XNYS:ATR AptarGroup, Inc. Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

XNYS:ATR (AptarGroup, Inc.): Fair Value Estimate
Premium
XNYS:ATR (AptarGroup, Inc.): Consider Buying
Premium
XNYS:ATR (AptarGroup, Inc.): Consider Selling
Premium
XNYS:ATR (AptarGroup, Inc.): Fair Value Uncertainty
Premium
XNYS:ATR (AptarGroup, Inc.): Economic Moat
Premium
XNYS:ATR (AptarGroup, Inc.): Stewardship
Premium
 

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 JUNE 30, 2012

 

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.

 

DELAWARE

 

36-3853103

(State of Incorporation)

 

(I.R.S. Employer Identification No.)

 

475 WEST TERRA COTTA AVENUE, SUITE E, CRYSTAL LAKE, ILLINOIS 60014

 

815-477-0424

 

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 þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer þ

 

Accelerated filer ¨

 

Non-accelerated filer ¨

 

Smaller reporting company ¨

 

 

 

 

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No þ

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date

 

Class

 

Outstanding at August 3, 2012

Common Stock, $.01 par value per share

 

66,593,619 shares

 



Table of Contents

 

 

AptarGroup, Inc.

 

Form 10-Q

 

Quarter Ended June 30, 2012

 

INDEX

 

 

Part I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2012 and 2011

1

 

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income – Three and Six Months Ended June 30, 2012 and 2011

2

 

 

 

 

Condensed Consolidated Balance Sheets – June 30, 2012 and December 31, 2011

3

 

 

 

 

Condensed Consolidated Statements of Changes in Equity – Six Months Ended June 30, 2012 and 2011

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2012 and 2011

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

 

 

 

Item 4.

Controls and Procedures

23

 

 

 

Part II.

OTHER INFORMATION

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

 

 

 

Item 6.

Exhibits

24

 

 

 

 

Signature

25

 

 

i



Table of Contents

 

PART I — FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

In thousands, except per share amounts

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net Sales

 

$

577,503

 

$

614,929

 

$

1,170,001

 

$

1,191,447

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Cost of sales (exclusive of depreciation and amortization shown below)

 

390,225

 

409,481

 

791,295

 

792,151

 

Selling, research & development and administrative

 

87,625

 

90,290

 

176,124

 

180,769

 

Depreciation and amortization

 

32,597

 

34,914

 

65,151

 

68,519

 

 

 

510,447

 

534,685

 

1,032,570

 

1,041,439

 

Operating Income

 

67,056

 

80,244

 

137,431

 

150,008

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

Interest expense

 

(3,904

)

(4,607

)

(9,146

)

(9,227

)

Interest income

 

794

 

1,544

 

1,822

 

3,096

 

Equity in results of affiliates

 

(158

)

 

(289

)

 

Miscellaneous, net

 

(1,247

)

(285

)

(1,000

)

(706

)

 

 

(4,515

)

(3,348

)

(8,613

)

(6,837

)

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

62,541

 

76,896

 

128,818

 

143,171

 

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes

 

20,889

 

25,609

 

43,353

 

47,416

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

41,652

 

$

51,287

 

$

85,465

 

$

95,755

 

 

 

 

 

 

 

 

 

 

 

Net Loss Attributable to Noncontrolling Interests

 

$

34

 

$

2

 

$

30

 

$

11

 

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to AptarGroup, Inc.

 

$

41,686

 

$

51,289

 

$

85,495

 

$

95,766

 

 

 

 

 

 

 

 

 

 

 

Net Income Attributable to AptarGroup, Inc. per Common Share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.63

 

$

0.77

 

$

1.29

 

$

1.43

 

Diluted

 

$

0.61

 

$

0.74

 

$

1.24

 

$

1.37

 

 

 

 

 

 

 

 

 

 

 

Average Number of Shares Outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

66,580

 

66,939

 

66,388

 

66,933

 

Diluted

 

68,758

 

69,438

 

68,940

 

69,902

 

 

 

 

 

 

 

 

 

 

 

Dividends per Common Share

 

$

0.22

 

$

0.18

 

$

0.44

 

$

0.36

 

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

1



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

 

In thousands, except per share amounts

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

41,652

 

$

51,287

 

$

85,465

 

$

95,755

 

Other Comprehensive (Loss)/Income:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

(70,504

)

38,260

 

(28,822

)

106,004

 

Changes in treasury locks, net of tax

 

165

 

22

 

180

 

43

 

Net gain (loss) on derivatives, net of tax

 

 

 

(7

)

6

 

Defined benefit pension plan, net of tax

 

 

 

 

 

 

 

 

 

Amortization of prior service cost included in net income, net of tax

 

60

 

27

 

121

 

107

 

Amortization of net loss included in net income, net of tax

 

684

 

164

 

1,371

 

677

 

Total defined benefit pension plan, net of tax

 

744

 

191

 

1,492

 

784

 

Total other comprehensive (loss)/ income

 

(69,595

)

38,473

 

(27,157

)

106,837

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (Loss)/Income

 

(27,943

)

89,760

 

58,308

 

202,592

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Loss/(Income) Attributable To Noncontrolling Interests

 

38

 

(5

)

35

 

1

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (Loss)/Income Attributable to AptarGroup, Inc.

