10-Q 1 0001.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ----to---- COMMISSION FILE NUMBER 1-11846 AptarGroup, Inc. (Exact Name of Registrant as Specified in its Charter) DELAWARE 36-3853103 -------- ---------- (State of Incorporation) (I.R.S. Employer Identification No.) 475 West Terra Cotta Avenue, Suite E, Crystal Lake, Illinois 60014 ------------------------------------------------------------ ----- (Address of Principal Executive Offices) (Zip Code) 815-477-0424 ------------ (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (November 7, 2000) Common Stock 35,573,636 ================================================================================ AptarGroup, Inc. FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2000 INDEX
PART I. FINANCIAL INFORMATION Page ---- ITEM 1. Financial statements (Unaudited) Consolidated Statements of Income - Three and Nine Months Ended September 30, 2000 and 1999 3 Consolidated Balance Sheets - September 30, 2000 and December 31, 1999 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2000 and 1999 6 Notes to Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 14 PART II. OTHER INFORMATION ITEM 2. Changes in Securities and Use of Proceeds 16 ITEM 6. Exhibits and Reports on Form 8-K 16 SIGNATURE 17
AptarGroup, Inc. Consolidated Statements of Income (Amounts in Thousands, Except Per Share Data) (Unaudited)
Three Months Nine Months Ended September 30, Ended September 30, --------------------- ---------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net Sales.............................. $224,691 $210,479 $670,004 $617,566 Operating Expenses: Cost of sales........................ 142,595 130,489 418,517 384,464 Selling, research & development and administrative.................. 35,251 33,507 108,288 99,875 Depreciation and amortization........ 18,275 17,589 54,870 51,754 -------- -------- -------- -------- 196,121 181,585 581,675 536,093 -------- -------- -------- -------- Operating Income....................... 28,570 28,894 88,329 81,473 -------- -------- -------- -------- Other Income (Expense): Interest expense..................... (5,157) (3,845) (14,106) (10,257) Interest income...................... 468 322 1,075 943 Equity in results of affiliates...... 322 (283) 137 (831) Minority interests................... (212) (62) (466) (93) Miscellaneous, net................... 994 36 2,458 918 In-process research and development......................... ---- (3,300) ---- (3,300) -------- -------- -------- -------- (3,585) (7,132) (10,902) (12,620) -------- -------- -------- -------- Income Before Income Taxes............. 24,985 21,762 77,427 68,853 Provision for Income Taxes............. 8,745 8,868 27,119 25,510 -------- -------- -------- -------- Net Income............................. $ 16,240 $ 12,894 $ 50,308 $ 43,343 ======== ======== ======== ======== Net Income Per Common Share: Basic............................... $ .45 $ .35 $ 1.40 $ 1.19 ======== ======== ======== ======== Diluted............................. $ .45 $ .35 $ 1.38 $ 1.17 ======== ======== ======== ======== Average Number of Shares Outstanding: Basic............................... 35,774 36,440 35,952 36,325 Diluted............................. 36,294 37,039 36,485 36,949
See accompanying notes to consolidated financial statements. 3 AptarGroup, Inc. Consolidated Balance Sheets (Amounts in Thousands, Except Per Share Data)
(Unaudited) September 30, December 31, 2000 1999 ------------- ------------ Assets Current Assets: Cash and equivalents........................................ $ 45,661 $ 32,416 Accounts and notes receivable, less allowance for doubtful accounts of $7,299 in 2000 and $6,865 in 1999............ 209,074 188,507 Inventories................................................. 116,372 109,151 Prepayments and other....................................... 23,363 21,160 --------- --------- 394,470 351,234 --------- --------- Property, Plant and Equipment: Buildings and improvements.................................. 96,432 96,427 Machinery and equipment..................................... 627,750 615,665 --------- --------- 724,182 712,092 Less: Accumulated depreciation.............................. (379,166) (357,733) --------- --------- 345,016 354,359 Land........................................................ 4,489 4,199 --------- --------- 349,505 358,558 --------- --------- Other Assets: Investments in affiliates................................... 6,656 3,969 Goodwill, less accumulated amortization of $11,713 in 2000 and $9,943 in 1999.................................. 124,315 127,214 Miscellaneous............................................... 20,277 22,323 --------- --------- 151,248 153,506 --------- --------- Total Assets $ 895,223 $ 863,298 ========= =========
