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| SEE > SEC Filings for SEE > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-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 and all dollars are in millions.
Recent Events
On July 19, 2009, the Company redeemed all of its $431.3 million of 3% Convertible Senior Notes due 2033. The Company used net proceeds from its issuance of $400.0 million 7.875% Senior Notes on June 18, 2009 and available cash to redeem the 3% Convertible Senior Notes.
On May 15, 2009, the Company retired all of its remaining outstanding 6.95% Senior Notes on their maturity date. The $136.7 million face value and $4.7 million of accrued interest was paid primarily with available cash.
See Note 10, "Debt and Credit Facilities," of Notes to Condensed Consolidated Financials for further information.
During the first six months of 2009, the Company paid quarterly cash dividends on March 20, 2009 and on June 19, 2009. The Company used $38.0 million of available cash to pay these quarterly cash dividends.
On July 23, 2009, the Company's Board of Directors declared a quarterly cash dividend of $0.12 per common share payable on September 18, 2009. The estimated amount of this dividend payment is $19.1 million based on approximately 159.0 million shares of the Company's common stock issued and outstanding as of July 31, 2009.
Highlights of Financial Performance
Highlights of the Company's financial performance in the second quarter and
first six months of 2009 compared with the same period of 2008 were:
Second Quarter of % First Six Months of %
2009 2008 Change 2009 2008 Change
Net sales:
U.S. $ 495.7 $ 575.7 (14 )% $ 966.8 $ 1,099.1 (12 )%
As a % of total net
sales 48.2 % 45.0 % 47.9 % 44.7 %
International 532.3 703.1 (24 ) 1,049.7 1,357.1 (23 )
As a % of total net
sales 51.8 % 55.0 % 52.1 % 55.3 %
Total net sales $ 1,028.0 $ 1,278.8 (20 ) $ 2,016.5 $ 2,456.2 (18 )
Gross profit $ 288.1 $ 330.2 (13 ) $ 573.8 $ 635.3 (10 )
As a % of total net
sales 28.0 % 25.8 % 28.5 % 25.9 %
Marketing, administrative
and development expenses 169.3 203.3 (17 ) 335.5 389.7 (14 )
As a % of total net
sales 16.5 % 15.9 % 16.6 % 15.9 %
Restructuring and other
charges 0.7 0.5 40 0.3 2.5 (88 )
Operating profit $ 118.1 $ 126.4 (7 ) $ 238.0 $ 243.1 (2 )
As a % of total net
sales 11.5 % 9.9 % 11.8 % 9.9 %
Net earnings available to
common stockholders $ 60.5 $ 62.6 (3 )% $ 118.6 $ 123.4 (4 )%
Net earnings per common
share:
Basic $ 0.38 $ 0.39 $ 0.75 $ 0.77
Diluted $ 0.33 $ 0.34 $ 0.65 $ 0.67
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The Company's unit volume results, detailed below, for both the second quarter and the first six months of 2009 were lower than comparable periods in the last decade primarily due to global economic conditions. These lower unit volumes were judged by management to be consistent with the Company's peers in each segment, and with proxies for customer demand in each segment and geographic region. The Company's Protective Packaging segment and Specialty Materials business were the most impacted by the recessionary conditions. These two businesses represent approximately 32% of the Company's consolidated net sales in the first six months of 2009. The Company does not believe that the unit volume decline experienced in each segment represents a shift in the Company's market position or the competitiveness or quality of its products and solutions.
Comparing the second quarter of 2009 with the first quarter of 2009, or sequentially, unit volume results reflected a stabilization in demand across each of the Company's segments.
The Company's product price/mix results were positive in both the second quarter and the first six months of 2009, primarily due to the benefits of the Company's pricing initiatives in 2008. Product price/mix declined sequentially in the second quarter which reflected limited price concessions in some areas of the business, attributable both to the impact of stabilizing input costs, the timing of 2008 price increases and competitive situations.
