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| SEE > SEC Filings for SEE > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
The information in this Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with the Company's condensed consolidated financial statements and related notes set forth in Item 1 of Part I of this quarterly report on Form 10-Q, Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 of Part II of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and the Company's consolidated financial statements and related notes set forth in Item 8 of Part II of that Form 10-K. See Part II, Item 1A, "Risk Factors" and "Cautionary Notice Regarding Forward-Looking Statements," below, for a description of risks that the Company faces and important factors that the Company believes could cause actual results to differ materially from those in the Company's forward-looking statements. All amounts and percentages are approximate due to rounding.
Recent Events
In February 2009, the Company completed a private offering of $300.0 million of 12% senior unsecured notes due 2014. The Company intends to use the net proceeds of the offering, in addition to the Company's existing financing facilities and its cash flow from operations, to provide for its 2009 debt obligations, as well as the cash payment under the Settlement agreement, if such payment is required in 2009. The Company expects to incur approximately $33.0 million of additional interest expense in 2009 related to these senior notes.
Upon receipt of these funds, the Company repaid amounts outstanding under its revolving credit facility and its accounts receivable securitization program and retained the balance in cash and cash equivalents on the condensed consolidated balance sheets.
On April 16, 2009, the Company's Board of Directors declared a quarterly cash dividend of $0.12 per common share. This dividend is payable on June 19, 2009 to stockholders of record at the close of business on June 5, 2009. The estimated amount of this dividend payment is $19.0 million based on 158.6 million shares of the Company's common stock issued and outstanding as of April 30, 2009.
On February 19, 2009, the Company's Board of Directors declared a quarterly cash dividend of $0.12 per common share that was paid on March 20, 2009 to shareholders of record at the close of business on March 6, 2009. The Company used $19.0 million from available cash to pay this quarterly cash dividend.
Highlights of Financial Performance
Highlights of the Company's financial performance in the first quarter of
2009 compared with the same period of 2008 were (dollars in millions):
First Quarter of
2009 2008 % Change
Net sales:
U.S. $ 471.1 $ 523.4 (10 )
% of total net sales 47.7 % 44.5 %
International 517.4 654.0 (21 )
% of total net sales 52.3 % 55.5 %
Total net sales $ 988.5 $ 1,177.4 (16 )
Gross profit $ 285.7 $ 305.1 (6 )
% of total net sales 28.9 % 25.9 %
Marketing, administrative and development expenses 166.2 186.4 (11 )
% of total net sales 16.8 % 15.8 %
Restructuring (credits) and other charges (0.4 ) 2.0 #
Operating profit $ 119.9 $ 116.7 3
% of total net sales 12.1 % 9.9 %
Net earnings $ 58.1 $ 60.8 (4 )
Net earnings per common share:
Basic $ 0.37 $ 0.38
Diluted $ 0.32 $ 0.33
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See below for further details about the changes in net sales by the Company's segment reporting structure and by geographic region and operating profit by the Company's segment reporting structure, and the material factors that contributed to the changes.
Net Sales by the Company's Segment Reporting Structure
The following table shows the Company's net sales by the Company's segment
reporting structure (dollars in millions):
First Quarter of
2009 2008 % Change
Net sales:
Food Packaging $ 424.0 $ 468.3 (9 )
As a % of total net sales 42.9 % 39.8 %
Food Solutions 205.2 235.7 (13 )
As a % of total net sales 20.8 % 20.0 %
Protective Packaging 280.1 372.9 (25 )
As a % of total net sales 28.3 % 31.7 %
Other 79.2 100.5 (21 )
As a % of total net sales 8.0 % 8.5 %
Total $ 988.5 $ 1,177.4 (16 )
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The components of the 16% decrease in net sales for the first quarter of 2009 as compared with the same period of 2008 were as follows (dollars in millions):
First Quarter of 2009 Food Packaging Food Solutions Protective Packaging Other Total Company
Volume-Units $ (21.6 ) (4.6 )% $ (12.2 ) (5.2 )% $ (74.9 ) (20.1 )% $ (29.9 ) (29.8 )% $ (138.6 ) (11.8 )%
Volume-Acquired businesses - - - - 2.2 0.6 - - 2.2 0.2
Product Price/Mix 28.0 6.0 6.4 2.7 1.1 0.3 13.9 13.9 49.4 4.2
Foreign currency translation (50.6 ) (10.9 ) (24.7 ) (10.4 ) (21.3 ) (5.7 ) (5.3 ) (5.3 ) (101.9 ) (8.7 )
Total $ (44.2 ) (9.5 )% $ (30.5 ) (12.9 )% $ (92.9 ) (24.9 )% $ (21.3 ) (21.2 )% $ (188.9 ) (16.1 )%
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The strengthening of foreign currencies in all regions against the U.S. dollar contributed to the unfavorable foreign currency translation impact of $101.9 million, or 8.7%, on net sales in 2009 compared with 2008. Excluding this unfavorable effect of foreign currency translation, net sales would have decreased 7.4% compared with 2008.
