SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
Commission File Number 1-5277
BEMIS COMPANY, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-0178130
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
222 South 9th Street, Suite 2300
Minneapolis, Minnesota 55402-4099
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 376-3000
Indicate by check mark whether the registrant has: (1) filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
52,364,501 shares of Common Stock, $.10 par value, on November 2, 1998
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements enclosed as Exhibit 19, are incorporated by
reference into this Form 10-Q.
In the opinion of management, the financial statements reflect all
adjustments necessary to a fair statement of the results for the nine months
ended September 30, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THIRD QUARTER 1998
Net sales for the third quarter of both 1998 and 1997 were $465.5
million. Net income increased 9.2 percent to $27.8 million for the third
quarter of 1998 compared to the same quarter in 1997. The previously
announced acquisition of Techy International S.A., a Belgian flexible
packaging company, was successfully completed as of June 30, 1998, and has
added positively to third quarter results.
Third quarter 1998 net sales for the flexible packaging line of business
increased 0.9 percent to $350.7 million compared to the same quarter in 1997.
Operating profits increased 20.7 percent to $43.2 million. Excluding
noncomparable operating results of business acquisitions and dispositions for
the flexible packaging line of business, net sales showed an increase of 0.3
percent and operating profit showed an increase of $8.3 million, or 23.3
percent. Third quarter 1998 net sales for the pressure sensitive materials
line of business decreased 2.7 percent to $114.8 million compared to the same
quarter in 1997, while operating profits decreased 33.6 percent to $11.0
million. Excluding noncomparable business activity of business unit
acquisitions, net sales for the Company declined 0.4 percent while operating
income for the Company increased 5.2 percent compared to the third quarter of
1997.
Within the flexible packaging line of business, net sales of flexible
plastic packaging products grew 4.4 percent in the third quarter of 1998
compared to the third quarter of 1997, while profitability improved
significantly due to higher unit volumes, manufacturing efficiencies, and
reduced waste. Sales levels continue to be adversely affected by lower raw
material prices which reduce selling prices, although margins remain largely
unaffected. The paper packaging products reported lower sales and profits
for the third quarter compared with the third quarter of 1997, but improved
results compared with the second quarter of 1998.
During the third quarter, the Company repurchased 949,800 shares of its
common stock pursuant to a long-standing Board of Directors approval which
was increased by an additional one million shares in September 1998.
The $0.5 million increase in research and development expense during the
third quarter of 1998 is split proportionally between the Company's two lines
of business.
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PART I - FINANCIAL INFORMATION
Increasing debt levels resulting from business unit acquisitions
principally account for the $0.6 million, or 11.5 percent, rise in interest
expense in the current quarter compared to the third quarter of 1997.
Other income decreased $1.0 million compared to the third quarter of
1997 largely due to cost associated with plant consolidations of our
Brazilian joint venture which is accounted for on an equity basis.
The decrease in minority interest in net income reflects the lower
performance of the pressure sensitive materials business compared with the
very strong results reported in the third quarter of 1997.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1998
Net sales for the nine-month period of 1998 decreased 2.4 percent to
$1.39 billion compared to the same period in 1997. Net income was $79.9
million for 1998 compared to $73.3 million for the same nine-month period in
1997, an increase of 9.0 percent.
Net sales for the flexible packaging line of business decreased 2.7
percent to $1.03 billion with operating profits increasing 19.8 percent to
$124.1 million compared to the same nine-month period in 1997. Net sales for
the pressure sensitive materials line of business decreased 1.6 percent to
$355.9 million with operating profits decreasing 23.7 percent to $37.0
million compared to the same nine-month period in 1997. Excluding
noncomparable operating results of business unit acquisitions and
dispositions, net sales for the flexible packaging line of business showed a
decrease of $1.8 million, or 0.2 percent, with operating profits increasing
$22.8 million, or 22.3 percent. Excluding noncomparable operating results of
business unit acquisitions and dispositions, net sales for the pressure
sensitive materials line of business showed a decrease of $4.0 million, or
1.1 percent, with operating profits decreasing $11.1 million, or 23.0
percent. Excluding noncomparable operating results of business unit
acquisitions and dispositions from the first nine months of 1998 and 1997,
net sales for the Company showed a decrease of $5.8 million, or 0.4 percent,
and operating income for the Company showed an increase of $11.7 million, or
7.8 percent.
