Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion is intended to further the reader's understanding of the consolidated financial condition and results of operations of our Company. It should be read in conjunction with our consolidated financial statements and the accompanying footnotes included in Part II, Item 8 of this Form 10-K. These historical financial statements may not be indicative of our future performance. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks discussed in Part I, Item 1A of this Form 10-K.

Throughout this section, references to “Notes” refer to the footnotes included in Part II, Item 8 of this Form 10-K, unless otherwise indicated.

Non-U.S. GAAP Financial Measures

For the purpose of aiding the comparison of our year-over-year results, we may refer to net sales and other financial results excluding the effects of changes in foreign currency exchange rates. The constant-currency amounts are calculated by translating the current year’s functional currency results at the prior-year period’s exchange rate. We may also refer to consolidated operating profit and consolidated operating profit margin excluding the effects of unallocated items. The re-measured results excluding effects from currency translation and excluding the effects of unallocated items are not in conformity with U.S. GAAP and should not be used as a substitute for the comparable U.S. GAAP financial measures. The non-U.S. GAAP financial measures are incorporated into our discussion and analysis as management uses them in evaluating our results of operations, and believes that this information provides users a valuable insight into our results.

Our Operations

We are a manufacturer of components and systems for the packaging and delivery of injectable drugs as well as components for the pharmaceutical, healthcare and consumer products industries. Our products include stoppers and seals for vials, prefillable syringe components and systems, components for intravenous and blood collection systems, safety and administration systems, advanced injection systems, and contract design and manufacturing services. Our customers include the leading global producers of pharmaceuticals, biologics, medical devices and consumer products. We were incorporated under the laws of the Commonwealth of Pennsylvania on July 27, 1923.

Our business operations are organized into two reportable segments, Packaging Systems and Delivery Systems. Packaging Systems develops, manufactures and sells primary packaging components and systems for injectable drug delivery, including stoppers and seals for vials, closures and other components used in syringe, intravenous and blood collection systems, and prefillable syringe components. Delivery Systems develops, manufactures and sells safety and administration systems, multi-component systems for drug administration, and a variety of custom contract-manufacturing solutions targeted to the healthcare and consumer-products industries. In addition, Delivery Systems is responsible for the continued development and commercialization of our line of proprietary, multi-component systems for injectable drug administration and other healthcare applications. We also maintain global partnerships to share technologies and market products with affiliates in Japan and Mexico.

Our 2015 results were affected by the weakening of the Euro and other foreign currencies in relation to USD. As a result of our global manufacturing and distribution presence, more than half of our revenues are generated outside of the U.S. in currencies other than USD, including approximately 40% in Europe and 10% collectively in Asia and South America. Fluctuations in foreign currency exchange rates, therefore, can have a significant effect on our consolidated financial results. Generally, our financial results are affected positively by a weaker USD and negatively by a stronger USD, as compared to the foreign currencies in which we conduct our business. In terms of net sales, the most significant foreign currencies are the Euro, the Singapore Dollar, and the Danish Krone, with Euro-denominated sales representing the majority of sales transacted in foreign currencies. In addition, we are exposed to Yen, as we maintain a 25% ownership interest in, and we purchase finished goods and other materials from, Daikyo. During 2015, average exchange rates were unfavorable versus the exchange rates realized in 2014, resulting in lower reported net sales, operating profit, net income, and net income per diluted share of $123.9 million, $29.3 million, $21.4 million, and $0.29, respectively, as compared to 2014. The average Euro to USD exchange rate decreased from $1.33 for 2014 to $1.11 for 2015.

Our 2015 results also include a $50.4 million pension settlement charge, which reduced net income and net income per diluted share by $32.0 million and $0.43, respectively, as compared to 2014, a $10.9 million charge for executive retirement and related costs, which lowered net income and net income per diluted share by $6.9 million and $0.09, respectively, as compared to 2014, and a discrete tax charge of $0.8 million, which reduced net income and net income per diluted share by $0.8 million and $0.01, respectively, compared to 2014.

Excluding foreign currency effects, the pension settlement charge, the executive retirement charge, and the discrete tax charge, our net sales and net income per diluted share increased by 7.2% and 21.1%, respectively, for 2015, as compared to 2014. At December 31, 2015, our cash and cash equivalents balance totaled $274.6 million and our borrowing capacity under our senior unsecured, multi-currency revolving credit facility agreement (the "New Credit Agreement") was $269.9 million. The New Credit Agreement expires in October 2020.

2016 Organizational Structure Change and Business Outlook

In 2015, our business operations consisted of two reportable segments, as discussed above. Beginning in 2016, we are changing our organization and reporting structure for our next phase of growth and development, which will result in a change to Proprietary Products and Contract-Manufactured Products as reportable segments. See Part I, Item 1, Business, of this Form 10-K for further discussion regarding the change in our organization and reporting structure.

We continue to focus on our customers' increasing demand for higher product quality, including the development of our proprietary packaging and delivery systems product offerings. We will manage our capabilities and asset base to respond to changing markets and to enable improvements in service and quality. We expect that contract manufacturing will remain focused on pharmaceutical and medical device customers. We plan to continue funding capital projects related to new products, expansion activity, advanced quality systems, and investment in emerging markets. We believe that our strong operating results and financial position give us a platform for sustained growth, and will enable us to take advantage of opportunities to invest in our business as they arise. See Part I, Item 1A, Risk Factors, of this Form 10-K for further discussion regarding the risks associated with our operations.

On February 17, 2016, the Venezuelan government announced a devaluation of the Bolivar, from the official exchange rate of 6.3 Bolivars to USD to 10.0 Bolivars to USD, and streamlined the previous three-tiered currency exchange mechanism into a dual currency exchange mechanism. Please refer to Note 18, Subsequent Events, for further discussion.