Excluding the impact of foreign currency translation indicated above, net sales would have increased $6.4 million, or 1.4%, in 2009 compared with 2008, which was primarily due to:
º •
º the favorable impacts of product price/mix in Latin America of
$13.4 million, or 19.3%, and in North America of $10.3 million, or
4.5%;
partially offset by:
º •
º decreases in unit volume in the United States of $11.6 million, or
5.6%, and in Latin America of $6.6 million, or 9.6%.
The favorable impacts of product price/mix in Latin America and in North America were primarily attributed to the positive impact of selling price increases implemented in December 2007 and in 2008 for most Food Packaging products.
The decrease in unit volume in the United States was primarily due to a decline in local meat production in 2009, which in turn resulted in lower sales of the Company's fresh meat packaging products. The decrease in unit volume in Latin America was primarily due to market factors in Brazil. Recent credit constraints experienced by Brazilian meat processors and, to a lesser extent, a decline in European imports of Brazilian beef, attributable to weak economic conditions in Europe, resulted in lower sales of the Company's fresh meat packaging products.
Excluding the impact of foreign currency translation indicated above, net sales would have decreased $5.8 million, or 2.5%, in 2009 compared with 2008, which was primarily due to:
º •
º decreases in unit volume in Europe of $9.5 million, or 9.7%, and in
North America of $4.2 million, or 4.4%;
partially offset by:
º •
º the favorable impacts of product price/mix in all regions.
The decrease in unit volume in Europe was primarily due to the unfavorable impact of reduced consumption of meats and cheeses in certain countries resulting from the continuing weakness in economic conditions in this region. The decrease in unit volume in the United States was primarily due to the residual effect of the previously announced change in 2007 by a large retailer opting to move
from a case ready packaging format to an alternative packaging format for a portion of its meat packaging.
The favorable impacts of product price/mix were primarily attributed to the positive impact of selling price increases implemented in December 2007 and in 2008 for most Food Solutions products.
Excluding the impact of foreign currency translation indicated above, net sales would have decreased $71.6 million, or 19.2%, in 2009 compared with 2008. This was primarily due to decreases in unit volume in North America of $39.9 million, or 19.9%, and in Europe of $24.0 million, or 20.4%, which were principally attributable to continued weak regional economic conditions. It is the Company's assessment that these volume declines were consistent with external manufacturing output, shipping and retail indicators.
Excluding the impact of foreign currency translation indicated above, net sales would have decreased $16.0 million, or 15.9%, in 2009 compared with 2008, which was primarily due to
º •
º decreases in unit volume in North America of $18.2 million, or 48.3%,
and in Europe of $9.6 million, or 19.7%;
partially offset by:
º •
º a favorable impact of product price/mix in North America of
$9.9 million, or 26.4%.
The decreases in unit volume in North America and in Europe were primarily attributed to lower unit volume in some of the Company's Specialty Materials products, which was principally the result of continued weak regional economic conditions and was consistent with manufacturing output indicators. The favorable impact of product price/mix was primarily attributed to the positive impact of selling price increases implemented in the second half of 2008 for most of the Company's Specialty Materials products.
Net Sales by Geographic Region
The following table shows net sales by geographic region (dollars in
millions):
First Quarter of %
2009 2008 Change
Net sales:
U.S. $ 471.1 $ 523.4 (10 )%
As a % of total net sales 47.7 % 44.5 %
International 517.4 654.0 (20 )
As a % of total net sales 52.3 % 55.5 %
Total net sales $ 988.5 $ 1,177.4 (16 )%
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By geographic region, the components of the $188.9 million decrease in net sales for the first quarter of 2009 compared with the same period of 2008 were as follows (dollars in millions):
First Quarter of 2009 U.S. International Total Company
Volume-Units $ (73.0 ) (13.9 )% $ (65.6 ) (10.0 )% $ (138.6 ) (11.8 )%
Volume-Acquired businesses, net of
dispositions 2.2 0.4 - - 2.2 0.2
Product Price/Mix 18.5 3.5 30.9 4.7 49.4 4.2
Foreign currency translation - - (101.9 ) (15.6 ) (101.9 ) (8.7 )
Total $ (52.3 ) (10.0 )% $ (136.6 ) (20.9 )% $ (188.9 ) (16.1 )%
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See "Net Trade Sales by the Company's Segment Reporting Structure" above for details of the factors and regions that contributed to this net increase.
