Table of Contents 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019MARCH 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM  TO  

COMMISSION FILE NUMBER 1-11846

ag_logo_rgb_k_cg10_5545_small jpgGraphic

AptarGroup, Inc.

DELAWARE

36-3853103

(State of Incorporation)

(I.R.S. Employer Identification No.)

265 EXCHANGE DRIVE, SUITE 100, CRYSTAL LAKE, ILLINOIS 60014

815-477-0424

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

ATR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ 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). Yes þ 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 the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No þ

The number of shares outstanding of common stock, as of July 25, 2019,April 24, 2020, was 64,041,23764,186,756 shares.

Table of Contents 

��

AptarGroup, Inc.

Form 10-Q

Quarter Ended June 30, 2019March 31, 2020

INDEX

Part I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Statements of Income – Three and Six Months Ended June 30,March 31, 2020 and 2019 and 2018

1

Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30,March 31, 2020 and 2019 and 2018

2

Condensed Consolidated Balance Sheets – June 30, 2019March 31, 2020 and December 31, 20182019

3

Condensed Consolidated Statements of Changes in Equity – Three and Six Months Ended June 30,March 31, 2020 and 2019 and 2018

5

Condensed Consolidated Statements of Cash Flows - SixThree Months Ended June 30,March 31, 2020 and 2019 and 2018

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2826

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

4338

Item 4.

Controls and Procedures

4338

Part II.

OTHER INFORMATION

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

4440

Item 6.

Exhibits

4541

Signature

4642

i

Table of Contents 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

In thousands, except per share amounts

In thousands, except per share amounts

In thousands, except per share amounts

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Three Months Ended March 31,

2020

2019

    

Net Sales

$

742,661

$

710,608

$

1,487,121

$

1,413,958

 

    

$

721,553

    

$

744,460

 

Operating Expenses:

Cost of sales (exclusive of depreciation and amortization shown below)

 

469,441

 

464,244

 

938,573

 

920,066

 

451,256

 

469,132

Selling, research & development and administrative

 

113,752

 

107,111

 

234,967

 

219,572

 

126,192

 

121,215

Depreciation and amortization

 

47,867

 

40,101

 

95,356

 

81,276

 

50,806

 

47,489

Restructuring initiatives

1,737

18,214

11,267

24,150

4,839

9,530

 

632,797

 

629,670

 

1,280,163

 

1,245,064

 

633,093

 

647,366

Operating Income

 

109,864

 

80,938

 

206,958

 

168,894

 

88,460

 

97,094

Other (Expense) Income:

Interest expense

 

(8,756)

 

(7,964)

 

(17,970)

 

(16,019)

 

(8,388)

 

(9,214)

Interest income

 

1,033

 

2,521

 

2,781

 

4,769

 

175

 

1,748

Equity in results of affiliates

 

9

 

(20)

 

(86)

 

(85)

 

(799)

 

(95)

Miscellaneous, net

 

(49)

 

(577)

 

417

 

(1,444)

 

(1,412)

 

466

 

(7,763)

 

(6,040)

 

(14,858)

 

(12,779)

 

(10,424)

 

(7,095)

Income before Income Taxes

 

102,101

 

74,898

 

192,100

 

156,115

 

78,036

 

89,999

Provision for Income Taxes

 

28,180

 

19,117

 

55,180

 

41,046

 

22,786

 

27,000

Net Income

$

73,921

$

55,781

$

136,920

$

115,069

$

55,250

$

62,999

Net (Income) Loss Attributable to Noncontrolling Interests

$

(6)

$

(6)

$

(1)

$

6

Net Loss Attributable to Noncontrolling Interests

$

3

$

5

Net Income Attributable to AptarGroup, Inc.

$

73,915

$

55,775

$

136,919

$

115,075

$

55,253

$

63,004

Net Income Attributable to AptarGroup, Inc. per Common Share:

Basic

$

1.16

$

0.89

$

2.17

$

1.85

$

0.86

$

1.00

Diluted

$

1.12

$

0.86

$

2.08

$

1.78

$

0.84

$

0.96

Average Number of Shares Outstanding:

Basic

63,471

62,402

63,219

62,266

64,009

62,964

Diluted

66,232

64,850

65,842

64,640

66,111

65,349

Dividends per Common Share

$

0.36

$

0.32

$

0.70

$

0.64

$

0.36

$

0.34

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

1

Table of Contents 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

In thousands

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

    

2018

 

Three Months Ended March 31,

2020

2019

Net Income

$

73,921

$

55,781

    

$

136,920

$

115,069

$

55,250

$

62,999

Other Comprehensive Income:

Other Comprehensive (Loss) Income:

Foreign currency translation adjustments

 

9,414

 

(66,223)

 

(197)

 

(43,288)

 

(42,229)

 

(9,611)

Changes in treasury locks, net of tax

 

 

7

 

 

14

Changes in derivative (losses) gains, net of tax

(479)

1,866

(872)

2,212

Changes in derivative gains (losses), net of tax

1,483

(393)

Defined benefit pension plan, net of tax

Amortization of prior service cost included in net income, net of tax

 

83

 

92

 

167

 

188

 

71

 

84

Amortization of net loss included in net income, net of tax

 

633

 

1,251

 

1,270

 

2,511

 

1,565

 

637

Total defined benefit pension plan, net of tax

 

716

 

1,343

 

1,437

 

2,699

 

1,636

 

721

Total other comprehensive income (loss)

 

9,651

 

(63,007)

 

368

 

(38,363)

Comprehensive Income (Loss)

 

83,572

 

(7,226)

 

137,288

 

76,706

Total other comprehensive loss

 

(39,110)

 

(9,283)

Comprehensive Income

 

16,140

 

53,716

Comprehensive Loss (Income) Attributable to Noncontrolling Interests

 

2

 

10

 

(1)

 

11

 

3

 

(3)

Comprehensive Income (Loss) Attributable to AptarGroup, Inc.

$

83,574

$

(7,216)

$

137,287

$

76,717

Comprehensive Income Attributable to AptarGroup, Inc.

$

16,143

$

53,713

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

2

Table of Contents 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

In thousands

 

 

June 30,

December 31,

 

March 31,

December 31,

 

2019

2018

2020

2019

Assets

Current Assets:

Cash and equivalents

$

302,950

$

261,823

$

410,840

$

241,970

Accounts and notes receivable, less allowance for doubtful accounts of $3,391 in 2019 and $3,541 in 2018

 

599,597

569,630

Accounts and notes receivable, less current expected credit loss ("CECL") of $5,657 in 2020 and $3,626 in 2019

 

602,027

558,428

Inventories

 

399,319

381,110

 

371,859

375,795

Prepaid and other

 

116,675

118,245

 

129,926

115,048

 

1,418,541

1,330,808

 

1,514,652

1,291,241

Property, Plant and Equipment:

Buildings and improvements

 

486,899

453,572

 

502,706

504,328

Machinery and equipment

 

2,459,341

2,368,332

 

2,506,084

2,521,737

 

2,946,240

2,821,904

 

3,008,790

3,026,065

Less: Accumulated depreciation

 

(1,920,068)

(1,855,810)

 

(1,961,683)

(1,963,520)

 

1,026,172

966,094

 

1,047,107

1,062,545

Land

 

25,363

25,519

 

24,312

25,133

 

1,051,535

991,613

 

1,071,419

1,087,678

Other Assets:

Investments in equity securities

 

8,841

25,448

 

39,167

8,396

Goodwill

 

737,422

712,095

 

756,081

763,461

Intangible assets

 

261,350

254,904

 

284,121

291,084

Operating lease right-of-use assets

76,996

65,925

72,377

Miscellaneous

 

34,031

62,867

 

45,187

47,882

 

1,118,640

1,055,314

 

1,190,481

1,183,200

Total Assets

$

3,588,716

$

3,377,735

$

3,776,552

$

3,562,119

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

3

Table of Contents 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

In thousands, except share and per share amounts

 

 

June 30,

December 31,

 

March 31,

December 31,

 

2019

2018

2020

2019

Liabilities and Stockholders’ Equity

Current Liabilities:

Notes payable, including revolving credit facilities

$

57,663

$

101,293

Notes payable, revolving credit facility and overdrafts

$

220,511

$

44,259

Current maturities of long-term obligations, net of unamortized debt issuance costs

 

64,941

 

62,678

 

65,049

 

65,988

Accounts payable and accrued liabilities

 

548,330

 

525,199

Accounts payable, accrued and other liabilities

 

605,738

 

573,028

 

670,934

 

689,170

 

891,298

 

683,275

Long-Term Obligations, net of unamortized debt issuance costs

 

1,148,261

 

1,125,993

 

1,075,745

 

1,085,453

Deferred Liabilities and Other:

Deferred income taxes

 

32,433

 

53,917

 

39,795

 

41,388

Retirement and deferred compensation plans

 

66,459

 

62,319

 

104,140

 

101,225

Operating lease liabilities

59,192

49,004

55,276

Deferred and other non-current liabilities

 

30,015

 

23,465

 

28,947

 

23,250

Commitments and contingencies

 

 

 

 

 

188,099

 

139,701

 

221,886

 

221,139

Stockholders’ Equity:

AptarGroup, Inc. stockholders’ equity

Common stock, $.01 par value, 199 million shares authorized, 68.3 and 67.3 million shares issued as of June 30, 2019 and December 31, 2018, respectively

 

683

 

673

Common stock, $.01 par value, 199 million shares authorized, 68.9 and 68.6 million shares issued as of March 31, 2020 and December 31, 2019, respectively

 

689

 

686

Capital in excess of par value

 

743,332

 

678,769

 

785,567

 

770,596

Retained earnings

 

1,464,607

 

1,371,826

 

1,554,665

 

1,523,820

Accumulated other comprehensive (loss)

 

(310,136)

 

(310,504)

Less: Treasury stock at cost, 4.3 and 4.4 million shares as of June 30, 2019 and December 31, 2018, respectively

 

(317,380)

 

(318,208)

Accumulated other comprehensive loss

 

(381,058)

 

(341,948)

Less: Treasury stock at cost, 4.7 and 4.8 million shares as of March 31, 2020 and December 31, 2019, respectively

 

(372,573)

 

(381,238)

Total AptarGroup, Inc. Stockholders’ Equity

 

1,581,106

 

1,422,556

 

1,587,290

 

1,571,916

Noncontrolling interests in subsidiaries

 

316

 

315

 

333

 

336

Total Stockholders’ Equity

 

1,581,422

 

1,422,871

 

1,587,623

 

1,572,252

Total Liabilities and Stockholders’ Equity

$

3,588,716

$

3,377,735

$

3,776,552

$

3,562,119

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

4

Table of Contents 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

In thousands

Three Months Ended

AptarGroup, Inc. Stockholders’ Equity

June 30, 2019 and 2018

    

    

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 - March 31, 2018

$

1,332,218

$

(228,669)

$

671

$

(337,976)

$

638,223

$

309

$

1,404,776

Net income

 

55,775

6

55,781

Foreign currency translation adjustments

(66,207)

(16)

(66,223)

Changes in unrecognized pension gains (losses) and related amortization, net of tax

1,343

1,343

Changes in treasury locks, net of tax

7

7

Changes in derivative gains (losses), net of tax

1,866

1,866

Stock awards and option exercises

2

1,698

13,232

14,932

Cash dividends declared on common stock

 

(19,980)

(19,980)

Common stock repurchased and retired

(39,979)

(5)

(5,006)

(44,990)

Balance - June 30, 2018

$

1,328,034

$

(291,660)

$

668

$

(336,278)

$

646,449

$

299

$

1,347,512

Balance - March 31, 2019

$

1,413,453

$

(319,795)

$

676

$

(327,871)

$

700,933

$

318

$

1,467,714

Net income

 

73,915

6

73,921

Foreign currency translation adjustments

9,422

(8)

9,414

Changes in unrecognized pension gains (losses) and related amortization, net of tax

716

716

Changes in derivative gains (losses), net of tax

(479)

(479)

Stock awards and option exercises

7

14,587

42,399

56,993

Cash dividends declared on common stock

 

(22,761)

(22,761)

Treasury stock purchased

(4,096)

(4,096)

Balance - June 30, 2019

$

1,464,607

$

(310,136)

$

683

$

(317,380)

$

743,332

$

316

$

1,581,422

In thousands

Six Months Ended

AptarGroup, Inc. Stockholders’ Equity

June 30, 2019 and 2018

    

    

Accumulated

    

    

    

    

    

Other

Common

Capital in

Non-

AptarGroup, Inc. Stockholders’ Equity

Retained

Comprehensive

Stock

Treasury

Excess of

Controlling

Total

    

    

Accumulated

    

    

    

    

    

Earnings

(Loss) Income

Par Value

Stock

Par Value

Interest

Equity

 

Other

Common

Capital in

Non-

Balance - December 31, 2017

$

1,301,147

$

(253,302)

$

667

$

(346,245)

$

609,471

$

310

$

1,312,048

Net income

 

115,075

(6)

115,069

Adoption of revenue recognition standard

2,937

2,937

Foreign currency translation adjustments

 

(43,283)

(5)

(43,288)

Changes in unrecognized pension gains (losses) and related amortization, net of tax

 

2,699

2,699

Changes in treasury locks, net of tax

 

14

14

Changes in derivative gains (losses), net of tax

 

2,212

2,212

Stock awards and option exercises

 

7

 

13,872

43,444

57,323

Cash dividends declared on common stock

 

(39,810)

(39,810)

Treasury stock purchased

(3,905)

(3,905)

Common stock repurchased and retired

(51,315)

(6)

 

(6,466)

(57,787)

Balance - June 30, 2018

$

1,328,034

$

(291,660)

$

668

$

(336,278)

$

646,449

$

299

$

1,347,512

Retained

Comprehensive

Stock

Treasury

Excess of

Controlling

Total

Earnings

(Loss) Income

Par Value

Stock

Par Value

Interest

Equity

 

Balance - December 31, 2018

$

1,371,826

$

(310,504)

$

673

$

(318,208)

$

678,769

$

315

$

1,422,871

$

1,371,826

$

(310,504)

$

673

$

(318,208)

$

678,769

$

315

$

1,422,871

Net income

 

136,919

1

136,920

Net income (loss)

 

63,004

(5)

62,999

Foreign currency translation adjustments

 

(197)

(197)

 

(9,619)

8

(9,611)

Changes in unrecognized pension gains (losses) and related amortization, net of tax

 

1,437

1,437

 

721

721

Changes in derivative gains (losses), net of tax

 

(872)

(872)

 

(393)

(393)

Stock awards and option exercises

 

10

 

19,924

64,563

84,497

 

3

 

5,337

22,164

27,504

Cash dividends declared on common stock

 

(44,138)

(44,138)

 

(21,377)

(21,377)

Treasury stock purchased

 

(19,096)

(19,096)

(15,000)

(15,000)

Balance - June 30, 2019

$

1,464,607

$

(310,136)

$

683

$

(317,380)

$

743,332

$

316

$

1,581,422

Balance - March 31, 2019

$

1,413,453

$

(319,795)

$

676

$

(327,871)

$

700,933

$

318

$

1,467,714

Balance - December 31, 2019

$

1,523,820

$

(341,948)

$

686

$

(381,238)

$

770,596

$

336

$

1,572,252

Net income (loss)

 

55,253

(3)

55,250

Adoption of CECL standard

(1,377)

 

(1,377)

Foreign currency translation adjustments

 

(42,229)

(42,229)

Changes in unrecognized pension gains (losses) and related amortization, net of tax

 

1,636

1,636

Changes in derivative gains (losses), net of tax

 

1,483

1,483

Stock awards and option exercises

 

3

 

8,665

14,971

23,639

Cash dividends declared on common stock

 

(23,031)

(23,031)

Balance - March 31, 2020

$

1,554,665

$

(381,058)

$

689

$

(372,573)

$

785,567

$

333

$

1,587,623

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

5

Table of Contents 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

In thousands, brackets denote cash outflows

 

Three Months Ended March 31,

    

2020

    

2019

 

Cash Flows from Operating Activities:

Net income

$

55,250

$

62,999

Adjustments to reconcile net income to net cash provided by operations:

Depreciation

 

42,792

 

41,487

Amortization

 

8,014

 

6,002

Stock-based compensation

 

9,141

 

6,565

Provision for CECL

 

1,251

 

497

Loss on disposition of fixed assets

 

54

 

310

Deferred income taxes

 

6

 

671

Defined benefit plan expense

 

5,775

 

3,858

Equity in results of affiliates

 

799

 

95

Changes in balance sheet items, excluding effects from foreign currency adjustments:

Accounts and other receivables

 

(64,764)

 

(35,301)

Inventories

 

(8,615)

 

(13,097)

Prepaid and other current assets

 

(11,787)

 

(2,282)

Accounts payable, accrued and other liabilities

 

45,458

 

6,865

Income taxes payable

 

(5,278)

 

3,511

Retirement and deferred compensation plan liabilities

 

(1,312)

 

(5,940)

Other changes, net

 

8,249

 

1,396

Net Cash Provided by Operations

 

85,033

 

77,636

Cash Flows from Investing Activities:

Capital expenditures

 

(61,625)

 

(51,742)

Proceeds from sale of property, plant and equipment

 

166

 

178

Acquisition of business, release of escrow

(1,463)

(4,036)

Acquisition of intangible assets, net

 

(3,955)

 

(221)

Investment in equity securities

 

(20,423)

 

Proceeds from sale of investment in equity securities

16,487

Notes receivable, net

 

(785)

 

231

Net Cash Used by Investing Activities

 

(88,085)

 

(39,103)

Cash Flows from Financing Activities:

Proceeds from notes payable and overdrafts

 

8,148

16,783

Repayments of notes payable and overdrafts

 

(2,030)

(21,130)

Proceeds and repayments of short term revolving credit facility, net

175,000

(78,222)

Proceeds from long-term obligations

 

 

10,446

Repayments of long-term obligations

 

(2,386)

 

(3,227)

Dividends paid

 

(23,031)

 

(21,377)

Proceeds from stock option exercises

 

18,602

 

20,939

Purchase of treasury stock

 

 

(15,000)

Net Cash Provided (Used) by Financing Activities

 

174,303

 

(90,788)

Effect of Exchange Rate Changes on Cash

 

(3,381)

 

2,809

Net Increase (Decrease) in Cash and Equivalents and Restricted Cash

 

167,870

 

(49,446)

Cash and Equivalents and Restricted Cash at Beginning of Period

 

246,973

 

266,823

Cash and Equivalents and Restricted Cash at End of Period

$

414,843

$

217,377

Restricted cash included in the line item prepaid and other on the Condensed Consolidated Balance Sheets as shown below represents amounts held in escrow related to the Noble Acquisition (as defined herein).

