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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 6, 1999)
Common Stock 36,437,625
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AptarGroup, Inc.
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
INDEX
PART I. FINANCIAL INFORMATION Page
----
ITEM 1. Financial statements (Unaudited)
Consolidated Statements of Income -
Three and Six Months Ended June 30, 1999
and 1998 3
Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 4
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk 16
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 17
ITEM 4. Submission of Matters to a Vote of
Security Holders 17
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURE 19
AptarGroup, Inc.
Consolidated Statements of Income
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
--------------------------- -----------------------
1999 1998 1999 1998
------------ ------------ ---------- ----------
Net Sales............................................. $ 208,860 $ 181,752 $ 407,087 $ 352,694
Operating Expenses:
Cost of sales....................................... 129,890 113,778 253,975 220,487
Selling, research & development
and administrative................................. 33,484 29,801 66,368 58,002
Depreciation and amortization....................... 17,143 13,353 34,165 26,921
------------ ------------ ---------- ----------
180,517 156,932 354,508 305,410
------------ ------------ ---------- ----------
Operating Income...................................... 28,343 24,820 52,579 47,284
------------ ------------ ---------- ----------
Other Income (Expense):
Interest expense.................................... (3,792) (1,684) (6,412) (3,090)
Interest income..................................... 411 253 621 528
Equity in results of affiliates..................... (288) 135 (548) 318
Minority interests.................................. (65) (125) (31) (209)
Miscellaneous, net.................................. 359 (322) 882 324
Lawsuit settlement, net............................. 0 815 0 815
------------ ------------ ---------- ----------
(3,375) (928) (5,488) (1,314)
------------ ------------ ---------- ----------
Income Before Income Taxes............................ 24,968 23,892 47,091 45,970
Provision for Income Taxes............................ 8,788 9,628 16,642 18,525
------------ ------------ ---------- ----------
Net Income............................................ $ 16,180 $ 14,264 $ 30,449 $ 27,445
============ ============ ========== ==========
Net Income Per Common Share:
Basic.............................................. $ .45 $ .40 $ .84 $ .76
============ ============ ========== ==========
Diluted............................................ $ .44 $ .39 $ .82 $ .75
============ ============ ========== ==========
Average Number of Shares Outstanding (in thousands):
Basic.............................................. 36,344 36,024 36,267 36,008
Diluted............................................ 37,026 36,852 36,921 36,794
See accompanying notes to consolidated financial statements.
3
AptarGroup, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)
June 30, December 31,
1999 1998
----------- --------------
Assets
Current Assets:
Cash and equivalents........................................ $ 32,631 $ 25,159
Accounts and notes receivable, less allowance for doubtful
accounts of $6,051 in 1999 and $4,367 in 1998............ 181,399 173,289
Inventories................................................. 104,902 101,091
Prepayments and other....................................... 25,136 17,110
----------- ------------
344,068 316,649
----------- ------------
Property, Plant and Equipment:
Buildings and improvements.................................. 93,665 90,768
Machinery and equipment..................................... 588,101 565,460
----------- ------------
681,766 656,228
Less: Accumulated depreciation.............................. (342,964) (335,650)
----------- ------------
338,802 320,578
Land........................................................ 4,235 4,601
----------- ------------
343,037 325,179
----------- ------------
Other Assets:
Investments in affiliates................................... 3,516 3,217
Goodwill, less accumulated amortization of $8,355 in
1999 and $6,586 in 1998.................................. 124,098 49,689
Miscellaneous............................................... 16,999 19,939
----------- ------------
144,613 72,845
----------- ------------
Total Assets $ 831,718 $ 714,673
=========== ============
See accompanying notes to consolidated financial statements.
