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 ENDEDMARCH 31,SEPTEMBER 30, 2020

OR

OR

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

FOR THE TRANSITION PERIOD FROMTO

TO

COMMISSION FILE NUMBER1-11846

atr-20200930_g1.jpg

AptarGroup, Inc.

DELAWARE

Delaware

36-3853103

(State of Incorporation)

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

265 EXCHANGE DRIVE,, SUITE 100,, CRYSTAL LAKE,, ILLINOIS  IL60014

815-477-0424

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 filerþ

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 April 24,October 23, 2020, was 64,186,75664,722,498 shares.



Table of Contents

AptarGroup, Inc.

Form 10-Q

Quarter Ended March 31,September 30, 2020

INDEX

INDEX​
Part I.
Item 1.

Part I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

6

7

26

38

38

40

40

41

42

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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
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Net Sales$759,153 $701,278 $2,180,011 $2,188,399 
Operating Expenses:
Cost of sales (exclusive of depreciation and amortization shown below)479,672 444,237 1,372,630 1,382,810 
Selling, research & development and administrative121,850 111,559 371,407 346,526 
Depreciation and amortization55,179 49,218 162,414 144,574 
Restructuring initiatives3,415 6,019 15,585 17,286 
660,116 611,033 1,922,036 1,891,196 
Operating Income99,037 90,245 257,975 297,203 
Other (Expense) Income:
Interest expense(8,851)(8,898)(25,973)(26,868)
Interest income249 957 599 3,738 
Equity in results of affiliates(256)238 (1,383)152 
Miscellaneous, net(1,040)(269)(3,375)148 
(9,898)(7,972)(30,132)(22,830)
Income before Income Taxes89,139 82,273 227,843 274,373 
Provision for Income Taxes25,404 25,504 66,998 80,684 
Net Income$63,735 $56,769 $160,845 $193,689 
Net Income Attributable to Noncontrolling Interests$(19)$(19)$(37)$(20)
Net Income Attributable to AptarGroup, Inc.$63,716 $56,750 $160,808 $193,669 
Net Income Attributable to AptarGroup, Inc. per Common Share:
Basic$0.99 $0.89 $2.50 $3.05 
Diluted$0.95 $0.85 $2.42 $2.93 
Average Number of Shares Outstanding:
Basic64,562 64,010 64,278 63,485 
Diluted66,922 66,702 66,483 66,163 
Dividends per Common Share$0.36 $0.36 $1.08 $1.06 

In thousands, except per share amounts

Three Months Ended March 31,

2020

2019

    

Net Sales

    

$

721,553

    

$

744,460

 

Operating Expenses:

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

 

451,256

 

469,132

Selling, research & development and administrative

 

126,192

 

121,215

Depreciation and amortization

 

50,806

 

47,489

Restructuring initiatives

4,839

9,530

 

633,093

 

647,366

Operating Income

 

88,460

 

97,094

Other (Expense) Income:

Interest expense

 

(8,388)

 

(9,214)

Interest income

 

175

 

1,748

Equity in results of affiliates

 

(799)

 

(95)

Miscellaneous, net

 

(1,412)

 

466

 

(10,424)

 

(7,095)

Income before Income Taxes

 

78,036

 

89,999

Provision for Income Taxes

 

22,786

 

27,000

Net Income

$

55,250

$

62,999

Net Loss Attributable to Noncontrolling Interests

$

3

$

5

Net Income Attributable to AptarGroup, Inc.

$

55,253

$

63,004

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

Basic

$

0.86

$

1.00

Diluted

$

0.84

$

0.96

Average Number of Shares Outstanding:

Basic

64,009

62,964

Diluted

66,111

65,349

Dividends per Common Share

$

0.36

$

0.34

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

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AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

In thousands

Three Months Ended March 31,

2020

2019

Net Income

$

55,250

$

62,999

Other Comprehensive (Loss) Income:

Foreign currency translation adjustments

 

(42,229)

 

(9,611)

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

 

71

 

84

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

 

1,565

 

637

Total defined benefit pension plan, net of tax

 

1,636

 

721

Total other comprehensive loss

 

(39,110)

 

(9,283)

Comprehensive Income

 

16,140

 

53,716

Comprehensive Loss (Income) Attributable to Noncontrolling Interests

 

3

 

(3)

Comprehensive Income Attributable to AptarGroup, Inc.

$

16,143

$

53,713

In thousands
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Net Income$63,735 $56,769 $160,845 $193,689 
Other Comprehensive Income (Loss):
Foreign currency translation adjustments42,425 (42,540)19,292 (42,737)
Changes in derivative (losses) gains, net of tax(147)279 603 (593)
Defined benefit pension plan, net of tax
Amortization of prior service cost included in net income, net of tax73 82 216 249 
Amortization of net loss included in net income, net of tax1,490 631 4,423 1,901 
Total defined benefit pension plan, net of tax1,563 713 4,639 2,150 
Total other comprehensive income (loss)43,841 (41,548)24,534 (41,180)
Comprehensive Income107,576 15,221 185,379 152,509 
Comprehensive Income Attributable to Noncontrolling Interests(28)(7)(47)(8)
Comprehensive Income Attributable to AptarGroup, Inc.$107,548 $15,214 $185,332 $152,501 

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

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AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

In thousands

 

March 31,

December 31,

 

2020

2019

Assets

Current Assets:

Cash and equivalents

$

410,840

$

241,970

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

 

371,859

375,795

Prepaid and other

 

129,926

115,048

 

1,514,652

1,291,241

Property, Plant and Equipment:

Buildings and improvements

 

502,706

504,328

Machinery and equipment

 

2,506,084

2,521,737

 

3,008,790

3,026,065

Less: Accumulated depreciation

 

(1,961,683)

(1,963,520)

 

1,047,107

1,062,545

Land

 

24,312

25,133

 

1,071,419

1,087,678

Other Assets:

Investments in equity securities

 

39,167

8,396

Goodwill

 

756,081

763,461

Intangible assets

 

284,121

291,084

Operating lease right-of-use assets

65,925

72,377

Miscellaneous

 

45,187

47,882

 

1,190,481

1,183,200

Total Assets

$

3,776,552

$

3,562,119

In thousands
September 30, 2020December 31, 2019
Assets
Current Assets:
Cash and equivalents$226,546 $241,970 
Accounts and notes receivable, less current expected credit loss ("CECL") of $7,440 in 2020 and $3,626 in 2019593,418 558,428 
Inventories375,177 375,795 
Prepaid and other132,055 115,048 
1,327,196 1,291,241 
Property, Plant and Equipment:
Buildings and improvements551,164 504,328 
Machinery and equipment2,679,171 2,521,737 
3,230,335 3,026,065 
Less: Accumulated depreciation(2,117,684)(1,963,520)
1,112,651 1,062,545 
Land27,248 25,133 
1,139,899 1,087,678 
Other Assets:
Investments in equity securities46,995 8,396 
Goodwill878,015 763,461 
Intangible assets, net347,695 291,084 
Operating lease right-of-use assets72,269 72,377 
Miscellaneous49,680 47,882 
1,394,654 1,183,200 
Total Assets$3,861,749 $3,562,119 

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

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AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

In thousands, except share and per share amounts

 

March 31,

December 31,

 

2020

2019

Liabilities and Stockholders’ Equity

Current Liabilities:

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

Accounts payable, accrued and other liabilities

 

605,738

 

573,028

 

891,298

 

683,275

Long-Term Obligations, net of unamortized debt issuance costs

 

1,075,745

 

1,085,453

Deferred Liabilities and Other:

Deferred income taxes

 

39,795

 

41,388

Retirement and deferred compensation plans

 

104,140

 

101,225

Operating lease liabilities

49,004

55,276

Deferred and other non-current liabilities

 

28,947

 

23,250

Commitments and contingencies

 

 

 

221,886

 

221,139

Stockholders’ Equity:

AptarGroup, Inc. stockholders’ equity

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

 

785,567

 

770,596

Retained earnings

 

1,554,665

 

1,523,820

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

 

1,587,290

 

1,571,916

Noncontrolling interests in subsidiaries

 

333

 

336

Total Stockholders’ Equity

 

1,587,623

 

1,572,252

Total Liabilities and Stockholders’ Equity

$

3,776,552

$

3,562,119

In thousands, except share and per share amounts
September 30, 2020December 31, 2019
Liabilities and Stockholders’ Equity
Current Liabilities:
Notes payable, revolving credit facility and overdrafts$95,200 $44,259 
Current maturities of long-term obligations, net of unamortized debt issuance costs66,056 65,988 
Accounts payable, accrued and other liabilities625,865 573,028 
787,121 683,275 
Long-Term Obligations, net of unamortized debt issuance costs1,039,935 1,085,453 
Deferred Liabilities and Other:
Deferred income taxes40,120 41,388 
Retirement and deferred compensation plans116,886 101,225 
Operating lease liabilities54,899 55,276 
Deferred and other non-current liabilities62,833 23,250 
Commitments and contingencies0 
274,738 221,139 
Stockholders’ Equity:
AptarGroup, Inc. stockholders’ equity
Common stock, $.01 par value, 199 million shares authorized, 69.3 and 68.6 million shares issued as of September 30, 2020 and December 31, 2019, respectively693 686 
Capital in excess of par value827,273 770,596 
Retained earnings1,613,891 1,523,820 
Accumulated other comprehensive loss(317,424)(341,948)
Less: Treasury stock at cost, 4.6 and 4.8 million shares as of September 30, 2020 and December 31, 2019, respectively(364,861)(381,238)
Total AptarGroup, Inc. Stockholders’ Equity1,759,572 1,571,916 
Noncontrolling interests in subsidiaries383 336 
Total Stockholders’ Equity1,759,955 1,572,252 
Total Liabilities and Stockholders’ Equity$3,861,749 $3,562,119 

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

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AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

In thousands
Three Months EndedAptarGroup, Inc. Stockholders’ Equity
September 30, 2020 and 2019Retained EarningsAccumulated
Other
Comprehensive (Loss) Income
Common
Stock
Par Value
Treasury
Stock
Capital in
Excess of
Par Value
Non-
Controlling
Interest
Total
Equity
Balance - June 30, 2019$1,464,607 $(310,136)$683 $(317,380)$743,332 $316 $1,581,422 
Net income56,750 — — — — 19 56,769 
Foreign currency translation adjustments— (42,528)— — — (12)(42,540)
Changes in unrecognized pension gains (losses) and related amortization, net of tax— 713 — — — — 713 
Changes in derivative gains (losses), net of tax— 279 — — — — 279 
Stock awards and option exercises— — 2,512 13,656 — 16,170 
Cash dividends declared on common stock(23,057)— — — — — (23,057)
Treasury stock purchased— — — (35,777)— — (35,777)
Balance - September 30, 2019$1,498,300 $(351,672)$685 $(350,645)$756,988 $323 $1,553,979 
Balance - June 30, 2020$1,573,392 $(361,256)$690 $(370,706)$803,511 $355 $1,645,986 
Net income63,716 — — — — 19 63,735 
Foreign currency translation adjustments— 42,416 — — — 42,425 
Changes in unrecognized pension gains (losses) and related amortization, net of tax— 1,563 — — — — 1,563 
Changes in derivative gains (losses), net of tax— (147)— — — — (147)
Stock awards and option exercises— — 5,845 23,762 — 29,610 
Cash dividends declared on common stock(23,217)— — — — — (23,217)
Balance - September 30, 2020$1,613,891 $(317,424)$693 $(364,861)$827,273 $383 $1,759,955 
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Table of Contents
In thousands
Nine Months EndedAptarGroup, Inc. Stockholders’ Equity
September 30, 2020 and 2019Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Common
Stock
Par Value
Treasury
Stock
Capital in
Excess of
Par Value
Non-
Controlling
Interest
Total
Equity
Balance - December 31, 2018$1,371,826 $(310,504)$673 $(318,208)$678,769 $315 $1,422,871 
Net income193,669 20 193,689 
Foreign currency translation adjustments(42,725)(12)(42,737)
Changes in unrecognized pension gains (losses) and related amortization, net of tax2,150 2,150 
Changes in derivative gains (losses), net of tax(593)(593)
Stock awards and option exercises12 22,436 78,219 100,667 
Cash dividends declared on common stock(67,195)(67,195)
Treasury stock purchased(54,873)(54,873)
Balance - September 30, 2019$1,498,300 $(351,672)$685 $(350,645)$756,988 $323 $1,553,979 
Balance - December 31, 2019$1,523,820 $(341,948)$686 $(381,238)$770,596 $336 $1,572,252 
Net income160,808 37 160,845 
Adoption of CECL standard(1,377)(1,377)
Foreign currency translation adjustments19,282 10 19,292 
Changes in unrecognized pension gains (losses) and related amortization, net of tax4,639 4,639 
Changes in derivative gains (losses), net of tax603 603 
Stock awards and option exercises16,377 56,677 73,061 
Cash dividends declared on common stock(69,360)(69,360)
Balance - September 30, 2020$1,613,891 $(317,424)$693 $(364,861)$827,273 $383 $1,759,955 

In thousands

AptarGroup, Inc. Stockholders’ Equity

    

    

Accumulated

    

    

    

    

    

Other

Common

Capital in

Non-

Retained

Comprehensive

Stock

Treasury

Excess of

Controlling

Total

Earnings

(Loss) Income

Par Value

Stock

Par Value

Interest

Equity

 

Balance - December 31, 2018

$

1,371,826

$

(310,504)

$

673

$

(318,208)

$

678,769

$

315

$

1,422,871

Net income (loss)

 

63,004

(5)

62,999

Foreign currency translation adjustments

 

(9,619)

8

(9,611)

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

 

721

721

Changes in derivative gains (losses), net of tax

 

(393)

(393)

Stock awards and option exercises

 

3

 

5,337

22,164

27,504

Cash dividends declared on common stock

 

(21,377)

(21,377)

Treasury stock purchased

(15,000)

(15,000)

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

6

Table of Contents


AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

In thousands, brackets denote cash outflows
Nine Months Ended September 30,20202019
Cash Flows from Operating Activities:
Net income$160,845 $193,689 
Adjustments to reconcile net income to net cash provided by operations:
Depreciation132,394 124,787 
Amortization30,020 19,787 
Stock-based compensation26,191 18,075 
Provision for CECL2,345 930 
Loss on disposition of fixed assets475 303 
Deferred income taxes(2,591)5,948 
Defined benefit plan expense17,442 11,517 
Equity in results of affiliates1,383 (152)
Change in fair value of contingent consideration4,270 
Changes in balance sheet items, excluding effects from foreign currency adjustments:
Accounts and other receivables(31,871)724 
Inventories3,937 (16,025)
Prepaid and other current assets(15,932)(1,721)
Accounts payable, accrued and other liabilities64,113 15,047 
Income taxes payable(4,865)6,729 
Retirement and deferred compensation plan liabilities(1,569)(935)
Other changes, net(5,160)1,678 
Net Cash Provided by Operations381,427 380,381 
Cash Flows from Investing Activities:
Capital expenditures(173,365)(186,841)
Proceeds from sale of property, plant and equipment2,845 3,658 
Acquisition of business, net of cash acquired and release of escrow(164,181)(49,062)
Acquisition of intangible assets, net(3,690)(4,621)
Investment in equity securities(38,455)(3,530)
Proceeds from sale of investment in equity securities0 16,487 
Notes receivable, net(1,046)(89)
Net Cash Used by Investing Activities(377,892)(223,998)
Cash Flows from Financing Activities:
Proceeds from notes payable and overdrafts19,191 36,893 
Repayments of notes payable and overdrafts(33,162)(41,145)
Proceeds and repayments of short term revolving credit facility, net70,000 (47,253)
Proceeds from long-term obligations1,316 10,524 
Repayments of long-term obligations(63,052)(64,924)
Payment of contingent consideration obligation(2,765)0
Dividends paid(69,360)(67,195)
Proceeds from stock option exercises51,098 81,815 
Purchase of treasury stock0(54,873)
Net Cash Used by Financing Activities(26,734)(146,158)
Effect of Exchange Rate Changes on Cash7,605 (6,471)
Net (Decrease) Increase in Cash and Equivalents and Restricted Cash(15,594)3,754 
Cash and Equivalents and Restricted Cash at Beginning of Period246,973 266,823 
Cash and Equivalents and Restricted Cash at End of Period$231,379 $270,577 
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Table of Contents

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 Acquisitionand Fusion Acquisitions (as defined herein).

