UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 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)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock $.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12 (g) of the Act : None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates, based on
the closing sales price for the Common Stock on the New York Stock Exchange on
March 25, 1998, was approximately $915,122,000. The number of shares outstanding
of Common Stock, as of March 25, 1998 was 18,002,860 shares held by
approximately 900 shareholders of record.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Annual Report to Stockholders are incorporated
by reference into Parts I and II of this report.
Portions of the Registrant's Proxy Statement for the annual meeting of
stockholders to be held on May 13, 1998 are incorporated by reference into Part
III of this report.
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APTARGROUP, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1997
PART I
Page
Item 1 Business 3
Item 2 Properties 10
Item 3 Legal Proceedings 10
Item 4 Submission of Matters to a Vote of Security-Holders 11
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 11
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of Consolidated
Results of Operations and Financial Condition 11
Item 7A Quantitative and Qualitative Disclosures about Market
Risk 11
Item 8 Financial Statements and Supplementary Data 11
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 11
PART III
Item 10 Directors and Executive Officers of the Registrant 11
Item 11 Executive Compensation 12
Item 12 Security Ownership of Certain Beneficial
Owners and Management 12
Item 13 Certain Relationships and Related Transactions 12
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 13
Signatures 14
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PART I
Item 1. Business
(a) General Development of Business
AptarGroup, Inc. became an independent publicly-owned corporation in April, 1993
as a result of a spin-off from Pittway Corporation (Pittway). The terms
"AptarGroup" or "Company" as used herein refer to AptarGroup, Inc. and its
subsidiaries or the former Seaquist Group as appropriate in the circumstance.
The Company's business began as a one-product, one-country operation that has
become a multinational supplier of a broad line of dispensing packaging systems.
The business was started in the late 1940's through its SeaquistPerfect
Dispensing division which manufactured and sold aerosol valves in the United
States. In 1964, this business was acquired by Pittway. The Company's business
has grown primarily through the acquisition of relatively small companies and
internal expansion.
Start-up/
Date Business Country Acquisition Initial Product Line
- ---- -------- ------- ----------- --------------------
1968 SeaquistPerfect
Dispensing GmbH
(formerly Perfect
Valois Ventil GmbH) Germany Acquisition Aerosol valves
1970 Valois S.A. France Acquisition Aerosol valves
1976 Seaquist Closures U.S. Start-up Closures
1976 35% of certain Pfeiffer
Group companies Germany Acquisition Pumps
1981 AR Valve product line U.S. Acquisition Aerosol valves
1981 RDW Industries, Inc. U.S. Acquisition Closures
1983 STEP S.A. France Acquisition Pumps
1989 SAR S.p.A. Italy Acquisition Pumps
1993 Remainder of the
Pfeiffer Group Germany Acquisition Pumps
1995 Liquid Molding
Systems, Inc. (LMS) U.S. Acquisition Silicone molded
products
1995 35% of Loffler
Kunststoffwerk GmbH
& Co. KG Germany Acquisition Closures
1995 General Plastics, S.A. France Acquisition Closures
1997 Aptar Suzhou Dispensing
Systems, Co., Ltd China Start-up Aerosol valves,
pumps,closures
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in the packaging components industry. Financial
information relating to operations by geographic area for each of the three
years in the period ended December 31, 1997, is set forth in Note 14 ("Segment
Information") to the Consolidated Financial Statements contained in the 1997
Annual Report to Stockholders, page 44, which is incorporated herein by
reference.
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(c) NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
The Company designs, manufactures and sells consumer product dispensing
systems. The Company focuses on providing value-added components to global
consumer product marketers in the fragrance/cosmetics, personal care,
pharmaceutical, household products and food industries. Value-added packaging
allows consumers to conveniently dispense a product, in an aesthetic looking
package, which consistently meets basic dosage characteristics as required. The
Company believes it is the largest supplier of dispensing closures, aerosol
valves, personal care fine mist pumps and pharmaceutical pumps in North America
and the largest supplier of fragrance/cosmetic pumps and pharmaceutical pumps in
Europe. The Company has manufacturing facilities primarily located in North
America and Europe which serve over 1,000 customers. The Company began
production of aerosol valves, pumps and closures in China in 1997.
PUMPS
Pumps are finger-actuated dispensing systems which disperse a spray or
lotion from non-pressurized containers. Pumps are principally sold to four
markets: fragrance/cosmetics, pharmaceutical, personal care and household
products. Examples of pump applications in these markets include perfumes, skin
creams, oral and nasal sprays, hair sprays and window cleaners. The style of
pump used depends largely on the nature of the product being dispensed, from
smaller, fine mist pumps used with perfume products to high-output pumps used
with household cleaner products.
AptarGroup believes it is the leading supplier of pharmaceutical pumps
to the world, fragrance/cosmetic pumps to Europe and personal care fine mist
pumps to North America. An element of the Company's growth strategy is the
geographic expansion of pump operations. Adding to the Company's personal care
fine mist pump manufacturing capabilities in the U.S., the Company began
assembling fragrance/cosmetics pumps in the United States in early 1995 and
began production of personal care lotion pumps in 1997. The Company has sales
offices in Japan and in 1997, began producing pumps in China to enhance its
position in the Asian markets. In 1997, 1996 and 1995, pump sales accounted for
approximately 60%, 63% and 65%, respectively, of AptarGroup's net sales.
FRAGRANCE/COSMETICS
The Company believes it is the leading supplier of pumps to the
fragrance/cosmetics market in Europe. Pumps are manufactured to meet exacting
size and performance requirements. Significant research, time and coordination
with the customers development staff is required to qualify a pump for use with
their products. Recently, the Company developed several new pumps for the
fragrance/cosmetics market. An example is a pump that permanently affixes to a
bottle without the need for crimping, enabling customers to assemble their
finished product more easily, efficiently and economically. Another example is a
tubeless pump. The conventional tube, the device that takes the product up from
the bottom of the container when the button on top is pushed down, was removed.
In its place, a reservoir was substituted. During 1997, the REPLICA(R) pump was
introduced for miniature fragrance packages. REPLICA is a small fine mist pump,
with a mechanism just 32 millimeters in length. Despite its size, REPLICA
combines aesthetically pleasing design with the same high level of performance
as AptarGroup's conventional pumps.
Within the market, the Company expects the use of pumps to continue to
increase, particularly in the cosmetics sector. For example, packaging for
certain products such as skin moisturizers and anti-aging lotions is undergoing
a conversion to pump systems, which may provide growth opportunities for the
Company.
PHARMACEUTICAL
The Company considers itself to be the leading supplier of pumps to the
pharmaceutical industry worldwide. AptarGroup has clean room manufacturing
facilities in France, Germany and Switzerland which produce pumps in a
contaminant-controlled environment. The Company believes the use of pumps in the
dispensing of pharmaceuticals will continue to increase. Demand is increasing
for the Company's pumps which provide consistent doses of particular drugs.
During 1997, AptarGroup expanded its sales of unit dose pumps to applications
that deliver medicine for migraine relief in a nasal spray. This system ensures
that medication is administered quickly and effectively. AptarGroup is also
working with pharmaceutical companies to design dispensing systems for the
delivery of such medications as flu vaccines and cold remedies.
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PERSONAL CARE
The Company believes it is the largest supplier of personal care fine
mist pumps in North America. Personal care pumps are primarily sold for use in
hair care and deodorant products. Sales of fine mist pumps to this market have
increased significantly over the last several years. The Company has been a
supplier of lotion pumps to the personal care market primarily in Europe and is
expanding sales of lotion pumps to the personal care market in North America.
OTHER
The Company has not focused on the household pump market. Household
products primarily utilize trigger or other high output pumps, for such
applications as bathroom cleaners, window sprays, and general household
cleaners. The Company manufactures high output pumps for the household market;
however, it currently does not manufacture a trigger pump. Pumps have not been
extensively used in the food industry.
CLOSURES
Dispensing closures are plastic caps, primarily for squeezable
containers, which allow a product to be dispensed without removing the cap.
Although the Company sells dispensing closures to all markets, the majority of
the Company's sales have been to the personal care market. The Company believes
that it is the largest manufacturer of dispensing closures in North America. In
1997, 1996 and 1995, dispensing closure sales accounted for approximately 19%,
18% and 16%, respectively, of AptarGroup's net sales.
Sales of dispensing closures have grown as consumers worldwide have
demonstrated a preference for a package utilizing the convenience of a
dispensing closure. As a result of this trend, consumer marketers are
continually evaluating opportunities to convert non-dispensing closures to
dispensing closures in order to differentiate their products and make them more
appealing to customers. An example of this is the conversion of shampoo packages
from twist-off caps to dispensing closures. Similar conversions have occurred
with toothpaste, ketchup and skin care products. The Company believes future
growth opportunities exist for converting other products to dispensing closures.
The Company's growth strategy for the dispensing closure business is to
gain greater market share in the European, South American and Asian markets, to
develop new innovative products and to adapt existing products for new markets.
PERSONAL CARE
Historically, the Company's primary focus for dispensing closures has
been the personal care industry. Products with dispensing closures include
shampoos, skin lotions, conditioners and toothpaste. In order to expand its
business in this market, the Company has focused on the development of new
products including SimpliSqueeze(R), a no-leak, invertible closure with one-hand
dispensing convenience. SimpliSqueeze features a silicone valve that enables the
product to be dispensed with a slight squeeze of the bottle, and upon release,
closes firmly and does not leak. Consumer awareness of the innovative
SimpliSqueeze closure is expected to grow as a result of its current use with
hair care, shower gel and moisturizing lotion products and other expected
customer applications.
HOUSEHOLD
The Company has not had significant dispensing closure sales to the
household market. The Company believes this market offers an opportunity for
expansion. The Company is building stronger relationships with the consumer
product marketers operating in the household market. The Company adapts existing
products to target this market. For example, the Directional Pour Spout(TM)
incorporates an elongated spout that enables the consumer to pinpoint the
dispensing of the product in exactly the desired direction.
FOOD
In the food market, the Company believes opportunities for future
applications exist comparable to the conversion of ketchup packaging to a
dispensing closure. The trend of food manufacturers to offer products in a
squeezable dispensing package has increased, for example, in mayonnaise, jellies
and salad dressing products. An increase in the conversion of packaging for food
products, such as edible oils, to squeezable dispensing closures could
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provide growth opportunities for the Company. The Company's Directional Pour
Spout can also be used with food products.
During 1997, the advantages of SimpliSqueeze were applied in the
non-carbonated beverage market. AptarGroup worked with The Coca-Cola Company to
incorporate the SimpliSqueeze valve into their sports drink requirements. Due to
this success, AptarGroup is tailoring the SimpliSqueeze technology into other
food/beverage markets.
OTHER
Sales of dispensing closures to the pharmaceutical market has not been
significant. The Company is developing products for this market. In addition,
the SimpliSqueeze technology is being expanded into the automotive market.
AEROSOL VALVES
Aerosol valves are mechanisms which dispense product from pressurized
containers. The Company sells two different types of aerosol valves. The first
type is a continuous spray valve frequently used with hair spray, spray paint,
insecticide, automotive products and laundry products. The second type of valve
is a metered aerosol valve used to dispense precise amounts of product. This
valve is primarily sold to the pharmaceutical market for lung and heart
medications. In 1997, 1996 and 1995, aerosol valve sales accounted for
approximately 19%, 17% and 18%, respectively, of AptarGroup's net sales.
Over the past 25 years, the number of aerosol valve companies in North
America and Europe has decreased significantly. The majority of the North
American market is concentrated in three companies. AptarGroup believes it is
the largest aerosol valve supplier in North America. The Companys aerosol valves
have historically been targeted primarily to the personal care and household
markets.
PERSONAL CARE
The primary applications in the personal care market include hair
products, deodorants and shaving creams. Demand for aerosol valves is dependent
upon the consumers preference for application, consumer perception of
environmental impact, and changes in demand for the products in this market.
HOUSEHOLD
The primary applications for valves in the household market include
disinfectants, spray paints, insecticides, automotive products and laundry
sprays. The Company sells several customized overcaps that allow product to be
dispensed by actuating a valve situated in the cap on the can. These overcaps
are used, for instance, in household disinfectant sprays and room fresheners.
