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APTARGROUP, INC. - Quarter Report: 2014 March (Form 10-Q)

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014

 

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.  (Check one):

 

Large accelerated filer þ

 

Accelerated filer ¨

 

Non-accelerated filer ¨

 

Smaller reporting company ¨

 

 

 

 

(Do not check if a smaller reporting company)

 

 

 

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

 

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

 

Class

 

Outstanding at April 30, 2014

Common Stock, $.01 par value per share

 

65,453,658 shares

 



Table of Contents

 

 

AptarGroup, Inc.

 

Form 10-Q

 

Quarter Ended March 31, 2014

 

INDEX

 

 

Part I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Income - Three Months Ended March 31, 2014 and 2013

1

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2014 and 2013

2

 

 

 

 

Condensed Consolidated Balance Sheets – March 31, 2014 and December 31, 2013

3

 

 

 

 

Condensed Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2014 and 2013

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2014 and 2013

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

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

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

22

 

 

 

Item 4.

Controls and Procedures

22

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

 

 

 

Item 6.

Exhibits

24

 

 

 

 

Signatures

25

 

 

 

 

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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 March 31,

 

2014

 

2013

 

 

 

 

 

 

 

Net Sales

 

$

676,051

 

$

617,633

 

Operating Expenses:

 

 

 

 

 

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

 

453,411

 

418,486

 

Selling, research & development and administrative

 

106,674

 

94,307

 

Depreciation and amortization

 

37,247

 

36,171

 

Restructuring initiatives

 

--

 

4,067

 

 

 

597,332

 

553,031

 

Operating Income

 

78,719

 

64,602

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

Interest expense

 

(4,881

)

(5,081

)

Interest income

 

1,016

 

849

 

Equity results of affiliates

 

(1,546

)

(262

)

Miscellaneous, net

 

372

 

(706

)

 

 

(5,039

)

(5,200

)

 

 

 

 

 

 

Income before Income Taxes

 

73,680

 

59,402

 

 

 

 

 

 

 

Provision for Income Taxes

 

25,272

 

19,424

 

 

 

 

 

 

 

Net Income

 

48,408

 

39,978

 

 

 

 

 

 

 

Net (Income)/Loss Attributable to Noncontrolling Interests

 

(19

)

51

 

 

 

 

 

 

 

Net Income Attributable to AptarGroup, Inc.

 

$

48,389

 

$

40,029

 

 

 

 

 

 

 

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

 

 

 

 

 

Basic

 

$

0.74

 

$

0.61

 

Diluted

 

$

0.71

 

$

0.59

 

 

 

 

 

 

 

Average Number of Shares Outstanding:

 

 

 

 

 

Basic

 

65,468

 

66,155

 

Diluted

 

68,232

 

68,296

 

 

 

 

 

 

 

Dividends per Common Share

 

$

0.25

 

$

0.25

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

In thousands

 

Three Months Ended March 31,

 

2014

 

2013

 

 

 

 

 

 

 

Net Income

 

$

48,408

 

$

39,978

 

Other Comprehensive Income (Loss):

 

 

 

 

 

Foreign currency translation adjustments

 

563

 

(35,613

)

Changes in treasury locks, net of tax

 

6

 

15

 

Defined benefit pension plan, net of tax

 

 

 

 

 

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

 

53

 

61

 

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

 

665

 

1,118

 

Total defined benefit pension plan, net of tax

 

718

 

1,179

 

Total other comprehensive income (loss)

 

1,287

 

(34,419

)

 

 

 

 

 

 

Comprehensive Income

 

49,695

 

5,559

 

 

 

 

 

 

 

Comprehensive (Income)/Loss Attributable to Noncontrolling Interests

 

(9

)

50

 

 

 

 

 

 

 

Comprehensive Income Attributable to AptarGroup, Inc.

 

$

49,686

 

$

5,609

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

In thousands

 

 

 

March 31,

 

December 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and equivalents

 

$

317,177

 

$

309,861

 

Accounts and notes receivable, less allowance for doubtful accounts of $5,063 in 2014 and $4,416 in 2013

 

505,505

 

438,221

 

Inventories

 

358,709

 

353,159

 

Prepaid and other

 

97,651

 

97,170

 

 

 

1,279,042

 

1,198,411

 

Property, Plant and Equipment:

 

 

 

 

 

Buildings and improvements

 

379,522

 

377,300

 

Machinery and equipment

 

2,016,784

 

1,982,195

 

 

 

2,396,306

 

2,359,495

 

Less: Accumulated depreciation

 

(1,550,359

)

(1,518,894

)

 

 

845,947

 

840,601

 

Land

 

24,104

 

24,061

 

 

 

870,051

 

864,662

 

 

 

 

 

 

 

Other Assets:

 

 

 

 

 

Investments in affiliates

 

6,730

 

8,243

 

Goodwill

 

359,681

 

358,865

 

Intangible assets, net

 

48,964

 

49,951

 

Miscellaneous

 

15,965

 

17,630

 

 

 

431,340

 

434,689

 

Total Assets

 

$

2,580,433

 

$

2,497,762

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

In thousands, except per share amounts

 

 

 

March 31,

 

December 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Notes payable

 

$

173,284

 

$

138,445

 

Current maturities of long-term obligations

 

1,004

 

1,325

 

Accounts payable and accrued liabilities

 

411,506

 

403,051

 

 

 

585,794

 

542,821

 

 

 

 

 

 

 

Long-Term Obligations

 

354,758

 

354,814

 

 

 

 

 

 

 

Deferred Liabilities and Other:

 

 

 

 

 

Deferred income taxes

 

40,780

 

42,072

 

Retirement and deferred compensation plans

 

75,002

 

71,883

 

Deferred and other non-current liabilities

 

5,213

 

5,864

 

Commitments and contingencies

 

--

 

--

 

 

 

120,995

 

119,819

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

AptarGroup, Inc. stockholders’ equity

 

 

 

 

 

Common stock, $.01 par value, 199 million shares authorized; 85.6 and 85.4 million shares issued as of March 31, 2014 and December 31, 2013, respectively

 

855

 

853

 

Capital in excess of par value

 

512,192

 

493,947

 

Retained earnings

 

1,651,442

 

1,619,419

 

Accumulated other comprehensive income

 

111,048

 

109,751

 

Less treasury stock at cost, 20.1 and 20.0 million shares as of March 31, 2014 and December 31, 2013, respectively

 

(757,211

)

(744,213

)

Total AptarGroup, Inc. Stockholders’ Equity

 

1,518,326

 

1,479,757

 

Noncontrolling interests in subsidiaries

 

560

 

551

 

 

 

 

 

 

 

Total Stockholders’ Equity

 

1,518,886

 

1,480,308

 

Total Liabilities and Stockholders’ Equity

 

$

2,580,433

 

