UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2024
OR
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-11846
| (State of Incorporation) | (I.R.S. Employer Identification No.) | |||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
The number of shares outstanding of common stock, as of July 22, 2024, was 66,388,414 shares.
AptarGroup, Inc.
Form 10-Q
Quarter Ended June 30, 2024
INDEX
i
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| In thousands, except per share amounts | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net Sales | $ | $ | $ | $ | |||||||||||||||||||
| Operating Expenses: | |||||||||||||||||||||||
| Cost of sales (exclusive of depreciation and amortization shown below) | |||||||||||||||||||||||
| Selling, research & development and administrative | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Restructuring initiatives | |||||||||||||||||||||||
| Total Operating Expenses | |||||||||||||||||||||||
| Operating Income | |||||||||||||||||||||||
| Other (Expense) Income: | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Net investment (loss) gain | ( | ||||||||||||||||||||||
| Equity in results of affiliates | ( | ||||||||||||||||||||||
| Miscellaneous expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Total Other Expense | ( | ( | ( | ( | |||||||||||||||||||
| Income before Income Taxes | |||||||||||||||||||||||
| Provision for Income Taxes | |||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | |||||||||||||||||||
| Net (Gain) Loss Attributable to Noncontrolling Interests | $ | ( | $ | $ | $ | ||||||||||||||||||
| Net Income Attributable to AptarGroup, Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Net Income Attributable to AptarGroup, Inc. per Common Share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Average Number of Shares Outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
| Dividends per Common Share | $ | $ | $ | $ | |||||||||||||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
1
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| In thousands | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net Income | $ | $ | $ | $ | |||||||||||||||||||
| Other Comprehensive (Loss) Income: | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||||||||
| Changes in derivative gains (losses), net of tax | ( | ( | |||||||||||||||||||||
| Defined benefit pension plan, net of tax | |||||||||||||||||||||||
| Actuarial gain, net of tax | |||||||||||||||||||||||
| Amortization of prior service cost included in net income, net of tax | |||||||||||||||||||||||
| Amortization of net loss included in net income, net of tax | |||||||||||||||||||||||
| Total defined benefit pension plan, net of tax | |||||||||||||||||||||||
| Total other comprehensive (loss) income | ( | ( | ( | ||||||||||||||||||||
| Comprehensive Income | |||||||||||||||||||||||
| Comprehensive Loss Attributable to Noncontrolling Interests | |||||||||||||||||||||||
| Comprehensive Income Attributable to AptarGroup, Inc. | $ | $ | $ | $ | |||||||||||||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
2
AptarGroup, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| In thousands | |||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||
| Assets | |||||||||||
| Cash and equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
Accounts and notes receivable, less current expected credit loss (“CECL”) of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid and other | |||||||||||
| Total Current Assets | |||||||||||
| Land | |||||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Property, Plant and Equipment, Gross | |||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||
| Property, Plant and Equipment, Net | |||||||||||
| Investments in equity securities | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Miscellaneous | |||||||||||
| Total Other Assets | |||||||||||
| Total Assets | $ | $ | |||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
3
AptarGroup, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| In thousands, except share and per share amounts | |||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current Liabilities: | |||||||||||
| Notes payable, revolving credit facility and overdrafts | $ | $ | |||||||||
| Current maturities of long-term obligations, net of unamortized debt issuance costs | |||||||||||
| Accounts payable, accrued and other liabilities | |||||||||||
| Total Current Liabilities | |||||||||||
| Long-Term Obligations, net of unamortized debt issuance costs | |||||||||||
| Deferred income taxes | |||||||||||
| Retirement and deferred compensation plans | |||||||||||
| Operating lease liabilities | |||||||||||
| Deferred and other non-current liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Total Deferred Liabilities and Other | |||||||||||
| AptarGroup, Inc. stockholders’ equity | |||||||||||
Common stock, $ | |||||||||||
| Capital in excess of par value | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Less: Treasury stock at cost, | ( | ( | |||||||||
| Total AptarGroup, Inc. Stockholders’ Equity | |||||||||||
| Noncontrolling interests in subsidiaries | |||||||||||
| Total Stockholders’ Equity | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
4
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| In thousands | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | AptarGroup, Inc. Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
