United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10‑K10-K
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☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| FOR THE FISCAL YEAR ENDED DECEMBER 31, | |
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| 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 1‑118461-11846
AptarGroup, Inc.
475 WEST TERRA COTTA AVENUE,265 EXCHANGE DRIVE, SUITE E, 100, CRYSTAL LAKE, ILLINOIS60014
815‑477‑0424815-477-0424
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 |
Securities Registered Pursuant to Section 12 (g) of the Act:
NONE
Indicate by check mark if the registrant is a well‑knownwell-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ | No ☐ |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ | No ☒ |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ | No ☐ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑TS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ | No ☐ |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑acceleratednon-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer” and, “smaller reporting company” and “emerging growth company” in Rule 12b‑212b-2 of the Exchange Act.
Large accelerated filer ☒ | 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‑212b-2 of the Act).
Yes ☐ | No ☒ |
The aggregate market value of the common stock held by non‑affiliatesnon-affiliates as of June 30, 201628, 2019 was $5,397,779,755.$7,975,902,822.
The number of shares outstanding of common stock, as of February 20, 2017,18, 2020, was 62,329,60964,054,138 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders to be held May 3, 20176, 2020 are incorporated by reference into Part III of this report.
AptarGroup, Inc.
FORM 10‑K10-K
For the Year Ended December 31, 20162019
INDEX
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | ||
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 81 | |
Certain Relationships and Related Transactions, and Director Independence | 81 | |
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BUSINESS OF APTARGROUPWHO ARE WE AND WHAT DO WE DO
We areAptar is a leading global providersupplier of a broad range of innovative dispensing, sealing, active packaging dispensingsolutions and sealing solutions, primarilyservices for the beauty, personal care, home care, prescription drug, consumer health care, injectables, active packaging, food and beverage markets. Our creativeAptar uses insights, design, engineering and science to create innovative packaging solutions enhancetechnologies that build brand value for its customers, and, in turn, make a meaningful difference in the convenience, safetylives, looks, health and securityhomes of consumerspeople around the globeworld. Aptar is headquartered in Crystal Lake, Illinois and allow our customers to differentiate their productshas approximately 14,000 dedicated employees in the market.20 different countries. For more information, visit www.aptar.com.
Our business was started in the late 1940’s, manufacturing and selling aerosol valves in the United States, and has grown primarily through the acquisition of relatively small companiesacquisitions and internal expansion. We were incorporated in Delaware in 1992. In this report, we may refer to AptarGroup, Inc. and its subsidiaries as “AptarGroup”, “Aptar” or the “Company”.
We have manufacturing facilities located throughout the world including North America, Europe, Asia and South America. We have approximately 5,0007,000 customers with no single customer or group of affiliated customers accounting for greater than 6% of our 2016 net sales.2019 Net Sales.
Consumers’ preference for convenience and product differentiation through packaging design and function are important to our customers and they have converted many of their packages from non-dispensing formats to dispensing systems that offer enhanced shelf appeal, convenience, cleanliness and accuracy of dosage.
While we offer a wide variety of dispensing, sealing and sealingactive packaging solutions, our primary products are dispensing pumps, closures, aerosol valves and elastomeric primary packaging components.
Dispensing pumps are finger‑actuatedfinger-actuated dispensing systems that dispense a spray or lotion from non‑pressurizednon-pressurized containers. The style of pump used depends largely on the nature of the product being dispensed, from small, fine mist pumps used with perfume and pharmaceutical products to lotion pumps for more viscous formulas.
Closures are primarily dispensing closures but to a lesser degree can include non‑dispensingnon-dispensing closures. Dispensing closures are plastic caps whichthat allow a product to be dispensed without removing the cap.
Aerosol valves dispense product from pressurized containers. The majority of the aerosol valves that we sell are continuous spray valves, with the balance being metered dose valves.
We also manufacture and sell elastomeric primary packaging components. These components are used in the injectables market. Products include stoppers for infusion, antibiotic, lyophilization and diagnostic vials. Our elastomeric components also include pre‑filledpre-filled syringe components, such as plungers, needle shields, tip caps and cartridges, as well as dropper bulbs and syringe plungers.
On February 29, 2016,During 2018 and 2019, we acquired several companies to strengthen and broaden our portfolio, including the Companybusiness combinations of the following entities:
- | October 2019 – Noble International Holdings, Inc., Genia Medical, Inc. and JBCB Holdings, LLC (collectively referred to as “Noble”) for cash paid at close of approximately $62.3 million (net of $1.6 million of cash acquired) and contingent consideration liability due to sellers related to earn-out. |
- | June 2019 – Nanopharm Ltd. (“Nanopharm”) for cash paid at close of approximately $38.1 million (net of $1.8 million of cash acquired). |
- | May 2019 – Gateway Analytical LLC (“Gateway”) for cash paid at close of approximately $7.0 million and $3.0 million contingent consideration liability due to sellers related to earn-out. |
- | August 2018 – CSP Technologies S.à r.l. (“CSP Technologies”) for cash paid at close of approximately $553.5 million. |
- | May 2018 – Reboul SAS (“Reboul”) for cash paid at close of approximately $3.6 million (net of $112 thousand of cash acquired). |
During August 2019 we completed itsthe asset acquisition of MegaPlast GmbHBapco Closures Holdings Limited (“Bapco”) for $3.8 million (net of $2.9 million of cash acquired) and its subsidiaries along with Megaplast France S.a.r.l.we also invested an aggregate amount of $3.5 million in two preferred equity investments in sustainability companies Loop and Mega Pumps L.P.PureCycle Technologies (“Mega Airless”PureCycle”). In addition, during January 2020, we acquired 49% of the equity interests in three related companies: Suzhou Hsing Kwang, Suqian Hsing Kwang and Suzhou BTY, (collectively referred to as “BTY”). Mega Airless is a leading providerRefer to Note 20- Acquisitions in Item 8 – Consolidated Financial Statements and Supplementary Data for further details on acquisition activities.
AVAILABLE INFORMATION
Our periodic and current reports, and any amendments to those reports, are available, free of charge, through a link on the Investors page of our website (www.aptar.com), as soon as reasonably practicable after the material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). These filingfilings are also available to the public over the Internet at the SEC’s website (http://www.sec.gov). You may also read and copy any document we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the reference room.
Also posted on our website are the charters for our Audit, Management Development and Compensation, Governance and Executive Committees, our Governance Principles, our Code of Business Conduct & Ethics, our Director Independence Standards and our Conflict Minerals Statement. Within the time period required by the SEC and the New York Stock Exchange (“NYSE”), we will post on our website any amendment or waiver to the Code of Business Conduct & Ethics applicable to any executive officer or director. The information provided on our website is not part of this report and is therefore not incorporated herein by reference.
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OUR STRATEGY
We seek to enhance our position as a leading global provider of innovative packaging dispensing, sealing, active packaging solutions and sealing solutionsservices and deliver increased value to our customers and stockholders through strategic focus and execution in the following areas:
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(iii) | Excellence in Core Business Functions: We |
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(v) | Partnerships and Acquisitions: We will continue to focus on growing the Company through appropriate business acquisition opportunities as well as developing partnerships to expand the scope of our technologies, geographic presence and product offerings. |
Facilitating the execution of our strategy are our core values, which dictate how we interact internally and externally with our employees, customers, suppliers and all stakeholders.
DESCRIPTION OF APTARGROUP’SOUR REPORTING SEGMENTS
INFORMATION ABOUT SEGMENTS
AptarGroup’sOur organizational structure consists of three market‑focusedmarket-focused business segments which aresegments: Beauty + Home, Pharma and Food + Beverage. This is a strategic structure which allows us to be more closely aligned with our customers and the markets in which they operate. We primarily sell our products and services through our own sales force to the largest beauty, personal care, pharmaceutical, home care, pharmaceutical, food and beverage marketers in the world.marketers. To a limited extent, we use independent representatives and distributors to increase our reach to smaller customers and export markets.
Operations that sell dispensing systems and sealing solutions primarily to the beauty, personal care and home care markets form the Beauty + Home segment. Operations that sell dispensing systems and sealing solutions and services to the prescription drug, consumer health care, injectables and injectablesactive packaging markets form the Pharma segment. Operations that sell dispensing systems and sealing solutions to the food and beverage markets form the Food + Beverage segment. Each of these three business segments is described more fully below. A summary
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2/ATR | 2019 Form 10-K |
BEAUTY + HOME
The Beauty + Home segment is our largest segment in terms of net sales and total assets representing 54%47% and 49%39% of AptarGroup’sour Net Sales and Total Assets, respectively.respectively, in 2019. The Beauty + Home segment primarily sells pumps, closures, aerosol valves, accessories and sealing solutions to the personal care and home care markets and pumps and decorative components to the beauty market. We believe we are a leading supplier for the majority of the products we sell primarily to the beauty and personal care and home care markets.
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Beauty. Sales to the beauty market accounted for approximately 48%51% of the segment’s total net sales in 2016.2019. The beauty market requires a broad range of spray and lotion pumps, closures, elastomeric flow-control components and sampling dispensing systems to meet functional as well as aesthetic requirements. A considerable amount of research, time and coordination with our customers is required to qualify a pump for use with their products. Within the market, we expect the use of pumps to continue to increase, particularly in the cosmetics and sampling sectors. In the cosmetic sector, packaging for certain products such as natural and organic cosmetics and anti‑aginganti-aging lotions continue to provide us with growth opportunities. We are a leading provider of packaging solutions for prestige and mass market fragrance products. Our cosmetic lotion pumps, airless dispensing systems, lotion sampling devices and decorative capabilities along with our focus on color cosmetics including lip stick and lip gloss products will also provide growth opportunities. We see continued growth opportunities in Latin America and significant opportunities for growth in the sale of our products for cosmetic skin care and color cosmetic applications in Asia.
Personal Care. Sales to the personal care market accounted for approximately 44%42% of the segment’s total net sales in 20162019 and primarily included sales of fine mist spray pumps, lotion pumps, closures, elastomeric flow-control components and continuous spray aerosol valves. Personal care spray pump applications include hair care, body care and sun care products. Typical lotion pump applications include skin moisturizers, hand sanitizers and soap. Personal care closures applications include shampoos and conditioners. Personal care continuous spray aerosol valve applications include hair care products, deodorants, shaving creams and sun care products. Our research and development teams continue to design unique accessories that increase the value of our continuous spray aerosol valve offerings.
Home Care. Sales to the home care market accounted for approximately 8%7% of the segment’s total net sales in 20162019 and primarily included sales of continuous or metered dose spray aerosol valves, closures and to a lesser degree spray and lotion pumps. Applications for continuous spray valves include disinfectants, spray paints, insecticides and automotive products. Metered dose valves are used for air fresheners. Closure applications include liquid detergents, automotive products and household cleansers. Spray and lotion pump applications primarily include household, insect repellant and industrial cleaners.
PHARMA
The Pharma segment is our second largest segment in terms of net sales and total assets, accounting for 32%38% and 40% of both AptarGroup’sour Net Sales and Total Assets, and is our most profitable segment.respectively, in 2019. We believe we are a leading supplier of pumps and metered dose inhaler valves (“MDI’s”MDIs”) to the pharmaceutical market worldwide and we are aan important supplier of elastomer for injectable primary packaging components worldwide. Characteristics of this market include (i) governmental regulation of our pharmaceutical customers, (ii) contaminant‑controlledcontaminant-controlled manufacturing environments and (iii) a significant amount of time and research from initially working with pharmaceutical companies at the molecular development stage of a medication through the eventual distribution to the market. We have clean‑roomclean-room manufacturing facilities in Argentina, China, France, Germany, India, Switzerland and the United States. We believe that providing an alternative to traditional medication forms such as pills with value‑added,value-added, convenient dispensing systems will continue to offer opportunities for our business. In addition, we believe there are opportunities for growth in the over-the-counter and generic pharmaceutical categories.
Prescription Drug. Sales to the prescription drug market accounted for approximately 55%50% of the segment’s total net sales in 2016.2019. Pumps sold to the prescription drug market deliver medications nasally, orally or topically. Currently the majority of our pumps sold are for nasal allergy treatments. Recently, thereSales of pumps to deliver prescription allergy medicine that is a trendnow available over-the-counter remains part of nasal allergy products moving from prescription‑only to being sold over-the-counter without a prescription.our prescription drug division. This trend could provide us with growth opportunities as thisthe movement could allowto over-the-counter availability allows consumers easier access to these types of treatments. Our nasal pumps and unit dose and bidose devices are also used to deliver pain management products. Potential opportunities for providing alternatives to traditional pill and injectable dosage forms of medication include pump dispensing systems for vaccines, cold and flu treatments, central nervous systems applications and hormone replacement therapies.
MDI’sMDIs are used for dispensing precise amounts of aerosolized medication. This technology allows medication to be broken up into very fine particles, which enables the drug to be delivered typically via the pulmonary system. Currently the majority of our MDI’sMDIs sold are used for respiratory ailments such as asthma and COPD (chronic obstructive pulmonary disease).
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3/ATR | 2019 Form 10-K |
We continue to develop new dispensing systems and accessories in this segment. For example, we provide single dose delivery devices suitable for central nervous system applications. While we expect that these types of new products will come to market in the future, it is difficult to estimate when, as the rigors of pharmaceutical regulations affect the timing of product introductions by our pharmaceutical customers whichthat use our dispensing systems.
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Consumer Health Care. Sales to the consumer health care market accounted for approximately 27%24% of the segment’s total net sales in 2016.2019. Applications for this market are similar to the prescription market; however, these applications are sold over-the-counter without a prescription. Typical consumer health care spray pump applications include nasal decongestants, nasal salines and cough and cold applications. Typical consumer health care valve applications include nasal saline using our bag‑onbag-on valve technology. We have developed a multi dose ophthalmic dispensing device suitable for unpreserved medicinal formulations. This technology is successfully marketed in Europe, North America and Latin America and is under development for other markets both for over-the-counter and prescription applications. Other products sold to this market include airless pump systems for dermal drug delivery applications. We have recently seen a trend to more child resistant and senior‑friendlysenior-friendly packaging solutions and have developed products to meet these market needs.
Injectables. Sales to the injectables market accounted for approximately 18%16% of the segment’s total net sales in 2016.2019. Injectables are elastomeric primary packaging components for injectable drug delivery. Injectable products offered include stoppers for vials pre‑filledand pre-filled syringe components, such as plungers, needle shields, tip caps and components for cartridges. Our recent investment in this business will allowallows us to market coated stoppers which better preserve the contents of the vial and adds value to our customers and the consumer. Pharmaceutical applications for this market include vaccines, anti‑thrombotic,anti-thrombotic, small molecules and biologics.
Active Packaging. Active packaging is a new technology for Aptar since the CSP Technologies Acquisition in the third quarter of 2018. Sales of active packaging products accounted for approximately 10% of the segment’s total net sales in 2019. Through proprietary material science expertise, we deliver active packaging solutions such as desiccant material to enhance the shelf life and effectiveness of diagnostic and solid dose products.
FOOD + BEVERAGE
The Food + Beverage segment is our smallest segment in terms of net sales and total assets, representing 14% and 10% 15%of AptarGroup’sour Net Sales and Total Assets respectively,in 2019, but has been experiencing strong product growth over recent years. We primarily sell dispensing closures and, to a lesser degree, non‑dispensingnon-dispensing closures, elastomeric flow control components, spray pumps and aerosol valves.
Sales of dispensing closures have grown as consumers worldwide have demonstrated a preference for a package utilizing the convenience of a dispensing closure. At the same time, consumer marketers are trying to differentiate their products by incorporating performance enhancing features such as bonded aluminum liners to plastic, flow‑controlflow-control and no‑dripno-drip dispensing, inverted packaging and directional flow to make packages simpler to use, cleaner and more appealing to consumers. We also have a number of product solutions that address the increased use of flexible packaging formats.
Food. Sales to the food market accounted for approximately 61%68% of the segment’s total net sales in 20162019 and primarily include sales of dispensing closures and elastomeric flow‑controlflow-control components. To a lesser degree we also sell non‑dispensingnon-dispensing closures, continuous spray aerosol valves and spray pumps to this market. Applications for dispensing closures include sauces, condiments, infant nutrition and food products. Applications for non‑dispensing closures include granular and powderother food products. Applications for continuous spray aerosol valves include cooking sprays. Spray pump applications primarily include butter or salad dressing sprays. With the completion of the CSP Technologies Acquisition in the third quarter of 2018, we have started to sell and further develop packaging solutions to the food service market to enhance the shelf life of those products.
Beverage. Sales to the beverage market accounted for approximately 38%32% of the segment’s total net sales in 20162019 and primarily include sales of dispensing closures and elastomeric flow‑controlflow-control components. Sales of dispensing closures to the beverage market have increased significantly over the last several years as we continue to see an increase of interest from marketers using dispensing closures for their products. Examples of beverage products currently utilizing dispensing closures include bottled water, sport and energy drinks, juices and concentrated water flavorings.
GENERAL BUSINESS INFORMATION
RESEARCH AND DEVELOPMENT
Our commitment to innovation, one of our competitive strengths, has resulted in an emphasis on research and development directed toward developing affordable, new, innovative packaging delivery solutions and adapting existing products for new markets or customer requirements. In certain cases, our customers share in the research and development expenses of customer initiated projects. Occasionally, we acquire or license from third parties technologies or products that are in various stages of development. Expenditures for research and development activities, net
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4/ATR | 2019 Form 10-K |
PATENTS AND TRADEMARKS
We customarily seek patent and trademark protection for our products and brands. We own and currently have numerous applications pending for patents and trademarks in many regions of the world. In addition, certain of our products are produced under patent licenses granted by third parties. We believe that we possess certain technical capabilities in making our products that make it difficult for a competitor to duplicate. While valuable to our overall product portfolio, sales of any one individually patented product are not considered material to any specific segment or to the Company’sour consolidatedresults.
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TECHNOLOGY
TECHNOLOGY
We have technical expertise regarding injection molding, robotics, clean-room facilities and high‑speedhigh-speed assembly. We also have expertise regarding the formulation and finishing of elastomer and silicone components. In addition, we offer a variety of sterilization options for elastomeric components for the pharmaceutical industry.and active packaging technologybased on proprietary material science expertise. Pumps and aerosol valves require the assembly of several different plastic, metal and rubber components using high‑speedhigh-speed equipment. When molding dispensing closures, or plastic components to be used in pump or aerosol valve products, we use advanced plastic injection molding technology, including large cavitation plastic injection molds. We are able to mold within tolerances as small as one one‑thousandthone-thousandth of an inch and we assemble products in a high‑speed, cost‑effectivehigh-speed, cost-effective manner. We are experts in molding liquid silicone that is used in certain dispensing closures as well as rubber gasket formulation and production primarily for the prescription drug and consumer health care markets. We also provide analytical expertise within our pharma service technology businesses.
MANUFACTURING AND SOURCING
The majority of our worldwide production is located outside of the United States. Our philosophy is to produce as much as possible in the region where it will be sold. In order to augment capacity and to maximize internal capacity utilization (particularly for plastic injection molding), we use subcontractors to supply certain plastic, metal and rubber components. Certain suppliers of these components have unique technical abilities that make us dependent on them, particularly for aerosol valve and pump production. The principal raw materials used in our production are plastic resins, silicone, rubber and certain metal products. We believe an adequate supply of such raw materials is available from existing and alternative sources. We attempt to offset cost increases through improving productivity and developing new, higher margin solutions and increasing selling prices, over time, as allowed by market conditions or contractual commitments. Our pharmaceutical products often use plastic resinWe source certain materials, especially some resins and rubber components specifically approved byfor our customers.pharmaceutical segment, from a single source. Significant delays in receiving these components or discontinuance of an approved raw material would require us to seek alternative sources, which could result in higher costs as well as impact our ability to supply products in the short-term.
BACKLOG
Our sales are primarily made pursuant to standard purchase orders for delivery of products. While most orders placed with us are ready for delivery within 120 days, we continue to experience a trend towards shorter lead times requested by our customers. Some customers place blanket orders, which extend beyond this delivery period. However, deliveries against purchase orders are subject to change, and only a small portion of the order backlog is noncancelable. The dollar amount associated with the noncancelable portion is not material. Therefore, we do not believe that backlog as of any particular date is an accurate indicator of future results.
CUSTOMERS
We have approximately 5,0007,000 customers with no single customer or group of affiliated customers accounting for greater than 6% of 2016 net sales.2019 Net Sales. A consolidation of our customer base has been occurring and this trend is expected to continue. A concentration of customers presents opportunities for increasing sales due to the breadth of our product line, our international presence and our long‑termlong-term relationships with certain customers. However, consolidation of our customers could lead to pricing pressures, concentration of credit risk and fewer opportunities to introduce new products to the market.
INTERNATIONAL BUSINESS
We are geographically diverse with manufacturing and sales operations in Asia, Europe, Latin America (including Mexico) and North America. Europe is our largest region in terms of sales, where sales for the years ended December 31, 2016, 20152019 and 20142018 were approximately 57% and 59%, 56% and 58%, respectively.respectively, of our consolidated sales. Asia and Latin America when aggregated represented approximately 16%, 17%14% and 17%15% of our consolidated sales for the years ended December 31, 2016, 20152019 and 2014,2018, respectively. Export sales from the United States were $165.1 million, $151.2$170.0 million and $161.4$171.7 million in 2016, 20152019 and 2014,2018, respectively. We are a net exporter of goods from the U.S. and Europe and a net importer of goods to the Asian and Latin American regions. For additional financial information about geographic areas, please refer to Note 17 in the Notes to the Consolidated Financial Statements in Item 8 (which is incorporated by reference herein).
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5/ATR | 2019 Form 10-K |
FOREIGN CURRENCY
Because of our international presence, movements in exchange rates have a significant impact on the translation of the financial statements of our foreign subsidiaries. Our primary foreign exchange exposure is to the Euro,euro, but we have foreign exchange exposure to the Chinese Yuan,yuan, Brazilian Real,real, Mexican Peso,peso, Swiss Francfranc and other Asian, European and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements. Conversely, a weakening U.S. dollar has an additive effect. We manage our exposures to foreign exchange principally with forward exchange contracts to economically hedge recorded transactions and firm purchase and sales commitments denominated in foreign currencies.
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During the quarter ended June 30, 2018, we concluded that Argentina has become a highly inflationary economy primarily based on published estimates, which indicate that Argentina's three-year cumulative inflation rate has exceeded 100%. Beginning July 1, 2018, we applied highly inflationary accounting for our Argentinian subsidiaries. We have changed the functional currency from the Argentinian peso to the U.S. dollar.
WORKING CAPITAL PRACTICES
Collection and payment periods tend to be longer for our operations located outside the United States due to local business practices. We have also seen an increasing trend in pressure from certain customers to lengthen their payment terms. As the majority of our products are made to order, we have not needed to keep significant amounts of finished goods inventory to meet customer requirements. However, some of our contracts specify an amount of finished goods safety stock we are required to maintain.
To the extent our financial position allows and there is a clear financial benefit, we from time-to-time benefit from early payment discounts with some suppliers. We are also lengthening the payment terms with our suppliers to be in line with customer trends. While we have offered third party alternatives for our suppliers to receive payments sooner, we have not utilized these offerings from our customers as the economic conditions currently are not beneficial for us.
EMPLOYEE AND LABOR RELATIONS
AptarGroup has approximately 12,700 full‑time14,000 full-time employees. Of the full‑timefull-time employees, approximately 7,6008,700 are located in Europe, 3,0002,900 are located in Asia and South America and the remaining 2,1002,400 are located in North America. The majority of our European and Latin American employees are covered by collective bargaining arrangements made at either the local or national level in their respective countries and approximately 155100 of the North American employees are covered by a collective bargaining agreement. Termination of employees at certain of our international operations could be costly due to local regulations regarding severance benefits. There were no material work stoppages in 20162019 and management considers our employee relations to be satisfactory.
COMPETITION
All of the markets in which we operate are highly competitive and we continue to experience price competition in all product lines and markets. Competitors include privately and publicly held entities that range from regional to international companies. We expect the market for our products to remain competitive.competitive, as consolidation among our competitors is increasing in the current economic climate. We believe our competitive advantages are consistent high levels of innovation, quality and service, geographic diversity, financial strength and stability and breadth of products.products and services. Our manufacturing strength lies in the ability to mold complex plastic components and formulate and finish elastomer and silicone components in a cost‑effectivecost-effective manner and to assemble products at high speeds. Our business is somewhat capital intensive and it is becoming more important to our customers for Aptar tothat we have global manufacturing capabilities. Both of these serve as barriers to entry for new competitors wanting to enter our business. Furthermore, within our Pharma business, increasing regulatory hurdles present a barrier for new competitors to enter the market.
While we have experienced some competition in Europe, Latin America and the United States from low cost Asian suppliers, particularly in the low‑endlow-end beauty and personal care market, this has not been significant. Although using low cost Asian suppliessuppliers may have a cost advantage, some customers prefer local suppliers citing better quality, better customer service and shorter lead times. We have also recently reduced our carbon footprint due to shorter supply chain networks being utilized, which we see as a competitive advantage.
ENVIRONMENT
Our manufacturing operations primarily involve plastic injection molding, automated assembly processes, elastomer and silicone formulation and finishing and, to a limited degree, metal anodization and vacuum metallization of plastic components. Historically, the environmental impact of these processes has been minimal, and we believe we meet current environmental standards in all material respects. To date, our manufacturing operations have not been significantly affected by environmental laws and regulations relating to the environment.
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6/ATR | 2019 Form 10-K |
Recently there is increased interest and awareness from consumers, and from our customers, in environmentally sustainable products, especially through the sourcing of sustainable materials. We are focused on reducing our environmental impacts through product life cycle assessments, sustainable material trials, operational eco-efficiency initiatives and renewable energy sourcing. We arehave teams dedicated to designing for sustainability by providing products that improve recyclability and use less material. Aptar has launched products and components in North America and Europe made with post-consumer recycled resins (PCR) and continues to explore additional opportunities for alternative resins and recyclable products.
We are actively collaborating with our customers on reliable products by supporting our customers’ participation in the circular e-commerce platform called “Loop,” in addition to being an investor in Loop ourselves. We also invested in and partnered with PureCycle, to prepare for the introduction of Ultra-Pure Recycled Polypropylene (UPRP) into dispensing applications.
Connecting with other companies through organizations like Ellen MacArthur Foundation’s New Plastics Economy and the World Business Council for Sustainable Development (WBCSD) provides an invaluable opportunity to share best practices and work on larger projects with aligned objectives towards a more circular economy.
Future regulations on environmental matters regarding recycling or material inputs could impact our business.
GOVERNMENT REGULATION
Certain of our products are directly or indirectly affected by government regulation. The European Union has adopted a circular economy package. The package maps out a series of actions planned over several years. Some actions have resulted in regulations aimed to reduce marine litter, increase plastic recycling rates, prohibit single-use plastic packaging and introduce new taxes in relation to the end-of-life management of packaging. In parts of the United States, regulations require food and beverage companies to tether plastic caps to ensure the caps stay with the package, thus improving the likelihood the caps will enter the recycling stream. The potential exists for these types of regulations to expand worldwide. We have established an innovation team that focuses on designing for and converting into more sustainable options like post-consumer recycled resin and Food and Drug Administration approved resin alternatives. We are designing for sustainability by providing products that improve recyclability and use less material, and we offer multiple tethered options. We are also partnering with global and regional thought leaders to drive a more circular economy.
Demand for aerosol and pump packaging is also affected by government regulations regarding the release of volatile organic compounds (“VOCs”) into the atmosphere. Europe and the United States have regulations that require the reduction in the amount of VOCs that can be released into the atmosphere and the potential exists for this type of regulation to expand worldwide. These regulations required certain of our customers to reformulate certain aerosol and pump products, which may have affected the demand for such products. We own patents and have developed systems to function with alternative propellant and product formulations.
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Future government regulations could include healthcare cost containment policies. For example, reviews by various governments to determine the number of drugs, or prices thereof, that will be paid by their insurance systems could affect future sales of our pharmaceutical customers’ products and thus adversely impact our sales to the pharmaceutical industry.these customers. Such regulation could adversely affect prices of and demand for our pharmaceutical products. We believe that the focus on the cost effectiveness of the use of medications as compared to surgery and hospitalization provides us with an opportunity to expand sales to the pharmaceutical market.
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7/ATR | 2019 Form 10-K |
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Our executive officers as of February 27, 201724, 2020 are as follows:
Name | Age | Position with the Company | ||
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Stephan Tanda |
| President and Chief Executive Officer | ||
Mr. Tanda has been President and Chief Executive Officer since February 2017. Prior to this, Mr. Tanda was an Executive Managing Board Director at Royal DSM NV, a leading global supplier of ingredients and material solutions for the food, dietary supplement, personal care, medical device, automotive, paint, electronic and bio-material markets, from March 2007 to January 2017. | ||||
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Robert Kuhn |
| Executive Vice President, Chief Financial Officer and Secretary | ||
Mr. Kuhn has been Executive Vice President and Chief Financial Officer since September 2008. Mr. Kuhn has been Secretary since June 2011. | ||||
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Eldon Schaffer |
| Executive Vice President, | ||
Mr. Schaffer has been Executive Vice President of Strategic Projects and Commercial Excellence since December 2019. Prior to this, Mr. Schaffer was President of Aptar Beauty + Home | ||||
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| President, Aptar Beauty + Home | ||
Mr. Prieur has been President of Aptar Beauty + Home since December 2019. Prior to this, Mr. Prieur was President of Aptar Food + Beverage from September 2018 to November 2019, VP of Aptar Operational Excellence from June 2017 to August 2018, President EMEA Sales & Operations – Consumer Health Care from June 2013 to June 2017 and President of our Pharma business in Asia from June 2008 to June 2013. | ||||
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Hedi Tlili | 45 | President, Aptar Food + Beverage | ||
Mr. | ||||
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Gael Touya | 50 | President, Aptar Pharma | ||
Mr. Touya has been President of Aptar Pharma since September 2018. Prior to this, Mr. Touya was President of Aptar Food + Beverage from 2016 to August 2018, President of Aptar Food + Beverage Europe from 2012 to 2015 and Business Development Vice President Skin Care and Color Cosmetics from 2010 to 2011. | ||||
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| President, Aptar | ||
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| DSM Hydrocolloids from 2014 to 2018, President Asia of DSM Food Specialties from 2011 to 2014, Vice President of | ||
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Shiela Vinczeller | 56 | Chief Human Resources Officer | ||
Ms. Vinczeller has been Chief Human Resources Officer since November 2018. Prior to this, Ms. Vinczeller spent 12 years in Human Resources leadership roles at International Paper, one of the world’s leading producers of fiber-based packaging, pulp and | ||||
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There were no arrangements or understandings between any of the executive officers and any other person(s) pursuant to which such officers were elected.
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Set forth below and elsewhere in this report and in other documents we file with the Securities and Exchange Commission are risks and uncertainties that could cause our actual results or other events to materially differ from the results or events contemplated by the forward‑lookingforward-looking statements contained in this report and in other documents we file with the Securities and Exchange Commission. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations. You should carefully consider the following factors in addition to other information contained in this report on Form 10‑K10-K before purchasing any shares of our common stock.
FACTORS AFFECTING OPERATIONS OR OPERATING RESULTS
If there is deterioration in economic conditions in a particular region or market, our business and operating results could be materially adversely impacted. Due to our strong balance sheet, diverse product offerings, various end‑marketsend-markets served, and our broad geographic presence, we believe we are well positioned to withstand slowness in any one particular region or market. However, economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. A tightening of credit in financial markets or other factors may lead consumers and businesses to postpone spending, which may cause our customers to cancel, decrease or delay their existing and future orders with us. In addition, financial difficulties experienced by our suppliers, customers or distributors could result in product delays, increased accounts receivable defaults, inventory or supply challenges and pricing pressures. An interruption in supply may also impact our ability to meet customer demands. Consumer demand for our customers’ products and shifting consumer preferences are unpredictable and could have a negative impact on our customers and our customers’ demand for our products.
We face strong global competition and our market share could decline. All of the markets in which we operate are highly competitive and we continue to experience price competition in all product lines and segments. Competitors include privately and publicly held entities. Our competitors mainlyentities that range from regional to international companies. We expect the market for our products to remain competitive, as consolidation among our competitors is increasing in the current economic climate. If we are unable to compete successfully, our market share may decline, which could materially adversely affect our results of operations and financial condition.
Geopolitical conditions, including trade disputes and direct or indirect acts of war or terrorism, could have a material adverse effect on our operations and financial results. Our operations could be disrupted by geopolitical conditions such as Brexit, trade disputes, international boycotts and sanctions, acts of war, terrorist activity or other similar events. Such events could make it difficult, impossible or impossiblemore expensive to manufacture or deliver products to our customers, receive production materials from our suppliers, or perform critical functions, all of which could adversely affect our business globally or in certain regions. While we maintain similar manufacturing capacities at different locations and coordinate multi‑source supplier programs on many of our materials which would better enable us to respond to these types of events, we cannot be sure that our plans will fully protect us from all such disruptions. In addition, our customers may export their finished products using our dispensing devices that were sold in other regions and an adverse geopolitical event may impact the sales of our customers’ products and thus indirectly negatively impact the demand for our dispensing solutions. However, our business is well-diversified across nine end markets and many geographies as we produce in seventeen countries and while we do face some risk related to specific trade policies, we believe our diverse business model, coupled with our diverse and global customer base, allow some protection from dependency on any one geographic region, country or even trade route.
We have foreign currency translation and transaction risks that may materially adversely affect our operating results. A majority of our operations are located outside of the United States. Because of this, movements in exchange rates may have an impact on the translation of the financial statements of our foreign entities. Our primary foreign exchange exposure is to the Euro,euro, but we have foreign exchange exposure to the Chinese Yuan,yuan, Brazilian Real,real, Mexican Peso,peso, Swiss Franc,franc, and other Asian, European and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements. Conversely, a weakening U.S. dollar has an additive translation effect. In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. We manage our exposures to foreign exchange principally with forward exchange contracts to economically hedge certain transactions and firm purchase and sales commitments denominated in foreign currencies. The volatility of currency exchange rates may materially affect our operating results.
Government regulation on environmental matters regarding recycling or environmental sustainability policies could impact our business. Future government regulations mandating the use or limitations of certain materials could impact our manufacturing processes or the technologies we use forcing us to reinvest infaster development and adoption of alternative materials or assets used in the production of our products.
Future government regulations of healthcare cost containment policies may impact our pharmaceutical sales. Review by governments of the number of drugs and prices thereof that will be paid by their insurance systems could affect future sales to the pharmaceutical industry and thereby adversely affect prices of and demand for our pharmaceutical products.
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9/ATR | 2019 Form 10-K |
Consolidation of customer base could impact our business. We believe mergers and acquisitions within our customer base create opportunities for increasing sales due to the breadth of our product line, our international presence and our long‑termlong-term relationships with certain customers. However, consolidation of our customers could lead to pricing pressures, concentration of credit risk and fewer opportunities to introduce new products to the market.
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If our expansion initiatives are unsuccessful, our operating results and reputation may suffer. We are expanding our operations in a number of geographies and markets, including facilities expansions in NorthLatin America Europe and Asia.Asia, and market expansions such as active packaging. Expansion of our operations require a significant amount of time and attention from our senior management and/or capital investment. These activities present considerable challenges and risks, including the general economic and political conditions in the markets that we enter, attracting, training and retaining qualified and talented employees, infrastructure disruptions, fluctuations in currency exchange rates, the imposition of restrictions by governmental authorities, compliance with current, new and changing governmental laws and regulations and the cost of such compliance activities. If any of our expansion efforts are unsuccessful, our operating results and reputation may suffer.
The success or failure of our customers’ products, particularly in the pharmaceutical market, may materially affect our operating results and financial condition. In the pharmaceutical market, the proprietary nature of our customers’ products and the success or failure of their products in the market using our dispensing systems may have a material impact on our operating results and financial condition. We may potentially work for years on modifying our dispensing device to work in conjunction with a customer’s drug formulation. If the customer’s pharmaceutical product is not approved by regulatory bodies or it is not successful on the market, the associated costs may not be recovered.
Higher raw material costs and other inputs and an inability to increase our selling prices may materially adversely affect our operating results and financial condition. The cost of raw materials and other inputs (particularly plastic resin, rubber, metal, anodization costs and transportation and energy costs) are volatile and susceptible to rapid and substantial changes due to factors beyond our control, such as changing economic conditions, currency fluctuations, weather conditions, political unrest and instability in energy‑producingenergy-producing nations, and supply and demand pressures. Raw material costs may increase in the coming years and, although we have generally been able to increase selling prices to cover increased costs, future market conditions may prevent us from passing these increased costs on to our customers through timely price increases. In addition, we may not be able to improve productivity or realize savings from our cost reduction programs sufficiently enough to offset the impact of increased raw material costs. As a result, higher raw material costs could result in declining margins and operating results.
In difficult market conditions, our fixed costs structure combined with potentially lower revenues may negatively impact our results. Our business is characterized by relatively high fixed costs and, notwithstanding our utilization of third‑partythird-party manufacturing capacity, most of our production requirements are met by our own manufacturing facilities. In difficult environments, we are generally faced with a decline in the utilization rates of our manufacturing facilities due to decreases in product demand. During such periods, our plants domay not operate at full capacity and the costs associated with this excess capacity are charged directly to cost of sales. Difficult market conditions in the future may adversely affect our utilization rates and consequently our future gross margins, and this, in turn, could have a material negative impact on our business, financial condition and results of operations.
If our unionized employees were to engage in a strike or other work stoppage, our business, operating results and financial position could be materially adversely affected. The majority of our European and Latin American employees are covered by collective bargaining arrangements made either at the local or national level in their respective countries and approximately 155100 of our North American employees are covered by a collective bargaining agreement. Although we believe that our relations with our employees are satisfactory, no assurance can be given that this will continue. If disputes with our unions arise, or if our unionized workers engage in a strike or other work stoppage, we could incur higher labor costs or experience a significant disruption of operations, which could have a material adverse effect on our business, operating results and financial position.
Single sourced materials and manufacturing sites could adversely impact our ability to deliver product. The Company sources We source certain materials, especially some resins and rubber components for our pharmaceutical segment, from a single source. Any disruption in the supply of these materials could adversely impact our ability to deliver product to our customers. Similarly, we have certain components and / or products that are manufactured at a single location or from a single machine or mold. Any disruption to the manufacturing process could also adversely impact our ability to deliver product to our customers.
If we were to incur a significant product liability claim above our current insurance coverage, our business, operating results and financial condition could be materially adversely affected. The failure of our devices to operate as intended may result in a product liability claim against us. We believe we maintain adequate levels of product liability insurance coverage. A product liability claim in excess of our insurance coverage or not covered by existing insurance may materially adversely affect our business, operating results and financial condition.
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Increased cybersecurity threats could pose a risk to our operations. Increased global information security threats and more sophisticated, targeted computer crime pose a risk to the confidentiality, availability and integrity of our data, operations and infrastructure.infrastructure, as well as the data of our customers. We continue to assess potential threats and make investments seeking to reduce the risk of these threats by employing a number of security measures, including employee training, comprehensive monitoring of our networks and systems, ensuring strong data protection standards are in place, and maintenance of backup and protective systems.safeguarding our critical information assets. We also periodically test our systems for vulnerabilities and haveregularly rely on occasion used a third partyparties to conduct such tests. To date, we have seen no material impact on our business or operations from these threats; however, we cannot guarantee that our security efforts will prevent unauthorized access or loss of functionality to our or our third-party providers’ systems. Even with these mitigations, our information systems remain potentially vulnerable to sophisticated cybersecurity threats. Depending on their nature and scope, such threats could potentially lead to the compromise of confidential information, improper use of our systems and networks, manipulation and destruction of data, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations.
If our integration of acquisitions are unsuccessful, our operating results and reputation in the investment community may suffer. We continue to pursue growth through acquisitions, including the recent Noble, Nanopharm, Gateway, CSP Technologies and Reboul acquisitions. If our integration efforts, including unlocking synergies, are unsuccessful we may not realize the full potential of the acquisitions and as a result our financial performance may suffer.
We have approximately $408$763.5 million in recorded goodwill at December 31, 2016,2019, and changes in future business conditions could cause this asset to become impaired, requiring write‑downswrite-downs that would reduce our operating income. We evaluate the recoverability of goodwill amounts annually, or more frequently when evidence of potential impairment exists. The impairment test is based on several factors requiring judgment. A decrease in expected reporting unit cash flows or changes in market conditions may indicate potential impairment of recorded goodwill and, as a result, our operating results could be materially adversely affected. See “Critical Accounting Estimates” in Part II, Item 7 for additional information.
We are subject to tax regulations in the many jurisdictions in which we operate, and changes in tax regulations could materially impact our results. Future changes in tax laws or in the interpretation of tax laws in jurisdictions where we have significant operations could materially impact our provision for income taxes, the amount of taxes payable and our deferred tax asset and liability balances. Recent proposals
We are currently implementing a business transformation plan, with the main objective to lowerreturn our Beauty + Home segment to historical growth and profit margins. Certain elements of this transformation plan can be disruptive to our business and our employees if we do not manage the U.S. corporate income tax rate include a tax on unremitted earnings. Wechange properly. Furthermore, the transformation plan may take longer to complete than currently have $1.5 billion of unremitted foreign earnings,expected, may be more costly to complete than currently expected and a tax onmay not be successful in returning Beauty + Home to historical growth and profit margins. Any such earningseffects could materially adversely impact our results.business.
We may be adversely affected by changes in the method of determining the London Interbank Offered Rate (“LIBOR”) or other Interbank Rates (IBORs) for our variable rate loans, derivative contracts and other financial assets and liabilities.We have loans, derivative contracts and other financial instruments which are directly or indirectly dependent on LIBOR to establish their interest rate and/or value. The U.K. Financial Conduct Authority announced in 2017 that it would no longer compel banks to submit rates for the calculation of LIBOR after 2021. It is not possible to predict whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. It is expected that a transition away from the widespread use of LIBOR to alternative rates is likely to occur during the next couple years. The transition from LIBOR may cause us to incur increased costs and additional risk. Uncertainty as to the nature of alternative reference rates and as to potential changes in or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans originated prior to 2021. If LIBOR rates are no longer available, any successor or replacement interest rates may perform differently, which may affect our net interest expense, change our market risk profile and require changes to our risk, pricing and hedging strategies. We will continue our impact assessment and monitor regulatory developments during the transition period.
FACTOR AFFECTING APTARGROUP STOCK
Ownership by Certain Significant Stockholders. Currently, Aptar has four institutional stockholders who each own between 5%6% and 11% of our outstanding common stock. None of these stockholders have direct representation on our Board of Directors. If one of these stockholders decides to sell significant volumes of our stock, this could put downward pressure on the price of the stock. stock.
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11/ATR | 2019 Form 10-K |
We have significant international sales and operations and face risks related to health epidemics which could adversely affect our business and results of operations.Our business and operations could be materially and adversely affected by the effects of a widespread outbreak of a contagious disease, including the recent outbreak of the respiratory illness caused by a coronavirus strain first identified in Wuhan, Hubei Province, China, or any other outbreak of contagious diseases, and other adverse public health developments. These effects could include disruptions or restrictions on our employees’ ability to travel, as well as temporary closures of our facilities or the facilities of our customers, suppliers, or other vendors in our supply chain. We have restricted travel to China by our employees and have instituted facilities closures in line with instructions from the local authorities as a response to the coronavirus epidemic. Approximately 4% of our Net Sales in 2019 were related to Chinese operations and any disruption of our supply chain or customers could adversely impact our business and results of operations, as our multinational customers export their products to China or sell via travel retail channels. Accordingly, the coronavirus could result in a reduction in demand from our customers outside of China and adversely impact our European and North American sales. Although we do not source a significant amount of products or components from China, the indirect impact of our suppliers who may be sourcing raw materials via China is unknown at this time. As such, we are conducting a supply chain analysis by region to determine if any disruptions could occur. We will also communicate with customers as needed regarding any significant changes to our supply chain should they become evident, though at this time, we don’t anticipate any significant disruptions.
ITEM 1B. UNRESOLVED STAFF COMMENTSCOMMENTS
The Company hasWe have no unresolved comments from the SEC.
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We lease or own our principal offices and manufacturing facilities. None of the owned principal properties is subject to a lien or other encumbrance material to our operations. We believe that existing operating leases will be renegotiated as they expire, will be acquired through purchase options or that suitable alternative properties will be leased on acceptable terms. We consider the condition and extent of utilization of our manufacturing facilities and other properties to be generally good, and the capacity of our plants to be adequate for the needs of our business. The locations of our principal manufacturing facilities, by country, are set forth below:
ARGENTINA | GERMANY |
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| Böhringen (1 & 2) |
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Tortuguitas (1 & 3) | Dortmund (1) |
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| Eigeltingen (2) | UNITED KINGDOM |
BRAZIL | Freyung (1 & 3) |
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| Menden (1) |
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Cajamar (1) | Villingen-Schwenningen (1 & 2) | UNITED STATES |
Maringá Paraná (1 & 3) |
| Atlanta, Georgia (3) |
Jundiai (1) | INDIA |
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| Hyderabad (1 & 3) |
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| Cary, Illinois (1, 2 & 3) | |
| Mumbai (2) | Congers, New York (2) |
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| Eatontown, New Jersey (1 & 2) |
Suzhou (1, 2 & 3) | IRELAND | Lincolnton, North Carolina (3) |
| Ballinasloe, County Galway (1) |
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| McHenry, Illinois (1 & 2) |
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| Midland, Michigan (1 & 3) |
| ITALY | Mukwonago, Wisconsin (1, 2 & 3) |
| Manoppello (1) | Stratford, Connecticut (1) |
CZECH REPUBLIC | San Giovanni Teatino (Chieti) (1 & 3) |
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| MEXICO |
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| Queretaro (1 & 3) |
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Brecey (2) | RUSSIA | |
Charleval (1 & 2) | Vladimir (1 & 3) | |
Granville (2) | | |
Le Neubourg (1) | SPAIN | |
Le Vaudreuil (2) | Madrid (1) | |
Niederbronn-les-Bains (2) | Torello (1 & 3) | |
Oyonnax (1) | | |
Poincy (1 & 3) |
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Verneuil Sur Avre (1) |
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(1) |
| Locations of facilities manufacturing for the Beauty + Home segment. |
(2) |
| Locations of facilities manufacturing for the Pharma segment. |
(3) |
| Locations of facilities manufacturing for the Food + Beverage segment. |
We also have sales personnel in countries other than those listed above. Our corporate office is located in Crystal Lake, Illinois. We also have service facilities and corporate offices in locations in addition to those listed above.
ITEM 3. LEGAL PROCEEDINGS
The Company, inIn the normal course of business, iswe are subject to a number of lawsuits and claims both actual and potential in nature. While management believes the resolution of these claims and lawsuits will not have a material adverse effect on the Company’sour financial position or results of operations or cash flows, claims and legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur that could include amounts in excess of any accruals which management has established. Were such unfavorable final outcomes to occur, it is possible that they could have a material adverse effect on our financial position, results of operations and cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY,EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR REGISTRANT’S COMMON EQUITY
Our Common Stock is traded on the New York Stock Exchange under the symbol ATR. Information regarding market prices of our Common Stock and dividends declared may be found in Note 20 to the Consolidated Financial Statements in Item 8 (which is incorporated by reference herein)“ATR”. As of February 20, 2017,18, 2020, there were approximately 230190 holders of record of our Common Stock. A substantially greater number of holders of our Common Stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers, and other financial institutions.
DIVIDENDS
On January 29, 2020, our Board of Directors declared a quarterly cash dividend of $0.36 per share of Common Stock, which was paid on February 19, 2020 to stockholders of record as of January 29, 2020. While we expect to continue to pay a regular quarterly dividend of $0.36 per share in 2020, the timing, declaration, amount and payment of any future cash dividends are at the discretion of the Board of Directors and will depend on our available cash, working capital, financial condition, results of operations, capital requirements, covenants in our credit facility, applicable law and other factors that our Board of Directors considers relevant.
RECENT SALES OF UNREGISTERED SECURITIES
TheCertain French employees of Aptargroup UK Holdings Limited (French Branch) and Aptar France S.A.S., our subsidiaries, are eligible to participate in the FCP Aptar Savings Plan (the “Plan”). All eligible participants are located outside of the United States. 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 December 31, 2016,2019, the Plan purchased 4,4604,993 shares of our Common Stock on behalf of the participants at an average price of $73.23$112.16 per share, for an aggregate amount of $327$560 thousand, and sold no350 shares of our Common Stock on behalf of the participants.participants at an average price of $114.32 per share, for an aggregate amount of $40 thousand. At December 31, 2016,2019, the Plan owned 70,62290,193 shares of our Common Stock.
ISSUER PURCHASES OF EQUITY SECURITIES
On October 20, 2016, the CompanyApril 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. AptarGroupWe may repurchase shares through the open market, privately negotiated transactions or other programs, subject to market conditions.
On December 16, 2014, the Company entered into an agreement to repurchase approximately $250 million of its Common Stock under an accelerated share repurchase program (the “ASR program”). The ASR program was part of the Company’s previous $350 million share repurchase authorization announced on October 30, 2014. On December 17, 2014, the Company paid $250 million to Wells Fargo Bank N.A. (“Wells Fargo”) in exchange for approximately 3.1 million shares. On September 25, 2015, the Company settled the ASR program with Wells Fargo and received approximately 719 thousand additional shares. The total number of shares repurchased under the ASR program was approximately 3.8 million shares.
Shares repurchased subsequent to the ASR program have been immediately retired. The CompanyWe spent $46.6$31.6 million to repurchase approximately 628286 thousand shares during the fourth quarter of 2016.2019.
