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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
 
 
FORM 10-Q
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  
 
SECURITIES EXCHANGE ACT OF 1934
 
   For the quarterly period ended September 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
  
 
SECURITIES EXCHANGE ACT OF 1934
 
   For the transition period from                        to                       
 
Commission File Number 1-11846
 
 
AptarGroup, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
Delaware
  
36-3853103
(State of Incorporation)
  
(I.R.S. Employer Identification No.)
 
475 West Terra Cotta Avenue, Suite E, Crystal Lake, Illinois
  
60014
(Address of Principal Executive Offices)
  
(Zip Code)
 
815-477-0424
(Registrant’s Telephone Number, Including Area Code)
 
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes  x  No  ¨
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (November 1, 2002)
 
Common Stock
  
35,931,206
 

Table of Contents
 
AptarGroup, Inc.
 
Form 10-Q
Quarter Ended September 30, 2002
 
INDEX
 
         
Page
PART I.    FINANCIAL INFORMATION
ITEM 1.
   
Financial statements (Unaudited)
     
       
3
       
4
       
6
       
7
ITEM 2.
      
18
ITEM 3.
      
25
ITEM 4.
      
26
PART II.    OTHER INFORMATION
ITEM 2.
      
26
ITEM 6.
      
26
  
27
  
28

Table of Contents
 
AptarGroup, Inc.
 
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
    
Three Months
Ended September 30
     
Nine Months
Ended September 30,
  
    
2002
     
2001
     
2002
     
2001
  
Net Sales
   
$
239,764
 
   
$
221,612
 
   
$
691,625
 
   
$
686,280
 
Operating Expenses:
                                    
Cost of sales
   
 
154,244
 
   
 
139,483
 
   
 
442,509
 
   
 
429,492
 
Selling, research & development and administrative
   
 
37,414
 
   
 
35,897
 
   
 
110,470
 
   
 
109,775
 
Depreciation and amortization
   
 
19,048
 
   
 
18,650
 
   
 
53,201
 
   
 
55,253
 
Patent dispute settlement
   
 
—  
 
   
 
—  
 
   
 
4,168
 
   
 
—  
 
Strategic Initiative charges
   
 
29
 
   
 
234
 
   
 
1,004
 
   
 
7,509
 
    
  
  
  
    
 
210,735
 
   
 
194,264
 
   
 
611,352
 
   
 
602,029
 
    
  
  
  
Operating Income
   
 
29,029
 
   
 
27,348
 
   
 
80,273
 
   
 
84,251
 
    
  
  
  
Other Income (Expense):
                                    
Interest expense
   
 
(2,783
)
   
 
(3,505
)
   
 
(8,360
)
   
 
(12,404
)
Interest income
   
 
481
 
   
 
335
 
   
 
1,169
 
   
 
1,376
 
Equity in results of affiliates
   
 
124
 
   
 
(58
)
   
 
(63
)
   
 
(168
)
Minority interests
   
 
30
 
   
 
(199
)
   
 
49
 
   
 
(595
)
Miscellaneous, net
   
 
(189
)
   
 
(398
)
   
 
(551
)
   
 
419
 
    
  
  
  
    
 
(2,337
)
   
 
(3,825
)
   
 
(7,756
)
   
 
(11,372
)
    
  
  
  
Income Before Income Taxes
   
 
26,692
 
   
 
23,523
 
   
 
72,517
 
   
 
72,879
 
Provision for Income Taxes
   
 
8,914
 
   
 
7,789
 
   
 
23,925
 
   
 
23,781
 
    
  
  
  
Net Income Before Cumulative Effect of a Change in Accounting Principle for Derivative Instruments and Hedging Activities
   
 
17,778
 
   
 
15,734
 
   
 
48,592
 
   
 
49,098
 
Cumulative Effect of a Change in Accounting Principle
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
(64
)
    
  
  
  
Net Income
   
$
17,778
 
   
$
15,734
 
   
$
48,592
 
   
$
49,034
 
    
  
  
  
Net Income Per Common Share Before Cumulative Effect of Accounting Change:
                                    
Basic
   
$
.49
 
   
$
.44
 
   
$
1.35
 
   
$
1.37
 
    
  
  
  
Diluted
   
$
.49
 
   
$
.43
 
   
$
1.32
 
   
$
1.35
 
    
  
  
  
Net Income Per Common Share After Cumulative Effect of Accounting Change:
                                    
Basic
   
$
.49
 
   
$
.44
 
   
$
1.35
 
   
$
1.37
 
    
  
  
  
Diluted
   
$
.49
 
   
$
.43
 
   
$
1.32
 
   
$
1.34
 
    
  
  
  
Average Number of Shares Outstanding:
                                    
Basic
   
 
35,952
 
   
 
35,879
 
   
 
35,919
 
   
 
35,787
 
Diluted
   
 
36,531
 
   
 
36,661
 
   
 
36,699
 
   
 
36,499
 
 
See accompanying notes to consolidated financial statements.

3

Table of Contents
 
AptarGroup, Inc.
 
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
 
    
September 30, 2002
     
December 31, 2001
  
Assets
                  
Current Assets:
                  
Cash and equivalents
   
$
76,094
 
   
$
48,013
 
Accounts and notes receivable, less allowance for doubtful accounts of $7,581 in 2002 and $7,366 in 2001
   
 
207,262
 
   
 
185,131
 
Inventories
   
 
123,236
 
   
 
120,531
 
Prepayments and other
   
 
28,504
 
   
 
21,240
 
    
  
    
 
435,096
 
   
 
374,915
 
    
  
Property, Plant and Equipment:
                  
Buildings and improvements
   
 
137,625
 
   
 
127,017
 
Machinery and equipment
   
 
782,706
 
   
 
690,882
 
    
  
    
 
920,331
 
   
 
817,899
 
Less: Accumulated depreciation
   
 
(513,574
)
   
 
(441,829
)
    
  
    
 
406,757
 
   
 
376,070
 
Land
   
 
5,439
 
   
 
5,032
 
    
  
    
 
412,196
 
   
 
381,102
 
    
  
Other Assets:
                  
Investments in affiliates
   
 
10,269
 
   
 
9,894
 
Goodwill
   
 
126,706
 
   
 
122,569
 
Intangible assets, less accumulated amortization of $6,136 in 2002 and $4,790 in 2001
   
 
14,802
 
   
 
13,450
 
Miscellaneous
   
 
19,442
 
   
 
13,397
 
    
  
    
 
171,219
 
   
 
159,310
 
    
  
Total Assets
   
$
1,018,511
 
   
$
915,327
 
    
  
 
See accompanying notes to consolidated financial statements.

4

Table of Contents
AptarGroup, Inc.
 
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
 
    
September 30,
2002
     
December 31,
2001
  
Liabilities and Stockholders’ Equity
                  
Current Liabilities:
                  
Current maturities of long-term obligations
   
$
1,037
 
   
$
13,168
 
Accounts payable and accrued liabilities
   
 
172,437
 
   
 
140,983
 
    
  
    
 
173,474
 
   
 
154,151
 
    
  
Long-Term Obligations
   
 
240,406
 
   
 
239,387
 
    
  
Deferred Liabilities and Other:
                  
Deferred income taxes
   
 
29,178
 
   
 
28,026
 
Retirement and deferred compensation plans
   
 
18,843
 
   
 
17,418
 
Minority interests
   
 
5,779
 
   
 
5,099
 
Deferred and other non-current liabilities
   
 
2,249
 
   
 
2,042
 
    
  
    
 
56,049
 
   
 
52,585
 
    
  
Stockholders’ Equity:
                  
Common stock, $.01 par value
   
 
372
 
   
 
370
 
Capital in excess of par value
   
 
126,009
 
   
 
122,926
 
Retained earnings
   
 
532,360
 
   
 
490,229
 
Accumulated other comprehensive loss
   
 
(76,451
)
   
 
(114,402
)
Less treasury stock at cost, 1,285 shares in 2002 and 1,155 shares in 2001
   
 
(33,708
)
   
 
(29,919
)
    
  
    
 
548,582
 
   
 
469,204
 
    
  
Total Liabilities and Stockholders’ Equity
   
$
1,018,511
 
   
$
915,327
 
    
  
 
 
See accompanying notes to consolidated financial statements.

