AptarGroup - 10-Q quarterly report FY

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 o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (July 24, 2008).

     

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

See accompanying unaudited notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

See accompanying unaudited notes to condensed consolidated financial statements.

See accompanying unaudited notes to condensed consolidated financial statements.

See accompanying unaudited notes to condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements

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

(Unaudited)

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.

     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, 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. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. Accordingly, these unaudited 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, 2007. The results of operations of any interim period are not necessarily indicative of the results that may be expected for the year.

At June 30, 2008 and December 31, 2007, approximately 20% and 23%, respectively, of the total inventories are accounted for by using the LIFO method. Inventories, by component net of reserves, consisted of:

     Aggregate amortization expense for the intangible assets above for the quarters ended June 30, 2008 and 2007 was $1,267 and $1,114, respectively. Aggregate amortization expense for the intangible assets above for the six months ended June 30, 2008 and June 30, 2007 was $2,495 and $2,188, respectively.

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

In order to meet or exceed minimum funding levels required by U.S. law, the Company expects to contribute approximately $4.5 million to its domestic defined benefit plans in 2008 and has contributed $1.0 million as of June 30, 2008. During the quarter ended June 30, 2008, the Company decided that it will make contributions in 2008 to certain of its European pension plans that have not been funded in the past. Accordingly, the Company expects to contribute approximately $22 million to its foreign defined benefit plans in 2008 and as of June 30, 2008, has contributed approximately $0.3 million.

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 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 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.

The Company has an interest rate swap to convert a portion of its fixed-rate debt into variable-rate debt. Under the interest rate swap contract, the Company exchanges, at specified intervals, the difference between fixed-rate and floating-rate amounts, which is calculated based on an agreed upon notional amount.

     As of June 30, 2008, the Company recorded the fair value of derivative instrument of $0.9 million in other non-current assets with a corresponding increase to debt related to the fixed-to-variable interest rate swap agreement with a notional principal value of $15 million. No gain or loss related to the change in fair value was recorded in the income statement for the three and six months ended June 30, 2008 or 2007 as any hedge ineffectiveness for the period was immaterial.

     During the six months ended June 30, 2008, 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. The Company’s foreign currency forward contracts hedge forecasted transactions for approximately four years (March 2012).

     The Company entered into two treasury rate locks to hedge the changes in cash flows of anticipated interest payments from changes in treasury rates prior to the issuance of new debt instruments. The Company accounts for the treasury rate locks as cash flow hedges. At June 30, 2008, $0.6 million is included in accounts payable and other accrued liabilities with the offset in accumulated other comprehensive loss which will be amortized into interest expense during the life of the new debt instruments (5 and 10 years) related to these treasury locks.

A significant number of the Company’s operations are located outside of the United States. Because of this, movements in exchange rates may have a significant impact on the translation of the financial condition and results of operations of the Company’s foreign entities. A weakening U.S. dollar relative to foreign currencies has an additive translation effect on the Company’s financial condition and results of operations. Conversely, a strengthening U.S. dollar has a dilutive effect. The Company in some cases maintains debt in these subsidiaries to offset the net asset exposure. The Company does not otherwise actively manage this risk using derivative financial instruments. In the event the Company plans on a full or partial liquidation of any of its foreign subsidiaries where the Company’s net investment is likely to be monetized, the Company will consider hedging the currency exposure associated with such a transaction.

As of June 30, 2008, the Company recorded the fair value of foreign currency forward exchange contracts of $1.4 million in accounts payable and accrued liabilities, $49 in prepayments and other and $2.4 million in deferred and other non-current liabilities in the balance sheet. All forward exchange contracts outstanding as of June 30, 2008 had an aggregate contract amount of $148.5 million.

The Company, in the normal course of business, is subject to a number of lawsuits and claims both actual and potential in nature. Management believes the resolution of these claims and lawsuits will not have a material adverse or positive effect on the Company’s financial position, results of operations or cash flow.

     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 had no liabilities recorded for these agreements as of June 30, 2008.

     The Company had a commitment at June 30, 2008 to purchase a building it was leasing. The cost of the building was approximately $9.5 million and will be accounted for as a capital expenditure in the quarter ending September 30, 2008.

During the quarter ended June 30, 2008, the Company repurchased 459 thousand shares for an aggregate amount of $20.3 million. As of June 30, 2008, the Company had outstanding authorizations to repurchase up to approximately 1.1 million shares. The timing of and total amount expended for the share repurchase depends upon market conditions.

