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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended
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Jun. 30, 2018
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
BASIS OF PRESENTATION | BASIS OF PRESENTATION The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of AptarGroup, Inc. and our subsidiaries. The terms “AptarGroup”, “Aptar” or “Company” as used herein refer to AptarGroup, Inc. and our subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain previously reported amounts have been reclassified to conform to the current period presentation. In the opinion of management, the unaudited Condensed Consolidated Financial Statements (the “Condensed Consolidated Financial Statements”) include all 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 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 disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. 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, 2017 but does not include all disclosures required by U.S. GAAP. Accordingly, these Condensed Consolidated Financial Statements and related notes should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year. During the quarter ended June 30, 2018, primarily based on published estimates, which indicate that Argentina's three-year cumulative inflation rate has exceeded 100%, we concluded that Argentina has become a highly inflationary economy. Beginning July 1, 2018, we expect to apply highly inflationary accounting for our Argentinian subsidiaries. We will change the functional currency from the Argentinian peso to the U.S. dollar. Local currency monetary assets and liabilities will be remeasured into U.S. dollars using exchange rates as of the latest balance sheet date, with remeasurement adjustments and other transaction gains and losses recognized in net earnings. Our Argentinian operations contributed less than 2.0% of consolidated net revenues in the six months ended June 30, 2018.
ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS | ADOPTION OF RECENT ACCOUNTING PRONOUNCEMENTS Changes to U.S. GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of Accounting Standards Updates (ASUs) to the FASB’s Accounting Standards Codification. In May 2014, the FASB amended the guidance for recognition of revenue from customer contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On January 1, 2018, we adopted this standard and all the related amendments (the “new revenue standard”) for all contracts. This adoption was accounted for using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the January 1, 2018 opening balance of retained earnings. Comparative information for the prior periods have not been restated and continues to be reported under the accounting standards in effect prior to January 1, 2018.
|  |  | Balance at |  |  |  |  |  | Balance at |
|  |  | December 31, 2017 |  |  | Adjustment |  |  | January 1, 2018 |
Consolidated Balance Sheets |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |
Inventories |  | $ | 337,216 |  | $ | (14,637) |  | $ | 322,579 |
Prepaid and other |  |  | 109,791 |  |  | 13,984 |  |  | 123,775 |
Liabilities |  |  |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  |  | 461,579 |  |  | (5,706) |  |  | 455,873 |
Deferred income taxes |  |  | 20,995 |  |  | 1,292 |  |  | 22,287 |
Deferred and other non-current liabilities |  |  | 5,608 |  |  | 824 |  |  | 6,432 |
Stockholders’ Equity |  |  |  |  |  |  |  |  |  |
Retained earnings |  |  | 1,301,147 |  |  | 2,937 |  |  | 1,304,084 |
A majority of our sales revenue continues to be recognized when products are shipped from our manufacturing facilities. For certain custom product and tooling sales where revenue was previously recognized when the products were shipped, we now recognize revenue over the time required to manufacture the product or build the tool in accordance with the new revenue standard. We also have certain extended warranty contracts, which under the new standard are considered a separate performance obligation and are required to be deferred and recognized into revenue over the life of the agreement. In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated statements of income and balance sheets is as follows:
|  | For the Three Months Ended June 30, 2018 |
|  |  |  |  |  | Balances |  |  |  |
|  |  |  |  |  | Without |  |  | Effect of |
|  |  | As |  |  | Adoption of |  |  | Change |
|  |  | Reported |  |  | ASC 606 |  |  | Higher/(Lower) |
Consolidated Statements of Income |  |  |  |  |  |  |  |  |  |
Net Sales |  |  |  |  |  |  |  |  |  |
Beauty + Home |  | $ | 368,536 |  | $ | 370,267 |  | $ | (1,731) |
Pharma |  |  | 241,209 |  |  | 241,311 |  |  | (102) |
Food + Beverage |  |  | 100,863 |  |  | 100,859 |  |  | 4 |
Costs and Expenses |  |  |  |  |  |  |  |  |  |
Cost of sales (exclusive of depreciation and amortization) |  |  | 464,244 |  |  | 465,343 |  |  | (1,099) |
Provision for income taxes |  |  | 19,117 |  |  | 19,347 |  |  | (230) |
Net income |  |  | 55,781 |  |  | 56,281 |  |  | (500) |
|  | For the Six Months Ended June 30, 2018 |
|  |  |  |  |  | Balances |  |  |  |
|  |  |  |  |  | Without |  |  | Effect of |
|  |  | As |  |  | Adoption of |  |  | Change |
|  |  | Reported |  |  | ASC 606 |  |  | Higher/(Lower) |
Consolidated Statements of Income |  |  |  |  |  |  |  |  |  |
Net Sales |  |  |  |  |  |  |  |  |  |
Beauty + Home |  | $ | 746,709 |  | $ | 747,135 |  | $ | (426) |
Pharma |  |  | 471,336 |  |  | 471,773 |  |  | (437) |