4
AptarGroup, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)
June 30, December 31,
Liabilities and Stockholder's Equity 1999 1998
----------- ------------
Current Liabilities:
Notes payable................................ $ 15,560 $ 29,663
Current maturities of long-term obligations.. 8,605 7,561
Accounts payable and accrued liabilities..... 125,155 130,209
----------- ------------
149,320 167,433
----------- ------------
Long-Term Obligations.......................... 226,842 80,875
----------- ------------
Deferred Liabilities and Other:
Deferred income taxes........................ 22,002 24,989
Retirement and deferred compensation plans... 13,847 14,957
Minority interests........................... 4,071 4,189
Deferred and other non-current liabilities... 4,870 6,722
----------- ------------
44,790 50,857
----------- ------------
Stockholders' Equity:
Common stock, $.01 par value................. 399 361
Capital in excess of par value............... 111,305 105,714
Retained earnings............................ 357,138 329,582
Accumulated other comprehensive income....... (58,076) (20,149)
----------- ------------
410,766 415,508
----------- ------------
Total Liabilities and Stockholders' Equity $ 831,718 $ 714,673
=========== ============
See accompanying notes to consolidated financial statements.
5
AptarGroup, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
(Dollars in Thousands, brackets denote cash outflows)
(Unaudited)
Six Months Ended June 30,
Cash Flows From Operating Activities: 1999 1998
---- ----
Net income............................................... $ 30,449 $ 27,445
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation............................................. 32,291 25,684
Amortization............................................. 1,874 1,237
Provision for bad debts.................................. 492 638
Minority interests....................................... 31 209
Deferred income taxes.................................... 636 (390)
Retirement and deferred compensation plans............... (672) (193)
Equity in result of affiliates in
excess of cash distributions received................. 548 (318)
Changes in balance sheet items,
excluding effects from foreign currency adjustments:
Accounts receivable...................................... (512) (18,341)
Inventories.............................................. (1,652) (5,314)
Prepaid and other current assets......................... (3,434) (2,850)
Accounts payable and accrued liabilities................. 1,763 8,385
Other changes, net....................................... 4,440 (2,751)
------------- -----------
Net cash provided by operations.......................... 66,254 33,441
------------- -----------
Cash Flows From Investing Activities:
Capital expenditures..................................... (48,689) (29,948)
Disposition of property and equipment.................... 1,579 89
Acquisition of businesses................................ (123,575) (7,181)
Collections (proceeds) of notes receivable, net.......... 27 (48)
Investments in affiliates................................ (1,000) (800)
------------- -----------
Net cash used by investing activities.................... (171,658) (37,888)
------------- -----------
Cash Flows From Financing Activities:
(Decrease) increase in notes payable..................... (12,761) 13,233
Proceeds from long-term obligations...................... 162,642 9,297
Repayments of long-term obligations...................... (33,647) (6,906)
Dividends paid........................................... (2,892) (2,880)
Proceeds from stock options exercised.................... 2,032 517
------------- -----------
Net cash provided by financing activities................ 115,374 13,261
------------- -----------
Effect of Exchange Rate Changes on Cash.................... (2,498) (200)
------------- -----------
Net Increase in Cash and Equivalents....................... 7,472 8,614
Cash and Equivalents at Beginning of Period................ 25,159 17,717
------------- -----------
Cash and Equivalents at End of Period...................... $ 32,631 $ 26,331
============= ===========
See accompanying notes to consolidated financial statements.
6
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 consolidated financial position and
results of operations for the interim periods presented. The accompanying
unaudited consolidated financial statements have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles (GAAP) have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures made
are adequate to make the information presented not misleading. Accordingly,
these unaudited financial statements and related notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report to Shareholders incorporated by
reference into the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. The results of operations of any interim period are not
necessarily indicative of the results that may be expected for a fiscal year.
In August 1998, the Company effected a two-for-one stock split. Previously
reported information has been restated to reflect the stock split.
Note 2 - Acquisitions
In the second and third quarters of 1998, the Company acquired controlling
interests in two companies for approximately $15 million in cash, and 50,000
shares of the Company's common stock (valued at approximately $1.5 million).
The excess purchase price over the fair value of the net assets acquired
(goodwill) in these acquisitions was approximately $8 million and is being
amortized on a straight-line basis over 40 years. These acquisitions are in
companies that manufacture and distribute products similar to the Company's
products.
