UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024
OR
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-11846
| (State of Incorporation) | (I.R.S. Employer Identification No.) | |||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
The number of shares outstanding of common stock, as of April 22, 2024, was 66,263,631 shares.
AptarGroup, Inc.
Form 10-Q
Quarter Ended March 31, 2024
INDEX
i
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| In thousands, except per share amounts | |||||||||||
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Net Sales | $ | $ | |||||||||
| Operating Expenses: | |||||||||||
| Cost of sales (exclusive of depreciation and amortization shown below) | |||||||||||
| Selling, research & development and administrative | |||||||||||
| Depreciation and amortization | |||||||||||
| Restructuring initiatives | |||||||||||
| Total Operating Expenses | |||||||||||
| Operating Income | |||||||||||
| Other (Expense) Income: | |||||||||||
| Interest expense | ( | ( | |||||||||
| Interest income | |||||||||||
| Net investment gain | |||||||||||
| Equity in results of affiliates | ( | ( | |||||||||
| Miscellaneous expense, net | ( | ( | |||||||||
| Total Other Expense | ( | ( | |||||||||
| Income before Income Taxes | |||||||||||
| Provision for Income Taxes | |||||||||||
| Net Income | $ | $ | |||||||||
| Net Loss Attributable to Noncontrolling Interests | $ | $ | |||||||||
| Net Income Attributable to AptarGroup, Inc. | $ | $ | |||||||||
| Net Income Attributable to AptarGroup, Inc. per Common Share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Average Number of Shares Outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
| Dividends per Common Share | $ | $ | |||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
1
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| In thousands | |||||||||||
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Net Income | $ | $ | |||||||||
| Other Comprehensive (Loss) Income: | |||||||||||
| Foreign currency translation adjustments | ( | ||||||||||
| Changes in derivative gains (losses), net of tax | ( | ||||||||||
| Defined benefit pension plan, net of tax | |||||||||||
| Actuarial gain, net of tax | |||||||||||
| Amortization of prior service cost included in net income, net of tax | |||||||||||
| Amortization of net loss included in net income, net of tax | |||||||||||
| Total defined benefit pension plan, net of tax | |||||||||||
| Total other comprehensive (loss) income | ( | ||||||||||
| Comprehensive Income | |||||||||||
| Comprehensive Loss (Income) Attributable to Noncontrolling Interests | ( | ||||||||||
| Comprehensive Income Attributable to AptarGroup, Inc. | $ | $ | |||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
2
AptarGroup, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| In thousands | |||||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| Assets | |||||||||||
| Cash and equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
Accounts and notes receivable, less current expected credit loss ("CECL") of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid and other | |||||||||||
| Total Current Assets | |||||||||||
| Land | |||||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Property, Plant and Equipment, Gross | |||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||
| Property, Plant and Equipment, Net | |||||||||||
| Investments in equity securities | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Miscellaneous | |||||||||||
| Total Other Assets | |||||||||||
| Total Assets | $ | $ | |||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
3
AptarGroup, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| In thousands, except share and per share amounts | |||||||||||
| March 31, 2024 | December 31, 2023 | ||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current Liabilities: | |||||||||||
| Notes payable, revolving credit facility and overdrafts | $ | $ | |||||||||
| Current maturities of long-term obligations, net of unamortized debt issuance costs | |||||||||||
| Accounts payable, accrued and other liabilities | |||||||||||
| Total Current Liabilities | |||||||||||
| Long-Term Obligations, net of unamortized debt issuance costs | |||||||||||
| Deferred income taxes | |||||||||||
| Retirement and deferred compensation plans | |||||||||||
| Operating lease liabilities | |||||||||||
| Deferred and other non-current liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Total Deferred Liabilities and Other | |||||||||||
| AptarGroup, Inc. stockholders’ equity | |||||||||||
Common stock, $ | |||||||||||
| Capital in excess of par value | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Less: Treasury stock at cost, | ( | ( | |||||||||
| Total AptarGroup, Inc. Stockholders’ Equity | |||||||||||
| Noncontrolling interests in subsidiaries | |||||||||||
| Total Stockholders’ Equity | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
4
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| In thousands | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | AptarGroup, Inc. Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
| March 31, 2024 and 2023 | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Common Stock Par Value | Treasury Stock | Capital in Excess of Par Value | Non- Controlling Interest | Total Equity | ||||||||||||||||||||||||||||||||||
Balance - December 31, 2022 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | — | — | — | |||||||||||||||||||||||||||||||||||||
| Changes in unrecognized pension gains (losses) and related amortization, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Changes in derivative gains (losses), net of tax | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock awards and option exercises | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | ( | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Treasury stock purchased | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
Balance - December 31, 2023 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Changes in unrecognized pension gains (losses) and related amortization, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Changes in derivative gains (losses), net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock awards and option exercises | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | ( | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Treasury stock purchased | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance - March 31, 2024 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
5
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| In thousands, brackets denote cash outflows | |||||||||||
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operations: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Stock-based compensation | |||||||||||
(Release) Provision for CECL | ( | ||||||||||
| Loss (gain) on disposition of fixed assets | ( | ||||||||||
| Net gain on remeasurement of equity securities | ( | ( | |||||||||
| Deferred income taxes | ( | ( | |||||||||
| Defined benefit plan expense | |||||||||||
| Equity in results of affiliates | |||||||||||
| Changes in balance sheet items, excluding effects from foreign currency adjustments: | |||||||||||
| Accounts and other receivables | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Prepaid and other current assets | ( | ( | |||||||||
| Accounts payable, accrued and other liabilities | |||||||||||
| Income taxes payable | ( | ( | |||||||||
| Retirement and deferred compensation plan liabilities | ( | ( | |||||||||
| Other changes, net | ( | ( | |||||||||
| Net Cash Provided by Operations | |||||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from sale of property, plant and equipment | |||||||||||
| Purchase of short-term investments | ( | ||||||||||
| Acquisition of businesses, net of cash acquired and release of escrow | ( | ||||||||||
| Acquisition of intangible assets, net | ( | ||||||||||
| Notes receivable, net | ( | ( | |||||||||
| Net Cash Used by Investing Activities | ( | ( | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Proceeds from notes payable and overdrafts | |||||||||||
| Repayments of notes payable and overdrafts | ( | ||||||||||
| Proceeds and (repayments) of short term revolving credit facility, net | |||||||||||
| Proceeds from long-term obligations | |||||||||||
| Repayments of long-term obligations | ( | ( | |||||||||
| Dividends paid | ( | ( | |||||||||
| Proceeds from stock option exercises | |||||||||||
| Purchase of treasury stock | ( | ( | |||||||||
| Net Cash Used by Financing Activities | ( | ( | |||||||||
| Effect of Exchange Rate Changes on Cash | ( | ||||||||||
| Net Decrease in Cash and Equivalents and Restricted Cash | ( | ( | |||||||||
| Cash and Equivalents and Restricted Cash at Beginning of Period | |||||||||||
| Cash and Equivalents and Restricted Cash at End of Period | $ | $ | |||||||||
6
Restricted cash included in the line item prepaid and other on the Condensed Consolidated Balance Sheets as shown below represents amounts held in escrow related to the Metaphase acquisition.
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Cash and equivalents | $ | $ | |||||||||
| Restricted cash included in prepaid and other | |||||||||||
| Total Cash and Equivalents and Restricted Cash shown in the Statement of Cash Flows | $ | $ | |||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
7
AptarGroup, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, Except per Share Amounts, or as Otherwise Indicated)
(Unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of AptarGroup, Inc. and our subsidiaries. The terms “AptarGroup,” “Aptar,” “Company,” “we,” “us” or “our” as used herein refer to AptarGroup, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain previously reported amounts have been reclassified to conform to the current period presentation.
In the opinion of management, the unaudited Condensed Consolidated Financial Statements (the “Condensed Consolidated Financial Statements”) include all normal recurring adjustments necessary for a fair statement of consolidated financial position, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. The accompanying Condensed Consolidated Financial Statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. Also, certain financial position data included herein was derived from the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 but does not include all disclosures required by U.S. GAAP. Accordingly, these Condensed Consolidated Financial Statements and related notes should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.
ADOPTION OF RECENT ACCOUNTING STANDARDS
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification.
In March 2020, the FASB issued ASU 2020-04, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments to this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 was further amended in January 2021 by ASU 2021-01 which clarified the applicability of certain provisions. Both standards are effective upon issuance and could be adopted any time prior to December 31, 2022. The guidance in ASU 2020-04 and ASU 2021-01 is optional and may be elected over time as reference rate reform activities occur. We adopted this guidance in the second quarter of 2023 and have transitioned away from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR") in our revolving credit facility.
In November 2023, the FASB issued ASU 2023-07, Improvement to Reportable Segment Disclosures, which requires enhanced disclosures about significant segment expenses on an annual and interim basis. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and are to be applied on a retrospective basis. We are evaluating the impact of the standard on our segment reporting disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which is intended to improve income tax disclosure requirements by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation and (ii) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to income tax disclosure requirements. The amendments is ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and is required to be applied prospectively with the option of retrospective application. We are evaluating the impact of the standard on our income tax disclosures.
Other accounting standards that have been issued by the FASB or other standards-setting bodies did not have a material impact on our Condensed Consolidated Financial Statements.
INCOME TAXES
We compute taxes on income in accordance with the tax rules and regulations of the many taxing authorities where income is earned. The income tax rates imposed by these taxing authorities may vary substantially. Taxable income may differ from pre-tax income for U.S. GAAP financial accounting purposes. To the extent that these differences create temporary differences between the tax basis of an asset or liability and our reported amount in the U.S. GAAP financial statements, an appropriate provision for deferred income taxes is made.
8
We maintain our assertion that the cash and distributable reserves at our non-U.S. affiliates are indefinitely reinvested with the following exceptions: all earnings in Germany and the pre-2020 earnings in Italy, Switzerland and Colombia. As of March 31, 2024, under currently enacted laws, we do not have a balance of foreign earnings that will be subject to U.S. taxation upon repatriation. We will provide for the necessary withholding and local income taxes when management decides that an affiliate should make a distribution. These decisions are made taking into consideration the financial requirements of the non-U.S. affiliates and our global cash management goals. See Note 5 - Income Taxes for more information.
We provide a liability for the amount of unrecognized tax benefits from uncertain tax positions. This liability is provided whenever we determine that a tax benefit will not meet a more-likely-than-not threshold for recognition.
We are subject to the examination of our returns and other tax matters by the U.S. Internal Revenue Service and other tax authorities and government bodies. We believe that we have adequately provided a tax reserve for any adjustments that may result from tax examinations or uncertain tax positions. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner inconsistent with our expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs. The resolution of each of these audits is not expected to be material to our Condensed Consolidated Financial Statements.
ASSETS HELD FOR SALE
Assets to be disposed of by sale are reported at the lower of their carrying amount or fair value less costs to sell, and are not depreciated while they are held for sale. During the second quarter of 2023, we recorded $0.7 million as assets held for sale within prepaid and other on our Condensed Consolidated Balance Sheets related to three buildings located in France. During the third quarter of 2023, two of the three buildings were sold and we recognized a $0.8 million gain on sale.
SUPPLY CHAIN FINANCE PROGRAM
We facilitate a supply chain finance program ("SCF") across Europe and the U.S. that is administered by a third-party platform. Eligible suppliers can elect to receive early payment of invoices, less an interest deduction, and negotiate their receivable sales arrangements through the third-party platform on behalf of the respective SCF bank. We are not a party to those agreements, and the terms of our payment obligations are not impacted by a supplier's participation in the SCF. Accordingly, we have concluded that this program continues to be a trade payable program and is not indicative of a borrowing arrangement. Under these agreements, the average payment terms range from 60 to 120 days and are based on industry standards and best practices within each of our regions.
All outstanding amounts related to suppliers participating in the SCF are recorded within accounts payable, accrued and other liabilities in our Condensed Consolidated Balance Sheets, and associated payments are included in operating activities within our Condensed Consolidated Statements of Cash Flows. As of March 31, 2024, the amounts due to suppliers participating in the SCF and included in accounts payable, accrued and other liabilities were approximately $41.2 million.
