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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-11846
AptarGroup, Inc.
|
DELAWARE |
|
36-3853103 |
|
(State of Incorporation) |
|
(I.R.S. Employer Identification No.) |
475 WEST TERRA COTTA AVENUE, SUITE E, CRYSTAL LAKE, ILLINOIS 60014
815-477-0424
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer ☑ |
Accelerated filer ☐ |
Non-accelerated filer ☐ |
Smaller reporting company ☐ |
Emerging growth company ☐ |
||
|
(Do not check if a smaller reporting company) |
||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
Class |
|
Outstanding at April 24, 2017 |
|
Common Stock, $.01 par value per share |
|
62,428,755 shares |
AptarGroup, Inc.
Form 10-Q
Quarter Ended March 31, 2017
i
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOM E
(Unaudited)
|
In thousands, except per share amounts |
|
||||||
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
601,316 |
|
$ |
582,338 |
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization shown below) |
|
|
384,932 |
|
|
374,203 |
|
|
Selling, research & development and administrative |
|
|
101,516 |
|
|
103,015 |
|
|
Depreciation and amortization |
|
|
37,331 |
|
|
35,887 |
|
|
|
|
|
523,779 |
|
|
513,105 |
|
|
Operating Income |
|
|
77,537 |
|
|
69,233 |
|
|
|
|
|
|
|
|
|
|
|
Other (Expense) Income: |
|
|
|
|
|
|
|
|
Interest expense |
|
|
(8,262) |
|
|
(8,591) |
|
|
Interest income |
|
|
330 |
|
|
584 |
|
|
Equity in results of affiliates |
|
|
(48) |
|
|
(121) |
|
|
Miscellaneous, net |
|
|
(77) |
|
|
(1,260) |
|
|
|
|
|
(8,057) |
|
|
(9,388) |
|
|
|
|
|
|
|
|
|
|
|
Income before Income Taxes |
|
|
69,480 |
|
|
59,845 |
|
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes |
|
|
17,675 |
|
|
15,979 |
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
51,805 |
|
$ |
43,866 |
|
|
|
|
|
|
|
|
|
|
|
Net Loss (Income) Attributable to Noncontrolling Interests |
|
$ |
15 |
|
$ |
(3) |
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to AptarGroup, Inc. |
|
$ |
51,820 |
|
$ |
43,863 |
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to AptarGroup, Inc. per Common Share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.83 |
|
$ |
0.70 |
|
|
Diluted |
|
$ |
0.81 |
|
$ |
0.67 |
|
|
|
|
|
|
|
|
|
|
|
Average Number of Shares Outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per Common Share |
|
$ |
|
|
$ |
0.30 |
|
See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.
1
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOM E
(Unaudited)
|
In thousands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
51,805 |
|
$ |
43,866 |
|
|
Other Comprehensive Income: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
23,186 |
|
|
65,172 |
|
|
Changes in treasury locks, net of tax |
|
|
7 |
|
|
7 |
|
|
Defined benefit pension plan, net of tax |
|
|
|
|
|
|
|
|
Amortization of prior service cost included in net income, net of tax |
|
|
67 |
|
|
57 |
|
|
Amortization of net loss included in net income, net of tax |
|
|
812 |
|
|
776 |
|
|
Total defined benefit pension plan, net of tax |
|
|
879 |
|
|
833 |
|
|
Total other comprehensive income |
|
|
24,072 |
|
|
66,012 |
|
|
Comprehensive Income |
|
|
75,877 |
|
|
109,878 |
|
|
Comprehensive Loss (Income) Attributable to Noncontrolling Interests |
|
|
13 |
|
|
(4) |
|
|
Comprehensive Income Attributable to AptarGroup, Inc. |
|
$ |
75,890 |
|
$ |
109,874 |
|
See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.
2
AptarGroup, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET S
(Unaudited)
|
In thousands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and equivalents |
|
$ |
284,727 |
|
$ |
466,287 |
|
|
Accounts and notes receivable, less allowance for doubtful accounts of $3,193 in 2017 and $2,989 in 2016 |
|
|
474,957 |
|
|
433,127 |
|
|
Inventories |
|
|
309,592 |
|
|
296,914 |
|
|
Prepaid and other |
|
|
87,458 |
|
|
73,842 |
|
|
|
|
|
1,156,734 |
|
|
1,270,170 |
|
|
Property, Plant and Equipment: |
|
|
|
|
|
|
|
|
Buildings and improvements |
|
|
378,474 |
|
|
368,260 |
|
|
Machinery and equipment |
|
|
1,983,899 |
|
|
1,938,352 |
|
|
|
|
|
2,362,373 |
|
|
2,306,612 |
|
|
Less: Accumulated depreciation |
|
|
(1,587,690) |
|
|
(1,545,384) |
|
|
|
|
|
774,683 |
|
|
761,228 |
|
|
Land |
|
|
23,947 |
|
|
23,093 |
|
|
|
|
|
798,630 |
|
|
784,321 |
|
|
Other Assets: |
|
|
|
|
|
|
|
|
Investments in affiliates |
|
|
9,262 |
|
|
4,241 |
|
|
Goodwill |
|
|
411,272 |
|
|
407,522 |
|
|
Intangible assets |
|
|
92,991 |
|
|
94,489 |
|
|
Miscellaneous |
|
|
54,750 |
|
|
46,042 |
|
|
|
|
|
568,275 |
|
|
552,294 |
|
|
Total Assets |
|
$ |
2,523,639 |
|
$ |
2,606,785 |
|
See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.
3
AptarGroup, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
In thousands, except share and per share amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
5,680 |
|
$ |
169,213 |
|
|
Current maturities of long-term obligations, net of unamortized debt issuance costs |
|
|
4,258 |
|
|
4,603 |
|
|
Accounts payable and accrued liabilities |
|
|
402,993 |
|
|
369,139 |
|
|
|
|
|
412,931 |
|
|
542,955 |
|
|
Long-Term Obligations, net of unamortized debt issuance costs |
|
|
771,291 |
|
|
772,737 |
|
|
Deferred Liabilities and Other: |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
16,269 |
|
|
16,803 |
|
|
Retirement and deferred compensation plans |
|
|
77,107 |
|
|
94,545 |
|
|
Deferred and other non-current liabilities |
|
|
5,424 |
|
|
5,503 |
|
|
Commitments and contingencies |
|
|
— |
|
|
— |
|
|
|
|
|
98,800 |
|
|
116,851 |
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
AptarGroup, Inc. stockholders’ equity |
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 199 million shares authorized, 66.2 and 66.0 million shares issued as of March 31, 2017 and December 31, 2016, respectively |
|
|
662 |
|
|
660 |
|
|
Capital in excess of par value |
|
|
563,657 |
|
|
546,682 |
|
|
Retained earnings |
|
|
1,215,037 |
|
|
1,197,234 |
|
|
Accumulated other comprehensive (loss) |
|
|
(295,639) |
|
|
(319,709) |
|
|
Less: Treasury stock at cost, 3.7 and 3.9 million shares as of March 31, 2017 and December 31, 2016, respectively |
|
|
(243,379) |
|
|
(250,917) |
|
|
Total AptarGroup, Inc. Stockholders’ Equity |
|
|
1,240,338 |
|
|
1,173,950 |
|
|
Noncontrolling interests in subsidiaries |
|
|
279 |
|
|
292 |
|
|
Total Stockholders’ Equity |
|
|
1,240,617 |
|
|
1,174,242 |
|
|
Total Liabilities and Stockholders’ Equity |
|
$ |
2,523,639 |
|
$ |
2,606,785 |
|
See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.
4
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUIT Y
(Unaudited)
|
In thousands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AptarGroup, Inc. Stockholders’ Equity |
|
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
Other |
|
Common |
|
|
|
Capital in |
|
Non- |
|
|
|
|||||||
|
|
|
Retained |
|
Comprehensive |
|
Stock |
|
Treasury |
|
Excess of |
|
Controlling |
|
Total |
|
|||||||
|
|
|
Earnings |
|
(Loss) Income |
|
Par Value |
|
Stock |
|
Par Value |
|
Interest |
|
Equity |
|
|||||||
|
Balance - December 31, 2015 |
|
$ |
1,185,681 |
|
$ |
(262,347) |
|
$ |
667 |
|
$ |
(270,052) |
|
$ |
495,462 |
|
$ |
295 |
|
$ |
1,149,706 |
|
|
Net income |
|
|
43,863 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3 |
|
|
43,866 |
|
|
Foreign currency translation adjustments |
|
|
— |
|
|
65,171 |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
|
65,172 |
|
|
Changes in unrecognized pension gains/losses and related amortization, net of tax |
|
|
— |
|
|
833 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
833 |
|
|
Changes in treasury locks, net of tax |
|
|
— |
|
|
7 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7 |
|
|
Stock awards and option exercises |
|
|
— |
|
|
— |
|
|
3 |
|
|
10,533 |
|
|
24,945 |
|
|
— |
|
|
35,481 |
|
|
Cash dividends declared on common stock |
|
|
(18,770) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(18,770) |
|
|
Common stock repurchased and retired |
|
|
(7,860) |
|
|
— |
|
|
(1) |
|
|
— |
|
|
(780) |
|
|
— |
|
|
(8,641) |
|
|
Balance - March 31, 2016 |
|
$ |
1,202,914 |
|
$ |
(196,336) |
|
$ |
669 |
|
$ |
(259,519) |
|
$ |
519,627 |
|
$ |
299 |
|
$ |
1,267,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2016 |
|
$ |
1,197,234 |
|
$ |
(319,709) |
|
$ |
660 |
|
$ |
(250,917) |
|
$ |
546,682 |
|
$ |
292 |
|
$ |
1,174,242 |
|
|
Net income |
|
|
51,820 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(15) |
|
|
51,805 |
|
|
Foreign currency translation adjustments |
|
|
— |
|
|
23,184 |
|
|
— |
|
|
— |
|
|
— |
|
|
2 |
|
|
23,186 |
|
|
Changes in unrecognized pension gains/losses and related amortization, net of tax |
|
|
— |
|
|
879 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
879 |
|
|
Changes in treasury locks, net of tax |
|
|
— |
|
|
7 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7 |
|
|
Stock awards and option exercises |
|
|
— |
|
|
— |
|
|
4 |
|
|
7,538 |
|
|
18,912 |
|
|
— |
|
|
26,454 |
|
|
Cash dividends declared on common stock |
|
|
(19,937) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(19,937) |
|
|
Common stock repurchased and retired |
|
|
(14,080) |
|
|
— |
|
|
(2) |
|
|
— |
|
|
(1,937) |
|
|
— |
|
|
(16,019) |
|
|
Balance - March 31, 2017 |
|
$ |
1,215,037 |
|
$ |
(295,639) |
|
$ |
662 |
|
$ |
(243,379) |
|
$ |
563,657 |
|
$ |
279 |
|
$ |
1,240,617 |
|
See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.
