UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2012
Commission File Number 1-5277
BEMIS COMPANY, INC.
(Exact name of registrant as specified in its charter)
Missouri |
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43-0178130 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
One Neenah Center |
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4th Floor, P.O. Box 669 |
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Neenah, Wisconsin |
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54957-0669 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code: (920) 727-4100
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 x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company. YES o NO x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. As of May 2, 2012, the registrant had 103,093,402 shares of Common Stock, $.10 par value, issued and outstanding.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited consolidated financial statements and related footnotes, enclosed as Exhibit 19 to this Form 10-Q (the Consolidated Financial Statements), are incorporated by reference into this Item 1. In the opinion of management, the financial statements reflect all adjustments necessary for a fair presentation of the financial position and the results of operations as of and for the three months ended March 31, 2012.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 2012
Managements Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements.
Three-month review of results |
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Three months ended March 31, |
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(dollars in millions) |
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2012 |
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2011 |
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Net sales |
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$ |
1,304.8 |
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100.0 |
% |
$ |
1,324.4 |
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100.0 |
% |
Cost of products sold |
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1,073.8 |
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82.3 |
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1,094.5 |
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82.6 |
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Gross profit |
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231.0 |
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17.7 |
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229.9 |
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17.4 |
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Selling, general, and administrative expenses |
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129.2 |
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9.9 |
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126.2 |
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9.5 |
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Research and development |
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10.9 |
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0.8 |
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7.6 |
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0.6 |
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Facility consolidation and other costs |
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8.3 |
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0.6 |
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Other operating (income) expense, net |
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(5.9 |
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(0.4 |
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(7.1 |
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(0.5 |
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Operating income |
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88.5 |
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6.8 |
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103.2 |
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7.8 |
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Interest expense |
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20.5 |
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1.6 |
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18.3 |
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1.4 |
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Other non-operating (income) expense, net |
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0.1 |
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1.8 |
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0.1 |
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Income before income taxes |
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67.9 |
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5.2 |
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83.1 |
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6.3 |
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Provision for income taxes |
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23.9 |
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1.8 |
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30.3 |
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2.3 |
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Net income |
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44.0 |
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3.4 |
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52.8 |
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4.0 |
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Less: net income attributable to noncontrolling interests |
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1.6 |
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0.1 |
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Net income attributable to Bemis Company, Inc. |
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$ |
44.0 |
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3.4 |
% |
$ |
51.2 |
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3.9 |
% |
Effective income tax rate |
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35.2 |
% |
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36.5 |
% | ||
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Comprehensive income attributable to Bemis Company, Inc. |
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$ |
86.3 |
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$ |
86.6 |
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Overview
Bemis Company, Inc. is a leading global manufacturer of flexible packaging and pressure sensitive materials supplying a variety of markets. Historically, about 65 percent of our total net sales are to customers in the food industry. Sales of our flexible packaging products are widely diversified among food categories and can be found in nearly every aisle of the grocery store. Our emphasis on supplying packaging to the food industry has typically provided a more stable market environment for our Flexible Packaging business segment, which historically has accounted for approximately 90 percent of our net sales. Our remaining net sales is from our Pressure Sensitive Materials business segment which, while diversified in end use products, is less focused on food industry applications and more exposed to economically sensitive end markets.
Market Conditions
The markets into which our products are sold are highly competitive. Our leading flexible packaging market positions in North and South America reflect our focus on expanding our offering of value-added, proprietary products. We also manufacture products for which our technical know-how and economies of scale offer us a competitive advantage. The primary raw materials for our business segments are polymer resins, films, paper, ink, adhesives, and aluminum.
Over the past several years, global economic conditions have been weak. While economic growth in Latin America and Asia continue to exceed that of North America and Europe, the pace of growth in these regions has slowed over the past 12 months. Demand for food and consumer products across most of our operations is being negatively impacted by higher prices for energy and food commodities. As a result, we have experienced a general softness in volume for flexible packaging products sold to many of the food and consumer product markets.
Facility Consolidation
During the fourth quarter of 2011, we initiated a facility consolidation program to improve efficiencies and reduce fixed costs. As a part of this program, we announced the planned closure of five facilities, two of which were completed by early January 2012. Most of the production from these five facilities will be transferred to our other facilities. The total estimated program costs of $83.4 million, the majority of which relate to our Flexible Packaging segment, include $29.1 million in employee costs, $33.5 million in fixed asset
accelerated depreciation and write-downs, and $20.8 million in other facility consolidation costs. The program is expected to be completed in the first half of 2013.
Charges associated with the facility consolidation and other costs totaled $8.3 million in the first quarter of 2012, including $1.2 million of employee-related costs including severance and other termination benefits, $5.9 million of fixed assets accelerated depreciation and write-downs and $1.2 million of other exit costs including costs to move and reinstall equipment. Cash payments in the first quarter of 2012 totaled $5.8 million for employee related costs and $2.2 million for fixed asset related and other exit costs, including costs to dismantle equipment. Cash payments for the balance of 2012 are expected to be approximately $24 million. The costs related to facility consolidation activities have been recorded on the consolidated statement of income as facility consolidation and other costs.
Acquisitions
Shield Pack
On December 1, 2011, we acquired the common stock of Shield Pack, LLC of West Monroe, Louisiana for a cash purchase price of approximately $44.5 million, subject to customary post-closing adjustments. Shield Pack is a manufacturer of high barrier liners for bulk container packaging.
Mayor Packaging Acquisition
On August 1, 2011, we acquired Mayor Packaging, a Hong Kong-based manufacturer of consumer and specialty flexible packaging including a manufacturing facility in Dongguan, China for a cash purchase price of approximately $96.7 million.
Noncontrolling Interest of Dixie Toga Ltda. (formerly Dixie Toga S.A.)
During the third quarter of 2011, we completed the purchase of the remaining shares owned by the noncontrolling interest of our Brazilian subsidiary, Dixie Toga Ltda., for approximately $90 million.
Results of Operations First Quarter 2012
Consolidated Overview |
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(in millions, except per share amounts) |
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2012 |
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2011 |
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Net sales |
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$ |
1,304.8 |
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$ |
1,324.4 |
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Net income attributable to Bemis Company, Inc. |
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44.0 |
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51.2 |
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Diluted earnings per share |
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0.42 |
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0.47 |
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Net sales for the first quarter of 2012 decreased 1.5 percent from the same period of 2011, reflecting the impact of lower unit sales volume in our Flexible Packaging business segment. Acquisitions completed during the second half of 2011 increased first quarter 2012 net sales by an estimated 1.6 percent. The impact of currency translation reduced net sales by 1.6 percent.
Diluted earnings per share for the first quarter of 2012 were $0.42 compared to $0.47 reported in the same quarter of 2011. Results for the first quarter of 2012 included a $0.05 charge associated with facility consolidation and other costs and a $0.02 charge for acquisition-related earnout payments.
Flexible Packaging Business Segment |
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(dollars in millions) |
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2012 |
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2011 |
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Net sales |
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$ |
1,159.5 |
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$ |
1,179.4 |
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Operating profit (See Note 15 to the Consolidated Financial Statements) |
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107.9 |
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116.3 |
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Operating profit as a percentage of net sales |
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9.3 |
% |
9.9 |
% | ||
Flexible Packaging net sales decreased 1.7 percent in the first quarter of 2012 compared to the same quarter of 2011. The impact of currency translation reduced net sales by 1.5 percent. We estimate that acquisitions completed during the second half of 2011 increased net sales by 1.8 percent. The remaining reduction in sales principally represents the negative impact of lower unit sales volumes.
Operating profit for the first quarter of 2012 was negatively impacted by $8.3 million of facility consolidation costs and $1.7 million of acquisition-related earnout payments. The effect of currency translation decreased operating profit in the first quarter of 2012 by $1.3 million compared to the same quarter of 2011. The negative impact of these items were partially offset by the benefit of higher selling prices compared to the same quarter of 2011.
Pressure Sensitive Materials Business Segment |
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(dollars in millions) |
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2012 |
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2011 |
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Net sales |
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$ |
145.3 |
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$ |
145.0 |
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Operating profit (See Note 15 to the Consolidated Financial Statements) |
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9.7 |
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9.9 |
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Operating profit as a percentage of net sales |
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6.7 |
% |
6.8 |
% | ||
The increase in net sales reflects the impact of sales of higher value products, partially offset by the negative 2.1 percent impact from currency translation.
Pressure Sensitive Materials operating profit as a percent of net sales decreased slightly in the first quarter and includes the negative currency effect of approximately $0.3 million offset by higher selling prices in line with raw material cost increases, and prudent cost management.
Consolidated Gross Profit |
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(dollars in millions) |
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2012 |
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2011 |
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Gross profit |
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$ |
231.0 |
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$ |
229.9 |
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Gross profit as a percentage of net sales |
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17.7 |
% |
17.4 |
% | ||
Consolidated gross profit as a percent of net sales increased to 17.7 percent in the first quarter of 2012, reflecting the positive impact of higher selling prices compared to the same period of 2011, partially offset by the negative impact of lower unit sales volumes.
Consolidated Selling, General, and Administrative Expenses |
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(dollars in millions) |
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2012 |
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2011 |
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Selling, general and administrative expenses (SG&A) |
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$ |
129.2 |
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$ |
126.2 |
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SG&A as a percentage of net sales |
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9.9 |
% |
9.5 |
% | ||
Consolidated selling, general and administrative expenses increased in the first quarter of 2012 compared to the same quarter of 2011, reflecting the impact of higher employee benefit plan costs in 2012 and acquisitions completed in the second half of 2011.
Consolidated Research and Development |
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(dollars in millions) |
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2012 |
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2011 |
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Research and development (R&D) |
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$ |
10.9 |
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$ |
7.6 |
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R&D as a percentage of net sales |
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0.8 |
% |
0.6 |
% | ||
The increased level of research and development costs reflects our global investment in proprietary technologies and our ongoing commitment to product development.