Collection and payment periods tend to be longer for our operations located outside the United States due to local business practices. We have also seen an increasing trend in pressure from certain customers to lengthen their payment terms. As the majority of our products are made to order, we have not needed to keep significant amounts of finished goods inventory to meet customer requirements. However, some of our contracts specify an amount of finished goods safety stock we are required to maintain.
To the extent our financial position allows and there is a clear financial benefit, we from time-to-time benefit from early payment discounts with some suppliers. We have lengthened the payment terms with our suppliers to be in line with customer trends. While we have offered a third party alternative for our suppliers to receive payments sooner, we generally do not utilize these offerings from our customers as the economic conditions currently are not beneficial for us.
NOTE 2 – REVENUE
In prior years, our geographic revenue disclosure was based on shipped from location. Beginning in 2024, we have started to report our geographic sales based on shipped to locations to give the reader a better understanding of the geographies we serve. Revenue by segment and geography based on shipped to locations for the three months ended March 31, 2024 and 2023 were as follows:
| For the Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||
| Segment | Europe | Domestic | Latin America | Asia | Total | ||||||||||||||||||||||||
| Aptar Pharma | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Aptar Beauty | |||||||||||||||||||||||||||||
| Aptar Closures | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
9
| For the Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||
| Segment | Europe | Domestic | Latin America | Asia | Total | ||||||||||||||||||||||||
| Aptar Pharma | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Aptar Beauty | |||||||||||||||||||||||||||||
| Aptar Closures | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
We perform our obligations under a contract with a customer by transferring goods and/or services in exchange for consideration from the customer. The timing of performance will sometimes differ from the timing of the invoicing for the associated consideration from the customer, thus resulting in the recognition of a contract asset or a contract liability. We recognize a contract asset when we transfer control of goods or services to a customer prior to invoicing for the related performance obligation. The contract asset is transferred to accounts receivable when the product is shipped and invoiced to the customer. We recognize a contract liability if the customer's payment of consideration precedes the entity's performance.
The opening and closing balances of our contract asset and contract liabilities were as follows:
| Balance as of December 31, 2023 | Balance as of March 31, 2024 | Increase/ (Decrease) | |||||||||||||||
| Contract asset (current) | $ | $ | $ | ( | |||||||||||||
| Contract liability (current) | |||||||||||||||||
| Contract liability (long-term) | |||||||||||||||||
The differences in the opening and closing balances of our contract asset and contract liabilities are primarily the result of timing differences between our performance and the invoicing. The total amount of revenue recognized during the current year against contract liabilities is $33.1 million, including $25.6 million relating to contract liabilities at the beginning of the year. Current contract assets are included within the Prepaid and other and Miscellaneous assets, respectively, while current contract liabilities and long-term contract liabilities are included within Accounts payable, accrued and other liabilities and Deferred and other non-current liabilities, respectively, within our Condensed Consolidated Balance Sheets.
Determining the Transaction Price
In most cases, the transaction price for each performance obligation is stated in the contract. In determining the variable amounts of consideration within the transaction price (such as volume-based customer rebates), we include an estimate of the expected amount of consideration as revenue. We apply the expected value method based on all of the information (historical, current, and forecast) that is reasonably available and identify reasonable estimates based on this information. We apply the method consistently throughout the contract when estimating the effect of an uncertainty on the amount of variable consideration to which we will be entitled.
Product Sales
We primarily manufacture and sell drug and consumer product dosing, dispensing and protection technologies. The amount of consideration is typically fixed for customers. At the time of delivery, the customer is invoiced at the agreed-upon price. Revenue from product sales is typically recognized upon manufacture or shipment, when control of the goods transfers to the customer.
To determine when the control transfers, we typically assess, among other things, the shipping terms of the contract, shipping being one of the indicators of transfer of control. For a majority of product sales, control of the goods transfers to the customer at the time of shipment of the goods. Once the goods are shipped, we are precluded from redirecting the shipment to another customer. Therefore, our performance obligation is satisfied at the time of shipment. For sales in which control transfers upon delivery, shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs and revenue is recorded upon final delivery to the customer location. We have elected to account for shipping and handling costs that occur after the customer has obtained control of a good as fulfillment costs rather than as a promised service. We do not have any material significant payment terms as payment is typically received shortly after the point of sale.
There also exist instances where we manufacture highly customized products that have no alternative use to us and for which we have an enforceable right to payment for performance completed to date. For these products, we transfer control and recognize revenue over time by measuring progress towards completion using the output method based on the number of products produced. As we normally make our products to a customer’s order, the time between production and shipment of our products is typically within a few weeks. We believe this measurement provides a faithful depiction of the transfer of goods as the costs incurred reflect the value of the products produced.
10
As a part of our customary business practice, we offer a standard warranty that the products will materially comply with the technical specifications and will be free from material defects. Because such warranties are not sold separately, do not provide for any service beyond a guarantee of a product’s initial specifications, and are not required by law, there is no revenue deferral for these types of warranties.
Tooling Sales
We also build or contract for molds and other tools (collectively defined as “tooling”) necessary to produce our products. As with product sales, we recognize revenue when control of the tool transfers to the customer. If the tooling is highly customized with no alternative use to us and we have an enforceable right to payment for performance completed to date, we transfer control and recognize revenue over time by measuring progress towards completion using the input method based on costs incurred relative to total estimated costs to completion. Otherwise, revenue for the tooling is recognized at the point in time when the customer approves the tool. We do not have any significant payment terms as payment is typically either received during the mold-build process or shortly after completion.
In certain instances, we offer extended warranties on our tools above and beyond the normal standard warranties. We normally receive payment at the inception of the contract and recognize revenue over the term of the contract. We do not have any material extended warranties as of March 31, 2024 or December 31, 2023.
Service Sales
We also provide services to our customers. As with product sales, we recognize revenue based on completion of each performance obligation of the service contract. Milestone deliverables and upfront payments are tied to specific performance obligations and recognized upon satisfaction of the individual performance obligation.
Royalty Revenue
We determine the amount and timing of royalty revenue based on our contractual agreements with customers. We recognize royalty revenue when earned under the terms of the agreements and when we consider realization of payment to be probable.
Contract Costs
We do not incur significant costs to obtain or fulfill revenue contracts.
Credit Risk
We are exposed to credit losses primarily through our product sales, tooling sales and services to our customers. We assess each customer’s ability to pay for the products we sell by conducting a credit review. The credit review considers our expected billing exposure and timing for payment and the customer’s established credit rating or our assessment of the customer’s creditworthiness based on our analysis of their financial statements when a credit rating is not available. We also consider contract terms and conditions, country and political risks, and business strategy in our evaluation. A credit limit is established for each customer based on the outcome of this review.
We monitor our ongoing credit exposure through active review of customer balances against contract terms and due dates. Our activities include timely account reconciliation, dispute resolution and payment confirmation. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.
NOTE 3 - INVENTORIES
Inventories, by component net of reserves, consisted of:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total | $ | $ | |||||||||
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NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the three months ended March 31, 2024 by reporting segment were as follows:
| Aptar Pharma | Aptar Beauty | Aptar Closures | Total | ||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency exchange effects | ( | ( | ( | ( | |||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | |||||||||||||||||||
The table below shows a summary of intangible assets as of March 31, 2024 and December 31, 2023.
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Weighted Average Amortization Period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Value | Gross Carrying Amount | Accumulated Amortization | Net Value | |||||||||||||||||||||||||||||||||||
| Amortized intangible assets: | |||||||||||||||||||||||||||||||||||||||||
| Patents | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Acquired technology | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Customer relationships | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Trademarks and trade names | ( | ( | |||||||||||||||||||||||||||||||||||||||
| License agreements and other | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
Aggregate amortization expense for the intangible assets above for the three months ended March 31, 2024 and 2023 was $11,323 and $10,963 , respectively.
As of March 31, 2024, future estimated amortization expense for the years ending December 31 is as follows:
| 2024 | $ | (remaining estimated amortization for 2024) | |||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| Thereafter | |||||||||||
Future amortization expense may fluctuate depending on changes in foreign currency rates. The estimates for amortization expense noted above are based upon foreign exchange rates as of March 31, 2024.
NOTE 5 – INCOME TAXES
The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings and related estimated full-year taxes, adjusted for the impact of discrete quarterly items.
The Organization for Economic Co-operation and Development released Model Global Anti-Base Erosion rules under Pillar Two. Certain countries in which we operate have enacted laws implementing aspects of Pillar Two beginning in 2024. These enacted laws relate to the Pillar Two safe harbors, Income Inclusion Rule and Qualified Domestic Minimum Tax beginning 2024. We have analyzed the provisions in the applicable jurisdictions and provided for the appropriate tax amounts. We do not expect a material impact from the implementation of these rules for 2024 but we will continue to monitor future legislations for additional guidance.
The effective tax rate for the three months ended March 31, 2024 and 2023, respectively, was 20.5 % and 25.5 %. The effective tax rate for the three months ended March 31, 2024 reflects a favorable mix of earnings, increased tax benefits from share-based compensation and tax incentives in certain non-US jurisdictions from intellectual property development activities.
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NOTE 6 – DEBT
Notes Payable, Revolving Credit Facility and Overdrafts
At March 31, 2024 and December 31, 2023, our notes payable, revolving credit facility and overdrafts consisted of the following:
| March 31, 2024 | December 31, 2023 | ||||||||||
Revolving credit facility | $ | $ | |||||||||
Overdrafts | |||||||||||
| $ | $ | ||||||||||
Aptar has a revolving credit facility (the "revolving credit facility') with a syndicate of banks which matures in June 2026. The revolving credit facility is subject to a maximum of two one-year extensions in certain circumstances and provides for unsecured financing of up to $600 million available in the U.S. and to our wholly-owned UK subsidiary. The revolving credit facility can be drawn in various currencies including USD, EUR, GBP, and CHF to the equivalent of $600 million, which may be increased by up to $300 million subject to the satisfaction of certain conditions. As of March 31, 2024, $149.5 million was utilized under the revolving credit facility in the U.S. and no balance was utilized by our wholly-owned UK subsidiary. As of December 31, 2023, $36.5 million and €40.0 million ($44.2 million) was utilized under the revolving credit facility in the U.S. and no balance was utilized by our wholly-owned UK subsidiary.
There are no compensating balance requirements associated with our revolving credit facility. Each borrowing under the revolving credit facility will bear interest at rates based on SOFR (in the case of USD), EURIBOR (in the case of EUR), SONIA (in the case of GBP), SARON (in the case of CHF), prime rates or other similar rates, in each case plus an applicable margin. The revolving credit facility also provides mechanics relating to a transition away from designated benchmark rates for other available currencies and the replacement of any such applicable benchmark by a replacement alternative benchmark rate or mechanism for loans made in the applicable currency. A facility fee on the total amount of the revolving credit facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the revolving credit facility and the facility fee percentage may change from time to time depending on changes in our consolidated leverage ratio.
Aptar has an unsecured money market borrowing arrangement to provide short term financing of up to $30 million that is available in the U.S. No borrowing on this facility is permitted over a quarter end date. As such, no
Long-Term Obligations
On February 26, 2024, we repaid in full the $100 million 3.49 % Senior Notes that were due in February 2024.
At March 31, 2024 and December 31, 2023, our long-term obligations consisted of the following:
| March 31, 2024 | December 31, 2023 | ||||||||||
Notes payable | $ | $ | |||||||||
Senior unsecured notes | |||||||||||
Senior unsecured notes | |||||||||||
Senior unsecured notes | |||||||||||
Senior unsecured notes | |||||||||||
Senior unsecured notes | |||||||||||
Senior unsecured notes | |||||||||||
| Finance Lease Liabilities | |||||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| $ | $ | ||||||||||
| Current maturities of long-term obligations | ( | ( | |||||||||
| Total long-term obligations | $ | $ | |||||||||
13
The aggregate long-term maturities, excluding finance lease liabilities and unamortized debt issuance costs, which are discussed in Note 7, due annually from the current balance sheet date for the next five years and thereafter are:
| Year One | $ | ||||
| Year Two | |||||
| Year Three | |||||
| Year Four | |||||
| Year Five | |||||
| Thereafter | |||||
Covenants
Our revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:
| Requirement | Level at March 31, 2024 | |||||||||||||
| Consolidated Leverage Ratio (1) | Maximum of | |||||||||||||
| Consolidated Interest Coverage Ratio (1) | Minimum of | |||||||||||||
________________________________________
NOTE 7 – LEASES
We lease certain warehouse, plant and office facilities, as well as certain equipment, under non-cancelable operating and finance leases expiring at various dates through the year 2042. Most of the operating leases contain renewal options and certain leases include options to purchase the related asset during or at the end of the lease term.
