AptarGroup Earnings 2021-03-31
| Balance Sheet | Income Statement | Cash Flow |
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Assets, Equity
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Rev, G Profit, Net Income
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Ops, Inv, Fin
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
OR
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-11846
| (State of Incorporation) | (I.R.S. Employer Identification No.) | |||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
The number of shares outstanding of common stock, as of April 23, 2021, was 65,714,946 shares.
AptarGroup, Inc.
Form 10-Q
Quarter Ended March 31, 2021
INDEX
i
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| In thousands, except per share amounts | |||||||||||
| Three Months Ended March 31, | 2021 | 2020 | |||||||||
| 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 Income (Expense): | |||||||||||
| Interest expense | ( | ( | |||||||||
| Interest income | |||||||||||
| Net investment gain | |||||||||||
| Equity in results of affiliates | ( | ( | |||||||||
| Miscellaneous, net | ( | ( | |||||||||
| Total Other Income (Expense) | ( | ||||||||||
| Income before Income Taxes | |||||||||||
| Provision for Income Taxes | |||||||||||
| Net Income | $ | $ | |||||||||
| Net Loss Attributable to Noncontrolling Interests | $ | $ | |||||||||
| Net Income Attributable to AptarGroup, Inc. | $ | $ | |||||||||
| Net Income Attributable to AptarGroup, Inc. per Common Share: | |||||||||||
| Basic | $ | $ | |||||||||
| Diluted | $ | $ | |||||||||
| Average Number of Shares Outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
| Dividends per Common Share | $ | $ | |||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
1
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| In thousands | |||||||||||
| Three Months Ended March 31, | 2021 | 2020 | |||||||||
| Net Income | $ | $ | |||||||||
| Other Comprehensive Income (Loss): | |||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||
| Changes in derivative gains, 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 | ( | ( | |||||||||
| 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 | |||||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||
| Assets | |||||||||||
| Cash and equivalents | $ | $ | |||||||||
| Short-term investments | |||||||||||
| Total Cash and equivalents and Short-term investments | |||||||||||
Accounts and notes receivable, less current expected credit loss ("CECL") of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid and other | |||||||||||
| Total Current Assets | |||||||||||
| Land | |||||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Property, Plant and Equipment, Gross | |||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||
| Property, Plant and Equipment, Net | |||||||||||
| Investments in equity securities | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Miscellaneous | |||||||||||
| Total Other Assets | |||||||||||
| Total Assets | $ | $ | |||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
3
AptarGroup, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| In thousands, except share and per share amounts | |||||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current Liabilities: | |||||||||||
| Notes payable, revolving credit facility and overdrafts | $ | $ | |||||||||
| Current maturities of long-term obligations, net of unamortized debt issuance costs | |||||||||||
| Accounts payable, accrued and other liabilities | |||||||||||
| Total Current Liabilities | |||||||||||
| Long-Term Obligations, net of unamortized debt issuance costs | |||||||||||
| Deferred income taxes | |||||||||||
| Retirement and deferred compensation plans | |||||||||||
| Operating lease liabilities | |||||||||||
| Deferred and other non-current liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Total Deferred Liabilities and Other | |||||||||||
| AptarGroup, Inc. stockholders’ equity | |||||||||||
Common stock, $ | |||||||||||
| Capital in excess of par value | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Less: Treasury stock at cost, | ( | ( | |||||||||
| Total AptarGroup, Inc. Stockholders’ Equity | |||||||||||
| Noncontrolling interests in subsidiaries | |||||||||||
| Total Stockholders’ Equity | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
4
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| In thousands | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | AptarGroup, Inc. Stockholders’ Equity | ||||||||||||||||||||||||||||||||||||||||
| March 31, 2021 and 2020 | 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, 2019 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| ( | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Changes in unrecognized pension gains (losses) and related amortization, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Changes in derivative gains (losses), net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock awards and option exercises | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | ( | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance - March 31, 2020 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
Balance - December 31, 2020 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Changes in unrecognized pension gains (losses) and related amortization, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Changes in derivative gains (losses), net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Stock awards and option exercises | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Cash dividends declared on common stock | ( | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Balance - March 31, 2021 | $ | $ | ( | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
5
AptarGroup, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| In thousands, brackets denote cash outflows | |||||||||||
| Three Months Ended March 31, | 2021 | 2020 | |||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operations: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Provision for CECL | |||||||||||
| Loss on disposition of fixed assets | |||||||||||
| Gain on remeasurement of equity securities | ( | ||||||||||
| Deferred income taxes | ( | ||||||||||
| Defined benefit plan expense | |||||||||||
| Equity in results of affiliates | |||||||||||
| Change in fair value of contingent consideration | |||||||||||
| 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 | |||||||||||
| Maturity of short-term investment | |||||||||||
| Acquisition of business, net of cash acquired and release of escrow | ( | ||||||||||
| Acquisition of intangible assets, net | ( | ||||||||||
| Investment in equity securities | ( | ||||||||||
| 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 | ( | ( | |||||||||
| Repayments and proceeds of short term revolving credit facility, net | ( | ||||||||||
| Proceeds from long-term obligations | |||||||||||
| Repayments of long-term obligations | ( | ( | |||||||||
| Dividends paid | ( | ( | |||||||||
| Proceeds from stock option exercises | |||||||||||
| Net Cash (Used) Provided by Financing Activities | ( | ||||||||||
| Effect of Exchange Rate Changes on Cash | ( | ( | |||||||||
| Net (Decrease) Increase in Cash and Equivalents and Restricted Cash | ( | ||||||||||
| Cash and Equivalents and Restricted Cash at Beginning of Period | |||||||||||
| Cash and Equivalents and Restricted Cash at End of Period | $ | $ | |||||||||
6
Restricted cash included in the line item prepaid and other on the Condensed Consolidated Balance Sheets as shown below represents amounts held in escrow related to the Fusion Acquisition and the Noble Acquisition.
| Three Months Ended March 31, | 2021 | 2020 | |||||||||
| Cash and equivalents | $ | $ | |||||||||
| Restricted cash included in prepaid and other | |||||||||||
| Total Cash and Equivalents and Restricted Cash shown in the Statement of Cash Flows | $ | $ | |||||||||
See accompanying unaudited Notes to Condensed Consolidated Financial Statements.
