0000896622us-gaap:ValuationAllowanceOfDeferredTaxAssetsMember2019-01-012019-12-31
United States Securities and Exchange Commission
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☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDEDDECEMBER 31, 2021
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☐ | FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE TRANSITION PERIOD FROM TO
FROM_____TO_____COMMISSION FILE NUMBER1-11846
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DELAWAREDelaware
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265 EXCHANGE DRIVE, SUITE 100,, CRYSTAL LAKE,, ILLINOISIL60014
815-477-0424
815-477-0424
Securities Registered Pursuant to Section 12(b) of the Act:
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| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value | ATR | New York Stock Exchange |
Securities Registered Pursuant to Section
12 (g)12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
No ☒
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.
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer☒ | ☒ | Accelerated filer☐ | ☐ | Non-accelerated filer☐ | ☐ | Smaller reporting company☐ | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.◻☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
No ☒
The aggregate market value of the common stock held by non-affiliates as of June 28, 201930, 2021 was $7,975,902,822.$9,322,666,642.
The number of shares outstanding of common stock, as of February 18, 2020,14, 2022, was 64,054,13865,562,125 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held May 6, 20204, 2022 are incorporated by reference into Part III of this report.
For the Year Ended December 31,
20192021
WHO ARE WE AND WHAT DO WE DO
Aptar is a
leading global
supplierleader in the design and manufacturing of a broad range of
innovativedrug delivery, consumer product dispensing,
sealing,and active
packagingmaterial science solutions and services. Aptar's innovative solutions and services
for theserve a variety of end markets including pharmaceutical, beauty, personal care, home care,
prescription drug, consumer health care, injectables, active packaging, food and
beverage markets. Aptar usesbeverage. Using insights,
proprietary design, engineering and science to create
innovative packagingdispensing, dosing and protective technologies
that build brand value for
its customers, and,many of the world's leading brands, Aptar in turn
makemakes a meaningful difference in the lives, looks, health and homes of
peoplemillions of patients and consumers around the world. Aptar is headquartered in Crystal Lake, Illinois and has approximately
14,00013,000 dedicated employees in 20 different countries. For more information, visit www.aptar.com.
Our business was started in the late 1940’s, manufacturing and selling aerosol valves in the United States, and has grown primarily through acquisitions and internal expansion.
We were incorporated in Delaware in 1992. In this report, we may refer to AptarGroup, Inc. and its subsidiaries as “AptarGroup”, “Aptar” or the “Company”.
We have manufacturing facilities located throughout the world including North America, Europe, Asia and South America. We have approximately
7,0005,000 customers with no single customer or group of affiliated customers accounting for greater than
6%5% of our
20192021 Net Sales.
Consumers’ preference for convenience and product differentiation through
drug delivery and packaging design and function are important to our customers and they have converted many of their packages from non-dispensing formats to dispensing systems that offer enhanced shelf appeal, convenience, cleanliness and accuracy of dosage.
We design our products with both people and the environment in mind. Many of our product solutions for the beauty, personal care, home care, food and beverage markets are recyclable, reusable or made with recycled content.
We partner with our customers by providing innovative delivery systems and a suite of comprehensive services to help them succeed. While we offer a wide variety of
dispensing, sealingservices and
active packaging solutions,products, our primary products are dispensing pumps, closures, aerosol valves,
and elastomeric primary packaging
components.components, active material science solutions and digital health solutions.
Dispensing pumps are finger-actuated dispensing systems that dispense a spray or lotion from non-pressurized containers. The style of pump used depends largely on the nature of the product being dispensed, from small, fine mist pumps used with
perfumepharmaceutical products and
pharmaceutical productsperfume to lotion pumps for more viscous formulas.
Closures are primarily dispensing closures but to a lesser degree can include non-dispensing closures. Dispensing closures are plastic caps that allow a product to be dispensed without removing the cap.
Aerosol valves dispense product from pressurized containers. The majority of the aerosol valves that we sell are
continuous spraymetered dose valves, with the balance being
metered dosebag-on valve and continuous spray valves.
We also manufacture and sell elastomeric primary packaging components. These components are used in the injectables market. Products include stoppers for infusion, antibiotic, lyophilization and diagnostic vials. Our elastomeric components also include pre-filled syringe components, such as plungers, needle shields, tip caps and cartridges,cartridges.
We provide active material science solutions using our platform technology to maintain container closure integrity, extend shelf-life, control moisture and protect drug products from overall environmental exposures and degradations.
The digital health solutions aim to improve patients' treatment experience and outcomes. We leverage connected devices, diagnostic and digital therapeutics tools that support patients to manage their disease as well as
dropper bulbsenabling care teams to remotely monitor the health of the patients when needed. Available as standalone or as a fully integrated offering in our existing range of drug delivery solutions, we have digital health solutions covering a wide range of therapeutic areas including, but not limited to, pulmonary, oncology, diabetes, immunology, and
syringe plungers.neurology.
During 20182021 and 2019,2020, we acquired several companies to strengthen and broaden our portfolio, including the following business combinations and asset purchases:
- September - November 2021 – We acquired 100% of the
following entities: | - | October 2019 – Noble International Holdings, Inc., Genia Medical, Inc. and JBCB Holdings, LLC (collectively referred to as “Noble”) for cash paid at close of approximately $62.3 million (net of $1.6 million of cash acquired) and contingent consideration liability due to sellers related to earn-out. |
| - | June 2019 – Nanopharm Ltd. (“Nanopharm”) for cash paid at close of approximately $38.1 million (net of $1.8 million of cash acquired). |
| - | May 2019 – Gateway Analytical LLC (“Gateway”) for cash paid at close of approximately $7.0 million and $3.0 million contingent consideration liability due to sellers related to earn-out. |
| - | August 2018 – CSP Technologies S.à r.l. (“CSP Technologies”) for cash paid at close of approximately $553.5 million. |
| - | May 2018 – Reboul SAS (“Reboul”) for cash paid at close of approximately $3.6 million (net of $112 thousand of cash acquired). |
During August 2019 we completed the asset acquisitionshare capital of Bapco Closures Holdings Limited (“Bapco”Voluntis S.A. ("Voluntis") for $3.8approximately $89.7 million (net of $2.9$3.8 million of cash acquired).
- August 2021 – We acquired 80% of the equity interests in Weihai Hengyu Medical Products Co., Ltd. ("Hengyu") for approximately $53.8 million (net of $6.0 million of cash acquired).
- October 2020 – We acquired the assets of Cohero Health, Inc. ("Cohero Health") for approximately $2.4 million.
- April 2020 – We acquired 100% of the equity interests of Fusion Packaging, Inc. ("Fusion") for cash paid at close of approximately $163.8 million (net of $1.0 million of cash acquired) and contingent consideration liability due to sellers related to earn-out.
To further broaden our portfolio, during 2021 and 2020, we also invested an aggregate amount of $3.5 million in two preferredmade several equity investments, including:
- July 2021 – We acquired 10% of the equity interests in sustainability companies LoopYAT for approximately $5.9 million.
- April 2020 – We acquired 30% of the equity interests in Healthcare, Inc., Shanghai Sonmol Internet Technology Co., Ltd. and PureCycle Technologies (“PureCycle”its subsidiary, Shanghai Sonmol Medical Equipment Co., Ltd. (collectively referred to as "Sonmol"). for approximately $5 million.
In addition, during- January 2020 w– We acquired 49% of the equity interests in three related companies: Suzhou Hsing Kwang, Suqian Hsing Kwang and Suzhou BTY (collectively referred to as “BTY”). for approximately $32 million.
Refer to Note 20-19 – Acquisitions and Note 20 – Investment in Equity Securities in Part II, Item 8 – Consolidated Financial Statements and Supplementary Data for further details on acquisition and related investment activities.
Our periodic and current reports, and any amendments to those reports, are available, free of charge, through a link on the Investors page of our website (www.aptar.com), as soon as reasonably practicable after the material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). These filings are also available to the public over the Internet at the SEC’s website
(http://www.sec.gov)(www.sec.gov).
Also posted on our website are the charters for our Audit, Management Development and Compensation,
Governance and
ExecutiveGovernance Committees, our Governance Principles, our Code of
Business Conduct,
& Ethics, our Director Independence Standards and our Conflict Minerals Statement. Within the time period required by the SEC and the New York Stock Exchange (“NYSE”), we will post on our website any amendment or waiver to the Code of Business Conduct & Ethics applicable to any executive officer or director. The information provided on our website is not part of this report and is therefore not incorporated herein by reference.
We seek to enhance our position as a leading global provider of innovative packagingdrug delivery, consumer product dispensing sealing,and active packagingmaterial science solutions and services andto deliver increased value to our customers and stockholders through strategic focus and execution in the following areas:
(i) | (i) | Successful Transformation: To strengthen our performance and deepen our position as a true market shaper, we continually evaluate our business. In late 2017, we launched a comprehensive business transformation plan within our Beauty + Home segment and for key corporate support functions including Finance, Human Resources, Information Systems and Purchasing. |
| (ii) | Focus on Organic Growth: We are focused on accelerating our top line growth with added emphasis on high growth economies. Accordingly, we are creating empowered, regional, cross-functional profit and loss (“P&L”) teams who are fully accountable to drive profitable growth. |
| (iii) | Excellence in Core Business Functions: We have established three pillars of functional excellence to ensure we perform at best in class levels in the core functions of any manufacturing business, namely “innovate,” “produce” and “sell,” and that our business teams are supported in the areas of Innovation, Operations and Commercial Excellence. |
| (iv) | Focus on Talent and Leadership: Execution of our strategy requires a talented, motivated, diverse, international team. We have a focused talent acquisition and development strategy to ensure our teams have the right skills to execute our strategy. |
| (v) | Partnerships and Acquisitions: We will continue to focus on growing the Company through appropriate business acquisition opportunities as well as developing partnerships to expand the scope of our technologies, geographic presence and product offerings. |
Focus on Organic Growth: We are focused on accelerating our top line growth with added emphasis on high growth economies. Accordingly, we empower regional, cross-functional profit and loss (“P&L”) teams who are fully accountable to drive profitable growth. (ii)Focus on Talent and Leadership: Execution of our strategy requires a talented, motivated, diverse, global team. We have a focused talent acquisition and development strategy to ensure our teams have the right skills to execute our strategy.
(iii)Excellence in Core Business Functions: We have established three pillars of functional excellence to ensure we perform at best in class levels in the core functions of any manufacturing business, namely “innovate,” “produce” and “sell,” and that our business teams are supported in the areas of Innovation, Operations and Commercial Excellence.
(iv)Successful Transformation: To strengthen our performance and deepen our position as a true market shaper, we continually evaluate our business. In late 2017, we launched a comprehensive business transformation plan within our Beauty + Home segment and our key corporate support functions. While the global COVID-19 pandemic and other headwinds have negatively impacted volumes in our Beauty + Home segment and deferred some initiatives past our original 3 year timeline, we have continued focus on transforming our Beauty + Home segment by adding capabilities in Asia and capitalizing on fast growing application fields within the segment.
(v)Partnerships and Acquisitions: We will continue to focus on growing the Company through appropriate business acquisition opportunities as well as developing partnerships to expand the scope of our technologies, geographic presence and product offerings.
Facilitating the execution of our strategy are our core values, which dictate how we interact internally and externally with our employees, customers, suppliers and all stakeholders.
DESCRIPTION OF OUR REPORTING SEGMENTS
INFORMATION ABOUT SEGMENTS
Our organizational structure consists of three market-focused business segments: Pharma, Beauty + Home Pharma and Food + Beverage. This is a strategic structure which allows us to be more closely aligned with our customers and the markets in which they operate. We primarily sell our products and services through our own sales force to pharmaceutical, health care, beauty, personal care, home care, pharmaceutical, food and beverage marketers. To a limited extent, we use independent representatives and distributors to increase our reach to smaller customers and export markets.
Operations that sell dispensing systems, drug delivery systems, sealing solutions and services to the prescription drug, consumer health care, injectables, active material science solutions and digital health solutions markets form the Pharma segment. Operations that sell dispensing systems and sealing solutions primarily to the beauty, personal care and home care markets form the Beauty + Home segment. Operations that sell dispensing systems, and sealing solutions and services to the prescription drug, consumer health care, injectables and active packaging markets form the Pharma segment. Operations that sell dispensing systems and sealing solutionsfood service trays to the food and beverage markets form the Food + Beverage segment. Each of these three business segments is described more fully below.
PHARMA
Our Pharma segment accounts for 65% of our Adjusted EBITDA excluding non-allocated corporate costs, and is our second largest segment in terms of net sales and our largest segment in terms of total assets, representing 40% and 44% of our Net Sales and Total Assets, respectively, in 2021. We are a leading supplier of nasal drug delivery spray pumps and metered dose inhaler valves (“MDIs”) to the pharmaceutical and health care markets worldwide and we are an important supplier of elastomer for injectable primary packaging components worldwide. Characteristics of this market include (i) governmental regulation of our pharmaceutical customers, (ii) contaminant-controlled manufacturing environments and (iii) a significant amount of time and research from initially working with pharmaceutical companies at the molecular development stage of a medication through the eventual distribution to the market. We have clean-room manufacturing facilities in Argentina, China, France, Germany, India, Switzerland and the United States. We believe that providing value-added, convenient drug delivery and dispensing systems will continue to offer opportunities for our business. In addition, we believe there are opportunities for growth in the over-the-counter and generic pharmaceutical categories.
Prescription Drug.Sales to the prescription drug market accounted for approximately 42% of the segment’s total net sales in 2021. Pumps sold to the prescription drug market deliver medications nasally, orally or topically. Currently the majority of our pumps sold are for nasal allergy treatments. Sales of pumps to deliver prescription allergy medicine that is now available over-the-counter remains part of our prescription drug division. Our nasal pumps and unit dose and bidose devices are also used to deliver liquid and powder pain management and central nervous system therapies.
MDIs are used for dispensing precise amounts of aerosolized medication. This technology allows medication to be broken up into very fine particles, which enables the drug to be delivered typically via the pulmonary route. Currently the majority of our MDIs sold are used for respiratory ailments such as asthma and COPD (chronic obstructive pulmonary disease).
We continue to develop new drug delivery and dispensing systems and accessories in this segment. While we expect that these types of new products will come to market in the future, it is difficult to estimate when, as the rigors of pharmaceutical regulations affect the timing of product introductions by our pharmaceutical customers that use our drug delivery and dispensing systems.
Consumer Health Care.Sales to the consumer health care market accounted for approximately 23% of the segment’s total net sales in 2021. Many product applications for this market are similar to the prescription market; however, these product applications are sold over-the-counter without a prescription. Typical consumer health care spray product applications include nasal decongestants, nasal salines and cough and cold product applications. Typical consumer health care valve product applications include nasal saline using our bag-on valve technology. We have developed a multi dose ophthalmic dispensing device suitable for unpreserved formulations. This technology is successfully marketed in Europe, North America and Latin America and is under development for other markets both for over-the-counter and prescription product applications. Other products sold to this market include airless pump systems for dermal drug delivery product applications. We have recently seen a trend to more child resistant and senior-friendly packaging solutions and have developed products to meet these market needs.
Injectables.Sales to the injectables market accounted for approximately 22% of the segment’s total net sales in 2021. Injectables are elastomeric primary packaging components that assist with the administration of injected medicines. Injectable products offered include stoppers for vials and pre-filled syringe components, such as plungers, needle shields, tip caps and components for cartridges. Our recent capital investment commitments in this business will enable us to market coated stoppers which better protect the contents of the vial and the integrity of biologic formulations. Pharmaceutical applications for this market include vaccines, anti-thrombotic, small molecules and biologics.
Active Material Science Solutions.Sales of active material science solutions products accounted for approximately 13% of the segment’s total net sales in 2021. The platform technology is integrated into at-home COVID-19 test kits to protect against moisture and protect the integrity of the test kits. Our Activ-Film™ solution leverages proprietary platform technology to ensure accurate readings and improve shelf life.
In addition, Aptar's material science platform technology is used to protect oral solid dose drugs, transdermal drug delivery, medical devices and probiotics. It can be engineered to absorb moisture, emit aromas, reduce pathogens, or scavenge odor, oxygen or volatile organic compounds.
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2/3/ATR
| 20192021 Form 10-K
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Digital Health Solutions. Aptar began serving the digital health market in the fourth quarter of 2021 with the acquisition of Voluntis. Additionally, Cohero Health sales will be reported within the digital health solutions market going forward. Sales to the digital health market accounted for less than 1% of the segment's total net sales in 2021 and are expected to increase in 2022 given a full year of Voluntis sales will be included in our consolidated revenues. The digital health solutions we provide improve patients' treatment, experience and outcomes. We leverage connected devices, diagnostics and digital therapeutic tools that support patients to manage their disease as well as enabling care teams to remotely monitor the health of the patients when needed. Available as standalone or as a fully integrated offering in our existing range of drug delivery solutions, we have digital health solutions covering a wide range of therapeutic areas including, but not limited to, pulmonary, oncology, diabetes, immunology and neurology.
Our Beauty + Home segment accounts for 23% of our Adjusted EBITDA excluding non-allocated corporate costs, and is our largest segment in terms of net sales and our second largest in terms of total assets, representing 47%44% and 39% of our Net Sales and Total Assets, respectively, in 2019.2021. The Beauty + Home segment primarily sells pumps and decorative components to the beauty market and pumps, closures, aerosol valves, accessories and sealing solutions to the personal care and home care markets and pumps and decorative components to the beauty market.markets. We believe we are a leading supplier for the majority of the products we sell primarily to the beauty and personal care markets.
Beauty.Beauty. Sales to the beauty market accounted for approximately 51%49% of the segment’s total net sales in 2019.2021. The beauty market requires a broad range of spray and lotion pumps, closures, elastomeric flow-control components and sampling dispensing systems to meet functional as well as aesthetic requirements. A considerable amount of research time and coordination with our customers is required to qualify a pump for use with their products. Within the market, we expect the use of pumps to continue to increase, particularly in the cosmetics and sampling sectors. In the cosmetic sector, packaging for certain products such as natural and organic cosmetics and anti-aging lotions continue to provide us with growth opportunities. We are a leading provider of packaging solutions for prestige and mass market fragrance products. Our cosmetic lotion pumps, airless dispensing systems, lotion sampling devices and decorative capabilities along with our focus on color cosmetics including lip stick and lip gloss products will also provide growth opportunities. We see continued growth opportunities in Latin America and significant opportunities for growth in the sale of our products for cosmetic skin care and color cosmetic product applications in Asia.
Personal Care. Sales to the personal care market accounted for approximately 42%43% of the segment’s total net sales in 20192021 and primarily included sales of lotion pumps, closures, fine mist spray pumps, lotion pumps, closures, elastomeric flow-control components and continuous spray aerosol valves.valves and elastomeric flow-control components. Personal care lotion pump product applications include hand sanitizers, soaps, cleaners and skin moisturizers. Personal care closures product applications include hand sanitizers, shampoos and conditioners. Typical spray pump product applications include hair care, body care and sun care products. Typical lotion pump applications include skin moisturizers, hand sanitizers and soap. Personal care closures applications include shampoos and conditioners. Personal care continuous spray aerosol valve product applications include hair care products, deodorants, shaving creams and sun care products. Our research and development teams continue to design unique accessories that increase the value of our continuous spray aerosol valve offerings.
Home Care. Sales to the home care market accounted for approximately 7%8% of the segment’s total net sales in 20192021 and primarily included sales of continuous or metered dose spray aerosol valves, closures and to a lesser degree spray and lotion pumps. ApplicationsProduct applications for continuous spray valves include disinfectants, spray paints, insecticides and automotive products. Metered dose valves are used for air fresheners. Closure product applications include liquid detergents, automotive products and household cleansers. Spray and lotion pump product applications primarily include household, insect repellantrepellent and industrial cleaners.PHARMA
The Pharma
FOOD + BEVERAGE
Our Food + Beverage segment
isaccounts for 12% of our
second largest segment in terms of net sales and total assets, accounting for 38% and 40%Adjusted EBITDA excluding non-allocated corporate costs, 16% of our Net Sales and
Total Assets, respectively, in 2019. We believe we are a leading supplier14% of
pumps and metered dose inhaler valves (“MDIs”) to the pharmaceutical market worldwide and we are an important supplier of elastomer for injectable primary packaging components worldwide. Characteristics of this market include (i) governmental regulation of our
pharmaceutical customers, (ii) contaminant-controlled manufacturing environments and (iii) a significant amount of time and research from initially working with pharmaceutical companies at the molecular development stage of a medication through the eventual distribution to the market. We have clean-room manufacturing facilities in Argentina, China, France, Germany, India, Switzerland and the United States. We believe that providing an alternative to traditional medication forms such as pills with value-added, convenient dispensing systems will continue to offer opportunities for our business. In addition, we believe there are opportunities for growth in the over-the-counter and generic pharmaceutical categories.Prescription Drug. Sales to the prescription drug market accounted for approximately 50% of the segment’s total net sales in 2019. Pumps sold to the prescription drug market deliver medications nasally, orally or topically. Currently the majority of our pumps sold are for nasal allergy treatments. Sales of pumps to deliver prescription allergy medicine that is now available over-the-counter remains part of our prescription drug division. This could provide us with growth opportunities as the movement to over-the-counter availability allows consumers easier access to these types of treatments. Our nasal pumps and unit dose and bidose devices are also used to deliver pain management products. Potential opportunities for providing alternatives to traditional pill and injectable dosage forms of medication include pump dispensing systems for vaccines, cold and flu treatments, central nervous systems applications and hormone replacement therapies.
MDIs are used for dispensing precise amounts of aerosolized medication. This technology allows medication to be broken up into very fine particles, which enables the drug to be delivered typically via the pulmonary system. Currently the majority of our MDIs sold are used for respiratory ailments such as asthma and COPD (chronic obstructive pulmonary disease).
We continue to develop new dispensing systems and accessories in this segment. For example, we provide single dose delivery devices suitable for central nervous system applications. While we expect that these types of new products will come to market in the future, it is difficult to estimate when, as the rigors of pharmaceutical regulations affect the timing of product introductions by our pharmaceutical customers that use our dispensing systems.
Consumer Health Care. Sales to the consumer health care market accounted for approximately 24% of the segment’s total net sales in 2019. Applications for this market are similar to the prescription market; however, these applications are sold over-the-counter without a prescription. Typical consumer health care spray pump applications include nasal decongestants, nasal salines and cough and cold applications. Typical consumer health care valve applications include nasal saline using our bag-on valve technology. We have developed a multi dose ophthalmic dispensing device suitable for unpreserved formulations. This technology is successfully marketed in Europe, North America and Latin America and is under development for other markets both for over-the-counter and prescription applications. Other products sold to this market include airless pump systems for dermal drug delivery applications. We have recently seen a trend to more child resistant and senior-friendly packaging solutions and have developed products to meet these market needs.
Injectables. Sales to the injectables market accounted for approximately 16% of the segment’s total net sales in 2019. Injectables are elastomeric primary packaging components for injectable drug delivery. Injectable products offered include stoppers for vials and pre-filled syringe components, such as plungers, needle shields, tip caps and components for cartridges. Our recent investment in this business allows us to market coated stoppers which better preserve the contents of the vial and adds value to our customers and the consumer. Pharmaceutical applications for this market include vaccines, anti-thrombotic, small molecules and biologics.
Active Packaging. Active packaging is a new technology for Aptar since the CSP Technologies Acquisition in the third quarter of 2018. Sales of active packaging products accounted for approximately 10% of the segment’s total net sales in 2019. Through proprietary material science expertise, we deliver active packaging solutions such as desiccant material to enhance the shelf life and effectiveness of diagnostic and solid dose products.
FOOD + BEVERAGE
The Food + Beverage segment is our smallest segment in terms of net sales and total assets, representing 15%of our Net Sales and Total Assets in 2019, but has been experiencing strong product growth over recent years.2021. We primarily sell dispensing closures and, to a lesser degree, non-dispensing closures, elastomeric flow control components, spray pumps and aerosol valves.
Sales of dispensing closures have grown as consumers worldwide have demonstrated a preference for a package utilizing the convenience of a dispensing closure. At the same time, consumer marketers are trying to differentiate their products by incorporating performance enhancing features such as bonded aluminum liners to plastic, flow-control and no-drip dispensing, inverted packaging and directional flow to make packages simpler to use, cleaner and more appealing to consumers. We also have aan increasing number of product solutions that address the increased use of flexible packaging formats.
Food.Food. Sales to the food market accounted for approximately 68%73% of the segment’s total net sales in 20192021 and primarily include sales of dispensing closures, and elastomeric flow-control components.components, and absorbent and non-absorbent food service trays. To a lesser degree we also sell non-dispensing closures, continuous spray aerosol valves and spray pumps to this market. ApplicationsProduct applications for dispensing closures include sauces, condiments, infant nutrition and other food products. ApplicationsProduct applications for continuous spray aerosol valves include cooking sprays. Spray pump product applications primarily include butter sprays. With the completion of the CSP Technologies Acquisition in the third quarter of 2018, we have startedWe also leverage our material science technology to sell and further develop packaging solutions to the food service market to enhance the shelf life of those products.
Beverage. Sales to the beverage market accounted for approximately 32%27% of the segment’s total net sales in 20192021 and primarily include sales of dispensing closures and elastomeric flow-control components. Sales of dispensing closures to the beverage market have increased significantly over the last several years, although depressed by the COVID-19 pandemic beginning in 2020, as we continue to see an increase of interest from marketers using dispensing closures for their products. Examples of beverage products currently utilizing dispensing closures include bottled water, sport and energy drinks, juices and concentrated water flavorings.
GENERAL BUSINESS INFORMATION
Our commitment to innovation, one of our competitive strengths, has resulted in an emphasis on research and development directed toward developing affordable, new, sustainable and innovative packaging, drug delivery solutions and connected devices and adapting existing products for new markets or customer requirements. In certain cases, our customers share in the research and development expenses of customer initiated projects. Occasionally, we acquire or license from third parties technologies or products that are in various stages of development.
We customarily seek patent and trademark protection for our products and brands. We own and currently have numerous product applications pending for patents and trademarks in many regions of the world. In addition, certain of our products are produced under patent licenses granted by third parties. We believe that we possess certain technical capabilities in makingand know-how that make our products that make it difficult for a competitor to duplicate. While valuable to our overall product portfolio, sales of any one individually patented product are not considered material to any specific segment or to our consolidated results.
We have technical expertise regarding injection molding, robotics, clean-room facilities and high-speed assembly. We also have expertise regarding the formulation and finishing of elastomer and silicone components. In addition, we offer a variety of sterilization options for elastomeric components and active packaging technologymaterial science solutionsbased on proprietary material science expertise. Pumps and aerosol valves require the assembly of several different plastic, metal and rubber components using high-speed equipment. When molding dispensing closures, or plastic components to be used in pump or aerosol valve products, we use advanced plastic injection molding technology, including large cavitation plastic injection molds. We are able to mold within tolerances as small as one one-thousandth of an inch and we assemble products in a high-speed, cost-effective manner. We are experts in molding liquid silicone that is used in certain dispensing closures as well as rubber gasket formulation and production primarily for the prescription drug and consumer health care markets. We also provide analytical and connected device expertise within our pharma service technology businesses.
MANUFACTURING AND SOURCING
The majority of our worldwide production is located outside of the United States. Our philosophy is to produce as much as possible in the region where it will be sold. In order to augment capacity and to maximize internal capacity utilization (particularly for plastic injection molding), we use subcontractors to supply certain plastic
metal and
rubbermetal components. Certain suppliers of these components have unique technical abilities that make us dependent on them, particularly for aerosol valve and pump production. The principal raw materials used in our production are plastic resins, silicone, rubber and certain metal products. We believe an adequate supply of such raw materials is available from existing and alternative sources. We attempt to offset cost increases through improving productivity and developing new, higher margin solutions and increasing selling prices, as allowed by market conditions or contractual commitments. We source certain materials, especially some resins and rubber components for our pharmaceutical segment, from a single source. Significant delays in receiving these components or discontinuance of an approved raw material would require us to seek alternative sources, which could result in higher costs as well as impact our ability to supply products in the short-term.
BACKLOG
Our sales are primarily made pursuant We believe we have adequate safety stock to standard purchase orders for delivery of products. While most orders placed with us are ready for delivery within 120 days, we continue to experience a trend towards shorter lead times requested by our customers. Some customers place blanket orders, which extend beyond this delivery period. However, deliveries against purchase orders are subject to change, and only a small portion of the order backlog is noncancelable. The dollar amount associated with the noncancelable portion is not material. Therefore, we do not believe that backlog as ofmitigate any particular date is an accurate indicator of future results.
significant supply concerns.
We have approximately
7,0005,000 customers with no single customer or group of affiliated customers accounting for greater than
6%5% of
20192021 Net Sales.
A consolidation of our customer base has been occurring and this trend is expected to continue. A concentration of customers presents opportunities for increasing sales due to the breadth of our product line, our international presence and our long-term relationships with certain customers. However, consolidation of our customers could lead to pricing pressures, concentration of credit risk and fewer opportunities to introduce new products to the market.
We are geographically diverse with manufacturing and sales operations in Asia, Europe, Latin America (including Mexico) and North America. Europe is our largest region in terms of sales, where sales (including exports) for the years ended December 31, 20192021 and 20182020 were approximately 57%53% and 59%55%, respectively, of our consolidated sales. Asia and Latin America when aggregated represented approximately 14%13% and 15%12% of our consolidated sales for the years ended December 31, 20192021 and 2018,2020, respectively. Export sales from the United States were $170.0$204.6 million and $171.7$179.0 million in 20192021 and 2018,2020, respectively. We are a net exporter of goods from the U.S. and Europe and a net importer of goods to the North American, Asian and Latin American regions.
Because of our international presence, movements in exchange rates have a significant impact on the translation of the financial statements of our foreign subsidiaries. Our primary foreign exchange exposure is to the euro, but we have foreign exchange exposure to the Chinese yuan, Brazilian real, Mexican peso, Swiss franc and other Asian, European and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements. Conversely, a weakening U.S. dollar has an additive effect. We manage our exposures to foreign exchange principally with forward exchange contracts to economically hedge recorded transactions and firm purchase and sales commitments denominated in foreign currencies.
During the quarter ended June 30, 2018, we concluded that Argentina has become a highly inflationary economy primarily based on published estimates, which indicate that Argentina's three-year cumulative inflation rate has exceeded 100%. Beginning July 1, 2018, we applied highly inflationary accounting for our Argentinian subsidiaries. We have changed the functional currency from the Argentinian peso to the U.S. dollar.
WORKING CAPITAL PRACTICES
Collection and payment periods tend to be longer for our operations located outside the United States due to local business practices. We have also seen an increasing trend in pressure from certain customers to lengthen their payment terms. As the majority of our products are made to order, we have not needed to keep significant amounts of finished goods inventory to meet customer requirements. However, some of our contracts specify an amount of finished goods safety stock we are required to maintain.
To the extent our financial position allows and there is a clear financial benefit, we from time-to-time benefit from early payment discounts with some suppliers. We are also lengthening the payment terms with our suppliers to be in line with customer trends. While we have offered third party alternatives for our suppliers to receive payments sooner, we have not utilized these offerings from our customers as the economic conditions currently are not beneficial for us.
EMPLOYEE AND LABOR RELATIONS
AptarGroupHuman Capital. Our key human capital management objectives are to attract, retain and develop the highest quality talent. To support these objectives, our human resource programs are designed to develop talent to prepare them for critical roles and leadership positions for the future; reward and support employees through competitive pay, benefit and incentive programs; enhance our culture through efforts aimed at making the workplace more engaging and inclusive; acquire talent and facilitate internal talent mobility to create a high-performing, diverse workforce; and evolve and invest in technology, tools and resources to enable employees at work.
As of December 31, 2021, Aptar has approximately 14,00013,000 full-time employees. Of the full-time employees, approximately 8,7008,000 are located in Europe, 2,9002,600 are located in Asia and South America and the remaining 2,400 are located in North America. The majority of our European and Latin American employees are covered by collective bargaining arrangements made at either the local or national level in their respective countries and approximately 100 of the North American employees arecountries. The total labor force covered by a collective bargaining agreement.agreement represents 55% of the total employee population. Termination of employees at certain of our international operations could be costly due to local regulations regarding severance benefits. There were no material work stoppages in 20192021 and management considers our employee relations to be satisfactory.
We have experienced competition for talent, wage inflation and pressure to improve workplace conditions and benefits as a result of the COVID-19 pandemic. Additionally, within certain geographical locations we have experienced a labor shortage due to the decline of qualified talent and absenteeism from the COVID-19 pandemic. Higher employee turnover levels or our failure to attract and retain talent in a timely manner could impact our future results.
Employee Engagement. At Aptar, we conduct annual leadership for growth surveys. We have focused on organizational development based on our leadership principles, core values and strategic priorities. Our goal is to ensure that Aptar is well positioned for long-term growth and that we continue to be a high-performing, values-based, customer-focused company, with active commitments to innovation and sustainability.
Employee Development & Leadership Succession. Developing our employees to reach their full potential is an integral part of our Core Values. We have a strong foundation of learning and development systems and leadership programs at our Corporate University. Our leadership programs are targeted at all levels of the organization, from early career to senior leadership globally. Our program offerings also include many specialized programs such as change management, manufacturing and operational leadership, technical skills and others. Aptar also has developed and deployed an integrated talent management system that includes annual talent reviews, three tiered succession planning, and individual development planning. Promotions from within provide career growth opportunities for our employees.
Diversity & Inclusion. At AptarGroup, our goal is to promote a diverse and inclusive culture. Women comprise 40% of the Board of Directors, and 67% of Board Committee chairs are women. During 2021, we created a Global Director of Diversity, Equity & Inclusion role and continued to roll-out Diversity & Inclusion training. Women comprise approximately 36% of the global employee population and approximately 20% of senior leadership. In 2020, Aptar launched a global Women's Employee Resource Group with a focus on increasing women in leadership. Aptar is included in the SPDR SSGA Gender Diversity Index ETF (SHE) which invests in companies that rank among the highest in gender diversity within senior leadership. Aptar is also a participant in the Catalyst CEO Champions for Change and the Gender and Diversity KPI Alliance. In 2021, Aptar launched a new Black/African American and/or African descent employee resource group and a new employee resource group for the LBGTQ+ community. In November 2021, Aptar was named a Global Top 10 Female-Friendly Company by Forbes.
Employee Well-being & Safety. Employee safety and well-being is a primary focus of Aptar and was of particular interest during 2021 in light of the continued COVID-19 pandemic. In response to the pandemic, we have taken a variety of measures to ensure the availability and functioning of our critical infrastructure, to promote the safety and security of our employees, and to support the communities in which we operate. These measures include requiring remote working arrangements for employees where practicable and implementing new safety protocols. We are following public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions, the promotion of social distancing and the adoption of work-from-home arrangements. Additionally, we expanded employee assistance and mindfulness programs globally to help employees and their families manage anxiety, stress and overall well-being.
All of the markets in which we operate are highly competitive and we continue to experience price competition in all product lines and markets. Competitors include privately and publicly held entities that range from regional to international companies. We expect the market for our products to remain competitive, as consolidation among our competitors is increasing in the current economic climate. We believe our competitive advantages are consistent high levels of innovation, quality and service, geographic diversity, financial strength and stability and breadth of products and services. Our manufacturing strength lies in the ability to mold complex plastic components and formulate and finish elastomer and silicone components in a cost-effective manner and to assemble products at high speeds. Our business is somewhat capital intensive and it is becoming more important to our customers that we have global manufacturing capabilities. Both of these serve as barriers to entry for new competitors wanting to enter our business. Furthermore, within our Pharma business, increasing regulatory hurdles present a
barrierchallenge for new competitors to enter the market.
While we have experienced some competition in Europe, Latin America and the United States from low cost Asian suppliers, particularly in the
low-end beauty and personal care market, this has not been significant. Although using low cost Asian suppliers may have a cost advantage,
somemore and more customers prefer local suppliers citing
better quality, better customershorter lead times, higher reactivity and service, and
shorter lead times.stronger safety of supply. We have also
recently reduced our carbon footprint due to
shorter supply chain networks being utilized,the increased use of lower-carbon fuels within some of our shipping lanes, which we see as a competitive advantage.
ENVIRONMENT
& SUSTAINABILITY
Our manufacturing operations primarily involve plastic injection molding, automated assembly processes, elastomer and silicone formulation and finishing and, to a limited degree, metal anodization and vacuum metallization of plastic components. Historically, the environmental impact of these processes has been minimal, and we believe we meet current environmental standards in all material respects. To date, our manufacturing operations have not been significantly affected by environmental laws and regulations relating to the environment.
In 2020, we formalized our science-based targets, setting a Scope 1 + Scope 2 emissions reduction goal consistent with requirements to keep global warming well-below 2° Celsius by year 2030, and a Scope 3 reduction goal consistent with requirements to keep global warming at 2° Celsius by year 2030. This science-based approach incorporates our own operations and operations within the value chain. In addition, we annually undergo data assurance as part of our sustainability reporting. This assurance process allows for data on consumption of electricity, fuel oil, and natural gas and renewable energy purchases to be verified for accuracy and completeness by an external organization. Globally this process is certified to the ISO 14064 standard for energy and greenhouse gas emission reporting.Compared to our 2019 baseline, Aptar has made progress cutting emissions, and continues efforts to mitigate climate risks and further the low-carbon economy, as reported by the Company through global environmental non-profit CDP's 2021 climate change questionnaire. Through significant, demonstrable action on climate change, we believe Aptar is leading on corporate environmental ambition, action and transparency worldwide. Aptar was named to the CDP Supplier Engagement Leaderboard in both 2020 and 2021.
Recently there isThere continues to be increased interest and awareness from consumers and from our customers in environmentally sustainable products, especially through the sourcing of sustainable materials. We are focused on reducing our environmental impacts through product life cycle assessments, sustainable material trials, operational eco-efficiency initiatives and renewable energy sourcing. We have teams dedicated to designing for sustainability by providing products that improve recyclability and use less material. Aptar has launched products and components in North America, Europe and EuropeAsia made with post-consumer recycled resins (PCR) and continues to explore additional opportunities for alternative resins and recyclable products.
We are actively collaborating with our customers on reliable products by supporting our customers’ participation in the circular e-commerce platform called
“Loop,”Loop in addition to being an investor in Loop ourselves. We also invested in and partnered with PureCycle
Technologies, to prepare for the introduction of Ultra-Pure Recycled Polypropylene (UPRP) into dispensing
product applications.
Connecting with other companies through organizations like Ellen MacArthur Foundation’s New Plastics Economy and the World Business Council for Sustainable Development (WBCSD) provides an invaluable opportunity to share best practices and work on larger projects with aligned objectives towards a more circular economy.
In April 2021, Aptar was named among JUST Capital's Top 10 Companies Leading on Reducing Environmental Impact, which examined several different metrics including carbon emissions, pollution reduction, and other industry-specific sustainability metrics. In January 2022, Aptar was ranked in the top 20 overall, and first in our industry, for the category of Leading on Environmental Impact within JUST Capital's America's Most JUST Companies 2022. In November 2021, Aptar was ranked first on the Forbes Green Growth 50 list, which ranked companies based on their ability to reduce greenhouse gas emissions, while simultaneously growing earnings. In December 2021, Aptar was named one of America's Most Responsible Companies 2022 by Newsweek, ranked #10 out of 500 U.S. companies, and ranked first in our industry category. In January 2022, Aptar received a Platinum Sustainability Rating for 2021 from EcoVadis. In February 2022, Aptar was named to CDP's 2021 Supplier Engagement Leaderboard in recognition of our efforts to measure and reduce climate risk within our supply chain.
Future regulations on environmental matters regarding recycling or material inputs could impact our business.
Certain of our products are directly or indirectly affected by government regulation. The European Union has adopted a circular economy package. The package maps out a series of actions planned over several years. Some actions have resulted in regulations aimed to reduce marine litter, increase plastic recycling rates, prohibit single-use plastic packaging and introduce new taxes in relation to the end-of-life management of packaging. In
Europe and in parts of the United States
(including California), regulations require food and beverage companies to tether plastic caps to ensure the caps stay with the package, thus improving the likelihood the caps will enter the recycling stream.
The EU and the United States are planning new regulation to ban perfluoroalkyl and polyfluoroalkyl substances (PFAS) materials used in the packaging industry. The potential exists for these types of regulations to expand worldwide. We have established an innovation team that focuses on designing for and converting into more sustainable options like post-consumer recycled resin and Food and Drug Administration approved resin alternatives. We are designing for sustainability by providing products that improve recyclability,
use sustainable material and use less material, and we offer multiple tethered options.
Our new product offerings include: Purity Lite, a mono-material, lightweight, fully-recyclable closure; SimpliCycle, an award winning recyclable valve; and Future, a mono-material, fully-recyclable pump. We are also partnering with global and regional thought leaders to drive a more circular economy.
Demand
On October 15, 2016, 197 countries adopted an amendment to phase down hydrofluorocarbon (HFC) propellants in order to reduce greenhouse gas emission under the Montreal Protocol in Kigali, Rwanda. Under the amendment, countries committed to cut the production and consumption by more than 80% over the next 30 years. This type of propellant is used for aerosolpressurized metered-dose inhalers (pMDI). The phase down plan has an exemption for pharmaceutical product applications of pMDIs; however, customers are looking for alternative propellants to reduce greenhouse gas emissions. We are working with the suppliers of these alternative propellants and pump packaging is also affected by government regulations regarding the release of volatile organic compounds (“VOCs”) into the atmosphere. Europe andour customers to develop new solutions.
Pharma regulatory agencies in the United States
and European Union have
regulations that requiredeveloped and introduced Combination Products specific guidelines for more complex drug delivery products, including dispensing systems. These guidelines have increased the
reductioncomplexity of the registration process for these products and recognize the existence of a device part in the
amount of VOCs that candrug delivery product, which now is required to be
released into the atmosphereappropriately designed, developed and
the potential exists for this type of regulation to expand worldwide. These regulations required certain of our customers to reformulate certain aerosol and pump products, which may have affected the demand for such products. We own patents and have developed systems to function with alternative propellant and product formulations.documented.
Future government regulations could include healthcare cost containment policies. For example, reviews by various governments to determine the number of drugs, or prices thereof, that will be paid by their insurance systems could affect future sales of our pharmaceutical customers’ products and thus adversely impact our sales to these customers. Such regulation could adversely affect prices of and demand for our pharmaceutical products. We believe that the focus on the cost effectiveness of the use of medications as compared to surgery and hospitalization provides us with an opportunity to expand sales to the pharmaceutical market.
| | | | | |
7/8/ATR
| 20192021 Form 10-K
|
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Our executive officers as of February 24, 202018, 2022 are as follows:
| | | | | | | | |
Name | Age | Position with the Company |
|
|
|
Stephan Tanda | 54
56 | President and Chief Executive Officer |
Mr. Tanda has been President and Chief Executive Officer since February 2017. Prior to this, Mr. Tanda was an Executive Managing Board Director at Royal DSM NV, a leading global supplier of ingredients and material solutions for the food, dietary supplement, personal care, medical device, automotive, paint, electronic and bio-material markets, from March 2007 to January 2017. |
|
|
|
Robert Kuhn | 57
59 | Executive Vice President and Chief Financial Officer and Secretary |
Mr. Kuhn has been Executive Vice President and Chief Financial Officer since September 2008. Mr. Kuhn has beenserved as Secretary sincefrom June 2011.2011 to January 2021. |
|
Eldon Schaffer
| 54
| Executive Vice President, Strategic Projects and Commercial Excellence
|
Mr. Schaffer has been Executive Vice President of Strategic Projects and Commercial Excellence since December 2019. Prior to this, Mr. Schaffer was President of Aptar Beauty + Home from January 2016 to December 2019, President of Aptar Food + Beverage from 2012 to 2015 and President of Aptar Beauty + Home North America from 2010 to 2011.
|
|
|
|
Marc Prieur | 54
56 | President, Aptar Beauty + Home |
Mr. Prieur has been President of Aptar Beauty + Home since December 2019. Prior to this, Mr. Prieur was President of Aptar Food + Beverage from September 2018 to November 2019, VP of Aptar Operational Excellence from June 2017 to August 2018, President EMEA Sales & Operations – Consumer Health Care from June 2013 to June 2017 and President of our Pharma business in Asia from June 2008 to June 2013. |
|
|
|
Hedi Tlili | 45
47 | President, Aptar Food + Beverage |
Mr. Tlili has been President of Aptar Food + Beverage since December 2019. Prior to this, Mr. Tlili was President of Aptar EMEA Beauty + Home from June 2018 to November 2019 and President of Aptar EMEA Food + Beverage from May 2016 to May 2018. Prior to joining Aptar, Mr. Tlili held leadership positions at our packaging solutions peers Albéa and Sonoco. He was a Cluster Deputy Manager in Albéa Group from September 2014 to March 2016, Country General Manager in Sonoco from April 2013 to June 2014 and European Sales and Marketing Director from September 2011 to March 2013 in Sonoco. |
|
|
|
Gael Touya | 50
52 | President, Aptar Pharma |
Mr. Touya has been President of Aptar Pharma since September 2018. Prior to this, Mr. Touya was President of Aptar Food + Beverage from 2016 to August 2018, President of Aptar Food + Beverage Europe from 2012 to 2015 and Business Development Vice President Skin Care and Color Cosmetics from 2010 to 2011. |
|
|
|
Xiangwei Gong | 50
52 | President, Aptar Asia |
Ms. Gong has been President of Aptar Asia since October 2018. Prior to this, Ms. Gong held various leadership positions at Royal DSM for over 22 years. She was President of DSM Hydrocolloids from 2014 to 2018, President Asia of DSM Food Specialties from 2011 to 2014, Vice President of Channel Marketing from 2008 to 2011 and Vice President of Personal Care in DSM North America from 2005 to 2008. |
|
|
|
Shiela Vinczeller | 56
58 | Chief Human Resources Officer |
Ms. Vinczeller has been Chief Human Resources Officer since November 2018. Prior to this, Ms. Vinczellerspent 12 years in Human Resources leadership roles at International Paper, one of the world’s leading producers of fiber-based packaging, pulp and paper. |
| | |
Kimberly Y. Chainey | 46 | Executive Vice President, Chief Legal Officer and Corporate Secretary |
| Ms. Chainey has been Executive Vice President and global Chief Legal Officer since July 2020. Ms. Chainey has been Corporate Secretary since January 2021. Prior to this, Ms. Chainey was Vice President and General Counsel at Panasonic Avionics Corporation, a global manufacturer of in-flight entertainment and communications solutions, from January 2019 to July 2020 and Associate General Counsel at Avis Budget Group, a global provider of mobility solutions, from November 2014 to December 2018. |
There were no arrangements or understandings between any of the executive officers and any other person(s) pursuant to which such officers were elected.
| | | | | |
8/9/ATR
| 20192021 Form 10-K
|
ITEM 1A. RISK FACTORS
FACTORS
Set forth below and elsewhere in this report and in other documents we file with the Securities and Exchange Commission are risks and uncertainties that could cause our actual results or other events to materially differ from the results or events contemplated by the forward-looking statements contained in this report and in other documents we file with the Securities and Exchange Commission. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations. You should carefully consider the following factors in addition to other information contained in this Form 10-Kreport before purchasing any shares of our common stock.
Risks Related to Our Operations and Industry
The COVID-19 pandemic has adversely affected our business, and future developments could continue to cause adverse effects, which may be material. During 2020 the COVID-19 pandemic adversely affected our sales of products to our prescription pharma customers due to lower incidences of common illnesses and doctors appointments and to our travel and retail beauty business and on-the-go beverage customers and, while during 2021 we have experienced a return toward pre-pandemic levels in several of our markets, there remain uncertainties related to the pandemic that could adversely affect our business. Customer demand across all segments may decrease quickly as a result of future developments related to the COVID-19 pandemic, including the extent, duration and severity of further resurgences, the availability, adoption and efficacy of approved vaccines and treatments, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extended in response to further resurgences of the virus, and numerous other uncertainties. Such events may result in business and manufacturing disruption, inventory shortages due to disruptions to our supply chain and distribution channels, delivery delays, increased risk associated with customer payments, increased labor cost and reduced labor availability, and reduced sales and operations, any of which could materially affect our stock price, business prospects, financial condition, results of operations and liquidity.
The majority of our office and management personnel are working remotely and the majority of our facilities remained operational during 2021 as each of our segments produce dispensing systems that have been determined to be essential products by various government agencies around the world. The health and safety of our workforce is of primary concern and we may need to enact further precautionary measures to help minimize the risk of our employees being exposed to the virus and overall organization fatigue. Further, our management team is focused on mitigating the adverse effects of the COVID-19 pandemic, which has required and will continue to require a large investment of time and resources across the entire company, thereby diverting their attention from other priorities that existed prior to the outbreak of the pandemic. Incremental operating costs related to heightened cleaning and sanitizing procedures at our factories, personal protective equipment for our employees and temporary labor costs necessary to attract and retain employees and address absenteeism, among others, will be necessary as the pandemic continues in the near-term. If these conditions worsen, or continue to last for an extended period of time, our ability to manage our business may be impaired, and operational risks, cybersecurity risks and other risks facing us even prior to the pandemic may be elevated.
If there is deterioration in economic conditions in a particular region or market, our business and operating results could be materially adversely impacted. Due to our strong balance sheet, diverse product offerings, various end-markets served, and our broad geographic presence, we believe we are well positioned to withstand temporary slowness in any one particular region or market. However, economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. A tightening of credit in financial markets or other factors may lead consumers and businesses to postpone spending, which may cause our customers to cancel, decrease or delay their existing and future orders with us. In addition, financial difficulties experienced by our suppliers, customers or distributors could result in product delays, increased accounts receivable defaults, inventory or supply challenges and pricing pressures. An interruption in supply may also impact our ability to meet customer demands. Consumer demand for our customers’ products and shifting consumer preferences are unpredictable and could have a negative impact on our customers and our customers’ demand for our products.
Employee retention or labor cost inflation could disrupt our business.Labor cost and availability are subject factors that are beyond our control, such as the COVID-19 pandemic and workforce participation rates. As a result, there is no assurance that we will be able to recruit, train, assimilate, motivate and retain employees in the future. The loss of a substantial number of our employees or a prolonged labor dispute could disrupt our business and result in a material adverse effect on our business and operating results.
We face strong global competition and our market share could decline. All of the markets in which we operate are highly competitive and we continue to experience price competition in all product lines and segments. Competitors, includeincluding privately and publicly held entities that range from regional to international companies.companies, are becoming increasingly credible in the core markets in which we do business. We expect the market for our products to remain competitive, as consolidation among our competitors is increasing in the current economic climate.
Customers and consumers are increasingly requesting solutions that can be refilled and reused as the market moves toward more sustainable products. A competitor's design innovation or ability to provide more sustainable products could have an adverse impact on our business. If we are unable to compete successfully, our market share may decline, which could materially adversely affect our results of operations and financial condition.
Geopolitical conditions, including trade disputes and direct or indirect acts of war or terrorism, could have a material adverse effect on our operations and financial results. Our operations could be disrupted by geopolitical conditions, such as Brexit, trade disputes, international boycotts and sanctions, political and social instability, acts of war, terrorist activity or other similar events. Such events could make it difficult, impossible or more expensive to manufacture or deliver products to our customers, receive production materials from our suppliers, or perform critical functions, all of which could adversely affect our business globally or in certain regions. In addition, our customers may export their finished products using our dispensing devices that were sold in other regions and an adverse geopolitical event may impact the sales of our customers’ products and thus indirectly negatively impact the demand for our dispensing solutions. However,Although our business is well-diversifieddiversified across nineten end markets and many geographies as we produce in seventeen countries and while we do face some risk related to specific trade policies, we believe our diverse business model, coupled with our diverse and global customer base, allow some protection from dependency on any one geographic region, country or even trade route.route, our diversification efforts may not be successful in insulating our operations from disruptive geopolitical conditions and we do face some risk related to trade policies specific to any country we operate in or to which our customers export their products.
At the end of 2021 and into January 2022, tensions between the U.S. and Russia escalated when Russia assembled large numbers of military ground forces on the Ukraine-Russia border, increasing speculation that Russia may attempt to invade Ukraine in the near future. A potential invasion of Ukraine and any retaliatory measures taken by the U.S. and NATO have created global security concerns that could have a lasting impact on regional and global economies. As of December 31, 2021, approximately 2% of our consolidated net sales were from Russia and Ukraine, however less than 1% is imported into Russia and Ukraine and therefore we do not expect a material impact to our consolidated results if the situation escalates.
Consolidation of our customer base could impact our business.We believe mergers and acquisitions within our customer base create opportunities for increasing sales due to the breadth of our product line, our international presence and our long-term relationships with certain customers. However, consolidation of our customers could lead to pricing pressures, concentration of credit risk and fewer opportunities to introduce new products to the market.
The success or failure of our customers’ products, particularly in the pharmaceutical market, may materially affect our operating results and financial condition.In the pharmaceutical market, the proprietary nature of our customers’ products and the success or failure of their products in the market using our dispensing systems may have a material impact on our operating results and financial condition. We may potentially work for years on modifying our dispensing device to work in conjunction with a customer’s drug formulation. If the customer’s pharmaceutical product is not approved by regulatory bodies or it is not successful on the market, the associated costs may not be recovered.
Higher raw material costs and other inputs and an inability to offset these higher costs with price increases may materially adversely affect our operating results and financial condition.The cost of raw materials and other inputs (particularly plastic resin, rubber, metal, anodization costs and transportation and energy costs) are volatile and susceptible to rapid and substantial changes due to factors beyond our control, such as changing economic conditions, currency fluctuations, weather conditions, political unrest and instability in energy-producing nations, and supply and demand pressures. Raw material costs may continue to increase in the coming years due to market fluctuation and the use of post-consumer resin for our sustainable product offerings and, although we have generally been able to increase selling prices to cover increased costs, future market conditions may prevent us from passing these increased costs on to our customers through timely price increases. In addition, we may not be able to improve productivity or realize savings from our cost reduction programs sufficiently enough to offset the impact of increased raw material costs. As a result, higher raw material costs could result in declining margins and operating results.
In difficult market conditions, our fixed costs structure combined with potentially lower revenues may negatively impact our results.Our business is characterized by relatively high fixed costs and, notwithstanding our utilization of third-party manufacturing capacity, most of our production requirements are met by our own manufacturing facilities. In difficult environments, we are generally faced with a decline in the utilization rates of our manufacturing facilities due to decreases in product demand. During such periods, our plants may not operate at full capacity and the costs associated with this excess capacity are charged directly to cost of sales. Difficult market conditions in the future may adversely affect our utilization rates and consequently our future gross margins, and this, in turn, could have a material negative impact on our business, financial condition and results of operations.
If our unionized employees were to engage in a strike or other work stoppage, our business, operating results and financial position could be materially adversely affected.The majority of our European and Latin American employees are covered by collective bargaining arrangements made either at the local or national level in their respective countries. Although we believe that our relations with our employees are satisfactory, no assurance can be given that this will continue. If disputes with our unions arise, or if our unionized workers engage in a strike or other work stoppage, we could experience a significant disruption of operations, which could have a material adverse effect on our business, operating results and financial position.
Single sourced materials and manufacturing sites could adversely impact our ability to deliver product.We source certain materials, especially some resins and rubber components for our pharmaceutical segment, from a single source. Any disruption in the supply of these materials could adversely impact our ability to deliver product to our customers. Similarly, we have certain components and products that are manufactured at a single location or from a single machine or mold. Any disruption to the manufacturing process could also adversely impact our ability to deliver product to our customers.
We are exposed to risks from lawsuits and claims, including intellectual property infringement claims and product liability claims, as well as investigations, audits and other proceedings, which may result in substantial costs and expenses or interruption of our normal business operations. We are subject to a number of lawsuits and claims that arise in the ordinary course of our business, which include infringement, product liability, commercial, employment, tort, and other litigation. The failure of our devices to operate as intended may result in a product liability claim against us. We believe we maintain adequate levels of product liability insurance coverage. However, a product liability claim in excess of our insurance coverage or not covered by existing insurance may materially adversely affect our business, results of operations or cash flows. We are also from time to time subject to claims from third parties suggesting that we may be infringing on their intellectual property rights. If we were held liable for infringement, we could be required to pay damages, obtain licenses or cease making or selling certain products.