Amortization expense related to finance leases is included in depreciation expense, while rent expense related to operating leases is included within cost of sales and selling, research & development and administrative expenses.
The components of lease expense for the three months ended March 31, 2024 and 2023 were as follows:
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Operating lease cost | $ | $ | |||||||||
| Finance lease cost: | |||||||||||
| Amortization of right-of-use assets | $ | $ | |||||||||
| Interest on lease liabilities | |||||||||||
| Total finance lease cost | $ | $ | |||||||||
| Short-term lease and variable lease costs | $ | $ | |||||||||
Supplemental cash flow information related to leases were as follows:
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
| Operating cash flows from finance leases | |||||||||||
| Financing cash flows from finance leases | |||||||||||
| Right-of-use assets obtained in exchange for lease obligations: | |||||||||||
| Operating leases | $ | $ | |||||||||
| Finance leases | |||||||||||
14
NOTE 8 – RETIREMENT AND DEFERRED COMPENSATION PLANS
We have various noncontributory retirement plans covering certain of our domestic and foreign employees. Benefits under our 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 our domestic plans are generally at least equal to the minimum funding amounts required by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Certain pension commitments under our foreign plans are also funded according to local requirements or at our discretion.
Effective January 1, 2021, our domestic noncontributory retirement plans were closed to new employees and employees who were rehired after December 31, 2020. These employees are instead eligible for additional contribution to their defined contribution 401(k) employee savings plan. All domestic employees with hire/rehire dates prior to January 1, 2021 are still eligible for the domestic pension plans and continue to accrue plan benefits after this date.
Components of Net Periodic Benefit Cost:
| Domestic Plans | Foreign Plans | ||||||||||||||||||||||
| Three Months Ended March 31, | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of net loss | |||||||||||||||||||||||
| Amortization of prior service cost | |||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||
The components of net periodic benefit cost, other than the service cost component, are included in the line miscellaneous income (expense), net in the Condensed Consolidated Statements of Income.
Employer Contributions
We currently have no minimum funding requirements for our domestic and foreign plans. There were no contributions to our domestic defined benefit plans during the three months ended March 31, 2024 and we do not expect significant payments during the rest of 2024. We contributed $0.4 million to our foreign defined benefit plans during the three months ended March 31, 2024 and do not expect additional significant contributions during the rest of 2024.
NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Changes in Accumulated Other Comprehensive (Loss) Income by Component:
| Foreign Currency | Defined Benefit Pension Plans | Derivatives | Total | ||||||||||||||||||||
| Balance - December 31, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Balance - March 31, 2023 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Balance - December 31, 2023 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive (loss) income before reclassifications | ( | ( | |||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income | |||||||||||||||||||||||
| Net current-period other comprehensive (loss) income | ( | ( | |||||||||||||||||||||
| Balance - March 31, 2024 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
15
Reclassifications Out of Accumulated Other Comprehensive (Loss) Income:
| Details about Accumulated Other Comprehensive Income Components | Amount Reclassified from Accumulated Other Comprehensive Income | Affected Line in the Statement Where Net Income is Presented | |||||||||||||||
| Three Months Ended March 31, | 2024 | 2023 | |||||||||||||||
| Defined Benefit Pension Plans | |||||||||||||||||
| Amortization of net loss | $ | $ | (1) | ||||||||||||||
| Amortization of prior service cost | (1) | ||||||||||||||||
| Total before tax | |||||||||||||||||
| ( | ( | Tax impact | |||||||||||||||
| $ | $ | Net of tax | |||||||||||||||
| Total reclassifications for the period | $ | $ | |||||||||||||||
______________________________________________
(1)These accumulated other comprehensive income components are included in the computation of total net periodic benefit costs, net of tax. See Note 8 – Retirement and Deferred Compensation Plans for additional details.
NOTE 10 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We maintain a foreign exchange risk management policy designed to establish a framework to protect the value of our non-functional currency denominated transactions from adverse changes in exchange rates. Sales of our products can be denominated in a currency different from the currency in which the related costs to produce the product are denominated. Changes in exchange rates on such inter-country sales or intercompany loans can impact our results of operations. Our policy is not to engage in speculative foreign currency hedging activities, but to minimize our net foreign currency transaction exposure, defined as firm commitments and transactions recorded and denominated in currencies other than the functional currency. We may use foreign currency forward exchange contracts, options and cross currency swaps to economically hedge these risks.
For derivative instruments designated as hedges, we formally document 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 at inception. Quarterly thereafter, we formally assess whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair value or cash flows of the hedged item. 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. All derivative financial instruments used as hedges are recorded at fair value in the Condensed Consolidated Balance Sheets (See Note 11 - Fair Value).
Cash Flow Hedge
For derivative instruments that are designated and qualify as cash flow hedges, the changes in fair values are recorded in accumulated other comprehensive loss and included in changes in derivative gain/loss. The changes in the fair values of derivatives designated as cash flow hedges are reclassified from accumulated other comprehensive loss to net income when the underlying hedged item is recognized in earnings. Cash flows from the settlement of derivative contracts designated as cash flow hedges offset cash flows from the underlying hedged items and are included in operating activities in the Condensed Consolidated Statements of Cash Flows.
Net Investment Hedge
A significant number of our operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of our foreign subsidiaries. A weakening U.S. dollar has an additive effect on our financial condition and results of operations. Conversely, a strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect. In some cases we maintain debt in these subsidiaries to offset the net asset exposure. In the event we plan on a full or partial liquidation of any of our foreign subsidiaries where our net investment is likely to be monetized, we will consider hedging the currency exposure associated with such a transaction.
16
On July 6, 2022, we entered into a seven year USD/EUR fixed-to-fixed cross currency interest rate swap to effectively hedge the interest rate exposure relating to $203 million of the $400 million 3.60 % Senior Notes due March 2032, which were issued by AptarGroup, Inc. on March 7, 2022. This USD/EUR swap agreement exchanged $203 million of fixed-rate 3.60 % USD debt to €200 million of fixed-rate 2.5224 % euro debt. We pay semi-annual fixed rate interest payments on the euro notional amount of €2.5 million and receive semi-annual fixed rate interest payments on the USD notional amount of $3.7 million. This swap has been designated as a net investment hedge to effectively hedge the foreign exchange risk associated with €200 million of our euro denominated net assets. We elected the spot method for recording the net investment hedge. Gains and losses resulting from the settlement of the excluded components are recorded in interest expense in the Condensed Consolidated Statements of Income. Gains and losses resulting from the fair value adjustments to the cross currency swap agreements are recorded in accumulated other comprehensive (loss) income as the swaps are effective in hedging the designated risk. As of March 31, 2024, the fair value of the cross currency swap was a $18.3 million liability. The swap agreement will mature on September 15, 2029.
Other
As of March 31, 2024, we have recorded the fair value of foreign currency forward exchange contracts of $0.3 million in prepaid and other and $0.4 million in accounts payable, accrued and other liabilities on the Condensed Consolidated Balance Sheets. All forward exchange contracts outstanding as of March 31, 2024 had an aggregate notional contract amount of $68.8 million.
Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023
| March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||
Balance Sheet Location | Derivatives Designated as Hedging Instruments | Derivatives not Designated as Hedging Instruments | Derivatives Designated as Hedging Instruments | Derivatives not Designated as Hedging Instruments | |||||||||||||||||||||||||
| Derivative Assets | |||||||||||||||||||||||||||||
| Foreign Exchange Contracts | Prepaid and other | $ | $ | $ | $ | ||||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||||||||
| Derivative Liabilities | |||||||||||||||||||||||||||||
| Foreign Exchange Contracts | Accounts payable, accrued and other liabilities | $ | $ | $ | $ | ||||||||||||||||||||||||
| Cross Currency Swap Contract (1) | Accounts payable, accrued and other liabilities | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||||||||
__________________________
(1)This cross currency swap agreement is composed of both an interest component and a foreign exchange component.
The Effect of Derivatives Designated as Hedging Instruments on Accumulated Other Comprehensive Income (Loss) for the Three Months Ended March 31, 2024 and 2023
| Derivatives Designated as Hedging Instruments | Amount of Gain Recognized in Other Comprehensive Income on Derivative | Location of Gain Recognized in Income on Derivatives | Amount of Gain Reclassified from Accumulated Other Comprehensive Income on Derivative | Total Amount of Affected Income Statement Line Item | |||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||
| Cross currency swap agreement: | |||||||||||||||||||||||||||||||||||
| Interest component | $ | $ | Interest expense | $ | $ | $ | ( | ||||||||||||||||||||||||||||
| Foreign exchange component | ( | Miscellaneous, net | ( | ||||||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||||
17
The Effect of Derivatives Not Designated as Hedging Instruments on the Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2024 and 2023
| Derivatives Not Designated as Hedging Instruments | Location of Loss Recognized in Income on Derivatives | Amount of Loss Recognized in Income on Derivatives | |||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| Foreign Exchange Contracts | Other (Expense) Income: Miscellaneous, net | $ | ( | $ | ( | ||||||||||||
| $ | ( | $ | ( | ||||||||||||||
| Gross Amounts Offset in the Statement of Financial Position | Net Amounts Presented in the Statement of Financial Position | Gross Amounts not Offset in the Statement of Financial Position | |||||||||||||||||||||||||||||||||
| Gross Amount | Financial Instruments | Cash Collateral Received | Net Amount | ||||||||||||||||||||||||||||||||
| March 31, 2024 | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||||||||||||||
| Total Assets | $ | $ | $ | ||||||||||||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||||||||||||||
| Total Liabilities | $ | $ | $ | ||||||||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||||||||||||||
| Total Assets | $ | $ | $ | ||||||||||||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||||||||||||||
| Total Liabilities | $ | $ | $ | ||||||||||||||||||||||||||||||||
NOTE 11 – FAIR VALUE
Authoritative guidelines require the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
•Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
•Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
•Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.
18
As of March 31, 2024, the fair values of our financial assets and liabilities were categorized as follows:
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
Investment in equity securities (1) | $ | $ | $ | $ | |||||||||||||||||||
Foreign exchange contracts (2) | |||||||||||||||||||||||
| Convertible notes | |||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
Foreign exchange contracts (2) | $ | $ | $ | $ | |||||||||||||||||||
Cross currency swap contract (2) | |||||||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
As of December 31, 2023, the fair values of our financial assets and liabilities were categorized as follows:
| Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
Investment in equity securities (1) | $ | $ | $ | $ | |||||||||||||||||||
Foreign exchange contracts (2) | |||||||||||||||||||||||
| Convertible note | |||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
Foreign exchange contracts (2) | $ | $ | $ | $ | |||||||||||||||||||
Cross currency swap contract (2) | |||||||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
________________________________________________
(1)Investment in PureCycle Technologies ("PCT" or "PureCycle"). See Note 18 – Investment in Equity Securities for discussion of this investment.
(2)Market approach valuation technique based on observable market transactions of spot and forward rates.
The carrying amounts of our other current financial instruments such as cash and equivalents, accounts and notes receivable, notes payable and current maturities of long-term obligations approximate fair value due to the short-term maturity of the instrument. We consider our long-term debt obligations a Level 2 liability and utilize the market approach valuation technique based on interest rates that are currently available to us for issuance of debt with similar terms and maturities. The estimated fair value of our long-term obligations was $621.2 million as of March 31, 2024 and $620.7 million as of December 31, 2023.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
In the normal course of business, we are subject to a number of lawsuits and claims both actual and potential in nature. While management believes the resolution of these claims and lawsuits will not have a material adverse effect on our financial position, results of operations or cash flows, claims and legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur that could include amounts in excess of any accruals which management has established. Were such unfavorable final outcomes to occur, it is possible that they could have a material adverse effect on our financial position, results of operations and cash flows.