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

Nine Months Ended September 30,20202019
Cash and equivalents$226,546 $270,577 
Restricted cash included in prepaid and other4,833 0
Total Cash and Equivalents and Restricted Cash shown in the Statement of Cash Flows$231,379 $270,577 

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

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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.

Certain previously reported amounts have been reclassified to conform to the current period presentation.

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, 2019 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, 2019. The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.

Beginning July 1, 2018, we have applied highly inflationary accounting for our Argentinian subsidiaries pursuant to U.S. GAAP. We have changed the functional currency from the Argentinian peso to the U.S. dollar. We remeasure our peso denominated assets and liabilities using the official rate. In September 2019, the President of Argentina reinstituted exchange controls restricting foreign currency purchases in an attempt to stabilize Argentina’s financial markets. As a result of these currency controls, a legal mechanism known as the Blue Chip Swap emerged in Argentina for reporting entities to transfer U.S. dollars. The Blue Chip Swap rate has diverged significantly from Argentina’s “official rate” due to the economic environment. During the second quarter of 2020, we transferred U.S. dollars into Argentina through the Blue Chip Swap method and we recognized a gain of $1.0 million. This gain helped to offset foreign currency losses due to our Argentinian peso exposure and devaluation against the U.S. dollar. For the nine months ended September 30, 2020, our Argentinian operations contributed less than 2.0% of consolidated net assets and revenues.
There 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 certain markets within our business, operations and financial results during the quarternine months ended March 31,September 30, 2020 including an overall reduction to net sales.sales within those markets. NaN impairments were recorded as of March 31,September 30, 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.

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 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 are required for the amount by which a reporting unit’s carrying amount exceeds its fair value up to the amount of its allocated goodwill. We adopted the standard on January 1, 2020 and did not record any impairment charges.

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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. We adopted the standard on January 1, 2020 and no material impacts were noted.

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In August 2018, the FASB issued ASU 2018-13, which amends disclosure requirements for fair value measurements. The new standard modifies disclosure requirements including removing requirements to disclose the valuation process for Level 3 measurements and adding requirements to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. We adopted the standard on January 1, 2020 and 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.

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 timingtemporary 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.

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.

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 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.

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 nine months ended March 31,September 30, 2020 and 2019 is as follows:

For the Three Months Ended September 30, 2020
SegmentEuropeDomesticLatin
America
AsiaTotal
Beauty + Home165,701 109,175 37,921 24,434 337,231 
Pharma206,376 92,932 4,846 11,604 315,758 
Food + Beverage29,688 60,439 6,668 9,369 106,164 
Total401,765 262,546 49,435 45,407 759,153 

For the Three Months Ended March 31, 2020

 

Latin

Segment

Europe

Domestic

America

Asia

Total

 

Beauty + Home

$

186,950

$

81,845

$

36,181

$

19,584

$

324,560

Pharma

190,130

90,965

6,579

9,522

297,196

Food + Beverage

28,769

57,590

8,034

5,404

99,797

Total

$

405,849

$

230,400

$

50,794

$

34,510

$

721,553

For the Three Months Ended March 31, 2019

Latin

Segment

Europe

Domestic

America

Asia

Total

Beauty + Home

$

216,233

$

86,979

$

42,642

$

21,805

$

367,659

Pharma

184,174

71,772

7,656

9,099

272,701

Food + Beverage

30,961

55,120

7,884

10,135

104,100

Total

$

431,368

$

213,871

$

58,182

$

41,039

$

744,460

8

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For the Three Months Ended September 30, 2019
SegmentEuropeDomesticLatin
America
AsiaTotal
Beauty + Home$188,542 $75,931 $40,261 $23,448 $328,182 
Pharma174,252 78,259 6,366 10,374 269,251 
Food + Beverage28,718 57,307 8,058 9,762 103,845 
Total$391,512 $211,497 $54,685 $43,584 $701,278 

For the Nine Months Ended September 30, 2020
SegmentEuropeDomesticLatin
America
AsiaTotal
Beauty + Home$505,063 $285,369 $103,995 $67,150 $961,577 
Pharma598,319 264,995 18,412 32,487 914,213 
Food + Beverage86,298 172,507 21,191 24,225 304,221 
Total$1,189,680 $722,871 $143,598 $123,862 $2,180,011 
For the Nine Months Ended September 30, 2019
SegmentEuropeDomesticLatin
America
AsiaTotal
Beauty + Home$607,316 $236,883 $124,352 $69,370 $1,037,921 
Pharma549,080 226,073 21,100 27,638 823,891 
Food + Beverage92,015 177,587 25,153 31,832 326,587 
Total$1,248,411 $640,543 $170,605 $128,840 $2,188,399 
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 or services are performed 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 December 31, 2019Balance as of September 30, 2020Increase/
(Decrease)
Contract asset (current)$16,245 $15,914 $(331)
Contract asset (long-term)$$$
Contract liability (current)$79,305 $66,782 $(12,523)
Contract liability (long-term)$9,779 $22,035 $12,256 

    

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 $12.5$59.6 million, including $10.6$39.1 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.

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Product Sales

We primarily manufacture and sell drug delivery, 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 free 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.

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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, 2019, $515 thousand of unearned revenue associated with outstanding contracts was reported in Accounts Payable, Accrued and Other Liabilities. At March 31,September 30, 2020, the unearned amount was $432$487 thousand. We expect to recognize approximately $172$55 thousand of the unearned amount during the remainder of 2020, $123$131 thousand in 2021, and $137$301 thousand thereafter.

Credit Risk

We are exposed to credit losses primarily through our product sales, tooling sales and services to our customers. We assess each customer’s ability to pay for the products we sell by conducting a credit review. The credit review considers our expected billing exposure and timing for payment and the customer’s established credit rating or our assessment of the customer’s creditworthiness based on our analysis of their financial statements when a credit rating is not available. We also consider contract terms and conditions, country and political risks, and business strategy in our evaluation. A credit limit is established for each customer based on the outcome of this review.

We monitor our ongoing credit exposure through active review of customer balances against contract terms and due dates. Our activities include timely account reconciliation, dispute resolution and payment confirmation. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.

At March 31,September 30, 2020, we reported $602$593 million of accounts receivable, net of CECL of $5.7$7.4 million. Changes in the allowance were not material for the threenine months ended March 31,September 30, 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.

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NOTE 3 - INVENTORIES

Inventories, by component, consisted of:

September 30,
2020
December 31,
2019
Raw materials$112,296 $111,653 
Work in process119,397 123,750 
Finished goods143,484 140,392 
Total$375,177 $375,795 

March 31,

December 31,

2020

2019

 

Raw materials

$

106,787

$

111,653

Work in process

 

120,151

 

123,750

Finished goods

 

144,921

 

140,392

Total

$

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, 2019 are as follows:

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

10

Beauty +
Home
PharmaFood +
Beverage
Corporate
& 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 
Acquisition99,350 463 99,813 
Foreign currency exchange effects3,972 10,502 267 14,741 
Goodwill$324,980 $424,615 $128,420 $1,615 $879,630 
Accumulated impairment losses(1,615)(1,615)
Balance as of September 30, 2020$324,980 $424,615 $128,420 $0 $878,015 

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The table below shows a summary of intangible assets as of March 31,September 30, 2020 and December 31, 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

September 30, 2020December 31, 2019
Weighted Average Amortization Period (Years)Gross
Carrying
Amount
Accumulated
Amortization
Net
Value
Gross
Carrying
Amount
Accumulated
Amortization
Net
Value
Amortized intangible assets:
Patents7.4$2,795 (1,393)$1,402 $2,804 $(1,318)$1,486 
Acquired technology12.9107,529 (33,322)74,207 100,511 (25,430)75,081 
Customer relationships13.3283,091 (50,048)233,043 217,934 (33,924)184,010 
Trademarks and trade names6.345,285 (15,470)29,815 35,015 (11,003)24,012 
License agreements and other19.118,693 (9,465)9,228 16,153 (9,658)6,495 
Total intangible assets12.6$457,393 $(109,698)$347,695 $372,417 $(81,333)$291,084 

Aggregate amortization expense for the intangible assets above for the quarters ended March 31,September 30, 2020 and 2019 was $8,014$9,686 and $6,002,$7,399, respectively.

Aggregate amortization expense for the intangible assets above for the nine months ended September 30, 2020 and 2019 was $30,020 and $19,787, respectively.

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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

2020$9,819 (remaining estimated amortization for 2020)
202138,300 
202238,020 
202337,938 
2024 and thereafter223,618 

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,September 30, 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,September 30, 2020 and 2019, respectively, was 29.2%28.5% and 30.0%31.0%. The decrease in thereported effective tax rate for the three months ended March 31,September 30, 2020 was primarily due tofavorably impacted by additional excess tax benefits from employee stock-based compensation of $1.4 million and benefits reflecting changes in the U.S. global intangible low taxed income ("U.S. GILTI") tax for the current year of $1.5 million.

The effective tax rate for the nine months ended September 30, 2020 and 2019 was 29.4%. The nine month effective tax rates reflect a largerfavorable impact from the excess tax benefits from employee stock-based compensation of $8.7 million and $13.6 million, respectively, offset by the unfavorable impact from losses in jurisdictions where the tax benefit from employee share-based compensation offset in part by a mix ofis not recognized and other discrete items.

items of $5.1 million and $10.9 million, respectively.

NOTE 6 – DEBT

Notes Payable, Revolving Credit Facility and Overdrafts

At March 31,September 30, 2020 and December 31, 2019, our notes 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

11

September 30,
2020
December 31,
2019
Notes payable 8%$200 $1,436 
Revolving credit facility 1.46%95,000 25,000 
Overdrafts 5.68% - 7.82%0 17,823 
$95,200 $44,259 

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We maintain a multi-currency revolving credit facility with two2 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$95.0 million was utilized under our U.S. facility and 0 balance was utilized under our euro-based revolving credit facility as of March 31,September 30, 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 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.

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Long-Term Obligations

At March 31,September 30, 2020, our long-term obligations consisted of the following:

PrincipalUnamortized Debt Issuance CostsNet
Notes payable 0.00% – 10.90%, due in monthly and annual installments through 2028$13,993 $0 $13,993 
Senior unsecured notes 3.2%, due in 202275,000 44 74,956 
Senior unsecured debts 1.8% USD floating swapped to 1.36% EUR fixed, equal annual installments through 2022112,000 277 111,723 
Senior unsecured notes 3.5%, due in 2023125,000 116 124,884 
Senior unsecured notes 1.0%, due in 2023117,230 312 116,918 
Senior unsecured notes 3.4%, due in 202450,000 53 49,947 
Senior unsecured notes 3.5%, due in 2024100,000 116 99,884 
Senior unsecured notes 1.2%, due in 2024234,460 621 233,839 
Senior unsecured notes 3.6%, due in 2025125,000 134 124,866 
Senior unsecured notes 3.6%, due in 2026125,000 134 124,866 
Finance Lease Liabilities30,115  30,115 
$1,107,798 $1,807 $1,105,991 
Current maturities of long-term obligations(66,056) (66,056)
Total long-term obligations$1,041,742 $1,807 $1,039,935 

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

At December 31, 2019, our long-term obligations consisted of the following:

PrincipalUnamortized Debt Issuance CostsNet
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 202275,000 64 74,936 
Senior unsecured debts 3.2% USD floating swapped to 1.36% EUR fixed, equal annual installments through 2022168,000 390 167,610 
Senior unsecured notes 3.5%, due in 2023125,000 144 124,856 
Senior unsecured notes 1.0%, due in 2023112,170 356 111,814 
Senior unsecured notes 3.4%, due in 202450,000 63 49,937 
Senior unsecured notes 3.5%, due in 2024100,000 144 99,856 
Senior unsecured notes 1.2%, due in 2024224,340 742 223,598 
Senior unsecured notes 3.6%, due in 2025125,000 169 124,831 
Senior unsecured notes 3.6%, due in 2026125,000 169 124,831 
Finance Lease Liabilities29,952 — 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 

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

The aggregate long-term maturities, excluding finance lease liabilities, which are disclosed in Note 7, due annually from the current balance sheet date for the next five years are $61,181, $60,285, $134,343, $337,444, $270,846$62,023, $134,772, $119,655, $510,581, $229 and $250,397$250,423 thereafter.

12

15

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,September 30, 2020

Consolidated Leverage Ratio (1)

Maximum 

Maximum of 3.50 to 1.00

1.731.81 to 1.00

Consolidated Interest Coverage Ratio (1)

Minimum of 3.00 to 1.00

16.3215.92 to 1.00

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

NOTE 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 2032.2034. Most of the operating leases contain renewal options and certain leases include options to purchase the related asset during or at the end of the lease term.

