Company Quick10K Filing
Quick10K
Bemis
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$53.21 91 $4,840
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-01-31 Earnings, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-08-06 Enter Agreement, Officers, Regulation FD, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-05-03 Shareholder Vote
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-03-16 Enter Agreement, Officers, Exhibits
8-K 2018-02-01 Earnings, Exhibits
WRK Westrock
PKG Packaging of America
AVY Avery Dennison
SON Sonoco Products
SLGN Silgan Holdings
WMS Advanced Drainage Systems
UFPT UFP Technologies
CXDC China Xd Plastics
ITP IT Tech Packaging
YTEN Yield10 Bioscience
BMS 2018-12-31
Part I
Item 1 - Business
Item 1A - Risk Factors
Item 1B - Unresolved Staff Comments
Item 2 - Properties
Item 3 - Legal Proceedings
Item 4 - Mine Safety Disclosures
Part II
Item 5 - Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6 - Selected Financial Data
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
Item 8 - Financial Statements and Supplementary Data
Note 1 - Business Description
Note 2 - Significant Accounting Policies
Note 3 - New Accounting Guidance
Note 4 - Restructuring and Other Costs
Note 5 - Restructuring Plans
Note 6 - Acquisitions
Note 7 - Financial Assets and Financial Liabilities Measured At Fair Value
Note 8 - Derivative Instruments
Note 9 - Goodwill and Other Intangible Assets
Note 10 - Pension Plans
Note 11 - Postretirement Benefits Other Than Pensions
Note 12 - Stock Incentive Plans
Note 13 - Long-Term Debt
Note 14 - Leases
Note 15 - Income Taxes
Note 16 - Accumulated Other Comprehensive Income (Loss)
Note 17 - Earnings per Share Computations
Note 18 - Commitments and Contingencies
Note 19 - Segments of Business
Note 20 - Quarterly Financial Information - Unaudited
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A - Controls and Procedures
Item 9B - Other Information
Part III
Item 10 - Directors, Executive Officers and Corporate Governance
Item 11 - Executive Compensation
Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13 - Certain Relationships and Related Transactions, and Director Independence
Item 14 - Principal Accountant Fees and Services
Part IV
Item 15 - Exhibits and Financial Statement Schedules
Item 16 - Form 10-K Summary
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Bemis Earnings 2018-12-31

BMS 10K Annual Report

Balance SheetIncome StatementCash Flow

10-K 1 bms-20181231x10kq4.htm 10-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
bemislogoa01a01a01a01a48.jpg
FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2018
 
Commission File Number 1-5277
 
BEMIS COMPANY, INC.
(Exact name of Registrant as specified in its charter)
 
Missouri
 
43-0178130
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
2301 Industrial Drive, Neenah, Wisconsin  54956
(Address of principal executive offices)
 
Registrant’s telephone number, including area code:  (920) 527-5000
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Name of Each Exchange
on Which Registered
Common Stock, par value $0.10 per share
 
New York Stock Exchange
 
Securities registered pursuant to section 12(g) of the Act:  None
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES  ý NO  o
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES  o  NO  ý
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES  ý  NO  o
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  YES  ý  NO  o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405) is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):
 
Large Accelerated Filer x
 
Accelerated Filer o
Non-Accelerated Filer o
 
Smaller Reporting Company o
Emerging growth company o

 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).  YES  o  NO  ý
 
The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the Registrant on June 29, 2018, based on a closing price of $42.21 per share as reported on the New York Stock Exchange, was $3,841,516,355.
 
As of February 13, 2019, the Registrant had 91,165,312 shares of Common Stock issued and outstanding.
 
Documents Incorporated by Reference
Certain information required by Part III will be included in a definitive proxy statement for the Registrant’s annual meeting of shareholders or an amendment to this Annual Report on Form 10-K, in either case filed with the Commission within 120 days after December 31, 2018, and is incorporated by reference herein.








BEMIS COMPANY, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Forward-Looking Statements
 
Unless otherwise indicated, references to "Bemis Company," the "Company," "we," "our," and "us" in this Annual Report on Form 10-K refer to Bemis Company, Inc. and its consolidated subsidiaries.

This Annual Report contains certain estimates, predictions, and other “forward-looking statements” (as defined in the Private Securities Litigation Reform Act of 1995, and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended).  Forward-looking statements are generally identified with the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “target,” “may,” “will,” “plan,” “project,” “should,” “continue,” “outlook,” “approximately,” “would,” “likely,” “could,” or the negative thereof or other similar expressions, or discussion of future goals or aspirations, which are predictions of or indicate future events and trends and which do not relate to historical matters.  Such statements are based on information available to management as of the time of such statements and relate to, among other things, expectations of the business environment in which we operate, projections of future performance (financial and otherwise), including those of acquired companies, perceived opportunities in the market and statements regarding our strategy and vision.  Forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause actual results, performance, or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements.  We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
 
Factors that could cause actual results to differ from those expected include, but are not limited to:

Our pending merger with Amcor Limited ("Amcor"), including uncertainties as to timing of completion, the risk that the merger may not be completed in a timely manner or at all and the risk that our shareholders cannot be certain of the value of the consideration they will receive;
The ability of our foreign operations to maintain working efficiencies, as well as properly adjust to continuing changes in global politics, legislation, and economic conditions;
Changes in the competitive conditions within our markets, as well as changes in the demand for our goods;
Changes in import and export regulation that could subject us to liability or impair our ability to compete in international markets;
The costs, availability, and terms of acquiring our raw materials (particularly for polymer resins and adhesives), as well as our ability to pass any price changes on to our customers;
Our ability to retain and build upon the relationships and sales of our key customers;
Variances in key exchange rates that could affect the translation of the financial statements of our foreign entities;
A failure to realize the full potential of our restructuring activities;
The potential loss of business or increased costs due to customer or vendor consolidation;
Our ability to effectively implement and update our global enterprise resource planning ("ERP") systems;
Fluctuations in interest rates and our borrowing costs, along with other key financial variables;
A potential failure in our information technology infrastructure or applications and their ability to protect our key functions from cyber-crime and other malicious content;
Changes in our credit rating;
Unexpected outcomes in our current and future administrative and litigation proceedings;
Changes in the value of our goodwill and other intangible assets;
Changes in governmental regulations, particularly in the areas of environmental, health and safety matters, fiscal incentives, and foreign investment;
Our ability to realize the benefits of our acquisitions and divestitures, and whether we are able to properly integrate those businesses we have acquired;
Our ability to effectively introduce new products into the market and to protect or retain our intellectual property rights;
Changes in our ability to attract and retain high performance employees; and
Our ability to manage all costs and the funded status associated with our pension plans.

These and other risks, uncertainties, and assumptions identified from time to time in our filings with the Securities and Exchange Commission, including without limitation, those described under Item 1A "Risk Factors" of this Annual Report on Form 10-K and our quarterly reports on Form 10-Q, could cause actual future results to differ materially from those projected in the forward-looking statements. In addition, actual future results could differ materially from those projected in the forward-looking statements as a result of changes in the assumptions used in making such forward-looking statements.

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You should read this Annual Report and the documents that we reference in this Annual Report and have filed as exhibits to this Annual Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.





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PART I
 
ITEM 1 — BUSINESS
 
Bemis Company, Inc., a Missouri corporation (the “Registrant” or “Company”), continues a business formed in 1858.  We were incorporated in 1885 as Bemis Bro. Bag Company with the name changed to Bemis Company, Inc. in 1965.  We are a global manufacturer of packaging products.
 
Our long-term strategic objectives are to accelerate growth, focus innovation, and continuously improve. During 2017, we launched Agility, our multi-year, three-pronged approach to fix, strengthen, and grow our business. Our vision is: passionate commitment to the growth and success of our customers will make Bemis the clear choice for inspired packaging solutions.

The majority of our products are sold to customers in the food industry.  Other customers include companies in the following types of businesses: chemical, agribusiness, medical, pharmaceutical, personal care, electronics, industrial, and other consumer goods. Further information about our operations in our business segments and geographic areas is available in Note 19 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
 
As of December 31, 2018, we had approximately 15,700 employees worldwide. Approximately 7,800 of these employees were in the U.S., with 39 percent of the 5,550 hourly production employees covered by collective bargaining agreements involving six different unions. Of the approximately 7,900 employees who were outside the U.S., over half of the hourly production employees and some of the salaried workforce are covered by collective bargaining agreements and are represented by numerous unions.
 
Working capital fluctuates throughout the year in relation to business volume and other marketplace conditions.  We maintain inventory levels that provide a reasonable balance between obtaining raw materials at favorable prices and maintaining adequate inventory levels to enable us to fulfill our commitment to promptly fill customer orders.  Manufacturing backlogs are not a significant factor in the industries in which we operate.  The business of each of the reportable segments is not seasonal to any material extent.
 
We are the owner or licensee of a number of United States and foreign patents and patent applications that relate to certain of our products, manufacturing processes, and equipment.  We also have a number of trademarks and trademark registrations in the United States and in foreign countries.  Our patents, licenses, and trademarks collectively provide a competitive advantage.  However, the loss of any single patent or license alone would not have a material adverse effect on our results as a whole or those of any of our segments. We also keep certain technology and processes as trade secrets.

Our business activities are organized around our three reportable business segments, U.S. Packaging (66 percent of 2018 net sales), Latin America Packaging (15 percent) and Rest of World Packaging (19 percent). A summary of our business activities reported by our three reportable business segments follows.

Definitive Transaction Agreement with Amcor
On August 6, 2018, we announced that our Board of Directors, along with the Board of Directors of Amcor Limited (“Amcor”), unanimously approved a definitive agreement (the "Agreement”) under which Bemis will combine with Amcor in an all-stock combination (the "Merger”).

The Merger will be effected at a fixed exchange ratio of 5.1 Amcor shares for each share of our stock, resulting in Amcor and Bemis shareholders owning approximately 71% and 29% of the combined company, respectively. Closing of the Merger is conditional upon the receipt of regulatory approvals, approval by both Amcor and Bemis shareholders, and satisfaction of other customary conditions. Subject to the satisfaction of the conditions to closing, we expect the Merger to close in the second quarter of calendar year 2019.

U.S. Packaging Segment
The U.S. Packaging segment represents all food, consumer, and industrial products packaging-related manufacturing operations located in the United States. This segment manufactures multilayer polymer, blown and cast film structures which are then converted to produce packaging for processed and fresh meat, dairy, liquids, frozen foods, cereals, snacks, cheese, coffee, condiments, candy, pet food, bakery, lawn and garden, tissue, fresh produce, personal care and hygiene, and agribusiness.

5



Latin America Packaging Segment
The Latin America Packaging segment includes all food and non-food packaging-related manufacturing operations located in Latin America. This segment manufactures multilayer polymer, blown and cast film structures to produce packaging sold for a variety of food, medical, pharmaceutical, personal care, electronics, and industrial applications. Additional products include injection molded and thermoformed plastic. These packaging solutions are used for a variety of applications including processed and fresh meat, dairy, liquids, snacks, cheese, coffee, condiments, candy, bakery, tissue, fresh produce, personal care and hygiene, disposable diapers, pet food, pharmaceutical, and medical devices.

Rest of World Packaging Segement
The Rest of World Packaging 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-related manufacturing operations in the U.S., Europe, and Asia. This segment manufactures multilayer polymer, blown and cast film structures to produce packaging sold for a variety of food, medical, pharmaceutical, personal care, electronics, and industrial applications. These applications include processed and fresh meat, dairy, liquids, snacks, cheese, coffee, condiments, candy, bakery, tissue, fresh produce, personal care and hygiene, pharmaceutical, and medical devices.

Marketing, Distribution, and Competition
While our sales are made through a variety of distribution channels, substantially all sales are made by our direct sales force.  Sales offices and plants are located throughout North America, Latin America, Europe, and Asia-Pacific to provide prompt and economical service to thousands of customers.  Our technically trained sales force is supported by product development engineers, design technicians, field service technicians, and a customer service organization.
 
Sales to the Kraft Heinz Company, and its subsidiaries, accounted for approximately 11 and 10 percent of our sales in 2018 and 2017, respectively. Business arrangements with them and certain large customers require a large portion of the manufacturing capacity at a few individual manufacturing sites.  Any change in these business arrangements would typically occur over a period of time, which would allow for an orderly transition for both our manufacturing sites and the customer.
 
The major markets in which we sell our products historically have been, and continue to be, highly competitive.  Areas of competition include service, innovation, quality, and price.  This competition is significant as to both the size and the number of competing firms.  Competitors include Amcor, Berry Global Group, Inc., Bryce Corporation, Coveris Holdings S.A., Printpack, Inc., Sealed Air Corporation, Sonoco Products Company, Wipak OY, Winpak Ltd, and a variety of other privately held companies. 
 
We consider ourselves to be a significant participant in the markets in which we serve; however, due to the diversity of our business, our precise competitive position in these markets is not reasonably determinable.  Advertising is limited primarily to business and trade publications emphasizing our product features and related technical capabilities.
 