5
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW S
(Unaudited)
|
In thousands, brackets denote cash outflows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
51,805 |
|
$ |
43,866 |
|
|
Adjustments to reconcile net income to net cash provided by operations: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
34,902 |
|
|
34,401 |
|
|
Amortization |
|
|
2,429 |
|
|
1,486 |
|
|
Stock based compensation |
|
|
7,748 |
|
|
10,104 |
|
|
Provision for doubtful accounts |
|
|
147 |
|
|
13 |
|
|
Deferred income taxes |
|
|
(2,492) |
|
|
(867) |
|
|
Defined benefit plan expense |
|
|
4,239 |
|
|
4,194 |
|
|
Equity in results of affiliates |
|
|
48 |
|
|
121 |
|
|
Changes in balance sheet items, excluding effects from foreign currency adjustments: |
|
|
|
|
|
|
|
|
Accounts and other receivables |
|
|
(35,865) |
|
|
(70,863) |
|
|
Inventories |
|
|
(7,913) |
|
|
(1,792) |
|
|
Prepaid and other current assets |
|
|
(13,320) |
|
|
(14,646) |
|
|
Accounts payable and accrued liabilities |
|
|
26,269 |
|
|
11,362 |
|
|
Income taxes payable |
|
|
1,981 |
|
|
(737) |
|
|
Retirement and deferred compensation plan liabilities |
|
|
(21,272) |
|
|
(15,151) |
|
|
Other changes, net |
|
|
(7,733) |
|
|
10,386 |
|
|
Net Cash Provided by Operations |
|
|
40,973 |
|
|
11,877 |
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(34,848) |
|
|
(24,218) |
|
|
Proceeds from sale of property and equipment, including insurance proceeds |
|
|
989 |
|
|
1,234 |
|
|
Maturity of short-term investments |
|
|
— |
|
|
29,485 |
|
|
Acquisition of business, net of cash acquired |
|
|
— |
|
|
(202,985) |
|
|
Acquisition of intangible assets |
|
|
— |
|
|
(2,514) |
|
|
Investment in unconsolidated affiliate |
|
|
(5,000) |
|
|
— |
|
|
Notes receivable, net |
|
|
445 |
|
|
319 |
|
|
Net Cash Used by Investing Activities |
|
|
(38,414) |
|
|
(198,679) |
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
(Repayments of) proceeds from notes payable |
|
|
(163,665) |
|
|
75,180 |
|
|
Proceeds from long-term obligations |
|
|
— |
|
|
101 |
|
|
Repayments of long-term obligations |
|
|
(2,268) |
|
|
(1,047) |
|
|
Dividends paid |
|
|
(19,937) |
|
|
(18,770) |
|
|
Proceeds from stock option exercises |
|
|
15,908 |
|
|
20,960 |
|
|
Common stock repurchased and retired |
|
|
(16,019) |
|
|
(8,641) |
|
|
Excess tax benefit from exercise of stock options |
|
|
— |
|
|
3,764 |
|
|
Net Cash (Used) Provided by Financing Activities |
|
|
(185,981) |
|
|
71,547 |
|
|
Effect of Exchange Rate Changes on Cash |
|
|
1,862 |
|
|
11,326 |
|
|
Net Decrease in Cash and Equivalents |
|
|
(181,560) |
|
|
(103,929) |
|
|
Cash and Equivalents at Beginning of Period |
|
|
466,287 |
|
|
489,901 |
|
|
Cash and Equivalents at End of Period |
|
$ |
284,727 |
|
$ |
385,972 |
|
See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.
6
AptarGroup, Inc.
Notes to Condensed Consolidated Financial Statement s
(Dollars in Thousands, Except per Share Amounts, or as Otherwise Indicated)
(Unaudited)
BASIS OF PRESENTATION
The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of AptarGroup, Inc. and our subsidiaries. The terms “AptarGroup”, “Aptar” or “Company” as used herein refer to AptarGroup, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated.
In the opinion of management, the Unaudited Condensed Consolidated Financial Statements include all normal recurring adjustments necessary for a fair statement of consolidated financial position, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. Also, certain financial position data included herein was derived from the Audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 but does not include all disclosures required by U.S. GAAP. Accordingly, these Unaudited Condensed Consolidated Financial Statements and related notes should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification.
In May 2014, the FASB amended the guidance for recognition of revenue from customer contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB decided to defer the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also decided to allow early adoption of the standard, but not before the original effective date of December 15, 2016. Subsequent to the initial standards, the FASB has also issued several ASUs to clarify specific revenue recognition topics. We continue to evaluate the impact the adoption of this standard will have on our Consolidated Financial Statements. The majority of our revenues are derived from product sales and tooling sales and we are in the process of assessing the impact of the new guidance on these revenue streams. We are also evaluating our license, exclusivity and royalty arrangements, which will need to be reviewed individually to ensure proper accounting under the new standard. Based on our reviews performed to date, we continue to anticipate adopting the full retrospective transition method for implementing this guidance on the standard’s effective date.
In July 2015, the FASB issued new guidance for simplifying the measurement of inventory. The core principle of the guidance is that an entity should measure inventory at the lower of cost and net realizable value. This standard is effective for annual reporting periods beginning after December 15, 2016. The Company has adopted the requirements of the standard and has determined that the impact is not material to our current year financial statements.
In March 2016, the FASB issued guidance that eliminates the requirement that an investor retrospectively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for the equity method. The guidance requires that an equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The new standard is effective for fiscal years and interim periods beginning after December 15, 2016. The adoption of the new rules did not have an impact on our financial statements.
7
In March 2016, the FASB issued guidance that changes the accounting for certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The new standard is effective for fiscal years and interim periods beginning after December 15, 2016. The Company has prospectively adopted the standard resulting in $2.7 million of additional tax deductions that would have been previously recorded in stockholders’ equity now being reported as a reduction in tax expense for the quarter ended March 31, 2017. The amount of excess tax benefits and deficiencies recognized in the provision for income taxes will fluctuate from period to period based on the price of the Company’s stock, the volume of share-based instruments settled or vested, and the value assigned to share-based instruments under U.S. GAAP. We have also prospectively adopted the standard for the presentation of the condensed consolidated statements of cash flows. The impact of excess tax benefits from exercise of stock options is now shown within cash flows from operating activities instead of cash flows from financing activities. In addition, the Company has elected to continue its current practice of estimating expected forfeitures.
Other accounting standards that have been issued by the FASB or other standards-setting bodies did not have a material impact on our Consolidated Financial Statements.
RETIREMENT OF COMMON STOCK
During the first quarter of 2017 and 2016, the Company repurchased and immediately retired 210 thousand and 113 thousand shares of common stock, respectively. Common stock was reduced by the number of shares retired at $0.01 par value per share. The excess of purchase price over par value may be charged entirely to retained earnings or may be allocated between additional paid-in capital and retained earnings. The Company has elected to allocate the excess purchase price over par value between additional paid-in capital and retained earnings.
INCOME TAXES
The Company computes taxes on income in accordance with the tax rules and regulations of the many taxing authorities where income is earned. The income tax rates imposed by these taxing authorities may vary substantially. Taxable income may differ from pre-tax income for financial accounting purposes. To the extent that these differences create differences between the tax basis of an asset or liability and our reported amount in the financial statements, an appropriate provision for deferred income taxes is made.
In making the determination of which foreign earnings are permanently reinvested in foreign operations, the Company considers numerous factors, including the financial requirements of the U.S. parent company and those of our foreign subsidiaries, the U.S. funding needs for dividend payments and stock repurchases, and the tax consequences of remitting earnings to the U.S. From this analysis, current year repatriation decisions are made in an attempt to provide a proper mix of debt and stockholder capital both within the U.S. and for non-U.S. operations. During 2016, the Company decided to repatriate a portion of our 2016 and 2017 foreign earnings. In the first quarter of 2017, the Company repatriated $263 million, most of which was used to reduce existing debt levels and fund stock repurchases. To better balance our capital structure, the Company is also planning to repatriate an additional $750 million of earnings previously designated as indefinitely reinvested, and therefore has removed the indefinite reinvestment assertion on such amounts. There are no significant tax consequences expected from either repatriation due to the amount of tax credits associated with the repatriation under current U.S. tax law. The Company maintains its assertion that the approximately $550 million of remaining foreign earnings are permanently reinvested. As such, the Company does not provide for taxes on these earnings.
The Company provides a liability for the amount of unrecognized tax benefits from uncertain tax positions. This liability is provided whenever the Company determines that a tax benefit will not meet a more-likely-than-not threshold for recognition. See Note 4 of the Unaudited Notes to the Condensed Consolidated Financial Statements for more information.
8
Inventories, by component, consisted of:
|
|
|
March 31, |
|
December 31, |
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
101,195 |
|
$ |
98,014 |
|
|
Work in process |
|
|
91,029 |
|
|
91,646 |
|
|
Finished goods |
|
|
117,368 |
|
|
107,254 |
|
|
Total |
|
$ |
309,592 |
|
$ |
296,914 |
|
The changes in the carrying amount of goodwill since December 31, 2016 are as follows by reporting segment:
|
|
|
Beauty + |
|
|
|
|
Food + |
|
Corporate |
|
|
|
|
|||
|
|
|
Home |
|
Pharma |
|
Beverage |
|
& Other |
|
Total |
|
|||||
|
Goodwill |
|
$ |
211,371 |
|
$ |
180,050 |
|
$ |
16,101 |
|
$ |
1,615 |
|
$ |
409,137 |
|
|
Accumulated impairment losses |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,615) |
|
|
(1,615) |
|
|
Balance as of December 31, 2016 |
|
$ |
211,371 |
|
$ |
180,050 |
|
$ |
16,101 |
|
$ |
— |
|
$ |
407,522 |
|
|
Foreign currency exchange effects |
|
|
1,558 |
|
|
2,118 |
|
|
74 |
|
|
— |
|
|
3,750 |
|
|
Goodwill |
|
$ |
212,929 |
|
$ |
182,168 |
|
$ |
16,175 |
|
$ |
1,615 |
|
$ |
412,887 |
|
|
Accumulated impairment losses |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,615) |
|
|
(1,615) |
|
|
Balance as of March 31, 2017 |
|
$ |
212,929 |
|
$ |
182,168 |
|
$ |
16,175 |
|
$ |
— |
|
$ |
411,272 |
|
The table below shows a summary of intangible assets as of March 31, 2017 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017 |
|
|
December 31, 2016 |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
Gross |
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
||||
|
Amortization Period |
|
Carrying |
|
Accumulated |
|
Net |
|
Carrying |
|
Accumulated |
|
Net |
|
||||||||
|
|
|
(Years) |
|
Amount |
|
Amortization |
|
Value |
|
Amount |
|
Amortization |
|
Value |
|
||||||
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents |
|
0.2 |
|
$ |
6,946 |
|
$ |
(6,928) |
|
$ |
18 |
|
$ |
6,859 |
|
$ |
(6,839) |
|
$ |
20 |
|
|
Acquired technology |
|
14.9 |
|
|
42,263 |
|
|
(10,874) |
|
|
31,389 |
|
|
41,731 |
|
|
(10,040) |
|
|
31,691 |
|
|
Customer relationships |
|
11.8 |
|
|
63,542 |
|
|
(8,144) |
|
|
55,398 |
|
|
63,006 |
|
|
(6,696) |
|
|
56,310 |
|
|
License agreements and other |
|
8.0 |
|
|
18,399 |
|
|
(12,213) |
|
|
6,186 |
|
|
18,516 |
|
|
(12,048) |
|
|
6,468 |
|
|
Total intangible assets |
|
11.7 |
|
$ |
131,150 |
|
$ |
(38,159) |
|
$ |
92,991 |
|
$ |
130,112 |
|
$ |
(35,623) |
|
$ |
94,489 |
|
Aggregate amortization expense for the intangible assets above for the quarters ended March 31, 2017 and 2016 was $2,429 and $1,486, respectively.
Future estimated amortization expense for the years ending December 31 is as follows:
|
2017 |
|
$ |
7,334 |
|
(remaining estimated amortization for 2017) |
|
2018 |
|
|
9,755 |
|
|
|
2019 |
|
|
9,587 |
|
|
|
2020 |
|
|
8,476 |
|
|
|
2021 and thereafter |
|
|
57,839 |
|
|
9
Future amortization expense may fluctuate depending on changes in foreign currency rates. The estimates for amortization expense noted above are based upon foreign exchange rates as of March 31, 2017.
The Company had approximately $6.5 and $6.4 million recorded for income tax uncertainties as of March 31, 2017 and December 31, 2016, respectively. The increase is attributable to changes in existing tax positions as well as currency fluctuations. The uncertain amounts, if recognized, that would impact the effective tax rate are $6.5 and $6.4 million, respectively. The Company estimates that it is reasonably possible that the liability for uncertain tax positions will decrease by no more than $4.6 million in the next twelve months from the resolution of various uncertain positions as a result of the completion of tax audits, litigation and the expiration of the statute of limitations in various jurisdictions.
