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, 2020 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, 2020. The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.
Beginning July 1, 2018, we have applied highly inflationary accounting for our Argentinian subsidiary pursuant to U.S. GAAP. We have changed the functional currency from the Argentinian peso to the U.S. dollar. We remeasure our peso denominated assets and liabilities using the official rate. In September 2019, the President of Argentina reinstituted exchange controls restricting foreign currency purchases in an attempt to stabilize Argentina’s financial markets. As a result of these currency controls, a legal mechanism known as the Blue Chip Swap emerged in Argentina for reporting entities to transfer U.S. dollars. The Blue Chip Swap rate has diverged significantly from Argentina’s “official rate” due to the economic environment. During the second quarter of 2020, we transferred U.S. dollars into Argentina through the Blue Chip Swap method and we recognized a gain of $1.0 million. This gain helped to offset foreign currency losses due to our Argentinian peso exposure and devaluation against the U.S. dollar. During the third quarter of 2021, we utilized the Blue Chip Swap and recognized a gain of $1.4 million. Our Argentinian operations contributed less than 2.0% of consolidated net assets and revenues as of and for the nine months ended September 30, 2021.
There continues to be many uncertainties regarding the current COVID-19 pandemic, including the availability, adoption, and efficacy of approved vaccines within certain areas of the world and the potential for additional governmental actions that may be taken and/or extended in response to any further resurgence of the virus. No impairments were recorded as of September 30, 2021 related to the COVID-19 pandemic. However, due to the general uncertainty surrounding the situation, including areas such as cost inflation, supply chain disruptions, and labor shortages, future results could be negatively affected by the pandemic and therefore our results could be materially impacted.
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.
Effective January 1, 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, issued by the FASB in June 2016, as well as the clarifying amendments subsequently issued. We applied the guidance using a modified retrospective approach and accordingly recognized an amount of $1.4 million as the cumulative adjustment to opening retained earnings in the first quarter of 2020. This is based on management's best estimates of specific losses on individual exposures particularly on current trade receivables, as well as the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. On an ongoing basis, we will contemplate forward-looking economic conditions in recording lifetime expected credit losses for our financial assets measured at cost, such as our trade receivables and certain other assets.
In January 2017, the FASB issued ASU 2017-04, which provides guidance to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As a result, impairment charges are required for the amount by which a reporting unit’s carrying amount exceeds its fair value up to the amount of its allocated goodwill. We adopted the standard on January 1, 2020 and did not record any impairment charges.
In August 2018, the FASB issued ASU 2018-13, which amends disclosure requirements for fair value measurements. The new standard modifies disclosure requirements including removing requirements to disclose the valuation process for Level 3 measurements and adding requirements to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. We adopted the standard on January 1, 2020 and no material impacts were noted.
In August 2018, the FASB issued ASU 2018-14, which amends disclosure requirements for defined benefit pension and other postretirement plans. The amendments in this update remove disclosures that are no longer considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. We adopted the standard during the fourth quarter of 2020 and appropriate disclosures are included in the notes to the financial statements to the extent applicable. The provisions of the new standard do not have any effect on our financial statements.
In August 2018, the FASB issued ASU 2018-15 to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, which includes reasonably certain renewals. We adopted the standard on January 1, 2020 and no material impacts were noted.
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 the income is earned. The income tax rates imposed by these taxing authorities may vary substantially. Taxable income may differ from pre-tax income for financial accounting purposes. To the extent that these differences create temporary differences between the tax basis of an asset or liability and our reported amount in the financial statements, an appropriate provision for deferred income taxes is made.
We maintain our assertion that the cash and distributable reserves at our non-U.S. affiliates are indefinitely reinvested. At September 30, 2021, under currently enacted laws, we do not have a balance of foreign earnings that will be subject to U.S. taxation. We will provide for the necessary withholding and local income taxes when management decides that an affiliate should make a distribution. These decisions are made taking into consideration the financial requirements of the non-U.S. affiliates and the global cash management goals of the Company.
We provide a liability for the amount of unrecognized tax benefits from uncertain tax positions. This liability is provided whenever we determine that a tax benefit will not meet a more-likely-than-not threshold for recognition.
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 governmental bodies. We believe that an adequate provision for any adjustments that may result from tax examinations exists. 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 its 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.
NOTE 2 – REVENUE
Revenue by segment and geography for the three and nine months ended September 30, 2021 and 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2021
|
|
Segment
|
Europe
|
|
Domestic
|
|
Latin
America
|
|
Asia
|
|
Total
|
|
Pharma
|
$
|
202,893
|
|
|
$
|
89,620
|
|
|
$
|
5,318
|
|
|
$
|
15,394
|
|
|
$
|
313,225
|
|
|
Beauty + Home
|
193,772
|
|
|
109,103
|
|
|
40,441
|
|
|
30,772
|
|
|
374,088
|
|
|
Food + Beverage
|
36,824
|
|
|
81,514
|
|
|
11,991
|
|
|
7,800
|
|
|
138,129
|
|
|
Total
|
$
|
433,489
|
|
|
$
|
280,237
|
|
|
$
|
57,750
|
|
|
$
|
53,966
|
|
|
$
|
825,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2020
|
|
Segment
|
Europe
|
|
Domestic
|
|
Latin
America
|
|
Asia
|
|
Total
|
|
Pharma
|
$
|
206,376
|
|
|
$
|
92,932
|
|
|
$
|
4,846
|
|
|
$
|
11,604
|
|
|
$
|
315,758
|
|
|
Beauty + Home
|
165,701
|
|
|
109,175
|
|
|
37,921
|
|
|
24,434
|
|
|
337,231
|
|
|
Food + Beverage
|
29,688
|
|
|
60,439
|
|
|
6,668
|
|
|
9,369
|
|
|
106,164
|
|
|
Total
|
$
|
401,765
|
|
|
$
|
262,546
|
|
|
$
|
49,435
|
|
|
$
|
45,407
|
|
|
$
|
759,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2021
|
|
Segment
|
Europe
|
|
Domestic
|
|
Latin
America
|
|
Asia
|
|
Total
|
|
Pharma
|
$
|
623,060
|
|
|
$
|
272,442
|
|
|
$
|
15,982
|
|
|
$
|
40,916
|
|
|
$
|
952,400
|
|
|
Beauty + Home
|
575,383
|
|
|
311,589
|
|
|
113,665
|
|
|
80,643
|
|
|
1,081,280
|
|
|
Food + Beverage
|
97,728
|
|
|
220,551
|
|
|
33,129
|
|
|
28,140
|
|
|
379,548
|
|
|
Total
|
$
|
1,296,171
|
|
|
$
|
804,582
|
|
|
$
|
162,776
|
|
|
$
|
149,699
|
|
|
$
|
2,413,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2020
|
|
Segment
|
Europe
|
|
Domestic
|
|
Latin
America
|
|
Asia
|
|
Total
|
|
Pharma
|
$
|
598,319
|
|
|
$
|
264,995
|
|
|
$
|
18,412
|
|
|
$
|
32,487
|
|
|
$
|
914,213
|
|
|
Beauty + Home
|
505,063
|
|
|
285,369
|
|
|
103,995
|
|
|
67,150
|
|
|
961,577
|
|
|
Food + Beverage
|
86,298
|
|
|
172,507
|
|
|
21,191
|
|
|
24,225
|
|
|
304,221
|
|
|
Total
|
$
|
1,189,680
|
|
|
$
|
722,871
|
|
|
$
|
143,598
|
|
|
$
|
123,862
|
|
|
$
|
2,180,011
|
|
We perform our obligations under a contract with a customer by transferring goods and/or services in exchange for consideration from the customer. The timing of performance will sometimes differ from the timing of the receipt of the associated consideration from the customer, thus resulting in the recognition of a contract asset or a contract liability. We recognize a contract asset when we transfer control of goods or services to a customer prior to invoicing for the related performance obligation. The contract asset is transferred to accounts receivable when the product is shipped and invoiced to the customer. We recognize a contract liability if the customer's payment of consideration precedes the entity's performance.
