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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X]                                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010

 

OR

 

[ ]                                     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM        TO          

 

COMMISSION FILE NUMBER 1-11846

 

Aptargroup, Inc.

 

 

475 WEST TERRA COTTA AVENUE, SUITE E, CRYSTAL LAKE, ILLINOIS 60014

 

815-477-0424

 

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 þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

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Aptargroup, Inc.

 

Form 10-Q

 

 

Three Months Ended March 31, 2010

 

INDEX

 

Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Statements of Income - Three Months Ended March 31, 2010 and 2009	1
	Condensed Consolidated Balance Sheets — March 31, 2010 and December 31, 2009	2
	Condensed Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2010 and 2009	4
	Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2010 and 2009	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	19
Part II.	OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 6.	Exhibits	20
	Signature	21

 

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PART I — FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

 

Aptargroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

Three Months Ended March 31,		2010			2009
Net Sales		$	505,469		$	431,816
Operating Expenses:
Cost of sales (exclusive of depreciation shown below)		331,156			289,721
Selling, research & development and administrative		78,696			71,438
Depreciation and amortization		33,991			30,101
		443,843			391,260
Operating Income		61,626			40,556
Other Income (Expense):
Interest expense		(3,472		)	(3,447		)
Interest income		766			1,275
Miscellaneous, net		(1,002		)	(119		)
		(3,708		)	(2,291		)
Income before Income Taxes		57,918			38,265
Provision for Income Taxes		18,823			11,671
Net Income		39,095			26,594
Net (Income)/Loss Attributable to Noncontrolling Interests		(73		)	71
Net Income Attributable to Aptargroup, Inc.		$	39,022		$	26,665
Net Income Attributable to Aptargroup, Inc. per Common Share:
Basic		$	.58		$	.39
Diluted		$	.56		$	.38
Average Number of Shares Outstanding:
Basic		67,576			67,677
Diluted		70,077			69,519
Dividends per Common Share		$	.15		$	.15

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

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Aptargroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

		March 31,			December 31,
		2010			2009
Assets
Current Assets:
Cash and equivalents		$	337,807		$	332,964
Accounts and notes receivable, less allowance for doubtful accounts of $9,565 in 2010 and $9,923 in 2009		352,394			319,787
Inventories, net		235,990			230,807
Prepayments and other		67,405			59,933
		993,596			943,491
Property, Plant and Equipment:
Buildings and improvements		313,359			322,498
Machinery and equipment		1,572,483			1,612,945
		1,885,842			1,935,443
Less: Accumulated depreciation		(1,171,925		)	(1,190,576		)
		713,917			744,867
Land		18,503			19,201
		732,420			764,068
Other Assets:
Investments in affiliates		847			898
Goodwill		224,683			230,578
Intangible assets, net		7,645			9,088
Miscellaneous		7,401			8,070
		240,576			248,634
Total Assets		$	1,966,592		$	1,956,193

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

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Aptargroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

		March 31,			December 31,
		2010			2009
Liabilities and Stockholders’ Equity
Current Liabilities:
Notes payable		$	134,735		$	103,240
Current maturities of long-term obligations		24,929			25,115
Accounts payable and accrued liabilities		292,077			288,960
		451,741			417,315
Long-Term Obligations		207,295			209,616
Deferred Liabilities and Other:
Deferred income taxes		18,681			20,992
Retirement and deferred compensation plans		41,338			40,462
Deferred and other non-current liabilities		13,581			14,172
Commitments and contingencies		—			—
		73,600			75,626
Stockholders’ Equity:
Aptargroup, Inc. stockholders’ equity
Preferred stock, $.01 par value, 1 million shares authorized, none outstanding		—			—
Common stock, $.01 par value		811			806
Capital in excess of par value		292,055			272,471
Retained earnings		1,178,936			1,150,017
Accumulated other comprehensive income		125,818			186,099
Less treasury stock at cost, 13.4 and 13.3 million shares as of March 31, 2010 and December 31, 2009, respectively		(364,528		)	(356,548		)
Total Aptargroup, Inc. Stockholders’ Equity		1,233,092			1,252,845
Noncontrolling interests in subsidiaries		864			791
Total Equity		1,233,956			1,253,636
Total Liabilities and Stockholders’ Equity		$	1,966,592		$	1,956,193

