<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- ------
COMMISSION FILE NUMBER 1-11846
AptarGroup, Inc.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3853103
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
475 West Terra Cotta Avenue, Suite E, Crystal Lake, Illinois 60014
- ------------------------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
815-477-0424
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (May 12, 1999).
Common Stock 36,300,684
----------
<PAGE>
AptarGroup, Inc.
Form 10-Q
Quarter Ended March 31, 1999
INDEX
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income -
Three Months Ended March 31, 1999 and 1998 3
Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about 14
Market Risk
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 15
2
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AptarGroup, Inc.
Consolidated Statements of Income
For the Three Months Ended March 31, 1999 and 1998
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
---- ----
<S> <C> <C>
Net Sales .................................................. $ 198,227 $ 170,942
----------- -----------
Operating Expenses:
Cost of sales........................................... 124,085 106,709
Selling, research & development and administrative...... 32,884 28,201
Depreciation and amortization........................... 17,022 13,568
----------- -----------
173,991 148,478
----------- -----------
Operating Income............................................ 24,236 22,464
----------- -----------
Other Income (Expense):
Interest expense........................................ (2,620) (1,406)
Interest income......................................... 210 275
Equity in income of affiliates.......................... (260) 183
Minority interests...................................... 34 (84)
Miscellaneous, net...................................... 523 646
----------- -----------
(2,113) (386)
------------ -----------
Income Before Income Taxes.................................. 22,123 22,078
Provision for Income Taxes.................................. 7,854 8,897
----------- -----------
Net Income.................................................. $ 14,269 $ 13,181
=========== ===========
Net Income Per Common Share:
Basic................................................... $ .39 $ .37
=========== ===========
Diluted................................................. $ .39 $ .36
=========== ===========
Average number of shares outstanding (in thousands):
Basic................................................... 36,189 35,992
Diluted................................................. 36,845 36,716
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AptarGroup, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
Assets
Current Assets:
Cash and equivalents............................................. $ 30,040 $ 25,159
Accounts and notes receivable, less allowance for doubtful
accounts of $5,686 in 1999 and $3,976 in 1998.................. 181,447 173,289
Inventories...................................................... 108,133 101,091
Prepayments and other............................................ 26,306 17,110
----------- -----------
345,926 316,649
----------- -----------
Property, Plant and Equipment:
Buildings and improvements....................................... 94,040 90,768
Machinery and equipment.......................................... 579,672 565,460
----------- -----------
673,712 656,228
Less: Accumulated depreciation................................... (333,680) (335,650)
------- -----------
340,032 320,578
Land............................................................. 4,364 4,601
----------- -----------
344,396 325,179
----------- -----------
Other Assets:
Investments in affiliates........................................ 3,393 3,217
Goodwill, less accumulated amortization of $7,745
in 1999 and $6,174 in 1998..................................... 125,659 49,689
Miscellaneous.................................................... 16,362 19,939
----------- -----------
145,414 72,845
----------- -----------
Total Assets............................................... $ 835,736 $ 714,673
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AptarGroup, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable.......................................... $ 149,059 $ 29,663
Current maturities of long-term obligations............ 10,593 7,561
Accounts payable and accrued liabilities............... 125,942 130,209
----------- -----------
285,594 167,433
----------- -----------
Long-Term Obligations.................................... 95,722 80,875
----------- -----------
Deferred Liabilities and Other:
Deferred income taxes.................................. 25,260 24,989
Retirement and deferred compensation plans............. 14,134 14,957
Minority interests..................................... 4,127 4,189
Deferred and other non-current liabilities............. 5,576 6,722
----------- -----------
49,097 50,857
----------- -----------
Stockholders' Equity:
Common stock, $.01 par value........................... 363 361
Capital in excess of par value......................... 109,748 105,714
Retained earnings...................................... 342,409 329,582
Accumulated other comprehensive income................. (47,197) (20,149)
------------ -----------
405,323 415,508
