<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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 September 30, 1997
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.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3853103
(State of Incorporation) (I.R.S. Employer Identification No.)
475 West Terra Cotta Avenue, Suite E, Crystal Lake, Illinois 60014
- ------------------------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
815-477-0424
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (November 10, 1997)
Common Stock 17,985,347
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Page 2
APTARGROUP, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Financial statements (Unaudited)
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1997
and 1996 3
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
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APTARGROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 1997 and 1996
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
NET SALES .................. $ 163,525 $ 155,917 $ 493,626 $ 459,918
OPERATING EXPENSES:
Cost of sales ............. 104,461 101,774 315,768 298,347
Selling, research &
development and
administrative ........... 26,786 25,849 80,587 77,022
Depreciation and
amortization.............. 11,772 12,727 37,072 36,471
--------- --------- --------- ---------
143,019 140,350 433,427 411,840
--------- --------- --------- ---------
OPERATING INCOME ........... 20,506 15,567 60,199 48,078
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense .......... (1,329) (1,623) (4,168) (5,058)
Interest income ........... 232 168 708 810
Equity in income of
affiliates................ 215 325 546 892
Minority interests ........ (102) (46) (286) (196)
Miscellaneous, net ........ 762 137 1,486 1,172
--------- --------- --------- ---------
(222) (1,039) (1,714) (2,380)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES . 20,284 14,528 58,485 45,698
PROVISION FOR INCOME TAXES . 7,810 5,521 22,517 17,191
--------- --------- --------- ---------
NET INCOME ................. $ 12,474 $ 9,007 $ 35,968 $ 28,507
========= ========= ========= =========
PER COMMON SHARE:
Net income................. $ .69 $ .50 $ 2.00 $ 1.59
========= ========= ========= =========
Average number of shares
outstanding (in thousands). 17,975 17,941 17,963 17,936
See accompanying notes to consolidated financial statements.
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APTARGROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
Cash and equivalents .............................. $ 29,803 $ 16,386
Accounts and notes receivable, less allowance for
doubtfulaccounts of $3,895 in 1997 and $3,623
in 1996 .......................................... 144,628 130,885
Inventories ....................................... 78,568 75,930
Prepayments and other ............................. 16,733 14,030
--------- ---------
269,732 237,231
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Buildings and improvements ........................ 74,743 75,971
Machinery and equipment ........................... 450,142 440,743
--------- ---------
524,885 516,714
Less: Accumulated depreciation .................... (279,204) (265,780)
--------- ---------
245,681 250,934
Land .............................................. 4,215 4,395
--------- ---------
249,896 255,329
--------- ---------
OTHER ASSETS:
Investments in affiliates ......................... 15,020 14,970
Goodwill, less accumulated amortization of $5,720
in 1997 and $5,505 in 1996 ....................... 41,694 47,261
Miscellaneous ..................................... 15,680 21,345
--------- ---------
72,394 83,576
--------- ---------
TOTAL ASSETS ...................................... $ 592,022 $ 576,136
========= =========
See accompanying notes to consolidated financial statements.
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APTARGROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1997 1996
---- ----
CURRENT LIABILITIES:
Notes payable ..................................... $ 8,931 $ 4,145
Current maturities of long-term obligations ....... 7,579 9,540
Accounts payable and accrued liabilities .......... 124,188 102,574
--------- ---------
140,698 116,259
--------- ---------
LONG-TERM OBLIGATIONS .............................. 71,458 76,569
--------- ---------
DEFERRED LIABILITIES AND OTHER:
Deferred income taxes ............................. 19,153 22,884
Retirement and deferred compensation plans ........ 11,583 12,952
Minority interests ................................ 4,577 4,381
Deferred and other non-current liabilities ........ 6,864 7,392
--------- ---------
42,177 47,609
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value ...................... 180 179
Capital in excess of par value ................... 104,262 103,572
Retained earnings ................................. 265,402 233,385
Cumulative foreign currency translation adjustment. (32,155) (1,437)
--------- ---------
337,689 335,699
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........ $ 592,022 $ 576,136
========= =========
See accompanying notes to consolidated financial statements.