 

$

(27,905

)

$

89,755

 

$

58,343

 

$

202,593

 

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

2



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

In thousands, except per share amounts

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and equivalents

 

$

300,873

 

$

377,616

 

Accounts and notes receivable, less allowance for doubtful accounts of $7,007 in 2012 and $8,257 in 2011

 

421,735

 

389,020

 

Inventories

 

299,321

 

285,155

 

Prepaid and other

 

88,198

 

92,159

 

 

 

1,110,127

 

1,143,950

 

 

 

 

 

 

 

Property, Plant and Equipment:

 

 

 

 

 

Buildings and improvements

 

349,613

 

342,146

 

Machinery and equipment

 

1,728,491

 

1,687,521

 

 

 

2,078,104

 

2,029,667

 

Less: Accumulated depreciation

 

(1,324,074

)

(1,295,185

)

 

 

754,030

 

734,482

 

Land

 

19,932

 

20,233

 

 

 

773,962

 

754,715

 

 

 

 

 

 

 

Other Assets:

 

 

 

 

 

Investments in affiliates

 

3,706

 

3,812

 

Goodwill

 

230,784

 

233,689

 

Intangible assets, net

 

4,706

 

4,374

 

Miscellaneous

 

23,953

 

18,755

 

 

 

263,149

 

260,630

 

Total Assets

 

$

2,147,238

 

$

2,159,295

 

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

3



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

In thousands, except per share amounts

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Notes payable

 

$

125,948

 

$

179,552

 

Current maturities of long-term obligations

 

4,796

 

4,116

 

Accounts payable and accrued liabilities

 

331,738

 

335,181

 

 

 

462,482

 

518,849

 

 

 

 

 

 

 

Long-Term Obligations

 

253,454

 

254,910

 

 

 

 

 

 

 

Deferred Liabilities and Other:

 

 

 

 

 

Deferred income taxes

 

26,173

 

27,390

 

Retirement and deferred compensation plans

 

48,581

 

58,930

 

Deferred and other non-current liabilities

 

8,638

 

8,644

 

Commitments and contingencies

 

 

 

 

 

83,392

 

94,964

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

AptarGroup, Inc. stockholders’ equity

 

 

 

 

 

Preferred stock, $.01 par value, 1 million shares authorized, none outstanding

 

 

 

Common stock, $.01 par value, 199 million shares authorized; 83.4 and 82.8 million shares issued as of June 30, 2012 and December 31, 2011, respectively

 

845

 

827

 

Capital in excess of par value

 

403,135

 

364,855

 

Retained earnings

 

1,465,708

 

1,409,388

 

Accumulated other comprehensive income

 

33,166

 

60,318

 

Less treasury stock at cost, 16.8 and 16.9 million shares as of June 30, 2012 and December 31, 2011, respectively

 

(555,705

)

(545,612

)

Total AptarGroup, Inc. Stockholders’ Equity

 

1,347,149

 

1,289,776

 

Noncontrolling interests in subsidiaries

 

761

 

796

 

 

 

 

 

 

 

Total Stockholders’ Equity

 

1,347,910

 

1,290,572

 

Total Liabilities and Stockholders’ Equity

 

$

2,147,238

 

$

2,159,295

 

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

4



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

 

In thousands, except per share amounts

 

 

 

AptarGroup, Inc. Stockholders’ Equity

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Common

 

 

 

Capital in

 

Non-

 

 

 

 

 

Retained

 

Comprehensive

 

Stock

 

Treasury

 

Excess of

 

Controlling

 

Total

 

 

 

Earnings

 

Income/(Loss)

 

Par Value

 

Stock

 

Par Value

 

Interest

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2010:

 

$

1,279,013

 

$

123,766

 

$

817

 

$

(443,019

)

$

318,346

 

$

851

 

$

1,279,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

95,766

 

 

 

 

 

 

 

 

 

(11

)

95,755

 

Foreign currency translation adjustments

 

 

 

105,994

 

 

 

 

 

 

 

10

 

106,004

 

Changes in unrecognized pension gains/losses and related amortization, net of tax

 

 

 

784

 

 

 

 

 

 

 

 

 

784

 

Changes in treasury locks, net of tax

 

 

 

43

 

 

 

 

 

 

 

 

 

43

 

Net gain on derivatives, net of tax

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Stock option exercises & restricted stock vestings

 

 

 

 

 

6

 

1

 

28,022

 

 

 

28,029

 

Cash dividends declared on common stock

 

(24,100

)

 

 

 

 

 

 

 

 

 

 

(24,100

)

Non-Controlling interest distribution

 

 

 

 

 

 

 

 

 

 

 

(27

)

(27

)

Treasury stock purchased

 

 

 

 

 

 

 

(40,826

)

 

 

 

 

(40,826

)

Balance – June 30, 2011:

 

$

1,350,679

 

$

230,593

 

$

823

 

$

(483,844

)

$

346,368

 

$

823

 

$

1,445,442

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2011:

 

$

1,409,388

 

$

60,318

 

$

827

 

$

(545,612

)

$

364,855

 

$

796

 

$

1,290,572

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

85,495

 

 

 

 

 

