Financial Statement Analysis - Texas Tech Universitymmoore.ba.ttu.edu/ValuationReports/Spring-2016/Aptargroup, Inc... · Five Forces Model ... dispensing device and are used for products

Financial Statement Analysis

Hunter Ryffel [email protected]

Micheal Sura [email protected]

Garret Bruce [email protected]

Joe Brewer [email protected]

Jesse Ricones [email protected]

Miles Arbuckle [email protected]

mailto:[email protected]

mailto:[email protected]

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Table of Contents

Executive Summary ................................................................................................... 8

Industry analysis .................................................................................................. 10

Accounting analysis .............................................................................................. 12

Financial analysis ................................................................................................. 13

Valuation Analysis ................................................................................................ 18

Company Overview ................................................................................................. 20

Industry Overview................................................................................................ 21

Five Forces Model ................................................................................................... 22

Rivalry among Competitors ...................................................................................... 22

Industry Growth Rate ........................................................................................... 23

Industry Concentration ......................................................................................... 24

Fixed-to-Variable Costs ......................................................................................... 24

Switching Costs ................................................................................................... 25

Exit Barriers ......................................................................................................... 26

Conclusion ........................................................................................................... 26

Threat of New Entrants ........................................................................................... 26

Barriers to Entry .................................................................................................. 27

Distribution Access and Relationships .................................................................... 27

Conclusion ........................................................................................................... 27

Threat of Substitutes ............................................................................................... 28

Relative Price and Performance ............................................................................. 28

Conclusion ........................................................................................................... 28

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Bargaining Power of Suppliers ................................................................................. 29

Supplier Concentration ......................................................................................... 29

Conclusion ........................................................................................................... 30

Bargaining Power of Customers ............................................................................... 30

Competitor Concentration ..................................................................................... 30

Conclusion ........................................................................................................... 30

Porter’s Five Forces Conclusion ................................................................................ 31

Key Success Factors ................................................................................................ 32

Industry’s Competitive Advantages ....................................................................... 33

Low Input Costs ................................................................................................... 33

Low Distribution Costs .......................................................................................... 33

Efficient Production .............................................................................................. 34

Flexible Delivery ................................................................................................... 34

Conclusion ........................................................................................................... 34

AptarGroup’s Competitive Advantages ................................................................... 35

Production Process ............................................................................................... 35

Geographic Diversity ............................................................................................ 35

Local Production .................................................................................................. 36

Accounting Analysis................................................................................................. 36

Type One Accounting Policies ............................................................................... 37

Low Input Costs ................................................................................................... 37

Low Distribution Costs .......................................................................................... 38


Type Two Accounting Policies ............................................................................... 39

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Goodwill .............................................................................................................. 40

Research and Development .................................................................................. 40

Foreign conversion risk ......................................................................................... 41

Operating leases .................................................................................................. 42

Conclusion ........................................................................................................... 42

Accounting Flexibility Assessment ............................................................................ 43

Goodwill .............................................................................................................. 43


Capital vs. Operating Leases ................................................................................. 44

Conclusion ........................................................................................................... 45

Evaluation of Actual Accounting Strategy .................................................................. 45

Goodwill .............................................................................................................. 46

Research & Development ..................................................................................... 46

Operating Leases ................................................................................................. 47

Quality of Disclosure - Type One .............................................................................. 48


Low Input Costs ................................................................................................... 49

Distribution Costs ................................................................................................. 49

Quality of Disclosure – Type Two ............................................................................. 50

Goodwill .............................................................................................................. 50


Foreign Conversion Risk ....................................................................................... 51

Operating Leases ................................................................................................. 52

Potential “Red Flags” ............................................................................................... 52

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Goodwill .............................................................................................................. 53

Research & Development ..................................................................................... 53

Conclusion ........................................................................................................... 54

Financial Statements ............................................................................................... 54

Balance sheets ..................................................................................................... 54

Income statements .............................................................................................. 57

Conclusion ........................................................................................................... 59

Financial Analysis .................................................................................................... 59

Liquidity Ratios ....................................................................................................... 59

Current Ratio ....................................................................................................... 60

Quick Asset Ratio ................................................................................................. 62

Conclusion ........................................................................................................... 63

Operating Efficiency Ratios ...................................................................................... 63

Inventory Turnover .............................................................................................. 64

Accounts Receivable Turnover .............................................................................. 65

Working Capital Turnover ..................................................................................... 67

Days Supply of Inventory ..................................................................................... 68

Days Sales Outstanding ........................................................................................ 69

Cash to Cash Cycle .............................................................................................. 71

Conclusion ........................................................................................................... 72

Profitability Ratios ................................................................................................... 73

Annual Sales Growth ............................................................................................ 73

Gross Profit Margin .............................................................................................. 74

Operating Profit Margin ........................................................................................ 76

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Net Profit Margin.................................................................................................. 78

Asset Turnover .................................................................................................... 79

Return on Assets.................................................................................................. 81

Return on Equity .................................................................................................. 82

Conclusion ........................................................................................................... 83

Capital Structure Ratios ........................................................................................... 84

Debt to Equity Ratio ............................................................................................. 84

Times Interest Earned .......................................................................................... 85

Debt Service Margin ............................................................................................. 87

Altman Z-Score .................................................................................................... 88

Internal Growth Rate ........................................................................................... 89

Sustainable Growth Rate ...................................................................................... 91

Conclusion ........................................................................................................... 92

Cost of Capital Estimation ........................................................................................ 92

Cost of Equity ...................................................................................................... 92

Backdoor Cost of Equity ....................................................................................... 94

Cost of Debt ........................................................................................................ 95

WACC (Weighted Average Cost of Capital) ............................................................ 96

Conclusion ........................................................................................................... 97

Forecasting Financial Statements ............................................................................. 97

Income Statement ............................................................................................... 98

Dividends Forecasting .......................................................................................... 99

Balance Sheet ...................................................................................................... 99

Cash Flow Statement ......................................................................................... 100

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Method of Comparables ......................................................................................... 101

Price to Earnings (P/E) Trailing ........................................................................... 101

Price to Earnings (P/E) Forecast .......................................................................... 102

Price to Book ..................................................................................................... 102

Dividends to Price .............................................................................................. 103

Price to Earnings Growth (PEG) .......................................................................... 104

Price to EBITDA ................................................................................................. 104

Price to Free Cash Flow ...................................................................................... 104

Enterprise Value to EBITDA ................................................................................ 105

Price to Sales ..................................................................................................... 105

Conclusion ......................................................................................................... 106

Intrinsic Model Valuation ....................................................................................... 106

Discounted Dividends Model ............................................................................... 107

Discounted Free Cash Flow Model ....................................................................... 108

Residual Income Model ...................................................................................... 109

Long-Run Residual Income Model ....................................................................... 110

Intrinsic Valuation Model Conclusion ................................................................... 112

APPENDIX ............................................................................................................ 113

References ........................................................................................................ 113

Forecasted Financial Statements ......................................................................... 113

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Executive Summary

Analyst Recommendation: Don’t buy (Overvalued)

April 1st, 2016

Observed Price 2011 2012 2013 2014 201552 Week Range Scores 4.366 4.404 4.374 4.573 4.018RevenueMarket CapitalizationShares Outstanding

As Stated Restated ValuedTrailing P/E 31.94 32.65 Overvalued

Return on Equity Forward P/E 21.19 22.87 OvervaluedReturn on Assets Price to Book 3.83 4.05 Overvalued

Dividend to Price 0.02 0.01 UndervaluedRegression Beta P.E.G. Ratio 2.55 2.78 Overvalued24 months 0.93 Price to EBITDA 59.67 62.03 Overvalued36 months 0.96 Price to FCF 154.89 N/A N/A48 months 0.99 EV/EBITDA 71.87 69.56 Undervalued60 months 0.91 Price to Sales 89.45 91.23 Overvalued72 months 0.93

As Stated Valued$28.78 Overvalued

Actual Lower Upper Free Cash Flows $34.97 OvervaluedCost of Equity 9.75% 8.43% 11.07% Residual Income $24.35 UndervaluedWACCBT 6.70% 6.07% 7.32% $26.13 OvervaluedWACCAT 6.02% 5.40% 6.64%

Cost of Capital

AptarGroup NYSE (04/1/2016) Altman Z-Scores$67.90

$60.73 - $80.36$2317.15 Million

$4.82 Billion Financial Based Valuations63.16 Million

23%10.90%

Intrinsic Based Valuations

Discounted Dividends

Long Run Residual Income

R Squared51.39%56.30%54.90%53.74%58.60%

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Figure 1.Error! No text of specified style in document..1 - Share price of AptarGroup in the last five years

Figure Error! No text of specified style in document..2 - Share price of AptarGroup and main competitors

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Industry analysis

AptarGroup, Inc. (ATR) is a worldwide manufacturer of plastic containers

and lids predominantly for the beauty, healthcare, homecare and prescription

drug markets, and the food and beverage industry.

We have identified Ball Corporation (BLL), Crown Holdings (CCK), and

Silgan Holdings (SLGN) as AptarGroup’s main competitors.

The primary products that AptarGroup produces today are dispensing

pumps, aerosol valves and closures. Dispensing pumps are a convenient

dispensing device and are used for products such as soap and shampoo.

We used the Porter’s Five Forces Model in order to determine the

profitability a firm could expect in the P&C industry.

Five Forces Model

Rivalry Among Existing Firms High

Threat of New Entrants Low

Threat of Substitute Products Medium

Bargaining Power of Customers High

Bargaining Power of Suppliers Low

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Rivalry among existing firms is very high due to the fact that the P&C

industry is a highly competitive market with both public and private firms

competing locally and internationally to provide high quality low cost products

(ATR, CCK, SLGN 10-K).

The threat of new entrants is low since the industry has high barriers to

entry and requires efficient distribution access. The average firm in the industry

has a market capitalization of $5.39 billion. This is supported by billions in assets,

supporting the statement that new firms would have to be large to be able to

compete.

The threat of substitute products is mixed-high within the industry. In the

P&C industry, the manufacturers produce goods cost-efficiently. It is difficult for

a potential substitute to undercut the market participants. The suppliers can also

protect themselves by the imposing the contractual obligations on customers.

The bargaining power of customers is high. The P&C industry is highly

saturated with local and international competitors. The industry is highly

competitive, allowing customers to set prices. On the other hand, the bargaining

power of suppliers is low due to the large number of suppliers and low switching

costs.

The P&C industry is in the sector of basic materials. The costs in this

sector are low; this focus on low cost output is the result of price-taking behavior

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of suppliers. We further assume that the industry is a price-taker in our

predictions of the factors that determine the success in the industry.

Accounting analysis

Accounting practices are reviewed and looked at to understand the nature

of the company and the packaging and container industry. It is very important

that we look at the accounting practices due to the flexibility that the Generally

Accepted Accounting Principles (GAAP) allows. The Flexibility of the GAAP on a

company’s financial statements can often hide information that needs to be

known when valuing a company. Many companies are hard to value due to the

lack of the financial statements disclosure. We have to look into the type 1

policies’ quality of disclosure in relation to the key success factors of the

company in comparison to the industry analysis. Then, we look at the type 2

policies which look at the distortion in the area of AptarGroup financial structure.

AptarGroup, Type 1 accounting policies, we evaluated the degree of

disclosure in terms of efficient production, low input costs, and distribution costs.

AptarGroup clearly represents risk in all of these three areas; therefore, type one

policies are not a major concern.

AptarGroup, Type 2 accounting policies, we evaluated operating leases to

find that the P&C industry is not heavily invested in operating leases. Operating

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leases account for 20% or less of non-current liabilities in the P&C industry.

Since it is a small portion of non-current liabilities, it was not considered to be a

red flag. AptarGroup’s goodwill accounts for 40% of the net fixed assets and was

identified as a potential red flag. Also AptarGroup’s lack of expensing R&D when

the cost is incurred raised another potential red flag.

From the account analysis we find that AptarGroup is not very accurate in

terms of disclosure and lacks enough reliable information for an accurate

evaluation. The lack of disclosure for type 2 accounting policies leads us to the

need of restating the financial statements of AptarGroup to adjust for the

potential red flags in goodwill and the expense of R&D.

Financial analysis

For the purpose of the analysis, we calculated the liquidity, capital

structure, and profitability ratios. We formed liquidity ratio analysis is based on

the current and quick ratios, inventory turnover, days supply inventory, accounts

receivable turnover, accounts receivable days, cash to cash cycle, and working

capital turnover.

Determining the liquidity ratios are a vital step when valuing a firm

because the results can show if a firm has the ability to continue as a going

concern or enough cash to cover debts when a creditor is expecting payment.

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Liquidity Ratio Analysis

Ratio Performance Trend

Current Ratio Outperforming Stable

Quick Ratio Outperforming Stable

Inventory Turnover Underperforming Stable

Days Supply Inventory Outperforming Stable

A/R Turnover Underperforming Stable

A/R Days Underperforming Stable

Cash to cash cycle Outperforming Stable

Working capital turnover Underperforming Increasing

AptarGroup is either completely outperforming all other competitors, or

underperforming showing the worst data comparing to their competitors and the

industry. The trends in liquidity ratio analysis are stable; the data has not been

fluctuating in the past five years.

To perform the profitability ratio analysis, we gathered and analyzed the

sales growth, gross profit margin, operating profit margin, net profit margin,

asset turnover, return on assets, and return on equity. The ratios show the

generated profit as a percent of the produced sales.

These ratios have a significant meaning for potential investors, since the

ratios measure the overall efficiency of a firm in generating returns for the

shareholders.

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Profitability Ratio Analysis


Sales Growth Average Unstable

Gross Profit Margin Outperforming Stable

Net Profit Margin Outperforming Stable

Asset Turnover Average Stable

Return on Assets Outperforming Stable

Return on Equity Average Stable

AptarGroup’s profitability ratios are appealing due to the fact that they are

either outperforming or at the industry’s average.

For the capital structure analysis, we evaluated the debt to equity ratio,

times interest earned, and the Altman’s Z-score. Altman’s Z-score shows whether

the company is heading towards bankruptcy. Since capital structure is the mix of

debt and equity, the debt to equity ratio provides with a better understanding of

the weight of debt and equity.

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Capital Structure Ratio Analysis


Debt to Equity Underperforming Stable

Times Interest Earned Outperforming Decreasing

Altman’s Z-score Average Unstable

After performing the ratio analysis, we forecasted the AptarGroup’ financial

statements. Although financial forecasts cannot be totally accurate, our trends

and ratio analysis help to be able to forecast with a reasonably high accuracy.

We forecasted growth rate, income statement, balance sheet, and the

statement of cash flows. To forecast the growth rate, we started by forecasting

the sales. Since sales growth rate is what drives the income forecast, the

forecast shows the data in accordance with the sales. Our forecasting of the

balance sheet is done through using the forecasting of the asset turnover ratio.

The forecast of the statement of cash flows usually has the lowest accuracy, due

to the fact that the statement of cash flows is the most volatile financial

statement.

Finally, we calculated AptarGroup’s cost of equity and cost of debt that

allowed us to estimate the weighted average cost of capital (WACC). The cost of

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debt takes into account all interest rates in proportion with the weight that is

allocated to each rate. To estimate cost of equity, we used both the backdoor

cost of equity and the CAPM formula. We further picked the CAPM method as our

main method in finding the cost equity.

We gathered necessary inputs for the CAPM formula from the St. Louis

Federal reserve website and the regression models.

20 year regressions

Months Beta

Beta

LB

Beta

UB R^2 SP MRP Rf Ke Ke LB Ke UB

24 0.932 0.530 1.33 51.39% 1.00% 7.00% 2.25% 9.78% 6.96% 12.59%

36 0.958 0.665 1.25 56.30% 1.00% 7.00% 2.25% 9.96% 7.90% 12.02%

48 0.994 0.726 1.26 54.90% 1.00% 7.00% 2.25% 10.21% 8.33% 12.09%

60 0.905 0.684 1.13 53.74% 1.00% 7.00% 2.25% 9.58% 8.04% 11.13%

72 0.928 0.740 1.12 58.58% 1.00% 7.00% 2.25% 9.75% 8.43% 11.07%

We also provided with the WACC before and after tax. The following table

tells us that AptarGroup pays an average of 6.02 cents for every dollar in their

extra funding.

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Market

Value

Amount (in

millions) Rate Weight W*R

Liabilities 1,289 3.97% 0.528538626 2.10%

Equity 1149.8 9.75% 0.471461374 4.60%

Firm Value 2,439 WACC 6.70%

WACC after

tax 6.02%

Valuation Analysis

After performing an industry analysis of AptarGroup, calculating the

correct cost of capital, discovering AptarGroup’s key accounting policies, and

forecasting AptarGroup’s financials, we are now able to value the company. The

evaluation will be based on AptarGroup’s April 1st share price of $79.09. We used

a 10% analysis to help us to decide whether the company was correctly valued,

overvalued, or undervalued.

The two methods that we used to determine our valuation of the company

were the intrinsic valuation models and the methods of comparables. The

intrinsic valuation models help us to evaluate the company using internal

information rather than using industry information. The models that we used

were the discount dividend model, discounted free cash flow model, residual

income model, and the long run residual income model. Each valuation model

takes advantage of using a sensitivity analysis model and includes our forecasted

financials to determine value under a variety of conditions. Intrinsic valuation has

a considerably higher weight when determining the valuation of the company.

We will also value residual income model and long run residual income model

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more than the other two models because as they have the highest level of

illustrative power.

The method of comparables approach is the second approach we used to

determine company valuation. This approach used ratio analysis to compare

AptarGroup to its industry competitors and forecast share price. This method

relies on only one year of date so the results can be unreliable or inaccurate.

This method will not be as heavily weighted when determining the valuation of

the company. After using the 10% analyst position, we have determined that

AptarGroup is an overvalued company in both the stated and restated basis. We

take more consideration by looking at the restated basis which leaves us to a

clear cut decision that the company is overvalued.

End of Executive Summary

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Company Overview

AptarGroup, Inc. (ATR) is a worldwide manufacturer of plastic containers

and lids predominantly for the beauty, healthcare, homecare and prescription

drug markets, and the food and beverage industry. AptarGroup was created in

the late 1940s when it first started producing aerosol valves. As of 2015

AptarGroup has 5000 customers around the world and none of those individual

customers accounted for more than 5% of its total sales (ATR 10-K). The

customers are both public and private firms from many countries from around

the world.

The primary products that AptarGroup produces today are dispensing

pumps, aerosol valves and closures. Dispensing pumps are a convenient

dispensing device and are used for products such as soap and shampoo. Its

products are used worldwide, and are gaining popularity for many different

products. Dispensing closures, which is another type of closure, is the

predominate type of closure produced which allows a product to be dispensed

from a container without removing the actual closure. AptarGroup also produces

medical vials and multiple medical products for the injectable industry (ATR 10-

K).

AptarGroup organizes its company into three segments: beauty, home and

pharma, food and Beverage. The beauty segment is the biggest segment and it

accounts for 58% of net sales. Pharms is the next largest section and it accounts

for 29% of net sales. Lastly food and beverage is the smallest segment

accounting for 13% of net sale. AptarGroup currently has 13,000 full time

employees. 2,100 are in the United States, 3,500 are in Asia, and 7,400 are in

Europe. AptarGroup is in the Packaging and Container (P&C) industry (ATR 10-

K).

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Industry Overview

We have identified Ball Corporation (BLL), Crown Holdings (CCK), and

Silgan Holdings (SLGN) as AptarGroup’s main competitors. We compared firms

on market cap, revenue, and operating segments to determine which firms were

the most similar to AptarGroup. Throughout the rest of our analysis we will

assume these four firms are representative of the industry at large.

The table above shows the similarity of the factors we compared for our

industry sample based on 2015 data (Yahoo).

Company Ticker Industry Market Cap RevenueAptarGroup ATR P&C - personal 4,750 2,317Ball Corporation BLL P&C - industry 10,190 7,997Crown Holdings CCK P&C - personal 7,450 8,762Silgan Holdings SLGN P&C - personal 3,100 3,764Industry Sample Industry P&C 6,373 5,710

Packaging and Container Industry

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Five Forces Model

We used the Porter’s Five Forces Model in order to determine the

profitability a firm could expect in the P&C industry. By determining where firms

have high or low competition, we can determine what the corporate strategies

firms should focus on to maximize profitability.