Under our Certificate of Incorporation, we have agreed to indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a directors and officers liability insurance policy that covers a portion of our exposure. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is minimal. We have no
We are periodically subject to loss contingencies resulting from custom duties assessments. We accrue for anticipated costs when an assessment has indicated that a loss is probable and can be reasonably estimated. We have received claims worth approximately $13 million in principal and $5 million to $6 million for interest and penalties. We are currently defending our position with respect to these claims in the respected administrative procedures. Due to uncertainty in the amount of the assessment and the timing of our appeal, no liability is recorded as of March 31, 2024.
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NOTE 13 – STOCK REPURCHASE PROGRAM
On April 18, 2019, we announced a share repurchase authorization of up to $350 million of common stock. This authorization replaces previous authorizations and has no expiration date. We may repurchase shares through the open market, privately negotiated transactions or other programs, subject to market conditions.
During the three months ended March 31, 2024 and March 31, 2023, we repurchased approximately 86 thousand shares for $12.1 million and 171 thousand shares for $19.7 million, respectively. As of March 31, 2024, there was $48.6 million of authorized share repurchases remaining under the existing authorization.
NOTE 14 – STOCK-BASED COMPENSATION
We issue restricted stock units (“RSUs”), which consist of time-based and performance-based awards, to employees under stock awards plans approved by stockholders. In addition, RSUs are issued to non-employee directors under a Restricted Stock Unit Award Agreement for Directors pursuant to the Company’s 2018 Equity Incentive Plan. RSUs granted to employees vest according to a specified performance period and/or vesting period. Time-based RSUs generally vest over three years . Performance-based RSUs vest at the end of the specified performance period, generally three years , assuming required performance or market vesting conditions are met.
For awards granted in the first quarter of 2023 and thereafter, our performance-based RSUs will vest solely based on our return on invested capital ("ROIC"). Award share payouts depend on the extent to which the ROIC performance goal has been achieved, but the final payout is adjusted by a total shareholder return ("TSR") modifier.
At the time of vesting, the vested shares of common stock are issued in the employee’s name. In addition, RSU awards are generally net settled (shares are withheld to cover the employee tax obligation). RSUs granted to directors are only time-based and generally vest on or around the first anniversary of the date of grant.
The fair value of both time-based RSUs and performance-based RSUs pertaining to internal performance metrics is determined using the closing price of our common stock on the grant date. The fair value of performance-based RSUs pertaining to TSR is estimated using a Monte Carlo simulation. Inputs and assumptions used to calculate the fair value are shown in the table below. The fair value of these RSUs is expensed over the vesting period using the straight-line method or using the graded vesting method when an employee becomes eligible to retain the award at retirement.
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Fair value per stock award | $ | $ | |||||||||
| Grant date stock price | $ | $ | |||||||||
| Assumptions: | |||||||||||
| Aptar's stock price expected volatility | % | % | |||||||||
| Expected average volatility of peer companies | % | % | |||||||||
| Correlation assumption | % | % | |||||||||
| Risk-free interest rate | % | % | |||||||||
| Dividend yield assumption | % | % | |||||||||
A summary of RSU activity as of March 31, 2024 and changes during the three month period then ended is presented below:
| Time-Based RSUs | Performance-Based RSUs | ||||||||||||||||||||||
| Units | Weighted Average Grant-Date Fair Value | Units | Weighted Average Grant-Date Fair Value | ||||||||||||||||||||
| Nonvested at January 1, 2024 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Vested | ( | ( | |||||||||||||||||||||
| Forfeited | ( | ( | |||||||||||||||||||||
| Nonvested at March 31, 2024 | $ | $ | |||||||||||||||||||||
20
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Compensation expense | $ | $ | |||||||||
| Fair value of units vested | |||||||||||
| Intrinsic value of units vested | |||||||||||
The actual tax benefit realized for the tax deduction from RSUs was approximately $4.9 million and $2.5 million in the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, there was $60.4 million of total unrecognized compensation cost relating to RSU awards which is expected to be recognized over a weighted-average period of 2.1 years.
Historically we issued stock options to our employees and non-employee directors. We did not issue stock options between 2019 and 2022. Stock options were reinstituted in 2023 with the exercise price equal to the market price on the date of grant based on the Black-Scholes model and generally vest ratably over three years and expire 10 years after grant.
The Company uses historical data to estimate expected life and volatility. The weighted-average fair value of stock options granted under the stock awards plans were $36.07 per share for all employees, during the first three months of 2024. The weighted-average fair value of stock options granted under the stock awards plans were $19.84 and $24.23 per share for executive officers and all other employees, respectively, during the first three months of 2023. Aptar executive officers received stock options with an exercise price that was 110 % of the closing market price on the date of grant. These values were estimated on the respective dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
| Stock Award Plans: | |||||||||||
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Dividend Yield | % | % | |||||||||
| Expected Stock Price Volatility | % | % | |||||||||
| Risk-free Interest Rate | % | % | |||||||||
| Expected Life of Option (years) | |||||||||||
| Stock Awards Plans | Director Stock Option Plans | ||||||||||||||||||||||
| Options | Weighted Average Exercise Price | Options | Weighted Average Exercise Price | ||||||||||||||||||||
| Outstanding, January 1, 2024 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ( | |||||||||||||||||||||
| Forfeited or expired | ( | ||||||||||||||||||||||
| Outstanding at March 31, 2024 | $ | $ | |||||||||||||||||||||
| Exercisable at March 31, 2024 | $ | $ | |||||||||||||||||||||
| Weighted-Average Remaining Contractual Term (Years): | |||||||||||||||||||||||
| Outstanding at March 31, 2024 | |||||||||||||||||||||||
| Exercisable at March 31, 2024 | |||||||||||||||||||||||
| Aggregate Intrinsic Value: | |||||||||||||||||||||||
| Outstanding at March 31, 2024 | $ | $ | |||||||||||||||||||||
| Exercisable at March 31, 2024 | $ | $ | |||||||||||||||||||||
Intrinsic Value of Options Exercised During the Three Months Ended: | |||||||||||||||||||||||
| March 31, 2024 | $ | $ | |||||||||||||||||||||
| March 31, 2023 | $ | $ | |||||||||||||||||||||
21
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Compensation expense (included in SG&A) | $ | $ | |||||||||
| Compensation expense (included in Cost of sales) | |||||||||||
| Compensation expense, Total | $ | $ | |||||||||
| Compensation expense, net of tax | |||||||||||
| Grant date fair value of options vested | |||||||||||
The increase in stock option expense is due to the newly issued options as discussed above. Cash received from option exercises for the three months ended March 31, 2024 and 2023 was approximately $22.3 million and $13.8 million, respectively. The actual tax benefit realized for the tax deduction from option exercises was approximately $3.7 million and $2.5 million in the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, there was $7.3 million of total unrecognized compensation cost relating to stock option awards which is expected to be recognized over a weighted-average period of 2.3 years.
NOTE 15 – EARNINGS PER SHARE
Basic net income per share is calculated by dividing net income attributable to Aptar by the weighted-average number of common shares outstanding during the period. Diluted net income per share is calculated by dividing the net income attributable to Aptar by the weighted-average number of common and common equivalent shares outstanding during the applicable period. The difference between basic and diluted earnings per share is attributable to stock-based compensation awards. Stock-based compensation awards for which total employee proceeds exceed the average market price over the applicable period would have an antidilutive effect on earnings per share, and accordingly, are excluded from the calculation of diluted earnings per share. The reconciliation of basic and diluted earnings per share for the three months ended March 31, 2024 and 2023 were as follows:
| Three Months Ended | |||||||||||||||||||||||
| March 31, 2024 | March 31, 2023 | ||||||||||||||||||||||
| Diluted | Basic | Diluted | Basic | ||||||||||||||||||||
| Consolidated operations | |||||||||||||||||||||||
| Income available to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Average equivalent shares | |||||||||||||||||||||||
| Shares of common stock | |||||||||||||||||||||||
| Effect of dilutive stock-based compensation | |||||||||||||||||||||||
| Stock options | — | — | |||||||||||||||||||||
| Restricted stock | — | — | |||||||||||||||||||||
| Total average equivalent shares | |||||||||||||||||||||||
| Net income per share | $ | $ | $ | $ | |||||||||||||||||||
NOTE 16 – SEGMENT INFORMATION
We are organized into three reporting segments. Operations that sell proprietary dispensing systems, drug delivery systems, sealing solutions and services to the prescription drug, consumer health care, injectables, active material science solutions and digital health markets form our Aptar Pharma segment. Operations that sell dispensing systems and sealing solutions to the beauty, personal care and home care markets form our Aptar Beauty segment. Operations that sell dispensing systems, sealing solutions and food service trays to the food, beverage, personal care, home care, beauty and healthcare markets form our Aptar Closures segment. Aptar Pharma and Aptar Beauty are named for the markets they serve with multiple product platforms, while Aptar Closures is named primarily for a single product platform that serves all available markets.
The accounting policies of the segments are the same as those described in Part II, Item 8, Note 1 - Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2023. We evaluate performance of our reporting segments and allocate resources based upon Adjusted EBITDA. Adjusted EBITDA is defined as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items.
22
Financial information regarding our reporting segments is shown below:
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Total Sales: | |||||||||||
| Aptar Pharma | $ | $ | |||||||||
| Aptar Beauty | |||||||||||
| Aptar Closures | |||||||||||
| Total Sales | $ | $ | |||||||||
| Less: Intersegment Sales: | |||||||||||
| Aptar Pharma | $ | $ | |||||||||
| Aptar Beauty | |||||||||||
| Aptar Closures | |||||||||||
| Total Intersegment Sales | $ | $ | |||||||||
| Net Sales: | |||||||||||
| Aptar Pharma | $ | $ | |||||||||
| Aptar Beauty | |||||||||||
| Aptar Closures | |||||||||||
| Net Sales | $ | $ | |||||||||
| Adjusted EBITDA (1): | |||||||||||
| Aptar Pharma | $ | $ | |||||||||
| Aptar Beauty | |||||||||||
| Aptar Closures | |||||||||||
| Corporate & Other, unallocated | ( | ( | |||||||||
| Acquisition-related costs (2) | ( | ||||||||||
| Restructuring Initiatives (3) | ( | ( | |||||||||
| Net unrealized investment gain (4) | |||||||||||
| Depreciation and amortization | ( | ( | |||||||||
| Interest Expense | ( | ( | |||||||||
| Interest Income | |||||||||||
| Income before Income Taxes | $ | $ | |||||||||
________________________________________________
(1)We evaluate performance of our reporting segments and allocate resources based upon Adjusted EBITDA. Adjusted EBITDA is defined as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items.
(2)Acquisition-related costs include transaction costs (and purchase accounting adjustments related to acquisitions and investments) (see Note 17 – Acquisitions for further details).
23
(3)Restructuring Initiatives includes expense items for the three months ended March 31, 2024 and 2023 as follows (see Note 19 – Restructuring Initiatives for further details):
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Restructuring Initiatives by Plan: | |||||||||||
| Optimization initiative | $ | $ | |||||||||
| Prior year initiatives | ( | ( | |||||||||
| Total Restructuring Initiatives | $ | $ | |||||||||
| Restructuring Initiatives by Segment: | |||||||||||
| Aptar Pharma | $ | $ | |||||||||
| Aptar Beauty | |||||||||||
| Aptar Closures | |||||||||||
| Corporate & Other | ( | ||||||||||
| Total Restructuring Initiatives | $ | $ | |||||||||
(4)Net unrealized investment gain (loss) represents the change in fair value of our investment in PCT (see Note 18 – Investment in Equity Securities for further details).
NOTE 17 – ACQUISITIONS
Business Combinations
On March 1, 2023, we completed the acquisition of all the outstanding capital stock of iD SCENT. Located in Lyon, France, iD SCENT is an expert producer of paper fragrance sampling solutions that present multiple sustainability features. The purchase price was approximately $9.4 million (net of $1.4 million cash acquired) and was funded with cash on hand. The results of iD SCENT have been included in the consolidated financial statements within our Aptar Beauty segment since the date of acquisition.
