10-Q 1 atr-20190331x10q.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 MARCH 31, 2019

 

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.)

 

265 EXCHANGE DRIVE, SUITE 100, 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑ No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

 

 

 

 

 

 

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth 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 April 24, 2019

Common Stock, $.01 par value per share

 

63,192,199 shares

 

 

 

 

 


 

 

 

 

AptarGroup, Inc.

 

Form 10-Q

 

Quarter Ended March 31, 2019

 

INDEX

 

 

Part I. 

FINANCIAL INFORMATION

 

 

 

 

Item 1. 

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Income – Three Months Ended March 31, 2019 and 2018

1

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2019 and 2018

2

 

 

 

 

Condensed Consolidated Balance Sheets – March 31, 2019 and December 31, 2018

3

 

 

 

 

Condensed Consolidated Statements of Changes in Equity – Three Months Ended March 31, 2019 and 2018

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2019 and 2018

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2. 

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

26

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

37

 

 

 

Item 4. 

Controls and Procedures

37

 

 

 

Part II. 

OTHER INFORMATION

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

38

 

 

 

Item 6. 

Exhibits

39

 

 

 

 

Signature

40

 

 

 

 

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 March 31,

 

2019

 

2018

    

 

 

 

 

 

 

 

 

Net Sales

    

$

744,460

    

$

703,350

 

Operating Expenses:

 

 

 

 

 

 

 

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

 

 

469,132

 

 

455,822

 

Selling, research & development and administrative

 

 

121,215

 

 

112,461

 

Depreciation and amortization

 

 

47,489

 

 

41,175

 

Restructuring initiatives

 

 

9,530

 

 

5,936

 

 

 

 

647,366

 

 

615,394

 

Operating Income

 

 

97,094

 

 

87,956

 

 

 

 

 

 

 

 

 

Other (Expense) Income:

 

 

 

 

 

 

 

Interest expense

 

 

(9,214)

 

 

(8,055)

 

Interest income

 

 

1,748

 

 

2,248

 

Equity in results of affiliates

 

 

(95)

 

 

(65)

 

Miscellaneous, net

 

 

466

 

 

(867)

 

 

 

 

(7,095)

 

 

(6,739)

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

 

89,999

 

 

81,217

 

 

 

 

 

 

 

 

 

Provision for Income Taxes

 

 

27,000

 

 

21,929

 

 

 

 

 

 

 

 

 

Net Income

 

$

62,999

 

$

59,288

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Noncontrolling Interests

 

$

 5

 

$

12

 

 

 

 

 

 

 

 

 

Net Income Attributable to AptarGroup, Inc.

 

$

63,004

 

$

59,300

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Basic

 

$

1.00

 

$

0.95

 

Diluted

 

$

0.96

 

$

0.92

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding:

 

 

 

 

 

 

 

Basic

 

 

62,964

 

 

62,128

 

Diluted

 

 

65,349

 

 

64,414

 

 

 

 

 

 

 

 

 

Dividends per Common Share

 

$

0.34

 

$

0.32

 

 

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

 

1


 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

 

 

 

 

 

 

In thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Net Income

    

$

62,999

 

$

59,288

 

Other Comprehensive Income:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(9,611)

 

 

22,935

 

Changes in treasury locks, net of tax

 

 

 —

 

 

 7

 

(Loss) gain on derivatives, net of tax

 

 

(393)

 

 

346

 

Defined benefit pension plan, net of tax

 

 

 

 

 

 

 

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

 

 

84

 

 

96

 

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

 

 

637

 

 

1,260

 

Total defined benefit pension plan, net of tax

 

 

721

 

 

1,356

 

Total other comprehensive (loss) income

 

 

(9,283)

 

 

24,644

 

Comprehensive Income

 

 

53,716

 

 

83,932

 

Comprehensive (Income) Loss Attributable to Noncontrolling Interests

 

 

(3)

 

 

 1

 

Comprehensive Income Attributable to AptarGroup, Inc.

 

$

53,713

 

$

83,933

 

 

See accompanying unaudited Notes to Condensed Consolidated Financial Statements.