Amortization expense related to finance leases is included in depreciation expense while rent expense related to operating leases is included within cost of sales and selling research & development and administrative expenses (“SG&A”).

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

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

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Operating lease cost$6,076 $6,001 $17,171 $17,442 
Finance lease cost:
Amortization of right-of-use assets$905 $1,165 $3,010 $3,041 
Interest on lease liabilities$356 $344 $1,073 $984 
Total finance lease cost$1,261 $1,509 $4,083 $4,025 
Short-term lease and variable lease costs$2,466 $1,757 $7,344 $6,027 

Supplemental cash flow information related to leases was as follows:

Nine Months Ended September 30,20202019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$17,060 $15,874 
Operating cash flows from finance leases1,089 877 
Financing cash flows from finance leases3,678 3,365 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases$19,255 $11,673 
Finance leases3,356 12,401 
16

Table of Contents

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

NOTE 8 – RETIREMENT AND DEFERRED COMPENSATION PLANS

Components of Net Periodic Benefit Cost:

Domestic PlansForeign Plans
Three Months Ended September 30,2020201920202019
Service cost$3,570 $2,772 $1,867 $1,429 
Interest cost1,761 1,845 360 491 
Expected return on plan assets(3,062)(3,095)(671)(581)
Amortization of net loss1,422 490 544 356 
Amortization of prior service cost0 101 111 
Net periodic benefit cost$3,691 $2,012 $2,201 $1,806 

Domestic PlansForeign Plans
Nine Months Ended September 30,2020201920202019
Service cost$10,709 $8,320 $5,402 $4,334 
Interest cost5,284 5,536 1,040 1,487 
Expected return on plan assets(9,186)(9,284)(1,936)(1,759)
Amortization of net loss4,264 1,468 1,572 1,078 
Amortization of prior service cost0 293 337 
Net periodic benefit cost$11,071 $6,040 $6,371 $5,477 

Domestic Plans

Foreign Plans

Three Months Ended March 31,

2020

2019

2020

2019

 

Service cost

$

3,577

$

2,773

$

1,768

$

1,460

Interest cost

 

1,987

 

1,845

 

340

 

501

Expected return on plan assets

 

(3,422)

 

(3,094)

 

(634)

 

(592)

Amortization of net loss

 

1,548

 

489

 

514

 

363

Amortization of prior service cost

 

 

 

97

 

113

Net periodic benefit cost

$

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.

13


Table of Contents

EMPLOYER CONTRIBUTIONS

Although we currently have 0 minimum funding requirement,requirements for our domestic and foreign plans, we contributed $204thousand to our ongoing domestic supplemental employee retirement plan (“SERP”)(SERP) annuity contracts during the threenine 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,September 30, 2020 and do not expect additional significant contributions during 2020.

We have contributed approximately $1.6 million to our foreign defined benefit plans during the nine months ended September 30, 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 CurrencyDefined Benefit Pension PlansDerivativesTotal
Balance - December 31, 2018$(248,401)$(60,463)$(1,640)$(310,504)
Other comprehensive (loss) income before reclassifications(42,725)11,806 (30,919)
Amounts reclassified from accumulated other comprehensive income (loss)2,150 (12,399)(10,249)
Net current-period other comprehensive (loss) income(42,725)2,150 (593)(41,168)
Balance - September 30, 2019$(291,126)$(58,313)$(2,233)$(351,672)
Balance - December 31, 2019$(257,124)$(83,147)$(1,677)$(341,948)
Other comprehensive income (loss) before reclassifications19,282 (4,342)14,940 
Amounts reclassified from accumulated other comprehensive income4,639 4,945 9,584 
Net current-period other comprehensive income19,282 4,639 603 24,524 
Balance - September 30, 2020$(237,842)$(78,508)$(1,074)$(317,424)
17

Table of Contents

 

Foreign

 

Defined Benefit

 

 

 

Currency

Pension Plans

Derivatives

Total

 

Balance - December 31, 2018

$

(248,401)

$

(60,463)

$

(1,640)

$

(310,504)

Other comprehensive (loss) income before reclassifications

 

(9,619)

 

 

5,738

 

(3,881)

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

721

 

(6,131)

 

(5,410)

Net current-period other comprehensive (loss) income

 

(9,619)

 

721

 

(393)

 

(9,291)

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 March 31,

    

2020

    

2019

    

    

 

Defined Benefit Pension Plans

Amortization of net loss

$

2,062

$

852

 

(1)

Amortization of prior service cost

 

97

 

113

 

(1)

 

2,159

 

965

 

Total before tax

 

(523)

 

(244)

 

Tax benefit

$

1,636

$

721

 

Net of tax

Derivatives

Changes in cross currency swap: interest component

$

(763)

$

(1,454)

Interest Expense

Changes in cross currency swap: foreign exchange component

 

(2,780)

 

(4,677)

 

Miscellaneous, net

$

(3,543)

$

(6,131)

 

Net of tax

Total reclassifications for the period

$

(1,907)

$

(5,410)

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

Details about Accumulated Other
Comprehensive Income Components
Amount Reclassified from Accumulated Other Comprehensive IncomeAffected Line in the Statement
Where Net Income is Presented
Three Months Ended September 30,20202019    
Defined Benefit Pension Plans
Amortization of net loss$1,966 $846 (1)
Amortization of prior service cost101 111 (1)
2,067 957 Total before tax
(504)(244)Tax impact
$1,563 $713 Net of tax
Derivatives
Changes in cross currency swap: interest component$(146)$(1,309)Interest Expense
Changes in cross currency swap: foreign exchange component6,099 (6,491)Miscellaneous, net
$5,953 $(7,800)Net of tax
Total reclassifications for the period$7,516 $(7,087)
Details about Accumulated Other
Comprehensive Income Components
Amount Reclassified from Accumulated Other Comprehensive IncomeAffected Line in the Statement
Where Net Income is Presented
Nine Months Ended September 30,20202019    
Defined Benefit Pension Plans
Amortization of net loss$5,836 $2,546 (1)
Amortization of prior service cost293 337 (1)
6,129 2,883 Total before tax
(1,490)(733)Tax impact
$4,639 $2,150 Net of tax
Derivatives
Changes in cross currency swap: interest component$(1,434)$(4,315)Interest Expense
Changes in cross currency swap: foreign exchange component6,379 (8,084)Miscellaneous, net
$4,945 $(12,399)Net of tax
Total reclassifications for the period$9,584 $(10,249)

14

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

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.

18

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. See Note 11 - Fair Value for additional details.

Cash 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.

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 $0.2$1.1 million of loss is included in accumulated other comprehensive loss at March 31,September 30, 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 March 31,September 30, 2020 is $2.2a gain of $0.1 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 March 31,September 30, 2020, the fair values of the cross currency swap were a $6.8$3.2 million asset.liability. The swap contract expires on July 20, 2022.

Hedge of Net Investments in Foreign Operations

A significant number of our operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of our foreign 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.

Other

As of March 31,September 30, 2020, we have recorded the fair value of foreign currency forward exchange contracts of $2.1$0.1 million in prepaid and other and $0.5$0.4 million in accounts payable, accrued and accruedother liabilities on the balance sheet. All forward exchange contracts outstanding as of March 31,September 30, 2020 had an aggregate notional contract amount of $56.1$43.2 million.

15

19

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of March 31,September 30, 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

September 30, 2020December 31, 2019
Balance Sheet
Location
Derivatives Designated as Hedging InstrumentsDerivatives not Designated as Hedging InstrumentsDerivatives Designated as Hedging InstrumentsDerivatives not Designated as Hedging Instruments
Derivative Assets
Foreign Exchange ContractsPrepaid and other$0 $73 0$206 
Cross Currency Swap Contract (1)Prepaid and other0 0 2,552 
$0 $73 $2,552 $206 
Derivative Liabilities
Foreign Exchange ContractsAccounts payable, accrued and other liabilities$0 $426 $$401 
Cross Currency Swap Contract (1)Accounts payable, accrued and other liabilities3,227 0 
$3,227 $426 $$401 
__________________________
(1)This cross currency swap contract is composed of both an interest component and a foreign exchange component.

(1)

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

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

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

2020

2019

2020

2019

 

Cross currency swap contract:

Interest component

 

$

2,246

$

1,392

Interest expense

$

763

$

1,454

$

(8,388)

Foreign exchange component

 

2,780

4,677

Miscellaneous, net

2,780

4,677

(1,412)

$

5,026

$

6,069

$

3,543

$

6,131

Derivatives in Cash Flow Hedging
Relationships
Amount of Gain (Loss)
Recognized in
Other Comprehensive
Income on Derivative
Location of (Loss)
Gain Recognized
in Income on
Derivatives
Amount of Gain (Loss)
Reclassified from
Accumulated
Other Comprehensive
Income on Derivative
Total Amount of Affected Income Statement Line Item
2020201920202019
Cross currency swap contract:
Interest component$(1)$1,586 Interest expense$146 $1,309 $(8,851)
Foreign exchange component(6,099)6,491 Miscellaneous, net(6,099)6,491 (1,040)
$(6,100)$8,077 $(5,953)$7,800 

The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss) for the Nine Months Ended September 30, 2020 and 2019
Derivatives in Cash Flow Hedging
Relationships
Amount of Gain (Loss)
Recognized in
Other Comprehensive
Income on Derivative
Location of (Loss)
Gain Recognized
in Income on
Derivatives
Amount of Gain (Loss)
Reclassified from
Accumulated
Other Comprehensive
Income on Derivative
Total Amount of Affected Income Statement Line Item
2020201920202019
Cross currency swap contract:
Interest component$2,037 $4,058 Interest expense$1,434 $4,315 $(25,973)
Foreign exchange component(6,379)8,084 Miscellaneous, net(6,379)8,084 (3,375)
$(4,342)$12,142 $(4,945)$12,399 
20

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

Derivatives Not Designated
as Hedging Instruments
Location of (Loss) Gain Recognized
in Income on Derivatives
Amount of (Loss) Gain
Recognized in Income
on Derivatives
20202019
Foreign Exchange ContractsOther (Expense) Income:
Miscellaneous, net
$(994)$(15)
$(994)$(15)
The Effect of Derivatives Not Designated as Hedging Instruments on the Condensed Consolidated Statements of Income for the Nine Months Ended September 30, 2020 and 2019
Derivatives Not Designated
as Hedging Instruments
Location of (Loss) Gain Recognized
in Income on Derivatives
Amount of (Loss) Gain
Recognized in Income
on Derivatives
20202019
Foreign Exchange ContractsOther (Expense) Income:
Miscellaneous, net
$(187)$(529)
$(187)$(529)
Gross Amounts not Offset in the Statement of Financial Position
Gross AmountGross Amounts Offset in the Statement of Financial PositionNet Amounts Presented in the Statement of Financial PositionFinancial InstrumentsCash Collateral ReceivedNet Amount
Description
September 30, 2020
Derivative Assets$73  $73   $73 
Total Assets$73  $73   $73 
Derivative Liabilities$3,653  $3,653   $3,653 
Total Liabilities$3,653  $3,653   $3,653 
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 

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)

16

21

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.
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 March 31,September 30, 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

TotalLevel 1Level 2Level 3
Assets
Foreign exchange contracts (1)
$73 $$73 $
Total assets at fair value$73 $$73 $
Liabilities
Foreign exchange contracts (1)
$426 $$426 $
Cross currency swap contract (1)
3,227 3,227 
Contingent consideration obligation26,280 26,280 
Total liabilities at fair value$29,933 $$3,653 $26,280 

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)

$

206

$

$

206

$

Cross currency swap contract (1)

2,552

2,552

Total assets at fair value

$

2,758

$

$

2,758

$

Liabilities

Foreign exchange contracts (1)

$

401

$

$

401

$

Contingent consideration obligation

5,930

5,930

Total liabilities at fair value

$

6,331

$

$

401

$

5,930

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

TotalLevel 1Level 2Level 3
Assets
Foreign exchange contracts (1)
$206 $$206 $
Cross currency swap contract (1)
2,552 2,552 
Total assets at fair value$2,758 $$2,758 $
Liabilities
Foreign exchange contracts (1)
$401 $$401 $
Contingent consideration obligation5,930 5,930 
Total liabilities at fair value$6,331 $$401 $5,930 

17

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

The carrying amounts of our other current financial instruments such as cash and equivalents, accounts and notes receivable, notes payable and current maturities of long-term obligations approximate fair value due to the short-term maturity of the 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$1.1 billion as of March 31,September 30, 2020 and $1.1 billion as of December 31, 2019.

As discussed in Note 17 - Acquisitions, we have a contingent consideration obligation to the selling equity holders of Fusion in connection with the Fusion Acquisition (as defined herein) based on 2022 cumulative performance targets, a contingent consideration obligation to the selling equity 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 in connection with the Gateway Acquisition (as defined herein) based on 2020 and 2022 performance targets. We consider these obligations a Level 3 liabilityliabilities and have estimated the aggregate fair value for these contingent consideration arrangements to be $22.1 million and $4.2 million for the Fusion Acquisition and the Noble Acquisition, respectively, as of September 30, 2020. During the quarter ended September 30, 2020, $1.3 million of the Gateway contingent consideration accrual was paid out in full satisfaction of the remaining earn out consideration and no related liability is outstanding as all required payments have been made for both performance targets. As of December 31, 2019 the aggregate fair value for these contingent consideration arrangements was $2.9 million and $3.0 million respectively, asfor the Noble Acquisition and the Gateway Acquisition, respectively.
22

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 0 liabilities recorded for these agreements as of March 31,September 30, 2020 and December 31, 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 threenine months ended March 31,September 30, 2020, we did not receive any insurance proceeds, and have 0 insurance receivable as of March 31,September 30, 2020. During the threenine months ended March 31,September 30, 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 threenine months ended March 31,September 30, 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 threenine months ended March 31,September 30, 2020, we paid approximately $0.1 million and made adjustments to the accrual based on our future anticipated expenditures.million.  As of March 31,September 30, 2020, our outstanding reserve is $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.

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. In June 2020, we received a favorable court decision of $0.7 million for the retrospective right to recover part of our claim. This amount is recorded in cost of sales as a favorable impact of $0.7 million. If the JudicialSupreme Court grants full retrospective recovery, we estimate remaining potential recoveries of approximately $2$1.5 million to $8$7.5 million, including interest, depending on the future decisions of the Supreme Court of Brazil. Due to uncertainties around our remaining court recovery claims, we have not recorded any further amounts relating to the retrospective nature of this matter.

