APTARGROUP, INC. - Annual Report: 2015 (Form 10-K)

United States Securities and Exchange Commission

Washington, D.C. 20549

FORM 10‑K

 

FOR THE TRANSITION PERIOD FROM            TO           

COMMISSION FILE NUMBER 1‑11846

AptarGroup, Inc.

 

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

815‑477‑0424

Securities Registered Pursuant to Section 12(b) of the Act:

 

Securities Registered Pursuant to Section 12 (g) of the Act:

NONE

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

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.

 

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).

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☒

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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act).

 

The aggregate market value of the common stock held by non‑affiliates as of June 30, 2015 was $3,908,285,956.

The number of shares outstanding of common stock, as of February 23, 2016, was 62,842,639 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held May 4, 2016 are incorporated by reference into Part III of this report.

 

 

 

AptarGroup, Inc.

FORM 10‑K

For the Year Ended December 31, 2015

INDEX

 

 

 

 

PART I

ITEM 1.  BUSINESS

BUSINESS OF APTARGROUP

We are a leading global provider of a broad range of innovative packaging, dispensing and sealing solutions, primarily for the beauty, personal care, home care, prescription drug, consumer health care, injectables, food and beverage markets. Our creative packaging solutions enhance the convenience, safety and security of consumers around the globe and allow our customers to differentiate their products in the market.

Our business was started in the late 1940’s, manufacturing and selling aerosol valves in the United States, and has grown primarily through the acquisition of relatively small companies and internal expansion. We were incorporated in Delaware in 1992. In this report, we may refer to AptarGroup, Inc. and its subsidiaries as “AptarGroup”, “Aptar” or the “Company”.

We have manufacturing facilities located throughout the world including North America, Europe, Asia and South America. We have approximately 5,000 customers with no single customer or group of affiliated customers accounting for greater than 8% of our 2015 net sales.

Sales of our dispensing systems have traditionally grown at a faster rate than the overall packaging industry as consumers’ preference for convenience has increased and product differentiation through packaging design has become more important to our customers. Also, consumer product marketers have converted many of their packages from non-dispensing formats to those with dispensing systems that offer the benefit of enhanced shelf appeal, convenience, cleanliness or accuracy of dosage. We expect these trends to continue.

While we offer a wide variety of dispensing and sealing solutions, our primary products are dispensing pumps, closures, aerosol valves and elastomeric primary packaging components.

Dispensing pumps are finger‑actuated dispensing systems that dispense a spray or lotion from non‑pressurized containers. The style of pump used depends largely on the nature of the product being dispensed, from small, fine mist pumps used with perfume and pharmaceutical products to lotion pumps for more viscous formulas.

Closures are primarily dispensing closures but to a lesser degree can include non‑dispensing closures. Dispensing closures are plastic caps which allow a product to be dispensed without removing the cap.

Aerosol valves dispense product from pressurized containers. The majority of the aerosol valves that we sell are continuous spray valves, with the balance being metered dose inhaler valves.

We also manufacture and sell elastomeric primary packaging components. These components are used in the injectables market. Products include stoppers for infusion, antibiotic, lyophilization and diagnostic vials. Our elastomeric components also include pre‑filled syringe components, such as plungers, needle shields, tip caps and cartridges, as well as dropper bulbs and syringe plungers.

On January 25, 2016, the Company signed an agreement to acquire Megaplast GmbH, Megaplast France S.a.r.l. and Mega Pumps L.P. (“Mega Airless”), a leading provider of innovative all-plastic airless dispensing systems for the beauty, personal care and pharmaceutical markets.  The transaction is subject to customary regulatory approvals and has not closed as of the date of this report but is expected to close prior to the end of the first quarter of 2016.

AVAILABLE INFORMATION

Our periodic and current reports, and any amendments to those reports, are available, free of charge, through a link on the Investors page of our website (www.aptar.com), as soon as reasonably practicable after the material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).   These filing are also available to the public over the Internet at the SEC’s website (http://www.sec.gov).  You may also read and copy any document we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.  Please call the SEC at 1-800-SEC-0330 for further information on the reference room.

Also posted on our website are the charters for our Audit, Compensation, Governance and Executive Committees, our Governance Principles, our Code of Business Conduct & Ethics, our Director Independence Standards and our Conflict Minerals Statement. Within the time period required by the SEC and the New York Stock Exchange (“NYSE”), we will post on our website any amendment or waiver to the Code of Business Conduct & Ethics applicable to any executive officer or director. The information provided on our website is not part of this report and is therefore not incorporated herein by reference.

OUR STRATEGY

We seek to enhance our position as a leading global provider of innovative packaging dispensing and sealing solutions and deliver increased value to our customers and shareholders through strategic focus and execution in the following areas:

Facilitating the execution of our strategy are our core values, which dictate how we interact internally and with our customers, suppliers and all stakeholders.

DESCRIPTION OF APTARGROUP’S REPORTING SEGMENTS

INFORMATION ABOUT SEGMENTS

AptarGroup’s organizational structure consists of three market‑focused business segments which are Beauty + Home, Pharma and Food + Beverage. This is a strategic structure which allows us to be more closely aligned with our customers and the markets in which they operate. We primarily sell our products through our own sales force to the largest beauty, personal care, pharmaceutical, home care, food and beverage marketers in the world. To a limited extent, we use independent representatives and distributors to reach smaller customers and export markets. 

Operations that sell dispensing systems primarily to the beauty, personal care and home care markets form the Beauty + Home segment. Operations that sell dispensing systems and sealing solutions to the prescription drug, consumer health care and injectables markets form the Pharma segment. Operations that sell dispensing systems and sealing solutions to the food and beverage markets form the Food + Beverage segment. Each of these three business segments is described more fully below. A summary of sales, segment income and total assets based upon this reporting structure for each of the last three years is shown in Note 17 to the Consolidated Financial Statements in Item 8 (which is incorporated by reference herein).

BEAUTY + HOME

The Beauty + Home segment is our largest segment in terms of net sales and total assets representing 55% and 45% of AptarGroup’s Net Sales and Total Assets, respectively. The Beauty + Home segment primarily sells pumps, closures, aerosol valves and accessories to the personal care and home care markets and pumps and decorative components to the beauty market. We believe we are a leading supplier for the majority of the products we sell primarily to the beauty, personal care and home care markets.

Beauty.  Sales to the beauty market accounted for approximately 46% of the segment’s total net sales in 2015. The beauty market requires a broad range of spray and lotion pumps and sampling dispensing systems to meet functional as well as aesthetic requirements. A considerable amount of research, time and coordination with our customers is required to qualify a pump for use with their products. Within the market, we expect the use of pumps to continue to increase, particularly in the cosmetics and sampling sectors. In the cosmetic sector, packaging for certain products such as natural and organic cosmetics and anti‑aging lotions continue to provide us with growth opportunities. We are a leading provider of packaging solutions for prestige and mass market fragrance products. Our cosmetic lotion pumps, airless dispensing systems, lotion sampling devices and decorative capabilities will also provide growth opportunities. We see continued growth opportunities in Latin America and significant opportunities for growth in the sale of our products for cosmetic applications in Asia.

Personal Care.  Sales to the personal care market accounted for approximately 45% of the segment’s total net sales in 2015 and primarily included sales of fine mist spray pumps, lotion pumps, closures and continuous spray aerosol valves. Personal care spray pump applications include hair care, body care and sun care products. Typical lotion pump applications include skin moisturizers, hand sanitizers and soap. Personal care closures applications include shampoos and conditioners. Personal care continuous spray aerosol valve applications include hair care products, deodorants, shaving creams and sun care products. Our research and development teams continue to design unique accessories that increase the value of our continuous spray aerosol valve offerings.

Home Care.  Sales to the home care market accounted for approximately 8% of the segment’s total net sales in 2015 and primarily included sales of continuous or metered dose spray aerosol valves, closures and to a lesser degree spray and lotion pumps. Applications for continuous spray valves include disinfectants, spray paints, insecticides and automotive products. Metered dose valves are used for air fresheners. Closure applications include liquid detergents and household cleansers. Spray and lotion pump applications primarily include household and industrial cleaners. There is a trend towards concentrated cleaners and laundry care products that could provide opportunities for incorporating our dosing dispensing technologies.

PHARMA

The Pharma segment is our second largest segment in terms of net sales and total assets, accounting for 31% and 24% of AptarGroup’s Net Sales and Total Assets, respectively, and is our most profitable segment. We believe we are a leading supplier of pumps and metered dose inhaler valves (“MDI’s”) to the pharmaceutical market worldwide and we are a supplier of elastomer for injectables primary packaging components worldwide. Characteristics of this market include (i) governmental regulation of our pharmaceutical customers, (ii) contaminant‑controlled manufacturing environments and (iii) a significant amount of time and research from initially working with pharmaceutical companies at the molecular development stage of a medication through the eventual distribution to the market. We have clean‑room manufacturing facilities in Argentina, China, France, Germany, India, Switzerland and the United States. We believe that providing an alternative to traditional medication forms such as pills with value‑added, convenient dispensing systems will continue to offer opportunities for our business. In addition, with the trend towards health care reform we believe there are opportunities for growth in the over the counter and generic pharmaceutical categories.

