UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012
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.
DELAWARE |
|
36-3853103 |
(State of Incorporation) |
|
(I.R.S. Employer Identification No.) |
475 WEST TERRA COTTA AVENUE, SUITE E, CRYSTAL LAKE, ILLINOIS 60014
815-477-0424
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 þ 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-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ |
|
Accelerated filer ¨ |
|
Non-accelerated filer ¨ |
|
Smaller reporting company ¨ |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date
Class |
|
Outstanding at August 3, 2012 |
Common Stock, $.01 par value per share |
|
66,593,619 shares |
AptarGroup, Inc.
Form 10-Q
Quarter Ended June 30, 2012
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
In thousands, except per share amounts
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Sales |
|
$ |
577,503 |
|
$ |
614,929 |
|
$ |
1,170,001 |
|
$ |
1,191,447 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
| ||||
Cost of sales (exclusive of depreciation and amortization shown below) |
|
390,225 |
|
409,481 |
|
791,295 |
|
792,151 |
| ||||
Selling, research & development and administrative |
|
87,625 |
|
90,290 |
|
176,124 |
|
180,769 |
| ||||
Depreciation and amortization |
|
32,597 |
|
34,914 |
|
65,151 |
|
68,519 |
| ||||
|
|
510,447 |
|
534,685 |
|
1,032,570 |
|
1,041,439 |
| ||||
Operating Income |
|
67,056 |
|
80,244 |
|
137,431 |
|
150,008 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other Income (Expense): |
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
(3,904 |
) |
(4,607 |
) |
(9,146 |
) |
(9,227 |
) | ||||
Interest income |
|
794 |
|
1,544 |
|
1,822 |
|
3,096 |
| ||||
Equity in results of affiliates |
|
(158 |
) |
|
|
(289 |
) |
|
| ||||
Miscellaneous, net |
|
(1,247 |
) |
(285 |
) |
(1,000 |
) |
(706 |
) | ||||
|
|
(4,515 |
) |
(3,348 |
) |
(8,613 |
) |
(6,837 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before Income Taxes |
|
62,541 |
|
76,896 |
|
128,818 |
|
143,171 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Provision for Income Taxes |
|
20,889 |
|
25,609 |
|
43,353 |
|
47,416 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income |
|
$ |
41,652 |
|
$ |
51,287 |
|
$ |
85,465 |
|
$ |
95,755 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net Loss Attributable to Noncontrolling Interests |
|
$ |
34 |
|
$ |
2 |
|
$ |
30 |
|
$ |
11 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income Attributable to AptarGroup, Inc. |
|
$ |
41,686 |
|
$ |
51,289 |
|
$ |
85,495 |
|
$ |
95,766 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net Income Attributable to AptarGroup, Inc. per Common Share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.63 |
|
$ |
0.77 |
|
$ |
1.29 |
|
$ |
1.43 |
|
Diluted |
|
$ |
0.61 |
|
$ |
0.74 |
|
$ |
1.24 |
|
$ |
1.37 |
|
|
|
|
|
|
|
|
|
|
| ||||
Average Number of Shares Outstanding: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
66,580 |
|
66,939 |
|
66,388 |
|
66,933 |
| ||||
Diluted |
|
68,758 |
|
69,438 |
|
68,940 |
|
69,902 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Dividends per Common Share |
|
$ |
0.22 |
|
$ |
0.18 |
|
$ |
0.44 |
|
$ |
0.36 |
|
See accompanying unaudited notes to condensed consolidated financial statements.
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
In thousands, except per share amounts
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Income |
|
$ |
41,652 |
|
$ |
51,287 |
|
$ |
85,465 |
|
$ |
95,755 |
|
Other Comprehensive (Loss)/Income: |
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustments |
|
(70,504 |
) |
38,260 |
|
(28,822 |
) |
106,004 |
| ||||
Changes in treasury locks, net of tax |
|
165 |
|
22 |
|
180 |
|
43 |
| ||||
Net gain (loss) on derivatives, net of tax |
|
|
|
|
|
(7 |
) |
6 |
| ||||
Defined benefit pension plan, net of tax |
|
|
|
|
|
|
|
|
| ||||
Amortization of prior service cost included in net income, net of tax |
|
60 |
|
27 |
|
121 |
|
107 |
| ||||
Amortization of net loss included in net income, net of tax |
|
684 |
|
164 |
|
1,371 |
|
677 |
| ||||
Total defined benefit pension plan, net of tax |
|
744 |
|
191 |
|
1,492 |
|
784 |
| ||||
Total other comprehensive (loss)/ income |
|
(69,595 |
) |
38,473 |
|
(27,157 |
) |
106,837 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Comprehensive (Loss)/Income |
|
(27,943 |
) |
89,760 |
|
58,308 |
|
202,592 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Comprehensive Loss/(Income) Attributable To Noncontrolling Interests |
|
38 |
|
(5 |
) |
35 |
|
1 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Comprehensive (Loss)/Income Attributable to AptarGroup, Inc. |
|
$ |
(27,905 |
) |
$ |
89,755 |
|
$ |
58,343 |
|
$ |
202,593 |
|
See accompanying unaudited notes to condensed consolidated financial statements.
AptarGroup, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
In thousands, except per share amounts
|
|
June 30, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Assets |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
| ||
Cash and equivalents |
|
$ |
300,873 |
|
$ |
377,616 |
|
Accounts and notes receivable, less allowance for doubtful accounts of $7,007 in 2012 and $8,257 in 2011 |
|
421,735 |
|
389,020 |
| ||
Inventories |
|
299,321 |
|
285,155 |
| ||
Prepaid and other |
|
88,198 |
|
92,159 |
| ||
|
|
1,110,127 |
|
1,143,950 |
| ||
|
|
|
|
|
| ||
Property, Plant and Equipment: |
|
|
|
|
| ||
Buildings and improvements |
|
349,613 |
|
342,146 |
| ||
Machinery and equipment |
|
1,728,491 |
|
1,687,521 |
| ||
|
|
2,078,104 |
|
2,029,667 |
| ||
Less: Accumulated depreciation |
|
(1,324,074 |
) |
(1,295,185 |
) | ||
|
|
754,030 |
|
734,482 |
| ||
Land |
|
19,932 |
|
20,233 |
| ||
|
|
773,962 |
|
754,715 |
| ||
|
|
|
|
|
| ||
Other Assets: |
|
|
|
|
| ||
Investments in affiliates |
|
3,706 |
|
3,812 |
| ||
Goodwill |
|
230,784 |
|
233,689 |
| ||
Intangible assets, net |
|
4,706 |
|
4,374 |
| ||
Miscellaneous |
|
23,953 |
|
18,755 |
| ||
|
|
263,149 |
|
260,630 |
| ||
Total Assets |
|
$ |
2,147,238 |
|
$ |
2,159,295 |
|
See accompanying unaudited notes to condensed consolidated financial statements.
AptarGroup, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
In thousands, except per share amounts
|
|
June 30, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Liabilities and Stockholders Equity |
|
|
|
|
| ||
|
|
|
|
|
| ||
Current Liabilities: |
|
|
|
|
| ||
Notes payable |
|
$ |
125,948 |
|
$ |
179,552 |
|
Current maturities of long-term obligations |
|
4,796 |
|
4,116 |
| ||
Accounts payable and accrued liabilities |
|
331,738 |
|
335,181 |
| ||
|
|
462,482 |
|
518,849 |
| ||
|
|
|
|
|
| ||
Long-Term Obligations |
|
253,454 |
|
254,910 |
| ||
|
|
|
|
|
| ||
Deferred Liabilities and Other: |
|
|
|
|
| ||
Deferred income taxes |
|
26,173 |
|
27,390 |
| ||
Retirement and deferred compensation plans |
|
48,581 |
|
58,930 |
| ||
Deferred and other non-current liabilities |
|
8,638 |
|
8,644 |
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
83,392 |
|
94,964 |
| ||
|
|
|
|
|
| ||
Stockholders Equity: |
|
|
|
|
| ||
AptarGroup, Inc. stockholders equity |
|
|
|
|
| ||
Preferred stock, $.01 par value, 1 million shares authorized, none outstanding |
|
|
|
|
| ||
Common stock, $.01 par value, 199 million shares authorized; 83.4 and 82.8 million shares issued as of June 30, 2012 and December 31, 2011, respectively |
|
845 |
|
827 |
| ||
Capital in excess of par value |
|
403,135 |
|
364,855 |
| ||
Retained earnings |
|
1,465,708 |
|
1,409,388 |
| ||
Accumulated other comprehensive income |
|
33,166 |
|
60,318 |
| ||
Less treasury stock at cost, 16.8 and 16.9 million shares as of June 30, 2012 and December 31, 2011, respectively |
|
(555,705 |
) |
(545,612 |
) | ||
Total AptarGroup, Inc. Stockholders Equity |
|
1,347,149 |
|
1,289,776 |
| ||
Noncontrolling interests in subsidiaries |
|
761 |
|
796 |
| ||
|
|
|
|
|
| ||
Total Stockholders Equity |
|
1,347,910 |
|
1,290,572 |
| ||
Total Liabilities and Stockholders Equity |
|
$ |
2,147,238 |
|
$ |
2,159,295 |
|
See accompanying unaudited notes to condensed consolidated financial statements.
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
In thousands, except per share amounts
|
|
AptarGroup, Inc. Stockholders Equity |
|
|
|
|
| |||||||||||||||
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
Other |
|
Common |
|
|
|
Capital in |
|
Non- |
|
|
| |||||||
|
|
Retained |
|
Comprehensive |
|
Stock |
|
Treasury |
|
Excess of |
|
Controlling |
|
Total |
| |||||||
|
|
Earnings |
|
Income/(Loss) |
|
Par Value |
|
Stock |
|
Par Value |
|
Interest |
|
Equity |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance December 31, 2010: |
|
$ |
1,279,013 |
|
$ |
123,766 |
|
$ |
817 |
|
$ |
(443,019 |
) |
$ |
318,346 |
|
$ |
851 |
|
$ |
1,279,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income (loss) |
|
95,766 |
|
|
|
|
|
|
|
|
|
(11 |
) |
95,755 |
| |||||||
Foreign currency translation adjustments |
|
|
|
105,994 |
|
|
|
|
|
|
|
10 |
|
106,004 |
| |||||||
Changes in unrecognized pension gains/losses and related amortization, net of tax |
|
|
|
784 |
|
|
|
|
|
|
|
|
|
784 |
| |||||||
Changes in treasury locks, net of tax |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
43 |
| |||||||
Net gain on derivatives, net of tax |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
6 |
| |||||||
Stock option exercises & restricted stock vestings |
|
|
|
|
|
6 |
|
1 |
|
28,022 |
|
|
|
28,029 |
| |||||||
Cash dividends declared on common stock |
|
(24,100 |
) |
|
|
|
|
|
|
|
|
|
|
(24,100 |
) | |||||||
Non-Controlling interest distribution |
|
|
|
|
|
|
|
|
|
|
|
(27 |
) |
(27 |
) | |||||||
Treasury stock purchased |
|
|
|
|
|
|
|
(40,826 |
) |
|
|
|
|
(40,826 |
) | |||||||
Balance June 30, 2011: |
|
$ |
1,350,679 |
|
$ |
230,593 |
|
$ |
823 |
|
$ |
(483,844 |
) |
$ |
346,368 |
|
$ |
823 |
|
$ |
1,445,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance December 31, 2011: |
|
$ |
1,409,388 |
|
$ |
60,318 |
|
$ |
827 |
|
$ |
(545,612 |
) |
$ |
364,855 |
|
$ |
796 |
|
$ |
1,290,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net income (loss) |
|
85,495 |
|
|
|
|
|
|
|
|
|
(30 |
) |
85,465 |
| |||||||
Foreign currency translation adjustments |
|
|
|
(28,817 |
) |
|
|
|
|
|
|
(5 |
) |
(28,822 |
) | |||||||
Changes in unrecognized pension gains/losses and related amortization, net of tax |
|
|
|
1,492 |
|
|
|
|
|
|
|
|
|
1,492 |
| |||||||
Changes in treasury locks, net of tax |
|
|
|
180 |
|
|
|
|
|
|
|
|
|
180 |
| |||||||
Net loss on derivatives, net of tax |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
(7 |
) | |||||||
Stock option exercises & restricted stock vestings |
|
|
|
|
|
18 |
|
3 |
|
38,280 |
|
|
|
38,301 |
| |||||||
Cash dividends declared on common stock |
|
(29,175 |
) |
|
|
|
|
|
|
|
|
|
|
(29,175 |
) | |||||||
Treasury stock purchased |
|
|
|
|
|
|
|
(10,096 |
) |
|
|
|
|
(10,096 |
) | |||||||
Balance June 30, 2012: |
|
$ |
1,465,708 |
|
$ |
33,166 |
|
$ |
845 |
|
$ |
(555,705 |
) |
$ |
403,135 |
|
$ |
761 |
|
$ |
1,347,910 |
|
See accompanying unaudited notes to condensed consolidated financial statements.
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
In thousands, brackets denote cash outflows
Six Months Ended June 30, |
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Cash Flows from Operating Activities: |
|
|
|
|
| ||
Net income |
|
$ |
85,465 |
|
$ |
95,755 |
|
Adjustments to reconcile net income to net cash provided by operations: |
|
|
|
|
| ||
Depreciation |
|
64,485 |
|
66,780 |
| ||
Amortization |
|
666 |
|
1,739 |
| ||
Stock option based compensation |
|
8,689 |
|
9,414 |
| ||
Provision for doubtful accounts |
|
(605 |
) |
634 |
| ||
Deferred income taxes |
|
(478 |
) |
(3,528 |
) | ||
Defined benefit plan expense |
|
7,154 |
|
5,721 |
| ||
Equity in results of affiliates in excess of cash distributions received |
|
289 |
|
|
| ||
Changes in balance sheet items, excluding effects from foreign currency adjustments: |
|
|
|
|
| ||
Accounts receivable |
|
(40,455 |
) |
(57,820 |
) | ||
Inventories |
|
(20,793 |
) |
(34,888 |
) | ||
Prepaid and other current assets |
|
5,163 |
|
(22,987 |
) | ||
Accounts payable and accrued liabilities |
|
10,447 |
|
16,551 |
| ||
Income taxes payable |
|
796 |
|
2,447 |
| ||
Retirement and deferred compensation plans |
|
(20,978 |
) |
(15,823 |
) | ||
Other changes, net |
|
(15,680 |
) |
1,512 |
| ||
Net Cash Provided by Operations |
|
84,165 |
|
65,507 |
| ||
|
|
|
|
|
| ||
Cash Flows from Investing Activities: |
|
|
|
|
| ||
Capital expenditures |
|
(95,351 |
) |
(78,943 |
) | ||
Disposition of property and equipment |
|
1,229 |
|
2,529 |
| ||
Investment in unconsolidated affiliate |
|
(279 |
) |
|
| ||
Notes receivable, net |
|
95 |
|
54 |
| ||
Net Cash Used by Investing Activities |
|
(94,306 |
) |
(76,360 |
) | ||
|
|
|
|
|
| ||
Cash Flows from Financing Activities: |
|
|
|
|
| ||
(Repayments) / Proceeds from notes payable |
|
(53,792 |
) |
47,423 |
| ||
Proceeds of long-term obligations |
|
539 |
|
|
| ||
Repayments of long-term obligations |
|
|
|
(48,360 |
) | ||
Dividends paid |
|
(29,175 |
) |
(24,100 |
) | ||
Credit facility costs |
|
(1,121 |
) |
|
| ||
Proceeds from stock option exercises |
|
25,003 |
|
13,858 |
| ||
Purchase of treasury stock |
|
(10,096 |
) |
(40,826 |
) | ||
Excess tax benefit from exercise of stock options |
|
4,380 |
|
4,346 |
| ||
Net Cash Used by Financing Activities |
|
(64,262 |
) |
(47,659 |
) | ||
|
|
|
|
|
| ||
Effect of Exchange Rate Changes on Cash |
|
(2,340 |
) |
23,409 |
| ||
|
|
|
|
|
| ||
Net Decrease in Cash and Equivalents |
|
(76,743 |
) |
(35,103 |
) | ||
Cash and Equivalents at Beginning of Period |
|
377,616 |
|
376,427 |
| ||
Cash and Equivalents at End of Period |
|
$ |
300,873 |
|
$ |
341,324 |
|
See accompanying unaudited notes to condensed consolidated financial statements.
AptarGroup, Inc.
Notes to Condensed Consolidated Financial Statements
(Amounts in Thousands, Except per Share Amounts, or Otherwise Indicated)
(Unaudited)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed 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. All significant intercompany accounts and transactions have been eliminated.
In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of consolidated financial position, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. The accompanying unaudited condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (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. Also, certain financial position data included herein was derived from the audited consolidated financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2011 but does not include all disclosures required by accounting principles generally accepted in the United States of America. Accordingly, these unaudited condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2011. The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS
Changes to GAAP are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates to the FASBs Accounting Standards Codification.
In May 2011, the FASB amended the guidance on fair value measurement and disclosure requirements. The amended guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and International Financial Reporting Standards (IFRS). This guidance is effective for the Companys fiscal year ending December 31, 2012 (including interim periods). The adoption of this standard had no impact on the Consolidated Financial Statements other than disclosure.
In June 2011, the FASB amended the guidance for the presentation of comprehensive income. The objective of this update is to improve the comparability, consistency, and transparency of financial reporting by increasing the prominence of items reported in other comprehensive income. This update requires that all non-owner changes in stockholders equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this update are effective for the Companys fiscal year ending December 31, 2012 (including interim periods). In December 2011, the FASB indefinitely deferred the guidance related to the presentation of reclassification adjustments out of other comprehensive income. The adoption of this standard results in the presentation of a new statement of comprehensive income. Otherwise, the adoption had no other impact on the Consolidated Financial Statements.
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 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 shareholder capital both within the U.S. and for non-U.S. operations. The Companys policy is to permanently reinvest its accumulated foreign earnings and only will make a distribution out of current year earnings 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 effective tax rate for 2012 includes the tax cost of repatriating $79 million of current year earnings, all of which was repatriated in the first half of 2012.
The Company provides a liability for the amount of tax benefits realized 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 12 for more information.
NOTE 2 - INVENTORIES
At June 30, 2012 and December 31, 2011, approximately 19% and 21%, respectively, of the total inventories are accounted for by using the LIFO method. Inventories, by component, consisted of:
|
|
June 30, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Raw materials |
|
$ |
117,538 |
|
$ |
116,751 |
|
Work in process |
|
72,759 |
|
69,676 |
| ||
Finished goods |
|
115,110 |
|
105,095 |
| ||
Total |
|
305,407 |
|
291,522 |
| ||
Less LIFO Reserve |
|
(6,086 |
) |
(6,367 |
) | ||
Total |
|
$ |
299,321 |
|
$ |
285,155 |
|
NOTE 3 GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill since the year ended December 31, 2011 are as follows by reporting segment:
|
|
Beauty + |
|
|
|
Food + |
|
Corporate |
|
|
| |||||
|
|
Home |
|
Pharma |
|
Beverage |
|
& Other |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Goodwill |
|
$ |
179,095 |
|
$ |
37,009 |
|
$ |
17,585 |
|
$ |
1,615 |
|
$ |
235,304 |
|
Accumulated impairment losses |
|
|
|
|
|
|
|
(1,615 |
) |
(1,615 |
) | |||||
Balance as of December 31, 2011 |
|
$ |
179,095 |
|
$ |
37,009 |
|
$ |
17,585 |
|
$ |
|
|
$ |
233,689 |
|
Foreign currency exchange effects |
|
(2,182 |
) |
(557 |
) |
(166 |
) |
|
|
(2,905 |
) | |||||
Goodwill |
|
$ |
176,913 |
|
$ |
36,452 |
|
$ |
17,419 |
|
$ |
1,615 |
|
$ |
232,399 |
|
Accumulated impairment losses |
|
|
|
|
|
|
|
(1,615 |
) |
(1,615 |
) | |||||
Balance as of June 30, 2012 |
|
$ |
176,913 |
|
$ |
36,452 |
|
$ |
17,419 |
|
$ |
|
|
$ |
230,784 |
|
The table below shows a summary of intangible assets as of June 30, 2012 and December 31, 2011.
|
|
|
|
June 30, 2012 |
|
December 31, 2011 |
| ||||||||||||||
|
|
Weighted Average |
|
Gross |
|
|
|
|
|
Gross |
|
|
|
|
| ||||||
|
|
Amortization |
|
Carrying |
|
Accumulated |
|
Net |
|
Carrying |
|
Accumulated |
|
Net |
| ||||||
|
|
Period (Years) |
|
Amount |
|
Amortization |
|
Value |
|
Amount |
|
Amortization |
|
Value |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Patents |
|
11 |
|
$ |
18,633 |
|
$ |
(17,775 |
) |
$ |
858 |
|
$ |
19,030 |
|
$ |
(17,962 |
) |
$ |
1,068 |
|
License agreements and other |
|
2 |
|
24,479 |
|
(20,631 |
) |
3,848 |
|
23,840 |
|
(20,534 |
) |
3,306 |
| ||||||
Total intangible assets |
|
6 |
|
$ |
43,112 |
|
$ |
(38,406 |
) |
$ |
4,706 |
|
$ |
42,870 |
|
$ |
(38,496 |
) |
$ |
4,374 |
|
Aggregate amortization expense for the intangible assets above for the quarters ended June 30, 2012 and 2011 was $317 and $1,034, respectively. Aggregate amortization expense for the intangible assets above for the six months ended June 30, 2012 and 2011 was $666 and $1,739, respectively.
