AptarGroup, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; filed February 28, 2013. This is an annual report, not a standalone fourth-quarter filing. Unless noted, figures are in U.S. dollars.
Business context
AptarGroup develops and manufactures packaging dispensing systems and components for beauty and personal care, home care, pharmaceutical, food, and beverage markets. Its three reporting segments are Beauty + Home, Pharma, and Food + Beverage. The company reported more than 5,000 customers; no customer accounted for more than 6% of 2012 sales. Europe contributed 54% of sales.
Financial performance and liquidity
| Metric | 2012 | 2011 |
|---|---|---|
| Net sales | $2,331.0 million | $2,337.2 million |
| Operating income and margin | $258.9 million; 11.1% | $287.1 million; 12.3% |
| Net income attributable to AptarGroup | $162.6 million | $183.7 million |
| Diluted EPS | $2.38 | $2.65 |
| Cash from operations | $313.9 million | $261.0 million |
| Capital expenditures | $174.1 million | $179.7 million |
| Cash and equivalents at year-end | $229.8 million | $377.6 million |
| Interest-bearing debt / net debt | $427.5 million / $197.8 million | $438.6 million / $61.0 million |
| Net debt to net capitalization | 12.5% | 4.5% |
Cost of sales rose to 68.2% of sales from 67.1%, and gross margin, calculated as sales less cost of sales and depreciation, was approximately 26.0% versus 27.3%. The effective tax rate was 32.7%, compared with 33.2%. Cash from operations less capital expenditures was approximately $139.8 million; this is a simple cash-flow measure, not reported free cash flow.
At year-end, current assets were $1,038.9 million and current liabilities were $455.3 million. The company had a $300 million unsecured revolving credit facility, with $25 million outstanding at year-end; it reported compliance with debt covenants. In 2012, it paid $58.4 million in dividends and repurchased $79.8 million of stock.
Material changes versus 2011
- Reported sales were nearly flat, while core sales—excluding acquisitions and currency effects—increased 3%. Currency movements reduced reported sales growth by 5%; Stelmi added $56.8 million of sales.
- Operating income fell about 10%, and diluted EPS declined from $2.65 to $2.38. Management cited higher raw-material costs, lower Pharma contribution to sales mix, Lincolnton start-up costs, and acquisition-related items.
- Beauty + Home sales declined 4.1% to $1,453.9 million; segment income fell 5.6% to $123.5 million. Pharma sales rose 6.3% to $588.7 million, while segment income declined 13.7% to $141.9 million. Food + Beverage sales rose 8.0% to $288.4 million, and segment income increased 9.4% to $30.4 million.
- Operating cash flow increased by $52.9 million. Investing cash outflow rose to $359.5 million, principally reflecting the $187.8 million net cash purchase of Stelmi. Cash declined by $147.9 million over the year.
- The company issued $125 million of fixed-rate notes in 2012, with maturities in 2022 and 2024, and repaid short-term borrowings. The net-debt ratio increased as cash funded the Stelmi acquisition and other uses.
Outlook, commentary, risks, and unusual items
- Management expected economic conditions to improve in 2013 but described the environment as challenging due to currency volatility, inflation in developing markets, and potentially higher input costs. It expected continued growth in Latin America and Asia and was cautious about the pace of recovery in the U.S. and Europe.
- First-quarter 2013 diluted EPS guidance was $0.64–$0.69, compared with $0.64 in first-quarter 2012. Guidance excluded effects of the European Operations Optimization plan.
- The European plan consolidates production across 12 facilities; two facilities were expected to close, affecting approximately 170 employees. The company recorded $4.9 million of 2012 costs, including accelerated depreciation, expected approximately $14 million of additional costs, mostly in 2013, and forecast annual savings of about €9 million beginning in late 2013.
- Stelmi, acquired July 3, 2012 for approximately $188 million net of cash acquired, contributed $56.8 million of sales and a $4.6 million operating loss in 2012. Integration, fair-value adjustments, and acquisition transaction costs affected results.
- Key exposures include European and U.S. economic weakness, raw-material and energy costs, price competition, foreign exchange, single-source suppliers and manufacturing locations, customer product success and regulatory timing, and product-liability claims. The company reported a U.S. patent-infringement ruling concerning a specific pump, appealed the decision, and stated that no damages were assessed.
- Goodwill was $351.6 million, including $111.0 million associated with Stelmi; no impairment was recorded. Management noted that a 41% reduction in forecast cash flows for Food + Beverage would have brought that reporting unit’s fair value below carrying value and required further impairment testing.
- Defined-benefit pension plans were underfunded by $84.5 million in aggregate at year-end. The independent auditor and management concluded internal control over financial reporting was effective; Stelmi was excluded from the 2012 control assessment because it was acquired during the year.
Important facts for investors to verify
- Whether core sales growth and the 2013 recovery assumptions translate into sustained reported revenue and margin improvement, especially in Europe.
- Progress on raw-material cost pass-through, Lincolnton utilization, and the timing, costs, employee impact, and savings of the European optimization plan.
- Stelmi’s post-acquisition profitability, integration progress, and the assumptions supporting its goodwill and acquired intangible-asset values.
- Cash conversion and capital needs, including the effects of acquisition spending, dividends, repurchases, and the rise in net debt.
- Developments in the appealed patent case, pension funding assumptions, and potential goodwill impairment—particularly in Food + Beverage.