On February 17, 1999, the Company acquired Emson Research, Inc. and related
companies (Emson) for approximately $123 million in cash and 148,371 shares of
the Company's common stock (valued at approximately $4 million). Approximately
$23 million of debt was assumed in the transaction. This acquisition was
initially funded through short-term borrowings. The Company incurred long-term
obligations in the second quarter of 1999 to replace most of the short-term
borrowings associated with the acquisition. Emson is a leading supplier of
perfume pumps in the North American market and also maintains a significant
position in the North American personal care and food pump markets. The excess
purchase price over the fair value of
7
the net assets acquired (goodwill) in these acquisitions was approximately $80
million and is being amortized on a straight-line basis over 40 years.
The acquisitions described above were accounted for by the purchase method of
accounting for business combinations. Accordingly, the accompanying
consolidated statements of income do not include any revenues or expenses
related to these acquisitions prior to their respective closing dates.
Following are the Company's unaudited pro forma results for the first quarter
of 1998 and 1999 assuming the acquisitions occurred on January 1, 1998 (in
thousands, except for per share data):
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------
Net Sales $208,860 $215,818 $415,121 $421,077
Net Income $ 16,180 $ 15,150 $ 29,621 $ 28,478
Net Earnings per common share:
Basic $ 0.45 $ 0.41 $ 0.81 $ 0.79
Diluted $ 0.44 $ 0.40 $ 0.80 $ 0.77
Weighted average shares outstanding:
Basic 36,344 36,194 36,348 36,178
Diluted 37,026 37,022 37,002 36,964
These unaudited pro forma results have been prepared for comparative purposes
only and may not be indicative of the results of operations which would have
actually resulted had the combinations been in effect on January 1, 1998, or of
future periods.
Note 3 - Inventories
At June 30, 1999 and December 31, 1998, inventories, by component, consisted of:
June 30, December 31,
1999 1998
----------- ------------
Raw Materials $ 40,293 $ 35,493
Work in progress 27,561 29,441
Finished goods 37,048 36,157
----------- ------------
Total $ 104,902 $ 101,091
=========== ============
Inventories are stated at cost, which is lower than market. Costs included in
inventories are raw materials, direct labor and manufacturing overhead. The
cost of two domestic inventories and the inventories of two foreign operations
are determined by using the last-in, first-out ("LIFO") method, while the
remaining inventories are valued using the first-in, first-out (FIFO) method.
The LIFO reserve was not material at either June 30, 1999 or December 31, 1998.
8
Note 4 - Long-Term Debt
On May 15, 1999 the Company entered into a $107 million, twelve-year private
debt placement agreement. The private placement is comprised of $107 million
of 6.62% senior unsecured notes. The notes will be repaid in equal annual
installments of $21.4 million beginning on May 30, 2007 and ending on May 30,
2011.
The Company entered into a new multi-year, multi-currency unsecured revolving
credit agreement on June 30, 1999 allowing borrowings of up to $75 million.
Under this credit agreement, interest on borrowings is payable at a rate equal
to the London Interbank Offered Rate (LIBOR) plus an amount based on the
financial condition of the Company. At June 30, 1999, the amount unused and
available under this agreement was $20 million. The Company is required to pay
a fee for the unused portion of the commitment. The agreement expires on June
30, 2004. The credit available under the revolving credit agreement provides
management with the ability to refinance certain short-term obligations on a
long-term basis. As it is management's intent to do so, an additional $20
million of short-term obligations representing the unused and available amount
under the new credit agreement have been reclassified as long-term obligations
as of June 30, 1999. Short-term obligations of $25 million were reclassified
as long-term obligations as of December 31, 1998 under a previous revolving
credit agreement.
The revolving credit agreement and private placement agreements contain
covenants that include certain financial tests, including minimum interest
coverage, net worth and maximum borrowings.
