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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
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
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(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
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(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock $.01 par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12 (g) of the Act : None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates, based on
the closing sales price for the Common Stock on the New York Stock Exchange on
March 24, 1999, was approximately $854,579,199. The number of shares outstanding
of Common Stock, as of March 24, 1999 was 36,089,181 shares held by
approximately 850 shareholders of record.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1998 Annual Report to Stockholders are incorporated
by reference into Parts I and II of this report.
Portions of the Registrant's Proxy Statement for the annual meeting of
stockholders to be held on May 11, 1999 are incorporated by reference into Part
III of this report.
AptarGroup, Inc.
INDEX TO
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1998
PART I Page
Item 1 Business 3
Item 2 Properties 11
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security-Holders 12
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 12
Item 6 Selected Financial Data 12
Item 7 Management's Discussion and Analysis of Consolidated 12
Results of Operations and Financial Condition
Item 7A Quantitative and Qualitative Disclosures about Market Risk 12
Item 8 Financial Statements and Supplementary Data 12
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 12
PART III
Item 10 Directors and Executive Officers of the Registrant 12
Item 11 Executive Compensation 13
Item 12 Security Ownership of Certain Beneficial
Owners and Management 13
Item 13 Certain Relationships and Related Transactions 13
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 14
Signatures 15
2
PART I
Item 1. Business
(a) General Development of Business
The Company's business began as a one-product, one-country operation that has
become a multinational supplier of a broad line of dispensing packaging systems.
The Company's business was started in the late 1940's through its
SeaquistPerfect Dispensing L.L.C., which manufactured and sold aerosol valves
in the United States. Pittway Corporation ("Pittway") acquired this business in
1964. The Company's business has grown primarily through the acquisition of
relatively small companies and internal expansion.
Date Business Country Start-up/Acquisition Initial Product Line
- ------ ------------------------------- --------- -------------------- -----------------------
1968 SeaquistPerfect Dispensing Germany Acquisition Aerosol valves
GmbH (formerly
Perfect-Valois Ventil
GmbH)
1970 Valois S.A. France Acquisition Aerosol valves
1976 Seaquist Closures L.L.C. U.S. Start-up Dispensing closures
1976 35% of certain Pfeiffer Germany Acquisition Pumps
Group companies
1981 AR Valve product line U.S. Acquisition Aerosol valves
1981 RDW Industries, Inc. U.S. Acquisition Dispensing closures
1983 STEP S.A. France Acquisition Pumps
1989 SAR S.p.A. Italy Acquisition Pumps
1993 Remainder of the Pfeiffer Germany Acquisition Pumps
Group
1994 Seaquist de Mexico, Mexico Start-up Dispensing closures
S.A. de C.V.
1995 Liquid Molding U.S. Acquisition Silicone molded
Systems, Inc. products
1995 35% of Loffler Germany Acquisition Closures
Kunststoffwerk GmbH
& Co. KG
1995 General Plastics, S.A. France Acquisition Closures
1997 50% of CosterSeaquist U.S. Start-up joint Aerosol spray caps and
L.L.C. venture accessories
1997 Aptar Suzhou Dispensing China Start-up Aerosol valves, pumps,
Systems, Co., Ltd closures
1998 65% of Loffler Germany Acquisition Closures
Kunststoffwerk GmbH
& Co. KG
1998 Inairic S.A. Argentina Acquisition Pumps
1999 Emson Research, Inc. U.S. Acquisition Pumps
1999 Seaquist-Valois do Brasil Ltda. Brazil Start-up Dispensing closures and
pumps
In February 1999, the Company acquired privately held Emson Research,Inc.
and related companies (Emson). Emson is a leading supplier of
fragrance/cosmetics pumps in the North American market. It also has a
significant position in the North American personal care and food pump markets
and a growing presence in selected international markets. Emson sales for the
year ended December 31, 1998 were approximately $85 million.
As a result of its internal product line expansion and its acquisition
program, the Company has become a leader in its markets. The Company believes
there are future growth opportunities available to it in terms of (i) further
geographic and product line extension and (ii) additional acquisitions.
In 1993, Pittway distributed 100% of AptarGroup's then outstanding Common
Stock to holders of Pittway common stock and Pittway class A stock.
3
(b) Financial Information about Industry Segments
The Company operates in the packaging components industry. Financial
information relating to operations by geographic area for each of the three
years in the period ended December 31, 1998, is set forth in Note 15 ("Segment
Information") to the Consolidated Financial Statements contained in the 1998
Annual Report to Stockholders, page 36, which is incorporated herein by
reference.
(c) Narrative Description of Business
General
The Company is a leader in the design, manufacture and sale of three
categories of consumer product dispensing systems: pumps, dispensing closures
and aerosol valves. The Company focuses on providing value-added dispensing
systems to global consumer product marketers in the fragrance/cosmetics,
personal care, pharmaceutical, household/industrial products and food
industries. Value-added packaging allows consumers to conveniently dispense a
product, in an aesthetically attractive package, which consistently meets
required usage or dosage characteristics. The Company believes it is the
largest supplier of pharmaceutical, fragrance/cosmetics, and personal care fine
mist pumps worldwide and the largest supplier of dispensing closures and aerosol
valves in North America. The Company has manufacturing facilities located
throughout the world including facilities in the United States, Europe, Asia and
South America. The Company has over 1,000 customers with no single customer
accounting for greater than 6% of the Company's 1998 net sales.
