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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ----to----
COMMISSION FILE NUMBER 1-11846
AptarGroup, Inc.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3853103
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
475 West Terra Cotta Avenue, Suite E, Crystal Lake, Illinois 60014
------------------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
815-477-0424
------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (November 12, 1998)
Common Stock 36,045,160
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<PAGE>
APTARGROUP, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
INDEX
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. Financial statements
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 1998
and 1997 (Unaudited) 3
Consolidated Balance Sheets -
September 30, 1998 (Unaudited) and
December 31, 1997 (Audited) 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997
(Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
<PAGE>
APTARGROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 1998 and 1997
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
NET SALES........................... $ 182,692 $ 163,525 $ 535,386 $ 493,626
OPERATING EXPENSES:
Cost of sales.................. 112,644 104,461 333,131 315,768
Selling, research & development
and administrative........... 30,201 26,786 88,203 80,587
Depreciation and amortization.. 14,446 11,772 41,367 37,072
------ ------ ------ ------
157,291 143,019 462,701 433,427
------- ------- ------- -------
OPERATING INCOME.................... 25,401 20,506 72,685 60,199
------ ------ ------ ------
OTHER INCOME (EXPENSE):
Interest expense............... (1,578) (1,329) (4,668) (4,168)
Interest income................ 166 232 694 708
Equity in (loss) income of
affiliates.................... (126) 215 192 546
Minority interests............. (27) (102) (236) (286)
Miscellaneous, net............. (606) 762 533 1,486
---- --- --- -----
(2,171) (222) (3,485) (1,714)
------ ---- ------ ------
INCOME BEFORE INCOME TAXES.......... 23,230 20,284 69,200 58,485
PROVISION FOR INCOME TAXES.......... 8,712 7,810 27,237 22,517
----- ----- ------ ------
NET INCOME.......................... $ 14,518 $ 12,474 $ 41,963 $ 35,968
========= ========= ========= =========
NET INCOME PER COMMON SHARE:
Basic ......................... $ .40 $ .35 $ 1.16 $ 1.00
========= ========= ========= =========
Diluted ....................... $ .39 $ .34 $ 1.14 $ .99
========= ========= ========= =========
AVERAGE NUMBER OF SHARES OUTSTANDING (IN THOUSANDS):
Basic.......................... 36,087 35,950 36,035 35,926
Diluted........................ 36,867 36,626 36,813 36,458
See accompanying notes to consolidated financial statements.
<PAGE>
APTARGROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
September 30, December 31,
1998 1997
---- ----
ASSETS
CURRENT ASSETS:
Cash and equivalents.................... $ 34,943 $ 17,717
Accounts and notes receivable, less
allowance for doubtful accounts
of $5,211 in 1998 and $3,812 in 1997 172,663 145,034
Inventories............................. 102,621 79,262
Prepayments and other................... 22,408 14,148
------ ------
332,635 256,161
PROPERTY, PLANT AND EQUIPMENT:
Buildings and improvements.............. 86,818 74,351
Machinery and equipment................. 552,150 455,382
------- -------
638,968 529,733
Less: Accumulated depreciation.......... (330,956) (281,899)
-------- --------
308,012 247,834
Land.................................... 4,731 3,819
----- -----
312,743 251,653
------- -------
OTHER ASSETS:
Investments in affiliates............... 3,570 16,495
Goodwill, less accumulated amortization
of $7,391 in 1998 and $6,030 in 1997 47,128 40,479
Miscellaneous........................... 21,762 20,645
------ ------
72,460 77,619
------ ------
TOTAL ASSETS $ 717,838 $ 585,433
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
APTARGROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
September 30, December 31,
1998 1997
---- ----
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable....................... $ 24,561 $ --
Current maturities of long-term
obligations...................... 7,195 2,890
Accounts payable and accrued
liabilities...................... 151,304 122,507
------- -------
183,060 125,397
------- -------
LONG-TERM OBLIGATIONS.................... 87,244 70,740
------ ------
DEFERRED LIABILITIES AND OTHER:
Deferred income taxes............... 24,334 21,432
Retirement and deferred compensation
plans............................ 12,539 11,872
Minority interests.................. 4,039 4,568
Deferred and other non-current
liabilities...................... 8,154 9,369
----- -----
49,066 47,241
------ ------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value......... 360 180
Capital in excess of par value...... 105,307 104,699
Retained earnings.................... 311,318 274,524
Accumulated other comprehensive
income........................... (18,517) (37,348)
------- -------
398,468 342,055
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 717,838 $ 585,433
========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
APTARGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1998 and 1997
(Dollars in Thousands, brackets denote cash outflows)
(Unaudited)
Nine Months Ended September 30,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 41,963 $ 35,968
Adjustments to reconcile net income
to net cash provided by operations:....