$

2,497,762

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

In thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 2012:

 

$

1,513,558

 

$

60,683

 

$

840

 

$

(625,401

)

$

430,210

 

$

608

 

$

1,380,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

40,029

 

 

 

 

 

 

 

 

 

(51

)

39,978

 

Foreign currency translation adjustments

 

 

 

(35,614

)

 

 

 

 

 

 

1

 

(35,613

)

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

 

 

 

1,179

 

 

 

 

 

 

 

 

 

1,179

 

Changes in treasury locks, net of tax

 

 

 

15

 

 

 

 

 

 

 

 

 

15

 

Stock option exercises & restricted stock vestings

 

 

 

 

 

5

 

1

 

28,968

 

 

 

28,974

 

Cash dividends declared on common stock

 

(16,493

)

 

 

 

 

 

 

 

 

 

 

(16,493

)

Treasury stock purchased

 

 

 

 

 

 

 

(10,768

)

 

 

 

 

(10,768

)

Balance – March 31, 2013:

 

$

1,537,094

 

$

26,263

 

$

845

 

$

(636,168

)

$

459,178

 

$

558

 

$

1,387,770

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2013:

 

$

1,619,419

 

$

109,751

 

$

853

 

$

(744,213

)

$

493,947

 

$

551

 

$

1,480,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

48,389

 

 

 

 

 

 

 

 

 

19

 

48,408

 

Foreign currency translation adjustments

 

 

 

573

 

 

 

 

 

 

 

(10

)

563

 

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

 

 

 

718

 

 

 

 

 

 

 

 

 

718

 

Changes in treasury locks, net of tax

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Stock option exercises & restricted stock vestings

 

 

 

 

 

2

 

1

 

18,245

 

 

 

18,248

 

Cash dividends declared on common stock

 

(16,366

)

 

 

 

 

 

 

 

 

 

 

(16,366

)

Treasury stock purchased

 

 

 

 

 

 

 

(12,999

)

 

 

 

 

(12,999

)

Balance – March 31, 2014:

 

$

1,651,442

 

$

111,048

 

$

855

 

$

(757,211

)

$

512,192

 

$

560

 

$

1,518,886

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

In thousands, brackets denote cash outflows

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

2014

 

2013

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

 

$

48,408

 

$

39,978

 

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

 

 

 

 

 

Depreciation

 

35,849

 

34,934

 

Amortization

 

1,398

 

1,237

 

Stock based compensation

 

8,396

 

6,534

 

Provision/(Recovery) for doubtful accounts

 

716

 

(311

)

Deferred income taxes

 

(2,048

)

(4,668

)

Defined benefit plan expense

 

4,226

 

5,123

 

Equity in results of affiliates in excess of cash distributions received

 

1,546

 

262

 

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

 

 

 

 

 

Accounts receivable

 

(67,150

)

(52,022

)

Inventories

 

(6,007

)

(9,720

)

Prepaid and other current assets

 

(5,666

)

(8,947

)

Accounts payable and accrued liabilities

 

6,320

 

5,528

 

Income taxes payable

 

(5,097

)

4,509

 

Retirement and deferred compensation plans

 

(3,174

)

(3,118

)

Other changes, net

 

14,329

 

6,790

 

Net Cash Provided by Operations

 

32,046

 

26,109

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Capital expenditures

 

(42,914

)

(34,832

)

Disposition of property and equipment

 

2,378

 

2,162

 

Net Cash Used by Investing Activities

 

(40,536

)

(32,670

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Proceeds from notes payable

 

35,609

 

14,754

 

Repayments of long-term obligations

 

(293

)

(585

)

Dividends paid

 

(16,366

)

(16,493

)

Credit facility costs

 

(299

)

(497

)

Proceeds from stock option exercises

 

7,770

 

19,540

 

Purchase of treasury stock

 

(12,999

)

(10,768

)

Excess tax benefit from exercise of stock options

 

1,590

 

2,403

 

Net Cash Provided by Financing Activities

 

15,012

 

8,354

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash

 

794

 

(6,444

)

 

 

 

 

 

 

Net Increase/(Decrease) in Cash and Equivalents

 

7,316

 

(4,651

)

Cash and Equivalents at Beginning of Period

 

309,861

 

229,755

 

Cash and Equivalents at End of Period

 

$

317,177

 

$

225,104

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

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AptarGroup, Inc.

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of AptarGroup, Inc. and our subsidiaries.  The terms “AptarGroup” or “Company” as used herein refer to AptarGroup, Inc. and our subsidiaries.  All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the Unaudited Condensed Consolidated Financial Statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of consolidated financial position, results of operations, 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, 2013 but does not include all disclosures required by GAAP.  Accordingly, these Unaudited Condensed Consolidated Financial Statements and related notes should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.  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 July 2013, the FASB issued authoritative guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This standard requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The guidance is effective for the Company’s fiscal years beginning after December 15, 2013.  This standard did not impact our current year financial statements as this was already the Company’s existing reporting treatment.

In March 2013, the FASB issued authoritative 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 is effective for the Company’s fiscal years beginning after December 15, 2013.  This standard has only a minimal impact on our current year financial statements.

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 Unaudited Condensed Consolidated Financial Statements other than disclosure.  Additional information can be found in Note 6 of the Unaudited Notes to the 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 Unaudited Condensed Consolidated Financial Statements other than disclosure.  Additional information can be found in Note 7 of the Unaudited Notes to the Condensed Consolidated Financial Statements.

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 Unaudited Condensed Consolidated Financial Statements upon adoption.

 

INCOME TAXES

The Company computes taxes on income in accordance with the tax rules and regulations of the many taxing authorities where 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 our reported amount in the financial statements, an appropriate provision for deferred income taxes is made.

In our 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 our 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 our accumulated

 

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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 for taxes on earnings that are deemed to be permanently reinvested.  Since no distribution to the U.S. of foreign earnings is expected in 2014, the effective tax rate for 2014 includes no tax cost of repatriation.