Future estimated amortization expense for the years ending December 31 is as follows:
2012 |
|
$ |
622 |
|
(remaining estimated amortization for 2012) |
|
2013 |
|
1,114 |
|
|
| |
2014 |
|
1,038 |
|
|
| |
2015 |
|
878 |
|
|
| |
2016 and thereafter |
|
1,054 |
|
|
|
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 June 30, 2012.
NOTE 4 RETIREMENT AND DEFERRED COMPENSATION PLANS
Components of Net Periodic Benefit Cost:
|
|
Domestic Plans |
|
Foreign Plans |
| ||||||||
Three months ended June 30, |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Service cost |
|
$ |
1,808 |
|
$ |
1,319 |
|
$ |
509 |
|
$ |
514 |
|
Interest cost |
|
1,231 |
|
1,094 |
|
630 |
|
647 |
| ||||
Expected return on plan assets |
|
(1,404 |
) |
(1,002 |
) |
(379 |
) |
(460 |
) | ||||
Amortization of net loss |
|
965 |
|
416 |
|
118 |
|
199 |
| ||||
Amortization of prior service cost |
|
1 |
|
1 |
|
90 |
|
97 |
| ||||
Net periodic benefit cost |
|
$ |
2,601 |
|
$ |
1,828 |
|
$ |
968 |
|
$ |
997 |
|
|
|
Domestic Plans |
|
Foreign Plans |
| ||||||||
Six months ended June 30, |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Service cost |
|
$ |
3,612 |
|
$ |
2,689 |
|
$ |
1,028 |
|
$ |
1,030 |
|
Interest cost |
|
2,459 |
|
2,228 |
|
1,275 |
|
1,295 |
| ||||
Expected return on plan assets |
|
(2,805 |
) |
(2,042 |
) |
(767 |
) |
(921 |
) | ||||
Amortization of net loss |
|
1,929 |
|
847 |
|
239 |
|
399 |
| ||||
Amortization of prior service cost |
|
2 |
|
2 |
|
182 |
|
194 |
| ||||
Net periodic benefit cost |
|
$ |
5,197 |
|
$ |
3,724 |
|
$ |
1,957 |
|
$ |
1,997 |
|
EMPLOYER CONTRIBUTIONS
In order to meet or exceed minimum funding levels required by U.S. law, the Company has contributed approximately $14.0 million to its domestic defined benefit plan during the first half of 2012 and does not anticipate any further contribution during 2012. The Company also expects to contribute approximately $3.7 million to its foreign defined benefit plans in 2012 and has contributed approximately $1.0 million during the first half of 2012.
NOTE 5 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company maintains a foreign exchange risk management policy designed to establish a framework to protect the value of the Companys non-functional denominated transactions from adverse changes in exchange rates. Sales of the Companys 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-country sales or intercompany loans can impact the Companys results of operations. The Companys policy is not to engage in speculative foreign currency hedging activities, but to minimize its net foreign currency transaction exposure defined as firm commitments and transactions recorded and denominated in currencies other than the functional currency. The Company may use foreign currency forward exchange contracts, options and cross currency swaps to economically hedge these risks.
The Company maintains an interest rate risk management strategy to minimize significant, unanticipated earnings fluctuations that may arise from volatility in interest rates.
For derivative instruments designated as hedges, the Company formally documents 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. 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.
FAIR VALUE HEDGES
The Company maintained an interest rate swap to convert a portion of its fixed-rate debt into variable-rate debt until May 31, 2011. Under the interest rate swap contract, the Company exchanged, at specified intervals, the difference between fixed-rate and floating-rate amounts, which was calculated based on an agreed upon notional amount. On May 31, 2011, this interest rate swap contract matured and was not renewed. No gain or loss was recorded in the income statement in 2011 as any hedge ineffectiveness for the period was immaterial.
CASH FLOW HEDGES
The Company had one foreign currency cash flow hedge until March 15, 2012. A French subsidiary of AptarGroup, AptarGroup Holding SAS, had hedged the risk of variability in Euro equivalent associated with the cash flows of an intercompany loan granted in Brazilian Real. The forward contracts utilized were designated as a hedge of the changes in the cash flows relating to the changes in foreign currency rates relating to the loan and related forecasted interest. On March 15, 2012, the loan and foreign currency forward contracts were repaid.
During the six months ended June 30, 2012, the Company did not recognize any net gain (loss) as any hedge ineffectiveness for the period was immaterial, and the Company did not recognize any net gain (loss) related to the portion of the hedging instrument excluded from the assessment of hedge effectiveness.
HEDGE OF NET INVESTMENTS IN FOREIGN OPERATIONS
A significant number of the Companys 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 Companys foreign entities. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on the Companys financial condition and results of operations. Conversely, a weakening U.S. dollar has an additive effect. The Company in some cases maintains debt in these subsidiaries to offset the net asset exposure. The Company does not otherwise actively manage this risk using derivative financial instruments. In the event the Company plans on a full or partial liquidation of any of its foreign subsidiaries where the Companys net investment is likely to be monetized, the Company will consider hedging the currency exposure associated with such a transaction.
OTHER
As of June 30, 2012, the Company has recorded the fair value of foreign currency forward exchange contracts of $0.3 million in prepaid and other, $0.7 million in miscellaneous other assets, $0.8 million in accounts payable and accrued liabilities, and $1.9 million in deferred and other non-current liabilities in the balance sheet. All forward exchange contracts outstanding as of June 30, 2012 had an aggregate contract amount of $98 million.
Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of June 30, 2012
and December 31, 2011
Derivative Contracts Designated as |
|
Balance Sheet |
|
June 30, |
|
December |
| ||
|
|
|
|
|
|
|
| ||
Derivative Liabilities |
|
|
|
|
|
|
| ||
Foreign Exchange Contracts |
|
Accounts payable and accrued liabilities |
|
$ |
|
|
$ |
302 |
|
|
|
|
|
$ |
|
|
$ |
302 |
|
Derivative Contracts Not Designated as |
|
|
|
|
|
|
| ||
Derivative Assets |
|
|
|
|
|
|
| ||
Foreign Exchange Contracts |
|
Prepaid and other |
|
$ |
285 |
|
$ |
520 |
|
Foreign Exchange Contracts |
|
Miscellaneous Other Assets |
|
709 |
|
|
| ||
|
|
|
|
$ |
994 |
|
$ |
520 |
|
Derivative Liabilities |
|
|
|
|
|
|
| ||
Foreign Exchange Contracts |
|
Accounts payable and accrued liabilities |
|
$ |
752 |
|
$ |
8,383 |
|
Foreign Exchange Contracts |
|
Deferred and other non-current liabilities |
|
1,860 |
|
2,005 |
| ||
|
|
|
|
$ |
2,612 |
|
$ |
10,388 |
|
The Effect of Derivative Instruments on the Condensed Consolidated Statements of Income
for the Quarters Ended June 30, 2012 and June 30, 2011
Derivatives Not Designated as |
|
Location of Loss Recognized in Income on |
|
Amount of Loss Recognized in |
| ||||
|
|
|
|
2012 |
|
2011 |
| ||
Foreign Exchange Contracts |
|
Other (Expense) Miscellaneous, net |
|
$ |
(8,351 |
) |
$ |
(286 |
) |
|
|
|
|
$ |
(8,351 |
) |
$ |
(286 |
) |
The Effect of Derivative Instruments on the Condensed Consolidated Statements of Income
for the Six Months Ended June 30, 2012 and June 30, 2011
Derivatives in Cash Flow |
|
|
|
Amount of Gain Recognized |
| ||||
|
|
|
|
2012 |
|
2011 |
| ||
Foreign Exchange Contracts |
|
|
|
$ |
|
|
$ |
10 |
|
|
|
|
|
$ |
|
|
$ |
10 |
|
|
|
|
|
|
|
|
| ||
Derivatives Not Designated as |
|
Location of Loss Recognized in Income on |
|
Amount of Loss |
| ||||
|
|
|
|
2012 |
|
2011 |
| ||
Foreign Exchange Contracts |
|
Other (Expense) Miscellaneous, net |
|
$ |
(1,235 |
) |
$ |
(3,528 |
) |
|
|
|
|
$ |
(1,235 |
) |
$ |
(3,528 |
) |
NOTE 6 COMMITMENTS AND CONTINGENCIES
The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature including the proceeding noted below. While management believes the resolution of these claims and lawsuits will not have a material adverse effect on the Companys 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.
In 2010, a competitor filed a lawsuit against certain AptarGroup, Inc. subsidiaries alleging that certain processes performed by a supplier of a specific type of diptube utilized by the AptarGroup, Inc. subsidiaries in the manufacture of a specific type of pump infringes patents owned by the counterparty. This lawsuit sought an injunction barring the manufacture, use, sale and importation of this specific pump for use in fragrance containers. In April 2012, the Companys United States subsidiary was found to have infringed on patents owned by the counterparty within the United States. The ruling does not apply to manufacture or sales of pumps in countries outside the United States and no damages were assessed. The Company has appealed this ruling.
Under its Certificate of Incorporation, the Company has agreed to indemnify its officers and directors for certain events or occurrences while the officer or director is, or was serving, at its request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors and officers liability insurance policy that covers a portion of its exposure. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company has no liabilities recorded for these agreements as of June 30, 2012.
NOTE 7 STOCK REPURCHASE PROGRAM
The Company did not repurchase any shares during the three months ended June 30, 2012. The Company has repurchased approximately 189 thousand shares for an aggregate amount of $10.1 million for the six months ended June 30, 2012. As of June 30, 2012, the Company has remaining authorization to repurchase 3.4 million additional shares. The timing of and total amount expended for the share repurchase depends upon market conditions.
NOTE 8 EARNINGS PER SHARE
AptarGroups authorized common stock consists of 199 million shares, having a par value of $.01 each. Information related to the calculation of earnings per share is as follows:
|
|
Three months ended |
| ||||||||||
|
|
June 30, 2012 |
|
June 30, 2011 |
| ||||||||
|
|
Diluted |
|
Basic |
|
Diluted |
|
Basic |
| ||||
Consolidated operations |
|
|
|
|
|
|
|
|
| ||||
Income available to common shareholders |
|
$ |
41,686 |
|
$ |
41,686 |
|
$ |
51,289 |
|
$ |
51,289 |
|
|
|
|
|
|
|
|
|
|
| ||||
Average equivalent shares |
|
|
|
|
|
|
|
|
| ||||
Shares of common stock |
|
66,580 |
|
66,580 |
|
66,939 |
|
66,939 |
| ||||
Effect of dilutive stock based compensation |
|
|
|
|
|
|
|
|
| ||||
Stock options |
|
2,174 |
|
|
|
2,495 |
|
|
| ||||
Restricted stock |
|
4 |
|
|
|
4 |
|
|
| ||||
Total average equivalent shares |
|
68,758 |
|
66,580 |
|
69,438 |
|
66,939 |
| ||||
Net income per share |
|
$ |
0.61 |
|
$ |
0.63 |
|
$ |
0.74 |
|
$ |
0.77 |
|
|
|
Six months ended |
| ||||||||||
|
|
June 30, 2012 |
|
June 30, 2011 |
| ||||||||
|
|
Diluted |
|
Basic |
|
Diluted |
|
Basic |
| ||||
Consolidated operations |
|
|
|
|
|
|
|
|
| ||||
Income available to common stockholders |
|
$ |
85,495 |
|
$ |
85,495 |
|
$ |
95,766 |
|
$ |
95,766 |
|
|
|
|
|
|
|
|
|
|
| ||||
Average equivalent shares |
|
|
|
|
|
|
|
|
| ||||
Shares of common stock |
|
66,388 |
|
66,388 |
|
66,933 |
|
66,933 |
| ||||
Effect of dilutive stock based compensation |
|
|
|
|
|
|
|
|
| ||||
Stock options |
|
2,543 |
|
|
|
2,963 |
|
|
| ||||
Restricted stock |
|
9 |
|
|
|
6 |
|
|
| ||||
Total average equivalent shares |
|
68,940 |
|
66,388 |
|
69,902 |
|
66,933 |
| ||||
Net income per share |
|
$ |
1.24 |
|
$ |
1.29 |
|
$ |
1.37 |
|
$ |
1.43 |
|
NOTE 9 SEGMENT INFORMATION
The Company operates in the packaging components industry, which includes the development, manufacture and sale of consumer product dispensing systems. The Company is organized into three reporting segments. Operations that sell dispensing systems primarily to the personal care, fragrance/cosmetic and household markets form the Beauty + Home segment. Operations that sell dispensing systems primarily to the prescription drug and consumer health care markets form the Pharma segment. Operations that sell dispensing systems primarily to the food and beverage markets form the Food + Beverage segment.
The accounting policies of the segments are the same as those described in Note 1, Summary of Significant Accounting Policies in the Companys Annual Report on Form 10-K for the year ended December 31, 2011. The Company evaluates
performance of its business segments and allocates resources based upon segment income. Segment income is defined as earnings before interest expense in excess of interest income, certain corporate expenses and income taxes.
Financial information regarding the Companys reportable segments is shown below:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
Total Revenue: |
|
|
|
|
|
|
|
|
| ||||
Beauty + Home |
|
$ |
372,853 |
|
$ |
406,699 |
|
$ |
753,689 |
|
$ |
786,530 |
|
Pharma |
|
133,033 |
|
139,077 |
|
273,234 |
|
271,272 |
| ||||
Food + Beverage |
|
75,684 |
|
74,525 |
|
151,506 |
|
143,249 |
| ||||
Corporate & Other |
|
|
|
36 |
|
|
|
82 |
| ||||
Total Revenue |
|
581,570 |
|
620,337 |
|
1,178,429 |
|
1,201,135 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Less: Intersegment Sales: |
|
|
|
|
|
|
|
|
| ||||
Beauty + Home |
|
$ |
3,569 |
|
$ |
3,961 |
|
$ |
7,254 |
|
$ |
7,530 |
|
Pharma |
|
54 |
|
374 |
|
212 |
|
565 |
| ||||
Food + Beverage |
|
444 |
|
1,037 |
|
962 |
|
1,509 |
| ||||
Corporate & Other |
|
|
|
36 |
|
|
|
82 |
| ||||
Total Intersegment Sales |
|
$ |
4,067 |
|
$ |
5,408 |
|
$ |
8,428 |
|
$ |
9,688 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net Sales: |
|
|
|
|
|
|
|
|
| ||||
Beauty + Home |
|
$ |
369,284 |
|
$ |
402,738 |
|
$ |
746,435 |
|
$ |
779,000 |
|
Pharma |
|
132,979 |
|
138,703 |
|
273,022 |
|
270,707 |
| ||||
Food + Beverage |
|
75,240 |
|
73,488 |
|
150,544 |
|
141,740 |
| ||||
Corporate & Other |
|
|
|
|
|
|
|
|
| ||||
Net Sales |
|
$ |
577,503 |
|
$ |
614,929 |
|
$ |
1,170,001 |
|
$ |
1,191,447 |
|
|
|
|
|
|
|
|
|
|
| ||||
Segment Income: |
|
|
|
|
|
|
|
|
| ||||
Beauty + Home |
|
$ |
33,652 |
|
$ |
39,877 |
|
$ |
66,624 |
|
$ |
72,530 |
|
Pharma |
|
31,110 |
|
40,369 |
|
70,482 |
|
79,257 |
| ||||
Food + Beverage |
|
7,853 |
|
8,613 |
|
14,641 |
|
16,185 |
| ||||
Corporate & Other |
|
(6,964 |
) |
(8,900 |
) |
(15,605 |
) |
(18,670 |
) | ||||
Income before interest and taxes |
|
$ |
65,651 |
|
$ |
79,959 |
|
$ |
136,142 |
|
$ |
149,302 |
|
Interest expense, net |
|
(3,110 |
) |
(3,063 |
) |
(7,324 |
) |
(6,131 |
) | ||||
Income before income taxes |
|
$ |
62,541 |
|
$ |
76,896 |
|
$ |
128,818 |
|
$ |
143,171 |
|
NOTE 10 ACQUISITIONS
On July 3, 2012, the Company acquired Rumpler - Technologies S.A., together with its direct and indirect subsidiaries (the Stelmi Group). Further information about this transaction can be found in Note 15 Subsequent Events.
In November 2011, the Company acquired a 20% minority investment in Oval Medical Technologies Limited (Oval Medical) for approximately $3.2 million. In February 2012, the Company acquired an additional 2% minority investment for approximately $0.3 million. Oval Medical has broad expertise in the design and development of injectable drug delivery devices. This investment represents a significant opportunity for the Pharma segment to enter a new category and broaden our product portfolio and customer reach. This investment is being accounted for under the equity method of accounting from the date of acquisition.
In October 2011, the Company acquired TKH Plastics Pvt Ltd (TKH), a leading provider of injection molded dispensing closures in India for approximately $17 million in cash and approximately $1 million in assumed debt. The acquisition will allow the Company to expand its geographical presence in India. After allocating a portion of the purchase price to fixed and intangible assets, goodwill of approximately $10.9 million was recorded on the transaction. The results of operations subsequent to the acquisition are included in the reported income statement. TKH is included in the Beauty + Home reporting segment.
The acquisitions described above have not had a material impact on the results of operations through the second quarter of 2012 or 2011 and therefore no proforma information is required.
NOTE 11 STOCK-BASED COMPENSATION
The Company issues stock options and restricted stock units to employees under Stock Awards Plans approved by shareholders. Stock options are issued to non-employee directors for their services as directors under Director Stock Option Plans approved by shareholders. Options are awarded with the exercise price equal to the market price on the date of grant and generally become exercisable over three years and expire 10 years after grant. Restricted stock units generally vest over three years.
Compensation expense recorded attributable to stock options for the first half of 2012 was approximately $8.7 million ($5.8 million after tax), or $0.09 per basic share and $0.08 per diluted share. The income tax benefit related to this compensation expense was approximately $2.9 million. Approximately $7.8 million of the compensation expense was recorded in selling,
research & development and administrative expenses and the balance was recorded in cost of sales. Compensation expense recorded attributable to stock options for the first half of 2011 was approximately $9.4 million ($6.6 million after tax), or $0.10 per basic share and $0.09 per diluted share. The income tax benefit related to this compensation expense was approximately $2.8 million. Approximately $8.7 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.
The Company uses historical data to estimate expected life and volatility. The weighted-average fair value of stock options granted under the Stock Awards Plans was $10.35 and $11.36 per share in 2012 and 2011, respectively. These values were estimated on the respective dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Stock Awards Plans:
Six months ended June 30, |
|
2012 |
|
2011 |
|
|
|
|
|
|
|
Dividend Yield |
|
1.8 |
% |
1.7 |
% |
Expected Stock Price Volatility |
|
22.9 |
% |
23.3 |
% |
Risk-free Interest Rate |
|
1.3 |
% |
2.7 |
% |
Expected Life of Option (years) |
|
6.9 |
|
6.9 |
|
The fair value of stock options granted under the Director Stock Option Plan during the second quarter of 2012 was $10.59. The fair value of stock options granted under the Director Stock Option Plan during the second quarter of 2011 was $12.00. These values were estimated on the respective date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Director Stock Option Plans:
Six months ended June 30, |
|
2012 |
|
2011 |
|
|
|
|
|
|
|
Dividend Yield |
|
1.7 |
% |
1.6 |
% |
Expected Stock Price Volatility |
|
22.5 |
% |
22.9 |
% |
Risk-free Interest Rate |
|
1.3 |
% |
2.5 |
% |
Expected Life of Option (years) |
|
6.9 |
|
6.9 |
|
A summary of option activity under the Companys stock option plans during the first half of 2012 is presented below:
|
|
Stock Awards Plans |
|
Director Stock Option Plans |
| ||||||||
|
|
|
|
Weighted Average |
|
|
|
Weighted Average |
| ||||
|
|
Shares |
|
Exercise Price |
|
Shares |
|
Exercise Price |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Outstanding, January 1, 2012 |
|
8,345,917 |
|
$ |
32.90 |
|
270,000 |
|
$ |
37.98 |
| ||
Granted |
|
1,233,800 |
|
51.81 |
|
85,500 |
|
53.72 |
| ||||
Exercised |
|
(914,070 |
) |
25.60 |
|
(18,500 |
) |
25.67 |
| ||||
Forfeited or expired |
|
(22,405 |
) |
44.40 |
|
|
|
|
| ||||
Outstanding at June 30, 2012 |
|
8,643,242 |
|
$ |
36.34 |
|
337,000 |
|
$ |
42.65 |
| ||
Exercisable at June 30, 2012 |
|
6,171,188 |
|
$ |
31.62 |
|
173,167 |
|
$ |
34.64 |
| ||
|
|
|
|
|
|
|
|
|
| ||||
Weighted-Average Remaining Contractual Term (Years): |
|
|
|
|
|
|
| ||||||
Outstanding at June 30, 2012 |
|
6.2 |
|
|
|
7.6 |
|
|
| ||||
Exercisable at June 30, 2012 |
|
5.2 |
|
|
|
6.0 |
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Aggregate Intrinsic Value ($000): |
|
|
|
|
|
|
|
|
| ||||
Outstanding at June 30, 2012 |
|
$ |
128,097 |
|
|
|
$ |
3,077 |
|
|
| ||
Exercisable at June 30, 2012 |
|
$ |
119,933 |
|
|
|
$ |
2,848 |
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Intrinsic Value of Options Exercised ($000) During the Six Months Ended: |
|
|
|
|
| ||||||||
June 30, 2012 |
|
$ |
25,101 |
|
|
|
|
$ |
509 |
|
|
| |
June 30, 2011 |
|
$ |
22,232 |
|
|
|
|
$ |
884 |
|
|
|
The fair value of shares vested during the six months ended June 30, 2012 and 2011 was $12.1 million and $11.1 million, respectively. Cash received from option exercises was approximately $25 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $6.4 million in the six months ended June 30, 2012. As of June 30, 2012, the remaining valuation of stock option awards to be expensed in future periods was $12.6 million and the related weighted-average period over which it is expected to be recognized is 1.5 years.