7
AptarGroup, Inc.
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, Except per Share Amounts, or as Otherwise Indicated)
(Unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of AptarGroup, Inc. and our subsidiaries. The terms “AptarGroup”, “Aptar”, “Company”, “we”, “us” or “our” as used herein refer to AptarGroup, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain previously reported amounts have been reclassified to conform to the current period presentation.
In the opinion of management, the unaudited Condensed Consolidated Financial Statements (the “Condensed Consolidated Financial Statements”) include all normal recurring adjustments necessary for a fair statement of consolidated financial position, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented. The accompanying Condensed Consolidated Financial Statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. Also, certain financial position data included herein was derived from the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 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.
There are many uncertainties regarding the current COVID-19 pandemic, including the availability, adoption, and effectiveness of a vaccine, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties. The pandemic has impacted certain markets within our business, our operations and our financial results during the three months ended March 31, 2021. No impairments were recorded as of March 31, 2021 related to the COVID-19 pandemic. While the disruption is currently expected to be temporary, there is uncertainty around the duration. Due to significant uncertainty surrounding the situation, future results could change 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, 2021, we adopted ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements to align with the SEC's regulations, and no material impacts were noted.
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.
8
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 timing 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 March 31, 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 months ended March 31, 2021 and 2020 is as follows:
| For the Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||
| Segment | Europe | Domestic | Latin America | Asia | Total | ||||||||||||||||||||||||
| Pharma | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Beauty + Home | |||||||||||||||||||||||||||||
| Food + Beverage | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
9
| For the Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||
| Segment | Europe | Domestic | Latin America | Asia | Total | ||||||||||||||||||||||||
| Pharma | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Beauty + Home | |||||||||||||||||||||||||||||
| Food + Beverage | |||||||||||||||||||||||||||||
| 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 receipt of the associated consideration from the customer, thus resulting in the recognition of a contract asset or a contract liability. We recognize a contract asset when we transfer control of goods or services to a customer prior to invoicing for the related performance obligation. The contract asset is transferred to accounts receivable when the product is shipped and invoiced to the customer. We recognize a contract liability if the customer's payment of consideration precedes the entity's performance.
The opening and closing balances of our contract asset and contract liabilities are as follows:
| Balance as of December 31, 2020 | Balance as of March 31, 2021 | Increase/ (Decrease) | |||||||||||||||
| Contract asset (current) | $ | $ | $ | ( | |||||||||||||
| Contract asset (long-term) | $ | $ | $ | ||||||||||||||
| Contract liability (current) | $ | $ | $ | ||||||||||||||
| Contract liability (long-term) | $ | $ | $ | ||||||||||||||
The differences in the opening and closing balances of our contract asset and contract liabilities are primarily the result of timing differences between our performance and the customer’s payment. The total amount of revenue recognized during the current year against contract liabilities is $18.7 million, including $13.0 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 such customers. At the time of delivery, the customer is invoiced the agreed-upon price. Revenue from product sales is typically recognized upon manufacture or shipment, when control of the goods transfers to the customer.
To determine when the control transfers, we typically assess, among other things, the shipping terms of the contract, shipping being one of the indicators of transfer of control. A majority of product sales are sold FOB shipping point. For FOB shipping point shipments, control of the goods transfers to the customer at the time of shipment of the goods. 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. With respect to FOB destination sales, 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.
10
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. At December 31, 2020, $536 thousand of unearned revenue associated with outstanding contracts was reported in Accounts Payable, Accrued and Other Liabilities. At March 31, 2021, the unearned amount was $523 thousand. We expect to recognize approximately $98 thousand of the unearned amount during the remainder of 2021, $142 thousand in 2022, and $283 thousand thereafter.
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:
| March 31, 2021 | December 31, 2020 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Total | $ | $ | |||||||||
11
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:
| Pharma | Beauty + Home | Food + Beverage | Corporate & Other | Total | |||||||||||||||||||||||||
| Goodwill | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Accumulated impairment losses | ( | ( | |||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Foreign currency exchange effects | ( | ( | ( | ( | |||||||||||||||||||||||||
| Goodwill | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Accumulated impairment losses | ( | ( | |||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The table below shows a summary of intangible assets as of March 31, 2021 and December 31, 2020.
| March 31, 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 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Acquired technology | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Customer relationships | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Trademarks and trade names | ( | ( | |||||||||||||||||||||||||||||||||||||||
| License agreements and other | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
Aggregate amortization expense for the intangible assets above for the three months ended March 31, 2021 and 2020 was $9,811 and $8,014 , respectively.
Future estimated amortization expense for the years ending December 31 is as follows:
| 2021 | $ | (remaining estimated amortization for 2021) | |||||||||
| 2022 | |||||||||||
| 2023 | |||||||||||
| 2024 | |||||||||||
| 2025 and thereafter | |||||||||||
Future amortization expense may fluctuate depending on changes in foreign currency rates. The estimates for amortization expense noted above are based upon foreign exchange rates as of March 31, 2021.
NOTE 5 –