 

2


 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

 

 

 

 

 

 

In thousands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

March 31,

    

 

December 31,

 

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and equivalents

 

$

217,377

 

$

261,823

 

Accounts and notes receivable, less allowance for doubtful accounts of $3,820 in 2019 and $3,541 in 2018

 

 

599,561

 

 

569,630

 

Inventories

 

 

390,403

 

 

381,110

 

Prepaid and other

 

 

122,104

 

 

118,245

 

 

 

 

1,329,445

 

 

1,330,808

 

Property, Plant and Equipment:

 

 

 

 

 

 

 

Buildings and improvements

 

 

463,551

 

 

453,572

 

Machinery and equipment

 

 

2,385,283

 

 

2,368,332

 

 

 

 

2,848,834

 

 

2,821,904

 

Less: Accumulated depreciation

 

 

(1,866,875)

 

 

(1,855,810)

 

 

 

 

981,959

 

 

966,094

 

Land

 

 

25,171

 

 

25,519

 

 

 

 

1,007,130

 

 

991,613

 

Other Assets:

 

 

 

 

 

 

 

Investments in equity securities

 

 

8,923

 

 

25,448

 

Goodwill

 

 

703,709

 

 

712,095

 

Intangible assets

 

 

246,899

 

 

254,904

 

Operating lease right-of-use assets

 

 

82,099

 

 

 —

 

Miscellaneous

 

 

37,429

 

 

62,867

 

 

 

 

1,079,059

 

 

1,055,314

 

Total Assets

 

$

3,415,634

 

$

3,377,735

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

March 31,

    

 

December 31,

 

 

 

 

2019

 

 

2018

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Notes payable, including revolving credit facilities

 

$

17,683

 

$

101,293

 

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

 

 

63,981

 

 

62,678

 

Accounts payable and accrued liabilities

 

 

542,252

 

 

525,199

 

 

 

 

623,916

 

 

689,170

 

Long-Term Obligations, net of unamortized debt issuance costs

 

 

1,141,062

 

 

1,125,993

 

Deferred Liabilities and Other:

 

 

 

 

 

 

 

Deferred income taxes

 

 

29,938

 

 

53,917

 

Retirement and deferred compensation plans

 

 

63,691

 

 

62,319

 

Operating lease liabilities

 

 

64,592

 

 

 —

 

Deferred and other non-current liabilities

 

 

24,721

 

 

23,465

 

Commitments and contingencies

 

 

 —

 

 

 

 

 

 

182,942

 

 

139,701

 

Stockholders’ Equity:

 

 

 

 

 

 

 

AptarGroup, Inc. stockholders’ equity

 

 

 

 

 

 

 

Common stock, $.01 par value, 199 million shares authorized, 67.6 and 67.3 million shares issued as of March 31, 2019 and December 31, 2018, respectively

 

 

676

 

 

673

 

Capital in excess of par value

 

 

700,933

 

 

678,769

 

Retained earnings

 

 

1,413,453

 

 

1,371,826

 

Accumulated other comprehensive (loss)

 

 

(319,795)

 

 

(310,504)

 

Less: Treasury stock at cost, 4.5 and 4.4 million shares as of March 31, 2019 and December 31, 2018, respectively

 

 

(327,871)

 

 

(318,208)

 

Total AptarGroup, Inc. Stockholders’ Equity

 

 

1,467,396

 

 

1,422,556

 

Noncontrolling interests in subsidiaries

 

 

318

 

 

315

 

Total Stockholders’ Equity

 

 

1,467,714

 

 

1,422,871

 

Total Liabilities and Stockholders’ Equity

 

$

3,415,634

 

$

3,377,735

 

 

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, 2017

 

$

1,301,147

 

$

(253,302)

 

$

667

 

$

(346,245)

 

$

609,471

 

$

310

 

$

1,312,048

 

Net income

 

 

59,300

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(12)

 

 

59,288

 

Adoption of revenue recognition standard

 

 

2,937

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,937

 

Foreign currency translation adjustments

 

 

 —

 

 

22,924

 

 

 —

 

 

 —

 

 

 —

 

 

11

 

 

22,935

 

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

 

 

 —

 

 

1,356

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,356

 

Changes in treasury locks, net of tax

 

 

 —

 

 

 7

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 7

 

Changes in derivative gains, net of tax

 

 

 —

 

 

346

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

346

 

Stock awards and option exercises

 

 

 —

 

 

 —

 

 

 5

 

 

12,174

 

 

30,212

 

 

 —

 

 

42,391

 

Cash dividends declared on common stock

 

 

(19,830)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(19,830)

 

Treasury stock purchased

 

 

 —

 

 

 —

 

 

 —

 

 

(3,905)

 

 

 —

 

 