They provide a higher degree of differentiation and convenience relative to
competing sprays since the cap does not need to be removed prior to usage.
PHARMACEUTICAL
Metered dose aerosol valves are primarily used for the dispensing of
medication for the lungs or heart. Aerosol technology allows medication to be
broken up into very fine particles, which enables the drug to be delivered to
the lungs or heart with greater efficiency than pills
OTHER
Aerosol valves are not widely used in the food industry. In the
fragrance/cosmetics industry, aerosol valves have been largely replaced by pumps
as the preferred dispensing mechanism.
RESEARCH AND DEVELOPMENT
The Company is continuously involved in developing innovative products
and adapting existing products for new markets. Expenditures for research and
development activities were $20.8 million, $20.1 million, and $17.5 million in
1997, 1996 and 1995, respectively. These costs were associated with a number of
products in varying stages of development.
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PATENTS AND TRADEMARKS
AptarGroup will continue to sell its products under the names used by
its operating units and is not currently offering any products under the
AptarGroup name. The names used by its operating units have been trademarked.
AptarGroup customarily seeks patent and trademark protection for its
products and currently owns and has numerous applications pending for United
States and foreign patents and trademarks. In addition, certain of AptarGroup's
products are produced under patent licenses granted by third parties. The
majority of AptarGroup's net sales are generated by products which have patent
protection on either the product or a component of the product. Management
believes that it possesses certain technical capabilities in making its products
that would also make it difficult for a competitor to duplicate them.
TECHNOLOGY
Pumps and aerosol valves require the assembly of up to 15 different
plastic, metal and rubber components using high speed equipment. When molding
dispensing closures, or plastic components to be used in pump or aerosol valve
products, the Company uses advanced plastic injection molding technology,
including large cavitation plastic injection molds. These molds are required to
maintain tolerances as small as one thousandth of an inch and produce in a
high-speed, cost-efficient manner. The acquisitions of LMS and General Plastics
added significant new molding technologies. LMSs experience in liquid silicone
rubber molding allows the Company to pursue opportunities to use silicone
molding in other product lines. The Company plans to use the bi-injection
molding technology used by General Plastics to develop new innovative products
for the packaging industry.
MANUFACTURING AND SOURCING
The principal raw materials used in AptarGroup's production are plastic
resins and certain metal products. AptarGroup believes an adequate supply of
such raw materials is readily available from existing and alternate sources. The
Company attempts to offset inflation through cost containment and increased
selling prices over time, as allowed by market conditions. AptarGroup also
purchases plastic and metal components that are used in the final assembly of
its products from suppliers in North America and Europe. Certain suppliers of
these components have unique technical abilities that make AptarGroup dependent
on them, particularly for aerosol valve and pump production in North America.
Significant delays in receiving components from these suppliers would require
AptarGroup to seek alternate sources, which could result in higher costs as well
as impact the ability of the Company to supply products in the short term. The
Company has not experienced such delays in the past.
SALES AND DISTRIBUTION
Sales of products are primarily through AptarGroup's own sales force. To
a limited extent, AptarGroup also uses the services of independent
representatives and distributors who sell AptarGroup's products as independent
contractors to certain smaller customers and export markets. Backlogs are not a
significant factor in the industry in which the Company operates. Most orders
placed with the Company are for delivery within 120 days. Some customers place
blanket orders which extend beyond this delivery period; however, deliveries
against these orders are subject to change.
CUSTOMERS
The demand for AptarGroup's products is influenced by the demand for the
products of AptarGroup's customers. Demand for the products of AptarGroup's
customers may be affected by general economic conditions, government
regulations, tariffs and other trade barriers. AptarGroup's customers include
many of the largest fragrance/cosmetics, personal care, pharmaceutical,
household products and food marketers in the U.S. and Europe. The Company has
over 1,000 customers with no single customer accounting for greater than 10% of
1997 net sales. Over the past few years, a consolidation of the Company's
customer base has occurred. This trend is expected to continue. A concentration
of customers may result in pricing pressures or a loss of volume. This situation
also presents opportunities for increasing sales due to the breadth of the
Company's product line and its international presence.
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INTERNATIONAL BUSINESS
A significant portion of AptarGroup's operations is located in Europe.
Sales in Europe for the years ended December 31, 1997, 1996 and 1995 were
approximately 55%, 58%, and 60%, respectively, of net sales. The majority of
units sold in Europe are manufactured at facilities in France, Germany, Ireland,
Italy, Spain and Switzerland. Other foreign geographic areas serviced by
AptarGroup include Argentina, Australia, Brazil, Canada, England, Japan, and
Mexico, though the combined sales from these areas is not significant to
AptarGroup's consolidated sales. During 1996, the Company established a
manufacturing facility in China that began producing valves in early 1997. In
late 1997, production of pumps and dispensing closures were added at this
facility.
FOREIGN CURRENCY
A significant portion of AptarGroup's operations is located outside of
the United States. Because of this, movements in exchange rates may have a
significant impact on the translation of financial position and results of
operations of AptarGroup's foreign entities. In general, since the majority of
the Company's foreign operations are based in Europe, a weakening U.S. dollar
relative to the major European currencies has a positive translation effect on
the Company's financial condition and results of operations. Conversely, a
strengthening U.S. dollar would have the opposite effect. AptarGroup has
historically borrowed locally to hedge potential currency fluctuations for
assets that were purchased outside of the United States.
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 impacts the Company's results of
operations. The Company, at times, uses forward exchange contracts, primarily
with banks, to hedge the currency risk associated with future cash receipts or
payments.
WORKING CAPITAL PRACTICES
Collection and payment periods tend to be longer for the Company's
operations located outside the United States due to local business practices.
Historically, the Company has not needed to keep significant amounts of finished
goods inventory to meet customer requirements.
EMPLOYEE AND LABOR RELATIONS
AptarGroup has approximately 4,100 full-time employees. Of the full-time
employees, approximately 1,100 are located in North America and substantially
all of the remaining 3,000 are located in Europe. No North American employee is
covered by a collective bargaining agreement, while the majority of the
Company's international employees are covered by collective bargaining
arrangements made at either the local or government level in their respective
countries. Termination of employees at certain AptarGroup European operations
could be costly due to local regulations regarding severance benefits.
Management of AptarGroup considers its employee relations to be good.
COMPETITION
All of the markets in which AptarGroup operates are highly competitive
and the Company continues to experience price competition in all product lines
and markets. Competitors include privately and publicly-held entities, the
majority being privately-held. AptarGroup's competitors range from regional to
international companies. AptarGroup expects the market for its products to
continue to be competitive.
AptarGroup believes its competitive advantages are consistent high
levels of quality, service and innovation, geographic diversity and breadth of
products. The Company's manufacturing strengths lie in the ability to mold
complex plastic components in a cost-effective manner and to assemble products
at high speeds.
ENVIRONMENT
AptarGroup's manufacturing operations primarily involve plastic
injection molding and automated assembly processes. Historically, the
environmental impact of these processes has been minimal, and management
believes it meets current environmental standards in all material respects.
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GOVERNMENT REGULATION
To date, the manufacturing and assembly operations of AptarGroup have
not been significantly affected by environmental laws and regulations relating
to the environment.
Certain AptarGroup products are affected by government regulation.
Growth of packaging using aerosol valves has been restrained by concerns
relating to the release of certain chemicals into the atmosphere. Both aerosol
and pump packaging are affected by government regulations regarding the release
of VOCs (volatile organic compounds) into the atmosphere. Certain states within
the United States have regulations requiring the reduction in the amount of VOCs
that can be released into the atmosphere and the potential exists for this type
of regulation to expand to a worldwide basis, including Europe. These
regulations require the Company's customers to reformulate certain aerosol and
pump products which may affect the demand for such products. The Company owns
patents and has developed systems to function with alternate propellant and
product formulations.
Aerosol packaging of paints has also been adversely impacted by local
regulations adopted in many large cities in the United States designed to
address the problem of spray painted graffiti. Aerosol packaging may be
adversely impacted by insurance cost considerations relating to the storage of
aerosol products.
Government regulation in the dispensing closure product line primarily
relates to waste reduction. The Company's dispensing closures are plastic and
mainly consist of polypropylene, a recyclable plastic. The Company also uses
recycled plastic in its manufacturing process.
Future government regulations could include medical cost containment
elements. For example, reviews by various governments to determine the number of
drugs or prices thereof that will be paid by their insurance systems could
affect future sales to the pharmaceutical industry. Such regulation could
adversely affect prices of and demand for the Company's pharmaceutical products.
The Company believes that the recent focus on the cost effectiveness of the use
of medications as compared to surgery and hospitalization provides an
opportunity for the Company to expand sales to the pharmaceutical market.
Regulatory requirements impact the Company's customers and could affect the
Company's investment in and manufacturing of products for the pharmaceutical
market.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Financial information concerning foreign and domestic operations and
export sales is set forth in Note 14 ("Segment Information") to the Consolidated
Financial Statements contained in the 1997 Annual Report to Stockholders, page
44, which is incorporated herein by reference.
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Item 2. PROPERTIES
The principal offices and manufacturing facilities of AptarGroup are
either owned or leased by the Company or its subsidiaries. None of the owned
principal properties is subject to a lien or other encumbrance material to the
operations of the Company. The Company believes that existing operating leases
will be renegotiated as they expire or that suitable alternative properties can
be leased on acceptable terms. The Company considers the condition and extent of
utilization of its manufacturing facilities and other properties to be generally
good, and the capacity of its plants to be adequate for the needs of its
business.
The locations of the Company's principal manufacturing facilities, by
country, are set forth below:
FRANCE GERMANY CHINA
Caen Bohringen Suzhou
Le Neubourg Dortmund
Le Vaudreuil Eigeltingen
Meaux
Verneuil Sur Avre
ITALY NORTH AMERICA UNITED KINGDOM
San Giovanni Teatino (Chieti) Cary, Illinois, USA Leeds, England
Manoppello Midland, Michigan, USA
Mukwonago, Wisconsin, USA
Norwalk, Connecticut, USA
Queretaro, Mexico
SWITZERLAND
Messovico
In addition to the above countries, the Company has sales offices or
other manufacturing facilities in Argentina, Australia, Brazil, Canada, England,
Ireland, Japan, and Spain. The Company's corporate offices are located in
Crystal Lake, Illinois.
Item 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
Legal proceedings involving the Company generally relate to product
liability and patent infringement issues. In the opinion of AptarGroup's
management, the outcome of pending claims and litigation is not likely to have a
material adverse effect on the Company's financial position or the results of
its operations.
Historically, product liability claims for all products of the Company
have been minimal. However, the increase in pump and aerosol valve applications
for pharmaceutical products may result in an increase in product liability
claims. Quality control systems are specifically designed to prevent defects in
the Company's products. Additionally, the Company maintains product liability
insurance in excess of its historical claims experience.
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 1997 financial
results.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information set forth in Note 15 "Quarterly Data (Unaudited)" to the
Consolidated Financial Statements contained in the Company's 1997 Annual Report
to Stockholders, page 45, is incorporated herein by reference. The Common Stock
of AptarGroup is traded on the New York Stock Exchange (symbol: ATR). As of
December 31, 1997, stockholders of record totaled approximately 900.
Item 6. SELECTED FINANCIAL DATA
The information set forth under the heading "Five Year Summary of
Selected Financial Data" appearing on page 47 of the Company's 1997 Annual
Report to Stockholders is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The information set forth under the heading "Management's Discussion and
Analysis of Consolidated Results of Operations and Financial Condition"
appearing on pages 48-51 of the Company's 1997 Annual Report to Stockholders is
incorporated herein by reference.
Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth under the headings "Consolidated Statements of
Income," "Consolidated Balance Sheets," "Consolidated Statements of Cash Flows,"
"Consolidated Statements of Stockholders' Equity," "Notes to Consolidated
Financial Statements" and "Report of Independent Accountants" appearing on pages
28-46 of the Company's 1997 Annual Report to Stockholders is incorporated herein
by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Certain information required to be furnished in this part of the Form
10-K has been omitted because the Registrant will file with the Securities and
Exchange Commission a definitive proxy statement pursuant to Regulation 14A
under the Securities Exchange Act of 1934 not later than April 29, 1998.