The Porter’s Five Forces Model evaluates the rivalry among existing firms,

the threat of substitutes, the threat of new entrants, the bargaining power of

suppliers, and the bargaining power of customers. As shown above, the P&C

industry has high overall competition.

Rivalry among Competitors

We began our Five Forces Analysis by examining the rivalry among

competitors. The sub-forces relevant to our industry are: the industry growth

rate, industry concentration, fixed-to-variable cost ratios, excess production

capacity, and the exit barriers (Palepu).

We believe that rivalry among competitors is the most telling of the five

forces because it has a broad influence on all other factors. If rivalry were high,

then firms would have less bargaining power due to greater threat of substitutes,

so they would be price-takers. If rivalry were low, then the firms would be price-

setters because of greater bargaining power. Therefore, we should be able to

determine the industry’s key success factors and AptarGroup’s competitive

advantages by deciding if the industry is a price-setter or price-taker.

The P&C industry is a highly competitive market with both public and

private firms competing locally and internationally to provide high quality low

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cost products (ATR, CCK, SLGN 10-K). Many firms buy supplies and manufacture

containers in Asian countries to minimize cost, which makes outside competition

difficult. We will show in the following sections why we believe that the firms in

the P&C industry are price-takers because of high competition and a lack of

bargaining power.

Industry Growth Rate

Companies will compete more aggressively during times of limited growth.

During times of slow growth, firms will focus on the industry’s key success

factors, (discussed after Five Forces) which make it more difficult to generate

revenue. Times of rapid economic expansion allows firms to focus on expansion

and repayment to shareholders (dividends and shares repurchases).

We used revenue growth as our metric for economic expansion. Since we

will use revenue as the basis of financial statement forecasting later, it is

consistent with our measure of historical and future growth.

As shown above there is overall low industry growth, especially between

2015 and 2014, which had a 6.2% decline in revenue. The 5 year revenue

growth average is 2.5%, which is below the 30 year T-Bond of 2.63% on 5/4/16

(CNBC). This indicates that the market is highly competitive, and we should

expect low prices in the industry.

Firm 2011 2012 2013 2014 2015 AverageATR 12.5% -0.3% 8.1% 3.1% -10.8% 2.5%BLL 13.1% 1.2% -3.1% 1.2% -6.7% 1.2%CCK 8.9% -2.0% 2.2% 5.1% -3.7% 2.1%

SLGN 14.2% 2.2% 3.4% 5.5% -3.8% 4.3%Industry 12.2% 0.3% 2.6% 3.7% -6.2% 2.5%

P&C Industry Revenue Growth

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Industry Concentration

We found that many companies compete internationally in the P&C

industry. Furthermore, most of these firms had greater market share (all in our

industry sample). In addition to these large competitors, the market is saturated

with local competitors that operate within specific geographic areas common to

the industry (All 10-K).

We compared the percent of overall sales each firm accounts for to

determine the concentration of our industry sample. AptarGroup averaged the

lowest revenue at only 10.4%; this is in contrast to BLL and CCK, which account

for over 70% of the market (35% each). This tells us that the P&C industry is

highly concentrated, with two firms accounting for over 70% of the market.

Beyond this, the table above shows us how the relative revenue is almost fixed

across the five years. The unchanging relative revenue reveals that the firms

have been competing effectively to maintain their market shares.

Fixed-to-Variable Costs

The P&C industry requires that firms have relatively high fixed costs (ATR,

BLL, CCK, SLGN 10-K). Since firms focus on efficient production, it is necessary

that firms have the necessary facilities and equipment to produce packages and

containers both cheaply and quickly (ATR, SLGN 10-K).

Firm 2011 2012 2013 2014 2015 AverageATR 10.1% 10.1% 10.8% 10.7% 10.1% 10.4%BLL 37.3% 37.8% 36.3% 35.4% 35.0% 36.4%CCK 37.4% 36.6% 37.1% 37.6% 38.4% 37.4%

SLGN 15.2% 15.5% 15.9% 16.2% 16.5% 15.8%

P&C Industry Revenue Concentration

25

Firms will typically produce in high volumes, which means that the variable

costs will rise quickly compared to fixed costs. Yet, since the variable costs

primarily consist of raw materials, companies will have comparatively high fixed-

to-variable costs (ATR, BLL, CCK 10-K).

The P&C industry is currently experiencing mixed, but an overall positive

trend in its variable costs. We believe that the variable costs are favorable

because of the continued low oil prices. We valued low oil prices more than a

rise in other raw materials because of its wide-reaching effects. When oil prices

drop, shipping becomes cheaper for both the P&C industry and its suppliers,

which should decrease the majority of input goods pricing. This positive trend is

important because it indicates that rivalry is slightly lower since firms are more

easily able to get healthy margins.

Switching Costs

We looked at switching costs to determine how likely customers are to

switch competitors. If there are high switching costs: new infrastructure,

employee training, or contractual obligations, then the customer will only switch

when there is a significant advantage. Whereas, when switching costs are low

then customers will often choose based on price or quality.

The switching costs in the P&C industry are low because there is usually

non-restrictive contracts, and there is no significant difference between one

package or container compared to another (ATR, BLL, CCK, SLGN 10-K).

Furthermore, since the P&C supplier does not materially affect what customers

can retail their products for, there is no additional value added (BLL 10-K). We

consider this to be a key factor of price-taking behavior, and expect it to greatly

increase rivalry among existing firms.

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Exit Barriers

Exit barriers can play a large role in the decision-making process of firms

looking to leave the industry. Since firms in the P&C industry invest heavily in

fixed assets, we looked at the growth of PP&E and the relative size of PP&E in

the table below.

Since P&C firms use specialized equipment, there is poor liquidity if a firm

needed to exit quickly. This could result in significant losses if a firm was forced

to exit because it was failing. Therefore, we believe firms will compete

aggressively with existing firms.

Conclusion

Overall, we believe the P&C industry has high rivalry among existing firms.

We based this on the fact that the industry has been experiencing low growth

(2.5%), is heavily concentrated (two firms = 70% revenue), there is high

overhead, customers have low switching costs, and there are high exit barriers.

Since all of these factors contribute to either lower margins or more aggressive

competition, this should increase the rivalry among existing firms.

Threat of New Entrants

We believe that there is a low threat of new entrants, which is beneficial to

firms already competing in the industry. We have identified the low threat

because the industry has high barriers to entry and requires efficient distribution

access.

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Barriers to Entry

Within the industry, the average firm has $5.39 billion in market cap (CSI

Market). This is supported by billions in assets, which makes it difficult for new

competitors to raise the capital investment required. Furthermore, the average

plant can take years to construct, which increases the financial commitment

(BLL, SLGN 10-Ks). The high capital barriers protect existing firms from new

entrants looking to enter the market.

Distribution Access and Relationships

Distribution access is the ability to move your product from your facility to

the customer. Because firms sell to customers across six continents, while

focusing on minimizing costs, it becomes important to have good relationships

with distributors. The ability to move goods quickly and cheaply is what

empowers firms to retain and attract new firms (ATR, CCK, SLGN 10-K).

Conclusion

The high capital requirements will prevent new firms from seeking to enter

the market. The long payback period and the current rivalry in the market should

prevent new international competitors from entering the industry. This is

advantageous to existing P&C firms because it limits their competition to existing

companies.

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Threat of Substitutes

The threat of substitute products is the risk of customers replacing

products currently sold by the industry with alternatives. The main two

determining factors to switching products are price and performance of the

substitute, and the customers’ willingness to switch products. Across the basic

materials sector replacing any product, including containers is simple. Therefore,

the risk of outside substitutes is low, but the risk of substitution within the

industry is mixed-high.

Relative Price and Performance

We found that switching costs are the main determinant of a customer’s

willingness to substitute products. Since there are no training costs associated

with switching suppliers, customers will only be affected by price and production

lead-times. Beyond the relative price of the goods, the expense of getting out of

a contract will determine a customer’s decision.

In the P&C industry goods are produced both cost-effectively and sold

cheaply. Therefore, it is difficult for a potential substitute to undercut the market

participants. Beyond this, firms could protect themselves by imposing contractual

obligations on customers. However, the competitive environment causes firms to

mainly impose short-term contracts, if any (BLL, CCK 10-K).

Conclusion

The threat of substitute products for this industry is mixed-high. Through

the use of short-term contracts, companies in the P&C industry create some

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barriers to substitution. However, the limited duration and lack of indirect

expenses minimizes their production. Therefore, customers can be expected to

substitute packaging and containers if a better price/quality product is offered.

This should increase the degree of price-taking behavior in the industry.

Bargaining Power of Suppliers

The bargaining power of suppliers is determined by the price sensitivity

and relative bargaining power. These factors are primarily affected by the

number of available suppliers and the availability of raw materials needed for

production.

Supplier Concentration

In the P&C industry, most of the input goods are plastics, resins, and types

of metal, which are sold by a large number of different suppliers (ATR, CCK,

SLGN 10-K). Since these goods are similar to a commodity in terms of price, the

supplier will have very-low bargaining power.

However, the P&C industry also uses specialized products, such as the

aerosol valve, which are sold by a limited number of “specialized” suppliers. We

believe the points of emphasis are that there are few suppliers, which are all

specialized. This should give these suppliers high bargaining power unless the

input is easily substituted. Yet, firms cannot easily substitute aerosol valves and

other specialized products, which maintains the high bargaining power.

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Conclusion

We find that the bargaining power of suppliers is mixed-low. Although

some suppliers for specialized inputs have high bargaining power, this accounts

for a small percentage of the overall input costs. Therefore, we gave it mixed-

low since the rest of these suppliers have low bargaining power.

Bargaining Power of Customers

The bargaining power of customers is determined similar to that of

suppliers. Customer’s mainly get their bargaining power from the number of

suppliers and the diversity among suppliers.

Competitor Concentration

As stated earlier, the P&C industry is highly saturated with local and

international competitors. Furthermore, the market is highly competitive with

relatively homogenous goods. This means that customers can easily choose a

different P&C company if they are unhappy with the price or quality of another.

This effect is magnified since there are low substitution costs for doing so (as we

showed earlier).

Conclusion

Customers of the P&C industry have high bargaining power. We believe

this because the industry has thousands of competitors that all provide similar

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products. The high bargaining power of customers should further contribute to

the P&C industry’s price-taking behavior.

Porter’s Five Forces Conclusion

The P&C industry is a part of the basic materials sector. This sector is

known for its low cost, high output behavior like the P&C industry. This focus on

low cost output is a result of price-taking behavior. As shown above, the P&C

industry has high rivalry among existing firms, mixed-high threat of substitutes,

and high customer bargaining power. These three factors all contribute greatly to

the price-taking behavior, especially rivalry among existing firms. Although there

is a low threat of new entrants, this does not offset the high rivalry among

existing firms. Lastly, although the industry’s suppliers have mix-low bargaining

power, it is often transferred to the more influential customer’s bargaining

power. We will use our determination that the industry is a price-taker to predict

what factors determine success in the industry, and what strategies firms will use

to gain these competitive advantages.

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Key Success Factors

We used our industry analysis to determine what strategies will be most

effective for a P&C company to use. Since the P&C industry is price-takers, firms

should focus on cost-leadership and differentiation. Firms should prioritize

competitive advantages that help them achieve the relevant key success factors.

We discovered that all firms discussed cost-leadership and differentiation

in their business strategy. Each firm described how they had multiple suppliers

for the majority of their raw materials, but relied on a few suppliers for some

inputs. Firms also mentioned in the 10-K how they were focusing on local

markets for faster delivery.

By prioritizing cost leadership companies are able to manage costs through

tight cost controls. In order to have tight cost controls, firms will focus on

minimizing input costs, distribution costs, and efficient manufacturing. Firms

should actively manage input costs by finding low cost suppliers and partnering

with their supplier when appropriate. Maintaining low distribution costs depends

on appropriate facility placement and forecasting demand. Finally, by having as

efficient of a manufacturing process as possible, firms can convert their inputs to

finished goods without unnecessary expenses, delays, or defects.

Firms should differentiate themselves from their competitors because it

should help with customer retention. Firms do not compete on quality because

customers demand high quality products without defects (BLL, CCK 10-K).

Therefore, we believe firms can differentiate themselves by having flexible

delivery. This would allow the firm to package or produce a container, and

deliver it to its destination in less time than its competitors (at a similar price-

point).

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Industry’s Competitive Advantages

Low Input Costs

The P&C industry has a sufficient supply of the raw materials (plastic

resins, rubber and certain metal products) used in the production of packages

and containers from existing and alternate suppliers (ATR, BLL, CCK, SLGN 10-

K). Across the industry raw materials accounts for nearly 40% of total

inventories, which is why it is important for firms closely manage their input

costs (ATR, CLL, SLGN 10-K). The lower input costs will either transfer into lower

prices, which should increase volume, or higher margins which would increase

overall profitability.

Low Distribution Costs

It’s important for companies in the P&C industry to keep distribution costs

as low as possible to avoid unnecessary overheads. This becomes even more

important when a firm operates internationally, like all of the firms in our sample.

Most firms in the industry use one of two strategies for production, which will

have a significant impact on distribution costs. For firms that mainly produce in

Asian countries for the lower input costs, (especially labor) they can expect to

have higher distribution costs when shipping elsewhere. However, firms that

manufacture in many different geographic areas can expect lower distribution

costs since the finished goods will originate significantly closer to the destination.

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Efficient Production

Through efficient production firms can maintain control of the material and

time waste in manufacturing. In the P&C industry the main initiatives to maintain

efficiency is to close unnecessary facilities (ATR, CCK, SLGN 10-K). Although it

could include anything that decreases waste or increases output such as: the

purchase of new equipment, changing the layout of the facilities, or outsourcing

parts of the production process; facility closure is one of the most significant

policies firms use for efficient production.

Flexible Delivery

Flexible delivery is one of the only relevant differentiators in the P&C

industry. Since the industry’s customers demand high quality, defect-free

products, firms cannot differentiate themselves through quality. However, the

customers of packages and containers can sometimes demand rapid production

and delivery, which is why having an efficient production chain with short lead

time and fast shipping can help a firm gain a competitive advantage.

Conclusion

We believe that a company’s success will depend on which competitive

strategy they use and how well they implement it. For the P&C industry we

believe that cost leadership is significantly more important than differentiation.

Although a firm can try to set itself apart, that advantage is eroded rapidly by a

competitor with lower prices. Despite the importance of cost controls,

maintaining high quality products with flexible delivery cannot be forgone.

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AptarGroup’s Competitive Advantages

The packaging and container industry is highly competitive with large firms

operating internationally and thousands of competitors operating in limited

geographic areas. Therefore, it is necessary for AptarGroup to focus on the key

success factors that drive this industry. If AptarGroup’s competitive advantages

align with the industry’s competitive advantages, then we would feel comfortable

with AptarGroup’s strategic goals.

Production Process

AptarGroup focuses on its ability to manufacture high-quality silicone and

elastomer products quickly. AptarGroup has recently closed two of its facilities,

affecting over 200 employees in order to remove overhead (ATR 10-K).

Furthermore, AptarGroup uses a logistics model, which keeps the production

facilities near the suppliers, and then stores the finished inventory near the

customers’ location. This helps AptarGroup realize the key success factors of low-

input costs and efficient production.

Geographic Diversity

As stated earlier, firms can focus on minimizing production costs by

focusing on Asian countries, or firms can prioritize low distribution costs and

short lead-times. To this end, AptarGroup prioritizes its distribution channels. By

operating factories and warehouses across the globe, AptarGroup can minimize

the distribution costs of receiving inputs and shipping finished goods. This helps

AptarGroup focus on the key success factors of low-distribution costs and flexible

delivery.

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Local Production

As stated, AptarGroup not only stores its inventory globally, but it

produces it locally. This local production has been reported to result in higher

quality products and better customer service. Although neither of these are

supported by facts nor are they key success factors, it has the potential to

provide an advantage. However, local production does give AptarGroup the

ability to produce finished goods closer to their destination, which reduces lead-

times and reduces shipping costs. This helps AptarGroup meet the key success

factors of efficient production, low-distribution costs, and flexible delivery.

Accounting Analysis

The accounting policies utilized by a firm can have the ability to alter the

actual value of the firm. Firms in different industries each have a broad degree of

flexibility when choosing their accounting policies and can possibly distort the

investor’s idea of the firm when examining the financial statements. Due to this

fact, we will be carefully examining the accounting policies used by Aptargroup

and its competitors in the packaging and containers industry.

The accounting policies used by firms can be broken into two parts: Type

One and Type Two accounting policies. We will first describe and examine the

Type One accounting policies in the following section. Type Two accounting

policies for the firms when then follow after.

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Type One Accounting Policies

Type one accounting policies are directly related to the firm’s key success

factors and how they implement these to compete in the industry. For the

Packaging & Containers industry these include: low input costs, low distribution

costs, and efficient production. These are factors of cost leadership to create a

competitive advantage.

Reviewing these factors will allow us to evaluate how firms in this industry

gain and keep a competitive advantage. This will also allow firms to retain and

increase their customer base, instead of losing them to the competition.

Low Input Costs

The packaging and containers industry contains competitors that are

always attempting to beat out each other with a low input cost strategy. This

strategy involves firms buying their raw materials to make their products at a

very low cost and generating a high gross profit from it. Firms favor a high gross

profit because this means the cost of goods sold is a lot less than the net sales

generated from the product sold. We will be using the gross profit margin to

examine which firms have the lowest input costs. The gross profit margin is

calculated by dividing gross profit by net sales for the year. Below is a table

showing our results.

As shown above, Aptargroup dominates each of the other competitors for

this industry with the highest gross profit margin. Aptargroup was able to

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generate a high enough sales with a very low cost of goods sold resulting in

higher gross profits for each of the years examined. Aptargroup’s 10-K reveals its

input costs include resin, metal, anodization costs, transportation and energy

costs, but does not go any further disclosing the costs of each. The other

competitors do not reveal their actual raw material costs for the years in their

10-Ks.

Low Distribution Costs

The packaging and containers industry is a competitive industry and any

competitive advantage that can be acquired by a firm is very critical to exploit

like low distribution costs. Aptargroup has a very low distribution costs and

allows the firm to gain a competitive advantage over the firm's competitors. “The

majority of the Company’s products shipped from the U.S. transfers title and risk

of loss when the goods leave the Company’s shipping location. The majority of

the Company’s products shipped from non-U.S. operations transfer title and risk

of loss when the goods reach their destination” (ATR 10-k). With this method of

shipping products, Aptargroup is able to acquire a low distribution cost because

they aren’t responsible and won't suffer a loss if the products don't reach their

destination in the United States. The other competitors still retain the title and

risk of loss until the products reach their destination in the United States. This

allows Aptargroup to stand out from the competition by not tying up cash to

distribute its products over the United States.

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Another important factor for firms to obtain is efficient production so they

can improve their competitive advantage. Efficient production is a crucial factor

for this because the more products that can be made in a quicker amount of

time will greatly affect annual sales. Aptargroup has technical expertise in

injection molding, robotics, clean-room facilities and high speed assembly. The

firm uses high speed equipment to create the pumps and aerosol valves used in

its products. This allows for a small amount of time to be used to finish the final

products and prepare them for sale. The production requirements set by the firm

have always been met on time by its manufacturing facilities resulting in no back

orders for products and satisfied customers in a timely manner. Aptargroup’s

plan to optimize production was completely met in 2014 with incremental cost

savings.

Type Two Accounting Policies

Type two accounting policies reflect the accounts managers have flexibility

over. The degree of flexibility when creating these financial statements varies

greatly across the different industries firms compete in. These accounts include

goodwill, research and development, foreign risk, and operating leases. We will

examine these policies because they can be used to hide material information

about the company that investors need to know about in order to make

beneficial decisions. If any accounts is above the certain benchmarks set by the

GAAP, we will later restate those accounts in order to make them reflect their

actual true value.

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Goodwill

Goodwill is an intangible long-term asset that arises when one firm buys

another entire firm. The amount of goodwill is determined by the total cost of

acquiring another firm subtracted by the sum of the fair market value of the

tangible assets and the liabilities acquired during the purchase. This value of

goodwill is then reported under the intangible assets on the firm’s balance sheet.

Goodwill needs to be impaired if the carrying value of goodwill exceeds the

original fair value of goodwill at the time of the acquisition. If goodwill is not

checked each year for impairment, this will possibly distort the firm’s financial

statements. If not correctly impaired, the goodwill account may be overstated

and the firm’s expenses will be understated, resulting in an overstatement of the

firm’s net income.

