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APTARGROUP, INC. - Quarter Report: 2013 June (Form 10-Q)

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549-1004

 

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 JUNE 30, 2013

 

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.

 

DELAWARE

 

36-3853103

(State of Incorporation)

 

(I.R.S. Employer Identification No.)

 

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 o

 

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 þ 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.

 

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

 

Class

 

Outstanding at July 30, 2013

Common Stock, $.01 par value per share

 

66,283,277 shares

 



Table of Contents

 

 

 

AptarGroup, Inc.

 

Form 10-Q

 

Quarter Ended June 30, 2013

 

INDEX

 

 

Part I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2013 and 2012

1

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income/ (Loss) – Three and Six Months Ended June 30, 2013 and 2012

2

 

 

 

 

Condensed Consolidated Balance Sheets – June 30, 2013 and December 31, 2012

3

 

 

 

 

Condensed Consolidated Statements of Changes in Equity – Six Months Ended June 30, 2013 and 2012

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2013 and 2012

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

25

 

 

 

Item 4.

Controls and Procedures

25

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

 

 

Item 6.

Exhibits

26

 

 

 

 

Signature

27

 

 

i



Table of Contents

 

PART I – FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

In thousands, except per share amounts

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

641,441

 

$

577,503

 

$

1,259,074

 

$

1,170,001

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Cost of sales (exclusive of depreciation and amortization shown below)

 

431,351

 

390,225

 

849,837

 

791,295

 

Selling, research & development and administrative

 

88,111

 

87,840

 

182,418

 

176,339

 

Depreciation and amortization

 

38,614

 

32,597

 

74,785

 

65,151

 

Restructuring initiatives

 

2,511

 

(215

)

6,578

 

(215

)

 

 

560,587

 

510,447

 

1,113,618

 

1,032,570

 

Operating Income

 

80,854

 

67,056

 

145,456

 

137,431

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

Interest expense

 

(5,442

)

(3,904

)

(10,523

)

(9,146

)

Interest income

 

846

 

794

 

1,695

 

1,822

 

Equity in results of affiliates

 

(61

)

(158

)

(323

)

(289

)

Miscellaneous, net

 

73

 

(1,247

)

(633

)

(1,000

)

 

 

(4,584

)

(4,515

)

(9,784

)

(8,613

)

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

76,270

 

62,541

 

135,672

 

128,818

 

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes

 

26,390

 

20,889

 

45,814

 

43,353

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

49,880

 

$

41,652

 

$

89,858

 

$

85,465

 

 

 

 

 

 

 

 

 

 

 

Net (Gain) Loss Attributable to Noncontrolling Interests

 

$

(78

)

$

34

 

$

(27

)

$

30

 

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to AptarGroup, Inc.

 

$

49,802

 

$

41,686

 

$

89,831

 

$

85,495

 

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to AptarGroup, Inc. per Common Share:

 

 

 

 

 

 

Basic

 

$

0.75

 

$

0.63

 

$

1.36

 

$

1.29

 

Diluted

 

$

0.73

 

$

0.61

 

$

1.31

 

$

1.24

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

66,420

 

66,580

 

66,288

 

66,388

 

Diluted

 

68,106

 

68,758

 

68,339

 

68,940

 

 

 

 

 

 

 

 

 

 

 

Dividends per Common Share

 

$

0.25

 

$

0.22

 

$

0.50

 

$

0.44

 

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

1



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/ (LOSS)

(Unaudited)

 

In thousands, except per share amounts

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

49,880

 

$

41,652

 

$

89,858

 

$

85,465

 

Other Comprehensive Income/ (Loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

6,551

 

(70,504

)

(29,062

)

(28,822

)

Changes in treasury locks, net of tax

 

15

 

165

 

30

 

180

 

Net (loss) on derivatives, net of tax

 

--

 

--

 

--

 

(7

)

Defined benefit pension plan, net of tax

 

 

 

 

 

 

 

 

 

Amortization of prior service cost included in net income, net of tax

 

61

 

60

 

122

 

121

 

Amortization of net loss included in net income, net of tax

 

954

 

684

 

2,072

 

1,371

 

Total defined benefit pension plan, net of tax

 

1,015

 

744

 

2,194

 

1,492

 

Total other comprehensive income/ (loss)

 

7,581

 

(69,595

)

(26,838

)

(27,157

)

 

 

 

 

 

 

 

 

 

 

Comprehensive (Loss)/Income

 

57,461

 

(27,943

)

63,020

 

58,308

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (Income)/ Loss Attributable to Noncontrolling Interests

 

(82

)

38

 

(32

)

35

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income/ (Loss) Attributable to AptarGroup, Inc.

 

$

57,379

 

$

(27,905

)

$

62,988

 

$

58,343

 

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

2



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

In thousands, except per share amounts

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and equivalents

 

$

189,990

 

$

229,755

 

Accounts and notes receivable, less allowance for doubtful accounts of $4,623 in 2013 and $6,751 in 2012

 

455,935

 

396,788

 

Inventories

 

337,625

 

321,885

 

Prepaid and other

 

101,070

 

90,505

 

 

 

1,084,620

 

1,038,933

 

 

 

 

 

 

 

Property, Plant and Equipment:

 

 

 

 

 

Buildings and improvements

 

366,618

 

364,704

 

Machinery and equipment

 

1,873,898

 

1,857,347

 

 

 

2,240,516

 

2,222,051

 

Less: Accumulated depreciation

 

(1,427,059

)

(1,397,575

)

 

 

813,457

 

824,476

 

Land

 

23,251

 

23,757

 

 

 

836,708

 

848,233

 

 

 

 

 

 

 

Other Assets:

 

 

 

 

 

Investments in affiliates

 

3,361

 

3,693

 

Goodwill

 

346,730

 

351,552

 

Intangible assets, net

 

49,244

 

51,960

 

Miscellaneous

 

18,718

 

30,041

 

 

 

418,053

 

437,246

 

Total Assets

 

$

2,339,381

 

$

2,324,412

 

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

3



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

In thousands, except per share amounts

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Notes payable

 

$

7,928

 

$

45,166

 

Current maturities of long-term obligations

 

27,349

 

29,488

 

Accounts payable and accrued liabilities

 

404,001

 

380,669

 

 

 

439,278

 

455,323

 

 

 

 

 

 

 

Long-Term Obligations

 

352,636

 

352,860

 

 

 

 

 

 

 

Deferred Liabilities and Other:

 

 

 

 

 

Deferred income taxes

 

29,097

 

33,451

 

Retirement and deferred compensation plans

 

100,926

 

95,872

 

Deferred and other non-current liabilities

 

6,782

 

6,408

 

Commitments and contingencies

 

--

 

--

 

 

 

136,805

 

135,731

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

AptarGroup, Inc. stockholders’ equity

 

 

 

 

 

Preferred stock, $.01 par value, 1 million shares authorized, none outstanding

 

--

 

--

 

Common stock, $.01 par value, 199 million shares authorized; 85.0 and 84.1 million shares issued as of June 30, 2013 and December 31, 2012, respectively

 

850

 

840

 

Capital in excess of par value

 

475,034

 

430,210

 

Retained earnings

 

1,570,286

 

1,513,558

 

Accumulated other comprehensive income

 

33,840

 

60,683

 

Less treasury stock at cost, 18.8 and 18.2 million shares as of June 30, 2013 and December 31, 2012, respectively

 

(669,988

)

(625,401

)

Total AptarGroup, Inc. Stockholders’ Equity

 

1,410,022

 

1,379,890

 

Noncontrolling interests in subsidiaries

 

640

 

608

 

 

 

 

 

 

 

Total Stockholders’ Equity

 

1,410,662

 

1,380,498

 

Total Liabilities and Stockholders’ Equity

 

$

2,339,381

 

$

2,324,412

 

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

4



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

In thousands, except per share amounts

 

 

 

AptarGroup, Inc. Stockholders’ Equity

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Common

 

 

 

Capital in

 

Non-

 

 

 

 

 

Retained

 

Comprehensive

 

Stock

 

Treasury

 

Excess of

 

Controlling

 

Total

 

 

 

Earnings

 

Income/(Loss)

 

Par Value

 

Stock

 

Par Value

 

Interest

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2011:

 

$

1,409,388

 

$

60,318

 

$

827

 

$

(545,612

)

$

364,855

 

$

796

 

$

1,290,572

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

85,495

 

 

 

 

 

 

 

 

 

(30

)

85,465

 

Foreign currency translation adjustments

 

 

 

(28,817

)

 

 

 

 

 

 

(5

)

(28,822

)

Changes in unrecognized pension gains/losses and related amortization, net of tax

 

 

 

1,492

 

 

 

 

 

 

 

 

 

1,492

 

Changes in treasury locks, net of tax

 

 

 

180

 

 

 

 

 

 

 

 

 

180

 

Net loss on derivatives, net of tax

 

 

 

(7

)

 

 

 

 

 

 

 

 

(7

)

Stock option exercises & restricted stock vestings

 

 

 

 

 

18

 

3

 

38,280

 

 

 

38,301

 

Cash dividends declared on common stock

 

(29,175

)

 

 

 

 

 

 

 

 

 

 

(29,175

)

Treasury stock purchased

 

 

 

 

 

 

 

(10,096

)

 

 

 

 

(10,096

)

Balance – June 30, 2012:

 

$

1,465,708

 

$

33,166

 

$

845

 

$

(555,705

)

$

403,135

 

$

761

 

$

1,347,910

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2012:

 

$

1,513,558

 

$

60,683

 

$

840

 

$

(625,401

)

$

430,210

 

$

608

 

$

1,380,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

89,831

 

 

 

 

 

 

 

 

 

27

 

89,858

 

Foreign currency translation adjustments

 

 

 

(29,067

)

 

 

 

 

 

 

5

 

(29,062

)

Changes in unrecognized pension gains/losses and related amortization, net of tax

 

 

 

2,194

 

 

 

 

 

 

 

 

 

2,194

 

Changes in treasury locks, net of tax

 

 

 

30

 

 

 

 

 

 

 

 

 

30

 

Net loss on derivatives, net of tax

 

 

 

--

 

 

 

 

 

 

 

 

 

--

 

Stock option exercises & restricted stock vestings

 

 

 

 

 

10

 

1

 

44,824

 

 

 

44,835

 

Cash dividends declared on common stock

 

(33,103

)

 

 

 

 

 

 

 

 

 

 

(33,103

)