Item 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the heading "Election of Directors" in
the Registrant's Proxy Statement for the annual meeting of stockholders to be
held on May 13, 1998, is incorporated herein by reference.
In addition to Messrs. Carl A. Siebel and Peter Pfeiffer, each of whom
is a director and executive officer of the Company and information with respect
to whom is incorporated by reference in this Item 10, executive officers of the
Registrant are as follows:
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Jacques Blanie, age 51, Executive Vice President of SeaquistPerfect
Dispensing division since 1996 and Geschaftsfuhrer (i.e., Managing Director) of
SeaquistPerfect Dispensing GmbH since 1986. In 1996, Perfect-Valois Ventil GmbH
changed its name to SeaquistPerfect Dispensing GmbH.
Francois Boutan, age 55, Financial Director and Controller of the
European operations of AptarGroup. Mr. Boutan has served in this capacity since
1988.
Pierre Cheru, age 64, Directeur General of Valois S.A. Mr. Cheru has
served in this capacity since 1978.
Stephen J. Hagge, age 46, Executive Vice President and Chief Financial
Officer, Secretary and Treasurer of AptarGroup since 1993. From 1985 to 1993 Mr.
Hagge was the Vice President of Finance of the Seaquist Group.
Lawrence Lowrimore, age 53, Vice President-Human Resources of AptarGroup
since 1993. From 1990 to 1993, Mr. Lowrimore was the Vice President of Human
Resources of the Seaquist Group.
Francesco Mascitelli, age 47, Direttore Generale of SAR S.p.A., an
Italian subsidiary. Mr. Mascitelli has served in this capacity since 1991.
James R. Reed, age 61, President of the SeaquistPerfect Dispensing
division. Mr. Reed was President of the Seaquist Valve division since 1987. In
1993, Seaquist Valve changed its name to Seaquist Dispensing and in 1996 to
SeaquistPerfect Dispensing.
Eric S. Ruskoski, age 50, President of the Seaquist Closures division.
Mr. Ruskoski has served in this capacity since 1987.
Hans-Josef Schutz, age 53, Geschsftsfuhrer of the Pfeiffer Group. Mr.
Schutz has served in this capacity since May of 1993. From 1983 through April of
1993, Mr. Schutz was the Vice President of the Pfeiffer Group.
Alain Vichot, age 64, Directeur General Adjoint of Valois S.A. since
1994. From 1987 to 1994, Mr. Vichot was Directeur General of STEP S.A. In early
1998, Mr. Vichot became Vice-President Marketing of AptarGroup.
Item 11.EXECUTIVE COMPENSATION
The information set forth under the headings "Compensation Committee
Interlocks and Insider Participation," "Board Compensation" and "Executive
Compensation" (other than "Compensation Committee Report on Executive
Compensation" and "Performance Graph") in the Registrant's Proxy Statement for
the annual meeting of stockholders to be held on May 13, 1998, is incorporated
herein by reference.
Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the heading "Security Ownership of
Certain Beneficial Owners and Management" in the Registrant's Proxy Statement
for the annual meeting of stockholders to be held on May 13, 1998, is
incorporated herein by reference.
Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the heading "Certain Transactions" in
the Registrant's Proxy Statement for the annual meeting of stockholders to be
held on May 13, 1998, is incorporated herein by reference.
<PAGE>
Page 13
PART IV
Item 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
Location
--------
1)Financial Statements required by Item 8 of
this Form
Consolidated Balance Sheets Annual Report, page 28
Consolidated Statements of Income Annual Report, page 30
Consolidated Statements of Cash Flows Annual Report, page 31
Consolidated Statements of Stockholders'
Equity Annual Report, page 32
Notes to Consolidated Financial Statements Annual Report, page 33
Report of Independent Accountants Annual Report, page 46
2)Schedule required by Article 12 of Regulation S-X
Report of Independent Accountants on
Financial Statement Schedule page 16
II - Valuation and Qualifying Accounts page 17
All other schedules have been omitted because they are not
applicable or not required.
3)Exhibits required by Item 601 of Regulation S-K are incorporated by
reference to the Exhibit Index on pages 18-19 of this report.
(b) Reports on Form 8-K during the quarter ended December 31, 1997:
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
<PAGE>
Page 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized on this 27th day of March
1998.
AptarGroup, Inc.
(Registrant)
By /s/ Stephen J. Hagge
Stephen J. Hagge
Executive Vice President and Chief
Financial Officer, Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the date indicated.
NAME TITLE DATE
- ---- ----- ----
/s/ King Harris Chairman of the Board and Director March 27, 1998
King Harris
/s/ Carl Siebel President and Chief Executive Officer and March 27, 1998
Carl Siebel Director (Principal Executive Officer)
/s/ Peter Pfeiffer Vice Chairman of the Board and Director March 27, 1998
Peter Pfeiffer
/s/ Stephen J. Hagge Executive Vice President and Chief March 27, 1998
Stephen J. Hagge Financial Officer, Secretary and Treasurer
(Principal Accounting and Financial Officer)
<PAGE>
Page 15
NAME TITLE DATE
- ---- ----- ----
/s/ Eugene L. Barnett Director March 27, 1998
Eugene L. Barnett
/s/ Ralph Gruska Director March 27, 1998
Ralph Gruska
/s/ Leo A. Guthart Director March 27, 1998
Leo A. Guthart
/s/ William Harris Director March 27, 1998
William Harris
/s/ Ervin J. LeCoque Director March 27, 1998
Ervin J. LeCoque
/s/ Alfred Pilz Director March 27, 1998
Alfred Pilz
<PAGE>
Page 16
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of AptarGroup, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 19, 1998, appearing on page 46 of the 1997 Annual Report
to Stockholders of AptarGroup, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
February 19, 1998
<PAGE>
Page 17
<TABLE>
<CAPTION>
AptarGroup, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in Thousands)
Balance at Charged to Deductions Balance
beginning costs and from at end
of period expenses Acquisition reserve(a) of period
--------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1997
Allowance for doubtful
accounts $3,623 $1,261 $ -- $1,072 $3,812
1996
Allowance for doubtful
accounts $3,296 $1,148 $ -- $ 821 $3,623
1995
Allowance for doubtful
accounts $1,697 $1,580 $ 76 $ 57 $3,296
(a) Write-off of accounts considered uncollectible, net of recoveries and
foreign currency translation adjustments, net.
</TABLE>
<PAGE>
Page 18
INDEX TO EXHIBITS
Sequential
Number and Description of Exhibit Page Number***
3(i) Amended and Restated Certificate of Incorporation of the Company, filed
as Exhibit 6.1 to the Company's Registration Statement on Form 8-A filed
under the Exchange Act on April 5, 1993 (File No. 1-11846), is hereby
incorporated by reference.
3(ii) Amended and Restated By-Laws of the Company, filed as Exhibit 3(ii) to
the Company's Annual Report on Form 10-K for the year ended December 31,
1995 (File No. 1-11846) is hereby incorporated by reference.
4.1 Rights Agreement dated as of April 6, 1993 between the Company and
Chemical Bank, as rights agent, filed as Exhibit 4.1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1993 (the
"1993 10-K")(File No. 1-11846), is hereby incorporated by reference.
4.2 Certificate of Designation, Preferences and Rights of Junior
Participating Preferred Stock, Series A, of the Company, filed as
Exhibit 6.4 of the Company's Registration Statement on Form 8-A filed
under the Exchange Act on April 5, 1993 (File No. 1-11846), is hereby
incorporated by reference.
The Registrant hereby agrees to provide the Commission, upon request,
copies of instruments defining the rights of holders of long-term debt
of the Registrant and its subsidiaries as are specified by item
601(b)(4)(iii)(A) of Regulation S-K.
10.1 AptarGroup, Inc. 1992 Stock Awards Plan, filed as Exhibit 10.1 (included
as Appendix B to the Prospectus) to the Company's Registration Statement
on Form S-1, Registration Number 33-58132, filed on February 10, 1993
(the "Form S-1"), is hereby incorporated by reference.**
10.2 AptarGroup, Inc. 1992 Director Stock Option Plan, filed as Exhibit 10.2
(included as Appendix C to the Prospectus) to the Form S-1, is hereby
incorporated by reference.**
10.3 Agreement of Employment dated as of March 28, 1990 of Ervin J. LeCoque,
filed as Exhibit 10.3 to the Form S-1 is hereby incorporated by
reference.**
10.4 Managing Director Employment Agreement dated January 2, 1981 of Mr.
Peter Pfeiffer, filed as Exhibit 10.4 to the Form S-1, is hereby
incorporated by reference.**
10.5 Service Agreement dated April 30, 1981, of Carl A. Siebel, and related
pension plan, filed as Exhibit 10.5 to the Form S-1, is hereby
incorporated by reference.**
10.6 Service agreement dated April 22, 1993, between AptarGroup, Inc. and
Peter Pfeiffer, and related pension plan, filed as Exhibit 10.6 to the
1993 10-K, is hereby incorporated by reference.**
10.7 First supplement dated 1989 pertaining to the pension plan between
Perfect-Valois Ventil GmbH and Carl A. Siebel, filed as Exhibit 10.7 to
the 1993 10-K, is hereby incorporated by reference.**
10.8 Pittway Guarantee dated February 2, 1990, pertaining to the pension plan
between Perfect-Valois Ventil GmbH and Carl A. Siebel, filed as Exhibit
10.8 to the 1993 10-K, is hereby incorporated by reference.**
<PAGE>
Page 19
10.9 Assignment, Assumption and Release as of April 22, 1993, among Pittway
Corporation, AptarGroup, Inc., and Ervin J. LeCoque, filed as Exhibit
10.9 to the 1993 10-K, is hereby incorporated by reference.**
10.10 Assignment, Assumption and Release as of April 22, 1993, among Pittway
Corporation, AptarGroup, Inc., and Carl A. Siebel, filed as Exhibit
10.10 to the 1993 10-K, is hereby incorporated by reference.**
10.11 Second supplement dated December 19, 1994 pertaining to the pension plan
between Perfect-Valois Ventil GmbH and Carl A. Siebel, filed as Exhibit
10.11 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-11846), is hereby incorporated by
reference.**
10.12 Managing Director Employment Agreement dated November 15, 1993 of
Hans-Josef Schutz, and related pension plan dated October 20, 1989,
filed as Exhibit 10.12 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 (File No. 1-11846), is hereby
incorporated by reference.**
10.13 Amendment to Agreement of Employment dated November 20, 1995 of Ervin J.
LeCoque, filed as Exhibit 10.13 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (File No. 1-11846), is hereby
incorporated by reference.**
10.14 Executive Employment Agreement dated February 1, 1996 of Stephen J.
Hagge, filed as Exhibit 10.14 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995 (File No. 1-11846), is hereby
incorporated by reference.**
10.15 AptarGroup, Inc. 1996 Stock Awards Plan, filed as Appendix A to the
Company's Proxy Statement, dated April 10, 1996 (File No. 1-11846), is
hereby incorporated by reference.**
10.16 AptarGroup, Inc. 1996 Director Stock Option Plan, filed as Appendix B to
the Company's Proxy Statement, dated April 10, 1996 (File No. 1-11846),
is hereby incorporated by reference.**
10.17 Employment Agreement dated March 6, 1996 of Eric S. Ruskoski.**
10.18 Amendment to Agreement of Employment dated November 15, 1993 of
Hans-Joseph Schutz, filed as exhibit 10.18 of the Company's Quarterly
Report on Form 10-Q, for the quarter ended June 30, 1997 (File No.
1-11846), is hereby incorporated by reference.**
13* 1997 Annual Report to Stockholders (such report, except to the extent
specifically incorporated herein by reference, is being furnished for
the information of the Securities and Exchange Commission only and is
not to be deemed filed as a part of this Form 10-K).
21* List of Subsidiaries.
23* Consent of Independent Accountants.
27* Financial Data Schedule
27.1* Financial Data Schedule (restated)
27.2* Financial Data Schedule (restated)
* Filed herewith.
** Management contract or compensatory plan or arrangement.
*** This information appears only in the manually signed original of this
Form 10-K.