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

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Aptargroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

 

					Aptargroup, Inc. Stockholders’ Equity
								Accumulated
								Other			Common						Capital in			Non-
		Comprehensive			Retained			Comprehensive			Stock			Treasury			Excess of			Controlling			Total
		Income			Earnings			Income/(Loss)			Par Value			Stock			Par Value			Interest			Equity
Balance - December 31, 2008:					$	1,065,998		$	139,300		$	801		$	(329,285	)	$	254,216		$	768		$	1,131,798
Net income		$	26,594		26,665															(71		)	26,594
Foreign currency translation adjustments, net of tax		(56,217		)				(56,218		)										1			(56,217		)
Changes in unrecognized pension gains/losses and related amortization, net of tax		194						194															194
Net gain on Derivatives, net of tax		41						41															41
Comprehensive loss		$	(29,388	)
Stock option exercises & restricted stock vestings											1			646			8,503						9,150
Cash dividends declared on common stock					(10,143		)																(10,143		)
Treasury stock purchased														(4,820		)							(4,820		)
Balance — March 31, 2009:					$	1,082,520		$	83,317		$	802		$	(333,459	)	$	262,719		$	698		$	1,096,597
Balance — December 31, 2009:					$	1,150,017		$	186,099		$	806		$	(356,548	)	$	272,471		$	791		$	1,253,636
Net income		$	39,095		39,022															73			39,095
Foreign currency translation adjustments, net of tax		(60,513		)				(60,513		)													(60,513		)
Changes in unrecognized pension gains/losses and related amortization, net of tax		203						203															203
Changes in treasury locks, net of tax		21						21															21
Net gain on Derivatives, net of tax		8						8															8
Comprehensive loss		$	(21,186	)
Stock option exercises & restricted stock vestings											5						19,584						19,589
Cash dividends declared on common stock					(10,103		)																(10,103		)
Treasury stock purchased														(7,980		)							(7,980		)
Balance — March 31, 2010:					$	1,178,936		$	125,818		$	811		$	(364,528	)	$	292,055		$	864		$	1,233,956

 

See accompanying unaudited notes to consolidated financial statement.

 

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Aptargroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Three Months Ended March 31,		2010			2009
Cash Flows from Operating Activities:
Net income		$	39,095		$	26,594
Adjustments to reconcile net income to net cash provided by operations:
Depreciation		33,078			29,076
Amortization		913			1,026
Stock option based compensation		5,982			5,049
Provision for bad debts		78			676
Deferred income taxes		(3,372		)	(3,225		)
Retirement and deferred compensation plan expense		(2,221		)	(2,172		)
Changes in balance sheet items, excluding effects from foreign currency adjustments:
Accounts receivable		(47,365		)	18,706
Inventories		(13,145		)	14,531
Prepaid and other current assets		(6,118		)	(1,938		)
Accounts payable and accrued liabilities		25,612			(42,697		)
Income taxes payable		(4,455		)	2,408
Retirement and deferred compensation plans		948			(6,283		)
Other changes, net		1,205			7,026
Net Cash Provided by Operations		30,235			48,777
Cash Flows from Investing Activities:
Capital expenditures		(29,871		)	(31,937		)
Disposition of property and equipment		350			162
Intangible assets acquired		(30		)	(216		)
Acquisition of business net of cash acquired		(3,014		)	—
Investment in affiliates		—			—
Collection of notes receivable, net		—			47
Net Cash Used by Investing Activities		(32,565		)	(31,944		)
Cash Flows from Financing Activities:
Proceeds from notes payable		31,506			11,001
Proceeds from long-term obligations		—			3,546
Repayments of long-term obligations		(1,980		)	(364		)
Dividends paid		(10,103		)	(10,143		)
Proceeds from stock option exercises		11,401			3,487
Purchase of treasury stock		(7,980		)	(4,820		)
Excess tax benefit from exercise of stock options		1,907			493
Net Cash Provided by Financing Activities		24,751			3,200
Effect of Exchange Rate Changes on Cash		(17,578		)	(8,223		)
Net Increase in Cash and Equivalents		4,843			11,810
Cash and Equivalents at Beginning of Period		332,964			192,072
Cash and Equivalents at End of Period		$	337,807		$	203,882

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

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Aptargroup, Inc.

