NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1
—
BUSINESS DESCRIPTION
Bemis Company, Inc. (the "Company"), a Missouri corporation based in Neenah, Wisconsin, was founded in 1858 and incorporated in 1885 as Bemis Bro. Bag Company. In 1965 the name was changed to Bemis Company, Inc. At December 31, 2017, the Company employed approximately
16,500
individuals and had
57
manufacturing facilities. The Company manufactures and sells packaging products globally.
The Company’s business activities are organized around its
three
business segments, U.S. Packaging, Latin America Packaging, and Rest of World Packaging. The Company’s packaging businesses have a strong technical base in polymer chemistry, film extrusion, coating, laminating, printing, and converting. The Company’s products are primarily sold in the food industry, which accounted for approximately
80 percent
of net sales in
2017
. The Company’s packaging products are widely diversified among food categories and can be found in nearly every aisle of the grocery store. Other markets include chemical, agribusiness, medical, pharmaceutical, personal care products, electronics, industrial, and other consumer goods. All markets are considered to be highly competitive as to price, innovation, quality, and service.
Note
2
—
SIGNIFICANT ACCOUNTING POLICIES
Discontinued operations presentation:
The consolidated statement of income and related notes reflects our Pressure Sensitive Materials business as a discontinued operation (see Note 7 — Divestitures and Plant Closures). The consolidated statement of cash flows for all periods includes both continuing and discontinued operations.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All intercompany transactions and accounts have been eliminated. Joint ventures which are not majority controlled are accounted for by the equity method of accounting with earnings of $
2.9 million
, $
2.2 million
, and $
1.9 million
in
2017
,
2016
, and
2015
, respectively, included in other operating income on the accompanying consolidated statement of income. Investments in joint ventures of $
8.9 million
and $
6.2 million
as of
December 31, 2017
and
2016
, respectively, are included in deferred charges and other assets on the accompanying consolidated balance sheet.
Estimates and assumptions required:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Translation of foreign currencies:
The Company considers the local currency to be the functional currency for substantially all foreign subsidiaries. Assets and liabilities are translated at the exchange rate as of the balance sheet date. All revenue and expense accounts are translated at average exchange rates in effect during the year. Translation gains or losses are recorded in the foreign currency translation component in accumulated other comprehensive loss in shareholders’ equity. Foreign currency transaction losses of $
0.6 million
in
2017
, gains of $
0.4 million
in 2016, and losses of $
1.4 million
in
2015
, are included as a component of other operating income. Foreign currency transaction losses of $
0.7 million
were recorded within non-operating income in 2016. There were no foreign currency transaction losses recorded within non-operating income in 2017 or 2015.
Revenue recognition:
Sales and related costs of products sold are recognized when persuasive evidence of an arrangement exists, title and risk of ownership have been transferred to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. These conditions are typically fulfilled upon shipment of products. All costs associated with revenue, including customer rebates and provisions for estimates of sales returns and allowances, are recognized as a deduction from revenue in the period in which the associated revenue is recorded. Customer rebates are accrued using sales data and rebate percentages specific to each customer agreement. Shipping and handling costs are classified as a component of cost of products sold while amounts billed to customers for shipping and handling are classified as a component of sales. The Company accrues for estimated warranty costs when specific issues are identified and the amounts are determinable and also considers the history of actual claims paid. Taxes assessed by governmental authorities on revenue producing transactions, including sales, value added, excise and use taxes, are recorded on a net basis (excluded from revenue).
Research and development:
Research and development expenditures are expensed as incurred.
Restructuring costs:
Restructuring costs are recognized when the liability is incurred. The Company calculates severance obligations based on its standard customary practices. Accordingly, the Company records provisions for severance when probable and estimable and the Company has committed to the restructuring plan. In the absence of a standard customary practice or established local practice for locations outside the U.S., liabilities for severance are recognized when incurred. If fixed assets are to be disposed of as a result of the Company’s restructuring efforts, the assets are written off when the Company commits to dispose of them and they are no longer in use. Depreciation is accelerated on fixed assets for the period of time the asset continues to be used until the asset ceases to be used. Other restructuring costs, including costs to relocate equipment, are generally recorded as the cost is incurred or the service is provided.
Cash and cash equivalents:
The Company considers all highly liquid temporary investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents include certificates of deposit that can be readily liquidated without penalty at the Company’s option. Cash equivalents are carried at cost which approximates fair market value.
Trade receivables:
Trade accounts receivable are stated at the amount the Company expects to collect, which is net of an allowance for sales returns and the estimated losses resulting from the inability of its customers to make required payments. When determining the collectability of specific customer accounts, a number of factors are evaluated, including: customer creditworthiness, past transaction history with the customer, and changes in customer payment terms or practices. In addition, overall historical collection experience, current economic industry trends, and a review of the current status of trade accounts receivable are considered when determining the required allowance for doubtful accounts. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to allowance for doubtful accounts. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to trade receivables. Trade receivables are presented net of an allowance for doubtful accounts of $
17.7 million
and $
18.2 million
at
December 31, 2017
and
2016
, respectively.
The Company enters into supply chain financing programs from time to time to sell trade receivables without recourse to third-party financial institutions. Sales of trade receivables are reflected as a reduction of trade receivables on the consolidated balance sheets and the proceeds are included in the cash flows from operating activities in the consolidated statements of cash flows. During the years ended December 31, 2017 and 2016, the Company sold without recourse trade receivables representing approximately
20 percent
and
12 percent
, respectively, of net sales, and the associated discount on sale of trade receivables was not significant.
Inventory valuation:
Inventories are valued at the lower of cost, as determined by the first-in, first-out ("FIFO") method, or net realizable value. Inventory values using the FIFO method of accounting approximate replacement cost. Inventories are summarized at December 31, as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
Raw materials and supplies
|
|
$
|
198.3
|
|
|
$
|
172.2
|
|
Work in process and finished goods
|
|
421.9
|
|
|
377.2
|
|
Total inventories
|
|
$
|
620.2
|
|
|
$
|
549.4
|
|
Property and equipment:
Property and equipment are stated at cost. Maintenance and repairs that do not improve efficiency or extend economic life are expensed as incurred. Plant and equipment are depreciated for financial reporting purposes principally using the straight-line method over the estimated useful lives of assets as follows: land improvements,
15
-
30
years; buildings,
15
-
45
years; leasehold and building improvements, the lesser of the lease term or
8
-
20
years; and machinery and equipment,
3
-
17
years. For tax purposes, the Company generally uses accelerated methods of depreciation. The tax effect of the difference between book and tax depreciation has been provided as deferred income taxes. Depreciation expense was $
152.8 million
, $
146.1 million
, and $
144.2 million
for
2017
,
2016
, and
2015
, respectively. On sale or retirement, the asset cost and related accumulated depreciation are removed from the accounts and any related gain or loss is reflected in other operating income.
The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If impairment indicators are present and the estimated future undiscounted cash flows are less than the carrying value of the assets, the carrying values are reduced to the estimated fair value. The Company reviewed the long-lived assets of its Latin America Packaging reporting unit in the fourth quarter and concluded they were not impaired.
The Company capitalizes direct costs (internal and external) of materials and services used in the development and purchase of internal-use software. Amounts capitalized are amortized on a straight-line basis over a period of
three
to
twelve
years and are reported as a component of machinery and equipment within property and equipment.
The Company is in the process of developing and implementing a new Enterprise Resource Planning ("ERP") system. Certain costs incurred during the application development stage have been capitalized in accordance with authoritative accounting guidance related to accounting for costs of computer software developed or obtained for internal use. The net book value of capitalized costs for this new ERP system were approximately $
55.0 million
and $
60.8 million
as of
December 31, 2017
and
2016
, respectively. These costs are being amortized over the system’s estimated useful life as the ERP system is placed in service.
Goodwill:
Goodwill represents the excess of cost over the fair value of net assets acquired in a business combination. Goodwill is not amortized, but instead tested annually or whenever events and circumstances indicate an impairment may have occurred. Among the factors that could trigger an impairment review are a reporting unit’s operating results significantly declining relative to its operating plan or historical performance, and competitive pressures and changes in the general markets in which it operates.
The Company’s reporting units each have contained goodwill that is assessed for potential impairment. All goodwill is assigned to reporting units, which is defined as the operating segment, or one level below the operating segment. The Company has three reporting units, or operating segments, which align with the Company's new reportable segment structure.
Based on accounting guidance applicable prior to the fourth quarter of 2017, if the carrying value of a reporting unit exceeded its fair value, the Company completed a second step to determine the amount of the goodwill impairment loss, if any, to be recognized. In the second step, the Company estimated an implied fair value of the reporting unit’s goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill (including any unrecognized intangible assets). The impairment loss was equal to the excess of the carrying value of the goodwill over the implied fair value of that goodwill. As a result of adopting Accounting Standards Update (“ASU”) 2017-04,
Simplifying the Test for Goodwill Impairment
, if the carrying value of a reporting unit exceeds its fair value, the Company recognizes an impairment loss equal to the difference between the carrying value and estimated fair value of the reporting unit, adjusted for any tax impact.
The Company completes an annual assessment of goodwill in the fourth quarter utilizing two valuation approaches, the income approach and the market multiple approach. Under the income approach, the Company estimates the fair value of the reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management’s estimates of revenue growth rates and EBITDA margins, taking into consideration business and market conditions for the countries and markets in which the reporting unit operates. The Company calculates the discount rate based on a market-participant, risk-adjusted weighted average cost of capital, which considers industry specific rates of return on debt and equity capital for a target industry capital structure, adjusted for risks associated with business size and geography. Under the market multiples approach, the Company estimates fair value based on market multiples of EBITDA derived from publicly traded companies in the Company’s peer group, adjusted to reflect differences in size and growth prospects.
During the second quarter of 2017, the Company initiated an interim impairment analysis of the Latin America Packaging reporting unit given the contraction in this reporting unit’s business late in the second quarter. This review did not result in any impairment of the reporting unit’s goodwill balance.
As a result of further deterioration in the forecasted sales and profits of the Latin America Packaging reporting unit from the second quarter outlook and forecasted slow economic recovery, the Company determined in the fourth quarter that the fair value of the reporting unit was less than its carrying value. In performing the analysis, the Company used discount rates and terminal growth rates of
11 percent
and
3 percent
, respectively, to calculate the present value of future cash flows. Accordingly, the Company recorded a noncash goodwill impairment charge of $
196.6 million
($
145.5 million
after-tax) which is recorded in the goodwill impairment charge line of the consolidated income statement.
The annual impairment test indicated the goodwill balances for the U.S. Packaging reporting unit and Rest of World Packaging reporting units were not impaired for the years ended December 31, 2017, 2016 or 2015 and the Company does not have any accumulated impairment losses for these reporting units.
Intangible assets:
Contractual or separable intangible assets that have finite useful lives are amortized against income using the straight-line method over their estimated useful lives, with original periods ranging from
one
to
thirty
years. The straight-line method of amortization reflects an appropriate allocation of the costs of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the Company in each reporting period. The Company tests finite-lived intangible
assets for impairment whenever there is an impairment indicator. The Company completed a test of the Latin America Packaging reporting unit intangibles in the fourth quarter which concluded the assets were not impaired. Intangible assets are tested for impairment by comparing anticipated undiscounted future cash flows from operations to net book value.
Financial instruments:
The Company recognizes all derivative instruments on the balance sheet at fair value. Derivatives not designated as hedging instruments are adjusted to fair value through income. Depending on the nature of derivatives designated as hedging instruments, changes in the fair value are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in shareholders’ equity through other comprehensive income until the hedged item is recognized. Gains or losses, if any, related to the ineffective portion of any hedge are recognized through earnings in the current period.
Note 9 contains expanded details relating to specific derivative instruments included on the Company’s balance sheet, such as forward foreign currency exchange contracts, currency swap contracts, and interest rate swap arrangements.
Other liabilities and deferred credits:
Other liabilities and deferred credits balances include non-current pension and other postretirement liability amounts of $
47.6 million
and $
59.5 million
at
December 31, 2017
and
2016
, respectively.
Treasury stock:
Treasury stock purchases are stated at cost and presented as a separate reduction of shareholders’ equity. During 2017, the Company purchased
2.2 million
shares of common stock in the open market for $
103.8 million
. During 2016, the Company purchased
3.0 million
shares of common stock in the open market for $
143.9 million
. During 2015, the Company purchased
3.3 million
shares of common stock in the open market for $
150.1 million
. At
December 31, 2017
, approximately
18.2 million
common shares can be repurchased, at management’s discretion, under authority granted by the Company’s Board of Directors.