The following table summarizes the Company’sour purchases of its securities for the quarter ended December 31, 2016:2019:
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10/1 – 10/31/16 |
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| — |
| $ | — |
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| $ | 350.0 |
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11/1 – 11/30/16 |
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| 43,000 |
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| 76.11 |
| 43,000 |
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| 346.7 |
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12/1 – 12/31/16 |
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| 584,548 |
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| 74.12 |
| 584,548 |
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| 303.4 |
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Total |
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| $ | 74.26 |
| 627,548 |
| $ | 303.4 |
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| | | Total Number | | | | Purchased as Part Of | | Purchased Under The |
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| Of Shares | | Average Price | | Publicly Announced | | Plans or Programs |
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Period | | | Purchased |
| Paid Per Share |
| Plans Or Programs |
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10/1 – 10/31/19 | |
| 8,600 | | $ | 118.73 |
| 8,600 | | $ | 309.1 | |
11/1 – 11/30/19 | |
| 219,335 | |
| 110.14 |
| 219,335 | |
| 284.9 | |
12/1 – 12/31/19 | |
| 57,601 | |
| 111.90 |
| 57,601 | |
| 278.5 | |
Total | |
| 285,536 | | $ | 110.75 |
| 285,536 | | $ | 278.5 | |
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SHARE PERFORMANCE
The following graph shows a five year comparison of the cumulative total stockholder return on AptarGroup’sour Common Stock as compared to the cumulative total return of the Standard & Poor’s 500 Composite Stock Price Index and to an index of peer group companies we selected. In 2019, we changed our peer group to align with the compensation peer group used by our Management Development and Compensation Committee which includes companies that align more closely with our current business structure. The companies included in the new peer group are: A. Schulman,Albemarle Corporation, Ashland Global Holdings Inc., AEPBerry Global Group, Inc., Catalent, Inc., CCL Industries Inc., BemisHill-Rom Holdings, Inc., ICU Medical, Inc., Ingredion Inc., International Flavors & Fragrances, Inc., McCormick & Company, Inc., Sealed Air Corporation, Sensient Technologies Corporation, Silgan Holdings, Inc., Sonoco Products Company, Stericycle, Inc., STERIS plc, Teleflex Inc. and West Pharmaceutical Services, Inc. The companies included in our old peer group are: Berry PlasticsGlobal Group, Inc., Crown Holdings, Inc., Graphic Packaging Holding Company, Greif Inc., H.B. Fuller Company, International Flavors and& Fragrances, Inc., Owen’s‑Owen’s Illinois, Inc., Packaging Corporation of America, PH Glatfelter Co.Company., Rayonier Inc., Sealed Air Corporation, Sensient Technologies Corporation, Silgan Holdings, Inc., Sonoco Products Company, Stepan Company, TriMas Corporation and West Pharmaceutical Services Inc.
Comparison of 5 Year Cumulative Stockholder Returns
The graph and other information furnished in the section titled “Share Performance” under this Part II, Item 5 of this Form 10‑K10-K shall not be deemed to be “soliciting” material or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
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Dollars in millions, except per share data | | | | | | | | | | | | | | | | | | | |
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Statement of Income Data: | | | | | | | | | | | | | | | | | | | | |
Net Sales |
| $ | 2,859.7 | |
| $ | 2,764.8 | |
| $ | 2,469.3 | |
| $ | 2,330.9 | |
| $ | 2,317.1 | |
Cost of sales (exclusive of depreciation and amortization shown below) (1) | | | 1,818.4 | | | | 1,813.0 | | | | 1,603.1 | | | | 1,496.2 | | | | 1,499.0 | |
% of Net Sales | | | 63.6 | % | | | 65.6 | % | | | 64.9 | % | | | 64.2 | % | | | 64.7 | % |
Selling, research & development and administrative | | | 454.6 | | | | 430.0 | | | | 387.4 | | | | 366.3 | | | | 349.1 | |
% of Net Sales | | | 15.9 | % | | | 15.6 | % | | | 15.7 | % | | | 15.7 | % | | | 15.1 | % |
Depreciation and amortization | | | 194.6 | | | | 171.7 | | | | 153.1 | | | | 154.8 | | | | 138.9 | |
% of Net Sales | | | 6.8 | % | | | 6.2 | % | | | 6.2 | % | | | 6.6 | % | | | 6.0 | % |
Restructuring initiatives | | | 20.5 | | | | 63.8 | | | | 2.2 | | | | — | | | | — | |
% of Net Sales | | | 0.7 | % | | | 2.3 | % | | | 0.1 | % | | | — | % | | | — | % |
Operating Income | | | 371.7 | | | | 286.3 | | | | 323.5 | | | | 313.7 | | | | 330.2 | |
% of Net Sales | | | 13.0 | % | | | 10.3 | % | | | 13.1 | % | | | 13.5 | % | | | 14.2 | % |
Net Income | | | 242.2 | | | | 194.8 | | | | 220.0 | | | | 205.6 | | | | 199.3 | |
% of Net Sales | | | 8.5 | % | | | 7.0 | % | | | 8.9 | % | | | 8.8 | % | | | 8.6 | % |
Net Income Attributable to AptarGroup, Inc. | | | 242.2 | | | | 194.7 | | | | 220.0 | | | | 205.6 | | | | 199.3 | |
% of Net Sales | | | 8.5 | % | | | 7.0 | % | | | 8.9 | % | | | 8.8 | % | | | 8.6 | % |
Net Income Attributable to AptarGroup, Inc. per Common Share: | | | | | | | | | | | | | | | | | | | | |
Basic | | | 3.81 | | | | 3.12 | | | | 3.52 | | | | 3.27 | | | | 3.19 | |
Diluted | | | 3.66 | | | | 3.00 | | | | 3.41 | | | | 3.17 | | | | 3.09 | |
Balance Sheet and Other Data: | | | | | | | | | | | | | | | | | | | | |
Capital Expenditures |
| $ | 242.3 | |
| $ | 211.3 | |
| $ | 156.6 | |
| $ | 129.0 | |
| $ | 149.3 | |
Total Assets | | | 3,562.1 | | | | 3,377.7 | | | | 3,137.8 | | | | 2,606.8 | | | | 2,437.0 | |
Long-Term Obligations | | | 1,085.5 | | | | 1,126.0 | | | | 1,191.1 | | | | 772.7 | | | | 760.8 | |
Net Debt (2) | | | 953.7 | | | | 1,028.1 | | | | 544.7 | | | | 480.3 | | | | 298.1 | |
Total Stockholders’ Equity | | | 1,572.3 | | | | 1,422.9 | | | | 1,312.0 | | | | 1,174.2 | | | | 1,149.7 | |
Capital Expenditures % of Net Sales | | | 8.5 | % | | | 7.6 | % | | | 6.3 | % | | | 5.5 | % | | | 6.4 | % |
Interest Bearing Debt to Total Capitalization (3) | | | 43.2 | % | | | 47.6 | % | | | 48.9 | % | | | 44.6 | % | | | 41.6 | % |
Net Debt to Net Capital (4) | | | 37.8 | % | | | 41.9 | % | | | 29.3 | % | | | 29.0 | % | | | 20.6 | % |
Cash Dividends Declared per Common Share | | | 1.42 | | | | 1.32 | | | | 1.28 | | | | 1.22 | | | | 1.14 | |
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Dollars in millions, except per share data |
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Years Ended December 31, |
|
| 2016 |
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| 2015 |
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|
| 2014 |
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| 2013 |
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| 2012 |
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Statement of Income Data: |
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|
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Net Sales |
| $ | 2,330.9 |
|
| $ | 2,317.1 |
|
| $ | 2,597.8 |
|
| $ | 2,520.0 |
|
| $ | 2,331.0 |
|
Cost of sales (exclusive of depreciation and amortization shown below) (1) |
|
| 1,498.1 |
|
|
| 1,502.7 |
|
|
| 1,755.3 |
|
|
| 1,708.9 |
|
|
| 1,590.4 |
|
% of Net Sales |
|
| 64.3 | % |
|
| 64.8 | % |
|
| 67.6 | % |
|
| 67.8 | % |
|
| 68.2 | % |
Selling, research & development and administrative |
|
| 367.6 |
|
|
| 351.5 |
|
|
| 383.9 |
|
|
| 364.7 |
|
|
| 341.6 |
|
% of Net Sales |
|
| 15.8 | % |
|
| 15.2 | % |
|
| 14.8 | % |
|
| 14.4 | % |
|
| 14.7 | % |
Depreciation and amortization (2) |
|
| 154.8 |
|
|
| 138.9 |
|
|
| 152.2 |
|
|
| 150.0 |
|
|
| 137.0 |
|
% of Net Sales |
|
| 6.6 | % |
|
| 6.0 | % |
|
| 5.8 | % |
|
| 6.0 | % |
|
| 5.9 | % |
Restructuring initiatives |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11.8 |
|
|
| 3.1 |
|
% of Net Sales |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.5 | % |
|
| 0.1 | % |
Operating Income |
|
| 310.5 |
|
|
| 324.1 |
|
|
| 306.4 |
|
|
| 284.6 |
|
|
| 258.9 |
|
% of Net Sales |
|
| 13.3 | % |
|
| 14.0 | % |
|
| 11.8 | % |
|
| 11.3 | % |
|
| 11.1 | % |
Net Income |
|
| 205.6 |
|
|
| 199.3 |
|
|
| 191.6 |
|
|
| 171.9 |
|
|
| 162.4 |
|
% of Net Sales |
|
| 8.8 | % |
|
| 8.6 | % |
|
| 7.4 | % |
|
| 6.8 | % |
|
| 7.0 | % |
Net Income Attributable to AptarGroup, Inc. |
|
| 205.6 |
|
|
| 199.3 |
|
|
| 191.7 |
|
|
| 172.0 |
|
|
| 162.6 |
|
% of Net Sales |
|
| 8.8 | % |
|
| 8.6 | % |
|
| 7.4 | % |
|
| 6.8 | % |
|
| 7.0 | % |
Net Income Attributable to AptarGroup, Inc. per Common Share: |
|
|
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|
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Basic |
|
| 3.27 |
|
|
| 3.19 |
|
|
| 2.95 |
|
|
| 2.60 |
|
|
| 2.45 |
|
Diluted |
|
| 3.17 |
|
|
| 3.09 |
|
|
| 2.85 |
|
|
| 2.52 |
|
|
| 2.38 |
|
Balance Sheet and Other Data: |
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|
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|
|
|
|
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|
Capital Expenditures |
| $ | 129.0 |
|
| $ | 149.3 |
|
| $ | 161.9 |
|
| $ | 151.5 |
|
| $ | 174.1 |
|
Total Assets |
|
| 2,606.8 |
|
|
| 2,437.0 |
|
|
| 2,436.5 |
|
|
| 2,497.1 |
|
|
| 2,323.6 |
|
Long-Term Obligations |
|
| 772.7 |
|
|
| 760.8 |
|
|
| 588.2 |
|
|
| 354.1 |
|
|
| 352.0 |
|
Net Debt (3) |
|
| 480.3 |
|
|
| 298.1 |
|
|
| 440.4 |
|
|
| 184.0 |
|
|
| 196.9 |
|
AptarGroup, Inc. Stockholders’ Equity |
|
| 1,174.0 |
|
|
| 1,149.4 |
|
|
| 1,103.4 |
|
|
| 1,479.8 |
|
|
| 1,379.9 |
|
Capital Expenditures % of Net Sales |
|
| 5.5 | % |
|
| 6.4 | % |
|
| 6.2 | % |
|
| 6.0 | % |
|
| 7.5 | % |
Interest Bearing Debt to Total Capitalization (4) |
|
| 44.6 | % |
|
| 41.6 | % |
|
| 43.2 | % |
|
| 25.0 | % |
|
| 23.6 | % |
Net Debt to Net Capitalization (5) |
|
| 29.0 | % |
|
| 20.6 | % |
|
| 28.5 | % |
|
| 11.1 | % |
|
| 12.5 | % |
Cash Dividends Declared per Common Share |
|
| 1.22 |
|
|
| 1.14 |
|
|
| 1.09 |
|
|
| 1.00 |
|
|
| 0.88 |
|
(1) |
| Cost of sales includes $7.4 million reduction in expense for 2015 due to a change in accounting method relating to our inventory accounting methods. |
(2) |
|
|
| Net Debt is interest bearing debt less cash and cash equivalents. |
(3) |
| Total Capitalization is |
(4) |
| Net |
| |
|
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONCONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts or as otherwise indicated)
The objective of the following Management’s Discussion and Analysis of ConsolidatedFinancial Condition and Results of Operations and Financial Condition (“MD&A”) is to help the reader understand the financial performance of AptarGroup, Inc. MD&A is presented in eight sections: Overview, Results of Operations, Liquidity and Capital Resources, Off‑BalanceOff-Balance Sheet Arrangements, Overview of Contractual Obligations, Recently Issued Accounting Pronouncements, Critical Accounting Estimates, Operations Outlook and Forward‑LookingForward-Looking Statements. MD&A should be read in conjunction with our Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10‑K.10-K.
In MD&A, “we,” “our,” “us,” “AptarGroup,” “AptarGroup, Inc.”, “Aptar” and the “Company” refer to AptarGroup, Inc. and its consolidated subsidiaries.
OVERVIEW
GENERAL
We areAptar is a leading global providersupplier of a broad range of innovative dispensing, sealing, active packaging dispensingsolutions and sealing solutions primarilyservices for the beauty, personal care, home care, prescription drug, consumer health care, injectables, active packaging, food and beverage markets. Our creativeWe use insights, design, engineering and science to create innovative packaging solutions enhancetechnologies that build brand value for our customers, and, in turn, make a meaningful difference in the convenience, safetylives, looks, health and securityhomes of consumerspeople around the globe and allow our customers to differentiate their products in the market.world.
In addition to the information presented herein that conforms to accounting principles generally accepted in the United States of America (“U.S. GAAP,GAAP”), we also present certain financial information that does not conform to U.S. GAAP, which are referred to as non-U.S. GAAP financial measures. Management may assess our financial results both on a U.S. GAAP basis and on a non-U.S. GAAP basis. We believe it is useful to present these non-U.S.GAAP financial measures because they allow for a better period over period comparison of operating results by removing the impact of items that, in management’s view, do not reflect Aptar’s core operating performance. These non-U.S. GAAP financial measures should not be considered in isolation or as a substitute for U.S. GAAP financial results, but should be read in conjunction with the audited consolidated statements of income and other information presented herein. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparable U.S. GAAP financial measure to arrive at these non-U.S. GAAP financial measures. See the reconciliation of non-U.S. GAAP measures starting on page 22.
For the year ended December 31, 2016,2019, reported sales increased 1%3% to $2.33$2.86 billion from $2.32$2.76 billion a year ago. ExcludingCore sales, excluding the negativepositive impact from changes in currency exchange rates and the positive impact from acquisitions, core sales were even with the prior year.acquisition effects, increased approximately 3%. A reconciliation of core sales growth to reported net sales growth, the most directly comparable U.S. GAAP measure, can be found on page 16. 2016 was a difficult year to deliver18. During 2019, top line growth in our Pharma and Food + Beverage segments compensated for lower sales in our Beauty + Home segment due to weak market conditions. We had excellent performance from the acquired Mega Airless business that will continue to play an important partsoftness in our personal care market. Excluding a gain on sale of this segment’s growth and we deployed new technologies that have much potential. Our Pharma segment had another excellent year reporting growth across each market. Our Food + Beverage segment performed well despite facing challenging demandinvestment in the Asian beverage market. We did an excellent job2018 of maintaining or growing$6.5 million, all three segments showed improvement in adjusted EBITDA margins resulting from core sales growth across the majority of our business segments, achieving a consolidated operating income marginmarkets, acquisitions we made in 2018 and 2019 and the positive impact of 13%, adjusted EBITDA margin of 20% and reporting record annual earnings per share.our transformation activities.
20162019 HIGHLIGHTS
● |
| Reported sales increased |
● |
| Reported |
|
|
● |
|
|
● |
|
● | Acquired strategic technologies and capabilities (Noble, Bapco, Nanopharm and Gateway) to continue expanding our product and service offerings. |
● |
|
● | Named one of the “Top 100 Most Sustainable U.S. Companies” by Barron’s and one of “America’s Most Responsible Companies 2020” by Newsweek. |
| |
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|
RESULTS OF OPERATIONS
The following table sets forth the consolidated statements of income and the related percentages of net sales for the periods indicated:indicated. Refer to Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 for additional information regarding Results of Operations for the year ended December 31, 2018 as compared to the year ended December 31, 2017. Certain previously reported amounts have been reclassified to conform to the current period presentation:
| | | | | | | | | | | | |
Year Ended December 31, | | 2019 | | 2018 | | |||||||
| | Amount in |
| % of |
| | Amount in |
| % of |
| ||
| | $ Thousands | | Net Sales | | | $ Thousands | | Net Sales | | ||
| | | | | | | | | | | | |
Net sales | | $ | 2,859,732 | | 100.0 | % |
| $ | 2,764,761 | | 100.0 | % |
Cost of sales (exclusive of depreciation and amortization shown below) | | | 1,818,398 | | 63.6 | | | | 1,812,961 | | 65.6 | |
Selling, research & development and administrative | | | 454,617 | | 15.9 | | | | 429,955 | | 15.6 | |
Depreciation and amortization | | | 194,552 | | 6.8 | | | | 171,747 | | 6.2 | |
Restructuring initiatives | | | 20,472 | | 0.7 | | | | 63,829 | | 2.3 | |
Operating income | | | 371,693 | | 13.0 | | | | 286,269 | | 10.3 | |
Other expense | | | (29,624) | | (1.0) | | | | (20,249) | | (0.7) | |
Income before income taxes | | | 342,069 | | 12.0 | | | | 266,020 | | 9.6 | |
Net Income | | | 242,227 | | 8.5 | | | | 194,766 | | 7.0 | |
Effective tax rate | | | 29.2 | % | | | | | 26.8 | % | | |
Adjusted EBITDA margin (1) | | | 20.7 | % | | | | | 19.9 | % | | |
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Years Ended December 31, | 2016 |
| 2015 |
| 2014 |
| |||||||||||
| Amount in |
| % of |
|
| Amount in |
| % of |
|
| Amount in |
| % of |
| |||
| $ Thousands |
| Net Sales |
|
| $ Thousands |
| Net Sales |
|
| $ Thousands |
| Net Sales |
| |||
|
|
|
|
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|
Net sales | $ | 2,330,934 |
| 100.0 | % |
| $ | 2,317,149 |
| 100.0 | % |
| $ | 2,597,809 |
| 100.0 | % |
Cost of sales (exclusive of depreciation and amortization shown below) |
| 1,498,070 |
| 64.3 |
|
|
| 1,502,650 |
| 64.8 |
|
|
| 1,755,266 |
| 67.6 |
|
Selling, research & development and administrative |
| 367,562 |
| 15.8 |
|
|
| 351,461 |
| 15.2 |
|
|
| 383,909 |
| 14.8 |
|
Depreciation and amortization |
| 154,802 |
| 6.6 |
|
|
| 138,893 |
| 6.0 |
|
|
| 152,218 |
| 5.8 |
|
Operating income |
| 310,500 |
| 13.3 |
|
|
| 324,145 |
| 14.0 |
|
|
| 306,416 |
| 11.8 |
|
Other expense |
| (30,003) |
| (1.3) |
|
|
| (29,574) |
| (1.3) |
|
|
| (20,115) |
| (0.8) |
|
Income before income taxes |
| 280,497 |
| 12.0 |
|
|
| 294,571 |
| 12.7 |
|
|
| 286,301 |
| 11.0 |
|
Net Income |
| 205,604 |
| 8.8 |
|
|
| 199,295 |
| 8.6 |
|
|
| 191,624 |
| 7.4 |
|
Effective tax rate |
| 26.7 | % |
|
|
|
| 32.3 | % |
|
|
|
| 33.1 | % |
|
|
Adjusted EBITDA margin (1) |
| 20.4 | % |
|
|
|
| 19.6 | % |
|
|
|
| 17.5 | % |
|
|
(1) |
| Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of Non-U.S. GAAP measures starting on page 22. |
NET SALES
For the year ended December 31, 2016,2019, reported net sales increased 1%3% to $2.33$2.86 billion from $2.32$2.76 billion a year ago. While theThe average U.S. dollar exchange rate compared to the Euro remained stable, the U.S. dollar strengthened compared to the majoritymost of otherour major operating currencies, impacting our business, resulting in a negative currency translation impact of 2%4%. The acquisitionacquisitions of Mega AirlessCSP Technologies, Gateway, Nanopharm and Noble positively impacted sales by 3%. Therefore, sales excluding acquisitions and changes in foreign currency rates (“core sales”) were even with the prior year.
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Year Ended December 31, 2016 |
| Beauty |
|
|
| Food + |
|
|
|
Net Sales Change versus Prior Year |
| + Home |
| Pharma |
| Beverage |
| Total |
|
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|
|
Core Sales Growth |
| (2) | % | 5 | % | 1 | % | — | % |
Acquisitions |
| 4 | % | 1 | % | — | % | 3 | % |
Currency Effects |
| (3) | % | (2) | % | (2) | % | (2) | % |
Total Reported Net Sales Growth |
| (1) | % | 4 | % | (1) | % | 1 | % |
In 2015, we reported net sales of $2.32 billion, 11% below 2014 reported net sales of $2.60 billion. The average U.S. dollar exchange rate strengthened significantly relative to the Euro and also strengthened relative to other currencies impacting our business, resulting in a negative currency translation impact of 12%4%. Therefore, core sales for 2019 increased by 1%3% over 2018 as growth in 2015 comparedour Pharma and Food + Beverage segments compensated for slightly negative core sales to 2014. our Beauty + Home segment.
| | | | | | | | | |
Year Ended December 31, 2019 |
| Beauty |
| | | Food + |
| |
|
Net Sales Change versus Prior Year |
| + Home |
| Pharma | | Beverage |
| Total |
|
| | | | | | | | | |
Core Sales Growth |
| (1) | % | 10 | % | 3 | % | 3 | % |
Acquisitions |
| — | % | 9 | % | 7 | % | 4 | % |
Currency Effects (1) |
| (4) | % | (5) | % | (2) | % | (4) | % |
Total Reported Net Sales Growth |
| (5) | % | 14 | % | 8 | % | 3 | % |
|
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|
Year Ended December 31, 2015 |
| Beauty |
|
|
| Food + |
|
|
|
Net Sales Change versus Prior Year |
| + Home |
| Pharma |
| Beverage |
| Total |
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth |
| (2) | % | 8 | % | 2 | % | 1 | % |
Currency Effects |
| (13) | % | (13) | % | (7) | % | (12) | % |
Total Reported Net Sales Growth |
| (15) | % | (5) | % | (5) | % | (11) | % |
Foreign currency
For further discussion on net sales by reporting segment, please refer to the segment analysis of net sales and operating income on the following pages.
|
|
The following table sets forth, for the periods indicated, net sales by geographic location:
| | | | | | | | | | | |
Years Ended December 31, | | | 2019 |
| % of Total |
|
| 2018 |
| % of Total |
|
| | | | | | | | | | | |
Domestic |
| $ | 836,768 |
| 29 | % | $ | 726,336 |
| 26 | % |
Europe | | | 1,638,469 |
| 57 | % | | 1,627,478 |
| 59 | % |
Other Foreign | | | 384,495 |
| 14 | % | | 410,947 |
| 15 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
| 2016 |
| % of Total |
|
| 2015 |
| % of Total |
|
| 2014 |
| % of Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
| $ | 619,814 |
| 27 | % | $ | 633,522 |
| 27 | % | $ | 642,060 |
| 25 | % |
Europe |
|
| 1,329,398 |
| 57 | % |
| 1,287,309 |
| 56 | % |
| 1,506,992 |
| 58 | % |
Other Foreign |
|
| 381,722 |
| 16 | % |
| 396,318 |
| 17 | % |
| 448,757 |
| 17 | % |
| |
18/ATR | 2019 Form 10-K |
COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN BELOW)
Our cost of sales (“COS”) as a percent of net sales decreased to 64.3%63.6% in 20162019 compared to 64.8%65.6% in 2015. The decrease is due to the2018. Our COS percentage was positively impacted by our mix of business and lower material costs. The mix of business positively impacted results as the sales across our different business segments. Our Pharma segment sales represented a higher percentagegrowth of our overall sales in 2016 compared to 2015. This positively impacts our cost of sales percentage as margins on our pharmaceuticalhigher margin Pharma products typically are higherwas greater than the overall Company average. Also, tooling sales were approximately $7.3 million lowergrowth of products in 2016 compared to the prior year. Sales of custom tooling typically generates lower margins than product sales, so lower tooling sales positively impacts cost of sales as a percentage of sales.other two segments. We also realized lower raw material input costs which helped offset $2.6 million of incremental costs due to a purchase accounting adjustment related to the write-up to fair value of the Mega Airless inventory in 2016. 2015 results were positively impacted by the $7.4 million change in accounting principle related to inventory valuation methods in the prior year.
In 2015, our cost of sales as a percent of net sales decreased to 64.8%2019 compared to 67.6% in 2014. The decrease is partly due to a one-time favorable $7.4 million change in our inventory accounting principle for2018 and the inventory valuation method of certain operating entities in our North American business to the first-in first-out (FIFO) method from the last-in first-out (LIFO) method, which was recorded in the second quarter of 2015. Operationally, we benefitted from our mix of products sold. Our Pharma segment sales represented a higher percentage of our overall sales in 2015 compared to 2014. We also benefitted from lower material costs, cost savings initiatives and productivity improvements along with aassociated positive impact from the timing delay of passing through resin pass-throughs of approximately $8.9 million as resin prices declined significantly during 2015. cost reductions to our customers.
SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE
Our Selling, Research & Development and Administrative expenses (“SG&A”) increased approximately 5%6% or $16.1$24.7 million to $367.6$454.6 million in 20162019 compared to $351.5$430.0 million in 2015.2018. Excluding changes in foreign currency rates, SG&A increased by approximately $22.9$40.7 million compared to the same period a year ago. The reported increase is mainlyprimarily due to transaction$20.0 million of incremental operational costs of $5.6 millionduring 2019 related to the Mega Airless acquisition, along with $8.5 million of Mega Airless operational expenses.our acquired companies. We also incurredrecognized increases in professional fees and higher information technologypersonnel costs associatedin accordance with our ongoing enterprise resource planning system implementation along with general increases in compensation expense. For 2016,growth strategy. SG&A as a percentage of net sales increased to 15.8%15.9% compared to 15.2% of net sales15.6% in the same period of the prior year.
In 2015, our SG&A expenses decreased approximately 8% or $32.4 million comparedyear due to the same period a year ago. Excluding changes in foreign currency rates, SG&A increased by approximately $11.6 million compared to the same period a year ago. Cost savings initiatives were offset by higher professional fees related to our ongoing information systems implementations and approximately $1.9 million of transaction costs related to the Mega Airless acquisition, which closed in the first quarter of 2016. We also realized higher pension costs related to lower discount rates along with other normal inflationary increases. For 2015, SG&A as a percentage of net sales increased to 15.2% compared to 14.8% of net sales in the same period of the prior year.cost increases mentioned above.
DEPRECIATION AND AMORTIZATION
Reported depreciation and amortization expense increased approximately 11%13% or $15.9$22.8 million to $154.8$194.6 million in 20162019 compared to $138.9$171.7 million in 2015.2018. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $18.0$29.2 million compared to the same period a year ago. The reported increase is mainly due to $14.0$20.0 million of incremental depreciation and amortizationcosts related to our acquisitions. We also increased our capital spending during the Mega Airless acquisition along with incremental costs associated withcurrent and prior year to support our continued investments in new products and the roll-out of our global enterprise resource planning system. Due to these higher expenses, depreciation and amortization as a percentage of net sales increased to 6.6% compared to 6.0% for the same period a year ago.
In 2015, depreciation and amortization expense decreased approximately 9% or $13.3 million. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $4.4 million compared to the same period a year ago. This increase is mainly due to our investments in new products and our global enterprise resource planning system.growth strategy. Depreciation and amortization as a percentage of net sales increased to 6.0%6.8% in 2019 compared to 5.8% for6.2% in the same period a year ago.
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OPERATING INCOME
Operating income decreased approximately $13.6 million or 4% to $310.5 million in 2016 compared to $324.1 million in 2015. The prior year’s operating income includes the positive impact of a $7.4 million change in accounting principle related to inventory valuation methods. Excluding changes in currency rates and this $7.4 million change in accounting principle, operating income decreased by approximately $1.9 million in 2016. Improvements in our gross margin was offset by higher SG&A and depreciation and amortization costs along with $5.6 million of Mega Airless acquisition costs and a $2.6 million purchase accounting adjustment related to the write-up to fair value of the Mega Airless inventory which was purchased and subsequently sold during the first quarter of 2016. Reported operating income as a percentage of net sales decreased to 13.3% in 2016 compared to 14.0% for the same period in the prior year due to the sameincremental increase in expenses noted above.
RESTRUCTURING INITIATIVES
In late 2017, Aptar began a business transformation plan to drive profitable sales growth, increase operational excellence, enhance our approach to innovation and improve organizational effectiveness. 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 years ended December 31, 2019 and 2018 are as follows:
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Year Ended December 31, |
| 2019 |
| 2018 |
| ||
Restructuring Initiatives by Segment | | | | | | | |
Beauty + Home | | $ | 17,682 | | $ | 52,244 | |
Pharma | |
| 632 | |
| 3,589 | |
Food + Beverage | |
| 391 | |
| 4,185 | |
Corporate & Other | | | 1,767 | | | 3,811 | |
Total Restructuring Initiatives | | $ | 20,472 | | $ | 63,829 | |
We expect total implementation costs of approximately $110 million for these initiatives. The cumulative expense incurred to date is $86.5 million. We also anticipate making capital investments related to the business transformation of approximately $55 million, of which $38 million has been incurred to date. We are progressing towards our initial target of $80 million annualized incremental EBITDA by the end of 2020, principally within the Beauty + Home segment, related to our ongoing restructuring initiatives. However, ongoing changes in customer and vendor negotiations, material indices, macro-economic trends and other factors mentioned above.represent continuing headwinds to the Beauty + Home segment, and have offset the consolidated net benefits from these initiatives.
In 2015,OPERATING INCOME
Reported operating income increased approximately $17.7$85.4 million or 6%30% to $324.1 million.$371.7 million in 2019 compared to $286.3 million in 2018. Excluding changes in currency rates, operating income increased by approximately $57.6$101.0 million in 2015.2019 compared to 2018. We benefitted fromincurred lower restructuring costs and realized improved margins related to our acquisitions and full year impact of CSP Technologies during 2019 compared to the $7.4 million changeprior year period. Additionally, this increase is related to lower restructuring costs, higher sales volumes in inventory accounting principle along with the strong results of our Pharma and Food + Beverage segments. We also benefitted from a positive impact from the timing delay in passing through resin cost decreasesproducts and certain cost saving initiatives driven by the segments, which were slightly offset by transaction costsadditional income related to the Mega Airless acquisition. Reported operatingacquired businesses. Operating income as a percentage of net sales increased to 14.0%13.0% in 20152019 compared to 11.8%10.3% for the same period in the prior year due to the same factors mentioned above.year.
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19/ATR | 2019 Form 10-K |
NET OTHER EXPENSESEXPENSE
Net other expensesexpense increased in 2016 increased to $30.0 million compared to $29.6 million in 2015. We recognized lower interest income and higher interest expense as we funded our Mega Airless acquisition with cash on hand and borrowings on our revolving line of credit. We also recognized a $2.0 million gain on the sale of our minority interest in an injectable drug delivery device company in 2016 while we reported a $2.9 million gain due to an insurance recovery on the involuntary conversion of fixed assets related to a fire in one of our Brazilian facilities in 2015.
In 2015, net other expenses increased2019 to $29.6 million compared to $20.1$20.2 million in 2014. During 2015, we incurred $13.62018. This increase is partly due to $5.7 million of higher net interest expense relateddue to our additional $475recent acquisition activity, including CSP Technologies during the third quarter of 2018. Included in the 2018 miscellaneous income is also a gain of approximately $6.5 million senior notes established late 2014 and early 2015 along with increased costs of our forward exchange contracts. These increases were offset by a $2.9 million gain due to an insurance recoveryobservable price change on the involuntary conversion of fixed assets related to a fireour investment in one of our Brazilian facilities. In addition, 2014 net other expenses included a $1.5 million write-down on a non-controlling investment.Reciprocal Labs Corporation, doing business as Propeller Health (“Propeller Health”).
EFFECTIVE TAX RATE
The reported effective tax rate on net income before income taxes for 20162019 and 20152018 was 26.7%29.2% and 32.3%26.8%, respectively. The lowerhigher tax rate for 20162019 primarily reflects the reductionimpact of loss operations not tax effected (+2.2%).
At December 31, 2019, as a result of the U.S. global intangible low taxed income (“GILTI”) and the 2017 transition tax provisions, we do not have a balance of foreign earnings that will be subject to U.S. taxation. We continually analyze our global working capital requirements and the potential tax liabilities that would be incurred if the non-U.S. subsidiaries made a distribution of their cash or distributable reserves. These liabilities would include local country withholding and income tax and potential U.S. state taxation. As of December 31, 2019, all other cash or distributable reserve amounts continued to be reinvested indefinitely and would become subject to these additional taxes if they were remitted as dividends. We estimate the additional tax that would be payable on these earnings to be in the French corporate tax rate (1.7%) and higher investment incentives in both France and Italy (2.2%). The Company also recorded a benefit from the resolutionrange of uncertain tax positions in France and Italy (0.8%) during 2016.$20 million to $30 million.
The reported effective tax rate on net income for 2015 and 2014 was 32.3% and 33.1%, respectively. The lower tax rate for 2015 is attributable to the reduction of valuation allowances related to U.S. state tax credits and tax benefits associated with exceptional depreciation provisions enacted in France during 2015.
NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.
We reported net income of $205.6$242.2 million compared to $199.3$194.7 million reported in 2015 and $191.7 million reported in 2014.2018.
BEAUTY + HOME SEGMENT
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| | % Change |
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Year Ended December 31, |
| 2019 | | | 2018 | | | 2019 vs. 2018 | | ||
| | | | | | | | | | | |
Net Sales |
| $ | 1,352,714 | |
| $ | 1,426,382 | |
| (5.2) | % |
Adjusted EBITDA (1) | | | 181,150 | | | | 185,926 | | | (2.6) | |
Adjusted EBITDA margin (1) | | | 13.4 | % | | | 13.0 | % | | | |
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Years Ended December 31, |
| 2016 |
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| 2015 |
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| 2014 |
| 2016 vs. 2015 |
| 2015 vs. 2014 |
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Net Sales |
| $ | 1,261,086 |
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| $ | 1,272,946 |
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| $ | 1,498,297 |
| (0.9) | % | (15.0) | % |
Segment Income (1) |
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| 100,569 |
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| 98,707 |
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| 98,368 |
| 1.9 |
| 0.3 |
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Segment Income as a percentage of Net Sales |
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| 8.0 | % |
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| 7.8 | % |
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| 6.6 | % |
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Adjusted EBITDA margin (2) |
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| 14.8 | % |
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| 13.7 | % |
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| 12.3 | % |
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(1) |
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| other special items. Adjusted EBITDA |
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Reported net sales decreased approximately 1%5% in 20162019 to $1.26$1.35 billion compared to $1.27$1.43 billion in 2015. The Mega Airless acquisition positively impacted net sales by 4% in 2016 while changes2018. Changes in currency rates negatively impacted net sales by 3%4%. Therefore, core sales decreased 2%1% in 20162019 compared to the same period in the prior year. The majority of this decrease is due to lower toolingreduced demand from the personal care market and a $1.5 million reduction of sales anddue to the pass-through of lower resin prices to our customers, which negatively impactedcustomers. Core sales to the personal care market decreased 6%. The decrease is mostly related to a general softness in demand across most of our major applications, especially body care and hair care products, as political and economic uncertainties are leading to some customer destocking. We also recognized lower product and tooling sales in 2019 related to a large product launch for 2016 by $15.4 million and $4.5 million, respectively.a specific North America customer during the second quarter of 2018. Core sales to the beauty market were flat whileincreased 4% on strong growth in skin care and fragrance dispensing systems, primarily driven by the Chinese luxury market and retail travel. Higher sales of our products used on air care and dish care applications drove the core sales growth in the home care market.
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Year Ended December 31, 2019 | | Personal | | | | Home | | | |
Net Sales Change over Prior Year |
| Care |
| Beauty |
| Care |
| Total | |
| | | | | | | | | |
Core Sales Growth | | (6) | % | 4 | % | 1 | % | (1) | % |
Acquisitions | | — | % | — | % | — | % | — | % |
Currency Effects (1) | | (3) | % | (5) | % | (3) | % | (4) | % |
Total Reported Net Sales Growth | | (9) | % | (1) | % | (2) | % | (5) | % |
(1) | Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates. |
| |
20/ATR | 2019 Form 10-K |
Adjusted EBITDA for 2019 decreased to both$181.2 million from $185.9 million reported in 2018. During 2019, we experienced favorable material cost impacts due to lower raw material input costs and the associated positive impact from the timing delay of passing through resin cost to our customers. We also realized improved profitability on our tooling projects, but these favorable variances were not enough to overcome the softening demand from our personal care customers as discussed above. Adjusted EBITDA as a percentage of sales improved to 13.4% in 2019 compared to 13.0% in 2018 due to the positive impact of our transformation initiatives along with the other positive factors mentioned above.
PHARMA SEGMENT
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| | % Change |
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Year Ended December 31, |
|
| 2019 | | |
| 2018 | | | 2019 vs. 2018 | |
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Net Sales | | $ | 1,091,051 | |
| $ | 954,652 | |
| 14.3 | % |
Adjusted EBITDA (1) | | | 387,483 | | | | 343,706 | | | 12.7 | |
Adjusted EBITDA margin (1) | | | 35.5 | % | | | 36.0 | % | | | |
(1) | Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring, acquisition-related costs and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of non-U.S. GAAP measures starting on page 22. |
Reported net sales increased approximately 14% in 2019 to $1.09 billion compared to $954.7 million in 2018. Changes in currencies negatively affected net sales by 5% while our acquisitions of CSP Technologies, Gateway, Nanopharm and home care markets declined 4% during 2016Noble positively impacted sales by 9% in 2019. Therefore, core sales increased 10% in 2019 compared to the same period in the prior year. ForSales increased in all of our markets during 2019. Core sales to the beautyprescription drug market growth inincreased 13% mainly driven by strong demand for our products sold for central nervous system and allergic rhinitis treatments. We also benefitted from the realization of $1.8 million of revenue for achieving a development milestone related to a customer project. Core sales to the consumer health care market increased 6% on increased demand for our products used on eye care and nasal saline treatments. Core sales of our products to the color cosmetics and facial skin care application fields were offset by lower tooling sales. Salesinjectables markets grew 8% due to increased demand across the majority of our products to the personal care markets experienced soft customer demand across their main application fields with the exception of body care. Strong insecticideproduct offerings and industrial product sales to the home care market were offset by lower customer demand in laundry care.
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Year Ended December 31, 2016 |
| Personal |
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| Home |
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Net Sales Change over Prior Year |
| Care |
| Beauty |
| Care |
| Total |
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Core Sales Growth |
| (4) | % | — | % | (4) | % | (2) | % |
Acquisitions |
| 3 | % | 6 | % | — | % | 4 | % |
Currency Effects |
| (3) | % | (2) | % | (2) | % | (3) | % |
Total Reported Net Sales Growth |
| (4) | % | 4 | % | (6) | % | (1) | % |
In 2015, reported net sales decreased approximately 15% to $1.27 billion compared to $1.50 billion in 2014. Changes in foreign currency negatively impacted reported sales for 2015 by 13%. Core sales, which exclude changes in exchange rates, decreased 2% in 2015 compared to the prior year. Core sales to the personal care, beauty and home care markets decreased by 5%, 1% and 2%, respectively, in 2015 compared to 2014. We experienced global market softness in all regions except Asia leading to aregions. Active packaging core sales decline on a constant currency basis compared tocomparisons are from our acquisition of CSP Technologies at the prior year. Decreases in selling pricesend of August 2018. The core sales increase is mostly due to contractual resin cost pass-throughsstrong pre-commercial sales activity for our new active blister packaging solution for oral solid dose drug delivery.
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Year Ended December 31, 2019 | | Prescription | | Consumer | | | | Active | | | |
Net Sales Change over Prior Year |
| Drug |
| Health Care |
| Injectables |
| Packaging |
| Total | |
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Core Sales Growth | | 13 | % | 6 | % | 8 | % | 15 | % | 10 | % |
Acquisitions | | 1 | % | — | % | 4 | % | 221 | % | 9 | % |
Currency Effects (1) | | (5) | % | (5) | % | (5) | % | (4) | % | (5) | % |
Total Reported Net Sales Growth | | 9 | % | 1 | % | 7 | % | 232 | % | 14 | % |
(1) | Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates. |
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Adjusted EBITDA for 2019 increased to our customers negatively impacted sales by $9.1 million. Customer tooling sales, excluding foreign currency changes, increased $8.0 million in 2015 to $36.9$387.5 million compared to $28.9$343.7 million in the prior year.
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Year Ended December 31, 2015 |
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Net Sales Change over Prior Year |
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| Beauty |
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| Total |
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Core Sales Growth |
| (5) | % | (1) | % | (2) | % | (2) | % |
Currency Effects |
| (10) | % | (15) | % | (10) | % | (13) | % |
Total Reported Net Sales Growth |
| (15) | % | (16) | % | (12) | % | (15) | % |
In spite of the decrease in net2018. The strong product sales segment income for 2016 increased slightly to $100.6 million from $98.7 million reported in 2015. The increase compared to the prior year is partlygrowth discussed above along with incremental profit related to our mix of product sales dueacquisitions led to the contributionincrease in reported results for 2019 compared to 2018. 2018 results also include a gain of airless productapproximately $6.5 million on our investment in Propeller Health. Adjusted EBITDA as a percentage of sales relateddeclined to our Mega Airless acquisition. We also continue35.5% in 2019 compared to focus on operational and material cost savings initiatives. Segment income was negatively impacted by $2.2 million due to a purchase accounting adjustment related to36.0% in 2018. Excluding the write-up to fair value ofPropeller Health gain in 2018, the Mega Airless inventory we purchased and subsequently soldadjusted EBITDA percentage would have improved slightly during the first quarter. 2019.
Segment income for 2015 increased slightly to $98.7 million from $98.4 million reported in 2014. The negative impacts of foreign currency rate changes and lower product sales were more than offset by lower material costs, cost savings initiatives and improved productivity, mainly in North America. We recognized a $2.4 million negative transaction effect related to the importing of components into Latin America from different regions due to the continued devaluation of certain Latin American currencies. However, this was offset by a $5.1 million favorable impact from the timing of resin pass-throughs in 2015, primarily in North America.FOOD + BEVERAGE SEGMENT
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Year Ended December 31, |
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| 2019 | | |
| 2018 | | | 2019 vs. 2018 | |
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Net Sales | | $ | 415,967 | |
| $ | 383,727 | |
| 8.4 | % |
Adjusted EBITDA (1) | | | 68,108 | | | | 57,589 | | | 18.3 | |
Adjusted EBITDA margin (1) | | | 16.4 | % | | | 15.0 | % | | | |
(1) | Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring, acquisition-related costs and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of non-U.S. GAAP measures starting on page 22. |
PHARMA SEGMENT
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Years Ended December 31, |
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| 2016 |
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| 2015 |
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| 2014 |
| 2016 vs. 2015 |
| 2015 vs. 2014 |
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Net Sales |
| $ | 741,473 |
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| $ | 712,220 |
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| $ | 751,226 |
| 4.1 | % | (5.2) | % |
Segment Income |
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| 219,039 |
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| 210,509 |
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| 204,698 |
| 4.1 |
| 2.8 |
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| 29.5 | % |
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| 29.6 | % |
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| 27.2 | % |
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Adjusted EBITDA margin |
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| 35.0 | % |
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| 34.6 | % |
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| 32.8 | % |
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Reported net sales increased by approximately 4%8% in 20162019 to $741.5$416.0 million compared to $712.2$383.7 million in 2015. The Mega Airless2018. Incremental sales from our CSP Technologies acquisition positively impacted net sales by 1% in 20167% while changes in currency rates negatively impacted net sales by 2%. Therefore, core sales increased 5%3% in 2016 compared to the same period in the prior year. All three markets reported increases during 2016 with core sales to the prescription drug, consumer health care and injectables markets increasing 2%, 11% and 4%, respectively. Prescription growth was led bystrong demand for allergic rhinitis and central nervous system product sales. We also experienced strong demand for the sales of our products to the eye care and dermal drug delivery application fields in the consumer health care market. Injectables sales also grew across the majority of their application fields. Customer tooling sales, excluding foreign currency changes, increased $11.2 million in 2016 to $31.5 million compared to $20.3 million in the prior year.
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Year Ended December 31, 2016 |
| Prescription |
| Consumer |
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Net Sales Change over Prior Year |
| Drug |
| Health Care |
| Injectables |
| Total |
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Core Sales Growth |
| 2 | % | 11 | % | 4 | % | 5 | % |
Acquisitions |
| — | % | 5 | % | — | % | 1 | % |
Currency Effects |
| (1) | % | (4) | % | — | % | (2) | % |
Total Reported Net Sales Growth |
| 1 | % | 12 | % | 4 | % | 4 | % |
In 2015, reported net sales decreased approximately 5% to $712.2 million compared to $751.2 million in 2014. Foreign currency changes negatively impacted total segment sales by 13%. Core sales, which exclude changes in exchange rates, increased 8% in 20152019 compared to the prior year. Core sales to the prescription and injectables markets increased 13% and 7%, respectively, in 2015 compared to the same period in the prior year. Prescription growth was led bystrong demand for allergy products in both over-the-counter and prescription versions in the U.S. market as well as generics in Europe. We also experienced strong demand for our Asthma/COPD metered dose inhaler aerosol valves from key branded and generics customers worldwide. Injectables grew on increased stopper and syringe component sales with strong demand in Europe, the U.S., India and Latin America. Core sales to the consumer health care market were down slightly to the prior year as growth in our non-prescription nasal decongestant business was offset by the softness in Eastern Europe and customer inventory reduction plans. Customer tooling sales, excluding foreign currency changes, increased $6.0 million in 2015 to $20.3 million compared to $14.3 million in the prior year.
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Year Ended December 31, 2015 |
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Net Sales Change over Prior Year |
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| Injectables |
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Core Sales Growth |
| 13 | % | (1) | % | 7 | % | 8 | % |
Currency Effects |
| (14) | % | (11) | % | (15) | % | (13) | % |
Total Reported Net Sales Growth |
| (1) | % | (12) | % | (8) | % | (5) | % |
Segment income for 2016 increased approximately 4% to $219.0 million compared to $210.5 million in 2015. This increase is due to the additional product and tooling sales discussed above along with favorable product mix within the segment. Cost savings initiatives partially offset costs related to an enterprise resource system implementation and the impact of a purchase accounting adjustment of $0.4 million related to the write-up to fair value of the Mega Airless inventory we purchased and subsequently sold during the first quarter of 2016. We also recognized a $2.0 million gain on the sale of our minority interest in an injectable drug delivery device company in 2016.
In 2015, segment income increased approximately 3% to $210.5 million compared to $204.7 million in 2014. This increase is mainly attributed to the higher sales volumes and improved product mix within the segment as well as cost containment initiatives. Prior year results also included a $1.5 million write-down on a non-controlling investment to align with the current fair value.
FOOD + BEVERAGE SEGMENT
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| 2016 vs. 2015 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
| $ | 328,375 |
|
| $ | 331,983 |
|
| $ | 348,286 |
| (1.1) | % | (4.7) | % |
Segment Income |
|
| 37,697 |
|
|
| 42,731 |
|
|
| 37,728 |
| (11.8) |
| 13.3 |
|
Segment Income as a percentage of Net Sales |
|
| 11.5 | % |
|
| 12.9 | % |
|
| 10.8 | % |
|
|
|
|
Adjusted EBITDA margin |
|
| 18.8 | % |
|
| 19.3 | % |
|
| 16.6 | % |
|
|
|
|
|
|
Reported net sales decreased by approximately 1% in 2016 to $328.4 million compared to $332.0 million in 2015. Excluding a 2% negative impact from the changes in foreign currency rates, core sales increased 1%. Higher product sales were offset by the pass-through of lower resin prices to our customers and lower tooling sales of $4.0 million and $3.1 million, respectively, in 2016 compared to the prior year. Core sales of our products to the food market increased 9%7% while core sales of our products to the beverage market decreased approximately 7% in 20162% compared to the prior year.2018. Sales to the food market increased withdue to strong demand forsales of our products across all of our largest applications, including increases in sales to our sauces and condiments, products along with increases in thenon-beverage dairy, infant nutrition and infant formula application fields.granular powder customers. For the beverage market, we experienced a decrease in the demand for our products to the functional drink applications, mainly in China.
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016 |
|
|
|
|
|
|
|
|
|
Net Sales Change over Prior Year |
|
|
| Food |
| Beverage |
| Total |
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth |
|
|
| 9 | % | (7) | % | 1 | % |
Currency Effects |
|
|
| (2) | % | (3) | % | (2) | % |
Total Reported Net Sales Growth |
|
|
| 7 | % | (10) | % | (1) | % |
In 2015, reported net sales decreased by approximately 5% to $332.0 million compared to $348.3 million in 2014. Excluding changes in foreign currency rates, sales increased 2%. Decreases in prices due to resin pass-throughs to our customers negatively impacted sales by $6.6 million while customer tooling sales, excluding foreign currency changes, decreased $11.5 million in 2015 to $15.6 million compared to $27.1 million in the prior year. Sales of our products, excluding foreign currency changes, to the food market increased 3% and corestrong sales of our products to the beverage market increased approximately 1% in 2015 compared to the prior year. Broad based growth in the food market was partiallyour bottled water and concentrate customers were offset by lowera decline in beverage closure volumes related to a customer in China. Lower tooling sales and the pass-through of $10.9 million in 2015 compared to 2014. Beverage sales increased slightly as higher bottled water sales offset weakness in the functional drink and concentrated beverage flavorings applications.