For 1998, the percentage of net sales represented by sales to the
fragrance/cosmetics, personal care, pharmaceutical, household/industrial and
food markets were 30%, 31%, 25%, 8% and 6% respectively. Pumps, dispensing
closures and aerosol valves represented approximately 60%, 22% and 16%
respectively, of AptarGroup's net sales. The Company expects the sales of pumps
and dispensing closures as a percentage of the total sales to increase in 1999
with the mix of sales by market to remain approximately the same.
Pumps are finger-actuated dispensing systems which disperse a spray or
lotion from non-pressurized containers. Pumps are principally sold to four
markets: fragrance/cosmetics, pharmaceutical, personal care and
household/industrial. Examples of pump applications in these markets include
perfumes, skin creams, oral and nasal sprays, hair sprays and window cleaners.
Dispensing closures are plastic caps, primarily for squeezable containers, which
allow a product to be dispensed without removing the cap. The majority of the
Company's dispensing closure sales have been to the personal care market, and
the Company is pursuing opportunities in the food and household/industrial
markets for additional applications of dispensing closures. Products with
dispensing closures include shampoos, skin lotions, conditioners,
household/industrial cleaners, ketchup and salad dressing products. Aerosol
valves are mechanisms which dispense product from pressurized containers.
Continuous spray aerosol valves are frequently used with hair sprays, spray
paints, insecticides, automotive products and laundry products. Metered dose
aerosol valves are used to dispense precise amounts of product and are primarily
sold to the pharmaceutical market for lung and heart medications.
Sales of the Company's dispensing systems, especially pumps, dispensing
closures and metered dose aerosol valves have grown at a faster rate than the
overall packaging industry during the past five years as consumer demand shifted
to products with more convenient dispensing systems. The Company expects this
trend to continue. Consumer product marketers have converted many of their
products to packages with dispensers that offer the benefit of increased
convenience, cleanliness or accuracy of dosage. For example, the Company is
developing applications for SimpliSqueeze(R), a no-leak, invertable closure with
one-hand dispensing convenience. SimpliSqueeze features a silicone valve that
enables the product to be dispensed with a slight squeeze of the bottle, and
upon release, closes firmly and does not leak. Consumer awareness of the
innovative SimpliSqueeze closure has grown as a result of its current use in the
personal care market with hair care, shower gel and moisturizing lotion
products. The advantages of SimpliSqueeze were applied in the non-carbonated
beverage market. AptarGroup worked with The Coca-Cola Company to incorporate
the SimpliSqueeze valve into their sports drink requirements. Due to this
success, AptarGroup is tailoring the SimpliSqueeze technology into other
food/beverage products.
Another example of a system that offers increased convenience is a unit
dose pump that dispenses a single exact dosage of medication nasally as an
alternative to pills or syringes. During 1998, AptarGroup expanded its sales of
unit dose pumps to applications that deliver medicine for migraine relief in a
nasal spray.
4
Pumps (60% of 1998 net sales)
Pumps are finger-actuated dispensing systems which disperse a spray or
lotion from non-pressurized containers. Pumps are principally sold to four
markets: fragrance/cosmetics, pharmaceutical, personal care and household/
industrial products. Examples of pump applications in these markets include
perfumes, skin creams, oral and nasal sprays, hair sprays and window cleaners.
The style of pump used depends largely on the nature of the product being
dispensed, from smaller, fine mist pumps used with perfume products to high-
output pumps used with household cleaner products. The food market is beginning
to emerge as the fifth market, which utilize pumps. An example of pump
applications for the food market is butter sprays.
AptarGroup believes it is the leading supplier of pharmaceutical,
fragrance/cosmetic and personal care fine mist pumps worldwide. An element of
the Company's growth strategy is the geographic expansion of pump operations.
Adding to the Company's personal care fine mist pump manufacturing capabilities
in the U.S., the Company began assembling fragrance/cosmetics pumps in the
United States in early 1995 and began production of personal care lotion pumps
in 1997. Consistent with that growth strategy, the Company purchased Emson in
February 1999. Emson manufactures fine mist pumps for the fragrance cosmetics,
personal care and food markets mainly in the United States. The Company has
sales offices in Japan and in 1997 began producing pumps in China to enhance its
position in the Asian markets. In 1998, 1997 and 1996, pump sales accounted for
approximately 60%, 60%, and 63% respectively, of AptarGroup's net sales.
Fragrance/Cosmetics
The Company believes it is the leading supplier of pumps to the
fragrance/cosmetics market worldwide. Pumps are manufactured to meet exacting
size and performance requirements. Significant research, time and coordination
with the customers' development staff is required to qualify a pump for use with
their products. Recently, the Company developed several new pumps for the
fragrance/cosmetics market. An example is an aluminized airless bag pump system
that protects lotions from oxygen and light contamination. Another example is a
pump that permanently affixes to a bottle without the need for crimping,
enabling customers to assemble their finished product more easily, efficiently
and economically. The Company began to sell its REPLICA pump in 1998 for
miniature fragrance packages. REPLICA is a small fine mist pump, with a
mechanism just 32 millimeters in length. Despite its size, REPLICA combines
aesthetically pleasing design with the same high level of performance as
AptarGroup's conventional pumps.