Note
3
— NEW ACCOUNTING GUIDANCE
Recently Adopted Accounting Standards
In January 2017, the Financial Accounting Standards Board ("FASB") issued new guidance to simplify the subsequent measurement of goodwill by removing the requirement to perform a hypothetical purchase price allocation to compute the implied fair value of goodwill to measure impairment. Instead, any goodwill impairment will equal the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Further, the guidance eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. This guidance is required to be applied by the Company in the first quarter of 2020, with early adoption permitted for impairment tests performed after January 1, 2017. The updated guidance requires a prospective adoption. Early adoption was permitted for goodwill impairment tests performed on testing dates after January 1, 2017. We elected to adopt this updated guidance in the fourth quarter of fiscal 2017, in conjunction with our annual review for impairment. Refer to Note 10 for a discussion of the results of our annual assessment of goodwill, including related impairment charges.
In March 2016, the FASB issued guidance that will change certain aspects of accounting for share-based payments to employees. The new guidance requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled and recognized in the statement of cash flows as operating cash flows. The guidance also allows employee tax withholdings above the minimum statutory requirement without triggering liability accounting. Finally, the Company made a policy election to account for forfeitures as they occur. The guidance was adopted by the Company in the first quarter of 2017 and applied prospectively.
If this guidance was adopted in the first quarter of 2016, diluted earnings per share in the first quarter would have increased by $
0.04
from $
0.59
to $
0.63
due to a reduction in income tax expense. The impact to operating cash flow in the first quarter of 2016 would have been an increase of $
4.2 million
with a corresponding decrease in financing cash flows. Stock awards typically vest in the first quarter so the impact is concentrated in the first three months of each year. The impact in future years will be dependent on Bemis stock performance and the number of shares vesting each year. The impact in 2017 was a $
0.9 million
reduction of income tax expense and an equivalent benefit to operating cash flow.
Recently Issued Accounting Standards
In February 2018, the FASB issued guidance on the reclassification of certain tax effects from accumulated other comprehensive income. The guidance requires the Company to disclose a description of the Company’s accounting policy for releasing income tax effects from accumulated other comprehensive income and whether the Company elects to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act, along with information about other income tax effects that are reclassified. The guidance is required to be applied by the Company in 2019, with early adoption permitted.
In August 2017, the FASB issued guidance that amends the hedge accounting rules to better portray the economic results of risk management activities in the financial statements and also to make targeted improvements to simplify the application of hedge accounting guidance. The guidance is required to be applied by the Company in the first quarter of 2019, but early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In March 2017, the FASB issued guidance that will change how employers that sponsor defined benefit pension and other postretirement benefit plans present the cost of the benefits in the income statement. Under the new guidance, employers will present only the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components separately from the line item that includes the service cost and outside of any subtotal of operating income, if one is presented. Employers will have to disclose the line used to present the other components of net periodic benefit cost, if the components are not presented separately in the income statement. The guidance is required to be applied by the Company in the first quarter of 2018. The Company does not expect this standard to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued new guidance that narrows the application of when an integrated set of assets and activities is considered a business and provides a framework to assist entities in evaluating whether both an input and a substantive process are present to be considered a business. It is expected that the new guidance will reduce the number of transactions that would need to be further evaluated and accounted for as a business. The guidance is required to be applied by the Company in the first quarter of 2018, but early adoption is permitted. The Company does not expect this standard to have a material impact on its consolidated financial statements.
In August 2016, the FASB issued guidance to simplify elements of cash flow classification. The guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The new guidance requires cash payments for debt prepayment or debt extinguishment costs to be classified as cash outflows for financing activities. It also requires cash payments made soon after an acquisition's consummation date (approximately three months or less) to be classified as cash outflows for investing activities. Payments made thereafter should be classified as cash outflows for financing activities up to the amount of the original contingent consideration liability. Payments made in excess of the amount of the original contingent consideration liability should be classified as cash outflows for operating activities. The Company is adopting this standard in the first quarter of 2018 and does not expect it to have a material impact on its consolidated financial statements.
In February 2016, the FASB issued guidance that requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to today's accounting. The guidance also eliminates today's real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. All entities will classify leases to determine how to recognize lease-related revenue and expense. A modified retrospective approval is required for adoption of all leases that exist at or commence after the date of initial application with an option to use certain practical expedient. We expect to adopt this guidance when effective for us in the first quarter of 2019.
In May 2014, the FASB issued new guidance which supersedes current revenue recognition requirements. This guidance is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB voted to defer for one year the effective date of the new revenue standard. The guidance is required to be applied by the Company in the first quarter of fiscal 2018 using one of two retrospective applications methods. The FASB also decided to permit entities to early adopt the standard.
The Company has elected to adopt the new revenue guidance as of January 1, 2018. In preparation for adoption of the new guidance, the Company has reviewed representative samples of contracts and other forms of agreements with customers globally and has evaluated the provisions under the five-step model specified by the new guidance. The Company has concluded the new revenue recognition guidance will not have a material impact on its consolidated financial statements, with the exception of expanded disclosure requirements. The Company will apply the modified retrospective application.
Note
4
- RESTRUCTURING AND OTHER COSTS
Restructuring and other costs as reported on the consolidated statement of income are summarized as follows:
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|
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|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Restructuring costs
|
|
$
|
47.4
|
|
|
$
|
22.5
|
|
|
$
|
7.8
|
|
Restructuring related costs
|
|
10.3
|
|
|
—
|
|
|
—
|
|
Pension settlement charge
|
|
10.1
|
|
|
—
|
|
|
—
|
|
Other charges
|
|
2.7
|
|
|
6.1
|
|
|
4.3
|
|
Total restructuring and other costs
|
|
$
|
70.5
|
|
|
$
|
28.6
|
|
|
$
|
12.1
|
|
Restructuring costs include costs related to the 2016 Plan focused on plant closures in Latin America and the 2017 Plan focused on aligning the Company's cost structure to its environment. Refer to Note 5 — Restructuring Plans for details for both the 2016 and 2017 Plans regarding expenses incurred and cash payments to date, in addition to disaggregation of costs by segment and cost category.
Other costs include restructuring related costs, a pension settlement charge, acquisition costs, and hurricane-related expenses. Restructuring related costs include professional fees for consultants and asset impairment charges. During 2017, the Company offered terminated vested participants in the U.S. qualified retirement plans the opportunity to receive their benefits early as a lump sum. In the fourth quarter of 2017, the Company recognized a non-cash pension settlement charge of $
10.1 million
($
6.8 million
, net of taxes). In 2017, other costs are also comprised of acquisition costs and hurricane-related expenses incurred at the Puerto Rico faciltiy. In 2016, other costs are comprised primarily of acquisition costs associated with the SteriPack acquisition. Other costs also include the gain on sale of land and building related to the sale of a plant in Latin America in 2016.
Note
5
— RESTRUCTURING PLANS
2016 Restructuring and Cost Savings Plan ("2016 Plan")
During the second quarter of 2016, the Company initiated a restructuring and cost savings plan ("2016 Plan") to improve efficiencies and reduce fixed costs. As a part of this plan,
four
Latin American facilities will be closed. Most of the production from these facilities will be transferred to other facilities. As of December 31, 2017, manufacturing operations had ceased at all
four
of these manufacturing facilities. Based on current estimates and actual charges to date, the Company expects total pre-tax restructuring costs of approximately $
31 million
, with approximately $
13 million
in employee termination costs, approximately $
2 million
in fixed asset related costs, and $
16 million
in other costs which primarily represent the cost to move and re-install equipment.
The estimated 2016 Plan costs are as follows:
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|
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|
(in millions)
|
|
Latin America Packaging
|
|
Rest of World Packaging
|
|
Total
|
2016 net expense accrued
|
|
$
|
20.5
|
|
|
$
|
1.1
|
|
|
$
|
21.6
|
|
2017 net expense accrued
|
|
8.0
|
|
|
0.2
|
|
|
8.2
|
|
Expense incurred to date
|
|
28.5
|
|
|
1.3
|
|
|
29.8
|
|
Estimated future expense
|
|
1.6
|
|
|
—
|
|
|
1.6
|
|
Estimated costs of program
|
|
$
|
30.1
|
|
|
$
|
1.3
|
|
|
$
|
31.4
|
|
An analysis of the 2016 program accruals follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Costs
|
|
Fixed Asset Related
|
|
Other Costs
|
|
Total Restructuring Costs
|
Reserve balance at December 31, 2016
|
|
$
|
9.4
|
|
|
$
|
—
|
|
|
$
|
2.3
|
|
|
$
|
11.7
|
|
Net expense accrued
|
|
0.1
|
|
|
0.4
|
|
|
10.5
|
|
|
$
|
11.0
|
|
Utilization (cash payments or otherwise settled)
|
|
(6.6
|
)
|
|
(0.4
|
)
|
|
(8.4
|
)
|
|
(15.4
|
)
|
Accrual adjustment
|
|
(2.0
|
)
|
|
(0.8
|
)
|
|
—
|
|
|
(2.8
|
)
|
Translation adjustments and other
|
|
0.2
|
|
|
0.8
|
|
|
—
|
|
|
1.0
|
|
Reserve balance at December 31, 2017
|
|
$
|
1.1
|
|
|
$
|
—
|
|
|
$
|
4.4
|
|
|
$
|
5.5
|
|
Plant closings associated with the 2016 Plan are complete, with the last facility closing in the fourth quarter of 2017. Cash payments in 2017 and 2016 totaled $
15.4 million
and $
8.3 million
, respectively. Cash payments in 2018 are expected to be approximately $
7 million
. The costs related to restructuring activities have been recorded on the consolidated statement of income as restructuring and other costs. The accruals related to restructuring activities have been recorded on the consolidated balance sheet primarily as other current liabilities.
2017 Restructuring and Cost Savings Plan ("2017 Plan")
On June 30, 2017, the Company announced restructuring activities targeted to improve efficiency and profitability that further positions the Company for long-term success. As a part of this plan, the Company announced the intention to close
four
production facilities for which business will be relocated to existing facilities and the closure of an additional manufacturing facility for which business will not be relocated to optimize manufacturing capacity. In addition, the Company announced it will reduce administrative positions by approximately
500
over the next three years and consolidate certain administrative offices and take other actions to improve the cost efficiency of a a variety of administrative and operational processes.
The Company expects total 2017 Plan pre-tax restructuring costs of approximately $
65
to $
70 million
, which includes $
29
to $
31 million
in employee termination costs, $
19
to $
20 million
in fixed asset related expenses, and $
17
to $
19 million
in other restructuring project costs, including the movement and re-installation of equipment. Expenses in the twelve months ended December 31, 2017 were $
39.1 million
, which consisted primarily of employee termination costs and fixed asset write-downs of equipment.
The estimated 2017 Plan costs are as follows:
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|
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|
|
|
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|
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(in millions)
|
|
U.S. Packaging
|
|
Latin America Packaging
|
|
Rest of World Packaging
|
|
Corporate
|
|
Total
|
2017 second quarter net expense accrued
|
|
$
|
6.7
|
|
|
$
|
11.7
|
|
|
$
|
0.6
|
|
|
$
|
1.3
|
|
|
$
|
20.3
|
|
2017 third quarter net expense accrued
|
|
3.9
|
|
|
6.1
|
|
|
0.4
|
|
|
1.5
|
|
|
11.9
|
|
2017 fourth quarter net expense accrued
|
|
2.8
|
|
|
2.9
|
|
|
0.5
|
|
|
0.7
|
|
|
6.9
|
|
Expense incurred to date
|
|
13.4
|
|
|
20.7
|
|
|
1.5
|
|
|
3.5
|
|
|
39.1
|
|
Estimated future expense
|
|
18.9
|
|
|
6.1
|
|
|
0.5
|
|
|
0.7
|
|
|
26.2
|
|
Estimated costs of program
|
|
$
|
32.3
|
|
|
$
|
26.8
|
|
|
$
|
2.0
|
|
|
$
|
4.2
|
|
|
$
|
65.3
|
|
An analysis of the 2017 Plan accruals follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Costs
|
|
Fixed Asset Related
|
|
Other Costs
|
|
Total Restructuring Costs
|
Net expense accrued
|
|
$
|
26.8
|
|
|
$
|
9.7
|
|
|
$
|
2.6
|
|
|
$
|
39.1
|
|
Utilization (cash payments or otherwise settled)
|
|
(6.6
|
)
|
|
(9.7
|
)
|
|
—
|
|
|
(16.3
|
)
|
Translation adjustments and other
|
|
(1.0
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
(1.1
|
)
|
Reserve balance at December 31, 2017
|
|
$
|
19.2
|
|
|
$
|
—
|
|
|
$
|
2.5
|
|
|
$
|
21.7
|
|
The Plan is expected to be completed by the end of 2019. Cash payments in the twelve months ended December 31, 2017 were $
6.8 million
. The costs related to restructuring activities have been recorded on the consolidated statement of income as restructuring and other costs. The accruals related to restructuring activities have primarily been recorded on the consolidated balance sheet as other current liabilities.