Treasury stock purchased

 

 

 

 

 

 

 

(44,588

)

 

 

 

 

(44,588

)

Balance – June 30, 2013:

 

$

1,570,286

 

$

33,840

 

$

850

 

$

(669,988

)

$

475,034

 

$

640

 

$

1,410,662

 

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

5



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

In thousands, brackets denote cash outflows

 

Six Months Ended June 30,

 

2013

 

2012

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

 

$

89,858

 

$

85,465

 

Adjustments to reconcile net income to net cash provided by operations:

 

 

 

 

 

Depreciation

 

72,303

 

64,485

 

Amortization

 

2,482

 

666

 

Stock option based compensation

 

9,324

 

8,689

 

Recovery of doubtful accounts

 

(723

)

(605

)

Deferred income taxes

 

(6,756

)

(478

)

Defined benefit plan expense

 

9,668

 

7,154

 

Equity in results of affiliates in excess of cash distributions received

 

323

 

289

 

Changes in balance sheet items, excluding effects from foreign currency adjustments:

 

 

 

 

 

Accounts receivable

 

(67,815

)

(40,455

)

Inventories

 

(22,591

)

(20,793

)

Prepaid and other current assets

 

(9,670

)

5,163

 

Accounts payable and accrued liabilities

 

19,745

 

10,447

 

Income taxes payable

 

9,258

 

796

 

Retirement and deferred compensation plans

 

(7,752

)

(20,978

)

Other changes, net

 

11,954

 

(15,680

)

Net Cash Provided by Operations

 

109,608

 

84,165

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Capital expenditures

 

(71,741

)

(95,351

)

Disposition of property and equipment

 

2,946

 

1,229

 

Investment in unconsolidated affiliate

 

(13

)

(279

)

Notes receivable, net

 

(159

)

95

 

Net Cash Used by Investing Activities

 

(68,967

)

(94,306

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Repayments of notes payable

 

(37,407

)

(53,792

)

Proceeds from long-term obligations

 

--

 

539

 

Repayments of long-term obligations

 

(1,537

)

--

 

Dividends paid

 

(33,103

)

(29,175

)

Credit facility costs

 

(498

)

(1,121

)

Proceeds from stock option exercises

 

31,100

 

25,003

 

Purchase of treasury stock

 

(44,588

)

(10,096

)

Excess tax benefit from exercise of stock options

 

3,912

 

4,380

 

Net Cash Used by Financing Activities

 

(82,121

)

(64,262

)

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash

 

1,715

 

(2,340

)

 

 

 

 

 

 

Net Decrease in Cash and Equivalents

 

(39,765

)

(76,743

)

Cash and Equivalents at Beginning of Period

 

229,755

 

377,616

 

Cash and Equivalents at End of Period

 

$

189,990

 

$

300,873

 

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

6



Table of Contents

 

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.  Certain previously reported amounts have been reclassified to conform to the current period presentation.

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, comprehensive income, changes in equity 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 (“SEC”).  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.  Also, certain financial position data included herein was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 but does not include all disclosures required by accounting principles generally accepted in the United States of America.  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, 2012.  The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.

 

ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates to the FASB’s Accounting Standards Codification.

In February 2013, The FASB issued authoritative guidance that amends the presentation of accumulated other comprehensive income and clarifies how to report the effect of significant reclassifications out of accumulated other comprehensive income. The guidance requires footnote disclosures regarding the changes in accumulated other comprehensive income by component and the line items affected in the statements of earnings. The adoption of this standard had no impact on the Condensed Consolidated Financial Statements other than disclosure. Additional information can be found in Note 5 of the Notes to the Condensed Consolidated Financial Statements.

In January 2013, The FASB issued authoritative guidance requiring new asset and liability offsetting disclosures for derivatives, repurchase agreements and security lending transactions to the extent that they are offset in the financial statements or are subject to an enforceable master netting arrangement or similar agreement. We do not have any repurchase agreements and do not participate in securities lending transactions. Our derivative instruments are not offset in the financial statements. Accordingly, the adoption of this standard had no impact on the Condensed Consolidated Financial Statements other than disclosure.  Additional information can be found in Note 6 of the Notes to the Condensed Consolidated Financial Statements.

 

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.

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.  The Company’s policy is to permanently reinvest its accumulated foreign earnings and only will make a distribution out of current year earnings to meet the cash needs at the parent company.  As such, the Company does not provide taxes on earnings that are deemed to be permanently reinvested.  The effective tax rate for 2013 includes the tax cost of repatriating $77 million of current year earnings, all of which was repatriated in the first half of 2013.

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 13 of the Notes to the Condensed Consolidated Financial Statements for more information.

 

NOTE 2 - INVENTORIES

 

At June 30, 2013 and December 31, 2012, approximately 18% and 19%, respectively, of the total inventories are accounted for by using the LIFO method.  Inventories, by component, consisted of:

 

 

7



Table of Contents

 

 

 

June 30,

 

December 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Raw materials

 

$

119,754

 

$

125,889

 

Work in process

 

94,506

 

75,261

 

Finished goods

 

130,844

 

127,393

 

Total

 

345,104

 

328,543

 

Less LIFO Reserve

 

(7,479

)

(6,658

)

Total

 

$

337,625

 

$

321,885

 

 

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

 

The changes in the carrying amount of goodwill since the year ended December 31, 2012 are as follows by reporting segment:

 

 

 

 

Beauty +

 

 

 

Food +

 

Corporate

 

 

 

 

 

Home

 

Pharma

 

Beverage

 

& Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

179,890

 

$

153,978

 

$

17,684

 

$

1,615

 

$

353,167

 

Accumulated impairment losses

 

--

 

--

 

--

 

(1,615

)

(1,615

)

Balance as of December 31, 2012

 

$

179,890

 

$

153,978

 

$

17,684

 

$

--

 

$

351,552

 

Acquisition

 

--

 

--

 

--

 

--

 

--

 

Foreign currency exchange effects

 

(2,389

)

(2,316

)

(117

)

--

 

(4,822

)

Goodwill

 

$

177,502

 

$

151,661

 

$

17,567

 

$

1,615

 

$

348,345

 

Accumulated impairment losses

 

--

 

--

 

--

 

(1,615

)

(1,615

)

Balance as of June 30, 2013

 

$

177,502

 

$

151,661

 

$

17,567

 

$

--

 

$

346,730

 

 

The table below shows a summary of intangible assets as of June 30, 2013 and December 31, 2012.

 

 

 

 

 

 

June 30, 2013

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

Amortization

 

Carrying

 

Accumulated

 

Net

 

Carrying

 

Accumulated

 

Net

 

Period (Years)

 

Amount

 

Amortization

 

Value

 

Amount

 

Amortization

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patents

 

7

 

$

19,314

 

$

(18,762

)

$

552

 

$

19,570

 

$

(18,894

)

$

676

 

Acquired technology

 

15

 

38,399

 

(2,560

)

35,839

 

38,928

 

(1,298

)

37,630

 

License agreements and other

 

5

 

35,189

 

(22,336

)

12,853

 

35,780

 

(22,126

)

13,654

 

Total intangible assets

 

10

 

$

92,902

 

$

(43,658

)

$

49,244

 

$

94,278

 

$

(42,318

)

$

51,960

 

 

Aggregate amortization expense for the intangible assets above for the quarters ended June 30, 2013 and 2012 was $1,245 and $317, respectively.  Aggregate amortization expense for the intangible assets above for the six months ended June 30, 2013 and 2012 was $2,482 and $666, respectively.

 

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

 

2013

 

$

 

2,459

             (remaining estimated amortization for 2013)

 

2014

 

4,901

 

 

2015

 

4,728

 

 

2016

 

4,096

 

 

2017

 

3,409

 

 

2018 and thereafter

 

29,651

 

 

 

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 June 30, 2013.

 

8



Table of Contents

 

NOTE 4 – RETIREMENT AND DEFERRED COMPENSATION PLANS

 

Components of Net Periodic Benefit Cost:

 

 

 

 

Domestic Plans

 

Foreign Plans

 

Three months ended June 30,

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

2,045

 

$

1,808

 

$

959

 

$

509

 

Interest cost

 

1,246

 

1,231

 

658

 

630

 

Expected return on plan assets

 

(1,474

)

(1,404

)

(447

)

(379

)

Amortization of net loss

 

1,117

 

965

 

348

 

118

 

Amortization of prior service cost

 

1

 

1

 

92

 

90

 

Net periodic benefit cost

 

$

2,935

 

$

2,601

 

$

1,610

 

$

968

 

 

 

 

Domestic Plans

 

Foreign Plans

 

Six months ended June 30,

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

4,270

 

$

3,612

 

$

1,928

 

$

1,028

 

Interest cost

 

2,496

 

2,459

 

1,323

 

1,275

 

Expected return on plan assets

 

(2,888

)

(2,805

)

(899

)

(767

)

Amortization of net loss

 

2,551

 

1,929

 

700

 

239

 

Amortization of prior service cost

 

2

 

2

 

185

 

182

 

Net periodic benefit cost

 

$

6,431

 

$

5,197

 

$

3,237

 

$

1,957

 

 

EMPLOYER CONTRIBUTIONS

In order to meet or exceed minimum funding levels required by U.S. law, the Company expects to contribute $10 million in the second half of 2013 and did not make any contribution during the first half of 2013.  The Company also expects to contribute approximately $4.3 million to its foreign defined benefit plans in 2013 and has contributed approximately $1.2 million during the first half of 2013.