RESULTS OF OPERATIONS

We evaluate the performance of our segments based upon, among other things, segment net sales and operating profit. Segment operating profit excludes general corporate costs, which include executive and director compensation, stock-based compensation, adjustments to annual incentive plan expense for over- or under-attainment of targets, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments. Also excluded are items that management considers not representative of ongoing operations. Such items are referred to as other unallocated items and generally include restructuring and related charges, certain asset impairments and other specifically-identified income or expense items.

Percentages in the following tables and throughout this Results of Operations section may reflect rounding adjustments.

Net Sales

The following table presents net sales, consolidated and by reportable segment:

	Year Ended December 31,												% Change
($ in millions)	2015				2014				2013				2015/2014			2014/2013
Packaging Systems	$	1,000.7			$	1,019.7			$	996.0			(1.9	)%		2.4	%
Delivery Systems	400.2				402.5				374.1				(0.5	)%		7.6	%
Intersegment sales elimination	(1.1		)		(0.8		)		(1.7		)		—			—
Consolidated net sales	$	1,399.8			$	1,421.4			$	1,368.4			(1.5	)%		3.9	%

2015 compared to 2014

Consolidated net sales decreased by $21.6 million, or 1.5%, in 2015, including an unfavorable foreign currency impact of $123.9 million. Excluding foreign currency effects, consolidated net sales increased by $102.3 million, or 7.2%. Consolidated net sales originating in the U.S. in 2015 were $667.4 million, an increase of 5.8% from 2014. Consolidated net sales generated outside of the U.S. (mainly in Europe) in 2015 were $732.4 million, a decrease of 7.4% from 2014 due to an unfavorable foreign currency impact. Excluding foreign currency effects, consolidated net sales generated outside of the U.S. in 2015 increased by 8.3%.

Packaging Systems – Packaging Systems' net sales decreased by $19.0 million, or 1.9%, in 2015, including an unfavorable foreign currency impact of $105.2 million. Excluding foreign currency effects, net sales increased by $86.2 million, or 8.5%, due to growth in our high-value product offerings, particularly FluroTec-coated components, Westar components, and the Envision line of vision-inspected components. An improvement in product mix and higher sales volumes contributed 6.9 percentage points of the increase, and sales price increases contributed the remainder of the increase. Our high-value product offerings represented 46.0% of Packaging Systems' net sales in 2015, as compared to 43.6% in 2014.

Delivery Systems – Delivery Systems' net sales decreased by $2.3 million, or 0.5%, in 2015, including an unfavorable foreign currency impact of $18.7 million. Excluding foreign currency effects, net sales increased by $16.4 million, or 4.1%, due to an increase in contract manufacturing sales, particularly sales of glucose monitoring devices. Sales volumes contributed the entirety of the increase. Proprietary net sales represented 24.7% of Delivery Systems' net sales in 2015, as compared to 26.2% in 2014, as net sales for SmartDose were higher in 2014 due to clinical trials that have since concluded.

2014 compared to 2013

Consolidated net sales increased by $53.0 million, or 3.9%, in 2014, despite an unfavorable foreign currency impact of $5.5 million. Excluding foreign currency effects, consolidated net sales increased by $58.5 million, or 4.3%.

Packaging Systems – Packaging Systems’ net sales increased by $23.7 million, or 2.4%, in 2014, despite an unfavorable foreign currency impact of $5.7 million. Excluding foreign currency effects, net sales increased by $29.4 million, or 2.9%. While overall growth in our high-value product offerings continued, customer inventory management actions due to regulatory issues and formulation changes reduced demand levels for Teflon and FluroTec-coated components, resulting in a reduction in sales of these products in 2014. Our high-value product offerings represented 43.2% of Packaging Systems' net sales for 2014, as compared to 42.9% in 2013. Higher sales volumes and a moderate improvement in product mix contributed 2.1 percentage points of the increase, and sales price increases contributed 0.8 percentage points of the increase.

Delivery Systems – Delivery Systems’ net sales increased by $28.4 million, or 7.6%, in 2014, including a favorable foreign currency impact of $0.2 million. Excluding foreign currency effects, net sales increased by $28.2 million, or 7.5%, primarily due to an increase in contract manufacturing sales, proprietary reconstitution product sales, and customer-funded clinical development sales of our SmartDose component samples. Proprietary net sales represented 26.2% of Delivery Systems' net sales for 2014, as compared to 24.8% in 2013. Sales volume and product mix improvements contributed 7.1 percentage points of the increase, and sales price increases contributed the remainder of the increase.

The intersegment sales elimination, which is required for the presentation of consolidated net sales, represents the elimination of components sold between our segments.

Gross Profit

The following table presents gross profit and related gross margins, consolidated and by reportable segment:

	Year Ended December 31,												% Change
($ in millions)	2015				2014				2013				2015/2014			2014/2013
Packaging Systems:
Gross Profit	$	381.7			$	369.0			$	361.4			3.4	%		2.1	%
Gross Margin	38.1		%		36.2		%		36.3		%
Delivery Systems:
Gross Profit	$	74.1			$	78.8			$	73.3			(6.0	)%		7.5	%
Gross Margin	18.5		%		19.6		%		19.6		%
Consolidated Gross Profit	$	455.8			$	447.8			$	434.7			1.8	%		3.0	%
Consolidated Gross Margin	32.6		%		31.5		%		31.8		%

2015 compared to 2014

Consolidated gross profit increased by $8.0 million, or 1.8%, in 2015, despite an unfavorable foreign currency impact of $42.4 million. Consolidated gross margin increased by 1.1 margin points in 2015.