Note
6
— ACQUISITIONS
Evadix
On November 8, 2017, the Company acquired Romanian-based flexible packaging company Evadix. This small, yet strategic acquisition establishes the Company with its first manufacturing operation in Eastern Europe. The acquired facility provides a strong converting platform to leverage the Company's expertise and capabilities in film-making from Western Europe to grow sales of meat and cheese packaging throughout Europe.
The cash purchase price was $
3.9 million
. The preliminary allocation of the purchase price resulted in approximately $
0.1 million
of goodwill for the Rest of World Packaging segment. The fair value and weighted average useful lives that have been assigned to the acquired identifiable intangible assets of this acquisition are:
|
|
|
|
|
|
|
|
(in millions, except useful life)
|
|
Fair Value
|
|
Weighted Average Useful Life
|
Customer relationships
|
|
$
|
0.5
|
|
|
5 years
|
The fair value of assets and liabilities acquired was $
8.4 million
and $
4.5 million
, respectively. Pro forma financial information and allocation of the purchase price are not presented as the effects of this acquisition are not material to the Company's results of operations or financial position.
SteriPack
On April 29, 2016, the Company acquired the medical device packaging operations and related value-added services of SteriPack Group, a global manufacturer of sterile packaging solutions for medical device and pharmaceutical applications. This acquisition includes a facility in Ireland as well as packaging production assets in Malaysia and the United States. The cash purchase price was $
115.5 million
. The allocation of the purchase price resulted in approximately $
66.8 million
of goodwill for the Rest of World Packaging segment, the majority of which is not expected to be tax deductible. The goodwill identified by this acquisition reflects the benefits expected to be derived from product line expansion. The fair value and weighted average useful lives that have been assigned to the acquired identifiable intangible assets of this acquisition are:
|
|
|
|
|
|
|
|
(in millions, except useful life)
|
|
Fair Value
|
|
Weighted Average Useful Life
|
Customer relationships
|
|
$
|
21.8
|
|
|
8 years
|
Order backlog
|
|
1.7
|
|
|
2 months
|
Total
|
|
$
|
23.5
|
|
|
|
The fair value of assets and liabilities acquired was $
131.3 million
and $
15.8 million
, respectively. Pro forma financial information and allocation of the purchase price are not presented as the effects of this acquisition are not material to the Company's results of operations or financial position.
Emplal Participações S.A.
On December 1, 2015, Bemis acquired the rigid plastic packaging operations of Emplal Participações S.A. ("Emplal"), a privately-owned Brazilian manufacturer of plastic packaging for food and consumer applications. The acquisition supports the Company's growth strategy to expand in markets that fit the Company's strengths and capabilities. The cash purchase price was $
66.0 million
. The allocation of the purchase price resulted in approximately $
41.3 million
of goodwill for the Global Packaging segment, which is expected to be tax deductible. The fair value and weighted average useful life that has been assigned to the acquired identifiable intangible asset of this acquisition is:
|
|
|
|
|
|
|
|
(in millions, except useful life)
|
|
Fair Value
|
|
Weighted Average Useful Life
|
Customer relationships
|
|
$
|
4.5
|
|
|
10 years
|
The fair value of assets and liabilities acquired was $
143.8 million
and $
77.8 million
, respectively. Deferred charges and other assets include an amount of approximately $
16.9 million
to record assets related to the indemnity provisions of the sale and purchase agreement, and are primarily related to tax matters. Pro forma financial information and allocation of the purchase price are not presented as the effects of this acquisition are not material to the Company's results of operations or financial position.
Note
7
— DIVESTITURES AND PLANT CLOSURES
Bemis Healthcare Packaging Plant Closure
In January 2015, the Company announced that it would close a plant in Philadelphia, Pennsylvania, which was one of its healthcare packaging facilities. Production from this facility was transferred to other healthcare facilities throughout 2015. During the twelve months ended December 31, 2015, plant closure costs of $
7.8 million
were recorded. These costs were recorded within restructuring and other costs and included the Company's best estimate of a withdrawal liability for a multi-employer pension plan settlement. Operations ceased at this location in January 2016. The majority of approximately $
7 million
of cash payments were disbursed in 2016.
Divestiture of Pressure Sensitive Materials Business
On November 7, 2014, the Company completed the sale its global Pressure Sensitive Materials business. Proceeds of the transaction totaled $
150.5 million
. Of the total proceeds, $
136.9 million
was received in fiscal 2014 and $
13.6 million
was received in April 2015 which related to settlement of customary post-closing adjustments. At September 30, 2014, the Company determined that the Pressure Sensitive Materials business met the criteria to be classified as a discontinued operation, which required retrospective application to certain financial information for all periods presented.
The following table summarizes the results of the Pressure Sensitive Materials business, reclassified as discontinued operations for the twelve month period ended December 31, 2015:
|
|
|
|
|
|
Twelve Months Ended
|
(in millions)
|
December 31, 2015
|
Loss from discontinued operations before income taxes
|
$
|
(3.7
|
)
|
(Benefit) provision for income taxes on discontinued operations
|
(1.1
|
)
|
Loss from discontinued operations, net of tax
|
$
|
(2.6
|
)
|
|
|
Loss from discontinued operations in 2015 resulted from additional impairment charges, net of tax, reflecting finalization of post-closing adjustments.
Note
8
— FINANCIAL ASSETS AND FINANCIAL LIABILITIES MEASURED AT FAIR VALUE
The fair values of the Company’s financial assets and financial liabilities listed below reflect the amounts that would be received to sell the assets or paid to transfer the liabilities in an orderly transaction between market participants at the measurement date (exit price).
The Company’s non-derivative financial instruments include cash and cash equivalents, trade receivables, accounts payable, short-term borrowings, and long-term debt. At
December 31, 2017
and
2016
, the carrying value of these financial instruments, excluding long-term debt, approximates fair value because of the short-term maturities of these instruments.
Fair value disclosures are classified based on the fair value hierarchy. Level 1 fair value measurements represent exchange-traded securities which are valued at quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Level 2 fair value measurements are determined using input prices that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Level 3 fair value measurements are determined using unobservable inputs, such as internally developed pricing models for the asset or liability due to little or no market activity for the asset or liability.
The fair value measurements of the Company’s long-term debt represent non-active market exchange-traded securities which are valued at quoted prices or using input prices that are directly observable or indirectly observable through corroboration with observable market data. The carrying values and estimated fair values of long-term debt at
December 31, 2017
and
2016
follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
|
|
Carrying
|
|
Fair Value
|
|
Carrying
|
|
Fair Value
|
(in millions)
|
|
Value
|
|
(Level 2)
|
|
Value
|
|
(Level 2)
|
Total long-term debt
|
|
$
|
1,542.4
|
|
|
$
|
1,591.0
|
|
|
$
|
1,527.8
|
|
|
$
|
1,592.3
|
|
The fair values for derivatives are based on inputs other than quoted prices that are observable for the asset or liability. These inputs include interest rates. The financial assets and financial liabilities are primarily valued using standard calculations / models that use as their basis readily observable market parameters. Industry standard data providers are the primary source for forward and spot rate information for both interest rates and currency rates, with resulting valuations periodically validated through third-party or counterparty quotes. The fair value of the Company's derivatives follow:
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
As of
|
|
Fair Value
As of
|
|
|
December 31, 2017
|
|
December 31, 2016
|
(in millions)
|
|
(Level 2)
|
|
(Level 2)
|
Interest rate swaps — net (liability) asset position
|
|
$
|
(0.6
|
)
|
|
$
|
1.3
|
|
Note
9
— DERIVATIVE INSTRUMENTS
The Company enters into derivative transactions to manage exposures arising in the normal course of business. The Company does not enter into derivative transactions for speculative or trading purposes. The Company recognizes all derivative instruments on the balance sheet at fair value. Derivatives not designated as hedging instruments are adjusted to fair value through income. Depending on the nature of derivatives designated as hedging instruments, changes in the fair value are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in shareholders' equity through other comprehensive income until the hedged item is recognized. Gains or losses, if any, related to the ineffective portion of any hedge are recognized through earnings in the current period.
The Company enters into interest-rate swap contracts to economically convert a portion of the Company’s fixed-rate debt to variable rate debt. During the fourth quarter of 2011, the Company entered into
four
interest rate swap agreements with a total notional amount of $
400 million
. These contracts were designated as fair value hedges of the Company’s $
400 million
4.5%
fixed-rate debt due in 2021. The variable rate for each of the interest rate swaps is based on the six-month London Interbank Offered Rate (LIBOR), set in arrears, plus a fixed spread. The variable rates are reset semi-annually at each net settlement date. Fair values of these interest rate swaps are determined using discounted cash flow or other appropriate
methodologies. Asset positions are included in deferred charges and other assets with a corresponding increase in long-term debt. Liability positions are included in other liabilities and deferred credits with a corresponding decrease in long-term debt.
The Company enters into forward exchange contracts to manage foreign currency exchange rate exposures associated with certain foreign currency denominated receivables and payables. Forward exchange contracts generally have maturities of less than
six
months and relate primarily to the U.S. dollar for the Company’s Brazilian operations. The Company has not designated these derivative instruments as hedging instruments. At
December 31, 2017
and
2016
, the Company had outstanding forward exchange contracts with notional amounts aggregating $
2.7 million
and $
4.1 million
, respectively. The net settlement amount (fair value) related to active forward exchange contracts is recorded on the balance sheet as either a current or long-term asset or liability and as an element of other operating income which offsets the related transaction gains or losses. The net settlement amounts are immaterial for all periods presented.
The Company is exposed to credit loss in the event of non-performance by counterparties in forward exchange contracts and interest-rate swap contracts. Collateral is generally not required of the counterparties or of the Company. In the event a counterparty fails to meet the contractual terms of a currency swap or forward exchange contract, the Company’s risk is limited to the fair value of the instrument. The Company actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting major international banks and financial institutions as counterparties. The Company has not had any historical instances of non-performance by any counterparties, nor does it anticipate any future instances of non-performance.
The fair values, balance sheet presentation, and the hedge designation status of derivative instruments at
December 31, 2017
and
2016
are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value (Level 2) as of
|
(in millions)
|
|
Balance Sheet Location
|
|
December 31, 2017
|
|
December 31, 2016
|
Asset Derivatives
|
|
|
|
|
|
|
|
|
Interest rate swaps — designated as hedge
|
|
Deferred charges and other assets
|
|
$
|
—
|
|
|
$
|
1.3
|
|
Liability Derivatives
|
|
|
|
|
|
|
Interest rate swaps — designated as hedge
|
|
Other liabilities and deferred credits
|
|
0.6
|
|
|
—
|
|
The income statement impact of derivatives are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized
in Income on Derivatives
|
(in millions)
|
|
Income Statement Location
|
|
2017
|
|
2016
|
|
2015
|
Designated as hedges
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest expense
|
|
$
|
3.2
|
|
|
$
|
4.7
|
|
|
$
|
7.2
|
|
Not designated as hedges
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
Other operating income
|
|
(0.8
|
)
|
|
(0.8
|
)
|
|
0.7
|
|
Total
|
|
|
|
$
|
2.4
|
|
|
$
|
3.9
|
|
|
$
|
7.9
|
|
Note
10
— GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill attributable to each reportable business segment follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
U.S. Packaging Segment
|
|
Latin America Packaging Segment
|
|
Rest of World Packaging Segment
|
|
Total
|
Reported balance at December 31, 2015
|
|
$
|
632.1
|
|
|
$
|
169.1
|
|
|
$
|
148.3
|
|
|
$
|
949.5
|
|
Acquisition and acquisition adjustments
|
|
—
|
|
|
(3.6
|
)
|
|
66.8
|
|
|
63.2
|
|
Currency translation
|
|
0.3
|
|
|
23.5
|
|
|
(7.7
|
)
|
|
16.1
|
|
Reported balance at December 31, 2016
|
|
632.4
|
|
|
189.0
|
|
|
207.4
|
|
|
1,028.8
|
|
Acquisition and acquisition adjustments
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
Impairment charge
|
|
—
|
|
|
(196.6
|
)
|
|
—
|
|
|
(196.6
|
)
|
Currency translation
|
|
0.7
|
|
|
7.6
|
|
|
12.1
|
|
|
20.4
|
|
Reported balance at December 31, 2017
|
|
$
|
633.1
|
|
|
$
|
—
|
|
|
$
|
219.6
|
|
|
$
|
852.7
|
|
The Company reviews goodwill for impairment annually in the fourth quarter of the fiscal year and whenever events or changes in circumstances indicate that the carrying value of goodwill might not be recoverable. As described in Note 2, New Accounting Guidance, the Company elected to early adopt new accounting guidance that simplifies the test for goodwill impairment during the fourth quarter of 2017. As a result of this election, if the carrying value of a reporting unit exceeds its fair value, the Company recognizes an impairment loss equal to the difference between the carrying value and estimated fair value of the reporting unit, adjusted for any tax benefits.