In thousands, brackets denote cash outflows

 

Six Months Ended June 30,

2019

2018

 

Cash Flows from Operating Activities:

Net income

$

136,920

$

115,069

Adjustments to reconcile net income to net cash provided by operations:

Depreciation

 

82,968

 

75,703

Amortization

 

12,388

 

5,573

Stock-based compensation

 

12,978

 

10,903

Provision for doubtful accounts

 

312

 

196

Loss (gain) on disposition of fixed assets

 

368

 

(1,036)

Deferred income taxes

 

679

 

(4,027)

Defined benefit plan expense

 

7,699

 

9,688

Equity in results of affiliates

 

86

 

85

Changes in balance sheet items, excluding effects from foreign currency adjustments:

Accounts and other receivables

 

(28,772)

 

(92,388)

Inventories

 

(18,503)

 

(30,787)

Prepaid and other current assets

 

546

 

4,038

Accounts payable and accrued liabilities

 

14,590

 

61,727

Income taxes payable

 

1,840

 

10,541

Retirement and deferred compensation plan liabilities

 

(4,652)

 

(3,356)

Other changes, net

 

1,693

 

(7,420)

Net Cash Provided by Operations

 

221,140

 

154,509

Cash Flows from Investing Activities:

Capital expenditures

 

(124,774)

 

(91,753)

Proceeds from sale of property, plant and equipment

 

1,082

 

3,961

Insurance proceeds

10,631

Acquisition of business, net of cash acquired

(49,131)

(3,510)

Acquisition of intangible assets

 

(602)

 

(124)

Investment in equity securities

(10,000)

Proceeds from sale of investment in equity securities

 

16,487

 

Notes receivable, net

 

(220)

 

109

Net Cash (Used) by Investing Activities

 

(157,158)

 

(90,686)

Cash Flows from Financing Activities:

Proceeds from notes payable

 

31,022

8,815

Repayments of notes payable

 

(35,490)

(5,256)

Proceeds and repayments of short term credit facility, net

(38,685)

Proceeds from long-term obligations

 

10,446

 

4,617

Repayments of long-term obligations

 

(6,546)

 

(5,403)

Dividends paid

 

(44,138)

 

(39,810)

Proceeds from stock option exercises

 

70,712

 

46,420

Purchase of treasury stock

 

(19,096)

 

(3,905)

Common stock repurchased and retired

(57,787)

Net Cash (Used) by Financing Activities

 

(31,775)

 

(52,309)

Effect of Exchange Rate Changes on Cash

 

3,920

 

(6,063)

Net Increase in Cash and Equivalents and Restricted Cash

 

36,127

 

5,451

Cash and Equivalents and Restricted Cash at Beginning of Period

 

266,823

 

712,640

Cash and Equivalents at End of Period

$

302,950

$

718,091

Three Months Ended March 31,

    

2020

    

2019

 

Cash and equivalents

$

410,840

$

217,377

Restricted cash included in prepaid and other

4,003

Total Cash and Equivalents and Restricted Cash shown in the Statement of Cash Flows

$

414,843

$

217,377

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

6

Table of Contents 

AptarGroup, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in Thousands, Except per Share Amounts, or as Otherwise Indicated)

(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited Condensed 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.

In the opinion of management, the unaudited Condensed Consolidated Financial Statements (the “Condensed Consolidated Financial Statements”) include all normal recurring adjustments necessary for a fair statement of consolidated financial position, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. The accompanying Condensed Consolidated Financial Statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. Also, certain financial position data included herein was derived from the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 20182019 but does not include all disclosures required by U.S. GAAP. Accordingly, these Condensed Consolidated Financial Statements and related notes should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.

DuringThere are many uncertainties regarding the current COVID-19 pandemic, including the scope of scientific and health issues, the anticipated duration of the pandemic and the extent of local and worldwide social, political and economic disruption it may cause. The pandemic has impacted our business, operations and financial results 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 pesoMarch 31, 2020 including an overall reduction to the U.S. dollar. Local currency monetary assets and liabilities have been remeasured into U.S. dollars using exchange ratesnet sales. NaN impairments were recorded as of March 31, 2020. While the latest balance sheet date, with remeasurement adjustmentsdisruption is currently expected to be temporary, there is uncertainty around the duration. Due to significant uncertainty surrounding the situation, our judgment regarding future results could change and other transaction gains and losses recognized in net earnings. Our Argentinian operations contributed less than 2% of consolidated net assets and revenues at and for the six months ended June 30, 2019 and 2018.therefore our results could be materially impacted.

ADOPTION OF RECENT ACCOUNTING STANDARDS

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.

Effective January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, issued by the FASB in June 2016, as well as the clarifying amendments subsequently issued. We applied the guidance using a modified retrospective approach and accordingly recognized an amount of $1.4 million as the cumulative adjustment to opening retained earnings in the first quarter of 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 February 2016,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 new standard related to leases to increase transparency and comparability among organizations. Most prominent among the changes in the standard is the recognition of right-of-use (“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 standard, disclosuresresult, impairment charges are required to meet the objective of enabling users of financial statements to assessfor the amount timing, and uncertaintyby which a reporting unit’s carrying amount exceeds its fair value up to the amount of cash flows arising from leases.its allocated goodwill. We adopted the standard on January 1, 2019 using2020 and did not record any impairment charges.

In August 2018, the FASB issued ASU 2018-15 to help entities evaluate the accounting for fees paid by a modified retrospective transition,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 effective date method. Under this method, financial results reportedrequirements 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 periods priora hosting arrangement that is a service contract to 2019 are not recast. We electedfollow the packageguidance 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 practical expedients permitted undera hosting arrangement that is a service contract over 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 adoptionterm of the hosting arrangement, which includes reasonably certain renewals. We adopted the standard to previously reported results is shown below.

on January 1, 2020 and no material impacts were noted.

 

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 and accrued 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

7

Table of Contents 

In FebruaryAugust 2018, the FASB issued ASU 2018-02,2018-13, which provides guidance onamends disclosure requirements for fair value measurements. The new standard modifies disclosure requirements including removing requirements to disclose the reclassification of certain tax effects from accumulated other comprehensive income. This guidance allowsvaluation process for Level 3 measurements and adding requirements to disclose the changes in unrealized gains and losses for the reclassification from accumulatedperiod included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to retained earnings for stranded tax effects resulting fromdevelop Level 3 measurements. We adopted the Tax Cutsstandard on January 1, 2020 and Jobs Act of 2017 (“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. As part of 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.no material impacts were noted.

Other accounting standards that have been issued by the FASB or other standards-setting bodies did not have a material impact on our Condensed Consolidated Financial Statements.

LEASES

We determine if an arrangement is a lease at inception. Operating lease assets are included in operating lease ROU assets and operating lease liabilities are included in accounts payable and accrued liabilities and operating lease 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.

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.

RETIREMENT OF COMMON STOCK

During the first six months of 2019, we repurchased 193 thousand shares of common stock, all of which were returned to treasury stock. During the first six months of 2018, we repurchased 668 thousand shares of common stock, of which 623 thousand shares were immediately retired. Common stock was reduced by the number of shares retired at $0.01 par value per share. We allocate the excess purchase price over par value between additional paid-in capital and retained earnings.

INCOME TAXES

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 financial accounting purposes. To the extent that these differences create temporarytiming differences between the tax basis of an asset or liability and our reported amount in the financial statements, an appropriate provision for deferred income taxes is made.

All of our non-U.S. earnings are subject to U.S. taxation, either from the transition tax enacted in the U.S. by the 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. 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. We will provide for the necessary withholding and local income taxes 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 the global cash management goals of the Company.

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 5 - Income Taxes

The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and many state and foreign jurisdictions. The Company believes that an adequate provision has been made for more information.any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its 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 Condensed Consolidated Financial Statements.

 

8

Table of Contents

NOTE 2 – REVENUE

At contract inception, we assess the goods and services promised in our contracts with customers and 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 and tooling sales; however, we also receive revenues from service, license, exclusivity and royalty arrangements, which collectively are not material to the quarterly and year-to-date results. Revenue by segment and geography for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 is as follows:

For the Three Months Ended June 30, 2019

 

For the Three Months Ended March 31, 2020

 

Latin

Latin

Segment

Europe

Domestic

America

Asia

Total

 

Europe

Domestic

America

Asia

Total

 

Beauty + Home

$

202,541

$

73,973

$

41,449

$

24,117

$

342,080

$

186,950

$

81,845

$

36,181

$

19,584

$

324,560

Pharma

190,654

76,042

7,078

8,165

281,939

190,130

90,965

6,579

9,522

297,196

Food + Beverage

32,336

65,160

9,211

11,935

118,642

28,769

57,590

8,034

5,404

99,797

Total

$

425,531

$

215,175

$

57,738

$

44,217

$

742,661

$

405,849

$

230,400

$

50,794

$

34,510

$

721,553

For the Three Months Ended June 30, 2018

Latin

Segment

Europe

Domestic

America

Asia

Total

Beauty + Home

$

207,305

$

86,282

$

47,319

$

27,630

$

368,536

Pharma

183,166

43,274

6,819

7,950

241,209

Food + Beverage

30,902

46,920

8,104

14,937

100,863

Total

$

421,373

$

176,476

$

62,242

$

50,517

$

710,608

For the Six Months Ended June 30, 2019

 

For the Three Months Ended March 31, 2019

Latin

Latin

Segment

Europe

Domestic

America

Asia

Total

 

Europe

Domestic

America

Asia

Total

Beauty + Home

$

418,774

$

160,952

$

84,091

$

45,922

$

709,739

$

216,233

$

86,979

$

42,642

$

21,805

$

367,659

Pharma

374,828

147,814

14,734

17,264

554,640

184,174

71,772

7,656

9,099

272,701

Food + Beverage

63,297

120,280

17,095

22,070

222,742

30,961

55,120

7,884

10,135

104,100

Total

$

856,899

$

429,046

$

115,920

$

85,256

$

1,487,121

$

431,368

$

213,871

$

58,182

$

41,039

$

744,460

8

Table of Contents

For the Six Months Ended June 30, 2018

Latin

Segment

Europe

Domestic

America

Asia

Total

Beauty + Home

$

431,917

$

169,356

$

95,585

$

49,851

$

746,709

Pharma

358,841

82,370

13,064

17,061

471,336

Food + Beverage

60,713

95,135

15,867

24,198

195,913

Total

$

851,471

$

346,861

$

124,516

$

91,110

$

1,413,958

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. We recognize a contract asset when we 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. We recognize a contract liability if the customer's payment of consideration precedes the entity's performance.

The opening and closing balances of our contract asset and contract liabilities are as follows:

Balance as of

Balance as of

Increase/

 

December 31, 2018

June 30, 2019

(Decrease)

 

Contract asset (current)

$

15,858

$

18,561

$

2,703

Contract asset (long-term)

$

$

$

Contract liability (current)

$

68,134

$

64,468

$

(3,666)

Contract liability (long-term)

$

11,261

$

13,927

$

2,666

9

Table of Contents

    

Balance as of

    

Balance as of

Increase/

 

    

December 31, 2019

    

March 31, 2020

    

(Decrease)

 

Contract asset (current)

$

16,245

$

13,457

$

(2,788)

Contract asset (long-term)

$

$

$

Contract liability (current)

$

79,305

$

78,974

$

(331)

Contract liability (long-term)

$

9,779

$

14,994

$

5,215

The differences in the opening and closing balances of our contract asset and contract liabilities are primarily the result of timing differences between our performance and the customer’s payment. The total amount of revenue recognized during the current year against contract liabilities is $27.9$12.5 million, including $17.5$10.6 million relating to contract liabilities at the beginning of the year.

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), we include an estimate of the expected amount of consideration as revenue. We apply the expected value method based on all of the information (historical, current, and forecast) that is reasonably available and identify 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 we will be entitled.

Product Sales

We primarily manufacture and sell dispensing, sealing and active packaging 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, we typically assess, among other things, the shipping terms of the contract, shipping being one of the indicators of transfer of control. A majority of product sales are sold FOBfree on board (“FOB”) shipping point. For FOB shipping point shipments, control of the goods transfers to the customer at the time of shipment of the goods. Therefore, our performance obligation is satisfied at the time of shipment. 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. We do not have any material significant payment terms as payment is typically received shortly after the point of sale.

There also exist instances where we manufacture highly customized products that have no alternative use to us and for which we have an enforceable right to payment for performance completed to date. For these products, we transfer control and recognize 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.

As a part of our customary business practice, we 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.

9

Table of Contents

Tooling Sales

We also build, or contract to build molds and other tools (collectively defined as “tooling”) necessary to produce our products. As with product sales, we recognize revenue when control of the tool transfers to the customer. If the tooling is highly customized with no alternative use to us and we 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. We 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, we offer extended warranties on tools sold to our customers above and beyond the normal standard warranties. We normally receive payment at the inception of the contract and recognize revenue over the term of the contract. At December 31, 2018, $7582019, $515 thousand of unearned revenue associated with outstanding contracts was reported in Accounts Payable, Accrued and Other Liabilities. At June 30, 2019,March 31, 2020, the unearned amount was $590$432 thousand. We expect to recognize approximately $136$172 thousand of the unearned amount during the remainder of 2019, $2702020, $123 thousand in 2020,2021, and $184$137 thousand thereafter.

10Credit Risk

TableWe 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 Contentsthe 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.

At March 31, 2020, we reported $602 million of accounts receivable, net of CECL of $5.7 million. Changes in the allowance were not material for the three months ended March 31, 2020. 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.

NOTE 3 - INVENTORIES

Inventories, by component, consisted of:

June 30,

December 31,

March 31,

December 31,

2019

2018

 

2020

2019

 

Raw materials

$

118,311

$

110,720

$

106,787

$

111,653

Work in process

 

134,468

 

131,091

 

120,151

 

123,750

Finished goods

 

146,540

 

139,299

 

144,921

 

140,392

Total

$

399,319

$

381,110

$

371,859

$

375,795

NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill by reporting segment since December 31, 20182019 are as follows:

Beauty +

 

 

Food +

 

Corporate

 

 

Home

Pharma

Beverage

& Other

Total

 

Goodwill

$

223,933

$

359,883

$

128,279

$

1,615

$

713,710

Accumulated impairment losses

 

 

 

(1,615)

 

(1,615)

Balance as of December 31, 2018

$

223,933

$

359,883

$

128,279

$

$

712,095

Acquisition

27,839

27,839

Foreign currency exchange effects

 

(633)

 

(1,835)

 

(44)

 

 

(2,512)

Goodwill

$

223,300

$

385,887

$

128,235

$

1,615

$

739,037

Accumulated impairment losses

 

 

 

 

(1,615)

 

(1,615)

Balance as of June 30, 2019

$

223,300

$

385,887

$

128,235

$

$

737,422

The table below shows a summary of intangible assets as of June 30, 2019 and December 31, 2018.

June 30, 2019

December 31, 2018

Weighted Average

Gross

Gross

 

Amortization Period

Carrying

Accumulated

Net

Carrying

Accumulated

Net

 

    

(Years)

    

Amount

    

Amortization

    

Value

    

Amount

    

Amortization

    

Value

 

Amortized intangible assets:

��

Patents

 

2.7

$

5,958

(4,826)

$

1,132

$

5,427

$

(5,294)

$

133

Acquired technology

 

13.4

 

95,550

(21,827)

 

73,723

 

92,389

 

(18,304)

 

74,085

Customer relationships

13.9

191,182

(26,396)

164,786

179,597

(20,439)

159,158

Trademarks and trade names

7.4

23,515

(8,767)

14,748

21,243

(5,914)

15,329

License agreements and other

 

11.0

 

15,175

(8,214)

 

6,961

 

13,852

 

(7,653)

 

6,199

Total intangible assets

 

13.0

$

331,380

$

(70,030)

$

261,350

$

312,508

$

(57,604)

$

254,904

Aggregate amortization expense for the intangible assets above for the quarters ended June 30, 2019 and 2018 was $6,386 and $2,754, respectively. Aggregate amortization expense for the intangible assets above for the six months ended June 30, 2019 and 2018 was $12,388 and $5,573, respectively.

Future estimated amortization expense for the years ending December 31 is as follows:

2019

$

13,897

(remaining estimated amortization for 2019)

2020

 

25,062

2021

 

24,255

2022

 

23,977

2023 and thereafter

 

174,159

Beauty +

 

 

Food +

 

Corporate

 

 

Home

Pharma

Beverage

& Other

Total

 

Goodwill

$

221,658

$

413,650

$

128,153

$

1,615

$

765,076

Accumulated impairment losses

 

 

 

(1,615)

 

(1,615)

Balance as of December 31, 2019

$

221,658

$

413,650

$

128,153

$

$

763,461

Acquisition

463

463

Foreign currency exchange effects

 

(2,201)

 

(5,543)

 

(99)

 

 

(7,843)

Goodwill

$

219,457

$

408,570

$

128,054

$

1,615

$

757,696

Accumulated impairment losses

 

 

 

 

(1,615)

 

(1,615)

Balance as of March 31, 2020

$

219,457

$

408,570

$

128,054

$

$

756,081

11

Table of Contents

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 June 30, 2019.

NOTE 5 – INCOME TAXES

The effective tax rate for the three months ended June 30, 2019 of 27.6% was favorably impacted by net tax benefits of $2.9 million from discrete events. This consisted of a $9.1 million benefit from the excess tax benefits from employee stock-based compensation offset by, among other items, a $6.3 million charge to record a valuation allowance to properly reflect the realization of recorded deferred tax assets. The effective tax rate for the three months ended June 30, 2018 was 25.5%, reflecting a $3.5 million benefit related to the TCJA and a $1.7 million discrete favorable impact from the excess tax benefits from employee stock-based compensation.

The effective tax rate for the six months ended June 30, 2019 of 28.7% was favorably impacted by net tax benefits of $4.1 million from discrete events. This consisted of a favorable impact of $11.6 million from the excess tax benefits from employee stock-based compensation offset by, among other items, a $7.0 million charge recognized to record a valuation allowance to properly reflect the realization of recorded deferred tax assets. The effective tax rate for the six months ended June 30, 2018 of 26.3% was favorably impacted by $9.5 million from discrete items. This included a favorable impact of $6.0 million from the excess tax benefits from employee stock-based compensation and a $3.5 million benefit related to the TCJA.

NOTE 6 – DEBT

We hold U.S. dollar and euro-denominated debt to align our capital structure with our earnings base. At June 30, 2019, our long-term obligations consisted of the following:

Unamortized

    

    

Debt Issuance

    

 

    

Principal

    

Costs

    

Net

 

Notes payable 0.00% – 11.00%, due in monthly and annual installments through 2028

$

22,328

$

$

22,328

Senior unsecured notes 3.2%, due in 2022

 

75,000

 

76

 

74,924

Senior unsecured debts 4.1% USD floating swapped to 1.36% EUR fixed, equal annual installments through 2022

 

224,000

 

466

 

223,534

Senior unsecured notes 3.5%, due in 2023

125,000

162

124,838

Senior unsecured notes 1.0%, due in 2023

113,715

385

113,330

Senior unsecured notes 3.4%, due in 2024

 

50,000

 

70

 

49,930

Senior unsecured notes 3.5%, due in 2024

100,000

162

99,838

Senior unsecured notes 1.2%, due in 2024

227,430

823

226,607

Senior unsecured notes 3.6%, due in 2025

125,000

193

124,807

Senior unsecured notes 3.6%, due in 2026

125,000

192

124,808

Finance Lease Liabilities

 

28,258

 

 

28,258

$

1,215,731

$

2,529

$

1,213,202

Current maturities of long-term obligations

 

(64,941)

 

 

(64,941)

Total long-term obligations

$

1,150,790

$

2,529

$

1,148,261

1210

Table of Contents 

AtThe table below shows a summary of intangible assets as of March 31, 2020 and December 31, 2018,2019.