In addition, we are subject to investigations, audits and other proceedings initiated by federal, state, international, national, provincial and local authorities, including regulatory agencies such as the Food and Drug Administration as a result of our Pharma segment. We are also subject to indemnification claims under various contracts. Current and future litigation, proceedings or indemnification claims that we face may result in substantial costs and expenses and significantly divert the attention of our management regardless of the outcome. In addition, these matters could lead to increased operating costs or interruptions of our normal business operations. Litigation, proceedings and indemnification claims involve uncertainties and the eventual outcome of any such matter could adversely affect our business, results of operations or cash flows.
Increased global cybersecurity threats and more sophisticated, targeted computer crime could pose a risk to our operations.Increased global information security threats and more sophisticated, targeted computer crime pose a risk to the confidentiality, availability and integrity of our data, operations and infrastructure, as well as the data of our customers. We continue to assess potential threats and make investments seeking to reduce the risk of these threats by employing a number of security measures, including employee training, comprehensive monitoring of our networks and systems, ensuring strong data protection standards including authentication mechanisms are in place and safeguarding our critical information assets.
We also periodically test our systems for vulnerabilities and regularly rely on third parties to conduct such tests. To date, we have seen no material impact on our business or operations from these threats; however, we cannot guarantee that our security efforts will prevent unauthorized access or loss of functionality to our or our third-party providers' systems. Even with these mitigations, our information systems remain potentially vulnerable to sophisticated cybersecurity threats, particularly as more business activities have shifted online due to the COVID-19 pandemic. Depending on their nature and scope, such threats could potentially lead to the compromise of confidential information, improper use of our systems and networks, manipulation and destruction of data, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations.
If our integration of acquisitions are unsuccessful, our financial performance may suffer.We continue to pursue growth through acquisitions, including the recent Voluntis, Hengyu, Fusion and Noble acquisitions. If our integration efforts, including unlocking synergies, are unsuccessful we may not realize the full potential of the acquisitions and as a result our financial performance may suffer.
Risks Related to Financial, Legal and Regulatory Matters
We have foreign currency translation and transaction risks that may materially adversely affect our operating results. A majority of our operations are located outside of the United States. Because of this, movements in exchange rates may have an impact on the translation of the financial statements of our foreign entities. Our primary foreign exchange exposure is to the euro, but we have foreign exchange exposure to the Chinese yuan, Brazilian real, Mexican peso, Swiss franc, and other Asian, European and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements. Conversely, a weakening U.S. dollar has an additive translation effect. In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. We manage our exposures to foreign exchange principally with forward exchange contracts to economically hedge certain transactions and firm purchase and sales commitments denominated in foreign currencies. The volatility of currency exchange rates may materially affect our operating results.Government regulation on environmental matters regarding recycling or environmental sustainability policies could impact our business. Future government regulations mandating the use or limitations of certain materials could impact our manufacturing processes or the technologies we use forcing faster development and adoption of alternative materials or assets used in the production of our products.
Future government regulations of healthcare cost containment policies may impact our pharmaceutical sales. Review by governments of the number of drugs and prices thereof that will be paid by their insurance systems could affect future sales to the pharmaceutical industry and thereby adversely affect prices of and demand for our pharmaceutical products.
Consolidation of customer base could impact our business. We believe mergers and acquisitions within our customer base create opportunities for increasing sales due to the breadth of our product line, our international presence and our long-term relationships with certain customers. However, consolidation of our customers could lead to pricing pressures, concentration of credit risk and fewer opportunities to introduce new products to the market.
If our expansion initiatives are unsuccessful, our operating results and reputation may suffer. We are expanding our operations in a number of geographies and markets, including facilities expansions in Latin America and Asia, and market expansions such as active packaging. Expansion of our operations require a significant amount of time and attention from our senior management and/or capital investment. These activities present considerable challenges and risks, including the general economic and political conditions in the markets that we enter, attracting, training and retaining qualified and talented employees, infrastructure disruptions, fluctuations in currency exchange rates, the imposition of restrictions by governmental authorities, compliance with current, new and changing governmental laws and regulations and the cost of such compliance activities. If any of our expansion efforts are unsuccessful, our operating results and reputation may suffer.
The success or failure of our customers’ products, particularly in the pharmaceutical market, may materially affect our operating results and financial condition. In the pharmaceutical market, the proprietary nature of our customers’ products and the success or failure of their products in the market using our dispensing systems may have a material impact on our operating results and financial condition. We may potentially work for years on modifying our dispensing device to work in conjunction with a customer’s drug formulation. If the customer’s pharmaceutical product is not approved by regulatory bodies or it is not successful on the market, the associated costs may not be recovered.
Higher raw material costs and other inputs and an inability to increase our selling prices may materially adversely affect our operating results and financial condition. The cost of raw materials and other inputs (particularly plastic resin, rubber, metal, anodization costs and transportation and energy costs) are volatile and susceptible to rapid and substantial changes due to factors beyond our control, such as changing economic conditions, currency fluctuations, weather conditions, political unrest and instability in energy-producing nations, and supply and demand pressures. Raw material costs may increase in the coming years and, although we have generally been able to increase selling prices to cover increased costs, future market conditions may prevent us from passing these increased costs on to our customers through timely price increases. In addition, we may not be able to improve productivity or realize savings from our cost reduction programs sufficiently enough to offset the impact of increased raw material costs. As a result, higher raw material costs could result in declining margins and operating results.
In difficult market conditions, our fixed costs structure combined with potentially lower revenues may negatively impact our results. Our business is characterized by relatively high fixed costs and, notwithstanding our utilization of third-party manufacturing capacity, most of our production requirements are met by our own manufacturing facilities. In difficult environments, we are generally faced with a decline in the utilization rates of our manufacturing facilities due to decreases in product demand. During such periods, our plants may not operate at full capacity and the costs associated with this excess capacity are charged directly to cost of sales. Difficult market conditions in the future may adversely affect our utilization rates and consequently our future gross margins, and this, in turn, could have a material negative impact on our business, financial condition and results of operations.
If our unionized employees were to engage in a strike or other work stoppage, our business, operating results and financial position could be materially adversely affected. The majority of our European and Latin American employees are covered by collective bargaining arrangements made either at the local or national level in their respective countries and approximately 100 of our North American employees are covered by a collective bargaining agreement. Although we believe that our relations with our employees are satisfactory, no assurance can be given that this will continue. If disputes with our unions arise, or if our unionized workers engage in a strike or other work stoppage, we could incur higher labor costs or experience a significant disruption of operations, which could have a material adverse effect on our business, operating results and financial position.
Single sourced materials and manufacturing sites could adversely impact our ability to deliver product. We source certain materials, especially some resins and rubber components for our pharmaceutical segment, from a single source. Any disruption in the supply of these materials could adversely impact our ability to deliver product to our customers. Similarly, we have certain components and products that are manufactured at a single location or from a single machine or mold. Any disruption to the manufacturing process could also adversely impact our ability to deliver product to our customers.
If we were to incur a significant product liability claim above our current insurance coverage, our business, operating results and financial condition could be materially adversely affected. The failure of our devices to operate as intended may result in a product liability claim against us. We believe we maintain adequate levels of product liability insurance coverage. A product liability claim in excess of our insurance coverage or not covered by existing insurance may materially adversely affect our business, operating results and financial condition.
Increased cybersecurity threats could pose a risk to our operations. Increased global information security threats and more sophisticated, targeted computer crime pose a risk to the confidentiality, availability and integrity of our data, operations and infrastructure, as well as the data of our customers. We continue to assess potential threats and make investments seeking to reduce the risk of these threats by employing a number of security measures, including employee training, comprehensive monitoring of our networks and systems, ensuring strong data protection standards are in place, and safeguarding our critical information assets. We also periodically test our systems for vulnerabilities and regularly rely on third parties to conduct such tests. To date, we have seen no material impact on our business or operations from these threats; however, we cannot guarantee that our security efforts will prevent unauthorized access or loss of functionality to our or our third-party providers’ systems. Even with these mitigations, our information systems remain potentially vulnerable to sophisticated cybersecurity threats. Depending on their nature and scope, such threats could potentially lead to the compromise of confidential information, improper use of our systems and networks, manipulation and destruction of data, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations.
If our integration of acquisitions are unsuccessful, our operating results and reputation in the investment community may suffer. We continue to pursue growth through acquisitions, including the recent Noble, Nanopharm, Gateway, CSP Technologies and Reboul acquisitions. If our integration efforts, including unlocking synergies, are unsuccessful we may not realize the full potential of the acquisitions and as a result our financial performance may suffer.
We have approximately $763.5$974.2 million in recorded goodwill at December 31, 2019,2021, and changes in future business conditions could cause this asset to become impaired, requiring write-downs that would reduce our operating income. We evaluate the recoverability of goodwill amounts annually, or more frequently when evidence of potential impairment exists. The impairment test is based on several factors requiring judgment. A decrease in expected reporting unit cash flows or changes in market conditions, including as a result of the COVID-19 pandemic, may indicate potential impairment of recorded goodwill and, as a result, our operating results could be materially adversely affected. See “Critical Accounting Estimates” in Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information.
We are subject to tax regulations in the many jurisdictions in which we operate, and changes in tax regulations
Government regulation on environmental matters regarding recycling or environmental sustainability policies could materially impact our results. Future changes in tax laws or in the interpretation of tax laws in jurisdictions where we have significant operations could materially impact our provision for income taxes, the amount of taxes payable and our deferred tax asset and liability balances.We are currently implementing a business transformation plan, with the main objective to return our Beauty + Home segment to historical growth and profit margins. Certain elements of this transformation plan can be disruptive to our business and our employees if we do not manage the change properly. Furthermore, the transformation plan may take longer to complete than currently expected, may be more costly to complete than currently expected and may not be successful in returning Beauty + Home to historical growth and profit margins. Any such effects could materially adversely impact our business.
Future government regulations mandating the use or limitations of certain materials could impact our manufacturing processes or the technologies we use forcing faster development and adoption of alternative materials or assets used in the production of our products.
Future government regulations of healthcare cost containment policies may impact our pharmaceutical sales.Review by governments of the number of drugs and prices thereof that will be paid by their insurance systems could affect future sales to the pharmaceutical industry and thereby adversely affect prices of and demand for our pharmaceutical products.
We may be adversely affected by changes in the method of determiningtransition away from the London Interbank Offered Rate (“LIBOR”) or other Interbank Rates (IBORs) to Risk Free Rates for our variable rate loans, derivative contracts and other financial assets and liabilities.We have loans, derivative contracts and other financial instruments which are directly or indirectly dependent on LIBOR to establish their interest rate and/or value. The U.K. Financial Conduct Authority, which is the LIBOR administrator's regulator, has announced in 2017 that it would no longer compel banks to submit rates for the calculationpublication of the one-week and two-month U.S. dollar LIBOR tenors and all non-U.S. dollar LIBOR tenors have ceased effective January 1, 2022, with the remaining most common U.S. dollar LIBOR tenors (overnight and one, three, six and twelve months) ceasing immediately after 2021. It is not possible to predict whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. It is expected that a transition away from the widespread use of LIBOR to alternative rates is likely to occur during the next couple years. June 30, 2023.
The transition from LIBOR may cause us to incur increased costs and additional risk. UncertaintyOur revolving credit facility contains provisions allowing for a transition away from U.S. dollar LIBOR, but those provisions are contingent on our ability to negotiate new benchmark rates, spreads and calculation methods with the administrative agent. Although the Secured Overnight Financing Rate ("SOFR") has been identified as to the nature ofa recommended alternative reference ratesrate to U.S. dollar LIBOR, SOFR has a limited history and as to potential changes in or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans originated prior to 2021. If LIBOR rates are no longer available, any successor or replacement interestSOFR-based reference rates may perform differently from U.S. dollar LIBOR, which may affect our net interest expense, change our market risk profile and require changes to our risk, pricing and hedging strategies. We will continue our impact assessment and monitor regulatory developments during the transition period.
Ownership by Certain Significant Stockholders. Currently, Aptar has four institutional stockholders who each own between 6%5% and 11% of our outstanding common stock. None of these stockholders have direct representation on our Board of Directors. If one of these stockholders decides to sell significant volumes of our stock, this could put downward pressure on the price of the stock.
We could be subject to changes in tax rates, the adoption of new tax legislation or rules or exposure to additional tax liabilities. Due to economic and political conditions, tax rates in the various jurisdictions in which we operate may be subject to change. Our effective tax rate could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, the introduction of new taxes, or changes in tax laws or their interpretation.
| |
11/ATR
| 2019 Form 10-K
|
our returns and other tax matters by the U.S. Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for taxes. There can be no assurance as to the outcome of these examinations. If our effective tax rates were to increase in jurisdictions where we have significant international salesoperations, or if the ultimate determination of taxes owed is for an amount in excess of amounts previously accrued, our financial condition and operations and face risks related to health epidemics which could adversely affect our business andoperating results of operations.Our business and operations could be materially, and adversely affected by the effects of a widespread outbreak of a contagious disease, including the recent outbreak of the respiratory illness caused by a coronavirus strain first identified in Wuhan, Hubei Province, China, or any other outbreak of contagious diseases, and other adverse public health developments. These effects could include disruptions or restrictions on our employees’ ability to travel, as well as temporary closures of our facilities or the facilities of our customers, suppliers, or other vendors in our supply chain. We have restricted travel to China by our employees and have instituted facilities closures in line with instructions from the local authorities as a response to the coronavirus epidemic. Approximately 4% of our Net Sales in 2019 were related to Chinese operations and any disruption of our supply chain or customers could adversely impact our business and results of operations, as our multinational customers export their products to China or sell via travel retail channels. Accordingly, the coronavirus could result in a reduction in demand from our customers outside of China and adversely impact our European and North American sales. Although we do not source a significant amount of products or components from China, the indirect impact of our suppliers who may be sourcing raw materials via China is unknown at this time. As such, we are conducting a supply chain analysis by region to determine if any disruptions could occur. We will also communicate with customers as needed regarding any significant changes to our supply chain should they become evident, though at this time, we don’t anticipate any significant disruptions.
affected.
ITEM 1B. UNRESOLVED STAFF
COMMENTSCOMMENTS
We have no unresolved comments from the SEC.
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12/13/ATR
| 20192021 Form 10-K
|
ITEM 2. PROPERTIES
PROPERTIES
We lease or own our principal offices and manufacturing facilities. None of the owned principal properties is subject to a lien or other encumbrance material to our operations. We believe that existing operating leases will be renegotiated as they expire, will be acquired through purchase options or that suitable alternative properties will be leased on acceptable terms. We consider the condition and extent of utilization of our manufacturing facilities and other properties to be generally good, and the capacity of our plants to be adequate for the needs of our business.
We manufacture products in 47 locations, with 17 of those facilities serving two segments and 6 serving all three of our segments. The locations of our
principal manufacturing facilities, by
geographic region/country, are set forth below:
ARGENTINA
| GERMANY
| THAILAND
|
Berazategui (1 & 2)
| Böhringen (1 & 2)
| Chonburi (1)
|
Tortuguitas (1 & 3)
| Dortmund (1)
|
|
| Eigeltingen (2)
| UNITED KINGDOM
|
BRAZIL
| Freyung (1 & 3)
| Leeds, England (1 & 3)
|
Bahia (1)
| Menden (1)
|
|
Cajamar (1)
| Villingen-Schwenningen (1 & 2)
| UNITED STATES
|
Maringá Paraná (1 & 3)
|
| Atlanta, Georgia (3)
|
Jundiai (1)
| INDIA
| Auburn, Alabama (2 & 3)
|
| Hyderabad (1 & 3)
| Cary, Illinois (1, 2 & 3)
|
CHINA
| Mumbai (2)
| Congers, New York (2)
|
Guangzhou (1, 2 & 3)
|
| Eatontown, New Jersey (1 & 2)
|
Suzhou (1, 2 & 3)
| IRELAND
| Lincolnton, North Carolina (3)
|
| Ballinasloe, County Galway (1)
| McHenry, Illinois (1 & 2)
|
COLOMBIA
|
| Midland, Michigan (1 & 3)
|
Cali (1)
| ITALY
| Mukwonago, Wisconsin (1, 2 & 3)
|
| Manoppello (1)
| Stratford, Connecticut (1)
|
CZECH REPUBLIC
| San Giovanni Teatino (Chieti) (1 & 3)
| Torrington, Connecticut (1)
|
Ckyne (1 & 3)
|
| Watertown, Connecticut (1)
|
| MEXICO
|
|
FRANCE
| Queretaro (1 & 3)
|
|
Annecy (1 & 2)
|
|
|
Brecey (2)
| RUSSIA
|
|
Charleval (1 & 2)
| Vladimir (1 & 3)
|
|
Granville (2)
|
|
|
Le Neubourg (1)
| SPAIN
|
|
Le Vaudreuil (2)
| Madrid (1)
|
|
Niederbronn-les-Bains (2)
| Torello (1 & 3)
|
|
Oyonnax (1)
|
|
|
Poincy (1 & 3)
| SWITZERLAND
|
|
Verneuil Sur Avre (1)
| Mezzovico (2)
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Geographic Region/Country | Number of Manufacturing Facilities | | Pharma Manufacturing Facilities | | Beauty + Home Manufacturing Facilities | | Food + Beverage Manufacturing Facilities |
| France | 12 | | 5 | | 9 | | 0 |
| Germany | 6 | | 4 | | 5 | | 2 |
| Rest of Europe | 7 | | 2 | | 6 | | 5 |
| North America | 9 | | 6 | | 6 | | 6 |
| Latin America | 7 | | 1 | | 7 | | 3 |
| China | 3 | | 2 | | 1 | | 2 |
| Other Asia | 3 | | 1 | | 2 | | 1 |
| Total | 47 | | 21 | | 36 | | 19 |
(1) | Locations of facilities manufacturing for the Beauty + Home segment. |
(2) | Locations of facilities manufacturing for the Pharma segment. |
(3) | Locations of facilities manufacturing for the Food + Beverage segment. |
We also have sales personnel in countries other than those listed above. Our head corporate office is located in Crystal Lake, Illinois. We also have sales, service facilities, and corporate offices in locations in addition to those listed above.
ITEM 3. LEGAL
PROCEEDINGSPROCEEDINGS
In the normal course of business, we are subject to a number of lawsuits and claims both actual and potential in nature. While management believes the resolution of these claims and lawsuits will not have a material adverse effect on our financial position or results of operations or cash flows, claims and legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur that could include amounts in excess of any accruals which management has established. Were such unfavorable final outcomes to occur, it is possible that they could have a material adverse effect on our financial position, results of operations and cash flows.
Please refer to Note 13 - Commitments and Contingencies in Part II, Item 8 – Financial Statements and Supplementary Data for further discussion of contingencies affecting our business.
ITEM 4. MINE SAFETY
DISCLOSURESDISCLOSURES
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13/14/ATR
| 20192021 Form 10-K
|
ITEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY,EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR REGISTRANT’S COMMON EQUITY
Our Common Stock is traded on the New York Stock Exchange under the symbol “ATR”. As of February
18, 2020,14, 2022, there were approximately
190170 holders of record of our Common Stock. A substantially greater number of holders of our Common Stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
On January
29, 2020,20, 2022, our Board of Directors declared a quarterly cash dividend of
$0.36$0.38 per share of Common Stock, which
waswill be paid on February
19, 202023, 2022 to stockholders of record as of
January 29, 2020.February 3, 2022. We have paid an increased dividend to stockholders each year for the past 28 years. During 2021, we paid $98.5 million in dividends to stockholders. While we expect to continue to pay a regular quarterly dividend of
$0.36$0.38 per share in
2020,2022, the timing, declaration, amount and payment of any future cash dividends are at the discretion of the Board of Directors and will depend on our available cash, working capital, financial condition, results of operations, capital requirements, covenants in our credit facility, applicable law and other factors that our Board of Directors considers relevant.
RECENT SALES OF UNREGISTERED SECURITIES
Certain French employees are eligible to participate in the FCP Aptar Savings Plan (the “Plan”). An independent agent purchases shares of Common Stock available under the Plan for cash on the open market and we do not issue shares. We do not receive any proceeds from the purchase of Common Stock under the Plan. The agent under the Plan is
Banque Nationale de ParisBNP Paribas Fund Services. 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. During the quarter ended December 31,
2019,2021, the Plan purchased
4,9933,888 shares of our Common Stock on behalf of the participants at an average price of
$112.16$116.20 per share, for an aggregate amount of
$560$452 thousand, and sold
3501,986 shares of our Common Stock on behalf of the participants at an average price of
$114.32$128.32 per share, for an aggregate amount of
$40$255 thousand. At December 31,
2019,2021, the Plan owned
90,193108,884 shares of our Common Stock.
ISSUER PURCHASES OF EQUITY SECURITIES
On April 18, 2019, we announced a share repurchase authorization of up to $350 million of Common Stock. This authorization replaces previous authorizations and has no expiration date. We may repurchase shares through the open market, privately negotiated transactions or other programs, subject to market conditions.
We spent $31.6 million to repurchase approximately 286 thousand shares during
During the fourth quarter of
2019.2021, we repurchased approximately 395 thousand shares for approximately $49.7 million.
The following table summarizes our purchases of our securities for the quarter ended December 31, 2019:2021: | | | | | | | | | | | | |
| | | | | | | | | Dollar Value Of | |
| | | | | | | Total Number Of Shares | | Shares that May Yet be | |
| | | Total Number | | | | Purchased as Part Of | | Purchased Under The | |
| | | Of Shares | | Average Price | | Publicly Announced | | Plans or Programs | |
Period | | | Purchased | | Paid Per Share | | Plans Or Programs | | (in millions) | |
| | | | | | | | | | | | |
10/1 – 10/31/19 | | | 8,600 | | $ | 118.73 | | 8,600 | | $ | 309.1 | |
11/1 – 11/30/19 | | | 219,335 | | | 110.14 | | 219,335 | | | 284.9 | |
12/1 – 12/31/19 | | | 57,601 | | | 111.90 | | 57,601 | | | 278.5 | |
Total | | | 285,536 | | $ | 110.75 | | 285,536 | | $ | 278.5 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Period | Total Number Of Shares Purchased | | Average Price Paid Per Share | | Total Number Of Shares Purchased As Part Of Publicly Announced Plans Or Programs | | Dollar Value Of Shares That May Yet Be Purchased Under The Plans Or Programs
(in millions) |
| | | | | | | |
| 10/1 - 10/31/21 | — | | $ | — | | | — | | $ | 250.1 | |
| 11/1 - 11/30/21 | 259,874 | | 129.31 | | | 259,874 | | 216.5 | |
| 12/1 - 12/31/21 | 135,000 | | 119.59 | | | 135,000 | | 200.4 | |
| Total | 394,874 | | $ | 125.99 | | | 394,874 | | $ | 200.4 | |
| | | | | |
14/15/ATR
| 20192021 Form 10-K
|
The following graph shows a five year comparison of the cumulative total stockholder return on our Common Stock as compared to the cumulative total return of the Standard & Poor’s 500 Composite Stock Price Index and to an index of peer group companies we selected.
In 2019, we changed our peer group to align with the compensation peer group used by our Management Development and Compensation Committee which includes companies that align more closely with our current business structure. The companies included in the
new peer group are: Albemarle Corporation, Ashland Global Holdings Inc., Berry Global Group, Inc., Catalent, Inc., CCL Industries Inc., Hill-Rom Holdings, Inc.
(included through December 13, 2021 when it was acquired by Baxter International Inc.), ICU Medical, Inc., Ingredion Inc., International Flavors & Fragrances, Inc., McCormick & Company, Inc., Sealed Air Corporation, Sensient Technologies Corporation, Silgan Holdings, Inc., Sonoco Products Company, Stericycle, Inc., STERIS plc, Teleflex Inc. and West Pharmaceutical Services, Inc.
The companies included in our old peer group are: Berry Global Group, Inc., Crown Holdings, Inc., Graphic Packaging Holding Company, Greif Inc., H.B. Fuller Company, International Flavors & Fragrances, Inc., Owen’s Illinois, Inc., Packaging Corporation of America, PH Glatfelter Company., Rayonier Inc., Sealed Air Corporation, Sensient Technologies Corporation, Silgan Holdings, Inc., Sonoco Products Company, Stepan Company, TriMas Corporation and West Pharmaceutical Services Inc.
Comparison of 5 Year Cumulative Stockholder Returns
The graph and other information furnished in the section titled “Share Performance” under this Part II, Item 5 of this Form 10-K shall not be deemed to be “soliciting” material or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.
ITEM 6. [RESERVED]
| | | | | |
15/16/ATR
| 20192021 Form 10-K
|
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
| | | | | | | | | | | | | | | | | | | | |
Dollars in millions, except per share data | | | | | | | | | | | | | | | | | | | | |
Years Ended December 31, | | | 2019 | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | |
| | | | | | | | | | | | | | | | | | | | |
Statement of Income Data: | | | | | | | | | | | | | | | | | | | | |
Net Sales | | $ | 2,859.7 | | | $ | 2,764.8 | | | $ | 2,469.3 | | | $ | 2,330.9 | | | $ | 2,317.1 | |
Cost of sales (exclusive of depreciation and amortization shown below) (1) | | | 1,818.4 | | | | 1,813.0 | | | | 1,603.1 | | | | 1,496.2 | | | | 1,499.0 | |
% of Net Sales | | | 63.6 | % | | | 65.6 | % | | | 64.9 | % | | | 64.2 | % | | | 64.7 | % |
Selling, research & development and administrative | | | 454.6 | | | | 430.0 | | | | 387.4 | | | | 366.3 | | | | 349.1 | |
% of Net Sales | | | 15.9 | % | | | 15.6 | % | | | 15.7 | % | | | 15.7 | % | | | 15.1 | % |
Depreciation and amortization | | | 194.6 | | | | 171.7 | | | | 153.1 | | | | 154.8 | | | | 138.9 | |
% of Net Sales | | | 6.8 | % | | | 6.2 | % | | | 6.2 | % | | | 6.6 | % | | | 6.0 | % |
Restructuring initiatives | | | 20.5 | | | | 63.8 | | | | 2.2 | | | | — | | | | — | |
% of Net Sales | | | 0.7 | % | | | 2.3 | % | | | 0.1 | % | | | — | % | | | — | % |
Operating Income | | | 371.7 | | | | 286.3 | | | | 323.5 | | | | 313.7 | | | | 330.2 | |
% of Net Sales | | | 13.0 | % | | | 10.3 | % | | | 13.1 | % | | | 13.5 | % | | | 14.2 | % |
Net Income | | | 242.2 | | | | 194.8 | | | | 220.0 | | | | 205.6 | | | | 199.3 | |
% of Net Sales | | | 8.5 | % | | | 7.0 | % | | | 8.9 | % | | | 8.8 | % | | | 8.6 | % |
Net Income Attributable to AptarGroup, Inc. | | | 242.2 | | | | 194.7 | | | | 220.0 | | | | 205.6 | | | | 199.3 | |
% of Net Sales | | | 8.5 | % | | | 7.0 | % | | | 8.9 | % | | | 8.8 | % | | | 8.6 | % |
Net Income Attributable to AptarGroup, Inc. per Common Share: | | | | | | | | | | | | | | | | | | | | |
Basic | | | 3.81 | | | | 3.12 | | | | 3.52 | | | | 3.27 | | | | 3.19 | |
Diluted | | | 3.66 | | | | 3.00 | | | | 3.41 | | | | 3.17 | | | | 3.09 | |
Balance Sheet and Other Data: | | | | | | | | | | | | | | | | | | | | |
Capital Expenditures | | $ | 242.3 | | | $ | 211.3 | | | $ | 156.6 | | | $ | 129.0 | | | $ | 149.3 | |
Total Assets | | | 3,562.1 | | | | 3,377.7 | | | | 3,137.8 | | | | 2,606.8 | | | | 2,437.0 | |
Long-Term Obligations | | | 1,085.5 | | | | 1,126.0 | | | | 1,191.1 | | | | 772.7 | | | | 760.8 | |
Net Debt (2) | | | 953.7 | | | | 1,028.1 | | | | 544.7 | | | | 480.3 | | | | 298.1 | |
Total Stockholders’ Equity | | | 1,572.3 | | | | 1,422.9 | | | | 1,312.0 | | | | 1,174.2 | | | | 1,149.7 | |
Capital Expenditures % of Net Sales | | | 8.5 | % | | | 7.6 | % | | | 6.3 | % | | | 5.5 | % | | | 6.4 | % |
Interest Bearing Debt to Total Capitalization (3) | | | 43.2 | % | | | 47.6 | % | | | 48.9 | % | | | 44.6 | % | | | 41.6 | % |
Net Debt to Net Capital (4) | | | 37.8 | % | | | 41.9 | % | | | 29.3 | % | | | 29.0 | % | | | 20.6 | % |
Cash Dividends Declared per Common Share | | | 1.42 | | | | 1.32 | | | | 1.28 | | | | 1.22 | | | | 1.14 | |
(1) | Cost of sales includes $7.4 million reduction in expense for 2015 due to a change in accounting method relating to our inventory accounting methods. |
(2) | Net Debt is interest bearing debt less cash and cash equivalents. |
(3) | Total Capitalization is Total Stockholders’ Equity plus Interest Bearing Debt. |
(4) | Net Capital is Total Stockholders’ Equity plus Net Debt. Net Debt to Net Capital is a non-U.S. GAAP financial measure. See the reconciliation of non-U.S. GAAP measures starting on page 22. |
ITEMTEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONCONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts or as otherwise indicated)
The objective of the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to help the reader understand the financial performance of AptarGroup, Inc.
from management's perspective. MD&A is presented in eight sections: Overview, Results of Operations, Liquidity and Capital Resources,
Off-Balance Sheet Arrangements, Overview of Contractual Obligations, Recently Issued Accounting Pronouncements, Critical Accounting Estimates, Operations Outlook and Forward-Looking Statements. MD&A should be read in conjunction with our Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10-K.
In MD&A, “we,” “our,” “us,” “AptarGroup,” “AptarGroup, Inc.”, “Aptar” and the “Company” refer to AptarGroup, Inc. and its consolidated subsidiaries.
Aptar is a
leading global
supplierleader in the design and manufacturing of a broad range of
innovativedrug delivery, consumer product dispensing
sealing,and active
packagingmaterial science solutions and services for the
pharmaceutical, beauty, personal care, home care,
prescription drug, consumer health care, injectables, active packaging, food and beverage markets.
We useUsing insights,
proprietary design, engineering and science to create
innovative packagingdispensing, dosing and protective technologies
that build brand value for
our customers, and,many of the world's leading brands, Aptar in turn,
makemakes a meaningful difference in the lives, looks, health and homes of
peoplemillions of patients and consumers around the world.
In addition to the information presented herein that conforms to accounting principles generally accepted in the United States of America (“U.S. GAAP”), we also present certain financial information that does not conform to U.S. GAAP, which are referred to as non-U.S. GAAP financial measures. Management may assess our financial results both on a U.S. GAAP basis and on a non-U.S. GAAP basis. We believe it is useful to present these non-U.S.GAAP financial measures because they allow for a better period over period comparison of operating results by removing the impact of items that, in management’s view, do not reflect Aptar’s core operating performance. These non-U.S. GAAP financial measures should not be considered in isolation or as a substitute for U.S. GAAP financial results, but should be read in conjunction with the audited consolidated statements of income and other information presented herein. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparable U.S. GAAP financial measure to arrive at these non-U.S. GAAP financial measures. See the reconciliation
of non-U.S.under "Non-U.S. GAAP
measures starting on page 22.Measures" below.
For the year ended December 31, 2019,2021, reported sales increased 3%10% to $2.86$3.23 billion from $2.76$2.93 billion a year ago. Core sales, excluding the positive impact from changes in currency exchange rates and acquisition effects, increased approximately 3%.7% from 2020. A reconciliation of core sales growth to reported net sales growth, the most directly comparable U.S. GAAP measure, can be found on page 18.under "Net Sales" below. During 2019, top line growth in2021, our PharmaBeauty + Home and Food + Beverage segments compensated for lower sales in our Beauty + Home segment due to softness in our personal care market. Excluding a gain on sale of investment in 2018 of $6.5 million, all three segments showed improvement in adjusted EBITDA margins resulting fromboth reported strong core sales growth across the majorityas sales of our markets, acquisitionsproducts used in certain applications recovered from depressed sales during 2020 due to the COVID-19 pandemic. Our Pharma segment reported strong product growth in our injectables and active material science solutions markets; however, we madecontinued to be negatively impacted by the prolonged drawing down of inventory by certain customers as fewer illnesses and fewer doctor visits have resulted in 2018lower consumption of allergic rhinitis, cough and cold and certain pulmonary medicines using our drug delivery devices.
2021 HIGHLIGHTS
•Top line growth across each segment drove record annual sales of $3.2 billion
•Reported sales grew 10% and core sales increased 7%
•Reported earnings per share increased 12% to $3.61
•Reported net income totaled $244 million, exceeding 2019 pre-pandemic levels
•Adjusted EBITDA totaled $607 million, exceeding 2019 pre-pandemic levels
•Acquired Voluntis, a pioneer in digital therapeutics, and 80% of Weihai Hengyu Medical Products, a leading Chinese manufacturer of elastomeric and plastic components used in injectable drug delivery
•28th consecutive year of paying an increased annual dividend
•Our ESG performance resulted in the positive impactfollowing recognitions over the past year:
◦Number one on the Forbes Green Growth 50 2021 list;
◦Forbes 2021 World's Top 10 Female-Friendly Companies;
◦Number ten on Newsweek's America's Most Responsible Companies 2022 list, and number one in our industry category, with this being our third year on the list;
◦Number two on JUST Capital's 2021 list of America's Top 10 Companies Leading on Environmental Impact;
◦JUST Capital's America's Most JUST Companies 2022, and ranked in the top 20 overall and first in our transformation activities.industry for the category of Leading on Environmental Impact;2019 HIGHLIGHTS
● | Reported sales increased 3%. Core sales, excluding currency and acquisition effects, also grew 3%. |
● | Reported net income increased 24%. Adjusted EBITDA, excluding among other things restructuring expenses, acquisition costs and purchase accounting adjustments related to acquired inventory and backlog, increased 8% and our adjusted EBITDA margin was 21% in 2019 compared to 20% a year ago. |
● | Net cash provided by operations increased to $514.5 million in 2019 compared to $313.6 million in 2018. |
● | Free cash flow, which reflects net cash provided by operations less capital expenditures, increased to $272.2 million in 2019 compared to $102.4 million in 2018. |
● | Acquired strategic technologies and capabilities (Noble, Bapco, Nanopharm and Gateway) to continue expanding our product and service offerings. |
● | 2019 was our 26th consecutive year of paying an increased dividend. |
● | Named one of the “Top 100 Most Sustainable U.S. Companies” by Barron’s and one of “America’s Most Responsible Companies 2020” by Newsweek. |
◦3BL Media's 100 Best Corporate Citizens 2021 ranking;
◦Barron's 2022 100 Most Sustainable Companies in the U.S., our fourth year on the list;
◦Le Point's 2022 Most Responsible Companies in France, our second year on the list;
◦2021 CDP Supplier Engagement Leaderboard, our second year on the list; and
◦Platinum 2021 EcoVadis Sustainability Rating.
The following table sets forth the consolidated statements of income and the related percentages of net sales for the periods indicated. Refer to Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 20182020 for additional information regarding Results of Operations for the year ended December 31, 20182020 as compared to the year ended December 31, 2017.2019. Certain previously reported amounts have been reclassified to conform to the current period presentation:presentation.
| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2021 | | 2020 |
| | Amount in
Thousands $ | % of
Net Sales | | Amount in Thousands $ | % of
Net Sales |
| | | | | | |
| Net sales | | $ | 3,227,221 | | 100.0 | % | | $ | 2,929,340 | | 100.0 | % |
| Cost of sales (exclusive of depreciation and amortization shown below) | | 2,070,538 | | 64.1 | | | 1,842,821 | | 62.9 | |
| Selling, research & development and administrative | | 551,242 | | 17.1 | | | 500,229 | | 17.1 | |
| Depreciation and amortization | | 234,853 | | 7.3 | | | 220,300 | | 7.5 | |
| Restructuring initiatives | | 23,240 | | 0.7 | | | 26,492 | | 0.9 | |
| Operating income | | 347,348 | | 10.8 | | | 339,498 | | 11.6 | |
| Other expense | | (25,693) | | (0.8) | | | (38,343) | | (1.3) | |
| Income before income taxes | | 321,655 | | 10.0 | | | 301,155 | | 10.3 | |
| Net Income | | $ | 243,638 | | 7.5 | % | | $ | 214,090 | | 7.3 | % |
| Effective tax rate | | 24.3 | % | | | 28.9 | % | |
| Adjusted EBITDA margin (1) | | 18.8 | % | | | 20.0 | % | |
(1)Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures".
| | | | | | | | | | | | |
Year Ended December 31, | | 2019 | | 2018 | |
| | Amount in | | % of | | | Amount in | | % of | |
| | $ Thousands | | Net Sales | | | $ Thousands | | Net Sales | |
| | | | | | | | | | | | |
Net sales | | $ | 2,859,732 | | 100.0 | % | | $ | 2,764,761 | | 100.0 | % |
Cost of sales (exclusive of depreciation and amortization shown below) | | | 1,818,398 | | 63.6 | | | | 1,812,961 | | 65.6 | |
Selling, research & development and administrative | | | 454,617 | | 15.9 | | | | 429,955 | | 15.6 | |
Depreciation and amortization | | | 194,552 | | 6.8 | | | | 171,747 | | 6.2 | |
Restructuring initiatives | | | 20,472 | | 0.7 | | | | 63,829 | | 2.3 | |
Operating income | | | 371,693 | | 13.0 | | | | 286,269 | | 10.3 | |
Other expense | | | (29,624) | | (1.0) | | | | (20,249) | | (0.7) | |
Income before income taxes | | | 342,069 | | 12.0 | | | | 266,020 | | 9.6 | |
Net Income | | | 242,227 | | 8.5 | | | | 194,766 | | 7.0 | |
Effective tax rate | | | 29.2 | % | | | | | 26.8 | % | | |
Adjusted EBITDA margin (1) | | | 20.7 | % | | | | | 19.9 | % | | |
SIGNIFICANT DEVELOPMENTS
During 2020 the COVID-19 pandemic adversely affected the sales of several of our products, including sales to our prescription pharma customers due to lower incidences of common illnesses and doctor appointments and to our travel and retail beauty business and to our on-the-go beverage customers. We also benefited, to some extent, from increased demand for our personal care pumps and closures on certain types of hand sanitizers and our active material science solutions film for at-home COVID-19 test kits. While during 2021 we have experienced a return toward pre-pandemic levels in several of our markets, there remain uncertainties related to the pandemic that could adversely affect our business. The significance of these and other impacts to our segments are discussed herein.
As each of our segments produce dispensing systems that have been determined to be essential products by various government agencies around the world, our facilities have remained operational during the pandemic. We have taken a variety of measures to ensure the availability and functioning of our critical infrastructure, to promote the safety and security of our employees and to support the communities in which we operate. These measures include requiring remote working arrangements for employees where practicable. We are following public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions, the promotion of social distancing and the adoption of work-from-home arrangements, and all of these policies and initiatives have impacted our operations.
The extent to which the COVID-19 pandemic impacts our financial results and operations for fiscal year 2022 and going forward for all three of our business segments will depend on future developments which are highly uncertain and cannot be predicted, including the availability, adoption and efficacy of vaccines and boosters, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extended in response to any further resurgence of the virus and numerous other uncertainties. No impairments were recorded as of December 31, 2021 related to the COVID-19 pandemic. However, due to the general uncertainty surrounding the situation, including areas such as cost inflation, supply chain disruptions and labor shortages, future results could be materially impacted. See Part I, Item 1A - Risk Factors, included in this report for information on material risks associated with COVID-19.
(1) | Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of Non-U.S. GAAP measures starting on page 22. | | | | |
| 18/ATR | 2021 Form 10-K |
For the year ended December 31,
2019,2021, reported net sales increased
3%10% to
$2.86$3.23 billion from
$2.76$2.93 billion a year ago. The average U.S. dollar exchange rate
strengthenedweakened compared to
most of ourthe euro and other major
operating currencies
in which we operate, resulting in a
negativepositive currency translation impact of
4%2%. The
acquisitionsacquisition of
CSP Technologies, Gateway, Nanopharm and NobleFusion Packaging, Inc. ("Fusion") positively impacted sales by
4%1%.
There was no significant impact from our acquisitions of Voluntis and Hengyu during 2021. Therefore, core sales,
for 2019which exclude acquisitions and changes in foreign currency rates, increased
3% over 2018 asby 7% in 2021 compared to 2020. Price increases to our customers due to rising inflationary costs had a strong impact on our core sales during 2021. Of our 7% core sales increase, approximately 4% is due to price adjustments related to the passing through of higher resin and other input costs. All three segments reported sales growth
in our Pharmaexcluding the inflationary pass-throughs mentioned above. Our Beauty + Home and Food + Beverage segments
compensated for slightly negativeboth reported strong core sales
growth as sales of our products used in certain market categories recovered from depressed sales during 2020 due to
the COVID-19 pandemic. Our Pharma segment reported strong product growth in our
Beauty + Home segment. | | | | | | | | | |
Year Ended December 31, 2019 | | Beauty | | | | Food + | | | |
Net Sales Change versus Prior Year | | + Home | | Pharma | | Beverage | | Total | |
| | | | | | | | | |
Core Sales Growth | | (1) | % | 10 | % | 3 | % | 3 | % |
Acquisitions | | — | % | 9 | % | 7 | % | 4 | % |
Currency Effects (1) | | (4) | % | (5) | % | (2) | % | (4) | % |
Total Reported Net Sales Growth | | (5) | % | 14 | % | 8 | % | 3 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | Pharma | | Beauty
+Home | | Food +
Beverage | | Total |
| | | | | | | |
| Core Sales Growth | 2 | % | | 7 | % | | 23 | % | | 7 | % |
| Acquisitions | — | % | | 1 | % | | — | % | | 1 | % |
| Currency Effects (1) | 3 | % | | 2 | % | | 2 | % | | 2 | % |
| Total Reported Net Sales Growth | 5 | % | | 10 | % | | 25 | % | | 10 | % |
(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
For further discussion on net sales by reporting segment, please refer to the segment analysis of net sales and operating income on the following pages.
The following table sets forth, for the periods indicated, net sales by geographic location:
| | | | | | | | | | | |
Years Ended December 31, | | | 2019 | | % of Total | | | 2018 | | % of Total | |
| | | | | | | | | | | |
Domestic | | $ | 836,768 | | 29 | % | $ | 726,336 | | 26 | % |
Europe | | | 1,638,469 | | 57 | % | | 1,627,478 | | 59 | % |
Other Foreign | | | 384,495 | | 14 | % | | 410,947 | | 15 | % |
| | | | | | | | | | | | | | |
| Years Ended December 31, | 2021 | % of Total | 2020 | % of Total |
| | | | |
| Domestic | $ | 1,081,823 | | 34 | % | $ | 965,986 | | 33 | % |
| Europe | 1,725,182 | | 53 | % | 1,604,056 | | 55 | % |
| Other Foreign | 420,216 | | 13 | % | 359,298 | | 12 | % |
COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN BELOW)
Our cost of sales (“COS”) as a percent of net sales
decreasedincreased to
63.6%64.1% in
20192021 compared to
65.6%62.9% in
2018.2020. Our COS percentage was
positivelynegatively impacted by
both changes in our mix of
businesssales and
significant input cost increases across multiple substrates used in our products. During 2021, we reported a lower
material costs. The mix of business positively impacted results as the sales growthpercentage of our
higher marginhigher-margin Pharma
products was greater than theproduct sales
growth of productscompared to 2020. As discussed above, we also experienced increases in
the other two segments. We also realized lower raw materialseveral input costs
in 2019 comparedincluding resin, metals, freight and labor. While we maintain our normal pass-through of resin prices and have implemented general price increases to
2018 and the associated positive impact from the timingoffset other cost increases, there is no margin on these pass-throughs which increases our COS as a percentage of
passing through resin cost reductions to our customers.sales.
SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE
Our
Selling, Researchselling, research &
Developmentdevelopment and
Administrativeadministrative expenses (“SG&A”) increased approximately
6%10% or
$24.7$51.0 million to
$454.6$551.2 million in
20192021 compared to
$430.0$500.2 million in
2018.2020. Excluding changes in foreign currency rates, SG&A increased by approximately
$40.7$40.2 million compared to the
same period a year ago.prior year. Of this increase, $10.0 million relates to incremental SG&A costs in 2021 from the inclusion of our acquired companies compared to the prior year. The
reportedremaining increase is
primarilymainly due to
$20.0 million of incremental operationalhigher compensation costs
during 2019and professional fees, which includes transaction costs related to our
acquired companies. We also recognized increases in professional fees and higher personnel costs in accordance with our growth strategy.announced acquisitions. In 2021 SG&A as a percentage of net sales
increased to 15.9% compared to 15.6% in the same period of the prior year due to the cost increases mentioned above.remained constant with 2020 at 17.1%.
DEPRECIATION AND AMORTIZATION
Reported depreciation and amortization expense increased approximately 13%7% or $22.8$14.6 million to $194.6$234.9 million in 20192021 compared to $171.7$220.3 million in 2018.2020. Excluding changes in foreign currency rates, depreciation and amortization expense increased by approximately $29.2$9.9 million compared to the same period a year ago. The reportedprior year. Approximately $5.4 million of this increase is mainly due to $20.0 million of incremental depreciation and amortization costs related to our acquisitions.acquired companies. We also increased our capital spending during the current and prior year to support our growth strategy. Depreciation and amortization as a percentage of net sales increaseddecreased to 6.8%7.3% in 20192021 compared to 6.2%7.5% in the same periodprior year.
RESTRUCTURING INITIATIVES
In late 2017, Aptarwe began a business transformation plan to drive profitable sales growth, increase operational excellence, enhance our approach to innovation and improve organizational effectiveness. The primary focus of the plan is the Beauty + Home segment; however, certain global general and administrative functions arehave also beingbeen addressed. Restructuring costs related to this plan for the years ended December 31, 20192021 and 20182020 are as follows:
| | | | | | | | | | | |
| Year Ended December 31, | 2021 | | 2020 |
| Restructuring Initiatives by Segment | | | |
| Pharma | $ | 76 | | | $ | 220 | |
| Beauty + Home | 10,447 | | | 24,464 | |
| Food + Beverage | 404 | | | 1,903 | |
| Corporate & Other | 12,313 | | | (95) | |
| Total Restructuring Initiatives | $ | 23,240 | | | $ | 26,492 | |
| | | | | | | |
Year Ended December 31, | | 2019 | | 2018 | |
Restructuring Initiatives by Segment | | | | | | | |
Beauty + Home | | $ | 17,682 | | $ | 52,244 | |
Pharma | | | 632 | | | 3,589 | |
Food + Beverage | | | 391 | | | 4,185 | |
Corporate & Other | | | 1,767 | | | 3,811 | |
Total Restructuring Initiatives | | $ | 20,472 | | $ | 63,829 | |
WeAs of the end of 2021, we have successfully completed the vast majority of our planned initiatives related to our transformation plan, including implementing new commercial strategies, reducing costs and adding capabilities in Asia and in fast growing application fields that we believe will position the segment for future growth and profitability. However, the COVID-19 global pandemic resulted in a significant decline in our beauty business. While our Beauty + Home segment continues to be profitable, the disruption caused by the pandemic, including higher operating costs, have more than offset any expected growth in earnings from our transformation. Although we believe the beauty market remains a long-term attractive growth market and we remain committed to completing our transformation initiatives, we expect total implementation costs of approximately $110 million for these initiatives.the return to growth to be gradual and non-linear as this market is highly correlated to the return to post-pandemic normal consumer behavior, including travel, which has proven to be sporadic and uncertain. The cumulative expense incurred to datefor this transformation plan is $86.5approximately $136 million. We also anticipate makingmade capital investments of approximately $50 million related to the business transformation of approximately $55 million, of which $38 million has been incurredthis plan. We do not expect to date. We are progressing towards our initial target of $80 million annualized incremental EBITDA by the end of 2020, principally within the Beauty + Home segment,incur additional restructuring expense or have additional significant cash outflows related to our ongoing restructuring initiatives. However, ongoing changestransformation plan in customer and vendor negotiations, material indices, macro-economic trends and other factors represent continuing headwinds to the Beauty + Home segment, and have offset the consolidated net benefits from these initiatives.2022.
Reported operating income increased approximately $85.4$7.9 million or 30%2% to $371.7$347.3 million in 20192021 compared to $286.3$339.5 million in 2018.2020. Excluding changes in foreign currency rates, operating income increaseddecreased by approximately $101.0$3.9 million in 20192021 compared to 2018. We incurred lower restructuring2020. The majority of this decrease is due to changing segment sales mix along with significantly higher input costs, including both materials and realized improved marginslabor, related to our acquisitions and full year impact of CSP Technologies during 2019 compared to the prior year period. Additionally, this increase is related to lower restructuring costs, higher sales volumes in Pharma and Food + Beverage products and additional income related to acquired businesses.current inflationary environment. Operating income as a percentage of net sales increaseddecreased to 13.0%10.8% in 20192021 compared to 10.3%11.6% for the prior year.
Net other expense
increaseddecreased $12.7 million in
20192021 to
$29.6$25.7 million compared to
$20.2$38.3 million in
2018. This increase is partly due to $5.72020. We recorded a $2.0 million
of higher net interest expense due to recent acquisition activity, including CSP Technologies during the third quarter of 2018. Included in the 2018 miscellaneous income is alsorealized gain and a
gain of approximately $6.5$2.7 million
due to an observable price changeunrealized gain on our investment in
Reciprocal Labs Corporation, doing businessPureCycle Technologies (“PureCycle” or "PCT") during 2021. As discussed in Note 20 - Investment in Equity Securities of the Consolidated Financial Statements, our investment in PureCycle was converted into shares of PCT, a publicly traded entity, during the first quarter of 2021. This investment is now recorded at fair value based on observable market prices for identical assets and the change in fair value is recorded as
Propeller Health (“Propeller Health”).EFFECTIVE TAX RATE
a net investment gain or loss in the Consolidated Statements of Income. We believe that unrealized cost investment gains and losses from changes in market prices are not considered relevant to understanding our reported consolidated earnings or evaluating our periodic economic performance and are removed when reporting Adjusted EBITDA below. Other than the investment gain in PCT, we benefited from $5.7 million of lower net interest expenses due to lower interest rates and a lower average outstanding debt balance during 2021. We also recorded $1.8 million of interest income related to a Brazilian value added tax adjustment as discussed in Note 13-Commitments and Contingencies within the Notes to Consolidated Financial Statements. Miscellaneous expense also improved as a net favorable impact on foreign currency contracts more than compensated for higher pension costs related to the decline in discount rates.
PROVISION FOR INCOME TAXES
The reported effective tax rate on income before income taxes for
20192021 and
20182020 was
29.2%24.3% and
26.8%28.9%, respectively. The
higher tax rate for
20192021 was lower compared to 2020 due primarily
reflects the impactto excess tax benefits on deductible stock-based compensation. The 2021 tax rate was lower also due to a more favorable mix of
loss operations notearnings, including a tax
effected (+2.2%).rate reduction in France.
At December 31, 2019, as a result2021, we continue to assert permanent reinvestment of the U.S. global intangible low taxed income (“GILTI”) and the 2017 transition tax provisions,foreign earnings from Aptar's foreign operations. Therefore, we do not have a balance of foreign earnings that will be subject to U.S. taxation.tax upon repatriation under the currently enacted U.S. tax laws. We continually analyze our global working capital requirements and the potential tax liabilitiesas well as local country operation needs. We estimate that would be incurred if the non-U.S. subsidiaries madewere to make a distribution of their cash or distributable reserves. These liabilitiesreserves to the U.S., we would includeincur local country withholding tax and income tax and potential U.S. state taxation. As of December 31, 2019, all other cash or distributable reserve amounts continued to be reinvested indefinitely and would become subject to these additional taxes if they were remitted as dividends. We estimate the additional tax that would be payable on these earnings to be in the range of $20$15 million to $30$25 million. We would recognize such tax expense in our Consolidated Statements of Income and Consolidated Balance Sheets should we change the current permanent reinvestment assertion on foreign earnings.
NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.
We reported net income of
$242.2$244.1 million
in 2021 compared to
$194.7$214.0 million reported in
2018.BEAUTY + HOME SEGMENT
| | | | | | | | | | | |
| | | | | | | | | | % Change | |
Year Ended December 31, | | 2019 | | | 2018 | | | 2019 vs. 2018 | |
| | | | | | | | | | | |
Net Sales | | $ | 1,352,714 | | | $ | 1,426,382 | | | (5.2) | % |
Adjusted EBITDA (1) | | | 181,150 | | | | 185,926 | | | (2.6) | |
Adjusted EBITDA margin (1) | | | 13.4 | % | | | 13.0 | % | | | |
| | | | | | | | | | | |
| PHARMA SEGMENT |
| | | |
| Year Ended December 31, | 2021 | 2020 | % Change 2021 vs. 2020 |
| | | |
| Net Sales | $ | 1,284,624 | | $ | 1,225,779 | | 4.8 | % |
| Adjusted EBITDA (1) | 425,714 | | 428,469 | | (0.6) | |
| Adjusted EBITDA margin (1) | 33.1 | % | 35.0 | % | |
(1) | Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring, acquisition-related costs, and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of non-U.S. GAAP measures starting on page 22. | | | | |
| |
(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures."
Reported net sales
decreasedincreased approximately 5% in
20192021 to
$1.35$1.28 billion compared to
$1.43$1.23 billion in
2018.2020. Changes in
currency rates negatively impactedcurrencies positively affected net sales by
4%3%.
The impact of our Voluntis and Hengyu acquisitions was immaterial to our segment's full year results. Therefore, core sales
decreased 1%increased 2% in
20192021 compared to the prior year.
The majority of this decrease is due to reduced demand from the personal care market and a $1.5 million reduction of sales due to the pass-through of lower resin prices to our customers. Core sales to the personal care market decreased 6%. The decrease is mostly related to a general softness in demand across most of our major applications, especially body care and hair care products, as political and economic uncertainties are leading to some customer destocking. We also recognized lower product and tooling sales in 2019 related to a large product launch for a specific North America customer during the second quarter of 2018. Core sales to the beauty market increased 4% on strong growth in skin care and fragrance dispensing systems, primarily driven by the Chinese luxury market and retail travel. Higher sales of our products used on air care and dish care applications drove the core sales growth in the home care market. | | | | | | | | | |
Year Ended December 31, 2019 | | Personal | | | | Home | | | |
Net Sales Change over Prior Year | | Care | | Beauty | | Care | | Total | |
| | | | | | | | | |
Core Sales Growth | | (6) | % | 4 | % | 1 | % | (1) | % |
Acquisitions | | — | % | — | % | — | % | — | % |
Currency Effects (1) | | (3) | % | (5) | % | (3) | % | (4) | % |
Total Reported Net Sales Growth | | (9) | % | (1) | % | (2) | % | (5) | % |
| (1) | Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates. |
Adjusted EBITDA for 2019 decreased to $181.2 million from $185.9 million reported in 2018. During 2019, we experienced favorable material cost impacts due to lower raw material input costs and the associated positive impact from the timing delay of passing through resin cost to our customers. We also realized improved profitability on our tooling projects, but these favorable variances were not enough to overcome the softening demand from our personal care customers as discussed above. Adjusted EBITDA as a percentage of sales improved to 13.4% in 2019 compared to 13.0% in 2018 due to the positive impact of our transformation initiatives along with the other positive factors mentioned above.
