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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ----to----
COMMISSION FILE NUMBER 1-11846
APTARGROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3853103
-------- ----------
(State of Incorporation) I.R.S. Employer Identification No.)
475 West Terra Cotta Avenue, Suite E,
Crystal Lake, Illinois 60014
- ------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
815-477-0424
------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (August 8, 1997)
Common Stock 17,971,094
----------
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APTARGROUP, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
INDEX
PART I. FINANCIAL INFORMATION Page
ITEM 1. Financial statements (Unaudited)
Consolidated Statements of Income -
Three and Six Months Ended June 30, 1997
and 1996 3
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of
Security Holders 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
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APTARGROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Data)
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
NET SALES .................. $ 171,811 $ 151,047 $ 330,101 $ 304,001
OPERATING EXPENSES:
Cost of sales ............ 110,456 97,859 211,307 196,573
Selling, research &
development and
administrative .......... 28,249 26,161 53,801 51,173
Depreciation and
amortization ............ 12,781 12,255 25,300 23,744
--------- --------- --------- ---------
151,486 136,275 290,408 271,490
--------- --------- --------- ---------
OPERATING INCOME ........... 20,325 14,772 39,693 32,511
--------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense ......... (1,375) (1,661) (2,839) (3,435)
Interest income .......... 274 381 476 642
Equity in income of
affiliate ............... 149 217 331 567
Minority interests ....... (104) (95) (184) (150)
Miscellaneous, net ....... 449 397 724 1,035
--------- --------- --------- ---------
(607) (761) (1,492) (1,341)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES . 19,718 14,011 38,201 31,170
PROVISION FOR INCOME TAXES . 7,637 5,184 14,707 11,670
--------- --------- --------- ---------
NET INCOME ................. $ 12,081 $ 8,827 $ 23,494 $ 19,500
========= ========= ========= =========
NET INCOME PER COMMON SHARE: $ .67 $ .49 $ 1.31 $ 1.09
========= ========= ========= =========
Average number of shares
outstanding (in thousands) 17,961 17,938 17,957 17,934
See accompanying notes to consolidated financial statements.
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APTARGROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(UNAUDITED)
June 30, December 31,
1997 1996
---- ----
ASSETS
CURRENT ASSETS:
Cash and equivalents .......................... $ 25,742 $ 16,386
Accounts and notes receivable, less allowance
for doubtful accounts of $3,595 in 1997
and $3,623 in 1996 ........................... 139,000 130,885
Inventories ................................... 76,054 75,930
Prepayments and other ......................... 16,078 14,030
--------- ---------
256,874 237,231
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Buildings and improvements .................... 73,010 75,971
Machinery and equipment ....................... 438,426 440,743
--------- ---------
511,436 516,714
Less: Accumulated depreciation ................ (270,621) (265,780)
--------- ---------
240,815 250,934
Land .......................................... 4,038 4,395
--------- ---------
244,853 255,329
--------- ---------
OTHER ASSETS:
Investments in affiliates ..................... 14,295 14,970
Goodwill, less accumulated amortization of
$5,480 in 1997 and $5,505 in 1996 ............ 42,274 47,261
Miscellaneous ................................. 17,432 21,345
--------- ---------
74,001 83,576
--------- ---------
TOTAL ASSETS .............................. $ 575,728 $ 576,136
========= =========
See accompanying notes to consolidated financial statements.
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APTARGROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(UNAUDITED)
June 30, December 31,
1997 1996
---- ----
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable .................................. $ 6,277 $ 4,145
Current maturities of long-term obligations .... 7,808 9,540
Accounts payable and accrued liabilities ....... 118,711 102,574
--------- ---------
132,796 116,259
--------- ---------
LONG-TERM OBLIGATIONS ........................... 71,925 76,569
--------- ---------
DEFERRED LIABILITIES AND OTHER:
Deferred income taxes .......................... 19,318 22,884
Retirement and deferred compensation plans ..... 12,290 12,952
Minority interests ............................. 4,471 4,381
Deferred and other non-current liabilities ..... 6,850 7,392
--------- ---------
42,929 47,609
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value ................... 180 179
Capital in excess of par value ................ 103,884 103,572
Retained earnings .............................. 254,365 233,385
Cumulative foreign currency translation
adjustment ................................... (30,351) (1,437)
--------- ---------
328,078 335,699
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $ 575,728 $ 576,136
========= =========
See accompanying notes to consolidated financial statements.