The fair value of restricted stock unit grants is the market price of the underlying shares on the grant date. A summary of restricted stock unit activity as of June 30, 2012, and changes during the period then ended is presented below:
|
|
|
|
Weighted-Average |
| |
|
|
Shares |
|
Grant-Date Fair Value |
| |
|
|
|
|
|
| |
Nonvested at January 1, 2012 |
|
17,293 |
|
$ |
39.21 |
|
Granted |
|
13,092 |
|
52.52 |
| |
Vested |
|
(8,440 |
) |
37.47 |
| |
Nonvested at June 30, 2012 |
|
21,945 |
|
$ |
47.82 |
|
Compensation expense recorded attributable to restricted stock unit grants for the first half of 2012 and 2011 was approximately $282 thousand and $227 thousand, respectively. The fair value of units vested during the six months ended June 30, 2012 and 2011 was $316 thousand and $346 thousand, respectively. The intrinsic value of units vested during the six months ended June 30, 2012 and 2011 was $448 thousand and $492 thousand, respectively. As of June 30, 2012 there was $510 thousand of total unrecognized compensation cost relating to restricted stock unit awards which is expected to be recognized over a weighted-average period of 1.7 years.
NOTE 12 INCOME TAX UNCERTAINTIES
The Company had approximately $8.9 and $9.1 million recorded for income tax uncertainties as of June 30, 2012 and December 31, 2011, respectively. The $0.2 million change in income tax uncertainties was primarily the result of currency changes. The amount, if recognized, that would impact the effective tax rate is $8.3 and $8.5 million, respectively. The Company estimates that it is reasonably possible that the liability for uncertain tax positions will decrease by no more than $5.0 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.
NOTE 13 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 managements own assumptions about the inputs used in pricing the asset or liability.
As of June 30, 2012, the fair values of our financial assets and liabilities were categorized as follows:
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Forward exchange contracts (a) |
|
$ |
994 |
|
$ |
|
|
$ |
994 |
|
$ |
|
|
Total assets at fair value |
|
$ |
994 |
|
$ |
|
|
$ |
994 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
| ||||
Forward exchange contracts (a) |
|
$ |
2,612 |
|
$ |
|
|
$ |
2,612 |
|
$ |
|
|
Total liabilities at fair value |
|
$ |
2,612 |
|
$ |
|
|
$ |
2,612 |
|
$ |
|
|
As of December 31, 2011, the fair values of our financial assets and liabilities were categorized as follows:
|
|
Total |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Forward exchange contracts (a) |
|
$ |
520 |
|
$ |
|
|
$ |
520 |
|
$ |
|
|
Total assets at fair value |
|
$ |
520 |
|
$ |
|
|
$ |
520 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
| ||||
Forward exchange contracts (a) |
|
$ |
10,690 |
|
$ |
|
|
$ |
10,690 |
|
$ |
|
|
Total liabilities at fair value |
|
$ |
10,690 |
|
$ |
|
|
$ |
10,690 |
|
$ |
|
|
(a) Market approach valuation technique based on observable market transactions of spot and forward rates
The carrying amounts of the Companys other current financial instruments such as cash and equivalents, notes payable and current maturities of long-term obligations approximate fair value due to the short-term maturity of the instrument. The Company considers its long term obligations a Level 2 liability and utilizes the market approach valuation technique based on interest rates that are currently available to the Company for issuance of debt with similar terms and maturities. The estimated fair value of the Companys long term obligations was $280 million as of June 30, 2012 and $283 million as of December 31, 2011.
NOTE 14 FACILITIES CONSOLIDATION AND SEVERANCE
In the second quarter of 2009, the Company announced a plan to consolidate two French dispensing closure manufacturing facilities and several sales offices in North America and Europe and has subsequently expanded the program to include additional headcount reductions. The total costs associated with the consolidation/severance programs are $7.4 million. The plan has been substantially completed, subject to the settlement of remaining reserve balances.
As of June 30, 2012 we have recorded the following activity associated with our consolidation/severance programs:
|
|
Beginning |
|
Net Charges for |
|
|
|
|
|
Ending |
| |||||
|
|
Reserve at |
|
the Six Months |
|
|
|
|
|
Reserve at |
| |||||
|
|
12/31/11 |
|
Ended 6/30/12 |
|
Cash Paid |
|
FX Impact |
|
6/30/12 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Employee severance |
|
$ |
1,130 |
|
$ |
(209 |
) |
$ |
(40 |
) |
$ |
(16 |
) |
$ |
865 |
|
Other costs |
|
17 |
|
(6 |
) |
|
|
|
|
11 |
| |||||
Totals |
|
$ |
1,147 |
|
$ |
(215 |
) |
$ |
(40 |
) |
$ |
(16 |
) |
$ |
876 |
|
NOTE 15 SUBSEQUENT EVENTS
On July 3, 2012, the Company completed its acquisition of Rumpler - Technologies S.A., together with its direct and indirect subsidiaries (the Stelmi Group). The Stelmi Group is a producer of elastomer primary packaging components for injectable drug delivery and operates two manufacturing plants located in the Normandy region of France and also has a research and development facility located near Paris. . The results of Stelmi Group will be included in the results of our Pharma reporting segment beginning in the third quarter of 2012.
The Company acquired all of the shares of the Stelmi Group for an enterprise value of approximately 165 million (approximately $207 million) in cash. For the three and six months ended June 30, 2012, we recognized $5.5 million and $5.8 million, respectively, in transaction costs related to the acquisition of the Stelmi Group. These costs are reflected in the selling, research & development and administrative section of the Condensed Consolidated Statements of Income.
Due to the limited time since the completion of the acquisition, the initial accounting for this business combination is incomplete as of the date of this filing. As such, we are not able to make certain business combination disclosures at this time, including amounts to be recognized at the acquisition date for the major classes of assets acquired, and liabilities assumed, including goodwill and other intangibles.
ITEM 2. MANAGEMENTS 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, |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
Net Sales |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
Cost of sales (exclusive of depreciation and amortization shown below) |
|
67.6 |
|
66.6 |
|
67.6 |
|
66.5 |
|
Selling, research & development and administrative |
|
15.2 |
|
14.7 |
|
15.1 |
|
15.2 |
|
Depreciation and amortization |
|
5.6 |
|
5.7 |
|
5.6 |
|
5.7 |
|
Operating Income |
|
11.6 |
|
13.0 |
|
11.7 |
|
12.6 |
|
Other income (expense) |
|
(0.8 |
) |
(0.5 |
) |
(0.7 |
) |
(0.6 |
) |
Income before Income Taxes |
|
10.8 |
|
12.5 |
|
11.0 |
|
12.0 |
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
7.2 |
% |
8.3 |
% |
7.3 |
% |
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
Effective Tax Rate |
|
33.4 |
% |
33.3 |
% |
33.7 |
% |
33.1 |
% |
NET SALES
We reported net sales of $577.5 million for the quarter ended June 30, 2012, 6% below second quarter 2011 reported net sales of $614.9 million. Excluding changes in foreign currency rates, sales increased by 2% in the second quarter of 2012 compared to the second quarter of 2011. The average U.S. dollar exchange rate strengthened relative to the Euro and other foreign currencies, such as the Brazilian Real, Swiss Franc and British Pound, in the second quarter of 2012 compared to the second quarter of 2011, and as a result, changes in exchange rates had a negative impact of 8% on our reported sales growth. Excluding changes in foreign currency rates, custom tooling sales decreased $2.1 million and acquisitions contributed $2.3 million to net sales in the second quarter 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, |
| ||||||||||||||||
|
|
2012 |
|
% of Total |
|
2011 |
|
% of Total |
|
2012 |
|
% of Total |
|
2011 |
|
% of Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Domestic |
|
$ |
166,320 |
|
29 |
% |
$ |
165,077 |
|
27 |
% |
$ |
337,629 |
|
29 |
% |
$ |
325,065 |
|
27 |
% |
Europe |
|
305,610 |
|
53 |
% |
357,878 |
|
58 |
% |
631,319 |
|
54 |
% |
692,984 |
|
58 |
% | ||||
Other Foreign |
|
105,573 |
|
18 |
% |
91,974 |
|
15 |
% |
201,053 |
|
17 |
% |
173,398 |
|
15 |
% | ||||
COST OF SALES (EXCLUSIVE OF DEPRECIATION SHOWN BELOW)
Our cost of sales as a percent of net sales increased to 67.6% in the second quarter of 2012 compared to 66.6% in the same period a year ago. This is primarily due to $1.3 million of costs related to the start-up of our manufacturing facility in Lincolnton, North Carolina and decreased sales volumes in our European businesses negatively impacting our ability to absorb fixed overhead expenses.
Cost of sales as a percent of net sales increased to 67.6% in the first half of 2012 compared to 66.5% in the same period a year ago. This increase is due to $2.8 million of Lincolnton start-up costs and European sales volumes noted above as well as an increase in custom tooling sales to our customers. We had a $4.8 million increase in sales of tooling to customers, excluding currency effects, in the first half of 2012 compared to the prior year period. Traditionally, sales of custom tooling generate lower margins than our regular product sales; thus, an increase in sales of custom tooling negatively impacted cost of sales as a percentage of sales.
SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE
Our Selling, Research & Development and Administrative expenses (SG&A) decreased by approximately $2.7 million in the second quarter of 2012 compared to the same period a year ago. Excluding changes in foreign currency rates, SG&A increased by approximately $3.9 million in the quarter. Approximately $5.5 million of professional fees related to the acquisition of the Stelmi Group were recorded in the quarter, partially offset by a reduction in legal fees in the second quarter of 2012 compared to the prior year period. SG&A as a percentage of net sales increased to 15.2% compared to 14.7% in the same period of the prior year due primarily to the decrease in reported net sales.
SG&A decreased by approximately $4.6 million in the first half of 2012 compared to the same period a year ago. Excluding changes in foreign currency rates, SG&A increased by approximately $4.1 million in the first half of the year. The increase is primarily due to the Stelmi Group transaction costs mentioned above. Other normal inflationary increases were offset by the decrease in stock compensation expense of approximately $0.9 million due to lower substantive vesting requirements and a lower Black Scholes value. For the first half of 2012, SG&A as a percentage of net sales decreased to 15.1% compared to 15.2% in the first half of 2011.
DEPRECIATION AND AMORTIZATION
Reported depreciation and amortization expenses decreased by approximately $2.3 million in the second quarter of 2012 compared to the same period a year ago. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $0.4 million in the quarter compared to the same period a year ago. This increase is primarily related to the start-up of our new facility in Lincolnton, North Carolina. Depreciation and amortization as a percentage of net sales decreased slightly to 5.6% in the second quarter of 2012 compared to 5.7% for the same period a year ago.
For the first half of 2012, reported depreciation and amortization expenses decreased by approximately $3.4 million compared to the first half of 2011. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $0.2 million in the first half. Depreciation and amortization as a percentage of net sales also decreased slightly to 5.6% compared to 5.7% for the same period a year ago.
OPERATING INCOME
Operating income decreased approximately $13.1 million in the second quarter of 2012 to $67.1 million compared to $80.2 million in the same period in the prior year. Excluding changes in currency rates, operating income decreased by approximately $6.4 million in the quarter. Stelmi transaction costs of approximately $5.5 million and slightly higher cost of sales were the primary reasons for the decrease in operating income. Operating income as a percentage of net sales decreased to 11.6% in the second quarter of 2012 compared to 13.0% for the same period in the prior year mainly due to the negative factors impacting cost of sales and SG&A noted above.
Operating income decreased approximately $12.6 million in the first half of 2012 to $137.4 million compared to $150.0 million in the same period in the prior year. Excluding changes in currency rates, operating income decreased by approximately $3.4 million in the first half of 2012. The decrease is primarily due to the same reasons mentioned above for the second quarter results. Operating income as a percentage of sales decreased to 11.7% in the first half of 2012 compared to 12.6% for the same period in the prior year.
NET OTHER EXPENSE
Net other expenses in the second quarter of 2012 increased to $4.5 million from $3.3 million in the same period in the prior year. This increase is due to $1.3 million of foreign currency losses primarily related to the mark to market of foreign exchange forward contracts taken out on intercompany payables.
Net other expenses for the six months ended June 30, 2012 also increased to $8.6 million from $6.8 million in the same period in the prior year due primarily to lower interest income of $1.3 million.
EFFECTIVE TAX RATE
The reported effective tax rate increased to 33.4% and 33.7% for the three and six months ended June 30, 2012 compared to 33.3% and 33.1% for the same periods ended June 30, 2011. The increase in the rate for the six months ended June 30, 2012 is related to the mix of earnings in higher tax countries and the French surtax enacted late in 2011.
NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.
We reported net income attributable to AptarGroup, Inc. of $41.7 million and $85.5 million in the three and six months ended June 30, 2012, respectively, compared to $51.3 million and $95.8 million for the same periods in the prior year.
BEAUTY + HOME SEGMENT
Operations that sell dispensing systems primarily to the personal care, fragrance/cosmetic and household markets form the Beauty + Home segment.
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Sales |
|
$ |
369,284 |
|
$ |
402,738 |
|
$ |
746,435 |
|
$ |
779,000 |
|
Segment Income |
|
33,652 |
|
39,877 |
|
66,624 |
|
72,530 |
| ||||
Segment Income as a percentage of Net Sales |
|
9.1 |
% |
9.9 |
% |
8.9 |
% |
9.3 |
% | ||||
Net sales for the quarter ended June 30, 2012 decreased 8% to $369.3 million compared to $402.7 million in the second quarter of the prior year. Excluding changes in foreign currency rates, sales were flat in the second quarter of 2012 compared to the same quarter of the prior year. Acquisitions accounted for $2.3 million of sales in the quarter. Sales increases in Latin America and Asia were offset by decreased sales in Europe. In spite of softness in demand in Europe, our global sales to the fragrance/cosmetic market remained equal to the prior years level (excluding exchange rate effects) and global sales to the personal care market decreased 1% to the prior year (excluding exchange rate effects).
Net sales decreased 4% in the first six months of 2012 to $746.4 million compared to $779.0 million in the first six months of the prior year. Excluding changes in foreign currency rates, sales increased 2%. Sales of our products, excluding foreign currency changes, to the fragrance/cosmetic and personal care markets increased approximately 2% and 1%, respectively, in the first half of 2012 compared to the first half of 2011, mainly due to growth in Asia and Latin America.
Segment income for the second quarter of 2012 decreased approximately 16% to $33.7 million compared to $39.9 million reported in the prior year. Segment income was negatively impacted by the foreign currency changes and the lower sales volumes in Europe. The positive impact from the timing of reduced resin cost pass throughs of approximately $600 thousand was partially offset by net foreign currency transaction losses.
Segment income in the first six months of 2012 decreased approximately 8% to $66.6 million compared to $72.5 million reported in the same period in the prior year. The decrease in segment income in the first half of 2012 was primarily due to the foreign currency changes and lower sales volumes in Europe, as mentioned above. Favorable resin cost pass throughs of $1.2 million and sales growth in Asia and Latin America helped to offset some of this decrease.
PHARMA SEGMENT
Operations that sell dispensing systems to the pharmaceutical market form the Pharma segment.
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Sales |
|
$ |
132,979 |
|
$ |
138,703 |
|
$ |
273,022 |
|
$ |
270,707 |
|
Segment Income |
|
31,110 |
|
40,369 |
|
70,482 |
|
79,257 |
| ||||
Segment Income as a percentage of Net Sales |
|
23.4 |
% |
29.1 |
% |
25.8 |
% |
29.3 |
% | ||||
Net sales for the Pharma segment decreased by 4% in the second quarter of 2012 to $133.0 million compared to $138.7 million in the second quarter of 2011. Sales, excluding changes in foreign currency rates, increased 4%. Sales, excluding foreign currency changes, to the prescription market increased 7% while sales to the consumer health care market decreased 2%. While the prescription business continues to show good growth, we believe the lower sales in consumer health care are the result of possible destocking and reduction in demand from Eastern European countries.
Net sales for the first six months of 2012 increased approximately 1% to $273.0 million compared to $270.7 million in the first six months of the prior year. Sales, excluding changes in foreign currency rates, increased 6%. Sales, excluding foreign currency changes, to the prescription market increased approximately 9% while sales to the consumer health care market were flat. The growth in sales to the prescription market is primarily due to an increase in sales of our nasal pumps to the allergy/rhinitis market.
Segment income in the second quarter of 2012 decreased approximately 23% to $31.1 million compared to $40.4 million reported in the same period in the prior year. This decrease is mainly attributed to the inclusion of $5.5 million of costs related to the acquisition of the Stelmi Group and the negative impact of changes in exchange rates.
Segment income in the first six months of 2012 decreased approximately 11% to $70.5 million compared to $79.3 million reported in the same period of the prior year. This decrease in segment income is due primarily to the same reasons mentioned above for the second quarter results, offset somewhat by the increased profits from higher prescription sales during the first quarter of 2012.
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, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Sales |
|
$ |
75,240 |
|
$ |
73,488 |
|
$ |
150,544 |
|
$ |
141,740 |
|
Segment Income |
|
7,853 |
|
8,613 |
|
14,641 |
|
16,185 |
| ||||
Segment Income as a percentage of Net Sales |
|
10.4 |
% |
11.7 |
% |
9.7 |
% |
11.4 |
% | ||||
Net sales for the quarter ended June 30, 2012 increased approximately 2% to $75.2 million compared to $73.5 million in the second quarter of the prior year. Sales, excluding changes in foreign currency rates, increased 6%. A reduction in tooling sales in the second quarter of 2012 was more than offset by increased product sales of more than 10%, excluding changes in foreign currency. Excluding foreign currency changes, sales to the food market decreased 10% due to lower tooling sales compared to the second quarter of 2011. Sales to the beverage market increased approximately 39% due to significant closure sales growth in Asia.
Net sales for the first six months of 2012 increased approximately 6% to $150.5 million compared to $141.7 million in the first six months of the prior year. Excluding changes in foreign currency rates, sales increased 9%. Sales, excluding foreign currency changes, to the food market decreased 2% due to lower tooling sales. Sales, excluding foreign currency changes, to the beverage market increased approximately 28% due to the closure growth in Asia mentioned above.
Segment income in the second quarter of 2012 decreased approximately 9% to $7.9 million compared to $8.6 million during the same period in the prior year. Increased research and development and selling costs of approximately $800 thousand along with $1.3 million of additional costs related to our new Lincolnton, North Carolina facility offset the additional margin from our increased product sales and the positive impact from the timing of reduced resin cost pass throughs of approximately $900 thousand.
Segment income in the first six months of 2012 decreased approximately 10% to $14.6 million compared to $16.2 million reported in the same period of the prior year. The increased research and development and selling costs mentioned above along with the Lincolnton start-up costs of $2.8 million continue to offset our additional product sales margin.
CORPORATE & OTHER
In addition to our three operating business segments, AptarGroup assigns certain costs to Corporate & Other, which is presented separately in Note 9. Corporate & Other primarily includes certain corporate compensation and information system costs which are not allocated directly to our operating segments. Corporate & Other expense decreased to $7.0 million for the quarter ended June 30, 2012 compared to $8.9 million in the second quarter of the prior year mainly due to a favorable adjustment of $1.2 million to our LIFO reserve as resin prices have decreased. This LIFO reserve is maintained at the corporate level as the segments all report on a FIFO basis for consistency.
Corporate & Other expense in the first six months of 2012 decreased to $15.6 million compared to $18.7 million reported in the same period of the prior year. The decrease is mainly due to changes in our LIFO reserve of $1.5 million, the weaker Euro compared to the dollar and lower information system costs.
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. Recently, the weaker Brazilian Real vs. the U.S. Dollar and Euro has had a negative transaction impact on imported components and finished goods into South America.