Consolidated Other Operating (Income) Expense, Net |
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(dollars in millions) |
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2012 |
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2011 |
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Other operating (income) expense, net |
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$ |
(5.9 |
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$ |
(7.1 |
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Other operating income and expenses included $5.2 million of fiscal incentive income compared to $5.5 million for the first quarter of 2011. Fiscal incentives are associated with net sales and manufacturing activities in certain South American operations and are included in our Flexible Packaging segment operating profit.
Consolidated Interest Expense |
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(dollars in millions) |
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2012 |
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2011 |
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Interest expense |
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$ |
20.5 |
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$ |
18.3 |
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Effective interest rate |
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5.2 |
% |
5.4 |
% | ||
Consolidated interest expense increased in the first quarter of 2012 compared to the same quarter of 2011 as a result of the October 2011 issuance of $400 million long-term notes.
Consolidated Income Taxes |
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(dollars in millions) |
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2012 |
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2011 |
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Income taxes |
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$ |
23.9 |
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$ |
30.3 |
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Effective tax rate |
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35.2 |
% |
36.5 |
% | ||
The lower 2012 tax rate reflects the recognition of a tax benefit in the first quarter that will not reoccur in subsequent quarters during the balance of 2012. We expect the effective tax rate for the total year 2012 to be about 36 percent.
Liquidity and Capital Resources
Net Debt to Total Capitalization
Net debt to total capitalization (which includes total debt net of cash balances divided by total debt net of cash balances plus equity) was 47 percent at March 31, 2012, compared to 48 percent at December 31, 2011. Total debt as of March 31, 2012 and December 31, 2011 was $1.6 billion.
Cash Flow
Net cash provided by operations was $48.8 million for the first quarter of 2012, compared to cash used by operating activities of $8.3 million for the first quarter of 2011. Cash flows from operating activities supported payments of severance and other accrued costs related to our facility consolidation program of $8.0 million during the first quarter of 2012. Working capital increases during the first quarter generally reflect the impact of seasonally stronger customer demand on accounts receivable and inventory levels. Increases in inventory levels during 2011 were magnified by the impact of dramatically increasing raw material costs.
Net cash used in investing activites was $22.4 million for the first quarter of 2012, compared to $43.1 million for the same period of 2011. Net cash used in investing activities during the first quarter of 2011 included a $15.8 million cash payment for post-closing balance sheet adjustments related to the 2010 Alcan Packaging Food Americas acquisition.
Net cash used in financing activities was $23.5 million for the first quarter of 2012, compared to $49.4 million cash provided by financing activities for the same period of 20121. Net cash provided by financing activities during the first quarter of 2011 included the net effect of a $133 million increase in commercial paper during the first quarter and the purchase of 1.7 million shares of Bemis Company, Inc. common stock in the open market for $54.3 million.
Available Financing
In addition to using cash provided by operations, we issue commercial paper to meet our short-term liquidity needs. As of March 31, 2012, our commercial paper debt outstanding was $51.0 million. Based on our current credit rating, we enjoy ready access to the commercial paper markets.
Under the terms of our revolving credit agreement, we have the capacity to borrow up to $800 million. This facility is principally used as back-up for our commercial paper program. Our revolving credit facility is supported by a group of major U.S. and international banks. Covenants imposed by the revolving credit facility include limits on the sale of businesses, minimum net worth calculations, and a maximum ratio of debt to total capitalization. The revolving credit agreement includes a $100 million multicurrency limit to support the financing needs of our international subsidiaries. As of March 31, 2012, there was $59.0 million of debt outstanding supported by this credit facility, leaving $741.0 million of available credit. If this revolving credit facility was no longer available to us and we were not able to issue commercial paper, we would expect to meet our financial liquidity needs by accessing the bank market, which would increase our borrowing costs. Borrowings under the credit agreement are subject to a variable interest rate.
Public notes totaling $300 million matured on April 1, 2012 and industrial revenue bonds totaling $8 million are scheduled to mature in November 2012. Both of these debt instruments have been classified as long term debt on the March 31, 2012 balance sheet in accordance with our ability and intent to refinance them with commercial paper.
Liquidity Outlook
We expect cash flow from operations and available liquidity described above to be sufficient to support future operations. There can be no assurance, however, that the cost or availability of future borrowings will not be impacted by future capital market disruptions. In addition, increases in raw material costs would increase our short-term liquidity needs.
Dividends
In February 2012, the Board of Directors approved the 29th consecutive annual increase in the quarterly cash dividend on common stock to $0.25 per share, a 4.2 percent increase.
New Accounting Pronouncements
There has been no new accounting guidance issued or effective during the first quarter of 2012 that is expected to have a material impact on our consolidated financial position, results of operations, or cash flows.
Critical Accounting Estimates and Judgments
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to retirement benefits, intangible assets, goodwill, and expected future performance of operations. Our estimates and judgments are based upon historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. These critical accounting estimates are discussed in detail in Managements Discussion and Analysis Critical Accounting Estimates and Judgments in the Companys Annual Report on Form 10-K for the year ended December 31, 2011.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain estimates, predictions, and other forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995, and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). Forward-looking statements are generally identified with the words believe, expect, anticipate, intend, estimate, target, may, will, plan, project, should, continue, or the negative thereof or other similar expressions, or discussion of future goals or aspirations, which are predictions of or indicate future events and trends and which do not relate to historical matters. Such statements are based on information available to management as of the time of such statements and relate to, among other things, expectations of the business environment in which we operate, projections of future performance (financial and otherwise), including those of acquired companies, perceived opportunities in the market and statements regarding our mission and vision. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
Factors that could cause actual results to differ from those expected include, but are not limited to, general economic conditions caused by inflation, interest rates, consumer confidence, rates of unemployment and foreign currency exchange rates; global economic conditions, including the ongoing sovereign debt crisis and continued uncertainties in Europe; investment performance of assets in our pension plans; competitive conditions within our markets, including the acceptance of our new and existing products; customer contract bidding activity; threats or challenges to our patented or proprietary technologies; raw material costs, availability, and terms, particularly for polymer resins and adhesives; price changes for raw materials and our ability to pass these price changes on to our customers or otherwise manage commodity price fluctuation risks; unexpected energy surcharges; broad changes in customer order patterns; our ability to achieve expected cost savings associated with facility consolidation initiatives; the presence of adequate cash available for investment in our business in order to maintain desired debt levels; a failure in our information technology infrastructure or applications; changes in governmental regulation, especially in the areas of environmental, health and safety matters, fiscal incentives, and foreign investment; unexpected outcomes in our current and future administrative and litigation proceedings; unexpected outcomes in our current and future tax proceedings; changes in domestic and international tax laws; costs associated with the pursuit of business combinations; unexpected costs associated with the integration of acquired businesses; unexpected costs related to plant closings; changes in our labor relations; and the impact of changes in the world political environment including threatened or actual armed conflict. These and other risks, uncertainties, and assumptions identified from time to time in our filings with the Securities and Exchange Commission, including without limitation, those described in our Annual Report on Form 10-K for the year ended December 31, 2011 and our quarterly reports on Form 10-Q, could cause actual future results to differ materially from those projected in the forward-looking statements. In addition, actual future results could differ materially from those projected in the forward-looking statement as a result of changes in the assumptions used in making such forward-looking statement.
Explanation of Terms Describing the Companys Products
Barrier laminate A multilayer plastic film made by laminating two or more films together with the use of adhesive or a molten plastic to achieve a barrier for the planned package contents.
Barrier products Products that provide protection and extend the shelf life of the contents of the package. These products provide this protection by combining different types of plastics and additives into a multilayered plastic package. These products protect the contents from such things as oxygen, moisture, light, odor, or other environmental factors.
Blown film A plastic film that is extruded through an annular die in the form of a tube and then expanded by an internal column of air in the manufacturing process.
Bundling films A film manufactured by a modified blown film process that is used for wrapping and holding multipacks of products such as canned goods and bottles of liquids, replacing corrugate and fiberboard.
Cast film A plastic film that is extruded through a straight slot die as a flat sheet during its manufacturing process.
Coextruded film A blown or cast film extruded with multiple layers extruded simultaneously.
Controlled atmosphere packaging A package which limits the flow of elements, such as oxygen, carbon dioxide or moisture, into or out of the package.
Crystallized Polyester (PET) CPET. The process of using a combination of formulated resin blends and thermoforming conditions to increase the crystalinity of PET trays, which increases the heat distortion temperature of the trays to 450 degrees Fahrenheit. This allows foods packaged in these trays to go directly from freezer to oven for heating of the food.
EZ Open Packaging Any one of a series of technologies employed to allow the consumer easy access to a packaged product. Peelable closures, laser or other physical scoring/abrasion of a packaging film may be used. EZ Open can be combined with reclose features such as plastic zippers or the inclusion of pressure sensitive materials into the packaging film.
Flexible polymer film A non-rigid plastic film. Generally the shape of the package changes as the product contained in it is removed.
Flexographic printing The most common flexible packaging printing process in North America using a raised rubber or alternative material image mounted on a printing cylinder.
Graphic products Pressure sensitive materials used for decorative signage, promotional items and displays, and advertisements.
In-line overlamination The ability to add a protective coating to a printed material during the printing process.
IWS Individually Wrapped Slices. A term used to describe individually wrapped slices of process cheese foods.
IWS Inner Wrap The plastic film used to wrap each slice of process cheese. Typically, these films are cast coextrusions of polypropylene resins.
Label products Pressure sensitive materials made up and sold in roll form.
Labelstock Pressure sensitive material designed for the label markets.
Laminate/Barrier laminate A multilayer plastic film made by laminating two or more films together with the use of adhesive or a molten plastic to achieve the distribution and use requirements for the planned package contents. Alternately, a barrier layer can also be included as one of the films or in the laminating medium to protect the packaged products from such things as moisture, oxygen or other environmental factors.
Liner or Inner Liner Films A multilayer coextruded film that is used as the inner liner for bag-in-box packaging applications for products such as cereal or crackers. The films typically are comprised of high density polyethylenes and may contain barrier resins such as EVOH or nylon.
Modified atmosphere packaging A package in which the normal atmospheric composition of air inside the package has been modified by replacing it with a gas such as nitrogen.
Monolayer film A single layer extruded plastic film.