     On July 17, 2008, the Company’s Board of Directors authorized the Company to repurchase an additional four million shares of its outstanding common stock. There is no expiration date for this repurchase program.

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:

 

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 spray and lotion dispensing systems primarily to the personal care, fragrance/cosmetic and household markets form the Beauty & Home segment. Operations that sell dispensing systems to the pharmaceutical market form the Pharma segment. Operations that sell closures to each market served by AptarGroup form the Closures 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, 2007. The Company evaluates performance of its business segments and allocates resources based upon earnings before interest expense in excess of interest income, stock option and corporate expenses, income taxes and unusual items (collectively referred to as “Segment Income”).

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The reported effective tax rate decreased to 30% for the three and six months ended June 30, 2008 compared to 31.5% for the same periods of 2007 reflecting the reduction of the German and Italian statutory tax rates effective in 2008 as well as higher research and development credits expected to be received in France in 2008.

We reported net income of $45.3 million and $82.2 million in the three and six months ended June 30, 2008, respectively, compared to $37.0 million and $66.5 million for the same periods in the prior year.

Operations that sell spray and lotion dispensing systems primarily to the personal care, fragrance/cosmetic and household markets form the Beauty & Home segment.

     Net sales for the quarter ended June 30, 2008 increased 15% in the second quarter of 2008 to $288.9 million compared to $250.2 million in the second quarter of the prior year. The weakening U.S. dollar compared to the Euro positively impacted sales and represented approximately 11% of the 15% increase. Acquisitions were not material in the quarter. Sales excluding foreign currency changes to the personal care market increased approximately 3% in the second quarter of 2008 compared to the same period in the prior year. The general weak economic environment in the U.S. was the primary reason for the slowing growth in this market in the quarter. Sales of our products excluding foreign currency changes to the fragrance/cosmetic market increased 6% in the second quarter of 2008 compared to the second quarter of 2007. Demand for our innovative mini packaging products, airless dispensing systems and decorating accessories helped to offset weak demand in our traditional U.S. and Western Europe markets. General market demand in developing markets such as Latin America, Eastern Europe and Russia remained strong in the second quarter.

     Net sales for the first six months of 2008 increased 16% in the first six months of 2008 to $572.7 million compared to $492.1 million in the first six months of the prior year. The weakening U.S. dollar compared to the Euro positively impacted sales and represented approximately 10% of the 16% increase in sales. Sales excluding foreign currency changes to the personal care market increased approximately 5% in the first half of 2008 compared to the first half of 2007. Sales of our products excluding foreign currency changes to the fragrance/cosmetic market increased more than 7% in the first half of 2008 compared to the first half of 2007.

     Segment income in the second quarter of 2008 increased approximately 2% to $26.8 million compared to $26.4 million reported in the same period in the prior year. Rising input costs primarily in the U.S. negatively impacted the segment income in the quarter. Offsetting this negative impact was the positive impact coming from the weakening U.S. dollar and the increased sales volumes mentioned above.

     Segment income in the first six months of 2008 increased approximately 7% to $56.2 million compared to $52.6 million reported in the same period in the prior year. The increase in segment income in the first half of 2008 was primarily due to the reasons mentioned above as well as a positive mix of products sold in the first quarter.

The Closures segment designs and manufactures primarily dispensing closures. These products are sold primarily to the personal care, household and food/beverage markets.

     Net sales for the quarter ended June 30, 2008 increased approximately 19% in the second quarter of 2008 to $144.2 million compared to $121.5 million in the second quarter of the prior year. The weakening U.S. dollar compared to the Euro positively impacted sales and represented approximately 9% of the 19% increase. Resin related price increases also positively contributed to the increase in sales. Sales excluding changes in foreign currency to the personal care market increased approximately 10% in the second quarter of 2008 compared to the same period in the prior year. Approximately 8% of the 10% increase in sales to this market was due to sales of custom tooling. Sales excluding changes in foreign currency to the food/beverage market increased 15% reflecting continued customer acceptance of dispensing closures for condiments and other food and beverage related products. Sales excluding changes in foreign currency to the household market decreased 15%. The primary reason for the decrease was due to lower sales in Europe related to laundry care products.

     Net sales for the first six months of 2008 increased approximately 15% in the first six months of 2008 to $278.5 million compared to $241.5 million in the first six months of the prior year. Once again, the weakening U.S. dollar compared to the Euro positively impacted sales and represented approximately 8% of the 15% increase. Resin related price increases also positively impacted the sales for the first half of the year. Sales excluding foreign currency changes to the personal care market increased approximately 3% in the first six months of 2008 compared to the same period in the prior year, primarily due to an increase in sales of custom tooling. Sales to the food/beverage market increased 22%, of which approximately 7% was due to higher sales of custom tooling. Sales to the household market decreased 10% due primarily to decreased sales in Europe of laundry care products.