Packaging Systems – Packaging Systems' gross profit increased by $12.7 million, or 3.4%, in 2015, despite an unfavorable foreign currency impact of $37.1 million. Packaging Systems' gross margin increased by 1.9 margin points in 2015, as product mix improvements, sales price increases, and production efficiencies were partially offset by increased labor and overhead costs.

Delivery Systems –Delivery Systems' gross profit decreased by $4.7 million, or 6.0%, in 2015, including an unfavorable foreign currency impact of $5.3 million. Delivery Systems' gross margin decreased by 1.1 margin points in 2015, as a result of increased overhead and depreciation related to new capabilities supporting both proprietary and contract manufacturing programs.

2014 compared to 2013

Consolidated gross profit increased by $13.1 million, or 3.0%, in 2014, despite an unfavorable foreign currency impact of $2.3 million. Consolidated gross margin decreased by 0.3 margin points in 2014.

Packaging Systems – Packaging Systems’ gross profit increased by $7.6 million, or 2.1%, in 2014, despite an unfavorable foreign currency impact of $2.3 million. Packaging Systems' gross margin decreased by 0.1 margin points in 2014, as lower raw material costs and moderate sales price and product mix improvements were offset by increased employee compensation, laboratory and engineering costs.

Delivery Systems – Delivery Systems’ gross profit increased by $5.5 million, or 7.5%, in 2014. Delivery Systems’ gross margin remained constant at 19.6%, as margin improvements from the increased proportion of proprietary products sold were offset by higher depreciation and overhead costs for these programs, as well as start-up costs on new contract manufacturing products.

Research and Development (“R&D”) Costs

The following table presents R&D costs, consolidated and by reportable segment:

	Year Ended December 31,												% Change
($ in millions)	2015				2014				2013				2015/2014			2014/2013
Packaging Systems	$	14.4			$	16.3			$	15.1			(11.7	)%		7.9	%
Delivery Systems	19.7				21.0				22.8				(6.2	)%		(7.9	)%
Consolidated R&D costs	$	34.1			$	37.3			$	37.9			(8.6	)%		(1.6	)%

2015 compared to 2014

Consolidated R&D costs decreased by $3.2 million, or 8.6%, in 2015, including the impact of foreign currency, which decreased R&D costs by $1.0 million.

Packaging Systems – Packaging Systems' R&D costs decreased by $1.9 million, or 11.7%, in 2015, primarily due to the reallocation of resources to commercial projects in 2015 and the impact of foreign currency, which decreased R&D costs by $0.8 million.

Delivery Systems – Delivery Systems' R&D costs decreased by $1.3 million, or 6.2%, in 2015, due to the reassignment of personnel to clinical trial production activities for SmartDose in 2015, the completion of development work on the SelfDose self-injection system in 2014, and the impact of foreign currency, which decreased R&D costs by $0.2 million. Efforts remain focused on the further development of SmartDose and CZ products.

2014 compared to 2013

Consolidated R&D costs decreased by $0.6 million, or 1.6%, in 2014.

Packaging Systems – Packaging Systems' R&D costs increased by $1.2 million, or 7.9%, in 2014, as a result of continued investment in next-generation packaging components.

Delivery Systems – Delivery Systems' R&D costs decreased by $1.8 million, or 7.9%, in 2014, primarily due to the reassignment of personnel to clinical trial production activities for SmartDose.

Selling, General and Administrative (“SG&A”) Costs

The following table presents SG&A costs, consolidated and by reportable segment and corporate:

	Year Ended December 31,												% Change
($ in millions)	2015				2014				2013				2015/2014			2014/2013
Packaging Systems	$	132.7			$	130.1			$	128.4			2.0	%		1.3	%
Delivery Systems	42.5				45.4				42.6				(6.4	)%		6.6	%
Corporate	57.8				53.2				63.9				8.6	%		(16.7	)%
Consolidated SG&A costs	$	233.0			$	228.7			$	234.9			1.9	%		(2.6	)%
SG&A as a % of net sales	16.6		%		16.1		%		17.2		%

2015 compared to 2014

Consolidated SG&A costs increased by $4.3 million, or 1.9%, in 2015, despite the impact of foreign currency, which decreased SG&A costs by $12.5 million. Consolidated SG&A cost for 2015 and 2014 were 16.6% and 16.1%, respectively, of consolidated net sales for 2015 and 2014.

Packaging Systems – Packaging Systems' SG&A costs increased by $2.6 million, or 2.0%, in 2015, as increases in compensation costs related to merit increases, incentive compensation costs, and consulting and sales costs were partially offset by the impact of foreign currency, which decreased SG&A costs by $11.3 million.

Delivery Systems – Delivery Systems' SG&A costs decreased by $2.9 million, or 6.4%, in 2015, as decreases in sales costs and the impact of foreign currency, which decreased SG&A costs by $1.2 million, were partially offset by increases in incentive compensation costs, compensation costs, and depreciation expense.

Corporate – Corporate’s SG&A costs increased by $4.6 million, or 8.6%, in 2015, due to increased incentive compensation costs and stock-based compensation expense, both of which were partially offset by decreases in U.S. pension costs and outside services.

2014 compared to 2013

Consolidated SG&A costs decreased by $6.2 million, or 2.6%, in 2014, including the impact of foreign currency, which decreased SG&A costs by $0.9 million. Consolidated SG&A costs for 2014 and 2013 were 16.1% and 17.2%, respectively, of consolidated net sales for 2014 and 2013.

Packaging Systems – Packaging Systems' SG&A costs increased by $1.7 million, or 1.3%, in 2014, as a result of increased compensation costs for wage increases and additional marketing and sales personnel in Asia, partially offset by a decrease in consulting costs and foreign currency effects.

Delivery Systems – Delivery Systems' SG&A costs increased by $2.8 million, or 6.6%, in 2014, as a result of incremental business development costs and depreciation and amortization expense.