At March 31, 2017, the Company’s long-term obligations consisted of the following:
|
|
|
|
|
Unamortized |
|
|
|
|||
|
|
|
|
|
Debt Issuance |
|
|
|
|||
|
|
|
Principal |
|
Costs |
|
Net |
|
|||
|
Notes payable 0.61% – 16.00%, due in monthly and annual installments through 2025 |
|
$ |
16,616 |
|
$ |
— |
|
$ |
16,616 |
|
|
Senior unsecured notes 6.0%, due in 2018 |
|
|
75,000 |
|
|
30 |
|
|
74,970 |
|
|
Senior unsecured notes 3.8%, due in 2020 |
|
|
84,000 |
|
|
113 |
|
|
83,887 |
|
|
Senior unsecured notes 3.2%, due in 2022 |
|
|
75,000 |
|
|
132 |
|
|
74,868 |
|
|
Senior unsecured notes 3.5%, due in 2023 |
|
|
125,000 |
|
|
247 |
|
|
124,753 |
|
|
Senior unsecured notes 3.4%, due in 2024 |
|
|
50,000 |
|
|
101 |
|
|
49,899 |
|
|
Senior unsecured notes 3.5%, due in 2024 |
|
|
100,000 |
|
|
247 |
|
|
99,753 |
|
|
Senior unsecured notes 3.6%, due in 2025 |
|
|
125,000 |
|
|
261 |
|
|
124,739 |
|
|
Senior unsecured notes 3.6%, due in 2026 |
|
|
125,000 |
|
|
261 |
|
|
124,739 |
|
|
Capital lease obligations |
|
|
1,325 |
|
|
— |
|
|
1,325 |
|
|
|
|
$ |
776,941 |
|
$ |
1,392 |
|
$ |
775,549 |
|
|
Current maturities of long-term obligations |
|
|
(4,258) |
|
|
— |
|
|
(4,258) |
|
|
Total long-term obligations |
|
$ |
772,683 |
|
$ |
1,392 |
|
$ |
771,291 |
|
At December 31, 2016, the Company’s long-term obligations consisted of the following:
|
|
|
|
|
Unamortized |
|
|
|
|||
|
|
|
|
|
Debt Issuance |
|
|
|
|||
|
|
|
Principal |
|
Costs |
|
Net |
|
|||
|
Notes payable 0.61% – 16.00%, due in monthly and annual installments through 2025 |
|
$ |
18,246 |
|
$ |
— |
|
$ |
18,246 |
|
|
Senior unsecured notes 6.0%, due in 2018 |
|
|
75,000 |
|
|
37 |
|
|
74,963 |
|
|
Senior unsecured notes 3.8%, due in 2020 |
|
|
84,000 |
|
|
119 |
|
|
83,881 |
|
|
Senior unsecured notes 3.2%, due in 2022 |
|
|
75,000 |
|
|
138 |
|
|
74,862 |
|
|
Senior unsecured notes 3.5%, due in 2023 |
|
|
125,000 |
|
|
256 |
|
|
124,744 |
|
|
Senior unsecured notes 3.4%, due in 2024 |
|
|
50,000 |
|
|
104 |
|
|
49,896 |
|
|
Senior unsecured notes 3.5%, due in 2024 |
|
|
100,000 |
|
|
256 |
|
|
99,744 |
|
|
Senior unsecured notes 3.6%, due in 2025 |
|
|
125,000 |
|
|
269 |
|
|
124,731 |
|
|
Senior unsecured notes 3.6%, due in 2026 |
|
|
125,000 |
|
|
269 |
|
|
124,731 |
|
|
Capital lease obligations |
|
|
1,542 |
|
|
— |
|
|
1,542 |
|
|
|
|
$ |
778,788 |
|
$ |
1,448 |
|
$ |
777,340 |
|
|
Current maturities of long-term obligations |
|
|
(4,603) |
|
|
— |
|
|
(4,603) |
|
|
Total long-term obligations |
|
$ |
774,185 |
|
$ |
1,448 |
|
$ |
772,737 |
|
Aggregate long-term maturities, excluding capital lease obligations, due annually from the current balance sheet date for the next five years are $3,513, $79,849, $2,789, $85,838 and $1,726 and $601,901 thereafter.
10
Components of Net Periodic Benefit Cost:
|
|
|
Domestic Plans |
|
Foreign Plans |
|
||||||||
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
|
|
$ |
2,260 |
|
$ |
1,337 |
|
$ |
1,138 |
|
|
Interest cost |
|
|
|
|
|
1,694 |
|
|
424 |
|
|
473 |
|
|
Expected return on plan assets |
|
|
|
|
|
(2,118) |
|
|
(568) |
|
|
(545) |
|
|
Amortization of net loss |
|
|
|
|
|
821 |
|
|
447 |
|
|
384 |
|
|
Amortization of prior service cost |
|
|
— |
|
|
— |
|
|
94 |
|
|
87 |
|
|
Net periodic benefit cost |
|
$ |
2,505 |
|
$ |
2,657 |
|
$ |
1,734 |
|
$ |
1,537 |
|
EMPLOYER CONTRIBUTIONS
Although the Company has no minimum funding requirement, we expect to contribute approximately $24.0 million to our domestic defined benefit plans in 2017. As of March 31, 2017, we have contributed $20.0 million to these plans. We also expect to contribute approximately $2.5 million to our foreign defined benefit plans in 2017, and as of March 31, 2017, we have contributed approximately $0.9 million.
Changes in Accumulated Other Comprehensive (Loss) Income by Component:
|
|
|
Foreign |
|
Defined Benefit |
|
|
|
|
|
|
|
||
|
|
|
Currency |
|
Pension Plans |
|
Other |
|
Total |
|
||||
|
Balance - December 31, 2015 |
|
$ |
(206,725) |
|
$ |
(55,550) |
|
$ |
(72) |
|
$ |
(262,347) |
|
|
Other comprehensive income before reclassifications |
|
|
65,171 |
|
|
— |
|
|
— |
|
|
65,171 |
|
|
Amounts reclassified from accumulated other comprehensive income |
|
|
— |
|
|
833 |
|
|
7 |
|
|
840 |
|
|
Net current-period other comprehensive income |
|
|
65,171 |
|
|
833 |
|
|
7 |
|
|
66,011 |
|
|
Balance - March 31, 2016 |
|
$ |
(141,554) |
|
$ |
(54,717) |
|
$ |
(65) |
|
$ |
(196,336) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2016 |
|
$ |
(259,888) |
|
$ |
(59,775) |
|
$ |
(46) |
|
$ |
(319,709) |
|
|
Other comprehensive income before reclassifications |
|
|
23,184 |
|
|
— |
|
|
— |
|
|
23,184 |
|
|
Amounts reclassified from accumulated other comprehensive income |
|
|
— |
|
|
879 |
|
|
7 |
|
|
886 |
|
|
Net current-period other comprehensive income |
|
|
23,184 |
|
|
879 |
|
|
7 |
|
|
24,070 |
|
|
Balance - March 31, 2017 |
|
$ |
(236,704) |
|
$ |
(58,896) |
|
$ |
(39) |
|
$ |
(295,639) |
|
11
Reclassifications Out of Accumulated Other Comprehensive (Loss) Income:
|
|
|
Amount Reclassified from |
|
|
|
||||
|
Details about Accumulated Other |
|
Accumulated Other |
|
Affected Line in the Statement |
|
||||
|
Comprehensive Income Components |
|
Comprehensive Income |
|
Where Net Income is Presented |
|
||||
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans |
|
|
|
|
|
|
|
|
|
|
Amortization of net loss |
|
$ |
1,248 |
|
$ |
1,205 |
|
(a) |
|
|
Amortization of prior service cost |
|
|
94 |
|
|
87 |
|
(a) |
|
|
|
|
|
1,342 |
|
|
1,292 |
|
Total before tax |
|
|
|
|
|
(463) |
|
|
(459) |
|
Tax benefit |
|
|
|
|
$ |
879 |
|
$ |
833 |
|
Net of tax |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
Changes in treasury locks |
|
$ |
10 |
|
$ |
10 |
|
Interest Expense |
|
|
|
|
|
10 |
|
|
10 |
|
Total before tax |
|
|
|
|
|
(3) |
|
|
(3) |
|
Tax benefit |
|
|
|
|
$ |
7 |
|
$ |
7 |
|
Net of tax |
|
|
Total reclassifications for the period |
|
$ |
886 |
|
$ |
840 |
|
|
|
|
|
(a) |
|
These accumulated other comprehensive income components are included in the computation of net periodic benefit costs, net of tax (see Note 6 – Retirement and Deferred Compensation Plans for additional details). |
The Company maintains a foreign exchange risk management policy designed to establish a framework to protect the value of the Company’s non-functional denominated transactions from adverse changes in exchange rates. Sales of the Company’s products can be denominated in a currency different from the currency in which the related costs to produce the product are denominated. Changes in exchange rates on such inter-country sales or intercompany loans can impact the Company’s results of operations. The Company’s policy is not to engage in speculative foreign currency hedging activities, but to minimize our net foreign currency transaction exposure, defined as firm commitments and transactions recorded and denominated in currencies other than the functional currency. The Company may use foreign currency forward exchange contracts, options and cross currency swaps to economically hedge these risks.
For derivative instruments designated as hedges, the Company formally documents the nature and relationships between the hedging instruments and the hedged items, as well as the risk management objectives, strategies for undertaking the various hedge transactions, and the method of assessing hedge effectiveness. Additionally, in order to designate any derivative instrument as a hedge of an anticipated transaction, the significant characteristics and expected terms of any anticipated transaction must be specifically identified, and it must be probable that the anticipated transaction will occur.
HEDGE OF NET INVESTMENTS IN FOREIGN OPERATIONS
A significant number of the Company’s operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of the Company’s foreign subsidiaries. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on the Company’s financial condition and results of operations. Conversely, a weakening U.S. dollar has an additive effect. The Company in some cases maintains debt in these subsidiaries to offset the net asset exposure. The Company does not otherwise actively manage this risk using derivative financial instruments. In the event the Company plans on a full or partial liquidation of any of our foreign subsidiaries where the Company’s net investment is likely to be monetized, the Company will consider hedging the currency exposure associated with such a transaction.
12
OTHER
As of March 31, 2017, the Company has recorded the fair value of foreign currency forward exchange contracts of $0.5 million in prepaid and other and $1.2 million in accounts payable and accrued liabilities in the balance sheet. All forward exchange contracts outstanding as of March 31, 2017 had an aggregate contract amount of $105.8 million.
Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016
|
Derivative Contracts Not Designated |
|
|
|
March 31, |
|
December 31, |
|
||
|
as Hedging Instruments |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets |
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts |
|
Prepaid and other |
|
$ |
547 |
|
$ |
1,612 |
|
|
|
|
|
|
$ |
547 |
|
$ |
1,612 |
|
|
Derivative Liabilities |
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts |
|
Accounts payable and accrued liabilities |
|
$ |
1,180 |
|
$ |
2,881 |
|
|
|
|
|
|
$ |
1,180 |
|
$ |
2,881 |
|
The Effect of Derivative Instruments on the Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2017 and March 31, 2016
|
|
|
|
|
Amount of (Loss) Gain |
|
||||
|
Derivatives Not Designated |
|
Location of (Loss) Gain Recognized |
|
Recognized in Income |
|
||||
|
as Hedging Instruments |
|
in Income on Derivatives |
|
on Derivatives |
|
||||
|
|
|
|
|
|
|
|
|
||
|
Foreign Exchange Contracts |
|
Other (Expense) Income: Miscellaneous, net |
|
$ |
645 |
|
$ |
(2,406) |
|
|
|
|
|
|
$ |
645 |
|
$ |
(2,406) |
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts not Offset |
|
|
|
|
||
|
|
|
|
|
|
Gross Amounts |
|
Net Amounts |
|
in the Statement of |
|
|
|
|
|||
|
|
|
|
|
|
Offset in the |
|
Presented in |
|
Financial Position |
|
|
|
|
|||
|
|
|
Gross |
|
Statement of |
|
the Statement of |
|
Financial |
|
Cash Collateral |
|
Net |
|
|||
|
|
|
Amount |
|
Financial Position |
|
Financial Position |
|
Instruments |
|
Received |
|
Amount |
|
|||
|
Description |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017 |
|
|||||||||||||||
|
Derivative Assets |
|
$ |
547 |
|
— |
|
$ |
547 |
|
— |
|
— |
|
$ |
547 |
|
|
Total Assets |
|
$ |
547 |
|
— |
|
$ |
547 |
|
— |
|
— |
|
$ |
547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities |
|
$ |
1,180 |
|
— |
|
$ |
1,180 |
|
— |
|
— |
|
$ |
1,180 |
|
|
Total Liabilities |
|
$ |
1,180 |
|
— |
|
$ |
1,180 |
|
— |
|
— |
|
$ |
1,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|||||||||||||||
|
Derivative Assets |
|
$ |
1,612 |
|
— |
|
$ |
1,612 |
|
— |
|
— |
|
$ |
1,612 |
|
|
Total Assets |
|
$ |
1,612 |
|
— |
|
$ |
1,612 |
|
— |
|
— |
|
$ |
1,612 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities |
|
$ |
2,881 |
|
— |
|
$ |
2,881 |
|
— |
|
— |
|
$ |
2,881 |
|
|
Total Liabilities |
|
$ |
2,881 |
|
— |
|
$ |
2,881 |
|
— |
|
— |
|
$ |
2,881 |
|
13
Authoritative guidelines require the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
|
|
· |
|
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities. |
|
|
· |
|
Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. |
|
|
· |
|
Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability. |
As of March 31, 2017, the fair values of our financial assets and liabilities were categorized as follows:
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts (a) |
|
$ |
547 |
|
$ |
— |
|
$ |
547 |
|
$ |
— |
|
|
Total assets at fair value |
|
$ |
547 |
|
$ |
— |
|
$ |
547 |
|
$ |
— |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts (a) |
|
$ |
1,180 |
|
$ |
— |
|
$ |
1,180 |
|
$ |
— |
|
|
Total liabilities at fair value |
|
$ |
1,180 |
|
$ |
— |
|
$ |
1,180 |
|
$ |
— |
|
As of December 31, 2016, the fair values of our financial assets and liabilities were categorized as follows:
|
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
||||
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts (a) |
|
$ |
1,612 |
|
$ |
— |
|
$ |
1,612 |
|
$ |
— |
|
|
Total assets at fair value |
|
$ |
1,612 |
|
$ |
— |
|
$ |
1,612 |
|
$ |
— |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts (a) |
|
$ |
2,881 |
|
$ |
— |
|
$ |
2,881 |
|
$ |
— |
|
|
Total liabilities at fair value |
|
$ |
2,881 |
|
$ |
— |
|
$ |
2,881 |
|
$ |
— |
|
|
|
(a) |
|
Market approach valuation technique based on observable market transactions of spot and forward rates. |
The carrying amounts of the Company’s other current financial instruments such as cash and equivalents, accounts and notes receivable, notes payable and current maturities of long-term obligations approximate fair value due to the short-term maturity of the instruments. The Company considers our long-term obligations a Level 2 liability and utilizes the market approach valuation technique based on interest rates that are currently available to the Company for issuance of debt with similar terms and maturities. The estimated fair value of the Company’s long-term obligations was $750 million as of March 31, 2017 and $739 million as of December 31, 2016.
The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature. While management believes the resolution of these claims and lawsuits will not have a material adverse effect on the Company’s financial position or results of operations or cash flows, claims and legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur and could include amounts in excess of any accruals which management has established. Were such unfavorable final outcomes to occur, it is possible that they could have a material adverse effect on our financial position, results of operations and cash flows.
Under our Certificate of Incorporation, the Company has agreed to indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors and officers liability insurance policy that covers a portion of our exposure. As a result of our insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company has no liabilities recorded for these agreements as of March 31, 2017 and December 31, 2016.
14
An environmental investigation, undertaken to assess areas of possible contamination, was completed at the Company’s facility in Jundiaí, São Paulo, Brazil. The facility is primarily an internal supplier of anodized aluminum components for certain of our dispensing systems. The testing indicated that soil and groundwater in certain areas of the facility were impacted above acceptable levels established by local regulations. In March 2017, the Company reported the findings to the relevant environmental authority, the Environmental Company of the State of São Paulo – CETESB. The Company is in the preliminary stages of further assessing the affected areas to determine the full extent of the impact and the scope of any required remediation. Initial costs for the further investigation and possible remediation, based on assumptions about the area of impact and customary remediation costs, are estimated to be in the range of $1.5 million to $3.0 million. The range of possible loss associated with this environmental contingency is subject to considerable uncertainty due to the incomplete status of the investigation and preliminary nature of our discussions with CETESB. We will continue to evaluate the range of likely costs as the investigation proceeds and we have further clarity on the nature and extent of remediation that will be required. We note that the contamination, or any failure on the part of the Company to complete its remediation in a timely manner, could potentially result in fines or penalties levied on the Company. The Company has accrued a $1.5 million operating expense in the first quarter of 2017 relating to this contingency, which will be periodically reviewed, and adjusted as necessary, as the matter continues to evolve.
On October 20, 2016, the Company announced a share repurchase authorization of up to $350 million of common stock. This authorization replaces previous authorizations and has no expiration date. Aptar may repurchase shares through the open market, privately negotiated transactions or other programs, subject to market conditions.
Shares repurchased are immediately retired. During the three months ended March 31, 2017, the Company repurchased approximately 210 thousand shares for approximately $16.0 million. During the three months ended March 31, 2016, the Company repurchased approximately 113 thousand shares for approximately $8.6 million. As of March 31, 2017, there was $287.4 million of authorized share repurchases available to the Company.
The Company issues stock options and restricted stock units to employees under Stock Awards Plans approved by stockholders. Restricted stock units (“RSUs”) are issued to non-employee directors under a Director Restricted Stock Unit Plan and the 2016 Equity Incentive Plan, and stock options were formally issued to non-employee directors under a Director Stock Option Plan. 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. RSUs granted to employees generally vest over three years. Director RSUs generally vest over one year.
Compensation expense attributable to employee stock options for the first three months of 2017 was approximately $6.9 million ($4.6 million after tax). The income tax benefit related to this compensation expense was approximately $2.3 million. Approximately $6.0 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 attributable to stock options for the first three months of 2016 was approximately $8.9 million ($5.9 million after tax). The income tax benefit related to this compensation expense was approximately $3.0 million. Approximately $7.9 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.
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 $11.85 and $10.59 per share during the first three months of 2017 and 2016, respectively. These values were estimated on the respective grant dates using the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
Stock Awards Plans: |
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Yield |
|
1.7 |
% |
1.8 |
% |
|
Expected Stock Price Volatility |
|
15.8 |
% |
16.9 |
% |
|
Risk-free Interest Rate |
|
2.2 |
% |
1.6 |
% |
|
Expected Life of Option (years) |
|
6.7 |
|
6.7 |
|
15
A summary of option activity under the Company’s stock plans during the three months ended March 31, 2017 is presented below:
|
|
|
Stock Awards Plans |
|
Director Stock Option Plans |
|
|||||||
|
|
|
|
|
|
Weighted Average |
|
|
|
Weighted Average |
|
||
|
|
|
|
Options |
|
Exercise Price |
|
Options |
|
Exercise Price |
|
||
|
Outstanding, January 1, 2017 |
|
|
8,070,444 |
|
$ |
56.36 |
|
281,334 |
|
$ |
56.45 |
|
|
Granted |
|
|
1,607,773 |
|
|
74.79 |
|
— |
|
|
— |
|
|
Exercised |
|
|
(452,677) |
|
|
40.41 |
|
— |
|
|
— |
|
|
Forfeited or expired |
|
|
(12,357) |
|
|
69.22 |
|
— |
|
|
— |
|
|
Outstanding at March 31, 2017 |
|
|
9,213,183 |
|
$ |
60.35 |
|
281,334 |
|
$ |
56.45 |
|
|
Exercisable at March 31, 2017 |
|
|
6,198,605 |
|
$ |
54.63 |
|
255,998 |
|
$ |
55.44 |
|
|
Weighted-Average Remaining Contractual Term (Years): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2017 |
|
|
6.7 |
|
|
|
|
5.7 |
|
|
|
|
|
Exercisable at March 31, 2017 |
|
|
5.5 |
|
|
|
|
5.5 |
|
|
|
|
|
Aggregate Intrinsic Value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2017 |
|
$ |
154,089 |
|
|
|
$ |
5,802 |
|
|
|
|
|
Exercisable at March 31, 2017 |
|
$ |
139,129 |
|
|
|
$ |
5,536 |
|
|
|
|
|
Intrinsic Value of Options Exercised During the Three Months Ended: |
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017 |
|
$ |
15,289 |
|
|
|
$ |
— |
|
|
|
|
|
March 31, 2016 |
|
$ |
16,973 |
|
|
|
$ |
436 |
|
|
|
|
The fair value of options vested during the three months ended March 31, 2017 and 2016 was $16.9 million and $16.3 million, respectively. Cash received from option exercises was approximately $15.9 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $5.1 million in the three months ended March 31, 2017. As of March 31, 2017, the remaining valuation of stock option awards to be expensed in future periods was $23.4 million and the related weighted-average period over which it is expected to be recognized is 2.3 years.
The fair value of RSU grants is the market price of the underlying shares on the grant date. A summary of RSU activity as of March 31, 2017, and changes during the three month period then ended, is presented below:
|
|
|
|
|
|
|
|
Director Restricted |
|
|||
|
|
|
Stock Awards Plans |
|
Stock Unit Plan |
|
||||||
|
|
|
|
|
Weighted Average |
|
|
|
Weighted Average |
|
||
|
|
|
RSUs |
|
Grant-Date Fair Value |
|
RSUs |
|
Grant-Date Fair Value |
|
||
|
Nonvested at January 1, 2017 |
|
72,127 |
|
$ |
69.31 |
|
15,745 |
|
$ |
75.56 |
|
|
Granted |
|
78,276 |
|
|
73.29 |
|
— |
|
|
— |
|
|
Vested |
|
(40,963) |
|
|
68.29 |
|
— |
|
|
— |
|
|
Forfeited |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
Nonvested at March 31, 2017 |
|
109,440 |
|
$ |
72.54 |
|
15,745 |
|
$ |
75.56 |
|
Compensation expense recorded attributable to RSUs for the first three months of 2017 and 2016 was approximately $0.9 million and $1.2 million, respectively. The fair value of units vested during the three months ended March 31, 2017 and 2016 was $2.8 million and $656 thousand, respectively. The intrinsic value of units vested during the three months ended March 31, 2017 and 2016 was $3.0 million and $773 thousand, respectively. As of March 31, 2017, there was $5.6 million of total unrecognized compensation cost relating to RSU awards which is expected to be recognized over a weighted-average period of 2.5 years.
The Company has a long-term incentive program for certain employees. Each award is based on the cumulative total shareholder return of our common stock during a three year performance period compared to a peer group. The total expected expense related to this program for awards outstanding as of March 31, 2017 is approximately $2.7 million, of which $282 thousand and $1.3 million was recognized in the first three months of 2017 and 2016, respectively.