| June 30, 2024 and 2023 | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Common Stock Par Value | Treasury Stock | Capital in Excess of Par Value | Non- Controlling Interest | Total Equity | ||||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | ( | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Changes in unrecognized pension gains and related amortization, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Changes in derivative losses, net of tax | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock awards and option exercises | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | ( | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Treasury stock purchased | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Balance - March 31, 2024 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Changes in unrecognized pension gains and related amortization, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Changes in derivative gains, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock awards and option exercises | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | ( | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Treasury stock purchased | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance - June 30, 2024 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
5
| In thousands | |||||||||||||||||||||||||||||||||||||||||
| Six Months Ended | AptarGroup, Inc. Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
| June 30, 2024 and 2023 | Retained Earnings | Accumulated Other Comprehensive (Loss) Income | Common Stock Par Value | Treasury Stock | Capital in Excess of Par Value | Non- Controlling Interest | Total Equity | ||||||||||||||||||||||||||||||||||
Balance - December 31, 2022 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
Changes in unrecognized pension gains and related amortization, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Changes in derivative losses, net of tax | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Stock awards and option exercises | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | ( | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Treasury stock purchased | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance - June 30, 2023 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
Balance - December 31, 2023 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
Changes in unrecognized pension gains and related amortization, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Changes in derivative gains, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock awards and option exercises | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | ( | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Treasury stock purchased | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance - June 30, 2024 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
6
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| In thousands, brackets denote cash outflows | |||||||||||
| Six Months Ended June 30, | 2024 | 2023 | |||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operations: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Stock-based compensation | |||||||||||
(Release) provision for CECL | ( | ||||||||||
| Loss (gain) on disposition of fixed assets | ( | ||||||||||
| Net gain on remeasurement of equity securities | ( | ( | |||||||||
| Deferred income taxes | ( | ( | |||||||||
| Defined benefit plan expense | |||||||||||
| Equity in results of affiliates | ( | ||||||||||
| Changes in balance sheet items, excluding effects from foreign currency adjustments: | |||||||||||
| Accounts and other receivables | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Prepaid and other current assets | ( | ( | |||||||||
| Accounts payable, accrued and other liabilities | |||||||||||
| Income taxes payable | ( | ( | |||||||||
| Retirement and deferred compensation plan liabilities | ( | ( | |||||||||
| Other changes, net | ( | ( | |||||||||
| Net Cash Provided by Operations | |||||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Proceeds from sale of property, plant and equipment | |||||||||||
| Purchase of short-term investments | ( | ( | |||||||||
| Acquisition of businesses, net of cash acquired and release of escrow | ( | ||||||||||
| Acquisition of intangible assets, net | ( | ||||||||||
| Notes receivable, net | |||||||||||
| Net Cash Used by Investing Activities | ( | ( | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Proceeds from notes payable and overdrafts | |||||||||||
| Repayments of notes payable and overdrafts | ( | ( | |||||||||
Proceeds and (repayments) of short term revolving credit facility, net | |||||||||||
| Proceeds from long-term obligations | |||||||||||
| Repayments of long-term obligations | ( | ( | |||||||||
| Payment of contingent consideration obligation | ( | ||||||||||
| Dividends paid | ( | ( | |||||||||
| Proceeds from stock option exercises | |||||||||||
| Purchase of treasury stock | ( | ( | |||||||||
| Net Cash Used by Financing Activities | ( | ( | |||||||||
| Effect of Exchange Rate Changes on Cash | ( | ( | |||||||||
| Net Decrease in Cash and Equivalents and Restricted Cash | ( | ( | |||||||||
| Cash and Equivalents and Restricted Cash at Beginning of Period | |||||||||||
| Cash and Equivalents and Restricted Cash at End of Period | $ | $ | |||||||||
7
Restricted cash included in the line item prepaid and other on the Condensed Consolidated Balance Sheets as shown below represents amounts held in escrow related to the Metaphase acquisition.
