Numerous legislative and regulatory initiatives have been passed and anticipated in response to concerns about Greenhouse Gas emissions and climate change. We are a manufacturing entity that utilizes petrochemical-based raw materials to produce many of our products. Increased environmental legislation or regulation could result in higher costs for us in the form of higher raw material cost,Named Executive Officers’ benefits under all established pension plans as well as
energyany above market earnings on non-qualified deferred compensation plans. Interest rate and
freight costs. It is possible that certain materials might cease to be permitted to bemortality rate assumptions used
are consistent with those shown in our
processes. We could also incur additional compliance costsfinancial statements. Mr. Austen is the only Named Executive Officer who participates in the Company’s defined benefit pension plan. See 2018 Pension Benefits for
monitoring and reporting emissions and for maintaining permits. Additionally,more detailed information.(5)The amounts in this column include a sizable portionsum of our business comes from healthcare packaging and food packaging, both highly regulated markets. If we failall other compensation as reported in the following table of All Other Compensation.
(6)Mr. Stephan was promoted to comply with these regulatory requirements, our results of operations could be adversely impacted.an Executive Officer in May 2018.
All Other Compensation
Name | | Year | | 401k Match
BIIP
($) | | Life Insurance
($) | | Perquisites
($) | | Total
($) | |
| | | | (a) | | | | (b) | | | |
William F. Austen | | 2018 | | 19,250 | | 7,379 | | 14,532 | | 41,161 | |
Michael B. Clauer | | 2018 | | 19,250 | | 4,191 | | | | 23,441 | |
Fred Stephan | | 2018 | | 19,250 | | 1,163 | | | | 20,413 | |
Sheri H. Edison | | 2018 | | 19,250 | | 3,340 | | | | 22,590 | |
Timothy S. Fliss | | 2018 | | 19,250 | | 1,753 | | | | 21,003 | |
Patents and proprietary technology — Our success(a)The Bemis Investment Incentive Plan (BIIP) 401(k) is dependent on our abilityavailable to develop and successfully introduce new products and to develop, acquire and retain intellectual property rights.
Our success depends in large part on our proprietary technology. We rely on intellectual property rights, including patents, trademarks and trade secrets, as well as confidentiality provisions and licensing arrangements, to establish our proprietary rights. If we are unable to enforce our intellectual property rights, our competitive position may suffer. Our pending patent applications, and our pending trademark registration applications, may not be allowed or competitors may challenge the validity or scope of our patents or trademarks. In addition, our patents, trademarks and other intellectual property rights may not provide us a significant competitive advantage. We may need to spend significant resources monitoring our intellectual property rights. Our competitive position may be harmed if we cannot detect infringement and enforce our intellectual property rights quickly or at all. Competitors might avoid infringement by designing around our intellectual property rights or by developing non-infringing competing technologies. Intellectual property rights and our ability to enforce them may be unavailable or limited in some countries which could make it easier for competitors to capture market share and could result in lost revenues.
Attracting and retaining key personnel — If we are unable to attract and retain key personnel, we may be adversely affected.
Our continued success depends, in large part, on our ability to identify, attract, motivate, train and retain qualified personnel in key functions and geographic areas. Losing the services of key employees in any of our operations could make it difficult to meet our objectives. To effectively manage our global business, we will need to continue to recruit, train, assimilate, motivate and retain employees who actively promote and meet the standards of a high performance culture.
Funded status of pension plans — Recognition of pension liabilities may cause a significant reduction in stockholders’ equity.
In December of 2013, new amendments to our U.S. pension plan forall eligible salaried and non-union hourly employees, were implemented.including all Executive Officers. Participants contribute by making pre-tax employee contributions that are then matched by the Company in Bemis shares. The match is 100 percent of the employee contributions up to a 7 percent maximum match of eligible compensation. Participants are vested after three years of service.(b)The $14,532 amount relates entirely to personal use of aircraft that was provided by the Company.
Grants of Plan Based Awards in 2018
| | | | Award | | Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards | | Estimated Future Payouts
Under Equity Incentive Plan
Awards | | All Other Stock
Awards: Number | | Grant Date | |
| | Eff Grant | | (Approval) | | Threshold | | Target | | Max | | Threshold | | Target | | Max | | of Shares of Stock | | Fair Market | |
Name | | Date | | Date | | ($) | | ($) | | ($) | | (#) | | (#) | | (#) | | Units (#) | | Value ($) | |
| | | | | | | | (1) | | | | | | (2) | | | | (2) | | (3) | |
William F. Austen | | 01/02/18 | | 11/01/17 | | | | | | | | | | | | | | 32,946 | | 1,575,148 | |
| | 01/02/18 | | 11/01/17 | | | | | | | | 38,437 | | 76,873 | | 153,746 | | | | 4,247,233 | |
| | | | | | 654,000 | | 1,308,000 | | 2,616,000 | | | | | | | | | | | |
Michael B. Clauer | | 01/02/18 | | 11/01/17 | | | | | | | | | | | | | | 7,364 | | 352,073 | |
| | 01/02/18 | | 11/01/17 | | | | | | | | 8,591 | | 17,182 | | 34,364 | | | | 949,306 | |
| | | | | | 219,375 | | 438,750 | | 877,500 | | | | | | | | | | | |
Fred Stephan | | 01/02/18 | | 11/01/17 | | | | | | | | | | | | | | 4,761 | | 227,623 | |
| | 05/02/18 | | 05/02/18 | | | | | | | | | | | | | | 1,263 | | 60,384 | |
| | 01/02/18 | | 11/01/17 | | | | | | | | 5,555 | | 11,109 | | 22,218 | | | | 613,772 | |
| | 05/02/18 | | 05/02/18 | | | | | | | | 1,474 | | 2,947 | | 5,894 | | | | 162,822 | |
| | | | | | 160,486 | | 320,973 | | 641,945 | | | | | | | | | | | |
Sheri H. Edison | | 01/02/18 | | 11/01/17 | | | | | | | | | | | | | | 4,285 | | 204,866 | |
| | 01/02/18 | | 11/01/17 | | | | | | | | 4,999 | | 9,998 | | 19,996 | | | | 552,390 | |
| | | | | | 144,000 | | 288,000 | | 576,000 | | | | | | | | | | | |
Timothy S. Fliss | | 01/02/18 | | 11/01/17 | | | | | | | | | | | | | | 2,952 | | 141,135 | |
| | 01/02/18 | | 11/01/17 | | | | | | | | 3,444 | | 6,888 | | 13,776 | | | | 380,562 | |
| | | | | | 114,900 | | 229,800 | | 459,600 | | | | | | | | | | | |
(1)The Bemis Executive Officer Performance Plan (BEOPP) is an annual, non-equity cash incentive program. The BEOPP provides the formula for calculating the annual non-equity incentive-based compensation, subject to the Committee’s oversight and approval. Each Named Executive Officer has a target award opportunity that is assigned as a percentage of annual base pay. These amendments have frozen all further benefit accrualsannual target awards range from 60 percent of annual base pay to 120 percent of annual base pay (as determined by the Committee). The short-term, non-equity incentive plan’s measurement for payout is adjusted Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) results against target, adjusted Return on Invested Capital (ROIC) results against target, and adjusted Net Revenue results against target. The payout is determined by adjusted EBITDA, adjusted ROIC, and adjusted Net Revenue performance, respectively, utilizing a performance scale (see BEOPP Funding Scale in Compensation Discussion and Analysis). The maximum payout under this plan is $3,000,000. Mr. Stephan joined the BEOPP on May 1, 2018 at which time he received a short-term incentive target increase from 60 percent to 70 percent.
(2)Reflects the issuance of restricted equity units to the Named Executive Officers. Time-based share units and performance-based share units vest after a three-year period, subject to accelerated vesting for retirement eligible participants. Retirement eligible participants for 2018 include: Mr. Austen, Mr. Clauer, Ms. Edison, and Mr. Fliss. The share price used to determine the number of both time-based and performance-based share units granted on 1/2/18 was the average closing share price for the majoritylast 20 trading days of employees entitledDecember 2017, or $47.26. The maximum payout for the performance-based share units is two times the target for achieving 75 percent of TSR in comparison to benefits under the U.S. pension plans. WhileTSR Comparator Group while achieving the amendments reduced some risk related25th percentile of TSR in comparison to future service costs, there is still risk associated with ongoing liability re-measurement and plan asset valuations. Accounting standards issued by the Financial Accounting Standards Board ("FASB") require balance sheet recognition ofTSR Comparator Group yields a 50 percent payout. Below the funded status of our defined benefit pension and postretirement benefit plans. If the fair value of our pension plans’ assets at a future reporting date decreases or if the discount rate used to calculate the projected benefit obligation ("PBO") as of that date decreases, we will be required to record the incremental change25th percentile achievement yields no payout. All restricted equity units vest in the excessevent of PBO over the fair value of the assets as a reduction of shareholders’ equity. The resulting non-cash after-tax charge would represent future expense and would be recorded directly as a decrease in the Accumulated Other Comprehensive Income component of stockholders’ equity. While we cannot estimate the future funded status of our pension liability with any certainty at this time, we believe that if the market value of assetsan Executive Officer’s death or the discount rate used to calculate our pension liability materially decreases, the adjustment could significantly reduce our shareholders’ equity. We have identified pension assumptions as a critical accounting estimate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations
— Critical Accounting Estimates and Judgments — Pension costs” and “— Pension assumptions sensitivity analysis” included in Item 7 of this Annual Report on Form 10-K.
ITEM 1B — UNRESOLVED STAFF COMMENTS
None.
ITEM 2 — PROPERTIES
Properties utilized by us at December 31, 2018, were as follows:
U.S. Packaging Segment
This segment has 25 manufacturing plants located in 12 states, of which 24 are owned directly by us or our subsidiaries and one is leased from an outside party. Initial building lease term provides for a minimum term of 20 years and has one or more renewal options.
Latin America Packaging Segment
This segment has 13 manufacturing plants located in 3 countries, of which 11 are owned directly by us or our subsidiaries and 2 are leased from an outside party. Initial building lease terms provide for minimum terms of 6 to 20 years and have one or more renewal options.
Rest of World Packaging Segment
This segment has 16 manufacturing plants located in two states within the U.S., the Commonwealth of Puerto Rico, and eight other countries, of which 11 are owned directly by us or our subsidiaries and 5 are leased from outside parties. Initial building lease terms generally provide for minimum terms of 5 to 20 years and have one or more renewal options.
Corporate and General
We consider our plants and other physical properties to be suitable, adequate, and of sufficient productive capacity to meet the requirements of our business. The manufacturing plants operate at varying levels of utilization depending on the type of operation and market conditions. Our executive offices are located in Neenah, Wisconsin.
ITEM 3 — LEGAL PROCEEDINGS
We are involved in a number of lawsuits incidental to our 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, we believe, except as discussed below, that any ultimate liability would not have a material adverse effect on the Company’s consolidated financial condition or results of operations.
Environmental Matters
We are a potentially responsible party ("PRP") pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as “Superfund”) and similar state and foreign laws in proceedings associated with 12 sites around the United States and one in Brazil. These proceedings were instituted by the United States Environmental Protection Agency and certain state and foreign environmental agencies at various times beginning in 1983. Superfund and similar state and foreign 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 us 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, we expect our liability in these proceedings to be limited to monetary damages. We expect our future liability relative to these sites to be insignificant, individuallydisability and in the aggregate.
We are involved in other environmental-related litigation arising in the ordinary courseevent of business. We accrue environmental costs when it is probable that these costs will be incurred and can be reasonably estimated. Our reserve for environmental liabilities at December 31, 2018 and 2017 was $0.3 million and $0.9 million, respectively, and is included in other liabilities and deferred credits on the accompanying consolidated balance sheet.
Brazil Tax Dispute - Goodwill Amortization
During October 2013, Dixie Toga, Ltda ("Dixie Toga"), a Bemis subsidiary, received an income tax assessment in Brazil for the tax years 2009 through 2011 that relates to the amortizationchange of certain goodwill generated from the acquisition of Dixie Toga. The income tax assessed for those years is approximately $9.8 million, translated to U.S. dollarscontrol, with performance-based share units vesting at the December 31, 2018 exchange rate. We expect that tax examinations for yearstarget. In addition, any Executive Officer who retired at or after 2011the age 55 will include similar assessments as we continue to claim the tax benefits associated with the goodwill amortization. An ultimate adverse resolution on these assessments, including interest and penalties, could be material to our consolidated results of operations and/or cash flows.
We have been advised by our legal and tax advisors that our position with respect to the deductions is allowable under the tax laws of Brazil. We are contesting the disallowance and believe it is more likely than not the tax benefit will be sustainedvest in its entirety and consequently have not recorded a liability. In May of 2017, we received a favorable administrative decision. The government is appealing this decision to the next administrative level. We intend to litigate the matter if it is not resolved at the administrative appeals levels. The ultimate outcome could take several years. At this time, we believe that final resolution of the assessment will not have a material impact on our consolidated financial statements.
Brazil Tax Credits
During October 2018, Bemis Do Brasil Industria E Comercio De Embalagens Ltda. (“Bemis Brazil”), a Bemis subsidiary, received a final decision from the Brazilian court regarding our claim that certain indirect taxes were incorrectly required to be paid in the years 2001 through 2017. As a result of this case, Bemis Brazil expects to receive tax credits for the overpaid tax and related interest that can be used to offset various Brazilian federal taxes in future years. The exact methodology to compute theprorated amount of the
tax creditunits determined based on the number of months of the vesting or performance period while the Executive Officer was employed. Upon being promoted to an Executive Officer in May 2018, Mr. Stephan received an additional 2,947 performance-based share units and 1,263 time-based share units.(3)Grant date fair market value for the time-based share units is still beingthe number of units, multiplied by the closing market price on 1/2/18, which was $47.81. Grant date fair market value for the performance-based share units is determined using the Monte Carlo simulation in accordance with FASB ASC Topic 718. The accounting value of each performance-based share unit was 116 percent of the value of each time-based share unit.
Outstanding Equity Awards at 2018 Fiscal Year End
| | Stock Awards | |
| | (1) | | (2) | | (1) | | (2) | |
Name | | Number of Shares or
Units of Stock That
Have Not Vested
(#) | | Market Value of
Shares or Units of
Stock That Have
Not Vested
($) | | Equity Incentive Plan Awards:
Number of Unearned Shares, Units
or Other Rights That Have Not
Vested
(#) | | Equity Incentive Plan Awards:
Market or Payout Value of
Unearned Shares, Units or Other
Rights That Have Not Vested
($) | |
William F. Austen | (3) | 31,653 | | 1,452,873 | | | | | | | |
| (4) | 32,946 | | 1,512,221 | | | | | | | |
| | | | | | | (5) | 73,857 | | 3,390,036 | |
| | | | | | | (6) | 76,873 | | 3,528,471 | |
Michael B. Clauer | (3) | 7,075 | | 324,743 | | | | | | | |
| (4) | 7,364 | | 338,008 | | | | | | | |
| | | | | | | (5) | 16,508 | | 757,717 | |
| | | | | | | (6) | 17,182 | | 788,654 | |
Fred Stephan | (7) | 4,575 | | 209,993 | | | | | | | |
| (8) | 6,024 | | 276,502 | | | | | | | |
| | | | | | | (9) | 10,673 | | 489,891 | |
| | | | | | | (10) | 14,056 | | 645,170 | |
Sheri H. Edison | (3) | 4,117 | | 188,970 | | | | | | | |
| (4) | 4,285 | | 196,682 | | | | | | | |
| | | | | | | (5) | 9,606 | | 440,915 | |
| | | | | | | (6) | 9,998 | | 458,908 | |
Timothy S. Fliss | (3) | 2,836 | | 130,172 | | | | | | | |
| (4) | 2,952 | | 135,497 | | | | | | | |
| | | | | | | (5) | 6,618 | | 303,766 | |
| | | | | | | (6) | 6,888 | | 316,159 | |
(1)Reflects outstanding time-based share units and performance-based share units that vest after a three-year period. The performance-based share units will vest on 12/31/2019 and 12/31/2020 based on our TSR performance relative to our TSR Comparator Group. Dividend equivalents are accrued and paid out when the share units fully vest.
(2)Market value of share units is determined by multiplying the tax authorities. Innumber of units by the fourth quarter of 12/31/2018 Bemis Brazil hired an outside consultantclosing share price of $45.90.
(3)Number of time-based share units awarded on 1/3/2017. The units will vest on 12/31/2019.
(4)Number of time-based share units awarded on 1/2/2018. The units will vest on 12/31/2020.
(5)Number of performance-based share units awarded on 1/3/2017 that would be earned based on achieving target level of performance.
(6)Number of performance-based share units awarded on 1/2/2018 that would be earned based on achieving target level of performance.
(7)Number of time-based share units awarded on 2/20/2017 that will vest on 12/31/2019.
(8)Number of time-based share units awarded on 1/2/2018 and 5/2/2018 that will vest on 12/31/2020.
(9)Number of performance-based share units awarded on 2/20/2017 that will vest on 12/31/2019.
(10)Number of performance-based share units awarded on 1/2/2018 and 5/2/2018 that will vest on 12/31/2020.
Option Exercises and Stock Vested in 2018
| | Stock Awards | |
Name | | Number of Shares
Acquired on Vesting
(#) | | Value Realized on
Vesting
($) | |
| | (1) | | | |
William F. Austen | | 31,334 | | 1,431,337 | (2) |
| | 63,974 | | 3,196,141 | (3) |
Michael B. Clauer | | 6,404 | | 292,535 | (2) |
| | 13,075 | | 653,227 | (3) |
Fred Stephan | | 23,700 | | 1,082,616 | (2) |
| | | | | |
Sheri H. Edison | | 4,480 | | 204,646 | (2) |
| | 9,146 | | 456,934 | (3) |
Timothy S. Fliss | | 3,086 | | 140,968 | (2) |
| | 6,300 | | 314,748 | (3) |
(1)The figures represent the number of shares that vested during 2018 for each Named Executive Officer. Dollar amount represents the share closing price on the date of vesting multiplied by the number of units vested for time-based shares.
(2)Time-based share units vested 12/31/2018 and distributed on 1/2/2019 to compile documentation requiredthe Named Executive Officer.
(3)Performance-based share units vested during 2018 and distributed on 2/6/2019 to claim the credit. Bemis Brazil has estimated that it is probableNamed Executive Officer.
2018 Pension Benefits
The table below shows the present value of accumulated benefits payable to receive a benefit, neteach of feesthe Named Executive Officers, including the number of years of service credited to each Named Executive Officer, under each of the Retirement Plans and applicable Brazilian taxes, of $10.1 million (translated into US dollarsSupplemental Retirement Plans, determined using interest rate and mortality rate assumptions described below. The pension plans included in this table are frozen as of December 31, 2018)2013. Any employee hired after January 1, 2005 is not eligible to participate in any of the Bemis Defined Benefit Retirement Programs.
Name | | Plan Name | | Number of Years
Credited Service
(#) | | Present Value
of Accumulated
Benefit
($) | | Payments
During Last
Fiscal Year
($) | |
| | (1)(2) | | | | (3) | | | |
William F. Austen | | Bemis Retirement Plan | | 5.80 | | 219,360 | | | |
| | Bemis Supplemental Retirement Plan | | 5.80 | | 777,955 | | | |
| | Bemis Supplemental Retirement Plan for Senior Officers | | 13.80 | | 4,139,945 | | | |
| | TOTAL | | | | 5,137,260 | | | |
Key Assumptions(3) | | 12/31/2018 | | 12/31/2017 | |
Discount Rate | | 4.25% | | 3.75% | |
Expected Retirement Age | | Earliest unreduced age | | Earliest unreduced age | |
Pre-Retirement Decrements | | None | | None | |
Post-Retirement Mortality | | RP 2014 adjusted to 2006 | | RP 2014 adjusted to 2006 | |
Mortality Projection Scale | | MP 2018 Generational | | MP 2017 Generational | |
Form of Payment | | | | | |
BRP | | Single Life Annuity | | Single Life Annuity | |
Supplemental | | Lump Sum | | Lump Sum | |
SERP | | Lump Sum | | Lump Sum | |
Lump Sum Assumptions | | | | | |
Interest | | 3.00% | | 3.00% | |
Mortality | | IRS 2019 Applicable Mortality Table | | IRS 2018 Applicable Mortality Table | |
(1)Bemis Retirement Plan (BRP) and Bemis Supplemental Retirement Plan (Supplemental Plan) - Both the BRP and the Supplemental Plan are non-contributory defined benefit plans with an offset for Social Security, which provide benefits determined primarily by final average salary and years of service. Final average salary is determined by using the highest five consecutive years of earnings out of the last fifteen. Eligible earnings include regular annual base compensation plus any annual non-equity cash incentive earned. The benefit formula is 50 percent of the final average salary, less 50 percent of the estimated Social Security benefit. Benefits are generally accrued over a 30-year period. The Supplemental Plan is a non-qualified defined benefit “excess” plan that provides an additional benefit which would have been provided under the BRP but for the years 2009-2017. We reflected the $10.1 million benefitlimitations imposed by recording $15.3 million on the consolidated statement of income in other operating income offset by $5.2 million of income tax included within income taxes provision (benefit)IRC Section 415 (maximum benefits) and IRC Section 401(a)(17) (maximum compensation). Bemis Brazil has not completed the estimation of tax credits for the years 2001 through 2008 given the need to gather and review manual records from this time period. The completion of this estimate is expected in 2019 and will result in recording further benefits. In addition, a taxpayer favorable decision on the methodology to compute the tax credits may result in significantly more tax credits, subject to some limitations, being available to Bemis Brazil.
ITEM 4 — MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY,RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the New York Stock Exchange under the symbol BMS. On December 31, 2018, there were 2,849 registered holders of record of our common stock. We did not repurchase any of our equity securities in the twelve months ended December 31, 2018. As of December 31, 2018, under authority granted by the Board of Directors, we have remaining authorization to repurchase an additional 18,187,211 shares of our common stock.
The graph below matches the cumulative 5-Year total return of holders of Bemis Company, Inc.'s common stock with the cumulative total returnsprovisions of the S&P Midcap 400 index and a customized peer group of twenty companies that includes: Albemarle Corp, AptarGroup Inc., Ashland Global Holdings Inc., Avery Dennison Corp, Ball Corp, Berry Global Group Inc., Crown Holdings Inc., Graphic Packaging Holding Co, Greif Inc., Minerals Technologies Inc., Newmarket Corp, Owens-illinois Inc., Packaging Corp Of America, Polyone Corp, RPM International Inc., Sealed Air Corp, Sensient Technologies Corp, Silgan Holdings Inc., Sonoco Products Co and Westrock Co. The graph assumes thatSupplemental Plan generally mirror the value ofBRP, except the investment in our common stock, in each index, and in the peer group (including reinvestment of dividends) was $100 on 12/31/2013 and tracks it through 12/31/2018.
|
| | | | | | | | | | | | | | | | | | |
| | | 12/31/13 | | 12/31/14 | | 12/31/15 | | 12/31/16 | | 12/31/17 | | 12/31/18 |
| Bemis Company, Inc. | | 100.00 |
| | 113.42 |
| | 114.86 |
| | 125.85 |
| | 129.18 |
| | 127.43 |
|
| S&P Midcap 400 | | 100.00 |
| | 109.77 |
| | 107.38 |
| | 129.65 |
| | 150.71 |
| | 134.01 |
|
| Peer Group | | 100.00 |
| | 115.87 |
| | 111.56 |
| | 131.89 |
| | 159.72 |
| | 132.29 |
|
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
ITEM 6 — SELECTED FINANCIAL DATA
FIVE-YEAR CONSOLIDATED REVIEW
(dollars in millions, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Operating Data | | |
| | |
| | |
| | |
| | |
|
| Net sales | | $ | 4,089.9 |
| | $ | 4,046.2 |
| | $ | 4,004.4 |
| | $ | 4,071.4 |
| | $ | 4,343.5 |
|
| Net income | | 225.7 |
| | 94.0 |
| | 236.2 |
| | 214.9 |
| | 239.1 |
|
| | | | | | | | | | | |
| Common Share Data | | |
| | |
| | |
| | |
| | |
|
| Basic earnings per share from continuing operations | | 2.48 |
| | 1.03 |
| | 2.51 |
| | 2.50 |
| | 2.39 |
|
| Diluted earnings per share from continuing operations | | 2.47 |
| | 1.02 |
| | 2.48 |
| | 2.47 |
| | 2.36 |
|
| Adjusted diluted earnings per share from continuing operations (1) | | 2.79 |
| | 2.39 |
| | 2.69 |
| | 2.55 |
| | 2.30 |
|
| Dividends per share | | 1.24 |
| | 1.20 |
| | 1.16 |
| | 1.12 |
| | 1.08 |
|
| Book value per share | | 13.36 |
| | 13.23 |
| | 13.59 |
| | 12.70 |
| | 14.59 |
|
| | | | | | | | | | | |
| Weighted-average shares outstanding for computation of diluted earnings per share | | 91.5 |
| | 91.9 |
| | 95.1 |
| | 97.9 |
| | 101.2 |
|
| Common shares outstanding at December 31, | | 91.0 |
| | 90.8 |
| | 92.7 |
| | 95.1 |
| | 98.2 |
|
| | | | | | | | | | | |
| Capital Structure and Other Data | | |
| | |
| | |
| | |
| | |
|
| Current ratio | | 1.8x |
| | 1.9x |
| | 2.0x |
| | 1.9x |
| | 2.7x |
|
| Working capital | | $ | 533.0 |
| | $ | 571.0 |
| | $ | 589.4 |
| | $ | 529.9 |
| | $ | 806.4 |
|
| Total assets | | 3,571.0 |
| | 3,699.9 |
| | 3,715.7 |
| | 3,489.8 |
| | 3,610.8 |
|
| Short-term debt, including current portion of long-term debt | | 12.0 |
| | 21.0 |
| | 17.3 |
| | 35.4 |
| | 31.3 |
|
| Long-term debt | | 1,348.6 |
| | 1,542.4 |
| | 1,527.8 |
| | 1,353.9 |
| | 1,311.6 |
|
| Total equity | | 1,215.9 |
| | 1,201.2 |
| | 1,259.7 |
| | 1,207.4 |
| | 1,433.0 |
|
| Depreciation and amortization | | 167.6 |
| | 169.8 |
| | 162.1 |
| | 158.1 |
| | 180.6 |
|
| Capital expenditures | | 143.5 |
| | 188.5 |
| | 208.3 |
| | 219.4 |
| | 185.2 |
|
| | | | | | | | | | | |
| Number of common shareholders | | 2,849 |
| | 2,986 |
| | 3,130 |
| | 3,154 |
| | 3,284 |
|
| Number of employees | | 15,694 |
| | 16,582 |
| | 17,678 |
| | 17,696 |
| | 16,944 |
|
| |
(1) | Refer to "Presentation on Non-GAAP Financial Information" for reconciliation of adjusted diluted earnings per share. |
ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis
Three Years Ended December 31, 2018
Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8 of this Annual Report on Form 10-K.
Three-year review of results
|
| | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions, except per share amounts) | | 2018 | | 2017 | | 2016 |
| Net sales | | $ | 4,089.9 |
| | 100.0 | % | | $ | 4,046.2 |
| | 100.0 | % | | $ | 4,004.4 |
| | 100.0 | % |
| Cost of products sold | | 3,284.8 |
| | 80.3 |
| | 3,260.0 |
| | 80.6 |
| | 3,137.9 |
| | 78.4 |
|
| Gross profit | | 805.1 |
| | 19.7 |
| | 786.2 |
| | 19.4 |
| | 866.5 |
| | 21.6 |
|
| | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | |
| Selling, general, and administrative expenses | | 377.9 |
| | 9.2 |
| | 385.2 |
| | 9.5 |
| | 390.5 |
| | 9.8 |
|
| Research and development costs | | 38.0 |
| | 0.9 |
| | 42.9 |
| | 1.1 |
| | 46.5 |
| | 1.2 |
|
| Restructuring and other costs | | 61.9 |
| | 1.5 |
| | 60.4 |
| | 1.5 |
| | 28.6 |
| | 0.7 |
|
| Goodwill impairment charge | | — |
| | — |
| | 196.6 |
| | 4.9 |
| | — |
| | — |
|
| Other operating income | | (31.7 | ) | | (0.8 | ) | | (20.9 | ) | | (0.5 | ) | | (10.4 | ) | | (0.3 | ) |
| Operating income | | 359.0 |
| | 8.8 |
| | 122.0 |
| | 3.0 |
| | 411.3 |
| | 10.3 |
|
| | | | | | | | | | | | | |
| Interest expense | | 76.1 |
| | 1.9 |
| | 65.8 |
| | 1.6 |
| | 60.2 |
| | 1.5 |
|
| Other non-operating (income) loss | | (2.8 | ) | | (0.1 | ) | | 3.5 |
| | 0.1 |
| | 0.2 |
| | — |
|
| Income before income taxes | | 285.7 |
| | 7.0 |
| | 52.7 |
| | 1.3 |
| | 350.9 |
| | 8.8 |
|
| | | | | | | | | | | | | |
| Income tax provision (benefit) | | 60.0 |
| | 1.5 |
| | (41.3 | ) | | (1.0 | ) | | 114.7 |
| | 2.9 |
|
| | | | | | | | | | | | | |
| Net income | | $ | 225.7 |
| | 5.5 | % | | $ | 94.0 |
| | 2.3 | % | | $ | 236.2 |
| | 5.9 | % |
| | | | | | | | | | | \ |
| | |
| Effective income tax rate | | |
| | 21.0 | % | | |
| | (78.4 | )% | | |
| | 32.7 | % |
| | | | | | | | | | | | | |
| Diluted earnings per share | | $ | 2.47 |
| | | | $ | 1.02 |
| | | | $ | 2.48 |
| | |
| | | | | | | | | | | | | |
| Adjusted diluted earnings per share (1) | | $ | 2.79 |
| | | | $ | 2.39 |
| | | | $ | 2.69 |
| | |
| |
(1) | Refer to "Presentation of Non-GAAP Financial Information". |
Overview
Bemis Company, Inc. is a major supplier of flexible and rigid plastic packaging used by leading and emerging food, consumer products, healthcare, and other companies worldwide. Historically, approximately 80 percent of our total net sales are to customers in the food industry. Sales of our packaging products are widely diversified among food categories and can be found in nearly every retail grocery channel.
