The following is excerpted from the question-and-answer section of the transcript.
(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Harry Mateer - Barclays Capital - Analyst: -- on terming out the entire $1 billion bridge facility or do you plan to leave some with the banks that you can then focus on paying down over the near term?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Harry Mateer - Barclays Capital - Analyst: Yes, sure. I am basically wondering whether or not you are planning to term out the entire $1 billion credit facility or do you plan on leaving some of that outstanding with the banks which you will then focus on paying down in the near term?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Harry Mateer - Barclays Capital - Analyst: Okay. Then just with respect to covenants, what are the financial covenants in the bridge facility?
Answer By: Melanie Miller - Bemis Company, Inc. - VP, IR & Treasurer
Question: Ghansham Panjabi - Robert W. Baird - Analyst: Good morning.
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Ghansham Panjabi - Robert W. Baird - Analyst: Just looking at your first-quarter results on Flexible Packaging, your operating margins were up just under 300 basis points year-over-year. I guess the question is has the asset you are acquiring also realized such a positive improvement?
Answer By: Henry Theisen - Bemis Company, Inc. - President & CEO
Question: Ghansham Panjabi - Robert W. Baird - Analyst: Okay. And is there any fundamental difference in terms of resin mix or anything relative to what you already sort of use?
Answer By: Henry Theisen - Bemis Company, Inc. - President & CEO
Question: George Staphos - George Staphos - Bank of America-Merrill Lynch: Thanks. Hi, everyone. Good morning and good luck with the transaction.
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: George Staphos - George Staphos - Bank of America-Merrill Lynch: Two questions for you; one on synergy and accretion, the other one on growth. If we look at the synergies that you are projecting, are they net of any write-ups, any additional non-cash charges that you will incur as you are writing up the assets? I forget if you had mentioned that during the presentation. Then on the revenue side, what do you think this does to your growth rate from a top-line standpoint? In the past the Company has seemed to favor more co-extrusion over coded and laminated product. Obviously, Alcan has a big presence in lamination. How do you feel about that now? Thanks.
Answer By: Henry Theisen - Bemis Company, Inc. - President & CEO
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Claudia Hueston - JPMorgan - Analyst: I was hoping you could just provide the depreciation and amortization associated with the acquired business. And then if you could maybe just comment on how the capital requirements of the acquired business compare to your current capital requirements?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Al Kabili - Macquarie Research - Analyst: Good morning, guys. Just wanted to -- two questions. One on the synergies; if you could kind of help us with how much of that is S&A related and how much is manufacturing related and costs? I want to make sure I understand. On the cost side of it the figures you gave us on the $30 million and the $65 million those are net of the costs that it's going to take to deliver the synergies?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Al Kabili - Macquarie Research - Analyst: Okay. Then on the cash flow side, just following up on a previous question, any sense for what the sustainable CapEx will be for the combined enterprise and then how do we think about the annual -- I know it's $100 million I guess NPV -- but on an annual basis sort of the tax benefits associated with this?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Answer By: Melanie Miller - Bemis Company, Inc. - VP, IR & Treasurer
Question: Christopher Chun - Deutsche Bank - Analyst: Just following up on the last question, just to clarify, you expect your incremental CapEx needs to be a bit higher than the $60 million in annual D&A that you talked about?
Answer By: Henry Theisen - Bemis Company, Inc. - President & CEO
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Christopher Chun - Deutsche Bank - Analyst: So less than D&A in the near term, maybe similar to D&A longer term?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Tim Thein - Citigroup - Analyst: Good morning. First question is on the -- if you look back at the historical profitability of this segment there are a couple of others within the old Alcan Packaging business. Can you -- you had some tobacco and beauty segments where I think the profitability varied quite a bit. How did this segment stack up versus the historical margins for the Alcan Packaging as a whole?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Tim Thein - Citigroup - Analyst: Okay. Just separately you mentioned earlier in terms of the raw material buy, can you comment just ballpark numbers what this does to your total resin buy in terms of pound and what grade?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Answer By: Henry Theisen - Bemis Company, Inc. - President & CEO
Question: Chris Manuel - KeyBanc Capital Markets - Analyst: Goodmorning,gentlemen.Couplequestionsforyou.First,justwantedtokindofcleanthingsupfromsomepreviousquestions. The $60 million you talked about is D&A. That is the new stepped up number or that was the historical number for the Alcan component?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Chris Manuel - KeyBanc Capital Markets - Analyst: Okay. So that will then include a step up per the asset treatment?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Chris Manuel - KeyBanc Capital Markets - Analyst: Okay. What is -- do you know what the new number is roughly?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Chris Manuel - KeyBanc Capital Markets - Analyst: Okay. That is helpful. So then the second question I had was as we think about contracts and such that you are inheriting, are they very similar to yours with respect to how raw materials are passed through, how other inflationary costs and things are passed through? Can you help us contrast that a little bit, number one? And then two, think about -- your present portfolio is more heavily weighted towards meat and cheese and some other components. Which specific areas will this help bolster within the food piece?