Within the market, the Company expects the use of pumps to continue to
increase, particularly in the cosmetics sector. For example, packaging for
certain products such as skin moisturizers and anti-aging lotions is undergoing
a conversion to pump systems, which may provide growth opportunities for the
Company.
Pharmaceutical
The Company considers itself to be the leading supplier of pumps to the
pharmaceutical market worldwide. AptarGroup has clean room manufacturing
facilities in France, Germany, Switzerland and the United States, which produce
pumps in a contaminant-controlled environment. The Company believes that the
use of pumps in the dispensing of pharmaceuticals will continue to increase.
Demand is increasing for the Company's pumps that provide consistent dosages of
particular drugs. During 1998, AptarGroup expanded its sales of unit dose pumps
to applications that deliver medicine for migraine relief in a nasal spray.
This system ensures that medication is administered quickly and effectively.
AptarGroup has developed an ecological pump with a reduced number of components
that contains no metal parts and which is made from the same plastic resin. This
pump reduces the risk of chemical incompatibility between the product formula
and the material used in the pump. AptarGroup is also working with
pharmaceutical companies to design dispensing systems for the delivery of such
medications as flu vaccines and cold remedies.
5
Personal Care
The Company believes it is the largest supplier of personal care fine mist
pumps worldwide. Personal care pumps are primarily sold for use in hair care and
deodorant products. Sales of fine mist pumps to this market have increased
significantly over the last several years. The Company is a supplier of lotion
pumps to the personal care market primarily in Europe and is expanding sales of
lotion pumps to the personal care market in North America.
Other
The Company has not focused on the household/industrial pump market.
Household/industrial products primarily utilize trigger or other high output
pumps, for such applications as bathroom cleaners, window sprays, and general
household/industrial cleaners. The Company manufactures high output pumps for
the household/industrial market; however, it currently does not manufacture a
trigger pump. Pumps have not been extensively used in the food industry.
Dispensing Closures (22% of 1998 net sales)
Dispensing closures are plastic caps, primarily for squeezable containers,
which allow a product to be dispensed without removing the cap. Products with
dispensing closures include shampoos, skin lotions, conditioners, household
cleaners, ketchup and salad dressing products. Although the Company sells
dispensing closures to all markets, the majority of the Company's sales have
been to the personal care market. The Company believes that it is the largest
manufacturer of dispensing closures in North America. In 1998, 1997 and 1996,
dispensing closure sales accounted for approximately 22%, 19% and 18%,
respectively, of AptarGroup's net sales.
Sales of dispensing closures have grown as consumers worldwide have
demonstrated a preference for a package utilizing the convenience of a
dispensing closure. As a result of this trend, consumer marketers are
continually evaluating opportunities to convert non-dispensing closures to
dispensing closures in order to differentiate their products and make them more
appealing to customers. An example of this is the conversion of shampoo
packages from twist-off caps to dispensing closures. Similar conversions have
occurred with toothpaste, ketchup and skin care products. The Company believes
future growth opportunities exist for converting other products to dispensing
closures.
The Company's growth strategy for the dispensing closure business is to
gain greater market share in the European, South American and Asian markets, to
develop new innovative products and to adapt existing products for new markets.
Personal Care
Historically, the Company's primary focus for dispensing closures has been
the personal care industry. Products with dispensing closures include shampoos,
skin lotions, conditioners and toothpaste. In order to expand its business in
this market, the Company has focused on the development of new products
including SimpliSqueeze , a no-leak, invertible closure with one-hand dispensing
convenience. SimpliSqueeze features a silicone valve that enables the product
to be dispensed with a slight squeeze of the bottle, and upon release, closes
firmly and does not leak. Consumer awareness of the innovative SimpliSqueeze
closure has grown as a result of its current use with hair care, shower gel and
moisturizing lotion products and other customer applications.
Household/Industrial
The Company has not had significant dispensing closure sales to the
household/industrial market. The Company believes this market offers an
opportunity for expansion. The Company is building stronger relationships with
the consumer product marketers operating in the household/industrial market. The
Company adapts existing products to target this market. For example, the
Directional Pour Spout (TM) incorporates an elongated spout that enables the
consumer to pinpoint the dispensing of the product in exactly the desired
direction. In addition, SimpliSqueeze technology has been expanded for use with
automotive appearance products. The Company believes that additional
applications for this market will arise in the near future.
6
Food
In the food market, the Company believes opportunities for future
applications exist comparable to the conversion of ketchup packaging to a
dispensing closure. The trend of food manufacturers to offer products in a
squeezable dispensing package has increased, for example, in mayonnaise, jellies
and salad dressing products. An increase in the conversion of food products,
such as edible oils, to squeezable dispensing closures could provide growth
opportunities for the Company. The Company's Directional Pour Spout can also be
used with food products.
The advantages of SimpliSqueeze were applied in the non-carbonated beverage
market. AptarGroup worked with The Coca-Cola Company to incorporate the
SimpliSqueeze valve into their sports drink requirements. Due to this success,
AptarGroup is tailoring the SimpliSqueeze technology into other food/beverage
products.