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. ConsideringIn June 2020, an unfavorable decision was issued on the complex nature of the assessment,first administrative defense appeal. We filed a second administrative defense appeal in August 2020. We still believe we expect the appeal process to go through different levels of administrative and/or judicial review. Accordingly, duehave a strong defense. Due to uncertainty in the amount of assessment and the timing and amounts of assessment,our appeal, 0 liability is recorded as of March 31,September 30, 2020.

18

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 nine months ended March 31,September 30, 2020, we did not repurchase any shares. During the three and nine months ended March 31,September 30, 2019, the Companywe repurchased approximately 159300 thousand shares and 493 thousand shares for approximately $15.0 million.$35.8 million and $54.9 million, respectively. As of March 31,September 30, 2020, there was $278.5 million of authorized share repurchases available to us.

23

NOTE 14 – STOCK-BASED COMPENSATION

We issue restricted stock units (“RSUs”), which consist of time-based and performance-based awards, to employees under stock awards plans approved by stockholders. In addition, RSUs are issued to non-employee directors under a Restricted Stock Unit Award Agreement for Directors pursuant to the Company’s 2018 Equity Incentive Plan. 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). RSUs granted to directors are only time-based and generally vest over one year.

The fair value of both time-based RSUs and performance-based RSUs pertaining to internal performance metrics is determined using the closing price of our common stock 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.

Three Months Ended March 31,

2020

2019

    

Fair value per stock award

$

94.98

$

134.97

Grant date stock price

$

83.93

$

104.51

Assumptions:

Aptar's stock price expected volatility

23.80

%

16.50

%

Expected average volatility of peer companies

48.50

%

31.90

%

Correlation assumption

63.50

%

37.40

%

Risk-free interest rate

0.31

%

2.19

%

Dividend yield assumption

1.72

%

1.30

%

Nine Months Ended September 30,20202019
Fair value per stock award$94.98 $134.97 
Grant date stock price$83.93 $104.51 
Assumptions:
Aptar's stock price expected volatility23.80 %16.50 %
Expected average volatility of peer companies48.50 %31.90 %
Correlation assumption63.50 %37.40 %
Risk-free interest rate0.31 %2.19 %
Dividend yield assumption1.72 %1.30 %

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

Time-Based RSUsPerformance-Based RSUs
UnitsWeighted Average
Grant-Date Fair Value
UnitsWeighted Average
Grant-Date Fair Value
Nonvested at January 1, 2020480,729 $95.45 181,680 $117.26 
Granted232,802 86.05 417,313 93.08 
Vested(130,654)85.62 0 0 
Forfeited(5,692)99.08 (6,714)108.10 
Nonvested at September 30, 2020577,185 $92.33 592,279 $100.29 

 

Time-Based RSUs

Performance-Based RSUs

 

 

    

    

Weighted Average

    

    

Weighted Average

Units

Grant-Date Fair Value

Units

Grant-Date Fair Value

Nonvested at January 1, 2020

480,729

$

95.45

181,680

$

117.26

Granted

176,424

 

81.75

206,408

 

90.85

Vested

(112,515)

82.64

Forfeited

(217)

 

100.14

(589)

 

120.61

Nonvested at March 31, 2020

544,421

$

92.11

387,499

$

103.23

Included in the March 31,September 30, 2020 time-based RSUs are 11,49012,379 units granted to non-employee directors and 11,490 units vested related to non-employee directors.

Compensation expense recorded attributable to RSUs for the first threenine months of 2020 and 2019 was approximately $8.3$24.5 million and $4.7$13.7 million, respectively. The actual tax benefit realized for the tax deduction from RSUs was approximately $1.5$4.5 million in the threenine months ended March 31,September 30, 2020. The fair value of units vested during the threenine months ended March 31,September 30, 2020 and 2019 was $9.3$11.2 million and $2.7$4.1 million, respectively. The intrinsic value of units vested during the threenine months ended March 31,September 30, 2020 and 2019 was $11.5$13.5 million and $3.2$4.9 million, respectively. As of March 31,September 30, 2020, there was $62.7$51.1 million of total unrecognized compensation cost relating to RSU awards which is expected to be recognized over a weighted-average period of 2.32.0 years.

19

Historically we issued stock options to our employees and non-employee directors. Beginning in 2019, we no longer issue stock options. Stock options were awarded with the exercise price equal to the market price on the date of grant and generally vest over three years and expire 10 years after grant. Compensation expense attributable to employee stock options for the first threenine months of 2020 was approximately $0.9$1.7 million ($0.71.3 million after tax). Approximately $0.7$1.4 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 threenine months of 2019 was approximately $1.8$4.4 million ($1.53.6 million after tax). Approximately $1.6$3.7 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.

24

A summary of option activity under our stock plans during the threenine months ended March 31,September 30, 2020 is presented below:

Stock Awards PlansDirector Stock Option Plans
OptionsWeighted Average
Exercise Price
OptionsWeighted Average
Exercise Price
Outstanding, January 1, 20205,044,180 $68.32 135,251 $58.45 
Granted0 0 0 0 
Exercised(785,478)59.98 (34,151)51.75 
Forfeited or expired(14,200)76.07 0 0 
Outstanding at September 30, 20204,244,502 $69.91 101,100 $60.71 
Exercisable at September 30, 20204,089,846 $69.11 101,100 $60.71 
Weighted-Average Remaining Contractual Term (Years):
Outstanding at September 30, 20204.92.9
Exercisable at September 30, 20204.82.9
Aggregate Intrinsic Value:
Outstanding at September 30, 2020$183,753 $5,306 
Exercisable at September 30, 2020$179,771 $5,306 
Intrinsic Value of Options Exercised During the Nine Months Ended:
September 30, 2020$44,086 $2,183 
September 30, 2019$76,797 $722 

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 threenine months ended March 31,September 30, 2020 and 2019 was $7.6 million and $12.2 million, respectively. Cash received from option exercises was approximately$18.6 $51.1 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $4.8$10.8 million in the threenine months ended March 31,September 30, 2020. As of March 31,September 30, 2020, the remaining valuation of stock option awards to be expensed in future periods was $1.5$0.6 million and the related weighted-average period over which it is expected to be recognized is 0.90.4 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 nine months ended March 31,September 30, 2020 and 2019 is as follows:

20

25

Three Months Ended
September 30, 2020September 30, 2019
DilutedBasicDilutedBasic
Consolidated operations
Income available to common stockholders$63,716 $63,716 $56,750 $56,750 
Average equivalent shares
Shares of common stock64,562 64,562 64,010 64,010 
Effect of dilutive stock-based compensation
Stock options1,809 — 2,367 — 
Restricted stock551 — 325 — 
Total average equivalent shares66,922 64,562 66,702 64,010 
Net income per share$0.95 $0.99 $0.85 $0.89 

Nine Months Ended
September 30, 2020September 30, 2019
DilutedBasicDilutedBasic
Consolidated operations
Income available to common stockholders$160,808 $160,808 $193,669 $193,669 
Average equivalent shares
Shares of common stock64,278 64,278 63,485 63,485 
Effect of dilutive stock-based compensation
Stock options1,770 2,425 
Restricted stock435 253 
Total average equivalent shares66,483 64,278 66,163 63,485 
Net income per share$2.42 $2.50 $2.93 $3.05 

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

NOTE 16 – SEGMENT INFORMATION

We are organized into 3 reporting segments. Our 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 packaging markets. Our Food + Beverage segment sells 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, 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 initiatives 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.

26

Financial information regarding our reporting segments is shown below:
Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
2020201920202019
Total Sales:
Beauty + Home$342,710 $333,870 $979,645 $1,056,626 
Pharma317,610 271,608 921,085 830,679 
Food + Beverage106,667 104,458 305,991 328,280 
Total Sales766,987 709,936 $2,206,721 $2,215,585 
Less: Intersegment Sales:
Beauty + Home$5,479 $5,688 $18,068 $18,705 
Pharma1,852 2,357 6,872 6,788 
Food + Beverage503 613 1,770 1,693 
Total Intersegment Sales$7,834 $8,658 $26,710 $27,186 
Net Sales:
Beauty + Home$337,231 $328,182 $961,577 $1,037,921 
Pharma315,758 269,251 914,213 823,891 
Food + Beverage106,164 103,845 304,221 326,587 
Net Sales$759,153 $701,278 $2,180,011 $2,188,399 
Adjusted EBITDA (1):
Beauty + Home$34,733 $41,475 $92,954 $143,411 
Pharma112,436 95,899 324,877 294,684 
Food + Beverage20,351 18,728 53,543 56,363 
Corporate & Other, unallocated(10,964)(9,943)(34,071)(33,328)
Acquisition-related costs (2)(221)(708)(6,087)(1,767)
Restructuring Initiatives (3)(3,415)(6,019)(15,585)(17,286)
Depreciation and amortization(55,179)(49,218)(162,414)(144,574)
Interest Expense(8,851)(8,898)(25,973)(26,868)
Interest Income249 957 599 3,738 
Income before Income Taxes$89,139 $82,273 $227,843 $274,373 

(1)We evaluate performance of our reporting segments and allocate resources based upon Adjusted EBITDA. Adjusted EBITDA is defined as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives and acquisition-related costs.
(2)Acquisition-related costs include transaction costs and purchase accounting adjustments related to acquisitions and investments (see Note 17 – Acquisitions and Note 18 – Investment in Equity Securities for further details).
(3)Restructuring Initiatives includes expense items for the three and nine months ended September 30, 2020 and 2019 as follows (see Note 19 – Restructuring Initiatives for further details):

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

Three Months Ended
September 30, 2020
Nine Months Ended
September 30, 2020
2020201920202019
Restructuring Initiatives by Segment
Beauty + Home$3,144 $5,341 $15,375 $14,869 
Pharma300 168 158 381 
Food + Beverage(31)204 147 826 
Corporate & Other2 306 (95)1,210 
Total Restructuring Initiatives$3,415 $6,019 $15,585 $17,286 
(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.

21

27

(2)Acquisition-related costs include transaction costs and purchase accounting adjustments related to acquisitions and investments (see Note 17 – Acquisitions and Note 18 – Investment in Equity Securities for further details).
(3)Restructuring Initiatives includes expense items for the three months ended March 31, 2020 and 2019 as follows (see Note 19 – Restructuring Initiatives for further details):

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

NOTE 17 – ACQUISITIONS

Business Combinations

On February 13,April 1, 2020, we entered into a securities purchase agreement to acquirecompleted our acquisition (the “Fusion Acquisition”) of 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.$163.8 million (net of $1.0 million of cash acquired), which was funded by a draw on our revolving credit facility and cash on hand. Fusion, based in Dallas, TX, is a global leader in the design, engineering and distribution of luxury packaging for the beauty industry. TheAs part of the Fusion Acquisition, we are also obligated to pay to the selling equity holders of Fusion certain contingent consideration based on 2022 cumulative financial performance metrics as defined in the purchase agreement also provides an earn-out provision providingagreement. Based on a projection as of the acquisition date, we estimated the aggregate fair value for this contingent consideration arrangement to be $19.1 million utilizing a Black-Scholes valuation model. As of September 30, 2020, we have estimated the aggregate fair value for this contingent consideration arrangement to be $22.1 million.
As of the acquisition date, $2.8 million was held in restricted cash pending the finalization of a working capital adjustment and indemnity escrow. During the third quarter of 2020, $2.0 million related to the working capital escrow was released from restriction, resulting in a refund from seller of $294 thousand and a corresponding decrease to our purchase price and associated goodwill balance. Fusion contributed net sales of $37.9 million and pretax loss of $1.5 million since acquisition for the paymentperiod ended September 30, 2020 which have been included in the Condensed Consolidated Financial Statements within our Beauty + Home segment. Included in pretax loss is $5.7 million of up to $33.9 million based on Fusion’s financial performancefair value adjustment amortization for inventory sold during a 3 year measurement period.

2020 and contingent consideration liability adjustments.

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 Noble Acquisition, we are also obligated to pay to the selling equityholdersequity holders 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 September 30, 2020, we have estimated the aggregate fair value for this contingent consideration arrangement to be $4.2 million.
As of December 31, 2019, $5 million was held in restricted cash pending the finalization of a working capital adjustment and indemnity escrow. During the first quarter of 2020, $1.0 million related to the working 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 Noble’s operations have been included in the Condensed Consolidated Financial Statements within our Pharma segment since the date of acquisition.

On June 5, 2019, we completed our acquisition (the “Nanopharm Acquisition”) of all of the outstanding capital stock of Nanopharm Ltd. (“Nanopharm”). Nanopharm, located in Newport, UK, is a science-driven, leading provider of orally inhaled and nasal drug product design and development services. The purchase price was approximately $38.1 million (net of $1.8 million of cash acquired) and was funded by cash on hand. The results of Nanopharm’s operations have been included in the Condensed Consolidated Financial Statements within our Pharma segment since the date of acquisition.

On May 31, 2019, we completed our acquisition (the “Gateway Acquisition”) of all of the outstanding equity interests of Gateway Analytical LLC (“Gateway”). Gateway, located in Gibsonia, PA, provides industry-leading particulate detection and predictive analytical services to customers developing injectable medicines. The purchase price was approximately $7.0 million and was funded by cash on hand. As part of the Gateway Acquisition, we are also obligated to pay to the selling equityholderequity holder 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. During the second quarter 2020, $1.5 million of the contingent consideration accrual was paid as a result of the business meeting their first performance target. During the third quarter 2020, an additional $1.3 million was paid out in full satisfaction of the remaining earn out consideration and a gain of $235 thousand was realized. The results of Gateway’s operations have been included in the Condensed Consolidated Financial Statements within our Pharma segment since the date of acquisition.

22

28

The following table summarizes the assets acquired and liabilities assumedas of the acquisition date at estimated fair value.

