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 $0.5 million and $8.8 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 three and nine months ended September 30, 2017, respectively. 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.
In August 2017, the FASB issued new guidance to improve the accounting for hedging activities. The guidance changes the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the guidance makes certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. However, early application is permitted in any interim period after the issuance of this guidance. The Company has chosen to adopt this standard in the current period. See details in Note 8 – Derivative Instruments and Hedging Activities.
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 nine months of 2017, the Company repurchased 1.4 million shares of common stock, of which 512 thousand shares were immediately retired. During the first nine months of 2016, the Company repurchased and immediately retired 1.1 million shares of common stock. Common stock was reduced by the number of shares retired at $0.01 par value per share. The Company allocates 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.
The Company considers numerous factors to determine which foreign earnings are permanently reinvested in foreign operations. These include 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 €250 million ($263 million) of foreign earnings, most of which was used to reduce existing debt levels and fund stock repurchases. To better balance our capital structure, the Company repatriated an additional €700 million ($751 million) of foreign earnings in the third quarter of 2017. The Company recognized a $5 million tax benefit for the nine months ended September 30, 2017 associated with these repatriation activities. The Company maintains its assertion that the approximately $614 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 - Income Taxes for more information.
The table below shows a summary of intangible assets as of September 30, 2017 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 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
|
|
$
|
7,695
|
|
$
|
(7,680)
|
|
$
|
15
|
|
$
|
6,859
|
|
$
|
(6,839)
|
|
$
|
20
|
|
Acquired technology
|
|
15.0
|
|
|
46,817
|
|
|
(13,610)
|
|
|
33,207
|
|
|
41,731
|
|
|
(10,040)
|
|
|
31,691
|
|
Customer relationships
|
|
12.2
|
|
|
68,126
|
|
|
(11,763)
|
|
|
56,363
|
|
|
63,006
|
|
|
(6,696)
|
|
|
56,310
|
|
License agreements and other
|
|
7.6
|
|
|
21,352
|
|
|
(14,177)
|
|
|
7,175
|
|
|
18,516
|
|
|
(12,048)
|
|
|
6,468
|
|
Total intangible assets
|
|
11.8
|
|
$
|
143,990
|
|
$
|
(47,230)
|
|
$
|
96,760
|
|
$
|
130,112
|
|
$
|
(35,623)
|
|
$
|
94,489
|
|
Aggregate amortization expense for the intangible assets above for the quarters ended September 30, 2017 and 2016 was $2,708 and $2,553, respectively. Aggregate amortization expense for the intangible assets above for the nine months ended September 30, 2017 and 2016 was $7,643 and $6,788, respectively.
Future estimated amortization expense for the years ending December 31 is as follows:
|
|
|
|
|
|
2017
|
|
$
|
2,572
|
|
(remaining estimated amortization for 2017)
|
2018
|
|
|
10,851
|
|
|
2019
|
|
|
10,667
|
|
|
2020
|
|
|
9,464
|
|
|
2021 and thereafter
|
|
|
63,206
|
|
|
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 September 30, 2017.
NOTE 4 — INCOME TAXES
The reported effective tax rate decreased to 23.0% for the three months ended September 30, 2017 compared to 29.2% for the same period ended September 30, 2016, resulting in a decrease to the Provision for Income Taxes of approximately $6 million. The reported effective tax rate decreased to 22.0% for the nine months ended September 30, 2017 compared to 28.8% for the same period ended September 30, 2016, resulting in a decrease to the Provision for Income Taxes of approximately $15 million. For the three months ended September 30, 2017, the decrease in the tax rate reflects a benefit of 4.5% recognized upon a foreign tax settlement. For the nine months ended September 30, 2017, the decrease in the tax rate reflects a 4.0% benefit from the new accounting standard for employee share-based compensation payments, which the Company adopted in 2017, a 1.6% benefit in connection with our repatriation activities, which was primarily related to tax benefits associated with the forward contracts discussed in Note 8 – Derivative Instruments and Hedging Activities and a 1.4% benefit from the foreign tax settlement previously mentioned.
The Company had approximately $3.6 and $6.4 million recorded for income tax uncertainties as of September 30, 2017 and December 31, 2016, respectively. The change is primarily attributable to a $2.2 million reduction related to a foreign tax settlement, along with other settlements and currency fluctuations. The uncertain amounts, if recognized, that would impact the effective tax rate are $3.6 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 $1.9 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.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
(a)
|
|
$
|
1,612
|
|
$
|
—
|
|
$
|
1,612
|
|
$
|
—
|
|
Total assets at fair value
|
|
$
|
1,612
|
|
$
|
—
|
|
$
|
1,612
|
|
$
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign 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 $1.2 billion as of September 30, 2017 and $739 million as of December 31, 2016.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature. While management believes the resolution of these claims and lawsuits will not have a material adverse effect on the Company’s financial position or results of operations or cash flows, claims and legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur 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 September 30, 2017 and December 31, 2016.
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 further investigation and possible remediation, which are 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 to complete any required remediation in a timely manner, could potentially result in fines or penalties. We accrued $1.5 million (operating expense) in the first quarter of 2017 relating to this contingency. The amount is periodically reviewed, and adjusted as necessary, as the matter continues to evolve. Based on the current status of the investigation, no adjustment to the accrual was necessary for the quarter ended September 30, 2017.