Market Conditions
The markets into which our products are sold have historically been, and continue to be, highly competitive. Our leading market positions in packaging for perishable food and medical device products reflect our focus on value-added,
proprietary products that provide food safety and sterility benefits. 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 and films, paper, inks, adhesives, aluminum, and chemicals.
In the U.S., many of our consumer packaged goods customers have seen pressure on their sales volumes during recent yearsSupplemental Plan provides for a variety of reasons, including shifting consumer preferences. We have invested in equipmentpresent value lump sum payment option, while the BRP does not. The only Named Executive Officer that is well-suited to on-trend opportunities, and we have been implementing deliberate action plans to align our resources to pursue these targeted areas of growth.
Additionally,meets the political instability and incrementally challenging economic environment in Brazil have been impacting our business. As consumers, retailers, and our customers react to the situation in the region, our unit volumes and mix of products sold have been adversely impacted. During 2018 and 2017, the challenges associated with the economic environment in Brazil put pressure on our sales and earnings. We are overcoming the profit impact of these headwinds through our cost savings efforts.
Sales by Geography
|
| | | | | | | | | | | | |
Sales by Geographic Area (in millions) | | 2018 | | 2017 | | 2016 |
| United States | | $ | 2,948.3 |
| | $ | 2,847.3 |
| | $ | 2,845.3 |
|
| Brazil | | 420.7 |
| | 482.1 |
| | 483.5 |
|
| Other Americas | | 207.9 |
| | 229.3 |
| | 219.6 |
|
| Europe | | 321.5 |
| | 290.0 |
| | 263.5 |
|
| Asia-Pacific | | 191.5 |
| | 197.5 |
| | 192.5 |
|
| Total | | $ | 4,089.9 |
| | $ | 4,046.2 |
| | $ | 4,004.4 |
|
Restructuring
Refer to Note 5 — Restructuring Planseligibility requirements for details for both the 2016 and 2017 Plans regarding expenses incurred and cash payments to date, in addition to disaggregation of costs by segment and cost category.
2017 Restructuring and Cost Savings Plan ("2017 Plan")
During the second quarter of 2017, we initiated restructuring activities to improve efficiency and profitability that further position us for long-term success. We announced the remaining details of the 2017 Plan during the third quarter. The 2017 Plan includes the following actions: the closure of four manufacturing facilities for which business will be relocated to existing facilities, the closure of an additional manufacturing facility for which business will not be relocated, the consolidation of office space, and the reduction of our administrative support cost structure, which includes the elimination of 500 positions. The total program cost is estimated at $110 to $125 million, including $65 to $70 million in total pre-tax restructuring charges, $35 to $45 million in pre-tax other plan-related costs and approximately $10 million in capital investment related to executing the 2017 Plan. We expect an annual pre-tax savings run rate of approximately $65 million by 2019 from the 2017 Plan.
During 2018, we recorded restructuring charges totaling $21.1 million, of which $1.8 million related to the 2016 Restructuring Plan. Restructuring charges consisted primarily of employee termination costs and fixed asset write-downs of equipment. In addition, we recorded $4.6 million in other plan-related costs related to the 2017 Plan which consisted of consulting fees and impairment on assets sold.
The 2017 Plan is expected to be completed by the end of 2020. Total restructuring and other plan-related cash payments for the 2017 Plan are estimated to be approximately $75 to $85 million. Cash payments in the twelve months ended December 31, 2018 were $35.6 million, including $17.4 million of restructuring payments. We expect restructuring and other plan-related payments of approximately $22 million in 2019 and the balance in 2020.
Acquisitions
Acquisition of Evadix
On November 8, 2017, we acquired the Romanian-based flexible packaging company Evadix. This small, yet strategic acquisition establishes us with our first manufacturing operation in Eastern Europe. The acquired facility provides a strong converting platform to leverage our expertise and capabilities in film-making from Western Europe to grow sales of meat and cheese packaging throughout Europe. The cash purchase price was $3.9 million.
Acquisition of SteriPack Group
On April 29, 2016, we acquired the medical device packaging operations and related value-added services of SteriPack Group, a global manufacturer of sterile packaging solutions for medical device and pharmaceutical applications. This acquisition includes a facility in Irelandearly retirement as well as packaging production assets in Malaysia and the U.S. The cash purchase price was $115.5 million.
Results of Operations
Consolidated Overview
|
| | | | | | | | | | | | |
| (in millions, except per share amounts) | | 2018 | | 2017 | | 2016 |
| Net sales | | $ | 4,089.9 |
| | $ | 4,046.2 |
| | $ | 4,004.4 |
|
| Net income | | 225.7 |
| | 94.0 |
| | 236.2 |
|
| Diluted earnings per share | | 2.47 |
| | 1.02 |
| | 2.48 |
|
| Adjusted diluted earnings per share (1) | | 2.79 |
| | 2.39 |
| | 2.69 |
|
| |
(1) | Refer to "Presentation of Non-GAAP Financial Information". |
2018 versus 2017
Net sales for the year ended December 31, 2018 increased 1.1 percent from the same period of 2017. The impact of currency translation reduced net sales by 2.4 percent. The Evadix acquisition increased net sales by 0.2 percent in the current year.
Diluted earnings per share for the year ended December 31, 2018 were $2.47 compared to $1.02 reported in the same period of 2017. Results for 2018 included a $0.38 per share charge for restructuring and related costs related primarily to the 2016 Plan focused on plant closures in Latin America and the 2017 Plan focused on aligning our cost structure to the business environment in which we operate. The 2018 results also included a $0.09 per share benefit related to the Tax Cuts and Jobs Act of 2017, an $0.11 per share benefit related to a final Brazilian court decision related to indirect taxes previously paid and a $0.14 per share charge comprised of costs related to the pending transaction with Amcor.
Results for 2017 included a $0.42 per share charge for restructuring costs related primarily to planned plant closures in the Latin America Packaging and U.S. Packaging segments. Results also included a $1.59 per share charge related to a non-cash goodwill impairment in the Latin America Packaging segment. This impairment is a result of the impact on profits from the decline in the economic environment in Brazil during 2017 and the slow economic recovery. An $0.08 per share charge related to a pension settlement charge was also included in the 2017 results. We initiated a program during the third quarter of 2017 in which we offered terminated vested participants in the U.S. qualified retirement plans the opportunity to receive their benefits early as a lump sum. In addition, results included a $0.74 per share benefit related to the Tax Cuts and Jobs Act of 2017. The non-cash benefit recognized is due to the revaluation of deferred tax assets and liabilities from the change in the U.S. Federal statutory tax rate from 35 percent to 21 percent netted against the increase to taxes from the one-time transition tax on unremitted earnings. A $0.02 per share charge comprised of acquisition costs and hurricane-related expenses incurred at our Puerto Rico facility are also included in 2017 results.
2017 versus 2016
Net sales for the year ended December 31, 2017 increased 1.0 percent from the same period of 2016. The impact of currency translation increased net sales by 0.4 percent. The SteriPack and Evadix acquisitions increased net sales by 0.6 percent in the current year.
Diluted earnings per share from continuing operations for the year ended December 31, 2017 were $1.02 compared to $2.48 reported in the same period of 2016. Results for 2017 included a $0.42 per share charge for restructuring costs related
primarily to planned plant closures in the Latin America Packaging and U.S. Packaging segments and a $1.59 per share charge related to a non-cash goodwill impairment in the Latin America Packaging segment, as discussed above. An $0.08 per share charge related to a pension settlement charge was also included in the 2017 results. In addition, results included a $0.74 per share benefit related to the Tax Cuts and Jobs Act of 2017. A $0.02 per share charge comprised of acquisition costs and hurricane-related expenses incurred at our Puerto Rico facility are also included in 2017 results.
Results for 2016 included a $0.16 per share charge for restructuring costs related primarily to planned plant closures and related severance in Latin America. Results also included a $0.07 per share charge for acquisition-related costs comprised primarily of costs associated with the SteriPack acquisition. These costs were recorded both in operating income and interest expense. A $0.02 per share gain on the sale of land and buildings was also recorded in 2016.
U.S. Packaging Business Segment
Our U.S. Packaging segment represents all food, consumer, and industrial products packaging-related manufacturing operations located in the U.S. Our U.S. Packaging business segment provides packaging for a variety of applications used in packaging meat and cheese, dairy and liquids, confectionery and snack foods, frozen foods, lawn and garden products, pet food, health and hygiene products, beverages, bakery goods, and dry foods.
|
| | | | | | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 | | 2016 |
| Net sales | | $ | 2,698.5 |
| | $ | 2,626.0 |
| | $ | 2,621.1 |
|
| Operating profit | | 360.2 |
| | 352.5 |
| | 400.0 |
|
| Operating profit as a percentage of net sales | | 13.3 | % | | 13.4 | % | | 15.3 | % |
2018 versus 2017
U.S. Packaging net sales of $2.7 billion for the full year 2018 represent an increase of 2.8 percent compared to the same period of 2017. The increase in net sales was driven by price and mix. Compared to the prior year, unit volumes were down approximately one percent, driven by the Company’s planned exit of infant care business at its Shelbyville, Tennessee facility.
Operating profit increased to $360.2 million for the full year 2018, or 13.3 percent of net sales, compared to $352.5 million, or 13.4 percent of net sales, in 2017. Operating profit in 2018 included the benefit of cost savings from the Company’s Agility plan and improved operations, partially offset by the impact of increased freight costs, customer incentives, and employee pay-for-performance.
2017 versus 2016
U.S. Packaging net sales of $2.6 billion for the full year 2017 represent an increase of 0.2 percent compared to the same period of 2016. Compared to the prior year, unit volumes were up nearly 1 percent.
Operating profit decreased to $352.5 million for the full year 2017, or 13.4 percent of net sales, compared to $400 million, or 15.3 percent of net sales, in 2016. Compared to the prior year, lower profits were driven by mix of products sold, previously-negotiated contractual selling price reductions on select products, and inefficiencies related to an ERP system implementation at one of our manufacturing facilities during the second quarter.
Latin America Packaging Business Segment
Our Latin America Packaging business segment includes all of our food and non-food packaging-related manufacturing operations located in Latin America. Our Latin America Packaging business segment provides packaging to a variety of applications used in packaging meat and cheese, dairy and liquids, confectionery and snack foods, frozen foods, lawn and garden products, health and hygiene products, beverages, medical and pharmaceutical products, bakery goods, dry foods, and pet food.
|
| | | | | | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 | | 2016 |
| Net sales | | $ | 628.6 |
| | $ | 711.4 |
| | $ | 703.1 |
|
| Operating profit | | 48.1 |
| | 30.0 |
| | 50.0 |
|
| Operating profit as a percentage of net sales | | 7.7 | % | | 4.2 | % | | 7.1 | % |
2018 versus 2017
Latin America Packaging net sales of $628.6 million for the full year 2018 represent an decrease of 11.6 percent compared to the full year of 2017. Currency translation and the impact of implementing high inflation accounting in the Company’s business in Argentina decreased net sales by 16.1 percent. Organic sales growth of 4.5 percent reflects improved sales price and mix, partially offset by decreased unit volumes of approximately 10 percent driven primarily by the exit of some laundry detergent packaging volume in Brazil that is converting to another packaging format.
Latin America operating profit increased to $48.1 million for the full year of 2018 compared to $30.0 million in 2017. 2018 results include a $15.3 million benefit connected to a final Brazilian court decision related to indirect taxes previously paid. The net impact of currency translation decreased operating profit during 2018 by $4.8 million. Additionally, the implementation of high inflation accounting in the Company’s Argentina business negatively impacted operating profit by $2.2 million during 2018. The remaining $9.8 million increase in Latin America Packaging operating profit during 2018 was driven by variable and fixed cost savings actions implemented in light of the continued challenging economic environment in Brazil and the Company’s Agility plan, partially offset by the impact of decreased volume.
2017 versus 2016
Latin America Packaging net sales of $711.4 million for the full year 2017 represent an increase of 1.2 percent compared to the full year of 2016. Currency translation increased net sales by 4.0 percent. Organic sales decline of 2.8 percent reflects decreased unit volumes of approximately 4 percent and unfavorable sales mix driven by the challenging economic environment in Brazil, partially offset by increased selling prices.
Operating profit for the full year 2017 was $30.0 million, compared to $50.0 million, for the same period in 2016. Compared to the prior year, lower profits were driven primarily by the impacts of the challenging economic environment in Brazil, including lower unit volumes and unfavorable mix of products sold.
Rest of World Packaging Business Segment
Our Rest of World Packaging business segment includes all of our food and non-food packaging-related manufacturing operations located in Europe and Asia-Pacific as well as our medical device and pharmaceutical packaging manufacturing operations in the U.S., Europe, and Asia. Our Rest of World Packaging business segment provides packaging to a variety of applications used in packaging meat and cheese, dairy and liquids, confectionery and snack foods, frozen foods, lawn and garden products, health and hygiene products, beverages, medical and pharmaceutical products, bakery goods, and dry foods.
|
| | | | | | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 | | 2016 |
| Net sales | | $ | 762.8 |
| | $ | 708.8 |
| | $ | 680.2 |
|
| Operating profit | | 81.2 |
| | 61.1 |
| | 64.0 |
|
| Operating profit as a percentage of net sales | | 10.6 | % | | 8.6 | % | | 9.4 | % |
2018 versus 2017
Rest of World Packaging net sales of $762.8 million for the full year 2018 represented an increase of 7.6 percent compared to the full year of 2017. Currency translation increased net sales by 2.4 percent. The acquisition of Evadix increased net sales by 0.9 percent. Organic sales growth of 4.3 percent reflects increased price and mix and increased unit volumes of approximately 3 percent, driven by strength in the Company’s healthcare packaging business.
Rest of World operating profit for the full year 2018 was $81.2 million, compared to $61.1 million, for the same period in 2017. The net impact of currency translation increased operating profit during 2018 by $1.2 million. The remaining increase in operating profit in Rest of World Packaging was driven by strong operational performance and increased sales volume in the Company’s healthcare packaging business.
2017 versus 2016
Rest of World Packaging net sales of $708.8 million for the full year 2017 represented an increase of 4.2 percent compared to the full year of 2016. Currency translation decreased net sales by 1.7 percent. The acquisitions of SteriPack and Evadix increased net sales by 3.7 percent. Organic sales growth of 2.2 percent reflects increased unit volumes of approximately 6 percent and increased selling prices, partially offset by unfavorable mix of products sold.
Operating profit for the full year 2017 was $61.1 million, compared to $64.0 million, for the same period in 2016. Compared to the prior year, lower profits were driven primarily by rising raw material input prices in Europe and mix of products sold.
Consolidated Gross Profit
|
| | | | | | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 | | 2016 |
| Gross profit | | $ | 805.1 |
| | $ | 786.2 |
| | $ | 866.5 |
|
| Gross profit as a percentage of net sales | | 19.7 | % | | 19.4 | % | | 21.6 | % |
Compared to 2017, gross profit in 2018 improved as a result of Agility cost savings and growth in our global healthcare packaging business, partially offset by higher costs related to freight, customer incentives and employee pay-for-performance.
Consolidated Selling, General, and Administrative Expenses
|
| | | | | | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 | | 2016 |
| Selling, general, and administrative expenses (SG&A) | | $ | 377.9 |
| | $ | 385.2 |
| | $ | 390.5 |
|
| SG&A as a percentage of net sales | | 9.2 | % | | 9.5 | % | | 9.8 | % |
Selling, general, and administrative expenses ("SG&A") declined in 2018 as a result of the benefits of Agility savings, partially offset by higher employee pay-for-performance costs, that had resulted in minimal expense in 2017 based on Company performance.
Research and Development (R&D)
|
| | | | | | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 | | 2016 |
| Research and development (R&D) | | $ | 38.0 |
| | $ | 42.9 |
| | $ | 46.5 |
|
| R&D as a percentage of net sales | | 0.9 | % | | 1.1 | % | | 1.2 | % |
R&D expenses over the periods presented reflect our cost-savings efforts that were initiated while still maintaining the critical innovation and development work to create long-term growth opportunities and improve plant operating performance.
Restructuring and Other Costs
|
| | | | | | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 | | 2016 |
| Restructuring and other costs | | $ | 61.9 |
| | $ | 60.4 |
| | $ | 28.6 |
|
| Restructuring and other costs as a percentage of net sales | | 1.5 | % | | 1.5 | % | | 0.7 | % |
Restructuring costs include costs related to the 2016 Restructuring Plan focused on plant closures in Latin America and the 2017 Plan focused on aligning our cost structure to the business environment in which we operate. Refer to Note 5 — Restructuring Plans for details for both the 2016 and 2017 Plans regarding expenses incurred and cash payments to date, in addition to disaggregation of costs by segment and cost category.
Other costs include restructuring related costs, a pension settlement charge, acquisition costs, and hurricane-related expenses. Restructuring related costs include professional fees for consultants and asset impairment charges. In 2018, other costs include costs related to the pending transaction with Amcor. In 2017, other costs are comprised of acquisition costs and hurricane-related expenses incurred at the Puerto Rico facility. In 2016, other costs are comprised primarily of acquisition costs associated with the SteriPack acquisitions. Other costs also includes the gain on sale of land and building related to the sale of a plant in Latin America in 2016.
Goodwill Impairment Charge
|
| | | | | | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 | | 2016 |
| Goodwill impairment charge | | $ | — |
| | $ | 196.6 |
| | $ | — |
|
| Goodwill impairment charge as a percentage of net sales | | — | % | | 4.9 | % | | — | % |
We recognized a non-cash goodwill impairment charge related to the Latin America Packaging segment during 2017. This impairment is a result of the impact on profits from the decline in the economic environment in Brazil during 2017 and the slow economic recovery. The impairment charge recognized was $196.6 million pre-tax ($145.5 million, net of taxes). Refer to Note 2 - Significant Accounting Policies for additional information.
Other Operating Income
|
| | | | | | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 | | 2016 |
| Other operating income | | $ | (31.7 | ) | | $ | (20.9 | ) | | $ | (10.4 | ) |
In 2018, we recorded a $15.3 million non-cash benefit for Brazil tax credits as a result of a final Brazilian court decision related to indirect taxes previously paid. Excluding the Brazilian tax credits, which include interest income, the largest component of other operating income is fiscal incentives, which are also associated with our Brazilian operations and are included in the results of our Latin American Packaging segment. Fiscal incentives totaled $8.6 million in 2018, $10.3 million in 2017, and $9.9 million in 2016.
Interest Expense
|
| | | | | | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 | | 2016 |
| Interest expense | | $ | 76.1 |
| | $ | 65.8 |
| | $ | 60.2 |
|
| Effective interest rate | | 5.2 | % | | 4.2 | % | | 4.1 | % |
During 2018, interest expense increased, primarily due to higher U.S. variable interest rates.
Interest expense increased in 2017 reflecting the September 2016 refinancing of short-term floating rate debt with long-term fixed rate public bonds with a higher interest rate.
Other Non-operating (Income) Expense
|
| | | | | | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 | | 2016 |
| Other non-operating (income) expense | | $ | (2.8 | ) | | $ | 3.5 |
| | $ | 0.2 |
|
In 2018, we recorded interest income of $2.7 million and non-operating pension income of $0.1 million. In 2017, we recorded interest income of $2.8 million, offset by $6.3 million of non-operating pension expense attributable to the initiation of a program during the third quarter of 2017 in which we offered terminated vested participants in the U.S. qualified retirement plans the opportunity to receive their benefits early as a lump sum. In 2016, we recorded interest income of $2.5 million, foreign exchange losses of $0.7 million, and non-operating pension expenses of $2.0 million.
Income Taxes
|
| | | | | | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 | | 2016 |
| Income taxes | | $ | 60.0 |
| | $ | (41.3 | ) | | $ | 114.7 |
|
| Effective tax rate | | 21.0 | % | | (78.4 | )% | | 32.7 | % |
Other than the differences noted below, any difference between our overall tax rate for 2018 and the U.S. statutory rate of 21 percent principally relates to state and local income taxes, net of federal income tax benefits, and the differences between tax rates in the various foreign jurisdictions in which we operate. Our overall tax expense in 2018 is primarily driven by our operations within the United States.
The effective tax rate for 2017 of (78.4%) was impacted primarily by the impairment of the Latin America Packaging reporting unit’s goodwill and new tax legislation in the U.S. In the fourth quarter of 2017, we recorded a full impairment of the Latin America Packaging reporting unit’s goodwill which included a $51.1 million deferred tax benefit related to tax deductible goodwill. We also recorded a provisional discrete net tax benefit of $67.2 million related to the Tax Cuts and Jobs Act (TJCA) of 2017 in the period ending December 31, 2017. This consisted of a $77.8 million net benefit due to the remeasurement of our deferred tax accounts for the corporate rate reduction and a net expense for the transition tax of $10.6 million. In the fourth quarter of 2018, we finalized the calculations of the impact of the TCJA and recorded a net additional benefit of $8.2 million.
Our 2018 and 2017 first quarter results included discrete income tax expense of $0.4 million and a discrete income tax benefit of approximately $0.9 million corresponding to the adoption of accounting guidance related to employee share-based payment accounting (See Note 3). We expect similar discrete income tax impacts in future years that will vary dependent upon the value of share-based payouts in those years.
Presentation of Non-GAAP Information
This Annual Report on Form 10-K refers to non-GAAP financial measures: adjusted diluted earnings per share, organic sales growth (decline), and net debt. These non-GAAP financial measures adjust for factors that are unusual or unpredictable. These measures exclude goodwill impairment charges, costs related to the pending transaction with Amcor, impact of significant tax reform, certain pension settlement charges, the impact of certain amounts related to the effect of changes in currency exchange rates, acquisitions, and restructuring, including employee-related costs, equipment relocation costs, accelerated depreciation and the write-down of equipment. These measures also exclude gains or losses on sales of significant property and divestitures, certain litigation matters, and certain acquisition-related expenses, including transaction expenses, due diligence expenses, professional and legal fees, purchase accounting adjustments for inventory and order backlog and changes in the fair value of deferred acquisition payments. This adjusted information should not be construed as an alternative to results determined in accordance with accounting principles generally accepted in the United States of America (GAAP). Management of the Company uses non-GAAP measures to evaluate operating performance and believes that these non-GAAP measures are useful to enable investors to perform comparisons of current and historical performance of the Company.
A reconciliation of reported diluted earnings per share to adjusted diluted earnings per share for the years ended December 31, 2018, 2017, 2016, 2015, and 2014 follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Twelve Months Ended December 31, |
| | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Diluted earnings per share, as reported | | $ | 2.47 |
| | $ | 1.02 |
| | $ | 2.48 |
| | $ | 2.47 |
| | $ | 2.36 |
|
| | | | | | | | | | | |
| Non-GAAP adjustments per share, net of taxes: | | | | | | | | | | |
| Restructuring and related costs (1) | | 0.38 |
| | 0.42 |
| | 0.16 |
| | 0.05 |
| | — |
|
| Goodwill impairment charge (2) | | — |
| | 1.59 |
| | — |
| | — |
| | — |
|
| Pension settlement charge (3) | | — |
| | 0.08 |
| | — |
| | — |
| | — |
|
| Tax reform (4) | | (0.09 | ) | | (0.74 | ) | | — |
| | — |
| | — |
|
| Other charges (5) | | 0.14 |
| | 0.02 |
| | 0.05 |
| | 0.03 |
| | (0.06 | ) |
| Brazil tax credits (6) | | (0.11 | ) | | — |
| | — |
| | — |
| | — |
|
| | | | | | | | | | | |
| Diluted earnings per share, as adjusted | | $ | 2.79 |
| | $ | 2.39 |
| | $ | 2.69 |
| | $ | 2.55 |
| | $ | 2.30 |
|
| |
(1) | Restructuring and related costs include costs primarily related to the 2016 Plan focused on plant closures in Latin America and the 2017 Plan focused on aligning the Company's cost structure to the business environment in which it operates. Restructuring related costs include professional fees for consultants and asset impairment charges. Restructuring and related costs totaled $47.6 million and $57.7 million for the years ended December 31, 2018 and 2017, respectively. Net of taxes, restructuring and related costs totaled approximately $35.2 million and $38.6 million for the years ended December 31, 2018 and 2017, respectively. |
| |
(2) | The Company recognized a non-cash goodwill impairment charge related to the Latin America Packaging segment. This impairment charge is a result of the impact on profits from the decline in the economic environment in Brazil during 2017 and the slow economic recovery. The impairment charge was $196.6 million pre-tax and $145.5 million, net of taxes. |
| |
(3) | The Company initiated a program during the third quarter of 2017 in which we offered terminated vested participants in the U.S. qualified retirement plans the opportunity to receive their benefits early as a lump sum. The Company recognized a $10.1 million pre-tax pension settlement charge in the fourth quarter of 2017. This charge was $6.8 million, net of taxes. |
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(4) | On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed by the President of the United States and became enacted law. The Company recognized a $67.2 million non-cash tax benefit in the fourth quarter of 2017. This benefit is due to the revaluation of deferred tax assets and liabilities from the change in the U.S. Federal statutory tax rate from 35 percent to 21 percent netted against the increase to taxes from the one-time transition tax on unremitted earnings. Amounts reported in 2018 reflect final refinements related to the impact of the TCJA based upon regulations promulgated during 2018. |
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(5) | In 2018, other costs include costs related to the pending transaction with Amcor. In 2017, other costs are comprised of acquisition costs and hurricane-related expenses incurred at the Puerto Rico facility. In 2016, other costs are comprised primarily of acquisition costs associated with the SteriPack acquisition. Other costs also includes the gain on sale of land and building related to the sale of a plant in Latin America in 2016. In 2015, other costs are comprised primarily of acquisition costs associated with the Emplal Participações S.A. acquisition and charges related to contingent liabilities associated with a prior acquisition. In 2014, other costs are comprised of the gain on the sale of the Paper Packaging Division. |
| |
(6) | In the fourth quarter of 2018, the Company recognized a non-cash benefit for Brazil tax credits as a result of a final Brazilian court decision related to indirect taxes previously paid. The benefit was $15.3 million pre-tax and $10.1 million net of taxes. |
A reconciliation of total debt to net debt at December 31, 2018 and December 31, 2017 follows:
|
| | | | | | | | | | | | | | |
| (in millions) | | | | | | | | December 31, 2018 | | December 31, 2017 |
| Current portion of long-term debt | | | | | | | | $ | 1.8 |
| | $ | 5.0 |
|
| Short-term borrowings | | | | | | | | 10.2 |
| | 16.0 |
|
| Long-term debt, less current portion | | | | | | | | 1,348.6 |
| | 1,542.4 |
|
| Total debt | | | | | | | | 1,360.6 |
| | 1,563.4 |
|
| Less cash and cash equivalents | | | | | | | | (76.1 | ) | | (71.1 | ) |
| Net debt | | | | | | | | $ | 1,284.5 |
| | $ | 1,492.3 |
|
The components of changes in net sales for the years ended December 31, 2018, 2017, and 2016 follow:
|
| | | | | | | | | |
| | | Twelve Months Ended December 31, 2018 | | Twelve Months Ended December 31, 2017 | | Twelve Months Ended December 31, 2016 |
| | | Percent Change YoY | | Percent Change YoY | | Percent Change YoY |
| U.S. Packaging: | | | | | | |
| Organic sales growth (decline) | | 2.8 | % | | 0.2 | % | | (4.6 | )% |
| U.S. Packaging | | 2.8 | % | | 0.2 | % | | (4.6 | )% |
| | | | | | | |
| Latin America Packaging: | | | | | | |
| Currency effect | | (16.1 | )% | | 4.0 | % | | (15.7 | )% |
| Acquisition effect | | — | % | | — | % | | 6.0 | % |
| Organic sales growth (decline) | | 4.5 | % | | (2.8 | )% | | 11.1 | % |
| Latin America Packaging | | (11.6 | )% | | 1.2 | % | | 1.4 | % |
| | | | | | | |
| Rest of World Packaging: | | | | | | |
| Currency effect | | 2.4 | % | | (1.7 | )% | | (5.2 | )% |
| Acquisition effect | | 0.9 | % | | 3.7 | % | | 8.1 | % |
| Organic sales growth (decline) | | 4.3 | % | | 2.2 | % | | 4.9 | % |
| Rest of World Packaging | | 7.6 | % | | 4.2 | % | | 7.8 | % |
| | | | | | | |
| Total Company: | | | | | | |
| Currency effect | | (2.4 | )% | | 0.4 | % | | (3.5 | )% |
| Acquisition effect | | 0.2 | % | | 0.6 | % | | 2.4 | % |
| Organic sales growth (decline) | | 3.3 | % | | — | % | | (0.5 | )% |
| Total change in net sales | | 1.1 | % | | 1.0 | % | | (1.6 | )% |
We determine the effect of changes in currency exchange rates by translating the respective period’s sales using the same currency exchange rates that were in effect during the prior year. When we acquire businesses, we exclude sales in the current period for which there are no comparable sales in the prior period. Organic sales growth (decline) is calculated by comparing current period sales translated at prior year rates and eliminating the effect of acquisitions to reported sales in the prior year.