Raw Materials
Polymer resins and films, paper, inks, adhesives, aluminum, and chemicals constitute the major raw materials we use.  These are purchased from a variety of global industry sources, and we are not significantly dependent on any one supplier for our raw materials.  While temporary industry-wide shortages of raw materials may occur, we expect to continue to successfully manage raw material supplies without significant supply interruptions.  Currently, raw materials are readily available.
 
Environmental Matters
Our operations and the real property we own or lease are subject to broad environmental laws and regulations by multiple jurisdictions.  These laws and regulations pertain to the discharge of certain materials into the environment, handling and disposition of waste, and cleanup of contaminated soil and ground water as well as various other protections of the environment.  We believe that we are in substantial compliance with applicable environmental laws and regulations based on implementation of our Environmental, Health, and Safety Management System and regular audits. However, we cannot predict with certainty that we will not in the future incur liability with respect to noncompliance with environmental laws and regulations due to contamination of sites formerly or currently owned or operated by us (including contamination caused by prior owners and operators of such sites) or the off-site disposal of regulated materials, which could be material.  In addition, these laws and regulations are constantly changing, and we cannot always anticipate these changes. 
 
See Note 18 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information regarding certain environmental matters. 
 

6



Available Information
We are a large accelerated filer (as defined in Exchange Act Rule 12b-2) and are also an electronic filer.  Electronically filed reports (Forms 4, 8-K, 10-K, 10-Q, S-3, S-8, etc.) can be accessed at the Securities and Exchange Commission (SEC) website (http://www.sec.gov). Electronically filed and furnished reports can also be accessed through our own website (http://www.bemis.com), under Investors/SEC Filings or by writing for free information, including SEC filings, to Investor Relations, Bemis Company, Inc., 2301 Industrial Drive, Neenah, Wisconsin 54956, or calling (920) 527-5000.  In addition, our Board Committee charters, Principles of Corporate Governance, and our Code of Conduct can be electronically accessed at our website under About Bemis/Corporate Governance or, free of charge, by writing directly to the Company, Attention:  Corporate Secretary.  We will post any amendment to, or waiver from, a provision of the Code of Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer, and other persons performing similar functions on the Investor Relations section of our website (www.bemis.com) promptly following the date of such amendment or waiver.

7



Explanation of Terms Describing the Company’s Products
Aseptic packaging — Packaging used in a flash-heating process in which a food product and its packaging are sterilized separately and then combined and sealed under sterile conditions. This process retains more nutrients and uses less energy than conventional sterilization techniques and extends the shelf life of processed food without using preservatives.
Barrier products — Products that provide protection and extend the shelf life of the package contents.  These products provide protection from oxygen, moisture, light, odor, or other environmental factors by combining different types of plastics and additives into a multilayered plastic package. 
Cast film — A plastic film that is extruded through a straight slot die as a flat sheet during its manufacturing process.
Coextruded film — A blown or cast film extruded with multiple layers extruded simultaneously.
CSD labels — Carbonated soft drink labels.
Extruded film — A plastic film manufactured by forcing heated resin through a shaped die. This forms a tube of thin plastic film which is then expanded by an internal column of air to produce a continuous ribbon of film.
EZ Open packaging — Package technologies such as peelable closures or laser scoring used to allow the consumer easy access to a packaged product. EZ Open packaging may be combined with reclose features such as plastic zippers to allow for convenient storage of the packaged material once opened.
Film laminate — A multilayer plastic film made by laminating two or more films together with the use of adhesive or a molten plastic to achieve a barrier for the packaged contents.
Flexible pouches — A packaging option that delivers a semi-finished package, instead of rollstock, to a customer for filling product and sealing/closing the package for distribution.
Flexographic printing — The most common flexible packaging printing process using a raised rubber or alternative material image mounted on a printing cylinder.
Forming films — A flexible plastic film that is designed to take the shape determined by a cavity when subjected to heat and vacuum.
Injection molded plastic — Plastic that is created through a manufacturing process where heated plastic is injected into a die or mold.
Multipack — A film manufactured by a modified extrusion process that is used for wrapping and holding multipacks of products such as canned goods and bottles of liquids, replacing corrugate and fiberboard.
Narrow-web rolls — Films that are produced one-across at widths typically less than one meter and can be produced in either tube or roll form depending on the application.
Recyclable packaging — A film manufactured through proprietary methods that allows consumers to recycle through existing How2Recycle store drop-offs.
Retort packaging — A multilayer flexible or rigid package able to withstand the thermal processing used for sterilization, similar to the process used for pressure cooking. The food is prepared and sealed in a package and then heated to approximately 250 degrees Fahrenheit under high pressure. This process extends the food product’s shelf life under normal room temperature conditions.
Rigid packaging — A form of packaging in which the shape of the package is retained as its contents are removed. Cups, tubs, trays and clamshell packaging are examples of rigid packaging options.
Rollstock — The principal form in which flexible packaging material is delivered to a customer.  Finished film wound on a core is converted in a process at the end user’s plant that forms, fills, and seals the package of product for delivery to customers.
Rotogravure printing — A high quality printing process utilizing a metal engraved cylinder.
Shrink bags/films — An extruded packaging film that is cooled, reheated, and stretched at a temperature near its melting point. The film is made to shrink around a product by an application of thermal treatment, and can be a barrier product if a layer of oxygen barrier material is added.
Specialty filmPlastic films that are produced for non-food applications and are typically used as either secondary packaging
or incorporated into a film structure to impart specific physical and /or performance characteristics.
Sterilization packaging — Packaging materials and preformed packaging systems that support the sterilization process, physical and sterile barrier protection through global distribution, and aseptic operating room presentation of life saving medical devices and technologies.
Thermoformed plastic packaging — A package formed by applying heat to a film to shape it into a tray or cavity and then sealing a flat film on top of the package after it has been filled.
Vacuum skin packaging ("VSP") — Vacuum skin packaging combines the benefits of traditional vacuum packs in terms of shelf life extension and premium second-skin presentation of meats, fish, and ready-made meals. VSP systems include multilayer high barrier top webs and adapted forming webs and trays.


8



ITEM 1A — RISK FACTORS
 
The following factors, as well as factors described elsewhere in this Form 10-K, or in other filings by the Company with the Securities and Exchange Commission, could adversely affect the Company’s consolidated financial position, results of operations or cash flows. Other factors not presently known to us or that we presently believe are not material could also affect our business operations and financial results.

Risks Related to the Proposed Merger Transaction with Amcor

The Merger is subject to a number of conditions beyond our control. Failure to complete the Merger within the expected timeframe, or at all, could adversely affect our business, results of operations and our stock price.
The consummation of the Merger remains conditioned, among other things, on: (i) approval by Amcor shareholders of the Scheme by the requisite majority under the Australian Corporations Act 2001 (Cth) (the “Australian Act”), (ii) approval by our shareholders of the Merger by the requisite majority under the General and Business Corporation Law of Missouri, (iii) expiration or earlier termination of any applicable waiting period and receipt of regulatory consents, approvals and clearances, in each case, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and under relevant antitrust, competition and foreign investment legislation in certain other relevant jurisdictions, (iv) approval of the Scheme by the Federal Court of Australia under the Australian Act, (v) approval from the New York Stock Exchange to the listing of shares of New Amcor to be issued in the Merger and (vi) no events having occurred that would have a material adverse effect on the Company or Amcor.

Although we currently anticipate the remaining conditions will be satisfied during the second quarter of 2019, we do not know with certainty whether and when these remaining conditions will be satisfied. If one or more of these conditions is not satisfied, and as a result, we do not complete the Merger, we would remain liable for significant transaction costs without realizing any benefits of the Merger. Certain costs associated with the Merger have already been incurred or may be payable even if the Merger is not consummated. In addition to the above risks, we may be required to pay to Amcor a termination fee of $130 million if the Merger is terminated under certain circumstances, including if, among other things, we terminate the Transaction Agreement with Amcor (the “Transaction Agreement”) to enter into a superior proposal or if the Merger is terminated following our board of directors changing its recommendation or failing to publicly affirm the board recommendation after receipt of a competing proposal. Finally, disruptions to our business resulting from the announcement and uncertain timing of the Merger, including adverse changes in our relationships with our customers, partners, suppliers and employees, could result in the event that the Merger is not consummated.
    
Our stock price may also fluctuate significantly based on announcements regarding the Merger or based on market perceptions of the likelihood of us satisfying the closing conditions related to the Merger. Such announcements may lead to perceptions in the market that the Merger may not be completed, which could cause our stock price to fluctuate or decline. If we do not consummate the Merger, the price of our common stock may decline significantly from the current market price, which may reflect a market assumption that the proposed Merger will be consummated. Any of these events could harm our business, results of operations and financial condition and could cause a decline in the price of our common stock.

Our shareholders cannot be sure of the value of the consideration they will receive in the Merger.
Our shareholders cannot be sure of the precise value of the consideration they will receive in the Merger because the market price of Amcor’s shares will fluctuate prior to the consummation of the Merger. In addition, the number of New Amcor shares our shareholders will receive in the Merger is fixed under the Transaction Agreement and will not be adjusted at closing of the Merger as a result of increases or decreases in the trading price of our common stock or Amcor shares or currency exchange rates following the announcement of the Merger. As a result, we could deliver greater value to the Amcor shareholders than had been anticipated by us should the value of the shares of our common stock increase relative to the value of Amcor shares from the date of execution of the Agreement. Stock price changes may result from a variety of factors, including changes in the respective businesses, operations or prospects, regulatory considerations, governmental actions, legal proceedings and general business, market, industry, political or economic conditions and changes in currency exchange rates between the U.S. dollar and Australian dollar. Market assessments of the benefits of the Merger and the likelihood the Merger will be consummated could also impact the price of our common stock and Amcor’s shares. Many of these factors are beyond either company’s control.


9



Our shareholders will have a reduced ownership and voting interest in the combined company after the Merger and will exercise less influence over management.
Currently, our shareholders have the right to vote in the election of our board and the power to approve or reject any matters requiring shareholder approval under applicable law and certificate of incorporation and bylaws. Upon completion of the Merger, each of our shareholders who receives shares of the combined company’s common stock pursuant to the Transaction Agreement will become a shareholder of the combined company with a percentage ownership that is smaller than our shareholders’ current percentage ownership of the Company.

Based on the fixed exchange ratio of 5.1 New Amcor shares for every one Bemis share, after the Merger our shareholders are expected to become owners of approximately 29% of the outstanding shares of the combined company. Our shareholders would therefore have a less significant impact on the election of the combined company’s board and on the approval or rejection of future proposals submitted to a shareholder vote.

Lawsuits may be filed against us and our directors in an effort to challenge the Merger, and an adverse ruling in such lawsuits may prevent the Merger from becoming effective or from becoming effective within the expected timeframe.
Putative class action lawsuits naming us and our directors as defendants may be brought by shareholders challenging the Merger and seeking, among other things, to enjoin consummation of the Merger. As such, if any of the plaintiffs are successful in obtaining an injunction prohibiting the consummation of the Merger, then such injunction may prevent the Merger from becoming effective or from becoming effective within the expected timeframe.

We have incurred and will incur expenses in connection with the negotiation and completion of the Merger, including advisor fees and the costs and expenses of filing, printing and mailing the joint proxy statement/prospectus.
We have and will continue to incur transaction and merger-related costs in connection with the Merger, which may be in excess of those anticipated by us.

We expect to continue to incur a number of non-recurring costs associated with completing the Merger. These fees and costs may be substantial. The majority of the non-recurring expenses will consist of transaction costs related to the Merger and include, among others, employee retention costs, fees paid to financial, legal and accounting advisors, and severance and benefit costs. We may also incur transaction fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs.

The aforementioned costs, as well as other unanticipated costs and expenses, could have a material adverse effect on our financial condition and operating results.

Other Risks

Global operations — Changing conditions in the U.S. and foreign countries, may significantly impact our reported results of operations.
We have operations globally. Our revenues and net income may be adversely affected by economic conditions, political situations, and changing laws and regulations, as to which we have no control. Additionally, our operations could be disrupted by geopolitical conditions such as boycotts and sanctions, acts of war, terrorist activity or other similar events. Such events could make it difficult or impossible to manufacture or deliver products to our customers, receive production materials from our suppliers, or perform critical functions, which could adversely affect our business globally or in certain regions. While we maintain similar manufacturing capacities at different locations and coordinate multi source supplier programs on many of our materials which would better enable us to respond to these types of events, we cannot be sure that our plans will fully protect us from all such disruptions. Similarly, more ordinary course disruptions that are directly attributable to the foreign nature of our business, such as flight and shipping delays or cancellations, could also significantly impact business operations.

The political instability and incrementally challenging economic environment in Brazil are impacting our business. As consumers, retailers, and our customers react to the situation in the region, our unit volumes and mix of products sold are adversely impacted. The challenges associated with the economic environment in Brazil are putting pressure on our sales and earnings.

