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

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Item 2. 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 condensed consolidated financial statements and accompanying notes elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”) as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and accompanying notes included in our 2022 Annual Report. Our 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 our 2022 Annual Report and in Part II, Item 1A of this Form 10-Q.

Throughout this section, references to “Notes” refer to the notes to our condensed consolidated financial statements (unaudited) in Part I, Item 1 of this Form 10-Q, unless otherwise indicated.

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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. Organic net sales exclude the impact from acquisitions and/or divestitures and translate the current-period reported sales of subsidiaries whose functional currency is other than USD at the applicable foreign exchange rates in effect during the comparable prior-year period. We may also refer to adjusted consolidated operating profit and adjusted consolidated operating profit margin, which exclude the effects of unallocated items. The unallocated items are not representative of ongoing operations, and generally include restructuring and related charges, certain asset impairments, and other specifically-identified income or expense items. The re-measured results excluding effects from currency translation, the impact from acquisitions and/or divestitures, and excluding the effects of unallocated items are not in conformity with U.S. Generally Accepted Accounting Principles ("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 in our discussion and analysis as management uses them in evaluating our results of operations and believes that this information provides users with a valuable insight into our overall performance and financial position.

Our Operations

We are a leading global manufacturer in the design and production of technologically advanced, high-quality, integrated containment and delivery systems for injectable drugs and healthcare products. Our products include a variety of primary proprietary packaging, containment solutions, reconstitution and transfer systems, and drug delivery systems, as well as contract manufacturing, analytical lab services and integrated solutions. Our customers include leading biologic, generic, pharmaceutical, diagnostic, and medical device companies around the world. Our top priority is delivering quality products that meet the exact product specifications and quality standards customers require and expect. This focus on quality includes a commitment to excellence in manufacturing, scientific and technical expertise and management, which enables us to partner with our customers in order to deliver safe, effective drug products to patients quickly and efficiently.

Our business operations are organized into two global segments, Proprietary Products and Contract-Manufactured Products. Our Proprietary Products reportable segment offers proprietary packaging, containment solutions and drug delivery systems, along with analytical lab services and other integrated services and solutions, primarily to biologic, generic and pharmaceutical drug customers. Our Contract-Manufactured Products reportable segment serves as a fully integrated business, focused on the design, manufacture, and automated assembly of complex devices, primarily for pharmaceutical, diagnostic, and medical device customers. We also maintain collaborations to share technologies and market products with affiliates in Japan and Mexico.

Macroeconomic Factors

Through the nine months ended September 30, 2023, the war between Russia and Ukraine has not had a material impact on the Company’s business, financial condition or results of operations as we do not have manufacturing operations or significant commercial relationships in either country. However, the continuation of the Russia-Ukraine military conflict and/or an escalation of the conflict beyond its current scope may further weaken the global economy and could result in additional inflationary pressures and supply chain constraints, including the unavailability and cost of energy.

We have operations based in Israel that conduct research and development activities and manufacture certain components for our devices. Our Israel-based facilities continue to substantially operate as they had prior to the conflict in Israel and surrounding area. We will continue to monitor the impact of the conflict in Israel and surrounding areas on our operations and those of our suppliers, the possible expansion of such conflict and potential geopolitical consequences, if any, on our business and operations.

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Due to the uncertainty that exists relative to the duration and overall impact of the macroeconomic factors discussed above, our future operating performance, particularly in the short-term, may be subject to volatility. The impacts of macroeconomic conditions on our business, results of operations, financial condition and cash flows are dependent on certain factors, including those discussed in Item 1A. Risk Factors and the risk factors described in Part I, Item 1A of our 2022 Annual Report.

2023 Financial Performance Summary

The following tables present a reconciliation from U.S. GAAP to non-U.S. GAAP financial measures for the three and nine months ended September 30, 2023:


($ in millions, except per share data)	Operating Profit		Income tax expense		Net income		Diluted EPS
Three months ended September 30, 2023 GAAP	$	177.3	$	29.4	$	161.3	$	2.14
Unallocated items:

Cost investment impairment (2)	3.3		—		3.3		0.05
Amortization of acquisition-related intangible assets (4)	0.2		0.1		0.7		0.01

Legal settlement (5)	—		(0.9)		(2.9)		(0.04)
Three months ended September 30, 2023 adjusted amounts (non-U.S. GAAP)	$	180.8	$	28.6	$	162.4	$	2.16


