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 March 31, 1998
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 (May 12, 1998).
Common Stock 18,004,378
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APTARGROUP, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Financial Statements (Unaudited)
Consolidated Statements of Income -
Three Months Ended March 31, 1998 and 1997 3
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 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 12
SIGNATURE 12
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APTARGROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1998 and 1997
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
NET SALES ............................................ $ 170,942 $ 158,290
--------- ---------
OPERATING EXPENSES:
Cost of sales .................................... 106,709 100,851
Selling, research & development and administrative 28,201 25,552
Depreciation and amortization .................... 13,568 12,519
--------- ---------
148,478 138,922
--------- ---------
OPERATING INCOME ..................................... 22,464 19,368
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense ................................. (1,406) (1,464)
Interest income .................................. 275 202
Equity in income of affiliates ................... 183 182
Minority interests ............................... (84) (80)
Miscellaneous, net ............................... 646 275
--------- ---------
(386) (885)
--------- ---------
INCOME BEFORE INCOME TAXES ........................... 22,078 18,483
PROVISION FOR INCOME TAXES ........................... 8,897 7,070
--------- ---------
NET INCOME ........................................... $ 13,181 $ 11,413
========= =========
NET INCOME PER COMMON SHARE:
Basic ............................................ $ .73 $ .64
========= =========
Diluted .......................................... $ .72 $ .63
========= =========
Average number of shares outstanding (in thousands):
Basic ............................................ 17,996 17,954
Diluted .......................................... 18,358 18,150
See accompanying notes to consolidated financial statements.
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APTARGROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
1998 1997
---- ----
ASSETS
CURRENT ASSETS:
Cash and equivalents ............................... $ 21,970 $ 17,717
Accounts and notes receivable, less allowance for
doubtful accounts of $3,976 in 1998 and $3,812
in 1997 ........................................... 158,021 145,034
Inventories ........................................ 80,503 79,262
Prepayments and other .............................. 18,280 14,148
--------- ---------
278,774 256,161
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Buildings and improvements ......................... 77,653 74,351
Machinery and equipment ............................ 465,597 455,382
--------- ---------
543,250 529,733
Less: Accumulated depreciation ..................... (288,031) (281,899)
--------- ---------
255,219 247,834
Land ............................................... 4,231 3,819
--------- ---------
259,450 251,653
--------- ---------
OTHER ASSETS:
Investments in affiliates .......................... 11,316 16,495
Goodwill, less accumulated amortization of $6,174
in 1998 and $6,030 in 1997 ....................... 39,726 40,479
Miscellaneous ...................................... 22,521 20,645
--------- ---------
73,563 77,619
--------- ---------
TOTAL ASSETS ........................................ $ 611,787 $ 585,433
========= =========
See accompanying notes to consolidated financial statements.
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APTARGROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
1998 1997
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable ...................................... $ 3,253 $ --
Current maturities of long-term obligations......... 6,777 2,890
Accounts payable and accrued liabilities ........... 130,057 122,507
--------- ---------
140,087 125,397
--------- ---------
LONG-TERM OBLIGATIONS ................................ 78,259 70,740
--------- ---------
DEFERRED LIABILITIES AND OTHER:
Deferred income taxes .............................. 23,814 21,432
Retirement and deferred compensation plans.......... 12,238 11,872
Minority interests ................................. 3,577 4,568
Deferred and other non-current liabilities.......... 8,976 9,369
--------- ---------
48,605 47,241
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value ....................... 180 180
Capital in excess of par value ..................... 105,032 104,699
Retained earnings .................................. 286,265 274,524
Accumulated other comprehensive income ............. (46,641) (37,348)
--------- ---------
344,836 342,055
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 611,787 $ 585,433
========= =========
See accompanying notes to consolidated financial statements.