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 2012 compared to the prior year is as follows:
|
|
2012 |
|
2011 |
| ||
First Quarter |
|
$ |
5.8 |
|
$ |
7.7 |
|
Second Quarter |
|
2.9 |
|
1.7 |
| ||
Third Quarter (estimated) |
|
2.1 |
|
2.8 |
| ||
Fourth Quarter (estimated) |
|
1.9 |
|
1.6 |
| ||
|
|
$ |
12.7 |
|
$ |
13.8 |
|
BUSINESS EXPOSURE TO CERTAIN EUROPEAN COUNTRIES
Approximately 54% of the Companys sales are recorded by European subsidiaries and are sold to European customers. Nevertheless the Company does not have a significant amount of sales in Greece. At the end of June 2012, the Company had approximately $1.7 million of outstanding receivables due from Greek customers with more than half covered by credit insurance. The Company is currently not experiencing any slowdown in the payment of receivables from Greek customers but is monitoring carefully the situation. The Company also does not have any significant suppliers located in Greece.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash flow from operations and our revolving credit facility. Cash and equivalents decreased to $300.9 million at June 30, 2012 from $377.6 million at December 31, 2011. Total short and long-term interest bearing debt also decreased in the second quarter of 2012 to $384.2 million from $438.6 million at December 31, 2011. These decreases are primarily due to the repatriation of approximately $79 million from Europe to the United States during 2012. These repatriated funds were used to pay down a portion of our revolving credit facility. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholders equity plus Net Debt) was 5.8% at the end of June 2012 compared to 4.5% at December 31, 2011.
In the first six months of 2012, our operations provided approximately $84.2 million in cash flow compared to $65.5 million for the same period a year ago. The increase in cash provided by operations is primarily attributable to an improvement in working capital. During the first half of 2012, we utilized the majority of the operating cash flows to finance capital expenditures.
We used $94.3 million in cash for investing activities during the first half of 2012, compared to $76.4 million during the same period a year ago. The increase in cash used for investing activities is due primarily to an increase in capital expenditures of $16 million in the first half of 2012 compared to the first half of 2011. Cash outlays for capital expenditures for 2012 are estimated to be approximately $180 million but could vary due to changes in exchange rates as well as the timing of capital projects.
We used $64.3 million in cash for financing activities during the first half of 2012 compared to $47.7 million during the same period a year ago. The increase in cash used by financing activities was primarily due to a decrease in our borrowings as we were able to utilize repatriated funds to pay down a portion of our revolving credit facility.
On January 31, 2012, we entered into a new revolving credit facility that provides for unsecured financing of up to $300 million. This new facility matures on January 31, 2017 and replaces a previously existing $200 million unsecured financing facility that would have matured in 2012 and was cancelled without any early termination penalty on January 31, 2012. We initially drew $185 million in borrowings from the new credit facility, of which $165 million was used to repay in full the outstanding obligations under the previous credit facility. Each borrowing under the new credit facility will bear interest at rates based on LIBOR, prime and 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 new credit facility and the facility fee percentage may change from time to time depending on changes in our consolidated leverage ratio. The representations, covenants and events of default in the new credit facility are substantially similar to the representations, covenants and events of default contained in the previous credit facility.
Our revolving credit facility and certain long-term obligations require us to satisfy certain financial and other covenants including:
|
|
Requirement |
|
Level at June 30, 2012 |
Debt to total capital ratio |
|
Maximum of 55% |
|
22.2% |
Based upon the above debt to total capital ratio covenant we had the ability to borrow approximately an additional $1.3 billion at June 30, 2012 before the 55% 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 all these lines are uncommitted. Cash generated by foreign operations has generally been reinvested locally. The majority of our $300.9 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. Our total cash and equivalents at June 30, 2012 was $300.9 million, of which 99% is located outside the U.S. Our U.S. operations generate sufficient cash flows to fund their liquidity needs and do not depend on cash located outside of the U.S. for their operations. Nevertheless, we are a dividend payer and have an active share repurchase program. These two items are funded with any remaining positive cash flows from the U.S. operations and are supplemented by additional borrowings from our revolving credit facility and the repatriations of current year foreign earnings. Specifically, in the U.S., we have an unsecured $300 million revolving line of credit of which $188 million was unused and available as of June 30, 2012 and believe we have the ability to borrow additional funds should the need arise. Historically, the tax consequences associated with repatriating current year earnings to the U.S. has been between 10% and 14% of the repatriated amount. We would not expect future impacts to be materially different.
We believe we are in a strong financial position and have the financial resources to meet business requirements in the foreseeable future. We have historically used cash flow from operations as our primary source of liquidity. Our primary uses of liquidity are to invest in equipment and facilities that are necessary to support our growth and to make acquisitions that will contribute to the achievement of our strategic objectives. The acquisition of the Stelmi group was funded with cash available from our European operations. Other uses of liquidity include paying dividends to shareholders and repurchasing shares of our common stock. 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.
On July 17, 2012, the Board of Directors declared a quarterly dividend of $0.22 per share payable on August 30, 2012 to stockholders of record as of August 9, 2012.
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 2029. 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, we do not have any off-balance sheet arrangements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2011, the FASB amended the guidance on the annual testing of goodwill for impairment. The amended guidance will allow companies to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This guidance will be effective for the Companys fiscal year ending December 31, 2012, with early adoption permitted. The Company does not believe that this new guidance will have a material impact on its consolidated financial statements.
Other accounting standards that have been issued by the FASB or other standards-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.
OUTLOOK
We currently expect the softness in Europe and the challenging currency exchange rate environment to continue into the third quarter. We are seeing some continued caution on the part of our customers, primarily from fragrance/cosmetic, personal care and consumer health care customers in Europe.
Currently we expect third quarter diluted earnings per share to be in the range of $0.61 to $0.66 per share compared to $0.72 per share reported in the prior year. Had the current currency exchange rates been in place a year ago, the prior years earnings per share would have been approximately $0.65 per share. In addition, prior year results were positively impacted by approximately $0.02 per share related to a lower effective tax rate.
FORWARD-LOOKING STATEMENTS
Certain statements in Managements Discussion and Analysis and other sections of this Form 10-Q are forward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Liquidity and Capital Resources, Off Balance Sheet Arrangements, and Operations Outlook sections of this Form 10-Q. Words such as expects, anticipates, believes, estimates, and other similar expressions or future or conditional verbs such as will, should, would and could are intended to identify such 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 our beliefs as well as assumptions made by and information currently available to us. Accordingly, our actual results may differ materially from those expressed or implied in such forward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment, including but not limited to:
· |
economic, environmental and political conditions worldwide; |
· |
the cost of materials and other input costs (particularly resin, metal, anodization costs and transportation and energy costs); |
· |
the availability of raw materials and components (particularly from sole sourced suppliers) as well as the financial viability of these suppliers; |
· |
changes in customer and/or consumer spending levels, including the recent slowdown in Europe; |
· |
our ability to contain costs and improve productivity; |
· |
our ability to successfully integrate the Stelmi acquisition; |
· |
the impact of the timing of purchase price accounting amortization; |
· |
our ability to increase prices; |
· |
significant fluctuations in foreign currency exchange rates; |
· |
changes in capital availability or cost, including interest rate fluctuations; |
· |
volatility of global credit markets; |
· |
changes in capital availability or cost, including interest rate fluctuations; |
· |
the timing and magnitude of capital expenditures; |
· |
our ability to identify potential new acquisitions and to successfully acquire and integrate such operations or products; |
· |
direct or indirect consequences of acts of war or terrorism; |
· |
cybersecurity threats that could impact our networks and reporting systems; |
· |
the impact of natural disasters; |
· |
changes or difficulties in complying with government regulation; |
· |
changing regulations or market conditions regarding environmental sustainability; |
· |
work stoppages due to labor disputes; |
· |
fiscal and monetary policy, including changes in worldwide tax rates; |
· |
competition, including technological advances; |
· |
our ability to protect and defend our intellectual property rights, as well as litigation involving intellectual property rights; |
· |
the outcome of any legal proceeding that has been or may be instituted against us and others; |
· |
our ability to meet future cash flow estimates to support our goodwill impairment testing; |
· |
the demand for existing and new products; |
· |
our ability to manage worldwide customer launches of complex technical products, in particular in developing markets; |
· |
the success of our customers products, particularly in the pharmaceutical industry; |
· |
difficulties in product development and uncertainties related to the timing or outcome of product development; |
· |
significant product liability claims; and |
· |
other risks associated with our operations. |
Although we believe that our 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. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to Item 1A (Risk Factors) of Part I included in the Companys Annual Report on Form 10-K for additional risk factors affecting the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 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. 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 has an additive effect.
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-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 June 30, 2012 about our forward currency exchange contracts. The majority of the contracts expire before the end of the third quarter of 2012.
|
|
|
|
Average |
|
Min / Max |
| |
|
|
Contract Amount |
|
Contractual |
|
Notional |
| |
Buy/Sell |
|
(in thousands) |
|
Exchange Rate |
|
Volumes |
| |
|
|
|
|
|
|
|
| |
Swiss Franc/Euro |
|
$ |
34,638 |
|
0.8329 |
|
31,284-36,858 |
|
Euro/U.S. Dollar |
|
18,919 |
|
1.2678 |
|
18,919-23,890 |
| |
Euro/Brazilian Real |
|
14,116 |
|
3.0083 |
|
14,116-15,698 |
| |
Euro/Mexican Peso |
|
7,710 |
|
18.7680 |
|
7,710-7,710 |
| |
Czech Koruna/Euro |
|
6,709 |
|
0.0391 |
|
6,226-6,709 |
| |
U.S. Dollar/Chinese Yuan |
|
4,914 |
|
6.3643 |
|
3,366-4,914 |
| |
Euro/Chinese Yuan |
|
2,405 |
|
8.2406 |
|
2,405-3,037 |
| |
British Pound/Euro |
|
2,251 |
|
1.2340 |
|
2,076-2,649 |
| |
U.S. Dollar/Brazilian Real |
|
2,050 |
|
1.9252 |
|
2,050-2,600 |
| |
U.S. Dollar/Euro |
|
1,857 |
|
0.7909 |
|
1,060-1,857 |
| |
Other |
|
2,335 |
|
|
|
|
| |
Total |
|
$ |
97,904 |
|
|
|
|
|
As of June 30, 2012, the Company has recorded the fair value of foreign currency forward exchange contracts of $0.3 million in prepaid and other, $0.7 million in miscellaneous other assets, $0.8 million in accounts payable and accrued liabilities and $1.9 million in deferred and other non-current liabilities in the balance sheet.
The Company maintained an interest rate swap to convert a portion of its fixed-rate debt into variable-rate debt until May 31, 2011. Under the interest rate swap contract, the Company exchanged, at specified intervals, the difference between fixed-rate and floating-rate amounts, which was calculated based on an agreed upon notional amount. On May 31, 2011, this interest rate swap contract matured and was not renewed. No gain or loss was recorded in the income statement in 2011 as any hedge ineffectiveness for the period was immaterial.
The Company had one foreign currency cash flow hedge until March 15, 2012. A French subsidiary of AptarGroup, AptarGroup Holding SAS, had hedged the risk of variability in Euro equivalent associated with the cash flows of an intercompany loan granted in Brazilian Real. The forward contracts utilized were designated as a hedge of the changes in the cash flows relating to the changes in foreign currency rates relating to the loan and related forecasted interest. On March 15, 2012, the loan and foreign currency forward contracts were repaid. During the quarter ended June 30, 2012, the Company did not recognize any net gain (loss) as any hedge ineffectiveness for the period was immaterial, and the Company did not recognize any net gain (loss) related to the portion of the hedging instrument excluded from the assessment of hedge effectiveness.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Companys management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of the Companys disclosure controls and procedures (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2012. 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.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
No change in the Companys internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the Companys fiscal quarter ended June 30, 2012 that materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
The employees of AptarGroup S.A.S. 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 our 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 shares of our 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 June 30, 2012, the Plan purchased 4,076 shares of our Common Stock on behalf of the participants at an average price of $54.43 per share, for an aggregate amount of $222 thousand, and sold 1,260 shares of our Common Stock on behalf of the participants at an average price of $51.17 per share, for an aggregate amount of $64 thousand. At June 30, 2012, the Plan owns 30,592 shares of our Common Stock.
ISSUER PURCHASES OF EQUITY SECURITIES
The following table summarizes the Companys purchases of its securities for the quarter ended June 30, 2012:
Period |
|
Total Number |
|
Average Price |
|
Total Number Of Shares |
|
Maximum Number Of |
| |
|
|
|
|
|
|
|
|
|
| |
4/1 4/30/12 |
|
|
|
$ |
|
|
|
|
3,400,691 |
|
5/1 5/31/12 |
|
|
|
|
|
|
|
3,400,691 |
| |
6/1 6/30/12 |
|
|
|
|
|
|
|
3,400,691 |
| |
Total |
|
|
|
$ |
|
|
|
|
3,400,691 |
|
The Company announced the existing repurchase program on July 19, 2011. There is no expiration date for this repurchase program.
Exhibit 2.1 |
|
Share Purchase Agreement, dated as of May 30, 2012, between Mr. Jean-Jacques Rumpler, Mr. Gérard Rumpler, Ms. Annette Pomerat, Ms. Evelyne Fournier Rumpler and Aptargroup Holding SAS. |
|
|
|
Exhibit 31.1 |
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 31.2 |
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 32.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 32.2 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
Exhibit 101 |
|
The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal 2012, filed with the SEC on August 6, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2012 and 2011, (ii) the Condensed Consolidated Statements of Comprehensive Income Three and Six Months Ended June 30, 2012 and 2011, (iii) the Condensed Consolidated Balance Sheets June 30, 2012 and December 31, 2011, (iv) the Condensed Consolidated Statements of Changes in Equity - Six Months Ended June 30, 2012 and 2011, (v) the Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2012 and 2011 and (vi) the Notes to Condensed Consolidated Financial Statements. |
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/ ROBERT W. KUHN |
|
Robert W. Kuhn |
|
Executive Vice President, |
|
Chief Financial Officer and Secretary |
|
(Duly Authorized Officer and |
|
Principal Financial Officer) |
|
|
|
|
|
Date: August 6, 2012 |
INDEX OF EXHIBITS
Exhibit |
|
|
Number |
|
Description |
|
|
|
2.1 |
|
Share Purchase Agreement, dated as of May 30, 2012, between Mr. Jean-Jacques Rumpler, Mr. Gérard Rumpler, Ms. Annette Pomerat, Ms. Evelyne Fournier Rumpler and Aptargroup Holding SAS. |
|
|
|
31.1 |
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2 |
|
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
101 |
|
The following financial information from our Quarterly Report on Form 10-Q for the second quarter of fiscal 2012, filed with the SEC on August 6, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2012 and 2011, (ii) the Condensed Consolidated Statements of Comprehensive Income Three and Six Months Ended June 30, 2012 and 2011, (iii) the Condensed Consolidated Balance Sheets June 30, 2012 and December 31, 2011, (iv) the Condensed Consolidated Statements of Changes in Equity - Six Months Ended June 30, 2012 and 2011, (v) the Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2012 and 2011 and (vi) the Notes to Condensed Consolidated Financial Statements. |
Exhibit 2.1
SHARE PURCHASE AGREEMENT |
|
BETWEEN
1. Mr Jean-Jacques RUMPLER
Born on February 22, 1946 in SAINT OUEN (93)
Of French nationality
And residing 82 Avenue de Niel - 75017 PARIS
Marital status: married under the regime of separate property (régime de la séparation de biens)
2. Mr Gérard RUMPLER
Born on February 15, 1944 in PARIS (75)
Of French nationality
And residing 2 Place de Neuve - GENEVE (1204 SUISSE)
Marital status: married under the regime of universal community (régime de communauté universelle)
3. Ms Annette POMERAT, wife of Gérard RUMPLER
Born on June 23, 1944 in PARIS (75)
Of French nationality
And residing 2 Place de Neuve - GENEVE (1204 SUISSE)
Marital status: married under the regime of universal community (régime de communauté universelle) Represented by Mr Gérard RUMPLER
4. Ms Evelyne FOURNIER RUMPLER
Born on May 30, 1951 in PARIS (75)
Of French nationality
And residing 5 rue Thiebault - NESLES LA VALLEE (95690)
Marital status: married under the regime of separate property (régime de la séparation de biens)
hereinafter referred to without distinction as the Vendor or Vendors
AND
5. APTARGROUP HOLDING SAS, a société par actions simplifiée (simplified limited liability company) with a share capital of 197,047,214 , the registered office of which is at 34-36, rue de la Princesse, 78430 Louveciennes, and which is registered at the Versailles Commercial and Companies Registry under the number 666 450 010, duly represented for the purposes herein by Mr Olivier FOURMENT.
hereinafter referred to as the Purchaser or Assignee or Beneficiary
WHEREAS
1. On the Completion Date, the Vendors will validly and directly own the entirety of the shares comprising the capital of the company:
RUMPLER TECHNOLOGIES
A Société Anonyme (public limited company) with a share capital of 697,500whose address is 22, Avenue des Nations, Le Raspail, Paris Nord 2, 93420 Villepinte, and which is registered at the Bobigny Commercial and Companies Registry under the number 552 118 705. The companys capital stock is divided into 22,500 shares with a par value of 31 each, fully paid.
The corporate purpose of RUMPLER TECHNOLOGIES is, directly or indirectly, in France or abroad:
· the direct or indirect operation of manufacturing plant and industry in respect of natural or synthetic elastomer in all forms;
· the participation in any manner whatsoever, including by contribution in cash or in kind, subscription to capital stock, purchase of shares in any French or foreign company, whatever their form and whatever their commercial, industrial, agricultural, forestry or other activity;
· the performance of all services, research and the provision to any group company and affiliates of a financial, administrative and research ability;
· the acquisition, management, or transfer in France or abroad, of all intellectual property rights relating to the activities described above;
· And more generally, all commercial, industrial, financial and capital transaction relating directly or indirectly to these purposes or any similar or related purposes likely to facilitate their expansion or development, on its own behalf and on behalf of third party and by way of joint venture;
Its financial year has a duration of twelve (12) months, beginning on January 1st and ending on December 31st of each year.
Its articles of incorporation and certificate of registration (extrait K-Bis) form Appendix 1.
2. On the Completion Date, the company Rumpler-Technologies will validly, directly and indirectly own the entirety of the shares comprising the capital of the companies:
2.1. SOCIETE DE TRANSFORMATION DES ELASTOMERES A USAGES MEDICAUX ET INDUSTRIELS STELMI
A Société Anonyme (public limited company) with a share capital of 1,843,968whose address is 22, Avenue des Nations, Le Raspail, Paris Nord 2, 93420 Villepinte, and which is registered at the Bobigny Commercial and Companies Registry under the number 642 040 000. The companys capital stock is divided into 115,248 shares with a par value of 16 each, fully paid.
The corporate purpose of STELMI is:
· the direct or indirect operation of manufacturing plant and industry in respect of natural or synthetic elastomer in all forms;
· the operation of all manufacturing or marketing license relating directly or indirectly to the main corporate purpose;
· the participation in any manner whatsoever, including by contribution in cash or in kind, subscription to capital stock, purchase of shares in any French or foreign company, whatever their form and whatever their commercial, industrial, agricultural, forestry or other activity;
· And more generally, all commercial, industrial, financial and capital transactions relating directly or indirectly to these purposes or any similar or related purposes likely to facilitate their expansion or development, on its own behalf and on behalf of third party and by way of joint venture;
Its financial year has a duration of twelve (12) months, beginning on January 1st and ending on December 31st of each year.
Its articles of incorporation and certificate of registration (extrait K-Bis) form Appendix 2.
2.2. SOCIETE DE MECANIQUE GENERALE POUR LINDUSTRIE SOMEGI
A Société à responsabilité limitée (limited liability company) with a share capital of 128,000 whose address is 1-3 avenue Georges Clémenceau, 93420 Villepinte, and which is registered at the Bobigny Commercial and Companies Registry under the number 692 030 398. The companys capital stock is divided into 8,000 shares with a par value of 16 each, numbered from 1 to 8,000, fully paid.
The corporate purpose of SOMEGI is:
· researches on manufacturing and manufacturing of molds, tools and general engineering;
· the creation, acquisition, taking on lease, operation of all industrial and commercial companies relating to the corporate purpose described above;
· The direct or indirect participation in any transaction that is likely to facilitate the development of social affairs in any form whatsoever, the setting-up of new companies, the contribution, subscription or purchase of securities.
· More generally, the performance of all industrial, commercial, financial, movable and immovable property activity relating to the corporate purpose described above.
Its financial year has a duration of twelve (12) months, beginning on January 1st and ending on December 31st of each year.
Its articles of incorporation and certificate of registration (extrait K-Bis) form Appendix 3.
2.3. AMERICAN STELMI CORP.
AMERICAN STELMI CORPORATION is a U.S company whose articles of incorporation and certificate of registration (extrait K-Bis) form Appendix 4.
The way the shares issued by the companies are currently distributed and will be distributed on the Closing Date is shown in Appendix 5 hereof.
3. The Vendors having expressed a wish to sell, on the Completion Date, the shares owned by them and comprising the entire (and not a part of) share capital of the RUMPLER-TECHNOLOGIES company (hereinafter referred to as the Shares), the Parties met and entered into a process of negotiation.
4. Upon completion of those negotiations, the Vendors and the Purchaser entered into this Share Sale Agreement (hereinafter referred to as the Agreement) in order to agree the terms and conditions of the sale to the Purchaser of the entirety of the Shares owned by the Vendors.
5. The Vendors have brought documents and information to the attention of the Purchaser and its advisers in the context of a data room. The Purchaser has been able to familiarise itself with this information, to examine the contents thereof and to obtain certain replies to the questions that it posed.