PHARMA SEGMENT
| | | | | | | | | | | |
| | | | | | | | | | % Change | |
Year Ended December 31, | | | 2019 | | | | 2018 | | | 2019 vs. 2018 | |
| | | | | | | | | | | |
Net Sales | | $ | 1,091,051 | | | $ | 954,652 | | | 14.3 | % |
Adjusted EBITDA (1) | | | 387,483 | | | | 343,706 | | | 12.7 | |
Adjusted EBITDA margin (1) | | | 35.5 | % | | | 36.0 | % | | | |
(1) | Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring, acquisition-related costs and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of non-U.S. GAAP measures starting on page 22. |
Reported net sales increased approximately 14% in 2019 to $1.09 billion compared to $954.7 million in 2018. Changes in currencies negatively affected net sales by 5% while our acquisitions of CSP Technologies, Gateway, Nanopharm and Noble positively impacted sales by 9% in 2019. Therefore, core sales increased 10% in 2019 compared to the prior year. Sales increased in all of our markets during 2019. Core sales to the prescription drug market increased 13% mainly driven by strong demand for our products sold for central nervous system and allergic rhinitis treatments. We also benefitted from the realization of $1.8 million of revenue for achieving a development milestone related to a customer project. Core sales to the consumer health care market increased 6% on increased demand for our products used on eye care and nasal saline treatments. Core sales of our products to the injectables markets grew 8%market increased 16% due to continued strong demand for our vaccine components. Sales of our active material science solutions grew 12% on increased demand acrossfor our diagnostics and probiotics products. We also experienced increased demand for our Activ-Film™ technology used to enhance the majorityintegrity of certain diagnostic tests including at-home COVID-19 test kits. Core sales of our product offerings and in all regions. Active packaging core sales comparisons areproducts to the consumer health care market increased 4% as strong revenue from our acquisitioneye care customers more than compensated for softness for most of CSP Technologies at the endyear in the nasal saline and decongestant markets. Core sales of August 2018. The core sales increase is mostly dueour products to strong pre-commercial sales activity for our new active blister packaging solution for oral solid dosethe prescription drug delivery.
| | | | | | | | | | | |
Year Ended December 31, 2019 | | Prescription | | Consumer | | | | Active | | | |
Net Sales Change over Prior Year | | Drug | | Health Care | | Injectables | | Packaging | | Total | |
| | | | | | | | | | | |
Core Sales Growth | | 13 | % | 6 | % | 8 | % | 15 | % | 10 | % |
Acquisitions | | 1 | % | — | % | 4 | % | 221 | % | 9 | % |
Currency Effects (1) | | (5) | % | (5) | % | (5) | % | (4) | % | (5) | % |
Total Reported Net Sales Growth | | 9 | % | 1 | % | 7 | % | 232 | % | 14 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | Prescription Drug | | Consumer Health Care | | Injectables | | Active Material Science Solutions | | Digital Health | | Total |
| Core Sales Growth | (8) | % | | 4 | % | | 16 | % | | 12 | % | | — | % | | 2 | % |
| Acquisitions | — | % | | — | % | | 1 | % | | — | % | | 100 | % | | — | % |
| Currency Effects (1) | 3 | % | | 3 | % | | 3 | % | | 1 | % | | — | % | | 3 | % |
| Total Reported Net Sales Growth | (5) | % | | 7 | % | | 20 | % | | 13 | % | | 100 | % | | 5 | % |
| (1) | Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates. | | | |
| |
(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
Adjusted EBITDA for 2019 increased2021 decreased to $387.5$425.7 million compared to $343.7$428.5 million in 2018. The2020. While we reported strong product growth in our injectables and active material science solutions markets, lower sales growthin certain of our higher-margin prescription products drove our Adjusted EBITDA margins lower during 2021. We were also impacted by the inflationary environment discussed above along with incremental profit related toas higher input costs negatively impacted our acquisitions led to the increase in reported results for 2019 compared to 2018. 2018 results also include a gain of approximately $6.5 million on our investment in Propeller Healthmargins.
| | | | | | | | | | | |
| BEAUTY + HOME SEGMENT |
| | | |
| Year Ended December 31, | 2021 | 2020 | % Change 2021 vs. 2020 |
| | | |
| Net Sales | $ | 1,434,022 | | $ | 1,298,151 | | 10.5 | % |
| Adjusted EBITDA (1) | 154,689 | | 129,299 | | 19.6 | |
| Adjusted EBITDA margin (1) | 10.8 | % | 10.0 | % | |
. (1)Adjusted EBITDA is calculated as a percentage of sales declinedearnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to 35.5% in 2019 compared to 36.0% in 2018. Excludingobservable market price changes on equity securities and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the Propeller Health gain in 2018, the adjusted EBITDA percentage would have improved slightly during 2019.reconciliation under "Non-U.S. GAAP Measures".FOOD + BEVERAGE SEGMENT
| | | | | | | | | | | |
| | | | | | | | | | % Change | |
Year Ended December 31, | | | 2019 | | | | 2018 | | | 2019 vs. 2018 | |
| | | | | | | | | | | |
Net Sales | | $ | 415,967 | | | $ | 383,727 | | | 8.4 | % |
Adjusted EBITDA (1) | | | 68,108 | | | | 57,589 | | | 18.3 | |
Adjusted EBITDA margin (1) | | | 16.4 | % | | | 15.0 | % | | | |
(1) | Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring, acquisition-related costs and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of non-U.S. GAAP measures starting on page 22. |
Reported net sales increased by approximately 8%10% in 20192021 to $416.0 million$1.43 billion compared to $383.7 million$1.30 billion in 2018. Incremental sales from our CSP Technologies acquisition2020. Changes in currency rates positively impacted net sales by 2% while our acquisition of Fusion positively impacted sales by 1% in 2021. Therefore, core sales increased 7% in 2021 compared to the prior year. Approximately 4% of this core sales growth came from pass-through of higher input cost while the remaining amount is due to increased volumes, as sales for many of our products continued to gradually recover from the COVID-19 pandemic. Core sales of our products to the beauty market increased 11% during 2021 as we experienced an increase in demand for both fragrance and skin care products. Personal care core sales increased 3% as higher sales of our hair care and body care products more than offset the lower demand for our hand sanitizer dispensing solutions. Core sales to the home care markets increased 6% on strong demand for our dish care products.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | Personal Care | | Beauty | | Home Care | | Total |
| Core Sales Growth | 3 | % | | 11 | % | | 6 | % | | 7 | % |
| Acquisitions | — | % | | 3 | % | | — | % | | 1 | % |
| Currency Effects (1) | 2 | % | | 3 | % | | 2 | % | | 2 | % |
| Total Reported Net Sales Growth | 5 | % | | 17 | % | | 8 | % | | 10 | % |
(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
Adjusted EBITDA for 2021 increased to $154.7 million from $129.3 million in 2020. As discussed above, increases in product sales volumes drove the majority of our Adjusted EBITDA growth in 2021. Inflationary increases negatively impacted our current year results and margins as resin price pass throughs and other general price increases were not enough to offset the full effect of rising material and labor costs. However, we were further able to compensate for this impact with improved operational performance during 2021.
| | | | | | | | | | | |
| FOOD + BEVERAGE SEGMENT |
| | | |
| Year Ended December 31, | 2021 | 2020 | % Change 2021 vs. 2020 |
| | | |
| Net Sales | $ | 508,575 | | $ | 405,410 | | 25.4 | % |
| Adjusted EBITDA (1) | 79,377 | | 71,995 | | 10.3 | |
| Adjusted EBITDA margin (1) | 15.6 | % | 17.8 | % | |
(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures".
Reported net sales increased approximately 25% in 2021 to $508.6 million compared to $405.4 million in 2020. Changes in currency rates negativelypositively impacted net sales by 2%. Therefore, core sales increased 3%23% in 20192021 compared to the prior year. Strong product and tooling sales, along with the pass-through of higher material costs, positively impacted 2021 sales. Approximately 14% of the core sales increase is due to passing through higher resin and other input costs. Core sales to the food market increased 7%21% while core sales to the beverage market decreased 2%increased 29% during 2021 compared to 2018. Sales tothe prior year. For the food markets, we realized strong growth in several product applications including sauces and condiments, dairy and granulars/powders as consumers continued to cook at home. The beverage market increased due to strongalso reported growth as sales of our products across all of our largest applications, including increases in sales to our sauces and condiments, non-beverage dairy, infant nutrition and granular powder customers. For the beverage market, strong sales of our products to ourpremium single-serve bottled water and concentrate customers were offseton-the-go functional drink products continued to recover from the lower COVID-19 pandemic levels last year.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | Food | | Beverage | | Total |
| Core Sales Growth | 21 | % | | 29 | % | | 23 | % |
| Acquisitions | — | % | | — | % | | — | % |
| Currency Effects (1) | 2 | % | | 4 | % | | 2 | % |
| Total Reported Net Sales Growth | 23 | % | | 33 | % | | 25 | % |
(1)Currency effects are calculated by a declinetranslating last year’s amounts at this year’s foreign exchange rates.
Adjusted EBITDA for 2021 increased to $79.4 million compared to $72.0 million in
beverage closure volumes related to a customer in China. Lower2020. Higher product and tooling sales
discussed above more than compensated for the impact of increasing input costs and
thehigher compensation costs. While we maintain our normal pass-through of resin
prices and have implemented general price
changes alsoincreases to offset other cost increases, there is no margin on these pass-throughs which negatively
impacted core sales compared to 2018 by $0.9 million and $5.1 million, respectively. | | | | | | | | | |
Year Ended December 31, 2019 | | | | | | | | | |
Net Sales Change over Prior Year | | | | Food | | Beverage | | Total | |
| | | | | | | | | |
Core Sales Growth | | | | 7 | % | (2) | % | 3 | % |
Acquisitions | | | | 11 | % | — | % | 7 | % |
Currency Effects (1) | | | | (2) | % | (3) | % | (2) | % |
Total Reported Net Sales Growth | | | | 16 | % | (5) | % | 8 | % |
| (1) | Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates. | | | |
| 22/ATR | 2021 Form 10-K |
Adjusted EBITDA increased to $68.1 million in 2019 compared to $57.6 million in 2018. This increase is due to incremental profit related to our CSP Technologies acquisition and solid core sales growth discussed above. We also benefitted from the positive timing delayTable of passing on resin cost decreases from previous quarters to our customers. During 2018, we recognized an impairment of $1.6 million related to prepaid royalties as a result of lower than expected sales during the contractual period. This impairment does not impact our current product portfolio or future project pipeline related to the underlying technology. Adjusted EBITDA as a percentage of sales improved to 16.4% in 2019 compared to 15.0% in 2018 due to favorable operational performance along with the other positive factors discussed above.Contents
In addition to our three reporting segments, Aptar assigns certain costs to “Corporate & Other,” which is presented separately in Note 18 — Segment Information of the Notes to the Consolidated Financial Statements. For Corporate & Other, Adjusted EBITDA (which excludes net interest, taxes, depreciation, amortization, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items) primarily includes certain professional fees, compensation and information system costs which are not allocated directly to our reporting segments.
Corporate & Other
expenseexpenses in
20192021 increased to
$44.4$52.3 million compared to
$36.3$43.4 million in
2018. As discussed above,2020. Approximately $2.1 million of this increase is
mainly due to higher
foreign exchange rates during 2021. The majority of the remaining increase relates to higher compensation costs and higher professional fees
and personnel costsduring 2021 compared to the prior year. Our 2021 Adjusted EBITDA includes a $2.0 million realized gain on sales of PCT shares, while our 2020 results include a $3.1 million gain on our PureCycle investment prior to it being converted into shares of PCT. As noted above, any unrealized investment gains or losses are removed from our Adjusted EBITDA calculation as we
continuebelieve that unrealized cost investment gains and losses from changes in market prices are not considered relevant to
implementunderstanding our
growth strategy. reported consolidated earnings or evaluating our periodic economic performance.
In addition to the information presented herein that conforms to U.S. GAAP, we also present financial information that does not conform to U.S. GAAP, which are referred to as non-U.S. GAAP financial measures. Management may assess our financial results both on a U.S. GAAP basis and on a non-U.S. GAAP basis. We believe it is useful to present these non-U.S. GAAP financial measures because they allow for a better period-over-period comparison of operating results by removing the impact of items that, in management’s view, do not reflect Aptar’sour core operating performance. These non-U.S. GAAP financial measures should not be considered in isolation or as a substitute for U.S. GAAP financial results, but should be read in conjunction with the audited consolidated statements of income and other information presented herein. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparable U.S. GAAP financial measure to arrive at these non-U.S. GAAP financial measures.
In our MD&A,Management's Discussion and Analysis, we exclude the impact of foreign currency translation when presenting net sales and other information, which we define as “constant currency.” Changes in net sales excluding the impact of foreign currency translation is a non-U.S. GAAP financial measure. As a worldwide business, it is important that we take into account the effects of foreign currency translation when we view our results and plan our strategies. Consequently, when our management looks at our financial results to measure the core performance of our business, we exclude the impact of foreign currency translation by translating our prior period results at current period foreign currency exchange rates. As a result, our management believes that these presentations are useful internally and may be useful to investors. We also exclude the impact of material acquisitions when comparing results to prior periods. Changes in operating results excluding the impact of acquisitions are non-U.S. GAAP financial measures. We believe it is important to exclude the impact of acquisitions on period over period results in order to evaluate performance on a more comparable basis.
We present earnings before net interest and taxes (“EBIT”) and earnings before net interest, taxes, depreciation and amortization (“EBITDA”). We also present our adjusted earnings before net interest and taxes (“Adjusted EBIT”) and adjusted earnings before net interest, taxes, depreciation and amortization (“Adjusted EBITDA”), both of which exclude
among other special items, the business transformation charges
(restructuring initiatives), acquisition-related costs, purchase accounting adjustments related to acquisitions and
acquisition-related costs.investments and net unrealized investment gains and losses related to observable market price changes on equity securities. Our Operations Outlook is also provided on a non-U.S. GAAP basis because certain reconciling items are dependent on future events that either cannot be controlled, such as tax and exchange rates, or reliably predicted because they are not part of our routine activities, such as restructuring initiatives and acquisition-related costs.
We provide a reconciliation of Net Debt to Net Capital as a non-U.S. GAAP measure.
Net Debt"Net Debt" is calculated as interest bearing debt less cash
cashand equivalents and short-term investments while
Net Capital"Net Capital" is calculated as
stockholder’sstockholders' equity plus Net Debt. Net Debt to Net Capital measures a company’s financial leverage, which gives users an idea of a company's financial structure, or how it is financing its operations, along with insight into its financial strength. We believe that it is meaningful to take into consideration the balance of our cash, cash equivalents and short-term investments when evaluating our leverage. If needed, such assets could be used to reduce our gross debt position.
Finally, we provide a reconciliation of free cash flow as a non-U.S. GAAP measure. Free cash flow is calculated as cash provided by operating activities less
capital expenditures plus proceeds from government grants related to capital expenditures. We use free cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. We believe that it is meaningful to investors in evaluating our financial performance and
measuremeasuring our ability to generate cash internally to fund our initiatives.
| | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 31, 2019 |
| | | |
| | Consolidated | | Beauty + Home | | Pharma | | Food + Beverage | | Corporate & Other | | Net Interest |
Net Sales | | $ | 2,859,732 | | $ | 1,352,714 | | $ | 1,091,051 | | $ | 415,967 | | $ | - | | $ | - |
| | | | | | | | | | | | | | | | | | |
Reported net income | | $ | 242,227 | | | | | | | | | | | | | | | |
Reported income taxes | | | 99,842 | | | | | | | | | | | | | | | |
Reported income before income taxes | | | 342,069 | | | 80,281 | | | 317,897 | | | 31,835 | | | (56,629) | | | (31,315) |
Adjustments: | | | | | | | | | | | | | | | | | | |
Restructuring initiatives | | | 20,472 | | | 17,682 | | | 632 | | | 391 | | | 1,767 | | | |
Transaction costs related to acquisitions | | | 3,927 | | | 409 | | | 3,364 | | | 154 | | | | | | |
Purchase accounting adjustments related to acquired companies' backlog | | | 1,202 | | | | | | 1,202 | | | | | | | | | |
Adjusted earnings before income taxes | | | 367,670 | | | 98,372 | | | 323,095 | | | 32,380 | | | (54,862) | | | (31,315) |
Interest expense | | | 35,489 | | | | | | | | | | | | | | | 35,489 |
Interest income | | | (4,174) | | | | | | | | | | | | | | | (4,174) |
Adjusted earnings before net interest and taxes (Adjusted EBIT) | | | 398,985 | | | 98,372 | | | 323,095 | | | 32,380 | | | (54,862) | | | - |
Depreciation and amortization | | | 194,552 | | | 82,778 | | | 65,590 | | | 35,728 | | | 10,456 | | | - |
Backlog amortization included in Depreciation and amortization above | | | (1,202) | | | | | | (1,202) | | | | | | | | | |
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA) | | $ | 592,335 | | $ | 181,150 | | $ | 387,483 | | $ | 68,108 | | $ | (44,406) | | $ | - |
| | | | | | | | | | | | | | | | | | |
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales) | | | 20.7% | | | 13.4% | | | 35.5% | | | 16.4% | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| | | | | | | | | | | |
| Consolidated | | Pharma | | Beauty + Home | | Food + Beverage | | Corporate & Other | | Net Interest |
| Net Sales | $ | 3,227,221 | | | $ | 1,284,624 | | | $ | 1,434,022 | | | $ | 508,575 | | | $ | — | | | $ | — | |
| | | | | | | | | | | |
| Reported net income | $ | 243,638 | | | | | | | | | | | |
| Reported income taxes | 78,017 | | | | | | | | | | | |
| Reported income before income taxes | 321,655 | | | 331,317 | | | 47,631 | | | 38,650 | | | (69,327) | | | (26,616) | |
| Adjustments: | | | | | | | | | | | |
| Restructuring initiatives | 23,240 | | | 76 | | | 10,447 | | | 404 | | | 12,313 | | | |
| Net unrealized investment gain (1) | (2,709) | | | | | | | | | (2,709) | | | |
| Transaction costs related to acquisitions | 3,811 | | | 3,811 | | | — | | | — | | | — | | | |
| | | | | | | | | | | |
| Adjusted earnings before income taxes | 345,997 | | | 335,204 | | | 58,078 | | | 39,054 | | | (59,723) | | | (26,616) | |
| Interest expense | 30,284 | | | | | | | | | | | 30,284 | |
| Interest income | (3,668) | | | | | | | | | | | (3,668) | |
| Adjusted earnings before net interest and taxes (Adjusted EBIT) | 372,613 | | | 335,204 | | | 58,078 | | | 39,054 | | | (59,723) | | | — | |
| Depreciation and amortization | 234,853 | | | 90,510 | | | 96,611 | | | 40,323 | | | 7,409 | | | — | |
| | | | | | | | | | | |
| Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA) | $ | 607,466 | | | $ | 425,714 | | | $ | 154,689 | | | $ | 79,377 | | | $ | (52,314) | | | $ | — | |
| | | | | | | | | | | |
| Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales) | 18.8 | % | | 33.1 | % | | 10.8 | % | | 15.6 | % | | | | |
(1)Net unrealized investment gain represents the change in fair value of our investment in PCT (see Note 20 - Investment in Equity Securities for further details).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| | | | | | | | | | | |
| Consolidated | | Pharma | | Beauty + Home | | Food + Beverage | | Corporate & Other | | Net Interest |
| Net Sales | $ | 2,929,340 | | | $ | 1,225,779 | | | $ | 1,298,151 | | | $ | 405,410 | | | $ | — | | | $ | — | |
| | | | | | | | | | | |
| Reported net income | $ | 214,090 | | | | | | | | | | | |
| Reported income taxes | 87,065 | | | | | | | | | | | |
| Reported income before income taxes | 301,155 | | | 351,411 | | | 3,832 | | | 32,324 | | | (54,126) | | | (32,286) | |
| Adjustments: | | | | | | | | | | | |
| Restructuring initiatives | 26,492 | | | 220 | | | 24,464 | | | 1,903 | | | (95) | | | |
| | | | | | | | | | | |
| Transaction costs related to acquisitions | 4,812 | | | 210 | | | 4,602 | | | — | | | — | | | |
| Purchase accounting adjustments related to acquisitions and investments | 4,642 | | | 1,421 | | | 3,221 | | | — | | | — | | | |
| Adjusted earnings before income taxes | 337,101 | | | 353,262 | | | 36,119 | | | 34,227 | | | (54,221) | | | (32,286) | |
| Interest expense | 33,244 | | | | | | | | | | | 33,244 | |
| Interest income | (958) | | | | | | | | | | | (958) | |
| Adjusted earnings before net interest and taxes (Adjusted EBIT) | 369,387 | | | 353,262 | | | 36,119 | | | 34,227 | | | (54,221) | | | — | |
| Depreciation and amortization | 220,300 | | | 75,874 | | | 95,880 | | | 37,768 | | | 10,778 | | | — | |
| Purchase accounting adjustments included in Depreciation and amortization above | (3,367) | | | (667) | | | (2,700) | | | — | | | — | | | |
| Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA) | $ | 586,320 | | | $ | 428,469 | | | $ | 129,299 | | | $ | 71,995 | | | $ | (43,443) | | | $ | — | |
| | | | | | | | | | | |
| Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales) | 20.0 | % | | 35.0 | % | | 10.0 | % | | 17.8 | % | | | | |
| | | | | | | | | | | |
| Net Debt to Net Capital Reconciliation | December 31, 2021 | | December 31, 2020 |
| | | |
| Notes payable, revolving credit facility and overdrafts | $ | 147,276 | | | $ | 52,200 | |
| Current maturities of long-term obligations, net of unamortized debt issuance costs | 142,351 | | | 65,666 | |
| Long-Term Obligations, net of unamortized debt issuance costs | 907,024 | | | 1,054,998 | |
| Total Debt | $ | 1,196,651 | | | $ | 1,172,864 | |
| Less: | | | |
| Cash and equivalents | $ | 122,925 | | | $ | 300,137 | |
| Short-term investments | 740 | | | 243 | |
| Net Debt | $ | 1,072,986 | | | $ | 872,484 | |
| | | |
| Total Stockholders' Equity | $ | 1,984,600 | | | $ | 1,850,785 | |
| Net Debt | 1,072,986 | | | 872,484 | |
| Net Capital | $ | 3,057,586 | | | $ | 2,723,269 | |
| | | |
| Net Debt to Net Capital | 35.1 | % | | 32.0 | % |
| | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 31, 2018 |
| | | |
| | Consolidated | | Beauty + Home | | Pharma | | Food + Beverage | | Corporate & Other | | Net Interest |
Net Sales | | $ | 2,764,761 | | $ | 1,426,382 | | $ | 954,652 | | $ | 383,727 | | $ | - | | $ | - |
| | | | | | | | | | | | | | | | | | |
Reported net income | | $ | 194,766 | | | | | | | | | | | | | | | |
Reported income taxes | | | 71,254 | | | | | | | | | | | | | | | |
Reported income before income taxes | | | 266,020 | | | 49,443 | | | 276,550 | | | 23,956 | | | (58,359) | | | (25,570) |
Adjustments: | | | | | | | | | | | | | | | | | | |
Restructuring initiatives | | | 63,829 | | | 52,244 | | | 3,589 | | | 4,185 | | | 3,811 | | | |
Transaction costs related to acquisitions | | | 9,598 | | | 574 | | | | | | | | | 9,024 | | | |
Purchase accounting adjustments related to acquired companies' inventory | | | 14,172 | | | 119 | | | 12,072 | | | 1,981 | | | | | | |
Adjusted earnings before income taxes | | | 353,619 | | | 102,380 | | | 292,211 | | | 30,122 | | | (45,524) | | | (25,570) |
Interest expense | | | 32,626 | | | | | | | | | | | | | | | 32,626 |
Interest income | | | (7,056) | | | | | | | | | | | | | | | (7,056) |
Adjusted earnings before net interest and taxes (Adjusted EBIT) | | | 379,189 | | | 102,380 | | | 292,211 | | | 30,122 | | | (45,524) | | | - |
Depreciation and amortization | | | 171,747 | | | 83,546 | | | 51,495 | | | 27,467 | | | 9,239 | | | - |
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA) | | $ | 550,936 | | $ | 185,926 | | $ | 343,706 | | $ | 57,589 | | $ | (36,285) | | $ | - |
| | | | | | | | | | | | | | | | | | |
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales) | | | 19.9% | | | 13.0% | | | 36.0% | | | 15.0% | | | | | | |
| | | | | | | |
Net Debt to Net Capital Reconciliation | | | December 31, | | | December 31, | |
| | | 2019 | | | 2018 | |
| | | | | | | |
Notes payable, revolving credit facility and overdrafts | | $ | 44,259 | | $ | 101,293 | |
Current maturities of long-term obligations, net of unamortized debt issuance costs | | | 65,988 | | | 62,678 | |
Long-Term Obligations, net of unamortized debt issuance costs | | | 1,085,453 | | | 1,125,993 | |
Total Debt | | | 1,195,700 | | | 1,289,964 | |
Less: | | | | | | | |
Cash and equivalents | | | 241,970 | | | 261,823 | |
Net Debt | | $ | 953,730 | | $ | 1,028,141 | |
| | | | | | | |
Total Stockholders' Equity | | $ | 1,572,252 | | $ | 1,422,871 | |
Net Debt | | | 953,730 | | | 1,028,141 | |
Net Capital | | $ | 2,525,982 | | $ | 2,451,012 | |
| | | | | | | |
Net Debt to Net Capital | | | 37.8% | | | 41.9% | |
| | | | | | | |
Free Cash Flow Reconciliation | | | December 31, | | | December 31, | |
| | | 2019 | | | 2018 | |
| | | | | | | |
Net Cash Provided by Operations | | $ | 514,457 | | $ | 313,628 | |
| | | | | | | |
Less: | | | | | | | |
Capital Expenditures | | | 242,276 | | | 211,252 | |
Free Cash Flow | | $ | 272,181 | | $ | 102,376 | |
| | | | | | | | | | | |
| Free Cash Flow Reconciliation | December 31, 2021 | | December 31, 2020 |
| | | |
| Net Cash Provided by Operations | $ | 363,443 | | | $ | 570,153 | |
| Capital Expenditures | (307,935) | | | (245,954) | |
| Proceeds from Government Grants | 2,003 | | | — | |
| Free Cash Flow | $ | 57,511 | | | $ | 324,199 | |
LIQUIDITY AND CAPITAL RESOURCES
We
Given our current low level of leverage relative to others in our industry and our ability to generate strong levels of cash flow from operations, we believe we are in a strong financial position and have the financial resources to meet our business requirements in the foreseeable future. We have historically used cash flow from operations, our revolving credit facilities, proceeds from stock options and debt, as needed, as our primary sources of liquidity. Our primary uses of liquidity are to invest in equipment and facilities that are necessary to support our growth,
cost efficiencies,pay quarterly dividends to stockholders and to make acquisitions that will contribute to the achievement of our strategic objectives.
Other uses of liquidity include repurchasing shares of our common stock and paying dividendsDue to
stockholders. Inuncertainty amid the COVID-19 pandemic, in the event that customer demand
would decreasedecreases significantly for a prolonged period of time and
negatively impactadversely impacts our cash
flowflows from operations, we would have the ability to restrict and significantly reduce capital expenditure levels as well as evaluate our acquisition
strategy and dividend and share repurchase programs.strategy. A prolonged and significant reduction in capital expenditure levels could increase future repairs and maintenance costs as well as have a negative impact on operating margins if we were unable to invest in new innovative products.
Refer to Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 for additional information regarding Liquidity and Capital Resources for the year ended December 31, 2018 as compared to the year ended December 31, 2017. Cash and equivalents decreased to $242.0$122.9 million at December 31, 20192021 from $261.8$300.1 million at December 31, 20182020 while t. Totalotal short and long-term interest bearing debt of $1.2$1.20 billion billion at December 31, 2019 decreased2021 increased from the $1.3$1.17 billion at December 31, 2018 resulting from repayments made during2020. The use of cash and increase in debt was primarily to fund our acquisitions and return cash to stockholders in the year on our group credit facilitiesform of dividends and long-term debt obligations. share repurchases. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholders’ equity plus Net Debt) decreasedincreased to 37.8%35.1% at December 31, 20192021 compared to 41.9%32.0% at December 31, 2018.2020. See the reconciliation of non-U.S.under "Non-U.S. GAAP measures starting on page 22.Measures".
In
2019,2021, our operations provided approximately
$514.5$363.4 million in cash flow compared to
$313.6$570.2 million in
2018.2020. Cash flow from operations was primarily derived from earnings before depreciation and amortization. The
increasedecrease in
20192021 cash flow from operations compared to
20182020 is primarily attributable to
lower restructuring costs, improved profitability and betteran increase in working capital
management.driven by our sales growth along with pricing increases related to the passing through of higher resin and other input costs as well as increased inventory due to inflation. We believe that our 2022 operating cash flow will be more than sufficient to fund our working capital needs, scheduled repayments of debt and outstanding purchase commitments as discussed in Note 13 - Commitments and Contingencies and lease arrangements as discussed in Note 8 - Lease Commitments.
We used
$336.3$457.2 million in cash for investing activities during
20192021 compared to
$735.5$452.0 million during
2018.2020. The
lowerhigher cash utilization in
20192021 compared to
20182020 is mainly due to
less cash outflowsa $62.0 million increase in capital expenditures, partially offset by a $15.8 million decrease related to
acquisitions.acquisitions and a $32.8 million decrease for investment in equity securities. During
2019,2021, approximately
$106.3$89.7 million and $53.8 million of cash was utilized to fund
our Gateway, Nanopharmthe Voluntis and
Noble acquisitions; we also released $4.0 million relating to the final escrow settlement on our acquisition of CSP Technologies and invested $3.5 millionHengyu acquisitions, respectively, while in
two preferred equity investments. We also received $16.5 million from the sale of our investment in Propeller Health in 2019. Our investment in capital projects increased $31.0 million during 2019 as compared to 2018. Our cash utilization in 2018 is mainly due to acquisitions and capital investments to support our growth strategy. During 2018, approximately $524.42020, $162.7 million of
our cash
(net of $24.1 million of cash acquired and $5.0 million in escrow) was utilized to fund
our acquisition of CSP Technologies. We alsothe Fusion acquisition. Additionally, in 2021 we invested
$10.0$6.9 million in
equity securities while in 2020 we invested $32.0 million in our 49% equity interest of BTY, $5.0 million in our 30% equity interest of Sonmol and $1.4 million in our Loop and PureCycle preferred
stockequity investments. In 2022, we expect our capital investments to be in the range of
Propeller Health and acquired Reboul for an initial purchase price of approximately $3.5$300 million
(net of $112 thousand of cash acquired).to $330 million.
Financing activities utilized $197.1$81.5 million of cash during 2021, compared to $73.7 million during 2020, mainly due to an increase of returns to stockholders not fully offset by additional borrowings. In 2021, we paid $98.5 million in cash during 2019, compareddividends to net cash utilized by financing activitiesstockholders and repaid $68.8 million of $14.9long-term debt, while in 2020, we paid $92.7 million during 2018. In 2019, we used cash on handof dividends to repay net short term revolving credit facility of $52.1 million, pay $67.3stockholders and repaid $64.7 million of long-term debt and pay $90.2$14.0 million of dividends,net notes payable. Additionally, contributing to our higher utilization of financing activities in 2021 compared to 2020 was the repurchase of $78.1 million of common stock that was placed into treasury during 2021 while no treasury shares were repurchased during 2020. Finally, we received net proceeds from stock option exercises of $90.8$59.9 million and repurchased $86.5 million of common stock that was placed into treasury. In 2018, we received net proceeds from our short termrevolving credit facility andof $92.9 million in 2021 compared to net proceeds from stock option exercises of $81.1$68.5 million and $88.2net proceeds from our revolving credit facility of $27.0 million respectively. We usedin 2020. In 2022, we expect to have financing cash outlays of approximately $283.0 million to fund short- and long-term debt obligations present as of December 31, 2021 as they come due as discussed in Note 7 - Debt, which will be covered by cash on hand or additional borrowings on our revolving credit facility.
Refer to repay $72.3 millionPart II, Item 7 - Management's Discussion and Analysis of long-term debt, pay $82.3 millionFinancial Condition and Results of dividendsOperations - Liquidity and repurchase $61.7 millionCapital Resources of commonour Annual Report on Form 10-K for the fiscal year ended December 31, 2020 for additional information regarding cash flows for the year ended December 31, 2020 as compared to the year ended December 31, 2019.
On June 30, 2021, we entered into an amended and treasury stock. We hold U.S. dollar and euro-denominated debt to align our capital structure with our earnings base. We also maintain arestated multi-currency revolving credit facility with(the "revolving credit facility") to replace the existing facility (the "prior credit facility") maturing July 2022 and to amend and restate the unsecured term loan facility extended to our wholly-owned UK subsidiary under the prior credit facility (as amended, the "amended term facility"). The revolving credit facility matures in June 2026, subject to a maximum of two tranches, providingone-year extensions in certain circumstances, and provides for unsecured financing of up to $300$600 million that is available in the U.S. and up to €150 million that is available to our wholly-owned UK subsidiary. The amended term facility matures in July 2022. The revolving credit facility can be drawn in various currencies including USD, EUR, GBP and CHF to the equivalent of $600 million, which may be increased by up to $300 million subject to the satisfaction of certain conditions. Each borrowing under the revolving credit facility will bear interest at rates based on LIBOR (in the case of USD), EURIBOR (in the case of EUR), SONIA (in the case of GBP), SARON (in the case of CHF), prime rates or other similar rates, in each case plus an applicable margin. The revolving credit facility provides mechanics relating to a transition away from LIBOR (in the case of USD) and the designated benchmark rates for other available currencies and the replacement of any such applicable benchmark by a replacement alternative benchmark rate or mechanism for loans made in the applicable currency. A facility fee on the total amount of the revolving credit facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the revolving credit facility and the facility fee percentage may change from time to time depending on changes in our consolidated leverage ratio. $25.0As of December 31, 2021, $133 million was utilized under the revolving credit facility in the U.S., €10 million (approximately $11.4 million) was utilized by our wholly-owned UK subsidiary and $56 million remained outstanding under the amended term facility. As of December 31, 2020, under our prior credit facility, we utilized $52 million under our U.S. revolving facility and no balance was utilized under our euro-based revolving credit facility as of December 31, 2019. No balance was utilized under our U.S. facility and €69.0 million was utilized under our euro-based revolving credit facility as of December 31, 2018.facility. Credit facility balances are included in notes payable, revolving credit facility and overdrafts on the Condensed Consolidated Balance Sheets.
Our revolving credit facility and certain long-term obligations require us to satisfy certain financial and other covenants including:
| | | | | | | | |
|
Requirement | Requirement
|
| Level at December 31, 2019 2021 |
Consolidated Leverage Ratio (1) |
| Maximum of 3.50 to 1.00 |
| 1.711.84 to 1.00
|
Consolidated Interest Coverage Ratio (1) |
| Minimum of 3.00 to 1.00 |
| 16.2119.65 to 1.00
|
(1) | Definitions of ratios are included as part of the revolving credit facility agreement. | | | | |
| |
(1)Definitions of ratios are included as part of the revolving credit facility agreement.
Based upon the above consolidated leverage ratio covenant, we would have the ability to borrow approximately an additional $1.0 billion before the 3.50 to 1.00
maximum ratio requirement would be exceeded.
In addition, in October 2020, we entered into an unsecured money market borrowing arrangement to provide short term financing of up to $30 million that is available in the U.S. No borrowing on this facility is permitted over a quarter end date. As such, no balance was utilized under this arrangement as of December 31, 2021.
Our foreign operations have historically met cash requirements with the use of internally generated cash or uncommitted short-term borrowings. We also have committed financing arrangements in both the U.S. and the UK as detailed above. We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances.
OFF-BALANCE SHEET ARRANGEMENTS
We
lease certain warehouse, plantfacilitate a supply chain finance program ("SCF") across Europe and
office facilities as well as certain equipment under noncancelable operating leases. Mostthe U.S. that is administered by a third-party platform. Eligible suppliers can elect to receive early payment of invoices, less an interest deduction, and negotiate their receivable sales arrangements through the third-party platform on behalf of the
operating leases contain renewal options and certain equipment leases include options to purchase during or at the end of the lease term. As a result of the adoption of ASU 2016-02 and subsequent amendments, which requires organizations to recognize leases on the balance sheet, we no longer have any significant off-balance sheet arrangements. Please refer to Note 8 – Lease Commitments of the Notes to Condensed Consolidated Financial Statements for lease arrangements that have not yet commenced and thereforerespective SCF bank. We are not
included ona party to those agreements, and the
balance sheet.OVERVIEW OF CONTRACTUAL OBLIGATIONS
Below is a tableterms of our payment obligations are not impacted by a supplier's participation in the SCF. Accordingly, we have concluded that this program continues to be a trade payable program and is not indicative of a borrowing arrangement.
All outstanding
contractual obligationsamounts related to suppliers participating in the SCF are recorded within Accounts payable, accrued and
futureother liabilities in our Consolidated Balance Sheets, and associated payments
asare included in operating activities within our Consolidated Statements of Cash Flows. As of December 31,
2019: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | 2025 and | |
Payment Due by Period | | | Total | | | 2020 | | 2021-2022 | | 2023-2024 | | After | |
| | | | | | | | | | | | | | | | |
Long-term obligations (1) | | $ | 1,123,730 | | $ | 61,670 | | $ | 196,661 | | $ | 614,995 | | $ | 250,404 | |
Finance lease obligations (1) | | | 29,952 | | | 4,318 | | | 6,185 | | | 3,849 | | | 15,600 | |
Operating leases (1) | | | 71,854 | | | 16,578 | | | 21,142 | | | 13,238 | | | 20,896 | |
Notes payable, revolving credit facility and overdrafts (2) | | | 44,259 | | | 44,259 | | | — | | | — | | | — | |
Purchase obligations (3) | | | 23,429 | | | 22,948 | | | 461 | | | 18 | | | 2 | |
Interest obligations (4) | | | 54,375 | | | 8,278 | | | 15,479 | | | 18,519 | | | 12,099 | |
Total Contractual Obligations | | $ | 1,347,599 | | $ | 158,051 | | $ | 239,928 | | $ | 650,619 | | $ | 299,001 | |
Collection and payment periods tend to be longer for our operations located outside the United States due to local business practices. We have also seen an increasing trend in pressure from certain customers to lengthen their payment terms. As the majority of our products are made to order, we have not needed to keep significant amounts of finished goods inventory to meet customer requirements. However, some of our contracts specify an amount of finished goods safety stock we are required to maintain.
To the extent our financial position allows and there is a clear financial benefit, we from time-to-time benefit from early payment discounts with some suppliers. We are also lengthening the payment terms with our suppliers to be in line with customer trends. While we have offered third party alternatives for our suppliers to receive payments sooner, we generally do not utilize these offerings from our customers as the economic conditions currently are not beneficial for us.
(1) | The future payments listed above for long-term debt repayments and lease obligations reflect only principal payments. |
(2) | Notes payable mainly includes foreign short-term borrowings. The future payments listed above assume that no additional amounts will be drawn under the credit facility. |
(3) | Purchase obligations are agreements to purchase goods or services that are enforceable and legally binding on us that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transactions. |
(4) | Approximately 15.0% of our total interest bearing long-term debt has variable interest rates. Using our long-term variable rate debt outstanding as of December 31, 2019 of approximately $168.0 million at an average rate of approximately 3.2%, we included approximately $1.8 million of variable interest rate obligations in each of the years for 2020, 2021 and 2022 reflecting timing of anticipated debt repayments. Interest rate obligations also include anticipated interest on the finance and operating lease liabilities. |
We make contributions to our domestic pension plans but currently we are not required to make a minimum pension contribution to those plans. We also contribute to our foreign pension plans but amounts are expected to be discretionary in 2019 and future years. Therefore, amounts related to these plans are not included in the preceding table.
We do not record a current portion of the liability for uncertain tax positions. Aside from deferred income taxes, we have approximately $124.2 million of other deferred long-term liabilities on the balance sheet, which consist primarily of retirement plan obligations. We are not able to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease over time. Therefore, the long-term portion of the liability is excluded from the preceding table.
| | | | | |
26/27/ATR
| 20192021 Form 10-K
|
RECENTLY ISSUED ACCOUNTING STANDARDS
We have reviewed the recently issued accounting standards updates to FASB’s Accounting Standards Codification that have future effective dates. Standards which are effective for
20192021 are discussed in Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.
In
June 2016,March 2020, the FASB issued ASU
2016-13,2020-04, which
replacesprovides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments to this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 was further amended in January 2021 by ASU 2021-01 which clarified the
incurred loss impairment methodologyapplicability of certain provisions. Both standards are effective upon issuance and can be adopted any time prior to December 31, 2022. The guidance in
current accounting principles generally acceptedASU 2020-04 and ASU 2021-01 is optional and may be elected over time as reference rate reform activities occur. As of December 31, 2021, we have amended the revolving credit facility to provide mechanics relating to a transition away from LIBOR (in the case of USD) and the designated benchmark rates for other available currencies and the replacement of any such applicable benchmark by a replacement alternative benchmark rate or mechanism for loans made in the
United States of America ("U.S. GAAP") with a new impairment model commonly referred to as the Current Expected Credit Loss ("CECL") methodology. CECL methodology will require an entity to measure, at each reporting date, the expected credit losses of financial instruments not measured at fair value, such as accounts receivable, over their contractual lives. The change in loss impairment methodology could increase our provision for credit losses. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.applicable currency. We are
currently evaluating
theany further impact
of this new standard; however, we do not expect the impact to be material. We will adopt the requirement of this standard
during the first quarter of 2020.In January 2017, the FASB issued ASU 2017-04, which provides guidance to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As a result, impairment charges will be required for the amount by which a reporting unit’s carrying amount exceeds its fair value up to the amount of its allocated goodwill. The new standard is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We do not believe that this new guidance willmay have a material impact on our Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, which amends disclosure requirements for fair value measurements. The new standard modifies disclosure requirements including removing requirements to disclose the valuation process for Level 3 measurementsStatements and adding requirements to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average ofanticipate no further significant unobservable inputs used to develop Level 3 measurements. The new standard is effective for interim and annual periods beginning after December 15, 2019. We are currently evaluating the impact of the adoption of this standard to our disclosures.
In August 2018, the FASB issued ASU 2018-14, which amends disclosure requirements for defined benefit pension and other postretirement plans. The new standard removes requirements to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the effects of a one-percentage-point changes in assumed health care cost trend rates. The standard also adds requirements to disclose the reasons for significant gains and losses related to changes in the benefit obligations for the period and the accumulated benefit obligation (“ABO”) for plans with ABOs in excess of plan assets. The new standard will be effective for fiscal years ending after December 15, 2020. We are currently evaluating the impact of the adoption of this standard to our disclosures.
In August 2018, the FASB issued ASU 2018-15 to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. The new standard is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact of adopting this guidance.
impacts.
Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statementsConsolidated Financial Statements upon adoption.
CRITICAL ACCOUNTING ESTIMATES
The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, pensions and contingencies. We base our estimates on historical experience and on a variety of other assumptions believed to be reasonable in order to make judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in preparation of our Consolidated Financial Statements. Management has discussed the development and selection of these critical accounting estimates with the audit committee of our Board of Directors and the audit committee has reviewed our disclosure relating to it in this MD&A.
In accordance with current accounting standards, goodwill has an indefinite life and is not amortized. We evaluate our goodwill for impairment at the reporting unit level on an annual basis, or whenever indicators of impairment exist. We have determined that our Beauty + Home and Food + Beverage business segments represent reporting units. WithinIn addition to the Pharma segment,business reporting unit, the injectables and active packagingmaterial science solutions divisions of the Pharma segment qualify as separate reporting units for goodwill impairment testing apart from the remaining Pharma business. As of December 31, 2019,2021, we have $763.5$974.2 million of goodwill, which is allocated as follows:
| | | | | |
| Reporting Unit | Balance at December 31, 2021 |
| Pharma | $ | 181,136 | |
| Injectables | 175,284 | |
| Active Material Science Solutions | 163,777 | |
| Beauty + Home | 325,719 | |
| Food + Beverage | 128,241 | |
| Total | $ | 974,157 | |
We believe that the accounting estimates related to determining the fair value of our reporting units is a critical accounting estimate because: (1) it is highly susceptible to change from period to period as it requires management to make assumptions about the future cash flows for each reporting unit over several years, and (2) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our results of operations could be material. Management’s determination of the fair value of our reporting units, based on future cash flows for the reporting units, requires significant judgment and the use of estimates and assumptions related to projected revenue growth rates, the terminal growth factor, as well as the discount rate. Actual cash flows in the future may differ significantly from those forecasted today. The estimates and assumptions for future cash flows and their impact on the impairment testing of goodwill is a critical accounting estimate.
Table of Contents | | | | |
Reporting Unit | | | Balance at December 31, 2019 | |
Pharma | | $ | 116,561 | |
Injectables | | | 134,353 | |
Active Packaging | | | 162,736 | |
Beauty + Home | | | 221,658 | |
Food + Beverage | | | 128,153 | |
Total | | $ | 763,461 | |
For our goodwill impairment assessment, we first consider qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50 percent chance) that the fair value of a reporting unit is less than its carrying amount (the “step zero” approach). Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance, and other relevant entity-specific events. In the absence of sufficient qualitative factors, if it is determined that the fair value of a reporting unit is below its carrying amount, where necessary, goodwill will be impaired at that time.
Based on our qualitative assessment of macroeconomic, industry, and market events and circumstances as well as the overall financial performance of the reporting units, we determined it was more likely than not that the fair value of these reporting units was greater than their carrying amounts and therefore no impairment of goodwill was recognized during the year ended December 31, 2021.
INCOME TAXES
We recognize tax benefits from uncertain tax positions if it more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater-than-50% likelihood of being realized upon ultimate settlement. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of U.S. GAAP and complex tax laws. Resolution of these uncertainties in a manner inconsistent with management's expectations could have a material impact on our financial condition and operating results.
At December 31, 2021 and 2020, we had $130.2 million and $124.8 million, respectively, of deferred tax assets net of valuation allowance on our balance sheet, a significant portion of which is related to net operating losses and other tax attribute carryforwards. The ultimate realization of these deferred tax assets is dependent upon the amount, source, and timing of future taxable income. In cases where we believe it is more likely than not that we may not realize the future potential tax benefits, we establish a valuation allowance against the deferred tax assets.
ACQUISITIONS
We account for business combinations using the acquisition method, which requires management to estimate the fair value of identifiable assets acquired and liabilities assumed, and to properly allocate purchase price consideration to the individual assets acquired and liabilities assumed. Goodwill is measured as the excess amount of consideration transferred, compared to fair value of the assets acquired and the liabilities assumed. The allocation of the purchase price utilizes significant estimates and assumptions in determining the fair values of identifiable assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset and are reviewed by consulting with outside valuation experts. The purchase price allocation for business acquisitions contains uncertainties because it requires management's judgment.
Management applied judgment in determining the fair value of the acquired assets with respect to the acquisitions of Voluntis, Hengyu and Fusion, including the fair values of acquired intangibles including acquired technology and customer relationships. The judgments made in determining the estimated fair value assigned to the assets acquired, as well as the estimated life of the assets, can materially impact net income in periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. In particular, judgment was applied with respect to determining the fair value of acquired technology and customer relationships intangible assets, which involved the use of significant estimates and assumptions with respect to the timing and amounts of cash flow projections, the revenue growth rates, the customer attrition rates, the technology obsolescence rate, the EBITDA margins and the discount rate.
VALUATION OF PENSION BENEFITS
The benefit obligations and net periodic pension cost associated with our domestic and foreign noncontributory pension plans are determined using actuarial assumptions. Such assumptions include discount rates to reflect the time value of money, rate of employee compensation increases, demographic assumptions to determine the probability and timing of benefit payments, and the long-term rate of return on plan assets. The actuarial assumptions are based upon management’s best estimates, after consulting with outside investment advisors and actuaries. Because assumptions and estimates are used, actual results could differ from expected results.
The discount rate is utilized principally in calculating our pension obligations, which are represented by the Accumulated Benefit Obligation ("ABO") and the Projected Benefit Obligation (“PBO”), and in calculating net periodic benefit cost. In establishing the discount rate for our foreign plans, we review a number of relevant interest rates including AA corporate bond yields. In establishing the discount rate for our domestic plans, we match the hypothetical duration of our plans, using a weighted average duration that is based upon projected cash payments, to a simulated bond portfolio (FTSE Pension Index Curve). At December 31, 2021, the discount rates for our domestic and foreign plans were 2.75% and 1.09%, respectively.
We believe that the accounting estimates related to determining the valuation of pension benefits are critical accounting estimates because: (1) changes in them can materially affect net income and (2) we are required to establish the discount rate and the expected return on fund assets, which are highly uncertain and require judgment. The estimates for the valuation of pension benefits are critical accounting estimates for all of our segments.
To the extent the discount rates increase (or decrease), our PBO and net periodic benefit cost will decrease (or increase) accordingly. The estimated effect of a 1% decrease in each discount rate would be a $77.8 million increase in the PBO ($61.2 million for the domestic plans and $16.6 million for the foreign plans) and a $12.0 million increase in net periodic benefit cost ($10.6 million for the domestic plans and $1.4 million for the foreign plans). To the extent the PBO increases, the after-tax effect of such increase could reduce Other Comprehensive Income and Stockholders’ Equity. The estimated effect of a 1% increase in each discount rate would be a $60.3 million decrease in the PBO ($46.6 million for the domestic plans and $13.7 million for the foreign plans) and a $9.4 million decrease in net periodic benefit cost ($8.2 million for the domestic plans and $1.2 million for the foreign plans).
The assumed expected long-term rate of return on assets is the average rate of earnings expected on the funds invested to provide for the benefits included in the PBO. Of domestic plan assets, approximately 48% was invested in equities, 27% was invested in fixed income securities, 11% was invested in hedge funds, 8% was invested in infrastructure securities, 5% was invested in real estate securities and 1% was invested in money market funds, at December 31, 2021. Of foreign plan assets, approximately 90% was invested in investment funds, 6% was invested in equity securities, 2% was invested in corporate securities, 1% was invested in fixed income securities and 1% was invested in money market funds at December 31, 2021.
The expected long-term rate of return assumptions are determined based on our investment policy combined with expected risk premiums of equities and fixed income securities over the underlying risk-free rate. This rate is utilized principally in calculating the expected return on the plan assets component of the net periodic benefit cost. To the extent the actual rate of return on assets realized over the course of a year is greater or less than the assumed rate, that year’s net periodic benefit cost is not affected. Rather, this gain (or loss) reduces (or increases) future net periodic benefit cost over a period of approximately 15 to 20 years. To the extent the expected long-term rate of return on assets increases (or decreases), our net periodic benefit cost will decrease (or increase) accordingly. The estimated effect of a 1% decrease (or increase) in each expected long-term rate of return on assets would be a $2.6 million increase (or decrease) in net periodic benefit cost.
The average rate of compensation increase is utilized principally in calculating the PBO and the net periodic benefit cost. The estimated effect of a 0.5% decrease in each rate of expected compensation increase would be a $7.8 million decrease in the PBO ($1.9 million for the domestic plans and $5.9 million for the foreign plans) and a $1.4 million decrease to the net periodic benefit cost. The estimated effect of a 0.5% increase in each rate of expected compensation increase would be a $7.5 million increase in the PBO ($2.0 million for the domestic plans and $5.5 million for the foreign plans) and a $1.5 million increase to the net periodic benefit cost.
Our primary pension related assumptions as of December 31, 2021 and 2020 were as follows:
| | | | | | | | |
| Actuarial Assumptions as of December 31, | 2021 | 2020 |
| | |
| Discount rate: | | |
| Domestic plans | 2.75 | % | 2.40 | % |
| Foreign plans | 1.09 | % | 0.54 | % |
Expected long‑term rate of return on plan assets: | | |
| Domestic plans | 7.00 | % | 7.00 | % |
| Foreign plans | 3.56 | % | 3.59 | % |
| Rate of compensation increase: | | |
| Domestic plans | 3.17 | % | 3.19 | % |
| Foreign plans | 3.05 | % | 3.05 | % |
In order to determine the 2022 net periodic benefit cost, we expect to use the discount rates, expected long-term rates of return on plan assets and rates of compensation assumptions as of December 31, 2021. The estimated impact of the changes to the assumptions as noted in the table above on our 2022 net periodic benefit cost is expected to be a decrease of approximately $4.5 million.
OPERATIONS OUTLOOK
Looking to the first quarter, we expect solid growth in our Pharma segment. The prescription division is expected to report growth in the allergy category as we see signs of the destocking ending across most accounts. Our beauty and beverage businesses are showing signs of recovery. Other COVID-19 variants may impact the pace of these recoveries and supply chain disruptions are expected to continue in the near term, impacting certain customers in both Beauty + Home and Food + Beverage segments.
Aptar expects earnings per share for the first quarter of 2022, excluding any restructuring expenses, changes in the fair value of equity investments and acquisition-related costs to be in the range of $0.92 to $1.00 and this guidance is based on an effective tax rate range of 27% to 29%.
FORWARD-LOOKING STATEMENTS
Certain statements in MD&A and other sections of this Form 10-K are forward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Significant Developments, Restructuring Initiatives, Liquidity and Capital Resources, Contingencies and Operations Outlook sections of this Form 10-K. Words such as “expects,” “anticipates,” “believes,” “estimates,” “future”, “potential”, "are optimistic" and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such 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 our beliefs as well as assumptions made by and information currently available to us. Accordingly, our actual results or other events may differ materially from those expressed or implied in such forward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment, including but not limited to:
•the impact of COVID-19 and its variants on our global supply chain and our global customers, employees and operations, which has elevated and will continue to elevate many of the risks and uncertainties discussed below;
•economic conditions worldwide, including potential deflationary or inflationary conditions in regions we rely on for growth;
•the availability of direct labor workers and the increase in direct labor costs, especially in North America;
•our ability to preserve organizational culture and maintain employee productivity in the work-from-home environment caused by the current pandemic;
•the availability of raw materials and components (particularly from sole sourced suppliers) as well as the financial viability of these suppliers;
•fluctuations in the cost of materials, components, transportation cost as a result of supply chain disruptions and labor shortages, and other input costs (particularly resin, metal, anodization costs and energy costs);
•political conditions worldwide;
•significant fluctuations in foreign currency exchange rates or our effective tax rate;
•the impact of tax reform legislation, changes in tax rates and other tax-related events or transactions that could impact our effective tax rate;
•financial conditions of customers and suppliers;
•consolidations within our customer or supplier bases;
•changes in customer and/or consumer spending levels;
•loss of one or more key accounts;
•our ability to successfully implement facility expansions and new facility projects;
•our ability to offset inflationary impacts with cost containment, productivity initiatives or price increases;
•changes in capital availability or cost, including interest rate fluctuations;
•volatility of global credit markets;
•our ability to identify potential new acquisitions and to successfully acquire and integrate such operations, including the successful integration of the businesses we have acquired, including contingent consideration valuation;
•our ability to build out acquired businesses and integrate the product/service offerings of the acquired entities into our existing product/service portfolio;
•direct or indirect consequences of acts of war, terrorism or social unrest;
•cybersecurity threats that could impact our networks and reporting systems;
•the impact of natural disasters and other weather-related occurrences;
•fiscal and monetary policies and other regulations;
•changes or difficulties in complying with government regulation;
•changing regulations or market conditions regarding environmental sustainability;
•work stoppages due to labor disputes;
•competition, including technological advances;
•our ability to protect and defend our intellectual property rights, as well as litigation involving intellectual property rights;
•the outcome of any legal proceeding that has been or may be instituted against us and others;
•our ability to meet future cash flow estimates to support our goodwill impairment testing;
•the demand for existing and new products;
•the success of our customers’ products, particularly in the pharmaceutical industry;
•our ability to manage worldwide customer launches of complex technical products, particularly in developing markets;
•difficulties in product development and uncertainties related to the timing or outcome of product development;
•significant product liability claims; and
•other risks associated with our operations.
Although we believe that our 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. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to Part 1, Item 1A - Risk Factors included in this Form 10-K for additional risk factors affecting the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISKS
A significant number of our 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 condition and results of operations of our subsidiaries. Our primary foreign exchange exposure is to the euro, but we also have foreign exchange exposure to the Chinese yuan, Brazilian real, Mexican peso, Swiss franc and other Asian, European and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial condition and results of operations. Conversely, a weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial condition and results of operations. Additionally, in some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Any changes in exchange rates on such inter-country sales may impact our results of operations.