As part of the Company’s annual assessment of impairment of goodwill conducted with the aid of a third party valuation specialist, the Company determined that the fair value of the Latin America Packaging reporting unit was less than its carrying value by approximately $
163 million
, primarily related to the Company’s revised expectations for the forecasted recovery in Brazil. This resulted in a full impairment of the Latin America Packaging reporting unit’s goodwill of $
196.6 million
($
145.5 million
after tax).
The Company’s annual impairment test of the U.S. Packaging reporting unit and Rest of World Packaging reporting unit in the fourth quarter of 2017 concluded that the estimated fair value of these reporting units exceeded their carrying value and therefore their associated goodwill was not impaired. The Company does not have any other accumulated impairment losses.
In 2017, acquisition and acquisition adjustments are comprised of opening balance sheet adjustments related to the Evadix acquisition. In 2016, acquisition and acquisition adjustments are comprised of opening balance sheet adjustments related to the Emplal Participações S.A and SteriPack acquisitions.
The components of amortized intangible assets follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
(in millions)
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
Contract based
|
|
$
|
9.9
|
|
|
$
|
(1.6
|
)
|
|
$
|
8.9
|
|
|
$
|
(1.0
|
)
|
Technology based
|
|
79.7
|
|
|
(56.6
|
)
|
|
79.5
|
|
|
(52.0
|
)
|
Marketing related
|
|
14.1
|
|
|
(9.3
|
)
|
|
14.2
|
|
|
(8.9
|
)
|
Customer based
|
|
210.1
|
|
|
(104.0
|
)
|
|
203.9
|
|
|
(89.4
|
)
|
Reported balance
|
|
$
|
313.8
|
|
|
$
|
(171.5
|
)
|
|
$
|
306.5
|
|
|
$
|
(151.3
|
)
|
Amortization expense for intangible assets during
2017
,
2016
, and
2015
was $
17.0 million
, $
16.0 million
, and $
14.3 million
, respectively. Estimated future amortization expense for intangible assets follows:
|
|
|
|
|
|
(in millions)
|
|
Amortization
|
2018
|
|
$
|
17.1
|
|
2019
|
|
16.9
|
|
2020
|
|
16.1
|
|
2021
|
|
14.1
|
|
2022
|
|
12.4
|
|
Note
11
— PENSION PLANS
Total defined benefit, defined contribution, and multiemployer plan pension expense in
2017
,
2016
, and
2015
was $
45.0 million
, $
32.1 million
, and $
41.2 million
, respectively.
The Company sponsors a 401(k) savings plan (a defined contribution plan) for substantially all U.S. employees. In 2017, the Company contributed $
1.00
for every pre-tax $
1.00
an employee contributed up to
eight percent
of eligible compensation for the plans that include a company match. The Company contributions are invested in target retirement date funds based on employees’ ages and are fully vested after three years of service. In 2016 and 2015, the Company contributed $
0.50
for every pre-tax $
1.00
an employee contributed on the first four percent of eligible compensation plus $
0.25
for every pre-tax $
1.00
an employee contributed on the next
four percent
of eligible compensation for the plans that included a company match. The Company contributions in these years were invested in Company stock and were fully vested after three years of service. Total Company contributions for
2017
,
2016
, and
2015
were $
28.4 million
, $
10.6 million
, and $
10.2 million
, respectively. Effective January 1, 2018, the Company reduced the company match from
eight percent
to
seven percent
.
Through December 31, 2016, for employees not participating in defined benefit pension plans, the Company contributed to the Bemis Investment Profit Sharing Plan (BIPSP), a defined contribution plan which was subject to achievement of certain financial performance goals of the Company. The BIPSP was terminated for years after 2016. Total contribution expense for BIPSP and other defined contribution plans (including a multiemployer defined contribution plan and excluding 401(k) plans above) was $
2.0 million
in
2017
, $
11.1 million
in
2016
, and $
20.0 million
in
2015
. As of December 31, 2016, the Company has withdrawn from all multiemployer defined benefit pension plans. Amounts contributed to the multiemployer plans in 2016 and 2015 totaled $
0.0 million
and $
0.1 million
, respectively (refer to Note 13 - Multiemployer Defined Benefit Pension Plans).
Two of the Company's three U.S. defined benefit plans were frozen as of December 31, 2013. The frozen plans are the salaried retirement plan that covered certain salaried employees and the unfunded supplemental retirement plan that provided senior management with benefits in excess of limits under the federal tax law. The Company’s defined benefit pension plans continue to cover a number of U.S. hourly employees, and the non-U.S. defined benefit plans cover select employees at various international locations. The benefits under the plans are based on years of service and salary levels. Certain plans covering hourly employees provide benefits of stated amounts for each year of service. In 2014, the Society of Actuaries released updated mortality tables and a mortality projection scale which the Company adopted to measure defined benefit plan liabilities. In 2016 and 2017, the Society of Actuaries published new mortality projection scales which were used in conjunction with 2014 mortality tables in measuring defined benefit plan liabilities in 2016 and 2017.
In 2017 and 2016, the Company recognized pension settlement charges, related to lump sum payments from U.S. pension plans, of $
10.6 million
and $
5.8 million
, respectively. Lump sum payments decrease the benefit obligation and are reflected as benefits paid in the "Change in Benefit Obligation" table. The payments also decrease plan assets and are reflected as benefits paid in the "Change in Plan Assets" table. During 2017 and 2016, lump sum windows were offered to certain participants of the salaried and hourly defined pension plans which resulted in lump sum payments for $
41.6 million
and $
26.3 million
, respectively. Settlement accounting was required in 2017 which resulted in the $
10.6 million
settlement charge. No charge was required in 2016. Also during 2016, lump sum payments from the U.S. supplemental pension plan totaled $
18.1 million
which resulted in the $
5.8 million
charge.
Net periodic pension cost for defined benefit plans included the following components for the years ended
December 31, 2017
,
2016
, and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
|
Service cost - benefits earned during the year
|
|
$
|
7.4
|
|
|
$
|
7.6
|
|
|
$
|
7.8
|
|
|
Interest cost on projected benefit obligation
|
|
30.2
|
|
|
32.7
|
|
|
32.6
|
|
|
Expected return on plan assets
|
|
(48.3
|
)
|
|
(51.4
|
)
|
|
(50.7
|
)
|
|
Settlement loss
|
|
10.6
|
|
|
6.1
|
|
|
0.1
|
|
|
Curtailment (gain) loss
|
|
(0.3
|
)
|
|
—
|
|
|
—
|
|
|
Amortization of unrecognized transition obligation
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
Amortization of prior service cost
|
|
0.9
|
|
|
0.8
|
|
|
0.9
|
|
|
Recognized actuarial net loss
|
|
14.1
|
|
|
14.6
|
|
|
20.1
|
|
|
Net periodic pension cost
|
|
$
|
14.6
|
|
|
$
|
10.4
|
|
|
$
|
10.9
|
|
|
Changes in benefit obligations and plan assets, and a reconciliation of the funded status at
December 31, 2017
and
2016
, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
(in millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Change in Benefit Obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at the beginning of the year
|
|
$
|
693.7
|
|
|
$
|
750.4
|
|
|
$
|
56.8
|
|
|
$
|
57.3
|
|
Service cost
|
|
3.8
|
|
|
6.2
|
|
|
1.7
|
|
|
1.4
|
|
Interest cost
|
|
28.4
|
|
|
30.7
|
|
|
1.8
|
|
|
2.0
|
|
Participant contributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Plan amendments
|
|
0.3
|
|
|
0.1
|
|
|
—
|
|
|
0.6
|
|
Plan curtailments
|
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
Benefits paid
|
|
(79.6
|
)
|
|
(79.4
|
)
|
|
(1.9
|
)
|
|
(6.2
|
)
|
Actuarial (gain) loss
|
|
39.1
|
|
|
(14.3
|
)
|
|
1.9
|
|
|
10.2
|
|
Foreign currency exchange rate changes
|
|
—
|
|
|
—
|
|
|
5.6
|
|
|
(8.6
|
)
|
Benefit obligation at the end of the year
|
|
$
|
685.7
|
|
|
$
|
693.7
|
|
|
$
|
65.6
|
|
|
$
|
56.8
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at the end of the year
|
|
$
|
685.7
|
|
|
$
|
693.7
|
|
|
$
|
59.1
|
|
|
$
|
51.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
(in millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the beginning of the year
|
|
$
|
641.4
|
|
|
$
|
641.3
|
|
|
$
|
50.2
|
|
|
$
|
54.2
|
|
Actual return on plan assets
|
|
82.5
|
|
|
60.4
|
|
|
3.0
|
|
|
8.7
|
|
Employer contributions
|
|
3.0
|
|
|
19.1
|
|
|
1.0
|
|
|
1.6
|
|
Participant contributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Benefits paid
|
|
(79.6
|
)
|
|
(79.4
|
)
|
|
(1.9
|
)
|
|
(6.2
|
)
|
Foreign currency exchange rate changes
|
|
—
|
|
|
—
|
|
|
4.8
|
|
|
(8.2
|
)
|
Fair value of plan assets at the end of the year
|
|
$
|
647.3
|
|
|
$
|
641.4
|
|
|
$
|
57.1
|
|
|
$
|
50.2
|
|
|
|
|
|
|
|
|
|
|
Unfunded status at year end:
|
|
$
|
(38.4
|
)
|
|
$
|
(52.3
|
)
|
|
$
|
(8.5
|
)
|
|
$
|
(6.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
(in millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Amount recognized in consolidated balance sheet consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued benefit liability, current
|
|
$
|
(1.0
|
)
|
|
$
|
(3.0
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(0.2
|
)
|
Accrued benefit liability, non-current
|
|
(37.4
|
)
|
|
(49.3
|
)
|
|
(8.3
|
)
|
|
(6.4
|
)
|
Sub-total
|
|
(38.4
|
)
|
|
(52.3
|
)
|
|
(8.5
|
)
|
|
(6.6
|
)
|
Deferred tax asset
|
|
61.8
|
|
|
71.4
|
|
|
2.3
|
|
|
1.9
|
|
Accumulated other comprehensive loss
|
|
97.9
|
|
|
113.1
|
|
|
9.2
|
|
|
7.3
|
|
Net amount related to pension plans
|
|
$
|
121.3
|
|
|
$
|
132.2
|
|
|
$
|
3.0
|
|
|
$
|
2.6
|
|
Accumulated other comprehensive loss related to pension benefit plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
(in millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Unrecognized net actuarial losses
|
|
$
|
156.5
|
|
|
$
|
180.9
|
|
|
$
|
10.6
|
|
|
$
|
8.3
|
|
Unrecognized net prior service costs
|
|
3.2
|
|
|
3.6
|
|
|
0.7
|
|
|
0.6
|
|
Unrecognized net transition costs
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
0.3
|
|
Tax benefit
|
|
(61.8
|
)
|
|
(71.4
|
)
|
|
(2.3
|
)
|
|
(1.9
|
)
|
Accumulated other comprehensive loss, end of year
|
|
$
|
97.9
|
|
|
$
|
113.1
|
|
|
$
|
9.2
|
|
|
$
|
7.3
|
|
Estimated amounts in accumulated other comprehensive income expected to be reclassified to net period cost during 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
|
(in millions)
|
|
U.S. Pension Plans
|
|
Pension Plans
|
Net actuarial losses
|
|
$
|
16.2
|
|
|
$
|
0.4
|
|
Net prior service costs
|
|
0.9
|
|
|
0.1
|
|
Total
|
|
$
|
17.1
|
|
|
$
|
0.5
|
|
The accumulated benefit obligation for all defined benefit pension plans was $
751.3 million
and $
744.7 million
at
December 31, 2017
and
2016
, respectively.
Presented below are the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets and pension plans with accumulated benefit obligations in excess of plan assets as of
December 31, 2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation Exceeds the Fair Value of Plan’s Assets
|
|
Accumulated Benefit Obligation
Exceeds the Fair Value of Plan’s Assets
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
(in millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Projected benefit obligation
|
|
$
|
685.7
|
|
|
$
|
693.7
|
|
|
$
|
65.6
|
|
|
$
|
56.8
|
|
|
$
|
685.7
|
|
|
$
|
693.7
|
|
|
$
|
8.7
|
|
|
$
|
7.9
|
|
Accumulated benefit obligation
|
|
685.7
|
|
|
693.7
|
|
|
59.1
|
|
|
51.0
|
|
|
685.7
|
|
|
693.7
|
|
|
6.9
|
|
|
6.3
|
|
Fair value of plan assets
|
|
647.3
|
|
|
641.4
|
|
|
57.1
|
|
|
50.2
|
|
|
647.3
|
|
|
641.4
|
|
|
4.1
|
|
|
3.6
|
|
The Company’s general funding policy is to make contributions as required by applicable regulations and when beneficial to the Company for tax purposes. The employer contributions for the years ended
December 31, 2017
and
2016
, were $
4.0 million
and $
20.7 million
, respectively. Total expected cash contributions for
2018
are $
2.0 million
which are expected to satisfy plan and regulatory funding requirements.