Note 5 - Comprehensive Income
AptarGroup's total comprehensive income was as follows:
Three months ended June 30 Six months ended June 30
--------------------------- -------------------------
1999 1998 1999 1998
------------ ------------ ----------- -----------
Net income $ 16,180 $14,264 $ 30,449 $27,445
Add/(Subtract): foreign currency
translation adjustment (10,881) 5,257 (37,927) (4,035)
------------ ------------ ----------- -----------
Total comprehensive income (loss) $ 5,299 $19,521 $ (7,478) $23,410
============ ============ =========== ===========
9
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, 1999 totaled $208.9
million and $407.1 million, respectively, increases of approximately 15% when
compared to the corresponding periods of 1998. The stronger U.S. dollar
relative to the same three-month period of 1998 negatively affected the
translation of AptarGroup's foreign sales. If the dollar exchange rate had been
constant, sales for the three months ended June 30, 1999 would have increased
approximately 17%. The impact of changes in the U.S. dollar exchange rate on
sales for the six months ended June 30, 1999 was insignificant. Acquisitions
completed in the second and third quarters of 1998 and the first quarter of
1999 accounted for $32 million and $55 million of the increase for the three
and six months ended June 30, 1999 respectively. Softness in demand from the
fragrance/cosmetic market and the implementation of a major enterprise software
system at a domestic operation adversely affected the sales compared to the
same periods in the prior year. Sales were positively impacted by increased
sales to the pharmaceutical, personal care and food markets when compared to
the same periods in the prior year.
Sales to unaffiliated customers by European operations represented
approximately 54% and 56% of net sales for the quarter and six months ended
June 30, 1999, respectively, compared to 54% and 55% for the same periods a
year ago. Sales to unaffiliated customers by U.S. operations represented 40%
and 39% of net sales for the quarter and six months ended June 30, 1999,
respectively, compared to 41% and 40% for the same periods a year ago. Sales to
unaffiliated customers by other foreign operations represented 6% and 5% of net
sales for the quarter and six months ended June 30, 1999, respectively,
compared to 5% for the same periods a year ago.
Cost of sales as a percent of net sales decreased slightly to 62.2% in the
second quarter of 1999 compared to 62.6% in the same period a year ago. For the
first six months of 1999, cost of sales as a percent of net sales decreased
slightly to 62.4% compared to 62.5% in the same period a year ago. The decrease
for the quarter and six months ended June 30, 1999 is primarily attributed to
the mix of products sold.
Selling, research & development and general and administrative expenses (SG&A)
increased 12.4% or $3.7 million to $33.5 million in the second quarter of 1999
compared to $29.8 million in the same period a year ago. The entire increase in
SG&A is related to acquisitions completed in the second and third quarters of
1998 and the first quarter of 1999. As a percent of net sales, SG&A decreased
to 16.0% in the second quarter of 1999 compared to 16.4% in the same period a
year ago. SG&A for the six months ended June 30, 1999 increased 14.4% or $8.4
million to $66.4 million compared to $58.0 million a year ago. Approximately
$5.9 million of the increase is due to the acquisitions mentioned above. The
remainder of the increase is primarily due to additional information technology
expenses related to the Company's year 2000 readiness program and to the
implementation of new enterprise software systems at two major operations. As a
percent of net sales, SG&A decreased slightly in the first six months of 1999
to 16.3% compared to 16.4% a year ago.
10
European operations represented 72% and 70% of operating income in the second
quarter and year to date of 1999, respectively, as compared to 74% and 75% in
the same periods a year ago. U.S. operations represented 37% and 40% of
operating income in the second quarter and year to date of 1999, respectively,
as compared to 37% in the corresponding periods of 1998. The difference
between Europe and U.S. operations to total operating income is due to
operating income from other foreign operations, corporate expenses and inter-
geographic eliminations.
Interest expense increased $2.1 million and $3.3 million for the second quarter
and six months ended June 30, 1999, respectively, as compared to the same
periods a year ago due primarily to the additional debt related to the
acquisitions completed in the second and third quarters of 1998 and the first
quarter of 1999.
The effective tax rate for the second quarter and six months ended June 30,
1999 was 35.2% compared to 40.3% for the same period a year ago. The decrease
is due to a reduction in the French and German corporate tax rates, the mix of
income earned in different foreign tax jurisdictions combined with the ongoing
rationalization of tax rates. The Company expects the effective tax rate for
1999 to be in the range of 35%- 36%.
