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APTARGROUP, INC. - Quarter Report: 2016 March (Form 10-Q)

Table of Contents 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016

 

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

 

ag_logo_rgb_k_cg10_5545_small  jpg

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 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 No 

 

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

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

 

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

 

Class

 

Outstanding at April 27, 2016

Common Stock, $.01 par value per share

 

63,155,792 shares

 

 

 

 

 


 

Table of Contents 

 

 

 

AptarGroup, Inc.

 

Form 10-Q

 

Quarter Ended March 31, 2016

 

INDEX

 

 

Part I. 

FINANCIAL INFORMATION

 

 

 

 

Item 1. 

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Income - Three Months Ended March 31, 2016 and 2015

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2016 and 2015

 

 

 

 

Condensed Consolidated Balance Sheets – March 31, 2016 and December 31, 2015

 

 

 

 

Condensed Consolidated Statements of Changes in Equity – Three Months Ended March 31, 2016 and 2015

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2016 and 2015

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

 

 

Item 2. 

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

21 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

28 

 

 

 

Item 4. 

Controls and Procedures

28 

 

 

 

Part II. 

OTHER INFORMATION

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

29 

 

 

 

Item 6. 

Exhibits

30 

 

 

 

 

Signature

31 

 

 

 

 

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 March 31,

 

2016

 

2015

    

 

 

 

 

 

 

 

 

Net Sales

 

$

582,338

    

$

589,811

 

Operating Expenses:

 

 

 

 

 

 

 

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

 

 

374,203

 

 

385,979

 

Selling, research & development and administrative

 

 

103,015

 

 

96,187

 

Depreciation and amortization

 

 

35,887

 

 

34,060

 

 

 

 

513,105

 

 

516,226

 

Operating Income

 

 

69,233

 

 

73,585

 

 

 

 

 

 

 

 

 

Other (Expense) Income:

 

 

 

 

 

 

 

Interest expense

 

 

(8,591)

 

 

(7,303)

 

Interest income

 

 

584

 

 

1,731

 

Equity in results of affiliates

 

 

(121)

 

 

(119)

 

Miscellaneous, net

 

 

(1,260)

 

 

(199)

 

 

 

 

(9,388)

 

 

(5,890)

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

 

59,845

 

 

67,695

 

 

 

 

 

 

 

 

 

Provision for Income Taxes

 

 

15,979

 

 

22,596

 

 

 

 

 

 

 

 

 

Net Income

 

$

43,866

 

$

45,099

 

 

 

 

 

 

 

 

 

Net (Income) Loss Attributable to Noncontrolling Interests

 

$

(3)

 

$

72

 

 

 

 

 

 

 

 

 

Net Income Attributable to AptarGroup, Inc.

 

$

43,863

 

$

45,171

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Basic

 

$

0.70

 

$

0.73

 

Diluted

 

$

0.67

 

$

0.70

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding:

 

 

 

 

 

 

 

Basic

 

 

62,722

 

 

62,292

 

Diluted

 

 

65,063

 

 

64,494

 

 

 

 

 

 

 

 

 

Dividends per Common Share

 

$

0.30

 

$

0.28

 

 

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 March 31,

 

2016

 

2015

 

 

 

 

 

 

 

 

 

Net Income

 

$

43,866

 

$

45,099

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

65,172

 

 

(139,246)

 

Changes in treasury locks, net of tax

 

 

7

 

 

6

 

Defined benefit pension plan, net of tax

 

 

 

 

 

 

 

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

 

 

57

 

 

43

 

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

 

 

776

 

 

1,126

 

Total defined benefit pension plan, net of tax

 

 

833

 

 

1,169

 

Total other comprehensive income (loss)

 

 

66,012

 

 

(138,071)

 

Comprehensive Income (Loss)

 

 

109,878

 

 

(92,972)

 

Comprehensive (Income) Loss Attributable to Noncontrolling Interests

 

 

(4)

 

 

72

 

Comprehensive Income (Loss) Attributable to AptarGroup, Inc.

 

$

109,874

 

$

(92,900)

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

2


 

Table of Contents 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

In thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

March 31,

    

 

December 31,

 

 

 

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and equivalents

 

$

385,972

 

$

489,901

 

Short-term investments

 

 

 —

 

 

29,816

 

 

 

 

385,972

 

 

519,717

 

Accounts and notes receivable, less allowance for doubtful accounts of $2,972 in 2016 and $2,710 in 2015

 

 

483,850

 

 

391,571

 

Inventories

 

 

315,199

 

 

294,912

 

Prepaid and other

 

 

86,074

 

 

88,794

 

 

 

 

1,271,095

 

 

1,294,994

 

Property, Plant and Equipment:

 

 

 

 

 

 

 

Buildings and improvements

 

 

387,544

 

 

343,698

 

Machinery and equipment

 

 

1,957,009

 

 

1,866,627

 

 

 

 

2,344,553

 

 

2,210,325

 

Less: Accumulated depreciation

 

 

(1,536,600)

 

 

(1,465,873)

 

 

 

 

807,953

 

 

744,452

 

Land

 

 

24,603

 

 

20,931

 

 

 

 

832,556

 

 

765,383

 

Other Assets:

 

 

 

 

 

 

 

Investments in affiliates

 

 

4,595

 

 

4,590

 

Goodwill

 

 

432,597

 

 

310,240

 

Intangible assets

 

 

104,188

 

 

31,529

 

Miscellaneous

 

 

34,002

 

 

30,309

 

 

 

 

575,382

 

 

376,668

 

Total Assets

 

$

2,679,033

 

$

2,437,045

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

In thousands, except share and per share amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

March 31,

    

 

December 31,

 

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Notes payable

 

$

80,689

 

$

5,083

 

Current maturities of long-term obligations, net of unamortized debt issuance costs

 

 

53,309

 

 

51,884

 

Accounts payable and accrued liabilities

 

 

388,768

 

 

354,928

 

 

 

 

522,766

 

 

411,895

 

Long-Term Obligations

 

 

773,182

 

 

760,848

 

Deferred Liabilities and Other:

 

 

 

 

 

 

 

Deferred income taxes

 

 

26,651

 

 

20,486

 

Retirement and deferred compensation plans

 

 

82,135

 

 

87,763

 

Deferred and other non-current liabilities

 

 

6,645

 

 

6,347

 

Commitments and contingencies

 

 

 —

 

 

 

 

 

 

115,431

 

 

114,596

 

Stockholders’ Equity:

 

 

 

 

 

 

 

AptarGroup, Inc. stockholders’ equity

 

 

 

 

 

 

 

Common stock, $.01 par value, 199 million shares authorized, 66.9 and 66.7 million shares issued as of March 31, 2016 and December 31, 2015, respectively

 

 

669

 

 

667

 

Capital in excess of par value

 

 

519,627

 

 

495,462

 

Retained earnings

 

 

1,202,914

 

 

1,185,681

 

Accumulated other comprehensive (loss)

 

 

(196,336)

 

 

(262,347)

 

Less: Treasury stock at cost, 4.0 and 4.2 million shares as of March 31, 2016 and December 31, 2015, respectively

 

 

(259,519)

 

 

(270,052)

 

Total AptarGroup, Inc. Stockholders’ Equity

 

 

1,267,355

 

 

1,149,411

 

Noncontrolling interests in subsidiaries

 

 

299

 

 

295

 

Total Stockholders’ Equity

 

 

1,267,654

 

 

1,149,706

 

Total Liabilities and Stockholders’ Equity

 

$

2,679,033

 

$

2,437,045

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

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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

 

(Loss) Income

 

Par Value

 

Stock

 

Par Value

 

Interest

 

Equity

 

Balance - December 31, 2014:

 

$

1,740,005

 

$

(110,045)

 

$

862

 

$

(1,026,117)

 

$

498,702

 

$

509

 

$

1,103,916

 

Net income

 

 

45,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(72)

 

 

45,099

 

Foreign currency translation adjustments

 

 

 

 

 

(139,246)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(139,246)

 

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

 

 

 

 

 

1,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,169

 

Changes in treasury locks, net of tax

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

Stock option exercises & restricted stock vestings

 

 

 

 

 

 

 

 

5

 

 

1,079

 

 

32,172

 

 

 

 

 

33,256

 

Cash dividends declared on common stock

 

 

(17,402)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,402)

 

Balance - March 31, 2015:

 

$

1,767,774

 

$

(248,116)

 

$

867

 

$

(1,025,038)

 

$

530,874

 

$

437

 

$

1,026,798

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2015:

 

$

1,185,681

 

$

(262,347)

 

$

667

 

$

(270,052)

 

$

495,462

 

$

295

 

$

1,149,706

 

Net income

 

 

43,863

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

43,866

 