See accompanying notes to consolidated financial statements. 4 AptarGroup, Inc. Consolidated Balance Sheets (Amounts in Thousands, Except Per Share Data)
(Unaudited) September 30, December 31, Liabilities and Stockholders' Equity 2000 1999 ------------ ------------ Current Liabilities: Notes payable...................................... $ 47,829 $ 25,499 Current maturities of long-term obligations........ 9,178 9,648 Accounts payable and accrued liabilities........... 156,979 124,758 -------- -------- 213,986 159,905 -------- -------- Long-Term Obligations................................ 228,243 235,649 -------- -------- Deferred Liabilities and Other: Deferred income taxes.............................. 29,295 25,529 Retirement and deferred compensation plans......... 12,300 14,658 Minority interests................................. 4,144 4,118 Deferred and other non-current liabilities......... 2,571 3,170 -------- -------- 48,310 47,475 -------- -------- Stockholders' Equity: Common stock, $.01 par value....................... 366 365 Capital in excess of par value..................... 114,387 112,921 Retained earnings.................................. 426,678 381,762 Accumulated other comprehensive income............. (111,792) (68,567) Less treasury stock at cost, 1,000 shares in 2000 and 235.5 shares in 1999.......................... (24,955) (6,212) -------- -------- 404,684 420,269 -------- -------- Total Liabilities and Stockholders' Equity $895,223 $863,298 ======== ========
See accompanying notes to consolidated financial statements. 5 AptarGroup, Inc. Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2000 and 1999 (Amounts in Thousands, brackets denote cash outflows) (Unaudited)
Nine Months Ended September 30, 2000 1999 ---- ---- Cash Flows From Operating Activities: Net income............................................... $ 50,308 $ 43,343 Adjustments to reconcile net income to net cash provided by operations: Depreciation............................................. 50,668 48,830 Amortization............................................. 4,202 2,924 Provision for bad debts.................................. 1,347 779 Minority interests....................................... 466 93 Deferred income taxes.................................... 2,999 587 Retirement and deferred compensation plans............... (937) (568) Equity in results of affiliates in excess of cash distributions received................. (137) 831 In-process research & development write-off.............. -- 3,300 Changes in balance sheet items, excluding effects from foreign currency adjustments: Accounts receivable...................................... (42,599) (4,879) Inventories.............................................. (18,782) (5,074) Prepaid and other current assets......................... (3,929) (5,304) Accounts payable and accrued liabilities................. 46,560 2,219 Other changes, net....................................... 5,017 5,931 -------- --------- Net cash provided by operations.......................... 95,183 93,012 -------- --------- Cash Flows From Investing Activities: Capital expenditures..................................... (68,687) (63,100) Disposition of property and equipment.................... 2,765 1,250 Acquisition of businesses................................ (2,271) (144,431) Collections of notes receivable, net..................... 18 (142) Investments in affiliates................................ -- (1,500) -------- --------- Net cash (used) by investing activities.................. (68,175) (207,923) -------- --------- Cash Flows From Financing Activities: Increase (decrease) in notes payable..................... 23,585 (7,672) Proceeds from long-term obligations...................... 2,525 150,294 Repayments of long-term obligations...................... (13,434) (16,344) Dividends paid........................................... (5,392) (4,712) Proceeds from stock options exercised.................... 1,467 1,717 Purchase of Treasury Stock............................... (18,744) -- -------- --------- Net cash (used) provided by financing activities......... (9,993) 123,283 -------- --------- Effect of Exchange Rate Changes on Cash.................... (3,770) (1,492) -------- --------- Net Increase in Cash and Equivalents....................... 13,245 6,880 Cash and Equivalents at Beginning of Period................ 32,416 25,159 -------- --------- Cash and Equivalents at End of Period...................... $ 45,661 $ 32,039 ======== =========
