower debt situation. So there's been a very strong push. But we are organizing this improvement, and our internal goal for this working capital to net sales is to improve over 17%. And that's a pretty nice thing. You mentioned also the quality of our business in Q4. At the end of the day, there are 2 things which have affected our cost base there. Number one is that our incentive compensation in 2012 was slightly below 70% for the incentive compensation was paid at slightly below 70%. And in 2013, it has been very slightly above 100%, so there's been some catch-up and which generated $17 million in there. And then the elements of inventory reduction and all of those things have played a small part in it also.

Your next question comes from the line of Adam Josephson of KeyBanc.

Back to -- a follow-up on George's question earlier about your guidance. So EBITDA was up about 8% last year. You're guiding to up about 2% this year. And I just want to make sure I understand the puts and takes. FX was about a 1% drag on sales last year. This year, it will be 1% to 2%. $30 million lower cost savings this year compared to last year. And anything in terms of price over costs that you're assuming in '14?

So that -- Adam, the currency impact is actually more than 2%, not 1% to 2%, on the top line and the impact on the bottom line on the EBITDA as well. We do -- we -- again, I reference the salary and comp and benefit inflation. We obviously have expansion in margin, which is what we're forecasting. We do have to have positive mix and price cost spread and that's factored in our EBITDA as well. And I also -- I talked about the approximately $80 million in cost synergies and we'll also have volume growth that will positively impact. But we will have, in addition to the salary labor wages and benefit cost increases, we will have some other nonmaterial inflationary costs also.

So you see, the currency thing here will depend on, at the end of the day, altogether, as to what the euro is doing. We had an Australian Dollar, peso or real or Canadian dollar and a U.K. pound devaluation in 2013 compared to 2012, but this has been partially offset by a slight strengthening of the euro when you compare to '12 and '13. We are -- you have seen all of these emerging countries devaluation happen in the last 4 to 5 weeks or even less than that, but we don't anticipate that the euro is going to revalue compared to the U.S. dollar. And therefore, we are a little bit prudent in that sense. What are we doing? Well, in the emerging countries where we can move to -- when we can move to dollar base, we're moving to dollar base. And In several countries in Latin America, we're moving to dollar-based pricing. And when we can't move to officially dollar-based pricing, we are implementing major price increases. This is what has happened in Q4, in our Brazilian market, for example where we went for major, major price increases in real in order to offset this kind of situation.

Your next question comes from the line of Al Kabili of Macquarie.

Just wanted to clarify, Carol, on the '14 outlook, how you're thinking about pension expense. Because I would think that's a tailwind there. And so with the tailwind, I'm trying to understand what other offset might be to that.

Okay, so Al, I'm going to look real quick, I don't have the number right in front of me. But it's pretty much in line. It was a -- just not even a noticeable increase when we put together our 2014 plan.

Do you have another question, Al?

Pension expense is going to be flattish. And then are you -- and then as far as incentive comp, which was a big headwind in the fourth quarter, how are you thinking about incentive comp '14 versus '13? Is that -- a headwind, flattish on the base guidance?

So if we perform the plan, which we've shared with you, it would be flat because we were just slightly above 100% payout factor for 2013 and we would -- we expect and plan to be no less than 100%. So in terms of the numbers we've shared with you, it would be about flat.

Okay. And target is -- and the target comp -- incentive comp, the target bogey is the EBITDA that you communicated...

We don't normally give that.

Our plan that we've communicated in the past, it's weighted, a portion on EBITDA and as Jerome talked about, a portion on working capital improvement and a portion on a support expense as compared to gross profit. So...

So we're going to keep having these same 3 criteria, which are EBITDA to our internal plan, which is -- and then, our productivity improvements as measured by expense to gross profit ratios and our working capital as a percentage of net sales improvements. Same criteria as last year.

Your next question comes from the line of Christopher Manuel of Wells Fargo.