 

 

NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

 

Changes in Accumulated Other Comprehensive Income by Component:

 

 

 

Foreign
Currency

 

Defined Benefit
Pension Plans

 

Other

 

Total

 

Balance – December 31, 2011

 

$

100,593

 

$

(39,907

)

$

(368

)

$

60,318

 

Other comprehensive loss before reclassifications

 

(28,817

)

--

 

--

 

(28,817

)

Amounts reclassified from accumulated other comprehensive income

 

--

 

1,492

 

173

 

1,665

 

Net current-period other comprehensive (loss)/income

 

(28,817

)

1,492

 

173

 

(27,152

)

Balance - June 30, 2012

 

$

71,776

 

$

(38,415

)

$

(195

)

$

33,166

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2012

 

$

120,097

 

$

(59,248

)

$

(166

)

$

60,683

 

Other comprehensive loss before reclassifications

 

(29,067

)

--

 

--

 

(29,067

)

Amounts reclassified from accumulated other comprehensive income

 

--

 

2,194

 

30

 

2,224

 

Net current-period other comprehensive (loss)/income

 

(29,067

)

2,194

 

30

 

(26,843

)

Balance - June 30, 2013

 

$

91,030

 

$

(57,054

)

$

(136

)

$

33,840

 

 

Reclassifications Out of Accumulated Other Comprehensive Income:

 

Details about Accumulated Other

 

Amount Reclassified from Accumulated

 

Affected Line in the Statement

 

Comprehensive Income Components

 

Other Comprehensive Income

 

Where Net Income is Presented

 

Three months ended June 30,

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Defined Benefit Pension Plans

 

 

 

 

 

 

 

Amortization of net loss

 

$

1,465

 

$

1,083

 

(a)

 

Amortization of prior service cost

 

93

 

91

 

(a)

 

 

 

1,558

 

1,174

 

Total before tax

 

 

 

(543

)

(430

)

Tax benefit

 

 

 

$

1,015

 

$

744

 

Net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Changes in treasury locks

 

23

 

22

 

Interest Expense

 

Net loss on derivatives

 

--

 

--

 

 

 

 

 

23

 

22

 

Total before tax

 

 

 

(8

)

143

 

Tax benefit

 

 

 

$

15

 

$

165

 

Net of tax

 

 

 

 

 

 

 

 

 

 

 

Total reclassifications for the period

 

$

1,030

 

$

909

 

 

 

 

(a)

These accumulated other comprehensive income components are included in the computation of net periodic benefit costs, net of tax (see Note 4 – Retirement and Deferred Compensation Plans for additional details).

 

9



Table of Contents

 

Details about Accumulated Other

 

Amount Reclassified from Accumulated

 

Affected Line in the Statement

 

Comprehensive Income Components

 

Other Comprehensive Income

 

Where Net Income is Presented

 

Six months ended June 30,

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Defined Benefit Pension Plans

 

 

 

 

 

 

 

Amortization of net loss

 

$

3,251

 

$

2,168

 

(b)

 

Amortization of prior service cost

 

187

 

184

 

(b)

 

 

 

3,438

 

2,352

 

Total before tax

 

 

 

(1,244

)

(860

)

Tax benefit

 

 

 

$

2,194

 

$

1,492

 

Net of tax

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Changes in treasury locks

 

46

 

45

 

Interest Expense

 

Net loss on derivatives

 

--

 

(10

)

Interest Income

 

 

 

46

 

35

 

Total before tax

 

 

 

(16

)

138

 

Tax benefit

 

 

 

$

30

 

$

173

 

Net of tax

 

 

 

 

 

 

 

 

 

Total reclassifications for the period

 

$

2,224

 

$

1,665

 

 

 

 

(b)

These accumulated other comprehensive income components are included in the computation of net periodic benefit costs, net of tax (see Note 4 – Retirement and Deferred Compensation Plans for additional details).

 

 

NOTE 6 – 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 can 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.

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.

 

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 actively manage this risk using derivative financial instruments.  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 June 30, 2013, the Company has recorded the fair value of foreign currency forward exchange contracts of $2.1 million in prepaid and other, $0.4 million in miscellaneous other assets, $1.9 million in accounts payable and accrued liabilities, and $0.3 million in deferred and other non-current liabilities in the balance sheet.  All forward exchange contracts outstanding as of June 30, 2013 had an aggregate contract amount of $119.7 million.

 

 

10



Table of Contents

 

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of June 30, 2013

and December 31, 2012

 

Derivative Contracts Not Designated
as Hedging Instruments

 

Balance Sheet
Location

 

June 30,
2013

 

December
31, 2012

 

 

 

 

 

 

 

 

 

Derivative Assets

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Prepaid and other

 

$

2,112

 

$

332

 

Foreign Exchange Contracts

 

Miscellaneous Other Assets

 

390

 

982

 

 

 

 

 

$

2,502

 

$

1,314

 

Derivative Liabilities

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Accounts payable and accrued liabilities

 

$

1,910

 

$

2,097

 

Foreign Exchange Contracts

 

Deferred and other non-current liabilities

 

279

 

164

 

 

 

 

 

$

 2,189

 

$

2,261

 

 

 

 

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Income

for the Quarters Ended June 30, 2013 and June 30, 2012

 

Derivatives Not Designated as
Hedging Instruments

 

Location of Gain or (Loss) Recognized in
Income on Derivative

 

Amount of Gain or (Loss)
Recognized in Income on
Derivative

 

 

 

 

 

2013

 

2012

 

Foreign Exchange Contracts

 

Other Income (Expense) Miscellaneous, net

 

$

2,555

 

$

(8,351

)

 

 

 

 

$

2,555

 

$

(8,351

)

 

 

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Income

for the Six Months Ended June 30, 2013 and June 30, 2012

 

Derivatives Not Designated as
Hedging Instruments

 

Location of Loss Recognized in Income on
Derivative

 

Amount of Loss
Recognized in Income on
Derivative

 

 

 

 

 

2013

 

2012

 

Foreign Exchange Contracts

 

Other Income (Expense) Miscellaneous, net

 

$

(43

)

$

(1,235

)

 

 

 

 

$

(43

)

$

(1,235

)

 

 

 

 

 

 

 

 

 

Net Amounts

 

Gross Amounts not Offset in the

 

 

 

 

 

 

 

Gross Amounts

 

Presented in

 

Statement of Financial Position

 

 

 

 

 

Gross

 

Offset in the

 

the Statement of

 

Financial

 

Cash Collateral

 

Net

 

 

 

Amount

 

Financial Position

 

Financial Position

 

Instruments

 

Received

 

Amount

 

Description

 

 

 

 

 

 

 

 

 

 

 

 

 

2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

2,502

 

--

 

$

2,502

 

--

 

--

 

$

2,502

 

Total Assets

 

$

2,502

 

--

 

$

2,502

 

--

 

--

 

$

2,502

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

2,189

 

--

 

$

2,189

 

--

 

--

 

$

2,189

 

Total Liabilities

 

$

2,189

 

--

 

$

2,189

 

--

 

--

 

$

2,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

1,314

 

--

 

$

1,314

 

--

 

--

 

$

1,314

 

Total Assets

 

$

1,314

 

--

 

$

1,314

 

--

 

--

 

$

1,314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

2,261

 

--

 

$

2,261

 

--

 

--

 

$

2,261

 

Total Liabilities

 

$

2,261

 

--

 

$

2,261

 

--

 

--

 

$

2,261

 

 

11



Table of Contents

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature including the proceeding noted below.  While management believes the resolution of these claims and lawsuits will not have a material adverse effect on the Company’s financial position or results of operations or cash flows, claims and legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur that could include amounts in excess of any accruals which management has established.  Were such unfavorable final outcomes to occur, it is possible that they could have a material adverse effect on our financial position, results of operations and cash flows.

In 2010, a competitor filed a lawsuit against certain AptarGroup, Inc. subsidiaries alleging that certain processes performed by a supplier of a specific type of diptube utilized by the AptarGroup, Inc. subsidiaries in the manufacture of a specific type of pump infringes patents owned by the counterparty.  This lawsuit sought an injunction barring the manufacture, use, sale and importation of this specific pump for use in fragrance containers.  In April 2012, the Company’s United States subsidiary was found to have infringed on patents owned by the counterparty within the United States.  The ruling does not apply to the manufacture or sales of pumps in countries outside the United States and no damages were assessed.  The Company has appealed this ruling and the appeal is pending with oral argument scheduled to take place in August 2013.

Under its Certificate of Incorporation, the Company has agreed to indemnify its officers and directors for certain events or occurrences while the officer or director is, or was serving, at its request in such capacity.  The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors and officers liability insurance policy that covers a portion of its exposure.  As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.  The Company has no liabilities recorded for these agreements as of June 30, 2013.

 

 

NOTE 8 – STOCK REPURCHASE PROGRAM

 

During the three and six months ended June 30, 2013, the Company repurchased approximately 600 thousand and 801 thousand shares for aggregate amounts of $33.8 million and $44.6 million, respectively.  The timing of and total amount expended for share repurchases depends upon market conditions.  The Company announced the existing repurchase program on July 19, 2011 and, as of June 30, 2013, the Company had remaining authorization to repurchase 1.2 million additional shares.  On July 18, 2013, the Company’s Board of Directors authorized the Company to repurchase an additional four million shares of its outstanding common stock.  There is no expiration date for these repurchase programs.

 

 

NOTE 9 – EARNINGS PER SHARE

 

AptarGroup’s authorized common stock consists of 199 million shares, having a par value of $.01 each.  Information related to the calculation of earnings per share is as follows:

 

 

 

 

 

Three months ended

 

 

 

June 30, 2013

 

June 30, 2012

 

 

 

Diluted

 

Basic

 

Diluted

 

Basic

 

 

 

 

 

 

 

 

 

 

 

Consolidated operations

 

 

 

 

 

 

 

 

 

Income available to common shareholders

 

$

49,802

 

$

49,802

 

$

41,686

 

$

41,686

 

 

 

 

 

 

 

 

 

 

 

Average equivalent shares

 

 

 

 

 

 

 

 

 

Shares of common stock

 

66,420

 

66,420

 

66,580

 

66,580

 

Effect of dilutive stock based compensation

 

 

 

 

 

 

 

 

 

Stock options

 

1,682

 

--

 

2,174

 

--

 

Restricted stock

 

4

 

--

 

4

 

--

 

Total average equivalent shares

 

68,106

 

66,420

 

68,758

 

66,580

 

Net income per share

 

$

0.73

 

$

0.75

 

$

0.61

 

$

0.63

 

 

 

 

Six months ended

 

 

 

June 30, 2013

 

June 30, 2012

 

 

 

Diluted

 

Basic

 

Diluted

 

Basic

 

 

 

 

 

 

 

 

 

 

 

Consolidated operations

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

89,831

 

$

89,831

 

$

85,495

 

$

85,495

 

 

 

 

 

 

 

 

 

 

 

Average equivalent shares

 

 

 

 

 

 

 

 

 

Shares of common stock

 

66,288

 

66,288

 

66,388

 

66,388

 

Effect of dilutive stock based compensation

 

 

 

 

 

 

 

 

 

Stock options

 

2,043

 

--

 

2,543

 

--

 

Restricted stock

 

8

 

--

 

9

 

--

 

Total average equivalent shares

 

68,339

 

66,288

 

68,940

 

66,388

 

Net income per share

 

$

1.31

 

$

1.36

 

$

1.24

 

$

1.29

 

 

12



Table of Contents

 

NOTE 10 – SEGMENT INFORMATION

 

The Company operates in the packaging components industry, which includes the development, manufacture and sale of consumer product dispensing systems.  The Company is organized into three reporting segments.  Operations that sell dispensing systems primarily to the personal care, fragrance/cosmetic and home care markets form the Beauty + Home segment.  Operations that sell dispensing systems primarily to the prescription drug and consumer health care markets form the Pharma segment.  Operations that sell dispensing systems primarily to the food and beverage markets form the Food + Beverage segment.