See accompanying notes to consolidated financial statements. 6 AptarGroup, Inc. Notes To Consolidated Financial Statements (Unaudited) Note 1 - Basis of Presentation The accompanying unaudited consolidated financial statements include the accounts of AptarGroup, Inc. and its subsidiaries. The terms "AptarGroup" or "Company" as used herein refer to AptarGroup, Inc. and its subsidiaries. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of consolidated financial position and results of operations for the interim periods presented. The accompanying unaudited consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. Accordingly, these unaudited consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report to Shareholders incorporated by reference into the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The results of operations of any interim period are not necessarily indicative of the results that may be expected for a fiscal year. Note 2 - Acquisitions During the first quarter of 1999, the Company acquired Emson Research, Inc. and related companies (Emson) for approximately $123 million in cash and 148,371 shares of the Company's common stock (valued at approximately $4 million). Approximately $23 million of debt was assumed in the transaction. Emson is a leading supplier of perfume pumps in the North American market and also maintains a significant position in the North American personal care and food pump markets. The excess purchase price over the fair value of the net assets acquired (Goodwill) in this acquisition was approximately $86 million and is being amortized on a straight-line basis over 40 years. During the third quarter of 1999, the Company acquired controlling interests in two companies and acquired a line of business from a third company for approximately $21 million in cash and approximately $4 million in assumed debt. The Goodwill in these acquisitions was approximately $4 million and is being amortized on a straight-line basis over lives ranging from 10 to 40 years. Two of the three acquisitions involved companies that manufacture and distribute products similar to the Company's products. The third acquisition, involving a company called Microflow Engineering S.A. (Microflow), is a research and development company whose primary project is to develop an electronic aerosol dispensing system primarily for the pharmaceutical market. Based upon an independent appraisal, a one-time charge against pretax and net income of $3.3 million for purchased in-process research and development (IPR&D) costs was recorded in conjunction with the purchase of 80% of this company. Since the acquisition, there have been no significant changes to the timing of the development of the project. The in-process technology is expected to be completed in late 2000. 7 In the first quarter of 2000, the Company acquired the remaining 50 percent of a joint venture in the United States for approximately $2.3 million in cash, assumed the remaining $3.75 million in debt and entered into a license agreement with the former joint venture partner. The acquired business produces spray caps and specialty actuators for aerosol valves and pumps for the North American market. There was no Goodwill acquired in the transaction. The acquisitions described above were accounted for by the purchase method of accounting for business combinations. Accordingly, the accompanying consolidated statements of income do not include any revenues or expenses related to these acquisitions prior to their respective closing dates. Following are the Company's unaudited pro forma results for 1999 and 2000 assuming the acquisitions occurred on January 1, 1999. The $3.3 million write-off of IPR&D in 1999 has been excluded from the proforma results.
