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APTARGROUP, INC. - Quarter Report: 2015 June (Form 10-Q)

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015

 

OR

 

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

FOR THE TRANSITION PERIOD FROM             TO           

 

____________________________________________________________________________

 

COMMISSION FILE NUMBER 1-11846

 

GRAPHIC

AptarGroup, Inc.

 

DELAWARE

 

36-3853103

(State of Incorporation)

 

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

 

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

 

815-477-0424

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No ¨

 

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

 

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

 

Large accelerated filer þ

 

Accelerated filer ¨

 

Non-accelerated filer ¨

 

Smaller reporting company ¨

 

 

 

 

(Do not check if a smaller reporting company)

 

 

 

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

 

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

 

Class

 

Outstanding at July 27, 2015

Common Stock, $.01 par value per share

 

62,795,667 shares

 



Table of Contents

 

 

 

AptarGroup, Inc.

 

Form 10-Q

 

Quarter Ended June 30, 2015

 

INDEX

 

 

Part I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2015 and 2014

1

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2015 and 2014

2

 

 

 

 

Condensed Consolidated Balance Sheets – June 30, 2015 and December 31, 2014

3

 

 

 

 

Condensed Consolidated Statements of Changes in Equity – Six Months Ended June 30, 2015 and 2014

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2015 and 2014

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

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

17

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

25

 

 

 

Item 4.

Controls and Procedures

25

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

 

 

Item 6.

Exhibits

26

 

 

 

 

Signature

27

 

i



Table of Contents

 

PART I – FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

In thousands, except per share amounts

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

594,275

 

$

670,631

 

$

1,184,086

 

$

1,346,682

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

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

 

375,278

 

451,051

 

761,257

 

904,462

 

Selling, research & development and administrative

 

89,312

 

96,486

 

185,499

 

203,160

 

Depreciation and amortization

 

34,165

 

38,466

 

68,225

 

75,713

 

 

 

498,755

 

586,003

 

1,014,981

 

1,183,335

 

Operating Income

 

95,520

 

84,628

 

169,105

 

163,347

 

 

 

 

 

 

 

 

 

 

 

Other (Expense) Income:

 

 

 

 

 

 

 

 

 

Interest expense

 

(9,195

)

(5,246

)

(16,498

)

(10,127

)

Interest income

 

1,105

 

1,047

 

2,836

 

2,063

 

Equity results of affiliates

 

(407

)

(198

)

(526

)

(1,744

)

Miscellaneous, net

 

(1,268

)

(525

)

(1,467

)

(153

)

 

 

(9,765

)

(4,922

)

(15,655

)

(9,961

)

Income before Income Taxes

 

85,755

 

79,706

 

153,450

 

153,386

 

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes

 

28,214

 

26,622

 

50,810

 

51,894

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

57,541

 

$

53,084

 

$

102,640

 

$

101,492

 

 

 

 

 

 

 

 

 

 

 

Net (Income) Loss Attributable to Noncontrolling Interests

 

$

(2

)

$

(8

)

$

70

 

$

(27

)

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to AptarGroup, Inc.

 

$

57,539

 

$

53,076

 

$

102,710

 

$

101,465

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Basic

 

$

0.92

 

$

0.81

 

$

1.64

 

$

1.55

 

Diluted

 

$

0.90

 

$

0.79

 

$

1.59

 

$

1.49

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

62,697

 

65,328

 

62,496

 

65,397

 

Diluted

 

64,276

 

67,438

 

64,603

 

68,042

 

 

 

 

 

 

 

 

 

 

 

Dividends per Common Share

 

$

0.28

 

$

0.28

 

$

0.56

 

$

0.53

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

1



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

In thousands

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

57,541

 

$

53,084

 

$

102,640

 

$

101,492

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

45,099

 

(5,164

)

(94,147

)

(4,601

)

Changes in treasury locks, net of tax

 

7

 

6

 

13

 

12

 

Defined benefit pension plan, net of tax

 

 

 

 

 

 

 

 

 

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

 

42

 

53

 

85

 

106

 

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

 

1,131

 

664

 

2,257

 

1,329

 

Total defined benefit pension plan, net of tax

 

1,173

 

717

 

2,342

 

1,435

 

Total other comprehensive income (loss)

 

46,279

 

(4,441

)

(91,792

)

(3,154

)

 

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

103,820

 

48,643

 

10,848

 

98,338

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (Income) Loss Attributable to Noncontrolling Interests

 

(2

)

(9

)

70

 

(18

)

 

 

 

 

 

 

 

 

 

 

Comprehensive Income Attributable to AptarGroup, Inc.

 

$

103,818

 

$

48,634

 

$

10,918

 

$

98,320

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

2



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

In thousands

 

 

 

June 30,

 

December 31,

 

 

 

2015

 

2014

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and equivalents

 

$

391,810

 

$

399,762

 

Short-term investments

 

66,897

 

--

 

 

 

458,707

 

399,762

 

Accounts and notes receivable, less allowance for doubtful accounts of $4,192 in 2015 and $4,251 in 2014

 

435,448

 

406,976

 

Inventories

 

315,178

 

311,072

 

Prepaid and other

 

102,258

 

96,128

 

 

 

1,311,591

 

1,213,938

 

 

 

 

 

 

 

Property, Plant and Equipment:

 

 

 

 

 

Buildings and improvements

 

342,879

 

353,683

 

Machinery and equipment

 

1,874,243

 

1,919,507

 

 

 

2,217,122

 

2,273,190

 

Less: Accumulated depreciation

 

(1,462,264

)

(1,484,546

)

 

 

754,858

 

788,644

 

Land

 

21,778

 

23,011

 

 

 

776,636

 

811,655

 

 

 

 

 

 

 

Other Assets:

 

 

 

 

 

Investments in affiliates

 

4,965

 

5,760

 

Goodwill

 

316,480

 

329,741

 

Intangible assets, net

 

36,090

 

40,045

 

Miscellaneous

 

32,044

 

36,051

 

 

 

389,579

 

411,597

 

Total Assets

 

$

2,477,806

 

$

2,437,190

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

3



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

In thousands, except per share amounts

 

 

 

June 30,

 

December 31,

 

 

 

2015

 

2014

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Notes payable

 

$

5,766

 

$

233,284

 

Current maturities of long-term obligations

 

18,122

 

18,692

 

Accounts payable and accrued liabilities

 

377,569

 

352,762

 

 

 

401,457

 

604,738

 

 

 

 

 

 

 

Long-Term Obligations

 

813,007

 

588,892

 

 

 

 

 

 

 

Deferred Liabilities and Other:

 

 

 

 

 

Deferred income taxes

 

21,297

 

25,521

 

Retirement and deferred compensation plans

 

110,631

 

109,517

 

Deferred and other non-current liabilities

 

3,724

 

4,606

 

Commitments and contingencies (Note 10)

 

--

 

--

 

 

 

135,652

 

139,644

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

AptarGroup, Inc. stockholders’ equity

 

 

 

 

 

Common stock, $.01 par value, 199 million shares authorized; 87.0 and 86.3 million shares issued as of June 30, 2015 and December 31, 2014, respectively

 

869

 

862

 

Capital in excess of par value

 

555,307

 

507,313

 

Retained earnings

 

1,807,786

 

1,740,005

 

Accumulated other comprehensive (loss)

 

(201,837

)

(110,045

)

Less treasury stock at cost, 24.2 and 24.3 million shares as of June 30, 2015 and December 31, 2014, respectively

 

(1,034,726

)

(1,034,728

)

Total AptarGroup, Inc. Stockholders’ Equity

 

1,127,399

 

1,103,407

 

Noncontrolling interests in subsidiaries

 

291

 

509

 

 

 

 

 

 

 

Total Stockholders’ Equity

 

1,127,690

 

1,103,916

 

Total Liabilities and Stockholders’ Equity

 

$

2,477,806

 

$

2,437,190

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

4



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

In thousands

 

 

 

AptarGroup, Inc. Stockholders’ Equity

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Common

 

 

 

Capital in

 

Non-

 

 

 

 

 

Retained

 

Comprehensive

 

Stock

 

Treasury

 

Excess of

 

Controlling

 

Total

 

 

 

Earnings

 

Income (Loss)

 

Par Value

 

Stock

 

Par Value

 

Interest

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2013:

 

$

1,619,419

 

$

109,751

 

$

853

 

$

(744,213

)

$

493,947

 

$

551

 

$

1,480,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

101,465

 

 

 

 

 

 

 

 

 

27

 

101,492

 

Foreign currency translation adjustments

 

 

 

(4,592

)

 

 

 

 

 

 

(9

)

(4,601

)

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

 

 

 

1,435

 

 

 

 

 

 

 

 

 

1,435

 

Changes in treasury locks, net of tax

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Stock option exercises & restricted stock vestings

 

 

 

 

 

5

 

1

 

35,737

 

 

 

35,743

 

Cash dividends declared on common stock

 

(34,693

)

 

 

 

 

 

 

 

 

 

 

(34,693

)

Treasury stock purchased

 

 

 

 

 

 

 

(52,884

)

 

 

 

 

(52,884

)

Balance – June 30, 2014:

 

$

1,686,191

 

$

106,606

 

$

858

 

$

(797,096

)

$

529,684

 

$

569

 

$

1,526,812

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2014:

 

$

1,740,005

 

$

(110,045

)

$

862

 

$

(1,034,728

)

$

507,313

 

$

509

 

$

1,103,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

102,710

 

 

 

 

 

 

 

 

 

