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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 June 30, 2000
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 (August 4, 2000)
Common Stock 35,707,654
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AptarGroup, Inc.
FORM 10-Q
QUARTER ENDED JUNE 30, 2000
INDEX
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. Financial statements (Unaudited)
Consolidated Statements of Income -
Three and Six Months Ended June 30, 2000
and 1999 3
Consolidated Balance Sheets -
June 30, 2000 and December 31, 1999 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 16
ITEM 4. Submission of Matters to a Vote of
Security Holders 16
ITEM 6. Exhibits and Reports on Form 8-K 17
SIGNATURE 18
<PAGE>
AptarGroup, Inc.
Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------- --------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales...................................... $ 227,667 $ 208,860 $ 445,313 $ 407,087
Operating Expenses:
Cost of sales............................. 141,604 129,890 275,922 253,975
Selling, research & development
and administrative...................... 36,680 33,484 73,037 66,368
Depreciation and amortization............. 18,215 17,143 36,595 34,165
--------------- --------------- ---------------- -------------
196,499 180,517 385,554 354,508
--------------- --------------- ---------------- -------------
Operating Income............................... 31,168 28,343 59,759 52,579
--------------- --------------- ---------------- -------------
Other Income (Expense):
Interest expense.......................... (4,827) (3,792) (8,949) (6,412)
Interest income........................... 428 411 607 621
Equity in results of affiliates........... 40 (288) (185) (548)
Minority interests........................ (197) (65) (254) (31)
Miscellaneous, net........................ 635 359 1,464 882
--------------- --------------- ---------------- -------------
(3,921) (3,375) (7,317) (5,488)
--------------- --------------- ---------------- -------------
Income Before Income Taxes..................... 27,247 24,968 52,442 47,091
Provision for Income Taxes..................... 9,455 8,788 18,374 16,642
--------------- --------------- ---------------- -------------
Net Income..................................... $ 17,792 $ 16,180 $ 34,068 $ 30,449
=============== =============== ================ =============
Net Income Per Common Share:
Basic................................... $ .49 $ .45 $ .95 $ .84
=============== =============== ================ =============
Diluted................................. $ .49 $ .44 $ .93 $ .82
=============== =============== ================ =============
Average Number of Shares Outstanding:
Basic................................... 35,949 36,344 36,041 36,267
Diluted................................. 36,564 37,026 36,588 36,921
</TABLE>
See accompanying notes to consolidated financial statements.
3
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AptarGroup, Inc.
Consolidated Balance Sheets
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Assets
Current Assets:
Cash and equivalents...................................................... $ 36,890 $ 32,416
Accounts and notes receivable, less allowance for doubtful
accounts of $7,348 in 2000 and $6,865 in 1999......................... 211,901 188,507
Inventories............................................................... 122,383 109,151
Prepayments and other..................................................... 26,933 21,160
------------- ------------
398,107 351,234
------------- ------------
Property, Plant and Equipment:
Buildings and improvements................................................ 98,890 96,427
Machinery and equipment................................................... 637,538 615,665
------------- ------------
736,428 712,092
Less: Accumulated depreciation............................................ (381,662) (357,733)
------------- ------------
354,766 354,359
Land...................................................................... 4,320 4,199
------------- ------------
359,086 358,558
------------- ------------
Other Assets:
Investments in affiliates................................................. 1,507 3,969
Goodwill, less accumulated amortization of $11,337 in
2000 and $9,943 in 1999............................................... 128,022 127,214
Miscellaneous............................................................. 24,690 22,323
------------- ------------
154,219 153,506
------------- ------------
Total Assets $ 911,412 $ 863,298
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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AptarGroup, Inc.