Corporate – Corporate's SG&A costs decreased by $10.7 million, or 16.7%, in 2014, due to a decrease in U.S. pension expense mostly resulting from the amortization of actuarial gains and losses and a decrease in incentive compensation costs.

Other Expense (Income)

The following table presents other income and expense items, consolidated and by reportable segment and unallocated items:

(Income) expense	Year Ended December 31,
($ in millions)	2015				2014				2013
Packaging Systems	$	(1.1	)		$	(0.4	)		$	0.9
Delivery Systems	(0.1		)		(1.1		)		(1.5		)
Corporate	—				0.1				0.1
Unallocated items	61.3				1.2				—
Consolidated other expense (income)	$	60.1			$	(0.2	)		$	(0.5	)

Other income and expense items, consisting of foreign exchange transaction gains and losses, gains and losses on the sale of fixed assets, development income, contingent consideration costs, and miscellaneous income and charges, are generally recorded within segment results.

2015 compared to 2014

Consolidated other expense (income) changed by $60.3 million in 2015.

Packaging Systems – Packaging Systems' other income increased by $0.7 million in 2015, primarily due to an asset write-off recorded in 2014.

Delivery Systems – Delivery Systems' other income decreased by $1.0 million in 2015, due to gains recorded in 2014, including a gain recorded as a result of the sale of a contract services business, and an increase in foreign exchange transaction losses.

Corporate – Corporate other expense decreased by $0.1 million to zero in 2015.

Unallocated items – During 2015, we recorded a $50.4 million pension settlement charge, of which $47.0 million related to our purchase of a group annuity contract from Metropolitan Life Insurance Company ("MetLife") to settle $139.4 million of our $313.6 million outstanding pension benefit obligations under our U.S. qualified pension plan. MetLife assumed the obligation to pay future pension benefits and provide administrative services beginning November 1, 2015 for approximately 1,750 retirees and surviving beneficiaries who retired before January 1, 2015 and are currently receiving payments from this plan. The purchase was funded directly by plan assets. The remaining portion of the pension settlement charge related to lump-sum payouts made to terminated vested participants of our U.S. qualified pension plan. In addition, during 2015, we recorded a $10.9 million charge for executive retirement and related costs, including $2.4 million for a long-term incentive plan award for our previous Chief Executive Officer ("CEO"), $8.0 million for the revaluation of modified outstanding awards to provide for continued vesting for our previous CEO and Senior Vice President of Human Resources in conjunction with their retirement, and $0.5 million for other costs, including relocation and legal fees.

2014 compared to 2013

Consolidated other income decreased by $0.3 million in 2014.

Packaging Systems – Packaging Systems' other (income) expense changed by $1.3 million in 2014, due to foreign exchange transaction gains, partially offset by an increase in losses on miscellaneous fixed asset disposals.

Delivery Systems – Delivery Systems' other income decreased by $0.4 million in 2014, due to foreign exchange transaction losses and a decrease in development income, partially offset by an increase in gains on miscellaneous fixed asset disposals.

Corporate – Corporate other expense remained constant at $0.1 million in 2014.

Unallocated items – During 2014, we recorded a $1.2 million charge for license costs associated with acquired in-process research.

Operating Profit

The following table presents adjusted operating profit (loss), consolidated and by reportable segment, corporate and unallocated items:

	Year Ended December 31,												% Change
($ in millions)	2015				2014				2013				2015/2014			2014/2013
Packaging Systems	$	235.7			$	223.0			$	217.0			5.7	%		2.8	%
Delivery Systems	12.0				13.5				9.4				(11.1	)%		43.6	%
Corporate	(57.8		)		(53.3		)		(64.0		)		8.4	%		(16.7	)%
Adjusted consolidated operating profit	$	189.9			$	183.2			$	162.4			3.7	%		12.8	%
Adjusted consolidated operating profit margin	13.6		%		12.9		%		11.9		%
Unallocated items	(61.3		)		(1.2		)		—
Consolidated operating profit	$	128.6			$	182.0			$	162.4			(29.3	)%		12.1	%
Consolidated operating profit margin	9.2		%		12.8		%		11.9		%

2015 compared to 2014

Consolidated operating profit decreased by $53.4 million, or 29.3%, in 2015, mostly due to a $50.4 million pension settlement charge, a $10.9 million charge for executive retirement and related costs, and an unfavorable foreign currency impact of $29.3 million. Consolidated operating profit margin decreased by 3.6 margin points in 2015.

Packaging Systems – Packaging Systems’ operating profit increased by $12.7 million, or 5.7%, in 2015, despite an unfavorable foreign currency impact of $25.5 million, due to the factors described above.

Delivery Systems – Delivery Systems’ operating profit decreased by $1.5 million, or 11.1%, in 2015, including an unfavorable foreign currency impact of $3.8 million, due to the factors described above.

Corporate – Corporate costs increased by $4.5 million, or 8.4%, in 2015, due to the factors described above.

Unallocated items – Please refer to the Other Expense (Income) section for details.

2014 compared to 2013

Consolidated operating profit increased by $19.6 million, or 12.1%, in 2014, despite an unfavorable foreign currency impact of $1.4 million. Consolidated operating profit margin increased by 0.9 margin points in 2014.

Packaging Systems – Packaging Systems’ operating profit increased by $6.0 million, or 2.8%, in 2014, despite an unfavorable foreign currency impact of $1.4 million, due to the factors described above.

Delivery Systems – Delivery Systems’ operating profit increased by $4.1 million, or 43.6%, in 2014, due to the factors described above.

Corporate – Corporate costs decreased by $10.7 million, or 16.7%, in 2014, due to the factors described above.

Unallocated items – Please refer to the Other Expense (Income) section for details.

