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Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
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<SEC-DOCUMENT>0000950131-02-001029.txt : 20020415
<SEC-HEADER>0000950131-02-001029.hdr.sgml : 20020415
ACCESSION NUMBER: 0000950131-02-001029
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 5
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020322
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: APTARGROUP INC
CENTRAL INDEX KEY: 0000896622
STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089]
IRS NUMBER: 363853103
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-11846
FILM NUMBER: 02582552
BUSINESS ADDRESS:
STREET 1: 475 W TERRA COTTA AVE
STREET 2: STE E
CITY: CRYSTAL LAKE
STATE: IL
ZIP: 60014
BUSINESS PHONE: 8154770424
MAIL ADDRESS:
STREET 1: 475 W. TERRA COTTA AVE. SUITE E
CITY: CRYSTAL LAKE
STATE: IL
ZIP: 60014
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>d10k.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
Delaware 36-3853103
<S> <C>
(State of Incorporation) (I.R.S. Employer Identification No.)
475 West Terra Cotta Avenue, Suite E, Crystal Lake, Illinois 60014
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
815-477-0424
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
---------------------- --------------------------
Common Stock $.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
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 _X_ No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates, based
on the closing sales price for the Common Stock on the New York Stock Exchange
on March 14, 2002, was approximately $1,151,876,562. The number of shares
outstanding of Common Stock, as of March 14, 2002 was 35,880,331 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 2001 Annual Report to Stockholders are
incorporated by reference into Parts I and II of this report.
Portions of the Registrant's Proxy Statement for the annual meeting of
stockholders to be held on May 8, 2002 are incorporated by reference into Part
III of this report.
================================================================================
<PAGE>
AptarGroup, Inc.
INDEX TO
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2001
PART I
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Item 1 Business................................................................................ 3
Item 2 Properties.............................................................................. 11
Item 3 Legal Proceedings....................................................................... 11
Item 4 Submission of Matters to a Vote of Security Holders..................................... 12
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters................... 12
Item 6 Selected Financial Data................................................................. 12
Item 7 Management's Discussion and Analysis of Consolidated Results of Operations and Financial
Condition............................................................................... 12
Item 7A Quantitative and Qualitative Disclosures about Market Risk.............................. 12
Item 8 Financial Statements and Supplementary Data............................................. 12
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.... 13
PART III
Item 10 Directors and Executive Officers of the Registrant...................................... 13
Item 11 Executive Compensation.................................................................. 14
Item 12 Security Ownership of Certain Beneficial Owners and Management.......................... 14
Item 13 Certain Relationships and Related Transactions.......................................... 14
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 14
Signatures...................................................................................... 15
</TABLE>
2
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
The Company's business began as a one-product, one-country operation that
has become a multinational supplier of a broad line of dispensing packaging
systems. The Company's business was started in the late 1940's, manufacturing
and selling aerosol valves in the United States. The Company's business has
grown primarily through the acquisition of relatively small companies and
internal expansion. Information regarding acquisitions made over the past three
years is set forth in Note 2 "Acquisitions" to the Consolidated Financial
Statements contained in the 2001 Annual Report to Stockholders, page 61, which
is incorporated herein by reference.
(b) Financial Information about Segments
The Company operates in the packaging components industry and is organized
into five business units. The five business units sell value-added dispensing
systems to global consumer product marketers and are similar in all aspects of
business except historical economic performance. One of the business units
("SeaquistPerfect") has had historical economic performance lower than the
other four business units and as a result is shown as a separate reportable
segment for financial reporting purposes. The other four business units have
similar historical economic performance and as a result have been aggregated
into one reportable segment entitled "Dispensing Systems" for financial
reporting purposes. Financial information relating to operations by geographic
area for each of the three years in the period ended December 31, 2001 is set
forth in Note 16 "Segment Information" to the Consolidated Financial Statements
contained in the 2001 Annual Report to Stockholders, pages 76-79, which is
incorporated herein by reference.
Dispensing Systems
The Dispensing Systems segment sells all three of the Company's principal
product lines (pumps, closures and aerosol valves). Within the aerosol valve
product line, the Dispensing Systems segment only sells pharmaceutical metered
dose aerosol valves. The table below details the five principal markets served
by the Company, which products are primarily sold by the Dispensing Systems
segment.
<TABLE>
<CAPTION>
Fragrance/Cosmetic Personal Care Pharmaceutical Household Food/Beverage
------------------ ------------- -------------- --------- -------------
<S> <C> <C> <C> <C>
Pumps Pumps Pumps Pumps Pumps
Closures Aerosol Valves Closures Closures
</TABLE>
SeaquistPerfect
The SeaquistPerfect segment sells primarily aerosol valves and certain pumps
limited to the personal care, household and, to a lesser degree, the
food/beverage markets. The SeaquistPerfect segment does not sell closures, nor
does it typically sell its products to the fragrance/cosmetic or pharmaceutical
markets. The lower historical economic performance compared to the Dispensing
Systems segment is primarily due to the non-pharmaceutical standard aerosol
valve business. Competition for this product line of the business is especially
strong and comes primarily from privately held companies. In recent years, the
Company has taken various steps to improve profitability of the SeaquistPerfect
segment. In 1997, the Company started a joint venture in the U.S. to
manufacture aerosol spray caps and accessories to help offer more innovative
dispensing solutions to customers of standard aerosol valves. In 1999, the
Company expanded this strategy geographically when it purchased a European
aerosol spray cap and accessory manufacturer. In 2000, the Company purchased
the remaining 50% of the U.S. joint venture it did not previously own. The
Company has also implemented several cost reduction efforts as well as
implementing a price increase in 2001 to its North American aerosol valve
customers. SeaquistPerfect has also devoted more of its research and
development to expand its product offerings of various spray and lotion pumps.
These factors have led to an increase in profitability that is expected to
continue. In
3
<PAGE>
addition, SeaquistPerfect will be selectively exiting some of the standard
aerosol valve business in 2002 that is not strategically important and that
does not offer adequate returns.
(c) Narrative Description of Business
General
The Company is a leading global supplier of a broad range of innovative
dispensing systems for the fragrance/cosmetic, personal care, pharmaceutical,
household and food/beverage markets. The Company focuses on providing
value-added dispensing systems (pumps, dispensing closures and aerosol valves)
to global consumer product marketers to allow them to differentiate their
products and meet the consumer's need for convenience. The Company has
manufacturing facilities located throughout the world including North America,
Europe, Asia and South America. The Company has over 3,000 customers with no
single customer accounting for greater than 5% of the Company's 2001 net sales.
For 2001, the percentage of net sales represented by sales to the
fragrance/cosmetic, personal care, pharmaceutical, household and food/beverage
markets were 32%, 31%, 22%, 9% and 6%, respectively. Pumps, dispensing closures
and aerosol valves represented approximately 62%, 22% and 14%, respectively, of
AptarGroup's 2001 net sales. The Company expects the mix of sales by product
and by market to remain approximately the same in 2002.
Sales of the Company's dispensing systems have traditionally grown at a
faster rate than the overall packaging industry as consumer's preference for
convenience has increased, and product differentiation through packaging design
has become more important to the Company's customers. Consumer product
marketers have converted many of their products to packages with dispensers
that offer the benefit of enhanced shelf appeal, convenience, cleanliness or
accuracy of dosage. The Company expects this trend to continue.
Growth Strategy
The Company seeks to enhance its position as a leading global supplier of
innovative dispensing systems by (i) expanding geographically, (ii) converting
non-dispensing applications to dispensing systems, (iii) replacing current
dispensing applications with the Company's dispensing products and (iv)
developing new dispensing technologies.
The Company is committed to expanding geographically to serve multinational
customers in existing and emerging areas. Targeted areas include Latin America,
Eastern Europe and Asia.
The Company believes there remain significant opportunities for growth in
introducing the Company's dispensing products to non-dispensing applications.
Examples include potential conversion in the food/beverage market for
condiments, cooking oils, salad dressing, and single-serve non-carbonated
beverages. In the fragrance/cosmetic market, potential conversion includes
creams and lotions currently packaged in jars or tubes using screw off
non-dispensing closures, converting to lotion pumps or dispensing closures.
In addition to introducing new dispensing applications, the Company believes
there are significant growth opportunities in converting existing
pharmaceutical delivery systems (syringes or pills) to the Company's more
convenient dispensing pump or metered dose aerosol valve systems. An example of
a product for which the Company continues to find new applications is the
metered dose aerosol valve. Metered dose aerosol valves are used to dispense
precise amounts of product in very fine particles from pressurized containers.
Traditionally metered dose valves were used to deliver medication via the
pulmonary route. The Company is working with a bio-technology company that is
developing proprietary technology to orally administer large molecule drugs to
be absorbed through the inner linings of the mouth. Additional examples in the
pharmaceutical market include nasal pumps to dispense vaccines, cold and flu
treatments, and hormone replacement therapies.
4
<PAGE>
The Company continues to develop an electronic dispensing system based on
silicon etching technology primarily for the pharmaceutical market as an
alternative to the traditional mechanical pump. In addition, the Company has
internally developed a patented technology for dispensing fragrance samples in
a lightweight blister package as an alternative to standard vials. This new
product called "Clic and Dream" was successfully launched in 2001 and is
expected to gain market share in the coming years in the sample fragrance
market.
Strategic Initiative
In April 2001, the Company announced it had begun a project ("Strategic
Initiative") to improve the efficiency of operations that produce pumps for its
mass-market fragrance/cosmetic and personal care customers. In addition to
improving efficiency and reducing costs, another objective of the Strategic
Initiative is to improve customer service through reduced lead times and the
ability to customize finished products on a local basis. As part of the
Strategic Initiative, the Company closed one molding operation in the U.S. and
will consolidate the molding and assembly of the base cartridge (standard
internal components common to modular pumps) into one of the Company's
facilities in Italy. In addition, the Company is rationalizing its mass-market
pump product lines for these two markets by discontinuing production of
non-modular pumps and increasing capacity for its modular pumps.
Charges related to the Strategic Initiative are expected to be approximately
$10 million before taxes and will consist primarily of costs related to the
closing of the molding operation and discontinuance of its non-modular pumps
(including asset impairment write-downs, accelerated depreciation associated
with revised useful lives and utility abatement reimbursements) as well as
employee severance and related benefit costs. Approximately $3 million of the
charges are expected to be cash outlays while the remaining $7 million will be
non-cash charges (asset impairment write-downs and accelerated depreciation
associated with revised useful lives). The Strategic Initiative project relates
to the Dispensing Systems segment and is expected to be completed before the
end of 2002. Financial information relating to the Strategic Initiative for the
year ended December 31, 2001 is set forth in Note 12 "Strategic Initiative
Charges" to the Consolidated Financial Statements contained in the 2001 Annual
Report to Stockholders, pages 70-72, which is incorporated herein by reference.
Pumps (62% of 2001 net sales)
AptarGroup believes it is the leading supplier of pharmaceutical,
fragrance/cosmetic and personal care fine mist pumps worldwide and the second
largest supplier of personal care lotion pumps worldwide. Pumps are
finger-actuated dispensing systems that dispense a spray or lotion from
non-pressurized containers. Pumps are sold to all five of the Company's
markets. Traditional applications for pumps include perfumes, lotions, oral and
nasal sprays, hair sprays and window cleaners. Applications for pumps have
recently expanded to include more viscous products such as spray gels and
specialized skin treatments, as well as an increasing number of food products
such as butter substitutes and candy sprays. The style of pump used depends
largely on the nature of the product being dispensed, from small, fine mist
pumps used with perfume and pharmaceutical products to lotion pumps for more
viscous formulas. In 2001, 2000 and 1999, pump sales accounted for
approximately 62%, 62% and 61%, respectively, of AptarGroup's net sales.
Fragrance/Cosmetic
The fragrance/cosmetic market requires a broad range of pump dispensing
systems to meet functional as well as aesthetic requirements. A considerable
amount of research, time and coordination with the customers' development staff
is required to qualify a pump for use with their products. Within the market,
the Company expects the use of pumps to continue to increase, particularly in
the cosmetic sector. For example, packaging for certain products such as skin
moisturizers and anti-aging lotions is undergoing a conversion to pump systems,
which may provide growth opportunities for the Company.
5
<PAGE>
Pharmaceutical
Pumps sold to the pharmaceutical market deliver medications orally, nasally
or topically. Characteristics of this market include (i) governmental
regulation of the Company's pharmaceutical customers, (ii)
contaminant-controlled manufacturing environments, and (iii) a significant
amount of time and research from initially working with pharmaceutical
companies at the molecule development stage of a medication through the
eventual distribution to the market. AptarGroup has clean room manufacturing
facilities in France, Germany, Switzerland, China and the United States. The
Company believes that the conversion from traditional medication forms such as
pills and syringes to the use of pumps for the dispensing of medication will
continue to increase. Potential opportunities for conversion from pills and
syringes to pump dispensing systems include vaccines, cold and flu treatments
and hormone replacement therapies.
Personal Care
Personal care pumps include both fine mist spray as well as lotion pumps.
Sales of fine mist pumps, include use in hair care, sun care and deodorant
products. The Company also supplies lotion pumps to the personal care market
for products such as skin moisturizers and soap.
Food/Beverage
Historically, sales of the Company's pumps to this market have not been
significant. However, the Company has recently increased its sales to this
market with applications such as butter substitute sprays, candy sprays and
condiments. The Company believes there will be additional applications for
pumps in this market in the future.
Closures (22% of 2001 net sales)
The Company believes that it is the largest supplier of dispensing closures
in the United States, and the second largest supplier in Europe. The Company
manufactures primarily dispensing closures and, to a small degree, some
non-dispensing closures. Dispensing closures are plastic caps, primarily for
plastic containers, which allow a product to be dispensed without removing the
cap. Closure sales accounted for approximately 22% of AptarGroup's net sales in
2001, 2000 and 1999.
Sales of dispensing closures have grown as consumers worldwide have
demonstrated a preference for a package utilizing the convenience of a
dispensing closure. At the same time, consumer marketers are trying to
differentiate their products by incorporating performance enhancing features
such as no-drip dispensing, inverted packaging and directional flow to make
them simpler to use, cleaner and more appealing to consumers.
Personal Care
Historically, the majority of the dispensing closure sales have been to the
personal care market. Products with dispensing closures include shampoos,
shower gels, sun care lotions and toothpaste. While many personal care products
in the U.S. and Europe have already converted from non-dispensing to dispensing
closures, the Company expects to benefit from similar conversions in other
geographic areas.
Household
While the Company has had success worldwide in selling dispensing closures
to this market, it has not represented a significant amount of total dispensing
closure sales. Products utilizing dispensing closures include dishwashing
detergents, laundry care products and household cleaners. The Company believes
this market offers an opportunity for expansion as a result of conversion from
non-dispensing to dispensing closures.
6
<PAGE>
Food/Beverage
Similar to the household market, sales of dispensing closures to the
food/beverage market has not represented a significant amount of total
dispensing closure sales. However, the Company has recently experienced an
increase in the amount of interest from food marketers who are considering
utilizing dispensing closures for their products. Examples of food/beverage
products currently utilizing dispensing closures include salad dressings,
syrups, condiments, honey, water and dairy creamers. The Company believes there
are tremendous growth opportunities in the food/beverage market due to the size
of the non-carbonated single-serve beverage market worldwide and additional
conversion from traditional non-dispensing food packages to dispensing closure
systems.
Aerosol Valves (14% of 2001 net sales)
AptarGroup believes it is one of the largest aerosol valve suppliers in
North America. Aerosol valves dispense product from pressurized containers. The
majority of the aerosol valves sold by the Company are continuous spray valves
with the balance being metered dose valves. Demand for aerosol valves is
dependent upon the consumers' preference for application, consumer perception
of environmental impact, and changes in demand for the products in this market.
Aerosol valve sales accounted for approximately 14%, 14% and 15% of
AptarGroup's net sales in 2001, 2000 and 1999, respectively.
The Company has invested in manufacturing capabilities to produce
accessories that are complementary to the valve, such as customized
spray-through overcaps. These overcaps provide a higher degree of
differentiation and convenience since the cap does not need to be removed prior
to usage.
Personal Care
The primary applications in the personal care market are continuous spray
valves for hair care products, deodorants and shaving creams. In addition, the
metered dose valve is used in this market for breath sprays.
Household
The primary applications for continuous spray valves in the household market
include disinfectants, spray paints, insecticides and automotive products.
Metered dose aerosol valves are used for air fresheners.
Pharmaceutical
Metered dose aerosol valves are used for dispensing precise amounts of
medication. Aerosol technology allows medication to be broken up into very fine
particles, which enables the drug to be delivered via the pulmonary system. The
Company works with pharmaceutical companies as they work to phase out the use
of aerosol chlorofluorocarbon ("CFC") propellants. The Company expects to
increase its market share of metered dose valves to this market as
pharmaceutical companies replace CFC products with alternative propellants.
Research and Development
One of the Company's competitive strengths is its commitment to innovation
and providing innovative dispensing solutions for its customers. This
commitment to innovation is the result of the Company's emphasis on research
and development. The Company's research and development activities are directed
toward developing innovative products, adapting existing products for new
markets and customer requirements and lowering costs. The Company has research
and development departments located in each of its five business units, which
are located in the United States, France, Germany and Italy. In certain cases,
the Company's customers share in the research and development expenses of
customer initiated projects. This sharing of research and development expenses
is not material to the total amount of the Company's research and development
expenditures.
7
<PAGE>
Expenditures for research and development activities were $25.9 million,
$26.9 million and $25.6 million in 2001, 2000 and 1999, respectively. The 1999
amount excludes a $3.3 million write-off of purchased research and development
costs. These costs were associated with a number of products in varying stages
of development.
Patents and Trademarks
AptarGroup sells its products under the names used by its business units and
is not currently offering any products under the AptarGroup name. The names
used by its business units have been trademarked.
AptarGroup customarily seeks patent and trademark protection for its
products and currently owns and has numerous applications pending for United
States and foreign patents and trademarks. In addition, certain of AptarGroup's
products are produced under patent licenses granted by third parties.