5

Table of Contents
AptarGroup, Inc.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, brackets denote cash outflows)
(Unaudited)
 
    
Nine Months Ended September 30,
  
    
2002
     
2001
  
Cash Flows From Operating Activities:
                  
Net income
   
$
48,592
 
   
$
49,034
 
Adjustments to reconcile net income to net cash provided by operations:
                  
Depreciation
   
 
52,343
 
   
 
51,697
 
Amortization
   
 
858
 
   
 
3,555
 
Provision for bad debts
   
 
1,219
 
   
 
1,297
 
Strategic initiative charges
   
 
1,004
 
   
 
7,509
 
Minority interests
   
 
(49
)
   
 
595
 
Cumulative effect of accounting change
            
 
64
 
Deferred income taxes
   
 
772
 
   
 
(2,936
)
Retirement and deferred compensation plans
   
 
(618
)
   
 
691
 
Equity in results of affiliates in excess of cash distributions received
   
 
63
 
   
 
168
 
Changes in balance sheet items, excluding effects from foreign currency adjustments:
                  
Accounts receivable
   
 
(9,566
)
   
 
(4,740
)
Inventories
   
 
2,402
 
   
 
(10,893
)
Prepaid and other current assets
   
 
(5,257
)
   
 
(1,918
)
Accounts payable and accrued liabilities
   
 
17,813
 
   
 
(8,923
)
Changes in income taxes payable
   
 
1,125
 
   
 
202
 
Other changes, net
   
 
715
 
   
 
2,001
 
    
  
Net cash provided by operations
   
 
111,416
 
   
 
87,403
 
    
  
Cash Flows From Investing Activities:
                  
Capital expenditures
   
 
(63,247
)
   
 
(65,895
)
Disposition of property and equipment
   
 
2,119
 
   
 
1,820
 
Intangible assets
   
 
(1,190
)
   
 
(161
)
Investments in affiliates
   
 
—  
 
   
 
(69
)
(Issuance)/Collection of notes receivable, net
   
 
(927
)
   
 
457
 
    
  
Net cash used by investing activities
   
 
(63,245
)
   
 
(63,848
)
    
  
Cash Flows From Financing Activities:
                  
Decrease in notes payable
   
 
(2,158
)
   
 
(22,479
)
Proceeds from long-term obligations
   
 
375
 
   
 
6,719
 
Repayments of long-term obligations
   
 
(16,397
)
   
 
(11,666
)
Dividends paid
   
 
(6,462
)
   
 
(5,722
)
Proceeds from stock options exercised
   
 
3,085
 
   
 
5,820
 
Purchase of Treasury Stock
   
 
(3,789
)
   
 
(4,964
)
    
  
Net cash used by financing activities
   
 
(25,346
)
   
 
(32,292
)
    
  
Effect of Exchange Rate Changes on Cash
   
 
5,256
 
   
 
(2,016
)
    
  
Net Increase (Decrease) in Cash and Equivalents
   
 
28,081
 
   
 
(10,753
)
Cash and Equivalents at Beginning of Period
   
 
48,013
 
   
 
55,559
 
    
  
Cash and Equivalents at End of Period
   
$
76,094
 
   
$
44,806
 
    
  
 
See accompanying notes to consolidated financial statements.

6

Table of Contents
AptarGroup, Inc.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In thousands, except per share amounts, or otherwise indicated)
(Unaudited)
 
Note 1—Basis of Presentation
 
The accompanying unaudited consolidated financial statements include the accounts of AptarGroup, Inc. and its subsidiaries. The terms “AptarGroup” or “Company” as used herein refer to AptarGroup, Inc. and its subsidiaries.
 
In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of consolidated financial position, results of operations, and cash flows for the interim periods presented. The accompanying unaudited consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. Accordingly, these unaudited consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report to Shareholders incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.
 
Note 2—Inventories
 
At September 30, 2002 and December 31, 2001, approximately 23% of the total inventories are accounted for by using the last-in, first-out (LIFO) method, while the remaining inventories are valued using the first-in, first-out (FIFO) method. Inventories, by component, consisted of:
 
    
September 30,
     
December 31,
  
    
2002
     
2001
  
Raw materials
   
$
49,681
 
   
$
45,370
 
Work in progress
   
 
26,811
 
   
 
24,599
 
Finished goods
   
 
48,078
 
   
 
51,446
 
    
  
    
 
124,570
 
   
 
121,415
 
Less LIFO Reserve
   
 
(1,334
)
   
 
(884
)
    
  
Total
   
$
123,236
 
   
$
120,531
 
    
  
 
Inventories are stated at cost, which is lower than market. Costs included in inventories are raw materials, direct labor and manufacturing overhead.

7

Table of Contents
 
Note 3—Comprehensive Income
 
AptarGroup’s total comprehensive income was as follows:
 
    
Three months ended September 30
   
Nine months ended September 30
  
    
2002
     
2001
   
2002
   
2001
  
Net income
   
$
17,778
 
   
$
15,734
   
$
48,592
   
$
49,034
 
Add/(Subtract): change in foreign currency translation adjustment
   
 
(3,690
)
   
 
24,261
   
 
37,951
   
 
(14,195
)
    
  
  
  
Total comprehensive income
   
$
14,088
 
   
$
39,995
   
$
86,543
   
$
34,839
 
    
  
  
  
 
Note 4—Stock Repurchase Program
 
The Board of Directors authorized the repurchase of a maximum of three million shares of the Company’s outstanding common stock. The timing of and total amount expended for the share repurchase depends upon market conditions. During the quarter ended September 30, 2002, the Company repurchased 55 thousand shares for an aggregate amount of $1.5 million. For the nine months ended September 30, 2002, the Company repurchased 130 thousand shares for an aggregate amount of $3.8 million. The cumulative total number of shares repurchased at September 30, 2002 was 1.3 million shares for an aggregate amount of $33.7 million.
 
Note 5—Derivative Instruments and Hedging Activities
 
Effective January 1, 2001, the Company adopted Statement of Financial Account Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and its related amendment SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” These standards require that all derivative financial instruments be recorded in the consolidated balance sheets at fair value as either assets or liabilities. Changes in the fair value of derivatives will be recorded in each period in earnings or accumulated other comprehensive income, depending on whether a derivative is designated and effective as part of a hedge transaction.
 