Loss on Debt Extinguishment

During the year ended December 31, 2014, we repurchased the remaining $0.6 million in aggregate principal amount of our 4.00% Convertible Junior Subordinated Debentures due March 15, 2047 (the "Convertible Debentures"), resulting in a pre-tax loss on debt extinguishment of less than $0.1 million.

During the year ended December 31, 2013, we repurchased $2.5 million in aggregate principal amount of our Convertible Debentures, resulting in a pre-tax loss on debt extinguishment of $0.2 million, the majority of which consisted of the premium over par value.

Interest Expense, Net

The following table presents interest expense, net, by significant component:

	Year Ended December 31,												% Change
($ in millions)	2015				2014				2013				2015/2014			2014/2013
Interest expense	$	15.6			$	18.1			$	18.6			(13.8	)%		(2.7	)%
Capitalized interest	(1.5		)		(1.6		)		(1.6		)		(6.3	)%		—	%
Interest income	(1.6		)		(3.5		)		(1.9		)		(54.3	)%		84.2	%
Interest expense, net	$	12.5			$	13.0			$	15.1			(3.8	)%		(13.9	)%

2015 compared to 2014

Interest expense, net, decreased by 0.5 million, or 3.8%, in 2015, primarily due to lower interest expense resulting from less debt outstanding during 2015, partially offset by a decrease in interest income. During 2014, we recorded $1.6 million in interest income following the settlement of a tax matter in Brazil.

2014 compared to 2013

Interest expense, net, decreased by $2.1 million, or 13.9%, in 2014, primarily due to $1.6 million in interest income following the settlement of a tax matter in Brazil and lower interest expense resulting from less debt outstanding during 2014.

Income Taxes

The provision for income taxes was $26.3 million, $47.2 million, and $40.2 million for the years 2015, 2014, and 2013, respectively, resulting in effective tax rates of 22.6%, 28.0%, and 27.4%, respectively.

The decrease in the effective tax rate for 2015 reflects the impact of a tax benefit of $18.4 million in connection with a $50.4 million pension settlement charge and a tax benefit of $4.0 million in connection with a $10.9 million charge for executive retirement and related costs, partially offset by the impact of unfavorable changes in our geographic mix of earnings. In addition, during 2015, we recorded a discrete tax charge of $0.8 million resulting from the impact of a change in the enacted tax rate in the United Kingdom on our previously-recorded deferred tax asset balances.

The increase in the effective tax rate for 2014 reflects changes in our geographic mix of earnings and the impact of a discrete tax charge of $1.0 million resulting from the impact of a change in apportionment factors on state tax rates applied to items in other comprehensive income and a discrete tax charge of $0.8 million as a result of the finalization of estimates of foreign tax credits available with respect to a repatriation of cash from our subsidiaries in Israel.

During 2013, we recorded a discrete tax charge of $3.5 million, which related to the finalization of a beneficial agreement with local tax authorities in Israel that clarified the future tax status of our entities in Israel and settled a tax audit for the years 2009 through 2011. During 2013, we also recorded a discrete tax charge of $1.3 million resulting from the impact of the change in the enacted tax rate in the United Kingdom on our previously-recorded deferred tax asset balances and a discrete tax benefit of $1.3 million related to the Research and Development tax credit for activities completed in 2012. In accordance with U.S. GAAP, although the American Taxpayer Relief Act of 2012 (the "Taxpayer Relief Act") reinstated the tax credit on a retroactive basis to January 1, 2012, the credit was not taken into account for financial reporting purposes until 2013.

As of December 31, 2015, we had $5.9 million of total gross unrecognized tax benefits, all of which, if recognized, would favorably impact the effective income tax rate. It is reasonably possible that, due to the expiration of statutes and the closing of tax audits, the liability for unrecognized tax benefits may be reduced by approximately $1.0 million during the next twelve months, which would favorably impact our effective tax rate.

Equity in Net Income of Affiliated Companies

Equity in net income of affiliated companies represents the contribution to earnings from our 25% ownership interest in Daikyo and our 49% ownership interest in four companies in Mexico. Equity in net income of affiliated companies was $5.8 million, $5.3 million, and $5.4 million for the years 2015, 2014 and 2013, respectively. Equity in net income of affiliated companies increased by $0.5 million, or 9.4%, in 2015, as favorable operating results in Mexico were partially offset by unfavorable operating results at Daikyo. Equity in net income of affiliated companies decreased by $0.1 million, or 1.9%, in 2014, as an unfavorable foreign currency impact on Daikyo's results was partially offset by favorable operating results in Mexico.

Purchases from, and royalty payments made to, affiliates totaled $65.8 million in 2015, $68.9 million in 2014, and $74.5 million in 2013, the majority of which related to a distributorship agreement with Daikyo that allows us to purchase and re-sell Daikyo products. Sales to affiliates were $5.3 million, $5.1 million, and $5.9 million in 2015, 2014, and 2013, respectively.

Net Income

Net income in 2015 was $95.6 million, or $1.30 per diluted share, compared to $127.1 million, or $1.75 per diluted share, in 2014. Our 2015 results included the impact of a pension settlement charge of $32.0 million (net of $18.4 million in tax), a charge for executive retirement and related costs of $6.9 million (net of $4.0 million in tax) and a discrete tax charge of $0.8 million.

Net income in 2014 was $127.1 million, or $1.75 per diluted share, compared to $112.3 million, or $1.57 per diluted share, in 2013. Our 2014 results included the impact of a charge for license costs associated with acquired in-process research of $0.8 million (net of $0.4 million in tax) and discrete tax charges of $1.8 million.