Management believes that it possesses certain technical capabilities in making
its products that would also make it difficult for a competitor to duplicate
them.
Technology
Pumps and aerosol valves require the assembly of up to 15 different plastic,
metal and rubber components using high-speed equipment. When molding dispensing
closures, or plastic components to be used in pump or aerosol valve products,
the Company uses advanced plastic injection molding technology, including large
cavitation plastic injection molds. These molds are required to maintain
tolerances as small as one thousandth of an inch and manufacture products in a
high-speed, cost-effective manner. The Company has experience in liquid
silicone rubber molding that the Company utilizes in its dispensing closure
operations. The Company also uses bi-injection molding technology in its
various product lines to develop new innovative products for the packaging
industry.
Manufacturing and Sourcing
The principal raw materials used in AptarGroup's production are plastic
resins and certain metal products. AptarGroup believes an adequate supply of
such raw materials is readily available from existing and alternative sources.
The Company attempts to offset cost increases through improving productivity
and increasing selling prices over time, as allowed by market conditions.
AptarGroup also purchases plastic and metal components that are used in the
final assembly of its products from suppliers near its production facilities.
Certain suppliers of these components have unique technical abilities that make
AptarGroup dependent on them, particularly for aerosol valve and pump
production in North America. In addition, the Company's pharmaceutical products
often use specific approved plastic resin for its customers. Significant delays
in receiving components from these suppliers or discontinuance of an approved
plastic resin would require AptarGroup to seek alternative sources, which could
result in higher costs as well as impact the ability of the Company to supply
products in the short term.
Sales and Distribution
Sales of products are primarily through AptarGroup's own sales force. To a
limited extent, AptarGroup also uses the services of independent
representatives and distributors who sell AptarGroup's products as independent
contractors to certain smaller customers and export markets.
Backlog
AptarGroup's sales are primarily made pursuant to standard purchase orders
for delivery of products. Most orders placed with the Company are ready for
delivery within 120 days. Some customers place blanket orders, which extend
beyond this delivery period. However, deliveries against purchase orders are
subject to change, and only a small portion of the order backlog is
noncancelable. The dollar amount associated with the noncancelable portion is
not material. Therefore, AptarGroup does not believe that backlog as of any
particular date is indicative of future results.
8
<PAGE>
Customers
The demand for AptarGroup's products is influenced by the demand for the
products of AptarGroup's customers. Demand for the products of AptarGroup's
customers may be affected by general economic conditions, government
regulations, tariffs and other trade barriers. AptarGroup's customers include
many of the largest fragrance/cosmetic, personal care, pharmaceutical,
household products and food/beverage marketers in the world. The Company has
over 3,000 customers with no single customer accounting for greater than 5% of
2001 net sales. Over the past few years, a consolidation of the Company's
customer base has occurred. This trend is expected to continue. A concentration
of customers may result in pricing pressures or a loss of volume. This
situation also presents opportunities for increasing sales due to the breadth
of the Company's product line, its international presence, and long-term
relationships with certain customers.
International Business
A significant number of AptarGroup's operations are located outside the
United States. Sales in Europe for the years ended December 31, 2001, 2000 and
1999 were approximately 54%, 53% and 54%, respectively, of net sales. The
majority of units sold in Europe are manufactured at facilities in England,
France, Germany, Ireland, Italy, Spain and Switzerland. Other geographic areas
serviced by AptarGroup include Argentina, Australia, Brazil, Canada, Czech
Republic, China, India, Indonesia, Japan and Mexico, and represent
approximately 8%, 8% and 6% of AptarGroup's consolidated sales for the years
ended December 31, 2001, 2000 and 1999, respectively. Export sales from the
United States were $62.2 million, $44.3 million and $57.9 million in 2001, 2000
and 1999, respectively.
The Company currently has a wholly owned subsidiary located in Argentina. In
2001, the wholly owned subsidiary had net sales of approximately $8 million,
approximately one half of which was sold outside of Argentina and invoiced in
U.S. dollars. The subsidiary purchases certain components in either U.S.
dollars or Euros, and finishes the products locally. At December 31, 2001, the
subsidiary had approximately $400 thousand of net liability exposure
denominated in either U.S. dollars or Euros that was revalued using a devalued
Argentine Peso. This revaluation of the net liability position resulted in an
unrealized foreign exchange loss reported in the results of operations of
approximately $140 thousand. The Company expects business in Argentina to be
disrupted during the current economic crisis, but any negative impact is not
expected to be significant to the overall worldwide results of operations in
2002.
Foreign Currency
A significant number of AptarGroup's 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
AptarGroup's foreign entities. The Company's primary foreign exchange exposure
is to the Euro, but the Company has foreign exchange exposure to South American
and Asian currencies as well as the British pound. The Company manages its
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 the Company's financial
statements. Conversely, a weakening U.S. dollar has an additive effect.
In some cases, the Company sells 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 the
Company's results of operations.
Working Capital Practices
Collection and payment periods tend to be longer for the Company's
operations located outside the United States due to local business practices.
Historically, the Company has not needed to keep significant amounts of
finished goods inventory to meet customer requirements.
9
<PAGE>
Employee and Labor Relations
AptarGroup has approximately 6,600 full-time employees. Of the full-time
employees, approximately 1,600 are located in North America, 4,400 are located
in Europe and the remaining 600 are located in Asia and South America.
Approximately 200 of the North American employees are covered by a collective
bargaining agreement, while the majority of the Company's international
employees are covered by collective bargaining arrangements made at either the
local or national level in their respective countries. Termination of employees
at certain AptarGroup European operations could be costly due to local
regulations regarding severance benefits. Management of AptarGroup considers
its employee relations to be good.
Competition
All of the markets in which AptarGroup operates are highly competitive and
the Company continues to experience price competition in all product lines and
markets. Competitors include privately and publicly held entities. AptarGroup's
competitors range from regional to international companies. AptarGroup expects
the market for its products to remain competitive.
AptarGroup believes its competitive advantages are consistent high levels of
innovation, quality, service and geographic diversity and breadth of products.
The Company's manufacturing strength lies in the ability to mold complex
plastic components in a cost-effective manner and to assemble products at high
speeds.
Environment
AptarGroup's manufacturing operations primarily involve plastic injection
molding and automated assembly processes, and, to a limited degree, metal
annodization. Historically, the environmental impact of these processes has
been minimal, and management believes it meets current environmental standards
in all material respects.
Government Regulation
To date, the manufacturing operations of AptarGroup have not been
significantly affected by environmental laws and regulations relating to the
environment.
Certain AptarGroup products are indirectly affected by government
regulation. Growth of packaging using aerosol valves has been restrained by
concerns relating to the release of certain chemicals into the atmosphere. Both
aerosol and pump packaging are affected by government regulations regarding the
release of volatile organic compounds ("VOC's") into the atmosphere. Certain
states within the United States have regulations that required the reduction in
the amount of VOC's that can be released into the atmosphere and the potential
exists for this type of regulation to expand to a worldwide basis. These
regulations required the Company's customers to reformulate certain aerosol and
pump products, which may have affected the demand for such products. The
Company owns patents and has developed systems to function with alternative
propellant and product formulations.
Aerosol packaging of paints has also been adversely impacted by local
regulations adopted in many large cities in the United States designed to
address the problem of spray painted graffiti. Aerosol packaging may also be
adversely impacted by insurance cost considerations relating to the storage of
aerosol products.
Future government regulations could include medical cost containment
policies. For example, reviews by various governments to determine the number
of drugs or prices thereof that will be paid by their insurance systems could
affect future sales to the pharmaceutical industry. Such regulation could
adversely affect prices of and demand for the Company's pharmaceutical
products. The Company believes that the focus on the cost effectiveness
10
<PAGE>
of the use of medications as compared to surgery and hospitalization provides
an opportunity for the Company to expand sales to the pharmaceutical market.
Regulatory requirements impact the Company's customers and could affect the
Company's investment in and manufacturing of products for the pharmaceutical
market.
Item 2. Properties
The principal offices and manufacturing facilities of AptarGroup are either
owned or leased by the Company or its subsidiaries. None of the owned principal
properties is subject to a lien or other encumbrance material to the operations
of the Company. The Company believes that existing operating leases will be
renegotiated as they expire, will be acquired through purchase options or that
suitable alternative properties can be leased on acceptable terms. The Company
considers the condition and extent of utilization of its manufacturing
facilities and other properties to be generally good, and the capacity of its
plants to be adequate for the needs of its business. The locations of the
Company's principal manufacturing facilities, by country, are set forth below:
<TABLE>
<S> <C> <C>
FRANCE GERMANY CHINA
Le Neubourg Bohringen Suzhou/2/
Le Vaudreuil Dortmund/1/
Poincy Eigeltingen
Verneuil Sur Avre/2/ Freyung
Annecy Menden/1/
ITALY NORTH AMERICA UNITED KINGDOM
San Giovanni Teatino (Chieti) Cary, Illinois, USA/1/ Leeds, England
Manoppello McHenry, Illinois, USA/1/
Milan/1/ Midland, Michigan, USA
Mukwonago, Wisconsin, USA
Congers, New York, USA
Queretaro, Mexico/2/
Stratford, Connecticut, USA
Torrington, Connecticut, USA
SWITZERLAND IRELAND BRAZIL
Messovico Tourmakeady, County Mayo Sao Paulo
Ballinasloe, County Gallway
ARGENTINA CZECH REPUBLIC
Buenos Aires Ckyne
</TABLE>
- --------
/1/ Locations of facilities dedicated to the SeaquistPerfect segment.
/2/ Locations that have facilities for both the SeaquistPerfect and Dispensing
Systems segments. All other locations not footnoted represent locations of
facilities dedicated to the Dispensing Systems segment.
In addition to the above countries, the Company has sales offices or other
manufacturing facilities in Australia, Canada, India, Indonesia, Japan and
Spain. The Company's corporate office is located in Crystal Lake, Illinois.
Item 3. Legal Proceedings
Legal proceedings involving the Company generally relate to product
liability and patent infringement issues. In the opinion of AptarGroup's
management, the outcome of pending claims and litigation is not likely to have
a material adverse effect on the Company's financial position or the results of
its operations.
11
<PAGE>
Historically, product liability claims for all products of the Company have
been minimal. However, the increase in pump and aerosol valve applications for
pharmaceutical products may increase the risk associated with product liability
claims. Quality control systems are specifically designed to prevent defects in
the Company's products. Additionally, the Company maintains product liability
insurance in excess of its historical claims experience.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information set forth in Note 18 "Quarterly Data (Unaudited)" to the
Consolidated Financial Statements contained in the Company's 2001 Annual Report
to Stockholders, page 80, is incorporated herein by reference. The Common Stock
of AptarGroup is traded on the New York Stock Exchange (symbol: ATR). As of
March 14, 2002, stockholders of record totaled approximately 600.
During the quarter ended December 31, 2001, the FCP Aptar Savings Plan (the
"Plan") purchased 475 shares of Common Stock of the Company on behalf of the
participants at an average price of $33.46 per share for an aggregate amount of
approximately $16 thousand. At December 31, 2001, the Plan owns 5,020 shares of
Common Stock of the Company. Employees of AptarGroup S.A.S. and Valois S.A.S.,
subsidiaries of the Company, are eligible to participate in the Plan. All
eligible participants are located outside of the United States. An agent
independent of the Company purchases shares of Common Stock available under the
Plan for cash on the open market and the Company issues no shares. The Company
does not receive any proceeds from the purchase of Common Stock under the Plan.
The agent under the Plan is Banque Nationale de Paris. 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.
Item 6. Selected Financial Data
The information set forth under the heading "Five Year Summary of Selected
Financial Data" appearing on page 83 of the Company's 2001 Annual Report to
Stockholders is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Consolidated Results of
Operations and Financial Condition
The information set forth under the heading "Management's Discussion and
Analysis" appearing on pages 84-95 of the Company's 2001 Annual Report to
Stockholders is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information set forth under the heading "Management's Discussion and
Analysis" appearing on pages 84-95 of the Company's 2001 Annual Report to
Stockholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information set forth under the headings "Consolidated Balance Sheets,"
"Consolidated Statements of Income," "Consolidated Statements of Cash Flows,"
"Consolidated Statements of Changes in Equity," "Notes to Consolidated
Financial Statements" and "Report of Independent Accountants" appearing on
pages 52-81 of the Company's 2001 Annual Report to Stockholders is incorporated
herein by reference.
12
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Certain information required to be furnished in this part of the Form 10-K
has been omitted because the Registrant will file with the Securities and
Exchange Commission a definitive proxy statement pursuant to Regulation 14A
under the Securities Exchange Act of 1934 not later than April 30, 2002.
Item 10. Directors and Executive Officers of the Registrant
The information set forth under the heading "Election of Directors" in the
Registrant's Proxy Statement for the annual meeting of stockholders to be held
on May 8, 2002 is incorporated herein by reference.
In addition to Messrs. Carl A. Siebel, Peter Pfeiffer and Stephen J. Hagge,
each of whom is a director and executive officer of the Company and information
with respect to whom is incorporated by reference in this Item 10, executive
officers of the Registrant are as follows:
Jacques Blanie, age 55, has been Executive Vice President of SeaquistPerfect
Dispensing L.L.C. since 1996 and Geschaftsfuhrer of SeaquistPerfect Dispensing
GmbH since 1986.
Francois Boutan, age 59, has served in the capacity of Vice President
Finance-Europe since 1998. Mr. Boutan was Financial Director and Controller of
the European operations of AptarGroup from 1988 to 1998.
Olivier De Pous, age 57, has been Directeur General of Valois S.A.S. since
January 2000. Mr. De Pous was Directeur de Division Parfumerie Cosmetique of
Valois S.A.S from 1997 to 1999.
Patrick Doherty, age 46, has served as President of SeaquistPerfect
Dispensing L.L.C. since October 2000. Mr. Doherty was Executive Vice President,
General Manager of SeaquistPerfect Dispensing L.L.C. since April 1999, and was
Vice President of Operations of SeaquistPerfect Dispensing L.L.C. since April
1993.
Olivier Fourment, age 44, has been Directeur General of Valois S.A.S. since
January 2000. Mr. Fourment was Directeur de Division Pharmacie of Valois S.A.S.
from 1997 to 1999.
Lawrence Lowrimore, age 57, has been Vice President-Human Resources of
AptarGroup since 1993.
Francesco Mascitelli, age 51, has been Direttore Generale of Emsar S.p.A.,
an Italian subsidiary, since 1991.
Emil Meshberg, age 54, has been Vice President of AptarGroup since February
1999, and has served as Chief Executive Officer and President of Emson
Research, Inc. for more than the past five years.
Eric S. Ruskoski, age 54, has been President of Seaquist Closures L.L.C.
since 1987.
Hans-Josef Schutz, age 57, has been Geschaftsfuhrer of the Pfeiffer Group
since 1993.
Rick Schofield, age 51, has been President of Emsar, Inc. since 1998. Mr.
Schofield was President of Risdon AMS (USA), Inc. a Crown Cork and Seal Company
from 1996 to 1998.
The information set forth under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Registrant's Proxy Statement for the
annual meeting of stockholders to be held on May 8, 2002 is incorporated herein
by reference.
13
<PAGE>
Item 11. Executive Compensation
The information set forth under the headings "Board Compensation" and
"Executive Compensation" (other than "Compensation Committee Report on
Executive Compensation" and "Performance Graph") in the Registrant's Proxy
Statement for the annual meeting of stockholders to be held on May 8, 2002 is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Registrant's Proxy Statement for the
annual meeting of stockholders to be held on May 8, 2002, is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under the heading "Certain Transactions" in the
Registrant's Proxy Statement for the annual meeting of stockholders to be held
on May 8, 2002 is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
<TABLE>
<CAPTION>
Location
--------
<S> <C>
1) Financial Statements required by Item 8 of this Form
Consolidated Balance Sheets......................................................... Annual Report, page 52
Consolidated Statements of Income................................................... Annual Report, page 54
Consolidated Statements of Cash Flows............................................... Annual Report, page 55
Consolidated Statements of Changes in Equity........................................ Annual Report, page 56
Notes to Consolidated Financial Statements.......................................... Annual Report, page 58
Report of Independent Accountants................................................... Annual Report, page 81
2) Schedule required by Article 12 of Regulation S-X
Report of Independent Accountants on Financial Statement Schedule................... page 16
II--Valuation and Qualifying Accounts............................................... page 17
All other schedules have been omitted because they are not applicable or not required.
3) Exhibits required by Item 601 of Regulation S-K are incorporated by reference to
the Exhibit Index on pages 18-20 of this report.
</TABLE>
(b) Reports on Form 8-K during the quarter ended December 31, 2001:
No reports on Form 8-K were filed during the quarter ended December 31,
2001.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in the City of
Crystal Lake, State of Illinois on this 21st day of March 2002.
APTARGROUP, INC.
(Registrant)
By
/S/ STEPHEN J. HAGGE
-----------------------------------
Stephen J. Hagge
Executive Vice President, Chief
Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/S/ KING HARRIS Chairman of the Board and March 21, 2002
- ------------------------------- Director
King Harris
/S/ CARL A. SIEBEL President and Chief Executive March 21, 2002
- ------------------------------- Officer and Director
Carl A. Siebel (Principal Executive
Officer)
/S/ PETER PFEIFFER Vice Chairman of the Board March 21, 2002
- ------------------------------- and Director
Peter Pfeiffer
/S/ STEPHEN J. HAGGE Executive Vice President, March 21, 2002
- ------------------------------- Chief Financial Officer,
Stephen J. Hagge Secretary and Director
(Principal Accounting and
Financial Officer)
/S/ PROF. DR. ROBERT W. HACKER Director March 21, 2002
- -------------------------------
Prof. Dr. Robert W. Hacker
/S/ ALAIN CHEVASSUS Director March 21, 2002
- -------------------------------
Alain Chevassus
/S/ RALPH GRUSKA Director March 21, 2002
- -------------------------------
Ralph Gruska
/S/ LEO A. GUTHART Director March 21, 2002
- -------------------------------
Leo A. Guthart
/S/ DR. JOANNE C. SMITH Director March 21, 2002
- -------------------------------
Dr. Joanne C. Smith
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
of AptarGroup, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 13, 2002, appearing in the 2001 Annual Report to
Stockholders of AptarGroup, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/S/__PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 13, 2002
16
<PAGE>
AptarGroup, Inc.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance
beginning costs and from at end
of period expenses Acquisition reserve(a) of period
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
2001
Allowance for doubtful accounts $6,927 $1,879 $ -- $1,440 $ 7,366
Inventory obsolescence reserve. 8,840 4,198 -- 2,444 10,594
2000
Allowance for doubtful accounts $6,865 $1,849 $ -- $1,787 $ 6,927
Inventory obsolescence reserve. 7,881 2,956 -- 1,997 8,840
1999
Allowance for doubtful accounts $5,132 $ 679 $2,013 $ 959 $ 6,865
Inventory obsolescence reserve. 6,815 2,548 512 1,994 7,881
</TABLE>
- --------
(a) Write-off of accounts considered uncollectible, net of recoveries and
foreign currency translation adjustments.