($ in millions, except per share data)	Operating Profit		Income tax expense		Net income		Diluted EPS
Nine months ended September 30, 2023 GAAP	$	515.1	$	87.8	$	456.4	$	6.05
Unallocated items:
Loss on disposal of plant (1)	11.6		(0.7)		12.3		0.16
Cost investment impairment (2)	3.3		—		3.3		0.05
Restructuring and other charges (3)	0.1		(0.3)		0.4		—
Amortization of acquisition-related intangible assets (4)	0.6		0.1		2.1		0.03
Legal settlement (5)	—		(0.9)		(2.9)		(0.04)


Nine months ended September 30, 2023 adjusted amounts (non-U.S. GAAP)	$	530.7	$	86.0	$	471.6	$	6.25

During the three and nine months ended September 30, 2023, we recorded a tax benefit of $12.0 million and $31.3 million, respectively, associated with stock-based compensation.

The following tables present a reconciliation from U.S. GAAP to non-U.S. GAAP financial measures for the three and nine months ended September 30, 2022:

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($ in millions, except per share data)	Operating Profit		Income tax expense		Net income		Diluted EPS
Three months ended September 30, 2022 GAAP	$	186.2	$	20.4	$	120.6	$	1.59
Unallocated items:
Pension settlement (6)	—		20.0		29.6		0.39
Amortization of acquisition-related intangible assets (4)	0.2		0.1		0.7		0.01
Tax law changes (7)	—		(3.2)		3.2		0.04
Three months ended September 30, 2022 adjusted amounts (non-U.S. GAAP)	$	186.4	$	37.3	$	154.1	$	2.03


($ in millions, except per share data)	Operating Profit		Income tax expense		Net income		Diluted EPS
Nine months ended September 30, 2022 GAAP	$	604.3	$	85.8	$	482.9	$	6.36
Unallocated items:
Restructuring and other charges (3)	(1.6)		(0.4)		(1.2)		(0.01)
Pension settlement (6)	—		20.3		30.5		0.40
Amortization of acquisition-related intangible assets (4)	0.6		0.1		2.1		0.03
Tax law changes (7)	—		(3.2)		3.2		0.04
Royalty acceleration (8)	—		1.3		(1.3)		(0.02)
Nine months ended September 30, 2022 adjusted amounts (non-U.S. GAAP)	$	603.3	$	103.9	$	516.2	$	6.80

During the three and nine months ended September 30, 2022, we recorded a tax benefit of $2.1 million and $12.3 million, respectively, associated with stock-based compensation.

(1)During the nine months ended September 30, 2023, the Company recorded expense of $11.6 million within other expense (income), as a result of the sale of one of the Company’s manufacturing facilities within the Proprietary Products segment. The transaction closed during the second quarter of 2023.

(2)During the three and nine months ended September 30, 2023, the Company recorded expense of $3.3 million within other expense (income), as a result of an impairment of one of the Company's cost investments.

(3)Restructuring and other charges of $0.1 million for the nine months ended September 30, 2023 represents the net impact of an inventory write down of $0.9 million within cost of goods and services sold and a $0.8 million benefit within other expense (income) for revised severance estimates in connection with its 2022 restructuring plan. During the nine months ended September 30, 2022, the Company recorded a benefit within other expense (income) of $1.6 million for restructuring and severance related costs in connection with its 2020 plan related to revised severance estimates.

(4)During the three and nine months ended September 30, 2023 and 2022, the Company recorded $0.2 million and $0.6 million, respectively, of amortization expense within operating profit associated with an intangible asset acquired during the second quarter of 2020. During the three and nine months ended September 30, 2023 and 2022, the Company recorded $0.6 million and $1.6 million, respectively, of amortization expense in association with an acquisition of increased ownership interest in Daikyo.

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(5)During the three and nine months ended September 30, 2023, the Company recorded a benefit of $3.8 million within other nonoperating (income) expense as a result of a favorable legal settlement related to a matter not included in our normal operations.

(6)During the three and nine months ended September 30, 2022, we recorded a gross pension settlement charge of $49.6 million and $50.8 million, respectively, within other nonoperating (income) expense, that fully settled the U.S. qualified defined benefit plan (the "U.S. pension plan"). Please refer to Note 14, Benefit Plans**, for further discussion of these items.

(7)During the three and nine months ended September 30, 2022, the Company incurred additional tax expense of $3.2 million due to the impact of a tax law change in the state of Pennsylvania enacted during the period.

(8)During the nine months ended September 30, 2022, the Company increased its expected tax benefit related to the prepayment of future royalties from one of its subsidiaries by $1.3 million.