Page 28
CONSOLIDATED BALANCE SHEETS
December 31, (Dollars in thousands, except per share)
1997 1996
---- ----
ASSETS
Current Assets:
Cash and equivalents ................... $ 17,717 $ 16,386
Accounts and notes receivable,
less allowance for doubtful accounts
of $3,812 in 1997 and $3,623 in 1996 .. 145,034 130,885
Inventories ............................ 79,262 75,930
Prepayments and other .................. 14,148 14,030
-------- --------
256,161 237,231
-------- --------
Property, Plant and Equipment:
Buildings and improvements ............. 74,351 75,971
Machinery and equipment................. 455,382 440,743
------- -------
529,733 516,714
Less: Accumulated depreciation ......... (281,899) (265,780)
------- -------
247,834 250,934
Land ................................... 3,819 4,395
------- -------
251,653 255,329
------- -------
Other Assets:
Investments in affiliates .............. 16,495 14,970
Goodwill, less accumulated
amortization of $6,030 in 1997 and
$5,505 in 1996 ........................ 40,479 47,261
Miscellaneous .......................... 20,645 21,345
------- -------
77,619 83,576
------- -------
TOTAL ASSETS $ 585,433 $ 576,136
======= =======
<PAGE>
Page 29
CONSOLIDATED BALANCE SHEETS
December 31, (Dollars in thousands, except per share)
1997 1996
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable ............................ $ -- $ 4,145
Current maturities of
long-term obligations ................... 2,890 9,540
Accounts payable and accrued liabilities . 122,507 102,574
------- -------
125,397 116,259
------- -------
Long-Term Obligations ..................... 70,740 76,569
------- -------
Deferred Liabilities and Other:
Deferred income taxes .................... 21,432 22,884
Retirement and deferred
compensation plans ...................... 11,872 12,952
Minority interests ....................... 4,568 4,381
Deferred and other non-current
liabilities ............................. 9,369 7,392
------- -------
47,241 47,609
------- -------
Stockholders' Equity:
Preferred stock, $.01 par value,
1 million shares authorized, none
outstanding ............................. -- --
Common stock, $.01 par value, 45 million
shares authorized, 18.0 and 17.9 million
outstanding in 1997 and 1996,respectively 180 179
Capital in excess of par value ........... 104,699 103,572
Retained earnings ........................ 274,524 233,385
Cumulative foreign currency
translation adjustment .................. (37,348) (1,437)
------- -------
342,055 335,699
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 585,433 $ 576,136
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
Page 30
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, (Dollars in thousands, except per share)
1997 1996 1995
---- ---- ----
NET SALES ......................... $ 655,390 $ 615,808 $ 557,455
------- ------- -------
OPERATING EXPENSES:
Cost of sales .................... 418,110 399,654 358,418
Selling, research & development,
and administrative .............. 108,372 104,282 96,237
Depreciation and amortization .... 49,917 47,876 43,502
------- ------- -------
576,399 551,812 498,157
------- ------- -------
OPERATING INCOME .................. 78,991 63,996 59,298
OTHER INCOME (EXPENSE):
Interest expense ................. (5,293) (6,330) (5,918)
Interest income .................. 1,172 1,132 1,339
Equity in income of
affiliates ...................... 1,991 691 1,888
Minority interests ............... (286) (324) (87)
Miscellaneous, net ............... 2,021 1,008 1,082
------- ------- -------
(395) (3,823) (1,696)
------- ------- -------
INCOME BEFORE INCOME TAXES ........ 78,596 60,173 57,602
PROVISION FOR INCOME TAXES ........ 32,067 22,625 21,888
------- ------- -------
NET INCOME ........................ $ 46,529 $ 37,548 $ 35,714
======= ======= =======
NET INCOME PER COMMON SHARE
Basic $ 2.59 $ 2.09 $ 1.99
Diluted $ 2.55 $ 2.05 $ 1.98
See accompanying notes to consolidated financial statements.
<PAGE>
Page 31
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, (Dollars in thousands, brackets denote cash
outflows)
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................... $ 46,529 $ 37,548 $ 35,714
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation ........................... 47,199 44,798 41,446
Amortization ........................... 2,718 3,078 2,056
Provision for bad debts ................ 1,261 1,148 1,580
Minority interests ..................... 286 324 87
Deferred income taxes .................. (26) 4,149 2,762
Retirement and deferred
compensation plans .................... 2,003 381 2,501
Equity in income of affiliates
in excess of cash distributions
received .............................. (1,991) (590) (1,721)
Changes in balance sheet items,
excluding effects from acquisitions
and foreign currency adjustments:
Accounts and notes receivable ........ (28,799) (15,828) (13,263)
Inventories .......................... (11,639) (5,211) (9,142)
Prepaid and other current assets ..... 709 (631) 4,409
Accounts payable and accrued
liabilities 32,449 630 (3,543)
Other changes, net ................... (4,513) (2,480) (1,190)
------ ------ ------
NET CASH PROVIDED BY OPERATIONS ...... 86,186 67,316 61,696
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ..................... (71,228) (62,794) (55,481)
Disposition of property and equipment .... 3,181 858 1,980
Disposition (acquisition) of
businesses, net ......................... -- 1,942 (20,310)
Investments in affiliates ................ (1,219) (11) (9,798)
(Issuance) collection of notes
receivable, net ......................... (468) 804 (1,136)
------ ------ ------
Net cash used by investing activities .. (69,734) (59,201) (84,745)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable .............. -- -- 3,871
Repayments of notes payable .............. (4,033) (2,521) --
Proceeds from long-term obligations ...... 4,901 7,935 31,018
Repayments of long-term obligations ...... (9,617) (9,629) (10,745)
Dividends paid ........................... (5,390) (5,023) (4,659)
Proceeds from stock options exercised .... 1,128 618 234
------ ------ ------
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES .................. (13,011) (8,620) 19,719
------ ------ ------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH ................................. (2,110) (441) 537
------ ------ ------
NET INCREASE (DECREASE) IN CASH
AND EQUIVALENTS ......................... 1,331 (946) (2,793)
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD ..................... 16,386 17,332 20,125
------ ------ ------
CASH AND EQUIVALENTS AT
END OF PERIOD ........................... $ 17,717 $ 16,386 $ 17,332
====== ====== ======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 5,389 $ 6,218 $ 5,653
Income taxes paid $ 15,620 $ 19,121 $ 15,280
See accompanying notes to consolidated financial statements.
<PAGE>
Page 32
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
(Amounts in thousands, except per share)
Cumulative
Foreign
Capital Currency
Common In Trans-
Common Stock Excess lation
Stock Par of Par Retained Adjust-
Shares Value Value Earnings ment
------ ----- ------ -------- -------
Balance -
December 31, 1994 ........ 17,914 $ 179 $102,720 $ 169,805 $ (2,094)
Net income ................ 35,714
Stock awards .............. 11 -- 234
Cash dividends declared
on common stock -
$ .26 per share .......... (4,659)
Translation adjustment .... 10,387
------ ----- ------- ------- ------
Balance -
December 31, 1995 ........ 17,925 179 102,954 200,860 8,293
Net income ................ 37,548
Stock awards .............. 25 -- 618
Cash dividends declared
on common stock -
$ .28 per share .......... (5,023)
Translation adjustment .... (9,730)
------- ----- ------- ------- ------
Balance -
December 31, 1996 ........ 17,950 179 103,572 233,385 (1,437)
Net income ................ 46,529
Stock awards .............. 39 1 1,127
Cash dividends declared
on common stock -
$.30 per share ........... (5,390)
Translation adjustment .... (35,911)
------ ----- -------- ------- -------
Balance -
December 31, 1997 ........ 17,989 $ 180 $ 104,699 $274,524 $(37,348)
====== ===== ======== ======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
Page 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
AptarGroup, Inc. is an international company that designs, manufactures and
sells consumer product dispensing systems. The Company focuses on providing
value-added components to a variety of global consumer product marketers in
fragrance/cosmetics, personal care, pharmaceutical, household products and
food industries. The Company has manufacturing facilities primarily located
in the United States and Europe.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
AptarGroup, Inc. and its subsidiaries. The terms "AptarGroup" or "Company"
as used herein refer to AptarGroup, Inc. and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Certain previously reported amounts have been reclassified to conform to
the current period presentation.
ACCOUNTING ESTIMATES
The financial statements are prepared in conformity with generally accepted
accounting principles (GAAP). This process requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH MANAGEMENT
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at cost, which is lower than market. Costs included
in inventories are raw materials, direct labor and manufacturing overhead.
Cost of substantially all domestic inventories and the inventory of one
foreign operation is determined by using the last-in, first-out ("LIFO")
method, while the remaining inventories are valued using the first-in,
first-out (FIFO) method.
INVESTMENTS IN AFFILIATED COMPANIES
The Company accounts for its investments in 50% or less owned affiliated
companies which it does not control using the equity method. These
investments are in companies that manufacture and distribute products
similar to the Company's products or supply components to the Company.
Dividends from affiliated companies received in 1997, 1996 and 1995
amounted to $0, $101, and $167, respectively.
PROPERTY AND DEPRECIATION
Properties are stated at cost. Depreciation is determined on a
straight-line basis over the estimated useful lives for financial reporting
purposes and accelerated methods for income tax reporting. Generally, the
estimated useful lives are 25 to 40 years for buildings and improvements
and 3 to 10 years for machinery and equipment.
INTANGIBLE ASSETS
Management believes goodwill acquired in purchase transactions has
continuing value. It is the Company's policy to amortize such costs
primarily over a period of 40 years using the straight-line method. Other
intangibles, consisting of patents, non-compete agreements and license
agreements, acquired in purchase transactions or developed, are capitalized
and amortized over their useful lives. Management assesses the value of the
recorded goodwill and other intangibles using projected undiscounted cash
flows to determine if an impairment has occurred. It is management's
opinion that no such impairment exists.
DERIVATIVES
Gains and losses on hedges of existing assets or liabilities are included
in the carrying amount of those assets or liabilities and are ultimately
recognized in income as part of those carrying amounts. Gains and losses
related to qualifying hedges of firm commitments also are deferred and are
recognized in income or as adjustments of carrying amounts when the hedged
transaction occurs.
RESEARCH & DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred. These costs
amounted to $20,843, $20,120, and $17,473 in 1997, 1996 and 1995,
respectively.
INCOME TAXES
A provision has not been made for U.S. or additional foreign taxes on
$188,662 of undistributed earnings of foreign subsidiaries. These earnings
will continue to be reinvested and could become subject to additional tax
if they were remitted as dividends, or lent to a U.S. affiliate, or if the
Company should sell its stock in the subsidiaries. It is not practicable to
estimate the amount of additional tax that might be payable on these
undistributed foreign earnings.
TRANSLATION OF FOREIGN CURRENCIES
The functional currencies of all the Company's foreign operations are the
local currencies. Assets and liabilities are translated into U.S. dollars
at the rates of exchange on the balance sheet date. Sales and expenses are
translated at the average rates of exchange prevailing during the year and
the related translation adjustments are accumulated in a separate section
of stockholders' equity. Foreign currency transaction gains and losses are
reflected in income, as a component of miscellaneous income and expense,
and are not significant to the consolidated results of operations for the
years presented.
<PAGE>
Page 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share)
NOTE 2 - ACQUISITIONS AND DISPOSITIONS
Acquisitions and dispositions in 1997 and 1996 were not significant.
During 1995, the Company acquired a controlling interest in two companies
for approximately $22 million in cash and $3 million in assumed debt. These
acquisitions have been accounted for as purchases. In addition, the Company
also acquired a minority interest in a company for an initial payment of
approximately $9 million. The minority interest purchase agreement includes
a provision that adjusts the purchase price based on earnings of the
company from 1995 through 1997. The purchase price adjustment based on
earnings is not material to the financial statements. If the transactions
noted above had occurred at the beginning of 1995, Net Sales, Net Income
and Basic Earnings per Share would have been $580,049, $36,129 and $2.02,
respectively (unaudited).
NOTE 3 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company has limited involvement with derivative financial instruments
and does not trade them. In accordance with the Company's policy,
derivatives may be used to manage certain interest rate and foreign
exchange exposures. In 1995, the Company entered into a cross-currency
interest rate swap to hedge an intercompany lending transaction. This swap
requires the Company to pay principal of 37,031 French Francs plus interest
at 8% and receive principal of $7,500 plus interest at 7.08% over ten
years. If the Company canceled the swap at December 31, 1997, the Company
would have received approximately $863 based on the fair value of the swap
on that date.