(70

)

102,640

 

Foreign currency translation adjustments

 

 

 

(94,147

)

 

 

 

 

 

 

 

 

(94,147

)

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

 

 

 

2,342

 

 

 

 

 

 

 

 

 

2,342

 

Changes in treasury locks, net of tax

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Stock option exercises & restricted stock vestings

 

 

 

 

 

7

 

2

 

48,470

 

 

 

48,479

 

Cash dividends declared on common stock

 

(34,929

)

 

 

 

 

 

 

 

 

 

 

(34,929

)

Non Controlling Interest Repurchased

 

 

 

 

 

 

 

 

 

(476

)

(148

)

(624

)

Balance – June 30, 2015:

 

$

1,807,786

 

$

(201,837

)

$

869

 

$

(1,034,726

)

$

555,307

 

$

291

 

$

1,127,690

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

5



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

In thousands, brackets denote cash outflows

 

Six Months Ended June 30,

 

2015

 

2014

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

 

$

102,640

 

$

101,492

 

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

 

 

 

 

 

Depreciation

 

66,059

 

72,946

 

Amortization

 

2,166

 

2,767

 

Stock based compensation

 

13,983

 

13,130

 

Provision for (recovery of) doubtful accounts

 

362

 

(69

)

Deferred income taxes

 

(2,465

)

(3,808

)

Defined benefit plan expense

 

10,294

 

8,452

 

Equity in results of affiliates in excess of cash distributions received

 

526

 

1,744

 

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

 

 

 

 

 

Accounts receivable

 

(50,289

)

(71,208

)

Inventories

 

(23,058

)

(19,565

)

Prepaid and other current assets

 

(16,381

)

(5,868

)

Accounts payable and accrued liabilities

 

38,885

 

17,898

 

Income taxes payable

 

(3,222

)

(21,572

)

Retirement and deferred compensation plans

 

(3,832

)

(6,559

)

Other changes, net

 

4,509

 

20,920

 

Net Cash Provided by Operations

 

140,177

 

110,700

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Capital expenditures

 

(60,306

)

(87,068

)

Proceeds from sale of property and equipment

 

83

 

2,287

 

Insurance proceeds

 

1,900

 

--

 

Purchase of short-term investments

 

(66,897

)

--

 

Notes receivable, net

 

(701

)

(163

)

Net Cash Used by Investing Activities

 

(125,921

)

(84,944

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

(Repayments of) Proceeds from notes payable

 

(227,512

)

77,019

 

Proceeds from long-term obligations

 

225,887

 

--

 

Repayments of long-term obligations

 

(1,539

)

(308

)

Dividends paid

 

(34,929

)

(34,693

)

Credit facility costs

 

(1,216

)

(299

)

Proceeds from stock option exercises

 

28,810

 

18,319

 

Purchase of treasury stock

 

--

 

(52,884

)

Excess tax benefit from exercise of stock options

 

4,575

 

3,802

 

Net Cash (Used) Provided by Financing Activities

 

(5,924

)

10,956

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash

 

(16,284

)

(5,285

)

 

 

 

 

 

 

Net (Decrease) Increase in Cash and Equivalents

 

(7,952

)

31,427

 

Cash and Equivalents at Beginning of Period

 

399,762

 

309,861

 

Cash and Equivalents at End of Period

 

$

391,810

 

$

341,288

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

6



Table of Contents

 

AptarGroup, Inc.

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of AptarGroup, Inc. and our subsidiaries.  The terms “AptarGroup” or “Company” as used herein refer to AptarGroup, Inc. and our subsidiaries.  All significant intercompany accounts and transactions have been eliminated.  Certain previously reported amounts have been reclassified to conform to the current period presentation.

In the opinion of management, the Unaudited Condensed Consolidated Financial Statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of consolidated financial position, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented.  The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading.  Also, certain financial position data included herein was derived from the Audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 but does not include all disclosures required by GAAP.  Accordingly, these Unaudited Condensed Consolidated Financial Statements and related notes should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.  The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.

 

CHANGE IN ACCOUNTING PRINCIPLE

During the quarter, the Company changed its inventory valuation method for certain operating entities in its North American business to the first-in first-out (FIFO) method from the last-in first-out (LIFO) method.  Prior to the change, the Company utilized two methods of inventory costing: LIFO for inventories in these operating entities and FIFO for inventories in other operating entities. The Company believes that the FIFO method is preferable as it better reflects the current value of inventory on the Company’s Condensed Consolidated Balance Sheet, provides better matching of revenues and expenses, results in uniformity across the Company’s global operations with respect to the method of inventory accounting and improves comparability with the Company’s peers. The cumulative pre-tax effect of this change is $7.4 million. We have determined that this change is not material to the Company’s previously issued financial statements and that the cumulative effect of the change is not material to current operations or to the trend of reported results of operations. Therefore, we conclude it was appropriate to recognize the cumulative effect of the change as an operating item in the current period’s Condensed Consolidated Statement of Income and not to adopt the change by retrospective application.

 

ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates to the FASB’s Accounting Standards Codification.  During the first six months of 2015, there have been no developments to the recently adopted accounting pronouncements from those disclosed in the Company’s 2014 Annual Report on Form 10-K that are considered to have a material impact on our Unaudited Condensed Consolidated Financial Statements.  Other accounting standards that have been issued by the FASB or other standards-setting bodies but are not yet effective are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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.  We do not consider this investment a marketable security as there is no active market for this type of product.

 

INCOME TAXES

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

In our determination of which foreign earnings are permanently reinvested in foreign operations, the Company considers numerous factors, including the financial requirements of the U.S. parent company and those of our foreign subsidiaries, the U.S. funding needs for dividend payments and stock repurchases, and the tax consequences of remitting earnings to the U.S.  From this analysis, current year repatriation decisions are made in an attempt to provide a proper mix of debt and shareholder capital both within the U.S. and for non-U.S. operations.  The Company’s policy is to permanently reinvest our accumulated foreign earnings and the Company will only make a distribution out of current year earnings to meet the cash needs at the parent company.  As such, the Company does not provide for taxes on earnings that are deemed to be permanently reinvested.  Since no distribution to the U.S. of foreign earnings is expected in 2015, the effective tax rate for 2015 includes no tax cost of repatriation.

 

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The Company provides a liability for the amount of tax benefits realized from uncertain tax positions.  This liability is provided whenever the Company determines that a tax benefit will not meet a more-likely-than-not threshold for recognition.  See Note 4 of the Unaudited Notes to the Condensed Consolidated Financial Statements for more information.

 

NOTE 2 - INVENTORIES

 

At December 31, 2014, approximately 19% of the total inventories were accounted for by the LIFO method.  Inventories, by component, consisted of:

 

 

 

 

June 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Raw materials

 

$

100,872

 

$

108,618

 

Work in process

 

97,426

 

94,414

 

Finished goods

 

116,880

 

115,809

 

Total

 

315,178

 

318,841

 

Less LIFO reserve

 

--

 

(7,769

)

Total

 

$

315,178

 

$

311,072

 

 

As discussed in Note 1 above, the Company changed its inventory valuation method for certain operating entities in its North American business to the first-in first-out (FIFO) method from the last-in first-out (LIFO) method during the current quarter. Had this change not been implemented, the Company would have reported a LIFO reserve for the current quarter ended June 30, 2015 of $6,879 as compared to $7,427 for the quarter ended March 31, 2015 and $7,769 for the fiscal year ended December 31, 2014.

 

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

 

The changes in the carrying amount of goodwill since December 31, 2014 are as follows by reporting segment:

 

 

 

 

Beauty +

 

 

 

Food +

 

Corporate

 

 

 

 

 

Home

 

Pharma

 

Beverage

 

& Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

171,149

 

$

141,592

 

$

17,000

 

$

1,615

 

$

331,356

 

 

Accumulated impairment losses

 

--

 

--

 

--

 

(1,615

)

(1,615

)

 

 

$

171,149

 

$

141,592

 

$

17,000

 

$

--

 

$

329,741

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency exchange effects

 

(3,947

)

(8,799

)

(515

)

--

 

(13,261

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

167,202

 

$

132,793

 

$

16,485

 

$

1,615

 

$

318,095

 

 

Accumulated impairment losses

 

--

 

--

 

--

 

(1,615

)

(1,615

)

 

 

$

167,202

 

$

132,793

 

$

16,485

 

$

--

 

$

316,480

 

 

The table below shows a summary of intangible assets as of June 30, 2015 and December 31, 2014.

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

Amortization

 

Carrying

 

Accumulated

 

Net

 

Carrying

 

Accumulated

 

Net

 

Period (Years)

 

Amount

 

Amortization

 

Value

 

Amount

 

Amortization

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patents

 

7

 

$

15,743

 

$

(15,711

)

$

32

 

$

17,001

 

$

(16,852

)

$

149

 

Acquired Technology

 

15

 

32,891

 

(7,675

)

25,216

 

35,701

 

(5,950

)

29,751

 

License agreements and other

 

5

 

31,056

 

(20,214

)

10,842

 

32,804

 

(22,659

)

10,145

 

Total intangible assets

 

9

 

$

79,690

 

$

(43,600

)

$

36,090

 

$

85,506

 

$

(45,461

)

$

40,045

 

 

Aggregate amortization expense for the intangible assets above for the quarters ended June 30, 2015 and 2014 was $1,085 and $1,369, respectively.  Aggregate amortization expense for the intangible assets above for the six months ended June 30, 2015 and 2014 was $2,166 and $2,767, respectively.

