In April 2015, the FASB issued an ASU intended to simplify U.S. GAAP by changing the presentation of debt issuance costs. Under the new standard, debt issuance costs will be presented as a reduction of the carrying amount of the related liability, rather than as an asset. The new treatment is consistent with debt discounts. In August 2015, the FASB issued an ASU clarifying that debt issuance costs related to line of credit arrangements can be classified as an asset and amortized ratably over the term of the line of credit arrangement. These standards were effective for annual reporting periods beginning after December 15, 2015. The Company has implemented these standards within the current financial statements and retrospectively applied the changes to the prior periods as required, which resulted in a $1.7 million reclassification from Intangible Assets to Current Maturities of Long-Term Obligations and Long-Term Obligations in the December 31, 2015 Consolidated Balance Sheet.
In April 2015, the FASB issued new guidance on a customer's accounting for fees paid in a cloud computing arrangement (“CCA”). Previously, there was no specific U.S. GAAP guidance on accounting for such fees from the customer's perspective. Under the new standard, customers will apply the same criteria as vendors to determine whether a CCA contains a software license or is solely a service contract. This standard was effective for annual reporting periods beginning after December 15, 2015. The Company has adopted the requirements of the standard with respect to its current CCAs and has determined that the impact is not material to our current year financial statements.
In May 2015, the FASB issued new guidance on investment disclosures. Investments measured at net asset value (“NAV”), as a practical expedient for fair value, are excluded from the fair value hierarchy. Removing investments measured using the practical expedient from the fair value hierarchy is intended to eliminate the diversity in practice that currently exists with respect to the categorization of these investments. The Company has adopted the standard and determined that there was no impact to the current period financial statements and that the presentation of pension plan investment fair value hierarchy tables in the annual financial statements will be updated accordingly.
In November 2015, the FASB issued guidance which simplifies the balance sheet classification of deferred taxes. The new guidance requires that deferred tax liabilities and assets be presented as non-current in a classified statement of financial position. This standard is effective for annual reporting periods beginning after December 15, 2016. The Company has prospectively adopted the requirements of the standard and updated the presentation of our classified statement of financial position accordingly.
Other accounting standards that have been issued by the FASB or other standards-setting bodies did not have a material impact on our Consolidated Financial Statements.
RETIREMENT OF COMMON STOCK
During the first nine months of 2016, the Company repurchased and immediately retired 1.1 million shares of common stock. Common stock was reduced by the number of shares retired at $0.01 par value per share. The excess of purchase price over par value may be charged entirely to retained earnings or may be allocated between additional paid-in capital and retained earnings. The Company has elected to allocate the excess purchase price over par value between additional paid-in capital and retained earnings.
INCOME TAXES
The Company computes 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 financial accounting purposes. To the extent that these differences create 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.
In making the determination of which foreign earnings are permanently reinvested in foreign operations, the Company considers numerous factors, including the financial requirements of the U.S. parent company and those of our foreign subsidiaries, the U.S. funding needs for dividend payments and stock repurchases, and the tax consequences of remitting earnings to the U.S. From this analysis, current year repatriation decisions are made in an attempt to provide a proper mix of debt and shareholder capital both within the U.S. and for non-U.S. operations. The Company's policy is to permanently reinvest our accumulated foreign earnings and the Company will only make a distribution out of current year earnings to meet the cash needs at the parent company. As such, the Company does not provide for taxes on earnings that are deemed to be permanently reinvested.
The Company provides a liability for the amount of tax benefits realized from uncertain tax positions. This liability is provided whenever the Company determines that a tax benefit will not meet a more-likely-than-not threshold for recognition. See Note 4 of the Unaudited Notes to the Condensed Consolidated Financial Statements for more information.
The carrying amounts of the Company’s other current financial instruments such as cash and equivalents, notes payable and current maturities of long-term obligations approximate fair value due to the short-term maturity of the instrument. The Company considers our long-term obligations a Level 2 liability and utilizes the market approach valuation technique based on interest rates that are currently available to the Company for issuance of debt with similar terms and maturities. The estimated fair value of the Company’s long-term obligations was $803 million as of September 30, 2016 and $760 million as of December 31, 2015.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature. While management believes the resolution of these claims and lawsuits will not have a material adverse effect on the Company’s financial position or results of operations or cash flows, claims and legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur that could include amounts in excess of any accruals which management has established. Were such unfavorable final outcomes to occur, it is possible that they could have a material adverse effect on our financial position, results of operations and cash flows.
Under our Certificate of Incorporation, the Company has agreed to indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors and officers liability insurance policy that covers a portion of our exposure. As a result of our insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company has no liabilities recorded for these agreements as of September 30, 2016 and December 31, 2015.
NOTE 11 — STOCK REPURCHASE PROGRAM
The Company announced the $350 million share repurchase program in effect for the quarter ended September 30, 2016 on October 30, 2014. On October 20, 2016, the Company announced a new share repurchase authorization of up to $350 million of common stock. This authorization replaces previous authorizations and has no expiration date. AptarGroup may repurchase shares through the open market, privately negotiated transactions or other programs, subject to market conditions.
On December 16, 2014, the Company entered into an agreement to repurchase approximately $250 million of its common stock under an accelerated share repurchase program (the “ASR program”). The ASR program is part of the Company’s $350 million share repurchase authorization. On December 17, 2014, the Company paid $250 million to Wells Fargo Bank N.A. (“Wells Fargo”) in exchange for approximately 3.1 million shares. On September 25, 2015, the Company settled the ASR program with Wells Fargo and received approximately 719 thousand additional shares. The total number of shares repurchased under the ASR program was approximately 3.8 million shares.
Shares repurchased subsequent to the completion of the ASR program have been immediately retired. During the three and nine months ended September 30, 2016, the Company repurchased approximately 463 thousand and 1.1 million shares for approximately $36.1 million and $84.8 million, respectively. During the three and nine months ended September 30, 2015, the Company did not repurchase any additional shares outside of the ASR program settlement. As of September 30, 2016, there was $1.3 million of authorized share repurchases available to the Company.
NOTE 12 — STOCK-BASED COMPENSATION
The Company issues stock options and restricted stock units to employees under Stock Awards Plans approved by shareholders. Stock options and restricted stock units are issued to non-employee directors under Director Stock Option Plans and the Director Restricted Stock Unit Plan approved by shareholders. Options are awarded with the exercise price equal to the market price on the date of grant and generally become exercisable over three years and expire 10 years after grant. Restricted stock units granted to employees generally vest over three years.
Compensation expense recorded attributable to stock options for the first nine months of 2016 was approximately $15.5 million. Approximately $13.7 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales. Compensation expense recorded attributable to stock options for the first nine months of 2015 was approximately $14.9 million. Approximately $13.2 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.
Note 15 – INSURANCE SETTLEMENT RECEIVABLE
As previously disclosed, a fire caused damages to AptarGroup’s facility in Annecy, France on June 25, 2016. The fire was contained to one of three production units and there were no reported injuries. Aptar Annecy supplies anodized aluminum components for certain AptarGroup dispensing systems. While repairs are underway, AptarGroup will source from its network of suppliers as well as from its anodizing facility in Brazil. The Company is insured for the damages caused by the fire, including business interruption insurance, and it does not expect this incident to have a material impact on its financial results. Costs, including the write-off of damaged fixed assets and inventory along with labor and other direct costs related to the fire, of $4.9 million and $5.5 million were incurred during the third quarter and year to date, respectively. As of September 30, 2016, we have received insurance proceeds of $2.2 million. We have established an insurance receivable of $1.9 million for known losses for which insurance reimbursement is probable, which is included in Prepaid and Other in the Condensed Consolidated Balance Sheet. In many cases, our insurance coverage exceeds the amount of these incurred losses. No gain contingencies have been recognized as our ability to realize those gains remains uncertain. Therefore, we are reporting net expenses of $1.4 million related to the French fire during 2016. These costs are included in the Beauty + Home segment.