March 31, 2020

December 31, 2019

Weighted Average

Gross

Gross

 

Amortization Period

Carrying

Accumulated

Net

Carrying

Accumulated

Net

 

    

(Years)

    

Amount

    

Amortization

    

Value

    

Amount

    

Amortization

    

Value

 

Amortized intangible assets:

Patents

 

7.9

$

3,001

(1,304)

$

1,697

$

2,804

$

(1,318)

$

1,486

Acquired technology

 

13.0

 

99,437

(27,143)

 

72,294

 

100,511

 

(25,430)

 

75,081

Customer relationships

13.7

216,198

(37,774)

178,424

217,934

(33,924)

184,010

Trademarks and trade names

6.9

34,131

(11,919)

22,212

35,015

(11,003)

24,012

License agreements and other

 

17.6

 

19,671

(10,177)

 

9,494

 

16,153

 

(9,658)

 

6,495

Total intangible assets

 

13.0

$

372,438

$

(88,317)

$

284,121

$

372,417

$

(81,333)

$

291,084

Aggregate amortization expense for the intangible assets above for the quarters ended March 31, 2020 and 2019 was $8,014 and $6,002, respectively.

Future estimated amortization expense for the years ending December 31 is as follows:

2020

$

20,725

(remaining estimated amortization for 2020)

2021

 

27,154

2022

 

26,915

2023

 

26,835

2024 and thereafter

 

182,492

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 March 31, 2020.

NOTE 5 – INCOME TAXES

The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings and related estimated full year-taxes, adjusted for the impact of discrete quarterly items.

The effective tax rate for the three months ended March 31, 2020 and 2019, respectively, was 29.2% and 30.0%. The decrease in the effective tax rate for the three months ended March 31, 2020 was primarily due to a larger tax benefit from employee share-based compensation offset in part by a mix of other discrete items.

NOTE 6 – DEBT

Notes Payable, Revolving Credit Facility and Overdrafts

At March 31, 2020 and December 31, 2019, our long-term obligationsnotes payable, revolving credit facility and overdrafts, consisted of the following:

March 31,

December 31,

  

2020

    

2019

    

Notes payable 8.10% due in 2020

$

2,664

$

1,436

Revolving credit facility 1.88% due in 2020

200,000

25,000

Overdrafts 5.68% - 7.82% due in 2020

17,847

17,823

$

220,511

$

44,259

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

Aggregate long-term maturities, excluding finance lease liabilities, due annually from the current balance sheet date for the next five years are $60,846, $62,141, $60,833, $134,848, $340,847and $527,958thereafter.

We also maintain a multi-currency revolving credit facility with two tranches, providing for unsecured financing of up to $300 million that is available in the U.S. and up to €150 million that is available to our wholly-owned UK subsidiary. Each borrowing under the credit facility will bear interest at rates based on LIBOR, prime rates or other similar rates, in each case plus an applicable margin. A facility fee on the total amount of the facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the credit facility and the facility fee percentage may change from time to time depending on changes in our consolidated leverage ratio. The December 31, 2018 outstanding balance of €69.0 million on the euro-based revolving credit facility was paid in the first quarter of 2019.  €35.0 million was utilized as of June 30, 2019. Credit facility balances are included in notes payable, including revolving credit facilities on the Condensed Consolidated Balance Sheet.

Our revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:

Requirement

Level at June 30, 2019

Consolidated Leverage Ratio (1)

Maximumof 3.50 to 1.00

1.85 to 1.00

Consolidated Interest Coverage Ratio (1)

Minimum of 3.00 to 1.00

15.31 to 1.00

(1)Definitions of ratios are included as part of the revolving credit facility agreement and the note purchase agreements.

NOTE 7 – LEASE COMMITMENTS

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 2028. 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 $7.8 million and $15.9 million in the three and six months ended June 30, 2018, respectively, under the old lease accounting standard.

1311

Table of Contents 

We maintain a multi-currency revolving credit facility with two tranches that matures in July 2022 which provides for unsecured financing of up to $300 million that is available in the U.S. and up to €150 million that is available to our wholly-owned UK subsidiary. $200.0 million was utilized under our U.S. facility and 0 balance was utilized under our euro-based revolving credit facility as of March 31, 2020. $25.0 million was utilized under our U.S. facility and 0 balance was utilized on our euro-based revolving credit facility as of December 31, 2019.

There are 0 compensating balance requirements associated with our revolving credit facility. Each borrowing under the credit facility will bear interest at rates based on LIBOR, prime rates or other similar rates, in each case plus an applicable margin. A facility fee on the total amount of the facility is also payable quarterly, regardless of usage. The componentsapplicable margins for borrowings under the credit facility and the facility fee percentage may change from time to time depending on changes in our consolidated leverage ratio.

Long-Term Obligations

At March 31, 2020, our long-term obligations consisted of lease expense for the current period were as follows:following:

Three Months Ended

Six Months Ended

June 30, 2019

 

June 30, 2019

 

Operating lease cost

$

5,437

$

11,441

Finance lease cost:

Amortization of right-of-use assets

$

1,004

$

1,876

Interest on lease liabilities

325

640

Total finance lease cost

$

1,329

$

2,516

Short-term lease and variable lease costs

$

2,328

$

4,270

Unamortized

    

    

Debt Issuance

    

 

    

Principal

    

Costs

    

Net

 

Notes payable 0.00% – 10.90%, due in monthly and annual installments through 2028

$

15,551

$

$

15,551

Senior unsecured notes 3.2%, due in 2022

 

75,000

 

59

 

74,941

Senior unsecured debts 3.1% USD floating swapped to 1.36% EUR fixed, equal annual installments through 2022

 

168,000

 

352

 

167,648

Senior unsecured notes 3.5%, due in 2023

125,000

135

124,865

Senior unsecured notes 1.0%, due in 2023

110,315

341

109,974

Senior unsecured notes 3.4%, due in 2024

 

50,000

 

60

 

49,940

Senior unsecured notes 3.5%, due in 2024

100,000

135

99,865

Senior unsecured notes 1.2%, due in 2024

220,630

701

219,929

Senior unsecured notes 3.6%, due in 2025

125,000

157

124,843

Senior unsecured notes 3.6%, due in 2026

125,000

157

124,843

Finance Lease Liabilities

 

28,395

 

 

28,395

$

1,142,891

$

2,097

$

1,140,794

Current maturities of long-term obligations

 

(65,049)

 

 

(65,049)

Total long-term obligations

$

1,077,842

$

2,097

$

1,075,745

Supplemental cash flow information related to leases was as follows:At December 31, 2019, our long-term obligations consisted of the following:

Six Months Ended June 30,

2019

 

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$

10,249

Operating cash flows from finance leases

534

Financing cash flows from finance leases

2,294

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

$

9,512

Finance leases

11,622

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

SupplementalThe aggregate long-term maturities, excluding finance lease liabilities, which are disclosed in Note 7, due annually from the current balance sheet information related to leases was as follows:

June 30, 2019

Operating Leases

Operating lease right-of-use assets

$

76,996

Accounts payable and accrued liabilities

$

16,727

Operating lease liabilities

59,192

Total operating lease liabilities

$

75,919

Finance Leases

Property, plant and equipment, gross

$

43,117

Accumulated depreciation

(2,088)

Property, plant and equipment, net

$

41,029

Current maturities of long-term obligations, net of unamortized debt issuance cost

$

4,095

Long-term obligations, net of unamortized debt issuance cost

24,163

Total finance lease liabilities

$

28,258

Weighted Average Remaining Lease Term (in years)

Operating leases

6.1

Finance leases

7.1

Weighted Average Discount Rate

Operating leases

5.12

%

Finance leases

5.38

%

date for the next five years are $61,181, $60,285, $134,343, $337,444, $270,846 and $250,397 thereafter.

1412

Table of Contents 

Covenants

Our revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:

Requirement

Level at March 31, 2020

Consolidated Leverage Ratio (1)

Maximumof 3.50 to 1.00

1.73 to 1.00

Consolidated Interest Coverage Ratio (1)

Minimum of 3.00 to 1.00

16.32 to 1.00

(1)Definitions of ratios are included as part of the revolving credit facility agreement and the note purchase agreements.  

MaturitiesNOTE 7 – LEASES

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. 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”).

The components of lease liabilities as of June 30,expense for the three months ended March 31, 2020 and 2019 were as follows:

Operating

Finance

 

 

Leases

 

Leases

Year 1

$

20,140

$

5,504

Year 2

 

16,800

 

4,592

Year 3

 

12,248

 

3,850

Year 4

 

9,520

 

2,854

Year 5

 

7,232

 

2,379

Thereafter

 

23,673

 

17,434

Total lease payments

 

89,613

36,613

Less imputed interest

 

(13,694)

(8,355)

Total

$

75,919

$

28,258

Three Months Ended March 31,

 

2020

 

2019

 

Operating lease cost

$

5,254

$

6,004

Finance lease cost:

Amortization of right-of-use assets

$

1,199

$

872

Interest on lease liabilities

348

315

Total finance lease cost

$

1,547

$

1,187

Short-term lease and variable lease costs

$

2,448

$

1,942

Maturities of lease liabilities as of December 31, 2018 under the old lease accounting standard wereSupplemental cash flow information related to leases was 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

Three Months Ended March 31,

  

2020

2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

$

5,328

$

6,469

Operating cash flows from finance leases

369

243

Financing cash flows from finance leases

1,657

1,140

Right-of-use assets obtained in exchange for lease obligations:

Operating leases

$

5,233

$

4,515

Finance leases

220

10,697

As of June 30, 2019, we have additional operating and finance leases, primarily for buildings, that have not yet commenced of $4.0 million. These operating and finance leases will commence in years 2019 and 2020 with lease terms of 3 to 10 years.

NOTE 8 – RETIREMENT AND DEFERRED COMPENSATION PLANS

Components of Net Periodic Benefit Cost:

Domestic Plans

Foreign Plans

 

Three Months Ended June 30,

2019

2018

2019

2018

 

Service cost

$

2,775

$

2,844

$

1,445

$

1,491

Interest cost

 

1,846

 

1,706

 

495

 

457

Expected return on plan assets

 

(3,095)

 

(2,792)

 

(586)

 

(658)

Amortization of net loss

 

489

 

1,210

 

359

 

433

Amortization of prior service cost

 

 

 

113

 

125

Net periodic benefit cost

$

2,015

$

2,968

$

1,826

$

1,848

Domestic Plans

Foreign Plans

Domestic Plans

Foreign Plans

Six Months Ended June 30,

2019

2018

2019

2018

 

Three Months Ended March 31,

2020

2019

2020

2019

 

Service cost

$

5,548

$

5,693

$

2,905

$

3,022

$

3,577

$

2,773

$

1,768

$

1,460

Interest cost

 

3,691

 

3,426

 

996

 

929

 

1,987

 

1,845

 

340

 

501

Expected return on plan assets

 

(6,189)

 

(5,606)

 

(1,178)

 

(1,337)

 

(3,422)

 

(3,094)

 

(634)

 

(592)

Amortization of net loss

 

978

 

2,428

 

722

 

879

 

1,548

 

489

 

514

 

363

Amortization of prior service cost

 

 

 

226

 

254

 

 

 

97

 

113

Net periodic benefit cost

$

4,028

$

5,941

$

3,671

$

3,747

$

3,690

$

2,013

$

2,085

$

1,845

The components of net periodic benefit cost, other than the service cost component, are included in the line “Miscellaneous, net” in the income statement.

EMPLOYER CONTRIBUTIONS

Although we have no minimum funding requirement, we contributed $365thousand to our domestic defined benefit plans during the six months ended June 30, 2019 and do not expect additional significant contributions during 2019. We expect to contribute approximately $4.3 million to our foreign defined benefit plans in 2019, and as of June 30, 2019, we have contributed approximately $1.1 million of that amount.

1513

Table of Contents 

EMPLOYER CONTRIBUTIONS

Although we have 0 minimum funding requirement, we contributed $204thousand to our ongoing domestic supplemental employee retirement plan (“SERP”) annuity contracts during the three months ended March 31, 2020. We plan to contribute approximately an additional $200 thousand to pay our ongoing SERP annuity contracts during 2020. We have contributed approximately $711thousand to our foreign defined benefit plans during the three months ended March 31, 2020 and do not expect additional significant contributions during 2020.

NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Changes in Accumulated Other Comprehensive (Loss) Income by Component:

 

Foreign

 

Defined Benefit

 

 

 

 

Foreign

 

Defined Benefit

 

 

 

Currency

Pension Plans

Derivatives

Total

 

Balance - December 31, 2017

$

(185,503)

$

(64,595)

$

(3,204)

$

(253,302)

Other comprehensive (loss) income before reclassifications

 

(43,283)

 

 

10,794

 

(32,489)

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

2,699

 

(8,568)

 

(5,869)

Net current-period other comprehensive (loss) income

 

(43,283)

 

2,699

 

2,226

 

(38,358)

Balance - June 30, 2018

$

(228,786)

$

(61,896)

$

(978)

$

(291,660)

Currency

Pension Plans

Derivatives

Total

 

Balance - December 31, 2018

$

(248,401)

$

(60,463)

$

(1,640)

$

(310,504)

$

(248,401)

$

(60,463)

$

(1,640)

$

(310,504)

Other comprehensive (loss) income before reclassifications

 

(197)

 

 

3,727

 

3,530

 

(9,619)

 

 

5,738

 

(3,881)

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

1,437

 

(4,599)

 

(3,162)

 

 

721

 

(6,131)

 

(5,410)

Net current-period other comprehensive (loss) income

 

(197)

 

1,437

 

(872)

 

368

 

(9,619)

 

721

 

(393)

 

(9,291)

Balance - June 30, 2019

$

(248,598)

$

(59,026)

$

(2,512)

$

(310,136)

Balance - March 31, 2019

$

(258,020)

$

(59,742)

$

(2,033)

$

(319,795)

Balance - December 31, 2019

$

(257,124)

$

(83,147)

$

(1,677)

$

(341,948)

Other comprehensive (loss) income before reclassifications

 

(42,229)

 

 

5,026

 

(37,203)

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

1,636

 

(3,543)

 

(1,907)

Net current-period other comprehensive (loss) income

 

(42,229)

 

1,636

 

1,483

 

(39,110)

Balance - March 31, 2020

$

(299,353)

$

(81,511)

$

(194)

$

(381,058)

Reclassifications Out of Accumulated Other Comprehensive (Loss) Income:

Amount Reclassified from

Details about Accumulated Other

Accumulated Other

Affected Line in the Statement

Comprehensive Income Components

Comprehensive Income

Where Net Income is Presented

Three Months Ended June 30,

2019

2018

 

Defined Benefit Pension Plans

Amortization of net loss

$

848

$

1,643

 

(1)

Amortization of prior service cost

 

113

 

125

 

(1)

 

961

 

1,768

 

Total before tax

 

(245)

 

(425)

 

Tax benefit

$

716

$

1,343

 

Net of tax

Derivatives

Changes in treasury locks

$

$

11

 

Interest Expense

Changes in cross currency swap: interest component

(1,552)

(1,468)

Interest Expense

Changes in cross currency swap: foreign exchange component

3,084

(14,969)

Miscellaneous, net

 

1,532

 

(16,426)

 

Total before tax

 

 

2,790

 

Tax benefit

$

1,532

$

(13,636)

 

Net of tax

Total reclassifications for the period

$

2,248

$

(12,293)

16

Table of Contents

Amount Reclassified from

 

Amount Reclassified from

 

Details about Accumulated Other

Accumulated Other

Affected Line in the Statement

 

Accumulated Other

Affected Line in the Statement

 

Comprehensive Income Components

Comprehensive Income

Where Net Income is Presented

 

Comprehensive Income

Where Net Income is Presented

 

Six Months Ended June 30,

2019

2018

 

Three Months Ended March 31,

    

2020

    

2019

    

    

 

Defined Benefit Pension Plans

Amortization of net loss

$

1,700

$

3,307

 

(1)

$

2,062

$

852

 

(1)

Amortization of prior service cost

 

226

 

254

 

(1)

 

97

 

113

 

(1)

 

1,926

 

3,561

 

Total before tax

 

2,159

 

965

 

Total before tax

 

(489)

 

(862)

 

Tax benefit

 

(523)

 

(244)

 

Tax benefit

$

1,437

$

2,699

 

Net of tax

$

1,636

$

721

 

Net of tax

Derivatives

Changes in treasury locks

$

$

22

 

Interest Expense

Changes in cross currency swap: interest component

(3,006)

(2,487)

Interest Expense

$

(763)

$

(1,454)

Interest Expense

Changes in cross currency swap: foreign exchange component

 

(1,593)

 

(7,853)

 

Miscellaneous, net

 

(2,780)

 

(4,677)

 

Miscellaneous, net

 

(4,599)

 

(10,318)

 

Total before tax

$

(3,543)

$

(6,131)

 

Net of tax

 

 

1,750

 

Tax benefit

$

(4,599)

$

(8,568)

 

Net of tax

Total reclassifications for the period

$

(3,162)

$

(5,869)

$

(1,907)

$

(5,410)

(1)These accumulated other comprehensive income components are included in the computation of net periodic benefit costs, net of tax (seetax. See Note 8 – Retirement and Deferred Compensation Plans for additional details).details.

14

Table of Contents

NOTE 10 – 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 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 Condensed Consolidated Balance Sheets (seeSheets. See Note 11 - Fair Value).Value for additional details.

CASH FLOW HEDGECash Flow Hedge

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 Condensed Consolidated Statements of Cash Flows.

17

Table of Contents

During 2017, our wholly-owned UK subsidiary borrowed $280 million in term loan borrowings under a new 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 cross currency swap in the notional amount of $280 million to effectively hedge the foreign exchange and interest rate exposure on the $280 million term loan. This EUR/USD swap agreement fixed our U.S. dollar floating-rate debt to 1.36% euro fixed-rate debt. Related to this hedge, approximately $2.5$0.2 million of loss is included in accumulated other comprehensive loss at June 30, 2019.March 31, 2020. The amount expected to be recognized into earnings during the next 12 months related to the interest component of our cross currency swap based on prevailing foreign exchange and interest rates at June 30, 2019March 31, 2020 is $4.8$2.2 million. The amount expected to be recognized into earnings during the next 12 months related to the foreign exchange component of our cross currency swap is dependent on fluctuations in currency exchange rates. As of June 30, 2019,March 31, 2020, the fair values of the cross currency swap were a $0.1$6.8 million asset and a $0.1 million liability.asset. The swap contract expires on July 20, 2022.

HEDGE OF NET INVESTMENTS IN FOREIGN OPERATIONSHedge 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 subsidiaries. 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 has an additive 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.

OTHEROther

As of June 30, 2019,March 31, 2020, we have recorded the fair value of foreign currency forward exchange contracts of $0.2$2.1 million in prepaid and other and $0.7$0.5 million in accounts payable and accrued liabilities on the balance sheet. All forward exchange contracts outstanding as of June 30, 2019March 31, 2020 had an aggregate notional contract amount of $56.9$56.1 million.