Prescription Drug.  Sales to the prescription drug market accounted for approximately 56% of the segment’s total net sales in 2015. Pumps sold to the prescription drug market deliver medications nasally, orally or topically. Currently the majority of our pumps sold are for nasal allergy treatments. Recently, there is a trend of nasal allergy products moving from prescription‑only to being sold over the counter without a prescription. This trend could provide us with growth opportunities as this movement could allow consumers easier access to these types of treatments. Our nasal pumps and unit dose devices are also used to deliver pain management products. Potential opportunities for providing alternatives to traditional pill and injectable dosage forms of medication include pump dispensing systems for vaccines, cold and flu treatments, central nervous systems applications and hormone replacement therapies.

MDI’s are used for dispensing precise amounts of aerosolized medication. This technology allows medication to be broken up into very fine particles, which enables the drug to be delivered typically via the pulmonary system. Currently the majority of our MDI’s sold are used for respiratory ailments such as asthma and COPD (chronic obstructive pulmonary disease).

We continue to develop new dispensing systems and accessories in this segment.  For example, we provide single dose delivery devices suitable for central nervous system applications. While we expect that these types of new products will come to market in the future, it is difficult to estimate when, as the rigors of pharmaceutical regulations affect the timing of product introductions by our pharmaceutical customers which use our dispensing systems.

Consumer Health Care.  Sales to the consumer health care market accounted for approximately 25% of the segment’s total net sales in 2015. Applications for this market are similar to the prescription market; however, these applications are sold over the counter without a prescription. Typical consumer health care spray pump applications include nasal decongestants, nasal salines and cough and cold applications. Typical consumer health care valve applications include nasal saline using our bag‑on valve technology. We have developed a multi dose ophthalmic dispensing device suitable for unpreserved medicinal formulations. This technology is successfully marketed in Europe and is under development for other markets. Other products sold to this market include airless pump systems for dermal applications. We have recently seen a trend to more child resistant and senior‑friendly packaging solutions and have developed products to meet these market needs.

Injectables.  Sales to the injectables market accounted for approximately 19% of the segment’s total net sales in 2015. Injectables are elastomeric primary packaging components for injectable drug delivery. Injectable products offered include stoppers for vials, pre‑filled syringe components, such as plungers, needle shields, tip caps and components for cartridges, as well as syringe plungers. Our recent investment in this business will allow us to market coated stoppers which better preserve the contents of the vial and adds value to our customers and the consumer. Pharmaceutical applications for this market include vaccines, anti‑thrombotic, small molecules and biologics.

FOOD + BEVERAGE

The Food + Beverage segment is our smallest segment in terms of net sales and total assets representing 14% and 10% of AptarGroup’s Net Sales and Total Assets, respectively, but has been experiencing strong product growth over recent years. We primarily sell dispensing closures and, to a lesser degree, non‑dispensing closures, spray pumps and aerosol valves.

Sales of dispensing closures have grown as consumers worldwide have demonstrated a preference for a package utilizing the convenience of a dispensing closure. At the same time, consumer marketers are trying to differentiate their products by incorporating performance enhancing features such as bonded aluminum liners to plastic, flow‑control and no‑drip dispensing, inverted packaging and directional flow to make packages simpler to use, cleaner and more appealing to consumers.  We also have a number of product solutions that address the increased use of flexible packaging formats.

Food.  Sales to the food market accounted for approximately 56% of the segment’s total net sales in 2015 and primarily include sales of dispensing closures and elastomeric flow‑control components. To a lesser degree we also sell non‑dispensing closures, continuous spray aerosol valves and spray pumps to this market. Applications for dispensing closures include sauces, condiments and food products. Applications for non‑dispensing closures include granular and powder food products along with baby food closures. Applications for continuous spray aerosol valves include cooking sprays. Spray pump applications primarily include butter or salad dressing sprays.

Beverage.  Sales to the beverage market accounted for approximately 42% of the segment’s total net sales in 2015 and primarily include sales of dispensing closures and elastomeric flow‑control components. Sales of dispensing closures to the beverage market have increased significantly over the last several years as we continue to see an increase of interest from marketers using dispensing closures for their products. Examples of beverage products currently utilizing dispensing closures include bottled water, sport and energy drinks, juices and concentrated water flavorings.

GENERAL BUSINESS INFORMATION

RESEARCH AND DEVELOPMENT

Our commitment to innovation, one of our competitive strengths, has resulted in an emphasis on research and development directed toward developing affordable, new, innovative packaging delivery solutions and adapting existing products for new markets or customer requirements. In certain cases, our customers share in the research and development expenses of customer initiated projects. Occasionally, we acquire or license from third parties technologies or products that are in various stages of development. Expenditures for research and development activities, net of certain research and development credits, were $67.1 million, $76.2 million and $71.8 million in 2015, 2014 and 2013, respectively.

PATENTS AND TRADEMARKS

We customarily seek patent and trademark protection for our products and brands. We own and currently have numerous applications pending for patents and trademarks in many regions of the world. In addition, certain of our products are produced under patent licenses granted by third parties. We believe that we possess certain technical capabilities in making our products that make it difficult for a competitor to duplicate. While valuable to our overall product portfolio, sales of any one individually patented product are not considered material to any specific segment or to the Company’s consolidated results.

TECHNOLOGY

We have technical expertise regarding injection molding, robotics, clean-room facilities and high‑speed assembly. We also have expertise regarding the formulation and finishing of elastomer and silicone components. In addition, we offer a variety of sterilization options for elastomeric components for the pharmaceutical industry. Pumps and aerosol valves require the assembly of several different plastic, metal and rubber components using high‑speed equipment. When molding dispensing closures, or plastic components to be used in pump or aerosol valve products, we use advanced plastic injection molding technology, including large cavitation plastic injection molds. We are able to mold within tolerances as small as one one‑thousandth of an inch and we assemble products in a high‑speed, cost‑effective manner. We are experts in molding liquid silicone that is used in certain dispensing closures as well as rubber gasket formulation and production primarily for the prescription drug and consumer health care markets.

MANUFACTURING AND SOURCING

The majority of our worldwide production is located outside of the United States. In order to augment capacity and to maximize internal capacity utilization (particularly for plastic injection molding), we use subcontractors to supply certain plastic, metal and rubber components. Certain suppliers of these components have unique technical abilities that make us dependent on them, particularly for aerosol valve and pump production. The principal raw materials used in our production are plastic resins, rubber and certain metal products. We believe an adequate supply of such raw materials is available from existing and alternative sources. We attempt to offset cost increases through improving productivity and increasing selling prices over time, as allowed by market conditions or contractual commitments. Our pharmaceutical products often use plastic resin and rubber components specifically approved by our customers. Significant delays in receiving these components or discontinuance of an approved raw material would require us to seek alternative sources, which could result in higher costs as well as impact our ability to supply products in the short-term.

BACKLOG

Our sales are primarily made pursuant to standard purchase orders for delivery of products. While most orders placed with us are ready for delivery within 120 days, we continue to experience a trend towards shorter lead times requested by our customers. Some customers place blanket orders, which extend beyond this delivery period. However, deliveries against purchase orders are subject to change, and only a small portion of the order backlog is noncancelable. The dollar amount associated with the noncancelable portion is not material. Therefore, we do not believe that backlog as of any particular date is an accurate indicator of future results.

CUSTOMERS

We have approximately 5,000 customers with no single customer or group of affiliated customers accounting for greater than 8% of 2015 net sales. A consolidation of our customer base has occurred and this trend is expected to continue. A concentration of customers presents opportunities for increasing sales due to the breadth of our product line, our international presence and our long‑term relationships with certain customers. However, consolidation of our customers could lead to pricing pressures, concentration of credit risk and fewer opportunities to introduce new products to the market.

INTERNATIONAL BUSINESS

We are geographically diverse with manufacturing and sales operations in Asia, Europe, Latin America (including Mexico) and North America.  Europe is our largest region where sales for the years ended December 31, 2015, 2014 and 2013 were approximately 56%, 58% and 58%, respectively. Asia and Latin America when aggregated represented approximately 17%, 17% and 17% of our consolidated sales for the years ended December 31, 2015, 2014 and 2013, respectively. Export sales from the United States were $151.2 million, $161.4 million and $143.9 million in 2015, 2014 and 2013, respectively. For additional financial information about geographic areas, please refer to Note 17 in the Notes to the Consolidated Financial Statements in Item 8 (which is incorporated by reference herein).