Multiwall paper bag A package made from two or more layers, at least one of which is paper, which have not been laminated.
Pouches and bags An option that delivers a semi-finished package, instead of rollstock, to a customer for filling product and sealing/closing the package for distribution.
Pressure sensitive material A material coated with adhesive such that upon contact with another material it will stick.
Prime label A pressure sensitive label used as the primary decorative label or secondary label, typically on a consumer product.
Retort A food processing technique in which the food product is placed in a package and then thermally treated (in the range of 250 degrees Fahrenheit) to extend the food products shelf life under room temperature storage conditions. High oxygen and moisture barrier flexible or rigid packaging materials can be used for the primary package.
Rigid Packaging A form of packaging in which the shape of the package is retained as its contents are removed in use. Bottles, trays and clamshell packaging are examples.
Rollstock The principal form in which flexible packaging material is delivered to a customer. Finished film wound on a core is converted in a process at the end users plant that forms, fills, and seals the package of product for delivery to customers.
Rotogravure printing A high quality, long run printing process utilizing a metal engraved cylinder.
Sheet products Pressure sensitive materials cut into sheets and sold in sheet form.
Shrink film/ Barrier shrink film A packaging film consisting of polyethylene and/or polypropylene resins extruded via a tubular process. The film is cooled and then reheated and stretched at a temperature near its melting point. The film can be irradiated with an electron beam in a second process to cross link the molecules for added heat resistance and strength. The film is made to shrink around a product to be packaged by an application of a thermal treatment. Alternately, a layer of an oxygen barrier material can be included to manufacture a barrier shrink film product.
Stretch film A plastic film with a significant ability to stretch which is used to wrap pallets of goods in the shipping process.
Technical products Technically engineered pressure sensitive materials used primarily for fastening and mounting functions, for example in cell phones, appliances, and electronic devices.
Thermoformed plastic packaging A package formed by applying heat to a film to shape it into a tray or cavity and then sealing a flat film on top of the package after it has been filled.
UV inhibitors Chemical agents included in a film to protect products against ultraviolet rays.
Variable information label A pressure sensitive label that is typically printed with a bar code or other type of variable information.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Companys market risk during the three month period ended March 31, 2012. For additional information, refer to Note 5 and Note 6 to the Consolidated Financial Statements in Exhibit 19 of this Quarterly Report on Form 10-Q and to Part II, Item 7A of the Companys Annual Report on Form 10-K for the year ended December 31, 2011.
ITEM 4. CONTROLS AND PROCEDURES
The Companys management, under the direction, supervision, and involvement of the Chief Executive Officer and the Chief Financial Officer, has carried out an evaluation, as of the end of the period covered by this report, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) of the Company. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that disclosure controls and procedures in place at the Company are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commissions rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There were no changes in the Companys internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The material set forth in Note 14 of the Notes to Consolidated Financial Statements is incorporated herein by reference.
ITEM 1A. RISK FACTORS
The following factor, as well as factors described elsewhere in this Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, 2011, or in other filings by the Company with the Securities and Exchange Commission, could adversely affect the Companys consolidated financial position, results of operations or cash flows. Other factors not presently known to us or that we presently believe are not material could also affect our business operations and financial results.
Interest rates An increase in interest rates could reduce our reported results of operations.
At March 31, 2012, our variable rate borrowings approximated $459.9 million (which includes $400 million fixed rate notes that have been effectively converted to variable rate debt through the use of a fixed to variable rate interest rate swap). Fluctuations in interest rates can increase our borrowing costs and consequently, have an adverse impact on our results of operations. Increases in short-term interest rates will directly impact the amount of interest we pay. For each one percent increase in variable interest rates, our annual interest expense would increase by $4.6 million on the $459.9 million of variable rate borrowings outstanding as of March 31, 2012.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company did not repurchase any of its equity securities in the first quarter of the fiscal year ended March 31, 2012. As of March 31, 2012, under authority granted by the Board of Directors, the Company had authorization to repurchase an additional 4,543,800 shares of its common stock.
ITEM 6. EXHIBITS
The Exhibit Index is incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
BEMIS COMPANY, INC. | |||
|
|
| |||
|
|
| |||
Date |
May 10, 2012 |
|
/s/ Scott B. Ullem | ||
|
|
|
Scott B. Ullem, Vice President and | ||
|
|
Chief Financial Officer | |||
|
|
| |||
|
|
| |||
Date |
May 10, 2012 |
|
/s/ Jerry S. Krempa | ||
|
|
|
Jerry S. Krempa, Vice President | ||
|
|
and Controller | |||
Exhibit Index
Pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), we have filed certain agreements as exhibits to this Quarterly Report on Form 10-Q. These agreements may contain representations and warranties by the parties thereto. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in our public disclosure, (iii) may reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe our actual state of affairs at the date hereof and should not be relied upon.
Exhibit |
|
Description |
|
Form of Filing |
3(a) |
|
Restated Articles of Incorporation of the Registrant, as amended. (1) |
|
Incorporated by Reference |
3(b) |
|
By-Laws of the Registrant, as amended through February 4, 2011. (2) |
|
Incorporated by Reference |
4(a) |
|
Form of Indenture dated as of June 15, 1995, between the Registrant and U.S. Bank Trust National Association (formerly known as First Trust National Association), as Trustee. Copies of constituent instruments defining rights of holders of long-term debt of the Company and Subsidiaries, other than the Indenture specified herein, are not filed herewith, pursuant to Instruction (b)(4)(iii)(A) to Item 601 of Regulation S-K, because the total amount of securities Authorized under any such instrument does not exceed 10% of the total assets of the Company and Subsidiaries on a consolidated basis. The registrant hereby agrees that it will, upon request by the SEC, furnish to the SEC a copy of each such instrument. (3) |
|
Incorporated by Reference |
19 |
|
Reports Furnished to Security Holders. |
|
Filed Electronically |
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of CEO. |
|
Filed Electronically |
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of CFO. |
|
Filed Electronically |
32 |
|
Section 1350 Certification of CEO and CFO. |
|
Filed Electronically |
101 |
|
The following materials from Bemis Company, Inc.s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in XBRL: (i) Consolidated Statements of Income for the three months ended March 31, 2012 and 2011; (ii) Consolidated Balance Sheets at March 31, 2012 and December 31, 2011; (iii) Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011; (iv) Consolidated Statements of Equity for the three months ended March 31, 2012 and 2011; and (v) Notes to the Consolidated Financial Statements, tagged as blocks of text. |
|
Filed Electronically |
(1) |
|
Incorporated by reference to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (File No. 1-5277). |
(2) |
|
Incorporated by reference to the Registrants Form 8-K filed February 10, 2011 (File No. 1-5277). |
(3) |
|
Incorporated by reference to the Registrants Current Report on Form 8-K dated June 30, 1995 (Filed No. 1-5277). |
EXHIBIT 19
FINANCIAL STATEMENTS UNAUDITED
BEMIS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Net sales |
|
$ |
1,304,822 |
|
$ |
1,324,428 |
|
Cost of products sold |
|
1,073,847 |
|
1,094,575 |
| ||
|
|
|
|
|
| ||
Gross profit |
|
230,975 |
|
229,853 |
| ||
|
|
|
|
|
| ||
Operating expenses: |
|
|
|
|
| ||
Selling, general and administrative expenses |
|
129,246 |
|
126,175 |
| ||
Research and development |
|
10,903 |
|
7,587 |
| ||
Facility consolidation and other costs |
|
8,348 |
|
|
| ||
Other operating (income) expense, net |
|
(6,035 |
) |
(7,061 |
) | ||
|
|
|
|
|
| ||
Operating income |
|
88,513 |
|
103,152 |
| ||
|
|
|
|
|
| ||
Interest expense |
|
20,456 |
|
18,336 |
| ||
Other non-operating (income) expense, net |
|
187 |
|
1,720 |
| ||
|
|
|
|
|
| ||
Income before income taxes |
|
67,870 |
|
83,096 |
| ||
|
|
|
|
|
| ||
Provision for income taxes |
|
23,900 |
|
30,300 |
| ||
|
|
|
|
|
| ||
Net income |
|
43,970 |
|
52,796 |
| ||
|
|
|
|
|
| ||
Less: Net income attributable to noncontrolling interests |
|
|
|
1,586 |
| ||
|
|
|
|
|
| ||
Net income attributable to Bemis Company, Inc. |
|
$ |
43,970 |
|
$ |
51,210 |
|
|
|
|
|
|
| ||
Comprehensive income attributable to Bemis Company, Inc. |
|
$ |
86,269 |
|
$ |
86,555 |
|
|
|
|
|
|
| ||
Basic earnings per share |
|
$ |
0.42 |
|
$ |
0.47 |
|
|
|
|
|
|
| ||
Diluted earnings per share |
|
$ |
0.42 |
|
$ |
0.47 |
|
|
|
|
|
|
| ||
Cash dividends paid per share |
|
$ |
0.25 |
|
$ |
0.24 |
|
See accompanying notes to consolidated financial statements.