Other
Sales of dispensing closures to the pharmaceutical market has not been
significant. The Company is developing products for this market. Dispensing
closures have not been used extensively in the fragrance/cosmetics market.
Aerosol Valves (16% of 1998 net sales)
Aerosol valves are mechanisms which dispense product from pressurized
containers. The Company sells two different types of aerosol valves. The first
type is a continuous spray valve frequently used with hair spray, spray paint,
insecticide, automotive products and laundry products. The second type of valve
is a metered dose aerosol valve used to dispense precise amounts of product.
This valve is primarily sold to the pharmaceutical market for lung and heart
medications. In 1998, 1997 and 1996, aerosol valve sales accounted for
approximately 16%, 19% and 17%, respectively, of AptarGroup's net sales.
Over the past 25 years, the number of aerosol valve companies in North
America and Europe has decreased significantly. The majority of the North
American market is concentrated in three companies. AptarGroup believes it is
the largest aerosol valve supplier in North America. The Company's aerosol
valves have historically been targeted primarily to the personal care and
household/industrial markets.
Personal Care
The primary applications in the personal care market include hair products,
deodorants and shaving creams. Demand for aerosol valves is dependent upon the
consumers' preference for application, consumer perception of environmental
impact, and changes in demand for the products in this market.
Household/Industrial
The primary applications for valves in the household/industrial market
include disinfectants, spray paints, insecticides, automotive products and
laundry sprays. The Company sells several customized overcaps that allow product
to be dispensed by actuating a valve which is situated in the cap on the can.
These overcaps are used, for instance, in household disinfectant sprays and room
fresheners. They provide a higher degree of differentiation and convenience
relative to competing sprays since the cap does not need to be removed prior to
usage.
Pharmaceutical
Metered dose aerosol valves are primarily used for the dispensing of
medication for the lungs or heart. Aerosol technology allows medication to be
broken up into very fine particles, which enables the drug to be delivered to
the lungs or heart with greater efficiency than pills.
Other
Aerosol valves are not significantly used in the food industry. In the
fragrance/cosmetics market, pumps have largely replaced valves as the preferred
dispensing mechanism.
7
Research and Development
The Company is continuously involved in developing innovative products and
adapting existing products for new markets and customer requirements.
Expenditures for research and development activities were $23.6 million, $20.8
million and $20.1 million in 1998, 1997 and 1996, respectively. These costs were
associated with a number of products in varying stages of development.
Patents and Trademarks
AptarGroup will continue to sell its products under the names used by its
operating units and is not currently offering any products under the AptarGroup
name. The names used by its operating units have been trademarked.
AptarGroup customarily seeks patent and trademark protection for its
products and currently owns and has numerous applications pending for United
States and foreign patents and trademarks. In addition, certain of AptarGroup's
products are produced under patent licenses granted by third parties. The
majority of AptarGroup's net sales are generated by products which have patent
protection on either the product or a component of the product. Management
believes that it possesses certain technical capabilities in making its products
that would also make it difficult for a competitor to duplicate them.
Technology
Pumps and aerosol valves require the assembly of up to 15 different
plastic, metal and rubber components using high speed equipment. When molding
dispensing closures, or plastic components to be used in pump or aerosol valve
products, the Company uses advanced plastic injection molding technology,
including large cavitation plastic injection molds. These molds are required to
maintain tolerances as small as one thousandth of an inch and manufacture
products in a high-speed, cost-efficient manner. The acquisitions of Liquid
Molding Systems (LMS) and General Plastics added significant new molding
technologies. LMS's experience in liquid silicone rubber molding allows the
Company to pursue opportunities to use silicone molding in other product lines.
The Company will expand the use of the bi-injection molding technology used by
General Plastics in more of its operations in 1999 to develop new innovative
products for the packaging industry.
Manufacturing and Sourcing
The principal raw materials used in AptarGroup's production are plastic
resins and certain metal products. AptarGroup believes an adequate supply of
such raw materials is readily available from existing and alternate sources.
The Company attempts to offset inflation through cost containment and increased
selling prices over time, as allowed by market conditions. AptarGroup also
purchases plastic and metal components that are used in the final assembly of
its products from suppliers in North America and Europe. Certain suppliers of
these components have unique technical abilities that make AptarGroup dependent
on them, particularly for aerosol valve and pump production in North America.
Significant delays in receiving components from these suppliers would require
AptarGroup to seek alternate sources, which could result in higher costs as well
as impact the ability of the Company to supply products in the short term. The
Company has not experienced such delays in the past.
Sales and Distribution
Sales of products are primarily through AptarGroup's own sales force. To a
limited extent, AptarGroup also uses the services of independent representatives
and distributors who sell AptarGroup's products as independent contractors to
certain smaller customers and export markets. Backlogs are not a significant
factor. Most orders placed with the Company are ready for delivery within 120
days. Some customers place blanket orders which extend beyond this delivery
period; however, deliveries against these orders are subject to change.