Higher debt levels resulting principally from business unit acquisitions
account for the $2.2 million, or 15.2 percent, rise in interest expense
compared to the first nine months of 1997. Other income for the nine-month
period of 1998 decreased $0.4 million largely due to cost associated with
plant consolidations of our Brazilian joint venture which is accounted for on
an equity basis. The decrease in minority interest in net income for the
nine-month period of 1998 results from the lower performance of the Company's
pressure sensitive materials line of business.
EUROPEAN COMMON CURRENCY (EURO)
The European Economic and Monetary Union (EMU) and a new currency, the
"euro", will begin in Europe on January 1, 1999. This is a significant and
critical element in the European Union's (EU) plan to blend the economies of
the EU's member states into one integrated market, with unrestricted and
unencumbered trade and commerce across borders. Eleven of the fifteen member
EU countries will initially participate. Other member states may join in the
years to come.
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On January 1, 1999, the European Central Bank (ECB) will establish fixed
conversion rates between the new euro and existing currencies (legacy
currencies) of participating member countries of the EMU. The euro will then
trade on currency exchanges and be available for noncash transactions on a
"no compulsion, no prohibition" basis, coexisting with the legacy currencies
through January 1, 2002. During this transition period, currency conversion
rates no longer will be computed directly from one legacy currency to
another. Instead, a "triangulation" process must be applied with any amount
denominated in a legacy currency first converted into a euro amount and then
into the second legacy currency. Beginning on January 1, 2002, the ECB will
issue euro-denominated bills and coins for use in cash transactions. On or
before July 1, 2002, the participating countries will withdraw all legacy
bills and coins and use the euro as their legal currency.
The principal impact on the Company will be experienced by its
operations whose functional currency is the existing currency (legacy
currency) of a participating member country of the EMU. The "triangulation"
process and the resulting single currency denomination (the euro) will impact
the information technology infrastructure, accounting record keeping
requirements, and cross-border purchasing and selling. The Company recognizes
that failure to timely resolve internal Euro issues could result, in a worst
case, in the Company's European operations' inability to obtain raw materials
in a timely manner, reductions, delays, or cancellations of customer orders,
delays in payments by customers for products shipped, or a general inability
to record, track, and consummate business transactions. Any or all of these
events could have a material adverse effect on the Company's business,
financial condition, and results of operations.
The Company has selected and is in the process of installing new
computer software which is euro-compliant (also Year 2000 compliant) and
expects that procedures and systems will be in place as of January 1999 to
support the implementation of the euro. The costs of these efforts, which is
expected to total $1.5 million, will be incurred principally in the fourth
quarter and include both expense and capital items. The overall effect on
the Company's international operations, principally its pressure sensitive
line of business, is not expected to be material. In addition, the increased
"price and cost transparency" expected to result from a single currency for a
larger integrated market, is expected to lower material cost and lower costs
associated with currency transactions, however, selling prices may be
adversely affected. The net impact on operating results is not known.
YEAR 2000 ISSUE
In late-1992, the Company began to set direction for upgrading all of
its information technology (IT) systems with a focus on significant
enhancement of IT support at the division level. It was the Company's
intention to replace legacy IT systems with hardware and software that
reflected the current state of technology. Principal objectives of this
major effort were to significantly improve the quality and usefulness of
computerized information management systems, to improve employee and
manufacturing efficiencies, and to notably enhance the quality of service to
customers, suppliers, and employees. "Year 2000 compliant," was one of many
necessary attributes of any system considered. Computers and related
equipment, computer software, and other office and manufacturing equipment
utilizing microprocessors that use only two digits to identify a year in a
date field may be unable to accurately process certain date-based information
at or after the Year 2000. This is commonly referred to as the "Year 2000
issue."