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

 

NOTE 2 - INVENTORIES

 

At March 31, 2014 and December 31, 2013, approximately 19% and 20%, respectively, of the total inventories are accounted for by the LIFO method.  Inventories, by component, consisted of:

 

 

 

 

March 31,

 

December 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Raw materials

 

$

116,976

 

$

114,501

 

Work in process

 

107,450

 

108,924

 

Finished goods

 

142,723

 

137,591

 

Total

 

367,149

 

361,016

 

Less LIFO Reserve

 

(8,440

)

(7,857

)

Total

 

$

358,709

 

$

353,159

 

 

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

 

The changes in the carrying amount of goodwill since the year ended December 31, 2013 are as follows by reporting segment:

 

 

 

 

Beauty +

 

 

 

Food +

 

Corporate

 

 

 

 

 

Home

 

Pharma

 

Beverage

 

& Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

181,002

 

$

159,949

 

$

17,914

 

$

1,615

 

$

360,480

 

Accumulated impairment losses

 

--

 

--

 

--

 

(1,615

)

(1,615

)

Balance as of December 31, 2013

 

$

181,002

 

$

159,949

 

$

17,914

 

$

--

 

$

358,865

 

Acquisition

 

--

 

--

 

--

 

--

 

--

 

Foreign currency exchange effects

 

345

 

489

 

(18

)

--

 

816

 

Goodwill

 

$

181,347

 

$

160,438

 

$

17,896

 

$

1,615

 

$

361,296

 

Accumulated impairment losses

 

--

 

--

 

--

 

(1,615

)

(1,615

)

Balance as of March 31, 2014

 

$

181,347

 

$

160,438

 

$

17,896

 

$

--

 

$

359,681

 

 

The table below shows a summary of intangible assets as of March 31, 2014 and December 31, 2013.

 

 

 

 

 

 

March 31, 2014

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

Amortization

 

Carrying

 

Accumulated

 

Net

 

Carrying

 

Accumulated

 

Net

 

Period (Years)

 

Amount

 

Amortization

 

Value

 

Amount

 

Amortization

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patents

 

7

 

$

20,210

 

$

(19,842

)

$

368

 

$

20,165

 

$

(19,732

)

$

433

 

Acquired Technology

 

15

 

40,641

 

(4,742

)

35,899

 

40,546

 

(4,055

)

36,491

 

License agreements and other

 

5

 

35,650

 

(22,953

)

12,697

 

35,259

 

(22,232

)

13,027

 

Total intangible assets

 

10

 

$

96,501

 

$

(47,537

)

$

48,964

 

$

95,970

 

$

(46,019

)

$

49,951

 

 

Aggregate amortization expense for the intangible assets above for the quarters ended March 31, 2014 and 2013 was $1,398 and $1,237, respectively.

 

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

 

2014

 

$

4,133

             (remaining estimated amortization for 2014)

 

2015

 

5,349

 

 

2016

 

4,343

 

 

2017

 

3,619

 

 

2018 and thereafter

 

31,520

 

 

 

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Table of Contents

 

Future amortization expense may fluctuate depending on changes in foreign currency rates.  The estimates for amortization expense noted above are based upon foreign exchange rates as of March 31, 2014.

 

NOTE 4 — INCOME TAX UNCERTAINTIES

 

The Company had approximately $7.2 and $8.0 million recorded for income tax uncertainties as of March 31, 2014 and December 31, 2013, respectively.  The $0.8 million change in income tax uncertainties was primarily the result of an audit settlement in the U.S.  The amount, if recognized, that would impact the effective tax rate is $7.0 and $7.8 million, respectively. The Company estimates that it is reasonably possible that the liability for uncertain tax positions will decrease by no more than $5 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 5 — RETIREMENT AND DEFERRED COMPENSATION PLANS

 

Components of Net Periodic Benefit Cost:

 

 

 

 

Domestic Plans

 

Foreign Plans

 

Three months ended March 31,

 

2014

 

2013

 

2014

 

2013

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

2,011

 

$

2,225

 

$

1,079

 

$

969

 

Interest cost

 

1,482

 

1,250

 

699

 

665

 

Expected return on plan assets

 

(1,646

)

(1,414

)

(510

)

(452

)

Amortization of net loss

 

717

 

1,434

 

313

 

352

 

Amortization of prior service cost

 

--

 

1

 

81

 

93

 

Net periodic benefit cost

 

$

2,564

 

$

3,496

 

$

1,662

 

$

1,627

 

 

EMPLOYER CONTRIBUTIONS

Although the Company has no minimum funding requirement, we plan to contribute approximately $10 million to our domestic defined benefit plans in 2014.  No 2014 contributions were made as of March 31, 2014. The Company also expects to contribute approximately $5.6 million to our foreign defined benefit plans in 2014 and, as of March 31, 2014, we have contributed approximately $0.8 million.

 

NOTE 6 — ACCUMULATED OTHER COMPREHENSIVE INCOME

 

Changes in Accumulated Other Comprehensive Income by Component:

 

 

 

Foreign
Currency

 

Defined Benefit
Pension Plans

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2012

 

$

 

120,097

 

$

 

(59,248

)

$

 

(166

)

$

 

60,683

 

Other comprehensive income before reclassifications

 

(35,614

)

--

 

--

 

(35,614

)

Amounts reclassified from accumulated other comprehensive income

 

--

 

1,179

 

15

 

1,194

 

Net current-period other comprehensive income

 

(35,614

)

1,179

 

15

 

(34,420

)

Balance - March 31, 2013

 

$

 

84,483

 

$

 

(58,069

)

$

 

(151

)

$

 

26,263

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2013

 

$

 

149,965

 

$

 

(40,093

)

$

 

(121

)

$

 

109,751

 

Other comprehensive income before reclassifications

 

913

 

--

 

--

 

913

 

Amounts reclassified from accumulated other comprehensive income

 

(340

)

718

 

6

 

384

 

Net current-period other comprehensive income

 

573

 

718

 

6

 

1,297

 

Balance - March 31, 2014

 

$

 

150,538

 

$

 

(39,375

)

$

 

(115

)

$

 

111,048

 

 

9



Table of Contents

 

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 March 31,

 

2014

 

2013

 

 

 

 

 

 

 

 

 

Defined Benefit Pension Plans

 

 

 

 

 

 

Amortization of net loss

 

$

1,030

 

$

1,786

 

(a)

Amortization of prior service cost

 

81

 

94

 

(a)

 

 

1,111

 

1,880

 

Total before tax

 

 

(393

)

(701

)

Tax benefit

 

 

$

718

 

$

1,179

 

Net of tax

 

 

 

 

 

 

 

Foreign Currency

 

 

 

 

 

 

Foreign Currency Gain

 

(340

)

--

 

Miscellaneous, net

 

 

(340

)

--

 

Total before tax

 

 

--

 

--

 

Tax benefit

 

 

$

(340

)

$

--

 

Net of tax

Other

 

 

 

 

 

 

Changes in treasury locks

 

9

 

23

 

Interest Expense

 

 

9

 

23

 

Total before tax

 

 

(3

)

(8

)

Tax benefit

 

 

$

6

 

$

15

 

Net of tax

Total reclassifications for the period

 

$

384

 

$

1,194

 

 

 

(a)         These accumulated other comprehensive income components are included in the computation of net periodic benefit costs, net of tax (see Note 5 — Retirement and Deferred Compensation Plans for additional details).

 

NOTE 7 — 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 our net foreign currency transaction exposure defined as firm commitments and transactions recorded and denominated in currencies other than the functional currency.  The Company may use foreign currency forward exchange contracts, options and cross currency swaps to economically hedge these risks.