FOREIGN CURRENCY

Because of our international presence, movements in exchange rates have a significant impact on the translation of the financial statements of our foreign subsidiaries. Our primary foreign exchange exposure is to the Euro, but we have foreign exchange exposure to the Chinese Yuan, Brazilian Real, Mexican Peso, Swiss Franc and other Asian, European and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements. Conversely, a weakening U.S. dollar has an additive effect. We manage our exposures to foreign exchange principally with forward exchange contracts to economically hedge recorded transactions and firm purchase and sales commitments denominated in foreign currencies.

WORKING CAPITAL PRACTICES

Collection and payment periods tend to be longer for our operations located outside the United States due to local business practices. We have also seen an increasing trend in pressure from certain customers to lengthen their payment terms. As the majority of our products are made to order, we have not needed to keep significant amounts of finished goods inventory to meet customer requirements.

To the extent our financial position allows and there is a clear financial benefit, we from time-to-time benefit from early payment discounts with some suppliers.

EMPLOYEE AND LABOR RELATIONS

AptarGroup has approximately 13,000 full‑time employees. Of the full‑time employees, approximately 7,600 are located in Europe, 3,300 are located in Asia and South America and the remaining 2,100 are located in North America. The majority of our European and Latin American employees are covered by collective bargaining arrangements made at either the local or national level in their respective countries and approximately 160 of the North American employees are covered by a collective bargaining agreement. Termination of employees at certain of our international operations could be costly due to local regulations regarding severance benefits. There were no material work stoppages in 2015 and management considers our employee relations to be satisfactory.

COMPETITION

All of the markets in which we operate are highly competitive and we continue to experience price competition in all product lines and markets. Competitors include privately and publicly held entities that range from regional to international companies. We expect the market for our products to remain competitive. We believe our competitive advantages are consistent high levels of innovation, quality and service, geographic diversity and breadth of products. Our manufacturing strength lies in the ability to mold complex plastic components and formulate and finish elastomer and silicone components in a cost‑effective manner and to assemble products at high speeds. Our business is somewhat capital intensive and it is becoming more important to our customers for Aptar to have global manufacturing capabilities. Both of these serve as barriers to entry for new competitors wanting to enter our business.

While we have experienced some competition in Europe, Latin America and the United States from low cost Asian suppliers, particularly in the low‑end beauty and personal care market, this has not been significant. Although using low cost Asian supplies may have a cost advantage, some customers prefer local suppliers citing better quality, better customer service and shorter lead times. 

ENVIRONMENT

Our manufacturing operations primarily involve plastic injection molding, automated assembly processes, elastomer and silicone formulation and finishing and, to a limited degree, metal anodization and vacuum metallization of plastic components. Historically, the environmental impact of these processes has been minimal, and we believe we meet current environmental standards in all material respects. To date, our manufacturing operations have not been significantly affected by environmental laws and regulations relating to the environment.

Recently there is increased interest and awareness from consumers, and from our customers, in environmentally sustainable products, especially through the sourcing of alternate materials. We are focused on reducing our environmental impacts through product life cycle assessments, alternate material trials, operational eco-efficiency initiatives and renewable energy sourcing. We are designing for sustainability by providing products that improve recyclability and use less material. Future regulations on environmental matters regarding recycling or material inputs could impact our business.

GOVERNMENT REGULATION

Certain of our products are indirectly affected by government regulation. Demand for aerosol and pump packaging is affected by government regulations regarding the release of volatile organic compounds (“VOCs”) into the atmosphere. Europe and the United States have regulations that require the reduction in the amount of VOCs that can be released into the atmosphere and the potential exists for this type of regulation to expand worldwide. These regulations required certain of our customers to reformulate certain aerosol and pump products, which may have affected the demand for such products. We own patents and have developed systems to function with alternative propellant and product formulations.

Future government regulations could include medical cost containment policies. For example, reviews by various governments to determine the number of drugs, or prices thereof, that will be paid by their insurance systems could affect future sales to the pharmaceutical industry. Such regulation could adversely affect prices of and demand for our pharmaceutical products. We believe that the focus on the cost effectiveness of the use of medications as compared to surgery and hospitalization provides us with an opportunity to expand sales to the pharmaceutical market.

EXECUTIVE OFFICERS

Our executive officers as of February 25, 2016 are as follows:

 

There were no arrangements or understandings between any of the executive officers and any other person(s) pursuant to which such officers were elected.

ITEM 1A.  RISK FACTORS

Set forth below and elsewhere in this report and in other documents we file with the Securities and Exchange Commission are risks and uncertainties that could cause our actual results to materially differ from the results contemplated by the forward‑looking statements contained in this report and in other documents we file with the Securities and Exchange Commission. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations. You should carefully consider the following factors in addition to other information contained in this report on Form 10‑K before purchasing any shares of our common stock.

FACTORS AFFECTING OPERATIONS OR OPERATING RESULTS

Geopolitical conditions, including direct or indirect acts of war or terrorism, could have a material adverse effect on our operations and financial results.  Our operations could be disrupted by geopolitical conditions such as international boycotts and sanctions, acts of war, terrorist activity or other similar events. Such events could make it difficult or impossible to manufacture or deliver products to our customers, receive production materials from our suppliers, or perform critical functions, which could adversely affect our business globally or in certain regions. While we maintain similar manufacturing capacities at different locations and coordinate multi‑source supplier programs on many of our materials which would better enable us to respond to these types of events, we cannot be sure that our plans will fully protect us from all such disruptions. In addition, our customers may export their finished products using our dispensing devices that were sold in other regions and an adverse geopolitical event, such as recent conflicts in Eastern Europe, may impact the sales of our customers’ products and thus indirectly negatively impact the demand for our dispensing solutions.

If there is deterioration in economic conditions in a particular region or market, our business and operating results could be materially adversely impacted.    Due to our strong balance sheet, diverse product offerings, various end‑markets served, and our broad geographic presence, we believe we are well positioned to withstand slowness in any one particular region or market.  However, economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. A tightening of credit in financial markets or other factors may lead consumers and businesses to postpone spending, which may cause our customers to cancel, decrease or delay their existing and future orders with us. In addition, financial difficulties experienced by our suppliers, customers or distributors

could result in product delays, increased accounts receivable defaults, inventory or supply challenges and pricing pressures. An interruption in supply may also impact our ability to meet customer demands. Consumer demand for our customers’ products and shifting consumer preferences are unpredictable and could have a negative impact on our customers and our customers’ demand for our products.

We have foreign currency translation and transaction risks that may materially adversely affect our operating results.  A majority 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 have foreign exchange exposure to the Chinese Yuan, Brazilian Real, Mexican Peso, Swiss Franc, and other Asian, European and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements. Conversely, a weakening U.S. dollar has an additive translation effect. In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. We manage our exposures to foreign exchange principally with forward exchange contracts to economically hedge certain transactions and firm purchase and sales commitments denominated in foreign currencies. The volatility of currency exchange rates may materially affect our operating results.

Government regulation on environmental matters regarding recycling or environmental sustainability policies could impact our business.  Future government regulations mandating the use or limitations of certain materials could impact our manufacturing processes or the technologies we use forcing us to reinvest in alternative materials or assets used in the production of our products.

Consolidation of customer base could impact of business.  We believe mergers and acquisitions within our customer base create opportunities for increasing sales due to the breadth of our product line, our international presence and our long‑term relationships with certain customers. However, consolidation of our customers could lead to pricing pressures, concentration of credit risk and fewer opportunities to introduce new products to the market.

We face strong global competition and our market share could decline.  All of the markets in which we operate are highly competitive and we continue to experience price competition in all product lines and segments. Competitors include privately and publicly held entities. Our competitors mainly range from regional to international companies. Some fragrance marketers are sourcing their manufacturing requirements including filling of their product in Asia and importing the finished product back into the United States or Europe. If we are unable to compete successfully, our market share may decline, which could materially adversely affect our results of operations and financial condition.

If our expansion initiatives are unsuccessful, our operating results and reputation may suffer.  We are expanding our operations in a number of markets, including facilities expansions in France, North America and Asia, while also planning the integration of Mega Airless. Expansion of our operations and the integration of Mega Airless will continue to require a significant amount of time and attention from our senior management and/or capital investment. These activities present considerable challenges and risks, including the general economic and political conditions in the markets that we enter, attracting, training and retaining qualified and talented employees, infrastructure disruptions, fluctuations in currency exchange rates, the imposition of restrictions by governmental authorities, compliance with current, new and changing governmental laws and regulations and the cost of such compliance activities. If any of our expansion or integration efforts are unsuccessful, our operating results and reputation may suffer. 