20202019
Assets
Cash and equivalents$1,010 $3,427 
Accounts receivable4,380 3,504 
Inventories386 
Prepaid and other1,090 2,478 
Property, plant and equipment2,885 4,267 
Goodwill99,644 59,143 
Intangible assets79,900 52,980 
Operating lease right-of-use assets4,744 
Other miscellaneous assets65 430 
Liabilities
Accounts payable, accrued and other liabilities5,641 5,388 
Deferred income taxes2,592 
Operating lease liabilities4,207 
Deferred and other non-current liabilities322 1,598 
Net assets acquired$183,934 $116,651 

    

2019

 

Assets

Cash and equivalents

$

3,427

Accounts receivable

 

3,504

Prepaid and other

 

2,478

Property, plant and equipment

 

4,267

Goodwill

 

59,143

Intangible assets

 

52,980

Other miscellaneous assets

 

430

Liabilities

Accounts payable, accrued and other liabilities

 

5,388

Deferred income taxes

 

2,592

Deferred and other non-current liabilities

 

1,598

Net assets acquired

$

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:

20202019
Weighted-Average Useful Life (in Years)Estimated Fair Value of AssetsWeighted-Average Useful Life (in Years)Estimated Fair Value of Assets
Acquired technology4$4,600 8$9,160 
Customer relationships1362,300 1139,379 
Trademarks and trade names410,300 42,457 
License agreements and other0.252,700 11,984 
Total$79,900 $52,980 

2019

    

Weighted-Average

    

Estimated

 

Useful Life

Fair Value

 

(in years)

of Asset

 

Acquired technology

 

8

$

9,160

Customer relationships

 

11

 

39,379

Trademarks and trade names

4

2,457

License agreements and other

 

1

 

1,984

Total

$

52,980

Goodwill in the amount of $99.6 million was recorded related to the Fusion Acquisition which is included in the Beauty + Home segment and $59.1 million was recorded related to the 2019 acquisitions, all of which isare included in the Pharma 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 sellingunique relationships, brand equity and proprietary technology that has been established creating niches such as turnkey solutions for the beauty market related to the Fusion Acquisition, analytical services for drug developers related to the Nanopharm Acquisition and Gateway Acquisition and patient onboarding related to the Noble Nanopharm and Gateway lines of products in markets where they did not previously operate andAcquisition, as well as the abilities of the acquired companies to maintain their competitive advantage from a technical viewpoint. Goodwill will not be amortized, but will be tested for impairment at least annually. For 2019 acquisitions,the Fusion Acquisition, goodwill of $29.6$82.3 million will be deductible for tax purposes.

For the 2019 acquisitions, goodwill of $31.1 million will be deductible for tax purposes.

The unaudited pro forma results presented below include the effects of the Fusion Acquisition as if it had occurred as of January 1, 2019. The unaudited pro forma results reflect certain adjustments related to the acquisition, such as intangible asset amortization, fair value adjustments for inventory and financing costs related to the change in our debt structure. The 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.
29

Three Months Ended September 30, 2020Nine Months Ended
September 30, 2020
2020201920202019
Net Sales$759,153 $719,008 $2,187,974 $2,244,834 
Net Income Attributable to AptarGroup Inc.63,724 57,191 160,077 196,195 
Net Income per common share — basic0.99 0.89 2.49 3.09 
Net Income per common share — diluted0.95 0.86 2.41 2.97 
Asset Acquisition

On August 2, 2019, we completed our asset acquisition (the “Bapco Acquisition”) of the remaining 80% ownership interest in the capital stock of Bapco Closures Holdings Limited (“Bapco”), for $3.8 million (net of $2.9 million of cash acquired). The 20% ownership investment previously held in Bapco is now included within the intangible assets acquired. Bapco, located in Leeds, UK, provides innovative closures sealing technology that provides package integrity and tamper evidence. The results of Bapco’s operations have been included in the Condensed Consolidated Financial Statements within our Food + Beverage segment since the date of acquisition.

NOTE 18 –INVESTMENT– 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

September 30,
2020
December 31,
2019
Equity Method Investments:
BTY$31,921 $119 
Sonmol5,195 
Kali Care3,611 3,881 
Desotec GmbH904 858 
Other Investments5,365 3,538 
$46,995 $8,396 

Equity method investments

BTY

Sonmol
On OctoberApril 1, 20192020, we entered into a strategic definitive agreementinvested $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. (collectively referred to as “Sonmol”), a pharmaceutical and leading Chinese digital respiratory therapeutics company that provides connected devices for asthma control and develops digital therapies and services platforms targeting chronic respiratory illnesses and other diseases.
BTY
On January 1, 2020, we acquired 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 for an approximate purchase price of the transaction.$32 million. We have a call option to acquire an additional 26% to 31% of BTY’s equity interests following the initial lock-up period of 5 years based on a predetermined formula. Subsequent to the second lock-up period, which ends 3 years subsequent 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 $5 million to acquire 20% of the equity interests in Kali Care, a technology company that provides digital monitoring systems for medical devices.



30

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 investments in sustainability companies Loop and Purecycle Technologies (“Purecycle”) that are accounted for at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. In July and September 2020, we invested an additional $1.3 million in these 2 equity investments and also received $333 thousand of equity in Purecycle in exchange for our resource dedication for technological partnership and support.
There were 0 indications of impairment nor were there any changes from observable price changes noted in the threenine months ended March 31, 2020.

September 30, 2020 related to these investments.

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 nine months ended March 31,September 30, 2020, we recognized $3.4 million and $15.6 million of restructuring costs related to this plan, respectively. For the three and nine months ended September 30, 2019, we recognized $4.8$6.0 million and $9.5$17.3 million of restructuring costs related to this plan, respectively. Using current exchange rates, we estimate total implementation costs of approximately $110$125 million for these initiatives, including costs that have been recognized to date. The cumulative expense incurred as of March 31,September 30, 2020 was $91.3$102.1 million. We also anticipate making capital investments related to the transformation plan of approximately $50 million, of which $40$47 million has been incurred to date.

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

Beginning
Reserve at
12/31/2019
Net Charges for the Nine Months Ended 9/30/2020Cash PaidInterest and
FX Impact
Ending Reserve at 9/30/2020
Employee severance$7,090 $10,210 $(6,157)$161 $11,304 
Professional fees and other costs3,609 5,375 (5,359)3,629 
Totals$10,699 $15,585 $(11,516)$165 $14,933 


Beginning

Net Charges for

Ending

 

Reserve at

the Three Months

Interest and

Reserve at

 

12/31/2019

Ended 3/31/2020

Cash Paid

FX Impact

3/31/2020

 

Employee severance

$

7,090

$

4,066

$

(503)

$

187

$

10,840

Professional fees and other costs

 

3,609

 

773

 

(3,069)

 

(9)

 

1,304

Totals

$

10,699

$

4,839

$

(3,572)

$

178

$

12,144

24

31

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.

25

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 September 30,Nine Months Ended September 30,
2020201920202019
Net sales100.0 %100.0 %100.0 %100.0 %
Cost of sales (exclusive of depreciation and amortization shown below)63.2 63.3 63.0 63.2 
Selling, research & development and administrative16.1 15.9 17.0 15.8 
Depreciation and amortization7.3 7.0 7.5 6.6 
Restructuring initiatives0.4 0.9 0.7 0.8 
Operating income13.0 12.9 11.8 13.6 
Other expense(1.3)(1.2)(1.3)(1.1)
Income before income taxes11.7 11.7 10.5 12.5 
Net Income8.4 8.1 7.4 8.9 
Effective tax rate28.5 %31.0 %29.4 %29.4 %
Adjusted EBITDA margin (1)20.6 %20.8 %20.1 %21.1 %

(1)

Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures".

Three Months Ended March 31,

    

2020

2019

Net sales

100.0

%

100.0

%

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

62.5

63.0

Selling, research & development and administrative

17.5

16.3

Depreciation and amortization

7.0

6.4

Restructuring initiatives

0.7

1.3

Operating income

12.3

13.0

Other expense

(1.5)

(0.9)

Income before income taxes

10.8

12.1

Net Income

7.7

8.5

Effective tax rate

29.2

%

30.0

%

Adjusted EBITDA margin (1)

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 31.

SIGNIFICANT DEVELOPMENTS

During the firstthird quarter of 2020, financial results and operations werecontinued to be adversely impacted by the currentnovel coronavirus (“COVID-19”) pandemic. The significance of the impacts to our segments during the third quarter and first quarternine months of 2020 are discussed herein and include, but are not limited to, the adverse impact on sales of our beauty products to oursold via duty free travel and retail beauty businessstores and a reduction of our products used for on-the-go beverage customers.applications. 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,September 30, 2020. While the disruption is currently expected to be temporary, there is uncertainty around the duration.duration and the extent of further resurgences. 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 firstthird quarter of 2020. We are takinghave taken a variety of measures to ensure the availability and functioning of our critical infrastructure, to promote the safety and security of our employees and to support the communities in which we operate. These measures include requiring remote working arrangements for employees where practicable. We are following public and private sector policies and initiatives to reduce the transmission of COVID-19, such as the imposition of travel restrictions, the promotion of social distancing and the adoption of work-from-home arrangements, and all of these policies and initiatives could impacthave impacted our operations. Due to the speed with whichdynamic nature of 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.

32

NET SALES

We reported net sales of $721.6$759.2 million for the quarter ended March 31,September 30, 2020, which represents a 3% decreasean 8% increase compared to $744.5$701.3 million reported during the firstthird quarter of 2019. Reported sales were positively impacted by acquisitions and changes in currency exchange rates. The acquisitions of Noble and Fusion positively impacted sales by 4%. The average U.S. dollar exchange rate weakened compared to the euro while it appreciated against most Latin America and Asian currencies, resulting in a positive currency translation impact of 2%. Therefore, core sales, which exclude acquisitions and changes in foreign currency rates, increased by 2% in the third quarter of 2020 compared to the same period in 2019. During the third quarter of 2020, our Pharma segment experienced strong, broad-based demand with particularly strong growth in our injectables division and strong custom tooling and product sales in our active packaging division. While sales to our beauty markets continue to be negatively impacted by the effects of COVID-19, our Beauty + Home segment benefited from strong sales to the personal care market related to hand sanitizers and liquid soaps and the home care market related to cleaners and disinfectants. Our Food + Beverage segment reported positive sales growth with strong sales to the food market due to the demand for pantry staples with consumers continuing to cook at home during the pandemic. Sales to the beverage market continued to be impacted by lower demand for on-the-go beverages related to the pandemic.
Third Quarter 2020
Net Sales Change over Prior Year
Beauty
+ Home
PharmaFood +
Beverage
Total
Core Sales Growth(5)%11 %%%
Acquisitions%%— %%
Currency Effects (1)%%— %%
Total Reported Net Sales Growth3 %17 %2 %8 %
For the first nine months of 2020, reported net sales of $2.18 billion, were in line with the first nine months of 2019 reported net sales of $2.19 billion. Sales were negatively impacted by changes in currency exchange rates, passing-through lower resin costs to customers and COVID-19 related effects on certain markets we serve. While the average U.S. dollar exchange rate did not change compared to the euro, it strengthened compared to most of the other major currencies we operate in, resulting in a negative currency translation impact of 2%1%. The acquisitions of Gateway, Nanopharm, Noble and NobleFusion positively impacted sales by 1%3%.  Therefore, core sales, which exclude acquisitions and changes in foreign currency rates, decreased by 2% in the first quarternine months of 2020 compared to the same period in 2019.  During the first quarter of 2020,As discussed above, both our consolidated core sales were negativelyBeauty + Home and Food + Beverage segments have been significantly impacted by the COVID-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 thealong with a negative impact of COVID-19, especially on our single-serving beverage product sales along with a significant decline in thepassing through lower resin price pass-throughcosts 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.

customers.
Nine Months Ended September 30, 2020
Net Sales Change over Prior Year
Beauty
+ Home
PharmaFood +
Beverage
Total
Core Sales Growth(9)%%(5)%(2)%
Acquisitions%%— %%
Currency Effects (1)(2)%— %(2)%(1)%
Total Reported Net Sales Growth(7)%11 %(7)% %

26

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

Three Months Ended March 31, 2020

Beauty

Food +

Net Sales Change over Prior Year

    

+ Home

    

Pharma

    

Beverage

    

Total

 

Core Sales Growth

(9)

%

7

%

(2)

%

(2)

%

Acquisitions

%

4

%

%

1

%

Currency Effects (1)

(3)

%

(2)

%

(2)

%

(2)

%

Total Reported Net Sales Growth

(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 March 31,

2020

% of Total

2019

% of Total

Domestic

$

230,400

32%

$

213,871

29%

 

Europe

405,849

56%

431,368

58%

Latin America

50,794

7%

58,182

8%

Asia

34,510

5%

41,039

5%

Three Months Ended September 30,Nine Months Ended September 30,
2020% of Total2019% of Total2020% of Total2019% of Total
Domestic$262,546 35 %$211,497 30 %$722,871 33 %$640,543 29 %
Europe401,765 53 %391,512 56 %1,189,680 55 %1,248,411 57 %
Latin America49,435 6 %54,685 %143,598 6 %170,605 %
Asia45,407 6 %43,584 %123,862 6 %128,840 %

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.

33

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

Cost of sales (“COS”) as a percent of net sales decreased to 62.5%remained consistent at 63.2% in the firstthird quarter of 2020 compared to 63.0%63.3% in the firstthird quarter of 2019. Our COS percentage was positively impacted by our cost containment efforts and the mix of business and lower material costs. The mix of business positively impacted results as we reported sales growth ofin our higher margin Pharma products compared to sales declines in the other two segments.segment. We also realized approximately $5.2 million inbenefited from lower raw material inputresin costs during the quarter as both resin and metal prices have declined compared to the prior year. WeHowever, we did experience some additional costs and temporary disruptions tounder-absorbed overhead primarily in our manufacturing capacitiesdedicated beauty facilities during the firstthird quarter of 2020 related to the COVID-19 pandemic.
Cost of sales as a percent of net sales decreased slightly to 63.0% in the first nine months of 2020 compared to 63.2% in the same period a year ago. As mentioned above, our COS was favorably impacted by the increased mix in our higher margin Pharma business, lower resin costs and cost containment efforts. However, we also reported additional costs and temporary inefficiencies in our manufacturing process related to the COVID-19 pandemic as discussed above. For example, we declared a special bonus paymentpayments to certain employees who worked to maintain supply to our customers and keep our facilities running, which increased our COS percentage by approximately 0.4% during the first quarternine months of 2020.

SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

Selling, research & development and administrative expenses (“SG&A”) increased by approximately $5.0$10.3 million to $126.2$121.9 million in the firstthird quarter of 2020 compared to $121.2$111.6 million during the same period in 2019. Excluding changes in foreign currency rates, SG&A increased by approximately $7.6$8.6 million in the quarter. The increase is partlymainly due to $2.8$6.9 million of incrementalnew operational costs during the first quarter of 2020for our acquisitions completed subsequent to September 30, 2019, as well as fair value adjustments related to our acquired companies.contingent consideration arrangements. We also recognized increases in professional fees and higher personnel costs, including $2.7$3.5 million inof stock-based compensation in accordance withmainly for our growth strategy.acquired entities which was offset by lower travel costs due to the COVID-19 pandemic. SG&A as a percentage of net sales increased to 17.5%16.1% compared to 16.3%15.9% in the same period of the prior year due to the cost increases mentioned above.