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

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

 

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 our foreign subsidiaries where the Company’s net investment is likely to be monetized, the Company will consider hedging the currency exposure associated with such a transaction.

 

OTHER

As of March 31, 2014, the Company has recorded the fair value of foreign currency forward exchange contracts of $1.1 million in prepaid and other, $0.1 million in miscellaneous other assets, $1.2 million in accounts payable and accrued liabilities, and $0.1 million in deferred and other non-current liabilities in the balance sheet.  All forward exchange contracts outstanding as of March 31, 2014 had an aggregate contract amount of $146 million.

 

10



Table of Contents

 

 

 

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of March 31, 2014

and December 31, 2013

 

Derivative Contracts Not Designated
as Hedging Instruments

 

Balance Sheet
Location

 

March 31,
2014

 

December 
31, 2013

 

 

 

 

 

 

 

 

 

Derivative Assets

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Prepaid and other

 

$

1,124

 

$

3,003

 

Foreign Exchange Contracts

 

Miscellaneous Other Assets

 

62

 

985

 

 

 

 

 

$

1,186

 

$

3,988

 

Derivative Liabilities

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Accounts payable and accrued liabilities

 

$

1,168

 

$

522

 

Foreign Exchange Contracts

 

Deferred and other non-current liabilities

 

75

 

110

 

 

 

 

 

$

1,243

 

$

632

 

 

 

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

for the Quarters Ended March 31, 2014 and March 31, 2013

 

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

 

 

 

 

 

2014

 

2013

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Income (Expense) Miscellaneous, net

 

$

(159

)

$

(2,598

)

 

 

 

 

$

(159

)

$

(2,598

)

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

1,186

 

--

 

$

1,186

 

--

 

--

 

$

1,186

 

Total Assets

 

$

1,186

 

--

 

$

1,186

 

--

 

--

 

$

1,186

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

1,243

 

--

 

$

1,243

 

--

 

--

 

$

1,243

 

Total Liabilities

 

$

1,243

 

--

 

$

1,243

 

--

 

--

 

$

1,243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

3,988

 

--

 

$

3,988

 

--

 

--

 

$

3,988

 

Total Assets

 

$

3,988

 

--

 

$

3,988

 

--

 

--

 

$

3,988

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

632

 

--

 

$

632

 

--

 

--

 

$

632

 

Total Liabilities

 

$

632

 

--

 

$

632

 

--

 

--

 

$

632

 

 

NOTE 8 — 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 March 31, 2014, 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)

 

$

1,186

 

$

--

 

$

1,186

 

$

--

 

Total assets at fair value

 

$

1,186

 

$

--

 

$

1,186

 

$

--

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Forward exchange contracts (a)

 

$

1,243

 

$

--

 

$

1,243

 

$

--

 

Total liabilities at fair value

 

$

1,243

 

$

--

 

$

1,243

 

$

--

 

 

 

As of December 31, 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)

 

$

3,988

 

$

--

 

$

3,988

 

$

--

 

Total assets at fair value

 

$

3,988

 

$

--

 

$

3,988

 

$

--

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Forward exchange contracts (a)

 

$

632

 

$

--

 

$

632

 

$

--

 

Total liabilities at fair value

 

$

632

 

$

--

 

$

632

 

$

--

 

 

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

 

11



Table of Contents

 

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 our 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 $368 million as of March 31, 2014 and $363 million as of December 31, 2013.

 

NOTE 9 —- 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 pursued the issue in the Appellate Court, where certain rulings were confirmed and others were returned to the district court, where a trial date was set for March 2014.  On February 13, 2014, the parties agreed to a license agreement, effectively ending the lawsuit and its related costs.

Under our Certificate of Incorporation, the Company has agreed to indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our 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 our exposure.  As a result of our 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 March 31, 2014.

 

NOTE 10 — STOCK REPURCHASE PROGRAM

 

During the three months ended March 31, 2014, the Company repurchased approximately 200 thousand shares for approximately $13.0 million.  As of March 31, 2014, the Company has a remaining authorization to repurchase 3.8 million additional shares.  The timing of and total amount expended for the share repurchase depends upon market conditions.

 

NOTE 11 — 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 three months of 2014 was approximately $8.4 million ($5.5 million after tax).  The income tax benefit related to this compensation expense was approximately $2.9 million.  Approximately $7.6 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 three months of 2013 was approximately $6.5 million ($4.4 million after tax).  The income tax benefit related to this compensation expense was approximately $2.1 million.  Approximately $5.9 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 $14.84 and $10.07 per share in 2014 and 2013, respectively.  These values were estimated on the respective dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

12



Table of Contents

 

 

Stock Awards Plans:

 

 

 

 

 

Three months ended March 31,

 

2014

 

2013

 

 

 

 

 

 

 

Dividend Yield

 

1.7

%

1.8

%

Expected Stock Price Volatility

 

22.2

%

22.7

%

Risk-free Interest Rate

 

2.3

%

1.2

%

Expected Life of Option (years)

 

6.9

 

6.9

 

 

There were no grants under the Director Stock Option Plan during the three months ended March 31, 2014 and 2013.

 

A summary of option activity under the Company’s stock plans as of March 31, 2014, and changes during the three months then ended is presented below:

 

 

 

 

Stock Awards Plans

 

Director Stock Option Plans

 

 

 

 

 

Weighted Average

 

 

 

Weighted Average

 

 

 

Shares

 

Exercise Price

 

Shares

 

Exercise Price

 

 

 

 

 

 

 

 

 

 

 

Outstanding, January 1, 2014

 

7,815,932

 

$

41.26

 

313,834

 

$

48.85

 

Granted

 

1,349,850

 

68.00

 

--

 

--

 

Exercised

 

(216,498

)

33.82

 

--

 

--

 

Forfeited or expired

 

(19,400

)

50.18

 

--

 

--

 

Outstanding at March 31, 2014

 

8,929,884

 

$

45.47

 

313,834

 

$

48.85

 

Exercisable at March 31, 2014

 

6,252,800

 

$

39.23

 

146,000

 

$

42.05

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Remaining Contractual Term (Years):

 

 

 

 

 

Outstanding at March 31, 2014

 

6.5

 

 

 

7.3

 

 

 

Exercisable at March 31, 2014

 

5.3

 

 

 

5.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate Intrinsic Value ($000):

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2014

 

$

186,827

 

 

 

$

5,415

 

 

 

Exercisable at March 31, 2014

 

$

168,000

 

 

 

$

3,511

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

March 31, 2014

 

$

6,912

 

 

 

$

--

 

 

 

March 31, 2013

 

$

16,515

 

 

 

$

--

 

 

 

 