 —

 

 

(3,905)

 

Common stock repurchased and retired

 

 

(11,336)

 

 

 —

 

 

(1)

 

 

 —

 

 

(1,460)

 

 

 —

 

 

(12,797)

 

Balance - March 31, 2018

 

$

1,332,218

 

$

(228,669)

 

$

671

 

$

(337,976)

 

$

638,223

 

$

309

 

$

1,404,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2018

 

$

1,371,826

 

$

(310,504)

 

$

673

 

$

(318,208)

 

$

678,769

 

$

315

 

$

1,422,871

 

Net income

 

 

63,004

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5)

 

 

62,999

 

Foreign currency translation adjustments

 

 

 —

 

 

(9,619)

 

 

 —

 

 

 —

 

 

 —

 

 

 8

 

 

(9,611)

 

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

 

 

 —

 

 

721

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

721

 

Changes in derivative gains, net of tax

 

 

 —

 

 

(393)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(393)

 

Stock awards and option exercises

 

 

 —

 

 

 —

 

 

 3

 

 

5,337

 

 

22,164

 

 

 —

 

 

27,504

 

Cash dividends declared on common stock

 

 

(21,377)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(21,377)

 

Treasury stock purchased

 

 

 —

 

 

 —

 

 

 —

 

 

(15,000)

 

 

 —

 

 

 —

 

 

(15,000)

 

Balance - March 31, 2019

 

$

1,413,453

 

$

(319,795)

 

$

676

 

$

(327,871)

 

$

700,933

 

$

318

 

$

1,467,714

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

    

 

2019

    

 

2018

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

62,999

 

$

59,288

 

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

 

 

 

 

 

 

 

Depreciation

 

 

41,487

 

 

38,357

 

Amortization

 

 

6,002

 

 

2,818

 

Stock-based compensation

 

 

6,565

 

 

7,511

 

Provision for doubtful accounts

 

 

497

 

 

94

 

Loss (gain) on disposition of fixed assets

 

 

310

 

 

(859)

 

Deferred income taxes

 

 

671

 

 

(2,733)

 

Defined benefit plan expense

 

 

3,858

 

 

4,872

 

Equity in results of affiliates

 

 

95

 

 

65

 

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

 

 

 

 

 

 

 

Accounts and other receivables

 

 

(35,301)

 

 

(67,484)

 

Inventories

 

 

(13,097)

 

 

(18,575)

 

Prepaid and other current assets

 

 

(2,282)

 

 

129

 

Accounts payable and accrued liabilities

 

 

6,865

 

 

26,744

 

Income taxes payable

 

 

3,511

 

 

3,255

 

Retirement and deferred compensation plan liabilities

 

 

(5,940)

 

 

(5,381)

 

Other changes, net

 

 

1,396

 

 

2,918

 

Net Cash Provided by Operations

 

 

77,636

 

 

51,019

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

(51,742)

 

 

(40,019)

 

Proceeds from sale of property and equipment

 

 

178

 

 

2,848

 

Insurance proceeds

 

 

 —

 

 

10,631

 

Acquisition of business, release of escrow

 

 

(4,036)

 

 

 —

 

Acquisition of intangible assets

 

 

(221)

 

 

(124)

 

Proceeds from sale of investment in equity securities

 

 

16,487

 

 

 —

 

Notes receivable, net

 

 

231

 

 

208

 

Net Cash (Used) by Investing Activities

 

 

(39,103)

 

 

(26,456)

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Proceeds from notes payable

 

 

16,783

 

 

8,564

 

Repayments of notes payable

 

 

(21,130)

 

 

(3,956)

 

Proceeds and repayments of short term credit facility, net

 

 

(78,222)

 

 

 —

 

Proceeds from long-term obligations

 

 

10,446

 

 

2,524

 

Repayments of long-term obligations

 

 

(3,227)

 

 

(3,855)

 

Dividends paid

 

 

(21,377)

 

 

(19,830)

 

Proceeds from stock option exercises

 

 

20,939

 

 

34,880

 

Purchase of treasury stock

 

 

(15,000)

 

 

(3,905)

 

Common stock repurchased and retired

 

 

 —

 

 

(12,797)

 

Net Cash (Used) Provided by Financing Activities

 

 

(90,788)

 

 

1,625

 

Effect of Exchange Rate Changes on Cash

 

 

2,809

 

 

5,930

 

Net (Decrease) Increase in Cash and Equivalents and Restricted Cash

 

 

(49,446)

 

 

32,118

 

Cash and Equivalents and Restricted Cash at Beginning of Period

 

 

266,823

 

 

712,640

 

Cash and Equivalents and Restricted Cash at End of Period

 

$

217,377

 

$

744,758

 

 

Restricted cash included in the line item prepaid and other on the Condensed Consolidated Balance Sheets as shown below represents amounts held in escrow.