BEMIS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(dollars in thousands, except share amounts)
|
|
March 31, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
112,985 |
|
$ |
109,796 |
|
Accounts receivable, net |
|
702,107 |
|
665,402 |
| ||
Inventories |
|
681,271 |
|
646,058 |
| ||
Prepaid expenses and other current assets |
|
134,722 |
|
127,755 |
| ||
Total current assets |
|
1,631,085 |
|
1,549,011 |
| ||
|
|
|
|
|
| ||
Property and equipment, net |
|
1,422,673 |
|
1,440,889 |
| ||
|
|
|
|
|
| ||
Goodwill |
|
1,055,641 |
|
1,048,469 |
| ||
Other intangible assets, net |
|
219,373 |
|
222,475 |
| ||
Deferred charges and other assets |
|
62,345 |
|
59,600 |
| ||
Total other long-term assets |
|
1,337,359 |
|
1,330,544 |
| ||
|
|
|
|
|
| ||
TOTAL ASSETS |
|
$ |
4,391,117 |
|
$ |
4,320,444 |
|
|
|
|
|
|
| ||
LIABILITIES |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current portion of long-term debt |
|
$ |
13,052 |
|
$ |
13,411 |
|
Short-term borrowings |
|
2,733 |
|
1,740 |
| ||
Accounts payable |
|
429,134 |
|
415,786 |
| ||
Accrued salaries and wages |
|
98,124 |
|
95,774 |
| ||
Accrued income and other taxes |
|
26,629 |
|
23,854 |
| ||
Other current liabilities |
|
118,483 |
|
131,400 |
| ||
Total current liabilities |
|
688,155 |
|
681,965 |
| ||
|
|
|
|
|
| ||
Long-term debt, less current portion |
|
1,552,168 |
|
1,554,750 |
| ||
Deferred taxes |
|
181,790 |
|
175,585 |
| ||
Other liabilities and deferred credits |
|
324,058 |
|
326,041 |
| ||
Total Liabilities |
|
2,746,171 |
|
2,738,341 |
| ||
|
|
|
|
|
| ||
EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
Bemis Company, Inc. shareholders equity: |
|
|
|
|
| ||
Common stock issued (127,045,576 and 126,937,817 shares) |
|
12,705 |
|
12,694 |
| ||
Capital in excess of par value |
|
535,496 |
|
532,441 |
| ||
Retained earnings |
|
1,850,371 |
|
1,832,893 |
| ||
Accumulated other comprehensive income (loss) |
|
(48,445 |
) |
(90,744 |
) | ||
Common stock held in treasury (23,953,971 shares at cost) |
|
(705,181 |
) |
(705,181 |
) | ||
Total Equity |
|
1,644,946 |
|
1,582,103 |
| ||
|
|
|
|
|
| ||
TOTAL LIABILITIES AND EQUITY |
|
$ |
4,391,117 |
|
$ |
4,320,444 |
|
See accompanying notes to consolidated financial statements.
BEMIS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
|
|
Three Months Ended |
| ||||
|
|
March 31, |
| ||||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Cash flows from operating activities |
|
|
|
|
| ||
Net income |
|
$ |
43,970 |
|
$ |
52,796 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
54,978 |
|
55,593 |
| ||
Excess tax (benefit) expense from share-based payment arrangements |
|
203 |
|
(431 |
) | ||
Share-based compensation |
|
4,885 |
|
4,680 |
| ||
Deferred income taxes |
|
2,371 |
|
6,416 |
| ||
Income of unconsolidated affiliated company |
|
(644 |
) |
(823 |
) | ||
Loss (gain) on sale of property and equipment |
|
(333 |
) |
780 |
| ||
Net facility consolidation and other costs |
|
350 |
|
|
| ||
Changes in working capital, excluding effect of acquisitions |
|
(62,414 |
) |
(132,516 |
) | ||
Net change in deferred charges and credits |
|
5,454 |
|
5,193 |
| ||
|
|
|
|
|
| ||
Net cash provided by (used in) operating activities |
|
48,820 |
|
(8,312 |
) | ||
|
|
|
|
|
| ||
Cash flows from investing activities |
|
|
|
|
| ||
Additions to property and equipment |
|
(23,677 |
) |
(27,917 |
) | ||
Business acquisitions and adjustments, net of cash acquired |
|
|
|
(15,826 |
) | ||
Proceeds from sale of property and equipment |
|
1,298 |
|
658 |
| ||
|
|
|
|
|
| ||
Net cash used in investing activities |
|
(22,379 |
) |
(43,085 |
) | ||
|
|
|
|
|
| ||
Cash flows from financing activities |
|
|
|
|
| ||
Repayment of long-term debt |
|
(1,124 |
) |
(91 |
) | ||
Net borrowing (repayment) of commercial paper |
|
4,500 |
|
133,300 |
| ||
Net borrowing (repayment) of short-term debt |
|
993 |
|
89 |
| ||
Cash dividends paid to shareholders |
|
(26,086 |
) |
(26,104 |
) | ||
Common stock purchased for the treasury |
|
|
|
(54,345 |
) | ||
Purchase of subsidiary shares of noncontrolling interests |
|
|
|
(380 |
) | ||
Excess tax benefit (expense) from share-based payment arrangements |
|
(203 |
) |
431 |
| ||
Stock incentive programs and related withholdings |
|
(1,616 |
) |
(3,457 |
) | ||
|
|
|
|
|
| ||
Net cash (used in) provided by financing activities |
|
(23,536 |
) |
49,443 |
| ||
|
|
|
|
|
| ||
Effect of exchange rates on cash and cash equivalents |
|
284 |
|
(2,385 |
) | ||
|
|
|
|
|
| ||
Net increase (decrease) in cash and cash equivalents |
|
3,189 |
|
(4,339 |
) | ||
|
|
|
|
|
| ||
Cash and cash equivalents balance at beginning of year |
|
109,796 |
|
60,404 |
| ||
|
|
|
|
|
| ||
Cash and cash equivalents balance at end of period |
|
$ |
112,985 |
|
$ |
56,065 |
|
|
|
|
|
|
| ||
Supplemental disclosure of cash flow information |
|
|
|
|
| ||
Business acquisitions and adjustments, net of cash acquired: |
|
|
|
|
| ||
Working capital acquired, net |
|
$ |
(54 |
) |
$ |
16,034 |
|
Goodwill and intangible assets acquired, net |
|
192 |
|
(858 |
) | ||
Fixed and other long-term assets |
|
(138 |
) |
961 |
| ||
Deferred taxes and other liabilities |
|
|
|
(311 |
) | ||
Cash used for acquisitions |
|
$ |
|
|
$ |
15,826 |
|
|
|
|
|
|
| ||
Interest paid during the period |
|
$ |
26,185 |
|
$ |
26,230 |
|
Income taxes paid during the period |
|
$ |
22,887 |
|
$ |
17,707 |
|
See accompanying notes to consolidated financial statements.
BEMIS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(dollars in thousands, except per share amounts)
|
|
Bemis Company, Inc. Shareholders |
|
|
|
|
| |||||||||||||||
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
| |||||||
|
|
|
|
Capital In |
|
|
|
Other |
|
Common |
|
|
|
|
| |||||||
|
|
Common |
|
Excess of |
|
Retained |
|
Comprehensive |
|
Stock Held |
|
Noncontrolling |
|
|
| |||||||
|
|
Stock |
|
Par Value |
|
Earnings |
|
Income (Loss) |
|
In Treasury |
|
Interests |
|
Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance at December 31, 2010 |
|
$ |
12,663 |
|
$ |
568,035 |
|
$ |
1,751,908 |
|
$ |
91,117 |
|
$ |
(544,100 |
) |
$ |
47,809 |
|
$ |
1,927,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income |
|
|
|
|
|
51,210 |
|
|
|
|
|
1,586 |
|
52,796 |
| |||||||
Unrecognized gain reclassified to earnings, net of tax of $84 |
|
|
|
|
|
|
|
(132 |
) |
|
|
|
|
(132 |
) | |||||||
Translation adjustment |
|
|
|
|
|
|
|
31,580 |
|
|
|
716 |
|
32,296 |
| |||||||
Pension and other post retirement liability adjustment, net of tax effect of $2,240 |
|
|
|
|
|
|
|
3,897 |
|
|
|
|
|
3,897 |
| |||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
88,857 |
| |||||||
Cash dividends declared on common stock ($0.24 per share) |
|
|
|
|
|
(26,463 |
) |
|
|
|
|
|
|
(26,463 |
) | |||||||
Stock incentive programs and related tax withholdings (202,879 shares) |
|
20 |
|
(3,477 |
) |
|
|
|
|
|
|
|
|
(3,457 |
) | |||||||
Excess tax benefit from share- based compensation arrangements |
|
|
|
431 |
|
|
|
|
|
|
|
|
|
431 |
| |||||||
Share-based compensation |
|
|
|
4,680 |
|
|
|
|
|
|
|
|
|
4,680 |
| |||||||
Purchase of subsidiary shares from noncontrolling interests |
|
|
|
(170 |
) |
|
|
|
|
|
|
(210 |
) |
(380 |
) | |||||||
Purchase of 1,675,731 shares of common stock |
|
|
|
|
|
|
|
|
|
(54,345 |
) |
|
|
(54,345 |
) | |||||||
Balance at March 31, 2011 |
|
$ |
12,683 |
|
$ |
569,499 |
|
$ |
1,776,655 |
|
$ |
126,462 |
|
$ |
(598,445 |
) |
$ |
49,901 |
|
$ |
1,936,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance at December 31, 2011 |
|
$ |
12,694 |
|
$ |
532,441 |
|
$ |
1,832,893 |
|
$ |
(90,744 |
) |
$ |
(705,181 |
) |
$ |
|
|
$ |
1,582,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income |
|
|
|
|
|
43,970 |
|
|
|
|
|
|
|
43,970 |
| |||||||
Unrecognized gain reclassified to earnings, net of tax of $84 |
|
|
|
|
|
|
|
(132 |
) |
|
|
|
|
(132 |
) | |||||||
Translation adjustment |
|
|
|
|
|
|
|
35,874 |
|
|
|
|
|
35,874 |
| |||||||
Pension and other postretirement liability adjustment, net of tax effect of $3,720 |
|
|
|
|
|
|
|
6,557 |
|
|
|
|
|
6,557 |
| |||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
86,269 |
| |||||||
Cash dividends declared on common stock $0.25 per share |
|
|
|
|
|
(26,492 |
) |
|
|
|
|
|
|
(26,492 |
) | |||||||
Stock incentive programs and related tax effects (107,759 shares) |
|
11 |
|
(1,627 |
) |
|
|
|
|
|
|
|
|
(1,616 |
) | |||||||
Excess tax benefit (expense) from share-based payment arrangements |
|
|
|
(203 |
) |
|
|
|
|
|
|
|
|
(203 |
) | |||||||
Share-based compensation |
|
|
|
4,885 |
|
|
|
|
|
|
|
|
|
4,885 |
| |||||||
Balance at March 31, 2012 |
|
$ |
12,705 |
|
$ |
535,496 |
|
$ |
1,850,371 |
|
$ |
(48,445 |
) |
$ |
(705,181 |
) |
$ |
|
|
$ |
1,644,946 |
|
See accompanying notes to consolidated financial statements.