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 49.8 percent at December 31, 2018, compared to 53.9 percent at December 31, 2017. Total debt as of December 31, 2018 and 2017 was approximately $1.4 billion and $1.6 billion, respectively.
Credit Rating
Our capital structure and financial practices have earned us investment grade credit ratings from two nationally recognized credit rating agencies. These credit ratings are important to our ability to issue commercial paper at favorable rates of interest.
During the second quarter of 2018, the Company's long-term credit rating was downgraded to BBB- from BBB by Standard & Poor's. The outlook is stable. The downgrade does not have a material impact on the Company's ability to issue debt at favorable rates of interest.
Cash Flow
Net cash provided by operations totaled $461.5 million for the year ended December 31, 2018, compared to $379.0 million in 2017 and $437.4 million in 2016. During 2018, increased profit and working capital improvements contributed to
the increase in cash flow from operations. Lower cash flow from operations in 2017 reflects lower profit levels, partially offset by the benefits of working capital improvements made during 2017. Net cash provided by operations was reduced by income tax payments of $44.0 million, $73.5 million and $93.1 million during 2018, 2017, and 2016, respectively. Net cash provided by operations was reduced by contributions to our defined benefit pension plans of $2.0 million, $4.0 million and $20.7 million during 2018, 2017, and 2016, respectively. Cash flow from operations included cash used for restructuring and related activities of $38.6 million in 2018 and $24.5 million in 2017.
Net cash used in investing activities totaled $139.9 million for the year ended December 31, 2018 compared to $177.9 million in 2017 and $311.2 million in 2016. Capital expenditures totaled $143.5 million, $188.5 million, and $208.3 million for 2018, 2017, and 2016, respectively. Cash used for acquisitions totaled $3.9 million for 2017, primarily related to our Evadix acquisition, and $114.5 million for 2016, primarily related to our SteriPack acquisition. In 2017, we received approximately $5.6 million as net proceeds from the sale of land and buildings in the United States related to a previous restructuring program. In 2016, we received approximately $10.1 million as net proceeds from the sales of land and buildings in Brazil and Mexico related to a previous restructuring program.
Net cash used in financing activities for the years ended December 31, 2017 and 2016 included share repurchases of $103.8 million and $143.9 million, respectively. There were no share repurchases during the year ended December 31, 2018. Net change in total debt was due to repayment of $198.5 million in 2018 and borrowings of $16.2 million and $157.1 million for 2017, and 2016, respectively.
Available Financing
In addition to using cash provided by operations, we issue commercial paper to meet our short-term liquidity needs. At year-end, our commercial paper debt outstanding was $50.0 million. Based on our current credit rating, we enjoy ready access to the commercial paper markets.
On July 22, 2016, we amended our $1.1 billion revolving credit facility, extending the term of the agreement from August 12, 2018 to July 22, 2021. Our revolving credit facility is supported by a group of major U.S. and international banks. Covenants imposed by the revolving credit facility include a minimum net worth calculation and a maximum ratio of debt to total capitalization as defined in our credit agreement. As of December 31, 2018
there was $50.0 millionis Mr. Austen. Early retirement eligibility is age 55 with 10 years of
debt outstanding supportedservice. The early retirement benefits for Mr. Austen equals the normal retirement benefit, reduced by
this credit facility, leaving over $1.0 billion5 percent each year from age 66 to age 61, then reduced 4 percent each year to age 55. The BRP and Supplemental Plans are frozen as of
available credit. If we were not ableDecember 31, 2013; therefore, no additional benefits will be earned under these plans after December 31, 2013.(2)Similar to issue commercial paper, we would expect to meet our financial liquidity needs by accessing the bank market, which would increase our borrowing costs. BorrowingsBRP and Supplemental Plan, the total benefits under the credit agreement would be subjectBemis Supplemental Retirement Plan for Senior Officers (SERP) is 50 percent of final average earnings, less 50 percent of the estimated Social Security benefit, then offset by the BRP and Supplemental Plan benefit amounts. However, unlike the BRP and the Supplemental Plan, benefits under the SERP accrue over a 20-year period. In addition, final average earnings are calculated using the highest five years during the last 15, whether or not they are consecutive. Benefits under the SERP vest upon attainment of age 50 with 20 years of service, or when combined age and service totals 75 or more. The early retirement eligibility is the same as the vesting eligibility notes above, except that the Senior Officer cannot commence payment prior to age 55. The SERP has no early retirement reductions and a variable interest rate. We are in compliance with all debt covenants.
On September 15, 2016, we issued $300 million aggregate principal amountpresent value lump sum form of senior notes due in 2026 with a fixed interest ratepayment is offered. The SERP is frozen as of 3.1 percent. The proceeds were used to repay outstanding commercial paper and for general corporate purposes.
Liquidity Outlook
As of December 31, 2018, cash and cash equivalents outside of the United States was $69.9 million. We use a notional pooling arrangement with an international bank to help manage global liquidity requirements. Under2013; therefore, no additional benefits will be earned under this pooling arrangement, our participating subsidiaries maintain either a cash deposit or borrowing position through local currency accounts with the bank, so long as the aggregate position of the global pool is a notionally calculated net cash deposit. This notional pooling arrangement allows reasonable access to our cash in foreign subsidiaries, and provides a financing option to foreign subsidiaries beyond our multi-currency credit facility.
Management expects cash flow from operations and available liquidity described above to be sufficient to support operations going forward. 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.
Capital Expenditures
Capital expenditures were $143.5 million during 2018, compared to $188.5 million in 2017, and $208.3 million in 2016. 2018 capital spending reflects slightly lower levels as we were able to absorb the additional assets placed during the prior years. 2017 and 2016 capital spending levels included growth projects and asset recapitalization projects, in line with our strategy. We anticipate future capital spending within the general range of depreciation and amortization.
Dividends
We increased our quarterly cash dividend by 3.3 percent during the first quarter of 2018 to $0.31 per share from $0.30 per share. This follows increases of 3.4 percent in 2017 and 3.6 percent in 2016. In February 2019, the Board of Directors approved the 36th consecutive annual increase in the quarterly cash dividend on common stock to $0.32 per share, a 3.2 percent increase.
Share Repurchases
We did not purchase any common stock in 2018, in line with the terms of our agreement supporting the pending combination with Amcor. We purchased 2.2 million, and 3.0 million shares of our common stock in the open market during 2017 and 2016, respectively. As of plan after December 31, 20182013.(3), a total of 18.2 million shares remained available on our authorizations to purchase common stock for the treasury.
Contractual Obligations
The following table provides a summary of contractual obligations including our debt payment obligations, operating lease obligations, and certain other purchase obligations as of December 31, 2018. Obligations under capital leases are insignificant.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Contractual Payments Due by Period |
| (in millions) | | Total | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter |
| Long-term debt obligations (1) | | $ | 1,357.7 |
| | $ | 451.8 |
| | $ | 1.4 |
| | $ | 401.4 |
| | $ | 201.4 |
| | $ | 0.8 |
| | $ | 300.9 |
|
| Interest expense (2) | | 174.9 |
| | 55.3 |
| | 38.6 |
| | 33.5 |
| | 14.8 |
| | 9.4 |
| | 23.3 |
|
| Operating leases (3) | | 61.3 |
| | 7.7 |
| | 6.7 |
| | 6.0 |
| | 5.6 |
| | 4.7 |
| | 30.6 |
|
| Purchase obligations (4) | | 1,142.6 |
| | 591.0 |
| | 276.7 |
| | 273.9 |
| | 1.0 |
| | — |
| | — |
|
| Postretirement obligations (5) | | 24.1 |
| | 1.2 |
| | 1.2 |
| | 4.9 |
| | 1.9 |
| | 1.4 |
| | 13.5 |
|
| Total | | $ | 2,760.6 |
| | $ | 1,107.0 |
| | $ | 324.6 |
| | $ | 719.7 |
| | $ | 224.7 |
| | $ | 16.3 |
| | $ | 368.3 |
|
| |
(1) | Long-term debt maturing in 2019 is $451.8 million. A $400 million note has been classified as a long-term liability in accordance with our ability and intent to refinance such obligations on a long-term basis. Additionally, we have $50.0 million of commercial paper outstanding which is backed by a bank credit facility that expires on July 22, 2021. The $50.0 million of commercial paper has been classified as a long-term liability in accordance with our ability and intent to refinance such obligations on a long-term basis. The remaining $1.8 million is the current portion of long-term debt. See Note 13 to the Consolidated Financial Statements for additional information about our long term debt.
|
| |
(2) | A portion of the interest expense disclosed is subject to variable interest rates. The amounts disclosed above that relate to commercial paper, the term loan, and the interest rate swap were calculated using forward-looking rates. All other amounts assume that future variable interest rates are equal to rates at December 31, 2018. |
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(3) | We enter into operating leases in the normal course of business. Substantially all lease agreements have fixed payment terms based on the passage of time. Some lease agreements provide us with the option to renew the lease. Our future operating lease obligations would change if we exercised these renewal options and if we entered into additional operating lease agreements. |
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(4) | Purchase obligations represent contracts or commitments for the purchase of raw materials, utilities, capital equipment and various other goods and services. |
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(5) | Postretirement obligations represent contracts or commitments for postretirement healthcare benefits and benefit payments for the unfunded Bemis Supplemental Retirement Plan. See Note 11 to the Consolidated Financial Statements for additional information about our postretirement benefit obligations. Postretirement obligations have been recorded in other current liabilities.
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We also have long-term obligations related to our income tax liabilities associated with uncertain tax positions, environmental liabilities, and defined benefit pension plans. These liabilities have been excluded from the table above due to the high degree of uncertainty as to amounts and timing regarding future payments. See Consolidated Financial Statements and related Notes.
Market Risks and Foreign Currency Exposures
We enter into contractual arrangements (derivatives) in the ordinary course of business to manage foreign currency exposure and interest rate risks. We do not enter into derivative transactions for speculative trading purposes. Our use of derivative instruments is subject to internal policies that provide guidelines for control, counterparty risk, and ongoing reporting. These derivative instruments are designed to reduce the income statement volatility associated with movement in foreign exchange rates and to achieve greater exposure to variable interest rates.
A portion of the interest expense on our outstanding debt is subject to short-term interest rates. As such, increases in short-term interest rates will directly impact the amount of interest we pay. For each one percent increase in variable interest rates, the annual interest expense on $654.3 million of variable rate debt outstanding (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) would increase by approximately $6.5 million.
We enter into interest-rate swap contracts to economically convert a portion of our fixed-rate debt to variable rate debt. During the fourth quarter of 2011, we entered into four interest rate swap agreements with a total notional amount of $400 million. These contracts were designated as hedges of our $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 expense in 2018 was $1.7 million. The net settlement benefit to us, which is recorded as a reduction in interest expense, was $3.2 million and $4.7 million in 2017 and 2016, respectively. At December 31, 2018 and 2017, the fair value of these interest rate swaps was $2.7 million and $0.6 million in the bank's favor, respectively, using discounted cash flow or other appropriate methodologies. Asset positions are included in deferred charges and other assets with a corresponding increase in long-term debt. Liability positions are included in other liabilities and deferred credits with a corresponding decrease in long-term debt.
Our international operations enter into forward foreign currency exchange contracts to manage foreign currency exchange rate exposures associated with certain foreign currency denominated receivables and payables. At December 31, 2018 and 2017, we had outstanding forward exchange contracts with notional amounts aggregating to $0.3 million and $2.7 million, respectively. Forward exchange contracts generally have maturities of less than six months. Counterparties to the forward exchange contracts are major financial institutions. Credit loss from counterparty nonperformance is not anticipated. We have not designated these derivative instruments as hedging instruments. The net settlement amount (fair value) related to the active forward foreign currency exchange contracts is recorded on the balance sheet within current assets or current liabilities and as an element of other operating income which offsets the related transactions gains and losses on the related foreign denominated asset or liability. Amounts recognized in income related to forward exchange contracts were $1.0 million of expense in the year ended December 31, 2018, and $0.8 million of expense in the years ended December 31, 2017 and 2016.
Critical Accounting Estimates and Judgments
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with 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 on 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.
We believe the following are critical accounting estimates used in the preparation of our consolidated financial statements.
•The calculation of annual pension costs and related assets and liabilities;
•The valuation of intangible assets and goodwill; and
•The calculation of deferred tax assets and liabilities.
Pension costs
We recognize amounts in our financial statements related to our defined benefit pension plans which are frozen for the majority of participants on an actuarial basis. The accounting for our pension plans requires us to recognize the overfunded or underfunded status of the pension plans on our balance sheet. A substantial portion of our pension amounts relate to our defined benefit plans in the United States. Net periodic pension cost recorded in 2018 was $8.6 million, compared to pension cost of $14.6 million in 2017 and $10.4 million in 2016. We expect pension expense before the effect of income taxes for 2019 to be approximately $6.4 million.
One element used in determining annual pension income and expense in accordance with accounting rules is the expected return on plan assets. Beginning in 2013, we adopted a liability responsive asset allocation policy that becomes more conservative as the funded status of the plans improve. The majority of pension plan assets relate to U.S. plans and the target allocation is currently to invest approximately 69 percent in long-term corporate fixed income securities and approximately 31 percent in return seeking funds.
To develop the expected long-term rate of return on assets assumption, we considered compound historical returns and future expectations based on our target asset allocation. For the historical long-term investment periods of 10, 15, 20 and 25 years ending December 31, 2018, our U.S. pension plan assets earned annualized rates of return of 9.4 percent, 5.8 percent, 4.9 percent, and 7.6 percent, respectively. Using our U.S. target asset allocation of plan assets, our outside actuaries have used their independent economic models to calculate a range of expected long-term rates of return and, based on their results, we have determined our U.S. asset return assumptions to be reasonable. As of January 1, 2019, we determined this rate to be 6.75 percent for our U.S. defined benefit pension plans.
This assumed long-term rate of return on assets is applied to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over approximately three years. This process calculates the expected return on plan assets that is included in pension income or expense. The difference between this expected return and the actual return on plan assets is generally deferred and recognized over subsequent periods. The net deferral of asset gains and losses affects the calculated value of pension plan assets and, ultimately, future pension income and expense.
At the end of each year, we determine the discount rate to be used to calculate the present value of pension plan liabilities. This discount rate is an estimate ofaccumulated benefits under the current interest rate at whichBRP, Supplemental Plan and the pension liabilities could be effectively settled atSERP, are the end of the year. In estimating this rate, we look to changes in rates of return on high quality, fixed income investments that receive one of the two highest ratings given by a recognized ratings agency. At December 31, 2018, for our U.S. defined benefit pension plans we determined this rate to be 4.25 percent, an increase of 0.50 percent from the 3.75 percent rate used at December 31, 2017.
For our non-U.S. pension plans, we follow similar methodologies in determining the appropriate expected rates of return on assets and discount rates to besame as those used in our actuarial calculations in each individual country.
U.S. Pension assumptions sensitivity analysis
The following charts depict the sensitivity of estimated 2019 pension expense to incremental changes in the discount rate and the expected long-term rate of return on assets.
|
| | | | | | | | | | |
| Discount rate | | Total increase (decrease) to pension expense from current assumption (in millions) | | Rate of Return on Plan Assets | | Total increase (decrease) to pension expense from current assumption (in millions) |
| 3.25 percent | | $ | 7.3 |
| | 5.75 percent | | $ | 5.9 |
|
| 3.50 percent | | 5.4 |
| | 6.00 percent | | 4.4 |
|
| 3.75 percent | | 3.5 |
| | 6.25 percent | | 3.0 |
|
| 4.00 percent | | 1.7 |
| | 6.50 percent | | 1.5 |
|
4.25 percent — Current Assumption | | — |
| | 6.75 percent — Current Assumption | | — |
|
| 4.50 percent | | (1.8 | ) | | 7.00 percent | | (1.5 | ) |
| 4.75 percent | | (3.4 | ) | | 7.25 percent | | (3.0 | ) |
| 5.00 percent | | (5.1 | ) | | 7.50 percent | | (4.4 | ) |
| 5.25 percent | | (6.8 | ) | | 7.75 percent | | (5.9 | ) |
The amount by which the fair value of plan assets differs from the projected benefit obligation of a pension plan must be recorded on the Consolidated Balance Sheet as an asset, in the case of an overfunded plan, or as a liability, in the case of an underfunded plan. The gains or losses and prior service costs or credits that arise but are not recognized as components of pension cost are recorded as a component of other comprehensive income. The following chart depicts the sensitivity of the total pension adjustment to other comprehensive income to changes in the assumed discount rate.
|
| | | | |
| | | Total increase (decrease) in Accumulated Other Comprehensive |
| Discount rate | | Income, before taxes, from current assumptions (in millions) |
| 3.25 percent | | $ | (80.8 | ) |
| 3.50 percent | | (59.0 | ) |
| 3.75 percent | | (38.4 | ) |
| 4.00 percent | | (18.7 | ) |
4.25 percent — Current Assumption | | — |
|
| 4.50 percent | | 17.7 |
|
| 4.75 percent | | 34.6 |
|
| 5.00 percent | | 50.7 |
|
| 5.25 percent | | 66.0 |
|
Intangible assets and goodwill
The purchase price of each new acquisition is allocated to tangible assets, identifiable intangible assets, liabilities assumed, and goodwill. Determining the portion of the purchase price allocated to identifiable intangible assets and goodwill requires us to make significant estimates. The amount of the purchase price allocated to intangible assets is generally determined by estimating the future cash flows of each asset and discounting the net cash flows back to their present values. The discount rate used is determined at the time of the acquisition in accordance with accepted valuation methods.
Goodwill represents the excess of the aggregate purchase price over the fair value of net assets acquired, including intangible assets. Goodwill is not amortized, but instead tested annually or when events and circumstances indicate an impairment may have occurred. Only two of our three reporting units have goodwill and the goodwill is assessed for potential impairment on an annual basis. All goodwill is assigned to reporting units, which is defined as the operating segment, or one level below the operating segment. We have three reporting units which are aligned with our operating segments.
Goodwill for our reporting units is reviewed for impairment annually in the fourth quarter of each year. During 2018, the Company elected a "Step 0" asssessment. The Step 0 assessment requires the evaluation of certain qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance, as
well as Company and reporting unit factors. During 2017, the Company elected a one-step assessment of goodwill in accordance with Accounting Standards Update 2017-04, Simplifying the Test for Goodwill Impairment. During 2016, the Company performed a two-step assessment of goodwill. Under both a one-step and two-step asessement, the determination of the estimated fair value of the reporting units utilizes both an income valuation method and a market multiple method. Significant inputs to the income valuation method include discount rates, long-term sales growth rates and forecasted operating margins. The market multiple method estimates fair value by comparing the Company to similar public companies.
Our estimates associated with the goodwill impairment tests are considered critical due to the amount of goodwill recorded on our consolidated balance sheet and the judgment required in determining fair value amounts, including projected future cash flows. Judgment is used in assessing whether goodwill should be tested more frequently for impairment than annually. Factors such as a significant decrease in expected net earnings, adverse equity market conditions, and other external events may require more frequent assessments.
Intangible assets consist primarily of purchased customer relationships, technology, trademarks, and tradenames and are amortized using the straight-line method over their estimated useful lives, which range from one to 30 years. We review these intangible assets for impairment as changes in circumstances or the occurrence of events suggest that the remaining value is not recoverable. The test for impairment requires us to make estimates about fair value, most of which are based on projected future cash flows. These estimates and projections require judgments as to future events, condition, and amounts of future cash flows. We have no indefinite-lived intangible assets.
Income Taxes
Estimates and judgments are required to calculate our tax liabilities and for the realization of our deferred tax assets. Our deferred tax assets arise from net deductible temporary differences, tax benefit carry forwards and foreign tax credits. If our estimates and judgments indicate that realization is not likely, we provide a valuation allowance for the deferred tax asset.
In assessing the need for a valuation allowance, we consider past operating results and estimate future taxable earnings, the feasibility of planning strategies, and available tax benefit carry forwards. If actual results differ from these estimates or there are future changes to tax laws or statutory tax rates, we may need to adjust the valuation allowance, which could have a material impact on our consolidated financial position and results of operations.
Our estimates related to uncertain tax positions and provisional tax estimates for the recently passed U.S. tax legislation are described further in Note 15.
New Accounting Pronouncements
Refer to Note 3 - New Accounting Guidance for additional detail.
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item 7A is included in Note 8 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, and under the caption “Market Risks and Foreign Currency Exposures” which is part of Management’s Discussion and Analysis included in Item 7 of this Annual Report on Form 10-K. Certain of our locations have assets and liabilities denominated in currencies other than their functional currencies. We enter into foreign currency forward exchange contracts to offset the transaction gains or losses associated with some of these assets and liabilities. For assets and liabilities without offsetting foreign currency forward exchange contracts, a 10 percent adverse change in the underlying foreign currency exchange rates would reduce our pre-tax income by approximately $5 million.
ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management’s Responsibility Statement
The management of Bemis Company, Inc. is responsible for the integrity, objectivity, and accuracy of the financial statements of the Company. The financial statements are prepared by the Company in accordance with accounting principles generally accepted in the United States of America, and using management’s best estimates and judgments, where appropriate. The financial information presented throughout this Annual Report on Form 10-K is consistent with that in the financial statements.
The management of Bemis Company, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the direction, supervision, and participation of the Chief Executive Officer and the Chief Financial Officer, the Company’s management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO-Framework (2013)). Based on the results of this evaluation, management has concluded that internal control over financial reporting was effective as of December 31, 2018. Item 9A of this Annual Report on Form 10-K contains management’s favorable assessment of internal controls over financial reporting based on their review and evaluation utilizing the COSO-Framework (2013) criteria.
The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets quarterly with management, the Acting Vice President of Internal Audit, and independent accountants to review the work of each and to satisfy itself that the respective parties are properly discharging their responsibilities. PricewaterhouseCoopers LLP and the Acting Vice President of Internal Audit have had and continue to have unrestricted access to the Audit Committee, without the presence of Company management.
|
| | | | |
/s/ William F. Austen | | /s/ Michael B. Clauer | | /s/ Jerry S. Krempa |
William F. Austen, President and Chief Executive Officer | | Michael B. Clauer, Senior Vice President and Chief Financial Officer | | Jerry S. Krempa, Vice President and Chief Accounting Officer |
Report of Independent Registered Public Accounting Firm
To theBoard of Directors and Shareholders of Bemis Company, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Bemis Company, Inc. and its subsidiaries (the “Company”) as of December 31, 2018, and December 31, 2017,except for the assumed retirement age. The assumed retirement age has been changed to reflect the earliest unreduced age under the SERP. Lump sums under the Supplemental Plan and the related consolidated statementsSERP were calculated assuming a 3 percent lump sum interest rate and the IRS 2019 Applicable Mortality Table.Potential Payments upon Termination, Including Following Change of income, comprehensive income, equityControl for 2018
The following table describes the potential payments and cash flowsbenefits under the Company’s compensation and benefit plans and arrangements to which the Named Executive Officers would be entitled to upon termination of employment, including following a change of control. Except for eachcertain terminations following a change of the three years in the period ended December 31, 2018, including the related notes and financial statement schedule listed in the accompanying index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as described below, there are no other agreements, arrangements or plans that entitle Executive Officers to severance, perquisites, or other enhanced benefits upon termination of December 31, 2018 and December 31, 2017, andtheir employment. Any agreement to provide such payments or benefits to a terminating Executive Officer (other than following a change of control) would be at the results of its operations and its cash flows for eachdiscretion of the Compensation Committee.The amounts shown below for change of control and certain terminations of employment following a change of control reflect payments and benefits under the Management Agreements in connection with any change of control. The amounts shown below do not give effect to other specific arrangements specific to the Merger with Amcor, which are described above under “Executive Compensation Discussion & Analysis — 2019 Changes and Definitive Transaction Agreement with Amcor” and below under “Management Agreements — Arrangements due to Definitive Transaction Agreement with Amcor.”
Name | | Event | | Cash
Severance
Payment
(salary,
bonus, etc.)
($) | | Incremental
Pension Benefit
(present value)
($) | | Continuation
of Medical/
Welfare
Benefits
(present value)
($) | | Acceleration
and
Continuation
of Equity
Awards
($) | | Excise
Tax
Adjustment
($) |
| | | | | | (1) | | | | (2) | | |
William F. Austen | | Death and disability | | | | | | | | 10,275,111 | | |
| | (3) Voluntary termination | | | | | | | | 5,125,858 | | |
| | (3) Voluntary retirement | | | | | | | | 5,125,858 | | |
| | (3) Involuntary termination | | | | | | | | 5,125,858 | | |
| | Involuntary termination for cause Change of control | | | | | | | | 10,275,111 | | |
| | (4) Involuntary or constructive termination after change of control | | 15,506,660 | | | | 158,301 | | | | 11,554,685 |
Michael B. Clauer | | Death and disability | | | | | | | | 2,297,101 | | |
| | (3) Voluntary termination | | | | | | | | 1,145,701 | | |
| | (3) Voluntary retirement | | | | | | | | 1,145,701 | | |
| | (3) Involuntary termination | | | | | | | | 1,145,701 | | |
| | Involuntary termination for cause Change of control | | | | | | | | 2,297,101 | | |
| | (5) Involuntary or constructive termination after change of control | | 3,126,000 | | | | 71,011 | | | | |
Sheri H. Edison | | Death and disability | | | | | | | | 1,336,670 | | |
| | (3) Voluntary termination | | | | | | | | 666,680 | | |
| | (3) Voluntary retirement | | | | | | | | 666,680 | | |
| | (3) Involuntary termination | | | | | | | | 666,680 | | |
| | Involuntary termination for cause Change of control | | | | | | | | 1,336,670 | | |
| | (5) Involuntary or constructive termination after change of control | | 2,340,000 | | | | 96,144 | | | | |
Timothy S. Fliss | | Death and disability | | | | | | | | 920,864 | | |
| | (3) Voluntary termination | | | | | | | | 459,290 | | |
| | (3) Voluntary retirement | | | | | | | | 459,290 | | |
| | (3) Involuntary termination | | | | | | | | 459,290 | | |
| | Involuntary termination for cause Change of control | | | | | | | | 920,864 | | |
| | (5) Involuntary or constructive termination after change of control | | 1,859,800 | | | | 78,504 | | | | |
Fred Stephan | | Death & Disability | | | | | | | | 1,682,354 | | |
| | (3) Voluntary termination | | | | | | | | | | |
| | (3) Voluntary retirement | | | | | | | | | | |
| | (3) Involuntary termination | | | | | | | | | | |
| | Involuntary termination for cause Change of control | | | | | | | | 1,682,354 | | |
| | (5) Involuntary or constructive termination after change of control | | 1,960,000 | | | | 81,157 | | | | |
(1)Vested pension benefits, if any, for the Named Executive Officers are not listed in this table because they are already provided under Pension Benefits.
(2)The Acceleration and Continuation of Equity Awards column for a change of control includes the value of all currently non-vested equity units outstanding at 2018 fiscal year-end from the Outstanding Equity Awards Table, including both time and performance-based awards (assuming performance-based awards vest at target levels).
(3)The Acceleration and Continuation of Equity Awards column for voluntary termination, voluntary retirement, and involuntary termination includes payouts that are pursuant to the terms of the Plan, assuming a 100 percent payout at Target for performance-based share units.
(4)Involuntary or constructive termination after change of control: provides salary, bonus, and an excise tax adjustment. The cash column represents three (3) times the annual base salary, three (3) times the greater of the current bonus target or the highest bonus paid to the Named Executive Officer during the previous five (5) calendar years, a cash payment equal to the value of the 2018 restricted share award made to the Named Executive Officer, and three (3) times the benefit costs calculated at thirty (30) percent of base pay. The continuation of medical/welfare benefits column represents the estimated cost for Bemis’ portion of health, welfare and life insurance cost for a three (3) year period.