Net income in 2013 was $112.3 million, or $1.57 per diluted share, compared to $80.7 million, or $1.15 per diluted share, in 2012. Our 2013 results included the impact of a loss on extinguishment of debt of $0.2 million and net discrete tax charges of $3.6 million.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following table presents cash flow data for the years ended December 31:

($ in millions)	2015				2014				2013
Net cash provided by operating activities	$	212.4			$	182.9			$	220.5
Net cash used in investing activities	$	(129.5	)		$	(104.0	)		$	(149.9	)
Net cash used in financing activities	$	(41.5	)		$	(30.8	)		$	(5.1	)

Net Cash Provided by Operating Activities

2015 compared to 2014

Net cash provided by operating activities increased by $29.5 million in 2015, due to increased earnings before non-cash charges and lower working capital requirements.

2014 compared to 2013

Net cash provided by operating activities decreased by $37.6 million in 2014, due to a $27.2 million increase in pension plan contributions and our receipt of a nonrefundable customer payment of $20.0 million in June 2013 in return for the exclusive use of SmartDose within a specific therapeutic area.

Net Cash Used in Investing Activities

2015 compared to 2014

Net cash used in investing activities increased by $25.5 million in 2015, due to an increase in capital spending, to $131.6 million, and sales and maturities of our remaining short-term investments in 2014. The capital spending for 2015 consisted of spending for new products, expansion activity, and emerging markets, including projects in the U.S., Europe, and Asia.

In October 2014, we announced plans to expand our global manufacturing operations to include a new facility in Waterford, Ireland, which will produce packaging components for insulin injector cartridges and other high-value packaging components. Construction began in July 2015.

2014 compared to 2013

Net cash used in investing activities decreased by $45.9 million in 2014, due to a $40.0 million decrease in capital spending, to $111.9 million, mainly as the construction of our corporate office and research building was completed in February 2013. The majority of the capital spending for 2014 related to new products, expansion activity, and emerging markets, including projects in the U.S., Europe, China and India.

Net Cash Used in Financing Activities

2015 compared to 2014

Net cash used in financing activities increased by $10.7 million in 2015, due to an increase in net debt repayments and dividend payments.

2014 compared to 2013

Net cash used in financing activities increased by $25.7 million in 2014, primarily due to an increase in net repayments of debt and a $7.4 million decrease in proceeds from the exercise of stock options and stock appreciation rights.

We paid cash dividends totaling $32.4 million ($0.45 per share) and $29.1 million ($0.41 per share) during 2015 and 2014, respectively.

In December 2015, we announced a share repurchase program authorizing the repurchase of up to 700,000 shares of our common stock from time to time on the open market or in privately-negotiated transactions as permitted under the Securities Exchange Act of 1934 Rule 10b-18. The number of shares to be repurchased and the timing of such transactions will depend on a variety of factors, including market conditions. The program commenced on January 1, 2016 and is expected to be completed by December 31, 2016. The Company’s previously-authorized share repurchase program expired on December 31, 2015.

Liquidity and Capital Resources

The table below presents selected liquidity and capital measures as of:

($ in millions)	December 31, 2015				December 31, 2014
Cash and cash equivalents	$	274.6			$	255.3
Working capital	$	359.4			$	406.6
Total debt	$	298.2			$	335.5
Total equity	$	1,023.9			$	956.9
Net debt-to-total invested capital	2.3		%		7.7		%

Cash and cash equivalents include all instruments that have maturities of ninety days or less when purchased. Working capital is defined as current assets less current liabilities. Net debt is defined as total debt less cash and cash equivalents, and total invested capital is defined as the sum of net debt and total equity. Net debt and total invested capital are non-U.S. GAAP financial measures that should not be used as a substitute for the comparable U.S. GAAP financial measures. The non-U.S. GAAP financial measures are incorporated into our discussion and analysis as management believes that this information provides users a valuable insight into our overall performance and financial position. Working capital, total debt, and net debt-to-total invested capital amounts and percentages reflect our adoption of the guidance issued by the FASB in 2015 regarding the classification of debt issuance costs.

Cash and cash equivalents – Our cash and cash equivalents balance at December 31, 2015 consisted of cash held in depository accounts with banks around the world and cash invested in high-quality, short-term investments. The cash and cash equivalents balance at December 31, 2015 included $141.2 million of cash held by subsidiaries within the U.S., and $133.4 million of cash held by subsidiaries outside of the U.S. Deferred income taxes have not been provided for any funds held by the subsidiaries outside of the U.S., as such earnings are intended to be reinvested indefinitely outside of the U.S.

Working capital - Working capital at December 31, 2015 decreased by $47.2 million, or 11.6%, as compared to December 31, 2014, including a decrease of $22.7 million due to foreign currency translation. Excluding the impact of currency exchange rates, cash and cash equivalents, accounts receivable and inventories increased by $41.4 million, $14.1 million and $11.4 million, respectively, and total current liabilities increased by $86.4 million. Accounts receivable and inventory turnover measurements remained consistent between December 31, 2014 and December 31, 2015. The increase in current liabilities was primarily due to the reclassification of our Series B Notes from long-term debt to current liabilities between those period ends and an increase in accounts payable, partially offset by the maturity of our Series B floating rate notes on July 28, 2015.

Debt and credit facilities - The $37.3 million decrease in total debt at December 31, 2015, as compared to December 31, 2014, resulted from net repayments of $27.4 million and foreign currency rate fluctuations of $10.1 million, partially offset by a reduction of $0.2 million in unamortized debt issuance costs.