16
Aptar’s authorized common stock consists of 199 million shares, having a par value of $0.01 each. Information related to the calculation of earnings per share is as follows:
|
|
|
Three Months Ended |
|
||||||||||
|
|
|
March 31, 2017 |
|
March 31, 2016 |
|
||||||||
|
|
|
Diluted |
|
Basic |
|
Diluted |
|
Basic |
|
||||
|
Consolidated operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
|
$ |
51,820 |
|
$ |
51,820 |
|
$ |
43,863 |
|
$ |
43,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average equivalent shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock |
|
|
62,355 |
|
|
62,355 |
|
|
62,722 |
|
|
62,722 |
|
|
Effect of dilutive stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
1,827 |
|
|
— |
|
|
2,299 |
|
|
— |
|
|
Restricted stock |
|
|
52 |
|
|
— |
|
|
42 |
|
|
— |
|
|
Total average equivalent shares |
|
|
64,234 |
|
|
62,355 |
|
|
65,063 |
|
|
62,722 |
|
|
Net income per share |
|
$ |
0.81 |
|
$ |
0.83 |
|
$ |
0.67 |
|
$ |
0.70 |
|
The Company is organized into three reporting segments. Operations that sell dispensing systems and sealing solutions primarily to the personal care, beauty and home care markets form the Beauty + Home segment. Operations that sell dispensing systems and sealing solutions primarily to the prescription drug, consumer health care and injectables markets form the Pharma segment. Operations that sell dispensing systems and sealing solutions primarily to the food and beverage markets form the Food + Beverage segment. The accounting policies of the segments are the same as those described in Note 1, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Financial information regarding the Company’s reportable segments is shown below:
|
Three Months Ended March 31, |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Total Sales: |
|
|
|
|
|
|
|
|
Beauty + Home |
|
$ |
326,933 |
|
$ |
318,870 |
|
|
Pharma |
|
|
196,914 |
|
|
183,135 |
|
|
Food + Beverage |
|
|
82,349 |
|
|
85,396 |
|
|
Total Sales |
|
|
606,196 |
|
|
587,401 |
|
|
Less: Intersegment Sales: |
|
|
|
|
|
|
|
|
Beauty + Home |
|
$ |
4,485 |
|
$ |
4,534 |
|
|
Pharma |
|
|
2 |
|
|
— |
|
|
Food + Beverage |
|
|
393 |
|
|
529 |
|
|
Total Intersegment Sales |
|
$ |
4,880 |
|
$ |
5,063 |
|
|
Net Sales: |
|
|
|
|
|
|
|
|
Beauty + Home |
|
$ |
322,448 |
|
$ |
314,336 |
|
|
Pharma |
|
|
196,912 |
|
|
183,135 |
|
|
Food + Beverage |
|
|
81,956 |
|
|
84,867 |
|
|
Net Sales |
|
$ |
601,316 |
|
$ |
582,338 |
|
|
Segment Income (1): |
|
|
|
|
|
|
|
|
Beauty + Home |
|
$ |
22,208 |
|
$ |
23,528 |
|
|
Pharma |
|
|
59,070 |
|
|
53,236 |
|
|
Food + Beverage |
|
|
7,140 |
|
|
9,283 |
|
|
Corporate & Other |
|
|
(11,006) |
|
|
(18,195) |
|
|
Interest Expense |
|
|
(8,262) |
|
|
(8,591) |
|
|
Interest Income |
|
|
330 |
|
|
584 |
|
|
Income before Income Taxes |
|
$ |
69,480 |
|
$ |
59,845 |
|
|
|
(1) |
|
The Company evaluates performance of our business units and allocates resources based upon segment income. Segment income is defined as earnings before net interest expense, certain corporate expenses and income taxes. |
17
A fire caused damages to Aptar’s facility in Annecy, France in June 2016. The fire was contained to one of three production units and there were no reported injuries. Aptar Annecy supplies anodized aluminum components for certain Aptar dispensing systems. While repairs are underway, Aptar will source from its network of suppliers as well as from its anodizing facility in Brazil. The Company is insured for the damages caused by the fire, including business interruption insurance, and it does not expect this incident to have a material impact on its financial results. Costs related to the fire of $4.9 million were incurred during the three months ended March 31, 2017. We have increased our insurance receivable from $0.8 million at December 31, 2016 to $4.4 million at March 31, 2017 for known losses for which insurance reimbursement is probable, which is included in Prepaid and Other in the Condensed Consolidated Balance Sheet. In many cases, our insurance coverage exceeds the amount of these recognized losses. No gain contingencies have been recognized as our ability to realize those gains remains uncertain. We recognized net expenses of $1.3 million related to the Annecy fire during the first quarter of 2017. These costs are included in the Beauty + Home segment.
On February 29, 2016, the Company completed its acquisition of MegaPlast GmbH and its subsidiaries along with Megaplast France S.a.r.l and Mega Pumps L.P. (Mega Airless). Mega Airless is a leading provider of innovative all-plastic airless dispensing systems for the beauty, personal care and pharmaceutical markets and operates two manufacturing facilities in Germany and one in the United States. The purchase price paid for Mega Airless was approximately $223.2 million ($203.0 million net of cash received) and was funded by cash on hand and borrowings on our revolving line of credit.
Mega Airless contributed sales of $16.2 million and pretax income of $1.3 million for the three months ended March 31, 2017. For the three months ended March 31, 2016, Mega Airless contributed sales of $6.2 million and a pretax loss of $1.8 million due to a purchase accounting adjustment of $2.6 million related to the inventory fair value adjustment. The results of the acquired business from the acquisition date are included in the accompanying consolidated financial statements and are reported in the Beauty + Home and Pharma reporting segments.
For the three months ended March 31, 2016, we recognized $5.6 million in transaction costs related to the acquisition of Mega Airless. These costs are reflected as corporate & other expenses in the selling, research & development and administrative section of the Condensed Consolidated Statements of Income.
The following table summarizes the assets acquired and liabilities assumed as of the acquisition date at estimated fair value.
|
|
|
February 29, 2016 |
|
|
|
Assets |
|
|
|
|
|
Cash and equivalents |
|
$ |
20,197 |
|
|
Accounts receivable |
|
|
8,275 |
|
|
Inventories |
|
|
8,373 |
|
|
Prepaid and other |
|
|
378 |
|
|
Property, plant and equipment |
|
|
47,768 |
|
|
Goodwill |
|
|
105,561 |
|
|
Intangible assets |
|
|
72,106 |
|
|
Other miscellaneous assets |
|
|
8 |
|
|
Liabilities |
|
|
|
|
|
Current maturities of long-term obligations |
|
|
319 |
|
|
Accounts payable and accrued liabilities |
|
|
7,398 |
|
|
Long-term obligations |
|
|
13,402 |
|
|
Deferred income taxes |
|
|
18,366 |
|
|
Net assets acquired |
|
$ |
223,181 |
|
18
We finalized our purchase accounting for Mega Airless in 2016. As a result, no adjustments were made to the net assets acquired during the quarter ended March 31, 2017.
The following table is a summary of the fair value estimates of the acquired identifiable intangible assets and weighted-average useful lives as of the acquisition date:
|
|
|
Weighted-Average |
|
Estimated |
|
|
|
|
|
Useful Life |
|
Fair Value |
|
|
|
|
|
(in years) |
|
of Asset |
|
|
|
Customer relationships |
|
|
|
$ |
57,120 |
|
|
Technology |
|
15 |
|
|
10,838 |
|
|
Trademark |
|
4 |
|
|
4,148 |
|
|
Total |
|
|
|
$ |
72,106 |
|
Goodwill in the amount of $105.6 million was recorded for the acquisition of Mega Airless, of which $49.8 million and $55.8 million is included in the Beauty + Home and Pharma segments, respectively. Goodwill is calculated as the excess of the consideration transferred over the net assets acquired and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill largely consists of leveraging the Company’s commercial presence in selling the Mega Airless line of products in markets where Mega Airless did not previously operate and the ability of Mega Airless to maintain its competitive advantage from a technical viewpoint. Goodwill will not be amortized, but will be tested for impairment at least annually. We do not expect any of the goodwill will be deductible for tax purposes.
The unaudited pro forma results presented below include the effects of the Mega Airless acquisition as if it had occurred as of January 1, 2015. The unaudited pro forma results reflect certain adjustments related to the acquisition, such as the amortization associated with estimates for the acquired intangible assets and fair value adjustments for inventory. The 2016 pro forma earnings were adjusted to exclude $4.2 million after tax ($5.6 million pretax) of transaction costs, including consulting, legal, and advisory fees. The 2016 pro forma earnings were also adjusted to exclude $1.8 million after tax ($2.6 million pretax) of nonrecurring expense related to the fair value adjustment to acquisition-date inventory.
The pro forma results do not include any synergies or other expected benefits of the acquisition. Accordingly, the unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been completed on the date indicated.
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
591,898 |
|
|
Net Income Attributable to AptarGroup Inc. |
|
|
50,186 |
|
|
Net Income per common share — basic |
|
|
0.80 |
|
|
Net Income per common share — diluted |
|
|
0.77 |
|
In February 2017, the Company acquired a 20% minority investment in Kali Care, Inc. for $5.0 million. Kali Care, Inc. (“Kali Care”) is a Silicon Valley-based technology company, which provides digital monitoring systems for ophthalmic medication. Kali Care’s sensing technology allows clinicians to collect real time compliance data and is a powerful tool for ophthalmologists in managing the care of their patients and represents an additional investment into connected devices for our Pharma applications. This investment is being accounted for under the equity method of accounting from the date of acquisition.
19
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, OR AS OTHERWISE INDICATED)
RESULTS OF OPERATIONS
|
Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
100.0 |
% |
|
100.0 |
% |
|
|
Cost of sales (exclusive of depreciation and amortization shown below) |
|
64.0 |
|
|
64.2 |
|
|
|
Selling, research & development and administrative |
|
16.9 |
|
|
17.7 |
|
|
|
Depreciation and amortization |
|
6.2 |
|
|
6.2 |
|
|
|
Operating income |
|
12.9 |
|
|
11.9 |
|
|
|
Other expense |
|
(1.3) |
|
|
(1.6) |
|
|
|
Income before income taxes |
|
11.6 |
|
|
10.3 |
|
|
|
Net Income |
|
8.6 |
|
|
7.5 |
|
|
|
Effective tax rate |
|
25.4 |
% |
|
26.7 |
% |
|
|
Adjusted EBITDA margin (1) |
|
19.1 |
% |
|
19.2 |
% |
|
|
|
(1) |
|
Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of Non-U.S. GAAP measures starting on page 24. |
NET SALES
We reported net sales of $601.3 million for the quarter ended March 31, 2017, which represents a 3% increase compared to $582.3 million reported during the first quarter of 2016. The average U.S. dollar exchange rate strengthened compared to the Euro, resulting in a negative currency translation impact of 2%. The acquisition of Mega Airless positively impacted sales by 2%. Therefore core sales, which exclude acquisitions and changes in foreign currency rates, increased by 3% in the first quarter of 2017 compared to the first quarter of 2016. Core sales were positively impacted by significant product sales growth in our Pharma segment along with strong tooling sales growth across all three operating segments of approximately $9.2 million. Improving product sales in our Beauty + Home segment offset some areas of softness in our Food + Beverage segment.
|
First Quarter 2017 |
|
Beauty |
|
|
|
Food + |
|
|
|
|
Net Sales Change over Prior Year |
|
+ Home |
|
Pharma |
|
Beverage |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth |
|
1 |
% |
10 |
% |
(1) |
% |
3 |
% |
|
Acquisitions |
|
3 |
% |
1 |
% |
— |
% |
2 |
% |
|
Currency Effects (1) |
|
(1) |
% |
(3) |
% |
(2) |
% |
(2) |
% |
|
Total Reported Net Sales Growth |
|
3 |
% |
8 |
% |
(3) |
% |
3 |
% |
|
|
(1) |
|
Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates. |
The following table sets forth, for the periods indicated, net sales by geographic location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
% of Total |
|
|
|
% of Total |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
159,330 |
|
|
|
$ |
161,395 |
|
|
|
|
Europe |
|
|
350,497 |
|
|
|
|
329,967 |
|
|
|
|
Latin America |
|
|
53,604 |
|
|
|
|
47,892 |
|
|
|
|
Asia |
|
|
37,885 |
|
|
|
|
43,084 |
|
|
|
For further discussion on net sales by reporting segment, please refer to the analysis of segment net sales and segment income on the following pages.
20
COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN BELOW)
Our cost of sales (“COS”) as a percent of net sales decreased slightly to 64.0% in the first quarter of 2017 compared to 64.2% in the first quarter of 2016. The decrease is mainly due to the mix of sales across our different business segments as sales in our Pharma segment drove a higher percentage of overall sales. This positively impacts our COS percentage as margins on our pharmaceutical products typically are higher than the overall Company average. Our COS percentage was negatively impacted by approximately $1.2 million due to the timing delay of resin pass-through of increasing resin prices to our customers along with some operational inefficiencies in certain regions during the first quarter of 2017. The 2016 COS percentage was negatively impacted by $2.6 million of purchase accounting adjustments related to inventory acquired in our Mega Airless acquisition.
SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE
Our Selling, Research & Development and Administrative expenses (“SG&A”) decreased by approximately $1.5 million in the first quarter of 2017 compared to the same period a year ago. Excluding changes in foreign currency rates, SG&A decreased by approximately $0.1 million in the quarter. In 2016, we recognized one-time transaction costs of $5.6 million related to the Mega Airless acquisition which did not repeat in 2017. We also benefitted from $2.3 million of lower stock compensation costs in 2017 mainly due to the timing of substantive vesting requirements. These decreases were offset by $0.9 million of professional fees related to our acquisition of a minority investment in Kali Care, Inc. and $1.5 million of incremental operating costs related to the two additional months of Mega Airless activity in 2017. We also recognized $1.5 million for the estimated costs to remediate environmental contamination found at the Company’s facility in Brazil. Due to higher sales and relatively stable costs, SG&A as a percentage of net sales decreased to 16.9% compared to 17.7% in the same period of the prior year.