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APTARGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands, brackets denote cash outflows)
(Unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 13,181 $ 11,413
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation ................................... 12,921 11,839
Amortization ................................... 647 680
Provision for bad debts ........................ 272 125
Minority interests ............................. 84 80
Deferred income taxes .......................... 616 (62)
Retirement and deferred compensation plans ..... 1,375 952
Equity in income of affiliates in
excess of cash distributions received (183) (182)
Changes in balance sheet items,
excluding effects from foreign
currency adjustments:
Accounts receivable .......................... (12,105) (14,689)
Inventories .................................. (1,100) (4,417)
Prepaid and other current assets ............. (3,419) (1,054)
Accounts payable and accrued liabilities ..... 6,230 6,783
Other changes, net ........................... (1,742) (510)
-------- --------
NET CASH PROVIDED BY OPERATIONS .................... 16,777 10,958
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................. (13,359) (15,139)
Disposition of property and equipment ............ 56 164
Acquisition of businesses ........................ (4,901) --
Collection /(issuance) of notes receivable, net .. 228 (68)
Investments in affiliates ........................ (500) --
-------- --------
NET CASH USED BY INVESTING ACTIVITIES .............. (18,476) (15,043)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in notes payable .......................... 5,453 10,436
Proceeds from long-term obligations .............. 5,710 42
Repayments of long-term obligations .............. (3,717) (1,073)
Dividends paid ................................... (1,440) (1,257)
Proceeds from stock options exercised ............ 332 159
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......... 6,338 8,307
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............ (386) (1,336)
-------- --------
NET INCREASE IN CASH AND EQUIVALENTS ............... 4,253 2,886
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD ........ 17,717 16,386
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD .............. $ 21,970 $ 19,272
======== ========
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 (GAAP) have been condensed or
omitted pursuant to such rules and regulations, although the Company
believes that the disclosures made are adequate to make the information
presented not misleading. 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, 1997. The results of operations of any interim
period are not necessarily indicative of the results that may be expected
for the year.
NOTE 2 - INVENTORIES
At March 31, 1998 and December 31, 1997, inventories, by component,
consisted of:
March 31, December 31,
1998 1997
---- ----
Raw materials ..................... $ 27,770 $ 27,187
Work in progress .................. 21,609 21,920
Finished goods .................... 32,373 31,404
-------- --------
Total ........................... 81,752 80,511
Less LIFO reserve ................. (1,249) (1,249)
-------- --------
Total ........................... $ 80,503 $ 79,262
======== ========
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NOTE 3 - CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, AptarGroup adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires that all items recognized under accounting standards as
components of comprehensive income be reported in an annual financial
statement that is displayed with the same prominence as other annual
financial statements. This Statement also requires that an entity classify
items of other comprehensive income by their nature in an annual financial
statement. For example, other comprehensive income may include foreign
currency translation adjustments, minimum pension liability adjustments, and
unrealized gains and losses on marketable securities classified as
available-for-sale. Annual financial statements for prior periods will be
reclassified, as required. AptarGroup's total comprehensive income was as
follows:
Three Months Ended
March 31,
1998 1997
---- ----
Net income .................................. $ 13,181 $ 11,413
Less: foreign currency translation adjustment (9,293) (20,657)
-------- --------
Total comprehensive income (loss) ........... $ 3,888 $ (9,244)
======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1998 totaled $170.9 million, an
increase of approximately 8% from the corresponding period of 1997. Sales
were negatively affected by the translation of AptarGroup's foreign sales
due to the stronger U.S. dollar relative to the same three month period of
1997. If the dollar exchange rate had been constant, sales for the three
months ended March 31, 1998 would have increased approximately 14%. The
increase for the quarter ended March 31, 1998 is primarily attributed to
strong sales of pumps to the pharmaceutical market worldwide, increased
sales of pumps and aerosol valves to the personal care market in Europe and
increased sales to the fragrance/cosmetic market worldwide.
European sales represented approximately 56% of net sales for the quarter
ended March 31, 1998, compared to 58% for the same period a year ago. U.S.
sales represented 39% of net sales for the quarter ended March 31, 1998
compared to 38% for the same period a year ago. Sales from other foreign
operations represented 5% of net sales for the quarter ended March 31, 1998
compared to 4% for the same period a year ago.
Cost of sales as a percent of net sales decreased to 62.4% in the first
quarter of 1998 compared to 63.7% in the same period a year ago. The
decrease for the quarter ended March 31, 1998 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, research & development and administrative expenses (SG&A) increased
10.4% to $28.2 million in the first quarter of 1998, compared to $25.6
million in the same period a year ago. As a percent of net sales, SG&A
increased in the first quarter of 1998 to 16.5% from 16.1% a year ago.