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015 |
|
|
|
|
|
|
|
|
|
Net Sales Change over Prior Year |
|
|
| Food |
| Beverage |
| Total |
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth |
|
|
| 3 | % | 1 | % | 2 | % |
Currency Effects |
|
|
| (6) | % | (7) | % | (7) | % |
Total Reported Net Sales Growth |
|
|
| (3) | % | (6) | % | (5) | % |
Segment income decreased approximately 12% to $37.7 million in 2016 compared to $42.7 million in 2015. Profit associated with increased sales to the food market along with cost savings initiatives did not completely offset the decrease in profitability from the shortfall in sales of our products to the beverage market. Lower demand also led to lower operating performance in China along with a negative impact due to the mix of products sold during 2016 compared to the same period in the prior year. Resin costsresin price changes also negatively impacted segment incomecore sales compared to 2018 by approximately $0.9 million and $5.1 million, respectively.
| | | | | | | | | |
Year Ended December 31, 2019 | | | | | | | | | |
Net Sales Change over Prior Year |
| | | Food |
| Beverage |
| Total | |
| | | | | | | | | |
Core Sales Growth | | | | 7 | % | (2) | % | 3 | % |
Acquisitions | | | | 11 | % | — | % | 7 | % |
Currency Effects (1) | | | | (2) | % | (3) | % | (2) | % |
Total Reported Net Sales Growth | | | | 16 | % | (5) | % | 8 | % |
(1) | Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates. |
| | | | | | | | | |
Adjusted EBITDA increased to $68.1 million in 2016.
In 2015, segment income increased approximately 13% to $42.7 million2019 compared to $37.7$57.6 million in 2014.2018. This increase is mainly attributeddue to higherincremental profit related to our CSP Technologies acquisition and solid core sales growth discussed above. We also benefitted from the positive timing delay of passing on resin cost decreases from previous quarters to our customers. During 2018, we recognized an impairment of $1.6 million related to prepaid royalties as a result of lower than expected sales during the contractual period. This impairment does not impact our current product portfolio or future project pipeline related to the underlying technology. Adjusted EBITDA as a percentage of sales volumes, improved to 16.4% in 2019 compared to 15.0% in 2018 due to favorable operational performance and a $3.8 million favorable impact due toalong with the timing of resin pass-throughs.other positive factors discussed above.
CORPORATE & OTHER
Certain costs that are not allocatedIn addition to our three operating businessreporting segments, are classified asAptar assigns certain costs to “Corporate & Other,” which is presented separately in Note 1718 of the Notes to the Consolidated Financial Statements. For Corporate & Other, Adjusted EBITDA (which excludes net interest, taxes, depreciation, amortization, restructuring, acquisition-related costs and other special items) primarily includes certain corporate compensation, professional fees, certaincompensation and information system costs and LIFO inventory adjustments (priorwhich are not allocated directly to our accounting change in the second quarter of 2015).
reporting segments. Corporate & Other expense in 20162019 increased to $44.2$44.4 million compared to $28.4$36.3 million in 2015. Excluding the impact of a favorable $7.4 million change in accounting principle related to our inventory valuation method in the prior year, Corporate & Other expense increased $8.4 million in 2016 compared to the prior year. This2018. As discussed above, this increase is mainly due to $5.6 million of transactionhigher professional fees and personnel costs relatedas we continue to the Mega Airless acquisition reported in the first quarter of 2016. In addition, the prior year Corporate & Other expense was reduced by $2.9 million of gain due to an insurance recovery on the involuntary conversion of fixed assets related to a fire in one ofimplement our Brazilian facilities. growth strategy.
In 2015, Corporate & Other expense decreased to $28.4 million compared to $38.3 million in 2014. This decrease is primarily due to the favorable impact of a $7.4 million change in accounting principle related to our inventory valuation method during the second quarter, $2.9 million of gain due to an insurance recovery on the involuntary conversion of fixed assets related to a fire in one of our Brazilian facilities along with the positive effect of changes in exchange rates on the translation of foreign based costs. These decreases were partially offset by $1.9 million of transaction costs related to the Mega Airless acquisition.
|
|
NON-U.S. GAAP MEASURES
In addition to the information presented herein that conforms to U.S. GAAP, we also present financial information that does not conform to U.S. GAAP, which are referred to as non-U.S. GAAP financial measures. Management may assess our financial results both on a U.S. GAAP basis and on a non-U.S. GAAP basis. We believe it is useful to present these non-U.S.GAAPnon-U.S. GAAP financial measures because they allow for a better period-over-period comparison of operating results by removing the impact of items that, in management’s view, do not reflect Aptar’s core operating performance. These non-U.S. GAAP financial measures should not be considered in isolation or as a substitute for U.S. GAAP financial results, but should be read in conjunction with the audited consolidated statements of income and other information presented herein. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparable U.S. GAAP financial measure to arrive at these non-U.S. GAAP financial measures.
| |
22/ATR | 2019 Form 10-K |
In our MD&A, we exclude the impact of foreign currency translation when presenting net sales and other information, which we define as “constant currency.” Changes in net sales excluding the impact of foreign currency translation is a non-U.S. GAAP financial measure. As a worldwide business, it is important that we take into account the effects of foreign currency translation when we view our results and plan our strategies. Consequently, when our management looks at our financial results to measure the core performance of our business, we exclude the impact of foreign currency translation by translating our prior period results at current period foreign currency exchange rates. As a result, our management believes that these presentations are useful internally and may be useful to investors. We also exclude the impact of material acquisitions and dispositions when comparing results to prior periods. Changes in operating results excluding the impact of acquisitions are non-U.S. GAAP financial measures. We feelbelieve it is important to exclude the impact of acquisitions on year-over-yearperiod over period results in order to evaluate performance on a more comparable basis.
We present earnings before net interest and taxes (“EBIT”) and earnings before net interest, taxes, depreciation and amortization (“EBITDA”). We also present our adjusted earnings before net interest and taxes (“Adjusted EBIT”) and adjusted earnings before net interest, taxes, depreciation and amortization (“Adjusted EBITDA”), both of which excludesexclude, among other special items, the impactbusiness transformation charges and acquisition-related costs.Our Operations Outlook is also provided on a non-U.S. GAAP basis because certain reconciling items are dependent on future events that either cannot be controlled, such as tax and exchange rates, or reliably predicted because they are not part of transaction costsour routine activities, such as restructuring and purchase accounting adjustments that affected the inventory values related to the Mega Airless acquisition, income from a change in the method of valuing inventory (from LIFO to FIFO) that was recorded in the second quarter of 2015, and a gain on insurance recovery recorded in the fourth quarter of 2015.acquisition-related costs.
Finally, weWe 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, cash equivalents and short-term investments while Net Capital is calculated as stockholder’s equity plus Net Debt. Net Debt to Net Capital measures a company’s financial leverage, which gives users an idea of a company's financial structure, or how it is financing its operations, along with insight into its financial strength. We believe that it is meaningful to take into consideration the balance of our cash, cash equivalents and short-term investments when evaluating our leverage. If needed, such assets could be used to reduce our gross debt position.
Finally, we provide a reconciliation of free cash flow as a non-U.S. GAAP measure. Free cash flow is calculated as cash provided by operating activities less capital expenditures. 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 measure our ability to generate cash internally to fund our initiatives.
| | | | | | | | | | | | | | | | | | |
| | Year Ended | ||||||||||||||||
| | December 31, 2019 | ||||||||||||||||
| | | | |||||||||||||||
|
| Consolidated |
| Beauty + Home |
| Pharma |
| Food + Beverage |
| Corporate & Other |
| Net Interest | ||||||
Net Sales | | $ | 2,859,732 | | $ | 1,352,714 | | $ | 1,091,051 | | $ | 415,967 | | $ | - | | $ | - |
| | | | | | | | | | | | | | | | | | |
Reported net income | | $ | 242,227 | | | | | | | | | | | | | | | |
Reported income taxes | | | 99,842 | | | | | | | | | | | | | | | |
Reported income before income taxes | | | 342,069 | | | 80,281 | | | 317,897 | | | 31,835 | | | (56,629) | | | (31,315) |
Adjustments: | | | | | | | | | | | | | | | | | | |
Restructuring initiatives | | | 20,472 | | | 17,682 | | | 632 | | | 391 | | | 1,767 | | | |
Transaction costs related to acquisitions | | | 3,927 | | | 409 | | | 3,364 | | | 154 | | | | | | |
Purchase accounting adjustments related to acquired companies' backlog | | | 1,202 | | | | | | 1,202 | | | | | | | | | |
Adjusted earnings before income taxes | | | 367,670 | | | 98,372 | | | 323,095 | | | 32,380 | | | (54,862) | | | (31,315) |
Interest expense | | | 35,489 | | | | | | | | | | | | | | | 35,489 |
Interest income | | | (4,174) | | | | | | | | | | | | | | | (4,174) |
Adjusted earnings before net interest and taxes (Adjusted EBIT) | | | 398,985 | | | 98,372 | | | 323,095 | | | 32,380 | | | (54,862) | | | - |
Depreciation and amortization | | | 194,552 | | | 82,778 | | | 65,590 | | | 35,728 | | | 10,456 | | | - |
Backlog amortization included in Depreciation and amortization above | | | (1,202) | | | | | | (1,202) | | | | | | | | | |
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA) | | $ | 592,335 | | $ | 181,150 | | $ | 387,483 | | $ | 68,108 | | $ | (44,406) | | $ | - |
| | | | | | | | | | | | | | | | | | |
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales) | | | 20.7% | | | 13.4% | | | 35.5% | | | 16.4% | | | | | | |
| |
|
|
| | | | | | | | | | | | | | | | | | |
| | Year Ended | ||||||||||||||||
| | December 31, 2018 | ||||||||||||||||
| | | | |||||||||||||||
|
| Consolidated |
| Beauty + Home |
| Pharma |
| Food + Beverage |
| Corporate & Other |
| Net Interest | ||||||
Net Sales | | $ | 2,764,761 | | $ | 1,426,382 | | $ | 954,652 | | $ | 383,727 | | $ | - | | $ | - |
| | | | | | | | | | | | | | | | | | |
Reported net income | | $ | 194,766 | | | | | | | | | | | | | | | |
Reported income taxes | | | 71,254 | | | | | | | | | | | | | | | |
Reported income before income taxes | | | 266,020 | | | 49,443 | | | 276,550 | | | 23,956 | | | (58,359) | | | (25,570) |
Adjustments: | | | | | | | | | | | | | | | | | | |
Restructuring initiatives | | | 63,829 | | | 52,244 | | | 3,589 | | | 4,185 | | | 3,811 | | | |
Transaction costs related to acquisitions | | | 9,598 | | | 574 | | | | | | | | | 9,024 | | | |
Purchase accounting adjustments related to acquired companies' inventory | | | 14,172 | | | 119 | | | 12,072 | | | 1,981 | | | | | | |
Adjusted earnings before income taxes | | | 353,619 | | | 102,380 | | | 292,211 | | | 30,122 | | | (45,524) | | | (25,570) |
Interest expense | | | 32,626 | | | | | | | | | | | | | | | 32,626 |
Interest income | | | (7,056) | | | | | | | | | | | | | | | (7,056) |
Adjusted earnings before net interest and taxes (Adjusted EBIT) | | | 379,189 | | | 102,380 | | | 292,211 | | | 30,122 | | | (45,524) | | | - |
Depreciation and amortization | | | 171,747 | | | 83,546 | | | 51,495 | | | 27,467 | | | 9,239 | | | - |
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA) | | $ | 550,936 | | $ | 185,926 | | $ | 343,706 | | $ | 57,589 | | $ | (36,285) | | $ | - |
| | | | | | | | | | | | | | | | | | |
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales) | | | 19.9% | | | 13.0% | | | 36.0% | | | 15.0% | | | | | | |
| | | | | | | |
Net Debt to Net Capital Reconciliation |
| | December 31, |
| | December 31, |
|
| | | 2019 | | | 2018 | |
| | | | | | | |
Notes payable, revolving credit facility and overdrafts |
| $ | 44,259 |
| $ | 101,293 |
|
Current maturities of long-term obligations, net of unamortized debt issuance costs | | | 65,988 | | | 62,678 | |
Long-Term Obligations, net of unamortized debt issuance costs | | | 1,085,453 | | | 1,125,993 | |
Total Debt | | | 1,195,700 | | | 1,289,964 | |
Less: | | | | | | | |
Cash and equivalents | | | 241,970 | | | 261,823 | |
Net Debt | | $ | 953,730 | | $ | 1,028,141 | |
| | | | | | | |
Total Stockholders' Equity | | $ | 1,572,252 | | $ | 1,422,871 | |
Net Debt | | | 953,730 | | | 1,028,141 | |
Net Capital | | $ | 2,525,982 | | $ | 2,451,012 | |
| | | | | | | |
Net Debt to Net Capital | | | 37.8% | | | 41.9% | |
| | | | | | | |
Free Cash Flow Reconciliation |
| | December 31, |
| | December 31, | |
| | | 2019 | | | 2018 | |
| | | | | | | |
Net Cash Provided by Operations |
| $ | 514,457 |
| $ | 313,628 | |
| | | | | | | |
Less: | | | | | | | |
Capital Expenditures | | | 242,276 | | | 211,252 | |
Free Cash Flow | | $ | 272,181 | | $ | 102,376 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended | ||||||||||||||||
|
| December 31, 2016 | ||||||||||||||||
|
|
|
| |||||||||||||||
|
| Consolidated |
| Beauty + Home |
| Pharma |
| Food + Beverage |
| Corporate & Other |
| Net Interest | ||||||
Net Sales |
| $ | 2,330,934 |
| $ | 1,261,086 |
| $ | 741,473 |
| $ | 328,375 |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income |
| $ | 205,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes |
|
| 74,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income before income taxes |
|
| 280,497 |
|
| 100,569 |
|
| 219,039 |
|
| 37,697 |
|
| (44,214) |
|
| (32,594) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs related to the Mega Airless acquisition |
|
| 5,640 |
|
|
|
|
|
|
|
|
|
|
| 5,640 |
|
|
|
Purchase accounting adjustments related to Mega Airless inventory |
|
| 2,577 |
|
| 2,151 |
|
| 426 |
|
|
|
|
|
|
|
|
|
Adjusted earnings before income taxes |
|
| 288,714 |
|
| 102,720 |
|
| 219,465 |
|
| 37,697 |
|
| (38,574) |
|
| (32,594) |
Interest expense |
|
| 35,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 35,237 |
Interest income |
|
| (2,643) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,643) |
Adjusted earnings before net interest and taxes (Adjusted EBIT) |
|
| 321,308 |
|
| 102,720 |
|
| 219,465 |
|
| 37,697 |
|
| (38,574) |
|
| - |
Depreciation and amortization |
|
| 154,802 |
|
| 84,273 |
|
| 39,776 |
|
| 23,891 |
|
| 6,862 |
|
| - |
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA) |
| $ | 476,110 |
| $ | 186,993 |
| $ | 259,241 |
| $ | 61,588 |
| $ | (31,712) |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income margin |
|
|
|
|
| 8.0% |
|
| 29.5% |
|
| 11.5% |
|
|
|
|
|
|
Adjusted EBITDA margin (Adjusted EBITDA / Reported Net Sales) |
|
| 20.4% |
|
| 14.8% |
|
| 35.0% |
|
| 18.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended | ||||||||||||||||
|
| December 31, 2015 | ||||||||||||||||
|
|
|
| |||||||||||||||
|
| Consolidated |
| Beauty + Home |
| Pharma |
| Food + Beverage |
| Corporate & Other |
| Net Interest | ||||||
Net Sales |
| $ | 2,317,149 |
| $ | 1,272,946 |
| $ | 712,220 |
| $ | 331,983 |
| $ | - |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income |
| $ | 199,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes |
|
| 95,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income before income taxes |
|
| 294,571 |
|
| 98,707 |
|
| 210,509 |
|
| 42,731 |
|
| (28,357) |
|
| (29,019) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in inventory valuation methods (from LIFO to FIFO) |
|
| (7,427) |
|
|
|
|
|
|
|
|
|
|
| (7,427) |
|
|
|
Transaction costs related to the Mega Airless acquisition |
|
| 1,892 |
|
|
|
|
|
|
|
|
|
|
| 1,892 |
|
|
|
Gain on insurance recovery |
|
| (2,900) |
|
|
|
|
|
|
|
|
|
|
| (2,900) |
|
|
|
Adjusted earnings before income taxes |
|
| 286,136 |
|
| 98,707 |
|
| 210,509 |
|
| 42,731 |
|
| (36,792) |
|
| (29,019) |
Interest expense |
|
| 34,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 34,615 |
Interest income |
|
| (5,596) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5,596) |
Adjusted earnings before net interest and taxes (Adjusted EBIT) |
|
| 315,155 |
|
| 98,707 |
|
| 210,509 |
|
| 42,731 |
|
| (36,792) |
|
| - |
Depreciation and amortization |
|
| 138,893 |
|
| 75,289 |
|
| 36,008 |
|
| 21,347 |
|
| 6,249 |
|
| - |
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA) |
| $ | 454,048 |
| $ | 173,996 |
| $ | 246,517 |
| $ | 64,078 |
| $ | (30,543) |
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income margin |
|
|
|
|
| 7.8% |
|
| 29.6% |
|
| 12.9% |
|
|
|
|
|
|
Adjusted EBITDA margin (Adjusted EBITDA / Reported Net Sales) |
|
| 19.6% |
|
| 13.7% |
|
| 34.6% |
|
| 19.3% |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Net Debt to Net Capital Reconciliation |
|
| December 31, |
|
| December 31, |
|
|
|
| 2016 |
|
| 2015 |
|
|
|
|
|
|
|
|
|
Notes payable |
| $ | 169,213 |
| $ | 5,083 |
|
Current maturities of long-term obligations, net of unamortized debt issuance costs |
|
| 4,603 |
|
| 51,884 |
|
Long-Term Obligations, net of unamortized debt issuance costs |
|
| 772,737 |
|
| 760,848 |
|
Total Debt |
|
| 946,553 |
|
| 817,815 |
|
Less: |
|
|
|
|
|
|
|
Cash and equivalents |
|
| 466,287 |
|
| 489,901 |
|
Short-term investments |
|
| — |
|
| 29,816 |
|
Net Debt |
| $ | 480,266 |
| $ | 298,098 |
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity |
| $ | 1,174,242 |
| $ | 1,149,706 |
|
Net Debt |
|
| 480,266 |
|
| 298,098 |
|
Net Capital |
| $ | 1,654,508 |
| $ | 1,447,804 |
|
|
|
|
|
|
|
|
|
Net Debt to Net Capital |
|
| 29.0% |
|
| 20.6% |
|
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash flows provided by our operations and our revolving credit facility. In 2016, our operations provided cash flows that totaled $327.2 million compared to $324.5 million in 2015 and $316.3 million in 2014. The increase in cash flow from operations in 2016 reflects our growth in earnings before depreciation and amortization partially offset by an increased use of cash for working capital. Comparing 2015 to 2014, the increase is mainly due to profit growth resulting from operational improvements, cost containment efforts and lower input costs.
We used $300.5 million in cash for investing activities during 2016, compared to $176.2 million during 2015 and $159.2 million during 2014. The increase is due primarily to the Mega Airless purchase price of $203.0 million, net of cash received. This increase in cash used for investing activities was partially offset by the maturity of $29.5 million in short-term investments and a decrease in capital expenditures of $20.3 million. Comparing 2015 to 2014, the increase in cash used for investing activities is due to the purchase of $32.8 million in short-term investments. Short term investments reflect funds invested in a time deposit instrument with a two-year maturity. However, during the life of the investment the funds could have been redeemed at any time with a 35-90 day notice. There were no penalties for early redemption. This increase in cash used for short-term investments was partially offset by a decrease in capital expenditures of $12.6 million. We estimate that we will spend approximately $160 million (assuming current exchange rates) on capital expenditures in 2017.
Our net cash used for financing activities in 2016 was $31.6 million compared to $33.1 million in 2015 and $20.7 million in 2014. In 2016, the decrease in cash used for financing activities was primarily due to an increase in our borrowings which was used in part to fund a $117.5 million increase in shares repurchased and retired. During 2015, we repurchased $13.9 million shares for retirement.
Cash and equivalents decreased $23.6 million to $466.3 million at the end of 2016 from $489.9 million at the end of 2015. Total short-term and long-term interest bearing debt increased to $946.6 million at the end of 2016 from $817.8 million at the end of 2015. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (Stockholders’ Equity plus Net Debt) increased to 29.0% at the end of 2016 compared to 20.6% as of December 31, 2015.
The Company maintains a revolving credit facility that provides for unsecured financing of up to $300 million. Each borrowing under this 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 Aptar's consolidated leverage ratio. The facility matures on December 16, 2019. The outstanding balance under the credit facility was $166.0 million at December 31, 2016 and is reported as notes payable in the current liabilities section of the Consolidated Balance Sheets. At December 31, 2015, there was no outstanding balance under the credit facility. We incurred approximately $2.0 million and $0.9 million in interest and fees related to this credit facility during 2016 and 2015, respectively.
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Our revolving credit facility and certain long-term obligations require us to satisfy certain financial and other covenants including:
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Based upon the above consolidated leverage ratio covenant, we would have the ability to borrow approximately an additional $1.1 billion before the 3.50 to 1.00 ratio requirement would be exceeded.
Our foreign operations have historically met cash requirements with the use of internally generated cash or borrowings. These foreign subsidiaries have financing arrangements with several foreign banks to fund operations located outside the U.S., but the majority of these arrangements are uncommitted. Cash generated by foreign operations has generally been reinvested locally. The majority of our $466.3 million in cash and equivalents is located outside of the U.S. 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. The Company is planning on repatriating approximately $250 million to the U.S. in 2017 to reduce existing debt levels and help fund planned stock repurchases. Under current U.S. tax rules, the Company does not expect any significant tax consequences from the repatriation due to a strengthening U.S. dollar in relation to the Euro and available tax credits.
We believe we are in a strong financial position and have the financial resources to meet our business requirements in the foreseeable future. We have historically used cash flow from operations, our revolving credit facility,facilities, proceeds from stock option exercisesoptions and debt, as needed, as our primary sources of liquidity. Our primary uses of liquidity are to invest in equipment and facilities that are necessary to support our growth, cost efficiencies, and to make acquisitions that will contribute to the achievement of our strategic objectives. Other uses of liquidity include paying dividends to stockholders and repurchasing shares of our common stock.stock and paying dividends to stockholders. In the event that customer demand would decrease significantly for a prolonged period of time and negatively impact cash flow from operations, we would have the ability to restrict and significantly reduce capital expenditure levels, as well as evaluate our acquisition strategy and dividend and share repurchase programs. A prolonged and significant reduction in capital expenditure levels could increase future repairs and maintenance costs as well as have a negative impact on operating margins if we were unable to invest in new innovative products. Refer to Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 for additional information regarding Liquidity and Capital Resources for the year ended December 31, 2018 as compared to the year ended December 31, 2017.
OFF‑BALANCECash and equivalents decreased to $242.0 million at December 31, 2019 from $261.8 million at December 31, 2018. Total short and long-term interest bearing debt of $1.2 billion at December 31, 2019 decreased from the $1.3 billion at December 31, 2018 resulting from repayments made during the year on our group credit facilities and long-term debt obligations. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholders’ equity plus Net Debt) decreased to 37.8% at December 31, 2019 compared to 41.9% at December 31, 2018. See the reconciliation of non-U.S. GAAP measures starting on page 22.
In 2019, our operations provided approximately $514.5 million in cash flow compared to $313.6 million in 2018. Cash flow from operations was primarily derived from earnings before depreciation and amortization. The increase in 2019 cash flow from operations compared to 2018 is primarily attributable to lower restructuring costs, improved profitability and better working capital management.
We used $336.3 million in cash for investing activities during 2019 compared to $735.5 million during 2018. The lower cash utilization in 2019 compared to 2018 is mainly due to less cash outflows related to acquisitions. During 2019, approximately $106.3 million of cash was utilized to fund our Gateway, Nanopharm and Noble acquisitions; we also released $4.0 million relating to the final escrow settlement on our acquisition of CSP Technologies and invested $3.5 million in two preferred equity investments. We also received $16.5 million from the sale of our investment in Propeller Health in 2019. Our investment in capital projects increased $31.0 million during 2019 as compared to 2018. Our cash utilization in 2018 is mainly due to acquisitions and capital investments to support our growth strategy. During 2018, approximately $524.4 million of our cash (net of $24.1 million of cash acquired and $5.0 million in escrow) was utilized to fund our acquisition of CSP Technologies. We also invested $10.0 million in preferred stock of Propeller Health and acquired Reboul for an initial purchase price of approximately $3.5 million (net of $112 thousand of cash acquired).
Financing activities utilized $197.1 million in cash during 2019, compared to net cash utilized by financing activities of $14.9 million during 2018. In 2019, we used cash on hand to repay net short term revolving credit facility of $52.1 million, pay $67.3 million of long-term debt and pay $90.2 million of dividends, received net proceeds from stock option exercises of $90.8 million and repurchased $86.5 million of common stock that was placed into treasury. In 2018, we received net proceeds from our short term credit facility and stock option exercises of $81.1 million and $88.2 million, respectively. We used cash on hand to repay $72.3 million of long-term debt, pay $82.3 million of dividends and repurchase $61.7 million of common and treasury stock.
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. $25.0 million was utilized under our U.S. facility and no balance was utilized under our euro-based revolving credit facility as of December 31, 2019. No balance was utilized under our U.S. facility and €69.0 million was utilized under our euro-based revolving credit facility as of December 31, 2018. Credit facility balances are included in notes payable, revolving credit facility and overdrafts on the Condensed Consolidated Balance Sheets.
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25/ATR | 2019 Form 10-K |
Our revolving credit facility and certain long-term obligations require us to satisfy certain financial and other covenants including:
| | | | |
| Requirement | Level at December 31, 2019 | ||
Consolidated Leverage Ratio (1) | Maximum of 3.50 to 1.00 | 1.71 to 1.00 | ||
Consolidated Interest Coverage Ratio (1) | Minimum of 3.00 to 1.00 | 16.21 to 1.00 |
(1) | Definitions of ratios are included as part of the revolving credit facility agreement. |
Based upon the above consolidated leverage ratio covenant, we would have the ability to borrow approximately an additional $1.0 billion before the 3.50 to 1.00 ratio requirement would be exceeded.
Our foreign operations have historically met cash requirements with the use of internally generated cash or uncommitted short-term borrowings. We also have committed financing arrangements in both the U.S. and the UK as detailed above. We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances.
OFF-BALANCE SHEET ARRANGEMENTS
We lease certain warehouse, plant and office facilities as well as certain equipment under noncancelable operating leases expiring at various dates through the year 2027.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. Other than operating lease obligations,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 notno longer have any off‑balancesignificant off-balance sheet arrangements. SeePlease refer to Note 8 – Lease Commitments of the following section “Overview of Contractual Obligations”Notes to Condensed Consolidated Financial Statements for future payments relating to operating leases.lease arrangements that have not yet commenced and therefore are not included on the balance sheet.
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OVERVIEW OF CONTRACTUAL OBLIGATIONS
Below is a table of our outstanding contractual obligations and future payments as of December 31, 2016:2019:
| | | | | | | | | | | | | | | | |
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| | |
| | |
| | |
| | |
| 2025 and |
| |
Payment Due by Period |
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| Total |
|
| 2020 |
| 2021-2022 |
| 2023-2024 |
| After | | |||
| | | | | | | | | | | | | | | | |
Long-term obligations (1) |
| $ | 1,123,730 |
| $ | 61,670 |
| $ | 196,661 |
| $ | 614,995 |
| $ | 250,404 | |
Finance lease obligations (1) | | | 29,952 | | | 4,318 | | | 6,185 | | | 3,849 | | | 15,600 | |
Operating leases (1) | | | 71,854 | | | 16,578 | | | 21,142 | | | 13,238 | | | 20,896 | |
Notes payable, revolving credit facility and overdrafts (2) | | | 44,259 | | | 44,259 | | | — | | | — | | | — | |
Purchase obligations (3) | | | 23,429 | | | 22,948 | | | 461 | | | 18 | | | 2 | |
Interest obligations (4) | | | 54,375 | | | 8,278 | | | 15,479 | | | 18,519 | | | 12,099 | |
Total Contractual Obligations |
| $ | 1,347,599 |
| $ | 158,051 |
| $ | 239,928 |
| $ | 650,619 |
| $ | 299,001 | |
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| 2022 and |
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Payment Due by Period |
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| Total |
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| 2017 |
| 2018-2019 |
| 2020-2021 |
| After |
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Long-term debt (1) |
| $ | 777,247 |
| $ | 3,800 |
| $ | 83,781 |
| $ | 87,407 |
| $ | 602,259 |
|
Capital lease obligations (1) |
|
| 1,542 |
|
| 803 |
|
| 736 |
|
| 3 |
|
| — |
|
Operating leases |
|
| 76,885 |
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| 22,066 |
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| 25,798 |
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| 13,191 |
|
| 15,830 |
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Notes payable (2) |
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| 169,213 |
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| 169,213 |
|
| — |
|
| — |
|
| — |
|
Purchase obligations (3) |
|
| 86,154 |
|
| 44,727 |
|
| 41,285 |
|
| 142 |
|
| — |
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Interest obligations (4) |
|
| 187,434 |
|
| 29,999 |
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| 52,852 |
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| 45,154 |
|
| 59,429 |
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Required minimum pension contribution (5) |
|
| — |
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| — |
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| — |
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| — |
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| — |
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Other liabilities reflected on the balance sheet under U.S. GAAP (6) |
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| — |
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| — |
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| — |
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| — |
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| — |
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Total Contractual Obligations |
| $ | 1,298,475 |
| $ | 270,608 |
| $ | 204,452 |
| $ | 145,897 |
| $ | 677,518 |
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(1) |
| The future payments listed above for long-term debt repayments and |
(2) |
| Notes payable mainly includes |
(3) |
| Purchase obligations are agreements to purchase goods or services that are enforceable and legally binding on |
(4) |
| Approximately |
We make contributions to our domestic pension plans but currently we are not required to make a minimum pension contribution to those plans. We also contribute to our foreign pension plans but amounts are expected to be discretionary in 2019 and future years. Therefore, amounts related to these plans are not included in the preceding table.
We do not record a current portion of the liability for uncertain tax positions. Aside from deferred income taxes, we have approximately $124.2 million of other deferred long-term liabilities on the balance sheet, which consist primarily of retirement plan obligations. We are not able to reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease over time. Therefore, the long-term portion of the liability is excluded from the preceding table.
| |
26/ATR | 2019 Form 10-K |
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSSTANDARDS
We have reviewed the recently issued accounting standards updates to the Financial Accounting Standards Board’s (“FASB’s”)FASB’s Accounting Standards Codification that have future effective dates. Standards which are effective for 20162019 are discussed in Note 1 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.
In May 2014, the FASB amended the guidance for recognition of revenue from customer contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB decided to defer the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also decided to allow early adoption of the standard, but not before the original effective date of December 15, 2016. Subsequent to the initial standards, the FASB has also issued several Accounting Standards Updates (“ASUs”) to clarify specific revenue recognition topics. We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements. The majority of our revenues are derived from product sales and tooling sales and we are in the process of assessing the impact of the new guidance on these revenue streams. We are also evaluating our license, exclusivity and royalty arrangements which will need to be reviewed individually to ensure proper accounting under the new standard. Based on our initial reviews, we currently anticipate adopting the full retrospective transition method for implementing this guidance on the standard’s effective date.
In July 2015, the FASB issued new guidance for simplifying the measurement of inventory. The core principle of the guidance is that an entity should measure inventory at the lower of cost and net realizable value. This standard is effective for annual reporting periods beginning after December 15, 2016. The Company does not believe that this new guidance will have a material impact on its consolidated financial statements.
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In January 2016, the FASB issued new guidance that generally requires companies to measure investments in other entities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company does not believe that this new guidance will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued new guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this guidance.
In March 2016, the FASB issued guidance that eliminates the requirement that an investor retrospectively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for the equity method. The guidance requires that an equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The new standard is effective for fiscal years and interim periods beginning after December 15, 2016. The Company is currently evaluating the impact of adopting this guidance.
In March 2016, the FASB issued guidance that changes the accounting for certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The new standard is effective for fiscal years and interim periods beginning after December 15, 2016. The impact of adopting this guidance will be dependent on the difference between the actual tax on the share-based award and the book value tax along with the number of awards exercised within a given period. Gains for 2016 and 2015 would have been $8.2 million and $8.4 million, respectively, and would have been included in tax expense.
In June 2016, the FASB issued guidance that changes the accounting for measurement of credit losses on financial instruments. The guidanceASU 2016-13, which replaces the incurred loss impairment methodology in current accounting principles generally accepted in the United States of America ("U.S. GAAPGAAP") with a new impairment model commonly referred to as the Current Expected Credit Loss ("CECL") methodology. CECL methodology that reflectswill require an entity to measure, at each reporting date, the expected credit losses and requires consideration of a broader rangefinancial instruments not measured at fair value, such as accounts receivable, over their contractual lives. The change in loss impairment methodology could increase our provision for credit losses. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of reasonable and supportable information when recording credit loss estimates.the beginning of the period of adoption. The new standardguidance is effective for fiscal years and interim periods beginning after December 15, 2019. The Company is2019, including interim periods within those fiscal years. We are currently evaluating the impact of adopting this guidance.
In August 2016, the FASB issued guidance to increase comparability among organizations on how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company is currently evaluatingstandard; however, we do not expect the impact to be material. We will adopt the requirement of adopting this guidance.standard during the first quarter of 2020.
In January 2017, the FASB issued ASU 2017-04, which provides guidance to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As a result, impairment charges will be required for the amount by which thea reporting unitsunit’s carrying amount exceeds its fair value up to the amount of its allocated goodwill. The new standard is effective for the annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company doesWe do not believe that this new guidance will have a material impact on its consolidated financial statements.our Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, which amends disclosure requirements for fair value measurements. The new standard modifies disclosure requirements including removing requirements to disclose the valuation process for Level 3 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. The new standard is effective for interim and annual periods beginning after December 15, 2019. We are currently evaluating the impact of the adoption of this standard to our disclosures.
In August 2018, the FASB issued ASU 2018-14, which amends disclosure requirements for defined benefit pension and other postretirement plans. The new standard removes requirements to disclose the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year and the effects of a one-percentage-point changes in assumed health care cost trend rates. The standard also adds requirements to disclose the reasons for significant gains and losses related to changes in the benefit obligations for the period and the accumulated benefit obligation (“ABO”) for plans with ABOs in excess of plan assets. The new standard will be effective for fiscal years ending after December 15, 2020. We are currently evaluating the impact of the adoption of this standard to our disclosures.
In August 2018, the FASB issued ASU 2018-15 to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. The new standard is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact of adopting this guidance.
Other accounting standards that have been issued by the FASB or other standards‑settingstandards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.
| |
27/ATR | 2019 Form 10-K |
CRITICAL ACCOUNTING ESTIMATES
The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, intangible assets, income taxes, pensions and contingencies. We base our estimates on historical experience and on a variety of other assumptions believed to be reasonable in order to make judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in preparation of our Consolidated Financial Statements. Management has discussed the development and selection of these critical accounting estimates with the audit committee of our Board of Directors and the audit committee has reviewed our disclosure relating to it in this Management’s Discussion and Analysis of Consolidated Results of Operations and Financial Condition.MD&A.
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IMPAIRMENT OF GOODWILL
In accordance with current accounting standards, goodwill has an indefinite life and is not amortized. We evaluate our goodwill for impairment at the reporting unit level on an annual basis, or whenever indicators of impairment exist. We have determined that our Beauty + Home and Food + Beverage business segments represent reporting units andunits. Within the Injectables division of our Pharma segment, qualifiesthe injectables and active packaging divisions qualify as a separate reporting unitunits for goodwill impairment testing.testing apart from the remaining Pharma business. As of December 31, 2016,2019, we have $407.5$763.5 million of goodwill, which is allocated as follows: $87.2 million is allocated to the Pharma reporting unit, $92.8 million is allocated to the Injectables reporting unit, $211.4 million is allocated to the Beauty + Home reporting unit and $16.1 million is allocated to the Food + Beverage reporting unit.
| | | | |
Reporting Unit |
|
| Balance at December 31, 2019 |
|
Pharma | | $ | 116,561 | |
Injectables | | | 134,353 | |
Active Packaging | | | 162,736 | |
Beauty + Home | | | 221,658 | |
Food + Beverage | | | 128,153 | |
Total | | $ | 763,461 | |
We believe that the accounting estimateestimates related to determining the fair value of our reporting units is a critical accounting estimate because: (1) it is highly susceptible to change from period to period because it requires Company management to make assumptions about the future cash flows for each reporting unit over several years, and (2) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our results of operations could be material. Management’s assumptions aboutdetermination of the fair value of our reporting units, based on future cash flows for the reporting units, requirerequires significant judgment and actualthe use of estimates and assumptions related to projected revenue growth rates, the terminal growth factor, as well as the discount rate. Actual cash flows in the future may differ significantly from those forecasted today. The estimateestimates and assumptions for future cash flows and its impact on the impairment testing of goodwill is a critical accounting estimate.
For our goodwill impairment assessment, we first consider qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (greater than 50 percent chance) that the fair value of a reporting unit is less than its carrying amount (the Step 0 method)“step zero” approach). Such qualitative factors may include the following: macroeconomic conditions; industry and market considerations; cost factors; overall financial performance;performance, and other relevant entity‑specificentity-specific events.
In the absence of sufficient qualitative factors, goodwill impairment is determined utilizing a two‑steptwo-step quantitative process. Due to the passage of time since the last quantitative assessment, managementIf it is determined it appropriate to calculatethat the fair value of a reporting unit is below its carrying amount, where necessary, goodwill will be impaired at that time.
The Company has historically evaluated its goodwill for impairment annually as of December 31 or more frequently if impairment indicators arose in accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other.” In the fourth quarter of 2019, the Company changed the date of its annual assessment of goodwill to October 1 for all reporting units. The change in testing date for goodwill is a change in accounting principle, which management believes is preferable as the new date of the assessment better aligns with the Company’s budgeting process and will create a more efficient and timely process surrounding the impairment tests. The change in the assessment date does not delay, accelerate or avoid a potential impairment charge. The Company has determined that it is impracticable to objectively determine projected cash flows and related valuation estimates that would have been used as of each October 1 of prior reporting periods without the use of hindsight. As such, the Company prospectively applied the change in annual goodwill impairment testing date from October 1, 2019. No impairment was recognized during the years ended December 31, 2019, 2018 or 2017.
| |
28/ATR | 2019 Form 10-K |
Based on our qualitative assessment of macroeconomic, industry, and market events and circumstances as well as the overall financial performance of the reporting units, and compare withwe determined it was more likely than not that the fair value of these reporting units was greater than their associated carrying amounts (the “step one” approach)amounts. As such, the annual two-step impairment test was deemed not necessary to be performed for our reporting units for the year ended December 31, 2016.2019. During the third quarter of 2019, we performed a separate quantitative impairment assessment using a discounted cash flow analysis of the Active Packaging reporting unit, which was formed as a result of the CSP Technologies acquisition in the third quarter of 2018. We calculated the fair value of the Active Packaging reporting unit and compared it with the associated carrying value (the “step one” approach) as of July 1, 2019. Based on this quantitative analysis, all of the reporting units substantially exceeded their carrying values.
We believe our assumptions used in discounting future cash flows are appropriate. Any increase in estimated cash flows would have no impact on the reported carrying amount of goodwill. However, if our current estimates of cash flows for the Injectables reporting unit had been 55% lower, the fair value of the reporting unit would have been lower thanexceeded the carrying value thus requiring us determineand therefore no impairment loss was recognized.
INCOME TAXES
In the “implied value”ordinary course of goodwill. The excessbusiness, we make estimates of the approximately $92.8 milliontax treatment of many transactions, even though the ultimate tax outcome may remain uncertain for some time. These estimates become part of the annual income tax expense reported in carrying valueour financial statements. Subsequent to year-end, we finalize our tax analysis and file income tax returns. Tax authorities periodically audit these income tax returns and examine our tax filing positions, including (among other things) the timing and amounts of goodwill overdeductions, and the “implied value”allocation of goodwill would needincome among tax jurisdictions. If necessary, we adjust income tax expense in our financial statements in the periods in which the actual outcome becomes more certain.
Our tax liability for unrecognized tax benefits contains uncertainties because management is required to be written down for impairment. A full $92.8 million impairment loss would have reduced Total Assetsmake assumptions and to apply judgment to estimate the exposures related to our various filing positions.
Our effective tax rate is also impacted by changes in tax laws, the current mix of earnings by taxing jurisdiction, and the results of current tax audits and assessments. In December 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (TCJA), which resulted in significant changes to U.S. federal income tax law affecting us. Current and expected impacts are based on our current knowledge of the legislation and other authoritative guidance, which has been issued, including proposed regulations.
At December 31, 2016 by approximately 4%2019 and would have reduced Income before Income Taxes in 2016 by approximately 33%.
If2018, we had been required$116.0 million and $96.3 million, respectively, of net deferred tax assets on our balance sheet, a significant portion of which is related to recognize an impairment lossnet operating losses and other tax carryforwards. The ultimate realization of the full $92.8 million, it would likely not have significantly affected our liquidity and capital resources because, in spite of any such impairment loss, we would have been within the terms of our debt covenants.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We record an allowance for doubtful accounts as an estimate of the inability of our customers to make their required payments. We determinethese deferred tax assets is dependent upon the amount, source, and timing of future taxable income. In cases where we believe it is more likely than not that we may not realize the future potential tax benefits, we establish a valuation allowance against them.
Changes in U.S. and foreign tax laws could impact assumptions related to the repatriation of certain foreign earnings. Audits by various taxing authorities continue as governments look for ways to raise additional revenue. Based upon past audit experience, we do not expect any material changes to our allowance for doubtful accounts by looking attax liability as a varietyresult of factors. First,this audit activity; however, we examine an aging reportcould incur additional tax expense if we have audit adjustments higher than recent historical experience. The likelihood of recovery of net operating losses and other tax carryforwards has been closely evaluated and is based upon such factors as the accounts receivable in each entity within the Company. The aging report lists past due amounts according to invoice terms. In addition, we consider historical experience with the customers, the current economic environment, the credit rating of the customerstime remaining before expiration, viable tax planning strategies, and general overall market conditions. In some countries we maintain credit insurance, which can be used in certain cases of non‑payment.
future taxable earnings expectations. We believe that appropriate valuation allowances have been recorded as necessary. However, if earnings expectations or other assumptions change such that additional valuation allowances are required, we could incur additional tax expense. Likewise, if fewer valuation allowances are needed, we could incur reduced tax expense.
ACQUISITIONS
We account for business combinations using the accounting estimate related to the allowance for doubtful accounts is a critical accounting estimate because: (1) itacquisition method, which requires management to makeestimate the fair value of identifiable assets acquired and liabilities assumed, and to properly allocate purchase price consideration to the individual assets acquired and liabilities assumed. Goodwill is measured as the excess amount of consideration transferred, compared to fair value of the assets acquired and the liabilities assumed. The allocation of the purchase price utilizes significant estimates and assumptions aboutin determining the abilityfair values of identifiable assets acquired and liabilities assumed, especially with respect to collect amounts owed from customersintangible assets. These estimates are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. The purchase price allocation for business acquisitions contains uncertainties because it requires management's judgment.
Management applied judgment in determining the fair value of the acquired assets with respect to the acquisitions of Noble, Nanopharm, Gateway, CSP Technologies and Reboul. The judgments made in determining the estimated fair value assigned to the assets acquired, as well as the estimated life of the assets, can materially impact net income in periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the futurefuture. In particular, judgment was applied with respect to determining the fair value of customer relationships intangible assets, which involved the use of significant estimates and (2) changes to these assumptions or estimates could have a material impact on our results of operations. The estimate for the allowance for doubtful accounts is a critical accounting estimate for all of our segments.
When we determine that a customer is unlikely to pay, we record a charge to bad debt expense in the income statement and an increasewith respect to the allowance for doubtful accounts. When it becomes certaintiming and amounts of cash flow projections, the revenue growth rates, the customer cannot pay (typically driven byattrition rates, the customer filing for bankruptcy) we write offEBITDA margins and the receivable by removing the accounts receivable amount and reducing the allowance for doubtful accounts accordingly. In 2016, we increased the allowance for doubtful accounts by approximately $561 thousand and we wrote off doubtful accounts of $282 thousand. Please refer to Schedule II—Valuation and Qualifying Accounts for activity in the allowance for doubtful accounts over the past three years.
discount rate.
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We had approximately $433.1 million in net accounts receivable at December 31, 2016. At December 31, 2016, we had approximately $3.0 million recorded in the allowance for doubtful accounts to cover potential future customer non‑payments net of any credit insurance reimbursement we would potentially recover. We believe our allowance for doubtful accounts is adequate to cover future non‑payments of our customers. However, if economic conditions deteriorate significantly or one of our large customers was to declare bankruptcy, a larger allowance for doubtful accounts might be necessary. It is extremely difficult to estimate how much of an additional reserve would be necessary, but we expect the largest potential customer balance at any one time would not exceed $20.3 million. An additional loss of $20.3 million would reduce our Total Assets as of December 31, 2016 by approximately 0.8% and would have reduced Income before Income Taxes by approximately 7.2%.
If we had been required to recognize an additional $20.3 million in bad debt expense, it would likely not have significantly affected our liquidity and capital resources because, in spite of any such additional expense, we would still have been within the terms of our debt covenants.
VALUATION OF PENSION BENEFITS
The benefit obligations and net periodic pension cost associated with our domestic and foreign noncontributory pension plans are determined using actuarial assumptions. Such assumptions include discount rates to reflect the time value of money, rate of employee compensation increases, demographic assumptions to determine the probability and timing of benefit payments, and the long‑termlong-term rate of return on plan assets. The actuarial assumptions are based upon management’s best estimates, after consulting with outside investment advisors and actuaries. Because assumptions and estimates are used, actual results could differ from expected results.
The discount rate is utilized principally in calculating our pension obligations, which are represented by the Accumulated Benefit Obligation (ABO) and the Projected Benefit Obligation (PBO)(“PBO”), and in calculating net periodic benefit cost. In establishing the discount rate for our foreign plans, we review a number of relevant interest rates including Aa corporate bond yields. In establishing the discount rate for our domestic plans, we match the hypothetical duration of our plans, using a weighted average duration that is based upon projected cash payments, to a simulated bond portfolio (Citigroup(FTSE Pension Index Curve). At December 31, 2016,2019, the discount rates for our domestic and foreign plans were 4.05%3.2% and 1.65%1.04%, respectively.
We believe that the accounting estimates related to determining the valuation of pension benefits are critical accounting estimates because: (1) changes in them can materially affect net income and (2) we are required to establish the discount rate and the expected return on fund assets, which are highly uncertain and require judgment. The estimates for the valuation of pension benefits are critical accounting estimates for all of our segments.
To the extent the discount rates increase (or decrease), our PBO and net periodic benefit cost will decrease (or increase) accordingly. The estimated effect of a 1% decrease in each discount rate would be a $45.9$68.2 million increase in the PBO ($33.751.0 million for the domestic plans and $12.2$17.2 million for the foreign plans) and an $8.7a $7.5 million increase in net periodic benefit cost ($7.56.0 million for the domestic plans and $1.2$1.5 million for the foreign plans). To the extent the PBO increases, the after‑taxafter-tax effect of such increase could reduce Other Comprehensive Income and Stockholders’ Equity. The estimated effect of a 1% increase in each discount rate would be a $35.7$53.1 million decrease in the PBO ($26.039.0 million for the domestic plans and $9.7$14.1 million for the foreign plans) and a $6.7$5.1 million decrease in net periodic benefit cost ($5.73.8 million for the domestic plans and $1.0$1.3 million for the foreign plans). A decrease of this magnitude in the PBO would eliminate the current year reduction recognized in Other Comprehensive Income and Stockholders’ Equity as related to pension assumptions.
The assumed expected long‑termlong-term rate of return on assets is the average rate of earnings expected on the funds invested to provide for the benefits included in the PBO. Of domestic plan assets, approximately 48%49% was invested in equities, 28%29% was invested in fixed income securities, 11%10% was invested in hedge funds, 7%6% was invested in infrastructure securities, 5% was invested in real estate securities and 1% was invested in money market funds, at December 31, 2016.2019. Of foreign plan assets, approximately 89% was invested in investment funds, 4% was invested in equity securities, 3% was invested in corporate securities, 1% was invested in fixed income securities and 3% was invested in cashmoney market funds at December 31, 2016.2019.
The expected long‑termlong-term rate of return assumptions are determined based on our investment policy combined with expected risk premiums of equities and fixed income securities over the underlying risk‑freerisk-free rate. This rate is utilized principally in calculating the expected return on the plan assets component of the net periodic benefit cost. To the extent the actual rate of return on assets realized over the course of a year is greater or less than the assumed rate, that year’s net periodic benefit cost is not affected. Rather, this gain (or loss) reduces (or increases) future net periodic benefit cost over a period of approximately 15 to 20 years. To the extent the expected long‑termlong-term rate of return on assets increases (or decreases), our net periodic benefit cost will decrease (or increase) accordingly. The estimated effect of a 1% decrease (or increase) in each expected long‑termlong-term rate of return on assets would be a $1.8$2.3 million increase (or decrease) in net periodic benefit cost.
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The average rate of compensation increase is utilized principally in calculating the PBO and the net periodic benefit cost. The estimated effect of a 0.5% decrease in each rate of expected compensation increase would be a $6.5$8.0 million decrease in the PBO ($1.62.2 million for the domestic plans and $4.9$5.8 million for the foreign plans) and a $1.1$1.3 million decrease to the net periodic benefit cost. The estimated effect of a 0.5% increase in each rate of expected compensation increase would be a $7.0$8.4 million increase in the PBO ($1.62.2 million for the domestic plans and $5.4$6.2 million for the foreign plans) and a $1.1$1.4 million increase to the net periodic benefit cost.