The opening and closing balances of our contract asset and contract liabilities are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2020
|
|
Balance as of September 30, 2021
|
|
Increase/
(Decrease)
|
|
Contract asset (current)
|
$
|
16,109
|
|
|
$
|
18,656
|
|
|
$
|
2,547
|
|
|
|
|
|
|
|
|
|
Contract liability (current)
|
87,188
|
|
|
84,199
|
|
|
(2,989)
|
|
|
Contract liability (long-term)
|
21,584
|
|
|
21,725
|
|
|
141
|
|
The differences in the opening and closing balances of our contract asset and contract liabilities are primarily the result of timing differences between our performance and the customer’s payment. The total amount of revenue recognized during the current year against contract liabilities is $80.4 million, including $44.9 million relating to contract liabilities at the beginning of the year. Current contract assets and long-term 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 delivery, dispensing, sealing and active material science solutions. The amount of consideration is typically fixed for customers. At the time of delivery, the customer is invoiced the agreed-upon price. Revenue from product sales is typically recognized upon manufacture or shipment, when control of the goods transfers to the customer.
To determine when the control transfers, we typically assess, among other things, the shipping terms of the contract, shipping being one of the indicators of transfer of control. 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.
As a part of our customary business practice, we offer a standard warranty that the products will materially comply with the technical specifications and will be free from material defects. Because such warranties are not sold separately, do not provide for any service beyond a guarantee of a product’s initial specifications, and are not required by law, there is no revenue deferral for these types of warranties.
Tooling Sales
We also build or contract for molds and other tools (collectively defined as “tooling”) necessary to produce our products. As with product sales, we recognize revenue when control of the tool transfers to the customer. If the tooling is highly customized with no alternative use to us and we have an enforceable right to payment for performance completed to date, we transfer control and recognize revenue over time by measuring progress towards completion using the Input Method based on costs incurred relative to total estimated costs to completion. Otherwise, revenue for the tooling is recognized at the point in time when the customer approves the tool. We do not have any material significant payment terms as payment is typically either received during the mold-build process or shortly after completion.
In certain instances, we offer extended warranties on 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 September 30, 2021 or December 31, 2020.
Service Sales
We also provide services to our pharmaceutical customers. As with product sales, we recognize revenue based on completion of each performance obligation of the service contract.
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.
Current uncertainty in credit and market conditions due to the COVID-19 pandemic may slow our collection efforts if customers experience significant difficulty accessing credit and paying their obligations, which may lead to higher than normal accounts receivable and increased CECL charges.
NOTE 3 - INVENTORIES
Inventories, by component net of reserves, consisted of:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Raw materials
|
$
|
139,678
|
|
|
$
|
116,029
|
|
|
Work in process
|
134,128
|
|
|
115,870
|
|
|
Finished goods
|
163,537
|
|
|
147,480
|
|
|
Total
|
$
|
437,343
|
|
|
$
|
379,379
|
|
NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by reporting segment since December 31, 2020 are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharma
|
|
Beauty +
Home
|
|
Food +
Beverage
|
|
Corporate
& Other
|
|
Total
|
|
Goodwill
|
$
|
436,731
|
|
|
$
|
333,111
|
|
|
$
|
128,679
|
|
|
$
|
1,615
|
|
|
$
|
900,136
|
|
|
Accumulated impairment losses
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,615)
|
|
|
(1,615)
|
|
|
Balance as of December 31, 2020
|
$
|
436,731
|
|
|
$
|
333,111
|
|
|
$
|
128,679
|
|
|
$
|
—
|
|
|
$
|
898,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
110,158
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
110,158
|
|
|
Foreign currency exchange effects
|
(15,961)
|
|
|
(5,607)
|
|
|
(332)
|
|
|
—
|
|
|
(21,900)
|
|
|
Goodwill
|
$
|
530,928
|
|
|
$
|
327,504
|
|
|
$
|
128,347
|
|
|
$
|
1,615
|
|
|
$
|
988,394
|
|
|
Accumulated impairment losses
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,615)
|
|
|
(1,615)
|
|
|
Balance as of September 30, 2021
|
$
|
530,928
|
|
|
$
|
327,504
|
|
|
$
|
128,347
|
|
|
$
|
—
|
|
|
$
|
986,779
|
|
The table below shows a summary of intangible assets as of September 30, 2021 and December 31, 2020.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Weighted Average Amortization Period (Years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Value
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Value
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
13.9
|
|
$
|
2,785
|
|
|
$
|
(1,436)
|
|
|
$
|
1,349
|
|
|
$
|
2,861
|
|
|
$
|
(1,477)
|
|
|
$
|
1,384
|
|
|
Acquired technology
|
11.5
|
|
140,224
|
|
|
(42,803)
|
|
|
97,421
|
|
|
111,854
|
|
|
(36,943)
|
|
|
74,911
|
|
|
Customer relationships
|
15.4
|
|
312,905
|
|
|
(71,872)
|
|
|
241,033
|
|
|
286,644
|
|
|
(56,714)
|
|
|
229,930
|
|
|
Trademarks and trade names
|
6.9
|
|
45,194
|
|
|
(21,544)
|
|
|
23,650
|
|
|
46,174
|
|
|
(17,437)
|
|
|
28,737
|
|
|
License agreements and other
|
37.6
|
|
16,504
|
|
|
(7,143)
|
|
|
9,361
|
|
|
19,208
|
|
|
(9,861)
|
|
|
9,347
|
|
|
Total intangible assets
|
14.4
|
|
$
|
517,612
|
|
|
$
|
(144,798)
|
|
|
$
|
372,814
|
|
|
$
|
466,741
|
|
|
$
|
(122,432)
|
|
|
$
|
344,309
|
|
Aggregate amortization expense for the intangible assets above for the quarters ended September 30, 2021 and 2020 was $10,249 and $9,686, respectively. Aggregate amortization expense for the intangible assets above for the nine months ended September 30, 2021 and 2020 was $29,871 and $30,020, respectively.
Future estimated amortization expense for the years ending December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
$
|
11,614
|
|
|
(remaining estimated amortization for 2021)
|
|
2022
|
43,874
|
|
|
|
|
2023
|
43,791
|
|
|
|
|
2024
|
40,651
|
|
|
|
|
2025 and thereafter
|
232,884
|
|
|
|
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 September 30, 2021.
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 effective tax rate for the three months ended September 30, 2021 and 2020, respectively, was 29.2% and 28.5%. The higher reported effective tax rate for the three months ended September 30, 2021 reflects lower tax benefits from employee stock-based compensation offset in part by a more favorable mix of earnings.
The effective tax rate for the nine months ended September 30, 2021 and 2020, respectively, was 22.9% and 29.4%. The effective tax rate for the nine months ended September 30, 2021 reflects higher additional tax benefits than the prior year from employee stock-based compensation and a more favorable mix of earnings.
NOTE 6 – DEBT
Notes Payable, Revolving Credit Facility and Overdrafts
At September 30, 2021 and December 31, 2020, our notes payable, revolving credit facility and overdrafts consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Notes payable 0.0%
|
$
|
—
|
|
|
$
|
200
|
|
|
Revolving credit facility 1.00% to 1.08%
|
58,583
|
|
|
52,000
|
|
|
|
$
|
58,583
|
|
|
$
|
52,200
|
|
On June 30, 2021, we entered into an amended and restated multi-currency revolving credit facility (the "revolving credit facility") with a syndicate of banks to replace the existing facility (the "prior credit facility") maturing July 2022 and to amend and restate the unsecured term loan facility extended to our wholly-owned UK subsidiary under the prior credit facility (as amended, the "amended term facility"). The revolving credit facility matures in June 2026, 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 amended term facility matures in July 2022. 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 September 30, 2021, $47 million was utilized under the revolving credit facility in the U.S., €10 million (approximately $11.6 million) was utilized by our wholly-owned UK subsidiary and $56 million remained outstanding under the amended term facility. As of December 31, 2020, under our prior credit facility, we utilized $52.0 million under the U.S. revolving facility and no balance was utilized under the euro-based revolving credit facility.