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

June 30, 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

$

$

157

$

$

259

Cross Currency Swap Contract (1)

 

Prepaid and other

 

109

 

 

 

$

109

$

157

$

$

259

Derivative Liabilities

Foreign Exchange Contracts

 

Accounts payable and accrued liabilities

$

$

736

$

$

331

Cross Currency Swap Contract (1)

 

Accounts payable and accrued liabilities

 

73

 

 

1,040

 

$

73

$

736

$

1,040

$

331

(1)

This cross currency swap contract is composed of both an interest component and a foreign exchange component.

1815

Table of Contents 

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

    

    

March 31, 2020

    

December 31, 2019

 

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

$

$

2,061

$

$

206

Cross Currency Swap Contract (1)

 

Prepaid and other

 

6,769

 

 

2,552

 

$

6,769

$

2,061

$

2,552

$

206

Derivative Liabilities

Foreign Exchange Contracts

 

Accounts payable, accrued and other liabilities

$

$

505

$

$

401

$

$

505

$

$

401

(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 Quarters Ended June 30, 2019 and 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

 

$

1,080

$

3,717

Interest expense

$

1,552

$

1,468

$

(8,756)

Foreign exchange component

 

(3,084)

14,969

Miscellaneous, net

(3,084)

14,969

(49)

$

(2,004)

$

18,686

$

(1,532)

$

16,437

The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss) for the SixThree Months Ended June 30,March 31, 2020 and 2019 and 2018

Amount of Gain (Loss)

Total Amount

Amount of Gain (Loss)

Total Amount

Amount of Gain (Loss)

Location of (Loss)

Reclassified from

of Affected

Amount of Gain (Loss)

Location of (Loss)

Reclassified from

of Affected

Derivatives in Cash

Recognized in

Gain Recognized

Accumulated

Income

Recognized in

Gain Recognized

Accumulated

Income

Flow Hedging

Other Comprehensive

in Income on

Other Comprehensive

Statement

Other Comprehensive

in Income on

Other Comprehensive

Statement

Relationships

Income on Derivative

Derivatives

Income on Derivative

Line Item

Income on Derivative

Derivatives

Income on Derivative

Line Item

2019

2018

2019

2018

 

2020

2019

2020

2019

 

Cross currency swap contract:

Interest component

 

$

2,472

$

5,152

Interest expense

$

3,006

$

2,487

$

(17,970)

 

$

2,246

$

1,392

Interest expense

$

763

$

1,454

$

(8,388)

Foreign exchange component

 

1,593

7,853

Miscellaneous, net

1,593

7,853

417

 

2,780

4,677

Miscellaneous, net

2,780

4,677

(1,412)

$

4,065

$

13,005

$

4,599

$

10,340

$

5,026

$

6,069

$

3,543

$

6,131

The Effect of Derivatives Not Designated as Hedging Instruments on the Condensed Consolidated Statements of Income for the QuartersThree Months Ended June 30,March 31, 2020 and 2019 and 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

$

(251)

$

972

$

(251)

$

972

The Effect of Derivatives Not Designated as Hedging Instruments on the Condensed Consolidated Statements of Income for the Six Months Ended June 30, 2019 and 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

$

(514)

$

1,113

$

(514)

$

1,113

Amount of (Loss) Gain

Derivatives Not Designated

Location of (Loss) Gain Recognized

Recognized in Income

as Hedging Instruments

in Income on Derivatives

on Derivatives

2020

2019

 

Foreign Exchange Contracts

 

Other (Expense) Income:
Miscellaneous, net

$

1,747

$

(263)

$

1,747

$

(263)

1916

Table of Contents 

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

 

June 30, 2019

Derivative Assets

$

266

 

$

266

 

 

$

266

Total Assets

$

266

 

$

266

 

 

$

266

Derivative Liabilities

$

809

 

$

809

 

 

$

809

Total Liabilities

$

809

 

$

809

 

 

$

809

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

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

 

March 31, 2020

Derivative Assets

$

8,830

 

$

8,830

 

 

$

8,830

Total Assets

$

8,830

 

$

8,830

 

 

$

8,830

Derivative Liabilities

$

505

 

$

505

 

 

$

505

Total Liabilities

$

505

 

$

505

 

 

$

505

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

NOTE 11 – FAIR VALUE

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.

As of June 30,March 31, 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)

$

2,061

$

$

2,061

$

Cross currency swap contract (1)

6,769

6,769

Total assets at fair value

$

8,830

$

$

8,830

$

Liabilities

Foreign exchange contracts (1)

$

505

$

$

505

$

Contingent consideration obligation

5,930

5,930

Total liabilities at fair value

$

6,435

$

$

505

$

5,930

As of December 31, 2019, 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)

$

157

$

$

157

$

Cross currency swap contract (1)

109

109

Total assets at fair value

$

266

$

$

266

$

Liabilities

Foreign exchange contracts (1)

$

736

$

$

736

$

Contingent consideration obligation

3,000

3,000

Cross currency swap contract (1)

73

73

Total liabilities at fair value

$

3,809

$

$

809

$

3,000

As of December 31, 2018, the fair values of our financial assets and liabilities were categorized as follows:

Total

Level 1

Level 2

Level 3

 

    

Total

    

Level 1

    

Level 2

    

Level 3

 

Assets

Foreign exchange contracts (1)

$

259

$

$

259

$

$

206

$

$

206

$

Cross currency swap contract (1)

2,552

2,552

Total assets at fair value

$

259

$

$

259

$

$

2,758

$

$

2,758

$

Liabilities

Foreign exchange contracts (1)

$

331

$

$

331

$

$

401

$

$

401

$

Cross currency swap contract (1)

1,040

1,040

Contingent consideration obligation

5,930

5,930

Total liabilities at fair value

$

1,371

$

$

1,371

$

$

6,331

$

$

401

$

5,930

(1)Market approach valuation technique based on observable market transactions of spot and forward rates.

2017

Table of Contents 

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 instruments. We consider our long-term 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 $1.0 billion as of March 31, 2020 and $1.1 billion as of June 30, 2019 and December 31, 2018. 2019.

As discussed in Note 18 –17 - Acquisitions, we have a contingent consideration obligation to the selling shareholdersequity holders of 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 Analytical (“Gateway”) in connection with the Gateway Acquisition (as defined herein) based on 2020 and 2022 performance targets defined by the purchase agreement.targets. We consider thisthese obligations a Level 3 liability and on a quarterly basis we assesshave estimated the projected resultsaggregate fair value for the acquired business in comparisonthese contingent consideration arrangements to the earnout targetsbe $2.9 million and adjust the liability accordingly.$3.0 million, respectively, as of March 31, 2020 and December 31, 2019.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

The Company, in the normal course of business, is 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, results of operations or cash flows, claims and legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur and 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.

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 no0 liabilities recorded for these agreements as of June 30, 2019March 31, 2020 and December 31, 2018.2019.

A fire caused damage to our facility in Annecy, France in June 2016. We are insured for the damages caused by the fire, including business interruption insurance.  For the three months ended March 31, 2020, we did not receive any insurance proceeds, and have 0 insurance receivable as of March 31, 2020. During the three months ended March 31, 2020 and 2019, profitability was not impacted. The final settlement continues to be negotiated. In many cases, our insurance coverage exceeds the amount of our recognized losses. However, 0 gain contingencies were recognized during the three months ended March 31, 2020 as our ability to realize those gains remains uncertain.

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 related to this contingency. During 2019, we paid approximately $0.6 million. For the three months ended March 31, 2020, we paid approximately $0.1 million and made adjustments to the accrual based on our future anticipated expenditures.  As of June 30, 2019,March 31, 2020, our outstanding reserve is $0.5$0.4 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.

During the quarter ended June 30, 2018, we recorded a $750 thousand accrual for a potential environmental matter at a U.S. manufacturing site. This matter was remediated and settled during the third quarter of 2018 for $239 thousand and the remaining accrual was released.

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. During the first quarter of 2019, we received a favorable court decision of $2.7 million for the retrospective right to recover part of our claim. This amount is recorded in cost of sales as a favorable impact of $1.7 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 upapproximately $2 million to $10.2$8 million, including interest.interest, depending on the future decisions of the Supreme Court of Brazil. Due to uncertainties around our remaining court recovery claims, we have not recorded any further amounts relating to the retrospective nature of this matter. However,

In December 2019, tax authorities in Brazil notified us of a tax assessment of approximately $6.1 million, including interest and penalties of $2.3 million and $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. Considering the complex nature of the assessment, we anticipate decisions on our remaining claims in 2019expect the appeal process to go through different levels of administrative and/or judicial review. Accordingly, due to uncertainty of the timing and amounts of assessment, 0 liability is recorded as of March 31, 2020.

18

Table of Contents

NOTE 13 – STOCK REPURCHASE PROGRAM

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.

During the three and six months ended June 30,March 31, 2020, we did not repurchase any shares. During the three months ended March 31, 2019, wethe Company repurchased approximately 34 thousand and 193159 thousand shares for approximately $4.1 million and $19.1 million, respectively. During the three and six months ended June 30, 2018, we repurchased approximately 480 thousand and 668 thousand shares for approximately $45.0 million and $61.7 million, respectively.$15.0 million. As of June 30, 2019,March 31, 2020, there was $345.9$278.5 million of authorized share repurchases available to us.

21

Table of Contents

NOTE 14 – STOCK-BASED COMPENSATION

Historically we have issued stock options andWe issue restricted stock units (“RSUs”), which consistedconsist of time-based and performance-based awards, to employees under stock awards plans approved by stockholders. Beginning in 2019, we no longer issue stock options to employees. 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 were 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 our internal financial performance metrics and (2) based on our total shareholder return (“TSR”) relative to total shareholder returns of an industrial peer group. At the time of vesting, the vested shares of common 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 attributable to employee stock options for the first six months of 2019 was approximately $3.2 million ($2.7 million after tax). Approximately $2.7 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales. Compensation expense attributable to stock options for the first six months of 2018 was approximately $7.1 million ($5.4 million after tax). Approximately $5.7 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales. The reduction in stock option expense is due to our move to RSUs as discussed above.

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 per share during the first six months of 2018. This value was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Stock Awards Plans:

Six Months Ended June 30,

2018

Dividend Yield

1.5

%

Expected Stock Price Volatility

14.2

%

Risk-free Interest Rate

2.8

%

Expected Life of Option (years)

6.6

��

A summary of option activity under our stock plans during the six months ended June 30, 2019 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

 

(1,212,250)

 

57.05

 

(14,200)

 

62.33

Forfeited or expired

 

(110,744)

 

65.79

 

 

Outstanding at June 30, 2019

 

5,438,061

$

67.72

 

141,000

$

57.71

Exercisable at June 30, 2019

 

4,632,475

$

65.35

 

141,000

$

57.71

Weighted-Average Remaining Contractual Term (Years):

Outstanding at June 30, 2019

 

5.8

3.6

 

Exercisable at June 30, 2019

 

5.3

3.6

 

Aggregate Intrinsic Value:

Outstanding at June 30, 2019

$

292,749

$

9,001

Exercisable at June 30, 2019

$

260,341

$

9,001

Intrinsic Value of Options Exercised During the Six Months Ended:

June 30, 2019

$

65,944

$

722

June 30, 2018

$

31,307

$

1,608

22

Table of Contents

The grant date fair value of options vested during the six months ended June 30, 2019 and 2018 was $12.2 million and $16.5 million, respectively. Cash received from option exercises was approximately $70.7 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $14.9 million in the six months ended June 30, 2019. As of June 30, 2019, the remaining valuation of stock option awards to be expensed in future periods was $5.1 million and the related weighted-average period over which it is expected to be recognized is 1.2 years.

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 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.

Six Months Ended June 30,

2019

2018

Three Months Ended March 31,

2020

2019

    

Fair value per stock award

$

134.97

$

128.70

$

94.98

$

134.97

Grant date stock price

$

104.51

$

89.42

$

83.93

$

104.51

Assumptions:

Aptar's stock price expected volatility

16.50

%

12.30

%

23.80

%

16.50

%

Expected average volatility of peer companies

31.90

%

27.50

%

48.50

%

31.90

%

Correlation assumption

37.40

%

20.20

%

63.50

%

37.40

%

Risk-free interest rate

2.19

%

2.42

%

0.31

%

2.19

%

Dividend yield assumption

1.30

%

1.43

%

1.72

%

1.30

%

A summary of RSU activity as of June 30, 2019March 31, 2020 and changes during the sixthree month period then ended is presented below:

 

Time-Based RSUs

Performance-Based RSUs

 

 

Time-Based RSUs

Performance-Based RSUs

 

 

Weighted Average

 

Weighted Average

 

    

    

Weighted Average

    

    

Weighted Average

Units

Grant-Date Fair Value

Units

Grant-Date Fair Value

Units

Grant-Date Fair Value

Units

Grant-Date Fair Value

Nonvested at January 1, 2019

261,487

$

91.78

69,990

$

111.55

Nonvested at January 1, 2020

480,729

$

95.45

181,680

$

117.26

Granted

157,312

 

90.64

123,246

 

119.35

176,424

 

81.75

206,408

 

90.85

Vested

(46,512)

87.42

(112,515)

82.64

Forfeited

(4,191)

 

104.25

(62)

 

120.61

(217)

 

100.14

(589)

 

120.61

Nonvested at June 30, 2019

368,096

$

91.70

193,174

$

116.52

Nonvested at March 31, 2020

544,421

$

92.11

387,499

$

103.23

NonvestedIncluded in the March 31, 2020 time-based RSUs outstanding as of June 30, 2019 include 14,257are 11,490 units awardedgranted to non-employee directors.

Compensation expense recorded attributable to RSUs for the first sixthree months of 20192020 and 20182019 was approximately $9.8$8.3 million and $3.8$4.7 million, respectively. The actual tax benefit realized for the tax deduction from RSUs was approximately $704 thousand$1.5 million in the sixthree months ended June 30, 2019.March 31, 2020. The fair value of units vested during the sixthree months ended June 30,March 31, 2020 and 2019 and 2018 was $4.1$9.3 million and $2.5$2.7 million, respectively. The intrinsic value of units vested during the sixthree months ended June 30,March 31, 2020 and 2019 and 2018 was $4.8$11.5 million and $3.0$3.2 million, respectively. As of June 30, 2019,March 31, 2020, there was $39.7$62.7 million of total unrecognized compensation cost relating to RSU awards which is expected to be recognized over a weighted-average period of 2.3 years.

During 2017,19

Table of Contents

Historically we provided a long-term incentive program for certain employees. Each award is basedissued 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 our commongrant and generally vest over three years and expire 10 years after grant. Compensation expense attributable to employee stock during a three-year performance period compared to a peer group. The total expected expense related to this programoptions for awards outstanding asthe first three months of June 30, 2019 is2020 was approximately $3.0$0.9 million ($0.7 million after tax). Approximately $0.7 million of which $450 thousandthe compensation expense was recorded in selling, research & development and $136 thousandadministrative expenses and the balance was recognizedrecorded in cost of sales. Compensation expense attributable to stock options for the first sixthree months of 2019 was approximately $1.8 million ($1.5 million after tax). Approximately $1.6 million of the compensation expense was recorded in selling, research & development and 2018, respectively.administrative expenses and the balance was recorded in cost of sales. The reduction in stock option expense is due to our move to RSUs as discussed above. For stock option grants, we used historical data to estimate expected life and volatility.

A summary of option activity under our stock plans during the three months ended March 31, 2020 is presented below:

Stock Awards Plans

Director Stock Option Plans

 

    

    

Weighted Average

    

    

Weighted Average

 

Options

Exercise Price

Options

Exercise Price

 

Outstanding, January 1, 2020

 

5,044,180

$

68.32

 

135,251

$

58.45

Granted

 

 

 

 

Exercised

 

(292,090)

 

55.16

 

(21,251)

 

51.20

Forfeited or expired

 

(6,630)

 

65.60

 

 

Outstanding at March 31, 2020

 

4,745,460

$

69.20

 

114,000

$

59.80

Exercisable at March 31, 2020

 

4,583,864

$

68.43

 

114,000

$

59.80

Weighted-Average Remaining Contractual Term (Years):

Outstanding at March 31, 2020

 

5.3

3.2

 

Exercisable at March 31, 2020

 

5.1

3.2

 

Aggregate Intrinsic Value:

Outstanding at March 31, 2020

$

143,971

$

4,530

Exercisable at March 31, 2020

$

142,195

$

4,530

Intrinsic Value of Options Exercised During the Three Months Ended:

March 31, 2020

$

18,202

$

1,385

March 31, 2019

$

14,047

$

51

The grant date fair value of options vested during the three months ended March 31, 2020 and 2019 was $7.6 million and $12.2 million, respectively. Cash received from option exercises was approximately$18.6 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $4.8 million in the three months ended March 31, 2020. As of March 31, 2020, the remaining valuation of stock option awards to be expensed in future periods was $1.5 million and the related weighted-average period over which it is expected to be recognized is 0.9 years.

NOTE 15 – 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. Stock-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 for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 is as follows:

2320

Table of Contents 

Three Months Ended

March 31, 2020

March 31, 2019

Diluted

Basic

Diluted

Basic

 

Consolidated operations

Income available to common stockholders

$

55,253

$

55,253

$

63,004

$

63,004

Average equivalent shares

Shares of common stock

 

64,009

 

64,009

 

62,964

 

62,964

Effect of dilutive stock-based compensation

Stock options

 

1,810

 

 

2,222

 

Restricted stock

 

292

 

 

163

 

Total average equivalent shares

 

66,111

64,009

65,349

62,964

Net income per share

$

0.84

$

0.86

$

0.96

$

1.00

Three Months Ended

June 30, 2019

June 30, 2018

 

Diluted

Basic

Diluted

Basic

Consolidated operations

Income available to common stockholders

$

73,915

$

73,915

$

55,775

$

55,775

Average equivalent shares

Shares of common stock

 

63,471

 

63,471

 

62,402

 

62,402

Effect of dilutive stock based compensation

Stock options

 

2,533

 

 

2,358

 

Restricted stock

 

228

 

 

90

 

Total average equivalent shares

 

66,232

63,471

64,850

62,402

Net income per share

$

1.12

$

1.16

$

0.86

$

0.89

Six Months Ended

June 30, 2019

June 30, 2018

Diluted

Basic

Diluted

Basic

 

Consolidated operations

Income available to common stockholders

$

136,919

$

136,919

$

115,075

$

115,075

Average equivalent shares

Shares of common stock

 

63,219

 

63,219

 

62,266

 

62,266

Effect of dilutive stock-based compensation

Stock options

 

2,411

 

 

2,293

 

Restricted stock

 

212

 

 

81

 

Total average equivalent shares

 

65,842

63,219

64,640

62,266

Net income per share

$

2.08

$

2.17

$

1.78

$

1.85

NOTE 16 – SEGMENT INFORMATION

We are organized into three3 reporting segments. Our Beauty+Beauty + Home segment sells to the personal care, beauty and home care markets. Our Pharma segment serves customers in the prescription drug, consumer health care, injectables and active-packagingactive packaging markets. Our Food + Beverage segment sells primarily to the food and beverage markets.