For the years ended
December 31, 2017
and
2016
, the U.S. pension plans represented approximately
92 percent
and
93 percent
, respectively, of the Company’s total plan assets and approximately
91 percent
and
92 percent
, respectively, of the
Company’s total projected benefit obligation. Considering the significance of the U.S. pension plans in comparison with the Company’s total pension plans, the critical pension assumptions related to the U.S. pension plans and the non-U.S. pension plans are separately presented and discussed below.
The Company’s actuarial valuation date is December 31. The weighted-average discount rates and rates of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Weighted-average discount rate
|
|
3.75
|
%
|
|
4.25
|
%
|
|
2.80
|
%
|
|
3.05
|
%
|
Rate of increase in future compensation levels
|
|
—
|
|
|
—
|
|
|
3.48
|
%
|
|
3.48
|
%
|
The weighted-average discount rates, expected returns on plan assets, and rates of increase in future compensation levels used to determine the net benefit cost for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Weighted-average discount rate
|
|
4.21
|
%
|
|
4.25
|
%
|
|
4.00
|
%
|
|
3.05
|
%
|
|
3.96
|
%
|
|
3.67
|
%
|
Expected return on plan assets
|
|
7.25
|
%
|
|
7.50
|
%
|
|
7.50
|
%
|
|
5.30
|
%
|
|
6.08
|
%
|
|
6.00
|
%
|
Rate of increase in future compensation levels
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.48
|
%
|
|
3.71
|
%
|
|
3.66
|
%
|
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
2018
|
|
$
|
37.8
|
|
|
$
|
1.7
|
|
2019
|
|
38.3
|
|
|
1.9
|
|
2020
|
|
38.9
|
|
|
2.0
|
|
2021
|
|
43.1
|
|
|
2.4
|
|
2022
|
|
40.6
|
|
|
2.2
|
|
Years 2023-2027
|
|
203.2
|
|
|
13.8
|
|
The Company's ERISA Benefit Plan Committee is responsible for overseeing the investments of the pension plans. The overall investment strategy is to achieve a long-term rate of return that maintains an adequate funded ratio and minimizes the need for future contributions through diversification of asset types, investment strategies, and investment managers. A target asset allocation policy is used to balance investments in equity securities with investments in fixed income securities. Beginning in 2013, the Company adopted a liability responsive asset allocation policy that becomes more conservative as the funded status of the plans improve. The majority of pension plan assets relate to U.S. plans and the target allocation is currently to invest approximately
65 percent
in long-term corporate fixed income securities and approximately
35 percent
in return seeking funds. The return seeking funds primarily include investments in diversified portfolios of large cap and small cap companies. Fixed income securities include diversified investments across a broad spectrum of primarily investment-grade debt securities. To develop the expected long-term rate of return on assets assumption, the Company considered historical returns and future expectations. Using the Company’s 2018 target asset allocation based on a liability responsive asset allocation, the Company’s outside actuaries have used their independent economic model to calculate a range of expected long-term rates of return and, based on their results, the Company has determined these assumptions to be reasonable.
The pension plan assets measured at fair value at
December 31, 2017
and
2016
follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
|
|
Quoted Price In Active Markets for Identical Assets
|
|
Significant Other Observable Inputs
|
|
Significant Unobservable Inputs
|
|
Quoted Price In Active Markets for Identical Assets
|
|
Significant Other Observable Inputs
|
|
Significant Unobservable Inputs
|
(in millions)
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Cash and cash equivalents
|
|
$
|
6.5
|
|
|
$
|
2.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate debt securities
|
|
—
|
|
|
257.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
U.S. government debt securities
|
|
4.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
State and municipal debt securities
|
|
—
|
|
|
16.9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Registered investment company funds
|
|
—
|
|
|
—
|
|
|
—
|
|
|
50.8
|
|
|
—
|
|
|
—
|
|
Common trust funds
|
|
—
|
|
|
360.0
|
|
|
—
|
|
|
—
|
|
|
4.8
|
|
|
—
|
|
General insurance account
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.5
|
|
Balance at December 31, 2017
|
|
$
|
10.5
|
|
|
$
|
636.8
|
|
|
$
|
—
|
|
|
$
|
50.8
|
|
|
$
|
4.8
|
|
|
$
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
U.S. Pension Plans
|
|
Non-U.S. Pension Plans
|
|
|
Quoted Price In Active Markets for Identical Assets
|
|
Significant Other Observable Inputs
|
|
Significant Unobservable Inputs
|
|
Quoted Price In Active Markets for Identical Assets
|
|
Significant Other Observable Inputs
|
|
Significant Unobservable Inputs
|
(in millions)
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Cash and cash equivalents
|
|
$
|
9.0
|
|
|
$
|
2.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate debt securities
|
|
—
|
|
|
248.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
U.S. government debt securities
|
|
5.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
State and municipal debt securities
|
|
—
|
|
|
18.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Corporate common stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Registered investment company funds
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44.7
|
|
|
—
|
|
|
—
|
|
Common trust funds
|
|
—
|
|
|
357.9
|
|
|
—
|
|
|
—
|
|
|
4.3
|
|
|
—
|
|
General insurance account
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.2
|
|
Balance at December 31, 2016
|
|
$
|
14.4
|
|
|
$
|
627.0
|
|
|
$
|
—
|
|
|
$
|
44.7
|
|
|
$
|
4.3
|
|
|
$
|
1.2
|
|
Cash and cash equivalents.
This category consists of direct cash holdings and institutional short-term investment vehicles. Direct cash holdings are valued based on cost, which approximates fair value and are classified as Level 1. Institutional short-term investment vehicles are valued daily and are classified as Level 2.
Corporate, U.S. government, state, and municipal debt securities
. These securities are valued using market inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data including market research publications. Inputs may be prioritized differently at certain times based on market conditions.
Corporate common stock.
This category includes common and preferred stocks and index mutual funds that track U.S. and foreign indices. Fair values for the common and preferred stocks are based on quoted prices in active markets and were therefore classified within Level 1 of the fair value hierarchy. The mutual funds were valued at the unit prices established by the funds' sponsors based on the fair value of the assets underlying the funds. Since the units of the funds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy.
Registered investment company funds.
This category includes mutual funds that are actively traded on public exchanges. The funds are invested in equity and debt securities that are actively traded on public exchanges.
Common trust funds.
Common trust funds consist of shares in commingled funds that are not publicly traded. The funds are invested in equity and debt securities that are actively traded on public exchanges.
General insurance account.
The general insurance account is primarily comprised of insurance contracts that guarantee a minimum return.
The reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3) for the years ended
December 31, 2017
and
2016
follows:
|
|
|
|
|
|
(in millions)
|
|
General Insurance Account
|
Fair value of plan assets at December 31, 2015
|
|
$
|
5.3
|
|
Actual return on plan assets
|
|
0.2
|
|
Purchases, sales and settlements, net
|
|
(4.3
|
)
|
Fair value of plan assets at December 31, 2016
|
|
1.2
|
|
Actual return on plan assets
|
|
0.1
|
|
Foreign currency exchange rate changes
|
|
0.2
|
|
Fair value of plan assets at December 31, 2017
|
|
$
|
1.5
|
|
Note
12
— POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors several defined postretirement benefit plans that provide healthcare benefits and, in some instances, provide life insurance benefits to certain employees. Further health care benefit accruals for all persons entitled to benefits under these plans were frozen as of March 31, 2014. Effective February 1, 2016, participants under the age of 50 as of March 1, 2016, were no longer eligible for the postretirement health care plans.
Postretirement health care plans are contributory, with retiree contributions adjusted annually. Life insurance plans are noncontributory.
Net periodic postretirement benefit costs included the following components for the years ended
December 31, 2017
,
2016
, and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Interest cost on accumulated postretirement benefit obligation
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
Amortization of prior service credit
|
|
(0.3
|
)
|
|
(0.3
|
)
|
|
—
|
|
Recognized actuarial net gain
|
|
(0.8
|
)
|
|
(0.7
|
)
|
|
(0.3
|
)
|
Net periodic postretirement benefit income
|
|
$
|
(0.9
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
—
|
|
Changes in benefit obligation and plan assets, and a reconciliation of the funded status at
December 31, 2017
and
2016
, are as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
Change in Benefit Obligation
|
|
|
|
|
|
|
Benefit obligation at the beginning of the year
|
|
$
|
4.2
|
|
|
$
|
5.7
|
|
Interest cost
|
|
0.2
|
|
|
0.2
|
|
Participant contributions
|
|
0.6
|
|
|
0.7
|
|
Plan amendments
|
|
—
|
|
|
(1.1
|
)
|
Actuarial gain
|
|
(1.8
|
)
|
|
(0.3
|
)
|
Benefits paid
|
|
(0.9
|
)
|
|
(1.0
|
)
|
Benefit obligation at the end of the year
|
|
$
|
2.3
|
|
|
$
|
4.2
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
Fair value of plan assets at the beginning of the year
|
|
$
|
—
|
|
|
$
|
—
|
|
Participant contributions
|
|
0.6
|
|
|
0.7
|
|
Employer contributions
|
|
0.3
|
|
|
0.3
|
|
Benefits paid
|
|
(0.9
|
)
|
|
(1.0
|
)
|
Fair value of plan assets at the end of the year
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Unfunded status at year end:
|
|
$
|
(2.3
|
)
|
|
$
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
Amount recognized in consolidated balance sheet consists of:
|
|
|
|
|
|
|
Accrued benefit liability, current
|
|
$
|
(0.3
|
)
|
|
$
|
(0.4
|
)
|
Accrued benefit liability, non-current
|
|
(2.0
|
)
|
|
(3.8
|
)
|
Sub-total
|
|
(2.3
|
)
|
|
(4.2
|
)
|
Deferred tax liability
|
|
(2.5
|
)
|
|
(2.2
|
)
|
Accumulated other comprehensive income
|
|
(3.7
|
)
|
|
(3.3
|
)
|
Net amount related to postretirement benefit plans
|
|
$
|
(8.5
|
)
|
|
$
|
(9.7
|
)
|
Accumulated other comprehensive income related to other postretirement benefit plans is as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
Unrecognized net actuarial gains
|
|
$
|
(5.8
|
)
|
|
$
|
(4.7
|
)
|
Net prior service credits
|
|
(0.4
|
)
|
|
(0.7
|
)
|
Tax expense
|
|
2.5
|
|
|
2.1
|
|
Accumulated other comprehensive income, end of year
|
|
$
|
(3.7
|
)
|
|
$
|
(3.3
|
)
|
Estimated amounts in accumulated other comprehensive income expected to be reclassified to net period cost during
2018
are as follows:
|
|
|
|
|
(in millions)
|
|
Net actuarial gains
|
$
|
1.1
|
|
Net prior service credits
|
0.3
|
|
Net amount to be reclassified to net period cost
|
$
|
1.4
|
|
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
|
|
|
|
|
(in millions)
|
Benefit Payments
|
2018
|
$
|
0.3
|
|
2019
|
0.3
|
|
2020
|
0.3
|
|
2021
|
0.2
|
|
2022
|
0.2
|
|
Years 2023 - 2027
|
0.9
|
|
The employer contributions for the years ended
December 31, 2017
and
2016
were $
0.3 million
and $
0.3 million
, respectively. The expected contribution for
2018
is $
0.3 million
which is expected to satisfy plan funding requirements.
The health care cost trend rate assumption affects the amounts reported. For measurement purposes, the assumed annual rate of increase in the per capita cost of covered health care benefits was
6.50 percent
for
2017
and
6.75 percent
for
2016
; each year's estimated rate was assumed to decrease
0.25 percent
annually to
5.0 percent
and remain at that level thereafter. A one-percentage point change in assumed health care trends would have a nominal effect on both the total of service and interest cost components for 2017 and the post retirement benefit obligations at December 31, 2017.
The Company’s actuarial valuation date is December 31. The weighted-average discount rate used to determine the actuarial present value of the net postretirement projected benefit obligation for each of the years ended
December 31, 2017
and
2016
was
4.25 percent
. The weighted-average discount rates used to determine the net postretirement benefit cost was
4.25 percent
,
4.25 percent
, and
4.00 percent
for the years ended
December 31, 2017
,
2016
, and
2015
, respectively.