NOTE 11 — STOCK REPURCHASE PROGRAM
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.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, OR AS OTHERWISE INDICATED)
RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2017
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Cost of sales (exclusive of depreciation and amortization shown below)
|
|
|
65.4
|
|
|
64.6
|
|
|
64.7
|
|
|
63.9
|
|
|
Selling, research & development and administrative
|
|
|
15.3
|
|
|
14.7
|
|
|
15.9
|
|
|
16.0
|
|
|
Depreciation and amortization
|
|
|
6.4
|
|
|
6.7
|
|
|
6.2
|
|
|
6.5
|
|
|
Operating income
|
|
|
12.9
|
|
|
14.0
|
|
|
13.2
|
|
|
13.6
|
|
|
Other expense
|
|
|
(1.8)
|
|
|
(1.3)
|
|
|
(1.3)
|
|
|
(1.4)
|
|
|
Income before income taxes
|
|
|
11.1
|
|
|
12.7
|
|
|
11.9
|
|
|
12.2
|
|
|
Net Income
|
|
|
8.6
|
|
|
9.0
|
|
|
9.3
|
|
|
8.7
|
|
|
Effective tax rate
|
|
|
23.0
|
%
|
|
29.2
|
%
|
|
22.0
|
%
|
|
28.8
|
%
|
|
Adjusted EBITDA margin (1)
|
|
|
18.9
|
%
|
|
20.8
|
%
|
|
19.4
|
%
|
|
20.5
|
%
|
|
|
(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 30.
|
NET SALES
We reported net sales of $624.3 million for the quarter ended September 30, 2017, which represents a 6% increase compared to the $589.7 million reported during the third quarter of 2016. The average U.S. dollar exchange rate weakened compared to the Euro and most other major currencies related to our business. This resulted in a positive currency translation impact of 3%. Therefore, core sales, which exclude changes in foreign currency rates, increased 3% in the third quarter of 2017 compared to the third quarter of 2016. Core sales in the third quarter of 2017 were negatively impacted by 2% coming from lower custom tooling sales compared to the prior year. All three segments reported core sales improvements in the third quarter of 2017 with the increase mainly driven by product sales growth in our Food + Beverage and Beauty + Home segments. Pharma sales growth was negatively impacted by $13.0 million lower tooling sales due to a significant consumer health care tooling project that was recognized in the third quarter of 2016.
|
|
|
|
|
|
|
|
|
|
Third Quarter 2017
|
|
Beauty
|
|
|
|
Food +
|
|
|
|
Net Sales Change over Prior Year
|
|
+ Home
|
|
Pharma
|
|
Beverage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
3
|
%
|
1
|
%
|
8
|
%
|
3
|
%
|
Currency Effects (1)
|
|
3
|
%
|
3
|
%
|
2
|
%
|
3
|
%
|
Total Reported Net Sales Growth
|
|
6
|
%
|
4
|
%
|
10
|
%
|
6
|
%
|
|
(1)
|
|
Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
|
For the first nine months of 2017, we reported net sales of $1.84 billion, 3% above the first nine months of 2016 reported net sales of $1.79 billion. Changes in foreign currency rates were immaterial for the first nine months and therefore had no impact on consolidated reported sales. The acquisition of Mega Airless positively impacted sales by 1%. Therefore, core sales for the first nine months of 2017 increased by 2% compared to the first nine months of 2016. Tooling sales did not significantly impact our consolidated results as increases in Food + Beverage and Beauty + Home tooling sales were offset by lower Pharma tooling sales due to the 2016 consumer health care project mentioned above.
|
|
|
|
|
|
|
|
|
|
First Nine Months of 2017
|
|
Beauty
|
|
|
|
Food +
|
|
|
|
Net Sales Change over Prior Year
|
|
+ Home
|
|
Pharma
|
|
Beverage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
—
|
%
|
6
|
%
|
5
|
%
|
2
|
%
|
Acquisitions
|
|
1
|
%
|
—
|
%
|
—
|
%
|
1
|
%
|
Currency Effects (1)
|
|
—
|
%
|
—
|
%
|
(1)
|
%
|
—
|
%
|
Total Reported Net Sales Growth
|
|
1
|
%
|
6
|
%
|
4
|
%
|
3
|
%
|
|
(1)
|
|
Currency effects are calculated 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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
% of Total
|
|
2016
|
|
% of Total
|
|
2017
|
|
% of Total
|
|
2016
|
|
% of Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
164,345
|
|
26%
|
|
$
|
153,295
|
|
26%
|
|
$
|
484,984
|
|
26%
|
|
$
|
475,550
|
|
27%
|
|
Europe
|
|
|
350,631
|
|
56%
|
|
|
335,876
|
|
57%
|
|
|
1,057,841
|
|
57%
|
|
|
1,019,699
|
|
57%
|
|
Latin America
|
|
|
65,557
|
|
11%
|
|
|
60,424
|
|
10%
|
|
|
176,965
|
|
10%
|
|
|
166,661
|
|
9%
|
|
Asia
|
|
|
43,793
|
|
7%
|
|
|
40,134
|
|
7%
|
|
|
123,598
|
|
7%
|
|
|
130,156
|
|
7%
|
|
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.
COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN BELOW)
Our cost of sales (“COS”) as a percent of net sales increased to 65.4% in the third quarter of 2017 compared to 64.6% in the third quarter of 2016. Our COS percentage was negatively impacted by continued operational inefficiencies in our custom decorative packaging business in Europe. We also experienced approximately $1.6 million of higher material costs in the third quarter of 2017 compared to the same period in 2016.
Cost of sales as a percent of net sales increased to 64.7% in the first nine months of 2017 compared to 63.9% in the same period a year ago. As mentioned above, our COS percentage was negatively impacted by operational inefficiencies in our custom decorative packaging business in Europe. Our COS percentage was also negatively impacted by approximately $7.6 million due to higher material costs in the first nine months of 2017 compared to the same period in 2016.
SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE
Our Selling, Research & Development and Administrative expenses (“SG&A”) increased by approximately $9.1 million in the third quarter of 2017 compared to the same period a year ago. Excluding changes in foreign currency rates, SG&A increased by approximately $6.5 million in the quarter. The increase is mainly due to increases in professional fees and salary expenses related to specific projects during the third quarter of 2017 along with other normal inflationary increases. Due to this increased strategic spending, SG&A as a percentage of net sales increased to 15.3% compared to 14.7% in the same period of the prior year.