In accordance with the transition provisions of SFAS 133, the Company recorded the following cumulative effect adjustment in earnings as of January 1, 2001:
 
 
          
Related to designated fair value hedging relationships
         
Fair value of interest rate swaps
   
$
1,868
 
Offsetting changes in fair value of debt
   
 
(1,868
)
Related to foreign currency forward exchange contracts
         
Fair value of foreign currency forward exchange contracts
   
 
(965
)
Previously deferred gains and losses
   
 
1,027
 
Related to cross currency swap
         
Fair value of cross currency swap
   
 
1,436
 
Previously deferred gains and losses
   
 
(1,576
)
Tax effect on above items
   
 
14
 
    
Total cumulative effect of adoption on earnings, net of tax
   
$
(64
)
    

8

Table of Contents
 
The Company maintains a foreign exchange risk management policy designed to establish a framework to protect the value of the Company’s non-functional currency denominated transactions from adverse changes in exchange rates. Sales of the Company’s products can be denominated in a currency different from the currency in which the related costs to produce the product are denominated. Changes in exchange rates on such inter-country sales impact the Company’s results of operations. The Company’s policy is not to engage in speculative foreign currency hedging activities, but to minimize its net foreign currency transaction exposure defined as firm commitments and transactions recorded and denominated in currencies other than the functional currency. The Company may use foreign currency forward exchange contracts, currency swaps, options and cross currency swaps to hedge these risks.
 
The Company maintains an interest rate risk management strategy to minimize significant, unanticipated earnings fluctuations that may arise from volatility in interest rates.
 
For derivative instruments designated as hedges, the Company formally documents the nature and relationships between the hedging instruments and the hedged items, as well as the risk management objectives, strategies for undertaking the various hedge transactions, and the method of assessing hedge effectiveness. Additionally, in order to designate any derivative instrument as hedges of an anticipated transaction, the significant characteristics and expected terms of any anticipated transaction must be specifically identified, and it must be probable that the anticipated transaction will occur.
 
Fair Value Hedges
 
The Company uses interest rate swaps to convert a portion of its fixed-rate debt into variable-rate debt. Under the interest rate swap contracts, the Company exchanges at specified intervals, the difference between fixed-rate and floating-rate amounts, which is calculated based on an agreed upon notional amount.
 
As of September 30, 2002, the Company has recorded the fair value of derivative instrument assets of $9.6 million in miscellaneous other assets with an offsetting adjustment to debt related to fixed-to-variable interest rate swap agreements with a notional principal value of $50 million. No gain or loss was recorded in the income statement for the quarters ended September 30, 2002 or September 30, 2001 since there was no hedge ineffectiveness.
 
Cash Flow Hedges
 
The Company did not use any cash flow hedges in the quarters or nine months ended September 30, 2002 or September 30, 2001.
 
Hedge of Net Investments in Foreign Operations
 
A significant number of the Company’s 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 the Company’s foreign entities. A weakening U.S. dollar relative to foreign currencies has an additive translation effect on the Company’s financial condition and results of operations. Conversely, a strengthening U.S. dollar has a dilutive effect. The Company in some cases maintains debt in these subsidiaries to offset the net asset exposure. The Company does not otherwise actively manage this risk using derivative financial instruments. In the event the Company plans on a full or partial liquidation of any of its foreign subsidiaries where the Company’s net investment is likely to be monetized, the Company will consider hedging the currency exposure associated with such a transaction.

9

Table of Contents
 
Other
 
As of September 30, 2002, the Company has recorded the fair value of foreign currency forward exchange contracts of $42 thousand in accounts payable and accrued liabilities and $262 thousand in prepayments and other in the balance sheet. All forward exchange contracts outstanding as of September 30, 2002 had an aggregate contract amount of $24.7 million.
 
Note 6—Contingencies
 
The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature. 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.
 
On May 13, 2002, the Company announced an agreement settling an outstanding patent dispute to avoid the time and expense of a trial scheduled to begin in late 2002. As part of the settlement, the parties have entered into a cross-license agreement. As a result of the settlement, the Company recorded a pre-tax charge of $4.2 million ($2.7 million after-tax) in the quarter ended March 31, 2002.
 
Note 7—Segment Information
 
The Company operates in the packaging components industry, which includes the development, manufacture and sale of consumer product dispensing systems. The Company is organized primarily based upon individual business units, which resulted from historic acquisitions or internally created business units. All of the business units sell primarily dispensing systems. These business units all require similar production processes, sell to similar classes of customers and markets, use the same methods to distribute products and operate in similar regulatory environments. Based on the current economic characteristics of the Company’s business units, the Company has identified two reportable segments: Dispensing Systems and SeaquistPerfect.
 
The Dispensing Systems segment is an aggregate of four of the Company’s five business units. The Dispensing Systems segment sells primarily spray and lotion pumps, plastic dispensing and non-dispensing closures, and metered dose aerosol valves. These three products are sold to all of the markets served by the Company including the fragrance/cosmetic, pharmaceutical, personal care, household, and food/beverage markets.
 
SeaquistPerfect represents the Company’s fifth business unit and sells primarily aerosol valves and accessories and certain spray and lotion pumps. These products are sold primarily to the personal care, household, and food/beverage markets.
 
The accounting policies of the segments are the same as those described in Note 1, Summary of Significant Accounting Policies in the Company’s Annual Report to Shareholders for the year ended December 31, 2001. The Company evaluates performance of its business units and allocates resources based upon earnings before interest expense in excess of interest income, corporate expenses and income taxes (collectively referred to as “EBIT”) excluding non recurring items. The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties.

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Table of Contents
 
Financial information regarding the Company’s reportable segments is shown below:
 
Three months ended
September 30,
   
Dispensing Systems
     
SeaquistPerfect
   
Corporate and Other
     
Totals
Total Revenue
                                
2002
   
$
197,450
     
$
44,431
            
$
241,881
2001
   
 
186,495
     
 
37,768
            
 
224,263
Less: Intersegment Sales
                                
2002
   
$
402
     
$
1,715
            
$
2,117
2001
   
 
368
     
 
2,283
            
 
2,651
Net Sales
                                
2002
   
$
197,048
     
$
42,716
            
$
239,764
2001
   
 
186,127
     
 
35,485
            
 
221,612
EBIT
                                
2002
   
$
29,607
     
$
3,037
   
$
(3,614
)
   
$
29,030
2001
   
 
30,028
     
 
1,504
   
 
(3,808
)
   
 
27,724
 
Nine months ended
September 30,
   
Dispensing Systems
   
SeaquistPerfect
   
Corporate and Other
     
Totals
Total Revenue
                              
2002
   
$
570,418
   
$
129,051
            
$
699,469
2001
   
 
575,491
   
 
118,063
            
 
693,554
Less: Intersegment Sales
                              
2002
   
$
1,920
   
$
5,924
            
$
7,844
2001
   
 
842
   
 
6,432
            
 
7,274
Net Sales
                              
2002
   
$
568,498
   
$
123,127
            
$
691,625
2001
   
 
574,649
   
 
111,631
            
 
686,280
EBIT
                              
2002
   
$
85,977
   
$
9,242
   
$
(9,904
)
   
$
85,315
2001
   
 
96,283
   
 
5,785
   
 
(9,391
)
   
 
92,677
 
Goodwill amortization of $876, $31 and $3 was included in EBIT for the three months ended September 30, 2001 for Dispensing Systems, SeaquistPerfect, and Corporate and Other, respectively. Goodwill amortization of $2,631, $81 and $9 was included in EBIT for the nine months ended September 30, 2001 for Dispensing Systems, SeaquistPerfect, and Corporate and Other, respectively.