| Six Months Ended June 30, | 2024 | 2023 | |||||||||
| Cash and equivalents | $ | $ | |||||||||
| Restricted cash included in prepaid and other | |||||||||||
| Total Cash and Equivalents and Restricted Cash shown in the Statement of Cash Flows | $ | $ | |||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
8
AptarGroup, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, Except per Share Amounts, or as Otherwise Indicated)
(Unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of AptarGroup, Inc. and our subsidiaries. The terms “AptarGroup,” “Aptar,” “Company,” “we,” “us” or “our” as used herein refer to AptarGroup, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain previously reported amounts have been reclassified to conform to the current period presentation.
In the opinion of management, the unaudited Condensed Consolidated Financial Statements (the “Condensed Consolidated Financial Statements”) include all normal recurring adjustments necessary for a fair statement of consolidated financial position, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. The accompanying Condensed Consolidated Financial Statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. Also, certain financial position data included herein was derived from the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 but does not include all disclosures required by U.S. GAAP. Accordingly, these Condensed Consolidated Financial Statements and related notes should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.
ADOPTION OF RECENT ACCOUNTING STANDARDS
Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (“ASUs”) to the FASB’s Accounting Standards Codification.
In March 2020, the FASB issued ASU 2020-04, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments to this update apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 was further amended in January 2021 by ASU 2021-01 which clarified the applicability of certain provisions. Both standards are effective upon issuance and could be adopted any time prior to December 31, 2022. The guidance in ASU 2020-04 and ASU 2021-01 is optional and may be elected over time as reference rate reform activities occur. We adopted this guidance in the second quarter of 2023 and have transitioned away from the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”) in our revolving credit facility.
In November 2023, the FASB issued ASU 2023-07, Improvement to Reportable Segment Disclosures, which requires enhanced disclosures about significant segment expenses on an annual and interim basis. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and are to be applied on a retrospective basis. We are evaluating the impact of the standard on our segment reporting disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which is intended to improve income tax disclosure requirements by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation and (ii) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to income tax disclosure requirements. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and are required to be applied prospectively with the option of retrospective application. We are evaluating the impact of the standard on our income tax disclosures.
Other accounting standards that have been issued by the FASB or other standards-setting bodies did not have a material impact on our Condensed Consolidated Financial Statements.
INCOME TAXES
We compute taxes on income in accordance with the tax rules and regulations of the many taxing authorities where income is earned. The income tax rates imposed by these taxing authorities may vary substantially. Taxable income may differ from pre-tax income for U.S. GAAP financial accounting purposes. To the extent that these differences create temporary differences between the tax basis of an asset or liability and our reported amount in the U.S. GAAP financial statements, an appropriate provision for deferred income taxes is made.
9
We maintain our assertion that the cash and distributable reserves at our non-U.S. affiliates are indefinitely reinvested with the following exceptions: all earnings in Germany and the pre-2020 earnings in Italy, Switzerland and Colombia. As of June 30, 2024, under currently enacted laws, we do not have a balance of foreign earnings that will be subject to U.S. taxation upon repatriation. We will provide for the necessary withholding and local income taxes when management decides that an affiliate should make a distribution. These decisions are made taking into consideration the financial requirements of the non-U.S. affiliates and our global cash management goals. See Note 5 - Income Taxes for more information.
We provide a liability for the amount of unrecognized tax benefits from uncertain tax positions. This liability is provided whenever we determine that a tax benefit will not meet a more-likely-than-not threshold for recognition.