Consolidated Balance Sheets
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
Liabilities and Stockholders' Equity 2000 1999
------------ ------------
<S> <C> <C>
Current Liabilities:
Notes payable............................................................. $ 31,956 $ 25,499
Current maturities of long-term obligations............................... 8,540 9,648
Accounts payable and accrued liabilities.................................. 152,638 124,758
------------ ------------
193,134 159,905
------------ ------------
Long-Term Obligations.......................................................... 239,692 235,649
------------ ------------
Deferred Liabilities and Other:
Deferred income taxes..................................................... 31,952 25,529
Retirement and deferred compensation plans................................ 14,394 14,658
Minority interests........................................................ 4,181 4,118
Deferred and other non-current liabilities................................ 2,816 3,170
------------ ------------
53,343 47,475
------------ ------------
Stockholders' Equity:
Common stock, $.01 par value.............................................. 366 365
Capital in excess of par value............................................ 114,169 112,921
Retained earnings......................................................... 412,225 381,762
Accumulated other comprehensive income.................................... (85,902) (68,567)
Less treasury stock at cost, 620.8 shares in 2000
and 235.5 shares in 1999................................................ (15,615) (6,212)
------------ ------------
425,243 420,269
------------ ------------
Total Liabilities and Stockholders Equity $ 911,412 $ 863,298
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
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AptarGroup, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999
(Amounts in Thousands, brackets denote cash outflows)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
Cash Flows From Operating Activities: 2000 1999
---- ----
<S> <C> <C>
Net income............................................................ $ 34,068 $ 30,449
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation.......................................................... 33,823 32,291
Amortization.......................................................... 2,772 1,874
Provision for bad debts............................................... 925 492
Minority interests.................................................... 254 31
Deferred income taxes................................................. 1,598 636
Retirement and deferred compensation plans............................ (495) (672)
Equity in results of affiliates in
excess of cash distributions received............................. 185 548
Changes in balance sheet items,
excluding effects from foreign currency adjustments:
Accounts receivable................................................... (31,105) (512)
Inventories........................................................... (16,844) (1,652)
Prepaid and other current assets...................................... (5,903) (3,434)
Accounts payable and accrued liabilities.............................. 13,691 1,763
Changes in income taxes payable....................................... 18,262 588
Other changes, net.................................................... 1,910 3,852
------------- -------------
Net cash provided by operations....................................... 53,141 66,254
------------- -------------
Cash Flows From Investing Activities:
Capital expenditures.................................................. (39,854) (48,689)
Disposition of property and equipment................................. 1,854 1,579
Acquisition of businesses............................................. (2,271) (123,575)
Collections of notes receivable, net.................................. 21 27
Investments in affiliates............................................. --- (1,000)
------------- -------------
Net cash used by investing activities................................. (40,250) (171,658)
------------- -------------
Cash Flows From Financing Activities:
Increase (decrease) in notes payable.................................. 7,198 (12,761)
Proceeds from long-term obligations................................... 1,699 162,642
Repayments of long-term obligations................................... (4,286) (33,647)
Dividends paid........................................................ (3,605) (2,892)
Proceeds from stock options exercised................................. 1,249 2,032
Purchase of Treasury Stock............................................ (9,403) ---
------------- -------------
Net cash (used) provided by financing activities...................... (7,148) 115,374
------------- -------------
Effect of Exchange Rate Changes on Cash.................................... (1,269) (2,498)
------------- -------------
Net Increase in Cash and Equivalents....................................... 4,474 7,472
Cash and Equivalents at Beginning of Period................................ 32,416 25,159
------------- -------------
Cash and Equivalents at End of Period...................................... $ 36,890 $ 32,631
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
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AptarGroup, Inc.
Notes To Consolidated Financial Statements
(Amounts in Thousands, Except Per Share Data, Unless Otherwise Indicated)
(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, 1999.
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 - Acquisitions
During the first quarter of 1999, the Company acquired Emson Research, Inc.
and related companies (Emson) for approximately $123 million in cash and
148.4 shares of the Company's common stock (valued at approximately $4
million.) Approximately $23 million of debt was assumed in the transaction.
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 this acquisition was approximately $86
million and is being amortized on a straight-line basis over 40 years.
During the third quarter of 1999, the Company acquired controlling interests
in two companies and acquired a line of business from a third company for
approximately $21 million in cash and approximately $4 million in assumed
debt. The Goodwill in these acquisitions was approximately $4 million and is
being amortized on a straight-line basis over lives ranging from 10 to 40
years. Two of the three acquisitions are in companies that manufacture and
distribute products similar to the Company's products. The third
acquisition, a company called Microflow Engineering S.A. (Microflow), is a
research and development company whose primary project is to develop an
electronic aerosol dispensing system primarily for the pharmaceutical
market. Based upon an independent appraisal, a one-time charge against
pretax and net income of $3.3 million for purchased in-process research and
development (IPR&D) costs was recorded in conjunction with the purchase of
80% of this company. Since the acquisition, there have been no significant
changes to the timing of the development of the project. The in-process
technology is expected to be completed in late 2000.