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 LIBOR (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 provides mechanics relating to a transition away from LIBOR (in the case of USD) and the 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.
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 September 30, 2021 or December 31, 2020.
Long-Term Obligations
At September 30, 2021 and December 31, 2020, our long-term obligations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Notes payable 0.00% – 8.92%, due in monthly and annual installments through 2028
|
$
|
24,967
|
|
|
$
|
14,002
|
|
|
Senior unsecured notes 3.2%, due in 2022
|
75,000
|
|
|
75,000
|
|
|
Senior unsecured debts 1.26% USD floating swapped to 1.36% EUR fixed, due in 2022
|
56,000
|
|
|
112,000
|
|
|
Senior unsecured notes 3.5%, due in 2023
|
125,000
|
|
|
125,000
|
|
|
Senior unsecured notes 1.0%, due in 2023
|
115,830
|
|
|
122,100
|
|
|
Senior unsecured notes 3.4%, due in 2024
|
50,000
|
|
|
50,000
|
|
|
Senior unsecured notes 3.5%, due in 2024
|
100,000
|
|
|
100,000
|
|
|
Senior unsecured notes 1.2%, due in 2024
|
231,660
|
|
|
244,200
|
|
|
Senior unsecured notes 3.6%, due in 2025
|
125,000
|
|
|
125,000
|
|
|
Senior unsecured notes 3.6%, due in 2026
|
125,000
|
|
|
125,000
|
|
|
Finance Lease Liabilities
|
31,197
|
|
|
30,025
|
|
|
Unamortized debt issuance costs
|
(1,230)
|
|
|
(1,663)
|
|
|
|
$
|
1,058,424
|
|
|
$
|
1,120,664
|
|
|
Current maturities of long-term obligations
|
(142,674)
|
|
|
(65,666)
|
|
|
Total long-term obligations
|
$
|
915,750
|
|
|
$
|
1,054,998
|
|
The aggregate long-term maturities, excluding finance lease liabilities, which are disclosed in Note 7, due annually from the current balance sheet date for the next five years are:
|
|
|
|
|
|
|
|
Year One
|
$
|
138,734
|
|
|
Year Two
|
121,784
|
|
|
Year Three
|
460,593
|
|
|
Year Four
|
53,725
|
|
|
Year Five
|
253,471
|
|
|
Thereafter
|
150
|
|
Covenants
Our revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Requirement
|
|
Level at September 30, 2021
|
|
Consolidated Leverage Ratio (1)
|
|
Maximum of 3.50 to 1.00
|
|
1.76 to 1.00
|
|
Consolidated Interest Coverage Ratio (1)
|
|
Minimum of 3.00 to 1.00
|
|
19.39 to 1.00
|
________________________________________
(1)Definitions of ratios are included as part of the revolving credit facility agreement and the private placement agreements.
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 2034. 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 (“SG&A”).
The components of lease expense for the three and nine months ended September 30, 2021 and 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Operating lease cost
|
$
|
5,423
|
|
|
$
|
6,076
|
|
|
$
|
17,256
|
|
|
$
|
17,171
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
$
|
1,107
|
|
|
$
|
905
|
|
|
$
|
3,182
|
|
|
$
|
3,010
|
|
|
Interest on lease liabilities
|
343
|
|
|
356
|
|
|
1,030
|
|
|
1,073
|
|
|
Total finance lease cost
|
$
|
1,450
|
|
|
$
|
1,261
|
|
|
$
|
4,212
|
|
|
$
|
4,083
|
|
|
|
|
|
|
|
|
|
|
|
Short-term lease and variable lease costs
|
$
|
3,353
|
|
|
$
|
2,466
|
|
|
$
|
8,925
|
|
|
$
|
7,344
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
2021
|
|
2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
17,310
|
|
|
$
|
17,060
|
|
|
Operating cash flows from finance leases
|
1,052
|
|
|
1,089
|
|
|
Financing cash flows from finance leases
|
3,392
|
|
|
3,678
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
$
|
6,890
|
|
|
$
|
19,255
|
|
|
Finance leases
|
5,707
|
|
|
3,356
|
|
NOTE 8 – RETIREMENT AND DEFERRED COMPENSATION PLANS
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 September 30,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Service cost
|
$
|
4,074
|
|
|
$
|
3,570
|
|
|
$
|
2,037
|
|
|
$
|
1,867
|
|
|
Interest cost
|
1,601
|
|
|
1,761
|
|
|
203
|
|
|
360
|
|
|
Expected return on plan assets
|
(3,060)
|
|
|
(3,062)
|
|
|
(675)
|
|
|
(671)
|
|
|
Amortization of net loss
|
2,498
|
|
|
1,422
|
|
|
568
|
|
|
544
|
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
34
|
|
|
101
|
|
|
Net periodic benefit cost
|
$
|
5,113
|
|
|
$
|
3,691
|
|
|
$
|
2,167
|
|
|
$
|
2,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Plans
|
|
Foreign Plans
|
|
Nine Months Ended September 30,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Service cost
|
$
|
12,242
|
|
|
$
|
10,709
|
|
|
$
|
6,186
|
|
|
$
|
5,402
|
|
|
Interest cost
|
4,816
|
|
|
5,284
|
|
|
629
|
|
|
1,040
|
|
|
Expected return on plan assets
|
(9,197)
|
|
|
(9,186)
|
|
|
(2,119)
|
|
|
(1,936)
|
|
|
Amortization of net loss
|
7,502
|
|
|
4,264
|
|
|
1,748
|
|
|
1,572
|
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
123
|
|
|
293
|
|
|
Net periodic benefit cost
|
$
|
15,363
|
|
|
$
|
11,071
|
|
|
$
|
6,567
|
|
|
$
|
6,371
|
|
The components of net periodic benefit cost, other than the service cost component, are included in the line Miscellaneous, net in the Condensed Consolidated Statements of Income.
Employer Contributions
We currently have no minimum funding requirements for our domestic and foreign plans. We contributed $1.0 million to our ongoing domestic supplemental executive retirement plan (SERP) annuity contracts during the nine months ended September 30, 2021 and we do not expect additional significant payments during 2021. We have contributed approximately $2.8 million to our foreign defined benefit plans during the nine months ended September 30, 2021 and do not expect additional significant contributions during 2021.
NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in Accumulated Other Comprehensive (Loss) Income by Component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
|
|
Defined Benefit Pension Plans
|
|
Derivatives
|
|
Total
|
|
Balance - December 31, 2019
|
$
|
(257,124)
|
|
|
$
|
(83,147)
|
|
|
$
|
(1,677)
|
|
|
$
|
(341,948)
|
|
|
Other comprehensive income (loss) before reclassifications
|
19,282
|
|
|
—
|
|
|
(4,342)
|
|
|
14,940
|
|
|
Amounts reclassified from accumulated other comprehensive income
|
—
|
|
|
4,639
|
|
|
4,945
|
|
|
9,584
|
|
|
Net current-period other comprehensive income
|
19,282
|
|
|
4,639
|
|
|
603
|
|
|
24,524
|
|
|
Balance - September 30, 2020
|
$
|
(237,842)
|
|
|
$
|
(78,508)
|
|
|
$
|
(1,074)
|
|
|
$
|
(317,424)
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2020
|
$
|
(178,025)
|
|
|
$
|
(102,322)
|
|
|
$
|
(1,362)
|
|
|
$
|
(281,709)
|
|
|
Other comprehensive (loss) income before reclassifications
|
(57,317)
|
|
|
529
|
|
|
7,346
|
|
|
(49,442)
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
7,131
|
|
|
(6,307)
|
|
|
824
|
|
|
Net current-period other comprehensive (loss) income
|
(57,317)
|
|
|
7,660
|
|
|
1,039
|
|
|
(48,618)
|
|
|
Balance - September 30, 2021
|
$
|
(235,342)
|
|
|
$
|
(94,662)
|
|
|
$
|
(323)
|
|
|
$
|
(330,327)
|
|
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 September 30,
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
|
Amortization of net loss
|
$
|
3,066
|
|
|
$
|
1,966
|
|
|
(1)
|
|
Amortization of prior service cost
|
34
|
|
|
101
|
|
|
(1)
|
|
|
3,100
|
|
|
2,067
|
|
|
Total before tax
|
|
|
(742)
|
|
|
(504)
|
|
|
Tax impact
|
|
|
$
|
2,358
|
|
|
$
|
1,563
|
|
|
Net of tax
|
|
Derivatives
|
|
|
|
|
|
|
Changes in cross currency swap: interest component
|
$
|
2
|
|
|
$
|
(146)
|
|
|
Interest Expense
|
|
Changes in cross currency swap: foreign exchange component
|
(3,052)
|
|
|
6,099
|
|
|
Miscellaneous, net
|
|
|
$
|
(3,050)
|
|
|
$
|
5,953
|
|
|
Net of tax
|
|
Total reclassifications for the period
|
$
|
(692)
|
|
|
$
|
7,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other
Comprehensive Income Components
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
|
Affected Line in the Statement
Where Net Income is Presented
|
|
Nine Months Ended September 30,
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension Plans
|
|
|
|
|
|
|
Amortization of net loss
|
$
|
9,250
|
|
|
$
|
5,836
|
|
|
(1)
|
|
Amortization of prior service cost
|
123
|
|
|
293
|
|
|
(1)
|
|
|
9,373
|
|
|
6,129
|
|
|
Total before tax
|
|
|
(2,242)
|
|
|
(1,490)
|
|
|
Tax impact
|
|
|
$
|
7,131
|
|
|
$
|
4,639
|
|
|
Net of tax
|
|
Derivatives
|
|
|
|
|
|
|
Changes in cross currency swap: interest component
|
$
|
(16)
|
|
|
$
|
(1,434)
|
|
|
Interest Expense
|
|
Changes in cross currency swap: foreign exchange component
|
(6,291)
|
|
|
6,379
|
|
|
Miscellaneous, net
|
|
|
$
|
(6,307)
|
|
|
$
|
4,945
|
|
|
Net of tax
|
|
Total reclassifications for the period
|
$
|
824
|
|
|
$
|
9,584
|
|
|
|
______________________________________________
(1)These accumulated other comprehensive income components are included in the computation of 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.
During 2017, our wholly-owned UK subsidiary borrowed $280 million in term loan borrowings under our prior credit facility. In order to mitigate the currency risk of U.S. dollar debt on a euro functional currency entity and to mitigate the risk of variability in interest rates, we entered into a EUR/USD floating-to-fixed cross currency interest rate swap in the notional amount of $280 million to effectively hedge the foreign exchange and interest rate exposure on the $280 million term loan. This EUR/USD swap agreement fixed our U.S. dollar floating-rate debt to 1.36% euro fixed-rate debt. Related to this hedge, approximately $0.3 million of loss is included in accumulated other comprehensive loss at September 30, 2021. The amount expected to be recognized into earnings during the next 10 months related to the interest component of our cross currency swap based on prevailing foreign exchange and interest rates at September 30, 2021 is a gain of $8 thousand. The amount expected to be recognized into earnings during the next 10 months related to the foreign exchange component of our cross currency swap is dependent on fluctuations in currency exchange rates. As of September 30, 2021, the fair value of the cross currency swap was a $0.7 million liability. The swap contract expires on July 20, 2022.
Hedge of Net Investments in Foreign Operations
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 relative to foreign currencies has an additive translation effect on our financial condition and results of operations. Conversely, a strengthening U.S. dollar has a dilutive effect. In some cases, we maintain debt in these subsidiaries to offset the net asset exposure. We do not otherwise actively manage this risk using derivative financial instruments. 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.
Other
As of September 30, 2021, we have recorded the fair value of foreign currency forward exchange contracts of $0.3 million in prepaid and other and $0.2 million in accounts payable, accrued and other liabilities on the balance sheet. All forward exchange contracts outstanding as of September 30, 2021 had an aggregate notional contract amount of $47.5 million.
Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
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
|
|
$
|
—
|
|
|
$
|
254
|
|
|
$
|
—
|
|
|
$
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
254
|
|
|
$
|
—
|
|
|
$
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts
|
Accounts payable, accrued and other liabilities
|
|
$
|
—
|
|
|
$
|
226
|
|
|
$
|
—
|
|
|
$
|
146
|
|
|
Cross Currency Swap Contract (1)
|
Accounts payable, accrued and other liabilities
|
|
738
|
|
|
—
|
|
|
8,309
|
|
|
—
|
|
|
|
|
|
$
|
738
|
|
|
$
|
226
|
|
|
$
|
8,309
|
|
|
$
|
146
|
|
__________________________
(1)This cross currency swap contract is composed of both an interest component and a foreign exchange component.