Depreciation............................... 39,487 35,116
Amortization............................... 1,880 1,956
Provision for bad debts.................... 1,015 704
Minority interests......................... 236 286
Deferred income taxes...................... (696) 2
Retirement and deferred compensation plans. (283) 1,277
Equity in income of affiliates in
excess of cash distributions received.. (192) (546)
Changes in balance sheet items,
excluding effects from foreign
currency adjustments:
Accounts receivable........................ (6,213) (25,854)
Inventories................................ (10,004) (9,755)
Prepaid and other current assets........... (3,446) (2,925)
Accounts payable and accrued liabilities... 8,825 29,042
Other changes, net......................... (8,677) 277
------ ---
NET CASH PROVIDED BY OPERATIONS............ 63,895 65,548
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures....................... (49,271) (52,076)
Disposition of property and equipment...... 359 1,122
Acquisition of businesses.................. (20,027) -
Collections (proceeds) of notes receivable,
net.................................... 387 (565)
Investments in affiliates.................. (1,300) (400)
------ ----
NET CASH USED BY INVESTING ACTIVITIES (69,852) (51,919)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable.................. 23,671 8,109
Proceeds from long-term obligations........ 9,795 1,557
Repayments of long-term obligations........ (8,811) (4,701)
Dividends paid............................. (4,321) (3,951)
Proceeds from stock options exercised...... 788 690
--- ---
NET CASH PROVIDED BY FINANCING ACTIVITIES.. 21,122 1,704
------ -----
EFFECT OF EXCHANGE RATE CHANGES ON CASH......... 2,061 (1,916)
----- ------
NET INCREASE IN CASH AND EQUIVALENTS............ 17,226 13,417
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD..... 17,717 16,386
CASH AND EQUIVALENTS AT END OF PERIOD........... $ 34,943 $ 29,803
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
APTARGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited (other than the balance sheet at December 31, 1997)
consolidated financial statements include the accounts of AptarGroup, Inc. and
its subsidiaries. The terms "AptarGroup" or "Company" as used herein refer to
AptarGroup, Inc. and its subsidiaries.
In the opinion of management, the unaudited consolidated financial statements
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of financial position and results of
operations for the interim periods presented. The accompanying unaudited
consolidated financial statements have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles (GAAP) have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. Accordingly, these
financial statements and related notes should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
to Shareholders incorporated by reference into the Company's Annual Report on
Form 10-K for the year ended December 31, 1997. The results of operations of any
interim period are not necessarily indicative of the results that may be
expected for a fiscal year.
NOTE 2 - INVENTORIES
At September 30, 1998 and December 31, 1997, inventories, by component,
consisted of:
September 30, December 31,
1998 1997
---- ----
Raw materials.............. $ 36,282 $ 27,187
Work in progress........... 27,485 21,920
Finished goods............. 40,163 31,404
------ ------
Total............. 103,930 80,511
Less LIFO reserve.......... (1,309) (1,249)
------ ------
Total............. $ 102,621 $ 79,262
========== ========
<PAGE>
NOTE 3 - CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, AptarGroup adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This Statement requires
that all items recognized under accounting standards as components of
comprehensive income be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
Statement also requires that an entity classify items of other comprehensive
income by their nature in an annual financial statement. For example, other
comprehensive income may include foreign currency translation adjustments,
minimum pension liability adjustments, and unrealized gains and losses on
marketable securities classified as available-for-sale. Annual financial
statements for prior periods will be reclassified, as required. AptarGroup's
total comprehensive income was as follows:
Three months Ended Nine months ended
September 30 September 30
1998 1997 1998 1997
---- ---- ---- ----
Net income ................ 14,518 12,474 41,963 35,968
Add/(Subtract):
foreign currency
tranlation adjustment..... 22,866 (1,804) 18,831 (30,718)
------ ------ ------ -------
Total comprehensive income. $ 37,384 $ 10,670 $ 60,794 $ 5,250
======== ======== ======== ========
NOTE 4 - STOCK SPLIT
On July 23, 1998, the Board of Directors approved a two-for-one stock split that
was effected in the form of a stock distribution to shareholders of record as of
the close of business on August 4, 1998. All historical weighted average share
and per share amounts have been restated to reflect the stock split.