7
<PAGE>
In the first quarter of 2000, the Company acquired the remaining 50 percent
of a joint venture in the United States for approximately $2.3 million in
cash, assumed the remaining $3.75 million in debt and entered into a license
agreement with the former joint venture partner. The acquisition produces
spray caps and specialty actuators for aerosol valves and pumps for the
North American market. There was no Goodwill acquired in the transaction.
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 1999 and 2000
assuming the acquisitions occurred on January 1, 1999:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- ------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $227,667 $210,590 $445,313 $ 418,393
Net Income $ 17,792 $ 15,864 $ 33,861 $ 28,881
Net Earnings per common share:
Basic $ .49 $ 0.44 $ .94 $ 0.80
Diluted $ .49 $ 0.43 $ .93 $ 0.78
Weighted average shares outstanding:
Basic 35,949 36,344 36,041 36,287
Diluted 36,564 37,026 36,588 36,941
</TABLE>
These unaudited pro forma results have been prepared for comparative purposes
only and may not be indicative of the results of operations which would have
actually resulted had the combinations been in effect on January 1, 1999, or of
future periods.
Note 3 - Inventories
At June 30, 2000 and December 31, 1999, approximately 23% and 25%, respectively,
of the total inventories are accounted for by the LIFO method. Inventories, by
component, consisted of:
June 30, December 31,
2000 1999
-------- -----------
Raw Materials $ 57,134 $ 42,648
Work in progress 20,273 28,370
Finished goods 46,266 38,923
-------- --------
Total 123,673 109,941
Less LIFO reserve (1,290) (790)
-------- --------
Total $ 122,383 $ 109,151
======== ========
Inventories are stated at cost, which is lower than market. Costs included in
inventories are raw materials, direct labor and manufacturing overhead. The cost
of two domestic inventories and the
8
<PAGE>
inventories of two foreign operations are determined by using the last-in,
first-out "LIFO" method, while the remaining inventories are valued using the
first-in, first-out (FIFO) method.
Note 4 - Comprehensive Income
AptarGroup's total comprehensive income was as follows:
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
-------------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $17,792 $16,180 $34,068 $30,449
Add/(Subtract): foreign currency
translation adjustment (1,250) (10,881) (17,335) (37,927)
------- -------- -------- --------
Total comprehensive income (loss) $16,542 $5,299 $16,733 $(7,478)
======= ====== ======== ========
</TABLE>
Note 5 - Stock Repurchase Program
In the fourth quarter of 1999, the Board of Directors authorized the repurchase
of a maximum of one million shares of the Company's outstanding shares. The
timing of and total amount expended for share repurchases depends upon market
conditions. Repurchases in the quarter ended June 30, 2000 were not significant.
The cumulative total of shares repurchased at June 30, 2000 was 620.8 shares for
an aggregate amount of $15.6 million.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Net sales for the quarter and six months ended June 30, 2000 totaled $227.7
million and $445.3 million, respectively, increases of approximately 9% when
compared to the corresponding periods of 1999. The stronger U.S. dollar relative
to the same three-month and six-month periods of 1999 negatively affected the
translation of AptarGroup's foreign sales. If the dollar exchange rates had been
constant, sales for the quarter and six months ended June 30, 2000 would have
increased approximately 15% and 16%, respectively. Acquisitions completed in
1999 accounted for $1.7 million and $11.3 million of the increase for the three
and six months ended June 30, 2000 respectively. Sales of pumps to the
fragrance/cosmetic market were extremely strong in the quarter and sales of
pumps and metered dose aerosol valves to the pharmaceutical market continued at
a strong pace. Sales to the worldwide food and European personal care markets
also rose over the prior year second quarter. Sales of all product lines to the
U.S. personal care market remained soft in the quarter.