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss) for the Three Months Ended September 30, 2021 and 2020
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging
Relationships
|
Amount of Gain (Loss)
Recognized in
Other Comprehensive
Income on Derivative
|
|
Location of (Loss)
Gain Recognized
in Income on
Derivatives
|
|
Amount of Gain (Loss)
Reclassified from
Accumulated
Other Comprehensive
Income on Derivative
|
|
Total Amount of Affected Income Statement Line Item
|
|
|
2021
|
|
2020
|
|
|
|
2021
|
|
2020
|
|
|
|
Cross currency swap contract:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest component
|
$
|
228
|
|
|
$
|
(1)
|
|
|
Interest expense
|
|
$
|
(2)
|
|
|
$
|
146
|
|
|
$
|
(8,011)
|
|
|
Foreign exchange component
|
3,052
|
|
|
(6,099)
|
|
|
Miscellaneous, net
|
|
3,052
|
|
|
(6,099)
|
|
|
13
|
|
|
|
$
|
3,280
|
|
|
$
|
(6,100)
|
|
|
|
|
$
|
3,050
|
|
|
$
|
(5,953)
|
|
|
|
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss) for the Nine Months Ended September 30, 2021 and 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging
Relationships
|
Amount of Gain (Loss)
Recognized in
Other Comprehensive
Income on Derivative
|
|
Location of (Loss)
Gain Recognized
in Income on
Derivatives
|
|
Amount of Gain (Loss)
Reclassified from
Accumulated
Other Comprehensive
Income on Derivative
|
|
Total Amount of Affected Income Statement Line Item
|
|
|
2021
|
|
2020
|
|
|
|
2021
|
|
2020
|
|
|
|
Cross currency swap contract:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest component
|
$
|
1,055
|
|
|
$
|
2,037
|
|
|
Interest expense
|
|
$
|
16
|
|
|
$
|
1,434
|
|
|
$
|
(22,601)
|
|
|
Foreign exchange component
|
6,291
|
|
|
(6,379)
|
|
|
Miscellaneous, net
|
|
6,291
|
|
|
(6,379)
|
|
|
(2,978)
|
|
|
|
$
|
7,346
|
|
|
$
|
(4,342)
|
|
|
|
|
$
|
6,307
|
|
|
$
|
(4,945)
|
|
|
|
The Effect of Derivatives Not Designated as Hedging Instruments on the Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2021 and 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated
as Hedging Instruments
|
Location of (Loss) Gain Recognized
in Income on Derivatives
|
|
Amount of (Loss) Gain
Recognized in Income
on Derivatives
|
|
|
|
|
2021
|
|
2020
|
|
Foreign Exchange Contracts
|
Other (Expense) Income:
Miscellaneous, net
|
|
$
|
1,518
|
|
|
$
|
(994)
|
|
|
|
|
|
$
|
1,518
|
|
|
$
|
(994)
|
|
The Effect of Derivatives Not Designated as Hedging Instruments on the Condensed Consolidated Statements of Income for the Nine Months Ended September 30, 2021 and 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated
as Hedging Instruments
|
Location of (Loss) Gain Recognized
in Income on Derivatives
|
|
Amount of (Loss) Gain
Recognized in Income
on Derivatives
|
|
|
|
|
2021
|
|
2020
|
|
Foreign Exchange Contracts
|
Other (Expense) Income:
Miscellaneous, net
|
|
$
|
(171)
|
|
|
$
|
(187)
|
|
|
|
|
|
$
|
(171)
|
|
|
$
|
(187)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
Derivative Assets
|
$
|
254
|
|
|
—
|
|
|
$
|
254
|
|
|
—
|
|
|
—
|
|
|
$
|
254
|
|
|
Total Assets
|
$
|
254
|
|
|
—
|
|
|
$
|
254
|
|
|
—
|
|
|
—
|
|
|
$
|
254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
$
|
964
|
|
|
—
|
|
|
$
|
964
|
|
|
—
|
|
|
—
|
|
|
$
|
964
|
|
|
Total Liabilities
|
$
|
964
|
|
|
—
|
|
|
$
|
964
|
|
|
—
|
|
|
—
|
|
|
$
|
964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
Derivative Assets
|
$
|
322
|
|
|
—
|
|
|
$
|
322
|
|
|
—
|
|
|
—
|
|
|
$
|
322
|
|
|
Total Assets
|
$
|
322
|
|
|
—
|
|
|
$
|
322
|
|
|
—
|
|
|
—
|
|
|
$
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
$
|
8,455
|
|
|
—
|
|
|
$
|
8,455
|
|
|
—
|
|
|
—
|
|
|
$
|
8,455
|
|
|
Total Liabilities
|
$
|
8,455
|
|
|
—
|
|
|
$
|
8,455
|
|
|
—
|
|
|
—
|
|
|
$
|
8,455
|
|
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.
As of September 30, 2021, 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)
|
$
|
11,908
|
|
|
$
|
11,908
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign exchange contracts (2)
|
254
|
|
|
—
|
|
|
254
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
$
|
12,162
|
|
|
$
|
11,908
|
|
|
$
|
254
|
|
|
$
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Foreign exchange contracts (2)
|
$
|
226
|
|
|
$
|
—
|
|
|
$
|
226
|
|
|
$
|
—
|
|
|
Cross currency swap contract (2)
|
738
|
|
|
—
|
|
|
738
|
|
|
—
|
|
|
Contingent consideration obligation
|
34,250
|
|
|
—
|
|
|
—
|
|
|
34,250
|
|
|
Total liabilities at fair value
|
$
|
35,214
|
|
|
$
|
—
|
|
|
$
|
964
|
|
|
$
|
34,250
|
|
As of December 31, 2020, the fair values of our financial assets and liabilities were categorized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
Foreign exchange contracts (2)
|
$
|
322
|
|
|
$
|
—
|
|
|
$
|
322
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
$
|
322
|
|
|
$
|
—
|
|
|
$
|
322
|
|
|
$
|
—
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Foreign exchange contracts (2)
|
$
|
146
|
|
|
$
|
—
|
|
|
$
|
146
|
|
|
$
|
—
|
|
|
Cross currency swap contract (2)
|
8,309
|
|
|
—
|
|
|
8,309
|
|
|
—
|
|
|
Contingent consideration obligation
|
31,140
|
|
|
—
|
|
|
—
|
|
|
31,140
|
|
|
Total liabilities at fair value
|
$
|
39,595
|
|
|
$
|
—
|
|
|
$
|
8,455
|
|
|
$
|
31,140
|
|
________________________________________________
(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 instruments. We consider our long-term 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 $0.9 billion as of September 30, 2021 and $1.1 billion as of December 31, 2020.
As discussed in Note 19 - Acquisitions of our Annual Report on Form 10-K for the year ended December 31, 2020, we have a contingent consideration obligation to the selling equity holders of:
–Fusion Packaging, Inc. ("Fusion") in connection with the acquisition of 100% of the equity interests of Fusion (the "Fusion Acquisition") based on 2022 cumulative performance targets, and
–Noble International Holdings, Inc., Genia Medical, Inc. and JBCB Holdings, LLC (collectively referred to as "Noble") in connection with the acquisition of 100% of the equity interests of Noble (the "Noble Acquisition") based on 2024 cumulative performance targets.
We consider these obligations Level 3 liabilities and have estimated the aggregate fair value for these contingent consideration arrangements as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Fusion Acquisition
|
$
|
28,340
|
|
|
$
|
26,910
|
|
|
Noble Acquisition
|
5,910
|
|
|
4,230
|
|
|
|
|
|
|
|
|
$
|
34,250
|
|
|
$
|
31,140
|
|
Changes in the fair value of these obligations are recorded within selling, research & development and administrative expenses in our Condensed Consolidated Statements of Income. Significant changes to the inputs, as noted above, can result in a significantly higher or lower fair value measurement. The following table provides a summary of changes in our Level 3 fair value measurements:
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
$
|
31,140
|
|
|
|
|
|
Increase in fair value recorded in earnings
|
3,110
|
|
|
|
|
|
Balance, September 30, 2021
|
$
|
34,250
|
|
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, our results of operations or cash flows, claims and legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur and 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 liabilities recorded for these agreements as of September 30, 2021 and December 31, 2020.
In March 2017, the Supreme Court of Brazil issued a decision that a certain state value added tax should not be included in the calculation of federal gross receipts taxes. The decision reduces our gross receipts tax in Brazil prospectively and retrospectively. In May 2021, the Supreme Court of Brazil issued a judgment establishing rules for the refund of amounts paid in excess based on the calculation methodology to be applied. In June 2021 and June 2020, we received favorable court decisions of $1.6 million and $0.7 million, respectively, for the retrospective right to recover part of our claim. These amounts were recorded in cost of sales. On September 30, 2021, we received a formal decision statement from the Federal Regional Court of Brazil that the favorable court decisions are final. As a result, in September, we recorded recoveries of $2.7 million in cost of sales. We estimate an additional $2.6 million to $3.0 million including interest may be received, but have not recorded any further amounts due to uncertainty in the estimate and collectability.
In December 2019, tax authorities in Brazil notified us of a tax assessment of approximately $6.1 million, including interest and penalties of $2.3 million and $0.8 million, respectively, relating to differences in tax classification codes used for import duties for the period from January 2015 to August 2018. We are vigorously contesting the assessment, including interest and penalties, and have filed an administrative defense appeal in December 2019. In June 2020, an unfavorable decision was issued on the first administrative defense appeal. We filed a second administrative defense appeal in August 2020. We still believe we have a strong defense. Due to uncertainty in the amount of assessment and the timing of our appeal, no liability is recorded as of September 30, 2021.
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 and nine months ended September 30, 2021, we repurchased approximately 220 thousand shares for approximately $28.4 million. During the three and nine months ended September 30, 2020, we did not repurchase any shares. As of September 30, 2021, there was $250.1 million of authorized share repurchases available to us.