On October 15, 2015, we entered into the New Credit Agreement that replaced our prior $300.0 million revolving credit facility, which was scheduled to expire in April 2017. The New Credit Agreement, which expires in October 2020, contains a $300.0 million credit facility, which may be increased from time to time by up to $100.0 million in the aggregate, subject to the satisfaction of certain conditions and upon approval by the banks. Up to $30.0 million of the credit facility is available for swing-line loans and up to $30.0 million is available for the issuance of standby letters of credit. Borrowings under the New Credit Agreement bear interest at either the base rate or at the applicable London Interbank Offered Rate ("LIBOR") rate, plus a tiered margin based on the ratio of our total debt to modified earnings before interest, taxes, depreciation and amortization ("EBITDA"), ranging from 0 to 75 basis points for base rate loans and 100 to 175 basis points for LIBOR rate loans. At December 31, 2015, we had $27.1 million in outstanding borrowings under the New Credit Agreement, of which $4.2 million was denominated in Yen and $22.9 million was denominated in Euro. The total amount outstanding at December 31, 2015 was classified as long-term. These borrowings, together with outstanding letters of credit of $3.0 million, resulted in a borrowing capacity available under the New Credit Agreement of $269.9 million at December 31, 2015. We do not expect any significant limitations on our ability to access this source of funds.

Pursuant to the financial covenants in our debt agreements, we are required to maintain established interest coverage ratios and to not exceed established leverage ratios. In addition, the agreements contain other customary covenants, none of which we consider restrictive to our operations. At December 31, 2015, we were in compliance with all of our debt covenants, and we expect to continue to be in compliance with the terms of these agreements throughout 2016.

We believe that cash on hand and cash generated from operations, together with availability under our multi-currency revolving credit facility, will be adequate to address our foreseeable liquidity needs based on our current expectations of our business operations, capital expenditures and scheduled payments of debt obligations.

Commitments and Contractual Obligations

The following table summarizes our contractual obligations and commitments at December 31, 2015. These obligations are not expected to have a material impact on liquidity.

				Payments Due By Period
($ in millions)	Total			Less than 1 year			1 - 3 years			3 - 5 years			More than 5 years
Purchase obligations (1)	$	10.7		$	10.4		$	0.3		$	—		$	—
Long-term debt	299.2			69.3			34.8			27.1			168.0
Interest on long-term debt and interest rate swaps (2)	67.6			9.4			15.8			13.8			28.6
Operating lease obligations	58.2			9.6			13.1			7.6			27.9
Other long-term liabilities (3)	16.4			0.4			2.0			3.6			10.4
Total contractual obligations(4)	$	452.1		$	99.1		$	66.0		$	52.1		$	234.9

(1)	Our business creates a need to enter into various commitments with suppliers. In accordance with U.S. GAAP, these purchase obligations are not reflected in the accompanying consolidated balance sheets. These purchase commitments do not exceed our projected requirements and are in the normal course of business.

(2)	For fixed-rate long-term debt, interest was based on principal amounts and fixed coupon rates at year end. Future interest payments on variable-rate debt were calculated using principal amounts and the applicable ending interest rate at year end. Interest on fixed-rate derivative instruments was based on notional amounts and fixed interest rates contractually obligated at year end.

(3)	Represents acquisition-related contingencies. In connection with certain business acquisitions, we agreed to make payments to the sellers when and if certain operating milestones are achieved, such as sales and operating income targets.

(4)

This table does not include obligations pertaining to pension and postretirement benefits because the actual amount and timing of future contributions may vary significantly depending upon plan asset performance, benefit payments, and other factors. Contributions to our plans are expected to be $7.2 million in 2016. See Note 13, Benefit Plans, for estimated benefit payments over the next ten years.

Reserves for uncertain tax positions - The table above does not include $5.9 million of total gross unrecognized tax benefits as of December 31, 2015. Due to the high degree of uncertainty regarding the timing of potential cash flows, we cannot reasonably estimate the settlement periods for amounts which may be paid.

Letters of credit - We have letters of credit totaling $3.0 million supporting the reimbursement of workers' compensation and other claims paid on our behalf by insurance carriers. Our accrual for insurance obligations was $8.2 million at December 31, 2015, of which $4.1 million is in excess of our deductible and, therefore, is reimbursable by the insurance company.

OFF-BALANCE SHEET ARRANGEMENTS

At December 31, 2015, we had no off-balance sheet financing arrangements other than operating leases, unconditional purchase obligations incurred in the ordinary course of business, and outstanding letters of credit related to various insurance programs.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's discussion and analysis addresses consolidated financial statements that are prepared in accordance with U.S. GAAP. The application of these principles requires management to make estimates and assumptions, some of which are subjective and complex, that affect the amounts reported in the consolidated financial statements. We believe the following accounting policies and estimates are critical to understanding and evaluating our results of operations and financial position:

Revenue Recognition: Revenue is recognized when persuasive evidence of a sales arrangement exists, title and risk of loss have transferred, the selling price is fixed or determinable, and collectability is reasonably assured. Generally, sales are recognized upon shipment or upon delivery to our customers' site, based upon shipping terms or legal requirements. Some customers receive pricing rebates upon attaining established sales volumes. We record rebate costs when sales occur based on our assessment of the likelihood that the required volumes will be attained. We also maintain an allowance for product returns, as we believe that we are able to reasonably estimate the amount of returns based on our substantial historical experience.

Impairment of Long-Lived Assets: Long-lived assets, including property, plant and equipment, are tested for impairment whenever circumstances indicate that the carrying value of these assets may not be recoverable. An asset is considered impaired if the carrying value of the asset exceeds the sum of the future expected undiscounted cash flows to be derived from the asset. Once an asset is considered impaired, an impairment loss is recorded within other (income) expense for the difference between the asset's carrying value and its fair value. For assets held and used in the business, management determines fair value using estimated future cash flows to be derived from the asset, discounted to a net present value using an appropriate discount rate. For assets held for sale or for investment purposes, management determines fair value by estimating the proceeds to be received upon sale of the asset, less disposition costs.