The success or failure of our customers’ products, particularly in the pharmaceutical market, may materially affect our operating results and financial condition.  In the pharmaceutical market, the proprietary nature of our customers’ products and the success or failure of their products in the market using our dispensing systems may have a material impact on our operating results and financial condition. We may potentially work for years on modifying our dispensing device to work in conjunction with a customer’s drug formulation. If the customer’s pharmaceutical product is not approved by regulatory bodies or it is not successful on the market, the associated costs may not be recovered.

Higher raw material costs and other inputs and an inability to increase our selling prices may materially adversely affect our operating results and financial condition.  The cost of raw materials and other inputs (particularly plastic resin, rubber, metal, anodization costs and transportation and energy costs) are volatile and susceptible to rapid and substantial changes due to factors beyond our control, such as changing economic conditions, currency fluctuations, weather conditions, political unrest and instability in energy‑producing nations, and supply and demand pressures. Raw material costs may increase in the coming years and, although we have generally been able to increase selling prices to cover increased costs, future market conditions may prevent us from passing these increased costs on to our customers through timely price increases. In addition, we may not be able to improve productivity or realize savings from our cost reduction programs sufficiently enough to offset the impact of increased raw material costs. As a result, higher raw material costs could result in declining margins and operating results.

In difficult market conditions, our fixed costs structure combined with potentially lower revenues may negatively impact our results.  Our business is characterized by relatively high fixed costs and, notwithstanding our utilization of third‑party manufacturing capacity, most of our production requirements are met by our own manufacturing facilities. In difficult environments, we are generally faced with a decline in the utilization rates of our manufacturing facilities due to decreases in product demand. During such periods, our plants do not operate at full capacity and the costs associated with

this excess capacity are charged directly to cost of sales. Difficult market conditions in the future may adversely affect our utilization rates and consequently our future gross margins, and this, in turn, could have a material negative impact on our business, financial condition and results of operations.

If our unionized employees were to engage in a strike or other work stoppage, our business, operating results and financial position could be materially adversely affected.  The majority of our European and Latin American employees are covered by collective bargaining arrangements made either at the local or national level in their respective countries and approximately 160 of our North American employees are covered by a collective bargaining agreement. Although we believe that our relations with our employees are satisfactory, no assurance can be given that this will continue. If disputes with our unions arise, or if our unionized workers engage in a strike or other work stoppage, we could incur higher labor costs or experience a significant disruption of operations, which could have a material adverse effect on our business, operating results and financial position.

Single sourced materials and manufacturing sites could adversely impact our ability to deliver product.  The Company sources certain materials, especially some resins and rubber components for our pharmaceutical segment, from a single source. Any disruption in the supply of these materials could adversely impact our ability to deliver product to our customers. Similarly, we have certain components and / or products that are manufactured at a single location or from a single machine or mold. Any disruption to the manufacturing process could also adversely impact our ability to deliver product to our customers. 

If we were to incur a significant product liability claim above our current insurance coverage, our business, operating results and financial condition could be materially adversely affected.  Approximately 31% of our net sales are made to customers in the pharmaceutical industry. If our devices fail to operate as intended, medication prescribed for patients may be under administered, or may be over administered. The failure of our devices to operate as intended may result in a product liability claim against us. We believe we maintain adequate levels of product liability insurance coverage. A product liability claim or claims in our Pharma segment or our other segments in excess of our insurance coverage or not covered by existing insurance may materially adversely affect our business, operating results and financial condition.

Increased cybersecurity threats could pose a risk to our operations.  Increased global information security threats and more sophisticated, targeted computer crime pose a risk to the confidentiality, availability and integrity of our data, operations and infrastructure. While we do not believe we have experienced a specific cyber incident such as unauthorized access to our systems or disruption of functionality, we attempt to mitigate these types of risks by employing a number of measures, including employee training, comprehensive monitoring of our networks and systems, and maintenance of backup and protective systems. We also periodically test our systems for vulnerabilities and have on occasion used a third party to conduct such tests. Even with these mitigations, our information systems remain potentially vulnerable to sophisticated cybersecurity threats. Depending on their nature and scope, such threats could potentially lead to the compromise of confidential information, improper use of our systems and networks, manipulation and destruction of data, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations. 

We have approximately $310 million in recorded goodwill at December 31, 2015, and changes in future business conditions could cause this asset to become impaired, requiring write‑downs that would reduce our operating income.  We evaluate the recoverability of goodwill amounts annually, or more frequently when evidence of potential impairment exists. The impairment test is based on several factors requiring judgment. A decrease in expected reporting unit cash flows or changes in market conditions may indicate potential impairment of recorded goodwill and, as a result, our operating results could be materially adversely affected. See “Critical Accounting Estimates” in Part II, Item 7 for additional information.

FACTOR AFFECTING APTARGROUP STOCK

Ownership by Certain Significant Shareholders.  Currently, Aptar has six institutional shareholders who each own between 5% and 11% of our outstanding common stock. None of these shareholders have direct representation on our Board of Directors.  If one of these shareholders decides to sell significant volumes of our stock, this could put downward pressure on the price of the stock.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

The Company has no unresolved comments from the SEC.

ITEM 2.  PROPERTIES

We lease or own our principal offices and manufacturing facilities. None of the owned principal properties is subject to a lien or other encumbrance material to our operations. We believe that existing operating leases will be renegotiated as they expire, will be acquired through purchase options or that suitable alternative properties will be leased on acceptable terms. We consider the condition and extent of utilization of our manufacturing facilities and other properties to be generally good, and the capacity of our plants to be adequate for the needs of our business. The locations of our principal manufacturing facilities, by country, are set forth below:

 

We also have sales personnel in countries other than those listed above.  Our corporate office is located in Crystal Lake, Illinois.

ITEM 3.  LEGAL PROCEEDINGS

The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature. 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.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR REGISTRANT’S COMMON EQUITY

Information regarding market prices of our Common Stock and dividends declared may be found in Note 21 to the Consolidated Financial Statements in Item 8 (which is incorporated by reference herein). Our Common Stock is traded on the New York Stock Exchange under the symbol ATR. As of February 19, 2016, there were approximately 250 holders of record of our Common Stock. A substantially greater number of holders of our Common Stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.

RECENT SALES OF UNREGISTERED SECURITIES

The employees of Aptargroup UK Holdings Limited (French Branch) 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 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 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 December 31, 2015, the Plan purchased no shares of our common stock on behalf of the participants, and sold 1,600 shares of our Common Stock on behalf of the participants at an average price of $70.61 per share, for an aggregate amount of $113 thousand. At December 31, 2015, the Plan owned 50,600 shares of our Common Stock.

ISSUER PURCHASES OF EQUITY SECURITIES

On October 30, 2014, the Company announced a share repurchase authorization of up to $350 million of Common Stock.  This authorization replaces previous authorizations and has no expiration date.  AptarGroup may repurchase shares through the open market, privately negotiated transactions or other programs, subject to market conditions.

On December 16, 2014, the Company entered into an agreement to repurchase approximately $250 million of its Common Stock under an accelerated share repurchase program (the “ASR program”).  The ASR program was part of the Company’s $350 million share repurchase authorization.  On December 17, 2014, the Company paid $250 million to Wells Fargo Bank N.A. (“Wells Fargo”) in exchange for approximately 3.1 million shares.  On September 25, 2015, the Company settled the ASR program with Wells Fargo and received approximately 719 thousand additional shares.  The total number of shares repurchased under the ASR program was approximately 3.8 million shares. 

After the ASR settlement, the Company spent $13.9 million to repurchase approximately 0.2 million additional shares during the fourth quarter of 2015.

The following table summarizes the Company’s purchases of its securities for the quarter ended December 31, 2015:

SHARE PERFORMANCE

The following graph shows a five year comparison of the cumulative total stockholder return on AptarGroup’s Common Stock as compared to the cumulative total return of the Standard & Poor’s 500 Composite Stock Price Index and to an index of peer group companies we selected. The companies included in the peer group are: A. Schulman, Inc., AEP Industries Inc., Bemis Company, Inc., Berry Plastics Group, Inc., Crown Holdings, Inc., Graphic Packaging Holding Company, Greif Inc., H.B. Fuller Company, International Flavors and Fragrances, Inc., Owen’s‑Illinois, Inc., Packaging Corporation of America, PH Glatfelter Co., Sealed Air Corporation, Silgan Holdings, Inc., Sonoco Products Company, TriMas Corporation and West Pharmaceutical Services Inc.

Comparison of 5 Year Cumulative Stockholder Returns

The graph and other information furnished in the section titled “Share Performance” under this Part II, Item 5 of this Form 10‑K shall not be deemed to be “soliciting” material or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.

ITEM 6.  SELECTED FINANCIAL DATA

FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(In thousands, expect per share amounts or otherwise indicated)

The objective of the following Management’s Discussion and Analysis of Consolidated Results of Operations and Financial Condition (“MD&A”) is to help the reader understand the financial performance of AptarGroup, Inc. MD&A is presented in eight sections: Overview, Results of Operations, Liquidity and Capital Resources, Off‑Balance Sheet Arrangements, Overview of Contractual Obligations, Recently Issued Accounting Pronouncements, Critical Accounting Estimates, Operations Outlook and Forward‑Looking Statements. MD&A should be read in conjunction with our Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10‑K.