The accounting policies of the segments are the same as those described in Part II, Item 8, Note 1 - Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2018.2019. We evaluate performance of our business units and allocate resources based upon Adjusted EBITDA. Adjusted EBITDA is defined as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring and acquisition-related costs. All internal segment reporting and discussions of results with our Chief Operating Decision Maker (CODM) are based on segment Adjusted EBITDA.

Financial information regarding our reporting segments is shown below:

Three Months Ended March 31,

    

2020

2019

 

Total Sales:

Beauty + Home

$

330,466

$

373,503

Pharma

 

299,590

 

274,494

Food + Beverage

 

100,301

 

104,727

Total Sales

$

730,357

$

752,724

Less: Intersegment Sales:

Beauty + Home

$

5,906

$

5,844

Pharma

 

2,394

 

1,793

Food + Beverage

 

504

 

627

Total Intersegment Sales

$

8,804

$

8,264

Net Sales:

Beauty + Home

$

324,560

$

367,659

Pharma

 

297,196

 

272,701

Food + Beverage

 

99,797

 

104,100

Net Sales

$

721,553

$

744,460

Adjusted EBITDA (1):

Beauty + Home

$

34,247

$

53,191

Pharma

 

108,342

 

97,357

Food + Beverage

 

15,407

 

16,691

Corporate & Other, unallocated

 

(13,828)

 

(12,755)

Acquisition-related costs (2)

(2,274)

Restructuring Initiatives (3)

(4,839)

(9,530)

Depreciation and amortization

(50,806)

(47,489)

Interest Expense

(8,388)

(9,214)

Interest Income

 

175

 

1,748

Income before Income Taxes

$

78,036

$

89,999

(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 and acquisition-related costs.

2421

Table of Contents 

Financial information regarding our reporting segments is shown below:

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Total Sales:

Beauty + Home

$

349,253

$

374,161

$

722,756

$

757,624

Pharma

 

284,577

 

241,282

 

559,071

 

471,414

Food + Beverage

 

119,095

 

101,420

 

223,822

 

197,065

Total Sales

752,925

716,863

$

1,505,649

$

1,426,103

Less: Intersegment Sales:

Beauty + Home

$

7,173

$

5,625

$

13,017

$

10,915

Pharma

 

2,638

 

73

 

4,431

 

78

Food + Beverage

 

453

 

557

 

1,080

 

1,152

Total Intersegment Sales

$

10,264

$

6,255

$

18,528

$

12,145

Net Sales:

Beauty + Home

$

342,080

$

368,536

$

709,739

$

746,709

Pharma

 

281,939

 

241,209

 

554,640

 

471,336

Food + Beverage

 

118,642

 

100,863

 

222,742

 

195,913

Net Sales

$

742,661

$

710,608

$

1,487,121

$

1,413,958

Adjusted EBITDA:

Beauty + Home

$

48,745

$

45,846

$

101,936

$

98,981

Pharma

 

101,650

 

86,353

 

199,007

 

166,193

Food + Beverage

 

20,944

 

18,063

 

37,635

 

30,802

Corporate & Other, unallocated

 

(10,630)

 

(9,043)

 

(23,385)

 

(20,622)

Acquisition-related costs (1)

(1,281)

(2,563)

(1,281)

(2,563)

Restructuring Initiatives (2)

(1,737)

(18,214)

(11,267)

(24,150)

Depreciation and amortization

(47,867)

(40,101)

(95,356)

(81,276)

Interest Expense

(8,756)

(7,964)

(17,970)

(16,019)

Interest Income

 

1,033

 

2,521

 

2,781

 

4,769

Income before Income Taxes

$

102,101

$

74,898

$

192,100

$

156,115

(1)(2)Acquisition-related costs include transaction costs and purchase accounting adjustments related to inventoryacquisitions and backlog for acquisitionsinvestments (see Note 17 – Acquisitions and Note 18 – AcquisitionsInvestment in Equity Securities for further details).
(2)(3)Restructuring Initiatives includes expense items for the three and six months ended June 30,March 31, 2020 and 2019 and 2018 as follows (see Note 19 – Restructuring Initiatives for further details):

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Three Months Ended March 31,

2020

    

2019

Restructuring Initiatives by Segment

Beauty + Home

$

1,259

$

14,631

$

9,528

$

19,647

$

4,907

$

8,269

Pharma

 

(113)

 

1,224

 

213

 

1,588

 

(31)

 

326

Food + Beverage

 

112

 

1,354

 

622

 

1,669

 

103

 

510

Corporate & Other

479

1,005

904

1,246

(140)

425

Total Restructuring Initiatives

$

1,737

$

18,214

$

11,267

$

24,150

$

4,839

$

9,530

Note

NOTE 17 – INSURANCE SETTLEMENT RECEIVABLEACQUISITIONS

A fire caused damageBusiness Combinations

On February 13, 2020, we entered into a securities purchase agreement to our facilityacquire 100% of the equity interests (the “Fusion Acquisition”) of Fusion Packaging, Inc. (“Fusion”). Subsequent to the quarter end, on April 1, 2020 we closed on the Fusion Acquisition for a purchase price of approximately $165 million. Fusion, based in Annecy, FranceDallas, TX, is a global leader in June 2016. The fire was contained to onethe design, engineering and distribution of three production units and there were no reported injuries. Aptar Annecy supplies anodized aluminum components for certain Aptar dispensing systems. We are insuredluxury packaging for the damages causedbeauty industry. The purchase agreement also provides an earn-out provision providing for the payment of up to $33.9 million based on Fusion’s financial performance during a 3 year measurement period.

On October 31, 2019, we completed our acquisition (the “Noble Acquisition”) of 100% of the equity interests of Noble International Holdings, Inc., Genia Medical, Inc. and JBCB Holdings, LLC (collectively referred to as “Noble”). 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. The purchase price was approximately $62.3 million (net of $1.6 million of cash acquired) and was funded by cash on hand. As part of the fire, including business interruption insurance,Noble Acquisition, we are also obligated to pay to the selling equityholders of Noble certain contingent consideration based on 2024 cumulative financial performance metrics defined in the purchase agreement. Based on projection as of the acquisition date, we estimated the aggregate fair value for this contingent consideration arrangement to be $2.9 million utilizing the Black-Scholes valuation model. As of December 31, 2019, $5 million was held in restricted cash pending the finalization of a working capital adjustment and we do not expect this incident to have a material impact on our financial results.

Lossesindemnity escrow. During the first quarter of 2020, $1.0 million related to the fireworking capital escrow was released from restriction, resulting in an additional $463 thousand payment due to the seller and a corresponding increase to our purchase price and associated goodwill balance. The results of $6.1 million and $12.0 million were incurred duringNoble’s operations have been included in the three and six months ended June 30, 2018, respectively. ForCondensed Consolidated Financial Statements within our Pharma segment since the six months ended June 30, 2019, we received insurance proceedsdate of $3.4 million, and have no insurance receivable as of June 30, 2019. The final settlement continues to be negotiated. In many cases, our insurance coverage exceeds the amount of our recognized losses. However, no gain contingencies were recognized during the three and six months ended June 30, 2019 as our ability to realize those gains remains uncertain. During the three and six months ended June 30, 2019, profitability was not impacted while profitability was negatively impacted by $2.5 million and $4.0 million during the three and six months ended June 30, 2018, respectively. These 2018 losses negatively impacted the Beauty + Home segment.

25

Table of Contents

NOTE 18 – ACQUISITIONSacquisition.

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 (exclusive(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 consolidated financial statementsCondensed Consolidated Financial Statements within our Pharma segment since the date of acquisition. We are in the process of finalizing purchase accounting.

On May 31, 2019, we completed our acquisition (the “Gateway Acquisition”) of all of the outstanding capital stockequity 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 shareholdersequityholder 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. We are in the process of finalizing purchase accounting. The results of Gateway’s operations have been included in the consolidated financial statementsCondensed Consolidated Financial Statements within our Pharma segment since the date of acquisition.

On August 27, 2018, we completed our acquisition (the “CSP Technologies Acquisition”)22

Table 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 two manufacturing locations in the U.S. and one in France. The purchase price was approximately $553.5 million and was funded by cash on hand. At acquisition, we maintained $5.0 million in an escrow account and classified this amount as restricted cash pending the finalization of a working capital adjustment. These funds were released from restriction in January 2019, which resulted in a refund of $964 thousand and a corresponding reduction of our purchase price and the associated goodwill balance in the amount of the refund.Contents

The following table summarizes the assets acquired and liabilities assumed related to the CSP Technologies Acquisition as of the acquisition date at estimated fair value.

August 27, 2018

 

    

2019

 

Assets

Cash and equivalents

$

24,053

$

3,427

Accounts receivable

 

20,847

 

3,504

Inventories

 

42,169

Prepaid and other

 

3,995

 

2,478

Property, plant and equipment

 

99,194

 

4,267

Goodwill

 

278,020

 

59,143

Intangible assets

 

177,120

 

52,980

Other miscellaneous assets

 

1,039

 

430

Liabilities

Current maturities of long-term obligations

 

129

Accounts payable and accrued liabilities

 

31,989

Long-term obligations

 

6,037

Accounts payable, accrued and other liabilities

 

5,388

Deferred income taxes

 

38,442

 

2,592

Retirement and deferred compensation plans

1,038

Deferred and other non-current liabilities

 

15,344

 

1,598

Net assets acquired

$

553,458

$

116,651

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 related to the CSP Technologies Acquisition:date:

2019

Weighted-Average

Estimated

 

    

Weighted-Average

    

Estimated

 

Useful Life

Fair Value

 

Useful Life

Fair Value

 

(in years)

of Asset

 

(in years)

of Asset

 

Acquired technology

 

12

$

46,700

 

8

$

9,160

Customer relationships

 

16

 

113,300

 

11

 

39,379

Trademarks and trade names

9

14,600

4

2,457

License agreements and other

 

11

 

2,520

 

1

 

1,984

Total

$

177,120

$

52,980

26

Table of Contents

Goodwill net of working capital settlement, in the amount of $277.1$59.1 million was recorded forrelated to the CSP Technologies Acquisition, of2019 acquisitions which $173.4 million and $103.7 million is included in the Pharma and Food + Beverage segments, respectively.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 largely consists of leveraging our commercial presence in selling the CSP Technologies lineNoble, Nanopharm and Gateway lines of products in markets where CSP Technologiesthey did not previously operate and the abilityabilities of CSP Technologiesthe acquired companies to maintain itstheir competitive advantage from a technical viewpoint. Goodwill will not be amortized, but will be tested for impairment at least annually. We do not expect anyFor 2019 acquisitions, goodwill of the goodwill$29.6 million will be deductible for tax purposes.

The unaudited pro forma results presented below include the effectsAsset Acquisition

On August 2, 2019, we completed our asset acquisition (the “Bapco Acquisition”) of the CSP Technologies Acquisition as if it had occurred as of January 1, 2017. The unaudited pro forma results reflect certain adjustments related toremaining 80% ownership interest in the acquisition, such as intangible asset amortization, fair value adjustments for inventory and financing costs related to the change in our debt structure. 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 date indicated.

Three Months Ended

Six Months Ended

June 30, 2018

June 30, 2018

Net Sales

$

748,106

$

1,485,536

Net Income Attributable to AptarGroup Inc.

 

50,476

 

110,592

Net Income per common share — basic

 

0.81

 

1.78

Net Income per common share — diluted

 

0.78

 

1.71

On May 1, 2018, we acquired 100% of the commoncapital stock of Reboul, a French manufacturer specializing in stamping, decorating and assembling metal and plastic packagingBapco Closures Holdings Limited (“Bapco”), for the cosmetics and luxury markets, for a purchase price$3.8 million (net of approximately $3.6$2.9 million (exclusive of $112 thousand of cash acquired) (the “Reboul Acquisition”). The 20% ownership investment previously held in Bapco is now included within the intangible assets acquired. Bapco, located in Leeds, UK, provides innovative closures sealing technology that provides package integrity and tamper evidence. The results of Reboul’sBapco’s operations have been included in the consolidated financial statementsCondensed Consolidated Financial Statements within our BeautyFood + HomeBeverage segment since the date of acquisition.

In May 2018,

NOTE 18 –INVESTMENT IN EQUITY SECURITIES

Our investment in equity securities consisted of the following:

March 31,

December 31,

    

2020

    

2019

 

Equity Method Investments:

BTY

$

31,043

$

119

Kali Care

3,772

3,881

Desotec GmbH

811

858

Other Investments

3,541

3,538

$

39,167

$

8,396

23

Table of Contents

Equity method investments

BTY

On October 1, 2019 we entered into a strategic definitive agreement to acquire 49% of the equity interests in 3 related companies: Suzhou Hsing Kwang, Suqian Hsing Kwang and Suzhou BTY (collectively referred to as “BTY”), contingent on the settlement date of the transaction. 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 to 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. On January 1, 2020, the transaction closed for an approximate purchase price of $31 million for our 49% share. As of March 31, 2020, we paid approximately $20 million, with the remaining amount of $11 million included in Accounts payable, accrued and other liabilities. The amount is payable after certain conditions under the definitive agreement are fulfilled and is expected to be paid during the second quarter of 2020.

Kali Care

During 2017, we invested $10.0$5 million to acquire 20% of the equity interests in Kali Care, a technology company that provides digital monitoring systems for medical devices.

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 bulk processing for the pharmaceutical, beauty and home and food and beverages markets.

Healthcare, Inc.

Subsequent to the quarter end, on April 1, 2020, we invested $5 million to acquire 30% of the equity interests in Healthcare, Inc., Shanghai Sonmol Internet Technology Co., Ltd. and its subsidiary, Shanghai Sonmol Medical Equipment Co., Ltd., a pharmaceutical company that provides connected devices for asthma control.

Other investments

During August 2019, we invested an aggregate amount of $3.5 million in 2 preferred equity stock of Reciprocal Labs Corporation, doing business as Propeller Health, which wasinvestments in sustainability companies Loop and Purecycle Technologies that are accounted for at cost. Nocost less impairment, chargesif any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. There were recorded during 2018 or 2019 against this investment. During0 indications of impairment nor were there any changes from observable price changes noted in the fourth quarter of 2018, we recorded a gain of approximately $6.5 million by adjusting the carrying amount to its expected proceeds as this investment was ultimately sold during January 2019.

three months ended March 31, 2020.

NOTE 19 – 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 is the Beauty + Home segment; however, certain global general and administrative functions are also being addressed. For the three and six months ended June 30,March 31, 2020 and 2019, we recognized $1.7$4.8 million and $11.3 million of restructuring costs related to this plan, respectively. For the three and six months ended June 30, 2018, we recognized $18.2 million and $24.2$9.5 million of restructuring costs related to this plan, respectively. Using current exchange rates, we estimate total implementation costs of approximately $90$110 million over three years,for these initiatives, including costs that have been recognized to date. The cumulative expense incurred as of June 30, 2019March 31, 2020 was $77.3$91.3 million. We also anticipate making capital investments related to the transformation plan of approximately $55$50 million, of which the majority will be in 2019.$40 million has been incurred to date.

As of June 30, 2019March 31, 2020 we have recorded the following activity associated with the business transformation:

Beginning

Net Charges for

Ending

 

Beginning

Net Charges for

Ending

 

Reserve at

the Six Months

Interest and

Reserve at

 

Reserve at

the Three Months

Interest and

Reserve at

 

12/31/2018

Ended 6/30/2019

Cash Paid

FX Impact

6/30/2019

 

12/31/2019

Ended 3/31/2020

Cash Paid

FX Impact

3/31/2020

 

Employee severance

$

3,934

$

3,209

$

(1,814)

$

222

$

5,551

$

7,090

$

4,066

$

(503)

$

187

$

10,840

Professional fees and other costs

 

11,101

 

8,058

 

(17,887)

 

(41)

 

1,231

 

3,609

 

773

 

(3,069)

 

(9)

 

1,304

Totals

$

15,035

$

11,267

$

(19,701)

$

181

$

6,782

$

10,699

$

4,839

$

(3,572)

$

178

$

12,144

24

Table of Contents

NOTE 20 – SUBSEQUENT EVENTS

On April 1, 2020, the Fusion Acquisition closed for an approximate purchase price of $165 million, plus an earn-out, to acquire 100% of the membership interests. Refer to Note 17 – Acquisitions for further details on the acquisition.

2725

Table of Contents 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, OR AS OTHERWISE INDICATED)

RESULTS OF OPERATIONS

Three Months Ended June 30,

 

Six Months Ended June 30,

2019

2018

2019

2018

Three Months Ended March 31,

    

2020

2019

Net sales

 

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

Cost of sales (exclusive of depreciation and amortization shown below)

63.2

65.3

63.1

65.1

62.5

63.0

Selling, research & development and administrative

15.3

15.1

15.8

15.5

17.5

16.3

Depreciation and amortization

6.5

5.6

6.4

5.8

7.0

6.4

Restructuring initiatives

0.2

2.6

0.8

1.7

0.7

1.3

Operating income

14.8

11.4

13.9

11.9

12.3

13.0

Other expense

(1.1)

(0.9)

(1.0)

(0.9)

(1.5)

(0.9)

Income before income taxes

13.7

10.5

12.9

11.0

10.8

12.1

Net Income

10.0

���

7.8

9.2

8.1

7.7

8.5

Effective tax rate

27.6

%

25.5

%

28.7

%

26.3

%

29.2

%

30.0

%

Adjusted EBITDA margin (1)

21.6

%

19.9

%

21.2

%

19.5

%

20.0

%

20.8

%

(1)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 35.31.

SIGNIFICANT DEVELOPMENTS

During the first quarter of 2020, financial results and operations were adversely impacted by the current coronavirus (“COVID-19”) pandemic. The significance of the impacts to our segments during the first quarter of 2020 are discussed herein and include, but are not limited to, the adverse impact on sales of products to our travel and retail beauty business and on-the-go beverage customers. The extent to which the COVID-19 pandemic impacts our financial results and operations for fiscal year 2020 and going forward for all three of our business segments will depend on future developments which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the outbreak and the international actions being taken to contain and treat it. No impairments were recorded as of March 31, 2020. While the disruption is currently expected to be temporary, there is uncertainty around the duration. Due to significant uncertainty surrounding the situation, our judgment regarding future results could change and therefore our results could be materially impacted.

As each of our segments produce dispensing systems that have been determined to be essential products by various government agencies around the world, the majority of our facilities remained operational during the first quarter of 2020. We are taking 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 could impact our operations. Due to the speed with which the situation is developing, we are not able at this time to estimate the impact of COVID-19 on our future financial results and operations, but the impact could be material for the remainder of fiscal year 2020 and could be material during any future periods affected either directly or indirectly by this pandemic. See Part II, Item 1A, “Risk Factors,” included elsewhere in this report for information on material risks associated with COVID-19.

NET SALES

We reported net sales of $742.7$721.6 million for the quarter ended June 30, 2019,March 31, 2020, which represents a 5% increase3% decrease compared to $710.6$744.5 million reported during the secondfirst quarter of 2018.2019. The average U.S. dollar exchange rate strengthened compared to most major currencies we operate in, resulting in a negative currency translation impact of 5%2%. The acquisitions of CSP Technologies, Reboul, Gateway, Nanopharm and NanopharmNoble positively impacted sales by 6%1%. Therefore, core sales, which exclude acquisitions and changes in foreign currency rates, increaseddecreased by 4%2% in the secondfirst quarter of 20192020 compared to the secondsame period in 2019. During the first quarter of 2018. The2020, our consolidated core sales growth reflected a strong increase in demand for products in our Pharma and Food + Beverage segments. Lower core sales in our Beauty + Home segment are due to lower tooling and product sales. On a consolidated basis, tooling sales decreased $6.9 million during the quarter ended June 30, 2019 compared to the prior year as lower sales in the Beauty + Home and Pharma segments outweighed increased tooling sales in the Food + Beverage segment.