 

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

 

8



Table of Contents

 

2015

 

$

2,055

             (remaining estimated amortization for 2015)

 

2016

 

3,743

 

 

2017

 

3,317

 

 

2018

 

3,317

 

 

2019 and thereafter

 

23,658

 

 

 

Future amortization expense may fluctuate depending on changes in foreign currency rates.  The estimates for amortization expense noted above are based upon foreign exchange rates as of June 30, 2015.

 

NOTE 4 – INCOME TAX UNCERTAINTIES

 

The Company had approximately $5.7 and $6.4 million recorded for income tax uncertainties as of June 30, 2015 and December 31, 2014, respectively.  The $0.7 million decrease in income tax uncertainties was primarily due to the settlement of a tax audit in Italy as well as changes in foreign currency rates.  The amount, if recognized, that would impact the effective tax rate is $5.5 and $6.3 million, respectively. The Company estimates that it is reasonably possible that the liability for uncertain tax positions will decrease by no more than $5.1 million in the next twelve months from the resolution of various uncertain positions as a result of the completion of tax audits, litigation and the expiration of the statute of limitations in various jurisdictions.

 

NOTE 5 – LONG –TERM OBLIGATIONS

 

In December 2014, we executed a $475 million private placement to take advantage of low long-term interest rates.  At that time, we closed on $250 million of the private placement to fund our ASR program (see Note 11).  This closing consisted of two maturity tranches, with $125 million of 9 year notes at an interest rate of 3.49% and $125 million of 11 year notes at an interest rate of 3.61%.  We closed on the remaining $225 million of the private placement in February, 2015, consisting of $100 million of 9 year notes at an interest rate of 3.49% and $125 million of 11 year notes at an interest rate of 3.61%.  The proceeds from this closing were used to pay down the existing revolving line of credit.

 

The Company’s long-term obligations consisted of the following:

 

 

 

 

June 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Notes payable 0.61% - 27.26%, due in monthly and annual installments

 

 

 

 

 

through 2027

 

$

4,244

 

$

5,160

 

Senior unsecured notes 2.3%, due in 2015

 

16,000

 

16,000

 

Senior unsecured notes 6.0%, due in 2016

 

50,000

 

50,000

 

Senior unsecured notes 6.0%, due in 2018

 

75,000

 

75,000

 

Senior unsecured notes 3.8%, due in 2020

 

84,000

 

84,000

 

Senior unsecured notes 3.2%, due in 2022

 

75,000

 

75,000

 

Senior unsecured notes 3.5%, due in 2023

 

125,000

 

125,000

 

Senior unsecured notes 3.4%, due in 2024

 

50,000

 

50,000

 

Senior unsecured notes 3.5%, due in 2024

 

100,000

 

--

 

Senior unsecured notes 3.6%, due in 2025

 

125,000

 

125,000

 

Senior unsecured notes 3.6%, due in 2026

 

125,000

 

--

 

Capital lease obligations

 

1,885

 

2,424

 

 

 

831,129

 

607,584

 

Current maturities of long-term obligations

 

(18,122

)

(18,692

)

Total long-term obligations

 

$

813,007

 

$

588,892

 

 

Aggregate long-term maturities, excluding capital lease obligations, due annually for the five years beginning in 2015 are $17,769, $50,391, $392, $75,342, $189 and $685,161 thereafter.

 

NOTE 6 – RETIREMENT AND DEFERRED COMPENSATION PLANS

 

Components of Net Periodic Benefit Cost:

 

 

 

 

Domestic Plans

 

Foreign Plans

 

Three months ended June 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

2,504

 

$

2,010

 

$

1,139

 

$

1,081

 

Interest cost

 

1,589

 

1,482

 

412

 

699

 

Expected return on plan assets

 

(1,897

)

(1,646

)

(447

)

(510

)

Amortization of net loss

 

1,351

 

717

 

418

 

313

 

Amortization of prior service cost

 

--

 

--

 

64

 

80

 

Net periodic benefit cost

 

$

3,547

 

$

2,563

 

$

1,586

 

$

1,663

 

 

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Table of Contents

 

 

 

Domestic Plans

 

Foreign Plans

 

Six months ended June 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

5,008

 

$

4,021

 

$

2,299

 

$

2,160

 

Interest cost

 

3,178

 

2,964

 

832

 

1,398

 

Expected return on plan assets

 

(3,795

)

(3,292

)

(902

)

(1,020

)

Amortization of net loss

 

2,702

 

1,434

 

843

 

626

 

Amortization of prior service cost

 

--

 

--

 

129

 

161

 

Net periodic benefit cost

 

$

7,093

 

$

5,127

 

$

3,201

 

$

3,325

 

 

EMPLOYER CONTRIBUTIONS

Although the Company has no minimum funding requirement, we plan to contribute approximately $10 million to our domestic defined benefit plans in 2015.  No 2015 contributions were made as of June 30, 2015.  The Company also expects to contribute approximately $12.6 million to our foreign defined benefit plans in 2015, and as of June 30, 2015, we have contributed approximately $1.0 million.

 

NOTE 7 – ACCUMULATED OTHER COMPREHENSIVE INCOME

 

Changes in Accumulated Other Comprehensive Income by Component:

 

 

 

Foreign
Currency

 

Defined Benefit
Pension Plans

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2013

 

$

149,965

 

$

(40,093

)

$

(121

)

$

109,751

 

Other comprehensive loss before reclassifications

 

(4,252

)

--

 

--

 

(4,252

)

Amounts reclassified from accumulated other comprehensive income

 

(340

)

1,435

 

12

 

1,107

 

Net current-period other comprehensive (loss) income

 

(4,592

)

1,435

 

12

 

(3,145

)

Balance - June 30, 2014

 

$

145,373

 

$

(38,658

)

$

(109

)

$

106,606

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2014

 

$

(42,851

)

$

(67,097

)

$

(97

)

$

(110,045

)

Other comprehensive loss before reclassifications

 

(94,147

)

--

 

--

 

(94,147

)

Amounts reclassified from accumulated other comprehensive income

 

--

 

2,342

 

13

 

2,355

 

Net current-period other comprehensive (loss) income

 

(94,147

)

2,342

 

13

 

(91,792

)

Balance - June 30, 2015

 

$

(136,998

)

$

(64,755

)

$

(84

)

$

(201,837

)

 

Reclassifications Out of Accumulated Other Comprehensive Income:

 

Details about Accumulated Other

 

Amount Reclassified from Accumulated

 

Affected Line in the Statement

 

Comprehensive Income Components

 

Other Comprehensive Income

 

Where Net Income is Presented

 

Three months ended June 30,

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Defined Benefit Pension Plans

 

 

 

 

 

 

 

Amortization of net loss

 

$

1,769

 

$

1,030

 

(a)

 

Amortization of prior service cost

 

64

 

80

 

(a)

 

 

 

1,833

 

1,110

 

Total before tax

 

 

 

(660

)

(393

)

Tax benefit

 

 

 

$

1,173

 

$

717

 

Net of tax

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Changes in treasury locks

 

9

 

10

 

Interest Expense

 

 

 

9

 

10

 

Total before tax

 

 

 

(2

)

(4

)

Tax benefit

 

 

 

$

7

 

$

6

 

Net of tax

 

 

 

 

 

 

 

 

 

Total reclassifications for the period

 

$

1,180

 

$

723

 

 

 

 

10



Table of Contents

 

(a)         These accumulated other comprehensive income components are included in the computation of net periodic benefit costs, net of tax (see Note 6 – Retirement and Deferred Compensation Plans for additional details).

 

Details about Accumulated Other

 

Amount Reclassified from Accumulated

 

Affected Line in the Statement

 

Comprehensive Income Components

 

Other Comprehensive Income

 

Where Net Income is Presented

 

Six months ended June 30,

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Defined Benefit Pension Plans

 

 

 

 

 

 

 

Amortization of net loss

 

$

3,545

 

$

2,060

 

(b)

 

Amortization of prior service cost

 

129

 

161

 

(b)

 

 

 

3,674

 

2,221

 

Total before tax

 

 

 

(1,332

)

(786

)

Tax benefit

 

 

 

$

2,342

 

$

1,435

 

Net of tax

 

 

 

 

 

 

 

 

 

Foreign Currency

 

 

 

 

 

 

 

Foreign Currency Gain

 

--

 

(340

)

Miscellaneous, net

 

 

 

--

 

(340

)

Total before tax

 

 

 

--

 

--

 

Tax benefit

 

 

 

$

--

 

$

(340

)

Net of tax

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

Changes in treasury locks

 

19

 

19

 

Interest Expense

 

 

 

19

 

19

 

Total before tax

 

 

 

(6

)

(7

)

Tax benefit

 

 

 

$

13

 

$

12

 

Net of tax

 

 

 

 

 

 

 

 

 

Total reclassifications for the period

 

$

2,355

 

$

1,107

 

 

 

 

(b)         These accumulated other comprehensive income components are included in the computation of net periodic benefit costs, net of tax (see Note 6 – Retirement and Deferred Compensation Plans for additional details).

 

NOTE 8 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

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

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

 

HEDGE OF NET INVESTMENTS IN FOREIGN OPERATIONS

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

 

OTHER

As of June 30, 2015, the Company has recorded the fair value of foreign currency forward exchange contracts of $1.4 million in prepaid and other, $1.7 million in accounts payable and accrued liabilities, and $0.1 million in deferred and other non-current liabilities in the balance sheet.  All forward exchange contracts outstanding as of June 30, 2015 had an aggregate contract amount of $138.1 million.