 

 

 

 

(30

)

85,465

 

Foreign currency translation adjustments

 

 

 

(28,817

)

 

 

 

 

 

 

(5

)

(28,822

)

Changes in unrecognized pension gains/losses and related amortization, net of tax

 

 

 

1,492

 

 

 

 

 

 

 

 

 

1,492

 

Changes in treasury locks, net of tax

 

 

 

180

 

 

 

 

 

 

 

 

 

180

 

Net loss on derivatives, net of tax

 

 

 

(7

)

 

 

 

 

 

 

 

 

(7

)

Stock option exercises & restricted stock vestings

 

 

 

 

 

18

 

3

 

38,280

 

 

 

38,301

 

Cash dividends declared on common stock

 

(29,175

)

 

 

 

 

 

 

 

 

 

 

(29,175

)

Treasury stock purchased

 

 

 

 

 

 

 

(10,096

)

 

 

 

 

(10,096

)

Balance – June 30, 2012:

 

$

1,465,708

 

$

33,166

 

$

845

 

$

(555,705

)

$

403,135

 

$

761

 

$

1,347,910

 

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

5



Table of Contents

 

AptarGroup, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

In thousands, brackets denote cash outflows

 

Six Months Ended June 30,

 

2012

 

2011

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

 

$

85,465

 

$

95,755

 

Adjustments to reconcile net income to net cash provided by operations:

 

 

 

 

 

Depreciation

 

64,485

 

66,780

 

Amortization

 

666

 

1,739

 

Stock option based compensation

 

8,689

 

9,414

 

Provision for doubtful accounts

 

(605

)

634

 

Deferred income taxes

 

(478

)

(3,528

)

Defined benefit plan expense

 

7,154

 

5,721

 

Equity in results of affiliates in excess of cash distributions received

 

289

 

 

Changes in balance sheet items, excluding effects from foreign currency adjustments:

 

 

 

 

 

Accounts receivable

 

(40,455

)

(57,820

)

Inventories

 

(20,793

)

(34,888

)

Prepaid and other current assets

 

5,163

 

(22,987

)

Accounts payable and accrued liabilities

 

10,447

 

16,551

 

Income taxes payable

 

796

 

2,447

 

Retirement and deferred compensation plans

 

(20,978

)

(15,823

)

Other changes, net

 

(15,680

)

1,512

 

Net Cash Provided by Operations

 

84,165

 

65,507

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Capital expenditures

 

(95,351

)

(78,943

)

Disposition of property and equipment

 

1,229

 

2,529

 

Investment in unconsolidated affiliate

 

(279

)

 

Notes receivable, net

 

95

 

54

 

Net Cash Used by Investing Activities

 

(94,306

)

(76,360

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

(Repayments) / Proceeds from notes payable

 

(53,792

)

47,423

 

Proceeds of long-term obligations

 

539

 

 

Repayments of long-term obligations

 

 

(48,360

)

Dividends paid

 

(29,175

)

(24,100

)

Credit facility costs

 

(1,121

)

 

Proceeds from stock option exercises

 

25,003

 

13,858

 

Purchase of treasury stock

 

(10,096

)

(40,826

)

Excess tax benefit from exercise of stock options

 

4,380

 

4,346

 

Net Cash Used by Financing Activities

 

(64,262

)

(47,659

)

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash

 

(2,340

)

23,409

 

 

 

 

 

 

 

Net Decrease in Cash and Equivalents

 

(76,743

)

(35,103

)

Cash and Equivalents at Beginning of Period

 

377,616

 

376,427

 

Cash and Equivalents at End of Period

 

$

300,873

 

$

341,324

 

 

See accompanying unaudited notes to condensed consolidated financial statements.

 

6



Table of Contents

 

AptarGroup, Inc.

Notes to Condensed Consolidated Financial Statements

(Amounts in Thousands, Except per Share Amounts, or Otherwise Indicated)

(Unaudited)

 

NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

The accompanying unaudited condensed 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.  All significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of consolidated financial position, results of operations, comprehensive income, changes in equity and cash flows for the interim periods presented.  The accompanying unaudited condensed consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  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.  Also, certain financial position data included herein was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 but does not include all disclosures required by accounting principles generally accepted in the United States of America.  Accordingly, these unaudited condensed 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 on Form 10-K for the year ended December 31, 2011.  The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.

 

ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates to the FASB’s Accounting Standards Codification.

In May 2011, the FASB amended the guidance on fair value measurement and disclosure requirements.  The amended guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and International Financial Reporting Standards (“IFRS”).  This guidance is effective for the Company’s fiscal year ending December 31, 2012 (including interim periods).  The adoption of this standard had no impact on the Consolidated Financial Statements other than disclosure.

In June 2011, the FASB amended the guidance for the presentation of comprehensive income.  The objective of this update is to improve the comparability, consistency, and transparency of financial reporting by increasing the prominence of items reported in other comprehensive income.  This update requires that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements.  The amendments in this update are effective for the Company’s fiscal year ending December 31, 2012 (including interim periods).  In December 2011, the FASB indefinitely deferred the guidance related to the presentation of reclassification adjustments out of other comprehensive income.  The adoption of this standard results in the presentation of a new statement of comprehensive income.  Otherwise, the adoption had no other impact on the Consolidated Financial Statements.