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APTARGROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1997 and 1996
(Dollars in Thousands, brackets denote cash outflows)
(UNAUDITED)
Six Months Ended June 30,
--------------------------
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................... $ 23,494 $ 19,500
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation ...................................... 23,940 22,411
Amortization ...................................... 1,360 1,333
Provision for bad debts ........................... 359 243
Minority interests ................................ 184 150
Deferred income taxes ............................. 298 2,598
Retirement and deferred compensation plans ........ 1,098 (489)
Equity in income of affiliates in
excess of cash distributions received ........... (331) (567)
Changes in balance sheet items,
excluding effects from foreign currency
adjustments:
Accounts receivable ............................... (19,535) (9,402)
Inventories ....................................... (6,777) (2,244)
Prepaid and other current assets .................. (2,542) (5,968)
Accounts payable and accrued liabilities .......... 24,072 3,171
Other changes, net ................................ (646) (1,622)
-------- --------
NET CASH PROVIDED BY OPERATIONS ................... 44,974 29,114
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .............................. (34,560) (25,507)
Disposition of property and equipment ............. 445 449
Disposition of businesses ......................... -- 3,320
(Proceeds) collections of notes receivable, net ... (48) 465
Investments in affiliates ......................... -- (11)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES ............. (34,163) (21,284)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable .............. 5,172 (2,795)
Proceeds from long-term obligations ............... 980 6,840
Repayments of long-term obligations ............... (3,664) (4,740)
Dividends paid .................................... (2,514) (2,510)
Proceeds from stock options exercised ............. 311 274
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES .. 285 (2,931)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............. (1,740) (533)
-------- --------
NET INCREASE IN CASH AND EQUIVALENTS ................ 9,356 4,366
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD ......... 16,386 17,332
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD ............... $ 25,742 $ 21,698
======== ========
See accompanying notes to consolidated financial statements.
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APTARGROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements included the
accounts of AptarGroup, Inc. and its subsidiaries. The terms "AptarGroup" or
"Company" as used herein refer to AptarGroup, Inc. and its subsidiaries.
In the opinion of management, the unaudited consolidated financial statements
include all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of financial position and results of
operations for the interim periods presented. The accompanying unaudited
consolidated financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures made are adequate to make the information
presented not misleading. Accordingly, these financial statements and related
notes should be read in conjunction with the audited financial statements and
notes thereto included in the Company's Annual Report to Shareholders
incorporated by reference into the Company's Annual Report on Form 10-K for the
year ended December 31, 1996. The results of operations of any interim period
are not necessarily indicative of the results that may be expected for a fiscal
year.
NOTE 2 - INVENTORIES
At June 30, 1997 and December 31, 1996, inventories, by component, consisted of:
June 30, December 31,
1997 1996
---- ----
Raw Materials ................ $ 24,149 $ 25,150
Work in progress ............. 23,669 23,533
Finished goods ............... 30,422 29,283
-------- --------
Total ............... 78,240 77,966
Less LIFO reserve ............ (2,186) (2,036)
-------- --------
Total ............... $ 76,054 $ 75,930
======== ========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter and six months ended June 30, 1997 totaled $171.8
million and $330.1 million, respectively, increases of approximately 14% and 9%
when compared to the corresponding periods of 1996. The translation of
AptarGroup's foreign sales was negatively affected by the stronger U.S. dollar
relative to the same three and six month periods of 1996. If the dollar exchange
rate had been constant, sales for the three and six months ended June 30, 1997
would have increased approximately 20% and 15%, respectively. The increase for
the quarter and six months ended June 30, 1997, is primarily attributed to
volume increases in the Company's primary markets. The Company continues to
experience price competition in all of its markets.