We are subject to the examination of our returns and other tax matters by the U.S. Internal Revenue Service and other tax authorities and government bodies. We believe that we have adequately provided a tax reserve for any adjustments that may result from tax examinations or uncertain tax positions. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in our tax audits are resolved in a manner inconsistent with our expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs. The resolution of each of these audits is not expected to be material to our Condensed Consolidated Financial Statements.
ASSETS HELD FOR SALE
Assets to be disposed of by sale are reported at the lower of their carrying amount or fair value less costs to sell, and are not depreciated while they are held for sale. During the second quarter of 2023, we recorded $0.7 million as assets held for sale within prepaid and other on our Condensed Consolidated Balance Sheets related to three buildings located in France. During the third quarter of 2023, two of the three buildings were sold and we recognized a $0.8 million gain on sale. As of June 30, 2024, one building is still held for sale and expected to be sold by year end 2024.
SUPPLY CHAIN FINANCE PROGRAM
We facilitate a supply chain finance program (“SCF”) across Europe and the U.S. that is administered by a third-party platform. Eligible suppliers can elect to receive early payment of invoices, less an interest deduction, and negotiate their receivable sales arrangements through the third-party platform on behalf of the respective SCF bank. We are not a party to those agreements, and the terms of our payment obligations are not impacted by a supplier's participation in the SCF. Accordingly, we have concluded that this program continues to be a trade payable program and is not indicative of a borrowing arrangement. Under these agreements, the average payment terms range from 60 to 120 days and are based on industry standards and best practices within each of our regions.
All outstanding amounts related to suppliers participating in the SCF are recorded within accounts payable, accrued and other liabilities in our Condensed Consolidated Balance Sheets, and associated payments are included in operating activities within our Condensed Consolidated Statements of Cash Flows. As of June 30, 2024, the amounts due to suppliers participating in the SCF and included in accounts payable, accrued and other liabilities were approximately $36.2 million.
Collection and payment periods tend to be longer for our operations located outside the United States due to local business practices. We have also seen an increasing trend in pressure from certain customers to lengthen their payment terms. As the majority of our products are made to order, we have not needed to keep significant amounts of finished goods inventory to meet customer requirements. However, some of our contracts specify an amount of finished goods safety stock we are required to maintain.
To the extent our financial position allows and there is a clear financial benefit, we from time-to-time benefit from early payment discounts with some suppliers. We have lengthened the payment terms with our suppliers to be in line with customer trends. While we have offered a third party alternative for our suppliers to receive payments sooner, we generally do not utilize these offerings from our customers as the economic conditions currently are not beneficial for us.
10
NOTE 2 – REVENUE
In prior years, our geographic revenue disclosure was based on shipped from location. Beginning in 2024, we have started to report our geographic sales based on shipped to locations to give the reader a better understanding of the geographies we serve. Revenue by segment and geography based on shipped to locations for the three and six months ended June 30, 2024 and 2023 were as follows:
| For the Three Months Ended June 30, 2024 | |||||||||||||||||||||||||||||
| Segment | Europe | Domestic | Latin America | Asia | Total | ||||||||||||||||||||||||
| Aptar Pharma | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Aptar Beauty | |||||||||||||||||||||||||||||
| Aptar Closures | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| For the Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| Segment | Europe | Domestic | Latin America | Asia | Total | ||||||||||||||||||||||||
| Aptar Pharma | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Aptar Beauty | |||||||||||||||||||||||||||||
| Aptar Closures | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| For the Six Months Ended June 30, 2024 | |||||||||||||||||||||||||||||
| Segment | Europe | Domestic | Latin America | Asia | Total | ||||||||||||||||||||||||
| Aptar Pharma | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Aptar Beauty | |||||||||||||||||||||||||||||
| Aptar Closures | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| For the Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| Segment | Europe | Domestic | Latin America | Asia | Total | ||||||||||||||||||||||||
| Aptar Pharma | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Aptar Beauty | |||||||||||||||||||||||||||||
| Aptar Closures | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
We perform our obligations under a contract with a customer by transferring goods and/or services in exchange for consideration from the customer. The timing of performance will sometimes differ from the timing of the invoicing for the associated consideration from the customer, thus resulting in the recognition of a contract asset or a contract liability. We recognize a contract asset when we transfer control of goods or services to a customer prior to invoicing for the related performance obligation. The contract asset is transferred to accounts receivable when the product is shipped and invoiced to the customer. We recognize a contract liability if the customer's payment of consideration precedes the entity's performance.