A separate fire caused damage to the roof and production area of one of the Company’s facilities in Brazil in September 2014. There were no injuries. The facility is primarily an internal supplier of anodized aluminum components for certain dispensing systems sold to the regional beauty and personal care markets. Repairs of the facility were essentially completed in the fourth quarter 2015. AptarGroup is insured for the damages caused by the fire, including business interruption insurance. While the Company is still finalizing the payout of the claims with our insurance carriers, we have a $2.3 million receivable related to costs incurred but not yet reimbursed, which is included in Prepaid and Other in the Condensed Consolidated Balance Sheet. This incident did not have a material impact on our financial results during the first nine months of either 2016 or 2015 and we expect to reach a final insurance settlement during 2016.
NOTE 16 – ACQUISITIONS
On February 29, 2016, the Company completed its acquisition of MegaPlast GmbH and its subsidiaries along with Megaplast France S.a.r.l and Mega Pumps L.P. (Mega Airless). Mega Airless is a leading provider of innovative all-plastic airless dispensing systems for the beauty, personal care and pharmaceutical markets and operates two manufacturing facilities in Germany and one in the United States. The purchase price paid for Mega Airless was approximately $223.2 million ($203.0 million net of cash received) and was funded by cash on hand and borrowings on our revolving line of credit.
Mega Airless contributed sales of $18.3 million and pretax income of $2.2 million for the three months ended September 30, 2016. For the nine months ended September 30, 2016, Mega Airless reported sales of $42.9 million and pretax income of $2.1 million due to a purchase accounting adjustment of $2.6 million related to the inventory fair value adjustment. The results of the acquired business from the acquisition date are included in the accompanying consolidated financial statements and are reported in the Beauty + Home and Pharma reporting segments.
For the nine months ended September 30, 2016, we recognized $5.6 million in transaction costs related to the acquisition of Mega Airless. These costs are reflected in the selling, research & development and administrative section of the Condensed Consolidated Statements of Income.
The following table summarizes the assets acquired and liabilities assumed as of the acquisition date at estimated fair value.
|
|
|
|
|
|
|
|
|
February 29, 2016
|
|
|
Assets
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
20,197
|
|
|
Accounts receivable
|
|
|
8,275
|
|
|
Inventories
|
|
|
8,373
|
|
|
Prepaid and other
|
|
|
378
|
|
|
Property, plant and equipment
|
|
|
47,768
|
|
|
Goodwill
|
|
|
105,561
|
|
|
Intangible assets
|
|
|
72,106
|
|
|
Other miscellaneous assets
|
|
|
8
|
|
|
Liabilities
|
|
|
|
|
|
Current maturities of long-term obligations
|
|
|
319
|
|
|
Accounts payable and accrued liabilities
|
|
|
7,398
|
|
|
Long-term obligations
|
|
|
13,402
|
|
|
Deferred income taxes
|
|
|
18,366
|
|
|
Net assets acquired
|
|
$
|
223,181
|
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, OR AS OTHERWISE INDICATED)
RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Cost of sales (exclusive of depreciation and amortization shown below)
|
|
|
64.6
|
|
|
65.1
|
|
|
63.9
|
|
|
64.5
|
|
|
Selling, research & development and administrative
|
|
|
14.7
|
|
|
13.9
|
|
|
16.0
|
|
|
15.1
|
|
|
Depreciation and amortization
|
|
|
6.7
|
|
|
6.0
|
|
|
6.5
|
|
|
5.9
|
|
|
Operating income
|
|
|
14.0
|
|
|
15.0
|
|
|
13.6
|
|
|
14.5
|
|
|
Other expense
|
|
|
(1.3)
|
|
|
(1.5)
|
|
|
(1.4)
|
|
|
(1.4)
|
|
|
Income before income taxes
|
|
|
12.7
|
|
|
13.5
|
|
|
12.2
|
|
|
13.1
|
|
|
Net Income
|
|
|
9.0
|
|
|
9.1
|
|
|
8.7
|
|
|
8.8
|
|
|
Effective tax rate
|
|
|
29.2
|
%
|
|
32.9
|
%
|
|
28.8
|
%
|
|
33.0
|
%
|
|
Adjusted EBITDA margins (1)
|
|
|
20.8
|
%
|
|
20.8
|
%
|
|
20.5
|
%
|
|
19.8
|
%
|
|
|
(1)
|
|
Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of Non-U.S. GAAP measures starting on page 28.
|
NET SALES
We reported net sales of $589.7 million for the third quarter ended September 30, 2016, which represents a 1% increase compared to $586.3 million reported during the third quarter of 2015. While the average U.S. dollar exchange rate compared to the Euro remained stable, the U.S. dollar strengthened compared to the majority of other currencies impacting our business, resulting in a negative currency translation impact of 1%. The acquisition of Mega Airless positively impacted sales by 3%. Therefore core sales, which exclude acquisitions and changes in foreign currency rates, decreased by 1% in the third quarter of 2016 compared to the third quarter of 2015. Core sales were positively impacted by a significant increase in Pharma sales that offset softness in our Beauty + Home and Food + Beverage segments.
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|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2016
|
|
Beauty
|
|
|
|
Food +
|
|
|
|
|
Net Sales Change over Prior Year
|
|
+ Home
|
|
Pharma
|
|
Beverage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
(6)
|
%
|
9
|
%
|
(6)
|
%
|
(1)
|
%
|
|
Acquisitions
|
|
5
|
%
|
1
|
%
|
—
|
%
|
3
|
%
|
|
Currency Effects (1)
|
|
(1)
|
%
|
(1)
|
%
|
(2)
|
%
|
(1)
|
%
|
|
Total Reported Net Sales Growth
|
|
(2)
|
%
|
9
|
%
|
(8)
|
%
|
1
|
%
|
|
|
(1)
|
|
Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates.
|
For the first nine months of 2016, we reported net sales of $1.79 billion, 1% above the first nine months of 2015 reported net sales of $1.77 billion. The average U.S. dollar exchange rate was flat compared to the Euro but strengthened compared to other key currencies impacting our business, resulting in a negative currency translation impact of 2%. The acquisition of Mega Airless positively impacted sales by 2%. Therefore, core sales for the first nine months of 2016 increased by 1% compared to the first nine months of 2015.
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months of 2016
|
|
Beauty
|
|
|
|
Food +
|
|
|
|
|
Net Sales Change over Prior Year
|
|
+ Home
|
|
Pharma
|
|
Beverage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
(1)
|
%
|
5
|
%
|
—
|
%
|
1
|
%
|
|
Acquisitions
|
|
4
|
%
|
1
|
%
|
—
|
%
|
2
|
%
|
|
Currency Effects (1)
|
|
(3)
|
%
|
(1)
|
%
|
(3)
|
%
|
(2)
|
%
|
|
Total Reported Net Sales Growth
|
|
—
|
%
|
5
|
%
|
(3)
|
%
|
1
|
%
|
|
|
(1)
|
|
Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates.
|
The following table sets forth, for the periods indicated, net sales by geographic location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
|
2016
|
|
% of Total
|
|
2015
|
|
% of Total
|
|
2016
|
|
% of Total
|
|
2015
|
|
% of Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
153,295
|
|
26%
|
|
$
|
160,751
|
|
28%
|
|
$
|
475,550
|
|
27%
|
|
$
|
479,578
|
|
27%
|
|
|
Europe
|
|
|
335,876
|
|
57%
|
|
|
318,906
|
|
54%
|
|
|
1,019,699
|
|
57%
|
|
|
979,857
|
|
55%
|
|
|
Latin America
|
|
|
60,424
|
|
10%
|
|
|
54,268
|
|
9%
|
|
|
166,661
|
|
9%
|
|
|
161,392
|
|
9%
|
|
|
Asia
|
|
|
40,134
|
|
7%
|
|
|
52,365
|
|
9%
|
|
|
130,156
|
|
7%
|
|
|
149,549
|
|
9%
|
|
For further discussion on net sales by reporting segment, please refer to the analysis of segment net sales and segment income on the following pages.