DEPRECIATION AND AMORTIZATION
Reported depreciation and amortization expenses increased by approximately $1.4 million in the first quarter of 2017 compared to the same period a year ago. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $2.1 million in the quarter compared to the same period a year ago. The increase is due to $2.6 million of incremental depreciation and amortization related to the two additional months of Mega Airless activity in 2017. As depreciation and amortization expenses increased at approximately the same rate as sales, depreciation and amortization as a percentage of net sales in the first quarter of 2017 remained consistent at 6.2% when compared to the same period a year ago.
OPERATING INCOME
Operating income increased approximately $8.3 million in the first quarter of 2017 to $77.5 million compared to $69.2 million in the same period of the prior year. Excluding changes in foreign currency rates, operating income increased by approximately $10.2 million in the quarter compared to the same period a year ago, mainly due to growth in our Pharma segment. 2016 operating income was negatively impacted by $5.6 million of transaction costs and $2.6 million of purchase accounting adjustments related to our Mega Airless acquisition. As reported, operating income as a percentage of net sales increased to 12.9% in the first quarter of 2017 compared to 11.9% for the same period in the prior year.
NET OTHER EXPENSE
Net other expense in the first quarter of 2017 decreased to $8.1 million from $9.4 million in the same period of the prior year. This is due to lower foreign exchange costs on our forward exchange contracts as we experienced less exchange rate volatility in certain countries during the first quarter of 2017 compared to the same period in 2016.
EFFECTIVE TAX RATE
The reported effective tax rate decreased to 25.4% for the three months ended March 31, 2017 compared to 26.7% for the same period ended March 31, 2016. The current year rate includes a 3.9% benefit from the new accounting standard for employee share-based payments, which the Company has adopted in 2017 and 1.6% benefit from excess tax credits due to repatriation activities. The prior year period includes a 5.0% benefit from various discrete items, including certain tax refunds.
NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.
We reported net income attributable to AptarGroup, Inc. of $51.8 million in the first quarter of 2017 compared to $43.9 million in the first quarter of 2016.
21
BEAUTY + HOME SEGMENT
Operations that sell dispensing systems and sealing solutions primarily to the personal care, beauty and home care markets form the Beauty + Home segment.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
322,448 |
|
$ |
314,336 |
|
|
Segment Income |
|
|
22,208 |
|
|
23,528 |
|
|
Segment Income as a percentage of Net Sales |
|
|
|
|
|
|
|
|
Adjusted EBITDA margin (1) |
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of Non-U.S. GAAP measures starting on page 24. |
Net sales for the quarter ended March 31, 2017 increased 3% to $322.4 million compared to $314.3 million in the first quarter of the prior year. The Mega Airless acquisition positively impacted net sales by 3% in the first quarter of 2017 while changes in currency rates negatively impacted net sales by 1%. Therefore, core sales increased 1% in the first quarter of 2017 compared to the same quarter of the prior year. Increases in the beauty market more than offset flat sales in the personal care market and a decline in our home care business during the quarter. We recognized strong product sales growth across all market fields in Europe and from our beauty products sold in China. This growth was negatively impacted by softer demand in North America and Southeast Asia. We also realized $2.6 million higher tooling sales over the prior year, mainly impacting the beauty market.
|
First Quarter 2017 |
|
Personal |
|
|
|
Home |
|
|
|
|
Net Sales Change over Prior Year |
|
Care |
|
Beauty |
|
Care |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth |
|
— |
% |
1 |
% |
(2) |
% |
1 |
% |
|
Acquisitions |
|
3 |
% |
5 |
% |
— |
% |
3 |
% |
|
Currency Effects (1) |
|
(1) |
% |
(2) |
% |
— |
% |
(1) |
% |
|
Total Reported Net Sales Growth |
|
2 |
% |
4 |
% |
(2) |
% |
3 |
% |
|
|
(1) |
|
Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates. |
Segment income in the first quarter of 2017 decreased 6% to $22.2 million compared to $23.5 million reported in the same period in the prior year. We recognized $1.5 million for the estimated costs to remediate environmental contamination found at the Company’s anodizing facility in Brazil. Operational headwinds in North America offset the benefit of sales growth recognized in the first quarter 2017. Higher resin costs negatively impacted operating margins by $0.4 million.
PHARMA SEGMENT
Operations that sell dispensing systems and sealing solutions primarily to the prescription drug, consumer health care and injectables markets form the Pharma segment.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
196,912 |
|
$ |
183,135 |
|
|
Segment Income |
|
|
59,070 |
|
|
53,236 |
|
|
Segment Income as a percentage of Net Sales |
|
|
|
|
|
|
|
|
Adjusted EBITDA margin (1) |
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of Non-U.S. GAAP measures starting on page 24. |
22
Net sales for the Pharma segment increased by 8% in the first quarter of 2017 to $196.9 million compared to $183.1 million in the first quarter of 2016. The Mega Airless acquisition positively impacted net sales by 1% in the first quarter of 2017 while changes in currency rates negatively impacted net sales by 3%. Therefore, core sales increased by 10% in the first quarter of 2017 compared to the first quarter of 2016. All three markets realized strong sales growth during the first quarter of 2017. The consumer health care market reported a core sales increase of 15% on strong demand for decongestants and ophthalmics. The prescription drug market reported core sales increases of 8% on strong tooling sales and increasing allergy rhinitis products sales during the first quarter of 2017. Core sales of our products to the injectables markets increased 10% due to the ramp up of our increased capacities in Europe. For the segment, tooling sales increased by $6.0 million over the prior year, mainly impacting the prescription market as discussed above.
|
First Quarter 2017 |
|
Prescription |
|
Consumer |
|
|
|
|
|
|
Net Sales Change over Prior Year |
|
Drug |
|
Health Care |
|
Injectables |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth |
|
8 |
% |
15 |
% |
10 |
% |
10 |
% |
|
Acquisitions |
|
— |
% |
3 |
% |
— |
% |
1 |
% |
|
Currency Effects (1) |
|
(3) |
% |
(3) |
% |
(3) |
% |
(3) |
% |
|
Total Reported Net Sales Growth |
|
5 |
% |
15 |
% |
7 |
% |
8 |
% |
|
|
(1) |
|
Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates. |
Segment income in the first quarter of 2017 increased 11% to $59.1 million compared to $53.2 million reported in the same period in the prior year, mainly due to increased device and tooling sales discussed above. Operational efficiencies due to the strong sales volumes were able to offset $0.9 million of professional fees related to our acquisition of a minority investment in Kali Care, Inc.
FOOD + BEVERAGE SEGMENT
Operations that sell dispensing systems and sealing solutions primarily to the food and beverage markets form the Food + Beverage segment.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
81,956 |
|
$ |
84,867 |
|
|
Segment Income |
|
|
7,140 |
|
|
9,283 |
|
|
Segment Income as a percentage of Net Sales |
|
|
|
|
|
|
|
|
Adjusted EBITDA margin (1) |
|
|
|
|
|
|
|
|
|
(1) |
|
Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of Non-U.S. GAAP measures starting on page 24. |
Net sales for the quarter ended March 31, 2017 decreased approximately 3% to $82.0 million compared to $84.9 million in the first quarter of the prior year. Changes in foreign currency rates had a negative impact of 2% on the total segment sales. Therefore, core sales decreased by 1% in the first quarter of 2017 compared to the first quarter of 2016. Core sales to the food market increased 2% while core sales to the beverage market decreased 7% in the first quarter of 2017 compared to the same period of the prior year. Sales to the food market increased with strong sales of our products used on sauces and condiments applications along with increases in the dairy and coffee & granular application fields. For the beverage market, strong sales to our bottled water customers were more than offset by a decrease in functional drink application sales, mainly in China. Sales for the first quarter 2017 were favorably impacted by higher tooling sales of $0.6 million.
|
First Quarter 2017 |
|
|
|
|
|
|
|
|
|
|
Net Sales Change over Prior Year |
|
|
|
Food |
|
Beverage |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth |
|
|
|
2 |
% |
(7) |
% |
(1) |
% |
|
Acquisitions |
|
|
|
— |
% |
— |
% |
— |
% |
|
Currency Effects (1) |
|
|
|
(1) |
% |
(2) |
% |
(2) |
% |
|
Total Reported Net Sales Growth |
|
|
|
1 |
% |
(9) |
% |
(3) |
% |
|
|
(1) |
|
Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates. |
23
Segment income in the first quarter of 2017 decreased approximately 23% to $7.1 million compared to $9.3 million reported in the same period of the prior year. Decreases in sales volumes noted above negatively impacted segment income during the first quarter of 2017. Higher resin costs along with a negative impact due to the mix of products sold also had a negative impact on segment income during the first quarter of 2017 compared to the same period in 2016.
CORPORATE & OTHER
In addition to our three operating business segments, Aptar assigns certain costs to “Corporate & Other,” which is presented separately in Note 14 to the Unaudited Notes to the Condensed Consolidated Financial Statements. Corporate & Other primarily includes certain professional fees, compensation and information system costs which are not allocated directly to our operating segments. Corporate & Other expense decreased to $11.0 million for the quarter ended March 31, 2017 compared to $18.2 million in the first quarter of the prior year, mainly due to $5.6 million of transaction costs related to the Mega Airless acquisition in 2016, and lower stock compensation costs in 2017, mainly due to the timing of substantive vesting requirements.
In addition to the information presented herein that conforms to U.S. GAAP, we also present financial information that does not conform to U.S. GAAP, which are referred to as non-U.S. GAAP financial measures. Management may assess our financial results both on a U.S. GAAP basis and on a non-U.S. GAAP basis. We believe it is useful to present these non-U.S. GAAP financial measures because they allow for a better period over period comparison of operating results by removing the impact of items that, in management’s view, do not reflect Aptar’s core operating performance. These non-U.S. GAAP financial measures should not be considered in isolation or as a substitute for U.S. GAAP financial results, but should be read in conjunction with the unaudited condensed consolidated statements of income and other information presented herein. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparable U.S. GAAP financial measure to arrive at these non-U.S. GAAP financial measures.
In our MD&A, we exclude the impact of foreign currency translation when presenting net sales information, which we define as “constant currency.” Changes in net sales excluding the impact of foreign currency translation is a non-U.S. GAAP financial measure. As a worldwide business, it is important that we take into account the effects of foreign currency translation when we view our results and plan our strategies. Consequently, when our management looks at our financial results to measure the core performance of our business, we may exclude the impact of foreign currency translation by translating our prior period results at current period foreign currency exchange rates. As a result, our management believes that these presentations are useful internally and may be useful to investors. We also exclude the impact of material acquisitions when comparing results to prior periods. Changes in operating results excluding the impact of acquisitions are non-U.S. GAAP financial measures. We feel it is important to exclude the impact of acquisitions on year-over-year results in order to evaluate performance on a more comparable basis.
We also present our adjusted earnings before net interest and taxes (“Adjusted EBIT”) and adjusted earnings before net interest, taxes, depreciation and amortization (“Adjusted EBITDA”), both of which exclude the impact of transaction costs and purchase accounting adjustments that affected the inventory values related to the Mega Airless acquisition.
Finally, we provide a reconciliation of Net Debt to Net Capital as a non-U.S. GAAP measure. Net Debt is calculated as interest bearing debt less cash, cash equivalents and short-term investments while Net Capital is calculated as stockholder’s equity plus Net Debt. Net Debt to Net Capital measures a company’s financial leverage which gives users an idea of a company's financial structure, or how it is financing its operations, along with insight into its financial strength. We believe that it is meaningful to take into consideration the balance of our cash, cash equivalents, and short-term investments when evaluating our leverage. If needed, such assets could be used to reduce our gross debt position.