Note
13
— MULTIEMPLOYER DEFINED BENEFIT PENSION PLANS
As of December 31, 2016, the Company no longer contributes to any multiemployer defined benefit pension plans.
In 2016, the Company withdrew from the Warehouse Employees Local 169 & Employers Joint Pension Fund as part of the closure of a Bemis Healthcare Packaging plant in Philadelphia, PA (refer to Note 7 - Divestitures and Plant Closures). The withdrawal liability was settled and paid in January 2017. Company contributions to the plan were $
0.0 million
and $
0.1 million
in the years ended December 31, 2016 and 2015, respectively.
Note
14
— STOCK INCENTIVE PLANS
In 2014, the Company adopted the 2014 Stock Incentive Plan, which replaced the 2007 Stock Incentive Plan. The 2014 Stock Incentive Plan provides for the issuance of up to
3,282,170
shares of common stock to certain employees and the Company's Board of Directors. The number of shares available under the 2014 Stock Incentive Plan represented the number of shares that were remaining available for issuance under the 2007 Stock Incentive Plan when the new plan was adopted as no further awards would be made under the prior plan. As of
December 31, 2017
,
1,916,131
shares were available for future grants under the 2014 Stock Incentive Plan. Shares subject to awards that are forfeited by an employee under the 2014 Stock Incentive Plan or the 2007 Stock Incentive Plan become available for future grants under the 2014 Stock Incentive Plan. Distribution of stock awards is made in the form of shares of the Company’s common stock on a one for one basis. Distribution of the shares will normally be made not less than
three
years, nor more than
six
years, from the date of the stock award grant to an employee. Prior to 2016, stock awards for directors were fully vested upon grant. Beginning in 2016, stock awards for directors generally vest one year from the date of the grant. All other stock awards granted under the plans are subject to restrictions as to continuous employment, except in the case of death, permanent disability, retirement or change in control.
Total compensation expense related to stock incentive plans was $
17.4 million
in
2017
, $
18.1 million
in
2016
, and $
18.4 million
in
2015
. As of
December 31, 2017
, the unrecorded compensation cost for stock awards was $
19.2 million
and will be recognized over the remaining vesting period for each grant which ranges between 2018 and 2020. The remaining weighted-average life of all stock awards outstanding as of
December 31, 2017
was
1.02
years. These awards are considered equity-based awards and are therefore classified as a component of additional paid-in capital.
Cash payments equal to dividends accrued on awards during the vesting period are distributed at the same time as the shares of common stock to which they relate.
Time-Based Stock Awards
The cost of time-based stock awards is based on the fair market value of the Company's common stock on the date of grant and is charged to income on a straight-line basis over the requisite service period. The per share fair value of time-based stock awards granted during the years ended December 31, 2017, 2016 and 2015 was $
48.10
, $
45.56
, and $
45.18
, respectively.
Performance-Based Stock Awards
Certain officers and key employees are also eligible to receive performance-based stock awards. Grantees of performance-based awards will be eligible to receive shares of the Company's common stock depending upon the Company's total shareholder return, assuming reinvestment of all dividends, relative to the performance of the Company's comparator group over a three-year period. The per share fair value of performance-based awards granted during the years ended December 31, 2017, 2016 and 2015 was $
53.43
, $
48.48
, and $
53.14
, respectively, which the Company determined using a Monte Carlo simulation and the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Average risk-free interest rate
|
1.50
|
%
|
|
1.31
|
%
|
|
1.07
|
%
|
Expected volatility (Bemis Company, Inc.)
|
17.7
|
%
|
|
16.3
|
%
|
|
15.1
|
%
|
The average risk-free interest rate is based on the three-year U.S. treasury security rate in effect as of the grant date. The expected volatilities were determined using daily historical volatility for the most recent three-year period as of the grant date. In 2018, there was a
62.5 percent
payout of 2015 awards, and the balance was forfeited. In 2017, there was a
94.7 percent
payout of 2014 awards, and the balance was forfeited. In 2016, there was a
93.7 percent
payout of 2013 awards, and the balance was forfeited. In 2015, there was a
59.5 percent
payout of 2012 awards, and the balance was forfeited.
The following table summarizes stock awards unit activity for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Based
|
|
Performance-Based
|
|
Weighted-average grant date share value
|
|
Stock Awards (in thousands)
|
|
Weighted-average grant date share value
|
|
Stock Awards (in thousands)
|
Outstanding units granted at the beginning of the year
|
$
|
42.05
|
|
|
746
|
|
|
$
|
49.43
|
|
|
438
|
|
Units granted
|
48.10
|
|
|
214
|
|
|
53.43
|
|
|
241
|
|
Units paid (in shares)
|
39.72
|
|
|
(329
|
)
|
|
46.33
|
|
|
(105
|
)
|
Units forfeited / canceled
|
45.61
|
|
|
(65
|
)
|
|
50.28
|
|
|
(49
|
)
|
Outstanding units granted at the end of the year
|
45.84
|
|
|
566
|
|
|
51.35
|
|
|
525
|
|
Note
15
— LONG-TERM DEBT
Debt consisted of the following at December 31,
|
|
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
2017
|
|
2016
|
Commercial paper
|
|
$
|
238.2
|
|
|
$
|
221.3
|
|
6.8% notes payable in 2019
|
|
400.0
|
|
|
400.0
|
|
4.5% notes payable in 2021
|
|
400.0
|
|
|
400.0
|
|
Term loan payable in 2022
|
|
200.0
|
|
|
200.0
|
|
3.1% notes payable in 2026
|
|
300.0
|
|
|
300.0
|
|
Other debt, including debt of subsidiaries
|
|
15.8
|
|
|
14.7
|
|
Interest rate swap of 2021 notes (See Note 9)
|
|
(0.6
|
)
|
|
1.3
|
|
Unamortized discounts and debt issuance costs
|
|
(6.0
|
)
|
|
(7.5
|
)
|
|
|
|
|
|
Total debt
|
|
1,547.4
|
|
|
1,529.8
|
|
Less current portion
|
|
5.0
|
|
|
2.0
|
|
Total long-term debt
|
|
$
|
1,542.4
|
|
|
$
|
1,527.8
|
|
Commercial paper has been classified as long-term debt to the extent of available long-term backup credit agreements, in accordance with the Company’s intent and ability to refinance such obligations on a long-term basis. The weighted-average interest rate of commercial paper outstanding at
December 31, 2017
, was
1.9 percent
. The highest amount of commercial paper outstanding during
2017
was $
321.3 million
, and the average outstanding during
2017
was $
254.4 million
. The weighted-average interest rate during
2017
was
1.3 percent
.
As of
December 31, 2017
, the Company had available from its banks a $
1.1 billion
revolving credit facility. On July 22, 2016, the Company amended the revolving credit facility extending the terms of the agreement from August 12, 2018 to July 22, 2021. The revolving credit facility is supported by a group of major U.S. and international banks. Covenants imposed by the revolving credit facility include limits on the sale of businesses, minimum net worth calculations, and a maximum ratio of debt to total capitalization. The revolving credit agreement includes a combined $
100 million
multicurrency limit to support the financing needs of the Company’s international subsidiaries.
The $
200 million
term loan has an eight-year term and a variable interest rate based on the one-month London Interbank Offered Rate (LIBOR) plus a fixed spread. On September 15, 2016, the Company issued $
300 million
aggregate principal amount of senior notes due in 2026 with a fixed interest rate of
3.1 percent
.
The scheduled maturities of the Company's long-term debt obligations for the next five years as of December 31, 2017, are as follows:
|
|
|
|
|
|
Year
|
|
Dollars (in millions)
|
2018
|
|
$
|
239.3
|
|
2019
|
|
402.7
|
|
2020
|
|
1.7
|
|
2021
|
|
401.7
|
|
2022
|
|
201.7
|
|
Commercial paper has been classified as long-term liabilities in accordance with the Company's ability and intent to refinance such obligations on a long-term basis. The Company is in compliance with all debt covenants.
Note
16
— LEASES
The Company has leases for manufacturing plants, land, warehouses, machinery and equipment, and administrative offices that generally expire at various times over the next 15 years. Under most leasing arrangements, the Company pays the property taxes, insurance, maintenance, and other expenses related to the leased property. Total rental expense under operating leases was approximately $
12.8 million
in
2017
, $
12.4 million
in
2016
, and $
13.9 million
in
2015
.
Minimum future obligations on leases in effect at
December 31, 2017
were:
|
|
|
|
|
|
Operating
|
(in millions)
|
Leases
|
2018
|
$
|
10.9
|
|
2019
|
7.4
|
|
2020
|
5.5
|
|
2021
|
5.1
|
|
2022
|
3.9
|
|
Thereafter
|
28.0
|
|
Total minimum obligations
|
$
|
60.8
|
|
Note
17
— INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
U.S. income before income taxes
|
|
$
|
210.9
|
|
|
$
|
283.6
|
|
|
$
|
260.1
|
|
Non-U.S. income (loss) before income taxes
|
|
(158.2
|
)
|
|
67.3
|
|
|
103.8
|
|
Income from continuing operations before income taxes
|
|
$
|
52.7
|
|
|
$
|
350.9
|
|
|
$
|
363.9
|
|
|
|
|
|
|
|
|
Income tax expense consists of the following components:
|
|
|
|
|
|
|
|
|
|
Current tax expense:
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
68.1
|
|
|
$
|
63.2
|
|
|
$
|
71.8
|
|
Foreign
|
|
16.2
|
|
|
20.1
|
|
|
28.0
|
|
State and local
|
|
5.6
|
|
|
5.2
|
|
|
8.0
|
|
Total current tax expense
|
|
89.9
|
|
|
88.5
|
|
|
107.8
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
(73.2
|
)
|
|
26.7
|
|
|
11.5
|
|
Foreign
|
|
(58.5
|
)
|
|
(3.9
|
)
|
|
2.1
|
|
State and local
|
|
0.5
|
|
|
3.4
|
|
|
0.6
|
|
Total deferred tax expense (benefit)
|
|
(131.2
|
)
|
|
26.2
|
|
|
14.2
|
|
Total income tax expense (benefit)
|
|
$
|
(41.3
|
)
|
|
$
|
114.7
|
|
|
$
|
122.0
|
|
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented below.
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
Deferred Tax Assets:
|
|
|
|
|
|
|
Trade receivables, principally due to allowances for returns and doubtful accounts
|
|
$
|
2.9
|
|
|
$
|
4.1
|
|
Inventories, principally due to additional costs inventoried for tax purposes
|
|
17.7
|
|
|
22.9
|
|
Employee compensation and benefits accrued for financial reporting purposes
|
|
36.5
|
|
|
60.6
|
|
Foreign net operating losses
|
|
24.5
|
|
|
25.7
|
|
Foreign tax credits
|
|
34.1
|
|
|
24.1
|
|
Other
|
|
16.1
|
|
|
12.8
|
|
Total deferred tax assets
|
|
131.8
|
|
|
150.2
|
|
Less valuation allowance
|
|
(48.5
|
)
|
|
(40.3
|
)
|
Total deferred tax assets, after valuation allowance
|
|
$
|
83.3
|
|
|
$
|
109.9
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
Plant and equipment, principally due to differences in depreciation and capitalized interest
|
|
$
|
86.4
|
|
|
$
|
130.9
|
|
Goodwill and intangible assets, principally due to differences in amortization
|
|
98.9
|
|
|
195.2
|
|
Total deferred tax liabilities
|
|
185.3
|
|
|
326.1
|
|
|
|
|
|
|
Deferred tax liabilities, net
|
|
$
|
102.0
|
|
|
$
|
216.2
|
|
The net deferred tax liabilities are reflected in the balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2017
|
|
2016
|
Deferred charges and other assets
|
|
$
|
51.5
|
|
|
$
|
3.5
|
|
Deferred tax liabilities
|
|
153.5
|
|
|
219.7
|
|
Net deferred tax liabilities
|
|
$
|
102.0
|
|
|
$
|
216.2
|
|
The Company’s effective tax rate differs from the federal statutory rate due to the following items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
(dollars in millions)
|
|
Amount
|
|
% of Income Before Tax
|
|
Amount
|
|
% of Income Before Tax
|
|
Amount
|
|
% of Income Before Tax
|
Computed “expected” tax expense on income before taxes at federal statutory rate
|
|
$
|
18.5
|
|
|
35.0
|
%
|
|
$
|
122.8
|
|
|
35.0
|
%
|
|
$
|
127.4
|
|
|
35.0
|
%
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local income taxes net of federal income tax benefit
|
|
3.3
|
|
|
6.2
|
|
|
5.6
|
|
|
1.6
|
|
|
5.6
|
|
|
1.5
|
|
Foreign tax rate differential
|
|
(4.7
|
)
|
|
(8.9
|
)
|
|
(7.4
|
)
|
|
(2.1
|
)
|
|
(7.5
|
)
|
|
(2.1
|
)
|
Goodwill impairment
|
|
17.7
|
|
|
33.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax law change
|
|
(67.2
|
)
|
|
(127.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Manufacturing tax benefits
|
|
(6.0
|
)
|
|
(11.3
|
)
|
|
(5.8
|
)
|
|
(1.7
|
)
|
|
(6.7
|
)
|
|
(1.8
|
)
|
Share-based payments
|
|
(0.9
|
)
|
|
(1.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
|
(2.0
|
)
|
|
(3.8
|
)
|
|
(0.5
|
)
|
|
(0.1
|
)
|
|
3.2
|
|
|
0.9
|
|
Actual income tax expense (benefit)
|
|
$
|
(41.3
|
)
|
|
(78.4
|
)%
|
|
$
|
114.7
|
|
|
32.7
|
%
|
|
$
|
122.0
|
|
|
33.5
|
%
|
The Company's overall tax expense is primarily driven by operations within the jurisdictions of the United States and Brazil. The Company's foreign tax rate differential is largely the result of lower statutory rates in the jurisdictions of its other foreign operations.