 

INCOME TAXES

The Company computes taxes on income in accordance with the tax rules and regulations of the many taxing authorities where the income is earned.  The income tax rates imposed by these taxing authorities may vary substantially.  Taxable income may differ from pretax income for financial accounting purposes.  To the extent that these differences create differences between the tax basis of an asset or liability and its reported amount in the financial statements, an appropriate provision for deferred income taxes is made.

In its determination of which foreign earnings are permanently reinvested in foreign operations, the Company considers numerous factors, including the financial requirements of the U.S. parent company and those of its foreign subsidiaries, the U.S. funding needs for dividend payments and stock repurchases, and the tax consequences of remitting earnings to the U.S.  From this analysis, current year repatriation decisions are made in an attempt to provide a proper mix of debt and shareholder capital both within the U.S. and for non-U.S. operations.  The Company’s policy is to permanently reinvest its accumulated foreign earnings and only will make a distribution out of current year earnings to meet the cash needs at the parent company.  As such, the Company does not provide taxes on earnings that are deemed to be permanently reinvested.  The effective tax rate for 2012 includes the tax cost of repatriating $79 million of current year earnings, all of which was repatriated in the first half of 2012.

The Company provides a liability for the amount of tax benefits realized from uncertain tax positions.  This liability is provided whenever the Company determines that a tax benefit will not meet a more-likely-than-not threshold for recognition.  See Note 12 for more information.

 

NOTE 2 - INVENTORIES

 

At June 30, 2012 and December 31, 2011, approximately 19% and 21%, respectively, of the total inventories are accounted for by using the LIFO method.  Inventories, by component, consisted of:

 

 

7



Table of Contents

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Raw materials

 

$

117,538

 

$

116,751

 

Work in process

 

72,759

 

69,676

 

Finished goods

 

115,110

 

105,095

 

Total

 

305,407

 

291,522

 

Less LIFO Reserve

 

(6,086

)

(6,367

)

Total

 

$

299,321

 

$

285,155

 

 

NOTE 3 — GOODWILL AND OTHER INTANGIBLE ASSETS

 

The changes in the carrying amount of goodwill since the year ended December 31, 2011 are as follows by reporting segment:

 

 

 

 

Beauty +

 

 

 

Food +

 

Corporate

 

 

 

 

 

Home

 

Pharma

 

Beverage

 

& Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

179,095

 

$

37,009

 

$

17,585

 

$

1,615

 

$

235,304

 

Accumulated impairment losses

 

 

 

 

(1,615

)

(1,615

)

Balance as of December 31, 2011

 

$

179,095

 

$

37,009

 

$

17,585

 

$

 

$

233,689

 

Foreign currency exchange effects

 

(2,182

)

(557

)

(166

)

 

(2,905

)

Goodwill

 

$

176,913

 

$

36,452

 

$

17,419

 

$

1,615

 

$

232,399

 

Accumulated impairment losses

 

 

 

 

(1,615

)

(1,615

)

Balance as of June 30, 2012

 

$

176,913

 

$

36,452

 

$

17,419

 

$

 

$

230,784

 

 

The table below shows a summary of intangible assets as of June 30, 2012 and December 31, 2011.

 

 

 

 

 

 

June 30, 2012

 

December 31, 2011

 

 

 

Weighted Average

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Amortization

 

Carrying

 

Accumulated

 

Net

 

Carrying

 

Accumulated

 

Net

 

 

 

Period (Years)

 

Amount

 

Amortization

 

Value

 

Amount

 

Amortization

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Patents

 

11

 

$

18,633

 

$

(17,775

)

$

858

 

$

19,030

 

$

(17,962

)

$

1,068

 

License agreements and other

 

2

 

24,479

 

(20,631

)

3,848

 

23,840

 

(20,534

)

3,306

 

Total intangible assets

 

6

 

$

43,112

 

$

(38,406

)

$

4,706

 

$

42,870

 

$

(38,496

)

$

4,374

 

 

Aggregate amortization expense for the intangible assets above for the quarters ended June 30, 2012 and 2011 was $317 and $1,034, respectively.  Aggregate amortization expense for the intangible assets above for the six months ended June 30, 2012 and 2011 was $666 and $1,739, respectively.

 

Future estimated amortization expense for the years ending December 31 is as follows:

 

2012

 

$

622

 

(remaining estimated amortization for 2012)

 

2013

 

1,114

 

 

 

2014

 

1,038

 

 

 

2015

 

878

 

 

 

2016 and thereafter

 

1,054

 

 

 

 

Future amortization expense may fluctuate depending on changes in foreign currency rates.  The estimates for amortization expense noted above are based upon foreign exchange rates as of June 30, 2012.