The opening and closing balances of our contract asset and contract liabilities were as follows:
| Balance as of December 31, 2023 | Balance as of June 30, 2024 | Increase/ (Decrease) | |||||||||||||||
| Contract asset (current) | $ | $ | $ | ( | |||||||||||||
| Contract liability (current) | |||||||||||||||||
| Contract liability (long-term) | |||||||||||||||||
11
The differences in the opening and closing balances of our contract asset and contract liabilities are primarily the result of timing differences between our performance and the invoicing. The total amount of revenue recognized during the current year against contract liabilities is $60.3 million, including $35.9 million relating to contract liabilities at the beginning of the year. Current contract assets are included within Prepaid and other, while current contract liabilities and long-term contract liabilities are included within Accounts payable, accrued and other liabilities and Deferred and other non-current liabilities, respectively, within our Condensed Consolidated Balance Sheets.
Determining the Transaction Price
In most cases, the transaction price for each performance obligation is stated in the contract. In determining the variable amounts of consideration within the transaction price (such as volume-based customer rebates), we include an estimate of the expected amount of consideration as revenue. We apply the expected value method based on all of the information (historical, current, and forecast) that is reasonably available and identify reasonable estimates based on this information. We apply the method consistently throughout the contract when estimating the effect of an uncertainty on the amount of variable consideration to which we will be entitled.
Product Sales
We primarily manufacture and sell drug and consumer product dosing, dispensing and protection technologies. The amount of consideration is typically fixed for customers. At the time of delivery, the customer is invoiced at the agreed-upon price. Revenue from product sales is typically recognized upon manufacture or shipment, when control of the goods transfers to the customer.
To determine when the control transfers, we typically assess, among other things, the shipping terms of the contract, shipping being one of the indicators of transfer of control. For a majority of product sales, control of the goods transfers to the customer at the time of shipment of the goods. Once the goods are shipped, we are precluded from redirecting the shipment to another customer. Therefore, our performance obligation is satisfied at the time of shipment. For sales in which control transfers upon delivery, shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs and revenue is recorded upon final delivery to the customer location. We have elected to account for shipping and handling costs that occur after the customer has obtained control of a good as fulfillment costs rather than as a promised service. We do not have any material significant payment terms as payment is typically received shortly after the point of sale.
There also exist instances where we manufacture highly customized products that have no alternative use to us and for which we have an enforceable right to payment for performance completed to date. For these products, we transfer control and recognize revenue over time by measuring progress towards completion using the output method based on the number of products produced. As we normally make our products to a customer’s order, the time between production and shipment of our products is typically within a few weeks. We believe this measurement provides a faithful depiction of the transfer of goods as the costs incurred reflect the value of the products produced.
As a part of our customary business practice, we offer a standard warranty that the products will materially comply with the technical specifications and will be free from material defects. Because such warranties are not sold separately, do not provide for any service beyond a guarantee of a product’s initial specifications, and are not required by law, there is no revenue deferral for these types of warranties.
Tooling Sales
We also build or contract for molds and other tools (collectively defined as “tooling”) necessary to produce our products. As with product sales, we recognize revenue when control of the tool transfers to the customer. If the tooling is highly customized with no alternative use to us and we have an enforceable right to payment for performance completed to date, we transfer control and recognize revenue over time by measuring progress towards completion using the input method based on costs incurred relative to total estimated costs to completion. Otherwise, revenue for the tooling is recognized at the point in time when the customer approves the tool. We do not have any significant payment terms as payment is typically either received during the mold-build process or shortly after completion.