ACCORDINGLY, IT HAS HEREBY BEEN AGREED AS FOLLOWS:
ARTICLE 1 DEFINITIONS
For the purposes of this Agreement, the following terms beginning with a capital letter will have the following meanings:
Warrantors knowledge: |
|
means the knowledge of Mr Jean-Jacques Rumpler in his capacity as company manager acting with reasonable care and having carried out the usual steps in relation to the matters referred to in Article 7. |
|
|
|
Vendors Affiliate |
|
has the meaning given to it in Article 7.22 below. |
|
|
|
Collective Agreements |
|
has the meaning given to it in Article 7.12.2 below. |
|
|
|
Authorisations |
|
means the advertisements, declarations, registrations, filings, certificates, permits and other formalities or authorisations required by the regulations in force in relation to the Companies activities, and in particular declarations of the existence and deletion of classified establishments and the authorisations, licences or permits of an administrative or other |
|
|
nature necessary to carry on those activities or for the use or occupation of the Companies premises. |
|
|
|
Real Properties |
|
has the meaning given to it in Article 7.5.1 below. |
|
|
|
Leased Real Properties |
|
has the meaning given to it in Article 7.5.1 below. |
|
|
|
Wholly-Owned Real Properties |
|
has the meaning given to it in Article 7.5.1 below. |
|
|
|
Personal Property |
|
has the meaning given to it in Article 7.6.1 below. |
|
|
|
Reference Accounts |
|
has the meaning given to it in Article 7.4.1 below. |
|
|
|
Sale Agreement |
|
means this Agreement. |
|
|
|
Contracts |
|
has the meaning given to it in Article 7.10.1 below. |
|
|
|
Control |
|
means control within the meaning of Article L. 233-3 of the Commercial Code. |
|
|
|
Date of the Reference Accounts |
|
has the meaning given to it in Article 7.4.1 below. |
|
|
|
Completion Date |
|
has the meaning given to it in Article 5.1 below. |
|
|
|
Tax Return |
|
means any statement or document (including, without limitation, options, records, forms, appendices, statements of information and documentation relating to the transfer price) the completion and/or signature of which is required by tax Law. |
|
|
|
Representations and Warranties |
|
has the meaning given to it in Article 7 below. |
|
|
|
De Minimis Amount |
|
has the meaning given to it in Article 8.1.8.1 below. |
|
|
|
Intellectual Property Rights |
|
has the meaning given to it in Article 7.9.1 below. |
|
|
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Subsidiary |
|
means, collectively, any company Control of which is held, directly or indirectly, by one or more Companies, a list of which appears in Appendix [**] hereof. |
|
|
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« Deductible » |
|
has the meaning given to it in Article 8.1.8.2 below. |
|
|
|
Warrantor(s) |
|
means Mr Jean-Jacques Rumpler, the spouses Gérard Rumpler and Ms Annette POMERAT (acting jointly and severally) and Ms Evelyne Fournier-Rumpler, acting severally without joint liability as follows: |
|
|
|
|
|
Mr Jean-Jacques Rumpler, as to 33.34%; |
|
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Mr Gérard Rumpler and Ms Annette POMERAT (acting jointly and severally), as to 33.33%; and |
|
|
|
|
|
Ms Evelyne Fournier-Rumpler, as to 33.33%. |
|
|
|
|
|
This allocation will be modified in case of gifts of Shares as set forth in Article 10.6. Each Warrantor will then bear the guarantee in proportion to the number of Shares held on the Completion Date. Moreover, without prejudice to the several liability of Mr Jean-Jacques Rumpler, the spouses Gerard Rumpler and Annette Pomerat and Mrs Evelyne Rumpler-Fournier, the donees will act jointly and severally with the donor under the guarantees set forth in Articles 7 and 8 of this agreement up to the total number of Shares held by the donor and the donees on the Completion Date. |
|
|
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Taxes |
|
means any direct or indirect taxes, duties, deductions, contributions, dues, withholding taxes or charges (whether in the form of taxation, quasi-taxation or social security charges, including contributions or charges payable to all the social security organisations in respect of social security, pension and other social benefits as provided by Law), including, without limitation, income tax, corporation tax, local taxes, sums due in respect of a tax, duty or stamp duty, value added tax, taxes on salaries, taxes on sales, usage or monopoly fees, registration fees, customs duties, employee contributions, social security charges imposed or collected by any State or by any local, national or supranational collective body or authority, or by any organisation, including interest, penalties, fines, surcharges and other charges and all taxes or charges of the same nature that might be due indirectly, particularly pursuant to any joint liability, contractual obligation or co-debtor situation. |
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|
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Indemnity |
|
has the meaning given to it in Article 8.1.2 below. |
|
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Law |
|
means any treaty, directive, law, ordinance, decree, regulation, order, code, administrative authorisation, administrative decision of specific or general application, decision of the Council of State or of the Supreme Court on the date hereof and on the Completion Date, and any Collective Agreements and other compulsory rules in France and abroad, and any legal and regulatory provisions of a general nature or specific to the Companies activities, and in particular those governing health and safety and consumer information and protection. |
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Non Vendors |
|
means the minority shareholders of the Companies other than the Vendors, namely Mr Dominique Fournier, Mr Michel Sinai, Mr Alain Cruset Sinai and Mrs Marie-José Rumpler. |
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Prohibited Payment |
|
means: |
|
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(i) any distribution, including any dividend or interim dividend, in cash or in kind, voted, declared, paid or made by any of the Companies, with the exception of a dividend paid solely for the benefit of another of the Companies, with the exception of the distribution of the RUMPLER TECHNOLOGIES income for the financial year ended on December 31st, 2011, to which the Vendors may proceed and that would be treated as to an adjustment of the Purchase Price; |
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(ii) any other payment made or in respect of which an obligation has been assumed by any of the Companies for the benefit of one or more Vendors or any of the Vendors Affiliates (including, without limitation, in the context of the purchase or reimbursement of any negotiable security issued by any of the Companies or of any redemption of the capital); |
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(iii) any management expenses or fees paid to the Vendors, to the Vendors Affiliates or their advisers, or any expenditure from which they benefit directly or indirectly; |
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(iv) any payment made (or in respect of which an obligation has been assumed) to any employee (including social security charges and other expenses relating thereto) by any of the Companies in the context of the transaction the subject hereof (and particularly bonuses), with the exception of any remuneration paid or to be paid to the employees, Chief Executive Officers or officers of any of the Companies in accordance with the terms of their employment contract or the relating resolutions as at 31 December 2011 in force on the date hereof and which have not changed since December 31, 2011 |
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(v) the waiver by any of the Companies of any amount due to it from any of the Vendors or any of the Vendors Affiliates; |
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(vi) the transfer of any assets by any of the Companies to any of the Vendors or any of the Vendors Affiliates and any assumption of any obligation of any of the Vendors or Vendors Affiliates or the grant of any security, indemnity, bond, surety or guarantee to any of the Vendors or Vendors Affiliates; |
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(vii) the obligation of any of the Companies to carry out any of the foregoing transactions. |
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Parties |
|
means the Vendors and the Purchaser, as listed in the heading of this Agreement. |
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|
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Permits |
|
has the meaning given to it in Article 7.11 below. |
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|
Ceiling |
|
has the meaning given to it in Article 8.1.8.4 below. |
Loss(es) |
|
has the meaning given to it in Article 8.1.1 below. |
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|
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Accounting Principles |
|
has the meaning given to it in Article 7.4.2 below. |
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Purchase Price |
|
has the meaning given to it in Article 3 below. |
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Products |
|
has the meaning given to it in Article 7.11.2below. |
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Vendors Representative |
|
has the meaning given to it in Article 10.5.1 below. |
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Restriction |
|
means any easement, mortgage, lien, pledge or other security, or any preferential right, right of pre-emption, inalienability, approval or reservation of ownership clause, or any right in favour of a third party or any impediment of any kind. |
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Triggering Threshold |
|
has the meaning given to it in Article 8.1.8.3. |
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Company(ies) |
|
means, without distinction, each of the companies listed in paragraph 1 and 2 of the preamble and all the groupings to whose rights and obligations they might succeed. |
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Company Concerned |
|
means the company or companies among the Companies that is the victim of a Loss or Losses within the meaning of Article 8.1.1 |
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Stocks |
|
has the meaning given to it in Article 7.7 below. |
|
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Shares |
|
means the 22,500 (twenty-two thousand five hundred) shares comprising the entire share capital of the Rumpler-Technologies company, on a fully diluted basis. |
ARTICLE 2 THE PURCHASE AND SALE OF THE SHARES SUBJECT TO CONDITIONS
Subject to satisfaction of the conditions precedent provided by Article 4 hereof, the Vendors, who also bind their heirs, successors and assignees, undertake, in accordance with the terms and conditions of this Sale Agreement, to sell to the Purchaser on the Completion Date, and the Purchaser undertakes to purchase the entirety of the Shares, i.e. 22,500 (twenty-two thousand five hundred) shares comprising the capital of the company Rumpler-Technologies, free of any lien, security, charge or other Restriction or similar limitation, and all the rights associated therewith; and
ARTICLE 3 THE PURCHASE PRICE OF THE SHARES
The purchase price (hereinafter referred to as the Purchase Price) to be paid for the entirety (and not a part) of the Shares will be 203,200,000 (two hundred and three millions two hundred thousand euros).
The Purchase Price shall be reduced by the amount of any distribution of dividend by RUMPLER TECHNOLOGY in respect of the income for the financial year ended December 31st, 2011 and carried out before the Completion Date.
On the Completion Date, subject to satisfaction of the conditions precedent provided by Article 4 below, the Purchaser will pay the Purchase Price to the Vendors, pro rata according to their stake on the Completion Date, by bank transfer into the accounts indicated by the Vendors Representative to the Purchaser at least five (5) calendar days before the Completion Date, as follows:
1. Mr Jean-Jacques Rumpler: 67,733,334 (sixty-seven million seven hundred thirty-three thousand three hundred thirty-four euros).
2. Mr Gérard Rumpler and Ms Annette POMERAT: 67,733,333 (sixty-seven million seven hundred thirty-three thousand three hundred thirty-three euros)
3. Ms Evelyne Fournier-Rumpler: 67,733,333(sixty-seven million seven hundred thirty-three thousand three hundred thirty-three euros).
The allocation of the Purchase Price will be adjusted in proportion to the Shares held by each Vendor in case of gifts of RUMPLER TECHNOLOGYs securities by the Vendors to their children prior to the Completion Date, in accordance with Article 10.6.
In case of gifts made pursuant to Article 10.6, the Vendors undertake to communicate to the Purchaser at least five (5) business days before the Completion Date the new allocation of the Purchase Price between the Vendors.
ARTICLE 4 CONDITION PRECEDENT
4.1 Completion of the sale of the Shares to the Purchaser is subject to satisfaction of the following conditions, which constitute conditions precedent both in relation to the purchase of the Shares by the Purchaser and in relation to the Vendors obligation to sell the Shares:
1. Authorisation of the transaction by the competent competition authorities in Germany; and
2. Authorisation of the transaction by the competent competition authorities in Portugal.
4.2 In the event that any of the aforementioned condition precedent is not satisfied at the latest by 1st September 2012 and in the absence of a written waiver by the Purchaser of its right to rely on this situation, this Sale Agreement will automatically lapse, as of right, without any compensation on either part.
4.3 The Parties undertake to use their best endeavours to ensure (i) that the condition precedent referred to in Article 4.1 above are satisfied as soon as possible after the date hereof; and (ii) that the documentation referred to in Article 5.2 below is finalised on the Completion Date; in particular, the Vendors shall provide all necessary information in order to allow the Purchaser to file a complete application
with the competent authorities two (2) business days following the date of execution hereof.
ARTICLE 5 COMPLETION OF THE SALE OF THE SHARES
5.1 COMPLETION DATE
The transfer of ownership of all the Shares (and not part of them) referred to above is expressly subject to full payment of the Purchase Price; in the event of non-payment of the Purchase Price, the Vendors reserve the right to commence proceedings to enforce the obligation to purchase and to claim damages on a alternative basis, provided that the conditions precedent provided for herein have been satisfied and that the Vendors are in a position to comply with all their obligations pursuant to Article 5.
The Vendors undertake to irrevocably transfer to the Purchaser, as provided herein, the entirety of the Shares (and not a part of). If the Vendors are not in a position to transfer all the Shares (and not a part of) under the conditions provided for herein, and in particular in accordance with the provisions of Article 5, even though the conditions precedent contained in Article 4 have been satisfied, the Purchaser reserves the right to commence proceedings to enforce the obligation to sell and to claim damages on a alternative basis.
Subject to these reservations, completion of the sale of all the Shares (and not part of them) will take place within three (3) business days following the satisfaction of the last of the conditions precedent, at the offices of the firm of Bredin Prat (130, rue du Faubourg Saint Honoré, 75008 Paris). Completion of the transaction will take place on the date and at the time defined jointly by the Parties, or, in default of agreement, on the last business day of the above period of three (3) days, at eight oclock in the morning (8 a.m.). The date on which the transaction will be completed is hereinafter referred to as the Completion Date. However, if the conditions precedent are satisfied after July 3, 2012, the completion of the transaction shall not take place before August 28, 2012.
The Purchaser will be the owner and will have possession of all the Shares (and not part of them) with effect from the Completion Date, and will be solely entitled to any distribution of profits and reserves, and in general, to any distribution of any kind by the Companies, with effect from the Completion Date.
5.2 HANDOVER OF DOCUMENTS
On the Completion Date, the following documents will be handed over by the Vendors to the Purchaser:
5.2.1 A certified true copy of the decisions of the competent bodies of the Company approving the Purchaser as the assignee of the Shares and as the new shareholder and partner of the said Company;
5.2.2 The Companies register of share transfers and shareholders accounts;
5.2.3 The transfer orders relating to the entirety (and not a part) of the Shares duly signed by the Vendors in favour of the Purchaser, and the Companies register of share transfers and shareholders accounts showing the transfer of the entirety (and not a part) of the Shares to the Purchaser;
5.2.4 The books of minutes of the decisions of the Companies corporate bodies and the attendance registers or records of attendance at its corporate bodies;
5.2.5 Five (5) signed counterparts of the deed reiterating the sale of the Shares prepared for the purposes of the registration formality in a form substantially identical to the standard form attached in Appendix 6;
5.2.6 All the corporate documents relating to the Companies that are not in their possession;
5.2.7 The letters of unconditional resignation, effective on the Completion Date, of all the Companies directors and officers, with the exception of the persons indicated by the Purchaser to the Vendors at least fifteen (15) days before the Completion Date;
5.2.8 The agreement for the provision of services, in the standard form appearing in Appendix 7, duly signed by Mr Jean-Jacques Rumpler;
5.2.9 Three on-demand guarantees for Mr Jean-Jacques Rumpler, Mr Gérard Rumpler and Madam Evelyne Fournier-Rumpler, in the standard form appearing in Appendix 8, duly signed by Bank Degroof, headquartered at 44, rue de lIndustrie Brussels 1040; and
5.2.10 The transfer orders and deeds of transfer of shares and a certified copy of the decisions of the competent corporate bodies of the Companies in respect of the transfers of shares, including the acquisition of the Shares held by the Non Vendors, as set forth in Article 9.7.
5.3 TRANSACTIONS ON THE COMPLETION DATE
5.3.1 On the Completion Date, the Purchaser will pay the Purchase Price to the Vendors by bank transfer in the manner defined above in Article 3.3.
5.3.2 The Purchaser and Mr Jean-Jacques Rumpler will sign the agreement for the provision of services referred to Article 5.2.8;
5.3.3 The Purchaser will sign the on-demand guarantees referred to in Article 5.2.9, of which it will be the beneficiary, with Bank Degroof .
5.3.4 The Vendors will give the Purchaser a valid receipt for payment of the Purchase Price.
5.4 APPOINTMENT OF THE COMPANIES MANAGEMENT BODIES
The Vendors will do the necessary to ensure that Shareholders General Meetings or meetings of any other competent bodies of the Companies are regularly convened and held on the Completion Date in order for the Purchaser to be able to appoint the persons that it shall designate fifteen (15) days before the Completion Date, as company directors and officers, management executives, directors, Chairman and Chief Executive Officer.
5.5 DISTRIBUTION OF DIVIDENDS
The Vendors may proceed to a distribution of dividends in respect of the income for the financial year ended December 31, 2011 (with the exception of any special dividend such as the distribution of reserves, premiums etc.). This distribution shall take place at least five (5) business days before the Completion Date.
ARTICLE 6 THE PURCHASERS REPRESENTATIONS AND WARRANTIES
The Purchaser makes the representations and gives the warranties described below:
6.1 The Purchaser has all necessary powers and authorisations to assume the obligations appearing herein, and the natural persons signing on its behalf have all necessary powers to bind it for the purposes herein.
6.2 This Sale Agreement constitutes a valid, firm and irrevocable obligation of the Purchaser which binds the Purchaser in accordance with its terms.
6.3 Signature of this Sale Agreement and completion of the transactions provided for herein do not constitute a breach of the legal and/or regulatory rules applicable to the Purchaser or to a company that directly or indirectly controls the Purchaser or that the Purchaser directly or indirectly controls.
6.4 The Purchaser is not in a state of cessation of payments and it has not been and is not the subject of any administration or compulsory liquidation proceedings.
6.5 There are no current contentious, administrative, judicial or arbitration proceedings against the Purchaser or against a company that directly or indirectly controls the Purchaser or that the Purchaser directly or indirectly controls, liable to prevent the performance of the Agreement. No approval or authorisation is required from any public authority or third party, nor is any declaration or registration with a public authority or third party necessary, for the conclusion and performance of the Agreement, subject to authorisation of the transaction by the competent competition authorities.
ARTICLE 7 THE WARRANTORS REPRESENTATIONS AND WARRANTIES
The Warrantors make the representations and give the warranties described below (the Representations and Warranties), which are true and accurate on the date hereof.
On the Completion Date, these Representations and Warranties will be reiterated and, if necessary, updated by the Vendors, without any such updating exempting the Warrantors from liability pursuant to Article 8, so that the transfer of risk to the Purchaser will take place on the Completion Date.
7.1 NEGOTIATION, SIGNATURE AND PERFORMANCE OF THE AGREEMENT
7.1.1 The Vendors have the necessary power and capacity to sign this Agreement. The Vendors are not personally insolvent.
7.1.2 This Sale Agreement constitutes a valid, firm and irrevocable obligation of the Vendors which binds them in accordance with its terms. There is no legal, judicial, administrative or other prohibition in existence that might prevent the sale of the Shares, of which the Vendors guarantee that the Purchaser will have full and peaceful ownership and possession. There are no claims, litigation, trials or other proceedings before any court, arbitration tribunal or administrative body that might undermine the validity or enforceability of the Agreement.
7.1.3 All formalities and authorisations required before completion of the transactions provided for in this Sale Agreement have been carried out or obtained.
7.1.4 Prior to signature of the Sale Agreement, the Companies Central Work Council, and the STELMIs Establishments Work Councils have been regularly informed and consulted with regard to the conclusion of the Sale Agreement and the transactions referred to therein, in accordance with the legal provisions. The information provided to the said councils relating to the business, to projects concerning the Companies and to the Purchasers policies was approved in advance by the Purchaser, in writing. The Companys Central Work Council and the STELMIs Establishments Work Councils have issued an opinion in the form and in the manner prescribed by Law.
7.1.5 All the information or documents requested of the Vendors, their advisers or the Companies, and which have been provided in writing or orally to the Purchaser or to its advisers, in particular in the context of the Due Diligence process conducted prior to the acquisition of the Shares, and the information contained in the Sale Agreement, are true and accurate as at the date on which they were provided, and they remain so on the date hereof. They are not liable to mislead the Purchaser as to material facts or circumstances relating to the Companies which might call this transaction into question.
7.1.6 To the best of the Warrantors knowledge, material facts relating to the Companies have been disclosed to the Purchaser during its audit which was performed prior to the date hereof.
7.2 THE COMPANIES
7.2.1 The Companies exist and are validly constituted in accordance with the laws and decrees in force.
7.2.2 The Companies (i) have not been the subject of any proceedings in the context of the prevention or treatment of company difficulties or in relation to dissolution or voluntary or compulsory liquidation; and (ii) are not in a state of cessation of payments.
7.2.3 Apart from investment securities, a complete and accurate list of the shareholders of each of the Companies, including an indication of the number of shares that each of them owns, appears in Appendix 5. None of the Companies owns any direct or indirect stake in a de facto or de jure company of any kind, or in any other entity of any kind whether or not having legal personality, and none of the Companies exercises or has exercised any de facto or de jure directors functions in such a company or entity.
7.3 THE COMPANIES AUTHORISED SHARE CAPITAL
7.3.1 All the Companies shares have been validly issued and are fully paid-up. There are no options, undertakings, share warrants, bonds or other agreements or obligations in respect of which the Companies are obliged to create other shares, securities or other negotiable securities that give or could give access to their capital. With the exception of the shares of the Companies mentioned in point 1 and 2 of the preamble, the Companies have not issued any share, stock, security or negotiable security of any kind capable of giving access to their authorised share capital, whether immediately or in the future. The shares of the Companies mentioned in point 1 and 2 of the preamble constitute the entirety of the capital and carry a right to exercise all the Companies voting rights.