The table below provides information as of December 31, 2021 about our forward currency exchange contracts. The majority of the contracts expire before the end of the first quarter of 2022.
| | | | | | | | | | | |
| | | |
Year Ended December 31, 2021
Buy/Sell | Contract Amount
(in thousands) | Average
Contractual
Exchange Rate | Min / Max
Notional
Volumes |
| | | |
| EUR / USD | $ | 16,554 | | 1.1473 | | 15,076 - 18,924 |
| EUR / BRL | 9,981 | | 6.3337 | | 9,679 - 9,981 |
| EUR / MXN | 3,851 | | 24.0861 | | 3,504 - 3,851 |
| CZK / EUR | 3,831 | | 0.0392 | | 1,519 - 5,057 |
| MXN / USD | 3,500 | | 0.0479 | | 2,400 - 3,500 |
| EUR / THB | 3,405 | | 38.9346 | | 3,261 - 3,405 |
| USD / CNY | 3,000 | | 6.4313 | | 0 - 3,000 |
| CHF / EUR | 2,596 | | 0.9455 | | 2,584 - 2,677 |
| EUR / CHF | 1,346 | | 1.0574 | | 965 - 1,875 |
| EUR / CNY | 1,133 | | 7.2484 | | 0 - 1,133 |
| CHF / USD | 143 | | 1.0981 | | 143 - 326 |
| USD / EUR | 41 | | 0.8701 | | 41 - 1,554 |
| Total | $ | 49,381 | | | |
As of December 31, 2021, we have recorded the fair value of foreign currency forward exchange contracts of $0.3 million in prepaid and other and $0.2 million in accounts payable, accrued and other liabilities in the Consolidated Balance Sheets. Aptar also entered into a EUR/USD floating-to-fixed cross currency swap on July 20, 2017 to effectively hedge the foreign exchange and interest rate exposure on the $280 million bank term loan drawn by its wholly owned UK subsidiary. The fair value of this cash flow hedge is $0.5 million and is reported in prepaid and other in the Consolidated Balance Sheets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | | | | | | | | |
| In thousands, except per share amounts | | | | | |
| | | | | |
| Year Ended December 31, | 2021 | | 2020 | | 2019 |
| Net Sales | $ | 3,227,221 | | | $ | 2,929,340 | | | $ | 2,859,732 | |
| Operating Expenses: | | | | | |
| Cost of sales (exclusive of depreciation and amortization shown below) | 2,070,538 | | | 1,842,821 | | | 1,818,398 | |
| Selling, research & development and administrative | 551,242 | | | 500,229 | | | 454,617 | |
| Depreciation and amortization | 234,853 | | | 220,300 | | | 194,552 | |
| Restructuring initiatives | 23,240 | | | 26,492 | | | 20,472 | |
| Total Operating Expenses | 2,879,873 | | | 2,589,842 | | | 2,488,039 | |
| Operating Income | 347,348 | | | 339,498 | | | 371,693 | |
| Other (Expense) Income: | | | | | |
| Interest expense | (30,284) | | | (33,244) | | | (35,489) | |
| Interest income | 3,668 | | | 958 | | | 4,174 | |
| Net investment gain | 4,709 | | | 3,064 | | | — | |
| Equity in results of affiliates | (692) | | | (1,443) | | | 135 | |
| Miscellaneous, net | (3,094) | | | (7,678) | | | 1,556 | |
| Total Other (Expense) Income | (25,693) | | | (38,343) | | | (29,624) | |
| Income before Income Taxes | 321,655 | | | 301,155 | | | 342,069 | |
| Provision for Income Taxes | 78,017 | | | 87,065 | | | 99,842 | |
| Net Income | $ | 243,638 | | | $ | 214,090 | | | $ | 242,227 | |
| Net Loss (Income) Attributable to Noncontrolling Interests | 459 | | | (50) | | | (25) | |
| Net Income Attributable to AptarGroup, Inc. | $ | 244,097 | | | $ | 214,040 | | | $ | 242,202 | |
| Net Income Attributable to AptarGroup, Inc. per Common Share: | | | | | |
| Basic | $ | 3.72 | | | $ | 3.32 | | | $ | 3.81 | |
| Diluted | $ | 3.61 | | | $ | 3.21 | | | $ | 3.66 | |
| | | | | |
| Dividends per Common Share | $ | 1.50 | | | $ | 1.44 | | | $ | 1.42 | |
See accompanying notes to consolidated financial statements.
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | |
| In thousands | | | | | |
| | | | | |
| Year Ended December 31, | 2021 | | 2020 | | 2019 |
| Net Income | $ | 243,638 | | | $ | 214,090 | | | $ | 242,227 | |
| Other Comprehensive (Loss) Income: | | | | | |
| Foreign currency translation adjustments | (71,742) | | | 79,109 | | | (8,727) | |
| Changes in derivative gains (losses), net of tax | 1,307 | | | 315 | | | (37) | |
| Defined benefit pension plan, net of tax | | | | | |
| Actuarial gain (loss), net of tax | 26,409 | | | (27,268) | | | (25,877) | |
| Prior service cost, net of tax | — | | | 1,879 | | | 320 | |
| Amortization of prior service cost included in net income, net of tax | 127 | | | 294 | | | 2,541 | |
| Amortization of net loss included in net income, net of tax | 9,300 | | | 5,920 | | | 332 | |
| Total defined benefit pension plan, net of tax | 35,836 | | | (19,175) | | | (22,684) | |
| Total other comprehensive (loss) income | (34,599) | | | 60,249 | | | (31,448) | |
| Comprehensive Income | 209,039 | | | 274,339 | | | 210,779 | |
| Comprehensive Loss (Income) Attributable to Noncontrolling Interests | 726 | | | (60) | | | (21) | |
| Comprehensive Income Attributable to AptarGroup, Inc. | $ | 209,765 | | | $ | 274,279 | | | $ | 210,758 | |
See accompanying notes to consolidated financial statements.
AptarGroup, Inc.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| In thousands | | | |
| | | |
| December 31, | 2021 | | 2020 |
| Assets | | | |
| Cash and equivalents | $ | 122,925 | | | $ | 300,137 | |
| Short-term investments | 740 | | | 243 | |
| Total Cash and equivalents and Short-term investments | 123,665 | | | 300,380 | |
| Accounts and notes receivable, less current expected credit loss ("CECL") of $7,374 in 2021 and $5,918 in 2020 | 671,350 | | | 566,623 | |
| Inventories | 441,464 | | | 379,379 | |
| Prepaid and other | 121,729 | | | 122,613 | |
| Total Current Assets | 1,358,208 | | | 1,368,995 | |
| Land | 31,436 | | | 28,334 | |
| Buildings and improvements | 631,897 | | | 579,616 | |
| Machinery and equipment | 2,862,142 | | | 2,808,623 | |
| Property, Plant and Equipment, Gross | 3,525,475 | | | 3,416,573 | |
| Less: Accumulated depreciation | (2,249,598) | | | (2,217,825) | |
| Property, Plant and Equipment, Net | 1,275,877 | | | 1,198,748 | |
| Investments in equity securities | 59,485 | | | 50,087 | |
| Goodwill | 974,157 | | | 898,521 | |
| Intangible assets, net | 362,343 | | | 344,309 | |
| Operating lease right-of-use assets | 62,454 | | | 69,845 | |
| Miscellaneous | 48,840 | | | 59,548 | |
| Total Other Assets | 1,507,279 | | | 1,422,310 | |
| Total Assets | $ | 4,141,364 | | | $ | 3,990,053 | |
See accompanying notes to consolidated financial statements.
AptarGroup, Inc.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| | | |
| In thousands, except share and per share amounts | | | |
| | | |
| December 31, | 2021 | | 2020 |
| Liabilities and Stockholders’ Equity | | | |
| Notes payable, revolving credit facility and overdrafts | $ | 147,276 | | | $ | 52,200 | |
| Current maturities of long-term obligations, net of unamortized debt issuance costs | 142,351 | | | 65,666 | |
| Accounts payable, accrued and other liabilities | 692,865 | | | 662,463 | |
| Total Current Liabilities | 982,492 | | | 780,329 | |
| Long-Term Obligations, net of unamortized debt issuance costs | 907,024 | | | 1,054,998 | |
| Deferred income taxes | 27,547 | | | 37,242 | |
| Retirement and deferred compensation plans | 116,809 | | | 145,959 | |
| Operating lease liabilities | 48,010 | | | 52,212 | |
| Deferred and other non-current liabilities | 74,882 | | | 68,528 | |
| Commitments and contingencies | — | | | — | |
| Total Deferred Liabilities and Other | 267,248 | | | 303,941 | |
| AptarGroup, Inc. stockholders’ equity | | | |
| Common stock, $.01 par value, 199 million shares authorized, 70.4 and 69.5 million shares issued as of December 31, 2021 and 2020, respectively | 704 | | | 695 | |
| Capital in excess of par value | 916,534 | | | 849,161 | |
| Retained earnings | 1,789,413 | | | 1,643,825 | |
| Accumulated other comprehensive loss | (316,041) | | | (281,709) | |
| Less: Treasury stock at cost, 4.9 and 4.5 million shares as of December 31, 2021 and 2020, respectively | (421,203) | | | (361,583) | |
| Total AptarGroup, Inc. Stockholders’ Equity | 1,969,407 | | | 1,850,389 | |
| Noncontrolling interests in subsidiaries | 15,193 | | | 396 | |
| Total Stockholders’ Equity | 1,984,600 | | | 1,850,785 | |
| Total Liabilities and Stockholders’ Equity | $ | 4,141,364 | | | $ | 3,990,053 | |
See accompanying notes to consolidated financial statements.
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2021, 2020 and 2019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In thousands | | | | | | | | | | | | | |
| AptarGroup, Inc. Stockholders’ Equity | | | | |
| Retained
Earnings | | Accumulated
Other
Comprehensive
(Loss)Income | | Common
Stock
Par Value | | Treasury
Stock | | Capital in
Excess of
Par Value | | Non-
Controlling
Interest | | Total
Equity |
| Balance - December 31, 2018 | $ | 1,371,826 | | | $ | (310,504) | | | $ | 673 | | | $ | (318,208) | | | $ | 678,769 | | | $ | 315 | | | $ | 1,422,871 | |
| Net income | 242,202 | | | — | | | — | | | — | | | — | | | 25 | | | 242,227 | |
| | | | | | | | | | | | | |
| Foreign currency translation adjustments | — | | | (8,723) | | | — | | | — | | | — | | | (4) | | | (8,727) | |
| Changes in unrecognized pension gains (losses) and related amortization, net of tax | — | | | (22,684) | | | — | | | — | | | — | | | — | | | (22,684) | |
| Changes in derivative gains (losses), net of tax | — | | | (37) | | | — | | | — | | | — | | | — | | | (37) | |
| Stock awards and option exercises | — | | | — | | | 13 | | | 23,467 | | | 91,827 | | | — | | | 115,307 | |
| Cash dividends declared on common stock | (90,208) | | | — | | | — | | | — | | | — | | | — | | | (90,208) | |
| Treasury stock purchased | — | | | — | | | — | | | (86,497) | | | — | | | — | | | (86,497) | |
| | | | | | | | | | | | | |
| Balance - December 31, 2019 | $ | 1,523,820 | | | $ | (341,948) | | | $ | 686 | | | $ | (381,238) | | | $ | 770,596 | | | $ | 336 | | | $ | 1,572,252 | |
| Net income | 214,040 | | | — | | | — | | | — | | | — | | | 50 | | | 214,090 | |
| Adoption of CECL standard | (1,377) | | | — | | | — | | | — | | | — | | | — | | | (1,377) | |
| Foreign currency translation adjustments | — | | | 79,099 | | | — | | | — | | | — | | | 10 | | | 79,109 | |
| Changes in unrecognized pension gains (losses) and related amortization, net of tax | — | | | (19,175) | | | — | | | — | | | — | | | — | | | (19,175) | |
| Changes in derivative gains (losses), net of tax | — | | | 315 | | | — | | | — | | | — | | | — | | | 315 | |
| Stock awards and option exercises | — | | | — | | | 9 | | | 19,655 | | | 78,565 | | | — | | | 98,229 | |
| Cash dividends declared on common stock | (92,658) | | | — | | | — | | | — | | | — | | | — | | | (92,658) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Balance - December 31, 2020 | $ | 1,643,825 | | | $ | (281,709) | | | $ | 695 | | | $ | (361,583) | | | $ | 849,161 | | | $ | 396 | | | $ | 1,850,785 | |
| Net income | 244,097 | | | — | | | — | | | — | | | — | | | (459) | | | 243,638 | |
| | | | | | | | | | | | | |
| Acquisitions of non-controlling interest | — | | | — | | | — | | | — | | | — | | | 38,543 | | | 38,543 | |
| Purchases of subsidiary shares from non-controlling interest | — | | | — | | | — | | | — | | | — | | | (23,020) | | | (23,020) | |
| Foreign currency translation adjustments | — | | | (71,475) | | | — | | | — | | | — | | | (267) | | | (71,742) | |
| Changes in unrecognized pension gains (losses) and related amortization, net of tax | — | | | 35,836 | | | — | | | — | | | — | | | — | | | 35,836 | |
| Changes in derivative gains (losses), net of tax | — | | | 1,307 | | | — | | | — | | | — | | | — | | | 1,307 | |
| Stock awards and option exercises | — | | | — | | | 9 | | | 18,528 | | | 67,373 | | | — | | | 85,910 | |
| Cash dividends declared on common stock | (98,509) | | | — | | | — | | | — | | | — | | | — | | | (98,509) | |
| Treasury stock purchased | — | | | — | | | — | | | (78,148) | | | — | | | — | | | (78,148) | |
| Balance - December 31, 2021 | $ | 1,789,413 | | | $ | (316,041) | | | $ | 704 | | | $ | (421,203) | | | $ | 916,534 | | | $ | 15,193 | | | $ | 1,984,600 | |
See accompanying notes to consolidated financial statements.
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| In thousands, brackets denote cash outflows | | | | | |
| | | | | |
| Year Ended December 31, | 2021 | | 2020 | | 2019 |
| | | | | |
| Cash Flows from Operating Activities: | | | | | |
| Net income | $ | 243,638 | | | $ | 214,090 | | | $ | 242,227 | |
| Adjustments to reconcile net income to net cash provided by operations: | | | | | |
| Depreciation | 193,781 | | | 180,513 | | | 166,944 | |
| Amortization | 41,072 | | | 39,787 | | | 27,608 | |
| Stock-based compensation | 38,870 | | | 34,148 | | | 23,893 | |
| Provision for CECL in 2021 and 2020 and allowance for doubtful accounts in 2019 | 1,601 | | | 865 | | | 782 | |
| Loss on disposition of fixed assets | 217 | | | 2,627 | | | 344 | |
| Net gain on remeasurement of equity securities | (4,709) | | | (64) | | | — | |
| | | | | |
| Deferred income taxes | (14,356) | | | (8,198) | | | 8,746 | |
| Defined benefit plan expense | 29,188 | | | 23,372 | | | 15,342 | |
| Equity in results of affiliates | 692 | | | 1,443 | | | (135) | |
| Impairment loss | 376 | | | — | | | — | |
| Change in fair value of contingent consideration | 2,768 | | | 5,230 | | | — | |
| Changes in balance sheet items, excluding effects from foreign currency adjustments and acquisitions: | | | | | |
| Accounts and other receivables | (123,251) | | | 13,455 | | | 8,811 | |
| Inventories | (79,961) | | | 13,722 | | | 605 | |
| Prepaid and other current assets | (5,538) | | | (3,078) | | | 6,596 | |
| Accounts payable, accrued and other liabilities | 52,305 | | | 65,592 | | | 9,997 | |
| Income taxes payable | (4,631) | | | (6,091) | | | 5,658 | |
| Retirement and deferred compensation plan liabilities | (8,726) | | | (7,267) | | | (3,956) | |
| Other changes, net | 107 | | | 7 | | | 995 | |
| Net Cash Provided by Operations | 363,443 | | | 570,153 | | | 514,457 | |
| Cash Flows from Investing Activities: | | | | | |
| Capital expenditures | (307,935) | | | (245,954) | | | (242,276) | |
| Proceeds from government grants | 2,003 | | | — | | | — | |
| Proceeds from sale of property, plant and equipment | 5,231 | | | 5,261 | | | 4,301 | |
| | | | | |
| Purchase of short-term investments | (497) | | | (243) | | | — | |
| | | | | |
| Acquisition of business, net of cash acquired | (148,420) | | | (164,181) | | | (106,328) | |
| Acquisition of intangible assets | — | | | (6,092) | | | (4,806) | |
| Investment in equity securities | (6,870) | | | (39,628) | | | (3,530) | |
| Proceeds from sale of investment in equity securities | 2,434 | | | — | | | 16,487 | |
| Notes receivable, net | (3,185) | | | (1,141) | | | (116) | |
| Net Cash Used by Investing Activities | (457,239) | | | (451,978) | | | (336,268) | |
| Cash Flows from Financing Activities: | | | | | |
| Proceeds from notes payable and overdrafts | 14,931 | | | 22,342 | | | 50,854 | |
| Repayments of notes payable and overdrafts | (13,701) | | | (36,314) | | | (53,269) | |
| Proceeds and repayments of short term revolving credit facility, net | 92,863 | | | 27,000 | | | (52,096) | |
| Proceeds from long-term obligations | 11,703 | | | 4,852 | | | 10,523 | |
| Repayments of long-term obligations | (68,845) | | | (64,735) | | | (67,276) | |
| Payment of contingent consideration obligation | — | | | (2,765) | | | — | |
| Dividends paid | (98,509) | | | (92,658) | | | (90,208) | |
| Credit facility costs | (1,718) | | | — | | | — | |
| | | | | |
| Proceeds from stock option exercises | 59,906 | | | 68,555 | | | 90,834 | |
| Purchase of treasury stock | (78,148) | | | — | | | (86,497) | |
| | | | | |
| Net Cash Used by Financing Activities | (81,518) | | | (73,723) | | | (197,135) | |
| Effect of Exchange Rate Changes on Cash | (6,731) | | | 13,545 | | | (904) | |
| Net (Decrease) Increase in Cash and Equivalents and Restricted Cash | (182,045) | | | 57,997 | | | (19,850) | |
| Cash and Equivalents and Restricted Cash at Beginning of Period | 304,970 | | | 246,973 | | | 266,823 | |
| Cash and Equivalents and Restricted Cash at End of Period | $ | 122,925 | | | $ | 304,970 | | | $ | 246,973 | |
| Supplemental Cash Flow Disclosure: | | | | | |
| Interest paid | $ | 29,070 | | | $ | 33,317 | | | $ | 34,422 | |
| Income taxes paid | 94,968 | | | 93,575 | | | 86,097 | |
Restricted cash included in the line item prepaid and other on the Consolidated Balance Sheets as shown below represents amounts held in escrow related to the Fusion acquisition in 2020 and the Noble acquisition in 2019.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2021 | | 2020 | | 2019 |
| | | | | |
| Cash and equivalents | $ | 122,925 | | | $ | 300,137 | | | $ | 241,970 | |
| Restricted cash included in prepaid and other | — | | | 4,833 | | | 5,003 | |
| Total Cash and Equivalents and Restricted Cash shown in the Statement of Cash Flows | $ | 122,925 | | | $ | 304,970 | | | $ | 246,973 | |
See accompanying notes to consolidated financial statements.
AptarGroup, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and per Share Amounts, or as Otherwise Indicated)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of AptarGroup, Inc. and our subsidiaries. The terms “AptarGroup”, “Aptar”, “Company”, “we”, “us” or “our” as used herein refer to AptarGroup, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain previously reported amounts have been reclassified to conform to the current period presentation.
AptarGroup’s organizational structure consists ofthreemarket-focused business segments which are Pharma, Beauty + Home and Food + Beverage. This is a strategic structure which allows us to be more closely aligned with our customers and the markets in which they operate.
In late 2017, we began a business transformation plan to drive profitable sales growth, increase operational excellence, enhance our approach to innovation and improve organizational effectiveness (see Note 21 – Restructuring Initiatives for further details). The primary focus of the plan is the Beauty + Home segment; however, certain global general and administrative functions have also been addressed. During 2021, 2020 and 2019, we recognized approximately$23.2 million,$26.5 million and$20.5 million, respectively, of restructuring costs related to this plan. As of December 31, 2021, we have successfully completed the vast majority of our planned initiatives related to this plan and do not expect any significant, additional restructuring expenses related to this plan.
Beginning July 1, 2018, we have applied highly inflationary accounting for our Argentinian subsidiary pursuant to U.S. GAAP. We have changed the functional currency from the Argentinian peso to the U.S. dollar. We remeasure our peso denominated assets and liabilities using the official rate. In September 2019, the President of Argentina reinstituted exchange controls restricting foreign currency purchases in an attempt to stabilize Argentina’s financial markets. As a result of these currency controls, a legal mechanism known as the Blue Chip Swap emerged in Argentina for reporting entities to transfer U.S. dollars. The Blue Chip Swap rate has diverged significantly from Argentina’s “official rate” due to the economic environment. During the second quarter of 2020, we transferred U.S. dollars into Argentina through the Blue Chip Swap method and we recognized a gain of $1.0 million. This gain helped to offset foreign currency losses due to our Argentinian peso exposure and devaluation against the U.S. dollar. During the third quarter of 2021, we utilized the Blue Chip Swap and recognized a gain of $1.4 million. Our Argentinian operations contributed less than 2.0%of consolidated net assets and revenues at and for the year ended December 31, 2021.
The extent to which the COVID-19 pandemic impacts our financial results and operations for fiscal year 2022 and going forward for all three of our business segments will depend on future developments which are highly uncertain and cannot be predicted, including the availability, adoption, and efficacy of vaccines and boosters, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extended in response to any further resurgence of the virus and numerous other uncertainties. No impairments were recorded as of December 31, 2021 related to the COVID-19 pandemic. However, due to the general uncertainty surrounding the situation, including areas such as cost inflation, supply chain disruptions, and labor shortages, future results could be negatively affected by the pandemic and therefore our results could be materially impacted.
ACCOUNTING ESTIMATES
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). This process requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
We consider all investments that are readily convertible to known amounts of cash with an original maturity of three months or less when purchased to be cash equivalents.
ACCOUNTS RECEIVABLE AND CURRENT EXPECTED CREDIT LOSSES
At December 31, 2021, we reported $671 million of accounts receivable, net of CECL of $7.4 million. The allowance is estimated using reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Changes in CECL were not material for the year ended December 31, 2021.
INVENTORIES
Inventories are stated at lower of cost or net realizable value. Cost of our inventories is determined by costing methods that approximate a first-in, first-out ("FIFO") basis. Costs included in inventories are raw materials, direct labor and manufacturing overhead.
ACQUISITIONS
We account for business combinations using the acquisition method, which requires management to estimate the fair value of identifiable assets acquired and liabilities assumed, and to properly allocate purchase price consideration to the individual assets acquired and liabilities assumed. Goodwill is measured as the excess amount of consideration transferred, compared to fair value of the assets acquired and the liabilities assumed. The allocation of the purchase price utilizes significant estimates and assumptions in determining the fair values of identifiable assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset and are reviewed by consulting with outside valuation experts. The purchase price allocation for business acquisitions contains uncertainties because it requires management's judgment.
INVESTMENTS IN EQUITY SECURITIES
We account for our 20% to 50% owned investments using the equity method. Equity investments that do not result in consolidation and are not accounted for under the equity method are measured at fair value. Any related changes in fair value is recognized in net income unless the investments qualify for a practicality exception. There werenodividends received from affiliated companies in 2021, 2020 and 2019.
PROPERTY AND DEPRECIATION
Properties are stated at cost. Depreciation is determined on a straight-line basis over the estimated useful lives for financial reporting purposes and accelerated methods for income tax reporting. Generally, the estimated useful lives are10to40 years for buildings and improvements and 3to15 years for machinery and equipment.
FINITE-LIVED INTANGIBLE ASSETS
Finite-lived intangibles, consisting of patents, acquired technology, customer relationships, trademarks and trade names and license agreements acquired in purchase transactions, are capitalized and amortized over their useful lives which range from1to50 years.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, such as property, plant and equipment and finite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset.
GOODWILL
The Company has evaluated the excess of purchase price over the fair value of the net assets acquired (“goodwill”) for impairment annually as of October 1 or more frequently if impairment indicators arose in accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other.” We believe that the accounting estimates related to determining the fair value of our reporting units is a critical accounting estimate because: (1) it is highly susceptible to change from period to period because it requires management to make assumptions about the future cash flows for each reporting unit over several years, and (2) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our results of operations could be material. Management’s determination of the fair value of our reporting units, based on future cash flows for the reporting units, requires significant judgment and the use of estimates and assumptions related to projected revenue growth rates, the terminal growth factor, as well as the discount rate. Actual cash flows in the future may differ significantly from those forecasted today. The estimates and assumptions for future cash flows and its impact on the impairment testing of goodwill is a critical accounting estimate.
For our goodwill impairment assessment, we first consider qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50 percent chance) that the fair value of a reporting unit is less than its carrying amount (the “step zero” approach). Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance, and other relevant entity-specific events. In the absence of sufficient qualitative factors, goodwill impairment is determined utilizing a two-step quantitative process. If it is determined that the fair value of a reporting unit is below its carrying amount, where necessary, goodwill will be impaired at that time.
The Company has historically evaluated its goodwill for impairment annually as of December 31 or more frequently if impairment indicators arose in accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other.” In the fourth quarter of 2019, the Company changed the date of its annual assessment of goodwill to October 1 for all reporting units. The change in testing date for goodwill is a change in accounting principle, which management believes is preferable as the new date of the assessment better aligns with the Company’s budgeting process and will create a more efficient and timely process surrounding the impairment tests. The change in the assessment date does not delay, accelerate or avoid a potential impairment charge. The Company has determined that it is impracticable to objectively determine projected cash flows and related valuation estimates that would have been used as of each October 1 of prior reporting periods without the use of hindsight. As such, the Company prospectively applied the change in annual goodwill impairment testing date from October 1, 2019. No impairment was recognized during the years ended December 31, 2019, 2018 or 2017.
Based on our qualitative assessment of macroeconomic, industry, and market events and circumstances as well as the overall financial performance of the reporting units, we determined it was more likely than not that the fair value of these reporting units was greater than their carrying amounts. As such, the annual two-step impairment test was deemed not necessary to be performed for our reporting units for the year ended December 31, 2019. During the third quarter of 2019, we performed a separate quantitative impairment assessment using a discounted cash flow analysis of the Active Packaging reporting unit, which was formed as a result of the CSP Technologies acquisition in the third quarter of 2018. We calculated the fair value of the Active Packaging reporting unit and compared it with the associated carrying value (the “step one” approach) as of July 1, 2019. Based on this quantitative analysis, the fair value of the reporting unit exceeded the carrying value and therefore no impairment loss was recognized.
INCOME TAXES
In the ordinary course of business, we make estimates of the tax treatment of many transactions, even though the ultimate tax outcome may remain uncertain for some time. These estimates become part of the annual income tax expense reported in our financial statements. Subsequent to year-end, we finalize our tax analysis and file income tax returns. Tax authorities periodically audit these income tax returns and examine our tax filing positions, including (among other things) the timing and amounts of deductions, and the allocation of income among tax jurisdictions. If necessary, we adjust income tax expense in our financial statements in the periods in which the actual outcome becomes more certain.
Our tax liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures related to our various filing positions.
Our effective tax rate is also impacted by changes in tax laws, the current mix of earnings by taxing jurisdiction, and the results of current tax audits and assessments. In December 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (TCJA), which resulted in significant changes to U.S. federal income tax law affecting us. Current and expected impacts are based on our current knowledge of the legislation and other authoritative guidance, which has been issued, including proposed regulations.
At December 31, 2019 and 2018, we had $116.0 million and $96.3 million, respectively, of net deferred tax assets on our balance sheet, a significant portion of which is related to net operating losses and other tax carryforwards. The ultimate realization of these deferred tax assets is dependent upon the amount, source, and timing of future taxable income. In cases where we believe it is more likely than not that we may not realize the future potential tax benefits, we establish a valuation allowance against them.
Changes in U.S. and foreign tax laws could impact assumptions related to the repatriation of certain foreign earnings. Audits by various taxing authorities continue as governments look for ways to raise additional revenue. Based upon past audit experience, we do not expect any material changes to our tax liability as a result of this audit activity; however, we could incur additional tax expense if we have audit adjustments higher than recent historical experience. The likelihood of recovery of net operating losses and other tax carryforwards has been closely evaluated and is based upon such factors as the time remaining before expiration, viable tax planning strategies, and future taxable earnings expectations. We believe that appropriate valuation allowances have been recorded as necessary. However, if earnings expectations or other assumptions change such that additional valuation allowances are required, we could incur additional tax expense. Likewise, if fewer valuation allowances are needed, we could incur reduced tax expense.
ACQUISITIONS
We account for business combinations using the acquisition method, which requires management to estimate the fair value of identifiable assets acquired and liabilities assumed, and to properly allocate purchase price consideration to the individual assets acquired and liabilities assumed. Goodwill is measured as the excess amount of consideration transferred, compared to fair value of the assets acquired and the liabilities assumed. The allocation of the purchase price utilizes significant estimates and assumptions in determining the fair values of identifiable assets acquired and liabilities assumed, especially with respect to intangible assets. These estimates are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. The purchase price allocation for business acquisitions contains uncertainties because it requires management's judgment.
Management applied judgment in determining the fair value of the acquired assets with respect to the acquisitions of Noble, Nanopharm, Gateway, CSP Technologies and Reboul. The judgments made in determining the estimated fair value assigned to the assets acquired, as well as the estimated life of the assets, can materially impact net income in periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. In particular, judgment was applied with respect to determining the fair value of customer relationships intangible assets, which involved the use of significant estimates and assumptions with respect to the timing and amounts of cash flow projections, the revenue growth rates, the customer attrition rates, the EBITDA margins and the discount rate.
VALUATION OF PENSION BENEFITS
The benefit obligations and net periodic pension cost associated with our domestic and foreign noncontributory pension plans are determined using actuarial assumptions. Such assumptions include discount rates to reflect the time value of money, rate of employee compensation increases, demographic assumptions to determine the probability and timing of benefit payments, and the long-term rate of return on plan assets. The actuarial assumptions are based upon management’s best estimates, after consulting with outside investment advisors and actuaries. Because assumptions and estimates are used, actual results could differ from expected results.
The discount rate is utilized principally in calculating our pension obligations, which are represented by the Accumulated Benefit Obligation (ABO) and the Projected Benefit Obligation (“PBO”), and in calculating net periodic benefit cost. In establishing the discount rate for our foreign plans, we review a number of relevant interest rates including Aa corporate bond yields. In establishing the discount rate for our domestic plans, we match the hypothetical duration of our plans, using a weighted average duration that is based upon projected cash payments, to a simulated bond portfolio (FTSE Pension Index Curve). At December 31, 2019, the discount rates for our domestic and foreign plans were 3.2% and 1.04%, respectively.
We believe that the accounting estimates related to determining the valuation of pension benefits are critical accounting estimates because: (1) changes in them can materially affect net income and (2) we are required to establish the discount rate and the expected return on fund assets, which are highly uncertain and require judgment. The estimates for the valuation of pension benefits are critical accounting estimates for all of our segments.
To the extent the discount rates increase (or decrease), our PBO and net periodic benefit cost will decrease (or increase) accordingly. The estimated effect of a 1% decrease in each discount rate would be a $68.2 million increase in the PBO ($51.0 million for the domestic plans and $17.2 million for the foreign plans) and a $7.5 million increase in net periodic benefit cost ($6.0 million for the domestic plans and $1.5 million for the foreign plans). To the extent the PBO increases, the after-tax effect of such increase could reduce Other Comprehensive Income and Stockholders’ Equity. The estimated effect of a 1% increase in each discount rate would be a $53.1 million decrease in the PBO ($39.0 million for the domestic plans and $14.1 million for the foreign plans) and a $5.1 million decrease in net periodic benefit cost ($3.8 million for the domestic plans and $1.3 million for the foreign plans).
The assumed expected long-term rate of return on assets is the average rate of earnings expected on the funds invested to provide for the benefits included in the PBO. Of domestic plan assets, approximately 49% was invested in equities, 29% was invested in fixed income securities, 10% was invested in hedge funds, 6% was invested in infrastructure securities, 5% was invested in real estate securities and 1% was invested in money market funds, at December 31, 2019. Of foreign plan assets, approximately 89% was invested in investment funds, 4% was invested in equity securities, 3% was invested in corporate securities, 1% was invested in fixed income securities and 3% was invested in money market funds at December 31, 2019.
The expected long-term rate of return assumptions are determined based on our investment policy combined with expected risk premiums of equities and fixed income securities over the underlying risk-free rate. This rate is utilized principally in calculating the expected return on the plan assets component of the net periodic benefit cost. To the extent the actual rate of return on assets realized over the course of a year is greater or less than the assumed rate, that year’s net periodic benefit cost is not affected. Rather, this gain (or loss) reduces (or increases) future net periodic benefit cost over a period of approximately 15 to 20 years. To the extent the expected long-term rate of return on assets increases (or decreases), our net periodic benefit cost will decrease (or increase) accordingly. The estimated effect of a 1% decrease (or increase) in each expected long-term rate of return on assets would be a $2.3 million increase (or decrease) in net periodic benefit cost.
The average rate of compensation increase is utilized principally in calculating the PBO and the net periodic benefit cost. The estimated effect of a 0.5% decrease in each rate of expected compensation increase would be a $8.0 million decrease in the PBO ($2.2 million for the domestic plans and $5.8 million for the foreign plans) and a $1.3 million decrease to the net periodic benefit cost. The estimated effect of a 0.5% increase in each rate of expected compensation increase would be a $8.4 million increase in the PBO ($2.2 million for the domestic plans and $6.2 million for the foreign plans) and a $1.4 million increase to the net periodic benefit cost.
Our primary pension related assumptions as of December 31, 2019 and 2018 were as follows:
| | | | | |
Actuarial Assumptions as of December 31, | | 2019 | | 2018 | |
| | | | | |
Discount rate: | | | | | |
Domestic plans | | 3.20 | % | 4.20 | % |
Foreign plans | | 1.04 | % | 1.82 | % |
Expected long‑term rate of return on plan assets: | | | | | |
Domestic plans | | 7.00 | % | 7.00 | % |
Foreign plans | | 3.69 | % | 3.57 | % |
Rate of compensation increase: | | | | | |
Domestic plans | | 4.00 | % | 4.00 | % |
Foreign plans | | 3.05 | % | 3.01 | % |
In order to determine the 2020 net periodic benefit cost, we expect to use the discount rates, expected long-term rates of return on plan assets and rates of compensation increase assumptions as of December 31, 2019. The estimated impact of the changes to the assumptions as noted in the table above on our 2020 net periodic benefit cost is expected to be an increase of approximately $7.2 million.
OPERATIONS OUTLOOK
While there will continue to be near-term challenges, we are optimistic about the long-term opportunities for growth and we are excited about our recent strategic acquisitions and investments. Looking to the first quarter, certain Beauty + Home customers are continuing to focus on inventory reductions considering current macroeconomic uncertainties including the negative impact of the coronavirus outbreak. In addition, the travel retail industry, which is a significant part of the beauty market, is particularly exposed. Our Pharma segment is facing difficult comparisons compared to the prior year’s exceptional growth and our Food + Beverage segment’s Asian business may also be negatively affected by the coronavirus impact.
Aptar expects earnings per share for the first quarter of 2020, excluding any restructuring costs and acquisition-related expenses, to be in the range of $0.85 to $0.93 and this guidance is based on an effective tax rate range of 28% to 30%.
FORWARD-LOOKING STATEMENTS
Certain statements in MD&A and other sections of this Form 10-K are forward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Restructuring Initiatives, Liquidity and Capital Resources, Contingencies and Operations Outlook sections of this Form 10-K. Words such as “expects,” “anticipates,” “believes,” “estimates,” “future”, “potential” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such 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 our beliefs as well as assumptions made by and information currently available to us. Accordingly, our actual results or other events may differ materially from those expressed or implied in such forward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment, including but not limited to:
● | economic conditions worldwide, including potential deflationary or inflationary conditions in regions we rely on for growth; |
● | political conditions worldwide, including the impact of the UK leaving the European Union (Brexit) on our UK operations; |
● | outbreaks of epidemics, including the impact of the coronavirus on our global supply chain and our Chinese customers and operations; |
● | significant fluctuations in foreign currency exchange rates or our effective tax rate; |
● | the impact of tax reform legislation, changes in tax rates and other tax-related events or transactions that could impact our effective tax rate; |
● | financial conditions of customers and suppliers; |
● | consolidations within our customer or supplier bases; |
● | changes in customer and/or consumer spending levels; |
● | loss of one or more key accounts; |
● | the availability of raw materials and components (particularly from sole sourced suppliers) as well as the financial viability of these suppliers; |
● | fluctuations in the cost of materials, components and other input costs (particularly resin, metal, anodization costs and transportation and energy costs); |
● | our ability to successfully implement facility expansions and new facility projects; |
● | our ability to offset inflationary impacts with cost containment, productivity initiatives or price increases; |
● | changes in capital availability or cost, including interest rate fluctuations; |
● | volatility of global credit markets; |
● | our ability to identify potential new acquisitions and to successfully acquire and integrate such operations or products, including the successful integration of the businesses we have acquired, including contingent consideration valuation; |
● | direct or indirect consequences of acts of war, terrorism or social unrest; |
● | cybersecurity threats that could impact our networks and reporting systems; |
● | the impact of natural disasters and other weather-related occurrences; |
● | fiscal and monetary policies and other regulations; |
● | changes or difficulties in complying with government regulation; |
● | changing regulations or market conditions regarding environmental sustainability; |
● | work stoppages due to labor disputes; |
● | competition, including technological advances; |
● | our ability to protect and defend our intellectual property rights, as well as litigation involving intellectual property rights; |
● | the outcome of any legal proceeding that has been or may be instituted against us and others; |
● | our ability to meet future cash flow estimates to support our goodwill impairment testing; |
● | the demand for existing and new products; |
● | the success of our customers’ products, particularly in the pharmaceutical industry; |
● | our ability to manage worldwide customer launches of complex technical products, particularly in developing markets; |
● | difficulties in product development and uncertainties related to the timing or outcome of product development; |
● | significant product liability claims; |
● | the execution of our business transformation plan; and |
● | other risks associated with our operations. |
Although we believe that our 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. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to Part 1, Item 1A Risk Factors included in this Form 10-K for additional risk factors affecting the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISKS
A significant number of our 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 condition and results of operations of our subsidiaries. Our primary foreign exchange exposure is to the euro, but we also have foreign exchange exposure to the Chinese yuan, Brazilian real, Mexican peso, Swiss franc and other Asian, European and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial condition and results of operations. Conversely, a weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial condition and results of operations.
Additionally, in some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Any changes in exchange rates on such inter-country sales may impact our results of operations.
We manage our 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 December 31, 2019 about our forward currency exchange contracts. The majority of the contracts expire before the end of the first quarter of 2020.
| | | | | | | | |
In thousands | | | | | | | | |
Year Ended December 31, 2019 | | | Average | | Min / Max | |
| | | Contract Amount | | Contractual | | Notional | |
Buy/Sell | | | (in thousands) | | Exchange Rate | | Volumes | |
| | | | | | | | |
EUR / USD | | $ | 15,368 | | 1.1096 | | 15,368-20,420 | |
EUR / BRL | | | 12,105 | | 4.6722 | | 11,522-12,185 | |
USD / EUR | | | 8,266 | | 0.8989 | | 4,022-8,266 | |
EUR / IDR | | | 4,754 | | 15.7427 | | 4,698-4,754 | |
EUR / INR | | | 3,996 | | 79.7500 | | 3,985-4,017 | |
USD / CNY | | | 2,000 | | 7.0663 | | 0-2,000 | |
EUR / CHF | | | 1,496 | | 1.0972 | | 0-1,496 | |
EUR / CNY | | | 1,344 | | 7.8771 | | 0-1,344 | |
GBP / EUR | | | 859 | | 1.1539 | | 657-1,807 | |
EUR / MXN | | | 372 | | 21.4988 | | 311-588 | |
USD / CHF | | | 325 | | 0.9861 | | 0-325 | |
MXN / USD | | | 226 | | 0.0514 | | 226-767 | |
CHF / EUR | | | 203 | | 0.9119 | | 203-6,668 | |
EUR / GBP | | | 202 | | 0.8540 | | 0-608 | |
Total | | $ | 51,516 | | | | | |
As of December 31, 2019, we have recorded the fair value of foreign currency forward exchange contracts of $0.2 million in prepaid and other and $0.4 million in accounts payable, accrued and other liabilities in the Consolidated Balance Sheets. Aptar also entered into a EUR/USD floating-to-fixed cross currency swap on July 20, 2017 to effectively hedge the foreign exchange and interest rate exposure on the $280 million bank term loan drawn by its wholly owned UK subsidiary. The fair value of this cash flow hedge is $2.6 million and is reported in prepaid and other in the Consolidated Balance Sheets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF INCOME
| | | | | | | | | | |
In thousands, except per share amounts | | | | | | | | | | |
| | | | | | | | | | |
Year Ended December 31, | | 2019 | | 2018 | | 2017 | |
Net Sales | | $ | 2,859,732 | | $ | 2,764,761 | | $ | 2,469,283 | |
Operating Expenses: | | | | | | | | | | |
Cost of sales (exclusive of depreciation and amortization shown below) | | | 1,818,398 | | | 1,812,961 | | | 1,603,070 | |
Selling, research & development and administrative | | | 454,617 | | | 429,955 | | | 387,424 | |
Depreciation and amortization | | | 194,552 | | | 171,747 | | | 153,094 | |
Restructuring initiatives | | | 20,472 | | | 63,829 | | | 2,208 | |
| | | 2,488,039 | | | 2,478,492 | | | 2,145,796 | |
Operating Income | | | 371,693 | | | 286,269 | | | 323,487 | |
Other (Expense) Income: | | | | | | | | | | |
Interest expense | | | (35,489) | | | (32,626) | | | (40,597) | |
Interest income | | | 4,174 | | | 7,056 | | | 5,470 | |
Equity in results of affiliates | | | 135 | | | (229) | | | (229) | |
Miscellaneous, net | | | 1,556 | | | 5,550 | | | 6,694 | |
| | | (29,624) | | | (20,249) | | | (28,662) | |
Income before Income Taxes | | | 342,069 | | | 266,020 | | | 294,825 | |
Provision for Income Taxes | | | 99,842 | | | 71,254 | | | 74,796 | |
Net Income | | $ | 242,227 | | $ | 194,766 | | $ | 220,029 | |
Net (Income) Loss Attributable to Noncontrolling Interests | | | (25) | | | (21) | | | 1 | |
Net Income Attributable to AptarGroup, Inc. | | $ | 242,202 | | $ | 194,745 | | $ | 220,030 | |
Net Income Attributable to AptarGroup, Inc. per Common Share: | | | | | | | | | | |
Basic | | $ | 3.81 | | $ | 3.12 | | $ | 3.52 | |
Diluted | | $ | 3.66 | | $ | 3.00 | | $ | 3.41 | |
See accompanying notes to consolidated financial statements.
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | |
In thousands | | | | | | | | | | |
| | | | | | | | | | |
Year Ended December 31, | | 2019 | | 2018 | | 2017 | |
Net Income | | $ | 242,227 | | $ | 194,766 | | $ | 220,029 | |
Other Comprehensive Income: | | | | | | | | | | |
Foreign currency translation adjustments | | | (8,727) | | | (62,914) | | | 74,404 | |
Changes in treasury locks, net of tax | | | — | | | 17 | | | 28 | |
Changes in derivative gains (losses), net of tax | | | (37) | | | 1,547 | | | (3,186) | |
Defined benefit pension plan, net of tax | | | | | | | | | | |
Actuarial (loss) gain, net of tax | | | (25,877) | | | 5,292 | | | (7,906) | |
Prior service cost, net of tax | | | 320 | | | (26) | | | (1,038) | |
Amortization of prior service cost included in net income, net of tax | | | 2,541 | | | 533 | | | 296 | |
Amortization of net loss included in net income, net of tax | | | 332 | | | 4,991 | | | 3,828 | |
Total defined benefit pension plan, net of tax | | | (22,684) | | | 10,790 | | | (4,820) | |
Total other comprehensive (loss) income | | | (31,448) | | | (50,560) | | | 66,426 | |
Comprehensive Income | | | 210,779 | | | 144,206 | | | 286,455 | |
Comprehensive Loss (Income) Attributable to Noncontrolling Interests | | | 21 | | | 16 | | | (18) | |
Comprehensive Income Attributable to AptarGroup, Inc. | | $ | 210,800 | | $ | 144,222 | | $ | 286,437 | |
See accompanying notes to consolidated financial statements.
AptarGroup, Inc.
CONSOLIDATED BALANCE SHEETS
| | | | | | | |
In thousands | | | | | | | |
| | | | | | | |
December 31, | | 2019 | | 2018 | |
Assets | | | | | | | |
Current Assets: | | | | | | | |
Cash and equivalents | | $ | 241,970 | | $ | 261,823 | |
Accounts and notes receivable, less allowance for doubtful accounts of $3,626 in 2019 and $3,541 in 2018 | | | 558,428 | | | 569,630 | |
Inventories | | | 375,795 | | | 381,110 | |
Prepaid and other | | | 115,048 | | | 118,245 | |
| | | 1,291,241 | | | 1,330,808 | |
Property, Plant and Equipment: | | | | | | | |
Buildings and improvements | | | 504,328 | | | 453,572 | |
Machinery and equipment | | | 2,521,737 | | | 2,368,332 | |
| | | 3,026,065 | | | 2,821,904 | |
Less: Accumulated depreciation | | | (1,963,520) | | | (1,855,810) | |
| | | 1,062,545 | | | 966,094 | |
Land | | | 25,133 | | | 25,519 | |
| | | 1,087,678 | | | 991,613 | |
Other Assets: | | | | | | | |
Investments in equity securities | | | 8,396 | | | 25,448 | |
Goodwill | | | 763,461 | | | 712,095 | |
Intangible assets | | | 291,084 | | | 254,904 | |
Operating lease right-of-use assets | | | 72,377 | | | — | |
Miscellaneous | | | 47,882 | | | 62,867 | |
| | | 1,183,200 | | | 1,055,314 | |
Total Assets | | $ | 3,562,119 | | $ | 3,377,735 | |
See accompanying notes to consolidated financial statements.
AptarGroup, Inc.
CONSOLIDATED BALANCE SHEETS
| | | | | | | |
In thousands, except share and per share amounts | | | | | | | |
| | | | | | | |
December 31, | | 2019 | | 2018 | |
Liabilities and Stockholders’ Equity | | | | | | | |
Current Liabilities: | | | | | | | |
Notes payable, revolving credit facility and overdrafts | | $ | 44,259 | | $ | 101,293 | |
Current maturities of long-term obligations, net of unamortized debt issuance costs | | | 65,988 | | | 62,678 | |
Accounts payable, accrued and other liabilities | | | 573,028 | | | 525,199 | |
| | | 683,275 | | | 689,170 | |
Long-Term Obligations, net of unamortized debt issuance costs | | | 1,085,453 | | | 1,125,993 | |
Deferred Liabilities and Other: | | | | | | | |
Deferred income taxes | | | 41,388 | | | 53,917 | |
Retirement and deferred compensation plans | | | 101,225 | | | 62,319 | |
Operating lease liabilities | | | 55,276 | | | — | |
Deferred and other non-current liabilities | | | 23,250 | | | 23,465 | |
Commitments and contingencies | | | — | | | — | |
| | | 221,139 | | | 139,701 | |
Stockholders’ Equity: | | | | | | | |
AptarGroup, Inc. stockholders’ equity | | | | | | | |
Common stock, $.01 par value, 199 million shares authorized, 68.6 and 67.3 million shares issued as of December 31, 2019 and 2018, respectively | | | 686 | | | 673 | |
Capital in excess of par value | | | 770,596 | | | 678,769 | |
Retained earnings | | | 1,523,820 | | | 1,371,826 | |
Accumulated other comprehensive loss | | | (341,948) | | | (310,504) | |
Less: Treasury stock at cost, 4.8 and 4.4 million shares as of December 31, 2019 and 2018, respectively | | | (381,238) | | | (318,208) | |
Total AptarGroup, Inc. Stockholders’ Equity | | | 1,571,916 | | | 1,422,556 | |
Noncontrolling interests in subsidiaries | | | 336 | | | 315 | |
Total Stockholders’ Equity | | | 1,572,252 | | | 1,422,871 | |
Total Liabilities and Stockholders’ Equity | | $ | 3,562,119 | | $ | 3,377,735 | |
See accompanying notes to consolidated financial statements.
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2019, 2018 and 2017
| | | | | | | | | | | | | | | | | | | | | | |
In thousands | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | AptarGroup, Inc. Stockholders’ Equity | | | | | | | |
| | | | Accumulated | | | | | | | | | | | |
| | | | Other | | Common | | | | Capital in | | Non- | | | |
| | Retained | | Comprehensive | | Stock | | Treasury | | Excess of | | Controlling | | Total | |
| | Earnings | | (Loss) Income | | Par Value | | Stock | | Par Value | | Interest | | Equity | |
Balance - December 31, 2016 | | $ | 1,197,234 | | $ | (319,709) | | $ | 660 | | $ | (250,917) | | $ | 546,682 | | $ | 292 | | $ | 1,174,242 | |
Net income | | | 220,030 | | | — | | | — | | | — | | | — | | | (1) | | | 220,029 | |
Foreign currency translation adjustments | | | — | | | 74,385 | | | — | | | — | | | — | | | 19 | | | 74,404 | |
Changes in unrecognized pension gains (losses) and related amortization, net of tax | | | — | | | (4,820) | | | — | | | — | | | — | | | — | | | (4,820) | |
Changes in treasury locks, net of tax | | | — | | | 28 | | | — | | | — | | | — | | | — | | | 28 | |
Changes in derivative gains (losses), net of tax | | | — | | | (3,186) | | | — | | | — | | | — | | | — | | | (3,186) | |
Stock awards and option exercises | | | — | | | — | | | 12 | | | 25,212 | | | 67,605 | | | — | | | 92,829 | |
Cash dividends declared on common stock | | | (79,944) | | | — | | | — | | | — | | | — | | | — | | | (79,944) | |
Treasury stock purchased | | | — | | | — | | | — | | | (120,540) | | | — | | | — | | | (120,540) | |
Common stock repurchased and retired | | | (36,173) | | | — | | | (5) | | | — | | | (4,816) | | | — | | | (40,994) | |
Balance - December 31, 2017 | | $ | 1,301,147 | | $ | (253,302) | | $ | 667 | | $ | (346,245) | | $ | 609,471 | | $ | 310 | | $ | 1,312,048 | |
Net income | | | 194,745 | | | — | | | — | | | — | | | — | | | 21 | | | 194,766 | |
Adoption of revenue recognition standard | | | 2,937 | | | — | | | — | | | — | | | — | | | — | | | 2,937 | |
Reclassification of stranded tax effects | | | 6,658 | | | (6,658) | | | — | | | — | | | — | | | — | | | — | |
Foreign currency translation adjustments | | | — | | | (62,898) | | | — | | | — | | | — | | | (16) | | | (62,914) | |
Changes in unrecognized pension gains (losses) and related amortization, net of tax | | | — | | | 10,790 | | | — | | | — | | | — | | | — | | | 10,790 | |
Changes in treasury locks, net of tax | | | — | | | 17 | | | — | | | — | | | — | | | — | | | 17 | |
Changes in derivative gains (losses), net of tax | | | — | | | 1,547 | | | — | | | — | | | — | | | — | | | 1,547 | |
Stock awards and option exercises | | | — | | | — | | | 12 | | | 31,942 | | | 75,763 | | | — | | | 107,717 | |
Cash dividends declared on common stock | | | (82,346) | | | — | | | — | | | — | | | — | | | — | | | (82,346) | |
Treasury stock purchased | | | — | | | — | | | — | | | (3,905) | | | — | | | — | | | (3,905) | |
Common stock repurchased and retired | | | (51,315) | | | — | | | (6) | | | — | | | (6,465) | | | — | | | (57,786) | |
Balance - December 31, 2018 | | $ | 1,371,826 | | $ | (310,504) | | $ | 673 | | $ | (318,208) | | $ | 678,769 | | $ | 315 | | $ | 1,422,871 | |
Net income | | | 242,202 | | | — | | | — | | | — | | | — | | | 25 | | | 242,227 | |
Foreign currency translation adjustments | | | — | | | (8,723) | | | — | | | — | | | — | | | (4) | | | (8,727) | |
Changes in unrecognized pension gains (losses) and related amortization, net of tax | | | — | | | (22,684) | | | — | | | — | | | — | | | — | | | (22,684) | |
Changes in derivative gains (losses), net of tax | | | — | | | (37) | | | — | | | — | | | — | | | — | | | (37) | |
Stock awards and option exercises | | | — | | | — | | | 13 | | | 23,467 | | | 91,827 | | | — | | | 115,307 | |
Cash dividends declared on common stock | | | (90,208) | | | — | | | — | | | — | | | — | | | — | | | (90,208) | |
Treasury stock purchased | | | — | | | — | | | — | | | (86,497) | | | — | | | — | | | (86,497) | |
Balance - December 31, 2019 | | $ | 1,523,820 | | $ | (341,948) | | $ | 686 | | $ | (381,238) | | $ | 770,596 | | $ | 336 | | $ | 1,572,252 | |
See accompanying notes to consolidated financial statements.