COST OF SALES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN BELOW)
Our cost of sales (“COS”) as a percent of net sales decreased to 64.6% in the third quarter of 2016 compared to 65.1% in the third quarter of 2015. The decrease is due to the mix of sales across our different business segments as sales in our Pharma segment drove a higher percentage of overall sales. This positively impacts our COS percentage as margins on our pharmaceutical products typically are higher than the overall Company average. Tooling sales were approximately $8.6 million higher in the third quarter of 2016 compared to the prior year. However, sales of custom tooling normally generate lower margins than product sales.
Cost of sales as a percent of net sales decreased to 63.9% in the first nine months of 2016 compared to 64.5% in the same period a year ago. The decrease is mainly due to the mix of sales across our different business segments as discussed above. Also, tooling sales were approximately $3.1 million lower in the first nine months of 2016 compared to the prior year. Sales of custom tooling typically generates lower margins than product sales, which positively impacts cost of sales as a percentage of sales. The 2016 results include $2.6 million of incremental costs due to a purchase accounting adjustment related to the write-up to fair value of the Mega Airless inventory while 2015 results were positively impacted by the $7.4 million change in accounting principle related to inventory valuation methods in the prior year.
SELLING, RESEARCH & DEVELOPMENT AND ADMINISTRATIVE
Our Selling, Research & Development and Administrative expenses (“SG&A”) increased by approximately $5.3 million in the third quarter of 2016 compared to the same period a year ago. Excluding changes in foreign currency rates, SG&A increased by approximately $6.0 million in the quarter. $2.2 million of this increase is due to the incremental operating expenses related to the Mega Airless acquisition. We also incurred higher information technology costs associated with our ongoing enterprise resource planning system implementation along with general increases in compensation expense, including stock-based compensation. The third quarter of 2015 also recognized the recovery of previously recorded bad debts. Due to these higher costs and only a 1% increase in sales, SG&A as a percentage of net sales increased to 14.7% compared to 13.9% in the same period of the prior year.
SG&A increased by approximately $18.9 million to $285.8 million in the first nine months of 2016 compared to $266.9 million during the same period a year ago. Excluding changes in foreign currency rates, SG&A increased by approximately $24.4 million in the first nine months of the year. The increase is mainly due to transaction costs of $5.6 million related to the Mega Airless acquisition, along with $5.4 million of Mega Airless operational expenses, higher information technology costs associated with our ongoing enterprise resource planning system implementation, and general increases in compensation expense as mentioned above. SG&A as a percentage of net sales increased to 16.0% in the first nine months of 2016 compared to 15.1% in the first nine months of 2015.
DEPRECIATION AND AMORTIZATION
Reported depreciation and amortization expenses increased by approximately $4.2 million in the third quarter of 2016 compared to the same period a year ago. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $4.4 million in the quarter compared to the same period a year ago. The increase is mainly due to $4.2 million of incremental depreciation and amortization related to the Mega Airless acquisition along with incremental costs associated with our continued investments in new products and the roll-out of our global enterprise resource planning system. Due to these higher expenses, depreciation and amortization as a percentage of net sales increased to 6.7% in the third quarter of 2016 compared to 6.0% for the same period a year ago.
For the first nine months of 2016, reported depreciation and amortization expenses increased by approximately $12.2 million to $115.9 million compared to $103.7 million in the first nine months of 2015. Excluding changes in foreign currency rates, depreciation and amortization increased by approximately $13.8 million in the first nine months of 2016. As discussed above, the increase is mainly due to $9.9 million of incremental depreciation and amortization related to the Mega Airless acquisition along with our investments in new products and the roll-out of our global enterprise resource planning system. Depreciation and amortization as a percentage of net sales also increased to 6.5% compared to 5.9% for the same period a year ago.
OPERATING INCOME
Operating income decreased approximately $5.8 million in the third quarter of 2016 to $82.3 million compared to $88.1 million in the same period in the prior year. Excluding changes in foreign currency rates, operating income decreased by approximately $4.7 million in the quarter compared to the same period a year ago mainly due to lower margins in the Beauty + Home and Food + Beverage segments as a result of lower sales volumes. As reported, operating income as a percentage of net sales decreased to 14.0% in the third quarter of 2016 compared to 15.0% for the same period in the prior year.
Operating income decreased approximately $12.0 million to $245.2 million in the first nine months of 2016 compared to $257.2 million in the same period in the prior year. Prior year’s operating income includes the positive impact of a $7.4 million change in accounting principle related to inventory valuation methods. Excluding changes in currency rates and this $7.4 million change in accounting principle, operating income decreased by approximately $1.3 million in the first nine months of 2016. As mentioned above, core sales growth related to strong Pharma results was offset by higher fixed costs along with $5.6 million of Mega Airless acquisition costs and a $2.6 million purchase accounting adjustment related to the write-up to fair value of the Mega Airless inventory which was purchased and subsequently sold during the first quarter. Operating income as a percentage of sales decreased to 13.6% in the first nine months of 2016 compared to 14.5% for the same period in the prior year.
NET OTHER EXPENSE
Net other expense in the third quarter of 2016 decreased to $7.3 million from $8.7 million in the same period in the prior year. This is due to lower foreign exchange costs on our forward exchange contracts as we experienced less exchange rate volatility in certain countries during the third quarter 2016 compared to the same period in 2015.
Net other expenses for the nine months ended September 30, 2016 increased to $26.0 million from $24.3 million in the same period in the prior year. We recognized lower interest income and higher interest expense as we funded our Mega Airless acquisition with cash on hand and borrowings on our revolving line of credit.
EFFECTIVE TAX RATE
The reported effective tax rate decreased to 29.2% for the three months ended September 30, 2016 compared to 32.9% for the same period ended September 30, 2015. The reported effective tax rate also decreased to 28.8% for the nine months ended September 30, 2016 compared to 33.0% for the nine months ended September 30, 2015. The decrease in the rate for the three months ended September 30, 2016 is primarily attributable to a reduction in the French corporate tax rate along with higher investment tax incentives. The decrease in the rate for the nine months ended September 30, 2016 is attributable to both the reduction in the French corporate tax rate and higher investment tax incentives as well as from the recognition of benefits associated with refunds in France pursuant to a finalized court ruling.
NET INCOME ATTRIBUTABLE TO APTARGROUP, INC.
We reported net income attributable to AptarGroup, Inc. of $53.1 million and $156.0 million in the three and nine months ended September 30, 2016, respectively, compared to $53.2 million and $156.0 million for the same periods in the prior year.
BEAUTY + HOME SEGMENT
Operations that sell dispensing systems primarily to the personal care, beauty and home care markets form the Beauty + Home segment.
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|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
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Nine Months Ended September 30,
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
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$
|
316,030
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|
$
|
321,638
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|
$
|
970,687
|
|
$
|
970,176
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|
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Segment Income
|
|
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25,380
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|
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27,961
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79,455
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78,529
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Segment Income as a percentage of Net Sales
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8.0%
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8.7%
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|
8.2%
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8.1%
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|
Adjusted EBITDA margins (1)
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14.9%
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14.6%
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|
14.9%
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|
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14.0%
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(1)
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Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of Non-U.S. GAAP measures starting on page 28.
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Net sales for the quarter ended September 30, 2016 decreased 2% to $316.0 million compared to $321.6 million in the third quarter of the prior year. The Mega Airless acquisition positively impacted net sales by 5% in the third quarter of 2016 while changes in currency rates negatively impacted net sales by 1%. Therefore, core sales decreased 6% in the third quarter of 2016 compared to the same quarter of the prior year. Core sales declined in all three markets during the quarter. Strong sales growth in Latin America was offset by weak economic conditions and customer inventory destocking in Europe. We also continue to experience sluggish market conditions in North America and Asia. In addition, we realized $6.6 million lower tooling sales over the prior year mainly impacting the beauty market. The pass-through of resin costs to our customers did not have a material impact on the third quarter of 2016 results.