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APTARGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1997 and 1996
(Dollars in Thousands, brackets denote cash outflows)
(Unaudited)
Nine Months Ended
September 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
---- ----
Net income ..................................... $ 35,968 $ 28,507
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation ................................... 35,116 34,283
Amortization ................................... 1,956 2,188
Provision for bad debts ........................ 704 905
Minority interests ............................. 285 196
Deferred income taxes .......................... 2 2,866
Retirement and deferred compensation plans ..... 1,277 (482)
Equity in income of affiliates in
excess of cash distributions received ......... (546) (892)
Changes in balance sheet items,
excluding effects from foreign
currency adjustments:
Accounts receivable ............................ (25,854) (18,771)
Inventories .................................... (9,755) (1,254)
Prepaid and other current assets ............... (2,925) (4,170)
Accounts payable and accrued liabilities ....... 29,042 3,126
Other changes, net ............................. 278 (2,071)
-------- --------
NET CASH PROVIDED BY OPERATIONS ................ 65,548 44,431
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................... (52,076) (44,889)
Disposition of property and equipment .......... 1,122 669
Disposition of businesses ...................... -- 3,319
(Proceeds) collections of notes receivable, net (565) 283
Investments in affiliates ...................... (400) (11)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES .......... (51,919) (40,629)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable ...................... 8,109 236
Proceeds from long-term obligations ............ 1,557 7,613
Repayments of long-term obligations ............ (4,701) (6,951)
Dividends paid ................................. (3,951) (3,766)
Proceeds from stock options exercised .......... 690 365
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,704 (2,503)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ......... (1,916) (370)
-------- --------
NET INCREASE IN CASH AND EQUIVALENTS ............ 13,417 929
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD ..... 16,386 17,332
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD ........... $ 29,803 $ 18,261
======== ========
See accompanying notes to consolidated financial statements.
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APTARGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of AptarGroup, Inc. and its subsidiaries. The terms "AptarGroup" or
"Company" as used herein refer to AptarGroup, Inc. and its subsidiaries.
In the opinion of management, the unaudited consolidated financial statements
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of financial position and results of
operations for the interim periods presented. The accompanying unaudited
consolidated financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles 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. Accordingly, these
financial statements and related notes should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
to Shareholders incorporated by reference into the Company's Annual Report on
Form 10-K for the year ended December 31, 1996. The results of operations of any
interim period are not necessarily indicative of the results that may be
expected for a fiscal year.
NOTE 2 - INVENTORIES
At September 30, 1997 and December 31, 1996, inventories, by component,
consisted of:
September 30, December 31,
1997 1996
---- ----
Raw materials ..................... $ 24,375 $ 25,150
Work in progress .................. 24,555 23,533
Finished goods .................... 31,874 29,283
-------- --------
Total .................... 80,804 77,966
Less LIFO reserve ................. (2,236) (2,036)
-------- --------
Total .................... $ 78,568 $ 75,930
======== ========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter and nine months ended September 30, 1997 totaled
$163.5 million and $493.6 million, respectively, increases of approximately 5%
and 7% when compared to the corresponding periods of 1996. Sales were negatively
affected by the translation of AptarGroup's foreign sales due to the stronger
U.S. dollar relative to the same three and nine month periods of 1996. If the
dollar exchange rate had been constant, sales for the three and nine months
ended September 30, 1997 would have increased approximately 16%. The increase
for the quarter and nine months ended September 30, 1997 is primarily attributed
to continued strength of sales of the Company's major product lines to all
markets despite a competitive pricing environment.
Sales to customers by European operations represented approximately 52% and 55%,
respectively, of net sales for the quarter and nine months ended September 30,
1997, compared to 58% for the same periods a year ago. Sales to customers by
U.S. operations represented 43% and 40% of net sales for the quarter and nine
months ended September 30, 1997 compared to 38% for the same periods a year ago.