(Amounts in Thousands, Except Per Share Data) Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 2000 1999 2000 1999 -------- -------- -------- ------- Net Sales $224,691 $210,479 $670,004 $628,728 Net Income $ 16,240 $ 15,920 $ 50,101 $ 44,749 Net Earnings per common share: Basic $ 0.45 $ 0.44 $ 1.39 $ 1.23 Diluted $ 0.45 $ 0.43 $ 1.37 $ 1.21 Weighted average shares outstanding: Basic 35,774 36,440 35,952 36,345 Diluted 36,294 37,039 36,485 36,969
These unaudited pro forma results have been prepared for comparative purposes only and may not be indicative of the results of operations which would have actually resulted had the combinations been in effect on January 1, 1999, or of future periods. Note 3 - Inventories At September 30, 2000 and December 31, 1999, approximately 25% of the total inventories are accounted for by the LIFO method. Inventories, by component, consisted of:
(Amounts in Thousands) September 30, December 31, 2000 1999 ------------- ------------ Raw Materials $ 53,236 $ 42,648 Work in progress 20,687 28,370 Finished goods 43,740 38,923 -------- -------- Total 117,663 109,941 Less LIFO reserve (1,291) (790) -------- -------- Total $116,372 $109,151 ======== ========
Inventories are stated at cost, which is lower than market. Costs included in inventories are raw materials, direct labor and manufacturing overhead. The cost of two domestic inventories and the 8 inventories of two foreign operations are determined by using the last-in, first-out "LIFO" method, while the remaining inventories are valued using the first-in, first-out (FIFO) method. Note 4 - Comprehensive Income AptarGroup's total comprehensive income was as follows:
(Amounts in Thousands) Three months ended September 30 Nine months ended September 30 ------------------------------- ------------------------------ 2000 1999 2000 1999 -------- ------- -------- -------- Net income $ 16,240 $12,894 $ 50,308 $ 43,343 Add/(Subtract): foreign currency (25,890) 9,431 (43,225) (28,496) translation adjustment -------- ------- -------- -------- Total comprehensive income (loss) ($ 9,650) $22,325 $ 7,083 $ 14,847 ======== ======= ======== ========
Note 5 - Stock Repurchase Program In the fourth quarter of 1999, the Board of Directors authorized the repurchase of a maximum of one million shares of the Company's outstanding shares. During the quarter ended September 30, 2000, the Company repurchased 379,200 shares for an aggregate amount of $9.3 million. At September 30, 2000 all one million shares had been repurchased for an aggregate amount of $25.0 million. Subsequent to the quarter ended September 30, 2000, the Board of Directors authorized an additional repurchase of a maximum of two million shares of the Company's outstanding shares. The timing of and total amount expended for share repurchases depends upon market conditions. Note 6 - Significant Non-Cash Transactions During the quarter ended September 30, 2000, the Company entered into a joint venture to which the Company contributed assets of $7.4 million and liabilities of $2.4 million. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net sales for the quarter and nine months ended September 30, 2000 totaled $224.7 million and $670.0 million, respectively, increases of approximately 7% and 8% respectively when compared to the corresponding periods of 1999. The stronger U.S. dollar relative to the same three-month and nine-month periods of 1999 negatively affected the translation of AptarGroup's foreign sales. Excluding the effects of exchange rates and acquisitions, sales for the quarter and nine months ended September 30, 2000 would have increased approximately 14% and 13%, respectively. Acquisitions completed in 1999 accounted for $11.3 million of the increase for the nine months ended September 30, 2000 and had minimal effect on the three months ended September 30, 2000. Sales of pumps to the worldwide fragrance/cosmetic and pharmaceutical markets remained strong in the quarter. In addition sales of pumps, valves and closures to the European personal care market also remained strong. Continuing the trend seen in the first half of the year, demand for aerosol valves, pumps and dispensing closures from the U.S. personal care and household markets remained soft in the quarter. Sales by European operations represented approximately 51% and 52% of net sales for the quarter and nine months ended September 30, 2000, respectively, compared to 53% and 55% for the same periods a year ago. Sales by U.S. operations represented 40% of net sales for the quarter and nine months ended September 30, 2000, respectively, compared to 40% and 39% for the same periods a year ago. Sales by other foreign operations represented 9% and 8% of net sales for the quarter and six months ended September 30, 2000, respectively, compared to 7% and 6% for the same periods a year ago. Cost of sales as a percent of net sales increased to 63.5% in the third quarter of 2000 compared to 62.0% for the same period in 1999. For the first nine months of 2000, cost of sales as a percent of net sales increased slightly to 62.5% compared to 62.3% in the same period a year ago. Increased price pressure and underutilization of fixed costs in the U.S. personal care and household markets negatively impacted cost of sales as a percentage of sales compared to the prior year in both periods. Selling, research & development and general and administrative expenses (SG&A) increased 5.2% or $1.7 million to $35.3 million in the third quarter of 2000 compared to $33.5 million in the same period a year ago. The increase in SG&A is primarily due to increased general and administrative expenses relating to outside consulting fees for a variety of projects including but not limited to software implementations. SG&A as a percent of net sales decreased slightly to 15.7% of sales in the third quarter of 2000 compared to 15.9% in the same period a year ago. SG&A for the nine months ended September 30, 2000 increased 8.4% or $8.4 million to $108.3 million compared to $99.9 million a year ago. The increase in SG&A for the nine months is primarily due to increased general and administrative expenses as well as increased research and development costs. As a percent of net sales, SG&A for the first nine months of 2000 and 1999 was 16.2%. 