SG&A increased by approximately $7.1 million to $292.9 million in the first nine months of 2017 compared to $285.8 million during the same period a year ago. Excluding changes in foreign currency rates, SG&A increased by approximately $7.4 million in the first nine months of 2017 compared to the first nine months of 2016. This increase is mainly due to the increase in specific projects mentioned above. During 2017, we also recognized $1.3 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. We also recognized $1.5 million for the estimated costs to remediate environmental contamination found at the Company’s facility in Brazil. These increases were offset by one-time transaction costs of $5.6 million related to the Mega Airless acquisition in 2016, which did not repeat in 2017. Due to higher sales, SG&A as a percentage of net sales decreased to 15.9% compared to 16.0% in the same period of the prior year.
DEPRECIATION AND AMORTIZATION
Reported depreciation and amortization expenses increased by approximately $0.4 million in the third quarter of 2017 compared to the same period a year ago. Excluding changes in foreign currency rates, depreciation and amortization decreased by approximately $0.9 million in the quarter compared to the same period a year ago. This decrease is due to several large investments becoming fully depreciated during 2017. Due to the reported sales increasing more than depreciation and amortization expenses, depreciation and amortization as a percentage of net sales decreased to 6.4% in the third quarter of 2017 compared to 6.7% in the same period of the prior year.
For the first nine months of 2017, reported depreciation and amortization expenses decreased by approximately $1.3 million compared to the first nine months of 2016. Excluding changes in foreign currency rates, depreciation and amortization decreased by approximately $1.4 million compared to the same period a year ago. Incremental depreciation and amortization costs of $2.6 million related to the two additional months of Mega Airless activity in 2017 was offset by the several large investments becoming fully depreciated, as discussed above. As depreciation and amortization expenses decreased due to the lapsing of these large investments, depreciation and amortization as a percentage of net sales decreased to 6.2% compared to 6.5% in the first nine months of 2017 compared to the same period of the prior year.
OPERATING INCOME
Operating income decreased approximately $1.9 million in the third quarter of 2017 compared to the same period a year ago. Excluding changes in foreign currency rates, operating income decreased by approximately $4.8 million in the quarter compared to the same period a year ago. This decrease is mainly due to certain operational inefficiencies in Europe and increased strategic spending as discussed above. Operating income as a percentage of net sales decreased to 12.9% in the third quarter of 2017 compared to 14.0% for the same period in the prior year.
Operating income decreased approximately $2.4 million to $242.8 million in the first nine months of 2017 compared to $245.2 million in the same period of the prior year. Excluding changes in foreign currency rates, operating income decreased by approximately $1.7 million in the first nine months of 2017 compared to the same period a year ago. The remaining decrease is due to the softness in sales from our Beauty + Home segment, increased strategic spending and certain operational inefficiencies as discussed above. 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. Operating income as a percentage of net sales decreased to 13.2% in the first nine months of 2017 compared to 13.6% for the same period in the prior year.
NET OTHER EXPENSE
Net other expense in the third quarter of 2017 increased to $10.9 million from $7.3 million in the same period of the prior year. This increase is primarily due to $2.4 million of unfavorable currency impacts during the third quarter of 2017, mainly related to the weakening of the Argentinian peso compared to the Euro and the lack of a developed market to effectively hedge this exposure. We incurred a $1.0 million increase in interest expense related to new European borrowing arrangements due to a €700 million repatriation to the U.S. that was completed in the third quarter. However, we also realized $0.4 million of additional interest income as most of the repatriated cash was still available in the U.S. during the third quarter of 2017.
Net other expenses for the nine months ended September 30, 2017 decreased to $24.3 million from $26.0 million in the same period of the prior year. This decrease is mainly due to $0.8 million of lower interest expense as we were able to repay our revolving credit facility in the U.S. along with a $0.3 million increase in interest income related to the cash repatriation discussed above.
EFFECTIVE TAX RATE
The reported effective tax rate decreased to 23.0% for the three months ended September 30, 2017 compared to 29.2% for the same period ended September 30, 2016. The current year rate includes a benefit of 4.5% from a foreign tax settlement.
The reported effective tax rate also decreased to 22.0% for the nine months ended September 30, 2017 compared to 28.8% for the nine months ended September 30, 2016. The current year rate for nine months includes a 4.0% benefit from the new accounting standard for employee share-based payments, which the Company has adopted in 2017 and an additional 1.6% benefit in connection with our repatriation activities, which was primarily related to tax benefits associated with the forward contracts discussed in Note 8 to the Unaudited Notes to the Condensed Consolidated Financial Statements. The foreign tax settlement provided an additional benefit of 1.4% for the nine month period as well. The tax rate for 2016 reflected benefits attributable to investment incentives and tax refunds in France.
NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.
We reported net income attributable to AptarGroup, Inc. of $53.5 million and $170.5 million in the three and nine months ended September 30, 2017, respectively, compared to $53.1 million and $156.0 million for the same periods in the prior year.
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.
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
333,748
|
|
$
|
316,030
|
|
$
|
978,313
|
|
$
|
970,687
|
|
Segment Income
|
|
|
21,837
|
|
|
25,380
|
|
|
69,248
|
|
|
79,455
|
|
Segment Income as a percentage of Net Sales
|
|
|
6.5%
|
|
|
8.0%
|
|
|
7.1%
|
|
|
8.2%
|
|
Adjusted EBITDA margin (1)
|
|
|
12.8%
|
|
|
14.9%
|
|
|
13.2%
|
|
|
14.9%
|
|
|
(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 30.
|
Net sales for the quarter ended September 30, 2017 increased 6% to $333.7 million compared to $316.0 million in the third quarter of the prior year. Changes in currency rates positively impacted net sales by 3%. Therefore, core sales increased 3% in the third quarter of 2017 compared to the same quarter of the prior year. Geographically, strong sales in North America, Latin America and Asia offset continued weakness in Europe, mainly due to lower sales of our products to the prestige fragrance markets. From a market perspective, we experienced strong personal care and home care core sales increases of 4% and 9%, respectively while beauty sales were flat when compared to the prior year quarter. The increase in personal care sales mainly relates to new body care products while the increase in the home care market is due to new product sales for automotive applications. Core sales for the beauty market were flat as increases in sampling and promotion products offset lower fragrance and cosmetic sales.
