Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ATR > SEC Filings for ATR > Form 10-Q on 5-Aug-2013All Recent SEC Filings

Show all filings for APTARGROUP INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for APTARGROUP INC


5-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, OR OTHERWISE INDICATED)

                             RESULTS OF OPERATIONS





                                          Three Months Ended June 30,            Six Months Ended June 30,
                                            2013                 2012             2013                2012

Net Sales                                  100.0 %              100.0 %          100.0 %             100.0 %
Cost of sales (exclusive of
depreciation and amortization
shown below)                                67.3                 67.6             67.5                67.6
Selling, research & development
and administrative                          13.7                 15.2             14.5                15.1
Depreciation and amortization                6.0                  5.6              5.9                 5.6
Restructuring initiatives                    0.4                   --              0.5                  --
Operating Income                            12.6                 11.6             11.6                11.7
Other expense                               (0.7 )               (0.8 )           (0.8 )              (0.7 )
Income before Income Taxes                  11.9                 10.8             10.8                11.0

Net Income                                   7.8 %                7.2 %            7.1 %               7.3 %

Effective Tax Rate                          34.6 %               33.4 %           33.8 %              33.7 %

NET SALES

We reported net sales of $641.4 million for the quarter ended June 30, 2013, 11% above second quarter 2012 reported net sales of $577.5 million. Stelmi sales were $38.6 million which contributed 7% to the reported increase in the quarterly sales. The average U.S. dollar exchange rate weakened relative to the Euro. However, this weakness was offset by strengthening of the U.S. dollar compared to other foreign currencies, such as the Brazilian Real, Swiss Franc and British Pound, in the second quarter of 2013 compared to the second quarter of 2012, and as a result, changes in exchange rates did not have a material impact on our reported sales growth. Excluding acquisitions and changes in foreign currency rates, sales increased by 4% in the second quarter of 2013 compared to the second quarter of 2012.

For the first half of 2013, we reported net sales of $1.3 billion, 8% above the first half 2012 reported net sales of $1.2 billion. Stelmi sales were $74.0 million which contributed 6% to the reported increase in the first half sales. Consistent with the second quarter, the average U.S. dollar exchange rate weakened relative to the Euro but was offset by strengthening of the U.S. dollar compared to other foreign currencies, such as the Brazilian Real, Swiss Franc and British Pound, which resulted in no material impact from changes in exchange rates on our reported sales growth. Excluding acquisitions and changes in foreign currency rates, sales increased 2% in the first half of 2013 compared to the first half of 2012.

For further discussion on net sales by reporting segment, please refer to the segment analysis of net sales and segment income on the following pages.

The following table sets forth, for the periods indicated, net sales by geographic location:

                          Three Months Ended June 30,                            Six Months Ended June 30,
                     2013   % of Total         2012   % of Total           2013   % of Total           2012   % of Total

Domestic        $ 169,245           26 %  $ 166,320           29 %  $   326,473           26 %  $   337,629           29 %
Europe            362,278           57 %    305,610           53 %      718,804           57 %      631,319           54 %
Other Foreign     109,918           17 %    105,573           18 %      213,797           17 %      201,053           17 %
                $ 641,441                 $ 577,503                 $ 1,259,074                 $ 1,170,001

COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN BELOW)

Our cost of sales as a percent of net sales decreased to 67.3% in the second quarter of 2013 compared to 67.6% in the same period a year ago. The decrease is partially due to increased sales volumes in our core Pharma segment and the incremental sales related to our Stelmi acquisition. This positively impacts our cost of sales percentage as margins on our pharmaceutical products typically are higher than the overall Company average. Also contributing to the decrease in cost of sales percentage are cost savings initiatives, including savings related to our EOO plan, and decreases in resin costs. While the majority of resin cost decreases are passed along to our customers in our selling prices, we typically experience a lag in the timing of passing on these cost decreases.

Cost of sales as a percent of net sales decreased slightly to 67.5% in the first half of 2013 compared to 67.6% in the same period a year ago. As discussed above, this decrease is mainly due to the incremental sales volumes related to our Stelmi acquisition, which carry a higher margin than the overall Company average.