Answer By: Henry Theisen - Bemis Company, Inc. - President & CEO
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Sara Magers - Wells Fargo - Analyst: Good morning and congratulations. I know that you had already commented on operating the facilities the same as under Alcan. I am just wondering, first, who will be running the companies? Are you going to run them separately or under one name? Then as a follow up, I am just wondering about any kind of commonality in the technology or the management system between Alcan and Bemis.
Answer By: Henry Theisen - Bemis Company, Inc. - President & CEO
Question: Peter Ruschmeier - Barclays Capital - Analyst: Thanks. Good morning and congratulations. Quick questions; I am curious if you can comment on the labor intensity, 4,600 employees that you are taking on. How does the labor intensity of these businesses compare to your own footprint? Is it similar? And then I am also struck by the geographic overlap in the US, Argentina, and Brazil. Can you comment on how you think about that overlap as synergy as an opportunity? How do you think about that going forward?
Answer By: Henry Theisen - Bemis Company, Inc. - President & CEO
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Dan Khoshaba - KSA Capital - Analyst: Good morning. Congratulations. Did you inherit a pension plan with this company? Is it fully funded, what is the status of the pension plan for the company you acquired?
Answer By: Henry Theisen - Bemis Company, Inc. - President & CEO
Question: Dan Khoshaba - KSA Capital - Analyst: Okay, great. How about the nature of the tax benefit? What is that all about? Where does it come from?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Dan Khoshaba - KSA Capital - Analyst: Okay, great. Thank you.
Question: George Staphos - George Staphos - Bank of America-Merrill Lynch: Thanks. Hey, guys. Just a couple of follow-up questions. First of all, just to be clear, you expect this to be fully -- to be accretive for all of 2010 or at a run rate at some point during 2010? Does the synergy target in total -- is it netted of the write-ups and therefore the additional depreciation and amortization that you expect from the transaction?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: George Staphos - George Staphos - Bank of America-Merrill Lynch: Okay. So your accretion estimate or your target by sometime in 2010 does account for the fact that you will have additional depreciation and amortization from the transaction --
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: George Staphos - George Staphos - Bank of America-Merrill Lynch: -- even though you don't have a precise estimate right now?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: George Staphos - George Staphos - Bank of America-Merrill Lynch: Okay. And the other question I had, it was something that Peter had touched on before. If I look at the revenue per employee here with RT Alcan relative to what you currently generate, there is actually a fairly large difference if I have done my math correctly. So what do you attribute that to?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: George Staphos - George Staphos - Bank of America-Merrill Lynch: Well, they are doing $1.5 billion of revenue with 4,000 employees I think is what you said. And I just think the total at Bemis is what, three and change with 20,000 employees?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Answer By: Melanie Miller - Bemis Company, Inc. - VP, IR & Treasurer
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: George Staphos - George Staphos - Bank of America-Merrill Lynch: All right. But it seems like they actually do a little bit better than you folks.
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Answer By: Melanie Miller - Bemis Company, Inc. - VP, IR & Treasurer
Question: George Staphos - George Staphos - Bank of America-Merrill Lynch: Okay. I will turn it over. I will come back one more time. Thanks.
Question: Al Kabili - Macquarie Research - Analyst: Hi, just on a follow-up on the synergies, if you could talk a little bit about what drives the ramp from the $30 million in year 1 to $65 million in year two?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Al Kabili - Macquarie Research - Analyst: Okay, got it. Does that assume plant close -- significant plant closures in that ramp?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Al Kabili - Macquarie Research - Analyst: Okay, got it. Then last follow-up on this is on the $65 million of cost savings full year on year two, what -- does that assume significant costs netted out to get to the $65 million so that in year three we are meaningfully above the $65 million? Or how do we think about what you are assuming in the $65 million in year two?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: Al Kabili - Macquarie Research - Analyst: Okay, thank you.
Question: George Staphos - George Staphos - Bank of America-Merrill Lynch: Thanks. Hey, guys. As we look at the transaction, obviously there are some positives here. You talk about the diversification that you get from your product lines and your end markets. Now there are obviously some nice geographic synergies. And it looks like on the numbers you are buying the business for a multiple that is lower that is lower than where you are trading at right now so there is obviously some arbitrage opportunities there. On the other hand, if I look at it the margins actually are currently lower than your margins with the Flexible Packaging. By my math and looking at your numbers it's probably dilutive to your return on capital until around 2011. If you could comment on that, I would appreciate that. So at the end of the day, Gene, why do you think this was the right use of capital, the $1.2 billion? Did you explore other opportunities, maybe a preferred share buyback or something to that effect that might have even improved return on capital to a greater degree? Again, thanks and good luck with the transaction.
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: George Staphos - George Staphos - Bank of America-Merrill Lynch: Would you agree with sort of the 2011 where you break even on return on capital [SRS]?
Answer By: Gene Wulf - Bemis Company, Inc. - SVP & CFO
Question: George Staphos - George Staphos - Bank of America-Merrill Lynch: Okay. Thanks, guys.
Answer By: Melanie Miller - Bemis Company, Inc. - VP, IR & Treasurer
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