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. Performance-based RSUs have one of two vesting conditions: (1) based on our internal financial performance metrics and (2) based on our total shareholder return (“TSR”) relative to total shareholder returns of an industrial peer group. 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 over one year.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
2021
|
|
2020
|
|
Fair value per stock award
|
$
|
171.63
|
|
|
$
|
94.98
|
|
|
Grant date stock price
|
$
|
141.59
|
|
|
$
|
83.93
|
|
|
Assumptions:
|
|
|
|
|
Aptar's stock price expected volatility
|
21.40
|
%
|
|
23.80
|
%
|
|
Expected average volatility of peer companies
|
50.00
|
%
|
|
48.50
|
%
|
|
Correlation assumption
|
58.10
|
%
|
|
63.50
|
%
|
|
Risk-free interest rate
|
0.32
|
%
|
|
0.31
|
%
|
|
Dividend yield assumption
|
1.02
|
%
|
|
1.72
|
%
|
A summary of RSU activity as of September 30, 2021 and changes during the nine 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, 2021
|
576,198
|
|
|
$
|
92.47
|
|
|
590,064
|
|
|
$
|
100.27
|
|
|
Granted
|
143,807
|
|
|
138.89
|
|
|
169,974
|
|
|
152.51
|
|
|
Vested
|
(220,723)
|
|
|
96.13
|
|
|
(72,139)
|
|
|
128.66
|
|
|
Forfeited
|
(3,918)
|
|
|
102.54
|
|
|
(32,561)
|
|
|
92.26
|
|
|
Nonvested at September 30, 2021
|
495,364
|
|
|
$
|
108.36
|
|
|
655,338
|
|
|
$
|
111.09
|
|
Included in the activity for the nine months ended September 30, 2021 time-based RSUs are 10,007 units granted to non-employee directors and 12,379 units vested related to non-employee directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
2021
|
|
2020
|
|
Compensation expense
|
$
|
29,493
|
|
|
$
|
24,497
|
|
|
Fair value of units vested
|
29,671
|
|
|
11,188
|
|
|
Intrinsic value of units vested
|
39,752
|
|
|
13,475
|
|
The actual tax benefit realized for the tax deduction from RSUs was approximately $5.5 million in the nine months ended September 30, 2021. As of September 30, 2021, there was $50.9 million of total unrecognized compensation cost relating to RSU awards which is expected to be recognized over a weighted-average period of 1.9 years.
Historically we issued stock options to our employees and non-employee directors. Beginning in 2019, we no longer issue stock options. Stock options were awarded with the exercise price equal to the market price on the date of grant and generally vest over three years and expire 10 years after grant. For stock option grants, we used historical data to estimate expected life and volatility.
A summary of option activity under our stock plans during the nine months ended September 30, 2021 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards Plans
|
|
Director Stock Option Plans
|
|
|
Options
|
|
Weighted Average
Exercise Price
|
|
Options
|
|
Weighted Average
Exercise Price
|
|
Outstanding, January 1, 2021
|
3,998,047
|
|
|
$
|
70.28
|
|
|
99,200
|
|
|
$
|
60.80
|
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercised
|
(841,091)
|
|
|
64.57
|
|
|
(47,500)
|
|
|
57.40
|
|
|
Forfeited or expired
|
(10,153)
|
|
|
75.46
|
|
|
—
|
|
|
—
|
|
|
Outstanding at September 30, 2021
|
3,146,803
|
|
|
$
|
71.79
|
|
|
51,700
|
|
|
$
|
63.91
|
|
|
Exercisable at September 30, 2021
|
3,146,803
|
|
|
$
|
71.79
|
|
|
51,700
|
|
|
$
|
63.91
|
|
|
Weighted-Average Remaining Contractual Term (Years):
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2021
|
4.3
|
|
|
|
2.3
|
|
|
|
Exercisable at September 30, 2021
|
4.3
|
|
|
|
2.3
|
|
|
|
Aggregate Intrinsic Value:
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2021
|
$
|
153,196
|
|
|
|
|
$
|
2,924
|
|
|
|
|
Exercisable at September 30, 2021
|
$
|
153,196
|
|
|
|
|
$
|
2,924
|
|
|
|
|
Intrinsic Value of Options Exercised During the Nine Months Ended:
|
|
|
|
|
|
|
|
|
September 30, 2021
|
$
|
65,139
|
|
|
|
|
$
|
4,248
|
|
|
|
|
September 30, 2020
|
$
|
44,086
|
|
|
|
|
$
|
2,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
2021
|
|
2020
|
|
Compensation expense (included in SG&A)
|
$
|
185
|
|
|
$
|
1,409
|
|
|
Compensation expense (included in Cost of sales)
|
42
|
|
|
285
|
|
|
Compensation expense, Total
|
$
|
227
|
|
|
$
|
1,694
|
|
|
Compensation expense, net of tax
|
174
|
|
|
1,289
|
|
|
Grant date fair value of options vested
|
2,421
|
|
|
7,601
|
|
The reduction in stock option expense is due to our move to RSUs as discussed above. Cash received from option exercises was approximately $54.0 million during the nine months ended September 30, 2021. The actual tax benefit realized for the tax deduction from option exercises was approximately $15.4 million and $10.8 million in the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, there is no remaining valuation of stock option awards to be expensed in future periods.
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 and nine months ended September 30, 2021 and 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Consolidated operations
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
$
|
47,260
|
|
|
$
|
47,260
|
|
|
$
|
63,716
|
|
|
$
|
63,716
|
|
|
|
|
|
|
|
|
|
|
|
Average equivalent shares
|
|
|
|
|
|
|
|
|
Shares of common stock
|
65,900
|
|
|
65,900
|
|
|
64,562
|
|
|
64,562
|
|
|
Effect of dilutive stock-based compensation
|
|
|
|
|
|
|
|
|
Stock options
|
1,464
|
|
|
—
|
|
|
1,809
|
|
|
—
|
|
|
Restricted stock
|
437
|
|
|
—
|
|
|
551
|
|
|
—
|
|
|
Total average equivalent shares
|
67,801
|
|
|
65,900
|
|
|
66,922
|
|
|
64,562
|
|
|
Net income per share
|
$
|
0.70
|
|
|
$
|
0.72
|
|
|
$
|
0.95
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Consolidated operations
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
$
|
186,488
|
|
|
$
|
186,488
|
|
|
$
|
160,808
|
|
|
$
|
160,808
|
|
|
|
|
|
|
|
|
|
|
|
Average equivalent shares
|
|
|
|
|
|
|
|
|
Shares of common stock
|
65,652
|
|
|
65,652
|
|
|
64,278
|
|
|
64,278
|
|
|
Effect of dilutive stock-based compensation
|
|
|
|
|
|
|
|
|
Stock options
|
1,688
|
|
|
—
|
|
1,770
|
|
|
—
|
|
Restricted stock
|
459
|
|
|
—
|
|
435
|
|
|
—
|
|
Total average equivalent shares
|
67,799
|
|
|
65,652
|
|
|
66,483
|
|
|
64,278
|
|
|
Net income per share
|
$
|
2.75
|
|
|
$
|
2.84
|
|
|
$
|
2.42
|
|
|
$
|
2.50
|
|
NOTE 16 – SEGMENT INFORMATION
We are organized into three reporting segments. Operations that sell dispensing systems, drug delivery systems, sealing solutions and services to the prescription drug, consumer health care, injectables, and active material science solutions markets form the Pharma segment. Operations that sell dispensing systems and sealing solutions primarily to the beauty, personal care and home care markets form the Beauty + Home segment. Operations that sell dispensing systems and sealing solutions to the food and beverage markets form the Food + Beverage segment.
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, 2020. 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 investment gains and losses related to observable market price changes on equity securities and other special items.