Foreign currency translation adjustments

 

 

 

 

 

65,171

 

 

 

 

 

 

 

 

 

 

 

1

 

 

65,172

 

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

 

 

 

 

 

833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

833

 

Changes in treasury locks, net of tax

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

Stock option exercises & restricted stock vestings

 

 

 

 

 

 

 

 

3

 

 

10,533

 

 

24,945

 

 

 

 

 

35,481

 

Cash dividends declared on common stock

 

 

(18,770)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,770)

 

Common stock repurchased and retired

 

 

(7,860)

 

 

 

 

 

(1)

 

 

 

 

 

(780)

 

 

 

 

 

(8,641)

 

Balance - March 31, 2016:

 

$

1,202,914

 

$

(196,336)

 

$

669

 

$

(259,519)

 

$

519,627

 

$

299

 

$

1,267,654

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

    

 

2016

    

 

2015

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

43,866

 

$

45,099

 

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

 

 

 

 

 

 

 

Depreciation

 

 

34,401

 

 

32,979

 

Amortization

 

 

1,486

 

 

1,081

 

Stock based compensation

 

 

10,104

 

 

9,530

 

Provision for (recovery of) doubtful accounts

 

 

13

 

 

(156)

 

Deferred income taxes

 

 

(867)

 

 

(1,001)

 

Defined benefit plan expense

 

 

4,194

 

 

5,161

 

Equity in results of affiliates

 

 

121

 

 

119

 

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

 

 

 

 

 

 

 

Accounts receivables

 

 

(70,863)

 

 

(44,798)

 

Inventories

 

 

(1,792)

 

 

1,040

 

Prepaid and other current assets

 

 

(14,646)

 

 

(12,975)

 

Accounts payable and accrued liabilities

 

 

11,362

 

 

12,691

 

Income taxes payable

 

 

(737)

 

 

(2,879)

 

Retirement and deferred compensation plan liabilities

 

 

(15,151)

 

 

(4,567)

 

Other changes, net

 

 

10,386

 

 

(1,558)

 

Net Cash Provided by Operations

 

 

11,877

 

 

39,766

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

(24,218)

 

 

(26,885)

 

Proceeds from sale of property and equipment, including insurance proceeds

 

 

1,234

 

 

1,840

 

Maturity of short-term investments

 

 

29,485

 

 

 —

 

Acquisition of business, net of cash acquired

 

 

(202,985)

 

 

 —

 

Acquisition of intangible assets

 

 

(2,514)

 

 

 —

 

Notes receivable, net

 

 

319

 

 

151

 

Net Cash Used by Investing Activities

 

 

(198,679)

 

 

(24,894)

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Proceeds from (repayments of) notes payable

 

 

75,180

 

 

(229,294)

 

Proceeds from long-term obligations

 

 

101

 

 

225,000

 

Repayments of long-term obligations

 

 

(1,047)

 

 

(755)

 

Dividends paid

 

 

(18,770)

 

 

(17,402)

 

Credit facility costs

 

 

 —

 

 

(399)

 

Proceeds from stock option exercises

 

 

20,960

 

 

19,671

 

Common stock repurchased and retired

 

 

(8,641)

 

 

 —

 

Excess tax benefit from exercise of stock options

 

 

3,764

 

 

3,421

 

Net cash Provided by Financing Activities

 

 

71,547

 

 

242

 

Effect of Exchange Rate Changes on Cash

 

 

11,326

 

 

(29,183)

 

Net Decrease in Cash and Equivalents

 

 

(103,929)

 

 

(14,069)

 

Cash and Equivalents at Beginning of Period

 

 

489,901

 

 

399,762

 

Cash and Equivalents at End of Period

 

$

385,972

 

$

385,693

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents 

AptarGroup, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars 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, 2015 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, 2015.  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 second quarter of 2015, 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 change to the FIFO method was not applied retrospectively because the impact to previously issued financial statements or to the trend of reported results of operations was immaterial.  The first quarter 2015 results included a $342 thousand gain on LIFO adjustment and the first quarter 2015 Condensed Consolidated Balance Sheet included a LIFO reserve of $7.4 million.

ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS

 

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

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

In April 2015, the FASB issued an Accounting Standards Update (“ASU”) intended to simplify GAAP by changing the presentation of debt issuance costs. Under the new standard, debt issuance costs will be presented as a reduction of the carrying amount of the related liability, rather than as an asset.  The new treatment is consistent with debt discounts.  In August 2015, the FASB issued an ASU clarifying that debt issuance costs related to line of credit arrangements can be classified as an asset and amortized ratably over the term of the line of credit arrangement. These standards are effective for annual reporting periods beginning after December 15, 2015.  The Company has implemented these standards within the current financial statements and retrospectively applied the changes to the prior periods as required, which resulted in a $1.7 million reclassification from Intangible Assets to Current Maturities of Long-Term Obligations and Long-Term Obligations in the December 31, 2015 Consolidated Balance Sheet. 

 

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In April 2015, the FASB issued new guidance on a customer's accounting for fees paid in a cloud computing arrangement (“CCA”).  Previously, there was no specific GAAP guidance on accounting for such fees from the customer's perspective.  Under the new standard, customers will apply the same criteria as vendors to determine whether a CCA contains a software license or is solely a service contract.  This standard is effective for annual reporting periods beginning after December 15, 2015.  The Company has adopted the requirements of the standard with respect to its current CCAs and has determined that the impact is not material to our current year financial statements.

In May 2015, the FASB issued new guidance on investment disclosures.  Investments measured at net asset value (“NAV”), as a practical expedient for fair value, are excluded from the fair value hierarchy.  Removing investments measured using the practical expedient from the fair value hierarchy is intended to eliminate the diversity in practice that currently exists with respect to the categorization of these investments.  The Company has adopted the standard and determined that there was no impact to the current period financial statements and that the presentation of pension plan investment fair value hierarchy tables in the annual financial statements will be updated accordingly.

In November 2015, the FASB issued guidance which simplifies the balance sheet classification of deferred taxes. The new guidance requires that deferred tax liabilities and assets be presented as non-current in a classified statement of financial position.  This standard is effective for annual reporting periods beginning after December 15, 2016.  The Company has prospectively adopted the requirements of the standard and updated the presentation of our classified statement of financial position accordingly.

Other accounting standards that have been issued by the FASB or other standards-setting bodies did not have a material impact on our Consolidated Financial Statements.

RETIREMENT OF COMMON STOCK

 

During the first quarter of 2016, the Company repurchased and immediately retired 113 thousand shares of common stock.  Common stock was reduced by the number of shares retired at $0.01 par value per share.  The excess of purchase price over par value may be charged entirely to retained earnings or may be allocated between additional paid-in capital and retained earnings. The Company has elected to allocate the excess purchase price over par value between additional paid-in capital and retained earnings.

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 making the 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. 

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.

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REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS

 

During the third quarter of 2015, the Company determined that it had incorrectly accounted for the reissuance of treasury shares in connection with certain employee stock option exercises.  The Company’s policy is to reissue treasury shares at cost on a first-in, first-out (FIFO) basis.  However, beginning in 2007 shares were reissued at a cost other than FIFO.  The effect of correcting this error results in a credit adjustment to the treasury stock at cost with a corresponding debit adjustment to the capital in excess of par value.  As this adjustment represents a reclassification between two accounts within Stockholders’ Equity, the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Changes in Equity are impacted by this change.  The revisions, which the Company determined are not material, had no impact on consolidated results of operations or cash flows.  Following is a summary of the previously issued financial statement line items impacted by this revision for all periods and statements included in this report:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Previously

 

 

 

 

 

 

 

 

    

Reported

    

Adjustment

    

As Revised

 

Revised Condensed Consolidated Statements of Changes in Equity

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2014

 

 

 

 

 

 

 

 

 

 

Capital in excess of par value

 

$

507,313

 

$

(8,611)

 

$

498,702

 

Treasury Stock

 

 

(1,034,728)

 

 

8,611

 

 

(1,026,117)

 

Total Equity

 

 

1,103,916

 

 

 —

 

 

1,103,916

 

Stock option exercises & restricted stock vestings

 

 

 

 

 

 

 

 

 

 

Capital in excess of par value

 

$

33,250

 

$

(1,078)

 

$

32,172

 

Treasury Stock

 

 

1

 

 

1,078

 

 

1,079

 

Total Equity

 

 

33,256

 

 

 —

 

 

33,256

 

Balance – March 31, 2015

 

 

 

 

 

 

 

 

 

 

Capital in excess of par value

 

$

540,563

 

$

(9,689)

 

$

530,874

 

Treasury Stock

 

 

(1,034,727)

 

 

9,689

 

 

(1,025,038)

 