Table of Contents

SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE

Our Selling, Research & Development and Administrative expenses ("SG&A") slightly increased by approximately $0.3 million in the second quarter of 2013 compared to the same period a year ago. Excluding changes in foreign currency rates, SG&A was flat in the quarter. SG&A expenses for Stelmi of $5.2 million in 2013 were nearly equal to the $5.5 million of professional fees related to the acquisition of Stelmi recorded in 2012. SG&A as a percentage of net sales decreased to 13.7% compared to 15.2% in the same period of the prior year due to acquisition fees in 2012. Higher sales in 2013 are the primary reason for this decrease.

SG&A increased by approximately $6.1 million in the first half of 2013 compared to the same period a year ago. Excluding changes in foreign currency rates, SG&A increased by approximately $6.3 million in the first half of the year. We recorded Stelmi operational expenses of $9.9 million in 2013 while $5.8 million of professional fees related to the acquisition of Stelmi were recorded in 2012. The remaining increase is due to an increase in personnel costs and stock compensation expenses due to higher substantive vesting requirements in the first quarter of 2013. SG&A as a percentage of net sales decreased to 14.5% in the first half of 2013 compared to 15.1% in the first half of 2012 again primarily due to higher sales in 2013.

DEPRECIATION AND AMORTIZATION

Reported depreciation and amortization expenses increased by approximately $6.0 million in the second quarter of 2013 compared to the same period a year ago. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $5.8 million in the quarter compared to the same period a year ago. This increase is primarily related to $2.6 million of Stelmi costs reported in the second quarter of 2013 and $1.5 million of accelerated depreciation on certain corporate assets. The remaining increase is related to the additional investments in our new products, especially in the Food + Beverage segment, along with continued roll-out of our global enterprise resource planning system and approximately $0.6 million related to our EOO plan. Excluding acquisitions, depreciation and amortization as a percentage of net sales increased to 6.0% in the second quarter of 2013 compared to 5.6% for the same period a year ago mainly due to the EOO and additional investments in our business.

For the first half of 2013, reported depreciation and amortization expenses increased by approximately $9.6 million compared to the first half of 2012. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $9.5 million in the first half. Incremental Stelmi depreciation, the accelerated depreciation on certain corporate assets and the EOO plan represented $4.8 million, $1.5 million and $1.0 million, respectively of this increase with the investments in our business making up the remaining increase. Excluding acquisitions, depreciation and amortization as a percentage of net sales also increased slightly to 5.9% compared to 5.6% for the same period a year ago.

RESTRUCTURING INITIATIVES

On November 1, 2012, the Company announced the EOO plan. Due to increased production efficiencies and to better position the Company for future growth in Europe, AptarGroup will transfer and consolidate production capacity involving twelve facilities. Under the EOO plan, we have closed one facility in Italy and a second facility in Switzerland is expected to close impacting approximately 170 employees. During the three and six months ended June 30, 2013, we recognized $2.6 million and $6.6 million of restructuring expenses, respectively, along with the $0.6 million and $1.0 million of accelerated depreciation of assets, respectively, mentioned above. Using current exchange rates, we expect to recognize approximately $6 million in additional costs, most of which will be incurred in 2013. Annual savings are estimated to be approximately 9 million (approximately $12 million using current exchange rates) beginning in late 2013.

OPERATING INCOME

Operating income, including the negative impact of EOO plan charges of $3.1 million, increased approximately $13.8 million in the second quarter of 2013 to $80.9 million compared to $67.1 million in the same period in the prior year. Excluding changes in currency rates, operating income increased by approximately $12.9 million in the quarter. The primary reason for the increases in operating income over the prior year is the impact of Aptar Stelmi in the 2013 results while last year we had approximately $5.5 million of expense related to Stelmi acquisition costs. In addition, improved results in our Pharma and Food + Beverage segments contributed to the increase in operating income. Operating income as a percentage of net sales increased to 12.6% in the second quarter of 2013 compared to 11.6% for the same period in the prior year.