The accounting policies of the segments are the same as those described in Note 1, Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  Segment income is defined as earnings before net interest expense, certain corporate expenses, restructuring initiatives and related depreciation and income taxes.

 

Financial information regarding the Company’s reportable segments is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Total Revenue:

 

 

 

 

 

 

 

 

 

Beauty + Home

 

$

378,828

 

$

372,853

 

$

746,011

 

$

753,689

 

Pharma

 

182,995

 

133,033

 

351,888

 

273,234

 

Food + Beverage

 

83,570

 

75,684

 

168,903

 

151,506

 

Total Revenue

 

645,393

 

581,570

 

1,266,802

 

1,178,429

 

 

 

 

 

 

 

 

 

 

 

Less: Intersegment Sales:

 

 

 

 

 

 

 

 

 

Beauty + Home

 

$

3,844

 

$

3,569

 

$

7,555

 

$

7,254

 

Pharma

 

64

 

54

 

88

 

212

 

Food + Beverage

 

44

 

444

 

85

 

962

 

Total Intersegment Sales

 

$

3,952

 

$

4,067

 

$

7,728

 

$

8,428

 

 

 

 

 

 

 

 

 

 

 

Net Sales:

 

 

 

 

 

 

 

 

 

Beauty + Home

 

$

374,984

 

$

369,284

 

$

738,456

 

$

746,435

 

Pharma

 

182,931

 

132,979

 

351,800

 

273,022

 

Food + Beverage

 

83,526

 

75,240

 

168,818

 

150,544

 

Net Sales

 

$

641,441

 

$

577,503

 

$

1,259,074

 

$

1,170,001

 

 

 

 

 

 

 

 

 

 

 

Segment Income (1):

 

 

 

 

 

 

 

 

 

Beauty + Home

 

$

30,339

 

$

33,546

 

$

54,754

 

$

66,518

 

Pharma

 

50,437

 

31,110

 

96,417

 

70,482

 

Food + Beverage

 

11,864

 

7,744

 

20,414

 

14,532

 

Restructuring Initiatives and Related Depreciation

 

(3,067

)

215

 

(7,593

)

215

 

Corporate & Other

 

(8,707

)

(6,964

)

(19,492

)

(15,605

)

Income before interest and taxes

 

$

80,866

 

$

65,651

 

$

144,500

 

$

136,142

 

Interest expense, net

 

(4,596

)

(3,110

)

(8,828

)

(7,324

)

Income before income taxes

 

$

76,270

 

$

62,541

 

$

135,672

 

$

128,818

 

 

(1)                                 The Company evaluates performance of its business units and allocates resources based upon segment income. Segment income is defined as earnings before net interest expense, certain corporate expenses, restructuring initiatives and income taxes. Restructuring Initiatives and Related Depreciation includes the following income/(expense) items for the three and six months ended June 30, 2013 as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

European Operations Optimization (“EOO”) Plan

 

 

 

 

 

 

 

 

 

Depreciation

 

$

556

 

$

--

 

$

1,015

 

$

--

 

Employee Severance and Other Costs

 

2,555

 

--

 

6,622

 

--

 

Prior Year Initiatives

 

(44

)

(215

)

(44

)

(215

)

Total Restructuring Initiatives and Related Depreciation Expense

 

$

3,067

 

$

(215

)

$

7,593

 

$

(215

)

 

 

 

 

 

 

Restructuring Initiatives and Related Depreciation Expense by Segment

 

 

 

 

 

Beauty + Home

 

$

3,090

 

$

(105

)

$

7,616

 

$

(105

)

Pharma

 

--

 

--

 

--

 

--

 

Food + Beverage

 

(23

)

(110

)

(23

)

(110

)

Total Restructuring Initiatives and Related Depreciation Expense

 

$

3,067

 

$

(215

)

$

7,593

 

$

(215

)

 

13



Table of Contents

 

NOTE 11 – ACQUISITIONS

 

On July 3, 2012, the Company completed its acquisition of Rumpler - Technologies S.A., together with its direct and indirect subsidiaries (“Stelmi”).  Stelmi is a producer of elastomer primary packaging components for injectable drug delivery and operates two manufacturing plants located in the Normandy region of France and also has a research and development facility located near Paris.  The Company acquired all of the shares of Stelmi.  The purchase price paid for Stelmi (net of cash acquired) was approximately $188 million and was funded by cash on hand.

Stelmi contributed sales of $38.6 million and $74.0 million and pretax income of $7.7 million and $14.7 million for the three and six months ended June 30, 2013, respectively.  The results of the acquired business for the period from the acquisition date are included in the accompanying consolidated financial statements and are reported in the Pharma reporting segment.

The following table summarizes the assets acquired and liabilities assumed as of the acquisition date at estimated fair value:

 

 

 

 

 

 

 

 

 

 

 

July 3, 2012

 

Assets

 

 

 

Cash and equivalents

 

$

68,335

 

Accounts receivable

 

23,540

 

Inventories

 

16,826

 

Prepaid and other

 

3,256

 

Property, plant and equipment

 

42,073

 

Goodwill

 

111,031

 

Intangible assets

 

47,134

 

Other miscellaneous assets

 

6,092

 

 

 

 

 

Liabilities

 

 

 

Current maturities of long-term obligations

 

675

 

Accounts payable and accrued liabilities

 

26,064

 

Long-term obligations

 

885

 

Deferred income taxes

 

22,440

 

Retirement and deferred compensation plans

 

12,049

 

Net assets acquired

 

$

256,174

 

 

The following table is a summary of the fair value estimates of the acquired identifiable intangible assets and weighted-average useful lives as of the acquisition date:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

Estimated

 

 

 

Useful Life

 

Fair Value

 

 

 

(in years)

 

of Asset

 

 

 

 

 

 

 

Customer relationships

 

15

 

$

7,438

 

Technology

 

15

 

37,191

 

Trademark

 

4

 

2,505

 

Total

 

 

 

$

47,134

 

 

Goodwill in the amount of $111.0 million was recorded for the acquisition of Stelmi and is included in the Pharma segment. Goodwill is calculated as the excess of the consideration transferred over the net assets acquired and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill largely consists of leveraging the Company’s commercial presence in selling the Stelmi line of products in markets where Stelmi didn’t previously operate and the ability of Stelmi to maintain its competitive advantage from a technical viewpoint. Goodwill will not be amortized, but will be tested for impairment at least annually.  We do not expect that any of the goodwill will be deductible for tax purposes.

The unaudited pro forma results presented below include the effects of the Stelmi acquisition as if it had occurred as of January 1, 2011.  The unaudited pro forma results reflect certain adjustments related to the acquisition, such as the amortization associated with estimates for the acquired intangible assets and fair value adjustments for inventory.  The pro forma results do not include any synergies or other expected benefits of the acquisition.  Accordingly, the unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been completed on the dates indicated.

 

14



Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

641,441

 

$

608,588

 

$

1,259,074

 

$

1,234,062

 

Net Income Attributable to AptarGroup Inc.

 

49,802

 

47,681

 

89,839

 

94,211

 

Net Income per common share - basic

 

0.75

 

0.72

 

1.36

 

1.42

 

Net Income per common share - diluted

 

0.73

 

0.69

 

1.31

 

1.37

 

 

 

 

 

 

 

 

 

 

 

 

NOTE 12 – STOCK-BASED COMPENSATION

 

The Company issues stock options and restricted stock units to employees under Stock Awards Plans approved by shareholders.  Stock options are issued to non-employee directors for their services as directors under Director Stock Option Plans approved by shareholders.  Options are awarded with the exercise price equal to the market price on the date of grant and generally become exercisable over three years and expire 10 years after grant.  Restricted stock units generally vest over three years.

Compensation expense recorded attributable to stock options for the first half of 2013 was approximately $9.3 million ($6.2 million after tax).  The income tax benefit related to this compensation expense was approximately $3.1 million.  Approximately $8.3 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.  Compensation expense recorded attributable to stock options for the first half of 2012 was approximately $8.7 million ($5.8 million after tax).  The income tax benefit related to this compensation expense was approximately $2.9 million.  Approximately $7.8 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.

The Company uses historical data to estimate expected life and volatility.  The weighted-average fair value of stock options granted under the Stock Awards Plans was $10.07 and $10.35 per share in 2013 and 2012, respectively.  These values were estimated on the respective dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Awards Plans:

 

 

 

 

 

Six months ended June 30,

 

2013

 

2012

 

 

 

 

 

 

 

Dividend Yield

 

1.8

%

1.8

%

Expected Stock Price Volatility

 

22.7

%

22.9

%

Risk-free Interest Rate

 

1.2

%

1.3

%

Expected Life of Option (years)

 

6.9

 

6.9

 

 

The fair value of stock options granted under the Director Stock Option Plan during the second quarter of 2013 was $10.89. The fair value of stock options granted under the Director Stock Option Plan during the second quarter of 2012 was $10.59.  These values were estimated on the respective date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

Director Stock Option Plans:

 

 

 

 

 

Six months ended June 30,

 

2013

 

2012

 

 

 

 

 

 

 

Dividend Yield

 

1.9

%

1.7

%

Expected Stock Price Volatility

 

23.0

%

22.5

%

Risk-free Interest Rate

 

1.3

%

1.3

%

Expected Life of Option (years)

 

6.9

 

6.9

 

 

A summary of option activity under the Company’s stock option plans during the first half of 2013 is presented below:

 

 

 

 

Stock Awards Plans

 

Director Stock Option Plans

 

 

 

 

 

Weighted Average

 

 

 

Weighted Average

 

 

 

Shares

 

Exercise Price

 

Shares

 

Exercise Price

 

 

 

 

 

 

 

 

 

 

 

Outstanding, January 1, 2013

 

7,879,197

 

$

37.27

 

276,667

 

$

45.48

 

Granted

 