 

NOTE 4 — RETIREMENT AND DEFERRED COMPENSATION PLANS

 

Components of Net Periodic Benefit Cost:

 

 

 

 

Domestic Plans

 

Foreign Plans

 

Three months ended June 30,

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

1,808

 

$

1,319

 

$

509

 

$

514

 

Interest cost

 

1,231

 

1,094

 

630

 

647

 

Expected return on plan assets

 

(1,404

)

(1,002

)

(379

)

(460

)

 

8



Table of Contents

 

Amortization of net loss

 

965

 

416

 

118

 

199

 

Amortization of prior service cost

 

1

 

1

 

90

 

97

 

Net periodic benefit cost

 

$

2,601

 

$

1,828

 

$

968

 

$

997

 

 

 

 

Domestic Plans

 

Foreign Plans

 

Six months ended June 30,

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

3,612

 

$

2,689

 

$

1,028

 

$

1,030

 

Interest cost

 

2,459

 

2,228

 

1,275

 

1,295

 

Expected return on plan assets

 

(2,805

)

(2,042

)

(767

)

(921

)

Amortization of net loss

 

1,929

 

847

 

239

 

399

 

Amortization of prior service cost

 

2

 

2

 

182

 

194

 

Net periodic benefit cost

 

$

5,197

 

$

3,724

 

$

1,957

 

$

1,997

 

 

EMPLOYER CONTRIBUTIONS

In order to meet or exceed minimum funding levels required by U.S. law, the Company has contributed approximately $14.0 million to its domestic defined benefit plan during the first half of 2012 and does not anticipate any further contribution during 2012.  The Company also expects to contribute approximately $3.7 million to its foreign defined benefit plans in 2012 and has contributed approximately $1.0 million during the first half of 2012.

 

NOTE 5 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

The Company maintains a foreign exchange risk management policy designed to establish a framework to protect the value of the Company’s non-functional 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 or intercompany loans can 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, options and cross currency swaps to economically 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 a hedge 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 maintained an interest rate swap to convert a portion of its fixed-rate debt into variable-rate debt until May 31, 2011.  Under the interest rate swap contract, the Company exchanged, at specified intervals, the difference between fixed-rate and floating-rate amounts, which was calculated based on an agreed upon notional amount.  On May 31, 2011, this interest rate swap contract matured and was not renewed.  No gain or loss was recorded in the income statement in 2011 as any hedge ineffectiveness for the period was immaterial.

 

CASH FLOW HEDGES

The Company had one foreign currency cash flow hedge until March 15, 2012.  A French subsidiary of AptarGroup, AptarGroup Holding SAS, had hedged the risk of variability in Euro equivalent associated with the cash flows of an intercompany loan granted in Brazilian Real.  The forward contracts utilized were designated as a hedge of the changes in the cash flows relating to the changes in foreign currency rates relating to the loan and related forecasted interest.  On March 15, 2012, the loan and foreign currency forward contracts were repaid.

During the six months ended June 30, 2012, the Company did not recognize any net gain (loss) as any hedge ineffectiveness for the period was immaterial, and the Company did not recognize any net gain (loss) related to the portion of the hedging instrument excluded from the assessment of hedge effectiveness.

 

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 strengthening U.S. dollar relative to foreign currencies has a dilutive translation effect on the Company’s financial condition and results of operations.  Conversely, a weakening U.S. dollar has an additive 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.

 

OTHER

As of June 30, 2012, the Company has recorded the fair value of foreign currency forward exchange contracts of $0.3 million in prepaid and other, $0.7 million in miscellaneous other assets, $0.8 million in accounts payable and accrued liabilities, and $1.9 million in deferred and other non-current liabilities in the balance sheet.  All forward exchange contracts outstanding as of June 30, 2012 had an aggregate contract amount of $98 million.

 

9



Table of Contents

 

 

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets as of June 30, 2012

and December 31, 2011

 

Derivative Contracts Designated as
Hedging Instruments

 

Balance Sheet
Location

 

June 30,
2012

 

December
31, 2011

 

 

 

 

 

 

 

 

 

Derivative Liabilities

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Accounts payable and accrued liabilities

 

$

 

$

302

 

 

 

 

 

$

 

$

302

 

Derivative Contracts Not Designated as
Hedging Instruments

 

 

 

 

 

 

 

Derivative Assets

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Prepaid and other

 

$

285

 

$

520

 

Foreign Exchange Contracts

 

Miscellaneous Other Assets

 

709

 

 

 

 

 

 

$

994

 

$

520

 

Derivative Liabilities

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Accounts payable and accrued liabilities

 

$

752

 

$

8,383

 

Foreign Exchange Contracts

 

Deferred and other non-current liabilities

 

1,860

 

2,005

 

 

 

 

 

$

2,612

 

$

10,388

 

 

 

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Income

for the Quarters Ended June 30, 2012 and June 30, 2011

 

Derivatives Not Designated as
Hedging Instruments

 

Location of Loss Recognized in Income on
Derivative

 

Amount of Loss Recognized in
Income on Derivative

 

 

 

 

 

2012

 

2011

 

Foreign Exchange Contracts

 

Other (Expense) Miscellaneous, net

 

$

(8,351

)

$

(286

)

 

 

 

 

$

(8,351

)

$

(286

)

 

 

The Effect of Derivative Instruments on the Condensed Consolidated Statements of Income

for the Six Months Ended June 30, 2012 and June 30, 2011

 

Derivatives in Cash Flow
Hedging Relationships

 

 

 

Amount of Gain Recognized
in OCI on Derivative (Effective
Portion)

 

 

 

 

 

2012

 

2011

 