Operating income increased approximately $8.1 million in the first half of 2013 to $145.5 million compared to $137.4 million in the same period in the prior year. Excluding changes in currency rates, operating income increased by approximately $7.1 million in the first half of 2013. Excluding acquisitions and restructuring initiatives, operating income increased slightly by $0.3 million. Operating income as a percentage of sales decreased slightly to 11.6% in the first half of 2013 compared to 11.7% for the same period in the prior year.

NET OTHER EXPENSE

Net other expenses in the second quarter of 2013 increased slightly to $4.6 million from $4.5 million in the same period in the prior year. This increase is mainly due to increased costs associated with hedges in place to mitigate our foreign currency exposure on cross border transaction.


Table of Contents

Net other expenses for the six months ended June 30, 2013 also increased to $9.8 million from $8.6 million in the same period in the prior year. This increase is also mainly due to increased costs of foreign currency hedges mentioned above.

EFFECTIVE TAX RATE

The reported effective tax rate increased to 34.6% and 33.8% for the three and six months ended June 30, 2013 compared to 33.4% and 33.7% for the same periods ended June 30, 2012. The increase in the rate for the three and six months ended June 30, 2013 is related primarily to tax law increases in France related to distributions and interest deductions as well as increases in the Chinese tax rate for 2013. These increases were mostly offset in the first quarter of 2013 by the tax benefits resulting from an Italian tax law change.

NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.

We reported net income attributable to AptarGroup, Inc. of $49.8 million and $89.8 million in the three and six months ended June 30, 2013, respectively, compared to $41.7 million and $85.5 million for the same periods in the prior year.

BEAUTY + HOME SEGMENT

Operations that sell dispensing systems primarily to the personal care, beauty and home care markets form the Beauty + Home segment.

                                             Three Months Ended June 30,           Six Months Ended June 30,
                                                 2013               2012              2013              2012

Net Sales                             $       374,984    $       369,284    $      738,456    $      746,435
Segment Income                                 30,339             33,546            54,754            66,518
Segment Income as a percentage of
Net Sales                                         8.1 %              9.1 %             7.4 %             8.9 %

Net sales for the quarter ended June 30, 2013 increased 2% to $375.0 million compared to $369.3 million in the second quarter of the prior year. Changes in foreign currency rates did not have a material impact on reported sales for the quarter ended June 30, 2013. Sales, excluding foreign currency changes, to the beauty market decreased 2% while sales to the personal care market increased 6% in the second quarter of 2013 compared to the same period in the prior year. Geographically, sales increases in Europe and Latin America more than offset continued softness in the North American region. Customer tooling sales, excluding foreign currency changes, decreased in the second quarter of 2013 to $7.8 million compared to $10.7 million in the second quarter of the prior year. Increases in resin pass throughs to our customers positively impacted sales by $0.7 million.

Net sales decreased 1% in the first six months of 2013 to $738.5 million compared to $746.4 million in the first six months of the prior year. Changes in foreign currency rates did not have a material impact on reported sales for the first half of 2013. Sales of our products, excluding foreign currency changes, to the beauty market decreased 2% while sales to the personal care market increased 2% in the first half of 2013 compared to the first half of 2012. Geographically, increases in Europe and Latin America partially offset the softness in North America. Customer tooling sales, excluding foreign currency changes, also decreased in the first six months of 2013 to $14.0 million compared to $21.0 million in the first half of the prior year.

Segment income for the second quarter of 2013 decreased approximately 10% to $30.3 million compared to $33.5 million reported in the prior year. Segment income was negatively impacted by higher labor costs and operational inefficiencies, especially in the North American region.

Segment income in the first six months of 2013 decreased approximately 18% to $54.8 million compared to $66.5 million reported in the same period in the prior year. The negative impact of lower product and tooling sales mentioned above along with operational inefficiencies and higher labor costs in North America were the primary causes of the decrease.

PHARMA SEGMENT

Operations that sell dispensing systems to the prescription drug and consumer health care markets form the Pharma segment.