Total Equity

 

 

1,026,798

 

 

 —

 

 

1,026,798

 

 

 

 

 

NOTE 2 - INVENTORIES

 

Inventories, by component, consisted of:

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2016

    

2015

 

 

 

 

 

 

 

 

 

Raw materials

 

$

91,292

 

$

91,214

 

Work in process

 

 

107,497

 

 

90,625

 

Finished goods

 

 

116,410

 

 

113,073

 

Total

 

$

315,199

 

$

294,912

 

 

 

 

 

 

 

 

 

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

 

The changes in the carrying amount of goodwill since December 31, 2015 are as follows by reporting segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Beauty +

    

 

 

    

Food +

    

Corporate

    

 

 

 

 

 

Home

 

Pharma

 

Beverage

 

& Other

 

Total

 

Goodwill

 

$

164,590

 

$

129,360

 

$

16,290

 

$

1,615

 

$

311,855

 

Accumulated impairment losses

 

 

 —

 

 

 —

 

 

 —

 

 

(1,615)

 

 

(1,615)

 

Balance as of December 31, 2015

 

$

164,590

 

$

129,360

 

$

16,290

 

$

 —

 

$

310,240

 

Acquisition

 

 

59,123

 

 

50,567

 

 

 —

 

 

 —

 

 

109,690

 

Foreign currency exchange effects

 

 

4,589

 

 

7,814

 

 

264

 

 

 —

 

 

12,667

 

Goodwill

 

$

228,302

 

$

187,741

 

$

16,554

 

$

1,615

 

$

434,212

 

Accumulated impairment losses

 

 

 —

 

 

 —

 

 

 —

 

 

(1,615)

 

 

(1,615)

 

Balance as of March 31, 2016

 

$

228,302

 

$

187,741

 

$

16,554

 

$

 —

 

$

432,597

 

 

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The table below shows a summary of intangible assets as of March 31, 2016 and December 31, 2015.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

Gross

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Amortization Period

 

Carrying

 

Accumulated

 

Net

 

Carrying

 

Accumulated

 

Net

 

 

    

(Years)

    

Amount

    

Amortization

    

Value

    

Amount

    

Amortization

    

Value

 

Amortized intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patents

 

0.1

 

$

16,020

 

$

(15,992)

 

$

28

 

$

15,358

 

$

(15,330)

 

$

28

 

Acquired Technology

 

15.0

 

 

44,628

 

 

(8,452)

 

 

36,176

 

 

32,030

 

 

(7,475)

 

 

24,555

 

Customer Relationships

 

12.0

 

 

61,564

 

 

(2,084)

 

 

59,480

 

 

6,406

 

 

(1,493)

 

 

4,913

 

License agreements and other

 

8.4

 

 

24,280

 

 

(15,776)

 

 

8,504

 

 

21,222

 

 

(19,189)

 

 

2,033

 

Total intangible assets

 

11.0

 

$

146,492

 

$

(42,304)

 

$

104,188

 

$

75,016

 

$

(43,487)

 

$

31,529

 

 

Aggregate amortization expense for the intangible assets above for the quarters ended March 31, 2016 and 2015 was $1,486 and $1,081, respectively.

 

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

 

 

 

 

 

 

 

2016

    

$

7,988

 

(remaining estimated amortization for 2016)

2017

 

 

9,873

 

 

2018

 

 

9,886

 

 

2019

 

 

9,675

 

 

2020 and thereafter

 

 

66,766

 

 

 

Future amortization expense may fluctuate depending on changes in foreign currency rates.  The estimates for amortization expense noted above are based upon foreign exchange rates as of March 31, 2016.

 

NOTE 4 — INCOME TAX UNCERTAINTIES

 

The Company had approximately $8.2 and $7.9 million recorded for income tax uncertainties as of March 31, 2016 and December 31, 2015, respectively.  Increases were primarily due to a tax audit in France and currency fluctuations.  These were partially offset by the lapse of the statute of limitations in two jurisdictions.  The amount, if recognized, that would impact the effective tax rate is $8.2 and $7.9 million, respectively. The Company estimates that it is reasonably possible that the liability for uncertain tax positions will decrease by no more than $7.3 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 accelerated share repurchase (“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. 

 

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At March 31, 2016, the Company’s long-term obligations consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized

 

 

 

 

    

 

    

Debt Issuance

    

 

 

 

    

Principal

    

Costs

    

Net

 

Notes payable 0.61% – 16.00%, due in monthly and annual installments through 2025

 

$

16,970

 

$

 —

 

$

16,970

 

Senior unsecured notes 6.0%, due in 2016

 

 

50,000

 

 

1

 

 

49,999

 

Senior unsecured notes 6.0%, due in 2018

 

 

75,000

 

 

56

 

 

74,944

 

Senior unsecured notes 3.8%, due in 2020

 

 

84,000

 

 

143

 

 

83,857

 

Senior unsecured notes 3.2%, due in 2022

 

 

75,000

 

 

156

 

 

74,844

 

Senior unsecured notes 3.5%, due in 2023

 

 

125,000

 

 

284

 

 

124,716

 

Senior unsecured notes 3.4%, due in 2024

 

 

50,000

 

 

114

 

 

49,886

 

Senior unsecured notes 3.5%, due in 2024

 

 

100,000

 

 

284

 

 

99,716

 

Senior unsecured notes 3.6%, due in 2025

 

 

125,000

 

 

291

 

 

124,709

 

Senior unsecured notes 3.6%, due in 2026

 

 

125,000

 

 

291

 

 

124,709

 

Capital lease obligations

 

 

2,141

 

 

 —

 

 

2,141

 

 

 

$

828,111

 

$

1,620

 

$

826,491

 

Current maturities of long-term obligations

 

 

(53,310)

 

 

(1)

 

 

(53,309)

 

Total long-term obligations

 

$

774,801

 

$

1,619

 

$

773,182

 

 

At December 31, 2015, the Company’s long-term obligations consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized

 

 

 

    

 

    

Debt Issuance

    

 

 

    

Principal

    

Costs

    

Net

Notes payable 0.61% – 14.50%, due in monthly and annual installments through 2025

 

$

3,785

 

$

 —

 

$

3,785

Senior unsecured notes 6.0%, due in 2016

 

 

50,000

 

 

5

 

 

49,995

Senior unsecured notes 6.0%, due in 2018

 

 

75,000

 

 

63

 

 

74,937

Senior unsecured notes 3.8%, due in 2020

 

 

84,000

 

 

150

 

 

83,850

Senior unsecured notes 3.2%, due in 2022

 

 

75,000

 

 

163

 

 

74,837

Senior unsecured notes 3.5%, due in 2023

 

 

125,000

 

 

293

 

 

124,707

Senior unsecured notes 3.4%, due in 2024

 

 

50,000

 

 

118

 

 

49,882

Senior unsecured notes 3.5%, due in 2024

 

 

100,000

 

 

293

 

 

99,707

Senior unsecured notes 3.6%, due in 2025

 

 

125,000

 

 

298

 

 

124,702

Senior unsecured notes 3.6%, due in 2026

 

 

125,000

 

 

298

 

 

124,702

Capital lease obligations

 

 

1,628

 

 

 —

 

 

1,628

 

 

$

814,413

 

$

1,681

 

$

812,732

Current maturities of long-term obligations

 

 

(51,889)

 

 

(5)

 

 

(51,884)

Total long-term obligations

 

$

762,524

 

$

1,676

 

$

760,848

 

Aggregate long-term maturities, excluding capital lease obligations, due annually from the current balance sheet date for the next five years are $52,450, $2,006, $77,612, $2,548, $85,839 and $605,515 thereafter.

 

NOTE 6 — RETIREMENT AND DEFERRED COMPENSATION PLANS

 

Components of Net Periodic Benefit Cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic Plans

 

Foreign Plans

 

Three Months Ended March 31,

    

2016

    

2015

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

2,260

 

$

2,504

 

$

1,138

 

$

1,160

 

Interest cost

 

 

1,694

 

 

1,589

 

 

473

 

 

420

 

Expected return on plan assets

 

 

(2,118)

 

 

(1,898)

 

 

(545)

 

 

(455)

 

Amortization of net loss

 

 

821

 

 

1,351

 

 

384

 

 

425

 

Amortization of prior service cost

 

 

 

 

 —

 

 

87

 

 

65

 

Net periodic benefit cost

 

$

2,657

 

$

3,546

 

$

1,537

 

$

1,615

 

 

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EMPLOYER CONTRIBUTIONS

 

Although the Company has no minimum funding requirement, we contributed $10 million to our domestic defined benefit plans during the first quarter of 2016. The Company also expects to contribute approximately $5.0 million to our foreign defined benefit plans in 2016, and as of March 31, 2016, we have contributed approximately $0.8 million.