Net income for the second quarter increased 13% to $16.2 million compared to
$14.3 million in the second quarter of 1998. Net income for the six months
ended June 30, 1999 increased 11% to $30.4 million as compared to $27.4 million
in the same period a year ago.
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 or changes in general economic conditions in any
of the countries in which AptarGroup does business, and year 2000 concerns from
customers.
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.
11
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 1999 was $66.3 million
compared to $33.4 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, 1999 was $194.7 million compared to
$149.2 million at December 31, 1998. The increase in net working capital is due
primarily to the acquisition of Emson made in 1999.
Management anticipates that cash outlays for capital expenditures for all of
1999 will be approximately $85 to $90 million.
Net cash used by investing activities increased to $171.7 million from $37.9
million a year ago due to the Company's purchase of Emson on February 17, 1999.
The Company paid $122.8 million in cash, approximately $4 million of the
Company's common stock and assumed approximately $23 million of debt. This
acquisition was initially funded through short-term borrowings. The Company
incurred long-term obligations in the second quarter of 1999 to replace most of
the short-term borrowings associated with the acquisition of Emson.
Net cash provided by financing activities increased to $115.4 million in the
first six months of 1999 compared to $13.3 million in 1998. The increase in net
cash provided by financing activities is due to borrowing for the acquisition
of Emson mentioned above. The ratio of net debt to total net capitalization was
34.7% and 18.3% at June 30, 1999 and December 31, 1998, respectively. Net debt
is defined as debt less cash and cash equivalents and total net capitalization
is defined as stockholder's equity plus net debt.
On May 15, 1999 the Company entered into a $107 million, twelve-year private
debt placement agreement. The private placement is comprised of $107 million of
6.62% senior unsecured notes. The notes will be repaid in equal annual
installments of $21.4 million beginning on May 30, 2007 and ending on May 30,
2011.
The Company entered into a new multi-year, multi-currency unsecured revolving
credit agreement on June 30, 1999 allowing borrowings of up to $75 million.
Under this credit agreement, interest on borrowings is payable at a rate equal
to the London Interbank Offered Rate (LIBOR) plus an amount based on the
financial condition of the Company. At June 30, 1999, the amount unused and
available under this agreement was $20 million. The Company is required to pay
a fee for the unused portion of the commitment. The agreement expires on June
30, 2004. The credit available under the revolving credit agreement provides
management with the ability to refinance certain short-term obligations on a
long-term basis. As it is management's intent to do so, an additional $20
million of short-term obligations representing the unused and available amount
under the new credit agreement have been reclassified as long-term obligations
as of June 30, 1999. Short-term obligations of $25 million were reclassified as
long-term obligations as of December 31, 1998 under a previous revolving credit
agreement.
12
The revolving credit agreement and private placement agreements contain
covenants that include certain financial tests, such as minimum interest
coverage, net worth and maximum borrowings.
On July 22, 1999, the Board of Directors declared a quarterly dividend of $.05
per share payable on August 24, 1999 to shareholders of record as of August 3,
1999. This dividend represents a 25% increase over the prior dividend rate.
Year 2000
As many computer systems and other equipment with embedded chips or processors
(collectively, "Enterprise Systems") use only two digits to represent the year,
they may be unable to process accurately certain data before, during or after
the year 2000. This is commonly known as the Year 2000 ("Y2K") issue. The Y2K
issue can arise at any point in an entity's supply, manufacturing, processing,
distribution, and financial chains.
The Company has implemented a Y2K readiness program with the objective of
having all of the significant Enterprise Systems, including those that affect
facilities and manufacturing activities, functioning properly with respect to
the Y2K issue before January 1, 2000. The Company has established standardized
planning, assessment and progress documentation as well as set critical
deadlines that apply to all significant subsidiaries.
In order to address the Y2K issue, the Company has developed and implemented a
five-phase readiness program which is comprised of 1) planning, 2) assessment,
3) renovation/replacement, 4) testing/validation, and 5) contingency planning.