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30/ATR | 2019 Form 10-K |
Our primary pension related assumptions as of December 31, 2016, 20152019 and 20142018 were as follows:
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Actuarial Assumptions as of December 31, |
| 2016 |
| 2015 |
| 2014 |
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| 2019 |
| 2018 |
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Discount rate: |
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Domestic plans |
| 4.05 | % | 4.24 | % | 3.83 | % |
| 3.20 | % | 4.20 | % |
Foreign plans |
| 1.65 | % | 2.10 | % | 1.90 | % |
| 1.04 | % | 1.82 | % |
Expected long‑term rate of return on plan assets: |
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Domestic plans |
| 7.00 | % | 7.00 | % | 7.00 | % |
| 7.00 | % | 7.00 | % |
Foreign plans |
| 3.66 | % | 3.66 | % | 3.54 | % |
| 3.69 | % | 3.57 | % |
Rate of compensation increase: |
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Domestic plans |
| 4.00 | % | 4.00 | % | 4.00 | % |
| 4.00 | % | 4.00 | % |
Foreign plans |
| 3.00 | % | 3.00 | % | 3.00 | % |
| 3.05 | % | 3.01 | % |
In order to determine the 20172020 net periodic benefit cost, the Company expectswe expect to use the discount rates, expected long‑termlong-term rates of return on plan assets and rates of compensation increase assumptions as of December 31, 2016.2019. The estimated impact of the changes to the assumptions as noted in the table above on our 20172020 net periodic benefit cost is expected to be an increase of approximately $2.0$7.2 million.
SHARE‑BASED COMPENSATIONOPERATIONS OUTLOOK
The Company uses the Black‑Scholes option‑valuation model to value stock options, which requires the input of subjective assumptions. These assumptions include the length of time employeesWhile there will retain their vested stock options before exercising them (“expected term”), the estimated volatility of the Company’s stock price, risk‑free interest rate, the expected dividend yield and stock price. The expected term of the options is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. The expected term determines the period for which the risk‑free interest rate and volatility must be applied. The risk‑free interest rate is based on the expected U.S. Treasury rate over the expected term. Expected stock price volatility is based on historical volatility of the Company’s stock price. Dividend yield is management’s long‑term estimate of annual dividendscontinue to be paid as a percentage of share price.
For 2016, expense related to share‑based compensationnear-term challenges, we are optimistic about the long-term opportunities for employee stock option plans was $16.9 million. Future changes in the subjective assumptions used in the Black‑Scholes option‑valuation model or estimates associated with forfeitures could impactgrowth and we are excited about our share‑based compensation expense. For example, a one year reduction in the expected term of the options would decrease the Black‑Scholes valuationrecent strategic acquisitions and reduce share‑based compensation by approximately $0.5 million. In comparison, a one year increase in the expected term of the option would increase the Black‑Scholes valuation and increase share‑based compensation by approximately $0.4 million. In addition, changes in the share price at the date of the grant would impact our share‑based compensation expense. For example, a $5 decrease in the stock price would decrease the Black‑Scholes valuation and reduce share‑based compensation by approximately $0.6 million. In comparison, a $5 increase in the share price would increase the Black‑Scholes valuation and increase share‑based compensation by approximately $0.6 million.
OPERATIONS OUTLOOK
investments. Looking to the first quarter, certain Beauty + Home customers are continuing to focus on inventory reductions considering current macroeconomic uncertainties including the negative impact of 2017, we will continuethe coronavirus outbreak. In addition, the travel retail industry, which is a significant part of the beauty market, is particularly exposed. Our Pharma segment is facing difficult comparisons compared to face some degree of global economicthe prior year’s exceptional growth and market uncertainties, but we will remain focused on our customers and end consumers in order to drive new technologies to market. We are excitedFood + Beverage segment’s Asian business may also be negatively affected by the opportunities to develop new business, execute on customer projects and focus on growth. In particular,we see opportunities to further penetrate and grow in relatively newer categories such as color cosmetics, sampling and promotion, facial skin care, pain management, ophthalmics, dermal treatments and infant nutrition, among others. We will continue to seek new business and invest in profitable growth opportunities while, at the same time, manage our cost structure. We have an excellent balance sheet that allows us to pursue our balanced capital allocation strategy. coronavirus impact.
Aptar expects earnings per share for the first quarter of 2020, excluding any potential impacts of the timing ofrestructuring costs incurred and any related insurance reimbursements associated with the Aptar Annecy facility fire and the potential impact from our anticipated adoption of the new accounting standard for share-based compensation, which amounts cannot be reasonably estimated,acquisition-related expenses, to be in the range of $0.72$0.85 to $0.77 compared$0.93 and this guidance is based on an effective tax rate range of 28% to $0.67 per share reported in the prior year.30%.
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FORWARD-LOOKING STATEMENTS
FORWARD‑LOOKING STATEMENTS
Certain statements in Management’s Discussion and AnalysisMD&A and other sections of this Form 10‑K10-K are forward‑lookingforward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Restructuring Initiatives, Liquidity and Capital Resources, Off‑Balance Sheet Arrangements,Contingencies and Operations Outlook sections of this Form 10‑K.10-K. Words such as “expects,” “anticipates,” “believes,” “estimates,” “future”, “potential” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward‑lookingforward-looking statements. Forward‑lookingForward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on our beliefs as well as assumptions made by and information currently available to us. Accordingly, our actual results or other events may differ materially from those expressed or implied in such forward‑lookingforward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment, including but not limited to:
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| economic conditions worldwide, including |
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| political conditions |
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● | significant fluctuations in foreign currency exchange |
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● | financial conditions of customers and suppliers; |
● | consolidations within our customer or supplier bases; |
● | changes in customer and/or consumer spending levels; |
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| loss of one or more key accounts; |
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| the availability of raw materials and components (particularly from sole sourced suppliers) as well as the financial viability of these suppliers; |
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● | our ability to successfully implement facility expansions and new facility projects; |
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| our ability to offset inflationary impacts with cost containment, productivity initiatives or price increases; |
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31/ATR |
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● | changes in capital availability or cost, including interest rate fluctuations; |
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| volatility of global credit markets; |
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| our ability to identify potential new acquisitions and to successfully acquire and integrate such operations or |
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| direct or indirect consequences of acts of war, terrorism or social unrest; |
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| cybersecurity threats that could impact our networks and reporting systems; |
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| the impact of natural disasters and other |
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| fiscal and monetary policies and other |
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| changes or difficulties in complying with government regulation; |
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| changing regulations or market conditions regarding environmental sustainability; |
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| work stoppages due to labor disputes; |
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| competition, including technological advances; |
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| our ability to protect and defend our intellectual property rights, as well as litigation involving intellectual property rights; |
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| the outcome of any legal proceeding that has been or may be instituted against us and others; |
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| our ability to meet future cash flow estimates to support our goodwill impairment testing; |
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| the demand for existing and new products; |
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| the success of our customers’ products, particularly in the pharmaceutical industry; |
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| our ability to manage worldwide customer launches of complex technical products, |
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| difficulties in product development and uncertainties related to the timing or outcome of product development; |
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| significant product liability claims; |
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● | other risks associated with our operations. |
Although we believe that our forward‑lookingforward-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‑lookingforward-looking statements. Readers are cautioned not to place undue reliance on forward‑lookingforward-looking statements. We undertake no obligation to update publicly any forward‑lookingforward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to Part 1, Item 1A (“Risk Factors”) of Part IFactors included in this Form 10‑K10-K for additional risk factors affecting the Company.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISKS
A significant number of our operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of our subsidiaries. Our primary foreign exchange exposure is to the Euro,euro, but we also have foreign exchange exposure to the Chinese Yuan,yuan, Brazilian Real,real, Mexican Peso,peso, Swiss Francfranc and other Asian, European and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial condition and results of operations. Conversely, a weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial condition and results of operations.
Additionally, in some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Any changes in exchange rates on such inter‑countryinter-country sales may impact our results of operations.
We manage our exposures to foreign exchange principally with forward exchange contracts to hedge certain firm purchase and sales commitments and intercompany cash transactions denominated in foreign currencies.
The table below provides information as of December 31, 20162019 about our forward currency exchange contracts. The majority of the contracts expire before the end of the first quarter of 2017.2020.
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In thousands |
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Year Ended December 31, 2016 |
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| Average |
| Min / Max |
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| Contractual |
| Notional |
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Buy/Sell |
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| Contract Amount |
| Exchange Rate |
| Volumes |
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Swiss Franc / Euro |
| $ | 57,315 |
| 0.9148 |
| 57,315-61,125 |
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Euro / Us Dollar |
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| 17,054 |
| 1.0505 |
| 7,186-23,386 |
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Euro / Brazilian Real |
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| 12,058 |
| 3.7252 |
| 12,058-12,113 |
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Euro / Indian Rupee |
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| 9,889 |
| 81.3868 |
| 9,843-9,889 |
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Euro / Colombian Peso |
|
| 3,141 |
| 3,860.0620 |
| 3,141-3,141 |
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Czech Koruna / Euro |
|
| 2,950 |
| 0.0371 |
| 2,844-2,950 |
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Colombian Peso / Euro |
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| 2,007 |
| 0.0003 |
| 1,361-2,007 |
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Us Dollar / Euro |
|
| 1,860 |
| 0.9338 |
| 1,860-12,999 |
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Euro / Indonesian Rupiah |
|
| 1,749 |
| 15,725.0000 |
| 1,749-1,749 |
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British Pound / Euro |
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| 1,421 |
| 1.1844 |
| 828-1,421 |
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Euro / Thai Baht |
|
| 1,004 |
| 39.8754 |
| 1,004-1,004 |
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Euro / Mexican Peso |
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| 880 |
| 20.7148 |
| 880-1,071 |
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Other |
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| 1,262 |
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Total |
| $ | 112,590 |
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In thousands | | | | | | | |
|
Year Ended December 31, 2019 | | | Average |
| Min / Max | | ||
| | | Contract Amount |
| Contractual | | Notional |
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Buy/Sell |
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| (in thousands) |
| Exchange Rate |
| Volumes | |
| | | | | | | | |
EUR / USD | | $ | 15,368 |
| 1.1096 |
| 15,368-20,420 | |
EUR / BRL | | | 12,105 |
| 4.6722 |
| 11,522-12,185 | |
USD / EUR | | | 8,266 |
| 0.8989 |
| 4,022-8,266 | |
EUR / IDR | | | 4,754 |
| 15.7427 |
| 4,698-4,754 | |
EUR / INR | | | 3,996 |
| 79.7500 |
| 3,985-4,017 | |
USD / CNY | | | 2,000 |
| 7.0663 |
| 0-2,000 | |
EUR / CHF |
| | 1,496 |
| 1.0972 |
| 0-1,496 | |
EUR / CNY | | | 1,344 | | 7.8771 | | 0-1,344 | |
GBP / EUR | | | 859 |
| 1.1539 |
| 657-1,807 | |
EUR / MXN | | | 372 |
| 21.4988 |
| 311-588 | |
USD / CHF | | | 325 |
| 0.9861 |
| 0-325 | |
MXN / USD | | | 226 | | 0.0514 | | 226-767 | |
CHF / EUR | | | 203 | | 0.9119 | | 203-6,668 | |
EUR / GBP | | | 202 | | 0.8540 | | 0-608 | |
Total |
| $ | 51,516 | | | | | |
As of December 31, 2016, the Company has2019, we have recorded the fair value of foreign currency forward exchange contracts of $1.6$0.2 million in prepaymentsprepaid and other and $2.9$0.4 million in accounts payable, accrued and accruedother liabilities in the Consolidated Balance Sheets. Aptar also entered into a EUR/USD floating-to-fixed cross currency swap on July 20, 2017 to effectively hedge the foreign exchange and interest rate exposure on the $280 million bank term loan drawn by its wholly owned UK subsidiary. The fair value of this cash flow hedge is $2.6 million and is reported in prepaid and other in the Consolidated Balance Sheets.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF INCOME
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In thousands, except per share amounts |
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Years Ended December 31, |
| 2016 |
| 2015 |
| 2014 |
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Net Sales |
| $ | 2,330,934 |
| $ | 2,317,149 |
| $ | 2,597,809 |
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Operating Expenses: |
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Cost of sales (exclusive of depreciation and amortization shown below) |
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| 1,498,070 |
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| 1,502,650 |
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| 1,755,266 |
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Selling, research & development and administrative |
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| 367,562 |
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| 351,461 |
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| 383,909 |
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Depreciation and amortization |
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| 154,802 |
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| 138,893 |
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| 152,218 |
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| 2,020,434 |
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| 1,993,004 |
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| 2,291,393 |
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Operating Income |
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| 310,500 |
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| 324,145 |
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| 306,416 |
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Other (Expense) Income: |
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Interest expense |
|
| (35,237) |
|
| (34,615) |
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| (21,029) |
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Interest income |
|
| 2,643 |
|
| 5,596 |
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| 4,797 |
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Equity in results of affiliates |
|
| (191) |
|
| (718) |
|
| (1,917) |
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Miscellaneous, net |
|
| 2,782 |
|
| 163 |
|
| (1,966) |
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| (30,003) |
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| (29,574) |
|
| (20,115) |
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Income before Income Taxes |
|
| 280,497 |
|
| 294,571 |
|
| 286,301 |
|
Provision for Income Taxes |
|
| 74,893 |
|
| 95,276 |
|
| 94,677 |
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Net Income |
| $ | 205,604 |
| $ | 199,295 |
| $ | 191,624 |
|
Net (Income) Loss Attributable to Noncontrolling Interests |
|
| (14) |
|
| 53 |
|
| 34 |
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Net Income Attributable to AptarGroup, Inc. |
| $ | 205,590 |
| $ | 199,348 |
| $ | 191,658 |
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Net Income Attributable to AptarGroup, Inc. per Common Share: |
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Basic |
| $ | 3.27 |
| $ | 3.19 |
| $ | 2.95 |
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Diluted |
| $ | 3.17 |
| $ | 3.09 |
| $ | 2.85 |
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In thousands, except per share amounts | | | | | | | | | |
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Year Ended December 31, |
| 2019 |
| 2018 |
| 2017 |
| |||
Net Sales | | $ | 2,859,732 | | $ | 2,764,761 | | $ | 2,469,283 | |
Operating Expenses: | | | | | | | | | | |
Cost of sales (exclusive of depreciation and amortization shown below) | |
| 1,818,398 | |
| 1,812,961 | |
| 1,603,070 | |
Selling, research & development and administrative | |
| 454,617 | |
| 429,955 | |
| 387,424 | |
Depreciation and amortization | |
| 194,552 | |
| 171,747 | |
| 153,094 | |
Restructuring initiatives | |
| 20,472 | |
| 63,829 | |
| 2,208 | |
| |
| 2,488,039 | |
| 2,478,492 | |
| 2,145,796 | |
Operating Income | |
| 371,693 | |
| 286,269 | |
| 323,487 | |
Other (Expense) Income: | | | | | | | | | | |
Interest expense | |
| (35,489) | |
| (32,626) | |
| (40,597) | |
Interest income | |
| 4,174 | |
| 7,056 | |
| 5,470 | |
Equity in results of affiliates | |
| 135 | |
| (229) | |
| (229) | |
Miscellaneous, net | |
| 1,556 | |
| 5,550 | |
| 6,694 | |
| |
| (29,624) | |
| (20,249) | |
| (28,662) | |
Income before Income Taxes | |
| 342,069 | |
| 266,020 | |
| 294,825 | |
Provision for Income Taxes | |
| 99,842 | |
| 71,254 | |
| 74,796 | |
Net Income | | $ | 242,227 | | $ | 194,766 | | $ | 220,029 | |
Net (Income) Loss Attributable to Noncontrolling Interests | |
| (25) | |
| (21) | |
| 1 | |
Net Income Attributable to AptarGroup, Inc. | | $ | 242,202 | | $ | 194,745 | | $ | 220,030 | |
Net Income Attributable to AptarGroup, Inc. per Common Share: | | | | | | | | | | |
Basic | | $ | 3.81 | | $ | 3.12 | | $ | 3.52 | |
Diluted | | $ | 3.66 | | $ | 3.00 | | $ | 3.41 | |
See accompanying notes to consolidated financial statements.
| |
|
|
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
| 2016 |
| 2015 |
| 2014 |
| |||
Net Income |
| $ | 205,604 |
| $ | 199,295 |
| $ | 191,624 |
|
Other Comprehensive Income (Loss): |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| (53,183) |
|
| (163,887) |
|
| (192,824) |
|
Changes in treasury locks, net of tax |
|
| 26 |
|
| 25 |
|
| 24 |
|
Defined benefit pension plan, net of tax |
|
|
|
|
|
|
|
|
|
|
Actuarial (loss) / gain, net of tax |
|
| (7,151) |
|
| 7,253 |
|
| (29,842) |
|
Prior service cost, net of tax |
|
| (466) |
|
| (538) |
|
| — |
|
Amortization of prior service cost included in net income, net of tax |
|
| 248 |
|
| 168 |
|
| 206 |
|
Amortization of net loss included in net income, net of tax |
|
| 3,144 |
|
| 4,664 |
|
| 2,632 |
|
Total defined benefit pension plan, net of tax |
|
| (4,225) |
|
| 11,547 |
|
| (27,004) |
|
Total other comprehensive loss |
|
| (57,382) |
|
| (152,315) |
|
| (219,804) |
|
Comprehensive Income (Loss) |
|
| 148,222 |
|
| 46,980 |
|
| (28,180) |
|
Comprehensive Loss Attributable to Noncontrolling Interests |
|
| 6 |
|
| 66 |
|
| 42 |
|
Comprehensive Income (Loss) Attributable to AptarGroup, Inc. |
| $ | 148,228 |
| $ | 47,046 |
| $ | (28,138) |
|
| | | | | | | | | | |
In thousands | | | | | | | | | |
|
| | | | | | | | | |
|
Year Ended December 31, |
| 2019 |
| 2018 |
| 2017 |
| |||
Net Income | | $ | 242,227 | | $ | 194,766 | | $ | 220,029 | |
Other Comprehensive Income: | | | | | | | | | | |
Foreign currency translation adjustments | |
| (8,727) | |
| (62,914) | |
| 74,404 | |
Changes in treasury locks, net of tax | |
| — | |
| 17 | |
| 28 | |
Changes in derivative gains (losses), net of tax | |
| (37) | |
| 1,547 | |
| (3,186) | |
Defined benefit pension plan, net of tax | | | | | | | | | | |
Actuarial (loss) gain, net of tax | |
| (25,877) | |
| 5,292 | |
| (7,906) | |
Prior service cost, net of tax | | | 320 | | | (26) | | | (1,038) | |
Amortization of prior service cost included in net income, net of tax | |
| 2,541 | |
| 533 | |
| 296 | |
Amortization of net loss included in net income, net of tax | |
| 332 | |
| 4,991 | |
| 3,828 | |
Total defined benefit pension plan, net of tax | |
| (22,684) | |
| 10,790 | |
| (4,820) | |
Total other comprehensive (loss) income | |
| (31,448) | |
| (50,560) | |
| 66,426 | |
Comprehensive Income | |
| 210,779 | |
| 144,206 | |
| 286,455 | |
Comprehensive Loss (Income) Attributable to Noncontrolling Interests | |
| 21 | |
| 16 | |
| (18) | |
Comprehensive Income Attributable to AptarGroup, Inc. | | $ | 210,800 | | $ | 144,222 | | $ | 286,437 | |
See accompanying notes to consolidated financial statements.
| |
|
|
AptarGroup, Inc.
|
|
|
|
|
|
|
|
In thousands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
| 2016 |
| 2015 |
| ||
Assets |
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
Cash and equivalents |
| $ | 466,287 |
| $ | 489,901 |
|
Short-term investments |
|
| — |
|
| 29,816 |
|
|
|
| 466,287 |
|
| 519,717 |
|
Accounts and notes receivable, less allowance for doubtful accounts of $2,989 in 2016 and $2,710 in 2015 |
|
| 433,127 |
|
| 391,571 |
|
Inventories |
|
| 296,914 |
|
| 294,912 |
|
Prepayments and other |
|
| 73,842 |
|
| 88,794 |
|
|
|
| 1,270,170 |
|
| 1,294,994 |
|
Property, Plant and Equipment: |
|
|
|
|
|
|
|
Buildings and improvements |
|
| 368,260 |
|
| 343,698 |
|
Machinery and equipment |
|
| 1,938,352 |
|
| 1,866,627 |
|
|
|
| 2,306,612 |
|
| 2,210,325 |
|
Less: Accumulated depreciation |
|
| (1,545,384) |
|
| (1,465,873) |
|
|
|
| 761,228 |
|
| 744,452 |
|
Land |
|
| 23,093 |
|
| 20,931 |
|
|
|
| 784,321 |
|
| 765,383 |
|
Other Assets: |
|
|
|
|
|
|
|
Investments in affiliates |
|
| 4,241 |
|
| 4,590 |
|
Goodwill |
|
| 407,522 |
|
| 310,240 |
|
Intangible assets |
|
| 94,489 |
|
| 31,529 |
|
Miscellaneous |
|
| 46,042 |
|
| 30,309 |
|
|
|
| 552,294 |
|
| 376,668 |
|
Total Assets |
| $ | 2,606,785 |
| $ | 2,437,045 |
|
| | | | | | | |
In thousands | | | | | | |
|
| | | | | | |
|
December 31, |
| 2019 |
| 2018 |
| ||
Assets | | | | | | | |
Current Assets: | | | | | | | |
Cash and equivalents | | $ | 241,970 | | $ | 261,823 | |
Accounts and notes receivable, less allowance for doubtful accounts of $3,626 in 2019 and $3,541 in 2018 | |
| 558,428 | | | 569,630 | |
Inventories | |
| 375,795 | | | 381,110 | |
Prepaid and other | |
| 115,048 | | | 118,245 | |
| |
| 1,291,241 | | | 1,330,808 | |
Property, Plant and Equipment: | | | | | | | |
Buildings and improvements | |
| 504,328 | | | 453,572 | |
Machinery and equipment | |
| 2,521,737 | | | 2,368,332 | |
| |
| 3,026,065 | | | 2,821,904 | |
Less: Accumulated depreciation | |
| (1,963,520) | | | (1,855,810) | |
| |
| 1,062,545 | | | 966,094 | |
Land | |
| 25,133 | | | 25,519 | |
| |
| 1,087,678 | | | 991,613 | |
Other Assets: | | | | | | | |
Investments in equity securities | |
| 8,396 | | | 25,448 | |
Goodwill | |
| 763,461 | | | 712,095 | |
Intangible assets | |
| 291,084 | | | 254,904 | |
Operating lease right-of-use assets | | | 72,377 | | | — | |
Miscellaneous | |
| 47,882 | | | 62,867 | |
| |
| 1,183,200 | | | 1,055,314 | |
Total Assets | | $ | 3,562,119 | | $ | 3,377,735 | |
See accompanying notes to consolidated financial statements.
| |
|
|
AptarGroup, Inc.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
In thousands, except share and per share amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
| 2016 |
| 2015 |
| ||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
Notes payable |
| $ | 169,213 |
| $ | 5,083 |
|
Current maturities of long-term obligations, net of unamortized debt issuance costs |
|
| 4,603 |
|
| 51,884 |
|
Accounts payable and accrued liabilities |
|
| 369,139 |
|
| 354,928 |
|
|
|
| 542,955 |
|
| 411,895 |
|
Long-Term Obligations, net of unamortized debt issuance costs |
|
| 772,737 |
|
| 760,848 |
|
Deferred Liabilities and Other: |
|
|
|
|
|
|
|
Deferred income taxes |
|
| 16,803 |
|
| 20,486 |
|
Retirement and deferred compensation plans |
|
| 94,545 |
|
| 87,763 |
|
Deferred and other non-current liabilities |
|
| 5,503 |
|
| 6,347 |
|
Commitments and contingencies |
|
| — |
|
| — |
|
|
|
| 116,851 |
|
| 114,596 |
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
AptarGroup, Inc. stockholders’ equity |
|
|
|
|
|
|
|
Common stock, $.01 par value, 199 million shares authorized, 66.0 and 66.7 million shares issued as of December 31, 2016 and 2015, respectively |
|
| 660 |
|
| 667 |
|
Capital in excess of par value |
|
| 546,682 |
|
| 495,462 |
|
Retained earnings |
|
| 1,197,234 |
|
| 1,185,681 |
|
Accumulated other comprehensive (loss) |
|
| (319,709) |
|
| (262,347) |
|
Less: Treasury stock at cost, 3.9 and 4.2 million shares as of December 31, 2016 and 2015, respectively |
|
| (250,917) |
|
| (270,052) |
|
Total AptarGroup, Inc. Stockholders’ Equity |
|
| 1,173,950 |
|
| 1,149,411 |
|
Noncontrolling interests in subsidiaries |
|
| 292 |
|
| 295 |
|
Total Stockholders’ Equity |
|
| 1,174,242 |
|
| 1,149,706 |
|
Total Liabilities and Stockholders’ Equity |
| $ | 2,606,785 |
| $ | 2,437,045 |
|
| | | | | | | |
In thousands, except share and per share amounts | | | | | | |
|
| | | | | | |
|
December 31, |
| 2019 |
| 2018 |
| ||
Liabilities and Stockholders’ Equity | | | | | | | |
Current Liabilities: | | | | | | | |
Notes payable, revolving credit facility and overdrafts | | $ | 44,259 | | $ | 101,293 | |
Current maturities of long-term obligations, net of unamortized debt issuance costs | |
| 65,988 | |
| 62,678 | |
Accounts payable, accrued and other liabilities | |
| 573,028 | |
| 525,199 | |
| |
| 683,275 | |
| 689,170 | |
Long-Term Obligations, net of unamortized debt issuance costs | |
| 1,085,453 | |
| 1,125,993 | |
Deferred Liabilities and Other: | | | | | | | |
Deferred income taxes | |
| 41,388 | |
| 53,917 | |
Retirement and deferred compensation plans | |
| 101,225 | |
| 62,319 | |
Operating lease liabilities | | | 55,276 | | | — | |
Deferred and other non-current liabilities | |
| 23,250 | |
| 23,465 | |
Commitments and contingencies | |
| — | |
| — | |
| |
| 221,139 | |
| 139,701 | |
Stockholders’ Equity: | | | | | | | |
AptarGroup, Inc. stockholders’ equity | | | | | | | |
Common stock, $.01 par value, 199 million shares authorized, 68.6 and 67.3 million shares issued as of December 31, 2019 and 2018, respectively | |
| 686 | |
| 673 | |
Capital in excess of par value | |
| 770,596 | |
| 678,769 | |
Retained earnings | |
| 1,523,820 | |
| 1,371,826 | |
Accumulated other comprehensive loss | |
| (341,948) | |
| (310,504) | |
Less: Treasury stock at cost, 4.8 and 4.4 million shares as of December 31, 2019 and 2018, respectively | |
| (381,238) | |
| (318,208) | |
Total AptarGroup, Inc. Stockholders’ Equity | |
| 1,571,916 | |
| 1,422,556 | |
Noncontrolling interests in subsidiaries | |
| 336 | |
| 315 | |
Total Stockholders’ Equity | |
| 1,572,252 | |
| 1,422,871 | |
Total Liabilities and Stockholders’ Equity | | $ | 3,562,119 | | $ | 3,377,735 | |
See accompanying notes to consolidated financial statements.
| |
|
|
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
In thousands, brackets denote cash outflows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
| 2016 |
|
| 2015 |
| 2014 |
| |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 205,604 |
| $ | 199,295 |
| $ | 191,624 |
|
Adjustments to reconcile net income to net cash provided by operations: |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 145,485 |
|
| 134,647 |
|
| 146,893 |
|
Amortization |
|
| 9,317 |
|
| 4,246 |
|
| 5,325 |
|
Stock based compensation |
|
| 19,824 |
|
| 20,612 |
|
| 19,749 |
|
Provision for (recovery of) doubtful accounts |
|
| 561 |
|
| (813) |
|
| 741 |
|
Gain on sale of investment in unconsolidated affiliate |
|
| (2,013) |
|
| — |
|
| — |
|
Deferred income taxes |
|
| (11,112) |
|
| (7,141) |
|
| (18,973) |
|
Defined benefit plan expense |
|
| 16,786 |
|
| 20,685 |
|
| 16,699 |
|
Equity in results of affiliates |
|
| 191 |
|
| 718 |
|
| 1,917 |
|
Changes in balance sheet items, excluding effects from foreign currency adjustments: |
|
|
|
|
|
|
|
|
|
|
Accounts and other receivables |
|
| (41,721) |
|
| (27,759) |
|
| (16,322) |
|
Inventories |
|
| (834) |
|
| (18,925) |
|
| 5,205 |
|
Prepaid and other current assets |
|
| (5,968) |
|
| (6,982) |
|
| (6,496) |
|
Accounts payable and accrued liabilities |
|
| (12,474) |
|
| 39,330 |
|
| (24,319) |
|
Income taxes payable |
|
| 15,056 |
|
| 3,397 |
|
| (10,949) |
|
Retirement and deferred compensation plan liabilities |
|
| (7,486) |
|
| (29,576) |
|
| (370) |
|
Other changes, net |
|
| (4,023) |
|
| (7,219) |
|
| 5,605 |
|
Net Cash Provided by Operations |
|
| 327,193 |
|
| 324,515 |
|
| 316,329 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (128,986) |
|
| (149,323) |
|
| (161,940) |
|
Proceeds from sale of property and equipment |
|
| 1,693 |
|
| 827 |
|
| 5,106 |
|
Insurance proceeds |
|
| 986 |
|
| 3,739 |
|
| — |
|
Purchase of short-term investments |
|
| — |
|
| (32,769) |
|
| — |
|
Maturity of short-term investments |
|
| 29,485 |
|
| — |
|
| — |
|
Acquisition of business, net of cash acquired |
|
| (202,985) |
|
| — |
|
| — |
|
Acquisition of intangible assets |
|
| (2,492) |
|
| — |
|
| (9) |
|
Proceeds from sale of investment in unconsolidated affiliate |
|
| 1,204 |
|
| — |
|
| — |
|
Notes receivable, net |
|
| 593 |
|
| 1,296 |
|
| (2,357) |
|
Net Cash Used by Investing Activities |
|
| (300,502) |
|
| (176,230) |
|
| (159,200) |
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable |
|
| 163,148 |
|
| — |
|
| 95,816 |
|
Repayments of notes payable |
|
| — |
|
| (227,362) |
|
| — |
|
Proceeds from long-term obligations |
|
| 5,963 |
|
| 225,236 |
|
| 253,520 |
|
Repayments of long-term obligations |
|
| (55,314) |
|
| (16,981) |
|
| (778) |
|
Dividends paid |
|
| (76,659) |
|
| (71,247) |
|
| (71,072) |
|
Credit facility costs |
|
| — |
|
| (1,216) |
|
| (720) |
|
Proceeds from stock option exercises |
|
| 53,453 |
|
| 64,003 |
|
| 36,015 |
|
Purchase of treasury stock |
|
| — |
|
| — |
|
| (340,517) |
|
Common stock repurchased and retired |
|
| (131,371) |
|
| (13,887) |
|
| — |
|
Excess tax benefit from exercise of stock options |
|
| 9,171 |
|
| 8,388 |
|
| 6,998 |
|
Net Cash Used by Financing Activities |
|
| (31,609) |
|
| (33,066) |
|
| (20,738) |
|
Effect of Exchange Rate Changes on Cash |
|
| (18,696) |
|
| (25,080) |
|
| (46,490) |
|
Net (Decrease) Increase in Cash and Equivalents |
|
| (23,614) |
|
| 90,139 |
|
| 89,901 |
|
Cash and Equivalents at Beginning of Period |
|
| 489,901 |
|
| 399,762 |
|
| 309,861 |
|
Cash and Equivalents at End of Period |
| $ | 466,287 |
| $ | 489,901 |
| $ | 399,762 |
|
Supplemental Cash Flow Disclosure: |
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 36,265 |
| $ | 31,664 |
| $ | 20,352 |
|
Income taxes paid |
|
| 82,201 |
|
| 79,502 |
|
| 94,578 |
|
Years Ended December 31, 2019, 2018 and 2017
| | | | | | | | | | | | | | | | | | | | | | |
In thousands | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | AptarGroup, Inc. Stockholders’ Equity | | | | | | | | |||||||||||||
|
| |
| Accumulated |
| |
| |
| |
| |
| | | |||||||
| | | | Other | | Common | | | | Capital in | | Non- | | | | |||||||
| | Retained | | Comprehensive | | Stock | | Treasury | | Excess of | | Controlling | | Total | | |||||||
| | Earnings | | (Loss) Income | | Par Value | | Stock | | Par Value | | Interest | | Equity |
| |||||||
Balance - December 31, 2016 | | $ | 1,197,234 | | $ | (319,709) | | $ | 660 | | $ | (250,917) | | $ | 546,682 | | $ | 292 | | $ | 1,174,242 | |
Net income | |
| 220,030 | | | — | | | — | | | — | | | — | | | (1) | | | 220,029 | |
Foreign currency translation adjustments | | | — | |
| 74,385 | | | — | | | — | | | — | | | 19 | | | 74,404 | |
Changes in unrecognized pension gains (losses) and related amortization, net of tax | | | — | |
| (4,820) | | | — | | | — | | | — | | | — | | | (4,820) | |
Changes in treasury locks, net of tax | | | — | |
| 28 | | | — | | | — | | | — | | | — | | | 28 | |
Changes in derivative gains (losses), net of tax | | | — | | | (3,186) | | | — | | | — | | | — | | | — | | | (3,186) | |
Stock awards and option exercises | | | — | | | — | |
| 12 | |
| 25,212 | | | 67,605 | | | — | | | 92,829 | |
Cash dividends declared on common stock | |
| (79,944) | | | — | | | — | | | — | | | — | | | — | | | (79,944) | |
Treasury stock purchased | | | — | | | — | | | — | | | (120,540) | | | — | | | — | | | (120,540) | |
Common stock repurchased and retired | | | (36,173) | | | — | | | (5) | |
| — | | | (4,816) | | | — | | | (40,994) | |
Balance - December 31, 2017 | | $ | 1,301,147 | | $ | (253,302) | | $ | 667 | | $ | (346,245) | | $ | 609,471 | | $ | 310 | | $ | 1,312,048 | |
Net income | |
| 194,745 | | | — | | | — | | | — | | | — | | | 21 | | | 194,766 | |
Adoption of revenue recognition standard | | | 2,937 | | | — | | | — | | | — | | | — | | | — | | | 2,937 | |
Reclassification of stranded tax effects | | | 6,658 | | | (6,658) | | | — | | | — | | | — | | | — | | | — | |
Foreign currency translation adjustments | | | — | |
| (62,898) | | | — | | | — | | | — | | | (16) | | | (62,914) | |
Changes in unrecognized pension gains (losses) and related amortization, net of tax | | | — | |
| 10,790 | | | — | | | — | | | — | | | — | | | 10,790 | |
Changes in treasury locks, net of tax | | | — | |
| 17 | | | — | | | — | | | — | | | — | | | 17 | |
Changes in derivative gains (losses), net of tax | | | — | |
| 1,547 | | | — | | | — | | | — | | | — | | | 1,547 | |
Stock awards and option exercises | | | — | | | — | |
| 12 | |
| 31,942 | | | 75,763 | | | — | | | 107,717 | |
Cash dividends declared on common stock | |
| (82,346) | | | — | | | — | | | — | | | — | | | — | | | (82,346) | |
Treasury stock purchased | | | — | | | — | | | — | | | (3,905) | | | — | | | — | | | (3,905) | |
Common stock repurchased and retired | | | (51,315) | | | — | | | (6) | |
| — | | | (6,465) | | | — | | | (57,786) | |
Balance - December 31, 2018 | | $ | 1,371,826 | | $ | (310,504) | | $ | 673 | | $ | (318,208) | | $ | 678,769 | | $ | 315 | | $ | 1,422,871 | |
Net income | |
| 242,202 | | | — | | | — | | | — | | | — | | | 25 | | | 242,227 | |
Foreign currency translation adjustments | | | — | |
| (8,723) | | | — | | | — | | | — | | | (4) | | | (8,727) | |
Changes in unrecognized pension gains (losses) and related amortization, net of tax | | | — | |
| (22,684) | | | — | | | — | | | — | | | — | | | (22,684) | |
Changes in derivative gains (losses), net of tax | | | — | |
| (37) | | | — | | | — | | | — | | | — | | | (37) | |
Stock awards and option exercises | | | — | | | — | |
| 13 | |
| 23,467 | | | 91,827 | | | — | | | 115,307 | |
Cash dividends declared on common stock | |
| (90,208) | | | — | | | — | | | — | | | — | | | — | | | (90,208) | |
Treasury stock purchased | | | — | | | — | | | — | |
| (86,497) | | | — | | | — | | | (86,497) | |
Balance - December 31, 2019 | | $ | 1,523,820 | | $ | (341,948) | | $ | 686 | | $ | (381,238) | | $ | 770,596 | | $ | 336 | | $ | 1,572,252 | |
See accompanying notes to consolidated financial statements.
| |
|
|
AptarGroup, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2016, 2015
| | | | | | | | | | |
In thousands, brackets denote cash outflows | | | | | | | | | |
|
| | | | | | | | | | |
Year Ended December 31, |
| | 2019 |
| | 2018 |
| 2017 |
| |
| | | | | | | | | | |
Cash Flows from Operating Activities: | | | | | | | | | | |
Net income | | $ | 242,227 | | $ | 194,766 | | $ | 220,029 | |
Adjustments to reconcile net income to net cash provided by operations: | | | | | | | | | | |
Depreciation | |
| 166,944 | |
| 156,292 | |
| 142,755 | |
Amortization | |
| 27,608 | |
| 15,455 | |
| 10,339 | |
Stock-based compensation | |
| 23,893 | |
| 19,561 | |
| 18,924 | |
Provision for doubtful accounts | |
| 782 | |
| 923 | |
| 235 | |
Loss (gain) on disposition of fixed assets | |
| 344 | |
| (770) | |
| 387 | |
Gain on remeasurement of equity securities | | | — | | | (6,500) | | | — | |
Debt prepayment costs | |
| — | |
| — | |
| 4,710 | |
Deferred income taxes | |
| 8,746 | |
| (23,352) | |
| 2,238 | |
Defined benefit plan expense | |
| 15,342 | |
| 19,501 | |
| 17,200 | |
Equity in results of affiliates | |
| (135) | |
| 229 | |
| 229 | |
Changes in balance sheet items, excluding effects from foreign currency adjustments: | | | | | | | | | | |
Accounts and other receivables | |
| 8,811 | |
| (66,968) | |
| (44,658) | |
Inventories | |
| 605 | |
| (25,183) | |
| (12,989) | |
Prepaid and other current assets | |
| 6,596 | |
| (9,437) | |
| (33,959) | |
Accounts payable, accrued and other liabilities | |
| (779) | |
| 37,155 | |
| 58,245 | |
Income taxes payable | |
| 5,658 | |
| (3,155) | |
| (8,753) | |
Retirement and deferred compensation plan liabilities | |
| (3,956) | |
| (22,762) | |
| (41,004) | |
Other changes, net | |
| 11,771 | |
| 27,873 | |
| (9,199) | |
Net Cash Provided by Operations | |
| 514,457 | |
| 313,628 | |
| 324,729 | |
Cash Flows from Investing Activities: | | | | | | | | | | |
Capital expenditures | |
| (242,276) | |
| (211,252) | |
| (156,624) | |
Proceeds from sale of property, plant and equipment | |
| 4,301 | |
| 4,466 | |
| 2,036 | |
Insurance proceeds | | | — | | | 10,631 | | | 709 | |
Settlement of derivative | |
| — | |
| — | |
| (66,155) | |
Acquisition of business, net of cash acquired | | | (106,328) | | | (527,916) | | | — | |
Acquisition of intangible assets, net | |
| (4,806) | |
| (611) | |
| — | |
Investment in equity securities | |
| (3,530) | |
| (10,000) | |
| (5,000) | |
Proceeds from sale of investment in equity securities | | | 16,487 | | | — | | | — | |
Notes receivable, net | |
| (116) | |
| (779) | |
| 234 | |
Net Cash Used by Investing Activities | |
| (336,268) | |
| (735,461) | |
| (224,800) | |
Cash Flows from Financing Activities: | | | | | | | | | | |
Proceeds from notes payable and overdrafts | |
| 50,854 | | | 49,069 | |
| — | |
Repayments of notes payable and overdrafts | |
| (53,269) | | | (29,994) | |
| — | |
Proceeds and repayments of short term revolving credit facility, net | | | (52,096) | | | 81,063 | | | (169,213) | |
Proceeds from long-term obligations | |
| 10,523 | |
| 13,161 | |
| 625,628 | |
Repayments of long-term obligations | |
| (67,276) | |
| (72,290) | |
| (165,798) | |
Dividends paid | |
| (90,208) | |
| (82,346) | |
| (79,944) | |
Credit facility costs | |
| — | |
| — | |
| (3,542) | |
Debt prepayment costs | |
| — | |
| — | |
| (4,710) | |
Proceeds from stock option exercises | |
| 90,834 | |
| 88,156 | |
| 73,905 | |
Purchase of treasury stock | |
| (86,497) | |
| (3,905) | |
| (120,540) | |
Common stock repurchased and retired | | | — | | | (57,786) | | | (40,994) | |
Net Cash (Used) Provided by Financing Activities | |
| (197,135) | |
| (14,872) | |
| 114,792 | |
Effect of Exchange Rate Changes on Cash | |
| (904) | |
| (9,112) | |
| 31,632 | |
Net (Decrease) Increase in Cash and Equivalents and Restricted Cash | |
| (19,850) | |
| (445,817) | |
| 246,353 | |
Cash and Equivalents and Restricted Cash at Beginning of Period | |
| 266,823 | |
| 712,640 | |
| 466,287 | |
Cash and Equivalents and Restricted Cash at End of Period | | $ | 246,973 | | $ | 266,823 | | $ | 712,640 | |
Supplemental Cash Flow Disclosure: | | | | | | | | | | |
Interest paid | | $ | 34,422 | | $ | 32,005 | | $ | 38,838 | |
Income taxes paid | |
| 86,097 | |
| 96,048 | |
| 77,349 | |
| |
39/ATR | 2019 Form 10-K |
Restricted cash included in the line item prepaid and 2014other on the Consolidated Balance Sheets as shown below represents amounts held in escrow related to the Noble acquisition in 2019 and the CSP Technologies acquisition in 2018.
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In thousands |
|
|
|
|
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|
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|
|
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| AptarGroup, Inc. Stockholders’ Equity |
|
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|
| |||||||||||||
|
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| Accumulated |
|
|
|
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| |||||||
|
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| Other |
| Common |
|
|
| Capital in |
| Non- |
|
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| |||||||
|
| Retained |
| Comprehensive |
| Stock |
| Treasury |
| Excess of |
| Controlling |
| Total |
| |||||||
|
| Earnings |
| (Loss) Income |
| Par Value |
| Stock |
| Par Value |
| Interest |
| Equity |
| |||||||
Balance - December 31, 2013 |
| $ | 1,619,419 |
| $ | 109,751 |
| $ | 853 |
| $ | (738,558) |
| $ | 488,292 |
| $ | 551 |
| $ | 1,480,308 |
|
Net income |
|
| 191,658 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (34) |
|
| 191,624 |
|
Foreign currency translation adjustments |
|
| — |
|
| (192,816) |
|
| — |
|
| — |
|
| — |
|
| (8) |
|
| (192,824) |
|
Changes in unrecognized pension gains/losses and related amortization, net of tax |
|
| — |
|
| (27,004) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (27,004) |
|
Changes in treasury locks, net of tax |
|
| — |
|
| 24 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 24 |
|
Stock option exercises & restricted stock vestings |
|
| — |
|
| — |
|
| 9 |
|
| 2,958 |
|
| 60,410 |
|
| — |
|
| 63,377 |
|
Cash dividends declared on common stock |
|
| (71,072) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (71,072) |
|
Treasury stock purchased |
|
| — |
|
| — |
|
| — |
|
| (290,517) |
|
| (50,000) |
|
| — |
|
| (340,517) |
|
Balance - December 31, 2014 |
| $ | 1,740,005 |
| $ | (110,045) |
| $ | 862 |
| $ | (1,026,117) |
| $ | 498,702 |
| $ | 509 |
| $ | 1,103,916 |
|
Net income |
|
| 199,348 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (53) |
|
| 199,295 |
|
Foreign currency translation adjustments |
|
| — |
|
| (163,874) |
|
| — |
|
| — |
|
| — |
|
| (13) |
|
| (163,887) |
|
Changes in unrecognized pension gains/losses and related amortization, net of tax |
|
| — |
|
| 11,547 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 11,547 |
|
Changes in treasury locks, net of tax |
|
| — |
|
| 25 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 25 |
|
Stock option exercises & restricted stock vestings |
|
| — |
|
| — |
|
| 14 |
|
| 5,447 |
|
| 79,107 |
|
| — |
|
| 84,568 |
|
Cash dividends declared on common stock |
|
| (71,247) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (71,247) |
|
Treasury stock purchased |
|
| — |
|
| — |
|
| — |
|
| (50,000) |
|
| 50,000 |
|
| — |
|
| — |
|
Treasury stock retired |
|
| (669,801) |
|
| — |
|
| (207) |
|
| 800,618 |
|
| (130,610) |
|
| — |
|
| — |
|
Common stock repurchased and retired |
|
| (12,624) |
|
| — |
|
| (2) |
|
| — |
|
| (1,261) |
|
| — |
|
| (13,887) |
|
Non controlling interest repurchased |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (476) |
|
| (148) |
|
| (624) |
|
Balance - December 31, 2015 |
| $ | 1,185,681 |
| $ | (262,347) |
| $ | 667 |
| $ | (270,052) |
| $ | 495,462 |
| $ | 295 |
| $ | 1,149,706 |
|
Net income |
|
| 205,590 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 14 |
|
| 205,604 |
|
Foreign currency translation adjustments |
|
|
|
|
| (53,163) |
|
| — |
|
| — |
|
| — |
|
| (20) |
|
| (53,183) |
|
Changes in unrecognized pension gains/losses and related amortization, net of tax |
|
| — |
|
| (4,225) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (4,225) |
|
Changes in treasury locks, net of tax |
|
| — |
|
| 26 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 26 |
|
Stock option exercises & restricted stock vestings |
|
| — |
|
| — |
|
| 10 |
|
| 19,135 |
|
| 65,198 |
|
| — |
|
| 84,343 |
|
Cash dividends declared on common stock |
|
| (76,659) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (76,659) |
|
Common stock repurchased and retired |
|
| (117,378) |
|
| — |
|
| (17) |
|
| — |
|
| (13,976) |
|
| — |
|
| (131,371) |
|
Non controlling interest addition |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (2) |
|
| 3 |
|
| 1 |
|
Balance - December 31, 2016 |
| $ | 1,197,234 |
| $ | (319,709) |
| $ | 660 |
| $ | (250,917) |
| $ | 546,682 |
| $ | 292 |
| $ | 1,174,242 |
|
| | | | | | | | | | |
Year Ended December 31, |
| | 2019 |
| | 2018 |
| | 2017 |
|
| | | | | | | | | | |
Cash and equivalents | | $ | 241,970 | | $ | 261,823 | | $ | 712,640 | |
Restricted cash included in prepaid and other | | | 5,003 | | | 5,000 | | | — | |
Total Cash and Equivalents and Restricted Cash shown in the Statement of Cash Flows | | $ | 246,973 | | $ | 266,823 | | $ | 712,640 | |
See accompanying notes to consolidated financial statements.
| |
|
|
AptarGroup, Inc.
AptarGroup,��Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and per Share Amounts, or as Otherwise Indicated)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of AptarGroup, Inc. and our subsidiaries. The terms “AptarGroup”, “Aptar”, “Company”, “we”, “us” or “Company”“our” as used herein refer to AptarGroup, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain previously reported amounts have been reclassified to conform to the current period presentation.
AptarGroup’s organizational structure consists of three market‑focused lines of3 market-focused business segments which are Beauty + Home, Pharma and Food + Beverage. This is a strategic structure which allows us to be more closely aligned with our customers and the markets in which they operate.
CHANGE IN ACCOUNTING PRINCIPLEIn late 2017, Aptar began a business transformation plan to drive profitable sales growth, increase operational excellence, enhance our approach to innovation and improve organizational effectiveness (see Note 21 – Restructuring Initiatives for further details). The primary focus of the plan is the Beauty + Home segment; however, certain global general and administrative functions are also addressed. During 2019, 2018 and 2017, we recognized approximately $20.5 million, $63.8 million and $2.2 million, respectively, of restructuring costs related to this plan.
During the second quarter of 2015,ended June 30, 2018, primarily based on published estimates which indicate that Argentina's three-year cumulative inflation rate has exceeded 100%, we concluded that Argentina has become a highly inflationary economy. Beginning July 1, 2018, we have applied highly inflationary accounting for our Argentinian subsidiaries. We have changed the Company changed its inventory valuation method for certain operating entities in its North American businessfunctional currency from the Argentinian peso to the first-in first-out (FIFO) method from the last-in first-out (LIFO) method. Prior to the change, the Company utilized two methods of inventory costing: LIFO for inventories in these operating entitiesU.S. dollar. Local currency monetary assets and FIFO for inventories in other operating entities. The Company believes that the FIFO method is preferableliabilities were remeasured into U.S. dollars using exchange rates as it better reflects the current value of inventory on the Company's Consolidated Balance Sheet, provides better matching of revenues and expenses, results in uniformity across the Company's global operations with respect to the method of inventory accounting and improves comparability with the Company's peers. The cumulative pre-tax effect of this change is a gain of approximately $7.4 million and was recognized as a decrease to Cost of sales (exclusive of depreciation and amortization). The effect of the change on Net Income Attributablelatest balance sheet date, with remeasurement adjustments and other transaction gains and losses recognized in net earnings. During the last half of 2018, we recognized approximately $0.8 million of currency gains due to AptarGroup wasthese changes. Our Argentinian operations contributed approximately $4.8 million, representing approximately $0.08 per diluted share. We have determined that this change is not material toless than 2.0% of consolidated net assets and revenues at and for the Company's previously issued financial statements and that the cumulative effect of the change is not material to current operations or to the trend of reported results of operations. Therefore, we conclude it was appropriate to recognize the cumulative effect of the change as an operating item in the current period's Consolidated Statement of Income and not to adopt the change by retrospective application.year ended December 31, 2019.
ACCOUNTING ESTIMATES
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). This process requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
CASH MANAGEMENTAND CASH EQUIVALENTS
The Company considersWe consider all investments whichthat are readily convertible to known amounts of cash with an original maturity of three months or less when purchased to be cash equivalents. During 2015, we had short-term investments which reflected funds invested in a time deposit instrument with a two-year maturity. However, during the life of the investment the funds could have been redeemed at any time with a 35-90 day notice. There were no penalties for early redemption. We did not consider this investment a marketable security as there was no active market for this type of product.