Impairment of Goodwill and Other Intangible Assets: Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, following the completion of our annual budget and long-range planning process, or whenever circumstances indicate that the carrying value of these assets may not be recoverable. Goodwill is tested for impairment at the reporting unit level, which is the same as, or one level below, our operating segments. Recent accounting guidance allows entities to first assess qualitative factors, including macroeconomic conditions, industry and market considerations, cost factors, and overall financial performance, to determine whether it is necessary to perform the first step of the two-step quantitative goodwill impairment test. We considered this guidance when performing our annual impairment testing, but elected to continue utilizing the two-step quantitative impairment

test. The first step in the two-step test is to compare the fair value of each reporting unit to its carrying amount, including goodwill. If the carrying amount exceeds fair value, the second step must be performed. The second step requires the comparison of the carrying amount of the goodwill to its implied fair value, which is calculated as if the reporting unit had just been acquired as of the testing date. Any excess of the carrying amount of goodwill over the implied fair value would represent an impairment loss. Considerable management judgment is necessary to estimate fair value. Amounts and assumptions used in our goodwill impairment test, such as future sales, future cash flows and long-term growth rates, are consistent with internal projections and operating plans. Amounts and assumptions used in our goodwill impairment test are also largely dependent on the continued sale of drug products delivered by injection and the packaging of drug products, as well as our timeliness and success in new-product innovation or the development and commercialization of proprietary multi-component systems. Changes in the estimate of fair value, including the estimate of future cash flows, could have a material impact on our future results of operations and financial position. No impairment in the carrying value of our reporting units was evident as a result of our annual review of goodwill. With the exception of our Delivery Systems' Americas and Delivery Systems' Europe reporting units, each of which had a fair value in excess of its carrying value of approximately 20% and each of which is largely dependent on the continued and anticipated demand for certain of its contract manufacturing and proprietary products, each of our reporting units whose assets included goodwill had a fair value in excess of its respective carrying value of at least 150%. At December 31, 2015, the goodwill associated with the Delivery Systems' Americas and Europe reporting units equaled $39.7 million, or 38.0% of our total goodwill.

Certain trademarks have been determined to have indefinite lives and, therefore, are not subject to amortization. Similar to the impairment testing for goodwill, there is an option to first assess qualitative factors as a basis for determining whether it is necessary to perform a quantitative impairment test. We considered this option when performing our impairment testing, but elected to continue utilizing a quantitative test, comparing the fair value and carrying value of the asset. Any excess carrying value would represent an impairment loss. Fair values are determined using discounted cash flow analyses.

Intangible assets with finite lives are amortized using the straight-line method over their estimated useful lives, and reviewed for impairment whenever circumstances indicate that the carrying value of these assets may not be recoverable.

Employee Benefits: We maintain funded and unfunded defined benefit pension plans in the U.S. and a number of other countries that cover employees who meet eligibility requirements. In addition, we sponsor postretirement benefit plans which provide healthcare benefits for eligible employees who retire or become disabled. The measurement of annual cost and obligations under these defined benefit postretirement plans is subject to a number of assumptions, which are specific for each of our U.S. and foreign plans. The assumptions, which are reviewed at least annually, are relevant to both the plan assets (where applicable) and the obligation for benefits that will ultimately be provided to our employees. Two of the most critical assumptions in determining pension and retiree medical plan expense are the discount rate and expected long-term rate of return on plan assets. Other assumptions reflect demographic factors such as retirement age, rates of compensation increases, mortality and turnover and are evaluated periodically and updated to reflect our actual experience. For our funded plans, we consider the current and expected asset allocations of our plan assets, as well as historical and expected rates of return in estimating the long-term rate of return on plan assets. Under U.S. GAAP, differences between actual and expected results are generally accumulated in other comprehensive income (loss) as actuarial gains or losses and subsequently amortized into earnings over future periods.

Changes in key assumptions could have a material impact on our future results of operations and financial position. We estimate that every 25 basis point reduction in our long-term rate of return assumption would increase pension expense by $0.6 million, and every 25 basis point reduction in our discount rate would increase pension expense by $0.6 million. A decrease in the discount rate increases the present value of benefit obligations. Our net pension underfunded balance at December 31, 2015 was $57.4 million, compared to $76.2 million at December 31, 2014. Our underfunded balance for other postretirement benefits was $10.2 million at December 31, 2015, compared to $10.1 million at December 31, 2014.

Income Taxes: We estimate income taxes payable based upon current domestic and international tax legislation. In addition, deferred income tax assets and liabilities are established to recognize differences between the tax basis and financial statement carrying values of assets and liabilities. We maintain valuation allowances where it is more likely than not that all or a portion of a deferred tax asset will not be realized. The recoverability of tax assets is subject to our estimates of future profitability, generally at the respective subsidiary company and country level. Changes in tax legislation, business plans and other factors may affect the ultimate recoverability of tax assets or final tax payments, which could result in adjustments to tax expense in the period such change is determined.

When accounting for uncertainty in income taxes recognized in our financial statements, we apply a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

Contingent Consideration

The fair value of the contingent consideration liability related to SmartDose ("SmartDose contingent consideration") was initially determined using a probability-weighted income approach, and is revalued at each reporting date or more frequently if circumstances dictate. Changes in the fair value of this obligation are recorded as income or expense within other expense (income) in our consolidated statements of income. The significant unobservable inputs used in the fair value measurement of the contingent consideration are the sales projections, the probability of success factors, and the discount rate. Significant increases or decreases in any of those inputs in isolation would result in a significantly lower or higher fair value measurement. As development and commercialization of SmartDose progresses, we may need to update the sales projections, the probability of success factors, and the discount rate used. This could result in a material increase or decrease to the contingent consideration liability.

See Note 1, Summary of Significant Accounting Policies and Note 2, New Accounting Standards, to our consolidated financial statements for additional information on accounting and reporting standards considered in the preparation and presentation of our financial statements.