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BMS > SEC Filings for BMS > Form 10-K on 21-Feb-2014All Recent SEC Filings

Show all filings for BEMIS CO INC

Form 10-K for BEMIS CO INC


21-Feb-2014

Annual Report


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis

Three Years Ended December 31, 2013
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)                   2013                       2012                       2011
Net sales                     $ 5,029.8       100.0  %   $ 5,139.2       100.0  %   $ 5,322.7       100.0  %
Cost of products sold           4,057.7        80.7        4,191.7        81.6        4,412.5        82.9
Gross profit                      972.1        19.3          947.5        18.4          910.2        17.1

Operating expenses:
Selling, general, and
administrative expenses           509.3        10.1          506.7         9.9          483.4         9.1
Research and development           46.0         0.9           41.6         0.8           38.7         0.7
Facility consolidation and
other costs                        45.4         0.9           68.7         1.3           38.4         0.7
Other operating income             (9.2 )      (0.2 )        (15.0 )      (0.3 )        (17.7 )      (0.3 )
Operating income                  380.6         7.6          345.5         6.7          367.4         6.9

Interest expense                   68.2         1.4           70.9         1.4           76.8         1.4
Other non-operating income         (7.9 )      (0.2 )         (4.0 )      (0.1 )         (1.6 )         -
Income before income taxes        320.3         6.4          278.6         5.4          292.2         5.5

Provision for income taxes        107.7         2.1          104.8         2.0          104.9         2.0

Net Income                        212.6         4.2          173.8         3.4          187.3         3.5

Less: Net income
attributable to
noncontrolling interests              -           -              -           -            3.2         0.1

Net income attributable to
Bemis Company, Inc.           $   212.6         4.2  %   $   173.8         3.4  %   $   184.1         3.5  %
                                                                                            \
Effective income tax rate                      33.6  %                    37.6  %                    35.9  %

Diluted earnings per share    $    2.04                  $    1.66                  $    1.73


Overview
Bemis Company, Inc. is a leading global manufacturer of packaging and pressure sensitive materials supplying a variety of markets. Historically, about 65 percent of our total net sales are to customers in the food industry. Sales of our packaging products are widely diversified among food categories and can be found in nearly every aisle of the grocery store. Our emphasis on supplying packaging to the food industry has typically provided a more stable market environment for our U.S. Packaging and Global Packaging business segments, which accounted for approximately 89 percent of our net sales in 2013. Our remaining net sales are from our Pressure Sensitive Materials business segment which, while diversified in end use products, is more exposed to economically sensitive end markets.

Market Conditions
The markets into which our products are sold are 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.

Facility Consolidation
To improve efficiencies and reduce fixed costs, we initiated a facility consolidation program during the fourth quarter of 2011 and expanded the program in the second quarter of 2012. In total, nine production facilities were closed, and while some low margin business was shed, most of the production from these facilities has been transferred to other facilities. The total cost of the programs was $152.5 million which included $58.0 million in employee-related costs, $51.2 million in fixed asset accelerated depreciation and write-downs, and $43.3 million in other facility consolidation costs.

We recorded $45.4 million, $68.7 million, and $38.4 million of charges associated with the facility consolidation programs during the twelve months ended December 31, 2013, 2012, and 2011, respectively. These costs have been recorded on the consolidated statement of income as facility consolidation and other costs. Cash payments for these programs in 2013 and 2012 totaled $51.6 million and $35.2 million, respectively. At the end of 2013, the facility consolidation program was substantially complete.

Acquisitions and Divestiture

Acquisition of Specialty Film Manufacturer in Foshan, China On July 1, 2013, we acquired Foshan New Changsheng Plastics Films Co., LTD ("NCS"), a specialty film manufacturer located in Foshan, China. NCS is a supplier to the Company's food packaging plant in Dongguan, China and other specialty film product customers. The acquisition of this film platform is expected to provide cost and logistics benefits to support the Company's broader Asia-Pacific growth strategy. The cash purchase price was $75.6 million.

Divestiture of Clysar Plant in Clinton, Iowa On May 29, 2013, we completed the sale of our Clysar thin gauge shrink film plant. Annual net sales of Clysar films were approximately $70 million and were sold primarily through distributors into the display market. Net proceeds of the transaction totaled $30.0 million. A $5.5 million pre-tax gain on the sale was recorded as part of other non-operating income during 2013.