The fair value of shares vested during the three months ended March 31, 2014 and 2013 was $13.0 million and $12.1 million, respectively.  Cash received from option exercises was approximately $2.4 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $7.8 million in the three months ended March 31, 2014.  As of March 31, 2014, the remaining valuation of stock option awards to be expensed in future periods was $21.0 million and the related weighted-average period over which it is expected to be recognized is 1.6 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 March 31, 2014, and changes during the period then ended is presented below:

 

 

 

 

 

 

Weighted-Average

 

 

 

Shares

 

Grant-Date Fair Value

 

 

 

 

 

 

 

Nonvested at January 1, 2014

 

25,681

 

$

53.49

 

Granted

 

43,671

 

67.57

 

Vested

 

(9,355

)

52.50

 

Nonvested at March 31, 2014

 

59,997

 

$

63.90

 

 

Compensation expense recorded attributable to restricted stock unit grants for the first three months of 2014 and 2013 was approximately $733 thousand and $416 thousand, respectively.  The fair value of units vested during the three months ended March 31, 2014 and 2013 was $491 thousand and $496 thousand, respectively.  The intrinsic value of units vested during the three months ended March 31, 2014 and 2013 was $613 thousand and $582 thousand, respectively.  As of March 31, 2014 there was $2.7 million of total unrecognized compensation cost relating to restricted stock unit awards which is expected to be recognized over a weighted-average period of 1.8 years.

During the first quarter of 2014, the Company approved a new long-term incentive program for certain employees.  The program is based on the cumulative total shareholder return of our common stock during a three year performance period.  Total expense related to this program is expected to be approximately $1.2 million over the performance period, of which $159 thousand was recognized in the first quarter of 2014.

 

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NOTE 12 — 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:

 

 

 

 

March 31, 2014

 

March 31, 2013

 

 

 

Diluted

 

Basic

 

Diluted

 

Basic

 

Consolidated operations

 

 

 

 

 

 

 

 

 

Income available to common shareholders

 

$

48,389

 

$

48,389

 

$

40,029

 

$

40,029

 

 

 

 

 

 

 

 

 

 

 

Average equivalent shares

 

 

 

 

 

 

 

 

 

Shares of common stock

 

65,468

 

65,468

 

66,155

 

66,155

 

Effect of dilutive stock based compensation

 

 

 

 

 

 

 

 

 

Stock options

 

2,738

 

--

 

2,133

 

--

 

Restricted stock

 

26

 

--

 

8

 

--

 

Total average equivalent shares

 

68,232

 

65,468

 

68,296

 

66,155

 

Net income per share

 

$

.71

 

$

.74

 

$

.59

 

$

.61

 

 

NOTE 13 — SEGMENT INFORMATION

 

The Company operates in the packaging components industry, which includes the development, manufacture and sale of consumer product dispensing solutions.  The Company is organized into three reporting segments.  Operations that sell dispensing systems primarily to the personal care, beauty and home care markets form the Beauty + Home segment.  Operations that sell dispensing systems primarily to the prescription drug, consumer health care and injectables 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, 2013.  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 March 31,

 

2014

 

2013

 

 

 

 

 

 

 

Total Revenue:

 

 

 

 

 

Beauty + Home

 

$

398,540

 

$

367,183

 

Pharma

 

194,349

 

168,893

 

Food + Beverage

 

90,626

 

85,333

 

Total Revenue

 

$

683,515

 

$

621,409

 

 

 

 

 

 

 

Less: Intersegment Sales:

 

 

 

 

 

Beauty + Home

 

$

7,304

 

$

3,711

 

Pharma

 

--

 

24

 

Food + Beverage

 

160

 

41

 

Total Intersegment Sales

 

$

7,464

 

$

3,776

 

 

 

 

 

 

 

Net Sales:

 

 

 

 

 

Beauty + Home

 

$

391,236

 

$

363,472

 

Pharma

 

194,349

 

168,869

 

Food + Beverage

 

90,466

 

85,292

 

Net Sales

 

$

676,051

 

$

617,633

 

 

 

 

 

 

 

Segment Income (1):

 

 

 

 

 

Beauty + Home

 

$

27,781

 

$

24,415

 

Pharma

 

52,482

 

45,980

 

Food + Beverage

 

9,080

 

8,550

 

Restructuring Initiatives and Related Depreciation

 

--

 

(4,526

)

Corporate & Other

 

(11,798

)

(10,785

)

Income before interest and taxes

 

$

77,545

 

$

63,634

 

Interest expense, net

 

(3,865

)

(4,232

)

Income before income taxes

 

$

73,680

 

$

59,402

 

 

(1)                                 The Company evaluates performance of our 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 months ended March 31, 2014 as follows:

 

Three months ended March 31,

 

2014

 

2013

 

 

 

 

 

 

 

European Restructuring Plan

 

 

 

 

 

Depreciation

 

$

--

 

$

459

 

Employee Severance and Other Costs

 

--

 

4,067

 

Total Restructuring Initiatives and Related Depreciation Expense

 

$

--

 

$

4,526

 

Restructuring Initiatives and Related Depreciation Expense by Segment

 

 

 

 

 

Beauty + Home

 

$

--

 

$

4,526

 

Total Restructuring Initiatives and Related Depreciation Expense

 

$

--

 

$

4,526

 

 

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NOTE 14 — ACQUISITIONS

 

In December 2013, AptarGroup acquired a 20% non-controlling investment in Bapco Closures Holding Limited (Bapco) for approximately $5.2 million.  In addition to this equity stake, the Company secured an exclusive global license related to innovative closures sealing technology that provides package integrity and tamper evidence.  This investment is being accounted for under the equity method of accounting from the date of acquisition and since it does not have a material impact on the results of operations in 2014 or 2013, pro forma information is not presented.

 

NOTE 15 — RESTRUCTURING INITIATIVES

 

in November 2012, the Company announced a plan to optimize certain capacity in Europe.  Due to increased production efficiencies and to better position the Company for future growth in Europe, AptarGroup transferred and consolidated production capacity involving twelve facilities.  Two facilities have closed impacting approximately 170 employees.  The locations involved in the plan are facilities serving the beauty, personal care, food, beverage, and consumer health care markets.  As of December 31, 2013, the plan was substantially complete.  The cumulative expense incurred was $19.5 million.  As of March 31, 2014 we have recorded the following activity associated with our European restructuring plan:

 

 

 

Beginning

 

Net Charges for

 

 

 

 

 

Ending

 

 

 

Reserve at

 

the Three Months

 

 

 

 

 

Reserve at

 

 

 

12/31/13

 

Ended 3/31/14

 

Cash Paid

 

FX Impact

 

3/31/14

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee severance

 

$

2,521

 

$

--

 

$

(1,880

)

$

(1

)

$

640

 

Other costs

 

1,735

 

--

 

(492

)

13

 

1,256

 