Aptargroup evaluates the amount of its goodwill on a unit level annually or

if there is evidence of potential impairments. Aptargroup did not report any

impairments of its goodwill for the years except in 2014-2015 and the amounts

can be seen in the table below.

Research and Development

Research and Development is the account with the total cost a firm incurs

when they create or innovate their products in order to boost annual sales. The

GAAP requires all research and development costs to be expensed each year.

Firms rather favor the capitalization of research and development because this

will reduce their operating expenses. The downside of high research and

development costs is that the new or innovated product can fail resulting in a big

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loss for the firm. Research and development is a vital factor in the packaging and

containers industry to boost sales. Below is a table showing the research and

development costs incurred by the firms being analyzed.

As shown above, Aptargroup invests the most money in its research and

development compared to the competitors. Even though Aptargroup invests the

most, it still has the lowest annual sales each year, which may be an indication

of Aptargroup investing too much into this department without receiving the

benefits of it. Silgan Holdings didn’t disclose its research and development costs

for the years analyzed because they reported the costs as not material

information. This can be misleading to investors because Silgan Holdings may

have over or understated its net income. Ball Corporation generates the highest

sales each year even though they invest the least amount of money into the

research and development department.

Foreign conversion risk

For companies whose sales are largely driven by foreign business, there is

risk when converting the revenue back into their domestic currency. In some

instances, it can significantly reduce income. Within the P&C industry this has not

historically been the case, despite the majority of sales being generated outside

the U.S. We discovered that the industry reports their foreign conversion hedging

strategies, which explains the low losses from forex. The degree of reporting was

nearly identical across the industry for foreign conversion exposure (ATR, BLL,

CCK, SLGN 10-Ks).

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Operating leases

When negotiating the use of fixed assets, a firm often chooses between

operating and capital leases. Unlike a capital lease, the operating lease does not

grant ownership rights (and liabilities), so it does not show up on the balance

sheet as an asset or a liability. When operating leases are a significant part of

short-term contractual obligations, it can indicate that management is trying to

avoid the impact expected on the balance sheet. In these instances it could be

necessary to account for this effect.

As shown above, operating leases average around 5% for the industry.

Aptar is slightly higher than the industry with an average around 8% (ATR, BLL,

CCK, SLGN 10-Ks). Regardless, all these values are insignificant enough that we

believe it will have little-to-no effect on our valuation.

Conclusion

We have analyzed the Type Two Accounting Disclosures to discover which

accounts need to be restated for our valuation. Of the Type Two disclosures:

goodwill, R&D, foreign conversion risk, and operating leases, only goodwill needs

to be restated.

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Accounting Flexibility Assessment

Depending on industry policies, companies can have very different degrees

of flexibility. In industries with a high degree of flexibility, companies can exploit

the flaws in GAAP and report their financials in a way that is most favorable to

them . The GAAP sets the accounting standards for firms to follow and the

Financial Accounting Standards Board regulates them. We will analyze the

degree of flexibility of Aptargroup and its’ competitors on how they report their

financial accounts including: goodwill, research & development, and operating

and capital leases.

Goodwill

Goodwill is generated when a firm mergers with another firm and is

reported as the intangible asset account categorized as a long term asset. This

can be used to measure the competitive advantage acquired by the firm that is

taking over the other. Goodwill impairment arises when the goodwill fair value is

smaller than the goodwill carrying value and should be accounted as an expense

on the income statement and decrease the goodwill asset value on the balance

sheet. GAAP’s standard for impairment testing is at the reporting unit - either an

operating segment or one level below.

Firms have a high degree of flexibility with the goodwill account. It falls on

the management to determine if and how often to check for goodwill

impairment. They also determine the amount of years to amortize goodwill and

the amount of years can affect the financial statements’ values. A firm’s earnings

can be overstated if the impairment test wasn’t correctly conducted and can

distort an investor’s idea of a firm.

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Research and development are critical factors for a firm to maintain and

add to their competitive advantage over the competition like new products,

innovated products, or facilities. The GAAP general rule for the research and

development costs should be charged to the operating expense section on the

income statement due to the fact of unpredictable future benefits.

Firms have little flexibility over the research and development costs

because GAAP clearly define and lines out the criteria for this account. Firms

would rather capitalize these costs due to the unpredictable future benefits, but

cannot due to the general rules set by GAAP.

Capital vs. Operating Leases

The degree of flexibility for operating and capital leases is high for how the

leases are reported on the financial statements of a firm. A small level of risk is

transferred for ownership to the firm when the firm uses capital leases and is

reported as an asset and liability on firm’s balance sheet. The asset is

depreciated and the interest expense is reported as a liability for the lease

payments each year on the balance sheet.

An operating lease transfers only the right to use property to the firm for a

time period that was agreed upon, but the risk of ownership is not taken over by

the firm. The lease expense is included in the operating expenses on the income

statement and doesn’t change the balance sheet values.

Firms favor using operating leases over capital leases because the lease

payments aren’t reported as a liability, but instead reported as an operating

expense. Also, the operating lease does not appear on balance sheet, therefore,

not increasing the liabilities or assets.

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Conclusion

Firms have a high degree of flexibility when it comes to goodwill and

capital vs. operating leases. They have a low degree of flexibility with the

research and development costs because the GAAP clearly sets the rules for this.

Since firms have a high degree of flexibility with the two accounts stated earlier,

it is very important to see how they report those accounts and may have to

possibly restate the financial statements.

Evaluation of Actual Accounting Strategy

GAAP’s full disclosure principle requires firms to report all information that

will affect the understanding of their financial statements must be noted with

them. The GAAP clearly defines the minimum amount of information required to

be disclosed by firms. Disclosures of firms are classified as either high or low,

and depending on the classification of disclosure of a firm will greatly impact the

idea an investor has about the firm. The management decides on what

information is material and can sometimes be abused to not show some of the

information that may be vital for investors.

Aggressive and conservative accounting strategies is another vital factor

firms choose between in a way for firms to report their financials that is

favorable to them. Companies are able to report either low yearly earnings using

a conservative strategy or high yearly earnings using an aggressive strategy

depending on the recognition of expenses and revenues at different times.

Revenues are recognized later than expenses during the year under a

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conservative strategy, conversely; revenues are recognized earlier than expenses

during the year under an aggressive strategy.

Goodwill

Goodwill is one type of the intangible assets owned by a firm and is a

categorized as a long term asset in that section on the balance sheet. Firms have

an incentive to maximize goodwill to improve leverage ratios and asset value.

However, this incentive can compromise the firm’s quality. Aptargroup examines

the goodwill account values annually or if there is evidence of impairment

potentially. Its’ impairment test requires critical judgment on factors like changes

in market conditions or unit cash flows that could materially affect the operating

results.

Within the packaging and containers industry, the representativeness

threats we observed were irregular amortizations and short justifications in the

notes disclosed. Aptargroup had average reporting policies towards both of these

issues (ATR 10-k). Aptargroup did not perform the annual two-step impairment

test for goodwill for the years analyzed. Although firms like Crown Holdings had

not amortized goodwill in the past five years; they spent the most time justifying

the accumulation of goodwill (CCK 10-K). This is in contrast to Ball Corporation

who has amortized goodwill more regularly than any of other competitors

analyzed, but only barely discussed the advantage created by their goodwill (BLL

10-K).

Research & Development

Research and Development costs are able to provide competitive

advantages over a firm's competition by providing new or innovated products to

the market. These costs are incurred as an expense with a firm’s hopes of the

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cost returning future economic benefits. Aptargroup has the most money

invested in research & development and raises cause to look how it is

amortized. We found that we needed to restate Aptargroup research &

development expenses because not enough was be amortized each year to

reflect the true value. Below is a table showing our results for the restated R&D

expenses for the years analyzed.

After the restatement of this expense, Aptargroup’s income statement

better reflects the firm’s true value and will be very helpful in this valuation

analysis.

Operating Leases

Operating leases can provide significant advantages over capital leases.

Since operating leases only show on the income statement, they can be closed

so they won’t affect valuation ratios. Normally this isn’t an issue unless the

operating leases are significant portion of contractual obligations. When

operating leases are a large percentage, it can be an indicator that management

is trying to hide its obligations from the balance sheet.

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Within the P&C industry, operating leases account for 6% of contractual

obligations on average. We do not consider this abnormal, and with ATR just

above the average we feel no need to restate their statements for this account

(ATR, BLL, CCK, SLGN 10-K).

Quality of Disclosure - Type One

Type One Accounting Policies can be defined as accounting policies based

on key success factors. These reporting practices are used throughout the

industry in regard to the key success factors. In order to ensure that

AptarGroup’s disclosure of type one accounting policies provide enough

information for readers of their 10-K to make well informed decisions, we will

compare its quality of disclosure to that of it’s competitors. These competitors

will include Ball Corporation (BLL), Crown Holdings, Inc. (CCK), and Silgan

Holdings, Inc. (SLGN)


The industry relies on efficient production to drive all costs down. If a

company is unable to produce their products efficiently, then the firm inturn will

not be competitive and be forced to leave the industry. The packaging and

containers industry requires a lot of cost cutting and PP&E to create efficient

production. The 10-Ks of AptarGroup and its competitors clearly state how they

are able to produce efficiently and the contingencies that allow them to have a

competitive advantage. These contingencies are stated clearly in the financials

along with which costs they are able to cut due to great efficient production.

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Low Input Costs

Input costs control is an essential factor for companies in the packaging

and containers industry, which will always compete on cutting costs. However,

Aptargroup gives very few details on its input costs which make it hard to

interpret. The industry has several ways of receiving timber, and in Aptargroup’s

financials it does not state how and if they bought the timber with the lowest

price. It would be necessary to know whether they were purchasing products in

less developed countries or how much it could have saved buying from another

source to be able to tell if Aptargroup is doing everything they can to keep their

input costs minimized. Aptargroup also does not disclose that the price of timber

which has been volatile recently.

Distribution Costs

AptarGroup and its competitors clearly present the risk associated with

distribution cost. Spikes in the cost of gasoline are a potential threat to its

distribution costs. 10k’s in the Industry are not very detailed about the actual

value of each individual shipping expense. It would be easier to compute the

actual risk of increasing fuel costs if these notes were disclosed. The quality

disclosures of hedging fuel costs would be a great advantage to help in creating

an genuine valuation. We decided that the quality of disclosure on distribution

costs is low.

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Quality of Disclosure – Type Two

Type Two Accounting Disclosures are accounts that give management

discretion over reporting. GAAP allows accounts such as goodwill, operating

leases, R&D, and foreign currency to be reported in favorable ways for the

company. Although not misrepresentative, when these accounts are reported

aggressively it can significantly alter our valuation of the company.

The risk of distortions is significant enough that we will test each of these

for representativeness. If any account tests too aggressively then we will restate

the financial statements for an accurate analysis.

Goodwill

Goodwill can be defined as the excess price paid for a company from the

company’s market value. AptarGroup’s goodwill accounts for 39% of net fixed

assets on average. This goodwill balance is the result of multiple mergers and

acquisitions Aptargroup undertook. Aptargroup acquired Mega Airless, which

significantly increased the value of goodwill. Since Aptargroup has not been

amortizing the goodwill balance from the acquisitions, it has grown to a sufficient

level to distort the financials.

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The table above shows the significance of goodwill on net fixed assets

before and after restatement. When we restate goodwill, the account loses

around 10% of its value, while accounting for 3% less of net fixed assets (ATR

10-K). We believe this section makes Aptargroup look slightly overvalued.


No company in the P&C industry shows sufficient detail for research and

development. All firms in the industry combine SG&A with R&D, which keeps us

from determining the relative size of each account (ATR, BLL, CCK, SLGN 10-K).

Although no company fully discloses R&D, CCK discussed the exact values of

R&D over a three year period. Furthermore, neither Aptargroup nor its

competitors disclose the majority of projects that R&D funding is going towards

(ATR, BLL, SLGN 10-K). This makes the company hard to value in R&D.

Therefore, we find Aptargroup’s R&D reporting acceptable for the industry, but

insufficient compared to the general market.

Foreign Conversion Risk

Foreign Conversion Risk is the risk taken by firms that operate globally and

can be explained as the risk of investment value due to changes in currency

exchange rates. The effect of foreign conversion poses a significant threat to the

realized income a P&C firm can expect. This is due to the highly global nature of

packaging (CNN Money). The effect of foreign conversion is well described in the

firms’ 10-Ks’, likely because over half of revenues are generated outside the

United States (ATR 10-K). Everything between the currency conversion policies

to the hedging policies are discussed throughout the 10-K, which allows us to

account for the associated risks.

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Operating Leases

The P&C industry is not heavily invested in operating leases. In the P&C

industry, operating leases do not account for more than 20% of non-current

liabilities. No restatement is needed as there would be no impact on the

valuation.

Aptargroup was near the industry average in most situations, although it

was only lower in one year. If the industry was performing at a higher rate we

would be concerned; however, at an average rate of 6% this has no significant

bias on the financials.

Potential “Red Flags”

We looked for potential red flags while analyzing the financial statements.

Typically a red flag will be set off by aggressive accounting methods, but can

also be set off by humor error or misrepresentation. Usually the red flags will be

set off by high goodwill with irregular impairments, high R&D expenses, or high

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operating leases. If these accounts are not restated when a flag is triggered,

then the leverage and profitability ratios will overstate the value of the firm.

Goodwill

Aptargroup had two potential red flags, (goodwill and R&D) with one that

required restatement, goodwill. Beginning with the account that required

restatement, goodwill accounted for nearly 40% of net fixed assets. Since our

benchmark was 30%, we felt it was necessary to restate goodwill based on a 5-

year amortization schedule.

Research & Development

Research and development costs for a firm are an investment for the

future potential earnings. The GAAP clearly lines out that these expenses need to

be expensed when incurred, while firms rather capitalize these expenses due to

the fact the future economic benefits are uncertain. This is why research and

development costs raise a red flag because if a firm does not expense a correct

amount, its earnings will be over or understated. Earlier in this valuation, we had

shown the research and development expenses Aptargroup expensed and how

we would restate these expenses on the financials. Once the restatement

occurred of these expenses, a fluctuation in the financials can be seen due to the

change in research and development.

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Conclusion

We’ve found that the red flags in AptarGroup’s 10-k has provided us with

useful information to properly value the company. Due to goodwill being such a

high percentage of net fixed assets, it will be restated. AptarGroup’s lack of

expensing R&D costs when incurred provided resulted in the misrepresentation

of the financials and was restated to correct this problem. The restatement of

R&D has provided a more accurate representation of the financials. Overall, we

believe that AptarGroup has been responsible in their representation of financials

with minimal red flags.

Financial Statements

Businesses use financial statements to report the business activities that

have taken place over a certain period of time. These are useful to see the

growth and success of the business overtime and to see how the business has

done compared to firms in the same industry. For the most part firms follow

GAAP when doing their financial statements, but there are times when firms

accidently report something wrong.

Balance sheets

The balance sheet is a snapshot of a company’s assets, liabilities, and

capital at a certain point in time. These three accounts give investors an idea of

things like what the company owns and owes, along with how much of its capital

has been invested by the shareholders. GAAP allows goodwill to be stated in

different ways which means the balance sheet in Aptargroup’s case should be

restated to show their financials more accurately.

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In particular, the overstated goodwill account must be restated to reflect

amortization. We amortized goodwill by using a 5-year straight line amortization

schedule. As shown below this will result in goodwill amortizing at approximately

$25 million per year.

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Income statements

A firm’s expenses and revenues are shown through the income statement.

This shows how well a firm has performed over a certain period of time through

both non-operating and operating activities. Aptargroup has a large amount of

goodwill that should be amortized to reflect its actual net income for the year.

GAAP doesn’t require firms to amortize goodwill but doing so let us better

understand the company’s financials.

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Conclusion

The restated financials has a more representative value for the accounts.

Without the impairment of goodwill, AptarGroup had a higher net income and

more assets. Aptargroup did not impair goodwill because they still perceived

equal value created by its previous acquisitions; however, restating goodwill will

give investors a better representation of AptarGroup’s income.

Financial Analysis

The financial analysis goal is to evaluate a firm’s performance relative to

the firm’s stated strategy and goals. This analysis is a key component in valuing

a firm and is broken into two parts: ratio analysis and cash flow analysis. The

ratio analysis presents how different accounts on each of the financial

statements of a firm affect one another. The cash flow analysis assesses the

firm’s liquidity and the degree of control over operating, investing, and financing

cash flows. We will use these two analyses to evaluate the liquidity, profitability,

and capital structure performance for AptarGroup and its competitors in the

packaging and containers industry. After conducting these two analyses, the

results will then be used to make forecasts of the potential future performance

and cost of capital.

Liquidity Ratios

These ratios examine the firm’s cash flows and its ability to pay off

liabilities by converting its assets into cash. The quicker an asset of a firm can be

converted into cash determines the degree of liquidity. Determining the liquidity

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ratios are a vital step when valuing a firm because the results can show if a firm

has the ability to continue as a going concern or enough cash to cover debts

when a creditor is expecting payment. In this section, we will examine the results

of the different liquidity ratios: current ratio and quick asset ratio.

Current Ratio

The current ratio is one of the liquidity ratios that analyze the firm’s

potential to fulfill its current liabilities with its current assets. The current ratio for

a firm is calculated by dividing its total current assets by its total current

liabilities. A current ratio less than one for a firm indicates its assets are less than

its liabilities and would not be able to cover its current debt obligations; putting

the firm in an unfavorable financial position. Conversely, if the current ratio is

way greater than one, it may indicate an inefficient use of a firm’s current assets

by management. We are conducting the current ratio analysis because it shows

investors how every one dollar of current liabilities of a firm is paid for by the

total amount of the firm’s current assets available. Below is a table and graph for

the current ratios of Aptargroup and the benchmark competitors in the

packaging and containers industry.

2011 2012 2013 2014 2015 AverageATR 2.20 2.28 2.21 2.01 3.14 2.37BLL 1.25 1.39 1.28 1.15 1.02 1.22CCK 1.14 1.09 1.09 1.24 1.05 1.12SLGN 2.24 1.96 1.75 1.71 1.34 1.80Industry 1.71 1.68 1.58 1.53 1.64 1.63

CURRENT RATIO

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As shown above, Aptargroup has a relatively high ratio each year and an

average current ratio of 2.37. The high current ratio each year for Aptargroup

indicates that they have about twice the dollar amount in current assets to

satisfy its current liabilities each year making this firm very liquid and in good

financial standing. Aptargroup’s 2015 current ratio is greater than the other years

due to an increase in the current asset of short term investments of $29.82

million and a decrease in the current liabilities of notes payable pertaining to the

outstanding balance under the credit facility from $230 million to $5 million. The

trend for Aptargroup’s current ratio since 2011 stays close together until 2015

when it increases to 3.14. When compared to the industry average, Aptargroup

has favorable ratios results. Silgan Holdings and Ball Corporation have the next

highest current ratios each year; while Crown Holdings has the lowest current

ratios each year out of the benchmark competitors. The current ratios each year

for the benchmark competitors are all above one indicating each firm has enough

current assets to satisfy its current liabilities. Aptargroup is the industry leader

each year in current ratios.

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Quick Asset Ratio

The quick asset ratio is also a good indicator of a firm’s near-term liquidity

and measures the firm’s ability to use its most liquid assets to satisfy its short-

term liabilities. The quick asset ratio is calculated by adding cash, cash

equivalents, short term investments and receivables and then dividing the sum

by the current liabilities. Inventory and other current assets aren’t included

because they are the least liquid of all current assets. The ratio determines the

total current liquid assets dollar amount available for every one dollar of current

liabilities. The higher the quick asset ratio, the greater the degree of liquidity is

for a firm. Below is a table and graph for the quick asset ratios of Aptargroup

and the benchmark competitors in the packaging and containers industry.


QUICK ASSET RATIO

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As shown above and similar to the current ratio section, Aptargroup’s quick

asset ratio results indicates its liquidity remains high compared to the benchmark

competitors and industry average. Aptargroup’s quick asset ratio remains steady

until it jumps up to 2.21 in 2015. The increase in the ratio during 2015 is

because of the increase in the current asset of short term investments and the

decrease in current liabilities of notes payable. Ball Corporation and Crown

Holdings ratios are the steadiest out of the rest of the firms. Silgan Holdings ratio

results are decreasing each year due to an increase in their accounts payable

and a decrease in their cash & cash equivalents account each year. Aptargroup

remains the industry leader over the years.