(5)Involuntary or constructive termination after change of control: provides salary, and bonus (no tax gross-up due to elimination of this benefit as of 1/1/2009). The cash column represents two (2) times the annual base salary, two (2) times the greater of the current bonus target or the highest bonus paid to the Named Executive Officer during the previous five (5) calendar years, and two (2) times the benefit costs calculated at thirty (30) percent of base pay. The continuation of medical/welfare benefits column represents the estimated cost for Bemis’ portion of health, welfare and life insurance cost for a two (2) year period.
MANAGEMENT AGREEMENTS
We have Management Agreements (“Agreements”) with the Executive Officers that become effective only upon a change of control event. A change of control event is deemed to have occurred if (i) any person acquires or becomes a beneficial owner, directly or indirectly, of our securities representing 20 percent or more of our voting securities or 20 percent or more of our outstanding Common Stock, (ii) incumbent directors and directors elected or nominated by the Board cease to constitute a majority of the Board, (iii) consummation of a merger, unless the beneficial owners of our voting securities and outstanding Common Stock beneficially own more than 80 percent of the voting securities and outstanding Common Stock of the surviving corporation in substantially the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United Statessame proportions, (iv) shareholder approval of America. Also in our opinion,a complete liquidation or dissolution of the Company maintained, inor sale or other disposition of all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A . Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained insubstantially all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparationCompany unless the beneficial owners of financial statements in accordance with generally accepted accounting principles,our voting securities and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
|
| |
/s/ PricewaterhouseCoopers LLP | |
Milwaukee, Wisconsin |
February 15, 2019 |
We have served as the Company’s auditor since at least 1949. We have not been able to determine the specific year we began serving as auditor of the Company.
BEMIS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts)
|
| | | | | | | | | | | | |
| For the years ended December 31, | | 2018 | | 2017 | | 2016 |
| Net sales | | $ | 4,089.9 |
| | $ | 4,046.2 |
| | $ | 4,004.4 |
|
| Cost of products sold (1) | | 3,284.8 |
| | 3,260.0 |
| | 3,137.9 |
|
| | | | | | | |
| Gross profit | | 805.1 |
| | 786.2 |
| | 866.5 |
|
| | | | | | | |
| Operating expenses: | | |
| | |
| | |
|
| Selling, general, and administrative expenses (1) | | 377.9 |
| | 385.2 |
| | 390.5 |
|
| Research and development costs | | 38.0 |
| | 42.9 |
| | 46.5 |
|
| Restructuring and other costs (1) | | 61.9 |
| | 60.4 |
| | 28.6 |
|
| Goodwill impairment charge | | — |
| | 196.6 |
| | — |
|
| Other operating income | | (31.7 | ) | | (20.9 | ) | | (10.4 | ) |
| | | | | | | |
| Operating income | | 359.0 |
| | 122.0 |
| | 411.3 |
|
| | | | | | | |
| Interest expense | | 76.1 |
| | 65.8 |
| | 60.2 |
|
| Other non-operating (income) loss (1) | | (2.8 | ) | | 3.5 |
| | 0.2 |
|
| | | | | | | |
| Income from continuing operations before income taxes | | 285.7 |
| | 52.7 |
| | 350.9 |
|
| | | | | | | |
| Income tax provision (benefit) | | 60.0 |
| | (41.3 | ) | | 114.7 |
|
| | | | | | | |
| Net income | | $ | 225.7 |
| | $ | 94.0 |
| | $ | 236.2 |
|
| | | | | | | |
| | | | | | | |
| Basic earnings per share: | | | | | | |
| Net income | | $ | 2.48 |
| | $ | 1.03 |
| | $ | 2.51 |
|
| | | | | | | |
| Diluted earnings per share: | | | | | | |
| Net income | | $ | 2.47 |
| | $ | 1.02 |
| | $ | 2.48 |
|
| | | | | | | |
| | | | | | | |
| Cash dividends paid per share | | $ | 1.24 |
| | $ | 1.20 |
| | $ | 1.16 |
|
| |
(1) | Prior year information has been recast to reflect the adoption of pension accounting changes during the first quarter of 2018 and conform to current year presentation. |
See accompanying notes to consolidated financial statements.
BEMIS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions)
|
| | | | | | | | | | | | |
| For the years ended December 31, | | 2018 | | 2017 | | 2016 |
| Net income | | $ | 225.7 |
| | $ | 94.0 |
| | $ | 236.2 |
|
| Other comprehensive income (loss): | | | | | | |
| Translation adjustments | | (94.3 | ) | | 39.6 |
| | 35.8 |
|
| Pension and other postretirement liability adjustments, net of tax (a) | | (16.5 | ) | | 13.7 |
| | 26.3 |
|
| Other comprehensive income (loss) | | (110.8 | ) | | 53.3 |
| | 62.1 |
|
| Total comprehensive income | | $ | 114.9 |
| | $ | 147.3 |
| | $ | 298.3 |
|
| | | | | | | |
| | | | | | | |
| (a) - Tax (expense) benefit related to pension and other postretirement liability adjustments | | $ | 5.9 |
| | $ | (9.6 | ) | | $ | (17.8 | ) |
See accompanying notes to consolidated financial statements.
BEMIS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions, except per share amounts)
|
| | | | | | | | |
| As of December 31, | | 2018 | | 2017 |
| ASSETS | | |
| | |
|
| Current assets: | | |
| | |
|
| Cash and cash equivalents | | $ | 76.1 |
| | $ | 71.1 |
|
| Trade receivables | | 443.3 |
| | 448.7 |
|
| Inventories | | 619.5 |
| | 620.2 |
|
| Prepaid expenses and other current assets | | 95.7 |
| | 97.1 |
|
| Total current assets | | 1,234.6 |
| | 1,237.1 |
|
| | | | | |
| Property and equipment: | | |
| | |
|
| Land and land improvements | | 54.1 |
| | 57.3 |
|
| Buildings and leasehold improvements | | 652.8 |
| | 644.5 |
|
| Machinery and equipment | | 2,036.5 |
| | 2,073.5 |
|
| Total property and equipment | | 2,743.4 |
| | 2,775.3 |
|
| Less accumulated depreciation | | (1,493.1 | ) | | (1,457.2 | ) |
| Net property and equipment | | 1,250.3 |
| | 1,318.1 |
|
| | | | | |
| Other long-term assets: | | |
| | |
|
| Goodwill | | 845.2 |
| | 852.7 |
|
| Other intangible assets, net | | 121.4 |
| | 142.3 |
|
| Deferred charges and other assets | | 119.5 |
| | 149.7 |
|
| Total other long-term assets | | 1,086.1 |
| | 1,144.7 |
|
| TOTAL ASSETS | | $ | 3,571.0 |
| | $ | 3,699.9 |
|
| | | | | |
| LIABILITIES | | |
| | |
|
| Current liabilities: | | |
| | |
|
| Current portion of long-term debt | | $ | 1.8 |
| | $ | 5.0 |
|
| Short-term borrowings | | 10.2 |
| | 16.0 |
|
| Accounts payable | | 515.9 |
| | 477.2 |
|
| Employee-related liabilities | | 94.3 |
| | 73.1 |
|
| Accrued income and other taxes | | 33.3 |
| | 30.5 |
|
| Other current liabilities | | 46.1 |
| | 64.3 |
|
| Total current liabilities | | 701.6 |
| | 666.1 |
|
| | | | | |
| Long-term debt, less current portion | | 1,348.6 |
| | 1,542.4 |
|
| Deferred taxes | | 166.7 |
| | 153.5 |
|
| Other liabilities and deferred credits | | 138.2 |
| | 136.7 |
|
| Total liabilities | | 2,355.1 |
| | 2,498.7 |
|
| | | | | |
| Commitments and contingencies (See Note 18) | |
|
| |
|
|
| | | | | |
| EQUITY | | |
| | |
|
| Bemis Company, Inc. shareholders’ equity: | | |
| | |
|
| Common stock, $0.10 par value: | | |
| | |
|
| Authorized — 500.0 shares | | |
| | |
|
| Issued — 129.3 and 129.1 shares, respectively | | 12.9 |
| | 12.9 |
|
| Capital in excess of par value | | 604.2 |
| | 590.4 |
|
| Retained earnings | | 2,456.7 |
| | 2,324.8 |
|
| Accumulated other comprehensive loss | | (525.5 | ) | | (394.5 | ) |
| Common stock held in treasury (38.3 shares at cost) | | (1,332.4 | ) | | (1,332.4 | ) |
| TOTAL EQUITY | | 1,215.9 |
| | 1,201.2 |
|
| | | | | |
| TOTAL LIABILITIES AND EQUITY | | $ | 3,571.0 |
| | $ | 3,699.9 |
|
See accompanying notes to consolidated financial statements.
BEMIS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in millions)
|
| | | | | | | | | | | | |
| For the years ended December 31, | | 2018 | | 2017 | | 2016 |
| Cash flows from operating activities: | | |
| | |
| | |
|
| Net income | | $ | 225.7 |
| | $ | 94.0 |
| | $ | 236.2 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| | |
| | |
|
| Depreciation and amortization | | 167.6 |
| | 169.8 |
| | 162.1 |
|
| Goodwill impairment charge | | — |
| | 196.6 |
| | — |
|
| Excess tax benefit from share-based payment arrangements | | — |
| | — |
| | (4.5 | ) |
| Share-based compensation | | 19.6 |
| | 17.4 |
| | 18.1 |
|
| Deferred income taxes | | 25.5 |
| | (131.2 | ) | | 26.2 |
|
| Income of unconsolidated affiliated company | | (2.3 | ) | | (2.9 | ) | | (2.2 | ) |
| Cash dividends received from unconsolidated affiliated company | | 2.7 |
| | — |
| | 2.7 |
|
| Net loss (gain) on disposal of property and equipment | | (0.1 | ) | | 6.6 |
| | (0.1 | ) |
| Changes in operating assets and liabilities, excluding effect of acquisitions, divestitures, and currency: | | | | |
| | |
|
| Trade receivables | | (26.4 | ) | | 17.3 |
| | 7.5 |
|
| Inventories | | (19.1 | ) | | (64.1 | ) | | (7.5 | ) |
| Prepaid expenses and other current assets | | (4.7 | ) | | (17.2 | ) | | 1.0 |
|
| Accounts payable | | 60.1 |
| | 90.8 |
| | 37.8 |
|
| Employee-related liabilities | | 24.4 |
| | (7.2 | ) | | (15.6 | ) |
| Accrued income and other taxes | | 4.5 |
| | (0.4 | ) | | (0.7 | ) |
| Other current liabilities | | (16.0 | ) | | (3.6 | ) | | (22.9 | ) |
| Other liabilities and deferred credits | | (6.3 | ) | | 86.7 |
| | 17.6 |
|
| Deferred charges and other assets | | 6.3 |
| | (73.6 | ) | | (18.3 | ) |
| Net cash provided by operating activities | | 461.5 |
| | 379.0 |
| | 437.4 |
|
| | | | | | | |
| Cash flows from investing activities: | | |
| | |
| | |
|
| Additions to property and equipment | | (143.5 | ) | | (188.5 | ) | | (208.3 | ) |
| Business acquisitions and adjustments, net of cash acquired | | — |
| | (3.9 | ) | | (114.5 | ) |
| Proceeds from sales of property and equipment | | 3.6 |
| | 14.5 |
| | 11.6 |
|
| Net cash used in investing activities | | (139.9 | ) | | (177.9 | ) | | (311.2 | ) |
| | | | | | | |
| Cash flows from financing activities: | | |
| | |
| | |
|
| Proceeds from issuance of long-term debt | | — |
| | 2.2 |
| | 299.0 |
|
| Repayment of long-term debt | | (4.2 | ) | | — |
| | (23.8 | ) |
| Net borrowing (repayment) of commercial paper | | (188.2 | ) | | 17.0 |
| | (110.0 | ) |
| Net repayment of short-term debt | | (6.1 | ) | | (3.0 | ) | | (8.1 | ) |
| Cash dividends paid to shareholders | | (113.8 | ) | | (111.2 | ) | | (113.9 | ) |
| Common stock purchased for the treasury | | — |
| | (103.8 | ) | | (143.9 | ) |
| Excess tax benefit from share-based payment arrangements | | — |
| | — |
| | 4.5 |
|
| Stock incentive programs and related withholdings | | (5.8 | ) | | (8.5 | ) | | (14.2 | ) |
| Net cash used in financing activities | | (318.1 | ) | | (207.3 | ) | | (110.4 | ) |
| | | | | | | |
| Effect of exchange rates on cash and cash equivalents | | 1.5 |
| | 3.1 |
| | (0.8 | ) |
| | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | 5.0 |
| | (3.1 | ) | | 15.0 |
|
| Cash and cash equivalents balance at beginning of year | | 71.1 |
| | 74.2 |
| | 59.2 |
|
| | | | | | | |
| Cash and cash equivalents balance at end of year | | $ | 76.1 |
| | $ | 71.1 |
| | $ | 74.2 |
|
| | | | | | | |
| Interest paid during the year | | $ | 74.0 |
| | $ | 63.8 |
| | $ | 57.4 |
|
| Income taxes paid during the year | | $ | 44.0 |
| | $ | 73.5 |
| | $ | 93.1 |
|
See accompanying notes to consolidated financial statements
BEMIS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Capital In Excess of Par Value | | Retained Earnings | | Accumulated Other Comprehensive (Loss)/Income | | Common Stock Held In Treasury | | Total |
| Balance as of December 31, 2015 | | $ | 12.8 |
| | $ | 573.2 |
| | $ | 2,216.0 |
| | $ | (509.9 | ) | | $ | (1,084.7 | ) | | $ | 1,207.4 |
|
| | | | | | | | | | | | | |
| Net income | | |
| | |
| | 236.2 |
| | |
| | |
| | 236.2 |
|
| Other comprehensive income | | |
| | |
| | |
| | 62.1 |
| | |
| | 62.1 |
|
| Cash dividends declared on common stock | | |
| | |
| | (110.5 | ) | | |
| | |
| | (110.5 | ) |
| Stock incentive programs and related tax withholdings (0.6 shares) | | 0.1 |
| | (14.3 | ) | | |
| | |
| | |
| | (14.2 | ) |
| Excess tax benefit from share-based compensation arrangements | | |
| | 4.5 |
| | |
| | |
| | |
| | 4.5 |
|
| Share-based compensation | | |
| | 18.1 |
| | |
| | |
| | |
| | 18.1 |
|
| Purchase of 3.0 shares of common stock for the treasury | | | | | | | | | | (143.9 | ) | | (143.9 | ) |
| Balance as of December 31, 2016 | | 12.9 |
| | 581.5 |
| | 2,341.7 |
| | (447.8 | ) | | (1,228.6 | ) | | 1,259.7 |
|
| | | | | | | | | | | | | |
| Net income | | |
| | |
| | 94.0 |
| | |
| | |
| | 94.0 |
|
| Other comprehensive income | | |
| | |
| | |
| | 53.3 |
| | |
| | 53.3 |
|
| Cash dividends declared on common stock | | |
| | |
| | (110.9 | ) | | |
| | |
| | (110.9 | ) |
| Stock incentive programs and related tax withholdings (0.3 shares) | |
|
| | (8.5 | ) | | |
| | |
| | |
| | (8.5 | ) |
| Share-based compensation | | |
| | 17.4 |
| | |
| | |
| | |
| | 17.4 |
|
| Purchase of 2.2 shares of common stock for the treasury | | | | | | | | | | (103.8 | ) | | (103.8 | ) |
| Balance as of December 31, 2017 | | 12.9 |
| | 590.4 |
| | 2,324.8 |
| | (394.5 | ) | | (1,332.4 | ) | | 1,201.2 |
|
| | | | | | | | | | | | | |
| Net income | | | | | | 225.7 |
| | | | | | 225.7 |
|
| Other comprehensive loss | | | | | | | | (110.8 | ) | | |
| | (110.8 | ) |
| Cash dividends declared on common stock | | | | | | (114.0 | ) | | | | | | (114.0 | ) |
| Stock incentive programs and related tax withholdings (0.2 shares) | |
|
| | (5.8 | ) | | | | | | | | (5.8 | ) |
| Reclassification due to the adoption of ASU 2018-02 | | | | | | 20.2 |
| | (20.2 | ) | | | | — |
|
| Share-based compensation | | | | 19.6 |
| | | | | | | | 19.6 |
|
| Balance as of December 31, 2018 | | $ | 12.9 |
| | $ | 604.2 |
| | $ | 2,456.7 |
| | $ | (525.5 | ) | | $ | (1,332.4 | ) | | $ | 1,215.9 |
|
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — BUSINESS DESCRIPTION
Bemis Company, Inc. (the "Company"), a Missouri corporation based in Neenah, Wisconsin, was founded in 1858 and incorporated in 1885 as Bemis Bro. Bag Company. In 1965 the name was changed to Bemis Company, Inc. At December 31, 2018, the Company employed approximately 15,700 individuals and had 54 manufacturing facilities. The Company manufactures and sells packaging products globally.
The Company’s business activities are organized around its three business segments, U.S. Packaging, Latin America Packaging, and Rest of World Packaging. The Company’s packaging businesses have a strong technical base in polymer chemistry, film extrusion, coating, laminating, printing, and converting. The Company’s products are primarily sold in the food industry, which accounted for approximatelyoutstanding Common Stock beneficially own more than 80 percent of
net sales in 2018. The Company’s packaging products are widely diversified among food categoriesthe voting securities and
can be found in nearly every aisleoutstanding Common Stock of the
grocery store. Other markets include chemical, agribusiness,surviving corporation, or (v) the Company enters into a letter of intent or agreement in principle relating to one of the foregoing change of control events that ultimately results in such a change of control event, or a tender or exchange offer or proxy contest is commenced which ultimately results in such a change of control event. If, in connection with a change of control event, an Executive Officer is terminated involuntarily or constructively involuntarily terminated (a “Qualifying Event”), such Executive Officer will be entitled:(a) To immediately receive from us or our successor, a lump-sum cash payment in an amount equal to two times (or three times for Executive Officers elected before 2008) the sum of (1) the executive’s annual salary for the previous year, or, if higher, the executive’s annual salary in effect immediately prior to the change of control event; (2) the executive’s target bonus for the current year, or, if higher, the highest annual bonus received by the executive during the previous five years; and (3) the estimated value of fringe benefits and perquisites;
(b) To immediately receive from us or our successor (for Executive Officers elected before 2007), a lump-sum cash payment in an amount equal to the executive’s most recent annual grant of equity units multiplied by the value of a share of our common stock on the day immediately prior to the change of control event; and
(c) For two years (or three years for Executive Officers elected before 2008) after the “Involuntary Termination” or “Constructive Involuntary Termination”, to participate in any health, disability, and life insurance plan or program in which the executive was entitled to participate immediately prior to the change of control event; but notwithstanding anything to the contrary above, the executive will not be entitled to benefits under subparagraphs (a), (b) or (c) above for any time following the executive’s sixty-fifth (65th) birthday.
For purposes of the Agreements, “Involuntary Termination” means a termination by us of the executive’s employment that is not a termination for “Cause” and that is not on account of the death or disability of the executive.
“Constructive Involuntary Termination” means any of the following events: (1) reduction of the executive’s title, duties, responsibilities, or authority, other than for Cause or disability; (2) reduction of the executive’s annual base salary; (3) reduction of the aggregate benefits under our pension, profit sharing, retirement, life insurance, medical, pharmaceutical, personal care products, electronics, industrial,health and accident, disability, bonus and incentive plans, and other consumer goods. All markets are consideredemployee benefit plans and arrangements or reduction of the number of paid
vacation days to be highly competitive aswhich the executive is entitled; (4) we fail to price, innovation, quality,obtain assumption of the Agreement by any successor; (5) we require the executive to perform his primary duties at a location that is more than 25 miles further from his primary residence than the location at which he performs his primary duties on the effective date of the Agreement; or (6) a termination of employment with us by the executive after any of the other occurrences listed.
“Cause” means, and service.
is limited to, (1) willful and gross neglect of duties by the executive that has not been substantially corrected within 30 days after his receipt from us of written notice describing the neglect and the steps necessary to substantially correct it, or (2) an act or acts committed by the executive constituting a felony and substantially detrimental to us or our reputation.In 2008, new Management Agreements were approved for all incoming Executive Officers. These agreements provide for two (2) years of payments (versus the previously executed Management Agreements that provide for three (3) years of payments) and provide no additional payments for any restricted share unit awards. Effective January 1, 2009, the Compensation Committee eliminated the Internal Revenue Code Section 280G excise tax adjustments from payments due under new Management Agreements.
Arrangements due to Definitive Transaction Agreement with Amcor
On August 6, 2018,The Management Agreements described above govern any change of control transaction. Specific to the Company announced that its Board of Directors, along with the Board of Directors of Amcor Limited (“Amcor”), unanimously approved a definitive agreement (the "Agreement”) under which Bemis will combineMerger with Amcor, certain additional arrangements have been put in an all-stock combination (“place that have payment triggers tied to the Transaction”).
The Transaction will be effected at a fixed exchange ratioMerger, such as the 2019 long-term incentive awards and retention bonus awards described above. In addition, Amcor has made provisional offers of
5.1 Amcor sharesemployment to all Executive Officers, other than Mr. Austen and Mr. Clauer, for
each share of the Company, resulting in Amcor and Bemis shareholders owning approximately 71% and 29% ofemployment with the combined company
respectively. Closingthat have been accepted by these Executive Officers. These offers provide for annual compensation (base salary, annual cash bonus, long-term incentives and other benefits) that Amcor believes to be commensurate with the roles the executives would assume with the combined company. These offers preserve the Executives Officers’ eligibility for the existing retention bonus arrangements and provide for the settlement of the
TransactionExecutive Officers’ existing Management Agreements in return for comparable payments at or after closing. The offer letters with two Executive Officers who may experience a Qualifying Event provide for termination of the Executive Officer’s Management Agreement in exchange for certain payments and potential payments in an aggregate amount that is
conditional upon the receipt of regulatory approvals, approval by both Amcor and Bemis shareholders, and satisfaction of other customary conditions. Subjectcomparable to the
satisfactionseverance benefits that would have been payable upon a Qualifying Event under the Management Agreement before any reduction to avoid an excise tax.Mr. Austen and Mr. Clauer may enter into consulting arrangements with Amcor pursuant to which they will be available to provide limited transition services, if required and as requested by Amcor, for a brief period of time following closings.
Pursuant to the Agreement, Amcor agreed to provide, for a period of one year after the closing, certain benefits to any Bemis employees who continue with the combined company, including (i) base salary or hourly wage and short-term cash incentive bonus opportunity that, in each case, is no less than the base pay or hourly wage and short-term cash incentive bonus opportunity paid or made available to the continuing employee prior to the closing, (ii) subject to certain exceptions, a total direct compensation opportunity for 2019 that is substantially similar to the applicable continuing employee’s total direct compensation for 2018, (iii) severance benefits that are no less favorable to the applicable continuing employee than those applicable immediately prior to the closing and (iv) group employee benefits that are substantially similar in the aggregate to the group employee benefits provided to the continuing employees immediately prior to the closing.
CEO PAY RATIO
We are providing the following information about the relationship of the conditions to closing,annual total compensation of our median employee and the Transaction is targeted to closeannual total compensation of Mr. Austen, our Chief Executive Officer (“CEO”):
For 2018:
· the annual total compensation of our median employee was $45,084; and
· the annual total compensation of our CEO, as reported in the second quarterSummary Compensation Table included on page 22 of calendarthis proxy statement, was $7,730,729.
Based on this information for fiscal year 2019.
The Agreement contains certain termination rights2018, we reasonably estimate that the ratio of our CEO’s annual total compensation to the annual total compensation of our median employee was approximately 171:1. Our pay ratio estimate has been calculated in a manner consistent with Item 402(u) of Regulation S-K.We identified our median employee based on fiscal 2018 annual base compensation (salary and hourly wages) for both Bemisall employees within our organization (including global full-time, part-time and Amcor, including iftemporary employees), other than our CEO, who were employed on October 1, 2018. More than one employee had the Transaction is not completed on or before August 6, 2019, subject in certain circumstances to extension to February 6, 2020 if necessary to secure certain regulatory approvals. The Agreement provides that Bemis will pay a $130 million termination fee to Amcor if, among other things, Bemis terminatessame annual base compensation. To select an employee from this group, we calculated total compensation as defined for purposes of the Agreement to enter into a superior proposal or if the Agreement is terminated following Bemis’s Board of Directors changing its recommendation or failing to publicly affirm the board recommendation after receipt of a competing proposal. The Agreement also provides that Amcor will pay a $130 million termination fee to Bemis under similar circumstances.
During 2018, in connection with the Transaction, the Company incurred pre-tax expenses of $14.3 million related to professional fees which are recorded in Restructuring and other costsSummary Compensation Table for each employee in the condensed consolidated statement of income.
Note 2 — SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements includegroup and selected the accountsmedian employee.When calculating annual total compensation of the Companymedian employee, we included all elements of compensation included in the Summary Compensation Table, including base pay, shift differential, overtime, bonus, 401(k) match, perquisites and its majority owned subsidiaries. All intercompany transactions and accounts have been eliminated. Joint ventures which are not majority controlled are accounted forsimilar other compensation elements.
2018 Director Compensation
Director compensation is approved by the equity method of accounting with earnings of $
2.3 million, $2.9 million, and $2.2 millionCompensation Committee. The Committee determines appropriate pay levels in 2018, 2017, and 2016, respectively, included in other operating incomereliance on the accompanying consolidated statementexpertise of, income. Investmentsand data supplied by, Willis Towers Watson. The components of Director pay include cash or shares in joint ventureslieu of $6.9 millioncash, share awards, and $8.9 millionan additional cash payment and share award for Non-Executive Chairman of the Board (or Independent Lead Director, if applicable) and for Directors who serve as of December 31, 2018 and 2017, respectively, are included in deferred charges and other assetsChairs on the accompanying consolidated balance sheet.EstimatesCommittees. For 2018, annual board compensation remained the same as 2017, consisting of $95,000 in cash or shares in lieu of cash and assumptions required: The preparationrestricted stock unit awards valued at $130,000. In addition, the Committee Chairs received a payment of financial statementscash or shares in conformity with accounting principles generally acceptedlieu of cash in the United Statesamount of America requires management to make estimates$18,000. Director Manganello received an annual fee of $95,000 and assumptions that affectrestricted stock unit awards valued at $95,000 for services as Non-Executive Chairman of the reported amountsBoard.The table below reflects shares granted for the term beginning at the 2018 Annual Shareholder Meeting.
Name | | Fees Earned or
Paid in Cash
($) | | Stock
Awards
($) | | All Other
Compensation
($) | | Total
($) | |
| | | | (1) | | | | | |
Katherine C. Doyle | | 95,000 | | 132,937 | | | | 227,937 | |
Ronald J. Floto(3) | | 32,102 | | | | | | 32,102 | |
Adele M. Gulfo(2) | | | | 228,032 | | | | 228,032 | |
David S. Haffner | | 101,082 | | 132,937 | | | | 234,020 | |
Timothy M. Manganello | | 190,000 | | 230,053 | | | | 420,053 | |
William L. Mansfield(2)(3) | | | | 32,132 | | | | 32,132 | |
Arun Nayar | | 113,000 | | 132,937 | | | | 245,937 | |
Guillermo Novo(4) | | 75,472 | | 132,937 | | | | 208,409 | |
Marran H. Ogilvie(4) | | 75,472 | | 132,937 | | | | 208,409 | |
David T. Szczupak(2) | | | | 239,914 | | | | 239,914 | |
Holly A. Van Deursen | | 113,000 | | 132,937 | | | | 245,937 | |
Philip G. Weaver | | 109,300 | | 132,937 | | | | 242,237 | |
George W. Wurtz III(4) | | 75,472 | | 132,937 | | | | 208,409 | |
Robert H. Yanker(2)(4) | | | | 208,507 | | | | 208,507 | |
(1)Each Director elected at the 2018 Annual Meeting of assetsShareholders was granted Restricted Stock Units (RSUs) for 3,095 shares with a grant date fair value computed in accordance with FASB ASC Topic 718 of $130,021 (3,095 shares multiplied by the stock closing price on 5/3/18 or $42.01). These RSUs will have a one-year vesting period and liabilities atwill vest in full on the earlier of the first anniversary of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Translation of foreign currencies:The Company considers the local currency to be the functional currency for substantially all foreign subsidiaries. Assets and liabilities are translatedgrant or at the exchange rate asnext Annual Meeting of the balance sheet date. All revenue and expense accounts are translated at average exchange ratesShareholders. Any Director whose service terminates prior to an Annual Meeting of Shareholders will vest in effect during the year. Translation gains or losses are recorded in the foreign currency translation component in accumulated other comprehensive loss in shareholders’ equity. Foreign currency
transaction losses of $0.3 million and $0.6 million in 2018 and 2017, respectively, and gains of $0.4 million in 2016, are included as a component of other operating income. Foreign currency transaction losses of $0.7 million were recorded within non-operating income in 2016. There were no foreign currency transaction losses recorded within non-operating income in 2018 or 2017.