10 European operations represented 73% and 75% of operating income for the quarter and nine months ended September 30, 2000, respectively, as compared to 66% and 69% in the same periods a year ago. U.S. operations represented 37% and 35% of operating income for the quarter and nine months ended September 30, 2000, respectively, as compared to 40% in the corresponding periods of 1999. Operating income from other foreign operations, corporate expenses and inter-geographic eliminations represent the reconciling factors to total operating income. Interest expense increased $1.3 million and $3.8 million for the third quarter and nine months ended September 30, 2000, respectively, as compared to the same periods a year ago due primarily to additional debt related to the acquisitions completed in 1999 and the Company's stock repurchase program as well as higher interest rates. The effective tax rate was 35% for the third quarter and nine months ended September 30, 2000, respectively, compared to 40.7% and 37.0% for the same periods a year ago. Last year's effective tax rate includes the effect of the non-deductibility for tax purposes of the write-off of purchased IPR&D. Excluding this effect, the effective tax rates for the prior year would have been 35.4% for the three and nine months ended September 30, 1999. The slight decrease from the prior year is due to the mix of income earned in different foreign tax jurisdictions. Subsequent to the quarter ended September 30, 2000, Germany signed into law a reduction in the corporate tax rate from 40% to 25% beginning in 2001. As a result, the Company will have to revalue its German deferred taxes, which are expected to reduce tax expense by approximately $0.8 million in the fourth quarter. Based upon this adjustment, the Company expects the effective tax rate in the fourth quarter to be approximately 31%. This will reduce the full year effective tax rate to approximately 34%. The Company expects the effective tax rate for 2001 to be in the range of 32%-34%. Net income for the third quarter increased 26.0% to $16.2 million compared to $12.9 million in the third quarter of 1999. Excluding the effect of the purchased IPR&D write-off, net income for the third quarter of 1999 was $16.2 million. Net income for the nine months ended September 30, 2000 increased 16.1% to $50.3 million as compared to $43.3 million in the same period a year ago. Excluding the effect of the purchased IPR&D write-off, net income for the first nine months of 1999 was $46.6 million. Quarterly Trends Customer plant shutdowns and holidays in December typically have negatively impacted AptarGroup's results of operations for the fourth quarter. In the future, AptarGroup's results of operations in a quarterly period could be impacted by factors such as changes in product mix, changes in material costs, changes in growth rates in the industries to which AptarGroup's products are sold or changes in general economic conditions in any of the countries in which AptarGroup does business. Foreign Currency A significant number of the Company's operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation 11 of the financial conditions and results of operations of AptarGroup's foreign entities. The Company's significant foreign exchange exposures are to the Euro. In addition, the Company now has foreign exchange exposure to certain South American currencies as well as the Chinese Renminbi. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on the Company's financial condition and results of operations. Conversely, a weakening U.S. dollar would have an additive effect. Additionally, in some cases, the Company sells products denominated in a currency different from the currency in which the related costs are incurred. Changes in exchange rates on such inter-country sales impact the Company's results of operations. Liquidity and Capital Resources Historically, AptarGroup has generated positive cash flow from operations and has utilized the majority of such cash flows to invest in capital projects. Net cash provided by operations in the first nine months of 2000 was $95.2 million compared to $93.0 million in the same period a year ago. The increase is primarily attributable to increased profitability. Total net working capital at September 30, 2000 was $180.5 million compared to $191.3 million at December 31, 1999. The decrease in net working capital is due primarily to higher increases in short term obligations and accounts payable than the corresponding increase in accounts receivable and inventories. Net cash used by investing activities decreased to $68.2 million from $207.9 million a year ago. The significant decrease is primarily due to acquisitions completed in 1999. Management anticipates that cash outlays for capital expenditures for all of 2000 will be approximately $90 million. Net cash used by financing activities was $10.0 million in the first nine months of 2000 compared to net cash provided of $123.3 million in 1999. The decrease in net cash (used) provided by financing activities is due primarily to borrowing for acquisitions completed in 1999. The ratio of net debt to total net capitalization was 37.2% and 36.2% at September 30, 