----------- -----------
Total Liabilities and Stockholders' Equity ............ $ 835,736 $ 714,673
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AptarGroup, Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands, brackets denote cash outflows)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 14,269 $ 13,181
Adjustments to reconcile net income to net cash provided by operations:
Depreciation 16,115 12,921
Amortization 907 647
Provision for bad debts 386 272
Minority interests (34) 84
Deferred income taxes 665 616
Retirement and deferred compensation plans 717 1,375
Equity in income of affiliates in excess of cash distributions received 260 (183)
Changes in balance sheet items, excluding
effects from foreign currency adjustments:
Accounts receivable (1,983) (12,105)
Inventories (2,361) (1,100)
Prepaid and other current assets (3,450) (3,419)
Accounts payable and accrued liabilities 4,825 6,230
Other changes, net (796) (1,742)
------------ -----------
Net Cash Provided by Operations 29,520 16,777
----------- -----------
Cash Flows From Investing Activities:
Capital expenditures (18,638) (13,359)
Disposition of property and equipment 632 56
Acquisition of businesses (123,172) (4,901)
Collection of notes receivable, net 4 228
Investments in affiliates (500) (500)
------------ ------------
Net Cash (Used) by Investing Activities (141,674) (18,476)
------------ -----------
Cash Flows From Financing Activities:
Change in notes payable 119,908 5,453
Proceeds from long-term obligations 1,305 5,710
Repayments of long-term obligations (1,487) (3,717)
Dividends paid (1,443) (1,440)
Proceeds from stock options exercised 440 332
----------- -----------
Net Cash Provided by Financing Activities 118,723 6,338
----------- -----------
Effect of Exchange Rate Changes on Cash (1,688) (386)
------------ -----------
Net Increase in Cash and Equivalents 4,881 4,253
Cash and Equivalents at Beginning of Period 25,159 17,717
----------- -----------
Cash and Equivalents at End of Period $ 30,040 $ 21,970
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AptarGroup, Inc.
Notes to Consolidated Financial Statements
(Dollars in Thousands, Except per Share Data)
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of AptarGroup, Inc. and its subsidiaries. The terms "AptarGroup"
or "Company" as used herein refer to AptarGroup, Inc. and its subsidiaries.
In the opinion of management, the unaudited consolidated financial
statements include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of consolidated 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 unaudited consolidated
financial statements and related notes should be read in conjunction with
the consolidated 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, 1998.
The results of operations of any interim period are not necessarily
indicative of the results that may be expected for the year.
Note 2 - Acquisitions
In the second and third quarters of 1998, the Company acquired controlling
interests in two companies for approximately $15 million in cash, and 50,000
shares of the Company's common stock (valued at approximately $1.5 million).
The excess purchase price over the fair value of the net assets acquired
(goodwill) in these acquisitions was approximately $8 million and is being
amortized on a straight-line basis over 40 years. These acquisitions are in
companies that manufacture and distribute products similar to the Company's
products.
On February 17, 1999, the Company acquired Emson Research, Inc. and related
companies (Emson) for approximately $123 million in cash and $4 million in
shares of the Company's stock. Approximately $23 million of debt was assumed
in the transaction. This acquisition was primarily funded through short-term
borrowings, although the Company anticipates incurring long-term obligations
in the second quarter of 1999 to replace part of the short-term borrowings
associated with the acquisition. Emson is a leading supplier of perfume
pumps in the North American market and also maintains a significant position
in the North American personal care and food pump markets. The excess
purchase price over the fair value of the net assets acquired (goodwill) in
these acquisitions was approximately $80 million and is being amortized on a
straight-line basis over 40 years.
7
<PAGE>
The acquisitions described above were accounted for by the purchase method
of accounting for business combinations. Accordingly, the accompanying
consolidated statements of income do not include any revenues or expenses
related to these acquisitions prior to their respective closing dates.
Following are the Company's unaudited pro forma results for the first
quarter of 1998 and 1999 assuming the acquisitions occurred on January 1,
1998 (in thousands, except for per share data):
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------------------------
<S> <C> <C>
Net Sales $206,260 $205,274
Net Income $ 13,606 $ 12,665
Net Earnings per common share:
Basic $ 0.38 $ 0.35
Diluted $ 0.37 $ 0.34
Weighted average shares outstanding:
Basic 36,270 36,191
Diluted 36,926 36,915
</TABLE>
These unaudited pro forma results have been prepared for comparative purposes
only and may or may not be indicative of the results of operations which would
have actually resulted had the combinations been in effect on January 1, 1998,
or of future periods.