INVENTORIES
Inventories are stated at lower of cost or market.net realizable value. Costs included in inventories are raw materials, direct labor and manufacturing overhead. As discussed above, the Company changed its inventory valuation method for certain operating entities in its North American business to the FIFO method from the LIFO method during the second quarter of 2015 resulting in all entities utilizing the FIFO method at the end of 2015.
INVESTMENTS IN AFFILIATED COMPANIESEQUITY SECURITIES
The Company accountsWe account for its investments inour 20% to 50% owned affiliated companiesinvestments using the equity method. Equity investments that do not result in consolidation and are not accounted for under the equity method are measured at fair value. Any related changes in fair value is recognized in net income unless the investments qualify for a practicality exception. In May 2018, we invested $10.0 million in preferred equity stock of Reciprocal Labs Corporation, doing business as Propeller Health.During 2018, we increased the value of this investment by approximately $6.5 million due to fair value inputs. This investment was ultimately sold during January 2019 for an amount of $16.5 million (see Note 20 – Acquisitions for further details). During August 2019, we also invested an aggregate amount of $3.5 million in two preferred equity investments that are accounted for at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. There were no indications of impairment nor were there any changes from observable price changes noted for the year ended December 31, 2019. There were 0 dividends received from affiliated companies in 2016, 20152019, 2018 and 2014. During the fourth quarter2017.
| |
41/ATR | 2019 Form 10-K |
PROPERTY AND DEPRECIATION
Properties are stated at cost. Depreciation is determined on a straight‑linestraight-line basis over the estimated useful lives for financial reporting purposes and accelerated methods for income tax reporting. Generally, the estimated useful lives are 10 to 40 years for buildings and improvements and 3 to 15 years for machinery and equipment.
|
|
FINITE‑LIVEDFINITE-LIVED INTANGIBLE ASSETS
Finite‑livedFinite-lived intangibles, consisting of patents, acquired technology, customer relationships, trademarks and trade names and license agreements acquired in purchase transactions, are capitalized and amortized over their useful lives which range from 31 to 20 years.
GOODWILL
Management believesThe Company has historically evaluated the excess of purchase price over the fair value of the net assets acquired (“goodwill”) for impairment annually as of December 31 or more frequently if impairment indicators arose in accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles - Goodwill and Other.” In the fourth quarter of 2019, the Company changed the date of its annual assessment of goodwill to October 1 for all reporting units. The change in testing date for goodwill is a change in accounting principle, which management believes is preferable as the new date of the assessment better aligns with the Company’s budgeting process and will create a more efficient and timely process surrounding the impairment tests. The change in the assessment date does not delay, accelerate or avoid a potential impairment charge. The Company has determined that it is impracticable to objectively determine projected cash flows and related valuation estimates that would have been used as of each October 1 of prior reporting periods without the use of hindsight. As such, the Company prospectively applied the change in annual goodwill impairment testing date from October 1, 2019.
We believe that the accounting estimates related to determining the fair value of our reporting units is a critical accounting estimate because: (1) it is highly susceptible to change from period to period because it requires management to make assumptions about the future cash flows for each reporting unit over several years, and (2) the impact that recognizing an impairment would have on the assets reported on our balance sheet as well as our results of operations could be material. Management’s determination of the fair value of our reporting units, based on future cash flows for the reporting units, requires significant judgment and the use of estimates and assumptions related to projected revenue growth rates, the terminal growth factor, as well as the discount rate. Actual cash flows in the future may differ significantly from those forecasted today. The estimates and assumptions for future cash flows and its impact on the impairment testing of goodwill is a critical accounting estimate.
Management believes goodwill in purchase transactions has continuing value. Goodwill is not amortized and must be tested annually, or more frequently as circumstances dictate, for impairment. The annual goodwill impairment test may first consider qualitative factors to determine whether it is more likely than not (i.e., greater than 50 percent chance) that the fair value of a reporting unit is less than its book value. This is sometimes referred to as the “step zero” approach and is an optional step in the annual goodwill impairment analysis. Management has performed this qualitative assessment as of December 31, 2015 and 2014October 1, 2019 for all foureach of our reporting units. Based on our review of macroeconomic, industry, and market events and circumstances as well as the overall financial performance of the reporting units, andwe determined that it was more likely than not that the fair value of goodwill attributed to all four of ourthese reporting units was greater than itstheir carrying amountamounts.
During the third quarter of 2019, we performed a separate quantitative impairment assessment using a discounted cash flow analysis of the Active Packaging reporting unit, which was formed as a result of the CSP Technologies Acquisition in the third quarter of 2018. We calculated the fair value of the Active Packaging reporting unit and therefore no impairmentcompared it with the associated carrying value (the “step one” approach) as of goodwill was required.
In the absence of sufficient qualitative factors, goodwill impairment is determined utilizing a two‑stepJuly 1, 2019. Based on this quantitative process. Due to the passage of time since the last quantitative assessment, management determined it appropriate to calculateanalysis, the fair value of the reporting units and compare with their associated carry amounts (the “step one” approach) forunit exceeded the year ended December 31, 2016. Based on this quantitive analysis, we determined the fair value of our reporting units are not less than their carrying value and therefore no impairment of goodwill is required.loss was recognized.
IMPAIRMENT OF LONG‑LIVEDLONG-LIVED ASSETS
Long‑livedLong-lived assets, such as property, plant and equipment and finite‑livedfinite-lived intangibles, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset.
DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES
Derivative financial instruments are recorded in the consolidated balance sheetsConsolidated Balance Sheets at fair value as either assets or liabilities. Changes in the fair value of derivatives are recorded in each period in earnings or accumulated other comprehensive income, depending on whether a derivative is designated and effective as part of a hedge transaction.
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42/ATR | 2019 Form 10-K |
RETIREMENT OF TREASURY SHARESCOMMON STOCK
During the third quarter of 2015, the Company retired 20 million2019, we repurchased 779 thousand shares of common stock, all of which were returned to treasury stock. During 2018, we repurchased 668 thousand shares of common stock, of which 623 thousand shares were immediately retired.Common stock was reduced by the number of shares retired at $0.01 par value while treasury stock was reduced by the purchase price of the shares retired. The excess of purchase price over par or stated value may either be charged entirely to retained earnings or allocated between additional paid-in capital and retained earnings. The Company has elected toper share. We allocate the excess purchase price over par value between additional paid-in capital and retained earnings. Subsequent to the third quarter of 2015, shares repurchased are immediately retired.
RESEARCH & DEVELOPMENT EXPENSES
Research and development costs, net of any customer funded research and development or government research and development credits, are expensed as incurred. These costs amounted to $66.2$82.8 million, $67.1$75.3 million and $76.2$68.2 million in 2016, 20152019, 2018 and 2014,2017, respectively.
INCOME TAXES
The Company computesWe 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 pretaxpre-tax income for financial accounting purposes. To the extent that these differences create timing differences between the tax basis of an asset or liability and its reported amount in the financial statements, an appropriate provision for deferred income taxes is made.
In its determinationAll of which foreignour non-U.S. earnings are permanently reinvestedsubject to U.S. taxation, either from the transition tax enacted in foreign operations, the Company considers numerous factors, includingU.S. by the Tax Cuts and Jobs Act (“TCJA”) on accumulated non-U.S. earnings as of the end of 2017 or the global intangible low-taxed income (“GILTI”) provisions on non-U.S. earnings thereafter. We maintain our assertion that the cash and distributable reserves at our non-U.S. affiliates are indefinitely reinvested. 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 U.S. parent company and those of its foreign subsidiaries, the U.S. funding needs for dividend payments and stock repurchases,non-U.S. affiliates and the tax consequences of remitting earnings to the U.S. From this analysis, current year repatriation decisions are made in an attempt to provide a proper mix of debt and stockholder capital both within the U.S. and for non‑U.S. operations. The Company’s policy is to permanently reinvest its accumulated foreign earnings and will only make a distribution to the U.S. out of current year earnings in order to meet theglobal cash needs at the parent company. As such, the Company does not provide taxes on earnings that are deemed to be permanently reinvested.
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The Company has determined its 2016 foreign earnings will not be reinvested, as the Company is planning to repatriate cash to the U.S. in 2017 in excessmanagement goals of the expected 2017 earnings. There are no additional tax amounts to be recorded in connection with the 2017 repatriation.Company.
The Company providesWe provide a liability for the amount of unrecognized tax benefits from uncertain tax positions. This liability is provided whenever the Company determineswe determine that a tax benefit will not meet a more-likely-than-not threshold for recognition. See Note 56 – Income Taxes for more information.
TRANSLATION OF FOREIGN CURRENCIES
The functional currencies of the majority of the Company'sour foreign operations are the local currencies. Assets and liabilities of the Company’sour foreign operations are translated into U.S. dollars at the rates of exchange on the balance sheet date. Sales and expenses are translated at the average rates of exchange prevailing during the year. The related translation adjustments are accumulated in a separate section of Stockholders’ Equity. Realized and unrealized foreign currency transaction gains and losses are reflected in income, as a component of miscellaneous income and expense, and represented losses of $326 thousand, $3.9$1.7 million, $1.7 million and $37 thousand$5.0 million in 2016, 20152019, 2018 and 2014,2017, respectively.
STOCK BASEDSTOCK-BASED COMPENSATION
Accounting standards require the application of the non‑substantivenon-substantive vesting approach which means that an award is fully vested when the employee’s retention of the award is no longer contingent on providing subsequentfuture service. Under this approach, compensation costs are recognized over the requisite service period of the award instead of ratably over the vesting period stated in the grant. As such, costs are recognized immediately if the employee is retirement eligible on the date of grant or over the period from the date of grant until retirement eligibility if retirement eligibility is reached before the end of the vesting period stated in the grant. See Note 1516 – Stock-Based Compensation for more information.
REVENUE RECOGNITION
Product and Tooling Sales. The Company’s policy is to recognize revenue from product sales when the price is fixed and determinable, when the title and riskAt inception of loss has transferred to the customer when the Company has no remaining obligations regarding the transaction and when collection is reasonably assured. The majority of the Company’s products shipped from the U.S. transfers title and risk of loss whencontracts, we assess the goods leaveand services promised in order to identify a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. To identify the Company’s shipping location. The majority of the Company’s products shipped from non‑U.S. operations transfer title and risk of loss whenperformance obligations, we consider all the goods reach their destination. Tooling revenue is also recognized whenor services promised in the title and risk of loss transferscontract, 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 the customer.
Services and Other. The Company invoices customers for certain services. The Company also receives revenue from other sources such as license, exclusivity or royalty agreements.each distinct performance obligation on a relative standalone selling price basis. Revenue is recognized when services(or as) the performance obligations are renderedsatisfied (i.e., when the customer obtains control of the good or rights to use assets can be reliably measuredservice). The majority of our revenues are derived from product and when collection is reasonably assured. License,tooling sales; however, we also receive revenues from service, license, exclusivity and royalty revenuesarrangements, which are typically recognized when the contractual termsconsidered insignificant. See specific discussions about methods of each agreementaccounting for control transfers of product and tooling sales in Note 2 – Revenue.
LEASES
We determine if an arrangement is a lease at inception. Operating lease assets are met. Serviceincluded in operating lease right-of-use (“ROU”) assets and operating lease liabilities are included in accounts payable accrued and other revenueliabilities in our Consolidated Balance Sheets. Finance leases are included in property, plant and equipment, current maturities of long-term obligations and long-term obligations in our Consolidated Balance Sheets.
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43/ATR | 2019 Form 10-K |
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use the implicit rate when readily determinable. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date of the lease in determining the present value of lease payments. The operating lease ROU asset includes any lease payments made as well as initial direct costs incurred and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, we account for the lease and non-lease components as a single lease component. We have elected not to recognize right-of-use assets and lease liabilities that arise from short-term leases (a lease whose term is 12 months or less and does not include a purchase option that we are reasonably certain to exercise).
Certain vehicle lease contracts include guaranteed residual value that is considered in the determination of lease classification. The probability of having to satisfy a residual value guarantee is not material toconsidered for the Company’s resultspurpose of operations for any of the years presented.lease classification, but is considered when measuring a lease liability.
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updatesAccounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification.
In November 2015,February 2016, the FASB issued guidance which simplifiesa new standard related to leases to increase transparency and comparability among organizations. Most prominent among the balance sheet classification of deferred taxes. The new guidance requires that deferred tax liabilities and assets be presented as non-currentchanges in a classified statement of financial position. Thisthe standard is effectivethe recognition of ROU assets and lease liabilities by lessees for annual reporting periods beginning after December 15, 2016. The Company has prospectively adopted the requirements of the standard and updated the presentation ofthose leases classified as operating leases, as our classified statement of financial position accordingly.
In May 2015, the FASB issued new guidance on investment disclosures. Investments measured at net asset value (“NAV”), as a practical expedient for fair value, are excluded from the fair value hierarchy. Removing investments measured using the practical expedient from the fair value hierarchy is intended to eliminate the diversity in practice that currently exists with respect to the categorization of these investments. The Company has adopted the standard and updated the presentation of pension plan investment fair value hierarchy tables in the annual financial statements accordingly.
In April 2015, the FASB issued new guidance on a customer's accounting for fees paid in a cloud computing arrangement (“CCA”). Previously, there was no specific U.S. GAAP guidance on accounting for such fees from the customer's perspective.finance leases remained substantially unchanged. Under the new standard, customers will applydisclosures are required to meet the same criteria as vendorsobjective of enabling users of financial statements to determine whether a CCA contains a software license or is solely a service contract. This standard was effective for annual reporting periods beginning after December 15, 2015. The Company hasassess the amount, timing, and uncertainty of cash flows arising from leases. We adopted the requirementsstandard on January 1, 2019 using a modified retrospective transition, with the effective date method. Under this method, financial results reported in periods prior to 2019 are not recast. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows companies to carry forward their historical lease classification. We also implemented internal controls and key system functionality to enable the preparation of financial information on adoption. The impact of adoption of the standard with respect to its current CCAs and has determined that the impactpreviously reported results is not material to our current year financial statements.shown below.
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Consolidated Balance Sheets | | | | | | | | | | |
Operating lease right-of-use assets | | $ | — | | $ | 83,222 | | $ | 83,222 | |
Prepaid and other | | | 118,245 | | | (1,383) | | | 116,862 | |
Property, plant and equipment | | | 991,613 | | | 5,876 | | | 997,489 | |
Current maturities of long-term obligations, net of unamortized debt issuance costs | | | 62,678 | | | 2,631 | | | 65,309 | |
Accounts payable, accrued and other liabilities | | | 525,199 | | | 20,508 | | | 545,707 | |
Operating lease liabilities | | | — | | | 61,331 | | | 61,331 | |
Long-term obligations, net of unamortized debt issuance costs | | | 1,125,993 | | | 3,245 | | | 1,129,238 | |
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In April 2015, the FASB issued an ASU intended to simplify U.S. GAAP by changing the presentation of debt issuance costs. Under the new standard, debt issuance costs will be presented as a reduction of the carrying amount of the related liability, rather than as an asset. The new treatment is consistent with debt discounts. In August 2015, the FASB issued an ASU clarifying that debt issuance costs related to line of credit arrangements can be classified as an asset and amortized ratably over the term of the line of credit arrangement. These standards were effective for annual reporting periods beginning after December 15, 2015. The Company has implemented these standards within the current financial statements and retrospectively applied the changes to the prior periods as required, which resulted in a $1.7 million reclassification from Intangible Assets to Current Maturities of Long-Term Obligations and Long-Term Obligations in the December 31, 2015 Consolidated Balance Sheet.
In AugustMay 2014, the FASB issued an ASU 2014-09, which requires the evaluation every reporting period, including interim periods, of whether there is substantial doubt about an entity’s ability to continue as a going concern and provide certain footnote disclosures depending on the results of such evaluation. The standard was effective for the Company in the fourth quarter of 2016. The adoption of the new rules did not have an impact on our current year financial statements.
In May 2014, the FASB amended the guidance for recognition of revenue from customer contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On January 1, 2018, we adopted this standard and all the related amendments (the “new revenue standard”) for all contracts. This adoption was accounted for using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the January 1, 2018 opening balance of retained earnings. Comparative information for the prior periods has not been restated and continues to be reported under the accounting standards in effect prior to January 1, 2018.
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44/ATR | 2019 Form 10-K |
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| | | December 31, 2017 | | | Adjustment | | | January 1, 2018 | |
Consolidated Balance Sheets | | | | | | | | | | |
Assets | | | | | | | | | | |
Inventories | | $ | 337,216 | | $ | (7,064) | | $ | 330,152 | |
Prepaid and other | | | 109,791 | | | 6,411 | | | 116,202 | |
Liabilities | | | | | | | | | | |
Accounts payable, accrued and other liabilities | | | 461,579 | | | (5,706) | | | 455,873 | |
Deferred income taxes | | | 20,995 | | | 1,292 | | | 22,287 | |
Deferred and other non-current liabilities | | | 5,608 | | | 824 | | | 6,432 | |
Stockholders’ Equity | | | | | | | | | | |
Retained earnings | | | 1,301,147 | | | 2,937 | | | 1,304,084 | |
A majority of our sales revenue continues to be recognized when products are shipped from our manufacturing facilities. For certain custom product and tooling sales where revenue was previously recognized when the products were shipped, we now recognize revenue over the time required to manufacture the product or build the tool in accordance with the new revenue standard. We also have certain extended warranty contracts, which under the new standard are considered a separate performance obligation and are required to be deferred and recognized into revenue over the life of the agreement.
In August 2015,accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated statements of income and balance sheets is as follows:
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Net Sales | | | | | | | | | | |
Beauty + Home | | $ | 1,426,382 | | $ | 1,424,701 | | $ | 1,681 | |
Pharma | | | 954,652 | | | 954,497 | | | 155 | |
Food + Beverage | | | 383,727 | | | 385,001 | | | (1,274) | |
Costs and Expenses | | | | | | | | | | |
Cost of sales (exclusive of depreciation and amortization) | | | 1,812,961 | | | 1,811,290 | | | 1,671 | |
Provision for income taxes | | | 71,254 | | | 71,541 | | | (287) | |
Net income | | | 194,766 | | | 195,588 | | | (822) | |
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Assets | | | | | | | | | | |
Inventories | | $ | 381,110 | | $ | 391,315 | | $ | (10,205) | |
Prepaid and other | | | 118,245 | | | 108,490 | | | 9,755 | |
Liabilities | | | | | | | | | | |
Accounts payable, accrued and other liabilities | | | 525,199 | | | 529,168 | | | (3,969) | |
Deferred income taxes | | | 53,917 | | | 52,912 | | | 1,005 | |
Deferred and other non-current liabilities | | | 23,465 | | | 23,066 | | | 399 | |
Stockholders’ Equity | | | | | | | | | | |
Retained earnings | | | 1,371,826 | | | 1,369,711 | | | 2,115 | |
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45/ATR | 2019 Form 10-K |
In January 2016, the FASB decidedissued ASU 2016-01, which provides guidance on the classification and measurement of financial assets and liabilities (equity securities and financial liabilities) under the fair value option and the presentation and disclosure requirements for financial instruments. In February 2018, ASU 2018-03 was issued to deferclarify certain aspects of the guidance issued in January 2016. The guidance modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any related changes in fair value in net income unless the investments qualify for the new practicality exception. A measurement alternative exists for those equity investments that do not have a readily determinable fair value. These investments may be measured at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The standard also includes a new impairment model for equity investments without readily determinable fair values. The new model is a single-step model under which we are required to perform a qualitative assessment each reporting period to identify impairment. When a qualitative assessment indicates that an impairment exists, we will estimate the fair value of the investment and recognize in current earnings an impairment loss equal to the difference between the fair value and the carrying amount of the equity investment. The new standard is effective date by one year to December 15, 2017 for annual reportingfiscal years and interim periods beginning after that date. The FASB also decided to allow early adoption of the standard, but not before the original effective date of December 15, 2016. Subsequent to2017. We adopted the initial standards, the FASB has also issued several ASUs to clarify specific revenue recognition topics. We are currently evaluating the impact the adoptionrequirements of this standard will have on our consolidated financial statements. The majorityduring the first quarter of our revenues are derived from product sales and tooling sales and we are2018.
In November 2016, the FASB issued ASU 2016-18, which provides guidance to address the diversity in the processclassification and presentation of assessingchanges in restricted cash on the impactstatement of cash flows. The amendments in this standard require that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The new guidancestandard is effective for fiscal years and interim periods beginning after December 15, 2017. We adopted the requirements of this standard during the first quarter of 2018 and appropriate disclosures are included on these revenue streams. We are also evaluating our license, exclusivity and royalty arrangements,the statement of cash flows to the extent applicable.
In February 2018, the FASB issued ASU 2018-02, which will need to be reviewed individually to ensure proper accounting under the new standard. Based on our initial reviews, we currently anticipate adopting the full retrospective transition method for implementing thisprovides guidance on the standard’sreclassification of certain tax effects from accumulated other comprehensive income. This guidance allows for the reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA. The new standard is effective date.for fiscal years and interim periods beginning after December 15, 2018. We elected to early adopt this standard in the fourth quarter of 2018. As part of this adoption, we elected to reclassify $6.7 million of stranded income tax effects of the TCJA from accumulated other comprehensive income to retained earnings at the beginning of the fourth quarter of 2018.
Other accounting standards that have been issued by the FASB or other standards-setting bodies did not have a material impact on our consolidated financial statements.
REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS
During the fourth quarter of 2016, the Company determined that certain of our long-term obligations had been incorrectly presented in the financing activities section of the Consolidated Statements of Cash Flows
NOTE 2 REVENUE
Revenue by segment and geography for the yearyears ended December 31, 2015.2019 and 2018 is as follows:
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Segment | | Europe | | Domestic | | America | | Asia | | Total |
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Beauty + Home | | $ | 792,255 | | $ | 310,411 | | $ | 160,048 | | $ | 90,000 | | $ | 1,352,714 | |
Pharma | | | 729,882 | | | 297,871 | | | 26,344 | | | 36,954 | | | 1,091,051 | |
Food + Beverage | | | 116,332 | | | 228,486 | | | 33,996 | | | 37,153 | | | 415,967 | |
Total | | $ | 1,638,469 | | $ | 836,768 | | $ | 220,388 | | $ | 164,107 | | $ | 2,859,732 | |
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Segment | | Europe | | Domestic | | America | | Asia | | Total | | |||||
Beauty + Home | | $ | 816,359 | | $ | 334,881 | | $ | 178,392 | | $ | 96,750 | | $ | 1,426,382 | |
Pharma | | | 696,079 | | | 196,928 | | | 25,485 | | | 36,160 | | | 954,652 | |
Food + Beverage | | | 115,040 | | | 194,527 | | | 31,742 | | | 42,418 | | | 383,727 | |
Total | | $ | 1,627,478 | | $ | 726,336 | | $ | 235,619 | | $ | 175,328 | | $ | 2,764,761 | |
Aptar performs its obligations under a contract with a customer by transferring goods and/or services in exchange for consideration from the customer. The standards require that proceeds and repaymentstiming of long-term obligations be presented onperformance will sometimes differ from the timing of the receipt of the associated consideration from the customer, thus resulting in the recognition of a gross basis as opposedcontract asset or a contract liability. Aptar recognizes a contract asset when it transfers control of goods or services to a net basis. Ascustomer prior to invoicing for the adjustment representrelated performance obligation. The contract asset is transferred to accounts receivable when the product is shipped and invoiced to the customer. Aptar recognizes a reclassificationcontract liability if the customer's payment of consideration precedes the entity's performance.
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46/ATR | 2019 Form 10-K |
The opening and closing balances of Aptar’s contract asset and contract liabilities are as follows:
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Contract asset (current) | | $ | 15,858 | | $ | 16,245 | | $ | 387 | |
Contract asset (long-term) | | $ | — | | $ | — | | $ | — | |
Contract liability (current) | | $ | 68,134 | | $ | 79,305 | | $ | 11,171 | |
Contract liability (long-term) | | $ | 11,261 | | $ | 9,779 | | $ | (1,482) | |
The differences in the opening and closing balances of our contract asset and contract liabilities are primarily the result of acquisitions and timing differences between two accountsour performance and the customer’s payment. The total amount of revenue recognized during the current year against contract liabilities is $61.3 million, including $32.6 million relating to contract liabilities at the beginning of the year.
Determining the Transaction Price
In most cases, the transaction price for each performance obligation is stated in the contract. In determining the variable amounts of consideration within the financing activities sectiontransaction price (such as volume-based customer rebates), Aptar includes an estimate of the Consolidated Statementsexpected amount of Cash Flows,consideration as revenue. Aptar applies the Consolidated Statementsexpected value method based on all of Incomethe information (historical, current and forecast) that is reasonably available and identifies reasonable estimates based on this information. We apply the Consolidated Balance Sheetsmethod consistently throughout the contract when estimating the effect of an uncertainty on the amount of variable consideration to which it will be entitled.
Point in Time Performance Obligations
For product and tooling sales considered to be point in time, Aptar typically assesses, among other things, the shipping terms of the contract, shipping being one of the indicators of transfer of control. For free on board (“FOB”) shipping point terms, revenue is recognized at the time of shipment. The performance obligation with respect to the sale of goods is satisfied at the time of shipment because the customer gains control at that time. Once the goods are shipped, we are precluded from redirecting the shipment to another customer. With respect to FOB destination sales, shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfilment activities and are accounted for as fulfilment costs and revenue is recorded upon final delivery to the customer location.
Over Time Performance Obligations
For performance obligations related to manufacturing of highly customized products that have no alternative use for us and for which we have an enforceable right to payment for performance completed to date, we transfer control and recognize revenue over time by measuring progress towards complete satisfaction using the Output Method based on the number of products produced. For similar performance obligations related to our tooling sales, we transfer control and recognize revenue over time by measuring progress towards complete satisfaction using the Input Method based on costs incurred relative to total estimated costs to completion. We believe these measurements provide a faithful depiction of the transfer of goods as the costs incurred reflect the value of the products produced.
Product Sales
Aptar primarily manufactures dispensing systems for our Beauty + Home, Pharma and Food + Beverage customers. 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, Aptar typically assesses, 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 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, Aptar's performance obligation is satisfied at the time of shipment. Aptar has elected to account for shipping and handling costs that occur after the customer has obtained control of a good as fulfillment costs rather than as a promised service. Aptar does not have any material significant payment terms as payment is typically received shortly after the point of sale.
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47/ATR | 2019 Form 10-K |
There also exist instances where Aptar manufactures highly customized products that have no alternative use to Aptar and for which Aptar has an enforceable right to payment for performance completed to date. For these products, we transfer control and recognizes revenue over time by measuring progress towards completion using the Output Method based on the number of products produced. As we normally make our products to a customer’s order, the time between production and shipment of our products is typically within a few weeks.
As a part of its customary business practice, Aptar offers 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 impactedsold separately, do not provide for any service beyond a guarantee of a product’s initial specifications, and are not required by this change. The revision, which the Company has determinedlaw, there is not material but was significant enoughno revenue deferral for these types of warranties.
Tooling Sales
Aptar also builds or contracts for molds and other tools (collectively defined as “tooling”) necessary to revise, had no impact on the consolidated results of operations. Following is a summaryproduce our products. As with product sales, Aptar recognizes revenue when control of the previouslytool transfers to the customer. If the tooling is highly customized with no alternative use to Aptar and Aptar has an enforceable right to payment for performance completed to date, we transfer control and recognize revenue over time by measuring progress towards completion using the Input Method based on costs incurred relative to total estimated costs to completion. Otherwise, revenue for the tooling is recognized at the point in time when the customer approves the tool. Aptar does not have any material significant payment terms as payment is typically either received during the mold-build process or shortly after completion.
In certain instances, Aptar offers extended warranties on our tools above and beyond the normal standard warranties. Aptar normally receives payment at the inception of the contract and recognizes revenue over the term of the contract. At December 31, 2018, $758 thousand of unearned revenue associated with outstanding contracts was reported financial statement line items impacted by this revisionin Accounts Payable, Accrued and Other Liabilities. At December 31, 2019, the unearned amount was $515 thousand. Aptar expects to recognize approximately $228 thousand of all periodsthe unearned amount in 2020 and statements included$287 thousand thereafter.
Service Sales
Aptar also provides services to its pharmaceutical customers. As with product sales, Aptar recognizes revenue based on completion of each performance obligation of the service contract.
Contract Costs
Aptar does not incur significant costs to obtain or fulfill revenue contracts.
Practical Expedients
Significant financing component: Aptar elected not to adjust the promised consideration for the time value of money for contracts where the difference between the time of payment and performance is one year or less.
Remaining performance obligations: Aptar elected not to disclose the aggregate amount of the transaction price allocated to remaining performance obligations for its contracts that are one year or less, as the revenue is expected to be recognized within the next year. In addition, we have elected not to disclose the expected consideration related to performance obligations where we recognize revenue in this report:the amount it has a right to invoice (e.g., usage-based pricing terms).
|
|
|
|
|
|
|
|
|
|
|
|
| As Previously |
|
|
|
|
|
|
| |
|
| Reported |
| Adjustment |
| As Revised |
| |||
Revised Consolidated Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term obligations |
| $ | 209,236 |
| $ | 16,000 |
| $ | 225,236 |
|
Repayments of long-term obligations |
|
| (981) |
|
| (16,000) |
|
| (16,981) |
|
Net Cash Used by Financing Activities |
|
| (33,066) |
|
| — |
|
| (33,066) |
|
NOTE 3 INVENTORIES
|
|
NOTE 2 INVENTORIES
Inventories, by component net of reserves, consisted of:
|
|
|
|
|
|
|
| |||||||
|
| 2016 |
| 2015 |
| |||||||||
| | | | | | | | |||||||
|
| 2019 |
| 2018 |
| |||||||||
Raw materials |
| $ | 98,014 |
| $ | 91,214 |
| | $ | 111,653 | | $ | 110,720 | |
Work in process |
|
| 91,646 |
|
| 90,625 |
| |
| 123,750 | |
| 131,091 | |
Finished goods |
|
| 107,254 |
|
| 113,073 |
| |
| 140,392 | |
| 139,299 | |
Total |
| $ | 296,914 |
| $ | 294,912 |
| | $ | 375,795 | | $ | 381,110 | |
| |
48/ATR | 2019 Form 10-K |
NOTE 34 GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the year ended December 31, 20162019 are as follows by reporting segment:
| | | | | | | | | | | | | | | | |
|
| Beauty + |
| | |
| Food + |
| Corporate |
| | |
| |||
| | Home | | Pharma | | Beverage | | & Other | | Total |
| |||||
Balance as of December 31, 2017 | | | | | | | | | | | | | | | | |
Goodwill | | $ | 223,947 | | $ | 203,069 | | $ | 16,871 | | $ | 1,615 | | $ | 445,502 | |
Accumulated impairment losses | | | — | |
| — | |
| — | |
| (1,615) | |
| (1,615) | |
| | $ | 223,947 | | $ | 203,069 | | $ | 16,871 | | $ | — | | $ | 443,887 | |
Acquisition | | | 5,565 | | | 174,343 | | | 103,678 | | | — | | | 283,586 | |
Reallocation, net | | | — | | | (8,048) | | | 8,048 | | | — | | | — | |
Foreign currency exchange effects | | | (5,579) | |
| (9,481) | |
| (318) | |
| — | |
| (15,378) | |
Balance as of December 31, 2018 | | | | | | | | | | | | | | | | |
Goodwill | | $ | 223,933 | | $ | 359,883 | | $ | 128,279 | | $ | 1,615 | | $ | 713,710 | |
Accumulated impairment losses | | | — | |
| — | |
| — | |
| (1,615) | |
| (1,615) | |
| | $ | 223,933 | | $ | 359,883 | | $ | 128,279 | | $ | — | | $ | 712,095 | |
Acquisition | | | — | | | 57,934 | | | — | | | — | | | 57,934 | |
Foreign currency exchange effects | |
| (2,275) | |
| (4,167) | |
| (126) | |
| — | |
| (6,568) | |
Balance as of December 31, 2019 | | | | | | | | | | | | | | | | |
Goodwill | | $ | 221,658 | | $ | 413,650 | | $ | 128,153 | | $ | 1,615 | | $ | 765,076 | |
Accumulated impairment losses | |
| — | |
| — | |
| — | |
| (1,615) | |
| (1,615) | |
| | $ | 221,658 | | $ | 413,650 | | $ | 128,153 | | $ | — | | $ | 763,461 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Beauty + |
|
|
|
| Food + |
| Corporate |
|
|
|
| |||
|
| Home |
| Pharma |
| Beverage |
| & Other |
| Total |
| |||||
Balance as of December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
| $ | 171,149 |
| $ | 141,592 |
| $ | 17,000 |
| $ | 1,615 |
| $ | 331,356 |
|
Accumulated impairment losses |
|
| — |
|
| — |
|
| — |
|
| (1,615) |
|
| (1,615) |
|
|
| $ | 171,149 |
| $ | 141,592 |
| $ | 17,000 |
| $ | — |
| $ | 329,741 |
|
Foreign currency exchange effects |
|
| (6,559) |
|
| (12,232) |
|
| (710) |
|
| — |
|
| (19,501) |
|
Balance as of December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
| $ | 164,590 |
| $ | 129,360 |
| $ | 16,290 |
| $ | 1,615 |
| $ | 311,855 |
|
Accumulated impairment losses |
|
| — |
|
| — |
|
| — |
|
| (1,615) |
|
| (1,615) |
|
|
| $ | 164,590 |
| $ | 129,360 |
| $ | 16,290 |
| $ | — |
| $ | 310,240 |
|
Acquisition |
|
| 49,735 |
|
| 55,827 |
|
| — |
|
| — |
|
| 105,562 |
|
Foreign currency exchange effects |
|
| (2,954) |
|
| (5,137) |
|
| (189) |
|
| — |
|
| (8,280) |
|
Balance as of December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
| $ | 211,371 |
| $ | 180,050 |
| $ | 16,101 |
| $ | 1,615 |
| $ | 409,137 |
|
Accumulated impairment losses |
|
| — |
|
| — |
|
| — |
|
| (1,615) |
|
| (1,615) |
|
|
| $ | 211,371 |
| $ | 180,050 |
| $ | 16,101 |
| $ | — |
| $ | 407,522 |
|
During the fourth quarter of 2018, certain CSP Technologies product lines were transferred from Pharma segment to the Food + Beverage segment affecting the Active Packaging and Food + Beverage reporting units to better align our customer needs. The changes resulted in the reassignment of the assets and liabilities to the reporting units affected. The goodwill was reallocated to the reporting units affected using the relative fair value approach.
The Company hasDuring the third quarter of 2019, we performed a separate quantitative impairment assessment using a discounted cash flow analysis of the Active Packaging reporting unit, which was formed as a result of the CSP Technologies Acquisition in the third quarter of 2018. We calculated the fair value of the Active Packaging reporting unit and compared it with the associated carrying value (the “step one” approach) as of July 1, 2019. Based on this quantitative analysis, the fair value of the reporting unit exceeded the carrying value and therefore 0 impairment loss was recognized.
We have completed the annual impairment analysis of itsour reporting units as of December 31, 2016October 1, 2019 using both a discounted cash flowqualitative analysis and market multiple approach.of goodwill commonly referred to as the “step zero” approach for each of our reporting units. Based on our review of macroeconomic, industry, and market events and circumstances as well as the overall financial performance of the reporting units, we determined that it was more likely than not that the fair value of goodwillthese reporting units was greater than itstheir carrying amount for all four reporting units. Therefore, noamounts. No impairment was recognized during the years ended December 31, 2019, 2018 or 2017.
| |
49/ATR | 2019 Form 10-K |
The table below shows a summary of intangible assets for the years ended December 31, 20162019 and 2015.2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
|
|
| 2016 |
|
| 2015 |
| ||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | | | 2019 | | | 2018 | | ||||||||||||||||||||||||||||||||||
Weighted Average | Weighted Average |
| Gross |
|
|
|
|
|
|
| Gross |
|
|
|
|
|
|
| Weighted Average | | Gross | | | | | | | | Gross | | | | | | |
| ||||||
Amortization Period | Amortization Period |
| Carrying |
| Accumulated |
| Net |
| Carrying |
| Accumulated |
| Net |
| Amortization Period | | Carrying | | Accumulated | | Net | | Carrying | | Accumulated | | Net |
| ||||||||||||||
|
| (Years) |
| Amount |
| Amortization |
| Value |
| Amount |
| Amortization |
| Value |
| |||||||||||||||||||||||||||
|
| (Years) |
| Amount |
| Amortization |
| Value |
| Amount |
| Amortization |
| Value |
| |||||||||||||||||||||||||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | |
Patents |
| 0.2 |
| $ | 6,859 |
| $ | (6,839) |
| $ | 20 |
| $ | 15,358 |
| $ | (15,330) |
| $ | 28 |
|
| 7.2 | | $ | 2,804 | | | (1,318) | | $ | 1,486 | | $ | 5,427 | | $ | (5,294) | | $ | 133 | |
Acquired technology |
| 14.9 |
|
| 41,731 |
|
| (10,040) |
|
| 31,691 |
|
| 32,030 |
|
| (7,475) |
|
| 24,555 |
|
| 13.0 | |
| 100,511 | | | (25,430) | |
| 75,081 | |
| 92,389 | |
| (18,304) | |
| 74,085 | |
Customer relationships |
| 11.8 |
|
| 63,006 |
|
| (6,696) |
|
| 56,310 |
|
| 6,406 |
|
| (1,493) |
|
| 4,913 |
| | 13.6 | | | 217,934 | | | (33,924) | | | 184,010 | | | 179,597 | | | (20,439) | | | 159,158 | |
Trademarks and trade names | | 7.0 | | | 35,015 | | | (11,003) | | | 24,012 | | | 21,243 | | | (5,914) | | | 15,329 | | |||||||||||||||||||||
License agreements and other |
| 8.0 |
|
| 18,516 |
|
| (12,048) |
|
| 6,468 |
|
| 21,222 |
|
| (19,189) |
|
| 2,033 |
|
| 10.3 | |
| 16,153 | | | (9,658) | |
| 6,495 | |
| 13,852 | |
| (7,653) | |
| 6,199 | |
Total intangible assets |
| 11.7 |
| $ | 130,112 |
| $ | (35,623) |
| $ | 94,489 |
| $ | 75,016 |
| $ | (43,487) |
| $ | 31,529 |
|
| 12.6 | | $ | 372,417 | | $ | (81,333) | | $ | 291,084 | | $ | 312,508 | | $ | (57,604) | | $ | 254,904 | |
|
|
Aggregate amortization expense for the intangible assets above for the years ended December 31, 2016, 20152019, 2018 and 20142017 was $9,317, $4,246$27,608, $15,455 and $5,325,$10,339, respectively.
Estimated amortization expense for the years ending December 31 is as follows:
|
|
|
|
2017 |
| $ | 9,669 |
2018 |
|
| 9,659 |
2019 |
|
| 9,493 |
2020 |
|
| 8,393 |
2021 and thereafter |
|
| 57,275 |
| | | |
2020 |
| $ | 31,135 |
2021 | |
| 29,582 |
2022 | |
| 29,343 |
2023 | |
| 29,171 |
2024 and thereafter | |
| 171,853 |
Future amortization expense may fluctuate depending on changes in foreign currency rates. The estimates for amortization expense noted above are based upon foreign exchange rates as of December 31, 2016.2019.
NOTE 45 ACCOUNTS PAYABLE, ACCRUED AND ACCRUEDOTHER LIABILITIES
At December 31, 20162019 and 2015,2018, accounts payable, accrued and accruedother liabilities consisted of the following:
|
|
|
|
|
|
|
| |||||||
|
| 2016 |
| 2015 |
| |||||||||
| | | | | | | | |||||||
|
| 2019 |
| 2018 |
| |||||||||
Accounts payable, principally trade |
| $ | 115,514 |
| $ | 115,061 |
| | $ | 192,739 | | $ | 164,528 | |
Accrued employee compensation costs |
|
| 119,767 |
|
| 125,724 |
| |
| 163,839 | |
| 168,349 | |
Customer deposits and other unearned income |
|
| 44,068 |
|
| 33,253 |
| |
| 86,820 | |
| 67,775 | |
Other accrued liabilities |
|
| 89,790 |
|
| 80,890 |
| |
| 129,630 | |
| 124,547 | |
Total |
| $ | 369,139 |
| $ | 354,928 |
| | $ | 573,028 | | $ | 525,199 | |
NOTE 56 INCOME TAXES
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“TCJA”), which significantly changed U.S. tax law. The TCJA lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while imposing a deemed repatriation tax on previously deferred foreign income. The Company completed its accounting for the income tax effects of the TCJA during 2018, in accordance with the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118.
| |
50/ATR | 2019 Form 10-K |
Income before income taxes consists of:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| | | | | | | | | | | ||||||||||
Years Ended December 31, |
| 2016 |
| 2015 |
| 2014 |
|
| 2019 |
| 2018 |
| 2017 |
| ||||||
United States |
| $ | 55,278 |
| $ | 73,492 |
| $ | 31,681 |
| | $ | 94,612 | | $ | 34,404 | | $ | 36,139 | |
International |
|
| 225,219 |
|
| 221,079 |
|
| 254,620 |
| |
| 247,457 | |
| 231,616 | |
| 258,686 | |
Total |
| $ | 280,497 |
| $ | 294,571 |
| $ | 286,301 |
| | $ | 342,069 | | $ | 266,020 | | $ | 294,825 | |
The provision (benefit) for income taxes is comprisedcomposed of:
|
|
|
|
|
|
|
| |||||||||||||
| | | | | | | | |||||||||||||
Years Ended December 31, |
| 2016 |
| 2015 |
| 2014 |
| | 2019 | | 2018 | | 2017 |
| ||||||
Current: |
|
|
|
|
|
|
| | | | | | | | ||||||
U.S. Federal |
| $ | 24,045 |
| $ | 19,749 |
| $ | 14,023 |
| | $ | 2,129 | | $ | 10,273 | | $ | (342) | |
State/Local |
|
| 449 |
|
| 82 |
|
| 42 |
| |
| 883 | |
| 877 | |
| 230 | |
International |
|
| 61,511 |
|
| 82,586 |
|
| 99,585 |
| |
| 88,084 | |
| 83,456 | |
| 72,670 | |
|
| $ | 86,005 |
| $ | 102,417 |
| $ | 113,650 |
| ||||||||||
| | $ | 91,096 | | $ | 94,606 | | $ | 72,558 | | ||||||||||
Deferred: |
|
|
|
|
|
|
| | | | | | | | ||||||
U.S. Federal/State |
| $ | (4,002) |
| $ | 1,605 |
| $ | (10,130) |
| | $ | 4,670 | | $ | (17,019) | | $ | 2,570 | |
International |
|
| (7,110) |
|
| (8,746) |
|
| (8,843) |
| |
| 4,076 | |
| (6,333) | |
| (332) | |
|
| $ | (11,112) |
| $ | (7,141) |
| $ | (18,973) |
| ||||||||||
| | $ | 8,746 | | $ | (23,352) | | $ | 2,238 | | ||||||||||
Total |
| $ | 74,893 |
| $ | 95,276 |
| $ | 94,677 |
| | $ | 99,842 | | $ | 71,254 | | $ | 74,796 | |
|
|
The difference between the actual income tax provision and the tax provision computed by applying the statutory federal income tax rate of 21.0% in 2019 and 2018, and 35.0% in 2016, 2015 and 20142017 to income before income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| | | | | | | | | | | ||||||||||
Years Ended December 31, |
| 2016 |
| 2015 |
| 2014 |
|
| 2019 |
| 2018 |
| 2017 |
| ||||||
Income tax at statutory rate |
| $ | 98,174 |
| $ | 103,100 |
| $ | 100,205 |
| | $ | 71,835 | | $ | 55,864 | | $ | 103,189 | |
State income (benefits) taxes, net of federal (tax) benefit |
|
| (980) |
|
| (1,254) |
|
| 770 |
| ||||||||||
State income taxes (benefits), net of federal (tax) benefit | |
| 2,622 | |
| (1,516) | |
| (2,620) | | ||||||||||
Investment incentives |
|
| (6,413) |
|
| (3,082) |
|
| — |
| | | (2,530) | | | (1,900) | | | (1,900) | |
Tax resolutions |
|
| (7,205) |
|
| 2,375 |
|
| — |
| | | (1,915) | | | (3,400) | | | (5,188) | |
Provision for distribution of current foreign earnings |
|
| 3,494 |
|
| 2,031 |
|
| 695 |
| ||||||||||
Excess tax benefits from share-based compensation | | | (12,520) | | | (10,800) | | | (10,383) | | ||||||||||
Deferred benefits from tax rate changes | | | — | | | (2,800) | | | (5,055) | | ||||||||||
U.S. GILTI and BEAT | | | (1,485) | | | 5,625 | | | — | | ||||||||||
U.S. tax reform - transition tax | | | — | | | (2,570) | | | 31,575 | | ||||||||||
Results of forward contract | | | — | | | — | | | (23,883) | | ||||||||||
Valuation allowance | | | 10,623 | | | 3,170 | | | 1,344 | | ||||||||||
Rate differential on earnings of foreign operations |
|
| (12,037) |
|
| (5,688) |
|
| (5,478) |
| |
| 29,807 | |
| 26,424 | |
| (16,097) | |
Other items, net |
|
| (140) |
|
| (2,206) |
|
| (1,515) |
| |
| 3,405 | |
| 3,157 | |
| 3,814 | |
Actual income tax provision |
| $ | 74,893 |
| $ | 95,276 |
| $ | 94,677 |
| | $ | 99,842 | | $ | 71,254 | | $ | 74,796 | |
Effective income tax rate |
|
| 26.7 | % |
| 32.3 | % |
| 33.1 | % | |
| 29.2 | % |
| 26.8 | % |
| 25.4 | % |
The state income2019 tax provision was favorably impacted by excess tax benefits on deductible share-based compensation. The tax provision for 20162019 reflects a $12.5 million benefit from this item. The mix of $1.6pretax income has an unfavorable impact, because the majority of our income is earned in higher tax jurisdictions. Additionally, we have incurred losses in jurisdictions where we cannot tax effect the loss. We have elected to account for the tax on the U.S. GILTI as a period cost and not as a measure of deferred taxes.
The 2018 tax provision was favorably impacted by excess tax benefits on deductible stock compensation. The tax provision for 2018 reflects a $10.8 million benefit from this item. The mix of pretax income has an unfavorable impact, reflecting that the majority of our income is earned in higher tax jurisdictions. The U.S. GILTI tax and Base Erosion Anti-Abuse Tax (“BEAT”) also had a $5.6 million unfavorable impact.
The 2017 tax provision was favorably impacted by the mix of pretax income in various non-U.S. tax jurisdictions. The tax provision for 2017 reflects $10.4 million related to the reductionexcess tax benefits on deductible stock compensation, which is new for 2017. The deferred tax benefit of valuation allowances mostly associated with$5.1 million is net of a provisional benefit of $6.8 million recorded for the change in the U.S. state tax credits. Therate and a charge of $1.7 million for tax provision for 2016 also reflects benefits of $6.4 million associated with the exceptional depreciation allowances enactedrate changes in France and Italy.Argentina. The $7.2$5.2 million related to tax resolutions includes an amount of $5.0$3.2 million related to dividends previously taxed in France. The remaining $2.2 million is a net amount related to uncertain tax positions in France, Italy and Germany.Europe. The $3.5remaining $2.0 million charge pertaining tois a refund from a distribution tax paid in France. Furthermore, the distribution of earnings reflects $2.1 million of tax incurred in 2016 for income recognized under the U.S. deemed dividend provisions and $1.4 million for cash movements in Europe during 2016. The rate differential on earnings of foreign operations reflects a $4.7 million benefit due to the reduction in the corporate income tax rate in France from 38.00% to 34.43%. In addition, the rate differential on earnings of foreign operations reflects benefits of$2.0 million, $2.2 million, and $2.2 million due to reductions in the corporate income tax rates in Germany, Switzerland, and China, respectively.
The tax provision for 20152017 reflects a benefitprovisional charge of $1.1$31.6 million related tofrom the reductiontransition tax enacted as part of valuation allowances mostly associated withthe U.S. state tax credits. Additional benefits of $3.1 million associated with the exceptional depreciation allowances enacted in France during 2015 werereform. This was partially offset by a $2.4benefit of $23.9 million charge for expected income tax assessmentsfrom the forward contracts discussed in France for a transfer pricing issue. While the Company expects to seek compensating offsets for this amount, no receivable has been recorded at this time. The $2.0 million charge pertaining to the distributionNote 11 – Derivative Instruments and Hedging Activities.
| |
51/ATR | 2019 Form 10-K |
In 2014, we did not repatriate foreign earnings to the U.S., resulting in a reduced tax rate.