Totals

 

$

4,256

 

$

--

 

$

(2,372

)

$

12

 

$

1,896

 

 

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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

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

 

2014

 

2013

 

 

 

 

 

 

 

Net Sales

 

100.0

%

100.0

%

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

 

67.1

 

67.8

 

Selling, research & development and administrative

 

15.8

 

15.3

 

Depreciation and amortization

 

5.5

 

5.9

 

Restructuring initiatives

 

--

 

0.6

 

Operating Income

 

11.6

 

10.4

 

Other expense

 

(0.7

)

(0.8

)

Income before Income Taxes

 

10.9

 

9.6

 

 

 

 

 

 

 

Net Income

 

7.2

%

6.5

%

 

 

 

 

 

 

Effective Tax Rate

 

34.3

%

32.7

%

 

NET SALES

 

We reported net sales of $676.1 million for the quarter ended March 31, 2014, 9% above first quarter 2013 reported net sales of $617.6 million.  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, Argentine Peso, Indian Rupee and Russian Ruble in the first quarter of 2014 compared to the first quarter of 2013 and, as a result, net changes in exchange rates did not impact our total reported sales growth.  Therefore, sales excluding changes in foreign currency rates also increased by 9% in the first quarter of 2014 compared to the first quarter of 2013.  Strong product sales across all three segments drove the overall increase in sales:

 

 

 

Beauty

 

 

 

Food +

 

 

 

Net Sales Change over Prior Year

 

+ Home

 

Pharma

 

Beverage

 

Total

 

 

 

 

 

 

 

 

 

 

 

Product Sales (including tooling)

 

9

%

12

%

5

%

9

%

Currency Effects

 

(1

%)

3

%

1

%

--

 

Total Reported Net Sales Growth

 

8

%

15

%

6

%

9

%

 

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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

 

2014

 

% of Total

 

2013

 

% of Total

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

$

170,677

 

25

%

$

157,228

 

25

%

Europe

 

399,459

 

59

%

356,526

 

58

%

Other Foreign

 

105,915

 

16

%

103,879

 

17

%

 

COST OF SALES (EXCLUSIVE OF DEPRECIATION SHOWN BELOW)

 

Our cost of sales as a percent of net sales decreased to 67.1% in the first quarter of 2014 compared to 67.8% in the first quarter of 2013.  The decrease is partially due to increased sales volumes across each segment allowing for greater operating leverage and the fact that our Pharma segment had the strongest sales growth of our three segments.  This positively impacts our cost of sales percentage as margins on our pharmaceutical products typically are higher than the overall Company average.  The impact of positive resin pass-throughs of approximately $1.5 million along with certain cost savings initiatives were partially offset by negative currency transaction effects and start-up costs for our new facilities in Latin America.  Traditionally, sales of custom tooling generate lower margins than our regular product sales; thus, a decrease in the sales of custom tooling percentage positively impacted cost of sales as a percentage of sales.

 

SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

 

Our Selling, Research & Development and Administrative expenses (“SG&A”) increased by approximately $12.4 million in the first quarter of 2014 compared to the same period a year ago.  Excluding changes in foreign currency rates, SG&A increased by

 

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Table of Contents

 

approximately $11.8 million in the quarter.  The increase is due to several factors including increases in compensation, professional and legal fees, information technology charges and investments in research and development.  SG&A as a percentage of net sales increased to 15.8% compared to 15.3% in the same period of the prior year as the cost increases noted above outpaced the increase in sales in the quarter.

 

DEPRECIATION AND AMORTIZATION

 

Reported depreciation and amortization expenses increased by approximately $1.1 million in the first quarter of 2014 compared to the same period a year ago.  Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $0.7 million in the quarter compared to the same period a year ago.  Additional investments in our new products along with continued roll-out of our global enterprise resource planning system offset $0.5 million of accelerated depreciation related to our restructuring initiatives in 2013.  Due to the increase in net sales, depreciation and amortization as a percentage of net sales decreased to 5.5% in the first quarter of 2014 compared to 5.9% for the same period a year ago.

 

RESTRUCTURING INITIATIVES

 

In November 2012, the Company announced a plan to optimize certain capacity in Europe.  Due to increased production efficiencies and to better position the Company for future growth in Europe, AptarGroup transferred and consolidated production capacity involving twelve facilities.  Under the plan, two facilities, one in Italy and one in Switzerland, closed, impacting approximately 170 employees.  During the first quarter of 2013, we recognized $4.1 million of restructuring expenses along with the $0.5 million of accelerated depreciation of assets.  The plan was substantially completed at the end of 2013 with total costs of approximately $19.5 million.  Savings from the plan are expected to be in the range of $10 million to $12 million on an annualized basis.

 

OPERATING INCOME

 

Operating income increased approximately $14.1 million in the first quarter of 2014 to $78.7 million compared to $64.6 million in the same period in the prior year.  Excluding changes in foreign currency rates, operating income increased by approximately $12.7 million in the quarter compared to the same period a year ago.  As mentioned above, the first quarter of 2013 was negatively impacted by $4.1 million of restructurings costs along with $0.5 million of accelerated depreciation related to our restructuring initiatives.  The remaining increase in operating income is mainly due to higher product sales noted above.  Operating income as a percentage of net sales increased to 11.6% in the first quarter of 2014 compared to 10.4% for the same period in the prior year.

 

NET OTHER EXPENSE

 

Net other expenses in the first quarter of 2014 decreased slightly to $5.0 million from $5.2 million in the same period in the prior year.  Lower interest expenses and hedging costs were offset by the recognition of a $1.5 million write-down on a non-controlling investment to align with the current fair value.

 

EFFECTIVE TAX RATE

 

The reported effective tax rate increased to 34.3% in the first quarter of 2014 compared to 32.7% in the first quarter of 2013.  The increase in the rate is primarily attributable to tax law changes in France in December 2013.  This increase was partially offset by the reduction in repatriation costs.  In addition, the tax rate for 2013 was favorably impacted by an Italian tax law change which allowed us to claim a refund from prior year taxes paid.

 

NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.

 

We reported net income attributable to AptarGroup, Inc. of $48.4 million in the first quarter of 2014 compared to $40.0 million in the first quarter of 2013.

 

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 March 31,

 

2014

 

2013

 

 

 

 

 

 

 

Net Sales

 

$391,236

 

$363,472

 

Segment Income

 

27,781

 

24,415

 

Segment Income as a percentage of Net Sales

 

7.1

%

6.7

%

 

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Table of Contents

 

Net sales for the quarter ended March 31, 2014 increased 8% to $391.2 million compared to $363.5 million in the first quarter of the prior year.  Excluding foreign currency changes, sales increased 9% in the first quarter of 2014 compared to the same quarter of the prior year.  Sales, excluding foreign currency changes, to the beauty and personal care markets both increased by 10% in the first quarter of 2014 compared to the same period in the prior year.  The increase is mainly due to strong product sales across all regions, especially for both markets in Europe and North America.  Increases in resin pass throughs to our customers positively impacted sales by approximately $1.0 million but were offset by lower customer tooling sales of $1.4 million in the first quarter of 2014 compared to the first quarter of the prior year.