 

 

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of June 30, 2015

and December 31, 2014

 

11



Table of Contents

 

Derivative Contracts Not Designated
as Hedging Instruments

 

Balance Sheet
Location

 

June
30, 2015

 

December
31, 2014

 

 

 

 

 

 

 

 

 

Derivative Assets

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Prepaid and other

 

$

1,379

 

$

1,037

 

Foreign Exchange Contracts

 

Miscellaneous Other Assets

 

--

 

7

 

 

 

 

 

$

1,379

 

$

1,044

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Accounts payable and accrued liabilities

 

$

1,736

 

$

2,378

 

Foreign Exchange Contracts

 

Deferred and other non-current liabilities

 

90

 

115

 

 

 

 

 

$

1,826

 

$

2,493

 

 

 

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

for the Quarters Ended June 30, 2015 and June 30, 2014

 

Derivatives Not Designated as
Hedging Instruments

 

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

 

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

 

 

 

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Income (Expense) Miscellaneous, net

 

$

(3,301

)

$

(1,335

)

 

 

 

 

$

(3,301

)

$

(1,335

)

 

 

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

for the Six Months Ended June 30, 2015 and June 30, 2014

 

Derivatives Not Designated as
Hedging Instruments

 

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

 

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

 

 

 

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Income (Expense) Miscellaneous, net

 

$

(48

)

$

(1,494

)

 

 

 

 

$

(48

)

$

(1,494

)

 

 

 

 

 

 

 

 

Net Amounts

 

Gross Amounts not Offset in the

 

 

 

 

 

 

 

Gross Amounts

 

Presented in

 

Statement of Financial Position

 

 

 

 

 

Gross

 

Offset in the

 

the Statement of

 

Financial

 

Cash Collateral

 

Net

 

 

 

Amount

 

Financial Position

 

Financial Position

 

Instruments

 

Received

 

Amount

 

Description

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

1,379

 

--

 

$

1,379

 

--

 

--

 

$

1,379

 

Total Assets

 

$

1,379

 

--

 

$

1,379

 

--

 

--

 

$

1,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

1,826

 

--

 

$

1,826

 

--

 

--

 

$

1,826

 

Total Liabilities

 

$

1,826

 

--

 

$

1,826

 

--

 

--

 

$

1,826

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

$

1,044

 

--

 

$

1,044

 

--

 

--

 

$

1,044

 

Total Assets

 

$

1,044

 

--

 

$

1,044

 

--

 

--

 

$

1,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

2,493

 

--

 

$

2,493

 

--

 

--

 

$

2,493

 

Total Liabilities

 

$

2,493

 

--

 

$

2,493

 

--

 

--

 

$

2,493

 

 

NOTE 9 – FAIR VALUE

 

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

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

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

 

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

 

As of June 30, 2015, the fair values of our financial assets and liabilities were categorized as follows:

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

Forward exchange contracts (a)

 

$

1,379

 

$

--

 

$

1,379

 

$

--

 

Total assets at fair value

 

$

1,379

 

$

--

 

$

1,379

 

$

--

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Forward exchange contracts (a)

 

$

1,826

 

$

--

 

$

1,826

 

$

--

 

Total liabilities at fair value

 

$

1,826

 

$

--

 

$

1,826

 

$

--

 

 

As of December 31, 2014, the fair values of our financial assets and liabilities were categorized as follows:

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

Forward exchange contracts (a)

 

$

1,044

 

$

--

 

$

1,044

 

$

--

 

Total assets at fair value

 

$

1,044

 

$

--

 

$

1,044

 

$

--

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Forward exchange contracts (a)

 

$

2,493

 

$

--

 

$

2,493

 

$

--

 

Total liabilities at fair value

 

$

2,493

 

$

--

 

$

2,493

 

$

--

 

 

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

 

The carrying amounts of the Company’s other current financial instruments such as cash and equivalents, notes payable and current maturities of long-term obligations approximate fair value due to the short-term maturity of the instrument.  The Company considers our long-term obligations a Level 2 liability and utilizes the market approach valuation technique based on interest rates that are currently available to the Company for issuance of debt with similar terms and maturities.  The estimated fair value of the Company’s long-term obligations was $827 million as of June 30, 2015 and $606 million as of December 31, 2014.

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

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

Under our Certificate of Incorporation, the Company has agreed to indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity.  The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors and officers liability insurance policy that covers a portion of our exposure.  As a result of our insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.  The Company has no liabilities recorded for these agreements as of June 30, 2015.

 

NOTE 11 – STOCK REPURCHASE PROGRAM

 

On October 30, 2014, the Company announced a new share repurchase authorization of up to $350 million of common stock.  This new 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 is 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, estimated to represent approximately 80% of the total number of shares expected to be purchased in the ASR program based on then current market prices.  The ultimate number of shares to be repurchased under the ASR program will be based on the volume-weighted average price of the Company’s common stock during the term of the ASR program, less a discount.  Final settlement of the ASR program is expected to be completed by the end of September 2015, although the settlement may be accelerated at Wells Fargo’s option.

During the three and six months ended June 30, 2015, the Company did not repurchase any shares.  During the three and six months ended June 30, 2014, the Company repurchased approximately 600 thousand and 800 thousand shares for approximately $39.9 million and $52.9 million, respectively.  Shares repurchased were returned to Treasury Stock.

 

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NOTE 12 – STOCK-BASED COMPENSATION

 

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

Compensation expense recorded attributable to stock options for the first six months of 2015 was approximately $12.0 million ($7.8 million after tax).  The income tax benefit related to this compensation expense was approximately $4.2 million.  Approximately $10.7 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.  Compensation expense recorded attributable to stock options for the first six months of 2014 was approximately $12.0 million ($7.8 million after tax).  The income tax benefit related to this compensation expense was approximately $4.2 million.  Approximately $10.8 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.

The Company uses historical data to estimate expected life and volatility.  The weighted-average fair value of stock options granted under the Stock Awards Plans was $12.83 and $14.84 per share in 2015 and 2014, respectively.  These values were estimated on the respective dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

 

Stock Awards Plans:

 

 

 

 

 

Six months ended June 30,

 

2015

 

2014

 

 

 

 

 

 

 

Dividend Yield

 

1.7

%

1.7

%

Expected Stock Price Volatility

 

21.9

%

22.2

%

Risk-free Interest Rate

 

1.6

%

2.3

%

Expected Life of Option (years)

 

6.9

 

6.9

 

 

There were no grants under the Director Stock Option Plan during the second quarter of 2015 as this plan was cancelled and replaced by the Director Restricted Stock Unit Plan.  The fair value of stock options granted under the Director Stock Option Plan during the second quarter of 2014 was $14.07.  These values were estimated on the respective date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

 

Director Stock Option Plans:

 

 

 

 

 

Six months ended June 30,

 

 

 

2014

 

 

 

 

 

 

 

Dividend Yield

 

 

 

1.8

%

Expected Stock Price Volatility

 

 

 

22.2

%

Risk-free Interest Rate

 

 

 

2.2

%

Expected Life of Option (years)

 

 

 

6.9

 

 

A summary of option activity under the Company’s stock plans during the first half of 2015 is presented below:

 

 

 

 

Stock Awards Plans

 

Director Stock Option Plans

 

 

 

 

 

Weighted Average

 

 

 

Weighted Average

 

 

 

Shares

 

Exercise Price

 

Shares

 

Exercise Price

 

 

 

 

 

 

 

 

 

 

 

Outstanding, January 1, 2015

 

8,107,806

 

$

46.74

 

368,668

 

$

53.52

 

Granted

 

1,391,355

 

64.60

 

--

 

--

 

Exercised

 

(788,268

)

34.60

 

(62,001

)

40.67

 

Forfeited or expired

 

(20,653

)

60.34

 

--

 

--

 

Outstanding at June 30, 2015

 

8,690,240

 

$

50.67

 

306,667

 

$

56.11

 

Exercisable at June 30, 2015

 

5,925,974

 

$

44.64

 

224,325

 

$

53.41

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Remaining Contractual Term (Years):

 

 

 

 

 

 

 

Outstanding at June 30, 2015

 

6.4

 

 

 

7.4

 

 

 

Exercisable at June 30, 2015

 

5.2

 

 

 

6.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate Intrinsic Value ($000):

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2015

 

$

120,651

 

 

 

$

2,616

 

 

 

Exercisable at June 30, 2015

 

$

115,264

 

 

 

$

2,432

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

June 30, 2015

 

$

23,592

 

 

 

$

1,449

 

 

 

June 30, 2014

 

$

18,050

 

 

 

$

741

 

 

 

 

The fair value of shares vested during the six months ended June 30, 2015 and 2014 was $15.8 million and $13.9 million, respectively.  Cash received from option exercises was approximately $28.8 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $7.0 million in the six months ended June 30, 2015.  As of June 30, 2015,

 

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the remaining valuation of stock option awards to be expensed in future periods was $18.7 million and the related weighted-average period over which it is expected to be recognized is 1.5 years.