Changes in market demand and competition — Changes in consumer demand or buying habits for our goods, an increase in substitutions, or significant innovation by our competitors, may adversely affect our business.
Our success depends on our ability to respond timely to changes in customer product needs and market acceptance of our products. We must produce products that meet the quality, performance, and price expectations of our customers.

10



Additionally, because many of our products are used to package consumer goods, our sales and profitability could be negatively impacted by changes in consumer preferences for those underlying products.

We also operate in a highly competitive industry. Our response to marketplace competition may result in lower than expected net pricing of our products.

Imports and exports — We are subject to governmental export and import controls and duties, tariffs or taxes that could subject us to liability or impair our ability to compete in international markets. 
Certain of our products are subject to export controls and may be exported only with the required export license or through an export license exception. If we were to fail to comply with export licensing, customs regulations, economic sanctions and other laws, we could be subject to substantial civil and criminal penalties, including fines for the Company and incarceration for responsible employees and managers, and the possible loss of export or import privileges. In addition, if our distributors fail to obtain appropriate import, export or re-export licenses or permits, we may also be adversely affected through reputational harm and penalties. Obtaining the necessary export license for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities.

Furthermore, export control laws and economic sanctions prohibit the shipment of certain products to embargoed or sanctioned countries, governments and persons. While we train our employees to comply with these regulations, we cannot assure that a violation will not occur, whether knowingly or inadvertently. Any such shipment could have negative consequences including government investigations, penalties, fines, civil and criminal sanctions, and reputational harm. In addition, our global business can be negatively affected by import and export duties, tariff barriers, and related local government protectionist measures, and the unpredictability with which these can occur.  For example, we are currently working with our customers to address recent duties imposed by the U.S. government on aluminum foil sourced from China used to manufacture certain products. Any change in export or import regulations, economic sanctions or related legislation, shift in the enforcement or scope of existing regulations, or change in the countries, governments, persons or technologies targeted by such regulations, could result in our decreased ability to export or sell our products to existing or potential customers with international operations. Any limitation on our ability to export or sell our products could adversely affect our business, financial condition and results of operations.

Raw materials — Raw material cost increases or shortages could adversely affect our results of operations.
As a manufacturer, our sales and profitability are dependent on the availability and cost of raw materials, which are subject to price fluctuations. Inflationary and other increases in the costs of raw materials have occurred in the past and are expected to recur, and our performance depends in part on our ability to reflect changes in costs in selling prices for our products. We have generally been successful in managing the impact of higher raw material costs by increasing selling prices through our contractual pass-through mechanisms with most of our customers. The disruption of raw materials from certain single-source providers could impact our supply chain. Additionally, natural disasters, such as hurricanes, tornadoes, and fires, may also negatively impact the production or delivery capacity of our raw material suppliers in the chemical and paper industries. This could result in increased raw material costs or supply shortages, which may have a negative impact on our profitability if the cost increases are sustained sequentially over multiple periods or, in the case of a shortage, if we are unable to secure raw materials from alternative sources.

Key customers — The loss of key customers or a significant reduction in sales to those customers could significantly reduce our revenues.
Our customer base includes key (generally large) customers that are important to our success and represent a sizable portion of sales. Our required response to continued marketplace competition could result in lower than expected net pricing of our products. Furthermore, if key customers experience financial pressure, they could request more favorable contractual terms, which could place additional pressure on our margins and cash flows.

Exchange rates — We have foreign currency conversion and transaction risks that may adversely affect our operating results.
In 2018, approximately 28 percent of our sales were generated by entities operating outside of the U.S. Because of this, variations in exchange rates may have a sizable effect on the translation of the financial statements of our foreign entities. Our primary foreign exchange exposure is to the Brazilian Real, but we also have foreign exchange exposure to the Euro, Argentine Peso, Mexican Peso, British Pound, and other currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive conversion effect on our financial statements. Conversely, a weakening U.S. dollar has an additive translation effect. In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. In short, the volatility of currency exchange rates may impact our operating results.

11




Restructuring activities — Our restructuring activities and cost saving initiatives may not achieve the results we anticipate.
We are undertaking and may continue to undertake restructuring activities and cost reduction initiatives to optimize our asset base, improve operating efficiencies and generate cost savings. We cannot be certain that we will be able to complete these initiatives as planned or that the estimated operating efficiencies or cost savings from such activities will be fully realized or maintained over time. In addition, we may not be successful in migrating production from one facility to another.

Consolidation of customer base — A significant consolidation of our customer base could negatively impact our business.
Many of our largest customers have acquired companies with similar or complementary product lines. This consolidation has increased the concentration of our business with our largest customers. Such consolidation may be accompanied by pressure from customers for lower prices, reflecting the increase in the total volume of products purchased or the elimination of a price differential between the acquiring customer and the company acquired. While we have generally been successful at managing customer consolidations, increased pricing pressures from our customers could have a material adverse effect on results of operations.

Implementing our ERP system — We face risks related to the implementation of our global enterprise resource planning system.
We are currently engaged in a multi-year process of conforming the majority of our operations onto one global ERP system. The ERP system is designed to improve the efficiency of our supply chain and financial transaction processes, accurately maintain our books and records, and provide information important to the operation of the business to our management team. The ERP system will continue to require significant investment of human and financial resources, and we may experience significant delays, increased costs and other difficulties as a result. Any significant disruption or deficiency in the design and implementation of the ERP system could adversely affect our ability to fulfill and invoice customer orders, apply cash receipts, place purchase orders with suppliers, and make cash disbursements, and could negatively impact data processing and electronic communications among business locations, which may have a material adverse effect on our business, consolidated financial condition or results of operations. We also face the challenge of supporting our older systems and implementing necessary upgrades to those systems while we implement the new ERP system.

Interest rates — An increase in interest rates could reduce our reported results of operations.
At December 31, 2018, our variable rate borrowings approximated $654.3 million (which includes $400 million fixed rate notes that have been effectively converted to variable rate debt through the use of a fixed to variable rate interest rate swap). Fluctuations in interest rates can increase borrowing costs and have an adverse impact on results of operations. Accordingly, increases in short-term interest rates will directly impact the amount of interest we pay. For each one percent increase in variable interest rates, our annual interest expense would increase by approximately $6.5 million on the $654.3 million of variable rate debt outstanding as of December 31, 2018.

Information technology — A failure in our information technology systems could negatively affect our business.
We depend on information technology to record and process customers' orders, manufacture and ship products in a timely manner, and maintain the financial accuracy of our business records. Increased global information technology (“IT”) security threats and more sophisticated cyber-crime pose a potential risk to the security and availability of our IT systems, networks, and services, including those that are managed, hosted, provided, or used by third parties, as well as the confidentiality, availability, and integrity of our data. Other malicious activity, such as unauthorized access attempts, phishing, attempts at monetary theft through our IT systems, computer viruses or other malignant codes may also pose a threat to our operations. If the IT systems, networks, or service providers we rely upon fail to function properly, or if we suffer a loss or disclosure of business or other sensitive information, due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our business continuity plans do not effectively and timely address these failures, we may suffer interruptions in our ability to manage operations and reputational, competitive, or business harm, which may adversely affect our business operations or financial condition. We have experienced IT failures and breaches in the past, but they have not been material and did not significantly affect our business operations.

Credit rating — A downgrade in our credit rating could increase our borrowing costs and negatively affect our financial condition and results of operations.
In addition to using cash provided by operations, we regularly issue commercial paper to meet our short-term liquidity needs. Our credit ratings are important to our ability to issue commercial paper at favorable rates of interest. A downgrade in our credit rating could increase the cost of borrowing or the fees associated with our bank credit facility.



12




Litigation — Litigation or regulatory developments could adversely affect our business operations and financial performance.
We are, and in the future will become, involved in lawsuits, regulatory inquiries, and governmental and other legal proceedings arising out of the ordinary course of our business. As we expand our global footprint, we become exposed to more uncertainty regarding the regulatory environment. The timing of the final resolutions to lawsuits, regulatory inquiries, and governmental and other legal proceedings is typically uncertain. Additionally, the possible outcomes of, or resolutions to, these proceedings could include adverse judgments or settlements, either of which could require substantial payments. See “Legal Proceedings" included in Item 3 of this Annual Report on Form 10-K.

Goodwill and other intangible assets — A significant write-down of goodwill and/or other intangible assets would have a material adverse effect on our reported results of operations and net worth.
We review our goodwill balance for impairment at least once a year using the business valuation methods allowed in accordance with current accounting standards. These methods include the use of a weighted-average cost of capital to calculate the present value of the expected future cash flows of our reporting units. Future changes in the cost of capital, expected cash flows, or other factors may cause our goodwill and/or other intangible assets to be impaired, resulting in a non-cash charge against results of operations to write down these assets for the amount of the impairment. In addition, if we make changes in our business strategy or if external conditions adversely affect our business operations, we may be required to record an impairment charge for goodwill or intangibles, which would lead to decreased assets and reduced net operating results. If a significant write down is required, the charge would have a material adverse effect on our reported results of operations and net worth. In December 2017, we recorded pre-tax impairment charges totaling $196.6 million ($145.5 million, net of taxes) related to the Latin America Packaging segment. We have identified the valuation of intangible assets and goodwill as a critical accounting estimate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates and Judgments—Intangible assets and goodwill” included in Item 7 of this Annual Report on Form 10-K.

Environmental, health, and safety regulations — Changing government regulations in environmental, health, and safety matters may adversely affect our company.
Numerous legislative and regulatory initiatives have been passed and anticipated in response to concerns about Greenhouse Gas emissions and climate change. We are a manufacturing entity that utilizes petrochemical-based raw materials to produce many of our products. Increased environmental legislation or regulation could result in higher costs for us in the form of higher raw material cost, as well as energy and freight costs. It is possible that certain materials might cease to be permitted to be used in our processes. We could also incur additional compliance costs for monitoring and reporting emissions and for maintaining permits. Additionally, a sizable portion of our business comes from healthcare packaging and food packaging, both highly regulated markets. If we fail to comply with these regulatory requirements, our results of operations could be adversely impacted.

Patents and proprietary technology — Our success is dependent on our ability to develop and successfully introduce new products and to develop, acquire and retain intellectual property rights.
Our success depends in large part on our proprietary technology. We rely on intellectual property rights, including patents, trademarks and trade secrets, as well as confidentiality provisions and licensing arrangements, to establish our proprietary rights. If we are unable to enforce our intellectual property rights, our competitive position may suffer. Our pending patent applications, and our pending trademark registration applications, may not be allowed or competitors may challenge the validity or scope of our patents or trademarks. In addition, our patents, trademarks and other intellectual property rights may not provide us a significant competitive advantage. We may need to spend significant resources monitoring our intellectual property rights. Our competitive position may be harmed if we cannot detect infringement and enforce our intellectual property rights quickly or at all. Competitors might avoid infringement by designing around our intellectual property rights or by developing non-infringing competing technologies. Intellectual property rights and our ability to enforce them may be unavailable or limited in some countries which could make it easier for competitors to capture market share and could result in lost revenues.

Attracting and retaining key personnel — If we are unable to attract and retain key personnel, we may be adversely affected.
Our continued success depends, in large part, on our ability to identify, attract, motivate, train and retain qualified personnel in key functions and geographic areas. Losing the services of key employees in any of our operations could make it difficult to meet our objectives. To effectively manage our global business, we will need to continue to recruit, train, assimilate, motivate and retain employees who actively promote and meet the standards of a high performance culture.


13



Funded status of pension plans — Recognition of pension liabilities may cause a significant reduction in stockholders’ equity.
In December of 2013, new amendments to our U.S. pension plan for salaried and non-union hourly employees were implemented. These amendments have frozen all further benefit accruals for the majority of employees entitled to benefits under the U.S. pension plans. While the amendments reduced some risk related to future service costs, there is still risk associated with ongoing liability re-measurement and plan asset valuations. Accounting standards issued by the Financial Accounting Standards Board ("FASB") require balance sheet recognition of the funded status of our defined benefit pension and postretirement benefit plans. If the fair value of our pension plans’ assets at a future reporting date decreases or if the discount rate used to calculate the projected benefit obligation ("PBO") as of that date decreases, we will be required to record the incremental change in the excess of PBO over the fair value of the assets as a reduction of shareholders’ equity. The resulting non-cash after-tax charge would represent future expense and would be recorded directly as a decrease in the Accumulated Other Comprehensive Income component of stockholders’ equity. While we cannot estimate the future funded status of our pension liability with any certainty at this time, we believe that if the market value of assets or the discount rate used to calculate our pension liability materially decreases, the adjustment could significantly reduce our shareholders’ equity. We have identified pension assumptions as a critical accounting estimate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Estimates and Judgments Pension costs” and “Pension assumptions sensitivity analysis” included in Item 7 of this Annual Report on Form 10-K.


ITEM 1B — UNRESOLVED STAFF COMMENTS
 
None.
 