Significant deferred tax assets and liabilities as of December 31, 20162019 and 20152018 are comprisedcomposed of the following temporary differences:
|
|
|
|
|
| |||||||||
|
| 2016 |
| 2015 |
| |||||||||
| | | | | | |||||||||
|
| 2019 |
| 2018 |
| |||||||||
Deferred Tax Assets: |
|
|
|
|
| | | | | | ||||
Net operating loss carryforwards | | $ | 24,941 | | $ | 22,462 | | |||||||
Operating and finance leases | | 25,440 | | | — | | ||||||||
Pension liabilities |
| $ | 27,087 |
| $ | 27,155 |
| | 24,925 | | | 15,405 | | |
Stock compensation |
|
| 18,943 |
| 20,170 |
| ||||||||
Foreign tax credit carryforward |
|
| 10,813 |
| 7,471 |
| ||||||||
Net operating loss carryforwards |
|
| 5,150 |
| 5,053 |
| ||||||||
Share-based compensation | |
| 6,082 | | | 10,130 | | |||||||
U.S. federal tax credits | | | 8,575 | | | 12,045 | | |||||||
U.S. state tax credits |
|
| 8,103 |
| 8,554 |
| |
| 7,881 | | | 10,186 | | |
Vacation |
|
| 4,783 |
| 4,167 |
| ||||||||
Vacation and bonus | |
| 7,645 | | | 6,891 | | |||||||
Research and development | | | 7,539 | | | 6,945 | | |||||||
Inventory | | | 5,993 | | | 6,038 | | |||||||
Workers compensation |
|
| 3,575 |
|
| 4,693 |
| |
| 3,835 | | | 3,373 | |
Other |
|
| 12,651 |
|
| 6,503 |
| |
| 16,496 | | | 13,985 | |
Total gross deferred tax assets |
|
| 91,105 |
| 83,766 |
| |
| 139,352 | | | 107,460 | | |
Less valuation allowance |
|
| (4,070) |
|
| (6,125) |
| |
| (23,320) | | | (11,189) | |
Net deferred tax assets |
|
| 87,035 |
|
| 77,641 |
| |
| 116,032 | | | 96,271 | |
Deferred Tax Liabilities: |
|
|
|
|
| | | | | | ||||
Depreciation, amortization and leases |
|
| 39,189 |
| 47,154 |
| ||||||||
Acquisition related intangibles |
|
| 30,417 |
|
| 15,720 |
| |
| 62,851 | | | 59,004 | |
Depreciation and amortization | | | 28,284 | | | 31,140 | | |||||||
Operating and finance leases | | | 27,555 | | | 2,034 | | |||||||
Other | |
| 6,215 | | | 10,351 | | |||||||
Total gross deferred tax liabilities |
|
| 69,606 |
|
| 62,874 |
| |
| 124,905 | | | 102,529 | |
Net deferred tax assets |
| $ | 17,429 |
| $ | 14,767 |
| |||||||
Net deferred tax (liabilities) assets | | $ | (8,873) | | $ | (6,258) | |
The $12.1 million increase in our valuation allowance in 2019 is primarily due to losses in foreign tax credit carryforward will expire injurisdictions where we cannot record the years 2023, 2024 and 2026. There is no expiration date on $4.7 millionbenefit of the tax‑effected net operating loss carry forwards and $0.4 million (tax effected) will expire in the years 2019 to 2034. The U.S. state tax credit carryforwards of $8.1 million (tax effected) will expire in the years 2018 to 2031. No state tax credit carryforwards are expected to expire unused in 2017.losses.
|
|
The Company evaluatesWe evaluate the deferred tax assets and recordsrecord a valuation allowance when it is believed it is more likely than not that the benefit will not be realized. The Company hasWe have established a valuation allowance of $2.2for $20.2 million of the $5.2$24.9 million of tax effected net operating loss carry forwards.carryforwards. These losses are generally in start‑up jurisdictions or locations that have not produced ancumulative three year operating profit to date.profit. A valuation allowance of $1.4$3.1 million has also been established against the $8.1$7.9 million of U.S. state tax credit carry forwards. A valuation allowancecarryforwards.
The U.S. federal tax credits will expire in the years 2026 and 2027. There is no expiration date on $20.8 million of $0.5the tax-effected net operating loss carryforwards and $4.1 million has been established related(tax effected) will expire in the years 2020 to other future2038. The U.S. state tax deductionscredit carryforwards of $7.9 million (tax effected) will expire in non‑the years 2020 to 2034.
As a result of U.S. jurisdictions,tax reform and the benefitU.S. GILTI provisions, none of which management believes will not be realized.
As of December 31, 2016, the Company had $1.5 billion ofnon-U.S. unremitted earnings from non‑will be subject to U.S. subsidiaries.taxation. We are planningmaintain our assertion that all other cash and distributable reserves at our non-U.S. affiliates will continue to repatriate a total of $0.3 billion of unremitted earnings in 2017. The remaining $1.2 billion of unremitted earnings have been designated as permanentlybe indefinitely reinvested. The Company has not made a provision for U.S. or additional foreign taxes on the amount of unremitted earnings. However, weWe estimate the amount of additional local and withholding tax that mightwould be payable on these earningsdistributions to be in the range of $50$20 million to $60$30 million. These earnings will continue to be reinvested indefinitely and could become subject to the additional tax if they were remitted as dividends or lent to a U.S. affiliate, or if the Company should sell its stock in the subsidiaries. No provision for U.S. or additional foreign taxes has been made with respect to the planned remittance of the $0.3 billion to the U.S. in 2017, as no additional tax amounts are expected to be incurred on this repatriation under existing U.S. tax law.
The Company hasWe have not provided for taxes on certain tax‑deferredtax-deferred income of a foreign operation. The income arose predominately from government grants. Taxes of approximately $1.6 million would become payable in the event the terms of the grant are not fulfilled.
| |
52/ATR | 2019 Form 10-K |
Income Tax Uncertainties
INCOME TAX UNCERTAINTIES
The Company providesWe provide a liability for the amount of tax benefits realized from uncertain tax positions. A reconciliation of the beginning and ending amount of income tax uncertainties is as follows:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| 2016 |
| 2015 |
| 2014 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||||||||||||
Balance at January 1 |
| $ | 7,934 |
| $ | 6,408 |
| $ | 7,988 |
| | $ | 3,559 | | $ | 3,080 | | $ | 6,356 | |
Increases based on tax positions for the current year |
|
| 270 |
|
| 255 |
|
| 113 |
| |
| 412 | | | 360 | | | 370 | |
Increases based on tax positions of prior years |
|
| 1,283 |
|
| 2,684 |
|
| 228 |
| |
| 663 | | | 610 | | | 1,562 | |
Decreases based on tax positions of prior years |
|
| (1,472) |
|
| (518) |
|
| (1,073) |
| ||||||||||
Settlements |
|
| (1,444) |
|
| (207) |
|
| (407) |
| |
| (558) | | | (491) | | | (4,874) | |
Lapse of statute of limitations |
|
| (215) |
|
| (688) |
|
| (441) |
| |
| (429) | | | — | | | (334) | |
Balance at December 31 |
| $ | 6,356 |
| $ | 7,934 |
| $ | 6,408 |
| | $ | 3,647 | | $ | 3,559 | | $ | 3,080 | |
The amount of income tax uncertainties that, if recognized, would impact the effective tax rate is close to $6.4approximately $3.6 million. The Company estimatesWe estimate that it is reasonably possible that the liability for uncertain tax positions will decrease no more than $4.6$1.8 million in the next twelve months from the resolution of various uncertain positions as a result of the completion of tax audits, litigation and the expiration of the statute of limitations in various jurisdictions.
The Company recognizesWe recognize interest and penalties accrued related to unrecognized tax benefits as a component of income taxes. As of December 31, 2016, 20152019, 2018 and 2014, the Company2017, we had approximately $1.5$1.7 million, $1.1$1.9 million and $0.7$1.6 million, respectively, accrued for the payment of interest and penalties, of which approximately $0.4$0.2 million was recognized as a tax benefit for the year ended 2019 and $0.4 million and ($0.2)$0.1 million was recognized in income tax expense in the years ended December 31, 2016, 20152018 and 2014,2017, respectively.
The CompanyAptar or its subsidiaries file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. The major tax jurisdictions the Company fileswe file in, with the years still subject to income tax examinations, are listed below:
| | | |
| Tax Years | ||
Major Tax | |
| |
| |
| |
|
| ||
United States — Federal |
| | |
United States — State |
| | |
France |
| | |
Germany |
| | |
Italy |
| | |
China |
| |
NOTE 7 DEBT
|
|
Notes Payable, Revolving Credit Facility and Overdrafts
NOTE 6 DEBT
The Company maintains certain short-termAt December 31, 2019 and 2018, our notes payable, including a revolving credit facility. These short-term notes payable are reported as notes payable in the current liabilities section of the Consolidated Balance Sheets. Average borrowings under these short-term notes payable were $90.9 million and $42.7 million for 2016 and 2015, respectively. The average annual interest rate on short‑term notes payable was approximately 2.2% for 2016 and 6.8% for 2015. The lower average annual interest rate in 2016 is due to increased borrowings on our U.S. revolving credit facility mainly to fund our acquisitionand overdrafts, consisted of Mega Airless and to fund share repurchases. Ourthe following:
| | | | | | | |
|
| 2019 |
| 2018 |
| ||
Revolving credit facility | | $ | 25,000 | | $ | 79,000 | |
Notes payable | | | 1,436 | | | 4,544 | |
Overdrafts | | | 17,823 | | | 17,749 | |
| | $ | 44,259 | | $ | 101,293 | |
We maintain a multi-currency revolving credit facility has a lower interest rate thanwith two tranches that matures in July 2022 which provides for unsecured financing of up to $300 million that is available in the U.S. and up to €150 million that is available to our short-term borrowings in other countries. wholly-owned UK subsidiary. $25.0 million was utilized under our U.S. facility and 0 balance was utilized under our euro-based revolving credit facility as of December 31, 2019. NaN balance was utilized under our U.S. facility and €69.0 million was utilized under our euro-based revolving credit facility as of December 31, 2018.
There are no0 compensating balance requirements associated with short‑term borrowings.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 AptarGroup’s consolidated leverage ratio. The outstanding balance under the credit facility was $166.0 million and $0 million at December 31, 2016 and 2015, respectively. We incurred approximately $2.0 million and $0.9$1.5 million in interest and fees related to this credit facility during 2016both 2019 and 2015,2018.
| |
53/ATR | 2019 Form 10-K |
Average borrowings under the revolving credit facility and notes payable were $34.1 million and $40.0 million for 2019 and 2018, respectively. The average annual interest rate on the revolving credit facility and the senior unsecured debt agreements contain covenants, with which the Company is in compliance, that include certain financial tests.notes payable was 1.6% and 1.9% for 2019 and 2018, respectively.
The Company also maintains long-term notes obligations, including private placement facilities. In December 2014, we executed a $475 million private placement to take advantage of low long-term interest rates. At that time, we closed on $250 million of the private placement to fund our accelerated share repurchase ("ASR") program (see Note 13). This closing consisted of two maturity tranches, with $125 million of 9 year notes at an interest rate of 3.49% and $125 million of 11 year notes at an interest rate of 3.61%. We closed on the remaining $225 million of the private placement in February 2015, consisting of $100 million of 9 year notes at an interest rate of 3.49% and $125 million of 11 year notes at an interest rate of 3.61%. The proceeds from this closing were used to pay down the existing revolving line of credit.Long-Term Obligations
At December 31, 2016, the Company’s long‑term obligations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unamortized |
|
|
| |||
|
|
|
| Debt Issuance |
|
|
| |||
|
| Principal |
| Costs |
| Net |
| |||
Notes payable 0.61% – 16.00%, due in monthly and annual installments through 2025 |
| $ | 18,246 |
| $ | — |
| $ | 18,246 |
|
Senior unsecured notes 6.0%, due in 2018 |
|
| 75,000 |
|
| 37 |
|
| 74,963 |
|
Senior unsecured notes 3.8%, due in 2020 |
|
| 84,000 |
|
| 119 |
|
| 83,881 |
|
Senior unsecured notes 3.2%, due in 2022 |
|
| 75,000 |
|
| 138 |
|
| 74,862 |
|
Senior unsecured notes 3.5%, due in 2023 |
|
| 125,000 |
|
| 256 |
|
| 124,744 |
|
Senior unsecured notes 3.4%, due in 2024 |
|
| 50,000 |
|
| 104 |
|
| 49,896 |
|
Senior unsecured notes 3.5%, due in 2024 |
|
| 100,000 |
|
| 256 |
|
| 99,744 |
|
Senior unsecured notes 3.6%, due in 2025 |
|
| 125,000 |
|
| 269 |
|
| 124,731 |
|
Senior unsecured notes 3.6%, due in 2026 |
|
| 125,000 |
|
| 269 |
|
| 124,731 |
|
Capital lease obligations |
|
| 1,542 |
|
| — |
|
| 1,542 |
|
|
| $ | 778,788 |
| $ | 1,448 |
| $ | 777,340 |
|
Current maturities of long-term obligations |
|
| (4,603) |
|
| — |
|
| (4,603) |
|
Total long-term obligations |
| $ | 774,185 |
| $ | 1,448 |
| $ | 772,737 |
|
|
|
At December 31, 2015, the Company’s2019, our long-term obligations consisted of the following:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
| Unamortized |
|
|
| |||||||||||||
|
|
|
| Debt Issuance |
|
|
| |||||||||||||
|
| Principal |
| Costs |
| Net |
| |||||||||||||
Notes payable 0.61% – 14.50%, due in monthly and annual installments through 2025 |
| $ | 3,785 |
| $ | — |
| $ | 3,785 |
| ||||||||||
Senior unsecured notes 6.0%, due in 2016 |
|
| 50,000 |
|
| 5 |
|
| 49,995 |
| ||||||||||
Senior unsecured notes 6.0%, due in 2018 |
|
| 75,000 |
|
| 63 |
|
| 74,937 |
| ||||||||||
Senior unsecured notes 3.8%, due in 2020 |
|
| 84,000 |
|
| 150 |
|
| 83,850 |
| ||||||||||
| | | | | | | | | | | ||||||||||
| | | | 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 |
|
| 163 |
|
| 74,837 |
| |
| 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 |
|
| 293 |
|
| 124,707 |
| | | 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 |
|
| 118 |
|
| 49,882 |
| |
| 50,000 | |
| 63 | |
| 49,937 | |
Senior unsecured notes 3.5%, due in 2024 |
|
| 100,000 |
|
| 293 |
|
| 99,707 |
| | | 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 |
|
| 298 |
|
| 124,702 |
| | | 125,000 | | | 169 | | | 124,831 | |
Senior unsecured notes 3.6%, due in 2026 |
|
| 125,000 |
|
| 298 |
|
| 124,702 |
| | | 125,000 | | | 169 | | | 124,831 | |
Capital lease obligations |
|
| 1,628 |
|
| — |
|
| 1,628 |
| ||||||||||
|
| $ | 814,413 |
| $ | 1,681 |
| $ | 812,732 |
| ||||||||||
Finance Lease Liabilities | |
| 29,952 | |
| — | |
| 29,952 | | ||||||||||
| | $ | 1,153,682 | | $ | 2,241 | | $ | 1,151,441 | | ||||||||||
Current maturities of long-term obligations |
|
| (51,889) |
|
| (5) |
|
| (51,884) |
| |
| (65,988) | |
| — | |
| (65,988) | |
Total long-term obligations |
| $ | 762,524 |
| $ | 1,676 |
| $ | 760,848 |
| | $ | 1,087,694 | | $ | 2,241 | | $ | 1,085,453 | |
For 2016,At December 31, 2018, our long-term obligations consisted of the following:
| | | | | | | | | | |
| | | | Unamortized | | | | |||
|
| |
| Debt Issuance |
| | | |||
|
| Principal |
| Costs |
| Net |
| |||
Notes payable 0.00% – 16.00%, due in monthly and annual installments through 2028 | | $ | 15,531 | | $ | — | | $ | 15,531 | |
Senior unsecured notes 3.2%, due in 2022 | |
| 75,000 | |
| 88 | |
| 74,912 | |
Senior unsecured debts 4.0% USD floating swapped to 1.36% EUR fixed, equal annual installments through 2022 | |
| 224,000 | |
| 541 | |
| 223,459 | |
Senior unsecured notes 3.5%, due in 2023 | | | 125,000 | | | 181 | | | 124,819 | |
Senior unsecured notes 1.0%, due in 2023 | | | 114,535 | | | 432 | | | 114,103 | |
Senior unsecured notes 3.4%, due in 2024 | |
| 50,000 | |
| 76 | |
| 49,924 | |
Senior unsecured notes 3.5%, due in 2024 | | | 100,000 | | | 181 | | | 99,819 | |
Senior unsecured notes 1.2%, due in 2024 | | | 229,070 | | | 904 | | | 228,166 | |
Senior unsecured notes 3.6%, due in 2025 | | | 125,000 | | | 207 | | | 124,793 | |
Senior unsecured notes 3.6%, due in 2026 | | | 125,000 | | | 208 | | | 124,792 | |
Capital lease obligations | |
| 8,353 | |
| — | |
| 8,353 | |
| | $ | 1,191,489 | | $ | 2,818 | | $ | 1,188,671 | |
Current maturities of long-term obligations | |
| (62,678) | | | — | | | (62,678) | |
Total long-term obligations | | $ | 1,128,811 | | $ | 2,818 | | $ | 1,125,993 | |
The aggregate long‑termlong-term maturities, excluding capitalfinance lease obligations,liabilities, which isare discussed in Note 7,8, due annually for the next five years beginning in 2017 are $3,800, $78,443, $5,338, $85,703, $1,704$61,670, $61,337, $135,324, $239,826, $375,169 and $602,259$250,404 thereafter.
| |
54/ATR | 2019 Form 10-K |
Covenants
Our revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:
| | | | |
| Requirement | Level at December 31, 2019 | ||
Consolidated Leverage Ratio (1) | Maximumof 3.50 to 1.00 | 1.71 to 1.00 | ||
Consolidated Interest Coverage Ratio (1) | Minimum of 3.00 to 1.00 | 16.21 to 1.00 |
(1) | Definitions of ratios are included as part of the revolving credit facility agreement and the private placement agreements. |
NOTE 78 LEASE COMMITMENTS
The Company leasesWe lease certain warehouse, plant, and office facilities as well as certain equipment under noncancelable operating and capitalfinance leases expiring at various dates through the year 2027.2032. Most of the operating leases contain renewal options and certain leases include options to purchase the related asset during or at the end of the lease term.
Amortization expense related to capitalfinance leases is included in depreciation expense.expense while rent expense related to operating leases is included within cost of sales and selling research & development and administrative expenses (“SG&A”). Rent expense underrelated to operating leases (including taxes, insurance and maintenance when included in the rent) amounted to $27,360, $26,583 and $30,813$32.7 million in 2016, 2015 and 2014, respectively.
Assets recorded under capital leases consist of:
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 |
| ||
Buildings |
| $ | 2,119 |
| $ | 2,184 |
|
Machinery and equipment |
|
| 2,527 |
|
| 831 |
|
|
| $ | 4,646 |
| $ | 3,015 |
|
Accumulated depreciation |
|
| (2,102) |
|
| (663) |
|
|
| $ | 2,544 |
| $ | 2,352 |
|
Future minimum payments, by year and in the aggregate,2018 under the capitalold lease accounting standard.
The components of lease expense for the current period were as follows:
| | | | |
Year Ended December 31, | | 2019 | | |
Operating lease cost | | $ | 23,410 | |
| | | | |
Finance lease cost: | | | | |
Amortization of right-of-use assets | | $ | 4,217 | |
Interest on lease liabilities | | | 1,353 | |
Total finance lease cost | | $ | 5,570 | |
| | | | |
Short-term lease and variable lease costs | | $ | 8,629 | |
Supplemental cash flow information related to leases was as follows:
| | | | |
Year Ended December 31, |
| 2019 | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 21,872 | |
Operating cash flows from finance leases | | | 1,245 | |
Financing cash flows from finance leases | | | 4,730 | |
| | | | |
Right-of-use assets obtained in exchange for lease obligations: | | | | |
Operating leases | | $ | 15,226 | |
Finance leases | | | 15,957 | |
| |
55/ATR | 2019 Form 10-K |
Supplemental balance sheet information related to leases was as follows:
| | | | |
|
| December 31, 2019 | | |
Operating Leases | | | | |
Operating lease right-of-use assets | | $ | 72,377 | |
| | | | |
Accounts payable, accrued and other liabilities | | $ | 16,578 | |
Operating lease liabilities | | | 55,276 | |
Total operating lease liabilities | | $ | 71,854 | |
| | | | |
Finance Leases | | | | |
Property, plant and equipment, gross | | $ | 47,020 | |
Accumulated depreciation | | | (4,271) | |
Property, plant and equipment, net | | $ | 42,749 | |
| | | | |
Current maturities of long-term obligations, net of unamortized debt issuance cost | | $ | 4,318 | |
Long-term obligations, net of unamortized debt issuance cost | | | 25,634 | |
Total finance lease liabilities | | $ | 29,952 | |
| | | | |
Weighted Average Remaining Lease Term (in years) | | | | |
Operating leases | | | 6.1 | |
Finance leases | | | 7.0 | |
| | | | |
Weighted Average Discount Rate | | | | |
Operating leases | | | 5.05 | % |
Finance leases | | | 5.13 | % |
Maturities of lease liabilities as of December 31, 2019, were as follows:
| | | | | | | |
| | Operating | | Finance |
| ||
|
| Leases |
| Leases | | ||
Year 1 | | $ | 19,652 | | $ | 5,655 | |
Year 2 | |
| 15,411 | |
| 4,787 | |
Year 3 | |
| 10,740 | |
| 3,870 | |
Year 4 | |
| 9,365 | |
| 3,099 | |
Year 5 | |
| 6,998 | |
| 2,658 | |
Thereafter | |
| 22,331 | |
| 18,051 | |
Total lease payments | |
| 84,497 | | | 38,120 | |
Less imputed interest | |
| (12,643) | | | (8,168) | |
Total | | $ | 71,854 | | $ | 29,952 | |
Maturities of lease liabilities as of December 31, 2018 under the old lease accounting standard were as follows:
| | | | | | | |
| | Operating | | Capital | | ||
|
| Leases |
| Leases | | ||
Year 1 | | $ | 26,512 | | $ | 1,828 | |
Year 2 | |
| 21,386 | |
| 1,653 | |
Year 3 | |
| 16,529 | |
| 1,546 | |
Year 4 | |
| 12,549 | |
| 1,160 | |
Year 5 | |
| 10,225 | |
| 880 | |
Thereafter | |
| 21,932 | |
| 3,827 | |
Total lease payments | | $ | 109,133 | | | 10,894 | |
Less imputed interest | |
| | | | (2,541) | |
Present value of future lease payments | | | | | $ | 8,353 | |
As of December 31, 2019, we have additional operating and noncancelablefinance leases, primarily for buildings, that have not yet commenced of $1.8 million. These operating and finance leases will commence in 2020 with initial or remaininglease terms of one year or more consisted of the following at December 31, 2016:3 to 10 years.
|
|
|
|
|
|
|
|
|
| Capital |
| Operating |
| ||
|
| Leases |
| Leases |
| ||
2017 |
| $ | 936 |
| $ | 22,066 |
|
2018 |
|
| 740 |
|
| 14,864 |
|
2019 |
|
| 80 |
|
| 10,934 |
|
2020 |
|
| 3 |
|
| 6,882 |
|
2021 |
|
| — |
|
| 6,309 |
|
Subsequent to 2021 |
|
| — |
|
| 15,830 |
|
Total minimum lease payments |
|
| 1,759 |
| $ | 76,885 |
|
Amounts representing interest |
|
| (217) |
|
|
|
|
Present value of future minimum lease payments |
|
| 1,542 |
|
|
|
|
Lease amount due in one year |
|
| (803) |
|
|
|
|
Total |
| $ | 739 |
|
|
|
|
| |
|
|
NOTE 89 RETIREMENT AND DEFERRED COMPENSATION PLANS
The Company hasWe have various noncontributory retirement plans covering certain of itsour domestic and foreign employees. Benefits under the Company’sour retirement plans are based on participants’ years of service and annual compensation as defined by each plan. Annual cash contributions to fund pension costs accrued under the Company’sour domestic plans are generally at least equal to the minimum funding amounts required by the Employee Retirement Income Security Act of 1974, as amended (ERISA)(“ERISA”). Certain pension commitments under itsour foreign plans are also funded according to local requirements or at the Company’sour discretion.
The following table presents the changes in the benefit obligations and plan assets for the most recent two years for the Company’sour domestic and foreign plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Domestic Plans |
| Foreign Plans |
| |||||||||||||||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| |||||||||||||||||
| | | | | | | | | | |||||||||||||||||
| | Domestic Plans | | Foreign Plans |
| |||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | ||||
Benefit obligation at beginning of year |
| $ | 160,995 |
| $ | 171,501 |
| $ | 84,807 |
| $ | 91,160 |
| | $ | 180,803 | | $ | 198,450 | | $ | 104,911 | | $ | 109,030 | |
Service cost |
|
| 9,041 |
|
| 10,016 |
|
| 4,556 |
|
| 4,570 |
| |
| 11,093 | | | 11,396 | |
| 5,921 | | | 5,954 | |
Interest cost |
|
| 6,776 |
|
| 6,355 |
|
| 1,892 |
|
| 1,654 |
| |
| 7,381 | | | 6,878 | |
| 2,023 | | | 1,828 | |
Special termination benefit charge | | | — | | | — | | | 64 | | | 62 | | |||||||||||||
Plan Amendment | |
| — | | | — | |
| 18 | | | — | | |||||||||||||
Curtailment/Settlement |
|
| — |
|
| — |
|
| — |
|
| (227) |
| |
| — | | | — | |
| (271) | | | (1,751) | |
Transfer | | | — | | | — | | | 939 | | | — | | |||||||||||||
Business acquired | | | — | | | — | | | — | | | 1,937 | | |||||||||||||
Prior service cost |
|
| — |
|
| — |
|
| 655 |
|
| 821 |
| | | — | | | — | | | (451) | | | 35 | |
Actuarial loss (gain) |
|
| 4,278 |
|
| (19,568) |
|
| 6,663 |
|
| (1,486) |
| |
| 39,209 | | | (23,510) | |
| 13,575 | | | (3,743) | |
Benefits paid |
|
| (5,211) |
|
| (7,309) |
|
| (2,244) |
|
| (2,265) |
| |
| (11,211) | | | (12,411) | |
| (4,130) | | | (3,288) | |
Foreign currency translation adjustment |
|
| — |
|
| — |
|
| (3,151) |
|
| (9,420) |
| |
| — | | | — | |
| (2,109) | | | (5,153) | |
Benefit obligation at end of year |
| $ | 175,879 |
| $ | 160,995 |
| $ | 93,178 |
| $ | 84,807 |
| | $ | 227,275 | | $ | 180,803 | | $ | 120,490 | | $ | 104,911 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Domestic Plans |
| Foreign Plans |
| |||||||||||||||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| |||||||||||||||||
| | | | | | | | | | |||||||||||||||||
| | Domestic Plans | | Foreign Plans |
| |||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| |||||||||||||||||
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | ||||
Fair value of plan assets at beginning of year |
| $ | 112,934 |
| $ | 111,094 |
| $ | 58,517 |
| $ | 55,394 |
| | $ | 169,958 | | $ | 169,600 | | $ | 68,992 | | $ | 73,384 | |
Actual return on plan assets |
|
| 8,414 |
|
| (930) |
|
| 2,168 |
|
| 927 |
| |
| 29,618 | | | (7,642) | |
| 3,851 | | | (487) | |
Employer contribution |
|
| 10,109 |
|
| 10,079 |
|
| 5,209 |
|
| 10,157 |
| |
| 436 | | | 20,411 | |
| 6,542 | | | 2,780 | |
Benefits paid |
|
| (5,211) |
|
| (7,309) |
|
| (2,244) |
|
| (2,265) |
| |
| (11,211) | | | (12,411) | |
| (4,130) | | | (3,288) | |
Transfer | |
| — | | | — | |
| 359 | | | — | | |||||||||||||
Foreign currency translation adjustment |
|
| — |
|
| — |
|
| (1,738) |
|
| (5,696) |
| |
| — | | | — | |
| (1,425) | | | (3,397) | |
Fair value of plan assets at end of year |
| $ | 126,246 |
| $ | 112,934 |
| $ | 61,912 |
| $ | 58,517 |
| | $ | 188,801 | | $ | 169,958 | | $ | 74,189 | | $ | 68,992 | |
Funded status at end of year |
| $ | (49,633) |
| $ | (48,060) |
| $ | (31,266) |
| $ | (26,288) |
| | $ | (38,474) | | $ | (10,845) | | $ | (46,301) | | $ | (35,919) | |
The following table presents the funded status amounts recognized in the Company’sour Consolidated Balance Sheets as of December 31, 20162019 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Domestic Plans |
| Foreign Plans |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
Current liabilities |
| $ | (302) |
| $ | (173) |
| $ | — |
| $ | — |
|
Non-current liabilities |
|
| (49,331) |
|
| (47,887) |
|
| (31,266) |
|
| (26,288) |
|
|
| $ | (49,633) |
| $ | (48,060) |
| $ | (31,266) |
| $ | (26,288) |
|
2018.
| | | | | | | | | | | | | |
| | Domestic Plans | | Foreign Plans |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Non-current assets | | $ | — | | $ | 207 | | $ | 938 | | $ | 500 | |
Current liabilities | | | (449) | | | (430) | | | (44) | | | (8) | |
Non-current liabilities | |
| (38,025) | | | (10,622) | |
| (47,195) | | | (36,411) | |
| | $ | (38,474) | | $ | (10,845) | | $ | (46,301) | | $ | (35,919) | |
The following table presents the amounts not recognized as components of periodic benefit cost that are recognized in accumulated other comprehensive loss as of December 31, 20162019 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Domestic Plans |
| Foreign Plans |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
Net actuarial loss |
| $ | 48,872 |
| $ | 47,820 |
| $ | 38,550 |
| $ | 33,839 |
|
Net prior service cost |
|
| — |
|
| — |
|
| 4,342 |
|
| 4,036 |
|
Tax effects |
|
| (18,327) |
|
| (17,933) |
|
| (13,661) |
|
| (12,211) |
|
|
| $ | 30,545 |
| $ | 29,887 |
| $ | 29,231 |
| $ | 25,664 |
|
2018.
| | | | | | | | | | | | | |
| | Domestic Plans | | Foreign Plans |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Net actuarial loss | | $ | 68,789 | | $ | 48,776 | | $ | 40,442 | | $ | 29,761 | |
Net prior service cost | |
| — | | | — | |
| 3,774 | | | 4,656 | |
Tax effects | |
| (15,821) | | | (17,876) | |
| (14,040) | | | (4,855) | |
| | $ | 52,968 | | $ | 30,900 | | $ | 30,176 | | $ | 29,562 | |
| |
|
|
Changes in benefit obligations and plan assets recognized in other comprehensive income in 2016, 20152019, 2018 and 20142017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Domestic Plans |
| |||||||
|
| 2016 |
| 2015 |
| 2014 |
| |||
Current year actuarial (loss) gain |
| $ | (4,335) |
| $ | 11,048 |
| $ | (34,211) |
|
Amortization of net loss |
|
| 3,283 |
|
| 5,404 |
|
| 2,869 |
|
|
| $ | (1,052) |
| $ | 16,452 |
| $ | (31,342) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign Plans |
| |||||||
|
| 2016 |
| 2015 |
| 2014 |
| |||
Current year actuarial (loss) gain |
| $ | (6,251) |
| $ | 568 |
| $ | (12,589) |
|
Current year prior service cost |
|
| (656) |
|
| (821) |
|
| — |
|
Amortization of net loss |
|
| 1,540 |
|
| 1,812 |
|
| 1,214 |
|
Amortization of prior service cost |
|
| 350 |
|
| 256 |
|
| 313 |
|
|
| $ | (5,017) |
| $ | 1,815 |
| $ | (11,062) |
|
| | | | | | | | | | |
| | Domestic Plans |
| |||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||
Current year actuarial (loss) gain | | $ | (21,970) | | $ | 4,611 | | $ | (12,593) | |
Amortization of net loss | |
| 1,957 | | | 4,873 | | | 3,205 | |
| | $ | (20,013) | | $ | 9,484 | | $ | (9,388) | |
| | | | | | | | | | |
| | Foreign Plans |
| |||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||
Current year actuarial (loss) gain | | $ | (11,999) | | $ | 534 | | $ | 2,952 | |
Current year prior service cost | |
| 451 | | | (35) | | | (1,399) | |
Transfer Prior service Cost | | | (18) | | | — | | | — | |
Transfer Actuarial (loss) gain | | | (126) | | | — | | | — | |
Recognition due to curtailment | | | — | | | 1,692 | | | — | |
Amortization of net loss | |
| 1,444 | | | 1,716 | | | 1,895 | |
Amortization of prior service cost | |
| 449 | | | 720 | | | 400 | |
| | $ | (9,799) | | $ | 4,627 | | $ | 3,848 | |
The following table presents the amounts in accumulated other comprehensive loss as of December 31, 20162019 expected to be recognized as components of periodic benefit cost in 2017.
|
|
|
|
|
|
|
|
|
| Domestic Plans |
| Foreign Plans |
| ||
Amortization of net loss |
| $ | 2,973 |
| $ | 1,766 |
|
Amortization of prior service cost |
|
| — |
|
| 373 |
|
|
| $ | 2,973 |
| $ | 2,139 |
|
2020.
| | | | | | | |
|
| Domestic Plans |
| Foreign Plans |
| ||
Amortization of net loss | | $ | 5,719 | | $ | 2,092 | |
Amortization of prior service cost | |
| — | |
| 391 | |
| | $ | 5,719 | | $ | 2,483 | |
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Domestic Plans |
| |||||||||||||||||
|
| 2016 |
| 2015 |
| 2014 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
| | Domestic Plans |
| |||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||||||||||||
Service cost |
| $ | 9,041 |
| $ | 10,016 |
| $ | 8,042 |
| | $ | 11,093 | | $ | 11,396 | | $ | 9,706 | |
Interest cost |
|
| 6,776 |
|
| 6,355 |
|
| 5,928 |
| |
| 7,381 | | | 6,878 | | | 7,010 | |
Expected return on plan assets |
|
| (8,471) |
|
| (7,590) |
|
| (6,585) |
| |
| (12,379) | | | (11,257) | | | (9,880) | |
Amortization of net loss |
|
| 3,283 |
|
| 5,404 |
|
| 2,869 |
| |
| 1,957 | | | 4,873 | | | 3,205 | |
Net periodic benefit cost |
| $ | 10,629 |
| $ | 14,185 |
| $ | 10,254 |
| | $ | 8,052 | | $ | 11,890 | | $ | 10,041 | |
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Foreign Plans |
| |||||||||||||||||
|
| 2016 |
| 2015 |
| 2014 |
| |||||||||||||
| | | | | | | | | | | ||||||||||
| | Foreign Plans |
| |||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||||||||||||
Service cost |
| $ | 4,556 |
| $ | 4,570 |
| $ | 4,186 |
| | $ | 5,921 | | $ | 5,954 | | $ | 5,526 | |
Interest cost |
|
| 1,892 |
|
| 1,654 |
|
| 2,711 |
| |
| 2,023 | | | 1,828 | | | 1,747 | |
Expected return on plan assets |
|
| (2,181) |
|
| (1,792) |
|
| (1,979) |
| |
| (2,366) | | | (2,610) | | | (2,409) | |
Amortization of net loss |
|
| 1,540 |
|
| 1,676 |
|
| 1,214 |
| |
| 1,444 | | | 1,716 | | | 1,895 | |
Amortization of prior service cost |
|
| 350 |
|
| 256 |
|
| 313 |
| |
| 449 | | | 720 | | | 400 | |
Net periodic benefit cost |
| $ | 6,157 |
| $ | 6,364 |
| $ | 6,445 |
| | $ | 7,471 | | $ | 7,608 | | $ | 7,159 | |
Settlement |
|
| — |
|
| 136 |
|
| — |
| ||||||||||
Curtailment | |
| (246) | | | (59) | | | — | | ||||||||||
Special termination benefit charge | | | 65 | | | 62 | | | — | | ||||||||||
Total Net periodic benefit cost |
| $ | 6,157 |
| $ | 6,500 |
| $ | 6,445 |
| | $ | 7,290 | | $ | 7,611 | | $ | 7,159 | |
The accumulated benefit obligation (“ABO”) for the Company’sour domestic defined benefit pension plans was $159.4$205.3 million and $145.5$163.0 million at December 31, 20162019 and 2015,2018, respectively. The accumulated benefit obligationABO for the Company’sour foreign defined benefit pension plans was $71.6$91.8 million and $65.5$80.9million at December 31, 20162019 and 2015,2018, respectively.
| |
58/ATR | 2019 Form 10-K |
The following table provides the projected benefit obligation (“PBO”), ABO, and fair value of plan assets for all pension plans with an ABO in excess of plan assets as of December 31, 20162019 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Domestic Plans |
| Foreign Plans |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
Projected benefit obligation |
| $ | 175,879 |
| $ | 160,995 |
| $ | 84,517 |
| $ | 81,343 |
|
Accumulated benefit obligation |
|
| 159,398 |
|
| 145,482 |
|
| 62,913 |
|
| 61,990 |
|
Fair value of plan assets |
|
| 126,246 |
|
| 112,934 |
|
| 53,082 |
|
| 55,054 |
|
2018.
| | | | | | | | | | | | | |
| | Domestic Plans | | Foreign Plans |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Projected benefit obligation | | $ | 227,275 | | $ | 11,052 | | $ | 92,561 | | $ | 93,029 | |
Accumulated benefit obligation | |
| 205,326 | | | 9,216 | |
| 65,062 | | | 68,981 | |
Fair value of plan assets | |
| 188,801 | | | — | |
| 46,371 | | | 56,611 | |
|
|
The following table provides the PBO, ABO and fair value of plan assets for all pension plans with a PBO in excess of plan assets as of December 31, 20162019 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Domestic Plans |
| Foreign Plans |
| ||||||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
Projected benefit obligation |
| $ | 175,879 |
| $ | 160,995 |
| $ | 84,517 |
| $ | 81,343 |
|
Accumulated benefit obligation |
|
| 159,398 |
|
| 145,482 |
|
| 62,913 |
|
| 61,990 |
|
Fair value of plan assets |
|
| 126,246 |
|
| 112,934 |
|
| 53,082 |
|
| 55,054 |
|
2018.
Assumptions:
| | | | | | | | | | | | | |
| | Domestic Plans | | Foreign Plans |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Projected benefit obligation | | $ | 227,275 | | $ | 11,052 | | $ | 102,310 | | $ | 92,555 | |
Accumulated benefit obligation | |
| 205,326 | | | 9,216 | |
| 73,943 | | | 68,506 | |
Fair value of plan assets | |
| 188,801 | | | — | |
| 55,260 | | | 56,136 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Domestic Plans |
| Foreign Plans |
| ||||||||
|
| 2016 |
| 2015 |
| 2014 |
| 2016 |
| 2015 |
| 2014 |
|
Weighted-average assumptions used to determine benefit obligations at December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
| 4.05 | % | 4.24 | % | 3.83 | % | 1.65 | % | 2.10 | % | 1.90 | % |
Rate of compensation increase |
| 4.00 | % | 4.00 | % | 4.00 | % | 3.00 | % | 3.00 | % | 3.00 | % |
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
| 4.24 | % | 3.83 | % | 4.75 | % | 2.10 | % | 1.90 | % | 3.24 | % |
Expected long-term return on plan assets |
| 7.00 | % | 7.00 | % | 7.00 | % | 3.66 | % | 3.54 | % | 3.79 | % |
Rate of compensation increase |
| 4.00 | % | 4.00 | % | 4.00 | % | 3.00 | % | 3.00 | % | 3.00 | % |
During 2018, our domestic employee retirement plan has plan assets in excess of the PBO.
The Company developsAssumptions:
| | | | | | | | | | | | | |
| | Domestic Plans | | Foreign Plans |
| ||||||||
|
| 2019 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2017 |
|
Weighted-average assumptions used to determine benefit obligations at December 31: | | | | | | | | | | | | | |
Discount rate |
| 3.20 | % | 4.20 | % | 3.55 | % | 1.04 | % | 1.82 | % | 1.62 | % |
Rate of compensation increase |
| 4.00 | % | 4.00 | % | 4.00 | % | 3.05 | % | 3.01 | % | 3.02 | % |
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31: | | | | | | | | | | | | | |
Discount rate |
| 4.20 | % | 3.55 | % | 4.05 | % | 1.84 | % | 1.62 | % | 1.65 | % |
Expected long-term return on plan assets |
| 7.00 | % | 7.00 | % | 7.00 | % | 3.69 | % | 3.66 | % | 3.66 | % |
Rate of compensation increase |
| 4.00 | % | 4.00 | % | 4.00 | % | 3.05 | % | 3.02 | % | 3.00 | % |
We develop the expected long‑termlong-term rate of return assumptions based on historical experience and by evaluating input from the plans’ asset managers, including the managers’ review of asset class return expectations and benchmarks, economic indicators and long‑termlong-term inflation assumptions.
In order to determine the 20172020 net periodic benefit cost, the Company expectswe expect to use the December 31, 20162019 discount rates, December 31, 20162019 rates of compensation increase assumptions and the same assumed long‑termlong-term returns on domestic and foreign plan assets used for the 20162019 net periodic benefit cost.
The Company’sOur domestic and foreign pension plan weighted‑averageweighted-average asset allocations at December 31, 20162019 and 20152018 by asset category are as follows:
Plan Assets:
| | | | | | | | | |
| | Domestic Plans Assets | | Foreign Plans Assets |
| ||||
| | at December 31, | | at December 31, |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
Equity securities |
| 49 | % | 44 | % | 4 | % | 4 | % |
Fixed income securities |
| 29 | % | 29 | % | 1 | % | 1 | % |
Corporate debt securities | | — | | — | | 3 | % | 3 | % |
Infrastructure |
| 6 | % | 7 | % | — | | — | |
Hedge funds | | 10 | % | 10 | % | — | | — | |
Money market |
| 1 | % | 5 | % | 3 | % | 1 | % |
Investment Funds |
| — | | — | | 89 | % | 91 | % |
Real estate |
| 5 | % | 5 | % | — | | — | |
Total |
| 100 | % | 100 | % | 100 | % | 100 | % |
|
|
|
|
|
|
|
|
|
|
|
| Domestic Plans Assets |
| Foreign Plans Assets |
| ||||
|
| at December 31, |
| at December 31, |
| ||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
|
Equity securities |
| 48 | % | 47 | % | 4 | % | 4 | % |
Fixed income securities |
| 28 | % | 30 | % | 1 | % | 1 | % |
Corporate debt securities |
| — |
| — |
| 3 | % | 3 | % |
Infrastructure |
| 7 | % | 8 | % | — |
| — |
|
Hedge funds |
| 11 | % | 14 | % | ��� |
| — |
|
Money market |
| 1 | % | 1 | % | 3 | % | 3 | % |
Investment Funds |
| — |
| — |
| 89 | % | 89 | % |
Real estate |
| 5 | % | — |
| — |
| — |
|
Total |
| 100 | % | 100 | % | 100 | % | 100 | % |
| |
59/ATR | 2019 Form 10-K |
The Company’sOur investment strategy for itsour domestic and foreign pension plans is to maximize the long‑termlong-term rate of return on plan assets within an acceptable level of risk. The investment policy strives to have assets sufficiently diversified so that adverse or unexpected results from one security type will not have an unduly detrimental impact on the entire portfolio and accordingly, establishes a target allocation for each asset category within the portfolio. The domestic plan asset allocation is reviewed on a quarterly basis and the foreign plan asset allocation is reviewed annually. Rebalancing occurs as needed to comply with the investment strategy. The domestic plan target allocation for 20172020 is 60% equity securities and 40% fixed income securities and infrastructure. The foreign plan target allocation for 20172020 is 100% investment funds.
|
|
Authoritative guidelines require the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
● |
| Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities. |
● |
| Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. |
● |
| Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Fair Value Measurement | | Foreign Fair Value Measurement |
| ||||||||||||||||||||
| | at December 31, 2019 | | at December 31, 2019 |
| ||||||||||||||||||||
(In Thousands $) |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| ||||||||
Cash and Short-term Securities (a) | | $ | 1,988 | | $ | 1,988 | | $ | — | | $ | — | | $ | 2,030 | | $ | 2,030 | | $ | — | | $ | — | |
USD | |
| — | |
| 1,988 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
EUR | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 2,012 | |
| — | |
| — | |
Others | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 18 | |
| — | |
| — | |
Equity Securities (a) | | $ | 81,997 | | $ | 81,997 | | | — | |
| — | | $ | 2,995 | | $ | 2,995 | |
| — | |
| — | |
U.S. Large Cap Equities | |
| — | |
| 48,580 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
U.S. Small Cap Equities | |
| — | |
| 9,921 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
International Equities | |
| — | |
| 23,496 | |
| — | |
| — | |
| — | |
| 2,995 | |
| — | |
| — | |
Fixed Income (a&b) | | $ | 35,898 | | $ | 35,898 | | | — | |
| — | | $ | 820 | | $ | 820 | |
| — | |
| — | |
Corporate debts securities | |
| — | |
| — | |
| — | |
| — | | $ | 2,115 | | $ | 2,115 | |
| — | |
| — | |
Euro Corporate Bonds (a) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 2,115 | |
| — | |
| — | |
Investment Funds | |
| — | |
| — | |
| — | |
| — | | $ | 66,229 | | $ | 23,797 | | $ | 42,432 | |
| — | |
Mutual Funds in Equities (a) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 4,025 | |
| — | |
| — | |
Mutual Funds in Bonds (a) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 18,881 | |
| — | |
| — | |
Mutual Funds Diversified (a&b) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 891 | |
| 42,432 | |
| — | |
Total Investments in Fair Value Hierarchy | | $ | 119,883 | | $ | 119,883 | | $ | — | | $ | — | | $ | 74,189 | | $ | 31,757 | | $ | 42,432 | | $ | — | |
Investments at Net Asset Value per Share | | | 68,918 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Investments | | $ | 188,801 | | $ | 119,883 | | $ | — | | $ | — | | $ | 74,189 | | $ | 31,757 | | $ | 42,432 | | $ | — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Domestic Fair Value Measurement |
| Foreign Fair Value Measurement |
| ||||||||||||||||||||
|
| at December 31, 2016 |
| at December 31, 2016 |
| ||||||||||||||||||||
(In Thousands $) |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| ||||||||
Cash and Short-term Securities (a) |
| $ | 821 |
| $ | 821 |
| $ | — |
| $ | — |
| $ | 1,585 |
| $ | 1,585 |
| $ | — |
| $ | — |
|
USD |
|
| — |
|
| 821 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
EUR |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,585 |
|
| — |
|
| — |
|
Equity Securities (a) |
| $ | 54,013 |
| $ | 54,013 |
|
| — |
|
| — |
| $ | 2,539 |
| $ | 2,539 |
|
| — |
|
| — |
|
US Large Cap Equities |
|
| — |
|
| 32,672 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
US Small Cap Equities |
|
| — |
|
| 5,929 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
International Equities |
|
| — |
|
| 15,412 |
|
| — |
|
| — |
|
| — |
|
| 2,539 |
|
| — |
|
| — |
|
Fixed Income (a&b) |
| $ | 22,944 |
| $ | 22,944 |
|
| — |
|
| — |
| $ | 680 |
| $ | 680 |
|
| — |
|
| — |
|
Corporate debts securities |
|
| — |
|
| — |
|
| — |
|
| — |
| $ | 1,725 |
| $ | 1,725 |
|
| — |
|
| — |
|
Euro Corporate Bonds (a) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,725 |
|
| — |
|
| — |
|
Investment Funds |
|
| — |
|
| — |
|
| — |
|
| — |
| $ | 55,383 |
| $ | 21,082 |
| $ | 34,301 |
|
| — |
|
Mutual Funds in Equities (a) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,393 |
|
| — |
|
| — |
|
Mutual Funds in Bonds (a) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 17,027 |
|
| — |
|
| — |
|
Mutual Funds Diversified (a&b) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 662 |
|
| 34,301 |
|
| — |
|
Total Investments in Fair Value Hierarchy |
| $ | 77,778 |
| $ | 77,778 |
| $ | — |
| $ | — |
| $ | 61,912 |
| $ | 27,611 |
| $ | 34,301 |
| $ | — |
|
Investments at Net Asset Value per Share |
|
| 48,468 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total Investments |
| $ | 126,246 |
| $ | 77,778 |
| $ | — |
| $ | — |
| $ | 61,912 |
| $ | 27,611 |
| $ | 34,301 |
| $ | — |
|
| |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Domestic Fair Value Measurement | | Foreign Fair Value Measurement |
| ||||||||||||||||||||
| | at December 31, 2018 | | at December 31, 2018 |
| ||||||||||||||||||||
(In Thousands $) |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | �� | Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| ||||||||
Cash and Short-term Securities (a) | | $ | 8,964 | | $ | 8,964 | | $ | — | | $ | — | | $ | 718 | | $ | 718 | | $ | — | | $ | — | |
USD | |
| — | |
| 8,964 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
EUR | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 718 | |
| — | |
| — | |
Equity Securities (a) | | $ | 66,707 | | $ | 66,707 | |
| — | |
| — | | $ | 2,591 | | $ | 2,591 | |
| — | |
| — | |
U.S. Large Cap Equities | |
| — | |
| 38,804 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
U.S. Small Cap Equities | |
| — | |
| 7,747 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
International Equities | |
| — | |
| 20,156 | |
| — | |
| — | |
| — | |
| 2,591 | |
| — | |
| — | |
Fixed Income (a&b) | | $ | 32,272 | | $ | 32,272 | | | — | |
| — | | $ | 717 | | $ | 717 | |
| — | |
| — | |
Corporate debts securities | |
| — | |
| — | |
| — | |
| — | | $ | 2,097 | | $ | 2,097 | |
| — | |
| — | |
Euro Corporate Bonds (a) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 2,097 | |
| — | |
| — | |
Investment Funds | |
| — | |
| — | |
| — | |
| — | | $ | 62,869 | | $ | 22,122 | | $ | 40,747 | |
| — | |
Mutual Funds in Equities (a) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 3,339 | |
| — | |
| — | |
Mutual Funds in Bonds (a) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 18,060 | |
| — | |
| — | |
Mutual Funds Diversified (a&b) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 723 | |
| 40,747 | |
| — | |
Total Investments in Fair Value Hierarchy | | $ | 107,943 | | $ | 107,943 | | $ | — | | $ | — | | $ | 68,992 | | $ | 28,245 | | $ | 40,747 | | $ | — | |
Investments at Net Asset Value per Share | | | 62,015 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total Investments | | $ | 169,958 | | $ | 107,943 | | $ | — | | $ | — | | $ | 68,992 | | $ | 28,245 | | $ | 40,747 | | $ | — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Domestic Fair Value Measurement |
| Foreign Fair Value Measurement |
| ||||||||||||||||||||
|
| at December 31, 2015 |
| at December 31, 2015 |
| ||||||||||||||||||||
(In Thousands $) |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| ||||||||
Cash and Short-term Securities (a) |
| $ | 1,189 |
| $ | 1,189 |
| $ | — |
| $ | — |
| $ | 1,907 |
| $ | 1,907 |
| $ | — |
| $ | — |
|
USD |
|
| — |
|
| 1,189 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
EUR |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,907 |
|
| — |
|
| — |
|
Equity Securities (a) |
| $ | 47,725 |
| $ | 47,725 |
|
| — |
|
| — |
| $ | 2,258 |
| $ | 2,258 |
|
| — |
|
| — |
|
US Large Cap Equities |
|
| — |
|
| 28,797 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
US Small Cap Equities |
|
| — |
|
| 5,349 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
International Equities |
|
| — |
|
| 13,579 |
|
| — |
|
| — |
|
| — |
|
| 2,258 |
|
| — |
|
| — |
|
Fixed Income (a&b) |
| $ | 21,918 |
| $ | 21,918 |
|
| — |
|
| — |
| $ | 559 |
| $ | 559 |
|
| — |
|
| — |
|
Corporate debts securities |
|
| — |
|
| — |
|
| — |
|
| — |
| $ | 1,542 |
| $ | 1,542 |
|
| — |
|
| — |
|
Euro Corporate Bonds (a) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,542 |
|
| — |
|
| — |
|
Investment Funds |
|
| — |
|
| — |
|
| — |
|
| — |
| $ | 52,251 |
| $ | 19,446 |
| $ | 32,805 |
|
| — |
|
Mutual Funds in Equities (a) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,392 |
|
| — |
|
| — |
|
Mutual Funds in Bonds (a) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 15,501 |
|
| — |
|
| — |
|
Mutual Funds Diversified (a&b) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 553 |
|
| 32,805 |
|
| — |
|
Total Investments in Fair Value Hierarchy |
| $ | 70,832 |
| $ | 70,832 |
| $ | — |
| $ | — |
| $ | 58,517 |
| $ | 25,712 |
| $ | 32,805 |
| $ | — |
|
Investments at Net Asset Value per Share |
|
| 42,102 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total Investments |
| $ | 112,934 |
| $ | 70,832 |
| $ | — |
| $ | — |
| $ | 58,517 |
| $ | 25,712 |
| $ | 32,805 |
| $ | — |
|
(a) |
| Based on third party quotation from financial institution. |
(b) |
| Based on observable market transactions. |
CONTRIBUTIONSContributions
Annual cash contributions to fund pension costs accrued under the Company’sour domestic plans are generally at least equal to the minimum funding amounts required by ERISA. The CompanyWe contributed $10.1$0.4 million to itsour domestic defined benefit plans in 20162019 and although the Company has nowe have 0 minimum funding requirement, we plan to contribute approximately $10.3$0.4 million to pay our ongoing SERP annuity contracts in 2017.2020. Contributions to fund pension costs accrued under the Company’sour foreign plans are made in accordance with local laws or at the Company’sour discretion. The CompanyWe contributed approximately $5.2$6.5 million to itsour foreign defined benefit plan in 20162019 and expectsexpect to contribute approximately $2.5 $0.7��million in 2017.2020.