Second Quarter 2019

Beauty

Food +

Net Sales Change over Prior Year

+ Home

Pharma

Beverage

Total

Core Sales Growth

(3)

%

10

%

10

%

4

%

Acquisitions

1

%

13

%

11

%

6

%

Currency Effects (1)

(5)

%

(6)

%

(3)

%

(5)

%

Total Reported Net Sales Growth

(7)

%

17

%

18

%

5

%

(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

For the first six months of 2019, we reported net sales of $1.49 billion, 5% above the first six months of 2018 reported net sales of $1.41 billion. The average U.S. dollar exchange rate strengthened compared to all major currencies we operate in, resulting in a negative currency translation impact of 6%. The acquisitions of CSP Technologies, Reboul, Gateway and Nanopharm positively impacted sales by 6%. Therefore, core sales for the first six months of 2019 increased 5% compared to the first six months of 2018 as our Pharma and Food + Beverage segments reported strong growth over the first six months of 2018. Core sales were negatively impacted by lower tooling sales of $10.6 million for the first six months of 2019 compared to the prior year, primarily inCOVID-19 pandemic, especially within our Beauty + Home segment. Beauty sales within this segment were significantly impacted by the loss of travel and retail sales during the first quarter 2020. Our Food + Beverage segment also realized lower core sales due to the negative impact of COVID-19, especially on our single-serving beverage product sales along with a significant decline in the resin price pass-through to our customers during the quarter. Our Pharma segment realized strong core sales growth during the first quarter of 2020 as all four of our divisions posted improved results compared to the same prior year period.

2826

Table of Contents 

Six Months Ended June 30, 2019

Beauty

Food +

Three Months Ended March 31, 2020

Beauty

Food +

Net Sales Change over Prior Year

+ Home

Pharma

Beverage

Total

 

    

+ Home

    

Pharma

    

Beverage

    

Total

 

Core Sales Growth

%

12

%

7

%

5

%

(9)

%

7

%

(2)

%

(2)

%

Acquisitions

1

%

13

%

11

%

6

%

%

4

%

%

1

%

Currency Effects (1)

(6)

%

(7)

%

(4)

%

(6)

%

(3)

%

(2)

%

(2)

%

(2)

%

Total Reported Net Sales Growth

(5)

%

18

%

14

%

5

%

(12)

%

9

%

(4)

%

(3)

%

(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

The following table sets forth, for the periods indicated, net sales by geographic location:

Three Months Ended June 30,

Six Months Ended June 30,

2019

% of Total

2018

% of Total

2019

% of Total

2018

% of Total

Three Months Ended March 31,

2020

% of Total

2019

% of Total

Domestic

$

215,175

29%

$

176,476

25%

$

429,046

29%

$

346,861

25%

 

$

230,400

32%

$

213,871

29%

 

Europe

425,531

57%

421,373

59%

856,899

57%

851,471

60%

405,849

56%

431,368

58%

Latin America

57,738

8%

62,242

9%

115,920

8%

124,516

9%

50,794

7%

58,182

8%

Asia

44,217

6%

50,517

7%

85,256

6%

91,110

6%

34,510

5%

41,039

5%

For further discussion on net sales by reporting segment, please refer to the analysis of segment net sales and segment Adjusted EBITDA on the following pages.

COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN BELOW)

Cost of sales (“COS”) as a percent of net sales decreased to 63.2%62.5% in the secondfirst quarter of 20192020 compared to 65.3%63.0% in the secondfirst quarter of 2018.2019. Our COS percentage was positively impacted by our mix of business and lower material costs. MixThe mix of business positively impacted salesresults as thewe reported sales growth of our higher margin Pharma products was greater than thecompared to sales growth of productsdeclines in the other two segments. We also recognized lower custom tooling salesrealized approximately $5.2 million in the second quarter of 2019 compared to the prior year period. Sales of custom tooling typically generates lower margins than product sales, so lower tooling sales positively impacts cost of sales as a percentage of sales. We also realized a lower COS percentage due to lower raw material input costs induring the quarter as both resin and metal prices declined compared to the associated positive impact from the timing delay of passing through resin costprior year. We did experience some additional costs and temporary disruptions to our customers.

Cost of sales as a percent of net sales decreased to 63.1% inmanufacturing capacities during the first six monthsquarter of 2019 compared2020 related to 65.1% in the same periodCOVID-19 pandemic. For example, we declared a year ago. As mentioned above,special bonus payment to certain employees who worked to maintain supply to our customers and keep our facilities running, which increased our COS was favorably impactedpercentage by approximately 0.4% during the mixfirst quarter of Pharma business and the timing delay of resin pass-throughs to our customers. We also reported a lower COS percentage due to the decrease in lower-margin tooling sales as discussed above.2020.  

SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

Selling, research & development and administrative expenses (“SG&A”) increased by approximately $6.7$5.0 million to $113.8$126.2 million in the secondfirst quarter of 20192020 compared to $107.1$121.2 million during the same period in 2018.2019. Excluding changes in foreign currency rates, SG&A increased by approximately $11.4$7.6 million in the quarter. The increase is mainlypartly due to $6.1$2.8 million of incremental operational costs during the secondfirst quarter of 20192020 related to our acquisitions.acquired companies. We also recognized increases in professional fees and higher personnel costs, including $2.7 million in stock-based compensation, in accordance with our growth strategy. SG&A as a percentage of net sales increased to 15.3%17.5% compared to 15.1%16.3% in the same period of the prior year due to the cost increases mentioned above.

SG&A increased by $15.4 million to $235.0 million in the first six months of 2019 compared to $219.6 million during the same period a year ago. Excluding changes in foreign currency rates, SG&A increased by approximately $26.6 million in the first six months of 2019 compared to the first six months of 2018. As discussed above, the increase is related to incremental costs from our acquisitions along with higher professional fees and personnel costs. SG&A as a percentage of net sales increased to 15.8% compared to 15.5% in the same period of the prior year.

29

Table of Contents

DEPRECIATION AND AMORTIZATION

Reported depreciation and amortization expenses increased by approximately $7.8$3.3 million to $47.9$50.8 million in the secondfirst quarter of 20192020 compared to $40.1$47.5 million during the same period a year ago. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $9.5$4.4 million in the quarter compared to the same period a year ago.in 2019. This increase is mainlypartly due to $6.4$2.0 million of incremental operational resultscosts related to our acquisitions. We also increased our capital spending during the pastfirst quarter and the prior year to support theour growth in our business.strategy. Depreciation and amortization as a percentage of net sales increased to 6.5%7.0% in the secondfirst quarter of 20192020 compared to 5.6%6.4% in the same period of the prior year primarily due to the incremental increase in expenses noted above.

For the first six months of 2019, reported depreciation and amortization expenses increased by approximately $14.1 million compared to the first six months of 2018. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $18.4 million compared to the same period a year ago. As discussed above, this increase is mainly due to incremental costs from our acquisitions and increased capital spending in the current year to support the growth in our business. Depreciation and amortization as a percentage of net sales increased to 6.4% in the first six months of 2019 compared to 5.8% in the same period of the prior year.

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 is the Beauty + Home segment; however, certain global general and administrative functions are also being addressed. During the second quarter of 2019, we recognized approximately $1.7 million of restructuringRestructuring costs related to this plan with approximately $1.2 million, ($0.1) million, $0.1 millionfor the three months ended March 31, 2020 and $0.5 million being reported within the Beauty + Home segment, Pharma segment, Food + Beverage segment and Corporate & Other, respectively. During the second quarter2019 are as follows:

27

Table of 2018, we recognized approximately $18.2 million of restructuring costs related to this plan with approximately $14.6 million, $1.2 million, $1.4 million and $1.0 million being reported within the Beauty + Home segment, Pharma segment, Food + Beverage segment and Corporate & Other, respectively.Contents

Three Months Ended March 31,

2020

    

2019

Restructuring Initiatives by Segment

Beauty + Home

$

4,907

$

8,269

Pharma

 

(31)

 

326

Food + Beverage

 

103

 

510

Corporate & Other

(140)

425

Total Restructuring Initiatives

$

4,839

$

9,530

During the first six months of 2019, we recognized approximately $11.3 million of restructuring costs related to this plan with approximately $9.6 million, $0.2 million, $0.6 million and $0.9 million being reported within the Beauty + Home segment, Pharma segment, Food + Beverage segment and Corporate & Other, respectively. During the first six months of 2018, we recognized approximately $24.2 million of restructuring costs related to this plan with approximately $19.7 million, $1.6 million, $1.7 million and $1.2 million being reported within the Beauty + Home segment, Pharma segment, Food + Beverage segment and Corporate & Other, respectively.

We estimate total implementation costs of approximately $90$110 million, over three years, including costs that have been recognized to date. We expect most of these costs to be incurred by the end of 2019. We also anticipate making capital investments related to the business transformation of approximately $55$50 million, of which the majority will be in 2019. We expect this business transformation$40 million has been incurred to yielddate. Based on our ongoing restructuring initiatives, we are progressing towards our initial target of $80 million annualized incremental EBITDA of approximately $80 million by the end of 2020, principally within the Beauty + Home segment. However, in addition to impacts of COVID-19, ongoing changes 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.  

OPERATING INCOME

Operating income increaseddecreased approximately $28.9$8.6 million in the secondfirst quarter of 20192020 compared to the same period a year ago. Excluding changes in foreign currency rates, operating income increaseddecreased by approximately $33.7$6.2 million in the quarter compared to the same period a year ago. This increase is mainly due to acquisitions and lower restructuring costs in the second quarter of 2019 compared to the comparable prior year period. We also realized improvements in our gross margin due to increases in sales and lower COS as a percentage of sales as discussed above. Operating income as a percentage of net sales increaseddeclined to 14.8%12.3% in the secondfirst quarter of 20192020 compared to 11.4% for the same period13.0% in the prior year mainly due to these improvements.

Operating income increased approximately $38.1 million to $207.0 millionthe increases in the first six months of 2019SG&A and depreciation and amortization when compared to $168.9 milliona lower sales base as discussed above. These cost increases are partially offset by our lower COS percentage and the reduction in the same period of the prior year. Excluding changes in foreign currency rates, operating income increased by approximately $49.4 million in the first six months of 2019 compared to the same period a year ago. As discussed above, this increase is due to acquisitions and lower restructuring costs reported during the first six monthsquarter of 2019 and improvements in gross margin. Operating income as a percentage of net sales increased to 13.9% in the first six months of 20192020 compared to 11.9% for the same period in the prior year.

NET OTHER EXPENSE

Net other expense in the secondfirst quarter of 20192020 increased $1.8$3.3 million to $7.8$10.4 million from $6.0$7.1 million in the same period of the prior year. For 2019, net interest expenseMiscellaneous expenses increased by approximately $2.3 million as a result of the CSP Technologies acquisition during the third quarter of 2018.

30

Table of Contents

Net other expenses for the six months ended June 30, 2019 increased to $14.9 million from $12.8$1.9 million in the same period of the prior year. As discussed above, this increase is mainlypart due to $2.0 million ofthe high costs to hedge certain Latin American and Asian currencies. We also experienced higher interest expensepension costs due to the decline in 2019 as a result of the CSP Technologies acquisition.discount rates in 2020 compared to 2019.

EFFECTIVE TAX RATE

The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings and related estimated full year-taxes, adjusted for the impact of discrete quarterly items. The effective tax rate for the three months ended June 30,March 31, 2020 and 2019 of 27.6% was favorably impacted by net tax benefits of $2.9 million from discrete events. This consisted of a $9.1 million benefit from29.2% and 30.0%, respectively. The decrease in the excess tax benefits from employee stock-based  compensation offset by, among other items, a $6.3 million charge to record a valuation allowance to properly reflect the realization of recorded deferred tax assets. The effective tax rate for the three months ended June 30, 2018March 31, 2020 was 25.5%, reflectingprimarily due to a $3.5 million discretelarger tax benefit related to the TCJA and a $1.7 million discrete favorable impact from the excess tax benefits from employee stock-based compensation.

The effective tax rate for the six months ended June 30, 2019 of 28.7% was favorably impacted by net tax benefits of $4.1 million from discrete events. This consisted of a favorable impact of $11.6 million from the excess tax benefits from employee stock-basedshare-based compensation offset in part by amonga mix of other items, a $7.0 million charge recognized to record a valuation allowance to properly reflect the realization of recorded deferred tax assets. The effective tax rate for the six months ended June 30, 2018 of 26.3% was favorably impacted by net tax benefits of $9.5 million from discrete events. This included a favorable impact of $6.0 million from the excess tax benefits from employee shared based compensation and a $3.5 million benefit related to the TCJA.items.

NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.

We reported net income attributable to AptarGroup of $73.9 million and $136.9$55.3 million in the three and six months ended June 30, 2019, respectively,March 31, 2020, compared to $55.8 million and $115.1$63.0 million for the same periodsperiod in the prior year.

BEAUTY + HOME SEGMENT

Operations that sell dispensing systems and sealing solutions primarily to the personal care, beauty and home care markets form the Beauty + Home segment.

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Three Months Ended March 31,

2020

2019

 

Net Sales

$

342,080

$

368,536

$

709,739

$

746,709

 

$

324,560

$

367,659

 

Adjusted EBITDA (1)

48,745

45,846

101,936

98,981

34,247

53,191

Adjusted EBITDA margin (1)

14.2%

12.4%

14.4%

13.3%

10.6%

14.5%

(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring and acquisition-related costs. 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 35.

Reported sales for the quarter ended June 30, 2019 decreased 7% to $342.1 million compared to $368.5 million in the second quarter of the prior year. Incremental sales from our Reboul acquisition positively impacted sales by 1% while changes in currency rates negatively impacted net sales by 5%. Therefore, core sales decreased 3% in the second quarter of 2019 compared to the same quarter of the prior year. The majority of this decrease is due to lower custom tooling sales in the current quarter. Core sales to the personal care market decreased 11%. The majority of this decrease is related to a strong second quarter of the prior year for a specific North America customer’s product launch along with lower sales to other applications in 2019. Core sales were higher across the other two markets as beauty and home care increased by 4% and 5% respectively over the prior year period. Sales growth across our prestige fragrance applications led to the strong results in the beauty market, while higher sales to our air care customers drove the improvement in the home care market.

Second Quarter 2019

Personal

Home

Net Sales Change over Prior Year

Care

Beauty

Care

Total

Core Sales Growth

(11)

%

4

%

5

%

(3)

%

Acquisitions

%

1

%

%

1

%

Currency Effects (1)

(4)

%

(6)

%

(4)

%

(5)

%

Total Reported Net Sales Growth

(15)

%

(1)

%

1

%

(7)

%

(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.31.

3128

Table of Contents 

NetReported sales for the quarter ended March 31, 2020 decreased 5% in the first six months of 201912% to $709.7$324.6 million compared to $746.7$367.7 million in the first six monthsquarter of the prior year. Incremental sales from our Reboul acquisition positively impacted sales by 1% while changesChanges in currency rates negatively impacted net sales by 6%3%. Therefore, core sales were flat fordecreased 9% in the first six monthsquarter of 20192020 compared to the same periodquarter of the prior year. The COVID-19 pandemic negatively impacted core sales during the first quarter of 2020. Core sales of our products to the beauty market decreased 13% as we experienced reduced orders from customers providing prestige beauty products, mainly in the prior year.travel retail and standard retail settings. Many beauty stores began closing toward the end of the quarter in response to government shelter in place regulations. Core sales to the personal care market were down 4% due to lower sales in the second quarter as discussed above. Consistent with the quarter results, sales were higher across the other two markets as beauty and home care each increased by 4% over the prior year period. Strong sales across all applications drove the strong resultsmarkets decreased 5% and 6%, respectively. Increased demand for our dispensing solutions for hand sanitizers and cleaners was not enough to offset declines in the beauty market, while higher tooling sales drove the improvements in theother personal care and home care market.categories such as sun care and hair care applications, which were also negatively impacted by travel restrictions and shelter in place regulations.

Six Months Ended June 30, 2019

Personal

Home

Three Months Ended March 31, 2020

Personal

Home

Net Sales Change over Prior Year

Care

Beauty

Care

Total

 

    

Care

    

Beauty

    

Care

    

Total

 

Core Sales Growth

(4)

%

4

%

4

%

%

(5)

%

(13)

%

(6)

%

(9)

%

Acquisitions

%

2

%

%

1

%

Currency Effects (1)

(5)

%

(7)

%

(5)

%

(6)

%

(2)

%

(3)

%

(2)

%

(3)

%

Total Reported Net Sales Growth

(9)

%

(1)

%

(1)

%

(5)

%

(7)

%

(16)

%

(8)

%

(12)

%

(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

Adjusted EBITDA in the secondfirst quarter of 2019 increased 6%2020 decreased 36% to $48.7$34.2 million compared to $45.8$53.2 million reported in the same period in the prior year. Operational improvements and targeted price increases related to our restructuring projects offset pockets of softening sales and manufacturing inefficiencies at certain facilities. During the second quarter of 2019, we also 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, leading to the improvement in adjusted EBITDA and higher adjusted EBITDA margin during the quarter.

Adjusted EBITDA in the first six months of 2019 increased 3% to $101.9 million compared to $99.0 million reported in the same period in the prior year. As discussed above, price increasesthe COVID-19 pandemic affected our profitability as sales were impacted by travel restrictions and government shelter in place regulations. Our profitability was further impacted by special bonus payments to certain employees who worked to maintain supply to our customers and keep our facilities running as well as lower overhead absorption due to fluctuations in demand primarily in our facilities that manufacture beauty products. During the first quarter of 2020, we experienced a favorable impact of approximately $1.4 million due to lower raw material input costs, however this was not enough to offset pockets of softeningthe general economic uncertainties which has led to lower sales and manufacturing inefficiencies at certain facilities.to our customers across our markets.

PHARMA SEGMENT

Operations that sell dispensing systems,drug delivery, sealing and active packaging solutions primarily to the prescription drug, consumer health care, injectables and active-packagingactive packaging markets form the Pharma segment.

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Three Months Ended March 31,

2020

2019

 

Net Sales

$

281,939

$

241,209

$

554,640

$

471,336

$

297,196

$

272,701

Adjusted EBITDA (1)

101,650

86,353

199,007

166,193

108,342

97,357

Adjusted EBITDA margin (1)

36.1%

35.8%

35.9%

35.3%

36.5%

35.7%

(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring and acquisition-related costs. 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 35.31.