2000 and December 31, 1999, respectively. Net debt is defined as debt less cash and cash equivalents and total net capitalization is defined as stockholder's equity plus net debt. The Company entered into a multi-year, multi-currency unsecured revolving credit agreement on June 30, 1999 allowing borrowings of up to $75 million. Under this credit agreement, interest on borrowings is payable at a rate equal to the London Interbank Offered Rate (LIBOR) plus an amount based on the financial condition of the Company. At June 30, 2000, the amount unused and available under this agreement was $10 million. The Company is required to pay a fee for the unused portion of the commitment. The agreement expires on September 30, 2004. The credit available under the revolving credit agreement provides management with the ability to refinance certain short-term obligations on a long-term basis. As it is management's intent to do so, an additional $10 million and $5 million of short-term obligations representing the unused and available amount under the credit agreement have been reclassified as long-term obligations as of September 30, 2000 and December 31, 1999, respectively. 12 The Board of Directors declared a quarterly dividend of $.05 per share payable on November 22, 2000 to shareholders of record as of November 1, 2000. Forward-Looking Statements In addition to the historical information presented in this quarterly report, the Company has made and will make certain forward-looking statements in this report, other reports filed by the Company with the Securities and Exchange Commission, reports to stockholders and in certain other contexts relating to future net sales, costs of sales, other expenses, profitability, financial resources, products and production schedules. Statements relating to the foregoing or that predict or indicate future events and trends and which do not relate solely to historical matters represent forward-looking statements. Forward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on management's beliefs as well as assumptions made by and information currently available to management. Accordingly, the Company's actual results may differ materially from those expressed or implied in such forward-looking statements due to known and unknown risks and uncertainties that exist in the Company's operations and business environment, including, among other factors, government regulation including tax rate policies, competition and technological change, intellectual property rights, the failure by the Company to produce anticipated cost savings or improve productivity, the timing and magnitude of capital expenditures and acquisitions, currency exchange rates, economic and market conditions in the United States, Europe and the rest of the world, changes in customer spending levels, the demand for existing and new products, the cost and availability of raw materials, the successful integration of the Company's acquisitions, and other risks associated with the Company's operations. Although the Company believes that its forward-looking statements are based on reasonable assumptions, there can be no assurance that actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements. Adoption of New Accounting Standards In September 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" (the effective date of which was amended in September 1999 by SFAS No. 137). This Statement was further amended in June 2000 by SFAS No. 138. SFAS No. 133 and the amendments found in SFAS No. 138 require that entities recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Due to the complexity of this new standard, the Company is still assessing the impact it will have on the financial position or results of operations, but does not anticipate it having a material impact on the financial statements. The effective date for implementation of SFAS 133 is for all fiscal quarters of all fiscal years beginning after June 15, 2000. Staff Accounting Bulletin No. 101, "Revenue Recognition" (SAB 101), provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the Securities and Exchange Commission. SAB 101 as amended is effective for the Company's quarter beginning October 1, 2000. The Company has evaluated the relevant revenue 13 recognition criteria discussed in SAB 101 and believes it should not have an impact on the Company's current accounting policies. Fourth Quarter 2000 Outlook The demand for fragrance/cosmetic systems in the fourth quarter of 2000 is expected to increase over the prior year. Demand for pharmaceutical dispensing systems is expected to soften. The reduction in demand for pharmaceutical dispensing systems is due to the high level of orders placed in the fourth quarter of 1999 in preparation of the year 2000 and this reduction is expected to be a temporary slowdown and not a long-term trend. Dispensing closures, pumps and aerosol valves sold to the U.S. personal care and household markets is expected to continue to be soft. The internal sales growth rate (excluding changes in foreign currency exchange rates and acquisitions) for the fourth quarter is anticipated to be in the 0% to 5% range. Earnings per share in the fourth quarter is expected to be in the range of $.35 to $.40 per share versus the $.42 reported in the prior year. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company manages its exposures to foreign exchange principally with forward exchange contracts to hedge certain firm purchase and sales commitments and intercompany cash transactions denominated in foreign currencies. The table below provides information as of September 30, 2000 about the Company's forward currency exchange contracts. All the contracts expire before the end of the third quarter of 2001.