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Reconciliation of segment EBIT to consolidated income before income taxes is as follows:
 
    
Three months ended
     
Nine months ended
  
    
9/30/02
     
9/30/01
     
9/30/02
     
9/30/01
  
Income before income taxes
                                    
Total EBIT for reportable segments
   
$
29,030
 
   
$
27,724
 
   
$
85,315
 
   
$
92,677
 
Strategic Initiative charges ¹
   
 
(36
)
   
 
(1,031
)
   
 
(1,439
)
   
 
(8,770
)
Patent dispute settlement ¹
   
 
—  
 
   
 
—  
 
   
 
(4,168
)
   
 
—  
 
Interest expense, net
   
 
(2,302
)
   
 
(3,170
)
   
 
(7,191
)
   
 
(11,028
)
    
  
  
  
Income before income taxes
   
$
26,692
 
   
$
23,523
 
   
$
72,517
 
   
$
72,879
 
    
  
  
  
¹
 
Strategic Initiative related charges and the patent dispute settlement are associated with the Dispensing Systems segment. Management evaluates the segment profitability excluding these costs and therefore these costs are shown as reconciling items to the consolidated totals.
 
Note 8—Earnings Per Share
 
AptarGroup’s authorized common stock consisted of 99 million shares, having a par value of $0.01 each. Information related to the calculation of earnings per share is as follows:
 
    
Three months ended
    
September 30, 2002
   
September 30, 2001
    
Diluted
   
Basic
   
Diluted
   
Basic
Consolidated operations
                            
Income available to common shareholders
   
$
17,778
   
$
17,778
   
$
15,734
   
$
15,734
    
  
  
  
Average equivalent shares
                            
Shares of common stock
   
 
35,952
   
 
35,952
   
 
35,879
   
 
35,879
Effect of dilutive stock options
   
 
579
   
 
—  
   
 
782
   
 
—  
    
  
  
  
Total average equivalent shares
   
 
36,531
   
 
35,952
   
 
36,661
   
 
35,879
    
  
  
  
Net income per share
   
$
0.49
   
$
0.49
   
$
0.43
   
$
0.44
    
  
  
  

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Nine months ended
    
September 30, 2002
   
September 30, 2001
    
Diluted
   
Basic
   
Diluted
   
Basic
Consolidated operations
                            
Income available to common shareholders before cumulative effect of a change in accounting principle
   
$
48,592
   
$
48,592
   
$
49,098
   
$
49,098
    
  
  
  
Income available to common shareholders after cumulative effect of a change in accounting principle
   
$
48,592
   
$
48,592
   
$
49,034
   
$
49,034
    
  
  
  
Average equivalent shares
                            
Shares of common stock
   
 
35,919
   
 
35,919
   
 
35,787
   
 
35,787
Effect of dilutive stock options
   
 
780
   
 
—  
   
 
712
   
 
—  
    
  
  
  
Total average equivalent shares
   
 
36,699
   
 
35,919
   
 
36,499
   
 
35,787
    
  
  
  
Net income per share before cumulative change in accounting principle
   
$
1.32
   
$
1.35
   
$
1.35
   
$
1.37
    
  
  
  
Net income per share after cumulative change in accounting principle
   
$
1.32
   
$
1.35
   
$
1.34
   
$
1.37
    
  
  
  
 
Note 9—Strategic Initiative
 
In April 2001, the Company announced it had begun a project (“Strategic Initiative”) to improve the efficiency of operations that produce pumps for its mass-market fragrance/cosmetic and personal care customers. In addition to improving efficiency and reducing costs, another objective of the Strategic Initiative is to improve customer service through reduced lead times and the ability to customize finished products on a local basis. As part of the Strategic Initiative, the Company closed one molding operation in the U.S. and is in the process of consolidating the molding and assembly of the base cartridge (standard internal components common to modular pumps) into one of the Company’s facilities in Italy. The Company has also decided to close several of its sales offices in certain foreign countries. In addition, the Company is rationalizing its mass-market pump product lines for these two markets by discontinuing production of non-modular pumps and increasing capacity for its modular pumps.
 
Charges related to the Strategic Initiative are expected to be approximately $11.1 million before taxes and will consist primarily of costs related to the closing of the molding operation, sales offices and discontinuance of its non-modular pumps (including asset impairment write-downs, accelerated depreciation associated with revised useful lives and utility abatement reimbursements) as well as employee severance and related benefit costs. Since the beginning of the project in 2001 through September 30, 2002, approximately $11.0 million of the estimated $11.1 million of charges on a pre-tax

13

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basis has been recorded. Approximately $2.0 million was included in the Company’s depreciation and amortization expense, $.5 million was included in the Company’s cost of sales and $8.5 million was shown on a separate line of the income statement. Of the total expected charges of $11.1 million, approximately $3.6 million of the charges are expected to be cash outlays while the remaining $7.5 million represent non-cash charges (asset impairment write-downs and accelerated depreciation associated with revised useful lives). Detail of the pre-tax charges and changes in the reserves for the nine months ended September 30, 2002 (in thousands) is shown in the following table:
 
    
Beginning Reserve at 1/1/02
   
Charges for the nine months ended 09/30/02
     
Cash Paid
     
Charged Against Assets
     
Ending Reserve at 09/30/02
Employee severance
   
$
469
   
$
1,149
 
   
$
(874
)
   
$
—  
 
   
$
744
Other costs
   
 
1,056
   
 
(145
)
   
 
(550
)
   
 
—  
 
   
 
361
    
  
  
  
  
Subtotal
   
 
1,525
   
 
1,004
 
   
 
(1,424
)
   
 
—  
 
   
 
1,105
Accelerated depreciation
   
 
—  
   
 
140
 
   
 
—  
 
   
 
(140
)
   
 
—  
Training Costs
   
 
—  
   
 
295
 
   
 
(295
)
   
 
—  
 
   
 
—  
    
  
  
  
  
Total Strategic Initiative related costs
   
$
1,525
   
$
1,439
 
   
$
(1,719
)
   
$
(140
)
   
$
1,105
    
  
  
  
  
 
Charges for asset impairment write-downs recorded in 2001 were impairment charges recorded for fixed assets held and used in the manufacture of non-modular pumps. These non-modular pumps continue to be sold during the Strategic Initiative project, but will be discontinued once adequate capacity to produce modular pumps has been established. The undiscounted expected future cash flows for products using these non-modular pumps during this phase out period were less than the carrying value of the specific identifiable assets used to generate these cash flows and thus an impairment charge was recognized in accordance with SFAS No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” An impairment charge of $5.5 million in the second quarter of 2001 was calculated by subtracting the fair market value of the assets held and used in the manufacture of non-modular pumps (determined by discounting the expected future cash flows for products using these non-modular pumps) from the carrying value of these assets.
 
As part of the Strategic Initiative, certain long-lived assets have been taken out of service prior to the end of their normal service period due to the plant shut down and rationalization of the product lines. Accordingly, the Company changed the estimated useful lives of such assets, resulting in an acceleration of depreciation (“Accelerated Depreciation”), of which $1.9 million was recognized in 2001 and $.1 million was recorded in the nine months ended September 30, 2002. There will be no additional charges associated with Accelerated Depreciation in future periods.
 
The Strategic Initiative will result in personnel reductions in the U.S. of approximately 170 people or approximately 10% of all the Company’s U.S. employees and approximately 30 people outside of the U.S. The majority of these personnel reductions will be manufacturing related with a small reduction in administrative staff. Involuntary employee severance costs are based upon a formula including salary levels and years of service. Approximately $.8 million has been accrued and was included in the Strategic Initiative charges shown in the income statement in 2001 and an additional $1.1 million was accrued and included in the Strategic Initiative charges in 2002 due to additional personnel reductions.

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Offsetting these personnel reductions will be an increase in personnel of approximately 70 people in Italy to support the centralization of the base cartridge production and assembly. As of September 30, 2002, approximately 150 people have been terminated resulting in a cash payment of $.9 million through September 30, 2002.
 