Financial information regarding our reporting segments is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Total Sales:
|
|
|
|
|
|
|
|
|
Pharma
|
$
|
317,358
|
|
|
$
|
317,610
|
|
|
$
|
961,718
|
|
|
$
|
921,085
|
|
|
Beauty + Home
|
378,158
|
|
|
342,710
|
|
|
1,098,176
|
|
|
979,645
|
|
|
Food + Beverage
|
138,735
|
|
|
106,667
|
|
|
381,356
|
|
|
305,991
|
|
|
Total Sales
|
$
|
834,251
|
|
|
$
|
766,987
|
|
|
$
|
2,441,250
|
|
|
$
|
2,206,721
|
|
|
Less: Intersegment Sales:
|
|
|
|
|
|
|
|
|
Pharma
|
$
|
4,133
|
|
|
$
|
1,852
|
|
|
$
|
9,318
|
|
|
$
|
6,872
|
|
|
Beauty + Home
|
4,070
|
|
|
5,479
|
|
|
16,896
|
|
|
18,068
|
|
|
Food + Beverage
|
606
|
|
|
503
|
|
|
1,808
|
|
|
1,770
|
|
|
Total Intersegment Sales
|
$
|
8,809
|
|
|
$
|
7,834
|
|
|
$
|
28,022
|
|
|
$
|
26,710
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
Pharma
|
$
|
313,225
|
|
|
$
|
315,758
|
|
|
$
|
952,400
|
|
|
$
|
914,213
|
|
|
Beauty + Home
|
374,088
|
|
|
337,231
|
|
|
1,081,280
|
|
|
961,577
|
|
|
Food + Beverage
|
138,129
|
|
|
106,164
|
|
|
379,548
|
|
|
304,221
|
|
|
Net Sales
|
$
|
825,442
|
|
|
$
|
759,153
|
|
|
$
|
2,413,228
|
|
|
$
|
2,180,011
|
|
|
Adjusted EBITDA (1):
|
|
|
|
|
|
|
|
|
Pharma
|
$
|
100,738
|
|
|
$
|
112,436
|
|
|
$
|
315,201
|
|
|
$
|
324,877
|
|
|
Beauty + Home
|
43,789
|
|
|
34,733
|
|
|
117,055
|
|
|
92,954
|
|
|
Food + Beverage
|
22,379
|
|
|
20,351
|
|
|
61,995
|
|
|
53,543
|
|
|
Corporate & Other, unallocated
|
(12,745)
|
|
|
(10,964)
|
|
|
(40,311)
|
|
|
(34,071)
|
|
|
Acquisition-related costs (2)
|
(1,793)
|
|
|
(221)
|
|
|
(4,227)
|
|
|
(6,087)
|
|
|
Restructuring Initiatives (3)
|
(10,223)
|
|
|
(3,415)
|
|
|
(18,771)
|
|
|
(15,585)
|
|
|
Net investment (loss) gain (4)
|
(9,021)
|
|
|
—
|
|
|
6,177
|
|
|
—
|
|
|
Depreciation and amortization
|
(59,280)
|
|
|
(55,179)
|
|
|
(174,508)
|
|
|
(162,414)
|
|
|
Interest Expense
|
(8,011)
|
|
|
(8,851)
|
|
|
(22,601)
|
|
|
(25,973)
|
|
|
Interest Income
|
401
|
|
|
249
|
|
|
1,406
|
|
|
599
|
|
|
Income before Income Taxes
|
$
|
66,234
|
|
|
$
|
89,139
|
|
|
$
|
241,416
|
|
|
$
|
227,843
|
|
________________________________________________
(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 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 and Note 18 – Investment in Equity Securities for further details).
(3)Restructuring Initiatives includes expense items for the three and nine months ended September 30, 2021 and 2020 as follows (see Note 19 – Restructuring Initiatives for further details):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Restructuring Initiatives by Segment
|
|
|
|
|
|
|
|
|
Pharma
|
$
|
13
|
|
|
$
|
300
|
|
|
$
|
86
|
|
|
$
|
158
|
|
|
Beauty + Home
|
5,442
|
|
|
3,144
|
|
|
7,995
|
|
|
15,375
|
|
|
Food + Beverage
|
131
|
|
|
(31)
|
|
|
169
|
|
|
147
|
|
|
Corporate & Other
|
4,637
|
|
|
2
|
|
|
10,521
|
|
|
(95)
|
|
|
Total Restructuring Initiatives
|
$
|
10,223
|
|
|
$
|
3,415
|
|
|
$
|
18,771
|
|
|
$
|
15,585
|
|
(4)Net investment (loss) gain 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 September 2, 2021, following the signature of a share purchase agreement on July 22, 2021 and the approval of the French Ministry of Economy under the foreign investment clearance regulations, we completed the acquisition of 64.3% of the share capital of Voluntis (the “Voluntis Acquisition”). Voluntis, based in Paris, France and Boston, MA, is a pioneer in digital therapeutics. We acquired from certain members of the management and certain shareholders the entirety of their shares representing approximately 64.3% of the share capital of Voluntis (on a non-diluted basis) at a price of €8.70 per share for approximately €50.8 million (approximately $60.4 million) funded with available cash on hand. This values the full company equity (on a fully diluted basis) at approximately €79.1 million (approximately $93.9 million). Aptar launched a mandatory cash simplified tender offer to acquire Voluntis's remaining shares for the same price of €8.70 per share (the "tender offer"). During September 2021, Aptar acquired €8.4 million (approximately $9.9 million) of additional shares from the tender offer, bringing the total investment as of September 30, 2021 to approximately €59.2 million (approximately $70.3 million) representing 74.9% of the total share capital, and implies a non-controlling interest valued at €19.9 million (approximately $23.6 million). If the regulatory conditions are met upon completion of the tender offer, Aptar intends to implement a mandatory squeeze-out on the remaining outstanding shares of Voluntis on the same financial terms as those of the tender offer. The squeeze-out will be funded with available cash on hand. We are in the process of finalizing purchase accounting. Subsequent to quarter end, the tender offer was completed with available cash on hand and we acquired an additional 21.6% of the share capital for €17.1 million (approximately $19.8 million), resulting in Aptar owning 96.5% of the share capital of Voluntis. The squeeze-out is expected to be completed before the end of the fourth quarter of 2021.
On August 17, 2021, we completed the acquisition (the "Hengyu Acquisition") of 80% of the equity interests of Weihai Hengyu Medical Products Co., Ltd. ("Hengyu"). Hengyu, a leading Chinese manufacturer of elastomeric and plastic components used in injectable drug delivery, is based in Weihai, China. Under the terms of the agreement, 90% of the estimated purchase price for 80% ownership, RMB 347.7 million (approximately $53.6 million), was paid to the sellers in August 2021, with available cash on hand. A final purchase price adjustment of RMB 1.5 million (approximately $0.2 million) was recorded to Accounts payable, accrued and other liabilities and will be paid in the fourth quarter of 2021. The remaining 10% of the acquisition price for 80% ownership, RMB 38.7 million (approximately $6.0 million), is payable to the sellers eighteen months after closing plus simple interest of 4% and will be funded with available cash on hand. This values the full company equity (on a fully diluted basis) at RMB 484.9 million (approximately $74.8 million) and implies a non-controlling interest valued at RMB 97 million (approximately $15 million) as of the acquisition date. Pursuant to the agreement, we have the option to acquire the remaining 20% of the equity of Hengyu upon the fifth anniversary of the closing date. We are in the process of finalizing purchase accounting.