In certain instances, we offer extended warranties on our tools above and beyond the normal standard warranties. We normally receive payment at the inception of the contract and recognize revenue over the term of the contract. We do not have any material extended warranties as of June 30, 2024 or December 31, 2023.
Service Sales
We also provide services to our customers. As with product sales, we recognize revenue based on completion of each performance obligation of the service contract. Milestone deliverables and upfront payments are tied to specific performance obligations and recognized upon satisfaction of the individual performance obligation.
12
Royalty Revenue
We determine the amount and timing of royalty revenue based on our contractual agreements with customers. We recognize royalty revenue when earned under the terms of the agreements and when we consider realization of payment to be probable.
Contract Costs
We do not incur significant costs to obtain or fulfill revenue contracts.
Credit Risk
We are exposed to credit losses primarily through our product sales, tooling sales and services to our customers. We assess each customer’s ability to pay for the products we sell by conducting a credit review. The credit review considers our expected billing exposure and timing for payment and the customer’s established credit rating, or our assessment of the customer’s creditworthiness based on our analysis of their financial statements when a credit rating is not available. We also consider contract terms and conditions, country and political risks, and business strategy in our evaluation. A credit limit is established for each customer based on the outcome of this review.
We monitor our ongoing credit exposure through active review of customer balances against contract terms and due dates. Our activities include timely account reconciliation, dispute resolution and payment confirmation. We may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.
NOTE 3 - INVENTORIES
Inventories, by component net of reserves, consisted of:
| June 30, 2024 | December 31, 2023 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total | $ | $ | |||||||||
NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the six months ended June 30, 2024 by reporting segment were as follows:
| Aptar Pharma | Aptar Beauty | Aptar Closures | Total | ||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | |||||||||||||||||||
| Foreign currency exchange effects | ( | ( | ( | ( | |||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | |||||||||||||||||||
13
The table below shows a summary of intangible assets as of June 30, 2024 and December 31, 2023.
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||
| Weighted Average Amortization Period (Years) | Gross Carrying Amount | Accumulated Amortization | Net Value | Gross Carrying Amount | Accumulated Amortization | Net Value | |||||||||||||||||||||||||||||||||||
| Amortized intangible assets: | |||||||||||||||||||||||||||||||||||||||||
| Patents | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Acquired technology | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Customer relationships | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Trademarks and trade names | ( | ( | |||||||||||||||||||||||||||||||||||||||
| License agreements and other | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
Aggregate amortization expense for the intangible assets above for the quarters ended June 30, 2024 and 2023 was $10,351 and $11,131 , respectively. Aggregate amortization expense for the intangible assets above for the six months ended June 30, 2024 and 2023 was $21,674 and $22,094 , respectively.
As of June 30, 2024, future estimated amortization expense for the years ending December 31 is as follows:
| 2024 | $ | (remaining estimated amortization for 2024) | |||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| 2028 | |||||||||||
| Thereafter | |||||||||||
Future amortization expense may fluctuate depending on changes in foreign currency rates. The estimates for amortization expense noted above are based upon foreign exchange rates as of June 30, 2024.
NOTE 5 – INCOME TAXES
The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings and related estimated full-year taxes, adjusted for the impact of discrete quarterly items.
The Organization for Economic Co-operation and Development released Model Global Anti-Base Erosion rules under Pillar Two. Certain countries in which we operate have enacted laws implementing aspects of Pillar Two beginning in 2024. These enacted laws relate to the Pillar Two Income Inclusion Rule and Qualified Domestic Minimum Top-Up Tax with an effective date in 2024. We have analyzed the provisions in the applicable jurisdictions and provided for the appropriate tax amounts. We do not expect a material impact from the implementation of these rules for 2024 but we will continue to monitor future legislations for additional guidance.