Net sales for the Pharma segment increased 17%9% in the secondfirst quarter of 20192020 to $281.9$297.2 million compared to $241.2$272.7 million in the secondfirst quarter of 2018.2019. Changes in currencies negatively affected net sales by 6%2% while our acquisitions of CSP Technologies, Gateway, Nanopharm and NanopharmNoble positively impacted sales by 13%4% in the secondfirst quarter of 2019.2020. Therefore, core sales increased by 10%7% in the secondfirst quarter of 20192020 compared to the secondfirst quarter of 2018.2019. Our Pharma segment had another good quarter with core sales growth across each end market with particularly strong growth in our injectables and active packaging businesses. As these two markets are currently smaller than our prescription and consumer health care markets, there is a smaller impact on the overall segment growth. The segment was not significantly impacted by the COVID-19 pandemic during the first quarter of 2020. Core sales to the prescription drug market were particularly strong and increased 15%2%, mainly driven by increased demand foron continued growth in sales of our innovative nasal drug delivery systems for central nervous system and allergic rhinitis. corerhinitis products. Core sales to the consumer health care market also increased 4%2% as strongincreased demand for our products used on nasal salinedecongestant and eye care treatments more than compensated for some softness in demand for our nasal decongestantsaline products. CoreInjectables core sales to the injectables marketgrew 21% on increased 6% on strongdemand across a variety of components while active packaging core sales of our productsimproved 26% primarily due to our antithrombotic and biologic customers.new Activ Blister packaging for the launch of an oral HIV preventative drug.

Second Quarter 2019

Prescription

Consumer

Active

Net Sales Change over Prior Year

    

Drug

    

Health Care

 ��  

Injectables

    

Packaging

Total

Core Sales Growth

15

%

4

%

6

%

%

10

%

Acquisitions

1

%

%

1

%

100

%

13

%

Currency Effects (1)

(6)

%

(7)

%

(5)

%

%

(6)

%

Total Reported Net Sales Growth

10

%

(3)

%

2

%

100

%

17

%

(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

3229

Table of Contents 

Net sales for the first six months of 2019 increased by 18% to $554.6 million compared to $471.3 million in the first six months of 2018. Changes in currencies negatively affected net sales by 7% while our acquisitions of CSP Technologies, Nanopharm and Gateway positively impacted sales by 13% in the first six months of 2019. Therefore, core sales increased by 12% in the first six months of 2019 compared to the same period in the prior year. As discussed above, the prescription drug market core sales increase of 19% was 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 7% as strong demand for our products used on eye care and nasal saline treatments more than offset lower tooling sales. Core sales of our products to the injectables markets increased 3% due to strong sales of our injectable components used on antithrombotic and medical device products.

Six Months Ended June 30, 2019

Prescription

Consumer

Active

Three Months Ended March 31, 2020

Prescription

Consumer

Active

Net Sales Change over Prior Year

Drug

Health Care

Injectables

Packaging

Total

 

    

Drug

    

Health Care

    

Injectables

    

Packaging

Total

 

Core Sales Growth

19

%

7

%

3

%

%

12

%

2

%

2

%

21

%

26

%

7

%

Acquisitions

%

%

1

%

100

%

13

%

1

%

%

19

%

%

4

%

Currency Effects (1)

(7)

%

(8)

%

(6)

%

%

(7)

%

(2)

%

(1)

%

(3)

%

(1)

%

(2)

%

Total Reported Net Sales Growth

12

%

(1)

%

(2)

%

100

%

18

%

1

%

1

%

37

%

25

%

9

%

(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

Adjusted EBITDA in the secondfirst quarter of 20192020 increased 18%11% to $101.7$108.3 million compared to $86.4$97.4 million reported in the same period of the prior year. The strong product sales growth discussed above along with incremental profit related to our CSP Technologies acquisitionacquisitions led to the increase in reported results for the secondfirst quarter of 20192020 compared to the secondfirst quarter of 2018.

Adjusted2019. While we didn’t experience a significant impact from COVID-19 on our Pharma segment sales, we did recognize the special bonus payments discussed above which negatively impacted our adjusted EBITDA induring the first six monthsquarter of 2019 increased 20% to $199.0 million compared to $166.2 million reported in the same period of the prior year. The increased sales discussed above and improved operational efficiencies offset higher overhead costs and lower profitability on some tooling projects.2020.

FOOD + BEVERAGE SEGMENT

Operations that sell dispensing systems and sealing solutions primarily to the food and beverage markets form the Food + Beverage segment.

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Three Months Ended March 31,

2020

2019

 

Net Sales

$

118,642

$

100,863

$

222,742

$

195,913

$

99,797

$

104,100

Adjusted EBITDA (1)

20,944

18,063

37,635

30,802

15,407

16,691

Adjusted EBITDA margin (1)

17.7%

17.9%

16.9%

15.7%

15.4%

16.0%

(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring and acquisition-related costs. 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 35.31.

Net sales for the quarter ended June 30, 2019 increasedMarch 31, 2020 decreased approximately 18%4% to $118.6$99.8 million compared to $100.9$104.1 million in the secondfirst quarter of the prior year. Incremental sales from our CSP Technologies acquisition positively impacted sales by 11% while changes in foreignForeign currency rates had an unfavorable impact of 3%2% on the total segment sales. Therefore, core sales increaseddecreased by 10%2% in the secondfirst quarter of 20192020 compared to the secondfirst quarter of 2018.  For the segment, we realized both strong product and tooling sales growth.2019. This growth was offset slightly by a $0.9 million decrease in the pass-through of resin price changes in the quarter ended June 30, 2019 comparedis due to the second quarterpassing on of the prior year. Corelower resin costs to our customers as well as lower single-serving beverage closure sales which appears to be related to the food market increased 17% while core sales to the beverage market increased 1% in the second quarter of 2019 compared to the same period of the prior year.COVID-19 crisis. For the food market, we recognized strong tooling sales andrealized increased sales of our products to our sauces/condimentsused on dairy and granular/powder customers.spreads applications. For the beverage market, increasesincreased demand for our bottled water products was not enough to offset a decline in tooling sales were offset by slightly lower sales of our products to ouron-the-go functional drink customers, mainly in China, and juice customers as the European region experienced lower temperatures early in the filling season.

33

Table of Contents

Second Quarter 2019

Net Sales Change over Prior Year

    

Food

    

Beverage

    

Total

Core Sales Growth

17

%

1

%

10

%

Acquisitions

19

%

%

11

%

Currency Effects (1)

(3)

%

(4)

%

(3)

%

Total Reported Net Sales Growth

33

%

(3)

%

18

%

(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

Net sales for the first six months of 2019 increasedproducts that were significantly affected by 14% to $222.7 million compared to $195.9 million in the first six months of 2018. Incremental sales from our CSP Technologies acquisition positively impacted sales by 11% while changes in currency rates negatively impacted net sales by 4% in the first six months of 2019. Therefore, core sales increased by 7% in the first six months of 2019 compared to the same period in the prior year. $2.0 million of lower tooling sales negatively impacted sales for the first six months of 2019, while the impact of the pass-through of resin price changes compared to the first six months of 2018 was negligible. Core sales to the food market increased 9% while core sales to the beverage market increased 3% in the first six months of 2019 compared to the same period of the prior year. Sales to the food market increased due to strong sales of our products to our granular/powder, sauces/condiments and infant nutrition customers. For the beverage market, strong sales to our products to our bottled water customers compensated for a decrease in functional drink and juice application sales as discussed above.COVID-19 impacts.

Six Months Ended June 30, 2019

Three Months Ended March 31, 2020

Net Sales Change over Prior Year

Food

Beverage

Total

 

    

Food

    

Beverage

    

Total

 

Core Sales Growth

9

%

3

%

7

%

2

%

(13)

%

(2)

%

Acquisitions

17

%

%

11

%

Currency Effects (1)

(3)

%

(4)

%

(4)

%

(1)

%

(2)

%

(2)

%

Total Reported Net Sales Growth

23

%

(1)

%

14

%

1

%

(15)

%

(4)

%

(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.

Adjusted EBITDA in the secondfirst quarter of 2019 increased 16%2020 decreased 8% to $20.9$15.4 million compared to $18.1$16.7 million reported in the same period of the prior year. 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 delay of passing on resin cost decreases from previous quarters to our customers.

Adjusted EBITDA in the first six months of 2019 increased 22% to $37.6 million compared to $30.8 million reported in the same period of the prior year. AsThe COVID-19 impacts discussed above, our profitability was favorably impacted by our strong core sales growth, positive resin pass-throughsalong with special bonus payments to certain employees who worked to maintain supply to our customers and incremental profit related tokeep our CSP Technologies acquisition.facilities running, more than offset the benefits we received from lower resin input costs and other operational improvements realized during the first quarter of 2020.

CORPORATE & OTHER

In addition to our three reporting segments, we assign certain costs to “Corporate & Other,” which is presented separately in Note 16 – Segment Information to the Notes to the Condensed Consolidated Financial Statements. For Corporate & Other, Adjusted EBITDA (which excludes net interest, taxes, depreciation, amortization, restructuring and acquisition-related costs) primarily includes certain professional fees, compensation and information system costs which are not allocated directly to our reporting segments. For the quarter ended June 30, 2019,March 31, 2020, Corporate & Other expenses increased to $10.6$13.8 million from $9.0$12.8 million in the secondfirst quarter of 2018.2019. This increase is mainly due to higher stock-compensation expense, professional feesand other personnel costs as we continue to implement our growth strategy.

Corporate & Other expenses in the first six months of 2019 increased to $23.4 million compared to $20.6 million reported in the same period of the prior year. As discussed above, this increase is mainly due to higher costs as we continue to implement our growth strategy.

3430

Table of Contents 

NON-U.S. GAAP MEASURES

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 our 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 unaudited Condensed 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 Management’s Discussion and Analysis, we exclude the impact of foreign currency translation when presenting net sales 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 may 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 adjusted earnings before net interest and taxes (“Adjusted EBIT”) and consolidated adjusted earnings before net interest, taxes, depreciation and amortization (“Adjusted EBITDA”), both of which exclude the business transformation charges (restructuring initiatives), acquisition-related costs and purchase accounting adjustments that affected inventory values.related to acquisitions and investments. Our “Outlook” discussion below as well as the estimated annual effective tax rate above, areis 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 exchange rates, or reliably predicted because they are not part of our routine activities, such as restructuring and acquisition-related costs.

Finally, weWe 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 cashand 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. 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 measuring our ability to generate cash internally to fund our initiatives.

3531

Table of Contents 

Three Months Ended

Three Months Ended

June 30, 2019

March 31, 2020

Consolidated

Beauty + Home

Pharma

Food + Beverage

Corporate & Other

Net Interest

  

Consolidated

  

Beauty + Home

  

Pharma

  

Food + Beverage

  

Corporate & Other

  

Net Interest

Net Sales

$

742,661

$

342,080

$

281,939

$

118,642

$

-

$

-

$

721,553

$

324,560

$

297,196

$

99,797

$

-

$

-

Reported net income

$

73,921

$

55,250

Reported income taxes

28,180

22,786

Reported income before income taxes

102,101

26,813

84,425

12,195

(13,609)

(7,723)

78,036

7,108

89,854

5,962

(16,675)

(8,213)

Adjustments:

Restructuring initiatives

1,737

1,259

(113)

112

479

4,839

4,907

(31)

103

(140)

Transaction costs related to acquisitions

1,059

1,059

1,384

1,384

Purchase accounting adjustments related to acquired companies' inventory

222

222

Purchase accounting adjustments related to acquisitions and investments

1,390

262

1,128

Adjusted earnings before income taxes

105,119

28,072

85,593

12,307

(13,130)

(7,723)

85,649

13,661

90,951

6,065

(16,815)

(8,213)

Interest expense

8,756

8,756

8,388

8,388

Interest income

(1,033)

(1,033)

(175)

(175)

Adjusted earnings before net interest and taxes (Adjusted EBIT)

112,842

28,072

85,593

12,307

(13,130)

-

93,862

13,661

90,951

6,065

(16,815)

-

Depreciation and amortization

47,867

20,673

16,057

8,637

2,500

-

50,806

20,586

17,891

9,342

2,987

-

Purchase accounting adjustments included in Depreciation and amortization above

(500)

(500)

Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)

$

160,709

$

48,745

$

101,650

$

20,944

$

(10,630)

$

-

$

144,168

$

34,247

$

108,342

$

15,407

$

(13,828)

$

-

Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)

21.6%

14.2%

36.1%

17.7%

20.0%

10.6%

36.5%

15.4%

Three Months Ended

Three Months Ended

June 30, 2018

March 31, 2019

Consolidated

Beauty + Home

Pharma

Food + Beverage

Corporate & Other

Net Interest

  

Consolidated

  

Beauty + Home

  

Pharma

  

Food + Beverage

  

Corporate & Other

  

Net Interest

Net Sales

$

710,608

$

368,536

$

241,209

$

100,863

$

-

$

-

$

744,460

$

367,659

$

272,701

$

104,100

$

-

$

-

Reported net income

$

55,781

$

62,999

Reported income taxes

19,117

27,000

Reported income before income taxes

74,898

10,510

73,607

10,329

(14,105)

(5,443)

89,999

24,181

81,258

7,716

(15,690)

(7,466)

Adjustments:

Restructuring initiatives

18,214

14,631

1,224

1,354

1,005

9,530

8,269

326

510

425

Transaction costs related to acquisitions

2,444

574

1,870

Purchase accounting adjustments related to acquired companies' inventory

119

119

Adjusted earnings before income taxes

95,675

25,834

74,831

11,683

(11,230)

(5,443)

99,529

32,450

81,584

8,226

(15,265)

(7,466)

Interest expense

7,964

7,964

9,214

9,214

Interest income

(2,521)

(2,521)

(1,748)

(1,748)

Adjusted earnings before net interest and taxes (Adjusted EBIT)

101,118

25,834

74,831

11,683

(11,230)

-

106,995

32,450

81,584

8,226

(15,265)

-

Depreciation and amortization

40,101

20,012

11,522

6,380

2,187

-

47,489

20,741

15,773

8,465

2,510

-

Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)

$

141,219

$

45,846

$

86,353

$

18,063

$

(9,043)

$

-

��

$

154,484

$

53,191

$

97,357

$

16,691

$

(12,755)

$

-

Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)

19.9%

12.4%

35.8%

17.9%

20.8%

14.5%

35.7%

16.0%

3632

Table of Contents 

Six Months Ended

June 30, 2019

Consolidated

Beauty + Home

Pharma

Food + Beverage

Corporate & Other

Net Interest

Net Sales

$

1,487,121

$

709,739

$

554,640

$

222,742

$

-

$

-

Reported net income

$

136,920

Reported income taxes

55,180

Reported income before income taxes

192,100

50,994

165,683

19,911

(29,299)

(15,189)

Adjustments:

Restructuring initiatives

11,267

9,528

213

622

904

Transaction costs related to acquisitions

1,059

1,059

Purchase accounting adjustments related to acquired companies' inventory

222

222

Adjusted earnings before income taxes

204,648

60,522

167,177

20,533

(28,395)

(15,189)

Interest expense

17,970

17,970

Interest income

(2,781)

(2,781)

Adjusted earnings before net interest and taxes (Adjusted EBIT)

219,837

60,522

167,177

20,533

(28,395)

-

Depreciation and amortization

95,356

41,414

31,830

17,102

5,010

-

Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)

$

315,193

$

101,936

$

199,007

$

37,635

$

(23,385)

$

-

Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)

21.2%

14.4%

35.9%

16.9%

Net Debt to Net Capital Reconciliation

March 31,

December 31,

 

2020

2019

Notes payable, revolving credit facility and overdrafts

$

220,511

 

$

44,259

 

Current maturities of long-term obligations, net of unamortized debt issuance costs

65,049

65,988

Long-Term Obligations, net of unamortized debt issuance costs

1,075,745

1,085,453

Total Debt

1,361,305

1,195,700

Less:

Cash and equivalents

410,840

241,970

Net Debt

$

950,465

$

953,730

Total Stockholders' Equity

$

1,587,623

$

1,572,252

Net Debt

950,465

953,730

Net Capital

$

2,538,088

$

2,525,982

Net Debt to Net Capital

37.4%

37.8%

Six Months Ended

June 30, 2018

Consolidated

Beauty + Home

Pharma

Food + Beverage

Corporate & Other

Net Interest

Net Sales

$

1,413,958

$

746,709

$

471,336

$

195,913

$

-

$

-

Reported net income

$

115,069

Reported income taxes

41,046

Reported income before income taxes

156,115

37,217

141,899

16,255

(28,006)

(11,250)

Adjustments:

Restructuring initiatives

24,150

19,647

1,588

1,669

1,246

Transaction costs related to acquisitions

2,444

574

1,870

Purchase accounting adjustments related to acquired companies' inventory

119

119

Adjusted earnings before income taxes

182,828

57,557

143,487

17,924

(24,890)

(11,250)

Interest expense

16,019

16,019

Interest income

(4,769)

(4,769)

Adjusted earnings before net interest and taxes (Adjusted EBIT)

194,078

57,557

143,487

17,924

(24,890)

-

Depreciation and amortization

81,276

41,424

22,706

12,878

4,268

-

Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)

$

275,354

$

98,981

$

166,193

$

30,802

$

(20,622)

$

-

Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)

19.5%

13.3%

35.3%

15.7%

37

Table of Contents

Net Debt to Net Capital Reconciliation

June 30,

December 31,

 

2019

2018

Notes payable, including revolving credit facilities

$

57,663

 

$

101,293

 

Current maturities of long-term obligations, net of unamortized debt issuance costs

64,941

62,678

Long-Term Obligations, net of unamortized debt issuance costs

1,148,261

1,125,993

Total Debt

1,270,865

1,289,964

Less:

Cash and equivalents

302,950

261,823

Net Debt

$

967,915

$

1,028,141

Total Stockholders' Equity

$

1,581,422

$

1,422,871

Net Debt

967,915

1,028,141

Net Capital

$

2,549,337

$

2,451,012

Net Debt to Net Capital

38.0%

41.9%

Free Cash Flow Reconciliation

    

March 31,

    

March 31,

2020

2019

Net Cash Provided by Operations

  

$

85,033

   

$

77,636

Less:

Capital Expenditures

61,625

51,742

Free Cash Flow

$

23,408

$

25,894

FOREIGN CURRENCY

Because of our international presence, movements in exchange rates may 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 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 statements. Conversely, a weakening U.S. dollar has an additive 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 recorded transactions and firm purchase and sales commitments denominated in foreign currencies. Changes in exchange rates on such inter-country sales could materially impact our results of operations. During the secondfirst quarter of 20192020 the U.S. dollar strengthened compared to the euro.euro and other currencies in Latin America and Asia. This resulted in a dilutive impact on our translated results during the secondfirst quarter of 20192020 when compared to the secondfirst quarter of 2018. 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. Our Argentinian operations contributed less than 2% of consolidated net assets and revenues at and for the six months ended June 30, 2019.

QUARTERLY TRENDS

Our results of operations in the last quarter of the year typically are negatively impacted by customer plant shutdowns in December. In addition to the future,impacts of COVID-19, our results of operations in a quarterly period could be impacted by factors such as the seasonality of certain products within our segments, changes in foreign currency rates, changes in product mix, changes in material costs, changes in growth rates in the markets to which our products are sold and changes in general economic conditions in any of the countries in which we do business.