NOTE 5 - SUBSEQUENT EVENTS/LITIGATION
On November 4, 1998, the Company received an appeals 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. This award has
not been included in the financial results through September 30, 1998. It is
expected that this award plus the related interest will be included in the
Company's financial results in the fourth quarter of 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter and nine months ended September 30, 1998 totaled
$182.7 million and $535.4 million, respectively, increases of approximately 12%
and 8% when compared to the corresponding periods of 1997. Sales for the quarter
ended September 30, 1998 were positively affected by the translation of
AptarGroup's foreign sales due to the weaker U.S. dollar, and were negatively
affected by the stronger U.S. dollar relative to the same nine month period of
1997. If the dollar exchange rate had been constant, sales for the three and
nine months ended September 30, 1998 would have increased approximately 10% and
11% respectively. Approximately 5% of the increase for the quarter ended
September 30, 1998 related to acquisitions completed at the end of the second
quarter and during the third quarter of 1998. The remainder of the increase for
the quarter ended September 30, 1998 as well as the increase for the nine months
ended September 30, 1998 is primarily attributed to volume increases of the
Company's products to the major markets that it serves.
Sales to customers by European operations represented approximately 57% and 56%,
respectively, of net sales for the quarter and nine months ended September 30,
1998, compared to 52% and 55% for the same periods a year ago. Sales to
customers by U.S. operations represented 38% and 39% of net sales for the
quarter and nine months ended September 30, 1998 compared to 43% and 40% for the
same periods a year ago. Sales to customers from other foreign operations
remained unchanged for the quarter and nine months ended September 30, 1998
compared to the same periods a year ago, representing 5% of sales.
Cost of sales as a percent of net sales decreased to 61.7% for the quarter ended
September 30, 1998 compared to 63.9% in the same period a year ago. For the nine
months ended September 30, 1998, cost of sales as a percent of net sales
decreased to 62.2% compared to 64.0% in the same period a year ago. The decrease
for the quarter and nine months ended September 30, 1998 is attributed to the
mix of products sold and cost savings. A net loss for the quarter ended
September 30, 1998, from changes in exchange rates between the comparable
quarters on inter-country transactions had an immaterial effect on the quarter.
However, the net gain from changes in exchange rates between the comparable
years on inter-country transactions contributed to the decrease in the cost of
sales as a percent of net sales on a year to date basis.
Selling, R&D and administrative expenses (SG&A) increased 12.7% to $30.2 million
for the quarter ended September 30, 1998, compared to $26.8 million in the same
period a year ago. As a percent of net sales, SG&A increased slightly for the
quarter ended September 30, 1998 to 16.5% from 16.4% a year ago. SG&A for the
nine months ended September 30, 1998, increased 9.5% to $88.2 million compared
to $80.6 million a year ago. As a percent of net sales, SG&A increased for the
nine months ended September 30, 1998 to 16.5% compared to 16.3% a year ago. The
increase in relation to net sales was primarily the result of increased R&D
expenses.
<PAGE>
Operating income increased to $25.4 million for the quarter ended September 30,
1998 compared to $20.5 million for the same period a year ago. For the nine
months ended September 30, 1998, operating income increased to $72.7 million
compared to $60.2 million for the same period a year ago. The increase for the
quarter and nine months ended September 30, 1998 is due to higher sales volume,
change in mix of products sold and cost savings. The net negative effect from
changes in exchange rates between the comparable quarters on inter-country
transactions in the quarter was immaterial. However, approximately $0.9 million
of the increase for the nine months ended September 30, 1998 is due to the
positive effect of gains on inter-country transactions net of the negative
impact of translation.