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Third Quarter 2016
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Personal
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Home
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Net Sales Change over Prior Year
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Care
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Beauty
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Care
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Total
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Core Sales Growth
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(2)
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%
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(5)
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%
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(17)
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%
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(6)
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%
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Acquisitions
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3
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%
|
7
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%
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—
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%
|
5
|
%
|
|
Currency Effects (1)
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|
(2)
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%
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(1)
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%
|
(1)
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%
|
(1)
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%
|
|
Total Reported Net Sales Growth
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(1)
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%
|
1
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%
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(18)
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%
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(2)
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%
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|
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(1)
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Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates.
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Net sales of $970.7 in the first nine months of 2016 were flat compared to $970.2 million in the first nine months of the prior year. The Mega Airless acquisition positively impacted net sales by 4% in the first nine months of 2016 while changes in currency rates negatively impacted net sales by 3%. Therefore, core sales decreased 1% in the first nine months of 2016 compared to the same period in the prior year. Core sales growth to the beauty market of 3% was offset by 4% core sales declines in both the personal care and home care markets during the first nine months of 2016 compared to the same period in the prior year. The growth in the beauty market is mainly driven by increased sales of our sampling and promotion products in Europe and Northeast Asia along with stronger sales of our products to the fragrance markets in Europe and Latin America which partially offset the sluggish economic conditions experienced in our other markets and regions. Tooling and the pass-through of resin costs negatively impacted sales for the first nine months of 2016 by $10.0 million and $3.2 million, respectively.
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|
|
First Nine Months of 2016
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Personal
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Home
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|
|
|
|
Net Sales Change over Prior Year
|
|
Care
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|
Beauty
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|
Care
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|
Total
|
|
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|
|
|
|
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|
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|
|
Core Sales Growth
|
|
(4)
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%
|
3
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%
|
(4)
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%
|
(1)
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%
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Acquisitions
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|
2
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%
|
6
|
%
|
—
|
%
|
4
|
%
|
|
Currency Effects (1)
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|
(3)
|
%
|
(3)
|
%
|
(2)
|
%
|
(3)
|
%
|
|
Total Reported Net Sales Growth
|
|
(5)
|
%
|
6
|
%
|
(6)
|
%
|
—
|
%
|
|
|
(1)
|
|
Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates.
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Segment income in the third quarter of 2016 decreased 9% to $25.4 million compared to $28.0 million reported in the same period in the prior year. Profitability was negatively impacted by the lower product and tooling sales mentioned above. With lower sales, we realized lower productivity levels at several of our manufacturing sites. We also recorded approximately $1.4 million of net expenses related to the French fire during the third quarter of 2016.
Segment income in the first nine months of 2016 increased approximately 1% to $79.5 million compared to $78.5 million reported in the same period in the prior year. The increase compared to the prior year is mostly due to improved sales volumes related to our Mega Airless acquisition along with cost savings initiatives. Segment income was offset by $2.2 million of a purchase accounting adjustment related to the write-up to fair value of the Mega Airless inventory we purchased and subsequently sold during the first quarter and $1.4 million of expenses related to the French fire during the third quarter of 2016. We also continue to focus on operational and material cost savings initiatives.
PHARMA SEGMENT
Operations that sell dispensing systems primarily to the prescription drug, consumer health care and injectables markets form the Pharma segment.
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|
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|
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Three Months Ended September 30,
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Nine Months Ended September 30,
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|
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|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
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|
|
|
|
|
|
|
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Net Sales
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$
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191,194
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|
$
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175,427
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$
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565,363
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$
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537,396
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Segment Income
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55,037
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52,941
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|
166,870
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160,404
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Segment Income as a percentage of Net Sales
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28.8%
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30.2%
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29.5%
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29.8%
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Adjusted EBITDA margins (1)
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|
|
34.1%
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|
35.3%
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|
|
34.9%
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|
|
34.8%
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|
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(1)
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|
Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of Non-U.S. GAAP measures starting on page 28.
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Net sales for the Pharma segment increased by 9% in the third quarter of 2016 to $191.2 million compared to $175.4 million in the third quarter of 2015. The Mega Airless acquisition positively impacted net sales by 1% in the third quarter of 2016 while changes in currency rates negatively impacted net sales by 1%. Therefore, core sales increased by 9% in the third quarter of 2016 compared to the third quarter of 2015. The consumer health care market reported a core sales increase of 36% as we recognized significant tooling sales and an increased demand for eye care products in the third quarter of 2016 over the prior year period. The prescription drug market reported core sales increases of 1% on higher sales of our pain and central nervous system products during the third quarter of 2016. Core sales of our products to the injectables markets decreased 6% due to the timing of certain validations of our new capacity in Europe. These issues have been addressed and we expect to make up for shipping delays during the fourth quarter. For the segment, tooling sales increased by $13.3 million over the prior year, mainly impacting the consumer health care market as discussed above.
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Third Quarter 2016
|
|
Prescription
|
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Consumer
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Net Sales Change over Prior Year
|
|
Drug
|
|
Health Care
|
|
Injectables
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|
Total
|
|
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|
|
|
|
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|
|
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|
|
Core Sales Growth
|
|
1
|
%
|
36
|
%
|
(6)
|
%
|
9
|
%
|
|
Acquisitions
|
|
—
|
%
|
5
|
%
|
—
|
%
|
1
|
%
|
|
Currency Effects (1)
|
|
—
|
%
|
(4)
|
%
|
—
|
%
|
(1)
|
%
|
|
Total Reported Net Sales Growth
|
|
1
|
%
|
37
|
%
|
(6)
|
%
|
9
|
%
|
|
|
(1)
|
|
Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates.
|
Net sales for the first nine months of 2016 increased approximately 5% to $565.4 million compared to $537.4 million in the first nine months of the prior year. The Mega Airless acquisition positively impacted net sales by 1% in the first nine months of 2016 while changes in currency rates negatively impacted net sales by 1%. Therefore, core sales increased 5% in the first nine months of 2016 compared to the same nine months of 2015. All three markets reported sales increases during the first nine months of 2016 with core sales to the prescription drug, consumer health care and injectables markets increasing 4%, 12% and 2%, respectively. Growth in the first nine months of 2016 was mainly driven by strong sales of products to our allergic rhinitis and eye care customers. Tooling sales increased by $8.2 million over the prior year.
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|
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|
|
|
First Nine Months of 2016
|
|
Prescription
|
|
Consumer
|
|
|
|
|
|
|
Net Sales Change over Prior Year
|
|
Drug
|
|
Health Care
|
|
Injectables
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
4
|
%
|
12
|
%
|
2
|
%
|
5
|
%
|
|
Acquisitions
|
|
—
|
%
|
4
|
%
|
—
|
%
|
1
|
%
|
|
Currency Effects (1)
|
|
(1)
|
%
|
(4)
|
%
|
—
|
%
|
(1)
|
%
|
|
Total Reported Net Sales Growth
|
|
3
|
%
|
12
|
%
|
2
|
%
|
5
|
%
|
|
|
(1)
|
|
Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates.
|
Segment income in the third quarter of 2016 increased 4% to $55.0 million compared to $52.9 million reported in the same period in the prior year. The increase compared to the prior year is primarily due to the increased core sales reported above. We also benefitted from cost savings initiatives and favorable product mix within the segment.
Segment income in the first nine months of 2016 increased approximately 4% to $166.9 million compared to $160.4 million reported in the same period of the prior year. This increase is again due to the additional product and tooling sales discussed above along with favorable product mix within the segment. Cost savings initiatives partially offset costs related to an enterprise resource system implementation and the impact of a purchase accounting adjustment of $0.4 million related to the write-up to fair value of the Mega Airless inventory we purchased and subsequently sold during the first quarter.