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, certain pension and other retirement benefit costs, and other corporate facilities and administrative expenses not allocated to the segments. Also excluded are items that we consider not representative of ongoing operations. Such items are referred to as other unallocated items for which further information can be found above in the reconciliation from U.S. GAAP to non-U.S. GAAP financial measures.

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

Net Sales

The following table presents net sales, consolidated and by reportable segment, for the three months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Percentage Change
($ in millions)	2023		2022		As-Reported		Organic
Proprietary Products	$	602.5	$	567.0	6.3	%	3.2	%
Contract-Manufactured Products	144.9		120.0		20.8	%	17.4	%
Intersegment sales elimination	—		(0.1)		—		—
Consolidated net sales	$	747.4	$	686.9	8.8	%	5.7	%

Consolidated net sales increased by $60.5 million, or 8.8%, for the three months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $25.1 million. Excluding foreign currency translation effects and the impact related to the disposal of one of our plants of $3.5 million, consolidated net sales for the three months ended September 30, 2023 increased by $38.9 million, or 5.7%, as compared to the same period in 2022, primarily due to sales price increases.

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Proprietary Products – Proprietary Products net sales increased by $35.5 million, or 6.3%, for the three months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $21.1 million. Excluding foreign currency translation effects and the impact related to the disposal of one of our plants of $3.5 million, net sales for the three months ended September 30, 2023 increased by $17.9 million, or 3.2%, as compared to the same period in 2022, due to growth in our high-value components, primarily FluroTec®, Daikyo® and Envision®, growth in our high-value devices, such as self-injection systems and administration systems, and sales price increases. This was offset by a decline in COVID-related sales of approximately $78 million.

Contract-Manufactured Products – Contract-Manufactured Products net sales increased by $24.9 million, or 20.8%, for the three months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $4.0 million. Excluding foreign currency translation effects, net sales for the three months ended September 30, 2023 increased by $20.9 million, or 17.4%, as compared to the same period in 2022, primarily due to an increase in the volume of sales of components associated with injection-related devices and healthcare diagnostic devices, as well as sales price increases.

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

The following table presents net sales, consolidated and by reportable segment, for the nine months ended September 30, 2023 and 2022:



	Nine Months Ended September 30,				Percentage Change
($ in millions)	2023		2022		As-Reported		Organic
Proprietary Products	$	1,803.6	$	1,822.0	(1.0)	%	(1.0)	%
Contract-Manufactured Products	414.2		356.5		16.2	%	15.4	%
Intersegment sales elimination	—		(0.3)		—		—
Consolidated net sales	$	2,217.8	$	2,178.2	1.8	%	1.7	%

Consolidated net sales increased by $39.6 million, or 1.8%, for the nine months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $9.4 million. Excluding foreign currency translation effects and the impact related to the disposal of one of our plants of $6.6 million, consolidated net sales for the nine months ended September 30, 2023 increased by $36.8 million, or 1.7%, as compared to the same period in 2022, primarily due to sales price increases, offset by a decline in COVID-related sales.

Proprietary Products – Proprietary Products net sales decreased by $18.4 million, or 1.0%, for the nine months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $6.5 million. Excluding foreign currency translation effects and the impact related to the disposal of one of our plants of $6.6 million, net sales for the nine months ended September 30, 2023 decreased by $18.3 million, or 1.0%, as compared to the same period in 2022, primarily due to a decline in COVID-related sales of approximately $272 million, offset by growth in our high-value components, primarily Westar®, FluroTec®, and Daikyo®, as well as growth in high-value devices, such as self-injection systems and administration systems, and sales price increases.

Contract-Manufactured Products – Contract-Manufactured Products net sales increased by $57.7 million, or 16.2%, for the nine months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $2.9 million. Excluding foreign currency translation effects, net sales for the nine months ended September 30, 2023 increased by $54.8 million, or 15.4%, as compared to the same period in 2022, primarily due to an increase in the volume of sales of components associated with injection-related devices and healthcare diagnostic devices, as well as sales price increases.

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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 profit margins, consolidated and by reportable segment:


	Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2023			2022			2023			2022
Proprietary Products:
Gross profit	$	261.4		$	247.3		$	780.6		$	810.3
Gross profit margin	43.4		%	43.6		%	43.3		%	44.5		%
Contract-Manufactured Products:
Gross profit	$	26.9		$	20.7		$	71.3		$	63.8
Gross profit margin	18.6		%	17.3		%	17.2		%	17.9		%
Unallocated items	$	—		$	—		$	(0.9)		$	—
Consolidated gross profit	$	288.3		$	268.0		$	851.0		$	874.1
Consolidated gross profit margin	38.6		%	39.0		%	38.4		%	40.1		%

Consolidated gross profit increased by $20.3 million, or 7.6%, for the three months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $10.3 million for the three months ended September 30, 2023, as compared to the same period in 2022. Consolidated gross profit margin decreased by 0.4 margin points for the three months ended September 30, 2023, as compared to the same period in 2022.