The effective tax rate for the three months ended June 30, 2024 and 2023, respectively, was 23.5 % and 25.1 %. The effective tax rate for the three months ended June 30, 2024 reflects a favorable mix of earnings. The effective tax rate for the six months ended June 30, 2024 and 2023, respectively, was 22.1 % and 25.3 %. The effective tax rate for the six months ended June 30, 2024 reflects a favorable mix of earnings, increased tax benefits from share-based compensation and tax incentives in certain non-U.S. jurisdictions from intellectual property development activities.
14
NOTE 6 – DEBT
Notes Payable, Revolving Credit Facility and Overdrafts
At June 30, 2024 and December 31, 2023, our notes payable, revolving credit facility and overdrafts consisted of the following:
| June 30, 2024 | December 31, 2023 | ||||||||||
Revolving credit facility | $ | $ | |||||||||
Overdrafts | |||||||||||
| $ | $ | ||||||||||
A of June 30, 2024, Aptar had a revolving credit facility (the “revolving credit facility”) with a syndicate of banks which matured in June 2026. The revolving credit facility was subject to a maximum of two one-year extensions in certain circumstances and provided for unsecured financing of up to $600 million available in the U.S. and to our wholly-owned UK subsidiary. The revolving credit facility could 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 June 30, 2024, $130 million was utilized under the revolving credit facility in the U.S. and no balance was utilized by our wholly-owned UK subsidiary. As of December 31, 2023, $36.5 million and €40.0 million ($44.2 million) was utilized under the revolving credit facility in the U.S. and no balance was utilized by our wholly-owned UK subsidiary.
On July 2, 2024, we entered into a new amended and restated multi-currency revolving credit facility (the “amended revolving credit facility”) with a syndicate of banks to replace the current revolving credit facility. The amended revolving credit facility matures in July 2029, 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 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.
On July 2, 2024, we entered into a term loan with a syndicate of banks (the “Term Loan”). The Term Loan matures in July 2027 and enables drawings on the loan until September 30, 2024 and provides for unsecured financing of up to $330 million available in the U.S. Funds are expected to be used to refinance near-term maturities and for general corporate purposes.
There are no compensating balance requirements associated with our amended revolving credit facility. Each borrowing under the amended revolving credit facility will bear interest at rates based on SOFR (in the case of USD), EURIBOR (in the case of EUR), SONIA (in the case of GBP), SARON (in the case of CHF), prime rates or other similar rates, in each case plus an applicable margin. The amended revolving credit facility also provides mechanics relating to a transition away from designated benchmark rates for other available currencies and the replacement of any such applicable benchmark by a replacement alternative benchmark rate or mechanism for loans made in the applicable currency. A facility fee on the total amount of the amended revolving credit facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the amended revolving credit facility and the facility fee percentage may change from time to time depending on changes in our consolidated leverage ratio.
Aptar has an unsecured money market borrowing arrangement to provide short term financing of up to $30 million that is available in the U.S. No borrowing on this facility is permitted over a quarter end date. As such, no
Long-Term Obligations
On February 26, 2024, we repaid in full the $100 million 3.49 % Senior Notes that were due in February 2024.
15
At June 30, 2024 and December 31, 2023, our long-term obligations consisted of the following:
| June 30, 2024 | December 31, 2023 | ||||||||||
Notes payable | $ | $ | |||||||||
Senior unsecured notes | |||||||||||
Senior unsecured notes | |||||||||||
Senior unsecured notes | |||||||||||
Senior unsecured notes | |||||||||||
Senior unsecured notes | |||||||||||
Senior unsecured notes | |||||||||||
| Finance Lease Liabilities | |||||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| $ | $ | ||||||||||
| Current maturities of long-term obligations | ( | ( | |||||||||
| Total long-term obligations | $ | $ | |||||||||
The €200 million ($214 million) senior unsecured notes were due on July 19, 2024, and have been repaid from a drawdown of our amended revolving credit facility.