17
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number and Description of Exhibit
- ---------------------------------
<C> <S>
3(i) Amended and Restated Certificate of Incorporation of the Company, filed as Exhibit 3 (i) to the
Company's quarterly report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-11846), is
hereby incorporated by reference.
3(ii) Amended and Restated By-Laws of the Company, filed as Exhibit 3(ii) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 (File No. 1-11846), is hereby
incorporated by reference.
4.1 Rights Agreement dated as of April 6, 1993 between the Company and Chemical Bank, as rights
agent, filed as Exhibit 4.1 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 (the "1993 10-K")(File No. 1-11846), is hereby incorporated by reference.
4.2 Certificate of Designation, Preferences and Rights of Junior Participating Preferred Stock, Series A,
of the Company, filed as Exhibit 6.4 of the Company's Registration Statement on Form 8-A filed
under the Securities Exchange Act of 1934 on April 5, 1993 (File No. 1-11846), is hereby
incorporated by reference.
The Registrant hereby agrees to provide the Commission, upon request, copies of instruments
defining the rights of holders of long-term debt of the Registrant and its subsidiaries as are specified
by item 601(b)(4)(iii)(A) of Regulation S-K.
4.3 Note Purchase Agreement dated as of May 15, 1999 relating to $107 million senior unsecured notes,
series 1999-A, filed as Exhibit 4.1 to the Company's quarterly report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 1-11846), is hereby incorporated by reference.
4.4 Multicurrency Credit Agreement dated as of June 30, 1999 among the Company, the lenders party
thereto, Bank of America National Trust and Savings Association, as Agent, and Bank of America
Securities LLC, as Arranger, filed as Exhibit 4.2 to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1999 (File No. 1-11846), is hereby incorporated by reference.
4.4.1 First Amendment Agreement dated as of December 14, 2000 relating to the Multicurrency Credit
Agreement dated as of June 30, 1999 among the Company, the lender party thereto, Deutsche Bank
AG New York Branch and/or Cayman Islands and Bank of America, National Association, as Agent
for the Lenders (File No. 1-11846), is hereby incorporated by reference.
10.1 AptarGroup, Inc. 1992 Stock Awards Plan, filed as Exhibit 10.1 (included as Appendix B to the
Prospectus) to the Company's Registration Statement on Form S-1, Registration Number 33-58132,
filed on February 10, 1993 (the "Form S-1"), is hereby incorporated by reference. **
10.2 AptarGroup, Inc. 1992 Director Stock Option Plan, filed as Exhibit 10.2 (included as Appendix C to
the Prospectus) to the Form S-1, is hereby incorporated by reference. **
10.3 Managing Director Employment Agreement dated January 2, 1981 of Mr. Peter Pfeiffer, filed as
Exhibit 10.4 to the Form S-1, is hereby incorporated by reference. **
10.4 Service Agreement dated April 30, 1981, of Carl A. Siebel, and related pension plan, filed as Exhibit
10.5 to the Form S-1, is hereby incorporated by reference. **
10.5 Service Agreement dated April 22, 1993, between AptarGroup, Inc. and Peter Pfeiffer, and related
pension plan, filed as Exhibit 10.6 to the 1993 10-K, is hereby incorporated by reference. **
10.6 First supplement dated 1989 pertaining to the pension plan between Perfect-Valois Ventil GmbH and
Carl A. Siebel, filed as Exhibit 10.7 to the 1993 10-K, is hereby incorporated by reference. **
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Number and Description of Exhibit
- ---------------------------------
<C> <S>
10.7 Pittway Guarantee dated February 2, 1990, pertaining to the pension plan between Perfect-Valois
Ventil GmbH and Carl A. Siebel, filed as Exhibit 10.8 to the 1993 10-K, is hereby incorporated by
reference. **
</TABLE>
<TABLE>
<C> <S>
10.8 Assignment, Assumption and Release as of April 22, 1993, among Pittway Corporation, AptarGroup,
Inc., and Carl A. Siebel, filed as Exhibit 10.10 to the 1993 10-K, is hereby incorporated by reference. **
10.9 Second supplement dated December 19, 1994 pertaining to the pension plan between Perfect-Valois
Ventil GmbH and Carl A. Siebel, filed as Exhibit 10.11 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 1-11846), is hereby incorporated by reference. **
10.10 Employment Agreement dated February 1, 1996 of Stephen J. Hagge, filed as Exhibit 10.14 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1995 (File No. 1-11846),
is hereby incorporated by reference. **
10.11 AptarGroup, Inc. 1996 Stock Awards Plan, filed as Appendix A to the Company's Proxy Statement,
dated April 10, 1996 (File No. 1-11846), is hereby incorporated by reference. **
10.12 AptarGroup, Inc. 1996 Director Stock Option Plan, filed as Appendix B to the Company's Proxy
Statement, dated April 10, 1996 (File No. 1-11846), is hereby incorporated by reference. **
10.13 Stock Purchase Agreement dated as of February 16, 1999 between AptarGroup, Inc. and The
Meshberg Family Trust, filed as Exhibit 2.1 to the Company's Report on Form 8-K filed on February
26, 1999 (File No. 1-11846), is hereby incorporated by reference.
10.14 Stock Purchase Agreement dated as of February 16, 1999 among AptarGroup, Inc., Emil Meshberg
and Samuel Meshberg, filed as Exhibit 2.2 to the Company's Report on Form 8-K filed on February
26, 1999 (File No. 1-11846), is hereby incorporated by reference.
10.15 Agreement of Merger dated as of February 16, 1999 among AptarGroup, Inc., R Merger Corporation,
R.P.M. manufacturing Company, Emil Meshberg and Ronald Meshberg, filed as Exhibit 2.3 to the
Company's Report on Form 8-K filed on February 26, 1999 (File No. 1-11846), is hereby
incorporated by reference.
10.16 Employment Agreement dated February 17, 1999, of Emil Meshberg, filed as Exhibit 10.20 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 1-11846),
is hereby incorporated by reference. **
10.17* Amendment dated February 17, 2002, to Employment Agreement dated February 17, 1999 of Emil
Meshberg. **
10.18 Amendment No.1 to Service Agreement dated January 1, 2000 of Carl A. Siebel, filed as Exhibit
10.21 of the Company's Annual Report on Form 10-K for the year ended December 31, 1999 (File
No. 1-11846), is hereby incorporated by reference. **
10.19 AptarGroup, Inc. 2000 Stock Awards Plan, filed as Appendix A to the Company's Proxy Statement,
dated April 6, 2000 (File No. 1-11846), is hereby incorporated by reference. **
10.20 AptarGroup, Inc. 2000 Director Stock Option Plan, filed as Appendix B to the Company's Proxy
Statement, dated April 6, 2000 (File No. 1-11846), is hereby incorporated by reference. **
10.21 Employment Agreement dated March 6, 1996 of Eric S. Ruskoski, filed as Exhibit 10.17 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-11846),
is hereby incorporated by reference. **
10.22 Indemnification Agreement dated January 1, 1996 of King Harris, filed as Exhibit 10.25 of the
Company's quarterly report on Form 10-Q for the quarter ended March 31, 2001 (File No. 1-11846),
is hereby incorporated by reference. **
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Number and Description of Exhibit
- ---------------------------------
<C> <S>
10.23 Employment Agreement dated February 17, 2000, of Rick Schofield, filed as Exhibit 10.26 of the
Company's quarterly report on Form 10-Q for the quarter ended June 30, 2001 (File No. 1-11846), is
hereby incorporated by reference. **
10.24 Supplement to the pension scheme agreement dated October 16, 2001 pertaining to the pension plan
between AptarGroup, Inc. and Peter Pfeiffer, filed as Exhibit 10.27 of the Company's quarterly
report on Form 10-Q for the quarter ended September 30, 2001 (File No. 1-11846), is hereby
incorporated by reference. **
13* 2001 Annual Report to Stockholders (such report, except to the extent specifically incorporated
herein by reference, is being furnished for the information of the Securities and Exchange
Commission only and is not to be deemed filed as a part of this Form 10-K).
21* List of Subsidiaries.
23* Consent of Independent Accountants.
</TABLE>
- --------
* Filed herewith.
** Management contract or compensatory plan or arrangement.
20
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>3
<FILENAME>dex1017.txt
<DESCRIPTION>AMENDMENT TO EMPLOYMENT AGREEMENT DATED 2/17/2002
<TEXT>
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment, dated as of February 17, 2002 (this "Amendment"), to
the Employment Agreement, dated as of February 17, 1999 (the "Agreement"), is
entered into between AptarGroup, Inc., a Delaware corporation (the "Company"),
and Emil Meshberg (the "Executive").
WHEREAS, the Company and the Executive desire to amend the Agreement
(i) to extend the term of the Agreement as provided herein and (ii) to modify
certain other terms of the Agreement as provided herein;
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Executive hereby agree as follows:
1. Section 1 of the Agreement is amended by deleting the second
sentence thereof and substituting therefor the following two sentences:
"The term of employment of the Executive by the Company pursuant to
this Agreement shall commence on the Effective Date and shall end on
the third anniversary of the Effective Date, unless earlier terminated
pursuant to Section 4 hereof; provided that the term of this Agreement
shall be extended automatically for one additional year as of each
anniversary of the Effective Date, commencing with the third
anniversary of the Effective Date, unless earlier terminated pursuant
to Section 4 hereof or unless not later than six months prior to any
such renewal date either the Company or the Executive gives written
notice to the other that the term of this Agreement shall not be so
extended. The initial three-year term of this Agreement and any
extension of such initial three-year term pursuant to this Section 1
shall be referred to herein as the "Employment Period."
2. The first sentence of Section 3(a) of the Agreement is amended by
adding the following at the end thereof:
", and, commencing as of January 1, 2002 at the rate of $324,000 per
annum."
3. Section 3(b) of the Agreement is amended to read in its entirety as
follows:
"(b) Annual Performance Bonus. The Executive shall be eligible to
-------------------------
receive an annual performance bonus payable in cash for each fiscal
year of the Company during the Employment
<PAGE>
Period. The amount of such annual performance bonus shall be
calculated by the Company using the Emsar Annual Performance Bonus
Plan formula."
4. The second sentence of Section 3(e) of the Agreement is amended by
deleting therefrom the words "with coverage of $200,000 on the life of the
Executive,".
5. Section 3(j) of the Agreement is amended by deleting therefrom the
word "four" and substituting therefor the word "five".
6. Clause (i) of Section 4(d) of the Agreement is amended by deleting
the word "or" at the end thereof and substituting therefor the words "without
further extension or".
7. Clause (a) of the second sentence of Section 5 of the Agreement is
amended by deleting therefrom the words "third anniversary of the Effective
Date" and substituting therefor the words "last day of the Employment Period".
8. In all other respects, the Agreement shall not be amended and shall
remain in full force and effect.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Amendment as of the date first above written.
APTARGROUP, INC.
By: /s/ Stephen J. Hagge
-------------------------------
EXECUTIVE
/s/ Emil Meshberg
------------------------------------
Emil Meshberg
2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>4
<FILENAME>dex13.txt
<DESCRIPTION>2001 ANNUAL REPORT
<TEXT>
<PAGE>
Exhibit 13
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, 2001 2000
------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 48,013 $ 55,559
Accounts and notes receivable, less allowance for doubtful
accounts of $7,366 in 2001 and $6,927 in 2000 185,131 210,794
Inventories 120,531 121,522
Prepayments and other 21,240 19,674
--------- ---------
374,915 407,549
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Buildings and improvements 127,017 108,905
Machinery and equipment 690,882 665,991
--------- ---------
817,899 774,896
Less: Accumulated depreciation (441,829) (402,412)
--------- ---------
376,070 372,484
Land 5,032 4,949
--------- ---------
381,102 377,433
--------- ---------
OTHER ASSETS:
Investments in affiliates 9,894 11,127
Goodwill, less accumulated amortization
of $16,332 in 2001 and $13,093 in 2000 122,569 127,754
Miscellaneous 26,847 28,376
--------- ---------
159,310 167,257
--------- ---------
TOTAL ASSETS $ 915,327 $ 952,239
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
52 AptarGroup: Consolidated Balance Sheets
<PAGE>
Exhibit 13
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, 2001 2000
---------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ - $ 29,248
Current maturities of long-term obligations 13,168 10,326
Accounts payable and accrued liabilities 140,983 163,528
---------- --------
154,151 203,102
---------- --------
LONG-TERM OBLIGATIONS 239,387 252,752
---------- --------
DEFERRED LIABILITIES AND OTHER:
Deferred income taxes 28,026 35,873
Retirement and deferred compensation plans 17,418 12,597
Minority interests 5,099 5,050
Deferred and other non-current liabilities 2,042 2,325
---------- --------
52,585 55,845
---------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1 million shares
authorized, none outstanding - -
Common stock, $.01 par value, 99 million shares
authorized, 37.0 and 36.6 million outstanding in 2001
and 2000, respectively 370 366
Capital in excess of par value 122,926 115,034
Retained earnings 490,229 439,258
Accumulated other comprehensive income (114,402) (89,163)
Less: Treasury stock at cost, 1.2 and 1.0 million shares
in 2001 and 2000, respectively (29,919) (24,955)
---------- --------
469,204 440,540
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 915,327 $952,239
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
Consolidated Balance Sheet: AptarGroup 53
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31, 2001 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 891,986 $ 883,481 $ 834,317
---------- ------------------------
OPERATING EXPENSES:
Cost of sales 562,814 553,642 519,704
Selling, research & development, and administrative 146,137 145,000 137,507
Depreciation and amortization 73,584 70,949 68,670
Strategic Initiative charges 7,583 - -
---------- ------------------------
790,118 769,591 725,881
---------- ------------------------
OPERATING INCOME 101,868 113,890 108,436
---------- ------------------------
OTHER INCOME (EXPENSE):
Interest expense (15,572) (19,002) (14,246)
Interest income 1,822 1,764 1,170
Equity in results of affiliates (248) 506 (918)
Minority interests (564) (756) (160)
Miscellaneous, net 1,049 1,520 796
In-process research and development write-off - - (3,300)
---------- ------------------------
(13,513) (15,968) (16,658)
---------- ------------------------
INCOME BEFORE INCOME TAXES 88,355 97,922 91,778
PROVISION FOR INCOME TAXES 29,447 33,256 33,066
---------- ------------------------
NET INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES 58,908 64,666 58,712
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE (64) - -
---------- ------------------------
NET INCOME $ 58,844 $ 64,666 $ 58,712
========== ========================
NET INCOME PER COMMON SHARE
Basic $ 1.64 $ 1.80 $ 1.62
========== ========================
Diluted $ 1.61 $ 1.78 $ 1.59
========== ========================
</TABLE>
See accompanying notes to consolidated financial statements.
54 AptarGroup: Consolidated Statements of income
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, brackets denote cash outflows)
<TABLE>
<CAPTION>
Years Ended December 31, 2001 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 58,844 $ 64,666 $ 58,712
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATIONS:
Depreciation 68,832 65,987 64,405
Amortization 4,752 4,962 4,265
Provision for bad debts 1,879 1,849 679
Strategic Initiative charges 7,583 - -
Minority interests 564 756 160
Cumulative effect of accounting change 64 - -
Deferred income taxes (4,723) 3,870 5,615
Retirement and deferred compensation plans 2,255 (828) 1,030
Equity in results of affiliates in excess of cash
distributions received 300 (389) 918
In-process research & development write-off - - 3,300
CHANGES IN BALANCE SHEET ITEMS, EXCLUDING EFFECTS
FROM ACQUISITIONS AND FOREIGN CURRENCY ADJUSTMENTS:
Accounts and notes receivable 12,839 (34,388) (8,422)
Inventories (4,766) (19,625) (6,684)
Prepaid and other current assets (3,053) (535) (4,841)
Accounts payable and accrued liabilities (15,942) 27,920 (3,291)
Income taxes payable (3,405) 18,517 (7,551)
Other changes, net 1,855 (4,964) 10,137
---------- ------------------------
NET CASH PROVIDED BY OPERATIONS 127,878 127,798 118,432
---------- ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (92,221) (93,933) (88,594)
Disposition of property and equipment 1,477 2,906 2,154
Acquisition of businesses - (2,271) (144,189)
Investments in affiliates (69) (3,788) (2,000)
Collection (issuance) of notes receivable, net 314 (657) (59)
---------- ------------------------
NET CASH USED BY INVESTING ACTIVITIES (90,499) (97,743) (232,688)
---------- ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - 29,828 -
Repayments of notes payable (31,087) - (4,089)
Proceeds from long-term obligations 6,420 3,116 156,639
Repayments of long-term obligations (12,380) (14,876) (18,965)
Dividends paid (7,873) (7,170) (6,532)
Proceeds from stock option exercises 7,896 2,114 3,228
Purchase of treasury stock (4,964) (18,743) (6,212)
---------- ------------------------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (41,988) (5,731) 124,069
---------- ------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,937) (1,181) (2,556)
---------- ------------------------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (7,546) 23,143 7,257
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 55,559 32,416 25,159
---------- ------------------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 48,013 $ 55,559 $ 32,416
========== ========================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 15,963 $ 19,616 $ 12,178
Income taxes paid $ 39,171 $ 25,275 $ 35,445
SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES:
Net assets contributed to joint venture $ - $ 5,000 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows: AptarGroup 55
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31, 2001, 2000 and 1999
(In thousands)
<TABLE>
<CAPTION>
Comprehensive Total
Income Equity
--------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE - DECEMBER 31, 1998 $ 415,508
Net income $ 58,712 58,712
Foreign currency translation adjustments (48,418) (48,418)
----------
Comprehensive income $ 10,294
==========
Stock option exercises 3,228
Stock issued for acquisitions 3,983
Cash dividends declared on common stock (6,532)
Treasury stock purchased (6,212)
----------
BALANCE - DECEMBER 31, 1999 420,269
Net income $ 64,666 64,666
Foreign currency translation adjustments (20,596) (20,596)
----------
Comprehensive income $ 44,070
==========
Stock option exercises 2,114
Cash dividends declared on common stock (7,170)
Treasury stock purchased (18,743)
----------
BALANCE - DECEMBER 31, 2000 440,540
Net income $ 58,844 58,844
Foreign currency translation adjustments (23,440) (23,440)
Minimum pension liability adjustment (1,799) (1,799)
----------
Comprehensive income $ 33,605
==========
Stock option exercises 7,896
Cash dividends declared on common stock (7,873)
Treasury stock purchased (4,964)
----------
BALANCE - DECEMBER 31, 2001 $ 469,204
==========
</TABLE>
See accompanying notes to consolidated financial statements.