Segment income for the first quarter of 2014 increased approximately 14% to $27.8 million from $24.4 million reported in the same period in the prior year.  The increase compared to the prior year is due mostly to the higher product sales discussed above, increases from resin pass through, savings related to our European optimization plan and better productivity in North America.  These improvements were slightly offset by negative currency transaction effects, start-up costs for our new facilities in Latin America and higher SG&A costs mainly related to professional and legal fees.

 

PHARMA SEGMENT

 

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

 

 

Three Months Ended March 31,

 

2014

 

2013

 

 

 

 

 

 

 

Net Sales

 

$194,349

 

$168,869

 

Segment Income

 

52,482

 

45,980

 

Segment Income as a percentage of Net Sales

 

27.0

%

27.2

%

 

Net sales for the Pharma segment increased by 15% in the first quarter of 2014 to $194.3 million compared to $168.9 million in the first quarter of 2013.  Foreign currency changes had a positive impact of 3% on the total segment sales.  Excluding changes in foreign currency rates, sales increased by 12% in the first quarter of 2014 compared to the first quarter of 2013.  Excluding foreign currency rate changes, sales to the prescription, consumer health care and injectables markets increased 9%, 27% and 6%, respectively, in the first quarter of 2014 compared to the same period in the prior year.  Product sales increased in all three markets, especially on the strength of metered dose valves for asthma treatment to the prescription market and non-prescription nasal decongestant sales to the consumer health care market.  Excluding changes in foreign currency rates, customer tooling sales also improved by $2.5 million over the prior year.

Segment income in the first quarter of 2014 increased approximately 14% to $52.5 million compared to $46.0 million reported in the same period in the prior year.  This increase is mainly due to the higher product and tooling sales to all three markets as discussed above offset slightly by higher selling and information system implementation costs.  The Pharma segment also recognized a $1.5 million expense related to the write-down of a minority interest investment to align with the current fair value.

 

FOOD + BEVERAGE SEGMENT

 

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

 

 

Three Months Ended March 31,

 

2014

 

2013

 

 

 

 

 

 

 

Net Sales

 

$90,466

 

$85,292

 

Segment Income

 

9,080

 

8,550

 

Segment Income as a percentage of Net Sales

 

10.0

%

10.0

%

 

Net sales for the quarter ended March 31, 2014 increased approximately 6% to $90.5 million compared to $85.3 million in the first quarter of the prior year.  Foreign currency changes had a positive impact of 1% on the total segment sales.  Excluding changes in foreign currency rates, sales increased by 5% in the first quarter of 2014 compared to the first quarter of 2013. Excluding foreign currency rate changes, sales to the food market increased 4% and sales to the beverage market increased approximately 7% in the first quarter of 2014 compared to the same period in the prior year.  The increase to the food market is being driven by strong condiment sales while the beverage increase is mainly due to increased bottled water and functional drink sales in Asia. Increases in resin pass throughs to our customers positively impacted sales by approximately $2.1 million but were offset by lower customer tooling sales of approximately $1.0 million due to several large projects which closed in the first quarter of 2013.

Segment income in the first quarter of 2014 increased approximately 6% to $9.1 million compared to $8.6 million during the same period in the prior year.  Improved product sales and increases from resin pass throughs noted above contributed to the improvements in the first quarter of 2014 compared to the same period in the prior year.  This improvement was slightly offset by a higher investment in research and development, especially around our BAP technology.

 

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Table of Contents

 

CORPORATE & OTHER

 

In addition to our three operating business segments, AptarGroup assigns certain costs to “Corporate & Other,” which is presented separately in Note 13 of the Unaudited Notes to the Condensed Consolidated Financial Statements.  Corporate & Other primarily includes certain professional fees, compensation and information system costs which are not allocated directly to our operating segments.  Corporate & Other expense increased to $11.8 million for the quarter ended March 31, 2014 compared to $10.8 million in the first quarter of the prior year mainly due to increases in professional fees along with higher personnel costs and stock compensation expenses due to a higher Black Sholes valuation.

 

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.  Recently we have experienced volatility in certain Latin American and Asian currencies, including the Argentine Peso, Brazilian Real, Indian Rupee and the Russian Ruble.  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 weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial statements.  Conversely, a strengthening U.S. dollar has a dilutive 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 last quarter of the year typically are negatively impacted by 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 higher 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 the year 2014 compared to 2013 is as follows:

 

 

 

2014

 

2013

 

First Quarter

 

$

8.4

 

$

6.5

 

Second Quarter (estimated for 2014)

 

3.7

 

2.8

 

Third Quarter (estimated for 2014)

 

2.9

 

2.2

 

Fourth Quarter (estimated for 2014)

 

2.9

 

2.2

 

 

 

$

17.9

 

$

13.7

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our primary sources of liquidity are cash flow from operations and our revolving credit facility.  In the first quarter of 2014, our operations provided approximately $32.0 million in cash flow compared to $26.1 million for the same period a year ago.  In both periods, cash flow from operations was primarily derived from earnings before depreciation and amortization.  During the first quarter of 2014, we utilized the majority of the operating cash flows to finance capital expenditures.

We used $40.5 million in cash for investing activities during the first quarter of 2014, compared to $32.7 million during the same period a year ago.  The increase in cash used for investing activities is due primarily to $8.1 million more spent on capital expenditures in the first quarter of 2014 compared to the first quarter of 2013.  Cash outlays for capital expenditures for 2014 are estimated to be approximately $190 million but could vary due to changes in exchange rates as well as the timing of capital projects.

Proceeds from financing activities were $15.0 million in the first quarter of 2014 compared to $8.4 million in the first quarter of the prior year.  The increase in cash from financing activities was primarily due to an increase in the proceeds from notes payable primarily used to cover working capital needs in the first quarter of 2014.

Cash and equivalents increased to $317.2 million at March 31, 2014 from $309.9 million at December 31, 2013.  Total short and long-term interest bearing debt increased in the first quarter of 2014 to $529.0 million from $494.6 million at December 31, 2013.  The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholder’s equity plus Net Debt) was 12.2% at March 31, 2014 compared to 11.1% at December 31, 2013.

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 at times, the repatriations of current year foreign earnings.  Specifically, in the U.S., we have an unsecured $300 million revolving line of credit of which $135 million was unused and available as of March 31, 2014 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.  On January 31, 2014, we amended the revolving credit facility to, among other things, increase the amount of permitted receivables transactions from $100 to $150 million, reduce the cost of committed funds by 12.5 basis points and

 

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Table of Contents

 

uncommitted funds by 2.5 basis points, and extend the maturity date of the revolving credit facility by one year, to January 31, 2019.