In addition to the involuntary severance costs described above, a retention or stay bonus will be paid to employees who remain with the Company during the phase-out period. This stay bonus, which is estimated to be approximately $.6 million, is also based upon salary levels and years of service. The stay bonus is being accrued over the future periods in which the employees earn the benefits.
 
Approximately $.5 million of the stay bonus was accrued in 2001 and an additional $.1 million was accrued in the nine months ended September 30, 2002, of which approximately $.2 million was paid in 2001 and $.2 million was paid in 2002. In addition, as a result of closing down the molding operation, the Company will be required to refund an abatement of approximately $.3 million to a utility provider of which $.1 million was paid in 2002. The remainder is expected to be paid in 2003. The Company also spent approximately $.2 million to refurbish the leased molding facility that was vacated in the first quarter 2002. These are included in other costs in the preceding table. The amount recorded through nine months of 2002 for other costs is negative due to the reversal of approximately $.2 million of accruals no longer needed.
 
Approximately $.2 million and $.3 million of training costs were incurred in Italy in 2001 and 2002, respectively, to train the new workers who were hired to support the centralization of the base cartridge production and assembly. These training costs are included in cost of sales in the income statement.
 
Note 10—Goodwill and Other Intangible Assets—Adoption of Statement 142
 
The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002. Pursuant to this standard, the Company has completed an assessment of the categorization of its existing intangible assets and goodwill. In addition, the Company completed an analysis of the fair value of its reporting units using both a discounted cash flow analysis and market multiple approach and has determined that the fair value of its reporting units exceeds the carrying values and therefore, no impairment of goodwill needs to be recorded. Also pursuant to the standard, the Company has ceased recording of goodwill amortization in 2002. The table below shows income before income taxes, net income and earnings per share amounts for the quarters and nine months ended September 30, 2002 and September 30, 2001, adjusted to add back goodwill amortization and related tax effects for 2001.

15

Table of Contents
 
    
Three months ended September 30,
   
Nine months ended September 30,
    
2002
   
2001
   
2002
   
2001
Reported income before income taxes
   
$
26,692
   
$
23,523
   
$
72,517
   
$
72,879
Add back: Goodwill amortization
   
 
—  
   
 
910
   
 
—  
   
 
2,721
    
  
  
  
Adjusted income before income taxes
   
$
26,692
   
$
24,433
   
$
72,517
   
$
75,600
    
  
  
  
Reported net income
   
$
17,778
   
$
15,734
   
$
48,592
   
$
49,034
Add back: After tax impact of goodwill amortization
   
 
—  
   
 
866
   
 
—  
   
 
2,590
    
  
  
  
Adjusted net income
   
$
17,778
   
$
16,600
   
$
48,592
   
$
51,624
    
  
  
  
Basic earnings per share:
                            
Reported net income
   
$
.49
   
$
.44
   
$
1.35
   
$
1.37
Goodwill amortization
   
 
—  
   
 
.02
   
 
—  
   
 
.07
    
  
  
  
Adjusted net income
   
$
.49
   
$
.46
   
$
1.35
   
$
1.44
    
  
  
  
Diluted earnings per share:
                            
Reported net income
   
$
.49
   
$
.43
   
$
1.32
   
$
1.34
Goodwill amortization
   
 
—  
   
 
.02
   
 
—  
   
 
.07
    
  
  
  
Adjusted net income
   
$
.49
   
$
.45
   
$
1.32
   
$
1.41
    
  
  
  
 
The Company does not have any intangible assets with indefinite lives. The table below shows a summary of intangible assets as of September 30, 2002 and December 31, 2001.
 
    
September 30, 2002
   
December 31, 2001
    
Gross Carrying Amount
   
Accumulated Amortization
     
Net Value
   
Gross Carrying Amount
   
Accumulated Amortization
     
Net Value
Patents
   
$
13,725
   
$
(3,295
)
   
$
10,430
   
$
12,549
   
$
(2,430
)
   
$
10,119
License agreements, organization costs, trademarks and other
   
 
7,213
   
 
(2,841
)
   
 
4,372
   
 
5,691
   
 
(2,360
)
   
 
3,331
    
  
  
  
  
  
Total intangible assets
   
$
20,938
   
$
(6,136
)
   
$
14,802
   
$
18,240
   
$
(4,790
)
   
$
13,450
    
  
  
  
  
  
 
The Company acquired a license to manufacture and sell a certain type of fixation system for pumps in the second quarter of 2002 for approximately $1 million. The license agreement will be amortized on a straight line basis over 3 years.
 
Aggregate amortization expense for the quarters ended September 30, 2002 and 2001 was $345 and $326, respectively. Aggregate amortization expense for the nine months ended September 30, 2002 and 2001 was $858 and $834, respectively. Amortization expense is estimated to be approximately $1 million per year for each of the next five years.
 
The changes in the carrying amount of goodwill since the year ended December 31, 2001, are as follows by reporting segment:

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Table of Contents
 
    
Dispensing Systems Segment
     
SeaquistPerfect
Segment
   
Total
Balance as of January 1, 2001
   
$
120,709
     
$
1,860
   
$
122,569
Foreign currency exchange effects
   
 
4,137
     
 
—  
   
 
4,137
    
    
  
Balance as of September 30, 2002
   
$
124,846
     
$
1,860
   
$
126,706
    
    
  

17

Table of Contents
 
ITEM  2.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Results of Operations
 
Net sales for the quarter and nine months ended September 30, 2002 totaled $239.8 million and $691.6 million, respectively, for an increase of approximately 8% and 1%, respectively, when compared to the corresponding periods of 2001. The U.S. dollar weakened against the Euro in the third quarter relative to the same period a year ago and thus had a positive impact on the translation of the Company’s European subsidiaries into U.S. dollars in the third quarter. Based on a year to date average, the U.S. dollar remained slightly weaker through the first nine months compared to the first nine months of the prior year. Net sales, excluding changes in foreign currency exchange rates (“Core Sales”), increased approximately 4% and decreased approximately 1% for the quarter and nine-month periods ended September 30, 2002, respectively, compared to the 8% and 1% increase reported. Core Sales of the Company’s products increased to all markets served in the third quarter ended September 30, 2002, compared with the same period a year ago with the exception of Core Sales of pumps to the fragrance/cosmetic market, which decreased. Core Sales of the Company’s products to the personal care and food markets were particularly strong in the quarter. Core Sales of the Company’s products for the first nine months of 2002 compared to the same period in the prior year increased to all markets served except the fragrance/cosmetic market.
 
The following table sets forth (in thousands of dollars), for the periods indicated, net sales by geographic region.
 
    
Three months ended
     
Nine months ended
  
    
9/30/02
   
% of Total
     
9/30/01
   
% of Total
     
9/30/02
   
% of Total
     
9/30/01
   
% of Total
  
Domestic
   
$
85,005
   
36
%
   
$
82,919
   
38
%
   
$
258,325
   
37
%
   
$
258,652
   
38
%
Europe
   
 
135,102
   
56
%
   
 
118,345
   
53
%
   
 
376,750
   
55
%
   
 
369,259
   
54
%
Other
                                                        
Foreign
   
 
19,657
   
8
%
   
 
20,348
   
9
%
   
 
56,550
   
8
%
   
 
58,369
   
8
%
 
Cost of sales as a percent of net sales increased to 64.3% in the third quarter of 2002 compared to 62.9% in the third quarter of 2001. For the first nine months, cost of sales as a percent of net sales also increased to 64.0% compared to 62.6% in the prior year. The cost of sales for the quarter and nine months ended September 30, 2002, was negatively impacted by the following factors:
 
 
•
 
An increase in the LIFO inventory reserve due to rising material prices since 12/31/01.
 
