10-Q 1 atr-20170930x10q.htm 10-Q atr_Current folio_10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

 

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

 

ag_logo_rgb_k_cg10_5545_small  jpg

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 ☑ 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 ☑ No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

 

 

 

 

 

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

 

 

(Do not check if a smaller

reporting company)

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☑

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at October 26, 2017

Common Stock, $.01 par value per share

 

62,293,828 shares

 

 

 

 

 


 

 

 

 

AptarGroup, Inc.

 

Form 10-Q

 

Quarter Ended September 30, 2017

 

INDEX

 

 

Part I. 

FINANCIAL INFORMATION

 

 

 

 

Item 1. 

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Income - Three and Nine Months Ended September 30, 2017 and 2016

1

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2017 and 2016

2

 

 

 

 

Condensed Consolidated Balance Sheets – September 30, 2017 and December 31, 2016

3

 

 

 

 

Condensed Consolidated Statements of Changes in Equity – Nine Months Ended September 30, 2017 and 2016

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2017 and 2016

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

39

 

 

 

Item 4. 

Controls and Procedures

39

 

 

 

Part II. 

OTHER INFORMATION

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

40

 

 

 

Item 6. 

Exhibits

41

 

 

 

 

Signature

42

 

 

 

 

i


 

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 September 30,

 

Nine Months Ended September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Sales

    

$

624,326

    

$

589,729

    

$

1,843,388

    

$

1,792,066

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (exclusive of depreciation and amortization shown below)

 

 

408,081

 

 

381,041

 

 

1,192,967

 

 

1,145,107

 

Selling, research & development and administrative

 

 

95,748

 

 

86,695

 

 

292,923

 

 

285,841

 

Depreciation and amortization

 

 

40,087

 

 

39,667

 

 

114,660

 

 

115,944

 

 

 

 

543,916

 

 

507,403

 

 

1,600,550

 

 

1,546,892

 

Operating Income

 

 

80,410

 

 

82,326

 

 

242,838

 

 

245,174

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (Expense) Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(9,733)

 

 

(8,753)

 

 

(25,707)

 

 

(26,547)

 

Interest income

 

 

1,113

 

 

715

 

 

2,086

 

 

1,759

 

Equity in results of affiliates

 

 

(72)

 

 

(15)

 

 

(142)

 

 

(187)

 

Miscellaneous, net

 

 

(2,200)

 

 

728

 

 

(509)

 

 

(995)

 

 

 

 

(10,892)

 

 

(7,325)

 

 

(24,272)

 

 

(25,970)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

 

69,518

 

 

75,001

 

 

218,566

 

 

219,204

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes

 

 

15,989

 

 

21,901

 

 

48,043

 

 

63,187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

53,529

 

$

53,100

 

$

170,523

 

$

156,017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to Noncontrolling Interests

 

$

(6)

 

$

(2)

 

$

(6)

 

$

(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to AptarGroup, Inc.

 

$

53,523

 

$

53,098

 

$

170,517

 

$

156,009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to AptarGroup, Inc. per Common Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.86

 

$

0.84

 

$

2.73

 

$

2.48

 

Diluted

 

$

0.83

 

$

0.82

 

$

2.64

 

$

2.40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

62,592

 

 

62,858

 

 

62,527

 

 

62,878

 

Diluted

 

 

64,821

 

 

64,690

 

 

64,626

 

 

64,989

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per Common Share

 

$

0.32

 

$

0.30

 

$

0.96

 

$

0.90

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

1


 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

    

2017

 

2016

 

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

53,529

 

$

53,100

    

$

170,523

 

$

156,017

 

Other Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

17,903

 

 

13,792

 

 

69,505

 

 

44,239

 

Changes in treasury locks, net of tax

 

 

 7

 

 

 6

 

 

21

 

 

19

 

Net loss on derivatives, net of tax

 

 

(3,591)

 

 

 —

 

 

(3,591)

 

 

 —

 

Defined benefit pension plan, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service cost included in net income, net of tax

 

 