Conclusion

After calculating and analyzing the liquidity ratios for each firm, we have

determined that Aptargroup’s liquidity performance is above the industry

average. The current and quick asset ratio results show an overall positive trend

for Aptargroup. As shown by the tables and graphs, Aptargroup has enough

current assets to satisfy its short term debt obligations each year that was

examined.

Operating Efficiency Ratios

Operating efficiency ratios are used to measure a firm’s ability on how

quickly the firm can transfer its goods and services into cash. The greater

turnover of assets, like inventory and accounts receivable, allows firms to have

smaller allowance for doubtful accounts on its financial statements and keep on

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hand smaller levels of inventory. Firms with a high operating efficiency are more

likely able to cover its short term debt obligations with the converted cash from

accounts receivable and inventory. In this section, we will analyze the following

operating efficiency ratios: inventory turnover, accounts receivable turnover,

working capital turnover, days supply inventory, days sales outstanding, and

cash to cash cycle.

Inventory Turnover

Inventory turnover measures the ability of the firm to convert the existing

inventory into current sales. The turnover is calculated by finding the Cost of

Goods Sold (COGS) divided by inventory. Generally, a low inventory turnover

ratio for a firm means that there is an excess of inventory that can be subjected

to price volatility and the firm’s operating efficiency is reduced. The longer

inventory is held on hand by a firm the greater the risk is for the inventory being

priced out due to product irrelevance. A high inventory turnover means a firm

had strong sales in the year and/or inventory was managed efficiently. Below is a

table and graph for the inventory turnover ratios of Aptargroup and the

benchmark competitors in the packaging and containers industry.


INVENTORY TURNOVER RATIO

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As shown above, Aptargroup’s inventory turnover decreases each of the

years except for in 2014 when it increases to a max of 5.64. The increase in the

turnover ratio in 2014 was because the COGS was high compared to the amount

of inventory for that year than any of the other years. Aptargroup’s turnover

ratios are below the industry average for each of the five years. Ball Corporation

has the highest turnover ratios followed by Crown Holdings for each of the years

because they both have a greater amount of inventory and COGS each year than

Aptargroup and Silgan Holdings. The industry leader in inventory turnover is

clearly Ball Corporation.

Accounts Receivable Turnover

The accounts receivable turnover indicates how efficiently a firm can

collect the credit sales outstanding within a year. The accounts receivable

turnover ratio is calculated by dividing annual net sales by accounts receivable.

Firms favor a high accounts receivable turnover because sales on account are

quickly converted into cash. A high turnover for receivables indicates that a firm

has a conservative credit policy and/or aggressive department for collections. A

low turnover ratio can be caused by an inefficient credit policy, a high default

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rate from customers, or the firm has great amount of bad debt. Below is a table

and graph for the accounts receivable turnover ratios of Aptargroup and the


As shown above, the accounts receivable turnover ratio for Aptargroup has

a declining trend where as the industry trend is shown to be increasing. In 2014,

Aptargroup’s net sales were highest out of the other five years and accounts

receivable were not volatile due to clients not defaulting on payments which lead

to the increase in the turnover. Aptargroup’s turnover is below the industry

average turnover for each of the five years because Aptargroup, being the

smallest firm, has the lowest net sales and accounts receivable each year

compared to the other benchmark competitors. Silgan Holdings has the greatest

accounts receivable turnover ratios and is also the industry leader. Crown


ACCOUNTS RECEIVABLE TURNOVER

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Holdings’ turnover starts off decreasing, but increases every year after while Ball

Corporation remains steady.

Working Capital Turnover

The working capital turnover ratio measures how efficiently a firm utilizes

its working capital to generate sales during the year. Working capital turnover is

calculated by dividing net sales by working capital (working capital equals total

current assets minus total current liabilities). A high turnover ratio indicates

efficient management utilizing its current assets and liabilities to generate high

returns. Conversely, a low turnover ratio can indicate a firm is investing too

much in accounts receivable and/or inventory to help its sales, which can lead to

a great amount of bad debt. Below is a table and graph for the working capital

turnover ratios of Aptargroup and the benchmark competitors in the packaging

and containers industry.


WORKING CAPITAL TURNOVER

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As shown above, the trend of Aptargroup’s working capital turnover is

consistent, while the industry is showing improvements during the years

analyzed. When compared to the competitors, Aptargroup has the lowest

turnover each year and lowest average turnover due to its inefficient

management team. Ball Corporation and Crown Holdings switch off each year

being the industry leaders in working capital turnover because of their

management efficiently utilizing their current assets and current liabilities to

generate higher net sales than the other firms for each of the five years. Ball

Corporation had very high turnover in 2015 because the amount of working

capital available to invest by the management was small even though the firm

was able to generate high sales.

Days Supply of Inventory

The days supply of inventory is another ratio used to measure a firm’s

operating efficiency. The ratio is calculated by dividing 365 days by the inventory

turnover ratio for the year. This ratio tells us how many days a firm takes to turn

their inventory into revenue. A lower days supply of inventory is favorable by

firms because this indicates inventory is being turned over more quickly to

generate sales. Firms with a low days supply of inventory means that the amount

time a firm’s capital is tied up in inventory is reduced. Below is a table and graph

for the days supply of inventory of Aptargroup and the benchmark competitors in

the packaging and containers industry.


DAYS SUPPLY INVENTORY

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As shown above, Aptargroup’s days supply of inventory increases at a

fluctuating growth rate, but remains close to 70 days overall. Aptargroup has the

highest ratio each year holding inventory for about 2.5 months except for in

2011. When comparing this ratio to the industry, minor differences in the

number of days inventory is held generally doesn’t have a significant effect on

the firm will happen. Ball Corporation holds its inventory the shortest amount of

time and is the industry leader for each of the five years. Ball Corporation

consistently had a lower days supply of inventory than the industry average each

year. Days supply of inventory is based off the inventory turnover ratio so they

are similar in conclusion.

Days Sales Outstanding

The days sales outstanding ratio indicates how efficient a firm can collect

its receivables in terms of days. The ratio is calculated by dividing 365 days by

the accounts receivable turnover ratio for the year. A low days sales outstanding

indicates the accounts receivable is being turned over quickly into cash and not

being tied up for a long period of time. A high days outstanding indicates the

firm is taking longer to collect it’s accounts receivable and potentially lead to

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liquidity issues. Below is a table and graph for the days sales outstanding ratios

of Aptargroup and the benchmark competitors in the packaging and containers

industry.

As shown above, Aptargroup has a high ratio of days sales outstanding

that fluctuates around 61.1 days each year. This indicates it takes Aptargroup

about 61.1 days to collect its outstanding account receivable each year.

Aptargroup is well above the industry average each year by about 20 days.

Silgan Holdings has the most favorable days sales outstanding ratio with an

average of 31.5 days to collect its outstanding accounts receivable and is the

industry leader each year.


DAYS SALES OUTSTANDING

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Cash to Cash Cycle

The cash to cash cycle measures the number of days it takes for a firm to

utilize its inventory levels and collect the outstanding accounts receivables that

generated that year’s sales. This ratio is calculated by adding days supply of

inventory and days sales outstanding for the current year. The cash to cash cycle

results will be high or low depending on the efficiency of the days supply of

inventory (inventory turnover) and days sales outstanding (account receivable

turnover). A low cash to cash cycle indicates that a firm is efficiently turning over

inventory and collecting receivables, therefore, makes the firm more liquid.

Below is a table and graph for the cash to cash cycles of Aptargroup and the



CASH TO CASH CYCLE

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As shown above, Aptargroup’s cash to cash cycle is very slow staying

around an average of 131.5 days each year. Aptargroup has the highest cash to

cash cycle days when compared to the competitors and industry average

indicating a longer period to sell on hand inventory and collect outstanding

receivables. Ball Corporation has the shortest and most favorable cash to cash

cycle days when compared to the other competitors indicating that it has the

fastest inventory turnover and collection of outstanding receivables. Ball

Corporation is the industry leader and has a lower cash to cash cycle than the

industry average each year. This means Ball Corporation is also utilizing its

inventory efficiently to generate higher net sales which helps to enhance liquidity

due to effective firm operations.

Conclusion

In terms of operating efficiency, Aptargroup’s performance for the past

five years was poor compared to the benchmark competitors and industry.

Aptargroup had the lowest average for inventory, accounts receivable, and

working capital turnover ratios indicating a lower operating efficiency than the

benchmark competitors. When compared to the industry average, Aptargroup

had the greatest amount of days for days supply of inventory, days sales

outstanding, and cash to cash cycle. This is a good indication that Aptargroup

has cash tied up in inventory and account receivables longer than the industry

averages each year.

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Profitability Ratios

Profitability ratios are used to compare income statement accounts

relative to each other to determine a firm’s ability to generate profits. The

profitability ratios are expressed as a percentage of annual net sales. The ratios

show how efficiently firm’s operations are to achieve a profit. In this section, we

will analyze the following profitability ratios: annual sales growth, gross profit

margin, operating profit margin, net profit margin, asset turnover, return on

assets, and return on equity. All these ratios are very important when trying to

determine the profitability performance of firms in an industry, like the packaging

and containers industry.

Annual Sales Growth

The annual sales growth provides analysts with the percentage increase

or decrease in net sales from one period to the next. This ratio is calculated by

dividing current year’s net sales by last year’s net sales and then subtracting one

from it. This percentage allows analysts to compare the sales growth with other

benchmark competitors to determine which firms are growing or declining from

year to year. A positive sales growth percentage shows an increase in revenue,

which indicates an increase in a firm’s market share. Below is a table and graph

for the sales growth of Aptargroup and the benchmark competitors in the

packaging and containers industry.

2011 2012 2013 2014 2015 AverageATR 12.5% -0.3% 8.1% 3.1% -10.8% 2.5%BLL 13.1% 1.2% -3.1% 1.2% -6.7% 1.2%CCK 8.9% -2.0% 2.2% 5.1% -3.7% 2.1%SLGN 14.2% 2.2% 3.4% 5.5% -3.8% 4.3%Industry 12.2% 0.3% 2.6% 3.7% -6.2% 2.5%

SALES GROWTH

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As shown above, Aptargroup’s net sales alternate increasing and

decreasing each year. Aptargroup has an average 2.5% sales growth for the five

years that were analyzed overall. Aptargroup remains fairly close to the industry

average sale growth each year and Silgan Holdings is the industry leader for

sales growth for each of the five years. Silgan Holdings has the greatest average

sales growth equaling 4.3%, which could be caused by Silgan Holdings

increasing its market share each year. Over the past five years, the industry

average sales growth has been decreasing and this may cause a red flag to come

up if an investor wants to invest in the packaging and container industry.

Gross Profit Margin

The gross profit margin is used to assess a firm’s financial health

because gross profit is the source of cash that pays off the rest of operating

expenses. The gross profit margin is calculated by dividing gross profit (revenue

minus cost of goods sold) by revenue of the current year. A higher gross profit

margin indicates a firm is more profitable because the cost to make goods or

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services is well below the revenue generated by the goods or services. Below is a

table and graph for the gross profit margin of Aptargroup and the benchmark

competitors in the packaging and containers industry.

As shown above, Aptargroup maintains a steady gross profit margin

that fluctuates a bit around the average of 32.9%. This indicates that over the

past five years, Aptargroup’s gross profit is about 32.9% of the annual net sales

and is very favorable for a firm. Aptargroup has a gross profit margin higher than

the industry average each year and is the industry leader for this profitability

ratio. Aptargroup has a higher days supply of inventory and days sales

outstanding than the other firms, but Aptargroup is a smaller firm with lower

levels of inventory resulting in lower COGS. After the restatement of Aptargroup’s

income statement, there was no change in the gross profit for each of the years.

2011 2012 2013 2014 2015 AverageATR 32.9% 31.8% 32.2% 32.4% 35.1% 32.9%BLL 18.0% 17.9% 18.8% 19.4% 19.2% 18.7%CCK 17.6% 17.2% 17.1% 17.3% 18.8% 17.6%SLGN 14.8% 14.4% 14.8% 15.3% 14.7% 14.8%Industry 20.8% 20.3% 20.7% 21.1% 22.0% 21.0%

GROSS PROFIT MARGIN

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Silgan Holdings has the lowest gross profit margin each year, which indicates

that its cost of goods sold is greater and net sales for the years were lower than

the other competitors. The industry average is overall increasing each year and

can indicate industry growth.

Operating Profit Margin

The operating profit margin is used to measure a firm’s operating

efficiency, as well as, the firm’s pricing strategy. This margin is calculated by

dividing operating income by net sales for the current year. Operating income is

used to pay off the rest of the expenses including taxes and interest, so a high

margin is favorable for firms. A high operating profit margin indicates high

efficiency in operations and/or a beneficial pricing strategy. Below is a table and

graph for the operating profit margin of Aptargroup and the benchmark

competitors in the packaging and containers industry.

2011 2012 2013 2014 2015 AverageATR Re-Stated 15.2% 13.9% 14.1% 14.7% 16.9% 15.0%ATR As-Stated 12.3% 11.1% 11.3% 11.8% 14.0% 12.1%BLL 9.7% 9.1% 9.4% 9.8% 7.6% 9.1%CCK 9.8% 9.6% 9.7% 8.9% 10.6% 9.7%SLGN 10.1% 9.1% 8.7% 9.2% 8.5% 9.1%Industry 11.4% 10.6% 10.7% 10.9% 11.5% 11.0%

OPERATING PROFIT MARGIN

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As shown above, Aptargroup’s operating profit margin is steady for the

first four years, but increases in 2015 to 14.0%. This increase was caused by the

decrease in operating expenses and increase in the gross profit for the 2015

year. Just like the gross profit margin section, Aptargroup has a higher operating

profit margin than the industry average and remains the industry leader for the

years. After the restatements, Aptargroup’s margin increased each year due to

the capitalization of operating leases, which decreased the overall operating

expenses; resulting in higher operating profit margins. Ball Corporation and

Silgan Holdings have the lowest average margins for the five years. The industry

average decreases till 2012, but then begins increasing thereafter indicating

industry growth. This is because as operating income increases, the firms have

more cash available to pay off the remaining expenses resulting in higher profits

for firms, which then can be used to expand operations.

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Net Profit Margin

The net profit margin describes how each dollar generated by sales

contributes to the overall net income of a firm. Net profit margin is calculated by

dividing net income by net sales of the current year. This margin is a good

measure of profitability of a firm for analysts to look at because net income is the

cash left over after all expenses, gains, and/or losses are accounted for during

the year. A high net profit margin is favorable because it indicates costs are

controlled efficiently and shareholders will receive a greater amount of the profit.

Below is a table and graph for the net profit margin of Aptargroup and the


2011 2012 2013 2014 2015 AverageATR Re-Stated 10.7% 9.8% 9.7% 10.3% 11.4% 10.4%ATR AS-Stated 7.9% 7.0% 6.8% 7.4% 8.5% 7.5%BLL 5.3% 4.9% 5.1% 5.8% 3.8% 5.0%CCK 4.6% 6.7% 4.7% 5.2% 5.3% 5.3%SLGN 5.5% 4.2% 5.0% 4.7% 4.6% 4.8%Industry 6.8% 6.5% 6.3% 6.7% 6.7% 6.6%

NET PROFIT MARGIN

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As shown above, Aptargroup’s net profit margin is decreasing for first

three years, but then increases in 2014 and thereafter. Aptargroup generates a

net income average of 7.5% of net sales over the years analyzed. In 2015,

Aptargroup’s net profit margin is the highest because the firm yielded the highest

net income for the year than any other year. Aptargroup is well above the

industry average net profit margin each year and is still the industry leader. After

the restatements, Aptargroup’s margin increased due to the operating income

increase and the rest of the expenses remaining the same. Silgan holdings has

the lowest net profit margin each year indicating the firm has a great amount

expenses and taxes to pay off with their operating income during the year. The

industry average of net profit margins is overall decreasing which can indicate

higher taxes and/or interest expenses for firms in the industry that decrease the

net income for each.

Asset Turnover

Asset turnover is a ratio that shows the correlation between the sales

generated by a company and the total assets that company has. Asset turnover

ratio will allow investors to get an idea on how sales are generated from every

one dollar of assets. This ratio will show if management is effective at converting

assets into sales dollars. The calculation for this ratio is the current annual sales

divided by the previous year’s total assets. (Sales/TAt-1). A high asset turnover is

favored because it indicates that a high amount of sales were generated by a

small amount of assets. Below is a table and graph showing the results for the

asset turnover ratio of Aptargroup and the benchmark competitors.

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As shown above, Aptargroup’s average asset turnover ratio is below the

industry average indicating the firm is generating low sales relative to its total

asset. The average asset turnover since 2011 for Aptargroup is 106.1%, this

shows investors and management that on average every $1.00 of assets

generates $1.06 of sales. The change in asset turnover from year to year for

Aptargroup is observed as a declining trend which is showing that management

is becoming less and less efficient with using their assets to generate sales. The

re-stated asset turnover rates for Aptargroup are below the as-stated rates due

to goodwill being adjusted resulting in total assets increasing.


ASSET TURNOVER

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Return on Assets

The return on assets ratio represents the amount profit that is generated

from utilizing the assets available to managers at the beginning of the year. This

profitability ratio is calculated by dividing the net income of the current year by

the total assets of the prior year. A higher return on assets indicates

management is effectively using its assets to generate a higher profit. A lower

return on assets ratio will indicate that managers are not efficient at using its

assets to generate a profit. Below is a table and graph showing our results for

the return on assets ratio for the firms being analyzed.


RETURN ON ASSETS

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As shown above, Aptargroup’s return on assets, both the re-stated and as-

stated, can be seen at levels that are above the industry average in each of the

previous 5 years. Aptargroup’s return on assets since 2011 is seen to be in a

minor decreasing trend since 2011 which is mirroring the trend of the industry.

Since Aptargroup is in line with the trend of the industry the decrease in ROA is

most likely due to non-systematic effects on Aptargroup. After the restatements,

Aptargroup’s ratio increased due to lower operating expenses generating a

higher net income for the years.

Return on Equity

The return on equity represents the amount of profit dollars a firm was

able to generate from the use of stockholder’s equity to fund assets. Return on

equity is derived from the equation Net income of the current year/Equity

amount in the previous year. The ROE ratio allows investor to get an idea of how

many dollars of profit are generated from every one dollar of total stockholder’s

equity being used by managers to fund productive assets. A high ROE means

managers are generating high rates of return for investors with the use of

equity. Below is a table and graph showing our results for the return on equity

for the firms being analyzed.

2011 2012 2013 2014 2015 AverageATR Re-Stated 19.6% 17.7% 17.6% 18.1% 24.0% 19.4%ATR As-Stated 14.7% 12.7% 13.3% 13.9% 13.4% 13.6%BLL 30.2% 35.4% 39.0% 41.5% 29.3% 35.1%CCK 172.9% -237.7% 313.2% 164.4% 119.1% 106.4%SLGN 34.9% 23.0% 24.6% 25.6% 24.3% 26.5%Industry 54.5% -29.8% 81.5% 52.7% 42.0% 40.2%

RETURN ON EQUITY

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As shown above, Aptargroup’s return on equity is below the industry

average, which is most likely due to the capital structure of Aptargroup. The

capital structure chosen for Aptargroup is equity heavy, which means most of the

firm financing for assets is from equity instead of debt. Aptargroup’s capital

provided by shareholders is greater than the comparables. A company that is

financed with mostly debt will have a higher return on equity. The trend in ROE

since 2011 for Aptargroup is relatively constant, where as the trend of the

industry is highly fluctuated. The large fluctuation in the industry ROE trend is

most likely due to the effects of Crown Holdings extremely high or low ROE.

Conclusion

Overall, Aptargroup’s profitability ratios are more favorable than the

industry and the other firms analyzed in this valuation. Aptargroup has higher

gross profit, operating profit, and net income margins than all the other firms

analyzed indicating that the firm is able to generate higher sales with its current

assets.

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Capital Structure Ratios

Capital structure is the mix of debt and both preferred and common stock

that companies use to finance their assets. Ideally, companies would like to have

a capital structure that allows for the shareholders to leverage debt holder’s

funds while also being able to ensure debt holders that the company can return

their principal and interest. Examining a firm’s capital structure ratios will allow

investors and us to gather an understanding on how a firm increases its funds.