During the third quarter of 2018, we began accounting for our operations in Argentina as highly inflationary, as the country’s three-year cumulative inflation rate exceeded 100%. As a result, the functional currency of our Argentine subsidiary became the U.S. dollar.
Revenue recognition:The Company generates revenue by providing its customers with flexible and rigid plastic packaging serving a variety of markets including food, consumer products and healthcare end markets. The Company enters into a variety of agreements with customers, including quality agreements, pricing agreements and master supply agreements which outline the terms under which the Company does business with a specific customer. The Company also sells to some customers solely based on purchase orders. The Company has concluded for the vast majority of its revenues, that its contracts with customers are either a purchase order or the combination of a purchase order with a master supply agreement. All revenue recognized in the income statement is considered to be revenue from contracts with customers.
The Company typically satisfies the obligation to provide packaging to customers at a point in time upon shipment when control is transferred to customers. Revenue is recognized net of allowances for returns and customer claims and any taxes collected from customers, which are subsequently remitted to governmental authorities. The Company does not have contract assets or contract liabilities. The Company disaggregates revenue based on geography. Disaggregation of revenue is presented in Note 19 - Segments of Business.
Significant Judgments
Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. The Company identified potential performance obligations in its customer master supply agreements and determined that none of them are capable of being distinct as the customer can only benefit from the supplied packaging. Therefore, the Company has concluded that it has one performance obligation to supply packaging to customers.
The Company may provide variable consideration in several forms which are determined through its agreements with customers. The Company can offer prompt payment discounts, sales rebates or other incentive payments to customers. Sales rebates and other incentive payments are typically awarded upon achievement of certain performance metrics, including volume. The Company accounts for variable consideration using the most likely amount method. The Company utilizes forecasted sales data and rebate percentages specific to each customer agreement and updates its judgment of the amounts to which the customer is entitled each period.
The Company enters into long term agreements with certain customers, under which it is obligated to make various up-front payments for which it expects to receive a benefit in excess of the cost over the term of the contract. These up-front payments are deferred and reflected in prepaid expenses and other current assets or deferred charges and other assets on its consolidated balance sheet. Contract incentives are typically recognized as a reduction to revenue over the term of the customer agreement.
Practical Expedients
The Company sells primarily through its direct sales force. Any external sales commissions are expensed when incurred because the amortization period would be one year or less. External sales commission expense is included in selling, general and administrative expense on its consolidated statement of income.
The Company accounts for shipping and handling activities as fulfillment costs. Accordingly, shipping and handling costs are classified as a component of cost of products sold while amounts billed to customers are classified as a component of net sales.
The Company excluded from the measurement of the transaction price all taxes assessed by a government authority that are both imposed on and concurrent with a specific revenue producing transaction and collected from the customer, including sales taxes, value added taxes, excise taxes and use taxes. Accordingly, the tax amounts are not included in net sales.
The Company will not adjust the promised consideration for the time value of money for contracts where the difference between the time of payment and performance is one year or less.
Research and development: Research and development expenditures are expensed as incurred.
Restructuring costs: Restructuring costs are recognized when the liability is incurred. The Company calculates severance obligations based on its standard customary practices. Accordingly, the Company records provisions for severance when probable and estimable and the Company has committed to the restructuring plan. In the absence of a standard customary practice or established local practice for locations outside the U.S., liabilities for severance are recognized when incurred. If fixed assets are to be disposed of as a result of the Company’s restructuring efforts, the assets are written off when the Company commits to dispose of them and they are no longer in use. Depreciation is accelerated on fixed assets for the period of time the asset continues to be used until the asset ceases to be used. Other restructuring costs, including costs to relocate equipment, are generally recorded as the cost is incurred or the service is provided.
Cash and cash equivalents:The Company considers all highly liquid temporary investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents include certificates of deposit that can be readily liquidated without penalty at the Company’s option. Cash equivalents are carried at cost which approximates fair market value.
Trade receivables:Trade accounts receivable are stated at the amount the Company expects to collect, which is net of an allowance for sales returns and the estimated losses resulting from the inability of its customers to make required payments. When determining the collectability of specific customer accounts, aprorated number of factors are evaluated, including: customer creditworthiness, past transaction history with the customer, and changes in customer payment terms or practices. In addition, overall historical collection experience, current economic industry trends, and a review of the current status of trade accounts receivable are considered when determining the required allowance for doubtful accounts. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to allowance for doubtful accounts. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to trade receivables. Trade receivables are presented net of an allowance for doubtful accounts of $16.4 million and $17.7 million at December 31, 2018 and 2017, respectively.
The Company enters into supply chain financing programs from time to time to sell trade receivables without recourse to third-party financial institutions. Sales of trade receivables are reflected as a reduction of trade receivables on the consolidated balance sheets and the proceeds are included in the cash flows from operating activities in the consolidated statements of cash flows. During both the years ended December 31, 2018 and 2017, the Company sold without recourse trade receivables representing approximately 20 percent of net sales, and the associated discount on sale of trade receivables was not significant.
Inventory valuation: Inventories are valued at the lower of cost, as determined by the first-in, first-out ("FIFO") method, or net realizable value. Inventory values using the FIFO method of accounting approximate replacement cost. Inventories are summarized at December 31, as follows:
|
| | | | | | | | |
| (in millions) | | 2018 | | 2017 |
| Raw materials and supplies | | $ | 197.4 |
| | $ | 198.3 |
|
| Work in process and finished goods | | 422.1 |
| | 421.9 |
|
| Total inventories | | $ | 619.5 |
| | $ | 620.2 |
|
Property and equipment: Property and equipment are stated at cost. Maintenance and repairs that do not improve efficiency or extend economic life are expensed as incurred. Plant and equipment are depreciated for financial reporting purposes principally using the straight-line method over the estimated useful lives of assets as follows: land improvements, 15-30 years; buildings, 15-45 years; leasehold and building improvements, the lesser of the lease term or 8-20 years; and machinery and equipment, 3-17 years. For tax purposes, the Company generally uses accelerated methods of depreciation. The tax effect of the difference between book and tax depreciation has been provided as deferred income taxes. Depreciation expense was $150.7 million, $152.8 million, and $146.1 million for 2018, 2017, and 2016, respectively. On sale or retirement, the asset cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in other operating income.
The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the assets, the carrying values are reduced to the estimated fair value.
The Company capitalizes direct costs (internal and external) of materials and services used in the development and purchase of internal-use software. Amounts capitalized are amortized on a straight-line basis over a period of three to twelve years and are reported as a component of machinery and equipment within property and equipment.
The Company is in the process of developing and implementing a new Enterprise Resource Planning ("ERP") system. Certain costs incurred during the application development stage have been capitalized in accordance with authoritative accounting guidance related to accounting for costs of computer software developed or obtained for internal use. The net book value of capitalized costs for this new ERP system were approximately $47.6 million and $55.0 million as of December 31, 2018 and 2017, respectively. These costs are being amortized over the system’s estimated useful life as the ERP system is placed in service.
Goodwill: Goodwill represents the excess of cost over the fair value of net assets acquired in a business combination. Goodwill is not amortized, but instead tested annually or whenever events and circumstances indicate an impairment may have occurred. Among the factors that could trigger an impairment review are a reporting unit’s operating results significantly declining relative to its operating plan or historical performance, and competitive pressures and changes in the general markets in which it operates.
The Company has two reportingshare units with goodwill that is assessed for potential impairment. All goodwill is assigned to reporting units, which is defined as the operating segment, or one level below the operating segment. The Company has three reporting units, or operating segments, which align with the Company's reportable segment structure.
Accounting guidance allows the Company to first perform a qualitative assessment about the likelihood of the carrying value of a reporting unit exceeding its fair value, referred to as the "Step 0" assessment. The Step 0 assessment requires the evaluation of certain qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance, as well as company and reporting unit factors. If the Company's Step 0 analysis indicates that it is more likely than not that the fair value of a reporting unit is less than the carrying amount, then the Company would perform a quantitative impairment test. The Company applied the Step 0 assessment to its two reporting units with goodwill in 2018 given the reporting units both had fair values significantly in excess of their carrying amounts when tested in 2017. The Company's Step 0 analysis in 2018 of the reporting units concluded that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount. Therefore, the quantitative goodwill impairment test for these reporting units was not necessary in 2018.
In assessing goodwill for impairment the Company performed a two-step goodwill impairment test in 2016 and adopted the new accounting guidance for 2017, Accounting Standards Update 2017-04, Simplifying the Test for Goodwill Impairment, which allows for a single step method. Both approaches utilize two valuation approaches, the income approach and the market multiple approach. Under the income approach, the Company estimates the fair value of the reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management’s estimates of revenue growth rates and EBITDA margins, taking into consideration business and market conditions for the countries and markets in which the reporting unit operates. The Company calculates the discount rate based on a market-participant, risk-adjusted weighted average cost of capital, which considers industry specific rates of return on debt and equity capital for a target industry capital structure, adjusted for risks associated with business size and geography. Under the market multiples approach, the Company estimates fair value based on market multiples of EBITDA derived from publicly traded companies in the Company’s peer group, adjusted to reflect differences in size and growth prospects.
During the second quarter of 2017, the Company initiated an interim impairment analysis of the Latin America Packaging reporting unit given the contraction in this reporting unit’s business late in the second quarter. This review did not result in any impairment of the reporting unit’s goodwill balance. As a result of further deterioration in the forecasted sales and profits of the Latin America Packaging reporting unit from the second quarter outlook and forecasted slow economic recovery, the Company determined in the fourth quarter of 2017 that the fair value of the reporting unit was less than its carrying value. In performing the analysis, the Company used discount rates and terminal growth rates of 11 percent and 3 percent, respectively, to calculate the present value of future cash flows. Accordingly, the Company recorded a noncash goodwill
impairment charge of $196.6 million ($145.5 million after-tax) which is recorded in the goodwill impairment charge line of the consolidated income statement.
The annual impairment test indicated the goodwill balances for the U.S. Packaging reporting unit and Rest of World Packaging reporting units were not impaired for the years ended December 31, 2018, 2017 or 2016 and the Company does not have any accumulated impairment losses for these reporting units.
Intangible assets: Contractual or separable intangible assets that have finite useful lives are amortized against income using the straight-line method over their estimated useful lives, with original periods ranging from one to thirty years. The straight-line method of amortization reflects an appropriate allocation of the costs of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. The Company tests finite-lived intangible assets for impairment whenever there is an impairment indicator. The Company completed a test of the Latin America Packaging reporting unit intangibles in the fourth quarter of 2017 which concluded the assets were not impaired. Intangible assets are tested for impairment by comparing anticipated undiscounted future cash flows from operations to net book value.
Financial instruments: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.
Note 8 contains expanded details relating to specific derivative instruments included on the Company’s balance sheet, such as forward foreign currency exchange contracts, currency swap contracts, and interest rate swap arrangements.
Other liabilities and deferred credits:Other liabilities and deferred credits balances include non-current pension and other postretirement liability amounts of $75.7 million and $47.6 million at December 31, 2018 and 2017, respectively.
Treasury stock: Treasury stock purchases are stated at cost and presented as a separate reduction of shareholders’ equity. During 2018, the Company did not purchase any common stock. During 2017, the Company purchased 2.2 million shares of common stock in the open market for $103.8 million. During 2016, the Company purchased 3.0 million shares of common stock in the open market for $143.9 million. At December 31, 2018, approximately 18.2 million common shares can be repurchased, at management’s discretion, under authority granted by the Company’s Board of Directors.
Certain prior period amounts have been reclassified to conform to the current period presentation.
Note 3 — NEW ACCOUNTING GUIDANCE
Recently Adopted Accounting Standards
In February 2018, the Financial Accounting Standards Board ("FASB") issued guidance on the reclassification of certain tax effects from accumulated other comprehensive income. The guidance requires the Company to disclose a description of the Company’s accounting policy for releasing income tax effects from accumulated other comprehensive income and whether the Company elects to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act ("TCJA"), along with information about other income tax effects that are reclassified. The Company elected to early adopt this guidance during the fourth quarter of fiscal 2018. The Company had $20.2 million of net stranded income tax effects in accumulated other comprehensive income within the Consolidated Balance Sheets as a result of the lower U.S. federal corporate tax rate due to the enactment of the TCJA. The adoption of the guidance resulted in the transfer of $20.2 million of net stranded income tax effects out of accumulated other comprehensive income and into retained earnings with no impact to total shareholders’ equity or net income.
In August 2018, the FASB issued guidance that aligns the requirements for capitalizing cloud computing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the guidance. The guidance was adopted by the Company in the third quarter of 2018 using prospective application and did not have a material impact on our financial statements.
In March 2017, the FASB issued guidance that changed how employers that sponsor defined benefit pension and other postretirement benefit plans present the cost of the benefits in the income statement. Under the new guidance, employers will present only the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components separately from the line item that includes the service cost and outside of any subtotal of operating income. Other components of net periodic benefit cost are presented in other non-operating income on the condensed consolidated statement of income. The guidance was adopted by the Company in the first quarter of 2018, using the practical expedient permitting the use of the amounts disclosed in pension and other postretirement benefit plan notes as the estimation basis for the presentation of the prior comparative periods.
The income statement reclassifications are summarized as follows: |
| | | | | | | | | | | | |
| | Three Months Ended December 31, 2017 |
| (in millions) | | As reported | | Reclassification | | As reclassified |
| Income statement: | |
| |
| |
|
| Cost of products sold | | $ | 809.9 |
| | $ | (0.1 | ) | | $ | 809.8 |
|
| Selling, general, and administrative expenses | | 93.6 |
| | 1.1 |
| | 94.7 |
|
| Restructuring and other costs | | 29.4 |
| | (10.1 | ) | | 19.3 |
|
| Other non-operating (income) expense | | (0.6 | ) | | 9.1 |
| | 8.5 |
|
| | | | | | | |
| | | Twelve Months Ended December 31, 2017 |
| (in millions) | | As reported | | Reclassification | | As reclassified |
| Income statement: | | | | | | |
| Cost of products sold | | $ | 3,261.0 |
| | $ | (1.0 | ) | | $ | 3,260.0 |
|
| Selling, general, and administrative expenses | | 380.4 |
| | 4.8 |
| | 385.2 |
|
| Restructuring and other costs | | 70.5 |
| | (10.1 | ) | | 60.4 |
|
| Other non-operating (income) expense | | (2.8 | ) | | 6.3 |
| | 3.5 |
|
In January 2017, the FASB issued new guidance that narrows the application of when an integrated set of assets and activities is considered a business and provides a framework to assist entities in evaluating whether both an input and a substantive process are present to be considered a business. The guidance was adopted by the Company in the first quarter of 2018.
In August 2016, the FASB issued guidance to simplify elements of cash flow classification. The guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The new guidance requires cash payments for debt prepayment or debt extinguishment costs to be classified as cash outflows for financing activities. It also requires cash payments made soon after an acquisition's consummation date (approximately three months or less) to be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities. The guidance was adopted by the Company in the first quarter of 2018.
In May 2014, the FASB issued new guidance which supersedes current revenue recognition requirements. This guidance is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted the new revenue guidance on January 1, 2018 using the modified retrospective application transition method. We elected the practical expedient to apply the new revenue standard to only contracts that were not completed as of January 1, 2018. Adoption did not have an impact on our financial statements, but did significantly impact our disclosures for revenue. Refer to Note 2 for updated revenue disclosures which are required by the new guidance.
Recently Issued Accounting Standards
In August 2017, the FASB issued guidance that amends the hedge accounting rules to better portray the economic results of risk management activities in the financial statements and also to make targeted improvements to simplify the
application of hedge accounting guidance. The guidance will be adopted by the Company in the first quarter of 2019. The Company has evaluated the standard and has determined it to have an immaterial impact on its consolidated financial statements.
In February 2016, the FASB issued guidance that required lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to today’s accounting. The guidance also eliminates today’s real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. Lease classification will determine how to recognize lease-related revenue and expense. The Company will elect the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods.
The Company has formed a cross-functional project team to implement the new guidance. The project team is working to implement a lease accounting software solution. Development of the selected leasing software is ongoing given the software vendor is still working to resolve performance and calculation issues. The timely availability of the lease software solution is critical to ensure an efficient and effective adoption of the standard. The Company will adopt the guidance in January 2019 when the guidance becomes effective. Based on our current lease portfolio, adoption of the standard will result in an increase in operating lease assets and liabilities in a range of $35 million to $55 million with an immaterial impact on our Consolidated Statement of Income; however, this estimate is subject to change as we finalize our implementation and resolve software issues.
Note 4 - RESTRUCTURING AND OTHER COSTS
Restructuring and other costs as reported on the consolidated statement of income are summarized as follows:
|
| | | | | | | | | | | | |
| | | Twelve Months Ended December 31, |
| (in millions) | | 2018 | | 2017 | | 2016 |
| Restructuring costs | | $ | 21.1 |
| | $ | 47.4 |
| | $ | 22.5 |
|
| Restructuring related costs | | 26.5 |
| | 10.3 |
| | — |
|
| Other charges | | 14.3 |
| | 2.7 |
| | 6.1 |
|
| Total restructuring and other costs | | $ | 61.9 |
| | $ | 60.4 |
| | $ | 28.6 |
|
Restructuring costs include costs related to the 2016 Restructuring Plan focused on plant closures in Latin America and the 2017 Plan focused on aligning the Company's cost structure to its environment. Refer to Note 5 — Restructuring Plans for details for both the 2016 and 2017 Plans regarding expenses incurred and cash payments to date, in addition to disaggregation of costs by segment and cost category.
Other costs include restructuring related costs, costs related to the pending transaction with Amcor, acquisition costs, and hurricane-related expenses. Restructuring related costs include professional fees for consultants and asset impairment charges. In 2018, other costs are comprised of costs incurred related to the pending transaction with Amcor. In 2017, other costs are comprised of Evadix acquisition costs and hurricane-related expenses incurred at the Puerto Rico facility. In 2016, other costs are comprised primarily of acquisition costs associated with the SteriPack acquisition. Other costs also include the gain on sale of land and building related to the sale of a plant in Latin America in 2016.
Note 5 — RESTRUCTURING PLANS
2016 Restructuring and Cost Savings Plan ("2016 Plan")
During the second quarter of 2016, the Company initiated a restructuring and cost savings plan ("2016 Plan") to improve efficiencies and reduce fixed costs. As a part of this plan, four Latin American facilities will be closed. Most of the production from these facilities was transferred to other facilities. As of December 31, 2018, manufacturing operations had ceased at all four of these manufacturing facilities. The total 2016 Plan costs were $31.6 million, comprised of $13.2 million in employee termination costs, $1.4 million in fixed asset related costs, and $17.0 million in other costs which primarily represent the cost to move and re-install equipment. These amounts exclude any potential gain to be recognized on the sale of property.
The 2016 Plan costs are as follows:
|
| | | | | | | | | | | | |
| (in millions) | | Latin America Packaging | | Rest of World Packaging | | Total |
| 2016 net expense accrued | | $ | 20.5 |
| | $ | 1.1 |
| | $ | 21.6 |
|
| 2017 net expense accrued | | 8.0 |
| | 0.2 |
| | 8.2 |
|
| 2018 net expense accrued | | 2.0 |
| | (0.2 | ) | | 1.8 |
|
| Expense incurred to date | | 30.5 |
| | 1.1 |
| | 31.6 |
|
| Estimated future expense | | — |
| | — |
| | — |
|
| Estimated costs of program | | $ | 30.5 |
| | $ | 1.1 |
| | $ | 31.6 |
|
An analysis of the 2016 program accruals follows:
|
| | | | | | | | | | | | | | | | |
| (in millions) | | Employee Costs | | Fixed Asset Related | | Other Costs | | Total Restructuring Costs |
| Reserve balance at December 31, 2017 | | $ | 1.1 |
| | $ | — |
| | $ | 4.4 |
| | $ | 5.5 |
|
| Net expense accrued | | (0.3 | ) | | — |
| | 2.1 |
| | 1.8 |
|
| Utilization (cash payments or otherwise settled) | | (0.6 | ) | | — |
| | (2.3 | ) | | (2.9 | ) |
| Translation adjustments and other | | (0.2 | ) | | — |
| | (0.7 | ) | | (0.9 | ) |
| Reserve balance at December 31, 2018 | | $ | — |
| | $ | — |
| | $ | 3.5 |
| | $ | 3.5 |
|
Plant closings associated with the 2016 Plan are complete, with the last facility closing in the fourth quarter of 2017. Cash payments in 2018 and 2017 totaled $2.9 million and $15.4 million, respectively. The costs related to restructuring activities have been recorded on the consolidated statement of income as restructuring and other costs. The accruals related to restructuring activities have been recorded on the consolidated balance sheet primarily as other current liabilities.
2017 Restructuring and Cost Savings Plan ("2017 Plan")
On June 30, 2017, the Company announced restructuring activities targeted to improve efficiency and profitability that further positions the Company for long-term success. As a part of this plan, the Company announced the intention to close four production facilities for which business will be relocated to existing facilities and the closure of an additional manufacturing facility for which business will not be relocated to optimize manufacturing capacity. In addition, the Company announced it will reduce administrative positions by approximately 500 positions and consolidate certain administrative offices and take other actions to improve the cost efficiency of a variety of administrative and operational processes.
The Company expects total 2017 Plan pre-tax restructuring costs of approximately $65 to $70 million, which includes $29 to $31 million in employee termination costs, $19 to $20 million in fixed asset related expenses, and $17 to $19 million in other restructuring project costs, including the movement and re-installation of equipment. Expenses in the twelve months ended December 31, 2018 were $19.3 million, which consisted primarily of employee termination costs and fixed asset write-downs of equipment.
The estimated 2017 Plan costs are as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | U.S. Packaging | | Latin America Packaging | | Rest of World Packaging | | Corporate | | Total |
| 2017 net expense accrued | | $ | 13.4 |
| | $ | 20.7 |
| | $ | 1.5 |
| | $ | 3.5 |
| | $ | 39.1 |
|
| 2018 net expense accrued | | 9.6 |
| | 7.3 |
| | 1.9 |
| | 0.5 |
| | 19.3 |
|
| Expense incurred to date | | 23.0 |
| | 28.0 |
| | 3.4 |
| | 4.0 |
| | 58.4 |
|
| Estimated future expense | | 6.7 |
| | 4.0 |
| | 0.3 |
| | 0.1 |
| | 11.1 |
|
| Estimated costs of program | | $ | 29.7 |
| | $ | 32.0 |
| | $ | 3.7 |
| | $ | 4.1 |
| | $ | 69.5 |
|
An analysis of the 2017 Plan accruals follows:
|
| | | | | | | | | | | | | | | | |
| (in millions) | | Employee Costs | | Fixed Asset Related | | Other Costs | | Total Restructuring Costs |
| Reserve balance at December 31, 2017 | | $ | 19.2 |
| | $ | — |
| | $ | 2.5 |
| | $ | 21.7 |
|
| Net expense accrued | | 3.7 |
| | 11.4 |
| | 4.5 |
| | 19.6 |
|
| Utilization (cash payments or otherwise settled) | | (13.6 | ) | | (11.4 | ) | | (2.5 | ) | | (27.5 | ) |
| Accrual adjustment | | (0.2 | ) | | — |
| | (0.1 | ) | | (0.3 | ) |
| Translation adjustments and other | | (2.2 | ) | | — |
| | (0.4 | ) | | (2.6 | ) |
| Reserve balance at December 31, 2018 | | $ | 6.9 |
| | $ | — |
| | $ | 4.0 |
| | $ | 10.9 |
|
The 2017 Plan is expected to be completed by the end of 2020. Cash payments in the twelve months ended December 31, 2018 and 2017 were $17.4 million and $6.8 million, respectively. The costs related to restructuring activities have been recorded on the consolidated statement of income as restructuring and other costs. The accruals related to restructuring activities have primarily been recorded on the consolidated balance sheet as other current liabilities.
Note 6 — ACQUISITIONS
Evadix
On November 8, 2017, the Company acquired Romanian-based flexible packaging company Evadix. This small, yet strategic acquisition establishes the Company with its first manufacturing operation in Eastern Europe. The acquired facility provides a strong converting platform to leverage the Company's expertise and capabilities in film-making from Western Europe to grow sales of meat and cheese packaging throughout Europe. The cash purchase price was $3.9 million. The allocation of the purchase price resulted in approximately $0.1 million of goodwill for the Rest of World Packaging segment. The fair value and weighted average useful lives that have been assigned to the acquired identifiable intangible assets of this acquisition are:
|
| | | | | | |
| (in millions, except useful life) | | Fair Value | | Weighted Average Useful Life |
| Customer relationships | | $ | 0.5 |
| | 5 years |
The fair value of assets and liabilities acquired was $8.4 million and $4.5 million, respectively. Pro forma financial information and allocation of the purchase price are not presented as the effects of this acquisition are not material to the Company's results of operations or financial position.
SteriPack
On April 29, 2016, the Company acquired the medical device packaging operations and related value-added services of SteriPack Group, a global manufacturer of sterile packaging solutions for medical device and pharmaceutical applications. This acquisition includes a facility in Ireland as well as packaging production assets in Malaysia and the United States. The cash purchase price was $115.5 million. The allocation of the purchase price resulted in approximately $66.8 million of goodwill for the Rest of World Packaging segment, the majority of which is not expected to be tax deductible. The goodwill identified by this acquisition reflects the benefits expected to be derived from product line expansion. The fair value and weighted average useful lives that have been assigned to the acquired identifiable intangible assets of this acquisition are:
|
| | | | | | |
| (in millions, except useful life) |
| Fair Value |
| Weighted Average Useful Life |
| Customer relationships |
| $ | 21.8 |
|
| 8 years |
| Order backlog |
| 1.7 |
|
| 2 months |
| Total |
| $ | 23.5 |
|
|
|
The fair value of assets and liabilities acquired was $131.3 million and $15.8 million, respectively. Pro forma financial information and allocation of the purchase price are not presented as the effects of this acquisition are not material to the Company's results of operations or financial position.
Note 7 — FINANCIAL ASSETS AND FINANCIAL LIABILITIES MEASURED AT FAIR VALUE
The fair values of the Company’s 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 Company’s non-derivative financial instruments include cash and cash equivalents, trade receivables, accounts payable, short-term borrowings, and long-term debt. At December 31, 2018 and 2017, 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 Company’s long-term debt represent non-active market exchange-traded securities which are valued at quoted prices or using input prices that are directly observable or indirectly observable through corroboration with observable market data. The carrying values and estimated fair values of long-term debt at December 31, 2018 and 2017 follow:
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | December 31, 2017 |
| | | Carrying | | Fair Value | | Carrying | | Fair Value |
| (in millions) | | Value | | (Level 2) | | Value | | (Level 2) |
| Total long-term debt | | $ | 1,348.6 |
| | $ | 1,342.0 |
| | $ | 1,542.4 |
| | $ | 1,591.0 |
|
The fair values for derivatives are based on inputs other than quoted prices that are observable for the asset or liability. These inputs include 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. The fair value of the Company's derivatives follow:
|
| | | | | | | | |
| | | Fair Value As of | | Fair Value As of |
| | | December 31, 2018 | | December 31, 2017 |
| (in millions) | | (Level 2) | | (Level 2) |
| Interest rate swaps — net (liability) asset position | | $ | (2.7 | ) | | $ | (0.6 | ) |
Note 8 — 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 interest-rate swap contracts to economically convert a portion of the Company’s fixed-rate debtyear served.(2)Directors Gulfo, Mansfield, Szczupak, and Yanker elected 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 fair value hedges of the Company’s $400 million4.5% 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. Fair values of these interest rate swaps are determined using discounted cash flow or other appropriate methodologies. Asset positions are included in deferred charges and other assets with a corresponding increase in long-term debt. Liability positions are included in other liabilities and deferred credits with a corresponding decrease in long-term debt.
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 the U.S. dollar for the Company’s Brazilian operations. The Company has not designated these derivative instruments as hedging instruments. At December 31, 2018 and 2017, the Company had outstanding forward exchange contracts with notional amounts aggregating to $0.3 million and $2.7 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 which offsets the related transaction gains or losses. The net settlement amounts are immaterial for all periods presented.