56 AptarGroup: Consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other Common Capital in
Retained Comprehensive Stock Treasury Excess of
Earnings Income Par Value Stock Par Value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 329,582 $ (20,149) $ 361 $ - $ 105,714
58,712
(48,418)
2 3,226
2 3,981
(6,532)
(6,212)
------------------------------------------------------------------------------
381,762 (68,567) 365 (6,212) 112,921
64,666
(20,596)
1 2,113
(7,170)
(18,743)
------------------------------------------------------------------------------
439,258 (89,163) 366 (24,955) 115,034
58,844
(23,440)
(1,799)
4 7,892
(7,873)
(4,964)
------------------------------------------------------------------------------
$ 490,229 $ (114,402) $ 370 $ (29,919) $ 122,926
==============================================================================
</TABLE>
Consolidated Statements of Changes in Equity: AptarGroup 57
<PAGE>
Notes to Consolidated Financial Statements
(In thousands, except per share amounts or other wise indicated)
NOTE 1: Summary of Significant Accounting Policies
Nature of Business
AptarGroup, Inc. is an international company that designs, manufactures and
sells consumer product dispensing systems. The Company focuses on providing
value-added components to a variety of global consumer product marketers in
the fragrance/cosmetic, personal care, pharmaceutical, household and
food/beverage industries. The Company has manufacturing facilities located
throughout the world including North America, Europe, Asia and South
America.
Basis of Presentation
The accompanying 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.
Certain previously reported amounts have been reclassified to conform to
the current period presentation.
58 AptarGroup: Notes to Consolidated Financial Statements
<PAGE>
Accounting Estimates
The financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America ("GAAP").
This process requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash Management
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at cost, which is lower than market. Costs included
in inventories are raw materials, direct labor and manufacturing overhead.
The costs of certain domestic and foreign inventories are determined by
using the last-in, first-out ("LIFO") method, while the remaining
inventories are valued using the first-in, first-out (FIFO) method.
Investments in Affiliated Companies
The Company accounts for its investments in 20% to 50% owned affiliated
companies using the equity method. These investments are in companies that
manufacture and distribute products similar to the Company's products or
supply components to the Company. Dividends from affiliated companies
received in 2001, 2000 and 1999 amounted to $52, $117, and $0 respectively.
Property and Depreciation
Properties are stated at cost. Depreciation is determined on a
straight-line basis over the estimated useful lives for financial reporting
purposes and accelerated methods for income tax reporting. Generally, the
estimated useful lives are 25 to 40 years for buildings and improvements
and 3 to 10 years for machinery and equipment.
Intangible Assets
Management believes the excess purchase price over the fair value of the
net assets acquired ("Goodwill") in purchase transactions has continuing
value. It has been the Company's policy to amortize such costs over lives
ranging from 10 to 40 years using the straight-line method through 2001.
Other intangibles, consisting of patents, non-compete agreements and
license agreements, acquired in purchase transactions or developed, are
capitalized and amortized over their useful lives. Management assesses the
value of the recorded Goodwill and other intangibles using projected
undiscounted cash flows to determine if impairment has occurred when
underlying conditions warrant. It is management's opinion that no such
impairment exists as of December 31, 2001.
Significant Accounting Policies Not Yet Adopted
The Company will adopt Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets" in the first quarter of
2002. This statement eliminates the requirement that Goodwill and
indefinite lived intangible assets arising from a business combination be
amortized and charged to expense over time. Instead, the Goodwill and
indefinite lived intangible assets must be tested annually, or as
circumstances dictate, for impairment. Management has performed an analysis
of the fair values of its reporting units. The fair
Notes to Consolidated Financial Statements: AptarGroup 59
<PAGE>
values of the reporting units exceed the carrying values and therefore, no
impairment of Goodwill will be reported in the first quarter of 2002. The
Company recorded amortization of Goodwill of approximately $3.6 million per
year on a pre-tax basis and $3.5 million on an after-tax basis in 2001.
Derivatives Instruments and Hedging Activities
Derivative financial instruments are recorded in the consolidated balance
sheets at fair value as either assets or liabilities. Changes in the fair
value of derivatives are recorded in each period in earnings or accumulated
other comprehensive income, depending on whether a derivative is designated
and effective as part of a hedge transaction.
Research & Development Expenses
Research and development costs are expensed as incurred. These costs
amounted to $25,913, $26,887, and $25,611 in 2001, 2000 and 1999,
respectively. The 1999 amount excludes the $3,300 write-off of purchased
in-process research and development ("IPR&D") costs described in Note 3.
Income Taxes
A provision has not been made for U.S. or additional foreign taxes on
$342,504 of undistributed earnings of foreign subsidiaries. These earnings
will continue to be reinvested indefinitely and could become subject to
additional tax if they were remitted as dividends, or lent to a U.S.
affiliate, or if the Company should sell its stock in the subsidiaries. It
is not practicable to estimate the amount of additional tax that might be
payable on these undistributed foreign earnings.
Translation of Foreign Currencies
The functional currencies of all the Company's foreign operations are the
local currencies. Assets and liabilities are translated into U.S. dollars
at the rates of exchange on the balance sheet date. Sales and expenses are
translated at the average rates of exchange prevailing during the year. The
related translation adjustments are accumulated in a separate section of
stockholders' equity. Realized and unrealized foreign currency transaction
gains and losses are reflected in income, as a component of miscellaneous
income and expense, and are not significant to the consolidated results of
operations for the years presented.
Stock-Based Compensation
The Company follows APB Opinion No. 25 "Accounting for Stock Issued to
Employees" and the related Interpretations in accounting for its stock
option plans. Since the Company's stock options have met certain criteria
of APB Opinion No. 25, no compensation cost has been recognized. The
required disclosure for SFAS No. 123 "Accounting for Stock-Based
Compensation" can be found in Note 14.
Revenue Recognition
The Company's policy is to recognize revenue from product sales when the
title and risk of loss has transferred to the customer and the Company has
no remaining obligations regarding the transaction. The majority of the
Company's products are shipped FOB shipping point and title and risk of
loss transfers when the goods leave the Company's shipping location. In
some instances (for example, certain cross border shipments) the shipping
terms may be FOB destination. In these cases, the Company does not
recognize the revenue or invoice the customer until the goods reach the
customer's location.
60 AptarGroup: Notes to Consolidated Financial Statements
<PAGE>
NOTE 2: Acquisitions
In the first quarter of 2000, the Company acquired the remaining 50% of a
joint venture in the United States for approximately $2.3 million in cash,
assumed the remaining $3.75 million in debt and entered into a license
agreement with the former joint venture partner. The acquired business
produces spray caps and specialty actuators for aerosol valves and pumps
for the North American market. The acquisition of the remaining 50% was
accounted for as a purchase business combination. Goodwill in this
acquisition was approximately $2 million and is amortized on a
straight-line basis over 20 years.
During the first quarter of 1999, the Company acquired Emson Research,
Inc. and related companies ("Emsar", formerly referred to as Emson) for
approximately $123 million in cash and 148,371 shares of the Company's
common stock (valued at approximately $4 million). Approximately $23
million of debt was assumed in the transaction. Emsar is a leading supplier
of perfume pumps in the North American market and also maintains a
significant position in the North American personal care and food pump
markets. The Goodwill in this acquisition was approximately $86 million and
is amortized on a straight-line basis over 40 years.
During the third quarter of 1999, the Company acquired controlling
interests in two companies and acquired a line of business from a third
company for approximately $21 million in cash and approximately $4 million
in assumed debt. The Goodwill in these acquisitions was approximately $4
million and is amortized on a straight-line basis over lives ranging from
10 to 40 years. Two of the three acquisitions involved companies that
manufacture and distribute products similar to the Company's products. The
third acquisition, involving a company called Microflow Engineering S.A.
("Microflow"), is a research and development company whose primary project
is to develop an electronic dispensing system primarily for the
pharmaceutical market. Based upon an independent appraisal, a one-time
charge against pre-tax and net income of $3,300 for purchased IPR&D costs
was recorded in conjunction with the purchase of 80% of this company. See
Note 3 below for further disclosure on purchased IPR&D.
Following are the Company's unaudited pro forma results for 2000 and
1999 assuming the acquisition occurred on January 1, 1999. The $3.3 million
write-off of IPR&D in 1999 has been excluded from the pro forma results.
2000 1999
-------------------------------------------------------------------------
Net Sales $ 883,481 $ 845,479
Net Income $ 64,459 $ 59,999
Net Earnings per common share:
Basic $ 1.80 $ 1.65
Diluted $ 1.77 $ 1.62
Weighted average shares outstanding:
Basic 35,863 36,373
Diluted 36,369 36,933
These unaudited pro forma results have been prepared for comparative
purposes only and may not be indicative of the results of operations, which
would have actually resulted, had the combinations been in effect on
January 1, 1999, or of future periods.
Notes to Consolidated Financial Statements: AptarGroup 61
<PAGE>
NOTE 3: Purchased In-Process Research and Development
In connection with the acquisition of Microflow in 1999, the Company
allocated $3,300 of the purchase price to acquired IPR&D, which was
expensed as of the acquisition date. Microflow is a development company
engaged primarily in the development of an electronic delivery device. This
development effort is expected to be used by the Company primarily in drug
delivery systems and may have applications in other markets as well.
Microflow's electronic delivery device is not commercially viable at this
time and has no known alternative future uses apart from use in a
dispensing system. The Company acquired Microflow to expand its mechanical
pump product line to include an electronic dispensing system.
The Company used an independent professional appraisal consultant to
assess and allocate value to the IPR&D. The valuation was determined using
the income approach and the Company believes that the assumptions used in
the forecast are reasonable. No assurance can be given, however that the
underlying assumptions used to estimate expected sales, development costs
or profitability, or the events associated with the project will transpire
as estimated. For these reasons, actual results may vary from the projected
results.
Estimated net cash inflows from the acquired in-process technology
related to the electronic delivery device were originally projected to
commence in the year 2002, peak in 2006 and steadily decline at a rate of
20% through 2011. Subsequent to the acquisition, the Company has broadened
the project to include potential applications in other markets in addition
to the originally intended drug delivery system. This has delayed the
original cash inflow projections from 2002 to 2004. However, offsetting
this delay is the expectation of additional sales volumes coming from the
expanded markets to which the Company intends to sell. Overall, the Company
does not believe that these changes in estimates will have a material
impact on the expected return on its investment. The operating income as a
percentage of sales assumption that was used is consistent with the
Company's current margins of similar products. The in-process technology
was essentially completed in 2000; however, there will continue to be
additional development costs incurred in 2002 to adapt the technology for
specific applications. These additional costs are not expected to be
material. An adjustment to the appraised value of the acquired IPR&D was
made to reflect the percentage of completion, which was estimated at 65%.
The cash flows related to the project were discounted using a 25% discount
rate.
Management expects to continue supporting the development of the
electronic delivery device and believes the Company has a reasonable chance
of successfully completing the project. The failure of the project would
not, however, materially impact the Company's financial position or results
of operations.
NOTE 4: Derivative Instruments and Hedging Activities
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," and its related
amendment SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities." These standards require that all derivative
financial instruments be recorded in the consolidated balance sheets at
fair value as either assets or liabilities. Changes in the fair value of
derivatives are recorded in each period in earnings or accumulated other
comprehensive income, depending on whether a derivative is designated and
effective as part of a hedge transaction.
62 AptarGroup: Notes to Consolidated Financial Statements
<PAGE>
In accordance with the transition provisions of SFAS No. 133, the
Company recorded the following cumulative effect adjustment in earnings as
of January 1, 2001:
Related to designated fair value hedging relationships:
Fair value of interest rate swaps $ 1,868
Offsetting changes in fair value of debt (1,868)
Related to foreign currency forward exchange contracts:
Fair value of foreign currency forward exchange contracts (965)
Previously deferred gains and losses 1,027
Related to cross currency swap:
Fair value of cross currency swap 1,436
Previously deferred gains and losses (1,576)
Tax effect on above items 14
--------
Total cumulative effect of adoption on net income $ (64)
========
The Company maintains a foreign exchange risk management policy
designed to establish a framework to protect the value of the Company's
non-functional denominated transactions from adverse changes in exchange
rates. Sales of the Company's 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 impact the Company's results of operations. The Company's 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 for ward
exchange contracts, options and cross currency swaps to 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 uses interest rate swaps to convert a portion of its fixed-rate
debt into variable-rate debt. Under the interest rate swap contracts, the
Company exchanges, at specified intervals, the difference between
fixed-rate and floating-rate amounts, which is calculated based on an
agreed upon notional amount.
As of December 31, 2001, the Company has recorded the fair value of
derivative instrument assets of $3.8 million in miscellaneous other assets
with an offsetting adjustment to debt related to fixed-to-variable interest
rate swap agreements with a notional principal value of $50 million. No
gain or loss was recorded in the income statement in 2001 since there was
no hedge ineffectiveness.
Notes to Consolidated Financial Statements: AptarGroup 63
<PAGE>
Cash Flow Hedges
The Company did not use any cash flow hedges in 2001.
Hedge of Net Investments in Foreign Operations
A significant number of the Company's 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 Company's foreign entities. A strengthening
U.S. dollar relative to foreign currencies has a dilutive translation
effect on the Company's 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
Company's net investment is likely to be monetized, the Company will
consider hedging the currency exposure associated with such a transaction.
Other
As of December 31, 2001, the Company has recorded the fair value of foreign
currency forward exchange contracts of $205 in accounts payable and accrued
liabilities and $87 in prepayments and other in the balance sheet. All
forward exchange contracts outstanding as of December 31, 2001 had an
aggregate contract amount of $20.4 million.
NOTE 5: Inventories
At December 31, 2001 and 2000, approximately 23% and 25%, respectively, of
the total inventories are accounted for by the LIFO method. Inventories, by
component, consisted of:
2001 2000
--------------------------------------------------------------------------
Raw materials $ 45,370 $ 55,429
Work-in-process 24,599 20,975
Finished goods 51,446 46,805
--------- ---------
Total $ 121,415 $ 123,209
Less LIFO reserve (884) (1,687)
--------- ---------
Total $ 120,531 $ 121,522
========= =========
NOTE 6: Accounts Payable and Accrued Liabilities
At December 31, 2001 and 2000, accounts payable and accrued liabilities
consisted of the following:
2001 2000
--------------------------------------------------------------------------
Accounts payable, principally trade $ 68,935 $ 84,085
Accrued employee compensation costs 33,507 32,841
Other accrued liabilities 38,541 46,602
--------- ---------
Total $ 140,983 $ 163,528
========= =========
64 AptarGroup: Notes to Consolidated Financial Statements
<PAGE>
NOTE 7: Income Taxes
Income before income taxes consists of:
<TABLE>
<CAPTION>
2001 2000 1999
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 6,174 $ 11,017 $ 27,350
Foreign 82,181 86,905 64,428
-------- ---------------------
Total $ 88,355 $ 97,922 $ 91,778
======== =====================
The provision for income taxes is comprised of:
2001 2000 1999
----------------------------------------------------------------------------------------
CURRENT:
Federal $ 5,953 $ 3,449 $ 8,462
State/Local 1,264 52 997
Foreign 26,953 25,885 17,992
-------- ---------------------
34,170 29,386 27,451
-------- ---------------------
DEFERRED:
Federal/State (4,247) 969 934
Foreign (476) 2,901 4,681
-------- ---------------------
(4,723) 3,870 5,615
-------- ---------------------
Total $ 29,447 $ 33,256 $ 33,066
======== =====================
</TABLE>
The difference between the actual income tax provision and the tax
provision computed by applying the statutory federal income tax rate of
35.0% in 2001, 2000 and 1999 to income before income taxes is as follows:
<TABLE>
<CAPTION>
2001 2000 1999
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax at statutory rate $ 30,924 $ 34,273 $ 32,122
State income taxes, net of federal benefit 879 34 746
Deferred tax impact due to foreign rate changes - (1,126) -
Rate differential on earnings of foreign operations (2,286) (506) 348
Other items, net (70) 581 (150)
-------- ---------------------
Actual income tax provision $ 29,447 $ 33,256 $ 33,066
======== =====================
Effective income tax rate 33.3% 34.0% 36.0%
</TABLE>
Notes to Consolidated Financial Statements: AptarGroup 65
<PAGE>
Significant deferred tax assets and liabilities as of December 31,
2001 and 2000 are comprised of the following temporary differences:
2001 2000
--------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 1,419 $ 1,507
Asset bases differentials 1,392 1,757
Pensions 2,637 1,136
Bad debt reserve 1,557 1,746
Other 7,153 8,577
-------- --------
Total deferred tax assets 14,158 14,723
-------- --------
DEFERRED TAX LIABILITIES:
Depreciation 28,060 32,997
Leases 3,489 3,317
Other 2,031 5,768
-------- --------
Total deferred tax liabilities 33,580 42,082
-------- --------
Net deferred tax liabilities $ 19,422 $ 27,359
======== ========
On December 31, 2001, the Company had foreign tax net operating loss
carryforwards of approximately $2,207, which have an indefinite
carryforward period and approximately $1,263, which expire beginning in
2003 through 2007.