Sales to customers by European operations represented approximately 56% and 57%,
of net sales for the quarter and six months ended June 30, 1997, respectively,
compared to 58% for the same periods a year ago. Sales to customers by U.S.
operations represented 40% and 39% of net sales for the quarter and six months
ended June 30, 1997 compared to 39% and 37% for the same periods a year ago.
Cost of sales as a percent of net sales decreased to 64.3% in the second quarter
of 1997 compared to 64.8% in the same period a year ago. For the first six
months of 1997, cost of sales as a percent of net sales decreased to 64.0%
compared to 64.7% in the same period a year ago. The decrease for the quarter
and six months ended June 30, 1997 is attributed to the mix of products sold,
cost savings and a net gain from changes in exchange rates between the
comparable quarters on inter-country transactions.
Selling, general and administrative expenses (SG&A) increased 8% to $28.2
million in the second quarter of 1997 compared to $26.2 million in the same
period a year ago. As a percent of net sales, SG&A decreased in the second
quarter of 1997 to 16.4% from 17.3% a year ago. SG&A for the six months ended
June 30, 1997 increased 5% to $53.8 million compared to $51.2 million a year. As
a percent of net sales, SG&A decreased in the first six months of 1997 to 16.3%
compared to 16.8% a year ago. The decrease in relation to net sales was the
result of continued cost containment efforts.
Operating income increased to $20.3 million in the second quarter of 1997
compared to $14.8 million for the same period a year ago. The increase is due to
higher sales volume, change in mix of products sold, and cost savings. In
addition, approximately $1 million of the increase is due to the positive effect
of gains on inter-country transactions net of the negative impact of
translation.
European operations represented 70% and 71% of operating income in the second
quarter and year to date of 1997, respectively, as compared to 64% and 68% in
the same periods
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a year ago. U.S. operations represented 44% and 42% of operating income in the
second quarter and year to date in 1997 as compared to 48% and 42% in the
corresponding periods of 1996. The difference between Europe and U.S. operations
to total operating income is due to operating income from other foreign
operations and corporate expenses.
The effective tax rate for the second quarter and six months ended June 30, 1997
was 38.7% and 38.5% compared to 37.0% and 37.4% for the same periods a year ago.
The rate differential is due to a change in the mix of countries where income
was earned.
After quarter end, the French government announced a proposal to increase the
French corporate tax rate by 5% from approximately 36.7% to 41.7% that will be
retroactive to the first of the year. This proposal is expected to be enacted
during the third quarter. The Company cannot predict the exact effect of this
change on the overall tax rate due to the uncertainty of mix of income by
country. However, the impact of this rate change for 1997 is estimated to
increase the Company's effective tax rate by approximately 1.5%. In addition,
the impact of the adjustment to deferred taxes due to the French tax rate
increase is estimated to be approximately $1.2 million.
Net income for the second quarter increased 37% to $12.1 million compared to
$8.8 million in the second quarter of 1996. Net income for the six months ended
June 30, 1997, increased 20% to $23.5 million as compared to $19.5 million in
the same period a year ago. The increase in net income for the quarter and six
months ended June 30, 1997 is primarily due to higher sales volume and cost
containment efforts.
FOREIGN CURRENCY
A significant portion of AptarGroup's operations are located outside 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 AptarGroup's foreign entities. In general, since the majority of the
Company's operations are based in Europe, primarily France, Germany and Italy, a
strengthening U.S. dollar relative to the major European currencies has a
dilutive translation effect on the Company's financial condition and results of
operations. Conversely, a weakening U.S. dollar would have an additive effect.
Additionally, in some cases, the Company sells products denominated in a
currency different from the currency in which the respective costs are incurred.
Changes in exchange rates on such inter-country sales impact the Company's
results of operations.
QUARTERLY TRENDS
AptarGroup's results of operations in the second half of the year typically have
been negatively impacted by European summer holidays and customer plant
shutdowns in December. In the future, AptarGroup's results of operations in a
quarterly period could be impacted by factors such as changes in product mix,
changes in material costs, changes in growth rates in the industries to which
AptarGroup's products are sold
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or changes in general economic conditions in any of the countries in which
AptarGroup does business.
