Bemis Company 2007 Annual Report - IR Solutions

In early 2008, the FASB issued Staff Position (FSP) FAS157-2, which delays by one year, the effective date of FAS No. 157 for all nonfinancial
assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on at
least an annual basis. We do not expect the adoption of FAS No. 157 in 2008 to have a material effect on the measurement of the
Company’s financial assets and liabilities. We are continuing to evaluate the impact the standard will have on the determination of fair
value related to non-financial assets and non-financial liabilities in years after 2008.
Note 3 – GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill attributable to each reportable business segment follow:
Flexible Packaging Pressure Sensitive
(in thousands) Segment Materials Segment Total
Reported balance at December 31, 2005 $530,711 $50,708 $581,419
Business acquisitions and purchase price adjustments 6,497 2,168 8,665
Currency translation adjustment 13,540 67 13,607
Reported balance at December 31, 2006 550,748 52,943 603,691
Currency translation adjustment 38,841 (25) 38,816
Reported balance at December 31, 2007 $589,589 $52,918 $642,507
The components of amortized intangible assets follow:
(in thousands) December 31, 2007 December 31, 2006
Gross Carrying Accumulated Gross Carrying Accumulated
Intangible Assets Amount Amortization Amount Amortization
Contract based $ 15,447 $ (9,168) $15,447 $ (8,055)
Technology based 52,673 (19,383) 52,609 (16,548)
Marketing related 25,230 (8,125) 21,405 (5,441)
Customer based 69,444 (22,362) 55,933 (13,227)
Reported balance $162,794 $(59,038) $145,394 $(43,271)
Amortization expense for intangible assets during 2007, 2006, and 2005 was $9.6 million, $9.2 million, and $8.9 million,
respectively. Estimated annual amortization expense is $9.0 million for 2008 through 2010, $8.7 million for 2011, and $7.8 million for
2012. The Company completed its annual impairment tests in the fourth quarter of 2007 with no indications of impairment of goodwill
found.
Note 4 – BUSINESS ACQUISITIONS
On January 5, 2005, the Company acquired majority ownership of Dixie Toga S.A., headquartered in São Paulo, Brazil. Dixie
Toga recorded annual net sales in excess of $300 million in 2004. In this transaction, the Company acquired substantially all of the
outstanding voting common stock and 43 percent of the outstanding non-voting preferred stock of Dixie Toga for a total cash price of
approximately $250 million, which was initially financed with commercial paper. During 2005 and 2006, Dixie Toga repurchased
additional publicly traded preferred shares on the Bovespa Stock Exchange in São Paulo, Brazil, thereby effectively increasing Bemis’
preferred share ownership to 54 percent at December 31, 2006. The remaining non-voting preferred shares not acquired are traded
publicly on the Brazilian Bovespa Exchange. Dixie Toga is a leading packaging company in South America, specializing in flexible
packaging, thermoformed and injection molded containers, laminated plastic tubes, printed labels, and printed folding cartons. Dixie
Toga employs nearly 4,000 people in South America and operates nine manufacturing plants in Brazil and one in Argentina.
The net cash purchase price of $235.3 million, paid in 2005, has been accounted for under the purchase method of accounting
reflecting the provisions of FAS Nos. 141 and 142 and includes the allocations as follows: $249.2 million to tangible assets, $40.1
million to intangible assets, $164.4 million to liabilities assumed, and $110.4 million to tax deductible goodwill. A contingent contractual
post-closing adjustment increased the purchase price and related goodwill by $4.2 million in 2006. Intangible assets acquired have a
weighted-average useful life of approximately 18 years and include $0.3 million for contract-based intangibles with a useful life of 1 year,
$9.3 million for marketing related intangibles with a useful life of 30 years, and $30.5 million for customer-based intangibles with a
useful life of 15 years. Results of operations from the date of acquisition are included in these financial statements.
The Company and Dixie Toga had operated a flexible packaging joint venture in Brazil since 1998. Prior to the acquisition the
Company owned 45 percent of the joint venture and accounted for it on an equity basis for the year 2004 and earlier (see description
below regarding the 2004 acquisition of an additional interest in Itap Bemis Ltda.). The pre-existing values for property, intangible
assets, and goodwill imbedded in the Company’s equity investment at the date of the Dixie Toga acquisition were $1.7 million, $3.6
million, and $11.4 million, respectively. These amounts were subsequently included as components of the Company’s consolidated
property, intangible assets, and goodwill.
On February 17, 2005, the Company acquired certain assets of Rayton Packaging Inc., Calgary, Alberta, Canada for a cash
purchase price of $2.7 million. The net cash purchase price has been accounted for under the purchase method of accounting reflecting
the provisions of FAS Nos. 141 and 142 and includes the preliminary allocations as follows: $1.2 million to tangible assets, $0.8 million
to intangible assets, and $0.7 million to goodwill. Intangible assets acquired include $0.4 million for customer-based intangibles and $0.4
million for technology-based intangibles each with a useful life of 10 years.
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