FOOD + BEVERAGE SEGMENT
Operations that sell dispensing systems primarily to the food and beverage markets form the Food + Beverage segment.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
82,505
|
|
$
|
89,225
|
|
$
|
256,016
|
|
$
|
262,804
|
|
|
Segment Income
|
|
|
10,101
|
|
|
13,236
|
|
|
32,977
|
|
|
37,277
|
|
|
Segment Income as a percentage of Net Sales
|
|
|
12.2%
|
|
|
14.8%
|
|
|
12.9%
|
|
|
14.2%
|
|
|
Adjusted EBITDA margins (1)
|
|
|
19.6%
|
|
|
21.0%
|
|
|
19.9%
|
|
|
20.2%
|
|
|
|
(1)
|
|
Adjusted EBITDA margins are calculated as Adjusted EBITDA divided by Reported Net Sales. See the reconciliation of Non-U.S. GAAP measures starting on page 28.
|
Net sales for the quarter ended September 30, 2016 decreased approximately 8% to $82.5 million compared to $89.2 million in the third quarter of the prior year. Changes in foreign currency rates had a negative impact of 2% on the total segment sales. Therefore, core sales decreased by 6% in the third quarter of 2016 compared to the third quarter of 2015. The pass-through of lower resin costs of $0.7 million was offset by $1.9 million of higher tooling sales. Core sales to the food market increased 8% while core sales to the beverage market decreased 20% in the third quarter of 2016 compared to the same period in the prior year. Sales to the food market increased with strong demand for our sauces and condiments products along with increases in the dairy and infant formula application fields. For the beverage market, we experienced a decrease in functional drink applications sales mainly in China.
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|
|
|
|
|
|
|
|
|
|
Third Quarter 2016
|
|
|
|
|
|
|
|
|
|
|
Net Sales Change over Prior Year
|
|
|
|
Food
|
|
Beverage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
|
|
8
|
%
|
(20)
|
%
|
(6)
|
%
|
|
Acquisitions
|
|
|
|
—
|
%
|
—
|
%
|
—
|
%
|
|
Currency Effects (1)
|
|
|
|
(1)
|
%
|
(2)
|
%
|
(2)
|
%
|
|
Total Reported Net Sales Growth
|
|
|
|
7
|
%
|
(22)
|
%
|
(8)
|
%
|
|
|
(1)
|
|
Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates.
|
Net sales for the first nine months of 2016 decreased approximately 3% to $256.0 million compared to $262.8 million in the first nine months of 2015. Changes in foreign currency rates had a negative impact of 3% on the total segment sales. Therefore, core sales were flat for the first nine months of 2016 compared to the first nine months of 2015. Decreases in resin pass-throughs and lower tooling sales of $4.5 million and $1.3 million, respectively, also negatively impacted sales by 2% for the first nine months of 2016. Core sales to the food market increased 7% while core sales to the beverage market decreased 8% in the first nine months of 2016 compared to the same period in the prior year. As discussed above, food sales were driven by strong sales to the sauces, condiments infant formula and dairy application fields. Sales of our products used on bottled water were strong but were more than offset by lower demand in China.
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|
|
|
|
|
|
|
|
|
|
|
First Nine Months of 2016
|
|
|
|
|
|
|
|
|
|
|
Net Sales Change over Prior Year
|
|
|
|
Food
|
|
Beverage
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Sales Growth
|
|
|
|
7
|
%
|
(8)
|
%
|
—
|
%
|
|
Acquisitions
|
|
|
|
—
|
%
|
—
|
%
|
—
|
%
|
|
Currency Effects (1)
|
|
|
|
(2)
|
%
|
(3)
|
%
|
(3)
|
%
|
|
Total Reported Net Sales Growth
|
|
|
|
5
|
%
|
(11)
|
%
|
(3)
|
%
|
|
|
(1)
|
|
Currency effects are approximated by translating last year’s amounts at this year’s foreign exchange rates.
|
Segment income in the third quarter of 2016 decreased approximately 24% to $10.1 million compared to $13.2 million reported in the same period of the prior year. Increased sales to the food market along with cost savings initiatives were not able to offset the shortfall in the beverage market. Lower demand also led to lower operating performance in China along with a negative impact due to the mix of products sold during the third quarter of 2016 compared to the same period in 2015.
Segment income in the first nine months of 2016 decreased approximately 12% to $33.0 million compared to $37.3 million reported in the same period of the prior year. As discussed above, lower demand in China led to lower operating performance and a negative product mix impact. Tooling and resin had little impact on the results.
CORPORATE & OTHER
In addition to our three operating business segments, AptarGroup assigns certain costs to “Corporate & Other,” which is presented separately in Note 14 of the Unaudited Notes to the Condensed Consolidated Financial Statements. Corporate & Other primarily includes certain professional fees, compensation and information system costs which are not allocated directly to our operating segments. Corporate & Other expense decreased slightly to $7.5 million for the quarter ended September 30, 2016 compared to $7.6 million in the third quarter of the prior year as a result of higher professional fees and other expenses associated with our legal entity reorganization project in the prior year.
Corporate & Other expense in the first nine months of 2016 increased to $35.3 million compared to $22.5 million reported in the same period of the prior year. Excluding the impact of a favorable $7.4 million change in accounting principle related to our inventory valuation method in the prior year, Corporate & Other expense would have increased $5.4 million in the first nine months of 2016 compared to the first nine months of 2015. This increase is due to $5.6 million of transaction costs related to the Mega Airless acquisition reported in the first quarter of 2016.
NON-U.S. GAAP MEASURE
S
In addition to the information presented herein that conforms to U.S. GAAP, we also present financial information that does not conform to U.S. GAAP, which are referred to as non-U.S. GAAP financial measures. Management may assess our financial results both on a U.S. GAAP basis and on a non-U.S. GAAP basis. We believe it is useful to present these non-U.S.GAAP financial measures because they allow for a better period over period comparison of operating results by removing the impact of items that, in management’s view, do not reflect AptarGroup’s core operating performance. These non-U.S. GAAP financial measures should not be considered in isolation or as a substitute for U.S. GAAP financial results, but should be read in conjunction with the unaudited condensed consolidated statements of income and other information presented herein. Investors are cautioned against placing undue reliance on these non-U.S. GAAP measures. Further, investors are urged to review and consider carefully the adjustments made by management to the most directly comparable U.S. GAAP financial measure to arrive at these non-U.S. GAAP financial measures.
In our MD&A, we exclude the impact of foreign currency translation when presenting net sales information, which we define as “constant currency.” Changes in net sales excluding the impact of foreign currency translation is a non-U.S. GAAP financial measure. As a worldwide business, it is important that we take into account the effects of foreign currency translation when we view our results and plan our strategies. Consequently, when our management looks at our financial results to measure the core performance of our business, we may exclude the impact of foreign currency translation by translating our prior period results at current period foreign currency exchange rates. As a result, our management believes that these presentations are useful internally and may be useful to investors. We also exclude the impact of material acquisitions when comparing results to prior periods. Changes in operating results excluding the impact of acquisitions are non-U.S. GAAP financial measures. We feel it is important to exclude the impact of acquisitions on year-over-year results in order to evaluate performance on a more comparable basis.
We also present our adjusted earnings before net interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which excludes the impact of transaction costs and purchase accounting adjustments that affected the inventory values related to the Mega Airless acquisition, certain items included in the provision for income taxes (primarily a significant tax refund) that were recorded in the first quarter of 2016, income from a change in the method of valuing inventory (from LIFO to FIFO) that was recorded in the second quarter of 2015, transaction costs associated with the Mega Airless acquisition and a gain on insurance recovery recorded in the fourth quarter of 2015.