Debt to Equity Ratio

The debt to equity ratio is used in this valuation to measure a firm’s

financial leverage with its liabilities and equity. The debt to equity ratio is

calculated by firm’s total liabilities divided by its total stockholder’s equity. This

ratio will indicate how much of a firm’s liabilities are being used to finance its

assets relative to the stockholder’ equity value. The ratio gauges the extent to

which a firm is acquiring liabilities to increase its leverage by using borrowed

money for funding purposes. A high debt to equity ratio indicates the firm has a

greater amount of liabilities and has the potential to create a greater amount of

earnings if the firm didn’t use the outside financing.

2011 2012 2013 2014 2015 AverageATR 0.67 0.68 0.69 1.21 1.12 0.87BLL 4.85 5.58 5.36 6.13 6.80 5.74CCK -29.74 57.14 26.79 23.92 22.03 20.03SLGN 3.53 3.37 3.65 3.61 3.99 3.63Industry -5.17 16.69 9.12 8.72 8.49 7.57

DEBT TO EQUITY RATIO

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As shown above, Aptargroup’s ratio has an overall increasing trend for the

years being analyzed. These increases for Aptargroup are attributed to its

liabilities increasing each year while the stockholder’s equity remains constant

with little fluctuations. Aptargroup’s liabilities are increasing each year due to its

long term obligations increasing which indicates the firm is borrowing more

money to fund projects. Crown Holdings has the highest ratio because its

liabilities are way greater than its stockholder’s equity each year indicating a

great amount of borrow funds. Crown Holdings has a negative ratio in 2011

because it reported a negative 239 million dollars in stockholder’s equity due to a

big comprehensive loss reported for the year.

Times Interest Earned

The times interest earned ratio allows us to understand a firm’s ability to

pay off its current interest payments on its debt using its income from

operations. The ratio is calculated by dividing operating income by the interest

expense for the year. This ratio indicates the amount of times a firm is able to

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cover its current interest expenses during the year on a pretax basis. A high

times interest earned ratio indicates that a firm has well enough amount of

operating income to cover its interest expenses multiple times potentially. A low

ratio indicates that the firm will not be able to cover its interest expenses

multiple times and failing to meet these obligations could result in bankruptcy.

Below is a table and chart for the times interest earned ratios for the firms.

As shown above, Aptargroup is the industry leader for the times interest

earned ratio for each of the years analyzed. Even after the restatements,

Aptargroup remains the leader because its operating income increased each year

due to lower overall operating expenses. This is due to the fact Aptargroup has

the lowest interest expenses reported each of the years than the other firms

being analyzed resulting in a higher ratio. Crown Holdings has the lowest ratio

2011 2012 2013 2014 2015 AverageATR Re-stated 20.48 17.18 17.38 18.24 11.32 16.92ATR As-Stated 16.61 13.72 13.88 14.61 9.38 13.64BLL 4.73 4.40 4.33 5.24 4.23 4.58CCK 3.66 3.59 3.56 3.20 3.43 3.49SLGN 5.62 5.16 4.81 4.83 4.78 5.04Industry 10.22 8.81 8.79 9.23 6.63 8.73

TIMES INTEREST EARNED

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results because its interest expense is the greatest reported indicating a lower

amount of times the firm can pay off its interest expenses. The industry trend is

overall decreasing each year indicating the the firms in the industry are having to

pay more in interest expenses and that their operating incomes are remaining

the same over the years.

Debt Service Margin

The debt service margin ratio allows us to see how much of a firm’s cash

flows from operating activity are utilized to pay off the firm’s current portions of

long-term debt. The ratio is calculated by dividing total cash flows from operating

activities by current portion of long-term debt from the prior year. A higher ratio

indicates that a greater amount of the firm’s cash flows from operating activities

are used to pay off the long-term current portions of debt.


DEBT SERVICE MARGIN

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As shown above, Aptargroup is the industry leader for this ratio for the

years 2011and 2013. Aptargroup has a very volatile debt service margin for the

years being analyzed because of its current portion of long term debt that is due

is not stable for the years while the cash flows from operating activities remains

constant with little fluctuations. The industry trend is overall constant with only

fluctuating by a little each of the years indicating the industry has small changes

in the current portions of long term debt and cash flows from operating

activities.

Altman Z-Score

The Altman z score is a combination of five ratios: Working Capital/Total

Assets, Retained Earnings/Total Assets, Earnings Before Interest & Tax/Total

Assets, Market Value of Equity/Total Liabilities and Sales/Total Assets These are

used to calculate how likely a company is to file bankruptcy. If the score is above

3.0, it indicates the firm is financially stable. A score between 1.8 and 3.0 means

the company could potentially be close to bankruptcy and below 1.8 indicates

that the firm is more likely to fall into bankruptcy quicker. Below is a table and

graph showing our results for the Altman Z-score.


ALTMAN'S Z-SCORE

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As shown above, the industry average has a Z-score of 3.91 and indicates

that the firms aren’t frequently filing for bankruptcy and are in good financial

standing in the packaging and containers industry. Aptargroup has a constant

trend for the score over the years being analyzed and has a favorable score

when compared to the industry. There are no firms in this industry with a score

lower than 3.0 which indicates the industry has the potential for growth because

no firms are falling out due to bankruptcy.

Internal Growth Rate

Internal growth rate is the greatest level of growth achievable for a firm

without acquiring outside financing. It is also known for how much a growth a

company can obtain by reinvesting retained earnings. IGR can be calculated by

multiplying the plowback ratio (1-(dividends/NI)) times the Return on Assets.

This is a conservative way to measure how well a firm can do based already on

their available assets. Below is a chart contrasting AptarGroup and its

competitors IGR.

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As shown above, all comparable companies dropped steadily from 2008 to

2012, Aptargroup dropped the most after major tax provisions that lowered net

income and ROA. Aptargroup’s IGR shows great potential being 3% points better

than its competitors. After the restatements, Aptargroup’s IGR increased due to

the net income decreasing each of the years which increased the plowback ratio.

Since Aptargroup is the smallest of the firms compared, we assume bigger firms

in the industry are not able to boost their net income in relation to their assets to

enable improved growth.


INTERNAL GROWTH RATE

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Sustainable Growth Rate

Sustainable growth rate (SGR) is the maximum growth rate a company can

grow with borrowing capital. SGR is calculated by return on equity multiplied 1

minus payout ratio. A higher SGR indicates that a firm can grow faster without

having to seek out capital elsewhere. Below is a table and graph showing our

results for this growth rate.

As shown above, the sustainable growth rate for all the firms except for

Crown Holdings behaved in a normal way. After the restatements, Aptargroup’s

sustainable growth rates increased each of the years. This measure is the most

realistic way since the formula accounts for the measure of leverage and is

higher in magnitude versus internal growth rate.

2011 2012 2013 2014 2015 AverageATR Re-Stated 16.3% 13.2% 12.9% 17.4% 16.9% 15.3%ATR As-Stated 11.2% 8.6% 8.3% 11.5% 10.8% 10.1%BLL 34.9% 33.4% 30.4% 38.8% 23.8% 32.2%CCK -121.6% 414.0% 120.8% 123.5% 98.7% 127.1%SLGN 33.7% 17.2% 21.1% 20.0% 20.2% 22.4%Industry -5.1% 97.3% 38.7% 42.2% 34.1% 41.4%

SUSTAINABLE GROWTH RATE

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Conclusion

Overall, Aptargroup relies heavily on its stockholder equity instead of its

debt. This allows an increase in the probability of Aptargroup not falling into

bankruptcy. Aptargroup has favorable ratio results for debt service margin and

times interest earned indicating they have no problem with the ability to pay off

its debt. The firm also has favorable growth rates when compared to the industry

and the other firms.

Cost of Capital Estimation

In order to value AptarGroup, we need to find the required rate of return.

This will give us a discount rate that can be used to value future cash flows. We

will combine AptarGroup’s cost of equity and their cost of debt to find the

weighted average cost of capital (WACC).

Cost of Equity

The cost of equity is the required rate of return investors will expect. The

higher the rate, the more risk is expected to exist within the company. To

calculate the cost of equity, we used the Capital Asset Pricing Model (CAPM),

which is equal to risk free + Beta * market risk premium (rm – rf).

Ke = Rf + β * (MRP) + SP

The CAPM is ideal for finding the cost of equity since it accounts for

systematic risk (mrp), the risk-free rate, and firm-specific risk (beta). To get data

for the risk free rate we gathered information from the St. Louis Federal Reserve

website. We picked multiple treasury rates (1, 2, 7, 10, and 20 years). To find

the right Beta (β) for our cost of equity estimation, we used the S&P500 and

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AptarGroup’s monthly returns for the past 72 months, gathered from Yahoo!

Finance. Based on the highest R^2 and using the monthly returns of the past 72

months, the beta of 0.928 is used for our cost of equity estimation.

The beta that Google is using is equal to 0.91; it means that Google is

probably using the returns for the previous 60 months of S&P500 and

AptarGroup. On the other hand, Yahoo! Finance shows beta of 1.77. That is due

to using a different index instead of S&P500. The market risk premium is equal

Months Beta Beta LB Beta UB R^2 SP MRP Rf Ke Ke LB Ke UB24 0.93227 0.53 1.334539 51.22% 1.00% 7.00% 0.61% 8.14% 5.32% 10.95%36 0.958492 0.664744 1.252241 56.39% 1.00% 7.00% 0.61% 8.32% 6.26% 10.38%48 0.994197 0.726162 1.262232 54.79% 1.00% 7.00% 0.61% 8.57% 6.69% 10.45%60 0.904914 0.684435 1.125393 53.78% 1.00% 7.00% 0.61% 7.94% 6.40% 9.49%72 0.928433 0.740327 1.116539 58.06% 1.00% 7.00% 0.61% 8.11% 6.79% 9.43%





1 year regressions

2 year regressions

7 year regressions

10 year regressions

20 year regressions

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to 7% for the purpose of this analysis, based on the risk premium of this

industry.

To obtain the size premium that is used for cost of equity estimation, we

used the following table from the Business Analysis & Valuation textbook.

Based on the market capitalization of AptarGroup, which is equal to $4.79

billion dollars, the eights size decile is highlighted and used in our estimation.

According to the table, AptarGroup’s size premium is equal to 1%.

Backdoor Cost of Equity

An alternative method to calculate the cost of equity is using the backdoor

cost of equity. The formula to find the backdoor cost of equity is:

(Price/Book) – 1 = (ROE-KE)/(KE-g)

The CAPM is based on the historical data to determine the cost of equity,

since it needs the regression analysis to find beta. On the other hand, the

Size DecileMarket Value of Largest Company

Percent of Market Represented by Decile

Average Annual Stock Return (%) Beta

Size Premium

1 (Smallest) 235.6 1 21 1.41 6.42 477.5 1.3 17.2 1.35 2.93 771.8 1.7 16.5 1.3 2.74 1212.3 2.2 15.4 1.24 1.95 1776 2.6 15 1.19 1.86 2509.2 3.5 14.8 1.16 1.87 3711 4.3 13.9 1.12 1.28 6793.9 7.4 13.6 1.1 19 15079.5 13.6 12.9 1.03 0.8

10 (largest) 314622.6 62.3 10.9 0.91 -0.4

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backdoor cost of equity uses current price, book value, return on equity, and the

growth rate. To calculate ROE, we calculated the average ROE in the next 10

years from our forecast. We applied the same to the growth rate, taking the

average growth rate in the next 10 years.

Backdoor cost of equity

Market Cap

(in millions)

Book Value

(in millions) P/B ROE g Ke

4820 2439 1.976 23% 5.85% 14.53%

Out implied cost of equity is about 50% higher than the estimated cost of

equity using CAPM method. The cost of equity that we calculated using backdoor

cost equity is 14.53%, while the CAPM method estimates the cost of equity of

9.75%.

Cost of Debt

The cost of debt is the rate a firm must pay to borrow money. This tends

to be the cheapest method a firm can raise capital; however, the higher the

firms’ debt/equity the higher the interest rates will tend to be.

The cost of debt should be cheaper than the cost of equity since debt

holder is paid before shareholders in the event of bankruptcy. Yet, ATR’s low

cost of equity should minimize the difference between the two.

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According to ATR’s 10-K, their long-term debt is $813 million dollars with an

average rate of 3.97%.

WACC (Weighted Average Cost of Capital)

The weighted average cost of capital is the average rate a firm will pay to

raise capital given its capital structure. A firm’s WACC is calculated by the debt

percentage multiplied by the cost of debt plus the equity percent multiplied by its

cost of equity.

WACC = Debt/Assets * Rdebt + Equity/(Assets) * Requity

The after tax WACC is taking into consideration the tax rate the ability of debt to

serve as a tax shield:

WACC = Debt/Assets * Rdebt * (1-Tc) + Equity/Assets * Requity

Using these two formulas and the total liabilities along with the value of

equity of AptarGroup, we compute the WACC, as seen in the following table.

Cost of Debt (As stated) Amount (in millions) Rate Weight W*RNotes payable 3,785$ 16.00% 0.47% 0.07%Senior notes ending in 2016 50,000$ 6.00% 6.15% 0.37%Senior notes ending in 2018 75,000$ 6.00% 9.23% 0.55%Senior notes ending in 2020 84,000$ 3.80% 10.33% 0.39%Senior notes ending in 2022 75,000$ 3.20% 9.23% 0.30%Senior notes ending in 2023 125,000$ 3.50% 15.38% 0.54%Senior notes ending in 2024 50,000$ 3.40% 6.15% 0.21%Senior notes ending in 2024 100,000$ 3.50% 12.30% 0.43%Senior notes ending in 2025 125,000$ 3.60% 15.38% 0.55%Senior notes ending in 2026 125,000$ 3.60% 15.38% 0.55%

812,785$ 3.97%

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Market Value

Amount (in millions) Rate Weight W*R

Liabilities 1,289 3.97% 0.528538626 2.10% Equity 1149.8 9.75% 0.471461374 4.60% Firm Value 2,439 WACC 6.70%

WACC after tax 6.02%

Based on our calculations of cost of equity and cost of debt, the after tax

WACC is equal to 6.02%. It means that AptarGroup pays an average of 6.02

cents for every dollar in their extra funding.

Conclusion

Our calculations based on the 10-K of AptarGroup show that the cost of

debt is equal to 3.97%. The cost of equity is equal to 9.75% based on the beta

of 0.928 and the assumed risk free rate of 2.25% (based on the 20-year US

Treasury Bond).

According to the data of the “Cost of Capital by Sector in the US”, the cost

of capital in packaging and container industry is equal to 7.12%, meaning that

AptarGroup pays one dollar and ten cents less for the extra funding than the

industry where they operate.

Forecasting Financial Statements

Forecasting firm’s financial statements is essential to value a business,

since it is essential for most valuation models. We will forecast the income

statement, balance sheet, and cash flow statement for the next 10 years. Our

assumptions used in this section will affect the outcome of our valuations.

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To forecast AptarGroup’s financials, we used past performance, economic

conditions, and industry trends to make our assumptions. We primarily used past

performance as a measure, along with industry trends to establish our 10 year

expectations.

Income Statement

We began our forecast with the income statement since sells and

profitability should be a determining factor in asset growth and cash-flows.

Therefore, the assumptions we make in this section will have the greatest impact

on our overall valuation. That is why we did due diligence to ensure that our

assumptions were reasonable in this section (as well as the rest).

We began our forecast by projecting future growth in revenue. To

estimate future growth we projected future growth by using the past five year’s

average year-over-year (YoY) growth. We calculated the average YoY growth by

taking sum of current year’s sales / previous year’s sales for the five years. The

YoY growth was 12.5%, -0.3%, 8.1%, 3.1%, and -10.8% from 2010 to 2015

(restated) respectively, this gives us an average sales growth of 2.5%. Although

the 2015 data was unusually bad, we felt that the unusually profitable 2010 data

helps compensate. Furthermore, both of these years were because of material

non-recurring events, which means that we should not expect these extreme

moves in any specific year (ATR 10-K).

The demand for packaging and containers is highly correlated with the

consumption of disposable goods. Especially for products that depend on the

packaging after use, such as shampoo or dispensable soap (ATR 10-K).

Therefore, we expect each year’s actual revenue to adjust to market conditions,

we believe on average there will be 2.5% annual growth. This should result in

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approximately a 28% revenue growth from 2015 reported sales ($2,317 million)

to 2025 forecasted sales ($2,974.6 million).

We determined that the common size of income statement accounts is

highly stable; therefore, we used the five year average common size of line items

for income statement forecasting. We then multiplied the average relative size of

each account by our forecasted revenue. Although this makes our entire income

statement forecast dependent upon the accuracy of our revenue projections, this

can result in highly accurate forecasts for all accounts if revenue is predicted

reasonably. Since we are confident in our revenue projections we believe this is a

reasonable assumption.

Dividends Forecasting

AptarGroup’s dividends have been increasing steadily over the past five

years. Dividends per share have increased by 6.3% YoY, which is slightly down

from 6.7% in 2010 to 2015. We expect dividends per share to follow the as-

stated forecasts of net income. This should result in a terminal growth in

dividends of 2.5% from year 2025 onwards.

Balance Sheet

Next, we used our income statement forecasts and AptarGroup’s ratios to

forecast the balance sheet. By using a combination of ratios and revenue based

models, we can help verify the reasonableness of our revenue assumption.

Ratios such as inventory turnover and accounts receivable turnover allow us to

check our revenue assumption indirectly, since total assets are forecasted with

the asset turnover. We can check with inventory and accounts receivable, since

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these ratios are independent of our revenue forecast. Therefore, if they change

significantly without just cause, then we can assume our revenue forecast is off.

However, when we forecasted assets this way we saw almost no change in the

size of the common size accounts.

For our equity forecasting we used return on equity for total shareholders’

equity. Next, we forecasted each account based on its average relative size. For

the forecasted equity we assumed, and will continue to assume that AptarGroup

does not issue any new shares or repurchase outstanding ones after April 1,

2015.

We expect total assets to increase from $2,439 million in 2015 to $2,911

million in 2025, which represents an annual growth rate of 1.9%. The effect on

total liabilities is expected to increase by 0.6% annually, rising from $1,289

million in 2015 to $1,364 million in 2025. Lastly we also expect total

shareholders’ equity to rise by 1.9% annually, with a value of $2,911 million in

2025.

Cash Flow Statement

Lastly, we forecasted the statement of cash flows 10 years into the future.

Unfortunately, cash flows are the most difficult of the financial statements to

forecast due to the highly volatile nature of them. Furthermore, it is difficult to

predict a firms financing activities, which is why we focused on cash from

operations and cash from investing activities.

In order to make a reasonable forecast given the difficulties, we could

have used CFFO/Sales, CFFO/Operating Income, and CFFO/Net Income. Of

which, we believe that CFFO/Sales is the least vulnerable to error. Therefore, we

forecasted cash flows from operations with our sales forecast, which gave an

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annual growth rate of 5.8%. This means that AptarGroup should expect to

generate $512 million in positive cash flows from operations in 2025. To forecast

cash flows from investing activities we used the change in PPE/CFFI. Since

changes in PP&E correlate with major investing activities such as opening a new

plant or even an acquisition, we found this ratio to be most appropriate. To come

to a reasonable assumption we ignored the 2012 CFFI because it was an

extreme outlier in our data sample. By ignoring 2012, we get an average growth

of 10.5%, with a final cash flow from investing activities of negative $362 million

in 2025.

Method of Comparables

To help understand the true value of a firm, valuation comparables are

used to determine if a firm is over or undervalued relative to the competitors.

Investors can use these comparables when comparing firms to see if they are

priced accurately. These comparable ratios are calculated quickly; consequently,

the results may vary or be unreliable.

Price to Earnings (P/E) Trailing

The price to earnings trailing ratio describes the willingness of an investor

to invest in a firm in order to obtain one dollar of firm’s profit. This ratio is

calculated by dividing current share price by the net income of the trailing twelve

months. Below is a table showing the ratio for Aptargroup and the competitors.

Aptargroup 31.94Ball Corp 20.7Crown Holdings 17.66Silgan Holdings 18.02

Trailing Price to Earnings

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A low price to earnings trailing ratio is more favorable to firms due to the

fact investors favor higher returns. Aptargroup shows that investors are willing to

pay $31.94 per one dollar of net income created and also helps us determine

that Aptargroup is overvalued.

Price to Earnings (P/E) Forecast

The price to earnings forecast ratio, similar to price to earnings trailing

ratio, except for the fact this ratio uses the forecasted data for the firm.