BEMIS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared by Bemis Company, Inc. (the Company) in accordance with accounting principles for interim financial information generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position and results of operations. It is managements opinion, however, that all material adjustments (consisting of normal recurring accruals) have been made which are necessary for a fair financial statement presentation. Certain prior year amounts have been reclassified to conform to current year presentation. For further information, refer to the consolidated financial statements and footnotes included in the Companys Annual Report on Form 10-K for the year ended December 31, 2011.
Note 2 New Accounting Guidance
Balance Sheet Disclosure Offsetting Assets and Liabilities
In December 2011, the Financial Accounting Standards Board (FASB) issued new guidance that requires an entity to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions executed under a master netting or similar arrangement. The new guidance was issued to enable users of financial statements to understand the effects or potential effects of those arrangements on its financial position. The new guidance is required to be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The adoption of the new guidance will not have an impact on the Companys consolidated financial position, results of operations, or cash flows.
Goodwill Impairment Testing
In September 2011, the FASB issued new guidance intended to simplify goodwill impairment testing. The new guidance allows an entity to perform a qualitative assessment on goodwill impairment to determine whether a quantitative assessment is necessary. When this guidance is adopted during the third quarter of 2012, which is the timing of our annual impairment testing, it is not expected that the adoption will have an impact on the Companys consolidated financial position, results of operations, or cash flows.
Comprehensive Income
In June 2011, the FASB issued new guidance on the presentation of comprehensive income. Specifically, the new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. In December 2011, the FASB indefinitely deferred the guidance related to the presentation of reclassification adjustments. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of the new guidance resulted in the addition of Comprehensive Income Attributable to Bemis Company, Inc. being presented on the Companys consolidated statement of income.
Fair Value Measurements
In May 2011, the FASB issued new guidance to achieve common fair value measurement and disclosure requirements between U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards. This new guidance amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization and is effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of the new guidance in the first quarter of 2012 did not have an impact on the Companys consolidated financial position, results of operations, or cash flows.
Note 3 Facility Consolidation and Other Costs
During the fourth quarter of 2011, the Company initiated a facility consolidation program to improve efficiencies and reduce fixed costs. As a part of this program, the Company announced the planned closure of five facilities, two of which were completed by early January 2012. Most of the production from these five facilities will be transferred to other facilities. The total estimated program costs of $83.4 million, the majority of which relate to our Flexible Packaging segment, include $29.1 million in employee costs, $33.5 million in fixed asset accelerated depreciation and write-downs, and $20.8 million in other facility consolidation costs. The program is expected to be completed in the first half of 2013.
Charges associated with the facility consolidation and other costs totaled $8.3 million in the first quarter of 2012, including $1.2 million of employee-related costs including severance and other termination benefits, $5.9 million of fixed assets accelerated depreciation and write-downs, and $1.2 million of other exit costs including costs to move and reinstall equipment. Cash payments in the first quarter of 2012 totaled $5.8 million for employee related costs and $2.2 million for fixed asset related and other exit costs, including costs to dismantle equipment. Cash payments for the balance of 2012 are expected to be approximately $24 million. The costs related to facility consolidation activities have been recorded on the consolidated statement of income as facility consolidation and other costs.
An analysis of facility consolidation and other costs, by reportable segment, follows:
|
|
|
|
Fixed |
|
|
|
Total Facility |
| ||||
|
|
Employee |
|
Asset |
|
Other |
|
Consolidation |
| ||||
(in thousands) |
|
Costs |
|
Related |
|
Costs |
|
and Other Costs |
| ||||
Reserve balance at December 31, 2011 |
|
$ |
23,043 |
|
$ |
|
|
$ |
227 |
|
$ |
23,270 |
|
|
|
|
|
|
|
|
|
|
| ||||
Total net expense accrued |
|
|
|
|
|
|
|
|
| ||||
Flexible Packaging |
|
1,106 |
|
5,906 |
|
1,246 |
|
8,258 |
| ||||
Pressure Sensitive |
|
16 |
|
|
|
|
|
16 |
| ||||
Corporate |
|
74 |
|
|
|
|
|
74 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Utilization (cash payments or otherwise settled) |
|
|
|
|
|
|
|
|
| ||||
Flexible Packaging |
|
(2,882 |
) |
(5,906 |
) |
(1,473 |
) |
(10,261 |
) | ||||
Pressure Sensitive |
|
(2,329 |
) |
|
|
|
|
(2,329 |
) | ||||
Corporate |
|
(605 |
) |
|
|
|
|
(605 |
) | ||||
Reserve balance at March 31, 2012 |
|
$ |
18,423 |
|
$ |
|
|
$ |
|
|
$ |
18,423 |
|
Total facility consolidation and other costs incurred since the beginning of the program, by reportable segment, follows:
|
|
|
|
Fixed |
|
|
|
Total Facility |
| ||||
|
|
Employee |
|
Asset |
|
Other |
|
Consolidation |
| ||||
(in thousands) |
|
Costs |
|
Related |
|
Costs |
|
and Other Costs |
| ||||
Flexible Packaging |
|
$ |
24,216 |
|
$ |
17,596 |
|
$ |
1,380 |
|
$ |
43,192 |
|
Pressure Sensitive |
|
2,760 |
|
|
|
|
|
2,760 |
| ||||
Corporate |
|
519 |
|
234 |
|
|
|
753 |
| ||||
Total costs incurred through March 31, 2012 |
|
$ |
27,495 |
|
$ |
17,830 |
|
$ |
1,380 |
|
$ |
46,705 |
|
Note 4 Acquisitions
Shield Pack
On December 1, 2011, the Company acquired the common stock of Shield Pack, LLC, a Louisiana manufacturer of high barrier liners for bulk container packaging. The acquisition supports new market applications for bulk liquids and other products requiring barrier packaging. The preliminary purchase price of approximately $44.5 million was paid in cash and is subject to customary post-closing adjustments. The preliminary purchase price allocation resulted in goodwill of approximately $24.9 million. The preliminary fair value of assets and liabilities acquired was $56.2 million and $11.7 million, respectively.
Mayor Packaging
On August 1, 2011, the Company acquired Mayor Packaging, a privately-owned manufacturer of consumer and specialty flexible packaging including a manufacturing facility in Dongguan, China. The acquisition supports the Companys strategy to enhance its presence in the Asia-Pacific region. The purchase price of approximately $96.7 million was financed with commercial paper and is subject to customary post-closing adjustments. Under the terms of the agreement, the Company may be required to make additional payments to the sellers of up to $13 million over three years if certain conditions are met. These payments are recorded as compensation expense within selling, general and administrative expenses in the period accrued based on the likelihood of achieving these milestones. The allocation of the purchase price resulted in approximately $42.6 million of goodwill. The fair value of assets and liabilities acquired was $116.8 million and $20.1 million, respectively.
Note 5 Financial Assets and Financial Liabilities Measured at Fair Value
The fair values of the Companys financial assets and financial liabilities listed below reflect the amounts that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date (exit price).
The Companys non-derivative financial instruments include cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings, and long-term debt. At March 31, 2012 and December 31, 2011, the carrying value of these financial instruments, excluding long-term debt, approximates fair value because of the short-term maturities of these instruments.
Fair value disclosures are classified based on the fair value hierarchy. Level 1 fair value measurements represent exchange-traded securities which are valued at quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Level 2 fair value measurements are determined using input prices that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Level 3 fair value measurements are determined using unobservable inputs, such as internally developed pricing models for the asset or liability due to little or no market activity for the asset or liability.
The fair value measurements of the Companys long-term debt, including current maturities, primarily represent exchange-traded securities which are valued at quoted prices (unadjusted) in active markets for identical assets that the Company has the ability to access as
of the reporting date. The carrying values and estimated fair values of long-term debt, including current maturities, at March 31, 2012 and December 31, 2011 follow:
|
|
March 31, 2012 |
|
December 31, 2011 |
| ||||||||
|
|
Carrying |
|
Fair Value |
|
Carrying |
|
Fair Value |
| ||||
(in thousands) |
|
Value |
|
(Level 2) |
|
Value |
|
(Level 2) |
| ||||
Total long-term debt |
|
$ |
1,564,649 |
|
$ |
1,707,140 |
|
$ |
1,567,532 |
|
$ |
1,702,373 |
|
The fair values for derivatives are based on inputs other than quoted prices that are observable for the asset or liability. These inputs include foreign currency exchange rates and interest rates. The financial assets and financial liabilities are primarily valued using standard calculations / models that use as their basis readily observable market parameters. Industry standard data providers are the primary source for forward and spot rate information for both interest rates and currency rates, with resulting valuations periodically validated through third-party or counterparty quotes.
|
|
Fair Value |
|
Fair Value |
| ||
|
|
As of |
|
As of |
| ||
|
|
March 31, 2012 |
|
December 31, 2011 |
| ||
(in thousands) |
|
(Level 2) |
|
(Level 2) |
| ||
Forward exchange contracts net asset (liability) position |
|
$ |
3 |
|
$ |
(3 |
) |
Interest rate swaps net asset (liability) position |
|
(3,632 |
) |
3,268 |
| ||
Note 6 Derivative Instruments
The Company enters into derivative transactions to manage exposures arising in the normal course of business. The Company does not enter into derivative transactions for speculative or trading purposes. The Company recognizes all derivative instruments on the balance sheet at fair value. Derivatives not designated as hedging instruments are adjusted to fair value through income. Depending on the nature of derivatives designated as hedging instruments, changes in the fair value are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in shareholders equity through other comprehensive income until the hedged item is recognized. Gains or losses, if any, related to the ineffective portion of any hedge are recognized through earnings in the current period.
The Company enters into forward exchange contracts to manage foreign currency exchange rate exposures associated with certain foreign currency denominated receivables and payables. Forward exchange contracts generally have maturities of less than six months and relate primarily to major Western European currencies for the Companys European operations, the U.S. dollar for the Companys Brazilian operations, and the U.S. and Australian dollars for the Companys New Zealand operations. The Company has not designated these derivative instruments as hedging instruments. At March 31, 2012, and December 31, 2011, the Company had outstanding forward exchange contracts with notional amounts aggregating $9.7 million and $9.8 million, respectively. The net settlement amount (fair value) related to active forward exchange contracts is recorded on the balance sheet as either a current or long-term asset or liability and as an element of other operating (income) expense, net, which offsets the related transaction gains or losses.