In MD&A, “we,” “our,” “us,” “AptarGroup,” “AptarGroup, Inc.”, “Aptar” and the “Company” refer to AptarGroup, Inc. and its consolidated subsidiaries.

OVERVIEW

GENERAL

We are a leading global provider of a broad range of innovative packaging dispensing and sealing solutions primarily for the beauty, personal care, home care, prescription drug, consumer health care, injectables, food and beverage markets. Our creative packaging solutions enhance the convenience, safety and security of consumers around the globe and allow our customers to differentiate their products in the market.

We define core sales as net sales excluding acquisitions and changes in foreign currency rates. Core sales is a non‑GAAP financial measure. We present this measure as supplemental information to help our investors better understand the trends in our business results over time. Our management uses core sales to evaluate our business on a consistent basis. A reconciliation of core sales growth to net sales growth, the most comparable GAAP measure, can be found on page 15.

2015 was a challenging year with sluggish macroeconomic conditions, foreign currency translation headwinds and specific softness in several key markets.  In spite of these issues, we grew the top line on a core sales basis, adapted to the softer market conditions with a Company-wide focus on cost containment and benefitted from lower input costs.  As a result, we were able to improve margins and grow operating income by 6%.  We also executed our balanced capital allocation strategy by deploying capital to fund internal growth projects and increasing our dividend.  Just after year-end, we also announced our agreement to acquire a leading provider of all-plastic airless dispensing systems for the beauty, personal care and pharmaceutical markets.

2015 HIGHLIGHTS

RESULTS OF OPERATIONS

The following table sets forth the consolidated statements of income and the related percentages of net sales for the periods indicated:

 

NET SALES

We reported net sales of $2.3 billion for 2015, 11% below 2014 reported net sales of $2.6 billion.  The average U.S. dollar exchange rate strengthened significantly relative to the Euro and also strengthened relative to other currencies impacting our business, resulting in a negative currency translation impact of 12%.  Therefore, sales excluding changes in foreign currency rates (“core sales”) increased by 1% in 2015 compared to 2014.  Core sales growth in the Pharma and Food + Beverage segments was substantially offset by a decline in core sales in the Beauty + Home segment.

In 2014, we reported net sales of $2.6 billion, 3% above 2013 reported net sales of $2.5 billion.  The negative translation effect of 2% mainly relates to the strength of the U.S. Dollar compared to Latin American and Asian currencies as the Euro rates remained relatively stable when compared to the U.S. Dollar for the full year.  All three operating segments saw core sales increases in 2014, but the consolidated 5% core sales growth was mainly driven by the strong results of our Food + Beverage and Pharma segments.

 

Foreign currency effects are approximations of the adjustment necessary to state the prior year net sales using current period exchange rates. For further discussion on net sales by reporting segment, please refer to the segment analysis of net sales and operating income on the following pages.

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

 

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

Our cost of sales as a percent of net sales decreased to 64.8% in 2015 compared to 67.6% in 2014.  The decrease is partly due to a one-time favorable $7.4 million change in our inventory accounting principle for the inventory valuation method of certain operating entities in our North American business to the first-in first-out (FIFO) method from the last-in first-out (LIFO) method which was recorded in the second quarter of 2015.  Operationally, we benefitted from our mix of products sold.  Our Pharma segment sales represented a higher percentage of our overall sales in 2015 compared to 2014. This positively impacts our cost of sales percentage as margins on our pharmaceutical products typically are higher than the overall Company average.  We also benefitted from lower material costs, cost savings initiatives and productivity improvements along with a positive impact from the timing delay of resin pass-throughs of approximately $8.9 million as resin prices declined significantly during 2015. 

In 2014, our cost of sales as a percentage of net sales decreased to 67.6% compared to 67.8% in 2013.  Positively impacting the cost of sales percentage in 2014 were the mix of products sold as the Pharma segment sales represented a higher percentage of our overall sales in 2014 compared to 2013, along with incremental cost savings from a restructuring plan to optimize certain production capacities in Europe which was fully realized in 2014.  These savings were partially offset by underutilized U.S. overhead as soft demand in certain product lines negatively impacted our North American cost of sales, mainly in our Beauty + Home segment.  We also incurred additional costs in Latin America as we recognized approximately $3.0 million in one-time costs related to the start-up of our Colombian operations and incurred $1.3 million of expenses related to a fire that occurred in one of our Brazilian facilities. 

SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

Our Selling, Research & Development and Administrative expenses (“SG&A”) decreased approximately 8% or $32.4 million in 2015 compared to the same period a year ago.  Excluding changes in foreign currency rates, SG&A increased by approximately $11.6 million compared to the same period a year ago.  Cost savings initiatives were offset by higher professional fees related to our ongoing information systems implementations and approximately $1.9 million of transaction costs related to an agreement to acquire Mega Airless which is expected to close in the first quarter of 2016.  We also realized higher pension costs related to lower discount rates along with other normal inflationary increases.  For 2015, SG&A as a percentage of net sales increased to 15.2% compared to 14.8% of net sales in the same period of the prior year.

In 2014, our SG&A expenses increased approximately 5% or $19.2 million compared to the same period a year ago.  Excluding changes in foreign currency rates, SG&A increased approximately $24.2 million compared to the same period a year earlier.  The increase was due to several factors, including higher research and development costs mainly related to our bonded aluminum to plastic technology.  We also realized higher information technology costs associated with our ongoing enterprise resource planning system roll-ins along with higher stock compensation expense.  For 2014, SG&A as a percentage of net sales increased to 14.8% compared to 14.4% of net sales in the same period of the prior year.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense decreased approximately 9% or $13.3 million in 2015.  Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $4.4 million compared to the same period a year ago.  This increase is mainly due to our investments in new products and our global enterprise resource planning system.  Depreciation and amortization as a percentage of net sales increased to 6.0% compared to 5.8% for the same period a year ago.

In 2014, depreciation and amortization expense increased approximately 2% or $2.3 million.  Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $3.6 million compared to the same period a year earlier.  The investments in our new products and the continued roll-out of our global enterprise resource planning system mentioned above exceeded exceptional charges incurred in 2013.  Depreciation and amortization as a percentage of net sales decreased slightly to 5.8% compared to 6.0% in 2013.

RESTRUCTURING INITIATIVES

On November 1, 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 closed which impacted approximately 170 employees. During 2013, we recognized $11.8 million of restructuring expenses along with $2.7 million accelerated depreciation of assets. The plan was substantially completed at the end of 2013 with total costs of approximately $19.5 million.

OPERATING INCOME

Operating income increased approximately $17.7 million or 6% to $324.1 million in 2015. Excluding changes in currency rates, operating income increased by approximately $57.6 million in 2015.  We benefitted from the $7.4 million change in inventory accounting principle along with the strong results of our Pharma and Food + Beverage segments.  We also benefitted from a positive impact from the timing delay in passing through resin cost decreases and certain cost saving initiatives driven by the segments, which were slightly offset by transaction costs related to an agreement to acquire Mega Airless.  Reported operating income as a percentage of net sales increased to 14.0% in 2015 compared to 11.8% for the same period in the prior year due to the same factors mentioned above.

In 2014, operating income increased approximately $21.8 million or 8% to $306.4 million. Excluding changes in currency rates, operating income increased by approximately $22.7 million in 2014. 2013 results included the negative impact of the European restructuring plan charges of $11.8 million. The remaining $10.9 million increase in operating income over the prior year is due to additional operating income from our sales growth, primarily from the Pharma and Food + Beverage segments. Reported operating income as a percentage of net sales increased to 11.8% in 2014 compared to 11.3% for the same period in the prior year due to the costs associated with our European restructuring plan in 2013.

NET OTHER EXPENSES

Net other expenses in 2015 increased to $29.6 million compared to $20.1 million in 2014.  During 2015, we incurred $13.6 million of higher interest expense related to our additional $475 million senior notes established late 2014 and early 2015 along with increased costs of our forward exchange contracts.  These increases were offset by $2.9 million of gain due to an insurance recovery on the involuntary conversion of fixed assets related to a fire in one of our Brazilian facilities.  In addition, 2014 net other expenses included a $1.5 million write-down on a non-controlling investment.

In 2014, net other expenses decreased slightly to $20.1 million compared to $20.2 million in 2013. Higher interest income and lower hedging costs were mostly offset by the recognition of a $1.5 million write-down on a non-controlling investment taken during the first quarter of 2014 to align with the current fair value.