The Company principally used only forward exchange contracts, with terms of
less than one year, to hedge certain firm purchase and sale commitments and
intercompany cash transactions denominated in foreign currencies. The
notional value of the Company's forward exchange contracts was $20.5
million and $6.1 million at December 31, 1997 and 1996, respectively.
Deferred realized and unrealized gains and losses from firm foreign
currency commitments were not significant to the Company's financial
position at December 31, 1997 and 1996. Deferred gains and losses are
recognized in earnings as part of the underlying transaction when the
transaction is settled. Such gains and losses were not significant to the
Company's financial results. The Company is exposed to credit-related
losses in the event of nonperformance by counter parties to financial
instruments, but it does not expect any counter parties to fail to meet
their obligations. The credit exposure of forward foreign exchange
contracts is represented by the difference between the forward contract
rate and the spot rate at the time of settlement.
NOTE 4 - INVENTORIES
At December 31, 1997 and 1996, approximately 25% and 24%, respectively, of
the total inventories are accounted for by the LIFO method. Inventories
consisted of:
1997 1996
---- ----
Raw materials ........................ $ 27,187 $ 25,150
Work-in-process ...................... 21,920 23,533
Finished goods ....................... 31,404 29,283
------ ------
Total ................................ 80,511 77,966
Less LIFO reserve .................... (1,249) (2,036)
------ ------
Total ................................ $ 79,262 $ 75,930
====== ======
<PAGE>
Page 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share)
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At December 31, 1997 and 1996, accounts payable and accrued liabilities
consisted of the following:
1997 1996
---- ----
Accounts payable, principally trade ........ $ 64,045 $ 59,160
Accrued employee compensation costs ........ 27,922 24,210
Accrued federal income taxes payable ....... 14,292 2,441
Other accrued liabilities .................. 16,248 16,763
------- -------
Total ...................................... $122,507 $102,574
======= =======
NOTE 6 - INCOME TAXES
Income before income taxes consists of:
1997 1996 1995
---- ---- ----
Domestic ............................... $ 22,968 $ 18,995 $ 14,371
Foreign ................................ 55,628 41,178 43,231
------ ------ ------
$ 78,596 $ 60,173 $ 57,602
====== ====== ======
The provision for income taxes is
comprised of:
CURRENT:
Federal ................................ $ 7,977 $ 6,318 $ 5,660
State/local ............................ 1,738 1,413 1,291
Foreign ................................ 22,378 10,745 12,175
------ ------ ------
32,093 18,476 19,126
------ ------ ------
DEFERRED:
Federal/State .......................... (1,391) (946) (1,534)
Foreign ................................ 1,365 5,095 4,296
------ ------ ------
(26) 4,149 2,762
------ ------ ------
Total .................................. $ 32,067 $ 22,625 $ 21,888
====== ====== ======
<PAGE>
Page 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share)
NOTE 6 - INCOME TAXES (Cont'd)
The difference between the actual income tax provision and the tax
provision computed by applying the statutory federal income tax rate of
35.0% in 1997 and 1996 and 34.6% in 1995 to income before income taxes is
as follows:
1997 1996 1995
---- ---- ----
Income tax at statutory rate $ 27,509 $ 21,060 $ 19,930
State income taxes, net of
federal benefit ................ 836 806 723
Rate differential on earnings
of foreign operations .......... 4,364 1,775 1,354
Other items, net ................ (642) (1,016) (119)
------ ------ ------
Actual income tax provision ..... $ 32,067 $ 22,625 $ 21,888
====== ====== ======
Effective income tax rate ....... 40.8% 37.6% 38.0%
Significant deferred tax assets and liabilities as of December 31, 1997
and 1996 are comprised of the following temporary differences:
1997 1996
---- ----
DEFERRED TAX ASSETS:
Net operating loss carry forwards ...................$ 6,813 $14,285
Asset bases differentials ........................... 3,991 1,820
Pensions ............................................ 2,037 2,226
Other ............................................... 8,501 8,955
------ ------
Total deferred tax assets ........................... 21,342 27,286
------ ------
DEFERRED TAX LIABILITIES:
Depreciation ........................................ 25,101 28,607
Leases .............................................. 3,083 3,232
Other ............................................... 4,022 6,278
------ ------
Total deferred tax liabilities ...................... 32,206 38,117
------ ------
Net deferred tax liabilities ........................$10,864 $10,831
====== ======
The impact of changes in enacted foreign tax rates on the accounting for
deferred taxes under SFAS No. 109 was not significant to the provision for
income taxes to the years presented above.
On December 31, 1997, the Company had federal foreign tax net operating
loss carryforwards of approximately $8,707 which have an indefinite
carryforward period and approximately $1,043 which expire in 1999, 2001 and
2002.
The Company has not provided for taxes on certain tax deferred income of a
foreign operation. The income arose predominately from government grants.
Taxes of approximately $2,761 would become payable at the time the income
is distributed.
<PAGE>
Page 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share)
NOTE 7 - DEBT
The average annual interest rate on short-term notes payable under
unsecured lines of credit was approximately 5.0% and 4.6% for 1997 and
1996, respectively. There are no compensating balance requirements
associated with short-term borrowings. At December 31, 1997 and 1996, the
Company had an 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. The Company is
required to pay a fee for the unused portion of the commitment. Such
payments in 1997, 1996, and 1995 were not significant. The agreement
expires on April 29, 2001. At December 31, 1997, the amount unused and
available under this agreement was $25 million. 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 $21.7 million and
$3.3 million of current portion of long-term debt have been reclassified as
long-term obligations as of December 31, 1997. Short-term obligations of
$25 million were reclassified as long-term obligations as of December 31,
1996.
The revolving credit and the senior unsecured debt agreements contain
covenants that include certain financial tests, including minimum interest
coverage, net worth and maximum borrowings.
At December 31, the Company's long-term obligations consisted of the
following:
1997 1996
---- ----
Notes payable 3.7% - 17.2%, due in monthly
and annual installments through 2009 .......... $ 6,079 $ 12,345
Senior unsecured debt 7.08%, due in
installments through 2005 ..................... 25,000 25,000
Mortgages payable 4.5% - 13.6%, due in
monthly and annual installments through 2007... 7,635 10,349
Industrial revenue bond, interest at 79%
of prime,(which was 6.6% and 6.4% at
December 31, 1997 and 1996), due in
quarterly installments through 2001 ........... 1,333 1,666
Capital lease obligations ...................... 8,583 11,749
------ ------
48,630 61,109
Less current portion ........................... (2,890) (9,540)
Reclass of short-term obligations .............. 25,000 25,000
------ ------
Total long-term obligations .................... $ 70,740 $ 76,569
====== ======
Substantially all of the notes and mortgages are payable by foreign
subsidiaries to foreign banks. Interest rates on such borrowings vary due
to differing market conditions in the countries in which such debt has been
incurred. Mortgages payable are secured by the properties or assets for
which the debt was obtained. Based on the borrowing rates currently
available to the Company for long-term obligations with similar terms and
average maturities, the fair value of the Company's long-term obligations
approximates its book value.
Aggregate long-term maturities, excluding capital lease obligations, due
annually for the five years beginning in 1998 are $1,552, $7,050, $6,800,
$31,366, $5,418 and $12,861 thereafter.
<PAGE>
Page 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share)
NOTE 8 - LEASE COMMITMENTS
The Company leases certain warehouse, plant, and office facilities as well
as certain equipment under noncancelable operating and capital leases
expiring at various dates through the year 2013. 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. Amortization expense
related to capital leases is included in depreciation expense. Rent expense
under operating leases (including taxes, insurance and maintenance when
included in the rent) amounted to $4,696, $4,702 and $3,961 in 1997, 1996
and 1995, respectively.
Assets recorded under capital leases consist of:
1997 1996
---- ----
Buildings ........................ $ 9,014 $ 10,292
Machinery and equipment........... 11,072 12,782
------ ------
20,086 23,074
Accumulated depreciation ......... (10,054) (9,213)
------- ------
$ 10,032 $ 13,861
======= =======
Future minimum payments, by year and in the aggregate, under the capital
leases and noncancelable operating leases with initial or remaining terms
of one year or more consisted of the following at December 31, 1997:
Capital Operating
Leases Leases
------ ------
1998 ............................................ $ 2,108 $ 3,357
1999 ............................................ 1,700 2,511
2000 ............................................ 1,467 1,895
2001 ............................................ 1,315 1,583
2002 ............................................ 1,185 1,625
Subsequent to 2002 .............................. 4,406 4,368
------ ------
Total minimum lease payments .................... 12,181 $ 15,339
======
Amounts representing interest ................... (3,598)
------
Present value of future minimum
lease payments ................................. 8,583
Less amount due in one year ..................... (1,338)
------
$ 7,245
======
<PAGE>
Page 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share)
NOTE 9 - RETIREMENT AND DEFERRED COMPENSATION PLANS
The Company has various noncontributory retirement plans covering certain
of its domestic and foreign employees. Benefits under the Company's
retirement plans are based on participants' years of service and annual
compensation as defined by each plan. Annual cash contributions to fund
pension costs accrued under the Company's domestic plans are generally
equal to the minimum funding amounts required by ERISA while pension
commitments under its foreign plans are partially offset by the cash
surrender value of insurance contracts purchased by the Company. The
components of net pension cost for the plans consisted of the following:
1997 1996 1995
---- ---- ----
Service cost benefits earned during the year.. $1,276 $1,297 $1,201
Interest cost on projected benefit obligation. 1,360 1,335 1,320
Actual return on plan assets ................. (2,472) (1,970) (3,591)
Net amortized and deferred gains and losses .. 1,055 684 2,622
----- ----- -----
Net pension cost ............................. $1,219 $1,346 $1,552
===== ===== =====
The reconciliation of the funded status of the plans at year end follows:
DOMESTIC PLANS
1997 1996
---- ----
Actuarial present value of benefit obligations:
Vested ....................................... $(10,963) $ (9,327)
Non-vested ................................... (698) (551)
------ ------
Accumulated benefit obligation ................ (11,661) (9,878)
Excess of projected benefit obligation over
accumulated benefit obligation ............... (3,394) (2,569)
------ ------
Projected benefit obligation .................. (15,055) (12,447)
Plan assets at fair value ..................... 16,983 13,954
------ ------
Plan assets in excess of projected
benefit obligation ........................... 1,928 1,507
Unrecognized net gain ......................... (3,791) (3,761)
Unrecognized prior service cost ............... 147 167
Unamortized net transition asset .............. (571) (761)
------ ------
Liability for pension cost included
in the balance sheet ......................... $ (2,287) $ (2,848)
====== ======
FOREIGN PLANS
Actuarial present value of benefit obligations:
Vested ....................................... $ (6,394) $ (7,087)
Non-vested ................................... (60) (56)
----- -----
Accumulated benefit obligation ................ (6,454) (7,143)
Excess of projected benefit obligation over
accumulated benefit obligation................ (915) (1,171)
----- ------
Projected benefit obligation .................. (7,369) (8,314)
Plan assets at fair value ..................... 1,211 1,464
----- -----
Projected benefit obligation in excess
of plan assets ............................... (6,158) (6,850)
Unrecognized net loss ......................... 1,017 1,666
Unrecognized prior service cost ............... 345 450
Unamortized net transition obligation ......... 148 198
----- -----
Liability for pension cost included
in the balance sheet ......................... $ (4,648) $ (4,536)
===== =====
<PAGE>
Page 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share)
NOTE 9 - RETIREMENT AND DEFERRED COMPENSATION PLANS (Cont'd)
Plan assets primarily consist of U.S. government obligations, investment
grade corporate bonds and common and preferred stocks for the domestic
plans and insurance contracts for the foreign plans. The projected benefit
obligation for domestic plans was determined using assumed discount rates
of 7.25% and 7.50% in 1997 and 1996, respectively. For the foreign plans,
the projected benefit obligation was determined using an assumed discount
rate of 6.0% in 1997 and 1996. The assumed rates of increase in
compensation used in 1997 and 1996 were 5.0% for the domestic plans and
4.0% for the foreign plans. The expected long-term rate of return on plan
assets was 8.5% in 1997 and 1996 for the domestic plans and 6.0% in 1997
and 1996 for the foreign plans.