Foreign Exchange Contracts

 

 

 

$

 

$

10

 

 

 

 

 

$

 

$

10

 

 

 

 

 

 

 

 

 

Derivatives Not Designated as
Hedging Instruments

 

Location of Loss Recognized in Income on
Derivative

 

Amount of Loss
Recognized in Income on
Derivative

 

 

 

 

 

2012

 

2011

 

Foreign Exchange Contracts

 

Other (Expense) Miscellaneous, net

 

$

(1,235

)

$

(3,528

)

 

 

 

 

$

(1,235

)

$

(3,528

)

 

 

NOTE 6 — COMMITMENTS AND CONTINGENCIES

 

The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature including the proceeding noted below.  While management believes the resolution of these claims and lawsuits will not have a material adverse effect on the Company’s financial position or results of operations or cash flows, claims and legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could occur that could include amounts in excess of any accruals which management has established.  Were such unfavorable final outcomes to occur, it is possible that they could have a material adverse effect on our financial position, results of operations and cash flows.

 

10



Table of Contents

 

In 2010, a competitor filed a lawsuit against certain AptarGroup, Inc. subsidiaries alleging that certain processes performed by a supplier of a specific type of diptube utilized by the AptarGroup, Inc. subsidiaries in the manufacture of a specific type of pump infringes patents owned by the counterparty. This lawsuit sought an injunction barring the manufacture, use, sale and importation of this specific pump for use in fragrance containers.  In April 2012, the Company’s United States subsidiary was found to have infringed on patents owned by the counterparty within the United States.  The ruling does not apply to manufacture or sales of pumps in countries outside the United States and no damages were assessed.  The Company has appealed this ruling.

Under its Certificate of Incorporation, the Company has agreed to indemnify its officers and directors for certain events or occurrences while the officer or director is, or was serving, at its request in such capacity.  The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors and officers liability insurance policy that covers a portion of its exposure.  As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.  The Company has no liabilities recorded for these agreements as of June 30, 2012.

 

NOTE 7 — STOCK REPURCHASE PROGRAM

 

The Company did not repurchase any shares during the three months ended June 30, 2012.  The Company has repurchased approximately 189 thousand shares for an aggregate amount of $10.1 million for the six months ended June 30, 2012.  As of June 30, 2012, the Company has remaining authorization to repurchase 3.4 million additional shares.  The timing of and total amount expended for the share repurchase depends upon market conditions.

 

NOTE 8 — EARNINGS PER SHARE

 

AptarGroup’s authorized common stock consists of 199 million shares, having a par value of $.01 each.  Information related to the calculation of earnings per share is as follows:

 

 

 

 

Three months ended

 

 

 

June 30, 2012

 

June 30, 2011

 

 

 

Diluted

 

Basic

 

Diluted

 

Basic

 

Consolidated operations

 

 

 

 

 

 

 

 

 

Income available to common shareholders

 

$

41,686

 

$

41,686

 

$

51,289

 

$

51,289

 

 

 

 

 

 

 

 

 

 

 

Average equivalent shares

 

 

 

 

 

 

 

 

 

Shares of common stock

 

66,580

 

66,580

 

66,939

 

66,939

 

Effect of dilutive stock based compensation

 

 

 

 

 

 

 

 

 

Stock options

 

2,174

 

 

2,495

 

 

Restricted stock

 

4

 

 

4

 

 

Total average equivalent shares

 

68,758

 

66,580

 

69,438

 

66,939

 

Net income per share

 

$

0.61

 

$

0.63

 

$

0.74

 

$

0.77

 

 

 

 

Six months ended

 

 

 

June 30, 2012

 

June 30, 2011

 

 

 

Diluted

 

Basic

 

Diluted

 

Basic

 

Consolidated operations

 

 

 

 

 

 

 

 

 

Income available to common stockholders

 

$

85,495

 

$

85,495

 

$

95,766

 

$

95,766

 

 

 

 

 

 

 

 

 

 

 

Average equivalent shares

 

 

 

 

 

 

 

 

 

Shares of common stock

 

66,388

 

66,388

 

66,933

 

66,933

 

Effect of dilutive stock based compensation

 

 

 

 

 

 

 

 

 

Stock options

 

2,543

 

 

2,963

 

 

Restricted stock

 

9

 

 

6

 

 

Total average equivalent shares

 

68,940

 

66,388

 

69,902

 

66,933

 

Net income per share

 

$

1.24

 

$

1.29

 

$

1.37

 

$

1.43

 

 

NOTE 9 — 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 into three reporting segments.  Operations that sell dispensing systems primarily to the personal care, fragrance/cosmetic and household markets form the Beauty + Home segment.  Operations that sell dispensing systems primarily to the prescription drug and consumer health care markets form the Pharma segment.  Operations that sell dispensing systems primarily to the food and beverage markets form the Food + Beverage segment.

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 on Form 10-K for the year ended December 31, 2011.  The Company evaluates

 

11



Table of Contents

 

performance of its business segments and allocates resources based upon segment income.  Segment income is defined as earnings before interest expense in excess of interest income, certain corporate expenses and income taxes.