Also on March 1, 2023, we completed the acquisition of 80 % of the equity interest of Gulf Closures W.L.L. ( "Gulf Closures"). Gulf Closures, located in Bahrain, is a closure manufacturer for beverage products. The purchase price for 80 % ownership was approximately $1.5 million (net of $1.2 million cash acquired) and was funded with cash on hand. This values the full company equity at approximately $3.3 million and implies a non-controlling interest valued at approximately $0.7 million as of the acquisition date. The results of Gulf Closures have been included in the consolidated financial statements within our Aptar Closures segment since the date of acquisition.
NOTE 18 – INVESTMENT IN EQUITY SECURITIES
Our investment in equity securities consisted of the following:
| March 31, 2024 | December 31, 2023 | ||||||||||
| Equity Method Investments: | |||||||||||
| BTY | $ | $ | |||||||||
| Sonmol | |||||||||||
| Desotec GmbH | |||||||||||
| Other Investments: | |||||||||||
| PureCycle | |||||||||||
| YAT | |||||||||||
| Loop | |||||||||||
| Others | |||||||||||
| $ | $ | ||||||||||
24
Equity Method Investments
Jinyu
On December 10, 2023, we entered into a Share Purchase Agreement to acquire 40 % of the equity interests in Ningbo Jinyu Technology Industry Co., Ltd. (referred to as "Jinyu"), a leading manufacturer of dispensing technologies in China for approximately $84 million subject to final closing conditions. This transaction is expected to close in 2024, subject to satisfaction and completion of various closing conditions.
BTY
On January 1, 2020, we acquired 49 % of the equity interests in three related companies: Suzhou Hsing Kwang, Suqian Hsing Kwang and Suzhou BTY (collectively referred to as “BTY”) for an approximate purchase price of $32.0 million. We have a call option to acquire an additional 26 % to 31 % of BTY’s equity interests following the initial lock-up period of 5 years based on a predetermined formula. Subsequent to the second lock-up period, which ends 3 years after the initial lock-up period, we have a call option to acquire the remaining equity interests of BTY based on a predetermined formula. Additionally, the selling shareholders of BTY have a put option for the remaining equity interest to be acquired by Aptar based on a predetermined formula. The BTY entities are leading Chinese manufacturers of high quality, decorative metal components, metal-plastic sub-assemblies, and complete color cosmetics packaging solutions for the beauty industry. For the three months ended March 31, 2024 and March 31, 2023, Aptar had purchases of $2.3 million and $3.5 million, respectively, from BTY. As of March 31, 2024 and December 31, 2023, approximately $1.7 million and $1.8 million, respectively, was due to BTY and included in accounts payable, accrued and other liabilities on our Condensed Consolidated Balance Sheets.
Sonmol
On April 1, 2020, we invested $5.0 million to acquire 30 % of the equity interests in Healthcare, Inc., Shanghai Sonmol Internet Technology Co., Ltd. and its subsidiary, Shanghai Sonmol Medical Equipment Co., Ltd. (collectively referred to as “Sonmol”). Sonmol is a leading Chinese pharmaceutical company that provides consumer electric devices and connected devices for asthma control.
Desotec GmbH
During 2009, we invested €574 thousand to acquire 23 % of the equity interests in Desotec GmbH, a leading manufacturer of special assembly machines for bulk processing for the pharmaceutical, beauty and closures markets.
Other Investments
In prior years, we invested, through a series of transactions, an aggregate amount of $2.9 million in preferred equity investments in Loop, a sustainability company.
In prior years, we also invested, through a series of transactions, $3.0 million in PureCycle and received $0.7 million of equity in exchange for our resource dedication for technological partnership and support. In November 2020, we increased the value of the PureCycle investment by $3.1 million based on observable price changes. In March 2021, PureCycle was purchased by a special purpose acquisition company and was subsequently listed on Nasdaq under the ticker PCT. At that time, our investment in PureCycle was converted into shares of PCT resulting in less than a 1 % ownership interest. This investment is now recorded at fair value based on observable market prices for identical assets and the change in fair value is recorded as a net investment gain or loss in the Condensed Consolidated Statements of Income.
We have sold the following PCT shares related to the PureCycle investment:
| Shares Sold | Proceeds | Realized Gain | |||||||||||||||
| July 2023 | $ | $ | |||||||||||||||
| August 2023 | $ | $ | |||||||||||||||
For the three months ended March 31, 2024 and 2023, we recorded the following net investment gain on our investment in PureCycle:
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Net investment gain | $ | $ | |||||||||
On July 7, 2021, we invested approximately $5.9 million to acquire 10 % of the equity interests in YAT, a multi-functional, science-driven online skincare solutions company.
25
NOTE 19 – RESTRUCTURING INITIATIVES
During the third quarter of 2022, we began an initiative to better leverage our fixed cost base through growth and cost reduction measures. For the three months ended March 31, 2024 and 2023, we recognized $3.5 million and $11.5 million of restructuring costs related to this initiative, respectively. The cumulative expense incurred as of March 31, 2024 was $55.2 million.
As of March 31, 2024, we have recorded the following activity associated with our optimization initiative:
| Beginning Reserve at 12/31/2023 | Net Charges for the Three Months Ended 3/31/2024 | Cash Paid | Interest and FX Impact | Ending Reserve at 3/31/2024 | |||||||||||||||||||||||||
| Employee severance | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Professional fees and other costs | ( | ( | |||||||||||||||||||||||||||
| Totals | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, OR AS OTHERWISE INDICATED)
RESULTS OF OPERATIONS
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Net sales | 100.0 | % | 100.0 | % | |||||||
| Cost of sales (exclusive of depreciation and amortization shown below) | 63.7 | 64.8 | |||||||||
| Selling, research & development and administrative | 16.7 | 17.2 | |||||||||
| Depreciation and amortization | 7.0 | 6.9 | |||||||||
| Restructuring initiatives | 0.4 | 1.3 | |||||||||
| Operating income | 12.2 | 9.8 | |||||||||
| Interest expense | (1.1) | (1.2) | |||||||||
| Other expense | 0.3 | (0.1) | |||||||||
| Income before income taxes | 11.4 | 8.5 | |||||||||
| Net Income | 9.1 | 6.3 | |||||||||
| Effective tax rate | 20.5 | % | 25.5 | % | |||||||
| Adjusted EBITDA margin (1) | 19.5 | % | 17.9 | % | |||||||
________________________________________________
(1)Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures."
NET SALES
Reported net sales for the first three months of 2024 increased 6% to $915.4 million compared to $860.1 million for the first three months of 2023. The average U.S. dollar exchange rate weakened compared to the euro and other major currencies in which we operate, resulting in a favorable currency translation impact of 1%. Our acquisitions of iD SCENT and Gulf Closures did not impact our consolidated results during the first three months of 2024. Therefore, core sales, which exclude acquisitions and changes in foreign currency rates, increased by 5% in the first three months of 2024 compared to the same period in 2023. Our 5% core sales increase was mainly due to improved volumes and product mix of approximately 6% while price adjustments represented a 1% decrease. All three segments contributed to the volume and mix growth during the first quarter of 2024, with our Aptar Pharma segment providing the majority of the increase.
| Three Months Ended March 31, 2024 Net Sales Change over Prior Year | Aptar Pharma | Aptar Beauty | Aptar Closures | Total | |||||||||||||||||||
| Reported Net Sales Growth | 14 | % | — | % | 2 | % | 6 | % | |||||||||||||||
| Currency Effects (1) | (1) | % | (1) | % | — | % | (1) | % | |||||||||||||||
| Acquisitions | — | % | — | % | (1) | % | — | % | |||||||||||||||
| Core Sales Growth | 13 | % | (1) | % | 1 | % | 5 | % | |||||||||||||||
________________________________________________
(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
The following table sets forth, for the periods indicated, net sales by geographic location based on shipped to locations:
| Three Months Ended March 31, | 2024 | % of Total | 2023 | % of Total | |||||||||||||||||||
| Domestic | $ | 277,903 | 30 | % | $ | 259,068 | 30 | % | |||||||||||||||
| Europe | 474,392 | 52 | % | 458,799 | 53 | % | |||||||||||||||||
| Latin America | 72,082 | 8 | % | 65,128 | 8 | % | |||||||||||||||||
| Asia | 91,071 | 10 | % | 77,072 | 9 | % | |||||||||||||||||
For further discussion on net sales by reporting segment, please refer to the analysis of segment net sales and segment Adjusted EBITDA on the following pages.
COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN BELOW)
For the first three months of 2024, cost of sales as a percent of net sales decreased to 63.7% compared to 64.8% in the same period in 2023. This decrease is mainly due to an improved mix of our higher-margin Pharma products along with improved operational performance and cost management initiatives which reduced our overall expense. During the prior year, we also incurred additional expenses related to our injectables Enterprise Resource Planning ("ERP") system implementation which did not repeat during 2024.
SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE
Our selling, research & development and administrative expenses ("SG&A") increased by $4.9 million to $152.8 million in the first three months of 2024 compared to $147.9 million during the same period in 2023. Excluding changes in foreign currency rates, SG&A increased by approximately $4.0 million in the first three months of 2024 compared to the first three months of 2023. Incremental costs related to our acquisitions of iD SCENT and Gulf Closures were $0.4 million. Improvements from our cost management initiatives for the first three months of 2024 were more than offset by higher compensation costs, including accruals related to our current short-term incentive compensation arrangements and the timing of certain equity compensation programs expense recognition. SG&A as a percentage of net sales decreased to 16.7% in the first three months of 2024 compared to 17.2% in the same period in 2023.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses increased by approximately $5.1 million to $64.3 million in the first three months of 2024 compared to $59.3 million during the same period a year ago. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $4.7 million in the first three months of 2024 compared to the same period a year ago. Incremental depreciation and amortization costs related to our acquisitions of iD SCENT and Gulf Closures were $0.3 million. This increase is due to higher internal capital investments made during the current and prior years. Depreciation and amortization as a percentage of net sales increased to 7.0% in the first three months of 2024 compared to 6.9% in the same period of the prior year.
RESTRUCTURING INITIATIVES
During the third quarter of 2022, we began an initiative to better leverage our fixed cost base through growth and cost reduction measures. For the three months ended March 31, 2024 and 2023, we recognized $3.5 million and $11.5 million of restructuring costs related to this initiative, respectively. The cumulative expense incurred as of March 31, 2024 was $55.2 million.
Restructuring costs for the three months ended March 31, 2024 and 2023 were as follows:
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Restructuring Initiatives by Plan: | |||||||||||
| Optimization initiative | $ | 3,497 | $ | 11,540 | |||||||
| Prior year initiatives | (17) | (16) | |||||||||
| Total Restructuring Initiatives | $ | 3,480 | $ | 11,524 | |||||||
| Restructuring Initiatives by Segment: | |||||||||||
| Aptar Pharma | $ | 24 | $ | 1,131 | |||||||
| Aptar Beauty | 2,710 | 9,291 | |||||||||
| Aptar Closures | 760 | 522 | |||||||||
| Corporate & Other | (14) | 580 | |||||||||
| Total Restructuring Initiatives | $ | 3,480 | $ | 11,524 | |||||||
OPERATING INCOME
For the first three months of 2024, operating income increased approximately $28.1 million to $112.1 million compared to $83.9 million in the same period of the prior year. Excluding changes in foreign currency rates, operating income increased by approximately $26.7 million in the first three months of 2024 compared to the same period a year ago as our strong Pharma segment growth and the lower restructuring initiative expenses mentioned above was partially offset by higher SG&A and depreciation and amortization costs. Operating income as a percentage of net sales increased to 12.2% in the first three months of 2024 compared to 9.8% for the same period in the prior year.
28
INTEREST EXPENSE
Interest expense decreased $0.1 million to $10.2 million in the first three months of 2024 compared to the same period in 2023. This reduction is mainly due to the repayment of part of our outstanding debt using cash generated from operations over the past year. See Note 6 - Debt to the Condensed Consolidated Financial Statements for further details.
NET OTHER INCOME (EXPENSE)
Net other income increased $2.9 million to $2.4 million of income for the three months ended March 31, 2024 from $0.4 million of expense in the same period of the prior year. Interest income increased by approximately $2.2 million due to cash flow generated from operations over the past year. The remaining increase is mainly due to a $0.4 million increase in the fair value of our PureCycle investment during the first quarter of 2024 compared to the prior year period. This investment is recorded at fair value based on observable market prices for identical assets with the change in fair value being recorded as a net investment gain or loss in the Condensed Consolidated Statements of Income.