The effective tax rate for the current year differs from the prior year due primarily to the impairment of the Latin America Packaging reporting unit’s goodwill and new tax legislation in the U.S.
In the fourth quarter, the Company recorded a full impairment of the Latin America Packaging reporting unit’s goodwill which included a $
51.1 million
deferred tax benefit related to tax deductible goodwill. The tax rate reconciliation schedule reflects the difference between the statutory rates in Latin America and the U.S. as well as the non-deductible portion of the impaired goodwill.
On December 22, 2017, the President of the United States signed comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). The TCJA makes broad and complex changes to the U.S. tax code which impact the Company’s year ended 2017 including, but not limited to (1) reducing the U.S. federal corporate tax rate, (2) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that may be paid over eight years, and (3) accelerating expensing of certain capital expenditures. The TCJA reduces the federal corporate tax rate from
35 percent
to
21 percent
effective January 1, 2018.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for the TCJA. The Company has recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the TCJA. The accounting is expected to be completed within the one year measurement period allowed under SAB 118.
The Company recorded a provisional discrete net tax benefit of $
67.2 million
related to the TCJA in the period ending December 31, 2017. This consists of a $
77.8 million
net benefit due to the remeasurement of the Company’s deferred tax accounts for the corporate rate reduction and a net expense for the transition tax of $
10.6 million
. The Company has not completed the accounting for the income tax effects of certain elements of the TCJA as discussed below.
Reduction in U.S. Corporate Rate: The TCJA reduces the statutory corporate tax rate to
21 percent
for the Company’s tax years ending in 2018 and beyond. While the Company is able to make a reasonable estimate of the impact of the reduction in corporate rate, the Company continues to analyze the temporary differences that existed on the date of enactment.
Transition Tax: The transition tax is a 2017 tax on the previously untaxed accumulated and current earnings and profits ("E&P") of the Company’s foreign subsidiaries. To calculate the transition tax, the Company must determine post-1986 E&P of the subsidiaries, as well as non-U.S. income taxes paid on such earnings in addition to other factors. E&P is similar to retained earnings of the subsidiary, but requires other adjustments to conform to U.S. tax rules. The Company recorded an estimated transition tax obligation expected to be paid over eight years beginning in 2018. These amounts are presented in Accrued income and other taxes and Other liabilities and deferred credits. The Company is awaiting further interpretative guidance, assessing available tax methods and elections, and gathering additional information to more precisely compute the transition tax.
Global intangible low-taxed income ("GILTI"): The TCJA includes a provision designed to currently tax certain low taxed income starting in 2018. Due to the complexity of the new GILTI tax rules, the Company is evaluating the application of ASC 740, and is considering accounting policy alternatives to either record the U.S. income tax of GILTI inclusions in the period they arise or establish deferred taxes for future GILTI inclusions. In addition, the Company is awaiting further interpretive guidance for the computation of the GILTI tax. For these reasons, the Company has not made any adjustments relating to potential GILTI tax in the financial statements and has not made a policy decision regarding the accounting for GILTI.
The Company has $
255.8 million
of undistributed earnings of foreign subsidiaries which are considered to be indefinitely reinvested in the operations of those subsidiaries. As a result of the transition tax mentioned above, the Company
estimates that minimal federal and state income tax would be due upon the actual remittance of the undistributed earnings. In addition, the Company also estimates minimal foreign withholding tax on any potential remittance. The Company will continue to evaluate the impact of the Tax Act and further interpretive guidance on the indefinite reinvestment assertion.
As of
December 31, 2017
, the Company had foreign net operating loss carryovers of approximately $
88.5 million
that are available to offset future taxable income. Approximately $
23.0 million
of the carryover expires over the period 2018-2033. The remaining balance has no expiration. In addition, the Company had $
34.1 million
of foreign tax credit carryover that is available to offset future tax. This carryover expires over the period 2018-2027.
Current authoritative guidance issued by the FASB requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. The Company has, and continues to generate, both net operating losses and deferred tax assets in certain jurisdictions for which a valuation allowance is required. The Company’s management determined that a valuation allowance of $
48.5 million
and $
40.3 million
against deferred tax assets primarily associated with the foreign net operating loss carryover and the foreign tax credit carryover was necessary at
December 31, 2017
and
2016
, respectively.
The Company had total unrecognized tax benefits of $
35.2 million
and
$32.9 million
at
December 31, 2017
and
2016
, respectively. The approximate amount of unrecognized tax benefits that would impact the effective income tax rate if recognized in any future periods was $
35.2 million
and $
32.9 million
for the years ended
December 31, 2017
and
2016
, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, in millions, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Balance at beginning of year
|
|
$
|
32.9
|
|
|
$
|
30.7
|
|
Additions based on tax positions related to the current year
|
|
3.9
|
|
|
2.3
|
|
Additions for tax positions of prior years
|
|
4.1
|
|
|
7.0
|
|
Reductions for tax positions of prior years
|
|
(1.1
|
)
|
|
(4.5
|
)
|
Reductions due to a lapse of the statute of limitations
|
|
(4.5
|
)
|
|
(1.7
|
)
|
Settlements
|
|
(0.1
|
)
|
|
(0.9
|
)
|
Balance at end of year
|
|
$
|
35.2
|
|
|
$
|
32.9
|
|
The Company recognizes interest and penalties related to unrecognized tax benefits as components of income tax expense. The Company recognized $
1.1 million
of net tax expense and $
1.2 million
and $
1.5 million
of net tax benefit related to interest and penalties during the years ended December 31, 2017, 2016, and 2015, respectively. The Company had approximately $
14.5 million
and $
13.2 million
accrued for interest and penalties, net of tax benefits, at
December 31, 2017
and
2016
, respectively.
As a result of acquisitions, the Company recorded $
2.6 million
of unrecognized tax benefits and $
2.5 million
of interest and penalties related to pre-acquisition tax positions in 2016 for which the Company is indemnified. Corresponding assets related to these indemnified provisions have also been recorded for these amounts.
During the next 12 months it is reasonably possible that a reduction of gross unrecognized tax benefits will occur in an amount of up to $
10.0 million
, exclusive of currency movements, as a result of the resolution of positions taken on previously filed returns.
The Company and its subsidiaries are subject to U.S. federal and state income tax as well as income tax in multiple international jurisdictions. The Company's U.S. federal income tax returns prior to 2014 are no longer subject to examination. With few exceptions, the Company is no longer subject to examinations by tax authorities for years prior to 2012 in the significant jurisdictions in which it operates.
Note
18
— ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components and activity of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Foreign Currency Translation
|
|
Pension And Other Postretirement Liability Adjustment
|
|
Accumulated Other Comprehensive Loss
|
December 31, 2014
|
|
$
|
(151.3
|
)
|
|
$
|
(140.4
|
)
|
|
$
|
(291.7
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
(215.2
|
)
|
|
(15.9
|
)
|
|
(231.1
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
12.9
|
|
|
12.9
|
|
Net current period other comprehensive income (loss)
|
|
(215.2
|
)
|
|
(3.0
|
)
|
|
(218.2
|
)
|
December 31, 2015
|
|
(366.5
|
)
|
|
(143.4
|
)
|
|
(509.9
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
35.8
|
|
|
13.8
|
|
|
49.6
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
12.5
|
|
|
12.5
|
|
Net current period other comprehensive income (loss)
|
|
35.8
|
|
|
26.3
|
|
|
62.1
|
|
December 31, 2016
|
|
(330.7
|
)
|
|
(117.1
|
)
|
|
(447.8
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
39.6
|
|
|
(1.3
|
)
|
|
38.3
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
—
|
|
|
15.0
|
|
|
15.0
|
|
Net current period other comprehensive income (loss)
|
|
39.6
|
|
|
13.7
|
|
|
53.3
|
|
December 31, 2017
|
|
$
|
(291.1
|
)
|
|
$
|
(103.4
|
)
|
|
$
|
(394.5
|
)
|
The following table summarizes amounts reclassified from accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
|
2017
|
|
2016
|
Pension and postretirement costs (See Notes 11 and 12)
|
|
$
|
24.2
|
|
|
$
|
20.5
|
|
Tax benefit
|
|
(9.2
|
)
|
|
(8.0
|
)
|
Pension and postretirement costs, net of tax
|
|
$
|
15.0
|
|
|
$
|
12.5
|
|
Accumulated other comprehensive income (loss) associated with pension and other postretirement liability adjustments are net of tax effects of $
61.6 million
and $
71.2 million
as of
December 31, 2017
and
2016
, respectively.
Note
19
— EARNINGS PER SHARE COMPUTATIONS
A reconciliation of basic and diluted earnings per share is below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts)
|
|
2017
|
|
2016
|
|
2015
|
Numerator
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
94.0
|
|
|
$
|
236.2
|
|
|
$
|
239.3
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding — basic
|
|
91.5
|
|
|
94.3
|
|
|
96.7
|
|
Dilutive shares
|
|
0.4
|
|
|
0.8
|
|
|
1.2
|
|
Weighted-average common and common equivalent shares outstanding — diluted
|
|
91.9
|
|
|
95.1
|
|
|
97.9
|
|
|
|
|
|
|
|
|
Per common share income
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.03
|
|
|
$
|
2.51
|
|
|
$
|
2.47
|
|
Diluted
|
|
$
|
1.02
|
|
|
$
|
2.48
|
|
|
$
|
2.44
|
|
Certain stock awards outstanding were not included in the computation of diluted earnings per share above because they would not have had a dilutive effect. The excluded stock awards represented an aggregate of 0.4 million shares
December 31, 2017
. There were no anti-dilutive stock awards outstanding
December 31, 2016
and
2015
.
Note
20
— COMMITMENTS AND CONTINGENCIES
The Company is involved in a number of lawsuits incidental to its business, including environmental-related litigation and routine litigation arising in the ordinary course of business. Although it is difficult to predict the ultimate outcome of these cases, the Company believes, except as discussed below, that any ultimate liability would not have a material adverse effect on the Company’s consolidated financial condition or results of operations.
Environmental Matters
The Company is a potentially responsible party ("PRP") pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as “Superfund”) and similar state and foreign laws in proceedings associated with
17
sites around the United States and
one
in Brazil. These proceedings were instituted by the United States Environmental Protection Agency and certain state and foreign environmental agencies at various times beginning in 1983. Superfund and similar state and foreign laws create liability for investigation and remediation in response to releases of hazardous substances in the environment. Under these statutes, joint and several liability may be imposed on waste generators, site owners and operators, and others regardless of fault. Although these regulations could require the Company to remove or mitigate the effects on the environment at various sites, perform remediation work at such sites, or pay damages for loss of use and non-use values, the Company expects its liability in these proceedings to be limited to monetary damages. The Company expects its future liability relative to these sites to be insignificant, individually and in the aggregate.
The Company is involved in other environmental-related litigation arising in the ordinary course of business. The Company accrues environmental costs when it is probable that these costs will be incurred and can be reasonably estimated. The Company's reserve for environmental liabilities at
December 31, 2017
and
2016
was $
0.9 million
and $
3.5 million
, respectively, and is included in other liabilities and deferred credits on the accompanying consolidated balance sheet.
Brazil Tax Dispute - Goodwill Amortization
During October 2013, Dixie Toga, Ltda ("Dixie Toga"), a Bemis subsidiary, received an income tax assessment in Brazil for the tax years 2009 through 2011 that relates to the amortization of certain goodwill generated from the acquisition of Dixie Toga. The income tax assessed for those years is approximately $
11.5 million
, translated to U.S. dollars at the
December 31, 2017
exchange rate. The Company expects that tax examinations for years after 2011 will include similar assessments as the Company continues to claim the tax benefits associated with the goodwill amortization. An ultimate adverse
resolution on these assessments, including interest and penalties, could be material to the Company's consolidated results of operations and/or cash flows.
