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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, 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 (November 7, 2000)
Common Stock 35,573,636
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<PAGE>
AptarGroup, Inc.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
ITEM 1. Financial statements (Unaudited)
Consolidated Statements of Income -
Three and Nine Months Ended September 30, 2000
and 1999 3
Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 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 6. Exhibits and Reports on Form 8-K 16
SIGNATURE 17
</TABLE>
<PAGE>
AptarGroup, Inc.
Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales.............................. $224,691 $210,479 $670,004 $617,566
Operating Expenses:
Cost of sales........................ 142,595 130,489 418,517 384,464
Selling, research & development
and administrative.................. 35,251 33,507 108,288 99,875
Depreciation and amortization........ 18,275 17,589 54,870 51,754
-------- -------- -------- --------
196,121 181,585 581,675 536,093
-------- -------- -------- --------
Operating Income....................... 28,570 28,894 88,329 81,473
-------- -------- -------- --------
Other Income (Expense):
Interest expense..................... (5,157) (3,845) (14,106) (10,257)
Interest income...................... 468 322 1,075 943
Equity in results of affiliates...... 322 (283) 137 (831)
Minority interests................... (212) (62) (466) (93)
Miscellaneous, net................... 994 36 2,458 918
In-process research and
development......................... ---- (3,300) ---- (3,300)
-------- -------- -------- --------
(3,585) (7,132) (10,902) (12,620)
-------- -------- -------- --------
Income Before Income Taxes............. 24,985 21,762 77,427 68,853
Provision for Income Taxes............. 8,745 8,868 27,119 25,510
-------- -------- -------- --------
Net Income............................. $ 16,240 $ 12,894 $ 50,308 $ 43,343
======== ======== ======== ========
Net Income Per Common Share:
Basic............................... $ .45 $ .35 $ 1.40 $ 1.19
======== ======== ======== ========
Diluted............................. $ .45 $ .35 $ 1.38 $ 1.17
======== ======== ======== ========
Average Number of Shares Outstanding:
Basic............................... 35,774 36,440 35,952 36,325
Diluted............................. 36,294 37,039 36,485 36,949
</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)
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Assets
Current Assets:
Cash and equivalents........................................ $ 45,661 $ 32,416
Accounts and notes receivable, less allowance for doubtful
accounts of $7,299 in 2000 and $6,865 in 1999............ 209,074 188,507
Inventories................................................. 116,372 109,151
Prepayments and other....................................... 23,363 21,160
--------- ---------
394,470 351,234
--------- ---------
Property, Plant and Equipment:
Buildings and improvements.................................. 96,432 96,427
Machinery and equipment..................................... 627,750 615,665
--------- ---------
724,182 712,092
Less: Accumulated depreciation.............................. (379,166) (357,733)
--------- ---------
345,016 354,359
Land........................................................ 4,489 4,199
--------- ---------
349,505 358,558
--------- ---------
Other Assets:
Investments in affiliates................................... 6,656 3,969
Goodwill, less accumulated amortization of $11,713 in
2000 and $9,943 in 1999.................................. 124,315 127,214
Miscellaneous............................................... 20,277 22,323
--------- ---------
151,248 153,506
--------- ---------
Total Assets $ 895,223 $ 863,298
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AptarGroup, Inc.