The fair value of restricted stock unit grants is the market price of the underlying shares on the grant date.  A summary of restricted stock unit activity as of June 30, 2015, and changes during the period then ended is presented below:

 

 

 

 

 

 

 

 

 

Director Restricted

 

 

 

Stock Awards Plans

 

Stock Unit Plan

 

 

 

 

 

 

Weighted Average

 

 

 

 

Weighted Average

 

 

 

Shares

 

Grant-Date Fair Value

 

Shares

 

Grant-Date Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonvested at January 1, 2015

 

61,750

 

 

$

64.09

 

--

 

 

$

--

 

Granted

 

11,448

 

 

65.87

 

18,857

 

 

63.10

 

Vested

 

(11,083

)

 

57.13

 

--

 

 

--

 

Nonvested at June 30, 2015

 

62,115

 

 

$

65.65

 

18,857

 

 

$

63.10

 

 

Compensation expense recorded attributable to restricted stock unit grants for the first half of 2015 and 2014 was approximately $2.0 million and $1.1 million, respectively.  The fair value of units vested during the six months ended June 30, 2015 and 2014 was $633 thousand and $491 thousand, respectively.  The intrinsic value of units vested during the six months ended June 30, 2015 and 2014 was $732 thousand and $613 thousand, respectively.  As of June 30, 2015 there was $1.9 million of total unrecognized compensation cost relating to restricted stock unit awards which is expected to be recognized over a weighted-average period of 1.4 years.

The Company has a long-term incentive program for certain employees.  The program is based on the cumulative total shareholder return of our common stock during a three year performance period.  Total expense related to this program is expected to be approximately $2.3 million over the performance period, of which $483 thousand and $320 thousand was recognized in the first half of 2015 and 2014, respectively.

 

NOTE 13 – EARNINGS PER SHARE

 

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

 

 

 

 

Three months ended

 

 

 

June 30, 2015

 

June 30, 2014

 

 

 

Diluted

 

Basic

 

Diluted

 

Basic

 

Consolidated operations

 

 

 

 

 

 

 

 

 

Income available to common shareholders

 

$

57,539

 

$

57,539

 

$

53,076

 

$

53,076

 

 

 

 

 

 

 

 

 

 

 

Average equivalent shares

 

 

 

 

 

 

 

 

 

Shares of common stock

 

62,697

 

62,697

 

65,328

 

65,328

 

Effect of dilutive stock based compensation

 

 

 

 

 

 

 

 

 

Stock options

 

1,550

 

--

 

2,103

 

--

 

Restricted stock

 

29

 

--

 

7

 

--

 

Total average equivalent shares

 

64,276

 

62,697

 

67,438

 

65,328

 

Net income per share

 

$

0.90

 

$

0.92

 

$

0.79

 

$

0.81

 

 

 

 

Six months ended

 

 

 

June 30, 2015

 

June 30, 2014

 

 

 

Diluted

 

Basic

 

Diluted

 

Basic

 

Consolidated operations

 

 

 

 

 

 

 

 

 

Income available to common shareholders

 

$

102,710

 

$

102,710

 

$

101,465

 

$

101,465

 

 

 

 

 

 

 

 

 

 

 

Average equivalent shares

 

 

 

 

 

 

 

 

 

Shares of common stock

 

62,496

 

62,496

 

65,397

 

65,397

 

Effect of dilutive stock based compensation

 

 

 

 

 

 

 

 

 

Stock options

 

2,075

 

--

 

2,616

 

--

 

Restricted stock

 

32

 

--

 

29

 

--

 

Total average equivalent shares

 

64,603

 

62,496

 

68,042

 

65,397

 

Net income per share

 

$

1.59

 

$

1.64

 

$

1.49

 

$

1.55

 

 

NOTE 14 – SEGMENT INFORMATION

 

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

 

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

The accounting policies of the segments are the same as those described in Note 1, Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

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

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Total Revenue:

 

 

 

 

 

 

 

 

 

Beauty + Home

 

$

324,742

 

$

391,215

 

$

659,536

 

$

789,755

 

Pharma

 

183,300

 

195,690

 

361,969

 

390,039

 

Food + Beverage

 

92,122

 

90,192

 

174,042

 

180,818

 

Total Revenue

 

600,164

 

677,097

 

1,195,547

 

1,360,612

 

 

 

 

 

 

 

 

 

 

 

Less: Intersegment Sales:

 

 

 

 

 

 

 

 

 

Beauty + Home

 

$

5,617

 

$

5,989

 

$

10,997

 

$

13,293

 

Pharma

 

--

 

--

 

--

 

--

 

Food + Beverage

 

272

 

477

 

464

 

637

 

Total Intersegment Sales

 

$

5,889

 

$

6,466

 

$

11,461

 

$

13,930

 

 

 

 

 

 

 

 

 

 

 

Net Sales:

 

 

 

 

 

 

 

 

 

Beauty + Home

 

$

319,124

 

$

385,226

 

$

648,539

 

$

776,462

 

Pharma

 

183,300

 

195,690

 

361,969

 

390,039

 

Food + Beverage

 

91,851

 

89,715

 

173,578

 

180,181

 

Net Sales

 

$

594,275

 

$

670,631

 

$

1,184,086

 

$

1,346,682

 

 

 

 

 

 

 

 

 

 

 

Segment Income (1):

 

 

 

 

 

 

 

 

 

Beauty + Home

 

$

27,193

 

$

27,198

 

$

50,569

 

$

54,979

 

Pharma

 

55,462

 

52,793

 

107,463

 

105,275

 

Food + Beverage

 

14,991

 

12,416

 

24,041

 

21,496

 

Corporate & Other

 

(3,801

)

(8,502

)

(14,961

)

(20,300

)

Income before interest and taxes

 

$

93,845

 

$

83,905

 

$

167,112

 

$

161,450

 

Interest expense, net

 

(8,090

)

(4,199

)

(13,662

)

(8,064

)

Income before income taxes

 

$

85,755

 

$

79,706

 

$

153,450

 

$

153,386

 

 

(1)

The Company evaluates performance of our business units and allocates resources based upon segment income. Segment income is defined as earnings before net interest expense, certain corporate expenses and income taxes.

 

NOTE 15 – INSURANCE SETTLEMENT RECEIVABLE

 

A fire caused damage to the roof and production area of a facility owned by an AptarGroup subsidiary in Brazil on September 1, 2014.  There were no injuries.  The facility is primarily an internal supplier to AptarGroup of anodized aluminum components for certain dispensing systems sold to the regional beauty and personal care markets.  Repairs of the facility continue to progress as planned.  AptarGroup is insured for the damages caused by the fire, including business interruption insurance.  While the Company is still in the process of reviewing claims with our insurance carriers, we have currently recognized a $4.3 million receivable related to costs incurred but not yet reimbursed, which is included in Prepaid and Other in the Condensed Consolidated Balance Sheet. This incident did not have a material impact on our financial results during the first half of 2015 and we expect to reach a final insurance settlement during the second half of 2015.

 

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Table of Contents

 

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

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

 

RESULTS OF OPERATIONS

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

100.0

%

100.0

%

100.0

%

100.0

%

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

 

63.1

 

67.3

 

64.3

 

67.2

 

Selling, research & development and administrative

 

15.0

 

14.4

 

15.7

 

15.1

 

Depreciation and amortization

 

5.8

 

5.7

 

5.8

 

5.6

 

Operating Income

 

16.1

 

12.6

 

14.3

 

12.1

 

Other expense

 

(1.7

)

(0.7

)

(1.3

)

(0.7

)

Income before Income Taxes

 

14.4

 

11.9

 

13.0

 

11.4

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

9.7

%

7.9

%

8.7

%

7.5

%

 

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

32.9

%

33.4

%

33.1

%

33.8

%

 

NET SALES

 

We reported net sales of $594.3 million for the second quarter ended June 30, 2015, 11% below second quarter 2014 reported net sales of $670.6 million.  The average U.S. dollar exchange rate strengthened significantly relative to the Euro along with all other major currencies impacting our business, resulting in a negative currency translation impact of 13%.  Therefore, sales excluding changes in foreign currency rates (“core sales”) increased by 2% in the second quarter of 2015 compared to the second quarter of 2014.  Core sales for our Pharma and Food + Beverage business segment increased while our Beauty + Home business segment’s core sales were slightly lower than the prior year:

 

Second Quarter 2015

 

Beauty

 

 

 

Food +

 

 

 

Net Sales Change over Prior Year

 

+ Home

 

Pharma

 

Beverage

 

Total

 

 

 

 

 

 

 

 

 

 

 

Core Sales (including tooling)

 

(4

%)

9

%

9

%

2

%

Currency Effects(1)

 

(13

%)

(15

%)

(7

%)

(13

%)

Total Reported Net Sales Growth

 

(17

%)

(6

%)

2

%

(11

%)

 

(1)  Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates.

 

For the first six months of 2015, we reported net sales of $1.18 billion, 12% below the first six months of 2014 reported net sales of $1.35 billion.  Consistent with the second quarter, the average U.S. dollar exchange rate strengthened relative to the Euro along with all other major currencies impacting our business.  Core sales for the first six months of 2015 were flat compared to the first six months of 2014:

 

First Six Months of 2015

 

Beauty

 

 

 

Food +

 

 

 

Net Sales Change over Prior Year

 

+ Home

 

Pharma

 

Beverage

 

Total

 

 

 

 

 

 

 

 

 

 

 

Core Sales (including tooling)

 

(4

%)

8

%

2

%

--

%

Currency Effects(1)

 

(12

%)

(15

%)

(6

%)

(12

%)

Total Reported Net Sales Growth

 

(16

%)

(7

%)

(4

%)

(12

%)

 

(1)  Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates.