The Company has not provided for taxes on certain tax-deferred income
of a foreign operation. The income arose predominately from government
grants. Taxes of approximately $1,353 would become payable at the time the
income is distributed.
NOTE 8: Debt
The average annual interest rate on short-term notes payable under
unsecured lines of credit was approximately 5.6% and 7.1% for 2001 and
2000, respectively. There are no compensating balance requirements
associated with short-term borrowings. At December 2001 and 2000, the
Company had a multi-year, multi-currency unsecured revolving credit
agreement allowing borrowings of up to $100 million. Under this credit
agreement, interest on borrowings is payable at a rate equal to London
Interbank Offered Rates "LIBOR" plus an amount based on the financial
condition of the Company. The Company is required to pay a fee for the
unused portion of the commitment. Such payments in 2001, 2000 and 1999 were
not significant. The agreement expires on June 30, 2004. The amount used
under this agreement was $76 million and $85 million at December 31, 2001
and 2000, respectively. The credit available under the revolving credit
agreement provides management with the ability to refinance certain
short-term obligations on a long-term basis. Since management has the
ability and intent to do so, short-term obligations of $76 million and $85
million have been recorded as long-term obligations and an additional $24
million and $15 million of short-term debt obligations representing the
unused and available amount under the revolving credit agreement have been
reclassified as long-term obligations as of December 31, 2001 and 2000,
respectively.
66 AptarGroup: Notes to Consolidated Financial Statements
<PAGE>
The revolving credit and the senior unsecured debt agreements contain
covenants with which the Company is in compliance that include certain
financial tests, including minimum interest coverage, net worth and maximum
borrowings.
At December 31, the Company's long-term obligations consisted of the
following:
<TABLE>
<CAPTION>
2001 2000
------------------------------------------------------------------------------------------
<S> <C> <C>
Borrowing under revolving credit agreement 2.7% and 7.5%
at December 31, 2001 and 2000 $ 76,000 $ 85,000
Notes payable 0.5% - 5.8%, due in monthly and annual
installments through 2009 11,528 17,137
Senior unsecured debt 7.1%, due in installments through 2005 14,286 17,857
Senior unsecured notes 6.6%, due in equal annual installments
through 2011 110,751 107,000
Mortgages payable 2.1% - 8.0%, due in monthly and annual
installments through 2008 6,007 8,970
Industrial revenue bond, interest at 79% of prime,
(which was 7.4% at December 31, 2000) - 333
Capital lease obligations 9,983 11,781
--------- ---------
228,555 248,078
Less current portion (13,168) (10,326)
Reclass of short-term obligations 24,000 15,000
--------- ---------
Total long-term obligations $ 239,387 $ 252,752
========= =========
</TABLE>
All of the mortgages are payable by foreign subsidiaries to foreign
banks. Interest rates on such borrowings vary due to differing market
conditions in the countries in which such debt has been incurred. Mortgages
payable are secured by the properties or assets for which the debt was
obtained. Based on the borrowing rates currently available to the Company
for long-term obligations with similar terms and average maturities, the
fair value of the Company's long-term obligations approximates its book
value.
Aggregate long-term maturities, excluding capital lease obligations
and the reclassifications of short-term obligations, due annually for the
five years beginning in 2002 are $11,856, $5,912, $81,474, $7,119 and
$112,211 thereafter.
NOTE 9: Lease Commitments
The Company leases certain warehouse, plant, and office facilities as well
as certain equipment under noncancelable operating and capital leases
expiring at various dates through the year 2018. 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. The Company has an
option on one building lease to purchase the building during or at the end
of the term of the lease at approximately the amount expended by the lessor
for the purchase of the building and improvements. If the Company does not
exercise the purchase option by the end of the lease, the Company may be
required to pay an amount not to exceed $9.5 million. Amortization expense
related to capital leases is included in depreciation expense. Rent expense
under operating leases (including taxes, insurance and maintenance when
included in the rent) amounted to $13,370, $12,228 and $10,170 in 2001,
2000 and 1999, respectively.
Notes to Consolidated Financial Statements: AptarGroup 67
<PAGE>
Assets recorded under capital leases consist of:
2001 2000
--------------------------------------------------------------------------
Buildings $ 16,719 $ 14,296
Machinery and equipment 7,364 9,007
-------- --------
24,083 23,303
Accumulated depreciation (11,716) (11,506)
-------- --------
$ 12,367 $ 11,797
======== ========
Future minimum payments, by year and in the aggregate, under the
capital leases and noncancelable operating leases with initial or remaining
terms of one year or more consisted of the following at December 31, 2001:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
2002 $ 1,889 $ 8,145
2003 1,676 6,544
2004 2,045 5,824
2005 1,320 4,551
2006 1,332 3,814
Subsequent to 2006 3,952 3,649
-------- --------
Total minimum lease payments 12,214 $ 32,527
========
Amounts representing interest (2,231)
--------
Present value of future minimum lease payments 9,983
Less amount due in one year (1,312)
--------
Total $ 8,671
========
</TABLE>
NOTE 10: Retirement and Deferred Compensation Plans
The Company has various noncontributory retirement plans covering certain
of its domestic and foreign employees. Benefits under the Company's
retirement plans are based on participants' years of service and annual
compensation as defined by each plan. Annual cash contributions to fund
pension costs accrued under the Company's domestic plans are generally
equal to the minimum funding amounts required by ERISA. Certain pension
commitments under its foreign plans are also funded. Changes in the benefit
obligation and plan assets of the Company's domestic and foreign plans are
as follows:
68 AptarGroup: Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
2001 2000
-------- --------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 32,645 $ 30,833
Service cost 2,133 1,650
Interest cost 2,059 1,759
Amendments/new plan participants 581 237
Actuarial loss 3,100 1,025
Benefits paid (1,754) (2,278)
Foreign currency translation adjustment (673) (581)
-------- --------
Benefit obligation at end of year $ 38,091 $ 32,645
======== ========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 25,426 $ 22,505
Actual return on plan assets (276) 3,144
Employer contribution 704 1,625
Benefits paid with plan assets (1,232) (1,848)
Foreign currency translation adjustment (139) -
-------- --------
Fair value of plan assets at end of year $ 24,483 $ 25,426
======== ========
Funded status $(13,608) $ (7,219)
Unrecognized net actuarial loss/(gain) 2,854 (2,476)
Unrecognized prior service cost 986 514
Unamortized net transition asset 34 72
-------- --------
Net accrued benefit cost included in the balance sheet $ (9,734) $ (9,109)
======== ========
AMOUNTS INCLUDED IN THE BALANCE SHEET CONSISTS OF:
Accrued benefit cost $(13,429) $ (9,109)
Intangible asset 805 -
Accumulated other comprehensive loss 2,890 -
-------- --------
Net accrued benefit cost included in the balance sheet $ (9,734) $ (9,109)
======== ========
</TABLE>
<TABLE>
<CAPTION>
2001 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 2,133 $ 1,650 $ 1,844
Interest cost 2,059 1,759 1,961
Expected return on plan assets (1,811) (1,524) (1,503)
Net amortized and deferred gains and losses 102 (50) 47
------- ------------------
Net periodic benefit cost $ 2,483 $ 1,835 $ 2,349
======= ==================
</TABLE>
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for plans with accumulated benefit obligations in
excess of plan assets were $11.6 million, $10.6 million and $0.2 million,
respectively, as of December 31, 2001. The Company did not have any plans
with significant accumulated benefit obligations in excess of plan assets
as of December 31, 2000.
Notes to Consolidated Financial Statements: AptarGroup 69
<PAGE>
Plan assets primarily consist of government obligations, investment
grade corporate bonds and common and preferred stocks for the domestic and
foreign plans. Although the proceeds of certain insurance contracts related
to the Company's foreign plans could be used to partially offset pension
commitments, the values of these contracts are not included in the
Company's plan asset totals shown above. The projected benefit obligation
for domestic plans was determined using assumed discount rates of 6.8% and
7.0% in 2001 and 2000, respectively. For the foreign plans, the projected
benefit obligation was determined using assumed discount rates of 5.6% and
6.2% in 2001 and 2000, respectively. The assumed rates of increase in
compensation were 4.8% for the domestic plans and 3.0%, for the foreign
plans in 2001 and 2000. The expected long-term rate of return on plan
assets was 8.3% in 2001 and 2000 for the domestic plans and 6.5% and 7.3%
in 2001 and 2000, respectively, for the foreign plans.
The Company has a non-qualified supplemental pension plan for domestic
employees which provides for pension amounts that would have been payable
from the Company's principal pension plan if it were not for limitations
imposed by income tax regulations. The liability for this plan was $679 and
$520 at December 31, 2001 and 2000, respectively. This amount is included
in the liability for domestic plans shown above.
The Company also has unfunded retirement compensation arrangements
with certain former employees. The cost of these retirement agreements was
provided ratably over the employees' active employment. The Company has no
additional postretirement or postemployment benefit plans.
NOTE 11: Contingencies
The Company, in the normal course of business, is subject to a number of
lawsuits and claims both actual and potential in nature. Management
believes the resolution of these claims and lawsuits will not have a
material adverse effect on the Company's financial position or results of
operations.
NOTE 12: Strategic Initiative Charges
In April 2001, the Company announced it had begun a project ("Strategic
Initiative") to improve the efficiency of operations that produce pumps for
its mass-market fragrance/cosmetic and personal care customers. In addition
to improving efficiency and reducing costs, another objective of the
Strategic Initiative is to improve customer service through reduced lead
times and the ability to customize finished products on a local basis. As
part of the Strategic Initiative, the Company closed one molding operation
in the U.S. and will consolidate the molding and assembly of the base
cartridge (standard internal components common to modular pumps) into one
of the Company's facilities in Italy. In addition, the Company is
rationalizing its mass-market pump product lines for these two markets by
discontinuing production of non-modular pumps and increasing capacity for
its modular pumps.
Charges related to the Strategic Initiative are expected to be
approximately $10 million before taxes and will consist primarily of costs
related to the closing of the molding operation and discontinuance of its
non-modular pumps (including asset impairment write-downs, accelerated
depreciation associated with revised useful lives and utility abatement
reimbursements) as well as employee severance and related benefit costs.
Approximately $3 million of the charges are expected to be cash outlays
while the remaining $7 million will be non-cash charges (asset impairment
write-downs and accelerated depreciation associated with
70 AptarGroup: Notes to Consolidated Financial Statements
<PAGE>
revised useful lives). Approximately $9.6 million of such charges before
tax and $6.0 million after-tax or approximately $0.17 per diluted share
were recorded in 2001. Of the $9.6 million recorded in 2001, $1.9 million
was included in the Company's depreciation and amortization expense, $0.2
million was included in the Company's cost of sales and $7.6 million was
shown on a separate line of the income statement. Detail of the pre-tax
charges (in thousands) is shown in the following table:
<TABLE>
<CAPTION>
Charges for
Beginning the twelve Charged Ending
Reserve at months ended Cash Against Reserve at
1/1/01 12/31/01 Paid Assets 12/31/ 01
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asset impairment
write-downs $ - $ 5,498 $ - $ (5,498) $ -
Employee severance - 800 (331) - 469
Other costs - 1,285 (229) - 1,056
--------------------------------------------------------------------
Subtotal $ - $ 7,583 $(560) $ (5,498) $ 1,525
Accelerated depreciation - 1,857 - (1,857) -
Training Costs - 170 (170) - -
--------------------------------------------------------------------
Total Strategic Initiative
related costs $ - $ 9,610 $(730) $ (7,355) $ 1,525
====================================================================
</TABLE>
Charges for asset impairment write-downs are impairment charges
recorded for fixed assets held and used in the manufacture of non-modular
pumps. These non-modular pumps will continue to be sold during the
Strategic Initiative project, but will be discontinued once adequate
capacity to produce modular pumps has been established. The undiscounted
expected future cash flows for products using these non-modular pumps
during this phase out period were less than the carrying value of the
specific identifiable assets used to generate these cash flows and thus an
impairment charge was recognized in accordance with SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The impairment charge of $5.5 million was
calculated by subtracting the fair market value of the assets held and used
in the manufacture of non-modular pumps (determined by discounting the
expected future cash flows for products using these non-modular pumps) from
the carrying value of these assets.
As part of the Strategic Initiative, certain long-lived assets will be
taken out of service prior to the end of their normal service period due to
the plant shut down and rationalization of the product lines. Accordingly,
the Company has changed the estimated useful lives of such assets,
resulting in an acceleration of depreciation ("Accelerated Depreciation"),
of which $1.9 million was recognized in 2001. An additional charge of
approximately $139 associated with Accelerated Depreciation is expected in
future periods.
The Strategic Initiative will result in personnel reductions in the
U.S. of approximately 170 people or approximately 10% of all the Company's
U.S. employees. The majority of these personnel reductions will be
manufacturing related with a small reduction in administrative staff.
Involuntary employee severance costs are based upon a formula including
salary levels and years of service. Approximately $800 has been accrued and
is included in the Strategic Initiative charges shown in the income
statement. Offsetting these personnel reductions will be an increase in
personnel of approximately 80 people in Italy to support the centralization
of the base cartridge production and assembly. As of December 31, 2001, 70
people have been terminated resulting in a cash payment of $331.
Notes to Consolidated Financial Statements: AptarGroup 71
<PAGE>
In addition to the involuntary severance costs described above, a
retention or stay bonus will be paid to employees who remain with the
Company during the phase-out period. This stay bonus, which is estimated to
be approximately $600, is also based upon salary levels and years of
service. The stay bonus is being accrued over the future periods in which
the employees earn the benefits.
Approximately $485 of the stay bonus was accrued in 2001, of which
approximately $229 was paid. In addition, as a result of closing down the
molding operation, the Company will be required to refund an abatement of
approximately $500 to a utility provider and expects to spend approximately
$300 to refurbish the leased molding facility that is being vacated. These
charges are included in other costs in the preceding table.
During 2001, approximately $170 of training costs was incurred in
Italy to train the new workers who were hired to support the centralization
of the base cartridge production and assembly. These training costs are
included in cost of sales in the income statement. It is expected that
training costs over the course of the project will cost approximately $500.
NOTE 13: Preferred Stock Purchase Rights
The Company has a preferred stock purchase rights plan (the "Rights Plan")
and each share of common stock has one preferred share purchase right (a
"Right"). Under the terms of the Rights Plan, if a person or group other
than certain exempt persons acquires 15% or more of the outstanding common
stock, each Right will entitle its holder (other than such person or
members of such group) to purchase, at the Right's then current exercise
price, a number of shares of the Company's common stock having a market
value of twice such price. Persons or groups can lose their exempt status
under certain conditions. In addition, under certain circumstances if the
Company is acquired in a merger or other business combination transaction,
each Right will entitle its holder to purchase, at the Right's then current
exercise price, a number of the acquiring company's common shares having a
market value of twice such price.
Each Right entitles the holder under certain circumstances to buy one
two-thousandths of a share of Series A junior participating preferred
stock, par value $.01 per share, at an exercise price of $35. Each share of
Series A junior participating preferred stock will entitle its holder to
2,000 votes and will have a minimum preferential quarterly dividend payment
equal to the greater of $10 per share or 2,000 times the amount paid to
holders of common stock. Currently 49,500 shares of Series A junior
participating preferred stock have been reserved. The Rights will expire on
April 6, 2003, unless previously exercised or redeemed at the option of the
Board of Directors for $.005 per Right.
72 AptarGroup: Notes to Consolidated Financial Statements
<PAGE>
NOTE 14: Stock Based Compensation
At December 31, 2001, the Company has fixed stock-based compensation plans
that are discussed below. Had compensation cost for the Company's Stock
Awards Plans been recorded based on the fair value at the grant dates,
consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts
indicated below.
2001 2000 1999
--------------------------------------------------------------------------
NET INCOME
As reported $ 58,844 $ 64,666 $ 58,712
Pro forma $ 55,191 $ 61,315 $ 56,102
BASIC EARNINGS PER SHARE
As reported $ 1.64 $ 1.80 $ 1.62
Pro forma $ 1.54 $ 1.71 $ 1.54
DILUTED EARNINGS PER SHARE
As reported $ 1.61 $ 1.78 $ 1.59
Pro forma $ 1.51 $ 1.69 $ 1.52
The weighted average fair value of stock options granted under the
Stock Awards Plans was $11.82, $10.47 and $11.37 per share in 2001, 2000
and 1999, respectively. These values were estimated on the respective dates
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
2001 2000 1999
---------------------------------------------------------------------------
STOCK AWARDS PLANS
Dividend yield .7% .6% .6%
Expected stock price volatility 33.0% 32.8% 31.2%
Risk-free interest rate 5.2% 6.6% 4.8%
Expected life of option (years) 7.0 7.0 7.5
The fair value of stock options granted under the Director Stock
Option Plans in 2001, 2000 and 1999 was $14.32, $12.03 and $13.48 per
share, respectively. These values were estimated on the respective dates of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
2001 2000 1999
---------------------------------------------------------------------------
DIRECTOR STOCK OPTION PLANS
Dividend yield .8% .7% .6%
Expected stock price volatility 32.4% 30.5% 33.1%
Risk-free interest rate 5.4% 6.7% 5.7%
Expected life of option (years) 7.0 7.0 7.5
Notes to Consolidated Financial Statements: AptarGroup 73
<PAGE>
Under the Stock Awards Plans, the Company may grant stock options,
stock appreciation rights, restricted stock and other stock awards to
employees. The combined maximum number of shares, which may be issued under
these plans, is 6 million. Options granted under these plans become
exercisable annually over a three year period and expire ten years after
the grant date. Director Stock Option Plans provide for the award of stock
options to non-employee Directors who have not previously been awarded
options. The combined maximum number of shares subject to options under
these plans is 240 thousand. Options granted under these plans become
exercisable over a three year period and expire ten years after the grant
date.