The Company entered into currency swap contracts to manage changes in the fair value of U.S. dollar denominated debt held in Brazil. The contracts effectively converted a portion of that debt to the functional currency of its Brazilian operation. These currency swap contracts generally had maturities that matched the maturities of the underlying debt. The Company had not designated these derivative instruments as hedging instruments. There were no outstanding currency swap contracts as of March 31, 2012 and December 31, 2011. The fair value related to swap contracts was recorded on the balance sheet as either a current or long-term asset or liability and as an element of other non-operating (income) expense, net, which offset the related transaction gains or losses.
The Company enters into interest-rate swap contracts to economically convert a portion of the Companys fixed-rate debt to variable rate debt. During the fourth quarter of 2011, the Company entered into four interest rate swap agreements with a total notional amount of $400 million. These contracts were designated as hedges of the Companys $400 million 4.50 percent fixed-rate debt due in 2021. The variable rate for each of the interest rate swaps is based on the six-month London Interbank Offered Rate (LIBOR), set in arrears, plus a fixed spread. The variable rates are reset semi-annually at each net settlement date. The net settlement benefit to the Company, which is recorded as a reduction in interest expense, was $1.8 million for the first quarter of 2012. The swap was not in place during the first quarter of 2011. At March 31, 2012, the fair value of these interest rate swaps was $3.6 million, in the Banks favor, using discounted cash flow or other appropriate methodologies, and is included in other long-term liabilities and deferred credits with a corresponding decrease in long-term debt. At December 31, 2011, the fair value of these interest rate swaps was $3.3 million, in the Companys favor, using discounted cash flow or other appropriate methodologies, and is included in deferred charges and other assets with a corresponding increase in long-term debt.
The Company is exposed to credit loss in the event of non-performance by counterparties in forward exchange contracts, currency swaps, and interest-rate swap contracts. Collateral is generally not required of the counterparties or of the Company. In the event a counterparty fails to meet the contractual terms of a currency swap or forward exchange contract, the Companys risk is limited to the fair value of the instrument. The Company actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as counterparties. The Company has not had any historical instances of non-performance by any counterparties, nor does it anticipate any future instances of non-performance.
The fair values, balance sheet presentation, and the hedge designation status of derivative instruments at March 31, 2012 and December 31, 2011 are presented in the table below:
|
|
|
|
Fair Value |
|
Fair Value |
| ||
|
|
|
|
As of |
|
As of |
| ||
(in thousands) |
|
Balance Sheet Location |
|
March 31, 2012 |
|
December 31, 2011 |
| ||
Asset Derivatives |
|
|
|
|
|
|
| ||
Forward exchange contracts not designated as hedge |
|
Accounts receivable |
|
$ |
17 |
|
$ |
57 |
|
Interest rate swaps designated as hedge |
|
Deferred charges and other investments |
|
|
|
3,268 |
| ||
Total asset derivatives |
|
|
|
$ |
17 |
|
$ |
3,325 |
|
|
|
|
|
|
|
|
| ||
Liability Derivatives |
|
|
|
|
|
|
| ||
Forward exchange contracts not designated as hedge |
|
Accounts payable |
|
$ |
14 |
|
$ |
60 |
|
Interest rate swaps designated as hedge |
|
Other long-term liabilities |
|
3,632 |
|
|
| ||
Total liability derivatives |
|
|
|
$ |
3,646 |
|
$ |
60 |
|
The income statement impact of derivatives not designated as hedging instruments for the years ended March 31, 2012 and 2011 are presented in the table below:
|
|
Location of Gain (Loss) |
|
Amount of Gain (Loss) Recognized in Income on Derivatives |
| ||||
|
|
Recognized in Income |
|
Three Months Ended |
| ||||
(in thousands) |
|
on Derivatives |
|
March 31, 2012 |
|
March 31, 2011 |
| ||
Forward exchange contracts |
|
Other operating (income) expense, net |
|
$ |
524 |
|
$ |
1,186 |
|
Currency swap contracts |
|
Other non-operating (income) expense, net |
|
|
|
(1,970 |
) | ||
Total |
|
|
|
$ |
524 |
|
$ |
(784 |
) |
Note 7 Inventories
Inventories are valued at the lower of cost, as generally determined by the first-in, first-out (FIFO) method, or market. Inventory values using the FIFO method of accounting approximate replacement cost. Inventories are summarized as follows:
|
|
March 31, |
|
December 31, |
| ||
(in thousands) |
|
2012 |
|
2011 |
| ||
Raw materials and supplies |
|
$ |
218,978 |
|
$ |
225,263 |
|
Work in process and finished goods |
|
462,293 |
|
420,795 |
| ||
Total inventories |
|
$ |
681,271 |
|
$ |
646,058 |
|
Note 8 Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill attributable to each reportable business segment follow:
|
|
Flexible Packaging |
|
Pressure Sensitive |
|
|
| |||
(in thousands) |
|
Segment |
|
Materials Segment |
|
Total |
| |||
Reported balance at December 31, 2011 |
|
$ |
996,038 |
|
$ |
52,431 |
|
$ |
1,048,469 |
|
|
|
|
|
|
|
|
| |||
Acquisition adjustments |
|
567 |
|
|
|
567 |
| |||
Currency translation |
|
6,446 |
|
159 |
|
6,605 |
| |||
Reported balance at March 31, 2012 |
|
$ |
1,003,051 |
|
$ |
52,590 |
|
$ |
1,055,641 |
|
The components of amortized intangible assets follow:
|
|
March 31, 2012 |
|
December 31, 2011 |
| ||||||||
(in thousands) |
|
Gross Carrying |
|
Accumulated |
|
Gross Carrying |
|
Accumulated |
| ||||
Intangible Assets |
|
Amount |
|
Amortization |
|
Amount |
|
Amortization |
| ||||
Contract based |
|
$ |
20,949 |
|
$ |
(13,496 |
) |
$ |
20,793 |
|
$ |
(13,571 |
) |
Technology based |
|
91,788 |
|
(36,889 |
) |
91,269 |
|
(35,287 |
) | ||||
Marketing related |
|
26,643 |
|
(14,308 |
) |
26,304 |
|
(13,868 |
) | ||||
Customer based |
|
202,478 |
|
(57,792 |
) |
200,989 |
|
(54,154 |
) | ||||
Reported balance |
|
$ |
341,858 |
|
$ |
(122,485 |
) |
$ |
339,355 |
|
$ |
(116,880 |
) |
Amortization expense for intangible assets was $4.6 million and $4.5 million during the first three months of 2012 and 2011, respectively. Estimated amortization expense for the remainder of 2012 is $13.4 million; $17.4 million for 2013; $16.3 million for 2014; and $16.0 million for each of the years 2015 through 2017. The Company does not have any accumulated impairment losses.
Note 9 Components of Net Periodic Benefit Cost
Benefit costs for defined benefit pension and other postretirement plans are shown below. The funding policy and assumptions disclosed in the Companys 2011 Annual Report on Form 10-K are expected to continue unchanged throughout 2012.
|
|
For the Quarter Ended March 31, |
| ||||||||||
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||
(in thousands) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Service cost benefits earned during the period |
|
$ |
3,679 |
|
$ |
3,387 |
|
$ |
90 |
|
$ |
82 |
|
Interest cost on projected benefit obligation |
|
8,499 |
|
8,865 |
|
96 |
|
98 |
| ||||
Expected return on plan assets |
|
(10,913 |
) |
(10,072 |
) |
|
|
|
| ||||
Amortization of unrecognized transition obligation |
|
59 |
|
61 |
|
|
|
|
| ||||
Amortization of prior service cost |
|
384 |
|
519 |
|
(160 |
) |
(187 |
) | ||||
Recognized actuarial net (gain) or loss |
|
7,065 |
|
5,856 |
|
(76 |
) |
(111 |
) | ||||
Settlement loss |
|
3,084 |
|
|
|
|
|
|
| ||||
Net periodic benefit cost |
|
$ |
11,857 |
|
$ |
8,616 |
|
$ |
(50 |
) |
$ |
(118 |
) |
In addition, defined contribution benefit plans expense was $5.6 million and $5.1 million for the three months ended March 31, 2012 and 2011, respectively.
Note 10 Stock Incentive Plans
The Companys 2007 (adopted in 2006) Stock Incentive Plan provides for the issuance of up to 6,000,000 shares of common stock to certain employees. The plan expires 10 years after its inception, at which point no further stock options or performance units (commonly referred to as stock awards) may be granted. As of March 31, 2012 and December 31, 2011, 4,136,897 and 4,378,338 shares were available for future grants under these plans. Shares forfeited by an employee become available for future grants.
Stock Options
Stock options have not been granted since 2003, and all outstanding stock options are fully vested. Stock options were granted at prices equal to fair market value on the date of the grant and are exercisable, upon vesting, over varying periods up to ten years from the date of grant. Details of the exercisable stock options are presented in the table below:
|
|
Aggregate |
|
|
|
Per Share |
|
Weighted-Average |
| ||||
|
|
Intrinsic Value |
|
Number of |
|
Option Price |
|
Exercise Price |
| ||||
|
|
(in thousands) |
|
Options |
|
Range |
|
Per Option |
| ||||
Exercisable at December 31, 2011 |
|
$ |
402 |
|
77,440 |
|
$24.82 |
- |
$26.95 |
|
$ |
24.88 |
|
Exercised |
|
|
|
(9,518 |
) |
$24.82 |
- |
$26.95 |
|
$ |
25.37 |
| |
Exercisable at March 31, 2012 |
|
$ |
508 |
|
67,922 |
|
$24.82 |
|
|
|
$ |
24.82 |
|
The weighted-average remaining contractual life of the outstanding and exercisable options at March 31, 2012 was 0.8 years.