14



ITEM 2 — PROPERTIES
 
Properties utilized by us at December 31, 2018, were as follows:
 
U.S. Packaging Segment
This segment has 25 manufacturing plants located in 12 states, of which 24 are owned directly by us or our subsidiaries and one is leased from an outside party.  Initial building lease term provides for a minimum term of 20 years and has one or more renewal options.

Latin America Packaging Segment
This segment has 13 manufacturing plants located in 3 countries, of which 11 are owned directly by us or our subsidiaries and 2 are leased from an outside party. Initial building lease terms provide for minimum terms of 6 to 20 years and have one or more renewal options.

Rest of World Packaging Segment
This segment has 16 manufacturing plants located in two states within the U.S., the Commonwealth of Puerto Rico, and eight other countries, of which 11 are owned directly by us or our subsidiaries and 5 are leased from outside parties.  Initial building lease terms generally provide for minimum terms of 5 to 20 years and have one or more renewal options. 
 
Corporate and General
We consider our plants and other physical properties to be suitable, adequate, and of sufficient productive capacity to meet the requirements of our business.  The manufacturing plants operate at varying levels of utilization depending on the type of operation and market conditions.  Our executive offices are located in Neenah, Wisconsin.
 
ITEM 3 — LEGAL PROCEEDINGS

We are involved in a number of lawsuits incidental to our 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, we believe, 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
We are 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 12 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 us 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, we expect our liability in these proceedings to be limited to monetary damages. We expect our future liability relative to these sites to be insignificant, individually and in the aggregate. 

We are involved in other environmental-related litigation arising in the ordinary course of business. We accrue environmental costs when it is probable that these costs will be incurred and can be reasonably estimated. Our reserve for environmental liabilities at December 31, 2018 and 2017 was $0.3 million and $0.9 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 $9.8 million, translated to U.S. dollars at the December 31, 2018 exchange rate. We expect that tax examinations for years after 2011 will include similar assessments as we continue 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 our consolidated results of operations and/or cash flows.


15



We have been advised by our legal and tax advisors that our position with respect to the deductions is allowable under the tax laws of Brazil. We are contesting the disallowance and believe it is more likely than not the tax benefit will be sustained in its entirety and consequently have not recorded a liability. In May of 2017, we received a favorable administrative decision. The government is appealing this decision to the next administrative level. We intend to litigate the matter if it is not resolved at the administrative appeals levels. The ultimate outcome could take several years.  At this time, we believe that final resolution of the assessment will not have a material impact on our consolidated financial statements.

Brazil Tax Credits
During October 2018, Bemis Do Brasil Industria E Comercio De Embalagens Ltda. (“Bemis Brazil”), a Bemis subsidiary, received a final decision from the Brazilian court regarding our claim that certain indirect taxes were incorrectly required to be paid in the years 2001 through 2017.  As a result of this case, Bemis Brazil expects to receive tax credits for the overpaid tax and related interest that can be used to offset various Brazilian federal taxes in future years. The exact methodology to compute the amount of the tax credit is still being determined by the tax authorities. In the fourth quarter of 2018, Bemis Brazil hired an outside consultant to compile documentation required to claim the credit. Bemis Brazil has estimated that it is probable to receive a benefit, net of fees and applicable Brazilian taxes, of $10.1 million (translated into US dollars as of December 31, 2018) for the years 2009-2017.  We reflected the $10.1 million benefit by recording $15.3 million on the consolidated statement of income in other operating income offset by $5.2 million of income tax included within income taxes provision (benefit). Bemis Brazil has not completed the estimation of tax credits for the years 2001 through 2008 given the need to gather and review manual records from this time period. The completion of this estimate is expected in 2019 and will result in recording further benefits. In addition, a taxpayer favorable decision on the methodology to compute the tax credits may result in significantly more tax credits, subject to some limitations, being available to Bemis Brazil.


 ITEM 4 — MINE SAFETY DISCLOSURES
 
Not applicable.
 

16



PART II
 
ITEM 5 — MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the New York Stock Exchange under the symbol BMS.  On December 31, 2018, there were 2,849 registered holders of record of our common stock.  We did not repurchase any of our equity securities in the twelve months ended December 31, 2018. As of December 31, 2018, under authority granted by the Board of Directors, we have remaining authorization to repurchase an additional 18,187,211 shares of our common stock.

The graph below matches the cumulative 5-Year total return of holders of Bemis Company, Inc.'s common stock with the cumulative total returns of the S&P Midcap 400 index and a customized peer group of twenty companies that includes: Albemarle Corp, AptarGroup Inc., Ashland Global Holdings Inc., Avery Dennison Corp, Ball Corp, Berry Global Group Inc., Crown Holdings Inc., Graphic Packaging Holding Co, Greif Inc., Minerals Technologies Inc., Newmarket Corp, Owens-illinois Inc., Packaging Corp Of America, Polyone Corp, RPM International Inc., Sealed Air Corp, Sensient Technologies Corp, Silgan Holdings Inc., Sonoco Products Co and Westrock Co. The graph assumes that the value of the investment in our common stock, in each index, and in the peer group (including reinvestment of dividends) was $100 on 12/31/2013 and tracks it through 12/31/2018.

a5yearctrform10k2018.jpg
 
 
12/31/13
 
12/31/14
 
12/31/15
 
12/31/16
 
12/31/17
 
12/31/18
Bemis Company, Inc.
 
100.00

 
113.42

 
114.86

 
125.85

 
129.18

 
127.43

S&P Midcap 400
 
100.00

 
109.77

 
107.38

 
129.65

 
150.71

 
134.01

Peer Group
 
100.00

 
115.87

 
111.56

 
131.89

 
159.72

 
132.29

    
The stock price performance included in this graph is not necessarily indicative of future stock price performance.


17



ITEM 6 — SELECTED FINANCIAL DATA
 
FIVE-YEAR CONSOLIDATED REVIEW
(dollars in millions, except per share amounts)
 
Years Ended December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
Operating Data
 
 

 
 

 
 

 
 

 
 

Net sales
 
$
4,089.9

 
$
4,046.2

 
$
4,004.4

 
$
4,071.4

 
$
4,343.5

Net income
 
225.7

 
94.0

 
236.2

 
214.9

 
239.1

 
 
 
 
 
 
 
 
 
 
 
Common Share Data
 
 

 
 

 
 

 
 

 
 

Basic earnings per share from continuing operations
 
2.48

 
1.03

 
2.51

 
2.50

 
2.39

Diluted earnings per share from continuing operations
 
2.47

 
1.02

 
2.48

 
2.47

 
2.36

Adjusted diluted earnings per share from continuing operations (1)
 
2.79

 
2.39

 
2.69

 
2.55

 
2.30

Dividends per share
 
1.24

 
1.20

 
1.16

 
1.12

 
1.08

Book value per share
 
13.36

 
13.23

 
13.59

 
12.70

 
14.59

 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding for computation of diluted earnings per share
 
91.5

 
91.9

 
95.1

 
97.9

 
101.2

Common shares outstanding at December 31,
 
91.0

 
90.8

 
92.7

 
95.1

 
98.2

 
 
 
 
 
 
 
 
 
 
 
Capital Structure and Other Data
 
 

 
 

 
 

 
 

 
 

Current ratio
 
1.8x

 
1.9x

 
2.0x

 
1.9x

 
2.7x

Working capital
 
$
533.0

 
$
571.0

 
$
589.4

 
$
529.9

 
$
806.4

Total assets
 
3,571.0

 
3,699.9

 
3,715.7

 
3,489.8

 
3,610.8

Short-term debt, including current portion of long-term debt
 
12.0

 
21.0

 
17.3

 
35.4

 
31.3

Long-term debt
 
1,348.6

 
1,542.4

 
1,527.8

 
1,353.9

 
1,311.6

Total equity
 
1,215.9

 
1,201.2

 
1,259.7

 
1,207.4

 
1,433.0

Depreciation and amortization
 
167.6

 
169.8

 
162.1

 
158.1

 
180.6

Capital expenditures
 
143.5

 
188.5

 
208.3

 
219.4

 
185.2

 
 
 
 
 
 
 
 
 
 
 
Number of common shareholders
 
2,849

 
2,986

 
3,130

 
3,154

 
3,284

Number of employees
 
15,694

 
16,582

 
17,678

 
17,696

 
16,944

(1)
Refer to "Presentation on Non-GAAP Financial Information" for reconciliation of adjusted diluted earnings per share.


18



ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Management’s Discussion and Analysis
 
Three Years Ended December 31, 2018
Management’s Discussion and Analysis should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8 of this Annual Report on Form 10-K.
 
Three-year review of results
(dollars in millions, except per share amounts)
 
2018
 
2017
 
2016
Net sales
 
$
4,089.9

 
100.0
 %
 
$
4,046.2

 
100.0
 %
 
$
4,004.4

 
100.0
 %
Cost of products sold
 
3,284.8

 
80.3

 
3,260.0

 
80.6

 
3,137.9

 
78.4

Gross profit
 
805.1

 
19.7

 
786.2

 
19.4

 
866.5

 
21.6

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general, and administrative expenses
 
377.9

 
9.2

 
385.2

 
9.5

 
390.5

 
9.8

Research and development costs
 
38.0

 
0.9

 
42.9

 
1.1

 
46.5

 
1.2

Restructuring and other costs
 
61.9

 
1.5

 
60.4

 
1.5

 
28.6

 
0.7

Goodwill impairment charge
 

 

 
196.6

 
4.9

 

 

Other operating income
 
(31.7
)
 
(0.8
)
 
(20.9
)
 
(0.5
)
 
(10.4
)
 
(0.3
)
Operating income
 
359.0

 
8.8

 
122.0

 
3.0

 
411.3

 
10.3

 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
76.1

 
1.9

 
65.8

 
1.6

 
60.2

 
1.5

Other non-operating (income) loss
 
(2.8
)
 
(0.1
)
 
3.5

 
0.1

 
0.2

 

Income before income taxes
 
285.7

 
7.0

 
52.7

 
1.3

 
350.9

 
8.8

 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax provision (benefit)
 
60.0

 
1.5

 
(41.3
)
 
(1.0
)
 
114.7

 
2.9

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
$
225.7

 
5.5
 %
 
$
94.0

 
2.3
 %
 
$
236.2

 
5.9
 %
 
 
 
 
 
 
 
 
 
 
\

 
 
Effective income tax rate
 
 

 
21.0
 %
 
 

 
(78.4
)%
 
 

 
32.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
2.47

 
 
 
$
1.02

 
 
 
$
2.48

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted diluted earnings per share (1)
 
$
2.79

 
 
 
$
2.39

 
 
 
$
2.69

 
 
(1)
Refer to "Presentation of Non-GAAP Financial Information".


Overview
Bemis Company, Inc. is a major supplier of flexible and rigid plastic packaging used by leading and emerging food, consumer products, healthcare, and other companies worldwide. Historically, approximately 80 percent of our total net sales are to customers in the food industry. Sales of our packaging products are widely diversified among food categories and can be found in nearly every retail grocery channel.


Market Conditions
The markets into which our products are sold have historically been, and continue to be, highly competitive. Our leading market positions in packaging for perishable food and medical device products reflect our focus on value-added,

19



proprietary products that provide food safety and sterility benefits. We also manufacture products for which our technical know-how and economies of scale offer us a competitive advantage. The primary raw materials for our business segments are polymer resins and films, paper, inks, adhesives, aluminum, and chemicals.

In the U.S., many of our consumer packaged goods customers have seen pressure on their sales volumes during recent years for a variety of reasons, including shifting consumer preferences.  We have invested in equipment that is well-suited to on-trend opportunities, and we have been implementing deliberate action plans to align our resources to pursue these targeted areas of  growth.

Additionally, the political instability and incrementally challenging economic environment in Brazil have been impacting our business. As consumers, retailers, and our customers react to the situation in the region, our unit volumes and mix of products sold have been adversely impacted. During 2018 and 2017, the challenges associated with the economic environment in Brazil put pressure on our sales and earnings. We are overcoming the profit impact of these headwinds through our cost savings efforts.


Sales by Geography
Sales by Geographic Area (in millions)
 
2018
 
2017
 
2016
United States
 
$
2,948.3

 
$
2,847.3

 
$
2,845.3

Brazil
 
420.7

 
482.1

 
483.5

Other Americas
 
207.9

 
229.3

 
219.6

Europe
 
321.5

 
290.0

 
263.5

Asia-Pacific
 
191.5

 
197.5

 
192.5

Total
 
$
4,089.9

 
$
4,046.2

 
$
4,004.4


    
Restructuring
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.

2017 Restructuring and Cost Savings Plan ("2017 Plan")
During the second quarter of 2017, we initiated restructuring activities to improve efficiency and profitability that further position us for long-term success.  We announced the remaining details of the 2017 Plan during the third quarter.  The 2017 Plan includes the following actions: the closure of four manufacturing facilities for which business will be relocated to existing facilities, the closure of an additional manufacturing facility for which business will not be relocated, the consolidation of office space, and the reduction of our administrative support cost structure, which includes the elimination of 500 positions.  The total program cost is estimated at $110 to $125 million, including $65 to $70 million in total pre-tax restructuring charges, $35 to $45 million in pre-tax other plan-related costs and approximately $10 million in capital investment related to executing the 2017 Plan.  We expect an annual pre-tax savings run rate of approximately $65 million by 2019 from the 2017 Plan.