Customers
The demand for AptarGroup's products is influenced by the demand for the
products of AptarGroup's customers. Demand for the products of AptarGroup's
customers may be affected by general economic conditions, government
regulations, tariffs and other trade barriers. AptarGroup's customers include
many of the largest fragrance/cosmetics, personal care, pharmaceutical,
household/industrial products and food marketers in the U.S. and Europe. The
Company has over 1,000 customers with no single customer accounting for greater
than 6% of 1998 net sales. Over the past few years, a consolidation of the
Company's customer base has occurred. This trend is expected to continue. A
concentration of customers may result in pricing pressures or a loss of volume.
This situation also
8
presents opportunities for increasing sales due to the breadth of the Company's
product line and its international presence.
International Business
A significant portion of AptarGroup's operations is located in Europe.
Sales in Europe for the years ended December 31, 1998, 1997 and 1996 were
approximately 57%, 55% and 58%, respectively, of net sales. The majority of
units sold in Europe are manufactured at facilities in England, France, Germany,
Ireland, Italy, Spain and Switzerland. Other geographic areas serviced by
AptarGroup include Argentina, Australia, Brazil, Canada, Czech Republic, China,
India, Indonesia, Japan, and Mexico, though the combined sales from these areas
is not significant to AptarGroup's consolidated sales.
Foreign Currency
A significant portion of AptarGroup's operations is located outside of the
United States. Because of this, movements in exchange rates may have a
significant impact on the translation of financial conditions and results of
operations of AptarGroup's foreign entities. In general, since the majority of
the Company's foreign operations are based in Europe, a weakening U.S. dollar
relative to the major European currencies has a positive translation effect on
the Company's financial condition and results of operations. Conversely, a
strengthening U.S. dollar would have the opposite effect. 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.
In some cases, the Company sells products denominated in a currency
different from the currency in which the respective costs are incurred. Changes
in exchange rates on such inter-country sales could materially impact the
Company's results of operations.
Working Capital Practices
Collection and payment periods tend to be longer for the Company's
operations located outside the United States due to local business practices.
Historically, the Company has not needed to keep significant amounts of finished
goods inventory to meet customer requirements.
Employee and Labor Relations
AptarGroup has approximately 5,700 full-time employees. Of the full-time
employees, approximately 1,500 are located in North America, 3,900 are located
in Europe and the remaining 300 are located in Asia and South America.
Approximately 450 of the North American employees are covered by a collective
bargaining agreement, while the majority of the Company's international
employees are covered by collective bargaining arrangements made at either the
local or national government level in their respective countries. Termination
of employees at certain AptarGroup European operations could be costly due to
local regulations regarding severance benefits. Management of AptarGroup
considers its employee relations to be good.
Competition
All of the markets in which AptarGroup operates are highly competitive and
the Company continues to experience price competition in all product lines and
markets. Competitors include privately and publicly-held entities. AptarGroup's
competitors range from regional to international companies. AptarGroup expects
the market for its products to continue to be competitive.
AptarGroup believes its competitive advantages are consistent high levels
of quality, service and innovation, geographic diversity and breadth of
products. The Company's manufacturing strength lies in the ability to mold
complex plastic components in a cost-effective manner and to assemble products
at high speeds.
Environment
AptarGroup's manufacturing operations primarily involve plastic injection
molding and automated assembly processes. Historically, the environmental
impact of these processes has been minimal, and management believes it meets
current environmental standards in all material respects.
9
Government Regulation
To date, the manufacturing and assembly operations of AptarGroup have not
been significantly affected by environmental laws and regulations relating to
the environment.
Certain AptarGroup products are affected by government regulation. Growth
of packaging using aerosol valves has been restrained by concerns relating to
the release of certain chemicals into the atmosphere. Both aerosol and pump
packaging are affected by government regulations regarding the release of VOC's
(volatile organic compounds) into the atmosphere. Certain states within the
United States have regulations requiring the reduction in the amount of VOC's
that can be released into the atmosphere and the potential exists for this type
of regulation to expand to a worldwide basis. These regulations require the
Company's customers to reformulate certain aerosol and pump products which may
affect the demand for such products. The Company owns patents and has developed
systems to function with alternate propellant and product formulations.
Aerosol packaging of paints has also been adversely impacted by local
regulations adopted in many large cities in the United States designed to
address the problem of spray painted graffiti. Aerosol packaging may be
adversely impacted by insurance cost considerations relating to the storage of
aerosol products.
Government regulation in the dispensing closure product line primarily
relates to waste reduction. The Company's dispensing closures are plastic and
mainly consist of polypropylene, a recyclable plastic. The Company also uses
recycled plastic in its manufacturing process.
Future government regulations could include medical cost containment
elements. For example, reviews by various governments to determine the number of
drugs or prices thereof that will be paid by their insurance systems could
affect future sales to the pharmaceutical industry. Such regulation could
adversely affect prices of and demand for the Company's pharmaceutical products.
The Company believes that the recent focus on the cost effectiveness of the use
of medications as compared to surgery and hospitalization provides an
opportunity for the Company to expand sales to the pharmaceutical market.
Regulatory requirements impact the Company's customers and could affect the
Company's investment in and manufacturing of products for the pharmaceutical
market.
10
Item 2. Properties
The principal offices and manufacturing facilities of AptarGroup are either
owned or leased by the Company or its subsidiaries. None of the owned principal
properties is subject to a lien or other encumbrance material to the operations
of the Company. The Company believes that existing operating leases will be
renegotiated as they expire or that suitable alternative properties can be
leased on acceptable terms. The Company considers the condition and extent of
utilization of its manufacturing facilities and other properties to be generally
good, and the capacity of its plants to be adequate for the needs of its
business.