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|
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|
|
Third Quarter 2017
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|
Personal
|
|
|
|
Home
|
|
|
|
Net Sales Change over Prior Year
|
|
Care
|
|
Beauty
|
|
Care
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
4
|
%
|
—
|
%
|
9
|
%
|
3
|
%
|
Currency Effects (1)
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|
3
|
%
|
3
|
%
|
2
|
%
|
3
|
%
|
Total Reported Net Sales Growth
|
|
7
|
%
|
3
|
%
|
11
|
%
|
6
|
%
|
|
(1)
|
|
Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
|
Net sales increased 1% in the first nine months of 2017 to $978.3 million compared to $970.7 million in the first nine months of the prior year. The Mega Airless acquisition positively affected net sales by 1% in the first nine months of 2017 while changes in currency rates did not have any impact. Therefore, core sales were flat for the first nine months of 2017 compared to the same period in the prior year. Personal care sales were flat as increases in sales of our products to the body care market were offset by general softness in other markets we serve. Sales to the beauty market decreased slightly as higher sampling and promotion sales mostly offset lower sales to our prestige fragrance market. Sales to the home care market decreased 2% as new product sales to the automotive market were not able to completely offset lower insecticide sales predominately in North America and Latin America related to the unusually high demand for these products in 2016.
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|
|
|
|
|
|
|
|
First Nine Months of 2017
|
|
Personal
|
|
|
|
Home
|
|
|
|
Net Sales Change over Prior Year
|
|
Care
|
|
Beauty
|
|
Care
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
—
|
%
|
(1)
|
%
|
(2)
|
%
|
—
|
%
|
Acquisitions
|
|
1
|
%
|
1
|
%
|
—
|
%
|
1
|
%
|
Currency Effects (1)
|
|
—
|
%
|
—
|
%
|
1
|
%
|
—
|
%
|
Total Reported Net Sales Growth
|
|
1
|
%
|
—
|
%
|
(1)
|
%
|
1
|
%
|
|
(1)
|
|
Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
|
Segment income in the third quarter of 2017 decreased 14% to $21.8 million compared to $25.4 million reported in the same period in the prior year. We continue to experience operational inefficiencies in our custom decorative packaging business in Europe. We also experienced $2.0 million of higher material costs and some unfavorable currency impacts in Argentina during the third quarter of 2017.
Segment income in the first nine months of 2017 decreased approximately 13% to $69.2 million compared to $79.5 million reported in the same period in the prior year. The decrease compared to the prior year is mostly due to the productivity issues and increased material costs discussed above. We also recognized $1.5 million for the estimated costs to remediate environmental contamination found at the Company’s anodizing facility in Brazil.
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.
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|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
199,547
|
|
$
|
191,194
|
|
$
|
598,161
|
|
$
|
565,363
|
|
Segment Income
|
|
|
55,426
|
|
|
55,037
|
|
|
174,288
|
|
|
166,870
|
|
Segment Income as a percentage of Net Sales
|
|
|
27.8%
|
|
|
28.8%
|
|
|
29.1%
|
|
|
29.5%
|
|
Adjusted EBITDA margin (1)
|
|
|
33.2%
|
|
|
34.1%
|
|
|
34.2%
|
|
|
34.9%
|
|
|
(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 30.
|
Net sales for the Pharma segment increased by 4% in the third quarter of 2017 to $199.5 million compared to $191.2 million in the third quarter of 2016. Changes in currency positively affected net sales by 3% in the third quarter of 2017. Therefore, core sales increased by 1% in the third quarter of 2017 compared to the third quarter of 2016. Included in the core sales growth is a negative impact of 7% from lower custom tooling sales compared to the prior year. For the injectables market, strong customer sales in the current quarter along with lower sales in 2016 due to the timing of certain validations of our new capacity in Europe led to a 15% increase in core sales. The prescription drug market reported a core sales increase of 2% on higher asthma and COPD product sales during the third quarter of 2017. The consumer health care market reported a core sales decrease of 6% solely due to a significant amount of custom tooling sales recognized in the third quarter of 2016. Device sales to the consumer health care market remained strong mainly due to increases in nasal decongestant and nasal saline sales.
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|
|
|
|
Third Quarter 2017
|
|
Prescription
|
|
Consumer
|
|
|
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|
|
Net Sales Change over Prior Year
|
|
Drug
|
|
Health Care
|
|
Injectables
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
2
|
%
|
(6)
|
%
|
15
|
%
|
1
|
%
|
Currency Effects (1)
|
|
3
|
%
|
3
|
%
|
5
|
%
|
3
|
%
|
Total Reported Net Sales Growth
|
|
5
|
%
|
(3)
|
%
|
20
|
%
|
4
|
%
|
|
(1)
|
|
Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
|
Net sales for the first nine months of 2017 increased by 6% to $598.2 million compared to $565.4 million in the first nine months of 2016. Changes in currency rates did not impact net sales in the first nine months of 2017. Therefore, core sales increased by 6% in the first nine months of 2017 compared to the same period in the prior year. The consumer health care market reported a core sales increase of 7%. As discussed above, strong demand for our products used on nasal decongestants and nasal salines were offset by a decrease in tooling sales related to a consumer health care project recognized in the third quarter of 2016. The prescription drug market reported a core sales increase of 4% on strong asthma, COPD and allergic rhinitis product sales during the first nine months of 2017. Core sales of our products to the injectables markets increased 11% due to improved sales of our components used on antithrombotic and small molecule products as well as the ramp up of our increased capacities in Europe.