Historically, we have incurred higher employee stock compensation expense in the first quarter compared with the rest of the fiscal year due to the timing and recognition of stock option expense. During 2019, we transitioned from employee stock options to RSUs and therefore we do not anticipate as much variability in expense between quarters in the future. Our estimated total stock-based compensation expense on a pre-tax basis (in $ millions) for the year 2019 compared to 2018 is as follows:

2019

2018

 

First Quarter

 

$

6.5

 

$

7.5

Second Quarter

 

6.5

 

3.4

Third Quarter (estimated for 2019)

 

6.2

 

3.9

Fourth Quarter (estimated for 2019)

 

6.1

 

4.8

 

$

25.3

 

$

19.6

3833

Table of Contents 

LIQUIDITY AND CAPITAL RESOURCES

WeGiven the diversification of our segments, 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 usedOur Pharma segment provided strong operating cash flow from operations,flows to balance out the temporary softness in some of our revolving credit facilitiesBeauty + Home and debt, as needed, as our primary sourcesFood + Beverage markets during the first quarter of liquidity.2020. Our primary uses of liquidity are to invest in equipment and facilities that are necessary to support our growth, cost efficiencies and to make acquisitions that will contribute to the achievement of our strategic objectives. Other uses ofAmid the COVID-19 pandemic, we are focused on preserving our liquidity includeand therefore we have temporarily suspended repurchasing shares of our common stock and payingcontributions to our defined benefit plans. However, we intend to continue to pay quarterly dividends to stockholders.our stockholders, invest in our business and make acquisitions, as considered necessary to achieve our strategic objectives. In the event that customer demand would decrease significantly for a prolonged period of time due to the COVID-19 pandemic and negativelyadversely impact our cash flow 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.

Cash and equivalents increased to $303.0$414.8 million at June 30, 2019March 31, 2020 from $261.8$247.0 million at December 31, 2018.2019. Total short and long-term interest bearing debt of $1.3 $1.4billion at June 30, 2019 was relatively unchangedMarch 31, 2020 increased from the $1.3$1.2 billion at December 31, 2018.2019 resulting from $175.0 million in net proceeds from our group credit facility during the first quarter of 2020 the majority of which was utilized to fund the second quarter Fusion acquisition. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholders’ equity plus Net Debt) decreased to 38.0%37.4% at June 30, 2019March 31, 2010 compared to 41.9%37.8% at December 31, 2018.2019. See the reconciliation of non-U.S. GAAP measures starting on page 35.31.

In the first sixthree months of 2019,2020, our operations provided approximately $221.1$85.0 million in net cash flow compared to $154.5$77.6 million for the same period a year ago. In both periods, cash flow from operations was primarily derived from earnings before depreciation and amortization. The increase in cash provided by operations during the first sixthree months of 20192020 is primarily attributable to the lower restructuring costs improved profitability and better working capital management.

We used $157.2$88.1 million in cash for investing activities during the first sixthree months of 20192020 compared to $90.7$39.1 million during the same period a year ago. Our investment in capital projects increased $33.0$9.9 million during the first sixthree months of 20192020 compared to the first sixthree months of 2018.2019, as projects in progress at year end were paid during the first quarter of 2020. During the first sixthree months of 2019, $45.12020, we invested $20.4 million in our 49% equity interest of cash was utilized to fund our Gateway and Nanopharm acquisitions andBTY, which is accounted for as an equity method investment. Additionally, we also released $4.0$1.0 million relating to the finalworking capital escrow settlement onand paid an additional $463 thousand as a working capital payment related to our acquisition of CSP Technologies. We received $16.5 million from the sale of our investment in Reciprocal Labs Corporation. During the first six months of 2018, we received $10.6 million of insurance proceeds related to the Annecy fire and invested $10.0 million in equity securities.Noble. Our 20192020 estimated cash outlays for capital expenditures are expected to be in the range of approximately $230$220 to $250$240 million but could vary due to changes in exchange rates as well as the timing of capital projects.

Financing activities used $31.8provided $174.3 million in cash during the first sixthree months of 20192020 compared to $52.3$90.8 million in cash used by financing activities during the same period a year ago. During the first sixthree months of 2019,2020, we received net proceeds from our U.S. short term credit facility of $175.0 million and stock option exercises of $70.7$18.6 million. We used cash on hand to pay $44.1$23.0 million of dividends repay $38.7and repayments of $4.4 million onrelated to our revolving credit facility and repurchase $19.1 million of treasury stock.outstanding debt obligations.

We hold U.S. dollar and euro-denominated debt to align our capital structure with our earnings base. We also maintain a multi-currency revolving credit facility with two tranches, providing for unsecured financing of up to $300 million that is available in the U.S. and up to €150 million that is available to our wholly-owned UK subsidiary. Each borrowing under the credit facility will bear interest at rates based on LIBOR, prime rates or other similar rates, in each case plus an applicable margin. A facility fee on the total amount of the facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the credit facility and the facility fee percentage may change from time to time depending on changes in our consolidated leverage ratio. The December 31, 2018 outstanding$200.0 million was utilized under our U.S. facility and no balance of €69.0 million on thewas utilized under our euro-based revolving credit facility as of March 31, 2020. The $25.0 million balance at December 31, 2019 under our U.S. credit facility was paid inrepaid during the first quarter of 2019. €35.0 million was utilized as of June 30, 2019.2020. Credit facility balances are included in notes payable, including revolving credit facilities on the Condensed Consolidated Balance Sheet.Sheets.

Our revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:

Requirement

Level at June 30, 2019March 31, 2020

Consolidated Leverage Ratio (1)

 

Maximumof 3.50 to 1.00

 

1.851.73 to 1.00

Consolidated Interest Coverage Ratio (1)

 

Minimum of 3.00 to 1.00

 

15.3116.32 to 1.00

(1)Definitions of ratios are included as part of the revolving credit facility agreement and the note purchase agreements.

Based upon the above consolidated leverage ratio covenant, we have the ability to borrow approximately an additional $887 million$1.0 billion before the 3.50 to 1.00 maximum ratio requirement is exceeded.

34

Table of Contents

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 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.

39

Table of Contents

On July 17, 2019,April 15, 2020, the Board of Directors declared a quarterly cash dividend of $0.36 per share payable on August 21, 2019May 20, 2020 to stockholders of record as of July 31, 2019.April 29, 2020.

CONTINGENCIES

The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature. Please refer to Note 12 - Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements for a discussion of contingencies affecting our business.

OFF-BALANCE SHEET ARRANGEMENTS

We lease certain warehouse, plant and office facilities as well as certain equipment under noncancelable operating leases. Most 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 do not have significant off-balance sheet arrangements. Please refer to Note 7 – Lease CommitmentsLeases of the Notes to Condensed Consolidated Financial Statements for lease arrangements that have not yet commenced and therefore not included in the balance sheet.Statements.

RECENTLY ISSUED ACCOUNTING STANDARDS

We have reviewed the recently issued accounting standards updates to the FASB’s Accounting Standards Codification that have future effective dates. Standards that are effective for 20192020 are discussed in Note 1 – Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, which changes the accounting guidance for measurement of credit losses on financial instruments. The guidance replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when recording credit loss estimates. The new standard is effective for fiscal years and interim periods beginning after December 15, 2019. We are currently evaluating the impact of adopting this guidance.

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 will have a material impact on our Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-14, which amends disclosure requirements for defined benefit pension and other postretirement plans. The amendments in this update remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The new standard is effective for fiscal years ending after December 15, 2020. As this update amends disclosure requirements, we do not expect any significant impact around adopting this guidance.

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.

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 Condensed Consolidated Financial Statements upon adoption.

OUTLOOK

Factors that could impact our second quarter results, include among other things, the duration and severity of the COVID-19 pandemic, the pace and scope of reopening in regions that are currently under government confinement orders, the speed at which beauty and other retail stores open, the willingness of consumers to participate in those shopping channels, the rate at which airline travel will resume and the general level of on-the-go consumption particularly with certain beverage products.

Aptar expects the near-term effects related to the COVID-19 pandemic to continue through the second quarter and anticipates that they will be more pronounced than the Company experienced in the first quarter. The results of Aptar’s Beauty + Home segment are expected to be significantly impacted by continued softness across each end market primarily related to the effects of COVID-19. In addition, the Food + Beverage segment, which had very strong growth in the prior year second quarter, is expected to see continued softness in the on-the-go beverage market primarily related to COVID-19 and the impact from passing on lower resin costs. Aptar’s Pharma segment is facing difficult comparisons compared to the prior year’s exceptional growth, especially within its prescription division. Aptar’s second quarter results are expected to include expenses of approximately $3.6 million (pretax) related to the Thank You Award being given to employees who have made it possible for Aptar to continue to supply critical infrastructure industries during the COVID-19 crisis.  

We expect earnings per share for the thirdsecond quarter of 2020, excluding any restructuring costsexpenses and acquisition related expenses,acquisition-related costs, to be in the range of $0.91$0.58 to $0.97$0.73 and this guidance is based on an effective tax rate range of 30%31% to 32%. The effective tax rate for the prior year third quarter was approximately 23%33%.

4035

Table of Contents 

FORWARD-LOOKING STATEMENTS

Certain statements in Management’s Discussion and Analysis and other sections of this Form 10-Q are forward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Significant Developments, Restructuring Initiatives, Quarterly Trends, Liquidity and Capital Resources, Contingencies and Outlook sections of this Form 10-Q. 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 (the “Exchange Act”) and are based on our beliefs as well as assumptions made by and information currently available to us. Accordingly, our actual results 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:

outbreaks of pandemics, including the impact of COVID-19 on our global supply chain and our global customers and operations, which has elevated and may or 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;
political conditions worldwide, including the impact of the UK leaving the European Union (Brexit) on our UK 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);
the impact and extent of contamination found at our facility in Brazil;
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;
the timing and magnitude of capital expenditures;
our ability to identify potential new acquisitions and to successfully acquire and integrate such operations and products, including the successful integration of the CSP Technologies, Reboul, Nanopharm and Gateway businesses;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.

4136

Table of Contents 

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 Item 1A (“Risk Factors”)(Risk Factors) of Part I included in our Annual Report on Form 10-K for the year ended December 31, 20182019 and to Item 1A (Risk Factors) of Part II of this report for additional risk factors affecting the Company.

4237

Table of Contents 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 entities. Our primary foreign exchange exposure is to the euro, but we also have foreign exchange exposure to the Chinese yuan, Brazilian real, Mexican peso and Swiss franc, among other Asian, European, and South American currencies. A strengtheningweakening U.S. dollar relative to foreign currencies has a dilutivean additive translation effect on our financial condition and results of operations. Conversely, a weakeningstrengthening U.S. dollar relative to foreign currencies has an additivea dilutive 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 June 30, 2019March 31, 2020 about our forward currency exchange contracts. The majority of the contracts expire before the end of the thirdsecond quarter of 2019.2020.

Average

Min / Max

Average

    

Min / Max

Contract Amount

Contractual

Notional

    

Contract Amount

    

Contractual

Notional

Buy/Sell

(in thousands)

 

Exchange Rate

 

Volumes

(in thousands)

 

Exchange Rate

 

Volumes

EUR / USD

$

22,646

 

1.1074

 

18,669-22,646

EUR / BRL

$

12,673

 

4.4515

 

12,208-13,010

9,376

 

4.8745

 

9,376-11,407

EUR / USD

10,509

 

1.1280

 

10,509-18,107

CHF / EUR

 

7,907

 

0.8877

 

5,913-7,907

6,089

0.9387

6,040-6,605

EUR / INR

3,781

 

79.7800

 

3,781-3,981

CZK / EUR

3,169

0.0384

0-3,169

EUR / MXN

2,137

 

21.5937

 

1,999-2,239

USD / EUR

6,657

0.8871

1,726-7,834

2,085

 

0.8972

 

1,322-4,978

EUR / INR

5,286

 

79.8800

 

5,227-5,286

USD / CNY

2,000

 

7.0663

 

2,000-2,000

EUR / CHF

 

1,773

 

1.0587

 

0-1,773

MXN / USD

1,384

0.0519

557-1,384

CHF / USD

835

1.0367

0-835

GBP / EUR

4,668

 

1.1426

 

757-4,668

718

 

1.1774

 

718-1,544

EUR / IDR

4,439

 

17.7680

 

4,359-4,439

EUR / GBP

3,013

0.5855

0-3,013

EUR / MXN

1,041

21.8088

560-1,041

CHF / USD

701

1.0006

223-701

MXN / USD

6

0.0346

0-6

USD / CHF

130

0.9551

0-130

Total

 

$

56,900

 

$

56,123

As of June 30, 2019,March 31, 2020, we have recorded the fair value of foreign currency forward exchange contracts of $0.2$2.1 million in prepaid and other and $0.7$0.5 million in accounts payable and accrued liabilities on the balance sheet. We 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 our wholly-owned UK subsidiary. The fair value of this cash flow hedge is $0.1$6.8 million reported in prepaid and other and $0.1 million reported in other current liabilities on the balance sheet.

ITEM 4. CONTROLS AND PROCEDURES

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 that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2019.March 31, 2020. 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.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

NoDuring the fiscal quarter ended March 31, 2020, we implemented enterprise resource planning (“ERP”) systems at two operating facilities. Consequently, the control environments have been modified at these locations to incorporate the controls contained within the new ERP systems. Except for the foregoing, 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 June 30, 2019March 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

38

Table of Contents

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.

4339

Table of Contents 

PART II - OTHER INFORMATION

ITEM 1A. RISK FACTORS

The following risk factors are in addition to the risks described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 under Item 1A, “Risk Factors” filed with the SEC pursuant to the Exchange Act. The effects of the events and circumstances described in the following risk factors have elevated and may or will continue to elevate many of the risks contained in the Company’s Form 10-K, including the risks relating to a deterioration in economic conditions in a particular region or market, our fixed costs structure, reliance on single sourced materials and manufacturing sites and potential asset impairments.

The COVID-19 pandemic is currently adversely affecting our business. Additional factors could exacerbate such negative consequences and/or cause other materially adverse effects. The COVID-19 pandemic adversely affected our sales of products to our travel and retail beauty business and on-the-go beverage customers in the quarter ended March 31, 2020 and that adverse impact has continued into the second quarter. Since the end of the quarter, economic and health conditions in the United States and across most of the globe have changed rapidly. Customer demand across all segments, particularly our Beauty + Home and Food + Beverage segments, may decrease further from historical levels depending on the duration and severity of the COVID-19 pandemic, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, 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 and reduced sales and operations, any of which could materially affect our stock price, business prospects, financial condition, results of operations and liquidity.

The ability of our employees to work may be significantly impacted by COVID-19.The majority of our office and management personnel are working remotely and the majority of our facilities remained operational during the first quarter of 2020 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. 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. If these conditions worsen, or 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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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 Paris 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 June 30, 2019,March 31, 2020, the Plan purchased 5,77010,487 shares of our common stock on behalf of the participants at an average price of $111.20,$98.22, for an aggregate amount of $642 thousand.$1.0 million. The Plan sold 6,14612,202 shares of our common stock on behalf of the participants at an average price of $112.37,$98.35, for an aggregate amount of $691 thousand$1.2 million during the same period. At June 30, 2019,March 31, 2020, the Plan owned 85,61188,478 shares of our common stock.

ISSUER PURCHASES OF EQUITY SECURITIES

On April 18, 2019, we announced a share purchase 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.

During the three months ended June 30, 2019,March 31, 2020, we repurchased approximately 34 thousanddid not repurchase any shares. As of March 31, 2020, there was $278.5 million of authorized share repurchases available to us. Amid the COVID-19 pandemic, we are focused on preserving our liquidity and therefore we have temporarily suspended repurchasing shares for approximately $4.1 million.

The following table summarizes our purchases of our securities for the quarter ended June 30, 2019:common stock.

 

 

 

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)

 

4/1 – 4/30/19

 

$

 

$

350.0

5/1 – 5/31/19

 

 

 

 

350.0

6/1 – 6/30/19

 

34,000

 

120.48

 

34,000

 

345.9

Total

 

34,000

$

120.48

 

34,000

$

345.9

4440

Table of Contents 

ITEM 6. EXHIBITS

Exhibit 10.1

Form of AptarGroup, Inc. Retention Award Restricted Stock Unit Award Agreement (Service-Based(Performance-Based Vesting Form) (French(U.S./Mexico/Argentina employee version) pursuant to the AptarGroup, Inc. 2018 Equity Incentive Plan.

Exhibit 10.2

Form of AptarGroup, Inc. Retention Award Restricted Stock Unit Award Agreement (Service-Based(Performance-Based Vesting Form) (Non - French(French employee version) pursuant to the AptarGroup, Inc. 2018 Equity Incentive Plan.

Exhibit 10.3

Form of AptarGroup, Inc. Restricted Stock Unit Award Agreement (Service-Based(Performance-Based Vesting Form) (French employee version)(All Other Employees) pursuant to the AptarGroup, Inc. 2018 Equity Incentive Plan.

Exhibit 10.4

Form of AptarGroup, Inc. Restricted Stock Unit Award Agreement (Service-Based Vesting Form) (Non - French(U.S./Mexico/Argentina employee version) pursuant to the AptarGroup, Inc. 2018 Equity Incentive Plan.

Exhibit 10.5

Form of AptarGroup, Inc. Restricted Stock Unit Award Agreement (Service-Based Vesting Form) (Chinese(non-French employee version) pursuant to the AptarGroup, Inc. 2018 Equity Incentive Plan.

Exhibit 10.6

Form of AptarGroup, Inc. Restricted Stock Unit Award Agreement (Performance-Based(Service-Based Vesting Form) (French employee version) pursuant to the AptarGroup, Inc. 2018 Equity Incentive Plan.

Exhibit 10.7

Form of AptarGroup, Inc. Restricted Stock Unit Award Agreement (Performance-Based Vesting Form) (Non - French employee version) pursuant to the AptarGroup, Inc. 2018 Equity Incentive Plan.

Exhibit 10.8

AptarGroup, Inc. Employment Agreement of Xiangwei Gong as of May 30, 2018.

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 101

The following information from our Quarterly Report on Form 10-Q for the secondfirst quarter of fiscal 2019,2020, filed with the SEC on AugustMay 1, 2019,2020, formatted in Inline Extensible Business Reporting Language (XBRL): (i) the Cover Page, (ii) the Condensed Consolidated Statements of Income – Three and Six Months Ended June 30,March 31, 2020 and 2019, and 2018, (iii) the Condensed Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30,March 31, 2020 and 2019, and 2018, (iv) the Condensed Consolidated Balance Sheets – June 30, 2019March 31, 2020 and December 31, 2018,2019, (v) the Condensed Consolidated Statements of Changes in Equity – Three and Six Months Ended June 30,March 31, 2020 and 2019, and 2018, (vi) the Condensed Consolidated Statements of Cash Flows - SixThree Months Ended June 30,March 31, 2020 and 2019 and 2018 and (vii) the Notes to Condensed Consolidated Financial Statements.

Exhibit 104

Cover Page Interactive Data File (embedded within the Inline XBRL document).

4541

Table of Contents 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AptarGroup, Inc.

(Registrant)

By

/s/ ROBERT W. KUHN

Robert W. Kuhn

Executive Vice President,

Chief Financial Officer and Secretary

(Duly Authorized Officer and

Principal Accounting and Financial Officer)

Date: AugustMay 1, 20192020

4642