The locations of the Company's principal manufacturing facilities, by
country, are set forth below:
FRANCE GERMANY CHINA
Caen Bohringen Suzhou
Le Neubourg Dortmund
Le Vaudreuil Eigeltingen
Meaux Freyung
Verneuil Sur Avre
ITALY NORTH AMERICA UNITED KINGDOM
San Giovanni Teatino (Chieti) Cary, Illinois, USA Leeds, England
Manoppello Midland, Michigan, USA
Mukwonago, Wisconsin, USA
Norwalk, Connecticut, USA
Queretaro, Mexico
Stratford, Connecticut, USA
SWITZERLAND IRELAND BRAZIL
Messovico Tourmakeady, County Mayo Sao Paulo
ARGENTINA
Buenos Aires
In addition to the above countries, the Company has sales offices or other
manufacturing facilities in Australia, Canada, Czech Republic, India, Indonesia,
Japan, and Spain. The Company's corporate office is located in Crystal Lake,
Illinois.
Item 3. Legal Proceedings
Legal Proceedings
Legal proceedings involving the Company generally relate to product
liability and patent infringement issues. In the opinion of AptarGroup's
management, the outcome of pending claims and litigation is not likely to have a
material adverse effect on the Company's financial position or the results of
its operations.
Historically, product liability claims for all products of the Company have
been minimal. However, the increase in pump and aerosol valve applications for
pharmaceutical products may result in an increase in product liability claims.
Quality control systems are specifically designed to prevent defects in the
Company's products. Additionally, the Company maintains product liability
insurance in excess of its historical claims experience.
During 1998, the Company recorded approximately $9.9 million in favorable
settlements of patent infringement lawsuits. The most significant settlement is
attributed to a favorable judgment in a lawsuit relating to an aerosol valve
component that was recorded in the fourth quarter of 1998. Diluted earnings per
share was positively impacted in 1998 by $.16 per share related to these lawsuit
settlements.
11
Item 4. Submission of Matters to a Vote of Security-Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information set forth in Note 16 "Quarterly Data (Unaudited)" to the
Consolidated Financial Statements contained in the Company's 1998 Annual Report
to Stockholders, page 38, is incorporated herein by reference. The Common Stock
of AptarGroup is traded on the New York Stock Exchange (symbol: ATR). As of
March 24, 1999, stockholders of record totaled approximately 850.
Item 6. Selected Financial Data
The information set forth under the heading "Five Year Summary of Selected
Financial Data" appearing on page 40 of the Company's 1998 Annual Report to
Stockholders is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Consolidated Results of
Operations and Financial Condition
The information set forth under the heading "Management's Discussion and
Analysis of Consolidated Results of Operations and Financial Condition"
appearing on pages 41-45 of the Company's 1998 Annual Report to Stockholders is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information set forth under the heading "Management's Discussion and
Analysis of Consolidated Results of Operations and Financial Condition"
appearing on pages 41-45 of the Company's 1998 Annual Report to Stockholders is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The information set forth under the headings "Consolidated Statements of
Income," "Consolidated Balance Sheets," "Consolidated Statements of Cash Flows,"
"Consolidated Statements of Changes in Equity," "Notes to Consolidated Financial
Statements" and "Report of Independent Accountants" appearing on pages 22-39 of
the Company's 1998 Annual Report to Stockholders is incorporated herein by
reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Certain information required to be furnished in this part of the Form 10-K
has been omitted because the Registrant will file with the Securities and
Exchange Commission a definitive proxy statement pursuant to Regulation 14A
under the Securities Exchange Act of 1934 not later than April 29, 1999.
Item 10. Directors and Executive Officers of the Registrant
The information set forth under the heading "Election of Directors" in the
Registrant's Proxy Statement for the annual meeting of stockholders to be held
on May 11, 1999 is incorporated herein by reference.
12
In addition to Messrs. Carl A. Siebel and Peter Pfeiffer, each of whom is a
director and executive officer of the Company and information with respect to
whom is incorporated by reference in this Item 10, executive officers of the
Registrant are as follows:
Jacques Blanie, age 52 has been Executive Vice President of SeaquistPerfect
Dispensing L.L.C. since 1996 and Geschaftsfuhrer of SeaquistPerfect Dispensing
GmbH since 1986. In 1996, Perfect-Valois Ventil GmbH changed its name to
SeaquistPerfect Dispensing GmbH.
Francois Boutan, age 56 has served in the capacity of Vice President
Finance-Europe since 1998. Mr. Boutan was Financial Director and Controller of
the European operations of AptarGroup from 1988 to 1998.
Pierre Cheru, age 65 has been Directeur General of Valois S.A. since 1978.
Stephen J. Hagge, age 47, has been Executive Vice President and Chief
Financial Officer, Secretary and Treasurer of AptarGroup since 1993.
Lawrence Lowrimore, age 54, has been Vice President-Human Resources of
AptarGroup since 1993.
Francesco Mascitelli, age 48, has been Direttore Generale of SAR S.p.A., an
Italian subsidiary, since 1991.