A summary of the status of the Company's stock option plans as of
December 31, 2001, 2000 and 1999, and changes during the years ending on
those dates is presented below.
<TABLE>
<CAPTION>
Director Stock
Stock Awards Plans Option Plans
------------------------------- ----------------------------
Option Price Option Price
Option Shares Shares Per Share Shares Per Share
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding,
January 1, 1999 2,289,888 $ 9.19 . $28.00 84,000 $ 9.19 . $32.38
Granted 550,700 $24.94 . $28.25 4,000 $ 29.50
Exercised (263,304) $ 9.19 . $24.91 (2,000) $ 20.88
Canceled (23,135) $16.81 . $24.91 -
--------- -------
Outstanding,
December 31, 1999 2,554,149 $ 9.19 . $28.25 86,000 $ 9.19 . $32.38
Granted 535,800 $22.75 . $27.13 2,000 $ 27.38
Exercised (90,161) $ 9.19 . $27.19 (6,000) $ 20.88
Canceled (24,428) $16.81 . $27.19 -
--------- -------
Outstanding,
December 31, 2000 2,975,360 $ 9.19 . $28.25 82,000 $ 9.19 . $32.38
Granted 534,100 $28.06 . $33.27 48,000 $ 34.40
Exercised (381,108) $ 9.19 . $27.19 (30,000) $ 9.19 . $20.88
Canceled (29,255) $ 9.19 $28.06 -
--------- -------
Outstanding,
December 31, 2001 3,099,097 $ 9.19 . $33.27 100,000 $ 9.19 . $34.40
========= =======
</TABLE>
OPTIONS EXERCISABLE
12/31/99 1,557,631 72,000
12/31/00 1,929,524 82,000
12/31/01 2,053,301 64,000
AVAILABLE FOR FUTURE GRANTS
12/31/99 970,113 20,000
12/31/00 2,437,610 80,000
12/31/01 1,917,412 32,000
74 AptarGroup: Notes to Consolidated Financial Statements
<PAGE>
The following table summarizes information about stock options
outstanding at December 31, 2001:
<TABLE>
<CAPTION>
Options Outstanding Option Exercisable
----------------------------------------- ----------------------------
Weighted- Weighted- Weighted-
Shares Average Average Shares Average
Year Outstanding Remaining Exercise Exercisable Exercise
Granted at Year-end Life Price at Year-end Price
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK AWARDS PLANS
1993 76,298 1.5 $ 9.19 76,298 $ 9.19
1994 170,752 2.1 10.31 170,752 10.31
1995 262,414 3.1 13.71 262,414 13.71
1996 258,368 4.1 18.00 258,368 18.00
1997 309,136 5.1 16.85 309,136 16.85
1998 467,266 6.1 24.91 467,266 24.91
1999 505,307 7.1 27.12 336,802 27.12
2000 517,806 8.1 22.76 172,265 22.76
2001 531,750 9.1 28.07 - -
--------- ---------
3,099,097 6.3 $ 21.93 2,053,301 $ 19.78
========= =========
DIRECTOR STOCK OPTION PLANS
1993 10,000 1.4 $ 9.19 10,000 $ 9.19
1997 30,000 5.4 20.88 30,000 20.88
1998 6,000 6.4 32.38 6,000 32.38
1999 4,000 7.4 29.50 4,000 29.50
2000 2,000 8.4 27.38 2,000 27.38
2001 48,000 9.4 34.40 12,000 34.00
--------- ---------
100,000 7.1 $ 27.36 64,000 $ 23.41
========= =========
</TABLE>
Restricted stock awards totaling 13,278 shares in 2001 at a fair
market value of $22.88 per share and 21,331 shares in 2000 at a fair market
value of $29.30 per share were issued under the Stock Awards Plans. A
restricted stock grant for 200 shares was canceled in 2000. Compensation
expense for the vesting of these restricted stock awards was $337, $202 and
$66 for the years 2001, 2000 and 1999, respectively. These shares vest
equally over three years and do not have voting or dividend rights prior to
vesting. Amounts available for future stock option grants under the Stock
Awards Plans have been reduced by restricted stock awards.
Notes to Consolidated Financial Statements: AptarGroup 75
<PAGE>
NOTE 15: Earnings Per Share
The reconciliation of basic and diluted earnings for the years ending
December 31, 2001, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Income Shares Per Share
Numerator) (Denominator) Amount
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 2001
BASIC EPS
Income available to common stockholders $ 58,844 35,805 $ 1.64
EFFECT OF DILUTIVE SECURITIES
Stock options - 724
-----------------------
DILUTED EPS
Income available to common stockholders $ 58,844 36,529 $ 1.61
====================================
FOR THE YEAR ENDED DECEMBER 31, 2000
BASIC EPS
Income available to common stockholders $ 64,666 35,863 $ 1.80
EFFECT OF DILUTIVE SECURITIES
Stock options - 506
-----------------------
DILUTED EPS
Income available to common stockholders $ 64,666 36,369 $ 1.78
====================================
FOR THE YEAR ENDED DECEMBER 31, 1999
BASIC EPS
Income available to common stockholders $ 58,712 36,353 $ 1.62
EFFECT OF DILUTIVE SECURITIES
Stock options - 560
-----------------------
DILUTED EPS
Income available to common stockholders $ 58,712 36,913 $ 1.59
====================================
</TABLE>
The per share impact of the cumulative effect of a change in
accounting principle recognized in 2001, represented less than $0.01 per
share.
NOTE 16: 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 primarily based upon individual business
units, which resulted from historic acquisitions or internally created
business units. All of the business units sell primarily dispensing
systems. These business units all require similar production processes,
sell to similar classes of customers and markets, use the same methods to
distribute products and operate in similar regulatory environments. Based
on the current economic characteristics of the Company's business units,
the Company has identified two reportable segments: Dispensing Systems and
SeaquistPerfect.
The Dispensing Systems segment is an aggregate of four of the
Company's five business units. The Dispensing Systems segment sells
primarily non-aerosol spray and lotion pumps, plastic dispensing and
non-dispensing closures, and metered dose aerosol valves. These three
products are sold to all of the markets served by the Company including the
fragrance/cosmetic, pharmaceutical, personal care, household, and
food/beverage markets.
76 AptarGroup: Notes to Consolidated Financial Statements
<PAGE>
SeaquistPerfect represents the Company's fifth business unit and sells
primarily aerosol valves and accessories and certain non-aerosol spray and
lotion pumps. These products are sold primarily to the personal care,
household, and food/beverage markets.
The accounting policies of the segments are the same as those
described in Note 1, Summary of Significant Accounting Policies. The
Company evaluates performance of its business units and allocates resources
based upon earnings before interest expense in excess of interest income,
corporate expenses and income taxes (collectively referred to as "EBIT")
excluding unusual items. The Company accounts for intersegment sales and
transfers as if the sales or transfers were to third parties.
Financial information regarding the Company's reportable segments is
shown below.
<TABLE>
<CAPTION>
Dispensing Seaquist Corporate
Years ended December 31 Systems Perfect and other Totals
<S> <C> <C> <C> <C>
TOTAL REVENUE
2001 $ 747,659 $ 154,159 $ 901,818
2000 745,391 150,777 896,168
1999 698,423 144,012 842,435
LESS: INTERSEGMENT SALES
2001 $ 1,203 $ 8,629 $ 9,832
2000 2,824 9,863 12,687
1999 1,288 6,830 8,118
NET SALES
2001 $ 746,456 $ 145,530 $ 891,986
2000 742,567 140,914 883,481
1999 697,135 137,182 834,317
EBIT
2001 $ 119,761 $ 5,843 $ (13,889) $ 111,715
2000 123,649 5,017 (13,506) 115,160
1999 116,297 4,962 (13,105) 108,154
TOTAL ASSETS
2001 $ 750,527 $ 118,881 $ 53,274 $ 922,682
2000 797,625 120,937 33,677 952,239
1999 744,158 98,699 20,441 863,298
DEPRECIATION AND AMORTIZATION
2001 $ 57,685 $ 13,229 $ 813 $ 71,727
2000 58,518 11,601 830 70,949
1999 57,609 10,138 923 68,670
CAPITAL EXPENDITURES
2001 $ 77,228 $ 14,628 $ 365 $ 92,221
2000 78,592 15,179 162 93,933
1999 75,654 11,739 1,201 88,594
</TABLE>
Notes to consolidated Financial Statements: AptarGroup 77
<PAGE>
Reconciliation of segment EBIT, depreciation and amortization, and
total assets to consolidated totals is as follows:
<TABLE>
<CAPTION>
2001 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME BEFORE INCOME TAXES:
Total EBIT for reportable segments $ 111,715 $ 115,160 $ 108,154
Strategic Initiative charges/(1)/ (9,610) - -
IPR&D write-off - - (3,300)
Interest expense, net (13,750) (17,238) (13,076)
--------- --------------------
Income before Income taxes $ 88,355 $ 97,922 $ 91,778
========= ====================
DEPRECIATION AND AMORTIZATION:
Total depreciation and amortization
for reportable segments $ 71,727
Strategic Initiative related costs/(1)/ 1,857
---------
Consolidated Total $ 73,584
=========
TOTAL ASSETS:
Total Assets for reportable segments $ 922,682
Asset write-off as part of Strategic Initiative/(1)/ (7,355)
---------
Consolidated Total $ 915,327
=========
</TABLE>
(1) Strategic Initiative related costs are associated with the Dispensing
Systems segment. Management evaluates the segment profitability
excluding these costs and therefore these costs are shown as
reconciling items to the consolidated totals.
78 AptarGroup: Notes to Consolidated Financial Statements
<PAGE>
Geographic Information
The following are sales and long-lived asset information by geographic area
and product information for the years ended December 31, 2001, 2000 and
1999:
<TABLE>
<CAPTION>
2001 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS/(1)/:
United States $ 334,509 $ 343,825 $ 332,986
Europe:
France 209,588 173,910 180,808
Germany 119,476 119,091 111,829
Italy 82,424 77,307 55,139
Other Europe 70,387 97,101 102,048
--------- ---------------------
Total Europe 481,875 467,409 449,824
Other Foreign Countries 75,602 72,247 51,507
--------- ---------------------
Total $ 891,986 $ 883,481 $ 834,317
========= =====================
LONG-LIVED ASSETS:
United States $ 220,024 $ 238,525 $ 216,894
Europe:
France 111,780 113,402 106,534
Germany 97,359 91,771 97,141
Italy 58,941 56,313 55,555
Other Europe 22,467 20,529 19,784
--------- ---------------------
Total Europe 290,547 282,015 279,014
Other Foreign Countries 24,980 24,132 19,121
--------- ---------------------
Total $ 535,551 $ 544,672 $ 515,029
========= =====================
</TABLE>
(1) Sales are attributed to countries based upon where the sales invoice to
unaffiliated customers is generated.
Product Sales Information
<TABLE>
<CAPTION>
2001 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pumps $ 550,601 $ 546,148 $ 510,202
Closures 193,065 197,992 184,010
Valves 128,056 122,516 124,386
Other 20,264 16,825 15,719
--------- ----------------------
Total $ 891,986 $ 883,481 $ 834,317
========= ======================
</TABLE>
No single customer represents 10% or more of either of the Company's
reportable segment's net sales.
Notes to Consolidated Financial Statements: AptarGroup 79
<PAGE>
NOTE 17: Stock Repurchase Program
In 1999, the Board of Directors authorized the repurchase of a maximum of
one million shares of the Company's outstanding common stock and in 2000,
the Board of Directors authorized the repurchase of up to an additional two
million shares of the Company's outstanding common stock. The timing of and
total amount expended for the share repurchase program depends upon market
conditions. The cumulative total number of shares repurchased at December
31, 2001 was 1,155,000 shares for an aggregate amount of $29.9 million.
NOTE 18: Quarterly Data (Unaudited)
Quarterly results of operations and per share information for the years
ended December 31, 2001 and 2000 are as follows:
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter For Year
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 2001
Net sales $232,899 $ 231,769 $ 221,612 $ 205,706 $ 891,986
Gross profit/(1)/ 68,981 71,394 64,715 55,250 260,340
Net income 18,110 15,190 15,734 9,810 58,844
PER COMMON SHARE - 2001
Net income
Basic/(2)/ $ .51 $ .42 $ .44 $ .27 $ 1.64
Diluted/(2)/ .50 .41 .43 .27 1.61
Dividends paid .05 .05 .06 .06 .22
Stock price high 31.60 37.21 37.00 35.10 37.21
Stock price low 26.44 29.25 28.50 27.10 26.44
AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 35,683 35,795 35,879 35,859 35,805
Diluted 36,344 36,649 36,661 36,602 36,529
YEAR ENDED DECEMBER 31, 2000
Net sales $217,646 $ 227,667 $ 224,691 $ 213,477 $ 883,481
Gross profit/(1)/ 66,259 69,310 65,251 63,032 263,852
Net income 16,276 17,792 16,240 14,358 64,666
PER COMMON SHARE - 2000
Net income
Basic $ .45 $ .49 $ .45 $ .40 $ 1.80
Diluted .45 .49 .45 .40 1.78
Dividends paid .05 .05 .05 .05 .20
Stock price high 28.63 29.31 29.94 30.13 30.13
Stock price low 20.13 23.38 21.88 19.38 19.38
AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 36,136 35,949 35,774 35,600 35,863
Diluted 36,466 36,564 36,294 36,057 36,369
</TABLE>
(1) Gross profit is defined as net sales less cost of sales and
depreciation.
(2) The second, third and fourth quarters include after tax Strategic
Initiative costs of $4,643, $619 and $733, respectively, or $0.13,
$0.02, and $0.02 per diluted share.
80 AptarGroup: Notes to Consolidated Financial Statements
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stock holders of AptarGroup, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of cash flows and of changes in
equity present fairly, in all material respects, the financial position of
AptarGroup, Inc. and its subsidiaries at December 31, 2001 and 2000 and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. These
financial statements are the responsibility of AptarGroup, Inc.'s
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with auditing standards generally accepted in the United
States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
/S/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 13, 2002
Report of Independent Accountants: AptarGroup 81
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The financial statements of AptarGroup, Inc. and its consolidated
subsidiaries, and all other information presented in this Annual Report,
are the responsibility of the management of the Company. These statements
have been prepared in accordance with generally accepted accounting
principles consistently applied and reflect in all material respects the
substance of events and transactions that should be included.
Management is responsible for the accuracy and objectivity of the
financial statements, including estimates and judgments reflected therein,
and fulfills this responsibility primarily by establishing and maintaining
accounting systems and practices adequately supported by internal
accounting controls. Management believes that the internal accounting
controls in use are satisfactory to provide reasonable assurance that the
Company's assets are safeguarded, that transactions are executed in
accordance with management's authorizations, and that the financial records
are reliable for the purpose of preparing financial statements.
Independent accountants were selected by the Board of Directors, upon
the recommendation of the Audit Committee, to audit the financial
statements in accordance with generally accepted auditing standards. Their
audits include a review of internal accounting control policies and
procedures and selected tests of transactions.
The Audit Committee of the Board of Directors, which consists of three
directors who are not officers or employees of the Company, meets regularly
with management and the independent accountants to review matters relating
to financial reporting, internal accounting controls, and auditing. The
independent accountants have unrestricted access to the Audit Committee.
/s/ Carl A. Siebel
Carl A. Siebel
President and Chief Executive Officer
/s/ Stephen J. Hagge
Stephen J. Hagge
Executive Vice President and Chief Financial Officer
82 AptarGroup: Management's Responsibility for Financial Statements
<PAGE>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 2001 2000 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales $ 892.0 $ 883.5 $ 834.3 $ 713.5 $ 655.4
Cost of Sales 562.8 553.6 519.7 444.6 418.1
% Of Net Sales 63.1% 62.7% 62.3% 62.3% 63.8%
Selling, Research &
Development, and
Administrative 146.1 145.0 137.5 119.3 108.4
% of Net Sales 16.4% 16.4% 16.5% 16.7% 16.5%
Depreciation and
Amortization 73.6 70.9 68.7 54.4 49.9
% of Net Sales 8.3% 8.0% 8.2% 7.6% 7.6%
Operating Income 101.9 113.9 108.4 95.2 79.0
% of Net Sales 11.4% 12.9% 13.0% 13.3% 12.1%
Net Income/(1)/ 58.8 64.7 58.7 60.8 46.5
% of Net Sales 6.6% 7.3% 7.0% 8.5% 7.1%
PER COMMON SHARE:
Net Income
Basic $ 1.64 $ 1.80 $ 1.62 $ 1.69 $ 1.29
Diluted/(2)/ 1.61 1.78 1.59 1.65 1.27
Cash Dividends Declared 0.22 0.20 0.18 0.16 0.15
BALANCE SHEET AND OTHER DATA:
Capital Expenditures $ 92.2 $ 93.9 $ 88.6 $ 79.8 $ 71.2
Total Assets 915.3 952.2 863.3 714.7 585.4
Long-Term Obligations 239.4 252.8 235.6 80.9 70.7
Net Debt 204.5 236.8 238.4 92.9 55.9
Stockholders' Equity 469.2 440.5 420.3 415.5 342.1
Capital Expenditures
% of Net Sales 10.3% 10.6% 10.6% 11.2% 10.8%
Interest Bearing Debt to
Total Capitalization 35.0% 39.9% 39.2% 22.1% 17.7%
Net Debt to Total Net
Capitalization/(3)/ 30.4% 35.0% 36.2% 18.3% 14.0%
</TABLE>
(1) Net income includes Strategic Initiative charges of $6.0 million in
2001, $3.3 million of IPR&D write-off in 1999, and $6.1 million
favorable lawsuit settlements in 1998.