7.3.2 Directly or indirectly, the Vendors have or will have, at the date hereof and at the Date of Completion, full ownership of all the Shares and of all the rights relating thereto, free of any Restrictions, in accordance with capital breakdown contained in Appendix 5.
7.4 THE COMPANIES ACCOUNTS
7.4.1 Together, the Companies parent company and consolidated financial statements (comprising a balance sheet, an income statement and notes to the accounts including a statement of off-balance sheet obligations) settled on 31 December 2011 (hereinafter referred to as the Date of the Reference Accounts) form the Reference Accounts, contained in Appendix 9, and give a true and fair view of the financial situation of each of the Companies, and, in the case of the consolidated accounts, of the financial situation of the group formed by the Companies, as at 31 December 2011.
7.4.2 The Reference Accounts have been prepared in accordance with the generally accepted accounting principles, rules and methods in the country where the registered office of each of the Companies is located, in the Companies business sector and in accordance with the continuity principle (hereinafter referred to together as the Accounting Principles).
7.4.3 Save as shown in the Reference Accounts, none of the Companies has entered into any off-balance sheet obligations, and in particular, none of the Companies has given any guarantee (in any form whatever and particularly in the form of a letter of comfort), surety, bond or endorsement, relating to the performance of obligations contracted by third parties (including associates, shareholders, company officers or members of their staff), in particular in relation to lease financing or with regard to assets acquired under long-term leases, or in relation to discounted bills not yet due.
7.4.4 The Companies invested liquidities and negotiable securities are in non-speculative investments and, since the Date of the Reference Accounts, the Companies have not suffered nor are they liable to suffer any loss relating thereto that has not been fully provisioned in the Reference Accounts.
7.5 REAL PROPERTIES
7.5.1 Appendix 10 contains a description of the real properties used in the context of the Companies business and wholly-owned by them (the Wholly-Owned Real Properties); the real properties leased by the Companies are listed in Appendix 11,
including long-term leasing contracts (the Leased Real Properties); (the Wholly-Owned Real Properties and the Leased Real Properties are collectively referred to as the Real Properties).
7.5.2 The Wholly-Owned Real Properties are free of any Restrictions, with the exception of those described in Appendix 13. The Leased Real Properties have been leased by the Companies pursuant to regular leases that allow the activity carried on by the Companies, and they are not the subject of any notice to quit or of any exchange of correspondence with a view to their termination. The Real Properties are in a normal state of use, maintenance and repair and all regulatory or legislative requirements applicable thereto have been complied with.
7.6 PERSONAL PROPERTY
7.6.1 Appendix 12 contains a list of the personal property, materials, tools, installations and equipment used by the Companies in the context of their activities (the Personal Property) and held by the Companies in the context of a financial lease or lease agreement for the benefit of the Company. These are in a normal state of use, maintenance and repair and all regulatory or legislative requirements applicable thereto have been complied with.
7.6.2 With the exception of the matters appearing in Appendix 13, the Personal Property of the Companies is free of any Restrictions and the Companies have unrestricted possession and enjoyment thereof.
7.7 STOCKS
7.7.1 The Companies stocks (hereinafter the Stocks) are wholly-owned by the Companies and are not the subject of any Restriction, with the exception of reservation of ownership clauses in favour of suppliers agreed in the normal course of business. The Stocks comprise materials, work in progress and finished products of proper marketable quality, subject to the percentage depreciation of stocks historically recorded by each of the Companies.
7.7.2 In the event where a product has been discontinued or is about to be discontinued by a supplier, the Companies have duly constituted Stocks of such products, corresponding to one year of the Companies and clients needs.
7.7.3 The Companies have a number of Stocks corresponding to the commitments made pursuant to the provisions of the agreements set forth in Appendix 15..
7.8 PROPERTY TITLES
7.8.1 The Companies Wholly-Owned Real Properties, the Personal Property (excluding that used pursuant to a financial lease or lease agreement in any form whatever), the business assets and more generally all the goods and items of assets of the Companies, whether moveable or immoveable, tangible or intangible, validly belong to the Companies and are free of any Restrictions, with the exception of those mentioned in Appendix 13.
7.9 INDUSTRIAL AND INTELLECTUAL PROPERTY RIGHTS
7.9.1 The Companies validly own or can validly use or exploit the patents, brands, trade names, logos, designs and models, copyrights, domain names, company names, signs and commercial names, software or other intellectual property rights currently used by them and which are necessary to ensure the continuity of the activities currently carried on (the Intellectual Property Rights): a list thereof appears in Appendix 14.
7.9.2 Save as disclosed in Appendix 14, the Intellectual Property Rights are not the subject of any security or third party rights (and in particular of any licence), or of any Restriction of any kind, or of any claim or dispute, and none of these rights is liable to be the subject of any claims or disputes on the part of any third party. The Companies are up to date with any steps, payments and formalities necessary to ensure full and exclusive ownership of these rights or their enforceability against third parties.
7.9.3 To the best of the Warrantors knowledge, none of the Companies has engaged in any infringement or breach of patent, brand or other industrial or intellectual property right belonging to a third party, and none of them is responsible for any act of unfair competition in relation to such rights.
7.9.4 To the best of the Warrantors knowledge, no third party has infringed or breached the Intellectual Property Rights belonging to any of the Companies, or has engaged in any acts of unfair competition in relation to such rights.
7.10 CONTRACTS
7.10.1 None of the contracts, agreements, accords and commitments with third parties to which the Companies are party (hereinafter the Contracts) contravene any legal, regulatory or contractual provision, and all are valid and enforceable according to their terms. To the best of the Warrantors knowledge, none of the Companies has contravened or is contravening any provision of such a contract or commitment, in circumstances such as to render it liable or to justify the termination of the contract or its non-performance by the other party.
7.10.2 Save as disclosed in Appendix 15, the Companies are not party to any contract, whether oral or in writing, liable to fall into any of the following categories:
(i) Contracts containing a provision providing for early termination or for the prior consent of or provision of information to the contracting party in the event of a direct or indirect change of control of the Companies (apart from financial lease agreements in respect of moveable property);
(ii) Contracts, other than those referred to in (iii), that commit any of the Companies to a total amount in excess of 300,000 or the exchange value of that sum in any other currency calculated on the date of signature of this Sale Agreement;
(iii) Contracts whose remaining term is greater than six (6) months and which commit any of the Companies to an amount in excess of 150,000 per year;
(iv) Contracts or commitments under the terms of which the Companies or any of them are obliged not to carry on certain activities, to restrict the exercise of certain activities or not to compete;
(v) Contracts conferring exclusivity; and
(vi) Contracts that are entered into on conditions other than those usually agreed between independent parties or on clearly abnormal conditions or that do not reflect market conditions;
The Parties agree that the provisions of the agreement between STELMI SA and ExxonMobil Chemical France SARL entered into on 1 January 2012, as well as exchanges between STELMI SA and ExxonMobil Chemical France SARL, as attached in Annex 15, do not exonerate the liability of the Warrantors.
7.10.3 There are no contracts in existence between the Companies on the one hand, and their suppliers, customers, distributors, agents, concessionaires or franchisees, on the other, that have been concluded in clearly abnormal conditions (including preferential terms or clearly off-market exceptional discounts). In particular, the sale contracts concluded by the Companies have been concluded on normal market conditions, subject to the ordinary application of commercial practice. There are no contracts in existence that would have the result of obliging any of the Companies, in the future, to accept imposed purchase prices or any restrictions on their commercial freedom. The Companies supply contracts have been entered into on the same conditions.
7.11 THE QUALITY OF THE PRODUCTS
7.11.1 The Companies have general conditions of sale, which appear in Appendix 16;
7.11.2 The products manufactured and marketed by the Companies (hereinafter the Products) are manufactured and marketed in accordance with the Law. The Companies have not entered into any guarantee or other agreement or commitment with a customer or third party concerning the quality or condition of the Products or of the services rendered by them, concerning the maintenance of the Products or granting the possibility of return or exchange of the Products, with the exception of the provisions of the contracts contained in Appendix 17. The Companies, in general, have not waived any suppliers guarantee. The Products conform to national, EU and United States professional standards, if applicable;
7.11.3 With the exception of the provisions of the agreements set forth in Appendix 17, no guarantee has been given for the Products under the terms of which any of the Companies could be liable in excess of the limits and periods provided by the general conditions of sale, if applicable;
7.11.4 Save as disclosed in Appendix 18, there are no liability or termination actions pending against any of the Companies in respect of the Products non-conformity, latent defects and/or defectiveness, and no event has occurred that might give rise to such an action. None of the Companies has received an injunction from any administrative or judicial
authority, or any request from a professional or consumers organisation of any kind to recall any of the Products, or to inform the clientele of any defect or danger associated with a defect affecting any of the Products or associated with the use thereof. None of the Companies is contemplating the organisation of a spontaneous campaign to recall any of its Products.
7.11.5 The Vendors warrant any claim made against the Companies and based on defects, apparent or hidden, affecting the Products;
7.11.6 The Companies are insured with well-known and solvent insurance companies to cover the risks of poor quality Products and the financial consequences that might result for them.
7.12 PERSONNEL
7.12.1 The Companies workforce on April 30, 2012 is shown in Appendix 19, which also gives details of the age, seniority and annual salary of the employees and directors.
7.12.2 Appendix 20 contains a list of the collective agreements (collective, branch and company agreements) applicable within the Companies (hereinafter the Collective Agreements). In particular, the said Appendix specifies for each Company and, if necessary, for each distinct establishment:
(i) the applicable collective and company agreements;
(ii) the atypical agreements entered into with staff representatives;
(iii) the remuneration systems including the bonuses, commissions and benefits in kind benefiting all personnel or certain categories of personnel;
(iv) the profit-sharing agreements, incentives and company savings plans;
(v) the commitments in terms of pensions or providence insofar as the personnel concerned would by reason of such commitments be entitled to benefits in addition to those provided by Law or by the applicable Collective Agreements; and
(vi) the regional or local practices or the practices applicable only in one company or establishment, which provide for benefits in excess of those provided by Law or by the applicable Collective Agreements.
7.12.3 The employment contracts entered into with the Companies employees are in accordance with the Law and with the Collective Agreements.
7.12.4 Save as disclosed in Appendix 21, no individual or collective redundancy plans (employment protection plans) are ongoing or have been arranged by the Companies.
7.12.5 Save as disclosed in Appendix 22, there are no industrial disputes or litigation with the Companies employees that have not been duly provisioned in the Reference Accounts and, to the best of the Warrantors knowledge, no such disputes should be anticipated.
7.12.6 None of the Companies is the subject of any special procedure of any kind on the part of the Works Inspectorate for non-compliance with the employment regulations.
7.12.7 All the Companies have complied and are complying with all applicable provisions of employment and social security law, of the Collective Agreements, and of individual contracts of employment.
7.13 TAXES
7.13.1 The Companies have complied and are complying with the Law with regard to Taxes.
7.13.2 The Companies have prepared, and if necessary, filed in good time with the competent administrative bodies, all the Returns concerning Taxes having to be prepared, and if necessary, filed. In respect of any period opened before the date hereof, the Companies have paid all the Taxes due on their due date, and have made or recorded the provisions and/or write-downs and/or charges to be paid in relation to Taxes (including conditional or deferred Tax charges) that they were obliged to make or record in accordance with the applicable Laws and accounting principles. The basis of assessment and amount of any Taxes owed by the Companies in the past or currently have always been determined exactly in accordance with the applicable Laws, and are not liable to be corrected or adjusted. In particular, the Companies have made all the amended returns, when necessary, as a result of any inspections, adjustments or requests from any competent administrative body, authority or organisation concerned with Taxes in France or abroad.
7.13.3 The Companies have always complied and are complying with their obligations with regard to the periods of retention of documents as provided by Law in the area of Taxes.
7.13.4 Save as disclosed in Appendix 23, which does not exempt the Warrantors from liability, the Companies have not been and are not the subject of any request for information or any investigation in relation to Taxes, no inspection or verification is underway, and no notice of verification or proposed correction in relation to Taxes has been served on any of the Companies with regard to the calculation or recovery of Taxes since 1 January 2005. To the best of the Vendors knowledge, there is no specific matter in existence liable to give rise to such a request, investigation, verification or inspection.
7.13.5 The tax losses carried forward by the Companies in tax returns on the date of signature of this Sale Agreement are valid and may be charged to any future profits of the Companies in accordance with the applicable Laws.
7.13.6 Any Tax receivables or credits that the Companies might have against the French State or any other State or administrative authority upon signature of this Sale Agreement are valid and have been declared in accordance with the Law relating to Taxes.
7.13.7 The Companies are not bound by any obligation to indemnify a third party in respect of its Taxes obligation or to succeed to such a third party in the said obligations.
7.13.8 The Companies will not be liable to charges, will not incur any additional Taxes and will not lose any right or benefit in relation to Taxes by reason of the sale of the Shares or of the transfers set forth in Article 9.7, and in particular the Companies will not bear any
cost thereof or lose any right or benefit in relation to Taxes by reason of the termination of the integrated tax group to which they may belong.
7.13.9 The Companies have not entered into and are not bound by any commitment to which the application of specific provisions in relation to Taxes might be subordinate.
7.13.10 The Companies have no assets whose cost price for tax purposes is lower than their net book value as stated in those companies balance sheets (corporate financial statements).
7.13.11 Neither the Purchaser nor Rumpler-Technologies will inccur, any Tax associated with the capital gain potentially realised by the Vendors and/or the Non Vendors in respect of the Sale of the Shares and the operations set forth in Article 9.7, whether in their own name or pursuant to a joint and several obligation, other than in respect of the stamp duties payable pursuant to Article 10.1.2 below.
7.13.12 The Companies are not predominantly engaged in real property business within the meaning of Article 726 of the General Taxation Code or within the meaning of any other Law in relation to Taxes that might be applicable in France or abroad.
7.13.13 The Companies do not carry on their respective businesses through one or more fixed establishments or bases located in a State other than that of their registered office. The offices in India and in Hong Kong are not regarded as stable establishments and are not therefore subject to any local taxation.
7.13.14 Notwithstanding any provision to the contrary, the Representations and Warranties of the Vendors in relation to Taxes are governed solely by this Article 7.13.
7.14 INSURANCE
7.14.1 The insurance policies taken out by the Companies, and which are listed in Appendix 24, have been taken out with companies of well-known solvency, cover the risks incurred by the Companies, are effective and in force, and the premiums concerned have been paid. The continuity of the cover provided by these policies will not be affected by the sale of the Shares to the Purchaser.
7.14.2 No incident has occurred in the last two years, with the exception of those mentioned in Appendix 25. Except for usual commercial litigations for which it has been decided not to use insurance coverage, any potential material incidents have been adequately reported within the time limits provided by the insurance contracts and in any dispute with a third party relating to an incident for which an insurance company has made any payment to any of the Companies, that insurance company has been subrogated in good and proper form in the rights of the company, with the exception of disputes covered by contractual non-recourse clauses.
7.15 INDEBTEDNESS, LOANS, CREDIT FACILITIES
7.15.1 None of the Companies has any outstanding loan or other form of credit granted to any third party, nor has any of them entered into any commitment to enter into any such loans or credits.
7.15.2 Appendix 26 contains a list (i) of each of the loan contracts of any nature, borrowings, overdrafts, factorings or finance leases to which each of the Companies is party as borrower; and (ii) of the guarantees, indemnity obligations, letters of comfort or other securities benefiting the Companies as regards third parties in respect of those loans.
7.16 RECEIVABLES
7.16.1 All the Companies trade and other receivables appearing in the Reference Accounts were real and effective receivables on the date on which they were recorded, representing obligations in the amount entered in the financial statements or books of each of the Companies. As regard the Company STELMI, all of these receivables have been recovered, save as disclosed in Appendix 32.
7.16.2 No waiver of any receivable, even of a partial nature, has been agreed without having been duly accounted for in the Reference Accounts in accordance with the Accounting Principles.
7.17 RESTRUCTURING
Save as disclosed in Appendix 27, none of the Companies has been the subject of, or engaged in, any restructuring operation or liquidation in the last three (3) financial years, particularly by way of merger, demerger, partial asset transfer, sale of business assets, sale of clientele, sale of shares or equities, or management lease.
7.18 LITIGATION
With the exception of the litigation identified in Appendix 28, there is no litigation, and no administrative, judicial or arbitration proceedings, claim or complaint, against any of the Companies or brought by any of them.
7.19 COMPLIANCE WITH LAWS AND REGULATIONS PERMITS
7.19.1 All approvals, authorisations and permits necessary to carry on the activities of each of the Companies, and particularly any declarations of classified establishments and the authorisations, licences or permits of an administrative or other nature, necessary to carry on those activities or to use or occupy the Companies premises (hereinafter referred to as the Permits) have been obtained and are fully in force, and the activities of each of the Companies are carried on in accordance with the said Permits.
7.19.2 No proceedings of any kind have been commenced that could have as their effect the withdrawal, suspension or amendment of the Permits, and, to the best of the Warrantors knowledge, no such proceedings have been threatened.
7.19.3 With the exception of a routine inspection that took place in March and April 2012, no proceedings or inspection by the US Food and Drug Administration are due to take place, could take place or are contemplated. No Form 483 pursuant to the Federal Food, Drug, and Cosmetic Act has been issued by the Food and Drug Administration in the context of the inspection that took place in March and April 2012. Furthermore, such inspection will not lead to the realization of investments or costs for the Companies, with the exception of small sums and in any case, less than the amount of the De Minimis.
7.20 ENVIRONMENT
7.20.1 The Companies activities and the installations that they use or of which they are the owners are not and have not been the cause of any pollution or damage to human health, air or water, or more generally to the environment (in particular through the discharge of liquid, solid or gaseous effluent), of any kind whatever, in excess of the standards in force.
7.20.2 Save as disclosed in Appendix 29, no hazardous or toxic substances or waste is or has been stored or processed on land belonging or that has belonged to any of the Companies or that has been leased or used by them. None of the Companies has transported or arranged for the transport of hazardous or toxic substances or waste. None of the Companies, whether directly or through a third party intermediary, has got rid of waste derived from any product or packaging of any kind, except at sites appropriate for the storage, processing, disposal or destruction thereof, and which have been the subject of proper authorisations issued by the competent authorities for such operations.
7.21 MANAGEMENT OF THE COMPANIES SINCE THE DATE OF THE REFERENCE ACCOUNTS
Since 31 December 2011, no event or change has occurred that has had a negative and significant effect on the economic or financial situation or prospects of any of the Companies (and in particular, none of the Companies has suffered the termination of any business relationship that could have a significant impact on its results) and the Vendors are not aware of any risk of such an event or change occurring. Furthermore, since the Date of the Reference Accounts and until the Completion Date, the Companies have been managed prudently, and:
7.21.1 each of the Companies has carried on its activities exclusively in its normal and usual context, and prudently and diligently in order to preserve the value of its business, its reputation and its relationships with third parties, the public authorities and all those having business relationships with it, and has not incurred any liability other than in the normal and usual course of its business;
7.21.2 no event has occurred capable of having a significant negative effect, whether directly or indirectly, on the economic or financial situation or prospects of any of the Companies;
7.21.3 none of the Companies has terminated any business relationship that could have a significant effect on its economic or financial situation;
7.21.4 none of the Companies has carried out or undertaken to carry out any operation of any kind substantially altering the content or enjoyment of its assets, such as any transfer, pledge, lease, grant of a licence or other provision to third parties of tangible or intangible assets;
7.21.5 save as disclosed in Appendix 30, none of the Companies has entered into a commitment or contracted an obligation of any kind except in the context of its day-to-day management, or that was concluded on clearly abnormal terms having regard to their respective practices and the context of prudent company management;
7.21.6 none of the Companies has altered the Collective Agreements or granted additional individual benefits having regard to their respective practices and in the context of prudent company management, except for compulsory salary increases pursuant to an applicable collective agreement, with the exception of salary increases decided in January 2012, described in Appendix 20;
7.21.7 none of the Companies has been party to a merger, demerger or asset transfer; none of the Companies has altered or redeemed its capital, or issued negotiable securities of any kind whatever or share warrants, or bought back negotiable securities;
7.21.8 none of the Articles of Association or similar deed of incorporation of any of the Companies have been amended in any way;
7.21.9 the Companies have been and will be managed in accordance with the same management standards, fiscal methods and Accounting Principles as in the past; the Companies have paid and will pay all debts due on their normal due date without changing their usual payment periods;
7.21.10 no Prohibited Payment has been made, with the exception of the potential dividend distribution in respect of the income of the financial year ended December 31st, 2011;
7.21.11 none of the Companies has transferred, mortgaged or pledged any of its tangible or intangible assets, or restricted its rights of property, possession or enjoyment thereof in any way, other than in the normal course of business, nor will any of them do so until the Completion Date;
7.21.12 save in the normal course of business and consistently with previous practices, none of the Companies has entered into or will enter into any off-balance sheet commitments;
7.21.13 the Companies investment liquidities and negotiable securities have been invested in non-speculative investments, and the Companies have not suffered any loss and are not liable to suffer any loss in relation thereto that has not been fully provisioned in the Reference Accounts; and
7.21.14 none of the Companies has entered into any commitment to carry out any of the foregoing operations.