Sales by European operations represented approximately 52% and 53% of net sales
for the quarter and six months ended June 30, 2000, respectively, compared to
54% and 56% for the same periods a year ago. Sales by U.S. operations
represented 40% of net sales for the quarter and six months ended June 30, 2000,
respectively, compared to 40% and 39% for the same periods a year ago. Sales by
other foreign operations represented 8% and 7% of net sales for the quarter and
six months ended June 30, 2000, respectively, compared to 6% and 5% for the same
periods a year ago.
Cost of sales as a percent of net sales remained constant at 62.2% in the second
quarter of 2000 and 1999. Rising raw material costs and their impact on the U.S.
LIFO inventory valuations negatively affected the cost of sales in the quarter.
Offsetting those negative impacts in the quarter were efficiencies gained from
better utilization of fixed overheads associated with the increase in sales. In
addition, the positive impact coming from foreign currency transaction gains due
to the Company selling products denominated in a currency different from the
currency in which the related costs were incurred also helped to offset the
negative impact from the increase in raw materials. For the first six months of
2000, cost of sales as a percent of net sales decreased slightly to 62.0%
compared to 62.4% in the same period a year ago. The slight decrease for the six
months ended June 30, 2000 is primarily attributed to a better utilization of
overheads related to the increase in sales in the first half of the year as well
as foreign currency transaction gains. This was offset partially by the increase
in raw material prices in the first six months.
Selling, research & development and general and administrative expenses (SG&A)
increased 9.5% or $3.2 million to $36.7 million in the second quarter of 2000
compared to $33.5 million in the same period a year ago. The increase in SG&A is
primarily due to increased research and development costs as well as increased
general and administrative expenses. SG&A as a percent of net sales was 16.1% of
sales in the second quarter of 2000 compared to 16.0% in the same period a year
ago. SG&A for the six months ended June 30, 2000 increased 10% or $6.6 million
to $73.0 million compared to $66.4 million a year ago. As a percent of net
sales, SG&A for the first six months of 2000 was 16.4% compared to 16.3% a year
ago.
10
<PAGE>
European operations represented 78% and 76% of operating income for the quarter
and six months ended June 30, 2000, respectively, as compared to 72% and 70% in
the same periods a year ago. U.S. operations represented 33% and 35% of
operating income for the quarter and six months ended June 30, 2000,
respectively, as compared to 37% and 40% in the corresponding periods of 1999.
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 eliminations.
Interest expense increased $1.0 million and $2.5 million for the second quarter
and six months ended June 30, 2000, respectively, as compared to the same
periods a year ago due primarily to the additional debt related to the
acquisitions completed in 1999 and the Company's stock repurchase program as
well as rising interest rates.
The effective tax rate was 34.7% and 35.0% for the second quarter and six months
ended June 30, 2000, respectively compared to 35.2% and 35.3% for the same
periods a year ago. The decrease is due to the mix of income earned in different
foreign tax jurisdictions. The Company expects the effective tax rate for 2000
to be in the range of 34.5%- 35.5%.
Net income for the second quarter increased 10.0% to $17.8 million compared to
$16.2 million in the second quarter of 1999. Net income for the six months ended
June 30, 2000 increased 11.9% to $34.1 million as compared to $30.4 million in
the same period a year ago.
Quarterly Trends
AptarGroup's results of operations in the second half of the year typically have
been 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 or changes in general economic conditions in any
of the countries in which AptarGroup does business.
Foreign Currency
A significant number of the Company's operations are 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 Euro. In addition, with the recent geographic
expansion, the Company now has foreign exchange exposure to South American
currencies as well as the Chinese Renminbi. A strengthening U.S. dollar relative
to 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 in which the related costs are incurred.
Changes in exchange rates on such inter-country sales impact the Company's
results of operations.
11
<PAGE>
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 six months of 2000 was $53.1 million
compared to $66.3 million in the same period a year ago. The decrease is
primarily attributed to changes in working capital.
Total net working capital at June 30, 2000 was $205.0 million compared to $191.3
million at December 31, 1999. The increase in net working capital is due
primarily to higher increases in accounts receivable and inventories than the
corresponding increase in short term obligations.