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|
|
|
|
|
|
|
|
|
First Nine Months of 2017
|
|
Prescription
|
|
Consumer
|
|
|
|
|
|
Net Sales Change over Prior Year
|
|
Drug
|
|
Health Care
|
|
Injectables
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
4
|
%
|
7
|
%
|
11
|
%
|
6
|
%
|
Currency Effects (1)
|
|
—
|
%
|
—
|
%
|
(1)
|
%
|
—
|
%
|
Total Reported Net Sales Growth
|
|
4
|
%
|
7
|
%
|
10
|
%
|
6
|
%
|
|
(1)
|
|
Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
|
Segment income in the third quarter of 2017 increased 1% to $55.4 million compared to $55.0 million reported in the same period of the prior year. This increase is mainly due to increased device sales discussed above. However, the lower percentage increase is due to the mix of business as our injectable products carry a lower margin than prescription products. We were also negatively impacted by some unfavorable manufacturing variances and currency impacts in Argentina.
Segment income in the first nine months of 2017 increased approximately 4% to $174.3 million compared to $166.9 million reported in the same period of the prior year. Strong sales volumes across all three markets were able to offset unfavorable currency impacts and manufacturing variances, $1.3 million of professional fees related to our acquisition of a minority investment in Kali Care, Inc. and start-up costs related to our new injectable capacity in North America.
FOOD + BEVERAGE SEGMENT
Operations that sell dispensing systems and sealing solutions primarily to the food and beverage markets form the Food + Beverage segment.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
91,031
|
|
$
|
82,505
|
|
$
|
266,914
|
|
$
|
256,016
|
|
Segment Income
|
|
|
11,668
|
|
|
10,101
|
|
|
31,385
|
|
|
32,977
|
|
Segment Income as a percentage of Net Sales
|
|
|
12.8%
|
|
|
12.2%
|
|
|
11.8%
|
|
|
12.9%
|
|
Adjusted EBITDA margin (1)
|
|
|
19.9%
|
|
|
19.6%
|
|
|
18.6%
|
|
|
19.9%
|
|
|
(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 30.
|
Net sales for the quarter ended September 30, 2017 increased approximately 10% to $91.0 million compared to $82.5 million in the third quarter of the prior year. Changes in foreign currency rates had a favorable impact of 2% on the total segment sales. Therefore, core sales increased by 8% in the third quarter of 2017 compared to the third quarter of 2016. Core sales to the food market increased 3% while core sales to the beverage market increased 18% in the third quarter of 2017 compared to the same period of the prior year. Sales to the food market increased mainly due to strong sales of our products used on sauces and condiments as well as increased sales to our baby food customers. For the beverage market, we recognized strong product sales to our functional drink and bottled water customers. For the segment, we also benefitted from a $1.9 million increase in tooling sales along with a $1.3 million increase on the pass-through of resin price changes in the third quarter ended September 30, 2017 compared to the third quarter of the prior year.
|
|
|
|
|
|
|
|
|
|
Third Quarter 2017
|
|
|
|
|
|
|
|
|
|
Net Sales Change over Prior Year
|
|
|
|
Food
|
|
Beverage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
|
|
3
|
%
|
18
|
%
|
8
|
%
|
Currency Effects (1)
|
|
|
|
2
|
%
|
2
|
%
|
2
|
%
|
Total Reported Net Sales Growth
|
|
|
|
5
|
%
|
20
|
%
|
10
|
%
|
|
(1)
|
|
Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
|
Net sales for the first nine months of 2017 increased by 4% to $266.9 million compared to $256.0 million in the first nine months of 2016. Changes in currency rates negatively impacted net sales by 1% in the first nine months of 2017. Therefore, core sales increased by 5% in the first nine months of 2017 compared to the same period in the prior year. Core sales to both the food and beverage markets increased 5% in the first nine months of 2017 compared to the same period of the prior year. As discussed above, sales to the food market increased due to strong sales of our products used on sauces and condiments. We also realized increases in sales of our products used on cooking oils and infant nutrition products. For the beverage market, strong sales to our bottled water customers offset a slight decrease in functional drink application sales. Sales for the first nine months of 2017 were also favorably impacted by higher tooling sales of $4.4 million.
|
|
|
|
|
|
|
|
|
|
First Nine Months of 2017
|
|
|
|
|
|
|
|
|
|
Net Sales Change over Prior Year
|
|
|
|
Food
|
|
Beverage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
|
|
5
|
%
|
5
|
%
|
5
|
%
|
Currency Effects (1)
|
|
|
|
—
|
%
|
(1)
|
%
|
(1)
|
%
|
Total Reported Net Sales Growth
|
|
|
|
5
|
%
|
4
|
%
|
4
|
%
|
|
(1)
|
|
Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
|
Segment income in the third quarter of 2017 increased approximately 16% to $11.7 million compared to $10.1 million reported in the same period of the prior year. This increase is mainly due to both an increase in product and tooling sales during the quarter as discussed above.
Segment income in the first nine months of 2017 decreased approximately 5% to $31.4 million compared to $33.0 million reported in the same period of the prior year. Negative product mix, along with legal fees to defend our intellectual property, more than offset the impact of our increase in sales and led to lower segment income during the first nine months 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 increased to $10.8 million for the quarter ended September 30, 2017 compared to $7.5 million in the third quarter of the prior year. This increase is mainly due to increases in professional fees and salary expenses related to specific projects.
Corporate & Other expense in the first nine months of 2017 decreased to $32.7 million compared to $35.3 million reported in the same period of the prior year. This decrease is mainly due to $5.6 million of transaction costs related to the Mega Airless acquisition reported in the first quarter of 2016, which more than offset the increases in professional fees and salaries mentioned above.
NON-U.S. GAAP MEASURE
S
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 period over period results in order to evaluate performance on a more comparable basis.