1,335,300

 

51.57

 

85,500

 

56.49

 

Exercised

 

(1,065,594

)

27.96

 

(18,500

)

41.11

 

Forfeited or expired

 

(33,527

)

46.03

 

--

 

--

 

Outstanding at June 30, 2013

 

8,115,376

 

$

40.81

 

343,667

 

$

48.46

 

Exercisable at June 30, 2013

 

5,579,645

 

$

36.13

 

175,834

 

$

42.44

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Remaining Contractual Term (Years):

 

 

 

 

 

 

Outstanding at June 30, 2013

 

6.5

 

 

 

8.0

 

 

 

Exercisable at June 30, 2013

 

5.3

 

 

 

6.8

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate Intrinsic Value ($000):

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2013

 

$

116,880

 

 

 

$

2,430

 

 

 

Exercisable at June 30, 2013

 

$

106,473

 

 

 

$

2,245

 

 

 

 

 

 

 

 

 

 

 

 

 

Intrinsic Value of Options Exercised ($000) During the Six Months Ended:

 

 

 

 

 

June 30, 2013

 

$

28,188

 

 

 

$

285

 

 

 

June 30, 2012

 

$

25,101

 

 

 

$

509

 

 

 

 

15



Table of Contents

 

The grant date fair value of options vested during the six months ended June 30, 2013 and 2012 was $12.9 million and $12.1 million, respectively.  Cash received from option exercises was approximately $31.1 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $6.2 million in the six months ended June 30, 2013.  As of June 30, 2013, the remaining valuation of stock option awards to be expensed in future periods was $13.4 million and the related weighted-average period over which it is expected to be recognized is 1.5 years.

The fair value of restricted stock unit grants is the market price of the underlying shares on the grant date.  A summary of restricted stock unit activity as of June 30, 2013, and changes during the period then ended is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

Shares

 

Grant-Date Fair Value

 

 

 

 

 

 

 

Nonvested at January 1, 2013

 

25,862

 

$

48.76

 

Granted

 

9,948

 

53.94

 

Vested

 

(11,208

)

44.27

 

Nonvested at June 30, 2013

 

24,602

 

$

52.90

 

 

Compensation expense recorded attributable to restricted stock unit grants for the first half of 2013 and 2012 was approximately $493 thousand and $282 thousand, respectively.  The fair value of units vested during the six months ended June 30, 2013 and 2012 was $496 thousand and $316 thousand, respectively.  The intrinsic value of units vested during the six months ended June 30, 2013 and 2012 was $582 thousand and $448 thousand, respectively.  As of June 30, 2013 there was $545 thousand of total unrecognized compensation cost relating to restricted stock unit awards which is expected to be recognized over a weighted-average period of 1.5 years.

 

NOTE 13 – INCOME TAX UNCERTAINTIES

 

The Company had approximately $8.4 million and $8.5 million recorded for income tax uncertainties as of June 30, 2013 and December 31, 2012, respectively.  The $0.1 million change in income tax uncertainties was primarily the result of the expiration of the statute of limitations in several jurisdictions.  The amount, if recognized, that would impact the effective tax rate is $8.0 and $8.1 million, respectively.  The Company estimates that it is reasonably possible that the liability for uncertain tax positions will decrease by no more than $5.0 million in the next twelve months from the resolution of various uncertain positions as a result of the completion of tax audits, litigation and the expiration of the statute of limitations in various jurisdictions.

 

NOTE 14 – FAIR VALUE

 

Authoritative guidelines require the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities.  Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.  The three levels are defined as follows:

·                  Level 1:  Unadjusted quoted prices in active markets for identical assets and liabilities.

·                  Level 2:  Observable inputs other than those included in Level 1.  For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

·                  Level 3:  Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

 

As of June 30, 2013, the fair values of our financial assets and liabilities were categorized as follows:

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Forward exchange contracts (a)

 

$

2,502

 

$

--

 

$

2,502

 

$

--

 

Total assets at fair value

 

$

2,502

 

$

--

 

$

2,502

 

$

--

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Forward exchange contracts (a)

 

$

2,189

 

$

--

 

$

2,189

 

$

--

 

Total liabilities at fair value

 

$

2,189

 

$

--

 

$

2,189

 

$

--

 

 

As of December 31, 2012, the fair values of our financial assets and liabilities were categorized as follows:

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Forward exchange contracts (a)

 

$

1,314

 

$

--

 

$

1,314

 

$

--

 

Total assets at fair value

 

$

1,314

 

$

--

 

$

1,314

 

$

--

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Forward exchange contracts (a)

 

$

2,261

 

$

--

 

$

2,261

 

$

--

 

Total liabilities at fair value

 

$

2,261

 

$

--

 

$

2,261

 

$

--

 

 

16



Table of Contents

 

(a)   Market approach valuation technique based on observable market transactions of spot and forward rates

 

The carrying amounts of the Company’s other current financial instruments such as cash and equivalents, notes payable and current maturities of long-term obligations approximate fair value due to the short-term maturity of the instrument.  The Company considers its long-term obligations a Level 2 liability and utilizes the market approach valuation technique based on interest rates that are currently available to the Company for issuance of debt with similar terms and maturities.  The estimated fair value of the Company’s long-term obligations was $367 million as of June 30, 2013 and $382 million as of December 31, 2012.

 

NOTE 15 – RESTRUCTURING INITIATIVE

 

On November 1, 2012, the Company announced a plan to optimize certain capacity in Europe (the “EOO” plan).  Due to increased production efficiencies and to better position the Company for future growth in Europe, AptarGroup will transfer and consolidate production capacity involving twelve facilities.  Two facilities, one in Italy and one in Switzerland, are expected to close and will impact approximately 170 employees.  The locations involved in the EOO plan are facilities that are serving the beauty, personal care, food, beverage, and consumer health care markets.  The total costs associated with the plan are estimated to be approximately €14 million (approximately $18 million using current exchange rates) of which approximately €4 million (approximately $6 million using current exchange rates) relates to non-cash expenses and will be included in depreciation and amortization in the Condensed Consolidated Statements of Income.  The cumulative expense incurred to date is $12.5 million.  As of June 30, 2013 we have recorded the following activity associated with our EOO plan:

 

 

 

Beginning

 

Net Charges for

 

 

 

 

 

Ending

 

 

 

Reserve at

 

the Six Months

 

 

 

 

 

Reserve at

 

 

 

12/31/12

 

Ended 6/30/13

 

Cash Paid

 

FX Impact

 

6/30/13

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee severance

 

$

3,158

 

$

5,345

 

$

(3,375

)

$

(85

)

$

5,043

 

Other costs

 

--

 

1,277

 

(1,246

)

3

 

34

 

Totals

 

$

3,158

 

$

6,622

 

$

(4,621

)

$

(82

)

$

5,077

 

 

In addition to the above charges, $1.0 million of accelerated depreciation was incurred in the first half of 2013.  This amount is included within depreciation and amortization in the Condensed Consolidated Statements of Income.

 

17



Table of Contents

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, OR OTHERWISE INDICATED)

 

RESULTS OF OPERATIONS

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

Cost of sales (exclusive of depreciation and amortization shown below)

 

67.3

 

 

67.6

 

 

67.5

 

 

67.6

 

Selling, research & development and administrative

 

13.7

 

 

15.2

 

 

14.5

 

 

15.1

 

Depreciation and amortization

 

6.0

 

 

5.6

 

 

5.9

 

 

5.6

 

Restructuring initiatives

 

0.4

 

 

--

 

 

0.5

 

 

--

 

Operating Income

 

12.6

 

 

11.6

 

 

11.6

 

 

11.7

 

Other expense

 

(0.7

)

 

(0.8

)

 

(0.8

)

 

(0.7

)

Income before Income Taxes

 

11.9

 

 

10.8

 

 

10.8

 

 

11.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

7.8

%

 

7.2

%

 

7.1

%

 

7.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

34.6

%

 

33.4

%

 

33.8

%

 

33.7

%

 

NET SALES

 

We reported net sales of $641.4 million for the quarter ended June 30, 2013, 11% above second quarter 2012 reported net sales of $577.5 million.  Stelmi sales were $38.6 million which contributed 7% to the reported increase in the quarterly sales.  The average U.S. dollar exchange rate weakened relative to the Euro.  However, this weakness was offset by strengthening of the U.S. dollar compared to other foreign currencies, such as the Brazilian Real, Swiss Franc and British Pound, in the second quarter of 2013 compared to the second quarter of 2012, and as a result, changes in exchange rates did not have a material impact on our reported sales growth.  Excluding acquisitions and changes in foreign currency rates, sales increased by 4% in the second quarter of 2013 compared to the second quarter of 2012.

For the first half of 2013, we reported net sales of $1.3 billion, 8% above the first half 2012 reported net sales of $1.2 billion. Stelmi sales were $74.0 million which contributed 6% to the reported increase in the first half sales.  Consistent with the second quarter, the average U.S. dollar exchange rate weakened relative to the Euro but was offset by strengthening of the U.S. dollar compared to other foreign currencies, such as the Brazilian Real, Swiss Franc and British Pound, which resulted in no material impact from changes in exchange rates on our reported sales growth.  Excluding acquisitions and changes in foreign currency rates, sales increased 2% in the first half of 2013 compared to the first half of 2012.

 

For further discussion on net sales by reporting segment, please refer to the segment analysis of net sales and segment income on the following pages.

 

The following table sets forth, for the periods indicated, net sales by geographic location:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

% of Total

 

2012

 

% of Total

 

2013

 

% of Total

 

2012

 

% of Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

$

169,245

 

26

%

$

166,320

 

29

%

$

326,473

 

26

%

$

337,629

 

29

%

Europe

 

362,278

 

57

%

305,610

 

53

%

718,804

 

57

%

631,319

 

54

%

Other Foreign

 

109,918

 

17

%

105,573

 

18

%

213,797

 

17

%

201,053

 

17

%

 

 

$

641,441

 

 

 

$

577,503

 

 

 

$

1,259,074

 

 

 

$

1,170,001

 

 

 

 

COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN BELOW)

 

Our cost of sales as a percent of net sales decreased to 67.3% in the second quarter of 2013 compared to 67.6% in the same period a year ago.  The decrease is partially due to increased sales volumes in our core Pharma segment and the incremental sales related to our Stelmi acquisition.  This positively impacts our cost of sales percentage as margins on our pharmaceutical products typically are higher than the overall Company average.  Also contributing to the decrease in cost of sales percentage are cost savings initiatives, including savings related to our EOO plan, and decreases in resin costs.  While the majority of resin cost decreases are passed along to our customers in our selling prices, we typically experience a lag in the timing of passing on these cost decreases.