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | |
In thousands, brackets denote cash outflows | | | | | | | | | | |
| | | | | | | | | | |
Year Ended December 31, | | | 2019 | | | 2018 | | 2017 | |
| | | | | | | | | | |
Cash Flows from Operating Activities: | | | | | | | | | | |
Net income | | $ | 242,227 | | $ | 194,766 | | $ | 220,029 | |
Adjustments to reconcile net income to net cash provided by operations: | | | | | | | | | | |
Depreciation | | | 166,944 | | | 156,292 | | | 142,755 | |
Amortization | | | 27,608 | | | 15,455 | | | 10,339 | |
Stock-based compensation | | | 23,893 | | | 19,561 | | | 18,924 | |
Provision for doubtful accounts | | | 782 | | | 923 | | | 235 | |
Loss (gain) on disposition of fixed assets | | | 344 | | | (770) | | | 387 | |
Gain on remeasurement of equity securities | | | — | | | (6,500) | | | — | |
Debt prepayment costs | | | — | | | — | | | 4,710 | |
Deferred income taxes | | | 8,746 | | | (23,352) | | | 2,238 | |
Defined benefit plan expense | | | 15,342 | | | 19,501 | | | 17,200 | |
Equity in results of affiliates | | | (135) | | | 229 | | | 229 | |
Changes in balance sheet items, excluding effects from foreign currency adjustments: | | | | | | | | | | |
Accounts and other receivables | | | 8,811 | | | (66,968) | | | (44,658) | |
Inventories | | | 605 | | | (25,183) | | | (12,989) | |
Prepaid and other current assets | | | 6,596 | | | (9,437) | | | (33,959) | |
Accounts payable, accrued and other liabilities | | | (779) | | | 37,155 | | | 58,245 | |
Income taxes payable | | | 5,658 | | | (3,155) | | | (8,753) | |
Retirement and deferred compensation plan liabilities | | | (3,956) | | | (22,762) | | | (41,004) | |
Other changes, net | | | 11,771 | | | 27,873 | | | (9,199) | |
Net Cash Provided by Operations | | | 514,457 | | | 313,628 | | | 324,729 | |
Cash Flows from Investing Activities: | | | | | | | | | | |
Capital expenditures | | | (242,276) | | | (211,252) | | | (156,624) | |
Proceeds from sale of property, plant and equipment | | | 4,301 | | | 4,466 | | | 2,036 | |
Insurance proceeds | | | — | | | 10,631 | | | 709 | |
Settlement of derivative | | | — | | | — | | | (66,155) | |
Acquisition of business, net of cash acquired | | | (106,328) | | | (527,916) | | | — | |
Acquisition of intangible assets, net | | | (4,806) | | | (611) | | | — | |
Investment in equity securities | | | (3,530) | | | (10,000) | | | (5,000) | |
Proceeds from sale of investment in equity securities | | | 16,487 | | | — | | | — | |
Notes receivable, net | | | (116) | | | (779) | | | 234 | |
Net Cash Used by Investing Activities | | | (336,268) | | | (735,461) | | | (224,800) | |
Cash Flows from Financing Activities: | | | | | | | | | | |
Proceeds from notes payable and overdrafts | | | 50,854 | | | 49,069 | | | — | |
Repayments of notes payable and overdrafts | | | (53,269) | | | (29,994) | | | — | |
Proceeds and repayments of short term revolving credit facility, net | | | (52,096) | | | 81,063 | | | (169,213) | |
Proceeds from long-term obligations | | | 10,523 | | | 13,161 | | | 625,628 | |
Repayments of long-term obligations | | | (67,276) | | | (72,290) | | | (165,798) | |
Dividends paid | | | (90,208) | | | (82,346) | | | (79,944) | |
Credit facility costs | | | — | | | — | | | (3,542) | |
Debt prepayment costs | | | — | | | — | | | (4,710) | |
Proceeds from stock option exercises | | | 90,834 | | | 88,156 | | | 73,905 | |
Purchase of treasury stock | | | (86,497) | | | (3,905) | | | (120,540) | |
Common stock repurchased and retired | | | — | | | (57,786) | | | (40,994) | |
Net Cash (Used) Provided by Financing Activities | | | (197,135) | | | (14,872) | | | 114,792 | |
Effect of Exchange Rate Changes on Cash | | | (904) | | | (9,112) | | | 31,632 | |
Net (Decrease) Increase in Cash and Equivalents and Restricted Cash | | | (19,850) | | | (445,817) | | | 246,353 | |
Cash and Equivalents and Restricted Cash at Beginning of Period | | | 266,823 | | | 712,640 | | | 466,287 | |
Cash and Equivalents and Restricted Cash at End of Period | | $ | 246,973 | | $ | 266,823 | | $ | 712,640 | |
Supplemental Cash Flow Disclosure: | | | | | | | | | | |
Interest paid | | $ | 34,422 | | $ | 32,005 | | $ | 38,838 | |
Income taxes paid | | | 86,097 | | | 96,048 | | | 77,349 | |
Restricted cash included in the line item prepaid and other on the Consolidated Balance Sheets as shown below represents amounts held in escrow related to the Noble acquisition in 2019 and the CSP Technologies acquisition in 2018.
| | | | | | | | | | |
Year Ended December 31, | | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | |
Cash and equivalents | | $ | 241,970 | | $ | 261,823 | | $ | 712,640 | |
Restricted cash included in prepaid and other | | | 5,003 | | | 5,000 | | | — | |
Total Cash and Equivalents and Restricted Cash shown in the Statement of Cash Flows | | $ | 246,973 | | $ | 266,823 | | $ | 712,640 | |
See accompanying notes to consolidated financial statements.
AptarGroup,��Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and per Share Amounts, or as Otherwise Indicated)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of AptarGroup, Inc. and our subsidiaries. The terms “AptarGroup”, “Aptar”, “Company”, “we”, “us” or “our” as used herein refer to AptarGroup, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain previously reported amounts have been reclassified to conform to the current period presentation.
AptarGroup’s organizational structure consists of 3 market-focused business segments which are Beauty + Home, Pharma and Food + Beverage. This is a strategic structure which allows us to be more closely aligned with our customers and the markets in which they operate.
In late 2017, Aptar began a business transformation plan to drive profitable sales growth, increase operational excellence, enhance our approach to innovation and improve organizational effectiveness (see Note 21 – Restructuring Initiatives for further details). The primary focus of the plan is the Beauty + Home segment; however, certain global general and administrative functions are also addressed. During 2019, 2018 and 2017, we recognized approximately $20.5 million, $63.8 million and $2.2 million, respectively, of restructuring costs related to this plan.
During the quarter ended June 30, 2018, primarily based on published estimates which indicate that Argentina's three-year cumulative inflation rate has exceeded 100%, we concluded that Argentina has become a highly inflationary economy. Beginning July 1, 2018, we have applied highly inflationary accounting for our Argentinian subsidiaries. We have changed the functional currency from the Argentinian peso to the U.S. dollar. Local currency monetary assets and liabilities were remeasured into U.S. dollars using exchange rates as of the latest balance sheet date, with remeasurement adjustments and other transaction gains and losses recognized in net earnings. During the last half of 2018, we recognized approximately $0.8 million of currency gains due to these changes. Our Argentinian operations contributed approximately less than 2.0% of consolidated net assets and revenues at and for the year ended December 31, 2019.
ACCOUNTING ESTIMATES
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). This process requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
We consider all investments that are readily convertible to known amounts of cash with an original maturity of three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at lower of cost or net realizable value. Costs included in inventories are raw materials, direct labor and manufacturing overhead.
INVESTMENTS IN EQUITY SECURITIES
We account for our 20% to 50% owned investments using the equity method. Equity investments that do not result in consolidation and are not accounted for under the equity method are measured at fair value. Any related changes in fair value is recognized in net income unless the investments qualify for a practicality exception. In May 2018, we invested $10.0 million in preferred equity stock of Reciprocal Labs Corporation, doing business as Propeller Health.During 2018, we increased the value of this investment by approximately $6.5 million due to fair value inputs. This investment was ultimately sold during January 2019 for an amount of $16.5 million (see Note 20 – Acquisitions for further details). During August 2019, we also invested an aggregate amount of $3.5 million in two preferred equity investments that are accounted for at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. There were no indications of impairment nor were there any changes from observable price changes noted for the year ended December 31, 2019. There were 0 dividends received from affiliated companies in 2019, 2018 and 2017.
PROPERTY AND DEPRECIATION
Properties are stated at cost. Depreciation is determined on a straight-line basis over the estimated useful lives for financial reporting purposes and accelerated methods for income tax reporting. Generally, the estimated useful lives are 10 to 40 years for buildings and improvements and 3 to 15 years for machinery and equipment.
FINITE-LIVED INTANGIBLE ASSETS
Finite-lived intangibles, consisting of patents, acquired technology, customer relationships, trademarks and trade names and license agreements acquired in purchase transactions, are capitalized and amortized over their useful lives which range from 1 to 20 years.
GOODWILL
The Company has historically evaluated the excess of purchase price over the fair value of the net assets acquired (“goodwill”) for impairment annually as of December 31 or more frequently if impairment indicators arose in accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other.” In the fourth quarter of 2019, the Company changed the date of its annual assessment of goodwill to October 1 for all reporting units. The change in testing date for goodwill is a change in accounting principle, which management believes is preferable as the new date of the assessment better aligns with the Company’s budgeting process and will create a more efficient and timely process surrounding the impairment tests. The change in the assessment date does not delay, accelerate or avoid a potential impairment charge. The Company has determined that it is impracticable to objectively determine projected cash flows and related valuation estimates that would have been used as of each October 1 of prior reporting periods without the use of hindsight. As such, the Company prospectively applied the change in annual goodwill impairment testing date from October 1, 2019.
We believe that the accounting estimates related to determining the fair value of our reporting units is a critical accounting estimate because: (1) it is highly susceptible to change from period to period because it requires management to make assumptions about the future cash flows for each reporting unit over several years, and (2) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our results of operations could be material. Management’s determination of the fair value of our reporting units, based on future cash flows for the reporting units, requires significant judgment and the use of estimates and assumptions related to projected revenue growth rates, the terminal growth factor, as well as the discount rate. Actual cash flows in the future may differ significantly from those forecasted today. The estimates and assumptions for future cash flows and its impact on the impairment testing of goodwill is a critical accounting estimate.
Management believes goodwill in purchase transactions has continuing value. Goodwill is not amortized and must be tested annually, or more frequently as circumstances dictate, for impairment. The annual goodwill impairment test may first consider qualitative factors to determine whether it is more likely than not (i.e., greater than 50 percent chance) that the fair value of a reporting unit is less than its book value. This is sometimes referred to as the “step zero” approach and is an optional step in the annual goodwill impairment analysis. Management has performed this qualitative assessment as of October 1, 20192021 and October 1, 2020 for each of our reporting units. Based on our review of macroeconomic, industry, and market events and circumstances as well as the overall financial performance of the reporting units, we determined that it was more likely than not that the fair value of these reporting units was greater than their carrying amounts.
During the third quarter of 2019, we performed a separate quantitative impairment assessment using a discounted cash flow analysis of the Active Packaging reporting unit, which was formed as a result of the CSP Technologies Acquisition in the third quarter of 2018. We calculated the fair value of the Active Packaging reporting unit and compared it with the associated carrying value (the “step one” approach) as of July 1, 2019. Based on this quantitative analysis, the fair value of the reporting unit exceeded the carrying valueamounts and therefore no impairment loss was recognized.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, such as property, plant and equipment and finite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment lossgoodwill is recognized when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset.
DERIVATIVESrequired.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Derivative financial instruments are recorded in the Consolidated Balance Sheets at fair value as either assets or liabilities. Changes in the fair value of derivatives are recorded in each period in earnings or other comprehensive income, depending on whether a derivative is designated and effective as part of a hedge transaction.
RETIREMENT OF COMMON STOCK
During 2021 and 2019, we repurchased 615 thousand and 779 thousand shares, of common stock,respectively, all of which were returned to treasury stock. During 2018,In 2020, we repurchased 668 thousanddid not repurchase any shares of our common stock. If retired, common stock of which 623 thousand shares were immediately retired.Common stock wasis reduced by the number of shares retired at $0.01 $0.01par value per share. We allocate the excess purchase price over par value between additional paid-in capital and retained earnings.
RESEARCH & DEVELOPMENT EXPENSES
Research and development costs, net of any customer funded research and development or government research and development credits, are expensed as incurred. These costs amounted to $82.8$99.8 million, $75.3$92.5 million and $68.2$82.8 million in 2021, 2020 and 2019, 2018 and 2017, respectively.
We compute taxes on income in accordance with the tax rules and regulations of the many taxing authorities where the income is earned. The income tax rates imposed by these taxing authorities may vary substantially. Taxable income may differ from pre-tax income for
U.S. GAAP financial accounting purposes. To the extent that these differences create timing differences between the tax basis of an asset or liability and its reported amount in the
U.S. GAAP financial statements, an appropriate provision for deferred income taxes is made.
All
With the exception of
our non-U.S.pre-2020 earnings
are subject to U.S. taxation, either from the transition tax enacted in
the U.S. by the Tax CutsItaly, Switzerland, and
Jobs Act (“TCJA”) on accumulated non-U.S. earnings as of the end of 2017 or the global intangible low-taxed income (“GILTI”) provisions on non-U.S. earnings thereafter. WeColombia, we maintain our assertion that the cash and distributable reserves at our non-U.S. affiliates are indefinitely reinvested.
Under current U.S. tax laws, all of our non-U.S. earnings are subject to U.S. taxation on a current or deferred basis. We will provide for the necessary withholding
andtax, local income taxes,
and U.S. federal and state income tax when management decides that an affiliate should make a distribution. These decisions are made taking into consideration the financial requirements of the non-U.S. affiliates and
theour global cash management
goals of the Company.goals.
We provide a liability for the amount of unrecognized tax benefits from uncertain tax positions. This liability is provided whenever we determine that a tax benefit will not meet a more-likely-than-not threshold for recognition. See Note 6 – Income Taxes for more information.
We are subject to taxation and file income tax returns in the U.S. federal jurisdiction and many state and foreign jurisdictions. We believe that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner inconsistent with our expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs. The resolution of each of these audits is not expected to be material to our Consolidated Financial Statements.
TRANSLATION OF FOREIGN CURRENCIES
The functional currencies of the majority of our foreign operations are the local currencies. Assets and liabilities of our foreign operations are translated into U.S. dollars at the rates of exchange on the balance sheet date. Sales and expenses are translated at the average rates of exchange prevailing during the year. The related translation adjustments are accumulated in a separate section of Stockholders’ Equity. Realized and unrealized foreign currency transaction gains and losses are reflected in income, as a component of miscellaneous income and expense, and represented losses of $1.7$1.4 million, $1.7$5.6 million and $5.0$1.9 million in 2021, 2020 and 2019, 2018 and 2017, respectively.
Accounting standards require the application of the non-substantive vesting approach which means that an award is fully vested when the employee’s retention of the award is no longer contingent on providing future service. Under this approach, compensation costs are recognized over the requisite service period of the award instead of ratably over the vesting period stated in the grant. As such, costs are recognized immediately if the employee is retirement eligible on the date of grant or over the period from the date of grant until retirement eligibility if retirement eligibility is reached before the end of the vesting period stated in the grant.
Forfeitures are recognized as they occur. See Note 16 – Stock-Based Compensation for more information.
At inception of customer contracts, we assess the goods and services promised in order to identify a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, we consider all the goods or services promised in the contract, whether explicitly stated or implied based on customary business practices. For a contract that has more than one performance obligation, we allocate the total contract consideration to each distinct performance obligation on a relative standalone selling price basis. Revenue is recognized when (or as) the performance obligations are satisfied (i.e., when the customer obtains control of the good or service). The majority of our revenues are derived from product,
tooling and
toolingservice contract sales; however, we also receive revenues from
service, license, exclusivity and royalty arrangements, which
collectively are
considered insignificant.not material to the results. See specific discussions about methods of accounting for control transfers of product,
tooling and
toolingservice contract sales in Note 2 – Revenue.
We determine if an arrangement is a lease at inception. Operating lease assets are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities are included in accounts payable accrued and other liabilities in our Consolidated Balance Sheets. Finance leases are included in property, plant and equipment, current maturities of long-term obligations and long-term obligations in our Consolidated Balance Sheets.
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| 20192021 Form 10-K
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ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use the implicit rate when readily determinable. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date of the lease in determining the present value of lease payments. The operating lease ROU asset includes any lease payments made as well as initial direct costs incurred and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, we account for the lease and non-lease components as a single lease component. We have elected not to recognize right-of-use assets and lease liabilities that arise from short-term leases (a lease whose term is 12 months or less and does not include a purchase option that we are reasonably certain to exercise).
Certain vehicle lease contracts include guaranteed residual value that is considered in the determination of lease classification. The probability of having to satisfy a residual value guarantee is not considered for the purpose of lease classification, but is considered when measuring a lease liability.
GOVERNMENT GRANTS
We record non-reimburseable government grants when there is reasonable assurance that we will comply with the relevant conditions of the grant agreement and the grant funds will be received. When a grant is received toward the purchase or construction of an asset, the funds received are recorded as a contra-asset and deducted from the cost of the related asset. Additionally, we record expense net of reimbursements for government grants from a reimbursement of cost.
During 2021, we received $2.0 million for a government grant to be used toward the construction of a new operating facility. This award will support expanded domestic production capacity for our active material science solutions proprietary Activ-Film technology, which is used to protect and enhance COVID-19 test kit integrity and accuracy. Under the terms of the grant agreement, the U.S. government will fund approximately $19 million to build an operating facility, for which there is no clawback provision, in exchange for the new facility to be on standby for the government for a period of 16 months after construction. As of December 31, 2021, we recorded the $2.0 million received in 2021 as a contra-asset within property, plant and equipment in the Consolidated Balance Sheets and reported in the proceeds from government grants within the investing section of the Consolidated Statements of Cash Flows.
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification.
In
February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases, as our accounting for finance leases remained substantially unchanged. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We adopted the standard on January 1, 2019 using a modified retrospective transition, with the effective date method. Under this method, financial results reported in periods prior to 2019 are not recast. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows companies to carry forward their historical lease classification. We also implemented internal controls and key system functionality to enable the preparation of financial information on adoption. The impact of adoption of the standard to previously reported results is shown below.
| | | | | | | | | | |
| | | Balance at | | | | | | Balance at | |
| | | December 31, | | | | | | January 1, | |
| | | 2018 | | | Adjustments | | | 2019 | |
Consolidated Balance Sheets | | | | | | | | | | |
Operating lease right-of-use assets | | $ | — | | $ | 83,222 | | $ | 83,222 | |
Prepaid and other | | | 118,245 | | | (1,383) | | | 116,862 | |
Property, plant and equipment | | | 991,613 | | | 5,876 | | | 997,489 | |
Current maturities of long-term obligations, net of unamortized debt issuance costs | | | 62,678 | | | 2,631 | | | 65,309 | |
Accounts payable, accrued and other liabilities | | | 525,199 | | | 20,508 | | | 545,707 | |
Operating lease liabilities | | | — | | | 61,331 | | | 61,331 | |
Long-term obligations, net of unamortized debt issuance costs | | | 1,125,993 | | | 3,245 | | | 1,129,238 | |
In May 2014, the FASB issued ASU 2014-09, which amended the guidance for recognition of revenue from customer contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On January 1, 2018, we adopted this standard and all the related amendments (the “new revenue standard”) for all contracts. This adoption was accounted for using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the January 1, 2018 opening balance of retained earnings. Comparative information for the prior periods has not been restated and continues to be reported under the accounting standards in effect prior to January 1, 2018.
| | | | | | | | | | |
| | | Balance at | | | | | | Balance at | |
| | | December 31, 2017 | | | Adjustment | | | January 1, 2018 | |
Consolidated Balance Sheets | | | | | | | | | | |
Assets | | | | | | | | | | |
Inventories | | $ | 337,216 | | $ | (7,064) | | $ | 330,152 | |
Prepaid and other | | | 109,791 | | | 6,411 | | | 116,202 | |
Liabilities | | | | | | | | | | |
Accounts payable, accrued and other liabilities | | | 461,579 | | | (5,706) | | | 455,873 | |
Deferred income taxes | | | 20,995 | | | 1,292 | | | 22,287 | |
Deferred and other non-current liabilities | | | 5,608 | | | 824 | | | 6,432 | |
Stockholders’ Equity | | | | | | | | | | |
Retained earnings | | | 1,301,147 | | | 2,937 | | | 1,304,084 | |
A majority of our sales revenue continues to be recognized when products are shipped from our manufacturing facilities. For certain custom product and tooling sales where revenue was previously recognized when the products were shipped, we now recognize revenue over the time required to manufacture the product or build the tool in accordance with the new revenue standard. We also have certain extended warranty contracts, which under the new standard are considered a separate performance obligation and are required to be deferred and recognized into revenue over the life of the agreement.
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated statements of income and balance sheets is as follows:
| | | | | | | | | | |
| | For the Year Ended December 31, 2018 | |
| | | | | | Balances | | | | |
| | | | | | Without | | | Effect of | |
| | | As | | | Adoption of | | | Change | |
| | | Reported | | | ASC 606 | | | Higher/(Lower) | |
Consolidated Statements of Income | | | | | | | | | | |
Net Sales | | | | | | | | | | |
Beauty + Home | | $ | 1,426,382 | | $ | 1,424,701 | | $ | 1,681 | |
Pharma | | | 954,652 | | | 954,497 | | | 155 | |
Food + Beverage | | | 383,727 | | | 385,001 | | | (1,274) | |
Costs and Expenses | | | | | | | | | | |
Cost of sales (exclusive of depreciation and amortization) | | | 1,812,961 | | | 1,811,290 | | | 1,671 | |
Provision for income taxes | | | 71,254 | | | 71,541 | | | (287) | |
Net income | | | 194,766 | | | 195,588 | | | (822) | |
| | | | | | | | | | |
| | December 31, 2018 | |
| | | | | | Balances | | | | |
| | | | | | Without | | | Effect of | |
| | | As | | | Adoption of | | | Change | |
| | | Reported | | | ASC 606 | | | Higher/(Lower) | |
Consolidated Balance Sheets | | | | | | | | | | |
Assets | | | | | | | | | | |
Inventories | | $ | 381,110 | | $ | 391,315 | | $ | (10,205) | |
Prepaid and other | | | 118,245 | | | 108,490 | | | 9,755 | |
Liabilities | | | | | | | | | | |
Accounts payable, accrued and other liabilities | | | 525,199 | | | 529,168 | | | (3,969) | |
Deferred income taxes | | | 53,917 | | | 52,912 | | | 1,005 | |
Deferred and other non-current liabilities | | | 23,465 | | | 23,066 | | | 399 | |
Stockholders’ Equity | | | | | | | | | | |
Retained earnings | | | 1,371,826 | | | 1,369,711 | | | 2,115 | |
In JanuaryJune 2016, the FASB issued ASU 2016-01, which provides guidance2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as well as the classification and measurement of financial assets and liabilities (equity securities and financial liabilities) under the fair value option and the presentation and disclosure requirements for financial instruments. In February 2018, ASU 2018-03 was issued to clarify certain aspects ofclarifying amendments subsequently issued. We applied the guidance issued in January 2016. The guidance modifies how entities measure equity investmentsusing a modified retrospective approach and present changes in the fair value of financial liabilities. Under the new guidance, entities measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any related changes in fair value in net income unless the investments qualify for the new practicality exception. A measurement alternative exists for those equity investments that do not have a readily determinable fair value. These investments may be measured at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The standard also includes a new impairment model for equity investments without readily determinable fair values. The new model is a single-step model under which we are required to perform a qualitative assessment each reporting period to identify impairment. When a qualitative assessment indicates thataccordingly recognized an impairment exists, we will estimate the fair value of the investment and recognize in current earnings an impairment loss equal to the difference between the fair value and the carrying amount of $1.4 million as the equity investment. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. We adopted the requirements of this standard duringcumulative adjustment to opening retained earnings in the first quarter of 2018.
2020. This is based on management's best estimates of specific losses on individual exposures particularly on current trade receivables, as well as the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. On an ongoing basis, we will contemplate forward-looking economic conditions in recording lifetime expected credit losses for our financial assets measured at cost, such as our trade receivables and certain other assets.
In November
2016,2021, the FASB issued ASU
2016-18, which provides guidance to address2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy including the
diversity innature of the
classificationtransaction, the financial statement line items affected by the transaction and
presentation of changes in restricted cash onany significant terms and conditions associated with the
statement of cash flows. The amendments in this standard require that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017.transactions. We adopted
the requirements of this
standard during the first quarter of 2018 and appropriate disclosures are included on the statement of cash flows to the extent applicable.In February 2018, the FASB issued ASU 2018-02, which provides guidance on the reclassification of certain tax effects from accumulated other comprehensive income. This guidance allows for the reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018. We elected to early adopt this standard in the fourth quarter of 2018.2021 using the prospective approach.
In March 2020, the FASB issued ASU 2020-04, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments to this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 was further amended in January 2021 by ASU 2021-01 which clarified the applicability of certain provisions. Both standards are effective upon issuance and can be adopted any time prior to December 31, 2022. The guidance in ASU 2020-04 and ASU 2021-01 is optional and may be elected over time as reference rate reform activities occur. As
part of
December 31, 2021, we have amended the revolving credit facility to provide mechanics relating to a transition away from LIBOR (in the case of USD) and the designated benchmark rates for other available currencies and the replacement of any such applicable benchmark by a replacement alternative benchmark rate or mechanism for loans made in the applicable currency. We are evaluating any further impact this
adoption, we elected to reclassify $6.7 million of stranded income tax effects of the TCJA from accumulated other comprehensive income to retained earnings at the beginning of the fourth quarter of 2018.standard may have on our Consolidated Financial Statements and anticipate no further significant impacts.
Other accounting standards that have been issued by the FASB or other standards-setting bodies did not have a material impact on our consolidated financial statements.
Revenue by segment and geography based on shipped from locations for the years ended December 31, 20192021, 2020 and 20182019 is as follows:
| | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2019 | |
| | | | | | | Latin | | | | | | | |
Segment | | Europe | | Domestic | | America | | Asia | | Total | |
Beauty + Home | | $ | 792,255 | | $ | 310,411 | | $ | 160,048 | | $ | 90,000 | | $ | 1,352,714 | |
Pharma | | | 729,882 | | | 297,871 | | | 26,344 | | | 36,954 | | | 1,091,051 | |
Food + Beverage | | | 116,332 | | | 228,486 | | | 33,996 | | | 37,153 | | | 415,967 | |
Total | | $ | 1,638,469 | | $ | 836,768 | | $ | 220,388 | | $ | 164,107 | | $ | 2,859,732 | |
| | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2018 | |
| | | | | | | Latin | | | | | | | |
Segment | | Europe | | Domestic | | America | | Asia | | Total | |
Beauty + Home | | $ | 816,359 | | $ | 334,881 | | $ | 178,392 | | $ | 96,750 | | $ | 1,426,382 | |
Pharma | | | 696,079 | | | 196,928 | | | 25,485 | | | 36,160 | | | 954,652 | |
Food + Beverage | | | 115,040 | | | 194,527 | | | 31,742 | | | 42,418 | | | 383,727 | |
Total | | $ | 1,627,478 | | $ | 726,336 | | $ | 235,619 | | $ | 175,328 | | $ | 2,764,761 | |
Aptar performs its
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2021 |
| Segment | Europe | | Domestic | | Latin
America | | Asia | | Total |
| Pharma | $ | 830,552 | | | $ | 374,063 | | | $ | 21,482 | | | $ | 58,527 | | | $ | 1,284,624 | |
| Beauty + Home | 765,071 | | | 412,761 | | | 147,569 | | | 108,621 | | | 1,434,022 | |
| Food + Beverage | 129,559 | | | 294,999 | | | 46,992 | | | 37,025 | | | 508,575 | |
| Total | $ | 1,725,182 | | | $ | 1,081,823 | | | $ | 216,043 | | | $ | 204,173 | | | $ | 3,227,221 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2020 |
| Segment | Europe | | Domestic | | Latin
America | | Asia | | Total |
| Pharma | $ | 808,834 | | | $ | 350,265 | | | $ | 23,157 | | | $ | 43,523 | | | $ | 1,225,779 | |
| Beauty + Home | 681,936 | | | 384,004 | | | 141,846 | | | 90,365 | | | 1,298,151 | |
| Food + Beverage | 113,286 | | | 231,717 | | | 29,040 | | | 31,367 | | | 405,410 | |
| Total | $ | 1,604,056 | | | $ | 965,986 | | | $ | 194,043 | | | $ | 165,255 | | | $ | 2,929,340 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, 2019 |
| Segment | Europe | | Domestic | | Latin
America | | Asia | | Total |
| Pharma | $ | 729,882 | | | $ | 297,871 | | | $ | 26,344 | | | $ | 36,954 | | | $ | 1,091,051 | |
| Beauty + Home | 792,255 | | | 310,411 | | | 160,048 | | | 90,000 | | | 1,352,714 | |
| Food + Beverage | 116,332 | | | 228,486 | | | 33,996 | | | 37,153 | | | 415,967 | |
| Total | $ | 1,638,469 | | | $ | 836,768 | | | $ | 220,388 | | | $ | 164,107 | | | $ | 2,859,732 | |
We perform our obligations under a contract with a customer by transferring goods and/or services in exchange for consideration from the customer. The timing of performance will sometimes differ from the timing of the receipt of the associated consideration from the customer, thus resulting in the recognition of a contract asset or a contract liability. Aptar recognizesWe recognize a contract asset when it transferswe transfer control of goods or services to a customer prior to invoicing for the related performance obligation. The contract asset is transferred to accounts receivable when the product is shipped and invoiced to the customer. Aptar recognizesWe recognize a contract liability if the customer's payment of consideration precedes the entity's performance.
The opening and closing balances of Aptar’sour contract asset and contract liabilities are as follows:
| | | | | | | | | | |
| | Balance as of | | Balance as of | | Increase/ | |
| | December 31, 2018 | | December 31, 2019 | | (Decrease) | |
| | (opening) | | (closing) | | | | |
Contract asset (current) | | $ | 15,858 | | $ | 16,245 | | $ | 387 | |
Contract asset (long-term) | | $ | — | | $ | — | | $ | — | |
Contract liability (current) | | $ | 68,134 | | $ | 79,305 | | $ | 11,171 | |
Contract liability (long-term) | | $ | 11,261 | | $ | 9,779 | | $ | (1,482) | |
| | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2020 | | Balance as of December 31, 2021 | | Increase/
(Decrease)
|
| | | | | |
| Contract asset (current) | $ | 16,109 | | | $ | 16,878 | | | $ | 769 | |
| | | | | |
| Contract liability (current) | $ | 87,188 | | | $ | 86,340 | | | $ | (848) | |
| Contract liability (long-term) | $ | 21,584 | | | $ | 21,905 | | | $ | 321 | |
The differences in the opening and closing balances of our contract asset and contract liabilities are primarily the result of acquisitions and timing differences between our performance and the customer’s payment. The total amount of revenue recognized during the current year against contract liabilities is $61.3$126.1 million, including $32.6$65.3 million relating to contract liabilities at the beginning of the year. Current contract assets and long-term contract assets are included within the Prepaid and Other and Miscellaneous assets, respectively, while current contract liabilities and long-term contract liabilities are included within Accounts Payable, Accrued and Other Liabilities and Deferred and Other Non-current Liabilities, respectively, within our Consolidated Balance Sheets.
Determining the Transaction Price
In most cases, the transaction price for each performance obligation is stated in the contract. In determining the variable amounts of consideration within the transaction price (such as volume-based customer rebates),
Aptar includeswe include an estimate of the expected amount of consideration as revenue.
Aptar appliesWe apply the expected value method based on all of the information (historical, current, and forecast) that is reasonably available and identifies reasonable estimates based on this information. We apply the method consistently throughout the contract when estimating the effect of an uncertainty on the amount of variable consideration to which it will be entitled.
Point in Time Performance Obligations
For
Product Sales
We primarily manufacture and sell drug delivery, consumer product
dispensing and
tooling sales considered to be point in time, Aptar typically assesses, among other things, the shipping terms of the contract, shipping being one of the indicators of transfer of control. For free on board (“FOB”) shipping point terms, revenue is recognized at the time of shipment. The performance obligation with respect to the sale of goods is satisfied at the time of shipment because the customer gains control at that time. Once the goods are shipped, we are precluded from redirecting the shipment to another customer. With respect to FOB destination sales, shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfilment activities and are accounted for as fulfilment costs and revenue is recorded upon final delivery to the customer location.Over Time Performance Obligations
For performance obligations related to manufacturing of highly customized products that have no alternative use for us and for which we have an enforceable right to payment for performance completed to date, we transfer control and recognize revenue over time by measuring progress towards complete satisfaction using the Output Method based on the number of products produced. For similar performance obligations related to our tooling sales, we transfer control and recognize revenue over time by measuring progress towards complete satisfaction using the Input Method based on costs incurred relative to total estimated costs to completion. We believe these measurements provide a faithful depiction of the transfer of goods as the costs incurred reflect the value of the products produced.
Product Sales
Aptar primarily manufactures dispensing systems for our Beauty + Home, Pharma and Food + Beverage customers.active material science solutions. The amount of consideration is typically fixed for such customers. At the time of delivery, the customer is invoiced the agreed-upon price. Revenue from product sales is typically recognized upon manufacture or shipment, when control of the goods transfers to the customer.
To determine when the control transfers, Aptarwe typically assesses,assess, among other things, the shipping terms of the contract, shipping being one of the indicators of transfer of control. AFor a majority of product sales, are sold FOB shipping point. For FOB shipping point shipments, control of the goods transfers to the customer at the time of shipment of the goods. Once the goods are shipped, we are precluded from redirecting the shipment to another customer. Therefore, Aptar'sour performance obligation is satisfied at the time of shipment. Aptar hasFor sales in which control transfers upon delivery, shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs and revenue is recorded upon final delivery to the customer location. We have elected to account for shipping and handling costs that occur after the customer has obtained control of a good as fulfillment costs rather than as a promised service. Aptar doesWe do not have any material significant payment terms as payment is typically received shortly after the point of sale.
There also exist instances where Aptar manufactureswe manufacture highly customized products that have no alternative use to Aptarus and for which Aptar haswe have an enforceable right to payment for performance completed to date. For these products, we transfer control and recognizes revenue over time by measuring progress towards completion using the Output Method based on the number of products produced. As we normally make our products to a customer’s order, the time between production and shipment of our products is typically within a few weeks.
We believe this measurement provides a faithful depiction of the transfer of goods as the costs incurred reflect the value of the products produced.
As a part of its customary business practice,
Aptar offerswe offer a standard warranty that the products will materially comply with the technical specifications and will be free from material defects. Because such warranties are not sold separately, do not provide for any service beyond a guarantee of a product’s initial specifications, and are not required by law, there is no revenue deferral for these types of warranties.
We also
buildsbuild or
contractscontract for molds and other tools (collectively defined as “tooling”) necessary to produce our products. As with product sales,
Aptar recognizeswe recognize revenue when control of the tool transfers to the customer. If the tooling is highly customized with no alternative use to
Aptarus and
Aptar haswe have an enforceable right to payment for performance completed to date, we transfer control and recognize revenue over time by measuring progress towards completion using the Input Method based on costs incurred relative to total estimated costs to completion. Otherwise, revenue for the tooling is recognized at the point in time when the customer approves the tool.
Aptar doesWe do not have any material significant payment terms as payment is typically either received during the mold-build process or shortly after completion.
In certain instances,
Aptar offerswe offer extended warranties on our tools above and beyond the normal standard warranties.
AptarWe normally
receivesreceive payment at the inception of the contract and
recognizesrecognize revenue over the term of the contract.
AtWe do not have any material extended warranties as of December 31,
2018, $758 thousand of unearned revenue associated with outstanding contracts was reported in Accounts Payable, Accrued and Other Liabilities. At2021 or December 31,
2019, the unearned amount was $515 thousand. Aptar expects to recognize approximately $228 thousand of the unearned amount in 2020 and $287 thousand thereafter.2020.
We also
providesprovide services to
itsour pharmaceutical customers. As with product sales,
Aptar recognizeswe recognize revenue based on completion of each performance obligation of the service contract.
We do not incur significant costs to obtain or fulfill revenue contracts.
Credit Risk
We are exposed to credit losses primarily through our product sales, tooling sales and services to our customers. We assess each customer’s ability to pay for the products we sell by conducting a credit review. The credit review considers our expected billing exposure and timing for payment and the customer’s established credit rating or our assessment of the customer’s creditworthiness based on our analysis of their financial statements when a credit rating is not available. We also consider contract terms and conditions, country and political risks, and business strategy in our evaluation. A credit limit is established for each customer based on the outcome of this review.
We monitor our ongoing credit exposure through active review of customer balances against contract terms and due dates. Our activities include timely account reconciliation, dispute resolution and payment confirmation. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.
Current uncertainty in credit and market conditions due to the COVID-19 pandemic may slow our collection efforts if customers experience significant difficulty accessing credit and paying their obligations, which may lead to higher than normal accounts receivable and increased CECL charges.
Significant financing component:
AptarWe elected not to adjust the promised consideration for the time value of money for contracts where the difference between the time of payment and performance is one year or less.
Remaining performance obligations:
AptarWe elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for
itsour contracts that are one year or less, as the revenue is expected to be recognized within the next year. In addition, we have elected not to disclose the expected consideration related to performance obligations where we recognize revenue in the amount it has a right to invoice (e.g., usage-based pricing terms).
Inventories, by component net of reserves, consisted of:
| | | | | | | |
| | 2019 | | 2018 | |
Raw materials | | $ | 111,653 | | $ | 110,720 | |
Work in process | | | 123,750 | | | 131,091 | |
Finished goods | | | 140,392 | | | 139,299 | |
Total | | $ | 375,795 | | $ | 381,110 | |
| | | | | | | | | | | |
| 2021 | | 2020 |
| Raw materials | $ | 140,818 | | | $ | 116,029 | |
| Work in process | 137,654 | | | 115,870 | |
| Finished goods | 162,992 | | | 147,480 | |
| Total | $ | 441,464 | | | $ | 379,379 | |
NOTE 4 GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the year ended December 31,
20192021 are as follows by reporting segment:
| | | | | | | | | | | | | | | | |
| | Beauty + | | | | | Food + | | Corporate | | | | |
| | Home | | Pharma | | Beverage | | & Other | | Total | |
Balance as of December 31, 2017 | | | | | | | | | | | | | | | | |
Goodwill | | $ | 223,947 | | $ | 203,069 | | $ | 16,871 | | $ | 1,615 | | $ | 445,502 | |
Accumulated impairment losses | | | — | | | — | | | — | | | (1,615) | | | (1,615) | |
| | $ | 223,947 | | $ | 203,069 | | $ | 16,871 | | $ | — | | $ | 443,887 | |
Acquisition | | | 5,565 | | | 174,343 | | | 103,678 | | | — | | | 283,586 | |
Reallocation, net | | | — | | | (8,048) | | | 8,048 | | | — | | | — | |
Foreign currency exchange effects | | | (5,579) | | | (9,481) | | | (318) | | | — | | | (15,378) | |
Balance as of December 31, 2018 | | | | | | | | | | | | | | | | |
Goodwill | | $ | 223,933 | | $ | 359,883 | | $ | 128,279 | | $ | 1,615 | | $ | 713,710 | |
Accumulated impairment losses | | | — | | | — | | | — | | | (1,615) | | | (1,615) | |
| | $ | 223,933 | | $ | 359,883 | | $ | 128,279 | | $ | — | | $ | 712,095 | |
Acquisition | | | — | | | 57,934 | | | — | | | — | | | 57,934 | |
Foreign currency exchange effects | | | (2,275) | | | (4,167) | | | (126) | | | — | | | (6,568) | |
Balance as of December 31, 2019 | | | | | | | | | | | | | | | | |
Goodwill | | $ | 221,658 | | $ | 413,650 | | $ | 128,153 | | $ | 1,615 | | $ | 765,076 | |
Accumulated impairment losses | | | — | | | — | | | — | | | (1,615) | | | (1,615) | |
| | $ | 221,658 | | $ | 413,650 | | $ | 128,153 | | $ | — | | $ | 763,461 | |
During the fourth quarter of 2018, certain CSP Technologies product lines were transferred from Pharma segment to the Food + Beverage segment affecting the Active Packaging and Food + Beverage reporting units to better align our customer needs. The changes resulted in the reassignment of the assets and liabilities to the reporting units affected. The goodwill was reallocated to the reporting units affected using the relative fair value approach.
During the third quarter of 2019, we performed a separate quantitative impairment assessment using a discounted cash flow analysis of the Active Packaging reporting unit, which was formed as a result of the CSP Technologies Acquisition in the third quarter of 2018. We calculated the fair value of the Active Packaging reporting unit and compared it with the associated carrying value (the “step one” approach) as of July 1, 2019. Based on this quantitative analysis, the fair value of the reporting unit exceeded the carrying value and therefore 0 impairment loss was recognized.
| | | | | | | | | | | | | | | | | | | | | | | |
| Pharma | | Beauty +
Home | | Food +
Beverage | | Total |
| | | | | | | |
| Balance as of December 31, 2019 | $ | 413,650 | | | $ | 221,658 | | | $ | 128,153 | | | $ | 763,461 | |
| Acquisition | 463 | | | 103,130 | | | — | | | 103,593 | |
| | | | | | | |
| Foreign currency exchange effects | 22,618 | | | 8,323 | | | 526 | | | 31,467 | |
| Balance as of December 31, 2020 | $ | 436,731 | | | $ | 333,111 | | | $ | 128,679 | | | $ | 898,521 | |
| Acquisitions | 104,433 | | | — | | | — | | | 104,433 | |
| Foreign currency exchange effects | (20,967) | | | (7,392) | | | (438) | | | (28,797) | |
| Balance as of December 31, 2021 | $ | 520,197 | | | $ | 325,719 | | | $ | 128,241 | | | $ | 974,157 | |
We have completed the annual impairment analysis of our reporting units as of October 1, 2019 using a qualitative analysis of goodwill commonly referred to as the “step zero” approach2021 for each of our reporting units. Based on our review of macroeconomic, industry, and market events and circumstances as well as the overall financial performance of the reporting units, we determined that it was more likely than not that the fair value of these reporting units was greater than their carrying amounts. No impairment was recognized during the years ended December 31, 2019, 20182021, 2020 or 2017.2019.
| | | | | |
49/46/ATR
| 20192021 Form 10-K
|
The table below shows a summary of intangible assets for the years ended December 31, 20192021 and 2018.
| | | | | | | | | | | | | | | | | | | | | |
| | | | 2019 | | | 2018 | |
Weighted Average | | Gross | | | | | | | | Gross | | | | | | | |
Amortization Period | | Carrying | | Accumulated | | Net | | Carrying | | Accumulated | | Net | |
| | (Years) | | Amount | | Amortization | | Value | | Amount | | Amortization | | Value | |
Amortized intangible assets: | | | | | | | | | | | | | | | | | | | | | |
Patents | | 7.2 | | $ | 2,804 | | | (1,318) | | $ | 1,486 | | $ | 5,427 | | $ | (5,294) | | $ | 133 | |
Acquired technology | | 13.0 | | | 100,511 | | | (25,430) | | | 75,081 | | | 92,389 | | | (18,304) | | | 74,085 | |
Customer relationships | | 13.6 | | | 217,934 | | | (33,924) | | | 184,010 | | | 179,597 | | | (20,439) | | | 159,158 | |
Trademarks and trade names | | 7.0 | | | 35,015 | | | (11,003) | | | 24,012 | | | 21,243 | | | (5,914) | | | 15,329 | |
License agreements and other | | 10.3 | | | 16,153 | | | (9,658) | | | 6,495 | | | 13,852 | | | (7,653) | | | 6,199 | |
Total intangible assets | | 12.6 | | $ | 372,417 | | $ | (81,333) | | $ | 291,084 | | $ | 312,508 | | $ | (57,604) | | $ | 254,904 | |
2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 | | 2020 |
| Weighted Average
Amortization Period
(Years) | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Value | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Value |
| Amortized intangible assets: | | | | | | | | | | | | | |
| Patents | 13.9 | | $ | 2,767 | | | $ | (1,528) | | | $ | 1,239 | | | $ | 2,861 | | | $ | (1,477) | | | $ | 1,384 | |
| Acquired technology | 11.5 | | 140,936 | | | (45,613) | | | 95,323 | | | 111,854 | | | (36,943) | | | 74,911 | |
| Customer relationships | 13.3 | | 311,964 | | | (77,512) | | | 234,452 | | | 286,644 | | | (56,714) | | | 229,930 | |
| Trademarks and trade names | 6.9 | | 44,893 | | | (22,886) | | | 22,007 | | | 46,174 | | | (17,437) | | | 28,737 | |
| License agreements and other | 38.9 | | 16,179 | | | (6,857) | | | 9,322 | | | 19,208 | | | (9,861) | | | 9,347 | |
| Total intangible assets | 13.1 | | $ | 516,739 | | | $ | (154,396) | | | $ | 362,343 | | | $ | 466,741 | | | $ | (122,432) | | | $ | 344,309 | |
Aggregate amortization expense for the intangible assets above for the years ended December 31, 2021, 2020 and 2019 2018 was$41,072,$39,787and 2017 was $27,608, $15,455 and $10,339,$27,608, respectively.Estimated
Future estimated amortization expense for the years ending December 31 is as follows:
| | | |
2020 | | $ | 31,135 |
2021 | | | 29,582 |
2022 | | | 29,343 |
2023 | | | 29,171 |
2024 and thereafter | | | 171,853 |
| | | | | |
| 2022 | $ | 43,967 | |
| 2023 | 43,900 | |
| 2024 | 40,761 | |
| 2025 | 39,308 | |
| 2026 | 36,976 | |
| 2027 and thereafter | 157,431 | |
Future amortization expense may fluctuate depending on changes in foreign currency rates. The estimates for amortization expense noted above are based upon foreign exchange rates as of December 31,
2019.2021.
NOTE 5 ACCOUNTS PAYABLE, ACCRUED AND OTHER LIABILITIES
At December 31,
20192021 and
2018,2020, accounts payable, accrued and other liabilities consisted of the following:
| | | | | | | |
| | 2019 | | 2018 | |
Accounts payable, principally trade | | $ | 192,739 | | $ | 164,528 | |
Accrued employee compensation costs | | | 163,839 | | | 168,349 | |
Customer deposits and other unearned income | | | 86,820 | | | 67,775 | |
Other accrued liabilities | | | 129,630 | | | 124,547 | |
Total | | $ | 573,028 | | $ | 525,199 | |
| | | | | | | | | | | |
| 2021 | | 2020 |
| Accounts payable, principally trade | $ | 285,262 | | | $ | 243,742 | |
| Accrued employee compensation costs | 195,308 | | | 177,144 | |
| Customer deposits and other unearned income | 86,953 | | | 87,052 | |
| Other accrued liabilities | 125,342 | | | 154,525 | |
| Total | $ | 692,865 | | | $ | 662,463 | |
NOTE 6 INCOME TAXES
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“TCJA”), which significantly changed U.S. tax law. The TCJA lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while imposing a deemed repatriation tax on previously deferred foreign income. The Company completed its accounting for the income tax effects of the TCJA during 2018, in accordance with the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118.
Income before income taxes consists of:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, | 2021 | | 2020 | | 2019 |
| United States | $ | 101,353 | | | $ | 91,555 | | | $ | 94,612 | |
| International | 220,302 | | | 209,600 | | | 247,457 | |
| Total | $ | 321,655 | | | $ | 301,155 | | | $ | 342,069 | |
Table of Contents
| | | | | | | | | | |
Years Ended December 31, | | 2019 | | 2018 | | 2017 | |
United States | | $ | 94,612 | | $ | 34,404 | | $ | 36,139 | |
International | | | 247,457 | | | 231,616 | | | 258,686 | |
Total | | $ | 342,069 | | $ | 266,020 | | $ | 294,825 | |
The provision (benefit) for income taxes is composed of:
| | | | | | | | | | |
Years Ended December 31, | | 2019 | | 2018 | | 2017 | |
Current: | | | | | | | | | | |
U.S. Federal | | $ | 2,129 | | $ | 10,273 | | $ | (342) | |
State/Local | | | 883 | | | 877 | | | 230 | |
International | | | 88,084 | | | 83,456 | | | 72,670 | |
| | $ | 91,096 | | $ | 94,606 | | $ | 72,558 | |
Deferred: | | | | | | | | | | |
U.S. Federal/State | | $ | 4,670 | | $ | (17,019) | | $ | 2,570 | |
International | | | 4,076 | | | (6,333) | | | (332) | |
| | $ | 8,746 | | $ | (23,352) | | $ | 2,238 | |
Total | | $ | 99,842 | | $ | 71,254 | | $ | 74,796 | |
The difference between
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, | 2021 | | 2020 | | 2019 |
| Current: | | | | | |
| U.S. Federal | $ | 11,932 | | | $ | 9,934 | | | $ | 2,129 | |
| State/Local | 4,917 | | | 3,094 | | | 883 | |
| International | 75,524 | | | 82,235 | | | 88,084 | |
| $ | 92,373 | | | $ | 95,263 | | | $ | 91,096 | |
| Deferred: | | | | | |
| U.S. Federal/State | $ | (11,168) | | | $ | (2,270) | | | $ | 4,670 | |
| International | (3,188) | | | (5,928) | | | 4,076 | |
| $ | (14,356) | | | $ | (8,198) | | | $ | 8,746 | |
| Total | $ | 78,017 | | | $ | 87,065 | | | $ | 99,842 | |
A reconciliation of the
actualprovision for income
tax provision andtaxes with the
tax provisionamount computed by applying the statutory federal income tax rate of
21.0% in 2019 and 2018, and 35.0% in 201721% to income before
provision for income taxes is as follows:
| | | | | | | | | | |
Years Ended December 31, | | 2019 | | 2018 | | 2017 | |
Income tax at statutory rate | | $ | 71,835 | | $ | 55,864 | | $ | 103,189 | |
State income taxes (benefits), net of federal (tax) benefit | | | 2,622 | | | (1,516) | | | (2,620) | |
Investment incentives | | | (2,530) | | | (1,900) | | | (1,900) | |
Tax resolutions | | | (1,915) | | | (3,400) | | | (5,188) | |
Excess tax benefits from share-based compensation | | | (12,520) | | | (10,800) | | | (10,383) | |
Deferred benefits from tax rate changes | | | — | | | (2,800) | | | (5,055) | |
U.S. GILTI and BEAT | | | (1,485) | | | 5,625 | | | — | |
U.S. tax reform - transition tax | | | — | | | (2,570) | | | 31,575 | |
Results of forward contract | | | — | | | — | | | (23,883) | |
Valuation allowance | | | 10,623 | | | 3,170 | | | 1,344 | |
Rate differential on earnings of foreign operations | | | 29,807 | | | 26,424 | | | (16,097) | |
Other items, net | | | 3,405 | | | 3,157 | | | 3,814 | |
Actual income tax provision | | $ | 99,842 | | $ | 71,254 | | $ | 74,796 | |
Effective income tax rate | | | 29.2 | % | | 26.8 | % | | 25.4 | % |
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, | 2021 | | 2020 | | 2019 |
| Income tax at statutory rate | $ | 67,547 | | | $ | 63,243 | | | $ | 71,835 | |
| State income taxes (benefits), net of federal tax effect | 1,616 | | | 2,396 | | | 2,622 | |
| | | | | |
| | | | | |
| Excess tax benefits from share-based compensation | (16,060) | | | (11,625) | | | (15,370) | |
| Deferred tax charges (benefits), incl. tax rate changes | (1,040) | | | 4,110 | | | — | |
| U.S. Global Intangible Low-Taxed Income ("GILTI") and Base Erosion Anti-Abuse Tax ("BEAT") | — | | | (3,909) | | | (1,485) | |
| | | | | |
| | | | | |
| Valuation allowance | 4,485 | | | 1,332 | | | 10,623 | |
| Rate differential on earnings of foreign operations | 20,831 | | | 24,901 | | | 32,657 | |
| Other items, net | 638 | | | 6,617 | | | (1,040) | |
| Actual income tax provision | $ | 78,017 | | | $ | 87,065 | | | $ | 99,842 | |
| Effective income tax rate | 24.3 | % | | 28.9 | % | | 29.2 | % |
The
2019provision for income tax
provision was favorably impacted by excess tax benefits on deductible share-based compensation. The tax provision for
20192021 reflects a
$12.5$16.1 million benefit from this
item.item compared with a $11.6 million and $15.4 million tax benefit for 2020 and 2019, respectively. The
mix of pretax income has an unfavorable impact, because the majority of our income is earned in higher tax jurisdictions. Additionally, we have incurredvaluation allowance for all years reflects continued losses in jurisdictions where we cannot tax effect the loss.
We have elected to account for the tax on the U.S. GILTI as a period cost and not as a measure of deferred taxes.The 2018 tax provision was favorably impacted by excess tax benefits on deductible stock compensation. The tax provision for 2018 reflects a $10.8 million benefit from this item. TheOur mix of pretax incomeearnings has an unfavorable tax rate impact reflecting that thesince a majority of our pretax income is earned in higher tax jurisdictions. The U.S. GILTI tax and Base Erosion Anti-Abuse Tax (“BEAT”) also had a $5.6 million unfavorable impact.
The 2017 tax provision was favorably impacted by the mix of pretax income in various non-U.S. tax jurisdictions. The tax provision for 2017 reflects $10.4 million related to the excess tax benefits on deductible stock compensation, which is new for 2017. The deferred tax benefit of $5.1 million is net of a provisional benefit of $6.8 million recorded for the change in the U.S. tax rate and a charge of $1.7 million for tax rate changes in France and Argentina. The $5.2 million related to tax resolutions includes an amount of $3.2 million related to uncertain tax positions in Europe. The remaining $2.0 million is a refund from a distribution tax paid in France. Furthermore, the tax provision for 2017 reflects a provisional charge of $31.6 million from the transition tax enacted as part of the U.S. tax reform. This was partially offset by a benefit of $23.9 million from the forward contracts discussed in Note 11 – Derivative Instruments and Hedging Activities.
| | | | | |
51/48/ATR
| 20192021 Form 10-K
|
Significant deferred tax assets and liabilities as of December 31, 20192021 and 20182020 are composed of the following temporary differences:
| | | | | | | |
| | 2019 | | 2018 | |
Deferred Tax Assets: | | | | | | | |
Net operating loss carryforwards | | $ | 24,941 | | $ | 22,462 | |
Operating and finance leases | | | 25,440 | | | — | |
Pension liabilities | | | 24,925 | | | 15,405 | |
Share-based compensation | | | 6,082 | | | 10,130 | |
U.S. federal tax credits | | | 8,575 | | | 12,045 | |
U.S. state tax credits | | | 7,881 | | | 10,186 | |
Vacation and bonus | | | 7,645 | | | 6,891 | |
Research and development | | | 7,539 | | | 6,945 | |
Inventory | | | 5,993 | | | 6,038 | |
Workers compensation | | | 3,835 | | | 3,373 | |
Other | | | 16,496 | | | 13,985 | |
Total gross deferred tax assets | | | 139,352 | | | 107,460 | |
Less valuation allowance | | | (23,320) | | | (11,189) | |
Net deferred tax assets | | | 116,032 | | | 96,271 | |
Deferred Tax Liabilities: | | | | | | | |
Acquisition related intangibles | | | 62,851 | | | 59,004 | |
Depreciation and amortization | | | 28,284 | | | 31,140 | |
Operating and finance leases | | | 27,555 | | | 2,034 | |
Other | | | 6,215 | | | 10,351 | |
Total gross deferred tax liabilities | | | 124,905 | | | 102,529 | |
Net deferred tax (liabilities) assets | | $ | (8,873) | | $ | (6,258) | |
The $12.1 million increase in our valuation allowance in 2019 is primarily due to losses in foreign jurisdictions where we cannot record the benefit of the losses.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Deferred Tax Assets: | | | |
| Net operating loss carryforwards | $ | 47,660 | | | $ | 19,353 | |
| Operating and finance leases | 22,492 | | | 24,529 | |
| Pension liabilities | 29,770 | | | 36,085 | |
| Share-based compensation | 6,764 | | | 5,946 | |
| U.S. federal tax credits | 4,226 | | | 8,826 | |
| U.S. state tax credits | 7,047 | | | 7,011 | |
| Vacation and bonus | 13,450 | | | 12,307 | |
| Research and development | 19,633 | | | 8,992 | |
| Inventory | 6,969 | | | 4,854 | |
| Workers compensation | 3,109 | | | 3,353 | |
| Other | 16,194 | | | 16,643 | |
| Total gross deferred tax assets | $ | 177,314 | | | $ | 147,899 | |
| Less valuation allowance | (47,149) | | | (23,105) | |
| Net deferred tax assets | $ | 130,165 | | | $ | 124,794 | |
| Deferred Tax Liabilities: | | | |
| Acquisition related intangibles | $ | 68,174 | | | $ | 57,295 | |
| Depreciation and amortization | 30,997 | | | 27,737 | |
| Operating and finance leases | 24,560 | | | 26,549 | |
| Other | 7,489 | | | 8,044 | |
| Total gross deferred tax liabilities | $ | 131,220 | | | $ | 119,625 | |
| Net deferred tax assets (liabilities) | $ | (1,055) | | | $ | 5,169 | |
We evaluate the deferred tax assets and record a valuation allowance when it is believed it is more likely than not that the benefit will not be realized. We have established a valuation allowance for
$20.2$41.4 million of the
$24.9$47.7 million of tax effected net operating loss carryforwards. These losses are generally in locations that have not produced cumulative three year operating profit.
During 2021, we recorded a $27 million deferred tax asset for net operating losses as part of the Voluntis acquisition, along with a corresponding $21.5 million valuation allowance. A valuation allowance of
$3.1$3.8 million has also been established against the
$7.9$7.0 million of U.S. state tax credit carryforwards.
The
Approximately $4.0 million of the U.S. federal tax credits will expire in the years 2026 and 2027. There is no expiration date on
$20.8$43.6 million of the tax-effected net operating loss carryforwards and $4.1 million (tax effected) will expire in the years
20202022 to
2038.2041. The U.S. state tax credit carryforwards of
$7.9$7.0 million (tax effected) will expire in the years
20202022 to
2034.As a result of U.S. tax reform and the U.S. GILTI provisions, none2036.