Finally, we provide a reconciliation of Net Debt to Net Capital as a non-U.S. GAAP measure. Net Debt is calculated as interest bearing debt less cash, cash equivalents and short-term investments while Net Capital is calculated as stockholder’s equity plus Net Debt. Net Debt to Net Capital measures a company’s financial leverage which gives users an idea of a company's financial structure, or how it is financing its operations, along with insight into its financial strength. We believe that it is meaningful to take into consideration the balance of our cash, cash equivalents, and short-term investments when evaluating our leverage. If needed, such assets could be used to reduce our gross debt position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Beauty + Home
|
|
Pharma
|
|
Food + Beverage
|
|
Corporate & Other
|
|
Net Interest
|
|
Net Sales
|
|
$
|
589,729
|
|
$
|
316,030
|
|
$
|
191,194
|
|
$
|
82,505
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income
|
|
$
|
53,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes
|
|
|
21,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income before income taxes
|
|
|
75,001
|
|
|
25,380
|
|
|
55,037
|
|
|
10,101
|
|
|
(7,479)
|
|
|
(8,038)
|
|
Interest expense
|
|
|
8,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,753
|
|
Interest income
|
|
|
(715)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(715)
|
|
Earnings before net interest and taxes (EBIT)
|
|
|
83,039
|
|
|
25,380
|
|
|
55,037
|
|
|
10,101
|
|
|
(7,479)
|
|
|
-
|
|
Depreciation and amortization
|
|
|
39,667
|
|
|
21,653
|
|
|
10,185
|
|
|
6,064
|
|
|
1,765
|
|
|
-
|
|
Earnings before net interest, taxes, depreciation and amortization (EBITDA)
|
|
$
|
122,706
|
|
$
|
47,033
|
|
$
|
65,222
|
|
$
|
16,165
|
|
$
|
(5,714)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income margins
|
|
|
|
|
|
8.0%
|
|
|
28.8%
|
|
|
12.2%
|
|
|
|
|
|
|
|
EBITDA margins (EBITDA / Reported Net Sales)
|
|
|
20.8%
|
|
|
14.9%
|
|
|
34.1%
|
|
|
19.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Beauty + Home
|
|
Pharma
|
|
Food + Beverage
|
|
Corporate & Other
|
|
Net Interest
|
|
Net Sales
|
|
$
|
586,290
|
|
$
|
321,638
|
|
$
|
175,427
|
|
$
|
89,225
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income
|
|
$
|
53,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes
|
|
|
26,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income before income taxes
|
|
|
79,377
|
|
|
27,961
|
|
|
52,941
|
|
|
13,236
|
|
|
(7,575)
|
|
|
(7,186)
|
|
Interest expense
|
|
|
8,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,948
|
|
Interest income
|
|
|
(1,762)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,762)
|
|
Earnings before net interest and taxes (EBIT)
|
|
|
86,563
|
|
|
27,961
|
|
|
52,941
|
|
|
13,236
|
|
|
(7,575)
|
|
|
-
|
|
Depreciation and amortization
|
|
|
35,439
|
|
|
19,096
|
|
|
9,070
|
|
|
5,465
|
|
|
1,808
|
|
|
-
|
|
Earnings before net interest, taxes, depreciation and amortization (EBITDA)
|
|
$
|
122,002
|
|
$
|
47,057
|
|
$
|
62,011
|
|
$
|
18,701
|
|
$
|
(5,767)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income margins
|
|
|
|
|
|
8.7%
|
|
|
30.2%
|
|
|
14.8%
|
|
|
|
|
|
|
|
EBITDA margins (EBITDA / Reported Net Sales)
|
|
|
20.8%
|
|
|
14.6%
|
|
|
35.3%
|
|
|
21.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Beauty + Home
|
|
Pharma
|
|
Food + Beverage
|
|
Corporate & Other
|
|
Net Interest
|
|
Net Sales
|
|
$
|
1,792,066
|
|
$
|
970,687
|
|
$
|
565,363
|
|
$
|
256,016
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income
|
|
$
|
156,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes
|
|
|
63,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income before income taxes
|
|
|
219,204
|
|
|
79,455
|
|
|
166,870
|
|
|
32,977
|
|
|
(35,310)
|
|
|
(24,788)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction costs related to the Mega Airless acquisition
|
|
|
5,640
|
|
|
|
|
|
|
|
|
|
|
|
5,640
|
|
|
|
|
Purchase accounting adjustments related to Mega Airless inventory
|
|
|
2,577
|
|
|
2,151
|
|
|
426
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings before income taxes
|
|
|
227,421
|
|
|
81,606
|
|
|
167,296
|
|
|
32,977
|
|
|
(29,670)
|
|
|
(24,788)
|
|
Interest expense
|
|
|
26,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,547
|
|
Interest income
|
|
|
(1,759)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,759)
|
|
Adjusted earnings before net interest and taxes (Adjusted EBIT)
|
|
|
252,209
|
|
|
81,606
|
|
|
167,296
|
|
|
32,977
|
|
|
(29,670)
|
|
|
-
|
|
Depreciation and amortization
|
|
|
115,944
|
|
|
63,150
|
|
|
29,802
|
|
|
17,960
|
|
|
5,032
|
|
|
-
|
|
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)
|
|
$
|
368,153
|
|
$
|
144,756
|
|
$
|
197,098
|
|
$
|
50,937
|
|
$
|
(24,638)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income margins
|
|
|
|
|
|
8.2%
|
|
|
29.5%
|
|
|
12.9%
|
|
|
|
|
|
|
|
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)
|
|
|
20.5%
|
|
|
14.9%
|
|
|
34.9%
|
|
|
19.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2015
|
|
|
|
|
|
|
|
|
Consolidated
|
|
Beauty + Home
|
|
Pharma
|
|
Food + Beverage
|
|
Corporate & Other
|
|
Net Interest
|
|
Net Sales
|
|
$
|
1,770,376
|
|
$
|
970,176
|
|
$
|
537,396
|
|
$
|
262,804
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net income
|
|
$
|
155,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income taxes
|
|
|
76,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported income before income taxes
|
|
|
232,827
|
|
|
78,529
|
|
|
160,404
|
|
|
37,277
|
|
|
(22,535)
|
|
|
(20,848)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in inventory valuation methods (from LIFO to FIFO)
|
|
|
(7,427)
|
|
|
|
|
|
|
|
|
|
|
|
(7,427)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings before income taxes
|
|
|
225,400
|
|
|
78,529
|
|
|
160,404
|
|
|
37,277
|
|
|
(29,962)
|
|
|
(20,848)
|
|
Interest expense
|
|
|
25,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,446
|
|
Interest income
|
|
|
(4,598)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,598)
|
|
Adjusted earnings before net interest and taxes (Adjusted EBIT)
|
|
|
246,248
|
|
|
78,529
|
|
|
160,404
|
|
|
37,277
|
|
|
(29,962)
|
|
|
-
|
|
Depreciation and amortization
|
|
|
103,664
|
|
|
56,914
|
|
|
26,699
|
|
|
15,717
|
|
|
4,334
|
|
|
-
|
|
Adjusted earnings before net interest, taxes, depreciation and amortization (Adjusted EBITDA)
|
|
$
|
349,912
|
|
$
|
135,443
|
|
$
|
187,103
|
|
$
|
52,994
|
|
$
|
(25,628)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income margins
|
|
|
|
|
|
8.1%
|
|
|
29.8%
|
|
|
14.2%
|
|
|
|
|
|
|
|
Adjusted EBITDA margins (Adjusted EBITDA / Reported Net Sales)
|
|
|
19.8%
|
|
|
14.0%
|
|
|
34.8%
|
|
|
20.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Debt to Net Capital Reconciliation
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
138,784
|
|
$
|
5,083
|
|
|
Current maturities of long-term obligations, net of unamortized debt issuance costs
|
|
|
3,228
|
|
|
51,884
|
|
|
Long-Term Obligations
|
|
|
776,766
|
|
|
760,848
|
|
|
Total Debt
|
|
|
918,778
|
|
|
817,815
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
|
432,737
|
|
|
489,901
|
|
|
Short-term investments
|
|
|
—
|
|
|
29,816
|
|
|
Net Debt
|
|
$
|
486,041
|
|
$
|
298,098
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
$
|
1,286,346
|
|
$
|
1,149,706
|
|
|
Net Debt
|
|
|
486,041
|
|
|
298,098
|
|
|
Net Capital
|
|
$
|
1,772,387
|
|
$
|
1,447,804
|
|
|
|
|
|
|
|
|
|
|
|
Net Debt to Net Capital
|
|
|
27.4%
|
|
|
20.6%
|
|
FOREIGN CURRENCY
Because of our international presence, movements in exchange rates may have a significant impact on the translation of the financial statements of our foreign subsidiaries. Our primary foreign exchange exposure is to the Euro, but we also have foreign exchange exposure to the Chinese Yuan, Brazilian Real, Mexican Peso, Swiss Franc and other Asian, European and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial statements. Conversely, a weakening U.S. dollar has an additive effect. In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. We manage our exposures to foreign exchange principally with forward exchange contracts to economically hedge recorded transactions and firm purchase and sales commitments denominated in foreign currencies. Changes in exchange rates on such inter-country sales could materially impact our results of operations. As sales denominated in British Pounds represent less than 1% of our total sales in 2016, we don’t anticipate that the United Kingdom’s vote to withdraw from the European Union will have a material foreign currency translation impact on our operations.