I kind of want to come back to the same -- because I'm still, I think, missing a couple of elements when I think about the EBITDA bridge '13 to '14. If I started the $1.04 billion that you did this year and I look at the movement to next year, it's kind of in that $12 million to $32 million of higher EBITDA. And if I start from the earlier comment you made that price would be more of a component of the organic revenue growth on a year-over-year basis, if you have a couple points of price within there, that could be upwards of $150 million of improvement. The $80 million of cost savings, I get something that should be in the kind of low mid-200s is where you could improve. And I recognize you had the offsets of -- you've talked about $60 million of inflation, et cetera. But there's still, Carol, seems to be a gap that I'm having a difficulty bridging. Can you maybe give us that...

I think you're a little high on the mix and price cost spread that you're looking at.

One thing is the price. The other thing is price cost spread.

Yes, because it has to fall down...

We are anticipating some cost increases again for resins and other type of raw materials. So that is the situation. So the first question in the Q&A was about margin expansion and, one, is pricing discipline to recoup our cost increases; number two is margin expansions through what I talked about. So we are anticipating price, but not very much margin expansion. That's one. The second thing is that you have seen that we are talking about product rationalization. And in product rationalization, you are -- we're going to be weeding some product lines or some products. And as a result of that, our overall volume projection is not very large.

Your next question comes from the line of Scott Gaffner of Barclays.

Just going back to the guidance here for a minute. If I look at the EBITDA growth year-over-year on a percentage basis, it looks like your -- you think you'll grow at about 30 basis points year-over-year. But if you continue to do that in 2015 and 2016, it does look like you'll come up short of the 14.5% to 15.3% EBITDA margin that you outlined for 2015.

So one thing, Scott, and it's a good point, but remember, we have $150 million in restructuring items that we're looking at that we'll start getting additional benefit for that as we move forward. And we haven't realized all of that benefit at this point. We continue -- we'll have $80 million. We'll have additional benefit as we move forward in 2015 and 2016. That will also help us. But we -- we're very confident in the 2016 numbers that we've provided. There's -- we wouldn't back off of those at all from a margin standpoint.

Your next question comes from the line of Rosemarie Morbelli of Gabelli.

If we look at the debt repayment, Carol, you paid down about $400 million in 2013. Could you give us a feel for how much you expect to pay -- to repay in 2014? And the timing of the cash going into Grace's asbestos fund, as well as the tax credit in 2014.

So we -- the timing was that we actually funded on Monday. So that's -- this past Monday, that's when the funding went in for the Grace settlement. We have $150 million for the 12% bonds that are outstanding that we'll pay middle of this month, actually on February 14. So we'll make that payment. With the cash flow generation, the free cash flow of $410 million, again, principally, all of that will be utilized to reduce debt. So it will be around that $400 million that we'll reduce debt in 2014. As it relates to the tax refund, that actually will come in 2015, because we made the payment in 2014. It will be based when we file our 2014 tax return in early 2015 and we will get more than $200 million in 2015 that we'll also use for leverage reduction.

Your next question comes from the line of analyst Chip Dillon.

A couple of questions, actually to follow up on that one on the tax benefits. If you look at the total value of the -- what you gave, $200 million would be certainly well below the corporate tax rate of 35%. So I'm kind of wondering, are there other sort of less visible benefits, whether you're paying less in estimated taxes in '14 or less in cash taxes than you otherwise would? And then on a separate basis, there was a great rundown on the SARs. And it would seem like this year, let's say 800,000 were actually exercised. Would that be roughly about a $40 million guesstimate as to what that number could be for this year?