We present earnings before net interest and taxes (“EBIT”) and earnings before net interest, taxes, depreciation and amortization (“EBITDA”). 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30, 2017
|
|
|
|
|
|
|
Consolidated
|
|
Beauty + Home
|
|
Pharma
|
|
Food + Beverage
|
|
Corporate & Other
|
|
Net Interest
|
Net Sales
|
|
$
|
624,326
|
|
$
|
333,748
|
|
$
|
199,547
|
|
$
|
91,031
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income
|
|
$
|
53,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes
|
|
|
15,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income before income taxes
|
|
|
69,518
|
|
|
21,837
|
|
|
55,426
|
|
|
11,668
|
|
|
(10,793)
|
|
|
(8,620)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
69,518
|
|
|
21,837
|
|
|
55,426
|
|
|
11,668
|
|
|
(10,793)
|
|
|
(8,620)
|
Interest expense
|
|
|
9,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,733
|
Interest income
|
|
|
(1,113)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,113)
|
Earnings before net interest and taxes (EBIT)
|
|
|
78,138
|
|
|
21,837
|
|
|
55,426
|
|
|
11,668
|
|
|
(10,793)
|
|
|
-
|
Depreciation and amortization
|
|
|
40,087
|
|
|
20,790
|
|
|
10,834
|
|
|
6,448
|
|
|
2,015
|
|
|
-
|
Earnings before net interest, taxes, depreciation and amortization (EBITDA)
|
|
$
|
118,225
|
|
$
|
42,627
|
|
$
|
66,260
|
|
$
|
18,116
|
|
$
|
(8,778)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income margins (Income before income taxes / Reported Net Sales)
|
|
|
|
|
|
6.5%
|
|
|
27.8%
|
|
|
12.8%
|
|
|
|
|
|
|
EBITDA margins (EBITDA / Reported Net Sales)
|
|
|
18.9%
|
|
|
12.8%
|
|
|
33.2%
|
|
|
19.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30, 2016
|
|
|
|
|
|
|
Consolidated
|
|
Beauty + Home
|
|
Pharma
|
|
Food + Beverage
|
|
Corporate & Other
|
|
Net Interest
|
Net Sales
|
|
$
|
589,729
|
|
$
|
316,030
|
|
$
|
191,194
|
|
$
|
82,505
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income
|
|
$
|
53,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes
|
|
|
21,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income before income taxes
|
|
|
75,001
|
|
|
25,380
|
|
|
55,037
|
|
|
10,101
|
|
|
(7,479)
|
|
|
(8,038)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
75,001
|
|
|
25,380
|
|
|
55,037
|
|
|
10,101
|
|
|
(7,479)
|
|
|
(8,038)
|
Interest expense
|
|
|
8,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,753
|
Interest income
|
|
|
(715)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(715)
|
Earnings before net interest and taxes (EBIT)
|
|
|
83,039
|
|
|
25,380
|
|
|
55,037
|
|
|
10,101
|
|
|
(7,479)
|
|
|
-
|
Depreciation and amortization
|
|
|
39,667
|
|
|
21,653
|
|
|
10,185
|
|
|
6,064
|
|
|
1,765
|
|
|
-
|
Earnings before net interest, taxes, depreciation and amortization (EBITDA)
|
|
$
|
122,706
|
|
$
|
47,033
|
|
$
|
65,222
|
|
$
|
16,165
|
|
$
|
(5,714)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income margins (Income before income taxes / Reported Net Sales)
|
|
|
|
|
|
8.0%
|
|
|
28.8%
|
|
|
12.2%
|
|
|
|
|
|
|
EBITDA margins (EBITDA / Reported Net Sales)
|
|
|
20.8%
|
|
|
14.9%
|
|
|
34.1%
|
|
|
19.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30, 2017
|
|
|
|
|
|
|
Consolidated
|
|
Beauty + Home
|
|
Pharma
|
|
Food + Beverage
|
|
Corporate & Other
|
|
Net Interest
|
Net Sales
|
|
$
|
1,843,388
|
|
$
|
978,313
|
|
$
|
598,161
|
|
$
|
266,914
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income
|
|
$
|
170,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes
|
|
|
48,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income before income taxes
|
|
|
218,566
|
|
|
69,248
|
|
|
174,288
|
|
|
31,385
|
|
|
(32,734)
|
|
|
(23,621)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
218,566
|
|
|
69,248
|
|
|
174,288
|
|
|
31,385
|
|
|
(32,734)
|
|
|
(23,621)
|
Interest expense
|
|
|
25,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,707
|
Interest income
|
|
|
(2,086)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,086)
|
Earnings before net interest and taxes (EBIT)
|
|
|
242,187
|
|
|
69,248
|
|
|
174,288
|
|
|
31,385
|
|
|
(32,734)
|
|
|
-
|
Depreciation and amortization
|
|
|
114,660
|
|
|
60,017
|
|
|
30,462
|
|
|
18,371
|
|
|
5,810
|
|
|
-
|
Earnings before net interest, taxes, depreciation and amortization (EBITDA)
|
|
$
|
356,847
|
|
$
|
129,265
|
|
$
|
204,750
|
|
$
|
49,756
|
|
$
|
(26,924)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income margins (Income before income taxes / Reported Net Sales)
|
|
|
|
|
|
7.1%
|
|
|
29.1%
|
|
|
11.8%
|
|
|
|
|
|
|
EBITDA margins (EBITDA / Reported Net Sales)
|
|
|
19.4%
|
|
|
13.2%
|
|
|
34.2%
|
|
|
18.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30, 2016
|
|
|
|
|
|
|
Consolidated
|
|
Beauty + Home
|
|
Pharma
|
|
Food + Beverage
|
|
Corporate & Other
|
|
Net Interest
|
Net Sales
|
|
$
|
1,792,066
|
|
$
|
970,687
|
|
$
|
565,363
|
|
$
|
256,016
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income
|
|
$
|
156,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes
|
|
|
63,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income before income taxes
|
|
|
219,204
|
|
|
79,455
|
|
|
166,870
|
|
|
32,977
|
|
|
(35,310)
|
|
|
(24,788)
|
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
|
|
|
227,421
|
|
|
81,606
|
|
|
167,296
|
|
|
32,977
|
|
|
(29,670)
|
|
|
(24,788)
|
Interest expense
|
|
|
26,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,547
|
Interest income
|
|
|
(1,759)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,759)
|
Adjusted earnings before net interest and taxes (Adjusted EBIT)
|
|
|
252,209
|
|
|
81,606
|
|
|
167,296
|
|
|
32,977
|
|
|
(29,670)
|
|
|
-
|
Depreciation and amortization
|
|
|
115,944
|
|
|
63,150
|
|
|
29,802
|
|
|
17,960
|
|
|
5,032
|
|
|
-
|
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)
|
|
$
|
368,153
|
|
$
|
144,756
|
|
$
|
197,098
|
|
$
|
50,937
|
|
$
|
(24,638)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income margins (Income before income taxes / Reported Net Sales)