 

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

 

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

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2015

 

% of Total

 

2014

 

% of Total

 

2015

 

% of Total

 

2014

 

% of Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

$

158,749

 

27

%

$

161,624

 

24

%

$

318,827

 

27

%

$

332,301

 

25

%

Europe

 

328,680

 

55

%

393,282

 

59

%

660,951

 

56

%

792,741

 

59

%

Latin America

 

54,208

 

9

%

67,187

 

10

%

107,124

 

9

%

127,727

 

9

%

Asia

 

52,638

 

9

%

48,538

 

7

%

97,184

 

8

%

93,913

 

7

%

 

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

 

Our cost of sales as a percent of net sales was 63.1% in the second quarter of 2015 compared to 67.3% in the same period a year ago.  The decrease is mainly due to the $7.4 million impact of a change in accounting principle related to inventory valuation methods discussed in Note 1 to the Unaudited Notes to Condensed Consolidated Financial Statements along with increased sales volumes in our Pharma and Food + Beverage segments compared to the Company average.  This positively impacts our cost of sales percentage as margins on our pharmaceutical, food and beverage products typically are higher than the overall Company average.  Segment-driven cost savings initiatives and productivity improvements resulted in broad-based margin improvement.  We also benefitted from favorable foreign currency transaction effects.

Cost of sales as a percent of net sales decreased to 64.3% in the first six months of 2015 compared to 67.2% in the same period a year ago.  As discussed above, the $7.4 million impact of the change in accounting principle as well as increased sales volumes in our Pharma segment positively impacted our cost of sales percentage as margins on our pharmaceutical products typically are higher than the overall Company average.  We also experienced a positive impact from the timing delay of resin pass-throughs of approximately $3.0 million as resin prices declined significantly during the first quarter and we benefitted from certain cost savings initiatives driven by the segments along with favorable foreign currency transaction effects.

 

SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

 

Our Selling, Research & Development and Administrative expenses (“SG&A”) decreased by approximately $7.2 million to $89.3 million in the second quarter of 2015 compared to $96.5 million during the same period a year ago.  Excluding changes in foreign currency rates, SG&A increased $5.5 million in the quarter.  The increase is due to several factors including $1.3 million of higher bad debt expense, a $0.6 million unclaimed property settlement with the State of Delaware and $0.5 million of higher pension costs due to lower interest rates.  We also incurred higher professional fees associated with our legal entity reorganization project along with other normal inflationary increases.  SG&A as a percentage of net sales increased to 15.0% compared to 14.4% in the same period of the prior year due to the higher expenses noted above.

SG&A decreased by approximately $17.7 million to $185.5 million in the first six months of 2015 compared to $203.2 million during the same period a year ago.  Excluding changes in foreign currency rates, SG&A increased by approximately $6.7 million in the first six months of the year.  As discussed above, the increase is mainly due to higher bad debt expense, an unclaimed property settlement, higher pension and professional fees along with normal inflationary increases.  SG&A as a percentage of net sales increased to 15.7% in the first six months of 2015 compared to 15.1% in the first six months of 2014 primarily due to the higher expenses during the current year noted above.

 

DEPRECIATION AND AMORTIZATION

 

Reported depreciation and amortization expenses decreased to $34.2 million in the second quarter of 2015 compared to $38.5 million during the same period a year ago.  Excluding changes in foreign currency rates, depreciation and amortization increased slightly by approximately $0.7 million in the quarter compared to the same period a year ago.  The increase is mainly due to our continued investments in new products in excess of our depreciation and amortization expense.  Depreciation and amortization as a percentage of net sales increased slightly to 5.8% in the second quarter of 2015 compared to 5.7% for the same period a year ago.

For the first six months of 2015, reported depreciation and amortization expenses decreased by approximately $7.5 million to $68.2 million compared to $75.7 million in the first half of 2014.  Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $1.9 million in the first six months of 2015.  As discussed above, 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 also increased to 5.8% compared to 5.6% for the same period a year ago.

 

OPERATING INCOME

 

Operating income increased approximately $10.9 million in the second quarter of 2015 to $95.5 million compared to $84.6 million in the same period in the prior year.  Excluding changes in currency rates, operating income increased by approximately $23.0 million in the quarter.  As mentioned above, 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 realized certain cost saving initiatives and productivity improvements which were driven by all three of our operating segments.  Operating income as a percentage of net sales increased to 16.1% in the first six months of 2015 compared to 12.6% for the same period in the prior year.

Operating income increased approximately $5.8 million to $169.1 million in the first six months of 2015 compared to $163.3 million in the same period in the prior year.  Excluding changes in currency rates, operating income increased by approximately $30.1 million in the first six months of 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.  Operating income as a percentage of sales increased to 14.3% in the first six months of 2015 compared to 12.1% for the same period in the prior year.

 

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NET OTHER EXPENSE

 

Net other expenses in the second quarter of 2015 increased to $9.8 million from $4.9 million in the same period in the prior year.  During 2015, we incurred higher interest expense related to our $475 million senior notes issued in December 2014 and February 2015; the proceeds of which were mainly used to fund our accelerated share repurchase in December 2014 and move part of our debt from variable to fixed in order to take advantage of the current interest rate environment.  We also incurred increased costs related to our forward exchange contracts due to exchange rate volatility in certain countries.

Net other expenses for the six months ended June 30, 2015 increased to $15.7 million from $10.0 million in the same period in the prior year.  Higher interest expense related to our $475 million senior notes and increased costs of our forward exchange contracts were partially offset by the recognition of a $1.5 million write-down on a non-controlling investment in the prior year.

 

EFFECTIVE TAX RATE

 

The reported effective tax rate decreased to 32.9% for the three months ended June 30, 2015 compared to 33.4% for the same period ended June 30, 2014.  The reported effective tax rate also decreased to 33.1% for the six months ended June 30, 2015 compared to 33.8% for the six months ended June 30, 2014.  The decrease in the rates for the three and six months ended June 30, 2015 is attributable to the mix of income earned by tax jurisdiction as well as the expansion of an Italian tax law that resulted in increased deductions.

 

NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.

 

We reported net income attributable to AptarGroup, Inc. of $57.5 million and $102.7 million in the three and six months ended June 30, 2015, respectively, compared to $53.1 million and $101.5 million for the same periods in the prior year.

 

BEAUTY + HOME SEGMENT

 

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

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

319,124

 

$

385,226

 

$

648,539

 

$

776,462

 

Segment Income

 

27,193

 

27,198

 

50,569

 

54,979

 

Segment Income as a percentage of Net Sales

 

8.5

%

7.1

%

7.8

%

7.1

%

 

Net sales for the quarter ended June 30, 2015 decreased 17% to $319.1 million compared to $385.2 million in the second quarter of the prior year.  Core sales decreased 4% in the second quarter of 2015 compared to the same quarter of the prior year.  Core sales of our products to the personal care market were comparable to prior year while core sales of our products to the beauty and home care markets decreased by 7% and 8%, respectively, in the second quarter of 2015 compared to the same period in the prior year.  The trend of global market softness continues for Beauty + Home as all regions except Asia reported sales declines on a constant currency basis compared to prior year.

Net sales decreased 16% in the first six months of 2015 to $648.5 million compared to $776.5 million in the first six months of the prior year.  Core sales decreased 4% in first six months of 2015 compared to the first six months of the prior year.  Core sales of our products to the personal care, beauty and home care markets decreased by 3%, 4% and 7%, respectively in the first six months of 2015 compared to the first six months of 2014.  Consistent with the quarter, all regions except Asia reported sales declines on a constant currency basis compared to prior year.

In spite of the decrease in sales in the second quarter, segment income was consistent between 2015 and 2014 at $27.2 million.  Foreign currency rate changes, lower product sales and an accrual for our receivable exposure in Greece negatively impacted segment income and were offset by improved product sales mix, cost savings initiatives and improved productivity, mainly in North America.  There was little impact from the timing of resin pass-throughs in the quarter; however, prior year results were negatively impacted by $1.0 million of non-recurring facility expansion expenses in Latin America.

Segment income in the first six months of 2015 decreased approximately 8% to $50.6 million compared to $55.0 million reported in the same period in the prior year.  The decrease compared to the prior year is due mostly to the impact of foreign currency rate changes and lower product sales discussed above.  This decrease was partially offset by the positive impact of the timing of resin pass-throughs during the first quarter, cost savings initiatives and improved productivity in North America in the current year. The prior year segment income included approximately $1.0 million related to facility expansion costs in Latin America.

 

PHARMA SEGMENT

 

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

 

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Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

183,300

 

$

195,690

 

$

361,969

 

$

390,039

 

Segment Income

 

55,462

 

52,793

 

107,463

 

105,275

 

Segment Income as a percentage of Net Sales

 

30.3

%

27.0

%

29.7

%

27.0

%

 

Net sales for the Pharma segment decreased approximately 6% in the second quarter of 2015 to $183.3 million compared to $195.7 million in the second quarter of 2014.  Core sales increased 9% in the second quarter of 2015 compared to the same quarter of the prior year.  Core sales of our products to the prescription and injectables markets increased 17% and 7%, respectively.  The prescription market’s growth over the prior year was mainly due to strong sales in our respiratory application fields such as asthma/COPD and allergic rhinitis, while the injectables market continues to show positive growth momentum with strong demand in Europe, U.S., India and Latin America.  Core sales of our products to the consumer health care market decreased 5% in the second quarter of 2015 compared to a record quarter in the prior year.  This is mainly due to lower tooling sales and softness with a few customers in Eastern Europe.  In total customer tooling sales, excluding foreign currency changes, increased by $3.9 million in the second quarter of 2015 compared to the second quarter of the prior year.