European operations represented 74% of total operating income for the quarter
and nine months ended September 30, 1998, respectively, which is consistent,
compared to the same periods a year ago. U.S. operations represented 36% of
operating income for the quarter and nine months ended September 30, 1998,
compared to 41% and 40% in the corresponding periods in 1997. The reconciling
difference between Europe and U.S. operating income to total operating income is
due to operating income from other foreign operations and corporate expenses.
The effective tax rate decreased in the third quarter to 37.5% from 38.5%
recorded in the same period a year ago. The year to date effective tax rate was
39.4% compared to the 38.5% recorded for the same period a year ago. The
decrease in the effective rate in the quarter is due to the mix of taxable
income by country and efforts to rationalize tax expense. The increase for the
nine months ended September 30, 1998 is primarily due to a 5-percentage point
increase in the French corporate income tax rate that was put into law in the
fourth quarter 1997, but was retroactive to the beginning of 1997. Under GAAP,
this retroactive adjustment was entirely recorded in the fourth quarter of 1997,
and therefore was not reflected in reported third quarter and nine months ended
September 30, 1997 results. The Company anticipates that the effective tax rate
for the fourth quarter of 1998 will be at or below the effective tax rate in the
third quarter of 1998.
Net income for the quarter ended September 30, 1998, increased 16.4% to $14.5
million compared to $12.5 million in the third quarter of 1997. Net income for
the nine months ended September 30, 1998, increased 16.7% to $42.0 million
compared to $36.0 million in the same period a year ago. The increase in net
income for the quarter and nine months ended September 30, 1998 is primarily due
to higher sales volume, cost containment efforts and mix of products sold. The
acquisitions completed at the end of the second quarter and during the third
quarter of 1998 had an immaterial effect on net income for the quarter and nine
months ended September 30, 1998.
<PAGE>
QUARTERLY TRENDS
Customer plant shutdowns and holidays in December typically have negatively
impacted AptarGroup's results of operations for the fourth quarter. In the
future, AptarGroup's results of operations in a quarterly period could be
impacted by factors such as changes in product mix, changes in material costs,
changes in growth rates in the industries to which AptarGroup's products are
sold and changes in general economic conditions in any of the countries in which
AptarGroup does business.
FOREIGN CURRENCY
Significant portions of AptarGroup's operations are located outside the United
States. Because of this, movements in exchange rates may have a significant
impact on the translation of the financial condition and results of operations
of AptarGroup's foreign entities. In general, since the majority of the
Company's operations are based in Europe- primarily France, Germany and Italy -
a strengthening U.S. dollar relative to the major European currencies has a
dilutive translation effect on the Company's financial condition and results of
operations. Conversely, a weakening U.S. dollar would have an additive effect.
Additionally, in some cases, the Company sells products denominated in a
currency different from the currency in which the respective costs are incurred.
Changes in exchange rates on such inter-country sales also impact the Company's
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Historically, AptarGroup has generated positive cash flow from operations and
has utilized the majority of such cash flows to invest in capital projects. Net
cash provided by operations for the nine months ended September 30, 1998 was
$63.9 million compared to $65.5 million in the same period a year ago. The
decrease is primarily attributed to more cash used for working capital in 1998.
Total net working capital at September 30, 1998 was $149.6 million compared to
$130.8 million at December 31, 1997. The increase in net working capital is due
to the growth of the business in 1998.
Net cash used by investing activities for the nine months ended September 30,
1998 increased to $69.9 million from $51.9 million in the same period a year
ago, due primarily to several small acquisitions the Company made in the first
nine months of 1998. A portion of one of these acquisitions will be paid for by
the issuance of 50,000 shares of AptarGroup, Inc. common stock to be delivered
in three installments of 12,500 shares in 1999, 12,500 shares in 2000, and
25,000 shares in 2001. These shares have been restated to reflect the stock
split mentioned in Note 4. These transactions did not have a material impact on
the financial statements of the Company. Management anticipates that capital
expenditures for all of 1998 will be approximately $75-80 million.
<PAGE>
Net cash provided by financing activities was $21.1 million the nine months
ended September 30, 1998 compared to $1.7 million in 1997. The ratio of
interest-bearing debt to total capitalization was 23% at September 30, 1998 and
18% at December 31, 1997.