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

    

 

2019

    

 

2018

 

 

 

 

 

 

 

 

 

Cash and equivalents

 

$

217,377

 

$

741,062

 

Restricted cash included in prepaid and other

 

 

 —

 

 

3,696

 

Total Cash and Equivalents and Restricted Cash shown in the Statement of Cash Flows

 

$

217,377

 

$

744,758

 

 

 

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”, “Company”, “we”, “us” or “our” as used herein refer to AptarGroup, Inc. and our subsidiaries.  All significant intercompany accounts and transactions have been eliminated. Certain previously reported amounts have been reclassified to conform to the current period presentation.

In the opinion of management, the unaudited Condensed Consolidated Financial Statements (the “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 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 we believe 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 our Annual Report on Form 10-K for the year ended December 31, 2018 but does not include all disclosures required by U.S. GAAP.  Accordingly, these Condensed Consolidated Financial Statements and related notes should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.  The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.

During the quarter ended June 30, 2018, primarily based on published estimates, which indicate that Argentina's three-year cumulative inflation rate has exceeded 100%, we concluded that Argentina has become a highly inflationary economy. Beginning July 1, 2018, we have applied highly inflationary accounting for our Argentinian subsidiaries. We have changed the functional currency from the Argentinian peso to the U.S. dollar. Local currency monetary assets and liabilities have been remeasured into U.S. dollars using exchange rates as of the latest balance sheet date, with remeasurement adjustments and other transaction gains and losses recognized in net earnings. Our Argentinian operations contributed approximately 2.0% of consolidated net assets and revenues at and for the three months ended March 31, 2019.

LEASES

We determine if an arrangement is a lease at inception. Operating lease assets are included in operating lease right-of-use (“ROU”) assets and liabilities are included in Accounts payable and accrued liabilities and operating lease liabilities in our consolidated balance sheets. Finance leases are included in property, plant and equipment, current maturities of long-term obligations and long-term obligations in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use the implicit rate when readily determinable. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date of the lease in determining the present value of lease payments. The operating lease ROU asset includes any lease payments made as well as initial direct costs incurred and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, we account for the lease and non-lease components as a single lease component. We have elected not to recognize right-of-use assets and lease liabilities that arise from short-term leases (a lease whose term is 12 months or less and does not include a purchase option that we are reasonably certain to exercise).

Certain vehicle lease contracts include guaranteed residual value that is considered in the determination of lease classification. The probability of having to satisfy a residual value guarantee is not considered for the purpose of lease classification, but is considered when measuring a lease liability.

  

7


 

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 February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. We adopted the standard effective January 1, 2019 using a modified retrospective transition, using the effective date method. Under this method, financial results reported in periods prior to 2019 are not recast. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows companies to carry forward their historical lease classification. We also implemented internal controls and key system functionality to enable the preparation of financial information on adoption. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, as our accounting for finance leases remained substantially unchanged. The impact of adoption of the standard to previously reported results is shown below.

 

 

 

 

 

 

 

 

 

 

 

 

  

 

Balance at

 

 

 

 

 

Balance at

 

 

  

 

December 31,

  

 

 

  

 

January 1,

 

 

 

 

2018

 

 

Adjustments

 

 

2019

 

Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

$

 —

 

$

83,222

 

$

83,222

 

Prepaid and other

 

 

118,245

 

 

(1,383)

 

 

116,862

 

Property, plant and equipment

 

 

991,613

 

 

5,876

 

 

997,489

 

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

 

 

62,678

 

 

2,631

 

 

65,309

 

Accounts payable and accrued liabilities

 

 

525,199

 

 

20,508

 

 

545,707

 

Operating lease liabilities

 

 

 —

 

 

61,331

 

 

61,331

 

Long-term obligations, net of unamortized debt issuance costs

 

 

1,125,993

 

 

3,245

 

 

1,129,238

 

 

In February 2018, the FASB issued ASU 2018-02, which provides guidance on the reclassification of certain tax effects from accumulated other comprehensive income.  This guidance allows for the reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (“TCJA”).  The new standard is effective for fiscal years and interim periods beginning after December 15, 2018.  We elected to early adopt this standard in the fourth quarter of 2018.  As part of this adoption, we elected to reclassify $6.7 million of stranded income tax effects of the TCJA from accumulated other comprehensive income to retained earnings at the beginning of the fourth quarter of 2018.