EFFECTIVE TAX RATE

The reported effective tax rate on net income for 2015 and 2014 was 32.3% and 33.1%, respectively.  The lower tax rate for 2015 is attributable to the reduction of valuation allowances related to U.S. state tax credits and tax benefits associated with exceptional depreciation provisions enacted in France during 2015.

The reported effective tax rate on net income for 2014 and 2013 was 33.1% and 35.0%, respectively. The Company did not repatriate any earnings from foreign jurisdictions to the U.S. in 2014 and this reduced our reported effective tax rate compared to 2013.

NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.

We reported net income of $199.3 million compared to $191.7 million reported in 2014 and $172.0 million reported in 2013.

BEAUTY + HOME SEGMENT

Net sales decreased approximately 15% in 2015 to $1.27 billion compared to $1.50 billion in 2014. Changes in foreign currency negatively impacted reported sales for 2015 by 13%. Core sales, which exclude changes in exchange rates, decreased 2% in 2015 compared to the prior year.  Core sales to the personal care, beauty and home care markets decreased by 5%, 1% and 2%, respectively, in 2015 compared to 2014.  We experienced global market softness in all regions except Asia leading to a sales decline on a constant currency basis compared to the prior year.  Decreases in selling prices due to contractual resin cost pass-throughs to our customers negatively impacted sales by $9.1 million.  Customer tooling sales, excluding foreign currency changes, increased $8.0 million in 2015 to $36.9 million compared to $28.9 million in the prior year.

In 2014, net sales increased approximately 1% to $1.50 billion compared to $1.49 billion in 2013. Changes in foreign currency negatively impacted reported sales for 2014 by 2%. Core sales, which exclude changes in exchange rates, increased 3% in 2014 compared to the prior year. Core sales to the beauty market increased approximately 4% while core sales to the personal care and home care markets increased approximately 3% and 4%, respectively, in 2014 compared to 2013. The increase in beauty sales was primarily due to growth of our prestige fragrance and skin care products. Personal care increased over the prior year due to stronger sales to our personal cleansing and sun care customers while sales to the home care market increased mainly due to improved laundry care sales. Geographically, all four regions reported increases in net sales with strong core sales growth in our emerging markets along with moderate growth in Europe and the U.S. Customer tooling sales, excluding foreign currency changes, decreased in 2014 to $33.9 million compared to $37.7 million in the prior year.

In spite of the decrease in net sales, segment income for 2015 increased slightly to $98.7 million from $98.4 million reported in 2014.  The negative impacts of foreign currency rate changes and lower product sales were more than offset by lower material costs, cost savings initiatives and improved productivity, mainly in North America.  We recognized a $2.4 million negative transaction effect related to the importing of components into Latin America from different regions due to the continued devaluation of certain Latin American currencies.  However, this was offset by a $5.1 million favorable impact from the timing of resin pass-throughs in 2015 primarily in North America. 

In 2014, segment income decreased approximately 10% to $98.4 million from $109.3 million reported in 2013. Soft demand in certain product lines negatively impacted our North American region. We also recognized approximately $3.0 million in one-time costs related to the start-up of our Colombian operations. Due to the significant devaluation of certain Latin American currencies, we recognized approximately $3.3 million of negative transaction effects related to the importing of components from different regions. In addition, we incurred $1.3 million of expense related to a fire that occurred in one of our Brazilian facilities.  

PHARMA SEGMENT

 

Net sales decreased approximately 5% in 2015 to $712.2 million compared to $751.2 million in 2014. Foreign currency changes negatively impacted total segment sales by 13%. Core sales, which exclude changes in exchange rates, increased 8% in 2015 compared to the prior year.  Core sales to the prescription and injectables markets increased 13% and 7%, respectively, in 2015 compared to the same period in the prior year.  Prescription growth was led by strong demand for allergy products in both over the counter and prescription versions in the U.S. market as well as generics in Europe.  We also experienced strong demand for our Asthma/COPD metered dose inhaler aerosol valves from key branded and generics customers worldwide.  Injectables grew on increased stopper and syringe component sales with strong demand in Europe, U.S., India and Latin America.  Core sales to the consumer health care market were down slightly to the prior year as growth in our non-prescription nasal decongestant business was offset by the softness in Eastern Europe and customer inventory reduction plans.  Customer tooling sales, excluding foreign currency changes, increased $6.0 million in 2015 to $20.3 million compared to $14.3 million in the prior year.

In 2014, net sales increased approximately 6% to $751.2 million compared to $708.8 million in 2013. Foreign currency changes negatively impacted total segment sales by 1%. Core sales, which exclude changes in exchange rates, increased 7% in 2014 compared to the prior year. Core sales of our products increased in each end market and geographic region we serve. Core sales to the prescription drug market increased 6% on strong demand for our metered dose inhaler valves for various asthma and COPD treatments, including new generic launches in developing regions. We continued to see strong demand for our consumer health care products, which increased 12% partially due to preservative free eye care launches in Europe using our innovative ophthalmic squeeze dispenser along with strong sales of our products used for nasal decongestant. Excluding foreign currency rate changes, sales to the injectables market increased 1%. Customer tooling sales, excluding foreign currency changes, decreased in 2014 to $16.9 million compared to $21.1 million in the prior year.

Segment income increased approximately 3% to $210.5 million in 2015 compared to $204.7 million in 2014. This increase is mainly attributed to the higher sales volumes and improved product mix within the segment as well as cost containment initiatives.  Prior year results also included a $1.5 million write-down on a non-controlling investment to align with the current fair value.

In 2014, segment income increased approximately 8% to $204.7 million compared to $189.7 million in 2013. This increase is mainly attributed to higher sales for the prescription and consumer health care markets discussed above. The Pharma segment also recognized a $1.5 million expense in the first quarter of 2014 related to the write-down of a non-controlling investment to fair value.

FOOD + BEVERAGE SEGMENT

 

Net sales decreased by approximately 5% in 2015 to $332.0 million compared to $348.3 million in 2014. Excluding changes in foreign currency rates, sales increased 2%. Decreases in prices due to resin pass-throughs to our customers negatively impacted sales by $6.6 million while customer tooling sales, excluding foreign currency changes, decreased $11.5 million in 2015 to $15.6 million compared to $27.1 million in the prior year.  Sales of our products, excluding foreign currency changes, to the food market increased 3% and core sales of our products to the beverage market increased approximately 1% in 2015 compared to the prior year.  Broad based growth in the food market was partially offset by lower tooling sales of $10.9 million in 2015 compared to 2014.  Beverage sales increased slightly as higher bottled water sales offset weakness in the functional drink and concentrated beverage flavorings applications.

In 2014, net sales increased by approximately 8% to $348.3 million compared to $323.1 million in 2013. Excluding changes in foreign currency rates, sales increased 9%. Sales of our products, excluding foreign currency changes, to the food market increased 7% and core sales of our products to the beverage market increased approximately 11% in 2014 compared to the prior year. The food sales increase was mainly due to improved sales of our products used to dispense sauces/condiments and dairy creamers. The beverage sales increase was driven by the continued success of our products used on functional beverages in the Asian region as well as growth in the concentrate beverage flavoring market in Europe. Customer tooling sales, excluding foreign currency changes, also increased in 2014 to $28.5 million compared to $27.2 million in the prior year.

Segment income increased approximately 13% to $42.7 million in 2015 compared to $37.7 million in 2014. This increase is mainly attributed to higher product sales volumes, improved operational performance and a $3.8 million favorable impact due to the timing of resin pass-throughs.

In 2014, segment income increased approximately 7% to $37.7 million compared to $35.2 million in 2013. This increase is mainly driven by the increase in product sales to both the food and beverage markets.

CORPORATE & OTHER

Certain costs that are not allocated to our three operating business segments are classified as “Corporate & Other,” which is presented separately in Note 17 of the Notes to the Consolidated Financial Statements. Corporate & Other primarily includes certain corporate compensation, professional fees, certain information system costs and LIFO inventory adjustments (prior to our accounting change in the second quarter of 2015).

Corporate & Other expense in 2015 decreased to $28.4 million compared to $38.3 million in 2014. This decrease is primarily due to the favorable impact of a $7.4 million change in accounting principle related to our inventory valuation method during the second quarter, $2.9 million of gain due to an insurance recovery on the involuntary conversion of fixed assets related to a fire in one of our Brazilian facilities along with the positive effect of changes in exchange rates on the translation of foreign based costs. These decreases were partially offset by $1.9 million of transaction costs related to an agreement to acquire Mega Airless. 

In 2014, Corporate & Other expense increased slightly to $38.3 million compared to $38.0 million in 2013. The increase was mainly due to increases in professional fees associated with our legal entity reorganization project in 2014. The 2013 Corporate & Other expense included a $1.5 million adjustment for accelerated depreciation recognized on certain corporate assets in 2013.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash flows provided by our operations and our revolving credit facility. In 2015, our operations provided cash flows that totaled $324.5 million compared to $316.3 million in 2014 and $286.1 million in 2013. The increase in cash flow from operations in 2015 is mainly due to profit growth resulting from operational improvements, cost containment efforts and lower input costs. Comparing 2014 to 2013, the increase is mainly due to lower cash used for working capital compared to the prior year.