Stock Awards
Distribution of stock awards is made in the form of shares of the Companys common stock on a one for one basis. Distribution of the shares will normally be made not less than three years, nor more than six years, from the date of the stock award grant. Stock awards for directors vest immediately. All other stock awards granted under the plans are subject to restrictions as to continuous employment, except in the case of death, permanent disability, or retirement. Approximately 48 percent of the stock awards granted in 2012 and 38 percent of stock awards granted in 2011 are also subject to the degree to which specified total shareholder return conditions are satisfied. In addition, cash payments are made during the vesting period on the outstanding stock awards granted prior to January 1, 2010, equal to the dividend on the Companys common stock. Cash payments equal to dividends on awards made on or after January 1, 2010, will be distributed at the same time as the shares of common stock to which they relate. The cost of the award is based on the fair market value of the stock on the date of grant and is charged to income over the requisite service period. Total compensation expense related to stock incentive plans was $4.9 million and $4.7 million for the quarters ended March 31, 2012 and 2011, respectively.
As of March 31, 2012, the unrecorded compensation cost for stock awards was $36.9 million and will be recognized over the remaining vesting period for each grant which ranges between 2012 and 2016. The remaining weighted-average life of all stock awards outstanding as of March 31, 2012, was 2.1 years. These awards are considered equity-based awards and are therefore classified as a component of additional paid-in capital.
The following table summarizes all stock awards unit activity from December 31, 2011 to March 31, 2012:
|
|
Aggregate |
|
|
| |
|
|
Intrinsic Value |
|
Number of |
| |
|
|
(in thousands) |
|
Stock Awards |
| |
Outstanding units granted at December 31, 2011 |
|
$ |
86,970 |
|
2,891,298 |
|
Units Granted |
|
|
|
238,994 |
| |
Units Paid (in shares) |
|
|
|
(195,968 |
) | |
Units Canceled |
|
|
|
(7,000 |
) | |
Outstanding value and units granted at March 31, 2012 |
|
$ |
94,523 |
|
2,927,324 |
|
Note 11 Accumulated Other Comprehensive Income (Loss)
In the first quarter of 2012, the Company made a cumulative correction of an error related to the translation of its Argentina operations from its functional currency of the Argentinean peso into its reporting currency. This resulted in a $2.1 million decrease in Property and Equipment, a $4.0 million decrease in Goodwill, with a corresponding offset to the foreign currency translation component of Accumulated Other Comprehensive Income (Loss). This correction also decreased first quarter 2012 Comprehensive Income by $6.1 million. This correction did not have a material impact on the Companys current or previously issued consolidated financial statements.
The components of total other comprehensive income are as follows:
|
|
For the Quarter Ended March 31, |
| ||||
(in thousands) |
|
2012 |
|
2011 |
| ||
Comprehensive income (loss) attributable to Bemis Company, Inc. |
|
$ |
86,269 |
|
$ |
86,555 |
|
Comprehensive income (loss) attributable to Noncontrolling interests |
|
|
|
2,302 |
| ||
Total comprehensive income (loss) |
|
$ |
86,269 |
|
$ |
88,857 |
|
The components of accumulated other comprehensive income (loss) are as follows as of:
|
|
March 31, |
|
December 31, |
| ||
(in thousands) |
|
2012 |
|
2011 |
| ||
Foreign currency translation |
|
$ |
164,687 |
|
$ |
128,813 |
|
Pension and other postretirement liability adjustment, net of tax effect of $126,338 and $130,058 |
|
(213,132 |
) |
(219,689 |
) | ||
Unrecognized gain on derivative, net of deferred tax effect of $0 and $84 |
|
|
|
132 |
| ||
Accumulated other comprehensive income (loss) |
|
$ |
(48,445 |
) |
$ |
(90,744 |
) |
Note 12 Noncontrolling Interests
The remaining outstanding equity in American Plast S.A. was acquired by the Company during the first quarter of 2011 for approximately $0.4 million. In accordance with current accounting guidance, the differences between the total consideration amounts paid and the noncontrolling interest adjustments were recorded as adjustments to capital in excess of par value. The following table summarizes the effects of changes in the Companys ownership interest in its subsidiaries on the Companys equity:
|
|
Three Months Ended March 31, |
| ||||
(in thousands) |
|
2012 |
|
2011 |
| ||
Net income attributable to Bemis Company, Inc. |
|
$ |
43,970 |
|
$ |
51,210 |
|
Transfers to noncontrolling interests: |
|
|
|
|
| ||
Decrease in Bemis Company, Inc.s capital in excess of par value due to purchase of American Plast S.A. common shares |
|
|
|
(170 |
) | ||
Net transfers to noncontrolling interests |
|
|
|
(170 |
) | ||
Change from net income attributable to Bemis Company, Inc. and transfers to noncontrolling interests |
|
$ |
43,970 |
|
$ |
51,040 |
|
Note 13 Earnings Per Share Computations
In accordance with current accounting guidance, unvested share-based payment awards that contain nonforfeitable rights to receive dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus, should be included in the two-class method of computing earnings per share. Participating securities under this statement include a portion of the Companys unvested employee stock awards, which receive nonforfeitable cash payments equal to the dividend on the Companys common stock. The calculation of earnings per share for common stock shown below excludes the income attributable to the participating securities from the numerator and excludes the dilutive impact of those awards from the denominator.
|
|
Three Months Ended March 31, |
| ||||
(in thousands, except per share amounts) |
|
2012 |
|
2011 |
| ||
Numerator |
|
|
|
|
| ||
Net income attributable to Bemis Company, Inc. |
|
$ |
43,970 |
|
$ |
51,210 |
|
Income allocated to participating securities |
|
(537 |
) |
(759 |
) | ||
Net income available to common shareholders (1) |
|
$ |
43,433 |
|
$ |
50,451 |
|
|
|
|
|
|
| ||
Denominator |
|
|
|
|
| ||
Weighted average common shares outstanding basic |
|
103,077 |
|
107,142 |
| ||
Dilutive shares |
|
631 |
|
353 |
| ||
Weighted average common and common equivalent shares outstanding diluted |
|
103,708 |
|
107,495 |
| ||
Per common share income |
|
|
|
|
| ||
Basic |
|
$ |
0.42 |
|
$ |
0.47 |
|
Diluted |
|
$ |
0.42 |
|
$ |
0.47 |
|
|
|
Three Months Ended March 31, |
| |||
(in thousands, except per share amounts) |
|
2012 |
|
2011 |
| |
(1) |
Basic weighted average common shares outstanding |
|
103,077 |
|
107,142 |
|
|
Basic weighted average common shares outstanding and participating securities |
|
104,352 |
|
108,753 |
|
|
Percentage allocated to common shareholders |
|
98.8 |
% |
98.5 |
% |
Certain stock options and stock awards outstanding were not included in the computation of diluted earnings per share above because they would not have had a dilutive effect. The excluded stock options and stock awards represented an aggregate of 117,997 shares at March 31, 2012. There were no such options or shares outstanding at March 31, 2011.
Note 14 Legal Proceedings
The Company is involved in a number of lawsuits incidental to its business, including environmental related litigation and routine litigation arising in the ordinary course of business. Although it is difficult to predict the ultimate outcome of these cases, management believes, except as discussed below, that any ultimate liability would not have a material adverse effect on the Companys consolidated financial condition or results of operations.
Environmental Matters
The Company is a potentially responsible party (PRP) pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as Superfund) and similar state laws in proceedings associated with seventeen sites around the United States. These proceedings were instituted by the United States Environmental Protection Agency and certain state environmental agencies at various times beginning in 1983. Superfund and similar state laws create liability for investigation and remediation in response to releases of hazardous substances in the environment. Under these statutes, joint and several liability may be imposed on waste generators, site owners and operators, and others regardless of fault. Although these regulations could require the Company to remove or mitigate the effects on the environment at various sites, perform remediation work at such sites, or pay damages for loss of use and non-use values, the Company expects its liability in these proceedings to be limited to monetary damages. The Company expects its future liability relative to these sites to be insignificant, individually and in the aggregate. The Company has reserved an amount that it believes to be adequate to cover its exposure.
São Paulo Tax Dispute
Dixie Toga Ltda., acquired by the Company on January 5, 2005, is involved in a tax dispute with the City of São Paulo, Brazil (the City). The City imposes a tax on the rendering of printing services. The City has assessed this city services tax on the production and sale of printed labels and packaging products. Dixie Toga, along with a number of other packaging companies, disagree and contend that the city services tax is not applicable to its products and that the products are subject only to the state value added tax (VAT). Under Brazilian law, state VAT and city services tax are mutually exclusive and the same transaction can be subject to only one of those taxes. Based on a ruling from the State of São Paulo, advice from legal counsel, and long standing business practice, Dixie Toga appealed the city services tax and instead continued to collect and pay only the state VAT.
The City of São Paulo disagreed and assessed Dixie Toga the city services tax for the years 1991-1995. The assessments for those years are estimated to be approximately $60.2 million at the date the Company acquired Dixie Toga, translated to U.S. dollars at the March 31, 2012 exchange rate. Dixie Toga challenged the assessments and ultimately litigated the issue in two annulment actions filed on November 24, 1998 and August 16, 1999 in the Lower Tax Court in the city of São Paulo. A decision by the Lower Tax Court in the city of São Paulo in 2002 cancelled all of the assessments for the years 1991-1995. The City of São Paulo, the State of São Paulo, and Dixie Toga had each appealed parts of the lower court decision. On February 8, 2010, the São Paulo Court of Justice issued a Decision in favor of Dixie Toga. This Decision has been appealed by the City of São Paulo. In the event of a successful appeal by the City and an adverse resolution, the estimated amount for these years could be substantially increased for additional interest, monetary adjustments and costs from the date of acquisition.
The City has also asserted the applicability of the city services tax for the subsequent years 1996-2001 and has issued assessments for those years for Dixie Toga and for Itap Bemis Ltda., a Dixie Toga subsidiary. The assessments for those years were upheld at the administrative level and are being challenged by the companies. The assessments at the date of acquisition for these years for tax and penalties (exclusive of interest and monetary adjustments) are estimated to be approximately $9.1 million for Itap Bemis and $29.2 million for Dixie Toga, translated to U.S. dollars at the March 31, 2012 exchange rate. In the event of an adverse resolution, the estimated amounts for these years could be increased by $50.8 million for Itap Bemis and $147.9 million for Dixie Toga for interest, monetary adjustments and costs.