Aptargroup has a forward price to earnings ratio of $21.19 and means that in the

future, investors are expected to be willing to invest $21.19 for every one dollar

of forecasted net income for the firm. This indication allows us to determine

Aptargroup is overvalued.

Price to Book

The market value observed to the accounting book value is what the price

to book ratio is a comparison of and is an important comparison for investors.

Many investors use the Price to book ratio to see what they will nominally get in

return for every one dollar invested. AptarGroup’s price to book value is 3.83.

Depending on the investor people like small or mid size price to book ratios.

Value investors typically like to see low price to book ratios when the firms

Aptargroup 21.19Ball Corp 17.40 Crown Holdings 13.75Silgan Holdings 15.85

Forward Price to Earnings

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current historical cost are worth more than its book value. Aptargroup’s ratio is

$81.51 according to the calculation which puts Aptargroup as overstated.

Dividends to Price

The dividend to price ratio is a ratio that shows how much a firm is paying

out in dividends relative to the current share price, sometimes this ratio is

referred to as the dividend yield. The industry average in relation to Aptargroup’s

competitors is.$.0259 per share. Dividing AptarGroup’s current dividend per year

($.85) in relation to industry average which we calculate $76.77 which is slightly

undervalued. This multiplier is not very dependable in terms of industry average

cause there are many competitor in the packaging in container industry that

would change the effect on the industry average.

Aptargroup 3.83 Ball Corp 9.56 Crown Holdings 3.70 Silgan Holdings 4.63 Aptargroup using Industry multiplier 81.51

Price to Book

Aptargroup 0.02 Ball Corp 0.002 Crown Holdings - Silgan Holdings 0.03 Aptargroup using Industry multiplier 76.77

Dividend to Price

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Price to Earnings Growth (PEG)

The price to earnings growth ratio is very alike in ways of that of the

forward price to earnings ratio except that this ratio uses the growth in earnings

instead of the forecasted earnings. The ratio is calculated by dividing the current

price to earnings ratio by the anal earnings per share growth.

Price to EBITDA

Similar to the price to earnings is the EBITDA ratio which adds

depreciation, Amortization, taxes and interest. Price to EBITDA is a measure an

investor is paying for one dollar of EBITDA this information helps us see the

differences before taxes rates, debt, and large infrastructure investments. The

industry average for EBITDA in the P&C industry is about 8.39 which gives us an

estimated price of $59.67 for Aptargroup.

Price to Free Cash Flow

The price to free cash flows is a ratio that uses free cash flows from

operating activities, investing activities and financing activities as well as market

price. In some situations it may be useful to calculate this ratio but in our case

the numbers were extreme. It valued our company at 154.89 and valued the

Aptargroup 2.55 Ball Corp 1.89 Crown Holdings 1.35 Silgan Holdings 1.85

Price to Earnings Growth

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industry average at 51.58. With numbers spread this far apart we would not

consider this ratio useful to valuing our company as overvalued or undervalued.

Enterprise Value to EBITDA

A company’s Enterprise Value EBITDA is how much an investor values and

puts on a dollar of EBITDA. This value is calculated by dividing enterprise value

by EBITDA. The lower the value of enterprise value to EBITDA makes it more

likely to be an undervalued company a great possible investment. The industry

Average for P&C is 44.45 and AptarGroup’s valued at 71.87. This shows that

AptarGroup is overvalued according to Enterprise Value EBITDA.

Price to Sales

The price to sales ratio is a measure of how much an investor is willing to

pay for a dollar of sales per share. This ratio is useful in comparing what

different investors are willing to pay for each company. If a company has a

higher price to sales ratio it indicates the company is overvalued compared to the

industry. The average ratio for the industry was 2.4 which led to AptarGroup

being overvalued at a share price of 89.45.

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Conclusion

Using market multiples overall gave us decently helpful information but

some of the information didn’t reflect some accuracy in the valuation of

Aptargroup. One of the reason accuracy was hard to obtain was getting a good

industry average for the calculations. All but one of the metrics used pointed to

the company being overvalued. When we average all the multipliers we get a

share price of $67.93 which is 16.47% lower than the original observed price of

$79.09. These comparable’s we can conclude that the share price is undervalued

but to get a better understanding of Aptargroup’s value we must look into the

intrinsic models.

Intrinsic Model Valuation

Intrinsic valuation models rely on the info of forecasted performance and a

relative discount rate to value a firm’s equity. These valuation models rely on

generated forecasted information, meaning the information is vulnerable to

forecast error. Since these models are stable and safe in financial theory,

investors can use these forecasted models as reference when making an

investment decision. A major key assumption from the models is that a

corporation will achieve the required rate of return of the project and the value

of the company will slope down towards zero in the long run. In this upcoming

section, we will apply the discounted dividends, discounted cash flows, abnormal

earnings growth, residual income, and long run income models to calculate the

value of equity of AptarGroup.

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Discounted Dividends Model

The Discounted Dividends Model (DDM) derives the intrinsic value of a firm

by discounting future dividend payments to shareholders by the firm-specific

two-factor cost of equity. The discounted dividends model is founded on financial

theory, yet it creates the unrealistic assumption that all investors want to buy

stock solely for the income from the dividend stream and not for the growth

appreciation in stock price. The main problem is that the DDM discounts

dividends forever; which shows most of the company’s value is placed in a

constant stream of dividends that are not able be predicted or valued with any

confidence. The model also does not value the growth a corporation achieves

when it reinvests retained earnings back into the corporation rather than paying

out all dividends. Overall, the Discounted Dividends model does not have great

analytical power.

Discounted Dividends Model Growth Rate

Ke 0% 1% 2% 3% 4%

5.75% 35.25 40.86 49.82 66.4 107.56

7.75% 24.99 27.36 30.62 35.38 42.98

9.75% 19.19 20.4 21.94 23.95 26.73

11.75% 15.49 16.17 17 18.03 19.35

13.75% 12.93 13.35 13.84 14.43 15.14

Overvalued 10%LB 10%UB Undervalued $71.18 $87.00

Based on the discounted dividends model, AptarGroup is overvalued. As

the cost of equity decreases, the model depends more on the perpetuity growth

rate. Due to the fact that discounted dividends model uses dividends only, the

restatement does not affect the model.

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This model shows that AptarGroup is overvalued in every scenario except

one, when growth rate is 4% and the cost of equity is 5.35%.

Discounted Free Cash Flow Model

With contrast to DDM, the Discounted Free Cash Flow Model (DCF) focuses

more on the generation and stream of free cash flows (FCF) rather than focusing

on the distribution of dividends. The DCF model carries greater analytical power

than the DDM, yet it still has its own inherent problems. One of the main issue’s

is that the model depends on the FCF forecasts, which are more difficult to

forecast due to the deviation with capital expenditures (CAPX). Therefore, we

can assume a certain degree of forecasting error is factored into the DCF model,

which is compounded over a length of time.

The Cash Flow from Operating Activities (CFFO) and The Cash Flow From

Investing Activities (CFFI) are calculated using the forecasted CFFO and the CFFI

that have been already calculated. Once the CFFO and CFFI were calculated, we

then computed the free cash flows from assets by subtracting the difference

between cash flows from operations (CFFO) and the cash flows from investing

activities (CFFI). We then calculated the market value of the assets for the

company after using the present value of the free cash flows from the assets.

To obtain the price of market value of assets, we added the total present

value of year to year free cash flows to the free cash flow perpetuity for the

forecasted periods. After this, we subtracted the book value of debt and

preferred stock from the market value of assets to obtain the market value of

equity. Since we had the market value of equity, we divided it by the number of

shares AptarGroup has outstanding and multiplied that figure by the time

consistency factor so we could get an estimated stock price for the corporation.

To finish off the estimation, the time-consistent price is calculated by multiplying

109

the model price by a 10 month long future value. Since the cash flows are

calculated after tax, the restated before tax WACC was used to discount the free

cash flows and to avoid double taxation.

Due to the low explanatory power, the discounted dividends model and

free cash flow model will not play as significant of a role in our valuation as the

residual income model and long run residual income model.

For our sensitivity analysis, we used WACC between 2.51% and 10.51%

and a growth rate from 0 to 8%. The data come from our financial analysis.

Residual Income Model

The Residual Income Valuation Model (RIM) has a lot in common with

other models such as the DDM and FCF. The RIM bases the future performance

of a corporation in both the forecast period and in perpetuities to calculate the

intrinsic value of a company. In contrast with the two previous models, however,

the RIV model accounts for that a percentage of a corporation’s intrinsic value is

held in its current equity. The RIV has great analytical power because the model

values near-term year by year values highly on rather than perpetuity’s; near-

term forecasts tend to be more reliable then long- term forecasts, which makes

110

the inputs for the RIM model less risky than the inputs used for the FCF model.

The residual income model shows that the price of AptarGroup is

undervalued. Using the lower and upper bounds of $71.18 and $87 respectively,

we observe that, when the cost of equity is lower than 9.75%, the company is

undervalued.

Long-Run Residual Income Model

The long run residual income model consists of three variables; ROE, cost

of equity, and forecasted growth rates. This valuation method will also use a

negative growth rate based on the assumption that the firm will not outperform

its required cost of equity. The Long-Run Residual Income method has better

analytical power when compared to free cash flow method. The input variable

we use to calculate the market value of equity is the book value of equity.

111

ROE (constant) - Ke and g vary Constant ROE g

of 15.60% 0% 2% 4% 6% 8% 5.75% 54.05 75.26 159.28 273.78 753.19

7.75% 39.53 47.34 64.49 132.44 217.76

Ke 9.75% 31.22 34.62 40.57 53.62 105.33

11.75% 25.83 27.34 29.66 33.73 42.64

13.75% 22.06 22.62 23.42 24.66 26.82

Overvalued 10%LB 10%UB Undervalued $71.18 $87.00

Growth rate (constant) - Ke and ROE vary Constant g of ROE

8% 11.60% 13.60% 15.60% 17.60% 19.60% 5.75% 60.379 93.9081 113.0745 140.8077 194.5317

7.75% 54.89 85.371 102.795 128.007 176.847

Ke 9.75% 49.90 77.61 93.45 116.37 160.77

11.75% 44.91 69.849 84.105 104.733 144.693

13.75% 40.419 62.8641 75.6945 94.2597 130.2237 Overvalued 10%LB 10%UB Undervalued $71.18 $87.00

Ke (constant) - g and ROE vary Constant Ke of ROE

9.35% 11.60% 13.60% 15.60% 17.60% 19.60% 0% 23.21 27.22 31.22 35.22 39.22

2% 24.44 29.53 34.62 39.71 44.8

g 4% 26.58 33.57 40.57 47.56 54.56

6% 31.28 42.45 53.62 64.79 75.96

8% 49.9 77.61 105.33 133.05 160.77 Overvalued 10%LB 10%UB Undervalued $71.18 $87.00

112

The results of the long run residual income model show that the

AptarGroup’s value is overvalued due to the predominant presence of lower

bound results.

Intrinsic Valuation Model Conclusion

The models that rely on the forecasted data all suggest that the value of

AptarGroup is overvalued except the residual income model. In contrast to the

dividend discount and DCF models, the residual income provides with both

positives and negatives.

The overvalued estimation of AptarGroup means that the market believes in the

future a growth opportunity of the firm, making the current price higher than it is

supposed to be.

Due to the fact that the residual income relies heavily on forward looking

estimation of the company’s financial statements, it is not a significant fact in our

evaluation. On the other hand, it does provide with a clearer estimate of the true

intrinsic value of AptarGroup.

113

APPENDIX

References

Yahoo - http://finance.yahoo.com/

ATR 10-K – AptarGroup 10-K (2011-2015)

BLL 10-K – Ball Corporation 10-K (2011-2015)

CCK 10-K – Crown Holdings 10-K (2011-2015)

SLGN 10-K – Silgan Holdings 10-K (2011-2015)

Palepu – Palepu and Healy, Business Analysis and Valuation (Ohio: Cengage, 8th

Edition, 2013). ISBN13: 978-1-305-37468-3

CNBC - http://data.cnbc.com/quotes/US30Y (accessed 05/04/2016)

Marketvis.io – https://www.marketvis.io

CSI Market - http://csimarket.com/

Aptargroup 10-k Form Ending Fiscal Year 2015. Retrieved from

http://investors.aptar.com/phoenix.zhtml?c=109617&p=irol-sec

Forecasted Financial Statements

• On the following page

http://finance.yahoo.com/

http://data.cnbc.com/quotes/US30Y

https://www.marketvis.io/

http://csimarket.com/

https://www.last10k.com/sec-filings/msm

https://www.last10k.com/sec-filings/msm

114

(in m

illion

s)20

1020

1120

1220

1320

1420

1520

1620

1720

1820

1920

2020

2120

2220

2320

2420

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MEN

T (as

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115

(in m

illion

s)20

1020

1120

1220

1320

1420

1520

1620

1720

1820

1920

2020

2120

2220

2320

2420

25

Reve

nue

2,07

7.0

2,33

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Cost

of R

even

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01,

568.

01,

590.

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709.

01,

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503.

01,

594.

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602.

953.

193.

954.

054.

154.

254.

364.

474.

584.

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94Sh

ares

Out

stan

ding

67.2

66.6

66.4

66.2

65.0

62.5

62.5

62.5

62.5

62.5

62.5

62.5

62.5

62.5

62.5

62.5

ATR

INCO

ME

STAT

EMEN

T (re

stat

ed)

(in m

illion

s)20

1020

1120

1220

1320

1420

1520

1620

1720

1820

1920

2020

2120

2220

2320

2420

25Re

venu

e10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

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0.0%

100.

0%10

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100.

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0.0%

100.

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100.

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st of

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enue

66.4

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68.2

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67.6

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67.1

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67.1

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67.1

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67.1

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67.1

%67

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Gros

s Pro

fit33

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32.9

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32.2

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35.1

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32.9

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32.9

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32.9

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lling,

R&D,

and A

dmin

Expe

nse

14.3

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14.8

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11.9

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11.9

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Depr

eciat

ion a

nd A

mor

tizat

ion

6.4%

5.7%

5.9%

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5.9%

5.9%

5.9%

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Restr

uctu

ring I

nitiat

ives

0.0%

0.0%

0.1%

0.5%

0.0%

0.0%

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Oper

atin

g Inc

ome

12.9

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11.1

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11.8

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14.9

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Inte

rest

Expe

nse

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Inte

rest

Inco

me

0.2%

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0.2%

0.2%

0.2%

0.2%

0.2%

0.2%

0.2%

0.2%

0.2%

0.2%

0.2%

0.2%

Equit

y Res

ults o

f Affi

liate

s0.

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0.0%

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Othe

r Exp

ense

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Prov

ision

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e Tax

es-3

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t Inc

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8.4%

7.9%

7.0%

6.8%

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10.4

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10.4

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10.4

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N

et In

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e attr

ibuta

be to

ATR

8.4%

7.9%

7.0%

6.8%

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8.6%

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10.4

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10.4

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10.4

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10.4

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N

et In

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e ava

ilable

to co

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on0.

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stand

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ATR

COM

MON

SIZE

INCO

ME S

TATE

MEN

T (re

state

d)

116

Asse

ts (m

illion

s)20

1020

1120

1220

1320

1420

1520

1620

1720

1820

1920

2020

2120

2220

2320

2420

25

Curre

nt A

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sh &

Cas

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376.

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7.6

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391.

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357.

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Good

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1Lia

bilit

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d Eq

uity

(milli

ons)

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Curre

nt Li

abilit

ies

Note

s Pay

able

45.4

179.

645

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110

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50.1

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18.7

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117

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1020

1120

1220

1320

1420

1520

1620

1720

1820

1920

2020

2120

2220

2320

2420

25Cu

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Ass

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Cash

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Tota

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Nonc

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Othe

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100.

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100.

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Liabi

lities

and

Equi

ty (m

illion

s)20

1020

1120

1220

1320

1420

1520

1620

1720

1820

1920

2020

2120

2220

2320

2420

25Cu

rrent

Liab

ilities

Note

s Pay

able

6.0%

20.7

%4.

8%13

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17.5

%0.

4%9.

6%9.

6%9.

6%9.

6%9.

6%9.

6%9.

6%9.

6%9.

6%9.

6%Cu

rrent

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urite

s (lon

g-ter

m de

bt)

6.7%

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3.1%

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1.4%

4.0%

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0.4%

0.4%

0.4%

0.4%

0.4%

0.4%

0.4%

0.4%

0.4%

Acco

unts

Paya

ble &

Acc

rued

Liab

ilities

43.5

%38

.6%

40.3

%39

.6%

26.5

%27

.5%

34.7

%34

.7%

34.7

%34

.7%

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1Lia

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2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

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2024

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Curre

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55.3

%55

.3%

55.3

%55

.3%

55.3

%55

.3%

55.3

%55

.3%

Tota

l Liab

ilities

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

Shar

ehold

er's

Equit

yCo

mm

on St

ock p

ar va

lue ($

.01)

0.1%

0.1%

0.1%

0.1%

0.1%

0.1%

0.1%

0.1%

0.1%

0.1%

0.1%

0.1%

0.1%

0.1%

0.1%

0.1%

Capit

al in

Exce

ss of

par v

alue

24.9

%28

.3%

31.2

%33

.4%

46.0

%43

.1%

34.0

%34

.0%

34.0

%34

.0%

34.0

%34

.0%

34.0

%34

.0%

34.0

%34

.0%

Reta

ined E

arnin

gs10

0.0%

109.

3%10

9.7%

109.

4%15

7.7%

103.

1%11

3.9%

113.

9%11

3.9%

113.

9%11

3.9%

113.

9%11

3.9%

113.

9%11

3.9%

113.

9%Ac

cum

ulate

d Oth

er Co

mph

rehe

nsive

(loss

)9.

7%4.

7%4.

4%7.

4%-1

0.0%

-22.

8%-0

.2%

-0.2

%-0

.2%

-0.2

%-0

.2%

-0.2

%-0

.2%

-0.2

%-0

.2%

-0.2

%Le

ss: T

reas

ury S

tock

-34.

6%-4

2.3%

-45.

3%-5

0.3%

-93.

8%-2

3.5%

-47.

7%-4

7.7%

-47.

7%-4

7.7%

-47.

7%-4

7.7%

-47.

7%-4

7.7%

-47.

7%-4

7.7%

Tota

l Equ

ity10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%To

tal L

iabilit

ies &

Equi

ty10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%

ATR

COM

MON

SIZE

BAL

ANCE

SHEE

T (re

state

d)

120

(in m

illio

ns)

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Net

Inco

me

183.

616

2.4

171.

919

1.6

199.

324

6.5

252.

725

9.1

265.

727

2.4

279.

328

6.4

293.

630

1.0

308.

7Ca

sh F

low

s fro

m O

pera

ting

Activ

ites

Depr

ecia

tion

132.

013

3.8

144.

914

6.9

134.

918

8.8

193.

619

8.5

203.

520

8.6

213.

921

9.3

224.

923

0.6

236.

4Am

ortiz

atio

n2.

23.

25.

05.

34.

25.

45.

55.

75.

86.

06.

16.

36.

46.

66.

8St

ock

Base

d Co

mpe

nsat

ion

13.8

12.7

13.7

19.7

20.6

21.7

22.2

22.8

23.3

23.9

24.5

25.2

25.8

26.4

27.1

(Rec

over

y) P

rovi

sion

for D

oubt

ful A

ccou

nts

1.6

(0.6

)(0

.4)

0.7

(0.8

)0.

10.

10.

10.

10.

10.

10.

10.

10.

10.

1De

ferr

ed In

com

e Ta

xes

2.0

(9.0

)6.

8(1

9.0)

(7.1

)(6

.9)

(7.1

)(7

.2)

(7.4

)(7

.6)

(7.8

)(8

.0)

(8.2

)(8

.4)

(8.6

)De

fined

Ben

efit

Plan

Exp

ense

10.9

14.6

19.4

16.7

20.7

22.3

22.9

23.5

24.1

24.7

25.3

26.0

26.6

27.3

28.0

Equi

ty in

Res

ults

of A

ffili

ates

in E

xces

s of C

ash

Dist

. Rec

.0.

00.

50.

91.

90.

71.

11.

11.

11.

21.

21.

21.

21.

31.

31.

3Ac

coun

ts &

Oth

er R

ecei

vabl

es(4

5.0)

16.7

(32.

8)(1

6.3)

(27.

8)(2

7.5)

(28.

2)(2

8.9)

(29.

6)(3

0.4)

(31.

2)(3

1.9)

(32.