74

 

 

58

 

 

210

 

 

174

 

Amortization of net loss included in net income, net of tax

 

 

850

 

 

779

 

 

2,489

 

 

2,337

 

Total defined benefit pension plan, net of tax

 

 

924

 

 

837

 

 

2,699

 

 

2,511

 

Total other comprehensive income

 

 

15,243

 

 

14,635

 

 

68,634

 

 

46,769

 

Comprehensive Income

 

 

68,772

 

 

67,735

 

 

239,157

 

 

202,786

 

Comprehensive Income Attributable to Noncontrolling Interests

 

 

(11)

 

 

(1)

 

 

(18)

 

 

 —

 

Comprehensive Income Attributable to AptarGroup, Inc.

 

$

68,761

 

$

67,734

 

$

239,139

 

$

202,786

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

2


 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

In thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

September 30,

    

 

December 31,

 

 

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and equivalents

 

$

1,018,666

 

$

466,287

 

Accounts and notes receivable, less allowance for doubtful accounts of $3,245 in 2017 and $2,989 in 2016

 

 

510,144

 

 

433,127

 

Inventories

 

 

323,404

 

 

296,914

 

Prepaid and other

 

 

89,181

 

 

73,842

 

 

 

 

1,941,395

 

 

1,270,170

 

Property, Plant and Equipment:

 

 

 

 

 

 

 

Buildings and improvements

 

 

408,718

 

 

368,260

 

Machinery and equipment

 

 

2,168,639

 

 

1,938,352

 

 

 

 

2,577,357

 

 

2,306,612

 

Less: Accumulated depreciation

 

 

(1,744,586)

 

 

(1,545,384)

 

 

 

 

832,771

 

 

761,228

 

Land

 

 

25,668

 

 

23,093

 

 

 

 

858,439

 

 

784,321

 

Other Assets:

 

 

 

 

 

 

 

Investments in affiliates

 

 

9,485

 

 

4,241

 

Goodwill

 

 

439,147

 

 

407,522

 

Intangible assets

 

 

96,760

 

 

94,489

 

Miscellaneous

 

 

63,628

 

 

46,042

 

 

 

 

609,020

 

 

552,294

 

Total Assets

 

$

3,408,854

 

$

2,606,785

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

3


 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

In thousands, except share and per share amounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

September 30,

    

 

December 31,

 

 

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Notes payable

 

$

109,910

 

$

169,213

 

Current maturities of long-term obligations, net of unamortized debt issuance costs

 

 

136,330

 

 

4,603

 

Accounts payable and accrued liabilities

 

 

458,797

 

 

369,139

 

 

 

 

705,037

 

 

542,955

 

Long-Term Obligations, net of unamortized debt issuance costs

 

 

1,271,530

 

 

772,737

 

Deferred Liabilities and Other:

 

 

 

 

 

 

 

Deferred income taxes

 

 

18,438

 

 

16,803

 

Retirement and deferred compensation plans

 

 

87,223

 

 

94,545

 

Deferred and other non-current liabilities

 

 

4,802

 

 

5,503

 

Commitments and contingencies

 

 

 —

 

 

 

 

 

 

110,463

 

 

116,851

 

Stockholders’ Equity:

 

 

 

 

 

 

 

AptarGroup, Inc. stockholders’ equity

 

 

 

 

 

 

 

Common stock, $.01 par value, 199 million shares authorized, 66.6 and 66.0 million shares issued as of September 30, 2017 and December 31, 2016, respectively

 

 

666

 

 

660

 

Capital in excess of par value

 

 

599,608

 

 

546,682

 

Retained earnings

 

 

1,271,576

 

 

1,197,234

 

Accumulated other comprehensive (loss)

 

 

(251,087)

 

 

(319,709)

 

Less: Treasury stock at cost, 4.3 and 3.9 million shares as of September 30, 2017 and December 31, 2016, respectively

 

 

(299,249)

 

 

(250,917)

 

Total AptarGroup, Inc. Stockholders’ Equity

 