The Company has been advised by its legal and tax advisors that its position with respect to the deductions is allowable under the tax laws of Brazil. The Company is contesting the disallowance and believes it is more likely than not the tax benefit will be sustained in its entirety and consequently has not recorded a liability. In May of 2017, the Company received a favorable administrative decision. The government is appealing this decision to the next administrative level. The Company intends to litigate the matter if it is not resolved at the administrative appeals levels. The ultimate outcome could take several years. At this time, the Company believes that final resolution of the assessment will not have a material impact on the Company's consolidated financial statements.
Brazil Investigation
On September 18, 2007, the Secretariat of Economic Law
, a governmental agency in Brazil, which has now been replaced by the General Superintendence of the Administrative Council for Economic Defense (“CADE”), initiated an investigation into possible anti-competitive practices in the Brazilian flexible packaging industry against a number of Brazilian companies including a Itap Bemis, a Dixie Toga subsidiary. The investigation relates to periods prior to the Company's acquisition of control of Dixie Toga and its subsidiaries.
In late November 2016, the investigative arm of CADE issued an advisory opinion recommending, among other actions, the imposition of fines on Itap Bemis. In July 2017, the Attorney General's Office of CADE recommended the termination of the investigation with respect to all companies and individuals, concluding that the evidence is insufficient for conviction. The case is now awaiting the opinion of the Federal Public Prosecutor as to how to proceed as well as a final decision on the administrative investigation of CADE. If the final decision on the administrative investigation is favorable to us, the decision will be final. If the decision is not favorable to us, we intend to appeal through the federal court system, as described below.
In the event of an adverse decision, it is difficult to predict possible fines, but based on CADE's current fining practice, the fines assessed could be as high as $
60 million
, depending on CADE’s determination of the applicable revenue base for the calculation of the fine. The Company intends to vigorously defend its position and plans to appeal any adverse decision by the Tribunal. Upon appeal, the Company would likely be required to post bond, deposit funds equal to the assessed fines, or provide other collateral. The Company is u
nable at this time to predict the outcome of this matter, but believes it is not probable that an adverse judgment would stand after exhausting all appeals which are likely to take several years and therefore no provision has been made in the consolidated financial statements.
Note
21
— SEGMENTS OF BUSINESS
The Company realigned its segment reporting effective for the fourth quarter of 2017. The Company transitioned from two reportable segments to three reportable segments as follows: U.S. Packaging, Latin America Packaging, and Rest of World Packaging. The U.S. Packaging business segment is unchanged. The Company now reports Latin America Packaging and Rest of World Packaging business segments, which had previously been aggregated and named Global Packaging. Prior year comparatives have been revised to conform to the current reportable segment presentation.
Historically, the Company has supported the aggregation of one Global Packaging operating reportable segment. Due to recently diverging economic conditions and acquisitions, the Latin America Packaging and Rest of World Packaging segments no longer meet the criteria for aggregation. The Latin America Packaging segment includes all food and non-food packaging-related manufacturing operations located in Latin America. The Rest of World Packaging business segment includes all food and non-food packaging-related manufacturing operations located in Europe and Asia-Pacific as well as medical device and pharmaceutical packaging manufacturing operations in the U.S., Europe, and Asia.
The Company's business activities are organized around and aggregated into its
three
principal business segments, U.S. Packaging, Latin America Packaging and Rest of World Packaging, based on their similar economic characteristics, products, production process, types of customers, and distribution methods. Both internal and external reporting conforms to this organizational structure, with no significant differences in accounting policies applied. Intersegment sales (which are not significant) are generally priced to reflect nominal markups.
The Company evaluates the performance of its segments and allocates resources to them based primarily on operating profit, which is defined as profit before restructuring and other costs, general corporate expense, interest expense, other non-operating income, and income taxes.
Sales to the Kraft Heinz Company, and its subsidiaries, accounted for approximately
10 percent
of the Company's sales for all periods presented. The Company primarily sells to Kraft Heinz Company in the U.S. Packaging segment.
Products produced within the U.S., Latin America and Rest of World Packaging business segments service packaging applications for markets such as food, medical devices, pharma, personal care, agribusiness, chemicals, pet food, and consumer products.
A summary of the Company’s business activities reported by its three business segments follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segments (in millions)
|
|
2017
|
|
2016
|
|
2015
|
Sales including intersegment sales:
|
|
|
|
|
|
|
|
|
U.S. Packaging
|
|
$
|
2,666.0
|
|
|
$
|
2,646.8
|
|
|
$
|
2,772.8
|
|
Latin America Packaging
|
|
715.2
|
|
|
707.0
|
|
|
696.9
|
|
Rest of World Packaging
|
|
721.4
|
|
|
696.4
|
|
|
648.7
|
|
|
|
|
|
|
|
|
Intersegment sales:
|
|
|
|
|
|
|
U.S. Packaging
|
|
(40.0
|
)
|
|
(25.7
|
)
|
|
(25.3
|
)
|
Latin America Packaging
|
|
(3.8
|
)
|
|
(3.9
|
)
|
|
(3.8
|
)
|
Rest of World Packaging
|
|
(12.6
|
)
|
|
(16.2
|
)
|
|
(17.9
|
)
|
Total net sales
|
|
$
|
4,046.2
|
|
|
$
|
4,004.4
|
|
|
$
|
4,071.4
|
|
|
|
|
|
|
|
|
Segment operating profit
|
|
|
|
|
|
|
|
|
U.S. Packaging
|
|
$
|
352.5
|
|
|
$
|
400.0
|
|
|
$
|
391.8
|
|
Latin America Packaging
|
|
30.0
|
|
|
50.0
|
|
|
60.9
|
|
Rest of World Packaging
|
|
61.1
|
|
|
64.0
|
|
|
55.6
|
|
|
|
|
|
|
|
|
Restructuring and other costs
|
|
70.5
|
|
|
28.6
|
|
|
12.1
|
|
Goodwill impairment charge
|
|
196.6
|
|
|
—
|
|
|
—
|
|
General corporate expenses
|
|
60.8
|
|
|
76.1
|
|
|
86.6
|
|
Operating income
|
|
115.7
|
|
|
409.3
|
|
|
409.6
|
|
|
|
|
|
|
|
|
Interest expense
|
|
65.8
|
|
|
60.2
|
|
|
51.7
|
|
Other non-operating income
|
|
(2.8
|
)
|
|
(1.8
|
)
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
52.7
|
|
|
$
|
350.9
|
|
|
$
|
363.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Segments (in millions)
|
|
2017
|
|
2016
|
|
2015
|
Total assets (1):
|
|
|
|
|
|
|
U.S. Packaging
|
|
$
|
2,072.0
|
|
|
$
|
2,007.7
|
|
|
$
|
1,982.5
|
|
Latin America Packaging
|
|
648.1
|
|
|
779.2
|
|
|
690.4
|
|
Rest of World Packaging
|
|
784.5
|
|
|
706.1
|
|
|
601.1
|
|
Corporate assets (2)
|
|
195.3
|
|
|
222.7
|
|
|
215.8
|
|
Total
|
|
$
|
3,699.9
|
|
|
$
|
3,715.7
|
|
|
$
|
3,489.8
|
|
|
|
|
|
|
|
|
Restructuring and other costs (3):
|
|
|
|
|
|
|
U.S. Packaging
|
|
$
|
13.3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Latin America Packaging
|
|
28.8
|
|
|
18.9
|
|
|
1.6
|
|
Rest of World Packaging
|
|
2.7
|
|
|
7.7
|
|
|
7.8
|
|
Corporate
|
|
25.7
|
|
|
2.0
|
|
|
2.7
|
|
Total
|
|
$
|
70.5
|
|
|
$
|
28.6
|
|
|
$
|
12.1
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
U.S. Packaging
|
|
$
|
97.9
|
|
|
$
|
93.7
|
|
|
$
|
97.8
|
|
Latin America Packaging
|
|
26.7
|
|
|
26.2
|
|
|
22.2
|
|
Rest of World Packaging
|
|
30.2
|
|
|
27.9
|
|
|
25.5
|
|
Corporate
|
|
15.0
|
|
|
14.3
|
|
|
12.6
|
|
Total
|
|
$
|
169.8
|
|
|
$
|
162.1
|
|
|
$
|
158.1
|
|
|
|
|
|
|
|
|
Additions to property and equipment:
|
|
|
|
|
|
|
U.S. Packaging
|
|
$
|
101.9
|
|
|
$
|
131.2
|
|
|
$
|
127.5
|
|
Latin America Packaging
|
|
45.2
|
|
|
32.9
|
|
|
23.8
|
|
Rest of World Packaging
|
|
35.0
|
|
|
36.8
|
|
|
55.6
|
|
Corporate
|
|
6.4
|
|
|
7.4
|
|
|
12.5
|
|
Total
|
|
$
|
188.5
|
|
|
$
|
208.3
|
|
|
$
|
219.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations by geographic area (in millions)
|
|
2017
|
|
2016
|
|
2015
|
Net sales (4):
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,826.0
|
|
|
$
|
2,820.3
|
|
|
$
|
2,937.8
|
|
Brazil
|
|
482.1
|
|
|
483.5
|
|
|
442.5
|
|
Other Americas
|
|
250.6
|
|
|
244.6
|
|
|
273.5
|
|
Europe
|
|
290.0
|
|
|
263.5
|
|
|
233.9
|
|
Asia-Pacific
|
|
197.5
|
|
|
192.5
|
|
|
183.7
|
|
Total
|
|
$
|
4,046.2
|
|
|
$
|
4,004.4
|
|
|
$
|
4,071.4
|
|
|
|
|
|
|
|
|
Long-lived assets (5):
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
957.4
|
|
|
$
|
949.2
|
|
|
$
|
897.4
|
|
Brazil
|
|
223.6
|
|
|
212.9
|
|
|
173.1
|
|
Other Americas
|
|
51.9
|
|
|
44.1
|
|
|
53.1
|
|
Europe
|
|
93.3
|
|
|
75.1
|
|
|
68.6
|
|
Asia-Pacific
|
|
90.1
|
|
|
81.3
|
|
|
75.6
|
|
Total
|
|
$
|
1,416.3
|
|
|
$
|
1,362.6
|
|
|
$
|
1,267.8
|
|
|
|
(1)
|
Total assets by business segment include only those assets that are specifically identified with each segment’s operations.
|
|
|
(2)
|
Corporate assets are principally cash and cash equivalents, prepaid expenses, prepaid income taxes, prepaid pension benefit costs, and corporate tangible and intangible property. The Company utilizes a global cash pooling arrangement. The Company treats all cash and cash equivalents, including the net cash position in the cash pooling arrangement, as Corporate assets.
|
|
|
(3)
|
These amounts are excluded from segment operating profit and general corporate expenses.
|
|
|
(4)
|
Net sales are attributed to geographic areas based on location of the Company’s manufacturing or selling operation.
|
|
|
(5)
|
Long-lived assets include net property and equipment, long-term receivables, deferred charges, and investment in affiliates.
|
Note
22
— QUARTERLY FINANCIAL INFORMATION — UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
(in millions, except per share amounts)
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Total
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
995.4
|
|
|
$
|
1,012.1
|
|
|
$
|
1,035.1
|
|
|
$
|
1,003.6
|
|
|
$
|
4,046.2
|
|
Gross profit
|
|
197.9
|
|
|
185.9
|
|
|
207.7
|
|
|
193.7
|
|
|
785.2
|
|
Net income
|
|
51.1
|
|
|
28.0
|
|
|
55.6
|
|
|
(40.7
|
)
|
|
94.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
0.55
|
|
|
0.31
|
|
|
0.61
|
|
|
(0.44
|
)
|
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
0.55
|
|
|
0.30
|
|
|
0.61
|
|
|
(0.44
|
)
|
|
1.02
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
967.9
|
|
|
$
|
1,021.3
|
|
|
$
|
1,027.2
|
|
|
$
|
988.0
|
|
|
$
|
4,004.4
|
|
Gross profit
|
|
208.8
|
|
|
217.0
|
|
|
224.8
|
|
|
215.6
|
|
|
866.2
|
|
Net income
|
|
56.2
|
|
|
50.9
|
|
|
68.6
|
|
|
60.5
|
|
|
236.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
0.59
|
|
|
0.54
|
|
|
0.73
|
|
|
0.65
|
|
|
2.51
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
0.59
|
|
|
0.53
|
|
|
0.72
|
|
|
0.64
|
|
|
2.48
|
|