24
|
|
|
Three Months Ended |
||||||||||||||||
|
|
|
March 31, 2017 |
||||||||||||||||
|
|
|
|
|
|||||||||||||||
|
|
|
Consolidated |
|
Beauty + Home |
|
Pharma |
|
Food + Beverage |
|
Corporate & Other |
|
Net Interest |
||||||
|
Net Sales |
|
$ |
601,316 |
|
$ |
322,448 |
|
$ |
196,912 |
|
$ |
81,956 |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income |
|
$ |
51,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes |
|
|
17,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income before income taxes |
|
|
69,480 |
|
|
22,208 |
|
|
59,070 |
|
|
7,140 |
|
|
(11,006) |
|
|
(7,932) |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings before income taxes |
|
|
69,480 |
|
|
22,208 |
|
|
59,070 |
|
|
7,140 |
|
|
(11,006) |
|
|
(7,932) |
|
Interest expense |
|
|
8,262 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,262 |
|
Interest income |
|
|
(330) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330) |
|
Adjusted earnings before net interest and taxes (Adjusted EBIT) |
|
|
77,412 |
|
|
22,208 |
|
|
59,070 |
|
|
7,140 |
|
|
(11,006) |
|
|
- |
|
Depreciation and amortization |
|
|
37,331 |
|
|
19,880 |
|
|
9,771 |
|
|
5,806 |
|
|
1,874 |
|
|
- |
|
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA) |
|
$ |
114,743 |
|
$ |
42,088 |
|
$ |
68,841 |
|
$ |
12,946 |
|
$ |
(9,132) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income margins (Income before income taxes / Reported Net Sales) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
||||||||||||||||
|
|
|
March 31, 2016 |
||||||||||||||||
|
|
|
|
|
|||||||||||||||
|
|
|
Consolidated |
|
Beauty + Home |
|
Pharma |
|
Food + Beverage |
|
Corporate & Other |
|
Net Interest |
||||||
|
Net Sales |
|
$ |
582,338 |
|
$ |
314,336 |
|
$ |
183,135 |
|
$ |
84,867 |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income |
|
$ |
43,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes |
|
|
15,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income before income taxes |
|
|
59,845 |
|
|
23,528 |
|
|
53,236 |
|
|
9,283 |
|
|
(18,195) |
|
|
(8,007) |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs related to the Mega Airless acquisition |
|
|
5,640 |
|
|
|
|
|
|
|
|
|
|
|
5,640 |
|
|
|
|
Purchase accounting adjustments related to Mega Airless inventory |
|
|
2,577 |
|
|
2,151 |
|
|
426 |
|
|
|
|
|
|
|
|
|
|
Adjusted earnings before income taxes |
|
|
68,062 |
|
|
25,679 |
|
|
53,662 |
|
|
9,283 |
|
|
(12,555) |
|
|
(8,007) |
|
Interest expense |
|
|
8,591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,591 |
|
Interest income |
|
|
(584) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(584) |
|
Adjusted earnings before net interest and taxes (Adjusted EBIT) |
|
|
76,069 |
|
|
25,679 |
|
|
53,662 |
|
|
9,283 |
|
|
(12,555) |
|
|
- |
|
Depreciation and amortization |
|
|
35,887 |
|
|
19,258 |
|
|
9,257 |
|
|
5,824 |
|
|
1,548 |
|
|
- |
|
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA) |
|
$ |
111,956 |
|
$ |
44,937 |
|
$ |
62,919 |
|
$ |
15,107 |
|
$ |
(11,007) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income margins (Income before income taxes / Reported Net Sales) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
Net Debt to Net Capital Reconciliation |
|
|
March 31, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
5,680 |
|
$ |
169,213 |
|
|
Current maturities of long-term obligations, net of unamortized debt issuance costs |
|
|
4,258 |
|
|
4,603 |
|
|
Long-Term Obligations, net of unamortized debt issuance costs |
|
|
771,291 |
|
|
772,737 |
|
|
Total Debt |
|
|
781,229 |
|
|
946,553 |
|
|
Less: |
|
|
|
|
|
|
|
|
Cash and equivalents |
|
|
284,727 |
|
|
466,287 |
|
|
Net Debt |
|
$ |
496,502 |
|
$ |
480,266 |
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity |
|
$ |
1,240,617 |
|
$ |
1,174,242 |
|
|
Net Debt |
|
|
496,502 |
|
|
480,266 |
|
|
Net Capital |
|
$ |
1,737,119 |
|
$ |
1,654,508 |
|
|
|
|
|
|
|
|
|
|
|
Net Debt to Net Capital |
|
|
|
|
|
|
|
FOREIGN CURRENCY
Because of our international presence, movements in exchange rates may have a significant impact on the translation of the financial statements of our foreign subsidiaries. Our primary foreign exchange exposure is to the Euro, but we also have foreign exchange exposure to the Chinese Yuan, Brazilian Real, Mexican Peso, Swiss Franc and other Asian, European and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements. Conversely, a weakening U.S. dollar has an additive effect. In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. We manage our exposures to foreign exchange principally with forward exchange contracts to economically hedge recorded transactions and firm purchase and sales commitments denominated in foreign currencies. Changes in exchange rates on such inter-country sales could materially impact our results of operations.
QUARTERLY TRENDS
Our results of operations in the last quarter of the year typically are negatively impacted by customer plant shutdowns in December. In the future, our results of operations in a quarterly period could be impacted by factors such as the seasonality of certain products within our segments, changes in foreign currency rates, changes in product mix, changes in material costs, changes in growth rates in the markets to which our products are sold, recognition of equity based compensation expense for retirement eligible employees in the period of grant and changes in general economic conditions in any of the countries in which we do business.
We generally incur higher employee stock option expense in the first quarter compared with the rest of the fiscal year. Our estimated stock option expense on a pre-tax basis (in $ millions) for the year 2017 is as follows:
|
|
|
|
|
|
|
First Quarter |
|
$ |
6.9 |
|
|
Second Quarter (estimated for 2017) |
|
|
3.3 |
|
|
Third Quarter (estimated for 2017) |
|
|
2.9 |
|
|
Fourth Quarter (estimated for 2017) |
|
|
2.8 |
|
|
|
|
$ |
15.9 |
|
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash flow from operations and our revolving credit facility. In the first three months of 2017, our operations provided approximately $41.0 million in cash flow compared to $11.9 million for the same period a year ago. In both periods, cash flow from operations was primarily derived from earnings before depreciation and amortization. The increase in cash provided by operations is primarily attributable to profit growth and a decrease in working capital requirements.
We used $38.4 million in cash for investing activities during the first three months of 2017 compared to $198.7 million during the same period a year ago. The decrease is due primarily to the Mega Airless acquisition in 2016 of $203.0 million, net of cash received. Our investment in capital projects increased $10.6 million from the first quarter 2016. We also invested $5 million for a 20% minority investment in a technology company which provides digital monitoring systems for ophthalmic medication. Our 2017 estimated cash outlays for capital expenditures are expected to be approximately $160 million but could vary due to changes in exchange rates as well as the timing of capital projects.
26
We used $186.0 million in cash for financing activities during the first three months of 2017, compared to proceeds of $71.5 million during the same period a year ago. We repatriated approximately $263 million from Europe to the U.S. in the first quarter. These funds were used to pay down our revolving credit facility and to repurchase and retire common stock. For 2016, proceeds from notes payable were used to partially finance the acquisition of Mega Airless and to repurchase and retire common stock. Proceeds from stock option exercises were offset by the cash paid to stockholders in dividends during 2017 and 2016.
Cash and equivalents decreased to $284.7 million at March 31, 2017 from $466.3 million at December 31, 2016 mainly due to paying down the revolving credit facility with repatriated funds. Total short and long-term interest bearing debt decreased in the first three months of 2017 to $781.2 million from $946.6 million at December 31, 2016 also primarily due to paying down the revolving credit facility. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents less short-term investments) to Net Capital (stockholder’s equity plus Net Debt) was 28.6% at March 31, 2017 compared to 29.0% at December 31, 2016. See the reconciliation of Non-U.S. GAAP measures starting on page 24.
The Company maintains a revolving credit facility that provides for unsecured financing of up to $300 million. Each borrowing under this credit facility will bear interest at rates based on LIBOR, prime rates or other similar rates, in each case plus an applicable margin. A facility fee on the total amount of the facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the credit facility and the facility fee percentage may change from time to time depending on changes in Aptar’s consolidated leverage ratio. We had no balance under the credit facility at March 31, 2017. At December 31, 2016, we had an outstanding balance of $166 million under the credit facility. We incurred approximately $170 thousand and $189 thousand in interest and fees related to this credit facility during the three months ended March 31, 2017 and 2016, respectively.
Our revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:
|
|
|
Requirement |
|
Level at March 31, 2017 |
|
Consolidated Leverage Ratio (a) |
|
Maximum of 3.50 to 1.00 |
|
1.15 to 1.00 |
|
Consolidated Interest Coverage Ratio (a) |
|
Minimum of 3.00 to 1.00 |
|
13.45 to 1.00 |
|
|
(a) |
|
Definitions of ratios are included as part of the revolving credit facility agreement and the private placement agreements. |
Based upon the above consolidated leverage ratio covenant, we have the ability to borrow approximately an additional $1.1 billion before the 3.50 to 1.00 maximum ratio requirement is exceeded.
Our foreign operations have historically met cash requirements with the use of internally generated cash or borrowings. These foreign subsidiaries have financing arrangements with several foreign banks to fund operations located outside the U.S., but the majority of these arrangements are uncommitted. The majority of our $284.7 million in cash and equivalents is located outside of the U.S. We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The Company repatriated approximately $263 million to the U.S. in the first quarter 2017 to reduce existing debt levels and fund stock repurchases. To better balance our capital structure, the Company is also planning to repatriate an additional $750 million of earnings previously designated as indefinitely reinvested, and therefore has removed the indefinite reinvestment assertion on such amounts. We intend to borrow a mixture of fixed medium-term and variable short-term European debt to facilitate a repatriation to the U.S. later in 2017. The Company expects its future excess European cash flows will be sufficient to service this new debt and allow for further repatriation of current earnings to the U.S., if necessary. There are no significant tax consequences expected from either repatriation due to the amount of tax credits associated with the repatriation under current U.S. tax law.
We believe we are in a strong financial position and have the financial resources to meet our business requirements in the foreseeable future. We have historically used cash flow from operations, our revolving credit facility, stock option exercises and debt, as needed, as our primary sources of liquidity. Our primary uses of liquidity are to invest in equipment and facilities that are necessary to support our growth and to make acquisitions that will contribute to the achievement of our strategic objectives. Other uses of liquidity include paying dividends to stockholders and repurchasing shares of our common stock. In the event that customer demand would decrease significantly for a prolonged period of time and negatively impact cash flow from operations, we would have the ability to restrict and significantly reduce capital expenditure levels, as well as evaluate our acquisition strategy and dividend and share repurchase programs. A prolonged and significant reduction in capital expenditure levels could increase future repairs and maintenance costs as well as have a negative impact on operating margins if we were unable to invest in new innovative products.
On April 20, 2017, the Board of Directors declared a quarterly cash dividend of $0.32 per share payable on May 24, 2017 to stockholders of record as of May 3, 2017.
27
CONTINGENCIES
The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature. Please refer to Note 10 of the Notes to Condensed Consolidated Financial Statements for a discussion of contingencies affecting the Company’s business.
OFF-BALANCE SHEET ARRANGEMENTS
We lease certain warehouse, plant and office facilities as well as certain equipment under noncancelable operating leases expiring at various dates through the year 2027. Most of the operating leases contain renewal options and certain equipment leases include options to purchase during or at the end of the lease term. Other than operating lease obligations, we do not have any off-balance sheet arrangements.
RECENTLY ISSUED ACCOUNTING STANDARDS
We have reviewed the recently issued accounting standards updates to the FASB’s Accounting Standards Codification that have future effective dates. Standards which are effective for 2017 are discussed in Note 1 of the Notes to Condensed Consolidated Financial Statements.
In May 2014, the FASB amended the guidance for recognition of revenue from customer contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB decided to defer the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also decided to allow early adoption of the standard, but not before the original effective date of December 15, 2016. Subsequent to the initial standards, the FASB has also issued several ASUs to clarify specific revenue recognition topics. We continue to evaluate the impact the adoption of this standard will have on our Consolidated Financial Statements. The majority of our revenues are derived from product sales and tooling sales and we are in the process of assessing the impact of the new guidance on these revenue streams. We are also evaluating our license, exclusivity and royalty arrangements, which will need to be reviewed individually to ensure proper accounting under the new standard. Based on our reviews performed to date, we continue to anticipate adopting the full retrospective transition method for implementing this guidance on the standard’s effective date.