The Company has substantially completed phases one through three of the
program. Currently, the Company is in the process of completing phase four,
the testing/validation phase of the program, the majority of which was
completed by the end of the second quarter of 1999. Though certain systems may
require additional modifications throughout 1999, the Company believes that
these systems will be Y2K ready by the end of 1999. Concurrently with
completing phase four, the Company is in the process of completing phase five,
contingency planning. The Company is developing contingency plans intended to
mitigate the possible disruption in business operations that may result from
the Y2K issue, and is developing cost estimates for such plans. Once developed,
contingency plans and related cost estimates will be continually refined, as
additional information becomes available. Contingency plans may include
increasing inventory levels, securing alternate sources of supply, adjusting
facility shutdown and start-up schedules and other appropriate measures.
The different phases of the program address the potential Y2K risk that could
be found in the following five functional areas: 1) business applications
(hardware and software), 2) production equipment, 3) facility systems, 4)
communication infrastructure and 5) vendor/customer management.
Although the Company has a significant number of key business partners,
including suppliers and customers, the Company does not currently anticipate
any material disruption in its business due to supplier or customer Y2K issues.
More specifically, the Company, through
13
the current stage of its Y2K program, has not received any information that
would lead it to believe that any significant supplier or customer will suffer
business interruption due to Y2K issues to a degree that would materially
affect the Company's ability to conduct business.
The current estimated costs of the project are based on management's estimates,
which were derived utilizing numerous assumptions of future events including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ significantly from those planned.
Based on management's current estimations, the projected costs of the Company's
Y2K readiness program are expected to total $3.5 million.
Although the Company expects its critical Enterprise Systems to be Y2K ready by
the end of 1999, there is no guarantee that these results will be achieved.
Specific factors that give rise to this uncertainty include a possible loss of
technical resources to perform the work, failure to identify all susceptible
systems, non-compliance by third parties whose systems and operations impact
the Company, and other similar uncertainties. A reasonably possible worst case
scenario might include one or more of the Company's significant production
facilities incurring interruption in business either from internal systems
failures or failure to perform on the part of third parties, including
suppliers. Such an event could result in a material disruption to the Company's
operations. Specifically, the Company could experience an interruption in its
ability to produce certain products, collect and process orders, process
payments, manage inventory and perform adequate customer service. Should the
worst case scenario occur it could, depending on its duration, have a material
adverse impact on the Company's results of operations and financial position,
but that impact can not be estimated.
Forward-Looking Statements
In addition to the historical information presented in this quarterly report,
the Company has made and will make certain forward-looking statements in this
report, other reports filed by the Company with the Securities and Exchange
Commission, reports to stockholders and in certain other contexts relating to
future net sales, costs of sales, other expenses, profitability, financial
resources, products and production schedules. Statements relating to the
foregoing or that predict or indicate future events and trends and which do no
relate solely to historical matters identify forward-looking statements.
Forward-looking statements are made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and are based on management's beliefs as well as
assumptions made by and information currently available to management.
Accordingly, the Company's actual results may differ materially from those
expressed or implied in such forward-looking statements due to known and
unknown risks and uncertainties that exist in the Company's operations and
business environment, including, among other factors, government regulation
including tax rate policies, competition and technological change, intellectual
property rights, the failure by the Company to produce anticipated cost savings
or improve productivity, the failure by the Company or its suppliers or
customers to achieve Y2K compliance, the timing and magnitude of capital
expenditures and acquisitions, currency exchange rates, economic and market
conditions in the United States, Europe and the rest of the world, changes in
customer spending levels, the demand for existing and new products, the cost
and availability of raw materials, the successful integration of the Company's
14
acquisitions, and other risks associated with the Company's operations.
Although the Company believes that its forward-looking statements are based on
reasonable assumptions, there can be no assurance that actual results,
performance or achievements will not differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Readers are cautioned not to place undue reliance on forward-
looking statements.
Adoption of New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement requires that entities
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Due to the
complexity of this new standard, the Company is still assessing the impact it
will have on the financial position or results of operations, but does not
anticipate it having a material impact on the financial statements. In June
1999, the FASB issued SFAS No. 137, which amended the effective date of SFAS
133. The new effective date for implementation of SFAS 133 is now for all
fiscal quarters of all fiscal years beginning after June 15, 2000.