The 1996-2001 assessments for Dixie Toga are currently being challenged in the courts. In pursuing its challenge through the courts, taxpayers are generally required, in accordance with court procedures, to pledge assets as security for its lawsuits. Under certain circumstances, taxpayers may avoid the requirement to pledge assets. Dixie Toga has secured a court injunction that avoids the current requirement to pledge assets as security for its lawsuit related to the 1996-2001 assessments.
The City has also asserted the applicability of the city services tax for the subsequent years 2004-2009. The assessments issued by the City for these years have been received and are being challenged by the Company at the administrative level. The assessments for tax, penalties, and interest are estimated to be approximately $49.1 million, translated to U.S. dollars at the March 31, 2012 exchange rate.
The Company strongly disagrees with the Citys position and intends to vigorously challenge any assessments by the City of São Paulo. The Company is unable at this time to predict the ultimate outcome of the controversy and as such has not recorded any liability related to this matter. An adverse resolution could be material to the consolidated results of operations and/or cash flows of the period in which the matter is resolved.
Brazil Investigation
On September 18, 2007, the Secretariat of Economic Law (SDE), a governmental agency in Brazil, initiated an investigation into possible anti-competitive practices in the Brazilian flexible packaging industry against a number of Brazilian companies including a Dixie Toga subsidiary. The investigation relates to periods prior to the Companys acquisition of control of Dixie Toga and its subsidiaries. Given the preliminary nature of the proceedings, the Company is unable at the present time to predict the outcome of this matter.
Multiemployer Defined Benefit Pension Plans
The Company contributes to three multiemployer defined benefit pension plans based on obligations arising under collective bargaining agreements covering union-represented employees. The Company does not directly manage these multiemployer pension plans, which are generally managed by boards of trustees, half of whom are appointed by the unions and the other half by employers contributing to the plans. Based on the information provided by the plan administrators, the Company is aware that these plans are underfunded. In addition, pension-related legislation requires underfunded pension plans to improve their funding ratios within prescribed intervals based on the level of their underfunding. As a result, the Company expects its contributions to these plans to increase in the future.
Under current law regarding multiemployer defined benefit plans, a plans termination, the Companys voluntary withdrawal, or the mass withdrawal of all contributing employers from any underfunded multiemployer pension plan would require the Company to make payments to the plan for the Companys proportionate share of the multiemployer pension plans unfunded vested liabilities. Based on the information available from plan administrators, the Company estimates its share of withdrawal liability on its multiemployer pension plans to be approximately $34.0 million based on a voluntary withdrawal. This estimate excludes amounts for which the Company has recorded withdrawal liabilities as part of its facility consolidation and other costs program. The majority of the plans in which the Company participates have a calendar year-end valuation date. As such, the majority of the estimated withdrawal liability results from plans for which the valuation date was December 31, 2010. Due to lack of current information, the Company believes that its current share of the withdrawal liability could materially differ from this estimate. In addition, if a multiemployer defined benefit pension plan fails to satisfy certain minimum funding requirements, the IRS may impose a nondeductible excise tax of 5 percent on the amount of the accumulated funding deficiency for those employers contributing to the fund.
The Company recorded charges related to the partial withdrawal from the GCIU Employee Retirement Fund in the fourth quarter of 2011 as part of the Companys 2011 facility consolidation program. The expense recorded represents the Companys best estimate of the expected settlement of these partial withdrawal liabilities. While it is not possible to quantify the potential impact of future actions, further reductions in participation or withdrawal from these multiemployer pension plans could have a material impact on the Companys consolidated annual results of operations, financial position, or cash flows.
Note 15 Segments of Business
The Companys business activities are organized around and aggregated into its two principal business segments, Flexible Packaging and Pressure Sensitive Materials, based on their similar economic characteristics, products, production process, types of customers, and distribution methods. Both internal and external reporting conform to this organizational structure, with no significant differences in accounting policies applied. Minor intersegment sales are generally priced to reflect nominal markups. The Company evaluates the performance of its segments and allocates resources to them based on several factors including operating profit, which is defined as profit before general corporate expense, interest expense, other non-operating (income) expense, income taxes, and noncontrolling interests. While there are similarities in selected technology and manufacturing processes utilized between the Companys business segments, notable differences exist in products, application and distribution of products, and customer base.
A summary of the Companys business activities reported by its two business segments follows:
|
|
For the Quarter Ended March 31, |
| ||||
Business Segments (in millions) |
|
2012 |
|
2011 |
| ||
Net Sales to Unaffiliated Customers: |
|
|
|
|
| ||
Flexible Packaging |
|
$ |
1,160.4 |
|
$ |
1,180.1 |
|
Pressure Sensitive Materials |
|
145.6 |
|
145.3 |
| ||
|
|
|
|
|
| ||
Intersegment Sales: |
|
|
|
|
| ||
Flexible Packaging |
|
(0.9 |
) |
(0.7 |
) | ||
Pressure Sensitive Materials |
|
(0.3 |
) |
(0.3 |
) | ||
Total net sales |
|
$ |
1,304.8 |
|
$ |
1,324.4 |
|
|
|
For the Quarter Ended March 31, |
| ||||
Business Segments (in millions) |
|
2012 |
|
2011 |
| ||
Operating Profit and Pretax Profit: |
|
|
|
|
| ||
Flexible Packaging operating profit |
|
$ |
116.2 |
|
$ |
116.3 |
|
Flexible Packaging facility consolidation and other costs |
|
(8.3 |
) |
|
| ||
Net Flexible Packaging operating profit |
|
$ |
107.9 |
|
$ |
116.3 |
|
Pressure Sensitive Materials operating profit |
|
9.7 |
|
9.9 |
| ||
General Corporate expenses |
|
(29.1 |
) |
(23.0 |
) | ||
Operating income |
|
88.5 |
|
103.2 |
| ||
Interest expense |
|
20.5 |
|
18.3 |
| ||
Other non-operating (income) expense, net |
|
0.1 |
|
1.8 |
| ||
Income before income taxes |
|
$ |
67.9 |
|
$ |
83.1 |
|
|
|
March 31, |
|
December 31, |
| ||
Business Segments (in millions) |
|
2012 |
|
2011 |
| ||
Total Assets: |
|
|
|
|
| ||
Flexible Packaging |
|
$ |
3,754.2 |
|
$ |
3,687.6 |
|
Pressure Sensitive Materials |
|
319.4 |
|
302.1 |
| ||
Total identifiable assets (1) |
|
4,073.6 |
|
3,989.7 |
| ||
Corporate assets (2) |
|
317.5 |
|
330.7 |
| ||
Total |
|
$ |
4,391.1 |
|
$ |
4,320.4 |
|
(1) Total assets by business segment include only those assets that are specifically identified with each segments operations.
(2) Corporate assets are principally cash and cash equivalents, prepaid expenses, prepaid income taxes, prepaid pension benefit costs, and corporate tangible and intangible property.
EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION OF CEO
I, Henry J. Theisen, certify that:
1. I have reviewed this report on Form 10-Q of Bemis Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date |
May 10, 2012 |
|
By |
/s/ Henry J. Theisen |
|
Henry J. Theisen, President and | |||
|
Chief Executive Officer |
EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION OF CFO
I, Scott B. Ullem, certify that:
1. I have reviewed this report on Form 10-Q of Bemis Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date |
May 10, 2012 |
|
By |
/s/ Scott B. Ullem |
|
|
|
Scott B. Ullem, Vice President and | |
|
|
|
Chief Financial Officer |
EXHIBIT 32
SECTION 1350 CERTIFICATIONS OF CEO AND CFO
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that the quarterly report on Form 10-Q of Bemis Company, Inc. for the quarter ended March 31, 2012 (the Report), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Bemis Company, Inc.
/s/ Henry J. Theisen |
|
/s/ Scott B. Ullem |
Henry J. Theisen, President and |
|
Scott B. Ullem, Vice President and |
Chief Executive Officer |
|
Chief Financial Officer |
May 10, 2012 |
|
May 10, 2012 |
Derivative Instruments (Details 2) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | |
---|---|---|
Mar. 31, 2012
|
Mar. 31, 2011
|
|
Derivative Instruments, Gain (Loss) | ||
Amount of gain (loss) recognized in income on derivatives | $ 524 | $ (784) |
Forward exchange contracts
|
||
Derivative Instruments, Gain (Loss) | ||
Amount of gain (loss) recognized in income on derivatives | 524 | 1,186 |
Currency swaps
|
||
Derivative Instruments, Gain (Loss) | ||
Amount of gain (loss) recognized in income on derivatives | $ (1,970) |
Earnings Per Share Computations (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | |
---|---|---|
Mar. 31, 2012
|
Mar. 31, 2011
|
|
Numerator | ||
Net income attributable to Bemis Company, Inc. (in dollars) | $ 43,970 | $ 51,210 |
Income allocated to participating securities (in dollars) | (537) | (759) |
Net income available to common shareholders (in dollars) | $ 43,433 | $ 50,451 |
Denominator | ||
Basic weighted-average common shares outstanding | 103,077 | 107,142 |
Dilutive shares | 631 | 353 |
Weighted-average common and common equivalent shares outstanding - diluted | 103,708 | 107,495 |
Per common share income | ||
Basic (in dollars per share) | $ 0.42 | $ 0.47 |
Diluted (in dollars per share) | $ 0.42 | $ 0.47 |
Basic weighted-average common shares outstanding | 103,077 | 107,142 |
Basic weighted-average common shares, outstanding and participating securities | 104,352 | 108,753 |
Percentage allocated to common shareholders | 98.80% | 98.50% |
Antidilutive stock options and stock awards | 117,997 |
Segments of Business (Tables)
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2012
|
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Segments of Business | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of the entity's business activities reported by business segments |
|
Derivative Instruments (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2012
|
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Derivative Instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair values and balance sheet presentation and income statement impact of derivative instruments not designated as hedging instruments |
|
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