Emil Meshberg, age 51, has served as Chief Executive Officer and President
of Emson Research, Inc. for more than the past five years.
James R. Reed, age 62, has served as President of SeaquistPerfect
Dispensing L.L.C. (formerly known as Seaquist Valve and as Seaquist Dispensing)
since 1987.
Eric S. Ruskoski, age 51, has been President of Seaquist Closures L.L.C.
since 1987.
Hans-Josef Schutz, age 54, has been Geschaftsfuhrer of the Pfeiffer Group
since 1993.
Alain Vichot, age 65, has been Vice President-Marketing of AptarGroup since
1998. From 1994 to 1998, Mr. Vichot was Directeur General Adjoint of Valois S.A.
Item 11. Executive Compensation
The information set forth under the headings "Board Compensation" and
"Executive Compensation" (other than "Compensation Committee Report on Executive
Compensation" and "Performance Graph") in the Registrant's Proxy Statement for
the annual meeting of stockholders to be held on May 11, 1999, is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Registrant's Proxy Statement for the
annual meeting of stockholders to be held on May 11, 1999, is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under the heading "Certain Transactions" in the
Registrant's Proxy Statement for the annual meeting of stockholders to be held
on May 11, 1999 is incorporated herein by reference.
13
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
Location
---------------------
1) Financial Statements required by Item 8 of this Form
Consolidated Balance Sheets............................................... Annual Report, page 22
Consolidated Statements of Income......................................... Annual Report, page 24
Consolidated Statements of Cash Flows..................................... Annual Report, page 25
Consolidated Statements of Changes in Equity.............................. Annual Report, page 26
Notes to Consolidated Financial Statements................................ Annual Report, page 27
Report of Independent Accountants......................................... Annual Report, page 39
2) Schedule required by Article 12 of Regulation S-X
Report of Independent Accountants on
Financial Statement Schedule............................................ page 17
II - Valuation and Qualifying Accounts.................................... page 18
All other schedules have been omitted because they are not applicable or not required.
3) Exhibits required by Item 601 of Regulation S-K are incorporated by reference to the Exhibit Index
on pages 19-21 of this report.
(b) Reports on Form 8-K during the quarter ended December 31, 1998:
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 in the City of Crystal Lake,
State of Illinois on this 26th day of March 1999.
AptarGroup, Inc.
----------------
(Registrant)
By /s/ Stephen J. Hagge
---------------------
Stephen J. Hagge
Executive Vice President and Chief
Financial Officer, Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the date indicated.
NAME TITLE DATE
/s/ King Harris Chairman of the Board and Director March 26, 1999
King Harris
/s/ Carl Siebel President and Chief Executive Officer March 26, 1999
Carl Siebel and Director (Principal Executive
Officer)
/s/ Peter Pfeiffer Vice Chairman of the Board and Director March 26, 1999
Peter Pfeiffer
/s/ Stephen J. Hagge Executive Vice President and Chief March 26, 1999
Stephen J. Hagge Financial Officer, Secretary and
Treasurer (Principal Accounting and
Financial Officer)
15
NAME TITLE DATE
/s/ Eugene L. Barnett Director March 26, 1999
Eugene L. Barnett
/s/ Robert Barrows Director March 26, 1999
Robert Barrows
/s/ Ralph Gruska Director March 26, 1999
Ralph Gruska
/s/ Leo A. Guthart Director March 26, 1999
Leo A. Guthart
/s/ Ervin J. LeCoque Director March 26, 1999
Ervin J. LeCoque
/s/ Alfred Pilz Director March 26, 1999
Alfred Pilz
16
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of AptarGroup, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 18, 1999, appearing on page 39 of the 1998 Annual Report
to Stockholders of AptarGroup, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
------------------------------
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 18, 1999
17
AptarGroup, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in Thousands)
Balance at Charged to Deductions Balance
beginning costs and from at end
of period expenses Acquisition reserve (a) of period
---------- ---------- ----------- ----------- ---------
1998
- --------
Allowance for doubtful
accounts $3,812 $1,912 $147 $ 739 $5,132
1997
- --------
Allowance for doubtful
accounts $3,623 $1,261 $ -- $1,072 $3,812
1996
- --------
Allowance for doubtful
accounts $3,296 $1,148 $ -- $ 821 $3,623
(a) Write-off of accounts considered uncollectible, net of recoveries and
foreign currency translation adjustments, net.
18
INDEX TO EXHIBITS
Number and Description of Exhibit
3(i) Amended and Restated Certificate of Incorporation of the Company,
filed as Exhibit 6.1 to the Company's Registration Statement on Form
8-A filed under the Exchange Act on April 5, 1993 (File No. 1-11846),
is hereby incorporated by reference.
3(ii) Amended and Restated By-Laws of the Company, filed as Exhibit 3(ii) to
the Company's Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 1-11846) is hereby incorporated by reference.
4.1 Rights Agreement dated as of April 6, 1993 between the Company and
Chemical Bank, as rights agent, filed as Exhibit 4.1 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1993 (the
"1993 10-K")(File No. 1-11846), is hereby incorporated by reference.
4.2 Certificate of Designation, Preferences and Rights of Junior
Participating Preferred Stock, Series A, of the Company, filed as
Exhibit 6.4 of the Company's Registration Statement on Form 8-A filed
under the Exchange Act on April 5, 1993 (File No. 1-11846), is hereby
incorporated by reference.