Consolidated gross profit decreased by $23.1 million, or 2.6% for the nine months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $6.0 million for the nine months ended September 30, 2023, as compared to the same period in 2022. Consolidated gross profit margin decreased by 1.7 margin points for the nine months ended September 30, 2023, as compared to the same period in 2022.

Proprietary Products - Proprietary Products gross profit increased by $14.1 million, or 5.7%, for the three months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $9.5 million. Proprietary Products gross profit margin decreased by 0.2 margin points for the three months ended September 30, 2023, as compared to the same periods in 2022, due to a decline in higher margin COVID-related sales and a decrease of approximately $17 million, net, in fees received from COVID-19 supply agreements. These items were partially offset by increased sales prices.

Proprietary Products gross profit decreased by $29.7 million, or 3.7%, for the nine months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $5.5 million. Proprietary Products gross profit margin decreased by 1.2 margin points for the nine months ended September 30, 2023, as compared to the same period in 2022, due to a decline in higher margin COVID-related sales, a decrease of approximately $21 million, net, in fees received from COVID-19 supply agreements, and inflationary pressures, primarily within compensation costs. These headwinds were partially offset by increased sales prices and production efficiencies.

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Contract-Manufactured Products - Contract-Manufactured Products gross profit increased by $6.2 million, or 30.0%, for the three months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $0.8 million. Contract-Manufactured Products gross profit margin increased by 1.3 margin points for the three months ended September 30, 2023, as compared to the same period in 2022, due to the mix of products sold and increased sales prices, offset by inflationary pressures, primarily within compensation costs.

Contract-Manufactured Products gross profit increased by $7.5 million, or 11.8%, for the nine months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $0.5 million. Contract-Manufactured Products gross profit margin decreased by 0.7 margin points for the nine months ended September 30, 2023, as compared to the same period in 2022, due to inflationary pressures, primarily within compensation costs. These headwinds were partially offset by increased sales prices.

Research and Development (“R&D”) Costs

The following table presents consolidated R&D costs:


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2023		2022		2023		2022


Consolidated R&D costs	$	16.4	$	13.6	$	50.0	$	42.6

Consolidated R&D costs increased by $2.8 million, or 20.6%, and $7.4 million, or 17.4%, for the three and nine months ended September 30, 2023, respectively, as compared to the same period in 2022, due to higher annual incentive compensation and additional research performed to identify new product opportunities. The increases in spend included $0.2 million for the three months ended September 30, 2023 and $2.8 million for the nine months ended September 30, 2023 of research performed on glass systems. Efforts remain focused on the continued investment in elastomeric packaging components, formulation development, drug containment systems, self-injection systems and drug administration consumables.

All of the R&D costs incurred the three and nine months ended September 30, 2023 and 2022 related to Proprietary Products.

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

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


	Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2023			2022			2023			2022
Proprietary Products	$	61.4		$	44.3		$	176.8		$	155.6
Contract-Manufactured Products	6.0			4.7			18.1			14.4
Corporate and unallocated items	21.6			17.3			68.5			61.2
Consolidated SG&A costs	$	89.0		$	66.3		$	263.4		$	231.2
SG&A as a % of net sales	11.9		%	9.7		%	11.9		%	10.6		%

Consolidated SG&A costs increased by $22.7 million, or 34.2%, for the three months ended September 30, 2023, as compared to the same period in 2022, primarily due to higher annual incentive compensation, increased costs related to professional services and an unfavorable foreign currency translation impact of $1.2 million.

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Consolidated SG&A costs increased by $32.2 million, or 13.9%, for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily due to higher annual incentive compensation, an increase in mark-to-market expense related to stock-based compensation, increased compensation costs and an unfavorable foreign currency translation impact of $0.6 million.

Proprietary Products - Proprietary Products SG&A costs increased by $17.1 million, or 38.6%, for the three months ended September 30, 2023, as compared to the same period in 2022. Proprietary Products SG&A costs increased primarily due to higher annual incentive compensation, an increase in compensation costs and an unfavorable foreign currency translation impact of $1.0 million.