On April 1, 2020, we completed the Fusion Acquisition for a purchase price of approximately $163.8 million (net of $1.0 million of cash acquired), which was funded by a draw on our prior credit facility and cash on hand. Fusion, based in Dallas, TX, is a global leader in the design, engineering and distribution of luxury packaging for the beauty industry. As part of the Fusion Acquisition, we are also obligated to pay to the selling equity holders of Fusion certain contingent consideration based on 2022 cumulative financial performance metrics as defined in the purchase agreement. Based on a projection as of the acquisition date, we estimated the aggregate fair value for this contingent consideration arrangement to be $19.1 million utilizing a Black-Scholes valuation model. During the fourth quarter of 2020, a $3.6 million fair value true-up was recorded as an adjustment to the opening balance of goodwill and contingent liability. As of September 30, 2021, we have estimated the aggregate fair value for this contingent consideration arrangement to be $28.3 million.
As of the acquisition date, $5.7 million was held in restricted cash pending the finalization of a working capital adjustment and indemnity escrow. During the third quarter of 2020, $2.0 million related to the working capital escrow was released from restriction, resulting in a refund from seller of $294 thousand and a corresponding decrease to our purchase price and associated goodwill balance. During the second quarter of 2021, the remaining restricted cash was released. The results of Fusion's operations have been included in the Condensed Consolidated Financial Statements within our Beauty + Home segment since the date of acquisition.
The following table summarizes the assets acquired and liabilities assumed as of the acquisition dates at estimated fair value.
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2021
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2020
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Assets
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Cash and equivalents
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$
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3,852
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$
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1,010
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Accounts receivable
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5,208
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4,380
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Inventories
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606
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386
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Other Receivable
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286
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—
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Prepaid and other
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2,051
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1,090
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Property, plant and equipment
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16,259
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2,885
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Goodwill
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110,135
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103,130
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Intangible assets
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63,808
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79,900
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Operating lease right-of-use assets
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2,309
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4,744
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Other miscellaneous assets
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100
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65
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Liabilities
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Current maturities of long-term obligations, net of unamortized debt issuance costs
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1,410
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—
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Accounts payable, accrued and other liabilities
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9,663
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5,641
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Deferred income taxes
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16,792
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—
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Operating lease liabilities
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2,306
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4,207
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Deferred and other non-current liabilities
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5,770
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322
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Net assets acquired
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$
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168,673
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$
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187,420
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The following table is a summary of the fair value estimates of the acquired identifiable intangible assets and weighted-average useful lives as of the acquisition dates:
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2021
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2020
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Weighted-Average Useful Life (in Years)
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Estimated Fair Value of Assets
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Weighted-Average Useful Life (in Years)
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Estimated Fair Value of Assets
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Acquired technology
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10
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$
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32,145
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4
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$
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4,600
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Customer relationships
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11.5
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30,258
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13
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62,300
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Trademarks and trade names
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0
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—
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4
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10,300
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License agreements and other
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0.25
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1,405
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0.25
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2,700
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Total
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$
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63,808
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$
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79,900
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Goodwill in the amounts of $71.9 million and $38.2 million were recorded in the Pharma segment related to the Voluntis and Hengyu Acquisitions, respectively. Goodwill in the amount of $103.1 million was recorded related to the Fusion Acquisition which is included in the Beauty + Home segment. Goodwill is calculated as the excess of the consideration transferred over the net assets acquired and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill acquired in 2021 acquisitions, largely consists of developed technologies and customer relationships, while goodwill acquired in 2020 acquisitions consists of unique relationships, brand equity and proprietary technology that has been established creating niches such as turnkey solutions for the beauty market related to the Fusion Acquisition as well as the abilities of acquired companies to maintain their competitive advantage from a technical viewpoint. Goodwill will not be amortized, but will be tested for impairment at least annually. For the 2021 and 2020 acquisitions, goodwill of $80.6 million is deductible for tax purposes.
Asset Acquisition
On October 16, 2020, we completed our acquisition of the assets of Cohero Health, Inc. ("Cohero Health") for $2.4 million. The net assets acquired and the results of Cohero Health's operations have been included in the Condensed Consolidated Financial Statements within our Pharma segment since the date of acquisition. Based in New York, Cohero Health develops innovative digital tools and technologies to improve respiratory care, reduce avoidable costs and optimize medication utilization.
NOTE 18 – INVESTMENT IN EQUITY SECURITIES
Our investment in equity securities consisted of the following:
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September 30,
2021
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December 31,
2020
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Equity Method Investments:
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BTY
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$
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32,884
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$
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33,020
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Sonmol
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5,819
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5,598
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Kali Care
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420
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535
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Desotec GmbH
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921
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964
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Other Investments:
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PureCycle
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11,908
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5,397
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YAT
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5,895
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—
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Loop
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2,894
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2,894
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Others
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1,602
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1,679
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$
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62,343
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$
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50,087
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Equity method investments
BTY
On January 1, 2020, we acquired 49% of the equity interests in 3 related companies: Suzhou Hsing Kwang, Suqian Hsing Kwang and Suzhou BTY (collectively referred to as “BTY”) for an approximate purchase price of $32 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.
Sonmol
On April 1, 2020, we invested $5 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”), a pharmaceutical and leading Chinese digital respiratory therapeutics company that provides consumer electric devices and connected devices for asthma control, and develops digital therapies and services platforms targeting chronic respiratory illnesses and other diseases.
Kali Care
During 2017, we invested $5 million to acquire 20% of the equity interests in Kali Care, a technology company that provides digital monitoring systems for medical devices. During the fourth quarter of 2020, we recognized an other than temporary impairment of $3.0 million ($2.3 million after-tax) on our underlying assets in this investment as a result of a reassessment of the future value of the business and continued reduction in operating cash flows. In addition to our investment, we also hold a note receivable from Kalicare for $1.5 million which is included in accounts and notes receivable in the Condensed Consolidated Balance Sheets.
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 home and food and beverages markets.
Other investments
During August 2019, we invested an aggregate amount of $3.5 million in two preferred equity investments in sustainability companies Loop and PureCycle Technologies (“PureCycle”) that were accounted for at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. During 2020, we invested an additional $1.4 million in these two equity investments and also received $333 thousand of equity in PureCycle 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. In September 2021, we received $333 thousand of shares of PCT in exchange for our resource dedication for technological partnership and support. For the three and nine months ended September 30, 2021, we recorded a net unrealized loss on our investment in PureCycle of $9.0 million and a net unrealized gain of $6.2 million, respectively.
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.
There were no indications of impairment noted in the nine months ended September 30, 2021 related to these investments.
NOTE 19 – RESTRUCTURING INITIATIVES
In late 2017, we began a business transformation to drive profitable sales growth, increase operational excellence, enhance our approach to innovation and improve organizational effectiveness. The primary focus of the plan is the Beauty + Home segment; however, certain global general and administrative functions are also being addressed. For the three and nine months ended September 30, 2021, we recognized $10.2 million and $18.8 million of restructuring costs related to this plan, respectively. For the three and nine months ended September 30, 2020, we recognized $3.4 million and $15.6 million of restructuring costs related to this plan, respectively. Using current exchange rates, we estimate total implementation costs of approximately $135 million for these initiatives, including costs that have been recognized to date. The cumulative expense incurred as of September 30, 2021 was $131.8 million and we do not expect additional, significant restructuring costs related to this plan. We have also made total capital investments related to this plan of approximately $50 million, with no further significant capital investments expected.
As of September 30, 2021 we have recorded the following activity associated with the business transformation:
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Beginning Reserve at 12/31/2020
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Net Charges for the Nine Months Ended 9/30/2021
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Cash Paid
|
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Interest and
FX Impact
|
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Ending Reserve at 9/30/2021
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Employee severance
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$
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7,956
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$
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293
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|
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$
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(5,506)
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$
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(179)
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|
|
$
|
2,564
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Professional fees and other costs
|
2,533
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|
|
18,478
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(20,117)
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(46)
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848
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Totals
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$
|
10,489
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|
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$
|
18,771
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$
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(25,623)
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$
|
(225)
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|
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$
|
3,412
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