The Company is exposed to credit loss in the event of non-performance by counterparties in forward exchange contracts 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 Company’s 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 December 31, 2018 and 2017 are presented in the table below:
|
| | | | | | | | | | |
| | | | | Fair Value (Level 2) as of |
| (in millions) | | Balance Sheet Location | | December 31, 2018 | | December 31, 2017 |
| Asset Derivatives | | | | |
| | |
|
| Interest rate swaps — designated as hedge | | Deferred charges and other assets | | $ | — |
| | $ | — |
|
| Liability Derivatives | | | | | | |
| Interest rate swaps — designated as hedge | | Other liabilities and deferred credits | | 2.7 |
| | 0.6 |
|
The income statement impact of derivatives are presented in the table below:
|
| | | | | | | | | | | | | | |
| | | | | Amount of Gain (Loss) Recognized in Income on Derivatives |
| (in millions) | | Income Statement Location | | 2018 | | 2017 | | 2016 |
| Designated as hedges | | | | | | | | |
| Interest rate swaps | | Interest expense | | $ | (1.7 | ) | | $ | 3.2 |
| | $ | 4.7 |
|
| Not designated as hedges | | | | | | | | |
| Forward exchange contracts | | Other operating income | | (1.0 | ) | | (0.8 | ) | | (0.8 | ) |
| Total | | | | $ | (2.7 | ) | | $ | 2.4 |
| | $ | 3.9 |
|
Note 9 — GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill attributable to each reportable business segment follow:
|
| | | | | | | | | | | | | | | | |
| (in millions) | | U.S. Packaging Segment | | Latin America Packaging Segment | | Rest of World Packaging Segment | | Total |
| Reported balance at December 31, 2016 | | $ | 632.4 |
| | $ | 189.0 |
| | $ | 207.4 |
| | $ | 1,028.8 |
|
| Acquisition and acquisition adjustments | | — |
| | — |
| | 0.1 |
| | 0.1 |
|
| Impairment charge | | — |
| | (196.6 | ) | | — |
| | (196.6 | ) |
| Currency translation | | 0.7 |
| | 7.6 |
| | 12.1 |
| | 20.4 |
|
| Reported balance at December 31, 2017 | | 633.1 |
|
| — |
|
| 219.6 |
| | 852.7 |
|
| Currency translation | | (0.8 | ) | | — |
| | (6.7 | ) | | (7.5 | ) |
| Reported balance at December 31, 2018 | | $ | 632.3 |
|
| $ | — |
|
| $ | 212.9 |
| | $ | 845.2 |
|
In 2017, acquisition and acquisition adjustments are comprised of opening balance sheet adjustments related to the Evadix acquisition.
The Company reviews goodwill for impairment annually in the fourth quarter of the fiscal year and whenever events or changes in circumstances indicate that the carrying value of goodwill might not be recoverable.
In 2018, the Company’sreceive their entire annual impairment test of the U.S. Packaging and Rest of World Packaging reporting unit concluded that the estimated fair value of these reporting units exceeded their carrying value and therefore their associated goodwill was not impaired.
In 2017, as part of the Company’s annual assessment of impairment of goodwill conducted with the aid of a third party valuation specialist, the Company determined that the fair value of the Latin America Packaging reporting unit was less than its carrying value by approximately $163 million, primarily related to the Company’s revised expectations for the forecasted recovery in Brazil. This resulted in a full impairment of the Latin America Packaging reporting unit’s goodwill of $196.6 million ($145.5 million after tax). The Company’s annual impairment test of the U.S. Packaging reporting unit and Rest of World Packaging reporting unit in the fourth quarter of 2017 concluded that the estimated fair value of these reporting units exceeded their carrying value and therefore their associated goodwill was not impaired. The Company does not have any other accumulated impairment losses.
The components of amortized intangible assets follow:
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | December 31, 2017 |
| (in millions) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Contract based | | $ | 9.1 |
| | $ | (1.5 | ) | | $ | 9.9 |
| | $ | (1.6 | ) |
| Technology based | | 79.3 |
| | (60.9 | ) | | 79.7 |
| | (56.6 | ) |
| Marketing related | | 12.9 |
| | (9.1 | ) | | 14.1 |
| | (9.3 | ) |
| Customer based | | 205.3 |
| | (113.7 | ) | | 210.1 |
| | (104.0 | ) |
| Reported balance | | $ | 306.6 |
| | $ | (185.2 | ) | | $ | 313.8 |
| | $ | (171.5 | ) |
Amortization expense for intangible assets during 2018, 2017, and 2016 was $16.9 million, $17.0 million, and $16.0 million, respectively. Estimated future amortization expense for intangible assets follows:
|
| | | | |
| (in millions) | | Amortization |
| 2019 | | $ | 16.7 |
|
| 2020 | | 15.9 |
|
| 2021 | | 13.7 |
|
| 2022 | | 12.2 |
|
| 2023 | | 11.9 |
|
Note 10 — PENSION PLANS
Total defined benefit, defined contribution, and multiemployer plan pension expense in 2018, 2017, and 2016 was $36.7 million, $45.0 million, and $32.1 million, respectively.
The Company sponsors 401(k) savings plans (defined contribution plans) for substantially all U.S. employees. For salaried employees, the Company contributed $1.00 for every pre-tax $1.00 an employee contributed up to seven percent in 2018 and up to eight percent in 2017 and 2016 of eligible compensation. For non-union hourly employees, the Company matched up to eight percent of eligible compensation in 2018, 2017 and 2016. The Company contributions are invested in target retirement date funds based on employees’ ages and are fully vested after three years of service. In 2016, the Company contributed $0.50 for every pre-tax $1.00 an employee contributed on the first four percent of eligible compensation plus $0.25 for every pre-tax $1.00 an employee contributed on the next four percent of eligible compensation for the plans that included a company match. The Company contributions in these years were invested in Company stock and were fully vested after three years of service. Total Company contributions for 2018, 2017, and 2016 were $25.1 million, $28.4 million, and $10.6 million, respectively.
For employees not participating in defined benefit pension plans, the Company contributed to profit sharing plans, defined contribution plans which are subject to achievement of certain financial performance goals of the Company. The profit sharing plan covering salaried and non-union hourly employees was terminated for years after 2016. Total contribution expense for profit sharing plans and other defined contribution plans (including a multiemployer defined contribution plan which the Company exited in 2016, and excluding 401(k) plans above) was $3.0 million in 2018, $2.0 million in 2017, and $11.1 million in 2016.
Two of the Company's three U.S. defined benefit plans were frozen as of December 31, 2013. The frozen plans are the salaried retirement plan that covered certain salaried employees and the unfunded supplemental retirement plan that provided senior management with benefits in excess of limits under the federal tax law. The Company’s defined benefit pension plans continue to cover a number of U.S. hourly employees, and the non-U.S. defined benefit plans cover select employees at various international locations. The benefits under the plans are based on years of service and salary levels. Certain plans covering hourly employees provide benefits of stated amounts for each year of service. In 2014, the Society of Actuaries released updated mortality tables and a mortality projection scale which the Company adopted to measure defined benefit plan liabilities. In 2017 and 2018, the Society of Actuaries published new mortality projection scales which were used in conjunction with 2014 mortality tables in measuring defined benefit plan liabilities in 2017 and 2018.
In 2017 and 2016, the Company recognized pension settlement charges, related to lump sum payments from U.S. pension plans, of $10.6 million and $5.8 million, respectively. Lump sum payments decrease the benefit obligation and are reflected as benefits paid in the "Change in Benefit Obligation" table. The payments also decrease plan assets and are reflected as benefits paid in the "Change in Plan Assets" table. During 2017 and 2016, lump sum windows were offered to certain participants of the salaried and hourly defined pension plans which resulted in lump sum payments for $41.6 million and $26.3 million, respectively. Settlement accounting was required in 2017 which resulted in the $10.6 million settlement charge. No charge was required in 2016. Also during 2016, lump sum payments from the U.S. supplemental pension plan totaled $18.1 million which resulted in the $5.8 million charge.
Net periodic pension cost for defined benefit plans included the following components for the years ended December 31, 2018, 2017, and 2016:
|
| | | | | | | | | | | | |
| (in millions) | | 2018 | | 2017 | | 2016 |
| Service cost - benefits earned during the year | | $ | 7.6 |
| | $ | 7.4 |
| | $ | 7.6 |
|
| Interest cost on projected benefit obligation | | 26.8 |
| | 30.2 |
| | 32.7 |
|
| Expected return on plan assets | | (43.2 | ) | | (48.3 | ) | | (51.4 | ) |
| Settlement loss | | — |
| | 10.6 |
| | 6.1 |
|
| Curtailment (gain) loss | | (0.2 | ) | | (0.3 | ) | | — |
|
| Amortization of prior service cost | | 0.9 |
| | 0.9 |
| | 0.8 |
|
| Recognized actuarial net loss | | 16.7 |
| | 14.1 |
| | 14.6 |
|
| Net periodic pension cost | | $ | 8.6 |
| | $ | 14.6 |
| | $ | 10.4 |
|
Changes in benefit obligations and plan assets, and a reconciliation of the funded status at December 31, 2018 and 2017, were as follows:
|
| | | | | | | | | | | | | | | | |
| | | U.S. Pension Plans | | Non-U.S. Pension Plans |
| (in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
| Change in Benefit Obligation: | | |
| | |
| | |
| | |
|
| Benefit obligation at the beginning of the year | | $ | 685.7 |
| | $ | 693.7 |
| | $ | 65.6 |
| | $ | 56.8 |
|
| Service cost | | 4.0 |
| | 3.8 |
| | 1.8 |
| | 1.7 |
|
| Interest cost | | 25.0 |
| | 28.4 |
| | 1.8 |
| | 1.8 |
|
| Plan amendments | | 1.2 |
| | 0.3 |
| | 0.5 |
| | — |
|
| Plan settlements | | — |
| | — |
| | (0.6 | ) | | — |
|
| Plan curtailments | | — |
| | — |
| | (0.3 | ) | | (0.3 | ) |
| Benefits paid | | (37.7 | ) | | (79.6 | ) | | (1.5 | ) | | (1.9 | ) |
| Actuarial (gain) loss | | (40.7 | ) | | 39.1 |
| | (10.8 | ) | | 1.9 |
|
| Foreign currency exchange rate changes | | — |
| | — |
| | (3.0 | ) | | 5.6 |
|
| Benefit obligation at the end of the year | | $ | 637.5 |
| | $ | 685.7 |
| | $ | 53.5 |
| | $ | 65.6 |
|
| | | | | | | | | |
| Accumulated benefit obligation at the end of the year | | $ | 637.5 |
| | $ | 685.7 |
| | $ | 48.8 |
| | $ | 59.1 |
|
|
| | | | | | | | | | | | | | | | |
| | | U.S. Pension Plans | | Non-U.S. Pension Plans |
| (in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
| Change in Plan Assets: | | |
| | |
| | |
| | |
|
| Fair value of plan assets at the beginning of the year | | $ | 647.3 |
| | $ | 641.4 |
| | $ | 57.1 |
| | $ | 50.2 |
|
| Actual return on plan assets | | (43.9 | ) | | 82.5 |
| | (3.9 | ) | | 3.0 |
|
| Employer contributions | | 0.9 |
| | 3.0 |
| | 1.1 |
| | 1.0 |
|
| Plan settlements | | — |
| | — |
| | (0.6 | ) | | — |
|
| Benefits paid | | (37.7 | ) | | (79.6 | ) | | (1.5 | ) | | (1.9 | ) |
| Foreign currency exchange rate changes | | — |
| | — |
| | (2.8 | ) | | 4.8 |
|
| Fair value of plan assets at the end of the year | | $ | 566.6 |
| | $ | 647.3 |
| | $ | 49.4 |
| | $ | 57.1 |
|
| | | | | | | | | |
| Unfunded status at year end: | | $ | (70.9 | ) | | $ | (38.4 | ) | | $ | (4.2 | ) | | $ | (8.5 | ) |
|
| | | | | | | | | | | | | | | | |
| | | U.S. Pension Plans | | Non-U.S. Pension Plans |
| (in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
| Amount recognized in consolidated balance sheet consists of: | | |
| | |
| | |
| | |
|
| Prepaid benefit cost, non-current | | $ | — |
| | $ | — |
| | $ | 0.3 |
| | $ | — |
|
| Accrued benefit liability, current | | (0.9 | ) | | (1.0 | ) | | (0.3 | ) | | (0.2 | ) |
| Accrued benefit liability, non-current | | (70.0 | ) | | (37.4 | ) | | (4.2 | ) | | (8.3 | ) |
| Sub-total | | (70.9 | ) | | (38.4 | ) | | (4.2 | ) | | (8.5 | ) |
| Deferred tax asset | | 47.3 |
| | 61.8 |
| | 1.4 |
| | 2.3 |
|
| Accumulated other comprehensive loss | | 138.3 |
| | 97.9 |
| | 5.7 |
| | 9.2 |
|
| Net amount related to pension plans | | $ | 114.7 |
| | $ | 121.3 |
| | $ | 2.9 |
| | $ | 3.0 |
|
Accumulated other comprehensive loss related to pension benefit plans is as follows:
|
| | | | | | | | | | | | | | | | |
| | | U.S. Pension Plans | | Non-U.S. Pension Plans |
| (in millions) | | 2018 | | 2017 | | 2018 | | 2017 |
| Unrecognized net actuarial losses | | $ | 182.0 |
| | $ | 156.5 |
| | $ | 5.8 |
| | $ | 10.6 |
|
| Unrecognized net prior service costs | | 3.6 |
| | 3.2 |
| | 1.1 |
| | 0.7 |
|
| Unrecognized net transition costs | | — |
| | — |
| | 0.2 |
| | 0.2 |
|
| Tax benefit | | (47.3 | ) | | (61.8 | ) | | (1.4 | ) | | (2.3 | ) |
| Accumulated other comprehensive loss, end of year | | $ | 138.3 |
| | $ | 97.9 |
| | $ | 5.7 |
| | $ | 9.2 |
|
Estimated amounts in accumulated other comprehensive income expected to be reclassified to net period cost during 2019 are as follows:
|
| | | | | | | | |
| | | | | Non-U.S. |
| (in millions) | | U.S. Pension Plans | | Pension Plans |
| Net actuarial losses | | $ | 10.4 |
| | $ | 0.1 |
|
| Net prior service costs | | 1.0 |
| | 0.1 |
|
| Total | | $ | 11.4 |
| | $ | 0.2 |
|
The accumulated benefit obligation for all defined benefit pension plans was $686.3 million and $751.3 million at December 31, 2018 and 2017, respectively.
Presented below are the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets and pension plans with accumulated benefit obligations in excess of plan assets as of December 31, 2018 and 2017.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Projected Benefit Obligation Exceeds the Fair Value of Plan’s Assets | | Accumulated Benefit Obligation Exceeds the Fair Value of Plan’s Assets |
| | | U.S. Plans | | Non-U.S. Plans | | U.S. Plans | | Non-U.S. Plans |
| (in millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Projected benefit obligation | | $ | 637.5 |
| | $ | 685.7 |
| | $ | 9.6 |
| | $ | 65.6 |
| | $ | 637.5 |
| | $ | 685.7 |
| | $ | 9.6 |
| | $ | 8.7 |
|
| Accumulated benefit obligation | | 637.5 |
| | 685.7 |
| | 7.9 |
| | 59.1 |
| | 637.5 |
| | 685.7 |
| | 7.9 |
| | 6.9 |
|
| Fair value of plan assets | | 566.6 |
| | 647.3 |
| | 5.2 |
| | 57.1 |
| | 566.6 |
| | 647.3 |
| | 5.2 |
| | 4.1 |
|
The Company’s general funding policy is to make contributions as required by applicable regulations and when beneficial to the Company for tax purposes. The employer contributions for the years ended December 31, 2018 and 2017, were $2.0 million and $4.0 million, respectively. Total expected cash contributions for 2019 are $2.0 million, which are expected to satisfy plan and regulatory funding requirements.
For the years ended December 31, 2018 and 2017, the U.S. pension plans represented approximately 92 percent and 92 percent, respectively, of the Company’s total plan assets and approximately 92 percent and 91 percent, respectively, of the Company’s total projected benefit obligation. Considering the significance of the U.S. pension plans in comparison with the Company’s total pension plans, the critical pension assumptions related to the U.S. pension plans and the non-U.S. pension plans are separately presented and discussed below.
The Company’s actuarial valuation date is December 31. The weighted-average discount rates and rates of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation for the years ended December 31 are as follows:
|
| | | | | | | | | | | | |
| | | U.S. Pension Plans | | Non-U.S. Pension Plans |
| | | 2018 | | 2017 | | 2018 | | 2017 |
| Weighted-average discount rate | | 4.25 | % | | 3.75 | % | | 3.33 | % | | 2.80 | % |
| Rate of increase in future compensation levels | | — |
| | — |
| | 3.58 | % | | 3.48 | % |
The weighted-average discount rates, expected returns on plan assets, and rates of increase in future compensation levels used to determine the net benefit cost for the years ended December 31 are as follows:
|
| | | | | | | | | | | | | | | | | | |
| | | U.S. Pension Plans | | Non-U.S. Pension Plans |
| | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| Weighted-average discount rate | | 3.75 | % | | 4.21 | % | | 4.25 | % | | 2.80 | % | | 3.05 | % | | 3.96 | % |
| Expected return on plan assets | | 6.75 | % | | 7.25 | % | | 7.50 | % | | 5.27 | % | | 5.30 | % | | 6.08 | % |
| Rate of increase in future compensation levels | | — |
| | — |
| | — |
| | 3.48 | % | | 3.48 | % | | 3.71 | % |
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid: |
| | | | | | | | |
| (in millions) | | U.S. Pension Plans | | Non-U.S. Pension Plans |
| 2019 | | $ | 38.4 |
| | $ | 1.6 |
|
| 2020 | | 38.8 |
| | 1.6 |
|
| 2021 | | 43.0 |
| | 2.2 |
|
| 2022 | | 40.3 |
| | 2.1 |
|
| 2023 | | 40.2 |
| | 2.2 |
|
| Years 2023-2027 | | 202.2 |
| | 12.0 |
|
The Company's ERISA Benefit Plan Committee is responsible for overseeing the investments of the pension plans. The overall investment strategy is to achieve a long-term rate of return that maintains an adequate funded ratio and minimizes the need for future contributions through diversification of asset types, investment strategies, and investment managers. A target asset allocation policy is used to balance investments in equity securities with investments in fixed income securities. Beginning in 2013, the Company adopted a liability responsive asset allocation policy that becomes more conservative as the funded status of the plans improve. The majority of pension plan assets relate to U.S. plans and the target allocation is currently to invest approximately 69 percent in long-term corporate fixed income securities and approximately 31 percent in return seeking funds. The return seeking funds primarily include investments in diversified portfolios of large cap and small cap companies. Fixed income securities include diversified investments across a broad spectrum of primarily investment-grade debt securities. To develop the expected long-term rate of return on assets assumption, the Company considered historical returns and future expectations. Using the Company’s 2018 target asset allocation based on a liability responsive asset allocation, the Company’s outside actuaries have used their independent economic model to calculate a range of expected long-term rates of return and, based on their results, the Company has determined these assumptions to be reasonable.
The pension plan assets measured at fair value at December 31, 2018 and 2017 follow:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2018 |
| | | U.S. Pension Plans | | Non-U.S. Pension Plans |
| | | Quoted Price In Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Quoted Price In Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| (in millions) | | (Level 1) | | (Level 2) | | (Level 3) | | (Level 1) | | (Level 2) | | (Level 3) |
| Cash and cash equivalents | | $ | 6.0 |
| | $ | 1.2 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Corporate debt securities | | — |
| | 243.4 |
| | — |
| | — |
| | — |
| | — |
|
| U.S. government debt securities | | 5.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| State and municipal debt securities | | — |
| | 13.8 |
| | — |
| | — |
| | — |
| | — |
|
| Registered investment company funds | | — |
| | — |
| | — |
| | 44.2 |
| | — |
| | — |
|
| Common trust funds | | — |
| | 296.9 |
| | — |
| | — |
| | 3.7 |
| | 1.5 |
|
| General insurance account | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Balance at December 31, 2018 | | $ | 11.3 |
| | $ | 555.3 |
| | $ | — |
| | $ | 44.2 |
| | $ | 3.7 |
| | $ | 1.5 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 |
| | | U.S. Pension Plans | | Non-U.S. Pension Plans |
| | | Quoted Price In Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs | | Quoted Price In Active Markets for Identical Assets | | Significant Other Observable Inputs | | Significant Unobservable Inputs |
| (in millions) | | (Level 1) | | (Level 2) | | (Level 3) | | (Level 1) | | (Level 2) | | (Level 3) |
| Cash and cash equivalents | | $ | 6.5 |
| | $ | 2.0 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Corporate debt securities | | — |
| | 257.9 |
| | — |
| | — |
| | — |
| | — |
|
| U.S. government debt securities | | 4.0 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| State and municipal debt securities | | — |
| | 16.9 |
| | — |
| | — |
| | — |
| | — |
|
| Corporate common stock | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Registered investment company funds | | — |
| | — |
| | — |
| | 50.8 |
| | — |
| | — |
|
| Common trust funds | | — |
| | 360.0 |
| | — |
| | — |
| | 4.8 |
| | — |
|
| General insurance account | | — |
| | — |
| | — |
| | — |
| | — |
| | 1.5 |
|
| Balance at December 31, 2017 | | $ | 10.5 |
| | $ | 636.8 |
| | $ | — |
| | $ | 50.8 |
| | $ | 4.8 |
| | $ | 1.5 |
|
Cash and cash equivalents. This category consists of direct cash holdings and institutional short-term investment vehicles. Direct cash holdings are valued based on cost, which approximates fair value and are classified as Level 1. Institutional short-term investment vehicles are valued daily and are classified as Level 2.
Corporate, U.S. government, state, and municipal debt securities. These securities are valued using market inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data including market research publications. Inputs may be prioritized differently at certain times based on market conditions.
Corporate common stock. This category includes common and preferred stocks and index mutual funds that track U.S. and foreign indices. Fair values for the common and preferred stocks are based on quoted prices in active markets and were therefore classified within Level 1 of the fair value hierarchy. The mutual funds were valued at the unit prices established
by the funds' sponsors based on the fair value of the assets underlying the funds. Since the units of the funds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy.
Registered investment company funds. This category includes mutual funds that are actively traded on public exchanges. The funds are invested in equity and debt securities that are actively traded on public exchanges.
Common trust funds. Common trust funds consist of shares in commingled funds that are not publicly traded. The funds are invested in equity and debt securities that are actively traded on public exchanges.
General insurance account. The general insurance account is primarily comprised of insurance contracts that guarantee a minimum return.
The reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3) for the years ended December 31, 2018 and 2017 follows:
|
| | | | |
| (in millions) | | General Insurance Account |
| Fair value of plan assets at December 31, 2016 | | $ | 1.2 |
|
| Actual return on plan assets | | 0.1 |
|
| Foreign currency exchange rate changes | | 0.2 |
|
| Fair value of plan assets at December 31, 2017 | | 1.5 |
|
| Actual return on plan assets | | — |
|
| Foreign currency exchange rate changes | | — |
|
| Fair value of plan assets at December 31, 2018 | | $ | 1.5 |
|
Note 11 — POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors several defined postretirement benefit plans that provide healthcare benefits and, in some instances, provide life insurance benefits to certain employees. Further health care benefit accruals for all persons entitled to benefits under these plans were frozen as of March 31, 2014. Effective February 1, 2016, participants under the age of 50 as of March 1, 2016, were no longer eligible for the postretirement health care plans. Postretirement health care plans are contributory, with retiree contributions adjusted annually. Life insurance plans are noncontributory.
Net periodic postretirement benefit costs included the following components for the years ended December 31, 2018, 2017, and 2016:
|
| | | | | | | | | | | | |
| (in millions) | | 2018 | | 2017 | | 2016 |
| Interest cost on accumulated postretirement benefit obligation | | $ | 0.1 |
| | $ | 0.2 |
| | $ | 0.2 |
|
| Amortization of prior service credit | | (0.3 | ) | | (0.3 | ) | | (0.3 | ) |
| Recognized actuarial net gain | | (1.1 | ) | | (0.8 | ) | | (0.7 | ) |
| Net periodic postretirement benefit income | | $ | (1.3 | ) | | $ | (0.9 | ) | | $ | (0.8 | ) |
Changes in benefit obligation and plan assets, and a reconciliation of the funded status at December 31, 2018 and 2017, are as follows:
|
| | | | | | | | |
| (in millions) | | 2018 | | 2017 |
| Change in Benefit Obligation | | |
| | |
|
| Benefit obligation at the beginning of the year | | $ | 2.3 |
| | $ | 4.2 |
|
| Interest cost | | 0.1 |
| | 0.2 |
|
| Participant contributions | | 0.6 |
| | 0.6 |
|
| Plan amendments | | (0.2 | ) | | — |
|
| Actuarial gain | | (0.3 | ) | | (1.8 | ) |
| Benefits paid | | (0.8 | ) | | (0.9 | ) |
| Benefit obligation at the end of the year | | $ | 1.7 |
| | $ | 2.3 |
|
| | | | | |
| Change in Plan Assets | | |
| | |
|
| Fair value of plan assets at the beginning of the year | | $ | — |
| | $ | — |
|
| Participant contributions | | 0.6 |
| | 0.6 |
|
| Employer contributions | | 0.2 |
| | 0.3 |
|
| Benefits paid | | (0.8 | ) | | (0.9 | ) |
| Fair value of plan assets at the end of the year | | $ | — |
| | $ | — |
|
| | | | | |
| Unfunded status at year end: | | $ | (1.7 | ) | | $ | (2.3 | ) |
|
| | | | | | | | |
| (in millions) | | 2018 | | 2017 |
| Amount recognized in consolidated balance sheet consists of: | | |
| | |
|
| Accrued benefit liability, current | | $ | (0.2 | ) | | $ | (0.3 | ) |
| Accrued benefit liability, non-current | | (1.5 | ) | | (2.0 | ) |
| Sub-total | | (1.7 | ) | | (2.3 | ) |
| Deferred tax liability | | (1.3 | ) | | (2.5 | ) |
| Accumulated other comprehensive income | | (4.0 | ) | | (3.7 | ) |
| Net amount related to postretirement benefit plans | | $ | (7.0 | ) | | $ | (8.5 | ) |
Accumulated other comprehensive income related to other postretirement benefit plans is as follows:
|
| | | | | | | | |
| (in millions) | | 2018 | | 2017 |
| Unrecognized net actuarial gains | | $ | (5.0 | ) | | $ | (5.8 | ) |
| Net prior service credits | | (0.3 | ) | | (0.4 | ) |
| Tax expense | | 1.3 |
| | 2.5 |
|
| Accumulated other comprehensive income, end of year | | $ | (4.0 | ) | | $ | (3.7 | ) |
Estimated amounts in accumulated other comprehensive income expected to be reclassified to net period cost during 2019 are as follows:
|
| | | |
| (in millions) | |
| Net actuarial gains | $ | 1.1 |
|
| Net prior service credits | 0.2 |
|
| Net amount to be reclassified to net period cost | $ | 1.3 |
|
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
|
| | | |
| (in millions) | Benefit Payments |
| 2019 | $ | 0.3 |
|
| 2020 | 0.2 |
|
| 2021 | 0.2 |
|
| 2022 | 0.2 |
|
| 2023 | 0.2 |
|
| Years 2023 - 2027 | 0.7 |
|
The employer contributions for the years ended December 31, 2018 and 2017 were $0.2 million and $0.3 million, respectively. The expected contribution for 2019 is $0.3 million, which is expected to satisfy plan funding requirements.
The health care cost trend rate assumption affects the amounts reported. For measurement purposes, the assumed annual rate of increase in the per capita cost of covered health care benefits was 6.25 percent for 2018 and 6.50 percent for 2017; each year's estimated rate was assumed to decrease 0.25 percent annually to 5.0 percent and remain at that level thereafter. A one-percentage point change in assumed health care trends would have a nominal effect on both the total of service and interest cost components for 2018 and the post retirement benefit obligations at December 31, 2018.
The Company’s actuarial valuation date is December 31. The weighted-average discount rate used to determine the actuarial present value of the net postretirement projected benefit obligation for each of the years ended December 31, 2018 and 2017 was 4.25 percent. The weighted-average discount rates used to determine the net postretirement benefit cost was 3.75 percent for the year ended December 31, 2018, and 4.25 percent for the years ended 2017, and 2016.
Note 12 — STOCK INCENTIVE PLANS
The Company's 2014 Stock Incentive Plan provides for the issuance of up to 3,282,170 shares of common stock to certain employees and the Company's Board of Directors. As of December 31, 2018, 1,290,386 shares were available for future grants under the 2014 Stock Incentive Plan. Shares subject to awards that are forfeited by an employee under the 2014 Stock Incentive Plan become available for future grants under the 2014 Stock Incentive Plan. Distribution of stock awards is maderetainer in the form of Bemis shares in lieu of the Company’s common stock on a one for one basis. Distribution of the shares will normally be made three yearscash.(3)Directors Floto and Mansfield retired from the date of the stock award grant to an employee. Prior to 2016, stock awards for directorsBoard on May 3, 2018.
(4)Directors Novo, Ogilvie, Wurtz, and Yanker were fully vested upon grant. Beginning in 2016, stock awards for directors generally vest one year from the date of the grant. All other stock awards granted under the plans are subject to restrictions as to continuous employment, except in the case of death, permanent disability, retirement or change in control.
Total compensation expense related to stock incentive plans was $19.6 million in 2018, $17.4 million in 2017, and $18.1 million in 2016. As of December 31, 2018, the unrecorded compensation cost for stock awards was $20.1 million and will be recognized over the remaining vesting period for each grant which ranges between 2019 and 2021. The remaining weighted-average life of all stock awards outstanding as of December 31, 2018 was 1.01 years. These awards are considered equity-based awards and are therefore classified as a component of additional paid-in capital.
Cash payments equal to dividends accrued on awards during the vesting period are distributed at the same time as the shares of common stock to which they relate.