None of the
non-U.S. unremitted earnings
accumulated outside of the U.S. will be subject to U.S.
taxation. Wetaxation under the current U.S. federal income tax laws. Aside from the pre-2020 earnings in Italy, Switzerland, and Colombia, we maintain our assertion that all other cash and distributable reserves at our non-U.S. affiliates will continue to be indefinitely reinvested. We estimate the amount of additional local
income tax and withholding tax that would be payable on distributions to be in the range of
$20$15 million to
$30 million.$25 million if earnings accumulated outside the U.S. are repatriated to the U.S.
We have not provided for taxes on certain tax-deferred income ofrelated to a foreign operation. The income arose predominately from government grants. Taxes of approximately $1.6$1.5 million would become payable in the event the terms of the grant are not fulfilled.
| | | | | |
52/49/ATR
| 20192021 Form 10-K
|
We provide a liability for the amount of tax benefits realized from uncertain tax positions. A reconciliation of the beginning and ending amount of income tax uncertainties is as follows:
| | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | |
Balance at January 1 | | $ | 3,559 | | $ | 3,080 | | $ | 6,356 | |
Increases based on tax positions for the current year | | | 412 | | | 360 | | | 370 | |
Increases based on tax positions of prior years | | | 663 | | | 610 | | | 1,562 | |
Settlements | | | (558) | | | (491) | | | (4,874) | |
Lapse of statute of limitations | | | (429) | | | — | | | (334) | |
Balance at December 31 | | $ | 3,647 | | $ | 3,559 | | $ | 3,080 | |
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Balance at January 1 | $ | 4,504 | | | $ | 3,647 | | | $ | 3,559 | |
| Increases based on tax positions for the current year | 262 | | | 212 | | | 412 | |
| Increases based on tax positions of prior years | 3,348 | | | 790 | | | 663 | |
| Settlements | (567) | | | — | | | (558) | |
| Lapse of statute of limitations | (322) | | | (145) | | | (429) | |
| Balance at December 31 | $ | 7,225 | | | $ | 4,504 | | | $ | 3,647 | |
The amount of income tax uncertainties that, if recognized, would impact the effective tax rate is approximately
$3.6$4.7 million. We estimate that it is reasonably possible that the liability for uncertain tax positions will decrease
no more than $1.8by approximately $2.8 million in the next twelve months from the resolution of various uncertain positions as a result of the completion of tax audits, litigation and the expiration of the statute of limitations in various jurisdictions.
We recognize interest and penalties accrued related to unrecognized tax benefits as a component of income taxes. As of December 31,
2019, 20182021, 2020 and
2017,2019, we had approximately
$1.7$4.6 million,
$1.9$3.6 million and
$1.6$1.7 million, respectively, accrued for the payment of interest and penalties, of which approximately
$1.1 million and $1.7 million was recognized in income tax expense for the years ended December 31, 2021 and 2020, respectively, and $0.2 million was recognized as a tax benefit for the year ended
2019 and $0.4 million and $0.1 million was recognized in income tax expense in the years ended December 31, 2018 and 2017, respectively.2019.
Aptar or its subsidiaries file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. The major tax jurisdictions we file in, with the years still subject to income tax examinations, are listed below:
| | | | | |
Major Tax
Jurisdiction
|
| Tax Years |
Subject to
Examination |
Major Tax
|
| Subject to
|
|
Jurisdiction
|
| Examination
|
|
United States — Federal | 2018-2021 | 2014-2019
|
|
United States — State | 2012-2021 | 2010-2019
|
|
France | 2017-2021 | 2016-2019
|
|
Germany | 2016-2021 | 2015-2019
|
|
Italy | 2015-2021 | 2014-2019
|
|
China | 2011-2021 | 2010-2019
|
|
Notes Payable, Revolving Credit Facility and Overdrafts
At December 31,
20192021 and
2018,2020, our notes payable, revolving credit facility and overdrafts, consisted of the following:
| | | | | | | |
| | 2019 | | 2018 | |
Revolving credit facility | | $ | 25,000 | | $ | 79,000 | |
Notes payable | | | 1,436 | | | 4,544 | |
Overdrafts | | | 17,823 | | | 17,749 | |
| | $ | 44,259 | | $ | 101,293 | |
We maintain a
| | | | | | | | | | | |
| 2021 | | 2020 |
| Notes payable 0.0% | $ | — | | | $ | 200 | |
| Revolving credit facility 1.00% to 1.11% | 144,383 | | | 52,000 | |
| Overdrafts 0.35% | 2,893 | | | — | |
| $ | 147,276 | | | $ | 52,200 | |
On June 30, 2021, we entered into an amended and restated multi-currency revolving credit facility (the "revolving credit facility") with two tranches thata syndicate of banks to replace the existing facility (the "prior credit facility") maturing July 2022 and to amend and restate the unsecured term loan facility extended to our wholly-owned UK subsidiary under the prior credit facility (as amended, the "amended term facility"). The revolving credit facility matures in July 2022 whichJune 2026, subject to a maximum of 2 one-year extensions in certain circumstances, and provides for unsecured financing of up to $300$600 million that is available in the U.S. and up to €150 million that is available to our wholly-owned UK subsidiary. $25.0The amended term facility matures in July 2022. The revolving credit facility can be drawn in various currencies including USD, EUR, GBP, and CHF to the equivalent of $600 million, which may be increased by up to $300 million subject to the satisfaction of certain conditions. As of December 31, 2021, $133 million was utilized under the revolving credit facility in the U.S., €10 million (approximately $11.4 million) was utilized by our wholly-owned UK subsidiary and $56 million remained outstanding under the amended term facility. As of December 31, 2020, under our prior credit facility, we utilized $52 million under the U.S. revolving facility and 0no balance was utilized under our euro-based revolving credit facility asfacility.
There are 0no compensating balance requirements associated with our revolving credit facility. Each borrowing under the revolving credit facility will bear interest at rates based on LIBOR (in the case of USD), EURIBOR (in the case of EUR), SONIA (in the case of GBP), SARON (in the case of CHF), prime rates or other similar rates, in each case plus an applicable margin. The revolving credit facility provides mechanics relating to a transition away from LIBOR (in the case of USD) and the designated benchmark rates for other available currencies and the replacement of any such applicable benchmark by a replacement alternative benchmark rate or mechanism for loans made in the applicable currency. A facility fee on the total amount of the revolving credit facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the revolving credit facility and the facility fee percentage may change from time to time depending on changes in AptarGroup’sour consolidated leverage ratio. We incurred approximately $1.1 million and $1.5 million in interest and fees related to thisour credit facility during both 20192021 and 2018.2020, respectively.
Average borrowings under the revolving credit facility and notes payable were $34.1$37.8 million and $40.0$108.1 million for 20192021 and 2018,2020, respectively. The average annual interest rate on the revolving credit facility and notes payable was 1.6%1.1%and1.5%for 2021 and 1.9% for 2019 and 2018,2020, respectively.
In October 2020, we entered into an unsecured money market borrowing arrangement to provide short term financing of up to $30 million that is available in the U.S. No borrowing on this facility is permitted over a quarter end date. As such, no balance was utilized under this arrangement as of December 31, 2021 or December 31, 2020.
At December 31, 2019,2021 and 2020, our long-term obligations consisted of the following:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Notes payable 0.00% – 11.92%, due in monthly and annual installments through 2030 | $ | 22,785 | | | $ | 14,002 | |
| Senior unsecured notes 3.2%, due in 2022 | 75,000 | | | 75,000 | |
| Senior unsecured debts 1.3% USD floating swapped to 1.36% EUR fixed, equal annual installments through 2022 | 56,000 | | | 112,000 | |
| Senior unsecured notes 3.5%, due in 2023 | 125,000 | | | 125,000 | |
| Senior unsecured notes 1.0%, due in 2023 | 113,830 | | | 122,100 | |
| Senior unsecured notes 3.4%, due in 2024 | 50,000 | | | 50,000 | |
| Senior unsecured notes 3.5%, due in 2024 | 100,000 | | | 100,000 | |
| Senior unsecured notes 1.2%, due in 2024 | 227,660 | | | 244,200 | |
| Senior unsecured notes 3.6%, due in 2025 | 125,000 | | | 125,000 | |
| Senior unsecured notes 3.6%, due in 2026 | 125,000 | | | 125,000 | |
| Finance Lease Liabilities | 30,185 | | | 30,025 | |
| Unamortized debt issuance costs | (1,085) | | | (1,663) | |
| $ | 1,049,375 | | | $ | 1,120,664 | |
| Current maturities of long-term obligations | (142,351) | | | (65,666) | |
| Total long-term obligations | $ | 907,024 | | | $ | 1,054,998 | |
| | | | | | | | | | |
| | | | Unamortized | | | |
| | | | Debt Issuance | | | |
| | Principal | | Costs | | Net | |
Notes payable 0.00% – 10.90%, due in monthly and annual installments through 2028 | | $ | 19,220 | | $ | — | | $ | 19,220 | |
Senior unsecured notes 3.2%, due in 2022 | | | 75,000 | | | 64 | | | 74,936 | |
Senior unsecured debts 3.2% USD floating swapped to 1.36% EUR fixed, equal annual installments through 2022 | | | 168,000 | | | 390 | | | 167,610 | |
Senior unsecured notes 3.5%, due in 2023 | | | 125,000 | | | 144 | | | 124,856 | |
Senior unsecured notes 1.0%, due in 2023 | | | 112,170 | | | 356 | | | 111,814 | |
Senior unsecured notes 3.4%, due in 2024 | | | 50,000 | | | 63 | | | 49,937 | |
Senior unsecured notes 3.5%, due in 2024 | | | 100,000 | | | 144 | | | 99,856 | |
Senior unsecured notes 1.2%, due in 2024 | | | 224,340 | | | 742 | | | 223,598 | |
Senior unsecured notes 3.6%, due in 2025 | | | 125,000 | | | 169 | | | 124,831 | |
Senior unsecured notes 3.6%, due in 2026 | | | 125,000 | | | 169 | | | 124,831 | |
Finance Lease Liabilities | | | 29,952 | | | — | | | 29,952 | |
| | $ | 1,153,682 | | $ | 2,241 | | $ | 1,151,441 | |
Current maturities of long-term obligations | | | (65,988) | | | — | | | (65,988) | |
Total long-term obligations | | $ | 1,087,694 | | $ | 2,241 | | $ | 1,085,453 | |
At December 31, 2018, our long-term obligations consisted of the following:
| | | | | | | | | | |
| | | | Unamortized | | | |
| | | | Debt Issuance | | | |
| | Principal | | Costs | | Net | |
Notes payable 0.00% – 16.00%, due in monthly and annual installments through 2028 | | $ | 15,531 | | $ | — | | $ | 15,531 | |
Senior unsecured notes 3.2%, due in 2022 | | | 75,000 | | | 88 | | | 74,912 | |
Senior unsecured debts 4.0% USD floating swapped to 1.36% EUR fixed, equal annual installments through 2022 | | | 224,000 | | | 541 | | | 223,459 | |
Senior unsecured notes 3.5%, due in 2023 | | | 125,000 | | | 181 | | | 124,819 | |
Senior unsecured notes 1.0%, due in 2023 | | | 114,535 | | | 432 | | | 114,103 | |
Senior unsecured notes 3.4%, due in 2024 | | | 50,000 | | | 76 | | | 49,924 | |
Senior unsecured notes 3.5%, due in 2024 | | | 100,000 | | | 181 | | | 99,819 | |
Senior unsecured notes 1.2%, due in 2024 | | | 229,070 | | | 904 | | | 228,166 | |
Senior unsecured notes 3.6%, due in 2025 | | | 125,000 | | | 207 | | | 124,793 | |
Senior unsecured notes 3.6%, due in 2026 | | | 125,000 | | | 208 | | | 124,792 | |
Capital lease obligations | | | 8,353 | | | — | | | 8,353 | |
| | $ | 1,191,489 | | $ | 2,818 | | $ | 1,188,671 | |
Current maturities of long-term obligations | | | (62,678) | | | — | | | (62,678) | |
Total long-term obligations | | $ | 1,128,811 | | $ | 2,818 | | $ | 1,125,993 | |
The aggregate long-term maturities, excluding finance lease liabilities, which are discussed in Note 8, due annually for the next five years are $61,670, $61,337, $135,324, $239,826, $375,169 and $250,404 thereafter.thereafter are:
| | | | | |
| 2022 | $ | 138,607 | |
| 2023 | 238,830 | |
| 2024 | 383,415 | |
| 2025 | 130,152 | |
| 2026 | 128,954 | |
| Thereafter | 317 | |
| | | | | |
54/51/ATR
| 20192021 Form 10-K
|
Our revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:
|
|
|
|
| | | | | | | |
|
Requirement | Requirement
|
| Level at December 31, 2019 2021 |
Consolidated Leverage Ratio (1) |
| Maximumof 3.50 to 1.00 |
| 1.711.84 to 1.00
|
Consolidated Interest Coverage Ratio (1) |
| Minimum of 3.00 to 1.00 |
| 16.2119.65 to 1.00
|
(1) | Definitions of ratios are included as part of the revolving credit facility agreement and the private placement agreements. | | | | |
| |
(1)Definitions of ratios are included as part of the revolving credit facility agreement and the private placement agreements.
We lease certain warehouse, plant, and office facilities as well as certain equipment under noncancelable operating and finance leases expiring at various dates through the year
2032.2034. Most of the operating leases contain renewal options and certain leases include options to purchase the related asset during or at the end of the lease term.
Amortization expense related to finance leases is included in depreciation expense while rent expense related to operating leases is included within cost of sales and selling research & development and administrative expenses (“SG&A”).
Rent expense related to operating leases (including taxes, insurance and maintenance when included in the rent) amounted to $32.7 million in 2018 under the old lease accounting standard.
The components of lease expense for the
current periodyears ended December 31, 2021 and 2020 were as follows:
| | | | |
Year Ended December 31, | | 2019 | |
Operating lease cost | | $ | 23,410 | |
| | | | |
Finance lease cost: | | | | |
Amortization of right-of-use assets | | $ | 4,217 | |
Interest on lease liabilities | | | 1,353 | |
Total finance lease cost | | $ | 5,570 | |
| | | | |
Short-term lease and variable lease costs | | $ | 8,629 | |
| | | | | | | | | | | |
| Year Ended December 31, | 2021 | | 2020 |
| Operating lease cost | $ | 23,040 | | | $ | 23,968 | |
| | | |
| Finance lease cost: | | | |
| Amortization of right-of-use assets | $ | 4,228 | | | $ | 3,982 | |
| Interest on lease liabilities | 1,360 | | | 1,414 | |
| Total finance lease cost | $ | 5,588 | | | $ | 5,396 | |
| | | |
| Short-term lease and variable lease costs | $ | 12,259 | | | $ | 9,421 | |
Supplemental cash flow information related to leases was as follows:
| | | | |
Year Ended December 31, | | 2019 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 21,872 | |
Operating cash flows from finance leases | | | 1,245 | |
Financing cash flows from finance leases | | | 4,730 | |
| | | | |
Right-of-use assets obtained in exchange for lease obligations: | | | | |
Operating leases | | $ | 15,226 | |
Finance leases | | | 15,957 | |
| | | | | | | | | | | |
| Year Ended December 31, | 2021 | | 2020 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | $ | 22,821 | | | $ | 23,484 | |
| Operating cash flows from finance leases | 1,374 | | | 1,372 | |
| Financing cash flows from finance leases | 4,349 | | | 4,436 | |
| | | |
| Right-of-use assets obtained in exchange for lease obligations: | | | |
| Operating leases | $ | 17,785 | | | $ | 24,477 | |
| Finance leases | 5,922 | | | 3,642 | |
| | | | | |
55/52/ATR
| 20192021 Form 10-K
|
Supplemental balance sheet information related to leases was as follows:
| | | | |
| | December 31, 2019 | |
Operating Leases | | | | |
Operating lease right-of-use assets | | $ | 72,377 | |
| | | | |
Accounts payable, accrued and other liabilities | | $ | 16,578 | |
Operating lease liabilities | | | 55,276 | |
Total operating lease liabilities | | $ | 71,854 | |
| | | | |
Finance Leases | | | | |
Property, plant and equipment, gross | | $ | 47,020 | |
Accumulated depreciation | | | (4,271) | |
Property, plant and equipment, net | | $ | 42,749 | |
| | | | |
Current maturities of long-term obligations, net of unamortized debt issuance cost | | $ | 4,318 | |
Long-term obligations, net of unamortized debt issuance cost | | | 25,634 | |
Total finance lease liabilities | | $ | 29,952 | |
| | | | |
Weighted Average Remaining Lease Term (in years) | | | | |
Operating leases | | | 6.1 | |
Finance leases | | | 7.0 | |
| | | | |
Weighted Average Discount Rate | | | | |
Operating leases | | | 5.05 | % |
Finance leases | | | 5.13 | % |
| | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| Operating Leases | | | |
| Operating lease right-of-use assets | $ | 62,454 | | | $ | 69,845 | |
| | | |
| Accounts payable, accrued and other liabilities | $ | 15,356 | | | $ | 18,804 | |
| Operating lease liabilities | 48,010 | | | 52,212 | |
| Total operating lease liabilities | $ | 63,366 | | | $ | 71,016 | |
| | | |
| Finance Leases | | | |
| Property, plant and equipment, gross | $ | 51,821 | | | $ | 49,760 | |
| Accumulated depreciation | (9,864) | | | (7,258) | |
| Property, plant and equipment, net | $ | 41,957 | | | $ | 42,502 | |
| | | |
| Current maturities of long-term obligations, net of unamortized debt issuance cost | $ | 3,744 | | | $ | 4,258 | |
| Long-term obligations, net of unamortized debt issuance cost | 26,441 | | | 25,767 | |
| Total finance lease liabilities | $ | 30,185 | | | $ | 30,025 | |
| | | |
| Weighted Average Remaining Lease Term (in years) | | | |
| Operating leases | 5.2 | | 5.0 |
| Finance leases | 7.4 | | 7.2 |
| | | |
| Weighted Average Discount Rate | | | |
| Operating leases | 3.80 | % | | 4.21 | % |
| Finance leases | 4.62 | % | | 4.85 | % |
Maturities of lease liabilities as of December 31,
2019,2021, were as follows:
| | | | | | | |
| | Operating | | Finance | |
| | Leases | | Leases | |
Year 1 | | $ | 19,652 | | $ | 5,655 | |
Year 2 | | | 15,411 | | | 4,787 | |
Year 3 | | | 10,740 | | | 3,870 | |
Year 4 | | | 9,365 | | | 3,099 | |
Year 5 | | | 6,998 | | | 2,658 | |
Thereafter | | | 22,331 | | | 18,051 | |
Total lease payments | | | 84,497 | | | 38,120 | |
Less imputed interest | | | (12,643) | | | (8,168) | |
Total | | $ | 71,854 | | $ | 29,952 | |
Maturities of lease liabilities as of December 31, 2018 under the old lease accounting standard were as follows:
| | | | | | | |
| | Operating | | Capital | |
| | Leases | | Leases | |
Year 1 | | $ | 26,512 | | $ | 1,828 | |
Year 2 | | | 21,386 | | | 1,653 | |
Year 3 | | | 16,529 | | | 1,546 | |
Year 4 | | | 12,549 | | | 1,160 | |
Year 5 | | | 10,225 | | | 880 | |
Thereafter | | | 21,932 | | | 3,827 | |
Total lease payments | | $ | 109,133 | | | 10,894 | |
Less imputed interest | | | | | | (2,541) | |
Present value of future lease payments | | | | | $ | 8,353 | |
| | | | | | | | | | | |
| Operating
Leases | | Finance
Leases |
| Year 1 | $ | 17,442 | | | $ | 5,060 | |
| Year 2 | 14,492 | | | 3,994 | |
| Year 3 | 10,574 | | | 3,527 | |
| Year 4 | 8,724 | | | 3,439 | |
| Year 5 | 7,315 | | | 2,678 | |
| Thereafter | 11,605 | | | 18,135 | |
| Total lease payments | 70,152 | | | 36,833 | |
| Less imputed interest | (6,786) | | | (6,648) | |
| Total | $ | 63,366 | | | $ | 30,185 | |
As of December 31, 2019,2021, we have additional operating and finance leases primarily for buildings, that have not yet commenced of $1.8 million.$0.2 million and no finance leases that have not yet commenced. These operating and finance leases will commence in 20202022 with lease terms of3 to 10 years.
NOTE 9 RETIREMENT AND DEFERRED COMPENSATION PLANS
We have various noncontributory retirement plans covering certain of our domestic and foreign employees. Benefits under our retirement plans are based on participants’ years of service and annual compensation as defined by each plan. Annual cash contributions to fund pension costs accrued under our domestic plans are generally at least equal to the minimum funding amounts required by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Certain pension commitments under our foreign plans are also funded according to local requirements or at our discretion.
Effective January 1, 2021, our domestic noncontributory retirement plans were closed to new employees and employees who were rehired after December 31, 2020. These employees are instead eligible for additional contribution to their defined contribution 401(k) employee savings plan. All domestic employees with hire/rehire dates prior to January 1, 2021 are still eligible for the domestic pension plans and continue to accrue plan benefits after this date.
The following table presents the changes in the benefit obligations and plan assets for the most recent two years for our domestic and foreign plans.
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plans | | Foreign Plans |
| 2021 | | 2020 | | 2021 | | 2020 |
| Change in benefit obligation: | | | | | | | |
| Benefit obligation at beginning of year | $ | 272,471 | | | $ | 227,275 | | | $ | 134,426 | | | $ | 120,490 | |
| Service cost | 16,356 | | | 14,278 | | | 8,159 | | | 7,311 | |
| Interest cost | 6,366 | | | 7,046 | | | 843 | | | 1,410 | |
| | | | | | | |
| | | | | | | |
| Curtailment/Settlement | — | | | — | | | 5 | | | — | |
| | | | | | | |
| | | | | | | |
| Prior service cost | — | | | — | | | — | | | (2,701) | |
| Actuarial (gain) loss | (18,526) | | | 38,175 | | | (6,489) | | | 1,809 | |
| Benefits paid | (21,210) | | | (14,303) | | | (4,555) | | | (5,145) | |
| Foreign currency translation adjustment | — | | | — | | | (9,003) | | | 11,252 | |
| Benefit obligation at end of year | $ | 255,457 | | | $ | 272,471 | | | $ | 123,386 | | | $ | 134,426 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plans | | Foreign Plans |
| 2021 | | 2020 | | 2021 | | 2020 |
| Change in plan assets: | | | | | | | |
| Fair value of plan assets at beginning of year | $ | 192,034 | | | $ | 188,801 | | | $ | 85,087 | | | $ | 74,189 | |
| Actual return on plan assets | 22,480 | | | 17,088 | | | 2,811 | | | 2,008 | |
| Employer contribution | 466 | | | 448 | | | 7,966 | | | 7,527 | |
| Benefits paid | (21,210) | | | (14,303) | | | (4,555) | | | (5,145) | |
| Transfer | — | | | — | | | 124 | | | — | |
| Foreign currency translation adjustment | — | | | — | | | (6,012) | | | 6,508 | |
| Fair value of plan assets at end of year | $ | 193,770 | | | $ | 192,034 | | | $ | 85,421 | | | $ | 85,087 | |
| Funded status at end of year | $ | (61,687) | | | $ | (80,437) | | | $ | (37,965) | | | $ | (49,339) | |
| | | | | | | | | | | | | |
| | Domestic Plans | | Foreign Plans | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
Change in benefit obligation: | | | | | | | | | | | | | |
Benefit obligation at beginning of year | | $ | 180,803 | | $ | 198,450 | | $ | 104,911 | | $ | 109,030 | |
Service cost | | | 11,093 | | | 11,396 | | | 5,921 | | | 5,954 | |
Interest cost | | | 7,381 | | | 6,878 | | | 2,023 | | | 1,828 | |
Special termination benefit charge | | | — | | | — | | | 64 | | | 62 | |
Plan Amendment | | | — | | | — | | | 18 | | | — | |
Curtailment/Settlement | | | — | | | — | | | (271) | | | (1,751) | |
Transfer | | | — | | | — | | | 939 | | | — | |
Business acquired | | | — | | | — | | | — | | | 1,937 | |
Prior service cost | | | — | | | — | | | (451) | | | 35 | |
Actuarial loss (gain) | | | 39,209 | | | (23,510) | | | 13,575 | | | (3,743) | |
Benefits paid | | | (11,211) | | | (12,411) | | | (4,130) | | | (3,288) | |
Foreign currency translation adjustment | | | — | | | — | | | (2,109) | | | (5,153) | |
Benefit obligation at end of year | | $ | 227,275 | | $ | 180,803 | | $ | 120,490 | | $ | 104,911 | |
| | | | | | | | | | | | | |
| | Domestic Plans | | Foreign Plans | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
Change in plan assets: | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | 169,958 | | $ | 169,600 | | $ | 68,992 | | $ | 73,384 | |
Actual return on plan assets | | | 29,618 | | | (7,642) | | | 3,851 | | | (487) | |
Employer contribution | | | 436 | | | 20,411 | | | 6,542 | | | 2,780 | |
Benefits paid | | | (11,211) | | | (12,411) | | | (4,130) | | | (3,288) | |
Transfer | | | — | | | — | | | 359 | | | — | |
Foreign currency translation adjustment | | | — | | | — | | | (1,425) | | | (3,397) | |
Fair value of plan assets at end of year | | $ | 188,801 | | $ | 169,958 | | $ | 74,189 | | $ | 68,992 | |
Funded status at end of year | | $ | (38,474) | | $ | (10,845) | | $ | (46,301) | | $ | (35,919) | |
The following table presents the funded status amounts recognized in our Consolidated Balance Sheets as of December 31, 20192021 and 2018.2020.
| | | | | | | | | | | | | |
| | Domestic Plans | | Foreign Plans | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
Non-current assets | | $ | — | | $ | 207 | | $ | 938 | | $ | 500 | |
Current liabilities | | | (449) | | | (430) | | | (44) | | | (8) | |
Non-current liabilities | | | (38,025) | | | (10,622) | | | (47,195) | | | (36,411) | |
| | $ | (38,474) | | $ | (10,845) | | $ | (46,301) | | $ | (35,919) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plans | | Foreign Plans |
| 2021 | | 2020 | | 2021 | | 2020 |
| Non-current assets | $ | — | | | $ | — | | | $ | 1,832 | | | $ | 81 | |
| Current liabilities | (500) | | | (461) | | | (33) | | | (37) | |
| Non-current liabilities | (61,187) | | | (79,976) | | | (39,764) | | | (49,383) | |
| $ | (61,687) | | | $ | (80,437) | | | $ | (37,965) | | | $ | (49,339) | |
The following table presents the amounts not recognized as components of periodic benefit cost that are recognized in accumulated other comprehensive loss as of December 31,
20192021 and
2018.
| | | | | | | | | | | | | |
| | Domestic Plans | | Foreign Plans | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
Net actuarial loss | | $ | 68,789 | | $ | 48,776 | | $ | 40,442 | | $ | 29,761 | |
Net prior service cost | | | — | | | — | | | 3,774 | | | 4,656 | |
Tax effects | | | (15,821) | | | (17,876) | | | (14,040) | | | (4,855) | |
| | $ | 52,968 | | $ | 30,900 | | $ | 30,176 | | $ | 29,562 | |
2020. | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plans | | Foreign Plans |
| 2021 | | 2020 | | 2021 | | 2020 |
| Net actuarial loss | $ | 57,627 | | | $ | 96,440 | | | $ | 32,269 | | | $ | 40,851 | |
| Net prior service cost | — | | | — | | | 509 | | | 675 | |
| Tax effects | (12,873) | | | (22,181) | | | (11,049) | | | (13,466) | |
| $ | 44,754 | | | $ | 74,259 | | | $ | 21,729 | | | $ | 28,060 | |
| | | | | |
57/54/ATR
| 20192021 Form 10-K
|
Changes in benefit obligations and plan assets recognized in other comprehensive income in 2019, 20182021, 2020 and 20172019 are as follows:
| | | | | | | | | | |
| | Domestic Plans | |
| | 2019 | | 2018 | | 2017 | |
Current year actuarial (loss) gain | | $ | (21,970) | | $ | 4,611 | | $ | (12,593) | |
Amortization of net loss | | | 1,957 | | | 4,873 | | | 3,205 | |
| | $ | (20,013) | | $ | 9,484 | | $ | (9,388) | |
| | | | | | | | | | |
| | Foreign Plans | |
| | 2019 | | 2018 | | 2017 | |
Current year actuarial (loss) gain | | $ | (11,999) | | $ | 534 | | $ | 2,952 | |
Current year prior service cost | | | 451 | | | (35) | | | (1,399) | |
Transfer Prior service Cost | | | (18) | | | — | | | — | |
Transfer Actuarial (loss) gain | | | (126) | | | — | | | — | |
Recognition due to curtailment | | | — | | | 1,692 | | | — | |
Amortization of net loss | | | 1,444 | | | 1,716 | | | 1,895 | |
Amortization of prior service cost | | | 449 | | | 720 | | | 400 | |
| | $ | (9,799) | | $ | 4,627 | | $ | 3,848 | |
The following table presents the amounts in accumulated other comprehensive loss as of December 31, 2019 expected to be recognized as components of periodic benefit cost in 2020.
| | | | | | | |
| | Domestic Plans | | Foreign Plans | |
Amortization of net loss | | $ | 5,719 | | $ | 2,092 | |
Amortization of prior service cost | | | — | | | 391 | |
| | $ | 5,719 | | $ | 2,483 | |
| | | | | | | | | | | | | | | | | |
| Domestic Plans |
| 2021 | | 2020 | | 2019 |
| Current year actuarial gain (loss) | $ | 28,714 | | | $ | (33,335) | | | $ | (21,970) | |
| Amortization of net loss | 10,099 | | | 5,684 | | | 1,957 | |
| $ | 38,813 | | | $ | (27,651) | | | $ | (20,013) | |
| | | | | | | | | | | | | | | | | |
| Foreign Plans |
| 2021 | | 2020 | | 2019 |
| Current year actuarial gain (loss) | $ | 6,257 | | | $ | (2,530) | | | $ | (11,999) | |
| Current year prior service cost | — | | | 2,701 | | | 451 | |
| Transfer Prior service Cost | — | | | — | | | (18) | |
| Transfer Actuarial (loss) gain | — | | | — | | | (126) | |
| | | | | |
| Amortization of net loss | 2,325 | | | 2,121 | | | 1,444 | |
| Amortization of prior service cost | 166 | | | 398 | | | 449 | |
| $ | 8,748 | | | $ | 2,690 | | | $ | (9,799) | |
Components of net periodic benefit cost:
| | | | | | | | | | |
| | Domestic Plans | |
| | 2019 | | 2018 | | 2017 | |
Service cost | | $ | 11,093 | | $ | 11,396 | | $ | 9,706 | |
Interest cost | | | 7,381 | | | 6,878 | | | 7,010 | |
Expected return on plan assets | | | (12,379) | | | (11,257) | | | (9,880) | |
Amortization of net loss | | | 1,957 | | | 4,873 | | | 3,205 | |
Net periodic benefit cost | | $ | 8,052 | | $ | 11,890 | | $ | 10,041 | |
| | | | | | | | | | |
| | Foreign Plans | |
| | 2019 | | 2018 | | 2017 | |
Service cost | | $ | 5,921 | | $ | 5,954 | | $ | 5,526 | |
Interest cost | | | 2,023 | | | 1,828 | | | 1,747 | |
Expected return on plan assets | | | (2,366) | | | (2,610) | | | (2,409) | |
Amortization of net loss | | | 1,444 | | | 1,716 | | | 1,895 | |
Amortization of prior service cost | | | 449 | | | 720 | | | 400 | |
Net periodic benefit cost | | $ | 7,471 | | $ | 7,608 | | $ | 7,159 | |
Curtailment | | | (246) | | | (59) | | | — | |
Special termination benefit charge | | | 65 | | | 62 | | | — | |
Total Net periodic benefit cost | | $ | 7,290 | | $ | 7,611 | | $ | 7,159 | |
| | | | | | | | | | | | | | | | | |
| Domestic Plans |
| 2021 | | 2020 | | 2019 |
| Service cost | $ | 16,356 | | | $ | 14,278 | | | $ | 11,093 | |
| Interest cost | 6,366 | | | 7,046 | | | 7,381 | |
| Expected return on plan assets | (12,293) | | | (12,248) | | | (12,379) | |
| Amortization of net loss | 10,099 | | | 5,684 | | | 1,957 | |
| Net periodic benefit cost | $ | 20,528 | | | $ | 14,760 | | | $ | 8,052 | |
| | | | | | | | | | | | | | | | | |
| Foreign Plans |
| 2021 | | 2020 | | 2019 |
| Service cost | $ | 8,159 | | | $ | 7,311 | | | $ | 5,921 | |
| Interest cost | 843 | | | 1,410 | | | 2,023 | |
| Expected return on plan assets | (2,838) | | | (2,620) | | | (2,366) | |
| Amortization of net loss | 2,325 | | | 2,121 | | | 1,444 | |
| Amortization of prior service cost | 166 | | | 398 | | | 449 | |
| Net periodic benefit cost | $ | 8,655 | | | $ | 8,620 | | | $ | 7,471 | |
| Curtailment | 5 | | | (8) | | | (246) | |
| Special termination benefit charge | — | | | — | | | 65 | |
| Total Net periodic benefit cost | $ | 8,660 | | | $ | 8,612 | | | $ | 7,290 | |
The accumulated benefit obligation (“ABO”) for our domestic defined benefit pension plans was $205.3$236.3 million and $163.0$249.8 million at December 31, 20192021 and 2018,2020, respectively. The ABO for our foreign defined benefit pension plans was $91.8 million and $80.9 $96.0 million and$103.1 million at December 31, 20192021 and 2018,2020, respectively.
The following table provides the projected benefit obligation (“PBO”), ABO, and fair value of plan assets for all pension plans with an ABO in excess of plan assets as of December 31, 20192021 and 2018.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plans | | Foreign Plans |
| 2021 | | 2020 | | 2021 | | 2020 |
| Projected benefit obligation | $ | 255,457 | | | $ | 272,471 | | | $ | 89,595 | | | $ | 120,795 | |
| Accumulated benefit obligation | 236,295 | | | 249,831 | | | 63,614 | | | 89,702 | |
| Fair value of plan assets | 193,770 | | | 192,034 | | | 49,916 | | | 71,457 | |
Table of Contents
| | | | | | | | | | | | | |
| | Domestic Plans | | Foreign Plans | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
Projected benefit obligation | | $ | 227,275 | | $ | 11,052 | | $ | 92,561 | | $ | 93,029 | |
Accumulated benefit obligation | | | 205,326 | | | 9,216 | | | 65,062 | | | 68,981 | |
Fair value of plan assets | | | 188,801 | | | — | | | 46,371 | | | 56,611 | |
The following table provides the PBO, ABO and fair value of plan assets for all pension plans with a PBO in excess of plan assets as of December 31,
20192021 and
2018.
| | | | | | | | | | | | | |
| | Domestic Plans | | Foreign Plans | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
Projected benefit obligation | | $ | 227,275 | | $ | 11,052 | | $ | 102,310 | | $ | 92,555 | |
Accumulated benefit obligation | | | 205,326 | | | 9,216 | | | 73,943 | | | 68,506 | |
Fair value of plan assets | | | 188,801 | | | — | | | 55,260 | | | 56,136 | |
During 2018, our domestic employee retirement plan has plan assets in excess of the PBO.
2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plans | | Foreign Plans |
| 2021 | | 2020 | | 2021 | | 2020 |
| Projected benefit obligation | $ | 255,457 | | | $ | 272,471 | | | $ | 97,221 | | | $ | 130,616 | |
| Accumulated benefit obligation | 236,295 | | | 249,831 | | | 69,630 | | | 98,360 | |
| Fair value of plan assets | 193,770 | | | 192,034 | | | 56,228 | | | 79,764 | |
Assumptions:
| | | | | | | | | | | | | |
| | Domestic Plans | | Foreign Plans | |
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | |
Weighted-average assumptions used to determine benefit obligations at December 31: | | | | | | | | | | | | | |
Discount rate | | 3.20 | % | 4.20 | % | 3.55 | % | 1.04 | % | 1.82 | % | 1.62 | % |
Rate of compensation increase | | 4.00 | % | 4.00 | % | 4.00 | % | 3.05 | % | 3.01 | % | 3.02 | % |
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31: | | | | | | | | | | | | | |
Discount rate | | 4.20 | % | 3.55 | % | 4.05 | % | 1.84 | % | 1.62 | % | 1.65 | % |
Expected long-term return on plan assets | | 7.00 | % | 7.00 | % | 7.00 | % | 3.69 | % | 3.66 | % | 3.66 | % |
Rate of compensation increase | | 4.00 | % | 4.00 | % | 4.00 | % | 3.05 | % | 3.02 | % | 3.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plans | | Foreign Plans |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Weighted-average assumptions used to determine benefit obligations at December 31: | | | | | | | | | | | |
| Discount rate | 2.75 | % | | 2.40 | % | | 3.20 | % | | 1.09 | % | | 0.54 | % | | 1.04 | % |
| Rate of compensation increase | 3.17 | % | | 3.19 | % | | 4.00 | % | | 3.05 | % | | 3.05 | % | | 3.05 | % |
| Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31: | | | | | | | | | | | |
| Discount rate | 2.40 | % | | 3.20 | % | | 4.20 | % | | 0.66 | % | | 1.12 | % | | 1.84 | % |
| Expected long-term return on plan assets | 7.00 | % | | 7.00 | % | | 7.00 | % | | 3.56 | % | | 3.59 | % | | 3.69 | % |
| Rate of compensation increase | 3.17 | % | | 4.00 | % | | 4.00 | % | | 3.05 | % | | 3.05 | % | | 3.05 | % |
We develop the expected long-term rate of return assumptions based on historical experience and by evaluating input from the plans’ asset managers, including the managers’ review of asset class return expectations and benchmarks, economic indicators and long-term inflation assumptions.
In order to determine the
20202022 net periodic benefit cost, we expect to use the December 31,
20192021 discount rates, December 31,
20192021 rates of compensation increase assumptions and the same assumed long-term returns on domestic and foreign plan assets used for the
20192021 net periodic benefit cost.
Our domestic and foreign pension plan weighted-average asset allocations at December 31,
20192021 and
20182020 by asset category are as follows:
Plan Assets:
| | | | | | | | | |
| | Domestic Plans Assets | | Foreign Plans Assets | |
| | at December 31, | | at December 31, | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
Equity securities | | 49 | % | 44 | % | 4 | % | 4 | % |
Fixed income securities | | 29 | % | 29 | % | 1 | % | 1 | % |
Corporate debt securities | | — | | — | | 3 | % | 3 | % |
Infrastructure | | 6 | % | 7 | % | — | | — | |
Hedge funds | | 10 | % | 10 | % | — | | — | |
Money market | | 1 | % | 5 | % | 3 | % | 1 | % |
Investment Funds | | — | | — | | 89 | % | 91 | % |
Real estate | | 5 | % | 5 | % | — | | — | |
Total | | 100 | % | 100 | % | 100 | % | 100 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Plans Assets at December 31, | | Foreign Plans Assets at December 31, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Equity securities | 48 | % | | 48 | % | | 6 | % | | 5 | % |
| Fixed income securities | 27 | % | | 28 | % | | 1 | % | | 1 | % |
| Corporate debt securities | — | | | — | | | 2 | % | | 2 | % |
| Infrastructure | 8 | % | | 7 | % | | — | | | — | |
| Hedge funds | 11 | % | | 10 | % | | — | | | — | |
| Money market | 1 | % | | 2 | % | | 1 | % | | — | % |
| Investment Funds | — | | | — | | | 90 | % | | 92 | % |
| Real estate | 5 | % | | 5 | % | | — | | | — | |
| Total | 100 | % | | 100 | % | | 100 | % | | 100 | % |
Our investment strategy for our domestic and foreign pension plans is to maximize the long-term rate of return on plan assets within an acceptable level of risk. The investment policy strives to have assets sufficiently diversified so that adverse or unexpected results from one security type will not have an unduly detrimental impact on the entire portfolio and accordingly, establishes a target allocation for each asset category within the portfolio. The domestic plan asset allocation is reviewed on a quarterly basis and the foreign plan asset allocation is reviewed annually. Rebalancing occurs as needed to comply with the investment strategy. The domestic plan target allocation for 20202022 is60%equity securities and40%fixed income securities and infrastructure. The foreign plan target allocation for 20202022 is100%investment funds.
Authoritative guidelines require the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
•Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
● | Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities. |
● | Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. |
● | Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability. |
• | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Fair Value Measurement | | Foreign Fair Value Measurement | |
| | at December 31, 2019 | | at December 31, 2019 | |
(In Thousands $) | | Total | | (Level 1) | | (Level 2) | | (Level 3) | | Total | | (Level 1) | | (Level 2) | | (Level 3) | |
Cash and Short-term Securities (a) | | $ | 1,988 | | $ | 1,988 | | $ | — | | $ | — | | $ | 2,030 | | $ | 2,030 | | $ | — | | $ | — | |
USD | | | — | | | 1,988 | | | — | | | — | | | — | | | — | | | — | | | — | |
EUR | | | — | | | — | | | — | | | — | | | — | | | 2,012 | | | — | | | — | |
Others | | | — | | | — | | | — | | | — | | | — | | | 18 | | | — | | | — | |
Equity Securities (a) | | $ | 81,997 | | $ | 81,997 | | | — | | | — | | $ | 2,995 | | $ | 2,995 | | | — | | | — | |
U.S. Large Cap Equities | | | — | | | 48,580 | | | — | | | — | | | — | | | — | | | — | | | — | |
U.S. Small Cap Equities | | | — | | | 9,921 | | | — | | | — | | | — | | | — | | | — | | | — | |
International Equities | | | — | | | 23,496 | | | — | | | — | | | — | | | 2,995 | | | — | | | — | |
Fixed Income (a&b) | | $ | 35,898 | | $ | 35,898 | | | — | | | — | | $ | 820 | | $ | 820 | | | — | | | — | |
Corporate debts securities | | | — | | | — | | | — | | | — | | $ | 2,115 | | $ | 2,115 | | | — | | | — | |
Euro Corporate Bonds (a) | | | — | | | — | | | — | | | — | | | — | | | 2,115 | | | — | | | — | |
Investment Funds | | | — | | | — | | | — | | | — | | $ | 66,229 | | $ | 23,797 | | $ | 42,432 | | | — | |
Mutual Funds in Equities (a) | | | — | | | — | | | — | | | — | | | — | | | 4,025 | | | — | | | — | |
Mutual Funds in Bonds (a) | | | — | | | — | | | — | | | — | | | — | | | 18,881 | | | — | | | — | |
Mutual Funds Diversified (a&b) | | | — | | | — | | | — | | | — | | | — | | | 891 | | | 42,432 | | | — | |
Total Investments in Fair Value Hierarchy | | $ | 119,883 | | $ | 119,883 | | $ | — | | $ | — | | $ | 74,189 | | $ | 31,757 | | $ | 42,432 | | $ | — | |
Investments at Net Asset Value per Share | | | 68,918 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Investments | | $ | 188,801 | | $ | 119,883 | | $ | — | | $ | — | | $ | 74,189 | | $ | 31,757 | | $ | 42,432 | | $ | — | |
Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
•Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Domestic Fair Value Measurement at December 31, 2021 | | Foreign Fair Value Measurement at December 31, 2021 |
| (In Thousands $) | Total | | (Level 1) | | (Level 2) | | (Level 3) | | Total | | (Level 1) | | (Level 2) | | (Level 3) |
| Cash and Short-term Securities (a) | $ | 1,864 | | | $ | 1,864 | | | $ | — | | | $ | — | | | $ | 547 | | | $ | 547 | | | $ | — | | | $ | — | |
| USD | — | | | 1,864 | | | — | | | — | | | — | | | — | | | — | | | — | |
| EUR | — | | | — | | | — | | | — | | | — | | | 539 | | | — | | | — | |
| Others | — | | | — | | | — | | | — | | | — | | | 8 | | | — | | | — | |
| Equity Securities (a) | $ | 82,927 | | | $ | 82,927 | | | $ | — | | | $ | — | | | $ | 4,881 | | | $ | 4,881 | | | $ | — | | | $ | — | |
| U.S. Large Cap Equities | — | | | 49,637 | | | — | | | — | | | — | | | — | | | — | | | — | |
| U.S. Small Cap Equities | — | | | 9,112 | | | — | | | — | | | — | | | — | | | — | | | — | |
| International Equities | — | | | 24,178 | | | — | | | — | | | — | | | 4,881 | | | — | | | — | |
| Fixed Income (a)(b) | $ | 34,584 | | | $ | 34,584 | | | $ | — | | | $ | — | | | $ | 772 | | | $ | 772 | | | $ | — | | | $ | — | |
| Corporate debts securities | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,413 | | | $ | 1,413 | | | $ | — | | | $ | — | |
| Euro Corporate Bonds (a) | — | | | — | | | — | | | — | | | — | | | 1,413 | | | — | | | — | |
| Investment Funds | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 77,808 | | | $ | 26,381 | | | $ | 51,427 | | | $ | — | |
| Mutual Funds in Equities (a) | — | | | — | | | — | | | — | | | — | | | 4,576 | | | — | | | — | |
| Mutual Funds in Bonds (a) | — | | | — | | | — | | | — | | | — | | | 20,810 | | | — | | | — | |
| Mutual Funds Diversified (a)(b) | — | | | — | | | — | | | — | | | — | | | 995 | | | 51,427 | | | — | |
| Total Investments in Fair Value Hierarchy | $ | 119,375 | | | $ | 119,375 | | | $ | — | | | $ | — | | | $ | 85,421 | | | $ | 33,994 | | | $ | 51,427 | | | $ | — | |
| Investments at Net Asset Value per Share | 74,395 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Total Investments | $ | 193,770 | | | $ | 119,375 | | | $ | — | | | $ | — | | | $ | 85,421 | | | $ | 33,994 | | | $ | 51,427 | | | $ | — | |
| | | | | |
60/57/ATR
| 20192021 Form 10-K
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Fair Value Measurement | | Foreign Fair Value Measurement | | |
| | at December 31, 2018 | | at December 31, 2018 | | |
| | | | Domestic Fair Value Measurement at December 31, 2020 | | Foreign Fair Value Measurement at December 31, 2020 |
(In Thousands $) | | Total | | (Level 1) | | (Level 2) | | (Level 3) | �� | Total | | (Level 1) | | (Level 2) | | (Level 3) | | (In Thousands $) | Total | | (Level 1) | | (Level 2) | | (Level 3) | | Total | | (Level 1) | | (Level 2) | | (Level 3) |
Cash and Short-term Securities (a) | | $ | 8,964 | | $ | 8,964 | | $ | — | | $ | — | | $ | 718 | | $ | 718 | | $ | — | | $ | — | | Cash and Short-term Securities (a) | $ | 3,207 | | | $ | 3,207 | | | $ | — | | | $ | — | | | $ | 415 | | | $ | 415 | | | $ | — | | | $ | — | |
USD | | | — | | | 8,964 | | | — | | | — | | | — | | | — | | | — | | | — | | USD | — | | | 3,207 | | | — | | | — | | | — | | | — | | | — | | | — | |
EUR | | | — | | | — | | | — | | | — | | | — | | | 718 | | | — | | | — | | EUR | — | | | — | | | — | | | — | | | — | | | 404 | | | — | | | — | |
| Others | | Others | — | | | — | | | — | | | — | | | — | | | 11 | | | — | | | — | |
Equity Securities (a) | | $ | 66,707 | | $ | 66,707 | | | — | | | — | | $ | 2,591 | | $ | 2,591 | | | — | | | — | | Equity Securities (a) | $ | 83,041 | | | $ | 83,041 | | | $ | — | | | $ | — | | | $ | 4,107 | | | $ | 4,107 | | | $ | — | | | $ | — | |
U.S. Large Cap Equities | | | — | | | 38,804 | | | — | | | — | | | — | | | — | | | — | | | — | | U.S. Large Cap Equities | — | | | 48,138 | | | — | | | — | | | — | | | — | | | — | | | — | |
U.S. Small Cap Equities | | | — | | | 7,747 | | | — | | | — | | | — | | | — | | | — | | | — | | U.S. Small Cap Equities | — | | | 10,299 | | | — | | | — | | | — | | | — | | | — | | | — | |
International Equities | | | — | | | 20,156 | | | — | | | — | | | — | | | 2,591 | | | — | | | — | | International Equities | — | | | 24,604 | | | — | | | — | | | — | | | 4,107 | | | — | | | — | |
Fixed Income (a&b) | | $ | 32,272 | | $ | 32,272 | | | — | | | — | | $ | 717 | | $ | 717 | | | — | | | — | | |
| Fixed Income (a)(b) | | Fixed Income (a)(b) | $ | 35,691 | | | $ | 35,691 | | | $ | — | | | $ | — | | | $ | 834 | | | $ | 834 | | | $ | — | | | $ | — | |
Corporate debts securities | | | — | | | — | | | — | | | — | | $ | 2,097 | | $ | 2,097 | | | — | | | — | | Corporate debts securities | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,555 | | | $ | 1,555 | | | $ | — | | | $ | — | |
Euro Corporate Bonds (a) | | | — | | | — | | | — | | | — | | | — | | | 2,097 | | | — | | | — | | Euro Corporate Bonds (a) | — | | | — | | | — | | | — | | | — | | | 1,555 | | | — | | | — | |
Investment Funds | | | — | | | — | | | — | | | — | | $ | 62,869 | | $ | 22,122 | | $ | 40,747 | | | — | | Investment Funds | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 78,176 | | | $ | 27,500 | | | $ | 50,676 | | | $ | — | |
Mutual Funds in Equities (a) | | | — | | | — | | | — | | | — | | | — | | | 3,339 | | | — | | | — | | Mutual Funds in Equities (a) | — | | | — | | | — | | | — | | | — | | | 4,022 | | | — | | | — | |
Mutual Funds in Bonds (a) | | | — | | | — | | | — | | | — | | | — | | | 18,060 | | | — | | | — | | Mutual Funds in Bonds (a) | — | | | — | | | — | | | — | | | — | | | 22,475 | | | — | | | — | |
Mutual Funds Diversified (a&b) | | | — | | | — | | | — | | | — | | | — | | | 723 | | | 40,747 | | | — | | |
| Mutual Funds Diversified (a)(b) | | Mutual Funds Diversified (a)(b) | — | | | — | | | — | | | — | | | — | | | 1,003 | | | 50,676 | | | — | |
Total Investments in Fair Value Hierarchy | | $ | 107,943 | | $ | 107,943 | | $ | — | | $ | — | | $ | 68,992 | | $ | 28,245 | | $ | 40,747 | | $ | — | | Total Investments in Fair Value Hierarchy | $ | 121,939 | | | $ | 121,939 | | | $ | — | | | $ | — | | | $ | 85,087 | | | $ | 34,411 | | | $ | 50,676 | | | $ | — | |
Investments at Net Asset Value per Share | | | 62,015 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Investments at Net Asset Value per Share | 70,095 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Investments | | $ | 169,958 | | $ | 107,943 | | $ | — | | $ | — | | $ | 68,992 | | $ | 28,245 | | $ | 40,747 | | $ | — | | Total Investments | $ | 192,034 | | | $ | 121,939 | | | $ | — | | | $ | — | | | $ | 85,087 | | | $ | 34,411 | | | $ | 50,676 | | | $ | — | |
(a) | Based on third party quotation from financial institution. | | | | |
| |
(b) | Based on observable market transactions. |
(a)Based on third party quotation from financial institution.
(b)Based on observable market transactions.
Annual cash contributions to fund pension costs accrued under our domestic plans are generally at least equal to the minimum funding amounts required by ERISA. We contributed $0.4$0.5 million to our domestic defined benefit plans in 20192021 and although we have 0 nominimum funding requirement, we plan to contribute approximately $0.4$0.5 million to pay our ongoing SERP annuity contracts in 2020.2022. Contributions to fund pension costs accrued under our foreign plans are made in accordance with local laws or at our discretion. We contributed approximately $6.5$8.0 million to our foreign defined benefit plan in 20192021 and expect to contribute approximately $0.7��$0.5 million in 2020.2022.
Estimated Future Benefit Payments
As of December 31,
2019,2021, we expect the plans to make the following estimated benefit payments relating to our defined benefit plans over the next ten years:
| | | | | | | |
| | Domestic Plans | | Foreign Plans | |
2020 | | $ | 11,064 | | $ | 5,382 | |
2021 | | | 11,134 | | | 2,904 | |
2022 | | | 11,665 | | | 3,155 | |
2023 | | | 12,467 | | | 4,676 | |
2024 | | | 13,077 | | | 6,537 | |
2025 - 2029 | | | 74,584 | | | 34,386 | |
| | | | | | | | | | | |
| Domestic Plans | | Foreign Plans |
| 2022 | $ | 11,533 | | | $ | 4,043 | |
| 2023 | 12,531 | | | 2,657 | |
| 2024 | 13,712 | | | 6,002 | |
| 2025 | 13,657 | | | 7,825 | |
| 2026 | 14,663 | | | 5,729 | |
| 2027 - 2031 | 80,754 | | | 36,675 | |
We have a non-qualified supplemental pension plan for domestic employees which provides for pension amounts that would have been payable from our principal domestic pension plan if it were not for limitations imposed by income tax regulations. The liability for this plan, which is not funded, was $12.6$14.9 million and $11.1$16.8 million at December 31, 20192021 and 2018,2020, respectively. This amount is included in the liability for domestic plans shown above.
We have a defined contribution 401(k) employee savings plan
("401(k) plan") available to substantially all domestic employees. Company matching contributions are made in cash up to a maximum of 3% of the participating employee’s salary subject to income tax regulations. For each of the years ended December 31,
2019, 20182021, 2020 and
2017,2019, total contributions made to these plans were approximately
$4.5 million, $4.3 million and $4.1 million,
$3.7 millionrespectively. As discussed above, domestic employees hired after December 31, 2020 will no longer be eligible for the pension plans and
$3.3 million, respectively.will instead receive an annual Aptar Retirement Savings Account contribution of 5% of their eligible earnings in the 401(k) plan. For the year ended December 31, 2021 total contributions for these eligible employees was approximately $0.7 million.
We have several foreign defined contribution plans, which require us to contribute a percentage of the participating employee’s salary according to local regulations. For each of the years ended December 31,
2019, 20182021, 2020 and
2017,2019, total contributions made to these plans were approximately
$2.3$2.9 million, $2.4 million and
$2.2$2.3 million, respectively.
We have no additional postretirement or postemployment benefit plans.