ESTIMATED FUTURE BENEFIT PAYMENTSEstimated Future Benefit Payments
As of December 31, 2016, the Company expects2019, we expect the plans to make the following estimated benefit payments relating to itsour defined benefit plans over the next ten years:
|
|
|
|
|
|
|
|
|
| Domestic Plans |
| Foreign Plans |
| ||
2017 |
| $ | 8,156 |
| $ | 1,964 |
|
2018 |
|
| 8,471 |
|
| 1,655 |
|
2019 |
|
| 8,717 |
|
| 2,449 |
|
2020 |
|
| 9,407 |
|
| 3,865 |
|
2021 |
|
| 10,145 |
|
| 2,762 |
|
2022 - 2026 |
|
| 60,105 |
|
| 20,354 |
|
| | | | | | | |
|
| Domestic Plans |
| Foreign Plans |
| ||
2020 | | $ | 11,064 | | $ | 5,382 | |
2021 | |
| 11,134 | |
| 2,904 | |
2022 | |
| 11,665 | |
| 3,155 | |
2023 | |
| 12,467 | |
| 4,676 | |
2024 | |
| 13,077 | |
| 6,537 | |
2025 - 2029 | |
| 74,584 | |
| 34,386 | |
| |
|
|
Other Plans
OTHER PLANS
The Company hasWe have a non‑qualifiednon-qualified supplemental pension plan for domestic employees which provides for pension amounts that would have been payable from the Company’sour principal domestic pension plan if it were not for limitations imposed by income tax regulations. The liability for this plan, which is not funded, was $9.6$12.6 million and $8.4$11.1 million at December 31, 20162019 and 2015,2018, respectively. This amount is included in the liability for domestic plans shown above.
The Company hasWe have a defined contribution 401(k) employee savings plan available to substantially all domestic employees. Company matching contributions are made in cash up to a maximum of 3% of the participating employee’s salary subject to income tax regulations. For each of the years ended December 31, 2016, 20152019, 2018 and 2014,2017, total contributions made by the Company to these plans were approximately $3.1$4.1 million, $3.0$3.7 million and $2.8$3.3 million, respectively.
The Company hasWe have several foreign defined contribution plans, which require the Companyus to contribute a percentage of the participating employee’s salary according to local regulations. For each of the years ended December 31, 2016, 20152019, 2018 and 2014,2017, total contributions made by the Company to these plans were approximately $1.9$2.3 million, $2.1$2.4 million and $2.3$2.2 million, respectively.
The Company hasWe have no additional postretirement or postemployment benefit plans.
NOTE 910 ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
Changes in Accumulated Other Comprehensive IncomeIncome/(Loss) by Component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign |
| Defined Benefit |
|
|
|
|
|
|
| ||
|
| Currency |
| Pension Plans |
| Other |
| Total |
| ||||
Balance - December 31, 2013 |
| $ | 149,965 |
| $ | (40,093) |
| $ | (121) |
| $ | 109,751 |
|
Other comprehensive loss before reclassifications |
|
| (192,476) |
|
| (29,842) |
|
| — |
|
| (222,318) |
|
Amounts reclassified from accumulated other comprehensive (loss) income |
|
| (340) |
|
| 2,838 |
|
| 24 |
|
| 2,522 |
|
Net current-period other comprehensive (loss) income |
|
| (192,816) |
|
| (27,004) |
|
| 24 |
|
| (219,796) |
|
Balance - December 31, 2014 |
| $ | (42,851) |
| $ | (67,097) |
| $ | (97) |
| $ | (110,045) |
|
Other comprehensive (loss) income before reclassifications |
|
| (163,874) |
|
| 6,715 |
|
| — |
|
| (157,159) |
|
Amounts reclassified from accumulated other comprehensive income |
|
| — |
|
| 4,832 |
|
| 25 |
|
| 4,857 |
|
Net current-period other comprehensive (loss) income |
|
| (163,874) |
|
| 11,547 |
|
| 25 |
|
| (152,302) |
|
Balance - December 31, 2015 |
| $ | (206,725) |
| $ | (55,550) |
| $ | (72) |
| $ | (262,347) |
|
Other comprehensive loss before reclassifications |
|
| (52,795) |
|
| (7,617) |
|
| — |
|
| (60,412) |
|
Amounts reclassified from accumulated other comprehensive (loss) income |
|
| (368) |
|
| 3,392 |
|
| 26 |
|
| 3,050 |
|
Net current-period other comprehensive (loss) income |
|
| (53,163) |
|
| (4,225) |
|
| 26 |
|
| (57,362) |
|
Balance - December 31, 2016 |
| $ | (259,888) |
| $ | (59,775) |
| $ | (46) |
| $ | (319,709) |
|
| | | | | | | | | | | | | |
|
| Foreign |
| Defined Benefit |
| | |
| | |
| ||
| | Currency | | Pension Plans | | Derivatives | | Total |
| ||||
Balance - December 31, 2016 | | $ | (259,888) | | $ | (59,775) | | $ | (46) | | $ | (319,709) | |
Other comprehensive income (loss) before reclassifications | |
| 74,385 | |
| (8,944) | |
| (11,806) | |
| 53,635 | |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| 4,124 | |
| 8,648 | |
| 12,772 | |
Net current-period other comprehensive income (loss) | |
| 74,385 | |
| (4,820) | |
| (3,158) | |
| 66,407 | |
Balance - December 31, 2017 | | $ | (185,503) | | $ | (64,595) | | $ | (3,204) | | $ | (253,302) | |
Other comprehensive (loss) income before reclassifications | |
| (62,898) | |
| 5,266 | |
| 16,624 | |
| (41,008) | |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| 5,524 | |
| (15,060) | |
| (9,536) | |
Net current-period other comprehensive (loss) income | |
| (62,898) | |
| 10,790 | |
| 1,564 | |
| (50,544) | |
Reclassification of stranded tax effects | | | — | | | (6,658) | | | — | | | (6,658) | |
Balance - December 31, 2018 | | $ | (248,401) | | $ | (60,463) | | $ | (1,640) | | $ | (310,504) | |
Other comprehensive (loss) income before reclassifications | |
| (8,723) | |
| (25,557) | |
| 8,026 | |
| (26,254) | |
Amounts reclassified from accumulated other comprehensive income (loss) | |
| — | |
| 2,873 | |
| (8,063) | |
| (5,190) | |
Net current-period other comprehensive (loss) income | |
| (8,723) | |
| (22,684) | |
| (37) | |
| (31,444) | |
Balance - December 31, 2019 | | $ | (257,124) | | $ | (83,147) | | $ | (1,677) | | $ | (341,948) | |
| |
|
|
Reclassifications Out of Accumulated Other Comprehensive Income:Income/(Loss):
| | | | | | | | | | | | |
| | Amount Reclassified from | | |
| |||||||
Details about Accumulated Other | | Accumulated Other | | Affected Line in the Statement |
| |||||||
Comprehensive Income Components | | Comprehensive Income | | Where Net Income is Presented |
| |||||||
Year Ended December 31, |
| 2019 |
| 2018 |
| 2017 |
|
|
| |||
| | | | | | | | | | | | |
Defined Benefit Pension Plans | | | | | | | | | | | | |
Amortization of net loss | | $ | 3,401 | | $ | 6,589 |
| $ | 5,100 |
| (1) | |
Amortization of prior service cost | |
| 449 | |
| 720 |
|
| 400 |
| (1) | |
| |
| 3,850 | |
| 7,309 |
|
| 5,500 |
| Total before tax | |
| |
| (977) | |
| (1,785) |
|
| (1,376) |
| Tax benefit | |
| | $ | 2,873 | | $ | 5,524 |
| $ | 4,124 |
| Net of tax | |
Derivatives | | | | | | | | | | | | |
Changes in treasury locks | | $ | — | | $ | 26 |
| $ | 42 |
| Interest Expense | |
Changes in cross currency swap: interest component | | | (4,805) | | | (5,150) | | | (1,526) | | Interest Expense | |
Changes in cross currency swap: foreign exchange component | |
| (3,258) | |
| (13,025) |
|
| 11,911 |
| Miscellaneous, net | |
| |
| (8,063) | |
| (18,149) |
|
| 10,427 |
| Total before tax | |
| |
| — | |
| 3,089 |
|
| (1,779) |
| Tax benefit | |
| | $ | (8,063) | | $ | (15,060) |
| $ | 8,648 |
| Net of tax | |
Total reclassifications for the period | | $ | (5,190) | | $ | (9,536) | | $ | 12,772 | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount Reclassified from |
|
|
| |||||||
Details about Accumulated Other |
| Accumulated Other |
| Affected Line in the Statement |
| |||||||
Comprehensive Income Components |
| Comprehensive Income |
| Where Net Income is Presented |
| |||||||
Years Ended December 31, |
| 2016 |
| 2015 |
| 2014 |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss |
| $ | 4,823 |
| $ | 7,216 |
| $ | 4,083 |
| (a) |
|
Amortization of prior service cost |
|
| 350 |
|
| 256 |
|
| 313 |
| (a) |
|
|
|
| 5,173 |
|
| 7,472 |
|
| 4,396 |
| Total before tax |
|
|
|
| (1,781) |
|
| (2,640) |
|
| (1,558) |
| Tax benefit |
|
|
| $ | 3,392 |
| $ | 4,832 |
| $ | 2,838 |
| Net of tax |
|
Foreign Currency |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency gain |
| $ | (368) |
| $ | — |
| $ | (340) |
| Miscellaneous, net |
|
|
|
| (368) |
|
| — |
|
| (340) |
| Total before tax |
|
|
|
| — |
|
| — |
|
| — |
| Tax benefit |
|
|
| $ | (368) |
| $ | — |
| $ | (340) |
| Net of tax |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in treasury locks |
| $ | 40 |
| $ | 39 |
| $ | 38 |
| Interest Expense |
|
|
|
| 40 |
|
| 39 |
|
| 38 |
| Total before tax |
|
|
|
| (14) |
|
| (14) |
|
| (14) |
| Tax benefit |
|
|
| $ | 26 |
| $ | 25 |
| $ | 24 |
| Net of tax |
|
Total reclassifications for the period |
| $ | 3,050 |
| $ | 4,857 |
| $ | 2,522 |
|
|
|
(1) |
| These accumulated other comprehensive income components are included in the computation of total net periodic benefit costs, net of tax (see Note |
NOTE 1011 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company maintainsWe maintain a foreign exchange risk management policy designed to establish a framework to protect the value of the Company’s non‑functionalour non-functional currency denominated transactions from adverse changes in exchange rates. Sales of the Company’sour 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‑countryinter-country sales or intercompany loans can impact the Company’sour results of operations. The Company’sOur policy is not to engage in speculative foreign currency hedging activities, but to minimize itsour net foreign currency transaction exposure defined as firm commitments and transactions recorded and denominated in currencies other than the functional currency. The CompanyWe may use foreign currency forward exchange contracts, options and cross currency swaps to economically hedge these risks.
For derivative instruments designated as hedges, the Companywe formally documentsdocument 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.effectiveness at inception. Quarterly thereafter, we formally assess whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair value or cash flows of the hedged item. Additionally, in order to designate any derivative instrument as a hedge of an anticipated transaction, the significant characteristics and expected terms of any anticipated transaction must be specifically identified, and it must be probable that the anticipated transaction will occur. All derivative financial instruments used as hedges are recorded at fair value in the Consolidated Balance Sheets (See Note 12 – Fair Value).
HEDGE OF NET INVESTMENTS IN FOREIGN OPERATIONSCash 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 Consolidated Statements of Cash Flows.
| |
63/ATR | 2019 Form 10-K |
As disclosed in Note 7 – Debt, 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 EUR/USD floating-to-fixed cross currency swap on July 20, 2017 in the notional amount of $280 million to effectively hedge the foreign exchange and interest rate exposure on the $280 million term loan. Related to this hedge, approximately $1.7 million and $1.6 million, respectively, of net after-tax loss is included in accumulated other comprehensive loss at December 31, 2019 and 2018. 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 December 31, 2019, is $2.8 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 December 31, 2019, the fair value of the cross currency swap was a $2.6 million asset. The swap contract expires on July 20, 2022.
Hedge of Net Investments in Foreign Operations
A significant number of the Company’sour 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 the Company’sour foreign entities. A strengtheningweakening U.S. dollar relative to foreign currencies has a dilutivean additive translation effect on the Company’sour financial condition and results of operations. Conversely, a weakeningstrengthening U.S. dollar has an additivea dilutive effect. The Company inIn some cases maintainswe maintain debt in these subsidiaries to offset the net asset exposure. The Company doesWe do not otherwise actively manage this risk using derivative financial instruments. In the event the Company planswe plan on a full or partial liquidation of any of itsour foreign subsidiaries where the Company’sour net investment is likely to be monetized, the Companywe will consider hedging the currency exposure associated with such a transaction.
|
|
Other
OTHER
As of December 31, 2016, the Company has2019, we have recorded the fair value of foreign currency forward exchange contracts of $1.6$0.2 million in prepayments,prepaid and $2.9other and $0.4 million in accounts payable, accrued and other liabilities in the balance sheet. All forward exchange contracts outstanding as of December 31, 20162019 had an aggregate notional contract amount of $112.6$51.5 million.
Fair Value of Derivative Instruments in the Consolidated Balance Sheets as of
December 31, 20162019 and December 31, 20152018
| | | | | | | | | | | | | | | |
|
| |
| December 31, 2019 |
| December 31, 2018 |
| ||||||||
| | | | | | Derivatives | | | | Derivatives | | ||||
| | | | Derivatives | | not | | Derivatives | | not | | ||||
| | | | Designated | | Designated | | Designated | | Designated | | ||||
| | Balance Sheet | | as Hedging | | as Hedging | | as Hedging | | as Hedging | | ||||
| | Location | | Instruments | | Instruments | | Instruments | | Instruments |
| ||||
Derivative Assets | | | | | | | | | | | | | | |
|
Foreign Exchange Contracts |
| Prepaid and other | | $ | — | | $ | 206 | | $ | — | | $ | 259 | |
Cross Currency Swap Contract (1) |
| Prepaid and other | |
| 2,552 | |
| — | |
| — | |
| — | |
| | | | $ | 2,552 | | $ | 206 | | $ | — | | $ | 259 | |
| | | | | | | | | | | | | | | |
Derivative Liabilities | | | | | | | | | | | | | | | |
Foreign Exchange Contracts |
| Accounts payable, accrued and other liabilities | | $ | — | | $ | 401 | | $ | — | | $ | 331 | |
Cross Currency Swap Contract (1) |
| Accounts payable, accrued and other liabilities | |
| — | |
| — | |
| 1,040 | |
| — | |
| | | | $ | — | | $ | 401 | | $ | 1,040 | | $ | 331 | |
|
|
|
|
|
|
|
|
|
|
Derivative Contracts Not Designated |
|
|
| December 31, |
| December 31, |
| ||
as Hedging Instruments |
| Balance Sheet Location |
| 2016 |
| 2015 |
| ||
|
|
|
|
|
|
|
|
|
|
Derivative Assets |
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts |
| Prepayments and other |
| $ | 1,612 |
| $ | 1,924 |
|
Foreign Exchange Contracts |
| Miscellaneous other assets |
|
| — |
|
| 112 |
|
|
|
|
| $ | 1,612 |
| $ | 2,036 |
|
Derivative Liabilities |
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts |
| Accounts payable and accrued liabilities |
| $ | 2,881 |
| $ | 1,152 |
|
Foreign Exchange Contracts |
| Deferred and other non-current liabilities |
|
| — |
|
| 45 |
|
|
|
|
| $ | 2,881 |
| $ | 1,197 |
|
(1) | This cross currency swap contract is composed of both an interest component and a foreign exchange component. |
| |
64/ATR | 2019 Form 10-K |
The Effect of DerivativeCash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss) for the
Fiscal Years Ended December 31, 2019 and December 31, 2018
| | | | | | | | | | | | | | | | | | |
| | | | | | Amount of Gain (Loss) | | Total Amount | | |||||||||
| | Amount of Gain (Loss) | | Location of (Loss) | | Reclassified from | | of Affected | | |||||||||
Derivatives in Cash | | Recognized in | | Gain Recognized | | Accumulated | | Income | | |||||||||
Flow Hedging | | Other Comprehensive | | in Income on | | Other Comprehensive | | Statement | | |||||||||
Relationships | | Income on Derivative | | Derivatives | | Income on Derivative | | Line Item | | |||||||||
|
| 2019 |
| 2018 |
| |
| 2019 |
| 2018 |
| |
| |||||
Cross currency swap contract: | | | | | | | | | | | | | | | | | | |
Interest component |
| $ | 5,103 | | $ | 7,014 | | Interest expense | | $ | 4,805 | | $ | 5,150 | | $ | (35,489) | |
Foreign exchange component |
| | 3,258 | | | 13,025 | | Miscellaneous, net | | | 3,258 | | | 13,025 | | | 1,556 | |
| | $ | 8,361 | | $ | 20,039 | | | | $ | 8,063 | | $ | 18,175 | | | | |
The Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Incomefor the Fiscal Years Ended December 31, 20162019 and December 31, 20152018
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
| Amount of (Loss) Gain |
| |||||||||||||
| | | | | | | | | ||||||||||
| | | | Amount of (Loss) Gain | | |||||||||||||
Derivatives Not Designated |
| Location of (Loss) Gain Recognized |
| Recognized in Income |
| | Location of (Loss) Gain Recognized | | Recognized in Income | | ||||||||
as Hedging Instruments |
| in Income on Derivatives |
| on Derivatives |
| | in Income on Derivatives | | on Derivatives | | ||||||||
|
|
|
| 2016 |
| 2015 |
| |||||||||||
|
| |
| 2019 |
| 2018 |
| |||||||||||
Foreign Exchange Contracts |
| Other (Expense) Income: Miscellaneous, net |
| $ | (2,560) |
| $ | 1,704 |
|
| Other (Expense) Income: | | $ | (141) | | $ | 652 | |
|
|
|
| $ | (2,560) |
| $ | 1,704 |
| |||||||||
| | | | $ | (141) | | $ | 652 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
| Gross Amounts not Offset |
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
| Net Amounts |
| in the Statement of |
|
|
|
| |||||||||||||||||||
|
|
|
|
| Gross Amounts |
| Presented in |
| Financial Position |
|
|
|
| |||||||||||||||||||
|
| Gross |
| Offset in the |
| the Statement of |
| Financial |
| Cash Collateral |
| Net |
| |||||||||||||||||||
|
| Amount |
| Financial Position |
| Financial Position |
| Instruments |
| Received |
| Amount |
| |||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | Gross Amounts not Offset | | | |
| ||||||||||||||||||
| | | | | Gross Amounts | | Net Amounts | | in the Statement of | | | |
| |||||||||||||||||||
| | | | | Offset in the | | Presented in | | Financial Position | | | |
| |||||||||||||||||||
|
| Gross |
| Statement of | | the Statement of |
| Financial |
| Cash Collateral |
| Net |
| |||||||||||||||||||
| | Amount | | Financial Position | | Financial Position | | Instruments | | Received | | Amount |
| |||||||||||||||||||
Description |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | |
|
December 31, 2016 |
| |||||||||||||||||||||||||||||||
December 31, 2019 | December 31, 2019 | | ||||||||||||||||||||||||||||||
Derivative Assets |
| $ | 1,612 |
| — |
| $ | 1,612 |
| — |
| — |
| $ | 1,612 |
| | $ | 2,758 |
| — | | $ | 2,758 |
| — |
| — | | $ | 2,758 | |
Total Assets |
| $ | 1,612 |
| — |
| $ | 1,612 |
| — |
| — |
| $ | 1,612 |
| | $ | 2,758 |
| — | | $ | 2,758 |
| — |
| — | | $ | 2,758 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Derivative Liabilities |
| $ | 2,881 |
| — |
| $ | 2,881 |
| — |
| — |
| $ | 2,881 |
| | $ | 401 |
| — | | $ | 401 |
| — |
| — | | $ | 401 | |
Total Liabilities |
| $ | 2,881 |
| — |
| $ | 2,881 |
| — |
| — |
| $ | 2,881 |
| | $ | 401 |
| — | | $ | 401 |
| — |
| — | | $ | 401 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
December 31, 2015 |
| |||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
December 31, 2018 | December 31, 2018 | | ||||||||||||||||||||||||||||||
Derivative Assets |
| $ | 2,036 |
| — |
| $ | 2,036 |
| — |
| — |
| $ | 2,036 |
| | $ | 259 |
| — | | $ | 259 |
| — |
| — | | $ | 259 | |
Total Assets |
| $ | 2,036 |
| — |
| $ | 2,036 |
| — |
| — |
| $ | 2,036 |
| | $ | 259 |
| — | | $ | 259 |
| — |
| — | | $ | 259 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
Derivative Liabilities |
| $ | 1,197 |
| — |
| $ | 1,197 |
| — |
| — |
| $ | 1,197 |
| | $ | 1,371 |
| — | | $ | 1,371 |
| — |
| — | | $ | 1,371 | |
Total Liabilities |
| $ | 1,197 |
| — |
| $ | 1,197 |
| — |
| — |
| $ | 1,197 |
| | $ | 1,371 |
| — | | $ | 1,371 |
| — |
| — | | $ | 1,371 | |
| |
|
|
NOTE 1112 FAIR VALUE
Authoritative guidelines require the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
| Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities. |
| Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. |
| Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability. |
As of December 31, 2016,2019, the fair values of our financial assets and liabilities were categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| |||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| |||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Forward exchange contracts (1) |
| $ | 1,612 |
| $ | — |
| $ | 1,612 |
| $ | — |
| |||||||||||||
Foreign exchange contracts (1) | | $ | 206 | | $ | — | | $ | 206 | | $ | — | | |||||||||||||
Cross currency swap contract (1) | | | 2,552 | | | — | | | 2,552 | | | — | | |||||||||||||
Total assets at fair value |
| $ | 1,612 |
| $ | — |
| $ | 1,612 |
| $ | — |
| | $ | 2,758 | | $ | — | | $ | 2,758 | | $ | — | |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | |
Forward exchange contracts (1) |
| $ | 2,881 |
| $ | — |
| $ | 2,881 |
| $ | — |
| |||||||||||||
Foreign exchange contracts (1) | | $ | 401 | | $ | — | | $ | 401 | | $ | — | | |||||||||||||
Contingent consideration obligation | | | 5,930 | | | — | | | — | | | 5,930 | | |||||||||||||
Total liabilities at fair value |
| $ | 2,881 |
| $ | — |
| $ | 2,881 |
| $ | — |
| | $ | 6,331 | | $ | — | | $ | 401 | | $ | 5,930 | |
As of December 31, 2015,2018, the fair values of our financial assets and liabilities were categorized as follows:
| | | | | | | | | | | | | |
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||
Assets | | | | | | | | | | | | | |
Foreign exchange contracts (1) | | $ | 259 | | $ | — | | $ | 259 | | $ | — | |
Total assets at fair value | | $ | 259 | | $ | — | | $ | 259 | | $ | — | |
Liabilities | | | | | | | | | | | | | |
Foreign exchange contracts (1) | | $ | 331 | | $ | — | | $ | 331 | | $ | — | |
Cross currency swap contract (1) | | | 1,040 | | | — | | | 1,040 | | | — | |
Total liabilities at fair value | | $ | 1,371 | | $ | — | | $ | 1,371 | | $ | — | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts (1) |
| $ | 2,036 |
| $ | — |
| $ | 2,036 |
| $ | — |
|
Total assets at fair value |
| $ | 2,036 |
| $ | — |
| $ | 2,036 |
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts (1) |
| $ | 1,197 |
| $ | — |
| $ | 1,197 |
| $ | — |
|
Total liabilities at fair value |
| $ | 1,197 |
| $ | — |
| $ | 1,197 |
| $ | — |
|
(1) |
| Market approach valuation technique based on observable market transactions of spot and forward rates. |
The carrying amounts of the Company’sour other current financial instruments such as cash and equivalents, accounts and notes receivable, notes payable and current maturities of long‑termlong-term obligations approximate fair value due to the short‑termshort-term maturity of the instrument. The Company considers its long‑termWe consider our long-term obligations a Level 2 liability and utilizesutilize the market approach valuation technique based on interest rates that are currently available to the Companyus for issuance of debt with similar terms and maturities. The estimated fair value of the Company’s long‑termour long-term obligations was $739 million$1.1 billion as of December 31, 20162019 and $760December 31, 2018.
As discussed in Note 20 – Acquisitions, we have 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 Acquisitions (as defined herein) based on 2020 and 2022 performance targets. We consider these obligations a Level 3 liability and have estimated the aggregate fair value for these contingent consideration arrangements to be $2.9 million and $3.0 million, respectively, as of December 31, 2015.2019. Additionally, during the year ended December 31, 2018, we had a contingent consideration obligation to the selling shareholders of Reboul SAS (“Reboul”) in connection with the Reboul Acquisition (as defined herein) based on 2018 earnings before net interest, taxes, depreciation and amortization (“EBITDA”). We consider this obligation a Level 3 liability; however, we estimated the aggregate fair value for this contingent consideration arrangement to be 0 as of December 31, 2018.
| |
66/ATR | 2019 Form 10-K |
NOTE 1213 COMMITMENTS AND CONTINGENCIES
The Company, inIn the normal course of business, iswe are subject to a number of lawsuits and claims both actual and potential in nature. While management believes the resolution of these claims and lawsuits will not have a material adverse effect on the Company’sour financial position or results of operations or cash flows, claims and legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur that could include amounts in excess of any accruals which management has established. Were such unfavorable final outcomes to occur, it is possible that they could have a material adverse effect on our financial position, results of operations and cash flows.
Under our Certificate of Incorporation, the Company haswe 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 the Companywe could be required to make under these indemnification agreements is unlimited; however, the Company haswe have a directors and officers liability insurance policy that covers a portion of our exposure. As a result of our insurance policy coverage, the Company believeswe believe the estimated fair value of these indemnification agreements is minimal. The Company has noWe have 0 liabilities recorded for these agreements as of December 31, 2016.2019.
|
|
possible contamination, was completed at our facility in Jundiaí, São Paulo, Brazil. The facility is primarily an internal supplier of anodized aluminum components for certain of our dispensing systems. The testing indicated that soil and groundwater in certain areas of the facility were impacted above acceptable levels established by local regulations. In March 2017, we reported the findings to the relevant environmental authority, the Environmental Company of the State of São Paulo – CETESB. Based upon our best estimate, we recorded a reserve of $1.5 million (operating expense) in the first quarter of 2017 relating to this contingency. For the year ended December 31, 2019, we have paid approximately $0.6 million and made adjustments to the accrual based on our future anticipated expenditures. As of December 31, 2019, our outstanding reserve is $0.5 million. The ultimate loss associated with this environmental contingency is subject to the investigation and ongoing review of the CETESB. We will continue to evaluate the range of likely costs as the investigation proceeds and we have further clarity on the nature and extent of remediation that will be required. We note that the contamination, or any failure to complete any required remediation in a timely manner, could potentially result in fines or penalties.
In March 2017, the Supreme Court of Brazil issued a decision that a certain state value added tax should not be included in the calculation of federal gross receipts taxes. The decision reduces our gross receipts tax in Brazil prospectively and, potentially, retrospectively. During the first quarter of 2019, we received a favorable court decision of $2.7 million for the retrospective right to recover part of our claim. This amount is recorded in cost of sales as a favorable impact of $1.7 million and $1.0 million was recognized as interest income. During the fourth quarter of 2018, we recorded an amount of $631 thousand based on the favorable court decision. If the Judicial Court grants full retrospective recovery, we estimate remaining potential recoveries of approximately $3 million to $10 million, including interest, depending on the future decisions of the Supreme Court of Brazil. Due to uncertainties around our remaining court recovery claims, we have not 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 $7.9 million, including interest and penalties of $3.0 million and $1.0 million, respectively, relating to differences in tax classification codes used for import duties for the period from January 2015 to August 2018. We are vigorously contesting the assessment, including interest and penalties, and have filed an administrative defense appeal in December 2019. Considering the complex nature of the assessment, we expect the appeal process to go through different levels of administrative and/or judicial processes. Accordingly, due to uncertainty of the timing and amounts of assessment, 0 liability is recorded as of December 31, 2019.
NOTE 1314 STOCK REPURCHASE PROGRAM
OnWe announced the $350 million share repurchase program in effect for the year ended December 31, 2018 on October 20, 2016, the Company2016. On April 18, 2019, we announced a new share repurchase authorization of up to $350 million of common stock. This new authorization replacedreplaces previous authorizations and has no expiration date. AptarGroupAptar may repurchase shares through the open market, privately negotiated transactions or other programs, subject to market conditions.
On December 16, 2014, the Company entered into an agreement to repurchase approximately $250 million of its common stock under an accelerated share repurchase program (the “ASR program”). The ASR program was part of the Company’s $350 million share repurchase authorization announced in October 2014. On December 17, 2014, the Company paid $250 million to Wells Fargo Bank N.A. ("Wells Fargo") in exchange for approximately 3.1 million shares. On September 25, 2015, the Company settled the ASR program with Wells FargoIn 2019 and received approximately 719 thousand additional shares. The total number of shares repurchased under the ASR program was approximately 3.8 million shares.
Subsequent to the completion of the ASR program, the Company2018, we repurchased approximately 190779 thousand and 668 thousand shares in the open market in November 2015 at a total cost of $13.9 million. Prior to November 2015, shares repurchased were returned to Treasury Stock. Beginning with the shares purchased in November 2015 and with all subsequent repurchases, such shares are immediately retired. In 2016, the Company repurchased approximately 1.7 million shares of itsour outstanding common stock at a total cost of $131.4 million.$86.5 million and $61.7 million, respectively. As of December 31, 2016,2019, there was $303.4$278.5 million of authorized share repurchases available to the Company.us.
| |
67/ATR | 2019 Form 10-K |
NOTE 1415 CAPITAL STOCK
We have 199 million authorized shares of common stock. The number of shares of common stock and treasury stock and the share activity were as follows:
|
|
|
|
|
|
|
|
|
|
|
| Common Shares |
| Treasury Shares |
| ||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
|
Balance at the beginning of the year |
| 66,685,378 |
| 86,267,467 |
| 4,168,489 |
| 24,336,367 |
|
Employee option exercises |
| 1,001,748 |
| 1,248,629 |
| (302,626) |
| (167,878) |
|
Director option exercises |
| 22,167 |
| 65,167 |
| — |
| — |
|
Restricted stock vestings |
| 30,228 |
| 13,331 |
| — |
| — |
|
Common stock repurchases |
| — |
| — |
| — |
| 718,866 |
|
Common stock repurchased and retired |
| (1,726,678) |
| (190,350) |
| — |
| — |
|
Stock retirements |
| — |
| (20,718,866) |
| — |
| (20,718,866) |
|
Balance at the end of the year |
| 66,012,843 |
| 66,685,378 |
| 3,865,863 |
| 4,168,489 |
|
| | | | | | | | | |
| | Common Shares | | Treasury Shares |
| ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
Balance at the beginning of the year |
| 67,341,316 |
| 66,742,490 |
| 4,424,884 | | 4,881,889 | |
Employee option exercises |
| 1,079,841 |
| 1,182,547 |
| (367,705) | | (502,005) | |
Director option exercises |
| 146,083 |
| — |
| — | | — | |
Restricted stock vestings |
| 41,268 |
| 39,691 |
| — | | — | |
Common stock repurchases |
| — |
| — |
| 778,848 | | 45,000 | |
Common stock repurchased and retired | | — | | (623,412) | | — | | — | |
Balance at the end of the year |
| 68,608,508 | | 67,341,316 | | 4,836,027 | | 4,424,884 | |
The cash dividends paid on the common stock for the years ended December 31, 2016, 20152019, 2018 and 20142017 aggregated $76.7$90.2 million, $71.2$82.3 million and $71.1$79.9 million, respectively.
NOTE 16 STOCK-BASED COMPENSATION
NOTE 15 STOCK‑BASED COMPENSATION
The Company issuesHistorically we have issued stock options and restricted stock units (“RSUs”), which consist of time-based and performance-based awards, to employees under Stock Awards Plansstock awards plans approved by stockholders. Restricted stock unitsIn addition, RSUs are issued to non‑employee directors under the Director Restricted Stock Unit Plan and the 2016 Equity Incentive Plan, and stock options were formerly issued to non-employee directors under a Restricted Stock Unit Award Agreement for Directors pursuant to the 2018 Equity Incentive Plan. Previously, non-employee directors were issued stock options under a Director Stock Option Plan, each approved by stockholders. OptionsPlan. Stock options are awarded with the exercise price equal to the market price on the date of grant and generally become exercisablevest over three years and expire 10 years after grant. Restricted stock units
RSUs granted to employees vest according to a specified performance period and/or vesting period. Time-based RSUs generally vest over three years. Performance-based RSUs vest at the end of the specified performance period, generally three years, assuming required performance or market vesting conditions are met. Performance-based RSUs have one of two vesting conditions: (1) based on Aptar’s internal financial performance metrics and (2) based on Aptar’s total shareholder return (“TSR”) relative to total shareholder returns of an industrial peer group, subject to discretion if the overall TSR is negative at the conclusion of the performance period. At the time of vesting, Aptar will issue or cause to be issued in the employee’s name the vested shares of common stock. In addition, RSU awards are generally net settled (shares are withheld to cover the employee tax obligation). Director RSUs are only time-based and generally vest over one year.
Compensation expense recorded attributable to stock options for the year ended December 31, 20162019 was approximately $16.9$5.7 million ($11.34.5 million after tax). The income tax benefit related to this compensation expense was approximately $5.6 million. Approximately $15.0$4.8 million of the compensation expense was recorded in selling, research & development and administrativeSG&A expenses and the balance was recorded in cost of sales. Compensation expense recorded attributable to stock options for the year ended December 31, 20152018 was approximately $17.9$10.9 million ($11.68.4 million after tax). The income tax benefit related to this compensation expense was approximately $6.3 million. Approximately $15.7$8.7 million of the compensation expense was recorded in selling, research & development and administrative expensesSG&A and the balance was recorded in cost of sales. Compensation expense recorded attributable to stock options for the year ended December 31, 20142017 was approximately $18.0$15.2 million ($11.710.5 million after tax). The income tax benefit related to this compensation expense was approximately $6.3 million. Approximately $16.0$13.2 million of the compensation expense was recorded in selling, research & development and administrativeSG&A expenses and the balance was recorded in cost of sales.
|
|
The Company usesFor stock option grants, we used historical data to estimate expected life and volatility. The weighted‑averageweighted-average fair value of stock options granted under the Stock Awards Plans was $10.59, $12.83$14.82 and $14.82$11.86 per share in 2016, 20152018 and 2014,2017, respectively. These values were estimated on the respective dates of grant using the Black‑Scholes option‑pricingBlack-Scholes option-pricing model with the following weighted‑averageweighted-average assumptions:
|
|
|
|
|
|
|
| |||||||
| | | | | | | | |||||||
Stock Awards Plans: |
|
|
|
|
|
|
|
| | | | | |
|
Years Ended December 31, |
| 2016 |
| 2015 |
| 2014 |
| | | | 2018 |
| 2017 | |
Dividend Yield |
| 1.8 | % | 1.7 | % | 1.7 | % |
| | | 1.5 | % | 1.7 | % |
Expected Stock Price Volatility |
| 16.9 | % | 21.9 | % | 22.2 | % |
| | | 14.2 | % | 15.8 | % |
Risk-free Interest Rate |
| 1.6 | % | 1.6 | % | 2.3 | % |
| | | 2.8 | % | 2.2 | % |
Expected Life of Option (years) |
| 6.7 |
| 6.9 |
| 6.9 |
|
| | | 6.6 | | 6.7 | |
There were no grants under the Director Stock Option Plan during 2016 or 2015 as this plan was cancelled and replaced by the Director Restricted Stock Unit Plan. The fair value of stock options granted under the Director Stock Option Plan was $14.07 per share in 2014. This value was estimated on the date of the grant using the Black‑Scholes option‑pricing model with the following weighted‑average assumptions:
| | ||
| |||
| |||
|
| ||
|
| ||
|
| ||
| 2019 Form 10-K |
A summary of option activity under the Company’sour stock option plans as of December 31, 2016,2019, and changes during the period then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock Awards Plans |
| Director Stock Option Plans |
| |||||||
|
|
|
|
| Weighted Average |
|
|
| Weighted Average |
| ||
|
|
| Options |
| Exercise Price |
| Options |
| Exercise Price |
| ||
Outstanding, January 1, 2016 |
|
| 8,032,030 |
| $ | 51.44 |
| 303,501 |
| $ | 56.00 |
|
Granted |
|
| 1,481,180 |
|
| 71.17 |
| — |
|
| — |
|
Exercised |
|
| (1,304,374) |
|
| 42.20 |
| (22,167) |
|
| 50.37 |
|
Forfeited or expired |
|
| (138,392) |
|
| 62.49 |
| — |
|
| — |
|
Outstanding at December 31, 2016 |
|
| 8,070,444 |
| $ | 56.36 |
| 281,334 |
| $ | 56.45 |
|
Exercisable at December 31, 2016 |
|
| 5,317,690 |
| $ | 50.06 |
| 255,998 |
| $ | 55.44 |
|
Weighted-Average Remaining Contractual Term (Years): |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016 |
|
| 6.1 |
|
|
|
| 5.9 |
|
|
|
|
Exercisable at December 31, 2016 |
|
| 4.9 |
|
|
|
| 5.7 |
|
|
|
|
Aggregate Intrinsic Value: |
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2016 |
| $ | 137,933 |
|
|
| $ | 4,783 |
|
|
|
|
Exercisable at December 31, 2016 |
| $ | 124,425 |
|
|
| $ | 4,610 |
|
|
|
|
Intrinsic Value of Options Exercised During the Years Ended: |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
| $ | 44,972 |
|
|
| $ | 548 |
|
|
|
|
December 31, 2015 |
| $ | 43,041 |
|
|
| $ | 1,478 |
|
|
|
|
December 31, 2014 |
| $ | 33,059 |
|
|
| $ | 741 |
|
|
|
|
| | | | | | | | | | | | |
| | Stock Awards Plans | | Director Stock Option Plans |
| |||||||
|
| | |
| Weighted Average |
| |
| Weighted Average |
| ||
| | | Options | | Exercise Price | | Options | | Exercise Price |
| ||
Outstanding, January 1, 2019 |
| | 6,761,055 | | $ | 65.76 |
| 155,200 | | $ | 58.13 | |
Granted |
| | — | |
| — |
| — | |
| — | |
Exercised |
| | (1,560,047) | |
| 57.10 |
| (19,949) | |
| 55.99 | |
Forfeited or expired |
| | (156,828) | |
| 73.15 |
| — | |
| — | |
Outstanding at December 31, 2019 |
| | 5,044,180 | | $ | 68.32 |
| 135,251 | | $ | 58.45 | |
Exercisable at December 31, 2019 |
| | 4,288,542 | | $ | 66.01 |
| 135,251 | | $ | 58.45 | |
Weighted-Average Remaining Contractual Term (Years): | | | | | | | | | | | | |
Outstanding at December 31, 2019 |
| | 5.4 | | | | | 3.2 | |
| | |
Exercisable at December 31, 2019 |
| | 5.0 | | | | | 3.2 | |
| | |
Aggregate Intrinsic Value: | | | | | | | | | | | | |
Outstanding at December 31, 2019 | | $ | 239,033 | | | | $ | 7,732 | | | | |
Exercisable at December 31, 2019 | | $ | 212,745 | | | | $ | 7,732 | | | | |
Intrinsic Value of Options Exercised During the Years Ended: | | | | | | | | | | | | |
December 31, 2019 | | $ | 87,251 | | | | $ | 1,172 | | | | |
December 31, 2018 | | $ | 72,951 | | | | $ | 2,286 | | | | |
December 31, 2017 | | $ | 51,140 | | | | $ | 1,995 | | | | |
The grant date fair value of options vested during the years ended December 31, 2016, 20152019, 2018 and 20142017 was $17.2$17.5 million, $16.1$16.5 million and $14.1$16.9 million, respectively. Cash received from option exercises was approximately $53.5$90.2 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $13.6$19.5 million in the year ended December 31, 2016.2019. As of December 31, 2016,2019, the remaining valuation of stock option awards to be expensed in future periods was $12.1$2.3 million and the related weighted‑averageweighted-average period over which it is expected to be recognized is 1.4 years.1.0 year.
|
|
The fair value of restricted stock unit grantsboth time-based RSUs and performance-based RSUs pertaining to internal performance metrics is determined using the marketclosing price of the underlying sharesour common stock and expected dividend on the grant date. The fair value of performance-based RSUs pertaining to TSR is estimated using a Monte Carlo simulation. Inputs and assumptions used to calculate the fair value are shown in the table below. The fair value of these RSUs is expensed over the vesting period using the straight-line method or using the graded vesting method when an employee becomes eligible to retain the award at retirement.
| | | | | | | | | |
Year Ended December 31, | | | 2019 | | | | 2018 | |
|
Fair value per stock award | | $ | 134.97 | | | $ | 128.70 | | |
Grant date stock price | | $ | 104.51 | | | $ | 89.42 | | |
Assumptions: | | | | | | | | | |
Aptar's stock price expected volatility | | | 16.50 | % | | | 12.30 | % | |
Expected average volatility of peer companies | | | 31.90 | % | | | 27.50 | % | |
Correlation assumption | | | 37.40 | % | | | 20.20 | % | |
Risk-free interest rate | | | 2.19 | % | | | 2.42 | % | |
Dividend yield assumption | | | 1.30 | % | | | 1.43 | % | |
A summary of restricted stock unitRSU activity as of December 31, 2016,2019, and changes during the period then ended is presented below:
| | | | | | | | | | | |
|
| Time-Based RSUs | | Performance-Based RSUs |
| ||||||
|
|
|
| Weighted Average |
| |
| Weighted Average | | ||
| | Units | | Grant-Date Fair Value | | Units | | Grant-Date Fair Value | | ||
Nonvested at January 1, 2019 | | 261,487 | | $ | 91.78 | | 69,990 | | $ | 111.55 | |
Granted | | 295,412 | |
| 97.80 | | 123,246 | |
| 119.35 | |
Vested | | (51,433) | | | 88.77 | | — | | | — | |
Forfeited | | (24,737) | |
| 98.72 | | (11,556) | |
| 117.04 | |
Nonvested at December 31, 2019 | | 480,729 | | $ | 95.45 | | 181,680 | | $ | 117.26 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Director Restricted |
| |||
|
| Stock Awards Plans |
| Stock Unit Plan |
| ||||||
|
|
|
| Weighted Average |
|
|
| Weighted Average |
| ||
|
| RSUs |
| Grant-Date Fair Value |
| RSUs |
| Grant-Date Fair Value |
| ||
Nonvested at January 1, 2016 |
| 66,376 |
| $ | 66.61 |
| 18,857 |
| $ | 63.10 |
|
Granted |
| 21,754 |
|
| 73.45 |
| 15,745 |
|
| 75.56 |
|
Vested |
| (11,371) |
|
| 61.96 |
| (18,857) |
|
| 63.10 |
|
Forfeited |
| (4,632) |
|
| 68.00 |
| — |
|
| — |
|
Nonvested at December 31, 2016 |
| 72,127 |
| $ | 69.31 |
| 15,745 |
| $ | 75.56 |
|
| |
69/ATR | 2019 Form 10-K |
Included in the December 31, 2019 time-based RSUs are 11,490 units awarded to non-employee directors and 14,257 units vested related to non-employee directors.
Compensation expense recorded attributable to restricted stock unit grantsRSUs for the years ended December 31, 2016, 20152019, 2018 and 20142017 was approximately $3.0$18.2 million, $2.7$8.7 million and $1.8$3.7 million, respectively. The actual tax benefit realized for the tax deduction from RSUs was approximately $1.0 million for the year ended December 31, 2019. The fair value of units vested during the years ended December 31, 2016, 20152019, 2018 and 20142017 was $1.9$4.6 million, $757 thousand$3.0 million and $614 thousand,$4.7 million, respectively. The intrinsic value of units vested duringfor the years ended December 31, 2016, 20152019, 2018 and 20142017 was $2.3$5.4 million, $877 thousand$3.7 million and $761 thousand,$5.2 million, respectively. As of December 31, 2016,2019, there was $1.1$28.9 million of total unrecognized compensation cost relating to restricted stock unitRSU awards which is expected to be recognized over a weighted average period of 1.22.9 years.
During the first quarter of 2014, the Company approvedWe have a new long-term incentive program for certain employees. Each award is based on the cumulative total stockholder returnTSR of our common stock during a three year performance period. Totalperiod compared to a peer group. The total expense related to this program is expected to be approximately $1.0 million over the performance period. For the year endedfor awards outstanding as of December 31, 2016, we recognized income of $1.0 million, while for2019 is approximately $2.7 million. For the years ended December 31, 20152019, 2018 and 2014,2017, we recognized expense of $0.8 million, $1.2 million and $530 thousand,$0.7 million, respectively. The accrued awards will be paid in the first quarter of 2020 with no future grants anticipated as this TSR incentive program is no longer awarded.