|
|
|
|
|
|
8.2%
|
|
|
29.5%
|
|
|
12.9%
|
|
|
|
|
|
|
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)
|
|
|
20.5%
|
|
|
14.9%
|
|
|
34.9%
|
|
|
19.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Debt to Net Capital Reconciliation
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
109,910
|
|
$
|
169,213
|
|
Current maturities of long-term obligations, net of unamortized debt issuance costs
|
|
|
136,330
|
|
|
4,603
|
|
Long-Term Obligations, net of unamortized debt issuance costs
|
|
|
1,271,530
|
|
|
772,737
|
|
Total Debt
|
|
|
1,517,770
|
|
|
946,553
|
|
Less:
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
|
1,018,666
|
|
|
466,287
|
|
Net Debt
|
|
$
|
499,104
|
|
$
|
480,266
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
$
|
1,321,824
|
|
$
|
1,174,242
|
|
Net Debt
|
|
|
499,104
|
|
|
480,266
|
|
Net Capital
|
|
$
|
1,820,928
|
|
$
|
1,654,508
|
|
|
|
|
|
|
|
|
|
Net Debt to Net Capital
|
|
|
27.4%
|
|
|
29.0%
|
|
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 weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial statements. Conversely, a strengthening U.S. dollar has a dilutive 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:
|
|
|
|
|
|
|
2017
|
|
First Quarter
|
|
$
|
6.9
|
|
Second Quarter
|
|
|
3.0
|
|
Third Quarter
|
|
|
2.6
|
|
Fourth Quarter (estimated for 2017)
|
|
|
2.7
|
|
|
|
$
|
15.2
|
|
LIQUIDITY AND CAPITAL RESOURCES
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 facilities, 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. The majority of these cash needs are met using U.S. funds. Due to the strengthening U.S. dollar, which helped mitigate the tax cost of repatriation, and proposed tax reforms on unrepatriated earnings, we voluntarily repatriated approximately €250 million ($263 million) in the first quarter of 2017 and another €700 million ($751 million) in the third quarter of 2017 from Europe to the U.S. We believe that these repatriations provide us with significant resources to meet our U.S. funding needs for the next several years. 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.
In the first nine months of 2017, our operations provided approximately $265.2 million in cash flow compared to $202.4 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 $189.2 million in cash for investing activities during the first nine months of 2017 compared to $265.5 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 $28.4 million for the first nine months of 2017 compared to the first nine months of 2016. We also invested $5 million for a 20% minority investment in a technology company which provides digital monitoring systems for medical devices. Our 2017 estimated cash outlays for capital expenditures are expected to be in the range of approximately $155 to $160 million but could vary due to changes in exchange rates as well as the timing of capital projects.
Financing activities provided $447.3 million in cash during the first nine months of 2017, compared to $1.1 million during the same period a year ago. During 2017, we repatriated $1.0 billion from Europe to the U.S., which was partially funded by committed financing arrangements in the U.K. discussed below. These funds were initially used to repay $160 million outstanding on the U.S. revolving credit facility and repurchase $113.3 million of 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 increased to $1.0 billion at September 30, 2017 from $466.3 million at December 31, 2016 mainly due to the $1.0 billion repatriation from Europe to the U.S as discussed below. Total short and long-term interest bearing debt increased in the first nine months of 2017 to $1.5 billion from $946.6 million at December 31, 2016 primarily due to the additional debt taken on in Europe to fund the repatriation. 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 27.4% at September 30, 2017 compared to 29.0% at December 31, 2016. See the reconciliation of Non-U.S. GAAP measures starting on page 30.
On July 20, 2017, the Company replaced its $300 million revolving credit facility with a new 5-year multi-currency revolving credit facility with two tranches, providing for unsecured financing of up to $300 million that is available in the U.S. and up to €150 million that is available to our wholly owned UK subsidiary. Each borrowing under the 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. At September 30, 2017, we had an outstanding balance of €90 million under the credit facility. At December 31, 2016, we had an outstanding balance of $166 million under the credit facility. We incurred approximately $734 thousand and $370 thousand in interest and fees related to this credit facility during the nine months ended September 30, 2017 and 2016, respectively.
Our revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:
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|
|
|
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Requirement
|
|
Level at September 30, 2017
|
Consolidated Leverage Ratio
(a)
|
|
Maximum of 3.50 to 1.00
|
|
1.17 to 1.00
|
Consolidated Interest Coverage Ratio
(a)
|
|
Minimum of 3.00 to 1.00
|
|
13.38 to 1.00
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|
(a)
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|
Definitions of ratios are included as part of the revolving credit facility agreement and the private placement agreements.
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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 uncommitted short-term borrowings. Following the repatriation of cash to the U.S. discussed above, the majority of our $1.0 billion in cash and equivalents is located within the U.S. and we now have committed financing arrangements in the U.K. as detailed below. 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.
During the third quarter of 2017, the Company entered into the borrowing arrangements summarized below through our wholly owned UK subsidiary to better balance our capital structure.