 

1,321,514

 

 

1,173,950

 

Noncontrolling interests in subsidiaries

 

 

310

 

 

292

 

Total Stockholders’ Equity

 

 

1,321,824

 

 

1,174,242

 

Total Liabilities and Stockholders’ Equity

 

$

3,408,854

 

$

2,606,785

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

4


 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AptarGroup, Inc. Stockholders’ Equity

 

 

 

 

 

 

 

 

    

 

    

Accumulated

    

 

    

 

    

 

    

 

    

 

 

 

 

 

 

Other

 

Common

 

 

 

Capital in

 

Non-

 

 

 

 

 

Retained

 

Comprehensive

 

Stock

 

Treasury

 

Excess of

 

Controlling

 

Total

 

 

 

Earnings

 

(Loss) Income

 

Par Value

 

Stock

 

Par Value

 

Interest

 

Equity

 

Balance - December 31, 2015

 

$

1,185,681

 

$

(262,347)

 

$

667

 

$

(270,052)

 

$

495,462

 

$

295

 

$

1,149,706

 

Net income

 

 

156,009

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 8

 

 

156,017

 

Foreign currency translation adjustments

 

 

 —

 

 

44,247

 

 

 —

 

 

 —

 

 

 —

 

 

(8)

 

 

44,239

 

Changes in unrecognized pension gains/losses and related amortization, net of tax

 

 

 —

 

 

2,511

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,511

 

Changes in treasury locks, net of tax

 

 

 —

 

 

19

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

19

 

Stock awards and option exercises

 

 

 —

 

 

 —

 

 

 9

 

 

17,195

 

 

58,037

 

 

 —

 

 

75,241

 

Cash dividends declared on common stock

 

 

(56,597)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(56,597)

 

Common stock repurchased and retired

 

 

(75,996)

 

 

 —

 

 

(11)

 

 

 —

 

 

(8,783)

 

 

 —

 

 

(84,790)

 

Balance - September 30, 2016

 

$

1,209,097

 

$

(215,570)

 

$

665

 

$

(252,857)

 

$

544,716

 

$

295

 

$

1,286,346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2016

 

$

1,197,234

 

$

(319,709)

 

$

660

 

$

(250,917)

 

$

546,682

 

$

292

 

$

1,174,242

 

Net income

 

 

170,517

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 6

 

 

170,523

 

Foreign currency translation adjustments

 

 

 —

 

 

69,493

 

 

 —

 

 

 —

 

 

 —

 

 

12

 

 

69,505

 

Changes in unrecognized pension gains/losses and related amortization, net of tax

 

 

 —

 

 

2,699

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,699

 

Changes in treasury locks, net of tax

 

 

 —

 

 

21

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

21

 

Changes in derivative gains/losses, net of tax

 

 

 —

 

 

(3,591)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3,591)

 

Stock awards and option exercises

 

 

 —

 

 

 —

 

 

11

 

 

23,938

 

 

57,742

 

 

 —

 

 

81,691

 

Cash dividends declared on common stock

 

 

(60,002)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(60,002)

 

Treasury stock purchased

 

 

 —

 

 

 —

 

 

 —

 

 

(72,270)

 

 

 —

 

 

 —

 

 

(72,270)

 

Common stock repurchased and retired

 

 

(36,173)

 

 

 —

 

 

(5)

 

 

 —

 

 

(4,816)

 

 

 —

 

 

(40,994)

 

Balance - September 30, 2017

 

$

1,271,576

 

$

(251,087)

 

$

666

 

$

(299,249)

 

$

599,608

 

$

310

 

$

1,321,824

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

5


 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

In thousands, brackets denote cash outflows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

    

 

2017

    

 

2016

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

170,523

 

$

156,017

 

Adjustments to reconcile net income to net cash provided by operations:

 

 

 

 

 

 

 

Depreciation

 

 

107,017

 

 

109,156

 

Amortization

 

 

7,643

 

 

6,788

 

Stock based compensation

 

 