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The Company, like commerce in general, is highly dependent on
computerized systems or controls for the administrative recording of business
transactions, for the administrative control and actual manufacture of
products it sells, and for the efficient interaction between third parties
such as suppliers, customers, banks, and employees. The Company recognizes
that failure to timely resolve internal Year 2000 issues could result, in a
worst case, in the Company's inability to obtain raw materials in a timely
manner, reductions in the quality or quantity of materials obtained,
reductions, delays, or cancellations of customer orders, delays in payments
by customers for products shipped, or a general inability to record, track,
and consummate business transactions. Any or all of these events could have
a material adverse effect on the Company's business, financial condition, and
results of operations.
The Company is addressing its Year 2000 issue in three areas: (1) IT
system applications, (2) non-IT systems, including engineering and
manufacturing equipment applications, and (3) relationships with third
parties.
The Company has conducted an assessment of its company-wide Year 2000
issue surrounding its IT systems. Since the initial assessment in late-1992,
concurrent efforts have been underway to evaluate, select, and implement
third party supplied or internally developed software for company-wide or
division-wide applications. Currently, a portion of nearly all new major
software applications is in daily operation. Internally developed software
is Year 2000 compliant, and where third party supplied software is not Year
2000 compliant the Company has received assurance of such compliance once the
updated software version is released and installed. While the current stages
of completion for these concurrent efforts vary, the Company believes that
implementation will be complete and Year 2000 compliant by mid-1999.
The Company is nearing the completion of the initial assessment of the
Year 2000 issue surrounding its non-IT systems, including engineering and
manufacturing equipment applications. While the Company expects to complete
this assessment during the fourth quarter of 1998, Year 2000 remediation and
testing of already identified problem applications and devices has begun.
This Company-wide effort is being centrally coordinated with actual
assessment, remediation, and implementation assigned to identified
individuals at each manufacturing, warehouse, or office site. While the
degree of effort and extensiveness of remediation will vary by site, it is
expected that all sites will be Year 2000 compliant by mid-1999.
Finally, the Company is continuing to examine its relationship with
third parties whose failure to become Year 2000 compliant in a timely manner,
if at all, could have a material effect on the Company. The Company has been
in contact with significant vendors and customers with respect to such
companies' Year 2000 compliance programs and status. In addition, follow-up
conversations have been conducted with key customers and vendors. The
Company currently is in the process of evaluating this effort and expects to
request more detailed and updated information from its principal suppliers
and customers over the next several months.
The Company is beginning to develop contingency plans to address the
effects of the failure of the Company or any of its principal suppliers,
customers, or other third parties to become Year 2000 compliant in a timely
manner. While the initial contingency plan development is expected to be
completed during the fourth quarter of 1998, it is expected that this plan
will be updated throughout
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1999 as required by changes in events, facts, and circumstances surrounding
the Company's Year 2000 compliance efforts as well as that of its principal
suppliers, customers, and other third parties.
Most business units meet at least monthly to review progress and plans.
Senior level representatives from the various concurrent implementation and
remediation teams meet at least quarterly with senior level Company
management to assess progress, to assure a coordinated effort where required,
and to verify a continued Company-wide focus toward a satisfactory resolution
of the Company's Year 2000 issue. The Company is utilizing both internal and
external resources to meet its timetable for becoming Year 2000 compliant.
Since late-1992, when the Company began to set direction for upgrading
all of its IT systems in the normal course of business, the Company has made
capital investments in certain third party software and hardware systems to
address the financial and operational needs of the business. These systems,
which will improve the efficiencies and productivity of the replaced systems,
have been, or will be certified Year 2000 compliant by the vendors and have
been or will be installed by mid-1999. To date all of these capital projects
were part of the Company's long term strategic capital plan and their timing
was not accelerated as a result of the Year 2000 issue. Total expenditures
for the remediation of "embedded chip exposures" in manufacturing equipment
and facilities together with the unexpected replacement of selected computer
equipment is estimated to total $2.4 million, of which approximately $0.2
million has been incurred in the first nine months of 1998. This effort is
expected to be completed by mid-1999. All expenditures are made from
internally generated funds and have not had a negative impact on the
Company's capital expenditure program.