The Company has a non-qualified supplemental pension plan which provides
for pension amounts that would have been payable from the Company's
principal pension plan if it were not for limitations imposed by income tax
regulations. The liability for this plan was $277 and $328 at December 31,
1997 and 1996, respectively. This amount is included in the liability for
domestic plans shown above.
The Company also has unfunded retirement compensation arrangements with
certain employees. The cost of these retirement agreements is provided
currently as it relates to prior service agreements and ratably over the
employees' future employment as it applies to future service agreements.
The Company has no additional postretirement or postemployment benefit
plans.
NOTE 10 - CONTINGENCIES
The Company, in the normal course of business, is subject to a number of
lawsuits and claims both actual and potential in nature. Management
believes the resolution of these claims and lawsuits will not have a
material adverse effect on the Company's financial position or results of
operations.
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.
NOTE 11 - PREFERRED STOCK PURCHASE RIGHTS
The Company has a preferred stock purchase rights plan (the "Rights Plan")
and each share of common stock has one preferred share purchase right (a
"Right"). Under the terms of the Rights Plan, if a person or group other
than certain exempt persons acquires 15% or more of the outstanding common
stock, each Right will entitle its holder (other than such person or
members of such group) to purchase, at the Right's then current exercise
price, a number of shares of the Company's common stock having a market
value of twice such price. Persons or groups can lose their exempt status
under certain conditions. In addition, under certain circumstances if the
Company is acquired in a merger or other business combination transaction,
each Right will entitle its holder to purchase, at the Right's then current
exercise price, a number of the acquiring company's common shares having a
market value of twice such price.
Each Right entitles the holder under certain circumstances to buy one
one-thousandths of a share of Series A junior participating preferred
stock, par value $ .01 per share, at an exercise price of $70. Each share
of Series A junior participating preferred stock will entitle its holder to
1,000 votes and will have a minimum preferential quarterly dividend payment
equal to the greater of $10 per share or 1,000 times the amount paid to
holders of common stock. Currently 45 thousand shares of Series A junior
participating preferred stock have been reserved. The Rights will expire on
April 6, 2003 unless previously exercised or redeemed at the option of the
Board of Directors for $ .01 per Right.
<PAGE>
Page 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share)
NOTE 12 - STOCK OPTIONS
At December 31, 1997, the Company has four fixed stock-based compensation
plans which are discussed below. The Company follows APB Opinion No. 25 and
the related Interpretations in accounting for its stock option plans.
Accordingly, no significant compensation cost has been recognized for its
stock awards. Had compensation cost for the Company's stock awards plans
been recorded based on the fair value at the grant dates, consistent with
the method of FASB Statement No. 123, the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below.
1997 1996 1995
Net Income
As Reported ............. $ 46,529 $ 37,548 $ 35,714
Pro Forma ............... $ 45,343 $ 36,814 $ 35,390
Basic Earnings per Share
As Reported ............. $ 2.59 $ 2.09 $ 1.99
Pro Forma ............... $ 2.52 $ 2.05 $ 1.97
Diluted Earnings per Share
As Reported ............. $ 2.55 $ 2.05 $ 1.98
Pro Forma ............... $ 2.48 $ 2.01 $ 1.96
The fair value of stock options granted under the Stock Awards Plans in
1997 and 1996 was $13.99 and $12.62 per share, respectively. These values
were estimated on the date of the grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions for
1997 and 1996, respectively: dividend yield of .8% for 1997 and .9% for
1996, expected volatility of 26.1% and 21.2%, risk-free interest rate of
6.5% and 5.6% and an expected life of 7.5 years for both years. The fair
value of stock options granted under the Director Stock Option Plans in
1997 was $17.64 per share. This value was estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for 1997: dividend yield of .8%, expected
volatility of 26.0%, risk-free interest rate of 6.7% and an expected life
of 7.5 years. The pro forma amounts reflected above are not likely to be
representative of the pro forma amounts in future years due to the FASB
Statement No. 123 transition rules which require pro forma disclosure only
for awards granted after 1994, although the Company granted stock options
in both 1994 and 1993.
Under the 1996 and 1992 Stock Awards Plans (collectively, the "Stock Awards
Plans"), the Company may grant stock options, stock appreciation rights,
restricted stock and other stock awards to employees. The combined maximum
number of shares which may be issued under these plans is 2 million.
Options granted under these plans become exercisable annually over a three
year period and expire ten years after the grant date. Director Stock
Option Plans provide for the award of stock options to non-employee
Directors who have not previously been awarded options. The combined
maximum number of shares subject to options under these plans is 40
thousand. Options granted under these plans become exercisable over a three
year period and expire ten years after the grant date.
<PAGE>
Page 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share)
NOTE 12 - STOCK OPTIONS (Cont'd)
A summary of the status of the Company's stock option plans as of December
31, 1997, 1996 and 1995, and changes during the years ending on those dates
is presented below.
<TABLE>
Director Stock
Stock Awards Plans Option Plans
------------------------ -------------------
Option Price Option Price
Option Shares Shares Per Share Shares Per Share
<S> <C> <C> <C> <C>
- ------------- ------- ------------ ------ ----------
Outstanding, January 1, 1995... 462,471 $18.375-$20.625 24,000 $18.375
Granted........................ 188,500 $26.75 -$35.50 -
Exercised...................... (5,371) $18.375-$20.625 (5,000) $18.375
Canceled ...................... (3,083) $18.375 -
------- ------
Outstanding, December 31, 1995. 642,517 $18.375-$35.50 19,000 $18.375
Granted ....................... 163,800 $ 36.00 -
Exercised ..................... (23,090) $18.375-$26.75 (1,000) $18.375
Canceled ...................... (2,855) $18.375-$36.00 -
------- ------
Outstanding, December 31, 1996. 780,372 $18.375-$36.00 18,000 $18.375
Granted ....................... 183,250 $33.625-$56.00 28,000 $41.75
Exercised...................... (35,268) $18.375-$36.00 (2,000) $18.375
Canceled ...................... (7,788) $26.75 -$36.00 -
------- ------
Outstanding, December 31, 1997. 920,566 $18.375-$56.00 44,000 $18.375-$41.75
======= ======
</TABLE>
Options Exercisable at 12/31/95 254,909 13,000
Options Exercisable at 12/31/9 446,005 18,000
Options Exercisable at 12/31/97 573,695 23,000
AVAILABLE FOR FUTURE GRANTS
12/31/95 348,326 16,000
12/31/96 1,185,585 40,000
12/31/97 1,009,592 12,000
The following table summarizes information about stock options outstanding
at December 31, 1997:
Options Outstanding Options Exercisable
------------------------------------ ---------------------------
Shares Average Weighted- Shares Weighted-
Outstanding Remaining Average Exercisable Average
Year granted at Year-end Life Exercise Price at Year-end Exercise Price
- ------------ ----------- ---- -------------- ----------- --------------
STOCK AWARDS PLANS
1993 274,393 5.5 $18.375 274,393 $18.375
1994 128,311 6.1 20.625 128,311 20.625
1995 179,944 7.1 27.236 118,922 27.240
1996 157,768 8.1 36.000 52,069 36.000
1997 180,150 9.1 33.687 - 33.687
- ---- ------- --- -------
920,566 7.0 26.438 573,695 22.316
======= === =======
DIRECTOR STOCK OPTIONS PLANS
1993 16,000 5.4 $18.375 16,000 $18.375
1997 28,000 9.4 41.750 7,000 41.750
- ---- ------ ------
44,000 8.0 33.250 23,000 25.500
====== ======
Restricted stock totaling 531 shares in 1997, 1,796 shares in 1996 and
3,310 shares in 1995 were issued under the Stock Awards Plans. These shares
vest equally over three years and do not have voting or dividend rights prior
to vesting. Amounts available for future stock option grants have been reduced
by restricted stock awards.
<PAGE>
Page 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share)
NOTE 13 - EARNINGS PER SHARE
The reconciliation of basic and diluted earnings for the years ending
December 31, 1997, 1996 and 1995 are as follows:
For the Year Ended December 31, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to common
stockholders $46,529 17,969 $ 2.59
======
Effect of Dilutive Securities
Stock options - 290
------ ------
Diluted EPS
Income available to common
stockholders $46,529 18,259 $ 2.55
====== ====== ======
For the Year Ended December 31, 1996
Basic EPS
Income available to common
stockholders $37,548 17,939 $ 2.09
======
Effect of Dilutive Securities
Stock options - 342
------ ------
Diluted EPS
Income available to common
stockholders $37,548 18,281 $ 2.05
====== ====== ======
For the Year Ended December 31, 1995
Basic EPS
Income available to common
stockholders $35,714 17,918 $ 1.99
=======
Effect of Dilutive Securities
Stock options - 154
------ ------
Diluted EPS
Income available to common
stockholders $35,714 18,072 $ 1.98
====== ====== ======
<PAGE>
Page 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share)
NOTE 14 - SEGMENT INFORMATION
The Company operates in the packaging components industry, which includes
the development, manufacture and sale of consumer product dispensing
systems. Sales within the segment and between geographic areas are made at
arm's-length prices. Operating income consists of sales less operating
expenses. Identifiable assets are those assets that are specifically
identified with the geographic area in which the operations are conducted.
Eliminations include intercompany sales between geographic areas and
related intercompany accounts. Export sales were not material and no single
customer accounted for ten percent or more of sales.
<TABLE>
<CAPTION>
Other
Domestic European Foreign Corporate
Geographic Areas Operations Operations Operations Expenses Eliminations Consolidated
- ---------------- ---------- ---------- ---------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1997
Sales to unaffiliated customers ... $ 263,589 $ 358,744 $ 33,057 $ - $ - $ 655,390
Sales between geographic areas .... 10,718 73,621 2,708 - (87,047) -
------- ------- ------ ------ ------- -------
Net Sales ......................... $ 274,307 $ 432,365 $ 35,765 $ - $ (87,047) $ 655,390
======= ======= ====== ====== ======= =======
Operating Income .................. $ 32,634 $ 58,216 $ 137 $(11,777) $ (219) $ 78,991
Identifiable Assets ............... $ 170,511 $ 436,638 $ 25,243 $ - $ (46,959) $ 585,433
1996
Sales to unaffiliated customers ... $ 233,329 $ 355,699 $ 26,780 $ - $ - $ 615,808
Sales between geographic areas .... 6,205 59,512 1,418 - (67,135) -
------- ------- ------ ------ ------- -------
Net Sales ......................... $ 239,534 $ 415,211 $ 28,198 $ - $ (67,135) $ 615,808
======= ======= ====== ====== ======= =======
Operating Income .................. $ 28,090 $ 43,624 $ 673 $ (8,714) $ 323 $ 63,996
Identifiable Assets ............... $ 154,392 $ 442,702 $ 17,092 $ - $ (38,050) $ 576,136
1995
Sales to unaffiliated customers ... $ 202,868 $ 334,213 $ 20,374 $ - $ - $ 557,455
Sales between geographic areas .... 4,915 53,871 3,165 - (61,951) -
------- ------- ------ ------ ------- -------
Net Sales ......................... $ 207,783 $ 388,084 $ 23,539 $ - $ (61,951) $ 557,455
======= ======= ====== ====== ======= =======
Operating Income .................. $ 20,928 $ 48,645 $ 624 $(10,917) $ 18 $ 59,298
Identifiable Assets ............... $ 142,247 $ 435,024 $ 12,591 $ - $ (30,646) $ 559,216
</TABLE>
<PAGE>
Page 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share)
NOTE 15 - QUARTERLY DATA (UNAUDITED)
Quarterly results of operations and per share information for the years
ended December 31, 1997 and 1996 are as follows:
Quarter
------------------------------ Total
First Second Third Fourth For Year
----- ------ ----- ------ --------
Year Ended December 31, 1997
Net sales ................... $158,290 $171,811 $163,525 $161,764 $655,390
Gross profit ................ $ 45,600 $ 49,254 $ 47,888 $ 47,339 $190,081
Net income .................. $ 11,413 $ 12,081 $ 12,474 $ 10,561 $ 46,529
Per Common Share - 1997
Net income
Basic ...................... $ .64 $ .67 $ .69 $ .59 $ 2.59
Diluted .................... $ .63 $ .66 $ .68 $ .58 $ 2.55
Dividends paid .............. $ .07 $ .07 $ .08 $ .08 $ .30
Stock price high ............ $ 40 5/8 $ 45 7/8 $ 59 1/8 $ 59 1/8 $ 59 1/8
Stock price low ............. $ 32 3/4 $ 35 1/8 $ 44 1/2 $ 50 7/16 $ 32 3/4
Average number of shares
outstanding ................ 17,954 17,961 17,975 17,986 17,969
Year Ended December 31, 1996
Net sales ................... $152,954 $151,047 $155,917 $155,890 $615,808
Gross profit ................ $ 43,447 $ 41,570 $ 42,271 $ 44,069 $171,357
Net income .................. $ 10,673 $ 8,827 $ 9,007 $ 9,041 $ 37,548
Per Common Share - 1996
Net income
Basic ...................... $ .60 $ .49 $ .50 $ .50 $ 2.09
Diluted .................... $ .59 $ .49 $ .49 $ .49 $ 2.05
Dividends paid .............. $ .07 $ .07 $ .07 $ .07 $ .28
Stock price high ............ $ 41 7/8 $ 43 1/8 $ 37 1/8 $ 36 $ 43 1/8
Stock price low ............. $ 34 3/4 $ 29 $ 30 3/8 $ 30 1/2 $ 29
Average number of shares
outstanding ................ 17,930 17,938 17,941 17,947 17,939
<PAGE>
Page 46
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF APTARGROUP, INC.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash flows and of
stockholders' equity present fairly, in all material respects, the
financial position of AptarGroup, Inc. and its subsidiaries at December 31,
1997 and 1996 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of AptarGroup, Inc.'s management; our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Chicago, Illinois
February 19, 1998
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The financial statements of AptarGroup, Inc. and its consolidated
subsidiaries, and all other information presented in this Annual Report,
are the responsibility of the management of the Company. These statements
have been prepared in accordance with generally accepted accounting
principles consistently applied and reflect in all material respects the
substance of events and transactions that should be included.