Food + Beverage |  |  | 195,913 |  |  | 195,959 |  |  | (46) |
Costs and Expenses |  |  |  |  |  |  |  |  |  |
Cost of sales (exclusive of depreciation and amortization) |  |  | 920,066 |  |  | 920,243 |  |  | (177) |
Provision for income taxes |  |  | 41,046 |  |  | 41,272 |  |  | (226) |
Net income |  |  | 115,069 |  |  | 115,575 |  |  | (506) |
|  | June 30, 2018 |
|  |  |  |  |  | Balances |  |  |  |
|  |  |  |  |  | Without |  |  | Effect of |
|  |  | As |  |  | Adoption of |  |  | Change |
|  |  | Reported |  |  | ASC 606 |  |  | Higher/(Lower) |
Consolidated Balance Sheets |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |
Inventories |  | $ | 343,170 |  | $ | 357,630 |  | $ | (14,460) |
Prepaid and other |  |  | 104,998 |  |  | 90,862 |  |  | 14,136 |
Liabilities |  |  |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  |  | 509,118 |  |  | 513,458 |  |  | (4,340) |
Deferred income taxes |  |  | 19,586 |  |  | 18,520 |  |  | 1,066 |
Deferred and other non-current liabilities |  |  | 6,642 |  |  | 6,123 |  |  | 519 |
Stockholders’ Equity |  |  |  |  |  |  |  |  |  |
Retained earnings |  |  | 1,328,034 |  |  | 1,325,603 |  |  | 2,431 |
In January 2016, the FASB issued guidance on the classification and measurement of financial assets and liabilities (equity securities and financial liabilities) under the fair value option and the presentation and disclosure requirements for financial instruments. Subsequent guidance was issued in February 2018 to clarify certain aspects of the guidance issued in January 2016. The guidance modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any related changes in fair value in net income unless the investments qualify for the new practicality exception. A measurement alternative exists for those equity investments that do not have a readily determinable fair value. These investments may be measured at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The standard also includes a new impairment model for equity investments without readily determinable fair values. The new model is a single-step model under which the Company is required to perform a qualitative assessment each reporting period to identify impairment. When a qualitative assessment indicates that an impairment exists, the Company will estimate the fair value of the investment and recognize in current earnings an impairment loss equal to the difference between the fair value and the carrying amount of the equity investment. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company adopted the requirements of this standard during the first quarter of 2018. In February 2016, the FASB issued new guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018. We continue to evaluate the impact the adoption of this standard will have on our Condensed Consolidated Financial Statements. In August 2016, the FASB issued guidance on the classification of certain cash receipts and cash payments within the statement of cash flows. This guidance provides clarification for the following types of transactions: debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance, distributions received from equity method investees and beneficial interest in securitization transactions. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. However, early adoption was permitted and an entity that elects early adoption must adopt all of the amendments on a retrospective basis in the period of adoption. The Company adopted this standard in the fourth quarter of 2017. In November 2016, the FASB issued guidance to address the diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments in this standard require that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company adopted the requirements of this standard during the first quarter of 2018 and appropriate disclosures are included on the statement of cash flows to the extent applicable. In January 2017, the FASB issued guidance to clarify the definition of a business to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this standard provide a screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments also narrow the definition of the term “output” so that the term is consistent with how outputs are described in the new guidance for revenue recognition. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company adopted the requirements of this standard during the first quarter of 2018. In March 2017, the FASB issued guidance to disaggregate the current service cost component from the other components of net periodic benefit costs. The service cost component should be presented within compensation costs while the other components should be presented outside of income from operations. The guidance also clarifies that only the service cost component is eligible for capitalization. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company adopted the requirements of this standard during the first quarter of 2018 and the prior periods were restated as follows:
|  | Original |  |  |  |  | Revised |
|  | Balance |  | Adjustment |  | Balance |
Revised Condensed Consolidated Statements of Income |  |  |  |  |  |  |  |  |  |
Three Months Ended June 30, 2017 |  |  |  |  |  |  |  |  |  |
Cost of sales (exclusive of depreciation and amortization) |  | $ | 399,954 |  | $ | (290) |  | $ | 399,664 |
Selling, research & development and administrative |  |  | 95,659 |  |  | (203) |  |  | 95,456 |
Total Operating Expenses |  |  | 532,855 |  |  | (493) |  |  | 532,362 |
Operating Income |  |  | 84,891 |  |  | 493 |  |  | 85,384 |