     Segment income in the second quarter of 2008 decreased approximately 4% to $12.8 million compared to $13.4 million reported in the same period in the prior year. The decrease in segment income is primarily due to the normal lag between rising resin costs and our ability to pass these increased costs on to our customers. In addition, softer demand in certain markets led to underutilized capacity and fixed overhead costs.

     Segment income in the first six months of 2008 decreased approximately 12% to $24.1 million compared to $27.3 million reported in the same period of the prior year. The decrease in segment income is due primarily to the same reasons mentioned above.

Operations that sell dispensing systems to the pharmaceutical market form the Pharma segment.

     Our Net sales for the Pharma segment grew by 17% in the second quarter of 2008 to $118.2 million compared to $101.2 million in the second quarter of 2007. Changes in foreign currency rates positively impacted the sales growth and accounted for approximately 13% of the 17% sales growth. Sales of tooling to customers decreased in the second quarter of 2008 compared to the same period in the prior year and negatively impacted sales growth in the quarter by approximately 2%. The remainder of the increase in sales is due to increased sales of both our nasal spray pumps used primarily on allergy related products and metered dose inhaler valves used on asthma related products. The increased sales of metered dose inhaler valves also contributed to the sales growth.

     Our Net sales for the Pharma segment grew by 23% in the first six months of 2008 to $232.4 million compared to $189.1 million in the first six months of 2007. Changes in foreign currency rates positively impacted the sales growth by approximately 13% for the first half of 2008. The remaining 10% increase in sales was primarily due to the strong demand for our nasal spray pumps, primarily for allergy related products. Sales of our metered dose inhaler valves for the first half of the year were lower than the prior year primarily due to weak sales in the first quarter of this year.

     Segment income in the second quarter of 2008 increased approximately 33% to $35.0 million compared to $26.4 million reported in the same period in the prior year. The significant improvement in profitability is primarily due to the increase in product sales, more profitable mix of sales to customers and better utilization of fixed overheads due to the increased sales.

     Segment income in the first six months of 2008 increased approximately 32% to $64.9 million compared to $49.0 million reported in the same period in the prior year. The increase in profitability for the first six months is due to the same reasons mentioned above.

A significant number of our 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 statements of our foreign entities. Our primary foreign exchange exposure is to the Euro, but we have foreign exchange exposure to South American and Asian currencies, among others. We manage our exposures to foreign exchange principally with forward exchange contracts to hedge certain transactions and firm purchase and sales commitments denominated in foreign currencies. A weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial statements. Conversely, a strengthening U.S. dollar has a dilutive effect. In some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Changes in exchange rates on such inter-country sales could materially impact our results of operations.

Our results of operations in the second half of the year typically are negatively impacted by customer plant shutdowns in the summer months in Europe and plant shutdowns in December. In the future, our results of operations in a quarterly period could be impacted by factors such as changes in product mix, changes in material costs, changes in growth rates in the industries to which our products are sold, recognition of equity based compensation expense for retirement eligible employees in the period of grant and changes in general economic conditions in any of the countries in which we do business.

     Our estimated stock option expense on a pre-tax basis (in $ millions) for the year 2008 compared to the prior year is as follows:

Our primary sources of liquidity are cash flow from operations and our revolving credit facility. Cash and equivalents decreased to $296.6 million from $313.7 million at December 31, 2007. Total short and long-term interest bearing debt increased slightly in the first six months of 2008 to $370.8 million from $362.9 million at December 31, 2007. The ratio of our Net Debt (interest bearing debt less cash and cash equivalents) to Net Capital (stockholder’s equity plus Net Debt) increased slightly at the end of June 2008 to 6% compared to the prior year end of 4%.

     In the first six months of 2008, our operations provided approximately $98.3 million in cash flow compared to $92.2 million for the same period a year ago. The increase in cash flow is primarily attributable to an increase in earnings before depreciation partially offset by an increase in working capital needs to support the growth in the business. During the first six months of 2008, we utilized the majority of the operating cash flows to finance capital expenditures.