QUARTERLY TRENDS
Our results of operations in the last quarter of the year typically are negatively impacted by customer plant shutdowns in December. In the future, our results of operations in a quarterly period could be impacted by factors such as the seasonality of certain products within our segments, changes in foreign currency rates, changes in product mix, changes in material costs, changes in growth rates in the markets to which our products are sold, recognition of equity based compensation expense for retirement eligible employees in the period of grant and changes in general economic conditions in any of the countries in which we do business.
We generally incur higher stock option expense in the first quarter compared with the rest of the fiscal year. Our stock option expense on a pre-tax basis (in $ millions) for the year 2016 compared to 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
First Quarter
|
|
$
|
8.3
|
|
$
|
8.8
|
|
|
Second Quarter
|
|
|
3.7
|
|
|
3.2
|
|
|
Third Quarter
|
|
|
3.5
|
|
|
3.0
|
|
|
Fourth Quarter (estimated for 2016)
|
|
|
3.2
|
|
|
2.9
|
|
|
|
|
$
|
18.7
|
|
$
|
17.9
|
|
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash flow from operations and our revolving credit facility. In the first nine months of 2016, our operations provided approximately $204.3 million in cash flow compared to $231.4 million for the same period a year ago. In both periods, cash flow from operations was primarily derived from earnings before depreciation and amortization. The decrease in cash provided by operations is primarily attributable to an increase in working capital requirements.
We used $265.5 million in cash for investing activities during the first nine months of 2016 compared to $171.1 million during the same period a year ago. The increase is due primarily to the Mega Airless acquisition of $203.0 million, net of cash received. Our 2016 estimated cash outlays for capital expenditures are expected to be approximately $140 million but could vary due to changes in exchange rates as well as the timing of capital projects.
We used $0.8 million in cash for financing activities during the first nine months of 2016, compared to $10.0 million during the same period a year ago. For 2016, proceeds from notes payable were used to partially finance the acquisition of Mega Airless and to repurchase and retire common stock. Proceeds from stock option exercises were offset by the cash paid to shareholders in dividends during 2016.
Cash and equivalents decreased to $432.7 million at September 30, 2016 from $489.9 million at December 31, 2015 mainly due to funding the cash portion of the Mega Airless acquisition price not covered by debt financing. Total short and long-term interest bearing debt increased in the first nine months of 2016 to $918.8 million from $817.8 million at December 31, 2015 also primarily due to financing the Mega Airless acquisition. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents less short-term investments) to Net Capital (stockholder’s equity plus Net Debt) was 27.4% at September 30, 2016 compared to 20.6% at December 31, 2015. See the reconciliation of Non-U.S GAAP measures starting on page 28.
The Company maintains a revolving credit facility that provides for unsecured financing of up to $300 million. Each borrowing under this credit facility will bear interest at rates based on LIBOR, prime rates or other similar rates, in each case plus an applicable margin. A facility fee on the total amount of the facility is also payable quarterly, regardless of usage. The applicable margins for borrowings under the credit facility and the facility fee percentage may change from time to time depending on changes in AptarGroup’s consolidated leverage ratio. At September 30, 2016, we had an outstanding balance of $126 million under the credit facility. There was no outstanding balance at December 31, 2015. We incurred approximately $648 thousand and $816 thousand in interest and fees related to this credit facility during the nine months ended September 30, 2016 and 2015, respectively.
Our revolving credit facility and corporate long-term obligations require us to satisfy certain financial and other covenants including:
|
|
|
|
|
|
|
|
|
Requirement
|
|
Level at September 30, 2016
|
|
Consolidated Leverage Ratio
(a)
|
|
Maximum of 3.50 to 1.00
|
|
1.10 to 1.00
|
|
Consolidated Interest Coverage Ratio
(a)
|
|
Minimum of 3.00 to 1.00
|
|
14.57 to 1.00
|
|
|
(a)
|
|
Definitions of ratios are included as part of the revolving credit facility agreement and the private placement agreements.
|
Based upon the above consolidated leverage ratio covenant, we have the ability to borrow approximately an additional $1.1 billion before the 3.50 to 1.00 maximum ratio requirement is exceeded.
Our foreign operations have historically met cash requirements with the use of internally generated cash or borrowings. These foreign subsidiaries have financing arrangements with several foreign banks to fund operations located outside the U.S., but the majority of these arrangements are uncommitted. Cash generated by foreign operations has generally been reinvested locally. The majority of our $432.7 million in cash and equivalents is located outside of the U.S. We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The repatriation of non-U.S. cash balances from certain subsidiaries could have adverse tax consequences as we may be required to pay income tax on those funds. Historically, the tax consequences associated with repatriating current year earnings to the U.S. has been between 5% and 10% of the repatriated amount.
We believe we are in a strong financial position and have the financial resources to meet our business requirements in the foreseeable future. We have historically used cash flow from operations, our revolving credit facility, stock option exercises and debt, as needed, as our primary sources of liquidity. Our primary uses of liquidity are to invest in equipment and facilities that are necessary to support our growth and to make acquisitions that will contribute to the achievement of our strategic objectives. Other uses of liquidity include paying dividends to shareholders and repurchasing shares of our common stock. In the event that customer demand would decrease significantly for a prolonged period of time and negatively impact cash flow from operations, we would have the ability to restrict and significantly reduce capital expenditure levels, as well as evaluate our acquisition strategy and dividend and share repurchase programs. A prolonged and significant reduction in capital expenditure levels could increase future repairs and maintenance costs as well as have a negative impact on operating margins if we were unable to invest in new innovative products.
On October 20, 2016, the Board of Directors declared a quarterly cash dividend of $0.32 per share payable on November 23, 2016 to stockholders of record as of November 2, 2016.
OFF-BALANCE SHEET ARRANGEMENTS
We lease certain warehouse, plant and office facilities as well as certain equipment under noncancelable operating leases expiring at various dates through the year 2027. Most of the operating leases contain renewal options and certain equipment leases include options to purchase during or at the end of the lease term. Other than operating lease obligations, we do not have any off-balance sheet arrangements.
RECENTLY ISSUED ACCOUNTING STANDARDS
We have reviewed the recently issued accounting standards updates to the FASB’s Accounting Standards Codification that have future effective dates. As discussed in Note 1 of the Unaudited Notes to Condensed Consolidated Financial Statements, no Standards that are considered to have a material impact on our Unaudited Condensed Consolidated Financial Statements were effective for the first nine months of 2016.
In May 2014, the FASB amended the guidance for recognition of revenue from customer contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB decided to defer the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also decided to allow early adoption of the standard, but not before the original effective date of December 15, 2016. Subsequent to the initial standards, the FASB has also issued several Accounting Standards Updates (“ASUs”) to clarify specific revenue recognition topics. We are currently evaluating the impact the adoption of this standard will have on our Consolidated Financial Statements.