                                             Three Months Ended June 30,           Six Months Ended June 30,
                                                 2013               2012              2013              2012

Net Sales                             $       182,931    $       132,979    $      351,800    $      273,022
Segment Income                                 50,437             31,110            96,417            70,482
Segment Income as a percentage of
Net Sales                                        27.6 %             23.4 %            27.4 %            25.8 %

Net sales for the Pharma segment increased by 38% in the second quarter of 2013 to $182.9 million compared to $133.0 million in the second quarter of 2012. Stelmi sales were $38.6 million and represented 29% of the increase while foreign currency changes represented 1% of the total segment sales increase. Sales, excluding acquisitions and changes in foreign


Table of Contents

currency rates, increased 8%. Sales, excluding acquisitions and foreign currency changes, to the prescription market increased 6% while sales to the consumer health care market increased 12%.

Net sales for the first six months of 2013 increased approximately 29% to $351.8 million compared to $273.0 million in the first six months of the prior year. Stelmi sales were $74.0 million and represented 27% of the increase. Foreign currency changes had no measureable impact on the total segment sales. Excluding acquisitions and changes in foreign currency rates, sales increased by 2% in the first six months of 2013 compared to the first six months of 2012. Excluding acquisitions and foreign currency rate changes, sales to the prescription and consumer health care markets increased 2% and 1%, respectively, in the first six months of 2013 compared to the same period in the prior year. Decreases in the first quarter related to destocking of inventory by our customers serving the generic allergy market, especially in North America, and softness in the consumer health care market in Europe were more than offset by the return of business in the second quarter.

Segment income in the second quarter of 2013 increased approximately 62% to $50.4 million compared to $31.1 million reported in the same period in the prior year. Stelmi segment income was $7.5 million in the second quarter of 2013. We also reported $5.5 million of fees related to the Stelmi acquisition in the second quarter of 2012. Excluding Stelmi and the related acquisition fees, segment income increased 17% in the second quarter of 2013 to $42.9 million compared to $36.6 million reported in the same period in the prior year. This increase is mainly attributed to the higher sales for both the prescription and consumer health care markets as mentioned above along with better overhead absorption at our Pharma operating facilities.

Segment income in the first six months of 2013 increased approximately 37% to $96.4 million compared to $70.5 million reported in the same period of the prior year. Stelmi segment income was $14.5 million in the first six months of 2013 and we also reported the $5.8 million of acquisition fees in the first six months of 2012. Excluding Stelmi and the related acquisition fees, segment income increased 7% in the first six months of 2013 to $81.9 million compared to $76.3 million reported in the same period in the prior year. This increase is again attributed to the higher sales for both the markets and the improved overhead absorption mentioned above.

FOOD + BEVERAGE SEGMENT

Operations that sell dispensing systems primarily to the food and beverage markets form the Food + Beverage segment.

                                         Three Months Ended June 30,           Six Months Ended June 30,
                                              2013              2012              2013              2012

Net Sales                           $       83,526    $       75,240    $      168,818    $      150,544
Segment Income                              11,864             7,744            20,414            14,532
Segment Income as a percentage
of Net Sales                                  14.2 %            10.3 %            12.1 %             9.7 %

Net sales for the Food + Beverage segment for the quarter ended June 30, 2013 increased approximately 11% to $83.5 million compared to $75.2 million in the second quarter of the prior year. Sales, excluding changes in foreign currency rates, increased 10%. Excluding foreign currency changes, sales to the food market increased 6% mainly due to higher infant formula sales in North America. Sales to the beverage market increased approximately 16% where a combination of higher tooling sales and increased product sales globally, especially in Asia for the functional bottled water market, more than offset softness in the European market due to poor weather conditions. Increases in resin pass throughs to our customers also positively impacted sales by $1.3 million.

Net sales for the first six months of 2013 increased approximately 12% to $168.8 million compared to $150.5 million in the first six months of the prior year. Excluding changes in foreign currency rates, sales increased 11%. Sales, excluding foreign currency changes, to the food market increased 10% and sales to the beverage market increased approximately 15% in the first six months of 2013 compared to the same period in the prior year. The food increase is driven by tooling sales, which increased $4.4 million over the first half of 2012 and higher infant sales in North America. The beverage increase is mainly due to increased product sales globally, especially in Asia for the functional bottled water market as mentioned above.