     We used $103.3 million in cash for investing activities during the first six months of 2008, compared to $60.9 million during the same period a year ago. The increase in cash used for investing activities is due primarily to $34.2 million more spent on capital expenditures in the first half of 2008 compared to the first half of 2007. The increase in capital expenditures is primarily related to the timing of payments for the expansion of a facility in France for our Pharma segment, investment in a new worldwide ERP system, and investments related to capacity increases for certain of our product lines. In addition, the stronger Euro compared to the dollar in 2008 is also impacting the year over year comparison of capital expenditures. Cash outlays for capital expenditures for 2008 are estimated to be approximately $180 million but could vary due to changes in currency rates. In addition, approximately $9.3 million in cash was used to acquire the bag-on-valve business of CCL Industries described in Note 11.

     We used approximately $33.8 million in cash from financing activities in the first half of 2008 compared to $11.6 million in the first half of the prior year. The increase in cash used from financing activities is due primarily to a decrease of approximately $22.1 million of proceeds from short term notes payable in the first half of 2008 compared to the prior year.

     Dividends of approximately $44.6 million were received from Europe in the quarter ended June 30, 2008, which helped reduce our need for additional short-term debt proceeds.

Our revolving credit facility and certain long-term obligations require us to satisfy certain financial and other covenants including:

     Based upon the above debt to total capital ratio covenant we would have the ability to borrow an additional $1.2 billion before the 55% requirement would be exceeded.

     Our foreign operations have historically met cash requirements with the use of internally generated cash or borrowings. Foreign subsidiaries have financing arrangements with several foreign banks to fund operations located outside the U.S., but all these lines are uncommitted. Cash generated by foreign operations has generally been reinvested locally. The majority of our $296.6 million in cash and equivalents is located outside of the U.S.

     We believe we are in a strong financial position and have the financial resources to meet business requirements in the foreseeable future. We have historically used cash flow from operations as our primary source of liquidity. In the event that customer demand would decrease significantly for a prolonged period of time and negatively impact cash flow from operations, we would have the ability to restrict and significantly reduce capital expenditure levels, which historically have been the most significant use of cash for us. A prolonged and significant reduction in capital expenditure levels could increase future repairs and maintenance costs as well as have a negative impact on operating margins if we were unable to invest in new innovative products.

     We have refinanced $100 million of existing borrowings with private placement debt on July 31, 2008.

     We anticipate that we will contribute before the end of 2008, approximately $22 million to certain of our European pension plans that have not been funded in the past.

     On July 17, 2008, the Board of Directors declared an increase to the quarterly dividend from $0.13 per share to $0.15 per share payable on August 20, 2008 to stockholders of record as of July 30, 2008. In addition the Board authorized the repurchase of an additional 4 million shares of the Company’s common stock. There is no expiration for this repurchase program.

We lease certain warehouse, plant and office facilities as well as certain equipment under noncancelable operating leases expiring at various dates through the year 2055. Most of the operating leases contain renewal options and certain equipment leases include options to purchase during or at the end of the lease term. We had an option on one building lease to purchase the building during or at the end of the term of the lease at approximately the amount expended by the lessor for the purchase of the building and improvements, which was the fair value of the facility at the inception of the lease. This lease had been accounted for as an operating lease. The Company exercised its option to purchase this building in July of 2008 and will account for this transaction as a capital expenditure in the quarter ending September 30, 2008. The cost of the building is approximately $9.5 million. Other than operating lease obligations, we do not have any off-balance sheet arrangements.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase. SFAS No. 141(R) also sets forth the disclosures required to be made in the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, SFAS No. 141(R) will be applied by the Company to business combinations occurring on or after January 1, 2009.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards that require that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. SFAS No. 160 also requires that any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure requirements to identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements are applied retrospectively for all periods presented. The Company currently has immaterial noncontrolling interests in two subsidiaries. The Company does not believe that the adoption of SFAS No. 160 will materially impact the presentation of the financial results of the Company.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133,” (SFAS 161). SFAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities, including (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under SFAS 133, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This standard becomes effective on January 1, 2009. Earlier adoption of SFAS 161 and, separately, comparative disclosures for earlier periods at initial adoption are encouraged. As SFAS 161 only requires enhanced disclosures, this standard will have no impact on the financial position, results of operations, or cash flows of the Company.

     In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets,” (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142) in order to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R) and other GAAP. FSP FAS 142-3 becomes effective on January 1, 2009. Management has concluded that the adoption of FSP FAS 142-3 will not have a material impact on the Financial Statements.

Due to the difficult economic environment in both the U.S. and Western Europe, we anticipate softer demand from the fragrance/cosmetic and personal care markets within the Beauty and Home segment in both of these geographic areas. Sales from the Pharma segment are expected to remain near the second quarter levels while sales from the Closures segment are expected to improve due to new customer product launches expected in the second half of the year.