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 further details of 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:
Second Quarter of % First Six Months of %
2009 2008 Change 2009 2008 Change
Net sales:
Food Packaging $ 448.7 $ 518.9 (14 )% $ 872.7 $ 987.2 (12 )%
As a % of total 43.7 % 40.6 % 43.2 % 40.2 %
net sales
Food Solutions 220.2 259.4 (15 ) 425.4 495.1 (14 )
As a % of total 21.4 % 20.3 % 21.1 % 20.2 %
net sales
Protective Packaging 281.8 391.6 (28 ) 561.9 764.5 (27 )
As a % of total 27.4 % 30.6 % 27.9 % 31.1 %
net sales
Other 77.3 108.9 (29 ) 156.5 209.4 (25 )
As a % of total 7.5 % 8.5 % 7.8 % 8.5 %
net sales
Total $ 1,028.0 $ 1,278.8 (20 )% $ 2,016.5 $ 2,456.2 (18 )%
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The components of the 20% decrease in net sales for the second quarter of 2009 as compared with the same period of 2008 were as follows:
Food Food Protective Total
Second Quarter of 2009 Packaging Solutions Packaging Other Company
Volume-Units $ (43.4 ) (8.4 )% $ (15.4 ) (5.9 )% $ (80.0 ) (20.4 )% $ (19.0 ) (17.4 )% $ (157.8 ) (12.3 )%
Volume-Acquired businesses - - - - - - 0.2 0.2 0.2 -
Product Price/Mix 27.8 5.4 5.9 2.3 (5.1 ) (1.3 ) (4.7 ) (4.4 ) 23.9 1.9
Foreign currency translation (54.6 ) (10.5 ) (29.7 ) (11.4 ) (24.7 ) (6.3 ) (8.1 ) (7.4 ) (117.1 ) (9.1 )
Total $ (70.2 ) (13.5 )% $ (39.2 ) (15.0 )% $ (109.8 ) (28.0 )% $ (31.6 ) (29.0 )% $ (250.8 ) (19.5 )%
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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 $117.1 million, or 9%, on net sales in 2009 compared with 2008. Excluding this unfavorable effect of foreign currency translation, net sales would have decreased 10% compared with 2008. (See Non-GAAP Information, below, for a discussion of financial measures contained in this Quarterly Report on Form 10-Q that exclude the effects of foreign currency translation.)
Food Food Protective Total
First Six Months of 2009 Packaging Solutions Packaging Other Company
Volume-Units $ (65.0 ) (6.6 )% $ (27.6 ) (5.6 )% $ (154.9 ) (20.3 )% $ (48.9 ) (23.3 )% $ (296.4 ) (12.1 )%
Volume-Acquired businesses - - - - 2.2 0.3 0.2 0.1 2.4 0.1
Product Price/Mix 55.8 5.6 12.3 2.5 (4.0 ) (0.5 ) 9.2 4.4 73.3 3.0
Foreign currency translation (105.3 ) (10.7 ) (54.4 ) (11.0 ) (45.9 ) (6.0 ) (13.4 ) (6.4 ) (219.0 ) (8.9 )
Total $ (114.5 ) (11.7 )% $ (69.7 ) (14.1 )% $ (202.6 ) (26.5 )% $ (52.9 ) (25.2 )% $ (439.7 ) (17.9 )%
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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 $219.0 million, or 9%, on net sales in 2009 compared with 2008. Excluding this unfavorable effect of foreign currency translation, net sales would have decreased 9% compared with 2008.
Food Packaging Segment Net Sales
Second Quarter 2009 compared with 2008
Excluding the impact of foreign currency translation indicated above, net sales would have decreased $15.6 million, or 3%, in 2009 compared with 2008, which was primarily due to:
º •
º a decrease in unit volume in the United States of $29.1 million, or
12%;
partially offset by:
º •
º the favorable impact of product price/mix in the United States of
$14.1 million, or 6%;
The decrease in unit volume in the United States was primarily due to the favorable impact of accelerated buying in the second quarter of 2008 prior to the Company's enterprise software launch in the United States on July 1, 2008. To a lesser extent, the decrease was also due to a decline in local meat production in 2009, which in turn resulted in lower sales of the Company's Food Packaging products.
The favorable impact of product price/mix in the United States was primarily attributed to selling price increases implemented in the second and third quarters of 2008 for most Food Packaging products.
First Six Months of 2009 compared with 2008
Excluding the impact of foreign currency translation indicated above, net sales would have decreased $9.2 million, or 1%, in 2009 compared with 2008, which was primarily due to:
º •
º a decrease in unit volume in the United States of $40.7 million, or 9%
and in Europe of $12.1 million, or 6%;
partially offset by:
º •
º the favorable impact of product price/mix in the United States of
$22.9 million, or 5%;
The decrease in unit volume in the United States was primarily due to the favorable impact of accelerated buying in the second quarter of 2008 prior to the Company's enterprise software launch in the United States on July 1, 2008 and, to a lesser extent, a decline in local meat production in 2009, which in turn resulted in lower sales of the Company's Food Packaging products. The decrease in unit volume in Europe was primarily due to lower equipment sales, reflecting weak regional economic conditions.
The favorable impact of product price/mix in the United States was primarily attributed to selling price increases implemented in the second and third quarters of 2008 for most Food Packaging products.
