SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2016

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements include the accounts of AptarGroup, Inc. and our subsidiaries. The terms “AptarGroup”, “Aptar” or “Company” 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 of business 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 PRINCIPLE

During the second quarter of 2015, the Company changed its inventory valuation method for certain operating entities in its North American business 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 entities and FIFO for inventories in other operating entities. The Company believes that the FIFO method is preferable 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 Attributable to AptarGroup was approximately $4.8 million, representing approximately $0.08 per diluted share. We have determined that this change is not material to 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.

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 MANAGEMENT

The Company considers all investments which 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. 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 COMPANIES

The Company accounts for its investments in 20% to 50% owned affiliated companies using the equity method. There were no dividends received from affiliated companies in 2016, 2015 and 2014. During the fourth quarter of 2016, we sold our investment in an injectable drug delivery device company for a $2.0 million gain. The Company accounts for its investments less than 20% on the cost method.

PROPERTY AND DEPRECIATION

Properties are stated at cost. Depreciation is determined on a straight‑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-LIVED INTANGIBLE ASSETS

FINITE‑LIVED INTANGIBLE ASSETS

Finite‑lived intangibles, consisting of patents, acquired technology, customer relationships and license agreements acquired in purchase transactions, are capitalized and amortized over their useful lives which range from 3 to 20 years.

GOODWILL

Management believes the excess purchase price over the fair value of the net assets acquired (“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 performed this qualitative assessment as of December 31, 2015 and 2014 for all four of our reporting units and determined that it was more likely than not that the fair value of goodwill attributed to all four of our reporting units was greater than its carrying amount and therefore no impairment of goodwill was required.

In the absence of sufficient qualitative factors, goodwill impairment is determined utilizing a two‑step quantitative process. Due to the passage of time since the last quantitative assessment, management determined it appropriate to calculate the fair value of the reporting units and compare with their associated carry amounts (the “step one” approach) for 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.

IMPAIRMENT OF LONG-LIVED ASSETS

IMPAIRMENT OF LONG‑LIVED ASSETS

Long‑lived assets, such as property, plant and equipment and finite‑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 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.

RETIREMENT OF TREASURY SHARES

During the third quarter of 2015, the Company retired 20 million shares of treasury stock. 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 to 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 million, $67.1 million and $76.2 million in 2016, 2015 and 2014, respectively.

INCOME TAXES

The Company computes 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 pretax 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 determination of which foreign earnings are permanently reinvested in foreign operations, the Company considers numerous factors, including 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, 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 the cash needs at the parent company. As such, the Company does not provide taxes on earnings that are deemed to be permanently reinvested.

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 excess of the expected 2017 earnings. There are no additional tax amounts to be recorded in connection with the 2017 repatriation.

The Company provides a liability for the amount of unrecognized tax benefits from uncertain tax positions. This liability is provided whenever the Company determines that a tax benefit will not meet a more-likely-than-not threshold for recognition. See Note 5 for more information.

TRANSLATION OF FOREIGN CURRENCIES

The functional currencies of the majority of the Company's foreign operations are the local currencies. Assets and liabilities of the Company’s 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 million and $37 thousand in 2016, 2015 and 2014, respectively.

STOCK BASED COMPENSATION

Accounting standards require the application of the non‑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 subsequent 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 15 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 risk 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 when the goods leave the Company’s shipping location. The majority of the Company’s products shipped from non‑U.S. operations transfer title and risk of loss when the goods reach their destination. Tooling revenue is also recognized when the title and risk of loss transfers 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. Revenue is recognized when services are rendered or rights to use assets can be reliably measured and when collection is reasonably assured. License, exclusivity and royalty revenues are typically recognized when the contractual terms of each agreement are met. Service and other revenue is not material to the Company’s results of operations for any of the years presented.

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 updates to the FASB’s Accounting Standards Codification.

In November 2015, the FASB issued guidance which simplifies the balance sheet classification of deferred taxes. The new guidance requires that deferred tax liabilities and assets be presented as non-current in a classified statement of financial position. This standard is effective for annual reporting periods beginning after December 15, 2016. The Company has prospectively adopted the requirements of the standard and updated the presentation of 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. Under the new standard, customers will apply the same criteria as vendors 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 has adopted the requirements of the standard with respect to its current CCAs and has determined that the impact is not material to our current year financial statements.

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 August 2014, the FASB issued an ASU 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. 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 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.

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 for the year ended December 31, 2015. The standards require that proceeds and repayments of long-term obligations be presented on a gross basis as opposed to a net basis. As the adjustment represent a reclassification between two accounts within the financing activities section of the Consolidated Statements of Cash Flows, the Consolidated Statements of Income and the Consolidated Balance Sheets are not impacted by this change. The revision, which the Company has determined is not material but was significant enough to revise, had no impact on the consolidated results of operations. Following is a summary of the previously reported financial statement line items impacted by this revision of all periods and statements included in this report:


	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)