     We anticipate that the increased profit margin in the Pharma segment experienced in the second quarter will return to more historic levels in the third quarter.

     Input costs are expected to continue to increase going into the third quarter. The cost of resin in the U.S. is expected to increase again in July from already historically high levels. Metal prices, particularly, tinplate and aluminum, are showing signs of increasing prices. Finally the cost to anodize our metal parts is increasing dramatically due to the increase in the market price of phosphoric acid (one of the chemicals used in the anodization process). Our ability to pass on these rising input costs to our customers within our normal delay will be an important factor in determining the third quarter results.

     We anticipate that diluted earnings per share for the third quarter of 2008 will be in the range of $0.55 to $0.58 per share, compared to $0.56 per share in the prior year, which included a positive impact of $0.03 per share related to a reduction in net deferred tax liabilities stemming from a change in the German tax law.

This Management’s Discussion and Analysis and certain other sections of this Form 10-Q contain forward-looking statements that involve a number of risks and uncertainties. Words such as “expects,” “anticipates,” “believes,” “estimates,” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. Forward-looking statements are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on our beliefs as well as assumptions made by and information currently available to us. Accordingly, our actual results may differ materially from those expressed or implied in such forward-looking statements due to known or unknown risks and uncertainties that exist in our operations and business environment, including but not limited to:

     Although we believe that our forward-looking statements are based on reasonable assumptions, there can be no assurance that actual results, performance or achievements will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. For additional risk factors affecting AptarGroup stock and AptarGroup’s operations or operating results, refer to Item 1A of the Company’s Annual Report on Form 10-K for the period ended December 31, 2007.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A significant number of our operations are located outside of the United States. Because of this, movements in exchange rates may have a material impact on the translation of the financial condition and results of operations of our entities. Our primary foreign exchange exposure is to the Euro, but we also have foreign exchange exposure to South American and Asian currencies, among others. A weakening U.S. dollar relative to foreign currencies has an additive translation effect on our financial condition and results of operations. Conversely, a strengthening U.S. dollar has a dilutive effect.

     Additionally, in some cases, we sell products denominated in a currency different from the currency in which the related costs are incurred. Any changes in exchange rates on such inter-country sales may impact our results of operations.

     We manage our exposures to foreign exchange principally with forward exchange contracts to hedge certain firm purchase and sales commitments and intercompany cash transactions denominated in foreign currencies.

     The table below provides information as of June 30, 2008 about our forward currency exchange contracts. The majority of the contracts expire before the end of the second quarter of 2009 with the exception of a few contracts on intercompany loans that expire in the third quarter of 2013.

     As of June 30, 2008, we have recorded the fair value of foreign currency forward exchange contracts of $1.4 million in accounts payable and accrued liabilities, $49 in prepayments and other and $2.4 million in deferred and other non-current liabilities in the balance sheet.

     At June 30, 2008, we had a fixed-to-variable interest rate swap agreement with a notional principal value of $15 million which requires us to pay an average variable interest rate (which was 2.8% at June 30, 2008) and receive a fixed rate of 6.6%. The variable rate is adjusted semiannually based on London Interbank Offered Rates (“LIBOR”). Variations in market interest rates would produce changes in our net income. If interest rates increase by 100 basis points, net income related to the interest rate swap agreement would decrease by approximately $0.1 million assuming a tax rate of 30%. As of June 30, 2008, we recorded the fair value of the fixed-to-variable interest rate swap agreement of $0.9 million in miscellaneous other assets with an offsetting adjustment to debt. No gain or loss was recorded in the income statement in 2008 since there was no hedge ineffectiveness.

     The Company also entered into two treasury rate locks to manage its exposure against changes in future interest payments attributable to changes in the U.S. Treasury rates. By entering into these agreements, the Company locked in an agreed upon interest rates until the settlement of the contracts. The Company accounts for the treasury rate locks as cash flow hedges. These contracts were closed on June 30, 2008. At June 30, 2008, $0.6 million is included in accounts payable and other accrued liabilities, and $0.6 million is included in accumulated other comprehensive loss which will be amortized into interest expense during the life of the new debt instruments (5 and 10 years) related to these treasury locks.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management has evaluated, with the participation of the chief executive officer and chief financial officer of the Company, the effectiveness of the Company’s disclosure controls and procedures (as that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2008. Based on that evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures were effective as of such date.