15,005

 

 

17,823

 

Provision for doubtful accounts

 

 

124

 

 

369

 

Deferred income taxes

 

 

(2,265)

 

 

(661)

 

Defined benefit plan expense

 

 

12,932

 

 

12,632

 

Equity in results of affiliates

 

 

142

 

 

187

 

Changes in balance sheet items, excluding effects from foreign currency adjustments:

 

 

 

 

 

 

 

Accounts and other receivables

 

 

(46,038)

 

 

(54,243)

 

Inventories

 

 

(1,392)

 

 

(11,284)

 

Prepaid and other current assets

 

 

(10,839)

 

 

(14,244)

 

Accounts payable and accrued liabilities

 

 

49,158

 

 

3,491

 

Income taxes payable

 

 

2,061

 

 

(595)

 

Retirement and deferred compensation plan liabilities

 

 

(20,621)

 

 

(14,419)

 

Other changes, net

 

 

(18,288)

 

 

(8,597)

 

Net Cash Provided by Operations

 

 

265,162

 

 

202,420

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

(120,803)

 

 

(92,366)

 

Proceeds from sale of property and equipment, including insurance proceeds

 

 

2,345

 

 

2,049

 

Settlement of derivative

 

 

(66,155)

 

 

 —

 

Maturity of short-term investments

 

 

 —

 

 

29,485

 

Acquisition of business, net of cash acquired

 

 

 —

 

 

(202,985)

 

Acquisition of intangible assets

 

 

 —

 

 

(2,491)

 

Investment in unconsolidated affiliate

 

 

(5,000)

 

 

 —

 

Notes receivable, net

 

 

451

 

 

777

 

Net Cash Used by Investing Activities

 

 

(189,162)

 

 

(265,531)

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

(Repayments of) proceeds from notes payable

 

 

(63,905)

 

 

132,622

 

Proceeds from long-term obligations

 

 

625,525

 

 

5,950

 

Repayments of long-term obligations

 

 

(4,836)

 

 

(53,512)

 

Dividends paid

 

 

(60,002)

 

 

(56,597)

 

Credit facility costs

 

 

(2,937)

 

 

 —

 

Proceeds from stock option exercises

 

 

66,686

 

 

49,457

 

Purchase of treasury stock

 

 

(72,270)

 

 

 —

 

Common stock repurchased and retired

 

 

(40,994)

 

 

(84,790)

 

Excess tax benefit from exercise of stock options

 

 

 —

 

 

7,960

 

Net Cash Provided by Financing Activities

 

 

447,267

 

 

1,090

 

Effect of Exchange Rate Changes on Cash

 

 

29,112

 

 

4,857

 

Net Increase (Decrease) in Cash and Equivalents

 

 

552,379

 

 

(57,164)

 

Cash and Equivalents at Beginning of Period

 

 

466,287

 

 

489,901

 

Cash and Equivalents at End of Period

 

$

1,018,666

 

$

432,737

 

 

See accompanying Unaudited Notes to Condensed Consolidated Financial Statements.

 

6


 

AptarGroup, Inc.

Notes to Condensed Consolidated Financial Statements

(Dollars in Thousands, Except per Share Amounts, or as 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 our subsidiaries.  The terms “AptarGroup”, “Aptar” or “Company” as used herein refer to AptarGroup, Inc. and our subsidiaries.  All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the Unaudited Condensed Consolidated Financial Statements include all 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 disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2016 but does not include all disclosures required by U.S. GAAP.  Accordingly, these Unaudited Condensed Consolidated Financial Statements and related notes should be read in conjunction with the Audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.  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 U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification.