Proprietary Products SG&A costs increased by $21.2 million, or 13.6%, for the nine months ended September 30, 2023, as compared to the same period in 2022. Proprietary Products SG&A costs increased primarily due to higher annual incentive compensation, an increase in compensation costs and an unfavorable foreign currency translation impact of $0.4 million.

Contract-Manufactured Products - Contract-Manufactured Products SG&A costs increased by $1.3 million, or 27.7%, for the three months ended September 30, 2023, as compared to the same period in 2022, and increased by $3.7 million, or 25.7%, for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily due to a higher allocation of corporate function spend and higher annual incentive compensation.

Corporate and unallocated items - Corporate SG&A costs increased by $4.3 million, or 24.9%, for the three months ended September 30, 2023, as compared to the same period in 2022, primarily due to higher annual incentive compensation and an increase in mark-to-market expense related to stock-based compensation.

Corporate SG&A costs increased by $7.3 million, or 11.9%, for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily due to an increase in mark-to-market expense related to stock-based compensation and higher annual incentive compensation.

Other Expense (Income)

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


(Income) Expense	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2023		2022		2023		2022
Proprietary Products	$	2.0	$	0.8	$	7.3	$	(3.8)
Contract-Manufactured Products	(0.1)		1.3		(0.1)		1.4
Corporate and unallocated	3.7		(0.2)		15.3		(1.6)
Consolidated other expense (income)	$	5.6	$	1.9	$	22.5	$	(4.0)

Other expense and income items consist of foreign exchange transaction gains and losses, gains and losses on the sale of fixed assets, contingent consideration, fixed asset impairments and miscellaneous income and charges.

Consolidated other expense (income) changed by $3.7 million for the three months ended September 30, 2023, as compared to the same period in 2022 and changed by $26.5 million for the nine months ended September 30, 2023, as compared to the same period in 2022, due to the factors described below.

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Proprietary Products - Proprietary Products other expense (income) changed by $1.2 million for the three months ended September 30, 2023, as compared to the same period in 2022, primarily due to a loss on foreign exchange transactions being recorded in the three months ended September 30, 2023, while a gain on foreign exchange transactions was recorded during the same period in 2022. This was offset by a $0.5 million gain related to oil hedges being recorded during the three months ended September 30, 2023, while a loss of $1.5 million was recorded in the same period in 2022. This was further offset by $0.7 million of expense related to contingent consideration being recorded during the three months ended September 30, 2023, while expense of $1.5 million was recorded in the same period in 2022.

Proprietary Products other expense (income) changed by $11.1 million for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily due to a loss on foreign exchange transactions being recorded in the nine months ended September 30, 2023, while a gain on foreign exchange transactions was recorded during the same period in 2022. Additionally, the Company recorded a loss of $0.5 million related to oil hedges during the nine months ended September 30, 2023, while a gain of $1.6 million was recorded in the same period in 2022. This was offset by $1.5 million of expense related to contingent consideration being recorded during the nine months ended September 30, 2023, while expense of $2.6 million was recorded in the same period in 2022.

Contract-Manufa****ctured Products - Contract-Manufactured Products other expense (income) changed by $1.4 million for the three months ended September 30, 2023, as compared to the same period in 2022, primarily due to fixed asset impairments recorded in the three months ended September 30, 2022 that did not recur in 2023.

Contract-Manufactured Products other expense (income) changed by $1.5 million for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily due to fixed asset impairments recorded in the three months ended September 30, 2022 that did not recur in 2023.

Corporate and unallocated items - Corporate and unallocated items changed by $3.9 million for the three months ended September 30, 2023, as compared to the same period in 2022, primarily due to the Company recording expense related to impairment of one of the Company's cost investments of $3.3 million in the three months ended September 30, 2023 that did not occur in the same period in 2022.

Corporate and unallocated items changed by $16.9 million for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily due to the Company recording expense of $11.6 million as a result of the sale of one of the Company’s manufacturing facilities within the Proprietary Products segment and the Company recording expense related to impairment of one of the Company's cost investments of $3.3 million in the nine months ended September 30, 2023. Neither of these items occurred in the same period in 2022.

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Operating Profit

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


	Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)	2023			2022			2023			2022
Proprietary Products	$	181.6		$	188.6		$	546.5		$	615.9
Contract-Manufactured Products	21.0			14.7			53.3			48.0
Corporate and unallocated items	(25.3)			(17.1)			(84.7)			(59.6)
Consolidated operating profit	$	177.3		$	186.2		$	515.1		$	604.3
Consolidated operating profit margin	23.7		%	27.1		%	23.2		%	27.7		%
Unallocated items	3.5			0.2			15.6			(1.0)
Adjusted consolidated operating profit	$	180.8		$	186.4		$	530.7		$	603.3
Adjusted consolidated operating profit margin	24.2		%	27.1		%	23.9		%	27.7		%

Consolidated operating profit decreased by $8.9 million, or 4.8%, for the three months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $8.9 million for the three months ended September 30, 2023, as compared to the same period in 2022.