The majority of the Company's debt has been and continues to be, denominated in
foreign currency. AptarGroup has historically borrowed locally to hedge
potential currency fluctuations for assets that were purchased outside of the
U.S.
The Company has a multi-year, unsecured revolving credit agreement allowing
borrowings of up to $25 million. Under this credit agreement, interest on
borrowings is payable at a rate equal to the London Interbank Offered Rate
(LIBOR) plus an amount based on the financial condition of the Company. At
September 30, 1998, the amount unused and available under this agreement was $25
million. The Company is required to pay a fee for the unused portion of the
commitment. The agreement expires on April 29, 2001. The credit available under
the revolving credit agreement provides management with the ability to refinance
certain short-term obligations on a long-term basis. As it is management's
intent to do so, short-term obligations of $25 million have been reclassified as
long-term obligations as of September 30, 1998. Short-term obligations of $21.7
million and $3.3 million of current portion of long-term debt were reclassified
as long-term obligations as of December 31, 1997.
The revolving credit agreement and other debt agreements contain covenants that
include certain financial tests, including minimum interest coverage, net worth
and maximum borrowings.
On October 22, 1998, the Board of Directors declared a quarterly dividend of
$.04 per share payable on November 24, 1998 to shareholders of record as of
November 3, 1998.
YEAR 2000
As many computer systems and other equipment with embedded chips or processors
(collectively, "Enterprise Systems") use only two digits to represent the year,
they may be unable to process accurately certain data before, during or after
the year 2000. This is commonly known as the Year 2000 ("Y2K") issue. The Y2K
issue can arise at any point in an entity's supply, manufacturing, processing,
distribution, and financial chains.
The Company is implementing a Y2K readiness program with the objective of having
all of the significant Enterprise Systems, including those that affect
facilities and manufacturing activities, functioning properly with respect to
the Y2K issue before January 1, 2000. The Company has established standardized
planning, assessment and progress documentation as well as set critical
deadlines that apply to all significant subsidiaries.
In order to address the Y2K Issue, the Company has developed and implemented a
five-phase readiness program which is comprised of 1) planning, 2) assessment,
3) renovation/replacement, 4) testing/validation, and 5) contingency planning.
The Company has completed the planning and assessment phases of the program.
<PAGE>
Currently, the Company is in the renovation/replacement phase of its program.
While the Company intends to carry out contingency planning actions throughout
the duration of the Y2K preparation process, the Company's objective is to
complete the testing/validation of all significant Enterprise Systems by the end
of the first quarter of 1999. Though certain systems may require additional
modification after the first quarter of 1999, the Company is confident that
these systems will be fully Y2K ready by the end of 1999. However, as part of
the Company's Y2K readiness program, contingency plans are required for any
significant Enterprise System that, for any reason, cannot be tested and
successfully validated by the end of the first quarter of 1999.
The different phases of the program address the potential Y2K risk that could be
found in the following five functional areas: 1) business applications (hardware
and software), 2) production equipment, 3) facility systems, 4) communication
infrastructure and 5) vendor/customer management.
Although the Company has a significant number of key business partners,
including suppliers and customers, the Company does not currently anticipate any
material disruption in its business due to supplier or customer Y2K issues. More
specifically, the Company, through the current stage of its Y2K program, has not
received any information that would lead it to believe that any significant
supplier or customer will suffer business interruption due to Y2K issues to a
degree that would materially affect the Company's ability to conduct business.
Concurrently with the Y2K readiness measures described above, the Company is
developing contingency plans intended to mitigate the possible disruption in
business operations that may result from the Y2K issue, and is developing cost
estimates for such plans. Once developed, contingency plans and related cost
estimates will be continually refined, as additional information becomes
available. Contingency plans may include, increasing inventory levels, securing
alternate sources of supply, adjusting facility shut-down and start-up schedules
and other appropriate measures.
To date, the Company has not incurred any material costs related to the
preliminary efforts, planning and assessment phases of its Y2K program. The
current estimated costs of the project are based on management's estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ significantly from those planned. Based
on management's current estimations, the projected costs of the Company's Y2K
readiness program are expected to total $3 million.