In May 2014, the FASB amended the guidance for recognition of revenue from customer contracts.  The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  In August 2015, the FASB decided to defer the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date.  The FASB also decided to allow early adoption of the standard, but not before the original effective date of December 15, 2016. Subsequent to the initial standards, the FASB has also issued several ASUs to clarify specific revenue recognition topics.  We continue to evaluate the impact the adoption of this standard will have on our Consolidated Financial Statements.  The majority of our revenues are derived from product sales and tooling sales.  We are also evaluating our service, license, exclusivity and royalty arrangements, which need to be reviewed individually to ensure proper accounting under the new standard. To date, our internal project team has reviewed a substantial portion of contracts.  While we continue to assess the potential impacts of the new standard, we currently believe the pronouncement will affect the way we account for tooling contracts.  We currently recognize revenue for these contracts when the title and risk of loss transfers to the customer.  Under the new guidance, we expect we will be required to recognize revenue for certain contracts over the time required to build the tool.  We also continue to progress in updating our internal controls along with reviewing and developing the additional disclosures required by the standard.  We currently anticipate adopting the modified retrospective transition method for implementing this guidance on the standard’s effective date.

In July 2015, the FASB issued new guidance for simplifying the measurement of inventory.  The core principle of the guidance is that an entity should measure inventory at the lower of cost or net realizable value.  This standard is effective for annual reporting periods beginning after December 15, 2016.  The Company adopted the requirements of the standard and the impact was not material to our current year financial statements.

In March 2016, the FASB issued guidance that eliminates the requirement that an investor retrospectively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for the equity method. The guidance requires that an equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The new standard is effective for fiscal years and interim periods beginning after December 15, 2016.  The adoption of the new rules did not have an impact on our financial statements. 

7


 

In March 2016, the FASB issued guidance that changes the accounting for certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The new standard is effective for fiscal years and interim periods beginning after December 15, 2016.  The Company has prospectively adopted the standard resulting in $0.5 million and $8.8 million of additional tax deductions that would have been previously recorded in stockholders’ equity now being reported as a reduction in tax expense for the three and nine months ended September 30, 2017, respectively.  The amount of excess tax benefits and deficiencies recognized in the provision for income taxes will fluctuate from period to period based on the price of the Company’s stock, the volume of share-based instruments settled or vested, and the value assigned to share-based instruments under U.S. GAAP. We have also prospectively adopted the standard for the presentation of the condensed consolidated statements of cash flows.  The impact of excess tax benefits from exercise of stock options is now shown within cash flows from operating activities instead of cash flows from financing activities.  In addition, the Company has elected to continue its current practice of estimating expected forfeitures.

In August 2017, the FASB issued new guidance to improve the accounting for hedging activities.  The guidance changes the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the guidance makes certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years.  However, early application is permitted in any interim period after the issuance of this guidance.  The Company has chosen to adopt this standard in the current period.  See details in Note 8 – Derivative Instruments and Hedging Activities. 

Other accounting standards that have been issued by the FASB or other standards-setting bodies did not have a material impact on our Consolidated Financial Statements.

RETIREMENT OF COMMON STOCK

 

During the first nine months of 2017, the Company repurchased 1.4 million shares of common stock, of which 512 thousand shares were immediately retired.  During the first nine months of 2016, the Company repurchased and immediately retired 1.1 million shares of common stock.  Common stock was reduced by the number of shares retired at $0.01 par value per share.  The Company allocates the excess purchase price over par value between additional paid-in capital and retained earnings.

INCOME TAXES

 

The Company computes taxes on income in accordance with the tax rules and regulations of the many taxing authorities where income is earned.  The income tax rates imposed by these taxing authorities may vary substantially.  Taxable income may differ from pre-tax income for financial accounting purposes.  To the extent that these differences create differences between the tax basis of an asset or liability and our reported amount in the financial statements, an appropriate provision for deferred income taxes is made.