7.22 RELATIONS WITH THE VENDORS
Save as disclosed in Appendix 31 hereof, neither the Vendors, nor any entity controlled by the Vendors, in all cases directly or indirectly (each of these persons being hereinafter referred to as a Vendors Affiliate):
7.22.1 owns, whether together or separately, in whole or in part, a property or asset of any kind, or is the owner of a right of any kind, that the Companies must use or of which they must have the benefit for the purposes of carrying on all or part of their activities;
7.22.2 are not creditors or debtors of the Companies pursuant to an obligation of any kind, and more generally do not have the present or future ability to exercise a right against the Companies; and
7.22.3 have not granted any guarantee to secure the obligations of any of the Companies, and do not benefit from any guarantee granted by any of the Companies by way of security for any of their obligations.
7.23 THE EFFECTS OF THE REPRESENTATIONS
All the representations made by the Warrantors, the obligations assumed by them pursuant hereto, and the content of the Appendices to the Sale Agreement are intended to provide the Beneficiary with true and fair information on the substance of the Companies assets and liabilities.
ARTICLE 8 IMPLEMENTATION OF THE WARRANTY
8.1 INDEMNITY REDUCTION OF THE PURCHASE PRICE
8.1.1 The Warrantors warrant:
(i) the correctness of all the Representations and Warranties. Consequently, insofar as this does not result in duplication of the indemnity provided for below, the Warrantors undertake to indemnify the Purchaser against any direct loss and damage (hereinafter referred to individually as a Loss and collectively as the Losses) that it might suffer or that the Companies might suffer and which results from any inaccuracies or omissions in one or more Representations and Warranties; and
(ii) the net assets of the Companies settled on the Date of the Reference Accounts.
8.1.2 Consequently, the Warrantors undertake to bear and pay to the Purchaser out of their own funds by way of reduction of the Purchase Price in proportion to their stake in the Companies (the Indemnity), the amount (i) of any shortfall in the net assets of the Companies settled on the Date of the Reference Accounts, if that change in the net assets is caused by facts and circumstances preceding that date; or (ii) of any Loss resulting from an inaccuracy or omission in the Representations and Warranties, including, without prejudice to the generality, the amount of any claim, or tax, social security, customs and other adjustments, or of any obligation arising against the Companies that has not been sufficiently accounted for or provisioned.
8.1.3 The amount of any Indemnity potentially due from the Warrantors by reason of a Loss will be determined taking account of the following provisions:
8.1.3.1 In determining the amount of the Indemnity to be paid by the Warrantors pursuant to Article 8.1.1(ii), in the event of decrease of the assets or increase of the liabilities, account will be taken of any item liable to increase the assets (for example a receivable not accounted for or accounted for in an amount less than its actual amount) or to decrease the liabilities (for example a debt accounted for in an amount in excess of the companys actual obligation, or a provision proving to be excessive), solely in respect of matters that are the subject of the Indemnity; (i) less the amount of any Tax that might actually be owed by the Purchaser or the Companies in respect of such an increase in the assets or decrease of the liabilities; and (ii) plus any reduction in effective Tax for the Companies attributable directly to matters that are the subject of the Indemnity.
8.1.3.2 The amount of the Indemnity will not take account of tax adjustments of any kind whatever that take the form of a simple deferral of the tax charge (or that result in a simple transfer of profits from one financial year to another or in a deferral of the right to deduction in the case of VAT), unless they result in an effective reduction of Tax to be paid in respect of the following financial year or years, and then only up to the amount of that effective reduction of Tax. Insofar as necessary, it is specified that the Warrantors will, in any event, be bound in the event of such a deferral adjustment, to indemnify the Purchaser (i) in respect of the differential tax rate that the Company concerned might suffer by reason of that deferral; and (ii) in respect of the amount of any penalties, surcharges or late payment interest to which such an adjustment might give rise.
8.1.3.3 Any amount paid to the Company by any third party whatever (and in particular any insurance company or contracting party, which must in any event be called upon to pay an indemnity in parallel with this warranty, the Purchaser undertaking for this purpose to make a claim under such insurance assurance or warranty and to keep the Warrantors informed of developments in this respect) by reason of the loss suffered by the Company will reduce the amount of the Indemnity due from the Warrantor pursuant hereto, on the understanding that any amount paid to the Company in this way will be reduced, for the purposes of determining the amount of the Indemnity due from the Warrantors pursuant hereto, by any Tax that might be owed by the Purchaser or the Companies by reason of the collection of that indemnity or that sum.
8.1.3.4 Any additional liability or reduction of assets the subject of the Indemnity whose disclosure is accompanied by a corresponding increase in the assets or corresponding decrease in the liabilities relating to a period prior to the Completion Date will be subject to deduction of the amount by which the assets or liabilities are corrected. In particular, account will be taken of the Tax saving that the company actually obtained by reason of the correction of the assets or liabilities.
8.1.4 It is expressly agreed that any corrections affecting write-downs, whether in terms of the basis, duration or breakdown thereof, will be placed outside the scope of the warranty, with the exception of those liable to have an impact in terms of Tax.
8.1.5 It is expressly agreed that for the purposes of determining the amount of any Indemnity, any profit multiple or multiple of any other nature used to fix the value of the assets and liabilities for the purposes of determining the Purchase Price of the Shares the subject of this Agreement, will be excluded.
8.1.6 It is expressly agreed that the Warrantors may not be held liable for any Loss resulting directly:
8.1.6.1 from the amendment of any law or regulation after the Completion Date, even if the said amendment has retrospective effect;
8.1.6.2 from an act or omission of the Purchaser and/or of any of the Companies that occurs after the Completion Date and that caused the said Loss, on the understanding that this Article will not apply if such an act or omission is required by Law;
8.1.6.3 from a change in the Accounting Principles used as the basis for preparing the Reference Accounts, that occurs after the Completion Date, unless such a change is required by Law.
8.1.7 In addition, the Purchaser will, in general, take any reasonable steps to mitigate the Loss suffered by the Companies, to the extent possible, provided that such steps are not contrary to its corporate interest and that of the Companies.
8.1.8 With regard to claims made by the Purchaser pursuant to the Indemnity, the Warrantors liability will be limited as follows:
8.1.8.1 The Warrantors will only be obliged to pay a claim if the unitary amount of the said claim exceeds 150,000 (one hundred and fifty thousand euros) (hereinafter the De Minimis Amount) (including the expenses and taxes relating thereto), on the understanding that (i) the De Minimis Amount constitutes a triggering threshold and not an excess, so that the Warrantors will be obliged, subject to the other provisions of this Article 8.1, to pay the Purchaser the entirety of the Loss provided that the unitary amount of the claim exceeds the De Minimis Amount, and that the threshold referred to in Article 8.1.8.3 below is exceeded; (ii) claims arising from the same facts or from similar or connected facts will be deemed to constitute a single claim for the purposes of assessment of this unitary threshold.
8.1.8.2 With respect to potential Losses relating to the items listed in Appendix 33 which have been subject to a specific provisioning by the Purchaser in connection with adjustments made for the determination of the Purchase Price, the Warrantors shall be responsible for actual payment of one or more claims only if, for each of these Losses, such Loss exceeds the amount of the relating specific provisioning (hereinafter the Deductible), provided that the provisions of this section, relating in particular to the De Minimis, the Triggering Threshold and Ceiling, remain in any case applicable, the Deductible being primarily applicable.
8.1.8.3 The Warrantors will only be obliged to pay an Indemnity if the cumulative amount of the sums due to the Purchaser pursuant to this warranty exceeds the overall triggering threshold (hereinafter the Triggering Threshold) of 2,500,000 (two million five hundred thousand euros),in which case the Warrantors will be bound to pay an Indemnity in the cumulative amount of the sums claimed, from the first euro.
8.1.8.4 The total of the sums payable by the Warrantors under the terms of this warranty may not in any circumstances exceed an amount of 25,000,000 (twenty-five million euros), (hereinafter the Ceiling); by way of derogation from the foregoing, the Warranties provided by Articles 7.1.1, 7.1.2, 7.1.3, 7.2, 7.3, will not be subject to a ceiling.
8.1.9 The Purchaser must inform the Warrantors of the existence of any event or claim liable to give rise to an Indemnity pursuant to this warranty, because exceeding the De Minimis, within a maximum period of forty five (45) days from the date of its discovery by the Purchaser. Such claims must be served on the Vendors Representative in the manner provided below, so that the Warrantors can act in defence of their interests. Claims sent to the Vendors Representative must contain the best possible indication of the nature of the event in question and of the amount of the claim arising therefrom, if that amount is known. Breach of this obligation will not result in loss of the right to Indemnity, however, any loss suffered by the Warrantors associated with a late notice will reduce the amount of the Indemnity.
In addition, the Purchaser must inform the Warrantors of the progress of any proceedings, and particularly of inspection proceedings, in order to enable them to attend any meetings planned in that context, and must inform the Warrantors of any claims or notices and, in general, take any steps to ensure that the Warrantors can defend their interests, and in particular, are in a position to assess whether the claims or adjustments or any allegations made by a third party are well-founded and are of such a nature as to lead to the implementation of this warranty.
8.1.10 By way of exception to the general time limit of forty five (45) days set in article 8.1.9, and solely from September 1st, 2012 to February 28, 2013, the Purchaser shall inform the Warrantors within a maximum of twenty (20) days as from the disclosure by the Purchaser of the existence of any event or claim likely to give rise to an Indemnity in respect of the Warranties provided in Article 7.11. In case of breach of this obligation, regarding exclusively any event or claim likely to give rise to an Indemnity in respect of the Warranties provided in Article 7.11, the Purchaser shall forfeit its right to an Indemnity in respect of the concerned event or claim. As from March, 1st, 2013, the Article 8.1.9 shall apply to any claims based on Article 7.11.
8.1.11 By way of exception to the general time limit of forty five (45) days set in article 8.1.9, in the event of a tax inspection, the Purchaser undertakes to inform the Vendors Representative by registered letter with proof of receipt within eight (8) days of receipt of the notice of inspection and any other subsequent notice providing for a response within thirty (30) days.
8.1.12 In the event of a claim based on any claim, summons or notice of inspection or adjustment issued by a third party or by any authority, or of proceedings commenced by a third party against one or more Companies, where the amount at stake is (i) less than the amount of the Ceiling; and (ii) greater than the amount of the Triggering Threshold, the Vendors Representative may request the Purchaser, in writing, to be allowed to conduct its defence, and that of the Companies concerned by the said claim or proceedings, at its own expense, with the assistance of one or more counsel of its choice, provided that it confirms in advance and without reservation that it will indemnify the Purchaser in full, including the arrangement by the Warrantors, at their own expense, of any securities necessary to obtain any suspension of enforcement or charge. In the event that the Vendors Representative does not take on the management of the proceedings concerned, the Vendors Representative will nevertheless be involved, at its expense, in defending the interests of the Company concerned, if it expresses a wish to do so. In that event, the Purchaser undertakes to consider the opinions and/or arguments of the Vendors Representative, in good faith, prior to any communication and to take those opinions
and/or arguments into account, to the extent they are compatible with the defence strategy and diligently communicated in the context of the Company defence, in particular in case of tax inspection.
8.1.13 In general, the Purchaser undertakes to ensure, and guarantees, that the Companies will comply with these obligations, and that it and the Companies will not settle, withdraw any legal, administrative or arbitration proceedings, or have recourse to arbitration of any claims that have been the subject of a notice, without first having obtained the written consent of the Vendors Representative, on the understanding that the Vendors Representative may only refuse its consent on reasonably grounds in accordance with the corporate interests of the Companies.
8.1.14 In the event of an offer of settlement in respect of litigation with a third party, the Purchaser undertakes to notify the Vendors Representative, who may notify the Purchaser of its intention to accept the proposed settlement and to pay the Indemnity up to the amount of the settlement. If the Purchaser refuses the settlement offer, in spite of the Warrantors intention to accept it, the Warrantors only be obliged, in respect of that Loss, to pay an Indemnity limited to the amount offered and accepted by Warrantors in the context of that settlement.
8.1.15 Notwithstanding the foregoing, in the case of claims relating to contracts with customers, and, more generally, in the case of commercial litigation, the Purchaser will conduct the defence of the Companies and the management of settlement, legal or arbitration proceedings. The Beneficiary may be assisted by one or more counsel of its choice. The Beneficiary shall consult the Vendors Representative with regard to any strategic defence decisions. It undertakes to consider in good faith the opinion and/or arguments of the Vendors Representative prior to any communication and to take into account all relevant arguments diligently communicated in the context of the Companys defence, in particular for any event or claim likely to give rise to an Indemnity in respect of the Warranties provided in Article 7.11. The Beneficiary may not enter into any settlement without the prior written consent of the Vendors Representative, who may only object to it on reasonable grounds taking account of the Companies legitimate interests.
8.1.16 The Warrantors undertake to reply to any requests of the Purchaser within a maximum period of 30 calendar days, unless the time limit allowed for the Companies to assert their rights is shorter than this.
8.1.17 All sums due in respect of a given claim, plus any charges, expenses, interest, duties and fees (including experts fees but excluding counsels fees) will be payable within thirty (30) days:
(i) of a mutual agreement between the Vendors Representative and the Purchaser as to the existence, amount and justification of a claim;
(ii) of the issue of a decision having the force of res judicata or which is immediately enforceable, ordering the Warrantors sued by the Purchaser to pay an Indemnity, in the amount provided by the said decision, unless the decision or the applicable procedural rules provide for a shorter time limit;
(iii) in the event of a third party claim, following the date on which the Company concerned actually paid the sums the subject of the Indemnity to the third party concerned pursuant: (i) to a legal decision having the force of res judicata or which is immediately enforceable; (ii) to a final arbitration award not subject to appeal; or (iii) to a compromise or settlement, to which the Vendors Representative has first consented in writing, up to the amount provided by such a decision, compromise or settlement; or
(iv) in relation to Taxes, as soon as a demand for payment is made against the Purchaser or the Companies by any administration, authority or body having jurisdiction in the area of Tax. In the event that the Vendors would like an application to be made for suspension of payment of any sum claimed by a competent authority in relation to Taxes, the Vendors must provide the securities necessary to obtain such a suspension and must, if necessary, assume responsibility for the expense of providing such securities.
No total or partial failure to exercise any of the rights arising from the provisions of this warranty shall in any circumstances be regarded as constituting a waiver of that right for the future or as a waiver of any other right arising from the said warranty.
8.1.18 The Purchaser may notify the Warrantors immediately, on a protective basis, when any litigation, loss or claim is liable to be covered by insurance or by a legal or contractual indemnity. The Warrantors indemnity obligation may only be effectively implemented once the insurance company or the third party providing the indemnity has refused in writing to cove the loss or has only agreed to cover the loss partially. In the latter case, the Warrantors indemnity obligation will only relate to the part of the loss that will not be covered. If, after having been duly notified in writing, the insurance company or the third party providing the indemnity fail to respond in any way within two months, they will be deemed to have refused to cover the said loss, without prejudice to action in respect of their liability and the provisions of Article 8.1.17.
8.1.19 If a third party (and in particular an insurance company) indemnifies the Purchaser in respect of a Loss after the Warrantors themselves have indemnified it in accordance with this Article 8, the Purchaser undertakes, if necessary, to repay to the Warrantors as soon as possible the difference between the amount of the total indemnity for the Loss (including the amounts received from the Warrantors and from the third party) and the amount of the Loss, provided that such a sum may not exceed the amount actually paid by the Warrantors in respect of the said Loss.
8.2 SPECIFIC WARRANTIES
8.2.1 In the event of any order being made against any of the Companies in criminal proceedings in respect of offences committed before the Completion Date, the Warrantors undertake to pay the Purchaser, within the limitations of the Ceiling, a sum equal to the sum to be disbursed by the Companies in respect of such an order (without the De Minimis Amount or the Triggering Threshold being applied).
8.2.2 In the event of industrial disputes or litigation with the Companies employees in connection with the employees classification under the Collective Agreements, and in particular the classification of those occupying the position of unit managers, the
amount of which has not been duly provisioned in the Reference Accounts, the Warrantors undertake to pay the Purchaser, within the limitations of the Ceiling, a sum equal to the sum to be disbursed by the Companies in respect of such industrial disputes or litigation (without the De Minimis Amount or Triggering Threshold being applied).
3. The Warrantors undertake to pay the Purchaser any Taxes consequences for the Purchaser or its Affiliates relating to the dividend distribution that the Vendor can make, in accordance with Article 5.5 (without the De Minimis, Triggering Threshold or Ceiling being applied).
8.3 TERM
This warranty is given until 31 December 2015.
However, with regard to inspections by any Taxes competent authority, this warranty will only cease to be effective six months after the expiry of the relevant legal and regulatory limitation periods.
8.4 JOINT OR SEVERAL LIABILITY OF WARRANTORS
Mr Jean-Jacques Rupmler, the spouses Gérard Rupmler and Annette Pomerat (acting jointly and severally) and Evelyne Fournier-Rumpler act severally as Warrantors under this agreement but without joint liability between them, in respect of guarantees set forth in Articles 7 and 8.
However, without prejudice to this several liability, in case of gifts of the shares of the company Rumpler-Technologies by Mr Jean-Jacques Rumpler, the spouses Gerard Rumpler and Annette Pomerat or Mrs Evelyne Rumpler-Fournier, pursuant to Article 10.6, the donees will act jointly and severally with the donor in respect of the guarantees of Articles 7 and 8 and in proportion to the total number of Shares held by the donees and the donor on the Completion Date.
ARTICLE 9 OTHER OBLIGATIONS
9.1 PROHIBITED PAYMENTS
9.1.1 The Vendors represent and warrant to the Purchaser that from 31 December 2011 until the date hereof, none of the Companies has authorised or made any Prohibited Payment, and the Vendors undertake to ensure that no Prohibited Payment will be made by any of the Companies after the date hereof and until the Completion Date.
9.1.2 The Vendors undertake to pay to the Purchaser, immediately and from the first euro, by way of reduction of the Purchase Price, an amount equal (i) to the amount of the Prohibited Payment, plus (ii) reasonable expenses and disbursements actually and directly incurred or borne by the Purchaser or the Companies that would not have arisen if the Vendors obligation under the previous paragraph had been complied with.
9.1.3 The Vendors Representative undertakes to notify to the Purchaser immediately in writing as soon as the Vendors become aware of any breach of the obligations contained in this Article.
9.2 MANAGEMENT OF THE COMPANIES UNTIL THE COMPLETION DATE
The Vendors represent and warrant to the Purchaser that from the date of signature of this Sale Agreement until the Completion Date:
9.2.1 each of the Companies will carry on its activities exclusively in their normal and usual context, prudently and diligently in order to preserve the value of its business, its reputation and its relationships with third parties, public authorities and all those with a business relationship with it, and that it will not incur any liability other than arising in the normal and usual course of its activities;
9.2.2 without prejudice to the general nature of paragraph 9.2.1, none of the Companies will carry out any of the transactions referred to in Articles 7.21.3 to 7.21.14, without the prior written consent of the Purchaser and save as expressly provided by the terms of this Agreement.
9.3 SITUATION ON THE COMPLETION DATE
The Warrantors warrant to the Purchaser that on the Completion Date, all the representations made in Article 7 above will be as correct and complete as if they had been made on the Completion Date.
9.4 VISITS AND INSPECTIONS
During the period between the date of signature of this Sale Agreement and the Completion Date, the Vendors will give the Purchaser and/or any persons nominated by the Purchaser, reasonable access to the Companies books, registers, offices, installations, property, personnel (and in particular the Companys finance director), counsel and accountants, in order to enable the Purchaser (i) to prepare a detailed consolidated balance sheet of the Company on the Completion Date in the context of its obligations to provide regulatory information to the Securities and Exchange Commission; and (ii) after having obtained the Vendors consent, which may only be refused on reasonable grounds, to carry out the inspections and audits relating in particular to the Companies financial, fiscal and legal situation. It is agreed that no inspection by the Purchaser and/or the persons nominated by the Purchaser shall limit or alter in any way the Vendors liability in relation to any breach of their representations, warranties, obligations or commitments under this Agreement.
9.5 NON-COMPETITION, NON-POACHING AND CONFIDENTIALITY
In the absence of the Purchasers agreement in writing, the Vendors undertake, for the period between the Completion Date and the third anniversary of that date:
9.5.1 not to engage in any activity of any kind liable to compete with any of the Companies, whether directly or indirectly, personally or through other persons or entities, in the territories of the Member States of the European Economic Area, of the United States of America, of China (including Hong-Kong) and of India. In particular, the Vendors undertake not to collaborate on any basis whatever in this respect, and particularly as employees, directors, management executives or consultants, in any business in competition with any of the Companies;
9.5.2 not to solicit the recruitment of management executives of any of the Companies, whether directly or indirectly, or to encourage them to quit the positions that they hold or will hold within the Companies; and
9.5.3 not to communicate any information of any kind relating to the Companies to any third party whatever.
9.6 TERMINATION OF RELATIONS WITH THE VENDORS AND THE VENDORS AFFILIATES
9.6.1 At the latest on the Completion Date, the Vendors must reimburse or arrange for the reimbursement to the Companies of the entirety of the loans that the Companies may have granted to them or to the Vendors Affiliates, including any interest accrued until the Completion Date.