The Registrant hereby agrees to provide the Commission, upon request,
copies of instruments defining the rights of holders of long-term debt
of the Registrant and its subsidiaries as are specified by item
601(b)(4)(iii)(A) of Regulation S-K.
10.1 AptarGroup, Inc. 1992 Stock Awards Plan, filed as Exhibit 10.1
(included as Appendix B to the Prospectus) to the Company's
Registration Statement on Form S-1, Registration Number 33-58132,
filed on February 10, 1993 (the "Form S-1"), is hereby incorporated by
reference.**
10.2 AptarGroup, Inc. 1992 Director Stock Option Plan, filed as Exhibit
10.2 (included as Appendix C to the Prospectus) to the Form S-1, is
hereby incorporated by reference.**
10.3 Agreement of Employment dated as of March 28, 1990 of Ervin J.
LeCoque, filed as Exhibit 10.3 to the Form S-1 is hereby incorporated
by reference.**
10.4 Managing Director Employment Agreement dated January 2, 1981 of Mr.
Peter Pfeiffer, filed as Exhibit 10.4 to the Form S-1, is hereby
incorporated by reference.**
10.5 Service Agreement dated April 30, 1981, of Carl A. Siebel, and related
pension plan, filed as Exhibit 10.5 to the Form S-1, is hereby
incorporated by reference.**
10.6 Service agreement dated April 22, 1993, between AptarGroup, Inc. and
Peter Pfeiffer, and related pension plan, filed as Exhibit 10.6 to the
1993 10-K, is hereby incorporated by reference.**
10.7 First supplement dated 1989 pertaining to the pension plan between
Perfect-Valois Ventil GmbH and Carl A. Siebel, filed as Exhibit 10.7
to the 1993 10-K, is hereby incorporated by reference.**
10.8 Pittway Guarantee dated February 2, 1990, pertaining to the pension
plan between Perfect-Valois Ventil GmbH and Carl A. Siebel, filed as
Exhibit 10.8 to the 1993 10-K, is hereby incorporated by reference.**
19
10.9 Assignment, Assumption and Release as of April 22, 1993, among Pittway
Corporation, AptarGroup, Inc., and Ervin J. LeCoque, filed as Exhibit
10.9 to the 1993 10-K, is hereby incorporated by reference.**
10.10 Assignment, Assumption and Release as of April 22, 1993, among Pittway
Corporation, AptarGroup, Inc., and Carl A. Siebel, filed as Exhibit
10.10 to the 1993 10-K, is hereby incorporated by reference.**
10.11 Second supplement dated December 19, 1994 pertaining to the pension
plan between Perfect-Valois Ventil GmbH and Carl A. Siebel, filed as
Exhibit 10.11 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-11846), is hereby incorporated by
reference.**
10.12 Amendment to Agreement of Employment dated November 20, 1995 of Ervin
J. LeCoque, filed as Exhibit 10.13 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 (File No. 1-11846), is
hereby incorporated by reference.**
10.13 Employment Agreement dated February 1, 1996 of Stephen J. Hagge, filed
as Exhibit 10.14 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 (File No. 1-11846), is hereby
incorporated by reference.**
10.14 AptarGroup, Inc. 1996 Stock Awards Plan, filed as Appendix A to the
Company's Proxy Statement, dated April 10, 1996 (File No. 1-11846), is
hereby incorporated by reference.**
10.15 AptarGroup, Inc. 1996 Director Stock Option Plan, filed as Appendix B
to the Company's Proxy Statement, dated April 10, 1996 (File No. 1-
11846), is hereby incorporated by reference.**
10.16 Employment Agreement dated March 6, 1996 of Eric S. Ruskoski, filed as
Exhibit 10.17 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 (File No. 1-11846), is hereby incorporated by
reference.**
10.17 Stock Purchase Agreement dated as of February 16, 1999 between
AptarGroup, Inc. and The Meshberg Family Trust, filed as Exhibit 2.1
to the Company's Current Report on Form 8-K filed on February 26, 1999
(File No. 1-11846), is hereby incorporated by reference.
10.18 Stock Purchase Agreement dated as of February 16, 1999 among
AptarGroup, Inc., Emil Meshberg and Samuel Meshberg, filed as Exhibit
2.2 to the Company's Current Report on Form 8-K filed on February 26,
1999 (File No. 1-11846), is hereby incorporated by reference.
10.19 Agreement of Merger dated as of February 16, 1999 among AptarGroup,
Inc., R Merger Corporation, R.P.M. manufacturing Company, Emil
Meshberg and Ronald Meshberg, filed as Exhibit 2.3 to the Company's
Current Report on Form 8-K filed on February 26, 1999 (File No. 1-
11846), is hereby incorporated by reference.
13* 1998 Annual Report to Stockholders (such report, except to the extent
specifically incorporated herein by reference, is being furnished for
the information of the Securities and Exchange Commission only and is
not to be deemed filed as a part of this Form 10-K).
21* List of Subsidiaries.
20
23* Consent of Independent Accountants.
27* Financial Data Schedule
* Filed herewith.
** Management contract or compensatory plan or arrangement.
21