 

NOTE 7— ACCUMULATED OTHER COMPREHENSIVE INCOME

 

Changes in Accumulated Other Comprehensive Income by Component:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Foreign

    

Defined Benefit

    

 

 

    

 

 

 

 

 

Currency

 

Pension Plans

 

Other

 

Total

 

Balance -  December 31, 2014

 

$

(42,851)

 

$

(67,097)

 

$

(97)

 

$

(110,045)

 

Other comprehensive income before reclassifications

 

 

(139,246)

 

 

 —

 

 

 

 

(139,246)

 

Amounts reclassified from accumulated other comprehensive income

 

 

 —

 

 

1,169

 

 

6

 

 

1,175

 

Net current-period other comprehensive (loss) income

 

 

(139,246)

 

 

1,169

 

 

6

 

 

(138,071)

 

Balance -  March 31, 2015

 

$

(182,097)

 

$

(65,928)

 

$

(91)

 

$

(248,116)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance -  December 31, 2015

 

$

(206,725)

 

$

(55,550)

 

$

(72)

 

$

(262,347)

 

Other comprehensive income before reclassifications

 

 

65,171

 

 

 —

 

 

 —

 

 

65,171

 

Amounts reclassified from accumulated other comprehensive income

 

 

 —

 

 

833

 

 

7

 

 

840

 

Net current-period other comprehensive income

 

 

65,171

 

 

833

 

 

7

 

 

66,011

 

Balance -  March 31, 2016

 

$

(141,554)

 

$

(54,717)

 

$

(65)

 

$

(196,336)

 

 

Reclassifications Out of Accumulated Other Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount Reclassified from

 

 

 

Details about Accumulated Other

 

Accumulated Other

 

Affected Line in the Statement

 

Comprehensive Income Components

 

Comprehensive Income

 

Where Net Income is Presented

 

Three Months Ended March 31,

    

2016

    

2015

    

    

 

 

 

 

 

 

 

 

 

 

 

Defined Benefit Pension Plans

 

 

 

 

 

 

 

 

 

Amortization of net loss

 

$

1,205

 

$

1,776

 

(a)

 

Amortization of prior service cost

 

 

87

 

 

65

 

(a)

 

 

 

 

1,292

 

 

1,841

 

Total before tax

 

 

 

 

(459)

 

 

(672)

 

Tax benefit

 

 

 

$

833

 

$

1,169

 

Net of tax

 

Other

 

 

 

 

 

 

 

 

 

Changes in treasury locks

 

$

10

 

$

10

 

Interest Expense

 

 

 

 

10

 

 

10

 

Total before tax

 

 

 

 

(3)

 

 

(4)

 

Tax benefit

 

 

 

$

7

 

$

6

 

Net of tax

 

Total reclassifications for the period

 

$

840

 

$

1,175

 

 

 

 


(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).

 

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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 March 31, 2016, the Company has recorded the fair value of foreign currency forward exchange contracts of $0.9 million in prepaid and other and $2.3 million in accounts payable and accrued liabilities in the balance sheet.  All forward exchange contracts outstanding as of March 31, 2016 had an aggregate contract amount of $122.5 million.

 

 

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

Derivative Contracts Not Designated

    

 

    

March 31,

    

December 31,

 

as Hedging Instruments

 

Balance Sheet Location

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

Derivative Assets

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Prepaid and other

 

$

894

 

$

1,924

 

Foreign Exchange Contracts

 

Miscellaneous other assets

 

 

 —

 

 

112

 

 

 

 

 

$

894

 

$

2,036

 

Derivative Liabilities

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Accounts payable and accrued liabilities

 

$

2,333

 

$

1,152

 

Foreign Exchange Contracts

 

Deferred and other non-current liabilities

 

 

 —

 

 

45

 

 

 

 

 

$

2,333

 

$

1,197

 

 

 

 

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Income for the Quarters Ended March 31, 2016 and March 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of Gain or (Loss)

 

Derivatives Not Designated

 

Location of (Loss) Gain Recognized

 

Recognized in Income

 

as Hedging Instruments

 

in Income on Derivatives

 

on Derivatives

 

 

    

    

    

2016

    

2015

 

Foreign Exchange Contracts

 

Other (Expense) Income Miscellaneous, net

 

$

(2,406)

 

$

3,253

 

 

 

 

 

$

(2,406)

 

$

3,253

 

 

13


 

Table of Contents 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts not Offset

 

 

 

 

 

 

 

 

 

 

 

Net Amounts

 

in the Statement of

 

 

 

 

 

 

 

 

 

Gross Amounts

 

Presented in

 

Financial Position

 

 

 

 

 

    

Gross

    

Offset in the

    

the Statement of

    

Financial

    

Cash Collateral

    

Net

 

 

 

Amount

 

Financial Position

 

Financial Position

 

Instruments

 

Received

 

Amount

 

Description

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

Derivative Assets

 

$

894

 

 

$

894

 

 

 

$

894

 

Total Assets

 

$

894

 

 

$

894

 

 

 

$

894

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

2,333

 

 

$

2,333

 

 

 

$

2,333

 

Total Liabilities

 

$

2,333

 

 

$

2,333

 

 

 

$

2,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

Derivative Assets

 

$

2,036

 

 

$

2,036

 

 —

 

 —

 

$

2,036

 

Total Assets

 

$

2,036

 

 

$

2,036

 

 —

 

 —

 

$

2,036

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

$

1,197

 

 

$

1,197

 

 —

 

 —

 

$

1,197

 

Total Liabilities

 

$

1,197

 

 

$

1,197

 

 —

 

 —

 

$

1,197

 

 

 

 

 

 

 

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.

·

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

 

As of March 31, 2016, 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)

 

$

894

 

$

 

$

894

 

$

 

Total assets at fair value

 

$

894

 

$

 

$

894

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward exchange contracts (a)

 

$

2,333

 

$

 

$

2,333

 

$

 

Total liabilities at fair value

 

$

2,333

 

$

 

$

2,333

 

$

 

 

As of December 31, 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)

 

$

2,036

 

$

 

$

2,036

 

$

 

Total assets at fair value

 

$

2,036

 

$

 

$

2,036

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward exchange contracts (a)

 

$

1,197

 

$

 

$

1,197

 

$

 

Total liabilities at fair value

 

$

1,197

 

$

 

$

1,197

 

$

 


(a)

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

 

14


 

Table of Contents 

The carrying amounts of the Company’s other current financial instruments such as cash and equivalents, notes payable and current maturities of long-term obligations approximate fair value due to the short-term maturity of the instrument.  The Company considers our long-term obligations a Level 2 liability and utilizes the market approach valuation technique based on interest rates that are currently available to the Company for issuance of debt with similar terms and maturities. The estimated fair value of the Company’s long-term obligations was $803 million as of March 31, 2016 and $760 million as of December 31, 2015.

 

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 March 31, 2016.

 

NOTE 11 — STOCK REPURCHASE PROGRAM

 

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. On September 25, 2015, the Company settled the ASR program with Wells Fargo and received approximately 719 thousand additional shares.  The total number of shares repurchased under the ASR program was approximately 3.8 million shares.

 

Subsequent to the completion of the ASR program, shares repurchased are immediately retired.  During the three months ended March 31, 2016, the Company repurchased approximately 113 thousand shares for approximately $8.6 million. During the three months ended March 31, 2015, the Company did not repurchase any shares.  As of March 31, 2016, there was $77.5 million of authorized share repurchases available to the Company.

 

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 granted to employees generally vest over three years.

 

Compensation expense recorded attributable to stock options for the first three months of 2016 was approximately $8.9 million ($5.9 million after tax).  The income tax benefit related to this compensation expense was approximately $3.0 million.  Approximately $7.9 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.  Compensation expense recorded attributable to stock options for the first three months of 2015 was approximately $8.8 million ($5.7 million after tax).  The income tax benefit related to this compensation expense was approximately $3.1 million.  Approximately $8.0 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales. 

 

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Table of Contents 

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 $12.87 and $12.83 per share during the first three months of 2016 and 2015, 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:

    

 

 

 

 

Three Months Ended March 31,

 

2016

    

2015

    

 

 

 

 

 

 

Dividend Yield

 

1.8

%  

1.7

%

Expected Stock Price Volatility

 

20.4

%  

21.9

%

Risk-free Interest Rate

 

1.6

%  

1.6

%

Expected Life of Option (years)

 

6.7

 

6.9

 

 

A summary of option activity under the Company’s stock plans during the three months ended March 31, 2016 is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock Awards Plans

 

Director Stock Option Plans

 

 

    

 

 

    

Weighted Average

    

 

    

Weighted Average

 

 

 

 

Options

 

Exercise Price

 

Options

 

Exercise Price

 

Outstanding, January 1, 2016

 

 

8,032,030

 

$

51.44

 

303,501

 

$

56.00

 

Granted

 

 

1,472,180

 

 

71.12

 

 —

 

 

 —

 

Exercised

 

 

(510,012)

 

 

41.37

 

(15,833)

 

 

45.90

 

Forfeited or expired

 

 

(65,634)

 

 

58.33

 

 

 

 —

 

Outstanding at March 31, 2016

 

 

8,928,564

 

$

55.21

 

287,668

 

$

56.56

 

Exercisable at March 31, 2016

 

 

6,092,834

 

$

49.04

 

214,827

 

$

54.20

 

Weighted-Average Remaining Contractual Term (Years):

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2016

 

 

6.6

 

 

 

 

6.7

 

 

 

 

Exercisable at March 31, 2016

 

 

5.4

 

 

 

 

6.2

 

 

 

 

Aggregate Intrinsic Value:

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2016

 

$

207,138

 

 

 

$

6,286

 

 

 

 

Exercisable at March 31, 2016

 

$

178,923

 

 

 

$

5,056

 

 

 

 

Intrinsic Value of Options Exercised During the Three Months Ended:

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

$

16,973

 

 

 

$

436

 

 

 

 

March 31, 2015

 

$

18,824

 

 

 

$

874

 

 

 

 

 

The fair value of shares vested during the three months ended March 31, 2016 and 2015 was $16.3 million and $14.8 million, respectively.  Cash received from option exercises was approximately $21.0 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $5.6 million in the three months ended March 31, 2016.  As of March 31, 2016, the remaining valuation of stock option awards to be expensed in future periods was $22.2 million and the related weighted-average period over which it is expected to be recognized is 1.5 years.

 

16


 

Table of Contents 

The fair value of restricted stock unit grants is the market price of the underlying shares on the grant date.  A summary of restricted stock unit activity as of March 31, 2016, and changes during the three month period then ended, is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Director Restricted

 

 

 

Stock Awards Plans

 

Stock Unit Plan

 

 

 

    

    

Weighted Average

    

 

    

Weighted Average

 

 

 

RSUs

 

Grant-Date Fair Value

 

RSUs

 

Grant-Date Fair Value

 

Nonvested at January 1,  2016

 

66,376

 

$

66.61

 

18,857

 

$

63.10

 

Granted

 

21,754

 

 

73.45

 

 —

 

 

 —

 

Vested

 

(10,537)

 

 

62.21

 

 —

 

 

 —

 

Forfeited

 

(3,676)

 

 

68.00

 

 —

 

 

 —

 

Nonvested at March 31, 2016

 

73,917

 

$

69.18

 

18,857

 

$

63.10

 

 

Compensation expense recorded attributable to restricted stock unit grants for the first three months of 2016 and 2015 was approximately $1.2 million and $727 thousand, respectively.  The fair value of units vested during the three months ended March 31, 2016 and 2015 was $656 thousand and $633 thousand, respectively.  The intrinsic value of units vested during the three months ended March 31, 2016 and 2015 was $773 thousand and $732 thousand, respectively.  As of March 31, 2016, there was $1.8 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.  Each award is based on the cumulative total shareholder return of our common stock during a three year performance period.  Total expense related to this program for awards outstanding as of March 31, 2016 is expected to be approximately $5.8 million, of which $1.3 million and $227 thousand was recognized in the first three months of 2016 and 2015, 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

 

 

 

March 31, 2016

 

March 31, 2015

 

 

    

Diluted

    

Basic

    

Diluted

    

Basic

 

Consolidated operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Income available to common shareholders

 

$

43,863

 

$

43,863

 

$

45,171

 

$

45,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average equivalent shares

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares of common stock

 

 

62,722

 

 

62,722

 

 

62,292

 

 

62,292

 

Effect of dilutive stock based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

2,299

 

 

 

 

2,182

 

 

 

Restricted stock

 

 

42

 

 

 

 

20

 

 

 

Total average equivalent shares

 

 

65,063

 

 

62,722

 

 

64,494

 

 

62,292

 

Net income per share

 

$

0.67

 

$

0.70

 

$

0.70

 

$

0.73

 

 

 

 

NOTE 14 — SEGMENT INFORMATION

 

The Company is organized into three reporting segments.  Operations that sell dispensing systems primarily to the personal care, beauty and home care markets form the Beauty + Home segment.  Operations that sell dispensing systems primarily to the prescription drug, consumer health care and injectables markets form the Pharma segment.  Operations that sell dispensing systems primarily to the food and beverage markets form the Food + Beverage segment. The accounting policies of the segments are the same as those described in Note 1, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. 

 

17


 

Table of Contents 

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

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

    

2016

 

2015

 

 

 

 

 

 

 

 

 

Total Sales:

 

 

 

 

 

 

 

Beauty + Home

 

$

318,870

 

$

334,794

 

Pharma

 

 

183,135

 

 

178,669

 

Food + Beverage

 

 

85,396

 

 

81,920

 

Total Sales

 

 

587,401

 

 

595,383

 

Less: Intersegment Sales:

 

 

 

 

 

 

 

Beauty + Home

 

$

4,534

 

$

5,380

 

Pharma

 

 

 —

 

 

 —

 

Food + Beverage

 

 

529

 

 

192

 

Total Intersegment Sales

 

$

5,063

 

$

5,572

 

Net Sales:

 

 

 

 

 

 

 

Beauty + Home

 

$

314,336

 

$

329,414

 

Pharma

 

 

183,135

 

 

178,669

 

Food + Beverage

 

 

84,867

 

 

81,728

 

Net Sales

 

$

582,338

 

$

589,811

 

Segment Income:

 

 

 

 

 

 

 

Beauty + Home

 

$

23,528

 

$

23,375

 

Pharma

 

 

53,236

 

 

52,001

 

Food + Beverage

 

 

9,283

 

 

9,050

 

Corporate & Other

 

 

(18,195)

 

 

(11,159)

 

Income before interest and taxes

 

$

67,852

 

$

73,267

 

Interest expense, net

 

 

(8,007)

 

 

(5,572)

 

Income before income taxes

 

$

59,845

 

$

67,695

 


(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 one of the Company’s facilities in Brazil in September 2014. There were no injuries. The facility is primarily an internal supplier of anodized aluminum components for certain dispensing systems sold to the regional beauty and personal care markets.  Repairs of the facility were essentially completed in the fourth quarter 2015.  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 $3.2 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 three months of either 2016 or 2015 and we expect to reach a final insurance settlement during the next six months.

 

NOTE 16 – ACQUISITIONS

On February 29, 2016, the Company completed its acquisition of MegaPlast GmbH and its subsidiaries along with Megaplast France S.a.r.l and Mega Pumps L.P. (Mega Airless).  Mega Airless is a leading provider of innovative all-plastic airless dispensing systems for the beauty, personal care and pharmaceutical markets and operates two manufacturing facilities in Germany and one in the United States.  The purchase price paid for Mega Airless was approximately $223.2 million and was funded by cash on hand and borrowings on our revolving line of credit.

Mega Airless contributed sales of $6.2 million and a pretax loss of $1.8 million, including $2.6 million of one-time material expense related to the inventory fair value adjustment.  The results of the acquired business for the period from the acquisition date are included in the accompanying consolidated financial statements and are reported in the Beauty + Home and Pharma reporting segments.

18


 

Table of Contents 

For the three months ended March 31, 2016, we recognized $5.6 million in transaction costs related to the acquisition of Mega Airless.  These costs are reflected in the selling, research & development and administrative section of the Condensed Consolidated Statements of Income.

The following table summarizes the assets acquired and liabilities assumed as of the acquisition date at estimated fair value.  If additional information is obtained about these assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), the Company may refine its estimates of fair value to allocate the purchase price more accurately; however, any such revisions are not expected to be significant.

 

 

 

 

 

 

 

    

February 29, 2016

 

Assets

 

 

 

 

Cash and equivalents

 

$

20,197

 

Accounts receivable

 

 

8,275

 

Inventories

 

 

8,361

 

Prepaid and other

 

 

378

 

Property, plant and equipment

 

 

47,196

 

Goodwill

 

 

109,690

 

Intangible assets

 

 

67,984

 

Other miscellaneous assets

 

 

8

 

Liabilities

 

 

 

 

Current maturities of long-term obligations

 

 

319

 

Accounts payable and accrued liabilities

 

 

7,398

 

Long-term obligations

 

 

13,402

 

Deferred income taxes

 

 

17,789

 

Net assets acquired

 

$

223,181

 

 

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

 

 

 

 

 

 

 

 

 

    

Weighted-Average

    

Estimated

 

 

 

Useful Life

 

Fair Value

 

 

 

(in years)

 

of Asset

 

Customer relationships

 

11

 

$

53,312

 

Technology

 

15

 

 

10,579

 

Trademark

 

4

 

 

4,093

 

Total

 

 

 

$

67,984

 

 

Based on the initial calculations, goodwill in the amount of $109.7 million was recorded for the acquisition of Mega Airless, of which $59.1 million and $50.6 million is included in the Beauty + Home and Pharma segments, respectively.  Goodwill is calculated as the excess of the consideration transferred over the net assets acquired and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.  Goodwill largely consists of leveraging the Company’s commercial presence in selling the Mega Airless line of products in markets where Mega Airless did not previously operate and the ability of Mega Airless to maintain its competitive advantage from a technical viewpoint.  Goodwill will not be amortized, but will be tested for impairment at least annually.  We do not expect any of the goodwill will be deductible for tax purposes.

 

The unaudited pro forma results presented below include the effects of the Mega Airless acquisition as if it had occurred as of January 1, 2015.  The unaudited pro forma results reflect certain adjustments related to the acquisition, such as the amortization associated with estimates for the acquired intangible assets and fair value adjustments for inventory.  The 2016 pro forma earnings were adjusted to exclude $4.2 million after tax ($5.6 million pretax) of transaction costs, including consulting, legal, and advisory fees.  The 2016 pro forma earnings were also adjusted to exclude $1.8 million after tax ($2.6 million pretax) of nonrecurring expense related to the fair value adjustment to acquisition-date inventory.  The 2015 pro forma earnings were adjusted to include these adjustments.

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The pro forma results do not include any synergies or other expected benefits of the acquisition.  Accordingly, the unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been completed on the dates indicated.

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

    

2016

    

2015

    

 

 

 

 

 

 

 

 

Net Sales

 

$

591,898

 

$

607,439

 

Net Income Attributable to AptarGroup Inc.

 

 

50,186

 

 

38,622

 

Net Income per common share — basic

 

 

0.80

 

 

0.62

 

Net Income per common share — diluted

 

 

0.77

 

 

0.60

 

 

 

 

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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

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

    

2016

 

 

2015

 

 

 

 

 

 

 

 

Net sales

 

100.0

%

 

100.0

%

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

 

64.2

 

 

65.4

 

Selling, research & development and administrative

 

17.7

 

 

16.3

 

Depreciation and amortization

 

6.2

 

 

5.8

 

Operating income

 

11.9

 

 

12.5

 

Other expense

 

(1.6)

 

 

(1.0)

 

Income before income taxes

 

10.3

 

 

11.5

 

Net Income

 

7.5

 

 

7.6

 

Effective tax rate

 

26.7

%

 

33.4

%

 

NET SALES

 

We reported net sales of $582.3 million for the quarter ended March 31, 2016, which represents a 1% decrease compared to $589.8 million reported during the first quarter of 2015. The average U.S. dollar exchange rate strengthened relative to the Euro along with all other major currencies impacting our business, resulting in a negative currency translation impact of 4%.  The acquisition of Mega Airless, and the inclusion of one month of activity, positively impacted sales by 1%.  Core sales, which exclude acquisitions and changes in foreign currency rates, increased by 2% in the first quarter of 2016 compared to the first quarter of 2015. Core sales was negatively impacted 2% due to lower tooling sales and the impact lower resin cost had on pricing.  Strong product sales in our Pharma and Food + Beverage segments were offset by softness in our Beauty + Home segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

Beauty

 

 

 

Food +

 

 

 

Net Sales Change over Prior Year

    

+ Home

    

Pharma

    

Beverage

    

Total

 

 

 

 

 

 

 

 

 

 

 

Core Sales Growth

 

(1)

%

5

%

7

%

2

%

Currency Effects (1)

 

(6)

%

(3)

%

(3)

%

(4)

%

Acquisitions

 

2

%

%

 

1

%

Total Reported Net Sales Growth

 

(5)

%

2

%

4

%

(1)

%


(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 analysis of segment net sales and segment income on the following pages.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

    

2016

 

% of Total

 

2015

 

% of Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Domestic

 

$

161,395

 

28%

 

$

160,078

 

27%

 

Europe

 

 

329,967

 

57%

 

 

332,271

 

56%

 

Latin America

 

 

47,892

 

8%

 

 

52,916

 

9%

 

Asia

 

 

43,084

 

7%

 

 

44,546

 

8%

 

 

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

 

Our cost of sales (“COS”) as a percent of net sales decreased to 64.2% in the first quarter of 2016 compared to 65.4% in the first quarter of 2015. The decrease is partially due to the mix of sales across our different business segments.   Increased sales in our Pharma and Food + Beverage segments drove the reduction in the overall cost of sales as a percentage of net sales.  Also, tooling sales were approximately $4.6 million lower in the first quarter 2016 compared to prior year. Sales of custom tooling generated lower margins than product sales; thus, positively impacting cost of sales as a percentage of sales.

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SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

 

Our Selling, Research & Development and Administrative expenses (“SG&A”) increased by approximately $6.8 million in the first quarter of 2016 compared to the same period a year ago. Excluding changes in foreign currency rates, SG&A increased by approximately $10.6 million in the quarter. The increase is mainly due to one-time transaction costs of $5.6 million related to the Mega Airless acquisition, along with one month of Mega Airless operational expenses, higher information technology costs associated with our ongoing enterprise resource planning system implementation, and general increases in compensation expense.  SG&A as a percentage of net sales increased to 17.7% compared to 16.3% in the same period of the prior year mainly due to the Mega Airless acquisition costs noted above.

 

DEPRECIATION AND AMORTIZATION

 

Reported depreciation and amortization expenses increased by approximately $1.8 million in the first quarter of 2016 compared to the same period a year ago. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $3.0 million in the quarter compared to the same period a year ago. The increase is mainly due to $1.4 million of incremental depreciation and amortization related to the Mega Airless acquisition, our continued investments in new products and the roll-out of our global enterprise resource planning system. Due to these higher costs, depreciation and amortization as a percentage of net sales increased to 6.2% in the first quarter of 2016 compared to 5.8% for the same period a year ago.

 

OPERATING INCOME

 

Operating income decreased approximately $4.4 million in the first quarter of 2016 to $69.2 million compared to $73.6 million in the same period in the prior year.  Excluding changes in foreign currency rates, operating income decreased by approximately $2.7 million in the quarter compared to the same period a year ago.  As mentioned above, the strong operational results were offset by $5.6 million of Mega Airless acquisition costs along with a $2.6 million one-time accounting adjustment related to the write-up to fair value of the Mega Airless inventory which we purchased and subsequently sold during the quarter.  As reported, operating income as a percentage of net sales decreased to 11.9% in the first quarter of 2016 compared to 12.5% for the same period in the prior year.

 

NET OTHER EXPENSE

 

Net other expense in the first quarter of 2016 increased to $9.4 million from $5.9 million in the same period in the prior year. During 2016, we recognized lower interest income and higher interest expense as we funded our Mega Airless acquisition with cash on hand and borrowings on our revolving line of credit.  In addition to higher transaction costs on our foreign currency forward exchange contracts, we also incurred higher interest costs in 2016 related to higher average borrowings in the first quarter of 2016 compared to the first quarter of 2015.

 

EFFECTIVE TAX RATE

 

The reported effective tax rate decreased to 26.7% in the first quarter of 2016 compared to 33.4% in the first quarter of 2015. The decrease in the rate is primarily attributable to recognizing benefits associated with anticipated refunds in France pursuant to a finalized court ruling as well as a reduction in the French corporate tax rate.

 

NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.

 

We reported net income attributable to AptarGroup, Inc. of $43.9 million in the first quarter of 2016 compared to $45.2 million in the first quarter of 2015.

 

BEAUTY + HOME SEGMENT

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Quarter Ended March 31,

 

2016

 

2015

 

 

 

 

 

 

 

 

 

Net Sales

 

$

314,336

 

$

329,414

 

Segment Income

 

 

23,528

 

 

23,375

 

Segment Income as a percentage of Net Sales

 

 

7.5%

 

 

7.1%

 

 

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Net sales for the quarter ended March 31, 2016 decreased 5% to $314.3 million compared to $329.4 million in the first quarter of the prior year.  The 2% positive effect of the Mega Airless acquisition was offset by a negative 6% impact due to changes in currency rates.  Therefore, sales excluding acquisitions and changes in foreign currency rates decreased 1% in the first quarter of 2016 compared to the same quarter of the prior year.  A 6% sales growth, excluding changes in foreign currency rates, to the beauty market was offset by core sales declines in the personal care and home care markets of 5% and 1%, respectively, in the first quarter of 2016 compared to the same period in the prior year.  The growth in the beauty market is mainly driven by increased sales of our sampling and promotion products in Europe and Northeast Asia and an increase in sales of our products used for facial skincare and fragrance in Latin America.  In addition, the inclusion of one month of Mega Airless results also contributed to our growth.  Softness in European and North American demand negatively impacted the personal care and home care markets.  The pass-through of lower resin costs also negatively impacted sales in the first quarter of 2016 by $2.5 million compared to the same period in 2015.

 

Despite the continued softness in sales, segment income for the first quarter of 2016 slightly increased to $23.5 million from $23.4 million reported in the same period in the prior year.  The increase compared to the prior year is mostly due to an improved mix of products as we realized increased demand for high-value beauty applications.  Segment income was offset by $2.2 million of a one-time purchase accounting adjustment related to the write-up to fair value of the Mega Airless inventory we purchased and subsequently sold during the quarter.  We also continue to focus on improving our cost structure with operational and material cost savings initiatives.    

 

PHARMA SEGMENT

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Quarter Ended March 31,

 

2016

 

2015

 

 

 

 

 

 

 

 

 

Net Sales

 

$

183,135

 

$

178,669

 

Segment Income

 

 

53,236

 

 

52,001

 

Segment Income as a percentage of Net Sales

 

 

29.1%

 

 

29.1%

 

 

Net sales for the Pharma segment increased by 2% in the first quarter of 2016 to $183.1 million compared to $178.7 million in the first quarter of 2015.  Excluding a 3% change in foreign currency rates, sales increased by 5% in the first quarter of 2016 compared to the first quarter of 2015.  Excluding changes in foreign currency rates, increased product sales to the prescription and injectables markets of 9% and 4%, respectively, offset a small decline in sales of our products to the consumer health care market.  The growth during the first quarter of 2016 was mainly driven by strong sales of our products to respiratory application fields (Allergic Rhinitis, Asthma/COPD) as well as increased sales of our products to the pain and central nervous system, eye care and injectable application fields which more than offset weaker sales of our products to nasal decongestant application fields as we experienced inventory destocking at a few key customers.  Customer tooling sales declined by $2.2 million over the prior year.

 

Segment income in the first quarter of 2016 increased 2% to $53.2 million compared to $52.0 million reported in the same period in the prior year. The increase compared to the prior year is due to the additional product sales volumes discussed above along with favorable product mix within the segment.  Cost savings initiatives partially offset one-time costs related to an enterprise resource system implementation and the impact of one-time purchase accounting adjustment of $0.4 million related to the write-up to fair value of the Mega Airless inventory we purchased and subsequently sold during the quarter.

 

FOOD + BEVERAGE SEGMENT

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended March 31,

 

2016

 

2015

 

 

 

 

 

 

 

 

 

Net Sales

 

$

84,867

 

$

81,728

 

Segment Income

 

 

9,283

 

 

9,050

 

Segment Income as a percentage of Net Sales

 

 

10.9%

 

 

11.1%

 

 

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Net sales for the quarter ended March 31, 2016 increased approximately 4% to $84.9 million compared to $81.7 million in the first quarter of the prior year. Changes in foreign currency rates had a negative impact of 3% on the total segment sales. Excluding changes in foreign currency rates, sales increased by 7% in the first quarter of 2016 compared to the first quarter of 2015. The pass-through of lower resin costs and lower tooling sales both negatively impacted sales in the first quarter of 2016 by $3.0 million, or 4%, and $2.1 million, or 2%, respectively, compared to the same period in 2015.  Both the food and beverage markets recorded year-over-year sales growth.  Excluding foreign currency rate changes, sales to the food market increased 7% and sales to the beverage market increased approximately 8% in the first quarter of 2016 compared to the same period in the prior year. Sales of our products to the food market increased with strong demand from the salad dressing and infant formula application fields along with continued growth in the sauce and condiment application fields.  Sales of our products to the beverage market were positively impacted by strong sales to the bottled water and juice application fields.

 

Segment income in the first quarter of 2016 increased approximately 3% to $9.3 million compared to $9.1 million reported in the same period of the prior year. Strong product sales across both the food and beverage markets noted above were able to offset normal cost inflation and lower tooling sales.

 

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 increased to $18.2 million for the quarter ended March 31, 2016 compared to $11.2 million in the first quarter of the prior year mainly due to $5.6 million of transaction costs related to the Mega Airless acquisition.  The remaining increase is partially due to higher depreciation expense on information systems infrastructure investments and general compensation expenses. 

 

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 also have foreign exchange exposure to the Chinese Yuan, Brazilian Real, Mexican Peso, Swiss Franc and other Asian, European and South American currencies.  A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements.  Conversely, a weakening U.S. dollar has an additive effect.  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 our plant shutdowns in December.  In the future, our results of operations in a quarterly period could be impacted by factors such as the seasonality of certain products within our segments, 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 2016 compared to 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

    

2016

    

2015

 

First Quarter

 

$

8.9

 

$

8.8

 

Second Quarter (estimated for 2016)

 

 

3.8

 

 

3.2

 

Third Quarter (estimated for 2016)

 

 

3.5

 

 

3.0

 

Fourth Quarter (estimated for 2016)

 

 

3.1

 

 

2.9

 

 

 

$

19.3

 

$

17.9

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our primary sources of liquidity are cash flow from operations and our revolving credit facility.  In the first quarter of 2016, our operations provided approximately $11.9 million in cash flow compared to $39.8 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 decrease in cash provided by operations is primarily attributable to an increase in working capital requirements to support our business.

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We used $198.7 million in cash for investing activities during the first quarter of 2016 compared to $24.9 million during the same period a year ago. The increase is due primarily to the Mega Airless acquisition of $203.0 million, net of cash received. Our 2016 estimated cash outlays for capital expenditures are approximately $150 million but could vary due to changes in exchange rates as well as the timing of capital projects.

 

Proceeds from financing activities were $71.5 million in the first quarter of 2016 compared to $0.2 million in the first quarter of the prior year.  For 2016, proceeds from notes payable were used to partially finance the acquisition of Mega Airless.  Proceeds from stock option exercises were offset by our dividends paid in both 2016 and 2015. 

 

Cash and equivalents decreased to $386.0 million at March 31, 2016 from $489.9 million at December 31, 2015 mainly due to the cash portion of the Mega Airless acquisition.  Total short and long-term interest bearing debt increased in the first quarter of 2016 to $907.2 million from $817.8 million at December 31, 2015 also primarily due to financing the Mega Airless acquisition.  The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholder’s equity plus Net Debt) was 29.1% at March 31, 2016 compared to 20.6% at December 31, 2015.

 

The Company maintains a revolving credit facility that provides for unsecured financing of up to $300 million. Each borrowing under this credit facility will bear interest at rates based on LIBOR, prime rates or other similar rates, in each case plus an applicable margin. A facility fee on the total amount of the facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the credit facility and the facility fee percentage may change from time to time depending on changes in AptarGroup’s consolidated leverage ratio. At March 31, 2016, we had an outstanding balance of $70 million under the credit facility.  There was no outstanding balance at December 31, 2015. We incurred approximately $189 thousand and $587 thousand in interest and fees related to this credit facility during the quarter ended March 31, 2016 and 2015, respectively.

 

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

 

 

 

 

 

 

 

    

Requirement

    

Level at March 31, 2016

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

 

14.57 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 have the ability to borrow approximately an additional $1.3 billion before the 3.50 to 1.00 maximum ratio requirement is exceeded.

 

Our foreign operations have historically met cash requirements with the use of internally generated cash or borrowings.  These foreign subsidiaries have financing arrangements with several foreign banks to fund operations located outside the U.S., but the majority of these arrangements are uncommitted.  Cash generated by foreign operations has generally been reinvested locally.  The majority of our $386.0 million in cash and equivalents is located outside of the U.S.  We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances.  The repatriation of non-U.S. cash balances from certain subsidiaries could have adverse tax consequences as we may be required to pay income tax on those funds.  Historically, the tax consequences associated with repatriating current year earnings to the U.S. has been between 5% and 10% 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 sources 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 April 15, 2016, the Board of Directors declared a quarterly cash dividend of $0.30 per share payable on May 18, 2016 to stockholders of record as of April 27, 2016.

 

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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, no Standards that are considered to have a material impact on our Unaudited Condensed Consolidated Financial Statements were effective for the first quarter of 2016.

 

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

 

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

 

In January 2016, the FASB issued new guidance that generally requires companies to measure investments in other entities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income.  The new standard is effective for fiscal years and interim periods beginning after December 15, 2017.  The Company is currently evaluating the impact of adopting this guidance. 

 

In February 2016, the FASB issued new guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  The new standard is effective for fiscal years and interim periods beginning after December 15, 2018.  The Company is currently evaluating the impact of adopting this guidance. 

 

In March 2016, the FASB issued guidance that eliminates the requirement that an investor retrospectively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for the equity method. The guidance requires that an equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The new standard is effective for fiscal years and interim periods beginning after December 15, 2016.  The Company is currently evaluating the impact of adopting this guidance. 

 

In March 2016, the FASB issued guidance that changes the accounting for certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The new standard is effective for fiscal years and interim periods beginning after December 15, 2016.  The Company is currently evaluating the impact of adopting this guidance. 

 

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

 

Diversity of our business continues to play an important role by providing stable, long-term growth for our company, even when we experience pockets of softness in certain areas.  Looking to the second quarter, we are optimistic that our Beauty + Home segment, which has struggled to achieve top line growth the past year, is expected to grow core sales over the prior year excluding the positive impact from the Mega Airless acquisition.  We also expect core sales growth in our other segments, though they are going to be compared to very strong performance in the prior year.

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AptarGroup expects earnings for the second quarter to be in the range of $0.87 to $0.92 per share, including approximately $0.02 per share of positive contribution from the Mega Airless acquisition.  This range compares to $0.81 per share in the prior year after excluding approximately $0.08 per share of income recorded in the second quarter of 2015 related to a change in inventory valuation methods and after prior year earnings per share have been adjusted to reflect comparable foreign currency exchange rates.  Prior year second quarter reported earnings per share were $0.90 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:

 

·

the ability to integrate the acquired Mega Airless business;

·

economic conditions worldwide, including 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 successfully implement facility expansions and new facility projects;

·

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;

·

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.  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 Chinese Yuan, Brazilian Real, Mexican Peso and Swiss Franc, among other Asian, European, and South American currencies. 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 March 31, 2016 about our forward currency exchange contracts.  The majority of the contracts expire before the end of the second quarter of 2016.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

    

Min / Max

 

 

    

 

Contract Amount

    

Contractual

 

Notional

 

Buy/Sell

 

 

(in thousands)

 

Exchange Rate

 

Volumes

 

 

 

 

 

 

 

 

 

 

Swiss Franc/Euro

 

$

60,661

 

0.9134

 

3,851-60,661

 

U.S. Dollar/Euro

 

 

13,211

 

0.8947

 

1,919-13,211

 

Euro/Brazilian Real

 

 

11,607

 

4.6683

 

11,607-12,255

 

Euro/Indian Rupee

 

 

9,993

 

80.5337

 

9,993-10,706

 

Euro/U.S. Dollar

 

 

8,050

 

1.1160

 

7,245-8,050

 

U.S. Dollar/Chinese Yuan

 

 

4,390

 

6.6231

 

4,390-4,390

 

Euro/Colombian Peso

 

 

3,392

 

3,860.0620

 

3,392-5,768

 

Czech Koruna/Euro

 

 

2,958

 

0.0370

 

2,958-3,300

 

Euro/Thai Baht

 

 

2,131

 

37.7826

 

2,131-2,131

 

Euro/Indonesian Rupiah

 

 

1,846

 

18,425.0000

 

1,846-1,846

 

British Pound/Euro

 

 

1,376

 

1.2737

 

1,376-2,482

 

Euro/Mexican Peso

 

 

1,238

 

20.3069

 

1,238-2,558

 

Euro/Swiss Franc

 

 

1,022

 

1.0954

 

0-1,022

 

Other

 

 

603

 

 

 

 

 

Total

 

$

122,478

 

 

 

 

 

 

As of March 31, 2016, the Company has recorded the fair value of foreign currency forward exchange contracts of $0.9 million in prepaid and $2.3 million in accounts payable and accrued liabilities in the balance sheet.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

DISCLOSURE CONTROLS AND PROCEDURES

 

The Company’s management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2016.  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 March 31, 2016, the Company implemented enterprise resource planning (“ERP”) systems at four operating facilities.  Consequently, the control environments have been modified at these locations to incorporate the controls contained within the new ERP system.  The Company is also in the process of reviewing the internal control structure of Mega Airless and, if necessary, will make appropriate changes as we incorporate our controls and procedures into this recently acquired businesses.  Other than these items, no change in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the Company’s fiscal quarter ended March 31, 2016 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 UK Holdings Limited (French Branch) and Aptar France S.A.S., our subsidiaries, are eligible to participate in the FCP Aptar Savings Plan (the “Plan”).  All eligible participants are located outside of the United States.  An independent agent purchases shares of common stock available under the Plan for cash on the open market and we do not issue shares.  We do not receive any proceeds from the purchase of common stock under the Plan.  The agent under the Plan is Banque Nationale de Paris Paribas Fund Services.  No underwriters are used under the Plan.  All shares are sold in reliance upon the exemption from registration under the Securities Act of 1933 provided by Regulation S promulgated under that Act.  During the quarter ended March 31, 2016, the Plan purchased 7,470 shares of our common stock on behalf of the participants at an average price of $70.99 per share, for an aggregate amount of $530 thousand, and sold 1,900 shares of our common stock on behalf of the participants at an average price of $74.75 per share, for an aggregate amount of $142 thousand.  At March 31, 2016, the Plan owned 56,170 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.  On September 25, 2015, the Company settled the ASR program with Wells Fargo and received approximately 719 thousand additional shares.  The total number of shares repurchased under the ASR program was approximately 3.8 million shares. 

Subsequent to the completion of the ASR program, shares repurchased are immediately retired.  The Company spent $8.6 million to repurchase approximately 113 thousand shares during the first quarter of 2016.

The following table summarizes the Company’s purchases of its securities for the quarter ended March 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

 

    

Dollar Value Of

 

 

 

 

 

 

 

 

Total Number Of Shares

 

Shares that May Yet be

 

 

 

 

Total Number

 

 

 

Purchased as Part Of

 

 Purchased Under The

 

 

  

  

Of Shares

 

Average Price

 

Publicly Announced

 

Plans or Programs

 

Period

 

 

Purchased

    

Paid Per Share

    

Plans Or Programs

    

(in millions)

   

 

 

 

 

 

 

 

 

 

 

 

 

 

1/1 – 1/31/16

 

 

 —

 

$

 —

 

 —

 

$

86.1

 

2/1 – 2/29/16

 

 

 —

 

 

 —

 

 —

 

 

86.1

 

3/1 – 3/31/16

 

 

112,500

 

 

76.87

 

112,500

 

 

77.5

 

Total

 

 

112,500

 

$

76.87

 

112,500

 

$

77.5

 

 

 

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ITEM 6.  EXHIBITS

 

 

 

 

 

Exhibit 10.1

Form of AptarGroup, Inc. Stock Option Agreement for Employees pursuant to the AptarGroup, Inc. 2016 Equity Incentive Plan.

 

 

Exhibit 10.2

Form of AptarGroup, Inc. Restricted Stock Unit Award Agreement pursuant to the AptarGroup, Inc. 2016 Equity Incentive Plan.

 

 

Exhibit 10.3

Form of AptarGroup, Inc. 2016 Restricted Stock Unit Award Agreement for Directors pursuant to the AptarGroup, Inc. 2016 Equity Incentive 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 first quarter of fiscal 2016, filed with the SEC on May 3, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income - Three Months Ended March 31, 2016 and 2015, (ii) the Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2016 and 2015, (iii) the Condensed Consolidated Balance Sheets – March 31, 2016 and December 31, 2015, (iv) the Condensed Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2016 and 2015, (v) the Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2016 and 2015 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: May 3, 2016

 

 

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INDEX OF EXHIBITS

 

 

 

Exhibit

 

Number

Description

 

 

10.1

Form of AptarGroup, Inc. Stock Option Agreement for Employees pursuant to the AptarGroup, Inc. 2016 Equity Incentive Plan.

 

 

10.2

Form of AptarGroup, Inc. Restricted Stock Unit Award Agreement pursuant to the AptarGroup, Inc. 2016 Equity Incentive Plan.

 

 

10.3

Form of AptarGroup, Inc. 2016 Restricted Stock Unit Award Agreement for Directors pursuant to the AptarGroup, Inc. 2016 Equity Incentive 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 first quarter of fiscal 2016, filed with the SEC on May 3, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income - Three Months Ended March 31, 2016 and 2015, (ii) the Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2016 and 2015, (iii) the Condensed Consolidated Balance Sheets – March 31, 2016 and December 31, 2015, (iv) the Condensed Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2016 and 2015, (v) the Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2016 and 2015 and (vi) the Notes to Condensed Consolidated Financial Statements.

 

 

 

32