Australia and New Zealand Distributors
On August 22, 2012, we acquired flexible packaging businesses in Australia and New Zealand. The acquisition of these businesses supports our strategy to enhance our presence in the Asia-Pacific region. The combined purchase price was approximately $18.4 million.

Shield Pack
On December 1, 2011, we acquired the common stock of Shield Pack, LLC of West Monroe, Louisiana for a cash purchase price of approximately $45 million. Shield Pack is a manufacturer of high barrier liners for bulk container packaging.


Mayor Packaging
On August 1, 2011, we acquired Mayor Packaging, a Hong Kong-based manufacturer of consumer and specialty flexible packaging including a manufacturing facility in Dongguan, China. The purchase price was approximately $96.7 million.

Results of Operations
Consolidated Overview
(in millions, except per share amounts)             2013         2012         2011
Net sales                                        $ 5,029.8    $ 5,139.2    $ 5,322.7
Net income attributable to Bemis Company, Inc.       212.6        173.8        184.1
Diluted earnings per share                            2.04         1.66         1.73

2013 versus 2012
Net sales for the year ended December 31, 2013 decreased 2.1 percent from the same period of 2012. Currency translation reduced net sales by 1.3 percent. Acquisitions increased net sales by approximately 0.8 percent during the year, which was completely offset by the sales reduction due to divestitures. The remaining net sales decrease reflects the impact of facility consolidation activities partially offset by the benefit of improved sales mix.

Diluted earnings per share for the year ended December 31, 2013 were $2.04 compared to $1.66 reported in the same period of 2012. Results for 2013 included a $0.29 charge associated with facility consolidation and other costs and $0.05 of benefits associated with gains on divestiture and land and building. Results for 2012 included a $0.45 charge associated with facility consolidation and other costs and $0.04 of charges for acquisition-related earnout and transaction payments.

2012 versus 2011
Net sales for the year ended December 31, 2012 decreased 3.4 percent from the same period of 2011. Currency translation reduced net sales by 3.3 percent. Acquisitions increased net sales by approximately 1.2 percent during the year. The remaining organic sales decline reflects lower unit sales volumes during 2012 offset by improved sales mix.

Diluted earnings per share for the year ended December 31, 2012 were $1.66 compared to $1.73 reported in the same period of 2011. Results for 2012 included a $0.45 charge associated with facility consolidation and other costs and a $0.04 charge for acquisition-related earnout payments. Results for 2011 included a $0.24 charge associated with facility consolidation and other costs and $0.05 of charges for acquisition-related earnout and transaction payments, partially offset by a $0.03 gain associated with a non U.S. pension plan curtailment.

In connection with the implementation of an enterprise resource planning system during 2012, we recorded adjustments primarily to cost of goods sold during the fourth quarter in order to harmonize the application of certain accounting practices and provide consistency among the business segments. These adjustments made to individual locations across the segments substantially offset one another.

U.S. Packaging Business Segment
Our U.S. Packaging segment represents all food, consumer, and industrial
products packaging-related manufacturing operations located in the United
States. Our U.S. Packaging business segment provides packaging to a variety of
end markets, including applications for meat and cheese, dairy and liquids,
confectionery and snack foods, frozen foods, lawn and garden products, health
and hygiene products, beverages, bakery goods, and dry foods.
(dollars in millions)                                2013           2012           2011
Net sales                                        $  2,984.6     $  3,040.1     $  3,110.7
Operating profit (See Note 21 to the
Consolidated Financial Statements)                    337.9          366.7          315.0
Operating profit as a percentage of net sales          11.3 %         12.1 %         10.1 %


2013 versus 2012
U.S. Packaging net sales decreased 1.8 percent in the year ended December 31, 2013 compared to the same period of 2012, reflecting the impact of plant closings and a divestiture, partially offset by the benefit of improved sales mix.

Operating profit for the total year 2013 was $337.9 million, or 11.3 percent of net sales, compared to $366.7 million, or 12.1 percent of net sales in 2012. Operating profit in 2013 and 2012 were negatively impacted by $45.0 million and $42.1 million of facility consolidation and other costs, respectively. Operating profit in 2012 benefited from a favorable fourth quarter adjustment totaling $13.8 million related to the harmonization of certain accounting practices in connection with an enterprise resource planning system implementation.