Food Solutions Segment Net Sales
Second Quarter 2009 compared with 2008
Excluding the impact of foreign currency translation indicated above, net sales would have decreased $9.5 million, or 4%, in 2009 compared with 2008, which was primarily due to a decline in unit volume in Europe of $12.4 million, or 12%, partially offset by the favorable impact of product price/mix in Europe of $5.8 million, or 5%.
The decrease in unit volume in Europe was primarily due to the unfavorable impact of reduced consumption of certain meats in some countries resulting from the continuing weakness in economic conditions in this region, which in turn resulted in lower sales of the Company's case-ready packaging
products. The favorable impact of product price/mix was attributed to a favorable mix of case-ready packaging products sold in the quarter.
First Six Months of 2009 compared with 2008
Excluding the impact of foreign currency translation indicated above, net sales would have decreased $15.3 million, or 3%, in 2009 compared with 2008, which was primarily due to a decline in unit volume in Europe of $21.9 million, or 11%, partially offset by the favorable impact of product price/mix in Europe of $7.1 million, or 4%. These items were primarily attributable to the factors mentioned above.
Protective Packaging Segment Net Sales
Second Quarter 2009 compared with 2008
Excluding the impact of foreign currency translation indicated above, net sales would have decreased $85.1 million, or 22%, in 2009 compared with 2008. This decrease was primarily due to declines in unit volumes in North America of $43.1 million, or 20%, and in Europe of $24.6 million, or 21%, which were principally attributable to continued weak regional economic conditions consistent with external manufacturing output, and export and shipping trends.
First Six Months of 2009 compared with 2008
Excluding the impact of foreign currency translation indicated above, net sales would have decreased $156.7 million, or 21%, in 2009 compared with 2008. This decrease was primarily due to declines in unit volumes in North America of $83.0 million, or 20%, and in Europe of $48.6 million, or 21%, which were principally attributable to continued weak regional economic conditions consistent with external manufacturing output, and export and shipping trends.
Other Net Sales
Second Quarter 2009 compared with 2008
Excluding the impact of foreign currency translation indicated above, net sales would have decreased $23.5 million, or 22%, in 2009 compared with 2008, which was primarily due to declines in unit volume in Europe of $9.8 million, or 19% and in North America of $4.5 million, or 12%. The declines in unit volumes in North America and in Europe were primarily attributed to lower unit volumes in some of the Company's Specialty Materials products, which were principally the result of continued weak regional economic conditions and were consistent with external manufacturing output, and export and shipping trends.
First Six Months of 2009 compared with 2008
Excluding the impact of foreign currency translation indicated above, net sales would have decreased $39.5 million, or 19%, in 2009 compared with 2008, which was primarily due to declines in unit volume in Europe of $19.4 million, or 19% and in North America of $22.7 million, or 30%. The declines in unit volumes in North America and in Europe were primarily attributed to lower unit volumes in some of the Company's Specialty Materials products, which were principally the result of continued weak regional economic conditions and were consistent with external manufacturing output, and export and shipping trends.
Net Sales by Geographic Region
The following table shows net sales by geographic region:
Second Quarter of % First Six Months of %
2009 2008 Change 2009 2008 Change
Net sales:
U.S. $ 495.7 $ 575.7 (14 ) $ 966.8 $ 1,099.1 (12 )
As a % of total net sales 48.2 % 45.0 % 47.9 % 44.7 %
International 532.3 703.1 (24 ) 1,049.7 1,357.1 (23 )
As a % of total net sales 51.8 % 55.0 % 52.1 % 55.3 %
Total net sales $ 1,028.0 $ 1,278.8 (20 ) $ 2,016.5 $ 2,456.2 (18 )
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By geographic region, the components of the decrease in net sales for the second quarter of 2009 compared with the same period of 2008 were as follows:
Second Quarter of 2009 U.S. International Total Company
Volume-Units $ (79.1 ) (13.7 )% $ (78.7 ) (11.2 )% $ (157.8 ) (12.3 )%
Volume-Acquired businesses - - 0.2 - 0.2 -
Product Price/Mix (0.9 ) (0.2 ) 24.8 3.5 23.9 1.9
Foreign currency translation - - (117.1 ) (16.7 ) (117.1 ) (9.1 )
Total $ (80.0 ) (13.9 )% $ (170.8 ) (24.4 )% $ (250.8 ) (19.5 )%
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The components of the decrease in net sales for the first six months of 2009 compared with the same period of 2008 were as follows:
First Six Months of 2009 U.S. International Total Company
Volume-Units $ (152.1 ) (13.8 )% $ (144.3 ) (10.6 )% $ (296.4 ) (12.1 )%
Volume-Acquired businesses 2.2 0.2 0.2 - 2.4 0.1
Product Price/Mix 17.6 1.6 55.7 4.1 73.3 3.0
Foreign currency translation - - (219.0 ) (16.1 ) (219.0 ) (8.9 )
Total $ (132.3 ) (12.0 )% $ (307.4 ) (22.6 )% $ (439.7 ) (17.9 )%
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Cost of Sales
The following table shows the Company's cost of sales:
Second Quarter of % First Six Months of %
2009 2008 Change 2009 2008 Change
Cost of sales $ 739.9 $ 948.6 (22 ) $ 1,442.7 $ 1,820.9 (21 )
As a % of net sales 72.0 % 74.2 % 71.5 % 74.2 %
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Second Quarter of 2009 compared with 2008
Excluding a favorable impact of foreign currency translation of $90.4 million, cost of sales would have decreased $118.3 million in 2009 compared with 2008. This decline was primarily due to the impact of lower unit volumes mentioned above, which also benefited from lower average petrochemical-based raw material costs of approximately $60.0 million and lower freight and energy costs of approximately $15.0 million.