NOTE 10 ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
Changes in Accumulated Other Comprehensive Income/(Loss) by Component:
| | | | | | | | | | | | | |
| | Foreign | | Defined Benefit | | | | | | | |
| | Currency | | Pension Plans | | Derivatives | | Total | |
Balance - December 31, 2016 | | $ | (259,888) | | $ | (59,775) | | $ | (46) | | $ | (319,709) | |
Other comprehensive income (loss) before reclassifications | | | 74,385 | | | (8,944) | | | (11,806) | | | 53,635 | |
Amounts reclassified from accumulated other comprehensive income (loss) | | | — | | | 4,124 | | | 8,648 | | | 12,772 | |
Net current-period other comprehensive income (loss) | | | 74,385 | | | (4,820) | | | (3,158) | | | 66,407 | |
Balance - December 31, 2017 | | $ | (185,503) | | $ | (64,595) | | $ | (3,204) | | $ | (253,302) | |
Other comprehensive (loss) income before reclassifications | | | (62,898) | | | 5,266 | | | 16,624 | | | (41,008) | |
Amounts reclassified from accumulated other comprehensive income (loss) | | | — | | | 5,524 | | | (15,060) | | | (9,536) | |
Net current-period other comprehensive (loss) income | | | (62,898) | | | 10,790 | | | 1,564 | | | (50,544) | |
Reclassification of stranded tax effects | | | — | | | (6,658) | | | — | | | (6,658) | |
Balance - December 31, 2018 | | $ | (248,401) | | $ | (60,463) | | $ | (1,640) | | $ | (310,504) | |
Other comprehensive (loss) income before reclassifications | | | (8,723) | | | (25,557) | | | 8,026 | | | (26,254) | |
Amounts reclassified from accumulated other comprehensive income (loss) | | | — | | | 2,873 | | | (8,063) | | | (5,190) | |
Net current-period other comprehensive (loss) income | | | (8,723) | | | (22,684) | | | (37) | | | (31,444) | |
Balance - December 31, 2019 | | $ | (257,124) | | $ | (83,147) | | $ | (1,677) | | $ | (341,948) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign
Currency | | Defined Benefit
Pension Plans | | Derivatives | | Total |
| Balance - December 31, 2018 | $ | (248,401) | | | $ | (60,463) | | | $ | (1,640) | | | $ | (310,504) | |
| Other comprehensive (loss) income before reclassifications | (8,723) | | | (25,557) | | | 8,026 | | | (26,254) | |
| Amounts reclassified from accumulated other comprehensive income (loss) | — | | | 2,873 | | | (8,063) | | | (5,190) | |
| Net current-period other comprehensive (loss) income | (8,723) | | | (22,684) | | | (37) | | | (31,444) | |
| | | | | | | |
| Balance - December 31, 2019 | $ | (257,124) | | | $ | (83,147) | | | $ | (1,677) | | | $ | (341,948) | |
| Other comprehensive income (loss) before reclassifications | 79,099 | | | (25,389) | | | (9,172) | | | 44,538 | |
| Amounts reclassified from accumulated other comprehensive income (loss) | — | | | 6,214 | | | 9,487 | | | 15,701 | |
| Net current-period other comprehensive income (loss) | 79,099 | | | (19,175) | | | 315 | | | 60,239 | |
| | | | | | | |
| Balance - December 31, 2020 | $ | (178,025) | | | $ | (102,322) | | | $ | (1,362) | | | $ | (281,709) | |
| Other comprehensive (loss) income before reclassifications | (71,475) | | | 26,409 | | | 8,584 | | | (36,482) | |
| Amounts reclassified from accumulated other comprehensive income | — | | | 9,427 | | | (7,277) | | | 2,150 | |
| Net current-period other comprehensive (loss) income | (71,475) | | | 35,836 | | | 1,307 | | | (34,332) | |
| Balance - December 31, 2021 | $ | (249,500) | | | $ | (66,486) | | | $ | (55) | | | $ | (316,041) | |
| | | | | |
62/59/ATR
| 20192021 Form 10-K
|
Reclassifications Out of Accumulated Other Comprehensive Income/(Loss):
| | | | | | | | | | | | |
| | Amount Reclassified from | | | |
Details about Accumulated Other | | Accumulated Other | | Affected Line in the Statement | |
Comprehensive Income Components | | Comprehensive Income | | Where Net Income is Presented | |
Year Ended December 31, | | 2019 | | 2018 | | 2017 | | | |
| | | | | | | | | | | | |
Defined Benefit Pension Plans | | | | | | | | | | | | |
Amortization of net loss | | $ | 3,401 | | $ | 6,589 | | $ | 5,100 | | (1) | |
Amortization of prior service cost | | | 449 | | | 720 | | | 400 | | (1) | |
| | | 3,850 | | | 7,309 | | | 5,500 | | Total before tax | |
| | | (977) | | | (1,785) | | | (1,376) | | Tax benefit | |
| | $ | 2,873 | | $ | 5,524 | | $ | 4,124 | | Net of tax | |
Derivatives | | | | | | | | | | | | |
Changes in treasury locks | | $ | — | | $ | 26 | | $ | 42 | | Interest Expense | |
Changes in cross currency swap: interest component | | | (4,805) | | | (5,150) | | | (1,526) | | Interest Expense | |
Changes in cross currency swap: foreign exchange component | | | (3,258) | | | (13,025) | | | 11,911 | | Miscellaneous, net | |
| | | (8,063) | | | (18,149) | | | 10,427 | | Total before tax | |
| | | — | | | 3,089 | | | (1,779) | | Tax benefit | |
| | $ | (8,063) | | $ | (15,060) | | $ | 8,648 | | Net of tax | |
Total reclassifications for the period | | $ | (5,190) | | $ | (9,536) | | $ | 12,772 | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Details about Accumulated Other
Comprehensive Income Components | Amount Reclassified from
Accumulated Other
Comprehensive Income | | Affected Line in the Statement
Where Net Income is Presented |
| Year Ended December 31, | 2021 | | 2020 | | 2019 | | |
| | | | | | | |
| Defined Benefit Pension Plans | | | | | | | |
| Amortization of net loss | $ | 12,424 | | | $ | 7,805 | | | $ | 3,401 | | | (1) |
| Amortization of prior service cost | 166 | | | 398 | | | 449 | | | (1) |
| 12,590 | | | 8,203 | | | 3,850 | | | Total before tax |
| (3,163) | | | (1,989) | | | (977) | | | Tax benefit |
| $ | 9,427 | | | $ | 6,214 | | | $ | 2,873 | | | Net of tax |
| Derivatives | | | | | | | |
| Changes in cross currency swap: interest component | $ | (13) | | | $ | (1,474) | | | $ | (4,805) | | | Interest Expense |
| Changes in cross currency swap: foreign exchange component | (7,264) | | | 10,961 | | | (3,258) | | | Miscellaneous, net |
| (7,277) | | | 9,487 | | | (8,063) | | | Total before tax |
| — | | | — | | | — | | | Tax benefit |
| $ | (7,277) | | | $ | 9,487 | | | $ | (8,063) | | | Net of tax |
| Total reclassifications for the period | $ | 2,150 | | | $ | 15,701 | | | $ | (5,190) | | | |
(1) | These accumulated other comprehensive income components are included in the computation of total net periodic benefit costs, net of tax (see Note 9 - Retirement and Deferred Compensation Plans for additional details). | | | | |
| |
(1)These accumulated other comprehensive income components are included in the computation of total net periodic benefit costs, net of tax (see Note 9 - Retirement and Deferred Compensation Plans for additional details).
NOTE 11 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We maintain a foreign exchange risk management policy designed to establish a framework to protect the value of our non-functional currency denominated transactions from adverse changes in exchange rates. Sales of our products can be denominated in a currency different from the currency in which the related costs to produce the product are denominated. Changes in exchange rates on such inter-country sales or intercompany loans can impact our results of operations. Our policy is not to engage in speculative foreign currency hedging activities, but to minimize our net foreign currency transaction exposure defined as firm commitments and transactions recorded and denominated in currencies other than the functional currency. We may use foreign currency forward exchange contracts, options and cross currency swaps to economically hedge these risks.
For derivative instruments designated as hedges, we formally document the nature and relationships between the hedging instruments and the hedged items, as well as the risk management objectives, strategies for undertaking the various hedge transactions, and the method of assessing hedge effectiveness at inception. Quarterly thereafter, we formally assess whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair value or cash flows of the hedged item. Additionally, in order to designate any derivative instrument as a hedge of an anticipated transaction, the significant characteristics and expected terms of any anticipated transaction must be specifically identified, and it must be probable that the anticipated transaction will occur. All derivative financial instruments used as hedges are recorded at fair value in the Consolidated Balance Sheets (See Note 12 – Fair Value).
For derivative instruments that are designated and qualify as cash flow hedges, the changes in fair values are recorded in accumulated other comprehensive loss and included in changes in derivative gain/loss. The changes in the fair values of derivatives designated as cash flow hedges are reclassified from accumulated other comprehensive loss to net income when the underlying hedged item is recognized in earnings. Cash flows from the settlement of derivative contracts designated as cash flow hedges offset cash flows from the underlying hedged items and are included in operating activities in the Consolidated Statements of Cash Flows.
| | | | | |
63/60/ATR
| 20192021 Form 10-K
|
As disclosed in Note 7 – Debt,In 2017 our wholly owned UK subsidiary borrowed $280 million in term loan borrowings under a newour prior credit facility. In order to mitigate the currency risk of U.S. dollar debt on a euro functional currency entity and to mitigate the risk of variability in interest rates, we entered into a EUR/USD floating-to-fixed cross currency swap on July 20, 2017 in the notional amount of $280 million to effectively hedge the foreign exchange and interest rate exposure on the $280 million term loan. Related to this hedge, approximately $1.7$0.1 million and $1.6$1.4 million, respectively, of net after-tax loss is included in accumulated other comprehensive loss at December 31, 20192021 and 2018.2020. The amount expected to be recognized into earnings during the next 127 months related to the interest component of our cross currency swap, based on prevailing foreign exchange and interest rates at December 31, 2019,2021, is $2.8 million.a gain of $29 thousand. The amount expected to be recognized into earnings during the next 127 months related to the foreign exchange component of our cross currency swap is dependent on fluctuations in currency exchange rates. As of December 31, 2019,2021, the fair value of the cross currency swap was a $2.6$0.5 million asset. The swap contract expires on July 20, 2022.
Hedge of Net Investments in Foreign Operations
A significant number of our 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 condition and results of operations of our foreign entities. A weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial condition and results of operations. Conversely, a strengthening U.S. dollar has a dilutive effect. In some cases we maintain debt in these subsidiaries to offset the net asset exposure. We do not otherwise actively manage this risk using derivative financial instruments. In the event we plan on a full or partial liquidation of any of our foreign subsidiaries where our net investment is likely to be monetized, we will consider hedging the currency exposure associated with such a transaction.
As of December 31,
2019,2021, we have recorded the fair value of foreign currency forward exchange contracts of
$0.2$0.3 million in prepaid and other and
$0.4$0.2 million in accounts payable, accrued and other liabilities in the balance sheet. All forward exchange contracts outstanding as of December 31,
20192021 had an aggregate notional contract amount of
$51.5$49.4 million.
Fair Value of Derivative Instruments in the Consolidated Balance Sheets as of
December 31, 2019 and December 31, 2018
| | | | | | | | | | | | | | | |
| | | | December 31, 2019 | | December 31, 2018 | |
| | | | | | Derivatives | | | | Derivatives | |
| | | | Derivatives | | not | | Derivatives | | not | |
| | | | Designated | | Designated | | Designated | | Designated | |
| | Balance Sheet | | as Hedging | | as Hedging | | as Hedging | | as Hedging | |
| | Location | | Instruments | | Instruments | | Instruments | | Instruments | |
Derivative Assets | | | | | | | | | | | | | | | |
Foreign Exchange Contracts | | Prepaid and other | | $ | — | | $ | 206 | | $ | — | | $ | 259 | |
Cross Currency Swap Contract (1) | | Prepaid and other | | | 2,552 | | | — | | | — | | | — | |
| | | | $ | 2,552 | | $ | 206 | | $ | — | | $ | 259 | |
| | | | | | | | | | | | | | | |
Derivative Liabilities | | | | | | | | | | | | | | | |
Foreign Exchange Contracts | | Accounts payable, accrued and other liabilities | | $ | — | | $ | 401 | | $ | — | | $ | 331 | |
Cross Currency Swap Contract (1) | | Accounts payable, accrued and other liabilities | | | — | | | — | | | 1,040 | | | — | |
| | | | $ | — | | $ | 401 | | $ | 1,040 | | $ | 331 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair Value of Derivative Instruments in the Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020 |
| | | December 31, 2021 | | December 31, 2020 |
| Balance Sheet
Location | | Derivatives
Designated
as Hedging
Instruments | | Derivatives
not
Designated
as Hedging
Instruments | | Derivatives
Designated
as Hedging
Instruments | | Derivatives
not
Designated
as Hedging
Instruments |
| Derivative Assets | | | | | | | | | |
| Foreign Exchange Contracts | Prepaid and other | | $ | — | | | $ | 331 | | | $ | — | | | $ | 322 | |
| Cross Currency Swap Contract (1) | Prepaid and other | | 511 | | | — | | | — | | | — | |
| | | $ | 511 | | | $ | 331 | | | $ | — | | | $ | 322 | |
| | | | | | | | | |
| Derivative Liabilities | | | | | | | | | |
| Foreign Exchange Contracts | Accounts payable, accrued and other liabilities | | $ | — | | | $ | 221 | | | $ | — | | | $ | 146 | |
| Cross Currency Swap Contract (1) | Accounts payable, accrued and other liabilities | | — | | | — | | | 8,309 | | | — | |
| | | $ | — | | | $ | 221 | | | $ | 8,309 | | | $ | 146 | |
(1) | This cross currency swap contract is composed of both an interest component and a foreign exchange component. | | | | |
| |
(1)This cross currency swap contract is composed of both an interest component and a foreign exchange component.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss) for the Fiscal Years Ended December 31, 2021 and December 31, 2020 |
Derivatives in Cash
Flow Hedging
Relationships | Amount of Gain (Loss)
Recognized in
Other Comprehensive
Income on Derivative | | Location of (Loss)
Gain Recognized
in Income on
Derivatives | | Amount of Gain (Loss)
Reclassified from
Accumulated
Other Comprehensive
Income on Derivative | | Total Amount
of Affected
Income
Statement
Line Item |
| 2021 | | 2020 | | | | 2021 | | 2020 | | |
| Cross currency swap contract: | | | | | | | | | | | |
| Interest component | $ | 1,319 | | | $ | 1,789 | | | Interest expense | | $ | 13 | | | $ | 1,474 | | | $ | (30,284) | |
| Foreign exchange component | 7,265 | | | (10,961) | | | Miscellaneous, net | | 7,264 | | | (10,961) | | | (3,094) | |
| $ | 8,584 | | | $ | (9,172) | | | | | $ | 7,277 | | | $ | (9,487) | | | |
| | | | | |
64/61/ATR
| 20192021 Form 10-K
|
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss) for the
Fiscal Years Ended December 31, 2019 and December 31, 2018
| | | | | | | | | | | | | | | | | | |
| | | | | | Amount of Gain (Loss) | | Total Amount | |
| | Amount of Gain (Loss) | | Location of (Loss) | | Reclassified from | | of Affected | |
Derivatives in Cash | | Recognized in | | Gain Recognized | | Accumulated | | Income | |
Flow Hedging | | Other Comprehensive | | in Income on | | Other Comprehensive | | Statement | |
Relationships | | Income on Derivative | | Derivatives | | Income on Derivative | | Line Item | |
| | 2019 | | 2018 | | | | 2019 | | 2018 | | | |
Cross currency swap contract: | | | | | | | | | | | | | | | | | | |
Interest component | | $ | 5,103 | | $ | 7,014 | | Interest expense | | $ | 4,805 | | $ | 5,150 | | $ | (35,489) | |
Foreign exchange component | | | 3,258 | | | 13,025 | | Miscellaneous, net | | | 3,258 | | | 13,025 | | | 1,556 | |
| | $ | 8,361 | | $ | 20,039 | | | | $ | 8,063 | | $ | 18,175 | | | | |
The Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Income for the Fiscal Years Ended December 31, 2019 and December 31, 2018
| | | | | | | | | |
| | | | Amount of (Loss) Gain | |
Derivatives Not Designated | | Location of (Loss) Gain Recognized | | Recognized in Income | |
as Hedging Instruments | | in Income on Derivatives | | on Derivatives | |
| | | | 2019 | | 2018 | |
Foreign Exchange Contracts | | Other (Expense) Income:
Miscellaneous, net | | $ | (141) | | $ | 652 | |
| | | | $ | (141) | | $ | 652 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | Gross Amounts not Offset | | | | |
| | | | | Gross Amounts | | Net Amounts | | in the Statement of | | | | |
| | | | | Offset in the | | Presented in | | Financial Position | | | | |
| | Gross | | Statement of | | the Statement of | | Financial | | Cash Collateral | | Net | |
| | Amount | | Financial Position | | Financial Position | | Instruments | | Received | | Amount | |
Description | | | | | | | | | | | | | | | | |
December 31, 2019 | |
Derivative Assets | | $ | 2,758 | | — | | $ | 2,758 | | — | | — | | $ | 2,758 | |
Total Assets | | $ | 2,758 | | — | | $ | 2,758 | | — | | — | | $ | 2,758 | |
| | | | | | | | | | | | | | | | |
Derivative Liabilities | | $ | 401 | | — | | $ | 401 | | — | | — | | $ | 401 | |
Total Liabilities | | $ | 401 | | — | | $ | 401 | | — | | — | | $ | 401 | |
| | | | | | | | | | | | | | | | |
December 31, 2018 | |
Derivative Assets | | $ | 259 | | — | | $ | 259 | | — | | — | | $ | 259 | |
Total Assets | | $ | 259 | | — | | $ | 259 | | — | | — | | $ | 259 | |
| | | | | | | | | | | | | | | | |
Derivative Liabilities | | $ | 1,371 | | — | | $ | 1,371 | | — | | — | | $ | 1,371 | |
Total Liabilities | | $ | 1,371 | | — | | $ | 1,371 | | — | | — | | $ | 1,371 | |
| | | | | | | | | | | | | | |
| The Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Income for the Fiscal Years Ended December 31, 2021 and December 31, 2020 |
Derivatives Not Designated
as Hedging Instruments | Location of (Loss) Gain Recognized
in Income on Derivatives | Amount of (Loss) Gain
Recognized in Income
on Derivatives |
| | 2021 | | 2020 |
| Foreign Exchange Contracts | Other (Expense) Income:
Miscellaneous, net | $ | (87) | | | $ | 337 | |
| | $ | (87) | | | $ | 337 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross Amounts
Offset in the
Statement of
Financial Position | | Net Amounts
Presented in
the Statement of
Financial Position | | Gross Amounts not Offset
in the Statement of
Financial Position | | | | Gross
Amount | | | | Financial
Instruments | | Cash Collateral
Received | | Net
Amount | | Description | | | | | | | | | | | | | December 31, 2021 | | | | | | | | | | | | | Derivative Assets | $ | 842 | | | $ | — | | | $ | 842 | | | $ | — | | | $ | — | | | $ | 842 | | | Total Assets | $ | 842 | | | $ | — | | | $ | 842 | | | $ | — | | | $ | — | | | $ | 842 | | | | | | | | | | | | | | | Derivative Liabilities | $ | 221 | | | $ | — | | | $ | 221 | | | $ | — | | | $ | — | | | $ | 221 | | | Total Liabilities | $ | 221 | | | $ | — | | | $ | 221 | | | $ | — | | | $ | — | | | $ | 221 | | | | | | | | | | | | | | | December 31, 2020 | | | | | | | | | | | | | Derivative Assets | $ | 322 | | | $ | — | | | $ | 322 | | | $ | — | | | $ | — | | | $ | 322 | | | Total Assets | $ | 322 | | | $ | — | | | $ | 322 | | | $ | — | | | $ | — | | | $ | 322 | | | | | | | | | | | | | | | Derivative Liabilities | $ | 8,455 | | | $ | — | | | $ | 8,455 | | | $ | — | | | $ | — | | | $ | 8,455 | | | Total Liabilities | $ | 8,455 | | | $ | — | | | $ | 8,455 | | | $ | — | | | $ | — | | | $ | 8,455 | |
| |
65/ATR
| 2019 Form 10-K
|
Authoritative guidelines require the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
• | ● | Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities. |
| ● | Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. |
| ● | Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability. |
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
•Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
•Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
As of December 31, 2019,2021, the fair values of our financial assets and liabilities were categorized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | | Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | | | |
Investment in equity securities (1) | $ | 9,006 | | | $ | 9,006 | | | $ | — | | | $ | — | |
Foreign exchange contracts (2) | 331 | | | — | | | 331 | | | — | |
Cross currency swap contract (2) | 511 | | | — | | | 511 | | | — | |
| Total assets at fair value | $ | 9,848 | | | $ | 9,006 | | | $ | 842 | | | $ | — | |
| Liabilities | | | | | | | |
Foreign exchange contracts (2) | $ | 221 | | | $ | — | | | $ | 221 | | | $ | — | |
| | | | | | | |
| Contingent consideration obligation | 33,908 | | | — | | | — | | | 33,908 | |
| Total liabilities at fair value | $ | 34,129 | | | $ | — | | | $ | 221 | | | $ | 33,908 | |
Table of Contents
| | | | | | | | | | | | | |
| | Total | | Level 1 | | Level 2 | | Level 3 | |
Assets | | | | | | | | | | | | | |
Foreign exchange contracts (1) | | $ | 206 | | $ | — | | $ | 206 | | $ | — | |
Cross currency swap contract (1) | | | 2,552 | | | — | | | 2,552 | | | — | |
Total assets at fair value | | $ | 2,758 | | $ | — | | $ | 2,758 | | $ | — | |
Liabilities | | | | | | | | | | | | | |
Foreign exchange contracts (1) | | $ | 401 | | $ | — | | $ | 401 | | $ | — | |
Contingent consideration obligation | | | 5,930 | | | — | | | — | | | 5,930 | |
Total liabilities at fair value | | $ | 6,331 | | $ | — | | $ | 401 | | $ | 5,930 | |
As of December 31,
2018,2020, the fair values of our financial assets and liabilities were categorized as follows:
| | | | | | | | | | | | | |
| | Total | | Level 1 | | Level 2 | | Level 3 | |
Assets | | | | | | | | | | | | | |
Foreign exchange contracts (1) | | $ | 259 | | $ | — | | $ | 259 | | $ | — | |
Total assets at fair value | | $ | 259 | | $ | — | | $ | 259 | | $ | — | |
Liabilities | | | | | | | | | | | | | |
Foreign exchange contracts (1) | | $ | 331 | | $ | — | | $ | 331 | | $ | — | |
Cross currency swap contract (1) | | | 1,040 | | | — | | | 1,040 | | | — | |
Total liabilities at fair value | | $ | 1,371 | | $ | — | | $ | 1,371 | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | | Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | | | |
| | | | | | | |
Foreign exchange contracts (2) | $ | 322 | | | $ | — | | | $ | 322 | | | $ | — | |
Cross currency swap contract (2) | — | | | — | | | — | | | — | |
| Total assets at fair value | $ | 322 | | | $ | — | | | $ | 322 | | | $ | — | |
| Liabilities | | | | | | | |
Foreign exchange contracts (2) | $ | 146 | | | $ | — | | | $ | 146 | | | $ | — | |
Cross currency swap contract (2) | 8,309 | | | — | | | 8,309 | | | — | |
| Contingent consideration obligation | 31,140 | | | — | | | — | | | 31,140 | |
| Total liabilities at fair value | $ | 39,595 | | | $ | — | | | $ | 8,455 | | | $ | 31,140 | |
(1) | Market approach valuation technique based on observable market transactions of spot and forward rates. | | | | |
| |
(1)Investment in PureCycle Technologies ("PCT" or "PureCycle"). See Note 20 - Investment in Equity Securities for discussion of this investment.
(2)Market approach valuation technique based on observable market transactions of spot and forward rates.
The carrying amounts of our other current financial instruments such as cash and equivalents, accounts and notes receivable, notes payable and current maturities of long-term obligations approximate fair value due to the short-term maturity of the instrument. We consider our long-term
debt obligations a Level 2 liability and utilize the market approach valuation technique based on interest rates that are currently available to us for issuance of debt with similar terms and maturities. The estimated fair value of our long-term obligations was
$0.9 billion as of December 31, 2021 and $1.1 billion as of December 31,
2019 and December 31, 2018.2020.
As discussed in Note 2019 – Acquisitions, we have a contingent consideration obligation to the selling equity holders of of:
–Fusion in connection with the Fusion Acquisition (as defined herein) based on 2022 cumulative performance targets, and
–Noble in connection with the Noble Acquisition (as defined herein) based on 2024 cumulative performance targets and a contingent consideration obligation to the selling equity holder of Gateway in connection with the Gateway Acquisitions (as defined herein) based on 2020 and 2022 performance targets.
We consider these obligations a Level 3 liability and have estimated the aggregate fair value for these contingent consideration arrangements to be $2.9 millionas follows:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Fusion Acquisition | $ | 27,166 | | | $ | 26,910 | |
| Noble Acquisition | 6,742 | | | 4,230 | |
| | | |
| $ | 33,908 | | | $ | 31,140 | |
Changes in the fair value of these obligations are recorded within selling, research & development and $3.0 million, respectively, asadministrative expense in our consolidated statements of December 31, 2019. Additionally, during the year ended December 31, 2018, we had a contingent consideration obligationincome. Significant changes to the selling shareholdersinputs, as noted above, can result in a significantly higher or lower fair value measurements. The following table provides a summary of Reboul SAS (“Reboul”)changes in connection with the Reboul Acquisition (as defined herein) based on 2018 earnings before net interest, taxes, depreciation and amortization (“EBITDA”). We consider this obligation aour Level 3 liability; however, we estimated the aggregate fair value for this contingent consideration arrangement to be 0 as of December 31, 2018.measurements:
| | | | | |
66/ATR
| |
| |
| |
| |
Balance, December 31, 2019 Form 10-K | $ | 5,930 | |
| Acquisition | 22,745 | |
| Increase in fair value recorded in earnings | 5,230 | |
| Payments | (2,765) | |
| Balance, December 31, 2020 | $ | 31,140 | |
| |
| Increase in fair value recorded in earnings | 2,768 | |
| |
| Balance, December 31, 2021 | $ | 33,908 | |
NOTE 13 COMMITMENTS AND CONTINGENCIES
In the normal course of business, we are subject to a number of lawsuits and claims both actual and potential in nature. While management believes the resolution of these claims and lawsuits will not have a material adverse effect on our financial position or results of operations or cash flows, claims and legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur that could include amounts in excess of any accruals which management has established. Were such unfavorable final outcomes to occur, it is possible that they could have a material adverse effect on our financial position, results of operations and cash flows.
We have various purchase commitments for raw materials, supplies, and property and equipment obtained in the normal course of business. As of December 31, 2021, we have unconditional purchase commitments of approximately $91 million over the next 2 years, for which no liabilities have been recorded.
Under our Certificate of Incorporation, we have agreed to indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a directors and officers liability insurance policy that covers a portion of our exposure. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. We have 0 noliabilities recorded for these agreements as of December 31, 2019.2021.An environmental investigation, undertaken to assess areas of possible contamination, was completed at our facility in Jundiaí, São Paulo, Brazil. The facility is primarily an internal supplier of anodized aluminum components for certain of our dispensing systems. The testing indicated that soil and groundwater in certain areas of the facility were impacted above acceptable levels established by local regulations. In March 2017, we reported the findings to the relevant environmental authority, the Environmental Company of the State of São Paulo – CETESB. Based upon our best estimate, we recorded a reserve of $1.5 million (operating expense) in the first quarter of 2017 relating to this contingency. For the year ended December 31, 2019, we have paid approximately $0.6 million and made adjustments to the accrual based on our future anticipated expenditures. As of December 31, 2019, our outstanding reserve is $0.5 million. The ultimate loss associated with this environmental contingency is subject to the investigation and ongoing review of the CETESB. We will continue to evaluate the range of likely costs as the investigation proceeds and we have further clarity on the nature and extent of remediation that will be required. We note that the contamination, or any failure to complete any required remediation in a timely manner, could potentially result in fines or penalties.
In March 2017, the Supreme Court of Brazil issued a decision that a certain state value added tax should not be included in the calculation of federal gross receipts taxes. The decision reduces our gross receipts tax in Brazil prospectively and potentially, retrospectively. DuringIn May 2021, the first quarterSupreme Court of Brazil issued a judgment establishing rules for the refund of amounts paid in excess based on the calculation methodology to be applied. On September 30, 2021, we received a formal decision statement from the Federal Regional Court of Brazil that the favorable court decisions are final. In 2021, 2020 and 2019, we received a favorable court decisiondecisions of $7.4 million, $0.7 million and $2.7 million for the retrospective right to recover part of our claim. This amount isThese amounts are recorded in cost of sales as a favorable impact of $1.7$5.6 million, $0.7 million and$1.7 million in 2021, 2020 and $1.02019, respectively, and $1.8 million and$1.0 million was recognized as interest income. During the fourth quarter of 2018, we recorded an amount of $631 thousand based on the favorable court decision. If the Judicial Court grants full retrospective recovery, we estimate remaining potential recoveries of approximately $3 millionincome in 2021 and 2019, respectively. We do not expect to $10 million, including interest, depending on the future decisions of the Supreme Court of Brazil. Due to uncertainties around our remaining court recovery claims, we have not recordedreceive any further amounts relating to the retrospective nature of this matter.in future periods. In December 2019, tax authorities in Brazil notified us of a tax assessment of approximately $7.9$6.1 million, including interest and penalties of $3.0$2.3 million and $1.0$0.8 million, respectively, relating to differences in tax classification codes used for import duties for the period from January 2015 to August 2018. We are vigorously contesting the assessment, including interest and penalties, and have filed an administrative defense appeal in December 2019. ConsideringIn June 2020, an unfavorable decision was issued on the complex nature of the assessment,first administrative defense appeal. We filed a second administrative defense appeal in August 2020. We still believe we expect the appeal process to go through different levels of administrative and/or judicial processes. Accordingly, duehave a strong defense. Due to uncertainty in the amount of assessment and the timing and amounts of assessment, 0 our appeal,noliability is recorded as of December 31, 2019.2021.
NOTE 14 STOCK REPURCHASE PROGRAM
We announced the $350 million share repurchase program in effect for the year ended December 31, 2018 on October 20, 2016. On April 18, 2019, we announced a new share repurchase authorization of up to $350$350 million of common stock. This authorization replaces previous authorizations and has no expiration date. Aptar may repurchase shares through the open market, privately negotiated transactions or other programs, subject to market conditions.In 20192021 and 2018,2019, we repurchased approximately615 thousand and 779 thousand and 668 thousand shares, respectively, of our outstanding common stock at a total cost of$78.1 million and $86.5 million, and $61.7 million, respectively. In 2020, we did not repurchase any shares. As of December 31, 2019,2021, there was $278.5$200.4 million of authorized share repurchases available to us.
We have199 million authorized shares of common stock. The number of shares of common stock and treasury stock and the share activity were as follows:
| | | | | | | | | |
| | Common Shares | | Treasury Shares | |
| | 2019 | | 2018 | | 2019 | | 2018 | |
Balance at the beginning of the year | | 67,341,316 | | 66,742,490 | | 4,424,884 | | 4,881,889 | |
Employee option exercises | | 1,079,841 | | 1,182,547 | | (367,705) | | (502,005) | |
Director option exercises | | 146,083 | | — | | — | | — | |
Restricted stock vestings | | 41,268 | | 39,691 | | — | | — | |
Common stock repurchases | | — | | — | | 778,848 | | 45,000 | |
Common stock repurchased and retired | | — | | (623,412) | | — | | — | |
Balance at the end of the year | | 68,608,508 | | 67,341,316 | | 4,836,027 | | 4,424,884 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares | | Treasury Shares |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Balance at the beginning of the year | 69,516,805 | | | 68,608,508 | | | 67,341,316 | | | 4,528,051 | | | 4,836,027 | | | 4,424,884 | |
| Employee option exercises | 634,572 | | | 802,046 | | | 1,079,841 | | | (290,316) | | | (307,976) | | | (367,705) | |
| Director option exercises | 47,500 | | | 26,551 | | | 146,083 | | | — | | | — | | | — | |
| Restricted stock vestings | 171,935 | | | 79,700 | | | 41,268 | | | — | | | — | | | — | |
| Common stock repurchases | — | | | — | | | — | | | 614,974 | | | — | | | 778,848 | |
| | | | | | | | | | | |
| Balance at the end of the year | 70,370,812 | | | 69,516,805 | | | 68,608,508 | | | 4,852,709 | | | 4,528,051 | | | 4,836,027 | |
The cash dividends paid on the common stock for the years ended December 31, 2021, 2020 and 2019 2018aggregated $98.5 million, $92.7 million and 2017 aggregated $90.2 million, $82.3 million and $79.9 million, respectively.
NOTE 16 STOCK-BASED COMPENSATION
Historically we have issued stock options and
We issue restricted stock units (“RSUs”), which consist of time-based and performance-based awards, to employees under stock awards plans approved by stockholders. In addition, RSUs are issued to non-employee directors under a Restricted Stock Unit Award Agreement for Directors pursuant to the
Company's 2018 Equity Incentive Plan.
Previously, non-employee directors were issued stock options under a Director Stock Option Plan. Stock options are awarded with the exercise price equal to the market price on the date of grant and generally vest over three years and expire 10 years after grant. RSUs granted to employees vest according to a specified performance period and/or vesting period. Time-based RSUs generally vest over three years. Performance-based RSUs vest at the end of the specified performance period, generally three years, assuming required performance or market vesting conditions are met. Performance-based RSUs have one of two vesting conditions: (1) based on Aptar’sour internal financial performance metrics andor (2) based on Aptar’sour total shareholder return (“TSR”) relative to total shareholder returns of an industrial peer group, subject to discretion if the overall TSR is negative at the conclusion of the performance period.group. At the time of vesting, Aptar will issue or cause to be issued in the employee’s name the vested shares of common stock.stock are issued in the employee’s name. In addition, RSU awards are generally net settled (shares are withheld to cover the employee tax obligation). Director RSUs granted to directors are only time-based and generally vest over one year.
Compensation expense recorded attributable to stock options for the year ended December 31, 2019 was approximately $5.7 million ($4.5 million after tax). Approximately $4.8 million of the compensation expense was recorded in SG&A expenses and the balance was recorded in cost of sales. Compensation expense recorded attributable to stock options for the year ended December 31, 2018 was approximately $10.9 million ($8.4 million after tax). Approximately $8.7 million of the compensation expense was recorded in SG&A and the balance was recorded in cost of sales. Compensation expense recorded attributable to stock options for the year ended December 31, 2017 was approximately $15.2 million ($10.5 million after tax). Approximately $13.2 million of the compensation expense was recorded in SG&A expenses and the balance was recorded in cost of sales.
For stock option grants, we used historical data to estimate expected life and volatility. The weighted-average fair value of stock options granted under the Stock Awards Plans was $14.82 and $11.86 per share in 2018 and 2017, respectively. These values were estimated on the respective dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
| | | | | | | |
Stock Awards Plans: | | | | | | | |
Years Ended December 31, | | | | 2018 | | 2017 | |
Dividend Yield | | | | 1.5 | % | 1.7 | % |
Expected Stock Price Volatility | | | | 14.2 | % | 15.8 | % |
Risk-free Interest Rate | | | | 2.8 | % | 2.2 | % |
Expected Life of Option (years) | | | | 6.6 | | 6.7 | |
A summary of option activity under our stock plans as of December 31, 2019, and changes during the period then ended is presented below:
| | | | | | | | | | | | |
| | Stock Awards Plans | | Director Stock Option Plans | |
| | | | | Weighted Average | | | | Weighted Average | |
| | | Options | | Exercise Price | | Options | | Exercise Price | |
Outstanding, January 1, 2019 | | | 6,761,055 | | $ | 65.76 | | 155,200 | | $ | 58.13 | |
Granted | | | — | | | — | | — | | | — | |
Exercised | | | (1,560,047) | | | 57.10 | | (19,949) | | | 55.99 | |
Forfeited or expired | | | (156,828) | | | 73.15 | | — | | | — | |
Outstanding at December 31, 2019 | | | 5,044,180 | | $ | 68.32 | | 135,251 | | $ | 58.45 | |
Exercisable at December 31, 2019 | | | 4,288,542 | | $ | 66.01 | | 135,251 | | $ | 58.45 | |
Weighted-Average Remaining Contractual Term (Years): | | | | | | | | | | | | |
Outstanding at December 31, 2019 | | | 5.4 | | | | | 3.2 | | | | |
Exercisable at December 31, 2019 | | | 5.0 | | | | | 3.2 | | | | |
Aggregate Intrinsic Value: | | | | | | | | | | | | |
Outstanding at December 31, 2019 | | $ | 239,033 | | | | $ | 7,732 | | | | |
Exercisable at December 31, 2019 | | $ | 212,745 | | | | $ | 7,732 | | | | |
Intrinsic Value of Options Exercised During the Years Ended: | | | | | | | | | | | | |
December 31, 2019 | | $ | 87,251 | | | | $ | 1,172 | | | | |
December 31, 2018 | | $ | 72,951 | | | | $ | 2,286 | | | | |
December 31, 2017 | | $ | 51,140 | | | | $ | 1,995 | | | | |
The grant date fair value of options vested during the years ended December 31, 2019, 2018 and 2017 was $17.5 million, $16.5 million and $16.9 million, respectively. Cash received from option exercises was approximately $90.2 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $19.5 million in the year ended December 31, 2019. As of December 31, 2019, the remaining valuation of stock option awards to be expensed in future periods was $2.3 million and the related weighted-average period over which it is expected to be recognized is 1.0 year.
The fair value of both time-based RSUs and performance-based RSUs pertaining to internal performance metrics is determined using the closing price of our common stock and expected dividend on the grant date. The fair value of performance-based RSUs pertaining to TSR is estimated using a Monte Carlo simulation. Inputs and assumptions used to calculate the fair value are shown in the table below. The fair value of these RSUs is expensed over the vesting period using the straight-line method or using the graded vesting method when an employee becomes eligible to retain the award at retirement.
| | | | | | | | | |
Year Ended December 31, | | | 2019 | | | | 2018 | | |
Fair value per stock award | | $ | 134.97 | | | $ | 128.70 | | |
Grant date stock price | | $ | 104.51 | | | $ | 89.42 | | |
Assumptions: | | | | | | | | | |
Aptar's stock price expected volatility | | | 16.50 | % | | | 12.30 | % | |
Expected average volatility of peer companies | | | 31.90 | % | | | 27.50 | % | |
Correlation assumption | | | 37.40 | % | | | 20.20 | % | |
Risk-free interest rate | | | 2.19 | % | | | 2.42 | % | |
Dividend yield assumption | | | 1.30 | % | | | 1.43 | % | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2021 | | 2020 | | 2019 |
| Fair value per stock award | $ | 171.63 | | | $ | 94.98 | | | $ | 134.97 | |
| Grant date stock price | $ | 141.59 | | | $ | 83.93 | | | $ | 104.51 | |
| Assumptions: | | | | | |
| Aptar's stock price expected volatility | 21.40 | % | | 23.80 | % | | 16.50 | % |
| Expected average volatility of peer companies | 50.00 | % | | 48.50 | % | | 31.90 | % |
| Correlation assumption | 58.10 | % | | 63.50 | % | | 37.40 | % |
| Risk-free interest rate | 0.32 | % | | 0.31 | % | | 2.19 | % |
| Dividend yield assumption | 1.02 | % | | 1.72 | % | | 1.30 | % |
A summary of RSU activity as of December 31,
2019,2021, and changes during the period then ended is presented below:
| | | | | | | | | | | |
| | Time-Based RSUs | | Performance-Based RSUs | |
| | | | Weighted Average | | | | Weighted Average | |
| | Units | | Grant-Date Fair Value | | Units | | Grant-Date Fair Value | |
Nonvested at January 1, 2019 | | 261,487 | | $ | 91.78 | | 69,990 | | $ | 111.55 | |
Granted | | 295,412 | | | 97.80 | | 123,246 | | | 119.35 | |
Vested | | (51,433) | | | 88.77 | | — | | | — | |
Forfeited | | (24,737) | | | 98.72 | | (11,556) | | | 117.04 | |
Nonvested at December 31, 2019 | | 480,729 | | $ | 95.45 | | 181,680 | | $ | 117.26 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Time-Based RSUs | | Performance-Based RSUs |
| Units | | Weighted Average
Grant-Date Fair Value | | Units | | Weighted Average
Grant-Date Fair Value |
| Nonvested at January 1, 2021 | 576,198 | | $ | 92.47 | | | 590,064 | | $ | 100.27 | |
| Granted | 161,358 | | 136.63 | | | 169,974 | | 152.51 | |
| Vested | (245,548) | | 97.45 | | | (72,529) | | 128.57 | |
| Forfeited | (6,529) | | 104.62 | | | (36,956) | | 95.37 | |
| Nonvested at December 31, 2021 | 485,479 | | $ | 108.73 | | | 650,553 | | $ | 111.04 | |
Included in the December 31, 20192021 time-based RSUs are 11,49010,007 units awardedgranted to non-employee directors and 14,25713,362 units vested related to non-employee directors.
Compensation expense recorded attributable to RSUs for the years ended December 31, 2019, 2018 and 2017 was approximately $18.2 million, $8.7 million and $3.7 million, respectively.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2021 | | 2020 | | 2019 |
| Compensation expense | $ | 38,643 | | | $ | 32,085 | | | $ | 18,197 | |
| Fair value of units vested | 32,414 | | | 12,038 | | | 4,566 | |
| Intrinsic value of units vested | 42,970 | | | 14,446 | | | 5,360 | |
The actual tax benefit realized for the tax deduction from RSUs was approximately
$1.0$7.2 million for the year ended December 31,
2019. The fair value of units vested during the years ended December 31, 2019, 2018 and 2017 was $4.6 million, $3.0 million and $4.7 million, respectively. The intrinsic value of units vested for the years ended December 31, 2019, 2018 and 2017 was $5.4 million, $3.7 million and $5.2 million, respectively.2021. As of December 31,
2019,2021, there was
$28.9$43.1 million of total unrecognized compensation cost relating to RSU awards which is expected to be recognized over a weighted average period of
2.91.8 years.
We have a long-term incentive program for certain employees. Each award is basedHistorically we issued stock options to our employees and non-employee directors. Beginning in 2019, we no longer issue stock options. Stock options were awarded with the exercise price equal to the market price on the cumulative TSRdate of grant and generally vest overthree yearsand expire10 yearsafter grant. For stock option grants, we used historical data to estimate expected life and volatility.
A summary of option activity under our common stock during a three year performance period compared to a peer group. The total expense related to this program for awards outstandingplans as of December 31, 20192021, and changes during the period then ended is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Stock Awards Plans | | Director Stock Option Plans |
| Options | | Weighted Average
Exercise Price | | Options | | Weighted Average
Exercise Price |
| Outstanding, January 1, 2021 | 3,998,047 | | | $ | 70.28 | | | 99,200 | | | $ | 60.80 | |
| Granted | — | | | — | | | — | | | — | |
| Exercised | (915,391) | | | 64.48 | | | (47,500) | | | 57.40 | |
| Forfeited or expired | (10,153) | | | 75.46 | | | — | | | — | |
| Outstanding at December 31, 2021 | 3,072,503 | | | $ | 71.99 | | | 51,700 | | | $ | 63.91 | |
| Exercisable at December 31, 2021 | 3,072,503 | | | $ | 71.99 | | | 51,700 | | | $ | 63.91 | |
| Weighted-Average Remaining Contractual Term (Years): | | | | | | | |
| Outstanding at December 31, 2021 | 4.1 | | | | 2.1 | | |
| Exercisable at December 31, 2021 | 4.1 | | | | 2.1 | | |
| Aggregate Intrinsic Value: | | | | | | | |
| Outstanding at December 31, 2021 | $ | 155,138 | | | | | $ | 3,028 | | | |
| Exercisable at December 31, 2021 | $ | 155,138 | | | | | $ | 3,028 | | | |
| Intrinsic Value of Options Exercised During the Years Ended: | | | | | | | |
| December 31, 2021 | $ | 69,862 | | | | | $ | 4,248 | | | |
| December 31, 2020 | $ | 59,179 | | | | | $ | 2,318 | | | |
| December 31, 2019 | $ | 87,251 | | | | | $ | 1,172 | | | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2021 | | 2020 | | 2019 |
| Compensation expense (included in SG&A) | $ | 185 | | | $ | 1,693 | | | $ | 4,768 | |
| Compensation expense (included in Cost of sales) | 42 | | | 370 | | | 928 | |
| Compensation expense, Total | $ | 227 | | | $ | 2,063 | | | $ | 5,696 | |
| Compensation expense, net of tax | 174 | | | 1,573 | | | 4,507 | |
| Grant date fair value of options vested | 2,421 | | | 7,601 | | | 17,492 | |
The reduction in stock option expense is due to our move to RSUs as discussed above. Cash received from option exercises was approximately
$2.7 million. For$59.9 million and the
yearsactual tax benefit realized for the tax deduction from option exercises was approximately $16.5 million in the year ended December 31,
2019, 2018 and 2017, we recognized expense2021. As of
$0.8 million, $1.2 million and $0.7 million, respectively. The accrued awards will be paid in the first quarter of 2020 with no future grants anticipated as this TSR incentive programDecember 31, 2021, there is no
longer awarded.remaining valuation of stock options to be expensed in future periods.
NOTE 17 EARNINGS PER SHARE
Basic net income per share is calculated by dividing net income attributable to Aptar by the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing the net income attributable to Aptar by the weighted-average number of common and common equivalent shares outstanding during the applicable period. The difference between basic and diluted earnings per share is attributable to stock based compensation awards. Share-basedStock-based compensation awards for which total employee proceeds exceed the average market price over the applicable period would have an antidilutive effect on earnings per share, and accordingly, are excluded from the calculation of diluted earnings per share. The reconciliation of basic and diluted earnings per share (“EPS”) for the years ended December 31, 2019, 20182021, 2020 and 20172019 are as follows:
Table of Contents
| | | | | | | | | |
| | Income | | Shares | | Per Share | |
| | (Numerator) | | (Denominator) | | Amount | |
For the Year Ended December 31, 2019 | | | | | | | | | |
Basic EPS | | | | | | | | | |
Income available to common stockholders | | $ | 242,202 | | 63,574 | | $ | 3.81 | |
Effect of Dilutive Securities | | | | | | | | | |
Stock options | | | | | 2,344 | | | | |
Restricted stock | | | | | 232 | | | | |
Diluted EPS | | | | | | | | | |
Income available to common stockholders | | $ | 242,202 | | 66,150 | | $ | 3.66 | |
For the Year Ended December 31, 2018 | | | | | | | | | |
Basic EPS | | | | | | | | | |
Income available to common stockholders | | $ | 194,745 | | 62,437 | | $ | 3.12 | |
Effect of Dilutive Securities | | | | | | | | | |
Stock options | | | | | 2,440 | | | | |
Restricted stock | | | | | 81 | | | | |
Diluted EPS | | | | | | | | | |
Income available to common stockholders | | $ | 194,745 | | 64,958 | | $ | 3.00 | |
For the Year Ended December 31, 2017 | | | | | | | | | |
Basic EPS | | | | | | | | | |
Income available to common stockholders | | $ | 220,030 | | 62,435 | | $ | 3.52 | |
Effect of Dilutive Securities | | | | | | | | | |
Stock options | | | | | 2,106 | | | | |
Restricted stock | | | | | 55 | | | | |
Diluted EPS | | | | | | | | | |
Income available to common stockholders | | $ | 220,030 | | 64,596 | | $ | 3.41 | |
| | | | | | | | | | | | | | | | | |
| Income
(Numerator) | | Shares
(Denominator) | | Per Share
Amount |
| For the Year Ended December 31, 2021 | | | | | |
| Basic EPS | | | | | |
| Income available to common stockholders | $ | 244,097 | | | 65,663 | | | $ | 3.72 | |
| Effect of Dilutive Securities | | | | | |
| Stock options | | | 1,600 | | | |
| Restricted stock | | | 419 | | | |
| Diluted EPS | | | | | |
| Income available to common stockholders | $ | 244,097 | | | 67,682 | | | $ | 3.61 | |
| For the Year Ended December 31, 2020 | | | | | |
| Basic EPS | | | | | |
| Income available to common stockholders | $ | 214,040 | | | 64,418 | | | $ | 3.32 | |
| Effect of Dilutive Securities | | | | | |
| Stock options | | | 1,800 | | | |
| Restricted stock | | | 439 | | | |
| Diluted EPS | | | | | |
| Income available to common stockholders | $ | 214,040 | | | 66,657 | | | $ | 3.21 | |
| For the Year Ended December 31, 2019 | | | | | |
| Basic EPS | | | | | |
| Income available to common stockholders | $ | 242,202 | | | 63,574 | | | $ | 3.81 | |
| Effect of Dilutive Securities | | | | | |
| Stock options | | | 2,344 | | | |
| Restricted stock | | | 232 | | | |
| Diluted EPS | | | | | |
| Income available to common stockholders | $ | 242,202 | | | 66,150 | | | $ | 3.66 | |
NOTE 18 SEGMENT INFORMATION
We are organized into3reporting segments. Operations that sell dispensing systems, drug delivery systems, sealing solutions and services to the prescription drug, consumer health care, injectables, active material science solutions and digital health markets form the Pharma segment. Operations that sell dispensing systems and sealing solutions primarily to the beauty, personal care and home care markets form the Beauty + Home segment. Operations that sell dispensing systems, and sealing solutions to the prescription drug, consumer health care, injectables and active packaging markets form the Pharma segment. Operations that sell dispensing systems and sealing solutionsfood service trays to the food and beverage markets form the Food + Beverage segment.
The accounting policies of the segments are the same as those described in Note 1 – Summary of Significant Accounting Policies. In order to more closely align with how the markets analyzeWe evaluate performance of our segment results, we have changed our non-U.S. GAAP segment measure of profitability from Segment Income toreporting segments and allocate resources based upon Adjusted EBITDA. Adjusted EBITDA beginning in 2018. All internal segment reportingis defined as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and discussionslosses related to observable market price changes on equity securities and other special items.
Financial information regarding our reporting segments is shown below:
| | | | | | | | | | |
Year Ended December 31, | | 2019 | | 2018 | | 2017 | |
Total Sales: | | | | | | | | | | |
Beauty + Home | | $ | 1,376,027 | | $ | 1,446,231 | | $ | 1,333,048 | |
Pharma | | | 1,100,463 | | | 955,069 | | | 805,913 | |
Food + Beverage | | | 418,017 | | | 386,689 | | | 352,483 | |
Total Sales | | $ | 2,894,507 | | $ | 2,787,989 | | $ | 2,491,444 | |
Less: Intersegment Sales: | | | | | | | | | | |
Beauty + Home | | $ | 23,313 | | $ | 19,849 | | $ | 19,262 | |
Pharma | | | 9,412 | | | 417 | | | 33 | |
Food + Beverage | | | 2,050 | | | 2,962 | | | 2,866 | |
Total Intersegment Sales | | $ | 34,775 | | $ | 23,228 | | $ | 22,161 | |
Net Sales: | | | | | | | | | | |
Beauty + Home | | $ | 1,352,714 | | $ | 1,426,382 | | $ | 1,313,786 | |
Pharma | | | 1,091,051 | | | 954,652 | | | 805,880 | |
Food + Beverage | | | 415,967 | | | 383,727 | | | 349,617 | |
Net Sales | | $ | 2,859,732 | | $ | 2,764,761 | | $ | 2,469,283 | |
Adjusted EBITDA (1): | | | | | | | | | | |
Beauty + Home | | $ | 181,150 | | $ | 185,926 | | $ | 173,227 | |
Pharma | | | 387,483 | | | 343,706 | | | 275,933 | |
Food + Beverage | | | 68,108 | | | 57,589 | | | 62,903 | |
Corporate & Other, unallocated | | | (44,406) | | | (36,285) | | | (37,457) | |
Acquisition-related costs (2) | | | (3,927) | | | (23,770) | | | — | |
Restructuring Initiatives (3) | | | (20,472) | | | (63,829) | | | (2,208) | |
Gain on insurance recovery (4) | | | — | | | — | | | 10,648 | |
Depreciation and amortization (5) | | | (194,552) | | | (171,747) | | | (153,094) | |
Interest Expense | | | (35,489) | | | (32,626) | | | (40,597) | |
Interest Income | | | 4,174 | | | 7,056 | | | 5,470 | |
Income before Income Taxes | | $ | 342,069 | | $ | 266,020 | | $ | 294,825 | |
Depreciation and Amortization: | | | | | | | | | | |
Beauty + Home | | $ | 82,778 | | $ | 83,546 | | $ | 79,422 | |
Pharma | | | 65,590 | | | 51,495 | | | 41,143 | |
Food + Beverage | | | 35,728 | | | 27,467 | | | 24,720 | |
Corporate & Other | | | 10,456 | | | 9,239 | | | 7,809 | |
Depreciation and Amortization | | $ | 194,552 | | $ | 171,747 | | $ | 153,094 | |
Capital Expenditures: | | | | | | | | | | |
Beauty + Home | | $ | 96,040 | | $ | 101,371 | | $ | 76,425 | |
Pharma | | | 89,702 | | | 54,433 | | | 33,005 | |
Food + Beverage | | | 45,130 | | | 41,236 | | | 38,730 | |
Corporate & Other | | | 13,933 | | | 25,739 | | | 18,924 | |
Transfer of Corporate Technology Expenditures (6) | | | (2,529) | | | (11,527) | | | (10,460) | |
Capital Expenditures | | $ | 242,276 | | $ | 211,252 | | $ | 156,624 | |
Total Assets: | | | | | | | | | | |
Beauty + Home | | $ | 1,378,292 | | $ | 1,373,816 | | $ | 1,358,283 | |
Pharma | | | 1,422,815 | | | 1,324,696 | | | 881,443 | |
Food + Beverage | | | 534,527 | | | 501,700 | | | 296,271 | |
Corporate & Other | | | 226,485 | | | 177,523 | | | 601,826 | |
Total Assets | | $ | 3,562,119 | | $ | 3,377,735 | | $ | 3,137,823 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2021 | | 2020 | | 2019 |
| Total Sales: | | | | | |
| Pharma | $ | 1,297,996 | | | $ | 1,234,107 | | | $ | 1,100,463 | |
| Beauty + Home | 1,456,208 | | | 1,320,988 | | | 1,376,027 | |
| Food + Beverage | 511,112 | | | 407,435 | | | 418,017 | |
| Total Sales | $ | 3,265,316 | | | $ | 2,962,530 | | | $ | 2,894,507 | |
| Less: Intersegment Sales: | | | | | |
| Pharma | $ | 13,372 | | | $ | 8,328 | | | $ | 9,412 | |
| Beauty + Home | 22,186 | | | 22,837 | | | 23,313 | |
| Food + Beverage | 2,537 | | | 2,025 | | | 2,050 | |
| Total Intersegment Sales | $ | 38,095 | | | $ | 33,190 | | | $ | 34,775 | |
| Net Sales: | | | | | |
| Pharma | $ | 1,284,624 | | | $ | 1,225,779 | | | $ | 1,091,051 | |
| Beauty + Home | 1,434,022 | | | 1,298,151 | | | 1,352,714 | |
| Food + Beverage | 508,575 | | | 405,410 | | | 415,967 | |
| Net Sales | $ | 3,227,221 | | | $ | 2,929,340 | | | $ | 2,859,732 | |
| Adjusted EBITDA (1): | | | | | |
| Pharma | $ | 425,714 | | | $ | 428,469 | | | $ | 387,483 | |
| Beauty + Home | 154,689 | | | 129,299 | | | 181,150 | |
| Food + Beverage | 79,377 | | | 71,995 | | | 68,108 | |
| Corporate & Other, unallocated | (52,314) | | | (43,443) | | | (44,406) | |
| Acquisition-related costs (2) | (3,811) | | | (6,087) | | | (3,927) | |
| Restructuring Initiatives (3) | (23,240) | | | (26,492) | | | (20,472) | |
| Net unrealized investment gain (4) | 2,709 | | | — | | | — | |
| Depreciation and amortization (5) | (234,853) | | | (220,300) | | | (194,552) | |
| Interest Expense | (30,284) | | | (33,244) | | | (35,489) | |
| Interest Income | 3,668 | | | 958 | | | 4,174 | |
| Income before Income Taxes | $ | 321,655 | | | $ | 301,155 | | | $ | 342,069 | |
| Depreciation and Amortization: | | | | | |
| Pharma | $ | 90,510 | | | $ | 75,874 | | | $ | 65,590 | |
| Beauty + Home | 96,611 | | | 95,880 | | | 82,778 | |
| Food + Beverage | 40,323 | | | 37,768 | | | 35,728 | |
| Corporate & Other | 7,409 | | | 10,778 | | | 10,456 | |
| Depreciation and Amortization | $ | 234,853 | | | $ | 220,300 | | | $ | 194,552 | |
| Capital Expenditures: | | | | | |
| Pharma | $ | 154,077 | | | $ | 117,835 | | | $ | 89,702 | |
| Beauty + Home | 100,531 | | | 93,980 | | | 96,040 | |
| Food + Beverage | 34,136 | | | 29,956 | | | 45,130 | |
| Corporate & Other | 29,686 | | | 15,690 | | | 13,933 | |
| Transfer of Corporate Technology Expenditures (6) | (10,495) | | | (11,507) | | | (2,529) | |
| Capital Expenditures | $ | 307,935 | | | $ | 245,954 | | | $ | 242,276 | |
| Total Assets: | | | | | |
| Pharma | $ | 1,833,512 | | | $ | 1,549,781 | | | $ | 1,422,815 | |
| Beauty + Home | 1,615,917 | | | 1,610,058 | | | 1,378,292 | |
| Food + Beverage | 574,269 | | | 549,270 | | | 534,527 | |
| Corporate & Other | 117,666 | | | 280,944 | | | 226,485 | |
| Total Assets | $ | 4,141,364 | | | $ | 3,990,053 | | | $ | 3,562,119 | |
(1) | We evaluate performance of our reporting segments and allocate resources based upon Adjusted EBITDA. Adjusted EBITDA is defined as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring, acquisition-related costs and insurance recoveries. | | | | |
| 68/ATR | 2021 Form 10-K |
(2) | Acquisition-related costs include transaction costs and purchase accounting adjustments related to inventory for acquisitions (see Note 20 – Acquisitions for further details). | | | | |
| |
(1)We evaluate performance of our reporting segments and allocate resources based upon Adjusted EBITDA. Adjusted EBITDA is defined as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items.
| |
71/ATR
| 2019 Form 10-K
|
(2)Acquisition-related costs include transaction costs and purchase accounting adjustments related to acquisitions and investments (see Note 19 – Acquisitions and Note 20 – Investment in Equity Securities for further details).