LIQUIDITY AND CAPITAL RESOURCES
Historically, AptarGroup has generated positive cash flow from operations and
has utilized the majority of such cash flows to invest in capital projects. Net
cash provided by operations in the first six months of 1997 was $45.0 million
compared to $29.1 million in the same period a year ago.
The increase is primarily attributed to changes in working capital. Total net
working capital at June 30, 1997 was $124.1 million compared to $121.0 million
at December 31, 1996.
Net cash used by investing activities increased to $34.2 million from $21.3
million a year ago. Management anticipates that capital expenditures for all of
1997 will be approximately $70 million.
Net cash provided by financing activities was $285 thousand in the first six
months of 1997 compared to net cash used by financing activities of $2.9 million
in 1996. The ratio of interest-bearing debt to total capitalization was 21% at
June 30, 1997 and December 31, 1996.
The majority of the Company's debt has been, and continues to be, denominated in
foreign currency. AptarGroup has historically borrowed locally to hedge
potential currency fluctuations for assets that were purchased outside of the
U.S. It is expected that this practice will continue.
The Company has a multi-year, unsecured revolving credit agreement allowing
borrowings of up to $25 million. Under this credit agreement, interest on
borrowings is payable at a rate equal to the London Interbank Offered Rate
(LIBOR) plus an amount based on the financial condition of the Company. At June
30, 1997, the amount unused and available under this agreement was $25 million.
The Company is required to pay a fee for the unused portion of the commitment.
The agreement expires on April 29, 2001. The credit available under the
revolving credit agreement provides management with the ability to refinance
certain short-term obligations on a long-term basis. As it is management's
intent to do so, short-term obligations of $25 million have been reclassified as
long-term obligations as of June 30, 1997 and December 31, 1996.
The revolving credit agreement and a private placement agreement contain
covenants that include certain financial tests, including minimum interest
coverage, net worth and maximum borrowings.
On July 24, 1997, the Board of Directors declared a quarterly dividend of $.08
per share payable on August 26, 1997 to shareholders of record as of August 5,
1997. The $.08 per share represents an increase of 14% over the previous
quarter's dividend.
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LITIGATION
During the second quarter of 1997, the Company received a judgment in its favor
as plaintiff in a patent infringement lawsuit relating to an aerosol valve
component. The Company was awarded $7.8 million plus interest. The decision has
been appealed and the Company cannot predict the ultimate outcome or timing of
such appeal. This award is not included in the financial results.
ADOPTION OF NEW ACCOUNTING STANDARDS
Effective for periods ending after December 15, 1997, the Company is required to
adopt SFAS 128 (Statement of Financial Accounting Standards No. 128, "Earnings
Per Share"). SFAS 128 requires companies to calculate basic and diluted earnings
per share based upon standards designed to provide consistency and compatibility
with calculations of other countries and with that of the International
Accounting Standards Committee. The Company does not expect earnings per share
as reported to be materially different than basic or diluted earnings per share
to be reported upon adoption of the new accounting standard.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 14, 1997. A vote was taken by
ballot for the election of three directors to hold office until the 2000 Annual
Meeting of Stockholders. The following nominees received the number of votes as
set forth below:
Broker
Nominee For Withhold Non-votes
--------- ---- -------- ---------
Eugene Barnett ..................... 14,941,436 186,157 -0-
Ralph Gruska ..................... . 14,942,080 185,513 -0-
Leo A. Guthart ..................... 14,948,117 179,476 -0-
No votes were cast for any other nominee for director. The directors continuing
in office until the 1998 Annual Meeting of Stockholders are William W. Harris,
Alfred Pilz, and Carl A. Siebel. Directors continuing in office until the 1999
Annual Meeting are King Harris, Ervin J. LeCoque and Peter Pfeiffer.
No other matters were submitted to a vote by ballot at the 1997 Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits 10.18 and 27 are included with this report.
(b) No reports on Form 8-K were filed for the quarter ended
June 30, 1997.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AptarGroup, Inc.
(Registrant)
By /s/ Stephen J. Hagge
--------------------
Stephen J. Hagge
Executive Vice President and Chief
Financial Officer, Secretary and
Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
Date: August 13, 1997