First Six Months of 2009 compared with 2008
Excluding a favorable impact of foreign currency translation of $168.8 million, cost of sales would have decreased $209.4 million in 2009 compared with 2008. This decline was primarily due to the impact of lower unit volumes mentioned above, which also benefited from lower average petrochemical-based raw material costs of approximately $120.0 million and lower freight and energy costs of approximately $20.0 million.
Also contributing to the decrease in cost of sales in both periods of 2009 compared with 2008 were estimated realized benefits of approximately $10.0 million in the second quarter of 2009 and $20.0 million in the first six months of 2009 from both the Company's 2008 global manufacturing strategy and cost reduction and productivity program.
Marketing, Administrative and Development Expenses
The following table shows the Company's marketing, administrative and
development expenses:
Second Quarter of % First Six Months of %
2009 2008 Change 2009 2008 Change
Marketing, administrative
and development expenses $ 169.3 $ 203.3 (17 ) $ 335.5 $ 389.7 (14 )
As a % of net sales 16.5 % 15.9 % 16.6 % 15.9 %
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Second Quarter of 2009 compared with 2008
Excluding a favorable impact of foreign currency translation of $16.1 million, these expenses would have decreased $17.9 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 from the Company's 2008
cost reduction and productivity program; and
º •
º reduced expenses due to the favorable impact of expense control
initiatives in 2009, including a decrease in travel and entertainment
expenses of approximately $4.7 million.
First Six Months of 2009 compared with 2008
Excluding a favorable impact of foreign currency translation of $28.1 million, these expenses would have decreased $26.1 million, which was primarily due to:
º •
º lower employee salary and benefits costs of approximately
$12.0 million in 2009 related to the reduction of headcount from the
Company's 2008 cost reduction and productivity program;
º •
º reduced expenses of approximately $3.4 million in 2009 related to the
completion of the upgrade of the Company's information technology
platforms in the U.S. in 2008; and
º •
º reduced expenses due to the favorable impact of expense control
initiatives in 2009, including a decrease in travel and entertainment
expenses of approximately $10.7 million.
These items were partially offset by an increase in provision of bad debt expense of approximately $3.0 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 June 30, 2009 and the accrual
balance remaining at June 30, 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.
Restructuring accrual at December 31, 2008 $ 43.7
Cash payments made during 2009 (24.7 )
Adjustment to accrual for termination benefits (0.1 )
Effect of changes in foreign currency rates (0.6 )
Restructuring accrual at June 30, 2009 $ 18.3
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The Company expects to pay $17.0 million of the accrual balance remaining at June 30, 2009 within the next 12 months. This amount is included in other current liabilities on the condensed consolidated balance sheet at June 30, 2009. The remaining accrual of $1.3 million is expected to be paid by the end of 2010 and is included in other liabilities on the condensed consolidated balance sheet at June 30, 2009.
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 Company has realized approximately $25.0 million of benefits from this program for the full year 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 benefits to occur in future periods.
The capital expenditures, associated costs and related restructuring charges and the total amounts incurred since inception of this multi-year strategy are included in the table below.
Three Months Ended Six Months Ended
June 30, June 30, Cumulative
Through
2009 2008 2009 2008 June 30, 2009
Capital expenditures $ 5.1 $ 18.8 $ 11.4 $ 27.5 $ 144.1
Associated costs(1) 2.2 1.3 5.3 3.7 27.9
Restructuring and other charges(2) 0.6 0.5 0.5 2.5 32.3
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