 

Financial information regarding the Company’s reportable segments is shown below:

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Total Revenue:

 

 

 

 

 

 

 

 

 

Beauty + Home

 

$

372,853

 

$

406,699

 

$

753,689

 

$

786,530

 

Pharma

 

133,033

 

139,077

 

273,234

 

271,272

 

Food + Beverage

 

75,684

 

74,525

 

151,506

 

143,249

 

Corporate & Other

 

 

36

 

 

82

 

Total Revenue

 

581,570

 

620,337

 

1,178,429

 

1,201,135

 

 

 

 

 

 

 

 

 

 

 

Less: Intersegment Sales:

 

 

 

 

 

 

 

 

 

Beauty + Home

 

$

3,569

 

$

3,961

 

$

7,254

 

$

7,530

 

Pharma

 

54

 

374

 

212

 

565

 

Food + Beverage

 

444

 

1,037

 

962

 

1,509

 

Corporate & Other

 

 

36

 

 

82

 

Total Intersegment Sales

 

$

4,067

 

$

5,408

 

$

8,428

 

$

9,688

 

 

 

 

 

 

 

 

 

 

 

Net Sales:

 

 

 

 

 

 

 

 

 

Beauty + Home

 

$

369,284

 

$

402,738

 

$

746,435

 

$

779,000

 

Pharma

 

132,979

 

138,703

 

273,022

 

270,707

 

Food + Beverage

 

75,240

 

73,488

 

150,544

 

141,740

 

Corporate & Other

 

 

 

 

 

Net Sales

 

$

577,503

 

$

614,929

 

$

1,170,001

 

$

1,191,447

 

 

 

 

 

 

 

 

 

 

 

Segment Income:

 

 

 

 

 

 

 

 

 

Beauty + Home

 

$

33,652

 

$

39,877

 

$

66,624

 

$

72,530

 

Pharma

 

31,110

 

40,369

 

70,482

 

79,257

 

Food + Beverage

 

7,853

 

8,613

 

14,641

 

16,185

 

Corporate & Other

 

(6,964

)

(8,900

)

(15,605

)

(18,670

)

Income before interest and taxes

 

$

65,651

 

$

79,959

 

$

136,142

 

$

149,302

 

Interest expense, net

 

(3,110

)

(3,063

)

(7,324

)

(6,131

)

Income before income taxes

 

$

62,541

 

$

76,896

 

$

128,818

 

$

143,171

 

 

NOTE 10 — ACQUISITIONS

 

On July 3, 2012, the Company acquired Rumpler - Technologies S.A., together with its direct and indirect subsidiaries (the “Stelmi Group”).  Further information about this transaction can be found in Note 15 — Subsequent Events.

In November 2011, the Company acquired a 20% minority investment in Oval Medical Technologies Limited (Oval Medical) for approximately $3.2 million.  In February 2012, the Company acquired an additional 2% minority investment for approximately $0.3 million.  Oval Medical has broad expertise in the design and development of injectable drug delivery devices.  This investment represents a significant opportunity for the Pharma segment to enter a new category and broaden our product portfolio and customer reach.  This investment is being accounted for under the equity method of accounting from the date of acquisition.

In October 2011, the Company acquired TKH Plastics Pvt Ltd (“TKH”), a leading provider of injection molded dispensing closures in India for approximately $17 million in cash and approximately $1 million in assumed debt.  The acquisition will allow the Company to expand its geographical presence in India.  After allocating a portion of the purchase price to fixed and intangible assets, goodwill of approximately $10.9 million was recorded on the transaction.  The results of operations subsequent to the acquisition are included in the reported income statement.  TKH is included in the Beauty + Home reporting segment.

The acquisitions described above have not had a material impact on the results of operations through the second quarter of 2012 or 2011 and therefore no proforma information is required.

 

NOTE 11 — STOCK-BASED COMPENSATION

 

The Company issues stock options and restricted stock units to employees under Stock Awards Plans approved by shareholders.  Stock options are issued to non-employee directors for their services as directors under Director Stock Option Plans approved by shareholders.  Options are awarded with the exercise price equal to the market price on the date of grant and generally become exercisable over three years and expire 10 years after grant.  Restricted stock units generally vest over three years.

Compensation expense recorded attributable to stock options for the first half of 2012 was approximately $8.7 million ($5.8 million after tax), or $0.09 per basic share and $0.08 per diluted share.  The income tax benefit related to this compensation expense was approximately $2.9 million.  Approximately $7.8 million of the compensation expense was recorded in selling,

 

12



Table of Contents

 

research & development and administrative expenses and the balance was recorded in cost of sales.  Compensation expense recorded attributable to stock options for the first half of 2011 was approximately $9.4 million ($6.6 million after tax), or $0.10 per basic share and $0.09 per diluted share.  The income tax benefit related to this compensation expense was approximately $2.8 million.  Approximately $8.7 million of the compensation expense was recorded in selling, research & development and administrative expenses and the balance was recorded in cost of sales.