15
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A significant portion of AptarGroup's operations is 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. The Company's significant foreign exchange
exposures are to the major currencies which are now part of the Euro (the
Italian Lira, French Franc and German Mark). The Company manages its exposures
to foreign exchange principally with forward exchange contracts to hedge
certain firm purchase and sales commitments and intercompany cash transactions
denominated in foreign currencies.
The table below provides information as of June 30, 1999 about the Company's
forward currency exchange contracts. All the contracts expire before the end of
the third quarter of 1999.
Average
Contractual
Buy/Sell Contract Amount Exchange Rate
--------------------------------------------------
FRF/USD $12,830 6.20
DM/USD 6,597 1.84
LIRE/USD 3,095 1,824.46
FRF/GBP 1,397 9.96
FRF/YEN 1,371 0.0521
LIRE/GBP 686 2955.16
The Company is also party to certain smaller contracts to buy or sell various
other currencies (principally Japanese and Australian) that had an aggregate
contract amount of $0.3 million as of June 30, 1999.
The Company has a cross-currency interest rate swap to hedge an intercompany
lending transaction. This swap requires the Company to pay principal of 37,031
French Francs plus interest at 8% and receive principal of $7,500 plus interest
at 7.08% over ten years. If the Company canceled the swap at June 30, 1999, the
Company would have received approximately $956 based on the fair value of the
swap on that date.
The table below presents the cash flows in both foreign currency and U.S.
dollars that are expected to be exchanged over the duration of the contract.
1999 2000 2001 2002 2003 Thereafter
----------------------------------------------------------------
Pay FRF FRF 6,772 7,822 7,400 6.992 6,560 11,850
Receive USD $1,337 1,525 1,450 1,377 1,299 2,370
Additionally, in some cases, the Company sells products denominated in a
currency different from the currency for which the respective costs are
incurred. Changes in exchange rates on such inter-country sales impacts the
Company's results of operations.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 1999, 180 shares of Common Stock of the
Company were sold to participants in the FCP Aptar Savings Plan, (the "Plan")
at the price of $26.18 per share. Employees of AptarGroup S.A., a subsidiary of
the Company, are eligible to participate in the Plan. All eligible participants
are located outside of the United States. An agent independent of the Company
purchases shares of Common Stock available under the Plan for cash on the open
market and the Company issues no shares. The Company does not receive any
proceeds form the purchase of Common Stock under the Plan. The agent under the
Plan is Banque Nationale de Paris. No underwriters are used under the Plan. All
shares are sold in reliance upon the exemption from registration under the
Securities Act of 1933 provided by Regulation S promulgated under that Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 11, 1999. A vote was taken
by ballot for the election of three directors to hold office until the 2002
Annual Meeting of Stockholders. The following nominees received the number of
votes as set forth below:
Broker
Nominee For Withhold Non-votes
------- --- -------- ---------
King Harris 28,706,456 416,666 -0-
Peter Pfeiffer 28,705,268 417,854 -0-
Joanne C. Smith 28,685,413 437,709 -0-
No votes were cast for any other nominee for director. The directors
continuing in office until the 2000 Annual Meeting are Eugene Barnett,
Ralph Gruska and Leo A. Guthart. Directors continuing in office until the
2001 Annual Meeting of Stockholders are Robert Barrows, Alfred Pilz, and
Carl A. Siebel.
A vote was also taken to approve an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares. The vote was
as set forth below:
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
21,709,412 7,376,229 37,481 -0-
No other matters were submitted to a vote by ballot at the 1999 Annual
Meeting.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 3 (i) Amended and Restated Certificate of Incorporation of
the Company
Exhibit 4.1 Note Purchase Agreement dated as of May 15, 1999
relating to $107 million senior unsecured notes, series
1999-A
Exhibit 4.2 Multicurrency Credit Agreement dated as of June 30,
1999 among the Company, the lenders party thereto, Bank
of America National Trust and Savings Association, as
Agent, and Bank of America Securities LLC, as Arranger
Exhibit 27 Financial Statement Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed for the quarter ended June 30, 1999.
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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 12, 1999
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