 
•
 
The effect of manufacturing products in Europe and incurring costs in Euros and then selling these products in the U.S. while the Euro strengthened against the U.S. dollar relative to the prior year.
 
 
•
 
Underutilized fixed costs worldwide, particularly due to the decrease in sales of pumps to the fragrance/cosmetic market.
 
 
•
 
Continued price pressure, particularly in the closures business and the low end fragrance/cosmetic market.
 
 
•
 
Rising cost of insurance.
 
 
•
 
A flood at the Company’s facility in the Czech Republic causing delays in production and clean up expenses

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Partially offsetting these negative factors were the following positive impacts:
 
 
•
 
Increased sales of the Company’s products to the pharmaceutical, personal care, food/beverage and household markets.
 
 
•
 
Cost reduction programs implemented both in the U.S. and Europe.
 
Selling, research & development and administrative expenses (SG&A) increased 4.2% or $1.5 million to $37.4 million in the third quarter of 2002 compared to $35.9 million in the same period a year ago. The increase in SG&A in the quarter is due primarily to changes in exchange rates partially offset by cost containment efforts in all the business units. SG&A as a percent of net sales decreased to 15.6% from 16.2%.
 
SG&A for the nine months ended September 30, 2002, increased .6% or $.7 million to $110.5 million compared to $109.8 million a year ago. The increase in SG&A is primarily due to changes in exchange rates partially offset by cost containment efforts in all the business units. As a percent of net sales, SG&A for the first nine months of 2002 was approximately the same as the prior year at 16.0%.
 
Depreciation and amortization for the third quarter ended September 30, 2002, increased approximately $.4 million to $19.1 million compared to $18.7 million in the same quarter of the prior year. The prior year amount includes approximately $.9 million of goodwill amortization and approximately $.7 million of accelerated depreciation related to the Strategic Initiative. Excluding those two items, depreciation increased approximately $2.0 million primarily due to changes in exchange rates.
 
Depreciation and amortization for the nine months ended September 30, 2002, decreased approximately $2.1 million to $53.2 million compared to $55.3 million for the same period in the prior year. The prior year amount includes approximately $2.7 million of goodwill amortization and approximately $1.2 million of accelerated depreciation related to the Strategic Initiative while the current year includes approximately $.1 million of accelerated depreciation. Excluding those two items, depreciation and amortization increased approximately $1.7 million through the first nine months of 2002. The increase is due primarily to changes in exchange rates.
 
Strategic Initiative charges were not significant for the quarter ended September 30, 2002 compared to $1.0 million recorded for the same period a year ago. Strategic Initiative charges totaled $1.4 million for the nine months ended September 30, 2002, compared to $8.8 million for nine months ended September 30, 2001. The Strategic Initiative was announced in the second quarter of 2001 to improve the efficiency of operations that produce pumps for the mass-market fragrance/cosmetic and personal care customers. The total cost of the project is expected to be $11.1 million of which approximately $11.0 million was expensed through September 30, 2002.
 
In May 2002, the Company announced an agreement settling an outstanding patent dispute to avoid the time and expense of a trial that was scheduled to begin in late 2002. As part of the settlement, the parties have entered into a cross-license agreement. Patent dispute settlement charges of $4.2 million before taxes were included in the results for the first quarter ended March 31, 2002.

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Table of Contents
 
The following table details the calculation of operating income on a comparable basis by adjusting reported operating income for goodwill amortization recorded in the prior year and nonrecurring charges related to the Strategic Initiative and patent dispute settlement.
 
    
Three months ended
     
Nine months ended
  
    
9/30/02
   
9/30/01
   
Difference
     
9/30/02
   
9/30/01
   
Difference
  
Operating Income as reported
   
$
29,029
   
$
27,348
   
$
1,681
 
   
$
80,273
   
$
84,251
   
$
(3,978
)
Strategic Initiative Related Costs
   
 
36
   
 
1,031
   
 
(995
)
   
 
1,439
   
 
8,770
   
 
(7,331
)
Patent Dispute Settlement
   
 
—  
   
 
—  
   
 
—  
 
   
 
4,168
   
 
—  
   
 
4,168
 
Goodwill Amortization
   
 
—  
   
 
910
   
 
(910
)
   
 
—  
   
 
2,721
   
 
(2,721
)
    
  
  
  
  
  
Operating Income Excluding Non- recurring Charges
   
$
29,065
   
$
29,289
   
$
(224
)
   
$
85,880
   
$
95,742
   
$
(9,862
)
    
  
  
  
  
  
 
Operating income as reported for the three months ended September 30, 2002, increased $1.7 million compared to the same period a year ago primarily related to the nonrecurring charges and goodwill amortization recorded in the prior year. Excluding the nonrecurring charges and goodwill amortization, operating income on a comparable basis decreased approximately $224 thousand. The primary reason for the decrease in operating income on a comparable basis is due to the factors mentioned previously.
 
Operating income as reported for the nine months ended September 30, 2002, decreased approximately $4.0 million compared to the same period in the prior year. Excluding the nonrecurring charges and goodwill amortization, operating income on a comparable basis decreased approximately $9.9 million. The primary reason for the decrease in operating income on a comparable basis is due to the factors mentioned previously.
 
Net other expenses decreased in the third quarter to $2.3 million compared to $3.8 million in the third quarter of 2001. The decrease is primarily related to decreased net interest expense (interest expense in excess of interest income) of approximately $.9 million reflecting reduced interest rates and borrowings compared to the prior year.
 
Net other expenses for the nine months ended September 30, 2002 decreased to $7.8 million from $11.4 million for the same period in 2001. The decrease is primarily related to decreased net interest expense of $3.8 million.
 
The reported effective tax rate was 33.4% and 33.0% for the third quarter and nine months ended September 30, 2002, respectively, compared to 33.1% and 32.6% for the same periods a year ago. The slight increase in the effective tax rate is primarily attributed to the mix of where the Company’s income is earned offset by the elimination of non-deductible goodwill.
 
Net income as reported for the third quarter increased to $17.8 million compared to $15.7 million in the third quarter of 2001. Excluding the Strategic Initiative related costs in both years and goodwill amortization in the prior year, net income increased to $17.8 million or $.49 per diluted share compared to $17.2 million or $.47 per diluted share in the prior year.

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For the nine months ended September 30, 2002, reported net income decreased to $48.6 million compared to $49.0 million after cumulative effect of a change in accounting principle in the same period a year ago. Excluding the Strategic Initiative related costs in both years, goodwill amortization in the prior year and the patent lawsuit settlement in the current year, net income on a comparable basis decreased to $52.2 million or $1.42 per diluted share compared to $56.9 million after cumulative effect of a change in accounting principle or $1.56 per diluted share in the prior year.
 
Dispensing Systems Segment
 
The Dispensing Systems segment is an aggregate of four of the Company’s five business units. The Dispensing Systems segment sells primarily spray and lotion pumps, plastic dispensing and non-dispensing closures, and metered dose aerosol valves. These three products are sold to all the markets served by the Company including the fragrance/cosmetic, personal care, pharmaceutical, household and food/beverage markets.
 
Total revenue for the quarter ended September 30, 2002 increased 5.9% or $11.0 million to $197.5 compared to $186.5 million in 2001. Total revenue for the nine months ended September 30, 2002 decreased .9% or $5.1 million to $570.4 million compared to $575.5 million reported in 2001. Increased sales of the segment’s products to the personal care, food and pharmaceutical market were partially offset by a decrease in sales of the segment’s products to the fragrance/cosmetic market for the quarter ended September 30, 2002. For the nine months ended September 30, 2002, the decreased sales of the segment’s products to the fragrance/cosmetic market eliminated increases seen in sales of the segment’s products to the other markets.
 