In July 2015, the FASB issued new guidance for simplifying the measurement of inventory. The core principle of the guidance is that an entity should measure inventory at the lower of cost and net realizable value. This standard is effective for annual reporting periods beginning after December 15, 2016. The Company does not believe that this new guidance will have a material impact on its consolidated financial statements.
In January 2016, the FASB issued new guidance that generally requires companies to measure investments in other entities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company does not believe that this new guidance will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued new guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this guidance.
In March 2016, the FASB issued guidance that eliminates the requirement that an investor retrospectively apply equity method accounting when an investment that it had accounted for by another method initially qualifies for the equity method. The guidance requires that an equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The new standard is effective for fiscal years and interim periods beginning after December 15, 2016. The Company is currently evaluating the impact of adopting this guidance.
In March 2016, the FASB issued guidance that changes the accounting for certain aspects of share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The new standard is effective for fiscal years and interim periods beginning after December 15, 2016. The Company is currently evaluating the impact of adopting this guidance.
In June 2016, the FASB issued guidance that changes the accounting for measurement of credit losses on financial instruments. The guidance replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when recording credit loss estimates. The new standard is effective for fiscal years and interim periods beginning after December 15, 2019. The Company is currently evaluating the impact of adopting this guidance.
In August 2016, the FASB issued guidance to increase comparability among organizations on how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this guidance.
Other accounting standards that have been issued by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.
OUTLOOK
Macroeconomic conditions and the cautionary positions of certain customers are not expected to change as we look to the fourth quarter, which is traditionally a slower quarter for us. There is still a lot of geopolitical and economic uncertainty around the globe and this is causing some customers to reduce inventory levels, reduce promotional spending and delay projects. Also, the markets we serve remain competitive and we anticipate that resin costs will increase over the prior year level. It is important that we focus on cost containment as we seek out and invest in growth opportunities. Our balance sheet remains strong and although market uncertainties may persist in the near-term, our long-term outlook is positive.
AptarGroup expects earnings per share for the fourth quarter, excluding any potential impacts of the timing of costs incurred and the related insurance reimbursements associated with the Aptar France facility fire, to be in the range of $0.63 to $0.68 per share compared to $0.68 per share reported in the prior year. Adjusting for special items in the prior year, comprised of costs associated with the Mega Airless acquisition ($0.02) and a gain on insurance recovery ($0.03), adjusted earnings per share for the prior year were approximately $0.67.
FORWARD-LOOKING STATEMENTS
Certain statements in Management’s Discussion and Analysis and other sections of this Form 10-Q are forward-looking and involve a number of risks and uncertainties, including certain statements set forth in the Quarterly Trends, Liquidity and Capital Resources, and Outlook sections of this Form 10-Q. Words such as “expects,” “anticipates,” “believes,” “estimates,” “future” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. Forward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on our beliefs as well as assumptions made by and information currently available to us. Accordingly, our actual results may differ materially from those expressed or implied in such forward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment including, but not limited to:
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the possible impact and consequences of the fire at the Company’s facility in Annecy, France;
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the ability to integrate the acquired Mega Airless business;
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economic conditions worldwide, including the United Kingdom’s vote to withdraw from the European Union and other potential deflationary conditions in regions we rely on for growth;
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political conditions worldwide;
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significant fluctuations in foreign currency exchange rates;
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changes in customer and/or consumer spending levels;
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financial conditions of customers and suppliers;
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consolidations within our customer or supplier bases;
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loss of one or more key accounts;
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fluctuations in the cost of materials, components and other input costs (particularly resin, metal, anodization costs and transportation and energy costs);
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the availability of raw materials and components (particularly from sole sourced suppliers) as well as the financial viability of these suppliers;
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our ability to successfully implement facility expansions and new facility projects;
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our ability to offset inflationary impacts with cost containment, productivity initiatives or price increases;
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changes in capital availability or cost, including interest rate fluctuations;
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volatility of global credit markets;
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the timing and magnitude of capital expenditures;
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our ability to identify potential new acquisitions and to successfully acquire and integrate such operations or products;
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direct or indirect consequences of acts of war, terrorism or social unrest;
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cybersecurity threats that could impact our networks and reporting systems;
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the impact of natural disasters and other weather-related occurrences;
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fiscal and monetary policies and other regulations, including changes in worldwide tax rates;
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changes or difficulties in complying with government regulation;
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changing regulations or market conditions regarding environmental sustainability;
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work stoppages due to labor disputes;
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competition, including technological advances;
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our ability to protect and defend our intellectual property rights, as well as litigation involving intellectual property rights;
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the outcome of any legal proceeding that has been or may be instituted against us and others;
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our ability to meet future cash flow estimates to support our goodwill impairment testing;
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the demand for existing and new products;
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the success of our customers’ products, particularly in the pharmaceutical industry;
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our ability to manage worldwide customer launches of complex technical products, in particular in developing markets;
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difficulties in product development and uncertainties related to the timing or outcome of product development;
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significant product liability claims; and
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other risks associated with our operations.
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Although we believe that our forward-looking statements are based on reasonable assumptions, there can be no assurance that actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to Item 1A (“Risk Factors”) of Part I included in the Company’s Annual Report on Form 10-K for additional risk factors affecting the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A significant number of our operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of our entities. Our primary foreign exchange exposure is to the Euro, but we also have foreign exchange exposure to the Chinese Yuan, Brazilian Real, Mexican Peso and Swiss Franc, among other Asian, European, and South American currencies. A strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on our financial condition and results of operations. Conversely, a weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial condition and results of operations.
Additionally, in some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Any changes in exchange rates on such inter-country sales may impact our results of operations.
We manage our exposures to foreign exchange principally with forward exchange contracts to hedge certain firm purchase and sales commitments and intercompany cash transactions denominated in foreign currencies.
The table below provides information as of September 30, 2016 about our forward currency exchange contracts. The majority of the contracts expire before the end of the fourth quarter of 2016.
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Average
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Min / Max
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Contract Amount
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Contractual
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Notional
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Buy/Sell
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(in thousands)
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Exchange Rate
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Volumes
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Swiss Franc / Euro
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$
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61,282
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0.9135
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60,742-61,745
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Euro / Brazilian Real
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12,916
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3.7082
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11,459-12,916
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Euro / Indian Rupee
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10,495
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81.7736
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10,495-10,507
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Euro / U.S. Dollar
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7,069
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1.1230
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7,069-13,094
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Euro / Colombian Peso
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3,349
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3,860.0620
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3,349-3,349
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Czech Koruna / Euro
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2,921
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0.0370
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2,640-2,977
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Euro / Indonesian Rupiah
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1,865
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15,725.0000
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1,823-1,865
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U.S. Dollar / Euro
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1,771
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0.8886
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1,771-2,891
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Colombian Peso / Euro
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1,451
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0.0003
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940-1,451
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British Pound / Euro
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1,381
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1.1682
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1,381-2,652
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Euro / Thai Baht
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1,070
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39.8754
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1,070-1,070
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Euro / Mexican Peso
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852
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20.6200
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852-852
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Other
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1,118
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Total
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$
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107,540
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As of September 30, 2016, the Company has recorded the fair value of foreign currency forward exchange contracts of $0.6 million in prepaid and other and $1.3 million in accounts payable in the balance sheet.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2016. Based on that evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures were effective as of such date.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the quarter ended September 30, 2016, the Company implemented enterprise resource planning (“ERP”) systems at one operating facility. Consequently, the control environments have been modified at these locations to incorporate the controls contained within the new ERP system. The Company is also in the process of reviewing the internal control structure of Mega Airless and, if necessary, will make appropriate changes as we incorporate our controls and procedures into this recently acquired business. Other than these items, no change in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the Company’s fiscal quarter ended September 30, 2016 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.