SG&A increased by $24.9 million to $371.4 million in the first nine months of 2020 compared to $346.5 million during the same period a year ago. Excluding changes in foreign currency rates, SG&A increased by approximately $28.7 million in the first nine months of 2020 compared to the first nine months of 2019. As discussed above, the increase is related to $15.7 million of new SG&A costs from our acquisitions completed subsequent to September 30, 2019 as well as fair value adjustments related to contingent consideration arrangements, along with higher personnel costs. SG&A as a percentage of net sales increased to 17.0% compared to 15.8% in the same period of the prior year due to the cost increases mentioned above.
DEPRECIATION AND AMORTIZATION

Reported depreciation and amortization expenses increased by approximately $3.3$6.0 million to $50.8$55.2 million in the firstthird quarter of 2020 compared to $47.5$49.2 million during the same period a year ago. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $4.4$5.1 million in the quarter compared to the same period in 2019. ThisThe majority of this increase is partly due to $2.0$3.3 million of incremental depreciation and amortization costs related to our acquisitions. We also increased our capital spending during the first quarter and the prior year to support our growth strategy.acquired companies. Depreciation and amortization as a percentage of net sales increased to 7.0%7.3% in the firstthird quarter of 2020 compared to 6.4%7.0% in the same period of the prior year.
Reported depreciation and amortization expenses increased by approximately $17.8 million to $162.4 million in the first nine months of 2020 compared to $144.6 million during the same period a year primarilyago. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $19.3 million in the first nine months of 2020 compared to the same period a year ago. The majority of this increase is due to $11.7 million of incremental depreciation and amortization costs related to our acquired companies. Depreciation and amortization as a percentage of net sales increased to 7.5% in the incremental increasefirst nine months of 2020 compared to 6.6% in expenses noted above.

the same period of the prior year.

34

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. Restructuring costs related to this plan for the three and nine months ended March 31,September 30, 2020 and 2019 are as follows:

27

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Restructuring Initiatives by Segment
Beauty + Home$3,144 $5,341 $15,375 $14,869 
Pharma300 168 158 381 
Food + Beverage(31)204 147 826 
Corporate & Other2 306 (95)1,210 
Total Restructuring Initiatives$3,415 $6,019 $15,585 $17,286 

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

We estimate total implementation costs of approximately $110$125 million,including $102.1 million of costs that have been recognized to date. We also anticipate making capital investments related to the business transformation of approximately $50 million,of which $40$47 million has been incurred to date. Based on our ongoing restructuring initiatives, we are progressing towards our initial target of $80 million annualized incremental EBITDA by the end of 2020, principally within the Beauty + Home segment. However, in addition to the 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 decreasedincreased approximately $8.6$8.8 million to $99.0 million in the firstthird quarter of 2020 compared to $90.2 million in the same period a year ago. Excluding changes in foreign currency rates, operating income decreasedincreased by approximately $6.2$5.0 million in the quarter compared to the same period a year ago. This increase is due to higher sales volumes while maintaining a consistent gross margin. We also benefited from lower restructuring costs during the third quarter of 2020 compared to the prior year period. Operating income as a percentage of net sales declinedincreased slightly to 12.3%13.0% in the firstthird quarter of 2020 compared to 13.0%12.9% in the prior year mainly dueperiod.
For the first nine months of 2020, operating income decreased approximately $39.2 million to the increases in SG&A and depreciation and amortization when$258.0 million compared to a lower sales base as discussed above. These cost increases are partially offset by our lower COS percentage and the reduction in restructuring costs during the first quarter of 2020 compared to the prior year.

NET OTHER EXPENSE

Net other expense in the first quarter of 2020 increased $3.3 million to $10.4 million from $7.1$297.2 million in the same period of the prior year. Excluding changes in foreign currency rates, operating income decreased by approximately $38.8 million in the first nine months of 2020 compared to the same period a year ago. The majority of this decrease occurred during the second quarter of 2020 due to the impact of lower sales and operational inefficiencies related to the COVID-19 pandemic. Operating income as a percentage of net sales decreased to 11.8% in the first nine months of 2020 compared to 13.6% for the same period in the prior year.

NET OTHER EXPENSE
Net other expense in the third quarter of 2020 increased $1.9 million to $9.9 million from $8.0 million in the same period of the prior year. Interest income decreased by approximately $0.7 million due to less cash on hand after our acquisition of Fusion at the beginning of the second quarter 2020.  Miscellaneous expenses increased by approximately $1.9$0.8 million in part due to the high costs to hedge certain Latin American and Asian currencies. We also experiencedas a result of higher pension costs due to the decline in discount rates in 2020 compared to 2019.

2019 and higher costs to hedge certain Latin American currencies.

Net other expense for the nine months ended September 30, 2020 increased $7.3 million to $30.1 million from $22.8 million in the same period of the prior year. As discussed above, this increase is mainly due to $3.1 million of lower interest income in 2020 as a result of the Fusion Acquisition. Miscellaneous expenses increased by approximately $3.5 million mainly due to the higher pension costs and higher costs to hedge certain Latin American currencies as mentioned above.
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 March 31,September 30, 2020 and 2019, respectively, was 29.2%28.5% and 30.0%, respectively.31.0%.  The decrease in thereported effective tax rate for the three months ended March 31,September 30, 2020 was primarily due tofavorably impacted by additional excess tax benefits from employee stock-based compensation of $1.4 million and benefits reflecting changes in the U.S. GILTI tax for the current year of $1.5 million. 
35

The effective tax rate for the nine months ended September 30, 2020 and 2019 was 29.4%. The nine month effective tax rates reflect a largerfavorable impact from the excess tax benefits from employee stock-based compensation of $8.7 million and $13.6 million, respectively, offset by the unfavorable impact from losses in jurisdictions where the tax benefit from employee share-based compensation offset in part by a mix ofis not recognized and other discrete items.

items of $5.1 million and $10.9 million, respectively.

NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.

We reported net income attributable to AptarGroup of $55.3$63.7 million and $160.8 million in the three and nine months ended March 31,September 30, 2020, compared to $63.0$56.8 million and $193.7 million for the same periodperiods in the prior year.

BEAUTY + HOME SEGMENT

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

Three Months Ended March 31,

2020

2019

 

Net Sales

$

324,560

$

367,659

 

Adjusted EBITDA (1)

34,247

53,191

Adjusted EBITDA margin (1)

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 31.

28

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net Sales$337,231 $328,182 $961,577 $1,037,921 
Adjusted EBITDA (1)34,733 41,475 92,954 143,411 
Adjusted EBITDA margin (1)10.3 %12.6 %9.7 %13.8 %

Table of Contents(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization,

unallocated corporate expenses,restructuring initiatives and acquisition-related costs. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures".


Reported net sales for the quarter ended March 31,September 30, 2020 decreased 12%increased 3% to $324.6$337.2 million compared to $367.7$328.2 million in the firstthird quarter of the prior year. Changes in currency rates negativelypositively impacted net sales by 3%.1% while our acquisition of Fusion contributed an additional 7% to the top line growth in the third quarter of 2020. Therefore, core sales decreased 9%5% in the firstthird quarter of 2020 compared to the same quarter of the prior year. The COVID-19 pandemic continued to negatively impactedimpact core sales to the beauty market during the firstthird quarter of 2020.2020 due to significant reduction in domestic and international travel leading to a reduction in duty free sales. Core sales of our products to the beauty market decreased 13%21% as we experienced reducedcontinued to experience a significant reduction in orders from customers providing prestige beautyboth fragrance and skin care products, mainly in the travel retail and standard retail settings. Many beauty stores began closing toward the endPersonal care core sales increased 12% on increased sales of the quarterour products to our personal cleansing customers, mainly for hand sanitizers and liquid soaps which more than compensated for continued softness in responseour deodorant, hair care and sun care applications as consumers continued to government shelter in place regulations.place. Core sales to the personal care and home care markets decreased 5% andincreased 6%, respectively. Increased on strong demand for our dispensing solutions for hand sanitizershousehold cleaner and cleaners was not enoughdisinfectant products.
Third Quarter 2020
Net Sales Change over Prior Year
Personal
Care
BeautyHome
Care
Total
Core Sales Growth12 %(21)%%(5)%
Acquisitions— %14 %— %%
Currency Effects (1)— %%%%
Total Reported Net Sales Growth12 %(6)%7 %3 %
For the first nine months of 2020, net sales decreased 7% to offset declines$0.96 billion compared to $1.04 billion in otherthe first nine months of the prior year. Changes in currency rates negatively impacted net sales by 2% while our acquisition of Fusion positively impacted sales by 4% in the first nine months of 2020. Therefore, core sales decreased by 9% in the first nine months of 2020 compared to the same period in the prior year. The COVID-19 pandemic also impacted the first nine months of 2020 as we began to see the effects in our first quarter results. Core sales of our products to the beauty market decreased 22% across all applications, but mainly on lower sales of prestige fragrance products to our customers.  Compared to the same period in the prior year, personal care andcore sales increased 6%, driven by increases in hand sanitation product sales, while home care categories such as suncore sales decreased 2% mainly on lower sales to our laundry care and hair care applications, which were also negatively impactedcustomers.
36

Nine Months Ended September 30, 2020
Net Sales Change over Prior Year
Personal
Care
BeautyHome
Care
Total
Core Sales Growth%(22)%(2)%(9)%
Acquisitions— %%— %%
Currency Effects (1)(2)%(2)%(1)%(2)%
Total Reported Net Sales Growth4 %(17)%(3)%(7)%

(1)Currency effects are calculated by travel restrictions and shelter in place regulations.

Three Months Ended March 31, 2020

Personal

Home

Net Sales Change over Prior Year

    

Care

    

Beauty

    

Care

    

Total

 

Core Sales Growth

(5)

%

(13)

%

(6)

%

(9)

%

Currency Effects (1)

(2)

%

(3)

%

(2)

%

(3)

%

Total Reported Net Sales Growth

(7)

%

(16)

%

(8)

%

(12)

%

translating last year’s amounts at this year’s foreign exchange rates.

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

Adjusted EBITDA in the firstthird quarter of 2020 decreased 36%16% to $34.2$34.7 million compared to $53.2$41.5 million in the same period in the prior year. As discussed above, the COVID-19 pandemic affected our profitability asdue to overall lower sales were impacted by travel restrictions and government shelter in place regulations.volumes. Our profitability was further impacted by lower overhead absorption due to fluctuations in demand primarily in our facilities that manufacture beauty products. We also incurred $1.8 million of fair value adjustments related to our contingent consideration arrangement for the Fusion Acquisition.

Adjusted EBITDA in the first nine months of 2020 decreased 35% to $93.0 million compared to $143.4 million reported in the same period in the prior year. As discussed above, our profitability during the first nine months of 2020 was significantly impacted by the COVID-19 pandemic, mainly in our beauty applications. Our profitability was further impacted by special employee bonus payments to certain employees who worked to maintain supply to our customers and keep our facilities running as well as lower overhead absorption dueas we continue to manage demand fluctuations in demand primarily in our facilities that manufacture beauty products. During the first quarterfacilities. We also incurred $3.0 million 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 the general economic uncertainties which has led to lower salesfair value adjustments related to our customers across our markets.

contingent consideration arrangement for the Fusion Acquisition.

PHARMA SEGMENT

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

Three Months Ended March 31,

2020

2019

 

Net Sales

$

297,196

$

272,701

Adjusted EBITDA (1)

108,342

97,357

Adjusted EBITDA margin (1)

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 31.
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net Sales$315,758 $269,251 $914,213 $823,891 
Adjusted EBITDA (1)112,436 95,899 324,877 294,684 
Adjusted EBITDA margin (1)35.6 %35.6 %35.5 %35.8 %

(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization,unallocated corporate expenses,restructuring initiatives and acquisition-related costs. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures".

Net sales for the Pharma segment increased 9%17% in the firstthird quarter of 2020 to $297.2$315.8 million compared to $272.7$269.3 million in the firstthird quarter of 2019. Changes in currencies negativelypositively affected net sales by 2%4% while our acquisitionsacquisition of Gateway, Nanopharm and Noble positively impacted sales by 4%2% in the firstthird quarter of 2020. Therefore, core sales increased by 7%11% in the firstthird quarter of 2020 compared to the firstthird quarter of 2019. Our Pharma segment had another good quarter with coreCore sales growth acrossincreased in 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 quarterexception of 2020. Core sales to the prescription drug market increased 2%, mainly on continued growth inwhere higher sales of our allergic rhinitis products.drug delivery devices were offset by lower custom tooling sales. Core sales to the consumer health care market increased 6% on strong demand for our products used on nasal saline and nasal decongestant treatments. Injectables core sales increased 27% on higher demand for primary components used with injected medicines such as existing seasonal flu vaccines and other treatments, as well as some initial orders in anticipation of coming COVID-19 vaccines. Active packaging core sales increased 56% mainly due to two large tooling projects during the quarter. We also reported strong sales growth in our ActivVial and ActivFilm used with probiotic and oral solid dose products.
Third Quarter 2020
Net Sales Change over Prior Year
Prescription
Drug
Consumer
Health Care
InjectablesActive
Packaging
Total
Core Sales Growth— %%27 %56 %11 %
Acquisitions— %— %14 %— %%
Currency Effects (1)%%%%%
Total Reported Net Sales Growth3 %11 %47 %59 %17 %
37

Table of Contents
Net sales for the first nine months of 2020 increased 2% asby 11% to $914.2 million compared to $823.9 million in the first nine months of 2019. While there was no impact from changes in currencies, our acquisitions of Noble, Nanopharm and Gateway positively impacted sales by 3% in the first nine months of 2020. Therefore, core sales increased by 8% in the first nine months of 2020 compared to the same period in the prior year. The core sales decrease of 1% in the prescription drug market was driven by difficult prior year comparisons on tooling and central nervous system application sales. During 2019, we also benefited from the realization of $1.8 million of revenue for achieving a development milestone related to a customer project. Core sales to the consumer health care market increased 6% on strong demand for our products used on nasal decongestant, cough and eye care treatments more than compensated for some softness in demand forcold and dermal drug delivery treatments. Core sales of our nasal saline products. Injectables core sales grew 21% on increased demand across a variety of components whileproducts to the injectables and active packaging core sales improved 26% primarilymarkets increased 25% and 34% respectively due to our new Activ Blister packaging for the launch of an oral HIV preventative drug.

strong sales across all applications and tooling as discussed above.