(2) Net income per diluted common share includes the negative effects of
$0.17 for Strategic Initiative charges in 2001, $0.09 for IPR&D
write-off in 1999, and a positive effect of $0.16 for favorable
lawsuit settlements in 1998.
(3) Net Debt is interest bearing debt less cash and cash equivalents. Net
Capitalization is Stockholder's Equity plus Net Debt.
Five Year Summary of Selected Financial Data: AptarGroup 83
<PAGE>
Management's Discussion and Analysis
(In thousands, except per share amounts or otherwise indicated)
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain items to net sales.
Year Ended December 31, 2001 2000 1999
-------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 63.1 62.7 62.3
Selling, research & development,
and administrative 16.4 16.4 16.5
Depreciation and amortization 8.2 8.0 8.2
Strategic Initiative charges 0.9 - -
----- -----------------
Operating income 11.4 12.9 13.0
Other income (expenses):
IPR&D write-off - - (0.4)
Net other expense (1.5) (1.8) (1.6)
----- -----------------
Income before income taxes 9.9 11.1 11.0
Provision for income taxes 3.3 3.8 4.0
----- -----------------
Net income 6.6% 7.3% 7.0%
===== =================
84 AptarGroup: Management's Discussion Analysis and Net Sales
<PAGE>
Net Sales
AptarGroup posted net sales in 2001 of $892.0 million, an increase of 1.0%
when compared to net sales of $883.5 million in 2000. Net sales, excluding
changes in foreign currency exchange rates and acquisitions ("Core Sales"),
grew 3% compared to the prior year. Core Sales of pumps to the worldwide
fragrance/cosmetic market were strong in the first half of 2001 and began
to decrease starting in the third quarter and continuing into the fourth
quarter of 2001 compared to 2000. For the year, Core Sales of pumps to the
worldwide fragrance/cosmetic market increased moderately compared to 2000.
Core Sales of aerosol valves, pumps and dispensing closures to the
worldwide personal care market decreased slightly from the prior year. Core
Sales of metered dose aerosol valves and pumps to the pharmaceutical market
showed moderate growth over the prior year. Pricing had a slightly negative
impact on sales during 2001 due in part to reduced plastic resin prices
passed through to customers who purchased dispensing closures.
Net sales in 2000 totaled $883.5 million, an increase of 6% when
compared to net sales of $834.3 million in 1999. Approximately 1% of the
net sales growth was related to increases in selling prices primarily
related to the pass through to customers of material cost increases. Net
sales were negatively affected by the translation of AptarGroup's foreign
sales into U.S. dollars due to the stronger U.S. dollar relative to 1999.
Core Sales grew 12% compared to the prior year. Core Sales of pumps to the
worldwide fragrance/cosmetic market were strong throughout 2000. Core Sales
of aerosol valves, pumps and dispensing closures to the European personal
care market also increased significantly over the prior year. Core Sales to
the pharmaceutical market grew moderately over the prior year. These
strengths were offset somewhat by weak sales of the Company's products to
the U.S. personal care market.
The following table sets forth, for the periods indicated, net sales
by geographic location.
<TABLE>
<CAPTION>
2001 % of Total 2000 % of Total 1999 % of Total
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic $ 334,509 38% $ 343,825 39% $332,986 40%
Europe 481,875 54% 467,409 53% 449,824 54%
Other Foreign 75,602 8% 72,247 8% 51,507 6%
</TABLE>
Cost of Sales
Cost of sales increased slightly as a percentage of net sales in 2001 to
63.1% compared to 62.7% in 2000. The cost of sales percentage was
negatively impacted by the following factors in 2001:
. Underutilized fixed costs worldwide due to the decrease in sales
in the fourth quarter.
. Increase in labor costs due to the full year impact of the
reduced 35 hour work week in France.
Offsetting these negative factors were the following positive impacts in
2001:
. Cost reduction programs implemented primarily in the U.S.
. Lower raw material prices, particularly plastic resin and metal
parts, compared to 2000.
Management's Discussion and Analysis: AptarGroup 85
<PAGE>
Cost of sales as a percentage of net sales in 2000 increased slightly to
62.7% compared to 62.3% in 1999. The cost of sales percentage was
negatively impacted by the following factors:
. Increases in raw material prices, particularly plastic resin and metal
in 2000 that were passed on to customers by increased selling prices,
thus having a slightly negative impact on operating margins.
. Partial year impact of implementation of the reduced 35 hour work week
in France.
. Underutilized fixed cost in the U.S. due to the weak sales in 2000 to
the U.S. personal care market.
Offsetting these negative factors were the following positive impacts:
. Better utilization of fixed costs in Europe due to strong sales to the
fragrance/cosmetic market.
. The effect of manufacturing products in Europe and incurring costs in
Euros and then selling these products in countries outside of Europe
in currencies that were stronger than the Euro relative to the prior
year.
Selling, Research & Development and Administrative
Selling, Research & Development and Administrative expenses ("SG&A")
increased approximately $1.1 million in 2001 compared to the prior year but
remained constant as a percentage of sales at 16.4%.
SG&A in 2000 increased by approximately $7.5 million compared to 1999
but decreased slightly as a percentage of sales to 16.4% from 16.5% in
1999. This reduction as a percent of sales is mainly due to cost reduction
efforts implemented in late 2000.
Depreciation and Amortization
Depreciation and amortization increased nearly $2.7 million to $73.6
million in 2001 compared to $70.9 million in 2000. As part of the Company's
Strategic Initiative (described below), certain long-lived assets will be
taken out of service prior to the end of the normal service period due to
the plant shutdown and rationalization of product line. Accordingly, the
Company has changed the estimated useful lives of such assets resulting in
an acceleration of depreciation ("Accelerated Depreciation"), of which $1.9
million was recorded in 2001 and included in depreciation and amortization
in the income statement. Excluding this Accelerated Depreciation,
depreciation and amortization increased $800 in 2001.
Depreciation and amortization increased nearly $2.2 million to $70.9
million in 2000 from $68.7 million recorded in 1999. The primary reason for
the increase was due to higher amortization expense attributed to a full
year of goodwill amortization on acquisitions completed in 1999 as well as
higher depreciation charges related to expenditures for geographic
expansion in 2000 and 1999.
Strategic Initiative Charges
In April 2001, the Company announced it had begun a project ("Strategic
Initiative") to improve the efficiency of operations that produce pumps for
its mass-market fragrance/cosmetic and personal care customers. In addition
to improving efficiency and reducing costs, another objective of the
Strategic Initiative is to improve customer service through reduced lead
times and the ability to customize finished products on a local basis. As
part of the Strategic Initiative, the Company closed one molding operation
in the U.S. and will consolidate the molding and assembly of the base
cartridge (standard internal components common to modular
86 AptarGroup: Management's Discussion and Analysis
<PAGE>
pumps) into one of the Company's facilities in Italy. In addition, the
Company is rationalizing its mass-market pump product lines for these two
markets by discontinuing production of non-modular pumps and increasing
capacity for its modular pumps.
Strategic Initiative charges totaled $7.6 million for the year ended
2001. The $7.6 million primarily relates to non-cash fixed asset impairment
charges of $5.5 million for fixed assets held for use related to
non-modular pumps that are going to be discontinued. These non-modular
pumps will continue to be sold during the Strategic Initiative project but
will be discontinued once there is adequate capacity for the modular pumps.
The undiscounted expected future cash flows for the products using these
non-modular pumps during this phase out period were less than the carrying
value of the specific identifiable assets used to generate these cash flows
and thus an impairment charge was recognized in accordance with SFAS No.
121 "Accounting for the Impairment of the Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The remaining Strategic Initiative
charges related primarily to accrued severance costs and related benefits
for approximately 170 U.S. employees who will be involuntarily terminated,
accrued utility abatement reimbursements and accrued costs to refurbish a
leased facility that the Company will be moving out of as a result of the
Strategic Initiative. Strategic Initiative charges plus Accelerated
Depreciation and other related costs such as training are hereinafter
referred to as "Total Strategic Initiative Related Costs." The Total
Strategic Initiative Related Costs are expected to be approximately $10
million before taxes by the end of the project in 2002, of which $9.6
million are included in the 2001 results of operations.
Operating Income
Operating income for 2001 decreased approximately $12.0 million compared to
2000. Excluding $9.6 million of Total Strategic Initiative Related Costs,
operating income decreased $2.4 million or 2.1% compared to the prior year.
Operating income as a percentage of net sales for 2001, excluding the Total
Strategic Initiative Related Costs, decreased slightly to 12.5% compared to
12.9% a year ago. The decreased operating income as a percentage of net
sales is due to the increases in cost of sales mentioned earlier. The net
of translating the Company's foreign denominated results with the impact of
incurring manufacturing costs in currencies different than the selling
currencies was not material in 2001.
Operating income in 2000 increased to $113.9 million compared to
$108.4 million in 1999. Operating income as a percentage of net sales for
2000 decreased slightly to 12.9% compared to 13.0% in 1999. The decreased
operating income percentage is primarily due to the increases in cost of
sales mentioned earlier. This includes a negative effect of translating the
Company's foreign denominated results into a stronger U.S. dollar relative
to the same period in 1999. The net of this negative translation impact
with the positive impact of incurring manufacturing costs in Euros and
selling in currencies that gained strength against the Euro in 2000 was a
negative impact of approximately $2 million.
Net Other Expenses
Net other expenses in 2001 decreased to $13.5 million from $16.0 million in
2000. The decrease is primarily related to the net of the following items:
[_] A net decrease in interest expense in excess of interest income ("Net
Interest Expense"), of approximately $3.5 million, due primarily to
decreased interest rates in both North America and Europe combined
with decreasing debt levels.
[_] A reduction in equity in results of affiliates of nearly $800 due to
start-up losses related to a joint venture created in 2000.
Management's Discussion and Analysis: AptarGroup 87
<PAGE>
Net other expenses in 2000 increased to $16.0 million compared to
$13.4 million in 1999 excluding the write-off purchased In Process Research
& Development ("IPR&D"). The change was due primarily to an increase in Net
Interest Expense, of approximately $4.2 million related to a full year of
interest expense associated with the acquisitions completed in 1999,
additional borrowings related to the Company's stock repurchase plan, and
increased average interest rates.
Effective Tax Rate
The reported effective tax rate was 33.3% in 2001 compared to 34.0% in
2000. Excluding the impact of the after-tax Total Strategic Initiative
Related Costs, the effective tax rate would have been 33.7% for 2001
compared to the 34.0% recorded in 2000. The decrease compared to the prior
year reflects the benefits of reductions in certain European corporate
income tax rates as well as the mix of where the Company's income was
earned.
The effective income tax rate in 2000 decreased to 34.0% from 36.0% in
1999. This decrease is due primarily to the positive effect of reductions
in European corporate tax rates on the Company's deferred income taxes in
2000.
Net Income
Net income as reported for the year 2001 decreased to $58.8 million
compared to $64.7 million in 2000. Excluding the after-tax effect of Total
Strategic Initiative Related Costs, net income remained relatively flat at
$64.8 million in 2001 compared to $64.7 million in 2000.
Net income increased 4.3% to $64.7 million compared to $62.0 million
excluding the write-up of IPR&D recorded in 1999. Net income as reported
increased 10.2% to $64.7 million in 2000 compared to $58.7 million in 1999.
DISPENSING SYSTEMS SEGMENT
The Dispensing Systems segment is an aggregate of four of the
Company's five business units. The Dispensing Systems segment sells
primarily non-aerosol spray and lotion pumps, plastic dispensing and
non-dispensing closures, and metered dose aerosol valves. These three
products are sold to all of the markets served by the Company including the
fragrance/cosmetic, personal care, pharmaceutical, household, and
food/beverage markets.
Net sales in 2001 increased approximately 1% to $746.5 million
compared to $742.6 million in 2000. Net sales in 2000 increased
approximately 7% over 1999 sales of $697.1 million. Net sales of the
segment's products to the pharmaceutical market grew moderately in 2001
compared to 2000, while sales to this market increased moderately from 1999
to 2000. Sales of this segment's products to the fragrance/cosmetic market
increased moderately compared to 2000 and significantly over 1999 levels.
Sales to the fragrance/cosmetic market were particularly strong in the
first half of 2001 and decreased significantly in the fourth quarter. Sales
of this segment's products to the personal care market decreased moderately
over 2000, while they increased significantly in 2000 from 1999.
Segment EBIT (defined as earnings before net interest, corporate
expenses, income taxes and unusual items), decreased approximately 3% to
$119.8 million from $123.6 million in 2000. The decrease in EBIT is
primarily related to the sharp decrease in sales to the fragrance/cosmetic
market in the second half of the year, causing significant under
utilization of fixed costs. Segment EBIT in 2000 increased approximately 6%
compared to $116.3 million in 1999. The increase in EBIT in 2000 was
primarily related to the significant increase in sales to the
fragrance/cosmetic market in 2000 compared to 1999.
88 AptarGroup: Management's Discussion and Analysis
<PAGE>
SEAQUISTPERFECT SEGMENT
SeaquistPerfect represents the Company's fifth business unit and sells
primarily aerosol valves and accessories and certain non-aerosol spray and
lotion pumps. These products are sold primarily to the personal care,
household, and food/beverage markets.
Net sales in 2001 increased approximately 3% to $145.5 million
compared to $140.9 million in 2000. The increase in sales in 2001 is due
primarily to an increase in sales to the European personal care market.
Sales in Europe of both aerosol valves and non-aerosol spray and lotion
pumps increased nearly 6% over 2000 levels. Sales in North America
decreased slightly, due primarily to decreased sales of non-aerosol spray
and lotion pumps to the personal care market. Sales in 2000 increased
approximately 3% compared to $137.2 million in 1999. The increase was due
primarily to an increase in Europe of sales of non-aerosol spray and lotion
pumps to the personal care market. Worldwide sales of aerosol valves
remained flat compared to 1999.
Segment EBIT in 2001 increased approximately 16% to $5.8 million
compared to $5.0 million in 2000, primarily due to the North American cost
savings efforts and an aerosol valve price increase implemented in 2001.
Segment EBIT in 2000 was up slightly compared to 1999. The slight increase
in EBIT was primarily due to the increase in sales volumes.
MARKET RISKS
A significant number of the Company's 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 AptarGroup's foreign entities. The Company's
primary foreign exchange exposure is to the Euro, but the Company also has
foreign exchange exposure to South American and Asian currencies as well as
the British pound. A strengthening U.S. dollar relative to foreign
currencies has a dilutive translation effect on the Company's financial
condition and results of operations. Conversely, a weakening U.S. dollar
has an additive effect.
Additionally, in some cases, the Company sells 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 impact the
Company's results of operations.
The Company manages its 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 December 31, 2001, about
the Company's forward currency exchange contracts. All the contracts expire
before the end of the third quarter of 2002.
Average
Contractual
Buy/Sell Contract Amount Exchange Rate
--------------------------------------------------------------------------
Euro/U.S. Dollar $ 15,307 1.1166
U.S. Dollar/Chinese Yuan 1,738 .1208
Euro/Japanese Yen 982 .0092
Euro/Brazilian Real 936 .4409
Euro/British Pound 845 1.6023
Hong Kong Dollar/Euro 640 6.9620
--------
Total $ 20,448
========
Management's Discussion and Analysis: AptarGroup 89
<PAGE>
As of December 31, 2001, the Company has recorded the fair value of
foreign currency forward exchange contracts of $205 in accounts payable and
accrued liabilities and $87 in prepayments and other in the balance sheet.
All forward exchange contracts outstanding as of December 31, 2000 had
an aggregate contract amount of $23.4 million.
At December 31, 2001, the Company has fixed-to-variable interest rate
swap agreements with a notional principal value of $50 million which
require the Company to pay an average variable interest rate (which was
2.0% at December 31, 2001) and receive a fixed rate of 6.6%. The variable
rates are adjusted semiannually based on London Interbank Offered Rates
("LIBOR"). Variations in market interest rates would produce changes in the
Company's net income. If interest rates increase by 10%, net income related
to the interest rate swap agreements would decrease by approximately $100
assuming a tax rate of 33%. As of December 31, 2001, the Company has
recorded the fair value of derivative instrument assets of $3.8 million in
miscellaneous other assets with an offsetting adjustment to debt related to
the fixed-to-variable interest rate swap agreements. No gain or loss was
recorded in the income statement in 2001 since there was no hedge
ineffectiveness.
The Company currently has a wholly owned subsidiary located in
Argentina. In 2001, the wholly owned subsidiary had net sales of
approximately $8 million, approximately one half of which was sold outside
of Argentina and invoiced in U.S. dollars. The subsidiary purchases certain
components in either U.S. dollars or Euros, and finishes the products
locally. At December 31, 2001, the subsidiary had approximately $400 of a
net liability exposure denominated in either U.S. dollars or Euros that was
revalued using a devalued Argentine Peso. This revaluation of the net
liability position resulted in an unrealized foreign exchange loss reported
in the results of operations of approximately $140. The Company expects
business in Argentina to be disrupted during the current economic crisis,
but any negative impact is not expected to be significant to the overall
worldwide results of operations in 2002.
LIQUIDITY AND CAPITAL RESOURCES
Net cash generated from operating activities increased slightly to $127.9
million in 2001 compared to $127.8 million and $118.4 million in 2000 and
1999, respectively. In each of these years, cash flow from operations was
primarily derived from earnings before depreciation and amortization.
During 2001, the Company utilized the majority of such cash flows to
finance capital expenditures, pay down existing debt obligations,
repurchase Company stock, and pay dividends to shareholders. Cash and
equivalents were $48.0 million at December 31, 2001 versus $55.6 million at
December 31, 2000 and $32.4 million at December 31, 1999.