Time-Based Stock Awards
The cost of time-based stock awards is based on the fair market value of the Company's common stock on the date of grant and is charged to income on a straight-line basis over the requisite service period. The per share fair value of time-based stock awards granted during the years ended December 31, 2018, 2017 and 2016 was $46.30, $48.10, and $45.56, respectively.
Performance-Based Stock Awards
Grantees of performance-based awards will be eligible to receive shares of the Company's common stock depending upon the Company's total shareholder return, assuming reinvestment of all dividends, relativeappointed to the performance of the Company's comparator group over a three-year period. The per share fair value of performance-based awards granted during
the years ended December 31, 2018, 2017 and 2016 was $54.10, $53.43, and $48.48, respectively, which the Company determined using a Monte Carlo simulation and the following assumptions:
|
| | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| Average risk-free interest rate | 2.01 | % | | 1.50 | % | | 1.31 | % |
| Expected volatility (Bemis Company, Inc.) | 20.0 | % | | 17.7 | % | | 16.3 | % |
The average risk-free interest rate is based on the three-year U.S. treasury security rate in effect as of the grant date. The expected volatilities were determined using daily historical volatility for the most recent three-year period as of the grant date. In 2019, there was an 87.5 percent payout of 2016 awards, and the balance was forfeited. In 2018, there was a 62.5 percent payout of 2015 awards, and the balance was forfeited. In 2017, there was a 94.7 percent payout of 2014 awards, and the balance was forfeited. In 2016, there was a 93.7 percent payout of 2013 awards, and the balance was forfeited.
The following table summarizes stock awards unit activity for the year ended December 31, 2018:
|
| | | | | | | | | | | | | |
| | Time-Based | | Performance-Based |
| | Weighted-average grant date share value | | Stock Awards (in thousands) | | Weighted-average grant date share value | | Stock Awards (in thousands) |
| Outstanding units granted at the beginning of the year | $ | 45.84 |
| | 566 |
| | $ | 51.35 |
| | 525 |
|
| Units granted | 46.30 |
| | 208 |
| | 54.10 |
| | 269 |
|
| Units paid (in shares) | 44.92 |
| | (271 | ) | | 53.14 |
| | (57 | ) |
| Units forfeited / canceled | 46.80 |
| | (21 | ) | | 52.77 |
| | (53 | ) |
| Outstanding units granted at the end of the year | 46.51 |
| | 482 |
| | 52.17 |
| | 684 |
|
Board effective March 16, 2018.
Note 13 — LONG-TERM DEBT
Debt consisted of the following at December 31,
|
| | | | | | | | |
| (dollars in millions) | | 2018 | | 2017 |
| Commercial paper | | $ | 50.0 |
| | $ | 238.2 |
|
| 6.8% notes payable in 2019 | | 400.0 |
| | 400.0 |
|
| 4.5% notes payable in 2021 | | 400.0 |
| | 400.0 |
|
| Term loan payable in 2022 | | 200.0 |
| | 200.0 |
|
| 3.1% notes payable in 2026 | | 300.0 |
| | 300.0 |
|
| Other debt, including debt of subsidiaries | | 7.7 |
| | 15.8 |
|
| Interest rate swap of 2021 notes (See Note 8) | | (2.7 | ) | | (0.6 | ) |
| Unamortized discounts and debt issuance costs | | (4.6 | ) | | (6.0 | ) |
| | | | | |
| Total debt | | 1,350.4 |
| | 1,547.4 |
|
| Less current portion | | 1.8 |
| | 5.0 |
|
| Total long-term debt | | $ | 1,348.6 |
| | $ | 1,542.4 |
|
Commercial paper and the 6.8% note payable in 2019 have been classified as long-term debt to the extent of available long-term backup credit agreements, in accordance with the Company’s intent and ability to refinance such obligations on a long-term basis. The weighted-average interest rate of commercial paper outstanding at December 31, 2018, was 3.1 percent. The highest amount of commercial paper outstanding during 2018 was $311.3 million, and the average outstanding during 2018 was $216.4 million. The weighted-average interest rate during 2018 was 2.4 percent.
As of December 31, 2018, the Company had available from its banks a $1.1 billion revolving credit facility. On July 22, 2016, the Company amended the revolving credit facility extending the terms of the agreement from August 12, 2018 to July 22, 2021. The 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 combined $100 million multicurrency limit to support the financing needs of the Company’s international subsidiaries.
The $200 million term loan has an eight-year term and a variable interest rate based on the one-month London Interbank Offered Rate (LIBOR) plus a fixed spread. On September 15, 2016, the Company issued $300 million aggregate principal amount of senior notes due in 2026 with a fixed interest rate of 3.1 percent.
The scheduled maturities of the Company's long-term debt obligations for the next five years as of December 31, 2018, are as follows:
|
| | | | |
| Year | | Dollars (in millions) |
| 2019 | | $ | 451.8 |
|
| 2020 | | 1.4 |
|
| 2021 | | 401.4 |
|
| 2022 | | 201.4 |
|
| 2023 | | 0.8 |
|
Commercial paper and the 6.8% note payable in 2019 has been classified as long-term liabilities in accordance with the Company's ability and intent to refinance such obligations on a long-term basis. The Company is in compliance with all debt covenants.
Note 14 — LEASES
The Company has leases for manufacturing plants, land, warehouses, machinery and equipment, and administrative offices that generally expire at various times over the next 20 years. Under most leasing arrangements, the Company pays the property taxes, insurance, maintenance, and other expenses related to the leased property. Total rental expense under operating leases was approximately $9.3 million in 2018, $12.8 million in 2017, and $12.4 million in 2016.
Minimum future obligations on leases in effect at December 31, 2018 were:
|
| | | |
| | Operating |
| (in millions) | Leases |
| 2019 | $ | 7.7 |
|
| 2020 | 6.7 |
|
| 2021 | 6.0 |
|
| 2022 | 5.6 |
|
| 2023 | 4.7 |
|
| Thereafter | 30.6 |
|
| Total minimum obligations | $ | 61.3 |
|
Note 15 — INCOME TAXES
|
| | | | | | | | | | | | |
| (in millions) | | 2018 | | 2017 | | 2016 |
| U.S. income before income taxes | | $ | 201.7 |
| | $ | 210.9 |
| | $ | 283.6 |
|
| Non-U.S. income (loss) before income taxes | | 84.0 |
| | (158.2 | ) | | 67.3 |
|
| Income before income taxes | | $ | 285.7 |
| | $ | 52.7 |
| | $ | 350.9 |
|
| | | | | | | |
| Income tax expense consists of the following components: | | |
| | |
| | |
|
| Current tax expense: | | |
| | |
| | |
|
| U.S. federal | | $ | 10.2 |
| | $ | 68.1 |
| | $ | 63.2 |
|
| Foreign | | 22.3 |
| | 16.2 |
| | 20.1 |
|
| State and local | | 2.0 |
| | 5.6 |
| | 5.2 |
|
| Total current tax expense | | 34.5 |
| | 89.9 |
| | 88.5 |
|
| Deferred tax expense (benefit): | | |
| | |
| | |
|
| U.S. federal | | 14.7 |
| | (73.2 | ) | | 26.7 |
|
| Foreign | | 6.9 |
| | (58.5 | ) | | (3.9 | ) |
| State and local | | 3.9 |
| | 0.5 |
| | 3.4 |
|
| Total deferred tax expense (benefit) | | 25.5 |
| | (131.2 | ) | | 26.2 |
|
| Total income tax expense (benefit) | | $ | 60.0 |
| | $ | (41.3 | ) | | $ | 114.7 |
|
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented below.
|
| | | | | | | | |
| (in millions) | | 2018 | | 2017 |
| Deferred Tax Assets: | | |
| | |
|
| Trade receivables, principally due to allowances for returns and doubtful accounts | | $ | 2.8 |
| | $ | 2.9 |
|
| Inventories, principally due to additional costs inventoried for tax purposes | | 14.0 |
| | 17.7 |
|
| Employee compensation and benefits accrued for financial reporting purposes | | 45.5 |
| | 36.5 |
|
| Foreign net operating losses | | 19.4 |
| | 24.5 |
|
| Foreign tax credits | | 15.1 |
| | 34.1 |
|
| Other | | 13.2 |
| | 16.1 |
|
| Total deferred tax assets | | 110.0 |
| | 131.8 |
|
| Less valuation allowance | | (33.1 | ) | | (48.5 | ) |
| Total deferred tax assets, after valuation allowance | | $ | 76.9 |
| | $ | 83.3 |
|
| | | | | |
| (in millions) | | 2018 | | 2017 |
| Deferred Tax Liabilities: | | |
| | |
|
| Plant and equipment, principally due to differences in depreciation and capitalized interest | | $ | 89.5 |
| | $ | 86.4 |
|
| Goodwill and intangible assets, principally due to differences in amortization | | $ | 103.8 |
| | $ | 98.9 |
|
| Prepaid Expenses | | 13.1 |
| | — |
|
| Total deferred tax liabilities | | 206.4 |
| | 185.3 |
|
| | | | | |
| Deferred tax liabilities, net | | $ | 129.5 |
| | $ | 102.0 |
|
The net deferred tax liabilities are reflected in the balance sheet as follows:
|
| | | | | | | | |
| (in millions) | | 2018 | | 2017 |
| Deferred charges and other assets | | $ | 37.2 |
| | $ | 51.5 |
|
| Deferred tax liabilities | | 166.7 |
| | 153.5 |
|
| Net deferred tax liabilities | | $ | 129.5 |
| | $ | 102.0 |
|
The Company’s effective tax rate differs from the federal statutory rate due to the following items:
|
| | | | | | | | | | | | | | | | | | | | | |
| | | 2018 | | 2017 | | 2016 |
| (dollars in millions) | | Amount | | % of Income Before Tax | | Amount | | % of Income Before Tax | | Amount | | % of Income Before Tax |
| Computed “expected” tax expense on income before taxes at federal statutory rate | | $ | 60.0 |
| | 21.0 | % | | $ | 18.5 |
| | 35.0 | % | | $ | 122.8 |
| | 35.0 | % |
| Increase (decrease) in taxes resulting from: | | |
| | |
| | |
| | |
| | |
| | |
|
| State and local income taxes net of federal income tax benefit | | 3.8 |
| | 1.4 |
| | 3.3 |
| | 6.2 |
| | 5.6 |
| | 1.6 |
|
| Foreign tax rate differential | | 5.8 |
| | 2.0 |
| | (4.7 | ) | | (8.9 | ) | | (7.4 | ) | | (2.1 | ) |
| Goodwill impairment | | — |
| | — |
| | 17.7 |
| | 33.6 |
| | — |
| | — |
|
| Valuation Allowance | | 5.2 |
| | 1.8 |
| | — |
| | — |
| | — |
| | — |
|
| Tax law change | | (8.2 | ) | | (2.9 | ) | | (67.2 | ) | | (127.5 | ) | | — |
| | — |
|
| Manufacturing tax benefits | | — |
| | — |
| | (6.0 | ) | | (11.3 | ) | | (5.8 | ) | | (1.7 | ) |
| Statute Closings | | (7.5 | ) | | (2.6 | ) | | (3.7 | ) | | (6.9 | ) | | (1.0 | ) | | (0.3 | ) |
| Share-based payments | | 0.4 |
| | 0.1 |
| | (0.9 | ) | | (1.7 | ) | | — |
| | — |
|
| Other | | 0.5 |
| | 0.2 |
| | 1.7 |
| | 3.1 |
| | 0.5 |
| | 0.2 |
|
| Actual income tax expense (benefit) | | $ | 60.0 |
| | 21.0 | % | | $ | (41.3 | ) | | (78.4 | )% | | $ | 114.7 |
| | 32.7 | % |
In 2018, the Company's overall tax expense is primarily driven by operations within the United States. The Company's foreign tax rate differential is largely the result of a higher statutory rate in Brazil.
The effective tax rate for 2017 differs from the other years due primarily to the impairment of the Latin America Packaging reporting unit’s goodwill and new tax legislation in the U.S.
In the fourth quarter of 2017, the Company recorded a full impairment of the Latin America Packaging reporting unit’s goodwill which included a $51.1 million deferred tax benefit related to tax deductible goodwill. The tax rate reconciliation schedule reflects the difference between the statutory rates in Latin America and the U.S. as well as the non-deductible portion of the impaired goodwill.
On December 22, 2017, the President of the United States signed comprehensive tax legislation commonly referred to as the TCJA. The TCJA made broad and complex changes to the U.S. tax code which impacted the Company’s years ended 2017 and 2018 including, but not limited to (1) reducing the U.S. federal corporate tax rate, (2) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that may be paid over eight years, and (3) accelerating expensing of certain capital expenditures. The TCJA reduced the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for the TCJA. The Company has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The Company recorded a provisional discrete net tax benefit of $67.2 million related to the TCJA in the year ended December 31, 2017. This consisted of a $77.8 million net benefit due to the remeasurement of the Company’s deferred tax accounts for the corporate rate reduction and a net expense for the transition tax of $10.6 million. The adjustments to these provisional amounts are discussed below.
Reduction in U.S. Corporate Rate: The TCJA reduced the statutory corporate tax rate to 21 percent for the Company’s tax years ending in 2018 and beyond. While the Company was able to make a reasonable estimate of the impact of the reduction in corporate rate, the Company continued to analyze the temporary differences that existed on the date of enactment throughout 2018. The Company recognized a measurement-period benefit of $5.0 million related to temporary differences. The benefit of the measurement-period adjustment on the 2018 effective tax rate was a benefit of 1.8%. The calculation of the
adjustment to temporary differences is now complete and resulted in recording a total net benefit of $5.0 million to income tax expense in 2018.
Transition Tax: The transition tax is a 2017 tax on the previously untaxed accumulated and current earnings and profits ("E&P") of the Company’s foreign subsidiaries. To calculate the transition tax, the Company determined the post-1986 E&P of the subsidiaries, as well as non-U.S. income taxes paid on such earnings, in addition to other factors. E&P is similar to retained earnings of the subsidiary but requires other adjustments to conform to U.S. tax rules. The Company recorded an estimated transition tax obligation expected to be paid over eight years beginning in 2018. These amounts were presented in Accrued income and other taxes and Other liabilities and deferred credits. On the basis of revised E&P computations and published guidance, the Company recognized a measurement-period adjustment of $3.2 million related to the overall transition tax obligation. The effect of the measurement-period adjustment on the 2018 effective tax rate was a benefit of 1.1%. The transition tax, which has now been determined to be complete, resulted in recording a net transition tax obligation of $7.4 million, with a corresponding net benefit of $3.2 million to income tax expense in 2018. Due to IRS rules regarding the application of overpayments, the entire liability was paid in full in 2018.
Global Intangible Low-Taxed Income ("GILTI"): The TCJA includes a provision designed to tax certain low taxed income starting in 2018. The Company currently estimates GILTI will be immaterial for the year ended December 31, 2018, although interpretive guidance continues to be issued and future guidance may impact this analysis. The Company has not recorded any deferred taxes for future GILTI inclusions.
The Company has $293.8 million of undistributed earnings of foreign subsidiaries which are considered to be indefinitely reinvested in the operations of those subsidiaries. As a result of the transition tax mentioned above, the Company estimates that minimal federal and state income tax would be due upon the actual remittance of the undistributed earnings. In addition, the Company also estimates minimal foreign withholding tax on any potential remittance.
As of December 31, 2018, the Company had foreign net operating loss carryovers of approximately $71.0 million that are available to offset future taxable income. Approximately $12.2 million of the carryover expires over the period 2019-2033. The remaining balance has no expiration. In addition, the Company had $15.1 million of foreign tax credit carryover that is available to offset future tax. This carryover expires over the period 2023-2024.
Current authoritative guidance issued by the FASB requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company has, and continues to generate, both net operating losses and deferred tax assets in certain jurisdictions for which a valuation allowance is required. The tax rate reconciliation reflects the recording of a valuation allowance of $5.2 million against certain deferred tax assets in Brazil in 2018. In total, the Company’s management has determined that a valuation allowance of $33.1 million and $48.5 million against deferred tax assets primarily associated with the foreign net operating loss carryover and the foreign tax credit carryover was necessary at December 31, 2018 and 2017, respectively.
The Company had total unrecognized tax benefits of $25.1 million and $35.2 million at December 31, 2018 and 2017, respectively. The approximate amount of unrecognized tax benefits that would impact the effective income tax rate if recognized in any future periods was $25.1 million and $35.2 million for the years ended December 31, 2018 and 2017, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, in millions, is as follows:
|
| | | | | | | | |
| | | 2018 | | 2017 |
| Balance at beginning of year | | $ | 35.2 |
| | $ | 32.9 |
|
| Additions based on tax positions related to the current year | | 3.1 |
| | 3.9 |
|
| Additions for tax positions of prior years | | 2.0 |
| | 4.1 |
|
| Reductions for tax positions of prior years | | (3.0 | ) | | (1.1 | ) |
| Reductions due to a lapse of the statute of limitations | | (11.8 | ) | | (4.5 | ) |
| Settlements | | (0.4 | ) | | (0.1 | ) |
| Balance at end of year | | $ | 25.1 |
| | $ | 35.2 |
|
The Company recognizes interest and penalties related to unrecognized tax benefits as components of income tax expense. The Company recognized $0.4 million of net tax benefit, $1.1 million of net tax expense and $1.2 million of net tax benefit related to interest and penalties during the years ended December 31, 2018, 2017 and 2016, respectively. The Company had approximately $11.5 million and $14.5 million accrued for interest and penalties, net of tax benefits, at December 31, 2018 and 2017, respectively.
As a result of acquisitions, the Company recorded $2.6 million of unrecognized tax benefits and $2.5 million of interest and penalties related to pre-acquisition tax positions in 2016 for which the Company is indemnified. Corresponding assets related to these indemnified provisions have also been recorded for these amounts.
During the next 12 months it is reasonably possible that a reduction of gross unrecognized tax benefits will occur in an amount of up to $6.0 million, exclusive of currency movements, as a result of the resolution of positions taken on previously filed returns.
The Company and its subsidiaries are subject to U.S. federal and state income tax as well as income tax in multiple international jurisdictions. The Company's U.S. federal income tax returns prior to 2015 are no longer subject to examination. With few exceptions, the Company is no longer subject to examinations by tax authorities for years prior to 2013 in the significant jurisdictions in which it operates.
Note 16 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components and activity of accumulated other comprehensive loss are as follows:
|
| | | | | | | | | | | | |
| (in millions) | | Foreign Currency Translation | | Pension And Other Postretirement Liability Adjustment | | Accumulated Other Comprehensive Loss |
| December 31, 2015 | | $ | (366.5 | ) | | $ | (143.4 | ) | | $ | (509.9 | ) |
| Other comprehensive income (loss) before reclassifications | | 35.8 |
| | 13.8 |
| | 49.6 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | | — |
| | 12.5 |
| | 12.5 |
|
| Net current period other comprehensive income (loss) | | 35.8 |
| | 26.3 |
| | 62.1 |
|
| December 31, 2016 | | (330.7 | ) | | (117.1 | ) | | (447.8 | ) |
| Other comprehensive income (loss) before reclassifications | | 39.6 |
| | (1.3 | ) | | 38.3 |
|
| Amounts reclassified from accumulated other comprehensive income (loss) | | — |
| | 15.0 |
| | 15.0 |
|
| Net current period other comprehensive income (loss) | | 39.6 |
| | 13.7 |
| | 53.3 |
|
| December 31, 2017 | | (291.1 | ) | | (103.4 | ) | | (394.5 | ) |
| Other comprehensive income (loss) before reclassifications | | (94.3 | ) | | (28.5 | ) | | (122.8 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss) | | — |
| | 12.0 |
| | 12.0 |
|
| Net current period other comprehensive income (loss) | | (94.3 | ) | | (16.5 | ) | | (110.8 | ) |
| Reclassification due to the adoption of ASU 2018-02 | | | | (20.2 | ) | | (20.2 | ) |
| December 31, 2018 | | $ | (385.4 | ) | | $ | (140.1 | ) | | $ | (525.5 | ) |
The following table summarizes amounts reclassified from accumulated other comprehensive income (loss):
|
| | | | | | | | |
| | | Twelve Months Ended December 31, |
| (in millions) | | 2018 | | 2017 |
| Pension and postretirement costs (See Notes 10 and 11) | | $ | 16.0 |
| | $ | 24.2 |
|
| Tax benefit | | (4.0 | ) | | (9.2 | ) |
| Pension and postretirement costs, net of tax | | $ | 12.0 |
| | $ | 15.0 |
|
Accumulated other comprehensive income (loss) associated with pension and other postretirement liability adjustments are net of tax effects of $47.3 million and $61.6 million as of December 31, 2018 and 2017, respectively.
Note 17 — EARNINGS PER SHARE COMPUTATIONS
A reconciliation of basic and diluted earnings per share is below:
|
| | | | | | | | | | | | |
| (in millions, except per share amounts) | | 2018 | | 2017 | | 2016 |
| Numerator | | |
| | |
| | |
|
| Net income | | $ | 225.7 |
| | $ | 94.0 |
| | $ | 236.2 |
|
| | | | | | | |
| Denominator | | |
| | |
| | |
|
| Weighted-average common shares outstanding — basic | | 91.0 |
| | 91.5 |
| | 94.3 |
|
| Dilutive shares | | 0.5 |
| | 0.4 |
| | 0.8 |
|
| Weighted-average common and common equivalent shares outstanding — diluted | | 91.5 |
| | 91.9 |
| | 95.1 |
|
| | | | | | | |
| Per common share income | | |
| | |
| | |
|
| Basic | | $ | 2.48 |
| | $ | 1.03 |
| | $ | 2.51 |
|
| Diluted | | $ | 2.47 |
| | $ | 1.02 |
| | $ | 2.48 |
|
Certain stock awards outstanding were not included in the computation of diluted earnings per share above because they would not have had a dilutive effect. There were no anti-dilutive stock awards outstanding December 31, 2018 and 2016. The excluded stock awards represented an aggregate of 0.4 million shares as of December 31, 2017.
Note 18 — COMMITMENTS AND CONTINGENCIES
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, the Company believes, except as discussed below, that any ultimate liability would not have a material adverse effect on the Company’s 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 and foreign laws in proceedings associated with 12 sites around the United States and one in Brazil. These proceedings were instituted by the United States Environmental Protection Agency and certain state and foreign environmental agencies at various times beginning in 1983. Superfund and similar state and foreign 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 is involved in other environmental-related litigation arising in the ordinary course of business. The Company accrues environmental costs when it is probable that these costs will be incurred and can be reasonably estimated. The Company's reserve for environmental liabilities at December 31, 2018 and 2017 was $0.3 million and $0.9 million, respectively, and is included in other liabilities and deferred credits on the accompanying consolidated balance sheet.
Brazil Tax Dispute - Goodwill Amortization
During October 2013, Dixie Toga, Ltda ("Dixie Toga"), a Bemis subsidiary, received an income tax assessment in Brazil for the tax years 2009 through 2011 that relates to the amortization of certain goodwill generated from the acquisition of Dixie Toga. The income tax assessed for those years is approximately $9.8 million, translated to U.S. dollars at the December 31, 2018 exchange rate. The Company expects that tax examinations for years after 2011 will include similar assessments as the Company continues to claim the tax benefits associated with the goodwill amortization. An ultimate adverse resolution on these assessments, including interest and penalties, could be material to the Company's consolidated results of operations and/or cash flows.
The Company has been advised by its legal and tax advisors that its position with respect to the deductions is allowable under the tax laws of Brazil. The Company is contesting the disallowance and believes it is more likely than not the tax benefit will be sustained in its entirety and consequently has not recorded a liability. In May of 2017, the Company received a favorable administrative decision. The government is appealing this decision to the next administrative level. The Company intends to litigate the matter if it is not resolved at the administrative appeals levels. The ultimate outcome could take several years. At this time, the Company believes that final resolution of the assessment will not have a material impact on the Company's consolidated financial statements.
Brazil Tax Credits
During October 2018, Bemis Do Brasil Industria E Comercio De Embalagens Ltda. (“Bemis Brazil”), a Bemis subsidiary, received a final decision from the Brazilian court regarding our claim that certain indirect taxes were incorrectly required to be paid in the years 2001 through 2017. As a result of this case, Bemis Brazil expects to receive tax credits for the overpaid tax and related interest that can be used to offset various Brazilian federal taxes in future years. The exact methodology to compute the amount of the tax credit is still being determined by the tax authorities. In the fourth quarter of 2018, Bemis Brazil hired an outside consultant to compile documentation required to claim the credit. Bemis Brazil has estimated that it is probable to receive a benefit, net of fees and applicable Brazilian taxes, of $10.1 million (translated into U.S. dollars as of December 31, 2018) for the years 2009-2017. We reflected the $10.1 million benefit by recording $15.3 million on the consolidated statement of income in other operating income offset by $5.2 million of income tax included within income taxes provision (benefit). Bemis Brazil has not completed the estimation of tax credits for the years 2001 through 2008 given the need to gather and review manual records from this time period. The completion of this estimate is expected in 2019 and will result in recording further benefits. In addition, a taxpayer favorable decision on the methodology to compute the tax credits may result in significantly more tax credits, subject to some limitations, being available to Bemis Brazil.
Note 19 — SEGMENTS OF BUSINESS
The Company's business activities are organized around and aggregated into its three principal business segments, U.S. Packaging, Latin America Packaging and Rest of World Packaging, based on their similar economic characteristics, products, production process, types of customers, and distribution methods. Both internal and external reporting conforms to this organizational structure, with no significant differences in accounting policies applied. Intersegment sales (which are not significant) are generally priced to reflect nominal markups.
The Company evaluates the performance of its segments and allocates resources to them based primarily on operating profit, which is defined as profit before restructuring and other costs, general corporate expense, goodwill impairment charges, interest expense, other non-operating income, and income taxes.
Sales to the Kraft Heinz Company, and its subsidiaries, accounted for approximately 11 percent in 2018 and 10 percent in 2017 and 2016. The Company primarily sells to Kraft Heinz Company in the U.S. Packaging segment.
Products produced within the U.S., Latin America and Rest of World Packaging business segments service packaging applications for markets such as food, medical devices, pharma, personal care, agribusiness, chemicals, pet food, and consumer products.