In January 2016, the FASB issued new guidance that generally requires companies to measure investments in other entities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company does not believe that this new guidance will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued new guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this guidance.
In June 2016, the FASB issued guidance that changes the accounting for measurement of credit losses on financial instruments. The guidance replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when recording credit loss estimates. The new standard is effective for fiscal years and interim periods beginning after December 15, 2019. The Company is currently evaluating the impact of adopting this guidance.
In August 2016, the FASB issued guidance to increase comparability among organizations on how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this guidance.
In January 2017, the FASB issued guidance to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As a result, impairment charges will be required for the amount by which the reporting units carrying amount exceeds its fair value up to the amount of its allocated goodwill. The new standard is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company does not believe that this new guidance will have a material impact on its consolidated financial statements.
In March 2017, the FASB issued guidance to disaggregate the current service cost component from the other components of net periodic benefit costs. The service cost component should be presented within compensation costs while the other components should be presented outside of income from operations. The guidance also clarifies that only the service cost component is eligible for capitalization. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this guidance.
28
Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.
OUTLOOK
For the second quarter, we currently expect growth in our Pharma and Food + Beverage segments. Our Beauty + Home segment may be impacted by uncertainties, including the pace of economic growth in the U.S. and Brazil. Aptar expects earnings per share for the second quarter to be in the range of $0.92 to $0.97 per share, compared to $0.91 per share reported in the prior year. Our guidance range is based on an effective tax rate range of 26.5% to 27.5%, which includes an estimate of the potential tax benefit from our adoption of the new accounting standard for share-based compensation. Adjusting for changes in foreign currency exchange rates, comparable adjusted earnings per share for the prior year were approximately $0.87.
FORWARD-LOOKING STATEMENTS
Certain statements in Management’s Discussion and Analysis and other sections of this Form 10-Q are forward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Quarterly Trends, Liquidity and Capital Resources, Environmental Matters and Other Contingencies, and Outlook sections of this Form 10-Q. Words such as “expects,” “anticipates,” “believes,” “estimates,” “future” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. Forward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on our beliefs as well as assumptions made by and information currently available to us. Accordingly, our actual results may differ materially from those expressed or implied in such forward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment including, but not limited to:
|
|
· |
|
the possible impact and consequences of the fire at the Company’s facility in Annecy, France; |
|
|
· |
|
the impact and extent of contamination found at the Company’s facility in Brazil; |
|
|
· |
|
economic conditions worldwide, including potential deflationary conditions in regions we rely on for growth; |
|
|
· |
|
political conditions worldwide; |
|
|
· |
|
significant fluctuations in foreign currency exchange rates; |
|
|
· |
|
changes in customer and/or consumer spending levels; |
|
|
· |
|
financial conditions of customers and suppliers; |
|
|
· |
|
consolidations within our customer or supplier bases; |
|
|
· |
|
loss of one or more key accounts; |
|
|
· |
|
fluctuations in the cost of materials, components and other input costs (particularly resin, metal, anodization costs and transportation and energy costs); |
|
|
· |
|
the availability of raw materials and components (particularly from sole sourced suppliers) as well as the financial viability of these suppliers; |
|
|
· |
|
our ability to successfully implement facility expansions and new facility projects; |
|
|
· |
|
our ability to offset inflationary impacts with cost containment, productivity initiatives or price increases; |
|
|
· |
|
changes in capital availability or cost, including interest rate fluctuations; |
|
|
· |
|
volatility of global credit markets; |
|
|
· |
|
the timing and magnitude of capital expenditures; |
|
|
· |
|
our ability to identify potential new acquisitions and to successfully acquire and integrate such operations or products; |
|
|
· |
|
direct or indirect consequences of acts of war, terrorism or social unrest; |
|
|
· |
|
cybersecurity threats that could impact our networks and reporting systems; |
|
|
· |
|
the impact of natural disasters and other weather-related occurrences; |
|
|
· |
|
fiscal and monetary policies and other regulations, including changes in worldwide tax rates; |
|
|
· |
|
changes or difficulties in complying with government regulation; |
|
|
· |
|
changing regulations or market conditions regarding environmental sustainability; |
|
|
· |
|
work stoppages due to labor disputes; |
|
|
· |
|
competition, including technological advances; |
|
|
· |
|
our ability to protect and defend our intellectual property rights, as well as litigation involving intellectual property rights; |
|
|
· |
|
the outcome of any legal proceeding that has been or may be instituted against us and others; |
|
|
· |
|
our ability to meet future cash flow estimates to support our goodwill impairment testing; |
|
|
· |
|
the demand for existing and new products; |
|
|
· |
|
the success of our customers’ products, particularly in the pharmaceutical industry; |
29
|
|
· |
|
our ability to manage worldwide customer launches of complex technical products, in particular in developing markets; |
|
|
· |
|
difficulties in product development and uncertainties related to the timing or outcome of product development; |
|
|
· |
|
significant product liability claims; and |
|
|
· |
|
other risks associated with our operations. |
Although we believe that our forward-looking statements are based on reasonable assumptions, there can be no assurance that actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to Item 1A (“Risk Factors”) of Part I included in the Company’s Annual Report on Form 10-K for additional risk factors affecting the Company.
30
A significant number of our operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of our entities. Our primary foreign exchange exposure is to the Euro, but we also have foreign exchange exposure to the Chinese Yuan, Brazilian Real, Mexican Peso and Swiss Franc, among other Asian, European, and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial condition and results of operations. Conversely, a weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial condition and results of operations.
Additionally, in some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Any changes in exchange rates on such inter-country sales may impact our results of operations.
We manage our exposures to foreign exchange principally with forward exchange contracts to hedge certain firm purchase and sales commitments and intercompany cash transactions denominated in foreign currencies.
The table below provides information as of March 31, 2017 about our forward currency exchange contracts. The majority of the contracts expire before the end of the second quarter of 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Min / Max |
|
|
|
|
|
Contract Amount |
|
Contractual |
|
Notional |
|
|
Buy/Sell |
|
|
(in thousands) |
|
Exchange Rate |
|
Volumes |
|
|
|
|
|
|
|
|
|
|
|
|
Swiss Franc / Euro |
|
$ |
59,662 |
|
0.9406 |
|
57,757-59,662 |
|
|
Euro / Brazilian Real |
|
|
13,689 |
|
3.3232 |
|
12,212-13,689 |
|
|
Euro / Indian Rupee |
|
|
10,457 |
|
73.9717 |
|
10,016-10,457 |
|
|
Euro / Us Dollar |
|
|
7,272 |
|
1.0727 |
|
7,272-29,091 |
|
|
Czech Koruna / Euro |
|
|
2,987 |
|
0.0371 |
|
2,561-2,987 |
|
|
Us Dollar / Euro |
|
|
2,778 |
|
0.9288 |
|
2,778-9,728 |
|
|
Euro / Indonesian Rupiah |
|
|
1,771 |
|
15,725.0000 |
|
1,771-1,771 |
|
|
Euro / Colombian Peso |
|
|
1,673 |
|
3,177.0000 |
|
1,673-3,181 |
|
|
Euro / Thai Baht |
|
|
1,272 |
|
39.4222 |
|
1,017-1,272 |
|
|
Mexican Peso / Us Dollar |
|
|
1,063 |
|
0.0507 |
|
552-1,063 |
|
|
Thai Baht / Euro |
|
|
1,063 |
|
0.0262 |
|
551-1,063 |
|
|
British Pound / Euro |
|
|
859 |
|
1.1413 |
|
603-2,265 |
|
|
Other |
|
|
1,296 |
|
|
|
|
|
|
Total |
|
$ |
105,842 |
|
|
|
|
|
As of March 31, 2017, the Company has recorded the fair value of foreign currency forward exchange contracts of $0.5 million in prepaid and other and $1.2 million in accounts payable in the balance sheet.
DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2017. Based on that evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures were effective as of such date.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the quarter ended March 31, 2017, the Company implemented enterprise resource planning (“ERP”) systems at one operating facility. Consequently, the control environments have been modified at this location to incorporate the controls contained within the new ERP system. Other than this item, no change in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the Company’s fiscal quarter ended March 31, 2017 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
31
RECENT SALES OF UNREGISTERED SECURITIES
Certain French employees are eligible to participate in the FCP Aptar Savings Plan (the “Plan”). An independent agent purchases shares of common stock available under the Plan for cash on the open market and we do not issue shares. We do not receive any proceeds from the purchase of common stock under the Plan. The agent under the Plan is Banque Nationale de Paris Paribas Fund Services. No underwriters are used under the Plan. All shares are sold in reliance upon the exemption from registration under the Securities Act of 1933 provided by Regulation S promulgated under that Act. During the quarter ended March 31, 2017, the Plan purchased no shares of our common stock on behalf of the participants, and sold 2,525 shares of our common stock on behalf of the participants at an average price of $74.74 per share, for an aggregate amount of $189 thousand. At March 31, 2017, the Plan owned 68,097 shares of our common stock.
ISSUER PURCHASES OF EQUITY SECURITIES
On October 20, 2016, the Company announced a share repurchase authorization of up to $350 million of common stock. This authorization replaces previous authorizations and has no expiration date. Aptar may repurchase shares through the open market, privately negotiated transactions or other programs, subject to market conditions.
Shares repurchased are immediately retired. The Company spent $16.0 million to repurchase approximately 210 thousand shares during the first quarter of 2017.
The following table summarizes the Company’s purchases of its securities for the quarter ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
Dollar Value Of |
|
||
|
|
|
|
|
|
|
|
Total Number Of Shares |
|
Shares that May Yet be |
|
||
|
|
|
|
Total Number |
|
|
|
Purchased as Part Of |
|
Purchased Under The |
|
||
|
|
|
|
Of Shares |
|
Average Price |
|
Publicly Announced |
|
Plans or Programs |
|
||
|
Period |
Purchased |
Paid Per Share |
Plans Or Programs |
(in millions) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/1 – 1/31/17 |
|
|
22,452 |
|
$ |
74.17 |
|
22,452 |
|
$ |
301.8 |
|
|
2/1 – 2/28/17 |
|
|
— |
|
|
— |
|
— |
|
|
301.8 |
|
|
3/1 – 3/31/17 |
|
|
187,500 |
|
|
76.58 |
|
187,500 |
|
|
287.4 |
|
|
Total |
|
|
209,952 |
|
$ |
76.33 |
|
209,952 |
|
$ |
287.4 |
|
32
|
|
|
|
|
|
|
Exhibit 31.1 |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
Exhibit 31.2 |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
Exhibit 32.1 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
Exhibit 32.2 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
Exhibit 101 |
The following financial information from our Quarterly Report on Form 10-Q for the first quarter of fiscal 2017, filed with the SEC on May 1, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income - Three Months Ended March 31, 2017 and 2016, (ii) the Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2017 and 2016, (iii) the Condensed Consolidated Balance Sheets – March 31, 2017 and December 31, 2016, (iv) the Condensed Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2017 and 2016, (v) the Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2017 and 2016 and (vi) the Notes to Condensed Consolidated Financial Statements. |
33
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
AptarGroup, Inc. |
|
|
|
(Registrant) |
|
|
|
|
|
|
By |
/s/ ROBERT W. KUHN |
|
|
|
Robert W. Kuhn |
|
|
|
Executive Vice President, |
|
|
|
Chief Financial Officer and Secretary |
|
|
|
(Duly Authorized Officer and |
|
|
|
Principal Accounting and Financial Officer) |
|
|
|
|
|
|
|
|
|
|
|
Date: May 1, 2017 |
34
INDEX OF EXHIBITS
|
Exhibit |
|
|
Number |
Description |
|
|
|
|
31.1 |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
31.2 |
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
32.1 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
32.2 |
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
101 |
The following financial information from our Quarterly Report on Form 10-Q for the first quarter of fiscal 2017, filed with the SEC on May 1, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income - Three Months Ended March 31, 2017 and 2016, (ii) the Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2017 and 2016, (iii) the Condensed Consolidated Balance Sheets – March 31, 2017 and December 31, 2016, (iv) the Condensed Consolidated Statements of Changes in Equity - Three Months Ended March 31, 2017 and 2016, (v) the Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2017 and 2016 and (vi) the Notes to Condensed Consolidated Financial Statements. |
35