Management is responsible for the accuracy and objectivity of the financial
statements, including estimates and judgments reflected therein, and
fulfills this responsibility primarily by establishing and maintaining
accounting systems and practices adequately supported by internal
accounting controls. Management believes that the internal accounting
controls in use are satisfactory to provide reasonable assurance that the
Company's assets are safeguarded, that transactions are executed in
accordance with management's authorizations, and that the financial records
are reliable for the purpose of preparing financial statements.
Independent accountants were selected by the Board of Directors, upon the
recommendation of the Audit Committee, to audit the financial statements in
accordance with generally accepted auditing standards. Their audits
include a review of internal accounting control policies and procedures and
selected tests of transactions.
The Audit Committee of the Board of Directors, which consists of two
directors who are not officers or employees of the Company, meets regularly
with management and the independent accountants to review matters relating
to financial reporting, internal accounting controls, and auditing. The
independent accountants have unrestricted access to the Audit Committee.
/c/ Carl A. Siebel
Carl A. Siebel
President and Chief Executive Officer
/s/ Stephen J. Hagge
Stephen J. Hagge
Executive Vice President and Chief Financial
Officer, Secretary and Treasurer
<PAGE>
Page 47
Five Year Summary of Selected Financial Data
(In millions of dollars, except per share data)
Year Ended December 31, 1997 1996 1995 1994 1993
STATEMENT OF INCOME DATA:
Net Sales ...................... $655.4 $615.8 $557.5 $474.3 $411.5
Cost of Sales .................. 418.1 399.7 358.4 301.5 262.5
% of Net Sales ................ 63.8% 64.9% 64.3% 63.6% 63.8%
Selling, Research & Development,
and Administrative ............ 108.4 104.3 96.2 85.7 75.8
% of Net Sales ................ 16.5% 16.9% 17.3% 18.1% 18.4%
Depreciation and Amortization .. 49.9 47.9 43.5 38.4 32.1
% of Net Sales ................ 7.6% 7.8% 7.8% 8.1% 7.8%
Operating Income ............... 79.0 64.0 59.3 48.7 41.0
% of Net Sales ................ 12.1% 10.4% 10.6% 10.2% 10.0%
Income Before Accounting
Change (1) .................... 46.5 37.5 35.7 27.3 21.6
Net Income ..................... 46.5 37.5 35.7 27.3 23.0
% of Net Sales ................ 7.1% 6.1% 6.4% 5.7% 5.6%
PER COMMON SHARE:
Income Before Accounting
Change (1) .................... $ 2.59 $ 2.09 $ 1.99 $ 1.65 $ 1.34
Net Income
Basic ......................... 2.59 2.09 1.99 1.65 1.43
Diluted ...................... 2.55 2.05 1.98 1.64 1.43
Cash Dividends Declared ........ 0.30 0.28 0.26 0.23 .10
BALANCE SHEET AND OTHER DATA:
Capital Expenditures ........... $ 71.2 $ 62.8 $ 55.5 $ 41.9 $ 46.7
Total Assets ................... 585.4 576.1 559.2 465.4 408.0
Long-Term Obligations .......... 70.7 76.6 80.7 53.8 41.3
Stockholders' Equity ........... 342.1 335.7 312.3 270.6 190.4
Interest Bearing Debt to Total
Capitalization ................ 17.7% 21.1% 23.8% 19.2% 37.5%
Net Debt to Total
Capitalization (2) ............ 13.5% 17.3% 19.6% 13.2% 32.1%
(1) In the first quarter of 1993, the Company adopted SFAS 109 entitled
"Accounting for Income Taxes."
(2) Net debt is interest bearing debt less cash and cash equivalents.
<PAGE>
Page 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain items to net sales.
Year Ended December 31,
1997 1996 1995
---- ---- ----
Net sales ...................... 100.0% 100.0% 100.0%
Cost of sales .................. 63.8 64.9 64.3
Selling, research & development,
and administrative ............ 16.5 16.9 17.3
Depreciation and amortization .. 7.6 7.8 7.8
---- ---- ----
Operating income ............... 12.1 10.4 10.6
Other expenses, net ............ (0.1) (0.6) (0.3)
---- ---- ----
Income before income taxes ..... 12.0 9.8 10.3
Provision for income taxes ..... 4.9 3.7 3.9
---- ---- ----
Net income ..................... 7.1% 6.1% 6.4%
==== ==== ====
1997 COMPARED TO 1996
Net sales in 1997 totaled $655.4 million, an increase of 6.4% when compared
to net sales of $615.8 million in 1996. Sales were negatively affected by
the translation of AptarGroup's foreign sales due to the stronger U.S.
dollar relative to 1996. If the U.S. dollar exchange rates had not changed
from year to year, net sales for 1997 would have increased approximately
15%. The increase in sales is primarily attributed to increased volume of
the Company's major product lines despite a competitive pricing
environment. European sales represented approximately 55% of the Company's
total sales compared to 58% in 1996. U.S. sales represented approximately
40% of the Company's total sales compared to 38% in 1996. Sales from other
foreign operations represented 5% of the Company's total sales compared to
4% in 1996.
Cost of sales as a percent of net sales decreased in 1997 to 63.8% compared
to 64.9% in 1996. The decrease is attributed to the mix of products sold,
cost savings and a net gain from changes in exchange rates on inter-country
transactions. The impact of changes in raw material costs, including
plastic resin and metal, in 1997 was not significant.
Selling, research & development, and administrative ("SG&A") increased to
$108.4 million compared to $104.3 million in 1996. SG&A decreased as a
percent of sales from 16.9% in 1996 to 16.5% in 1997 due to sales growing
at a faster pace than SG&A expenses.
Depreciation and amortization expenses increased from $47.9 million in 1996
to $49.9 in 1997. As a percent of sales, depreciation and amortization
decreased to 7.6% in 1997 from 7.8% in 1996.
Operating income increased to $79.0 million compared to $64.0 million in
1996. Operating income was favorably impacted in 1997 by approximately $4.3
million of a net gain due to favorable changes in exchange rates between
comparable periods on various inter-country transactions, partially offset
by the adverse effect of the stronger U.S. dollar on the translation of
foreign denominated results.
During 1997, the Company began production in China. Due to underutilization
of overheads during this first year of production, operating income was
adversely affected by $1.2 million.
Operating income from European operations (excluding corporate expenses)
represented 74% and 68% of total operating income in 1997 and 1996,
respectively. Operating income in 1997 from U.S. operations (excluding
corporate expenses) represented 41% of total operating income compared to
44% in 1996. The increase in the percentage of operating income
attributable to European operations was primarily due to the mix of
products sold and the net gain from changes in exchange rates.
Net other expenses decreased to $400,000 in 1997 from $3.8 million in 1996.
The decrease is primarily attributable to increased income from equity
investments in affiliates coupled with lower net interest expense.
The effective income tax rate increased from 37.6% in 1996 to 40.8% in
1997. The increased effective tax rate is primarily due to an increased
corporate tax rate in France combined with the mix of income earned. During
the fourth quarter of 1997, the French government increased the French
corporate tax rate by 5 percentage points, from 36.7 to 41.7 percent,
retroactive to the beginning of the year. This increased income tax expense
for the year by approximately $1.8 million, which was recorded
<PAGE>
Page 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (Cont'd)
in the fourth quarter. Had the French tax increase been passed at the
beginning of 1997, income taxes for each quarter would have increased by
approximately $400,000. The remainder relates to an adjustment to the
balance of deferred taxes at the beginning of the year which will not recur
in 1998. The increased French tax rate will continue in 1998. The Company
expects the effective tax rate for 1998 to be in the range of 40.0% to
40.8%.
Net income increased 24% to $46.5 million in 1997 compared to $37.5 million
in 1996. The increase in net income is primarily due to higher sales volume
and cost containment efforts.
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 1997
financial results.
1996 COMPARED TO 1995
Net sales in 1996 totaled $615.8 million, an increase of 10.5% when
compared to net sales of $557.5 million in 1995. Excluding the effects of
the acquisitions made in the fourth quarter of 1995, sales grew 6.9% in
1996. The translation of foreign sales to U.S. dollars in 1996 was affected
by changes in exchange rates. If the U.S. dollar exchange rates had not
changed from year to year and the effect of the acquisitions were excluded,
net sales for 1996 would have increased approximately 8.4%. The increase in
sales is primarily attributed to increased sales volume of pumps to the
pharmaceutical market and volume increases in pumps, dispensing closures
and aerosol valves to the personal care market. These volume increases were
partially offset by price decreases and softness of pump sales to customers
in the European fragrance/cosmetics market. European sales represented
approximately 58% of the Company's total sales compared to 60% in 1995.
U.S. sales represented approximately 38% of the Company's total sales
compared to 36% in 1995. Sales from other foreign operations represented
4% of the Company's total sales in 1996 and 1995.
During the fourth quarter of 1995, the Company acquired Liquid Molding
Systems, Inc. ("LMS"), a U.S. company that owns the patent and the liquid
silicone molding expertise to produce valves for the SimpliSqueeze
dispensing closure system, and General Plastics S.A. ("General Plastics"),
a French company which manufactures primarily dispensing closures. General
Plastics uses bi-injection molding technology, which allows for the molding
of two colors or two materials in the same cycle. Also during the fourth
quarter of 1995, the Company purchased a 35% minority interest in Loffler
Kunststoffwerk GmbH & Co. KG ("Loffler"), a privately-held German
manufacturer of dispensing and standard closures. The two acquisitions have
been accounted for as purchases and the minority interest has been
accounted for under the equity method. The effect of these transactions on
the Company's net income for 1996 and 1995 was not significant.
The purchase agreement between the Company and Loffler includes a provision
that adjusts the purchase price for the 35% interest based on earnings of
Loffler from 1995 through 1997. The purchase price adjustment based on
such earnings will not be material to the 1998 financial statements.
In 1996 the Company sold a 35% interest in certain of the Company's
European dispensing closure operations to Loffler for approximately $3.8
million. The net gain on the sale of the minority interests was not
significant.