9.6.2 At the latest on the Completion Date, the Vendors must terminate or arrange for the termination of the contracts entered into between the Vendors or the Vendors Affiliates, on the one hand, and any of the Companies, on the other, without the Companies being liable for any compensation or subject to any obligation of any kind, with the exception of the employment contracts entered by Ms Estelle FOURNIER, Mr Arnaud FOURNIER and Mr Cyril RUMPLER, which shall remain in force.
9.6.3 At the latest on the Completion Date, the Vendors shall secure the release of any securities granted by any of the Companies to the Vendors or the Vendors Affiliates.
9.7 HOLDING OF THE ENTIRETY OF THE SHARES BY THE VENDORS ON THE COMPLETION DATE
9.7.1 On the Completion Date, the Vendors undertake to irrevocably and unconditionally hold the entirety (and not a part) of the Shares and shall cause the company Rumpler-Technologies to hold directly or indirectly, the entirety (and not a part) of the shares of the other Companies in accordance with the capital breakdown set forth in Appendix 5.
9.7.2 The Non Vendors have, irrevocably and unconditionally, undertaken towards the Vendors, on the date hereof, to sell at the latest on the Completion Date:
- to the Vendors, and according to the capital breakdown set forth in Appendix 5, the Shares held by them on the date hereof; and
- to the company Rumpler-Technologies, the shares of the company STELMI that they hold on the date hereof.
These irrevocable and unconditional commitments of the Non Vendors mentioned in Annex 5 are enforceable in the sole discretion of the Vendors.
The Vendors shall cause (i) the purchasers in the above-mentioned transferred to be approved and (ii) to approve, as directors of the companies Rumpler-Technologies and STELMI, such purchasers as shareholders of Rumpler-Technologies and STELMI.
9.7.3 Mr Gérard Rumpler and Jean-Jacques Rumpler will transfer, before the Completion Date, to the company Rumpler-Technologies, the shares they hold in the capital of the company SOMEGI.
9.7.4 The Sellers shall (i) cause the board of the company Rumpler-Technologies to approve and (ii) approve, when they are not interested parties, as directors of Rumpler-Technologies, the related party agreements in respect of the transfers of the shares of STELMI and SOGEMI by Mr Gerard Rumpler, Mr Jean-Jacques Rupmler and Mr Alain Cruset to Rumpler-Technologies.
9.8 INSURANCES RELATING TO THE PRODUCTS
The Purchaser undertakes, during the duration of the guarantee provided in Articles 7 and 8, to maintain a level of insurance coverage relating to the Products at least equivalent to the one existing at the Completion Date.
9.9 ON-DEMAND GUARANTEES
Mr Jean-Jacques Rumpler, Mr Gerard Rumpler and Mrs Evelyne Fournier-Rumpler shall cause Degroof bank to issue on the Completion Date the three on- demand guarantees which warrantee their obligations hereunder, in the form set forth in Appendix 8.
To this end, Mr Jean-Jacques Rumpler, Mr Gérard Rupmler and Mrs Evelyne Fournier-Rumpler undertake (i) to provide guarantees to ensure their commitments and (ii) execute any documents necessary for that purpose, including signing any written commitment drafted by the Degroof bank to indemnify it in respect of any payment made by it in connection with the on-demand guarantee.
ARTICLE 10 MISCELLANEOUS PROVISIONS
10.1 EXPENSES
10.1.1 Each of the Parties will be separately responsible for the expenses, duties and fees of their advisers in connection with the negotiation, preparation and performance of this Agreement.
10.1.2 The rights referred to in Article 726 of the General Taxation Code will be paid by the Purchaser.
10.2 COOPERATION
Each of the Parties undertakes to use its best endeavours to take, in good time, all the measures necessary or desirable for the transactions provided by this Sale Agreement to be completed, or to arrange to have such measures taken. Each of the Parties also undertakes to take all the measures necessary to enable the other Party and its advisers to record the proper performance of all the obligations imposed on it by this Agreement. If at any time after the Completion Date, additional measures are necessary or desirable in order to achieve the purpose of this Agreement, the Parties will take all the necessary steps or will arrange to have such steps taken.
10.3 CONFIDENTIALITY
10.3.1 This Sale Agreement and the transactions referred to herein are confidential, and each of the Parties undertakes not to disclose the existence or content of this Sale Agreement to any person (other than their advisers subject to a professional confidentiality obligation), whether directly or indirectly, without the express prior consent of the other Parties, with the exception of communications made compulsory by law, by a judgment, by an administrative decision and/or by a stock exchange regulation, or by a pre-existing contractual connection, or which are made necessary in order to implement the warranty referred to in Article 8 above.
10.3.2 The text of the statements and announcements made by the Parties, or on their behalf, in the context of the transaction envisaged by this Agreement, will be agreed between them in advance.
10.4 NOTICES
10.4.1 For the purposes of performance of this Agreement and any matters arising hereunder, the Purchasers addresses for service will be at its registered office as indicated in the heading of this Agreement.
The Vendors addresses for service will be at the law firm CMS BUREAU FRANCIS LEFEBVRE located at 1 Rue du Maréchal Joffre - 67083 STRASBOURG CEDEX - BP 70001, represented by Mr Arnaud GERARDIN, or, in the event he is unable to act, by any partner of the same law firm.
10.4.2 Each of the Parties may change its address for service at will, on condition that it brings its new address for service to the attention of the other Parties and that it is in a position to provide evidence of the new address. In default, the addresses indicated above will remain valid.
10.4.3 For the purposes of this Agreement, notices must be sent by registered letter with proof of receipt to the addresses of the Parties indicated above, or by process server.
10.4.4 The date of a notice shall be the date of service or of receipt of the letter, as proved by the acknowledgment of receipt.
10.4.5 In default of actual receipt, the date of presentation of the letter will be used instead.
10.5 THE VENDORS REPRESENTATIVE
10.5.1 The Vendors irrevocably appoint the law firm CMS BUREAU FRANCIS LEFEBVRE located at 1 Rue du Maréchal Joffre - 67083 STRASBOURG CEDEX - BP 70001, represented by Mr Arnaud GERARDIN, or, in the event he is unable to act, by any partner of the same law firm, as their joint representative (hereinafter the Vendors Representative), in order to represent them to the Purchaser in the context of this Agreement and for the purposes of performance of this Agreement.
10.5.2 Consequently, any action, claim, objection or decision of the Vendors provided for in this Sale Agreement must, in order to be valid, be brought or made on their behalf by the
Vendors Representative, acting validly for and on behalf of all the Vendors. Reciprocally, any notice or communication to the Vendors in the context or on the occasion of this Sale Agreement may be validly given by the Purchaser to the Vendors Representative.
10.6 TRANSFER TO CHILDREN AND SPOUSES
Between the date hereof and the Completion Date, the Vendors may transfer all or part of their Shares to their children or spouses by way of gifts, on condition that, immediately before such a transfer, their children or spouses adhere to this Agreement as Vendors with the rights and obligations thereunder. Moreover, they will also have the quality of Warrantors and act jointly and severally with their donor in respect of the guarantees set forth in Articles 7 and 8 and in proportion to the total number of Shares held by the donees and the donor on the Completion Date.
10.7 WHOLE AGREEMENT CLAUSE
10.7.1 The Sale Agreement constitutes the entire and sole agreement of the Parties in relation to the dispositions the subject thereof, and it replaces and cancels any written or oral contract, agreement or exchange of letters that might have taken place between the Parties prior to the date hereof and in relation to the same subject matter. It may only be amended or altered by a document signed by each of the Parties.
10.7.2 The preamble and all the Appendices form an integral part of the Sale Agreement, with which they form an indivisible whole.
10.8 DIVISIBILITY
In the event that any of the provisions of this Sale Agreement should be declared void or ineffective in any way whatever and for any reason whatever, the Parties undertake to consult in order to remedy the cause of the nullity concerned of, so that, unless this proves impossible, this Sale Agreement may continue to take effect without interruption.
10.9 APPLICABLE LAW AND JURISDICTION
10.9.1 The Sale Agreement will be governed by, and interpreted in accordance with, French law.
10.9.2 Any dispute arising in relation to the validity, interpretation or performance of this Agreement will be subject to the exclusive jurisdiction of the Paris Commercial Court.
Done at Paris, on May 30, 2012, in five (5) original counterparts
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Mr Jean-Jacques Rumpler |
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Mr Gérard Rumpler |
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Ms Evelyne Fournier-Rumpler |
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Ms Annette POMERAT | |
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_Represented by Mr Gérard RUMPLER | |
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APTAGROUP HOLDING SAS |
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Represented by Mr Olivier FOURMENT |
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[Appendices have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The appendices will be provided to the SEC upon request.]
LIST OF APPENDIX
Appendix 1 |
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Articles of association and certificate of registration (extrait K-Bis) of RUMPLER TECHNOLOGIES |
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Appendix 2 |
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Articles of association and certificate of registration (extrait K-Bis) of STELMI S.A. |
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Appendix 3 |
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Articles of association and certificate of registration (extrait K-Bis) of SOMEGI S.A.R.L |
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Appendix 4 |
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Articles of association and certificate of registration (extrait K-Bis) of AMERICAN STELMI CORP. |
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Appendix 5 |
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Capitals breakdown of the Companies and list of subsidiaries |
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Appendix 6 |
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Model of reiterative act |
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Appendix 7 |
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Model of services agreement |
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Appendix 8 |
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Model of on-demand guarantee |
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Appendix 9 |
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Reference accounts |
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Appendix 10 |
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Description of Real Estate Assets Owned by the Companies |
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Appendix 11 |
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Description of Real Estate Assets Leased by the Companies |
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Appendix 12 |
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List of Mobile Assets |
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Appendix 13 |
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List of Restrictions |
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Appendix 14 |
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List of Intellectual Property Rights and security or third parties rights encumbering them |
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Appendix 15 |
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List of Specific Contracts referred to in Article 7.10.2 |
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Appendix 16 |
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General Terms and Conditions of Sale of the Companies |
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Appendix 17 |
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Guarantee on Products |
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Appendix 18 |
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List of liability or resignation of contracts actions against the Companies for non-compliance, hidden defects and/or Products defects |
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Appendix 19 |
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List of Companys staffing chart with age, seniority, annual salary of enployees and executives and procedures for wage increases during the month of January 2012 |
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Appendix 20 |
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List of Collective Bargaining Agreements |
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Appendix 21 |
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List of individual or collective dismissal proceedings pending or put in place in the Companies |
Appendix 22 |
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List of social conflicts and litigation with the Companies employees for which no provision has been made in Reference Accounts |
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Appendix 23 |
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List of investigations or inquiries related to Taxes, controls or inspections pending, verification notices and rectification proposals related to Taxes notified to one of the Companies concerning the calculation and the recovery of Taxes since January, 1st 2005, as well as specific elements which are likely to trigger such investigations, inquiries, controls or inspections |
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Appendix 24 |
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List of insurance agreements entered into by the Companies |
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Appendix 25 |
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List of claims occurred over the last two years |
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Appendix 26 |
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List of any kinds of loan agreements, borrowings, overdrafts, factoring, financial leasing, to which each of the Companies is a party as borrower and guarantees, indemnity undertakings, letter of comfort or any other security provided to the Companies by third parties for these loans |
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Appendix 27 |
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List of restructuring and liquidation operations carried out by the Companies over the last three years |
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Appendix 28 |
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List of litigation, administrative, judicial or arbitration proceedings, claims or demands directed against one of the Companies or initiated by one of them |
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Appendix 29 |
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List of storage, transport or treatments operations of hazardous or toxic substances or wastes within the meaning of article 7.20.2. carried out by one of the Companies |
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Appendix 30 |
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Commitments and agreements going beyond the current management |
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Appendix 31 |
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List of agreements entered into with Affiliated of the Sellers |
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Appendix 32 |
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List of debts contained in the Accounts Reference of the company STELMI not recovered until 30 April 2012 |
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Appendix 33 |
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List of damages provisioned by the Purchaser when the Purchase Price was determined |
Exhibit 31.1
CERTIFICATION
I, Stephen J. Hagge, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AptarGroup, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
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Date: |
August 6, 2012 |
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By: |
/s/ STEPHEN J. HAGGE |
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Stephen J. Hagge |
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President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Robert W. Kuhn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AptarGroup, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a15(e) and 15d15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a15(f) and 15d15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
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Date: |
August 6, 2012 |
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By: |
/s/ ROBERT W. KUHN |
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Robert W. Kuhn |
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Executive Vice President, |
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Chief Financial Officer and Secretary |
Exhibit 32.1
CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen J. Hagge, president and chief executive officer of AptarGroup, Inc., certify that (i) the Quarterly Report on Form 10-Q of AptarGroup, Inc. for the quarter ended June 30, 2012 (the Form 10-Q) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of AptarGroup, Inc.
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/s/ STEPHEN J. HAGGE |
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Stephen J. Hagge |
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President and Chief Executive Officer |
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August 6, 2012 |
Exhibit 32.2
Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
I, Robert W. Kuhn, executive vice president and chief financial officer of AptarGroup, Inc., certify that (i) the Quarterly Report on Form 10-Q of AptarGroup, Inc. for the quarter ended June 30, 2012 (the Form 10-Q) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of AptarGroup, Inc.
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By: |
/s/ ROBERT W. KUHN |
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Robert W. Kuhn | |
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Executive Vice President, | |
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Chief Financial Officer and Secretary | |
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August 6, 2012 |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Details 2) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2012
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Jun. 30, 2011
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Jun. 30, 2012
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Jun. 30, 2011
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Derivative instruments, gain or (loss) | ||||
Foreign Exchange Contract, Amount of Loss Recognized in Income on Derivative, not designated as hedging instruments | $ (8,351) | $ (286) | $ (1,235) | $ (3,528) |
Foreign Exchange Contracts
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Derivative instruments, gain or (loss) | ||||
Foreign Exchange Contract, Amount of Loss Recognized in Income on Derivative, not designated as hedging instruments | (8,351) | (286) | (1,235) | (3,528) |
Derivatives in Cash Flow Hedging Relationships
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Derivative instruments, gain or (loss) | ||||
Amount of Gain Recognized in OCI on Derivative (Effective Portion) | 10 | |||
Derivatives in Cash Flow Hedging Relationships | Foreign Exchange Contracts
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Derivative instruments, gain or (loss) | ||||
Amount of Gain Recognized in OCI on Derivative (Effective Portion) | $ 10 |
SUBSEQUENT EVENTS (Details) (Acquisition, Stelmi Group)
In Millions, unless otherwise specified |
1 Months Ended | 3 Months Ended | 6 Months Ended | ||
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Jul. 31, 2012
item
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Jun. 30, 2012
USD ($)
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Jun. 30, 2012
USD ($)
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Jul. 03, 2012
USD ($)
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Jul. 03, 2012
EUR (€)
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Subsequent Event | |||||
Number of manufacturing plants | 2 | ||||
Cost of acquired entity | $ 207 | € 165 | |||
Acquisition costs | $ 5.5 | $ 5.8 |
FAIR VALUE (Details) (USD $)
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Jun. 30, 2012
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Dec. 31, 2011
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Liabilities | ||
Fair value of long term obligations | $ 280,000,000 | $ 283,000,000 |
Assets and liabilities measured at fair value on recurring basis | Total
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Assets | ||
Forward exchange contracts, assets | 994,000 | 520,000 |
Total assets at fair value | 994,000 | 520,000 |
Liabilities | ||
Forward exchange contracts, liabilities | 2,612,000 | 10,690,000 |
Total liabilities at fair value | 2,612,000 | 10,690,000 |
Assets and liabilities measured at fair value on recurring basis | Level 2
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Assets | ||
Forward exchange contracts, assets | 994,000 | 520,000 |
Total assets at fair value | 994,000 | 520,000 |
Liabilities | ||
Forward exchange contracts, liabilities | 2,612,000 | 10,690,000 |
Total liabilities at fair value | $ 2,612,000 | $ 10,690,000 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)
In Millions, unless otherwise specified |
6 Months Ended |
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Jun. 30, 2012
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INCOME TAXES | |
Current year earnings repatriated | $ 79 |
GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2012
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GOODWILL AND OTHER INTANGIBLE ASSETS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of changes in the carrying amount of goodwill |
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Summary of amortized intangible assets |
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Schedule of future estimated amortization expense |
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SEGMENT INFORMATION (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
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Jun. 30, 2011
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Jun. 30, 2012
segment
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Jun. 30, 2011
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SEGMENT INFORMATION | ||||
Number of reportable segments | 3 | |||
Financial information regarding the Company's reportable segments | ||||
Total Revenue | $ 581,570 | $ 620,337 | $ 1,178,429 | $ 1,201,135 |
Less: Intersegment Sales | 4,067 | 5,408 | 8,428 | 9,688 |
Net Sales | 577,503 | 614,929 | 1,170,001 | 1,191,447 |
Income before interest and taxes | 65,651 | 79,959 | 136,142 | 149,302 |
Interest expense, net | (3,110) | (3,063) | (7,324) | (6,131) |
Income before Income Taxes | 62,541 | 76,896 | 128,818 | 143,171 |
Beauty + Home
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Financial information regarding the Company's reportable segments | ||||
Total Revenue | 372,853 | 406,699 | 753,689 | 786,530 |
Less: Intersegment Sales | 3,569 | 3,961 | 7,254 | 7,530 |
Net Sales | 369,284 | 402,738 | 746,435 | 779,000 |
Income before interest and taxes | 33,652 | 39,877 | 66,624 | 72,530 |
Pharma
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Financial information regarding the Company's reportable segments | ||||
Total Revenue | 133,033 | 139,077 | 273,234 | 271,272 |
Less: Intersegment Sales | 54 | 374 | 212 | 565 |
Net Sales | 132,979 | 138,703 | 273,022 | 270,707 |
Income before interest and taxes | 31,110 | 40,369 | 70,482 | 79,257 |
Food + Beverage
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Financial information regarding the Company's reportable segments | ||||
Total Revenue | 75,684 | 74,525 | 151,506 | 143,249 |
Less: Intersegment Sales | 444 | 1,037 | 962 | 1,509 |
Net Sales | 75,240 | 73,488 | 150,544 | 141,740 |
Income before interest and taxes | 7,853 | 8,613 | 14,641 | 16,185 |
Corporate & Other
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Financial information regarding the Company's reportable segments | ||||
Total Revenue | 36 | 82 | ||
Less: Intersegment Sales | 36 | 82 | ||
Income before interest and taxes | $ (6,964) | $ (8,900) | $ (15,605) | $ (18,670) |
RETIREMENT AND DEFERRED COMPENSATION PLANS (Details) (USD $)
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3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2012
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Jun. 30, 2011
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Jun. 30, 2012
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Jun. 30, 2011
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Domestic Plans
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Components of net periodic benefit cost: | ||||
Service cost | $ 1,808,000 | $ 1,319,000 | $ 3,612,000 | $ 2,689,000 |
Interest cost | 1,231,000 | 1,094,000 | 2,459,000 | 2,228,000 |
Expected return on plan assets | (1,404,000) | (1,002,000) | (2,805,000) | (2,042,000) |
Amortization of net loss | 965,000 | 416,000 | 1,929,000 | 847,000 |
Amortization of prior service cost | 1,000 | 1,000 | 2,000 | 2,000 |
Net periodic benefit cost | 2,601,000 | 1,828,000 | 5,197,000 | 3,724,000 |
Defined benefit plans, employer contributions | 14,000,000 | |||
Foreign Plans
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Components of net periodic benefit cost: | ||||
Service cost | 509,000 | 514,000 | 1,028,000 | 1,030,000 |
Interest cost | 630,000 | 647,000 | 1,275,000 | 1,295,000 |
Expected return on plan assets | (379,000) | (460,000) | (767,000) | (921,000) |
Amortization of net loss | 118,000 | 199,000 | 239,000 | 399,000 |
Amortization of prior service cost | 90,000 | 97,000 | 182,000 | 194,000 |
Net periodic benefit cost | 968,000 | 997,000 | 1,957,000 | 1,997,000 |
Expected contribution in current fiscal year | 3,700,000 | 3,700,000 | ||
Defined benefit plans, employer contributions | $ 1,000,000 |
FACILITIES CONSOLIDATION AND SEVERANCE (Details) (USD $)
|
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2009
facility
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Jun. 30, 2012
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FACILITIES CONSOLIDATION AND SEVERANCE | ||
Number of French dispensing closure manufacturing facilities to be consolidated | 2 | |
Total costs associated with the consolidation/severance programs | $ 7,400,000 | |
Restructuring reserve | ||
Restructuring reserve, balance at the beginning of the period | 1,147,000 | |
Net Charges | (215,000) | |
Cash Paid | (40,000) | |
FX Impact | (16,000) | |
Restructuring reserve, balance at the end of the period | 876,000 | |
Employee severance
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Restructuring reserve | ||
Restructuring reserve, balance at the beginning of the period | 1,130,000 | |
Net Charges | (209,000) | |
Cash Paid | (40,000) | |
FX Impact | (16,000) | |
Restructuring reserve, balance at the end of the period | 865,000 | |
Other costs
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Restructuring reserve | ||
Restructuring reserve, balance at the beginning of the period | 17,000 | |
Net Charges | (6,000) | |
Restructuring reserve, balance at the end of the period | $ 11,000 |
INVENTORIES
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2012
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INVENTORIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES |
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