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

 

 

 

Requirement

 

Level at March 31, 2014

 

Debt to total capital ratio

 

Maximum of 55%

 

25.8%

 

 

Based upon the above debt to total capital ratio covenant we had the ability to borrow approximately an additional $1.3 billion at March 31, 2014 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 $317.2 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.  If we were to repatriate non-U.S. cash balances from certain subsidiaries, it 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. have been between 10% and 14% of the repatriated amount.

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.  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 April 11, 2014, the Board of Directors increased the quarterly dividend by 12% to $0.28 per share payable on May 21, 2014 to shareholders of record as of April 30, 2014.

 

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 2027.  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

 

We have reviewed the recently issued accounting standards updates to the FASB’s Accounting Standards Codification that have future effective dates.  Standards which are effective for the first quarter of 2014 are discussed in Note 1 of the Unaudited Notes to Condensed Consolidated Financial Statements.  The Company has carefully considered any new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on our reported financial position or operations in the near term.

 

OUTLOOK

 

We are encouraged by the current level of project discussion with customers who are seeking innovative packaging solutions to help grow their businesses.  We are optimistic that we will see some of these new projects coming to market over the next twelve months.  Looking to the second quarter, we expect broad-based demand for our innovative dispensing solutions to continue across each of our business segments and drive growth over the prior year.  In the near-term, the emerging market currency environments are expected to remain challenging and we don’t anticipate the impact from resin pricing adjustments to be as favorable as it was in the prior year.  Currently, we expect second quarter earnings per share to be in the range of $0.78 to $0.83 compared to $0.77 per share a year ago excluding the impact of our European restructuring plan in 2013.

 

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 Restructuring Initiatives, Quarterly Trends, Liquidity and Capital Resources, and 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 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:

 

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·                  economic, environmental and political conditions worldwide;

·                  changes or consolidations within our customer base and/or changes in consumer spending levels;

·                  financial conditions of customers and suppliers;

·                  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;

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

·                  our ability to increase prices, contain costs and improve productivity;

·                  significant fluctuations in foreign currency exchange rates, including the current volatility noted in the Latin American and Asian regions;

·                  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, except as required by law.  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 weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial condition and results of operations.  Conversely, a strengthening U.S. dollar has a dilutive 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 March 31, 2014 about our forward currency exchange contracts.  The majority of the contracts expire before the end of the second quarter of 2014.

 

 

 

 

 

 

Average

 

Min / Max

 

 

 

Contract Amount

 

Contractual

 

Notional

 

Buy/Sell

 

(in thousands)

 

Exchange Rate

 

Volumes

 

 

 

 

 

 

 

 

 

Swiss Franc/Euro

 

$

63,296

 

0.8229

 

51,404-63,296

 

Euro/Brazilian Real

 

21,176

 

3.3326

 

20,648-24,449

 

Euro/U.S. Dollar

 

13,535

 

1.3823

 

8,135-13,535

 

U.S. Dollar/Chinese Yuan

 

10,790

 

6.0947

 

9,660-10,840

 

British Pound/Euro

 

8,778

 

1.1967

 

7,850-9,345

 

Czech Koruna/Euro

 

5,736

 

0.0365

 

5,165-5,736

 

Euro/Mexican Peso

 

4,884

 

19.4601

 

4,884-6,554

 

Euro/Indian Rupee

 

3,012

 

84.6562

 

3,012-3,665

 

Euro/Chinese Yuan

 

2,749

 

8.5045

 

2,295-2,804

 

U.S. Dollar/Brazilian Real

 

2,190

 

2.4105

 

760-2,190

 

Euro/Swiss Franc

 

2,137

 

1.2220

 

0-2,137

 

Euro/Columbian Peso

 

2,050

 

3,027.3855

 

0-2,050

 

Euro/British Pound

 

1,281

 

0.8369

 

0-1,281

 

U.S. Dollar/Euro

 

1,129

 

0.7266

 

200-1,129

 

Euro/Russian Ruble

 

1,112

 

46.8264

 

1,112-1,112

 

U.S. Dollar/Indian Rupee

 

1,100

 

63.3964

 

1,100-1,153

 

Other

 

1,431

 

 

 

 

 

Total

 

$

146,386

 

 

 

 

 

 

As of March 31, 2014, we have recorded the fair value of foreign currency forward exchange contracts of $1.1 million in prepaid and other, $0.1 million in miscellaneous other assets, $1.2 million in accounts payable and accrued liabilities and $0.1 million in deferred and other non-current liabilities in the balance sheet.

 

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 March 31, 2014.  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 changes 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 March 31, 2014 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 March 31, 2014, the Plan sold 1,672 shares of our common stock on behalf of the participants at an average price of $67.57 per share, for an aggregate amount of $113 thousand and purchased 4,600 shares of our common stock on behalf of the participants at an average price of $66.42 per share, for an aggregate amount of $306 thousand.  At March 31, 2014, the Plan owns 41,316 shares of our common stock.

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

The following table summarizes the Company’s purchases of our securities for the quarter ended March 31, 2014:

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

1/1 – 1/31/14

 

--

 

$

--

 

--

 

3,972,691

 

2/1 – 2/28/14

 

30,000

 

64.93

 

30,000

 

3,942,691

 

3/1 – 3/31/14

 

170,000

 

65.01

 

170,000

 

3,772,691

 

Total

 

200,000

 

$

65.00

 

200,000

 

3,772,691

 

 

The Company announced the existing repurchase program, authorizing the Company to repurchase up to four million shared of our outstanding common stock on July 18, 2013.  There is no expiration date for this repurchase program.

 

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ITEM 6.  EXHIBITS

 

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 first quarter of 2014, filed with the SEC on May 5, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income - Three Months Ended March 31, 2014 and 2013, (ii) the Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2014 and 2013, (iii) the Condensed Consolidated Balance Sheets - March 31, 2014 and December 31, 2013, (iv) the Condensed Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2014 and 2013, (v) the Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2014 and 2013 and (vi) the Notes to Condensed Consolidated Financial Statements.

 

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SIGNATURES

 

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: May 5, 2014

 

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INDEX OF EXHIBITS

 

Exhibit

 

 

Number

 

Description

 

 

 

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 first quarter of 2014, filed with the SEC on May 5, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income - Three Months Ended March 31, 2014 and 2013, (ii) the Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2014 and 2013, (iii) the Condensed Consolidated Balance Sheets - March 31, 2014 and December 31, 2013, (iv) the Condensed Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2014 and 2013, (v) the Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2014 and 2013 and (vi) the Notes to Condensed Consolidated Financial Statements.