So, Chip, as it relates to the taxes -- and we've said it's more than $200 million, part of the challenges we have -- in terms of carrying -- how much we'll carry back versus carry forward, we have to take into consideration where we're at on certain foreign tax credits, how those have been treated. And our tax department does a phenomenal job of making sure they get the most benefit for us that they can. So as we move forward and when we file the 2014 return, they'll look at our position for all of those. So that's why we're saying more than $200 million. We've previously communicated it could be up to $250 million. Again, it's going to depend on our position on other tax credits and certain tax initiatives. With respect to the 25% tax rate that we're guiding to for 2014 versus where we're for the 22% for 2013, one thing that's impacting that right now is that the U.S. Congress has not approved certain things such as R&D credit and look-throughs for intercompany transactions. We expect them to go back and do that retroactive. But right now, we have no assurances, so that's also negatively impacting our core tax rate that we're presenting. So you see a little bit of that happening as well. And then the second part of the question, remind me, Chip, again, what you were asking, I'm sorry. I got going on taxes so much, I forgot the second part.

Operator, can you unmute Chip please?

Right. Okay, we'll put you back in the queue. My apologies.

Your next question comes from the line of John McNulty of Credit Suisse. John P. McNulty - Crédit Suisse AG, Research Division: Yes. Just one follow-up question on the shares that you're transferring over as part of the -- or transferred over as part of the settlement or trust with Grace. Is there any lock-up period on those, or can those hit the market at any specific point? Are there any restrictions on how quickly those can be transferred out of the trust? Can you give us some color on that?

So John, it's 90 days -- 60 days, I'm sorry, that there'll be a lock-up on that. They have to be registered and everything. So we -- they've transferred and issued and they've always been in our outstanding share count. So it's not a negative impact from that standpoint, but it will be 60 days.

We now have Chip Dillon again.

Sorry, about that Chip.

All right, Chip...

No worries at all. It was great, the rundown on the SARs and it looks like that's going to be finally behind you in 1 year or so. But I think you mentioned, Carol, that about 800,000 would likely vest this year. And if we guessed -- is the way to kind of think about it is where we just sort of take that number, if they were all exercised and multiplied times the stock price? Or just kind of remind us. Because of I did that, I would get to about $40 million in expense this year.

Yes. So it wouldn't be expense. That would be -- your math is correct, but that's the cash impact because they are converted to cash when they're exercised. They don't actually get Sealed Air equity, it's cash settled. The expense is already recorded up to the current stock value. There is a slight discounting we do for any unvested shares because some shares end up being forfeited if people leave and what have you. But generally, the way to think about it is whatever shares are there for the SARs, it's the change in the share price that impacts our expense.

Your next question comes from investor Scott Hendricks [ph].

The strong free cash flow generation and balance sheet de-leveraging gives you more options for capital allocation over the coming years. My question is, with shares trading at a low teens multiple on cash EPS, how do you weigh buybacks versus dividends versus further de-leveraging, both philosophically and in terms of the timing?

So priority number one is de-leveraging. And when we will achieve the ratios we have talked about previously, then we -- then the board will decide how much of share buyback and how much of dividend distribution.

And as a reminder, it's about 3.5x to 4x that we feel comfortable that we would be able to look at options to return value to shareholders.

Do you have time for one more question?

No. Operator, we're going to move to Jerome closing out, please.

Okay, thank you. Ladies and gentlemen, thank you for that. Thank you for your questions. I know hand over the call to Jerome Peribere for the closing remarks.

Well, thank you very much to all for your very active and very insightful questions. I'd like to conclude by thanking our customers and our shareholders for their ongoing support. I would also like to thank our employees around the world for their commitment to improving the operating and financial performance of Sealed Air. And the progress that we made in 2013 was no short of being remarkable, but there's still a lot of work to be done. Confident that our plan to improve Sealed Air's quality of earning is well underway and we expect to see continuous improvement throughout 2014 and the future years. 2013 performance is a true testament to our leadership team and their commitments, with very clear direction for our business. And we are very confident that we have the right strategy in place, focused on providing significant value and innovative solutions to our customers, becoming more nimble and, in the end, creating a better way for life. We look forward to speaking with you on our next meeting call, currently planned for April 30 of this year. Thank you so much and have a great day. Bye-bye.

Thank you for joining today's conference, ladies and gentlemen. This concludes the presentation. You may now disconnect. Thank you.