Cost of sales as a percent of net sales decreased slightly to 67.5% in the first half of 2013 compared to 67.6% in the same period a year ago.  As discussed above, this decrease is mainly due to the incremental sales volumes related to our Stelmi acquisition, which carry a higher margin than the overall Company average.

 

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SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

 

Our Selling, Research & Development and Administrative expenses (“SG&A”) slightly increased by approximately $0.3 million in the second quarter of 2013 compared to the same period a year ago.  Excluding changes in foreign currency rates, SG&A was flat in the quarter.  SG&A expenses for Stelmi of $5.2 million in 2013 were nearly equal to the $5.5 million of professional fees related to the acquisition of Stelmi recorded in 2012.  SG&A as a percentage of net sales decreased to 13.7% compared to 15.2% in the same period of the prior year due to acquisition fees in 2012.  Higher sales in 2013 are the primary reason for this decrease.

SG&A increased by approximately $6.1 million in the first half of 2013 compared to the same period a year ago.  Excluding changes in foreign currency rates, SG&A increased by approximately $6.3 million in the first half of the year.  We recorded Stelmi operational expenses of $9.9 million in 2013 while $5.8 million of professional fees related to the acquisition of Stelmi were recorded in 2012.  The remaining increase is due to an increase in personnel costs and stock compensation expenses due to higher substantive vesting requirements in the first quarter of 2013.  SG&A as a percentage of net sales decreased to 14.5% in the first half of 2013 compared to 15.1% in the first half of 2012 again primarily due to higher sales in 2013.

 

DEPRECIATION AND AMORTIZATION

 

Reported depreciation and amortization expenses increased by approximately $6.0 million in the second quarter of 2013 compared to the same period a year ago.  Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $5.8 million in the quarter compared to the same period a year ago.  This increase is primarily related to $2.6 million of Stelmi costs reported in the second quarter of 2013 and $1.5 million of accelerated depreciation on certain corporate assets.  The remaining increase is related to the additional investments in our new products, especially in the Food + Beverage segment, along with continued roll-out of our global enterprise resource planning system and approximately $0.6 million related to our EOO plan.  Excluding acquisitions, depreciation and amortization as a percentage of net sales increased to 6.0% in the second quarter of 2013 compared to 5.6% for the same period a year ago mainly due to the EOO and additional investments in our business.

For the first half of 2013, reported depreciation and amortization expenses increased by approximately $9.6 million compared to the first half of 2012.  Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $9.5 million in the first half.  Incremental Stelmi depreciation, the accelerated depreciation on certain corporate assets and the EOO plan represented $4.8 million, $1.5 million and $1.0 million, respectively of this increase with the investments in our business making up the remaining increase.  Excluding acquisitions, depreciation and amortization as a percentage of net sales also increased slightly to 5.9% compared to 5.6% for the same period a year ago.

 

RESTRUCTURING INITIATIVES

 

On November 1, 2012, the Company announced the EOO plan.  Due to increased production efficiencies and to better position the Company for future growth in Europe, AptarGroup will transfer and consolidate production capacity involving twelve facilities.  Under the EOO plan, we have closed one facility in Italy and a second facility in Switzerland is expected to close impacting approximately 170 employees.  During the three and six months ended June 30, 2013, we recognized $2.6 million and $6.6 million of restructuring expenses, respectively, along with the $0.6 million and $1.0 million of accelerated depreciation of assets, respectively, mentioned above.  Using current exchange rates, we expect to recognize approximately $6 million in additional costs, most of which will be incurred in 2013.  Annual savings are estimated to be approximately €9 million (approximately $12 million using current exchange rates) beginning in late 2013.

 

OPERATING INCOME

 

Operating income, including the negative impact of EOO plan charges of $3.1 million, increased approximately $13.8 million in the second quarter of 2013 to $80.9 million compared to $67.1 million in the same period in the prior year.  Excluding changes in currency rates, operating income increased by approximately $12.9 million in the quarter.  The primary reason for the increases in operating income over the prior year is the impact of Aptar Stelmi in the 2013 results while last year we had approximately $5.5 million of expense related to Stelmi acquisition costs.  In addition, improved results in our Pharma and Food + Beverage segments contributed to the increase in operating income.  Operating income as a percentage of net sales increased to 12.6% in the second quarter of 2013 compared to 11.6% for the same period in the prior year.

Operating income increased approximately $8.1 million in the first half of 2013 to $145.5 million compared to $137.4 million in the same period in the prior year.  Excluding changes in currency rates, operating income increased by approximately $7.1 million in the first half of 2013.  Excluding acquisitions and restructuring initiatives, operating income increased slightly by $0.3 million.  Operating income as a percentage of sales decreased slightly to 11.6% in the first half of 2013 compared to 11.7% for the same period in the prior year.

 

NET OTHER EXPENSE

 

Net other expenses in the second quarter of 2013 increased slightly to $4.6 million from $4.5 million in the same period in the prior year.  This increase is mainly due to increased costs associated with hedges in place to mitigate our foreign currency exposure on cross border transaction.

 

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Net other expenses for the six months ended June 30, 2013 also increased to $9.8 million from $8.6 million in the same period in the prior year.  This increase is also mainly due to increased costs of foreign currency hedges mentioned above.

 

EFFECTIVE TAX RATE

 

The reported effective tax rate increased to 34.6% and 33.8% for the three and six months ended June 30, 2013 compared to 33.4% and 33.7% for the same periods ended June 30, 2012.  The increase in the rate for the three and six months ended June 30, 2013 is related primarily to tax law increases in France related to distributions and interest deductions as well as increases in the Chinese tax rate for 2013.  These increases were mostly offset in the first quarter of 2013 by the tax benefits resulting from an Italian tax law change.

 

NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.

 

We reported net income attributable to AptarGroup, Inc. of $49.8 million and $89.8 million in the three and six months ended June 30, 2013, respectively, compared to $41.7 million and $85.5 million for the same periods in the prior year.

 

BEAUTY + HOME SEGMENT

 

Operations that sell dispensing systems primarily to the personal care, beauty and home care markets form the Beauty + Home segment.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

374,984

 

$

369,284

 

$

738,456

 

$

746,435

 

Segment Income

 

30,339

 

33,546

 

54,754

 

66,518

 

Segment Income as a percentage of Net Sales

 

8.1

%

9.1

%

7.4

%

8.9

%

 

Net sales for the quarter ended June 30, 2013 increased 2% to $375.0 million compared to $369.3 million in the second quarter of the prior year.  Changes in foreign currency rates did not have a material impact on reported sales for the quarter ended June 30, 2013.  Sales, excluding foreign currency changes, to the beauty market decreased 2% while sales to the personal care market increased 6% in the second quarter of 2013 compared to the same period in the prior year. Geographically, sales increases in Europe and Latin America more than offset continued softness in the North American region.  Customer tooling sales, excluding foreign currency changes, decreased in the second quarter of 2013 to $7.8 million compared to $10.7 million in the second quarter of the prior year.  Increases in resin pass throughs to our customers positively impacted sales by $0.7 million.

 

Net sales decreased 1% in the first six months of 2013 to $738.5 million compared to $746.4 million in the first six months of the prior year.  Changes in foreign currency rates did not have a material impact on reported sales for the first half of 2013.  Sales of our products, excluding foreign currency changes, to the beauty market decreased 2% while sales to the personal care market increased 2% in the first half of 2013 compared to the first half of 2012.  Geographically, increases in Europe and Latin America partially offset the softness in North America.  Customer tooling sales, excluding foreign currency changes, also decreased in the first six months of 2013 to $14.0 million compared to $21.0 million in the first half of the prior year.

Segment income for the second quarter of 2013 decreased approximately 10% to $30.3 million compared to $33.5 million reported in the prior year.  Segment income was negatively impacted by higher labor costs and operational inefficiencies, especially in the North American region.

Segment income in the first six months of 2013 decreased approximately 18% to $54.8 million compared to $66.5 million reported in the same period in the prior year.  The negative impact of lower product and tooling sales mentioned above along with operational inefficiencies and higher labor costs in North America were the primary causes of the decrease.

 

PHARMA SEGMENT

 

Operations that sell dispensing systems to the prescription drug and consumer health care markets form the Pharma segment.

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

182,931

 

$

132,979

 

$

351,800

 

$

273,022

 

Segment Income

 

50,437

 

31,110

 

96,417

 

70,482

 

Segment Income as a percentage of Net Sales

 

27.6

%

23.4

%

27.4

%

25.8

%

 

Net sales for the Pharma segment increased by 38% in the second quarter of 2013 to $182.9 million compared to $133.0 million in the second quarter of 2012.  Stelmi sales were $38.6 million and represented 29% of the increase while foreign currency changes represented 1% of the total segment sales increase.  Sales, excluding acquisitions and changes in foreign

 

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currency rates, increased 8%.  Sales, excluding acquisitions and foreign currency changes, to the prescription market increased 6% while sales to the consumer health care market increased 12%.

Net sales for the first six months of 2013 increased approximately 29% to $351.8 million compared to $273.0 million in the first six months of the prior year.  Stelmi sales were $74.0 million and represented 27% of the increase.  Foreign currency changes had no measureable impact on the total segment sales.  Excluding acquisitions and changes in foreign currency rates, sales increased by 2% in the first six months of 2013 compared to the first six months of 2012.  Excluding acquisitions and foreign currency rate changes, sales to the prescription and consumer health care markets increased 2% and 1%, respectively, in the first six months of 2013 compared to the same period in the prior year.  Decreases in the first quarter related to destocking of inventory by our customers serving the generic allergy market, especially in North America, and softness in the consumer health care market in Europe were more than offset by the return of business in the second quarter.

Segment income in the second quarter of 2013 increased approximately 62% to $50.4 million compared to $31.1 million reported in the same period in the prior year.  Stelmi segment income was $7.5 million in the second quarter of 2013.  We also reported $5.5 million of fees related to the Stelmi acquisition in the second quarter of 2012.  Excluding Stelmi and the related acquisition fees, segment income increased 17% in the second quarter of 2013 to $42.9 million compared to $36.6 million reported in the same period in the prior year.  This increase is mainly attributed to the higher sales for both the prescription and consumer health care markets as mentioned above along with better overhead absorption at our Pharma operating facilities.