Consolidated operating profit decreased by $89.2 million, or 14.8%, for the nine months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $5.2 million for the nine months ended September 30, 2023, as compared to the same period in 2022.

Proprietary Products - Proprietary Products operating profit decreased by $7.0 million, or 3.7%, for the three months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $8.3 million, due to the factors described above, most notably an increase in compensation costs, including the annual incentive compensation, and a decline in higher margin COVID-related sales.

Proprietary Products operating profit decreased by $69.4 million, or 11.3%, for the nine months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $4.9 million, due to the factors described above, most notably the decline in COVID-related sales.

Contract-Manufactured Products - Contract-Manufactured Products operating profit increased by $6.3 million, or 42.9%, for the three months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $0.6 million, due to the factors described above, most notably an increase in sales of components associated with injection-related devices.

Contract-Manufactured Products operating profit increased by $5.3 million, or 11.0%, for the nine months ended September 30, 2023, as compared to the same period in 2022, including a favorable foreign currency translation impact of $0.3 million, due to the factors described above, most notably an increase in sales of components associated with injection-related devices.

Corporate - Excluding the unallocated items, Corporate costs increased by $4.9 million, or 29.0%, for the three months ended September 30, 2023, as compared to the same period in 2022, due to the factors described above.

Excluding the unallocated items, Corporate costs increased by $8.5 million, or 14.0%, for the nine months ended September 30, 2023, as compared to the same period in 2022, due to the factors described above.

Unallocated items – Please refer to the Financial Performance Summary section above for details.

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Interest Expense, Net and Interest Income

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


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in millions)	2023		2022		2023		2022
Interest expense	$	4.4	$	2.8	$	11.7	$	8.4
Capitalized interest	(1.5)		(0.6)		(3.9)		(2.2)
Interest expense, net	$	2.9	$	2.2	$	7.8	$	6.2

Interest income	$	(8.8)	$	(1.5)	$	(18.6)	$	(2.2)

Interest expense, net, increased by $0.7 million, for the three months ended September 30, 2023, as compared to the same period in 2022, and increased by $1.6 million, for the nine months ended September 30, 2023, as compared to the same period in 2022, due to higher interest rates compared to the prior year.

Interest income increased by $7.3 million for the three months ended September 30, 2023, as compared to the same period in 2022, and $16.4 million for the nine months ended September 30, 2023, as compared to the same period in 2022, resulting from higher interest rates compared to the prior year, primarily within the U.S., Europe and South America.

Other Nonoperating (Income) Expense

Other nonoperating (income) expense changed by $53.1 million for the three months ended September 30, 2023, as compared to the same period in 2022, primarily due to the recording of a $49.6 million pension settlement charge during the three months ended September 30, 2022, which relieved the historical balance sheet position, inclusive of accumulated other comprehensive income, of the U.S. pension plan, while no such amounts were recorded in the same period in 2023. Additionally, the Company recorded a benefit of $3.8 million in the three months ended September 30, 2023 as a result of a favorable legal settlement related to a matter not included in our normal operations. This did not occur in the same period in 2022.

Other nonoperating (income) expense changed by $53.0 million for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily due to the recording of a $50.8 million pension settlement charge during the nine months ended September 30, 2022, which relieved the historical balance sheet position, inclusive of accumulated other comprehensive income, of the U.S. pension plan, while no such amounts were recorded in the same period in 2023. Additionally, the Company recorded a benefit of $3.8 million in the nine months ended September 30, 2023 as a result of a favorable legal settlement related to a matter not included in our normal operations. This did not occur in the same period in 2022.

Please refer to Note 14, Benefit Plans**, for further discussion of these items.

Income Tax Expense

The provision for income taxes was $29.4 million and $20.4 million for the three months ended September 30, 2023 and 2022, respectively, and the effective tax rate was 15.7% and 15.0%, respectively. The increase in the effective tax rate is primarily due to a tax benefit of $20.0 million related to the termination of the U.S. pension plan recorded in the three months ended September 30, 2022 that was not repeated in the same period in 2023. This was offset by an increase in the tax benefit related to stock-based compensation in the three months ended September 30, 2023, as compared to the same period in 2022.