Consolidated Balance Sheets
(Amounts in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
Liabilities and Stockholders' Equity 2000 1999
------------ ------------
<S> <C> <C>
Current Liabilities:
Notes payable...................................... $ 47,829 $ 25,499
Current maturities of long-term obligations........ 9,178 9,648
Accounts payable and accrued liabilities........... 156,979 124,758
-------- --------
213,986 159,905
-------- --------
Long-Term Obligations................................ 228,243 235,649
-------- --------
Deferred Liabilities and Other:
Deferred income taxes.............................. 29,295 25,529
Retirement and deferred compensation plans......... 12,300 14,658
Minority interests................................. 4,144 4,118
Deferred and other non-current liabilities......... 2,571 3,170
-------- --------
48,310 47,475
-------- --------
Stockholders' Equity:
Common stock, $.01 par value....................... 366 365
Capital in excess of par value..................... 114,387 112,921
Retained earnings.................................. 426,678 381,762
Accumulated other comprehensive income............. (111,792) (68,567)
Less treasury stock at cost, 1,000 shares in 2000
and 235.5 shares in 1999.......................... (24,955) (6,212)
-------- --------
404,684 420,269
-------- --------
Total Liabilities and Stockholders' Equity $895,223 $863,298
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AptarGroup, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(Amounts in Thousands, brackets denote cash outflows)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income............................................... $ 50,308 $ 43,343
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation............................................. 50,668 48,830
Amortization............................................. 4,202 2,924
Provision for bad debts.................................. 1,347 779
Minority interests....................................... 466 93
Deferred income taxes.................................... 2,999 587
Retirement and deferred compensation plans............... (937) (568)
Equity in results of affiliates in
excess of cash distributions received................. (137) 831
In-process research & development write-off.............. -- 3,300
Changes in balance sheet items,
excluding effects from foreign currency adjustments:
Accounts receivable...................................... (42,599) (4,879)
Inventories.............................................. (18,782) (5,074)
Prepaid and other current assets......................... (3,929) (5,304)
Accounts payable and accrued liabilities................. 46,560 2,219
Other changes, net....................................... 5,017 5,931
-------- ---------
Net cash provided by operations.......................... 95,183 93,012
-------- ---------
Cash Flows From Investing Activities:
Capital expenditures..................................... (68,687) (63,100)
Disposition of property and equipment.................... 2,765 1,250
Acquisition of businesses................................ (2,271) (144,431)
Collections of notes receivable, net..................... 18 (142)
Investments in affiliates................................ -- (1,500)
-------- ---------
Net cash (used) by investing activities.................. (68,175) (207,923)
-------- ---------
Cash Flows From Financing Activities:
Increase (decrease) in notes payable..................... 23,585 (7,672)
Proceeds from long-term obligations...................... 2,525 150,294
Repayments of long-term obligations...................... (13,434) (16,344)
Dividends paid........................................... (5,392) (4,712)
Proceeds from stock options exercised.................... 1,467 1,717
Purchase of Treasury Stock............................... (18,744) --
-------- ---------
Net cash (used) provided by financing activities......... (9,993) 123,283
-------- ---------
Effect of Exchange Rate Changes on Cash.................... (3,770) (1,492)
-------- ---------
Net Increase in Cash and Equivalents....................... 13,245 6,880
Cash and Equivalents at Beginning of Period................ 32,416 25,159
-------- ---------
Cash and Equivalents at End of Period...................... $ 45,661 $ 32,039
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AptarGroup, Inc.
Notes To Consolidated Financial Statements
(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 148,371
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 involved companies that manufacture and distribute
products similar to the Company's products. The third acquisition, involving 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 acquired business 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. The $3.3 million write-off of IPR&D
in 1999 has been excluded from the proforma results.
<TABLE>
<CAPTION>
(Amounts in Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net Sales $224,691 $210,479 $670,004 $628,728
Net Income $ 16,240 $ 15,920 $ 50,101 $ 44,749
Net Earnings per common share:
Basic $ 0.45 $ 0.44 $ 1.39 $ 1.23
Diluted $ 0.45 $ 0.43 $ 1.37 $ 1.21
Weighted average shares outstanding:
Basic 35,774 36,440 35,952 36,345
Diluted 36,294 37,039 36,485 36,969
</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 September 30, 2000 and December 31, 1999, approximately 25% of the total
inventories are accounted for by the LIFO method. Inventories, by component,
consisted of:
<TABLE>
<CAPTION>
(Amounts in Thousands)
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw Materials $ 53,236 $ 42,648
Work in progress 20,687 28,370
Finished goods 43,740 38,923
-------- --------
Total 117,663 109,941
Less LIFO reserve (1,291) (790)
-------- --------
Total $116,372 $109,151
======== ========
</TABLE>
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>
(Amounts in Thousands)
Three months ended September 30 Nine months ended September 30
------------------------------- ------------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
-------- ------- -------- --------
Net income $ 16,240 $12,894 $ 50,308 $ 43,343
Add/(Subtract): foreign currency (25,890) 9,431 (43,225) (28,496)
translation adjustment -------- ------- -------- --------
Total comprehensive income (loss) ($ 9,650) $22,325 $ 7,083 $ 14,847
======== ======= ======== ========
</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. During
the quarter ended September 30, 2000, the Company repurchased 379,200 shares for
an aggregate amount of $9.3 million. At September 30, 2000 all one million
shares had been repurchased for an aggregate amount of $25.0 million. Subsequent
to the quarter ended September 30, 2000, the Board of Directors authorized an
additional repurchase of a maximum of two million shares of the Company's
outstanding shares. The timing of and total amount expended for share
repurchases depends upon market conditions.