Working capital increased $16.4 million to $220.8 million at December
31, 2001 compared to $204.4 million and $191.3 million at December 31, 2000
and 1999, respectively. While accounts receivable and inventory balances
decreased in 2001 from the prior year, short-term notes payable and
accounts payable and accrued liabilities, in aggregate, decreased by a
larger amount.
The Company used $90.5 million in cash for investing activities during
2001 compared to $97.7 million and $232.7 million during 2000 and 1999,
respectively. The slight decrease in cash used for investing activities in
2001 was due to the fact that no new businesses were acquired in 2001 and
no significant increases in equity investments and affiliates were made.
The significant decrease in cash used for investing activities from 1999 to
2000 was due primarily to the Emsar acquisition of $144 million made in
1999. Capital expenditures
90 AptarGroup: Management's Discussion and Analysis
<PAGE>
totaled $92.2 million in 2001 as the Company continued to invest in
property, plant and equipment primarily for new products, capacity
increases, product line extensions, and capital costs related to the
Strategic Initiative, compared to $93.9 million and $88.6 million in 2000
and 1999, respectively. Cash outlays for capital expenditures for 2002 are
estimated to be approximately $80 million. The Company estimates that
approximately 35% of next year's capital will be spent on maintenance of
the business.
During the third quarter of 2000, the Company contributed assets worth
approximately $7.4 million and liabilities worth approximately $2.4 million
into a joint venture to produce airless pump dispensing systems for the
fragrance/cosmetic market. Prior to creating the joint venture, the Company
had annual sales of approximately $15 million of airless dispensing systems
that are now sold as part of the joint venture and are therefore not
included in net sales. The impact on profitability in 2000 was not
significant. The Company's share of the joint venture loss in 2001 was
approximately $800. The results derived from the joint venture are shown in
the income statement in equity as results of affiliates.
Net cash (used) provided by financing activities was ($42.0) million
in 2001 compared to ($5.7) million and $124.1 million provided in 2000 and
1999, respectively. The net cash used by financing activities in 2001 was
primarily due to the repayment of short-term and long-term debt as well as
dividends paid to shareholders and the Company's stock repurchase program.
The Company is authorized to repurchase a maximum of 3 million shares of
the Company's outstanding common stock. As of December 31, 2001, 1.2
million shares have been repurchased for an aggregate amount of $29.9
million. 155 thousand shares were repurchased in 2001 for an aggregate
amount of $5.0 million. The ratio of the Company's Net Debt (interest
bearing debt less cash and cash equivalents) to Net Capital (stockholder's
equity plus Net Debt) was 30.3% and 35.0% as of December 31, 2001 and 2000,
respectively.
In May 1999, the Company entered into a $107 million twelve-year
private debt placement agreement. The private placement is comprised of
$107 million of 6.6% senior unsecured notes. The notes will be repaid in
equal annual installments of $21.4 million beginning on May 30, 2007 and
ending on May 30, 2011.
During the third quarter of 1999, the Company entered into interest
rate swap agreements with two different banks for a notional amount of $25
million each or total of $50 million. The agreements swapped the 6.6% fixed
interest rate on the private placement described above for variable
floating rates equal to the six month LIBOR, less a spread ranging from 8.3
to 10.5 basis points. The amortization schedule for the swap agreements was
designed to match the amortization of the underlying private placement.
The Company amended its multi-year, multi-currency unsecured revolving
credit agreement in December of 2000 to increase maximum borrowings allowed
from $75 million to $100 million. Under this credit agreement, interest on
borrowing is payable at a rate equal to LIBOR plus an amount based on the
financial condition of the Company. At December 31, 2001 the amount unused
and available under this agreement was $24 million. The Company is required
to pay a fee for the unused portion of the commitment. The agreement
expires on June 30, 2004. The credit available under the revolving credit
agreement provides management with the ability to refinance certain
short-term debt obligations on a long-term basis. Since management has the
ability and intent to do so, an additional $24 million of short-term debt
obligations representing the unused and available amount under the credit
agreement have been reclassified as long-term obligations as of December
31, 2001.
Management's Discussion and Analysis: AptarGroup 91
<PAGE>
As mentioned in Note 9 - Lease Commitments, the Company leases certain
warehouse, plant, and office facilities as well as certain equipment under
noncancelable operating and capital leases expiring at various dates
through the year 2018. 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. The Company has an option on one building lease to
purchase the building during or at the end of the term of the lease at
approximately the amount expended by the lessor for the purchase of the
building and improvements. If the Company does not exercise the purchase
option by the end of the lease, the Company may be required to pay an
amount not to exceed $9.5 million.
The Company has obligations and commitments to make future payments
under contracts such as debt and lease agreements, but otherwise has no off
balance sheet arrangements. Below is a table of those future payments:
<TABLE>
<CAPTION>
Payments Due by Period
---------------------------------------------------------------
Contractual Subsequent
Obligations Total 2002 2003 2004 2005 to 2005
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term
Debt $218,572 $ 11,856 $ 5,912 $ 81,474 $ 7,119 $112,211
Capital Lease
Obligations 12,214 1,889 1,676 2,045 1,320 5,284
Operating
Leases 32,527 8,145 6,544 5,824 4,551 7,463
-------------------------------------------------------------------------
Totals $263,313 $ 21,890 $ 14,132 $ 89,343 $ 12,990 $124,958
=========================================================================
</TABLE>
The Company's foreign operations have historically met cash
requirements with the use of internally generated cash or borrowings.
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. While management currently intends to reinvest such
cash from foreign operations, the timing of the decision to transfer such
cash to the U.S. in the future may be impacted to the extent management
believes the transaction costs and taxes associated with such transfers are
less than the expected benefits.
The Company believes it is in a strong financial position and has the
financial resources to meet business requirements in the foreseeable
future. The Company has historically used cash flow from operations as its
primary source of liquidity. In the case that customer demand would
decrease significantly for a prolonged period of time and negatively impact
cash flow from operations, the Company would have the ability to restrict
and significantly reduce capital expenditure levels which historically have
been the most significant use of cash for the Company.
ADOPTION OF ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 requires companies to use the purchase method of
accounting for all business combinations initiated after June 30, 2001 and
eliminates the use of the pooling of interest method of accounting for
business combinations. All of the Company's acquisitions to
92 AptarGroup: Management's Discussion and Analysis
<PAGE>
date have been accounted for using the purchase method of accounting for
business combinations. SFAS No. 141 also establishes criteria that must be
used to determine whether acquired intangible assets should be recognized
separately from goodwill in a Company's financial statements.
SFAS No. 142 details the method by which companies will account for
goodwill and intangible assets after a business combination has been
completed. This accounting standard eliminates the requirement that
goodwill and indefinite lived intangible assets arising from a business
combination be amortized and charged to expense over time. Instead,
goodwill and indefinite lived intangible assets must be tested annually, or
as circumstances dictate, for impairment. If the carrying value of
indefinite lived intangible assets exceed their fair value, an impairment
loss is recognized in an amount equal to that excess. If the carrying value
of the related reporting unit exceeds its fair value, an impairment loss is
recognized to the extent that the carrying value of reporting unit goodwill
exceeds the "implied fair value" of reporting unit goodwill.
As required by SFAS No. 142, the Company will adopt this standard
effective with the start of its new fiscal year beginning January 1, 2002.
Before the issuance of its first quarter financial statements, the Company
must complete an assessment of the categorization of its existing
intangible assets and goodwill in accordance with the new criteria and
report them appropriately. Intangible assets that have indefinite lives
must be assessed for impairment in the first quarter of adoption.
Intangible assets with finite lives will continue to be subject to
amortization over their expected useful lives. Within six months of
adoption, the Company must complete a valuation of each reporting unit's
goodwill to determine if there has been any impairment. The Company has
already performed an analysis of the fair value of its reporting units. The
fair value of the reporting units exceeds the carrying values and
therefore, no impairment of goodwill will be reported in the first quarter
of 2002. The Company recorded amortization of goodwill of approximately
$3.6 million per year on a pre-tax basis and $3.5 million on an after-tax
basis in 2001.
In July 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated for the retirement of tangible
long-lived assets and the associated retirement costs. This statement is
effective for financial statements issued for fiscal years beginning after
June 15, 2002. The Company has performed a preliminary assessment and has
determined that this standard will not have any immediate impact on the
Company upon adoption.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement is effective for financial statements
issued for fiscal years beginning after December 15, 2001. The Company
believes it is in compliance with the application of this statement today
and does not foresee any impact upon adoption next year.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of the financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. The Company continually evaluates its estimates,
including those related to bad debts, inventories, intangible assets,
income
Management's Discussion and Analysis: AptarGroup 93
<PAGE>
taxes, pensions and contingencies. The Company bases its estimates on
historical experience and on a variety of other assumptions believed to be
reasonable in order to make judgments about the carrying values of assets
and liabilities. Actual results may differ from these estimates under
different assumptions or conditions.
The Company believes the following critical accounting policies affect
its more significant judgments and estimates used in preparation of its
consolidated financial statements.
The Company records an allowance for doubtful accounts for estimated
losses from the inability of its customers to make required payments. If
the financial condition of the Company's customers were to deteriorate,
their ability to make payments may decrease and thus an additional
allowance for doubtful accounts may be required.
The Company records a reserve for obsolete inventory. If actual market
conditions are less favorable than management has estimated, additional
reserves for obsolete inventory may be required.
The Company has recorded deferred tax assets for net operating loss
carryforwards at certain of its foreign subsidiaries. The Company believes
these net operating loss carryforwards will be utilized against future
taxable income and thus no valuation allowance is required. If the
expectation of future taxable income of these foreign subsidiaries
declines, a valuation allowance may be required against the deferred tax
assets and would be charged against income.
Although the Company currently does not anticipate an impairment
charge in the first quarter of 2002 related to goodwill, this conclusion is
based on fair market values of the Company's reporting units exceeding
carrying values. Should the fair values of the reporting units decline in
the future, an impairment charge may need to be recorded.
OUTLOOK
The Company anticipates a relatively slow beginning to the year 2002
compared to the start of 2001. However, based on discussion with customers
and a variety of current projects in process, the Company expects business
to gradually improve throughout 2002. The demand for the Company's
fragrance/cosmetic and personal care products is expected to improve over
the depressed levels in the fourth quarter of 2001. However, due to the
strength of the business in the first quarter of 2001, it will be difficult
to improve on last year's first quarter results. The positive trend for the
Company's products sold to the pharmaceutical market that began in the
second half of 2001 is expected to continue in 2002. The Company
anticipates Core Sales for the first quarter to be below the prior year by
approximately 3% to 6%, but gradually improving throughout the remainder of
2002. For the full year, the Company expects double digit earnings growth
on a comparable basis over 2001.
Excluding Total Strategic Initiative Related Costs, the Company
expects the effective tax rate for 2002 to be in the range of 33% to 34%
compared to a rate of 32.7% for 2001 after adjusting for the elimination of
goodwill amortization.
The Company experienced a slight decrease in the cost of raw materials
in 2001, in particular, plastic resins and metal components. The Company
does not anticipate any significant increases or decreases to the cost of
its raw materials in 2002. Should raw materials increase or decrease
dramatically in 2002, this could have an impact on the anticipated results
for 2002.
94 AptarGroup: Management's Discussion and Analysis
<PAGE>
The Strategic Initiative project is scheduled to be completed by the
end of 2002. The Company is anticipating cost savings in 2002 of
approximately $2 million. While the project is currently on schedule to be
completed in 2002, it is estimated that every delay of one month in
completing the project will equate to a lost savings opportunity of
approximately $500 per month for each month the project is delayed.
Also in 2002, the Company's new U.S. pharmaceutical production
facility is expected to begin production. The start up of this facility is
dependent upon approvals to be received from the Company's pharmaceutical
customers. A delay in receiving customer approvals to begin production in
the new facility could result in additional overhead costs, due to the fact
that the Company may be required to maintain some existing customer
approved production at the old facility while supporting the start up of
the new facility.
The Company uses specific plastic resin for certain of its
pharmaceutical products. These specific resins need to be approved by the
customers and by the Food and Drug Administration (FDA) in the United
States when the customer is obtaining approval to market its product.
Should these plastic resins become unavailable to purchase on the market,
the Company could suffer a delay in shipping product to its pharmaceutical
customers.
Due to the relatively high fixed cost nature of the Company's
business, sudden significant decreases in business may have a significant
impact on the Company's results of operations, as seen in the fourth
quarter of 2001. The Company has difficulty, due to the fixed cost nature
of its businesses, particularly in Europe, to reduce costs fast enough to
offset the decline in business.
The Company in some cases sells products denominated in a currency
different than the currency in which the respective costs are incurred.
Changes in exchange rates on such inter-country sales impact the Company's
results of operations.
FORWARD LOOKING STATEMENTS
This Management's Discussion and Analysis and certain other sections of
this annual report contain forward-looking statements that involve a number
of risks and uncertainties. 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
management's beliefs as well as assumptions made by and information
currently available to management. Accordingly, the Company's 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 the Company's operations and business environment, including
but not limited to direct or indirect consequences of acts of war or
terrorism, government regulation including tax rate policies, competition
and technological change, intellectual property rights, the failure by the
Company to produce anticipated cost savings or improve productivity, the
timing and magnitude of capital expenditures and acquisitions, currency
exchange rates, interest rates, economic and market conditions in the
United States, Europe and the rest of the world, changes in customer
spending levels, the demand for existing and new products, the cost and
availability of raw materials, the successful integration of the Company's
acquisitions, and other risks associated with the Company's operations.
Although the Company believes that its 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.
Management's Discussion and Analysis: AptarGroup 95
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>5
<FILENAME>dex21.txt
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>
<PAGE>
EX-21
List of Subsidiaries
APTARGROUP, INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
State or Other
Jurisdiction of Percentage
Incorporation Owned
------------- -----
<S> <C> <C>
AptarGroup International L.L.C. Delaware 100%
AptarGroup Foreign Sales Corporation Barbados 100%
AptarGroup International Holding B.V. Netherlands 100%
Valois (Ireland) Limited Ireland 100%
AptarGroup Holding S.A.S. France 100%
Aptar GmbH Germany 100%
Ing. Erich Pfeiffer GmbH Germany 100%
Pfeiffer Vaporisateurs France SARL France 100%
P & S Japan Ltd. Japan 100%
Pfeiffer U.K. Limited United Kingdom 100%
P&P Promotion of German Manufacturing
Technologies GmbH Germany 100%
Vallis Leasobjekt GmbH Germany 100%
Seaplast S.A. Spain 50%
Seaquist-Loffler Kunststoffwerk GmbH Germany 100%
Loeffler Kunststoffwerk spol. s.r.o. Czech Republic 100%
SeaquistPerfect Dispensing GmbH Germany 100%
Valois Deutschland GmbH Germany 100%
SeaquistPerfect Plastic GmbH Germany 100%
AptarGroup S.A.S. France 100%
Dispensing One S.A.S. France 100%
Aptar South Europe SARL France 100%
Novares S.p.A. Italy 100%
EMSAR S.p.A. Italy 100%
EMSAR France SCA France 100%
AptarGroup SAR Finance Unlimited Ireland 100%
EMSAR GmbH Germany 100%
SAR (U.K.) Limited United Kingdom 100%
Somova S.r.l. Italy 100%
Spruhventile GmbH Germany 100%
Caideil M.P. Teoranta Ireland 100%
General Plastics S.A. France 100%
Graphocolor S.A. France 60%
Moulage Plastique de Normandie S.A. France 100%
Perfect-Valois U.K. Limited United Kingdom 100%
Seaquist-Loffler Limited United Kingdom 100%
Valois S.A.S. France 100%
Valois Dispray S.A. Switzerland 100%
Valois Espana S.A. Spain 100%
Valois Italiana S.r.l. Italy 100%
Ensyma S.A. Switzerland 100%
Microflow Engineering S.A. Switzerland 80%
Airlessystems S.A.S. France 50%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Aptar India Private Limited India 100%
Valois India Private Ltd. India 100%
EMSAR Dispensing Systems Ltd. Hong Kong 100%
EMSAR Brasil Ltda. Brazil 100%
EMSAR S.A. Argentina 100%
Seaquist Canada Ltd. Canada 100%
Seaquist Finance Unlimited Ireland 100%
Seaquist-Valois Australia Pty. Ltd. Australia 100%
Seaquist-Valois do Brasil Ltda. Brazil 100%
Seaquist-Valois Japan, Inc. Japan 100%
SeaquistPerfect Dispensing de Mexico
S.A. de C.V. Mexico 100%
Aptar Suzhou Dispensing Systems Co., Ltd. P.R. China 100%
SeaquistPerfect Molding L.L.C. Illinois 100%
Emson Research, Inc. Connecticut 100%
EMSAR UK Ltd. United Kingdom 100%
Emson Foreign Sales Corporation U.S. Virgin Islands 100%
EMSAR, Inc. Connecticut 100%
EMSAR Ventures, Inc. Connecticut 100%
P.T. Emsar Ongko Indonesia Indonesia 100%
Emson Spraytech India Private Ltd. India 100%
Global Precision, Inc. Florida 100%
Liquid Molding Systems, Inc. Delaware 100%
Philson, Inc. Connecticut 100%
Pfeiffer of America, Inc. Delaware 100%
P Merger Corporation Connecticut 100%
Seaquist Closures L.L.C. Delaware 100%
Seaquist Closures Foreign, Inc. Delaware 100%
Seaquist de Mexico S.A. de C.V. Mexico 75%
SeaquistPerfect Dispensing L.L.C. Delaware 100%
SeaquistPerfect Dispensing Foreign, Inc. Delaware 100%
Valois of America, Inc. Connecticut 100%
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>6
<FILENAME>dex23.txt
<DESCRIPTION>CONSENT OF INDEPENDENT ACCOUNTANTS
<TEXT>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-64320, 33-80408, 333-40326 and 333-05325) of
AptarGroup, Inc. of our report dated February 13, 2002 relating to the financial
statements, which appears in the Annual Report to Stockholders which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated February 13, 2002 relating to the
financial statement schedule, which appears in this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
Chicago, Illinois
March 21, 2002
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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