Net cash used by investing activities decreased to $40.3 million from $171.7
million a year ago. The significant decrease is primarily due to the acquisition
of Emson made in 1999. In addition, capital expenditures for the first six
months of 2000 were approximately $8.8 million lower than capital expenditures
in the first six months of 1999. Management anticipates that cash outlays for
capital expenditures for all of 2000 will be approximately $85 to $90 million.
Net cash used by financing activities was $7.1 million in the first six months
of 2000 compared to net cash provided of $115.4 million in 1999. The decrease in
net cash (used) provided by financing activities is due to borrowing for the
acquisition of Emson in 1999. The ratio of net debt to total net capitalization
was 36.4% and 36.2% at June 30, 2000 and December 31, 1999, 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.
The Company entered into a new multi-year, multi-currency unsecured revolving
credit agreement on June 30, 1999 allowing borrowings of up to $75 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 June 30, 2000, 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 June 30,
2004. 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, an additional $10
million and $5 million of short-term obligations representing the unused and
available amount under the new credit agreement have been reclassified as long-
term obligations as of June 30, 2000 and December 31, 1999, respectively.
The Board of Directors declared a quarterly dividend of $.05 per share payable
on August 22, 2000 to shareholders of record as of August 1, 2000.
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,
12
<PAGE>
financial resources, products and production schedules. Statements relating to
the foregoing or that predict or indicate future events and trends and which do
not 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 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 (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." (the effective date of which was amended in
June 1999 by SFAS No. 137). 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. The effective date for
implementation of SFAS 133 is for all fiscal quarters of all fiscal years
beginning after June 15, 2000.
Staff Accounting Bulletin No. 101, "Revenue Recognition," (SAB 101) provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the Securities and Exchange Commission. SAB 101 as amended
is effective for the Company's quarter beginning October 1, 2000. The Company
has evaluated the relevant revenue recognition criteria discussed in SAB 101 and
believes it should not have an impact on the Company's current accounting
policies.
Financial Interpretation No. 44 "Accounting for Certain Transactions Involving
Stock Compensation: An Interpretation of Accounting Principles Board Opinion No.
25, (APB 25)" (FIN 44) clarifies the application of APB 25. FIN 44 specifically
addresses (1) the definition of employee for purposes of applying APB 25, (2)
the criteria for determining whether a plan qualifies as a noncompensatory plan,
(3) the accounting consequences of various modifications to the terms of
previously fixed stock options or awards, and (4) the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 is effective July
1, 2000. The Company has evaluated FIN 44 and believes it should not have an
impact
13
<PAGE>
on the Company's current accounting policies or have any material impact on the
financial statements.
Outlook
The demand for fragrance/cosmetic, pharmaceutical and food dispensing systems
should increase over the prior year, while demand for dispensing closures and
aerosol valves sold to the U.S. personal care and household markets is expected
to continue to be soft. The internal growth rates (excluding changes in foreign
currency exchange rates and acquisitions) experienced in the first half of 2000
are not expected to continue at the same levels in the third quarter. The
internal sales growth rate for the third quarter is expected to be in the 6% to
9% range.
Subsequent to June 30, 2000, the German government passed a law reducing the
corporate tax rate in Germany from 40% to 25% effective January 1, 2001. This
should help to reduce the Company's overall effective tax rate in 2001. The
Company will revalue its deferred tax assets and liabilities at the new rate in
accordance with SFAS 109 "Accounting for Income Taxes." As of June 30, 2000, the
Company was in a net deferred tax liability position in Germany.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 June 30, 2000 about the Company's
forward currency exchange contracts. All the contracts expire before the end of
the fourth quarter of 2000.
<TABLE>
<CAPTION>
Average
Contract Amount Contractual
Buy/Sell (in millions) Exchange Rate
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
EURO/USD........................................................ $ 19.9 .954921
EURO/YEN........................................................ 2.0 .009945
EURO/GBP........................................................ 1.3 .609488
Other........................................................... 0.5 --
--------
Total........................................................... $ 23.7
========
</TABLE>
The other contracts in the above table represent contracts to buy or sell
various other currencies (principally European and Australian). If the Company
cancelled the forward exchange contracts at June 30, 2000, the Company would
have received approximately $0.2 million based on the fair value of the
contracts on that date.