2012 versus 2011
U.S. Packaging net sales decreased 2.3 percent in the year ended December 31, 2012 compared to the same period of 2011. Acquisitions increased net sales by approximately 0.8 percent. Lower net sales in 2012 reflect generally lower unit sales volumes for certain non-barrier packaging, partially offset by increased unit sales volumes of barrier packaging for products such as refrigerated foods where food safety is a requirement.

Operating profit for the total year 2012 was $366.7 million, or 12.1 percent of net sales, compared to $315.0 million, or 10.1 percent of net sales in 2011. Operating profit in 2012 and 2011 were negatively impacted by $42.1 million and $26.3 million of facility consolidation and other costs, respectively. The closure of six U.S. Packaging facilities in conjunction with the facility consolidation program reduced capacity for certain non-barrier packaging, driving improved sales mix and lower fixed costs. Substantially all of the savings generated from the facility consolidation activities in 2012 benefited the U.S. Packaging segment. Operating profit also benefited from a favorable fourth quarter adjustment totaling $13.8 million related to the harmonization of certain accounting practices in connection with an enterprise resource planning system implementation.

Global Packaging Business Segment
Our Global Packaging business segment includes all of our packaging-related
manufacturing operations located outside of the United States as well as our
global medical device and pharmaceutical packaging manufacturing operations. Our
Global Packaging business segment provides packaging to a variety of end
markets, including applications for 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)                                2013           2012           2011
Net sales                                        $  1,492.0     $  1,543.5     $  1,637.2
Operating profit (See Note 21 to the
Consolidated Financial Statements)                    106.4           59.9          112.6
Operating profit as a percentage of net sales           7.1 %          3.9 %          6.9 %

2013 versus 2012
Global Packaging net sales of $1.5 billion represented a decrease of 3.3 percent compared to 2012. The impact of currency translation reduced net sales by 4.8 percent during the year. The impacts of plant closings and acquisitions approximately offset each other during the year. The remaining increase in Global Packaging net sales reflects the benefit of higher selling prices in 2013.

Operating profit for the total year 2013 was $106.4 million, or 7.1 percent of net sales, compared to $59.9 million, or 3.9 percent of net sales in 2012. The net effect of currency translation decreased operating profit in 2013 by $6.9 million. Operating profit in 2013 and 2012 were negatively impacted by $0.4 million and $26.6 million of facility consolidation and other costs, respectively. The increase in operating profit also reflects the impact of an unfavorable 2012 fourth quarter adjustment totaling $16.4 million related to the harmonization of certain accounting practices in connection with the enterprise resource planning system implementation, and $4.6 million of Mayor Packaging acquisition-related charges in 2012.


2012 versus 2011
Global Packaging net sales of $1.5 billion represented a decrease of 5.7 percent compared to 2011. Acquisitions increased net sales by approximately 2.4 percent, which was more than offset by a 9.7 percent decrease in net sales related to currency translation. Excluding the impact of acquisitions and currency translation, net sales increased reflecting higher selling prices and improved sales mix, partially offset by the impact of lower unit sales volumes.

Operating profit for the total year 2012 was $59.9 million, or 3.9 percent of net sales, compared to $112.6 million, or 6.9 percent of net sales in 2011. The net effect of currency translation decreased operating profit in 2012 by $10.9 million. Operating profit in 2012 and 2011 were negatively impacted by $26.6 million and $8.6 million of facility consolidation and other costs, respectively. The decline in operating profit as a percentage of net sales in 2012 also reflects both the lower unit sales volumes in 2012 and the impact of an unfavorable fourth quarter adjustment totaling $16.4 million related to the harmonization of certain accounting practices in connection with the enterprise resource planning system implementation. Operating profit included $4.6 million and $4.5 million of Mayor Packaging acquisition-related charges in 2012 and 2011, respectively. In addition, operating profit for 2011 included a $2.7 million gain associated with a non U.S. pension plan curtailment.

Pressure Sensitive Materials Business Segment

The Pressure Sensitive Materials business segment offers adhesive products to
three markets:  prime and variable information labels, which include roll label
stock used in a wide variety of label markets; graphic design, used to create
signage and decorations; and technical components, which represent pressure
sensitive components for industries such as the medical, automotive,
construction and electronics industries.  Paper and adhesive are the primary raw
materials used in our Pressure Sensitive Materials business segment.