7)(3

3.6)

(34.

4)In

vent

orie

s(2

2.3)

(19.

7)(2

9.9)

5.2

(18.

9)(2

3.9)

(24.

5)(2

5.1)

(25.

7)(2

6.4)

(27.

1)(2

7.7)

(28.

4)(2

9.2)

(29.

9)Pr

epai

d an

d O

ther

Cur

rent

Ass

ets

(34.

3)10

.1(6

.4)

(6.5

)(7

.0)

(11.

4)(1

1.7)

(12.

0)(1

2.3)

(12.

6)(1

2.9)

(13.

2)(1

3.6)

(13.

9)(1

4.3)

Acco

unts

Pay

able

and

Acc

rued

Lia

bilit

ies

5.3

(0.8

)1.

1(2

4.3)

39.3

5.0

5.1

5.2

5.4

5.5

5.6

5.8

5.9

6.1

6.2

Inco

me

Taxe

s Pay

able

(9.6

)3.

016

.7(1

0.9)

3.4

1.2

1.2

1.2

1.2

1.3

1.3

1.3

1.4

1.4

1.5

Retir

emen

t and

Def

erre

d Co

mpe

nsat

ion

Plan

Lia

bilit

ies

(11.

2)(2

.1)

(19.

4)(0

.4)

(29.

6)(1

6.6)

(17.

1)(1

7.5)

(17.

9)(1

8.4)

(18.

8)(1

9.3)

(19.

8)(2

0.3)

(20.

8)O

ther

Cha

nges

, net

32.0

(10.

9)(6

.2)

5.6

(7.2

)3.

23.

23.

33.

43.

53.

63.

73.

83.

94.

0N

et C

ash

Prov

ided

by

Ope

ratio

ns26

1.0

313.

928

5.3

316.

232

4.7

408.

941

9.2

429.

844

0.7

451.

946

3.3

475.

048

7.0

499.

451

2.0

Cash

Flo

ws f

rom

Inve

stin

g Ac

tiviti

es0.

00.

00.

00.

00.

00.

00.

00.

00.

00.

0Ca

pita

l Exp

endi

ture

s(1

79.7

)(1

74.4

)(1

51.5

)(1

61.9

)(1

49.3

)(2

23.2

)(2

28.9

)(2

34.7

)(2

40.6

)(2

46.7

)(2

52.9

)(2

59.3

)(2

65.9

)(2

72.6

)(2

79.5

)Pr

ocee

ds fr

om S

ale

of P

P&E

1.8

2.6

0.4

5.1

0.8

2.9

3.0

3.0

3.1

3.2

3.3

3.4

3.5

3.5

3.6

Insu

ranc

e Pr

ocee

ds o

n Pr

oper

ty C

laim

0.0

0.0

0.0

0.0

3.7

0.9

0.9

1.0

1.0

1.0

1.0

1.1

1.1

1.1

1.1

Purc

hase

of S

hort

-Ter

m In

vest

men

ts0.

00.

00.

00.

0(3

2.8)

(8.1

)(8

.3)

(8.5

)(8

.7)

(9.0

)(9

.2)

(9.4

)(9

.7)

(9.9

)(1

0.2)

Inta

ngib

le A

sset

s0.

00.

0(0

.7)

0.0

0.0

(0.2

)(0

.2)

(0.2

)(0

.2)

(0.2

)(0

.2)

(0.2

)(0

.2)

(0.2

)(0

.3)

Acqu

istio

n of

Bus

ines

s(1

4.9)

(187

.8)

0.0

0.0

0.0

(61.

0)(6

2.6)

(64.

1)(6

5.8)

(67.

4)(6

9.1)

(70.

9)(7

2.7)

(74.

5)(7

6.4)

Inve

stm

ent i

n U

ncon

solid

ated

Aff

iliat

e(3

.1)

(0.3

)(5

.3)

0.0

0.0

(61.

0)(6

2.6)

(64.

1)(6

5.8)

(67.

4)(6

9.1)

(70.

9)(7

2.7)

(74.

5)(7

6.4)

Not

es R

ecei

vabl

e, n

et0.

10.

1(0

.1)

(2.4

)1.

3(2

.4)

(2.5

)(2

.6)

(2.6

)(2

.7)

(2.8

)(2

.8)

(2.9

)(3

.0)

(3.1

)N

et C

ash

Use

d by

Inve

stin

g Ac

tiviti

es(1

95.8

)(3

59.8

)(1

57.2

)(1

59.2

)(1

76.3

)(3

52.2

)(3

61.1

)(3

70.3

)(3

79.6

)(3

89.2

)(3

99.1

)(4

09.2

)(4

19.5

)(4

30.1

)(4

41.0

)Ca

sh F

low

s fro

m F

inan

cing

Act

iviti

es(2

91.5

)(2

98.8

)(3

06.4

)(3

14.2

)(3

22.1

)(3

30.3

)(3

38.6

)(3

47.2

)(3

56.0

)(3

65.0

)Pr

ocee

ds fr

om N

otes

Pay

able

134.

60.

094

.295

.80.

00.

00.

00.

00.

00.

00.

00.

00.

00.

00.

0Re

paym

ents

of N

otes

Pay

able

0.0

(134

.0)

0.0

0.0

(227

.4)

87.8

90.0

92.3

94.6

97.0

99.5

102.

010

4.6

107.

211

0.0

Proc

eeds

from

Lon

g-Te

rm O

blig

atio

ns10

.812

5.0

0.0

253.

520

9.2

(96.

9)(9

9.4)

(101

.9)

(104

.5)

(107

.1)

(109

.8)

(112

.6)

(115

.5)

(118

.4)

(121

.4)

Repa

ymen

ts o

f Lon

g-Te

rm O

blig

atio

ns(5

0.5)

(3.0

)(2

5.3)

(0.8

)(1

.0)

157.

816

1.8

165.

917

0.1

174.

417

8.8

183.

418

8.0

192.

719

7.6

Divi

dend

s Pai

d(5

3.3)

(58.

4)(6

6.1)

(71.

1)(7

1.2)

(76.

6)(8

2.1)

(86.

7)(9

1.1)

(96.

9)(1

02.8

)(1

08.8

)(1

15.1

)(1

22.0

)(1

29.3

)Cr

edit

Faci

lity

Cost

s0.

0(1

.5)

(0.5

)(0

.7)

(1.2

)(8

6.9)

(89.

1)(9

1.4)

(93.

7)(9

6.0)

(98.

5)(1

01.0

)(1

03.5

)(1

06.1

)(1

08.8

)Pr

ocee

ds fr

om S

tock

Opt

ion

Exce

rcise

s26

.144

.643

.336

.064

.0(1

.1)

(1.1

)(1

.1)

(1.2

)(1

.2)

(1.2

)(1

.2)

(1.3

)(1

.3)

(1.3

)Pu

rcha

se o

f Tre

asur

y St

ock

(102

.6)

(79.

8)(1

18.8

)(3

40.5

)0.

058

.159

.561

.062

.664

.265

.867

.569

.270

.972

.7Co

mm

on S

tock

Rep

urch

ased

& R

etire

d0.

07.

80.

00.

0(1

3.9)

(173

.5)

(177

.9)

(182

.4)

(187

.0)

(191

.7)

(196

.5)

(201

.5)

(206

.6)

(211

.8)

(217

.2)

Exce

ss T

ax B

enef

it fr

om E

xerc

ise o

f Sto

ck O

ptio

ns6.

4(9

9.4)

6.1

7.0

8.4

(1.1

)(1

.1)

(1.1

)(1

.2)

(1.2

)(1

.2)

(1.2

)(1

.3)

(1.3

)(1

.3)

Net

Cas

h U

sed

by F

inan

cing

Act

iviti

es(2

8.5)

(198

.7)

(67.

1)(2

0.8)

(33.

1)(1

32.4

)(1

39.2

)(1

45.3

)(1

51.2

)(1

58.5

)(1

66.0

)(1

73.5

)(1

81.5

)(1

90.1

)(1

99.1

)Ef

fect

of E

xcha

nge

Rate

Cha

nges

on

Cash

(35.

5)(2

.9)

18.9

(46.

5)(2

5.1)

(100

.8)

(103

.3)

(105

.9)

(108

.6)

(111

.4)

(114

.2)

(117

.1)

(120

.0)

(123

.1)

(126

.2)

Net

Incr

ease

in C

ash

and

Cash

Equ

ival

ents

1.2

(147

.9)

80.1

89.9

90.1

90.1

90.1

90.1

90.1

90.1

90.1

90.1

90.1

90.1

90.1

Cash

and

Equ

ival

ents

at B

egin

ning

of P

erio

d37

7.6

229.

830

9.9

399.

848

9.9

23.8

24.4

25.0

25.7

26.3

27.0

27.7

28.4

29.1

29.8

Inte

rest

Pai

d17

.117

.520

.720

.431

.748

4.1

496.

450

8.9

521.

853

5.0

548.

556

2.4

576.

659

1.2

606.

2In

com

e Ta

xes P

aid

79.4

64.5

47.4

94.6

79.5

28.9

29.7

30.4

31.2

32.0

32.8

33.6

34.5

35.3

36.2

ATR

STAT

EMEN

T O

F CA

SH F

LOW

S (a

s-st

ated

)

121

(in m

illio

ns)

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Net

Inco

me

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%Ca

sh F

low

s fro

m O

pera

ting

Activ

ites

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

Depr

ecia

tion

71.9

%82

.4%

84.3

%76

.7%

67.7

%76

.6%

76.6

%76

.6%

76.6

%76

.6%

76.6

%76

.6%

76.6

%76

.6%

76.6

%Am

ortiz

atio

n1.

2%2.

0%2.

9%2.

8%2.

1%2.

2%2.

2%2.

2%2.

2%2.

2%2.

2%2.

2%2.

2%2.

2%2.

2%St

ock

Base

d Co

mpe

nsat

ion

7.5%

7.8%

8.0%

10.3

%10

.3%

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

(Rec

over

y) P

rovi

sion

for D

oubt

ful A

ccou

nts

0.9%

-0.4

%-0

.2%

0.4%

-0.4

%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%De

ferr

ed In

com

e Ta

xes

1.1%

-5.5

%4.

0%-9

.9%

-3.6

%-2

.8%

-2.8

%-2

.8%

-2.8

%-2

.8%

-2.8

%-2

.8%

-2.8

%-2

.8%

-2.8

%De

fined

Ben

efit

Plan

Exp

ense

5.9%

9.0%

11.3

%8.

7%10

.4%

9.1%

9.1%

9.1%

9.1%

9.1%

9.1%

9.1%

9.1%

9.1%

9.1%

Equi

ty in

Res

ults

of A

ffili

ates

in E

xces

s of C

ash

Dist

. Rec

.0.

0%0.

3%0.

5%1.

0%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%Ac

coun

ts &

Oth

er R

ecei

vabl

es-2

4.5%

10.3

%-1

9.1%

-8.5

%-1

3.9%

-11.

2%-1

1.2%

-11.

2%-1

1.2%

-11.

2%-1

1.2%

-11.

2%-1

1.2%

-11.

2%-1

1.2%

Inve

ntor

ies

-12.

1%-1

2.1%

-17.

4%2.

7%-9

.5%

-9.7

%-9

.7%

-9.7

%-9

.7%

-9.7

%-9

.7%

-9.7

%-9

.7%

-9.7

%-9

.7%

Prep

aid

and

Oth

er C

urre

nt A

sset

s-1

8.7%

6.2%

-3.7

%-3

.4%

-3.5

%-4

.6%

-4.6

%-4

.6%

-4.6

%-4

.6%

-4.6

%-4

.6%

-4.6

%-4

.6%

-4.6

%Ac

coun

ts P

ayab

le a

nd A

ccru

ed L

iabi

litie

s2.

9%-0

.5%

0.6%

-12.

7%19

.7%

2.0%

2.0%

2.0%

2.0%

2.0%

2.0%

2.0%

2.0%

2.0%

2.0%

Inco

me

Taxe

s Pay

able

-5.2

%1.

8%9.

7%-5

.7%

1.7%

0.5%

0.5%

0.5%

0.5%

0.5%

0.5%

0.5%

0.5%

0.5%

0.5%

Retir

emen

t and

Def

erre

d Co

mpe

nsat

ion

Plan

Lia

bilit

ies

-6.1

%-1

.3%

-11.

3%-0

.2%

-14.

9%-6

.7%

-6.7

%-6

.7%

-6.7

%-6

.7%

-6.7

%-6

.7%

-6.7

%-6

.7%

-6.7

%O

ther

Cha

nges

, net

17.4

%-6

.7%

-3.6

%2.

9%-3

.6%

1.3%

1.3%

1.3%

1.3%

1.3%

1.3%

1.3%

1.3%

1.3%

1.3%

Net

Cas

h Pr

ovid

ed b

y O

pera

tions

142.

2%19

3.3%

166.

0%16

5.0%

162.

9%16

5.9%

165.

9%16

5.9%

165.

9%16

5.9%

165.

9%16

5.9%

165.

9%16

5.9%

165.

9%Ca

sh F

low

s fro

m In

vest

ing

Activ

ities

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

Capi

tal E

xpen

ditu

res

-97.

9%-1

07.4

%-8

8.1%

-84.

5%-7

4.9%

-90.

6%-9

0.6%

-90.

6%-9

0.6%

-90.

6%-9

0.6%

-90.

6%-9

0.6%

-90.

6%-9

0.6%

Proc

eeds

from

Sal

e of

PP&

E1.

0%1.

6%0.

2%2.

7%0.

4%1.

2%1.

2%1.

2%1.

2%1.

2%1.

2%1.

2%1.

2%1.

2%1.

2%In

sura

nce

Proc

eeds

on

Prop

erty

Cla

im0.

0%0.

0%0.

0%0.

0%1.

9%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%Pu

rcha

se o

f Sho

rt-T

erm

Inve

stm

ents

0.0%

0.0%

0.0%

0.0%

-16.

5%-3

.3%

-3.3

%-3

.3%

-3.3

%-3

.3%

-3.3

%-3

.3%

-3.3

%-3

.3%

-3.3

%In

tang

ible

Ass

ets

0.0%

0.0%

-0.4

%0.

0%0.

0%-0

.1%

-0.1

%-0

.1%

-0.1

%-0

.1%

-0.1

%-0

.1%

-0.1

%-0

.1%

-0.1

%Ac

quisi

tion

of B

usin

ess

-8.1

%-1

15.6

%0.

0%0.

0%0.

0%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%In

vest

men

t in

Unc

onso

lidat

ed A

ffili

ate

-8.1

%-1

15.6

%0.

0%0.

0%0.

0%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%N

otes

Rec

eiva

ble,

net

-1.7

%-0

.2%

-3.1

%0.

0%0.

0%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%N

et C

ash

Use

d by

Inve

stin

g Ac

tiviti

es0.

1%0.

1%-0

.1%

-1.3

%0.

7%-1

.0%

-1.0

%-1

.0%

-1.0

%-1

.0%

-1.0

%-1

.0%

-1.0

%-1

.0%

-1.0

%Ca

sh F

low

s fro

m F

inan

cing

Act

iviti

es-1

06.6

%-2

21.6

%-9

1.4%

-83.

1%-8

8.5%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

Proc

eeds

from

Not

es P

ayab

le0.

0%0.

0%0.

0%0.

0%0.

0%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%Re

paym

ents

of N

otes

Pay

able

73.3

%0.

0%54

.8%

50.0

%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%Pr

ocee

ds fr

om L

ong-

Term

Obl

igat

ions

0.0%

-82.

5%0.

0%0.

0%-1

14.1

%35

.6%

35.6

%35

.6%

35.6

%35

.6%

35.6

%35

.6%

35.6

%35

.6%

35.6

%Di

vide

nds P

aid

5.9%

77.0

%0.

0%13

2.3%

105.

0%-3

9.3%

-39.

3%-3

9.3%

-39.

3%-3

9.3%

-39.

3%-3

9.3%

-39.

3%-3

9.3%

-39.

3%Cr

edit

Faci

lity

Cost

s-2

7.5%

-1.8

%-1

4.7%

-0.4

%-0

.5%

64.0

%64

.0%

64.0

%64

.0%

64.0

%64

.0%

64.0

%64

.0%

64.0

%64

.0%

Proc

eeds

from

Sto

ck O

ptio

n Ex

cerc

ises

-29.

0%-3

6.0%

-38.

5%-3

7.1%

-35.

7%-3

1.1%

-32.

5%-3

3.5%

-34.

3%-3

5.6%

-36.

8%-3

8.0%

-39.

2%-4

0.5%

-41.

9%Pu

rcha

se o

f Tre

asur

y St

ock

0.0%

-0.9

%-0

.3%

-0.4

%-0

.6%

-35.

3%-3

5.3%

-35.

3%-3

5.3%

-35.

3%-3

5.3%

-35.

3%-3

5.3%

-35.

3%-3

5.3%

Com

mon

Sto

ck R

epur

chas

ed &

Ret

ired

14.2

%27

.5%

25.2

%18

.8%

32.1

%-0

.4%

-0.4

%-0

.4%

-0.4

%-0

.4%

-0.4

%-0

.4%

-0.4

%-0

.4%

-0.4

%Ex

cess

Tax

Ben

efit

from

Exe

rcise

of S

tock

Opt

ions

-55.

9%-4

9.1%

-69.

1%-1

77.7

%0.

0%23

.6%

23.6

%23

.6%

23.6

%23

.6%

23.6

%23

.6%

23.6

%23

.6%

23.6

%N

et C

ash

Use

d by

Fin

anci

ng A

ctiv

ities

0.0%

4.8%

0.0%

0.0%

-7.0

%-7

0.4%

-70.

4%-7

0.4%

-70.

4%-7

0.4%

-70.

4%-7

0.4%

-70.

4%-7

0.4%

-70.

4%Ef

fect

of E

xcha

nge

Rate

Cha

nges

on

Cash

3.5%

-61.

2%3.

5%3.

7%4.

2%-0

.4%

-0.4

%-0

.4%

-0.4

%-0

.4%

-0.4

%-0

.4%

-0.4

%-0

.4%

-0.4

%N

et In

crea

se in

Cas

h an

d Ca

sh E

quiv

alen

ts-1

5.5%

-122

.4%

-39.

0%-1

0.9%

-16.

6%-5

3.7%

-55.

1%-5

6.1%

-56.

9%-5

8.2%

-59.

4%-6

0.6%

-61.

8%-6

3.1%

-64.

5%Ca

sh a

nd E

quiv

alen

ts a

t Beg

inni

ng o

f Per

iod

-19.

3%-1

.8%

11.0

%-2

4.3%

-12.

6%-4

0.9%

-40.

9%-4

0.9%

-40.

9%-4

0.9%

-40.

9%-4

0.9%

-40.

9%-4

0.9%

-40.

9%Ca

sh a

nd E

quiv

alen

ts a

t Beg

inni

ng o

f Per

iod

0.7%

-91.

1%46

.6%

46.9

%45

.2%

36.5

%35

.6%

34.8

%33

.9%

33.1

%32

.3%

31.5

%30

.7%

29.9

%29

.2%

Inte

rest

Pai

d20

5.7%

141.

5%18

0.3%

208.

7%24

5.8%

9.7%

9.7%

9.7%

9.7%

9.7%

9.7%

9.7%

9.7%

9.7%

9.7%

Inco

me

Taxe

s Pai

d9.

3%10

.8%

12.0

%10

.6%

15.9

%19

6.4%

196.

4%19

6.4%

196.

4%19

6.4%

196.

4%19

6.4%

196.

4%19

6.4%

196.

4%

ATR

COM

MO

N S

IZE

STAT

EMEN

T O

F CA

SH F

LOW

S (a

s-st

ated

)

122

(in m

illio

ns)

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Net

Inco

me

183.

616

2.4

171.

919

1.6

199.

324

6.5

252.

725

9.1

265.

727

2.4

279.

328

6.4

293.

630

1.0

308.

7Ca

sh F

low

s fro

m O

pera

ting

Activ

ites

Depr

ecia

tion

132.

013

3.8

144.

914

6.9

134.

918

8.8

193.

619

8.5

203.

520

8.6

213.

921

9.3

224.

923

0.6

236.

4Am

ortiz

atio

n2.

23.

25.

05.

34.

25.

45.

55.

75.

86.

06.

16.

36.

46.

66.