29

Nine Months Ended September 30, 2020
Net Sales Change over Prior Year
Prescription
Drug
Consumer
Health Care
InjectablesActive
Packaging
Total
Core Sales Growth(1)%%25 %34 %%
Acquisitions— %— %16 %— %%
Currency Effects (1)— %%— %— %— %
Total Reported Net Sales Growth(1)%7 %41 %34 %11 %

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

Table of Contents

Three Months Ended March 31, 2020

Prescription

Consumer

Active

Net Sales Change over Prior Year

    

Drug

    

Health Care

    

Injectables

    

Packaging

Total

 

Core Sales Growth

2

%

2

%

21

%

26

%

7

%

Acquisitions

1

%

%

19

%

%

4

%

Currency Effects (1)

(2)

%

(1)

%

(3)

%

(1)

%

(2)

%

Total Reported Net Sales Growth

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 firstthird quarter of 2020 increased 11%17% to $108.3$112.4 million compared to $97.4$95.9 million reported in the same period of the prior year. TheAs discussed above, we reported strong product growth across most markets and benefited from higher tooling sales growth discussed abovewithin our active packaging market. These core sales improvements, along with incremental profit related to our acquisitionsstrong performance resulting from the Noble Acquisition led to the increase in reported results for the firstthird quarter of 2020 compared to the firstthird quarter of 2019. These improvements were slightly offset by $0.9 million higher stock-based compensation expense and $1.3 million of fair value adjustments related to our contingent consideration arrangement for the Noble Acquisition.

Adjusted EBITDA in the first nine months of 2020 increased 10% to $324.9 million compared to $294.7 million reported in the same period of the prior year. Increased sales in three of our divisions, along with incremental profit related to our acquisitions was able to compensate for $2.6 million of additional stock-based compensation expense and $1.3 million of fair value adjustments related to our contingent consideration arrangement for the Noble Acquisition. While we didn’tthe Pharma segment did not experience a significant sales impact from COVID-19, on our Pharma segmentmargins were negatively impacted by lower sales we did recognize theof our high-margin prescription applications compared to our other product offerings. We also made special bonus payments discussed above which negatively impactedto certain employees who worked to maintain supply to our adjusted EBITDA during the first quarter of 2020.

customers and keep our facilities running.

FOOD + BEVERAGE SEGMENT

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

Three Months Ended March 31,

2020

2019

 

Net Sales

$

99,797

$

104,100

Adjusted EBITDA (1)

15,407

16,691

Adjusted EBITDA margin (1)

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 31.
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net Sales$106,164 $103,845 $304,221 $326,587 
Adjusted EBITDA (1)20,351 18,728 53,543 56,363 
Adjusted EBITDA margin (1)19.2 %18.0 %17.6 %17.3 %

(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization,unallocated corporate expenses,restructuring initiatives and acquisition-related costs. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures".
Core sales for the quarter ended March 31,September 30, 2020 decreasedincreased approximately 4%2% to $99.8$106.2 million compared to $104.1$103.8 million in the firstthird quarter of the prior year. ForeignThere were no acquisitions or changes in foreign currency rates had an unfavorable impact of 2% on total segment sales. Therefore, core sales decreased by 2% induring the firstthird quarter of 2020 compared to the firstthird quarter of 2019. This decrease is due to theCore sales growth was negatively impacted by $3.5 million from passing on ofthrough lower resin costs to our customers as well as lower single-serving beverage closurecustomers. The changes in core sales which appears to be related toby market show distinctly different results, but both are being impacted by the COVID-19 crisis. Forpandemic. Core sales to the food market we realized increased 15% due to the increased demand across several applications for pantry staples as consumers continued to cook at home during the pandemic. However, core sales to the beverage market decreased 22% as sales of our single-serve bottled water and on-the-go functional drink products continue to be negatively impacted as consumers demand less on-the-go beverages during the COVID-19 pandemic.
38

Table of Contents
Third Quarter 2020
Net Sales Change over Prior Year
FoodBeverageTotal
Core Sales Growth15 %(22)%%
Acquisitions— %— %— %
Currency Effects (1)— %(1)%— %
Total Reported Net Sales Growth15 %(23)%2 %
Net sales for the first nine months of 2020 decreased by 7% to $304.2 million compared to $326.6 million in the first nine months of 2019. Changes in currency rates negatively impacted net sales by 2%. Therefore, core sales decreased by 5% in the first nine months of 2020 compared to the same period in the prior year. The pass-through of lower resin costs and lower tooling sales negatively impacted the first nine months of 2020 by $12.2 million and $6.4 million, respectively. Core sales to the food market increased 4% while core sales to the beverage market decreased 25% in the first nine months of 2020 compared to the same period of the prior year. Sales to the food market increased due to strong sales of our products used on dairyto our spreads, cooking oils and spreads applications. Forgranular/powder customers. These increases were offset by lower tooling sales versus the prior year period. As discussed above, core sales to the beverage market increased demand fordecreased as sales of our single-serve bottled water products was not enough to offset a decline in sales of ourand on-the-go functional drink products thatas well as tooling sales were all significantly affected by the COVID-19 impacts.

Three Months Ended March 31, 2020

Net Sales Change over Prior Year

    

Food

    

Beverage

    

Total

 

Core Sales Growth

2

%

(13)

%

(2)

%

Currency Effects (1)

(1)

%

(2)

%

(2)

%

Total Reported Net Sales Growth

1

%

(15)

%

(4)

%

pandemic.
(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
Nine Months Ended September 30, 2020
Net Sales Change over Prior Year
FoodBeverageTotal
Core Sales Growth%(25)%(5)%
Acquisitions— %— %— %
Currency Effects (1)(1)%(2)%(2)%
Total Reported Net Sales Growth3 %(27)%(7)%

(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
Adjusted EBITDA in the third quarter of 2020 increased 9% to $20.4 million compared to $18.7 million reported in the same period of the prior year. Higher product sales to the food markets discussed above, along with the benefits we received from our cost containment activities and other operational improvements realized during the third quarter of 2020 more than compensated for lower tooling sales and other negative COVID-19 impacts, mainly on our beverage market applications.
Adjusted EBITDA in the first quarternine months of 2020 decreased 8%5% to $15.4$53.5 million compared to $16.7$56.4 million reported in the same period of the prior year. The COVID-19 impactsimpact on product sales discussed above, along with lower tooling and special bonus payments to certain employees who worked to maintain supply to our customers and keep our facilities running, more than offset the benefits we received from lower resin input costscost containment activities and other operational improvements realized during the first quarternine months 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 initiatives 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 March 31,September 30, 2020, Corporate & Other expenses increased to $13.8$11.0 million from $12.8$9.9 million in the firstthird quarter of 2019. ThisOf the $1.1 million increase, $0.4 million is due to changes in foreign currencies. The remaining increase is mainly due to slightly higher stock-compensation expense, professional feesvariable compensation costs which are tied to company performance and other personnel costs as we continue to implement our growth strategy.

strategy partially offset by lower travel and entertainment costs due to travel restrictions in place during 2020 .
Corporate & Other expenses in the first nine months of 2020 increased to $34.1 million compared to $33.3 million reported in the same period of the prior year. Of the $0.8 million increase, $0.3 million is due to changes in foreign currencies. As discussed above, the remaining increase is due to higher variable compensation and other personnel costs partially offset by lower travel and entertainment costs.

30

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Table of Contents

NON-U.S. GAAP MEASURES

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 related to acquisitions and investments.Our “Outlook” discussion below is also provided on a non-U.S. GAAP basis because certain reconciling items are dependent on future events that either cannot be controlled, such as exchange rates, or reliably predicted because they are not part of our routine activities, such as restructuring initiatives and acquisition-related costs.

We provide a reconciliation of Net Debt to Net Capital as a non-U.S. GAAP measure. “Net Debt” is calculated as interest bearing debt less cash and equivalents and short-term investments while “Net Capital” is calculated as stockholders’ 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 and 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 activitiesoperations 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.

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Three Months Ended

March 31, 2020

  

Consolidated

  

Beauty + Home

  

Pharma

  

Food + Beverage

  

Corporate & Other

  

Net Interest

Net Sales

$

721,553

$

324,560

$

297,196

$

99,797

$

-

$

-

Reported net income

$

55,250

Reported income taxes

22,786

Reported income before income taxes

78,036

7,108

89,854

5,962

(16,675)

(8,213)

Adjustments:

Restructuring initiatives

4,839

4,907

(31)

103

(140)

Transaction costs related to acquisitions

1,384

1,384

Purchase accounting adjustments related to acquisitions and investments

1,390

262

1,128

Adjusted earnings before income taxes

85,649

13,661

90,951

6,065

(16,815)

(8,213)

Interest expense

8,388

8,388

Interest income

(175)

(175)

Adjusted earnings before net interest and taxes (Adjusted EBIT)

93,862

13,661

90,951

6,065

(16,815)

-

Depreciation and amortization

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)

$

144,168

$

34,247

$

108,342

$

15,407

$

(13,828)

$

-

Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)

20.0%

10.6%

36.5%

15.4%

Three Months Ended

March 31, 2019

  

Consolidated

  

Beauty + Home

  

Pharma

  

Food + Beverage

  

Corporate & Other

  

Net Interest

Net Sales

$

744,460

$

367,659

$

272,701

$

104,100

$

-

$

-

Reported net income

$

62,999

Reported income taxes

27,000

Reported income before income taxes

89,999

24,181

81,258

7,716

(15,690)

(7,466)

Adjustments:

Restructuring initiatives

9,530

8,269

326

510

425

Adjusted earnings before income taxes

99,529

32,450

81,584

8,226

(15,265)

(7,466)

Interest expense

9,214

9,214

Interest income

(1,748)

(1,748)

Adjusted earnings before net interest and taxes (Adjusted EBIT)

106,995

32,450

81,584

8,226

(15,265)

-

Depreciation and amortization

47,489

20,741

15,773

8,465

2,510

-

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

��

$

154,484

$

53,191

$

97,357

$

16,691

$

(12,755)

$

-

Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)

20.8%

14.5%

35.7%

16.0%

Three Months Ended
September 30, 2020
ConsolidatedBeauty + HomePharmaFood + BeverageCorporate & OtherNet Interest
Net Sales$759,153 $337,231 $315,758 $106,164 $— $— 
Reported net income$63,735 
Reported income taxes25,404 
Reported income before income taxes89,139 7,944 92,202 10,884 (13,289)(8,602)
Adjustments:
Restructuring initiatives3,415 3,144 300 (31)
Transaction costs related to acquisitions221 11 210 
Adjusted earnings before income taxes92,775 11,099 92,712 10,853 (13,287)(8,602)
Interest expense8,851 8,851 
Interest income(249)(249)
Adjusted earnings before net interest and taxes (Adjusted EBIT)101,377 11,099 92,712 10,853 (13,287)— 
Depreciation and amortization55,179 23,634 19,724 9,498 2,323 
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)$156,556 $34,733 $112,436 $20,351 $(10,964)$— 
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)20.6 %10.3 %35.6 %19.2 %

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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%

Three Months Ended
September 30, 2019
ConsolidatedBeauty + HomePharmaFood + BeverageCorporate & OtherNet Interest
Net Sales$701,278 $328,182 $269,251 $103,845 $— $— 
Reported net income$56,769 
Reported income taxes25,504 
Reported income before income taxes82,273 15,413 78,418 9,323 (12,940)(7,941)
Adjustments:
Restructuring initiatives6,019 5,341 168 204 306 
Transaction costs related to acquisitions708 34 520 154 
Purchase accounting adjustments related to acquisitions and investments647 647 
Adjusted earnings before income taxes89,647 20,788 79,753 9,681 (12,634)(7,941)
Interest expense8,898 8,898 
Interest income(957)(957)
Adjusted earnings before net interest and taxes (Adjusted EBIT)97,588 20,788 79,753 9,681 (12,634)— 
Depreciation and amortization49,218 20,687 16,793 9,047 2,691 
Purchase accounting adjustments included in Depreciation and amortization above(647)(647)— 
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)$146,159 $41,475 $95,899 $18,728 $(9,943)$— 
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)20.8 %12.6 %35.6 %18.0 %

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Nine Months Ended
September 30, 2020
ConsolidatedBeauty + HomePharmaFood + BeverageCorporate & OtherNet Interest
Net Sales$2,180,011 $961,577 $914,213 $304,221 $— $— 
Reported net income$160,845 
Reported income taxes66,998 
Reported income before income taxes227,843 2,297 267,523 25,365 (41,968)(25,374)
Adjustments:
Restructuring initiatives15,585 15,375 158 147 (95)
Transaction costs related to acquisitions4,812 4,602 210 
Purchase accounting adjustments related to acquisitions and investments4,642 3,221 1,421 
Adjusted earnings before income taxes252,882 25,495 269,312 25,512 (42,063)(25,374)
Interest expense25,973 25,973 
Interest income(599)(599)
Adjusted earnings before net interest and taxes (Adjusted EBIT)278,256 25,495 269,312 25,512 (42,063)— 
Depreciation and amortization162,414 70,159 56,232 28,031 7,992 
Purchase accounting adjustments included in Depreciation and amortization above(3,367)(2,700)(667)
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)$437,303 $92,954 $324,877 $53,543 $(34,071)$— 
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)20.1 %9.7 %35.5 %17.6 %
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Nine Months Ended
September 30, 2019
ConsolidatedBeauty + HomePharmaFood + BeverageCorporate & OtherNet Interest
Net Sales$2,188,399 $1,037,921 $823,891 $326,587 $— $— 
Reported net income$193,689 
Reported income taxes80,684 
Reported income before income taxes274,373 66,407 244,101 29,234 (42,239)(23,130)
Adjustments:
Restructuring initiatives17,286 14,869 381 826 1,210 
Transaction costs related to acquisitions1,767 34 1,579 154 
Purchase accounting adjustments related to acquisitions and investments869 869 
Adjusted earnings before income taxes294,295 81,310 246,930 30,214 (41,029)(23,130)
Interest expense26,868 26,868 
Interest income(3,738)(3,738)
Adjusted earnings before net interest and taxes (Adjusted EBIT)317,425 81,310 246,930 30,214 (41,029)— 
Depreciation and amortization144,574 62,101 48,623 26,149 7,701 
Purchase accounting adjustments included in Depreciation and amortization above(869)(869)
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)$461,130 $143,411 $294,684 $56,363 $(33,328)$— 
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)21.1 %13.8 %35.8 %17.3 %
Net Debt to Net Capital ReconciliationSeptember 30,December 31,
20202019
Notes payable, revolving credit facility and overdrafts$95,200 $44,259 
Current maturities of long-term obligations, net of unamortized debt issuance costs66,056 65,988 
Long-Term Obligations, net of unamortized debt issuance costs1,039,935 1,085,453 
Total Debt1,201,191 1,195,700 
Less:
Cash and equivalents226,546 241,970 
Net Debt$974,645 $953,730 
Total Stockholders' Equity$1,759,955 $1,572,252 
Net Debt974,645 953,730 
Net Capital$2,734,600 $2,525,982 
Net Debt to Net Capital35.6 %37.8 %
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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

Free Cash Flow ReconciliationSeptember 30,September 30,
20202019
Net Cash Provided by Operations$381,427 $380,381 
Less:
Capital Expenditures173,365 186,841 
Free Cash Flow$208,062 $193,540 
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 firstthird quarter of 2020, the U.S. dollar strengthenedweakened compared to the euro and othermajor European currencies inwhile it appreciated against most Latin America and Asia.Asian currencies. This resulted in a dilutivean additive impact on our translated results during the firstthird quarter of 2020 when compared to the firstthird quarter of 2019.

