AptarGroup(US:ATR)2020-10-30 15:16Part I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) AptarGroup's unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2020 and 2019, are presented, detailing income, balance sheets, and cash flows Condensed Consolidated Statements of Income Q3 2020 net sales increased to $759.2 million and net income to $63.7 million, while nine-month net sales remained flat at $2.18 billion with a decrease in net income to $160.8 million Key Income Statement Data (in thousands, except per share amounts) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $759,153 | $701,278 | $2,180,011 | $2,188,399 | | Operating Income | $99,037 | $90,245 | $257,975 | $297,203 | | Net Income Attributable to AptarGroup, Inc. | $63,716 | $56,750 | $160,808 | $193,669 | | Diluted EPS | $0.95 | $0.85 | $2.42 | $2.93 | Condensed Consolidated Balance Sheets As of September 30, 2020, total assets increased to $3.86 billion, total liabilities rose to $2.10 billion, and total stockholders' equity grew to $1.76 billion compared to year-end 2019 Balance Sheet Summary (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $1,327,196 | $1,291,241 | | Goodwill | $878,015 | $763,461 | | Total Assets | $3,861,749 | $3,562,119 | | Total Current Liabilities | $787,121 | $683,275 | | Long-Term Obligations | $1,039,935 | $1,085,453 | | Total Liabilities | $2,101,794 | $1,990,167 | | Total Stockholders' Equity | $1,759,955 | $1,572,252 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2020, net cash from operations was $381.4 million, while investing activities used $377.9 million due to acquisitions, and financing activities used $26.7 million Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Provided by Operations | $381,427 | $380,381 | | Net Cash Used by Investing Activities | ($377,892) | ($223,998) | | Net Cash Used by Financing Activities | ($26,734) | ($146,158) | | Net (Decrease) Increase in Cash | ($15,594) | $3,754 | Notes to Condensed Consolidated Financial Statements This section details accounting policies and financial results, including revenue recognition, goodwill, debt, leases, acquisitions, segment performance, and restructuring, alongside the impact of CECL adoption and COVID-19 - The company adopted ASU 2016-13 (CECL) on January 1, 2020, resulting in a $1.4 million cumulative adjustment to opening retained earnings28 - The COVID-19 pandemic has impacted certain markets, operations, and financial results, including an overall reduction in net sales in those markets. However, no impairments were recorded as of September 30, 202026 Q3 2020 Revenue by Segment (in thousands) | Segment | Europe | Domestic | Latin America | Asia | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Beauty + Home | $165,701 | $109,175 | $37,921 | $24,434 | $337,231 | | Pharma | $206,376 | $92,932 | $4,846 | $11,604 | $315,758 | | Food + Beverage | $29,688 | $60,439 | $6,668 | $9,369 | $106,164 | | Total | $401,765 | $262,546 | $49,435 | $45,407 | $759,153 | - On April 1, 2020, the company acquired Fusion Packaging, Inc. for approximately $163.8 million, adding $99.6 million to goodwill in the Beauty + Home segment125133 - The company's business transformation plan, initiated in late 2017, has incurred cumulative expenses of $102.1 million as of September 30, 2020, out of an estimated total of $125 million145 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and nine-month 2020 financial results, noting an 8% increase in Q3 net sales driven by acquisitions and Pharma, while addressing COVID-19 impacts on other segments and providing a Q4 earnings outlook Results of Operations Q3 2020 net sales increased 8% to $759.2 million, driven by 17% reported growth in Pharma, while Beauty + Home core sales declined 5% due to COVID-19, and operating income rose to $99.0 million Q3 2020 Net Sales Growth vs. Q3 2019 | Segment | Core Sales Growth | Acquisitions | Currency Effects | Total Reported Growth | | :--- | :--- | :--- | :--- | :--- | | Beauty + Home | (5)% | 7% | 1% | 3% | | Pharma | 11% | 2% | 4% | 17% | | Food + Beverage | 2% | —% | —% | 2% | | Total | 2% | 4% | 2% | 8% | - The Pharma segment's core sales grew 11% in Q3, driven by a 27% increase in injectables and a 56% increase in active packaging, partly due to large tooling projects and anticipation of COVID-19 vaccines182183 - The Beauty + Home segment's core sales declined 5% in Q3, with beauty market sales down 21% due to reduced travel retail, partially offset by a 12% increase in personal care and 6% in home care sales176177 Liquidity and Capital Resources As of September 30, 2020, the company maintained $231.4 million in cash and $1.2 billion in total debt, with a Net Debt to Net Capital ratio of 35.6%, while suspending share repurchases to preserve liquidity amid COVID-19 - To preserve liquidity amid the COVID-19 pandemic, the company has temporarily suspended its share repurchase program and discretionary contributions to defined benefit plans211 Key Liquidity Metrics | Metric | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and Equivalents | $226.5 million | $242.0 million | | Total Debt | $1.20 billion | $1.20 billion | | Net Debt to Net Capital | 35.6% | 37.8% | - The company has the ability to borrow an additional $938.1 million under its credit facility before exceeding the maximum consolidated leverage ratio covenant of 3.50 to 1.00217 Outlook Management anticipates continued core growth in Q4 2020, driven by rising demand in markets like Pharma, and projects adjusted earnings per share in the range of $0.84 to $0.92 - The company projects adjusted earnings per share for Q4 2020 to be in the range of $0.84 to $0.92, based on an effective tax rate of 27% to 29%228 Quantitative and Qualitative Disclosures about Market Risk The company faces market risk primarily from foreign currency exchange rate fluctuations, particularly the euro, and manages these exposures using forward exchange contracts and a cross-currency swap - The company's primary foreign exchange exposure is to the euro, but also includes the Chinese yuan, Brazilian real, Mexican peso, and Swiss franc233 - To mitigate currency and interest rate risk on a $280 million term loan, the company utilizes a EUR/USD cross-currency swap, which had a fair value liability of $3.2 million as of September 30, 2020234 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with an ERP system implementation modifying the control environment, while COVID-19 remote work had no material impact - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2020235 - Remote work arrangements implemented due to the COVID-19 pandemic have not materially affected the company's internal control over financial reporting236 Part II. OTHER INFORMATION Risk Factors This section supplements prior risk factors, emphasizing the ongoing adverse effects of the COVID-19 pandemic, which has negatively impacted sales and poses risks of further business disruption and reduced customer demand - The COVID-19 pandemic is highlighted as a significant risk factor, having adversely affected sales in the travel and retail beauty business and on-the-go beverage markets during the first nine months of 2020238 - Potential future impacts from the pandemic include further decreases in customer demand, business and manufacturing disruptions, inventory shortages, and increased risk associated with customer payments238 Unregistered Sales of Equity Securities and Use of Proceeds This section details equity activities, confirming no share repurchases in Q3 2020 and the temporary suspension of the repurchase program to preserve liquidity, with $278.5 million remaining available under authorization - The company did not repurchase any shares during the three and nine months ended September 30, 2020242 - The share repurchase program has been temporarily suspended to preserve liquidity due to the COVID-19 pandemic. As of September 30, 2020, $278.5 million of the authorization remained available242 Exhibits This section lists exhibits filed with the Form 10-Q, including an employment agreement amendment, Sarbanes-Oxley Act certifications, and financial data in Inline XBRL format