A summary of the Company’s business activities reported by its three business segments follows:
|
| | | | | | | | | | | | |
| Business Segments (in millions) | | 2018 | | 2017 | | 2016 |
| Sales including intersegment sales: | | | | |
| | |
|
| U.S. Packaging | | $ | 2,739.1 |
| | $ | 2,666.0 |
| | $ | 2,646.8 |
|
| Latin America Packaging | | 631.8 |
| | 715.2 |
| | 707.0 |
|
| Rest of World Packaging | | 773.9 |
| | 721.4 |
| | 696.4 |
|
| | | | | | | |
| Intersegment sales: | | | | | | |
| U.S. Packaging | | (40.6 | ) | | (40.0 | ) | | (25.7 | ) |
| Latin America Packaging | | (3.2 | ) | | (3.8 | ) | | (3.9 | ) |
| Rest of World Packaging | | (11.1 | ) | | (12.6 | ) | | (16.2 | ) |
| Total net sales | | $ | 4,089.9 |
| | $ | 4,046.2 |
| | $ | 4,004.4 |
|
| | | | | | | |
| Segment operating profit | | | | |
| | |
|
| U.S. Packaging | | $ | 360.2 |
| | $ | 352.5 |
| | $ | 400.0 |
|
| Latin America Packaging | | 48.1 |
| | 30.0 |
| | 50.0 |
|
| Rest of World Packaging | | 81.2 |
| | 61.1 |
| | 64.0 |
|
| | | | | | | |
| Restructuring and other costs | | 61.9 |
| | 60.4 |
| | 28.6 |
|
| Goodwill impairment charge | | — |
| | 196.6 |
| | — |
|
| General corporate expenses | | 68.6 |
| | 64.6 |
| | 74.1 |
|
| Operating income | | 359.0 |
| | 122.0 |
| | 411.3 |
|
| | | | | | | |
| Interest expense | | 76.1 |
| | 65.8 |
| | 60.2 |
|
| Other non-operating (income) loss | | (2.8 | ) | | 3.5 |
| | 0.2 |
|
| | | | | | | |
| Income before income taxes | | $ | 285.7 |
| | $ | 52.7 |
| | $ | 350.9 |
|
|
| | | | | | | | | | | | |
| Business Segments (in millions) | | 2018 | | 2017 | | 2016 |
| Total assets (1): | | | | | | |
| U.S. Packaging | | $ | 2,082.5 |
| | $ | 2,072.0 |
| | $ | 2,007.7 |
|
| Latin America Packaging | | 551.9 |
| | 648.1 |
| | 779.2 |
|
| Rest of World Packaging | | 742.3 |
| | 784.5 |
| | 706.1 |
|
| Corporate assets (2) | | 194.3 |
| | 195.3 |
| | 222.7 |
|
| Total | | $ | 3,571.0 |
| | $ | 3,699.9 |
| | $ | 3,715.7 |
|
| | | | | | | |
| Restructuring and other costs (3)(4): | | | | | | |
| U.S. Packaging | | $ | 11.5 |
| | $ | 13.3 |
| | $ | — |
|
| Latin America Packaging | | 9.5 |
| | 28.8 |
| | 18.9 |
|
| Rest of World Packaging | | 1.9 |
| | 2.7 |
| | 7.7 |
|
| Corporate | | 39.0 |
| | 15.6 |
| | 2.0 |
|
| Total | | $ | 61.9 |
| | $ | 60.4 |
| | $ | 28.6 |
|
| | | | | | | |
| Depreciation and amortization: | | | | | | |
| U.S. Packaging | | $ | 96.6 |
| | $ | 97.9 |
| | $ | 93.7 |
|
| Latin America Packaging | | 22.6 |
| | 26.7 |
| | 26.2 |
|
| Rest of World Packaging | | 32.8 |
| | 30.2 |
| | 27.9 |
|
| Corporate | | 15.6 |
| | 15.0 |
| | 14.3 |
|
| Total | | $ | 167.6 |
| | $ | 169.8 |
| | $ | 162.1 |
|
| | | | | | | |
| Additions to property and equipment: | | | | | | |
| U.S. Packaging | | $ | 75.5 |
| | $ | 101.9 |
| | $ | 131.2 |
|
| Latin America Packaging | | 32.3 |
| | 45.2 |
| | 32.9 |
|
| Rest of World Packaging | | 27.2 |
| | 35.0 |
| | 36.8 |
|
| Corporate | | 8.5 |
| | 6.4 |
| | 7.4 |
|
| Total | | $ | 143.5 |
| | $ | 188.5 |
| | $ | 208.3 |
|
|
| | | | | | | | | | | | |
| Operations by geographic area (in millions) | | 2018 | | 2017 | | 2016 |
| Long-lived assets (5): | | |
| | |
| | |
|
| United States | | $ | 917.5 |
| | $ | 957.4 |
| | $ | 949.2 |
|
| Brazil | | 191.6 |
| | 223.6 |
| | 212.9 |
|
| Other Americas | | 48.4 |
| | 51.9 |
| | 44.1 |
|
| Europe | | 90.7 |
| | 93.3 |
| | 75.1 |
|
| Asia-Pacific | | 84.6 |
| | 90.1 |
| | 81.3 |
|
| Total | | $ | 1,332.8 |
| | $ | 1,416.3 |
| | $ | 1,362.6 |
|
| |
(1) | Total assets by business segment include only those assets that are specifically identified with each segment’s 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. The Company utilizes a global cash pooling arrangement. The Company treats all cash and cash equivalents, including the net cash position in the cash pooling arrangement, as Corporate assets. |
| |
(3) | These amounts are excluded from segment operating profit and general corporate expenses. |
| |
(4) | Prior year information has been recast to reflect the adoption of pension accounting changes during the first quarter of 2018 and conform to current year presentation. |
| |
(5) | Long-lived assets include net property and equipment, long-term receivables, deferred charges, and investment in affiliates. |
A summary of the Company’s net sales by geographic area reported by its three business segments follows:
|
| | | | | | | | | | | | | | | | |
| | | Twelve Months Ended December 31, 2018 |
| Net sales by geographic area (in millions) | | U.S. Packaging | | Latin America Packaging | | Rest of World Packaging | | Total |
| Net sales (1): | | | | | | | | |
| United States | | $ | 2,698.5 |
| | $ | — |
| | $ | 249.8 |
| | $ | 2,948.3 |
|
| Brazil | | — |
| | 420.7 |
| | — |
| | 420.7 |
|
| Other Americas | | — |
| | 207.9 |
| | — |
| | 207.9 |
|
| Europe | | — |
| | — |
| | 321.5 |
| | 321.5 |
|
| Asia-Pacific | | — |
| | — |
| | 191.5 |
| | 191.5 |
|
| Total | | $ | 2,698.5 |
| | $ | 628.6 |
| | $ | 762.8 |
| | $ | 4,089.9 |
|
|
| | | | | | | | | | | | | | | | |
| | | Twelve Months Ended December 31, 2017 |
| Net sales by geographic area (in millions) | | U.S. Packaging | | Latin America Packaging | | Rest of World Packaging | | Total |
| Net sales (1): | | | | | | | |
|
| United States | | $ | 2,626.0 |
| | $ | — |
| | $ | 221.3 |
| | $ | 2,847.3 |
|
| Brazil | | — |
| | 482.1 |
| | — |
| | 482.1 |
|
| Other Americas | | — |
| | 229.3 |
| | — |
| | 229.3 |
|
| Europe | | — |
| | — |
| | 290.0 |
| | 290.0 |
|
| Asia-Pacific | | — |
| | — |
| | 197.5 |
| | 197.5 |
|
| Total | | $ | 2,626.0 |
| | $ | 711.4 |
| | $ | 708.8 |
| | $ | 4,046.2 |
|
|
| | | | | | | | | | | | | | | | |
| | | Twelve Months Ended December 31, 2016 |
| Net sales by geographic area (in millions) | | U.S. Packaging | | Latin America Packaging | | Rest of World Packaging | | Total |
| Net sales (1): | | | | | | | | |
| United States | | $ | 2,621.1 |
| | $ | — |
| | $ | 224.2 |
| | $ | 2,845.3 |
|
| Brazil | | — |
| | 483.5 |
| | — |
| | 483.5 |
|
| Other Americas | | — |
| | 219.6 |
| | — |
| | 219.6 |
|
| Europe | | — |
| | — |
| | 263.5 |
| | 263.5 |
|
| Asia-Pacific | | — |
| | — |
| | 192.5 |
| | 192.5 |
|
| Total | | $ | 2,621.1 |
| | $ | 703.1 |
| | $ | 680.2 |
| | $ | 4,004.4 |
|
| |
(1) | Net sales are attributed to geographic areas based on location of the Company’s manufacturing or selling operation. |
Note 20 — QUARTERLY FINANCIAL INFORMATION — UNAUDITED
|
| | | | | | | | | | | | | | | | | | | | |
| | | Quarter Ended |
| (in millions, except per share amounts) | | March 31 | | June 30 | | September 30 | | December 31 | | Total |
| 2018 | | |
| | |
| | |
| | |
| | |
|
| Net sales | | $ | 1,027.4 |
| | $ | 1,033.3 |
| | $ | 1,026.4 |
| | $ | 1,002.8 |
| | $ | 4,089.9 |
|
| Gross profit | | 198.0 |
| | 201.7 |
| | 205.0 |
| | 200.4 |
| | 805.1 |
|
| Net income | | 47.6 |
| | 46.7 |
| | 57.5 |
| | 73.9 |
| | 225.7 |
|
| | | | | | | | | | | |
| Basic earnings per share: | | | | | | | | | | |
| Net income | | 0.52 |
| | 0.51 |
| | 0.63 |
| | 0.82 |
| | 2.48 |
|
| | | | | | | | | | | |
| Diluted earnings per share: | | | | | | | | | | |
| Net income | | 0.52 |
| | 0.51 |
| | 0.63 |
| | 0.81 |
| | 2.47 |
|
| | | | | | | | | | | |
| 2017 | | |
| | |
| | |
| | |
| | |
|
| Net sales | | $ | 995.4 |
| | $ | 1,012.1 |
| | $ | 1,035.1 |
| | $ | 1,003.6 |
| | $ | 4,046.2 |
|
| Gross profit | | 198.3 |
| | 186.1 |
| | 208.0 |
| | 193.8 |
| | 786.2 |
|
| Net income | | 51.1 |
| | 28.0 |
| | 55.6 |
| | (40.7 | ) | | 94.0 |
|
| | | | | | | | | | | |
| Basic earnings per share: | | | | | | | | | | |
| Net income | | 0.55 |
| | 0.31 |
| | 0.61 |
| | (0.44 | ) | | 1.03 |
|
| | | | | | | | | | | |
| Diluted earnings per share: | | | | | | | | | | |
| Net income | | 0.55 |
| | 0.30 |
| | 0.61 |
| | (0.44 | ) | | 1.02 |
|
ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A — CONTROLS AND PROCEDURES
(a) Management’s Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
The Company’s 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) 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 Commission’s 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.
(b) Management’s Report on Internal Control Over Financial Reporting
The management of Bemis Company, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the direction, supervision, and participation of the Chief Executive Officer and the Chief Financial Officer, the Company’s management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO-Framework (2013)). Based on the results of this evaluation, management has concluded that internal control over financial reporting was effective as of December 31, 2018.
The effectiveness of our internal control over financial reporting as of December 31, 2018, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears on page 36 of this Form 10-K.
(c) Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B — OTHER INFORMATION
None.
PART III
ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required to be submitted in response to this item with respect to directors is omitted because a definitive proxy statement or an amendment to this Annual Report on Form 10-K containing such information will be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after December 31, 2018, and such information is expressly incorporated herein by reference.
The following sets forth the name, age, and business experience for at least the last five years of the principal executive officers of the Company. Unless otherwise indicated, positions shown are with the Company.
|
| | | | |
Name (Age) | | Positions Held | | Period The Position Was Held |
William F. Austen (60) | | President and Chief Executive Officer | | 2014 to present |
| | Executive Vice President and Chief Operating Officer | | 2013 to 2014 |
| | Group President | | 2012 to 2013 |
| | Vice President — Operations | | 2004 to 2012 |
| | President and Chief Executive Officer — Morgan Adhesives Company (1) | | 2000 to 2004 |
| | | | |
Michael B. Clauer (61) | | Senior Vice President and Chief Financial Officer | | 2017 to present |
| | Vice President and Chief Financial Officer | | 2014 to 2016 |
| | Executive Vice President and Chief Financial Officer — BWAY Corporation | | 2009 to 2014 |
| | | | |
Sheri H. Edison (62) | | Senior Vice President, Chief Legal Officer and Secretary | | 2017 to present |
| | Vice President, General Counsel, and Secretary | | 2010 to 2016 |
| | Senior Vice President and Chief Administrative Officer, Hill-Rom, Inc. | | 2007 to 2010 |
| | Vice President, General Counsel, and Secretary, Hill-Rom, Inc. | | 2003 to 2007 |
| | | | |
Timothy S. Fliss (56) | | Senior Vice President and Chief Human Resources Officer | | 2017 to present |
| | Vice President — Human Resources | | 2010 to 2016 |
| | Executive Vice President — Human Resources, Schneider National, Inc. | | 2003 to 2009 |
| | Vice President — Human Resources, Schneider National, Inc. | | 1995 to 2003 |
| | Various operational positions within Schneider National, Inc. | | 1990 to 1995 |
| | | | |
William E. Jackson (56) | | Senior Vice President and Chief Technology Officer | | 2017 to present |
| | Vice President and Chief Technology Officer | | 2013 to 2016 |
| | Vice President of Global Research and Development — Dow Building and Construction | | 2007 to 2013 |
| | Various management positions — General Electric | | 1992 to 2007 |
| | | | |
Jerry S. Krempa (58) | | Vice President and Chief Accounting Officer | | 2017 to present |
| | Vice President and Controller | | 2011 to 2016 |
| | Various finance management positions within the Company | | 1998 to 2011 |
| | | | |
Fred Stephan (53) | | President, Bemis North America | | 2017 to present |
| | Senior Vice President & General Manager of the Insulation Systems - Johns Manville | | 2011 to 2017 |
| |
(1) | Identified operation was a 100 percent owned subsidiary or division of the Company. |
ITEM 11 — EXECUTIVE COMPENSATION
The information required to be submitted in response to this item is omitted because a definitive proxy statement or an amendment to this Annual Report on Form 10-K containing such information is expected to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after December 31, 2018, and such information is expressly incorporated herein by reference.
ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Equity compensation plans as of
December 31, 2018 were as follows: | | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights | | Weighted-average
exercise price of
outstanding options,
warrants and rights | | Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) | |
Plan Category | | (a) | | (b) | | (c) | |
Equity compensation plans approved by security holders | | 1,166,757 | (1) | N/A | (2) | 1,290,386 | (3) |
Equity compensation plans not approved by security holders | | — | | N/A | | — | |
Total | | 1,166,757 | (1) | N/A | (2) | 1,290,386 | (3) |
(1)
|
| | | | | | | | | |
| | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
| Plan Category | | (a) | | (b) | | (c) | |
| Equity compensation plans approved by security holders | | 1,166,757 |
| (1) | N/A | (2) | 1,290,386 |
| (3) |
| Equity compensation plans not approved by security holders | | — |
| | N/A | | — |
| |
| Total | | 1,166,757 |
| (1) | N/A | (2) | 1,290,386 |
| (3) |
| |
(1) | Includes restricted stock units. |
| |
(2) | Restricted stock units do not have an exercise price. |
| |
(3) | Includes restricted stock units. (2) Restricted stock units do not have an exercise price. (3)May be issued as options or restricted stock units. |
The additional information required to be submitted in response to this item is omitted because a definitive proxy statementissued as options or an amendment to this Annual Report on Form 10-K containing such information is expected to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after restricted stock units.December 31, 2018, and such information is expressly incorporated herein by reference.
ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
TRANSACTIONS WITH RELATED PERSONSOur Board of Directors has approved a written policy whereby the Audit Committee must approve any transaction with a related person, as defined in Item 404 of Regulation S-K (“Related Person Transaction”), before commencement of such transaction; provided, however, that if the transaction is identified after it commences, it shall be brought to the Audit Committee for ratification. The Related Person Transaction should be presented to the Audit Committee by an Executive Officer requesting that the Audit Committee consider the Related Person Transaction at its next meeting. The Executive Officer presenting the transaction must advise the Audit Committee of all material terms of the transaction.
The Audit Committee has delegated authority to the Audit Committee Chairman to, upon request of an Executive Officer, approve Related Person Transactions if they arise between Audit Committee meetings. The Chairman may take any action with respect to such Related Person Transaction that the Audit Committee would be authorized to take, or, in his or her discretion, require that the matter be brought before the full Audit Committee. Any action taken by the Chairman shall be reported to the Audit Committee at its next regularly scheduled meeting.
Standards for Approval of Transactions
The Audit Committee will analyze the following factors, in addition to any other factors the Committee deems appropriate, in determining whether to approve a Related Person Transaction:
· Whether the terms of the transaction are fair;
· Whether the transaction is material to us;
· The role the related person has played in arranging the Related Person Transaction;
· The structure of the Related Person Transaction; and
· The interests of all related persons in the Related Person Transaction.
A Related Person Transaction will only be approved by the Audit Committee if the Audit Committee determines that the Related Person Transaction is beneficial to us and the terms of the Related Person Transaction are fair.
Approval Process
The Audit Committee may, in its sole discretion, approve or deny any Related Person Transaction. Approval of a Related Person Transaction may be conditioned upon us and the related person taking any or all of the following additional actions, or any other actions that the Audit Committee deems appropriate:
· Requiring the related person to resign from, or change position within, an entity that is involved in the Related Person Transaction;
· Assuring that the related person will not be directly involved in negotiating the terms of the Related Person Transaction or in the ongoing relationship between us and the other persons or entities involved in the Related Person Transaction;
· Limiting the duration or magnitude of the Related Person Transaction;
· Requiring that information requiredabout the Related Person Transaction be documented and that reports reflecting the nature and amount of the Related Person Transaction be delivered to be submittedthe Audit Committee on a regular basis;
· Requiring that we have the right to terminate the Related Person Transaction by giving a specified period of advance notice; or
· Appointing a Company representative to monitor various aspects of the Related Person Transaction.
In the case of any transaction for which ratification is sought, the Audit Committee may require amendment or termination of the transaction, or implementation of the above actions, if the Audit Committee does not ratify the transaction.
Transactions with Related Persons during Fiscal Year 2018
Item 404 of Regulation S-K requires that we disclose any transactions between us and any related persons, as defined by Item 404, in response to this item is omitted becausewhich the amount involved exceeds $120,000 and in which any related party had or will have a definitive proxy statementdirect or an amendment to this Annual Report on Form 10-K containing such information is expected to be filed withindirect material interest. During fiscal year 2018, there were no Related Person Transactions meeting the Securities and Exchange Commission pursuant torequirements of Item 404 of Regulation 14A within 120 days after S-K.
December 31, 2018, and such information is expressly incorporated herein by reference.
ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information requiredfollowing table presents aggregate fees for professional audit services rendered by PricewaterhouseCoopers LLP (“PwC”) for the audit of the Company’s annual financial statements for the years ended December 31, 2018 and 2017, and fees billed for other services rendered by PwC during those periods.
| | 2018 | | 2017 | |
Audit Fees(1) | | $ | 3,464,508 | | $ | 3,356,806 | |
Audit-Related Fees(2) | | 214,900 | | 152,203 | |
Tax Fees(3) | | 132,066 | | 95,457 | |
Other Fees(4) | | 973,300 | | 738,395 | |
TOTAL FEES | | $ | 4,784,774 | | $ | 4,342,861 | |
(1)Audit Fees — These are fees for professional services performed by PwC for the integrated audits of the Company’s annual financial statements and reviews of financial statements included in the Company’s 10-Q filings and services that are normally provided in connection with statutory and regulatory filings or engagements.
(2)Audit-Related Fees — These are fees for the assurance and related services performed by PwC that are reasonably related to the performance of the audit or review of the Company’s financial statements. For 2018, this included amounts related to the adoption of the lease accounting standard. For 2017, the fees primarily related to additional work for the adoption of the revenue recognition standard.
(3)Tax Fees — These are fees for professional services performed by PwC with respect to tax compliance, tax advice and tax planning. This includes review and/or preparation of certain foreign tax returns and tax consulting.
(4)Other Fees — The 2018 and 2017 fees paid to PwC were primarily for transaction due diligence.
The Audit Committee approved all audit and non-audit services provided to the Company by PwC in accordance with its policy, prior to management engaging the auditor for that purpose. The Committee’s current practice is to consider for pre-approval quarterly all audit and non-audit services that management recommends to be submitted in responseprovided by PwC. In making its recommendation to this itemappoint PwC as the Company’s independent registered public accounting firm, the Audit Committee has considered whether the provision of the non-audit services rendered by PwC is omitted because a definitive proxy statement or an amendment to this Annual Report on Form 10-K containing such information is expected to be filedcompatible with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after December 31, 2018, and such information is expressly incorporated herein by reference.
maintaining that firm’s independence.
ITEM 15 — EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
|
|
| Pages in
Original Filing |
| | |
| | Pages in Form 10-K |
(a) Financial Statements, Financial Statement Schedule, and Exhibits | | |
| | | | |
| | |
| | Management’s Responsibility Statement | | 35 |
| | Report of Independent Registered Public Accounting Firm | | 36 |
| | Consolidated Statement of Income | | 37 |
| | Consolidated Statement of Comprehensive Income | | 38 |
| | Consolidated Balance Sheet | | 39 |
| | Consolidated Statement of Cash Flows | | 40 |
| | Consolidated Statement of Equity | | 41 |
| | Notes to Consolidated Financial Statements | | 42 |
| | | | |
(2) Financial Statement Schedule | | |
| | Schedule II - Valuation and Qualifying Accounts and Reserves | |
| All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. |
| | |
(3) Exhibits
| 82 |
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
(3) Exhibits
|
Exhibit | | Description | | | | |
Exhibit | | Description | | Form of Filing |
2
|
| (a)
| | |
2 | (a) | | Transaction Agreement, dated as of August 6, 2018, by and among the Registrant, Amcor Limited, Arctic Jersey Limited and Arctic Corp. Certain schedules and exhibits have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request. (Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K dated August 6, 2018. (File No. 1-5277)). | | Incorporated by Reference |
3 |
| (a) | | | |
3 | (a) | | Restated Articles of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit 3(a) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004. (File No. 1-5277)). | | Incorporated by Reference |
3 |
| (b) | | | |
3 | (b) | | By-Laws of the Registrant, as amended through October 7, 2016. Incorporated by reference to Exhibit 3(ii) to the Registrant’s Current Report on Form 8-K dated October 7, 2016. (File No. 1-5277)). | | Incorporated by Reference |
4 |
| (a) | | | |
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 Registrant 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 Registrant 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. (Incorporated by reference to Exhibit 4(a) to the Registrant’s Current Report on Form 8-K dated June 30, 1995 (File No. 1-5277)). | | Incorporated by Reference |
4 |
(b) | (b) | | | | Incorporated by Reference |
| | | | | |
10 | (a) | | Amendment No. 2 to Third Amended and Restated Credit Agreement, dated as of July 22, 2016, by and among the Registrant, the Borrowing Subsidiaries party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, and various financial institutions. (Incorporated by reference to Exhibit 10 to the Registrant’s Current Report on Form 8-K dated July 22, 2016 (File No. 1-5277)). | | Incorporated by Reference |
| | | | | |
10 | (b) | | Bemis Deferred Compensation Plan, as amended effective January 1, 2009.* (Incorporated by reference to Exhibit 10(p) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 1-5277)). | | Incorporated by Reference |
| | | | | |
10 | (c) | | Bemis Company, Inc. Supplemental Retirement Plan, Amended and Restated as of January 1, 2014.* (Incorporated by reference to Exhibit 10(c) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 (File No. 1-5277)). | | Incorporated by Reference |
| | | | | |
10 | (d) | | Bemis Company, Inc. Supplemental Retirement Plan for Senior Officers, Amended and Restated as of January 1, 2014.* (Incorporated by reference to Exhibit 10(d) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 (File No. 1-5277)). | | Incorporated by Reference |
| | | | | |
10 | (e) | | Bemis Company, Inc. 2014 Stock Incentive Plan.* (Incorporated by reference to Exhibit B to the Registrant’s Definitive Proxy Statement filed with the SEC on March 18, 2014 (File No. 1-5277)). | | Incorporated by Reference |
| | | | | |
10 | (f) | | Bemis Supplemental BIPSP (As amended effective January 1, 2014).* (Incorporated by reference to Exhibit 10(f) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 (File No. 1-5277)). | | Incorporated by Reference |
| | | | | |
10 | (g) | | Bemis Company, Inc. Long Term Deferred Compensation Plan, Amended and Restated as of August 4, 1999.* (Incorporated by reference to Exhibit 10(g) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-5277)). | | Incorporated by Reference |
| | | | | |
10 | (h) | | Bemis Company, Inc. Form of Management Contract with Principal Executive Officers.* (Incorporated by reference to Exhibit 10(c) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 (File No. 1-5277)). | | Incorporated by Reference |
| | | | | |
10 | (i) | | Bemis Company, Inc. 1997 Executive Officer Performance Plan, as amended effective May 7, 2015.* (Incorporated by reference to Exhibit A to the Registrant’s Definitive Additional Materials filed with the SEC on April 3, 2015 (File No. 1-5277)). | | Incorporated by Reference |
| | | | | |
10 | (j) | | Bemis Company, Inc. Form of Management Contract with Principal Executive Officers Effective January 1, 2009.* (Incorporated by reference to Exhibit 10(t) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009 (File No. 1-5277)). | | Incorporated by Reference |
| | | | | |
10 | (k) | | Agreement, dated as of March 16, 2018, by and among the Registrant, Starboard Value LP and the additional parties thereto. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated March 16, 2018 (File No. 1-5277)). | | Incorporated by Reference |
| | | | | |
10 | (l) | | Bemis Company, Inc. Form of Retention Agreement with Certain Executive Officers.* (Incorporated by reference to Exhibit 10 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 (File No. 1-5277)). | | Incorporated by Reference |
| | | | | |
21 | | | Subsidiaries of the Registrant. (Previously filed as Exhibit 21 to the Original Filing). | | Previously Filed with Original Filing |
|
| | | | | | |
| 10 |
| (a) | | Amendment No. 2 to Third Amended and Restated Credit Agreement, dated as of July 22, 2016, by and among the Registrant, the Borrowing Subsidiaries party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Syndication Agent, and various financial institutions. (Incorporated by reference to Exhibit 10 to the Registrant’s Current Report on Form 8-K dated July 22, 2016 (File No. 1-5277)). | | Incorporated by Reference |
| 10 |
| (b) | | | | Incorporated by Reference |
| 10 |
| (c) | | | | Incorporated by Reference |
| 10 |
| (d) | | | | Incorporated by Reference |
| 10 |
| (e) | | | | Incorporated by Reference |
| 10 |
| (f) | | | | Incorporated by Reference |
| 10 |
| (g) | | | | Incorporated by Reference |
| 10 |
| (h) | | | | Incorporated by Reference |
| 10 |
| (i) | | | | Incorporated by Reference |
| 10 |
| (j) | | | | Incorporated by Reference |
| 10 |
| (k) | | | | Incorporated by Reference |
| 10 |
| (l) | | | | Incorporated by Reference |
| 21 |
| | | | | Filed Electronically |
| 23 |
| | | | | Filed Electronically |
| 31 |
| .1 | | | | Filed Electronically |
| 31 |
| .2 | | | | Filed Electronically |
| 32 |
| | | | | Filed Electronically |
| 101 |
| | | Interactive data files. | | Filed Electronically |
|
| |
* | Management contract, compensatory plan or arrangement filed pursuant to Rule 601(b)(10)(iii)(A) of Regulation S-K under the Securities Exchange Act of 1934. |
ITEM 16 — FORM 10-K SUMMARY
None.
Pursuant to the requirements of Section 13 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. |
| | | | |
By | | | | |
By | /s/ Michael B. Clauer | | By | /s//s/ Jerry S. Krempa |
| Michael B. Clauer, Senior Vice President and Chief Financial Officer | | | Jerry S. Krempa, Vice President and Chief Accounting Officer |
| Date February 15, 2019 | | | Date February 15, 2019 |
| Date March 21, 2019 | | | Date March 21, 2019 |
37
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons (including a majority of the Board of Directors) on behalf of the Registrant and in the capacities and on the dates indicated.
|
| | |
/s/ Michael B. Clauer | | /s/ Jerry S. Krempa |
Michael B. Clauer, Senior Vice President and Chief Financial Officer | | Jerry S. Krempa, Vice President and Chief Accounting Officer |
Date February 15, 2019 | | Date February 15, 2019 |
| | |
/s/ William F. Austen | | /s/ Katherine C. Doyle |
William F. Austen, Director, President, and Chief Executive Officer | | Katherine C. Doyle, Director |
| Date February 15, 2019 |
Date February 15, 2019 | | |
| | |
/s/ Adele M. Gulfo | | /s/ David S. Haffner |
Adele M. Gulfo, Director | | David S. Haffner, Director |
Date February 15, 2019 | | Date February 15, 2019 |
| | |
/s/ Timothy M. Manganello | | /s/ Arun Nayar |
Timothy M. Manganello, Chairman of the Board | | Arun Nayar, Director |
Date February 15, 2019 | | Date February 15, 2019 |
| | |
/s/ Guillermo Novo | | /s/ Marran H. Ogilvie |
Guillermo Novo, Director | | Marran H. Ogilvie, Director |
Date February 15, 2019 | | Date February 15, 2019 |
| | |
/s/ David T. Szczupak | | /s/ Holly A. Van Deursen |
David T. Szczupak, Director | | Holly A. Van Deursen, Director |
Date February 15, 2019 | | Date February 15, 2019 |
| | |
/s/ Philip G. Weaver | | /s/ George W. Wurtz III |
Philip G. Weaver, Director | | George W. Wurtz III, Director |
Date February 15, 2019 | | Date February 15, 2019 |
| | |
/s/ Robert H. Yanker | | |
Robert H. Yanker, Director | | |
Date February 15, 2019 | | |
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Balance at | | Additions | | | | | | | | Foreign | | | | | | Balance |
| | | Beginning | | Charged to | | | | | | | | Currency | | | | | | at Close |
| Year Ended December 31, | | of Year | | Profit & Loss | | | | Write-offs | | | | Impact | | Other | | | | of Year |
| RESERVES FOR DOUBTFUL ACCOUNTS, SALES RETURNS, DISCOUNTS, AND ALLOWANCES |
| 2018 | | $ | 17.7 |
| | $ | 28.1 |
| | | | $ | (27.5 | ) | | | | $ | (1.9 | ) | | $ | — |
| | | | $ | 16.4 |
|
| 2017 | | 18.2 |
| | 30.5 |
| | | | (31.2 | ) | | | | 0.2 |
| | — |
| | | | 17.7 |
|
| 2016 | | 18.0 |
| | 27.5 |
| | | | (28.1 | ) | | | | 0.1 |
| | 0.7 |
| | (2) | | 18.2 |
|
| | | | | | | | | | | | | | | | | | | |
| VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS |
| 2018 | | $ | 48.5 |
| | $ | (5.8 | ) | | (1) | | $ | (9.0 | ) | | | | $ | (0.6 | ) | | $ | — |
| | | | $ | 33.1 |
|
| 2017 | | 40.3 |
| | 6.6 |
| | (1) | | — |
| | | | 1.6 |
| | — |
| | | | 48.5 |
|
| 2016 | | 42.0 |
| | (1.1 | ) | | (1) | | — |
| | | | (0.6 | ) | | — |
| | | | 40.3 |
|
| |
(1) | Represents charge to profit and loss, net of valuation allowance reversals, if any. |
| |
(2) | Reserve accruals related to acquisition of the SteriPack operations. |