Note 6 - Significant Non-Cash Transactions
During the quarter ended September 30, 2000, the Company entered into a joint
venture to which the Company contributed assets of $7.4 million and liabilities
of $2.4 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 nine months ended September 30, 2000 totaled
$224.7 million and $670.0 million, respectively, increases of approximately 7%
and 8% respectively when compared to the corresponding periods of 1999. The
stronger U.S. dollar relative to the same three-month and nine-month periods of
1999 negatively affected the translation of AptarGroup's foreign sales.
Excluding the effects of exchange rates and acquisitions, sales for the quarter
and nine months ended September 30, 2000 would have increased approximately 14%
and 13%, respectively. Acquisitions completed in 1999 accounted for $11.3
million of the increase for the nine months ended September 30, 2000 and had
minimal effect on the three months ended September 30, 2000. Sales of pumps to
the worldwide fragrance/cosmetic and pharmaceutical markets remained strong in
the quarter. In addition sales of pumps, valves and closures to the European
personal care market also remained strong. Continuing the trend seen in the
first half of the year, demand for aerosol valves, pumps and dispensing closures
from the U.S. personal care and household markets remained soft in the quarter.
Sales by European operations represented approximately 51% and 52% of net sales
for the quarter and nine months ended September 30, 2000, respectively, compared
to 53% and 55% for the same periods a year ago. Sales by U.S. operations
represented 40% of net sales for the quarter and nine months ended September 30,
2000, respectively, compared to 40% and 39% for the same periods a year ago.
Sales by other foreign operations represented 9% and 8% of net sales for the
quarter and six months ended September 30, 2000, respectively, compared to 7%
and 6% for the same periods a year ago.
Cost of sales as a percent of net sales increased to 63.5% in the third quarter
of 2000 compared to 62.0% for the same period in 1999. For the first nine months
of 2000, cost of sales as a percent of net sales increased slightly to 62.5%
compared to 62.3% in the same period a year ago. Increased price pressure and
underutilization of fixed costs in the U.S. personal care and household markets
negatively impacted cost of sales as a percentage of sales compared to the prior
year in both periods.
Selling, research & development and general and administrative expenses (SG&A)
increased 5.2% or $1.7 million to $35.3 million in the third 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 general and administrative expenses relating to
outside consulting fees for a variety of projects including but not limited to
software implementations. SG&A as a percent of net sales decreased slightly to
15.7% of sales in the third quarter of 2000 compared to 15.9% in the same period
a year ago. SG&A for the nine months ended September 30, 2000 increased 8.4% or
$8.4 million to $108.3 million compared to $99.9 million a year ago. The
increase in SG&A for the nine months is primarily due to increased general and
administrative expenses as well as increased research and development costs. As
a percent of net sales, SG&A for the first nine months of 2000 and 1999 was
16.2%.
10
<PAGE>
European operations represented 73% and 75% of operating income for the quarter
and nine months ended September 30, 2000, respectively, as compared to 66% and
69% in the same periods a year ago. U.S. operations represented 37% and 35% of
operating income for the quarter and nine months ended September 30, 2000,
respectively, as compared to 40% in the corresponding periods of 1999. Operating
income from other foreign operations, corporate expenses and inter-geographic
eliminations represent the reconciling factors to total operating income.
Interest expense increased $1.3 million and $3.8 million for the third quarter
and nine months ended September 30, 2000, respectively, as compared to the same
periods a year ago due primarily to additional debt related to the acquisitions
completed in 1999 and the Company's stock repurchase program as well as higher
interest rates.
The effective tax rate was 35% for the third quarter and nine months ended
September 30, 2000, respectively, compared to 40.7% and 37.0% for the same
periods a year ago. Last year's effective tax rate includes the effect of the
non-deductibility for tax purposes of the write-off of purchased IPR&D.
Excluding this effect, the effective tax rates for the prior year would have
been 35.4% for the three and nine months ended September 30, 1999. The slight
decrease from the prior year is due to the mix of income earned in different
foreign tax jurisdictions.
Subsequent to the quarter ended September 30, 2000, Germany signed into law a
reduction in the corporate tax rate from 40% to 25% beginning in 2001. As a
result, the Company will have to revalue its German deferred taxes, which are
expected to reduce tax expense by approximately $0.8 million in the fourth
quarter. Based upon this adjustment, the Company expects the effective tax rate
in the fourth quarter to be approximately 31%. This will reduce the full year
effective tax rate to approximately 34%. The Company expects the effective tax
rate for 2001 to be in the range of 32%-34%.
Net income for the third quarter increased 26.0% to $16.2 million compared to
$12.9 million in the third quarter of 1999. Excluding the effect of the
purchased IPR&D write-off, net income for the third quarter of 1999 was $16.2
million. Net income for the nine months ended September 30, 2000 increased 16.1%
to $50.3 million as compared to $43.3 million in the same period a year ago.