(3)Restructuring Initiatives includes expense items for the years ended December 31, 2021, 2020 and 2019 as follows (see Note 21 – Restructuring Initiatives for further details):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, | 2021 | | 2020 | | 2019 |
| Restructuring Initiatives by Segment | | | | | |
| Pharma | $ | 76 | | | $ | 220 | | | $ | 632 | |
| Beauty + Home | 10,447 | | | 24,464 | | | 17,682 | |
| Food + Beverage | 404 | | | 1,903 | | | 391 | |
| Corporate & Other | 12,313 | | | (95) | | | 1,767 | |
| Total Restructuring Initiatives | $ | 23,240 | | | $ | 26,492 | | | $ | 20,472 | |
Table(4)Net unrealized investment gain represents the change in fair value of Contentsour investment in PCT (see Note 20 - Investment in Equity Securities for further details).
(3) | Restructuring Initiatives includes expense items for the years ended December 31, 2019 and 2018 as follows (see Note 21 – Restructuring Initiatives for further details): |
(5)Depreciation and amortization includes amortization related to acquisition purchase accounting adjustments. See the reconciliation of Non-U.S. GAAP measures.(6)The transfer of corporate technology expenditures represents amounts of projects managed by corporate for the benefit of specific entities within each segment. Once the projects are complete, all related costs are allocated from corporate to and paid by the appropriate entity and the associated assets are then depreciated at the entity level.
| | | | | | | | | | |
Year Ended December 31, | | 2019 | | 2018 | | 2017 | |
Restructuring Initiatives by Segment | | | | | | | | | | |
Beauty + Home | | $ | 17,682 | | $ | 52,244 | | $ | 529 | |
Pharma | | | 632 | | | 3,589 | | | — | |
Food + Beverage | | | 391 | | | 4,185 | | | 1,679 | |
Corporate & Other | | | 1,767 | | | 3,811 | | | — | |
Total Restructuring Initiatives | | $ | 20,472 | | $ | 63,829 | | $ | 2,208 | |
(4) | The gain on insurance recovery relates to the Annecy fire (see Note 19 – Insurance Settlement Receivable for further details). |
(5) | Depreciation and amortization includes amortization related to acquisition purchase accounting adjustments for backlog. See the reconciliation of Non-U.S. GAAP measures starting on page 22. |
(6) | The transfer of corporate technology expenditures represents amounts of projects managed by corporate for the benefit of specific entities within each segment. Once the projects are complete, all related costs are allocated from corporate to and paid by the appropriate entity and the associated assets are then depreciated at the entity level. |
Geographic Information
The following are net sales and long-lived asset information by geographic area and product information for the years ended December 31,
2019, 20182021, 2020 and
2017:
| | | | | | | | | | |
| | 2019 | | 2018 | | 2017 | |
Net Sales to Unaffiliated Customers (1): | | | | | | | | | | |
United States | | $ | 836,768 | | $ | 726,336 | | $ | 642,164 | |
Europe: | | | | | | | | | | |
France | | | 895,110 | | | 862,364 | | | 744,856 | |
Germany | | | 452,409 | | | 474,369 | | | 416,802 | |
Italy | | | 141,867 | | | 144,044 | | | 131,523 | |
Other Europe | | | 149,083 | | | 146,701 | | | 132,992 | |
Total Europe | | | 1,638,469 | | | 1,627,478 | | | 1,426,173 | |
Other Foreign Countries | | | 384,495 | | | 410,947 | | | 400,946 | |
Total | | $ | 2,859,732 | | $ | 2,764,761 | | $ | 2,469,283 | |
Property, Plant and Equipment | | | | | | | | | | |
United States | | $ | 300,820 | | $ | 265,004 | | $ | 182,434 | |
Europe: | | | | | | | | | | |
France | | | 338,288 | | | 308,250 | | | 266,804 | |
Germany | | | 163,782 | | | 154,505 | | | 163,948 | |
Italy | | | 53,562 | | | 54,978 | | | 57,080 | |
Other Europe | | | 63,636 | | | 59,411 | | | 59,963 | |
Total Europe | | | 619,268 | | | 577,144 | | | 547,795 | |
Other Foreign Countries | | | 167,590 | | | 149,465 | | | 137,677 | |
Total | | $ | 1,087,678 | | $ | 991,613 | | $ | 867,906 | |
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Net Sales to Unaffiliated Customers (1): | | | | | |
| United States | $ | 1,081,823 | | | $ | 965,986 | | | $ | 836,768 | |
| Europe: | | | | | |
| France | 906,057 | | | 854,639 | | | 895,110 | |
| Germany | 486,928 | | | 448,405 | | | 452,409 | |
| Italy | 161,676 | | | 148,636 | | | 141,867 | |
| Other Europe | 170,521 | | | 152,376 | | | 149,083 | |
| Total Europe | 1,725,182 | | | 1,604,056 | | | 1,638,469 | |
| Other Foreign Countries | 420,216 | | | 359,298 | | | 384,495 | |
| Total | $ | 3,227,221 | | | $ | 2,929,340 | | | $ | 2,859,732 | |
| Property, Plant and Equipment, Net | | | | | |
| United States | $ | 321,511 | | | $ | 298,616 | | | $ | 300,820 | |
| Europe: | | | | | |
| France | 455,105 | | | 426,353 | | | 338,288 | |
| Germany | 197,643 | | | 194,553 | | | 163,782 | |
| Italy | 50,828 | | | 57,333 | | | 53,562 | |
| Other Europe | 58,121 | | | 55,933 | | | 63,636 | |
| Total Europe | 761,697 | | | 734,172 | | | 619,268 | |
| Other Foreign Countries | 192,669 | | | 165,960 | | | 167,570 | |
| Total | $ | 1,275,877 | | | $ | 1,198,748 | | | $ | 1,087,658 | |
(1) | Sales are attributed to countries based upon where the sales invoice to unaffiliated customers is generated. | | | | |
| |
(1)Sales are attributed to countries based upon where the sales invoice to unaffiliated customers is generated.
No single customer or group of affiliated customers represents 6% or moregreater than 5% of our net sales in 2019, 20182021 and 2020 or 2017.greater than 6%NOTE 19 INSURANCE SETTLEMENT RECEIVABLE
A fire caused damage to our facility in Annecy, France in June 2016. The fire was contained to one of three production units and there were no reported injuries. Aptar Annecy supplies anodized aluminum components for certain Aptar dispensing systems. We are insured for the damages caused by the fire, including business interruption insurance, and we do not expect this incident to have a material impact on our financial results.2019.
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72/69/ATR
| 20192021 Form 10-K
|
Losses relatedNOTE 19 ACQUISITIONS
Business Combinations
On September 2, 2021, following the signature of a share purchase agreement on July 22, 2021 and the approval of the French Ministry of Economy under the foreign investment clearance regulations, we completed the acquisition of 64.3% of the share capital of Voluntis S.A.. Voluntis, based in Paris, France and Boston, MA, is a pioneer in digital therapeutics. We acquired from certain members of the management and certain shareholders the entirety of their shares representing approximately 64.3% of the share capital of Voluntis (on a non-diluted basis) at a price of €8.70 per share for approximately €50.8 million (approximately $60.4 million) funded with available cash on hand. This values the full company equity (on a fully diluted basis) at approximately €79.1 million (approximately $93.9 million). Aptar launched a mandatory cash simplified tender offer to acquire Voluntis's remaining shares for the same price of €8.70 per share (the "tender offer"). During September 2021, Aptar acquired €8.4 million (approximately $9.9 million) of additional shares from the tender offer, bringing the total investment as of September 30, 2021 to approximately €59.2 million (approximately $70.3 million) representing 74.9% of the total share capital, and implies a non-controlling interest valued at €19.9 million (approximately $23.6 million). Following completion of the tender offer, Aptar implemented a mandatory squeeze-out on the remaining outstanding shares of Voluntis on the same financial terms as those of the tender offer. During the fourth quarter of 2021, the tender offer and squeeze-out were completed and funded with available cash on hand and we acquired the remaining 25.1% of the share capital for €19.5 million (approximately $22.6 million), resulting in Aptar owning 100.0% of the share capital of Voluntis. We are in the process of finalizing purchase accounting.
The fair value of the assets acquired include an acquired technology intangible asset of $27.9 million and other intangible assets of $8.4 million. The acquired technology intangible asset was valued using the Multi-Period Excess Earnings Method ("MPEEM") valuation approach. Judgment was applied with respect to determining the fair value of the acquired technology, which involved the use of significant estimates and assumptions with respect to the Annecy firerevenue growth rate, technology obsolescence rate and discount rate.
On August 17, 2021, we completed the acquisition (the "Hengyu Acquisition") of $18.980% of the equity interests of Weihai Hengyu Medical Products Co., Ltd. ("Hengyu"). Hengyu, a leading Chinese manufacturer of elastomeric and plastic components used in injectable drug delivery, is based in Weihai, China. Under the terms of the agreement, 90% of the estimated purchase price for 80% ownership, RMB 347.7 million (approximately $53.6 million), was paid to the sellers in August 2021, with available cash on hand. A final purchase price adjustment of RMB 1.5 million (approximately $0.2 million) was recorded to Accounts payable, accrued and other liabilities and was paid in the fourth quarter of 2021. The remaining 10% of the acquisition price for 80% ownership, RMB 38.7 million (approximately $6.0 million), is payable to the sellers eighteen months after closing plus simple interest of 4% and is expected to be funded with available cash on hand. This values the full company equity (on a fully diluted basis) at RMB 484.9 million (approximately $74.8 million) and implies a non-controlling interest valued at RMB 97 million (approximately $15 million) as of the acquisition date. Pursuant to the agreement, we have the option to acquire the remaining 20% of the equity of Hengyu upon the fifth anniversary of the closing date.
The fair value of the assets acquired include a customer relationship intangible asset of $24.1 million and
$20.3 million were incurred during 2018other intangible assets of $5.6 million. The customer relationship intangible asset was valued using the MPEEM valuation approach. Judgment was applied with respect to determining the fair value of the customer relationships, which involved the use of significant estimates and
2017, respectively. For the year ended December 31, 2019, we received insurance proceeds of $3.4 million, and have 0 insurance receivable at year-end. Operating Income was negatively impacted by $5.8 million during 2018. These 2018 losses negatively impacted the Beauty + Home and Pharma segments by $3.8 million and $2.0 million, respectively. Operating income was negatively impacted by $5.6 million during 2017. During 2017, we also recognized $10.6 million of gain dueassumptions with respect to the
insurance recovery on the involuntary conversion of fixed assets related to this fire, which is included in Other (Expense) Income on the Consolidated Statements of Income. These 2017 amounts impacted the Beauty + Home segment. The final settlement is still in process of negotiation with the insurance company.NOTE 20 ACQUISITIONS
Business Combinations
revenue growth rates, customer attrition rates, Adjusted EBIT margins and discount rate.
On October 31, 2019,April 1, 2020, we completed our acquisition (the “Noble“Fusion Acquisition”) of 100% of the equity interests of Noble International Holdings,Fusion Packaging, Inc., Genia Medical, Inc. and JBCB Holdings, LLC (collectively referred to as “Noble” (“Fusion”). Noble, based in Orlando, FL, is a leading provider in developing patient-centric advanced drug delivery system training devices including autoinjector, prefilled syringe, onbody and respiratory devices for the world’s leading biopharmaceutical companies and original equipment manufacturers. Thea purchase price wasof approximately $62.3$163.8 million (net of $1.6$1.0 million of cash acquired) and, which was funded by a draw on our revolving credit facility and cash on hand. Fusion, based in Dallas, TX, is a global leader in the design, engineering and distribution of luxury packaging for the beauty industry. As part of the NobleFusion Acquisition, we are also obligated to pay to the selling equityholdersequity holders of NobleFusion certain contingent consideration based on 20242022 cumulative financial performance metrics as defined in the purchase agreement. Based on a projection as of the acquisition date, we estimated the aggregate fair value for this contingent consideration arrangement to be $2.9$19.1 million utilizing thea Black-Scholes valuation model. We are inDuring the processfourth quarter of finalizing purchase accounting.2020, a $3.6 million fair value true-up was recorded as an adjustment to the opening balance of goodwill and contingent consideration liability. As of December 31, 2019, $52021, we have estimated the aggregate fair value for this contingent consideration arrangement to be $27.2 million.
As of the acquisition date, $5.7 million was held in restricted cash pending the finalization of a working capital
adjustment. The resultsadjustment and indemnity escrow. During the third quarter of
Noble’s operations2020, $2.0 million related to the working capital escrow was released from restriction, resulting in a refund from seller of $294 thousand and a corresponding decrease to our purchase price and associated goodwill balance. During the second quarter of 2021, the remaining restricted cash was released. Fusion contributed net sales of $53.4 million and pretax loss of $1.5 million since acquisition for the period ended December 31, 2020 which have been included in the
Condensed Consolidated Financial Statements within our
Pharma segment since the date of acquisition.On June 5, 2019, we completed our acquisition (the “Nanopharm Acquisition”) of all of the outstanding capital stock of Nanopharm Ltd. (“Nanopharm”). Nanopharm, located in Newport, UK, is a science-driven, leading provider of orally inhaled and nasal drug product design and development services. The purchase price was approximately $38.1 million (net of $1.8 million of cash acquired) and was funded by cash on hand. The results of Nanopharm’s operations have been included in the Condensed Consolidated Financial Statements within our Pharma segment since the date of acquisition.
On May 31, 2019, we completed our acquisition (the “Gateway Acquisition”) of all of the outstanding equity interests of Gateway Analytical LLC (“Gateway”). Gateway, located in Gibsonia, PA, provides industry-leading particulate detection and predictive analytical services to customers developing injectable medicines. The purchase price was approximately $7.0 million and was funded by cash on hand. As part of the Gateway Acquisition, we are also obligated to pay to the selling equityholder of Gateway certain contingent consideration based on 2020 and 2022 performance targets defined in the purchase agreement. Based on projections as of the acquisition date, we estimated the aggregate fair value for this contingent consideration arrangement to be $3.0 million. The results of Gateway’s operations have been included in the Condensed Consolidated Financial Statements within our Pharma segment since the date of acquisition.
On August 27, 2018, we completed our acquisition (the “CSP Technologies Acquisition”) of all of the outstanding capital stock of CSP Technologies S.à r.l. (“CSP Technologies”). CSP Technologies is a leader in active packaging technology based on proprietary material science expertise for the pharma and food service markets. CSP Technologies operates manufacturing locations in the U.S. and France. The preliminary purchase price was approximately $553.5 million and was funded by cash on hand. As of December 31, 2018, $5 million was held in restricted cash pending the finalization of a working capital adjustment. The $5 million cash amount was released from restriction in January 2019 after the finalization of the working capital adjustment, resulting in a refund of $1.0 million.
CSP Technologies contributed net sales of $48.9 million and pretax loss of $10.2 million for the year ended December 31, 2018. Sales of $33.9 million and $15.0 million were reported in the Pharma and FoodBeauty + Beverage segments, respectively, for the year ended December 31, 2018. Pretax loss of $10.3 million and pretax income of $0.1 million were reported in the Pharma and Food + Beverage segments, respectively, for the year ended December 31, 2018.Home segment. Included in pretax incomeloss is $14.1$6.9 million of fair value adjustment amortization for inventory sold during 2018.2020 and contingent consideration liability adjustments.
For the year ended December 31, 2019,2021, we recognized $3.4$3.8 million in transaction costs related to the acquisitions of Noble, NanopharmVoluntis and Gateway.Hengyu. For the year ended December 31, 2018,2020, we recognized $9.0$4.6 million in transaction costs related to the acquisition of CSP Technologies.Fusion Acquisition. These costs are reflected in the selling, research & development and administration section of the Consolidated Statements of Income and within acquisition-related costs as disclosed in Note 18 – Segment Information. Pro forma and 2021 reported results of operations for the 2021 acquisitions have not been presented as the effects of these business combinations individually and in aggregate were not material to the consolidated results of operations.
The following table summarizes the assets acquired and liabilities assumed related to the above acquisitions as of the acquisition date at estimated fair value.
| | | | | | | |
| | 2019 | | 2018 | |
Assets | | | | | | | |
Cash and equivalents | | $ | 3,427 | | $ | 24,053 | |
Accounts receivable | | | 3,504 | | | 20,847 | |
Inventories | | | — | | | 42,169 | |
Prepaid and other | | | 2,478 | | | 3,995 | |
Property, plant and equipment | | | 4,267 | | | 99,194 | |
Goodwill | | | 59,143 | | | 278,020 | |
Intangible assets | | | 52,980 | | | 177,120 | |
Other miscellaneous assets | | | 430 | | | 1,039 | |
Liabilities | | | | | | | |
Current maturities of long-term obligations | | | — | | | 129 | |
Accounts payable, accrued and other liabilities | | | 5,388 | | | 31,989 | |
Long-term obligations | | | — | | | 6,037 | |
Deferred income taxes | | | 2,592 | | | 38,442 | |
Retirement and deferred compensation plans | | | — | | | 1,038 | |
Deferred and other non-current liabilities | | | 1,598 | | | 15,344 | |
Net assets acquired | | $ | 116,651 | | $ | 553,458 | |
| | | | | | | | | | | |
| 2021 | | 2020 |
| Assets | | | |
| Cash and equivalents | $ | 3,852 | | | $ | 1,010 | |
| Accounts receivable | 5,208 | | | 4,380 | |
| Inventories | 606 | | | 386 | |
| Other receivable | 286 | | | — | |
| Prepaid and other | 1,863 | | | 1,090 | |
| Property, plant and equipment | 14,081 | | | 2,885 | |
| Goodwill | 104,433 | | | 103,130 | |
| Intangible assets | 65,981 | | | 79,900 | |
| Operating lease right-of-use assets | 2,309 | | | 4,744 | |
| Other miscellaneous assets | 78 | | | 65 | |
| Liabilities | | | |
| Current maturities of long-term obligations, net of unamortized debt issuance costs | 1,410 | | | — | |
| Accounts payable, accrued and other liabilities | 9,663 | | | 5,641 | |
| Deferred income taxes | 16,792 | | | — | |
| Operating lease liabilities | 2,306 | | | 4,207 | |
| Deferred and other non-current liabilities | 5,770 | | | 322 | |
| Net assets acquired | $ | 162,756 | | | $ | 187,420 | |
The following table is a summary of the fair value estimates of the acquired identifiable intangible assets and weighted-average useful lives as of the acquisition date:
| | | | | | | | | | | |
| | 2019 | | 2018 | |
| | Weighted-Average | | Estimated | | Weighted-Average | | Estimated | |
| | Useful Life | | Fair Value | | Useful Life | | Fair Value | |
| | (in years) | | of Asset | | (in years) | | of Asset | |
Acquired technology | | 8 | | $ | 9,160 | | 12 | | $ | 46,700 | |
Customer relationships | | 11 | | | 39,379 | | 16 | | | 113,300 | |
Trademarks and trade names | | 4 | | | 2,457 | | 9 | | | 14,600 | |
License agreements and other | | 1 | | | 1,984 | | 11 | | | 2,520 | |
Total | | | | $ | 52,980 | | | | $ | 177,120 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 |
| Weighted-Average
Useful Life
(in years) | | Estimated
Fair Value
of Asset | | Weighted-Average
Useful Life
(in years) | | Estimated
Fair Value
of Asset |
| Acquired technology | 10 | | $ | 34,323 | | | 4 | | $ | 4,600 | |
| Customer relationships | 11.6 | | 30,258 | | | 13 | | 62,300 | |
| Trademarks and trade names | 0 | | — | | | 4 | | 10,300 | |
| License agreements and other | 0.25 | | 1,401 | | | 0.25 | | 2,700 | |
| Total | | | $ | 65,981 | | | | | $ | 79,900 | |
Goodwill in the amount of $59.1$104.4 million and $278.0$103.1 million was recorded related to the 20192021 and 20182020 acquisitions, respectively. For 2019, $59.12021, $104.4 million is included in the Pharma segment and, for 2018, $174.3 million and $103.72020, $103.1 million is included in the Pharma and FoodBeauty + Beverage segments, respectively.Home segment. Goodwill is calculated as the excess of the consideration transferred over the net assets acquired and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill acquired in 2021 acquisitions largely consists of leveragingexpansion into the digital health solutions market, by adding digital therapeutic solutions and broadening our commercial presencedigital health services provided to customers; as well as strengthening our capabilities in sellinghigh-growth economies by enhancing the Noble, Nanopharm, Gatewayability to respond to changing local market needs in the injectables market, while goodwill acquired in 2020 acquisitions largely consists of unique relationships, brand equity and CSP Technologies lines of products in markets where they did not previously operate andproprietary technology that has been established creating niches such as turnkey solutions for the beauty market related to the Fusion Acquisition, as well as the abilities of the acquired companies to maintain their competitive advantage from a technical viewpoint. Goodwill will not be amortized, but will be tested for impairment at least annually. For 20192021 acquisitions, no goodwill will be deductible for tax purposes. For 2020 acquisitions, goodwill of $29.6$80.6 million will be deductible for tax purposes. For the 2018 acquisitions,
Asset Acquisition
On October 16, 2020, we
do not expect anycompleted our acquisition of the
goodwill will be deductibleassets of Cohero Health, Inc. ("Cohero Health") for
tax purposes.Pro forma$2.4 million. The net assets acquired and the results of operations for 2019 acquisitions have not been presented as the effects of these business combinations individually and in aggregate were not material to the consolidated results of operations.
The unaudited pro forma results presented below include the effects of the CSP Technologies acquisition as if it had occurred as of January 1, 2017. The unaudited pro forma results reflect certain adjustments related to the acquisition, such as intangible asset amortization, fair value adjustments for inventory and financing costs related to the change in our debt structure. The 2018 pro forma earnings were adjusted to exclude $16.7 million after tax ($22.0 million pretax) of transaction and other costs. The aforementioned costs include compensation, consulting, legal and advisory fees. The 2018 pro forma earnings were also adjusted to exclude $10.9 million after tax ($14.1 million pretax) of nonrecurring expense related to the fair value adjustment to acquisition-date inventory. The 2017 pro forma earnings were adjusted to include these adjustments.
The pro forma results do not include any synergies or other expected benefits of the acquisition. Accordingly, the unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been completed on the dates indicated.
| | | | | | | | | | |
Years Ended December 31, | | | | 2018 | | 2017 | |
| | | | | | | | | | |
Net Sales | | | | | $ | 2,857,765 | | $ | 2,605,095 | |
Net Income Attributable to AptarGroup Inc. | | | | | | 208,717 | | | 230,753 | |
Net Income per common share — basic | | | | | | 3.34 | | | 3.70 | |
Net Income per common share — diluted | | | | | | 3.21 | | | 3.57 | |
On May 1, 2018, we acquired 100% of the common stock of Reboul, a French manufacturer specializing in stamping, decorating and assembling metal and plastic packaging for the cosmetics and luxury markets, for an initial purchase price of approximately $3.5 million (net of $112 thousand of cash acquired) (the “Reboul Acquisition”). The results of Reboul’sCohero Health's operations have been included in the consolidated financial statementsConsolidated Financial Statements within our Beauty + HomePharma segment since the date of acquisition. As partBased in New York, Cohero Health develops innovative digital tools and technologies to improve respiratory care, reduce avoidable costs and optimize medication utilization.
NOTE 20 INVESTMENT IN EQUITY SECURITIES
Our investment in equity securities consisted of the
Reboul Acquisition, we were obligated to pay to the selling shareholders of Reboul certain contingent consideration based on 2018 EBITDA as defined in the purchase agreement. These targets were not achieved and we did not pay any contingent consideration.Subsequent to year end, on February 13,following:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Equity Method Investments | | | |
| BTY | $ | 33,199 | | | $ | 33,020 | |
| Sonmol | 5,904 | | | 5,598 | |
| Kali Care | — | | | 535 | |
| Desotec GmbH | 919 | | | 964 | |
| | | |
| Other Investments | | | |
| PureCycle | 9,006 | | | 5,397 | |
| YAT | 5,978 | | | — | |
| Loop | 2,894 | | | 2,894 | |
| Others | 1,585 | | | 1,679 | |
| $ | 59,485 | | | $ | 50,087 | |
Equity Method Investments
BTY
On January 1, 2020, we
entered into a securities purchase agreement to acquire 100% of the membership interests of Fusion Packaging I, LP (“Fusion”), contingent on the closing date of the transaction. Fusion, based in Dallas, TX, is a global leader in the design, engineering, manufacturing and distribution of luxury packaging for the beauty industry. The transaction is subject to customary regulatory approvals and other customary closing conditions. The purchase will be funded with available cash on hand and/or borrowings under our revolving credit facility.Asset Acquisition
On August 2, 2019, we completed our asset acquisition (the “Bapco Acquisition”) of the remaining 80% ownership interest in the capital stock of Bapco Closures Holdings Limited (“Bapco”), for $3.8 million (net of $2.9 million of cash acquired). The 20% ownership investment previously held in Bapco is now included within the intangible assets acquired. Bapco, located in Horesell, UK, provides innovative closures sealing technology that provides package integrity and tamper evidence. The results of Bapco’s operations have been included in the Condensed Consolidated Financial Statements within our Food + Beverage segment since the date of acquisition.
Equity and Other Investments
On October 1, 2019, we entered into a strategic definitive agreement to acquireacquired 49% of the equity interests in three3 related companies: Suzhou Hsing Kwang, Suqian Hsing Kwang and Suzhou BTY (collectively referred to as “BTY”), contingent on the settlement date for an approximate purchase price of the transaction.$32 million. We have a call option to acquire an additional 26% to 31% of BTY’s equity interests following the initial lock-up period of 5 years based on a predetermined formula. Subsequent to the second lock-up period, which ends 3 years subsequent toafter the initial lock-up period, we have a call option to acquire the remaining equity interests of BTY based on a predetermined formula. Additionally, the selling shareholders of BTY have a put option for the remaining equity interest to be acquired by Aptar based on a predetermined formula. The BTY entities are leading Chinese manufacturers of high quality, decorative metal components, metal-plastic sub-assemblies, and complete color cosmetics packaging solutions for the beauty industry. Subsequent
Sonmol
On April 1, 2020, we invested $5 million to acquire 30% of the year endedequity interests in Healthcare, Inc., Shanghai Sonmol Internet Technology Co., Ltd. and its subsidiary, Shanghai Sonmol Medical Equipment Co., Ltd. (collectively referred to as “Sonmol”), a pharmaceutical and leading Chinese digital respiratory therapeutics company that provides consumer electric devices and connected devices for asthma control and develops digital therapies and services platforms targeting chronic respiratory illnesses and other diseases.
Kali Care
During 2017, we invested $5 million to acquire 20% of the equity interests in Kali Care, a technology company that provides digital monitoring systems for medical devices. Since our investment, we have recognized approximately $1.6 million of our cumulative pro-rata share of operating losses. During 2021 and 2020, we recognized an other than temporary impairment of $0.4 million ($0.3 million after-tax) and $3.0 million ($2.3 million after-tax), respectively, on our underlying assets in this investment as a result of a reassessment of the future value of the business and continued reduction in operating cash flows. In addition to our investment, we also hold a note receivable from Kalicare for $1.5 million which is included in accounts and notes receivable in the Consolidated Balance Sheets. As our note receivable would have preferential treatment during a potential liquidation, we do not consider it impaired as of December 31, 2019, on January 1, 20202021. Any further operating losses will be recognized against the transaction closedoutstanding note receivable.
Desotec GmbH
During 2009, we invested €574 thousand to acquire 23% of the equity interests in Desotec GmbH, a leading manufacturer of special assembly machines for
an approximate purchase price of $32 millionbulk processing for
our 49% share.the pharmaceutical, beauty and home and food and beverages markets.
Other Investments
During August 2019, we also invested an aggregate amount of $3.5 million in 2 preferred equity investments in sustainability companies Loop and PureCycle that arewere accounted for at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. During 2020, we invested an additional $1.4 million in these 2 equity investments and also received $333 thousand of equity in PureCycle in exchange for our resource dedication for technological partnership and support. In November 2020, we increased the value of the PureCycle investment by $3.1 million based on observable price changes and recorded the gain in miscellaneous income in the Consolidated Statements of Income.
In March 2021, PureCycle was purchased by a special purpose acquisition company and was subsequently listed on Nasdaq under the ticker PCT. At that time, our investment in PureCycle was converted into shares of PCT resulting in less than a 1% ownership interest. This investment is now recorded at fair value based on observable market prices for identical assets and the change in fair value is recorded as a net investment gain or loss in the Consolidated Statements of Income. During 2021, we received $333 thousand of shares of PCT in exchange for our resource dedication for technological partnership and support and exercised a $1.0 million FDA milestone tranche for additional shares. During October 2021, we sold 191,349 shares for $2.4 million in net proceeds, resulting in a realized gain on sale of $2.0 million which is recorded within the net investment gain in the Consolidated Statements of Income.For the year ended December 31, 2021, we recorded a net unrealized gain on our investment in PureCycle of $2.7 million which is recorded within the net investment gain in the Consolidated Statements of Income.
On July 7, 2021, we invested approximately $5.9 million to acquire 10% of the equity interests in YAT, a multi-functional, science-driven online skincare solutions company.
There were no indications of impairment
nor were there any changes from observable price changes noted in the
three monthsyear ended December 31,
2019.In May 2018, we invested $10.0 million in preferred equity stock of Reciprocal Labs Corporation, doing business as Propeller Health, consistent with measurement alternative guidance described in Note 1 above. NaN impairment charge was recorded during 2018 against this investment. We recorded a gain of approximately $6.5 million during the fourth quarter of 2018 by adjusting the carrying amount2021 related to its expected sales proceeds as this investment was subsequently sold during January 2019.
NOTE 21 RESTRUCTURING INITIATIVES
In late 2017, we began a business transformation to drive profitable sales growth, increase operational excellence, enhance our approach to innovation and improve organizational effectiveness. The primary focus of the plan
will beis the Beauty + Home segment; however, certain global general and administrative functions
willhave also
bebeen addressed. During
20192021, 2020 and
2018,2019, we recognized
approximately $20.5$23.2 million, $26.5 million and
$63.8$20.5 million of restructuring costs related to this plan, respectively.
Using current exchange rates,During 2020, $2.5 million of the $26.5 million recognized was related to asset impairment. As of the end of 2021, we
have successfully completed the vast majority of our planned initiatives related to our transformation plan and do not expect
total implementation costs of approximately $110 million for these initiatives.additional restructuring expenses related to this plan going forward. The cumulative expense incurred
to dateas of December 31, 2021 was
$86.5$136.2 million. We
have also
anticipate makingmade total capital investments
of approximately $50 million related to
the transformation plan of approximately $55 million, of which the $38 million has been incurred to date.this plan.
As of December 31, 20192021 we have recorded the following activity associated with the transformation plan:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Beginning Reserve at 12/31/2020 | | Net Charges for the Year Ended 12/31/2021 | | Cash Paid | | Interest and
FX Impact | | Ending Reserve at 12/31/2021 |
| Employee severance | $ | 7,956 | | | $ | 2,225 | | | $ | (6,412) | | | $ | (234) | | | $ | 3,535 | |
| Professional fees and other costs | 2,533 | | | 21,015 | | | (23,220) | | | (68) | | | 260 | |
| Totals | $ | 10,489 | | | $ | 23,240 | | | $ | (29,632) | | | $ | (302) | | | $ | 3,795 | |
| | | | | | | | | | | | | | | | |
| | Beginning | | Net Charges | | | | | | | | Ending | |
| | Reserve at | | for the Year | | | | | Interest and | | Reserve at | |
| | 12/31/2018 | | Ended 12/31/2019 | | Cash Paid | | FX Impact | | 12/31/2019 | |
Employee severance | | $ | 3,934 | | $ | 8,104 | | $ | (4,813) | | $ | (135) | | $ | 7,090 | |
Professional fees and other costs | | | 11,101 | | | 12,368 | | | (19,795) | | | (65) | | | 3,609 | |
Totals | | $ | 15,035 | | $ | 20,472 | | $ | (24,608) | | $ | (200) | | $ | 10,699 | |
NOTE 22 QUARTERLY DATA (UNAUDITED)
Quarterly results of operations and per share information for the years ended December 31, 2019 and 2018 are as follows:
| | | | | | | | | | | | | | | | |
| | Quarter | | Total | |
| | First | | Second | | Third | | Fourth | | for Year | |
Year Ended December 31, 2019: | | | | | | | | | | | | | | | | |
Net sales | | $ | 744,460 | | $ | 742,661 | | $ | 701,278 | | $ | 671,333 | | $ | 2,859,732 | |
Gross profit (1) | | | 233,841 | | | 231,739 | | | 215,222 | | | 193,588 | | | 874,390 | |
Net Income | | | 62,999 | | | 73,921 | | | 56,769 | | | 48,538 | | | 242,227 | |
Net Income Attributable to AptarGroup, Inc. | | | 63,004 | | | 73,915 | | | 56,750 | | | 48,533 | | | 242,202 | |
Per Common Share — 2019: | | | | | | | | | | | | | | | | |
Net Income Attributable to AptarGroup, Inc. | | | | | | | | | | | | | | | | |
Basic | | $ | 1.00 | | $ | 1.16 | | $ | .89 | | $ | .76 | | $ | 3.81 | |
Diluted | | | .96 | | | 1.12 | | | .85 | | | .73 | | | 3.66 | |
Average number of shares outstanding: | | | | | | | | | | | | | | | | |
Basic | | | 62,964 | | | 63,471 | | | 64,010 | | | 63,835 | | | 63,574 | |
Diluted | | | 65,349 | | | 66,232 | | | 66,702 | | | 66,192 | | | 66,150 | |
Year Ended December 31, 2018: | | | | | | | | | | | | | | | | |
Net sales | | $ | 703,350 | | $ | 710,608 | | $ | 665,775 | | $ | 685,028 | | $ | 2,764,761 | |
Gross profit (1) | | | 209,171 | | | 209,018 | | | 192,544 | | | 184,775 | | | 795,508 | |
Net Income | | | 59,288 | | | 55,781 | | | 39,022 | | | 40,675 | | | 194,766 | |
Net Income Attributable to AptarGroup, Inc. | | | 59,300 | | | 55,775 | | | 38,996 | | | 40,674 | | | 194,745 | |
Per Common Share — 2018: | | | | | | | | | | | | | | | | |
Net Income Attributable to AptarGroup, Inc. | | | | | | | | | | | | | | | | |
Basic | | $ | .95 | | $ | .89 | | $ | .63 | | $ | .65 | | $ | 3.12 | |
Diluted | | | .92 | | | .86 | | | .60 | | | .62 | | | 3.00 | |
Average number of shares outstanding: | | | | | | | | | | | | | | | | |
Basic | | | 62,128 | | | 62,402 | | | 62,378 | | | 62,834 | | | 62,437 | |
Diluted | | | 64,414 | | | 64,850 | | | 65,129 | | | 65,344 | | | 64,958 | |
(1) | Gross profit is defined as net sales less cost of sales and depreciation. |
NOTE 23 SUBSEQUENT EVENTS
On January 1, 2020, the BTY transaction closed for an approximate purchase price of $32 million for our 49% share. Refer to Note 20- Acquisitions for further details on the investment.
OnFebruary 13, 2020, we entered into a securities purchase agreement to acquire 100% of the membership interests of Fusion. Refer to Note 20 – Acquisitions for further details on the acquisition.
| | | | | |
76/73/ATR
| 20192021 Form 10-K
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of AptarGroup, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of AptarGroup, Inc. and itssubsidiaries (the(the “Company”) as of December 31, 20192021 and 2018, 2020,and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019,2021, including the related notes, and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 20192021 listed in the index appearing under Item 15(a)(2) (collectively(collectively referred to as the “consolidated financial statements”).We also have audited the Company's internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018, 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 2021in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.Our responsibility is to express opinions on the Company’s consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As described in Management’s Report on Internal Control over Financial Reporting, management has excluded NanopharmVoluntis S.A. ("Voluntis") and Weihai Hengyu Medical Products Co., Ltd. and Noble International Holdings, Inc., Genia Medical Inc., and JBCB Holdings, LLC (collectively referred to as “Noble”("Hengyu") from its assessment of internal control over financial reporting as of December 31, 20192021 because the entitiesthey were acquired by the Company in a purchase business combinationscombination during 2019.2021. We have also excluded Nanopharm Ltd.Voluntis and NobleHengyu from our audit of internal control over financial reporting. Nanopharm Ltd. and Noble areVoluntis is a wholly-owned subsidiariessubsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting representless than 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2019.2021. Hengyu is a majority-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting representless than 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment
Acquisition of Voluntis – Active Packaging Reporting UnitValuation of the Technology Intangible Asset
As described in NoteNotes 1 and 419 to the consolidated financial statements, the Company’s consolidated goodwill balance was $763 million asCompany completed its acquisition of December 31, 2019. As disclosed by management,64.3% of the goodwill associated withshare capital of Voluntis on September 2, 2021 and acquired the Active Packaging reporting unit was $163 million as of December 31, 2019. Duringremaining outstanding shares during the third quarterand fourth quarters of 2019, management performed a quantitative impairment assessment using a discounted cash flow analysis2021. The fair value of the Active Packaging reporting unit. Management calculatedassets acquired include an acquired technology intangible asset of $27.9 million and other intangible assets of $8.4 million. The Company accounts for business combinations using the acquisition method, which requires management to estimate the fair value of identifiable assets acquired and liabilities assumed, and to properly allocate purchase price consideration to the individual assets acquired and liabilities assumed. The allocation of the purchase price utilizes significant estimates in determining the fair values of identifiable assets acquired and liabilities assumed, especially with respect to intangible assets. The acquired technology intangible asset was valued using the Multi-Period Excess Earnings Method ("MPEEM") valuation approach. Judgment was applied with respect to determining the fair value of the Active Packaging reporting unit and compared it with the associated carrying amount as of July 1, 2019, and, upon management’s change to the Company’s goodwill impairment testing date, performed a qualitative impairment assessment as of October 1, 2019. Management’s determination of the fair value of the Company’s reporting units, based on future cash flows for the reporting units, requires significant judgment andacquired technology, which involved the use of significant estimates and assumptions relatedwith respect to projectedthe revenue growth rates, the terminal growth factor, as well as therate, technology obsolescence rate and discount rate.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessmentvaluation of Active Packaging reporting unitthe acquired Voluntis technology intangible asset is a critical audit matter are there was(i) the significant judgment by management when developingdetermining the fair value measurement of the reporting unit. Thisacquired technology, which in turn led to a high degree of auditor judgment subjectivity, and effortsubjectivity in performing procedures to evaluateand evaluating management’s future cash flows, including the significant assumptions related to projectedthe revenue growth rates,rate, the terminal growth factor,technology obsolescence rate, and the discount rate. In addition,rate; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s
goodwill impairment assessment,acquisition accounting, including controls over
themanagement’s valuation of the
Active Packaging reporting unit.Voluntis technology intangible asset and controls over the development of significant assumptions related to the revenue growth rate, the technology obsolescence rate, and the discount rate. These procedures also included, among others
(i) reading the purchase agreement; (ii) testing management’s process for
developingdetermining the fair value estimate of the
reporting unit;acquired technology; (iii) evaluating the appropriateness of
management’s discounted cash flow model;the MPEEM valuation approach; (iii) testing the completeness and accuracy of
the underlying data used in the
model;MPEEM valuation approach; and
(iv) evaluating
the reasonableness of the significant assumptions used by management
includingrelated to the
projected revenue growth
rates,rate, the
terminal growth factor,technology obsolescence rate, and the discount rate. Evaluating management’s
significant assumption related to
projectedthe revenue growth
ratesrate involved evaluating whether the
significant assumption used by management was reasonable considering (i)
the current and past performance of the reporting unit, (ii) the consistency with external market and industry
data,data; (ii) current and past performance of Voluntis; and (iii) whether
thisthe assumption was consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s
discounted cash flow modelMPEEM valuation approach and
certainin the evaluation of the reasonableness of the technology obsolescence rate and discount rate significant
assumptions, including the terminal growth factor and the discount rate.
assumptions.
/s/ PricewaterhouseCoopers LLP
February 24, 202018, 2022
We have served as the Company’s auditor since 1992.
| | | | | |
79/75/ATR
| 20192021 Form 10-K
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND
PROCEDURESPROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of December 31,
2019.2021. Based on that evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures were effective as of such date.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. On June 5, 2019 and October 31, 2019,During 2021, we completed our acquisitions of Nanopharm Ltd.Voluntis and Noble International Holdings, Inc., Genia Medical, Inc. and JBCB Holdings, LLC (collectively referred to as “Noble”) respectively,Hengyu, as discussed in Item 8, Note 2019 - Acquisitions to the Consolidated Financial Statements. Management excluded Nanopharm Ltd.Voluntis and NobleHengyu from its assessment of our internal control over financial reporting as they were acquired during the fiscal year. Nanopharm Ltd. and Noble’sThe combined total assets and total revenues of Voluntis and Hengyu represent less than 1% of the Consolidated Financial Statement amounts as of and for the year ended December 31, 2019.2021. Management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of our internal control over financial reporting as of December 31, 20192021 based on the framework inInternal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation under the framework inInternal Control—Integrated Framework, management has concluded that our internal control over financial reporting was effective as of December 31, 2019.2021. PricewaterhouseCoopers LLP, an independent registered public accounting firm, has issued an attestation report on the effectiveness of our internal control over financial reporting. This report appears on page 77.74.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the fiscal quarter ended December 31, 2019, the Company implemented enterprise resource planning (“ERP”) systems at one operating facility. Consequently, the control environments have been modified at this location to incorporate the controls contained within the new ERP systems. Except for the foregoing, no
No changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during our fiscal quarter ended December 31,
20192021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As noted above, we excluded
Nanopharm Ltd.Voluntis and
NobleHengyu from our evaluation of internal control over financial reporting as of December 31,
20192021 because these acquisitions were completed during the fiscal year.
Amid the COVID-19 pandemic, we have implemented remote work arrangements and restricted non-essential business travel. These arrangements have not materially affected our ability to maintain our business operations, including the operation of financial reporting systems, internal control over financial reporting, and disclosure controls and procedures.
ITEM 9B. OTHER
INFORMATIONINFORMATION
None.New Clawback Policy. On February 3, 2022, the Company adopted a new Policy on Recoupment and Forfeiture of Incentive Compensation (the "Clawback Policy") pursuant to which the Management Development and Compensation Committee (the "MD&CC") will, to the extent permitted by applicable law, seek to require the return, repayment or forfeiture of certain types of compensation awarded, granted or paid (including vesting) to any current or former Section 16 officer of the Company during the three completed fiscal years immediately preceding the date on which the Company discloses certain accounting restatements of previously disclosed financial results.
New Equity Award Agreement Forms. On February 3, 2022 the MD&CC approved new equity award agreements that, among other things, provide for a "double trigger" upon the occurrence of a change in control. These forms of equity award agreements are attached as Exhibits 10.62 through 10.67 to this report.
Employment Agreement Matters. On February 17, 2022, the Company and each of Stephan Tanda, Robert Kuhn and Xiangwei Gong entered into employment agreement amendments, copies of which are filed as Exhibits 10.59 through 10.61 to this report and are incorporated by reference.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCEGOVERNANCE
Information with respect to directors may be found under the caption “Election of Directors” in our Proxy Statement for the Annual Meeting of Stockholders to be held on May
6, 20204, 2022 (the
“2020“2022 Proxy Statement”) and is incorporated herein by reference.
Information with respect to executive officers may be found under the caption “Information About Our Executive Officers” in Part I of this report and is incorporated herein by reference.
Information with respect to audit committee members and audit committee financial experts may be found under the caption “Corporate Governance—Audit Committee” in the 20202022 Proxy Statement and is incorporated herein by reference.
Information with respect to our Code of Business Conduct and Ethics may be found under the caption “Corporate Governance—Code of Business Conduct and Ethics” in the 20202022 Proxy Statement and is incorporated herein by reference. Our Code of Business Conduct and Ethics is available through the Corporate Governance link on the Investors page of our website (www.aptar.com).
The information set forth under the heading “Delinquent Section 16(a) Reports” in the
20202022 Proxy Statement,
if any, is incorporated herein by reference.
ITEM 11. EXECUTIVE
COMPENSATIONCOMPENSATION
The information set forth under the headings “Board Compensation”, “Executive Officer Compensation” and “Management Development and Compensation Committee Report” in the
20202022 Proxy Statement is incorporated herein by reference. The information included under the heading “Management Development and Compensation Committee Report” in the
20202022 Proxy Statement shall not be deemed to be “soliciting” material or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERSOWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information set forth under the heading “Security Ownership of Certain Beneficial Owners, Directors and Management” and “Equity Compensation Plan Information” in the
20202022 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS,TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information set forth under the heading “Transactions with Related Persons” and “Corporate Governance—Independence of Directors” in the
20202022 Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICESSERVICES
Information with respect to the independent registered public accounting firm fees and services may be found under the caption “Ratification of the Appointment of PricewaterhouseCoopers LLP as the Independent Registered Public Accounting Firm for 2020”2022” in the 20202022 Proxy Statement. Such information is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES(a) | The following documents are filed as a part of this report: |
(b) | Exhibits required by Item 601 of Regulation S-K are incorporated by reference to the Exhibit Index on pages 82-86 of this report. |
ITEM 16. FORM 10-K SUMMARY
SUMMARY
None.
None.
| | | | | |
81/78/ATR
| 20192021 Form 10-K
|
| |
|---|
Exhibit
Number
| Description
|
|---|
2.2
| Stock Purchase Agreement, dated as of July 26, 2018, between AptarGroup, Inc. and CSP Technologies Parent S.A., filed as Exhibit 2.2 to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2018, is hereby incorporated by reference. †
| | | | |
3(i)Exhibit
Number
| Description |
| 3.1 | |
3(ii)3.2
| |
| The Company hereby agrees to provide the Commission, upon request, copies of instruments defining the rights of holders of long-term debt of the Company and its subsidiaries as are specified by item 601(b)(4)(iii)(A) of Regulation S-K. |
4.1 | |
4.2 | |
4.3 | |
4.4
| Form of AptarGroup, Inc. 3.78% Series 2008-B-2 Senior Notes due November 30, 2020, filed as Exhibit 4.5 to the Company’s current report on Form 8-K filed on December 1, 2010, is hereby incorporated by reference.
|
4.5
| Second Supplemental Note Purchase Agreement, dated as of September 5, 2012, among the Company and each of the purchasers listed in Exhibit A thereto, filed as Exhibit 4.1 to the Company’s current report on Form 8-K filed on September 5, 2012, is hereby incorporated by reference. |
4.64.4
| |
4.74.5
| |
4.84.6
| |
4.94.7
| |
4.104.8
| |
4.114.9
| |
4.124.10
| |
4.134.11
| |
4.144.12
| |
4.154.13
| |
| |
83/ATR10.21
| 2019 Form 10-K
|
| | | | | |
10.24
80/ATR | 2021 Form 10-K |
| | | | | |
Exhibit
Number | Description |
| 10.26 | |
10.2510.27
| |
10.2610.28
| |
10.2710.29
| |
10.2810.30
| |
10.2910.31
| |
10.3010.32
| |
10.3110.33
| |
10.3210.34
| |
10.3310.35
| |
10.3410.36
| |
10.3510.37
| Amended and Restated Credit Agreement, dated as of July 20, 2017June 30, 2021, among AptarGroup, Inc., AptarGroup UK Holdings Limited, and the financial institutions party thereto as Lenders and Wells Fargo Bank, National Association, as administrative agent Bank of America, N.A., HSBC Bank USA, N.A. and JPMorgan Chase Bank, N.A., as co-syndication agents, BNP Paribas as documentation agent, and Wells Fargo Securities, LLC, HSBC Bank USA, N.A., J.P. Morgan Chase Bank N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint bookrunners,swingline lender, filed as Exhibit 10.1 to the Company’sCompany's current report on Form 8-K filed on July 25, 2017,2, 2021, is hereby incorporated by reference.reference. |
10.3610.38
| |
10.3710.39
| |
| |
84/ATR10.40
| 2019 Form 10-K
|
| | | | | |
10.45
81/ATR | 2021 Form 10-K |
| | | | | |
Exhibit
Number | Description |
| 10.47 | |
10.4610.48
| |
10.4710.49
| |
10.4810.50
| |
10.4910.51
| |
10.5010.52
| |
10.53 | |
| 10.54 | |
| 10.55 | |
| 10.56 | |
| 10.57 | |
| 10.58 | |
| 10.59* | |
| 10.60* | |
| 10.61* | |
| 10.62* | |
| 10.63* | |
| 10.64* | |
| 10.65* | |
| 10.66* | |
| | | | | |
Exhibit
Number | Description |
| 10.67* | |
| 21* | |
23* | |
31.1* | |
31.2* | |
32.1* | |
32.2* | |
| |
|---|
Exhibit
Number
| Description
|
|---|
101* | The following financial information from AptarGroup, Inc.’s annual report on Form 10-K for the fiscal year ended December 31, 2019,2021, filed with the SEC on February 24, 2020,18, 2022, formatted in Inline Extensible Business Reporting Language (XBRL): (i) the Cover Page (ii) the Consolidated Statements of Income for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, (iv) the Consolidated Balance Sheets as of December 31, 20192021 and 2018,2020, (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, (vi) the Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 20182021, 2020 and 20172019 and (vii) Notes to the Consolidated Financial Statements. |
104* | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
*
| Filed or furnished herewith.
|
**
| Management contract or compensatory plan or arrangement.
|
†
| Omitted schedules will be furnished supplementally to the SEC upon request.
|
*Filed or furnished herewith.
**Management contract or compensatory plan or arrangement.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
|
|
|
| AptarGroup, Inc. |
|
|
|
|
|
|
|
|
|
|
| (Registrant) |
|
|
|
|
|
|
|
Date: February 24, 202018, 2022 |
| By |
| /s/ Robert W. Kuhn | ��
|
|
|
|
| Robert W. Kuhn |
|
|
|
|
| Executive Vice President |
|
|
|
|
| and Chief Financial Officer and Secretary |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated.
| | | | | | | | |
Signature | Title | Date |
| | |
/s/ GeorgeGEORGE L. FotiadesFOTIADES George L. Fotiades
| Chairman of the Board and Director | February 24, 202018, 2022 |
| | |
| | |
/s/ StephanSTEPHAN B. TandaTANDAStephan B. Tanda
| President and Chief Executive Officer and
Director (Principal Executive Officer)
| February 24, 202018, 2022 |
| | |
| | |
/s/ RobertROBERT W. KuhnKUHNRobert W. Kuhn
| Executive Vice President and
Chief Financial Officer and Secretary
(Principal Accounting and Financial Officer)
| February 24, 202018, 2022 |
| | |
| | |
/s/ Maritza Gomez MontielMARITZA GOMEZ MONTIEL | Director | February 18, 2022 |
| Maritza Gomez Montiel | Director
| February 24, 2020
|
| | |
/s/ GIOVANNA KAMPOURI MONNASGiovanna Kampouri-Monnas Giovanna Kampouri-Monnas
| Director | February 24, 202018, 2022 |
Giovanna Kampouri Monnas
| | |
| | |
/s/ ANDREAS KRAMVIS | Director | February 18, 2022 |
| Andreas Kramvis Andreas Kramvis
| Director
| February 24, 2020
|
| | |
/s/ ISABEL MAREY-SEMPER | Director | February 18, 2022 |
| Isabel Marey-Semper |
| | |
| /s/ CANDACE MATTHEWS | Director | February 18, 2022 |
| Candace Matthews |
| | |
| /s/ B. CRAIG OWENS | Craig OwensDirector | February 18, 2022 |
| B. Craig Owens | Director
| February 24, 2020
|
| | |
/s/ JESSE WUIsabel Marey-Semper Isabel Marey-Semper
| Director | February 24, 202018, 2022 |
| | |
/s/ Dr. Joanne C. Smith
Dr. Joanne C. Smith
| Director
| February 24, 2020
|
| | |
/s/ Jesse Wu
Jesse Wu
| Director
| February 24, 2020
|
| | |
/s/ RALF WUNDERLICH | Director | February 18, 2022 |
| Ralf Wunderlich Ralf Wunderlich
| Director
| February 24, 2020
|
| | | | | |
87/84/ATR
| 20192021 Form 10-K
|
SCHEDULE II – VALUATION AND QUALIFYING
ACCOUNTSACCOUNTS
For the years ended December 31,
2019, 20182021, 2020 and
2017 | | | | | | | | | | | | | | | | |
Dollars in thousands | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Balance at | | Charged to | | Charged | | Deductions | | Balance | |
| | Beginning | | Costs and | | to Other | | from | | at End of | |
| | Of Period | | Expenses | | Accounts | | Reserve (a) | | Period | |
2019 | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 3,541 | | $ | 782 | | $ | — | | $ | (697) | | $ | 3,626 | |
Deferred tax valuation allowance | | | 11,189 | | | 12,058 | | | 1,508 | | | (1,435) | | | 23,320 | |
| | | | | | | | | | | | | | | | |
2018 | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 3,161 | | $ | 923 | | $ | — | | $ | (543) | | $ | 3,541 | |
Deferred tax valuation allowance | | | 5,414 | | | 4,230 | | | 2,604 | | | (1,059) | | | 11,189 | |
| | | | | | | | | | | | | | | | |
2017 | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 2,989 | | $ | 235 | | $ | — | | $ | (63) | | $ | 3,161 | |
Deferred tax valuation allowance | | | 4,070 | | | 3,640 | | | — | | | (2,296) | | | 5,414 | |
(a) | Write-off accounts considered uncollectible, net of recoveries and foreign currency impact adjustments. |
| | | | | | | | | | | | | | | | | | |
| Dollars in thousands | | | | | | |
| Balance at
Beginning
Of Period | Charged to
Costs and
Expenses | Charged
to Other
Accounts | Deductions
from
Reserve (a) | | Balance
at End of
Period |
| 2021 | | | | | | |
| CECL | $ | 5,918 | | $ | 1,601 | | $ | 391 | | $ | (536) | | | $ | 7,374 | |
| Deferred tax valuation allowance (b) | 23,105 | | 5,355 | | 20,572 | | (1,883) | | | 47,149 | |
| | | | | | |
| 2020 | | | | | | |
| CECL | $ | 3,626 | | $ | 865 | | $ | 1,647 | | $ | (220) | | | $ | 5,918 | |
| Deferred tax valuation allowance | 23,320 | | 3,085 | | 700 | | (4,000) | | | 23,105 | |
| | | | | | |
| 2019 | | | | | | |
| Allowance for doubtful accounts | $ | 3,541 | | $ | 782 | | $ | — | | $ | (697) | | | $ | 3,626 | |
| Deferred tax valuation allowance | 11,189 | | 12,058 | | 1,508 | | (1,435) | | | 23,320 | |
(a)Write-off accounts considered uncollectible, net of recoveries and foreign currency impact adjustments.
(b)The 2021 increase to the deferred tax valuation allowance in the charged to other accounts reflects the establishment of a $20.5 million deferred tax valuation allowance as part of the purchase accounting for the Voluntis acquisition.