Segment EBIT decreased 1.4% and 10.7% for the quarter and nine months ended September 30, 2002, respectively, to $29.6 million and $86.0 million compared to $30.0 million and $96.3 million reported for the same periods in the prior year. Excluding goodwill amortization from the prior year, EBIT decreased 4.2% and 13.1% for the three and nine months ended September 30, 2002, respectively. The decrease in EBIT from the prior year is primarily related to underutilized fixed costs due to the decrease in sales of pumps to the fragrance/cosmetic market, the negative impact on operating income from manufacturing products in Europe and incurring costs in Euros and then selling these products to countries outside of Europe in currencies that were stronger than the Euro relative to the same period in the prior year, as well as continued price pressure, particularly for dispensing closures and the low-end fragrance/cosmetic market.
 
SeaquistPerfect Segment
 
SeaquistPerfect represents the Company’s fifth business unit and sells primarily aerosol valves and accessories and certain spray and lotion pumps. These products are sold primarily to the personal care, household, and food/beverage markets.
 
Total revenue for the quarter ended September 30, 2002 increased 17.6% or $6.7 million to $44.4 compared $37.7 million reported in 2001. Total revenue for the nine months ended September 30, 2002 increased 9.3% or $11.0 million to $129.1 million compared to $118.1 million reported in 2001. Sales of metered dose aerosol valves used primarily in the household market and aerosol valve accessories were strong in the U.S. while sales of both standard aerosol valves and accessories, and spray pumps remained strong in Europe to both the personal care and household markets.
 
EBIT for the quarter and nine months ended September 30, 2002, doubled and increased 59.8% to $3.0 million and $9.2 million, respectively, from $1.5 million and $5.8 million for the corresponding periods in 2001. The increase in EBIT is primarily due to higher sales and cost savings programs

21

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implemented worldwide. Goodwill amortization in 2001 was not material for the SeaquistPerfect segment.
 
Foreign Currency
 
A significant number of the Company’s 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 AptarGroup’s foreign entities. The Company’s primary foreign exchange exposure is to the Euro, but the Company also has foreign exchange exposure to South American and Asian currencies as well as the British Pound. A weakening U.S. dollar relative to foreign currencies has an additive translation effect on the Company’s financial condition and results of operations. Conversely, a strengthening U.S. dollar has a dilutive effect.
 
Additionally, in some cases, the Company sells products denominated in a currency different from the currency in which the related costs are incurred. Changes in exchange rates on such inter-country sales impact the Company’s results of operations. The Company is a net importer into the U.S. of products produced in Europe and, as a result, during periods when the U.S. dollar weakens against the Euro, the transaction cost of purchasing products produced in Europe has a negative impact on the Company’s results of operations (offsetting the impact of any additive translation gains mentioned above). Conversely, a strengthening U.S. dollar has a positive transaction impact on the Company’s results of operations (offsetting the impact of any dilutive translation effects mentioned above).
 
Quarterly Trends
 
Customer plant shutdowns and holidays in December typically have negatively impacted AptarGroup’s results of operations for the fourth quarter. In the future, AptarGroup’s results of operations in a quarterly period could be impacted by factors such as changes in product mix, changes in material costs, changes in growth rates in the markets to which AptarGroup’s products are sold or changes in general economic conditions in any of the countries in which AptarGroup does business.
 
Liquidity and Capital Resources
 
Net cash provided by operations in the first nine months of 2002 increased to $111.4 million compared to $87.4 million in the same period a year ago. The increase is primarily attributed to improved working capital excluding cash in 2002 relative to the same period a year ago. During the first nine months of 2002, the Company utilized the majority of operating cash flows to finance capital expenditures, repurchase Company stock, pay down long-term debt, pay the patent dispute settlement and pay dividends to shareholders. Cash and equivalents increased to $76.1 million at September 30, 2002 compared to $48.0 million at December 31, 2001.
 
Net cash used by investing activities in the first nine months of 2002 decreased slightly to $63.2 million from $63.8 million in the prior year. Capital expenditures in the first nine months of 2002 decreased approximately $2.6 million over the same period last year. Cash outlays for capital expenditures for 2002 are estimated to be approximately $80 million. The Company estimates that approximately 35% of the capital expenditures in 2002 will be spent on maintenance of business.
 
Net cash used by financing activities decreased to $25.3 million in the first nine months of 2002 compared to $32.3 million in 2001. The decrease in net cash used by financing activities is primarily due to a reduction in debt repayments in 2002 compared to the prior year. The ratio of net debt to total net capitalization was 23.2% and 30.4% at September 30, 2002 and December 31, 2001, respectively. Net debt is defined as debt less cash and cash equivalents and total net capitalization is defined as stockholder’s equity plus net debt. The decrease in net debt to total net capitalization from

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year end is primarily due to a reduction in net debt from the prior year as well as net equity increasing due to the strengthening Euro against the U.S. dollar.
 
The Company has a $100 million, multi-year, multi-currency unsecured revolving credit agreement. Under this credit agreement, interest on borrowings is payable at a rate equal to LIBOR plus an amount based on the financial condition of the Company. At September 30, 2002, the amount unused and available under this agreement was $27 million. At December 31, 2001, the amount unused and available under this agreement was $24 million. The Company is required to pay a fee for the unused portion of the commitment. The agreement expires on September 30, 2004. The credit available under the revolving credit agreement provides management with the ability to refinance certain short-term obligations on a long-term basis. Since management has the ability and intent to do so, an additional $27 million and $24 million of short-term obligations equal to the unused and available amount under the credit agreement have been reclassified as long-term obligations as of September 30, 2002 and December 31, 2001, respectively.
 
The Company’s foreign operations have historically met cash requirements with the use of internally generated cash and borrowings. Foreign subsidiaries have financing arrangements with several foreign banks to fund operations located outside of the U.S., but all of these lines are uncommitted. Cash generated by foreign operations has been reinvested locally and the Company intends to continue to reinvest the undistributed earnings of foreign subsidiaries. A decision to change this past practice and to transfer such cash to the United States in the future may be impacted to the extent management believes the transaction costs and taxes associated with such transfers are less than the expected benefits of continued reinvestment.
 
The Company believes it is in a strong financial position and has the financial resources to meet business requirements in the foreseeable future. The Company has historically used cash flow from operations as its primary source of liquidity. In the case that customer demand would decrease significantly for a prolonged period of time and negatively impact cash flow from operations, the Company would have the ability to restrict and significantly reduce capital expenditure levels which historically have been the most significant use of cash for the Company.
 
Insurance costs have risen sharply in 2002. In addition to the increase in insurance premiums experienced in 2002, the Company has also taken on additional self-insured retentions and higher deductibles.
 
The Board of Directors declared a quarterly dividend of $.06 per share payable on November 20, 2002 to shareholders of record as of October 30, 2002.
 
Adoption of Accounting Standards
 
In July 2001, the FASB issued SFAS No. 143 “Accounting for Asset Retirement Obligations.” SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. This statement is effective for financial statements issued for fiscal years beginning after September 15, 2002. The Company has performed a preliminary assessment and has determined that this statement will not have any immediate impact on the Company upon adoption.
 
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which supercedes SFAS No. 121 and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations, Reporting Effects of Disposal of a

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Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” This statement addresses financial accounting and reporting for impairment or disposal of long-lived assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company has adopted this standard and has determined that this statement will not have any immediate impact on the Company’s consolidated financial statements.
 