Cost of sales as a percent of net sales decreased to 63.9% in the third quarter
of 1997 compared to 65.3% in the same period a year ago. For the first nine
months of 1997, cost of sales as a percent of net sales decreased to 64.0%
compared to 64.9% in the same period a year ago. The decrease for the quarter
and nine months ended September 30, 1997 is attributed to the mix of products
sold, cost savings and a net gain from changes in exchange rates between the
comparable quarters on inter-country transactions.
Selling, R&D and administrative expenses (SG&A) increased 3.6% to $26.8 million
in the third quarter of 1997, compared to $25.8 million in the same period a
year ago. As a percent of net sales, SG&A decreased in the third quarter of 1997
to 16.4% from 16.6% a year ago. SG&A for the nine months ended September 30,
1997, increased 4.6% to $80.6 million compared to $77.0 million a year ago. As a
percent of net sales, SG&A decreased in the first nine months of 1997 to 16.3%
compared to 16.7% a year ago. The decrease in relation to net sales was the
result of continued cost containment efforts.
Operating income increased to $20.5 million in the third quarter of 1997
compared to $15.6 million for the same period a year ago. For the first nine
months of 1997, operating income increased to $60.2 million compared to $48.1
million for the same period a year ago. The increase for the quarter and nine
months ended September 30, 1997 is due to higher sales volume, change in mix of
products sold and cost savings. In addition, approximately $1.7 million and $3.1
million of the increase for the quarter and nine months ended September 30,
1997, respectively, is due to the positive effect of gains on inter-country
transactions net of the negative impact of translation.
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European operations represented 74% of total operating income in the third
quarter and year to date of 1997, respectively, compared to 72% and 69% for the
same periods a year ago. U.S. operations represented 41% and 40% of operating
income in the third quarter and year to date in 1997, compared to 39% and 41% in
the corresponding periods in 1996. The difference between Europe and U.S.
operations to total operating income is due to operating income from other
foreign operations and corporate expenses.
The effective tax rate for the third quarter and nine months ended September 30,
1997 was 38.5%, compared to 38.0% and 37.6% for the same periods a year ago. The
rate differential is due to a change in mix of countries where income was
earned.
On October 22, 1997, the French Parliament adopted an increase in the corporate
tax rate from 36.7% to 41.7% retroactive to January 1, 1997. Since the taxable
income in France for 1997 is uncertain, it is difficult to predict the exact
effect of this change for the year. However, based upon projected 1997 taxable
income in France, the Company estimates the impact of the rate increase for the
full year to be an increase in income tax expense of approximately $1.6 million
which will be recorded in the fourth quarter. Of this amount, approximately $300
thousand relates to an adjustment to deferred taxes.
Net income for the third quarter increased 38.5% to $12.5 million compared to
$9.0 million in the third quarter of 1996. Net income for the nine months ended
September 30, 1997, increased 26.2% to $36.0 million compared to $28.5 million
in the same period a year ago. The increase in net income for the quarter and
nine months ended September 30, 1997 is primarily due to higher sales volume and
cost containment efforts.
FOREIGN CURRENCY
A significant portion of AptarGroup's operations are located outside 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 AptarGroup's foreign entities. In general, since the majority of the
Company's operations are based in Europe- primarily France, Germany and Italy -
a strengthening U.S. dollar relative to the major European currencies has an
dilutive translation effect on the Company's financial condition and results of
operations. Conversely, a weakening U.S. dollar would have an additive effect.
Additionally, in some cases, the Company sells products denominated in a
currency different from the currency in which the respective costs are incurred.
Changes in exchange rates on such inter-country sales also impact the Company's
results of operations.