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

RETIREMENT OF COMMON STOCK

 

During the first quarter of 2019, we repurchased 159 thousand shares of common stock, all of which were returned to treasury stock.  During the first quarter of 2018, we repurchased 189 thousand shares of common stock, of which 144 thousand shares were immediately retired.  Common stock was reduced by the number of shares retired at $0.01 par value per share.  We allocate the excess purchase price over par value between additional paid-in capital and retained earnings.

INCOME TAXES

 

We compute 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 temporary 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.

8


 

All of our non-U.S. earnings are subject to U.S. taxation, either from the transition tax enacted in the U.S. by the TCJA on accumulated non-U.S. earnings as of the end of 2017 or the global intangible low-taxed income (“GILTI”) provisions on non-U.S. earnings thereafter.  We maintain our assertion that the cash and distributable reserves at our non-U.S. affiliates are indefinitely reinvested.  We will provide for the necessary withholding and local income taxes when management decides that an affiliate should make a distribution.  These decisions are made taking into consideration the financial requirements of the non-U.S. affiliates and the global cash management goals of the Company.

We provide a liability for the amount of unrecognized tax benefits from uncertain tax positions.  This liability is provided whenever we determine that a tax benefit will not meet a more-likely-than-not threshold for recognition.  See Note 5 - Income Taxes for more information.

  

 

 

 

 

 

NOTE 2 – REVENUE

At contract inception, we assess the goods and services promised in our contracts with customers and identify a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, we consider all the goods or services promised in the contract, whether explicitly stated or implied based on customary business practices. For a contract that has more than one performance obligation, we allocate the total contract consideration to each distinct performance obligation on a relative standalone selling price basis. Revenue is recognized when (or as) the performance obligations are satisfied (i.e., when the customer obtains control of the good or service).  The majority of our revenues are derived from product and tooling sales; however, we also receive revenues from service, license, exclusivity and royalty arrangements, which are considered insignificant.  Revenue by segment and geography for the three months ended March 31, 2019 and 2018 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

For the Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

Latin

 

 

 

 

 

 

 

Segment

 

Europe

 

Domestic

 

America

 

Asia

 

Total

 

Beauty + Home

 

$

216,233

 

$

86,979

 

$

42,642

 

$

21,805

 

$

367,659

 

Pharma

 

 

184,174

 

 

71,772

 

 

7,656

 

 

9,099

 

 

272,701

 

Food + Beverage

 

 

30,961

 

 

55,120

 

 

7,884

 

 

10,135

 

 

104,100

 

Total

 

$

431,368

 

$

213,871

 

$

58,182

 

$

41,039

 

$

744,460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

For the Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

Latin

 

 

 

 

 

 

 

Segment

 

Europe

 

Domestic

 

America

 

Asia

 

Total

 

Beauty + Home

 

$

224,612

 

$

83,074

 

$

48,266

 

$

22,221

 

$

378,173

 

Pharma

 

 

175,675

 

 

39,096

 

 

6,245

 

 

9,111

 

 

230,127

 

Food + Beverage

 

 

29,811

 

 

48,215

 

 

7,763

 

 

9,261

 

 

95,050

 

Total

 

$

430,098

 

$

170,385

 

$

62,274

 

$

40,593

 

$

703,350

 

 

We perform our obligations under a contract with a customer by transferring goods and/or services in exchange for consideration from the customer. The timing of performance will sometimes differ from the timing of the receipt of the associated consideration from the customer, thus resulting in the recognition of a contract asset or a contract liability. We recognize a contract asset when we transfer control of goods or services to a customer prior to invoicing for the related performance obligation. The contract asset is transferred to accounts receivable when the product is shipped and invoiced to the customer. We recognize a contract liability if the customer's payment of consideration precedes the entity's performance. 

