AptarGroup, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; comparative financial information is for 2010 and 2009. The filing also reports unaudited fourth-quarter results. AptarGroup makes dispensing packaging systems, including pumps, closures and aerosol valves, for beauty and home, pharmaceutical, food and beverage markets. Its 2011 reporting segments were Beauty + Home, Pharma, and Food + Beverage.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Net sales | $2,337.2 million | $2,076.7 million |
| Operating income | $287.1 million; 12.3% margin | $268.0 million; 12.9% margin |
| Net income attributable to AptarGroup | $183.7 million | $173.5 million |
| Diluted EPS | $2.65 | $2.48 |
| Cash from operations | $261.0 million | $278.7 million |
| Capital expenditures | $179.7 million | $118.8 million |
| Cash and equivalents at year-end | $377.6 million | $376.4 million |
| Interest-bearing debt | $438.6 million | $354.3 million |
| Net debt | $61.0 million | Net cash of $22.1 million |
- Reported sales rose 13%; management attributed approximately 4 percentage points to favorable currency translation and reported 9% core growth. Europe generated 57% of sales, the United States 27%, and other foreign markets 16%.
- Cost of sales rose to 67.1% of sales from 66.4%; SG&A rose to 14.9% from 14.3%. Operating margin consequently declined despite record operating income. Net margin was 7.9%, versus 8.4%.
- The effective tax rate increased to 33.2% from 31.8%, principally reflecting a French tax surcharge. Interest expense increased, partly offset by higher interest income and lower currency losses.
- Operating cash flow declined by $17.7 million, mainly due to greater working-capital investment, including prepaid tooling projects and lower accounts payable. Investing activities used $195.8 million, including elevated capital spending and acquisitions. Financing activities used $28.5 million.
- Total assets were $2,159.3 million and AptarGroup stockholders’ equity was $1,289.8 million at year-end. The debt-to-total-capital ratio was 25.4%, below the 55% covenant maximum; the company reported compliance with its debt covenants.
Changes versus the prior period
- Beauty + Home sales increased 9.9% to $1,516.3 million, while segment income declined 1.0% to $130.9 million; margin fell to 8.6% from 9.6%. Higher material costs, underused capacity, legal and consulting fees, and lower-margin tooling sales weighed on results.
- Pharma sales rose 16.3% to $553.9 million and segment income rose 22.2% to $164.4 million; margin improved to 29.7% from 28.2%, supported by product mix and demand for nasal allergy pumps and consumer healthcare products.
- Food + Beverage sales increased 21.1% to $266.9 million, but segment income was essentially unchanged at $27.8 million; margin fell to 10.4% from 12.6%. Higher inputs, personnel expenses and new-facility start-up costs constrained profit growth.
- Fourth-quarter sales were $544.5 million versus $530.8 million a year earlier. Net income attributable to AptarGroup was $38.6 million versus $40.8 million, and diluted EPS was $0.57 versus $0.59.
Outlook, risks and notable items
- Management described 2012 as challenging, citing economic uncertainty, currency fluctuations, inflation in developing regions and potentially higher input costs. It expected investments in facilities and new products to support growth.
- For Q1 2012, management forecast diluted EPS of $0.60–$0.65, compared with a record $0.64 in Q1 2011, noting difficult comparisons, expected currency dilution and cautious customers. Estimated 2012 capital expenditures were approximately $160 million.
- Major risks include global competition and pricing pressure; resin and other input-cost inflation and delays in passing costs through; foreign-exchange exposure; reliance on certain single-source materials and manufacturing locations; customer demand and product success; pharmaceutical regulation and product liability; and economic weakness, especially in Europe and the United States.
- In January 2012, the company replaced its $200 million revolving facility with a $300 million unsecured facility maturing in 2017. It initially borrowed $185 million, including $165 million to repay the prior facility; management estimated about $1.7 million of additional 2012 interest and fees versus 2011 under the prior facility.
- 2011 investment included an Indian dispensing-closure business and a minority stake in UK medical-device company Oval Medical. The company also expanded facilities in several regions and repurchased approximately 2.1 million shares for $102.6 million; dividends paid were $53.3 million.
- A competitor’s patent suit concerns a manufacturing process for a specific dip tube and seeks an exclusion order. The company stated it had meritorious defenses, expected no material impact and recorded no accrual. The filing notes that an unfavorable outcome in legal claims could nevertheless affect results or cash flows.
- Goodwill was $233.7 million, with no impairment recorded. Management identified Food + Beverage goodwill of $17.6 million as the most sensitive reporting-unit balance; substantially lower forecast cash flows could require further impairment testing.
- The filing states that the 2010 and 2009 cash-flow statements were revised to reclassify certain foreign-currency effects from operating activities to the exchange-rate effect on cash. The auditor gave an unqualified opinion and reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether 2012 sales growth and margins can withstand currency headwinds, economic uncertainty and continued material-cost inflation.
- Whether Beauty + Home can recover segment profitability and Food + Beverage can convert strong sales growth into higher income after start-up costs.
- Whether operating cash flow improves as working-capital investment changes, given the higher 2011 capital-spending level and expected 2012 investment.
- Debt, borrowing costs and cash availability after the 2012 credit-facility refinancing, including the location and potential tax cost of repatriating foreign cash.
- Progress and outcomes in the patent litigation, pharmaceutical product launches, pension funding, and the assumptions underpinning goodwill impairment tests.