Cost of Sales
The following table shows the Company's cost of sales (dollars in millions):
First Quarter of %
2009 2008 Change
Cost of sales $ 702.8 $ 872.3 (19 )%
As a % of net sales 71.1 % 74.1 %
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Excluding a favorable impact of foreign currency translation of $78.4 million, cost of sales would have decreased $91.1 million in 2009 compared with 2008, which was primarily due to the impact of lower unit volumes mentioned above and lower average petrochemical-based raw material costs of approximately $50.0 million. Also contributing to the decrease in cost of sales in 2009 compared with 2008 were realized benefits from the Company's 2008 cost reduction and productivity program and its global manufacturing strategy.
Marketing, Administrative and Development Expenses
The following table shows the Company's marketing, administrative and
development expenses (dollars in millions):
First Quarter of %
2009 2008 Change
Marketing, administrative and development expenses $ 166.2 $ 186.4 (11 )%
As a % of net sales 16.8 % 15.8 %
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Excluding a favorable impact of foreign currency translation of $11.9 million, these expenses would have decreased $8.3 million, which was primarily due to:
º •
º lower employee salary and benefits costs of approximately $6.0 million
in 2009 related to the reduction of headcount in connection with the
Company's 2008 cost reduction and productivity program;
º •
º reduced expenses of $2.7 million in 2009 related to the completion of
the upgrade of the Company's information technology platforms in 2008;
and
º •
º reduced expenses due to the favorable impact of expense control
initiatives in 2009.
These items were partially offset by an increase in provision of bad debt expense of $2.7 million, related to current adverse credit conditions primarily affecting some of the Company's Food Packaging customers in Latin America and Protective Packaging customers in North America and Europe.
Cost Reduction and Productivity Program and Global Manufacturing Strategy
Cost Reduction and Productivity Program
In the third quarter of 2008, the Company implemented a cost reduction and productivity program. The components of the restructuring accrual, which was primarily for termination benefits, through March 31, 2009 and the accrual balance remaining at March 31, 2009 related to this program are included in the table below. The Company expects to incur additional modest costs associated with this program in the remainder of 2009. In the first quarter of 2009, the Company realized approximately $13.0 million of savings in cost of sales and in marketing, administrative and development expenses. The Company expects annual savings from this program to be between $50.0 million and $60.0 million beginning in 2009.
Restructuring accrual at December 31, 2008 $ 43.7
Cash payments made during 2009 (14.7 )
Effect of changes in foreign currency rates (1.2 )
Restructuring accrual at March 31, 2009 $ 27.8
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The Company expects to pay $26.8 million of the accrual balance remaining at March 31, 2009 within the next 12 months. This amount is included in other current liabilities on the condensed consolidated balance sheet at March 31, 2009. The remaining accrual of $1.0 million is expected to be paid by the end of 2010 and is included in other liabilities on the condensed consolidated balance sheet at March 31, 2009.
Global Manufacturing Strategy
The Company's global manufacturing strategy, when fully implemented, will expand production in regions where demand for the Company's products and services has been growing significantly. At the same time, the Company is optimizing certain manufacturing platforms in North America and Europe into centers of excellence. The goals of this multi-year program are to expand capacity in growing markets, further improve the Company's operating efficiencies, and implement new technologies more effectively. By taking advantage of new technologies and streamlining production on a global scale, the Company expects to continue to enhance its profitable growth and its global leadership position and produce meaningful savings.
The Company announced the first phase of this multi-year global manufacturing strategy in July 2006. At the end of 2008, the construction phase of the program was substantially complete. The capital expenditures and associated costs and related restructuring charges and the total amounts incurred since inception of this multi-year strategy are included in the table below. The Company has realized approximately $25.0 million in benefits from this program in the full year of 2008, and these benefits are expected to increase to annual benefits of $45.0 million in 2009 and to $55.0 million in 2010 and thereafter. The actual timing of future capital expenditures and related costs is subject to
change due to a variety of factors that may cause a portion of the spending and resulting benefits to occur in future periods.