Although the Company expects its critical Enterprise Systems to be Y2K ready by
the end of 1999, there is no guarantee that these results will be achieved.
Specific factors that give rise to this uncertainty include a possible loss of
technical resources to perform the work, failure to identify all susceptible
systems, non-compliance by third parties whose systems and operations impact the
Company, and other similar uncertainties. A reasonably possible worst case
scenario might include one or more of the Company's significant production
facilities incurring interruption in business either from internal systems
failures or failure to perform on the part of third parties, including
<PAGE>
suppliers. Such an event could result in a material disruption to the Company's
operations. Specifically, the Company could experience an interruption in its
ability to produce certain products, collect and process orders, process
payments, manage inventory and perform adequate customer service. Should the
worst case scenario occur it could, depending on its duration, have a material
adverse impact on the Company's results of operations and financial position.
EURO
The European Community will introduce a common European monetary unit called the
Euro, effective January 1, 1999. The Company has investigated the impacts that
the Euro will have on its operations. The Euro is expected to have significant
accounting and systems impacts as well as pricing impacts, however 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 NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which is effective for fiscal years
beginning after December 15, 1997. Statement No. 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers in annual financial
statements and interim financial reports. The Company has determined that it
operates in one segment and plans to adopt the standard during the year ending
December 31, 1998.
In February 1998, the FASB issued Statement No. 132, "Employers' Disclosures
about Pensions and other Postretirement Benefits" which is effective for fiscal
years beginning after December 15, 1997. Statement No. 132 revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of these plans. The Company is currently
evaluating this new Statement and plans to adopt the standards during the year
ending December 31, 1998.
In March 1998 and April 1998, the AcSEC (Accounting Standards Executive
Committee) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" and SOP 98-5
"Reporting on the Costs of Start-Up Activities," respectively. Both Statements
are effective for fiscal years beginning after December 15, 1998, and early
adoption is encouraged. SOP 98-1 provides guidance on accounting for the costs
of computer software developed or obtained for internal use. SOP 98-5 requires
that entities expense start-up costs and organization costs as they are
incurred. The Company has already adopted both of these statements and the
impact of adoption was not material to the financial statements.
In June 1998, the Financial Accounting Standards Board issued tatement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This Statement requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Due to the recent release
<PAGE>
and complexity of this new standard, an assessment of the impact
it will have on the financial position or results of operations has not been
completed.
FORWARD-LOOKING STATEMENTS
In addition to the historical information presented in this quarterly report,
the Company has made and will make certain forward-looking statements in this
report, other reports filed by the Company with the Securities and Exchange
Commission, reports to stockholders and in certain other contexts relating to
future net sales, costs of sales, other expenses, profitability, financial
resources, products and production schedules, among others. These statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are based on management's beliefs as well as assumptions made by and
information currently available to management. Accordingly, the Company's actual
results may differ materially from those expressed or implied in such
forward-looking statements due to known and unknown risks and uncertainties that
exist in the Company's operations and business environment, including, among
other factors, the failure by the Company to produce anticipated cost savings or
improve productivity, the failure by the Company or its suppliers or customers
to achieve Y2K compliance, the timing and magnitude of capital expenditures and
acquisitions, currency exchange rates, economic and market conditions in the
United States, Europe and the rest of the world, changes in customer spending
levels, the demand for existing and new products, the cost and availability of
raw materials, and other risks associated with the Company's operations.
Although the Company believes that its forward-looking statements are based on
reasonable assumptions, there can be no assurance that actual results,
performance or achievements will not differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Readers are cautioned not to place undue reliance on forward-looking
statements.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 is included with this report.
(b) On July 23, 1998, the Company filed a report on Form 8K announcing that the
Company approved a two-for-one common stock split to be effected in the form of
a stock distribution to shareholders of record as of the close of business on
August 4, 1998, to be distributed on or about August 25, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AptarGroup, Inc.
(Registrant)
By \s\ Stephen J. Hagge
-----------------------
Stephen J. Hagge
Executive Vice President and Chief
Financial Officer, Secretary and
Treasurer(Duly Authorized Officer
and Principal Financial Officer)
Date: November 12, 1998
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