PROVISION FOR INCOME TAXES
The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings and related estimated full-year taxes, adjusted for the impact of discrete quarterly items. The effective tax rate for the three months ended March 31, 2024 and 2023, respectively, was 20.5% and 25.5%. The lower reported effective tax rate for the three months ended March 31, 2024 reflects a favorable mix of earnings, increased tax benefits from share-based compensation and tax incentives in certain non-US Jurisdictions from intellectual property development activities.
NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.
We reported net income attributable to AptarGroup, Inc. of $83.1 million and $54.8 million in the three months ended March 31, 2024 and 2023, respectively.
APTAR PHARMA SEGMENT
Operations that sell proprietary dispensing systems, drug delivery systems, sealing solutions and services to the prescription drug, consumer health care, injectables, active material science solutions and digital health markets form our Aptar Pharma segment.
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Net Sales | $ | 407,293 | $ | 356,046 | |||||||
| Adjusted EBITDA (1) | 132,178 | 109,298 | |||||||||
| Adjusted EBITDA margin (1) | 32.5 | % | 30.7 | % | |||||||
________________________________________________
(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures."
Net sales for the first three months of 2024 increased by 14% to $407.3 million compared to $356.0 million in the first three months of 2023. Changes in currency rates positively impacted net sales by 1% during the first three months of 2024. Therefore, core sales increased by 13% in the first three months of 2024 compared to the same period in the prior year. Core sales to the prescription drug market increased 10% on continued strong demand for our allergic rhinitis, asthma, pain and emergency medicine systems. The 2% core sales growth in the consumer health care market was driven by higher demand for our nasal decongestant and saline rinse solutions. Core sales of our products to the injectables market improved by 54% primarily due to the prior year shutdown of operations for the implementation of our new ERP system. We also realized an increase in demand for our biologic and small molecule products which offsets the lower demand for our vaccine applications. Core sales of our active material science solutions increased 2% mainly on strong growth in our probiotics and oral solid dose applications. Digital health currently does not represent a significant percentage of the total Pharma sales.
29
| Three Months Ended March 31, 2024 Net Sales Change over Prior Year | Prescription Drug | Consumer Health Care | Injectables | Active Material Science Solutions | Digital Health | Total | |||||||||||||||||||||||||||||
| Reported Net Sales Growth | 11 | % | 4 | % | 55 | % | 2 | % | 110 | % | 14 | % | |||||||||||||||||||||||
| Currency Effects (1) | (1) | % | (2) | % | (1) | % | — | % | (2) | % | (1) | % | |||||||||||||||||||||||
| Core Sales Growth | 10 | % | 2 | % | 54 | % | 2 | % | 108 | % | 13 | % | |||||||||||||||||||||||
_______________________________________
(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
Adjusted EBITDA in the first three months of 2024 increased 21% to $132.2 million compared to $109.3 million in the same period of the prior year. This positive impact is mainly due to the strong core sales growth across all divisions as discussed above. During the prior year, we also incurred additional expenses related to our injectables ERP system implementation which did not repeat. Overall, our Adjusted EBITDA margin improved to 32.5% in the first three months of 2024 compared to 30.7% in the first three months of 2023.
APTAR BEAUTY SEGMENT
Operations that sell dispensing systems and sealing solutions to the beauty, personal care and home care markets form our Aptar Beauty segment.
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Net Sales | $ | 327,320 | $ | 326,389 | |||||||
| Adjusted EBITDA (1) | 41,134 | 37,205 | |||||||||
| Adjusted EBITDA margin (1) | 12.6 | % | 11.4 | % | |||||||
________________________________________________
(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures."
For the first three months of 2024, reported net sales of $327.3 million were slightly higher than the $326.4 million reported in the first three months of the prior year. Changes in currency rates positively impacted net sales by approximately 1% while our acquisition of iD SCENT did not have an impact on segment sales. Therefore, core sales decreased 1% in the first three months of 2024 compared to the same period in the prior year. While sales improved in North America, we realized softening demand in our other regions largely attributable to exceptionally strong demand in the prior year period, which sets a challenging benchmark for comparison. Core sales of our products to the beauty market during the first three months of 2024 were consistent with the first quarter of the prior year as higher sales of our facial skin care applications, especially in North America, more than compensated for softness in demand for our color cosmetic products. Sales of our products to the fragrance market also improved slightly over the prior year as we continued to see increasing demand in Europe and Latin America. Personal care core sales decreased 4% primarily due to lower sales of our sun care and personal cleansing applications. Core sales of our home care market products improved 2% on higher demand from our customers selling air care and automotive products.
| Three Months Ended March 31, 2024 Net Sales Change over Prior Year | Personal Care | Beauty | Home Care | Total | |||||||||||||||||||
| Reported Net Sales Growth | (3) | % | 1 | % | 3 | % | — | % | |||||||||||||||
| Currency Effects (1) | (1) | % | (1) | % | (1) | % | (1) | % | |||||||||||||||
| Acquisitions | — | % | — | % | — | % | — | % | |||||||||||||||
| Core Sales Growth | (4) | % | — | % | 2 | % | (1) | % | |||||||||||||||
________________________________________________
(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
Adjusted EBITDA in the first three months of 2024 increased 11% to $41.1 million compared to $37.2 million reported in the same period in the prior year. This increase is mainly due to improved operational performance along with benefits realized from our cost management initiatives . Therefore, our Adjusted EBITDA margin improved from 11.4% in the first three months of 2023 to 12.6% during the first three months of 2024.
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APTAR CLOSURES SEGMENT
Operations that sell dispensing systems, sealing solutions and food service trays to the food, beverage, personal care, home care, beauty and healthcare markets form our Aptar Closures segment. Aptar's food protection business and elastomeric flow-control technology business continue to report through the Aptar Closures segment.
| Three Months Ended March 31, | 2024 | 2023 | |||||||||
| Net Sales | $ | 180,835 | $ | 177,632 | |||||||
| Adjusted EBITDA (1) | 27,161 | 26,008 | |||||||||
| Adjusted EBITDA margin (1) | 15.0 | % | 14.6 | % | |||||||
________________________________________________
(1)Adjusted EBITDA is calculated as earnings before net interest, taxes, depreciation, amortization, unallocated corporate expenses, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items. Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation under "Non-U.S. GAAP Measures."
Net sales for the first three months of 2024 increased by 2% to $180.8 million compared to $177.6 million in the first three months of 2023. Changes in currency rates had no impact on net sales while our acquisition of Gulf Closures positively impacted net sales by 1%. Therefore, core sales increased by 1% in the first three months of 2024 compared to the same period in the prior year. Core sales to the food and personal care markets increased 3% and 2%, respectively, while core sales to the beverage market decreased 4% in the first three months of 2024 compared to the same period of the prior year. For the food market, we realized strong growth in our dry spices and food protection applications. The personal care market benefited from improving demand for our body and hair care products, mainly in North America. The beverage market experienced softness due to the timing of some of our customer's transition to our new tethered cap closures in compliance with European Union regulations.
| Three Months Ended March 31, 2024 Net Sales Change over Prior Year | Food | Beverage | Personal Care | Other (2) | Total | ||||||||||||||||||||||||
| Reported Net Sales Growth | 3 | % | 1 | % | 2 | % | (6) | % | 2 | % | |||||||||||||||||||
| Currency Effects (1) | — | % | (1) | % | — | % | 1 | % | — | % | |||||||||||||||||||
| Acquisitions | — | % | (4) | % | — | % | — | % | (1) | % | |||||||||||||||||||
| Core Sales Growth | 3 | % | (4) | % | 2 | % | (5) | % | 1 | % | |||||||||||||||||||
______________________________________________________________
(1)Currency effects are calculated by translating last year’s amounts at this year’s foreign exchange rates.
(2)Other includes beauty, home care and healthcare markets.
Adjusted EBITDA in the first three months of 2024 increased 4% to $27.2 million compared to $26.0 million reported in the same period of the prior year. Our profitability was positively impacted by a continued focus on operational improvements and containing costs. This led to our Adjusted EBITDA margin improving from 14.6% in the first three months of 2023 to 15.0% during the first three months of 2024.
CORPORATE & OTHER
In addition to our three reporting segments, we assign certain costs to “Corporate & Other,” which is presented separately in Note 16 – Segment Information of the Notes to the Condensed Consolidated Financial Statements. For Corporate & Other, Adjusted EBITDA (which excludes net interest, taxes, depreciation, amortization, restructuring initiatives, acquisition-related costs, net unrealized investment gains and losses related to observable market price changes on equity securities and other special items) primarily includes certain professional fees, compensation and information system costs which are not allocated directly to our reporting segments.
Corporate & Other Adjusted EBITDA in the first three months of 2024 increased to $21.6 million of expense compared to $18.8 million of expense reported in the same period of the prior year. This increase is mainly related to higher incentive compensation costs, including accruals related to our current short-term incentive compensation program and the timing of equity compensation expense recognition including substantive vesting conditions for retirement eligible employees.
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NON-U.S. GAAP MEASURES
In addition to the information presented herein that conforms to U.S. GAAP, we also present financial information that does not conform to U.S. GAAP, which are referred to as non-U.S. GAAP financial measures. Management may assess our financial results both on a U.S. GAAP basis and on a non-U.S. GAAP basis. We believe it is useful to present these non-U.S. GAAP financial measures because they allow for a better period over period comparison of operating results by removing the impact of items that, in management’s view, do not reflect our core operating performance. These non-U.S. GAAP financial measures should not be considered in isolation or as a substitute for U.S. GAAP financial results, but should be read in conjunction with the unaudited Condensed Consolidated Statements of Income and other information presented herein. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparable U.S. GAAP financial measures to arrive at these non-U.S. GAAP financial measures.
In our Management’s Discussion and Analysis, we exclude the impact of foreign currency translation when presenting net sales and other information, which we define as “constant currency.” Core sales, which excludes the impact of foreign currency translation is a non-U.S. GAAP financial measure. As a worldwide business, it is important that we take into account the effects of foreign currency translation when we view our results and plan our strategies. Consequently, when our management looks at our financial results to measure the core performance of our business, we may exclude the impact of foreign currency translation by translating our prior period results at current period foreign currency exchange rates. As a result, our management believes that these presentations are useful internally and may be useful to investors. We also exclude the impact of material acquisitions when comparing results to prior periods. Changes in operating results excluding the impact of acquisitions are non-U.S. GAAP financial measures. We believe it is important to exclude the impact of acquisitions on period over period results in order to evaluate performance on a more comparable basis.
We present earnings before net interest and taxes (“EBIT”) and earnings before net interest, taxes, depreciation and amortization (“EBITDA”). We also present our adjusted earnings before net interest and taxes (“Adjusted EBIT”) and adjusted earnings before net interest, taxes, depreciation and amortization (“Adjusted EBITDA”), both of which exclude restructuring initiatives, acquisition-related costs, purchase accounting adjustments related to acquisitions and investments and net unrealized investment gains and losses related to observable market price changes on equity securities. Our Outlook is also provided on a non-U.S. GAAP basis because certain reconciling items are dependent on future events that either cannot be controlled, such as exchange rates and changes in the fair value of equity investments, or reliably predicted because they are not part of our routine activities, such as restructuring initiatives and acquisition-related costs.
We provide a reconciliation of Net Debt to Net Capital as a non-U.S. GAAP measure. “Net Debt” is calculated as interest-bearing debt less cash and equivalents and short-term investments while “Net Capital” is calculated as stockholders’ equity plus Net Debt. Net Debt to Net Capital measures a company’s financial leverage, which gives users an idea of a company's financial structure, or how it is financing its operations, along with insight into its financial strength. We believe that it is meaningful to take into consideration the balance of our cash, cash equivalents and short-term investments when evaluating our leverage. If needed, such assets could be used to reduce our gross debt position.
Finally, we provide a reconciliation of free cash flow as a non-U.S. GAAP measure. Free cash flow is calculated as cash provided by operating activities less capital expenditures plus proceeds from government grants related to capital expenditures. We use free cash flow to measure cash flow generated by operations that is available for dividends, share repurchases, acquisitions and debt repayment. We believe that it is meaningful to investors in evaluating our financial performance and measuring our ability to generate cash internally to fund our initiatives.