NOTE 1617 EARNINGS PER SHARE
Basic net income per share is calculated by dividing net income attributable to Aptar by the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing the net income attributable to Aptar by the weighted-average number of common and common equivalent shares outstanding during the applicable period. The difference between basic and diluted earnings per share is attributable to stock based compensation awards. Share-based compensation awards for which total employee proceeds exceed the average market price over the applicable period would have an antidilutive effect on earnings per share, and accordingly, are excluded from the calculation of diluted earnings per share. The reconciliation of basic and diluted earnings per share (“EPS”) for the years ended December 31, 2016, 20152019, 2018 and 20142017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
| Income |
| Shares |
| Per Share |
| ||
|
| (Numerator) |
| (Denominator) |
| Amount |
| ||
For the Year Ended December 31, 2016 |
|
|
|
|
|
|
|
|
|
Basic EPS |
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
| $ | 205,590 |
| 62,804 |
| $ | 3.27 |
|
Effect of Dilutive Securities |
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
| 1,988 |
|
|
|
|
Restricted stock |
|
| — |
| 57 |
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
| $ | 205,590 |
| 64,849 |
| $ | 3.17 |
|
For the Year Ended December 31, 2015 |
|
|
|
|
|
|
|
|
|
Basic EPS |
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
| $ | 199,348 |
| 62,585 |
| $ | 3.19 |
|
Effect of Dilutive Securities |
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
| 1,864 |
|
|
|
|
Restricted stock |
|
| — |
| 43 |
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
| $ | 199,348 |
| 64,492 |
| $ | 3.09 |
|
For the Year Ended December 31, 2014 |
|
|
|
|
|
|
|
|
|
Basic EPS |
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
| $ | 191,658 |
| 65,009 |
| $ | 2.95 |
|
Effect of Dilutive Securities |
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
| 2,248 |
|
|
|
|
Restricted stock |
|
| — |
| 35 |
|
|
|
|
Diluted EPS |
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
| $ | 191,658 |
| 67,292 |
| $ | 2.85 |
|
| | | | | | | | | |
|
| Income |
| Shares |
| Per Share |
| ||
| | (Numerator) | | (Denominator) | | Amount |
| ||
For the Year Ended December 31, 2019 | | | | | | | | | |
Basic EPS | | | | | | | | | |
Income available to common stockholders | | $ | 242,202 |
| 63,574 | | $ | 3.81 | |
Effect of Dilutive Securities | | | | | | | | | |
Stock options | | | |
| 2,344 | | | | |
Restricted stock | |
| |
| 232 | | | | |
Diluted EPS | | | | | | | | | |
Income available to common stockholders | | $ | 242,202 |
| 66,150 | | $ | 3.66 | |
For the Year Ended December 31, 2018 | | | | | | | | | |
Basic EPS | | | | | | | | | |
Income available to common stockholders | | $ | 194,745 |
| 62,437 | | $ | 3.12 | |
Effect of Dilutive Securities | | | | | | | | | |
Stock options | | | |
| 2,440 | | | | |
Restricted stock | |
| |
| 81 | | | | |
Diluted EPS | | | | | | | | | |
Income available to common stockholders | | $ | 194,745 |
| 64,958 | | $ | 3.00 | |
For the Year Ended December 31, 2017 | | | | | | | | | |
Basic EPS | | | | | | | | | |
Income available to common stockholders | | $ | 220,030 |
| 62,435 | | $ | 3.52 | |
Effect of Dilutive Securities | | | | | | | | | |
Stock options | | | |
| 2,106 | | | | |
Restricted stock | |
| |
| 55 | | | | |
Diluted EPS | | | | | | | | | |
Income available to common stockholders | | $ | 220,030 |
| 64,596 | | $ | 3.41 | |
|
|
NOTE 1718 SEGMENT INFORMATION
The Company isWe are organized into three3 reporting segments. Operations that sell dispensing systems and sealing solutions primarily to the beauty, personal care beauty and home care markets form the Beauty + Home segment. Operations that sell dispensing systems and sealing solutions to the prescription drug, consumer health care, injectables and injectablesactive packaging markets form the Pharma segment. Operations that sell dispensing systems and sealing solutions primarily to the food and beverage markets form the Food + Beverage segment.
| |
70/ATR | 2019 Form 10-K |
The accounting policies of the segments are the same as those described in Note 1 – Summary of Significant Accounting Policies. The Company evaluates performanceIn order to more closely align with how the markets analyze our segment results, we have changed our non-U.S. GAAP segment measure of its business segmentsprofitability from Segment Income to Adjusted EBITDA beginning in 2018. All internal segment reporting and allocates resourcesdiscussions of results with our Chief Operating Decision Maker (CODM) are now based uponon segment income. Segment income is defined as earnings before net interest expense, certain corporate expenses and income taxes.Adjusted EBITDA. All references to segment profitability have been updated for this change.
Financial information regarding the Company’s reportableour reporting segments is shown below:
| | | | | | | | | | |
Year Ended December 31, | | 2019 |
| 2018 |
| 2017 |
| |||
Total Sales: | | | | | | | | | | |
Beauty + Home | | $ | 1,376,027 | | $ | 1,446,231 | | $ | 1,333,048 | |
Pharma | |
| 1,100,463 | |
| 955,069 | |
| 805,913 | |
Food + Beverage | |
| 418,017 | |
| 386,689 | |
| 352,483 | |
Total Sales | | $ | 2,894,507 | | $ | 2,787,989 | | $ | 2,491,444 | |
Less: Intersegment Sales: | | | | | | | | | | |
Beauty + Home | | $ | 23,313 | | $ | 19,849 | | $ | 19,262 | |
Pharma | |
| 9,412 | |
| 417 | |
| 33 | |
Food + Beverage | |
| 2,050 | |
| 2,962 | |
| 2,866 | |
Total Intersegment Sales | | $ | 34,775 | | $ | 23,228 | | $ | 22,161 | |
Net Sales: | | | | | | | | | | |
Beauty + Home | | $ | 1,352,714 | | $ | 1,426,382 | | $ | 1,313,786 | |
Pharma | |
| 1,091,051 | |
| 954,652 | |
| 805,880 | |
Food + Beverage | |
| 415,967 | |
| 383,727 | |
| 349,617 | |
Net Sales | | $ | 2,859,732 | | $ | 2,764,761 | | $ | 2,469,283 | |
Adjusted EBITDA (1): | | | | | | | | | | |
Beauty + Home | | $ | 181,150 | | $ | 185,926 | | $ | 173,227 | |
Pharma | |
| 387,483 | |
| 343,706 | |
| 275,933 | |
Food + Beverage | |
| 68,108 | |
| 57,589 | |
| 62,903 | |
Corporate & Other, unallocated | |
| (44,406) | |
| (36,285) | |
| (37,457) | |
Acquisition-related costs (2) | | | (3,927) | | | (23,770) | | | — | |
Restructuring Initiatives (3) | |
| (20,472) | |
| (63,829) | |
| (2,208) | |
Gain on insurance recovery (4) | | | — | | | — | | | 10,648 | |
Depreciation and amortization (5) | | | (194,552) | | | (171,747) | | | (153,094) | |
Interest Expense | | | (35,489) | | | (32,626) | | | (40,597) | |
Interest Income | |
| 4,174 | |
| 7,056 | |
| 5,470 | |
Income before Income Taxes | | $ | 342,069 | | $ | 266,020 | | $ | 294,825 | |
Depreciation and Amortization: | | | | | | | | | | |
Beauty + Home | | $ | 82,778 | | $ | 83,546 | | $ | 79,422 | |
Pharma | |
| 65,590 | |
| 51,495 | |
| 41,143 | |
Food + Beverage | |
| 35,728 | |
| 27,467 | |
| 24,720 | |
Corporate & Other | |
| 10,456 | |
| 9,239 | |
| 7,809 | |
Depreciation and Amortization | | $ | 194,552 | | $ | 171,747 | | $ | 153,094 | |
Capital Expenditures: | | | | | | | | | | |
Beauty + Home | | $ | 96,040 | | $ | 101,371 | | $ | 76,425 | |
Pharma | |
| 89,702 | |
| 54,433 | |
| 33,005 | |
Food + Beverage | |
| 45,130 | |
| 41,236 | |
| 38,730 | |
Corporate & Other | |
| 13,933 | |
| 25,739 | |
| 18,924 | |
Transfer of Corporate Technology Expenditures (6) | | | (2,529) | | | (11,527) | | | (10,460) | |
Capital Expenditures | | $ | 242,276 | | $ | 211,252 | | $ | 156,624 | |
Total Assets: | | | | | | | | | | |
Beauty + Home | | $ | 1,378,292 | | $ | 1,373,816 | | $ | 1,358,283 | |
Pharma | |
| 1,422,815 | |
| 1,324,696 | |
| 881,443 | |
Food + Beverage | |
| 534,527 | |
| 501,700 | |
| 296,271 | |
Corporate & Other | |
| 226,485 | |
| 177,523 | |
| 601,826 | |
Total Assets | | $ | 3,562,119 | | $ | 3,377,735 | | $ | 3,137,823 | |
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
| 2016 |
| 2015 |
| 2014 |
| |||
Total Sales: |
|
|
|
|
|
|
|
|
|
|
Beauty + Home |
| $ | 1,278,151 |
| $ | 1,291,545 |
| $ | 1,522,444 |
|
Pharma |
|
| 741,473 |
|
| 712,220 |
|
| 751,226 |
|
Food + Beverage |
|
| 330,231 |
|
| 335,365 |
|
| 349,297 |
|
Total Sales |
| $ | 2,349,855 |
| $ | 2,339,130 |
| $ | 2,622,967 |
|
Less: Intersegment Sales: |
|
|
|
|
|
|
|
|
|
|
Beauty + Home |
| $ | 17,065 |
| $ | 18,599 |
| $ | 24,147 |
|
Pharma |
|
| — |
|
| — |
|
| — |
|
Food + Beverage |
|
| 1,856 |
|
| 3,382 |
|
| 1,011 |
|
Total Intersegment Sales |
| $ | 18,921 |
| $ | 21,981 |
| $ | 25,158 |
|
Net Sales: |
|
|
|
|
|
|
|
|
|
|
Beauty + Home |
| $ | 1,261,086 |
| $ | 1,272,946 |
| $ | 1,498,297 |
|
Pharma |
|
| 741,473 |
|
| 712,220 |
|
| 751,226 |
|
Food + Beverage |
|
| 328,375 |
|
| 331,983 |
|
| 348,286 |
|
Net Sales |
| $ | 2,330,934 |
| $ | 2,317,149 |
| $ | 2,597,809 |
|
Segment Income: |
|
|
|
|
|
|
|
|
|
|
Beauty + Home |
| $ | 100,569 |
| $ | 98,707 |
| $ | 98,368 |
|
Pharma |
|
| 219,039 |
|
| 210,509 |
|
| 204,698 |
|
Food + Beverage |
|
| 37,697 |
|
| 42,731 |
|
| 37,728 |
|
Corporate & Other |
|
| (44,214) |
|
| (28,357) |
|
| (38,261) |
|
Interest Expense |
| $ | (35,237) |
| $ | (34,615) |
| $ | (21,029) |
|
Interest Income |
|
| 2,643 |
|
| 5,596 |
|
| 4,797 |
|
Income before Income Taxes |
| $ | 280,497 |
| $ | 294,571 |
| $ | 286,301 |
|
Depreciation and Amortization: |
|
|
|
|
|
|
|
|
|
|
Beauty + Home |
| $ | 84,273 |
| $ | 75,289 |
| $ | 85,469 |
|
Pharma |
|
| 39,776 |
|
| 36,008 |
|
| 41,690 |
|
Food + Beverage |
|
| 23,891 |
|
| 21,347 |
|
| 20,179 |
|
Corporate & Other |
|
| 6,862 |
|
| 6,249 |
|
| 4,880 |
|
Depreciation and Amortization |
| $ | 154,802 |
| $ | 138,893 |
| $ | 152,218 |
|
Capital Expenditures: |
|
|
|
|
|
|
|
|
|
|
Beauty + Home |
| $ | 75,165 |
| $ | 61,156 |
| $ | 76,544 |
|
Pharma |
|
| 58,970 |
|
| 48,133 |
|
| 37,455 |
|
Food + Beverage |
|
| 21,533 |
|
| 25,337 |
|
| 32,148 |
|
Corporate & Other |
|
| 17,490 |
|
| 23,149 |
|
| 27,299 |
|
Transfer of Corporate Technology Expenditures (1) |
|
| (44,172) |
|
| (8,452) |
|
| (11,506) |
|
Capital Expenditures |
| $ | 128,986 |
| $ | 149,323 |
| $ | 161,940 |
|
Total Assets: |
|
|
|
|
|
|
|
|
|
|
Beauty + Home |
| $ | 1,270,858 |
| $ | 1,086,482 |
| $ | 1,193,370 |
|
Pharma |
|
| 831,569 |
|
| 591,500 |
|
| 619,304 |
|
Food + Beverage |
|
| 259,282 |
|
| 250,369 |
|
| 263,742 |
|
Corporate & Other |
|
| 245,076 |
|
| 508,694 |
|
| 360,774 |
|
Total Assets |
| $ | 2,606,785 |
| $ | 2,437,045 |
| $ | 2,437,190 |
|
(1) | We evaluate performance of our reporting segments and allocate resources based upon Adjusted EBITDA. Adjusted EBITDA is defined as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring, acquisition-related costs and insurance recoveries. |
(2) | Acquisition-related costs include transaction costs and purchase accounting adjustments related to inventory for acquisitions (see Note 20 – Acquisitions for further details). |
| |
71/ATR |
|
(3) | Restructuring Initiatives includes expense items for the years ended December 31, 2019 and 2018 as follows (see Note 21 – Restructuring Initiatives for further details): |
| | | | | | | | | | |
Year Ended December 31, |
| 2019 |
| 2018 |
| 2017 |
| |||
Restructuring Initiatives by Segment | | | | | | | | | | |
Beauty + Home | | $ | 17,682 | | $ | 52,244 | | $ | 529 | |
Pharma | |
| 632 | |
| 3,589 | |
| — | |
Food + Beverage | |
| 391 | |
| 4,185 | |
| 1,679 | |
Corporate & Other | | | 1,767 | | | 3,811 | | | — | |
Total Restructuring Initiatives | | $ | 20,472 | | $ | 63,829 | | $ | 2,208 | |
(4) | The gain on insurance recovery relates to the Annecy fire (see Note 19 – Insurance Settlement Receivable for further details). |
(5) | Depreciation and amortization includes amortization related to acquisition purchase accounting adjustments for backlog. See the reconciliation of Non-U.S. GAAP measures starting on page 22. |
(6) | The transfer of corporate technology expenditures represents amounts of projects managed by corporate for the benefit of specific entities within each segment. Once the projects are complete, all related costs are allocated from corporate to and paid by the appropriate entity and the associated assets are then depreciated at the entity level. |
|
|
Geographic Information
GEOGRAPHIC INFORMATION
The following are net sales and long‑livedlong-lived asset information by geographic area and product information for the years ended December 31, 2016, 20152019, 2018 and 2014:2017:
| | | | | | | | | | |
|
| 2019 |
| 2018 |
| 2017 |
| |||
Net Sales to Unaffiliated Customers (1): | | | | | | | | | | |
United States | | $ | 836,768 | | $ | 726,336 | | $ | 642,164 | |
Europe: | | | | | | | | | | |
France | |
| 895,110 | | | 862,364 | | | 744,856 | |
Germany | |
| 452,409 | | | 474,369 | | | 416,802 | |
Italy | |
| 141,867 | | | 144,044 | | | 131,523 | |
Other Europe | |
| 149,083 | | | 146,701 | | | 132,992 | |
Total Europe | |
| 1,638,469 | | | 1,627,478 | | | 1,426,173 | |
Other Foreign Countries | |
| 384,495 | | | 410,947 | | | 400,946 | |
Total | | $ | 2,859,732 | | $ | 2,764,761 | | $ | 2,469,283 | |
Property, Plant and Equipment | | | | | | | | | | |
United States | | $ | 300,820 | | $ | 265,004 | | $ | 182,434 | |
Europe: | | | | | | | | | | |
France | |
| 338,288 | | | 308,250 | | | 266,804 | |
Germany | |
| 163,782 | | | 154,505 | | | 163,948 | |
Italy | |
| 53,562 | | | 54,978 | | | 57,080 | |
Other Europe | |
| 63,636 | | | 59,411 | | | 59,963 | |
Total Europe | |
| 619,268 | | | 577,144 | | | 547,795 | |
Other Foreign Countries | |
| 167,590 | | | 149,465 | | | 137,677 | |
Total | | $ | 1,087,678 | | $ | 991,613 | | $ | 867,906 | |
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 |
| 2014 |
| |||
Net Sales to Unaffiliated Customers (1): |
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 619,814 |
| $ | 633,522 |
| $ | 642,060 |
|
Europe: |
|
|
|
|
|
|
|
|
|
|
France |
|
| 695,727 |
|
| 712,470 |
|
| 850,817 |
|
Germany |
|
| 386,553 |
|
| 326,782 |
|
| 363,898 |
|
Italy |
|
| 126,890 |
|
| 125,511 |
|
| 141,808 |
|
Other Europe |
|
| 120,228 |
|
| 122,546 |
|
| 150,469 |
|
Total Europe |
|
| 1,329,398 |
|
| 1,287,309 |
|
| 1,506,992 |
|
Other Foreign Countries |
|
| 381,722 |
|
| 396,318 |
|
| 448,757 |
|
Total |
| $ | 2,330,934 |
| $ | 2,317,149 |
| $ | 2,597,809 |
|
Plant, Property & Equipment: |
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 175,578 |
| $ | 175,367 |
| $ | 192,265 |
|
Europe: |
|
|
|
|
|
|
|
|
|
|
France |
|
| 228,082 |
|
| 216,966 |
|
| 228,049 |
|
Germany |
|
| 154,588 |
|
| 125,186 |
|
| 136,491 |
|
Italy |
|
| 51,732 |
|
| 43,631 |
|
| 48,940 |
|
Other Europe |
|
| 54,575 |
|
| 54,483 |
|
| 57,946 |
|
Total Europe |
|
| 488,977 |
|
| 440,266 |
|
| 471,426 |
|
Other Foreign Countries |
|
| 119,766 |
|
| 149,750 |
|
| 147,964 |
|
Total |
| $ | 784,321 |
| $ | 765,383 |
| $ | 811,655 |
|
Product Net Sales Information: |
|
|
|
|
|
|
|
|
|
|
Pumps |
| $ | 1,028,720 |
| $ | 991,583 |
| $ | 1,111,536 |
|
Closures |
|
| 525,421 |
|
| 558,212 |
|
| 611,144 |
|
Valves |
|
| 288,563 |
|
| 306,367 |
|
| 350,106 |
|
Injectables |
|
| 150,785 |
|
| 130,503 |
|
| 143,631 |
|
Other |
|
| 337,445 |
|
| 330,484 |
|
| 381,392 |
|
Total |
| $ | 2,330,934 |
| $ | 2,317,149 |
| $ | 2,597,809 |
|
(1) |
| Sales are attributed to countries based upon where the sales invoice to unaffiliated customers is generated. |
No single customer represents 10%6% or more of the Company’sour net sales in 2016, 20152019, 2018 or 2014.2017.
NOTE 1819 INSURANCE SETTLEMENT RECEIVABLE
A fire caused damagesdamage to AptarGroup’sour facility in Annecy, France in June 2016. The fire was contained to one of three production units and there were no reported injuries. Aptar Annecy supplies anodized aluminum components for certain AptarGroupAptar dispensing systems. While repairsWe are underway, AptarGroup will source from its network of suppliers as well as from its anodizing facility in Brazil. The Company is insured for the damages caused by the fire, including business interruption insurance, and it doeswe do not expect this incident to have a material impact on itsour financial results. Costs, including the write-off
| |
72/ATR | 2019 Form 10-K |
Losses related to the Annecy fire of $18.9 million and $20.3 million were incurred during 2016.2018 and 2017, respectively. For the year ended December 31, 2019, we received insurance proceeds of $3.4 million, and have 0 insurance receivable at year-end. Operating Income was negatively impacted by $5.8 million during 2018. These costs are included in2018 losses negatively impacted the Beauty + Home segment.
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A separate fire caused damagegain due to the roof and production areainsurance recovery on the involuntary conversion of one of the Company’s facilities in Brazil in September 2014. There were no injuries. The facility is primarily an internal supplier of anodized aluminum components for certain dispensing systems sold to the regional beauty and personal care markets. Repairs of the facility were essentially completed in the fourth quarter 2015. AptarGroup is insured for the damages caused by the fire, including business interruption insurance. The final insurance settlement was received in the fourth quarter of 2016. During 2016, we recognized $559 thousand of gainfixed assets related to this fire, which is included in Other (Expense) Income on the Consolidated Statements of Income. These 2017 amounts impacted the Beauty + Home segment. The cumulative gain recognizedfinal settlement is $3.5 million. still in process of negotiation with the insurance company.
NOTE 1920 ACQUISITIONS
Business Combinations
On February 29, 2016,October 31, 2019, we completed our acquisition (the “Noble Acquisition”) of 100% of the Company completed its acquisitionequity interests of MegaPlast GmbHNoble International Holdings, Inc., Genia Medical, Inc. and its subsidiaries along with Megaplast France S.a.r.l and Mega Pumps L.P. (“Mega Airless”JBCB Holdings, LLC (collectively referred to as “Noble”). Mega AirlessNoble, based in Orlando, FL, is a leading provider of innovative all-plastic airless dispensing systemsin developing patient-centric advanced drug delivery system training devices including autoinjector, prefilled syringe, onbody and respiratory devices for the beauty, personal careworld’s leading biopharmaceutical companies and pharmaceutical markets and operates two manufacturing facilities in Germany and one in the United States.original equipment manufacturers. The purchase price paid for Mega Airless was approximately $223.2$62.3 million ($203.0(net of $1.6 million net of cash received)acquired) and was funded by cash on handhand. As part of the Noble Acquisition, we are also obligated to pay to the selling equityholders of Noble certain contingent consideration based on 2024 cumulative financial performance metrics defined in the purchase agreement. Based on projection as of the acquisition date, we estimated the aggregate fair value for this contingent consideration arrangement to be $2.9 million utilizing the Black-Scholes valuation model. We are in the process of finalizing purchase accounting. As of December 31, 2019, $5 million was held in restricted cash pending the finalization of a working capital adjustment. 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 borrowingsnasal 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 revolving linePharma segment since the date of credit.acquisition.
Mega AirlessOn May 31, 2019, we completed our acquisition (the “Gateway Acquisition”) of all of the outstanding equity interests of Gateway Analytical LLC (“Gateway”). Gateway, located in Gibsonia, PA, provides industry-leading particulate detection and predictive analytical services to customers developing injectable medicines. The purchase price was approximately $7.0 million and was funded by cash on hand. As part of the Gateway Acquisition, we are also obligated to pay to the selling equityholder of Gateway certain contingent consideration based on 2020 and 2022 performance targets defined in the purchase agreement. Based on projections as of the acquisition date, we estimated the aggregate fair value for this contingent consideration arrangement to be $3.0 million. The results of Gateway’s operations have been included in the Condensed Consolidated Financial Statements within our Pharma segment since the date of acquisition.
On August 27, 2018, we completed our acquisition (the “CSP Technologies Acquisition”) of all of the outstanding capital stock of CSP Technologies S.à r.l. (“CSP Technologies”). CSP Technologies is a leader in active packaging technology based on proprietary material science expertise for the pharma and food service markets. CSP Technologies operates manufacturing locations in the U.S. and France. The preliminary purchase price was approximately $553.5 million and was funded by cash on hand. As of December 31, 2018, $5 million was held in restricted cash pending the finalization of a working capital adjustment. The $5 million cash amount was released from restriction in January 2019 after the finalization of the working capital adjustment, resulting in a refund of $1.0 million.
CSP Technologies contributed net sales of $59.4$48.9 million and pretax incomeloss of $4.1$10.2 million for the year ended December 31, 2016.2018. Sales of $33.9 million and $15.0 million were reported in the Pharma and Food + Beverage segments, respectively, for the year ended December 31, 2018. Pretax loss of $10.3 million and pretax income of $0.1 million were reported in the Pharma and Food + Beverage segments, respectively, for the year ended December 31, 2018. Included in pretax income is a purchase accounting adjustment$14.1 million of $2.6 million related to the fair value ofadjustment amortization for inventory acquired. The results of the acquired business from the acquisition date are included in the accompanying consolidated financial statements and are reported in the Beauty + Home and Pharma reporting segments.sold during 2018.
For the year ended December 31, 2016,2019, we recognized $5.6$3.4 million in transaction costs related to the acquisitions of Noble, Nanopharm and Gateway. For the year ended December 31, 2018, we recognized $9.0 million in transaction costs related to the acquisition of Mega Airless.CSP Technologies. These costs are reflected in the selling, research & development and administrativeadministration section of the Consolidated Statements of Income.Income and within acquisition-related costs as disclosed in Note 18 – Segment Information.
| |
73/ATR | 2019 Form 10-K |
The following table summarizes the assets acquired and liabilities assumed as of the acquisition date at estimated fair value.
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| | | | | | | |
|
| 2019 |
| 2018 |
| ||
Assets | | | | | | | |
Cash and equivalents | | $ | 3,427 | | $ | 24,053 | |
Accounts receivable | |
| 3,504 | |
| 20,847 | |
Inventories | |
| — | |
| 42,169 | |
Prepaid and other | |
| 2,478 | |
| 3,995 | |
Property, plant and equipment | |
| 4,267 | |
| 99,194 | |
Goodwill | |
| 59,143 | |
| 278,020 | |
Intangible assets | |
| 52,980 | |
| 177,120 | |
Other miscellaneous assets | |
| 430 | |
| 1,039 | |
Liabilities | | | | | | | |
Current maturities of long-term obligations | |
| — | |
| 129 | |
Accounts payable, accrued and other liabilities | |
| 5,388 | |
| 31,989 | |
Long-term obligations | |
| — | |
| 6,037 | |
Deferred income taxes | |
| 2,592 | |
| 38,442 | |
Retirement and deferred compensation plans | | | — | | | 1,038 | |
Deferred and other non-current liabilities | |
| 1,598 | |
| 15,344 | |
Net assets acquired | | $ | 116,651 | | $ | 553,458 | |
During the quarter ended December 31, 2016, we obtained no other information requiring us to refine estimated fair values. As a result, no adjustments were made to the net assets acquired and we consider our purchase accounting to be complete.
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:
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| |||||||||||
|
| Weighted-Average |
| Estimated |
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|
| Useful Life |
| Fair Value |
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|
| (in years) |
| of Asset |
| ||||||||||||
| | | | | | | | | | | | ||||||
| | 2019 | | 2018 | | ||||||||||||
|
| Weighted-Average |
| Estimated |
| Weighted-Average |
| Estimated |
| ||||||||
| | Useful Life | | Fair Value | | Useful Life | | Fair Value |
| ||||||||
| | (in years) | | of Asset | | (in years) | | of Asset |
| ||||||||
Acquired technology |
| 8 | | $ | 9,160 |
| 12 | | $ | 46,700 | | ||||||
Customer relationships |
| 11 |
| $ | 57,120 |
|
| 11 | |
| 39,379 |
| 16 | |
| 113,300 | |
Technology |
| 15 |
|
| 10,838 |
| |||||||||||
Trademark |
| 4 |
|
| 4,148 |
| |||||||||||
Trademarks and trade names | | 4 | | | 2,457 | | 9 | | | 14,600 | | ||||||
License agreements and other |
| 1 | |
| 1,984 |
| 11 | |
| 2,520 | | ||||||
Total |
|
|
| $ | 72,106 |
| | | | $ | 52,980 | | | | $ | 177,120 | |
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|
Goodwill in the amount of $105.6$59.1 million and $278.0 million was recorded forrelated to the acquisition of Mega Airless, of which $49.8 million2019 and $55.82018 acquisitions, respectively. For 2019, $59.1 million is included in the BeautyPharma segment and, for 2018, $174.3 million and $103.7 million is included in the Pharma and Food + Home and PharmaBeverage segments, respectively. 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 the Company’sour commercial presence in selling the Mega Airless lineNoble, Nanopharm, Gateway and CSP Technologies lines of products in markets where Mega Airlessthey did not previously operate and the abilityabilities of Mega Airlessthe acquired companies to maintain itstheir competitive advantage from a technical viewpoint. Goodwill will not be amortized, but will be tested for impairment at least annually. WeFor 2019 acquisitions, goodwill of $29.6 million will be deductible for tax purposes. For the 2018 acquisitions, we do not expect any of the goodwill will be deductible for tax purposes.
Pro forma results of operations for 2019 acquisitions have not been presented as the effects of these business combinations individually and in aggregate were not material to the consolidated results of operations.
The unaudited pro forma results presented below include the effects of the Mega AirlessCSP Technologies acquisition as if it had occurred as of January 1, 2015.2017. The unaudited pro forma results reflect certain adjustments related to the acquisition, such as theintangible asset amortization, associated with estimates for the acquired intangible assets and fair value adjustments for inventory.inventory and financing costs related to the change in our debt structure. The 20162018 pro forma earnings were adjusted to exclude $4.2$16.7 million after tax ($5.622.0 million pretax) of transaction and other costs. The aforementioned costs includinginclude compensation, consulting, legal and advisory fees. The 20162018 pro forma earnings were also adjusted to exclude $1.7$10.9 million after tax ($2.614.1 million pretax) of nonrecurring expense related to the fair value adjustment to acquisition-date inventory. The 20152017 pro forma earnings were adjusted to include these adjustments.
The pro forma results do not include any synergies or other expected benefits of the acquisition. Accordingly, the unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been completed on the dates indicated.
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|
Years Ended December 31, |
| 2016 |
| 2015 |
| ||
($ millions) |
|
|
|
|
|
|
|
Net Sales |
| $ | 2,340 |
| $ | 2,386 |
|
Net Income Attributable to AptarGroup Inc. |
|
| 213 |
|
| 194 |
|
Net Income per common share — basic |
|
| 3.39 |
|
| 3.11 |
|
Net Income per common share — diluted |
|
| 3.29 |
|
| 3.01 |
|
| |
|
|
| | | | | | | | | | |
Years Ended December 31, |
| |
| 2018 |
| 2017 |
| |||
| | | | | | | | | | |
Net Sales | | | | | $ | 2,857,765 | | $ | 2,605,095 | |
Net Income Attributable to AptarGroup Inc. | |
| | |
| 208,717 | |
| 230,753 | |
Net Income per common share — basic | |
| | |
| 3.34 | |
| 3.70 | |
Net Income per common share — diluted | |
| | |
| 3.21 | |
| 3.57 | |
On May 1, 2018, we acquired 100% of the common stock of Reboul, a French manufacturer specializing in stamping, decorating and assembling metal and plastic packaging for the cosmetics and luxury markets, for an initial purchase price of approximately $3.5 million (net of $112 thousand of cash acquired) (the “Reboul Acquisition”). The results of Reboul’s operations have been included in the consolidated financial statements within our Beauty + Home segment since the date of acquisition. As part of the Reboul Acquisition, we were obligated to pay to the selling shareholders of Reboul certain contingent consideration based on 2018 EBITDA as defined in the purchase agreement. These targets were not achieved and we did not pay any contingent consideration.
Subsequent to year end, on February 13, 2020, we entered into a securities purchase agreement to acquire 100% of the membership interests of Fusion Packaging I, LP (“Fusion”), contingent on the closing date of the transaction. Fusion, based in Dallas, TX, is a global leader in the design, engineering, manufacturing and distribution of luxury packaging for the beauty industry. The transaction is subject to customary regulatory approvals and other customary closing conditions. The purchase will be funded with available cash on hand and/or borrowings under our revolving credit facility.
Asset Acquisition
On August 2, 2019, we completed our asset acquisition (the “Bapco Acquisition”) of the remaining 80% ownership interest in the capital stock of Bapco Closures Holdings Limited (“Bapco”), for $3.8 million (net of $2.9 million of cash acquired). The 20% ownership investment previously held in Bapco is now included within the intangible assets acquired. Bapco, located in Horesell, UK, provides innovative closures sealing technology that provides package integrity and tamper evidence. The results of Bapco’s operations have been included in the Condensed Consolidated Financial Statements within our Food + Beverage segment since the date of acquisition.
Equity and Other Investments
On October 1, 2019, we entered into a strategic definitive agreement to acquire 49% of the equity interests in three related companies: Suzhou Hsing Kwang, Suqian Hsing Kwang and Suzhou BTY, (collectively referred to as “BTY”), contingent on the settlement date of the transaction. We have a call option to acquire an additional 26% to 31% of BTY’s equity interests following the initial lock-up period of 5 years based on a predetermined formula. Subsequent to the second lock-up period, which ends 3 years subsequent to the initial lock-up period, we have a call option to acquire the remaining equity interests of BTY based on a predetermined formula. Additionally, the selling shareholders of BTY have a put option for the remaining equity interest to be acquired by Aptar based on a predetermined formula. The BTY entities are leading Chinese manufacturers of high quality, decorative metal components, metal-plastic sub-assemblies, and complete color cosmetics packaging solutions for the beauty industry. Subsequent to the year ended December 31, 2019, on January 1, 2020 the transaction closed for an approximate purchase price of $32 million for our 49% share.
During August 2019, we also invested an aggregate amount of $3.5 million in 2 preferred equity investments in sustainability companies that are accounted for at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. There were no indications of impairment nor were there any changes from observable price changes noted in the three months ended December 31, 2019.
In May 2018, we invested $10.0 million in preferred equity stock of Reciprocal Labs Corporation, doing business as Propeller Health, consistent with measurement alternative guidance described in Note 1 above. NaN impairment charge was recorded during 2018 against this investment. We recorded a gain of approximately $6.5 million during the fourth quarter of 2018 by adjusting the carrying amount to its expected sales proceeds as this investment was subsequently sold during January 2019.
| |
75/ATR | 2019 Form 10-K |
NOTE 21 RESTRUCTURING INITIATIVES
In late 2017, we began a business transformation to drive profitable sales growth, increase operational excellence, enhance our approach to innovation and improve organizational effectiveness. The primary focus of the plan will be the Beauty + Home segment; however, certain global general and administrative functions will also be addressed. During 2019 and 2018, we recognized approximately $20.5 million and $63.8 million of restructuring costs related to this plan, respectively. Using current exchange rates, we expect total implementation costs of approximately $110 million for these initiatives. The cumulative expense incurred to date was $86.5 million. We also anticipate making capital investments related to the transformation plan of approximately $55 million, of which the $38 million has been incurred to date.
As of December 31, 2019 we have recorded the following activity associated with the transformation plan:
| | | | | | | | | | | | | | | | |
|
| Beginning |
| Net Charges |
| | |
| | |
| Ending |
| |||
| | Reserve at | | for the Year | | | | | Interest and | | Reserve at |
| ||||
| | 12/31/2018 | | Ended 12/31/2019 | | Cash Paid | | FX Impact | | 12/31/2019 |
| |||||
Employee severance | | $ | 3,934 | | $ | 8,104 | | $ | (4,813) | | $ | (135) | | $ | 7,090 | |
Professional fees and other costs | |
| 11,101 | |
| 12,368 | |
| (19,795) | |
| (65) | |
| 3,609 | |
Totals | | $ | 15,035 | | $ | 20,472 | | $ | (24,608) | | $ | (200) | | $ | 10,699 | |
NOTE 2022 QUARTERLY DATA (UNAUDITED)
Quarterly results of operations and per share information for the years ended December 31, 20162019 and 20152018 are as follows:
| | | | | | | | | | | | | | | | |
| | Quarter | | Total |
| |||||||||||
|
| First |
| Second |
| Third |
| Fourth |
| for Year |
| |||||
Year Ended December 31, 2019: | | | | | | | | | | | | | | | | |
Net sales | | $ | 744,460 | | $ | 742,661 | | $ | 701,278 | | $ | 671,333 | | $ | 2,859,732 | |
Gross profit (1) | |
| 233,841 | |
| 231,739 | |
| 215,222 | |
| 193,588 | |
| 874,390 | |
Net Income | |
| 62,999 | |
| 73,921 | |
| 56,769 | |
| 48,538 | |
| 242,227 | |
Net Income Attributable to AptarGroup, Inc. | |
| 63,004 | |
| 73,915 | |
| 56,750 | |
| 48,533 | |
| 242,202 | |
Per Common Share — 2019: | | | | | | | | | | | | | | | | |
Net Income Attributable to AptarGroup, Inc. | | | | | | | | | | | | | | | | |
Basic | | $ | 1.00 | | $ | 1.16 | | $ | .89 | | $ | .76 | | $ | 3.81 | |
Diluted | |
| .96 | |
| 1.12 | |
| .85 | |
| .73 | |
| 3.66 | |
Average number of shares outstanding: | | | | | | | | | | | | | | | | |
Basic | |
| 62,964 | |
| 63,471 | |
| 64,010 | |
| 63,835 | |
| 63,574 | |
Diluted | |
| 65,349 | |
| 66,232 | |
| 66,702 | |
| 66,192 | |
| 66,150 | |
Year Ended December 31, 2018: | | | | | | | | | | | | | | | | |
Net sales | | $ | 703,350 | | $ | 710,608 | | $ | 665,775 | | $ | 685,028 | | $ | 2,764,761 | |
Gross profit (1) | |
| 209,171 | |
| 209,018 | |
| 192,544 | |
| 184,775 | |
| 795,508 | |
Net Income | |
| 59,288 | |
| 55,781 | |
| 39,022 | |
| 40,675 | |
| 194,766 | |
Net Income Attributable to AptarGroup, Inc. | |
| 59,300 | |
| 55,775 | |
| 38,996 | |
| 40,674 | |
| 194,745 | |
Per Common Share — 2018: | | | | | | | | | | | | | | | | |
Net Income Attributable to AptarGroup, Inc. | | | | | | | | | | | | | | | | |
Basic | | $ | .95 | | $ | .89 | | $ | .63 | | $ | .65 | | $ | 3.12 | |
Diluted | |
| .92 | |
| .86 | |
| .60 | |
| .62 | |
| 3.00 | |
Average number of shares outstanding: | | | | | | | | | | | | | | | | |
Basic | |
| 62,128 | |
| 62,402 | |
| 62,378 | |
| 62,834 | |
| 62,437 | |
Diluted | |
| 64,414 | |
| 64,850 | |
| 65,129 | |
| 65,344 | |
| 64,958 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Quarter |
| Total |
| |||||||||||
|
| First |
| Second |
| Third |
| Fourth |
| for Year |
| |||||
Year Ended December 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 582,338 |
| $ | 619,999 |
| $ | 589,729 |
| $ | 538,868 |
| $ | 2,330,934 |
|
Gross profit (1) |
|
| 173,734 |
|
| 192,495 |
|
| 171,574 |
|
| 149,576 |
|
| 687,379 |
|
Net Income |
|
| 43,866 |
|
| 59,051 |
|
| 53,100 |
|
| 49,587 |
|
| 205,604 |
|
Net Income Attributable to AptarGroup, Inc. |
|
| 43,863 |
|
| 59,048 |
|
| 53,098 |
|
| 49,581 |
|
| 205,590 |
|
Per Common Share — 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to AptarGroup, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | .70 |
| $ | .94 |
| $ | .84 |
| $ | .79 |
| $ | 3.27 |
|
Diluted |
|
| .67 |
|
| .91 |
|
| .82 |
|
| .77 |
|
| 3.17 |
|
Dividends declared |
|
| .30 |
|
| .30 |
|
| .30 |
|
| .32 |
|
| 1.22 |
|
Stock price high (2) |
|
| 79.04 |
|
| 80.36 |
|
| 81.50 |
|
| 78.10 |
|
| 81.50 |
|
Stock price low (2) |
|
| 66.33 |
|
| 74.16 |
|
| 75.01 |
|
| 70.32 |
|
| 66.33 |
|
Average number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 62,722 |
|
| 63,053 |
|
| 62,858 |
|
| 62,586 |
|
| 62,804 |
|
Diluted |
|
| 65,063 |
|
| 64,785 |
|
| 64,690 |
|
| 64,220 |
|
| 64,849 |
|
Year Ended December 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 589,811 |
| $ | 594,275 |
| $ | 586,290 |
| $ | 546,773 |
| $ | 2,317,149 |
|
Gross profit (1) |
|
| 170,853 |
|
| 185,917 |
|
| 170,498 |
|
| 152,584 |
|
| 679,852 |
|
Net Income |
|
| 45,099 |
|
| 57,541 |
|
| 53,262 |
|
| 43,393 |
|
| 199,295 |
|
Net Income Attributable to AptarGroup, Inc. |
|
| 45,171 |
|
| 57,539 |
|
| 53,247 |
|
| 43,391 |
|
| 199,348 |
|
Per Common Share — 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to AptarGroup, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | .73 |
| $ | .92 |
| $ | .85 |
| $ | .69 |
| $ | 3.19 |
|
Diluted |
|
| .70 |
|
| .90 |
|
| .83 |
|
| .68 |
|
| 3.09 |
|
Dividends declared |
|
| .28 |
|
| .28 |
|
| .28 |
|
| .30 |
|
| 1.14 |
|
Stock price high (2) |
|
| 67.68 |
|
| 66.31 |
|
| 70.34 |
|
| 75.96 |
|
| 75.96 |
|
Stock price low (2) |
|
| 61.39 |
|
| 61.98 |
|
| 60.73 |
|
| 65.79 |
|
| 60.73 |
|
Average number of shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 62,292 |
|
| 62,697 |
|
| 62,886 |
|
| 62,461 |
|
| 62,585 |
|
Diluted |
|
| 64,494 |
|
| 64,276 |
|
| 64,454 |
|
| 64,266 |
|
| 64,492 |
|
(1) |
| Gross profit is defined as net sales less cost of sales and depreciation. |
NOTE 23 SUBSEQUENT EVENTS
On January 1, 2020, the BTY transaction closed for an approximate purchase price of $32 million for our 49% share. Refer to Note 20- Acquisitions for further details on the investment.
OnFebruary 13, 2020, we entered into a securities purchase agreement to acquire 100% of the membership interests of Fusion. Refer to Note 20 – Acquisitions for further details on the acquisition.
|
|
|
| |
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of AptarGroup, Inc.:
In our opinion,Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial positionbalance sheets of AptarGroup, Inc. and its subsidiaries at(the “Company”) as of December 31, 20162019 and December 31, 2015,2018, and the resultsrelated consolidated statements of their operationsincome, comprehensive income, changes in equity, and their cash flows for each of the three years in the period ended December 31, 20162019, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2019 listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016,2019, based on criteria established in Internal Control - Integrated Framework (2013)issued by the Committee of Sponsoring Organizations ofCOSO.
Change in Accounting Principle
As discussed in Note 1 to the Treadway Commission (COSO). consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,, included in “Management’sManagement’s Report on Internal Control over Financial Reporting”,Reporting appearing under Item 9A.9A. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discusseddescribed in Note 1Management’s Report on Internal Control over Financial Reporting, management has excluded Nanopharm Ltd. and Noble International Holdings, Inc., Genia Medical Inc., and JBCB Holdings, LLC (collectively referred to as “Noble”) from its assessment of internal control over financial reporting as of December 31, 2019 because the entities were acquired by the Company in purchase business combinations during 2019. We have also excluded Nanopharm Ltd. and Noble from our audit of internal control over financial reporting. Nanopharm Ltd. and Noble are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1% of the related consolidated financial statements, the Company changed the manner in which it accountsstatement amounts as of and for the balance sheet classificationyear ended December 31, 2019.
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77/ATR | 2019 Form 10-K |
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment – Active Packaging Reporting Unit
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded MegaPlast GmbHNote 1 and its subsidiaries along with Megaplast France S.a.r.l and Mega Pumps L.P. (“Mega Airless”) from its assessment of internal control over4 to the consolidated financial reportingstatements, the Company’s consolidated goodwill balance was $763 million as of December 31, 2016 because2019. As disclosed by management, the goodwill associated with the Active Packaging reporting unit was $163 million as of December 31, 2019. During the third quarter of 2019, management performed a quantitative impairment assessment using a discounted cash flow analysis of the Active Packaging reporting unit. Management calculated the fair value of the Active Packaging reporting unit and compared it was acquired bywith the Company inassociated carrying amount as of July 1, 2019, and, upon management’s change to the Company’s goodwill impairment testing date, performed a purchase business combination during 2016. We have also excluded Mega Airless fromqualitative impairment assessment as of October 1, 2019. Management’s determination of the fair value of the Company’s reporting units, based on future cash flows for the reporting units, requires significant judgment and the use of estimates and assumptions related to projected revenue growth rates, the terminal growth factor, as well as the discount rate.
The principal considerations for our auditdetermination that performing procedures relating to the goodwill impairment assessment of internal control over financial reporting. Mega AirlessActive Packaging reporting unit is a wholly-owned subsidiary whose total assets and total revenues represent 2% and 3%, respectively,critical audit matter are there was significant judgment by management when developing the fair value measurement of the reporting unit. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s future cash flows, including the significant assumptions related to projected revenue growth rates, the terminal growth factor, and the discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statement amounts asstatements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Active Packaging reporting unit. These procedures also included, among others, testing management’s process for developing the fair value estimate of the reporting unit; evaluating the appropriateness of management’s discounted cash flow model; testing the completeness and foraccuracy of underlying data used in the year ended December 31, 2016. model; and evaluating the significant assumptions used by management, including the projected revenue growth rates, the terminal growth factor, and the discount rate. Evaluating management’s assumption related to projected revenue growth rates involved evaluating whether the assumption used by management was reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether this assumption was consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and certain significant assumptions, including the terminal growth factor and the discount rate.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 27, 2017
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/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 24, 2020
We have served as the Company’s auditor since 1992.
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79/ATR | 2019 Form 10-K |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company’s managementManagement has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of the Company’sour disclosure controls and procedures (as such term is defined in Rule 13a‑15(e)13a-15(e) under the Securities Exchange Act of 1934) as of December 31, 2016.2019. Based on that evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures were effective as of such date.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a‑15(f)13a-15(f) under the Securities Exchange Act of 1934. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. On February 29, 2016, the CompanyJune 5, 2019 and October 31, 2019, we completed its acquisitionour acquisitions of MegaPlast GmbHNanopharm Ltd. and its subsidiaries along with Megaplast France S.a.r.l.Noble International Holdings, Inc., Genia Medical, Inc. and Mega Pumps L.P. (“Mega Airless”JBCB Holdings, LLC (collectively referred to as “Noble”) respectively, as discussed in theItem 8, Note 20 - Acquisitions footnote to the Company’s Consolidated Financial Statements. Management excluded Mega AirlessNanopharm Ltd. and Noble from its assessment of the Company’sour internal control over financial reporting as it wasthey were acquired during the fiscal year. Mega Airless is a wholly-owned subsidiary; whoseNanopharm Ltd. and Noble’s total assets and total revenues represent 2% and 3%, respectively,less than 1% of the Consolidated Financial Statement amounts as of and for the year ended December 31, 2016. The Company’s management2019. Management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of our internal control over financial reporting as of December 31, 20162019 based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation under the framework in Internal Control—Integrated Framework, management has concluded that our internal control over financial reporting was effective as of December 31, 2016.2019.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has issued an attestation report on the effectiveness of our internal control over financial reporting. This report appears on page 66.77.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the fiscal quarter ended December 31, 2016,2019, the Company implemented enterprise resource planning (“ERP”) systems at one operating facility. Consequently, the control environments have been modified at these locationsthis location to incorporate the controls contained within the new ERP system. The Company is also insystems. Except for the process of reviewing the internal control structure of Mega Airless and, if necessary, will make appropriate changes as we incorporate our controls and procedures into this recently-acquired business. Other than these items,foregoing, no changes in the Company’sour internal control over financial reporting (as such term is defined in Rule 13a‑15(f)13a-15(f) under the Securities Exchange Act of 1934) occurred during the Company’sour fiscal quarter ended December 31, 20162019 that materially affected, or isare reasonably likely to materially affect, the Company’sour internal control over financial reporting. As noted above, we excluded Nanopharm Ltd. and Noble from our evaluation of internal control over financial reporting as of December 31, 2019 because these acquisitions were completed during the fiscal year.
ITEM 9B. OTHER INFORMATION
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to directors may be found under the caption “Proposal 1—Election“Election of Directors” in the Company’sour Proxy Statement for the Annual Meeting of Stockholders to be held on May 3, 20176, 2020 (the “2017“2020 Proxy Statement”) and is incorporated herein by reference.
Information with respect to executive officers may be found under the caption “Executive“Information About Our Executive Officers” in Part I of this report and is incorporated herein by reference.
Information with respect to audit committee members and audit committee financial experts may be found under the caption “Corporate Governance—Audit Committee” in the 20172020 Proxy Statement and is incorporated herein by reference.
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Information with respect to the Company’sour Code of Business Conduct and Ethics may be found under the caption “Corporate Governance—Code of Business Conduct and Ethics” in the 20172020 Proxy Statement and is incorporated herein by reference. Our Code of Business Conduct and Ethics is available through the Corporate Governance link on the Investor RelationsInvestors page of our website (www.aptar.com).
The information set forth under the heading “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” in the 20172020 Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the headings “Board Compensation”, “Executive Officer Compensation” and “Compensation“Management Development and Compensation Committee Report” in the 20172020 Proxy Statement is incorporated herein by reference. The information included under the heading “Compensation“Management Development and Compensation Committee Report” in the 20172020 Proxy Statement shall not be deemed to be “soliciting” material or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSOWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information set forth under the heading “Security Ownership of Certain Beneficial Owners, Directors and Management” and “Equity Compensation Plan Information” in the 20172020 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information set forth under the heading “Transactions with Related Persons” and “Corporate Governance—Independence of Directors” in the 20172020 Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to the independent registered public accounting firm fees and services may be found under the caption “Proposal [4]—Ratification“Ratification of the Appointment of PricewaterhouseCoopers LLP as the Independent Registered Public Accounting Firm for 2017”2020” in the 20172020 Proxy Statement. Such information is incorporated herein by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) |
| The following documents are filed as a part of this report: |
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| | Description | | | |
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1) | | All Financial Statements | | | |
| | The financial statements are set forth under Item 8 of this report on Form 10-K | | | |
| | Consolidated Statements of Income for the Years Ended December 31, 2019, 2018 and 2017 | | 34 | |
| | Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017 | | 35 | |
| | Consolidated Balance Sheets as of December 31, 2019 and 2018 | | 36 | |
| | Consolidated Statements of Changes in Equity for the Years Ended December 31, 2019, 2018 and 2017 | | 38 | |
| | Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017 | | 39 | |
| | | 41 | | |
| | | 77 | | |
2) | | | 88 | | |
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| | All other schedules have been omitted because they are not applicable or not required. | | | |
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1) |
| All Financial Statements |
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| The financial statements are set forth under Item 8 of this report on Form 10‑K |
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| Consolidated Statements of Income for the Years Ended December 31, 2016, 2015 and 2014 |
| 33 |
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| Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, 2015 and 2014 |
| 34 |
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| Consolidated Balance Sheets as of December 31, 2016 and 2015 |
| 35 |
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| Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 2014 |
| 37 |
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| Consolidated Statements of Changes in Equity for the Years Ended December 31, 2016, 2015 and 2014 |
| 38 |
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2) |
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(b) |
| Exhibits required by Item 601 of Regulation |
ITEM 16. FORM 10‑K SUMMARY
None.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated.
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AptarGroup, Inc.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 2016, 2015 and 2014
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Dollars in thousands |
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2016 |
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Allowance for doubtful accounts |
| $ | 2,710 |
| $ | 561 |
| $ | (282) |
| $ | 2,989 |
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Deferred tax valuation allowance |
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| 6,125 |
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| 535 |
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| 4,070 |
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2015 |
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Allowance for doubtful accounts |
| $ | 4,251 |
| $ | (813) |
| $ | (728) |
| $ | 2,710 |
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Deferred tax valuation allowance |
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| 7,734 |
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| 564 |
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| 6,125 |
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2014 |
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Allowance for doubtful accounts |
| $ | 4,416 |
| $ | 741 |
| $ | (906) |
| $ | 4,251 |
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Deferred tax valuation allowance |
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| 4,840 |
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| 7,734 |
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INDEX TO EXHIBITS
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated.
AptarGroup, Inc. SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 2019, 2018 and 2017
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