In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement will address the accounting for costs associated with disposal activities covered by SFAS No. 144, or with exit (or restructuring) activities previously covered by Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring),” and nullifies Issue 94-3 in its entirety. SFAS No. 146 would be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company plans to adopt this standard at the beginning of fiscal year 2003.
 
Outlook
 
The anticipated recovery in sales of the Company’s products to the fragrance/cosmetic market has not yet materialized and incoming orders received in the third quarter, while improving slightly, do not indicate a turnaround in the fourth quarter. However, due to the very low sales of the Company’s products to the fragrance/cosmetic market in the fourth quarter of 2001, sales of the Company’s products to this market are expected to increase compared to the prior year. Sales of the Company’s products to the pharmaceutical market in the fourth quarter of 2002 are expected to decrease slightly from last year’s strong levels. Sales of the Company’s products to the personal care, household and food markets are all expected to increase over last year’s fourth quarter.
 
Diluted earnings per share for the year 2002 are expected to equal or slightly exceed the prior year on a comparable basis ($1.87) after excluding the Strategic Initiative charges and patent lawsuit settlement in 2002, and the Strategic Initiative charges and goodwill amortization in 2001.
 
Forward-Looking Statements
 
This Management’s Discussion and Analysis and certain other sections of this Form 10-Q contain forward-looking statements that involve a number of risks and uncertainties. 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 management’s beliefs as well as assumptions made by and information currently available to management. Accordingly, the Company’s 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 the Company’s operations and business environment, including but not limited to direct or indirect consequences of acts of war or terrorism, government regulation including tax rate policies, competition and technological change, intellectual property rights, the failure by the Company to produce anticipated cost savings or improve productivity, the timing and magnitude of capital expenditures and acquisitions, currency exchange rates, interest rates, economic and market conditions in the United States, Europe and the rest of the world, changes in customer spending levels, the demand for existing and new products, the cost and availability of raw materials, the successful integration of the Company’s acquisitions, and other risks associated with the Company’s operations. Although the Company believes that its 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. Readers are cautioned not to place undue reliance on forward-looking statements.

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
A significant number of the Company’s 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 AptarGroup’s foreign entities. The Company’s primary foreign exchange exposure is to the Euro, but the Company also has foreign exchange exposure to South American and Asian currencies as well as the British pound. A weakening U.S. dollar relative to foreign currencies has an additive translation effect on the Company’s financial condition and results of operations. Conversely, a strengthening U.S. dollar has a dilutive effect.
 
Additionally, in some cases, the Company sells products denominated in a currency different from the currency in which the related costs are incurred. Changes in exchange rates on such inter-country sales impact the Company’s results of operations. The Company is a net importer into the U.S. of products produced in Europe and, as a result, during periods when the U.S. dollar weakens against the Euro, the transaction cost of purchasing products produced in Europe has a negative impact on the Company’s results of operations (offsetting the impact of any additive translation gains mentioned above). Conversely, a strengthening U.S. dollar has a positive transaction impact on the Company’s results of operations (offsetting the impact of any dilutive translation effects mentioned above).
 
The Company manages its 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, 2002, about the Company’s forward currency exchange contracts. All the contracts expire before the end of 2002.
 
Buy/Sell
   
Contract Amount
   
Average
Contractual
Exchange Rate
Euro/U.S. Dollar
   
$
17,010
   
1.0270
Euro/British Pound
   
 
3,869
   
1.5607
Euro/Yen
   
 
1,324
   
.0086
Other
   
 
2,451
     
    
    
T otal
   
$
24,654
     
    
    
 
The other contracts in the above table represent contracts to buy or sell various other currencies (principally Asian, Australian and South American). As of September 30, 2002, the Company has recorded the fair value of foreign currency forward exchange contracts of $42 thousand in accounts payable and accrued liabilities and $262 thousand in prepayments and other in the balance sheet.
 
All forward exchange contracts outstanding as of September 30, 2001 had an aggregate contract amount of $21.8 million.
 
At September 30, 2002, the Company has fixed-to-variable interest rate swap agreements with a notional principal value of $50 million which require the Company to pay an average variable interest rate (which was 2.0% at September 30, 2002) and receive a fixed rate of 6.6%. The variable rates are adjusted semiannually based on London Interbank Offered Rates (“LIBOR”). Variations in market interest rates would produce changes in the Company’s net income. If interest rates increase by 10%, net income related to the interest rate swap agreements would decrease by approximately $100

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thousand assuming a tax rate of 33%. As of September 30, 2002, the Company has recorded the fair value of derivative instrument assets of $9.6 million in miscellaneous other assets with an offsetting adjustment to debt related to the fixed-to-variable interest rate swap agreements. No gain or loss was recorded in the income statement in 2002 since there was no hedge ineffectiveness.
 
ITEM 4.     CONTROLS AND PROCEDURES
 
Under the supervision and with the participation of management, the chief executive officer and chief financial officer of the Company have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures within 90 days of the filing date of this quarterly report, and, based on their evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures are effective. There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
PART II—OTHER INFORMATION
 
ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS
 
During the quarter ended September 30, 2002, the FCP Aptar Savings Plan (the “Plan”) did not purchase or sell shares of Common Stock of the Company on behalf of the participants. At September 30, 2002, the Plan owns 5,315 shares of Common Stock of the Company. Certain employees of AptarGroup S.A.S. and Valois S.A.S., subsidiaries of the Company, are eligible to participate in the Plan. All eligible participants are located outside of the United States. An agent independent of the Company purchases shares of Common Stock available under the Plan for cash on the open market and the Company issues no shares. The Company does not receive any proceeds form the purchase of Common Stock under the Plan. The agent under the Plan is Banque Nationale de Paris (BNP) Paribas Asset Management. No underwriters are used under the Plan. All shares are sold in reliance upon the exemption from registration under the Securities Act of 1933 provided by Regulation S promulgated under that Act.
 
ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K
 
a
)
   
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
      
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b
)
   
No reports on Form 8-K were filed for the quarter ended September 30, 2002.

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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
APTARGROUP, INC.
    (Registrant)
By:
  
/s/    STEPHEN J. HAGGE
   
Stephen J. Hagge
Executive Vice President, Chief
Financial Officer and Secretary
(Duly Authorized Officer and
Principal Financial Officer)
 
Date: November 8, 2002

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CERTIFICATIONS
 
I, Carl A. Siebel, certify that:
 
 
1.
 
I have reviewed this quarterly report on Form 10-Q of AptarGroup, Inc,;
 
 
2.
 
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
 
3.
 
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
 
4.
 
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
 
a)
 
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
 
b)
 
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
 
c)
 
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
 
5.
 
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
 
 
a)
 
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
 
b)
 
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
 
6.
 
The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could

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significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
By:
  
/s/    CARL A. SIEBEL        
   
Carl A. Siebel
President and Chief Executive Officer
 
Date:    November 8, 2002

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CERTIFICATIONS
 
I, Stephen J. Hagge, certify that:
 
 
1.
 
I have reviewed this quarterly report on Form 10-Q of AptarGroup, Inc,;
 
 
2.
 
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
 
 
3.
 
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
 
 
4.
 
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
 
 
a)
 
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
 
 
b)
 
evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
 
 
c)
 
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
 
 
5.
 
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
 
 
d)
 
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
 
 
e)
 
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
 
 
6.
 
The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could

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significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
 
By:
  
/s/    STEPHEN J. HAGGE        
   
Stephen J. Hagge
Executive Vice President, Chief
Financial Officer and Secretary
 
Date:    November 8, 2002

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INDEX OF EXHIBITS
 
Exhibit Number
   
Description
99.1
   
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2
   
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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