Note 3 - Inventories
At March 31, 1999 and December 31, 1998, inventories, by component,
consisted of:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Raw materials.................. $ 41,770 $ 35,709
Work in progress............... 28,384 29,441
Finished goods................. 37,979 35,941
---------- -----------
Total.......................... $ 108,133 $ 101,091
========== ===========
</TABLE>
The LIFO reserve was not material at either March 31, 1999 or
December 31, 1998.
Note 4 - Comprehensive Income
AptarGroup's total comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Net income............................................ $ 14,269 $ 13,181
Less: foreign currency translation adjustment......... (27,048) (9,293)
------------- -----------
Total comprehensive (loss) income..................... $ (12,779) $ 3,888
============= ===========
</TABLE>
8
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales for the quarter ended March 31, 1999 totaled $198.2 million, an
increase of approximately 16.0% from the corresponding period of 1998. Sales
were positively affected by the translation of AptarGroup's foreign sales
due to the weaker U.S. dollar relative to the same three-month period of
1998. If the dollar exchange rate had been constant, sales for the three
months ended March 31, 1999 would have increased approximately 13.1%.
Approximately $22.7 million of the $27.3 million increase in sales came from
acquisitions completed subsequent to the first quarter of 1998. Sales of
pumps and metered dose aerosol valves to the pharmaceutical market and
dispensing closures to the personal care, household and food markets
increased over the prior year first quarter. Sales of pumps to the
low-to-mid range fragrance/cosmetics market were down when compared to the
first quarter of the prior year.
European sales represented approximately 56.7% of net sales for the quarter
ended March 31, 1999, compared to 56.1% for the same period a year ago. U.S.
sales represented 38.1% of net sales for the quarter ended March 31, 1999
compared to 38.9% for the same period a year ago. Sales from other foreign
operations represented 5.2% of net sales for the quarters ended March 31,
1999 compared to 5.0% for the same period a year ago.
Cost of sales as a percent of net sales increased to 62.6% in the first
quarter of 1999 compared to 62.4% in the same period a year ago. The
increase for the quarter ended March 31, 1999 is attributed to the
under-utilization of overheads from the softness in the low-to-mid range
fragrance/cosmetics market and also reflects the mix of products sold.
Depreciation and amortization as a percent of sales increased to 8.6% in the
first quarter of 1999 compared to 7.9% in the same period a year ago. The
increase for the quarter ended March 31, 1999 is primarily attributed to the
additional depreciation and amortization expense associated with the write
up in fixed assets to fair market value for the acquisitions completed
subsequent to the first quarter of 1998. In addition the Company's
depreciation expense increased due to capital investment in prior periods.
Selling, research & development and administrative expenses (SG&A) increased
16.6% to $32.9 million in the first quarter of 1999, compared to $28.2
million in the same period a year ago. Approximately half of the increase in
SG&A is related to the acquisitions completed subsequent to the first
quarter of 1998. As a percent of net sales, SG&A increased slightly in the
first quarter of 1999 to 16.6% from 16.5% a year ago. The slight increase as
a percentage of sales is primarily due to additional information technology
expenses related to the Company's year 2000 readiness program and to the
implementation of new enterprise software systems at two major operations.
European operations represented 68.3% of total operating income in the first
quarter of 1999, compared to 74.9% for the same period a year ago. U.S.
9
<PAGE>
operations represented 42.5% of operating income in the first quarter in
1999 compared to 36.4% in the corresponding period in 1998. The difference
between Europe and U.S. operations to total operating income is due to
operating income from other foreign operations, corporate expenses and
inter-geographic consolidated eliminations.
Interest expense increased $1.2 million or 86.3% over the corresponding
period in 1998 due primarily to the additional debt related to the
acquisitions made subsequent to the first quarter of 1998.