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Debt type
|
Amount
|
Term/Maturity
|
Interest rate
|
Bank term loan
|
$280 million
|
5 year amortizing/July 2022
|
2.56% floating swapped to 1.36% fixed
|
Bank revolver
|
€150 million
|
5 year/July 2022
|
1.10% floating
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Private placement
|
€100 million
|
6 year/July 2023
|
0.98% fixed
|
Private placement
|
€200 million
|
7 year/July 2024
|
1.17% fixed
|
Aptar also entered into a EUR/USD floating-to-fixed cross currency swap on July 20, 2017 to mitigate the currency risk of U.S. dollar debt on a Euro functional currency entity and to also mitigate the risk of variability in interest rates on the $280 million bank term loan. The Company expects its future European cash flows will be sufficient to service this new debt.
On October 19, 2017, the Board of Directors declared a quarterly cash dividend of $0.32 per share payable on November 22, 2017 to stockholders of record as of November 1, 2017.
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 that 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. We are also evaluating our service, license, exclusivity and royalty arrangements, which need to be reviewed individually to ensure proper accounting under the new standard. To date, our internal project team has reviewed a substantial portion of contracts. While we continue to assess the potential impacts of the new standard, we currently believe the pronouncement will affect the way we account for tooling contracts. We currently recognize revenue for these contracts when the title and risk of loss transfers to the customer. Under the new guidance, we expect we will be required to recognize revenue for certain contracts over the time required to build the tool. We also continue to progress in updating our internal controls along with reviewing and developing the additional disclosures required by the standard. We currently anticipate adopting the modified 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.
In May 2017, the FASB issued clarification on applying the standards for stock compensation accounting. The new standard provides guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. 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.
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 fourth quarter, we expect continued revenue growth in each of our three operating segments. We also anticipate that raw material costs and lower results in our custom decorative packaging business in Europe will negatively impact profitability. We expect earnings per share for the fourth quarter to be in the range of $0.68 to $0.73 per share, compared to $0.77 per share reported in the prior year. Our guidance range is based on an effective tax rate range of 26.5% to 28.5%, which includes an estimate of the potential tax benefit from our adoption of the new accounting standard for share-based compensation. Prior year earnings per share included approximately $0.08 related to certain tax benefits.
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, 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:
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·
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economic conditions worldwide, including potential deflationary conditions in regions we rely on for growth;
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·
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political conditions worldwide;
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·
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significant fluctuations in foreign currency exchange rates or our effective tax rate;
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·
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financial conditions of customers and suppliers;
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·
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|
consolidations within our customer or supplier bases;
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·
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changes in customer and/or consumer spending levels;
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·
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|
loss of one or more key accounts;
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·
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|
the availability of raw materials and components (particularly from sole sourced suppliers) as well as the financial viability of these suppliers;
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|
·
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fluctuations in the cost of materials, components and other input costs (particularly resin, metal, anodization costs and transportation and energy costs);
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·
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|
the possible impact and consequences of the fire at the Company’s facility in Annecy, France;
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·
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|
the impact and extent of contamination found at the Company’s facility in Brazil;
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·
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our ability to successfully implement facility expansions and new facility projects;
|
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·
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|
our ability to offset inflationary impacts with cost containment, productivity initiatives or price increases;
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·
|
|
changes in capital availability or cost, including interest rate fluctuations;
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·
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|
volatility of global credit markets;
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·
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|
the timing and magnitude of capital expenditures;
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·
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|
our ability to identify potential new acquisitions and to successfully acquire and integrate such operations or products;
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·
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direct or indirect consequences of acts of war, terrorism or social unrest;
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·
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cybersecurity threats that could impact our networks and reporting systems;
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·
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|
the impact of natural disasters and other weather-related occurrences;
|
|
·
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|
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;
|
|
·
|
|
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A significant number of our operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of our entities. Our primary foreign exchange exposure is to the Euro, but we also have foreign exchange exposure to the Chinese Yuan, Brazilian Real, Mexican Peso and Swiss Franc, among other Asian, European, and South American currencies. A weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial condition and results of operations. Conversely, a strengthening U.S. dollar relative to foreign currencies has a dilutive 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 September 30, 2017 about our forward currency exchange contracts. The majority of the contracts expire before the end of 2017.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Min / Max
|
|
|
|
|
Contract Amount
|
|
Contractual
|
|
Notional
|
|
Buy/Sell
|
|
|
(in thousands)
|
|
Exchange Rate
|
|
Volumes
|
|
|
|
|
|
|
|
|
|
|
Swiss Franc / Euro
|
|
$
|
53,078
|
|
0.8786
|
|
53,078-66,509
|
|
Euro / Indian Rupee
|
|
|
11,263
|
|
76.0763
|
|
11,263-11,680
|
|
Euro / U.S. Dollar
|
|
|
8,556
|
|
1.1926
|
|
7,215-9,002
|
|
Euro / Brazilian Real
|
|
|
6,633
|
|
3.7988
|
|
6,633-7,155
|
|
Euro / Indonesian Rupiah
|
|
|
2,256
|
|
16,785.0000
|
|
1,962-2,256
|
|
U.S. Dollar / Euro
|
|
|
1,267
|
|
0.8438
|
|
1,267-2,325
|
|
Czech Koruna / Euro
|
|
|
1,083
|
|
0.0385
|
|
312-1,534
|
|
British Pound / Euro
|
|
|
584
|
|
1.0984
|
|
584-1,321
|
|
U.S. Dollar / Mexican Peso
|
|
|
338
|
|
17.8579
|
|
301-880
|
|
Euro / Swiss Franc
|
|
|
255
|
|
1.1405
|
|
0-255
|
|
Total
|
|
$
|
85,313
|
|
|
|
|
|
As of September 30, 2017, the Company has recorded the fair value of foreign currency forward exchange contracts of $0.3 million in prepaid and other and $0.4 million in accounts payable and accrued liabilities on the balance sheet. Aptar also entered into a EUR/USD floating-to-fixed cross currency swap on July 20, 2017 to effectively hedge the foreign exchange and interest rate exposure on the $280 million bank term loan drawn by its wholly owned UK subsidiary. The fair value of this cash flow hedge is $12.1 million and is reported in accounts payable and accrued liabilities on the balance sheet.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 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
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 September 30, 2017 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.