During 2018, we recorded restructuring charges totaling $21.1 million, of which $1.8 million related to the 2016 Restructuring Plan. Restructuring charges consisted primarily of employee termination costs and fixed asset write-downs of equipment.  In addition, we recorded $4.6 million in other plan-related costs related to the 2017 Plan which consisted of consulting fees and impairment on assets sold. 

The 2017 Plan is expected to be completed by the end of 2020.  Total restructuring and other plan-related cash payments for the 2017 Plan are estimated to be approximately $75 to $85 million.  Cash payments in the twelve months ended December 31, 2018 were $35.6 million, including $17.4 million of restructuring payments. We expect restructuring and other plan-related payments of approximately $22 million in 2019 and the balance in 2020. 




20



Acquisitions

Acquisition of Evadix
On November 8, 2017, we acquired the Romanian-based flexible packaging company Evadix.  This small, yet strategic acquisition establishes us with our first manufacturing operation in Eastern Europe.  The acquired facility provides a strong converting platform to leverage our 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.

Acquisition of SteriPack Group
On April 29, 2016, we 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 U.S. The cash purchase price was $115.5 million.


Results of Operations

Consolidated Overview
(in millions, except per share amounts)
 
2018
 
2017
 
2016
Net sales
 
$
4,089.9

 
$
4,046.2

 
$
4,004.4

Net income
 
225.7

 
94.0

 
236.2

Diluted earnings per share
 
2.47

 
1.02

 
2.48

Adjusted diluted earnings per share (1)
 
2.79

 
2.39

 
2.69

(1)
Refer to "Presentation of Non-GAAP Financial Information".

 2018 versus 2017
Net sales for the year ended December 31, 2018 increased 1.1 percent from the same period of 2017. The impact of currency translation reduced net sales by 2.4 percent.  The Evadix acquisition increased net sales by 0.2 percent in the current year.

Diluted earnings per share for the year ended December 31, 2018 were $2.47 compared to $1.02 reported in the same period of 2017.  Results for 2018 included a $0.38 per share charge for restructuring and related costs related primarily to the 2016 Plan focused on plant closures in Latin America and the 2017 Plan focused on aligning our cost structure to the business environment in which we operate. The 2018 results also included a $0.09 per share benefit related to the Tax Cuts and Jobs Act of 2017, an $0.11 per share benefit related to a final Brazilian court decision related to indirect taxes previously paid and a $0.14 per share charge comprised of costs related to the pending transaction with Amcor.

Results for 2017 included a $0.42 per share charge for restructuring costs related primarily to planned plant closures in the Latin America Packaging and U.S. Packaging segments. Results also included a $1.59 per share charge related to a non-cash goodwill impairment in the Latin America Packaging segment. This impairment is a result of the impact on profits from the decline in the economic environment in Brazil during 2017 and the slow economic recovery. An $0.08 per share charge related to a pension settlement charge was also included in the 2017 results. We initiated a program during the third quarter of 2017 in which we offered terminated vested participants in the U.S. qualified retirement plans the opportunity to receive their benefits early as a lump sum. In addition, results included a $0.74 per share benefit related to the Tax Cuts and Jobs Act of 2017. The non-cash benefit recognized is due to the revaluation of deferred tax assets and liabilities from the change in the U.S. Federal statutory tax rate from 35 percent to 21 percent netted against the increase to taxes from the one-time transition tax on unremitted earnings. A $0.02 per share charge comprised of acquisition costs and hurricane-related expenses incurred at our Puerto Rico facility are also included in 2017 results.

2017 versus 2016
Net sales for the year ended December 31, 2017 increased 1.0 percent from the same period of 2016. The impact of currency translation increased net sales by 0.4 percent. The SteriPack and Evadix acquisitions increased net sales by 0.6 percent in the current year.
Diluted earnings per share from continuing operations for the year ended December 31, 2017 were $1.02 compared to $2.48 reported in the same period of 2016. Results for 2017 included a $0.42 per share charge for restructuring costs related

21



primarily to planned plant closures in the Latin America Packaging and U.S. Packaging segments and a $1.59 per share charge related to a non-cash goodwill impairment in the Latin America Packaging segment, as discussed above. An $0.08 per share charge related to a pension settlement charge was also included in the 2017 results. In addition, results included a $0.74 per share benefit related to the Tax Cuts and Jobs Act of 2017. A $0.02 per share charge comprised of acquisition costs and hurricane-related expenses incurred at our Puerto Rico facility are also included in 2017 results.
Results for 2016 included a $0.16 per share charge for restructuring costs related primarily to planned plant closures and related severance in Latin America. Results also included a $0.07 per share charge for acquisition-related costs comprised primarily of costs associated with the SteriPack acquisition. These costs were recorded both in operating income and interest expense. A $0.02 per share gain on the sale of land and buildings was also recorded in 2016.

U.S. Packaging Business Segment
Our U.S. Packaging segment represents all food, consumer, and industrial products packaging-related manufacturing operations located in the U.S. Our U.S. Packaging business segment provides packaging for a variety of applications used in packaging meat and cheese, dairy and liquids, confectionery and snack foods, frozen foods, lawn and garden products, pet food, health and hygiene products, beverages, bakery goods, and dry foods.

(dollars in millions)
 
2018
 
2017
 
2016
Net sales
 
$
2,698.5

 
$
2,626.0

 
$
2,621.1

Operating profit
 
360.2

 
352.5

 
400.0

Operating profit as a percentage of net sales
 
13.3
%
 
13.4
%
 
15.3
%
 
2018 versus 2017
U.S. Packaging net sales of $2.7 billion for the full year 2018 represent an increase of 2.8 percent compared to the same period of 2017. The increase in net sales was driven by price and mix. Compared to the prior year, unit volumes were down approximately one percent, driven by the Company’s planned exit of infant care business at its Shelbyville, Tennessee facility.

 Operating profit increased to $360.2 million for the full year 2018, or 13.3 percent of net sales, compared to $352.5 million, or 13.4 percent of net sales, in 2017. Operating profit in 2018 included the benefit of cost savings from the Company’s Agility plan and improved operations, partially offset by the impact of increased freight costs, customer incentives, and employee pay-for-performance.

2017 versus 2016
U.S. Packaging net sales of $2.6 billion for the full year 2017 represent an increase of 0.2 percent compared to the same period of 2016. Compared to the prior year, unit volumes were up nearly 1 percent.
Operating profit decreased to $352.5 million for the full year 2017, or 13.4 percent of net sales, compared to $400 million, or 15.3 percent of net sales, in 2016. Compared to the prior year, lower profits were driven by mix of products sold, previously-negotiated contractual selling price reductions on select products, and inefficiencies related to an ERP system implementation at one of our manufacturing facilities during the second quarter.    

Latin America Packaging Business Segment
Our Latin America Packaging business segment includes all of our food and non-food packaging-related manufacturing operations located in Latin America. Our Latin America Packaging business segment provides packaging to a variety of applications used in packaging meat and cheese, dairy and liquids, confectionery and snack foods, frozen foods, lawn and garden products, health and hygiene products, beverages, medical and pharmaceutical products, bakery goods, dry foods, and pet food.

(dollars in millions)
 
2018
 
2017
 
2016
Net sales
 
$
628.6

 
$
711.4

 
$
703.1

Operating profit
 
48.1

 
30.0

 
50.0

Operating profit as a percentage of net sales
 
7.7
%
 
4.2
%
 
7.1
%
 

22




2018 versus 2017
Latin America Packaging net sales of $628.6 million for the full year 2018 represent an decrease of 11.6 percent compared to the full year of 2017. Currency translation and the impact of implementing high inflation accounting in the Company’s business in Argentina decreased net sales by 16.1 percent. Organic sales growth of 4.5 percent reflects improved sales price and mix, partially offset by decreased unit volumes of approximately 10 percent driven primarily by the exit of some laundry detergent packaging volume in Brazil that is converting to another packaging format.
  
Latin America operating profit increased to $48.1 million for the full year of 2018 compared to $30.0 million in 2017. 2018 results include a $15.3 million benefit connected to a final Brazilian court decision related to indirect taxes previously paid. The net impact of currency translation decreased operating profit during 2018 by $4.8 million. Additionally, the implementation of high inflation accounting in the Company’s Argentina business negatively impacted operating profit by $2.2 million during 2018. The remaining $9.8 million increase in Latin America Packaging operating profit during 2018 was driven by variable and fixed cost savings actions implemented in light of the continued challenging economic environment in Brazil and the Company’s Agility plan, partially offset by the impact of decreased volume.
 
2017 versus 2016
Latin America Packaging net sales of $711.4 million for the full year 2017 represent an increase of 1.2 percent compared to the full year of 2016. Currency translation increased net sales by 4.0 percent. Organic sales decline of 2.8 percent reflects decreased unit volumes of approximately 4 percent and unfavorable sales mix driven by the challenging economic environment in Brazil, partially offset by increased selling prices.
Operating profit for the full year 2017 was $30.0 million, compared to $50.0 million, for the same period in 2016. Compared to the prior year, lower profits were driven primarily by the impacts of the challenging economic environment in Brazil, including lower unit volumes and unfavorable mix of products sold.

Rest of World Packaging Business Segment
Our Rest of World Packaging business segment includes all of our food and non-food packaging-related manufacturing operations located in Europe and Asia-Pacific as well as our medical device and pharmaceutical packaging manufacturing operations in the U.S., Europe, and Asia. Our Rest of World Packaging business segment provides packaging to a variety of applications used in packaging meat and cheese, dairy and liquids, confectionery and snack foods, frozen foods, lawn and garden products, health and hygiene products, beverages, medical and pharmaceutical products, bakery goods, and dry foods.

(dollars in millions)
 
2018
 
2017
 
2016
Net sales
 
$
762.8

 
$
708.8

 
$
680.2

Operating profit
 
81.2

 
61.1

 
64.0

Operating profit as a percentage of net sales
 
10.6
%
 
8.6
%
 
9.4
%
 
2018 versus 2017
Rest of World Packaging net sales of $762.8 million for the full year 2018 represented an increase of 7.6 percent compared to the full year of 2017. Currency translation increased net sales by 2.4 percent. The acquisition of Evadix increased net sales by 0.9 percent. Organic sales growth of 4.3 percent reflects increased price and mix and increased unit volumes of approximately 3 percent, driven by strength in the Company’s healthcare packaging business.
  
Rest of World operating profit for the full year 2018 was $81.2 million, compared to $61.1 million, for the same period in 2017. The net impact of currency translation increased operating profit during 2018 by $1.2 million. The remaining increase in operating profit in Rest of World Packaging was driven by strong operational performance and increased sales volume in the Company’s healthcare packaging business.

2017 versus 2016
Rest of World Packaging net sales of $708.8 million for the full year 2017 represented an increase of 4.2 percent compared to the full year of 2016. Currency translation decreased net sales by 1.7 percent. The acquisitions of SteriPack and Evadix increased net sales by 3.7 percent. Organic sales growth of 2.2 percent reflects increased unit volumes of approximately 6 percent and increased selling prices, partially offset by unfavorable mix of products sold.

23



Operating profit for the full year 2017 was $61.1 million, compared to $64.0 million, for the same period in 2016. Compared to the prior year, lower profits were driven primarily by rising raw material input prices in Europe and mix of products sold.


Consolidated Gross Profit
(dollars in millions)
 
2018
 
2017
 
2016
Gross profit
 
$
805.1

 
$
786.2

 
$
866.5

Gross profit as a percentage of net sales
 
19.7
%
 
19.4
%
 
21.6
%
    
Compared to 2017, gross profit in 2018 improved as a result of Agility cost savings and growth in our global healthcare packaging business, partially offset by higher costs related to freight, customer incentives and employee pay-for-performance.


Consolidated Selling, General, and Administrative Expenses
(dollars in millions)
 
2018
 
2017
 
2016
Selling, general, and administrative expenses (SG&A)
 
$
377.9

 
$
385.2

 
$
390.5

SG&A as a percentage of net sales
 
9.2
%
 
9.5
%
 
9.8
%
    
Selling, general, and administrative expenses ("SG&A") declined in 2018 as a result of the benefits of Agility savings, partially offset by higher employee pay-for-performance costs, that had resulted in minimal expense in 2017 based on Company performance.


Research and Development (R&D)
(dollars in millions)
 
2018
 
2017
 
2016
Research and development (R&D)
 
$
38.0

 
$
42.9

 
$
46.5

R&D as a percentage of net sales
 
0.9
%
 
1.1
%
 
1.2
%
    
R&D expenses over the periods presented reflect our cost-savings efforts that were initiated while still maintaining the critical innovation and development work to create long-term growth opportunities and improve plant operating performance.