The effective tax rate for the three months ended March 31, 1999 was 35.5%,
compared to 40.3% for the same period a year ago. The decrease is primarily
attributable to the Company's ongoing rationalization of tax rates combined
with the mix of income earned in different foreign tax jurisdictions. The
Company expects the effective tax rate for 1999 to be in the range of 35% to
36%.
Net income for the first quarter increased 8.3% to $14.3 million compared to
$13.2 million in the first quarter of 1998.
Foreign Currency
A significant portion of AptarGroup's operations are located outside the
United States. Because of this, movements in exchange rates may have a
significant impact on the translation of the financial condition and results
of operations of AptarGroup's foreign entities. In general, since the
majority of the Company's operations are based in Europe - primarily France,
Germany, and Italy - a strengthening U.S. dollar relative to the major
foreign 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 for which the respective costs are
incurred. Changes in exchange rates on such inter-country sales impacts the
Company's results of operations.
Quarterly Trends
AptarGroup's results of operations in the second half of the year typically
are negatively impacted by European summer holidays and customer plant
shutdowns in December. In the future, AptarGroup's results of operations in
a quarterly period could be impacted by factors such as changes in product
mix, changes in material costs, changes in growth rates in the industries to
which AptarGroup's products are sold, changes in general economic conditions
in any of the countries in which AptarGroup does business, and year 2000
concerns from customers.
Liquidity and Capital Resources
Historically, AptarGroup has generated positive cash flow from operations
and has utilized the majority of such cash flows to invest in capital
projects. Net cash provided by operations in the first three months of 1999
was $29.5 million compared to $16.8 million in the same period a year ago.
The increase is primarily attributed to less cash used for working capital
in 1999.
10
<PAGE>
Total net working capital at March 31, 1999 was $60.3 million compared to
$149.2 million at December 31, 1998. The decrease in working capital in 1999
is primarily due to the additional short-term borrowings related to the
acquisition of Emson during the first quarter of 1999.
Net cash used by investing activities in the three months of 1999 increased
to $141.7 million from $18.5 million in the same period a year ago due to
the Company's purchase of Emson on February 17, 1999. The Company paid
approximately $122.8 million in cash and $4.0 million of the Company's
common stock and assumed approximately $23.0 million of debt. This
acquisition was initially funded through short-term borrowings. The Company
anticipates incurring long-term obligations in the second quarter of 1999 to
replace a part of the short-term borrowings associated with the acquisition
of Emson. Management anticipates that cash outlays for capital expenditures
for all of 1999 will be approximately $85 to $90 million.
Net cash provided by financing activities increased to $118.7 million in the
first three months of 1999 compared to $6.3 million in 1998. The increase in
net cash provided by financing activities is due to borrowing for the
acquisition of Emson mentioned above. The ratio of net debt to total net
capitalization was 35.7% and 18.3% at March 31, 1999 and December 31, 1998,
respectively. Net debt is defined as debt less cash and cash equivalents and
total net capitalization is defined as stockholder's equity plus net debt.
A portion of the Company's debt is denominated in foreign currency.
AptarGroup has historically borrowed locally to hedge potential currency
fluctuations for assets that were purchased outside of the U.S. It is
expected that this practice will continue.
The Company has a multi-year, unsecured revolving credit agreement allowing
borrowings of up to $25 million. Under this credit agreement, interest on
borrowings is payable at a rate equal to the London Interbank Offered Rate
(LIBOR) plus an amount based on the financial condition of the Company. At
March 31, 1999, the amount unused and available under this agreement was $10
million. The Company is required to pay a fee for the unused portion of the
commitment. The agreement expires on April 29, 2001. The credit available
under the revolving credit agreement provides management with the ability to
refinance certain short-term obligations on a long-term basis. As it is
management's intent to do so, short-term obligations of $25 million have
been reclassified as long-term obligations as of March 31, 1999 and
December 31, 1998.
On April 21, 1999, the Board of Directors declared a quarterly dividend of
$.04 per share payable on May 26, 1999 to shareholders of record as of May
5, 1999.
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.
11
<PAGE>
The Company has implemented 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. Currently, the Company is in the process of
completing the renovation/replacement and testing/validation phases of the
program, the majority of which has been completed by the end of the first
quarter of 1999. Though certain systems may require additional
modifications throughout 1999, the Company believes that these systems will
be Y2K ready by the end 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 shutdown
and start-up schedules and other appropriate measures.