All forward exchange contracts outstanding as of June 30, 1999 had an aggregate
contract amount of $26.2 million.
The Company has a cross-currency interest rate swap to hedge an intercompany
lending transaction. This swap requires the Company to pay principal of 31.7
million French Francs plus interest at 8% and receive principal of $6.4 million
plus interest at 7.08% through 2005. If the Company canceled the
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<PAGE>
swap at June 30, 2000, the Company would have received approximately $1.5
million 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>
(Amounts in millions) 2000 2001 2002 2003 2004 2005
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pay FRF 6.6 7.4 7.0 6.6 6.1 5.7
Receive USD $ 1.3 1.5 1.4 1.3 1.2 1.1
</TABLE>
At June 30, 2000, the Company has fixed-to-variable interest rate swap
agreements with a notional principal value of $50 million which require the
Company to pay an average variable interest rate of 6.97% and receive a fixed
rate of 6.62%. The variable rates are adjusted semiannually based on London
Interbank Offered Rates ("LIBOR"). Variations in market interest rates would
produce changes in the Company's net income. If interest rates increase by 10%,
net income related to the interest rate swap agreements would decrease by
approximately $0.2 million assuming a tax rate of 35%. If the Company canceled
the swaps at June 30, 2000, the Company would have paid approximately $1.8
million based on the fair value of the swaps on that date.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 2000, the FCP Aptar Savings Plan, (the "Plan")
purchased 500 shares of Common Stock of the Company on behalf of the
participants at an average price of $27.78 per share. During the same quarter,
the Plan sold 20 shares of Common Stock of the Company at the price of $28.13
per share. At June 30, 2000, the Plan owned 3,125 shares of Common Stock of the
Company. Employees of AptarGroup S.A., a subsidiary of the Company, are eligible
to participate in the Plan. All eligible participants are located outside of the
United States. An agent independent of the Company purchases shares of Common
Stock available under the Plan for cash on the open market and the Company
issues no shares. The Company does not receive any proceeds form the purchase of
Common Stock under the Plan. The agent under the Plan is Banque Nationale de
Paris. No underwriters are used under the Plan. All shares are sold in reliance
upon the exemption from registration under the Securities Act of 1933 provided
by Regulation S promulgated under that Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 10, 2000. A vote was taken by
ballot for the election of three directors to hold office until the 2003 Annual
Meeting of Stockholders. The following nominees received the number of votes as
set forth below:
Broker
Nominee For Withhold Non-votes
------- --- -------- ---------
Ralph Gruska 28,462,342 131,341 -0-
Leo A. Guthart 28,468,745 124,938 -0-
Prof. Dr. Robert W. Hacker 28,464,851 128,832 -0-
No votes were cast for any other nominee for director. The directors continuing
in office until the 2001 Annual Meeting are Robert Barrows, Alfred Pilz, and
Carl A. Siebel. Directors continuing in office until the 2002 Annual Meeting of
Stockholders are King Harris, Peter Pfeiffer and Dr. Joanne C. Smith.
A vote was taken to approve the 2000 Stock Awards Plan. The vote was as set
forth below:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
17,204,250 8,002,745 79,669 3,307,019
A vote was also taken to approve the 2000 Stock Director Stock Option Plan. The
vote was as set forth below:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
22,824,891 2,379,848 81,924 3,307,020
No other matters were submitted to a vote by ballot at the 2000 Annual Meeting.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 10.22 AptarGroup, Inc. 2000 Stock Awards Plan, filed as Appendix A
to the Company's Proxy Statement dated April 6, 2000 (File
No. 1-11846), is hereby incorporated by reference.
Exhibit 10.23 AptarGroup, Inc. 2000 Director Stock Option Plan, filed as
Appendix B to the Company's Proxy Statement dated April 6,
2000 (File No. 1-11846), is hereby incorporated by
reference.
Exhibit 27 Financial Statement Schedule is included in this report
(b) Reports on Form 8-K.
No reports on Form 8-K were filed for the quarter ended June 30, 2000.
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<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 and Secretary
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 8, 2000
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