Beginning July 1, 2018, we have applied highly inflationary accounting for our Argentinian subsidiaries pursuant to U.S. GAAP. We have changed the functional currency from the Argentinian peso to the U.S. dollar. We remeasure our peso denominated assets and liabilities using the official rate. In September 2019, the President of Argentina reinstituted exchange controls restricting foreign currency purchases in an attempt to stabilize Argentina’s financial markets. As a result of these currency controls, a legal mechanism known as the Blue Chip Swap emerged in Argentina for reporting entities to transfer U.S. dollars. The Blue Chip Swap rate has diverged significantly from Argentina’s “official rate” due to the economic environment. During the second quarter of 2020, we transferred U.S. dollars into Argentina through the Blue Chip Swap method and we recognized a gain of $1.0 million. This gain helped to offset foreign currency losses due to our Argentinian peso exposure and devaluation against the U.S. dollar. For the nine months ended September 30, 2020, our Argentinian operations contributed less than 2.0% of consolidated net assets and revenues.
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 impactssignificant impact of COVID-19 on our business, 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.

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LIQUIDITY AND CAPITAL RESOURCES

Given 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. Our Pharma segment provided strong operating cash flows to balance out the temporary softness in some of our Beauty + Home and Food + Beverage markets during the first quarter of 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. Amid the COVID-19 pandemic, we are focused on preserving our liquidity and therefore we have temporarily suspended repurchasing shares of our common stock and discretionary contributions to our defined benefit plans. However, we intend to continue to pay quarterly dividends to our stockholders, invest in our business and make acquisitions as consideredwe consider necessary to achieve our strategic objectives. In the event that customer demand would decreasedecreases significantly for a prolonged period of time due to the COVID-19 pandemic and adversely impactimpacts our cash flowflows from operations, we would have the ability to restrict and significantly reduce capital expenditure levels as well as evaluate our acquisition strategy. 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 increasedand restricted cash decreased to $414.8$231.4 million at March 31,September 30, 2020 from $247.0 million at December 31, 2019. Total short and long-term interest bearing debt of $1.4$1.2 billion at March 31,September 30, 2020 increasedwas unchanged from $1.2 billion at December 31, 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.2019. The ratio of our Net Debt (interest bearing debt less cash and equivalents) to Net Capital (stockholders’ equity plus Net Debt) decreased to 37.4%35.6% at March 31, 2010September 30, 2020 compared to 37.8% at December 31, 2019. See the reconciliation under "Non-U.S. GAAP Measures".
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Table of non-U.S. GAAP measures starting on page 31.

Contents

In the first threenine months of 2020, our operations provided approximately $85.0$381.4 million in net cash flow compared to $77.6$380.4 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 threenine months of 2020 is primarily attributable to the lower restructuring costs and better working capital management.

management which offset lower net income.

We used $88.1$377.9 million in cash for investing activities during the first threenine months of 2020 compared to $39.1$224.0 million during the same period a year ago. Our investment in capital projects increased $9.9 million duringDuring the first threenine months of 2020, compared$162.7 million of cash was utilized to fund the first three months of 2019, as projects in progress at year end were paid during the first quarter of 2020. During the first three months of 2020, weFusion Acquisition. We invested $20.4$32.0 million in our 49% equity interest of BTY and $5.0 million in our 30% equity interest of Sonmol, which isare accounted for as an equity method investment.investments. Additionally, we released $1.0 million relating to the working capital escrow settlement and paid an additional $463 thousand as a working capital payment related to our acquisition of Noble. Our investment in capital projects decreased $13.5 million during the first nine months of 2020 compared to the first nine months of 2019 due to timing of our capital expenditures. Our 2020 estimated cash outlays for capital expenditures are expected to be in the range of approximately $220$240 to $240$250 million but could vary due to changes in exchange rates as well as the timing of capital projects.

Financing activities provided $174.3used $26.7 million in cash during the first threenine months of 2020 compared to $90.8$146.2 million in cash used by financing activities during the same period a year ago. During the first threenine months of 2020, we received net proceeds from our U.S. short termgroup credit facility of $175.0$70.0 million and stock option exercises of $18.6$51.1 million. We used cash on hand to pay $23.0$69.4 million of dividends, andnet repayments of $4.4$14.0 million related to our notes payable and overdrafts and $61.7 million related to our outstanding long-term 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. $200.0$95.0 million was utilized under our U.S. facility and no balance was utilized under our euro-based revolving credit facility as of March 31,September 30, 2020. The $25.0 million balance at December 31, 2019 under our U.S. credit facility was repaid during the first quarter of 2020. Credit facility balances are included in notes payable, including revolving credit facilities on the Condensed Consolidated Balance Sheets.

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

Requirement

Requirement

Level at March 31,September 30, 2020

Consolidated Leverage Ratio (1)

Maximumof 3.50 to 1.00

1.731.81 to 1.00

Consolidated Interest Coverage Ratio (1)

Minimum of 3.00 to 1.00

16.3215.92 to 1.00

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

(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 $1.0 billion$938.1 million before the 3.50 to 1.00 maximum ratio requirement is exceeded.

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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.

On AprilOctober 15, 2020, the Board of Directors declared a quarterly cash dividend of $0.36 per share payable on May 20,November 18, 2020 to stockholders of record as of April 29,October 28, 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.

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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 – Leases of the Notes to Condensed Consolidated Financial 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 forhave been adopted during 2020 are discussed in Note 1 – Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements.

In March 2020, the FASB issued ASU 2020-04, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments to this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The new standard is effective upon issuance and can be adopted any time prior to December 31, 2022. We do not anticipate that this new guidance will have a significant impact on our 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 amendsonly modifies disclosure requirements, we do not expect anythat this guidance will have a significant impact around adopting this guidance.

on our consolidated financial statements.

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 Statementsconsolidated financial statements upon adoption.

OUTLOOK

Factors that could impact

We expect the company to continue to achieve core growth. Rising demand in many end markets is expected to more than offset COVID-19 related declines in some of our second quarter results, include among other things, the duration and severityend markets. We are proud of the COVID-19 pandemic,way our employees have responded to the pacedifficult year and scope of reopening in regions thatwe are currently under government confinement orders, the speed at which beautyperforming well. We expect our Pharma business to continue to do well with existing business and other retail stores open, the willingness of consumers to participate in those shopping channels, the rate at which airline travel will resumeincreased opportunities directly and the general level of on-the-go consumption particularly with certain beverage products.

Aptar expects the near-term effectsindirectly 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.  

pandemic.

We expect earnings per share for the secondfourth quarter of 2020, excluding any restructuring expenses and acquisition-related costs, to be in the range of $0.58$0.84 to $0.73$0.92 and this guidance is based on an effective tax rate range of 31%27% to 33%29%.

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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;
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);
our ability to successfully implement facility expansions and new facility projects;
our ability to offset inflationary impacts with cost containment, productivity initiatives or price increases;
changes in capital availability or cost, including interest rate fluctuations;
volatility of global credit markets;
our ability to identify potential new acquisitions and to successfully acquire and integrate such operations and products, including the successful integration of the businesses we have acquired, including contingent consideration valuation;
direct or indirect consequences of acts of war, terrorism or social unrest;
cybersecurity threats that could impact our networks and reporting systems;
the impact of natural disasters and other weather-related occurrences;
fiscal and monetary policies and other regulations;
changes or difficulties in complying with government regulation;
changing regulations or market conditions regarding environmental sustainability;
work stoppages due to labor disputes;
competition, including technological advances;
our ability to protect and defend our intellectual property rights, as well as litigation involving intellectual property rights;
the outcome of any legal proceeding that has been or may be instituted against us and others;
our ability to meet future cash flow estimates to support our goodwill impairment testing;
the demand for existing and new products;
the success of our customers’ products, particularly in the pharmaceutical industry;
our ability to manage worldwide customer launches of complex technical products, particularly in developing markets;
difficulties in product development and uncertainties related to the timing or outcome of product development;
significant product liability claims;
the execution of our business transformation plan; and
other risks associated with our operations.

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fluctuations in the cost of materials, components and other input costs (particularly resin, metal, anodization costs and transportation and energy costs);

our ability to successfully implement facility expansions and new facility projects;
our ability to offset inflationary impacts with cost containment, productivity initiatives or price increases;
changes in capital availability or cost, including interest rate fluctuations;
volatility of global credit markets;
our ability to identify potential new acquisitions and to successfully acquire and integrate such operations and products, including the successful integration of the businesses we have acquired, including contingent consideration valuation;
direct or indirect consequences of acts of war, terrorism or social unrest;
cybersecurity threats that could impact our networks and reporting systems;
the impact of natural disasters and other weather-related occurrences;
fiscal and monetary policies and other regulations;
changes or difficulties in complying with government regulation;
changing regulations or market conditions regarding environmental sustainability;
work stoppages due to labor disputes;
competition, including technological advances;
our ability to protect and defend our intellectual property rights, as well as litigation involving intellectual property rights;
the outcome of any legal proceeding that has been or may be instituted against us and others;
our ability to meet future cash flow estimates to support our goodwill impairment testing;
the demand for existing and new products;
the success of our customers��� products, particularly in the pharmaceutical industry;
our ability to manage worldwide customer launches of complex technical products, particularly in developing markets;
difficulties in product development and uncertainties related to the timing or outcome of product development;
significant product liability claims;
the execution of our business transformation plan; and
other risks associated with our operations.
Although we believe that our forward-looking statements are based on reasonable assumptions, there can be no assurance that actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to Item 1A (Risk Factors) of Part I included in our Annual Report on Form 10-K for the year ended December 31, 2019 and to Item 1A (Risk Factors) of Part II of this report for additional risk factors affecting the Company.


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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 strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial condition and results of operations. Conversely, a weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial condition and results of operations. Conversely, a strengthening U.S. dollar relative to foreign currencies has a 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 March 31,September 30, 2020 about our forward currency exchange contracts. The majority of the contracts expire before the end of the secondfourth quarter of 2020.

Average

    

Min / Max

    

Contract Amount

    

Contractual

Notional

Buy/Sell

(in thousands)

 

Exchange Rate

 

Volumes

EUR / USD

$

22,646

 

1.1074

 

18,669-22,646

EUR / BRL

9,376

 

4.8745

 

9,376-11,407

CHF / EUR

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

2,085

 

0.8972

 

1,322-4,978

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

718

 

1.1774

 

718-1,544

USD / CHF

130

0.9551

0-130

Total

 

$

56,123

Buy/SellContract Amount
(in thousands)
Average
Contractual
Exchange Rate
Min / Max
Notional
Volumes
EUR / USD$13,585 1.1671 13,114-24,247
EUR / BRL9,300 6.3817 9,300-10,173
CZK / EUR4,998 0.0377 3,408-5,029
EUR / INR3,864 88.6650 3,806-3,898
EUR/THB3,478 37.0688 1,276-3,478
MXN / USD2,400 0.0432 2,400-2,610
CHF / EUR2,374 0.6405 2,374-2,874
EUR/CNY1,174 8.2267 0-3,569
EUR / MXN1,062 26.5924 1,062-2,165
GBP / EUR733 1.1022 733-889
USD / EUR146 0.8494 146-8,297
EUR/CZK69 26.6496 0-69
Total$43,183 

As of March 31,September 30, 2020, we have recorded the fair value of foreign currency forward exchange contracts of $2.1$0.1 million in prepaid and other and $0.5$0.4 million in accounts payable, accrued and accruedother 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 $6.8$3.2 million reported in prepaidaccounts payable, accrued and other 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)Act) as of March 31,September 30, 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

During the fiscal quarter ended March 31,September 30, 2020, we implemented enterprise resource planning (“ERP”) systems at twoone operating facilities.facility. Consequently, the control environments have been modified at these locationsthis location 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)Act) occurred during our fiscal quarter ended March 31,September 30, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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.

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PART II - OTHER INFORMATION


ITEM 1A. RISKFACTORS

The following risk factors arefactor is 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 currentlycontinues to adversely affectingaffect our business. Additional factors could exacerbate such negative consequences and/or cause othercreate 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 quarternine months ended March 31,September 30, 2020 and that adverse impact has continuedmay continue into the secondfourth quarter. SinceBeginning in the endfirst quarter of the quarter,2020, 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 and the extent of further resurgences, 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 quarternine months 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. UNREGISTEREDSALES 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 March 31,September 30, 2020, the Plan purchased 10,487316 shares of our common stock on behalf of the participants at an average price of $98.22,$118.66, for an aggregate amount of $1.0 million.$37 thousand. The Plan sold 12,2026,123 shares of our common stock on behalf of the participants at an average price of $98.35,$118.01, for an aggregate amount of $1.2 million$723 thousand during the same period. At March 31,September 30, 2020, the Plan owned 88,47890,976 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 and nine months ended March 31,September 30, 2020, we did not repurchase any shares. As of March 31,September 30, 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 of our common stock.


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50

ITEM 6. EXHIBITS

Exhibit 10.1

Exhibit 10.1

31.1

Exhibit 10.2

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

Exhibit 10.3

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

Exhibit 31.1

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

Exhibit 31.2

Exhibit 32.1

Exhibit 32.2

Exhibit 101

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

Exhibit 104

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


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SIGNATURE

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

AptarGroup, Inc.

(Registrant)

AptarGroup, Inc.

(Registrant)

By

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: May 1,October 30, 2020


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