Restructuring and Other Costs
(dollars in millions)
 
2018
 
2017
 
2016
Restructuring and other costs
 
$
61.9

 
$
60.4

 
$
28.6

Restructuring and other costs as a percentage of net sales
 
1.5
%
 
1.5
%
 
0.7
%

Restructuring costs include costs related to the 2016 Restructuring Plan focused on plant closures in Latin America and the 2017 Plan focused on aligning our cost structure to the business environment in which we operate. 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. In 2018, other costs include costs related to the pending transaction with Amcor. In 2017, other costs are comprised of acquisition costs and hurricane-related expenses incurred at the Puerto Rico facility. In 2016, other costs are comprised primarily of acquisition costs associated with the SteriPack acquisitions. Other costs also includes the gain on sale of land and building related to the sale of a plant in Latin America in 2016.


24




Goodwill Impairment Charge
(dollars in millions)
 
2018
 
2017
 
2016
Goodwill impairment charge
 
$

 
$
196.6

 
$

Goodwill impairment charge as a percentage of net sales
 
%
 
4.9
%
 
%

We recognized a non-cash goodwill impairment charge related to the Latin America Packaging segment during 2017. This impairment is a result of the impact on profits from the decline in the economic environment in Brazil during 2017 and the slow economic recovery. The impairment charge recognized was $196.6 million pre-tax ($145.5 million, net of taxes). Refer to Note 2 - Significant Accounting Policies for additional information.


Other Operating Income
(dollars in millions)
 
2018
 
2017
 
2016
Other operating income
 
$
(31.7
)
 
$
(20.9
)
 
$
(10.4
)

In 2018, we recorded a $15.3 million non-cash benefit for Brazil tax credits as a result of a final Brazilian court decision related to indirect taxes previously paid. Excluding the Brazilian tax credits, which include interest income, the largest component of other operating income is fiscal incentives, which are also associated with our Brazilian operations and are included in the results of our Latin American Packaging segment.  Fiscal incentives totaled $8.6 million in 2018, $10.3 million in 2017, and $9.9 million in 2016.


Interest Expense
(dollars in millions)
 
2018
 
2017
 
2016
Interest expense
 
$
76.1

 
$
65.8

 
$
60.2

Effective interest rate
 
5.2
%
 
4.2
%
 
4.1
%

During 2018, interest expense increased, primarily due to higher U.S. variable interest rates.
    
Interest expense increased in 2017 reflecting the September 2016 refinancing of short-term floating rate debt with long-term fixed rate public bonds with a higher interest rate.


Other Non-operating (Income) Expense
(dollars in millions)
 
2018
 
2017
 
2016
Other non-operating (income) expense
 
$
(2.8
)
 
$
3.5

 
$
0.2

    
In 2018, we recorded interest income of $2.7 million and non-operating pension income of $0.1 million. In 2017, we recorded interest income of $2.8 million, offset by $6.3 million of non-operating pension expense attributable to the initiation of a program during the third quarter of 2017 in which we offered terminated vested participants in the U.S. qualified retirement plans the opportunity to receive their benefits early as a lump sum. In 2016, we recorded interest income of $2.5 million, foreign exchange losses of $0.7 million, and non-operating pension expenses of $2.0 million.
    

Income Taxes
(dollars in millions)
 
2018
 
2017
 
2016
Income taxes
 
$
60.0

 
$
(41.3
)
 
$
114.7

Effective tax rate
 
21.0
%
 
(78.4
)%
 
32.7
%
 

25



Other than the differences noted below, any difference between our overall tax rate for 2018 and the U.S. statutory rate of 21 percent principally relates to state and local income taxes, net of federal income tax benefits, and the differences between tax rates in the various foreign jurisdictions in which we operate. Our overall tax expense in 2018 is primarily driven by our operations within the United States. 

The effective tax rate for 2017 of (78.4%) was impacted primarily by the impairment of the Latin America Packaging reporting unit’s goodwill and new tax legislation in the U.S.  In the fourth quarter of 2017, we 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.  We also recorded a provisional discrete net tax benefit of $67.2 million related to the Tax Cuts and Jobs Act (TJCA) of 2017 in the period ending December 31, 2017.  This consisted of a $77.8 million net benefit due to the remeasurement of our deferred tax accounts for the corporate rate reduction and a net expense for the transition tax of $10.6 million.  In the fourth quarter of 2018, we finalized the calculations of the impact of the TCJA and recorded a net additional benefit of $8.2 million.

Our 2018 and 2017 first quarter results included discrete income tax expense of $0.4 million and a discrete income tax benefit of approximately $0.9 million corresponding to the adoption of accounting guidance related to employee share-based payment accounting (See Note 3). We expect similar discrete income tax impacts in future years that will vary dependent upon the value of share-based payouts in those years.
    

Presentation of Non-GAAP Information
This Annual Report on Form 10-K refers to non-GAAP financial measures: adjusted diluted earnings per share, organic sales growth (decline), and net debt.  These non-GAAP financial measures adjust for factors that are unusual or unpredictable.  These measures exclude goodwill impairment charges, costs related to the pending transaction with Amcor, impact of significant tax reform, certain pension settlement charges, the impact of certain amounts related to the effect of changes in currency exchange rates, acquisitions, and restructuring, including employee-related costs, equipment relocation costs, accelerated depreciation and the write-down of equipment.  These measures also exclude gains or losses on sales of significant property and divestitures, certain litigation matters, and certain acquisition-related expenses, including transaction expenses, due diligence expenses, professional and legal fees, purchase accounting adjustments for inventory and order backlog and changes in the fair value of deferred acquisition payments.  This adjusted information should not be construed as an alternative to results determined in accordance with accounting principles generally accepted in the United States of America (GAAP).  Management of the Company uses non-GAAP measures to evaluate operating performance and believes that these non-GAAP measures are useful to enable investors to perform comparisons of current and historical performance of the Company.

A reconciliation of reported diluted earnings per share to adjusted diluted earnings per share for the years ended December 31, 2018, 2017, 2016, 2015, and 2014 follows:
 
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
2016
 
2015
 
2014
Diluted earnings per share, as reported
 
$
2.47

 
$
1.02

 
$
2.48

 
$
2.47

 
$
2.36

 
 
 
 
 
 
 
 
 
 
 
   Non-GAAP adjustments per share, net of taxes:
 
 
 
 
 
 
 
 
 
 
Restructuring and related costs (1)
 
0.38

 
0.42

 
0.16

 
0.05

 

Goodwill impairment charge (2)
 

 
1.59

 

 

 

Pension settlement charge (3)
 

 
0.08

 

 

 

Tax reform (4)
 
(0.09
)
 
(0.74
)
 

 

 

Other charges (5)
 
0.14

 
0.02

 
0.05

 
0.03

 
(0.06
)
Brazil tax credits (6)
 
(0.11
)
 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share, as adjusted
 
$
2.79

 
$
2.39

 
$
2.69

 
$
2.55

 
$
2.30

(1)
Restructuring and related costs include costs primarily 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 the business environment in which it operates. Restructuring related costs include professional fees for consultants and asset impairment charges. Restructuring and related costs totaled $47.6 million and $57.7 million for the years ended December 31, 2018 and 2017, respectively. Net of taxes, restructuring and related costs totaled approximately $35.2 million and $38.6 million for the years ended December 31, 2018 and 2017, respectively.

26



(2)
The Company recognized a non-cash goodwill impairment charge related to the Latin America Packaging segment. This impairment charge is a result of the impact on profits from the decline in the economic environment in Brazil during 2017 and the slow economic recovery. The impairment charge was $196.6 million pre-tax and $145.5 million, net of taxes.
(3)
The Company initiated a program during the third quarter of 2017 in which we offered terminated vested participants in the U.S. qualified retirement plans the opportunity to receive their benefits early as a lump sum. The Company recognized a $10.1 million pre-tax pension settlement charge in the fourth quarter of 2017. This charge was $6.8 million, net of taxes.
(4)
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed by the President of the United States and became enacted law. The Company recognized a $67.2 million non-cash tax benefit in the fourth quarter of 2017. This benefit is due to the revaluation of deferred tax assets and liabilities from the change in the U.S. Federal statutory tax rate from 35 percent to 21 percent netted against the increase to taxes from the one-time transition tax on unremitted earnings. Amounts reported in 2018 reflect final refinements related to the impact of the TCJA based upon regulations promulgated during 2018.
(5)
In 2018, other costs include costs related to the pending transaction with Amcor. In 2017, other costs are comprised of acquisition costs and hurricane-related expenses incurred at the Puerto Rico facility. In 2016, other costs are comprised primarily of acquisition costs associated with the SteriPack acquisition. Other costs also includes the gain on sale of land and building related to the sale of a plant in Latin America in 2016. In 2015, other costs are comprised primarily of acquisition costs associated with the Emplal Participações S.A. acquisition and charges related to contingent liabilities associated with a prior acquisition. In 2014, other costs are comprised of the gain on the sale of the Paper Packaging Division.
(6)
In the fourth quarter of 2018, the Company recognized a non-cash benefit for Brazil tax credits as a result of a final Brazilian court decision related to indirect taxes previously paid. The benefit was $15.3 million pre-tax and $10.1 million net of taxes.


A reconciliation of total debt to net debt at December 31, 2018 and December 31, 2017 follows:
(in millions)
 
 
 
 
 
 
 
December 31, 2018
 
December 31, 2017
Current portion of long-term debt
 
 
 
 
 
 
 
$
1.8

 
$
5.0

Short-term borrowings
 
 
 
 
 
 
 
10.2

 
16.0

Long-term debt, less current portion
 
 
 
 
 
 
 
1,348.6

 
1,542.4

Total debt
 
 
 
 
 
 
 
1,360.6

 
1,563.4

Less cash and cash equivalents
 
 
 
 
 
 
 
(76.1
)
 
(71.1
)
Net debt
 
 
 
 
 
 
 
$
1,284.5

 
$
1,492.3








27



The components of changes in net sales for the years ended December 31, 2018, 2017, and 2016 follow:
 
 
Twelve Months Ended December 31, 2018
 
Twelve Months Ended December 31, 2017
 
Twelve Months Ended December 31, 2016
 
 
Percent Change YoY
 
Percent Change YoY
 
Percent Change YoY
U.S. Packaging:
 
 
 
 
 
 
  Organic sales growth (decline)
 
2.8
 %
 
0.2
 %
 
(4.6
)%
    U.S. Packaging
 
2.8
 %
 
0.2
 %
 
(4.6
)%
 
 
 
 
 
 
 
Latin America Packaging:
 
 
 
 
 
 
  Currency effect
 
(16.1
)%
 
4.0
 %
 
(15.7
)%
  Acquisition effect
 
 %
 
 %
 
6.0
 %
  Organic sales growth (decline)
 
4.5
 %
 
(2.8
)%
 
11.1
 %
    Latin America Packaging
 
(11.6
)%
 
1.2
 %
 
1.4
 %
 
 
 
 
 
 
 
Rest of World Packaging:
 
 
 
 
 
 
  Currency effect
 
2.4
 %
 
(1.7
)%
 
(5.2
)%
  Acquisition effect
 
0.9
 %
 
3.7
 %
 
8.1
 %
  Organic sales growth (decline)
 
4.3
 %
 
2.2
 %
 
4.9
 %
    Rest of World Packaging
 
7.6
 %
 
4.2
 %
 
7.8
 %
 
 
 
 
 
 
 
Total Company:
 
 
 
 
 
 
  Currency effect
 
(2.4
)%
 
0.4
 %
 
(3.5
)%
  Acquisition effect
 
0.2
 %
 
0.6
 %
 
2.4
 %
  Organic sales growth (decline)
 
3.3
 %
 
 %
 
(0.5
)%
    Total change in net sales
 
1.1
 %
 
1.0
 %
 
(1.6
)%

We determine the effect of changes in currency exchange rates by translating the respective period’s sales using the same currency exchange rates that were in effect during the prior year. When we acquire businesses, we exclude sales in the current period for which there are no comparable sales in the prior period. Organic sales growth (decline) is calculated by comparing current period sales translated at prior year rates and eliminating the effect of acquisitions to reported sales in the prior year.


Liquidity and Capital Resources
 
Net Debt to Total Capitalization
Net debt to total capitalization (which includes total debt net of cash balances divided by total debt net of cash balances plus equity) was 49.8 percent at December 31, 2018, compared to 53.9 percent at December 31, 2017.  Total debt as of December 31, 2018 and 2017 was approximately $1.4 billion and $1.6 billion, respectively. 
 
Credit Rating
Our capital structure and financial practices have earned us investment grade credit ratings from two nationally recognized credit rating agencies. These credit ratings are important to our ability to issue commercial paper at favorable rates of interest.

During the second quarter of 2018, the Company's long-term credit rating was downgraded to BBB- from BBB by Standard & Poor's. The outlook is stable. The downgrade does not have a material impact on the Company's ability to issue debt at favorable rates of interest.