The Company considers numerous factors to determine which foreign earnings are permanently reinvested in foreign operations.  These include the financial requirements of the U.S. parent company and those of our foreign subsidiaries, the U.S. funding needs for dividend payments and stock repurchases, and the tax consequences of remitting earnings to the U.S.  From this analysis, current year repatriation decisions are made in an attempt to provide a proper mix of debt and stockholder capital both within the U.S. and for non-U.S. operations.  During 2016, the Company decided to repatriate a portion of our 2016 and 2017 foreign earnings.  In the first quarter of 2017, the Company repatriated €250 million ($263 million) of foreign earnings, most of which was used to reduce existing debt levels and fund stock repurchases.  To better balance our capital structure, the Company repatriated an additional €700 million ($751 million) of foreign earnings in the third quarter of 2017.  The Company recognized a $5 million tax benefit for the nine months ended September 30, 2017 associated with these repatriation activities.  The Company maintains its assertion that the approximately $614 million of remaining foreign earnings are permanently reinvested.  As such, the Company does not provide for taxes on these earnings. 

The Company provides a liability for the amount of unrecognized tax benefits from uncertain tax positions.  This liability is provided whenever the Company determines that a tax benefit will not meet a more-likely-than-not threshold for recognition.  See Note 4  - Income Taxes for more information.

8


 

REVISION OF PRIOR PERIOD FINANCIAL STATEMENTS

 

During the second quarter of 2017, the Company determined that the impact of restricted stock unit (RSU) vesting was incorrectly presented in the Condensed Consolidated Statement of Cash Flows.  The effect of correcting this error resulted in a reduction to Net Cash Provided by Operations with a corresponding increase to Net Cash (Used) Provided by Financing Activities.  As this correction represented a reclassification between two accounts within the Condensed Consolidated Statement of Cash Flows, the Condensed Consolidated Statements of Income, the Condensed Consolidated Balance Sheet and the Condensed Consolidated Statements of Changes in Equity were not impacted by this change.  The Company determined the correction was not material to previously issued financial statements but was significant enough to revise.  Following is a summary of the previously issued financial statement line items impacted by this revision for all periods and statements included in this report:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Previously

 

 

 

 

 

 

 

 

    

Reported

    

Adjustment

    

As Revised

 

Revised Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2016

 

 

 

 

 

 

 

 

 

 

Retirement and deferred compensation plan liabilities

 

$

(12,525)

 

$

(1,894)

 

$

(14,419)

 

Net Cash Provided by Operations

 

 

204,314

 

 

(1,894)

 

 

202,420

 

Proceeds from stock option exercises

 

 

47,563

 

 

1,894

 

 

49,457

 

Net Cash (Used) Provided by Financing Activities

 

 

(804)

 

 

1,894

 

 

1,090

 

 

  

 

 

 

 

 

 

 

NOTE 2 - INVENTORIES

 

Inventories, by component, consisted of:

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Raw materials

 

$

91,192

 

$

98,014

 

Work in process

 

 

106,609

 

 

91,646

 

Finished goods

 

 

125,603

 

 

107,254

 

Total

 

$

323,404

 

$

296,914

 

 

 

 

 

 

 

 

 

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

 

The changes in the carrying amount of goodwill since December 31, 2016 are as follows by reporting segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Beauty +

    

 

 

    

Food +

    

Corporate

    

 

 

 

 

 

Home

 

Pharma

 

Beverage

 

& Other

 

Total

 

Goodwill

 

$

211,371

 

$

180,050

 

$

16,101

 

$

1,615

 

$

409,137

 

Accumulated impairment losses

 

 

 —

 

 

 —

 

 

 —

 

 

(1,615)

 

 

(1,615)

 

Balance as of December 31, 2016

 

$

211,371

 

$

180,050

 

$

16,101

 

$

 —

 

$

407,522

 

Foreign currency exchange effects

 

 

10,887

 

 

20,064

 

 

674

 

 

 —

 

 

31,625

 

Goodwill

 

$

222,258

 

$

200,114

 

$

16,775

 

$

1,615

 

$

440,762

 

Accumulated impairment losses

 

 

 —

 

 

 —

 

 

 —

 

 

(1,615)

 

 

(1,615)

 

Balance as of September 30, 2017

 

$

222,258

 

$

200,114

 

$

16,775

 

$

 —

 

$

439,147

 

 

9


 

The table below shows a summary of intangible assets as of September 30, 2017 and December 31, 2016.