The opening and closing balances of our contract asset and contract liabilities are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

    

Balance as of

    

Balance as of

 

Increase/

 

 

    

December 31, 2018

    

March 31, 2019

    

(Decrease)

 

Contract asset (current)

 

$

15,858

 

$

15,894

 

$

36

 

Contract asset (long-term)

 

$

 —

 

$

 —

 

$

 —

 

Contract liability (current)

 

$

68,134

 

$

68,403

 

$

269

 

Contract liability (long-term)

 

$

11,261

 

$

11,906

 

$

645

 

 

The differences in the opening and closing balances of our contract asset and contract liabilities are primarily the result of timing differences between our performance and the customer’s payment. The amount of revenue recognized in the current year that was included in the opening contract liability balance was $7.5 million.

9


 

Determining the Transaction Price

In most cases, the transaction price for each performance obligation is stated in the contract. In determining the variable amounts of consideration within the transaction price (such as volume-based customer rebates), we include an estimate of the expected amount of consideration as revenue. We apply the expected value method based on all of the information (historical, current, and forecast) that is reasonably available and identify reasonable estimates based on this information. We apply the method consistently throughout the contract when estimating the effect of an uncertainty on the amount of variable consideration to which we will be entitled.

Product Sales

We primarily manufacture dispensing systems for our Beauty + Home, Pharma, and Food + Beverage customers. The amount of consideration is typically fixed for such customers. At the time of delivery, the customer is invoiced the agreed-upon price. Revenue from product sales is typically recognized upon manufacture or shipment, when control of the goods transfers to the customer.

To determine when the control transfers, we typically assess, among other things, the shipping terms of the contract, shipping being one of the indicators of transfer of control. A majority of product sales are sold FOB shipping point. For FOB shipping point shipments, control of the goods transfers to the customer at the time of shipment of the goods. Therefore, our performance obligation is satisfied at the time of shipment. We have elected to account for shipping and handling costs that occur after the customer has obtained control of a good as fulfillment costs rather than as a promised service. We do not have any material significant payment terms as payment is typically received shortly after the point of sale.

There also exist instances where we manufacture highly customized products that have no alternative use to us and for which we have an enforceable right to payment for performance completed to date. For these products, we transfer control and recognize revenue over time by measuring progress towards completion using the Output Method based on the number of products produced.  As we normally make our products to a customer’s order, the time between production and shipment of our products is typically within a few weeks.

As a part of our customary business practice, we offer a standard warranty that the products will materially comply with the technical specifications and will be free from material defects. Because such warranties are not sold separately, do not provide for any service beyond a guarantee of a product’s initial specifications, and are not required by law, there is no revenue deferral for these types of warranties.

Tooling Sales

We also build or contract for molds and other tools (collectively defined as “tooling”) necessary to produce our products. As with product sales, we recognize revenue when control of the tool transfers to the customer. If the tooling is highly customized with no alternative use to us and we have an enforceable right to payment for performance completed to date, we transfer control and recognize revenue over time by measuring progress towards completion using the Input Method based on costs incurred relative to total estimated costs to completion. Otherwise, revenue for the tooling is recognized at the point in time when the customer approves the tool. We do not have any material significant payment terms as payment is typically either received during the mold-build process or shortly after completion.

In certain instances, we offer extended warranties on tools sold to our customers above and beyond the normal standard warranties. We normally receive payment at the inception of the contract and recognize revenue over the term of the contract. At December 31, 2018, $758 thousand of unearned revenue associated with outstanding contracts was reported in Accounts Payable and Other Liabilities. At March 31, 2019, the unearned amount was $686 thousand. We expect to recognize approximately $237 thousand of the unearned amount during the remainder of 2019, $268 thousand in 2020, and $181 thousand thereafter.

NOTE 3 - INVENTORIES

Inventories, by component, consisted of:

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

    

2019

    

2018

 

Raw materials

 

$

115,942

 

$

110,720

 

Work in process

 

 

125,774

 

 

131,091

 

Finished goods

 

 

148,687

 

 

139,299

 

Total

 

$

390,403

 

$

381,110

 

 

 

 

 

 

 

 

 

10


 

NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill by reporting segment since December 31, 2018 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Beauty +

    

 

 

    

Food +

    

Corporate

    

 

 

 

 

 

Home

 

Pharma

 

Beverage

 

& Other

 

Total

 

Goodwill

 

$

223,933

 

$

359,883

 

$

128,279

 

$

1,615

 

$

713,710

 

Accumulated impairment losses

 

 

 —

 

 

 —

 

 

 —

 

 

(1,615)

 

 

(1,615)

 

Balance as of December 31, 2018

 

$

223,933