Cash Flow
Net cash provided by operations totaled $461.5 million for the year ended December 31, 2018, compared to $379.0 million in 2017 and $437.4 million in 2016.  During 2018, increased profit and working capital improvements contributed to

28



the increase in cash flow from operations. Lower cash flow from operations in 2017 reflects lower profit levels, partially offset by the benefits of working capital improvements made during 2017. Net cash provided by operations was reduced by income tax payments of $44.0 million, $73.5 million and $93.1 million during 2018, 2017, and 2016, respectively. Net cash provided by operations was reduced by contributions to our defined benefit pension plans of $2.0 million, $4.0 million and $20.7 million during 2018, 2017, and 2016, respectively. Cash flow from operations included cash used for restructuring and related activities of $38.6 million in 2018 and $24.5 million in 2017.

 Net cash used in investing activities totaled $139.9 million for the year ended December 31, 2018 compared to $177.9 million in 2017 and $311.2 million in 2016. Capital expenditures totaled $143.5 million, $188.5 million, and $208.3 million for 2018, 2017, and 2016, respectively. Cash used for acquisitions totaled $3.9 million for 2017, primarily related to our Evadix acquisition, and $114.5 million for 2016, primarily related to our SteriPack acquisition. In 2017, we received approximately $5.6 million as net proceeds from the sale of land and buildings in the United States related to a previous restructuring program. In 2016, we received approximately $10.1 million as net proceeds from the sales of land and buildings in Brazil and Mexico related to a previous restructuring program.

Net cash used in financing activities for the years ended December 31, 2017 and 2016 included share repurchases of $103.8 million and $143.9 million, respectively. There were no share repurchases during the year ended December 31, 2018. Net change in total debt was due to repayment of $198.5 million in 2018 and borrowings of $16.2 million and $157.1 million for 2017, and 2016, respectively.
 
Available Financing
In addition to using cash provided by operations, we issue commercial paper to meet our short-term liquidity needs.  At year-end, our commercial paper debt outstanding was $50.0 million.  Based on our current credit rating, we enjoy ready access to the commercial paper markets.

On July 22, 2016, we amended our $1.1 billion revolving credit facility, extending the term of the agreement from August 12, 2018 to July 22, 2021. Our revolving credit facility is supported by a group of major U.S. and international banks. Covenants imposed by the revolving credit facility include a minimum net worth calculation and a maximum ratio of debt to total capitalization as defined in our credit agreement. As of December 31, 2018, there was $50.0 million of debt outstanding supported by this credit facility, leaving over $1.0 billion of available credit. If we were not able to issue commercial paper, we would expect to meet our financial liquidity needs by accessing the bank market, which would increase our borrowing costs. Borrowings under the credit agreement would be subject to a variable interest rate. We are in compliance with all debt covenants.

On September 15, 2016, we issued $300 million aggregate principal amount of senior notes due in 2026 with a fixed interest rate of 3.1 percent. The proceeds were used to repay outstanding commercial paper and for general corporate purposes.
 
Liquidity Outlook
As of December 31, 2018, cash and cash equivalents outside of the United States was $69.9 million. We use a notional pooling arrangement with an international bank to help manage global liquidity requirements. Under this pooling arrangement, our participating subsidiaries maintain either a cash deposit or borrowing position through local currency accounts with the bank, so long as the aggregate position of the global pool is a notionally calculated net cash deposit. This notional pooling arrangement allows reasonable access to our cash in foreign subsidiaries, and provides a financing option to foreign subsidiaries beyond our multi-currency credit facility.
 
Management expects cash flow from operations and available liquidity described above to be sufficient to support operations going forward.  There can be no assurance, however, that the cost or availability of future borrowings will not be impacted by future capital market disruptions.  In addition, increases in raw material costs would increase our short term liquidity needs.
 
Capital Expenditures
Capital expenditures were $143.5 million during 2018, compared to $188.5 million in 2017, and $208.3 million in 2016.  2018 capital spending reflects slightly lower levels as we were able to absorb the additional assets placed during the prior years. 2017 and 2016 capital spending levels included growth projects and asset recapitalization projects, in line with our strategy. We anticipate future capital spending within the general range of depreciation and amortization.

Dividends

29



We increased our quarterly cash dividend by 3.3 percent during the first quarter of 2018 to $0.31 per share from $0.30 per share.  This follows increases of 3.4 percent in 2017 and 3.6 percent in 2016.  In February 2019, the Board of Directors approved the 36th consecutive annual increase in the quarterly cash dividend on common stock to $0.32 per share, a 3.2 percent increase.
 
Share Repurchases
We did not purchase any common stock in 2018, in line with the terms of our agreement supporting the pending combination with Amcor. We purchased 2.2 million, and 3.0 million shares of our common stock in the open market during 2017 and 2016, respectively. As of December 31, 2018, a total of 18.2 million shares remained available on our authorizations to purchase common stock for the treasury.

Contractual Obligations
The following table provides a summary of contractual obligations including our debt payment obligations, operating lease obligations, and certain other purchase obligations as of December 31, 2018.  Obligations under capital leases are insignificant.
 
 
 
Contractual Payments Due by Period
(in millions)
 
Total
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
Long-term debt obligations (1)
 
$
1,357.7

 
$
451.8

 
$
1.4

 
$
401.4

 
$
201.4

 
$
0.8

 
$
300.9

Interest expense (2)
 
174.9

 
55.3

 
38.6

 
33.5

 
14.8

 
9.4

 
23.3

Operating leases (3)
 
61.3

 
7.7

 
6.7

 
6.0

 
5.6

 
4.7

 
30.6

Purchase obligations (4)
 
1,142.6

 
591.0

 
276.7

 
273.9

 
1.0

 

 

Postretirement obligations (5)
 
24.1

 
1.2

 
1.2

 
4.9

 
1.9

 
1.4

 
13.5

Total
 
$
2,760.6

 
$
1,107.0

 
$
324.6

 
$
719.7

 
$
224.7

 
$
16.3

 
$
368.3

(1)
Long-term debt maturing in 2019 is $451.8 million. A $400 million note has been classified as a long-term liability in accordance with our ability and intent to refinance such obligations on a long-term basis.  Additionally, we have $50.0 million of commercial paper outstanding which is backed by a bank credit facility that expires on July 22, 2021. The $50.0 million of commercial paper has been classified as a long-term liability in accordance with our ability and intent to refinance such obligations on a long-term basis.  The remaining $1.8 million is the current portion of long-term debt. See Note 13 to the Consolidated Financial Statements for additional information about our long term debt.
(2)
A portion of the interest expense disclosed is subject to variable interest rates.  The amounts disclosed above that relate to commercial paper, the term loan, and the interest rate swap were calculated using forward-looking rates. All other amounts assume that future variable interest rates are equal to rates at December 31, 2018.
(3)
We enter into operating leases in the normal course of business.  Substantially all lease agreements have fixed payment terms based on the passage of time.  Some lease agreements provide us with the option to renew the lease.  Our future operating lease obligations would change if we exercised these renewal options and if we entered into additional operating lease agreements.
(4)
Purchase obligations represent contracts or commitments for the purchase of raw materials, utilities, capital equipment and various other goods and services.
(5)
Postretirement obligations represent contracts or commitments for postretirement healthcare benefits and benefit payments for the unfunded Bemis Supplemental Retirement Plan.  See Note 11 to the Consolidated Financial Statements for additional information about our postretirement benefit obligations. Postretirement obligations have been recorded in other current liabilities.

We also have long-term obligations related to our income tax liabilities associated with uncertain tax positions, environmental liabilities, and defined benefit pension plans. These liabilities have been excluded from the table above due to the high degree of uncertainty as to amounts and timing regarding future payments.  See Consolidated Financial Statements and related Notes.

Market Risks and Foreign Currency Exposures
We enter into contractual arrangements (derivatives) in the ordinary course of business to manage foreign currency exposure and interest rate risks.  We do not enter into derivative transactions for speculative trading purposes.  Our use of derivative instruments is subject to internal policies that provide guidelines for control, counterparty risk, and ongoing reporting.  These derivative instruments are designed to reduce the income statement volatility associated with movement in foreign exchange rates and to achieve greater exposure to variable interest rates.
 
A portion of the interest expense on our outstanding debt is subject to short-term interest rates.  As such, increases in short-term interest rates will directly impact the amount of interest we pay.  For each one percent increase in variable interest rates, the annual interest expense on $654.3 million of variable rate debt outstanding (which includes $400 million fixed rate

30



notes that have been effectively converted to variable rate debt through the use of a fixed to variable rate interest rate swap) would increase by approximately $6.5 million.
 
We enter into interest-rate swap contracts to economically convert a portion of our fixed-rate debt to variable rate debt.  During the fourth quarter of 2011, we entered into four interest rate swap agreements with a total notional amount of $400 million.  These contracts were designated as hedges of our $400 million 4.50 percent 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.  The net settlement expense in 2018 was $1.7 million. The net settlement benefit to us, which is recorded as a reduction in interest expense, was $3.2 million and $4.7 million in 2017 and 2016, respectively.  At December 31, 2018 and 2017, the fair value of these interest rate swaps was $2.7 million and $0.6 million in the bank's favor, respectively, 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.

Our international operations enter into forward foreign currency exchange contracts to manage foreign currency exchange rate exposures associated with certain foreign currency denominated receivables and payables.  At December 31, 2018 and 2017, we had outstanding forward exchange contracts with notional amounts aggregating to $0.3 million and $2.7 million, respectively.  Forward exchange contracts generally have maturities of less than six months.  Counterparties to the forward exchange contracts are major financial institutions.  Credit loss from counterparty nonperformance is not anticipated.  We have not designated these derivative instruments as hedging instruments.  The net settlement amount (fair value) related to the active forward foreign currency exchange contracts is recorded on the balance sheet within current assets or current liabilities and as an element of other operating income which offsets the related transactions gains and losses on the related foreign denominated asset or liability.  Amounts recognized in income related to forward exchange contracts were $1.0 million of expense in the year ended December 31, 2018, and $0.8 million of expense in the years ended December 31, 2017 and 2016.
 



31



Critical Accounting Estimates and Judgments
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP.  The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.  On an ongoing basis, management evaluates its estimates and judgments, including those related to retirement benefits, intangible assets, goodwill, and expected future performance of operations.  Our estimates and judgments are based on historical experience and on various other factors that are believed to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions.
 
We believe the following are critical accounting estimates used in the preparation of our consolidated financial statements.

The calculation of annual pension costs and related assets and liabilities;
The valuation of intangible assets and goodwill; and
The calculation of deferred tax assets and liabilities.

Pension costs
We recognize amounts in our financial statements related to our defined benefit pension plans which are frozen for the majority of participants on an actuarial basis.  The accounting for our pension plans requires us to recognize the overfunded or underfunded status of the pension plans on our balance sheet.  A substantial portion of our pension amounts relate to our defined benefit plans in the United States.  Net periodic pension cost recorded in 2018 was $8.6 million, compared to pension cost of $14.6 million in 2017 and $10.4 million in 2016. We expect pension expense before the effect of income taxes for 2019 to be approximately $6.4 million. 
 
One element used in determining annual pension income and expense in accordance with accounting rules is the expected return on plan assets. Beginning in 2013, we 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 69 percent in long-term corporate fixed income securities and approximately 31 percent in return seeking funds.
 
To develop the expected long-term rate of return on assets assumption, we considered compound historical returns and future expectations based on our target asset allocation.  For the historical long-term investment periods of 10, 15, 20 and 25 years ending December 31, 2018, our U.S. pension plan assets earned annualized rates of return of 9.4 percent, 5.8 percent, 4.9 percent, and 7.6 percent, respectively.  Using our U.S. target asset allocation of plan assets, our outside actuaries have used their independent economic models to calculate a range of expected long-term rates of return and, based on their results, we have determined our U.S. asset return assumptions to be reasonable. As of January 1, 2019, we determined this rate to be 6.75 percent for our U.S. defined benefit pension plans.
 
This assumed long-term rate of return on assets is applied to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over approximately three years.  This process calculates the expected return on plan assets that is included in pension income or expense.  The difference between this expected return and the actual return on plan assets is generally deferred and recognized over subsequent periods.  The net deferral of asset gains and losses affects the calculated value of pension plan assets and, ultimately, future pension income and expense.

At the end of each year, we determine the discount rate to be used to calculate the present value of pension plan liabilities.  This discount rate is an estimate of the current interest rate at which the pension liabilities could be effectively settled at the end of the year.  In estimating this rate, we look to changes in rates of return on high quality, fixed income investments that receive one of the two highest ratings given by a recognized ratings agency.  At December 31, 2018, for our U.S. defined benefit pension plans we determined this rate to be 4.25 percent, an increase of 0.50 percent from the 3.75 percent rate used at December 31, 2017.
 