Operating income increased to $22.5 million in the first quarter of 1998
compared to $19.4 million for the same period a year ago. The increase for
the quarter ended March 31, 1998 is due to higher sales volume, change in
mix of products sold and cost savings. In addition, approximately $.5
million of the increase for the quarter ended March 31, 1998 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 75% of total operating income in the first
quarter of 1998, compared to 72% for the same period a year ago. U.S.
operations represented 36% of operating income in the first quarter in 1998,
compared to 39% in the corresponding period in 1997. 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 three months ended March 31, 1998 was 40.3%,
compared to 38.3% for the same period a year ago. The increase is primarily
due to a 5 percentage point increase in the French corporate income tax rate
that was put into law in the fourth quarter 1997, but was retroactive to the
beginning of 1997. Under GAAP, this retroactive adjustment was entirely
recorded in the fourth quarter of 1997 and therefore was not reflected in
reported first quarter 1997 results.
Net income for the first quarter increased 15.5% to $13.2 million compared
to $11.4 million in the first quarter of 1997. The increase in net income
for the quarter ended March 31, 1998 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 a 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.
QUARTERLY TRENDS
AptarGroup's results of operations in the second half of the year typically
are negatively impacted by European summer holidays and customer plant
shutdowns 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 three months of 1998
was $16.8 million compared to $11.0 million in the same period a year ago.
The increase is primarily attributed to increased net income and less cash
used for working capital in 1998. Total net working capital at March 31,
1998 was $138.7 million compared to $130.8 million at December 31, 1997.
Net cash used by investing activities in the three months of 1998 increased
to $18.5 million from $15.0 million in the same period a year ago due to the
Company's repurchase of a 35% interest in its European closure business from
its European closure business partner Loffler Kunststoffwerk GmbH & Co. KG.
This transaction did not have a material impact on the financial statements
of the Company. Management anticipates that cash outlays for capital
expenditures for all of 1998 will be approximately $80 million.
Net cash provided by financing activities decreased to $6.3 million in the
first three months of 1998 compared to $8.3 million in 1997. The ratio of
interest-bearing debt to total capitalization was 20.4% and 17.7% at March
31, 1998 and December 31, 1997, respectively.
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.
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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
March 31, 1998, 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 March 31, 1998. Short-term
obligations of $21.7 million and $3.3 million of current portion of
long-term debt were reclassified as long-term obligation as of December 31,
1997.
On April 23, 1998, the Board of Directors declared a quarterly dividend of
$.08 per share payable on May 27, 1998 to shareholders of record as of May
6, 1998.
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
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which is effective for fiscal
years beginning after December 15, 1997. 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 the new Statement and plans to adopt the
standards during the year ending December 31, 1998.
In February 1998, the FASB issued Statement No. 132, "Employers' Disclosures
about Pensions and other Postretirement Benefits" which is effective for
fiscal years beginning after December 15, 1997. Statement No. 132 revises
employers' disclosures about pension and other postretirement benefit plans.
It does not change the measurement or recognition of these plans. The
Company is currently evaluating this new Statement and plans to adopt the
standards during the year ended December 31, 1998.
In March 1998 and April 1998, the AcSEC (Accounting Standards Executive
Committee) issued Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" and SOP
98-5 "Reporting on the Costs of Start-Up Activities," respectively. Both
Statements are effective for fiscal years beginning after December 15, 1998,
and early adoption is encouraged. SOP 98-1 provides guidance on accounting
for the costs of computer software developed or obtained for internal use.
SOP 98-5 requires that entities expense start-up costs and organization
costs as they are incurred. The Company has already adopted both of these
standards.
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FORWARD-LOOKING STATEMENTS
In addition to the historical information presented in this quarterly
report, the Company has made and will make certain forward-looking
statements in this report, other reports filed by the Company with the
Securities and Exchange Commission, reports to stockholders and in certain
other contexts relating to future net sales, costs of sales, other expenses,
profitability, financial resources, products and production schedules, among
others. These statements are forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are based on management's beliefs as
well as assumptions made by and information currently available to
management. Accordingly, the Company's actual results may differ materially
from those expressed or implied in such forward-looking statements due to
known and unknown risks and uncertainties that exist in the Company's
operations and business environment, including, among other factors, the
failure by the Company to produce anticipated cost savings or improve
productivity, the timing and magnitude of capital expenditures and
acquisitions, currency exchange rates, economic and market conditions in the
United States, Europe and the rest of the world, changes in customer
spending levels, the demand for existing and new products, the cost and
availability of raw materials, and other risks associated with the Company's
operations. Although the Company believes that its forward-looking
statements are based on reasonable assumptions, there can be no assurance
that actual results, performance or achievements will not differ materially
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Readers are cautioned not to place undue
reliance on forward-looking statements.
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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
March 31, 1998.
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: May 13, 1998
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