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QUARTERLY TRENDS
AptarGroup's results of operations for the fourth quarter typically have been
negatively impacted by customer plant shutdowns and holidays in December. In the
future, AptarGroup's results of operations in a quarterly period could be
impacted by factors such as changes in product mix, changes in material costs,
changes in growth rates in the industries to which AptarGroup's products are
sold and changes in general economic conditions in any of the countries in which
AptarGroup does business.
LIQUIDITY AND CAPITAL RESOURCES
Historically, AptarGroup has generated positive cash flow from operations and
has utilized the majority of such cash flows to invest in capital projects. Net
cash provided by operations in the first nine months of 1997 was $65.5 million
compared to $44.4 million in the same period a year ago. The increase is
primarily attributed to less cash used for working capital in 1997. Total net
working capital at September 30, 1997 was $129.0 million compared to $121.0
million at December 31, 1996.
Net cash used by investing activities in the first nine months of 1997 increased
to $51.9 million from $40.6 million in the same period a year ago. Management
anticipates that capital expenditures for all of 1997 will be approximately $70
million.
Net cash provided by financing activities was $1.7 million in the first nine
months of 1997 compared to net cash used by financing activities of $2.5 million
in 1996. The ratio of interest-bearing debt to total capitalization was 21% at
September 30, 1997 and December 31, 1996.
The majority of the Company's debt has been and continues to be, denominated in
foreign currency. AptarGroup has historically borrowed locally to hedge
potential currency fluctuations for assets that were purchased outside of the
U.S. It is expected that this practice will continue.
The Company has a multi-year, unsecured revolving credit agreement allowing
borrowings of up to $25 million. Under this credit agreement, interest on
borrowings is payable at a rate equal to the London Interbank Offered Rate
(LIBOR) plus an amount based on the financial condition of the Company. At
September 30, 1997, the amount unused and available under this agreement was $25
million. The Company is required to pay a fee for the unused portion of the
commitment. The agreement expires on April 29, 2001. The credit available under
the revolving credit agreement provides management with the ability to refinance
certain short-term obligations on a long-term basis. As it is management's
intent to do so, short-term obligations of $25 million have been reclassified as
long-term obligations as of September 30, 1997 and December 31, 1996.
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Page 11
The revolving credit agreement and the private placement agreement contain
covenants that include certain financial tests, including minimum interest
coverage, net worth and maximum borrowings.
On October 23, 1997, the Board of Directors declared a quarterly dividend of
$.08 per share payable on November 25, 1997 to shareholders of record as of
November 4, 1997.
LITIGATION
During the second quarter of 1997, the Company received a judgment in its favor
as plaintiff in a patent infringement lawsuit relating to an aerosol valve
component. The Company was awarded $7.8 million plus interest. The decision has
been appealed and the Company cannot predict the ultimate outcome or timing of
such appeal. This award is not included in the financial results.
ADOPTION OF NEW ACCOUNTING STANDARDS
Effective for periods ending after December 15, 1997, the Company is required to
adopt SFAS 128 (Statement of Financial Accounting Standards No. 128, "Earnings
Per Share"). SFAS 128 requires companies to calculate basic and diluted earnings
per share based upon standards designed to provide consistency and compatibility
with calculations of other countries and with that of the International
Accounting Standards Committee. The Company does not expect earnings per share
as reported to be materially different than basic or diluted earnings per share
to be reported upon adoption of the new accounting standard.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" and Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Both Statements are effective for fiscal years beginning
after December 15, 1997. Statement No. 130 requires the presentation of
comprehensive income and its components in a full set of financial statements.
Statement No. 131 establishes standards for reporting information about
operating segments and related disclosures about products and services,
geographic areas and major customers in annual financial statements and interim
financial reports. The Company is currently evaluating both of the new
Statements and plans to adopt the standards during the year ending December 31,
1998.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 is included with this report.
(b) No reports on Form 8-K were filed for the quarter ended
September 30, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AptarGroup, Inc.
(Registrant)
By \s\ Stephen J. Hagge
--------------------
Stephen J. Hagge
Executive Vice President and Chief
Financial Officer, Secretary and
Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Date: November 11, 1997
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