For our non-U.S. pension plans, we follow similar methodologies in determining the appropriate expected rates of return on assets and discount rates to be used in our actuarial calculations in each individual country.
 





32



U.S.  Pension assumptions sensitivity analysis
The following charts depict the sensitivity of estimated 2019 pension expense to incremental changes in the discount rate and the expected long-term rate of return on assets.
 
Discount rate
 
Total increase (decrease) to pension expense from current assumption (in millions)
 
Rate of Return on Plan Assets
 
Total increase (decrease) to pension expense from current assumption (in millions)
3.25 percent
 
$
7.3

 
5.75 percent
 
$
5.9

3.50 percent
 
5.4

 
6.00 percent
 
4.4

3.75 percent
 
3.5

 
6.25 percent
 
3.0

4.00 percent
 
1.7

 
6.50 percent
 
1.5

4.25 percent —                    Current Assumption
 

 
6.75 percent —                       Current Assumption
 

4.50 percent
 
(1.8
)
 
7.00 percent
 
(1.5
)
4.75 percent
 
(3.4
)
 
7.25 percent
 
(3.0
)
5.00 percent
 
(5.1
)
 
7.50 percent
 
(4.4
)
5.25 percent
 
(6.8
)
 
7.75 percent
 
(5.9
)

The amount by which the fair value of plan assets differs from the projected benefit obligation of a pension plan must be recorded on the Consolidated Balance Sheet as an asset, in the case of an overfunded plan, or as a liability, in the case of an underfunded plan.  The gains or losses and prior service costs or credits that arise but are not recognized as components of pension cost are recorded as a component of other comprehensive income.  The following chart depicts the sensitivity of the total pension adjustment to other comprehensive income to changes in the assumed discount rate.
 
 
 
Total increase (decrease) in Accumulated Other Comprehensive
Discount rate
 
Income, before taxes, from current assumptions (in millions)
3.25 percent
 
$
(80.8
)
3.50 percent
 
(59.0
)
3.75 percent
 
(38.4
)
4.00 percent
 
(18.7
)
4.25 percent — Current Assumption
 

4.50 percent
 
17.7

4.75 percent
 
34.6

5.00 percent
 
50.7

5.25 percent
 
66.0

 

Intangible assets and goodwill
The purchase price of each new acquisition is allocated to tangible assets, identifiable intangible assets, liabilities assumed, and goodwill.  Determining the portion of the purchase price allocated to identifiable intangible assets and goodwill requires us to make significant estimates.  The amount of the purchase price allocated to intangible assets is generally determined by estimating the future cash flows of each asset and discounting the net cash flows back to their present values.  The discount rate used is determined at the time of the acquisition in accordance with accepted valuation methods.

Goodwill represents the excess of the aggregate purchase price over the fair value of net assets acquired, including intangible assets.  Goodwill is not amortized, but instead tested annually or when events and circumstances indicate an impairment may have occurred. Only two of our three reporting units have goodwill and the goodwill is assessed for potential impairment on an annual basis. All goodwill is assigned to reporting units, which is defined as the operating segment, or one level below the operating segment. We have three reporting units which are aligned with our operating segments.

Goodwill for our reporting units is reviewed for impairment annually in the fourth quarter of each year. During 2018, the Company elected a "Step 0" asssessment. The Step 0 assessment requires the evaluation of certain qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors and overall financial performance, as

33



well as Company and reporting unit factors. During 2017, the Company elected a one-step assessment of goodwill in accordance with Accounting Standards Update 2017-04, Simplifying the Test for Goodwill Impairment. During 2016, the Company performed a two-step assessment of goodwill. Under both a one-step and two-step asessement, the determination of the estimated fair value of the reporting units utilizes both an income valuation method and a market multiple method. Significant inputs to the income valuation method include discount rates, long-term sales growth rates and forecasted operating margins. The market multiple method estimates fair value by comparing the Company to similar public companies.

Our estimates associated with the goodwill impairment tests are considered critical due to the amount of goodwill recorded on our consolidated balance sheet and the judgment required in determining fair value amounts, including projected future cash flows. Judgment is used in assessing whether goodwill should be tested more frequently for impairment than annually. Factors such as a significant decrease in expected net earnings, adverse equity market conditions, and other external events may require more frequent assessments.

Intangible assets consist primarily of purchased customer relationships, technology, trademarks, and tradenames and are amortized using the straight-line method over their estimated useful lives, which range from one to 30 years.  We review these intangible assets for impairment as changes in circumstances or the occurrence of events suggest that the remaining value is not recoverable.  The test for impairment requires us to make estimates about fair value, most of which are based on projected future cash flows.  These estimates and projections require judgments as to future events, condition, and amounts of future cash flows. We have no indefinite-lived intangible assets.

Income Taxes
Estimates and judgments are required to calculate our tax liabilities and for the realization of our deferred tax assets. Our deferred tax assets arise from net deductible temporary differences, tax benefit carry forwards and foreign tax credits. If our estimates and judgments indicate that realization is not likely, we provide a valuation allowance for the deferred tax asset.

In assessing the need for a valuation allowance, we consider past operating results and estimate future taxable earnings, the feasibility of planning strategies, and available tax benefit carry forwards. If actual results differ from these estimates or there are future changes to tax laws or statutory tax rates, we may need to adjust the valuation allowance, which could have a material impact on our consolidated financial position and results of operations.

Our estimates related to uncertain tax positions and provisional tax estimates for the recently passed U.S. tax legislation are described further in Note 15.


New Accounting Pronouncements
Refer to Note 3 - New Accounting Guidance for additional detail.
 

ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The information required by this Item 7A is included in Note 8 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, and under the caption “Market Risks and Foreign Currency Exposures” which is part of Management’s Discussion and Analysis included in Item 7 of this Annual Report on Form 10-K.  Certain of our locations have assets and liabilities denominated in currencies other than their functional currencies. We enter into foreign currency forward exchange contracts to offset the transaction gains or losses associated with some of these assets and liabilities. For assets and liabilities without offsetting foreign currency forward exchange contracts, a 10 percent adverse change in the underlying foreign currency exchange rates would reduce our pre-tax income by approximately $5 million.

34



ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Management’s Responsibility Statement
The management of Bemis Company, Inc. is responsible for the integrity, objectivity, and accuracy of the financial statements of the Company.  The financial statements are prepared by the Company in accordance with accounting principles generally accepted in the United States of America, and using management’s best estimates and judgments, where appropriate.  The financial information presented throughout this Annual Report on Form 10-K is consistent with that in the financial statements.
 
The management of Bemis Company, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the direction, supervision, and participation of the Chief Executive Officer and the Chief Financial Officer, the Company’s management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO-Framework (2013)).  Based on the results of this evaluation, management has concluded that internal control over financial reporting was effective as of December 31, 2018.  Item 9A of this Annual Report on Form 10-K contains management’s favorable assessment of internal controls over financial reporting based on their review and evaluation utilizing the COSO-Framework (2013) criteria.
 
The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets quarterly with management, the Acting Vice President of Internal Audit, and independent accountants to review the work of each and to satisfy itself that the respective parties are properly discharging their responsibilities.  PricewaterhouseCoopers LLP and the Acting Vice President of Internal Audit have had and continue to have unrestricted access to the Audit Committee, without the presence of Company management.
 
/s/ William F. Austen
 
/s/ Michael B. Clauer
 
/s/ Jerry S. Krempa
William F. Austen, President and Chief Executive Officer
 
Michael B. Clauer, Senior Vice President and Chief Financial Officer
 
Jerry S. Krempa, Vice President and Chief Accounting Officer



35



Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Bemis Company, Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Bemis Company, Inc. and its subsidiaries (the “Company”) as of December 31, 2018 and December 31, 2017, and the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes and financial statement schedule listed in the accompanying index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and December 31, 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A . Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

/s/ PricewaterhouseCoopers LLP
 
Milwaukee, Wisconsin
February 15, 2019

We have served as the Company’s auditor since at least 1949. We have not been able to determine the specific year we began serving as auditor of the Company.




36

BEMIS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts) 



For the years ended December 31,
 
2018
 
2017
 
2016
Net sales
 
$
4,089.9

 
$
4,046.2

 
$
4,004.4

Cost of products sold (1)
 
3,284.8

 
3,260.0

 
3,137.9

 
 
 
 
 
 
 
Gross profit
 
805.1

 
786.2

 
866.5

 
 
 
 
 
 
 
Operating expenses:
 
 

 
 

 
 

Selling, general, and administrative expenses (1)
 
377.9

 
385.2

 
390.5

Research and development costs
 
38.0

 
42.9

 
46.5

Restructuring and other costs (1)
 
61.9

 
60.4

 
28.6

Goodwill impairment charge
 

 
196.6

 

Other operating income
 
(31.7
)
 
(20.9
)
 
(10.4
)
 
 
 
 
 
 
 
Operating income
 
359.0

 
122.0

 
411.3

 
 
 
 
 
 
 
Interest expense
 
76.1

 
65.8

 
60.2

Other non-operating (income) loss (1)
 
(2.8
)
 
3.5

 
0.2

 
 
 
 
 
 
 
Income from continuing operations before income taxes
 
285.7

 
52.7

 
350.9

 
 
 
 
 
 
 
Income tax provision (benefit)
 
60.0

 
(41.3
)
 
114.7

 
 
 
 
 
 
 
Net income
 
$
225.7

 
$
94.0

 
$
236.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
Net income
 
$
2.48

 
$
1.03

 
$
2.51

 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
Net income
 
$
2.47

 
$
1.02

 
$
2.48

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends paid per share
 
$
1.24

 
$
1.20

 
$
1.16

 
(1)
Prior year information has been recast to reflect the adoption of pension accounting changes during the first quarter of 2018 and conform to current year presentation.
 
See accompanying notes to consolidated financial statements.



37

BEMIS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(in millions) 


For the years ended December 31,
 
2018
 
2017
 
2016
Net income
 
$
225.7

 
$
94.0

 
$
236.2

Other comprehensive income (loss):
 
 
 
 
 
 
Translation adjustments
 
(94.3
)
 
39.6

 
35.8

Pension and other postretirement liability adjustments, net of tax (a)
 
(16.5
)
 
13.7

 
26.3

Other comprehensive income (loss)
 
(110.8
)
 
53.3

 
62.1

Total comprehensive income
 
$
114.9

 
$
147.3

 
$
298.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) - Tax (expense) benefit related to pension and other postretirement liability adjustments
 
$
5.9

 
$
(9.6
)
 
$
(17.8
)
See accompanying notes to consolidated financial statements.


38

BEMIS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions, except per share amounts) 


As of December 31,
 
2018
 
2017
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
76.1

 
$
71.1

Trade receivables
 
443.3

 
448.7

Inventories
 
619.5

 
620.2

Prepaid expenses and other current assets
 
95.7

 
97.1

Total current assets
 
1,234.6

 
1,237.1

 
 
 
 
 
Property and equipment:
 
 

 
 

Land and land improvements
 
54.1

 
57.3

Buildings and leasehold improvements
 
652.8

 
644.5

Machinery and equipment
 
2,036.5

 
2,073.5

Total property and equipment
 
2,743.4

 
2,775.3

Less accumulated depreciation
 
(1,493.1
)
 
(1,457.2
)
Net property and equipment
 
1,250.3

 
1,318.1

 
 
 
 
 
Other long-term assets:
 
 

 
 

Goodwill
 
845.2

 
852.7

Other intangible assets, net
 
121.4

 
142.3

Deferred charges and other assets
 
119.5

 
149.7

Total other long-term assets
 
1,086.1

 
1,144.7

TOTAL ASSETS
 
$
3,571.0

 
$
3,699.9

 
 
 
 
 
LIABILITIES
 
 

 
 

Current liabilities:
 
 

 
 

Current portion of long-term debt
 
$
1.8

 
$
5.0

Short-term borrowings
 
10.2

 
16.0

Accounts payable
 
515.9

 
477.2

Employee-related liabilities
 
94.3

 
73.1

Accrued income and other taxes
 
33.3

 
30.5

Other current liabilities
 
46.1

 
64.3

Total current liabilities
 
701.6

 
666.1

 
 
 
 
 
Long-term debt, less current portion
 
1,348.6

 
1,542.4

Deferred taxes
 
166.7

 
153.5

Other liabilities and deferred credits
 
138.2

 
136.7

Total liabilities
 
2,355.1

 
2,498.7

 
 
 
 
 
Commitments and contingencies (See Note 18)
 


 


 
 
 
 
 
EQUITY
 
 

 
 

Bemis Company, Inc. shareholders’ equity:
 
 

 
 

Common stock, $0.10 par value:
 
 

 
 

Authorized — 500.0 shares
 
 

 
 

Issued — 129.3 and 129.1 shares, respectively
 
12.9

 
12.9

Capital in excess of par value
 
604.2

 
590.4

Retained earnings
 
2,456.7

 
2,324.8

Accumulated other comprehensive loss
 
(525.5
)
 
(394.5
)
Common stock held in treasury (38.3 shares at cost)