Miscellaneous, net |  |  | 1,768 |  |  | (493) |  |  | 1,275 |
Total Other (Expense) Income |  |  | (5,323) |  |  | (493) |  |  | (5,816) |
Income before Income Taxes |  |  | 79,568 |  |  | — |  |  | 79,568 |
Six Months Ended June 30, 2017 |  |  |  |  |  |  |  |  |  |
Cost of sales (exclusive of depreciation and amortization) |  | $ | 784,886 |  | $ | (538) |  | $ | 784,348 |
Selling, research & development and administrative |  |  | 197,175 |  |  | (437) |  |  | 196,738 |
Total Operating Expenses |  |  | 1,056,634 |  |  | (975) |  |  | 1,055,659 |
Operating Income |  |  | 162,428 |  |  | 975 |  |  | 163,403 |
Miscellaneous, net |  |  | 1,691 |  |  | (975) |  |  | 716 |
Total Other (Expense) Income |  |  | (13,380) |  |  | (975) |  |  | (14,355) |
Income before Income Taxes |  |  | 149,048 |  |  | — |  |  | 149,048 |
In May 2017, the FASB issued clarification on applying the standards for stock compensation accounting. The new standard provides guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company adopted the requirements of this standard during the first quarter of 2018. In August 2017, the FASB issued new guidance to improve the accounting for hedging activities. The guidance changes the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the guidance makes certain targeted improvements to simplify the application of the hedge accounting guidance in current U.S. GAAP. The new standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. However, early application is permitted in any interim period after the issuance of this guidance. The Company adopted this standard in the third quarter of 2017. See details in Note 9 – Derivative Instruments and Hedging Activities. Other accounting standards that have been issued by the FASB or other standards-setting bodies did not have a material impact on our Condensed Consolidated Financial Statements.
RETIREMENT OF COMMON STOCK | RETIREMENT OF COMMON STOCK During the first six months of 2018, the Company repurchased 668 thousand shares of common stock, of which 623 thousand shares were immediately retired. During the first six months of 2017, the Company repurchased 822 thousand shares of common stock, of which 512 thousand shares were immediately retired. Common stock was reduced by the number of shares retired at $0.01 par value per share. The Company allocates the excess purchase price over par value between additional paid-in capital and retained earnings.
INCOME TAXES | INCOME TAXES The Company computes taxes on income in accordance with the tax rules and regulations of the many taxing authorities where income is earned. The income tax rates imposed by these taxing authorities may vary substantially. Taxable income may differ from pre-tax income for financial accounting purposes. To the extent that these differences create temporary differences between the tax basis of an asset or liability and our reported amount in the financial statements, an appropriate provision for deferred income taxes is made. The Tax Cuts and Jobs Act (the “TCJA”) was enacted in the United States (“U.S.”) on December 22, 2017. The TCJA lowered the corporate tax rate from 35.0% to 21.0% and imposed a one-time transition tax on unremitted earnings as of the end of 2017, and featured many other tax law provisions. New provisions for 2018 include, most notably, a tax on global intangible low-taxed income (“GILTI”) and the base erosion anti-abuse tax (“BEAT”). The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the U.S. GAAP application of the TCJA. SAB 118 provides us up to a year to finalize accounting for the impacts of the TCJA. The Company estimated provisional tax amounts related to the transition tax and components of the revaluation of deferred tax assets and liabilities for the period ended December 31, 2017. We recognized a net tax charge of approximately $24.7 million, comprised of a provisional charge of $31.6 million for the transition tax and a provisional benefit of $6.8 million related to the corporate rate change. For the quarter ended June 30, 2018, the Company recorded a benefit of $3.5 million to reflect an adjustment to the calculation of the transition tax. This adjustment reflects the guidance given in Treasury Notice 2018-26, which allows for the allocation of tax expense in computing the earnings and profits as of November 2, 2017 for purposes of the transition tax. The Company expects both provisional amounts to be finalized in the second half of 2018 when the 2017 tax return is filed. The Company has elected to account for the tax on GILTI as a period cost and not as a measure of deferred taxes in the current period. All of the Company’s non-U.S. earnings are subject to U.S. taxation, either from the TCJA transition tax on accumulated non-U.S. earnings as of the end of 2017 or the GILTI provisions on non-U.S. earnings going forward. The Company maintains its assertion that the cash and distributable reserves at its non-U.S. affiliates are indefinitely reinvested. The Company will provide for the necessary withholding and local income taxes when management decides that an affiliate should make a distribution. These decisions are made taking into consideration the financial requirements of the non-U.S. affiliates and the global cash management goals of the Company. The Company provides a liability for the amount of unrecognized tax benefits 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 5 - Income Taxes for more information.

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