The following "Safe Harbor Statement" is made pursuant to the Private
Securities Litigation Reform Act of 1995. Certain of the statements
contained in the body of this report are forward-looking statements (rather
than historical facts) that are subject to risks and uncertainties that could
cause actual results to differ materially from those described in the
forward-looking statements. With respect to such forward-looking statements,
the Company seeks the protections afforded by the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are based on
management's current plans and expectations and are subject to a number of
uncertainties and risks that could cause actual results to differ materially
from those described in such statements. Such uncertainties and risks
include, but are not limited to, the following items. The cost of the
projects and the dates on which the Company believes it will become
euro-compliant and Year 2000 compliant are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources, third
party modification plans, and other factors. However, there can be no
guarantee that these estimates will be achieved, and actual results could
differ materially from those anticipated. There can be no assurance that the
Company will be able to identify all aspects of its business that are subject
to euro-compliance problems and Year 2000 problems, or identify Year 2000
problems of customers or suppliers that affect the Company's business, or to
develop and refine a truly effective and inclusive contingency plan. There
also can be no assurance that the Company's software vendors are correct in
their assertions that the software is euro-compliant and Year 2000 compliant,
or that the Company's estimate of the cost of systems preparation for
euro-compliance and Year 2000 compliance will prove ultimately to be
accurate. The preceding list of uncertainties is not intended to be
exhaustive.
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PART I - FINANCIAL INFORMATION
FINANCIAL CONDITION
A statement of cash flow for the nine months ended September 30, 1998, is
as follows:
MILLIONS
--------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................ $ 79.9
Non-cash items:
Depreciation and amortization......................................... 68.3
Minority interest..................................................... 2.8
Deferred income taxes, non-current portion............................ 2.7
Net increase in working capital items net of effects of
acquisitions..................................................... (0.7)
Net change in deferred charges and credits............................ (1.0)
Other................................................................. 0.4
---------
Net cash provided by operating activities.................................... 152.4
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................................... (95.5)
Business acquisitions..................................................... (46.3)
Proceeds from sales of property and equipment............................. 1.9
---------
Net cash used in investing activities........................................ (139.9)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in long-term debt.................................................. 62.6
Change in short-term debt................................................. (0.3)
Cash dividends paid....................................................... (35.2)
Subsidiary dividends to minority stockholders............................. (1.8)
Common stock purchased for the treasury................................... (35.7)
Stock incentive programs and related tax effect........................... 7.4
---------
Net cash used by financing activities........................................ (3.0)
---------
Effect of exchange rates on cash............................................. 0.2
---------
Net increase in cash......................................................... $ 9.7
---------
---------
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
(a) The following documents are filed as part of this report:
3(a) Restated Articles of Incorporation of the Registrant,
as amended. (1)
3(b) By-Laws of the Registrant, as amended. (2)
4(a) Rights Agreement, dated as of August 3, 1989, between
the Registrant and Norwest Bank Minnesota, National
Association. (3)
4(b) Form of Indenture dated as of June 15, 1995, between
the Registrant and First Trust National Association,
as Trustee. (4)
10(a) Bemis Company, Inc. 1987 Stock Option Plan. *(5)
10(b) Bemis Company, Inc. 1994 Stock Incentive Plan. *(6)
10(c) Bemis Company, Inc. 1984 Stock Award Plan .*(2)
10(d) Bemis Retirement Plan, as amended effective January 1,
1994.*(2)
10(e) Bemis Company, Inc. Supplemental Retirement Plan dated
October 20, 1988.*(2)
10(f) Bemis Executive Incentive Plan dated April 1, 1990.*(2)
10(g) Bemis Company, Inc. Long Term Deferred Compensation
Plan.*(2)
10(h) Bemis Company, Inc. 1997 Executive Officer Performance
Plan. *(1)
10(i) Amended and Restated Credit Agreement among the Registrant,
the Banks Listed therein and Morgan Guaranty Trust Company
of New York, as Agent, originally dated as of August 1,
1986, Amended and Restated as of August 1, 1991, as amended
by amendment No. 1 dated as of May 1, 1992, as amended by
Amendment No. 2 dated December 1, 1992, as amended by
Amendment No. 3 dated January 22, 1993, as amended by
Amendment No. 4 dated March 15, 1994, as amended by
Amendment No. 5 dated June 1, 1994; and as amended by
Amendment No. 6 dated February 1, 1995. (2)
19 Financial Statements Furnished to Security Holders.
27 Financial Data Schedule (EDGAR electronic filing only).
(b) There were no reports on Form 8-K filed during the third quarter
ended September 30, 1998.