Net sales for the first six months of 2015 decreased approximately 7% to $362.0 million compared to $390.0 million in the first six months of the prior year.  Core sales increased by 8% in the first six months of 2015 compared to the first six months of 2014.  Core sales of our products to the prescription and injectables markets increased 13% and 6%, respectively, in the first six months of 2015 compared to the same period in the prior year.  Prescription growth was led by strong sales of our asthma/COPD and allergic rhinitis products while injectables grew on increased demand as noted above.  Core sales of our products to the consumer health care market were comparable to the prior year as growth in our non-prescription nasal decongestant business offset the lower tooling sales and softness in Eastern Europe discussed above.

Segment income in the second quarter of 2015 increased approximately 5% to $55.5 million compared to $52.8 million reported in the same period in the prior year.  Results were favorably impacted by the additional product sales volumes discussed above along with favorable product mix within the segment combined with cost containment initiatives.

Segment income in the first six months of 2015 increased approximately 2% to $107.5 million compared to $105.3 million reported in the same period of the prior year.  This increase is again 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.

 

FOOD + BEVERAGE SEGMENT

 

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

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

91,851

 

$

89,715

 

$

173,578

 

$

180,181

 

Segment Income

 

14,991

 

12,416

 

24,041

 

21,496

 

Segment Income as a percentage of Net Sales

 

16.3

%

13.8

%

13.9

%

11.9

%

 

Net sales for the Food + Beverage segment for the quarter ended June 30, 2015 increased approximately 2% to $91.9 million compared to $89.7 million in the second quarter of the prior year.  Core sales increased 9% in the second quarter of 2015 compared to the same quarter of the prior year.  Core sales of our products to the food market increased approximately 11% due to broad based growth versus the prior year.  Core sales of our products to the beverage market increased 7% mainly due to growth in functional drinks product sales in Asia and sport drinks product sales in Latin America.  Decreases in resin pass-throughs to our customers and lower tooling sales negatively impacted sales by $2.5 million and $1.9 million, respectively.

Net sales for the first six months of 2015 decreased approximately 4% to $173.6 million compared to $180.2 million in the first six months of the prior year.  Core sales increased 2%.  Core sales of our products to the food market increased 4% and core sales of our products to the beverage market increased approximately 1% in the first six months of 2014 compared to the same period in the prior year.  The broad based growth in the food market noted above was offset by lower tooling sales of $7.3 million in the first six months of 2015 compared to 2014.  While we realized strong sales growth of our products to the beverage market during the second quarter, this growth was mostly offset by residual inventory destocking by certain customers earlier in the year.  Decreases in resin pass-throughs of $2.5 million also negatively impacted sales for the first six months of 2015.

Segment income in the second quarter of 2015 increased approximately 21% to $15.0 million compared to $12.4 million during the same period in the prior year.  Segment income was positively impacted mainly by the increased product sales discussed above and cost reduction efforts.  The impact of the timing of resin pass-throughs in the second quarter was still favorable by $0.5 million, but lower than the first quarter as the first quarter price decreases have been passed on to customers.

Segment income in the first six months of 2015 increased approximately 12% to $24.0 million compared to $21.5 million reported in the same period of the prior year.  The negative impact coming from the changes in foreign currency rates noted above was offset by improving sales volumes and cost savings initiatives along with a $2.5 million favorable impact due to the timing of resin pass-throughs.

 

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CORPORATE & OTHER

 

In addition to our three operating business segments, AptarGroup assigns certain costs to “Corporate & Other,” which is presented separately in Note 14 of the Unaudited Notes to the Condensed Consolidated Financial Statements.  Corporate & Other primarily includes certain professional fees, compensation and information system costs which are not allocated directly to our operating segments.  Corporate & Other expense decreased to $3.8 million for the quarter ended June 30, 2015 compared to $8.5 million in the second quarter of the prior year due to the impact of the $7.4 million change in accounting principle related to our inventory valuation method.  This decrease is offset by increased professional fees and other expenses associated with our legal entity reorganization project along with a $0.6 million unclaimed property settlement with the State of Delaware.

Corporate & Other expense in the first six months of 2015 decreased to $15.0 million compared to $20.3 million reported in the same period of the prior year due the impact of the $7.4 million change in accounting principle related to our inventory valuation method.  This decrease is mainly offset by the increases in professional fees, other expenses associated with our legal entity reorganization project and the unclaimed property settlement as noted above.

 

FOREIGN CURRENCY

 

Because of our international presence, movements in exchange rates may 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 Brazilian Real, British Pound, Swiss Franc and other South American and Asian currencies, among others.  A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements.  Conversely, a weakening U.S. dollar has an additive effect.  In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred.  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.  Changes in exchange rates on such inter-country sales could materially impact our results of operations.

 

QUARTERLY TRENDS

 

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

We generally incur higher stock option expense in the first quarter compared with the rest of the fiscal year.  Our stock option expense on a pre-tax basis (in $ millions) for the year 2015 compared to 2014 is as follows:

 

 

 

2015

 

2014

 

First Quarter

 

$

8.8

 

$

8.4

 

Second Quarter

 

3.2

 

3.7

 

Third Quarter (estimated for 2015)

 

3.0

 

3.0

 

Fourth Quarter (estimated for 2015)

 

2.9

 

2.9

 

 

 

$

17.9

 

$

18.0

 

 

We recognized higher first quarter expense in 2015 compared to 2014 due to costs associated with a higher number of retirement eligible employees in the first quarter of the current year.  This is offset by lower second quarter expense as there were no grants under the Director Stock Option Plan during the second quarter of 2015.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our primary sources of liquidity are cash flow from operations and our revolving credit facility.  In the first six months of 2015, our operations provided approximately $140.2 million in cash flow compared to $110.7 million for the same period a year ago.  In both periods, cash flow from operations was primarily derived from earnings before depreciation and amortization.  The increase in cash provided by operations is primarily attributable to lower working capital requirements to support our business.

We used $125.9 million in cash for investing activities during the first half of 2015, compared to $84.9 million during the same period a year ago.  The increase in cash used for investing activities is due to the purchase of $66.9 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 was partially offset by a decrease in capital expenditures of $26.8 million in the first half of 2015 compared to the first half of 2014.  Cash outlays for capital expenditures for 2015 are estimated to be approximately $150 million but could vary due to changes in exchange rates as well as the timing of capital projects.

We used $5.9 million in cash for financing activities during the first half of 2015, compared to $11.0 million in proceeds in the first half of the prior year.  For 2015, proceeds from stock option exercises were offset by our dividends paid while in 2014 proceeds received from notes payable were used to cover our dividends paid along with the repurchase of our treasury stock.  There is no repurchase of treasury stock in 2015 as this activity is currently part of our ASR program detailed in Note 11 of the Unaudited Notes to Condensed Consolidated Financial Statements.

Cash and equivalents decreased to $391.8 million at June 30, 2015 from $399.8 million at December 31, 2014.  Total short and long-term interest bearing debt decreased in the first six months of 2015 to $836.9 million from $840.9 million at December

 

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31, 2014.  The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholder’s equity plus Net Debt) was 28.3% at June 30, 2015 compared to 28.6% at December 31, 2014.

On January 31, 2012, we entered into 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.  On January 31, 2014, we amended the revolving credit facility to, among other things, increase the amount of permitted receivables transactions from $100 to $150 million, reduce the cost of committed funds by 12.5 basis points and uncommitted funds by 2.5 basis points, and extend the maturity date of the revolving credit facility by one year, to January 31, 2019.  On December 16, 2014, we amended the credit facility to, among other things, change our financial covenants to the leverage and interest coverage ratios shown in the table below, and extend the maturity date of the revolving credit facility to December 16, 2019.  At June 30, 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 $114 thousand and $611 thousand in interest and fees related to this credit facility during the quarter ended June 30, 2015 and 2014, respectively.  We incurred approximately $701 thousand and $1.1 million in interest and fees related to this credit facility during the six months ended June 30, 2015 and 2014, respectively.

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

 

 

 

Requirement

 

 

Level at June 30, 2015

 

 

Consolidated Leverage Ratio (a)

 

Maximum of 3.50 to 1.00

 

1.10 to 1.00

 

Consolidated Interest Coverage Ratio (a)

 

Minimum of 3.00 to 1.00

 

16.72 to 1.00

 

 

(a)         Definitions of ratios are included as part of the revolving credit facility agreement and the private placement agreements.

Based upon the above consolidated leverage ratio covenant, we would have the ability to borrow approximately an additional $1.1 billion before the 3.50 to 1.00 ratio requirement was exceeded.

In December 2014, we executed a $475 million private placement to take advantage of low long-term interest rates.  At that time, we closed on $250 million of the private placement to fund our ASR program.  This closing consisted of two maturity tranches, with $125 million of 9 year notes at an interest rate of 3.49% and $125 million of 11 year notes at an interest rate of 3.61%.  We closed on the remaining $225 million of the private placement in February, 2015, consisting of $100 million of 9 year notes at an interest rate of 3.49% and $125 million of 11 year notes at an interest rate of 3.61%.  The proceeds from this closing were used to pay down the existing revolving line of credit.

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 $391.8 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 and our revolving credit facility 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.  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.