8St

ock

Base

d Co

mpe

nsat

ion

13.8

12.7

13.7

19.7

20.6

21.7

22.2

22.8

23.3

23.9

24.5

25.2

25.8

26.4

27.1

(Rec

over

y) P

rovi

sion

for D

oubt

ful A

ccou

nts

1.6

(0.6

)(0

.4)

0.7

(0.8

)0.

10.

10.

10.

10.

10.

10.

10.

10.

10.

1De

ferr

ed In

com

e Ta

xes

2.0

(9.0

)6.

8(1

9.0)

(7.1

)(6

.9)

(7.1

)(7

.2)

(7.4

)(7

.6)

(7.8

)(8

.0)

(8.2

)(8

.4)

(8.6

)De

fined

Ben

efit

Plan

Exp

ense

10.9

14.6

19.4

16.7

20.7

22.3

22.9

23.5

24.1

24.7

25.3

26.0

26.6

27.3

28.0

Equi

ty in

Res

ults

of A

ffili

ates

in E

xces

s of C

ash

Dist

. Rec

.0.

00.

50.

91.

90.

71.

11.

11.

11.

21.

21.

21.

21.

31.

31.

3Ac

coun

ts &

Oth

er R

ecei

vabl

es(4

5.0)

16.7

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(27.

8)(2

7.5)

(28.

2)(2

8.9)

(29.

6)(3

0.4)

(31.

2)(3

1.9)

(32.

7)(3

3.6)

(34.

4)In

vent

orie

s(2

2.3)

(19.

7)(2

9.9)

5.2

(18.

9)(2

3.9)

(24.

5)(2

5.1)

(25.

7)(2

6.4)

(27.

1)(2

7.7)

(28.

4)(2

9.2)

(29.

9)Pr

epai

d an

d O

ther

Cur

rent

Ass

ets

(34.

3)10

.1(6

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)(7

.0)

(11.

4)(1

1.7)

(12.

0)(1

2.3)

(12.

6)(1

2.9)

(13.

2)(1

3.6)

(13.

9)(1

4.3)

Acco

unts

Pay

able

and

Acc

rued

Lia

bilit

ies

5.3

(0.8

)1.

1(2

4.3)

39.3

5.0

5.1

5.2

5.4

5.5

5.6

5.8

5.9

6.1

6.2

Inco

me

Taxe

s Pay

able

(9.6

)3.

016

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0.9)

3.4

1.2

1.2

1.2

1.2

1.3

1.3

1.3

1.4

1.4

1.5

Retir

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t and

Def

erre

d Co

mpe

nsat

ion

Plan

Lia

bilit

ies

(11.

2)(2

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(19.

4)(0

.4)

(29.

6)(1

6.6)

(17.

1)(1

7.5)

(17.

9)(1

8.4)

(18.

8)(1

9.3)

(19.

8)(2

0.3)

(20.

8)O

ther

Cha

nges

, net

32.0

(10.

9)(6

.2)

5.6

(7.2

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23.

23.

33.

43.

53.

63.

73.

83.

94.

0N

et C

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Prov

ided

by

Ope

ratio

ns26

1.0

313.

928

5.3

316.

232

4.7

408.

941

9.2

429.

844

0.7

451.

946

3.3

475.

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7.0

499.

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2.0

Cash

Flo

ws f

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0Ca

pita

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ture

s(1

79.7

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49.3

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23.2

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28.9

)(2

34.7

)(2

40.6

)(2

46.7

)(2

52.9

)(2

59.3

)(2

65.9

)(2

72.6

)(2

79.5

)Pr

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ds fr

om S

ale

of P

P&E

1.8

2.6

0.4

5.1

0.8

2.9

3.0

3.0

3.1

3.2

3.3

3.4

3.5

3.5

3.6

Insu

ranc

e Pr

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ds o

n Pr

oper

ty C

laim

0.0

0.0

0.0

0.0

3.7

0.9

0.9

1.0

1.0

1.0

1.0

1.1

1.1

1.1

1.1

Purc

hase

of S

hort

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m In

vest

men

ts0.

00.

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00.

0(3

2.8)

(8.1

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)(8

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)(9

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(9.4

)(9

.7)

(9.9

)(1

0.2)

Inta

ngib

le A

sset

s0.

00.

0(0

.7)

0.0

0.0

(0.2

)(0

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)(0

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(0.2

)(0

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(0.2

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(0.2

)(0

.3)

Acqu

istio

n of

Bus

ines

s(1

4.9)

(187

.8)

0.0

0.0

0.0

(61.

0)(6

2.6)

(64.

1)(6

5.8)

(67.

4)(6

9.1)

(70.

9)(7

2.7)

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5)(7

6.4)

Inve

stm

ent i

n U

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solid

ated

Aff

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0.0

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0)(6

2.6)

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1)(6

5.8)

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4)(6

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9)(7

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5)(7

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Not

es R

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10.

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.7)

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.0)

(3.1

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et C

ash

Use

d by

Inve

stin

g Ac

tiviti

es(1

95.8

)(3

59.8

)(1

57.2

)(1

59.2

)(1

76.3

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52.2

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61.1

)(3

70.3

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79.6

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89.2

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99.1

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09.2

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19.5

)(4

30.1

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41.0

)Ca

sh F

low

s fro

m F

inan

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Act

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es(2

91.5

)(2

98.8

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06.4

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14.2

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22.1

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30.3

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38.6

)(3

47.2

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56.0

)(3

65.0

)Pr

ocee

ds fr

om N

otes

Pay

able

134.

60.

094

.295

.80.

00.

00.

00.

00.

00.

00.

00.

00.

00.

00.

0Re

paym

ents

of N

otes

Pay

able

0.0

(134

.0)

0.0

0.0

(227

.4)

87.8

90.0

92.3

94.6

97.0

99.5

102.

010

4.6

107.

211

0.0

Proc

eeds

from

Lon

g-Te

rm O

blig

atio

ns10

.812

5.0

0.0

253.

520

9.2

(96.

9)(9

9.4)

(101

.9)

(104

.5)

(107

.1)

(109

.8)

(112

.6)

(115

.5)

(118

.4)

(121

.4)

Repa

ymen

ts o

f Lon

g-Te

rm O

blig

atio

ns(5

0.5)

(3.0

)(2

5.3)

(0.8

)(1

.0)

157.

816

1.8

165.

917

0.1

174.

417

8.8

183.

418

8.0

192.

719

7.6

Divi

dend

s Pai

d(5

3.3)

(58.

4)(6

6.1)

(71.

1)(7

1.2)

(76.

6)(8

2.1)

(86.

7)(9

1.1)

(96.

9)(1

02.8

)(1

08.8

)(1

15.1

)(1

22.0

)(1

29.3

)Cr

edit

Faci

lity

Cost

s0.

0(1

.5)

(0.5

)(0

.7)

(1.2

)(8

6.9)

(89.

1)(9

1.4)

(93.

7)(9

6.0)

(98.

5)(1

01.0

)(1

03.5

)(1

06.1

)(1

08.8

)Pr

ocee

ds fr

om S

tock

Opt

ion

Exce

rcise

s26

.144

.643

.336

.064

.0(1

.1)

(1.1

)(1

.1)

(1.2

)(1

.2)

(1.2

)(1

.2)

(1.3

)(1

.3)

(1.3

)Pu

rcha

se o

f Tre

asur

y St

ock

(102

.6)

(79.

8)(1

18.8

)(3

40.5

)0.

058

.159

.561

.062

.664

.265

.867

.569

.270

.972

.7Co

mm

on S

tock

Rep

urch

ased

& R

etire

d0.

07.

80.

00.

0(1

3.9)

(173

.5)

(177

.9)

(182

.4)

(187

.0)

(191

.7)

(196

.5)

(201

.5)

(206

.6)

(211

.8)

(217

.2)

Exce

ss T

ax B

enef

it fr

om E

xerc

ise o

f Sto

ck O

ptio

ns6.

4(9

9.4)

6.1

7.0

8.4

(1.1

)(1

.1)

(1.1

)(1

.2)

(1.2

)(1

.2)

(1.2

)(1

.3)

(1.3

)(1

.3)

Net

Cas

h U

sed

by F

inan

cing

Act

iviti

es(2

8.5)

(198

.7)

(67.

1)(2

0.8)

(33.

1)(1

32.4

)(1

39.2

)(1

45.3

)(1

51.2

)(1

58.5

)(1

66.0

)(1

73.5

)(1

81.5

)(1

90.1

)(1

99.1

)Ef

fect

of E

xcha

nge

Rate

Cha

nges

on

Cash

(35.

5)(2

.9)

18.9

(46.

5)(2

5.1)

(100

.8)

(103

.3)

(105

.9)

(108

.6)

(111

.4)

(114

.2)

(117

.1)

(120

.0)

(123

.1)

(126

.2)

Net

Incr

ease

in C

ash

and

Cash

Equ

ival

ents

1.2

(147

.9)

80.1

89.9

90.1

90.1

90.1

90.1

90.1

90.1

90.1

90.1

90.1

90.1

90.1

Cash

and

Equ

ival

ents

at B

egin

ning

of P

erio

d37

7.6

229.

830

9.9

399.

848

9.9

23.8

24.4

25.0

25.7

26.3

27.0

27.7

28.4

29.1

29.8

Inte

rest

Pai

d17

.117

.520

.720

.431

.748

4.1

496.

450

8.9

521.

853

5.0

548.

556

2.4

576.

659

1.2

606.

2In

com

e Ta

xes P

aid

79.4

64.5

47.4

94.6

79.5

28.9

29.7

30.4

31.2

32.0

32.8

33.6

34.5

35.3

36.2

ATR

STAT

EMEN

T O

F CA

SH F

LOW

S (r

esta

ted)

123

(in m

illio

ns)

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Net

Inco

me

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%10

0.0%

100.

0%Ca

sh F

low

s fro

m O

pera

ting

Activ

ites

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

Depr

ecia

tion

71.9

%82

.4%

84.3

%76

.7%

67.7

%76

.6%

76.6

%76

.6%

76.6

%76

.6%

76.6

%76

.6%

76.6

%76

.6%

76.6

%Am

ortiz

atio

n1.

2%2.

0%2.

9%2.

8%2.

1%2.

2%2.

2%2.

2%2.

2%2.

2%2.

2%2.

2%2.

2%2.

2%2.

2%St

ock

Base

d Co

mpe

nsat

ion

7.5%

7.8%

8.0%

10.3

%10

.3%

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

8.8%

(Rec

over

y) P

rovi

sion

for D

oubt

ful A

ccou

nts

0.9%

-0.4

%-0

.2%

0.4%

-0.4

%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%De

ferr

ed In

com

e Ta

xes

1.1%

-5.5

%4.

0%-9

.9%

-3.6

%-2

.8%

-2.8

%-2

.8%

-2.8

%-2

.8%

-2.8

%-2

.8%

-2.8

%-2

.8%

-2.8

%De

fined

Ben

efit

Plan

Exp

ense

5.9%

9.0%

11.3

%8.

7%10

.4%

9.1%

9.1%

9.1%

9.1%

9.1%

9.1%

9.1%

9.1%

9.1%

9.1%

Equi

ty in

Res

ults

of A

ffili

ates

in E

xces

s of C

ash

Dist

. Rec

.0.

0%0.

3%0.

5%1.

0%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%Ac

coun

ts &

Oth

er R

ecei

vabl

es-2

4.5%

10.3

%-1

9.1%

-8.5

%-1

3.9%

-11.

2%-1

1.2%

-11.

2%-1

1.2%

-11.

2%-1

1.2%

-11.

2%-1

1.2%

-11.

2%-1

1.2%

Inve

ntor

ies

-12.

1%-1

2.1%

-17.

4%2.

7%-9

.5%

-9.7

%-9

.7%

-9.7

%-9

.7%

-9.7

%-9

.7%

-9.7

%-9

.7%

-9.7

%-9

.7%

Prep

aid

and

Oth

er C

urre

nt A

sset

s-1

8.7%

6.2%

-3.7

%-3

.4%

-3.5

%-4

.6%

-4.6

%-4

.6%

-4.6

%-4

.6%

-4.6

%-4

.6%

-4.6

%-4

.6%

-4.6

%Ac

coun

ts P

ayab

le a

nd A

ccru

ed L

iabi

litie

s2.

9%-0

.5%

0.6%

-12.

7%19

.7%

2.0%

2.0%

2.0%

2.0%

2.0%

2.0%

2.0%

2.0%

2.0%

2.0%

Inco

me

Taxe

s Pay

able

-5.2

%1.

8%9.

7%-5

.7%

1.7%

0.5%

0.5%

0.5%

0.5%

0.5%

0.5%

0.5%

0.5%

0.5%

0.5%

Retir

emen

t and

Def

erre

d Co

mpe

nsat

ion

Plan

Lia

bilit

ies

-6.1

%-1

.3%

-11.

3%-0

.2%

-14.

9%-6

.7%

-6.7

%-6

.7%

-6.7

%-6

.7%

-6.7

%-6

.7%

-6.7

%-6

.7%

-6.7

%O

ther

Cha

nges

, net

17.4

%-6

.7%

-3.6

%2.

9%-3

.6%

1.3%

1.3%

1.3%

1.3%

1.3%

1.3%

1.3%

1.3%

1.3%

1.3%

Net

Cas

h Pr

ovid

ed b

y O

pera

tions

142.

2%19

3.3%

166.

0%16

5.0%

162.

9%16

5.9%

165.

9%16

5.9%

165.

9%16

5.9%

165.

9%16

5.9%

165.

9%16

5.9%

165.

9%Ca

sh F

low

s fro

m In

vest

ing

Activ

ities

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

Capi

tal E

xpen

ditu

res

-97.

9%-1

07.4

%-8

8.1%

-84.

5%-7

4.9%

-90.

6%-9

0.6%

-90.

6%-9

0.6%

-90.

6%-9

0.6%

-90.

6%-9

0.6%

-90.

6%-9

0.6%

Proc

eeds

from

Sal

e of

PP&

E1.

0%1.

6%0.

2%2.

7%0.

4%1.

2%1.

2%1.

2%1.

2%1.

2%1.

2%1.

2%1.

2%1.

2%1.

2%In

sura

nce

Proc

eeds

on

Prop

erty

Cla

im0.

0%0.

0%0.

0%0.

0%1.

9%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%0.

4%Pu

rcha

se o

f Sho

rt-T

erm

Inve

stm

ents

0.0%

0.0%

0.0%

0.0%

-16.

5%-3

.3%

-3.3

%-3

.3%

-3.3

%-3

.3%

-3.3

%-3

.3%

-3.3

%-3

.3%

-3.3

%In

tang

ible

Ass

ets

0.0%

0.0%

-0.4

%0.

0%0.

0%-0

.1%

-0.1

%-0

.1%

-0.1

%-0

.1%

-0.1

%-0

.1%

-0.1

%-0

.1%

-0.1

%Ac

quisi

tion

of B

usin

ess

-8.1

%-1

15.6

%0.

0%0.

0%0.

0%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%In

vest

men

t in

Unc

onso

lidat

ed A

ffili

ate

-8.1

%-1

15.6

%0.

0%0.

0%0.

0%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%N

otes

Rec

eiva

ble,

net

-1.7

%-0

.2%

-3.1

%0.

0%0.

0%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%-2

4.8%

-24.

8%N

et C

ash

Use

d by

Inve

stin

g Ac

tiviti

es0.

1%0.

1%-0

.1%

-1.3

%0.

7%-1

.0%

-1.0

%-1

.0%

-1.0

%-1

.0%

-1.0

%-1

.0%

-1.0

%-1

.0%

-1.0

%Ca

sh F

low

s fro

m F

inan

cing

Act

iviti

es-1

06.6

%-2

21.6

%-9

1.4%

-83.

1%-8

8.5%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

-142

.9%

Proc

eeds

from

Not

es P

ayab

le0.

0%0.

0%0.

0%0.

0%0.

0%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%-1

18.2

%Re

paym

ents

of N

otes

Pay

able

73.3

%0.

0%54

.8%

50.0

%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%0.

0%Pr

ocee

ds fr

om L

ong-

Term

Obl

igat

ions

0.0%

-82.

5%0.

0%0.

0%-1

14.1

%35

.6%

35.6

%35

.6%

35.6

%35

.6%

35.6

%35

.6%

35.6

%35

.6%

35.6

%Di

vide

nds P

aid

5.9%

77.0

%0.

0%13

2.3%

105.

0%-3

9.3%

-39.

3%-3

9.3%

-39.

3%-3

9.3%

-39.

3%-3

9.3%

-39.

3%-3

9.3%

-39.

3%Cr

edit

Faci

lity

Cost

s-2

7.5%

-1.8

%-1

4.7%

-0.4

%-0

.5%

64.0

%64

.0%

64.0

%64

.0%

64.0

%64

.0%

64.0

%64

.0%

64.0

%64

.0%

Proc

eeds

from

Sto

ck O

ptio

n Ex

cerc

ises

-29.

0%-3

6.0%

-38.

5%-3

7.1%

-35.

7%-3

1.1%

-32.

5%-3

3.5%

-34.

3%-3

5.6%

-36.

8%-3

8.0%

-39.

2%-4

0.5%

-41.

9%Pu

rcha

se o

f Tre

asur

y St

ock

0.0%

-0.9

%-0

.3%

-0.4

%-0

.6%

-35.

3%-3

5.3%

-35.

3%-3

5.3%

-35.

3%-3

5.3%

-35.

3%-3

5.3%

-35.

3%-3

5.3%

Com

mon

Sto

ck R

epur

chas

ed &

Ret

ired

14.2

%27

.5%

25.2

%18

.8%

32.1

%-0

.4%

-0.4

%-0

.4%

-0.4

%-0

.4%

-0.4

%-0

.4%

-0.4

%-0

.4%

-0.4

%Ex

cess

Tax

Ben

efit

from

Exe

rcise

of S

tock

Opt

ions

-55.

9%-4

9.1%

-69.

1%-1

77.7

%0.

0%23

.6%

23.6

%23

.6%

23.6

%23

.6%

23.6

%23

.6%

23.6

%23

.6%

23.6

%N

et C

ash

Use

d by

Fin

anci

ng A

ctiv

ities

0.0%

4.8%

0.0%

0.0%

-7.0

%-7

0.4%

-70.

4%-7

0.4%

-70.

4%-7

0.4%

-70.

4%-7

0.4%

-70.

4%-7

0.4%

-70.

4%Ef

fect

of E

xcha

nge

Rate

Cha

nges

on

Cash

3.5%

-61.

2%3.

5%3.

7%4.

2%-0

.4%

-0.4

%-0

.4%

-0.4

%-0

.4%

-0.4

%-0

.4%

-0.4

%-0

.4%

-0.4

%N

et In

crea

se in

Cas

h an

d Ca

sh E

quiv

alen

ts-1

5.5%

-122

.4%

-39.

0%-1

0.9%

-16.

6%-5

3.7%

-55.

1%-5

6.1%

-56.

9%-5

8.2%

-59.

4%-6

0.6%

-61.

8%-6

3.1%

-64.

5%Ca

sh a

nd E

quiv

alen

ts a

t Beg

inni

ng o

f Per

iod

-19.

3%-1

.8%

11.0

%-2

4.3%

-12.

6%-4

0.9%

-40.

9%-4

0.9%

-40.

9%-4

0.9%

-40.

9%-4

0.9%

-40.

9%-4

0.9%

-40.

9%Ca

sh a

nd E

quiv

alen

ts a

t Beg

inni

ng o

f Per

iod

0.7%

-91.

1%46

.6%

46.9

%45

.2%

36.5

%35

.6%

34.8

%33

.9%

33.1

%32

.3%

31.5

%30

.7%

29.9

%29

.2%

Inte

rest

Pai

d20

5.7%

141.

5%18

0.3%

208.

7%24

5.8%

9.7%

9.7%

9.7%

9.7%

9.7%

9.7%

9.7%

9.7%

9.7%

9.7%

Inco

me

Taxe

s Pai

d9.

3%10

.8%

12.0

%10

.6%

15.9

%19

6.4%

196.

4%19

6.4%

196.

4%19

6.4%

196.

4%19

6.4%

196.

4%19

6.4%

196.

4%

ATR

COM

MO

N S

IZE

STAT

EMEN

T O

F CA

SH F

LOW

S (r

esta

ted)

Financial Statement Analysis - Texas Tech Universitymmoore.ba.ttu.edu/ValuationReports/Spring-2016/Aptargroup, Inc... · Five Forces Model ... dispensing device and are used for products

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