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| Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 31, 2024 | |||||||||||||||||||||||||||||||||||
| Consolidated | Aptar Pharma | Aptar Beauty | Aptar Closures | Corporate & Other | Net Interest | ||||||||||||||||||||||||||||||
| Net Sales | $ | 915,448 | $ | 407,293 | $ | 327,320 | $ | 180,835 | $ | — | $ | — | |||||||||||||||||||||||
| Reported net income | $ | 82,933 | |||||||||||||||||||||||||||||||||
| Reported income taxes | 21,385 | ||||||||||||||||||||||||||||||||||
| Reported income before income taxes | 104,318 | 103,352 | 17,196 | 12,870 | (21,823) | (7,277) | |||||||||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||
| Restructuring initiatives | 3,480 | 24 | 2,710 | 760 | (14) | ||||||||||||||||||||||||||||||
Net investment gain | (592) | (592) | |||||||||||||||||||||||||||||||||
| Adjusted earnings before income taxes | 107,206 | 103,376 | 19,906 | 13,630 | (22,429) | (7,277) | |||||||||||||||||||||||||||||
| Interest expense | 10,175 | 10,175 | |||||||||||||||||||||||||||||||||
| Interest income | (2,898) | (2,898) | |||||||||||||||||||||||||||||||||
| Adjusted earnings before net interest and taxes (Adjusted EBIT) | 114,483 | 103,376 | 19,906 | 13,630 | (22,429) | — | |||||||||||||||||||||||||||||
| Depreciation and amortization | 64,349 | 28,802 | 21,228 | 13,531 | 788 | ||||||||||||||||||||||||||||||
| Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA) | $ | 178,832 | $ | 132,178 | $ | 41,134 | $ | 27,161 | $ | (21,641) | $ | — | |||||||||||||||||||||||
| Reported net income margin (Reported net income / Reported Net Sales) | 9.1 | % | |||||||||||||||||||||||||||||||||
| Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales) | 19.5 | % | 32.5 | % | 12.6 | % | 15.0 | % | |||||||||||||||||||||||||||
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| Three Months Ended | |||||||||||||||||||||||||||||||||||
| March 31, 2023 | |||||||||||||||||||||||||||||||||||
| Consolidated | Aptar Pharma | Aptar Beauty | Aptar Closures | Corporate & Other | Net Interest | ||||||||||||||||||||||||||||||
| Net Sales | $ | 860,067 | $ | 356,046 | $ | 326,389 | $ | 177,632 | $ | — | $ | — | |||||||||||||||||||||||
| Reported net income | $ | 54,586 | |||||||||||||||||||||||||||||||||
| Reported income taxes | 18,683 | ||||||||||||||||||||||||||||||||||
| Reported income before income taxes | 73,269 | 82,390 | 7,432 | 13,295 | (20,292) | (9,556) | |||||||||||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||||||||
| Restructuring initiatives | 11,524 | 1,131 | 9,291 | 522 | 580 | ||||||||||||||||||||||||||||||
| Net investment gain | (188) | (188) | |||||||||||||||||||||||||||||||||
| Transaction costs related to acquisitions | 255 | — | 199 | 56 | — | ||||||||||||||||||||||||||||||
| Adjusted earnings before income taxes | 84,860 | 83,521 | 16,922 | 13,873 | (19,900) | (9,556) | |||||||||||||||||||||||||||||
| Interest expense | 10,228 | 10,228 | |||||||||||||||||||||||||||||||||
| Interest income | (672) | (672) | |||||||||||||||||||||||||||||||||
| Adjusted earnings before net interest and taxes (Adjusted EBIT) | 94,416 | 83,521 | 16,922 | 13,873 | (19,900) | — | |||||||||||||||||||||||||||||
| Depreciation and amortization | 59,259 | 25,777 | 20,283 | 12,135 | 1,064 | ||||||||||||||||||||||||||||||
| Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA) | $ | 153,675 | $ | 109,298 | $ | 37,205 | $ | 26,008 | $ | (18,836) | $ | — | |||||||||||||||||||||||
| Reported net income margin (Reported net income / Reported Net Sales) | 6.3 | % | |||||||||||||||||||||||||||||||||
| Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales) | 17.9 | % | 30.7 | % | 11.4 | % | 14.6 | % | |||||||||||||||||||||||||||
| Net Debt to Net Capital Reconciliation | March 31, | December 31, | |||||||||
| 2024 | 2023 | ||||||||||
| Notes payable, revolving credit facility and overdrafts | $ | 164,042 | $ | 81,794 | |||||||
| Current maturities of long-term obligations, net of unamortized debt issuance costs | 271,317 | 376,426 | |||||||||
| Long-Term Obligations, net of unamortized debt issuance costs | 680,358 | 681,188 | |||||||||
| Total Debt | 1,115,717 | 1,139,408 | |||||||||
| Less: | |||||||||||
| Cash and equivalents | 199,834 | 223,643 | |||||||||
| Net Debt | $ | 914,660 | $ | 915,765 | |||||||
| Total Stockholders' Equity | $ | 2,362,933 | $ | 2,321,298 | |||||||
| Net Debt | 914,660 | 915,765 | |||||||||
| Net Capital | $ | 3,277,593 | $ | 3,237,063 | |||||||
| Net Debt to Net Capital | 27.9 | % | 28.3 | % | |||||||
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| Free Cash Flow Reconciliation | March 31, | March 31, | |||||||||
| 2024 | 2023 | ||||||||||
| Net Cash Provided by Operations | $ | 92,333 | $ | 98,304 | |||||||
| Capital Expenditures | (75,661) | (77,825) | |||||||||
| Free Cash Flow | $ | 16,672 | $ | 20,479 | |||||||
FOREIGN CURRENCY
Because of our international presence, movements in exchange rates may have a significant impact on the translation of the financial statements of our foreign subsidiaries. Our primary foreign exchange exposure is to the euro, but we also have foreign exchange exposure to the Chinese yuan, Brazilian real, Mexican peso, Swiss franc and other Asian, European and South American currencies. A weakening U.S. dollar has an additive effect. Conversely, a strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements. In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Any changes in exchange rates on such inter-country sales could materially impact our results of operations. During the first quarter of 2024, the U.S. dollar weakened compared to all European currencies except the Russian ruble and most Latin American currencies, while it showed strength against most Asian currencies. This resulted in an additive impact on our translated results during the first quarter of 2024 when compared to the first quarter of 2023.
QUARTERLY TRENDS
Our results of operations in the last quarter of the year typically are negatively impacted by customer plant shutdowns in December. Several of the markets we serve are impacted by the seasonality of underlying consumer products. This, in turn, may have an impact on our net sales and results of operations for those markets. The diversification of our product portfolio minimizes fluctuations in our overall quarterly financial statements and results in an immaterial seasonality impact on our Condensed Consolidated Financial Statements when viewed quarter over quarter.
Generally, we have incurred higher stock-based compensation expense in the first quarter compared with the rest of the fiscal year due to the timing and recognition of stock-based expense from substantive vesting for retirement eligible employees. As of March 31, 2024, our estimated stock option expense on a pre-tax basis for the year 2024 compared to 2023 is as follows:
| 2024 | 2023 | ||||||||||
| First Quarter | $ | 18,276 | $ | 15,042 | |||||||
| Second Quarter (estimated for 2024) | 10,304 | 10,391 | |||||||||
| Third Quarter (estimated for 2024) | 9,152 | 10,051 | |||||||||
| Fourth Quarter (estimated for 2024) | 8,939 | 5,809 | |||||||||
| $ | 46,671 | $ | 41,293 | ||||||||
LIQUIDITY AND CAPITAL RESOURCES
Given our current level of leverage and our ability to generate cash flow from operations, we believe we are in a strong financial position to meet our business requirements in the foreseeable future. We have historically used cash flow from operations, our revolving and other credit facilities, proceeds from stock options and debt, as needed, as our primary sources of liquidity. Our primary uses of cash are to invest in equipment and working capital for the continued growth of our business, including facilities that are necessary to support our growth, pay quarterly dividends to stockholders, to make acquisitions and repurchase shares of our common stock that will contribute to the achievement of our strategic objectives. Due to uncertain macroeconomic conditions, including rising interest rates and the inflationary environment, in the event that customer demand decreases significantly for a prolonged period of time and adversely impacts our cash flows from operations, we would have the ability to restrict and significantly reduce capital expenditure levels and share repurchases, as well as reevaluate our acquisition strategy. A prolonged and significant reduction in capital expenditure levels could increase future repairs and maintenance costs as well as have a negative impact on operating margins if we were unable to invest in new innovative products.
Cash and equivalents and restricted cash decreased to $199.8 million at March 31, 2024 from $223.6 million at December 31, 2023. Total short and long-term interest-bearing debt of $1.1 billion at March 31, 2024 was consistent with the $1.1 billion at December 31, 2023. The ratio of our Net Debt (interest-bearing debt less cash and cash equivalents) to Net Capital (stockholders’ equity plus Net Debt) decreased to 27.9% at March 31, 2024 from 28.3% at December 31, 2023. See the reconciliation under "Non-U.S. GAAP Measures."
In the first three months of 2024, our operations provided approximately $92.3 million in net cash flow compared to $98.3 million for the same period a year ago. In both periods, cash flow from operations was primarily derived from earnings before depreciation and amortization.
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We used $76.6 million in cash for investing activities during the first three months of 2024 compared to $89.2 million during the same period a year ago. Our investment in capital projects net of government grant proceeds decreased $2.2 million during the first three months of 2024 compared to the first three months of 2023.
Financing activities used $35.8 million in cash during the first three months of 2024 compared to $24.8 million in cash used by financing activities during the same period a year ago. During the first three months of 2024, we paid $27.1 million of dividends, received $22.3 million from stock option exercises and purchased $12.1 million of treasury stock.
In October 2020, we entered into an unsecured money market borrowing arrangement to provide short term financing of up to $30 million that is available in the U.S. No borrowing on this facility is permitted over a quarter end date. As such, no balance was utilized under this arrangement as of March 31, 2024.
Aptar has a revolving credit facility with a syndicate of banks which matures in June 2026. The revolving credit facility is subject to a maximum of two one-year extensions in certain circumstances, and provides for unsecured financing of up to $600 million available in the U.S. and to our wholly-owned UK subsidiary. The revolving credit facility can be drawn in various currencies including USD, EUR, GBP, and CHF to the equivalent of $600 million, which may be increased by up to $300 million subject to the satisfaction of certain conditions. As of March 31, 2024, $149.5 million was utilized under the revolving credit facility in the U.S. and no balance was utilized by our wholly-owned UK subsidiary. As of December 31, 2023, $36.5 million and €40.0 million ($44.2 million) was utilized under the revolving credit facility in the U.S. and no balance was utilized by our wholly-owned UK subsidiary.
There are no compensating balance requirements associated with our revolving credit facility. Each borrowing under the revolving credit facility will bear interest at rates based on SOFR (in the case of USD), EURIBOR (in the case of EUR), SONIA (in the case of GBP), SARON (in the case of CHF), prime rates or other similar rates, in each case plus an applicable margin. The revolving credit facility also provides mechanics relating to a transition away from designated benchmark rates for other available currencies and the replacement of any such applicable benchmark by a replacement alternative benchmark rate or mechanism for loans made in the applicable currency. A facility fee on the total amount of the revolving credit facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the revolving credit facility and the facility fee percentage may change from time to time depending on changes in our consolidated leverage ratio. Credit facility balances are included in notes payable, revolving credit facility and overdrafts on the Condensed Consolidated Balance Sheets.
Our revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:
| Requirement | Level at March 31, 2024 | ||||||||||
| Consolidated Leverage Ratio (1) | Maximum of 3.50 to 1.00 | 1.39 to 1.00 | |||||||||
| Consolidated Interest Coverage Ratio (1) | Minimum of 3.00 to 1.00 | 16.75 to 1.00 | |||||||||
__________________________________________________________
(1)Definitions of ratios are included as part of the revolving credit facility agreement and private placement agreements.
Based upon the above consolidated leverage ratio covenant, we would have the ability to borrow approximately an additional $1.4 billion before the 3.50 to 1.00 maximum ratio requirement would be exceeded.