Segment income in the first six months of 2013 increased approximately 37% to $96.4 million compared to $70.5 million reported in the same period of the prior year.  Stelmi segment income was $14.5 million in the first six months of 2013 and we also reported the $5.8 million of acquisition fees in the first six months of 2012.  Excluding Stelmi and the related acquisition fees, segment income increased 7% in the first six months of 2013 to $81.9 million compared to $76.3 million reported in the same period in the prior year.  This increase is again attributed to the higher sales for both the markets and the improved overhead absorption mentioned above.

 

FOOD + BEVERAGE SEGMENT

 

Operations that sell dispensing systems primarily to the food and beverage markets form the Food + Beverage segment.

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

83,526

 

$

75,240

 

$

168,818

 

$

150,544

 

Segment Income

 

11,864

 

7,744

 

20,414

 

14,532

 

Segment Income as a percentage of Net Sales

 

14.2

%

10.3

%

12.1

%

9.7

%

 

Net sales for the Food + Beverage segment for the quarter ended June 30, 2013 increased approximately 11% to $83.5 million compared to $75.2 million in the second quarter of the prior year.  Sales, excluding changes in foreign currency rates, increased 10%.  Excluding foreign currency changes, sales to the food market increased 6% mainly due to higher infant formula sales in North America.  Sales to the beverage market increased approximately 16% where a combination of higher tooling sales and increased product sales globally, especially in Asia for the functional bottled water market, more than offset softness in the European market due to poor weather conditions.  Increases in resin pass throughs to our customers also positively impacted sales by $1.3 million.

Net sales for the first six months of 2013 increased approximately 12% to $168.8 million compared to $150.5 million in the first six months of the prior year.  Excluding changes in foreign currency rates, sales increased 11%.  Sales, excluding foreign currency changes, to the food market increased 10% and sales to the beverage market increased approximately 15% in the first six months of 2013 compared to the same period in the prior year.  The food increase is driven by tooling sales, which increased $4.4 million over the first half of 2012 and higher infant sales in North America.   The beverage increase is mainly due to increased product sales globally, especially in Asia for the functional bottled water market as mentioned above.

Segment income in the second quarter of 2013 increased approximately 53% to $11.9 million compared to $7.7 million during the same period in the prior year.  Segment income was positively impacted by increased product sales along with improved productivity and overhead cost absorption, particularly in North America.  We also benefitted from the positive impact from the timing of resin cost pass throughs mentioned above.

Segment income in the first six months of 2013 increased approximately 40% to $20.4 million compared to $14.5 million reported in the same period of the prior year.  The strong growth in product sales along with improved manufacturing productivity and cost absorption mentioned above contributed to the improvements in the first six months of 2013 compared to the same period in the prior year.

 

CORPORATE & OTHER

 

In addition to our three operating business segments, AptarGroup assigns certain costs to “Corporate & Other,” which is presented separately in Note 10 of the Notes to the Condensed Consolidated Financial Statements.  Corporate & Other primarily includes certain corporate compensation, professional fees, information system costs and LIFO inventory adjustments which are not allocated directly to our operating segments.  Corporate & Other expense increased to $8.7 million for the quarter ended June 30, 2013 compared to $7.0 million in the second quarter of the prior year mainly due to a $1.5 million adjustment for accelerated depreciation on certain corporate assets.

Corporate & Other expense in the first six months of 2013 increased to $19.5 million compared to $15.6 million reported in the same period of the prior year.  The increase is mainly due to the accelerated depreciation on certain corporate assets noted above and increased costs associated with hedges in place to support our foreign currency cross border transactions.

 

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Table of Contents

 

FOREIGN CURRENCY

 

A significant number of our 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 statements of our foreign entities.  Our primary foreign exchange exposure is to the Euro, but we also have foreign exchange exposure to the Brazilian Real, British Pound, Swiss Franc and South American and Asian currencies, among others.  We manage our exposures to foreign exchange principally with forward exchange contracts to hedge certain transactions and firm purchase and sales commitments denominated in foreign currencies.  A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements.  Conversely, a weakening U.S. dollar has an additive effect.  In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred.  Changes in exchange rates on such inter-country sales could materially impact our results of operations.

 

QUARTERLY TRENDS

 

Our results of operations in the second half of the year typically are negatively impacted by customer plant shutdowns in the summer months in Europe and plant shutdowns in December.  In the future, our results of operations in a quarterly period could be impacted by factors such as changes in product mix, changes in material costs, changes in growth rates in the industries to which our products are sold, recognition of equity based compensation expense for retirement eligible employees in the period of grant and changes in general economic conditions in any of the countries in which we do business.

We generally incur increased stock option expense in the first quarter compared with the rest of the fiscal year.  Our estimated stock option expense on a pre-tax basis (in $ millions) for 2013 compared to the prior year is as follows:

 

 

 

2013

 

2012

 

First Quarter

 

$

6.5

 

$

5.8

 

Second Quarter

 

2.8

 

2.9

 

Third Quarter (estimated for 2013)

 

2.2

 

2.1

 

Fourth Quarter (estimated for 2013)

 

2.1

 

1.9

 

 

 

$

 13.6

 

$

12.7

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our primary sources of liquidity are cash flow from operations and our revolving credit facility.  Cash and equivalents decreased to $190.0 million at June 30, 2013 from $229.8 million at December 31, 2012.  Total short and long-term interest bearing debt also decreased in the first half of 2013 to $387.9 million from $427.5 million at December 31, 2012.  These decreases are primarily due to the repatriation of approximately $77.0 million from Europe to the United States during 2013.  These repatriated funds were used to pay down our revolving credit facility.  The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholder’s equity plus Net Debt) was 12.3% at the end of June 2013 compared to 12.5% at December 31, 2012.

In the first six months of 2013, our operations provided approximately $109.6 million in cash flow compared to $84.2 million for the same period a year ago.  The increase in cash provided by operations is primarily attributable to the timing of tax payments and pension contributions.

We used $69.0 million in cash for investing activities during the first half of 2013, compared to $94.3 million during the same period a year ago.  The decrease in cash used for investing activities is due primarily to a decrease in capital expenditures of $23.6 million in the first half of 2013 compared to the first half of 2012.  Cash outlays for capital expenditures for 2013 are estimated to be approximately $160 million but could vary due to changes in exchange rates as well as the timing of capital projects.  Costs related to our recently announced Aptar facility to serve the Andean region are included in the 2013 estimate while the majority of costs associated with our Stelmi expansion are expected in 2014.

We used $82.1 million in cash for financing activities during the first half of 2013 compared to $64.3 million during the same period a year ago.  The increase in cash used by financing activities is due to an increase of approximately $34.5 million in purchases of treasury stock in the first half of 2013 compared to the first half of 2012.  The increase was partially offset by a decrease in our borrowings as we were able to utilize repatriated funds to pay down our revolving credit facility.

Our U.S. operations generate sufficient cash flows to fund their liquidity needs and do not depend on cash located outside of the U.S. for their operations.  Nevertheless, we are a dividend payer and have an active share repurchase program.  These two items are funded with operating cash flows from the U.S. and are supplemented by additional borrowings from our revolving credit facility and the repatriations of current year foreign earnings.  Specifically, in the U.S., we have an unsecured $300 million revolving line of credit which was unused and available as of June 30, 2013 and believe we have the ability to borrow additional funds should the need arise.  On January 31, 2013, we amended the revolving credit facility to, among other things, add a swingline loan sub-facility and extend the maturity date for the revolving credit facility by one year, to January 31, 2018.  To take advantage of low interest rates during the past year, we completed a $125 million private placement on September 5, 2012, consisting of $75 million of 10 year notes at an interest rate of 3.25% and $50 million of 12 year notes at an interest rate of 3.40%.

Our revolving credit facility and certain long-term obligations require us to satisfy certain financial and other covenants including:

 

 

 

Requirement

 

Level at June 30, 2013

 

Debt to total capital ratio

 

Maximum of 55%

 

21.6%

 

 

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Based upon the above debt to total capital ratio covenant we had the ability to borrow approximately an additional $1.3 billion at June 30, 2013 before the 55% requirement would be exceeded.

Our foreign operations have historically met cash requirements with the use of internally generated cash or borrowings.  These foreign subsidiaries have financing arrangements with several foreign banks to fund operations located outside the U.S., but all these lines are uncommitted.  Cash generated by foreign operations has generally been reinvested locally.  The majority of our $190.0 million in cash and equivalents is located outside of the U.S.  We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances.  The repatriation of non-U.S. cash balances from certain subsidiaries could have adverse tax consequences as we may be required to pay and record income tax expense on these funds.  Historically, the tax consequences associated with repatriating current year earnings to the U.S. has been between 10% and 14% of the repatriated amount.  We would not expect future impacts to be materially different.

We believe we are in a strong financial position and have the financial resources to meet business requirements in the foreseeable future.  We have historically used cash flow from operations as our primary source of liquidity.  Our primary uses of liquidity are to invest in equipment and facilities that are necessary to support our growth and to make acquisitions that will contribute to the achievement of our strategic objectives.  The acquisition of the Stelmi group was funded with cash available from our European operations.  In the event that customer demand would decrease significantly for a prolonged period of time and negatively impact cash flow from operations, we would have the ability to restrict and significantly reduce capital expenditure levels, as well as evaluate our acquisition strategy and dividend and share repurchase programs.  A prolonged and significant reduction in capital expenditure levels could increase future repairs and maintenance costs as well as have a negative impact on operating margins if we were unable to invest in new innovative products.

On July 18, 2013, the Board of Directors declared a quarterly dividend of $0.25 per share payable on August 21, 2013 to stockholders of record as of July 31, 2013.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We lease certain warehouse, plant and office facilities as well as certain equipment under noncancelable operating leases expiring at various dates through the year 2029.  Most of the operating leases contain renewal options and certain equipment leases include options to purchase during or at the end of the lease term.  Other than operating lease obligations, we do not have any off-balance sheet arrangements.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

 

In July 2012, the FASB amended the guidance on the annual testing of indefinite-lived intangible assets (other than goodwill) for impairment.  The amended guidance will allow companies to first assess qualitative factors to determine whether it is more-likely-than-not that an indefinite-lived intangible asset might be impaired and whether it is necessary to perform the quantitative impairment test required under current accounting standards.  This guidance will be effective for the Company’s fiscal year ending December 31, 2013, with early adoption permitted.  The Company does not believe that this new guidance will have a material impact on its consolidated financial statements.