The aggregate long-term maturities, excluding finance lease liabilities and unamortized debt issuance costs, which are discussed in Note 7, due annually from the current balance sheet date for the next five years and thereafter are:
| Year One | $ | ||||
| Year Two | |||||
| Year Three | |||||
| Year Four | |||||
| Year Five | |||||
| Thereafter | |||||
Covenants
Our amended revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:
| Requirement | Level at June 30, 2024 | |||||||||||||
| Consolidated Leverage Ratio (1) | Maximum of | |||||||||||||
| Consolidated Interest Coverage Ratio (1) | Minimum of | |||||||||||||
________________________________________
NOTE 7 – LEASES
We lease certain warehouse, plant and office facilities, as well as certain equipment, under non-cancelable operating and finance leases expiring at various dates through the year 2042. Most of the operating leases contain renewal options and certain leases include options to purchase the related asset during or at the end of the lease term.
Amortization expense related to finance leases is included in depreciation expense, while rent expense related to operating leases is included within cost of sales and selling, research & development and administrative expenses.
16
The components of lease expense for the three and six months ended June 30, 2024 and 2023 were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Finance lease cost: | |||||||||||||||||||||||
| Amortization of right-of-use assets | $ | $ | $ | $ | |||||||||||||||||||
| Interest on lease liabilities | |||||||||||||||||||||||
| Total finance lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Short-term lease and variable lease costs | $ | $ | $ | $ | |||||||||||||||||||
Supplemental cash flow information related to leases were as follows:
| Six Months Ended June 30, | 2024 | 2023 | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||
| Operating cash flows from finance leases | |||||||||||
| Financing cash flows from finance leases | |||||||||||
| Right-of-use assets obtained in exchange for lease obligations: | |||||||||||
| Operating leases | $ | $ | |||||||||
| Finance leases | |||||||||||
NOTE 8 – RETIREMENT AND DEFERRED COMPENSATION PLANS
We have various noncontributory retirement plans covering certain of our domestic and foreign employees. Benefits under our retirement plans are based on participants’ years of service and annual compensation as defined by each plan. Annual cash contributions to fund pension costs accrued under our domestic plans are generally at least equal to the minimum funding amounts required by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Certain pension commitments under our foreign plans are also funded according to local requirements or at our discretion.
Effective January 1, 2021, our domestic noncontributory retirement plans were closed to new employees and employees who were rehired after December 31, 2020. These employees are instead eligible for additional contribution to their defined contribution 401(k) employee savings plan. All domestic employees with hire/rehire dates prior to January 1, 2021 are still eligible for the domestic pension plans and continue to accrue plan benefits after this date.
Components of Net Periodic Benefit Cost:
| Domestic Plans | Foreign Plans | ||||||||||||||||||||||
| Three Months Ended June 30, | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of net loss | |||||||||||||||||||||||
| Amortization of prior service cost | |||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||
17
| Domestic Plans | Foreign Plans | ||||||||||||||||||||||
| Six Months Ended June 30, | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of net loss | |||||||||||||||||||||||
| Amortization of prior service cost | |||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | |||||||||||||||||||
The components of net periodic benefit cost, other than the service cost component, are included in the line miscellaneous income (expense), net in the Condensed Consolidated Statements of Income.
Employer Contributions
We currently have no minimum funding requirements for our domestic and foreign plans. There were no contributions to our domestic defined benefit plans during the six months ended June 30, 2024 and we do not expect significant payments during the rest of 2024. We contributed $0.7 million to our foreign defined benefit plans during the six months ended June 30, 2024 and do not expect additional significant contributions during the rest of 2024.
NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Changes in Accumulated Other Comprehensive (Loss) Income by Component:
| Foreign Currency | Defined Benefit Pension Plans | Derivatives | Total | ||||||||||||||||||||
| Balance - December 31, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ||||||||||||||||||||||