(dollars in millions)                                2013           2012           2011
Net sales                                        $    553.2     $    555.6     $    574.8
Operating profit (See Note 21 to the
Consolidated Financial Statements)                     30.0           37.1           33.4
Operating profit as a percentage of net sales           5.4 %          6.7 %          5.8 %

2013 versus 2012
For the total year 2013, net sales of Pressure Sensitive Materials were $553.2 million, a 0.4 percent decrease from net sales in 2012. Currency effects increased net sales by 1.1 percent. Lower unit sales of value-added graphic and technical products negatively impacted sales mix during the year.

Operating profit was $30.0 million or 5.4 percent of net sales in 2013, compared to $37.1 million or 6.7 percent of net sales in 2012. Lower operating profits during the year reflect lower unit sales of value-added graphic products sold primarily in Europe for advertising and promotional applications. Accounting practices harmonization adjustments increased operating profit by $0.5 million in the fourth quarter of 2012.

2012 versus 2011
For the total year 2012, net sales of Pressure Sensitive Materials were $555.6 million, a 3.3 percent decrease from net sales in 2011. Currency effects reduced net sales by 3.1 percent. Higher unit sales volumes of label products partially offset lower unit volumes for both graphic and technical products, resulting in a less favorable sales mix during 2012.

Operating profit was $37.1 million or 6.7 percent of net sales in 2012, compared to $33.4 million or 5.8 percent of net sales in 2011. The net effect of currency translation decreased operating profit in 2012 by $1.5 million. Accounting practices harmonization adjustments increased operating profit by $0.5 million in the fourth quarter. Total year 2011 operating profit included a $2.7 million charge related to facility consolidation and other costs.


Consolidated Gross Profit
(dollars in millions)                         2013        2012        2011
Gross profit                                $ 972.1     $ 947.5     $ 910.2
Gross profit as a percentage of net sales      19.3 %      18.4 %      17.1 %

Gross profit in 2013 reflects the benefits of cost reductions associated with facility consolidation activities and improvements in sales mix. Gross profit in 2012 reflects the positive impact of cost reductions, higher selling prices and improved mix, partially offset by lower unit sales volumes and the impact of currency translation. Gross profit in 2011 reflects the negative impact of increasing resin prices during the first half of the year coupled with lower sales volume during the second half of 2011.

Consolidated Selling, General, and Administrative Expenses

(dollars in millions)                                    2013        2012        2011
Selling, general, and administrative expenses (SG&A)   $ 509.3     $ 506.7     $ 483.4
SG&A as a percentage of net sales                         10.1 %       9.9 %       9.1 %

Selling, general, and administrative expenses in 2013 reflect inflationary increases, partially offset by lower employee benefit plan costs. SG&A as a percentage of net sales increased modestly in 2013 due to these inflationary increases and decreases in net sales. Selling, general, and administrative expenses in 2012 reflect additional expense related to acquired businesses, higher incentive compensation and pension costs, partially offset by the impact of currency translation. Selling, general, and administrative expenses in 2012 and 2011 included $4.6 million and $4.5 million, respectively, of Mayor Packaging acquisition-related charges.

Research and Development (R&D)
(dollars in millions)                2013       2012       2011
Research and development (R&D)     $ 46.0     $ 41.6     $ 38.7
R&D as a percentage of net sales      0.9 %      0.8 %      0.7 %

During the periods presented, R&D expense increased in absolute terms and as a percentage of net sales, reflecting our investment in select research and development projects that are expected to create long-term growth opportunities. Current market trends support these investments.

Other Operating Income
(dollars in millions)      2013       2012        2011
Other operating income   $ (9.2 )   $ (15.0 )   $ (17.7 )

For the year 2013, other operating income included $10.8 million of fiscal incentive income compared to $16.6 million in 2012 and $20.0 million in 2011. The reduction in fiscal incentives reflects the impact of currency translation, the closing of a plant in Brazil, and a general reduction in fiscal incentives. These fiscal incentives are associated with net sales in South America and are included in Global Packaging segment operating profit. Other operating income for the year 2013 also included $2.0 million of acquisition-related expense compared to $2.5 million and $3.1 million of such charges in 2012 and 2011, respectively.