Average Contract Amount Contractual Buy/Sell (in millions) Exchange Rate ------------------------------------------------------------------- EURO/USD..................... $18.6 .912066 EURO/GBP..................... 3.9 .605774 GBP/EURO..................... 3.8 1.606683 EURO/YEN..................... 2.1 .0097572 Other........................ .9 -- ----- Total........................ $29.3 =====
The other contracts in the above table represent contracts to buy or sell various other currencies (principally Asian, European and Australian). If the Company cancelled the forward exchange contracts at September 30, 2000, the Company would have paid approximately $0.7 million based on the fair value of the contracts on that date. All forward exchange contracts outstanding as of September 30, 1999 had an aggregate contract amount of $35.1 million. The Company has a cross-currency interest rate swap to hedge an intercompany lending transaction. This swap requires the Company to pay principal of 26.5 million French Francs plus interest at 8% and receive principal of $5.4 million plus interest at 7.08% through 2005. If the Company canceled the 14 swap at September 30, 2000, the Company would have received approximately $1.6 million based on the fair value of the swap on that date. The table below presents the cash flows in both foreign currency and U.S. dollars that are expected to be exchanged over the duration of the contract.
(Amounts in millions) 2001 2002 2003 2004 2005 ---------------------------------------------------------------------- Pay FRF 7.4 6.9 6.6 6.1 5.7 Receive USD $ 1.5 1.4 1.3 1.2 1.1
At September 30, 2000, the Company has fixed-to-variable interest rate swap agreements with a notional principal value of $50 million which require the Company to pay an average variable interest rate of 6.97% and receive a fixed rate of 6.62%. The variable rates are adjusted semiannually based on London Interbank Offered Rates ("LIBOR"). Variations in market interest rates would produce changes in the Company's net income. If interest rates increase by 10%, net income related to the interest rate swap agreements would decrease by approximately $0.2 million assuming a tax rate of 35%. If the Company canceled the swaps at September 30, 2000, the Company would have paid approximately $0.6 million based on the fair value of the swaps on that date. 15 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS During the quarter ended September 30, 2000, the FCP Aptar Savings Plan, (the "Plan") purchased 420 shares of Common Stock of the Company on behalf of the participants at an average price of $24.70 per share for an aggregate amount of $10,374. During the same quarter, the Plan sold 50 shares of Common Stock of the Company at the price of $24.38 per share for an aggregate amount of $1,219. At September 30, 2000, the Plan owned 3,495 shares of Common Stock of the Company. Employees of AptarGroup S.A., a subsidiary of the Company, are eligible to participate in the Plan. All eligible participants are located outside of the United States. An agent independent of the Company purchases shares of Common Stock available under the Plan for cash on the open market and the Company issues no shares. The Company does not receive any proceeds from the purchase of Common Stock under the Plan. The agent under the Plan is Banque Nationale de Paris. No underwriters are used under the Plan. All shares are sold in reliance upon the exemption from registration under the Securities Act of 1933 provided by Regulation S promulgated under that Act. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit 27 Financial Statement Schedule is included in this report (b) Reports on Form 8-K. No reports on Form 8-K were filed for the quarter ended September 30, 2000. 16 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AptarGroup, Inc. (Registrant) By /s/ Stephen J. Hagge -------------------- Stephen J. Hagge Executive Vice President and Chief Financial Officer and Secretary (Duly Authorized Officer and Principal Financial Officer) Date: November 10, 2000 17