On July 16, 2015, the Board of Directors declared a quarterly dividend of $0.28 per share payable on August 19, 2015 to stockholders of record as of July 29, 2015.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We lease certain warehouse, plant and office facilities as well as certain equipment under noncancelable operating leases expiring at various dates through the year 2027.  Most of the operating leases contain renewal options and certain equipment leases include options to purchase during or at the end of the lease term.  Other than operating lease obligations, we do not have any off-balance sheet arrangements.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

 

We have reviewed the recently issued accounting standards updates to the FASB’s Accounting Standards Codification that have future effective dates.  As discussed in Note 1 of the Unaudited Notes to Condensed Consolidated Financial Statements,

 

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no Standards that are considered to have a material impact on our Unaudited Condensed Consolidated Financial Statements were effective for the first half of 2015.

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 July 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 ASU intended to simplify U.S. 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.  This standard is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted.  We are currently evaluating the impact the adoption of this standard will have on our 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 U.S. 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.  We are currently evaluating the impact the adoption of this standard will have on our 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.

 

OUTLOOK

 

We anticipate that during the third quarter we will continue to build upon the progress we have made thus far this year.  We are committed to investing in research and development and in the capital projects necessary to support our long-term growth.  Certain macro-economic conditions could remain challenging in the near-term, including the stagnation affecting certain markets in Latin America and the global foreign exchange environment.  However, we will execute our strategy and in doing so, continue to help our customers grow their businesses with our innovative dispensing solutions.

AptarGroup expects diluted earnings per share to be in the range of $0.77 to $0.82 per share for the third quarter of 2015 compared to $0.73 per diluted share reported in the prior year.  Assuming a comparable foreign currency exchange rate environment, comparable earnings per share for the prior year were approximately $0.65 per share.

 

FORWARD-LOOKING STATEMENTS

 

Certain statements in Management’s Discussion and Analysis and other sections of this Form 10-Q are forward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Quarterly Trends, Liquidity and Capital Resources, and Outlook sections of this Form 10-Q.  Words such as “expects,” “anticipates,” “believes,” “estimates,” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements.  Forward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on our beliefs as well as assumptions made by and information currently available to us.  Accordingly, our actual results may differ materially from those expressed or implied in such forward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment, including but not limited to:

 

·

economic conditions worldwide, including the current situation in Greece as well as potential deflationary conditions in regions we rely on for growth;

·

political conditions worldwide;

·

significant fluctuations in foreign currency exchange rates;

·

changes in customer and/or consumer spending levels;

·

financial conditions of customers and suppliers;

·

consolidations within our customer or supplier bases;

·

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

·

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

·

our ability to contain costs and improve productivity;

·

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

·

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

·

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

·

volatility of global credit markets;

·

the timing and magnitude of capital expenditures;

·

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

·

direct or indirect consequences of acts of war or terrorism;

·

cybersecurity threats that could impact our networks and reporting systems;

 

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·

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

·

fiscal and monetary policies and other regulations, including changes in worldwide tax rates;

·

changes or difficulties in complying with government regulation;

·

changing regulations or market conditions regarding environmental sustainability;

·

work stoppages due to labor disputes;

·

competition, including technological advances;

·

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

·

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

·

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

·

the demand for existing and new products;

·

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

·

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

·

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

·

significant product liability claims; and

·

other risks associated with our operations.

 

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

 

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

A significant number of our operations are located outside of the United States.  Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of our entities.  Our primary foreign exchange exposure is to the Euro, but we also have foreign exchange exposure to the Brazilian Real, British Pound and Swiss Franc, among others. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial condition and results of operations.  Conversely, a weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial condition and results of operations.

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

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

The table below provides information as of June 30, 2015 about our forward currency exchange contracts.  The majority of the contracts expire before the end of the third quarter of 2015.

 

 

 

 

 

 

Average

 

Min / Max

 

 

 

Contract Amount

 

Contractual

 

Notional

 

Buy/Sell

 

(in thousands)

 

Exchange Rate

 

Volumes

 

 

 

 

 

 

 

 

 

Swiss Franc/Euro

 

$

73,521

 

0.9600

 

70,348-73,521

 

Euro/Brazilian Real

 

16,126

 

3.5500

 

15,506-16,126

 

Euro/Indian Rupee

 

10,789

 

78.5700

 

9,408-10,789

 

Euro/U.S. Dollar

 

10,229

 

1.1200

 

10,229-17,777

 

Euro/Columbian Peso

 

6,276

 

2,835.8300

 

6,276-6,276

 

Euro/Mexican Peso

 

5,156

 

18.8800

 

5,069-6,186

 

British Pound/Euro

 

2,864

 

1.3900

 

2,864-10,425

 

Czech Koruna/Euro

 

2,526

 

0.0400

 

2,526-8,739

 

U.S. Dollar/Brazilian Real

 

2,445

 

3.1300

 

1,445-2,445

 

Euro/Indonesian Rupiah

 

1,885

 

16,598.8200

 

1,885-1,885

 

Euro/Thai Baht

 

1,716

 

44.9300

 

1,716-1,716

 

U.S. Dollar/Euro

 

1,324

 

0.8900

 

914-2,569

 

U.S. Dollar/Chinese Yuan

 

1,130

 

6.2300

 

1,130-2,190

 

Other

 

2,099

 

 

 

 

 

Total

 

$

138,086

 

 

 

 

 

 

As of June 30, 2015, the Company has recorded the fair value of foreign currency forward exchange contracts of $1.4 million in prepaid and other, $1.7 million in accounts payable and accrued liabilities, and $0.1 million in deferred and other non-current liabilities in the balance sheet.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

DISCLOSURE CONTROLS AND PROCEDURES

 

The Company’s management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2015.  Based on that evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures were effective as of such date.

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

During the quarter ended June 30, 2015, the Company implemented an enterprise resource planning (“ERP”) system at two operating facilities.  Consequently, the control environments have been modified at these locations to incorporate the controls contained within the new ERP system.  Management is not aware of any control deficiencies at these two facilities.  Other than these items, no other changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the Company’s fiscal quarter ended June 30, 2015 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

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

 

RECENT SALES OF UNREGISTERED SECURITIES

 

The employees of AptarGroup S.A.S. and Aptar France S.A.S., our subsidiaries, are eligible to participate in the FCP Aptar Savings Plan (the “Plan”).  All eligible participants are located outside of the United States.  An independent agent purchases shares of 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 June 30, 2015, the Plan purchased 4,970 shares of our common stock on behalf of the participants at an average price of $63.10 per share, for an aggregate amount of $314 thousand, and did not sell any shares of our common stock.  At June 30, 2015, the Plan owned 53,466 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 is 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, estimated to represent approximately 80% of the total number of shares expected to be purchased in the ASR program based on then current market prices.  The ultimate number of shares to be repurchased under the ASR program will be based on the volume-weighted average price of the Company’s common stock during the term of the ASR program, less a discount.  Final settlement of the ASR program is expected to be completed by the end of September 2015, although the settlement may be accelerated at Wells Fargo’s option.  Consequently, no securities were purchased during the quarter ended June 30, 2015 and approximately $100 million of shares remain to be purchased under the current share repurchase authorization.

 

ITEM 6.  EXHIBITS

 

Exhibit 10.1

AptarGroup, Inc. 2015 Director Restricted Stock Unit Plan, filed as Exhibit 4(c) to AptarGroup, Inc.’s Registration Statement on Form S-8, Registration Number 333-203905, filed on May 6, 2015, is hereby incorporated by reference.

 

 

Exhibit 10.2

Form of AptarGroup, Inc. 2015 Restricted Stock Unit Award Agreement for Directors pursuant to the AptarGroup, Inc. 2015 Director Restricted Stock Unit Plan.

 

 

Exhibit 31.1

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

 

 

Exhibit 31.2

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

 

 

Exhibit 32.1

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

 

 

Exhibit 32.2

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

 

 

Exhibit 101

The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal 2015, filed with the SEC on July 31, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2015 and 2014, (ii) the Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2015 and 2014, (iii) the Condensed Consolidated Balance Sheets – June 30, 2015 and December 31, 2014, (iv) the Condensed Consolidated Statements of Changes in Equity - Six Months Ended June 30, 2015 and 2014, (v) the Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2015 and 2014 and (vi) the Notes to Condensed Consolidated Financial Statements.

 

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SIGNATURE

 

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

 

 

AptarGroup, Inc.

 

(Registrant)

 

 

 

By /s/ ROBERT W. KUHN

 

Robert W. Kuhn

 

Executive Vice President,

 

Chief Financial Officer and Secretary

 

(Duly Authorized Officer and

 

Principal Accounting and Financial Officer)

 

 

 

 

 

Date: July 31, 2015

 

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INDEX OF EXHIBITS

 

Exhibit

 

Number

Description

 

 

10.1

AptarGroup, Inc. 2015 Director Restricted Stock Unit Plan, filed as Exhibit 4(c) to AptarGroup, Inc.’s Registration Statement on Form S-8, Registration Number 333-203905, filed on May 6, 2015, is hereby incorporated by reference.

 

 

10.2

Form of AptarGroup, Inc. 2015 Restricted Stock Unit Award Agreement for Directors pursuant to the AptarGroup, Inc. 2015 Director Restricted Stock Unit Plan.

 

 

31.1

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

 

 

31.2

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

 

 

32.1

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

 

 

32.2

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

 

 

101

The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal 2015, filed with the SEC on July 31, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2015 and 2014, (ii) the Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2015 and 2014, (iii) the Condensed Consolidated Balance Sheets – June 30, 2015 and December 31, 2014, (iv) the Condensed Consolidated Statements of Changes in Equity - Six Months Ended June 30, 2015 and 2014, (v) the Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2015 and 2014 and (vi) the Notes to Condensed Consolidated Financial Statements.