Notes to Condensed Consolidated Financial Statements

(Amounts in Thousands, Except per Share Amounts, or Otherwise Indicated)

(Unaudited)

 

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of Aptargroup, Inc. and its subsidiaries.  The terms “Aptargroup” or “Company” as used herein refer to Aptargroup, Inc. and its subsidiaries.  All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of consolidated financial position, results of operations, and cash flows for the interim periods presented.  The accompanying unaudited condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading.  Accordingly, these unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.  The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.

In order to be comparable to the current period presentation, the Company has revised its previously reported classification relating to a French research and development tax credit from Provision for Income Taxes to Selling, Research & Development and Administrative.  Certain previously reported amounts have been reclassified to conform to the current period presentation.

 

ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (“FASB”) issued new standards for improving disclosures about fair value measurements.  This guidance requires enhanced disclosures regarding transfers in and out of the levels within the fair value hierarchy.  Separate disclosures are required for transfers in and out of Level 1 and 2 fair value measurements, and the reasons for the transfers must be disclosed.  The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009.  As this standard is disclosure related, it does not have a material impact on our financial statements.

The Company has also adopted a new accounting standard which provides amendments to previous guidance on the consolidation of variable interest entities.  This standard clarifies the characteristics that identify a variable interest entity (“VIE”) and changes how a reporting entity identifies a primary beneficiary that would consolidate the VIE from a quantitative risk and rewards calculation to a qualitative approach based on which variable interest holder has controlling financial interest and the ability to direct the most significant activities that impact the VIE’s economic performance.  This statement requires the primary beneficiary assessment to be performed on a continuous basis.   The standard is effective for fiscal years beginning after November 15, 2009.  The adoption did not have an impact on our financial statements and disclosures.

 

INCOME TAXES

The Company computes taxes on income in accordance with the tax rules and regulations of the many taxing authorities where the income is earned.  The income tax rates imposed by these taxing authorities may vary substantially.  Taxable income may differ from pretax income for financial accounting purposes.  To the extent that these differences create differences between the tax basis of an asset or liability and its reported amount in the financial statements, an appropriate provision for deferred income taxes is made.

The Company has expressed the intention to reinvest the undistributed earnings of its non-U.S. subsidiaries.  In its determination of which foreign earnings are permanently reinvested in foreign operations, the Company considers numerous factors, including the financial requirements of the U.S. parent company and those of its foreign subsidiaries, the U.S. funding needs for dividend payments and stock repurchases, and the tax consequences of remitting earnings to the U.S.  From this analysis, current year repatriation decisions are made in an attempt to provide a proper mix of debt and shareholder capital both within the U.S. and for non-U.S. operations.  Undistributed earnings will continue to be reinvested indefinitely and could become subject to additional tax if they were remitted as dividends or lent to a U.S. affiliate, or if the Company should sell its stock in the subsidiaries.  It is not practicable to estimate the amount of additional tax that might be payable on these undistributed non-U.S. earnings.  The Company will continue to evaluate annually if it will repatriate non-U.S. subsidiary current year earnings or a portion thereof.

The Company provides a liability for the amount of tax benefits realized from uncertain tax positions.  This liability is provided whenever the Company determines that a tax benefit will not meet a more-likely-than-not threshold for recognition.  See Note 12 for more information.