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The provision for income taxes was $87.8 million and $85.8 million for the nine months ended September 30, 2023 and 2022, respectively, and the effective tax rate was 16.6% and 15.6%, respectively. The increase in the effective tax rate is primarily due to a tax benefit of $20.3 million related to the termination of the U.S. pension plan recorded in the nine months ended September 30, 2022 and a $5.9 million tax benefit recorded as the result of a state tax valuation allowance reversal in the nine months ended September 30, 2022 that were not repeated in the same period in 2023. This was offset by an increase in the tax benefit related to stock-based compensation in the nine months ended September 30, 2023, as compared to the same period in 2022.

Equity in Net Income of Affiliated Companies

Equity in net income of affiliated companies decreased by $1.1 million for the three months ended September 30, 2023, as compared to the same period in 2022, due to less favorable operating results at the Mexico affiliates.

Equity in net income of affiliated companies decreased by $3.1 million for the nine months ended September 30, 2023, as compared to the same period in 2022, due to less favorable operating results at Daikyo and the Mexico affiliates.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following table presents cash flow data for the nine months ended September 30:


($ in millions)	2023		2022
Net cash provided by operating activities	$	537.4	$	493.2
Net cash used in investing activities	$	(259.9)	$	(193.4)
Net cash used in financing activities	$	(270.1)	$	(284.1)

Net Cash Provided by Operating Activities – Net cash provided by operating activities increased by $44.2 million for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily due to favorable working capital management in the nine months ended September 30, 2023, as compared to the same period in 2022. This was offset by a decline in operating results.

Net Cash Used in Investing Activities – Net cash used in investing activities increased by $66.5 million for the nine months ended September 30, 2023, as compared to the same period in 2022, due to an increase in capital expenditures for additional manufacturing capacity in 2023 to meet customer demand.

Net Cash Used in Financing Activities – Net cash used in financing activities decreased by $14.0 million for the nine months ended September 30, 2023, as compared to the same period in 2022, primarily due to reduced debt repayments and increased proceeds from stock-based compensation awards in 2023, as compared to the same period in 2022. This was offset by increases in purchases under our share repurchase program in 2023, as compared to the same period in 2022.

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Liquidity and Capital Resources

The table below presents selected liquidity and capital measures:


($ in millions)	September 30, 2023		December 31, 2022
Cash and cash equivalents	$	898.6	$	894.3
Accounts receivable, net	$	519.1	$	507.4
Inventories	$	431.8	$	414.8
Accounts payable	$	219.8	$	215.4
Debt	$	207.3	$	208.9
Equity	$	2,868.2	$	2,684.9
Working capital	$	1,438.8	$	1,400.5

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.

Cash and cash equivalents – Our cash and cash equivalents balance at September 30, 2023 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 September 30, 2023 included $428.6 million of cash held by subsidiaries within the U.S., and $470.0 million of cash held by subsidiaries outside of the U.S. During the nine months ended September 30, 2023, we purchased 753,399 shares of our common stock under the share repurchase program at a cost of $261.3 million, or an average price of $346.86 per share.

Working capital – Working capital at September 30, 2023 increased by $38.3 million, or 2.7%, as compared to December 31, 2022, which includes an unfavorable foreign currency translation impact of $15.8 million. Excluding the impact of currency exchange rates, cash and cash equivalents, accounts receivable, inventories and total current liabilities increased by $7.4 million, $14.1 million, $21.0 million and $20.4 million, respectively. The increase in cash and cash equivalents was due to cash collections driven by positive operating results, offset by capital expenditures and share repurchases. The increase in accounts receivable was due to increased sales activity during the period. The increase in inventories that occurred in the period was to ensure we have sufficient inventory on hand to support the needs of our customers. The increase in total current liabilities was driven primarily by a portion of long-term debt moving to current based on the stated maturity during the period, offset by a decrease in other current liabilities due to declines in deferred income and dividends payable.

Debt and credit facilities – The $1.6 million decrease in total debt at September 30, 2023, as compared to December 31, 2022, resulted primarily from debt repayments under our Term Loan.

Our sources of liquidity include our Credit Facility. At September 30, 2023, we had no outstanding borrowings under the Credit Facility. At September 30, 2023, the borrowing capacity available under the Credit Facility, including outstanding letters of credit of $2.4 million, was $497.6 million. 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 not to exceed established leverage ratios. In addition, the agreements contain other customary covenants, none of which we consider restrictive to our operations. At September 30, 2023, we were in compliance with all of our debt covenants.