Cost of sales as a percent of net sales increased in 1996 to 64.9% compared
to 64.3% in 1995. The increase was primarily attributed to underutilized
capacity in the Company's fragrance operations, continued price competition
and the mix of products sold. The impact of changes in raw material costs,
including plastic resin and metal, in 1996 was not significant.
SG&A increased to $104.3 million compared to $96.2 million in 1995. The
increase was primarily due to the acquisitions made in the fourth quarter
of 1995 and increased spending for research and development. SG&A decreased
as a percentage of sales from 17.3% in 1995 to 16.9% in 1996 due to sales
growing at a faster pace than SG&A expenses.
Depreciation and amortization expenses increased from $43.5 million in 1995
to $47.9 million in 1996. As a percent of sales, depreciation and
amortization remained consistent between the years at 7.8%.
<PAGE>
Page 50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (Cont'd)
Operating income from European operations (excluding corporate expenses)
represented 68% and 82% of total operating income in 1996 and 1995,
respectively. Operating income in 1996 from U.S. operations (excluding
corporate expenses) represented 44% of total operating income compared to
35% in 1995. The decrease in the percentage of operating income
attributable to European operations was due to underutilized capacity as a
result of softness in the fragrance/cosmetics market.
Net other expenses increased to $3.8 million in 1996 from $1.7 million in
1995. The increase was primarily attributable to lower income of affiliates
and higher net interest costs in 1996.
The effective income tax rate decreased from 38.0% in 1995 to 37.6% in
1996. The decreased effective tax rate was due to the mix of income earned.
Net income increased 5% to $37.5 million in 1996 compared to $35.7 million
in 1995. The increase in net income was primarily attributable to higher
sales volume and continued cost containment.
FOREIGN CURRENCY
A significant portion of the Company's operations is located outside of the
United States. Because of this, movements in exchange rates may have a
significant impact on the translation of the financial conditions and
results of operations of AptarGroup's foreign entities. The Company's
significant foreign exchange exposures are to the Italian Lira, French
Franc and German Mark. The Company manages its 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.
Additionally, in some cases, the Company sells products denominated in a
currency different than the currency for which the respective costs are
incurred. Changes in exchange rates on such inter-country sales impacts the
Company's results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has generated positive cash flows from
operations. During 1997, the Company utilized the majority of such cash
flows to finance capital expenditures. Net cash provided by operations was
$86.2 million, $67.3 million, and $61.7 million during 1997, 1996 and 1995,
respectively. In each of these years, cash flow from operations was
primarily derived from earnings before depreciation and amortization and
from changes in working capital. Cash and equivalents was $17.7 million at
December 31, 1997 versus $16.4 million at December 31, 1996 and $17.3
million at December 31, 1995.
Working capital increased to $130.8 million at December 31, 1997 compared
to $121.0 million and $100.7 million at December 31, 1996 and 1995,
respectively. The increase in working capital in 1997 and 1996 was
primarily due to increases in accounts receivable and decreases in short-term
borrowings.
Net cash used for investing activities totaled $69.7 million, $ 59.2 million,
and $84.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The increase between 1996 and 1997 is primarily due to an increase
in capital expenditures. Capital expenditures were $71.2 million, $62.8 million,
and $55.5 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Cash outlays for capital expenditures for 1998 are estimated to be
approximately $80 million.
Net cash (used) provided by financing activities was $(13.0) million,
$(8.6) million, and $19.7 million for the years ended December 31, 1997,
1996 and 1995, respectively. The Company's total interest bearing debt to
total capitalization ratio was 17.7% and 21.1% as of December 31, 1997 and
1996, respectively. Total interest bearing debt, net of cash, to total
capitalization ratio was 13.5% and 17.3% as of December 31, 1997 and 1996,
respectively. For each of these years, the majority of debt was denominated
in foreign currency. AptarGroup has historically borrowed locally to hedge
potential currency fluctuation for assets that were purchased outside of
the United States. It is expected that this practice will continue.
At December 31, 1997 and 1996, the Company had an unsecured revolving
credit agreement allowing borrowings of up to $25 million. This agreement
expires in April, 2001 and the Company had no borrowings outstanding
against this agreement at December 31, 1997 and 1996.
The Company's foreign operations have historically met cash requirements
with the use of internally generated cash and borrowings. Foreign
subsidiaries have financing arrangements with several foreign banks to fund
operations located outside of the U.S., but all of these lines are
uncommitted. Cash generated by foreign operations has generally been
reinvested locally. While management currently intends to reinvest such
cash from foreign operations, the timing of the decision to transfer such
cash to the U.S. in the future may be impacted to the extent management
believes the transaction costs and taxes associated with such transfers are
less than the expected benefits.
<PAGE>
Page 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (Cont'd)
OUTLOOK
Over the past few years, a consolidation of the Company's customer base has
occurred. This trend is expected to continue. A concentration of customers
may result in additional price pressure or loss of volume. This situation
also presents opportunities for increasing sales due to the breadth of the
Company's product line and its international presence.
The Company's net income could be affected by increases in raw material
costs. The Company will attempt to offset inflation through cost
containment and increased selling prices over time, as allowed by market
conditions.
As the Company expands geographically, particularly into Asia and South
America, investments may be made in countries that may not be as
politically stable as the U.S. or the western European countries which the
Company primarily has operations in at the end of 1997. The Company intends
to monitor its exposure in these other countries to minimize risk.
The Asian crisis experienced in 1997 does not have a direct significant
impact on the Company due to the Company's relatively small presence in
Asia and the current low level of export into the region. The indirect
impact on AptarGroup due to lesser demand of the Company's customers'
products which are exported to Asia cannot be quantified.
The Company has reviewed its major systems and believes they are year 2000
compliant or can be upgraded to meet year 2000 demands. The Company
believes that with modifications to existing software and conversions to
new software, the year 2000 issue will not have a material adverse effect
on the results of operations of the Company. The modifications and upgrades
are expected to be complete by early 1999 and the related costs should not
be significant. The Company is also working with suppliers to ensure that
they are year 2000 compliant.
The Company is currently negotiating the repurchase of 35% of its European
closure business which was sold in 1996 to its European closure business
partner Loffler Kunststoffwerk GmbH & Co. KG. The Company does not believe
that this transaction will have a material impact on the balance sheet if
consummated in 1998.
The Company believes it is reasonably likely that the European Community
will introduce a common European monetary unit called the Euro effective
January 1, 1999. While many details are still uncertain concerning this
introduction, the Company has begun investigating the impacts that the Euro
will have on its operations. While the Euro is expected to have significant
accounting and systems impacts as well as pricing impacts, the Company does
not believe that the introduction of the Euro will have a material adverse
effect on the results of its operations.
ADOPTION OF ACCOUNTING STANDARDS
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 both of these in
1998 as required by the standards.
This Management's Discussion and Analysis and certain other sections of
this annual report contain forward-looking statements that involve a number
of risks and uncertainties. These risks and uncertainties include
government regulation including tax rate policies, competition and
technological change, intellectual property rights, capital spending,
international operations, changes in foreign exchange rates, and risks
associated with the Company's acquisition strategies. Actual results and
events could differ significantly from those anticipated by these
forward-looking statements.
APTARGROUP, INC.
LIST OF SUBSIDIARIES
State or Other
Jurisdiction of Percentage
Incorporation Owned
------------- -----
AptarGroup Foreign Sales Corporation Barbados 100%
AptarGroup Holding S.A. France 100%
Aptar GmbH Germany 100%
Erich Pfeiffer GmbH Germany 100%
Pfeiffer Vaporisateurs France S.a.r.L. France 100%
P & S Japan Japan 100%
Pfeiffer, Inc. Connecticut 100%
Pfeiffer (U.K.) Limited United Kingdom 100%
Vallis Leasobjekt Gesellschaft GmbH Germany 51%
P&P Promotion of German Manufacturing Germany 100%
Technologies GmbH
Seaplast S.A. Spain 50%
Seaquist-Loeffler Verwaltungs GmbH Germany 35%
Seaquist-Loeffler Kunststoffwerk GmbH
& Co. KG Germany 35%
Seaquist-Loeffler Kunststoffwerk
Spol. S.R.O. Czech Republic 100%
SeaquistPerfect Dispensing GmbH Germany 100%
Valois Deutschland GmbH Germany 100%
AptarGroup S.A. France 100%
Caideil M.P. Teoranta Ireland 100%
Graphocolor SA France 50%
NOVARES S.p.A. Italy 100%
Perfect-Valois U.K., Limited United Kingdom 100%
SAR S.p.A. Italy 100%
Dispray GmbH Germany 100%
Dispray S.A. Switzerland 100%
SAR France SCA France 100%
AptarGroup SAR
Finance Unlimited Ireland 100%
SAR (U.K.) Limited United Kingdom 100%
Tes S.p.A. Italy 35%
Seaquist-Loeffler Limited United Kingdom 65%
Seaquist-Loeffler S.A.S. France 65%
General Plastics S.A. France 100%
Moulage Plastique de Normandie S.A. France 100%
Valois S.A. France 100%
Valois Espana S.A. Spain 100%
Valois Italiana S.r.l. Italy 100%
Aptar Suzhou Dispensing Ltd. P.R. China 100%
CosterSeaquist L.L.C. Illinois 50%
Global Precision, Inc. Florida 100%
Liquid Molding Systems, Inc. Delaware 100%
Pfeiffer of America, Inc. Delaware 100%
Sar Dispensing Systems Ltd. Hong Kong 100%
SAR Do Brasil Ltda. Brazil 100%
SAR U.S.A. Incorporated Delaware 100%
Seaquist Canada Ltd. Canada 100%
Seaquist Finance Ireland 100%
Seaquist Closures LLC Delaware 100%
Seaquist Closures Foreign, Inc. Delaware 100%
Seaquist de Mexico, S.A. de C.V. Mexico 75%
SeaquistPerfect Dispensing LLC Delaware 100%
SeaquistPerfect Dispensing Foreign, Inc. Delaware 100%
Seaquist-Valois Australia Pty. Ltd. Australia 100%
Seaquist-Valois do Brasil Ltda. Brazil 100%
Seaquist-Valois Japan, Inc. Japan 100%
Valois of America, Inc. Connecticut 100%
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-64320 and 33-80408) of AptarGroup, Inc. of our
report dated February 19, 1998 appearing on page 46 of the Annual Report to
Stockholders which is incorporated in this Annual Report on Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 16 of this Form 10-K.
/s/ Price Waterhouse
Chicago, Illinois
March 26, 1998
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<ARTICLE> 5
<LEGEND>
(Restated FDS due to GAAP EPS change)
</LEGEND>
<RESTATED>
<CIK> 0000896622
<NAME> AptarGroup, Inc.
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 19,272 25,742 29,803
<SECURITIES> 0 0 0
<RECEIVABLES> 137,104 139,000 144,628
<ALLOWANCES> (3,479) (3,595) (3,895)
<INVENTORY> 75,615 76,054 78,568
<CURRENT-ASSETS> 246,736 256,874 269,732
<PP&E> 508,225 515,474 529,100
<DEPRECIATION> (264,460) (270,621) (279,204)
<TOTAL-ASSETS> 568,886 575,728 592,022
<CURRENT-LIABILITIES> 123,446 132,796 140,698
<BONDS> 73,904 71,925 71,458
0 0 0
0 0 0
<COMMON> 180 180 180
<OTHER-SE> 325,179 327,898 337,509
<TOTAL-LIABILITY-AND-EQUITY> 568,886 575,728 592,022
<SALES> 158,290 330,101 493,626
<TOTAL-REVENUES> 158,290 330,101 493,626
<CGS> 100,851 211,307 315,768
<TOTAL-COSTS> 138,922 290,408 433,427
<OTHER-EXPENSES> 38,071 79,101 117,659
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> (1,464) (2,839) (4,168)
<INCOME-PRETAX> 18,483 38,201 58,485
<INCOME-TAX> 7,070 14,707 22,517
<INCOME-CONTINUING> 11,413 23,494 35,968
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 11,413 23,494 35,968
<EPS-PRIMARY> .64 1.31 2.00
<EPS-DILUTED> .63 1.29 1.97
</TABLE>