 

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NOTE 2 - INVENTORIES

 

At March 31, 2010 and December 31, 2009, approximately 20% and 21%, respectively, of the total inventories are accounted for by using the LIFO method.  Inventories, by component, consisted of:

 

		March 31,			December 31,
		2010			2009
Raw materials		$	82,767		$	81,452
Work-in-process		67,438			66,431
Finished goods		89,590			86,192
Total		239,795			234,075
Less LIFO Reserve		(3,805		)	(3,268		)
Total		$	235,990		$	230,807

 

NOTE 3 —GOODWILL AND OTHER INTANGIBLE ASSETS

 

The changes in the carrying amount of goodwill since the year ended December 31, 2009 are as follows by reporting segment:

 

					Beauty &						Corporate
		Pharma			Home			Closures			and Other			Total
Goodwill		$	28,424		$	161,816		$	40,338		$	1,615		$	232,193
Accumulated impairment losses		—			—			—			(1,615		)	(1,615		)
Balance as of December 31, 2009		$	28,424		$	161,816		$	40,338		$	—		$	230,578
Foreign currency exchange effects		(1,328		)	(3,187		)	(1,380		)	—			(5,895		)
Goodwill		$	27,096		$	158,629		$	38,958		$	1,615		$	226,298
Accumulated impairment losses		—			—			—			(1,615		)	(1,615		)
Balance as of March 31, 2010		$	27,096		$	158,629		$	38,958		$	—		$	224,683

 

The table below shows a summary of intangible assets as of March 31, 2010 and December 31, 2009.

 

						March 31, 2010									December 31, 2009
		Weighted Average				Gross									Gross
		Amortization				Carrying			Accumulated			Net			Carrying			Accumulated			Net
		Period (Years)				Amount			Amortization			Value			Amount			Amortization			Value
Amortized intangible assets:
Patents		14				$	18,400		$	(15,171	)	$	3,229		$	19,368		$	(15,655	)	$	3,713
License agreements and other		6				24,100			(19,684		)	4,416			26,261			(20,886		)	5,375
Total intangible assets		9				$	42,500		$	(34,855	)	$	7,645		$	45,629		$	(36,541	)	$	9,088

 

Aggregate amortization expense for the intangible assets above for the quarters ended March 31, 2010 and 2009 was $913 and $1,026, respectively.

 

Future estimated amortization expense for the years ending December 31 is as follows:

 

2010		$	3,536
2011		1,939
2012		868
2013		709
2014		646

 

Future amortization expense may fluctuate depending on changes in foreign currency rates.  The estimates for amortization expense noted above are based upon foreign exchange rates as of March 31, 2010.

 

NOTE 4 — RETIREMENT AND DEFERRED COMPENSATION PLANS

 

Components of Net Periodic Benefit Cost:

 

		Domestic Plans						Foreign Plans
Three months ended March 31,		2010			2009			2010			2009
Service cost		$	1,147		$	1,091		$	433		$	408
Interest cost		1,007			955			612			585
Expected return on plan assets		(990		)	(932		)	(357		)	(229		)
Amortization of net loss		154			60			66			146
Amortization of prior service cost		1			1			93			89
Net periodic benefit cost		$	1,319		$	1,175		$	847		$	999

 

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EMPLOYER CONTRIBUTIONS

In order to meet or exceed minimum funding levels required by U.S. law, the Company expects to contribute approximately $7.4 million to its domestic defined benefit plans in 2010 and has not made any contributions as of March 31, 2010.  The Company also expects to contribute approximately $6.6 million to its foreign defined benefit plans in 2010 and as of March 31, 2010, has contributed approximately $0.2 million.

 

NOTE 5 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

The Company maintains a foreign exchange risk management policy designed to establish a framework to protect the value of the Company’s non-functional denominated transactions from adverse changes in exchange rates.  Sales of the Company’s products can be denominated in a currency different from the currency in which the related costs to produce the product are denominated.  Changes in exchange rates on such inter-country sales or intercompany loans impact the Company’s results of operations.  The Company’s policy is not to engage in speculative foreign currency hedging activities, but to minimize its net foreign currency transaction exposure defined as firm commitments and transactions recorded and denominated in currencies other than the functional currency.  The Company may use foreign currency forward exchange contracts, options and cross currency swaps to economically hedge these risks.

The Company maintains an interest rate risk management strategy to minimize significant, unanticipated earnings fluctuations that may arise from volatility in interest rates.