The Company uses historical data to estimate expected life and volatility.  The weighted-average fair value of stock options granted under the Stock Awards Plans was $10.35 and $11.36 per share in 2012 and 2011, respectively.  These values were estimated on the respective dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

 

Stock Awards Plans:

Six months ended June 30,

 

2012

 

2011

 

 

 

 

 

 

 

Dividend Yield

 

1.8

%

1.7

%

Expected Stock Price Volatility

 

22.9

%

23.3

%

Risk-free Interest Rate

 

1.3

%

2.7

%

Expected Life of Option (years)

 

6.9

 

6.9

 

 

The fair value of stock options granted under the Director Stock Option Plan during the second quarter of 2012 was $10.59. The fair value of stock options granted under the Director Stock Option Plan during the second quarter of 2011 was $12.00.  These values were estimated on the respective date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

 

Director Stock Option Plans:

Six months ended June 30,

 

2012

 

2011

 

 

 

 

 

 

 

Dividend Yield

 

1.7

%

1.6

%

Expected Stock Price Volatility

 

22.5

%

22.9

%

Risk-free Interest Rate

 

1.3

%

2.5

%

Expected Life of Option (years)

 

6.9

 

6.9

 

 

A summary of option activity under the Company’s stock option plans during the first half of 2012 is presented below:

 

 

 

 

Stock Awards Plans

 

Director Stock Option Plans

 

 

 

 

 

Weighted Average

 

 

 

Weighted Average

 

 

 

Shares

 

Exercise Price

 

Shares

 

Exercise Price

 

 

 

 

 

 

 

 

 

 

 

Outstanding, January 1, 2012

 

8,345,917

 

$

32.90

 

270,000

 

$

37.98

 

Granted

 

1,233,800

 

51.81

 

85,500

 

53.72

 

Exercised

 

(914,070

)

25.60

 

(18,500

)

25.67

 

Forfeited or expired

 

(22,405

)

44.40

 

 

 

Outstanding at June 30, 2012

 

8,643,242

 

$

36.34

 

337,000

 

$

42.65

 

Exercisable at June 30, 2012

 

6,171,188

 

$

31.62

 

173,167

 

$

34.64

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Remaining Contractual Term (Years):

 

 

 

 

 

 

 

Outstanding at June 30, 2012

 

6.2

 

 

 

7.6

 

 

 

Exercisable at June 30, 2012

 

5.2

 

 

 

6.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate Intrinsic Value ($000):

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2012

 

$

128,097

 

 

 

$

3,077

 

 

 

Exercisable at June 30, 2012

 

$

119,933

 

 

 

$

2,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intrinsic Value of Options Exercised ($000) During the Six Months Ended:

 

 

 

 

 

June 30, 2012

 

$

25,101

 

 

 

 

$

509

 

 

 

June 30, 2011

 

$

22,232

 

 

 

 

$

884

 

 

 

 

The fair value of shares vested during the six months ended June 30, 2012 and 2011 was $12.1 million and $11.1 million, respectively.  Cash received from option exercises was approximately $25 million and the actual tax benefit realized for the tax deduction from option exercises was approximately $6.4 million in the six months ended June 30, 2012.  As of June 30, 2012, the remaining valuation of stock option awards to be expensed in future periods was $12.6 million and the related weighted-average period over which it is expected to be recognized is 1.5 years.

The fair value of restricted stock unit grants is the market price of the underlying shares on the grant date.  A summary of restricted stock unit activity as of June 30, 2012, and changes during the period then ended is presented below:

 

 

 

 

 

 

Weighted-Average

 

 

 

Shares

 

Grant-Date Fair Value

 

 

 

 

 

 

 

Nonvested at January 1, 2012

 

17,293

 

$

39.21

 

Granted

 

13,092

 

52.52

 

Vested

 

(8,440

)

37.47

 

Nonvested at June 30, 2012

 

21,945

 

$

47.82

 

 

13



Table of Contents

 

Compensation expense recorded attributable to restricted stock unit grants for the first half of 2012 and 2011 was approximately $282 thousand and $227 thousand, respectively.  The fair value of units vested during the six months ended June 30, 2012 and 2011 was $316 thousand and $346 thousand, respectively.  The intrinsic value of units vested during the six months ended June 30, 2012 and 2011 was $448 thousand and $492 thousand, respectively.  As of June 30, 2012 there was $510 thousand of total unrecognized compensation cost relating to restricted stock unit awards which is expected to be recognized over a weighted-average period of 1.7 years.

 

NOTE 12 — INCOME TAX UNCERTAINTIES

 

The Company had approximately $8.9 and $9.1 million recorded for income tax uncertainties as of June 30, 2012 and December 31, 2011, respectively.  The $0.2 million change in income tax uncertainties was primarily the result of currency changes.  The amount, if recognized, that would impact the effective tax rate is $8.3 and $8.5 million, respectively.  The Company estimates that it is reasonably possible that the liability for uncertain tax positions will decrease by no more than $5.0 million in the next twelve months from the resolution of various uncertain positions as a result of the completion of tax audits, litigation and the expiration of the statute of limitations in various jurisdictions.

 

NOTE 13 — FAIR VALUE

 

Authoritative guidelines require the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities.  Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.  The three levels are defined as follows:

·                  Level 1:  Unadjusted quoted prices in active markets for identical assets and liabilities.

·                  Level 2:  Observable inputs other than those included in Level 1.  For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

·                  Level 3:  Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

 

As of June 30, 2012, the fair values of our financial assets and liabilities were categorized as follows:

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Assets