We used $176.2 million in cash for investing activities during 2015, compared to $159.2 million during 2014 and $157.1 million during 2013. The increase in cash used for investing activities is due to the purchase of $32.8 million in short term investments.  Short term investments reflect funds invested in a time deposit instrument with a two-year maturity.  However, during the life of the investment the funds can be redeemed at any time with a 35-90 day notice.  There are no penalties for early redemption.  This increase in cash used for short term investments was partially offset by a decrease in capital expenditures of $12.6 million.  Comparing 2014 to 2013, the increase in cash used for investing activities is primarily related to the increase in capital expenditures of approximately $10.4 million during the year. We estimate that we will spend approximately $160 million (assuming current exchange rates) on capital expenditures in 2016.

Our net cash used for financing activities in 2015 was $33.1 million compared to $20.7 million in 2014 and $67.8 million in 2013. During the fourth quarter 2015, we repurchased $13.9 million shares for retirement. Comparing 2014 to 2013, the decrease in cash used for financing activities was primarily due to an increase in our proceeds from long-term debt which was primarily used to fund share repurchases through our accelerated share repurchase program.

Cash and equivalents increased $90.1 million to $489.9 million at the end of 2015 from $399.8 million at the end of 2014. Total short and long-term interest bearing debt decreased to $819.5 million at the end of 2015 from $840.9 million at the end of 2014. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (Stockholders’ Equity plus Net Debt) decreased to 20.7% at the end of 2015 compared to 28.6% as of December 31, 2014.

The Company maintains a revolving credit facility that provides for unsecured financing of up to $300 million.  Each borrowing under this credit facility will bear interest at rates based on LIBOR, prime rates or other similar rates, in each case plus an applicable margin.  A facility fee on the total amount of the facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the credit facility and the facility fee percentage may change from time to time depending on changes in AptarGroup's consolidated leverage ratio. The facility matures on December 16, 2019.  At December 31, 2015, there was no outstanding balance under the credit facility.  The outstanding balance under the credit facility was $230 million at December 31, 2014 and is reported as notes payable in the current liabilities section of the Condensed Consolidated Balance Sheets. We incurred approximately $0.9 million and $2.7 million in interest and fees related to this credit facility during 2015 and 2014, respectively.

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

Based upon the above consolidated leverage ratio covenant, we would have the ability to borrow approximately an additional $1.7 billion before the 3.50 to 1.00 ratio 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 the majority of these arrangements are uncommitted. Cash generated by foreign operations has generally been reinvested locally. The majority of our $489.9 million in cash and equivalents is located outside of the U.S. We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The repatriation of non‑U.S. cash balances from certain subsidiaries could have adverse tax consequences as we may be required to pay income tax on those funds. Historically, the tax consequences associated with repatriating current year earnings to the U.S. has been between 10% and 14% of the repatriated amount. We do not expect future impacts to be materially different.

We believe we are in a strong financial position and have the financial resources to meet our 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. We currently anticipate funding the Mega Airless acquisition using available cash on hand in Europe and an existing revolving line of credit in the U.S.  Other uses of liquidity include paying dividends to shareholders and repurchasing shares of our common stock. 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.

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. See the following section “Overview of Contractual Obligations” for future payments relating to operating leases.

OVERVIEW OF CONTRACTUAL OBLIGATIONS

Below is a table of our outstanding contractual obligations and future payments as of December 31, 2015:

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

We have reviewed the recently issued accounting standards updates to the Financial Accounting Standards Board’s (“FASB’s”) Accounting Standards Codification that have future effective dates. Standards which are effective for 2015 are discussed in Note 1 of the Notes to Consolidated Financial Statements.

In May 2014, the FASB amended the guidance for recognition of revenue from customer contracts.  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  In August 2015, the FASB decided to defer the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date.  The FASB also decided to allow early adoption of the standard, but not before the original effective date of December 15, 2016. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.

In April 2015, the FASB issued an Accounting Standards Update (“ASU”) intended to simplify GAAP by changing the presentation of debt issuance costs. Under the new standard, debt issuance costs will be presented as a reduction of the carrying amount of the related liability, rather than as an asset.  The new treatment is consistent with debt discounts.  In August 2015, the FASB issued an ASU clarifying that debt issuance costs related to line of credit arrangements can be classified as an asset and amortized ratably over the term of the line of credit arrangement. These standards are effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted.  The Company does not believe that this new guidance will have a material impact on its consolidated financial statements.

In April 2015, the FASB issued new guidance on a customer's accounting for fees paid in a cloud computing arrangement (CCA).  Previously, there was no specific GAAP guidance on accounting for such fees from the customer's perspective.  Under the new standard, customers will apply the same criteria as vendors to determine whether a CCA contains a software license or is solely a service contract.  This standard is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted.  The Company does not believe that this new guidance will have a material impact on its consolidated financial statements.

In July 2015, the FASB issued new guidance for simplifying the measurement of inventory.  The core principle of the guidance is that an entity should measure inventory at the lower of cost and net realizable value.  This standard is effective for annual reporting periods beginning after December 15, 2016.  The Company does not believe that this new guidance will have a material impact on its consolidated financial statements.

In November 2015, the FASB issued guidance simplifies the balance sheet classification of deferred taxes. The new guidance requires that deferred tax liabilities and assets be presented as non-current in a classified statement of financial position.  This standard is effective for annual reporting periods beginning after December 15, 2016.  Other than presentation, the Company does not believe that this new guidance will have a material impact on its 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 consolidated financial statements upon adoption.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, pensions and contingencies. We base our estimates on historical experience and on a variety of other assumptions believed to be reasonable in order to make judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in preparation of our Consolidated Financial Statements. Management has discussed the development and selection of these critical accounting estimates with the audit committee of our Board of Directors and the audit committee has reviewed our disclosure relating to it in this Management’s Discussion and Analysis of Consolidated Results of Operations and Financial Condition.

IMPAIRMENT OF GOODWILL

In accordance with current accounting standards, goodwill has an indefinite life and is not amortized. We evaluate our goodwill for impairment at the reporting unit level on an annual basis, or whenever indicators of impairment exist. We have determined that our business segments represent our reporting units except for Injectables which, based on our review, qualifies as a separate reporting unit for goodwill impairment testing. As of December 31, 2015, we have $310.2 million of goodwill, which is allocated as follows: $33.7 million is allocated to the Pharma reporting unit, $95.6 million is allocated to the Injectables reporting unit, $164.6 million is allocated to the Beauty + Home reporting unit and $16.3 million is allocated to the Food + Beverage reporting unit.

We believe that the accounting estimate related to determining the fair value of our reporting units is a critical accounting estimate because: (1) it is highly susceptible to change from period to period because it requires Company management to make assumptions about the future cash flows for each reporting unit over several years in the future, and (2) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our results of operations could be material. Management’s assumptions about future cash flows for the reporting units require significant judgment and actual cash flows in the future may differ significantly from those forecasted today. The estimate for future cash flows and its impact on the impairment testing of goodwill is a critical accounting estimate for all the segments of our business.

For our goodwill impairment assessment we have adopted a standard that provides an entity the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50 percent chance) that the fair value of a reporting unit is less than its carrying amount. Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and other relevant entity‑specific events. In the absence of sufficient qualitative factors, goodwill impairment is determined utilizing a two‑step process. If it is determined that the fair value of a reporting unit is below its carrying amount, where necessary, goodwill will be impaired at that time.

We performed our annual goodwill impairment assessment as of December 31, 2015 for each of our reporting units. Based on our qualitative assessment of macroeconomic, industry, and market events and circumstances as well as the overall financial performance of the reporting units, we determined it was more likely than not that the fair value of goodwill attributed to these reporting units was greater than its carrying amount. As such, the annual two‑step impairment test was deemed not necessary to be performed for our reporting units for the year ended December 31, 2015.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

We record an allowance for doubtful accounts as an estimate of the inability of our customers to make their required payments. We determine the amount of our allowance for doubtful accounts by looking at a variety of factors. First, we examine an aging report of the accounts receivable in each entity within the Company. The aging report lists past due amounts according to invoice terms. In addition, we consider historical experience with the customers, the current economic environment, the credit rating of the customers and general overall market conditions. In some countries we maintain credit insurance, which can be used in certain cases of non‑payment.

We believe that the accounting estimate related to the allowance for doubtful accounts is a critical accounting estimate because: (1) it requires management to make assumptions about the ability to collect amounts owed from customers in the future, and (2) changes to these assumptions or estimates could have a material impact on our results of operations. The estimate for the allowance for doubtful accounts is a critical accounting estimate for all of our segments.