For derivative instruments designated as hedges, the Company formally documents the nature and relationships between the hedging instruments and the hedged items, as well as the risk management objectives, strategies for undertaking the various hedge transactions, and the method of assessing hedge effectiveness.  Additionally, in order to designate any derivative instrument as a hedge of an anticipated transaction, the significant characteristics and expected terms of any anticipated transaction must be specifically identified, and it must be probable that the anticipated transaction will occur.

 

FAIR VALUE HEDGES

The Company has an interest rate swap to convert a portion of its fixed-rate debt into variable-rate debt.  Under the interest rate swap contract, the Company exchanges, at specified intervals, the difference between fixed-rate and floating-rate amounts, which are calculated based on an agreed upon notional amount.

As of March 31, 2010, the Company has recorded the fair value of derivative instruments of $602 thousand in miscellaneous other assets with a corresponding increase to debt related to a fixed-to-variable interest rate swap agreement with a notional principal value of $10 million.  No gain or loss was recorded in the income statement in 2009 or the first quarter of 2010 as any hedge ineffectiveness for the periods was immaterial.

 

CASH FLOW HEDGES

As of March 31, 2010, the Company had one foreign currency cash flow hedge.  A French entity of Aptargroup, Aptargroup Holding SAS, has hedged the risk of variability in Euro equivalent associated with the cash flows of an intercompany loan granted in Brazilian Real.  The forward contracts utilized were designated as a hedge of the changes in the cash flows relating to the changes in foreign currency rates relating to the loan and related forecasted interest.  The notional amount of the foreign currency forward contracts utilized to hedge cash flow exposure was 2.7 million Brazilian Real ($1.5 million) as of March 31, 2010.

During the three months ended March 31, 2010, the Company did not recognize any net gain (loss) as any hedge ineffectiveness for the period was immaterial, and the Company did not recognize any net gain (loss) related to the portion of the hedging instrument excluded from the assessment of hedge effectiveness.  The Company’s foreign currency forward contracts hedge forecasted transactions for approximately two years (March 2012).

 

HEDGE OF NET INVESTMENTS IN FOREIGN OPERATIONS

A significant number of the Company’s operations are located outside of the United States.  Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of the Company’s foreign entities.  A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on the Company’s financial condition and results of operations.  Conversely, a weakening U.S. dollar has an additive effect.  The Company in some cases maintains debt in these subsidiaries to offset the net asset exposure.  The Company does not otherwise use derivative financial instruments to manage this risk.  In the event the Company plans on a full or partial liquidation of any of its foreign subsidiaries where the Company’s net investment is likely to be monetized, the Company will consider hedging the currency exposure associated with such a transaction.

 

OTHER

As of March 31, 2010, the Company has recorded the fair value of foreign currency forward exchange contracts of $1.1 million in prepayments and other, $1.1 million in accounts payable and accrued liabilities, and $2.2 million in deferred and other non-current liabilities in the balance sheet.  All forward exchange contracts outstanding as of March 31, 2010 had an aggregate contract amount of $84.6 million.

 

Fair Value of Derivative Instruments in the Statements of Financial Position as of March 31, 2010 and December 31, 2009

 

Derivative Contracts Designated as Hedging Instruments		Balance Sheet Location		March 31, 2010			December 31, 2009
Derivative Assets
Interest Rate Contracts		Other Assets Miscellaneous		$	602		$	574
				602			574
Derivative Liabilities
Foreign Exchange Contracts		Accounts Payable and Accrued Liabilities		269			293
Foreign Exchange Contracts		Deferred and other non-current liabilities		215			437
				484			730
Derivative Contracts Not Designated as Hedging Instruments
Derivatve Assets
Foreign Exchange Contracts		Prepayments & Other		1,075			902
				1,075			902
Derivative Liabilities
Foreign Exchange Contracts		Accounts Payable and Accrued Liabilities		784			885
Foreign Exchange Contracts		Deferred and other non-current liabilities		1,994			2,020
				$	2,778		$	2,905

 

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