Interest Expense
(dollars in millions)       2013       2012       2011
Interest expense          $ 68.2     $ 70.9     $ 76.8
Effective interest rate      4.8 %      4.7 %      5.4 %

The effective interest rate decreased in 2012 compared to 2011 primarily due to the refinancing of public notes totaling $300 million with lower cost commercial paper on April 1, 2012.


Other Non-operating Income
(dollars in millions)          2013       2012       2011
Other non-operating income   $ (7.9 )   $ (4.0 )   $ (1.6 )

During 2013, a $2.2 million pre-tax gain on the sale of land and building and a $5.5 million pre-tax gain on the sale of our Clysar plant was recorded as part of other non-operating income. We recognized $4.5 million of expense in 2013 for the write-off of indemnification receivables as an offsetting tax liability was reversed (see "Income Taxes" below). The residual amount in other non-operating income relates to interest income.

During 2012, the increase in other non-operating income compared to 2011 reflects increased interest income. During 2011, other non-operating income included interest income and a gain on sale of excess land, partially offset by a foreign exchange loss of $1.8 million.

Income Taxes
(dollars in millions)     2013        2012        2011
Income taxes            $ 107.7     $ 104.8     $ 104.9
Effective tax rate         33.6 %      37.6 %      35.9 %

Our 2013 effective income tax rate was 33.6 percent. During 2013, a $4.5 million tax benefit was recognized for the reversal of non-U.S. tax liabilities that were assumed in a past acquisition. We also recognized an equal amount of non-operating expense for the write-off of related receivables (see "Other Non-operating Income" above). These equal and offsetting items had no impact on operating profit, net income or earnings per share.

Our 2012 effective income tax rate was 37.6 percent. This higher rate was caused by adjustments to valuation allowances based on the likely realization of the future benefits related to specific net deferred tax assets. The deferred tax assets relate primarily to accumulated operating losses incurred by certain legal entities in foreign countries. Excluding these adjustments, the effective tax rate for 2012 would have been 36.1 percent.

Other than the differences noted above, the difference between our overall tax rate and the U.S. statutory rate of 35 percent in each of the three years presented 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.

Net Income Attributable to Noncontrolling Interests Noncontrolling interests primarily represented the outstanding preferred shares of Dixie Toga Ltda., our Brazilian flexible packaging subsidiary. During the third quarter of 2011, we completed the purchase of the outstanding shares owned by the noncontrolling interest of Dixie Toga for approximately $90 million.

Liquidity and Capital Resources

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 43.5 percent at December 31, 2013, compared to 44.4 percent at December 31, 2012. Total debt as of December 31, 2013 and 2012 was approximately $1.4 billion.

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.

Cash Flow
Net cash provided by operations totaled $373.2 million for the year ended December 31, 2013, compared to $421.3 million in 2012 and $420.9 million in 2011. Net cash provided by operations was reduced by income tax payments of $121.9 million, $79.3 million and $91.8 million during 2013, 2012, and 2011, respectively. Net cash provided by operations was reduced by contributions to our defined benefit pension plans of $39.0 million, $65.4 million and $19.7 million during 2013, 2012, and 2011, respectively. Cash flow from operations was reduced by $51.6 million, $35.2 million, and $3.3 million of cash paid related to the facility consolidation program during 2013, 2012, and 2011, respectively.


Net cash used in investing activities totaled $155.8 million for the year ended December 31, 2013 compared to cash used in investing activities in 2012 totaling $150.8 million. The cash proceeds from divesting our Clysar plant offset the higher acquisition outflows associated with our NCS purchase in 2013. Cash used in investing activities in 2011 totaling $284.1 million includes the acquisition of Mayor Packaging and Shield Pack.

Net cash used in financing activities for the year ended December 31, 2013 included share repurchases of $77.3 million. Net cash used in financing activities for the year ended December 31, 2012 included repayment of our $300 million notes. Net cash used in financing activities for the year ended December 31, 2011 included the purchase of 5 million shares of our common stock for $161.1 million, and the purchase of the remaining shares of our Brazilian subsidiary, Dixie Toga, Ltda. owned by the noncontrolling interest for $89.7 million.

Available Financing . . .

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