In March 2013, the FASB issued guidance which permits an entity to release cumulative translation adjustments into net income when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided, or, if a controlling financial interest is no longer held. The guidance will be effective for the Company’s fiscal years beginning after December 15, 2013; however, early adoption is permitted.

Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

 

OUTLOOK

 

Looking to the third quarter, we anticipate that each of our business segments will grow over the prior year.  Even though we expect challenges in several of the markets we serve, the diversity of our product portfolio, geographic presence, customer base and end markets, protect us from exposure to softness in any particular market or region.

AptarGroup expects earnings per share for the third quarter to be in the range of $0.68 to $0.73 per share compared to $0.62 per share reported in the prior year.  Prior year results include a negative impact of $0.02 per share from Aptar Stelmi’s results which included the acquisition accounting adjustments.

 

FORWARD-LOOKING STATEMENTS

 

Certain statements in Management’s Discussion and Analysis and other sections of this Form 10-Q are forward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Liquidity and Capital Resources, Off Balance Sheet Arrangements, and Operations Outlook sections of this Form 10-Q.  Words such as “expects,” “anticipates,” “believes,” “estimates,” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements.  Forward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on our beliefs as well as assumptions made by and information currently available to us.  Accordingly, our actual results may

 

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differ materially from those expressed or implied in such forward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment, including but not limited to:

·                  economic, environmental and political conditions worldwide;

·                  changes in customer and/or consumer spending levels;

·                  the cost of materials and other input costs (particularly resin, metal, anodization costs and transportation and energy costs);

·                  the availability of raw materials and components (particularly from sole sourced suppliers) as well as the financial viability of these suppliers;

·                  our ability to contain costs and improve productivity;

·                  the timing and successful completion of our EOO plan;

·                  our ability to successfully implement facility expansions and new facility projects, including the Stelmi expansion and Andean project;

·                  our ability to increase prices;

·                  significant fluctuations in foreign currency exchange rates;

·                  changes in capital availability or cost, including interest rate fluctuations;

·                  volatility of global credit markets;

·                  the timing and magnitude of capital expenditures;

·                  our ability to identify potential new acquisitions and to successfully acquire and integrate such operations or products;

·                  direct or indirect consequences of acts of war or terrorism;

·                  cybersecurity threats that could impact our networks and reporting systems;

·                  the impact of natural disasters and other weather-related occurrences;

·                  fiscal and monetary policy, including changes in worldwide tax rates;

·                  changes or difficulties in complying with government regulation;

·                  changing regulations or market conditions regarding environmental sustainability;

·                  work stoppages due to labor disputes;

·                  competition, including technological advances;

·                  our ability to protect and defend our intellectual property rights, as well as litigation involving intellectual property rights;

·                  the outcome of any legal proceeding that has been or may be instituted against us and others;

·                  our ability to meet future cash flow estimates to support our goodwill impairment testing;

·                  the demand for existing and new products;

·                  our ability to manage worldwide customer launches of complex technical products, in particular in developing markets;

·                  the success of our customers’ products, particularly in the pharmaceutical industry;

·                  difficulties in product development and uncertainties related to the timing or outcome of product development;

·                  significant product liability claims; and

·                  other risks associated with our operations.

 

Although we believe that our forward-looking statements are based on reasonable assumptions, there can be no assurance that actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.  Readers are cautioned not to place undue reliance on forward-looking statements.  We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.  Please refer to Item 1A (“Risk Factors”) of Part I included in the Company’s Annual Report on Form 10-K for additional risk factors affecting the Company.

 

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

A significant number of our 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 our entities.  Our primary foreign exchange exposure is to the Euro, but we also have foreign exchange exposure to the Brazilian Real, British Pound, Swiss Franc and South American and Asian currencies, among others.  A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial condition and results of operations.  Conversely, a weakening U.S. dollar has an additive effect.

Additionally, in some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred.  Any changes in exchange rates on such inter-country sales may impact our results of operations.

We manage our exposures to foreign exchange principally with forward exchange contracts to hedge certain firm purchase and sales commitments and intercompany cash transactions denominated in foreign currencies.

The table below provides information as of June 30, 2013 about our forward currency exchange contracts.  The majority of the contracts expire before the end of the third quarter of 2013.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

Min / Max

 

 

 

Contract Amount

 

Contractual

 

Notional

 

Buy/Sell

 

(in thousands)

 

Exchange Rate

 

Volumes

 

 

 

 

 

 

 

 

 

Swiss Franc/Euro

 

$

43,302

 

0.8123

 

38,316-43,302

 

Euro/Brazilian Real

 

23,503

 

2.9871

 

21,611-23,503

 

Euro/U.S. Dollar

 

20,070

 

1.3090

 

7,074-20,070

 

Euro/Mexican Peso

 

8,114

 

18.3494

 

8,114-8,114

 

Czech Koruna/Euro

 

6,255

 

0.0389

 

6,213-6,469

 

U.S. Dollar/Chinese Yuan

 

6,180

 

6.1763

 

4,550-6,180

 

British Pound/Euro

 

3,737

 

1.1768

 

2,717-3,737

 

Euro/Chinese Yuan

 

1,750

 

8.0544

 

1,102-2,592

 

Euro/Russian Rouble

 

1,689

 

45.3677

 

1,689-1,689

 

U.S. Dollar/Euro

 

1,648

 

0.7597

 

1,636-1,649

 

U.S. Dollar/Brazilian Real

 

1,300

 

2.2130

 

0-1,300

 

Other

 

2,191

 

 

 

 

 

Total

 

$

119,739

 

 

 

 

 

 

As of June 30, 2013, the Company has recorded the fair value of foreign currency forward exchange contracts of $2.1 million in prepaid and other, $0.4 million in miscellaneous other assets, $1.9 million in accounts payable and accrued liabilities and $0.3 million in deferred and other non-current liabilities in the balance sheet.

The Company had one foreign currency cash flow hedge until March 15, 2012.  A French subsidiary of AptarGroup, AptarGroup Holding SAS, had 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.  On March 15, 2012, the loan and foreign currency forward contracts were repaid.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

DISCLOSURE CONTROLS AND PROCEDURES

 

The Company’s management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2013.  Based on that evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures were effective as of such date.

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

No change in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the Company’s fiscal quarter ended June 30, 2013 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

RECENT SALES OF UNREGISTERED SECURITIES

 

The employees of AptarGroup S.A.S. and Aptar France S.A.S., our subsidiaries, are eligible to participate in the FCP Aptar Savings Plan (the “Plan”).  All eligible participants are located outside of the United States.  An independent agent purchases shares of our Common Stock available under the Plan for cash on the open market and we do not issue shares.  We do not receive any proceeds from the purchase of shares of our Common Stock under the Plan.  The agent under the Plan is Banque Nationale de Paris Paribas Fund Services.  No underwriters are used under the Plan.  All shares are sold in reliance upon the exemption from registration under the Securities Act of 1933 provided by Regulation S promulgated under that Act.  During the quarter ended June 30, 2013, the Plan purchased 4,880 shares of our Common Stock on behalf of the participants at an average price of $56.31 per share, for an aggregate amount of $275 thousand, and sold 920 shares of our Common Stock on behalf of the participants at an average price of $56.64 per share, for an aggregate amount of $52 thousand.  At June 30, 2013, the Plan owns 33,891 shares of our Common Stock.

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

The following table summarizes the Company’s purchases of its securities for the quarter ended June 30, 2013:

 

 

Period

 

Total Number
Of Shares
Purchased

 

Average Price
Paid Per Share

 

Total Number Of Shares
Purchased As Part Of
Publicly Announced

Plans Or Programs

 

Maximum Number Of
Shares That May Yet Be
Purchased Under The

Plans Or Programs

 

 

 

 

 

 

 

 

 

 

 

4/1 – 4/30/13

 

50,000

 

$

55.39

 

50,000

 

1,722,691

 

5/1 – 5/31/13

 

329,721

 

56.36

 

329,721

 

1,392,970

 

6/1 – 6/30/13

 

220,279

 

56.60

 

220,279

 

1,172,691

 

Total

 

600,000

 

$

56.37

 

600,000

 

1,172,691

 

 

The Company announced the existing repurchase program on July 19, 2011.  On July 18, 2013, the Company’s Board of Directors authorized the Company to repurchase an additional four million shares of its outstanding common stock.  There is no expiration date for these repurchase programs.

 

ITEM 6.  EXHIBITS

 

Exhibit 10.1

 

AptarGroup Performance Incentive Plan, filed as Exhibit 10.1 to AptarGroup, Inc.’s Current Report on Form 8-K filed on May 13, 2013, is hereby incorporated by reference.

 

 

 

Exhibit 31.1

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

Exhibit 31.2

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

Exhibit 32.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

Exhibit 32.2

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

Exhibit 101

 

The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal 2013, filed with the SEC on August 5, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2013 and 2012, (ii) the Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2013 and 2012, (iii) the Condensed Consolidated Balance Sheets – June 30, 2013 and December 31, 2012, (iv) the Condensed Consolidated Statements of Changes in Equity - Six Months Ended June 30, 2013 and 2012, (v) the Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2013 and 2012 and (vi) the Notes to Condensed Consolidated Financial Statements.

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

AptarGroup, Inc.

 

(Registrant)

 

 

 

By /s/ ROBERT W. KUHN

 

Robert W. Kuhn

 

Executive Vice President,

 

Chief Financial Officer and Secretary

 

(Duly Authorized Officer and

 

Principal Accounting and Financial Officer)

 

 

 

 

 

 

 

Date: August 5, 2013

 

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INDEX OF EXHIBITS

 

Exhibit

 

 

Number

 

Description

 

 

 

10.1

 

AptarGroup Performance Incentive Plan, filed as Exhibit 10.1 to AptarGroup, Inc.’s Current Report on Form 8-K filed on May 13, 2013, is hereby incorporated by reference.

 

 

 

31.1

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101

 

The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal 2013, filed with the SEC on August 5, 2013, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2013 and 2012, (ii) the Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2013 and 2012, (iii) the Condensed Consolidated Balance Sheets – June 30, 2013 and December 31, 2012, (iv) the Condensed Consolidated Statements of Changes in Equity - Six Months Ended June 30, 2013 and 2012, (v) the Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2013 and 2012 and (vi) the Notes to Condensed Consolidated Financial Statements.