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 $3.5 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
12
<PAGE>
business either from internal systems failures or failure to perform on the
part of third parties, including 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, but that impact is not
estimable.
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.
Statements relating to the foregoing or that predict or indicate future
events and trends and which do no relate solely to historical matters
identify forward-looking statements. Forward-looking statements are made
pursuant to the safe harbor provisions of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based
on 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, government regulation including tax rate policies,
competition and technological change, intellectual property rights, 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, the successful integration of the Company's
acquisitions, 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.
Adoption of New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999. This
Statement requires that entities recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. Due to the complexity of this new standard, the
company is still assessing the impact it will have on the financial position
or results of operations, but does not anticipate it having a material
impact on the financial statements.
13
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
A significant portion of AptarGroup's operations are located outside the
United States. Because of this, movements in exchange rates may have a
significant impact on the translation of the financial condition and results
of operations of AptarGroup's foreign entities. The Company's significant
foreign exchange exposures are to the major currencies which are now part of
the Euro (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.
The table below provides information as of March 31, 1999 about the
Company's forward currency exchange contracts. All the contracts expire
before the end of the third quarter of 1999.
<TABLE>
<CAPTION>
Average
Contractual
Buy/Sell Contract Amount Exchange Rate
- --------------------------------------------------------------------------
<S> <C> <C>
FRF/USD $ 8,191 5.71
LIRE/USD 2,900 1,647.57
FRF/GBP 1,016 9.57
LIRE/FRF 985 295.33
LIRE/GBP 806 2,811.91
</TABLE>
The Company is also party to certain smaller contracts to buy or sell
various other currencies (principally European, Japanese and Australian)
that had an aggregate contract amount of $0.5 million as of March 31, 1999.
The Company has 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
March 31, 1999, the Company would have received approximately $861 based on
the fair value of the swap on that date.
The table below presents the cash flows in both foreign currency and U.S.
dollars that are expected to be exchanged over the duration of the contract.
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pay FRF FRF 6,772 7,822 7,400 6,992 6,560 11,850
Receive USD $1,337 1,525 1,450 1,377 1,299 2,370
</TABLE>
Additionally, in some cases, the Company sells products denominated in a
currency different from 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.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 is included with this report.
(b) On February 26, 1999 the Company filed a report on Form
8-K dated February 17, 1999 announcing, pursuant to Item
2 of Form 8-K, the Company had purchased Emson Research,
Inc. and affiliated companies on February 17, 1999, for
cash, stock and assumption of debt.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AptarGroup, Inc
(Registrant)
By /s/ Stephen J. Hagge
----------------------------------------
Stephen J. Hagge
Executive Vice President and Chief
Financial Officer, Secretary and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 13, 1999
15
<PAGE>
INDEX TO EXHIBITS
Number and Description of Exhibit
---------------------------------
27 Financial Data Schedules filed herewith.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 30,040
<SECURITIES> 0
<RECEIVABLES> 181,447
<ALLOWANCES> (5,686)
<INVENTORY> 108,133
<CURRENT-ASSETS> 345,926
<PP&E> 678,076
<DEPRECIATION> (333,680)
<TOTAL-ASSETS> 835,736
<CURRENT-LIABILITIES> 285,594
<BONDS> 95,722
0
0
<COMMON> 363
<OTHER-SE> 404,960
<TOTAL-LIABILITY-AND-EQUITY> 835,736
<SALES> 198,227
<TOTAL-REVENUES> 198,227
<CGS> 124,085
<TOTAL-COSTS> 173,991
<OTHER-EXPENSES> 49,906
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,620)
<INCOME-PRETAX> 22,123
<INCOME-TAX> 7,854
<INCOME-CONTINUING> 14,269
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,269
<EPS-PRIMARY> 0.39<F1>
<EPS-DILUTED> 0.39
<FN>
<F1>In August 1998, the Company effected a two-for-one stock split. Prior
Financial Data Schedules have not been restated for this stock split.
</FN>
</TABLE>