We believe that cash on hand and cash generated from operations, together with availability under our 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.

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Commitments and Contractual Obligations

A summary of future material cash payments resulting from commitments and contractual obligations was provided in our 2022 Annual Report. During the three months ended September 30, 2023, there were no material changes outside of the ordinary course of business to our commitments and contractual obligations.

OFF-BALANCE SHEET ARRANGEMENTS

At September 30, 2023, we had no off-balance sheet financing arrangements other than unconditional purchase obligations incurred in the ordinary course of business and outstanding letters of credit related to various insurance programs, as noted in our 2022 Annual Report.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no changes to the Critical Accounting Policies and Estimates disclosed in Part II, Item 7 of our 2022 Annual Report.

NEW ACCOUNTING STANDARDS

There were no new accounting standards adopted during the three months ended September 30, 2023, see Note 2, New Accounting Standards.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this Form 10-Q contains some forward-looking statements that are based on management’s beliefs and assumptions, current expectations, estimates and forecasts. We also provide forward-looking statements in other materials we release to the public, as well as oral forward-looking statements. Such statements provide our current expectations or forecasts of future events. They do not relate strictly to historical or current facts. We have attempted, wherever possible, to identify forward-looking statements by using words such as “plan,” “expect,” “believe,” “intend,” “will,” “estimate,” “continue” and other words of similar meaning in conjunction with, among other things, discussions of future operations and financial performance, as well as our strategy for growth, product development, market position and expenditures. All statements that address operating performance or events or developments that we expect or anticipate will occur in the future - including statements relating to sales and earnings per share growth, cash flows or uses, and statements expressing views about future operating results - are forward-looking statements.

Forward-looking statements are based on current expectations of future events. The forward-looking statements are, and will be, based on management’s then-current views and assumptions regarding future events and operating performance, and speak only as of their dates. Investors should realize that, if underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results could vary materially from our expectations and projections. Investors are therefore cautioned not to place undue reliance on any forward-looking statements.

The following are some important factors that could cause our actual results to differ from our expectations in any forward-looking statements:

sales demand and our ability to meet that demand;
competition from other providers in our businesses, including customers’ in-house operations, and from lower-cost producers in emerging markets, which can impact unit volume, price and profitability;
customers’ changing inventory requirements and manufacturing plans that alter existing orders or ordering patterns for the products we supply to them;
interruptions or weaknesses in our supply chain, including from reasons beyond our control such as extreme weather, longer-term climate changes, natural disasters, pandemic, war, accidental damage, or

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unauthorized access to our or our customers’ information and systems, which could cause delivery delays or restrict the availability of raw materials, key purchased components and finished products;

the timing, regulatory approval and commercial success of customer products that incorporate our products and systems;
whether customers agree to incorporate our products and delivery systems with their new and existing drug products, the ultimate timing and successful commercialization of those products and systems, which involves substantial evaluations of the functional, operational, clinical and economic viability of our products, and the rate, timing and success of regulatory approval for the drug products that incorporate our components and systems;
the timely and adequate availability of filling capacity, which is essential to conducting definitive stability trials and the timing of first commercialization of customers’ products in Crystal Zenith prefilled syringes;
profitability, or mix, of the products sold in any reporting period, including lower-than-expected sales growth of our high-value proprietary product offerings;
maintaining or improving production efficiencies and overhead absorption;
dependence on third-party suppliers and partners, some of which are single-source suppliers of critical materials and products, including our Japanese partner and affiliate, Daikyo;
the loss of key personnel or highly-skilled employees;
the availability and cost of skilled employees required to meet increased production, managerial, research and other needs, including professional employees and persons employed under collective bargaining agreements;
the successful and timely implementation of price increases necessary to offset rising production costs, including raw material prices, particularly petroleum-based raw materials;
the cost and progress of development, regulatory approval and marketing of new products;
our ability to obtain and maintain licenses in any jurisdiction in which we do business;
the relative strength of USD in relation to other currencies, particularly the Euro, SGD, the Danish Krone, Yen, Colombian Peso, Brazilian Real, and the South Korean Won; and
the potential adverse effects of global healthcare legislation on customer demand, product pricing and profitability.

This list sets forth many, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements. Investors should understand that it is not possible to predict or identify all of the factors and should not consider this list to be a complete statement of all potential risks and uncertainties. For further discussion of these and other factors, see the risk factors disclosed in Part I, Item 1A of our 2022 Annual Report as well as Part II, section 1A of this quarterly report.

Except as required by law or regulation, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

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