_____________
*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.
(1) Incorporated by reference to the Registrant's Definitive
Proxy Statement filed with the Securities and Exchange
Commission on March 18, 1997 (File No. 1-5277)
(2) Incorporated by reference to the Registrant's Annual Report
on Form 10-K/A for the year ended December 31, 1994 (File
No. 1-5277).
(3) Incorporated by reference to the Registrant's Registration
Statement on Form 8-A dated August 4, 1989
(File No. 0-1387).
(4) Incorporated by reference to the Registrant's Current Report
on Form 8-K dated June 30, 1995 (File No. 1-5277).
(5) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 (File No. 33-50560).
(6) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 (File No. 33-80666).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEMIS COMPANY, INC.
Date November 3, 1998 /s/ Gene C. Wulf
---------------- -----------------------------------
Gene C. Wulf, Vice President
and Controller
Date November 3, 1998 /s/ Benjamin R. Field,III
---------------- -----------------------------------
Benjamin R. Field, III, Senior Vice
President, Chief Financial Officer
and Treasurer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION FORM OF FILING
- ------- ----------- --------------
3(a) Restated Articles of Incorporation of the
Registrant, as amended. (1)
3(b) By-Laws of the Registrant, as amended. (2)
4(a) Rights Agreement, dated as of August 3, 1989,
between the Registrant and Norwest Bank
Minnesota, National Association. (3)
4(b) Form of Indenture dated as of June 15, 1995,
between the Registrant and First Trust
National Association, as Trustee. (4)
10(a) Bemis Company, Inc. 1987 Stock Option Plan.* (5)
10(b) Bemis Company, Inc. 1994 Stock Incentive Plan.* (6)
10(c) Bemis Company, Inc. 1984 Stock Award Plan.* (2)
10(d) Bemis Retirement Plan, as amended effective
January 1, 1994.* (2)
10(e) Bemis Company, Inc. Supplemental Retirement Plan
dated October 20, 1988.* (2)
10(f) Bemis Executive Incentive Plan dated
April 1, 1990.* (2)
10(g) Bemis Company, Inc. Long Term Deferred
Compensation Plan.* (2)
10(h) Bemis Company, Inc. 1997 Executive Officer
Performance Plan.* (1)
10(i) Amended and Restated Credit Agreement among
the Registrant, the Banks Listed therein
and Morgan Guaranty Trust Company of New York
as Agent, originally dated as of August 1, 1986,
Amended and Restated as of August 1, 1991, as
amended by Amendment No. 1 dated as of May 1,
1992, as amended by Amendment No. 2 dated
December 1, 1992, as amended by Amendment No. 3
dated January 22, 1993, as amended by Amendment
No. 4 dated March 15, 1994, as amended by
Amendment No. 5 dated June 1, 1994; and as
amended by Amendment No. 6 dated February
1, 1995. (2)
19 Reports Furnished to Security Holders. Filed Electronically
27 Financial Data Schedule (EDGAR electronic
filing only). 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.
(1) Incorporated by reference to the Registrant's Definitive Proxy
Statement filed with the Securities and Exchange Commission on
March 18, 1997 (File No. 1-5277).
(2) Incorporated by reference to the Registrant's Annual Report on Form
10-K/A for the year ended December 31, 1994 (File No. 1-5277).
(3) Incorporated by reference to the Registrant's Registration Statement
on Form 8-A dated August 4, 1989 (File No. 0-1387).
(4) Incorporated by reference to the Registrant's Current Report on Form
8-K dated June 30, 1995 (File No. 1-5277).
(5) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 (File No. 33-50560).
(6) Incorporated by reference to the Registrant's Registration Statement
on Form S-8 (File No. 33-80666).
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