Excluding the effect of the purchased IPR&D write-off, net income for the first
nine months of 1999 was $46.6 million.
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 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
11
<PAGE>
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, the Company now has foreign exchange exposure to certain 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.
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 nine months of 2000 was $95.2 million
compared to $93.0 million in the same period a year ago. The increase is
primarily attributable to increased profitability.
Total net working capital at September 30, 2000 was $180.5 million compared to
$191.3 million at December 31, 1999. The decrease in net working capital is due
primarily to higher increases in short term obligations and accounts payable
than the corresponding increase in accounts receivable and inventories.
Net cash used by investing activities decreased to $68.2 million from $207.9
million a year ago. The significant decrease is primarily due to acquisitions
completed in 1999. Management anticipates that cash outlays for capital
expenditures for all of 2000 will be approximately $90 million.
Net cash used by financing activities was $10.0 million in the first nine months
of 2000 compared to net cash provided of $123.3 million in 1999. The decrease in
net cash (used) provided by financing activities is due primarily to borrowing
for acquisitions completed in 1999. The ratio of net debt to total net
capitalization was 37.2% and 36.2% at September 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 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 September 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 credit agreement have been reclassified as long-term
obligations as of September 30, 2000 and December 31, 1999, respectively.
12
<PAGE>
The Board of Directors declared a quarterly dividend of $.05 per share payable
on November 22, 2000 to shareholders of record as of November 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, 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 represent 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 September 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 September 1999 by SFAS No. 137). This Statement was further amended
in June 2000 by SFAS No. 138. SFAS No. 133 and the amendments found in SFAS No.
138 require 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
13
<PAGE>
recognition criteria discussed in SAB 101 and believes it should not have an
impact on the Company's current accounting policies.
Fourth Quarter 2000 Outlook
The demand for fragrance/cosmetic systems in the fourth quarter of 2000 is
expected to increase over the prior year. Demand for pharmaceutical dispensing
systems is expected to soften. The reduction in demand for pharmaceutical
dispensing systems is due to the high level of orders placed in the fourth
quarter of 1999 in preparation of the year 2000 and this reduction is expected
to be a temporary slowdown and not a long-term trend. Dispensing closures, pumps
and aerosol valves sold to the U.S. personal care and household markets is
expected to continue to be soft. The internal sales growth rate (excluding
changes in foreign currency exchange rates and acquisitions) for the fourth
quarter is anticipated to be in the 0% to 5% range. Earnings per share in the
fourth quarter is expected to be in the range of $.35 to $.40 per share versus
the $.42 reported in the prior year.
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 September 30, 2000 about the
Company's forward currency exchange contracts. All the contracts expire before
the end of the third quarter of 2001.
<TABLE>
<CAPTION>
Average
Contract Amount Contractual
Buy/Sell (in millions) Exchange Rate
-------------------------------------------------------------------
<S> <C> <C>
EURO/USD..................... $18.6 .912066
EURO/GBP..................... 3.9 .605774
GBP/EURO..................... 3.8 1.606683
EURO/YEN..................... 2.1 .0097572
Other........................ .9 --
-----
Total........................ $29.3
=====
</TABLE>
The other contracts in the above table represent contracts to buy or sell
various other currencies (principally Asian, European and Australian). If the
Company cancelled the forward exchange contracts at September 30, 2000, the
Company would have paid approximately $0.7 million based on the fair value of
the contracts on that date.
All forward exchange contracts outstanding as of September 30, 1999 had an
aggregate contract amount of $35.1 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 26.5
million French Francs plus interest at 8% and receive principal of $5.4 million
plus interest at 7.08% through 2005. If the Company canceled the
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<PAGE>
swap at September 30, 2000, the Company would have received approximately $1.6
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) 2001 2002 2003 2004 2005
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pay FRF 7.4 6.9 6.6 6.1 5.7
Receive USD $ 1.5 1.4 1.3 1.2 1.1
</TABLE>
At September 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 September 30, 2000, the Company would have paid approximately $0.6
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 September 30, 2000, the FCP Aptar Savings Plan, (the
"Plan") purchased 420 shares of Common Stock of the Company on behalf of the
participants at an average price of $24.70 per share for an aggregate amount of
$10,374. During the same quarter, the Plan sold 50 shares of Common Stock of the
Company at the price of $24.38 per share for an aggregate amount of $1,219. At
September 30, 2000, the Plan owned 3,495 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 from 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
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 September 30,
2000.
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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: November 10, 2000
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