Three Months Ended
March 31, Cumulative
Through
2009 2008 March 31, 2009
Capital expenditures $ 6.2 $ 8.7 $ 138.9
Associated costs(1) 3.1 2.4 25.7
Restructuring (credits) (0.2 ) 2.0 31.6
and other charges(2)
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º (1)
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Three Months
Ended March 31,
2009 2008
Food Packaging $ 2.5 $ 0.8
Food Solutions 0.1 -
Protective Packaging 0.5 1.3
Other - 0.3
Total $ 3.1 $ 2.4
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º (2)
º The restructuring (credits) and other charges were primarily for
termination benefits, the majority of which were related to the
Food Packaging segment. These charges were included in
restructuring (credits) and other charges on the condensed
consolidated statements of operations. See Note 3, "Segments,"
for restructuring (credits) and other charges by reportable
segment and Other. A reconciliation of the restructuring accrual
is included below.
The components of the restructuring accrual through March 31, 2009 and the accrual balance remaining at March 31, 2009 were as follows:
Restructuring accrual at December 31, 2008 $ 14.4
Adjustment to accrual for termination benefits (0.6 )
Cash payments during 2009 (0.7 )
Effect of changes in foreign currency rates (0.2 )
Restructuring accrual at March 31, 2009 $ 12.9
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The Company expects to pay $10.4 million of the accrual balance remaining at March 31, 2009 within the next 12 months. This amount is included in other current liabilities on the Company's condensed consolidated balance sheet at March 31, 2009. The remaining accrual of $2.5 million is expected to be paid by the end of 2010 and is included in other liabilities on the Company's condensed consolidated balance sheet at March 31, 2009.
Operating Profit
Management evaluates the performance of each reportable segment based on its
operating profit. Operating profit by the Company's segment reporting structure
for the 2009 and 2008 periods was as follows (dollars in millions):
First Quarter of
2009 2008
Operating profit:
Food Packaging $ 58.6 $ 56.2
As a % of Food Packaging net sales 13.8 % 12.0 %
As a % of total operating profit(1) 49.1 % 47.3 %
Food Solutions $ 22.5 $ 16.9
As a % of Food Solutions net sales 11.0 % 7.2 %
As a % of total operating profit(1) 18.8 % 14.2 %
Protective Packaging $ 34.2 $ 41.4
As a % of Protective Packaging net sales 12.2 % 11.1 %
As a % of total operating profit(1) 28.6 % 34.9 %
Other $ 4.2 $ 4.2
As a % of Other net sales 5.3 % 4.2 %
As a % of total operating profit(1) 3.5 % 3.6 %
Total segments and other $ 119.5 $ 118.7
As a % of total net sales 12.1 % 10.1 %
Restructuring (credits) and other charges(2) (0.4 ) 2.0
Total $ 119.9 $ 116.7
As a % of total net sales 12.1 % 9.9 %
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º (1)
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º (2)
º The restructuring (credits) and other charges by the Company's
segment reporting structure were as follows:
First Quarter of
2009 2008
Food Packaging $ (0.5 ) $ 1.9
Food Solutions 0.1 -
Protective Packaging - 0.1
Other - -
Total $ (0.4 ) $ 2.0
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See "Cost Reduction and Productivity Program and Global Manufacturing Strategy," above for further discussion of the Company's restructuring (credits) and other charges.
The increase in operating profit in 2009 compared with 2008 was primarily due to the favorable impact of product price/mix mentioned above and lower average petrochemical-based raw material costs of approximately $15.0 million. These items were partially offset by the decrease in unit volume mentioned above.
The increase in operating profit in 2009 compared with 2008 was primarily due to lower average petrochemical-based raw material costs of approximately $10.0 million and the favorable impact of product price/mix mentioned above. These items were partially offset by the decrease in unit volume mentioned above.
The decrease in operating profit in 2009 compared with 2008 was primarily due to the decline in unit volumes mentioned above, partially offset by lower average petrochemical-based raw material costs of approximately $20.0 million.
Operating profit was flat in 2009 compared with 2008. Other operating profit as a percentage of net sales increased primarily due to lower average petrochemical based raw material costs and favorable product price/mix, partially offset by the decrease in unit volume.
Interest Expense
The following table provides details of the Company's interest expense (in
millions):
First Quarter of
2009 2008
Interest expense on the amount payable
pursuant to the asbestos Settlement
agreement $ 9.8 $ 9.2
Interest expense on the Company's
senior notes:
5.375% Senior Notes matured April
2008 - 6.1
6.95% Senior Notes due May 2009 2.4 4.0
5.625% Senior Notes due July 2013 5.5 5.5
. . .
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