When we determine that a customer is unlikely to pay, we record a charge to bad debt expense in the income statement and an increase to the allowance for doubtful accounts. When it becomes certain the customer cannot pay (typically driven by the customer filing for bankruptcy) we write off the receivable by removing the accounts receivable amount and reducing the allowance for doubtful accounts accordingly. In 2015, we reduced the allowance for doubtful accounts by approximately $813 thousand and we wrote off doubtful accounts of $728 thousand. Please refer to Schedule II—Valuation and Qualifying Accounts for activity in the allowance for doubtful accounts over the past three years.

We had approximately $391.6 million in net accounts receivable at December 31, 2015. At December 31, 2015, we had approximately $2.7 million recorded in the allowance for doubtful accounts to cover potential future customer non‑payments net of any credit insurance reimbursement we would potentially recover. We believe our allowance for doubtful accounts is adequate to cover future non‑payments of our customers. However, if economic conditions deteriorate significantly or one of our large customers was to declare bankruptcy, a larger allowance for doubtful accounts might be necessary. It is extremely difficult to estimate how much of an additional reserve would be necessary, but we expect the largest potential customer balance at any one time would not exceed $18.2 million. An additional loss of $18.2 million would reduce our Total Assets as of December 31, 2015 by approximately 0.7% and would have reduced Income Before Income Taxes by approximately 6.2%.

If we had been required to recognize an additional $18.2 million in bad debt expense, it would likely not have significantly affected our liquidity and capital resources because, in spite of any such additional expense, we would have been within the terms of our debt covenants.

VALUATION OF PENSION BENEFITS

The benefit obligations and net periodic pension cost associated with our domestic and foreign noncontributory pension plans are determined using actuarial assumptions. Such assumptions include discount rates to reflect the time value of money, rate of employee compensation increases, demographic assumptions to determine the probability and timing of benefit payments, and the long‑term rate of return on plan assets. The actuarial assumptions are based upon management’s best estimates, after consulting with outside investment advisors and actuaries. Because assumptions and estimates are used, actual results could differ from expected results.

The discount rate is utilized principally in calculating our pension obligations, which are represented by the Accumulated Benefit Obligation (ABO) and the Projected Benefit Obligation (PBO), and in calculating net periodic benefit cost. In establishing the discount rate for our foreign plans, we review a number of relevant interest rates including Aa corporate bond yields. In establishing the discount rate for our domestic plans, we match the hypothetical duration of our plans, using a weighted average duration that is based upon projected cash payments, to a simulated bond portfolio (Citigroup Pension Index Curve). At December 31, 2015, the discount rates for our domestic and foreign plans were 4.24% and 2.10%, respectively.

We believe that the accounting estimates related to determining the valuation of pension benefits are critical accounting estimates because: (1) changes in them can materially affect net income, and (2) we are required to establish the discount rate and the expected return on fund assets, which are highly uncertain and require judgment. The estimates for the valuation of pension benefits are critical accounting estimates for all of our segments.

To the extent the discount rates increase (or decrease), our PBO and net periodic benefit cost will decrease (or increase) accordingly. The estimated effect of a 1% decrease in each discount rate would be a $49.3 million increase in the PBO ($35.6 million for the domestic plans and $13.7 million for the foreign plans) and a $7.2 million increase in net periodic benefit cost ($6.1 million for the domestic plans and $1.1 million for the foreign plans). To the extent the PBO increases, the after‑tax effect of such increase could reduce Other Comprehensive Income and Stockholders’ Equity. The estimated effect of a 1% increase in each discount rate would be a $38.2 million decrease in the PBO ($27.3 million for the domestic plans and $10.9 million for the foreign plans) and a $5.6 million decrease in net periodic benefit cost ($4.7 million for the domestic plans and $0.9 million for the foreign plans). A decrease of this magnitude in the PBO would eliminate the current year reduction recognized in Other Comprehensive Income and Stockholders’ Equity as related to pension assumptions.

The assumed expected long‑term rate of return on assets is the average rate of earnings expected on the funds invested to provide for the benefits included in the PBO. Of domestic plan assets, approximately 47% was invested in equities, 30% was invested in fixed income securities, 1% was invested in money market funds, 14% was invested in hedge funds and 8% was invested in infrastructure securities at December 31, 2015. Of foreign plan assets, approximately 89% was invested in investment funds, 3% was invested in corporate securities, 1% was invested in fixed income securities, 4% was invested in equity securities and 3% was invested in cash at December 31, 2015.

The expected long‑term rate of return assumptions are determined based on our investment policy combined with expected risk premiums of equities and fixed income securities over the underlying risk‑free rate. This rate is utilized principally in calculating the expected return on the plan assets component of the net periodic benefit cost. To the extent the actual rate of return on assets realized over the course of a year is greater or less than the assumed rate, that year’s net periodic benefit cost is not affected. Rather, this gain (or loss) reduces (or increases) future net periodic benefit cost over a period of approximately 15 to 20 years. To the extent the expected long‑term rate of return on assets increases (or decreases), our net periodic benefit cost will decrease (or increase) accordingly. The estimated effect of a 1% decrease (or increase) in each expected long‑term rate of return on assets would be a $1.6 million increase (or decrease) in net periodic benefit cost.

The average rate of compensation increase is utilized principally in calculating the PBO and the net periodic benefit cost. The estimated effect of a 0.5% decrease in each rate of expected compensation increase would be a $5.8 million decrease in the PBO ($1.5 million for the domestic plans and $4.3 million for the foreign plans) and a $1.1 million decrease to the net periodic benefit cost. The estimated effect of a 0.5% increase in each rate of expected compensation increase would be a $6.2 million increase in the PBO ($1.6 million for the domestic plans and $4.6 million for the foreign plans) and a $1.2 million increase to the net periodic benefit cost.

Our primary pension related assumptions as of December 31, 2015 and 2014 were as follows:

 

In order to determine the 2016 net periodic benefit cost, the Company expects to use the discount rates, expected long‑term rates of return on plan assets and rates of compensation increase assumptions as of December 31, 2015. The estimated impact of the changes to the assumptions as noted in the table above on our 2016 net periodic benefit cost is expected to be a decrease of approximately $2.8 million.

SHARE‑BASED COMPENSATION

The Company uses the Black‑Scholes option‑valuation model to value stock options, which requires the input of subjective assumptions. These assumptions include the length of time employees will retain their vested stock options before exercising them (“expected term”), the estimated volatility of the Company’s stock price, risk‑free interest rate, the expected dividend yield and stock price. The expected term of the options is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. The expected term determines the period for which the risk‑free interest rate and volatility must be applied. The risk‑free interest rate is based on the expected U.S. Treasury rate over the expected term. Expected stock price volatility is based on historical volatility of the Company’s stock price. Dividend yield is management’s long‑term estimate of annual dividends to be paid as a percentage of share price.

For 2015, expense related to share‑based compensation for employee stock option plans was $17.9 million. Future changes in the subjective assumptions used in the Black‑Scholes option‑valuation model or estimates associated with forfeitures could impact our share‑based compensation expense. For example, a one year reduction in the expected term of the options would decrease the Black‑Scholes valuation and reduce share‑based compensation by approximately $0.6 million. In comparison, a one year increase in the expected term of the option would increase the Black‑Scholes valuation and increase share‑based compensation by approximately $0.5 million. In addition, changes in the share price at the date of the grant would impact our share‑based compensation expense. For example, a $5 decrease in the stock price would decrease the Black‑Scholes valuation and reduce share‑based compensation by approximately $0.8 million. In comparison, a $5 increase in the share price would increase the Black‑Scholes valuation and increase share‑based compensation by approximately $0.8 million.

OPERATIONS OUTLOOK

We don’t anticipate significant changes in the various macro challenges that we are facing in the first quarter of 2016.  The foreign currency exchange environment is expected to continue to be volatile and will impact our reported results.  We will remain flexible to adapt to changing market conditions with a continued focus on containing costs while we invest in innovation and new solutions that will help our customers grow their businesses. 

AptarGroup expects earnings per share for the first quarter, excluding any impacts from costs associated with the Mega Airless acquisition, to be in the range of $0.69 to $0.74 per share compared to $0.70 per share reported in the prior year. Assuming a comparable foreign currency exchange rate environment, comparable earnings per share for the prior year would have been approximately $0.68 per share. 

FORWARD‑LOOKING STATEMENTS

Certain statements in Management’s Discussion and Analysis and other sections of this Form 10‑K are forward‑looking and involve a number of risks and uncertainties, including certain statements set forth in the Liquidity and Capital Resources, Off‑Balance Sheet Arrangements, and Operations Outlook sections of this Form 10‑K. Words such as “expects,” “anticipates,” “believes,” “estimates,” “future” 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: