APTARGROUP INC
10-Qs and 10-Ks
PROXIES
Table of Contents
United States Securities and
Exchange Commission
Washington, D.C.
20549
FORM 10-K
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[X]
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009 |
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| OR | ||
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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| FOR THE TRANSITION PERIOD FROM TO |
COMMISSION FILE NUMBER 1-11846
AptarGroup, Inc.
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DELAWARE
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36-3853103
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475 WEST TERRA COTTA AVENUE, SUITE E, CRYSTAL LAKE,
ILLINOIS 60014
815-477-0424
Securities Registered Pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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Common Stock $.01 par value
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New York Stock Exchange | |
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Preferred Stock Purchase Rights
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New York Stock Exchange |
Securities Registered Pursuant to Section 12 (g) of
the Act:
NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
| Yes x | No o |
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
| Yes o | No x |
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 x | No o |
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
| Yes o | No o |
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
x
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 x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(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 o | No x |
The aggregate market value of the common stock held by
non-affiliates as of June 30, 2009 was $2,227,224,064.
The number of shares outstanding of common stock, as of
February 23, 2010, was 67,845,524 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to
stockholders in connection with the Annual Meeting of
Stockholders to be held May 5, 2010 are incorporated by
reference into Part III of this report.
AptarGroup, Inc.
FORM 10-K
For the Year Ended December 31, 2009
INDEX
i /ATR
2009
Form 10-K
Table of Contents
PART I
ITEM 1. BUSINESS
BUSINESS OF
APTARGROUP
We are a leading global supplier of a broad range of innovative
dispensing systems for the personal care, fragrance/cosmetic,
pharmaceutical, household and food and beverage markets. We
provide value-added dispensing systems (pumps, closures and
aerosol valves) to global consumer product marketers allowing
them to differentiate their products and meet consumers’
need for convenience.
Our business was started in the late 1940’s, manufacturing
and selling aerosol valves in the United States, and has grown
primarily through the acquisition of relatively small companies
and internal expansion. We were incorporated in Delaware in
1992. In this report, we may refer to AptarGroup, Inc. and its
subsidiaries as “AptarGroup” or the
“Company”.
We have manufacturing facilities located throughout the world
including North America, Europe, Asia and South America. We have
over 5,000 customers with no single customer accounting for
greater than 6% of our 2009 net sales.
Sales of our dispensing systems have traditionally grown at a
faster rate than the overall packaging industry as
consumers’ preference for convenience has increased and
product differentiation through packaging design has become more
important to our customers. Consumer product marketers have
converted many of their products to packages with dispensers
that offer the benefit of enhanced shelf appeal, convenience,
cleanliness or accuracy of dosage. We expect this trend to
continue.
Pumps are finger-actuated dispensing systems that dispense a
spray or lotion from non-pressurized containers. The style of
pump used depends largely on the nature of the product being
dispensed, from small, fine mist pumps used with perfume and
pharmaceutical products to lotion pumps for more viscous
formulas.
Closures are primarily dispensing closures but to a lesser
degree can include non-dispensing closures. Dispensing closures
are plastic caps, primarily for plastic containers such as
bottles and tubes, which allow a product to be dispensed without
removing the cap.
Aerosol valves dispense product from pressurized containers. The
majority of the aerosol valves that we sell are continuous spray
valves, with the balance being metered dose inhaler valves.
AVAILABLE
INFORMATION
Our periodic and current reports are available, free of charge,
through a link on the Investor Relations page of our website
(www.aptar.com), as soon as reasonably practicable after the
material is electronically filed with, or furnished to, the SEC.
Also posted on our website are the charters for our Audit,
Compensation, Governance and Executive Committees, our
Governance Principles and our Code of Conduct. Within the time
period required by the SEC and the New York Stock Exchange
(“NYSE”), we will post on our website any amendment to
or waiver to the Code of Conduct applicable to any executive
officer or director. The information provided on our website is
not part of this report and is therefore not incorporated herein
by reference.
DESCRIPTION OF
APTARGROUP’S REPORTING SEGMENTS
FINANCIAL
INFORMATION ABOUT SEGMENTS
The Company operates in the packaging components industry, which
includes the development, manufacture and sale of consumer
product dispensing systems. We are organized into three
reportable business segments. Operations that sell spray and
lotion dispensing systems and accessories primarily to the
personal care, fragrance/cosmetic and household markets form the
Beauty & Home segment. Operations that sell closures
to each market served by AptarGroup form the Closures segment.
Operations that sell dispensing systems to the pharmaceutical
market form the Pharma segment. Each of these three business
segments is described more fully below. A summary of revenue, by
segment, from external customers, profitability and total assets
for each of the last three years is shown in Note 17 to the
Consolidated Financial Statements in Item 8 (which is
incorporated by reference herein).
The Company announced that in 2010 we are undertaking a
strategic realignment of its businesses under three
market-focused business segments. The three new segments are
Aptar Beauty + Home, Aptar Food + Beverage and Aptar Pharma.
This new structure will make it easier for our customers to do
business with us and will also broaden and accelerate the
development of innovative new products with a global focus on
market applications and consumer preferences.
BEAUTY &
HOME
The Beauty & Home segment is our largest segment in
terms of revenue and total assets representing 50% and 47% of
AptarGroup’s Net Sales and Total Assets, respectively. The
Beauty & Home segment primarily sells pumps and
aerosol valves and accessories to the personal care and
household and food/beverage markets and pumps and decorative
components to the fragrance/cosmetic market. We believe we are
the leading supplier of fragrance/cosmetic and personal care
fine mist spray pumps worldwide and the second largest supplier
of personal care lotion pumps worldwide. We believe we are also
one of the largest continuous spray aerosol valve suppliers
worldwide.
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2009
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Fragrance/Cosmetic.
Sales to the
fragrance/cosmetic market for Beauty & Home accounted
for approximately 56% of the segment’s total net sales in
2009. The fragrance/cosmetic market requires a broad range of
pump dispensing systems to meet functional as well as aesthetic
requirements. A considerable amount of research, time and
coordination with the customers’ development staff is
required to qualify a pump for use with their products. Within
the market, we expect the use of pumps to continue to increase,
particularly in the cosmetics and sampling sectors of this
market. In the cosmetic sector, packaging for certain products
such as anti-aging lotions continues to undergo a conversion
from non-dispensing to pump systems, which continues to provide
us with growth opportunities. Our airless dispensing systems,
spray and lotion sampling devices, and decorative capabilities
will also provide growth opportunities.
Personal Care.
Sales to the personal care
market for Beauty & Home accounted for approximately
36% of the segment’s total net sales in 2009. Personal care
products include fine mist spray pumps, lotion pumps and
continuous spray aerosol valves. Typical personal care spray
pump applications include hair care, sun care and deodorant
products. Typical lotion pump applications include skin
moisturizers and soap. Typical personal care continuous aerosol
valve applications include hair care products, deodorants,
shaving cream and most recently sun care lotions. Our research
and development teams continue to design unique accessories that
increase the value of our continuous aerosol valve offerings.
Further, our
bag-on-valve
technology continues to provide marketers with unparalleled
functionality. This technology physically separates the
propellant from the product to be dispensed. It offers improved
integrity of the product content, prevents expulsion of the
propellant into the atmosphere and allows spraying of the
product in any position. Sun care, tooth gel and nasal saline
applications are examples of product applications using this
technology.
Household.
Sales to the household market for
Beauty & Home accounted for approximately 6% of the
segment’s total net sales in 2009. Household products
primarily use either continuous or metered dose spray aerosol
valves and to a lesser degree spray pumps. Applications for
continuous spray valves include disinfectants, spray paints,
insecticides and automotive products. Metered dose valves are
used for air fresheners. Spray pump applications primarily
include household and industrial cleaners.
Food/Beverage.
Sales to the food/beverage
market accounted for approximately 1% of segment net sales in
2009. We traditionally sell aerosol valves to this market for
cooking sprays and oils and spray pumps for butter substitutes
and certain salad dressings.
CLOSURES
The Closures segment is our second largest segment in terms of
revenue and total assets representing 27% and 18% of
AptarGroup’s Net Sales and Total Assets, respectively. We
believe that we are the largest supplier of dispensing closures
in the United States, and the second largest supplier in Europe.
We primarily manufacture dispensing closures and, to a lesser
degree, non-dispensing closures.
Sales of dispensing closures have grown as consumers worldwide
have demonstrated a preference for a package utilizing the
convenience of a dispensing closure. At the same time, consumer
marketers are trying to differentiate their products by
incorporating performance enhancing features such as no-drip
dispensing, inverted packaging and directional flow to make
packages simpler to use, cleaner and more appealing to
consumers. Closures are primarily sold to the personal care,
food/beverage and household markets.
Personal Care.
Historically, the majority of
our dispensing closure sales have been to the personal care
market. Sales to the personal care market for Closures accounted
for approximately 56% of the segment’s total net sales in
2009. Products with dispensing closures include shampoos, shower
gels and skin care lotions. While many personal care products in
the U.S. and Europe have already converted from
non-dispensing to dispensing closures, we expect to benefit from
similar conversions in other geographic areas such as Eastern
Europe (including Russia), Latin America and Asia. Recent
product innovations serving this market include large, wide
mouth, easy open jar closures with hinged lids and a push-open
closure for various products.
Food/Beverage.
Sales to the food/beverage
market for Closures accounted for approximately 34% of the
segment’s total net sales in 2009. Sales of dispensing
closures to the food/beverage market have increased
significantly over the last several years as we continue to see
an increase of interest from food/beverage marketers using
dispensing closures for their products. Examples of
food/beverage products currently utilizing dispensing closures
include condiments, salad dressings, syrups, honey, water and
dairy creamers. We believe there are good growth opportunities
in the food/beverage market reflecting the continued and growing
acceptance in this market of our silicone valve dispensing
technology, and additional conversion from traditional packages
to packages using dispensing closure systems, in particular for
the single serve non-carbonated beverage industry.
Household.
Sales to the household market for
Closures accounted for approximately 7% of the segment’s
total net sales in 2009. While we have had success worldwide in
selling dispensing closures to this market, it has not
represented a significant amount of total dispensing closure
sales. Products utilizing dispensing closures include
dishwashing detergents, laundry care products and household
cleaners.
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Fragrance/Cosmetic.
Sales to the
fragrance/cosmetic market are not a significant part of Closures
sales (approximately 1% of segment net sales in 2009), but are
mentioned here as an example of potential growth areas for the
Closures segment. We are optimistic that we will increase sales
to this market with our recent introduction of our Pinpoint
dispensing closure with a conical shaped silicone valve tip
targeted at cosmetic applications, in particular for eye creams
and other applications requiring precise application.
PHARMA
While the Pharma segment is our third largest segment in terms
of revenue and total assets, accounting for 23% and 18% of
AptarGroup’s Net Sales and Total Assets, respectively, it
is our most profitable segment. We believe we are the leading
supplier of pumps and metered dose inhaler valves
(“MDI’s”) to the pharmaceutical market worldwide.
Characteristics of this market include (i) governmental
regulation of our pharmaceutical customers,
(ii) contaminant-controlled manufacturing environments, and
(iii) a significant amount of time and research from
initially working with pharmaceutical companies at the molecular
development stage of a medication through the eventual
distribution to the market. We have clean-room manufacturing
facilities in Argentina, China, France, Germany, Switzerland and
the United States. We believe that the conversion from
traditional medication forms such as pills and syringes to
value-added, convenient dispensing will continue to increase.
Pumps sold to the pharmaceutical market deliver medications
nasally, orally or topically. Currently the majority of our
pumps sold are for allergy, cold or flu treatments. Potential
opportunities for conversion from pills and syringes to pump
dispensing systems include treatment for vaccines, additional
cold and flu treatments, hormone replacement therapies,
breakthrough pain medication and ophthalmic applications.
MDI’s are used for dispensing precise amounts of
medication. This aerosol technology allows medication to be
broken up into very fine particles, which enables the drug to be
delivered typically via the pulmonary system. We work with
pharmaceutical companies as they work to phase out the use of
chlorofluorocarbon (“CFC”) propellants. We continue to
increase our market share of MDI’s to this market as
pharmaceutical companies replace CFC’s with alternative
propellants and we expect our market share to continue to grow.
Currently the majority of our MDI’s sold are used for
respiratory ailments.
We continue to work on new dispensing systems and accessories in
this segment such as a dose indicator feature for our MDI’s
to let the patient know exactly how many doses are left in the
container. Also, we have developed a unique delivery system
which dispenses a consistent dosage independent of the force and
speed of actuation. We are also developing devices featuring
lock-out technologies and other ophthalmic applications. While
we expect that these new products will come to market in the
future, it is difficult to estimate when as the rigors of
pharmaceutical regulations affect the timing of product
introductions by our pharmaceutical customers which use our
dispensing systems.
GENERAL BUSINESS
INFORMATION
GROWTH
STRATEGY
We seek to enhance our position as a leading global supplier of
innovative dispensing systems by (i) expanding
geographically, (ii) converting non-dispensing applications
to dispensing systems, (iii) replacing current dispensing
applications with our dispensing products and
(iv) developing or acquiring new dispensing technologies.
We are committed to expanding geographically to serve
multinational customers in existing and emerging areas. Targeted
areas include Asia, South America, and Eastern Europe. In 2007,
we opened a new manufacturing facility in Thailand. In 2008, we
opened a new larger facility in Brazil to expand our injection
molding and decorating (including serigraphy and hot stamping)
of plastic accessories primarily for the fragrance and cosmetic
markets. In 2009, we acquired a Brazilian company which supplies
anodized aluminum parts to other companies within the Company.
We believe significant opportunities exist to introduce our
dispensing systems to replace non-dispensing applications.
Examples of these opportunities include potential conversion in
the food/beverage market for single serve non-carbonated
beverages, condiments, and cooking oils. In the
fragrance/cosmetic market, potential conversion includes creams
and lotions currently packaged in jars or tubes using removable
non-dispensing closures, converting to lotion pumps or
dispensing closures. We have developed and patented a thin
sprayable dispensing system that can be inserted into magazines
to replace the traditional scent strips. We believe this new
innovative system will offer growth opportunities, particularly
for fragrance samples. We have also developed a similar
miniature flat sample for viscous creams as well as a small pump
for use on vials for cosmetic lotions.
In addition to introducing new dispensing applications, we
believe there are significant growth opportunities in converting
existing pharmaceutical delivery systems (syringes or pills) to
our more convenient dispensing pump or metered dose aerosol
valve systems. Examples of opportunities in the pharmaceutical
market include ways to dispense treatments for pulmonary
conditions, vaccines, cold and flu treatments and hormone
replacement therapies.
We are committed to developing or acquiring new dispensing
technologies. Several years ago, we acquired intellectual
property (patents, licenses and know how) and equipment relating
to certain dry powder dispensing systems. We continue to develop
this new technology and hope to have a product to market in the
future. In 2008 we acquired a contract service organization
specializing in analytical testing of nasal and inhalation
products on behalf of pharmaceutical, biotech, drug delivery and
device companies. We have entered into several exclusive
licensing arrangements with third party innovators allowing us
to continue to develop new dispensing systems using their
technologies which are in various stages of development. We have
also acquired businesses that manufacture aerosol valves with
bag-on-valve
technology. These systems physically
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separate the propellant from the product to be dispensed. It
offers improved integrity of the product content, prevents
expulsion of the propellant into the atmosphere and allows
spraying of the product in any position. We also acquired three
companies that manufacture decorative packaging components
primarily for the high end of the fragrance/cosmetic market.
This technology includes advanced molding capabilities as well
as decoration (vacuum metallization and varnishing) of plastic
components.
RESEARCH AND
DEVELOPMENT
One of our competitive strengths is our commitment to innovation
and providing innovative dispensing solutions for our customers.
This commitment to innovation is the result of our emphasis on
research and development. Our research and development
activities are directed toward developing innovative dispensing
systems, adapting existing products for new markets or customer
requirements, and reducing costs. We have research and
development organizations located in the United States, France,
Germany and Italy. In certain cases, our customers share in the
research and development expenses of customer initiated
projects. Occasionally, we acquire or license from third parties
technologies or products that are in various stages of
development. Expenditures for research and development
activities net of a French R&D credit were
$50.2 million, $55.1 million and $53.7 million in
2009, 2008 and 2007, respectively.
PATENTS AND
TRADEMARKS
We customarily seek patent and trademark protection for our
products and currently own and have numerous applications
pending for United States and foreign patents and trademarks. In
addition, certain of our products are produced under patent
licenses granted by third parties. We believe that we possess
certain technical capabilities in making our products that make
it difficult for a competitor to duplicate.
TECHNOLOGY
Pumps and aerosol valves require the assembly of up to 15
different plastic, metal and rubber components using high-speed
equipment. When molding dispensing closures, or plastic
components to be used in pump or aerosol valve products, we use
advanced plastic injection molding technology, including large
cavitation plastic injection molds. We are able to mold within
tolerances as small as one one-thousandth of an inch and we
manufacture products in a high-speed, cost-effective manner. Our
injection molding capabilities include recent advances such as
spin-stack and cube molding which utilizes high-efficiency
rotating molds. We are also utilizing In-Molding Assembly
Technology (IMAT) which allows us to assemble products within
the molding process. We have experience in liquid silicone
rubber molding that we utilize in our dispensing closure
operations and certain of our pump products. We also have
technology to decorate plastic and metal components sold
primarily to the fragrance/cosmetic and personal care markets as
well as rubber gasket formulation and production technology
primarily for the pharmaceutical markets.
MANUFACTURING AND
SOURCING
More than half of our worldwide production is located outside of
the United States. In order to augment capacity and to maximize
internal capacity utilization (particularly for plastic
injection molding), we use subcontractors to supply certain
plastic, metal and rubber components. Certain suppliers of these
components have unique technical abilities that make us
dependent on them, particularly for aerosol valve and pump
production. The principal raw materials used in our production
are plastic resins and certain metal products. We believe an
adequate supply of such raw materials is available from existing
and alternative sources. We attempt to offset cost increases
through improving productivity and increasing selling prices
over time, as allowed by market conditions. Our pharmaceutical
products often use specifically approved plastic resin for our
customers. Significant delays in receiving components from these
suppliers or discontinuance of an approved plastic resin would
require us to seek alternative sources, which could result in
higher costs as well as impact our ability to supply products in
the short term.
SALES AND
DISTRIBUTION
Sales of products are primarily through our own sales force. To
a limited extent, we also use the services of independent
representatives and distributors who sell our products as
independent contractors to certain smaller customers and export
markets.
BACKLOG
Our sales are primarily made pursuant to standard purchase
orders for delivery of products. While most orders placed with
us are ready for delivery within 120 days, we continue to
experience a trend towards shorter lead times requested by our
customers. Some customers place blanket orders, which extend
beyond this delivery period. However, deliveries against
purchase orders are subject to change, and only a small portion
of the order backlog is noncancelable. The dollar amount
associated with the noncancelable portion is not material.
Therefore, we do not believe that backlog as of any particular
date is an accurate indicator of future results.
CUSTOMERS
The demand for our products is influenced by the demand for our
customers’ products. Demand for our customers’
products may be affected by general economic conditions and
liquidity, government regulations, tariffs and other trade
barriers. Our customers include many of the largest personal
care, fragrance/cosmetic, pharmaceutical, household and
food/beverage marketers in the world. We have over 5,000
customers with no single customer accounting for greater than 6%
of 2009 net sales. A consolidation of our customer base has
occurred. This trend is expected to continue. A concentration of
customers may
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result in pricing pressures or a loss of volume. However, this
situation also presents opportunities for increasing sales due
to the breadth of our product line, our international presence
and our long-term relationships with certain customers.
INTERNATIONAL
BUSINESS
A significant number of our operations are located outside the
United States. Sales in Europe for the years ended
December 31, 2009, 2008 and 2007 were approximately 58%,
62% and 63%, respectively, of net sales. We manufacture the
majority of units sold in Europe at facilities in the Czech
Republic, England, France, Germany, Ireland, Italy, Russia,
Spain and Switzerland. Other countries in which we operate
include Argentina, Brazil, Canada, China, India, Indonesia,
Japan, Mexico and Thailand which when aggregated represented
approximately 14%, 12% and 11% of our consolidated sales for the
years ended December 31, 2009, 2008 and 2007, respectively.
Export sales from the United States were $104.5 million,
$100.1 million and $95.3 million in 2009, 2008 and
2007, respectively. For additional financial information about
geographic areas, please refer to Note 17 in the Notes to
the Consolidated Financial Statements in Item 8 (which is
incorporated by reference herein).
FOREIGN
CURRENCY
A significant number of our operations are located outside of
the United States. Because of this, movements in exchange rates
may have a significant impact on the translation of the
financial statements of our foreign entities. Our primary
foreign exchange exposure is to the Euro, but we have foreign
exchange exposure to the British Pound, Swiss Franc, South
American and Asian currencies, among others. We manage our
exposures to foreign exchange principally with forward exchange
contracts to economically hedge booked transactions and firm
purchase and sales commitments denominated in foreign
currencies. A strengthening U.S. dollar relative to foreign
currencies has a dilutive translation effect on our financial
statements. Conversely, a weakening U.S. dollar has an
additive effect. In some cases, we sell products denominated in
a currency different from the currency in which the related
costs are incurred. Changes in exchange rates on such
inter-country sales could materially impact our results of
operations.
WORKING CAPITAL
PRACTICES
Collection and payment periods tend to be longer for our
operations located outside the United States due to local
business practices. Historically, we have not needed to keep
significant amounts of finished goods inventory to meet customer
requirements.
EMPLOYEE AND
LABOR RELATIONS
AptarGroup has approximately 8,700 full-time employees. Of
the full-time employees, approximately 1,900 are located in
North America, 5,200 are located in Europe and the remaining
1,600 are located in Asia and South America. Approximately 165
of the North American employees are covered by a collective
bargaining agreement, while the majority of our European
employees are covered by collective bargaining arrangements made
at either the local or national level in their respective
countries. Termination of employees at certain of our
international operations could be costly due to local
regulations regarding severance benefits. There were no material
work stoppages in 2009 and management considers our employee
relations to be satisfactory.
COMPETITION
All of the markets in which we operate are highly competitive
and we continue to experience price competition in all product
lines and markets. Competitors include privately and publicly
held entities. Our competitors range from regional to
international companies. We expect the market for our products
to remain competitive. We believe our competitive advantages are
consistent high levels of innovation, quality and service,
geographic diversity and breadth of products. Our manufacturing
strength lies in the ability to mold complex plastic components
in a cost-effective manner and to assemble products at high
speeds. Our business is capital intensive and it is becoming
more important to our customers to have global manufacturing
capabilities. Both of these act as barriers to entry for new
competitors wanting to enter our business.
While we have experienced some competition from low cost Asian
suppliers particularly in the low-end fragrance/cosmetic and
personal care market, this has not been significant. Indirectly,
some fragrance marketers are sourcing their manufacturing
requirements including filling of their product in Asia and
importing the finished product back into the United States.
However, some customers who had bought dispensing packaging
products from low cost Asian suppliers in the past have reverted
to purchasing our dispensing products again, citing the higher
quality offered by our products and the logistical advantage of
being closer to the customer.
ENVIRONMENT
Our manufacturing operations primarily involve plastic injection
molding and automated assembly processes and, to a limited
degree, metal anodization and vacuum metallization of plastic
components. Historically, the environmental impact of these
processes has been minimal, and we believe we meet current
environmental standards in all material respects. To date, our
manufacturing operations have not been significantly affected by
environmental laws and regulations relating to the environment.
Recently there is increased interest and awareness from the
public and our customers in “sustainability” or
producing “sustainable products” and measuring
“carbon footprints.” Several organizations including
the World Business Council for Sustainable Development in
conjunction with scientists from the United Nations
International Government Panel on Climate Change, have developed
protocols to identify and calculate the amount of greenhouse
gases manufacturing facilities generate. We are currently
evaluating opportunities to become more energy efficient and
lower greenhouse gas emissions, both of which reduce our carbon
footprint.
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GOVERNMENT
REGULATION
Certain of our products are indirectly affected by government
regulation. Growth of packaging using aerosol valves has been
restrained by concerns relating to the release of certain
chemicals into the atmosphere. Both aerosol and pump packaging
are affected by government regulations regarding the release of
volatile organic compounds (“VOC’s”) into the
atmosphere. Certain states within the United States have
regulations that required the reduction in the amount of
VOC’s that can be released into the atmosphere and the
potential exists for this type of regulation to expand
worldwide. These regulations required our customers to
reformulate certain aerosol and pump products, which may have
affected the demand for such products. We own patents and have
developed systems to function with alternative propellant and
product formulations.
Future government regulations could include medical cost
containment policies. For example, reviews by various
governments to determine the number of drugs, or prices thereof,
that will be paid by their insurance systems could affect future
sales to the pharmaceutical industry. Such regulation could
adversely affect prices of and demand for our pharmaceutical
products. We believe that the focus on the cost effectiveness of
the use of medications as compared to surgery and
hospitalization provides us with an opportunity to expand sales
to the pharmaceutical market. In general, government regulation
of our customers’ products could impact our sales to them
of our dispensing systems.
EXECUTIVE
OFFICERS
As discussed in the Description of AptarGroup’s Reporting
Segments in Item 1, Part I, the Company has announced
that it is undertaking a strategic realignment of its businesses
in 2010. To begin this realignment process, the Company has
identified our leaders of the new segments below in the listing
of executive officers as of February 26, 2010:
| Name | Age | Position with the Company | ||||
|
Peter Pfeiffer
|
61 | President and Chief Executive Officer, AptarGroup, Inc. | ||||
| Mr. Peter Pfeiffer has been President and Chief Executive Officer since January 1, 2008 and was Vice Chairman of the Board since 1993. | ||||||
|
Stephen Hagge
|
58 | Executive Vice President and Chief Operating Officer, AptarGroup, Inc. | ||||
| Mr. Stephen Hagge has been Chief Operating Officer since January 1, 2008 and Executive Vice President since 1993. Prior to 2008, Mr. Hagge was Chief Financial Officer of AptarGroup. | ||||||
|
Robert W. Kuhn
|
47 | Executive Vice President and Chief Financial Officer, AptarGroup, Inc. | ||||
| Mr. Robert Kuhn has been Chief Financial Officer since September 30, 2008 and prior to this was Vice President Financial Reporting since 2000. | ||||||
|
Olivier Fourment
|
52 | President, Aptar Pharma | ||||
| Mr. Olivier Fourment has been President of Aptar Pharma since January 1, 2008 and was Co-President of Valois Group since 2000. | ||||||
|
Olivier de Pous
|
65 | Co-President, Aptar Beauty + Home | ||||
| On September 15, 2009, Mr. Olivier de Pous informed the Company of his intention to retire effective June 30, 2010. To aid in a smooth transition to the new segment structure, he became Co-President of Aptar Beauty + Home on January 1, 2010. Prior to 2010, Mr. de Pous had been President of Aptar Beauty & Home since January 1, 2008 and was Co-President of Valois Group since 2000. | ||||||
|
Eric Ruskoski
|
62 | President, Aptar Closures, Co-President, Aptar Beauty + Home, and Interim President, Aptar Food + Beverage. | ||||
| Mr. Eric Ruskoski has been President Aptar Closures since January 1, 2008 and was President of Seaquist Closures Group since 1987. On January 1, 2010 he also assumed responsibilities under the strategic realignment and was named Co-President, Aptar Beauty + Home, and Interim President, Aptar Food + Beverage. | ||||||
|
Patrick Doherty
|
54 | Co-President, Aptar Beauty + Home | ||||
| Mr. Patrick Doherty has been Co-President of Aptar Beauty + Home since January 1, 2010. Prior to 2010, Mr. Doherty served as President of SeaquistPerfect Dispensing Group since 2000. | ||||||
There were no arrangements or understandings between any of the
executive officers and any other person(s) pursuant to which
such officers were elected.
ITEM 1A. RISK
FACTORS
Set forth below and elsewhere in this report and in other
documents we file with the Securities and Exchange Commission
are risks and uncertainties that could cause our actual results
to materially differ from the results contemplated by the
forward-looking statements contained in this report and in other
documents we file with the Securities and Exchange Commission.
Additional risks and uncertainties not presently known to us, or
that we currently deem immaterial, may also impair our business
operations. You should carefully consider the following factors
in addition to other information contained in this report on
Form 10-K
before purchasing any shares of our common stock.
6 /ATR
2009
Form 10-K
Table of Contents
FACTORS AFFECTING
OPERATIONS OR OPERATING RESULTS
If we experience a long-term global recession, our business
and operating results could be materially adversely
impacted.
Due to our strong balance sheet,
diverse product offerings, various end-markets served, and our
broad geographic presence, we are well positioned to withstand
slowness in any one particular region or market. However, given
the continued uncertainty in global credit and financial markets
(including diminished liquidity and credit availability,
declines in consumer confidence, declines in economic growth,
increases in unemployment rates, and uncertainty about economic
stability), there can be no assurance that there will not be
further deterioration in economic conditions. These economic
uncertainties affect businesses such as ours in a number of
ways, making it difficult to accurately forecast and plan our
future business activities. The continued tightness of credit in
financial markets may lead consumers and businesses to postpone
spending, which may cause our customers to cancel, decrease or
delay their existing and future orders with us. In addition,
financial difficulties experienced by our suppliers, customers
or distributors could result in product delays, increased
accounts receivable defaults and inventory or supply challenges.
Some of our materials are single-sourced. An interruption in
supply would also impact our ability to meet customer demands.
The continuing disruption in the credit markets has severely
restricted access to capital. As a result, the ability to incur
additional indebtedness to fund operations or refinance maturing
obligations as they become due may be significantly constrained.
We are unable to predict the likely duration and severity of the
current disruptions in the credit and financial markets and
adverse global economic conditions, and if the current uncertain
economic conditions continue or further deteriorate, our
business and results of operations could be materially and
adversely affected. Furthermore, it is not certain whether the
duration or current economic uncertainty of the crisis will be
severe enough to cause a permanent shift in consumer behavior
leading to reduced spending on grooming products and a
substitution of economic utility over convenience.
In difficult market conditions, our high fixed costs combined
with potentially lower revenues may negatively impact our
results.
Our business is characterized by high
fixed costs and, notwithstanding our utilization of third-party
manufacturing capacity, most of our production requirements are
met by our own manufacturing facilities. In difficult industry
environments, we are generally faced with a decline in the
utilization rates of our manufacturing facilities due to
decreases in product demand. During such periods, our plants do
not operate at full capacity and the costs associated with this
excess capacity are charged directly to cost of sales. The
market conditions in the future may continue to adversely affect
our utilization rates and consequently our future gross margins,
and this, in turn, could have a material negative impact on our
business, financial condition and results of operations.
We face strong global competition and our market share could
decline.
All of the markets in which we operate
are highly competitive and we continue to experience price
competition in all product lines and segments. Competitors
include privately and publicly held entities. Our competitors
range from regional to international companies.
While we have experienced some competition from low cost Asian
suppliers in some of our markets, particularly in the low-end
fragrance/cosmetic and personal care market, this has not been
significant. Indirectly, some fragrance marketers are sourcing
their manufacturing requirements including filling of their
product in Asia and importing the finished product back into the
United States and Europe. If we are unable to compete
successfully, our market share may decline, which could
materially adversely affect our results of operations and
financial condition.
We have foreign currency translation and transaction risks
that may materially adversely affect our operating
results.
A significant number of our operations
are located outside of the United States. Because of this,
movements in exchange rates may have a significant impact on the
translation of the financial statements of our foreign entities.
Our primary foreign exchange exposure is to the Euro, but we
have foreign exchange exposure to South American and Asian
currencies, among others. We manage our exposures to foreign
exchange principally with forward exchange contracts to hedge
certain transactions and firm purchase and sales commitments
denominated in foreign currencies. A strengthening
U.S. dollar relative to foreign currencies has a dilutive
translation effect on our financial statements. Conversely, a
weakening U.S. dollar has an additive effect. In some
cases, we sell products denominated in a currency different from
the currency in which the related costs are incurred. The
volatility of currency exchange rates may materially affect our
operating results.
If our unionized employees were to engage in a strike or
other work stoppage, our business and operating results and
financial condition could be materially adversely
affected.
Approximately 165 of our North American
employees are covered by a collective bargaining agreement,
while the majority of our European employees are covered by
collective bargaining arrangements made either at the local or
national level in their respective countries. Although we
believe that our relations with our employees are satisfactory,
no assurance can be given that this will continue. If disputes
with our unions arise, or if our unionized workers engage in a
strike or other work stoppage, we could incur higher labor costs
or experience a significant disruption of operations, which
could have a material adverse effect on our business, financial
position and results of operations.
If we were to incur a significant product liability claim
above our current insurance coverage, our operating results and
financial condition could be materially adversely
affected.
Approximately 23% of our net sales are
made to customers in the pharmaceutical industry. If our devices
fail to operate as intended, medication prescribed for patients
may be under administered, or may be over administered. The
failure of our devices to operate as intended may result in a
product liability claim against us. We believe we maintain
adequate levels of product liability insurance coverage. A
product liability claim
7 /ATR
2009
Form 10-K
Table of Contents
or claims in our Pharma segment or our other segments in excess
of our insurance coverage may materially adversely affect our
business, financial position and results of operations.
The success or failure of our customers’ products,
particularly in the pharmaceutical market, may materially affect
our operating results and financial condition.
In
the pharmaceutical market, the proprietary nature of our
customers’ products and the success or failure of their
products in the market using our dispensing systems may have a
material impact on our operating results and financial
condition. We may potentially work for years on modifying our
dispensing device to work in conjunction with a customer’s
drug formulation. If the customer’s product is not
successful on the market, the time spent may not be recovered.
On the contrary, a successful product launch from one of our
pharmaceutical customers may have a material positive impact on
our operating results and financial condition.
Higher raw material costs and an inability to increase our
selling prices may materially adversely affect our operating
results and financial condition.
Raw material
costs increased significantly over the past few years and we
have generally been able to increase selling prices to cover
increased costs. In the future, market conditions may prevent us
from passing these increased costs on to our customers through
timely price increases. In addition, we may not be able to
improve productivity or realize our ongoing cost reduction
programs sufficiently to help offset the impact of these
increased raw material costs. As a result, higher raw material
costs could result in declining margins and operating results.
We have approximately $231 million in recorded goodwill
and changes in future business conditions could cause this asset
to become impaired, requiring write-downs that would reduce our
operating income.
We evaluate the recoverability
of goodwill amounts annually, or more frequently when evidence
of potential impairment exists. The impairment test is based on
several factors requiring judgment. A decrease in expected
reporting unit cash flows or changes in market conditions may
indicate potential impairment of recorded goodwill and, as a
result, our operating results could be materially adversely
affected. See “Critical Accounting Policies and
Estimates” in Part II, Item 7 (which is
incorporated by reference herein).
The scope and complexity of the change in organization
structure could increase certain risks.
The
Company has announced that in 2010 we are undertaking a
strategic realignment in our businesses under three
market-focused business segments. This realignment will allow us
to offer our full product range in each of our three new
segments: Aptar Beauty + Home, Aptar Food + Beverage and Aptar
Pharma. The new structure will also broaden and accelerate the
development of innovative new products with a global focus on
market applications and consumer preferences. This realignment
will take some time to complete and we expect to be fully
operating under the new structure beginning in 2011. However, we
could experience some planning and execution risks as employees
handle multiple roles during this transition period.
FACTORS AFFECTING
APTARGROUP STOCK
Ownership by Certain Significant
Shareholders.
Neuberger Berman Inc. and State
Farm Mutual Automobile Insurance Company each own approximately
12% and 9%, respectively, of our outstanding common stock. If
one of these significant shareholders decides to sell
significant volumes of our stock, this could put downward
pressure on the price of the stock.
Certain Anti-takeover Factors.
Certain
provisions of our Certificate of Incorporation and Bylaws may
inhibit changes in control of AptarGroup not approved by the
Board of Directors. These provisions include (i) special
voting requirements for business combinations, (ii) a
classified board of directors, (iii) a prohibition on
stockholder action through written consents, (iv) a
requirement that special meetings of stockholders be called only
by the board of directors, (v) advance notice requirements
for stockholder proposals and nominations, (vi) limitations
on the ability of stockholders to amend, alter or repeal our
bylaws and (vii) provisions that require the vote of 70% of
the whole Board of Directors in order to take certain actions.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
The Company has no unresolved comments from the SEC.
8 /ATR
2009
Form 10-K
Table of Contents
ITEM 2. PROPERTIES
We lease or own our principal offices and manufacturing
facilities. None of the owned principal properties is subject to
a lien or other encumbrance material to our operations. We
believe that existing operating leases will be renegotiated as
they expire, will be acquired through purchase options or that
suitable alternative properties will be leased on acceptable
terms. We consider the condition and extent of utilization of
our manufacturing facilities and other properties to be
generally good, and the capacity of our plants to be adequate
for the needs of our business. The locations of our principal
manufacturing facilities, by country, are set forth below:
|
ARGENTINA
Buenos Aires (1, 2 & 3) |
INDIA
Himachal Pradesh (1) |
THAILAND
Chonburi (1) |
||
|
BRAZIL
Sao Paulo (1 & 3) Maringá Paraná (1) |
INDONESIA
Cikarang, Bekasi (2) |
UNITED KINGDOM
Leeds, England (3) Milton Keynes (1 & 2) |
||
|
CHINA
Suzhou (1, 2 & 3) CZECH REPUBLIC Ckyne (3) FRANCE Annecy (1 & 2) Charleval (1) Le Neubourg (1) Le Vaudreuil (2) Oyonnax (1 & 3) Poincy (3) Verneuil Sur Avre (1) GERMANY Böhringen (1) Dortmund (1) Eigeltingen (2) Freyung (3) Menden (1) |
IRELAND
Ballinasloe, County Galway (1) ITALY Manoppello (1) Milan (1) San Giovanni Teatino (Chieti) (1) MEXICO Queretaro (1 & 3) RUSSIA Vladimir (3) SWITZERLAND Messovico (2) Neuchâtel (1) SPAIN Torello (3) |
UNITED STATES
Cary, Illinois (1) Congers, New York (1 & 2) Libertyville, Illinois (3) McHenry, Illinois (1) Midland, Michigan (3) Mukwonago, Wisconsin (3) Stratford, Connecticut (1) Torrington, Connecticut (1) Watertown, Connecticut (1) |
| (1) | Locations of facilities manufacturing for the Beauty & Home segment. | |
| (2) | Locations of facilities manufacturing for the Pharma segment. | |
| (3) | Locations of facilities manufacturing for the Closures segment. |
In addition to the above countries, we have sales offices or
other manufacturing facilities in Canada and Japan. Our
corporate office is located in Crystal Lake, Illinois.
ITEM 3. LEGAL
PROCEEDINGS
Claims in the product liability and patent infringement areas,
even if without merit, could result in the significant
expenditure of our financial and managerial resources. It is
possible that future results of operations or cash flows for any
particular quarterly or annual period could be materially
affected by an unfavorable resolution of such a claim.
ITEM 4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9 /ATR
2009
Form 10-K
Table of Contents
PART II
ITEM 5. MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS, ISSUER PURCHASES OF EQUITY SECURITIES
AND SHARE PERFORMANCE
STOCKHOLDER MATTERS, ISSUER PURCHASES OF EQUITY SECURITIES
AND SHARE PERFORMANCE
MARKET FOR
REGISTRANT’S COMMON EQUITY
Information regarding market prices of our Common Stock and
dividends declared may be found in Note 19 to the
Consolidated Financial Statements in Item 8 (which is
incorporated by reference herein). Our Common Stock is traded on
the New York Stock Exchange under the symbol ATR. As of
February 16, 2010, there were approximately 400 registered
holders of record.
RECENT SALES OF
UNREGISTERED SECURITIES
The employees of AptarGroup S.A.S. and Valois S.A.S., our
subsidiaries, are eligible to participate in the FCP Aptar
Savings Plan (the “Plan”). All eligible participants
are located outside of the United States. An independent agent
purchases shares of Common Stock available under the Plan for
cash on the open market and we do not issue shares. We do not
receive any proceeds from the purchase of Common Stock under the
Plan. The agent under the Plan is Banque Nationale de Paris
Paribas Fund Services. No underwriters are used under the
Plan. All shares are sold in reliance upon the exemption from
registration under the Securities Act of 1933 provided by
Regulation S promulgated under that Act. During the quarter
ended December 31, 2009, the Plan purchased 835 shares
of our common stock on behalf of the participants at an average
price of $36.55 per share, for an aggregate amount of $31
thousand. No shares were sold during the quarter. At
December 31, 2009, the Plan owns 17,858 shares of our
Common Stock.
ISSUER PURCHASES
OF EQUITY SECURITIES
The following table summarizes the Company’s purchases of
its securities for the quarter ended December 31, 2009:
|
Total Number of Shares
|
Maximum Number of
|
|||||||||||
|
Total Number
|
Purchased as Part of
|
Shares that May Yet be
|
||||||||||
|
Of Shares
|
Average Price
|
Publicly Announced
|
Purchased Under the
|
|||||||||
| Period | Purchased | Paid Per Share | Plans or Programs | Plans or Programs | ||||||||
|
10/1 - 10/31/09
|
148,871 | $ | 36.85 | 148,871 | 4,015,576 | |||||||
|
11/1 - 11/30/09
|
180,292 | 35.95 | 180,292 | 3,835,284 | ||||||||
| 12/1 - 12/31/09 | 171,417 | 36.49 | 171,417 | 3,663,867 | ||||||||
|
Total
|
500,580 | $ | 36.40 | 500,580 | 3,663,867 | |||||||
The Company announced the existing repurchase program on
July 19, 2006. There is no expiration date for this
repurchase program.
10 /ATR
2009
Form 10-K
Table of Contents
SHARE
PERFORMANCE
The following graph shows a five year comparison of the
cumulative total stockholder return on AptarGroup’s common
stock as compared to the cumulative total return of two other
indexes: the Value Line Packaging & Container Industry
Group (“Peer Group”) and the Standard &
Poor’s 500 Composite Stock Price Index. The companies
included in the Peer Group are: AptarGroup, Inc., Ball
Corporation, Bemis Company, Inc., CLARCOR Inc., Crown Holdings,
Inc., Greif, Inc., Mead Westvaco, Owen’s-Illinois, Inc.,
Packaging Corporation of America, Pactiv Corporation, Rock-Tenn
Company, Sealed Air Corporation, Silgan Holdings, Inc., and
Sonoco Products Company. Changes in the Peer Group from year to
year result from companies being added to or deleted from the
Value Line Packaging & Container Industry Group. These
comparisons assume an initial investment of $100 and the
reinvestment of dividends.
Comparison of
5 Year Cumulative Stockholder Returns
The graph and other information furnished in the section titled
“Share Performance” under this Part II,
Item 5 of this
Form 10-K
shall not be deemed to be “soliciting” material or to
be “filed” with the Securities and Exchange Commission
or subject to Regulation 14A or 14C, or to the liabilities
of Section 18 of the Securities Exchange Act of 1934, as
amended.
11 /ATR
2009
Form 10-K
Table of Contents
ITEM 6. SELECTED
CONSOLIDATED FINANCIAL DATA
FIVE YEAR SUMMARY
OF SELECTED FINANCIAL DATA
| In millions of dollars, except per share data | ||||||||||||||||||||
| Years Ended December 31, | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
|
Statement of Income Data:
|
||||||||||||||||||||
|
Net Sales
|
$ | 1,841.6 | $ | 2,071.7 | $ | 1,892.2 | $ | 1,601.4 | $ | 1,380.0 | ||||||||||
|
Cost of Sales (exclusive of depreciation shown below) (1)
|
1,225.7 | 1,411.3 | 1,283.8 | 1,086.3 | 927.6 | |||||||||||||||
|
% of Net Sales
|
66.6 | % | 68.1 | % | 67.9 | % | 67.8 | % | 67.2 | % | ||||||||||
|
Selling, Research & Development and Administrative (2)
|
276.9 | 295.1 | 272.1 | 236.9 | 202.2 | |||||||||||||||
|
% of Net Sales
|
15.0 | % | 14.2 | % | 14.4 | % | 14.8 | % | 14.6 | % | ||||||||||
|
Depreciation and Amortization
|
133.0 | 131.1 | 123.5 | 114.6 | 99.2 | |||||||||||||||
|
% of Net Sales
|
7.2 | % | 6.3 | % | 6.5 | % | 7.2 | % | 7.2 | % | ||||||||||
|
Facilities consolidation and severance
|
7.6 | — | — | — | — | |||||||||||||||
|
% of Net Sales
|
.4 | % | — | — | — | — | ||||||||||||||
|
Operating Income
|
198.4 | 234.2 | 212.9 | 163.6 | 151.0 | |||||||||||||||
|
% of Net Sales
|
10.8 | % | 11.3 | % | 11.3 | % | 10.2 | % | 10.9 | % | ||||||||||
|
Income from Continuing Operations (3)
|
124.6 | 153.5 | 139.5 | 102.9 | 100.0 | |||||||||||||||
|
% of Net Sales
|
6.8 | % | 7.4 | % | 7.4 | % | 6.4 | % | 7.3 | % | ||||||||||
|
Income from Discontinued Operations
|
||||||||||||||||||||
|
Net of Tax
|
— | — | 2.2 | — | — | |||||||||||||||
|
% of Net Sales
|
— | — | 0.1 | % | — | — | ||||||||||||||
|
Net Income (3)
|
124.6 | 153.5 | 141.7 | 102.9 | 100.0 | |||||||||||||||
|
% of Net Sales
|
6.8 | % | 7.4 | % | 7.5 | % | 6.4 | % | 7.3 | % | ||||||||||
|
Net Income per Common Share (Basic):
|
||||||||||||||||||||
|
Continuing Operations (4)
|
$ | 1.84 | $ | 2.26 | $ | 2.03 | $ | 1.48 | $ | 1.42 | ||||||||||
|
Discontinued Operations (4)
|
— | — | .03 | — | — | |||||||||||||||
|
Net Income per Common Stock (Basic)
|
1.84 | 2.26 | 2.06 | 1.48 | 1.42 | |||||||||||||||
|
Net Income per Common Stock (Diluted):
|
||||||||||||||||||||
|
Continuing Operations (4)
|
1.79 | 2.18 | 1.95 | 1.44 | 1.39 | |||||||||||||||
|
Discontinued Operations (4)
|
— | — | .03 | — | — | |||||||||||||||
|
Net Income per Common Share (Diluted)
|
1.79 | 2.18 | 1.98 | 1.44 | 1.39 | |||||||||||||||
|
Cash Dividends Declared per Common Share
|
.60 | .56 | .50 | .42 | .35 | |||||||||||||||
|
Balance Sheet and Other Data:
|
||||||||||||||||||||
|
Capital Expenditures
|
$ | 144.9 | $ | 203.6 | $ | 137.9 | $ | 107.7 | $ | 104.4 | ||||||||||
|
Total Assets
|
1,956.2 | 1,831.8 | 1,911.9 | 1,592.0 | 1,357.3 | |||||||||||||||
|
Long-Term Obligations
|
209.6 | 226.9 | 146.7 | 168.9 | 144.5 | |||||||||||||||
|
Net Debt (5)
|
5.0 | 99.4 | 49.1 | 125.7 | 129.0 | |||||||||||||||
|
AptarGroup, Inc. Stockholders’ Equity
|
1,252.8 | 1,131.0 | 1,119.0 | 946.4 | 809.4 | |||||||||||||||
|
Capital Expenditures % of Net Sales
|
7.9 | % | 9.8 | % | 7.3 | % | 6.7 | % | 7.6 | % | ||||||||||
|
Interest Bearing Debt to Total Capitalization (6)
|
21.2 | % | 20.4 | % | 24.5 | % | 23.8 | % | 23.4 | % | ||||||||||
|
Net Debt to Net Capitalization (7)
|
0.4 | % | 8.1 | % | 4.2 | % | 11.7 | % | 13.7 | % | ||||||||||
| (1) | Cost of Sales includes a charge for the expensing of stock options of $1.1, $1.1, $1.0 and $0.9 million in 2009, 2008, 2007 and 2006, respectively, and Redeployment Program costs $1.6 and $2.1 million in 2007 and 2006, respectively. | |
| (2) | Selling, Research & Development and Administrative includes a charge of $8.7, $10.0, $13.0 and $12.4 million for the expensing of stock options in 2009, 2008, 2007 and 2006, respectively, and French R&D tax credit of $5.7, $2.1, $2.0, and $1.2 million in 2008, 2007, 2006 and 2005, respectively. | |
| (3) | Net Income includes a charge for the expensing of stock options of $7.3, $8.0, $10.5 and $8.7 million in 2009, 2008, 2007 and 2006, respectively, and Redeployment Program costs of $1.1 and $1.4 million in 2007 and 2006, respectively. | |
| (4) | Net Income per basic and diluted common share includes the negative effects of $0.11, $0.12, $0.15 and $0.12 for the expensing of stock options in 2009, 2008, 2007 and 2006, respectively, and $0.02 and $0.03 for Redeployment Program costs in 2007 and 2006, respectively | |
| (5) | Net Debt is interest bearing debt less cash and cash equivalents. | |
| (6) | Total Capitalization is AptarGroup, Inc. Stockholders’ Equity plus interest bearing debt. | |
| (7) | Net Capitalization is AptarGroup, Inc. Stockholders’ Equity plus Net Debt. |
12 /ATR
2009
Form 10-K
Table of Contents
ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF CONSOLIDATED
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In thousands, expect per share amounts or otherwise
indicated)
The objective of the following Management’s Discussion and
Analysis of Consolidated Results of Operations and Financial
Condition (“MD&A”) is to help the reader
understand the financial performance of AptarGroup, Inc.
MD&A is presented in eight sections: Overview, Results of
Operations, Off-Balance Sheet Arrangements, Overview of
Contractual Obligations, Adoption of Accounting Standards,
Critical Accounting Policies and Estimates, Operations Outlook
and Forward-Looking Statements. MD&A should be read in
conjunction with our consolidated financial statements and
accompanying Notes to Consolidated Financial Statements
contained elsewhere in this Report on
Form 10-K.
In MD&A, “we,” “our,” “us,”
“AptarGroup,” “AptarGroup, Inc.” and
“the Company” refer to AptarGroup, Inc. and its
subsidiaries.
OVERVIEW
GENERAL
We are a leading global supplier of a broad range of innovative
dispensing systems for the personal care, fragrance/cosmetic,
pharmaceutical, household and food/beverage markets. We focus on
providing value-added dispensing systems (pumps, closures and
aerosol valves) to global consumer product marketers to allow
them to differentiate their products and meet consumers’
need for convenience.
2009 was one of the most challenging years in our history
but the strong fourth quarter results were encouraging. The
global economic crisis touched all of our segments as consumer
spending was greatly reduced. Also, our customers were cautious
throughout most of the year and, as a result, they reduced their
inventory levels particularly in the first half of the year.
This caused order quantities to decline which hampered our
ability to grow our sales. However, as we have done in the past,
we managed to reduce costs without affecting our ability to
quickly respond to our customers when the markets stabilize. Our
operations in the developing countries did well as demand for
our products remained strong in those regions and the continued
conversion to convenient dispensing systems in the food and
beverage markets was a positive driver for our Closures segment.
The competitive pricing environment, faced particularly by our
Beauty & Home and Closures segments, remained
challenging throughout the year.
2009
HIGHLIGHTS
| • | Sales volumes declined on general economic weakness, however all segments remained profitable. |
| • | Certain regions and markets stabilized in the second half of 2009 leading to improved sales and compared to over the first half. |
| • | Cost saving efforts favorably impacted our results. |
| • | Underutilized capacity negatively impacted Beauty & Home segment income. |
| • | Reported charges of $7.6 million for facilities consolidation and other severance costs. |
13 /ATR
2009
Form 10-K
Table of Contents
RESULTS OF
OPERATIONS
The following table sets forth the consolidated statements of
income and the related percentages of net sales for the periods
indicated:
| Years Ended December 31, | 2009 | 2008 | 2007 | |||||||||||||||||||||
|
Amount in
|
% of
|
Amount in
|
% of
|
Amount in
|
% of
|
|||||||||||||||||||
| $ Thousands | Net Sales | $ Thousands | Net Sales | $ Thousands | Net Sales | |||||||||||||||||||
|
Net sales
|
$ | 1,841,616 | 100.0 | % | $ | 2,071,685 | 100.0 | % | $ | 1,892,167 | 100.0 | % | ||||||||||||
|
Cost of sales (exclusive of depreciation shown below)
|
1,225,670 | 66.6 | 1,411,275 | 68.1 | 1,283,773 | 67.9 | ||||||||||||||||||
|
Selling, research & development and administrative
|
276,989 | 15.0 | 295,094 | 14.2 | 272,077 | 14.4 | ||||||||||||||||||
|
Depreciation and amortization
|
133,013 | 7.2 | 131,145 | 6.3 | 123,466 | 6.5 | ||||||||||||||||||
|
Facilities consolidation and severance expense
|
7,563 | 0.4 | — | — | — | — | ||||||||||||||||||
|
Operating income
|
198,381 | 10.8 | 234,171 | 11.3 | 212,851 | 11.2 | ||||||||||||||||||
|
Other expense
|
(14,323 | ) | (0.8 | ) | (7,445 | ) | (0.4 | ) | (10,770 | ) | (0.5 | ) | ||||||||||||
|
Income from continuing operations before income taxes
|
184,058 | 10.0 | % | 226,726 | 10.9 | % | 202,081 | 10.7 | % | |||||||||||||||
|
Income from continuing operations
|
124,597 | 6.8 | % | 153,501 | 7.4 | % | 139,474 | 7.4 | % | |||||||||||||||
|
Effective tax rate
|
32.3 | % | 32.3 | % | 31.0 | % | ||||||||||||||||||
|
Income from discontinued operations net of tax
|
— | — | — | — | 2,232 | 0.1 | % | |||||||||||||||||
NET
SALES
Net sales decreased more than 11% in 2009 to $1.8 billion
compared to $2.1 billion recorded in 2008. The
U.S. dollar strengthened against several currencies
including the Euro (our primary foreign currency exposure) in
2009 compared to 2008, and as a result, changes in exchange
rates negatively impacted sales and accounted for approximately
5% of the 11% sales decline. Sales related to acquisitions were
approximately $12.9 million. The remaining 7% of sales
decline was due primarily to the weakness of our
Beauty & Home segment as fragrance/cosmetic sales were
significantly impacted by the challenging general economic
conditions in 2009. Pricing was also negatively impacted
primarily due to lower resin pass-through to customers.
In 2008, net sales increased more than 9% in 2008 to nearly
$2.1 billion compared to $1.9 billion recorded in
2007. The U.S. dollar weakened against several currencies
including the Euro in 2008 compared to 2007, and as a result,
changes in exchange rates positively impacted sales and
accounted for approximately 4% of the 9% sales growth.
Approximately $9 million of the $180 million increase
in net sales (less than 1% of the 9% increase) related to
acquisitions completed during 2008. The remaining 4% of sales
growth was due primarily to the strength of our Pharma segment.
Sales price increases were primarily pass-throughs of the raw
material cost increases we incurred during the year.
For further discussion on net sales by reporting segment, please
refer to the segment analysis of net sales and operating income
on the following pages.
The following table sets forth, for the periods indicated, net
sales by geographic location:
| Years Ended December 31, | 2009 | % of Total | 2008 | % of Total | 2007 | % of Total | ||||||||||||||||||
|
Domestic
|
$ | 519,671 | 28% | $ | 531,054 | 26% | $ | 498,231 | 26% | |||||||||||||||
|
Europe
|
1,073,035 | 58% | 1,288,667 | 62% | 1,180,443 | 63% | ||||||||||||||||||
|
Other Foreign
|
248,910 | 14% | 251,964 | 12% | 213,493 | 11% | ||||||||||||||||||
COST OF SALES
(EXCLUSIVE OF DEPRECIATION SHOWN BELOW)
Our cost of sales as a percentage of net sales decreased in 2009
to 66.6% compared to 68.1% in 2008.
The following factors positively impacted our cost of sales
percentage in 2009:
Cost Reduction Efforts.
We implemented cost
reduction programs to bring costs in line with current
production levels.
Declining Resin Costs.
Resin costs declined
during 2009 compared to 2008. While the majority of these input
costs decreases are passed along to our customers in our selling
prices, we experience a normal lag in the timing of passing on
these cost decreases.
14 /ATR
2009
Form 10-K
Table of Contents
Strengthening of the U.S. Dollar.
We are
a net importer from Europe into the U.S. and other
countries of products produced in Europe with costs denominated
in Euros. As a result, when the U.S. dollar or other
currencies strengthen against the Euro, products produced in
Europe (with costs denominated in Euros) and sold in currencies
that are stronger compared to the Euro have a positive impact on
cost of sales as a percentage of net sales.
Favorable Product Mix.
Increases in the
percentage of sales of our products to the pharmaceutical
market, which traditionally generate higher margins, helped
positively impact our cost of sales percentage in 2009.
The following factors negatively impacted our cost of sales
percentage in 2009:
Underutilized Overhead Costs in Certain
Operations.
Several of our business operations,
especially in the Beauty & Home business segment, saw
a decrease in unit volumes sold. As a result of the lower
production levels, overhead costs were underutilized, thus
negatively impacting cost of goods sold as a percentage of net
sales.
Last in First Out (“LIFO”) Inventory
Valuation.
Some of our U.S. operations use
LIFO as their inventory valuation method. As some material
costs, namely resins, increased at the end of the fourth
quarter, the increase to the LIFO reserve in 2009 was
approximately $0.4 million, thus negatively impacting our
cost of sales percentage in 2009.
In 2008, our cost of sales as a percentage of net sales
increased slightly in 2008 to 68.1% compared to 67.9% in 2007.
The following factors negatively impacted our cost of sales
percentage in 2008:
Rising Input Costs.
Input costs, in particular
resin, tinplate, utilities and transportation costs, continued
to increase through the third quarter of 2008 over 2007,
primarily in the U.S. and Europe, but also in the rest of
the world. While we attempt to pass these rising input costs
along in our selling prices we experience a lag in the timing of
passing on these cost increases. We experienced decreases in
certain material costs towards the end of the fourth quarter.
However, the effects of these decreases do not offset the
increases taken during the first nine months of the year.
Weakening of the U.S. Dollar.
We are a
net importer from Europe into the U.S. and other countries
of products produced in Europe with costs denominated in Euros.
As a result, when the U.S. dollar or other currencies
weaken against the Euro, products produced in Europe (with costs
denominated in Euros) and sold in currencies that are weaker
compared to the Euro have a negative impact on cost of sales as
a percentage of net sales.
Underutilized Overhead Costs in Certain
Operations.
Certain of our business operations in
the Beauty & Home and Closures business segments saw a
decrease in unit volumes sold and as a result of the lower
production levels, overhead costs were underutilized, thus
negatively impacting cost of goods sold as a percentage of net
sales.
The following factors positively impacted our cost of sales
percentage in 2008:
Favorable Product Mix.
Increased sales of our
products to the pharmaceutical market, which traditionally
generate higher margins, helped positively impact our cost of
sales percentage in 2008.
Last in First Out (“LIFO”) Inventory
Valuation.
As mentioned above, some of our
U.S. operations use LIFO as their inventory valuation
method. As some material costs, namely resins, dramatically
decreased at the end of the fourth quarter, the decrease to the
LIFO reserve in 2008 was approximately $2.3 million, thus
positively impacting our cost of sales percentage in 2008.
SELLING,
RESEARCH & DEVELOPMENT AND ADMINISTRATIVE
Our Selling, Research & Development and Administrative
expenses (“SG&A”) decreased approximately 6% or
$18.1 million in 2009. Changes in currency rates accounted
for approximately $6.8 of the decrease. The remainder of the
decrease is due primarily to cost savings efforts as mentioned
above. However, SG&A as a percentage of net sales increased
to 15.0% compared to 14.2% of net sales in the same period of
the prior year primarily due to lower sales volumes.
In 2008, our SG&A increased approximately 8% or
$23.0 million. Changes in currency rates accounted for
approximately $13.1 million of the increase or 5% of the 8%
increase. The remaining increase is primarily due to
inflationary cost increases, higher bad debt expense and higher
professional fees related to several corporate initiatives.
SG&A expenses as a percentage of sales remained relatively
consistent with the prior year at 14.2% in 2008 compared to
14.4% in 2007.
DEPRECIATION AND
AMORTIZATION
Depreciation and amortization expense increased 1% or
$1.9 million in 2009 to $133.0 million compared to
$131.1 million in 2008. Changes in currency rates reduced
depreciation and amortization expense by approximately
$5.6 million. The increase in depreciation and amortization
after the change in currency rates is primarily due to the
implementation of our worldwide enterprise reporting system.
Depreciation and amortization expense increased to 7.2% of net
sales in 2009 compared to 6.3% in 2008 mainly due to the
implementation of our worldwide enterprise reporting system and
the write-off of unutilized assets combined with lower sales
volumes.
In 2008, depreciation and amortization expense increased 6% or
$7.7 million. Changes in currency rates accounted for
approximately $6.7 million of the increase. Depreciation
and amortization expense decreased to 6.3% of net sales in 2008
compared to 6.5% in 2007.
15 /ATR
2009
Form 10-K
Table of Contents
FACILITIES
CONSOLIDATION AND SEVERANCE EXPENSE
Facilities consolidation and severance expenses were
$7.6 million (0.4% of sales) in 2009. There were no
corresponding expenses in 2008 or 2007. The amount represents
the recognition of expenses related to the Company’s plan
to consolidate several facilities and reduce headcount. The
total costs associated with the consolidation/severance programs
are estimated to be approximately $8 million. Annual
savings are estimated to be in the range of $3 million to
$4 million primarily beginning in 2010.
OPERATING
INCOME
Operating Income decreased approximately $35.8 million or
15% to $198.4 million. The decrease is primarily due to the
decrease in sales of our products, particularly in the
Beauty & Home segment, the strengthening of the
U.S. dollar compared to the Euro which is having a negative
impact on the translation of our results in U.S. dollars,
the increased amount of depreciation reported in 2009 and the
impact of the facilities consolidation and severance program
discussed above. Operating income as a percentage of sales
decreased to 10.8% in 2009 compared to 11.3% in 2008 primarily
for the same reasons.
In 2008, operating income increased approximately
$21.3 million or 10% to $234.2 million. The increase
in operating income is primarily due to the increase in sales of
our products to the pharmaceutical market and the relative
strength of the euro compared to the U.S. dollar which has
an additive effect on the translation of our European results.
This was partially offset by higher input and SG&A costs as
mentioned above. 2008 operating income as a percentage of sales
remained consistent with 2007 at 11.3%.
NET OTHER
EXPENSES
Net other expenses in 2009 increased to $14.3 million
compared to $7.5 million in 2008 principally reflecting the
lower interest income of $9.8 million partially offset by
lower interest expense of $2.2 million due to lower
interest rates and lower external borrowings in 2009 compared to
2008.
In 2008, net other expenses decreased to $7.5 million
compared to $10.7 million in 2007 principally reflecting
the higher interest income of $4.2 million due to higher
average cash balances in 2008 compared to 2007, offset partially
by higher foreign currency losses of $1.7 million.
EFFECTIVE TAX
RATE ON INCOME FROM CONTINUING OPERATIONS
The reported effective tax rate on income from continuing
operations for 2009 and 2008 was 32.3%. The stable tax rate for
2009 includes the tax cost associated with an increase in
dividend repatriation from Europe in 2009 offset by a change in
the mix of income earned by country and savings from special
elections available in Italy during 2009.
In 2008, the reported effective tax rate for 2008 increased to
32.3% compared to 31.0% in 2007. The increase in the tax
provision for 2008 reflects primarily a change in the mix of
income earned by country. This increase was partially offset by
the benefits from tax changes that became effective in the
current year related to lower tax rates in Germany and Italy.
INCOME FROM
CONTINUING OPERATIONS
We reported income from continuing operations of
$124.6 million in 2009 compared to $153.5 million
reported in 2008 and $139.5 million reported in 2007.
INCOME FROM
DISCONTINUED OPERATIONS
In the fourth quarter of 2007, we sold our Australian operation
for approximately $6.7 million in cash and generated a gain
on the sale of approximately $3.9 million before tax or
$2.2 million after tax. Due to the immateriality of the
results of the Australian operation, only the net gain of
$2.2 million is reported in the Consolidated Statements of
Income in the line Income From Discontinued Operations Net of
Tax.
NET
INCOME
We reported net income of $124.6 million in 2009 compared
to $153.5 million reported in 2008 and $141.7 million
reported in 2007.
BEAUTY &
HOME SEGMENT
|
% Change
|
% Change
|
|||||||||||||||||
| Years Ended December 31, | 2009 | 2008 | 2007 | 2009 vs. 2008 | 2008 vs. 2007 | |||||||||||||
|
Net Sales
|
$ | 920,669 | $ | 1,072,478 | $ | 1,005,218 | (14 | .2)% | 6 | .7% | ||||||||
|
Segment Income (1)
|
58,844 | 89,724 | 95,635 | (34 | .4) | (6 | .2) | |||||||||||
|
Segment Income as a percentage of Net Sales
|
6.4% | 8.4% | 9.5% | |||||||||||||||
| (1) | Segment income is defined as earnings before net interest, corporate expenses and income taxes and unusual items. The Company evaluates performance of its business units and allocates resources based upon segment income. For a reconciliation of segment income to income before income taxes, see Note 17 to the Consolidated Financial Statements in Item 8. |
Net sales decreased approximately 14% in 2009 to
$920.7 million compared to $1.1 billion in 2008. The
strengthening U.S. dollar compared to the Euro negatively
impacted sales and represented approximately 5% of the decrease
while
16 /ATR
2009
Form 10-K
Table of Contents
acquisitions were immaterial. The remaining 9% of the sales
decrease was due mainly to declines in our fragrance/cosmetic
and household markets. Sales excluding changes in exchange rates
of our products to the fragrance/cosmetic and household markets
decreased approximately 15% and 3%, respectively, in 2009 due to
the economic conditions felt mainly in North America and Europe.
However, fragrance/cosmetic and household sales to our
developing markets such as Latin America and Southeast Asia
continued to grow. The overall decrease in sales to the
fragrance/cosmetic market was partially offset by sales to our
personal care market. Sales excluding changes in exchange rates
of our products to the personal care market increased 2% in 2009
mainly due to the increase in sales of our dispensing systems
used on hand sanitizers and anti-bacterial products related to
increased H1N1 flu awareness.
In 2008, net sales increased approximately 7% in 2008 to
$1.1 billion compared to $1.0 billion in 2007. The
weakening U.S. dollar compared to the Euro positively
impacted the sales increase and represented approximately 5% of
the increase while acquisitions were immaterial. The remaining
2% of the increase in sales was led by increased demand for our
products from the fragrance/cosmetic market. Sales excluding
changes in exchange rates of our products to the
fragrance/cosmetic market increased approximately 4% in 2008
reflecting a continued growth in developing markets such as
Latin America and Southeast Asia. Sales to Eastern Europe, the
U.S. and parts of Western Europe were down in the second half of
the year due to general economic conditions. Sales excluding
changes in exchange rates of our products to the personal care
and household markets were flat and down 4%, respectively, in
2008. We did not see any erosion in our customer base, but again
attribute this softness to the general economic conditions.
Segment income decreased approximately 34% to $58.8 million
in 2009 compared to $89.7 million reported in 2008.
Acquisitions did not materially impact segment income during the
year. The decrease in segment income of $30.9 million is
due primarily to the reduction in sales (particularly to the
fragrance/cosmetic market), underutilized overhead and the
negative impact of a $1.5 million charge related to
facilities consolidation and severance expenses. Although
significant cost reduction activities were implemented during
the year, it was not enough to offset the decline in sales
volume, particularly in the first half of the year.
In 2008, segment income decreased approximately 6% to
$89.7 million in 2008 compared to $95.6 million
reported in 2007. The decrease in segment income of
$5.9 million was due primarily to the significant increase
in input costs for the first nine months of the year and our
inability to pass on these costs fast enough to our customers.
In addition, soft general economic conditions in the fourth
quarter lead to underutilized capacity at some of our operations.
CLOSURES
SEGMENT
|
% Change
|
% Change
|
|||||||||||||||||||
| Years Ended December 31, | 2009 | 2008 | 2007 | 2009 vs. 2008 | 2008 vs. 2007 | |||||||||||||||
|
Net Sales
|
$ | 490,548 | $ | 541,745 | $ | 493,000 | (9 | .5)% | 9 | .9% | ||||||||||
|
Segment Income
|
49,769 | 43,934 | 48,217 | 13 | .3 | (8 | .9) | |||||||||||||
|
Segment Income as a percentage of Net Sales
|
10.1% | 8.1% | 9.8% | |||||||||||||||||
Net sales to the Closures segment decreased more than 9% in 2009
to $490.5 million compared to $541.7 million in 2008.
The strengthening U.S. dollar compared to the Euro
negatively impacted the sales decrease and represented
approximately 5% of the decrease while an acquisition
represented a favorable impact of 2%. Excluding changes in
exchange rates and acquisitions, sales decreased 6% in 2009
compared to the same period of the prior year. Decreases in
resin prices led to lower selling prices due to the pass through
nature of this business and represented approximately 7% of the
decline. Tooling sales excluding foreign currency and
acquisitions also declined $12.7 million compared to the
prior year. Sales excluding foreign currency changes to the
personal care and household markets decreased approximately 9%
and 16%, respectively, during 2009 compared to the same period
in the prior year primarily due to the resin price pass through
discussed above. An 8% increase in sales to the food and
beverage market excluding currency changes was also adversely
impacted by lower resin price pass through.
In 2008, net sales to the Closures segment increased nearly 10%
in 2008 to $541.7 million compared to $493.0 million
in 2007. The weakening U.S. dollar compared to the Euro
positively impacted the sales increase and represented
approximately 4% of the increase. Of the remaining 6% growth,
increased selling prices due to the rising cost of resin
accounted for approximately 4% of the increase while sales of
custom tooling contributed 1%. 2008 also represented two
dramatically different halves of business for the Closures
segment. The first half of the year was positively impacted by
favorable exchange rates (mainly Euro), a higher resin pass
through, and higher tooling sales. Conversely, the second half
of 2008 saw an unfavorable exchange rate impact (Euro, Mexican
Peso, and Brazilian Real) and lower tooling sales, primarily in
Europe. For the full year, sales excluding changes in exchange
rates of our products to the food market increased 19% in 2008
mainly due to new ketchup and salad dressing launches in the
U.S. This increase was offset by a 15% decrease in the
household market during 2008 reflecting the loss of a detergent
cap customer as well as a general slowdown in the closure
personal care market.
Segment income increased 13% to $49.8 million in 2009
compared to $43.9 million in 2008. Included in these
results are approximately $5.7 million of
consolidation/restructuring expenses. The increase in segment
income is primarily due to cost savings activities, the
continued growth of the food/beverage market and the normal
delay in the pass-through of lower resin costs to our customers
during 2009.
17 /ATR
2009
Form 10-K
Table of Contents
In 2008, segment income decreased 9% to $43.9 million in
2008 compared to $48.2 million in 2007. As was the case
with the Beauty and Home segment, rising input costs during the
first nine months of the year and our inability to pass these
increased costs on to customers fast enough coupled with
underutilized fixed overhead costs, particularly in Europe, were
the primary reasons for the decrease in profitability.
PHARMA
SEGMENT
|
% Change
|
% Change
|
|||||||||||||||||||
| Years Ended December 31, | 2009 | 2008 | 2007 | 2009 vs. 2008 | 2008 vs. 2007 | |||||||||||||||
|
Net Sales
|
$ | 430,397 | $ | 457,456 | $ | 393,868 | (5 | .9)% | 16 | .1% | ||||||||||
|
Segment Income
|
123,654 | 129,591 | 105,974 | (4 | .6) | 22 | .3 | |||||||||||||
|
Segment Income as a percentage of
Net Sales |
28.7% | 28.3% | 26.9% | |||||||||||||||||
Net sales to the Pharma segment decreased by nearly 6% in 2009
to $430.4 million compared to $457.5 million in 2008.
The strengthening U.S. dollar compared to the Euro
negatively impacted the sales decrease and represented
approximately 4% of the decrease while acquisitions were
immaterial. The remaining 2% decline is due to softer demand for
both metered dose inhaler valves (“MDI’s”) and
nasal spray pumps sold to the export markets.
In 2008, net sales to the Pharma segment increased more than 16%
in 2008 to $457.5 million compared to $393.9 million
in 2007. Changes in foreign currency rates positively affected
the sales growth and accounted for 6% of the total growth. The
remaining increase is primarily related to increased demand for
our MDI’s used to dispense asthma medications and nasal
spray pumps used to dispense allergy medications.
Segment income decreased 5% to $123.7 million in 2009
compared to $129.6 million reported in 2008. The decrease
in profit is primarily due to lower sales and the impact of
changes in currency exchange rates. Also included in segment
income were $433 thousand related to the
consolidation/restructure expenses.
In 2008, segment income increased 22% to $129.6 million
compared to $106.0 million reported in 2007. The increase
in segment income is primarily due to the higher sales volumes
detailed above.
LIQUIDITY AND
CAPITAL RESOURCES
Our primary sources of liquidity are cash flow provided by our
operations and our revolving credit facility. Cash and
equivalents increased to $333.0 million at the end of 2009
from $192.1 million at the end of 2008. Total short and
long-term interest bearing debt increased to $338.0 million
at the end of 2009 from $291.5 million at the end of 2008.
The ratio of our Net Debt (interest bearing debt less cash and
cash equivalents) to Net Capital (Stockholders’ Equity plus
Net Debt) decreased to 0.4% compared to 8.1% as of
December 31, 2008.
In 2009, our operations provided a record $293.6 million in
cash flow. This compares with $270.2 million in 2008 and
$273.5 million in 2007. In 2009, the lower net income and
higher pension contributions were more than offset by a
reduction in working capital. In 2008 and 2007, we primarily
derived cash flow from operations from earnings before
depreciation and amortization partially offset by an increase in
working capital needs to support the growth of the business.
During 2009, we utilized the majority of the operating cash
flows to finance capital expenditures and share repurchases.
We used $151.1 million in cash for investing activities
during 2009, compared to $225.5 million during 2008 and
$131.2 million in 2007. This decrease in cash used for
investing activities in 2009 is primarily due to decreased
capital expenditures compared to the prior year and
$12 million less cash spent for acquisitions of businesses
in 2009 compared to 2008. Capital expenditures totaled
$144.9 million in 2009, $203.6 million in 2008 and
$137.9 million in 2007. Each year we invest in property,
plant and equipment primarily for new products, capacity
increases, product line extensions and maintenance of business.
We estimate that we will spend approximately $125 million
(assuming current exchange rates) on capital expenditures in
2010.
We used $13.2 million in cash for financing activities
during 2009 compared to $151.6 million in 2008 and
$22.9 million in 2007. We refinanced some of our short term
variable rate debt with a $100 million fixed rate private
placement debt in the third quarter of 2008. $25 million of
the private placement debt has a five year maturity and a fixed
interest rate of 5.41% while the remaining $75 million
matures in ten years and carries a 6.03% fixed interest rate. In
the fourth quarter of 2008, we borrowed $100 million on an
intercompany loan basis from one of our European affiliates,
taking advantage of certain temporary U.S. tax law changes
which enabled us to borrow the money on a short term basis
without adverse U.S. tax consequences. This
$100 million was used to pay down borrowings under our
revolving credit facility in 2008 and the intercompany loan was
retired in 2009 primarily by funds repatriated from the dividend
from Europe.
In 2006, we negotiated an amendment to our revolving credit
facility (including a $50 million increase in the amount of
the facility to $200 million). Under our credit agreement,
interest on borrowings is payable at a rate equal to LIBOR plus
an amount based on our financial condition. We are required to
pay a nominal fee for this commitment based on our financial
condition. The agreement expires on July 31, 2012. The
Company can also request a $100 million increase in the
total amount of the facility. At December 31, 2009, the
amount unused and available under this agreement was
$100 million.
18 /ATR
2009
Form 10-K
Table of Contents
Our revolving credit facility and certain long-term obligations
require us to satisfy certain financial and other covenants
including:
| Requirement | Level at December 31, 2009 | |||
|
Debt to total capital ratio
|
55% | 21% |
Based upon the above debt to total capital ratio covenant we
would have the ability to borrow approximately an additional
$1.2 billion before the 55% requirement was exceeded.
Our foreign operations have historically met cash requirements
with the use of internally generated cash or borrowings. These
foreign subsidiaries have financing arrangements with several
foreign banks to fund operations located outside the U.S., but
all these lines are uncommitted. Cash generated by foreign
operations has generally been reinvested locally. The majority
of our $333.0 million in cash and equivalents is located
outside of the U.S.
We believe we are in a strong financial position and have the
financial resources to meet business requirements in the
foreseeable future. We have historically used cash flow from
operations as our primary source of liquidity. 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, which historically have been the
most significant use of cash for us. A prolonged and significant
reduction in capital expenditure levels could increase future
repairs and maintenance costs as well as have a negative impact
on operating margins if we were unable to invest in new
innovative products.
OFF-BALANCE SHEET
ARRANGEMENTS
We lease certain warehouse, plant and office facilities as well
as certain equipment under noncancelable operating leases
expiring at various dates through the year 2029. Most of the
operating leases contain renewal options and certain equipment
leases include options to purchase during or at the end of the
lease term. Other than operating lease obligations, we do not
have any off-balance sheet arrangements. See the following
section “Overview of Contractual Obligations” for
future payments relating to operating leases.
OVERVIEW OF
CONTRACTUAL OBLIGATIONS
Below is a table of our outstanding contractual obligations and
future payments as of December 31, 2009:
|
2015 and
|
||||||||||||||||||||
| Payment Due by Period | Total | 2010 | 2011-2012 | 2013-2014 | After | |||||||||||||||
|
Long-term debt (1)
|
$ | 229,124 | $ | 24,476 | $ | 50,767 | $ | 28,862 | $ | 125,019 | ||||||||||
|
Capital lease obligations (1)
|
5,607 | 639 | 1,716 | 804 | 2,448 | |||||||||||||||
|
Operating leases
|
44,530 | 14,273 | 17,037 | 4,496 | 8,724 | |||||||||||||||
|
Interest obligations (2)
|
72,480 | 13,980 | 20,121 | 16,364 | 22,015 | |||||||||||||||
|
Required minimum pension contribution (3)
|
— | — | — | — | — | |||||||||||||||
|
Other liabilities reflected on the balance sheet
under GAAP (4) |
34 | 34 | — | — | — | |||||||||||||||
|
Total Contractual Obligations
|
$ | 351,775 | $ | 53,402 | $ | 89,641 | $ | 50,526 | $ | 158,206 | ||||||||||
| (1) | The future payments listed above for capital lease obligations and long-term debt repayments reflect only principal payments. | |
| (2) | Approximately 36% of our total interest bearing debt has variable interest rates. Using our variable rate debt outstanding as of December 31, 2009 of approximately $121.2 million at an average rate of approximately 1.2%, we included approximately $1.5 million of variable interest rate obligations in 2010. No variable interest rate obligations were included in subsequent years. | |
| (3) | Line represents the required minimum pension contribution obligation for the Company’s U.S. plans. At this time, the Company is not required to make a contribution. The Company also makes contributions to its foreign pension plans but amounts are expected to be discretionary in 2010 and future years. Therefore amounts related to these plans are not included in the preceding table. | |
| (4) | Amount included represents the current portion of the liability for uncertain tax positions. Aside from deferred income taxes and minority interest, we have approximately $54.6 million of other deferred long-term liabilities on the balance sheet, which consist primarily of retirement plan obligations as described in Note 9 to the Consolidated Financial Statements and a long-term liability for uncertain tax positions described in Note 6 to the Consolidated Financial Statements. The Company is not able to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease over time. Therefore, the long-term portion of the liability is excluded from the preceding table. |
19 /ATR
2009
Form 10-K
Table of Contents
ADOPTION OF
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued a new
standard establishing the FASB Accounting Standards
Codification
tm
(Codification) as the single source of authoritative accounting
principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial
statements in conformity with GAAP. Rules and interpretive
releases of the Securities and Exchange Commission (SEC) under
authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. The FASB will no longer
issue new standards in the form of Statements, FASB Staff
Positions, or Emerging Issues Task Force Abstracts; instead the
FASB will issue Accounting Standards Updates. Accounting
Standards Updates will not be authoritative in their own right
as they will only serve to update the Codification. The issuance
of this standard and the Codification does not change GAAP. We
have adopted this standard for the current reporting period.
In October 2009, the FASB issued an update to existing guidance
on revenue recognition for arrangements with multiple
deliverables. This update will allow companies to allocate
consideration received for qualified separate deliverables using
estimated selling price for both delivered and undelivered items
when vendor-specific objective evidence or third-party evidence
is unavailable. Additional disclosures discussing the nature of
multiple element arrangements, the types of deliverables under
the arrangements, the general timing of their delivery, and
significant factors and estimates used to determine estimated
selling prices are required. The standard is effective for
fiscal years beginning on or after June 15, 2010. We are
currently evaluating the potential impact of this new standard
but do not believe it will have a material impact on our
financial statements.
In August 2009, the FASB further updated the fair value
measurement guidance to clarify how an entity should measure
liabilities at fair value. The update reaffirms fair value is
based on an orderly transaction between market participants,
even though liabilities are infrequently transferred due to
contractual or other legal restrictions. However, identical
liabilities traded in the active market should be used when
available. When quoted prices are not available, the quoted
price of the identical liability traded as an asset, quoted
prices for similar liabilities or similar liabilities traded as
an asset, or another valuation approach should be used. This
update also clarifies that restrictions preventing the transfer
of a liability should not be considered as a separate input or
adjustment in the measurement of fair value. The guidance
provided in this update is effective for the first reporting
period beginning after issuance. Therefore, we have adopted this
standard for the current reporting period.
In June 2009, the FASB issued a new accounting standard which
provides amendments to previous guidance on the consolidation of
variable interest entities. This standard clarifies the
characteristics that identify a variable interest entity
(“VIE”) and changes how a reporting entity identifies
a primary beneficiary that would consolidate the VIE from a
quantitative risk and rewards calculation to a qualitative
approach based on which variable interest holder has controlling
financial interest and the ability to direct the most
significant activities that impact the VIE’s economic
performance. This statement requires the primary beneficiary
assessment to be performed on a continuous basis. It also
requires additional disclosures about an entity’s
involvement with a VIE, restrictions on the VIE’s assets
and liabilities that are included in the reporting entity’s
consolidated balance sheet, significant risk exposures due to
the entity’s involvement with the VIE, and how its
involvement with a VIE impacts the reporting entity’s
consolidated financial statements. The standard is effective for
fiscal years beginning after November 15, 2009. We are
currently evaluating the potential impact of this new standard
but do not believe it will have a material impact on our
financial statements.
In December 2008, the FASB issued an update to accounting
standards related to an employer’s disclosures about
postretirement benefit plan assets. This update amends the
disclosure requirements for employer’s disclosure of plan
assets for defined benefit pensions and other postretirement
plans. The objective of this update is to provide users of
financial statements with an understanding of how investment
allocation decisions are made, the major categories of plan
assets held by the plans, the inputs and valuation techniques
used to measure the fair value of plan assets, significant
concentration of risk within the company’s plan assets, and
for fair value measurements determined using significant
unobservable inputs a reconciliation of changes between the
beginning and ending balances. The update is effective for
fiscal years ending after December 15, 2009. Therefore, we
have adopted the new disclosure requirements in this reporting
period.
In April 2008, the FASB issued an update to the accounting
standards related to determination of the useful life of
intangible assets. This update amends the factors that should be
considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset
under previous standards in order to improve the consistency
between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value of
the asset and other GAAP. This update is effective on
January 1, 2009. The adoption did not have a material
impact on our financial statements.
In March 2008, the FASB issued an update to disclosures about
derivative instruments and hedging activities. This update
requires enhanced disclosures about an entity’s derivative
and hedging activities, including (i) how and why an entity
uses derivative instruments, (ii) how derivative
instruments and related hedged items are accounted for, and
(iii) how derivative instruments and related hedged items
affect an entity’s financial position, financial
performance, and cash flows. This standard is effective on
January 1, 2009. As this update only required enhanced
disclosures, this standard did not have an impact on the
financial position, results of operations, or cash flows of the
Company.
CRITICAL
ACCOUNTING ESTIMATES
The preparation of the financial statements requires us to make
estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We continually
evaluate
20 /ATR
2009
Form 10-K
Table of Contents
our estimates, including those related to bad debts,
inventories, intangible assets, income taxes, pensions and
contingencies. We base our estimates on historical experience
and on a variety of other assumptions believed to be reasonable
in order to make judgments about the carrying values of assets
and liabilities. Actual results may differ from these estimates
under different assumptions or conditions. We believe the
following critical accounting policies affect our more
significant judgments and estimates used in preparation of our
Consolidated Financial Statements. Management has discussed the
development and selection of these critical accounting estimates
with the audit committee of our Board of Directors and the audit
committee has reviewed our disclosure relating to it in this
Management’s Discussion and Analysis of Consolidated
Results of Operations and Financial Condition
(“MD&A”).
IMPAIRMENT OF
GOODWILL
In accordance with current accounting standards, we evaluate our
goodwill for impairment on an annual basis, or whenever
indicators of impairment exist. Due to the economic uncertainty
in 2009, we evaluated our goodwill for triggering events at the
end of each quarter noting no indicators that a full impairment
assessment was necessary. Accounting standards require that if
the carrying value of a reporting unit for which goodwill exists
exceeds its fair value, an impairment loss is recognized to the
extent that the carrying value of the reporting unit goodwill
exceeds the “implied fair value” of reporting unit
goodwill.
As discussed in Note 4 to the Consolidated Financial
Statements, we have evaluated our goodwill for impairment and
have determined that the fair value of our reporting units
exceeds their carrying value, so we did not recognize an
impairment of goodwill. Goodwill of approximately
$230.6 million is shown on our balance sheet as of
December 31, 2009.
We believe that the accounting estimate related to determining
the fair value of our reporting units is a critical accounting
estimate because: (1) it is highly susceptible to change
from period to period because it requires company management to
make assumptions about the future cash flows for each reporting
unit over several years in the future, and (2) the impact
that recognizing an impairment would have on the assets reported
on our balance sheet as well as our results of operations could
be material. Management’s assumptions about future cash
flows for the reporting units require significant judgment and
actual cash flows in the future may differ significantly from
those forecasted today. The estimate for future cash flows and
its impact on the impairment testing of goodwill is a critical
accounting estimate for all the segments of our business.
In estimating future cash flows, we use internally generated
budgets developed from our reporting units and reviewed by
management. We develop our budgets based upon recent sales
trends for the reporting units, discussions with our customers,
planned timing of new product launches, forecasted capital
expenditure needs, working capital needs, costing factors and
many other variables. From these internally generated budgets, a
projection of cash flows is made based upon expected sales
growth rates and fixed asset and working capital requirements
based upon historical needs. Starting with our 2010 budget
figures we have used sales growth rates of 5% for all three
reporting segments. We have assumed that operating income will
grow by 8% for both the Beauty and Home and Closures reporting
segments while the Pharma segment operating income growth rate
used was the same as the sales growth rate. Capital
expenditures, working capital needs, and taxes and depreciation
are based on historical trends and what is necessary to support
the business in the future. We forecast our cash flows for
4 years and use a terminal value growth rate of 3%. These
assumptions have not changed significantly from the prior year.
A discounted cash flow model is used to discount the future cash
flows back to the present using a weighted-average cost of
capital. Our weighted average cost of capital calculation takes
into consideration market risk premiums in the current equity
and debt markets supplied by third party sources. We perform one
calculation using our current debt to equity ratio. Due to our
strong balance sheet and low debt levels, the weighted average
cost of capital calculation using our current debt to equity
ratio is 8.7%, which is a higher discount rate than if we used
our targeted debt to equity ratio. We have used the same
weighted average cost of capital for all our reporting segments.
This fair value for the reporting unit is then corroborated by
comparing it with a market multiple analysis of the reporting
unit. The market multiple analysis is calculated by using
AptarGroup’s overall EBITDA (earnings before interest,
taxes and depreciation) multiple and applying it to the
reporting unit EBITDA for the current year.
The $230.6 million of goodwill is reported in three
reporting units. Approximately $28.4 million of the
goodwill is allocated to the Pharma reporting segment,
$161.8 million is allocated to the Beauty and Home
reporting segment and $40.3 million is allocated to the
Closures reporting segment. Two of the three reporting units
have fair values, which significantly exceed their carrying
values. The third reporting unit contains approximately
$40.3 million of the total $230.6 million in goodwill
and has the smallest excess of fair value over carrying value of
the three reporting units.
We believe our assumptions used in discounting future cash flows
are appropriately conservative. Any increase in estimated cash
flows would have no impact on the reported carrying amount of
goodwill. However, if our current estimates of cash flow for
this one reporting unit had been 69% lower, the fair value of
the reporting unit would have been lower than the carrying value
thus requiring us to perform an impairment test to determine the
“implied value” of goodwill. The excess of the
approximately $40.3 million in carrying value of goodwill
over the “implied value” of goodwill would need to be
written down for impairment. Without performing the second step
of the goodwill impairment test, it would be difficult to
determine the actual amount of impairment to be recorded, but
theoretically, the full $40.3 million of goodwill would be
at risk for impairment. A full $40.3 million impairment
loss would have reduced Total Assets as of December 31,
2009 by approximately 2% and would have reduced Income From
Continuing Operations Before Income Taxes in 2009 by
approximately 22%.
If we had been required to recognize an impairment loss of the
full $40.3 million, it would likely not have affected our
liquidity and capital resources because, in spite of the
impairment loss, we would have been within the terms of our debt
covenants.
21 /ATR
2009
Form 10-K
Table of Contents
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
We record an allowance for doubtful accounts as an estimate of
the inability of our customers to make their required payments.
We determine the amount of our allowance for doubtful accounts
by looking at a variety of factors. First, we examine an aging
of the accounts receivable in each entity within the Company.
The aging lists past due amounts according to invoice terms. In
addition, we consider the current economic environment, the
credit rating of the customers and general overall market
conditions. In some countries we maintain credit insurance,
which can be used in certain cases of non-payment.
We believe that the accounting estimate related to the allowance
for doubtful accounts is a critical accounting estimate because:
(1) it requires management to make assumptions about the
ability to collect amounts owed from customers in the future,
and (2) changes to these assumptions or estimates could
have a material impact on our results of operations. The
estimate for the allowance for doubtful accounts is a critical
accounting estimate for all of our segments.
When we determine that a customer is unlikely to pay, we record
a charge to bad debt expense in the income statement and an
increase to the allowance for doubtful accounts. When it becomes
certain the customer cannot pay (typically driven by the
customer filing for bankruptcy) we write off the receivable by
removing the accounts receivable amount and reducing the
allowance for doubtful accounts accordingly. In 2009, we added
approximately $0.7 million to the allowance for doubtful
accounts while we wrote off or reduced the allowance for
doubtful accounts by $2.7 million. Please refer to
Schedule II — Valuation and Qualifying Accounts
for activity in the allowance for doubtful accounts over the
past three years.
We had approximately $319.8 million in net accounts
receivable at December 31, 2009. At December 31, 2009,
we had approximately $9.9 million recorded in the allowance
for doubtful accounts to cover all potential future customer
non-payments net of any credit insurance reimbursement we would
potentially recover. We believe our allowance for doubtful
accounts is adequate to cover any future non-payments of our
customers. However, if economic conditions deteriorate
significantly or one of our large customers was to declare
bankruptcy, a larger allowance for doubtful accounts might be
necessary. It is extremely difficult to estimate how much of an
additional reserve would be necessary, but we expect the largest
potential customer balance at any one time would not exceed
$18.0 million. An additional loss of $18.0 million
would reduce our Total Assets as of December 31, 2009 by
approximately 1% and would have reduced Income From Continuing
Operations Before Income Taxes by approximately 10%.
If we had been required to recognize an additional
$18.0 million in bad debt expense, it would likely not have
significantly affected our liquidity and capital resources
because, in spite of the additional expense, we would have been
within the terms of our debt covenants.
VALUATION OF
PENSION BENEFITS
The benefit obligations and net periodic pension cost associated
with our domestic and foreign noncontributory pension plans are
determined using actuarial assumptions. Such assumptions include
discount rates to reflect the time value of money, rate of
employee compensation increases, demographic assumptions to
determine the probability and timing of benefit payments, and
the long-term rate of return on plan assets. The actuarial
assumptions are based upon management’s best estimates,
after consulting with outside investment advisors and actuaries.
Because assumptions and estimates are used, actual results could
differ from expected results.
The discount rate is utilized principally in calculating our
pension obligations, which are represented by the Accumulated
Benefit Obligation (ABO) and the Projected Benefit Obligation
(PBO), and in calculating net periodic benefit cost. In
establishing the discount rate for our foreign plans, we review
a number of relevant interest rates including government
security yields and Aa corporate bond yields. In establishing
the discount rate for our domestic plans, we match the
hypothetical duration of our plans, using a weighted average
duration that is based upon projected cash payments, to a
simulated bond portfolio (Citigroup Pension Index Curve). At
December 31, 2009, the discount rates for our domestic and
foreign plans were 5.90% and 5.55%, respectively.
We believe that the accounting estimates related to determining
the valuation of pension benefits are critical accounting
estimates because: (1) changes in them can materially
affect net income, and (2) we are required to establish the
discount rate and the expected return on fund assets, which are
highly uncertain and require judgment. The estimates for the
valuation of pension benefits are critical accounting estimates
for all of our segments.
To the extent the discount rates increase (or decrease), our PBO
and net periodic benefit cost will decrease (or increase)
accordingly. The estimated effect of a 1% decrease in each
discount rate would be a $19.8 million increase in the PBO
($14.1 million for the domestic plans and $5.7 million
for the foreign plans) and a $2.6 million increase in net
periodic benefit cost ($2.1 million for the domestic plans
and $0.5 million for the foreign plans). To the extent the
PBO increases, the after-tax effect of such increase could
reduce Other Comprehensive Income and Stockholders’ Equity.
The estimated effect of a 1% increase in each discount rate
would be a $15.9 million decrease in the PBO
($11.2 million for the domestic plans and $4.7 million
for the foreign plans) and a $1.4 million decrease in net
periodic benefit cost ($1 million for the domestic plans
and $0.4 million for the foreign plans). A decrease of this
magnitude in the PBO would eliminate a substantial portion of
the related reduction in Other Comprehensive Income and
Stockholders’ Equity.
The assumed expected long-term rate of return on assets is the
average rate of earnings expected on the funds invested to
provide for the benefits included in the PBO. Of domestic plan
assets, approximately 55% was invested in equities, 35% was
invested in fixed income securities, 9% was invested in
infrastructure and 1% was invested in a money market fund at
December 31, 2009. Of foreign plan assets, approximately
17% was invested in equities, 32% was invested in fixed income
securities, 4% was invested in real estate and 47% was invested
in a money market fund at December 31, 2009. The Company
22 /ATR
2009
Form 10-K
Table of Contents
contributed approximately $15.0 million in December 2009 to
partially fund its previously unfunded German pension plans.
These funds were invested in money market funds at
December 31, 2009 and will be reinvested according to the
foreign plan target allocation in 2010.
The expected long-term rate of return assumptions are determined
based on our investment policy combined with expected risk
premiums of equities and fixed income securities over the
underlying risk-free rate. This rate is utilized principally in
calculating the expected return on the plan assets component of
the net periodic benefit cost. To the extent the actual rate of
return on assets realized over the course of a year is greater
or less than the assumed rate, that year’s net periodic
benefit cost is not affected. Rather, this gain (or loss)
reduces (or increases) future net periodic benefit cost over a
period of approximately 15 to 20 years. To the extent the
expected long-term rate of return on assets increases (or
decreases), our net periodic benefit cost will decrease (or
increase) accordingly. The estimated effect of a 1% decrease (or
increase) in each expected long-term rate of return on assets
would be a $0.5 million increase (or decrease) in net
periodic benefit cost.
The average rate of compensation increase is utilized
principally in calculating the PBO and the net periodic benefit
cost. The estimated effect of a 0.5% decrease in each rate of
expected compensation increase would be a $2.4 million
decrease in the PBO ($0.8 million for the domestic plans
and $1.6 million for the foreign plans) and a
$0.5 million decrease to the net periodic benefit cost. The
estimated effect of a 0.5% increase in each rate of expected
compensation increase would be a $2.5 million increase in
the PBO ($0.8 million for the domestic plans and
$1.7 million for the foreign plans) and a $0.4 million
increase to the net periodic benefit cost.
Our primary pension related assumptions as of December 31,
2009 and 2008 were as follows:
| Actuarial Assumptions as of December 31, | 2009 | 2008 | ||||||
|
Discount rate:
|
||||||||
|
Domestic plans
|
5.90% | 6.00% | ||||||
|
Foreign plans
|
5.55% | 5.60% | ||||||
|
Expected long-term rate of return on plan assets:
|
||||||||
|
Domestic plans
|
7.00% | 7.00% | ||||||
|
Foreign plans
|
4.55% | 6.00% | ||||||
|
Rate of compensation increase:
|
||||||||
|
Domestic plans
|
4.00% | 4.00% | ||||||
|
Foreign plans
|
3.00% | 3.00% | ||||||
In order to determine the 2010 net periodic benefit cost,
the Company expects to use the December 31, 2009 discount
rates, rates of compensation increase assumptions and expected
long-term returns on domestic and foreign plan assets. The
estimated impact of the changes to the assumptions as noted in
the table above on our 2010 net periodic benefit cost is
not expected to be significant.
23 /ATR
2009
Form 10-K
Table of Contents
SHARE-BASED
COMPENSATION
The Company uses the Black-Scholes option-valuation model to
value stock options, which requires the input of subjective
assumptions. These assumptions include the length of time
employees will retain their vested stock options before
exercising them (“expected term”), the estimated
volatility of the Company’s stock price, risk-free interest
rate, the expected dividend yield and stock price. The expected
term of the options is based on historical experience of similar
awards, giving consideration to the contractual terms, vesting
schedules and expectations of future employee behavior. The
expected term determines the period for which the risk-free
interest rate and volatility must be applied. The risk-free
interest rate is based on the expected U.S. Treasury rate
over the expected term. Expected stock price volatility is based
on historical volatility of the Company’s stock price.
Dividend yield is management’s long-term estimate of annual
dividends to be paid as a percentage of share price.
For 2009, expense related to share-based compensation was
$9.8 million and represented approximately $0.10 per
diluted share. Future changes in the subjective assumptions used
in the Black-Scholes option-valuation model or estimates
associated with forfeitures could impact our share-based
compensation expense. For example, a 1 year reduction in
the expected term of the options would decrease the
Black-Scholes valuation and reduce share-based compensation by
approximately $0.4 million. On the contrary, a 1 year
increase in the expected term of the option would increase the
Black-Scholes valuation and increase share-based compensation by
approximately $0.3 million. In addition, changes in the
stock price at the date of the grant would impact our
share-based compensation expense. For example, a $5 decrease in
the stock price would decrease the Black-Scholes valuation and
reduce share-based compensation by approximately
$1.0 million. On the contrary, a $5 increase in the stock
price would increase the Black-Scholes valuation and increase
share-based compensation by approximately $0.9 million.
OPERATIONS
OUTLOOK
While we are encouraged by our fourth quarter results, the
current economic uncertainty has not ended. The difficult
unemployment situation in the U.S. and the generally
sluggish economies in Europe will take some time to rebound.
The first quarter 2010 results are expected to show improvement
compared to the prior year. Preliminary indications are that
consumer confidence, primarily in the U.S. and Europe, will
continue to rise and demand for our personal care and
fragrance/cosmetic dispensing systems will be above prior year
levels. Demand for our food and beverage dispensing systems will
be driven by the continued conversion away from non-dispensing
packaging. In addition, we expect stable demand for our unique
drug delivery solutions and services from the pharmaceutical
market.
The U.S. dollar has recently strengthened compared to the
Euro and other currencies but is still weaker than what we
experienced in the first quarter of 2009. Since a majority of
our sales are denominated in Euros, a weaker dollar will have an
additive impact on the translation of our Euro denominated
financial statements into U.S. dollars. However, as we have
mentioned before, we are a net importer of products produced in
European countries with Euro based costs into the U.S. and
sold in U.S. dollars. A weakened U.S. dollar compared
to the Euro makes imported European produced products more
expensive, thereby reducing operating margins. The net impact of
the weakened U.S. dollar is difficult to predict or
estimate, but it is likely that any positive impact realized
from translating Euro denominated financial statements into
U.S. dollars would be partially offset by the higher cost
of imported products.
We expect the annual effective tax rate for 2010 to be in the
range of 32.0% to 33.0% compared to a rate of 32.3% for 2009.
We are anticipating diluted earnings per share for the first
quarter of 2010 to be in the range of $.48 to $.53 per share
compared to $.38 per share recorded in the first quarter of 2009.
24 /ATR
2009
Form 10-K
Table of Contents
FORWARD-LOOKING
STATEMENTS
This Management’s Discussion and Analysis and certain other
sections of this
Form 10-K
contain forward-looking statements that involve a number of
risks and uncertainties. Words such as “expects,”
“anticipates,” “believes,”
“estimates,” and other similar expressions or future
or conditional verbs such as “will,”
“should,” “would” and “could” are
intended to identify such forward-looking statements.
Forward-looking statements are made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and are
based on our beliefs as well as assumptions made by and
information currently available to us. Accordingly, our actual
results may differ materially from those expressed or implied in
such forward-looking statements due to known or unknown risks
and uncertainties that exist in our operations and business
environment, including but not limited to:
| • | economic, environmental and political conditions worldwide; |
| • | changes in customer and/or consumer spending levels; |
| • | the availability of raw materials and components (particularly from sole sourced suppliers) as well as the financial viability of these suppliers; |
| • | the cost of materials and other input costs (particularly resin, metal, anodization costs and transportation and energy costs); |
| • | significant fluctuations in foreign currency exchange rates; |
| • | our ability to increase prices; |
| • | our ability to contain costs and improve productivity; |
| • | changes in capital availability or cost, including interest rate fluctuations; |
| • | our ability to meet future cash flow estimates to support our goodwill impairment testing; |
| • | direct or indirect consequences of acts of war or terrorism; |
| • | difficulties in complying with government regulation; |
| • | competition, including technological advances; |
| • | our ability to protect and defend our intellectual property rights; |
| • | the timing and magnitude of capital expenditures; |
| • | our ability to identify potential new acquisitions and to successfully acquire and integrate such operations or products; |
| • | work stoppages due to labor disputes; |
| • | the demand for existing and new products; |
| • | fiscal and monetary policy, including changes in worldwide tax rates; |
| • | 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; |
| • | our successful implementation of a new worldwide ERP system starting in 2009 without disruption to our operations; |
| • | our ability to implement the strategic realignment of our businesses during 2010, and |
| • | other risks associated with our operations. |
Although we believe that our forward-looking statements are
based on reasonable assumptions, there can be no assurance that
actual results, performance or achievements will not differ
materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. Readers
are cautioned not to place undue reliance on forward-looking
statements. We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new
information, future events or otherwise. Please refer to
Item 1A (“Risk Factors”) of Part I included
in the Company’s Annual Report on
Form 10-K
for additional risk factors affecting the Company.
25 /ATR
2009
Form 10-K
Table of Contents
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET
RISKS
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 British Pound, South
American and Asian currencies, among others. A strengthening
U.S. dollar relative to foreign currencies has a dilutive
translation effect on our financial condition and results of
operations. Conversely, a weakening U.S. dollar has an
additive effect.
Additionally, in some cases, we sell products denominated in a
currency different from the currency in which the related costs
are incurred. Any changes in exchange rates on such
inter-country sales may impact our results of operations.
We manage our exposures to foreign exchange principally with
forward exchange contracts to hedge certain firm purchase and
sales commitments and intercompany cash transactions denominated
in foreign currencies.
The table below provides information, as of December 31,
2009, about our forward currency exchange contracts. The
majority of the contracts expire before the end of the first
quarter of 2010 with the exception of a few contracts on
intercompany loans that expire in the third quarter of 2012.
| In thousands | ||||||||||||
|
Average
|
Min/Max
|
|||||||||||
|
Year Ended December 31, 2009
|
Contractual
|
Notional
|
||||||||||
| Buy/Sell | Contract Amount | Exchange Rate | Volumes | |||||||||
|
Swiss Franc/Euro
|
$ | 45,008 | 0.6626 | $ | 37,666-60,051 | |||||||
|
Euro/U.S. Dollar
|
10,163 | 1.4544 | 9,594-127,391 | |||||||||
|
British Pound/Euro
|
8,457 | 1.1259 | 41-8,457 | |||||||||
|
Czech Koruna/Euro
|
6,917 | 0.0385 | 1,824-6,917 | |||||||||
|
Euro/Swiss Franc
|
5,752 | 1.5062 | 314-17,222 | |||||||||
|
Euro/Brazilian Real
|
5,652 | 4.7538 | 5,652-6,132 | |||||||||
|
Euro/Chinese Yuan
|
1,868 | 9.8824 | 527-1,868 | |||||||||
|
U.S. Dollar/Euro
|
1,200 | 0.6964 | 1,200-11,146 | |||||||||
|
Other
|
4,891 | |||||||||||
|
Total
|
$ | 89,908 | ||||||||||
As of December 31, 2009, the Company has recorded the fair
value of foreign currency forward exchange contracts of
$1.2 million in accounts payable and accrued liabilities,
$902 thousand in prepayments and other and $2.5 million in
deferred and other non-current liabilities in the balance sheet.
At December 31, 2009, we had a
fixed-to-variable
interest rate swap agreement with a notional principal value of
$10 million, which requires us to pay a variable interest
rate (which was 0.4% at December 31, 2009) and receive
a fixed rate of 6.6%. The variable rate is adjusted semiannually
based on London Interbank Offered Rates (“LIBOR”).
Variations in market interest rates would produce changes in our
net income. If interest rates increase by 100 basis points,
net income related to the interest rate swap agreement would
decrease by less than $0.1 million, assuming a tax rate of
32%. As of December 31, 2009, we recorded the fair value of
the
fixed-to-variable
interest rate swap agreement of $0.6 million in
miscellaneous other assets with an offsetting adjustment to
debt. No gain or loss was recorded in the income statement in
2009 as any hedge ineffectiveness for the period is minimal.
As of December 31, 2009, the Company had one foreign
currency cash flow hedge. A French subsidiary of AptarGroup,
AptarGroup Holding SAS, has hedged the risk of variability in
Euro equivalent associated with the cash flows of an
intercompany loan granted in Brazilian Real. The forward
contracts utilized were designated as a hedge of the changes in
the cash flows relating to the changes in foreign currency rates
relating to the loan and related forecasted interest. The
notional amount of the foreign currency forward contracts
utilized to hedge cash flow exposure was 4.2 million
Brazilian Real ($2.4 million) as of December 31, 2009.
The notional amount of the foreign currency forward contracts
utilized to hedge cash flow exposure was 5.5 million
Brazilian Real ($2.4 million) as of December 31, 2008.
During the year ended December 31, 2009, the Company did
not recognize any net gain (loss) as any hedge ineffectiveness
for the period was immaterial, and the Company did not recognize
any net gain (loss) related to the portion of the hedging
instrument excluded from the assessment of hedge effectiveness.
These foreign currency forward contracts hedge forecasted
transactions for approximately two years (March 2012).
26 /ATR
2009
Form 10-K
Table of Contents
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF INCOME
| In thousands, except per share amounts | ||||||||||||
|
Years Ended December 31, |
2009 | 2008 | 2007 | |||||||||
|
Net Sales
|
$ | 1,841,616 | $ | 2,071,685 | $ | 1,892,167 | ||||||
|
Operating Expenses:
|
||||||||||||
|
Cost of sales (exclusive of depreciation shown below)
|
1,225,670 | 1,411,275 | 1,283,773 | |||||||||
|
Selling, research & development and administrative
|
276,989 | 295,094 | 272,077 | |||||||||
|
Depreciation and amortization
|
133,013 | 131,145 | 123,466 | |||||||||
|
Facilities consolidation and severance
|
7,563 | — | — | |||||||||
| 1,643,235 | 1,837,514 | 1,679,316 | ||||||||||
|
Operating Income
|
198,381 | 234,171 | 212,851 | |||||||||
|
Other Income (Expense):
|
||||||||||||
|
Interest expense
|
(16,485 | ) | (18,687 | ) | (19,492 | ) | ||||||
|
Interest income
|
3,333 | 13,120 | 8,918 | |||||||||
|
Equity in results of affiliates
|
164 | 310 | 483 | |||||||||
|
Miscellaneous, net
|
(1,335 | ) | (2,188 | ) | (679 | ) | ||||||
| (14,323 | ) | (7,445 | ) | (10,770 | ) | |||||||
|
Income from Continuing Operations Before Income Taxes
|
184,058 | 226,726 | 202,081 | |||||||||
|
Provision For Income Taxes
|
59,461 | 73,225 | 62,607 | |||||||||
|
Income From Continuing Operations
|
124,597 | 153,501 | 139,474 | |||||||||
|
Income From Discontinued Operations Net of Tax
|
— | — | 2,232 | |||||||||
|
Net Income
|
$ | 124,597 | $ | 153,501 | $ | 141,706 | ||||||
|
Net Loss (Income) Attributable to Noncontrolling interests
|
26 | (6 | ) | 33 | ||||||||
|
Net Income Attributable to AptarGroup, Inc.
|
$ | 124,623 | $ | 153,495 | $ | 141,739 | ||||||
|
Net Income Per Common Share (Basic):
|
||||||||||||
|
Continuing Operations
|
$ | 1.84 | $ | 2.26 | $ | 2.03 | ||||||
|
Discontinued Operations
|
$ | — | $ | — | $ | 0.03 | ||||||
|
Net Income Per Common Share (Basic)
|
$ | 1.84 | $ | 2.26 | $ | 2.06 | ||||||
|
Net Income Per Common Share (Diluted):
|
||||||||||||
|
Continuing Operations
|
$ | 1.79 | $ | 2.18 | $ | 1.95 | ||||||
|
Discontinued Operations
|
$ | — | $ | — | $ | 0.03 | ||||||
|
Net Income Per Common Share (Diluted)
|
$ | 1.79 | $ | 2.18 | $ | 1.98 | ||||||
See accompanying notes to consolidated financial statements.
27 /ATR
2009
Form 10-K
Table of Contents
AptarGroup,
Inc.
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
| In thousands, except per share amounts | ||||||||
| December 31, | 2009 | 2008 | ||||||
|
Assets
|
||||||||
|
Current Assets:
|
||||||||
|
Cash and equivalents
|
$ | 332,964 | $ | 192,072 | ||||
|
Accounts and notes receivable, less allowance for
doubtful accounts of $9,923 in 2009 and $11,900 in 2008 |
319,787 | 343,937 | ||||||
|
Inventories
|
230,807 | 244,775 | ||||||
|
Prepayments and other
|
59,933 | 78,965 | ||||||
| 943,491 | 859,749 | |||||||
|
Property, Plant and Equipment:
|
||||||||
|
Buildings and improvements
|
322,498 | 297,093 | ||||||
|
Machinery and equipment
|
1,612,945 | 1,484,353 | ||||||
| 1,935,443 | 1,781,446 | |||||||
|
Less: Accumulated depreciation
|
(1,190,576 | ) | (1,078,063 | ) | ||||
| 744,867 | 703,383 | |||||||
|
Land
|
19,201 | 17,499 | ||||||
| 764,068 | 720,882 | |||||||
|
Other Assets:
|
||||||||
|
Investments in affiliates
|
898 | 712 | ||||||
|
Goodwill
|
230,578 | 227,041 | ||||||
|
Intangible assets
|
9,088 | 14,061 | ||||||
|
Miscellaneous
|
8,070 | 9,377 | ||||||
| 248,634 | 251,191 | |||||||
|
Total Assets
|
$ | 1,956,193 | $ | 1,831,822 | ||||
See accompanying notes to consolidated financial statements.
28 /ATR
2009
Form 10-K
Table of Contents
AptarGroup,
Inc.
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
| In thousands, except per share amounts | ||||||||
| December 31, | 2009 | 2008 | ||||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current Liabilities:
|
||||||||
|
Notes payable
|
$ | 103,240 | $ | 39,919 | ||||
|
Current maturities of long-term obligations
|
25,115 | 24,700 | ||||||
|
Accounts payable and accrued liabilities
|
288,960 | 310,408 | ||||||
| 417,315 | 375,027 | |||||||
|
Long-Term Obligations
|
209,616 | 226,888 | ||||||
|
Deferred Liabilities and Other:
|
||||||||
|
Deferred income taxes
|
20,992 | 24,561 | ||||||
|
Retirement and deferred compensation plans
|
40,462 | 62,476 | ||||||
|
Deferred and other non-current liabilities
|
14,172 | 11,072 | ||||||
|
Commitments and contingencies
|
— | — | ||||||
| 75,626 | 98,109 | |||||||
|
Stockholders’ Equity:
|
||||||||
|
AptarGroup, Inc. stockholders’ equity
|
||||||||
|
Preferred stock, $.01 par value, 1 million shares
authorized, none outstanding
|
— | — | ||||||
|
Common stock, $.01 par value, 199 million shares
authorized, and 80.6 and 80.1 million issued at 2009 and
2008, respectively
|
806 | 801 | ||||||
|
Capital in excess of par value
|
272,471 | 254,216 | ||||||
|
Retained Earnings
|
1,150,017 | 1,065,998 | ||||||
|
Accumulated other comprehensive income
|
186,099 | 139,300 | ||||||
|
Less: Treasury stock at cost, 13.3 million and
12.5 million shares in 2009 and 2008, respectively
|
(356,548 | ) | (329,285 | ) | ||||
|
Total AptarGroup, Inc. Stockholders’ Equity
|
1,252,845 | 1,131,030 | ||||||
|
Noncontrolling interests in subsidiaries
|
791 | 768 | ||||||
|
Total Stockholders’ Equity
|
1,253,636 | 1,131,798 | ||||||
|
Total Liabilities and Stockholders’ Equity
|
$ | 1,956,193 | $ | 1,831,822 | ||||
See accompanying notes to consolidated financial statements.
29 /ATR
2009
Form 10-K
Table of Contents
AptarGroup,
Inc.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
| In thousands | ||||||||||||
| Years Ended December 31, | 2009 | 2008 | 2007 | |||||||||
|
Cash Flows from Operating Activities:
|
||||||||||||
|
Net income
|
$ | 124,597 | $ | 153,501 | $ | 141,706 | ||||||
|
Adjustments to reconcile net income to net cash provided by
operations:
|
||||||||||||
|
Depreciation
|
127,709 | 124,884 | 118,946 | |||||||||
|
Amortization
|
5,304 | 6,261 | 4,520 | |||||||||
|
Stock option based compensation
|
9,761 | 11,054 | 14,036 | |||||||||
|
Gain on disposition of business, net
|
— | — | (2,232 | ) | ||||||||
|
Provision for bad debts
|
701 | 3,063 | 1,970 | |||||||||
|
Facilities consolidation and severance expenses
|
4,435 | — | (43 | ) | ||||||||
|
Deferred income taxes
|
(1,329 | ) | (1,326 | ) | (11,783 | ) | ||||||
|
Retirement and deferred compensation plans
|
8,698 | 14,202 | 10,084 | |||||||||
|
Equity in results of affiliates in excess of cash distributions
received
|
(164 | ) | (113 | ) | (301 | ) | ||||||
|
Changes in balance sheet items, excluding effects from foreign
currency adjustments:
|
||||||||||||
|
Accounts and notes receivable
|
34,289 | (5,288 | ) | (8,347 | ) | |||||||
|
Inventories
|
21,768 | 16,800 | (26,261 | ) | ||||||||
|
Prepaid and other current assets
|
7,437 | (10,126 | ) | (2,960 | ) | |||||||
|
Accounts payable and accrued liabilities
|
(22,922 | ) | (13,150 | ) | 32,745 | |||||||
|
Income taxes payable
|
(2,947 | ) | (23,327 | ) | 8,357 | |||||||
|
Retirement and deferred compensation plan contributions
|
(32,483 | ) | (12,638 | ) | (8,275 | ) | ||||||
|
Other changes, net
|
8,737 | 6,414 | 1,301 | |||||||||
|
Net cash provided by operations
|
293,591 | 270,211 | 273,463 | |||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||
|
Capital expenditures
|
(144,926 | ) | (203,600 | ) | (137,944 | ) | ||||||
|
Disposition of property and equipment
|
1,670 | 585 | 6,232 | |||||||||
|
Intangible assets
|
(308 | ) | (1,323 | ) | (1,195 | ) | ||||||
|
Acquisition of business, net of cash acquired
|
(7,577 | ) | (19,501 | ) | (5,151 | ) | ||||||
|
Disposition of business
|
— | — | 6,653 | |||||||||
|
Investment in affiliates
|
— | (801 | ) | — | ||||||||
|
Notes receivable, net
|
77 | (901 | ) | 162 | ||||||||
|
Net cash used by investing activities
|
(151,064 | ) | (225,541 | ) | (131,243 | ) | ||||||
|
Cash Flows from Financing Activities:
|
||||||||||||
|
Proceeds from notes payable
|
63,670 | — | 88,699 | |||||||||
|
Repayments of notes payable
|
— | (149,123 | ) | — | ||||||||
|
Proceeds from long-term obligations
|
9,626 | 100,650 | 1,298 | |||||||||
|
Repayments of long-term obligations
|
(26,993 | ) | (25,227 | ) | (26,030 | ) | ||||||
|
Dividends paid
|
(40,604 | ) | (38,063 | ) | (34,439 | ) | ||||||
|
Proceeds from stock option exercises
|
8,879 | 13,913 | 19,050 | |||||||||
|
Purchase of treasury stock
|
(29,623 | ) | (57,569 | ) | (76,391 | ) | ||||||
|
Excess tax benefit from exercise of stock options
|
1,859 | 3,797 | 4,910 | |||||||||
|
Net cash used by financing activities
|
(13,186 | ) | (151,622 | ) | (22,903 | ) | ||||||
|
Effect of Exchange Rate Changes on Cash
|
11,551 | (14,715 | ) | 23,846 | ||||||||
|
Net increase/(decrease) in Cash and Equivalents
|
140,892 | (121,667 | ) | 143,163 | ||||||||
|
Cash and Equivalents at Beginning of Period
|
192,072 | 313,739 | 170,576 | |||||||||
|
Cash and Equivalents at End of Period
|
$ | 332,964 | $ | 192,072 | $ | 313,739 | ||||||
|
Supplemental Cash Flow Disclosure:
|
||||||||||||
|
Interest paid
|
$ | 17,538 | $ | 16,057 | $ | 19,981 | ||||||
|
Income taxes paid
|
60,931 | 76,002 | 63,336 | |||||||||
|
Capital lease obligations
|
— | — | — | |||||||||
See accompanying notes to consolidated financial statements.
30 /ATR
2009
Form 10-K
Table of Contents
AptarGroup,
Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2009, 2008 and 2007
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2009, 2008 and 2007
| in thousands | ||||||||||||||||||||||||||||||||
| AptarGroup, Inc. Stockholders’ Equity | ||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||
|
Other
|
Common
|
Capital in
|
Non-
|
|||||||||||||||||||||||||||||
|
Comprehensive
|
Retained
|
Comprehensive
|
Stock
|
Treasury
|
Excess of
|
Controlling
|
Total
|
|||||||||||||||||||||||||
| Income | Earnings | Income/(Loss) | Par Value | Stock | Par Value | Interest | Equity | |||||||||||||||||||||||||
|
Balance – December 31, 2006:
|
$ | 844,921 | $ | 109,505 | $ | 392 | $ | (203,761 | ) | $ | 195,343 | $ | 564 | $ | 946,964 | |||||||||||||||||
|
Net income
|
$ | 141,706 | 141,739 | (33 | ) | 141,706 | ||||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
103,779 | 103,757 | 22 | 103,779 | ||||||||||||||||||||||||||||
|
Changes in unrecognized pension gains/losses and related
amortization, net of tax
|
1,014 | 1,014 | 1,014 | |||||||||||||||||||||||||||||
|
Net gain on Derivatives, net of tax
|
18 | 18 | 18 | |||||||||||||||||||||||||||||
|
Comprehensive income
|
$ | 246,517 | ||||||||||||||||||||||||||||||
|
Cumulative effect of accounting change
|
(1,655 | ) | (1,655 | ) | ||||||||||||||||||||||||||||
|
Stock option exercises & restricted stock vestings
|
9 | 4,494 | 34,072 | 38,575 | ||||||||||||||||||||||||||||
|
Adjustment for stock split
|
393 | (393 | ) | — | ||||||||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(34,439 | ) | (34,439 | ) | ||||||||||||||||||||||||||||
|
Treasury stock purchased
|
(76,391 | ) | (76,391 | ) | ||||||||||||||||||||||||||||
|
Balance – December 31, 2007:
|
$ | 950,566 | $ | 214,294 | $ | 794 | $ | (275,658 | ) | $ | 229,022 | $ | 553 | $ | 1,119,571 | |||||||||||||||||
|
Net income
|
$ | 153,501 | 153,495 | 6 | 153,501 | |||||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
(61,229 | ) | (61,250 | ) | 21 | (61,229 | ) | |||||||||||||||||||||||||
|
Changes in unrecognized pension gains/losses and related
amortization, net of tax
|
(13,164 | ) | (13,164 | ) | (13,164 | ) | ||||||||||||||||||||||||||
|
Treasury Locks, net of tax
|
(595 | ) | (595 | ) | (595 | ) | ||||||||||||||||||||||||||
|
Net gain on Derivatives, net of tax
|
15 | 15 | 15 | |||||||||||||||||||||||||||||
|
Comprehensive income
|
$ | 78,528 | ||||||||||||||||||||||||||||||
|
Stock option exercises & restricted stock vestings
|
7 | 3,942 | 25,194 | 29,143 | ||||||||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(38,063 | ) | (38,063 | ) | ||||||||||||||||||||||||||||
|
Noncontrolling interest in entity acquired
|
188 | 188 | ||||||||||||||||||||||||||||||
|
Treasury stock purchased
|
(57,569 | ) | (57,569 | ) | ||||||||||||||||||||||||||||
|
Balance – December 31, 2008:
|
$ | 1,065,998 | $ | 139,300 | $ | 801 | $ | (329,285 | ) | $ | 254,216 | $ | 768 | $ | 1,131,798 | |||||||||||||||||
|
Net income
|
$ | 124,597 | 124,623 | (26 | ) | 124,597 | ||||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
44,978 | 44,929 | 49 | 44,978 | ||||||||||||||||||||||||||||
|
Changes in unrecognized pension gains/losses and related
amortization, net of tax
|
1,790 | 1,790 | 1,790 | |||||||||||||||||||||||||||||
|
Changes in treasury locks, net of tax
|
80 | 80 | 80 | |||||||||||||||||||||||||||||
|
Net gain on Derivatives, net of tax
|
— | — | — | |||||||||||||||||||||||||||||
|
Comprehensive income
|
$ | 171,445 | ||||||||||||||||||||||||||||||
|
Stock option exercises & restricted stock vestings
|
5 | 2,708 | 18,255 | 20,968 | ||||||||||||||||||||||||||||
|
Cash dividends declared on common stock
|
(40,604 | ) | (40,604 | ) | ||||||||||||||||||||||||||||
|
Treasury stock purchased
|
(29,971 | ) | (29,623 | ) | ||||||||||||||||||||||||||||
|
Balance – December 31, 2009:
|
$ | 1,150,017 | $ | 186,099 | $ | 806 | $ | (356,548 | ) | $ | 272,471 | $ | 791 | $ | 1,253,636 | |||||||||||||||||
See accompanying notes to consolidated financial statement.
31 /ATR
2009
Form 10-K
Table of Contents
AptarGroup,
Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Amounts in thousands unless otherwise indicated)
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF
BUSINESS
AptarGroup, Inc. is a global company that designs, manufactures
and sells consumer product dispensing systems. The Company
focuses on providing value-added components to a variety of
global consumer product marketers in the personal care,
fragrance/cosmetic, pharmaceutical, household and food/beverage
industries. The Company has manufacturing facilities located
throughout the world including North America, Europe, Asia and
South America.
BASIS OF
PRESENTATION
The accompanying consolidated financial statements include the
accounts of AptarGroup, Inc. and its subsidiaries. The terms
“AptarGroup” or “Company” as used herein
refer to AptarGroup, Inc. and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Certain previously reported amounts have been reclassified to
conform to the current period presentation. In 2009, the Company
revised its presentation relating to French research and
development tax credits by reclassifying amounts from Provision
for Income Taxes to Selling, Research & Development
and Administrative.
ACCOUNTING
ESTIMATES
The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of
America (“GAAP”). This process requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
CASH
MANAGEMENT
The Company considers all highly liquid investments with an
original maturity of three months or less when purchased to be
cash equivalents.
INVENTORIES
Inventories are stated at cost, which is lower than market.
Costs included in inventories are raw materials, direct labor
and manufacturing overhead. The costs of certain domestic and
foreign inventories are determined by using the
last-in,
first-out (“LIFO”) method, while the remaining
inventories are valued using the
first-in,
first-out (“FIFO”) method.
INVESTMENTS IN
AFFILIATED COMPANIES
The Company accounts for its investments in 20% to 50% owned
affiliated companies using the equity method. The Company
received dividends from affiliated companies of $197 and $182 in
2008 and 2007, respectively. There were no dividends from
affiliated companies in 2009.
PROPERTY AND
DEPRECIATION
Properties are stated at cost. Depreciation is determined on a
straight-line basis over the estimated useful lives for
financial reporting purposes and accelerated methods for income
tax reporting. Generally, the estimated useful lives are 25 to
40 years for buildings and improvements, 3 to 10 years
for machinery and equipment, and 3 to 7 years for software.
FINITE-LIVED
INTANGIBLE ASSETS
Finite-lived intangibles, consisting of patents, non-compete
agreements and license agreements acquired in purchase
transactions, are capitalized and amortized over their useful
lives which range from 3 to 20 years.
GOODWILL AND
INDEFINITE-LIVED INTANGIBLE ASSETS
Management believes the excess purchase price over the fair
value of the net assets acquired (“Goodwill”) in
purchase transactions has continuing value. Goodwill and
indefinite-lived intangible assets must be tested annually, or
more frequently as circumstances dictate, for impairment.
Management has performed an analysis of the fair values of its
reporting units at December 31, 2009. The fair values of
the reporting units exceeded the carrying values in 2009, 2008
and 2007 and, therefore, no impairment of goodwill was recorded
in the three years.
IMPAIRMENT OF
LONG-LIVED ASSETS
Long-lived assets, such as property, plant and equipment and
finite-lived intangibles, are evaluated for impairment whenever
events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. An impairment loss is
recognized when estimated undiscounted future cash flows
expected to result from the use of the asset plus net proceeds
expected from disposition of the asset (if any) are less than
the carrying value of the asset. When impairment is identified,
the carrying amount of the asset is reduced to its fair value.
There were no such triggering events identified during 2009.
DERIVATIVES
INSTRUMENTS AND HEDGING ACTIVITIES
Derivative financial instruments are recorded in the
consolidated balance sheets at fair value as either assets or
liabilities. Changes in the fair value of derivatives are
recorded in each period in earnings or accumulated other
comprehensive income, depending on whether a derivative is
designated and effective as part of a hedge transaction.
32 /ATR
2009
Form 10-K
Table of Contents
RESEARCH &
DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred. These
costs amounted to $50.2, $55.1 and $53.8 million in 2009,
2008 and 2007, respectively. Prior year amounts have been
revised to conform to the current year presentation for French
research and development tax credits. The amounts of these
credits are $5.7 and $2.1 million for 2008 and 2007,
respectively.
INCOME
TAXES
The Company computes taxes on income in accordance with the tax
rules and regulations of the many taxing authorities where the
income is earned. The income tax rates imposed by these taxing
authorities may vary substantially. Taxable income may differ
from pretax income for financial accounting purposes. To the
extent that these differences create differences between the tax
basis of an asset or liability and its reported amount in the
financial statements, an appropriate provision for deferred
income taxes is made.
Except as noted below, the Company has the expressed intention
to reinvest the undistributed earnings of its
non-U.S. subsidiaries.
A provision has not been made for U.S. or additional
foreign taxes on $748 million of undistributed earnings of
non-U.S. subsidiaries,
which has been designated as permanently reinvested as of
December 31, 2009. These earnings will continue to be
reinvested indefinitely and could become subject to additional
tax if they were remitted as dividends or lent to a
U.S. affiliate, or if the Company should sell its stock in
the subsidiaries. It is not practicable to estimate the amount
of additional tax that might be payable on these undistributed
non-U.S. earnings.
The Company will continue to evaluate annually if it will
repatriate
non-U.S. subsidiary
current year earnings or a portion thereof. The Company decided
to repatriate a portion of
non-U.S. subsidiary
current year earnings in 2009, 2008 and 2007 in the amounts of
$78 million, $63 million and $18 million,
respectively. Tax expense related to the repatriations was
provided for in the year the decision was made.
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 6 for more information.
TRANSLATION OF
FOREIGN CURRENCIES
The functional currencies of all the Company’s foreign
operations are the local currencies. Assets and liabilities are
translated into U.S. dollars at the rates of exchange on
the balance sheet date. Sales and expenses are translated at the
average rates of exchange prevailing during the year. The
related translation adjustments are accumulated in a separate
section of Stockholders’ Equity. Realized and unrealized
foreign currency transaction gains and losses are reflected in
income, as a component of miscellaneous income and expense, and
represented a gain of $879 in 2009 and a loss of $3,293 and
$1,636 in 2008 and 2007, respectively.
STOCK BASED
COMPENSATION
Accounting standards require the application of the
non-substantive vesting approach which means that an award is
fully vested when the employee’s retention of the award is
no longer contingent on providing subsequent service. Under this
approach, compensation costs are recognized over the requisite
service period of the award instead of ratably over the vesting
period stated in the grant. As such, costs are recognized
immediately, if the employee is retirement eligible on the date
of grant or over the period from the date of grant until
retirement eligibility if retirement eligibility is reached
before the end of the vesting period stated in the grant. See
Note 15 for more information.
REVENUE
RECOGNITION
Product Sales.
In accordance with current
accounting standards, the Company’s policy is to recognize
revenue from product sales when the title and risk of loss has
transferred to the customer, when the Company has no remaining
obligations regarding the transaction and when collection is
reasonably assured. The majority of the Company’s products
shipped from the U.S. transfers title and risk of loss when
the goods leave the Company’s shipping location. The
majority of the Company’s products shipped from
non-U.S. operations
transfer title and risk of loss when the goods reach their
destination. Tooling revenue is also recognized when the title
and risk of loss transfers to the customer.
Services and Other.
The Company occasionally
invoices customers for certain services. The Company also
receives revenue from other sources such as license or royalty
agreements. Revenue is recognized when services are rendered or
rights to use assets can be reliably measured and when
collection is reasonably assured. Service and other revenue is
not material to the Company’s results of operations for any
of the years presented.
SUBSEQUENT
EVENTS
The Company has performed an evaluation of subsequent events. No
events have occurred that would require adjustment to or
disclosure in the condensed consolidated financial statements.
NOTE 2
DISCONTINUED OPERATIONS
In the fourth quarter of 2007, the Company sold its Australian
operation for approximately $6.7 million in cash. The
Australian operation was primarily a sales and distribution
facility with light final assembly of some products as well as
some molding of dispensing closures. In the future, the Company
will continue to sell its products into Australia using the
buyer of this company as an agent and distributor. The Company
recorded a gain after taxes on this sale of approximately
$2.2 million or approximately $.03 per diluted share. This
net gain has been reported in the consolidated statements of
income as discontinued operations.
33 /ATR
2009
Form 10-K
Table of Contents
The Company elected only to report the net gain as discontinued
operations rather than including the full operating results as
discontinued operations for all periods presented due to the
immateriality of the amounts (less than 1% of net sales and
income before income taxes). The Australian entity was
previously reported in the Beauty & Home segment.
NOTE 3
INVENTORIES
At December 31, 2009 and 2008, approximately 21% and 23%,
respectively, of the total inventories are accounted for by the
LIFO method. Inventories, by component, consisted of:
| 2009 | 2008 | |||||||
|
Raw materials
|
$ | 81,452 | $ | 93,081 | ||||
|
Work-in-process
|
66,431 | 55,228 | ||||||
|
Finished goods
|
86,192 | 99,310 | ||||||
|
Total
|
234,075 | 247,619 | ||||||
|
Less LIFO reserve
|
(3,268 | ) | (2,844 | ) | ||||
|
Total
|
$ | 230,807 | $ | 244,775 | ||||
NOTE 4
GOODWILL AND OTHER INTANGIBLE ASSETS
The Company completed its annual analysis of the fair value of
its reporting units as of December 31, 2009 using both a
discounted cash flow analysis and market multiple approach,
resulting in no impairment.
The changes in the carrying amount of goodwill for the year
ended December 31, 2009, are as follows by reporting
segment:
|
Beauty &
|
Corporate
|
|||||||||||||||||||
| Pharma | Home | Closures | and Other | Total | ||||||||||||||||
|
Goodwill
|
$ | 28,133 | $ | 158,823 | $ | 40,085 | $ | 1,615 | $ | 228,656 | ||||||||||
|
Accumulated impairment losses
|
— | — | — | (1,615 | ) | (1,615 | ) | |||||||||||||
|
Balance as of December 31, 2008
|
$ | 28,133 | $ | 158,823 | $ | 40,085 | $ | $ | 227,041 | |||||||||||
|
Acquisitions (See Note 18)
|
— | 666 | — | — | 666 | |||||||||||||||
|
Foreign currency exchange effects
|
291 | 2,327 | 253 | — | 2,871 | |||||||||||||||
|
Goodwill
|
$ | 28,424 | $ | 161,816 | $ | 40,338 | $ | 1,615 | $ | 232,193 | ||||||||||
|
Accumulated impairment losses
|
— | — | — | (1,615 | ) | (1,615 | ) | |||||||||||||
|
Balance as of December 31, 2009
|
$ | 28,424 | $ | 161,816 | $ | 40,338 | $ | — | $ | 230,578 | ||||||||||
The table below shows a summary of intangible assets for the
years ended December 31, 2009 and 2008.
| 2009 | 2008 | |||||||||||||||||||||||||||
|
Weighted Average
|
Gross
|
Gross
|
||||||||||||||||||||||||||
|
Amortization Period
|
Carrying
|
Accumulated
|
Net
|
Carrying
|
Accumulated
|
Net
|
||||||||||||||||||||||
| (Years) | Amount | Amortization | Value | Amount | Amortization | Value | ||||||||||||||||||||||
|
Amortization intangible assets:
|
||||||||||||||||||||||||||||
|
Patents
|
14 | $ | 19,368 | $ | (15,655 | ) | $ | 3,713 | $ | 18,854 | $ | (13,357 | ) | $ | 5,497 | |||||||||||||
|
License agreements and other
|
6 | 26,261 | (20,886 | ) | 5,375 | 25,641 | (17,077 | ) | 8,564 | |||||||||||||||||||
|
Total intangible assets
|
9 | $ | 45,629 | $ | (36,541 | ) | $ | 9,088 | $ | 44,495 | $ | (30,434 | ) | $ | 14,061 | |||||||||||||
Aggregate amortization expense for the intangible assets above
for the years ended December 31, 2009, 2008 and 2007 was
$5,304, $6,261, and $4,520, respectively.
Estimated amortization expense for the years ending December 31
is as follows:
|
2010
|
$ | 2,650 | ||
|
2011
|
$ | 2,301 | ||
|
2012
|
$ | 1,189 | ||
|
2013
|
$ | 927 | ||
|
2014
|
$ | 753 |
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
December 31, 2009.
34 /ATR
2009
Form 10-K
Table of Contents
NOTE 5
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At December 31, 2009 and 2008, accounts payable and accrued
liabilities consisted of the following:
| 2009 | 2008 | |||||||
|
Accounts payable, principally trade
|
$ | 109,135 | $ | 133,575 | ||||
|
Accrued employee compensation costs
|
78,080 | 78,502 | ||||||
|
Unearned income
|
26,037 | 30,251 | ||||||
|
Other accrued liabilities
|
75,708 | 68,080 | ||||||
|
Total
|
$ | 288,960 | $ | 310,408 | ||||
NOTE 6
INCOME TAXES
Income from continuing operations before income taxes consists
of:
| Years Ended December 31, | 2009 | 2008 | 2007 | |||||||||
|
United States
|
$ | 32,938 | $ | 21,771 | $ | 16,505 | ||||||
|
International
|
151,120 | 204,955 | 185,576 | |||||||||
|
Total
|
$ | 184,058 | $ | 226,726 | $ | 202,081 | ||||||
The provision for income taxes from continuing operations is
comprised of:
| Years Ended December 31, | 2009 | 2008 | 2007 | |||||||||
|
Current:
|
||||||||||||
|
U.S. Federal
|
$ | 20,054 | $ | 11,520 | $ | 12,737 | ||||||
|
State/Local
|
1,182 | 569 | 459 | |||||||||
|
International
|
39,554 | 62,462 | 61,194 | |||||||||
| $ | 60,790 | $ | 74,551 | $ | 74,390 | |||||||
|
Deferred:
|
||||||||||||
|
U.S. Federal/State
|
$ | 841 | $ | (8 | ) | $ | (5,110 | ) | ||||
|
International
|
(2,170 | ) | (1,318 | ) | (6,673 | ) | ||||||
| $ | (1,329 | ) | $ | (1,326 | ) | $ | (11,783 | ) | ||||
|
Total
|
$ | 59,461 | $ | 73,225 | $ | 62,607 | ||||||
The gain on the sale of the discontinued operations resulted in
additional tax expense of $1,714 in 2007.
To be comparable to the current period, the Company revised its
classification relating to a Research & Development
credit in France from the Provision for Income Taxes to Selling,
Research & Development and Administrative expenses.
The amounts of the credit for the years ending December 31,
2009, 2008 and 2007 are $6.7 million, $5.7 million and
$2.1 million, respectively.
The difference between the actual income tax provision and the
tax provision computed by applying the statutory federal income
tax rate of 35.0% in 2009, 2008 and 2007 to income before income
taxes is as follows:
| Years Ended December 31, | 2009 | 2008 | 2007 | |||||||||
|
Income tax at statutory rate
|
$ | 64,420 | $ | 79,354 | $ | 70,728 | ||||||
|
State income taxes, net of federal benefit
|
743 | 499 | 189 | |||||||||
|
Research & development credits (non-French)
|
(826 | ) | (795 | ) | (1,012 | ) | ||||||
|
Provision for distribution of current foreign earnings
|
9,881 | 3,953 | 3,524 | |||||||||
|
German tax rate reduction
|
— | — | (2,250 | ) | ||||||||
|
Italian stimulus
|
(501 | ) | — | — | ||||||||
|
Italian government special election
|
(1,628 | ) | — | (1,025 | ) | |||||||
|
Rate differential on earnings of foreign operations
|
(13,396 | ) | (10,590 | ) | (6,838 | ) | ||||||
|
Other items, net
|
768 | 804 | (709 | ) | ||||||||
|
Actual income tax provision
|
$ | 59,461 | $ | 73,225 | $ | 62,607 | ||||||
|
Effective income tax rate
|
32.3 | % | 32.3 | % | 31.0 | % | ||||||
The tax provision for 2009 reflects a $1.6 million benefit
from a special election in Italy related to the revaluation of
real property for tax purposes. The tax benefit is attributable
to the revaluation of deferred tax liabilities to reflect the
higher tax basis.
35 /ATR
2009
Form 10-K
Table of Contents
An additional benefit of $0.5 million is attributable to
depreciation incentives enacted as part of an Italian government
stimulus package in 2009.
The tax provision for 2008 reflects the benefit from lower tax
rates in Germany and Italy that became effective in 2008. These
benefits helped to offset the additional cost from increased
repatriation to the US during 2008.
The tax provision for 2007 included a benefit of
$2.3 million from a reduction in the corporate tax rates in
Germany. The tax benefits reflected are attributable to the
revaluation of the deferred tax assets and liabilities using the
new rates as of December 31, 2007. The $1.0 million
reduction from Italy was due to a special election in connection
with the enactment of lower corporate tax rates, effective in
2008. The affect of the special election increased current taxes
by $0.6 million, which was offset by a reduction of
previously recorded deferred tax liabilities by
$1.6 million.
Significant deferred tax assets and liabilities as of
December 31, 2009 and 2008 are comprised of the following
temporary differences:
| 2009 | 2008 | |||||||
|
Deferred Tax Assets:
|
||||||||
|
Pension liabilities
|
$ | 11,836 | $ | 12,976 | ||||
|
Stock options
|
7,625 | 7,094 | ||||||
|
Net operating loss carryforwards
|
6,954 | 3,021 | ||||||
|
Inventory
|
3,997 | 5,861 | ||||||
|
Vacation
|
3,804 | 3,633 | ||||||
|
Workers compensation
|
2,539 | 3,036 | ||||||
|
Accruals
|
2,456 | 1,371 | ||||||
|
Allowance for doubtful accounts
|
2,006 | 2,307 | ||||||
|
Foreign tax credit carryforwards
|
— | 1,127 | ||||||
|
Other
|
1,340 | 578 | ||||||
|
Total gross deferred tax assets
|
42,557 | 41,004 | ||||||
|
Less valuation allowance
|
(5,480 | ) | (2,903 | ) | ||||
|
Net deferred tax assets
|
37,077 | 38,101 | ||||||
|
Deferred Tax Liabilities:
|
||||||||
|
Depreciation and amortization
|
36,007 | 36,132 | ||||||
|
Leases
|
8,067 | 8,422 | ||||||
|
Total gross deferred tax liabilities
|
44,074 | 44,554 | ||||||
|
Net deferred tax liabilities
|
$ | 6.997 | $ | 6,453 | ||||
Gross deferred tax assets for tax loss carryforwards increased
to $6.9 million at December 31, 2009 from
$3.0 million at December 31, 2008. The loss
carryforwards exist primarily in non-U.S. jurisdictions, along
with U.S. state jurisdictions. Assets of $3.1 million
related to losses in
non-U.S. jurisdictions
were added as a result of an acquisition completed in 2009. A
portion of the
non-U.S. losses
expire in the years 2012 – 2017. The U.S state losses
expire in the years 2014 – 2023. Management does not
believe the benefit of a majority of the
non-U.S. losses
($4.0 million) or the benefit of the U.S. state losses
($1.4 million) will be realized.
The Company has established a valuation allowance for the
deferred tax assets related primarily to the
non-U.S. tax
loss carryforwards and the U.S. state tax losses not
expected to be realized. The valuation allowance increased to
$5.5 million at December 31, 2009 from
$2.9 million at December 31, 2008, reflecting the
acquired
non-U.S. losses.
U.S. foreign tax credit carryforwards decreased to $0 at
December 31, 2009 from $1.1 million at
December 31, 2008. The Company was able to utilize the
carryforwards due to increased repatriation to the U.S. in
2009.
No provision for taxes has been made for the cumulative earnings
of
non-U.S. subsidiaries
that are permanently reinvested. These earnings relate to
ongoing operations and, at December 31, 2009, were
approximately $748 million. Deferred taxes are provided for
current year earnings of
non-U.S. subsidiaries
when it is decided to remit those earnings to the U.S.
The Company has not provided for taxes on certain tax-deferred
income of a foreign operation. The income arose predominately
from government grants. Taxes of approximately $2.6 million
would become payable in the event the income was distributed.
36 /ATR
2009
Form 10-K
Table of Contents
INCOME TAX
UNCERTAINTIES
The Company provides a liability for the amount of tax benefits
realized from uncertain tax positions. A reconciliation of the
beginning and ending amount of income tax uncertainties is as
follows:
| 2009 | 2008 | 2007 | ||||||||||
|
Balance at January 1
|
$ | 9,661 | $ | 6,492 | $ | 7,000 | ||||||
|
Increases based on tax positions for the current year
|
$ | 1,728 | $ | 1,352 | 1,115 | |||||||
|
Increases based on tax positions for prior years
|
1,281 | 4,362 | 533 | |||||||||
|
Decreases based on tax positions for prior years
|
(672 | ) | (1,085 | ) | (182 | ) | ||||||
|
Settlements
|
(168 | ) | (24 | ) | (682 | ) | ||||||
|
Lapse of statute of limitations
|
$ | (1,024 | ) | $ | (1,436 | ) | (1,292 | ) | ||||
|
Balance at December 31
|
$ | 10,806 | $ | 9,661 | $ | 6,492 | ||||||
The amount of income tax uncertainties that, if recognized,
would impact the effective tax rate is $10.1 million. For
the next twelve months, the Company does not anticipate any
material changes in its liability for income tax uncertainties.
The Company recognizes interest and penalties accrued related to
unrecognized tax benefits as a component of income taxes. During
2009, the Company recognized $0.4 million in interest and
penalties. The Company had approximately $1.8 million and
$1.4 million accrued for the payment of interest and
penalties as of December 31, 2009 and 2008, respectively.
The Company or its subsidiaries file income tax returns in the
U.S. Federal jurisdiction and various state and foreign
jurisdictions. The major tax jurisdictions the Company files in,
with the years still subject to income tax examinations, are
listed below:
|
Tax Years
|
||||
|
Major Tax
|
Subject to
|
|||
|
Jurisdiction
|
Examination | |||
|
United States – Federal
|
2006 – 2009 | |||
|
United States – State
|
2005 – 2009 | |||
|
France
|
2006 – 2009 | |||
|
Germany
|
2006 – 2009 | |||
|
Italy
|
2004 – 2009 | |||
|
Switzerland
|
1998 – 2009 | |||
NOTE 7
DEBT
Average borrowings under unsecured lines of credit were
$65.3 million and $156.3 million for 2009 and 2008,
respectively, and the average annual interest rate on short-term
notes payable, which is included in the notes payable caption
under current liabilities of the balance sheet was approximately
1.6% for 2009 and 3.6% for 2008. There are no compensating
balance requirements associated with short-term borrowings. The
Company has a $200 million revolving credit facility. Under
this credit agreement, interest on borrowings is payable at a
rate equal to London Interbank Offered Rates (“LIBOR”)
plus an amount based on the financial condition of the Company.
The Company is required to pay a fee for this commitment.
Commitment or facility fee payments in 2009, 2008 and 2007 were
not significant. The amounts borrowed under this agreement were
$100 million and $25 million at December 31, 2009
and 2008, respectively.
The revolving credit and the senior unsecured debt agreements
contain covenants, with which the Company is in compliance, that
include certain financial tests.
At December 31, the Company’s long-term obligations
consisted of the following:
| 2009 | 2008 | |||||||
|
Notes payable 0.5% – 16.5%, due in monthly and annual
installments through 2015
|
$ | 10,750 | $ | 4,787 | ||||
|
Senior unsecured notes 6.6%, due in installments through
2011
|
43,374 | 65,268 | ||||||
|
Senior unsecured notes 5.1%, due in 2011
|
25,000 | 25,000 | ||||||
|
Senior unsecured notes 5.4% due in 2013
|
25,000 | 25,000 | ||||||
|
Senior unsecured notes 6.0% due in 2016
|
50,000 | 50,000 | ||||||
|
Senior unsecured notes 6.0% due in 2018
|
75,000 | 75,000 | ||||||
|
Capital lease obligations
|
5,607 | 6,533 | ||||||
| 234,731 | 251,588 | |||||||
|
Current maturities of long-term obligations
|
(25,115 | ) | (24,700 | ) | ||||
|
Total long-term obligations
|
$ | 209,616 | $ | 226,888 | ||||
Based on the borrowing rates currently available to the Company
for long-term obligations with similar terms and average
maturities, the fair value of the Company’s long-term
obligations approximates its book value.
37 /ATR
2009
Form 10-K
Table of Contents
Aggregate long-term maturities, excluding capital lease
obligations, which is discussed in Note 8, due annually for
the five years and thereafter beginning in 2010 are $24,476,
$48,621, $2,146, $26,995, $1,867 and $125,019 thereafter.
NOTE 8 LEASE
COMMITMENTS
The Company leases certain warehouse, plant, and office
facilities as well as certain equipment under noncancelable
operating and capital leases expiring at various dates through
the year 2029. Most of the operating leases contain renewal
options and certain leases include options to purchase during or
at the end of the lease term.
Amortization expense related to capital leases is included in
depreciation expense. Rent expense under operating leases
(including taxes, insurance and maintenance when included in the
rent) amounted to $24,129, $24,382 and $22,595 in 2009, 2008 and
2007, respectively.
Assets recorded under capital leases consist of:
| 2009 | 2008 | |||||||
|
Buildings
|
$ | 23,117 | $ | 22,393 | ||||
|
Machinery and equipment
|
9,246 | 12,750 | ||||||
| 32,363 | 35,143 | |||||||
|
Accumulated depreciation
|
(19,298 | ) | (19,613 | ) | ||||
| $ | 13,065 | $ | 15,530 | |||||
Future minimum payments, by year and in the aggregate, under the
capital leases and noncancelable operating leases with initial
or remaining terms of one year or more consisted of the
following at December 31, 2009:
|
Capital
|
Operating
|
|||||||
| Leases | Leases | |||||||
|
2010
|
$ | 765 | $ | 14,273 | ||||
|
2011
|
1,309 | 10,187 | ||||||
|
2012
|
1,016 | 6,850 | ||||||
|
2013
|
587 | 2,821 | ||||||
|
2014
|
587 | 1,675 | ||||||
|
Subsequent to 2014
|
3,475 | 8,724 | ||||||
|
Total minimum lease payments
|
7,739 | $ | 44,530 | |||||
|
Amounts representing interest
|
(2,132 | ) | ||||||
|
Present value of future minimum lease payments
|
5,607 | |||||||
|
Lease amount due in one year
|
(639 | ) | ||||||
|
Total
|
$ | 4,968 | ||||||
38 /ATR
2009
Form 10-K
Table of Contents
NOTE 9
RETIREMENT AND DEFERRED COMPENSATION PLANS
The Company has various noncontributory retirement plans
covering certain of its domestic and foreign employees. Benefits
under the Company’s retirement plans are based on
participants’ years of service and annual compensation as
defined by each plan. Annual cash contributions to fund pension
costs accrued under the Company’s domestic plans are
generally at least equal to the minimum funding amounts required
by the Employee Retirement Income Security Act of 1974, as
amended (ERISA). Certain pension commitments under its foreign
plans are also funded according to local requirements or at the
Company’s discretion.
In 2008, new regulations in France raised the pension benefits
of certain French employees under collective bargaining
agreements. The impact of these regulations increased the
benefit obligation of our foreign plans and is reflected as a
plan amendment.
The following table presents the changes in the benefit
obligations and plan assets for the most recent two years for
the Company’s domestic and foreign plans.
| Domestic Plans | Foreign Plans | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Change in benefit obligation:
|
||||||||||||||||
|
Benefit obligation at beginning of year
|
$ | 64,954 | $ | 55,017 | $ | 43,816 | $ | 40,735 | ||||||||
|
Service cost
|
4,363 | 4,098 | 1,766 | 1,644 | ||||||||||||
|
Interest cost
|
3,820 | 3,514 | 2,503 | 2,174 | ||||||||||||
|
Prior service cost
|
— | — | — | 112 | ||||||||||||
|
Plan amendments
|
— | — | — | 5,183 | ||||||||||||
|
Curtailment/Settlement
|
(560 | ) | — | (151 | ) | — | ||||||||||
|
Actuarial loss/(gain)
|
2,150 | 3,586 | (316 | ) | (3,128 | ) | ||||||||||
|
Benefits paid
|
(3,061 | ) | (1,261 | ) | (3,264 | ) | (1,224 | ) | ||||||||
|
Foreign currency translation adjustment
|
— | — | 976 | (1,680 | ) | |||||||||||
|
Benefit obligation at end of year
|
$ | 71,666 | $ | 64,954 | $ | 45,330 | $ | 43,816 | ||||||||
| Domestic Plans | Foreign Plans | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Change in plan assets:
|
||||||||||||||||
|
Fair value of plan assets at beginning of year
|
$ | 36,953 | $ | 46,116 | $ | 16,560 | $ | 14,495 | ||||||||
|
Actual return on plan assets
|
6,474 | (11,152 | ) | 1,120 | (1,331 | ) | ||||||||||
|
Employer contribution
|
9,441 | 3,250 | 19,042 | 5,388 | ||||||||||||
|
Settlements
|
(560 | ) | — | — | — | |||||||||||
|
Benefits paid
|
(3,061 | ) | (1,261 | ) | (3,341 | ) | (1,224 | ) | ||||||||
|
Foreign currency translation adjustment
|
— | — | 412 | (768 | ) | |||||||||||
|
Fair value of plan assets at end of year
|
$ | 49,247 | $ | 36,953 | $ | 33,793 | $ | 16,560 | ||||||||
|
Funded status at end of year
|
$ | (22,419 | ) | $ | (28,001 | ) | $ | (11,538 | ) | $ | (27,256 | ) | ||||
The following table presents the funded status amounts
recognized in the Company’s Consolidated Balance Sheet as
of December 31, 2009 and 2008.
| Domestic Plans | Foreign Plans | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Non-current assets
|
$ | — | $ | — | $ | 779 | $ | 690 | ||||||||
|
Current liabilities
|
(514 | ) | (291 | ) | (570 | ) | (557 | ) | ||||||||
|
Non-current liabilities
|
(21,905 | ) | (27,710 | ) | (11,747 | ) | (27,389 | ) | ||||||||
| $ | (22,419 | ) | $ | (28,001 | ) | $ | (11,538 | ) | $ | (27,256 | ) | |||||
The following table presents the amounts not recognized as
components of periodic benefit cost that are recognized in
accumulated other comprehensive loss as of December 31,
2009 and 2008.
| Domestic Plans | Foreign Plans | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Net actuarial loss
|
$ | 17,552 | $ | 18,535 | $ | 5,160 | $ | 6,347 | ||||||||
|
Net prior service cost
|
16 | 21 | 5,292 | 5,787 | ||||||||||||
|
Tax effects
|
(6,588 | ) | (6,958 | ) | (3,348 | ) | (3,831 | ) | ||||||||
| $ | 10,980 | $ | 11,598 | $ | 7,104 | $ | 8,303 | |||||||||
39 /ATR
2009
Form 10-K
Table of Contents
Changes in benefit obligations and plan assets recognized in
other comprehensive income in 2009 are as follows:
| Domestic Plans | Foreign Plans | |||||||
|
Current year actuarial gain
|
$ | (773 | ) | $ | (392 | ) | ||
|
Amortization of gain
|
(211 | ) | (625 | ) | ||||
|
Current year prior service
|
— | (38 | ) | |||||
|
Amortization of prior service cost
|
(4 | ) | (423 | ) | ||||
| $ | (988 | ) | $ | (1,478 | ) | |||
The following table presents the amounts in accumulated other
comprehensive loss as of December 31, 2009 expected to be
recognized as components of periodic benefit cost in 2010.
| Domestic Plans | Foreign Plans | |||||||
|
Amortization of net loss
|
$ | 542 | $ | 273 | ||||
|
Amortization of prior service cost
|
4 | 382 | ||||||
| $ | 546 | $ | 655 | |||||
Components of net
periodic benefit cost:
| Domestic Plans | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Service cost
|
$ | 4,363 | $ | 4,098 | $ | 3,879 | ||||||
|
Interest cost
|
3,820 | 3,514 | 2,985 | |||||||||
|
Expected return on plan assets
|
(3,726 | ) | (3,107 | ) | (2,726 | ) | ||||||
|
Amortization of net loss
|
239 | 81 | 218 | |||||||||
|
Amortization of prior service cost
|
4 | 4 | 4 | |||||||||
|
Net periodic benefit cost
|
$ | 4,700 | $ | 4,590 | $ | 4,360 | ||||||
|
Settlement
|
146 | — | — | |||||||||
|
Total Net periodic benefit cost
|
$ | 4,846 | $ | 4,590 | $ | 4,360 | ||||||
| Foreign Plans | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Service cost
|
$ | 1,745 | $ | 1,644 | $ | 1,584 | ||||||
|
Interest cost
|
2,502 | 2,174 | 1,681 | |||||||||
|
Expected return on plan assets
|
(980 | ) | (830 | ) | (727 | ) | ||||||
|
Amortization of net loss
|
625 | 748 | 513 | |||||||||
|
Amortization of prior service cost
|
376 | 79 | 74 | |||||||||
|
Net periodic benefit cost
|
$ | 4,268 | $ | 3,815 | $ | 3,125 | ||||||
|
Curtailment
|
(105 | ) | — | — | ||||||||
|
Total Net periodic benefit cost
|
$ | 4,163 | $ | 3,815 | $ | 3,125 | ||||||
The accumulated benefit obligation (“ABO”) for the
Company’s domestic defined benefit pension plans was
$62.6 million and $56.6 million at December 31,
2009 and 2008, respectively. The accumulated benefit obligation
for the Company’s foreign defined benefit pension plans was
$37.8 million and $36.9 million at December 31,
2009 and 2008, respectively.
The following table provides the projected benefit obligation
(“PBO”), ABO, and fair value of plan assets for all
pension plans with an ABO in excess of plan assets as of
December 31, 2009 and 2008.
| Domestic Plans | Foreign Plans | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Projected benefit obligation
|
$ | 71,666 | $ | 64,954 | $ | 39,586 | $ | 41,959 | ||||||||
|
Accumulated benefit obligation
|
62,558 | 56,601 | 33,431 | 35,283 | ||||||||||||
|
Fair value of plan assets
|
49,247 | 36,953 | 28,291 | 14,848 | ||||||||||||
40 /ATR
2009
Form 10-K
Table of Contents
The following table provides the PBO, ABO, and fair value of
plan assets for all pension plans with a PBO in excess of plan
assets as of December 31, 2009 and 2008.
| Domestic Plans | Foreign Plans | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Projected benefit obligation
|
$ | 71,666 | $ | 64,954 | $ | 43,143 | $ | 42,885 | ||||||||
|
Accumulated benefit obligation
|
62,558 | 56,601 | 35,903 | 36,083 | ||||||||||||
|
Fair value of plan assets
|
49,247 | 36,953 | 30,827 | 14,940 | ||||||||||||
Assumptions:
| Domestic Plans | Foreign Plans | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Weighted-average assumptions used to determine benefit
obligations at December 31:
|
||||||||||||||||
|
Discount rate
|
5.90% | 6.00% | 5.55% | 5.60% | ||||||||||||
|
Rate of compensation increase
|
4.00% | 4.00% | 3.00% | 3.00% | ||||||||||||
|
Weighted-average assumptions used to determine net periodic
benefit cost for years ended December 31:
|
||||||||||||||||
|
Discount rate
|
6.00% | 6.40% | 5.60% | 5.25% | ||||||||||||
|
Expected long-term return on plan assets
|
7.00% | 7.00% | 6.00% | 6.00% | ||||||||||||
|
Rate of compensation increase
|
4.00% | 4.50% | 3.00% | 3.00% | ||||||||||||
The Company develops the expected long-term rate of return
assumptions based on historical experience and by evaluating
input from the plans’ asset managers, including the
managers’ review of asset class return expectations and
benchmarks, economic indicators and long-term inflation
assumptions.
In order to determine the 2010 net periodic benefit cost,
the Company expects to use the December 31, 2009 discount
rates, rates of compensation increase assumptions and the
expected long-term returns on domestic and foreign plan assets
used in 2009.
The Company’s domestic and foreign pension plan
weighted-average asset allocations at December 31, 2009 and
2008 by asset category are as follows:
Plan
Assets:
|
Domestic Plans Assets
|
Foreign Plans Assets
|
||||||||||||||
| at December 31, | at December 31, | ||||||||||||||
| 2009 | 2008 | 2009 | 2008 | ||||||||||||
|
Equity securities
|
55% | 54% | 17% | 30% | |||||||||||
|
Fixed income securities
|
35% | 28% | 32% | 60% | |||||||||||
|
Infrastructure
|
9% | 14% | — | — | |||||||||||
|
Money market
|
1% | 4% | 47% | — | |||||||||||
|
Real estate
|
— | — | 4% | 10% | |||||||||||
|
Total
|
100% | 100% | 100% | 100% | |||||||||||
The Company’s investment strategy for its domestic and
foreign pension plans is to maximize the long-term rate of
return on plan assets within an acceptable level of risk. The
investment policy strives to have assets sufficiently
diversified so that adverse or unexpected results from one
security type will not have an unduly detrimental impact on the
entire portfolio and accordingly, establishes a target
allocation for each asset category within the portfolio. The
domestic plan asset allocation is reviewed on a quarterly basis
and the foreign plan asset allocation is reviewed annually.
Rebalancing occurs as needed to comply with the investment
strategy. The domestic plan target allocation for 2010 is 60%
equity securities and 40% fixed income securities and
infrastructure. The foreign plan target allocation for 2010 is
42% equity securities, 52% fixed income securities, 4% real
estate, and 2% money market. The Company contributed
approximately $15.0 million in December 2009 to partially
fund its previously unfunded German pension plans. These funds
were invested in money market funds at December 31, 2009
and will be reinvested according to the foreign plan target
allocation in 2010.
41 /ATR
2009
Form 10-K
Table of Contents
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. |
|
Domestic Fair Value Measurement
|
Foreign Fair Value Measurement
|
|||||||||||||||||||||||||||||||
| at December 31, 2009 | at December 31, 2009 | |||||||||||||||||||||||||||||||
| (In thousands $) | Total | (Level 1) | (Level 2) | (Level 3) | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||||
|
Cash and Short Term
|
||||||||||||||||||||||||||||||||
|
Securities (a)
|
$ | 318 | $ | 318 | $ | — | $ | — | $ | 15,040 | $ | 15,040 | $ | — | $ | — | ||||||||||||||||
|
USD
|
318 | 318 | — | — | 6,783 | 6,783 | — | — | ||||||||||||||||||||||||
|
EUR
|
— | — | — | — | 8,257 | 8,257 | — | — | ||||||||||||||||||||||||
|
Equity Securities (a)
|
$ | 27,106 | $ | 27,106 | — | — | — | — | — | — | ||||||||||||||||||||||
|
US Large Cap Equities
|
— | 11,508 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
US Small Cap Equities
|
— | 8,081 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
International Equities
|
— | 7,517 | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Core Fixed Income (a)
|
$ | 17,256 | $ | 17,256 | — | — | — | — | — | — | ||||||||||||||||||||||
|
Investment Funds
|
— | — | — | — | $ | 18,752 | $ | 2,717 | $ | 16,035 | — | |||||||||||||||||||||
|
Mutual Funds in Equities (a)
|
— | — | — | — | 2,717 | 2,717 | — | — | ||||||||||||||||||||||||
|
Mutual Funds Diversified (b)
|
— | — | — | — | 16,035 | — | 16,035 | — | ||||||||||||||||||||||||
|
Infrastructure (c)
|
$ | 4,567 | — | — | $ | 4,567 | — | — | — | — | ||||||||||||||||||||||
|
Total Investments
|
$ | 49,247 | $ | 44,680 | $ | — | $ | 4,567 | $ | 33,793 | $ | 17,757 | $ | 16,035 | $ | — | ||||||||||||||||
| (a) | Based on third party quotation from financial institution | |
| (b) | Based on observable market transactions | |
| (c) | Based on a quarterly statement prepared by the fund manager that reflects contributions, distributions and realized/unrealized gains and losses. |
The following table sets forth a summary of changes in fair
value of the pension plan investments classified as Level 3
for the year ended December 31, 2009.
|
Infrastructure
|
||||
| Fund | ||||
|
Balance, beginning of year
|
$ | 4,364 | ||
|
Return on assets
|
283 | |||
|
Admin fees and other
|
(80 | ) | ||
|
Balance, end of year
|
$ | 4,567 | ||
CONTRIBUTIONS
Annual cash contributions to fund pension costs accrued under
the Company’s domestic plans are generally at least equal
to the minimum funding amounts required by ERISA. The Company
contributed $9.4 million to its domestic defined benefit
plans in 2009 and expects to contribute approximately
$5.0 million in 2010. Contributions to fund pension costs
accrued under the Company’s foreign plans are made in
accordance with local laws or at the Company’s discretion.
The Company contributed approximately $19.0 million to its
foreign defined benefit plan in 2009 and expects to contribute
approximately $7.0 million in 2010.
ESTIMATED FUTURE
BENEFIT PAYMENTS
As of December 31, 2009, the Company expects the plans to
make the following estimated benefit payments relating to its
defined benefit plans over the next ten years:
| Domestic Plans | Foreign Plans | |||||||
|
2010
|
$ | 4,194 | $ | 3,592 | ||||
|
2011
|
3,998 | 1,716 | ||||||
|
2012
|
4,978 | 1,801 | ||||||
|
2013
|
5,565 | 1,975 | ||||||
|
2014
|
5,801 | 2,738 | ||||||
|
2015 – 2019
|
33,848 | 17,169 | ||||||
42 /ATR
2009
Form 10-K
Table of Contents
OTHER
PLANS
The Company has a non-qualified supplemental pension plan for
domestic employees which provides for pension amounts that would
have been payable from the Company’s principal domestic
pension plan if it were not for limitations imposed by income
tax regulations. The liability for this plan, which is not
funded, was $3.5 million and $3.2 million at
December 31, 2009 and 2008, respectively. This amount is
included in the liability for domestic plans shown above.
The Company has a defined contribution 401(k) employee savings
plan available to substantially all domestic employees. Company
matching contributions are made in cash up to a maximum of 3% of
the participating employee’s salary subject to income tax
regulations. For each of the years ended December 31, 2009,
2008 and 2007, total contributions made by the Company for these
plans were approximately $2.2 million, $2.2 million
and $1.9 million, respectively.
The Company has several foreign defined contribution plans,
which require the Company to contribute a percentage of the
participating employee’s salary according to local
regulations. For each of the years ended December 31, 2009,
2008 and 2007, total contributions made by the Company for these
plans were approximately $1.8 million, $1.8 million
and $2.4 million, respectively.
The Company has no additional postretirement or postemployment
benefit plans.
NOTE 10
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 can impact the Company’s results of operations. The
Company’s policy is not to engage in speculative foreign
currency hedging activities, but to minimize its net foreign
currency transaction exposure defined as firm commitments and
transactions recorded and denominated in currencies other than
the functional currency. The Company may use foreign currency
forward exchange contracts, options and cross currency swaps to
hedge these risks.
The Company maintains an interest rate risk management strategy
to minimize significant, unanticipated earnings fluctuations
that may arise from volatility in interest rates.
For derivative instruments designated as hedges, the Company
formally documents the nature and relationships between the
hedging instruments and the hedged items, as well as the risk
management objectives, strategies for undertaking the various
hedge transactions, and the method of assessing hedge
effectiveness. Additionally, in order to designate any
derivative instrument as a hedge of an anticipated transaction,
the significant characteristics and expected terms of any
anticipated transaction must be specifically identified, and it
must be probable that the anticipated transaction will occur.
FAIR VALUE
HEDGES
The Company has an interest rate swap to convert a portion of
its fixed-rate debt into variable-rate debt. Under the interest
rate swap contract, the Company exchanges, at specified
intervals, the difference between fixed-rate and floating-rate
amounts, which are calculated based on an agreed upon notional
amount.
As of December 31, 2009, the Company has recorded the fair
value of derivative instruments of $574 thousand in
miscellaneous other assets with an offsetting adjustment to debt
related to a
fixed-to-variable
interest rate swap agreement with a notional principal value of
$10 million. No gain or loss was recorded in the income
statement in 2009, 2008 or 2007 as any hedge ineffectiveness for
the periods was immaterial.
CASH FLOW
HEDGES
As of December 31, 2009, the Company had one foreign
currency cash flow hedge. A French entity of AptarGroup,
AptarGroup Holding SAS, has hedged the risk of variability in
Euro equivalent associated with the cash flows of an
intercompany loan granted in Brazilian Real. The forward
contracts utilized were designated as a hedge of the changes in
the cash flows relating to the changes in foreign currency rates
relating to the loan and related forecasted interest. The
notional amount of the foreign currency forward contracts
utilized to hedge cash flow exposure was 4.2 million
Brazilian Real ($2.4 million) as of December 31, 2009.
The notional amount of the foreign currency forward contracts
utilized to hedge cash flow exposure was 5.5 million
Brazilian Real ($2.4 million) as of December 31, 2008.
During the year ended December 31, 2009, the Company did
not recognize any net gain (loss) as any hedge ineffectiveness
for the period was immaterial, and the Company did not recognize
any net gain (loss) related to the portion of the hedging
instrument excluded from the assessment of hedge effectiveness.
The Company’s foreign currency forward contracts hedge
forecasted transactions for approximately two years (March 2012).
HEDGE OF NET
INVESTMENTS IN FOREIGN OPERATIONS
A significant number of the Company’s operations are
located outside of the United States. Because of this, movements
in exchange rates may have a significant impact on the
translation of the financial condition and results of operations
of the Company’s foreign entities. A strengthening
U.S. dollar relative to foreign currencies has a dilutive
translation effect on the Company’s financial condition and
results of operations. Conversely, a weakening U.S. dollar
has an additive effect. The Company in some cases maintains debt
in these subsidiaries to offset the net asset exposure. The
Company does not
43 /ATR
2009
Form 10-K
Table of Contents
otherwise actively manage this risk using derivative financial
instruments. In the event the Company plans on a full or partial
liquidation of any of its foreign subsidiaries where the
Company’s net investment is likely to be monetized, the
Company will consider hedging the currency exposure associated
with such a transaction.
OTHER
As of December 31, 2009, the Company has recorded the fair
value of foreign currency forward exchange contracts of
$1.2 million in accounts payable and accrued liabilities,
$902 thousand in prepayments and other and $2.5 million in
deferred and other non-current liabilities in the balance sheet.
All forward exchange contracts outstanding as of
December 31, 2009 had an aggregate contract amount of
$89.9 million.
|
Fair Value of Derivative Instruments in the Statement of
Financial Position as of December 31, 2009
|
||||||||||||
| (In thousands) | ||||||||||||
|
Derivative
|
Derivative
|
|||||||||||
|
Derivative Contracts
|
Assets
|
Liabilities
|
||||||||||
|
Designated as Hedging
|
Balance Sheet
|
December
|
December
|
|||||||||
| Instruments | Location | 31, 2009 | Balance Sheet Location | 31, 2009 | ||||||||
|
Interest Rate Contracts
|
Other Assets Miscellaneous | $ | 574 | $ | — | |||||||
|
Foreign Exchange Contracts
|
— |
Accounts Payable and
Accrued Liabilities |
293 | |||||||||
|
Foreign Exchange Contracts
|
— |
Deferred and other non-
current liabilities |
437 | |||||||||
| 574 | 730 | |||||||||||
|
Derivative Contracts Not Designated as Hedging Instruments
|
||||||||||||
|
Foreign Exchange Contracts
|
Prepayments & Other | 902 |
Accounts Payable and
Accrued Liabilities |
885 | ||||||||
|
Foreign Exchange Contracts
|
— |
Deferred and other non-
current liabilities |
2,020 | |||||||||
| $ | 902 | $ | 2,905 | |||||||||
|
Total Derivative Contracts
|
$ | 1,476 | $ | 3,635 | ||||||||
|
The Effect of Derivative Instruments on the Statements of
Financial Performance
|
||||||||
|
for the Three and Twelve Months Ended December 31,
2009
|
||||||||
|
Location of
|
||||||||
|
Gain or
|
||||||||
|
(Loss)
|
Amount of Gain or (Loss) Recognized in
|
|||||||
|
Derivatives in Fair
|
Recognized
|
Income on Derivative | ||||||
|
Value Hedging
|
in Income on
|
Three Months Ended
|
Twelve Months Ended
|
|||||
| Relationships | Derivative | December 31, 2009 | December 31, 2009 | |||||
|
Interest Rate Contracts
|
(a) | $ — | $ — | |||||
| (a) | Interest rate swap uses the short-cut method which adjusts short term debt. Therefore, there is no net impact on income. |
44 /ATR
2009
Form 10-K
Table of Contents
| Three Months Ended December 31, 2009 | ||||||||||||||||||||
|
Amount of
|
||||||||||||||||||||
|
Gain or
|
||||||||||||||||||||
|
(Loss) Recognized
|
||||||||||||||||||||
|
Location of
|
in Income of
|
|||||||||||||||||||
|
Gain or
|
Derivative
|
|||||||||||||||||||
|
(Loss) Recognized
|
(Ineffective
|
|||||||||||||||||||
|
Amount of
|
Location of
|
in Income on
|
Portion and
|
|||||||||||||||||
|
Gain or
|
Gain or
|
Amount of Gain or
|
Derivative
|
Amount
|
||||||||||||||||
|
(Loss) Recognized
|
(Loss) Reclassified
|
(Loss) From
|
(Ineffective
|
Excluded
|
||||||||||||||||
|
in OCI on
|
From Accumulated
|
Accumulated OCI
|
Portion and Amount
|
From
|
||||||||||||||||
|
Derivatives in Cash
|
Derivative
|
OCI Into
|
Into Income
|
Excluded from
|
Effectiveness
|
|||||||||||||||
|
Flow Hedging
|
(Effective Portion)
|
Income
|
(Effective Portion)
|
Effectiveness
|
Testing)
|
|||||||||||||||
| Relationships | 2009 | (Effective Portion) | 2009 | Testing) | 2009 | |||||||||||||||
|
Foreign Exchange Contracts
|
$ | (2 | ) | $ | — | $ | — | |||||||||||||
|
Total
|
$ | (2 | ) | $ | — | $ | — | |||||||||||||
| Year Ended December 31, 2009 | ||||||||||||||||||||
|
Amount of
|
||||||||||||||||||||
|
Gain or
|
||||||||||||||||||||
|
Location of
|
(Loss) Recognized
|
|||||||||||||||||||
|
Amount of
|
Gain or
|
in Income of
|
||||||||||||||||||
|
Gain or
|
(Loss) Recognized
|
Derivative
|
||||||||||||||||||
|
(Loss)
|
Amount of
|
in Income on
|
(Ineffective
|
|||||||||||||||||
|
Recognized
|
Location of
|
Gain or
|
Derivative
|
Portion and
|
||||||||||||||||
|
in OCI on
|
Gain or
|
(Loss) From
|
(Ineffective
|
Amount
|
||||||||||||||||
|
Derivative
|
(Loss) Reclassified
|
Accumulated OCI
|
Portion and Amount
|
Excluded From
|
||||||||||||||||
|
Derivatives in Cash
|
(Effective
|
From Accumulated
|
Into Income
|
Excluded from
|
Effectiveness
|
|||||||||||||||
|
Flow Hedging
|
Portion)
|
OCI Into Income
|
(Effective Portion)
|
Effectiveness
|
Testing)
|
|||||||||||||||
| Relationships | 2009 | (Effective Portion) | 2009 | Testing) | 2009 | |||||||||||||||
|
Foreign Exchange Contracts
|
$ | — | $ | — | $ | — | ||||||||||||||
|
Total
|
$ | — | $ | — | $ | — | ||||||||||||||
|
Location of
|
||||||||||||
|
Derivatives Not
|
Gain or
|
Amount of Gain or (Loss)
Recognized in
|
||||||||||
|
Designated as
|
(Loss) Recognized
|
Income on Derivative | ||||||||||
|
Hedging
|
in Income on
|
Three Months Ended
|
Twelve Months Ended
|
|||||||||
| Instruments | Derivative | December 31, 2009 | December 31, 2009 | |||||||||
| Other Income (Expense | ), | |||||||||||
|
Foreign Exchange Contracts
|
Miscellaneous, net | $ | 336 | $ | (2,917 | ) | ||||||
NOTE 11
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. Management believes the resolution of these claims and
lawsuits will not have a material adverse or positive effect on
the Company’s financial position, results of operations or
cash flows.
Under its Certificate of Incorporation, the Company has agreed
to indemnify its officers and directors for certain events or
occurrences while the officer or director is, or was serving, at
its request in such capacity. The maximum potential amount of
future payments the Company could be required to make under
these indemnification agreements is unlimited; however, the
Company has a directors and officers liability insurance policy
that covers a portion of its exposure. As a result of its
insurance policy coverage, the Company believes the estimated
fair value of these indemnification agreements is minimal. The
Company has no liabilities recorded for these agreements as of
December 31, 2009.
NOTE 12
PREFERRED STOCK PURCHASE RIGHTS
The Company has a preferred stock purchase rights plan (the
“Rights Plan”) and each share of common stock has
one-half of a preferred share purchase right (a
“Right”). Under the terms of the Rights Plan, if a
person or group acquires 15% or more of the
45 /ATR
2009
Form 10-K
Table of Contents
outstanding common stock, each Right will entitle its holder
(other than such person or members of such group) to purchase,
at the Right’s then current exercise price, a number of
shares of the Company’s common stock having a market value
of twice such price. In addition, under certain circumstances if
the Company is acquired in a merger or other business
combination transaction, each Right will entitle its holder to
purchase, at the Right’s then current exercise price, a
number of the acquiring company’s common shares having a
market value of twice such price.
Each Right entitles the holder under certain circumstances to
buy one one-thousandth of a share of Series B junior
participating preferred stock, par value $.01 per share, at an
exercise price of $150. Each share of Series B junior
participating preferred stock will entitle its holder to 2,000
votes and will have a minimum preferential quarterly dividend
payment equal to the greater of $1 per share or 2,000 times the
amount paid to holders of common stock. Currently,
99,000 shares of Series B junior participating
preferred stock have been reserved. The Rights will expire on
April 7, 2013, unless previously exercised or redeemed at
the option of the Board of Directors for $.01 per Right.
NOTE 13
STOCK REPURCHASE PROGRAM
The Company repurchased approximately 0.9 million and
1.4 million shares of its outstanding common stock in 2009
and 2008, respectively, at a total cost of $30.0 million
and $57.6 million in 2009 and 2008, respectively. Shares
repurchased are returned to Treasury Stock. The Company has a
remaining authorization at December 31, 2009 to repurchase
3.7 million additional shares. The timing of and total
amount expended for the share repurchase program will depend
upon market conditions.
NOTE 14
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income consists of treasury
locks, foreign currency translation adjustments, net gain (loss)
on derivatives and pension liability adjustments. The following
table summarized our accumulated other comprehensive income
activity for the years ended December 31, 2009, 2008 and
2007:
|
Foreign
|
Accumulated
|
|||||||||||||||
|
Currency
|
Net Gain/
|
Other
|
||||||||||||||
|
Translation
|
(Loss) on
|
Other
|
Comprehensive
|
|||||||||||||
| Adjustments | Derivatives | Adjustments | Income | |||||||||||||
| (1) | (2) | (3) | ||||||||||||||
|
Balance – December 31, 2006
|
117,284 | $ | (28 | ) | (7,751 | ) | 109,505 | |||||||||
|
Period change
|
103,757 | 18 | 1,014 | 104,789 | ||||||||||||
|
Balance – December 31, 2007
|
221,041 | (10 | ) | (6,737 | ) | 214,294 | ||||||||||
|
Period change
|
(61,250 | ) | 15 | (13,759 | ) | (74,994 | ) | |||||||||
|
Balance – December 31, 2008
|
159,791 | 5 | (20,496 | ) | 139,300 | |||||||||||
|
Period change
|
44,929 | (1 | ) | 1,871 | 46,799 | |||||||||||
|
Balance – December 31, 2009
|
$ | 204,720 | $ | 4 | $ | (18,625 | ) | $ | 186,099 | |||||||
| (1) | Income taxes are generally not provided for foreign currency translation adjustments. | |
| (2) | Amount includes an increase in deferred income tax assets by $0.4 million related to the net loss on derivatives at December 31, 2009, and a reduction of deferred income tax assets by $5 and $6 for the net gain on derivatives at December 31, 2008 and 2007, respectively. | |
| (3) | Amounts include the effects of deferred income tax assets provided for pension liability adjustments at December 31, 2009, 2008 and 2007 of $9,936, $10,789 and $2,945, respectively, and change in treasury locks of $80 and $595, respectively, at December 31, 2009 and 2008. |
NOTE 15
STOCK-BASED COMPENSATION
The Company issues stock options and restricted stock units to
employees under Stock Awards Plans approved by shareholders.
Stock options are issued to non-employee directors for their
services as directors under Director Stock Option Plans approved
by shareholders. Options are awarded with the exercise price
equal to the market price on the date of grant and generally
become exercisable over three years and expire 10 years
after grant. Restricted stock units generally vest over three
years.
Compensation expense recorded attributable to stock options for
the year ended December 31, 2009 was approximately
$9.8 million ($7.3 million after tax), or $0.11 per
share basic and $0.10 per share diluted. The income tax benefit
related to this compensation expense was approximately
$2.4 million. Approximately $8.7 million of the
compensation expense was recorded in selling,
research & development and administrative expenses and
the balance was recorded in cost of sales. Compensation expense
recorded attributable to stock options for the year ended
December 31, 2008 was approximately $11.1 million
($8.0 million after tax), or $0.12 per share basic and
$0.11 per share diluted. The income tax benefit related to this
46 /ATR
2009
Form 10-K
Table of Contents
compensation expense was approximately $3.1 million.
Approximately $10.0 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 year ended December 31, 2007 was
approximately $14.0 million ($10.5 million after tax),
or $0.15 per share basic and diluted. The income tax benefit
related to this compensation expense was approximately
$3.5 million. Approximately $13.1 million of the
compensation expense was recorded in selling,
research & development and administrative expenses and
the balance was recorded in cost of sales.
The Company uses historical data to estimate expected life and
volatility. The weighted-average fair value of stock options
granted under the Stock Awards Plans was $7.33, $10.02 and $9.32
per share in 2009, 2008 and 2007, 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:
|
||||||||||||
| Years Ended December 31, | 2009 | 2008 | 2007 | |||||||||
|
Dividend Yield
|
1.6% | 1.4% | 1.4% | |||||||||
|
Expected Stock Price Volatility
|
24.2% | 22.4% | 24.6% | |||||||||
|
Risk-free Interest Rate
|
2.2% | 3.7% | 4.8% | |||||||||
|
Expected Life of Option (years)
|
6.9 | 6.9 | 7.0 | |||||||||
The fair value of stock options granted under the Director Stock
Option Plan was $7.90. The fair value of stock options granted
under the Director Stock Option Plan in 2008 was $12.08. There
were no stock options granted under the Director Stock Option
Plans in 2007. These values were estimated on the respective
date of the grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
|
Stock Director Stock Option
Plans:
|
||||||||||||
| Years Ended December 31, | 2009 | 2008 | 2007 | |||||||||
|
Dividend Yield
|
1.7% | 1.3% | — | |||||||||
|
Expected Stock Price Volatility
|
24.9% | 22.3% | — | |||||||||
|
Risk-free Interest Rate
|
3.1% | 3.8% | — | |||||||||
|
Expected Life of Option (years)
|
6.9 | 6.9 | — | |||||||||
47 /ATR
2009
Form 10-K
Table of Contents
A summary of option activity under the Company’s stock
option plans as of December 31, 2009, and changes during
the period then ended is presented below:
| Stock Awards Plans | Director Stock Option Plans | |||||||||||||||
|
Weighted Average
|
Weighted Average
|
|||||||||||||||
| Shares | Exercise Price | Shares | Exercise Price | |||||||||||||
|
Outstanding, January 1, 2009
|
7,743,827 | $ | 24.51 | 157,000 | $ | 23.25 | ||||||||||
|
Granted
|
1,252,270 | 30.56 | 48,000 | 30.17 | ||||||||||||
|
Exercised
|
(598,133 | ) | 14.24 | — | — | |||||||||||
|
Forfeited or expired
|
(21,287 | ) | 32.05 | — | — | |||||||||||
|
Outstanding at December 31, 2009
|
8,376,677 | $ | 26.13 | 205,000 | $ | 24.87 | ||||||||||
|
Exercisable at December 31, 2009
|
5,915,649 | $ | 23.34 | 157,000 | $ | 23.25 | ||||||||||
|
Weighted-Average Remaining Contractual Term (Years):
|
||||||||||||||||
|
Outstanding at December 31, 2009
|
5.9 | 4.9 | ||||||||||||||
|
Exercisable at December 31, 2009
|
4.8 | 4.1 | ||||||||||||||
|
Aggregate Intrinsic Value:
|
||||||||||||||||
|
Outstanding at December 31, 2009
|
$ | 82,668 | $ | 2,262 | ||||||||||||
|
Exercisable at December 31, 2009
|
$ | 74,078 | $ | 1,995 | ||||||||||||
|
Intrinsic Value of Options Exercised During the Years Ended:
|
||||||||||||||||
|
December 31, 2009
|
$ | 10,916 | $ | — | ||||||||||||
|
December 31, 2008
|
$ | 21,645 | $ | — | ||||||||||||
|
December 31, 2007
|
$ | 26,028 | $ | 1,262 | ||||||||||||
The fair value of shares vested during the years ended
December 31, 2009, 2008 and 2007 was $11.0 million,
$10.4 million and $9.5 million, respectively. Cash
received from option exercises was approximately
$8.9 million and the tax deduction from option exercises
was approximately $2.7 million in the year ended
December 31, 2009. As of December 31, 2009, the
remaining valuation of stock option awards to be expensed in
future periods was $5.4 million and the related
weighted-average period over which it is expected to be
recognized is 1.3 years.
The fair value of restricted stock grants is the market price of
the underlying shares on the grant date. A summary of restricted
stock unit activity as of December 31, 2009, and changes
during the period then ended is presented below:
|
Weighted-Average
|
||||||||
| Shares | Grant-Date Fair Value | |||||||
|
Nonvested at January 1, 2009
|
21,739 | $ | 32.03 | |||||
|
Granted
|
3,792 | 29.72 | ||||||
|
Vested
|
(10,353 | ) | 31.16 | |||||
|
Nonvested at December 31, 2009
|
15,178 | $ | 32.04 | |||||
Compensation expense recorded attributable to restricted stock
unit grants for the years ended December 31, 2009, 2008 and
2007 was approximately $143 thousand, $378 thousand and $449
thousand, respectively. The fair value of units vested during
the years ended December 31, 2009, 2008 and 2007 was $323
thousand, $262 thousand and $212 thousand, respectively. The
intrinsic value of units vested during the years ended
December 31, 2009, 2008 and 2007 was $319 thousand, $324
thousand and $290 thousand, respectively. As of
December 31, 2009, there was $3 thousand of total
unrecognized compensation cost relating to restricted stock unit
awards which is expected to be recognized over a weighted
average period of one year.
48 /ATR
2009
Form 10-K
Table of Contents
NOTE 16
EARNINGS PER SHARE
The reconciliation of basic and diluted earnings per share for
the years ended December 31, 2009, 2008 and 2007 are as
follows:
| 2009 | 2008 | 2007 | ||||||||||
|
Basic earnings per share computation Numerator:
|
||||||||||||
|
Income from continuing operations
|
$ | 124,597 | $ | 153,501 | $ | 139,474 | ||||||
|
Income from discontinued operations, net of tax
|
— | — | 2,232 | |||||||||
|
Net Income
|
$ | 124,597 | $ | 153,501 | $ | 141,706 | ||||||
|
Denominator:
|
||||||||||||
|
Basic shares outstanding
|
67,643 | 67,851 | 68,769 | |||||||||
|
Basic earnings per share from continuing operations
|
$ | 1.84 | $ | 2.26 | $ | 2.03 | ||||||
|
Basic earnings per share from discontinued operations
|
— | — | 0.03 | |||||||||
|
Basic net earnings per share
|
$ | 1.84 | $ | 2.26 | $ | 2.06 | ||||||
|
Diluted earnings per share computation
|
||||||||||||
|
Numerator:
|
||||||||||||
|
Income from continuing operations
|
$ | 124,597 | $ | 153,501 | $ | 139,474 | ||||||
|
Income from discontinued operations, net of tax
|
— | — | 2,232 | |||||||||
|
Net Income
|
$ | 124,597 | $ | 153,501 | $ | 141,706 | ||||||
|
Denominator:
|
||||||||||||
|
Basic shares outstanding
|
67,643 | 67,851 | 68,769 | |||||||||
|
Effect of Dilutive Securities
|
||||||||||||
|
Stock options
|
2,136 | 2,657 | 2,741 | |||||||||
|
Restricted stock
|
6 | 10 | 13 | |||||||||
|
Diluted shares outstanding
|
69,785 | 70,518 | 71,523 | |||||||||
|
Diluted earnings per share from continuing operations
|
$ | 1.79 | $ | 2.18 | $ | 1.95 | ||||||
|
Diluted earnings per share from discontinued operations
|
— | — | 0.03 | |||||||||
|
Diluted net earnings per share
|
$ | 1.79 | $ | 2.18 | $ | 1.98 | ||||||
NOTE 17
SEGMENT INFORMATION
The Company operates in the packaging components industry, which
includes the development, manufacture and sale of consumer
product dispensing systems. Operations that sell spray and
lotion dispensing systems primarily to the personal care,
fragrance/cosmetic and household markets form the
Beauty & Home segment. Operations that sell dispensing
systems to the pharmaceutical market form the Pharma segment.
Operations that sell closures to each market served by
AptarGroup form the Closures segment.
The accounting policies of the segments are the same as those
described in Note 1, Summary of Significant Accounting
Policies. The Company evaluates performance of its business
segments and allocates resources based upon earnings before
interest expense in excess of interest income, stock option and
corporate expenses and income taxes (collectively referred to as
“Segment Income”). These measures should not be
considered in isolation or as a substitute for net income, net
cash provided by operating activities or other income statement
or cash flow statement data prepared in accordance with GAAP or
as measures of profitability or liquidity. In addition, these
measures, as we determine them, may not be comparable to related
or similarly titled measures reported by other companies. The
Company accounts for intersegment sales and transfers as if the
sales or transfers were to third parties.
49 /ATR
2009
Form 10-K
Table of Contents
Financial information regarding the Company’s reportable
segments is shown below:
| Years Ended December 31, | 2009 | 2008 | 2007 | |||||||||
|
Total Sales:
|
||||||||||||
|
Beauty & Home
|
$ | 932,382 | $ | 1,086,413 | $ | 1,015,694 | ||||||
|
Closures
|
491,071 | 542,711 | 495,028 | |||||||||
|
Pharma
|
430,888 | 458,009 | 394,320 | |||||||||
|
Other
|
195 | 322 | 1,534 | |||||||||
|
Total Sales
|
$ | 1,854,536 | $ | 2,087,455 | $ | 1,906,576 | ||||||
|
Less: Intersegment Sales:
|
||||||||||||
|
Beauty & Home
|
$ | 11,712 | $ | 13,935 | $ | 10,476 | ||||||
|
Closures
|
523 | 966 | 2,028 | |||||||||
|
Pharma
|
492 | 553 | 452 | |||||||||
|
Other
|
193 | 316 | 1,453 | |||||||||
|
Total Intersegment Sales
|
$ | 12,920 | $ | 15,770 | $ | 14,409 | ||||||
|
Net Sales:
|
||||||||||||
|
Beauty & Home
|
$ | 920,669 | $ | 1,072,478 | $ | 1,005,218 | ||||||
|
Closures
|
490,548 | 541,745 | 493,000 | |||||||||
|
Pharma
|
430,397 | 457,456 | 393,868 | |||||||||
|
Other
|
2 | 6 | 81 | |||||||||
|
Net Sales
|
$ | 1,841,616 | $ | 2,071,685 | $ | 1,892,167 | ||||||
|
Segment Income:
|
||||||||||||
|
Beauty & Home
|
$ | 58,844 | $ | 89,724 | $ | 95,635 | ||||||
|
Closures
|
49,769 | 43,934 | 48,217 | |||||||||
|
Pharma
|
123,654 | 129,591 | 105,974 | |||||||||
|
Corporate and Other (1)
|
(35,057 | ) | (30,956 | ) | (37,171 | ) | ||||||
|
Income from continuing operations before interest and taxes
|
$ | 197,210 | $ | 232,293 | $ | 212,655 | ||||||
|
Interest expense, net
|
(13,152 | ) | (5,567 | ) | (10,574 | ) | ||||||
|
Income from continuing operations before income taxes
|
$ | 184,058 | $ | 226,726 | $ | 202,081 | ||||||
|
Depreciation and Amortization:
|
||||||||||||
|
Beauty & Home
|
$ | 74,865 | $ | 76,117 | $ | 71,752 | ||||||
|
Closures
|
31,564 | 30,696 | 29,341 | |||||||||
|
Pharma
|
23,685 | 22,231 | 20,894 | |||||||||
|
Other
|
2,899 | 2,101 | 1,479 | |||||||||
|
Depreciation and Amortization
|
$ | 133,013 | $ | 131,145 | $ | 123,466 | ||||||
|
Capital Expenditures:
|
||||||||||||
|
Beauty & Home
|
$ | 60,304 | $ | 87,191 | $ | 63,089 | ||||||
|
Closures
|
32,526 | 37,766 | 37,114 | |||||||||
|
Pharma
|
26,666 | 46,729 | 27,748 | |||||||||
|
Other
|
25,430 | 31,914 | 9,993 | |||||||||
|
Capital Expenditures
|
$ | 144,926 | $ | 203,600 | $ | 137,944 | ||||||
|
Total Assets:
|
||||||||||||
|
Beauty & Home
|
$ | 925,183 | $ | 946,592 | $ | 993,703 | ||||||
|
Closures
|
350,156 | 354,357 | 352,573 | |||||||||
|
Pharma
|
344,581 | 318,863 | 289,785 | |||||||||
|
Other
|
336,273 | 212,010 | 275,889 | |||||||||
|
Total Assets
|
$ | 1,956,193 | $ | 1,831,822 | $ | 1,911,950 | ||||||
| (1) | Corporate Expenses & Other includes $9.8 million, $11.1 million, and $14.0 million related to stock option expenses for the twelve months ended December 31, 2009, 2008, and 2007 respectively. These amounts also include $0.4 million of LIFO expense in 2009, $2.3 million of LIFO income in 2008 and $2.3 million of LIFO expense in 2007. |
50 /ATR
2009
Form 10-K
Table of Contents
GEOGRAPHIC
INFORMATION
The following are net sales and long-lived asset information by
geographic area and product information for the years ended
December 31, 2009, 2008 and 2007:
| 2009 | 2008 | 2007 | ||||||||||
|
Net Sales to Unaffiliated Customers (2):
|
||||||||||||
|
United States
|
$ | 519,671 | $ | 531,054 | $ | 498,231 | ||||||
|
Europe:
|
||||||||||||
|
France
|
483,051 | 615,470 | 536,694 | |||||||||
|
Germany
|
240,302 | 284,043 | 265,246 | |||||||||
|
Italy
|
129,257 | 156,704 | 157,791 | |||||||||
|
Other Europe
|
220,425 | 232,450 | 220,712 | |||||||||
|
Total Europe
|
1,073,035 | 1,288,667 | 1,180,443 | |||||||||
|
Other Foreign Countries
|
248,910 | 251,964 | 213,493 | |||||||||
|
Total
|
$ | 1,841,616 | $ | 2,071,685 | $ | 1,892,167 | ||||||
|
Long-Lived Assets:
|
||||||||||||
|
United States
|
$ | 263,126 | $ | 258,283 | $ | 225,074 | ||||||
|
Europe:
|
||||||||||||
|
France
|
292,927 | 291,078 | 262,109 | |||||||||
|
Germany
|
187,039 | 168,729 | 168,096 | |||||||||
|
Italy
|
91,632 | 90,389 | 99,581 | |||||||||
|
Other Europe
|
99,894 | 98,794 | 89,118 | |||||||||
|
Total Europe
|
671,492 | 648,990 | 618,904 | |||||||||
|
Other Foreign Countries
|
75,717 | 60,661 | 61,971 | |||||||||
|
Total
|
$ | 1,010,335 | $ | 967,934 | $ | 905,949 | ||||||
|
Product Net Sales Information:
|
||||||||||||
|
Pumps
|
$ | 895,188 | $ | 998,913 | $ | 948,855 | ||||||
|
Closures
|
465,001 | 499,434 | 455,650 | |||||||||
|
Valves
|
277,641 | 309,034 | 281,831 | |||||||||
|
Other
|
203,786 | 264,304 | 205,831 | |||||||||
|
Total
|
$ | 1,841,616 | $ | 2,071,685 | $ | 1,892,167 | ||||||
| (2) | Sales are attributed to countries based upon where the sales invoice to unaffiliated customers is generated. |
No single customer represents 10% or more of the Company’s
net sales in 2009, 2008 or 2007.
NOTE 18
ACQUISITIONS
In August 2009, the Company acquired Covit do Brasil Componentes
de Alumínio para Perfumaria Ltda. (Covit do Brasil) for
approximately $7.6 million in cash. Covit do Brasil has
been operating in Brazil since 2005 developing and supplying
anodized aluminum parts primarily for the fragrance/cosmetic
market. Covit do Brasil generally supplies parts to other
companies within AptarGroup. No debt was assumed in the
transaction. Covit do Brasil’s annual revenues are
approximately $7.0 million, of which approximately
$6.0 million are with AptarGroup subsidiaries. The excess
purchase price over the fair value of assets acquired was
allocated to Goodwill. Goodwill of approximately
$0.7 million was recorded on the transaction. The results
of operations subsequent to the acquisition are included in the
reported income statement. Covit do Brasil is included in the
Beauty and Home reporting segment.
In October 2008, the Company purchased the remaining 50% that it
did not already own of Seaplast S.A. for approximately
$6.3 million in cash. Seaplast S.A. is located in Spain and
primarily produces dispensing closures. The consolidated
statement of income includes Seaplast S.A.’s results of
operations from October 29, 2008, the date of the
acquisition. Prior to this date, 50% of Seaplast S.A.’s
results were included in equity and results from affiliates.
Goodwill of approximately $2.6 million was recorded on the
transaction. Seaplast S.A. is included in the Closures reporting
segment.
In April 2008, the Company acquired the equipment, inventory and
intellectual property of CCL Industries’
Bag-on-Valve
business (“CCLBOV”) for approximately
$9.3 million in cash. No debt was assumed in the
transaction. CCLBOV’s annual revenues are approximately
$9.0 million. The excess purchase price over the fair value
of assets acquired was allocated to Goodwill. Goodwill of
approximately $3.4 million was recorded on the transaction.
CCLBOV was located in Canada but the assets purchased were
transferred to existing AptarGroup facilities in the
U.S. before the end of the second quarter 2008. CCLBOV is
included in the Beauty & Home reporting segment.
51 /ATR
2009
Form 10-K
Table of Contents
At the end of March 2008, the Company acquired 70% of the
outstanding shares of Next Breath LLC (“Next Breath”)
for approximately $4.1 million in cash. No debt was assumed
in the transaction. Next Breath, located in Baltimore, Maryland,
is a contract service organization specializing in analytical
testing of nasal and inhalation products on behalf of
pharmaceutical, biotech, drug delivery and device companies.
Next Breath’s annual sales are approximately
$2.0 million. The excess purchase price over the fair value
of assets acquired and liabilities assumed was allocated to
Goodwill. Goodwill of approximately $3.7 million was
recorded on the transaction. Next Breath is included in the
Pharma reporting segment.
None of these acquisitions had a material impact on the results
of operations in 2009 or 2008 and therefore no proforma
information is required.
NOTE 19
QUARTERLY DATA (UNAUDITED)
Quarterly results of operations and per share information for
the years ended December 31, 2009 and 2008 are as follows:
| Quarter |
Total
|
|||||||||||||||||||
| First | Second | Third | Fourth | for Year | ||||||||||||||||
|
Year Ended December 31, 2009:
|
||||||||||||||||||||
|
Net sales
|
$ | 431,816 | $ | 440,508 | $ | 473,668 | $ | 495,624 | $ | 1,841,616 | ||||||||||
|
Gross profit (1)
|
113,020 | 118,899 | 120,233 | 130,619 | 482,771 | |||||||||||||||
|
Net Income
|
26,595 | 28,470 | 33,467 | 36,065 | 124,597 | |||||||||||||||
|
Per Common Share – 2009:
|
||||||||||||||||||||
|
Net income
|
||||||||||||||||||||
|
Basic
|
$ | .39 | $ | .42 | $ | .49 | $ | .53 | $ | 1.84 | ||||||||||
|
Diluted
|
.38 | .41 | .48 | .52 | 1.79 | |||||||||||||||
|
Dividends declared
|
.15 | .15 | .15 | .15 | .60 | |||||||||||||||
|
Stock price high (2)
|
36.08 | 34.26 | 38.09 | 38.96 | 38.96 | |||||||||||||||
|
Stock price low (2)
|
24.95 | 28.61 | 32.14 | 34.52 | 24.95 | |||||||||||||||
|
Average number of shares outstanding:
|
||||||||||||||||||||
|
Basic
|
67,677 | 67,705 | 67,691 | 67,500 | 67,643 | |||||||||||||||
|
Diluted
|
69,519 | 69,293 | 69,489 | 69,319 | 69,785 | |||||||||||||||
|
Year Ended December 31, 2008:
|
||||||||||||||||||||
|
Net sales
|
$ | 532,258 | $ | 551,319 | $ | 532,180 | $ | 455,928 | $ | 2,071,685 | ||||||||||
|
Gross profit (1)
|
137,751 | 145,305 | 134,305 | 118,164 | 535,525 | |||||||||||||||
|
Net Income
|
36,901 | 45,273 | 39,651 | 31,670 | 153,495 | |||||||||||||||
|
Per Common Share – 2008:
|
||||||||||||||||||||
|
Net income
|
||||||||||||||||||||
|
Basic
|
$ | .54 | $ | .67 | $ | .59 | $ | .47 | $ | 2.26 | ||||||||||
|
Diluted
|
.52 | .64 | .57 | .46 | 2.18 | |||||||||||||||
|
Dividends declared
|
.13 | .13 | .15 | .15 | .56 | |||||||||||||||
|
Stock price high (2)
|
42.72 | 46.19 | 44.03 | 39.75 | 46.19 | |||||||||||||||
|
Stock price low (2)
|
32.87 | 38.98 | 30.70 | 23.74 | 23.74 | |||||||||||||||
|
Average number of shares outstanding:
|
||||||||||||||||||||
|
Basic
|
68,168 | 68,038 | 67,670 | 67,535 | 67,851 | |||||||||||||||
|
Diluted
|
71,072 | 70,563 | 69,937 | 69,225 | 70,518 | |||||||||||||||
| (1) | Gross profit is defined as net sales less cost of sales and depreciation. | |
| (2) | The stock price high and low amounts are based upon intra-day New York Stock Exchange composite price history. |
52 /ATR
2009
Form 10-K
Table of Contents
NOTE 20 —
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 December 31, 2009, the fair values of our financial
assets and liabilities were categorized as follows:
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
|
Assets
|
||||||||||||||||
|
Interest rate swap (a)
|
$ | 574 | $ | — | $ | 574 | $ | — | ||||||||
|
Forward exchange contracts (b)
|
902 | — | 902 | — | ||||||||||||
|
Total assets at fair value
|
$ | 1,476 | $ | — | $ | 1,476 | $ | — | ||||||||
|
Liabilities
|
||||||||||||||||
|
Forward exchange contracts (b)
|
$ | 3,635 | $ | — | $ | 3,635 | $ | — | ||||||||
|
Total liabilities at fair value
|
$ | 3,635 | $ | — | $ | 3,635 | $ | — | ||||||||
As of December 31, 2008, the fair values of our financial
assets and liabilities were categorized as follows:
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
|
Assets
|
||||||||||||||||
|
Interest rate swap (a)
|
$ | 1,068 | $ | — | $ | 1,068 | $ | — | ||||||||
|
Forward exchange contracts (b)
|
10,865 | — | 10,865 | — | ||||||||||||
|
Total assets at fair value
|
$ | 11,933 | $ | — | $ | 11,933 | $ | — | ||||||||
|
Liabilities
|
||||||||||||||||
|
Forward exchange contracts (b)
|
$ | 1,195 | $ | — | $ | 1,195 | $ | — | ||||||||
|
Total liabilities at fair value
|
$ | 1,195 | $ | — | $ | 1,195 | $ | — | ||||||||
| (a) | Based on third party quotation from financial institution | |
| (b) | Based on observable market transactions of spot and forward rates |
Based on the variable borrowing rates currently available to the
Company for long-term obligations with similar terms and average
maturities, the fair value of the Company’s long-term
obligations approximates its book value.
NOTE 21 —
FACILITIES CONSOLIDATION AND SEVERANCE
In the second quarter of 2009, the Company announced a plan to
consolidate two French dispensing closure manufacturing
facilities and several sales offices in North America and
Europe. The total costs associated with the
consolidation/severance programs are estimated to be
approximately $8 million, of which $7.6 million was
recorded during 2009. The majority of the remaining costs are
expected to be recorded as incurred in the first half of 2010.
All charges related to the facilities consolidation and
severance program are reported separately in the income
statement.
As of December 31, 2009 we have recorded the following
pre-tax charges associated with our consolidation/severance
programs within the Condensed Consolidated Statements of Income:
|
Beginning
|
Charges For
|
Ending
|
||||||||||||||||||
|
Reserve at
|
The Year
|
Reserve at
|
||||||||||||||||||
| 1/01/09 | Ended 12/31/09 | Cash Paid | FX Impact | 12/31/09 | ||||||||||||||||
|
Employee severance
|
$ | — | $ | 6,034 | $ | (2,191 | ) | $ | (27 | ) | $ | 3,816 | ||||||||
|
Other costs
|
— | 1,529 | (902 | ) | (8 | ) | 619 | |||||||||||||
|
Totals
|
$ | — | $ | 7,563 | $ | (3,093 | ) | $ | (35 | ) | $ | 4,435 | ||||||||
53 /ATR
2009
Form 10-K
Table of Contents
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of AptarGroup, Inc.:
In our opinion, the consolidated financial statements listed in
the index appearing under Item 15(a)(1) present fairly, in
all material respects, the financial position of AptarGroup,
Inc. and its subsidiaries at December 31, 2009 and
December 31, 2008, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. In addition,
in our opinion, the financial statement schedule listed in the
index appearing under Item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read
in conjunction with the related consolidated financial
statements. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria
established in
Internal Control – Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in “Management’s Report
on Internal Control over Financial Reporting”, under
Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and
on the Company’s internal control over financial reporting
based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in Note 6, to the consolidated financial
statements, the Company changed the manner in which it accounts
for uncertain tax positions in 2007.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers
LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
February 26, 2010
54 /ATR
2009
Form 10-K
Table of Contents
ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. 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 such term is defined in
Rule 13a-15(e)
under the Securities Exchange Act of 1934) as of
December 31, 2009. 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.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934. Because of its
inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. The Company’s
management has evaluated, with the participation of the chief
executive officer and chief financial officer of the Company,
the effectiveness of our internal control over financial
reporting as of December 31, 2009 based on the framework in
Internal Control – Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation under the framework in
Internal Control – Integrated Framework
,
management has concluded that our internal control over
financial reporting was effective as of December 31, 2009.
PricewaterhouseCoopers LLP, independent registered public
accounting firm, has issued an attestation report on the
effectiveness of our internal control over financial reporting.
This report appears on page 57.
CHANGES IN
INTERNAL CONTROL OVER FINANCIAL REPORTING
No change in the Company’s internal control over financial
reporting (as such term is defined in
Rule 13a-15(f)
under the Securities Exchange Act of 1934) occurred during
the Company’s fiscal quarter ended December 31, 2009
that materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
ITEM 9B. OTHER
INFORMATION
None.
PART III
Certain information required to be furnished in this part of the
Form 10-K
has been omitted because the Company will file with the
Securities and Exchange Commission a definitive proxy statement
pursuant to Regulation 14A under the Securities Exchange
Act of 1934 no later than April 30, 2010.
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to directors may be found under the
caption “Proposal 1 – Election of
Directors” in the Company’s Proxy Statement for the
Annual Meeting of Stockholders to be held on May 5, 2010
(the “2010 Proxy Statement”) and is incorporated
herein by reference.
Information with respect to executive officers may be found
under the caption “Executive Officers” in Part I
of this report and is incorporated herein by reference.
Information with respect to audit committee members and audit
committee financial experts may be found under the caption
“Corporate Governance – Audit Committee” in
the 2010 Proxy Statement and is incorporated herein by reference.
Information with respect to the Company’s Code of Business
Conduct and Ethics may be found under the caption
“Corporate Governance – Code of Business Conduct
and Ethics” in the 2010 Proxy Statement and is incorporated
herein by reference. Our Code of Business Conduct and Ethics is
available through the Corporate Governance link on the Investor
Relations page of our website (www.aptar.com).
The information set forth under the heading
“Section 16(a) Beneficial Ownership Reporting
Compliance” in the 2010 Proxy Statement is incorporated
herein by reference.
55 /ATR
2009
Form 10-K
Table of Contents
ITEM 11. EXECUTIVE
COMPENSATION
The information set forth under the headings “Board
Compensation”, “Executive Officer Compensation”
and “Compensation Committee Report” in the 2010 Proxy
Statement is incorporated herein by reference. The information
included under the heading “Compensation Committee
Report” in the 2010 Proxy Statement shall not be deemed to
be “soliciting” material or to be “filed”
with the Securities and Exchange Commission or subject to
Regulation 14A or 14C, or to the liabilities of
Section 18 of the Securities Exchange Act of 1934, as
amended.
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information set forth under the heading “Security
Ownership of Certain Beneficial Owners, Directors and
Management” and “Equity Compensation Plan
Information” in the 2010 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
AND DIRECTOR INDEPENDENCE
The information set forth under the heading “Transactions
with Related Persons” and “Corporate
Governance – Independence of Directors” in the
2010 Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES
Information with respect to the independent registered public
accounting firm fees and services may be found under the caption
“Proposal 2 – Ratification of the
Appointment of the Independent Registered Public Accounting
Firm” in the 2010 Proxy Statement. Such information is
incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this
report:
| Description | ||||||||
| 1 | ) | All Financial Statements | ||||||
| The financial statements are set forth under Item 8 of this report on Form 10-K | ||||||||
| Consolidated Statements of Income | 27 | |||||||
| Consolidated Balance Sheets | 28 | |||||||
| Consolidated Statements of Cash Flows | 30 | |||||||
| Consolidated Statements of Changes in Equity | 31 | |||||||
| Notes to Consolidated Financial Statements | 32 | |||||||
| Report of Independent Registered Public Accounting Firm | 54 | |||||||
| 2 | ) | II – Valuation and Qualifying Accounts | 58 | |||||
| All other schedules have been omitted because they are not applicable or not required. | ||||||||
| (b) | Exhibits required by Item 601 of Regulation S-K are incorporated by reference to the Exhibit Index on pages 58-60 of this report. |
56 /ATR
2009
Form 10-K
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15
(d) 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 in the City of Crystal
Lake, State of Illinois on this 26th day of February 2010.
AptarGroup, Inc.
(Registrant)
| By |
/s/
Robert
W. Kuhn
|
Robert W. Kuhn
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant in the capacities and on the date
indicated.
| Signature | Title | Date | ||||
|
/s/
King
Harris
|
Chairman of the Board and Director | February 26, 2010 | ||||
|
/s/
Peter
Pfeiffer
|
President and Chief Executive Officer and Director (Principal Executive Officer) | February 26, 2010 | ||||
|
/s/
Stephen
J. Hagge
|
Executive Vice President, Chief Operating Officer, and Director | February 26, 2010 | ||||
|
/s/
Robert
W. Kuhn
|
Executive Vice President and
Chief Financial Officer (Principal Accounting and Financial Officer) |
February 26, 2010 | ||||
|
/s/
Stefan
A. Baustert
|
Director | February 26, 2010 | ||||
|
/s/
Alain
Chevassus
|
Director | February 26, 2010 | ||||
|
/s/
Rodney
L. Goldstein
|
Director | February 26, 2010 | ||||
|
/s/
Leo
A. Guthart
|
Director | February 26, 2010 | ||||
|
/s/
Carl
A. Siebel
|
Director | February 26, 2010 | ||||
|
/s/
Dr. Joanne
C. Smith
|
Director | February 26, 2010 | ||||
|
/s/
Ralf
Wunderlich
|
Director | February 26, 2010 | ||||
57 /ATR
2009
Form 10-K
Table of Contents
AptarGroup,
Inc.
SCHEDULE II —
VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 2009, 2008 and 2007
| Dollars in thousands | ||||||||||||||||||||
|
Balance at |
Charged to
|
Deductions
|
Balance
|
|||||||||||||||||
|
Beginning
|
Costs and
|
from
|
at End of
|
|||||||||||||||||
| Of Period | Expenses | Acquisitions | Reserve (a) | Period | ||||||||||||||||
|
2009
|
||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 11,900 | $ | 701 | $ | — | $ | (2,678 | ) | $ | 9,923 | |||||||||
|
Inventory obsolescence reserve
|
26,782 | 5,877 | 87 | (9,303 | ) | 23,443 | ||||||||||||||
|
Deferred tax valuation allowance
|
2,903 | 2,577 | — | — | 5,480 | |||||||||||||||
|
2008
|
||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 11,139 | $ | 3,063 | $ | — | $ | (2,302 | ) | $ | 11,900 | |||||||||
|
Inventory obsolescence reserve
|
27,079 | 5,880 | — | (6,177 | ) | 26,782 | ||||||||||||||
|
Deferred tax valuation allowance
|
4,396 | — | — | (1,493 | ) | 2,903 | ||||||||||||||
|
2007
|
||||||||||||||||||||
|
Allowance for doubtful accounts
|
$ | 10,963 | $ | 1,970 | $ | — | $ | (1,794 | ) | $ | 11,139 | |||||||||
|
Inventory obsolescence reserve
|
24,104 | 5,912 | — | (2,937 | ) | 27,079 | ||||||||||||||
|
Deferred tax valuation allowance
|
3,282 | 1,114 | — | — | 4,396 | |||||||||||||||
| (a) | Write-off accounts considered uncollectible, net of recoveries and foreign currency transaction adjustments. |
(a)
INDEX TO
EXHIBITS
|
Exhibit
|
||
| Number | Description | |
|
3(i)
|
Amended and Restated Certificate of Incorporation of AptarGroup, Inc., as amended, filed as Exhibit 4(a) to AptarGroup Inc.’s Registration Statement on Form S-8, Registration Number 333-152525, filed on July 25, 2008 (the “Form S-8”), is hereby incorporated by reference. | |
|
3(ii)
|
Amended and Restated By-Laws of the Company, filed as Exhibit 3(ii) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 1-11846), is hereby incorporated by reference. | |
|
4.1
|
Rights Agreement dated as of April 7, 2003 between the Company and Wells Fargo, as successor rights agent, which includes the Form of Rights Certificate as Exhibit B, filed as Exhibit 1 to the Company’s Registration Statement on Form 8-A filed on April 7, 2003 (File No. 1-11846), is hereby incorporated by reference. | |
|
4.2
|
Certificate of Designation to the Series B Junior Participating Preferred Stock of the Company, dated April 7, 2003, filed as Exhibit 2 of the Company’s Registration Statement on Form 8-A filed on April 7, 2003 (File No. 1-11846), is hereby incorporated by reference. | |
| The Company hereby agrees to provide the Commission, upon request, copies of instruments defining the rights of holders of long-term debt of the Registrant and its subsidiaries as are specified by item 601(b)(4)(iii)(A) of Regulation S-K. | ||
|
4.3
|
Note Purchase Agreement dated as of May 15, 1999 relating to $107 million senior unsecured notes, series 1999-A, filed as Exhibit 4.1 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-11846), is hereby incorporated by reference. | |
|
4.4
|
Amended and Restated Multicurrency Credit Agreement dated as of July 31, 2006 among AptarGroup, Inc., and AptarGroup Holding SAS, as borrowers, the lenders from time to time party thereto, Bank of America, N.A. as Administrative Agent, Banc of America Securities LLC as Sole Lead Arranger and Banc of America Securities LLC and JP Morgan Securities Inc. as Joint Bookrunners, filed as Exhibit 4.1 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2006 (File No. 1-11846), is hereby incorporated by reference. | |
|
4.5
|
Note Purchase Agreement dated as of July 31, 2006, among AptarGroup, Inc. and the purchasers listed on Schedule A thereto, filed as Exhibit 4.2 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2006 (File No. 1-11846), is hereby incorporated by reference. | |
|
4.6
|
Form of AptarGroup, Inc. 6.04% Series 2006-A Senior Notes Due July 31, 2016, filed as Exhibit 4.3 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2006 (File No. 1-11846), is hereby incorporated by reference. | |
|
4.7
|
Note Purchase Agreement dated as of July 31, 2008, among AptarGroup, Inc. and the purchasers listed on Schedule A thereto, filed as Exhibit 4.1 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2008 (File No. 1-11846), is hereby incorporated by reference. |
58 /ATR
2009
Form 10-K
Table of Contents
|
Exhibit
|
||
| Number | Description | |
|
4.8
|
Form of AptarGroup, Inc. 5.41% Series 2008-A-1 Senior Notes Due July 31, 2013, filed as Exhibit 4.2 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2008 (File No. 1-11846), is hereby incorporated by reference. | |
|
4.9
|
Form of AptarGroup, Inc. 6.03% Series 2008-A-2 Senior Notes Due July 31, 2018, filed as Exhibit 4.2 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2008 (File No. 1-11846), is hereby incorporated by reference. | |
|
10.1
|
AptarGroup, Inc. 1996 Stock Awards Plan, filed as Appendix A to the Company’s Proxy Statement, dated April 10, 1996 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.2
|
AptarGroup, Inc. 1996 Director Stock Option Plan, filed as Appendix B to the Company’s Proxy Statement, dated April 10, 1996 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.3
|
AptarGroup, Inc. 2000 Stock Awards Plan, filed as Appendix A to the Company’s Proxy Statement, dated April 6, 2000 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.4
|
AptarGroup, Inc. 2000 Director Stock Option Plan, filed as Appendix B to the Company’s Proxy Statement, dated April 6, 2000 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.5
|
AptarGroup, Inc. 2004 Stock Awards Plan, filed as Appendix A to the Company’s Proxy Statement, dated March 26, 2004 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.6
|
AptarGroup, Inc. 2004 Director Stock Option Plan, filed as Appendix B to the Company’s Proxy Statement, dated March 26, 2004 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.7
|
AptarGroup, Inc., Stock Option Agreement for Employees pursuant to the AptarGroup, Inc. 2004 Stock Awards Plan, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.8
|
AptarGroup, Inc. Stock Option Agreement for Non-Employee Directors pursuant to the AptarGroup, Inc. 2004 Director Option Plan, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.9
|
AptarGroup, Inc. Stock Option Agreement for Employees pursuant to the AptarGroup, Inc. 2000 Stock Awards Plan, filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.10
|
AptarGroup, Inc. Restricted Stock Unit Award Agreement pursuant to the AptarGroup, Inc. 2000 Stock Awards Plan, filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.11
|
Supplementary Pension Plan – France dated August 24, 2001, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.12
|
AptarGroup, Inc. Supplemental Retirement Plan dated October 6, 2008, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.13
|
Employment Agreement dated October 17, 2007 of Peter Pfeiffer, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 17, 2007 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.14
|
German Employment Agreement dated October 17, 2007 of Peter Pfeiffer, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 17, 2007 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.15
|
Service Agreement dated April 30, 1981, of Carl A. Siebel, and related pension plan, filed as Exhibit 10.5 to the Company’s Registration Statement on Form S-1, Registration Number 33-58132, filed February 10, 1993, is hereby incorporated by reference.** | |
|
10.16
|
First supplement dated 1989 pertaining to the pension plan between Perfect-Valois Ventil GmbH and Carl A. Siebel, filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1993 (file No. 1-11846), is hereby incorporated by reference.** | |
|
10.17
|
Second supplement dated December 19, 1994 pertaining to the pension plan between Perfect-Valois Ventil GmbH and Carl A. Siebel, filed as Exhibit 10.11 of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.18
|
Supplement to the Pension Scheme Arrangement dated October 17, 2007 pertaining to the pension plan between a subsidiary of AptarGroup, Inc. and Peter Pfeiffer, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 17, 2007 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.19
|
Consulting Agreement between AptarGroup, Inc. and Carl Siebel Consulting GmbH dated October 17, 2007, filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 17, 2007 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.20
|
First amendment to Consulting Agreement between AptarGroup, Inc. and Carl Siebel Consulting GmbH dated October 30, 2009, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 1-11846), is hereby incorporated by reference.** |
59 /ATR
2009
Form 10-K
Table of Contents
|
Exhibit
|
||
| Number | Description | |
|
10.21
|
Indemnification Agreement dated January 1, 1996 of King Harris, filed as Exhibit 10.25 to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2001 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.22
|
Employment Agreement dated July 18, 2008 of Stephen J. Hagge, filed as Exhibit 10.7 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2008 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.23
|
Employment Agreement dated July 18, 2008 of Eric Ruskoski, filed as Exhibit 10.8 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2008 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.24
|
Notice of termination of automatic extension of Employment Agreement of Eric Ruskoski dated October 30, 2009, filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.25
|
Employment Agreement dated January 18, 2008 of Olivier Fourment filed as Exhibit 10.9 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2008 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.26
|
Employment Agreement dated January 18, 2008 of Olivier de Pous filed as Exhibit 10.10 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2008 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.27*
|
Employment Agreement dated December 1, 2003 and amended and restated as of July 18, 2008 of Patrick F. Doherty filed herewith.** | |
|
10.28
|
Severance Agreement dated July 18, 2008 of Robert Kuhn filed as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2008 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.29
|
AptarGroup, Inc. Annual Bonus Plan, filed as Exhibit 10.2 to AptarGroup, Inc.’s Current Report on Form 8-K filed on May 1, 2008, is hereby incorporated by reference.** | |
|
10.30
|
AptarGroup, Inc. 2008 Stock Option Plan, filed as Exhibit 10.3 to AptarGroup, Inc.’s Current Report on Form 8-K filed on May 1, 2008, is hereby incorporated by reference.** | |
|
10.31
|
AptarGroup, Inc. 2008 Director Stock Option Plan, filed as Exhibit 10.1 to AptarGroup, Inc.’s Current Report on Form 8-K filed on May 1, 2008, is hereby incorporated by reference.** | |
|
10.32
|
Form of AptarGroup, Inc. Stock Option Agreement for Employees pursuant to the AptarGroup, Inc. 2008 Stock Option Plan filed as Exhibit 10.4 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2008 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.33
|
Form of AptarGroup, Inc. Stock Option Agreement for Non-Employee Directors pursuant to the AptarGroup, Inc. 2008 Director Stock Option Plan filed as Exhibit 10.5 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2008 (File No. 1-11846), is hereby incorporated by reference.** | |
|
10.34*
|
Form of AptarGroup, Inc. Restricted Stock Unit Award Agreement pursuant to the AptarGroup, Inc. 2004 Stock Awards Plan, filed as Exhibit 10.6 to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2008 (File No. 1-11846), and amended as of January 1, 2010, filed herewith.** | |
|
21*
|
List of Subsidiaries. | |
|
23*
|
Consent of Independent Registered Public Accounting Firm. | |
|
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. |
| * | Filed herewith. | |
| ** | Management contract or compensatory plan or arrangement. |
60 /ATR
2009
Form 10-K
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. Submission Of Matters To A Vote Of Security HoldersprintPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholder Matters, Issuer Purchases Of Equity Securities and Share PerformanceprintItem 6. Selected Consolidated Financial DataprintItem 7. Management S Discussion and Analysis Of Consolidated Results Of Operations and Financial ConditionprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintNote 1 Summary Of Significant Accounting PoliciesprintNote 2 Discontinued OperationsprintNote 3 InventoriesprintNote 4 Goodwill and Other Intangible AssetsprintNote 5 Accounts Payable and Accrued LiabilitiesprintNote 6 Income TaxesprintNote 7 DebtprintNote 8 Lease CommitmentsprintNote 9 Retirement and Deferred Compensation PlansprintNote 10 Derivative Instruments and Hedging ActivitiesprintNote 11 Commitments and ContingenciesprintNote 12 Preferred Stock Purchase RightsprintNote 13 Stock Repurchase ProgramprintNote 14 Accumulated Other Comprehensive Income (loss)printNote 15 Stock-based CompensationprintNote 16 Earnings Per ShareprintNote 17 Segment InformationprintNote 18 AcquisitionsprintNote 19 Quarterly Data (unaudited)printNote 20 Fair ValueprintNote 21 Facilities Consolidation and SeveranceprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accounting Fees and ServicesprintPart IVprintItem 15. Exhibits and Financial Statement Schedulesprint