Segment income in the second quarter of 2013 increased approximately 53% to $11.9 million compared to $7.7 million during the same period in the prior year. Segment income was positively impacted by increased product sales along with improved productivity and overhead cost absorption, particularly in North America. We also benefitted from the positive impact from the timing of resin cost pass throughs mentioned above.

Segment income in the first six months of 2013 increased approximately 40% to $20.4 million compared to $14.5 million reported in the same period of the prior year. The strong growth in product sales along with improved manufacturing productivity and cost absorption mentioned above contributed to the improvements in the first six months of 2013 compared to the same period in the prior year.

CORPORATE & OTHER

In addition to our three operating business segments, AptarGroup assigns certain costs to "Corporate & Other," which is presented separately in Note 10 of the Notes to the Condensed Consolidated Financial Statements. Corporate & Other primarily includes certain corporate compensation, professional fees, information system costs and LIFO inventory adjustments which are not allocated directly to our operating segments. Corporate & Other expense increased to $8.7 million for the quarter ended June 30, 2013 compared to $7.0 million in the second quarter of the prior year mainly due to a $1.5 million adjustment for accelerated depreciation on certain corporate assets.

Corporate & Other expense in the first six months of 2013 increased to $19.5 million compared to $15.6 million reported in the same period of the prior year. The increase is mainly due to the accelerated depreciation on certain corporate assets noted above and increased costs associated with hedges in place to support our foreign currency cross border transactions.


Table of Contents

FOREIGN CURRENCY

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 statements of our foreign entities. Our primary foreign exchange exposure is to the Euro, but we also have foreign exchange exposure to the Brazilian Real, British Pound, Swiss Franc and South American and Asian currencies, among others. We manage our exposures to foreign exchange principally with forward exchange contracts to hedge certain transactions and firm purchase and sales commitments denominated in foreign 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. In some cases, we sell 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 could materially impact our results of operations.

QUARTERLY TRENDS

Our results of operations in the second half of the year typically are negatively impacted by customer plant shutdowns in the summer months in Europe and plant shutdowns in December. In the future, our 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 our products are sold, recognition of equity based compensation expense for retirement eligible employees in the period of grant and changes in general economic conditions in any of the countries in which we do business.

We generally incur increased stock option expense in the first quarter compared with the rest of the fiscal year. Our estimated stock option expense on a pre-tax basis (in $ millions) for 2013 compared to the prior year is as follows:

                                         2013     2012
First Quarter                         $   6.5   $  5.8
Second Quarter                            2.8      2.9
Third Quarter (estimated for 2013)        2.2      2.1
Fourth Quarter (estimated for 2013)       2.1      1.9
                                      $  13.6   $ 12.7

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash flow from operations and our revolving credit facility. Cash and equivalents decreased to $190.0 million at June 30, 2013 from $229.8 million at December 31, 2012. Total short and long-term interest bearing debt also decreased in the first half of 2013 to $387.9 million from $427.5 million at December 31, 2012. These decreases are primarily due to the repatriation of approximately $77.0 million from Europe to the United States during 2013. These repatriated funds were used to pay down our revolving credit facility. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholder's equity plus Net Debt) was 12.3% at the end of June 2013 compared to 12.5% at December 31, 2012.

In the first six months of 2013, our operations provided approximately $109.6 million in cash flow compared to $84.2 million for the same period a year ago. The increase in cash provided by operations is primarily attributable to the timing of tax payments and pension contributions.

We used $69.0 million in cash for investing activities during the first half of 2013, compared to $94.3 million during the same period a year ago. The decrease in cash used for investing activities is due primarily to a decrease in capital expenditures of $23.6 million in the first half of 2013 compared to the first half of 2012. Cash outlays for capital expenditures for 2013 are estimated to be approximately $160 million but could vary due to changes in exchange rates as well as the timing of capital projects. Costs related to our recently announced Aptar facility to serve the Andean region are included in the 2013 estimate while the majority of costs associated with our Stelmi expansion are expected in 2014.

. . .

  Add ATR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ATR - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.