On July 6, 2022, we entered into an agreement to swap approximately $200 million of our fixed USD debt to fixed EUR debt which would generate interest savings of approximately $0.5 million per quarter based upon exchange rates as of the transaction date.
On April 11, 2024, the Board of Directors declared a quarterly cash dividend of $0.41 per share payable on May 16, 2024 to stockholders of record as of April 25, 2024.
Our foreign operations have historically met cash requirements with the use of internally generated cash or uncommitted short-term borrowings. We also have committed financing arrangements in both the U.S. and the UK as detailed above. We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances.
CONTINGENCIES
The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature. Please refer to Note 12 - Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements for a discussion of contingencies affecting our business.
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RECENTLY ISSUED ACCOUNTING STANDARDS
We have reviewed the recently issued ASUs to the FASB’s Accounting Standards Codification that have future effective dates. Standards that have been adopted during 2024 are discussed in Note 1 – Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements.
Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our Condensed Consolidated Financial Statements upon adoption.
OUTLOOK
In the second quarter, we anticipate demand for our proprietary drug delivery systems and elastomeric components for biologics to continue to grow, and we expect Pharma’s strong performance to continue throughout the year. We also expect demand to build for our consumer dispensing technologies in the second quarter as the destocking abates in North America. Additionally, both Beauty and Closures will continue to focus on improving operational performance and ongoing cost management, including optimizing our footprint. We are energized for 2024, which will be another dynamic year for us, as we continue to focus on accelerating growth and improving profitability.
We expect earnings per share for the second quarter of 2024, excluding any restructuring expenses, changes in the fair value of equity investments and acquisition costs, to be in the range of $1.30 to $1.38 and this guidance is based on an effective tax rate range of 22% to 24%. Our 2024 estimated cash outlays for capital expenditures net of government grant proceeds are expected to be approximately $280 million to $300 million.
FORWARD-LOOKING STATEMENTS
Certain statements in Management’s Discussion and Analysis and other sections of this Form 10-Q are forward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Significant Developments, Restructuring Initiatives, Quarterly Trends, Liquidity and Capital Resources, Contingencies and Outlook sections of this Form 10-Q. Words such as “expects,” “anticipates,” “believes,” “estimates,” “future,” “potential”, "are optimistic" and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. Forward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on our beliefs as well as assumptions made by and information currently available to us. Accordingly, our actual results or other events may differ materially from those expressed or implied in such forward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment including, but not limited to:
•geopolitical conflicts worldwide including the invasion of Ukraine by the Russian military and the recent tension in the Middle East and the resulting indirect impact on demand from our customers selling their products into these countries, as well as rising input costs and certain supply chain disruptions;
•lower demand and asset utilization due to an economic recession either globally or in key markets we operate within;
•economic conditions worldwide, including inflationary conditions and potential deflationary conditions in other regions we rely on for growth;
•the execution of our fixed cost reduction initiatives, including our optimization initiative;
•the availability of raw materials and components (particularly from sole sourced suppliers) as well as the financial viability of these suppliers;
•fluctuations in the cost of materials, components, transportation cost as a result of supply chain disruptions and labor shortages, and other input costs (particularly resin, metal, anodization costs and energy costs);
•significant fluctuations in foreign currency exchange rates or our effective tax rate;
•the impact of tax reform legislation, changes in tax rates and other tax-related events or transactions that could impact our effective tax rate;
•financial conditions of customers and suppliers;
•consolidations within our customer or supplier bases;
•changes in customer and/or consumer spending levels;
•loss of one or more key accounts;
•our ability to successfully implement facility expansions and new facility projects;
•our ability to offset inflationary impacts with cost containment, productivity initiatives and price increases;
•changes in capital availability or cost, including rising interest rates;
•volatility of global credit markets;
•our ability to identify potential new acquisitions and to successfully acquire and integrate such operations, including the successful integration of the product/service offerings of the acquired entities into our existing portfolio;
•direct or indirect consequences of acts of war, terrorism or social unrest;
•cybersecurity threats that could impact our networks and reporting systems;
•the impact of natural disasters and other weather-related occurrences;
•fiscal and monetary policies and other regulations;
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•changes, difficulties or failures in complying with government regulation, including FDA or similar foreign governmental authorities;
•changing regulations or market conditions regarding environmental sustainability;
•work stoppages due to labor disputes;
•competition, including technological advances;
•our ability to protect and defend our intellectual property rights, as well as litigation involving intellectual property rights;
•the outcome of any legal proceeding that has been or may be instituted against us and others;
•our ability to meet future cash flow estimates to support our goodwill impairment testing;
•the demand for existing and new products;
•the success of our customers’ products, particularly in the pharmaceutical industry;
•our ability to manage worldwide customer launches of complex technical products, particularly in developing markets;
•difficulties in product development and uncertainties related to the timing or outcome of product development;
•significant product liability claims; and
•other risks associated with our operations.
Although we believe that our forward-looking statements are based on reasonable assumptions, there can be no assurance that actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to Item 1A (Risk Factors) of Part I included in our Annual Report on Form 10-K for the year ended December 31, 2023 for additional risks and uncertainties that may cause our actual results or other events to differ materially from those expressed or implied in such forward-looking statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A significant number of our operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of our subsidiaries. Our primary foreign exchange exposure is to the euro, but we also have foreign exchange exposure to the Chinese yuan, Brazilian real, Argentine peso, Mexican peso, Swiss franc and other Asian, European and Latin American currencies. A weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial statements. Conversely, a strengthening U.S. dollar has a dilutive effect. Additionally, in some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Any changes in exchange rates on such inter-country sales may impact our results of operations.
The table below provides information as of March 31, 2024 about our forward currency exchange contracts. The majority of the contracts expire before the end of the second quarter of 2024.
| Buy/Sell | Contract Amount (in thousands) | Average Contractual Exchange Rate | Min / Max Notional Volumes | ||||||||||||||
| EUR / USD | $ | 26,625 | 1.0880 | 19,759 - 26,625 | |||||||||||||
| EUR / BRL | 10,462 | 5.4857 | 10,462 - 10,611 | ||||||||||||||
| CZK / EUR | 10,189 | 0.0398 | 6,882 - 10,189 | ||||||||||||||
| MXN / USD | 5,000 | 0.0580 | 3,000 - 5,000 | ||||||||||||||
| EUR / THB | 4,662 | 38.4185 | 4,662 - 4,806 | ||||||||||||||
| USD / CNY | 3,899 | 7.1453 | 3,899 - 6,649 | ||||||||||||||
| EUR / MXN | 2,373 | 18.6155 | 1,085 - 2,373 | ||||||||||||||
| CHF / EUR | 1,205 | 1.0561 | 1,205 - 4,369 | ||||||||||||||
| USD / EUR | 1,012 | 0.9189 | 1,012 - 3,798 | ||||||||||||||
| THB / EUR | 960 | 0.0264 | 960 - 989 | ||||||||||||||
| EUR / GBP | 631 | 0.8573 | 0 - 631 | ||||||||||||||
| GBP / EUR | 504 | 1.1650 | 354 - 582 | ||||||||||||||
| USD / MXN | 500 | 16.8656 | 0 - 500 | ||||||||||||||
| CHF / USD | 316 | 1.1423 | 0 - 324 | ||||||||||||||
| EUR / CHF | 225 | 0.9598 | 0 - 225 | ||||||||||||||
| EUR / CZK | 174 | 25.2453 | 0 - 174 | ||||||||||||||
| GBP / USD | 86 | 1.2624 | 0 - 86 | ||||||||||||||
| Total | $ | 68,823 | |||||||||||||||
As of March 31, 2024, we have recorded the fair value of foreign currency forward exchange contracts of $0.3 million in prepaid and other and $0.4 million in accounts payable, accrued and other liabilities on the Condensed Consolidated Balance Sheets. On July 6, 2022, we entered into a seven year USD/EUR fixed-to-fixed cross currency interest rate swap to effectively hedge the interest rate exposure relating to $203 million of the $400 million 3.60% Senior Notes due March 2032 which were issued by AptarGroup, Inc. on March 7, 2022. This USD/EUR swap agreement exchanged $203 million of fixed-rate 3.60% USD debt to €200 million of fixed-rate 2.5224% EUR debt. The fair value of this net investment hedge is $18.3 million reported in accounts payable, accrued and other liabilities on the Condensed Consolidated Balance Sheets.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of our disclosure controls and procedures (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2024. Based on that evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures were effective as of such date.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the fiscal quarter ended March 31, 2024, we implemented ERP systems at two operating units. Consequently, the control environments have been modified at these locations to incorporate the controls contained within the new ERP systems. Except for the foregoing, no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during our fiscal quarter ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
Certain French employees are eligible to participate in the FCP Aptar Savings Plan (the “Plan”). An independent agent purchases shares of common stock available under the Plan for cash on the open market and we do not issue shares. We do not receive any proceeds from the purchase of common stock under the Plan. The agent under the Plan is BNP Paribas Fund Services. No underwriters are used under the Plan. All shares are sold in reliance upon the exemption from registration under the Securities Act of 1933 provided by Regulation S promulgated under that Act. During the quarter ended March 31, 2024, the Plan purchased 10,820 shares of our common stock on behalf of the participants at an average price of $140.02, for an aggregate amount of $1.5 million, and sold 12,923 shares of our common stock on behalf of the participants at an average price of $137.25, for an aggregate amount of $1.8 million. At March 31, 2024, the Plan owned 111,843 shares of our common stock.
ISSUER PURCHASES OF EQUITY SECURITIES
On April 18, 2019, we announced a share purchase authorization of up to $350 million of common stock. This authorization replaced previous authorizations and has no expiration date. We may repurchase shares through the open market, privately negotiated transactions or other programs, subject to market conditions.
During the three months ended March 31, 2024, we repurchased approximately 86 thousand shares for $12.1 million. As of March 31, 2024, there was $48.6 million of authorized share repurchases remaining under the existing authorization.
The following table summarizes our purchases of our securities for the quarter ended March 31, 2024:
| Period | Total Number Of Shares Purchased | Average Price Paid Per Share | Total Number Of Shares Purchased As Part Of Publicly Announced Plans Or Programs | Dollar Value Of Shares That May Yet Be Purchased Under The Plans Or Programs (in millions) | |||||||||||||||||||
| 1/1 - 1/31/24 | — | $ | — | — | $ | 60.7 | |||||||||||||||||
| 2/1 - 2/29/24 | 38,300 | 139.48 | 38,300 | 55.3 | |||||||||||||||||||
| 3/1 - 3/31/24 | 47,300 | 142.35 | 47,300 | 48.6 | |||||||||||||||||||
| Total | 85,600 | $ | 141.07 | 85,600 | $ | 48.6 | |||||||||||||||||
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Plan Elections
During the three months ended March 31, 2024, no director or officer of the Company adopted terminated
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ITEM 6. EXHIBITS
Exhibit 10.1* | |||||||||||
| Exhibit 31.1 | |||||||||||
| Exhibit 31.2 | |||||||||||
| Exhibit 32.1 | |||||||||||
| Exhibit 32.2 | |||||||||||
| Exhibit 101 | The following information from our Quarterly Report on Form 10-Q for the first quarter of fiscal 2024, filed with the SEC on April 26, 2024, formatted in Inline Extensible Business Reporting Language (XBRL): (i) the Cover Page, (ii) the Condensed Consolidated Statements of Income – Three Months Ended March 31, 2024 and 2023, (iii) the Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2024 and 2023, (iv) the Condensed Consolidated Balance Sheets – March 31, 2024 and December 31, 2023, (v) the Condensed Consolidated Statements of Changes in Equity – Three Months Ended March 31, 2024 and 2023, (vi) the Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2024 and 2023 and (vii) the Notes to Condensed Consolidated Financial Statements. | ||||||||||
| Exhibit 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | ||||||||||
*Filed or furnished herewith.
**Management contract or compensatory plan or arrangement.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AptarGroup, Inc. | ||||||||
| (Registrant) | ||||||||
| By | /s/ ROBERT W. KUHN | |||||||
| Robert W. Kuhn | ||||||||
| Executive Vice President and Chief Financial Officer | ||||||||
| (Duly Authorized Officer and | ||||||||
| Principal Accounting and Financial Officer) | ||||||||
| Date: April 26, 2024 | ||||||||
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